Share Wealth

Year End :2024-03

The Board of Directors (“Board”) are pleased to present the Twenty-Ninth Annual Report of the AU Small Finance Bank Limited (“Bank”) covering business and operations together with the Audited Financial Statements and Independent Auditors' Report for the financial year ended March 31, 2024.

A. Financial Summary & Highlights

The summary of the financial performance of the Bank for FY 2023-24 is presented below:

(Rs. in Crore)
Particulars	March 31, 2024	March 31, 2023
Total Income	12,300.61	9,239.87
Interest Income	10,554.72	8,205.41
Other Income	1,745.89	1,034.46
Interest Expenditure	5,397.63	3,780.13
Operating Expenses (excluding depreciation)	4,239.36	3,254.84
Profit before Depreciation, Provisions and Tax	2,663.62	2,204.90
Depreciation	225.44	185.42
Provision for Income Tax	464.71	436.71
Other Provisions and Write-offs	438.75	154.84
Net Profit	1,534.72	1,427.93
Appropriations
Transfer to Statutory Reserve	383.68	356.98
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961	130.00	115.00
Transfer to Capital Reserve	7.32	2.52
Transfer to Investment Reserve Account	8.77	-
Transfer to Investment Fluctuation Reserve	52.50	17.20
Dividend pertaining to previous year paid during the year	66.70	31.51
Dividend (in 1) (Per Equity Share)	1	1
Surplus carried over to Balance Sheet	5,172.88	4,287.14
Earnings Per Share (EPS) (in K) (After excluding Exceptional Items not annualised)
Basic (in K)	22.98	21.86
Diluted (in K)	22.86	21.74

Key Performance Highlights

The Bank witnessed growth and consistent performance in FY 2023-24. The key financial performance

indicators for the year are as follows:

•    Net Interest Income (NII) grew to 15,157.09 Crore for FY-2023-24 vis-a-vis 14,425.28 Crore for FY 2022-23 registering YoY growth of 16.54%.

•    Net Profit After Tax increased to 11,534.72 Crore for FY 2023-24 (post considering pre-tax exceptional impact of 176.80 Crore in Q4 FY2024 towards Fincare merger related expense) vis-a-vis 11,427.93 Crore for FY 2022-23 registering YoY growth of 7.48%.

•    Balance sheet size grew to 11,09,425.67 Crore as on March 31, 2024 vis-a-vis 190,216.12 Crore as on March 31, 2023 registering YoY growth of 21.29%.

•    Deposits grew to 187,182.12 Crore reflecting YoY growth of 25.69% and CASA ratio stood at 33.41% as on March 31, 2024 against 38.43% as on March 31, 2023.

•    Gross Advance grew to 173,999.07 Crore reflecting YoY growth of 25.09% and Credit to Deposit ratio stood at 83.92% as on March 31, 2024 against 84.22% as on March 31, 2023.

• Gross NPA and Net NPA ratio stood at 1.67% and 0.55% as on March 31, 2024 vis-a-vis 1.66% and 0.42% as on March 31, 2023.

Analysis of Bank's performance is covered in Management Discussion & Analysis section of the Annual Report.

B.    Business Overview

Amidst a challenging global macroeconomic environment, the Indian economy is exhibiting a quickening growth momentum, with resilience and financial stability. Despite facing certain headwinds such as inflationary pressures and geopolitical uncertainties, the Indian economy remains on a positive trajectory, positioning itself as a key player in the global economic landscape. With a prudent fiscal policy and a conducive business environment, India is poised to sustain its growth momentum and solidify its position as a major economic force in the years to come. The government's initiatives to boost manufacturing, infrastructure development, and digital transformation have propelled the economy forward, attracting both domestic and foreign investment.

The financial sector played a crucial role in supporting this growth, contributing to overall economic stability and development. The optimistic economic environment presents ample opportunities for small finance banks in India to contribute to financial inclusion and economic development.

With a stable GDP growth rate, controlled inflation, and a strong focus on infrastructural development, India remains a key player in the global economic landscape. The Indian economy demonstrated resilience, achieving 8.2% annual average real GDP growth rate in the past three years. Market expect growth dynamics to continue to play out in the medium term, with GDP expanding close to 7.0% annually over the next three years. GDP growth is supported by healthy demographics and competitive unit labor costs. Additionally, India's corporate and financial sectors have stronger balance sheets than before the pandemic. These figures highlight the Indian economy's resilience and positive trajectory during the specified period.

During the financial year 2023-24, the Bank demonstrated consistent resilience and steady growth amidst a challenging economic environment marked by persistent interest rate pressures, tight liquidity conditions, and uncertain global macro trends. The Bank exhibited robust performance across key metrics, including asset and deposit growth, profitability, and digital products for higher engagement with Customers. Noteworthy highlights include the successful launch of innovative banking products like AU IVY' and 'Planet First', along with strategic initiatives such as the 'Soch Badlo aur Bank Bhi' brand campaign and the merger with Fincare Small Finance Bank ("Fincare SFB”). The bank remained focused on sustainable growth, leveraging its strong regulatory compliance framework, technological investments, and strategic partnerships to fortify its position in the market and deliver consistent returns to stakeholders.

The Bank is delighted to inform that following the successful merger as on April 01, 2024, the Bank has evolved into a formidable banking franchise, greatly expanding its reach to over 1.10 Crore customers across 21 States & 4 Union Territories. With a network of 2,383 Banking touchpoints, the Bank is committed to provide top notch services through a dedicated workforce of 46,000+ employees. This merger has paved a way for the Bank to extend its presence into South India, significantly broadening its distribution network. This increased footprint of Branches and touchpoints will enhance Bank's ability to provide diverse range of products and services to a larger customer base, solidifying its market position and helping to realise its aspirations of PAN India Banking franchise.

The key business developments and segment-wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

C.    Update on the Amalgamation of Fincare Small Finance Bank Limited with the Bank

The scheme of amalgamation of Fincare Small Finance Bank Limited (“Fincare SFB”) (“Transferor Bank”) into and with the AU Small Finance Bank Limited (“Transferee Bank” or the “Bank”) (“the Amalgamation Scheme”) was approved by the Board of Directors of the Transferor Bank & Transferee Bank on October 29, 2023 in accordance with Section 44A of the Banking Regulation Act, 1949 and, Reserve Bank of India (Amalgamation of Private Sector Banks) Directions, 2016 subject to approval of shareholders of both the Transferor Bank and Transferee Bank, Reserve Bank of India (“RBI”) and Competition Commission of India (“CCI”).

The Amalgamation Scheme was approved by the shareholders of the Transferor Bank and Transferee Bank at their respective Extraordinary General Meetings held on November 24, 2023 and November 27, 2023.

Thereafter, the Amalgamation Scheme was subsequently approved by CCI on January 23, 2024 and the RBI through its press release and order dated March 04, 2024, granted its sanction to the same with effect from April 01, 2024 (“Effective Date”).

Further, the Board of the Bank declared the effectiveness of the Scheme of Amalgamation marking all Fincare SFB branches to operate as branches of the Bank with effect from April 01, 2024. The shareholders of Fincare SFB received 579 equity shares of the Bank in exchange for every 2,000 equity shares of I 10 each, fully paid up in Fincare SFB (“Share Exchange Ratio”). Furthermore, all employees of Fincare SFB transitioned to the Bank's team seamlessly.

This Amalgamation is set to create a strong and diversified retail banking franchise with a wide reach across India and will enhance Bank's portfolio with microfinance, mortgages, and gold loans, while leveraging Fincare SFB's rural distribution network and Bank's digital capabilities. The combined entity aims to achieve synergies in deposits, technology, and efficiency, ultimately benefiting key financial metrics. Additionally, both Banks prioritise a positive workplace culture, seeing it as crucial to the success of the merger.

The Bank takes this opportunity to thank its shareholders for voting in favour of the said amalgamation and for reposing your trust in the Bank and its management.

Further details regarding the amalgamation are covered in Management Discussion & Analysis section of the Annual Report.

D.    Dividend

Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) and RBI guidelines, the Bank has formulated and adopted a Dividend Distribution Policy. This policy aims to strike a balance between rewarding our shareholders by distributing a portion of profits whilst ensuring that adequate funds are retained for the sustainable growth of the Bank. The same can be viewed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

In line with the aforementioned policy and considering the Bank's financial performance during the FY 202324, the Board at its meeting held on April 24, 2024 recommended a dividend of 10% (I 1 per fully paid-up Equity Share of I 10 each) for the year ended March 31, 2024. This recommendation will be placed before the shareholders for approval at the upcoming Annual General Meeting (“AGM”) of the Bank.

In terms of the provisions of the Income Tax Act, 1961, the dividend income is taxable in the hands of the members and the dividend will be paid to the members by the Bank after deduction of tax at source ('TDS') at the applicable rates.

E.    Credit Rating

The details of credit rating assigned to the Bank for debt instruments issued and outstanding as on March 31, 2024 along with outlook is given below:

Nature of Debt Instrument	Nature of Term	CRISIL	India Ratings	CARE
Fixed Deposits	Long-Term	CRISIL AA+/Stable	-	-
Long-Term/ Subordinated Debt/ Tier II Bond	Long-Term	CRISIL AA/Stable	IND AA/Stable	CARE AA/Stable
Certificate of Deposits	Short-Term	CRISIL A1+	IND A1+	CARE A1+

Note:

•    The CRISIL have reaffirmed the above credit ratings of the Bank on July 21, 2023 and Nov 7, 2023

•    The India Ratings have reaffirmed the above credit ratings of the Bank on July 20, 2023, Mar 05, 2024 and Mar 19, 2024

•    The CARE have reaffirmed the above credit ratings of the Bank on Apr 05, 2023, Oct 3, 2023 and Mar 15, 2024.

