United Western Bank - Finacial
United Western Bank - Finacial
United Western Bank - Finacial
CMB
Letter of Offer Dated January 23, 2006 For Equity Shareholders of the Bank only
GENERAL RISK
Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely on their own examination of the Issuer and the offer including the risk involved. The securities have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. The attention of the investors is drawn to the statement of Risk Factors appearing on page no. 6 of this Letter of Offer.
LISTING
The Equity Shares of the Bank are listed on Bombay Stock Exchange Ltd. (BSE), the National Stock Exchange of India Ltd. (NSE) (Designated Stock Exchange) and The Pune Stock Exchange Ltd. (PSE). The Equity shares to be issued through this issue would also be listed on the Stock Exchanges mentioned above. The Bank has made an application for in-principle approval for listing to the Stock Exchanges. The Bank will make an application to these Stock Exchanges for permission to deal in and for an official quotation in respect of the Equity Shares arising out of the Issue. The Bank has received in-principle approvals from NSE, BSE and the PSE for listing the Equity Shares arising from this Issue vide letters dated December 16, 2005, December 12, 2005 and December 12, 2005, respectively.
MCS LTD.
SEBI Reg. No. INR000000056 Sri Venkatesh Bhavan, Plot No. 27, Road No. 11, M.I.D.C., Andheri (E), Mumbai 400 093. Tel: (022) 5502 5235 Fax : (022) 5502 5256 E-mail : [email protected] Website : www.mcsind.com ISSUE CLOSES ON MARCH 11, 2006
ISSUE PROGRAMME
LAST DATE FOR RECEIVING REQUESTS FOR SPLIT FORMS FEBRUARY 24, 2006
CMB
CMB
Issue Related Terms and Abbreviations AK Caps or Lead Manager Bankers to the Issue CAF Centrum or Co-Lead Manager Consolidated Certificate Designated Stock Exchange Issue/Rights Issue/ the Offer A. K. Capital Services Limited United Western Bank Limited & Bank of Maharashtra Composite Application Form Centrum Capital limited In case of physical certificates, the Bank would issue one certificate for the Equity shares allotted to one folio. National Stock Exchange of India Limited (NSE) Issue of 1,79,32,633 Equity Shares of Rs. 10/- each at a premium of Rs. 14/- per share (i.e. at a price of Rs. 24/- per share) on rights basis to the existing shareholders of the Bank in the ratio of one (1) equity share for every two (2) equity shares held on the Record Date January 25,2006 aggregating Rs. 43.04 crore March 11, 2006 February 10, 2006 Rs. 24/- per Equity Share Letter of Offer dated January 23, 2006, as filed with the Stock Exchanges after incorporating SEBI comments on the draft Letter of Offer January 25,2006 MCS Limited The number of shares that a shareholder is entitled to in proportion to his/her shareholding in the Bank as on the Record Date Stock Exchanges where Rights Shares pursuant to this Letter of Offer are proposed to be listed being Bombay Stock Exchange Limited, National Stock Exchange of India Limited and Pune Stock Exchange Limited
Issue Closing Date Issue Opening Date Issue Price Letter of Offer Record Date Registrar to the Issue/Registrar Rights Entitlement Stock Exchange
In this Letter of Offer, the terms we, us, our, the Bank, its, Banks, UWB or Issuer or the Bank, unless the context otherwise implies, refer to The United Western Bank Limited, a company incorporated on October 17, 1936 under the Indian Companies Act, 1913. All references to Rs. refer to Rupees, the lawful currency of India. Any discrepancies in any table between total and the sums of the amount listed are due to rounding off. 5
THE UNITED WESTERN BANK LIMITED RISK FACTORS AND MANAGEMENT PERCEPTION
Investors should consider the following risk factors together with all other information included in this Letter of Offer carefully, in evaluating Bank and its business before making any investment decision. Any projections, forecasts and estimates contained herein are forward looking statements and are based on certain assumptions that Bank considers reasonable. This Letter of Offer contains forward-looking statements that involve risks and uncertainties. Such statements can be identified by the use of forward-looking terminology such as may, believes, will, expect, anticipate, visualize, estimate, continue, plan, likely or other similar words. Actual results could differ from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the following risk factors and elsewhere in this Letter of Offer. However, there are a few risk factors where the impact is not quantifiable and hence the same has not been disclosed in such risk factors. This Letter of Offer also includes statistical and other data regarding the Indian Banking industry. This data was obtained from industry publications, reports and other sources that Bank and the Lead Manager believe to be reliable. Neither Bank nor the Lead Manager has independently verified such data. Internal to the Bank 1. Risk pertaining to Outstanding Litigations Cases filed against the Bank
Criminal cases
As on September 30, 2005, there were 2 criminal cases filed against the Bank. The total claim amount in these suits for the Bank is approx. Rs. 2.01 crore.
Labour Laws
As on September 30, 2005, there were 11 cases relating to service matters filed against the Bank pending before various judicial authorities. The suits relating to Labour laws are not quantifiable.
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Training programmes have been devised to cover the following areas. 1. Working Capital Assessment; 2. Term Loan Assessment; 3. Balance Sheet Analysis; 4. Case Studies; 5. Credit Monitoring; 6. Documentation; 7 Legal Aspects; 8 Loan Policy; 9. L/ C and B/G assessment; and 10. Credit Risk Management.
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The Bank is not opening any new branch without prior permission of Reserve Bank of India. The Bank has a system for scrutiny before sanctioning any large expenditure at various hierarchical levels as per delegated Administrative Powers. The system takes care about avoiding any un-necessary expenditure and any large expenditure is made only after the prior approval of the Board. The Reserve Bank of India guidelines in respect of ensuring the Corporate Governance are observed in letter and spirit. The irregularities pointed out by the inspecting officials in RBI Inspection 2002 and the observations thereon have been duly addressed by the Bank in the following manner. (i) As and when a contrary view is taken by any Member of the Board in respect of any subject matter placed before the meeting it is duly recorded in the minutes. (ii) The Bank has implemented RBI guidelines of Fit & Proper Person and a Nomination Committee of the Board has been constituted.
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11.
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The directors of the Bank should desist from interfering in the day-to-day operations of the Bank. The Bank should furnish a monthly compliance report to our Mumbai Regional Office in respect of the directions imposed.
It has been tradition in the Bank that the Directors do not interfere in the day-to-day operations. The Bank is duly submitting the monthly compliance report as per the directive and the progress thereof, is reviewed by RBI periodically.
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External to the Bank 1. Sensitivity to the economy and extraneous factors The Banks performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, the state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Bank including the quality and growth of its assets. Management Perception Diversified portfolio business of the Bank, as well as policy to avoid Credit concentration in any particular sector, coupled with its goodwill and customer loyalty shall ensure that the Bank shall be able to withstand developments in economy and extraneous factors that it may have to face. 2. Competition from existing and new commercial Banks Competition in the financial sector has increased with the entry of new players and is likely to increase further as a result of further deregulation in the financial sector. The Bank may face competition both in raising resources and in deploying them. Management Perception The Bank has an established broad-based presence and has been taking steps to enhance customer satisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting to add quality assets on competitive terms. The Bank is also taking steps to enlarge its product bouquet. For more details on the business environment of the Bank, investors are advised to refer to the para on Management Discussion and Analysis of Financial Condition and Results of Operations on page no. 154 of this Letter of Offer. 14
(Rs. in crores
Asset classification Standard Standard
SICOM Ltd.
(Rs. in crore)
Asset Classification The acquisition of portfolio comprises of 487 individual accounts during take over. As on 30.06.05, the asset classification was as under Standard NPA No. of Amount No. of Amount Accounts Accounts
SHDFL is 100% owned subsidiary of SICOM & two SICOM nominated Directors are on Banks Board
Bank has purchased Housing loans portfolio of SHDFL of Rs. 9.19 crores as on 30.09.03.
4.33
6.57
245
2.53
168
4.04
Deposits accepted from SICOM Ltd. Date of Deposit 10.10.2005 10.10.2005 10.10.2005 Amount of Deposit Rs. 15.00 crore Rs. 15.00 crore Rs. 5.00 crore Card Rate 6.00% 6.00% 6.00% Offer Rate 7.00% 7.00% 7.00% Period 182 days 182 days 182 days (Rs. in crore) Name Makharia Synthetics (Division of Emtex Industries (India) Ltd.) Relationship The nominees of Makharias are Directors on the Banks Board. Facility TOD Limit Balance o/s as on 31.12.2005 NIL Asset classification Standard
v RBI circular no. DBOD.NO.BP.BC.88/21.02.067/2004-05 dated May 04, 2005 revised the guidelines on dividend payable by Banks as under : Only those Banks, which comply with the following minimum prudential requirements, would be eligible to declare dividends without prior approval of RBI. (i) The Bank should have : CRAR of atleast 9 per cent for preceding two completed years and the accounting year for which it proposes to declare dividend; 17
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19
20
21
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For more details regarding the Directors please refer to Management on page no. 81 of this Letter of Offer. 25
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The United Western Bank Ltd. Venkatesh Chambers, Prescot Road, P. B. No. 714, Fort, Mumbai 400 001. Tel: (022) 2207 2149/2207 4397; Fax: (022) 2207 4766 E-mail: [email protected] Website: www.uwbankindia.com Contact Person: Shri P. H. Rasal (Sr. Manager) REGISTRAR TO THE ISSUE
Bank of Maharashtra 45/47, Janamangal, Mumbai Samachar Marg, Fort, Mumbai 400 023. Tel: (022) 2266 3947/2265 0778 E-mail: [email protected] Website: www.maharashtrabank.com Contact Person: Shri Y. K. Sharma (Chief Manager)
MCS Ltd. Sri Venkatesh Bhavan, Plot No. 27, Road No. 11, M.I.D.C., Andheri (E) Mumbai - 400093. Tel: (022) 5502 5235; Fax: (022) 5502 5256 E-mail: [email protected] Website: www.mcsind.com Contact Person: Mr. Shashikant Kadam ISSUE MANAGEMENT TEAM LEAD MANAGER TO THE ISSUE
A. K. Capital Services Ltd. 135-136, Free Press House, 13th Floor, Free Press Journal Marg, 215, Nariman Point, Mumbai 400 021. Tel: (022) 5634 9300; Fax: (022) 5636 0977 E-mail: [email protected] Website: www.akcapindia.com Contact Person: Shri Sumit Arora CO-LEAD MANAGER TO THE ISSUE
Centrum Capital Ltd. Khetan Bhavan, 5 th Floor, 198, J. Tata Road, Churchgate, Mumbai 400 020. Tel (022) 2202 3838; Fax: (022) 2204 6096 E-mail: [email protected] Website: www.centrum.co.in Contact Person: Shri Mayank Dalal 27
AK Caps Centrum
AK Caps
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The post-issue activities will involve essential follow-up steps, which must Centrum include finalisation of basis of allotment / weeding out of multiple applications, listing of instruments and dispatch of certificates and refunds, with the various agencies connected with the work such as registrars to the issue, Bankers to the issue and Bank handling refund business. Even if many of these post-issue activities would be handled by other intermediaries, the designated Lead Merchant Banker shall be responsible for ensuring that these agencies fulfill their functions and enable him to discharge this responsibility through suitable agreements with the issuer company.
CREDIT RATING Since the present issue is of equity shares, credit rating is not required. The details of the ratings received by the Bank for other securities/instruments in the last three years are as follows : Rating Agency CARE Rating as on # 06-01-2004 Security Type Subordinated Bond Issue Amount Rating Code* Notes Instruments carrying this rating are considered upper medium grade instruments and have many favourable investment attributes. Safety for principal & interest is considered adequate.
The rating of the said Bond Issue of the Bank downgraded to CARE BB+ and further to CARE B+. Instruments with such rating are generally classified susceptible to default. While interest and principal payments are being met, adverse changes in business conditions are likely to lead to default. At the same time the previous unrated Tier-II Bond Issues of the Bank were also assigned the same rating as CARE A-. The ratings of all the previous Tier-II Bond Issues of the Bank have also been downgraded to CARE B+ at present. Please refer to page no. 179 of this Letter of Offer for further details. 28
ii. otherwise induces a Company to allot or register any transfer of shares therein to him or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years. ALLOTMENT LETTERS / REFUND ORDERS The Bank will issue and dispatch letters of allotment/ share certificates/ demat credit or letters of regret along with refund order or credit the allotted securities to the respective beneficiary accounts, if any within a period of 42 days from the date of closure of the Issue. If such money is not repaid within eight days from the day the Bank becomes liable to pay it, the Bank shall pay that money with interest as stipulated under Section 73 of the Act. ELIGIBILITY FOR THE ISSUE The United Western Bank Ltd. is an existing Bank registered under the Indian Companies Act, 1913, whose Equity Shares are listed on BSE, NSE and PSE. It is eligible to offer this Rights Issue in terms of Clause 2.4.1 (iv) of the SEBI DIP Guidelines. The Bank, its Directors or any of the Banks subsidiaries are currently not prohibited from accessing the capital market under any order or direction passed by SEBI. UTILISATION OF ISSUE PROCEEDS The Board of Directors undertake that all the moneys received out of this Rights Issue of Equity Shares through this Letter of Offer shall be transferred to a separate bank account other than the bank account referred to in sub-section (3) of Section 73. MINIMUM SUBSCRIPTION If the Bank does not receive the minimum subscription of 90 per cent of the Issue including devolvement of underwriters, the entire subscription shall be refunded to the applicants within 42 days from the date of closure of the Issue. If there is any delay in the refund of subscription amount by more than 8 days after the Bank becomes liable to refund the subscription amount (i.e. forty two days after the closure of the Issue), the Bank will pay interest for the delayed period, at rates prescribed under sub sections (2) and (2A) Section 73 of the Companies Act, 1956. STANDBY UNDERWRITING ARRANGEMENT The Bank has decided to partially underwrite the Issue. The Lead Manager and Co-Lead Manager have, jointly, agreed to partially underwrite the issue to the tune of Rs. 15.00 crore (i.e., 62,50,000 Equity Shares of Rs. 10/each at a premium of Rs. 14/- per share aggregating Rs. 15.00 crore) at an underwriting commission of 2.50 per cent of the face value of the amount underwritten.
S. No. Name and Address of Underwriters 1. A. K. Capital Services Ltd. SEBI Reg. No. INU000001140 Flat No. N, Sagar Apartments, 6, Tilak Marg, New Delhi 110 001. Centrum Capital Ltd. SEBI Reg. No. INU000000761 2nd Floor, Bombay Mutual Building, Dr. D. N. Road, Fort, Mumbai 400 001 No. of Shares Underwritten 34,37,500 Amount Underwritten (Rs.) 8,25,00,000
2.
28,12,500
6,75,00,000
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30
17,93,26,330/-
43,03,83,192/-
53,79,78,990/-
10/10/10/10/-
10/10/20/40/-
7,41,79,250/9,00,00,000/12,00,00,000/29,88,77,220/-
Note: The shares issued and allotted prior to 1992 were of the face value of Rs. 50/- each. The face value of the shares was split to Rs. 10/- each in FY 1992-93. 2. The Authorised Share Capital of the Bank at the time of incorporation was Rs. 5,00,000 and was increased from time-to-time and the present Authorised Capital is Rs. 100 crore, which was raised from Rs. 50 crore by passing a Special Resolution at the Extraordinary General Meeting, held on August 7, 2000. 3. Promoters Contribution/Lock-in Requirement, etc.: Since there is no identifiable promoter, the provisions relating to promoters contribution, lock in of promoters shares, promoters aggregate shareholding and entitlement in the Rights Issue are not applicable. The Directors of the Bank hold 5600 equity shares of the Bank amounting to 0.018 per cent of the paid-up share capital of UWB. 32
Assuming all shareholders are allotted Bonus Shares and all of them apply for and are allotted Rights Shares in the ratio of 1 Equity Share for every 2 Equity Shares on the post bonus share capital held on Record Date January 25,2006. Total number of shares entitled for the present Rights Issue in the ratio of 1 (one) Equity Share for every 2 (two) Equity Shares held is 3,58,65,266 Equity Shares.
5. Top Ten shareholders (to be updated finally at the time of submission of final Letter of Offer with Stock Exchange) Top ten shareholders as on filing of Letter of Offer with Designated Stock Exchange Sr. Name of Total Percentage of No. Shareholder Shares pre issue capital 1. SICOM Ltd. 29,64,370 9.9184 2. UWB Karmachari Sangh 14,94,000 4.9987 3. UWB Officers Organisation 9,42,889 3.1548 4. IndusInd Bank Ltd. 7,99,527 2.6751 5. Matterhorn Ventures 5,50,000 1.8402 6. Parmeshwari Fabrics Pvt. Ltd. 5,47,050 1.8304 7. Life Insurance Corporation of India 4,46,850 1.4951 8. The Sangli Bank Ltd. 4,19,484 1.4035 9. Maliram Makharia Finstock Pvt. Ltd. 3,23,726 1.0831 10. Ashish Makharia 3,00,180 1.0043 Top ten shareholders as on two years prior to filing of Letter of Offer with Designated Stock Exchange Sr. Name of Total Percentage of No. Shareholder Shares pre issue capital 1. SICOM Ltd. 29,64,370 9.9184 2. UWB Karmachari Sangh 14,94,000 4.9987 3. IndusInd Bank Ltd. 9,96,900 3.3355 4. UWB Officers Organisation 9,42,889 3.1548 5. The Sangli Bank Ltd. 6,67,548 2.2340 6. Parmeshwari Fabrics Pvt. Ltd. 5,47,050 1.8300 7. Abhishek Makharia 4,69,600 1.5710 8. Life Insurance Corporation of India 4,46,850 1.4951 9. Prerana Makharia 3,98,250 1.3320 10. Maliram Makharia Finstock Pvt. Ltd. 3,39,300 1.1352 33
10. The Bank shall not make further issue of capital till the shares of the present issue are listed or application money is refunded on account of the failure of the issue. 11. The attention of the investors is drawn to section 12 (2) of the Banking Regulation Act 1949, subsequently amended which states that: No person holding shares in the Banking company shall in respect of any shares held by him, exercise voting rights on poll in excess of 10 per cent of the total voting rights of all the shareholders of the Banking company. 12. There is no buy back or standby arrangement for the purchase of equity shares offered through this Letter of Offer by the Directors or Lead Merchant Bankers except for the underwriting arrangements made by the Bank. 13. At any given time, there shall be only one denomination of the Equity Shares of the Bank. The Equity Shareholders of the Bank do not hold any warrant, option or convertible loan or debenture, which would entitle them to acquire further shares in the Bank. 14. The Bank has submitted its Capital Raising Plan to Reserve Bank of India to comply with the capital adequacy norms and it intends to raise fresh capital within next 6 months by way of preferential issue, public issue (domestic/foreign), etc. and the amount to be raised is yet to be ascertained. 15. The shares offered through this Rights Issue would be fully paid-up and the entire amount would be received with the application. 16. There are no outstanding bridge loans or any other financial arrangements, which will be repaid out of the proceeds of the current issue. 17. The Issue will remain open for 30 days. However, the Board will have the right to extend the issue period as it may determine from time to time but not exceeding 60 days from the issue opening date.
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Capital Adequacy For Last Five Years The Banks Capital Adequacy position as at March 31, 2005 was 4.86 per cent, as against the RBI stipulation of 9 per cent. The details of capital vis--vis risk weighted assets for the last five financial years are as under : (Rs. in crore) Financial Year ended 31.03. Eligible Tier I Capital Eligible Tier II Capital Total Capital Total Risk-Adjusted Assets Capital Adequacy Ratio (%) 2001 195.25 87.72 282.97 2917.48 9.70 2002 207.18 83.30 290.48 2966.31 9.79 2003 191.37 105.98 297.35 2992.40 10.17 2004 183.27 164.70 347.97 3436.22 10.13 2005 81.42 81.42 162.84 3346.78 4.86
The Banks Capital Adequacy Ratio has increased during FY 2001 to FY 2003 from 9.70 per cent on March 31, 2001 to 10.17 per cent on March 31, 2003. It has however declined to 10.13 per cent during 2003-04 and further to 4.86 per cent during 2004-05. The Bank is gearing up to meet the challenges of Basel II accord as and when implemented. Effective risk management is critical to the Banks success. Basel II accord provides for reclassification of risk-adjusted components, weightage of components. The Bank also visualise the changing scenario in Risk Management vis-vis operational risk, technological risk, infrastructure risk, disaster recovery management, credit risk, market risk and need for taking proactive approach to retain its competitiveness. The present Rights Issue will help in improving the capital adequacy ratio, Tier I capital and help meeting the changing scenario in post Basel II period. Issue Expenses The portion of the Rights Issue proceeds will be used to meet Issue expenses estimated at Rs. 1.00 crore plus underwriting commission. For more information on the Expenses of the Issue, please refer to page no.176 of this Letter of Offer. Appraisal The present Rights Issue being done with an objective to improve the capital adequacy ratio and to defray the issue expenses, no appraisal of the same is required and therefore no such entity has been appointed. 35
7. Comparison of accounting ratios of the Bank with Industry average and accounting ratios of peer group for 200405 : Name of Bank Bank of Rajasthan City Union Bank Lakshmi Vilas Bank IndusInd Bank South Indian Bank Peer group average United Western Bank EPS (Rs.) 3.10 18.80 1.70 7.20 1.80 6.52 (33) P/E 29.50 5.40 83.40 10.00 25.66 NAV (Rs.) 30.60 100.30 140.20 28.50 95.40 79.00 43.75 RONW (%) 11.00 20.90 1.50 27.00 2.10 12.50 -
(Source: Capital Market Vol. XX/16 dated Oct. 10 23, 2005 and actual in case of UWB) Peer group average is simple average of above multiples The Lead Managers believe that the issue price of Rs. 24 per share is justified in view of the above qualitative and quantitative parameters. The investors may also want to peruse the risk factors and financials of the Bank including important profitability and return ratios, as set out in the Auditors Report in the Letter of Offer to have more informed view about the investment proposition. 37
5. The members are entitled to claim exemption in respect of tax on long term capital gains under sections 54EC and 54ED of the IT Act, if the amount of capital gains is invested in certain specified bonds / securities subject to the fulfillment of the conditions specified in those sections. 6. Individuals or HUF members can avail exemption under section 54F by utilization of the sales consideration for purchase / construction of a residential house within the specified time period and subject to the fulfillment of the conditions specified therein. 38
5. The members are entitled to claim exemption in respect of tax on long-term Capital Gains under sections 54EC and 54ED of the IT Act, if the amount of capital gains is invested in certain specified bonds / securities subject to the fulfillment of the conditions specified in those sections. 6. Individuals or HUF members can avail exemption under section 54F by utilization of the sales consideration for purchase / construction of a residential house within the specified time period and subject to the fulfillment of the conditions specified therein. 7. Under the provisions of section 90(2) of the IT Act, if the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the non -resident are more beneficial, then the provisions of the DTAA shall be applicable. 8. Non-Resident Indians (as defined in section 115C(e) of the IT Act), being shareholders of an Indian Bank, have the option of being governed by the provisions of Chapter XII - A of the IT Act, which interalia entitles them to the following benefits in respect of income from shares of an Indian Company acquired, purchased or subscribed to in convertible foreign exchange: As per the provisions of section 115E of the IT Act and subject to the conditions specified therein, long-term capital gains arising on the transfer of Banks shares will be charged to Income Tax @ 10 per cent (plus applicable surcharge and education cess) As per the provisions of section 115F of the IT Act and subject to the fulfillment of the conditions specified therein, the long-term Capital Gains arising on the transfer of Banks shares shall be exempted from income tax entirely / proportionately, if all or a portion of the net consideration is invested within six months of the date of transfer in specified assets as defined in section 115C (f) or any savings certificates referred to in section 10(4B) of the IT Act. The amount so exempted shall, however, be chargeable to tax as long-term capital gains under the provisions of section 115F(2) if the specified assets are transferred or converted in to money within three years from the date of acquisition thereof as specified in the said section. As per the provisions of section 115G of the IT Act, Non-Resident Indians are not obliged to file a return of income under section 139(l) of the IT Act, if their only source of income is income from investments or long-term Capital Gains earned on transfer of such investments or both, provided tax has been deducted at source from such income as per the provisions of Chapter XVII A of the IT Act. 39
III FOREIGN INSTITUTIONAL INVESTORS 1. Income by way of dividend received on shares of the Bank is exempt under section 10(34) of the IT Act. 2. The long-term capital gains accruing to the members of the Bank on sale of the Banks shares in a transaction entered into in a recognized stock exchange in India, would be exempt from tax as per the provisions of section 10(38). 3. The short-term capital gains accruing to the members of the Bank on sale of the Banks shares in a transaction entered into in a recognized stock exchange in India, would be chargeable to tax @ 10 per cent (plus applicable surcharge and education cess) as per the provisions of section 111A. 4. Under section 115AD (1) (b) (ii) of the IT Act, income by way of short term capital gains arising from the transfer of shares (otherwise than as mentioned in 3.3 above) held in the Bank for a period of less than 12 months will be taxable @ 30 per cent (plus applicable surcharge and education cess). 5. Under section 115AD (1) (b) (iii) of the IT Act, income by way of long-term Capital Gains arising from the transfer of shares (otherwise than as mentioned in 3.2 above) held in the Bank will be taxable @ 10 per cent (plus applicable surcharge and education cess). It is to be noted here that the benefits of the indexation and foreign currency fluctuation protection as provided by section 48 of the IT Act are not available to Foreign Institutional Investors. 6. Long-term Capital Gain on sale of shares of the Bank by the members shall be exempt from income tax, if such gains are invested in Bonds / Equity Shares specified in sections 54EC and 54ED of the IT Act, respectively subject to the fulfillment of the conditions specified in those sections. 7. Under the provisions of section 90(2) of the IT Act, if the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the Non - Resident are more beneficial, then the provisions of the DTAA shall be applicable. IV MUTUAL FUNDS As per the provisions of section 10(23D) of the IT Act, any income of Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made there under, Mutual Funds setup by Public Sector Banks or Public Financial Institutions and Mutual Funds authorized by Reserve Bank of India would be exempt from Income Tax. V BENEFITS UNDER THE WEALTH TAX ACT, 1957 Assets as defined under section 2 (ea) of the Wealth Tax Act, 1957, does not include shares in Banks and hence, shares are not liable to Wealth Tax. VI BENEFITS UNDER THE GIFT TAX ACT, 1958 Gift tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of shares of the Bank will not attract Gift Tax.
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Pursuant to the recommendations of the Committee on Banking Sector Reforms (Narasimham Committee II), S.H. Khan Working Group, a working group created in 1999 to harmonize the role and operations of term lending institutions and Banks, RBI, in its midterm review of monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of transforming themselves into Banks subject to compliance with the prudential norms as applicable to Banks in India. In April 2001, RBI issued guidelines on several operational and regulatory issues, which were required to be addressed in evolving the path for transition of a term lending institution into a universal Bank. Industrial Development Bank of India was converted into a Banking company with the name of Industrial Development Bank of India Limited within the meaning of the Bank Regulation Act and the Companies Act with effect from October 2004. It is currently able to carry on banking operations in addition to the business being transacted by it as a term lending institution. Non-Banking Finance Companies There are over 13,500 non-Banking finance companies in India as of October 2004, mostly in the private sector. All non-Banking finance companies are required to register with RBI in terms of The Reserve Bank of India (Amendment) Act, 1997. The non-Banking finance companies, on the basis of their principal activities are broadly classified into four categories namely Equipment Leasing (EL), Hire Purchase (HP), Loan and Investment Companies and deposits and business activities of Residuary Non-Banking Companies (RNBCs). The RBI has put in place a set of directions to regulate the activities of NBFCs under its jurisdiction. The directions are aimed at controlling the deposit acceptance activity of NBFCs. The NBFCs, which accept public deposits, are subject to strict supervision and capital adequacy requirements of RBI. Out of the NBFCs registered with RBI as of October 2004, 577 NBFCs accept public deposits. Housing Finance Companies Housing finance companies form a distinct sub-group of the non-Bank finance companies and are regulated by National Housing Bank (NHB). As a result of the various incentives given by the Government for investing in the housing sector in recent years, the scope of their business has grown substantially. Until recently, Housing Development Finance Corporation Limited was the premier institution providing housing finance in India. In recent years, several other players including Banks have entered the housing finance industry. The National Housing Bank and the Housing and Urban Development Corporation Limited are the two Governmentcontrolled financial institutions created to improve the availability of housing finance in India. The National Housing Bank Act provides for refinancing and securitisation of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme. RBI has directed commercial Banks to lend at least 3.00 per cent of their incremental deposits in the form of housing loans. Further, RBI has reduced the risk weight for loans for residential properties to 50.00 per cent for the purpose of determining capital adequacy. However, RBI increased this risk weightage for loans to residential properties to 75 per cent in December 2004. Housing loans up to certain limits prescribed by RBI as well as mortgage-backed securities qualify as priority sector lending under RBIs directed lending rules. Other Financial Institutions Specialized Financial Institutions: In addition to the long-term lending institutions, there are various specialized financial institutions that cater to the specific needs of different sectors. They include the National Bank for Agricultural and Rural Development, Export Import Bank of India, Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited and the Infrastructure Development Finance Corporation Limited. 43
Committee on Banking Sector Reforms (Narasimham Committee II) :The second Committee on Banking Sector Reforms (Narasimham Committee II) submitted its report in April 1998. The major recommendations of the committee were in respect of capital adequacy requirements, asset classification and provisioning, risk management and merger policies. RBI accepted and began implementing many of these recommendations in October 1998. The successes of the reforms were aided to a large extent by the relative macroeconomic stability during the period. Another distinguishing feature of the reforms was the successful sequencing and gradual introduction of the reforms. Banks have implemented new prudential accounting norms for the classification of assets, income recognition and loan loss provisioning. Following the Bank for International Settlements (BIS) guidelines, capital adequacy norms have also been prescribed. To meet additional capital requirements, public sector Banks have been allowed to access the market for funds. Interest rates have been deregulated, while the rigour of directed lending has been progressively reduced. 45
Amendments to the Reserve Bank of India Act :Further, the Finance Act, 2005 also provides for the introduction of the following amendments to the Reserve Bank of India Act, 1934 : to remove the limits of the CRR to facilitate greater flexibility in monetary policy; and to enable RBI to lend or borrow securities by way of repo, reverse repo or otherwise.
Legislative Framework for Recovery of Debts Due to Banks In fiscal 2003, the Parliament passed the SARFAESI Act (The Securitisation Act). The Act provides the powers of seize and desist to Banks. The Act provides that a secured creditor may, in respect of loans classified as nonperforming in accordance with RBI guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan, and exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. This Act also provides for the establishment of asset reconstruction companies regulated by RBI to acquire assets from Banks and financial institutions. The constitutionality of the Securitisation Act was challenged in Mardia Chemicals Limited v. Union of India, AIR 2004 SC 2371, a petition filed before the Supreme Court. The Supreme Court upheld the validity of the Act, except Section 17(2), wherein they found that the requirement of making a deposit of 75 per cent of the amount claimed at the time of making a petition or an appeal to the DRT under Section 17 in order to challenge the measures taken by the creditor in pursuance of Section 13(4) was unreasonable and therefore, struck down. RBI has issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by RBI, and operations. Earlier, following the recommendations of the Narasimham Committee I, the Recovery of Debts due to Banks and Financial Institutions Act, 1993 was enacted. This legislation provides for the establishment of a tribunal for the speedy resolution of litigation and the recovery of debts owed to Banks or financial institutions. The legislation creates tribunals before which the Banks or the financial institutions can file a suit for recovery of the amounts due to them. However, if a scheme of reconstruction is pending before the Board for Industrial and Financial Reconstruction, under the Sick Industrial Companies (Special Provision) Act, 1985, no proceeding for recovery can be initiated or continued before the tribunals. While presenting its budget for fiscal 2002, the Government of India announced measures for establishing more debt recovery tribunals and the eventual repeal of the Sick Industrial Companies (Special Provision) Act, 1985. While the Parliament has repealed this Act, the notification to make the repeal effective has not yet been issued. 46
More than 75 per cent of the value of inter Bank transfers, which was earlier being settled through the deferred net settlement systems (DNSS) based inter-Bank clearing, is now being settled under RTGS. Technology Technology is emerging as a key-driver of business in the Banking and financial services industry. Banks are developing alternative channels of delivery like ATMs, Tele-Banking, Remote Access and Internet Banking etc. Indian Banks have been making significant investments in technology. Besides computerization of front-office operations, the Banks have moved towards back-office centralization. Banks are also implementing Core Banking or Centralised Banking, which provides connectivity between branches and helps offer a large number of value-added products, benefiting a larger number of customers. RBI Annual Report for the year 2003-04 states that the use of ATMs has been growing rapidly and this has helped in optimising the investments made by Banks in infrastructure. Banks have joined together in small clusters to share their ATM networks during the year. There are five such ATM network clusters functioning in India. The total number of ATMs installed by the public sector Banks stood at 8,219 at March 31, 2004, compared with 5,963 ATMs at March 31, 2003. The payment and settlement system is also being modernised. RBI is actively pursuing the objective of establishing a RTGS system, on par with other developed economies. Corporate Governance Adoption of good corporate governance practices has been getting the attention of Banks as well as the regulators and owners in India. Banks in India now typically have an audit committee of the board of directors which is entrusted with the task of overseeing the organisation, operationalisation and quality control of the internal audit function, reviewing financial accounts and follow-up with the statutory and external auditors of the Bank as well as examinations by regulators. Disclosure levels in Bank balance sheets have been enhanced, while measures have also been initiated to strengthen corporate governance in Banks. Consolidation Indian Banks are increasingly recognizing the importance of size. These efforts have received encouragement from the views publicly expressed by the Government favouring consolidation in the Indian Banking sector. Although there have been instances of mergers, these have usually involved financially distressed Banks. Mergers and acquisitions are seen by Banks as a means of achieving inorganic growth in size and attaining economies of scale and scope. Notwithstanding the government ownership of public sector Banks, the government has indicated that it would not stand in the way of mergers of public sector Banks, provided the Bank boards come up with a proposal of merger, based on synergies and potential for improved operational efficiency. The Government has also provided tax breaks aimed at promoting mergers and acquisitions (Section 72 (A) of the I.T. Act enables the acquiring entity (which could be a company, a corresponding new Bank, a Banking company or a specified Bank) the benefit of carry forward and setoff of accumulated losses and unabsorbed depreciation of the acquired entity, subject to specified conditions being fulfilled). Further, the Finance Act, 2005 has included a new Section 72AA to the I.T Act. Pursuant to this Section, during the amalgamation of a Banking company with any other Banking institution under a scheme sanctioned and brought into force by the Central Government under Section 45 (7) of the Banking Regulation Act, the accumulated loss and the unabsorbed depreciation of such Banking company shall be deemed to be the loss or, as the case may be, allowance for depreciation of such Banking institution for the previous year in which the scheme of amalgamation was brought into force and other provisions of the I.T Act relating to the set-off and carry forward of loss, and allowance, for depreciation shall apply accordingly. It is envisaged that the consolidation process in the public sector Bank group is imminent, particularly as Banks will be required to attain higher capital standards under Basel II and meet the pressures of competition by adoption of the extended universal Banking model. 49