•    The above rating details can be accessed on the website of the Bank at https://www.aubank.in/credit-ratina

Credit rating for debt instruments of Fincare SFB, transferred to the Bank pursuant to Amalgamation effective from April 01, 2024:

Nature of Debt Instrument	Nature of Term	India Ratings	CARE	ICRA
Long-Term/ Subordinated Debt/ Tier II Bond	Long-Term	IND AA/Stable	CARE AA/ Stable	[ICRA] AA/ Stable

*Post Amalgamation, all NCDs of Fincare Small Finance Bank have been transferred to AU Small Finance Bank, accordingly ratings have been upgraded by India Ratings and CARE on April 10, 2024 and by ICRA Limited on May 17, 2024.

F.    Change in Nature of Business

During the year under review, there were no changes in the nature of business of the Bank.

G.    Transfer to Reserves

In consonance with the RBI regulations and other applicable regulations, the Bank has proposed to transfer the following amounts to various reserves for the financial year ended March 31, 2024 as mentioned below:

Amount transferred to	Amount (1 in Crore)
Statutory Reserve	383.68
Transfer to Special Reserve U/s 36 (1) (viii)	130.00
Transfer to Capital Reserve	7.32
Transfer to Investment Reserve Account	8.77
Transfer to Investment Fluctuation Reserve	52.50

During the year under review, no amount was transferred to general reserves by the Bank.

H.    Transfer to the Investor Education and Protection Fund (“IEPF”)

In accordance with Section 124 and 125 of the Companies Act, 2013 (“Act”) read with the Investor Education and Protection Fund (“IEPF”) Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (as amended from time to time), all the equity shares of the Bank in respect of which dividend amounts have not been paid or claimed by the shareholders for seven consecutive years or more are required to be transferred to demat account of IEPF Authority. There was no unclaimed/unpaid dividend or shares of the Bank liable to be transferred to the IEPF during the FY 2023-24.

Further, details of the unclaimed/un-encashed dividends lying in the unpaid dividend accounts as on end of the financial year are available on website of the Bank at https://www.aubank.in/reports/disclosures.

I.    Deposits

As a Banking company, we are not subject to disclosures pertaining to deposits as required under Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Act and the Companies (Acceptance of Deposits) Rules, 2014. The details of the deposits received and accepted by the Bank as a Banking company have been disclosed in the financial statements for the financial year ended March 31, 2024 forming part of this Annual Report for FY 2023-24.

J.    Capital Structure & Fund Raising

Authorised Share Capital

During the period under review, there was no change in the Authorised Share Capital of the Bank and as on March 31, 2024, the Authorised Share Capital of the Bank stood at H 1,200 Crore comprising of 1,20,00,00,000 equity shares of 110 each.

Paid-up Capital

During the period under review, the Bank allotted 24,17,396 equity shares of face value of 110 each pursuant to exercise of Employee Stock Options (ESOPs) under different ESOP Schemes. Consequently, the total issued, subscribed and paid-up equity share capital of the Bank increased by 12.42 Crore to 1669.16 Crore as on March 31, 2024 comprising of 66,91,62,451 equity shares of 110 each.

Allotment pursuant to the Scheme of Amalgamation of Fincare SFB with and into the Bank

In accordance with the Scheme of Amalgamation of Fincare SFB with and into the Bank, 7,35,25,352 equity shares of face value of 110 each were issued and allotted to the shareholders of erstwhile Fincare SFB on April 01, 2024. Following this allotment, the total issued, subscribed and paid-up equity share capital of the Bank stood at 1742.69 Crore comprising of 74,26,87,803 equity shares of 110 each.

Non-convertible Debentures (“NCDs”)

During the year, the Bank has not issued any capital under Tier II and total outstanding NCDs stood at 11,000 Crore as on March 31, 2024.

Details of outstanding NCDs as on March 31, 2024 are as follows:

Sr. No.	ISIN	Series	Amount (K in Crore)		Date of Issue	Date of Allotment	Date of Maturity
1.	INE949L08418	-		500	April 26, 2018	November 30, 2018 May 30, 2025
2.	INE949L08442	Series I Debentures		350	July 29, 2022	August 03, 2022	August 03, 2032
3.	INE949L08434	Series II Debentures		100	July 29, 2022	August 03, 2022	August 13, 2032
4.	INE949L08426	Series III Debentures		50	July 29, 2022	August 03, 2022	August 23, 2032
Details of Non-Convertible Debentures of Fincare SFB, transferred to the Bank pursuant to Amalgamation effective from April 01, 2024 are as follows:
Sr. No.	ISIN*	Amount (J in Crore)		Date of Issue**		Date of Allotment	Date of Maturity
1.	INE519Q08145		37	February 21, 2018		March 20, 2018	June 20, 2024
2.	INE519Q08137		38	February 21, 2018		March 22, 2018	June 22, 2024
3.	INE519Q08152		100	September 26, 2019 September 30, 2019 September 30, 2025
4.	INE519Q08160		49	February 20, 2023		June 15, 2023	December 15, 2028
5.	INE519Q08178		75	February 20, 2023		July 05, 2023	January 05, 2029
6.	INE519Q08186		50	June 23, 2023		August 09, 2023	February 09, 2029
7.	INE519Q08194		60	June 23, 2023		August 23, 2023	February 23, 2029

*Above ISINs are listed under the name of AU Small Finance Bank w.e.f. April 12, 2024 and the notification issued by BSE in this regard can be accessed athttos://www.bseindia.com/markets/MarketInfo/DisoNewNoticesCirculars.asox?oaae=20240409-4 **Date of issue is the date on which issue was approved by Board of Directors of Fincare Small Finance Bank.

K. Employee Stock Option Schemes

The Bank has formulated different Employee Stock Option Schemes (“Schemes”), with the approval of shareholders of the Bank and these Schemes are designed in compliance with the SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021, as amended from time to time to allow the Bank's employees to have a share in the Bank's future growth and financial success.

At AU Small Finance Bank, employee engagement and loyalty is prioritised and it leads to increased productivity and overall job satisfaction. By offering the employees a sense of ownership and pride in their work, Bank aims to drive long-term success.

The grant of Options to employees under these Schemes is approved by the Nomination and Remuneration Committee (“NRC”), in alignment with the Bank's Compensation Policy. This process occurs during the Annual Performance Review and at the time of hiring, basis various factors such as scale, designation, performance, grades, period of service, role significance, and contribution to the Bank's overall performance when determining the number of options to be granted.

Presently, following are the Employee Stock Option Schemes in force:

•    Employee    Stock Option    Scheme 2015    - Plan A (ESOP 2015 - Plan A)

•    Employee    Stock Option    Scheme 2015    - Plan B (ESOP 2015 - Plan B)

•    Employee    Stock Option    Scheme 2016    - (ESOP 2016)

•    Employee Stock    Option Scheme    2018 - (ESOP 2018)

•    Employee Stock    Option Scheme    2020 - (ESOP 2020)

•    Employee Stock    Option Scheme    2023 - (ESOP 2023)

The details of vesting of various schemes are as follows:

ESOP Scheme & Plan	Vesting Period	% of vesting of options
ESOP 2015 - Plan A	1 year from the date of grant or at the time of IPO whichever is later	20%
	Expiry of 1 year from 1st vesting	30%
	Expiry of 2 years from 1st vesting	50%
	Total	100%
ESOP 2015 - Plan B	1 year from the date of grant or at the time of IPO whichever is later	20%
	Expiry of 1 year from 1st vesting	30%
	Expiry of 2 years from 1st vesting	50%
	Total	100%
ESOP 2016	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%
ESOP 2018	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%
ESOP 2020	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%
ESOP 2023	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%

Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018, ESOP 2020 and ESOP 2023. The term of vesting is also mentioned as per terms of grant approved by NRC in the grant letter issued to employees and NRC is empowered to change the vesting period in case of corporate action such as Amalgamation.