50
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
1432 1623 2044 2668 3434 4349 5221 4491 5391 6430 6453
773 891 1076 1370 1679 2358 2748 2658 3145 3744 3976
OPERATIONS In terms of overall size, the total assets of the Bank were Rs. 7083.65 crore as of March 31, 2005. The deposits of the Bank were Rs. 6452.88 crore and the advances were Rs. 3976.28 crore at the end of March 31, 2005. The net NPAs of the Bank decreased from 8.95 per cent as on March 31, 2004 to 5.83 per cent as on March 31, 2005. However, Capital Adequacy Ratio has declined from 10.13 per cent to 4.86 per cent during the same period due to the net loss incurred as a result of increased depreciation on investments, increased provisions for NPAs in view of RBI Guidelines for graded provisioning and the prudential write-off of Rs. 59.15 Crore BRANCH NETWORK OF THE BANK The total number of branches as on September 30, 2005 stood at 230 spread over in 9 states. The Bank presently offers multi-branch facility at 170 branches/offices at 85 locations. With a view to offer specialised services and meet customer expectations, the Bank has opened specialised branches for forex, treasury, Para Banking, industrial and agriculture finance business. In addition, the Bank has five Zonal offices. Bank is Depository Participant of both NSDL and CDSL carrying out this business at Pune and Mumbai respectively. 51
The cost of the deposits has been declining over past 5 years and has come down from 8.88 per cent on March 2001 to 5.52 per cent on March 2005. The average cost of deposits is shown in the following table Average Cost of Deposit (%)
Particulars Current Deposits Savings Deposits Term Deposits 2001 0.00 3.39 10.90 2002 0.00 3.41 10.48 2003 0.00 3.45 9.31 2004 0.00 3.03 7.89 2005 0.00 3.06 7.02
The deposit mix of the Bank for the last five years is as follows :
(Rs. in crore) Year ended March 31 Current Deposits Savings Bank Deposits Term Deposits} Other types of Deposits} Total 2001 605.31 648.39 3967.52 5221.22 2002 458.36 733.52 3299.15 4491.03 2003 493.32 877.67 4020.10 5391.09 2004 851.18 1068.30 4510.72 6430.20 2005 892.36 1184.38 4376.13 6452.87
Maturity Profile of Deposits : The maturity profile of deposits in the last 3 Years is as under : (Rs. in crore)
Year ended March 31 Rs. in crore Upto 1 year 1 year to 3 years 3 years to 5 years Over 5 years Total 2476.15 3096.51 527.70 352.51 6452.87 2005 Percentage 38.37 47.99 8.18 5.46 100.00 Rs. in crore 2863.71 2761.84 488.91 315.73 6430.19 2004 Percentage 44.54 42.95 7.60 4.91 100.00 Rs. in crore 3136.90 1995.12 165.29 93.78 5391.09 2003 Percentage 58.19 37.01 3.07 1.74 100.00
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Note : 1) Wholesale Deposits are taken as individual Deposits of Rs.15 lacs and above 2) Inter Bank deposits are excluded. Borrowings Top Borrowings of the Bank The borrowings of the Bank as on March 31, 2005 are given below :
Name Outstanding Amount (Rs. in crore) 9.55 23.96 4.38 Interest Rate (%) 8.75% to 13.50% 5.50% to 7.75% 2.55% Duration for which the loan facility is available 6 months Date of borrowing 18/10/2004 Repayment Terms Repayment of principal and interest payment on 15/04/2005
Total
37.89
* Refinance Servicing Behaviour The Bank has not defaulted in the payment of interest and repayment of principal to other Banks, institutions, deposit holders etc. The Bank has not defaulted in meeting statutory dues, institutional dues and dues on fixed deposits and other arrears. DETAILS OF DEPLOYMENT OF FUNDS Advances The advances of the Bank for the last four years are as under : (Rs. in crore) As on March 31 2002 2003 2004 2005 Advances (Net) 2657.67 3145.45 3744.47 3976.28 Annual Growth : Amount (90.20) 487.78 599.02 231.81 Percent (3.39) 18.35 19.04 6.19 The advances portfolio of the Bank grew by 6.19 per cent to Rs.3976.28 Crore in FY05 from Rs.3744.47 Crore in FY04. The table below sets forth approvals and disbursements by category of financing of the Bank in the last four years. 55
56
*Percentage of total advance represents percentage of Fund based advance to total net advances. Non-fund based facility is not included in the calculation of percentage of total advance. EXPORT CREDIT The details of Export credit for the past 4 years is as under : (Rs. in crore) Year ended March 31 Amount Percentage to net credit PRIORITY SECTOR LENDING In respect of Priority Sector lending the Bank has financed 43.93 per cent of the net Bank Credit towards financing priority sector as on March 31, 2005 as against the RBI stipulation of 40 per cent of net Bank Credit. The Bank has been endeavoring to increase the exposure to priority sector without diluting the quality of assets. Details of Sector-wise distribution of Priority Sector Lending for the last four years are given below : (Rs. in crore) Year ended on March 31 Agriculture SSI Other Priority Total Priority Net Advances Percentage to Net Advances Investments The following table shows pattern of investments in the last three years : (Rs. in crore) As on March 31 Gross Investments SLR Investments total - Permanent Investments/Held To Maturity - Current Investments/Held for Trading and Available For Sale Current Investments to total SLR Investments (%) 2003 1921.79 1429.85 332.70 1097.15 76.73% 2004 2423.90 1971.47 261.47 1710.00 86.74% 2005 2126.45 1650.78 812.01 838.77 50.81% 2002 221.08 429.96 464.45 1115.49 2657.67 41.97 2003 284.47 319.25 606.15 1209.87 3145.45 38.46 2004 399.47 373.75 660.05 1433.27 3744.47 38.27 2005 417.46 437.06 892.41 1746.93 3976.28 43.93 2002 212 7.98 2003 214 6.80 2004 191 5.10 2005 191.86 4.82
58
The Bank has an Integrated Treasury Branch with state-of-the-art technology manned by experienced and professional dealers well supported by dependable information, communication and risk management systems. The Treasury department plays an active role in management of Banks liabilities, mismatches in structural/ interest rate sensitive asset/liability flows and to ensure reduction in cost of funds and enhance profitability. Apart from the main objective of adherence to statutory liquidity ratio (SLR) requirements, the Banks investment department functions keeping in mind the following objectives. 1. Optimise returns and minimise risk in view of changing market conditions and future outlook; 2. To identify and diversify into new investment areas to improve profitability and spread the risk; 3. Adherence to all the provision /regulations stipulated by regulatory authority. Treasury operations of Banks have undergone sea change over the last 3 years. The volumes and depth in the securities market have multiplied over the period largely due to the introduction of electronic trading platform (NDS system) and holding of securities in electronic form. New products having varied features are introduced in the market rapidly giving more flexibility to the fund managers to deploy the funds. Risk management tools are being used to mitigate various risk arising out of treasury transaction. Reserve Bank of India has already introduced Real Time Gross Settlement (RTGS) system during this year, which is expected to bring radical changes in payment systems giving scope for newer products and services. Comparative analysis of Interest bearing Assets and Liabilities A table showing average balances and interest rates of interest earning assets and interest bearing liabilities for the last three financial years is given below :
(Rs. in crore) Year/Period ended on 31.03.2003 Avg. Bal. Interest Earning Assets Interest Bearing Liabilities 4759 4650 Avg. Interest Rate 10.02 7.70 Avg. Bal. 5416 5276 31.03.2004 Avg. Interest Rate 8.55 6.46 31.03.2005 Avg. Bal. 6219 6021 Avg. Interest Rate 7.83 5.65 30.09.2005 Avg. Bal. 6311 6147 Avg. Interest Rate 7.70 5.43
CONTROL SYSTEM IN THE BANK The Bank has well defined Control Systems in all critical areas of operation i.e. Corporate Credit, Forex, Treasury, Retail Finance, which are documented and reviewed from time to time. The Bank also has a full fledged Internal Inspection & Audit machinery through which all branches are put under regular inspection encompassing the whole range of activities, i.e. Appraisal Policies & Procedures, Credit Management, Risk Management, FOREX, Customer Focus, Customer Complaints, Adherence to various rules and Regulations, Business Development and Control, Quality of Management, Use of Delegated Authority, Internal Housekeeping, Income Leakages etc. A Risk Based Internal Audit as per RBI guidelines is made applicable to all the branches. A policy of System Audit is documented and System Audit is being conducted accordingly. The policies related to advances, investments, foreign exchange are reviewed by the Board of Directors on a regular basis. The inspection and audit of branches are reviewed by the Audit Committee of the Board (ACB) on a regular basis and the compliance to audit reports are followed up closely. 59
i.
Substandard Assets
ii.
Doubtful Assets
Provisions are arrived on all outstanding advances as under 1. Substandard Assets : a) Advances sanctioned as clean 20 per cent of the total outstanding without making allowance for DICGC/ECGC guarantee cover & security cover. b) Advances other than sanctioned as clean 10 per cent of the total outstanding without making allowance for DICGC/ECGC guarantee cover & security cover.
60
Unsecured portion
100%
Secured portion
100%
Unsecured portion
100%
3. Loss Assets 100 per cent (of the outstanding balance) In case of calculation of provision for Doubtful & Loss assets, following amount/s (if available) be deducted from the outstanding balance a) Amount received & earmarked separately, Deposits like FDRs as collateral & Subsidy amount in deposit or reserve fund. b) DICGC / ECGC claim received. Non-Performing Assets Details of Non Performing Assets of the Bank are as under (Rs. in crore) As on March 31 Gross NPA at the beginning of the year Additions during the year Reduction during the year a. Upgradation b. Cash Recovery c. Compromise & Write-off Gross NPA at the end of the year Provisions Interest suspense DICGC/ECGC Claim received Collateral Liquid Security Net NPA at the end of the year Net Advances Percentage of Gross NPA to Gross Advances Percentage of Net NPA to Net Advances # Includes Prudential write-off of s. 59.15 crore 61 2003 389.08 155.13 4.78 23.72 68.00 447.71 144.35 3.05 1.37 298.94 3145.46 13.58 9.50 2004 447.71 183.30 20.04 31.33 63.30 516.34 176.36 1.95 2.70 335.33 3747.99 13.14 8.95 2005 516.34 82.48 15.10 54.98 78.54# 450.20 212.66 1.76 3.69 232.09 3980.19 10.72 5.83
3412.65 3748.10 165.41 331.59 19.34 516.34 56.16 368.72 25.32 450.20
3928.99 4198.30 2004 86.86 4.21 8.44 0.49 13.14 100 2005 89.28 1.34 8.78 0.60 10.72 100
NPA Management strategy of the Bank The prime objective of the Banks NPA Management policy is to bring about a qualitative improvement in the credit portfolio so as to improve yield on total advances and to reduce Gross and Net NPA to meet the Regulatory prescription and match peer group benchmark. The strategies of the Bank for recovery in NPA are as under : 1. To arrest the trend of new additions in NPA by proper monitoring & follow up. 2. Efforts for upgradation of accounts, which turned NPA recently, or in last 6 to 12 months. 3. Thrust on compromise settlements. 4. Efforts for pending recovery in settled accounts. 5. Execution of decrees on hand and necessary follow up thereof. 6. Use of Securitisation Act to mop up maximum recovery. 62
The Bank has initiated action under SARFAESI Act, 2002 and the following table summarises the progress report of the same as on September 30, 2005: S. No. Particulars 1 2 3 4 5 6 7 8 9 10 11 12 Notices already served Period of 60 days over Possession taken Possession taken through Govt. machinery Possession taken during the month Notices proposed to be served during the month Notices served in reporting month Recovery obtained Recovery obtained during reporting month Accounts fully closed Advocates fees paid Other expenses made No. of Accounts 1816 1612 152 3 5 40 115 1118 77 231 20 35 (Rs. in crore) 352.99 345.16 85.25 19.53 0.41 1.32 35.98 35.13 2.49 20.98 0.01 0.02
63
Asset-Liability Mismatch The following table shows the asset-liability mismatch for the last three years
(Rs. in crore) Year 2004-05 2003-04 2002-03 1-14 days 798.67 741.98 -282.63 15-28 days 78.37 383.65 -466.55 29 days to 3 months 234.24 -14.21 189.23 3 months to 6 months -144.39 -189.56 177.56 6 months to one year -312.67 -226.97 550.67 One year to 3 years -967.12 -929.04 487.59 3 years and upto 5 years -33.16 -38.65 -255.03 5 years & above 346.06 272.80 -400.84
The Bank has put in place a comprehensive Asset Liability Management policy. It has adopted the Traditional Gap Analysis method for measuring and managing the Market Risk specially the Liquidity Risk and Interest Rate Risk. The statements of Structural Liquidity and Interest Rate sensitivity are prepared on a fortnightly basis. The statement of Dynamic Liquidity is also prepared on a fortnightly basis. These reports are used to measure and manage the market risks and are within the permissible limits. Structural Liquidity The structural liquidity as on March 31 for the last three years is given below
Maturity 1-14 days 15-28 days 29 days-3 months 3-6 months 6-12 months 1-3 years 3-5 years Over 5 years Total 31.03.2003 1112.50 601.20 580.83 355.10 381.43 1610.07 487.00 857.35 5134.45 Total Inflows 31.03.2004 31.03.2005 31.03.2003 1727.99 1695.89 829.87 561.36 296.75 134.65 975.17 1010.53 770.06 332.52 265.61 532.66 407.15 292.57 932.10 1924.34 2248.80 2097.66 489.16 502.96 231.97 1042.38 1075.75 456.51 7460.07 7388.85 5134.45 Total Outflows 31.03.2004 31.03.2005 986.01 897.22 177.71 218.38 989.38 776.28 522.08 410.00 634.12 605.23 2853.38 3215.92 527.81 536.12 769.58 729.70 7460.07 7388.85 (Rs. in crore) Mismatch 31.03.2004 31.03.2005 741.98 798.67 383.65 78.37 -14.21 234.24 -189.56 -144.39 -226.97 -312.67 -929.04 -967.12 -38.65 -33.16 272.80 346.06 0.00 0.00
31.03.2003 -282.63 -466.55 189.23 177.56 550.67 487.59 -255.03 -400.84 0.00
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Definitions : 1. Net Interest Margin: Net Interest Income minus Net Interest Expenditure 2. Return on average assets (%) (after tax): Net Profit divided by Avg. Working funds CAPITAL ADEQUACY RATIO (CAR) With a view to adopting the Basle Committee framework on capital adequacy norms which takes into account the elements of risk in various types of assets in the balance sheet as well as off -balance sheet business and also to strengthen the capital base of Banks, Reserve Bank of India decided in April 1992 to introduce a risk asset ratio system for Banks (including foreign Banks) in India as a capital adequacy measure. While computing the CAR, the balance sheet assets, non-funded items and other off-balance sheet exposures are assigned weights according to the prescribed risk weights and Banks have to maintain unimpaired minimum capital funds equivalent to the prescribed ratio on the aggregate of the risk weighted assets and other exposures on an ongoing basis. Capital For the purpose of calculating CAR, capital of a Bank is divided into two classes, viz. Tier-I Capital and Tier-II Capital.
TierI: Tier-I Capital comprises of (i) Paid-up capital, Statutory Reserves, and other disclosed Free Reserves, if any. (ii) Capital Reserves representing surplus arising out of sale proceeds of assets. TierII: Tier-II Capital comprises of undisclosed reserves and cumulative perpetual preference shares, Revaluation reserves, general provision and loss reserves, hybrid debt capital instruments, subordinated debt (with an initial maturity of at least five years). For the purpose of calculating the total capital for CRAR, the sum of Tier-I Capital and Tier-II Capital is taken into consideration, provided the Tier-II Capital should not exceed Tier-I Capital.
Risk Weighted Assets Risk adjusted assets would mean weighted aggregate of funded and non-funded items. Degrees of credit risk expressed as percentage weightings, have been assigned to balance sheet assets and conversion factors to offbalance sheet items. 65
The Disaster Recovery Site for Core Banking solution for 165 branches was tested partially in May 2004 and fully in August 2004. The year was eventful for ATM expansion drive. During the year under report 29 ATMs were added, taking the tally to 65 ATMs. The card base is 89,000. The Bank joined shared ATM Network National Financial Switch (NFS) floated by IDRBT-RBI, Hyderabad since January 26, 2005. NFS has total 11 member Banks and over 5000 ATMs across the country. The Banks customers can now use ATM cards at these 5000 ATM centres. The Bank joined RTGS system of RBI during the year. The customers of the Bank would be able to take benefit of remittance through RTGS. A number of branches have been provided with the back office software of NSDL activity through the existing TC/4 network. A centralized solution for foreign exchange (FEX) trade finance was finalized during the year. Cash Management Solution was finalized and it is currently under testing. The new Inter Branch Reconciliation (IBR) software with interface to the core and other branch systems is implemented at Head Office. The Bank also arranged for the facility of inward remittances through the tie up for Western Union Money Transfer. MIS and reporting has improved considerably. The business processes have been revamped and refined for better control and efficiency. All the IS activities are subjected to continuous audit to ensure effectiveness of the business processes. IS policy was reviewed and updated. Monthly concurrent IS audit of the data center was conducted throughout the year. The audit of ATM activities was also carried out by external auditors. Many new control procedures were defined and implemented. Training activity for TC/4 users including those for branch heads, internal inspectors continued throughout the year through 44 batches. In all 763 users underwent training on TC/4 during the year. (Total so far 1436) Over 1200 sessions were conducted with the help of in-house faculty.