The Brief Details of Existing ESOP Schemes as on March 31, 2024 is given below:

Particulars	ESOP 2015 - Plan A	ESOP 2015 - Plan B	ESOP 2016	ESOP 2018	ESOP 2020	ESOP 2023
Date of Shareholders Approval	31-Aug-15	31-Aug-15	10-Oct-16	07-Aug-18	23-Dec-20	30-Apr-23
Total Number of Options approved	38,75,483	50,93,437	31,71,733	80,60,529	99,96,200	2,00,00,000
Total Number of options outstanding at the Beginning of the period @	0	85,000	18,51,752	44,02,476	78,07,595	0
Total No. of Options granted (during FY 2023-24)	0	1,34,000	43,386	1,21,585	22,41,169	39,18,118
The Pricing Formula	H10.11 per	H16.69 per	Market price	Market price	Market price	Market price
	share	share (H33.37 per share prior to Bonus)	linked#	linked	linked	linked
Options Vested (during FY 2023-24)	0	20,200	5,63,590	17,25,484	15,63,062	0
Options Exercised & allotted (during FY 2023-24)	0	6,200	4,59,452	16,08,021	3,43,723	0
Total No of shares arising as a result of exercise of option	0	6,200	4,59,452	16,08,021	3,43,723	0
Options lapsed/ Forfeited (during FY 2023-24) (Available for re-issue)@	0	16,000	45,968	1,15,007	5,13,363	1,51,074
Total No. of options exercisable at the end of the year@	0	30,000	7,13,850	20,42,988	17,55,839	0

Particulars	ESOP 2015 - Plan A	ESOP 2015 - Plan B	ESOP 2016 ESOP 2018	ESOP 2020	ESOP 2023
Total No of options outstanding at the end of the year@	0	1,96,800	13,89,718 28,01,033	91,91,678	37,67,044
Variation in terms of options		There is no variation in terms of options during the year
Money realised by exercise of Options during FY (in H)	0.00	1,03,478.00	12,00,01,755.50 52,71,71,345.50	19,10,75,619.00	0
Total No of Options granted to KMPs			Please refer Note 1
Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year	Nil	Nil	Nil Nil	Nil	Nil
Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant	Nil	Nil	Nil Nil	Nil	Nil
Diluted Earnings Per Share (EPS) of the Company after considering the effect of potential equity shares on account of exercise of Options			Refer Note 2
Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS			Refer Note 2
Weighted average share/ exercise price of the shares exercised during the year (in H)		16.69	261.18 327.84	555.90
Weighted average fair values of the outstanding options (in H)	Please refer point no. 26 of B. Other Disclosures of Schedule 18 of Notes to accounts to Audited Financial Results for FY 2023-24

@ In terms of SEBI circular dated June 15, 2021 regarding relaxation from the requirement of minimum vesting period in case of death of employee(s) and provisions of the SEBI (Share-Based Employee Benefit and Sweat Equity) Regulations, 2021, options granted to employees who have demised, have been vested in the legal heirs or nominees of the deceased employees immediately. The numbers given above include the options vested in legal heirs/nominees of deceased employees.

# Pricing for ESOP Scheme 2016 was changed from fixed price of H140 to market linked price with the approval of shareholders obtained in the Annual General Meeting held on July 19, 2019.

Note 1
Sr ..' Name of Official No.	Designation	Number of Options Granted in ESOP 2020
1 Uttam Tibrewal	Whole-Time Director	@
2 Vimal Jain	Chief Financial Officer	18,817
3 Manmohan Parnami	Company Secretary	11,668
Grand Total		30,485

@ Variable Pay (Performance bonus) of Mr. Uttam Tibrewal, WTD in the form of ESOPs amounting to H 1.21 Crore has been approved by RBI for FY 2022-23, in respect of which 38,387 ESOPs have been granted under ESOP 2023 by the Nomination & Remuneration Committee of the Bank on June 26, 2024.

Note 2

The Securities and Exchange Board of India (“SEBI”) has prescribed two methods to account for stock grants: namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options grants to the employees. Further, the Bank calculates the fair value of options at the time of grant using Black- Scholes pricing model for Whole-Time Directors, Chief Executive Officers/Material Risk Takers and Control Function staff as per RBI guidelines dated November 04, 2019 with the following assumptions:

Particulars		March 31, 2024
Risk free interest rate		7.06%-7.19%
Expected life		3 Year- 5.5 Year
Expected volatility		39.85%-41.61%
Expected dividends		0.09%-0.11%
Had the Bank used the fair value model to determine the compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:
		(H in Crore)
Particulars	Year ended March 31, 2024	Year ended March 31, 2023
Profit after tax as reported	1,534.72	1,427.93
Add: ESOP Expense already booked (net of tax)	22.71	15.53
Less: ESOP cost using fair value method (net of tax)	111.93	77.62
Profit after tax (adjusted)	1,445.50	1,365.84
Earnings Per Share
Basic
- As reported	22.98	21.86
- Adjusted for ESOP cost using fair value method	21.64	20.91
Diluted
- As reported	22.86	21.74
- Adjusted for ESOP cost using fair value method	21.53	20.79
(H in Crore)
Particulars	As on March 31, 2024	As on March 31, 2023
Stock options outstanding (gross)	274.06	229.16
Deferred compensation cost outstanding	45.17	30.67
Stock options outstanding (net)	228.89	198.49

In accordance with SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021, as amended, necessary disclosures are made in Schedule 18 - Notes forming part of the financial statements for FY 2023-24 and are included in the annual report and also disclosed on the website of the Bank at https://www.aubank.in/reports/disclosures.

L. Details of Board of Director’s and Key Managerial Personnel

The composition of the Board is regulated by a combination of the provisions of the Act, the Banking Regulation Act, 1949 (“BR Act ”), the Listing Regulations and other applicable laws, and the Articles of Association of the Bank. As of March 31, 2024, the Board consisted of 9 Directors, including 7 Independent Directors and 2 Executive Directors.

During the FY 2023-24 and after the end of financial year up to the date of this report, following changes took place in the Board of Directors and Key Managerial Personnel of the Bank:

Appointments

1.    Ms. Kavita Venugopal (DIN: 07551521) was appointed as an Additional Director (Non-Executive Independent) of the Bank to hold office for a period of 3 years with effect from March 29, 2023 up to March 28, 2026 considering her vast experience, specialised knowledge and skill set. Further, shareholders vide resolution passed through postal ballot on April 30, 2023 approved her appointment as an Independent Director (Non-Executive) with effect from March 29, 2023.

2.    Mr. Harun Rasid Khan, Independent Director (Non-Executive) (DIN:07456806) was appointed as Part-Time Chairman of the Bank, to hold office for a period of 3 years with effect from January 30, 2024 till December 27, 2024. Further, shareholders vide resolution passed through postal ballot on January 26, 2024 approved his appointment as Part Time Chairman with effect from January 30, 2024. RBI approved appointment of Mr. Harun Rasid Khan as Part-Time Chairman of the Bank.

3.    Mr. Divya Sehgal (DIN: 01775308) was appointed as an Additional Director (Non-Executive Non-Independent) of the Bank to hold office for a period of 3 years with effect from April 01, 2024 up to March 31, 2027 and he shall not be liable to retire by rotation. Further, shareholders vide resolution passed through postal ballot dated May 30, 2024 approved his appointment as Non-Executive and Non-Independent Director with effect from April 01, 2024. This appointment has been made in accordance with the key terms & conditions of the Scheme of Amalgamation of Fincare SFB into and with the Bank.

4.    Mr. Uttam Tibrewal (DIN: 01024940), Whole-Time Director was re-designated as “Whole-Time Director & Deputy CEO” of the Bank with effect from April 01, 2024 as a part of key terms & conditions of the Scheme of Amalgamation of Fincare SFB into and with the Bank.

Re-appointments

5.    The RBI approved the re-appointment of Mr. Sanjay Agarwal (DIN: 00009526) as Managing Director & CEO (“MD & CEO”) and Mr. Uttam Tibrewal (DIN: 01024940) as Whole-Time Director (“WTD”) of the Bank for a further period of 3 years from April 19, 2023 to April 18, 2026.

6.    In accordance with the provisions of Section 152 of the Act, Mr. Uttam Tibrewal, Whole-Time Director retired by rotation at the previous AGM and shareholders approved his re-appointment. Further, Mr. Sanjay Agarwal, Managing Director & CEO of the Bank shall retire by rotation at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment.

Completion of Tenure

7.    Mr. Raj Vikash Verma (DIN: 03546341) ceased to be the Part Time Chairman and Independent Director of the Bank from the close of business hours on January 29, 2024 on completion of his tenure. The Board extends its sincere appreciation to Mr. Raj Vikash Verma for his outstanding leadership and valuable insights during his tenure with the Bank and expresses gratitude for his guidance and wisdom and wish him continued success in all his future endeavours.

During the year, except as aforesaid, no other change took place in the Board of Directors or in Key

Managerial Personnel of the Bank. The composition of the Board of Directors and Key Managerial

Personnel of the Bank is in compliance with the applicable regulatory norms.

Further, none of the directors have been debarred from holding office as director by virtue of any order

of the SEBI or any other authority.

Others

8.    Mr. Rajeev Yadav was appointed as Deputy CEO and categorised as Senior Management Personnel (“SMP”) of the Bank w.e.f. April 01, 2024 as a part of key terms & conditions of the Scheme of Amalgamation of Fincare SFB into and with the Bank.

M. Code of Conduct for Directors and SMPs

Pursuant to Regulation 17(5) of Listing Regulations, the Bank has implemented a Code of Conduct for

Directors and Senior Management Personnel (SMPs). This code outlines the fundamental principles for

ethical and transparent behaviour by the Directors and SMPs of the Bank to further promote fairness and orderliness within the organisation. All Directors and SMPs have affirmed their adherence to the code for the FY 2023-24 and a declaration by the MD & CEO to this effect forms part of Report on Corporate Governance annexed with Board's Report as Annexure-I. The Bank's Code of Conduct for Directors and SMPs can be accessed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

N.    Number of Meetings of Board

Throughout the period under review, a total of eleven (11) Board Meetings were convened, with none exceeding the mandated 120-day interval as per the provisions of the Act read with Rules made thereunder, Secretarial Standard-I issued by the Institute of Company Secretaries of India, and Listing Regulations. The dates of these meetings, along with attendance details for each Director, have been comprehensively disclosed in the Report on Corporate Governance annexed as Annexure-I to the Board's Report.