67
As regards the procedural aspects, the existing system of granting authorisations for opening individual branches from time to time, would be replaced by a system of giving aggregated approvals, on an annual basis, through a consultative and interactive process. Banks branch expansion strategies and plans over the medium term would be discussed by the RBI with individual banks. The medium term framework and the specific proposals would, to 70
Credit exposure is the aggregate of : all types of funded and non-funded credit limits; investments in shares, debentures, bonds and units of mutual funds; facilities extended by way of equipment leasing, hire purchase finance and factoring services; advances against shares, debentures, bonds and units of mutual funds to stock brokers and market makers; Bank loan for financing promoters contributions; 71
To ensure that exposures are evenly distributed, the RBI requires Banks to fix internal limits of exposure to specific sectors. These limits are subject to periodic review by the Banks. Regulations relating to Investments and Capital Market Exposure Limits There are no limits on the amount of investments by Banks in non-convertible debt instruments. However, credit exposure limits specified by the RBI in respect of lending to individual borrowers and borrower groups also apply in respect of these investments. Pursuant to the RBI guidelines, the exposure of Banks to capital markets by way of investments in shares, convertible debentures, units of equity-oriented mutual funds and loans to brokers, should not exceed 5 per cent of outstanding domestic advances (excluding inter-bank lending and advances outside India and including commercial paper) at March 31 of the previous fiscal year and investments in shares, convertible debentures and units of equityoriented mutual funds should not exceed 20 per cent of the Banks net worth. In April 1999, the RBI, in its monetary and credit policy, stated that the investment by a Bank in subordinated debt instruments, representing Tier II capital, issued by other Banks and financial institutions should not exceed 10 per cent of the investing Banks capital including Tier II capital and free reserves. In December 2003, the RBI issued guidelines on investments by Banks in Non-Statutory Liquidity Ratio securities issued by companies, Banks, financial institutions, central and state government sponsored institutions and special purpose vehicles. These guidelines apply to primary market subscriptions and secondary market purchases. Pursuant to these guidelines, Banks are prohibited from investing in non-Statutory Liquidity Ratio securities with an original maturity of less than one year, other than commercial paper and certificates of deposits. Banks are also prohibited from investing in unrated securities. The Banks investment in unlisted Non-Statutory Liquidity Ratio securities may not exceed 10 per cent of its total investment in non-Statutory Liquidity Ratio securities as at the end of the preceding fiscal year. These guidelines will not apply to investments in security receipts issued by securitisation or reconstruction companies registered with the RBI and asset backed securities and mortgage-backed securities with a minimum investment grade credit rating. These guidelines will be effective April 1, 2004, with provision for compliance in a phased manner by January 1, 2005. Foreign Ownership Restrictions The Government of India regulates foreign ownership in private sector Banks. Under guidelines recently issued by the Government, total foreign ownership in a private sector Bank from all sources (FDI, FII, NRI) cannot exceed 74 per cent of the paid-up capital. The limit of 74 per cent will be reckoned by taking the direct and indirect holding. At all times, at least 26 per cent of the paid up capital of the private sector Bank will have to be held by residents. In addition, the restrictions on shareholding as provided under Restrictions on Transfer of Shares shall be equally applicable to Foreign Direct investment. Shares held by foreign institutional investors under portfolio investment schemes through stock exchanges cannot exceed 49 per cent of the paid-up capital. Individual NRI portfolio investment is restricted to 5 per cent with the aggregate limit for all NRIs restricted to 10 per cent but can be raised to 24 per cent with the approval of Board / General Body. RBI Guidelines on Ownership and Governance in Private Sector Banks RBI vide its circular dated February 28, 2005 has laid down a comprehensive framework of policy in a transparent manner relating to ownership and governance in the Indian private sector Banks as described below: The broad principles underlying the framework of policy relating to ownership and governance of private sector Banks would have to ensure that (i) The ultimate ownership and control of private sector Banks is well diversified. While diversified ownership minimises the risk of misuse or imprudent use of leveraged funds, it is no substitute for effective regulation. Further, the fit and proper criteria, on a continuing basis, have to be the overriding consideration in the path of ensuring adequate investments, appropriate restructuring and consolidation in the Banking sector. The pursuit of the goal of diversified ownership will take account of these basic objectives, in a systematic manner and the process will be spread over time as appropriate. 72
ii. In the interest of diversified ownership of Banks, the objective will be to ensure that no single entity or group of related entities has shareholding or control, directly or indirectly, in any Bank in excess of 10 per cent of the paid up capital of the private sector Bank. Any higher level of acquisition will be with the prior approval of RBI and in accordance with the guidelines of February 3, 2004 for grant of acknowledgement for acquisition of shares. iii. Where ownership is that of a corporate entity, the objective will be to ensure that no single individual/entity has ownership and control in excess of 10 per cent of that entity. Where the ownership is that of a financial entity the objective will be to ensure that it is a well established regulated entity, widely held, publicly listed and enjoys good standing in the financial community. iv. Banks (including foreign Banks having branch presence in India)/FIs should not acquire any fresh stake in a Banks equity shares, if by such acquisition, the investing Banks/FIs holding exceeds 5 per cent of the investee Banks equity capital as indicated in RBI circular dated July 6, 2004. v. As per existing policy, large industrial houses will be allowed to acquire, by way of strategic investment, shares not exceeding 10 per cent of the paid up capital of the Bank subject to RBIs prior approval. Furthermore, such a limitation will also be considered if appropriate, in regard to important shareholders with other commercial affiliations.
vi. In case of restructuring of problem/weak Banks or in the interest of consolidation in the Banking sector, RBI may permit a higher level of shareholding, including by a Bank. Directors and Corporate Governance i. The recommendations of the Ganguly Committee on corporate governance in Banks have highlighted the role envisaged for the Board of Directors. The Board of Directors should ensure that the responsibilities of directors are well defined and the Banks should arrange need-based training for the directors in this regard. While the respective entities should perform the roles envisaged for them, private sector Banks will be required to ensure that the directors on their Boards representing specific sectors as provided under the B.R. Act, are indeed representatives of those sectors in a demonstrable fashion, they fulfill the criteria under corporate governance norms provided by the Ganguly Committee and they also fulfill the criteria applicable for determining fit and proper status of Important Shareholders (i.e., shareholding of 5 per cent and above) as laid down in RBI Circular dated June 25, 2004.
ii. As a matter of desirable practice, not more than one member of a family or a close relative (as defined under Section 6 of the Companies Act, 1956) or an associate (partner, employee, director, etc.) should be on the Board of a Bank. iii. Guidelines have been provided in respect of Fit and Proper criteria for directors of Banks by RBI circular dated June 25, 2004 in accordance with the recommendations of the Ganguly Committee on Corporate Governance. For this purpose a declaration and undertaking is required to be obtained from the proposed/existing directors. 73
ii. The present policy requires RBIs acknowledgement for acquisition/transfer of shares of 5 per cent and more of a private sector Bank by FIIs based upon the policy guidelines on acknowledgement of acquisition/transfer of shares issued on February 3, 2004. For this purpose RBI may seek certification from the concerned FII of all beneficial interest. Non-Resident Indians (NRIs) Currently there is a limit of 5 per cent for individual NRI portfolio investment with the aggregate limit for all NRIs restricted to 10 per cent, which can be raised to 24 per cent with the approval of Board/General Body. Further, the policy guidelines of February 3, 2004 on acknowledgement for acquisition/transfer will be applied. Due diligence process The process of due diligence in all cases of shareholders and directors as above, will involve reference to the relevant regulator, revenue authorities, investigation agencies and independent credit reference agencies as considered appropriate. Transition arrangements i. The current minimum capital requirements for entry of new Banks is Rs.200 crore to be increased to Rs. 300 crore within three years of commencement of business. A few private sector Banks, which have been in existence before these capital requirements were prescribed have less than Rs. 200 crore net worth. In the interest of having sufficient minimum size for financial stability, all the existing private Banks should also be able to fulfill the minimum net worth requirement of Rs. 300 crore required for a new entry. Hence any Bank with net worth below this level will be required to submit a time bound programme for capital augmentation to RBI for approval.
ii. Where any existing shareholding of any individual entity/group of entities is 5 per cent and above, due diligence outlined in the February 3, 2004 guidelines will be undertaken to ensure fulfillment of fit and proper criteria. iii. Where any existing shareholding by any individual entity/group of related entities is in excess of 10 per cent, the Bank will be required to indicate a time table for reduction of holding to the permissible level. While considering such cases, RBI will also take into account the terms and conditions of the Banking licences. iv. Any Bank having shareholding in excess of 5 per cent in any other Bank in India will be required to indicate a time bound plan for reduction in such investments to the permissible limit. The parent of any foreign Bank having presence in India, having shareholding directly or indirectly through any other entity in the Banking group in excess of 5 per cent in any other Bank in India will be similarly required to indicate a time bound plan for reduction of such holding to 5 per cent. 74
vi. Banks having more than one member of a family, or close relatives or associates on the Board will be required to ensure compliance with these requirements at the time of considering any induction or renewal of terms of such directors. vii. Action plans submitted by private sector Banks outlining the milestones for compliance with the various requirements for ownership and governance will be examined by RBI for consideration and approval. Continuous monitoring arrangements i. Where RBI acknowledgement has already been obtained for transfer of shares of 5 per cent and above, it will be the Banks responsibility to ensure continuing compliance of the fit and proper criteria and provide an annual certificate to the RBI of having undertaken such continuing due diligence.
ii. Similar continuing due diligence on compliance with the fit and proper criteria for directors/CEO of the Bank will have to be undertaken by the Bank and certified to RBI annually. iii. RBI may, when considered necessary, undertake independent verification of fit and proper test conducted by Banks through a process of due diligence as described in paragraph 8. RBI Guidelines for Merger/Amalgamation of Private Sector Banks RBI has laid down guidelines for voluntary mergers involving banking companies on May 11, 2005 as described below : 1. The Reserve Bank has discretionary powers to approve the voluntary amalgamation of two Banking companies under the provisions of Section 44A of the Banking Regulation Act, 1949. 2. These powers do not extend to the voluntary amalgamation of a Banking company with a non-Banking company where amalgamations are governed by sections 391 to 394 of the Companies Act, 1956 in terms of which; the scheme of amalgamation has to be approved by the High Court. 3. However, in both situations, the Reserve Bank is concerned that while amalgamations are normally decided on business considerations such as the need for increasing the market shares, synergies in the operations of businesses, acquisition of a business unit or segment etc., it is essential that considerations like sound rationale for the amalgamation, the systemic benefits and the advantage accruing to the residual entity are evaluated in detail. 4. These guidelines cover two situations namely :(a) An amalgamation of two Banking companies (b) An amalgamation of a non-Banking finance company (NBFC) with a Banking company. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SEBI Takeover Code) Allotment in Rights Issue: In exemption from Rights Issue, three types of cases have been considered as under: 1. to the extent of ones entitlement. 2. beyond ones entitlement but not exceeding the ceiling provided in Regulation 11 i.e., 5 per cent of the total Equity Capital of the Bank. 3. additional allotment without any ceiling to the person(s) presently in control of the Bank, provided disclosures have been made in the Rights Letter of Offer that they intend to acquire additional shares if the issue is undersubscribed. Provided that this route shall not be available if the acquisition of additional shares results in the change of control of management. In view of the aforesaid provisions the acquirer, in case of Rights Issue, will have to abide by the provisions of Regulation 11 of the Takeover Code.
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77
m. To enter into any arrangements with any authorities supreme, Municipal, local or otherwise, that may seem conducive to the Banks objects or any of them and to obtain from any such authority any rights, privileges and concessions which the Bank may think it desirable to obtain and carry out, exercise and comply with any such arrangements, rights, privileges and concessions. n. To take or concur in taking all such steps and proceeding as may seem best calculated to uphold and support the credit of the Bank and to obtain and justify public confidence and to avert or minimize financial disturbances, which might affect the Bank. o. To establish and support or aid in the establishment and support of associations, funds, trusts and conveniences calculated to benefit employees or ex-employees of the Bank or the dependents or connections of such persons and to grant pensions and allowances and to make payments towards insurance and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. p. To construct, maintain and alter any buildings or works necessary or convenient for the purposes of the Bank. q. To remunerate any person or Company for services rendered or to be rendered in placing or assisting to place of guaranteeing the placing or any of the shares in the Banks capital or any debentures, debentures stock or other securities of the Bank or in or about the formation or promotion of the Bank or the conduct of its business. r. To sell or dispose of the entire undertaking of the Bank but not part of it only for such consideration as the Bank may think fit and in particular for shares, debentures or securities of any other company having objects altogether or in part similar to those of this Bank.
s. To sell, improve, manage, develop, exchange, lease, mortgage, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the Bank, and to sell & realize the proceeds of sale of any property, movable, or immovable, against which the Bank may have made advances or over which the Bank may have any power of disposal. t. To do all or any of the above things in any part of the world & as principals, agents, contractors, trustees or otherwise and by or through trustees, agents or otherwise and either alone or in conjunction with others.
u. To engage in doing any other form of business which the union government may by notification in the official gazette specify as a form of business in which it is lawful for a Banking company to engage. * v. To do all such other things as are incidental or conducive to the attainment of the above objects. * Inserted vide Special Resolution passed through Postal Ballot dated March 10, 2004. And it is hereby declared that the word Bank in this clause should be deemed to include any partnership or other body of persons whether incorporated or not incorporated, whether domiciled in British India or elsewhere and the intention is that objects specified in each paragraph of this clause shall be nowise limited or restricted by a reference to or inference from the terms of any other paragraph or the name of the Bank and that in the event of any ambiguity the paragraph or paragraphs shall be considered in such a way as to widen and not to restrict the powers of the Bank. SUBSIDIARIES OF THE BANK AND BUSINESS DETAILS The Bank has only one subsidiary namely, The Western India Trustee & Executor Co. Ltd. For more details on the subsidiary and its business please refer to page no. 105 of this Letter of Offer. SHAREHOLDERS AGREEMENTS A Memorandum of Understanding (MOU) was executed on 19th November 2002 between Shri Shivprakash Makharia, representing Makharia Family, Shri P. S. Kulkarni & Shri P. V. Tembre, representing employee 79
ii) The settlement with Maliram Makharia Stock Brokers Pvt. Ltd was given effect under consent terms dated July 11, 2003 filed before DRT, Mumbai. b) Following items of the MoU are yet to be implemented : i) The settlement with Emtex Industries (I) Ltd. has not been implemented yet and the Company has made reference to BIFR.
ii) The Powers of Attorney for giving voting rights proposed to be granted in pursuance of MoU have not so far been executed. c) The dues of Makharias proposed to be settled/settled in pursuance of MoU dated November 26, 2002 are as under:
(Rs. in crore) Name Facility Emtex Industries (I) Ltd. 1) C C 2) BG (SBLC) 1) C C Limit 27.50 USD 4 million 5.85 Balance o/s as on 31.12.2005 49.91 + Unapplied Interest 5.75 + Unapplied Interest Asset classification Doubtful Loss
The Copy of the MoU is included in the list of Material Contracts and Agreements of this Letter of Offer.
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2.
51
3.
44
4.
63
Director A/18, Shatdal CHS Ltd., Azad Lane, Off S.V. Road, Andheri (West), Mumbai 400 058
5.
55
Director, 45, Sadashiv Peth, Satara-415 002 Director, 412, Shalaka Hsg. Society, Maharshi Karve Road, Mumbai 400 021 Director, B/221, Vikasini Co-op. Hsg. Society Ltd., Plot No. 1-C, Sector-8B, CBD, Belapur, Navi Mumbai 400 614 Director, B1/21, Sarita Vaibhav S. No. 119/2, Parvati, Sinhagad Road, Pune 411 030 Director, Chitragupta, 476/16, Sadar Bazar, Near Land Development Bank, Satara 415 001 Director SICOM LTD Nirmal Bldg, 1st floor, Nariman Point, Mumbai 400 021
6.
67
7.
62
8.
40
M. Com., FCA
9.
55
10.
53
M.A. (History),IAS.
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ii. Ordinary Leave: - One month for every completed service of 11 months with maximum accumulation upto 240 days. (Ordinary Leave means Privilege Leave.) iii. Sick Leave: - 30 days for each completed year of service subject to a maximum of 18 months during entire service. 11. Leave Travel Concession: - As applicable to other Officers of the Bank. However, the facility of encashment of privilege leave, if allowed under the Banks rules can be availed of by the Chairman & CEO only after his demitting the Office. 12. Provident Fund: - 10 per cent of salary (on contributory basis) 13. Gratuity: - Payment of Gratuity as applicable to other Officers of the Bank. However, as and when the actual payment is proposed to be made to the Chairman & CEO, prior approval of Reserve Bank of India should be obtained. The requirement of minimum service for the payment of Gratuity at the time of cessation of office / resignation will not be applicable to the Chairman & CEO. 14. Insurance Cover: - Insurance Cover upto Rs. 5.00 lakhs for journey by Air/Road/Railway on official purpose. 15. Sitting Fees & Bonus: - Chairman & CEO will not be entitled to draw any sitting fees nor shall be entitled to bonus. DETAILS OF HONARARIUM PAID TO DIRECTORS The directors of the Bank are entitled for the sitting fees for attending meetings of Board and Committees thereof as per the details mentioned hereunder : S. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Particulars Board Meeting Audit Committee of the Board Management Committee of the Board Capital Raising Committee Investors Grievances Committee Information Technology Committee Strategic Planning & Monitoring Committee Nomination Committee Share Transfer Committee Amount (Rs.) 5,000/5,000/5,000/5,000/2,500/2,500/2,500/2,500/Nil
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Terms of Reference of Audit Committee: The Terms of Reference of Audit Committee of the Board has been revised by the Board of Directors w.e.f. 27-12005 in view of the new Clause 49 of the Listing Agreement 1) The Audit Committee shall have meetings periodically as it may deem fit with at least four meetings in a year and not more than four months shall elapse between any two meetings. 2) The quorum for the meeting of the Audit Committee shall be either two members or one-third of the members of the audit committee, whichever is greater, but there should be a minimum of two independent members present. 3) The Audit Committee shall invite such of the executives, to be present at the meeting of the committee whenever required by it. 4) The Asst. General Manager Accounts, Asst. General Manager Inspection & Vigilance and the Auditors of the Bank shall attend by invitation and participate at the meetings without right to vote. 5) The Audit Committee shall have all the powers to discharge its functions including, inter-alia, power: (i) to investigate any activity within its terms of reference. (ii) to seek information from any employee (iii) to obtain outside legal or other professional advice (iv) to secure attendance of outsiders with relevant expertise, if it considers necessary. 6) The role of the Audit Committee shall include the following :(i) Overseeing the companys financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. (ii) Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of statutory auditor and the fixation of audit fees. (iii) Approving payment to statutory auditors for any other services rendered by them. (iv) Reviewing with the management, the annual financial statements before submission to the Board for approval, with particular reference to : a. Matters required being included in the Directors Responsibility Statement to be included in the Boards Report in terms of clause (2AA) of section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies and practices and reasons for the same. c. Major accounting entries involving estimates based on exercise of judgment by management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any related party transactions g. Qualifications in draft audit report (v) Reviewing with the management, the quarterly financial statements before they are submitted to the board for approval.