O.    Committees of the Board

The Bank recognises the significance of Board Committees in fostering strong Corporate Governance practices. Accordingly, the Bank has constituted various Board Committees to enhance the effectiveness & efficiency of the Board and assist in decision-making processes. These Committees have been formed in compliance of provisions of the Act and relevant rules made thereunder, Listing Regulations, BR Act, RBI Circular & Guidelines, Articles of Association of the Bank and other pertinent guidelines issued from time to time.

I n addition, as part of the Amalgamation process of Fincare SFB with and into the Bank, the Board of Directors approved constitution of Committee of Independent Directors on October 29, 2023. This Committee was tasked with reviewing various reports, including valuation reports, due diligence reports, and other relevant documents/certificates, in order to recommend a draft Scheme of Amalgamation. The primary goal of this Committee was to ensure that the proposed scheme is in the best interest of the Bank's shareholders.

Subsequently, the Committee was dissolved post submission of its report to the Board on October 29, 2023.

Additionally, in view of completion of tenure of Mr. Raj Vikash Verma as Part Time Chairman and Independent Directors on the Board from January 29, 2024 (closure of business hours) and appointment of Mr. Harun Rasid Khan as Part Time Chairman w.e.f. January 30, 2024, the Board of Directors at its meeting held on January 25, 2024 have approved the revised composition of Board Committees effective from January 30, 2024. The details of the Board Committees of the Bank including, re-constitution, their terms of reference, number & date of meetings held during FY 2023-24 and attendance thereof are disclosed in the Report on Corporate Governance annexed with Board's Report as Annexure-I.

P.    Meeting of Independent Directors

As per the requirement of Section 149(8) read with Schedule IV of the Act and Regulation 25 of the Listing Regulations, a meeting of the Independent Directors of the Bank is required to be held at least once a year in absence of non-independent directors and members of the management.

During the year under review, 1 (one) meeting of Independent Directors of the Bank was convened on April 24, 2023 which was chaired by Mr. Raj Vikash Verma and attended by all the Independent Directors and various matters were discussed & reviewed at the meeting inter alia covering:

•    Action taken report of previous meeting of Independent Directors.

•    Performance of Non-Independent Directors, the Board of Directors as a whole, Chairperson of the Bank.

•    The quality, quantity, and timeliness of flow of information between the management of the Bank and the Board of Directors that is necessary for the Board of Directors to effectively and reasonably perform their duties.

•    Whether adequate time is spent by the Board/Committees on discussions on important issues.

•    Update on existing corporate governance practices.

Q.    Familiarisation Programme for Independent Directors

In accordance with Regulation 25(7) of the Listing Regulations and RBI guidelines, the Bank conducted various familiarisation programmes during FY 2023-24 for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank's Business, and its operations for better understanding of their responsibilities, roles, and rights for effective contribution in sustainable growth of the Bank.

The Details of familiarisation programme and other sessions organised for Independent Directors during FY 2023-24 is disclosed in the Report on Corporate Governance annexed with Board's Report as Annexure-I and on the website of the Bank under https://www.aubank.in/investors/secretarial-policies.

R.    Declaration of Independence

In accordance with provisions of Sections 149(6) and 149(7) of the Act, Schedule IV and Regulation 16(1)(b) and 25(8) of the Listing Regulations, the Bank has received necessary declarations/disclosures from all the Independent Directors confirming that they meet and comply with the criteria of independence. The Independent Directors have also complied with the Code for Independent Directors as prescribed in Schedule IV to the Act.

Pursuant to the Companies (Creation and Maintenance of Databank of Independent Directors) Rules, 2019 read in conjunction with the Companies (Appointment and Qualifications of Directors) Rules, 2014, the Independent Directors of the Bank have successfully registered their names in the online databank of Independent Directors maintained & administered by the Indian Institute of Corporate Affairs (“IICA”). The Independent Directors have also confirmed that they were not aware of any circumstance or situation which existed or may be reasonably anticipated, that could impair or impact their ability to discharge their duties with an objective independent judgement and without any external influence.

I n the opinion of Board, the Independent Directors possesses requisite domain knowledge, experience, expertise, integrity, and proficiency as required under the Code applicable for Independent Directors as stipulated under Schedule IV of the Act and in terms of policies of the Bank.

S.    Compensation Policy for appointment and remuneration of Director’s, Key Managerial Personnel, Senior Management Personnel, Material Risk Takers (MRTs) and Control Function Staff

The Bank has formulated and adopted a comprehensive Compensation Policy for appointment and remuneration of its Directors, Key Managerial Personnel (“KMP”), Senior Management Personnel (“SMP”), Material Risk Takers (“MRT”) and Control Function Staff on the recommendation of the NRC, in compliance with the provisions of Section 178(3) of the Act read with relevant rules made thereunder, Listing Regulations and RBI guidelines.

The policy governs the appointment and remuneration of Directors (including Independent Directors), KMP, SMP, MRTs and Control Function staff as applicable in accordance with the criteria established by the NRC of the Board as mandated by the Act and applicable Rules, Listing Regulations, and other relevant guidelines.

Key objectives of the policy include establishing standards for compensation, including fixed and variable pay, retaining and motivating talent, defining internal guidelines for reimbursement to Directors and KMPs, institutionalising a mechanism for appointment/removal/evaluation of performance of Directors, administering ESOP as per SEBI regulations and ensuring compliance with applicable laws, rules, and regulations as well as 'Fit and Proper criteria' of directors for their appointment.

The policy undergoes regular review by the Board of Directors in addition to the other amendments that may be required in the policy and is hosted on the Bank's website https://www.aubank.in/investors/ secretarial-policies.

The terms of reference of the NRC and Compensation Policy are detailed in Report on Corporate Governance annexed with Board's Report as Annexure-I.

T.    Evaluation of the Directors, the Board and Committees

The evaluation of Board performance is a crucial exercise for organisations to gauge the effectiveness of their governing bodies. By assessing both individual Board members and the Board as a whole, Bank can identify strengths, weaknesses, and areas for improvement. This evaluation is essential to ensure that the Board is operating effectively in alignment with the organisation's strategic objectives.

The provisions of Section 149(8) read with Schedule IV, Section 178(2) of the Act, Regulation 17 and other applicable Regulations of the Listing Regulations, and Guidance Note on Board Evaluation issued by the SEBI, mandates the performance evaluation of the Board, its committees, individual directors and the Chairperson of the Bank on the basis of various parameters with the aim to improve the effectiveness of the individual Director, Committees and the Board.

The Bank has established a structured process for Board performance evaluation which is conducted annually. The NRC reviews and approves the criteria and the mechanism for carrying out this exercise effectively.

Details regarding the Board performance evaluation carried out for FY 2023-24 including methodology used, its outcome and proposed recommendations for implementation in the upcoming financial year, are provided in the Report on Corporate Governance, forming part of this Board's report as Annexure-I.

U.    Statutory Auditors and their Report

In consonance with the 'Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)' dated April 27, 2021 issued by RBI, Banks are required to appoint Statutory Auditors for a continuous period of three (3) years, subject to the audit firms meeting eligibility criteria annually and obtaining RBI approval on an annual basis.

At the 26^th AGM of the Bank held on August 17, 2021, M/s. Deloitte Haskins and Sells, Chartered Accountants (Registration No. 117365W) and M/s. G. M. Kapadia & Co., Chartered Accountants (Registration No. 104767W) were appointed as Joint Statutory Auditors for a period of Three (3) years to hold office from the conclusion of the 26^th AGM till the conclusion of the ensuing 29^th AGM, subject to RBI approval on an annual basis.

M/s. Deloitte Haskins and Sells, Chartered Accountants and M/s. G. M. Kapadia & Co., Chartered Accountants, Joint Statutory Auditors of the Bank, have provided audit report on the financial statements for the FY 2023-24, with no qualifications, reservations, or adverse remarks. Further, in accordance with Section 143(12) of the Act, the auditors have not identified any instances of fraud within the bank by its officers or employees.

Further, as tenure of M/s. Deloitte Haskins and Sells, Chartered Accountants (Registration No. 117365W) and M/s. G. M. Kapadia & Co., Chartered Accountants (Registration No. 104767W) is completing at the conclusion of 29^th AGM of the Bank, the Board of Directors at its meeting held on June 27, 2024 on the recommendation of the Audit Committee has proposed the appointment of M/s. M S K A & Associates, Chartered Accountants (FRN: 105047W) and M/s. Mukund M Chitale & Co., Chartered Accountants (FRN: 106655W) as the Joint Statutory Auditors of the Bank for a period of three (3) years from the conclusion of 29^th AGM until the conclusion of 32^nd AGM of the Bank to be held in the calendar year 2027, subject to the approval of the shareholders. The Reserve Bank of India has approved the appointment of the above Joint Statutory Auditors for FY 2024-25.

The SAs have confirmed their eligibility in adherence to Section 141 of the Act and the guidelines issued by RBI from time to time. Moreover, pursuant to the relevant provisions of Listing Regulations, the SAs have also confirmed their adherence to the peer review process as mandated by the Institute of Chartered Accountants of India (“ICAI”). The SAs also possess a valid certificate issued by the Peer Review Board of ICAI, ensuring their competence and professionalism in their field.

V.    Secretarial Auditors and their Report

In compliance to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of Listing Regulations and upon recommendation of the Audit Committee, the Bank has appointed M/s. V. M. & Associates, Company Secretaries (Registration No. P1984RJ039200) to conduct Secretarial Audit of the Bank for the financial year ended March 31, 2024.