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Terms of Reference of Share Transfer Committee : To approve Share Transfer proposals up to 1 per cent of Capital. To approve share Transmission proposals. To approve proposals of issue of duplicate share certificates To approve the proposals of Dematerialisation or Rematerialisation of shares. 86
G) Capital Raising Committee : S. No. 1. 2. 3. 4. 5. Name of Director Shri Satish K. Marathe Chairman Shri M. A. Athavale Shri A. B. Telang Shri K. H. Navandhar Shri P. B. Nimbalkar
Terms of Reference of Capital Raising Committee : Assessing the need for raising of capital. To consider alternative options of raising capital & issues involved therein including regulatory clearances, etc. The Committee shall consider appointment of Lead Managers to the Issue and also decide and settle the broader terms of issue within the parameters of SEBI (DIP) Guidelines 2000 & RBI Regulations, etc. The Committee may seek opinion from the Solicitors, may engage Consultants and avail the services of intermediaries as may be deemed necessary. To recommend to the Board on various aspects and on all matters incidental to Issue of capital.
H) Strategic Planning Committee : S. No. 1. 2. 3. 4. Name of Director Shri Satish K. Marathe - Chairman Shri G. A. Lele Shri A. B. Telang Shri P.B. Nimbalkar
Terms of Reference of Strategic Planning Committee : To prepare and recommend to the Board Strategic Business Plan.
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Satish K Marathe Mahesh Anant Athavale Lele Govind Ananad Ashok Baliram Telang Kanhiyalal H Navandhar Prakash B Nimbalkar Sharad P Upasani Umesh M Kulkarni Rajaram G Tanksale Total *
Assuming all directors are allotted Bonus Shares and all of them apply for and are allotted Rights Shares in the ratio of 1 Equity Share for every 2 Equity Shares on the post bonus share capital held on Record Date January 25,2006.
INTEREST OF THE DIRECTORS OF THE BANK The Directors of the Bank are interested to the extent of shares held by them and relatives or which may be subscribed by them and/or allotted to them by the Bank. The Directors of the Bank are interested to the extent of fees, if any, payable to them for attending meetings of the Board or Committee and reimbursement of traveling and other expenses, if any, for such attendance as per the Articles of Association of the Bank. The Directors of the Bank are not interested in the appointment of or acting as Underwriters, Registrars and Bankers to the Issue or any such intermediary registered with SEBI. The Directors of the Bank are not interested in any property acquired by the Bank within two years of the date of Letter of Offer or proposed to be acquired by it. Save as stated above, no amount or benefit has been paid or given to the Banks Directors or Officers since its incorporation nor is intended to be paid or given to any Directors or Officers of the Bank except the normal remuneration and/or disbursement for services as Directors, Officers or Employees of the Bank. The Directors of the Bank are not interested in any loan or advance given by the Bank to any person(s)/ company/ companies nor are they beneficiaries of any loan or advance except as provided below as on: A. Loans & Advances
(Rs. in crore) Name Relationship SICOM Ltd. Directors are on Banks Board Facility 2. Short Term Loan (against FDR) Limit 20.00 23.25 Two SICOM nominated 1. BG / LC Balance o/s as on 31.12.2005 0.57 8.25 Asset classification Standard Standard
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Deposits accepted from SICOM Ltd. Date of Deposit 10.10.2005 10.10.2005 10.10.2005
Facility TOD
Limit
CHANGES IN DIRECTORS The changes in the directors of the Bank in the last three years are given below : A) Changes during the year 2002-03 :
S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 Name of Director (Shri/Smt.) K. R. Chandratre Smt. P. P. Kulkarni V. M. Govilkar A. B. Telang V. B. Agarwala S. T. Gadre J. S. Kawale K. H. Navandhar S. N. Gogate Dr. A. S. Sathe S. P. Upasani P. M. Khire Satish K. Marathe Date of Appointment / Resignation / Completion of term 09.08.2002 18.10.2002 29.10.2002 29.10.2002 29.10.2002 31.10.2002 28.12.2002 28.12.2002 28.12.2002 28.12.2002 28.12.2002 28.12.2002 31.12.2002 Reason for Change Resigned Resigned Appointed as a Director to fill Casual Vacancy caused by the resignation from the office of Director by Shri K. R. Chandratre Appointed as an Additional Director Appointed as an Additional Director Ceased to be Managing Director Elected to the office of Director at the 65th AGM held on 28.12.2002 Elected to the office of Director at the 65th AGM held on 28.12.2002 Since did not seek re-election, ceased to be Director Since did not seek re-election, ceased to be Director Since did not seek re-election, ceased to be Director Since did not seek re-election, ceased to be Director Appointed as Chairman & CEO of the Bank as per RBI approval
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7 8
07.01.2006 12.01.2006
OTHER DETAILS: 1. Depository Services Department : Depository Participant of National Securities Depository Ltd. [DPID NO.: IN 300505] Tilak Bhavan 1st Floor, 486, Sadashiv Peth, LBS Road, Pune 411 030 Tel: (020) 2433 5548/49/50 Fax: (020) 2433 5546 Depository Participant of Central Depository Services Ltd., [DPID No: 26100] 19/A, Rajaram Estate, Mumbai Marathi Granthasangrhalaya Marg, Dadar (East), Mumbai 400 014 Tel : (022) 2418 5285 Fax: (022) 2418 5133 2. ISIN No. of the Share of the Bank: INE165A01013 3. UWB Scrip is listed at : i) Bombay Stock Exchange Ltd. (Security Code: 500430) ii) The National Stock Exchange of India Ltd. (Security Code: UNIWESTBNK) 91
General Manager
Chief A. G. M. Manager (Legal (MIS, Cell) Business Dev. Dept) Chief Manager (Legal
Company Secretary
A. G. M. (Operations)
Chief Manager
Chief Manager
Chief Manager
Chief Manag
Chief Manag
A. G. M.
Chief Manager
Chief Manager
Chief Manag
Chief Manag
Chief Manager
Chief Manager
Chief Manager
KEY MANAGERIAL PERSONNEL The day-to-day operations of the Bank are looked after by the Chairman & CEO who is assisted by an experienced and able team comprising General Managers, and others. Bank has identified following key management personnel the brief details of whom are as under :
Name, Designation & Functional area Satish Kashinath Marathe Chairman & CEO Sanjeev Bhaskar Date General Manager Ratnakar Dinkar Tandale General Manager Ashok Raghunath Kulkarni Qualification Experience in the Bank (years) B. Com., L.L.B. (General), Diploma in Journalism 36 years M. Sc. 29 years M. Sc., B. Ed., LL.B., CAIIB-I 27 years M. Sc., CAIIB-I 30 years Date of Appointment 31.12.2002 Previous Employment CEO, Janakalyan Sahakari Bank Ltd., Mumbai Asst. General Manager, Bank of Maharashtra Worked as a Lecturer in a college affiliated to Pune University for 1 year. Nil
Except the Chairman and CEO the above persons are on rolls of the Bank as permanent employees. The Bank also has in place a Zonal Structure where Zonal Heads are administratively and functionally responsible for all actions in their respective zones. The Zonal Heads are Senior Executives of the Bank.
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REMUNERATION OF KEY MANAGERIAL PERSONNEL The details of salary paid during the last and current financial year are as under :Period 01.04.2004 to 31.03.2005 01.04.2005 to 30.09.2005 For Shri S. B. Date Rs. 3,21,912.63 Rs. 2,15,537.28 For Shri R. D. Tandale Rs. 3,60,987.60 Rs. 2,25,856.08 For Shri. A. R. Kulkarni Rs. 3,51,527.00 Rs. 2,10,783.03
Besides monthly salary, the General Managers are eligible for other fringe benefits/ perquisites such as leave travel concessions, reimbursement of yearly medical aid, hospitalisation expenses, pension or contributory provident fund etc. General Managers have also been provided with residential quarters and bank maintained cars. The perquisites provided to them include free use of landline telephone and cell phone both at office and residence. BONUS OR PROFIT SHARING PLAN FOR THE KEY MANAGERIAL PERSONNEL There has been no bonus or profit sharing plan for the Key Managerial Personnel of the Bank. CHANGES IN KEY MANAGEMENT PERSONNEL The changes in the key management personnel in the last three years are given below : Sr. No. 1. Name of Employee Shri D. G. Patwardhan (E.D. Non Board Level) Ashok R. Kulkarni General Manager Date of Appointment 04.01.2002 Resignation / Completion of term 03.01.2005 Reason for Change Ceased from the services of the Bank on completion of 3 years of contractual terms Promoted to Scale VII and appointed as General Manager
2.
11.11.2005
HUMAN RESOURCES The Bank has a highly motivated and proactive team of qualified employees who are the key assets of the organization. They have been imparted necessary training in technology and Banking domain. The Staff Training College of the Bank designs and conducts routine as well as specialized training courses for the employees of various cadre through which it is ensured that knowledge enrichment is taken place among the employees. The overall training process acts as an effective catalyzer for desired attitudinal change in the competitive environment. For honing skills and ensuring effective succession planning employees from various departments are nominated to reputed institutions to undergo specialized training programs. Various reward and welfare schemes are in place for the employees, which keep their morale high. The retired employees are contended and also contributing to the development efforts of the Bank through various ways.
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The Banks employees are its key assets and they have been a major contributing factor in the performance of the Bank. To provide a qualitative and timely service the Bank continued to stress on aspects like efficiency, prompt and quick service to its customers. Necessary training has been imparted to the staff members both at the Staff training College of the Bank and at specialist out side organizations to upgrade the skill of the employees. Adequate training has been imparted for up gradation of skills to operate improved technology. ESOS/ESOP SCHEME OF THE BANK During the year 2000 the management with an intention of introducing an ESOP scheme created a Trust in the name of The United Western Bank Employees Equity Trust. The Trust was created to purchase the Banks equity shares from the secondary market and with respect to the allotment of shares among the employees it was decided that on the acceptance of an offer of the shares in whole or in part; the employee shall undertake to pay on the date of distribution, the average cost of acquisition and pro-rata cost of shares incurred by the Trust. However on directions of RBI the Trust sold its equity holding at the prevailing market price. The Employee Unions in the Bank purchased these shares. Therefore, the said scheme of ESOP could not be implemented. SEBI ORDER AGAINST SHAREHOLDERS OF THE BANK On August 31, 2004, SEBI issued order against Shri Murli Lekhraj and the Sanwa Group of Companies, shareholders of the Bank, with respect to price manipulation of the Banks stock. A brief on the case is given as under: In the matter, SEBI had received various complaints with respect to price manipulation of the shares of UWBL and therefore ordered an investigation into the affairs related to buying, selling and dealing in the shares of UWBL. The investigation revealed that various cross deals were executed in the shares of UWBL by Sanwa Finance Pvt. Ltd. (SFPL), Sanwa Developments Pvt. Ltd. (SDPL), Jayem Exports Pvt. Ltd. (JEPL) (hereinafter collectively referred as the Sanwa Group) who had a common director i.e., Shri Murli Lekhraj resulting in the manipulation of the share price of UWBL during the period of October- November 2000. In view of the above, SEBI vide its Order dated 31st August, 2004 debarred Shri Murli Lekhraj and Sanwa Group of Companies from accessing the Securities Market and from buying, selling or dealing in securities for a period of two years from the date of the Order. The aforesaid Order did not contain any observations/ strictures / directions against any Directors/ Officials/ Employees of the Bank. As a part of good governance practice the SEBI order dated August 31, 2004 in the above matter is reproduced here under: MO/68/IVD/08/04 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003 READ WITH SECTION 11B OF THE SEBI ACT, 1992. AGAINST SHRI MURLI LEKHRAJ, SANWA FINANCE PVT. LTD., M/S SANWA DEVELOPMENT PVT. LTD., Shri JANAK VASWANI AND M/S. JAYEM EXPORTS PVT. LTD., IN THE MATTER OF M/S UNITED WESTERN BANK LIMITED 94
s s
Sanwa Finance Ltd. Sanwa Finance Ltd. Sanwa Dev. P. Ltd. Sanwa Dev. P Ltd. Sanwa Finance Ltd. Janak Vaswani Sanwa Finance Ltd. Sanwa Finance Ltd. Sanwa Finance Ltd.
SSPL had executed 52 cross deals amounting to 432670 shares on behalf of its clients. The cross traded quantity accounted for 59.36% of the gross market quantity for settlement no.2000045 and 2.84% of the gross market quantity for settlement no.2000046. 95
4. In view of the findings of investigation, as stated above, SEBI issued a notice dated October 27, 2003 to Shri Murli Lekhraj, among others, calling upon him to show cause as to why directions under Section 11B of SEBI Act, 1992 and Regulations 3 and 4(1) and (2)(a), (b) and (e) of SEBI (Fraudulent & Unfair Trade Practices relating to the securities market) Regulations, 2003 should not be issued against him inter alia for manipulating the price of the scrip of UWBL. In the said notice, SFPL, SDL JEPL and Shri Janak Vaswani were also called upon to show cause why directions under Section 11B of SEBI Act, 1992 and Regulations 3 & 4 of SEBI (Fraudulent & Unfair Trade Practices relating to the securities market) Regulations, 2003 should not be issued against them for aiding & abetting Shri Murli Lekhraj in manipulating the price of the scrip. The said entities were advised to furnish their reply within 21 days of the receipt thereof and it was also indicated that if they failed to furnish their reply within the stipulated time, it would be presumed that they had no explanation to offer and that SEBI would take action as it deemed fit. 5. Shri Murli Lekhraj on his behalf as well as on behalf of SFPL, SDPL, JEPL, SSPL, and Sino Securities Pvt. Ltd (member, BSE and also having Shri Lekhraj as its director), vide his letter dated November 27, 2003, inter alia challenged the contents of the show cause notice and also refuted acting through SSPL, SFPL, SDL and in the said process violating Regulation 3 and 4(a), (b) and (c) of chapter II of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the securities market) Regulations, 1995, prevalent at that time. Shri Lekhraj further denied that as the promoter director of SSPL, he was responsible for creating a false market and manipulating the price of the scrip of UWBL and subsequently, offloading his holding in an off-market deal to the Trust or that SFPL, SDL and JEPL had aided and abetted him in manipulating the price of the scrip. It was further stated that although they had requested for various relevant details from SEBI, they had not been provided with the full copies of the recorded statements of Mr. P. N. Joshi, Mr. S. T. Gadre, Mr. S. V. Joshi, Mr. Vadodkar and Mr. N. J. Mathur, officials of UWBL. On the basis of the above, while seeking the inspection of the documents mentioned, it was requested that the proceedings against them be dropped in view of the submissions made above and that they be granted a personal hearing. I have noted that Shri Murli Lekhraj and his companies were provided with the copies of all the documents as requested by them and also relevant extracts of the recorded statements of the bank officials. 6. In view of the request for a personal hearing, Shri Lekhraj and the Sanwa Group were advised to appear before me for a hearing on March 05, 2004. On the said date, the said entities reiterated that they were not guilty of any default and that no action should be taken against them as the allegations contained in the show cause notice were incorrect. 7. I have taken into consideration the facts and circumstances of the case and the material available on record which includes the facts leading to the investigation, submissions made on behalf of Shri Lekhraj and the Sanwa Group, the findings of the investigation, the show cause notice and the reply of the parties to the same. 96
11. I have noted that on account of SFPL being the top individual shareholder of UWBL (other than the financial institutions), and as a consequence of the takeover threat to the bank, the bank management/officials were in constant touch with Shri Murli Lekhraj. I have also noted that Shri S. T. Gadre, Executive Director of UWBL had met Shri Lekhraj to apprise him of the banks view/standing with regard to the takeover threat faced by the bank, from SICOM Ltd. In view of the same, Shri Murli Lekhraj would have been aware of the attempts of the bank to consolidate its holding by buying shares in the open market, towards avoiding the takeover threat from SICOM. I have also noted that the Sanwa Group is said to have sold 1205816 shares in an off market deal to the Trust on 14 th November 2000. These facts were also substantiated by Shri Lekhraj himself during the time of his statement recording on 12.12.02. I have noted the fact that during the recording session, Shri Lekhraj essentially stated that being an investor looking for profit, he was willing to sell his holdings to the party, which paid the right price. He had further stated that Shri N J Mathure, Deputy General Manager, UWBL and Shri S T Gadre, Executive Director of the bank had approached him, seeking his support and proxy in the forthcoming EOGM of the bank, which was to be held on 24.11.00. 12. I have also noted Shri Lekhrajs contention that around the 10th or 11th of November, he telephoned Shri P N Joshi, Chairman, UWBL and offered to sell his entire holding for a price of Rs.100/- per share and that on 97
100
28. In view of the above findings, I am convinced that Shri Lekhraj, through his associate companies, manipulated the price of the scrip and gave an impression of false volume by executing a series of cross deals through the exchange, at a time when he was also in the process of fixing the price for selling his holding to the UWBL Trust. By the aforesaid acts, Shri Murli Lekhraj, acting through SSPL as its promoter director, initially created a false market and manipulated the price, with the help of its group companies. Subsequently, he offloaded his holding in an off-market deal to the UWBL Trust. He, as the director of SSPL, a registered member of NSE, was fully aware of the Rules and Regulations of SEBI. By the aforesaid acts he has not maintained standards of integrity, promptitude and fairness and has indulged in manipulative, fraudulent and deceptive transactions for his own personal gain, which led to the disruption of the smooth functioning of the market.