The Secretarial Auditors have not reported any instance of fraud in accordance with Section 143(12) of the Act during the year under review and their report did not contain any observation or qualification for the FY 2023-24. The Secretarial Audit Report for FY 2023-24 in form MR-3 is annexed with Board's Report as Annexure-IV.

W.    Particulars of Loans, Guarantees and Investments

Pursuant to the provisions of Section 186(11) of Act, the provisions of Section 186 of the Act except subsection (1), do not apply to loans made, guarantees given or securities provided or acquisition of securities by a Banking company in the ordinary course of business and are exempted from disclosure requirement in the Annual Report.

However, the particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements for FY 2023-24, forming part of this Annual Report, as per the applicable provisions of BR Act.

X.    Related Party Transactions

During the FY 2023-24, the Bank did not engage in any material significant transactions with related parties that could potentially create conflicts of interest between the Bank and these parties. All related party transactions conducted throughout the year were carried out at arm's length basis and in the normal course of business operations.

The Audit Committee has accorded an omnibus approval for related party transactions which are of repetitive nature and entered in the ordinary course of business. Further, the Audit Committee of the Bank reviewed details of all related party transactions entered by the Bank on quarterly basis.

As per Section 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the financial year ended March 31, 2024.

The Policy on Related Party Transactions and Materiality as approved by the Board can be accessed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

Y.    Material Changes and Commitments, if any, affecting the Financial Position of the Bank

As mentioned in the paragraph C of the Board Report, the amalgamation of Fincare Small Finance Bank with and into the Bank became effective from April 01, 2024. Further details regarding the same are covered in Management Discussion & Analysis section of the Annual Report.

Except as above, no material changes and commitments that affect the financial position of the Bank have occurred between the end of the financial year i.e. March 31, 2024 and up to the date of this Report.

Z.    Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

The Bank has consistently upheld a commitment to environment sustainability, and has proactively implemented various measures to reduce emissions footprint, including utilising digital technologies and implementing emission reduction initiatives throughout Banking operations.

(a) Conservation of Energy

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipments:

The Bank is committed to environmental sustainability and is actively reducing emissions through digital solutions and adopting low-carbon innovations, like exploring zero-carbon electricity for Banking operations. Bank has implemented a three-pronged strategy for energy conservation:-

1.    Energy Efficiency Measures

•    Encouraging green plants and gardens on Bank's premises to lower air conditioning needs and keeping temperatures at 24°C or higher.

•    Engaging in performance-based contracts for energy savings.

•    Switching to LED lights instead of traditional ones to cut down on electricity usage.

•    Using timers for signage to optimise energy usage.

•    Installing power factor systems in electrical panels for efficient electricity use and implementing power factor corrections.

2.    Technology Upgrades

•    Implementing an i-Touch manager for efficient monitoring and control of electricity usage, leading to reduced consumption.

•    Using Variable Refrigerant Volume (VRV) based Chillers to cut down on energy usage in ACs by 20% and prevent pilferage.

•    Employing insulation to minimise heat load in offices, reducing the need for excessive air conditioning.

•    Using UPS and inverters to reduce reliance on diesel generators.

3.    Renewable Energy

•    Recognising the importance of renewable energy for a cleaner future, the Bank has installed a 1 MW solar plant.

•    The solar project is situated in Gajner Site, Bikaner district, Rajasthan, and serves Jagatpura (JPO-01), Malviya Nagar, and Tonk Road offices at Jaipur, Rajasthan.

•    This project is expected to generate 16 Lacs units annually, contributing significantly to reducing carbon footprint and supporting global sustainability goals.

•    Recycling systems and supplies: The Bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards. The Bank also employs a coherent system of recycling slightly older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, the Bank successfully reduces the demand for new desktops and laptops even with the growing workforce.

Other Initiatives -

Green Building - Natural Sunlight is maximised through Green Building design in Offices to reduce reliance on artificial lighting to the extent possible.

Green building encompasses environmentally responsible and resource-efficient practices throughout a building's life cycle, from planning to demolition. It expands on traditional building concerns of economy, utility, durability, and comfort by prioritising energy, land, water, and material savings while reducing pollution and promoting harmony with nature. Bank's office at Sanpada, Mumbai, achieved a “Gold” rating in IGBC's Existing Green Interior Category, showcasing a commitment to indoor environment quality, sustainable materials, energy efficiency, water conservation, and eco-design principles. This achievement reflects the Bank's dedication to environmental responsibility and sets a standard for future branches nationwide.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

1. Digital Banking: Banking is made convenient through the digital platform, doing away with all the paperwork like cheques, pay-in slips, Demand Drafts, and so on. ~90% of Bank's deposit accounts are opened through digital platforms, with the main one being Tab Banking. Expanding its capabilities, the Bank is gradually adding end-to-end customer on-boarding journeys on this platform i.e. Micro Business Loan (MBL), Home Loan, 2-wheeler and 4-wheeler Loan, Credit Card, Insurance and Wealth Products.

Digital banking for asset products offers convenient Banking for Customers, eliminating the need for excessive paperwork and enhancing banking experience. This technological advancement allows the Bank to leverage its capabilities and streamline operations, ultimately leading to increased efficiency and faster service.

The Bank witnessed strong growth in the adoption of tab-based account opening, Android-based mobile banking, WhatsApp banking (24/7 banking solutions), and Net banking, thus minimising paper usage, reducing waste generation, and achieving improved waste management.

2.    AU 0101 App: AU 0101 App feature enables the Customers to bank from anywhere and which contributes to reducing carbon footprint; and seamless video banking enables customers to avail Banking services virtually through a video-enabled chat with branch executives, eliminating the need to travel to the branch. The 'AU0101' retail Internet and mobile banking application and platform have been successfully migrated to AWS’s private cloud, ensuring high availability, scalability, and security. Even during peak traffic periods, the system remains responsive and reliable, seamlessly meeting customer demands.

3.    Video Banking: This service helps Customers to connect with Video Bankers on real time basis at Customer's convenience from home. Customer can open account, book FD, and much more. Bank provides video banking facility with a vision to offer all its services virtually through video-enabled chat with branch executives, eliminating the need for branch visits. This initiative helped the Bank twofold in promoting digital banking and inspiring its customers to adopt a more environmentally sustainable banking channel and saving of fuel by reducing commutation challenges.

4.    Embracing E-receipts Culture: Bank encourage customers to choose electronic receipts at ATMs, then send them a detailed SMS on their most recent transaction and Bank balance to their registered mobile number to reduce paper usage. Bank also teamed up with the transport department of Haryana to automate the ticketing process, allowing for the conservation of natural resources.

5.    Automate Energy data collection: This is an application of digital technologies for energy data collection. Bank has replaced manual way of data collection from its various sites and automated data collection through ERP software.

Energy accounting and reduction have a major effect on emissions as an enabler in accelerating clean energy transitions. The system is helping the Bank to cut costs, improve efficiency and resilience, and reduce emissions.

6.    Cloud computing & storage: Cloud computing & storage is helping in modernising infrastructure, scale operations, improve resiliency, load sharing and reduced costs for the Bank.

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

The Bank delivers products and services that promote sustainable development and conduct its business in a fair and professional manner. A proper structure and process is available which facilitates incorporating risk criteria in the product development and approval process. The Bank is continuously taking various steps on the product improvement. The Bank has implemented an upgraded version of ITAM tool (IT asset management tool). This tool will manage all Bank's IT assets life cycle i.e. from procurement to scrap and disposal of asset, for pan India banking operations. Highly efficient use of technology through software helps in save time, improve efficiency, reduce costs, improve productivity, more agile and helps in information security.

Embracing the transformative power of robotics, the Bank has automated over 100 processes through Robotic Process Automation (RPA). This strategic move not only reduces manual intervention but also underscores the Bank's dedication to technological excellence and continuous improvement.

In terms of AD-1 applications, the Bank has implemented the Kondor Treasury Application to enhance financial efficiency and global connectivity. This state-of-the-art solution streamlines interbank trading processes by automating tasks, improving accuracy, and enhancing risk assessment. Additionally, Bank has enabled secure interbank transactions in USD via SWIFT. The SWIFT network ensures reliable and efficient cross-border financial transactions. Leveraging SWIFT's standardised messaging system, we have fostered international trade and facilitated seamless USD transactions.

the Bank is investing in initiatives and innovations to build a digital gateway to a sustainable lifestyle. The Bank's investments in digital technologies have simplified banking and enabled a smoother customer journey. In addition, a robust technology platform has been created by the Bank as a part of the new-age digital banking ecosystem.

III)    I n case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a)    The details of technology imported: Nil

b)    The year of import: Nil

c)    Whether the technology been fully absorbed: Nil

d)    If not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV)    Expenditure incurred on Research and Development:

Since financial services is being primarily covered under Service Sector, the details of this clause are not applicable to the Bank.

(c) Foreign Exchange Earnings and Outgo

During the financial year ended March 31, 2024, the foreign exchange earnings was I 12.44 Crore and the foreign exchange outgo was I 19.52 Crore.

AA.Risk Management

The Bank operates in an environment which is characterised by multitude of risks and constantly identifying the emerging and evolving risks is critical to ensure stability, profitability and sustainability of the Bank. The Bank further aims to balance risk and return within approved boundaries, with a focus on refining risk measurement systems for optimal performance and to safeguard stakeholders' interests.

The Bank operates a robust Enterprise Risk Management Framework to address and manage various risks evolving around Credit Risk, Market & Liquidity Risk, Operational Risk, IT and Cyber Security Risk, Compliance Risk, and other risks through a multi-layered process overseen by experienced leadership, maintaining a proactive stance to address emerging threats.

A robust and independent risk management function is essential to ensure effective risk management within a Bank. The primary objective of the Bank's risk management function is to proactively anticipate vulnerabilities at all levels, and this is achieved through detailed quantitative and qualitative analysis of the risks associated with various activities. By adopting this preemptive approach, the Bank can stay ahead of potential risks and challenges in a constantly evolving industry and regulatory landscape. This proactive preparedness ensures that the Bank is well-equipped to tackle any unforeseen issues that may arise.

The three Lines of Defence - individual business units and support functions, Risk Management and Compliance departments, and Internal Audit function - governs the Bank's risk management and provide assurance to the Board that the risks assumed by the Bank are within the risk appetite approved by the Board and the adequacy and effectiveness of the governance framework around the risks for Bank's business.

The Risk Management policies play a crucial role in the Banking sector which helps in mitigating potential risks and safeguard the financial well-being of the institution. Effective risk management policies also help to enhance the Bank's resilience in the face of unforeseen events and uncertainties and maintain longterm sustainability. The risk management framework of the Bank is guided by these policies for evaluating risks associated with the business, allowing Banks to make informed decisions and allocate resources effectively while maintaining the trust and confidence of stakeholders, as well as sustaining long-term growth and profitability. The Risk Management Policies undergo annual reviews and periodic updates in accordance with regulatory and internal guidelines.

The Board is benefitted by a seasoned executive management team, along with the support of Board Committees and Board Delegated Committees that form part of the Risk Governance Framework. Striking a balance between growth and prudent risk management, the Board is dedicated to creating value for stakeholders. In line with regulatory requirements, the Bank has also constituted a Risk Management Committee (“RMC”) tasked with overseeing the implementation of the risk governance framework and guiding principles. The Internal Capital Adequacy Assessment Process (ICAAP) evaluates the amount and distribution of capital needed to cover risks, including a forward-looking stress capital assessment. The RMC reviews the Risk Appetite framework, ICAAP, and stress testing results.

A Chief Risk Officer (“CRO”) has been appointed to lead various risk areas including Credit Risk, Market & Liquidity Risk, Operational Risk, Fraud Risk, Information Security Risk, and Compliance Risk, among others and operates in accordance with approved risk management policies and the delegation matrix, with direct access to the RMC. Playing a pivotal role in shaping risk management decisions that influence the Bank's strategic direction, the CRO diligently monitors the progress of risk management activities. Further details of the RMC and its terms of reference are set out in the Report on Corporate Governance annexed with Board's Report as Annexure-I.

The Risk Management framework is a layered structure and broadly consists of the following aspects for effective risk management across the Bank:

(a) Credit Risk Management

Risk: Credit risk arises from default by borrowers in their terms of contract with the Bank especially failure to make payments or repayments. Credit Risk is the possibility of losses which may arise due to outright default or due to inability or unwillingness of a customer or counterparty to meet commitments in relation to repayments, trading settlements, or any other financial transaction.

Mitigation: Credit Risk & NPA Management Committee (“CRNPAC”) overseas and reviews the credit risk and is responsible for prudential limits on large credit exposures, asset concentration, portfolio management, loan review mechanism, risk concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. Credit Risk Management formulates credit risk policies and procedures for managing the credit risk and ensuring portfolio composition and quality.

The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit risk within the Bank through strengthening underwriting norms, keeping close watch on asset quality trends and concentrations at individual exposures as well as at the portfolio level. It establishes risk limits and conducts periodic portfolio reviews. It exercises oversight on the strategy and underwriting functions of the Credit group. Portfolio monitoring is carried out through Portfolio Profiling, Early Warning Framework, Rapid Portfolio Review, and Monitoring of High Value Customers and other risk activities. All aspects of credit risk are governed by the Credit Risk Management Policy and other related Policies.

The Bank has laid down prudential limits and caps on various aspects to control the magnitude of credit risk. The defined risk limits are forward-looking and are reviewed in sync with future business plans. The Bank has a comprehensive credit risk architecture, policies, procedures, and systems for managing credit risk in its retail and commercial segments. Commercial lending is managed on an individual as well as portfolio basis. In contrast, given the granularity of individual exposures, retail lending is managed largely on a portfolio basis across various products and customer segments. Robust systems are in place to ensure credit quality and minimise default losses. The Bank ensures portfolio diversification, stringent credit approval processes, periodic post-disbursement monitoring, and remedial measures. The Bank has ensured strong asset quality through volatile times in the lending environment by stringently adhering to prudent norms and institutionalised processes.

CRNPAC follow the guiding principles listed below and submit its updates to RMC of the Board at regular intervals:

•    Ensure that a governance framework is established for an effective oversight, segregation of duties, monitoring and management of Credit Risk in the Bank.

•    Ensure that the approval of credit proposals are as per the defined strategies, systems, and processes.

•    Ensure that guiding principles shall be laid down for the setting up and monitoring of the credit and credit risk appetite and limits.

•    Establish standards to facilitate effective identification and assessment of credit risk in the Bank.

•    Establish standards for effective measurement and monitoring of credit risk and NPA.

•    Ensure adherence to the guidelines/policies related to credit, credit risk and NPA management as issued by the RBI from time to time.

(b) Operational Risk Management

Risk: Operational Risk has been defined by the RBI as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes Legal Risk but excludes Strategic and Reputational Risk.

Mitigation: The Bank has a Board approved Operational Risk Management Policy which encompasses a comprehensive Operational Risk Management framework. The framework outlines the governance structure and processes for monitoring & managing various operational risks and controls linked to various processes across all business verticals. This structure consists of three lines of defence: the business line (including support and operations) is the first line, an independent Operational Risk Management Department (ORMD) is the second line, and Internal Audit is the third line. These units collaborate to manage, monitor, and mitigate operational risks effectively. The independent ORMD is responsible for implementation of this framework while the Board delegated Operational Risk Management Committee (ORMC) oversees the implementation of this framework across the Bank and advise on the implementation of measures for risk mitigation which further reports to the RMC.

The Bank's Fraud Monitoring and Control measures are robust with a dedicated Risk Containment Unit (RCU) guided by a Board approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to the Audit Committee and the Board and fraud cases over I 1 Crore or more are specifically reported and dealt with by the Special Committee for Fraud Monitoring (SCFM) of the Board. The Bank is continuously enhancing its systems, practices, controls, and review mechanisms ensuring fraud-prone areas are continuously monitored and secured against internal and external threats.

In the realm of Digital Banking, with Digital Banking services, we have made significant advancements in both customer facing technologies and internal digitisation. To further enhance security and customer experience, we monitor transactions continuously. With confidence in our technological capabilities, we are poised to drive the next phase of growth in Digital Banking.

Outsourcing Risk Policy

The Bank also has in place a comprehensive Outsourcing Risk Policy in line with RBI guidelines with ultimate responsibility resting with the Board for the outsourced activity. However, for ease of functioning, the powers have been delegated to the Committee for Outsourcing of IT and Financial Services which further reports to RMC. The outsourcing policy of the Bank lays down the framework adopted by the Bank for reviewing and approving outsourcing of services that includes plans and procedures to evaluate, assess, approve, review, control and monitor the risks and materiality of all its vendor/ outsourcing activities and serve as a guide to adopt sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from outsourcing activities.

Business Continuity Management (BCM) plan

The Bank has a comprehensive Business Continuity Management (BCM) plan in place with policies, and procedures meticulously designed to align with regulatory guidelines, and it undergoes thorough reviews and audits to ensure effectiveness.

In terms of Governance and management, the ORMD is tasked with coordinating with various Units to identify the critical business functions and processes across the Bank, for which effective Business Continuity Plan (“BCP”) needs to be planned for.

Approach towards emergency, disaster & crisis management

Business continuity - Manage continuity of critical business operations and accelerated resumption of services after a disaster.

Emergency response - Deal with site-level emergency at an office or a branch involving life safety issues like fire, bomb threats, and so on.

IT disaster recovery - Quick recovery of critical business applications during hardware/ network/ power failure etc.

Pandemic response - Facilitate a well-structured and efficient response to any pandemic situation that threatens the safety of the Bank's employees and/or disrupts the Bank's critical business functions.

Crisis management - Comprehensive incident and crisis management framework tackles Bank wide incidents and crisis such as pandemic, terrorist attacks, ransomware attacks, fire, cyclone, earthquake, city level floods, cyber-attacks, and data centre outages, among others.

The Bank has a business continuity programme in place to ensure the continuity of critical operations of the Bank in the event of any disaster/incident affecting business continuity. This business continuity programme is developed considering the criticality of the functions performed and the systems have been designed to minimise the operational, financial, legal, and other material consequences arising from such a disaster and focus is on ensuring faster recovery and minimising the impact on the IT systems of the Bank. The Bank has dedicated Disaster recovery sites and there are periodic drills in place to validate the effectiveness of our BCPs. These controls help execute immediate action in case any business/application-level issue arises which is leading to an impact on banking services/ operations. The learning from the BCP drill exercises is used in refining the BCP framework.