101
102
PAYMENT OF BENEFIT TO OFFICERS OF THE BANK (NON-SALARY RELATED) No amount or benefit has been paid or given within the two preceding years nor intended to be paid or given to any officer of the Bank. PROMOTERS There is no identifiable promoter or promoter group. The Directors of the Bank hold 5600 equity shares of the Bank amounting to 0.018 per cent of the share capital of UWB. RBI INSPECTION The Banks activities are governed by Banking Regulation Act, 1949. RBI, as a supervisor, oversees the activities of the Bank. RBI conducts an annual financial inspection of the Bank. Simultaneously, branch inspection is also carried out. Discussions with the management of the Bank also form a part of the inspection and surveillance process. The Bank is audited by statutory auditors approved by RBI. PREVIOUS ISSUES OF PROMOTERS Not applicable since there are no identifiable promoters.
103
WITECO has presently 3 Branches viz. Mumbai, Pune & Satara and has dedicated staff of over 30 professionals. WITECO is also empanelled as Receiver with DRT Mumbai. Till 1999, WITECO was predominantly engaged in Management of Public- Religious, Educational and Charitable Trusts & Private Trusts. However due to opening of the new vistas WITECO during the year 1999 diversified its activities in the field of Debenture Trusteeship by obtaining SEBI License. Recently WITECO again diversified its activities by undertaking other Trusteeship activities such as Security Trustee, Securitisation Trustee, Sharewarehousing and Venture Capital Trustee. ISO 9001:2000 Certification To strengthen the existing systems and procedures carried out at the various offices of the company, it was decided by WITECO to go for system audit certification and company succeeded in obtaining ISO 9001:2000 Certification, which is testimony of the fact that the systems & procedures are effective and resilient to take care of the requirements of our esteem corporate & other clients. The ISO Certification will certainly enhance the image. Main Business Brief particulars about main activities undertaken by WITECO are given as under : 1. Debenture Trusteeship WITECO is presently acting as debenture trustee in 189 issues of various Central Government and State Government Corporations, Multi National Companies and top industrial Groups/ Houses of India. The portfolio under Trusteeship is well over Rs. 29314 crore. 2. Security Trusteeship WITECO has diversified its activities as Security Trustee in 30 issues and presently its portfolio under Trusteeship is well over Rs.9680 crore. 3. Securitisation Trusteeship WITECO has also identified Securitisation Trusteeship as thrust area and thereby concentrating on this activity. Its present portfolio of Securitisation trustee is well over Rs.16851 crore in 70 issues. 104
Excluding revaluation reserves and after deducting miscellaneous expenditure not written-off or adjusted)
** Net Asset Value is calculated as Total Assets less deferred tax liability WITECO is an unlisted company and therefore the details of its public issue such as year of issue, amount of the issue, stock market data of equity share, etc. is not applicable. Further, it is certified that there has been no change in the capital structure of WITECO in the last six months.
105
ii) Rent and other charges Liabilities : Deposits (d) Details of Transactions relating to persons referred to in item (b) above : Remuneration paid to :Shri. S. K. Marathe (Chairman & CEO) Remuneration (Including PF Contribution) Perquisites
Rs. 4,09,08,130.54
Rs. 8,25,000.00
Rs. 1,17,134.00
106
In case any bank does not meet the above CRAR norm, but is having a CRAR of atleast 9 per cent for the accounting year for which it proposes to declare dividend, it would be eligible to declare dividend provided its net NPA ratio is less than 5 per cent. (ii) The Bank should comply with the provisions of Sections 15 and 17 of the Banking Regulation Act, 1949. (iii) The Bank should comply with the prevailing regulations/ guidelines issued by RBI, including creating adequate provisions for impairment of assets and staff retirement benefits, transfer of profits to statutory reserves and investment fluctuation reserve, etc. (iv) The proposed dividend should be payable out of the current years profit after deducting the extra-ordinary items of income. (v) Reserve Bank should not have placed and explicit restrictions on the Bank for declaration of dividends. As the Bank is regulated by Reserve Bank of India as any other Banking entity, the dividend policy of the Bank is in line with the guidelines issued by RBI from time to time in this regard. The following are the dividend payouts on Equity Shares in last 5 years by the Bank : Financial Year Rate (%) 2000-01 2001-02 2002-03 2003-04 2004-05 * 10 15 15 05 Not Recommended Dividend Amount* (Rs. in crore) 3.29 4.48 5.06 1.69 Not Recommended
107
2.2.2
108
(ii) Details of Investment (Annexure A Part IV) (iii) Statement of Financial Ratios (Annexure A Part V) (iv) Capitalisation Statement (Annexure C Part I) (v) Tax Shelter Statement (Annexure C Part II)
(vi) Principal Terms of Borrowing (Annexure C Part III) 2.4 The Summary Statements do not take into account or make any adjustments for the events subsequent to audit report dated June 28, 2005 on the financial statements for the financial years ended upto March 31, 2005. 3. We have issued a report of even date on our examination of the restated Consolidated Statement of Assets and Liabilities of the Bank and its subsidiary as at March 31, 2005, March 31, 2004 and March 31, 2003 and related restated Consolidated Statement of Profits and Losses for the financial years ended March 31, 2005, March 31, 2004 and March 31, 2003 together with the notes thereon and attached thereto including the significant accounting policies. 4. In our opinion, the financial information of the Bank, as attached to this report, as mentioned in paragraph 2 above, after making groupings/adjustments have been prepared in line with Paragraph B (1) - Part II of Schedule II of the Act and the SEBI Guidelines. 5. This report is intended solely for your information and inclusion in the Letter of Offer in connection with the proposed Rights Issue of the Bank and is not to be used, referred to or distributed for any other purpose without our prior written consent. M. P. Chitale & Co. Chartered Accountants
Ulhas Chitale Partner Membership No.: 32292 Place: Pune Date : December 12, 2005
109
110
Adjustments resulting from audit qualification, material amounts relating to adjustments for previous years and changes in accounting policies :
For the Year/Period ended Net profit/(Loss) as per Audited Accounts Adjustment for Add/(Less): Accounting for initial contribution to Pension Fund Gratuity Contribution Pension Contribution Leave Encashment Floating Provision Investment valuation Adjusted Profit/(Loss) after excluding extraordinary items Impact on Reserves & Surplus Total Increase /(Decrease) in Assets/Liabilities (cumulative) Nature of Adjustments Assets Total increase/(decrease) in Assets Liabilities Reserve & Surplus Total increase (Decrease) in Liabilities (1.82) (1.82) 1.47 (3.29) (1.82) 4.66 4.66 2.22 2.44 4.66 3.74 3.74 3.74 3.74 (3.29) (3.29) 2.44 2.44 3.74 3.74 3.36 (2.62) (2.56) (1.47) (18.97) 3.36 0.66 0.64 (2.22) 28.20 3.36 1.96 1.92 (5.00) 1.50 31.24 31.3.2001 (15.68) 31.3.2002 25.76 31.3.2003 27.50 31.3.2004 30.96 31.3.2005 (Rs. in crore) 30.9.2005 (27.55)
(98.64)
Note : As regards qualification regarding an overdraft facility in the Audit Report dated June 28, 2005, there is no impact on the above results and the balance outstanding as on March 31, 2005 has been subsequently recovered. 111
45.33 559.98 648.39 839.34 3128.18 5221.22 96.46 96.46 97.65 90.00 5505.33 207.69 29.89 65.98 0.03 105.79 6.00 177.80 207.69
21.77 436.59 733.52 206.38 3092.78 4491.04 197.78 197.78 101.83 90.00 4880.65 228.96 29.89 72.42 0.17 14.00 105.79 6.69 199.07 228.96
40.21 453.11 877.67 567.45 3452.65 5391.09 47.04 4.70 51.74 128.65 121.20 5692.68 255.00 29.89 79.33 0.17 29.50 114.38 1.73 225.11 255.00
38.07 813.11 1068.30 834.70 3676.01 6430.19 40.12 19.91 60.03 168.95 176.20 6835.37 280.90 29.89 87.13 0.19 49.25 114.38 0.06 251.01 280.90
24.86 867.50 1184.38 632.50 3743.63 6452.87 33.51 4.38 37.89 214.23 134.70 6839.69 221.69 29.89 87.13 0.19 49.25 55.23 191.80 221.69
43.35 835.05 1257.38 423.27 3397.16 5956.21 34.49 5.28 39.77 138.69 114.70 6249.37 221.69 29.89 87.13 0.19 49.25 55.23 191.80 221.69
112
Details of Disputed Income Tax Liability as on March 31, 2005 S. No. Particulars 1) 2) 3) Appeals pending before Mumbai High Court Appeals pending before ITAT Pune Appeals pending before CIT (Appeals II), Pune Total Major issues disputed in appeals are : S. No. Particulars 1) 2) 3) 4) Notes : (1) Bank has made entire payment of Income Tax Demand raised before filing appeals with respective Appellate Authorities. (2) No Contingent liability is recognised for appeals filed by Income Tax Department against judgments in favour of the Bank. ANNEXURE A Part III: DETAILS OF DIVIDEND For the Year ended Dividend Paid (%) No of Equity Shares of Rs.10/- each a) Amount of Dividend paid b) Dividend Tax paid c) Amount of total Dividend paid (a+b) 31.03.2001 10% 2,98,87,722 2.99 0.30 3.29 113 31.03.2002 15% 2,98,87,722 4.48 4.48 31.03.2003 15% 2,98,87,722 4.48 0.58 5.06 31.03.2004 5% 2,98,87,722 1.49 0.20 1.69 (Rs in crore) 31.03.2005 2,98,87,722 Claim of Bad Debts Disallowance made u/s. 14A Loss on ESOP scheme Other issues Total Amount (Rs. in crore) 8.03 17.51 2.94 5.89 34.37 Amount (Rs. in crore) 0.89 14.08 19.40 34.37
Definitions : 1. Working funds is the monthly average of total assets during the year. 2. Operating profit = (Interest income + other income - interest expense - operating expense) 120
1-14 Days 15-28 Days 29 days to 3 months Over 3 months to 6 months Over 6 months to 12 months Over 1 year to 3 years Over 3 years to 5 years Over 5 years Total
Notes : s Assets and liabilities are classified as per the guidelines issued by the Reserve Bank of India. s Advances are net of bills rediscounted. s Investments are net of reverse repurchase options. s Foreign currency assets do not include those assets that have been swapped out of the rupee funds and hence these are placed in the domestic currency maturity profile. (d) Exposure to Sensitive Sectors : (Rs. in crore) 31.03.2005 31.03.2004 Capital Market Sector* 42.06 61.90 Real Estate Sector 55.89 44.83 Commodities sector 117.95 117.53 Total 215.90 224.26 * These amounts represent lending to customers in those sectors or against collateral directly linked to that sector. (e) Financing of equities and investments in shares : (Rs. in crore) 31.03.2005 31.03.2004 Equity shares 32.06 31.90 Convertible bonds and debentures NIL NIL Preference shares 15.27 30.27 Equity linked units 10.00 30.00 Total 57.33 92.17 Note: Values stated in above table are Gross Values before depreciation. 121
(g) Movement of net provision in depreciation on investments : (including overdue matured Investments) (Rs. in lacs) As at 1 April, 2004 898.24 Add: Provisions made during the year 1352.20 Less: Write-off, write back of excess provision during the year NIL As at 31 March, 2005 2250.44 (h) Investments in India : (Rs. in crore) Year Ended 31.03.2005 31.03.2004 Gross Investment 2137.79 2431.17 Less: Provision for Depreciation/NPA/Amortisation 35.44 18.05 Net Investment * 2102.35 2413.12 * Includes Government Securities pledged to Clearing Corporation of India Rs.3.58 crore (F. V. Rs.2.70 crore) and State Bank of India Rs.1.25 crore (F.V. Rs.1.50 crore). (i) Non Performing Non SLR Investments : (Rs in crore) Particulars Held under Held under Investments Other Assets Opening Balance 5.00 14.16 Additions during the year since 1 st April 0.00 0.00 Reductions during the above period 2.00 0.99 Closing Balance 3.00 13.17 Total Provisions held 1.60 10.32 (j) Issuer composition of Non SLR Investment :
S. Issuer No. 1 2 3 4 5 6 7 PSUs FIs Banks Private Corporates Subsidiaries/Joint Ventures Others Gross Investment Less: Provision held towards depreciation /NPA Total Amount Extent of private placement 257.44 117.02 24.00 34.06 0.00 26.00 458.52 0.00 458.52
(Rs. in crore)
Extent of below Extent of Extent of placement grade unrated unlisted Securities Securities Securities 5.00 43.96 116.70 0.00 87.64 82.64 0.00 16.01 14.00 2.00 15.04 16.64 0.00 0.08 0.08 15.00 3.50 24.00 22.00 166.23 254.06 0.00 22.00 0.00 166.23 0.00 254.06
122
2269.54
2608.12
4292.55
4027.43
2583.85
2800.99
4041.62
3865.43
Notes: 1. The Bank has recognised Business Segment as the Primary reporting Segment and no geographical segment is recognised in view of the fact that the Bank has only domestic operations. The Business Segments are identified as : a) Treasury Operations (includes dealing in Government and other securities, Money Market Operations and Forex Operations in India) b) Other Banking Operations- includes all other Banking operations other than treasury operations. 2. Basis of allocation to Treasury Segment: Interest paid is allocated on the basis of average cost of average funds utilised by Treasury. Employee cost is allocated in the ratio of average funds utilised to average deposits and borrowings. Average cost of funds is the ratio of interest paid to average working funds deployed. Miscellaneous expenses are allocated on the basis of percentage of Segment Revenue. 13. Cash Flow Statement (Rs. in crore) Particulars 31-03-2005 31-03-2004 Cash Flow from Operating Activities Net Profit /(Loss) as per P&L a/c (98.64) 30.96 Adjustment forDepreciation on Fixed Assets 14.53 14.35 Lease Equalisation Charge 0.82 1.20 Provisions & Contingencies 182.06 101.84 (Profit)/Loss on sale of Fixed Assets 0.06 0.00 Expenses/(Income) not related to Operating activities 14.83 17.32 Operating profit before working capital changes 113.66 165.66 Adjustment for(Increase)/Decrease in Investments 242.85 (509.39) (Increase)/Decrease in Advances (322.95) (674.87) Increase/(Decrease) in Borrowings (22.14) 8.29 Increase/(Decrease) in Deposits 22.68 1039.11 (Increase)/Decrease in Other Assets (24.23) (34.38) 124
Timing Differences 1. 2. 3. 4. 5. 6.
Net Adjustments (A and B) Tax burden/ (Saving) thereon From Permanent Difference From Timing Difference Total Tax on profit before extraordinary items Tax provision made in books a) Current Tax provision b) Deferred Tax Provision*
Note : The above statement has been prepared based on information from Income Tax Computation filed with the tax returns for each individual year and not based on assessed income. * The Bank has adopted AS-22 Accounting for Taxes on Income from the year ended March 31, 2003.
127
In India SIDBI * NABARD * Total Outside India Syndicate Bank, London 4.38 2.55% 179 days October 18,2004 Repayment of principal and interest on April 15, 2005. Total 37.89 9.55 * 23.96 * 33.51 8.75%- 13.50% 5.50%- 7.75% Various Dates Various Dates
* Refinance facility for various schemes. ANNEXURE D Part I: ADDITIONAL INFORMATION A. Major components of Deferred Tax Assets/Liabilities : (Rs in crore) Particulars Deferred Tax Assets: Provision for Non Performing Advances Provision for Non Performing Investments Staff Costs Others Sub-total Less: Deferred Tax Liabilities: Depreciation on Fixed assets Interest on securities Sub-total Deferred Tax Asset 7.47 12.80 20.27 34.05 8.81 8.81 48.30 8.18 8.18 54.88 38.39 4.50 5.08 6.35 54.32 39.38 3.88 5.80 8.05 57.11 39.38 4.01 6.52 13.14 63.06 2002-03 2003-04 2004-05
128
31.03.2004 31.03.2005 31.03.2003 31.03.2004 31.03.2005 275.44 105.56 99.56 184.87 27.66 195.42 28.09 47.18 339.48 42.46 320.46 41.18 367.50 70.02
Notes : 1. The Bank has recognised Business Segment as the Primary reporting Segment and no geographical segment is recognised in view of the fact that the Bank has only domestic operations. The Business Segments are identified as :a) Treasury Operations (includes dealing in Government and other securities, Money Market Operations and Forex Operations in India) b) Other Banking Operations- includes all other Banking operations other than treasury operations. 2. Basis of allocation to Treasury Segment: Interest paid is allocated on the basis of average cost of average funds utilised by Treasury. Employee cost is allocated in the ratio of average funds utilised to average deposits and borrowings. Average cost of funds is the ratio of interest paid to average working funds deployed. Miscellaneous expenses are allocated on the basis of percentage of Segment Revenue.