(c) Market Risk, Liquidity and Asset Liability Management

Risk: Market Risk for the Bank originates from investment and trading in securities and forex exchange open positions, which are undertaken both for the customers and on a proprietary basis. The market risk management framework of the Bank sets benchmark and various limits to monitor the market risk exposures, the performance of portfolios vis-a-vis the market risk limits and comparable benchmarks, which provide guidance to optimise the risk-adjusted rate of return of the Bank's investment portfolio. Liquidity risk refers to Bank's inability to fund an increase in assets or withdrawal of liabilities and meet both expected and unexpected cash & collateral obligations at reasonable cost without adversely impacting its financial condition.

Mitigation: Market risk management is guided by well-defined policies, regulatory guidelines, processes, limits and systems for the identification, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk management of its trading/investment portfolios and forex positions.

The Asset Liability Management Policy of the Bank stipulates a comprehensive framework for managing liquidity risk, ensuring Bank's ability to meet its liquidity obligations and remain resilient during period of liquidity stress caused by Bank-level factors, market-wide factors, or a combination of both. The Board approved policy outlines the risk appetite around the liquidity and market risk while also establishes a governance structure in line with the Bank's overall Risk Appetite. The Asset Liability Management Committee of the Bank is responsible for overseeing the identification, measurement and management of market risk, forex risk, interest rate risk and liquidity risk within the

Bank, ensuring adherence to the established internal and regulatory prudential limits and operating within the Board approved risk appetite.

(d)    IT Risk Management

Risk: The Bank is growing with digitisation and aimed at leveraging digital technology to provide a best-in-class experience for its customers while simultaneously enhancing productivity and improving IT risk management. Risk of cyber-attacks on the Bank's systems arises among others from computer viruses, malicious or destructive code, phishing attacks, denial of service or information, application vulnerability and other security breaches resulting in disruption of its services or theft or leak of sensitive internal data or customer information.

Mitigation: IT Risk management is a critical process aimed at identifying, assessing, mitigating and monitoring risks that could impact an organisation's information technology infrastructure and data assets. The Bank has established a robust information and cyber security framework for securing its IT infrastructure and systems. Management and Board level committees have been formed to review and monitor IT security infrastructure and compliance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer (“CISO”) is responsible for monitoring the information security risks covering all aspects of data security for the Bank who reports to CRO. Cyber Security Operation Centre with qualified professionals is reporting to CISO for monitoring of real-time cyber security glitches. The Bank has adopted layered approach security deployment and continuously evaluating and investing in nextGen cyber security solutions to strengthen the cyber security posture of the Bank. Accordingly, appropriate advanced controls at various layers have been deployed to ensure that cyber security risk is minimised.

(e)    Reputation Risk Management

Risk: Any adverse stakeholder and public perception about the Bank may negatively impact its ability to attract and retain customers and may expose the Bank to litigation and regulatory actions.

Mitigation: The Bank assesses and manages Reputation Risk on regular basis. Your Bank communicates with its stakeholders regularly through appropriate engagement mechanisms to address stakeholder expectations and assuage their concerns, if any. There is Zero tolerance for knowingly engaging in any activity that is not consistent with values, Code of Conduct, or policies of the Bank. The Bank identifies reputation risk in its ICAAP document and an assessment framework has been established to monitor the level of reputation risk.

(f)    Compliance Risk Management

Risk: Compliance risk primarily involve the possibility of monetary penalties, regulatory sanctions, and reputational damage to the Bank. These risks can be effectively mitigated by ensuring continued compliance with the applicable laws and regulations governing Anti-Money Laundering (AML), Know Your Customer (KYC) requirements, data privacy, and other pertinent domains.

Mitigation: The following two major policies form the bedrock of the Bank's robust Compliance Risk Management framework -

1.    Compliance Policy - The Compliance Policy defines compliance philosophy in the Bank. It outlines the Compliance structure, scope of compliance, compliance processes and procedures for managing risk. It has been formalised in accordance with the Reserve Bank of India's circular on 'Compliance functions in Banks and Role of Chief Compliance Officer'. The policy emphasises on independence of the Compliance function and fosters a uniform compliance culture across the Bank.

2.    Know your Customer/ Anti-Money Laundering Policy - The KYC/ AML policy enables the Bank to know and understand its customers and their financial dealings, thereby facilitating prudent management of risks associated with money laundering and terrorist financing. It majorly encompasses Customer acceptance and identification procedures, Customer Due Diligence, transaction monitoring, Periodic updation of customers' risk and data privacy norms. The policy has been framed in line with the RBI's Master Direction - Know Your Customer (KYC) Direction, 2016 (as updated from time to time) and in terms of the provisions of the Prevention of Money Laundering Act, 2002 and rules thereof.

These policies are reviewed annually or more frequently (as and when there is any regulatory change) to keep them aligned with the evolving regulations and industry standards.

The Bank has a dedicated Compliance department that is adequately staffed with subject matter experts who diligently identify, assess, and control potential risks within their respective domains by carrying out regular reviews and monitoring of products, policies, and procedures. The Compliance department continuously monitors developments and updates the status of compliance to the senior management and Audit Committee of the Board, which enables the Board to advise on the implementation of measures for risk mitigation. Additionally, to keep themselves abreast with the latest regulations, these compliance officers participate in internal and external trainings periodically.

AB.    Corporate Social Responsibility

The Bank is committed to supporting the entrepreneurial dreams of the underprivileged and unbanked population in India by providing financial assistance. The Bank firmly believes that every individual deserves equal opportunity regardless of their socio-economic background and is dedicated to empowering people by making them realise their true potential and become self-reliant. Additionally, the Bank has been actively involved in implementing impactful CSR projects aimed at enhancing the livelihoods of marginalised communities. These projects primarily focus on skills development, empowering women entrepreneurs, promoting rural sports, and other initiatives that bring positive change to the targeted communities. CSR activities and funds of the Bank are closely monitored by the Corporate Social Responsibility Committee (“CSR Committee”) formed by the Board of Directors. Further, impact assessment of these projects was also carried out for the FY 2023-24.

In compliance with the CSR provisions outlined in the Act read with the rules made thereunder, a total of 112.65 Crore has been allocated to the “Unspent Corporate Social Responsibility Account” for FY 2023-24 for the purpose of funding ongoing CSR Projects. This allocated amount will be used in alignment with the Company's CSR Policy and implementation schedule.

The terms of reference of CSR Committee are outlined in the Report on Corporate Governance annexed as Annexure-I. Further, a comprehensive breakdown of expenditures and other relevant details pertaining to CSR activities including executive summary along with web-link(s) of Impact Assessment of CSR Projects carried out for FY 2023-24 have been disclosed in the Annual Report on Corporate Social Responsibility annexed as Annexure-II with Board's Report. The CSR Policy is also available for viewing on the Bank's website at https://www.aubank.in/investors/secretarial-policies.

AC.    Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Bank is dedicated to fostering a safe and healthy work environment for all employees, free from prejudice, gender bias, and sexual harassment. We uphold a zero-tolerance policy towards any form of sexual harassment and strive to promote a positive and productive workplace for everyone.

In alignment with the guidelines set forth in the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the Bank ensures a safe and conducive work environment for all employees and associates by implementation of a Policy on Prevention and Redressal against Sexual Harassment at the workplace.

Detailed information regarding the Bank's commitment to preventing and addressing sexual harassment is provided in the Report on Corporate Governance as Annexure-I to the Board's Report.

AD.    Subsidiary, Joint Ventures & Associate Companies

The Bank does not have any subsidiary, joint ventures & associate companies. Hence, the details of this clause are not applicable to the Bank. Accordingly, the Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

AE.    Material Orders Passed by Regulators or Courts or Tribunals

During the FY 2023-24, no material orders have been passed by the Regulators/ Courts/ Tribunals which would impact the going concern status of the Bank and its future operations.

AF.    Internal Financial Control & their Adequacy

The Bank maintains a robust internal financial control system carefully tailored to its risk appetite and aligned with the size, scale, and complexity of the Banking operations. The scope and authority of the risk-based internal audit function is clearly outlined in the Board approved Internal Audit Policy of the Bank.

The audit function plays a pivotal role in ensuring that the Bank's processes and operations adhere to regulatory guidelines, accounting standards, and internal rules and guidelines of the Bank. This function offers an impartial evaluation on the quality and effectiveness of the Bank's internal control, risk management, and governance systems to provide assurance to the Board of Directors and Audit Committee.

During the period under review, the internal controls of the Bank were in place and operating effectively. Further, the Joint Statutory Auditors have issued an opinion on the adequacy of the internal controls over financial reporting of the Bank and operating effectiveness, as required under the Act. Details of this opinion can be referred to in the Auditor's Report attached to the audited financial statements for FY 2023-24.

AG.    Cost Records

Being a Banking company, provisions of Section 148(1) of the Act, relating to maintenance of cost records is not applicable to the Bank.

AH. Corporate Governance

Corporate Governance is the cornerstone of the Bank's operations, underpinned by principles of transparency, accountability, integrity, fairness, and compliance while conducting business & making necessary disclosures. Corporate Governance has been an integral part of the way the Bank has been operating since inception. The Bank believes that good Corporate Governance emerges through the implementation of best management practices, strict adherence to laws and regulations, and a commitment to transparency and ethical conduct. Effective risk management is central to the governance framework, as the Bank prioritise maintaining strong risk management and internal controls to support sustainable business growth and build public trust.

The Bank is dedicated to constantly refining its governance and assurance practices by benchmarking itself against global best practices. The Bank is committed to having a top-notch Governance and assurance framework in place, and it constantly works to enhance its Risk Management, Compliance, and Audit practices. The Board of Directors, various committees and policies of the Bank play a pivotal role in overseeing the overall Governance & Assurance framework.

The Bank is continuously striving to enhance governance and assurance functions. Through the implementation of various practices and initiatives, we are dedicated to bolstering the risk and compliance culture.

Key aspects of these functions, along with recent initiatives, are integral to the Bank's commitment to excellence which include:

1.    Risk Management:

The responsibility for executing key risk management activities has been entrusted to the Board Delegated Committees, including the Credit Risk & NPA Management Committee, Operational Risk Management Committee, Asset Liability Management Committee, IT Steering Committee, and Information Security Committee. Risk management is a top priority for the Bank, with a strong framework in place to address potential risks. The Bank's risk management philosophy and approach are centered on safeguarding the interests of customers and investors, as well as preserving the Bank's reputation and financial stability.

2.    Compliance Function:

Corporate Governance in Banks emphasises compliance with laws, regulations and ethical standards as the Banks are subject to a complex regulatory environment. The primary focus of the Compliance function is to establish and maintain a strong culture of compliance within the Bank. In order to cultivate the right tone for compliance, the function consistently seeks guidance from the Board of Directors and its committees. It engages with internal stakeholders through both structured and informal meetings to effectively communicate the necessary compliance standards.

In order to strengthen its efforts, the Compliance Function has introduced several new initiatives, including:

(i)    Compliance Sustenance Framework

(ii)    Compliance Self Certification

(iii)    Enhancing the Product Approval Process

(iv)    Quality Assurance and Improvement Programme (QAIP)

(v)    Bringing in IT/IS resources with specialised domain knowledge.

3. Internal Audit Function:

The Internal Audit Department adheres to a risk-based audit approach outlined in the Bank's Risk Based Internal Audit Policy. The department prioritises audits of high-risk areas in coordination with the Risk Management and Compliance Functions. Additionally, the Bank has established an independent Quality Assurance function to enhance the effectiveness of the Internal Audit Department. This function conducts independent quality checks on audit activities performed by the various sub-verticals within the department.

The Report on Corporate Governance for FY 2023-24 along with certificate issued by M/s. V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under Chapter IV of the Listing Regulations, is annexed with Board's Report as Annexure-I.

AI.    Business Responsibility and Sustainability Report & Sustainability Initiatives

At AU Small Finance Bank, sustainability is at the core of its business model and reflects in all its offerings. The Bank's commitment to environmental and social responsibility is deeply rooted in its values. The Bank believes in taking proactive measures rather than reactive responses to climate change, focusing on setting ambitious targets and robust governance to achieve them.

The Sustainability Committee of the Board of the Bank guides on this journey, while MD & CEO continually inspires to build a Bank that sustains for generations. Initiatives like AU's Green Deposit demonstrate Bank's dedication to mobilising funds for green projects and supporting India's Net Zero targets.

The Bank prioritise stakeholder awareness through training programmes covering sustainability and ESG topics for all employees. The Bank's communication efforts, both internally and externally, ensure that its sustainability message reaches everyone.

As a part of Banking operations, the Bank promotes digital banking, video banking, and e-receipts to reduce paper usage and waste. Its focus on clean mobility, including incentives for electric vehicle loans, and sustainable office practices further underline Bank's commitment to eco-friendly practices.

Additionally, the Bank empowers women through initiatives like AU Udyogini and promote sports through Bano Champion, fostering inclusivity and well-being in communities. Continual improvements in sustainability ratings validate its ongoing efforts in this area.

The Sustainability Report and Business Responsibility and Sustainability Report (“BRSR”) of the Bank demonstrate transparency and adherence to global standards, showcasing its commitment to sustainable growth and positive societal impact.

In addition, the BRSR of the Bank for the FY 2023-24 is included as Annexure-V to the Board's Report and can also be accessed on the Bank's website at https://www.aubank.in/other-reports, as required by Regulation 34(2)(f) of the Listing Regulations and relevant SEBI circulars.

AJ.    Particulars of Employee Remuneration

As per Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rule, 2014, the ratio of the remuneration of each Director to the median employee's remuneration and other details is annexed with Board's Report as Annexure-III.

Additionally, the statement containing employee particulars required by Section 197(12) of the Act and Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, is a part of this report. Pursuant to Section 136(1) of the Act, the annual report has been sent to Members without the aforementioned annexure, which can be inspected at the registered office of the Bank up to the date of the AGM. Members interested in obtaining a copy of the Annexure may request it from the Company Secretary of the Bank at investorrelations@aubank.in

AK.    Management Discussion and Analysis

The Management Discussion and Analysis Report for the FY 2023-24 is included as a separate section within the Annual Report, as required under Regulation 34(2)(e) and Schedule V of the Listing Regulations.

AL.    Annual Return

The draft Annual Return for the financial year ended on March 31, 2024 in the prescribed form MGT-7, as required under Section 134(3)(a) and Section 92(3) of the Act, can be accessed on the Bank's website at https://www.aubank.in/other-reports

AM. Whistle-Blower Policy & Vigil Mechanism

The Bank values reliability, fairness and equality which form foundation for all the decisions taken and believes in conducting its affairs in a fair manner to build customer trust and confidence and ensure customer delight. The Bank encourages its employees, all stakeholders and members of general public, who have concerns about suspected misconduct, to come forward and express these concerns without fear of retaliation or unfair treatment.

A Whistle-Blower Policy in Banking Institutions is crucial for fostering transparency, accountability, and ethical behaviour within the organisation. The Bank has implemented Whistle-Blower Policy & Vigil Mechanism in pursuance of the provisions of Section 177(9) of the Act read with the rules made thereunder and Regulation 4(2)(d) and Regulation 22 of the Listing Regulations, which aims at establishing an effective vigil mechanism in the Bank to quickly spot aberrations and deal with it at the earliest.

The Whistle-Blower Policy provides a safe and confidential avenue for employees to report any potential misconduct or fraudulent activities without fear of retaliation. This Policy includes adequate safeguards against the victimisation of individuals who avail this mechanism ensuring they have direct access to the Chairman of the Audit Committee. None of the Bank's personnel has been denied access to the Audit Committee of the Bank.

The policy can be accessed on the website of the Bank at https://www.aubank.in/investors/Secretarial-policies and further details have been provided in the Report on Corporate Governance forming part of this Board's Report as Annexure-I.

AN. Anti-Bribery and Anti-Corruption Policy

The Bank upholds a strict 'zero-tolerance approach' towards bribery, corruption, and unethical practices and is committed to conduct all its dealings and operations with professionalism, fairness, and integrity. In alignment with this commitment, the Bank has implemented an Anti-Bribery and Anti-Corruption Policy that has been approved by the Board of Directors. This policy outlines the fundamental principles for conducting Banking business in a transparent, honest, and ethical manner. The policy can be accessed on the website of the Bank at https://www.aubank.in/notice-board.

AO. Adherence to Secretarial Standard issued by the Institute of Company Secretaries of India

The Bank has adhered to the Secretarial Standards issued by the Institute of Company Secretaries of India on Meetings of Board of Directors and General Meetings.

AP.    Status of Ind AS Implementation

In accordance with RBI circular RBI/2015-16/315 DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016 for Implementation of Indian Accounting Standards (Ind AS), the Banks are advised to follow the Indian Accounting Standards outlined under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the RBI in this regard. Currently, Banks in India prepare their financial statements following the guidelines of the RBI, the Accounting Standards under Section 133

of the Act, and the generally accepted accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs released a roadmap for the adoption of new Indian Accounting Standards (Ind AS), which were aligned with the International Financial Reporting Standards (IFRS) for scheduled commercial Banks, insurance companies, and non-banking financial companies (NBFCs). However, in March 2019, RBI postponed the implementation of Ind AS for Banks until further notice as the necessary legislative changes were being reviewed by the Government of India. The Bank has conducted an initial diagnostic analysis of the discrepancies between Indian GAAP and Ind AS and is committed to ensuring compliance with the relevant requirements and guidelines moving forward.

Directors’ Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Act, the Board of Directors hereby confirm that:

1.    In the preparation of the annual accounts for the year ended March 31, 2024, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2.    We have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2024 and of the profit of the Bank for the year ended on that date.

3.    We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the Bank's assets and for preventing and detecting fraud and other irregularities.

4.    We have prepared the annual accounts on a going concern basis.

5.    We have laid down internal financial controls to be followed by the Bank and ensured that such internal financial controls are adequate and were operating effectively.

6.    We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgement and Appreciation

The Board extends its sincere gratitude to the Government of India, various State Governments, regulatory bodies such as RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, as well as to all the shareholders, debenture holders, esteemed Bankers, Lenders, Credit Rating Agencies, and Debenture Trustees for their unwavering support and trust in the Bank.

The Board would further like to express appreciation to BSE Limited, National Stock Exchange of India Ltd., National Securities Depository Limited, Central Depository Services (India) Limited, Registrar & Share Transfer Agent, Vendors and Service Providers for their continued support & co-operation.

The Bank's valued customers deserve a special mention for their loyalty and continued patronage and the Board is truly grateful for the trust they have placed in the Bank.

The Board also expresses its heartfelt thanks and gratitude to each employee for their continued commitment towards the Bank and its customers. Through their commitment to strong work ethics, professionalism, teamwork, and initiatives, they have played a crucial role in enabling the Bank to continue serving its depositors and customers and maintaining Bank's customer-centric approach.