129
Note: Figures of previous year have been regrouped where necessary D. Important notes for various years : FOR THE YEAR END MARCH 31, 2001: a) Land & Buildings were revalued on 31st March 1993. As per the valuation certified by the approved valuers, the net increase of Rs. 12.93 crore over the book value based on historical costs less depreciation provided till 31st March 130
134
135
(D G Kurundwadkar) Proprietor Membership No. 35602 Shree Narayan Bhuvan, 1627, Sadashiv Peth, Gopal Gayan Samaj Marg, Pune 411 030 Date : 20.12.2005 Place : Satara
136
137
138
D) Depreciation
Add/Less: 3) Short/Excess Provision for I Tax for previous years 4) Deferred Tax Provision Profit after tax Balance Carried from Balance Sheet DTL Write back Less: Appropriations General Reserve Special Reserve Dividend Equalisation Res. Investment Fluctuation Reserve Proposed Dividend Tax on Proposed Dividend Interim Dividend Tax on Interim Dividend Balance Carried to B/S
139
0.0002 0.0212 0.0883 0.3456 0.2985 0.0089 0.0102 0.0014 0.0773 0.1394 0.0010 0.0007 0.0245 0.0664 1.0622 0.0625 0.7545 0.3185 0.0622 0.0645 0.0033 0.1638 0.6180 0.0025 0.0012 0.0618 0.0698 0.0621 2.2447 0.0801 0.4004 0.9035 0.0756 0.0617 0.0939 0.3931 1.6431 0.0065 0.0011 1.2963 0.0622 5.0175 0.0562 0.4780 2.1370 0.1070 0.0011 0.4350 1.7563 0.6980 0.0053 0.0075 1.7104 0.0442 7.4360 0.3096 0.2317 3.5495 0.4064 0.0093 0.0066 1.3269 2.2108 0.0053 0.0228 1.5026 0.0287 9.6316
0.0003 0.0000 0.2917 0.1741 5.4241 0.2574 0.0191 0.0268 0.0000 2.9921 0.0053 0.0320 1.4078 0.0287 10.6593
0.4954 0.0132 0.0063 0.0012 0.0000 0.0000 0.0000 0.0125 0.0013 0.5299 0.5323 0.0500 0.0002 0.0500 0.3700 0.0110 0.0000 0.0500 0.0011 0.5323
0.5021 0.0159 0.0347 0.0014 0.0065 0.0000 0.0197 0.0000 0.0000 0.5803 1.6644 0.0500 0.0002 0.0500 0.6200 0.0110 0.0000 0.0500 0.8832 1.6644
0.3406 0.1943 0.0001 0.0019 0.0378 0.0000 0.0000 0.0250 0.0031 0.6028 4.4147 0.0500 0.0002 0.0500 0.7226 0.0110 0.5000 0.0500 2.3155 0.7154 4.4147
0.3124 0.3143 0.0241 0.0022 0.0312 0.0000 0.0000 0.0250 0.0031 0.7123 6.7237 0.0500 0.0002 0.0500 4.5316 0.0110 1.0000 0.0500 0.0010 1.0299 6.7237
0.2813 0.3907 0.7017 0.0025 0.0045 0.0000 0.0000 0.0500 0.0070 1.4377 8.1939 0.0500 0.0002 0.0500 6.4500 0.0110 1.5000 0.0500 0.0084 0.0743 8.1939
0.1558 0.4395 0.6360 0.0025 0.0045 0.0018 0.0000 0.0500 0.0070 1.2972 9.3620 0.0500 0.0002 0.0500 6.4500 0.0110 1.5000 0.0500 1.1866 0.0642 9.3620
140
Fixed Assets 2.1 2.2 Fixed Assets are stated at historical cost, except land, which is stated at revalued cost. Depreciation on Fixed Assets is provided on the Written Down Value method, at the rates prescribed under Schedule XIV of the Companies Act, 1956. Depreciation is calculated by taking applicable rates and on additions during the quarter, it is provided on pro-rata basis, from the date asset is put to use.
Investments Investments, being in the nature of long-term investments are stated at cost of acquisition. Deposits Balance in Clients Deposits Account is net of Investments, Fixed Deposits that are represented by Bank Balances of the Company held in own name or in the names of respective Trusts. Revenue recognition The rates for fees for various Trusteeship services offered by the Company are negotiated by the Company Management. Income is recognized on accrual basis, except where mentioned otherwise. More particularly: I Debenture Trusteeship Fees : (i) Debenture Trusteeship Fees are recognized from dates, which can be date of acceptance or date of allotment or date of documentation or date of issue of debentures. For the period under this Audit, the fees have been calculated proportionately. In respect of redemptions, the bills up to the date of redemption have been raised and the said amount has been also shown as income. (ii) In case of Joint Trusteeship Accounts with ICICI, the fees are accounted for as and when Companys share of Joint Trusteeship Fees is received from ICICI. However, during the period under audit, no Joint Trusteeship Fees have been received from ICICI. As the amount of fees is not known, the proportionate fees for Joint Trusteeship have also not been accounted for. 141
30.09.2005
31.03.2005
1908163.00 642288.00
2030861.00 743143.00
914383.48 194870.67 654193.33 1763447.48 600270.00 14279.00 77.00 146327.00 35495000.00 2316796.74 3096333.80 41669083.54
For the Year/Period ended Rent Paid by the WITECO to the Bank Rent Paid by the Bank to the WITECO
(Amount in Rs.) 31.03.2003 31.03.2004 31.03.2005 30.09.2005 240538 450540 147072 600270 229632 300000 114816
For the Year/Period ended Rent Collection Fees received from Bank Rent of Premises received from Bank Interest received on fixed deposits at normal rates from Bank 143
(Amount in Rs.) 30.09.2005 31.03.2005 1690.40 2939.00 114816.00 229632.00 1631718.00 2385843.37
(Amount in Rs.) Key Management Personnel Remuneration Managing Director 6. Payment to Auditors: Statutory/Tax For other services Reimbursement of Expenses 7. Particulars of Employees Information pursuant to Sec.217 (2A) of the Companies Act 1956 read with Companies (Particulars of Employees Rules, 1975) which forms part of this report is not given as none of the employees comes under this category. 8. Previous half years figures have been regrouped and rearranged wherever necessary to conform to the current quarters presentation. ANNEXURE B Part III: SIGNIFICANT CHANGES IN ACCOUNTING POLICIES BETWEEN 01.04.2001 AND 30.09.2005. 1. From the year Financial Year 2001-2002 Company follows Cash Basis of Accounting for purpose of Income Tax. Accordingly Income Tax Returns for Assessment Year 2002-03, 2003-04, 2004-05 were filed with Income Tax Department under Cash Basis of Accounting for computation. 2. From the Financial Year 2004-2005 Company follows Mercantile Basis of Accounting for the purpose of Income Tax also. Accordingly, Income Tax Return for the Assessment Year 2005-06 had been filed with Income Tax Department under Mercantile Basis of Accounting for computation. AUDITORS QUALIFICATIONS FOR WHICH ADJUSTMENTS COULD NOT BE CARRIED OUT There are no material audit qualifications for which adjustments could not be carried out in the accounts for the period 01.04.2001 to 30.09.2005. Adjustments resulting from audit qualifications, material amounts relating to adjustments for previous years and 144 Half year ended 30.09.2005 534347.00 Half year ended 30.09.2005 45101.00 5454.00 Year ended 31.03.2005 849064.00 Year ended 31.03.2005 91710.00 10000.00 4181.00
Annexure: A Part V Various Financial Ratios Particulars Earning Per Share (Rs.) Return on Net Worth (%) New Worth = Paid Up Capital plus Reserves less Revaluation Reserve & Deferred Tax Liability PAT including DTL Write back Net Asset Value Per Share (Rs.) NAV= Total Assets less DTL & Revaluation Reserve 31.03.2001 45.10 42.36 5322775 31.03.2002 230.85 69.34 16643135 31.03.2003 468.09 63.27 36992584 31.03.2004 404.52 35.52 56937021 31.03.2005 441.08 27.16 81195434 30.09.2005 235.64 12.67 92977635
145
146
(ii) Details of Transactions relating to persons referred to in item (i) above : Remuneration paid to i) Shri. S. K. Marathe Remuneration Perquisites ii) Shri N. J. Mathure Remuneration & Perquisites 3. Basic EPS and Diluted EPS : Basic Earning per share is Rs. (32.05) (previous year Rs. 10.84) is calculated based on the Net Profit for the year (after provision for taxation) and the average number of Equity Shares outstanding during the year of 2,98,87,722. Reconciliation between basic and diluted earnings per equity share : 2004-2005 Nominal value per share (Rs.) 1. Basic earnings per share (Rs.) 2. Effect of potential bonus equity shares per share (Rs.) 3. Diluted earnings per share (Rs.) 10.00 (32.05) 5.34 (26.71) 2003-2004 10.00 10.84 1.81 9.03 Rs. 8,49,064/(Chairman) Rs. 8,25,000/Rs. 1,17,134/-
Basic earning per share has been computed by dividing net profit for the year by weighted average number of equity shares outstanding during the period. Diluted earning per share has been computed by dividing net profit for the year by weighted average number of equity shares and dilutive potential equity shares outstanding during the period. The following is the reconciliation of the earnings used in the computation of basic and diluted earnings per share: 2004-2005 1. Earnings used in Basic earnings per share (Rs.000) 2. Impact on profit of potential bonus issue (Rs.000) 3. Earnings used in diluted earnings per share (Rs.000) (96,43,44) NIL (96,43,44) 2003-2004 32,39,57 NIL 32,39,57
Reconciliation of weighted average number of equity shares used as denominator in computing basic and diluted earnings per share : 2004-2005 1. Weighted average number of equity shares used as denominator in computing Basic (EPS) 2. Effect of potential issue of Bonus shares 3. Weighted average number of equity shares used as denominator in computing diluted EPS 148 2,98,87,722 59,77,545 3,58,65,267 2003-2004 2,98,87,722 59,77,545 3,58,65,267
Notes : Expenses, assets and liabilities wherever directly related to segments have been accordingly allocated to segment and wherever not directly related have been allocated on the appropriate basis 1. The Bank has recognised Business Segment as the Primary reporting Segment and no geographical segment is recognised in view of the fact that the Bank has only domestic operations. The Business Segments are identified as : a) Treasury Operations (includes dealing in Government and other securities, Money Market Operations and Forex Operations in India) b) Other Banking Operations- includes all other banking operations other than treasury operations. 2. Basis of allocation to Treasury Segment : Interest paid is allocated on the basis of average cost of average funds utilised by Treasury. Employee cost is allocated in the ratio of average funds utilised to average deposits and borrowings. Average cost of funds is the ratio of interest paid to average working funds deployed. Miscellaneous expenses are allocated on the basis of percentage of Segment Revenue. 5. Cash Flow Statement : Particulars Net Profit /(Loss) as per P&L a/c Adjustment forDepreciation on Fixed Assets Lease Equalisation Charge Provisions & Contingencies (Profit)/Loss on sale of Fixed Assets Expenses/(Income) not related to Operating activities Operating profit before working capital changes 149 31.3.2005 (96.43) 14.78 0.82 183.52 0.07 14.83 117.59 (Rs. in crore) 31.3.2004 32.99 14.52 1.20 103.17 16.05 167.93
150
31.03.2003 31.03.2004 31.03.2005 31.03.2003 31.03.2004 31.03.2005 31.03.2003 282.41 105.84 275.44 105.56 184.87 27.67 339.45 42.54 320.39 41.14 367.46 70.03 4.28 3.58
31.03.2004 31.03.2005 31.03.2003 31.03.2004 31.03.2005 4.70 3.41 5.09 3.66 626.14 151.96 120.22 31.74 1.89 0.00 29.85 600.53 150.11 99.56 50.55 17.56 0.00 32.99 557.42 101.36 195.43 (94.07) 2.36 0.00 (96.43)
Unallocated Expense (including provisions) Profit before tax Income Taxes Extraordinary Profit/Loss Net Profit OTHER INFORMATION Segment Assets Unallocated Assets Total Assets Segment liabilities Unallocated Liabilities Total Liabilities 2311.33 2800.99 2583.85 3251.44 3865.43 4037.53 4.43 3.88 9.69 2085.06 2608.04 2269.46 3429.60 4027.43 4292.55 3.25 3.96 5.67
Notes : Expenses, assets and liabilities wherever directly related to segments have been accordingly allocated to segment and wherever not directly related have been allocated on the appropriate basis 1. The Bank has recognised Business Segment as the Primary reporting Segment and no geographical segment is recognised in view of the fact that the Bank has only domestic operations. The Business Segments are identified as : a) Treasury Operations (includes dealing in Government and other securities, Money Market Operations and Forex Operations in India) b) Other Banking Operations- includes all other banking operations other than treasury operations. 2. Basis of allocation to Treasury Segment : Interest paid is allocated on the basis of average cost of average funds utilised by Treasury. Employee cost is allocated in the ratio of average funds utilised to average deposits and borrowings. Average cost of funds is the ratio of interest paid to average working funds deployed. Miscellaneous expenses are allocated on the basis of percentage of Segment Revenue.
151
152
THE UNITED WESTERN BANK LIMITED WORKING RESULTS AND OTHER INFORMATION
Information as required to be given vide Ministry of Finance circular No. F2/5/SE/76 dated February 5, 1977 read with circular of even number dated March 8, 1977 is given below: 1. Working results of the Bank (Unaudited) for the halfyear ended September 30, 2005 given below: Particulars Interest earned Other Operating Income Total Income Profit Before Depreciation & Tax Depreciation Provisions & Contingencies (including provision for tax) Net Profit/(Loss) Amount (Rs. in crore) 242.80 33.16 275.96 46.17 6.98 66.74 (27.55)
2. There are no material changes and commitments affecting the financial position of the Bank since the date of the last Balance Sheet save as mentioned on page no. 109 of this Letter of Offer. 3. (a) Week-end Prices for the last four weeks on the National Stock Exchange is as follows: Period December 30, 2005 December 23, 2005 December 16, 2005 December 09, 2005 High (Rs.) 62.00 64.75 68.40 65.00 Low (Rs.) 60.00 63.00 64.50 63.00
(b) Current price of the equity shares of the Bank on the National Stock Exchange as on December 30, 2005 is Rs. 61.40. PARTICULARS REGARDING LISTED COMPANIES UNDER THE SAME MANAGEMENT WHICH HAVE MADE CAPITAL ISSUES DURING THE LAST THREE YEARS There are no listed companies under the same management within the meaning of Section 370(1B) of the Companies Act, 1956, which have come out with a Public or a Rights Issue.
153
THE UNITED WESTERN BANK LIMITED MANAGEMENT DISCUSSION & ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Shareholders should read the following discussion of Banks financial condition and results of operations together with audited financial statements for each of the financial year ended March 31, 2002, 2003,2004 and 2005, including the notes thereto and the reports thereon, which appears on page no. 130 of this Letter of Offer. The following discussion is based on audited financial statements for financial year 2002, 2003, 2004 & 2005, which have been prepared in accordance with Accounting Standards applicable in India, and on information available from other sources. Our financial year-ends on March 31 of each year, so all references to a particular fiscal are to the twelve-month period ended March 31 of that year. Unless otherwise indicated, all financial and statistical data relating to the Banking industry in the following discussion is derived from various industries repots. (Rs. in crore) For the Year/Period ended I. INOCME 1 Interest Earned on 1.1 Interest and discount on advances/bills 1.2 Income on investment 1.3 Interest on balances with RBI and other inter -Bank deposits 1.4 Others 2 Other Income 2.1 Commission, Exchange and brokerage 2.2 Profit on exchange transactions (net) 2.3 Profit on sale of investments (net) 2.4 Profit on sale of Land, building & other assets (net) 2.5 Income from Dividends 2.6 Profit /(Loss) on revaluation of Investments (Net) 2.7 Miscellaneous Income (net) Total Income II EXPENDITURE 1 Interest Expended 1.1 On Deposits 1.2 On RBI/ inter Bank borrowings 1.3 On Tier II Bonds 1.3 On Others 2 Operating Expenses 2.1 Payments to and provisions for employees 2.2 Rent, taxes and lighting 2.3 Printing and stationery 2.4 Advertisement and publicity 2.5 Depreciation on Banks property 31.03.2003 31.03.2004 31.03.2005 30.09.2005
285.24 174.54 15.57 1.79 27.98 8.04 90.04 0.14 18.54 621.88
270.87 178.78 12.02 1.06 27.42 8.56 76.05 0.02 21.12 595.90
303.18 168.58 8.48 6.38 28.18 10.36 1.90 (0.07) 0.02 25.38 552.39
154.06 85.08 3.56 0.10 15.06 5.01 1.65 (0.03) 0.04 11.43 275.96
154
155
Interest Income:
The Bank recorded an interest income of Rs. 242.80 crore during the half-year ended September 30, 2005 compared to Rs. 486.61 crore earned in financial year 2004-05. The total advances of the Bank as on September 30, 2005 were Rs. 3396.24 crore compared to Rs. 3976.28 crore as on March 31, 2005. The yield on advances comes to 8.27 per cent for half-year ended September 30, 2005 and 8.31 per cent for financial year ended March 31, 2005 and for the same period the yield on Investment was 7.50 per cent and 7.40 per cent respectively, when compared on annualised basis.
Other Income:
The other income of the Bank stood at Rs. 33.15 crore for half-year ended September 30, 2005 compared to Rs. 65.77 crore for financial year 2004-05.
Interest expended:
The total interest expended during first half-year is Rs. 166.73 crore compared to Rs. 340.09 crore for the financial year 2004-05. The total deposits of the Bank as on September 30, 2005 were Rs. 5956.21 crore compared to Rs. 6452.87 crore as on March 31, 2005. The cost of deposit comes to 5.33 per cent for the half-year ended September 30, 2005 and 5.52 per cent for financial year ended March 31, 2005, when compared on annualised basis.
Operating expenses:
Operating expenses incurred during half-year ended September 30, 2005 are Rs. 70.03 crore and Rs. 128.87 crore during financial year 2004-05.
Net Profit:
For the half-year ended September 30, 2005 the Bank has incurred loss of Rs. 27.55 crore compared to net loss of Rs. 98.64 crore for financial year 2004-05. The loss is mainly attributed to depreciation of G-sec portfolio while making it mark-to-market. Comparison of significant items of income and expenses for the financial year ended March 31, 2005 and the financial year ended March 31, 2004.
Interest Income:
Interest income has gone up by 5.16 per cent from Rs. 462.73 crore for 2003-04 to Rs. 486.62 crore for the year ended 2004-05. Increase in interest income is attributed to increase in interest and discount on advances and other income. The total interest on advances registered 11.92 per cent rise from Rs. 270.87 crore to Rs. 303.18 crore. The increase in interest on advances can be attributed to increase in the total advances from Rs. 3744.47 crore in 2003-04 to Rs. 3976.28 crore in 2004-05. Income from investment has come down by 5.70 per cent, i.e., from Rs. 178.78 crore in 2003-04 to Rs. 168.58 crore in 2004-05. Investment has shown declined trend from Rs. 2413.12 crore in 2203-04 to Rs. 2102.35 crore in 2004-05 due to fall in interest rate regime and lesser opportunities. Other components of interest income have not shown much variation.
Other Income:
Other income of the Bank decreased by 50.61 per cent from Rs. 133.17 crore in 2003-04 to Rs. 65.77 crore in 2004-05. Decrease in other income is mainly attributed to decrease in profits from sale of investment as a result of upward movement in interest rates. Commission & brokerage has marginally improved from Rs. 27.42 crore in 2003-04 to Rs. 28.18 crore in 2004-05. Other components of income have remained almost same during 2003-04 and 2004-05. 156
Operating expenses:
Operating expenses have increased by 5.45 per cent from Rs. 122.22 crore in 2003-04 to Rs. 128.88 crore in 2004-05. Increase in operating cost is attributed to overall increase in Rent, Taxes, Repairs & Maintenance cost in normal course of business.
Net Profit:
During the year 2004-05, the Bank has incurred loss of Rs. 98.64 crore (after transfer of Rs. 59.15 crore from Revenue and other Reserves, the carried forward loss to the Balance Sheet is Rs. 36.06 crore). It is mainly attributed to increased requirement of provisions and contingencies by Rs. 80.22 crore from Rs. 101.84 crore in 2003-04 to Rs. 182.06 crore in 2004-05. The increase in NPA provisions was due to the requirement of graded provisioning as per RBI Guidelines. Prudential Write-offs have been taken to the extent of Rs. 59.15 crore during the year 2004-05. The write-offs have been accounted through Provisions and Contingencies, though the equivalent amount has been used from Revenue Reserves by transferring it to Profit and Loss Appropriation Account. Also, in view of rising interest rate scenario, the investments portfolio entailed a depreciation of Rs. 67.00 crore. A provision of Rs. 20.65 crore was made towards the wage arrears payable to the employees to conform to the Accounting Standard 29. Comparison of significant items of income and expenses for the financial year ended March 31, 2004 and the financial year ended March 31, 2003.
Interest Income:
Interest income has decreased by 3.02 per cent from Rs. 477.14 crore in 2002-03 to Rs. 462.73 crore for the year ended 2003-04. Decrease in interest income is attributed to decrease in interest and discount on advances and interest on balances with RBI and other inter-Bank. Other components of interest income have remained almost same during 2002-03 and 2003-04.
Other Income:
Other income of the Bank decreased by 7.99 per cent from Rs. 144.74 crore in 2002-03 to Rs. 133.17 crore in 2003-04. Decrease in other income is mainly attributed to decrease in commission, exchange and brokerage and profits from sale of investment. Other components of other income have remained almost same during 2002-03 and 2003-04.
Interest expended:
Total interest expended has decreased by 4.84 per cent from Rs. 358.25 crore in 2002-03 to Rs. 340.88 crore in 2003-04. There is decrease in interest on deposit by 4.92 per cent during 2003-04 as compared to last year 2002-03. Other components of interest expended have remained almost same during 2002-03 and 2003-04.
Operating expenses:
Operating expenses have declined by 2.66 per cent from Rs. 125.57 crore in 2002-03 to Rs. 122.22 crore in 2003-04.
Net Profit:
Net Profit of the Bank has increased from Rs. 27.50 crore in 2002-03 to Rs. 30.96 crore in the year 2003-04 showing an increase of 12.58 per cent. Comparison of significant items of income and expenses for the financial year ended March 31, 2003 and the financial year ended March 31, 2002.
157
Other Income:
Other income of the Bank decreased by 5.15 per cent from Rs. 152.60 crore in 2001-02 to Rs. 144.74 crore in 2002-03. Decrease in other income is mainly attributed to decrease in commission, exchange and brokerage and profits from sale of investment. Other components of other income have remained almost same during 2001-02 and 2002-03.
Interest expended:
Total interest expended has decreased by 8.40 per cent from Rs. 391.11 crore in 2001-02 to Rs. 358.25 crore in 2002-03. There is decrease in interest on deposit by 8.22 per cent during 2002-03 as compared to 2001-02. Other components of interest expended have remained almost same during 2001-02 and 2002-03.
Operating expenses:
Operating expenses have increased by 25.02 per cent from Rs. 100.44 crore in 2001-02 to Rs. 125.57 crore in 2002-03. Increase in operating cost is attributed to overall increase in Payments to and provisions for employees, Rent, Taxes, & other expenditure in normal course of business.
Net Profit:
Net Profit of the Bank has increased from Rs. 25.76 crore in 2001-02 to Rs. 27.50 crore in the year 2002-03 showing an increase of 6.75 per cent.
Other matters:
Unusual or infrequent events and transactions: 2004 2005 1. As per the option given by RBI, the Bank had prudently transferred certain SLR securities from AFS to HTM category of Investments and the resultant depreciation of Rs. 42.63 crore had to be charged to Profit and Loss Account. 2. As per the Industry level agreement signed on June 2, 2005, the Bank has made provision of Rs. 20.65 crore for wage arrears payable to employees to conform to the Accounting Standard - 29. 3. Transfer from Revenue Reserve to Profit and Loss Appropriation Account to the extent of Rs. 59.15 crore has restricted the losses carried to Balance Sheet at Rs. 36.06 crore. 2002 2003 1. Leave encashment liability accounted for on accrual basis instead of pay as you go basis previously followed decreased Revenue Reserves by Rs. 11.53 crore and an amount of Rs. 2.64 crore was charged Profit and Loss Account. 2. Recognition of Deferred Tax Assets and Liabilities in accordance with AS-22 resulted in addition of Rs. 20.12 crore in Revenue Reserves and deferred income tax expenses of Rs. 13.93 crore. 3. The method for determining cost for valuation of Investments, in Held for Trading category and Available for Sale category changed from FIFO to Weighted Average Method and thereby increased profit to the extent of Rs. 1.50 crore. 4. A floating provision of Rs. 5 crore against NPA was made out of balance lying in Profit and Loss Account instead of charging to the same. 158
159
Customer of the branch used to tender foreign currency, which he received as an advance payment from foreigners. This currency was accepted and Foreign Inward Remittance Certificate/Bank Realization Certificates were obtained from the branch. On the strength of these certificates the said customer sought DEPB or DBK benefits from Customs and Directorate General of Foreign Trade. Proceedings are initiated by the Enforcement directorate against the Bank and some of the officials under charges of gross negligence in frauds committed by M/s Hamco in relation to the provisions of Exchange Control Manual and FERA.
30.05.2005
A show cause notice is served on the Bank and one of its employees alleging violation of some sections of Customs Act.
187.70
Interim reply to the notice is submitted by the Bank. The matter is pending.
Overseas
Enforcement Directorate
25.11.2003
The charge of conspiracy, instigation, engagement and aid have been alleged against the Bank and its some officials
13.50
The appeal is filed before the Appellate Tribunal for Foreign Exchange Delhi against the orders passed by the Enforcement Directorate. The appeal is at the stage of hearing.
It is learnt that Company Application Number 17 of 2002 and 18 of 2002 have been filed at the High Court of the Judicature of Bombay. In this application, reportedly the Bank is one of the Respondents, but the same have not been served on the Bank yet.
Litigation involving Civil Offences: Details of cases, suits or writs with claims of more than Rs. 50 lacs as on September 30, 2005:
S. No. Background of the Case Branch / Name of the Court before which litigations are pending Name of parties Date of filing the suit Allegations Amount involved (Rs.) Current status
The suit is based on alleged defamation of the plaintiffs by the Bank due to informing M/s. Sanchayani, one of his clients, about the defaulter status of the plaintiffs.
Sukrut Realtors
06.09.1994
Defamation
2,00,00,000
160
161
IDA 4/2002
IDA 5/2002
IDA 6/2002
Central Govt. Industrial Tribunal, Jabalpur Central Govt. Industrial Tribunal, Jabalpur Central Govt. Industrial Tribunal, Jabalpur Central Govt. Industrial Tribunal, Jabalpur Central Govt. Industrial Tribunal, Nagpur Central Govt. Industrial Tribunal, Nagpur Central Government Industrial Tribunal, Panji
307/1997
284/1997
318/1997
Cross Examination
158/1998
16/2002
10
127/2002
11
74/1989
All the above-mentioned cases are identical in nature and earlier judgements of Supreme Court in similar cases are in favour of the employers. Litigation involving Statutory Offences There have been no litigations against the Bank involving Statutory Offences. There are no Small-scale undertakings/creditors to which the Company owes any sum exceeding one lac where payment is outstanding for a period of more than 30 days. Defaults There have been no defaults made by the Bank to its depositors, creditors, lenders, debenture holders, etc. and the payment of interest and repayment of principal on its subordinated debt have been made on the due dates. Also the bank has not defaulted in meeting any of its Statutory and Institutional dues. 162
1. 2.
1993-94 1994-95 1994-95 1995-96 1995-96 1995-96 1995-96 1995-96 1996-97 1996-97 1997-98
1. 2.
Claim of Bad Debts written-off allowed short Other residual issues Prima-face adjustment on account of claim of Bad Debts written-off Claim of Bad Debts written-off allowed short Prima-face adjustment on account of claim of Bad Debts written-off Claim of Bad Debts written-off allowed short Other residual issues Claim of deduction u/s 80M allowed short Depreciation on leased vehicles allowed at lower rate Depreciation on leased vehicles allowed at lower rate Claim of deduction u/s 80M not allowed Prima-face adjustment on account of Deduction u/s 80M Depreciation on leased vehicles Prima-face adjustment on account of Claim of Bad Debts Other residual issues Disallowance u/s 14A Disallowance of deduction u/s 80M Claim of Bad Debts allowed short Depreciation on leased vehicles allowed at lower rate Prima-facie adjustment on account of Claim of Bad Debts Depreciation on leased vehicles Disallowance u/s 14A Claim of Bad Debts allowed short Depreciation on leased vehicles allowed at lower rates
3.
03.05.99
1997-98
ITAT Pune
18.05.05
1997-98
ITAT Pune
6.
11.03.02
1998-99
ITAT Pune
18.05.05
1998-99
ITAT Pune
1. 2.
163
8.
20.01.05
2000-01
9.
08.03.04
2001-02
10.
27.12.04
2002-03
11.
2002-03
34.37
Notes: 1. The Bank has made entire payment to Income Tax Dept. before filling Appeals with respective Appellate Authorities. 2. No Contingent Liability is recognized for Appeals filed by Income Tax Department against judgments in favour of the Bank. Other Litigations A. The Reserve Bank of India 1. On November 8, 1995 the Reserve Bank of India imposed penalty of Rs. 5.00 lakh, u/s. 47A of the Banking Regulation Act, 1949, in respect of violation of its instructions/guidelines in connection with Bridge Loan sanctioned to M. S. Shoes (East) Ltd. (MSSL) at the time of the its Public Issue. The amount was disbursed in favor of the main banker of MSSL and UWB could not keep a track of end use of funds. RBI imposed the penalty on the ground that the responsibility of ensuring the end use of the finance provided by each bank rest with that bank individually. 2. On September 5, 1997 the Reserve Bank of India imposed penalty of Rs. 5.00 lakh, u/s. 47A of the Banking Regulation Act, 1949, in respect of violation of its instructions/directives in connection with 91 Bills Discounting Transactions amounting to Rs. 78.79 crore entertained by branches in Mumbai Zone. The Bank did not follow the proper procedure of discounting the bills and later the Bank had to classify all such overdue bills as NPAs. 3. On May 30, 1998 the Reserve Bank of India imposed penalty of Rs. 10.00 lakh in respect of irregular transactions in respect of Makharia Group of Companies. The Bank had provided credit facility by way of an overdraft to M/s. Emtex Industries (India) Ltd. (Emtex) of Rs. 6.88 crore. The Bank had also sanctioned Letter of Credit facility to the group companies of Makharias. RBI observed that the credit facility granted to Emtex was done for the sole purpose of enabling Makharia group of companies to subscribe to the Rights Issue of the Bank and LC facility was provided with a view to prevent the Makharia group companys account turning into NPAs. 4. On December 29, 1998 the Reserve Bank of India issued Letter of Displeasure in respect of lapses on the part of the Bank in respect of issuance of Stock Invest at Chennai Branch. There were certain irregularities in the issuance of Stock Invest at the Chennai Branch in respect of group accounts of one Shri V. K. Jain. The Bank represented the case to RBI and restrained the Chennai Branch from issuing any Stock Invest without the permission of controlling office and later the Bank discontinued the scheme in totality. 5. On January 15, 1999, the Reserve Bank of India imposed penalty of Rs. 5.00 lakh on the grounds that the Bank had allowed Gujarat Telephone Cables Ltd., parent company of GTCL Mobilecom Technology Ltd. to use its cash credit facility for subscribing to the capital issue of the latter. 164
iii) The United Western Bank Ltd. Officers Organisation SEBI had conducted investigations in the scrip of The United Western Bank Ltd. (UWB) during the period of 01.10.2000 to 31.12.2000 and observed that all the three entities have not followed the provisions of Spot delivery contract while trading in the scrip of UWB as specified under Section 2(i) read with section 13 of SCR Act, 1956 and had warned all the above three entities not to undertake such transactions in future and follow the statutory provisions strictly. (Source: SEBI letter no. IVD/ID1/PKN/JJ/21554/03 dated November 13, 2003) C. Pending Appeal under Section 10F of the Companies Act 1956 before the High Court of Judicature of Bombay : The Bank had filed following Petitions with Company Law Board, Principal Bench, New Delhi :-
165
17 . 10. 2005
166
Against the Directors of the Bank There are no outstanding litigations, disputes or penalties against the Directors of the Bank, including tax liabilities, economic offences, criminal or civil prosecution for any offence, irrespective of whether specified under any enactment in Paragraph 1 of Part I of Schedule XIII, of the Companies Act, 1956 or any other liability in their personal capacities or as Director/Partner/Sole Proprietor in the Company or any other company/firm. There are no litigations against the Directors involving violation of statutory regulations or criminal offences. No disciplinary action has ever been taken by the Securities and Exchange Board of India or Stock Exchanges and no penalty has been imposed by any authority. There is no suit pending against the Directors in capacity as director or partner or sole proprietor in any other company/firm. Other than as stated above, there are no disputes/litigations towards tax liabilities or any criminal or civil prosecutions against the Bank for any offence; economic or otherwise. No criminal proceedings have been launched against the Bank under any of the enactment irrespective of whether specified in paragraph 1 of part I of Schedule XIII of the Companies Act. Cases filed By the Bank In the normal course of banking business, the Bank has filed 3643 suits before various Courts/Tribunals for recovering net amount of Rs. 874.93 crore. Details of top 10 cases filed by the Bank are as under:
S. No. Name of the party Background of the Case Name of the Court before whom litigations are pending Date of filing the suit Amount involved (Rs.) Current Status
The company was sanctioned Cash Credit, Working Capital Demand Loan and Letter of Credit etc. facilities by the Bank against the BALAJI IND. personal guarantee of Directors and charge CORPORATION on movables of the company along with the charge on current and fixed assets of its sister concern. Failure of the company to repay the above facilities resulted in filing of recovery suit against it.
DRT, CHENNAI
29-Aug-02
379306511.85
The suit before DRT is at the stage of hearing. However the company has approached BIFR as sucH the matter is stayed.
The company was sanctioned various fund based / non-fund based facilities in a consortium arrangement against security of hypothecation of its current assets, receivables and mortgage DRT, MUMBAI of immovable properties. Because of the failure of the company to repay the said facilities the Bank has filed recovery suit on 1.12.2001.
01-Dec-01
374415872.92
As the reference before BIFR is pending the suit before DRT is kept sine die.
167
The company was sanctioned various fund / non-fund based facilities in consortium with other SAAR TELE Banks. The facilities are sanctioned against the DRT, JABALPUR TECHNOLOGIES mortgage of factory plots / building and six residential flats. Since the company did not make the payment of its dues a recovery suit has been filed against it on 4.6.2002.
04-Jun-02
335717322.00
The company was sanctioned various fund / non-fund based facilities in consortium with other Banks against the second charge on companys plot at Chakan. Due to the default of the DRT, PUNE company to repay the loan a suit was filed against it, which is decreed on 2.1.2004 in favour of the Bank.
07-Feb-00
319300000.00
HELLO AGRO
Various credit facilities were sanctioned to the company in 1994 against the security of its gross block, open plots, flats etc. Since the default was DRT, JABALPUR made by the company in repayment of the facilities a recovery suit has been filed against the company on 25.2.2004.
25-Feb-04
257085738.65
PENTASOFT TECH
The company was sanctioned various fund / non fund facilities like C/C, WCDL, L/C, B/G etc. against the pari passu charge over its inventory, receivables, fixed assets etc. There is also a collateral security of equitable mortgage on pari passu basis over two buildings. In view of failure of the company to repay the loan a suit has been filed against it on 11.8.2003.
DRT, CHENNAI
11-Aug-03
245022488.12
The suit before DRT is at the stage of filing of written statement by defendants.
VAISHALI AROMATIC
Various credit facilities like C/C, FCTL etc. were sanctioned to the Company in 1999. The facilities are secured by first charge on fixed block of the DRT, companys assets and house properties. In AURANGABAD view of the default of the company to repay the loan, Bank has filed a recovery suit in DRT, Aurangabad on 24.5.2002.
24-May-02
194306726.00
The Bank has got att achment of mortgaged properties. Attachment of personal properties is also sought. The properties are put for sale through DRT. Out of claim amount, Rs. 1.64 crs. have been recovered from the company as per consent terms of OTS. However, the company has failed to adhere to the consent terms and therefore further recovery proceedings are initiated.
168
SNK OVERSEAS
The company was sanctioned L/C facilities of Rs. 11.00 crore. Since the said facility got devolved and since the devolved amount has not been paid by the company the Bank has filed a recovery suit against it on 16.3.2001.
DRT, NAGPUR
16-Mar-01
165709410.00
MOREPEN LAB
The company was sanctioned various credit facilities and investment was also made in its non-convertible debentures. Due to nonpayment of credit facilities and amount of debentures, suit has been filed against it on 28.12.2004. The Bank has pari passu charge on movables of the company, which is recorded with ROC.
DRT, PUNE
28-Dec-04
155288000.00
10
The company was sanctioned various credit facilities against the security of hypothecation / mortgage of fixed assets along with mining rights. The Bank filed suit against the company in the year 2000 because of its failure to repay its facilities. A Recovery Certificate has been obtained in the matter on 11.12.02.
DRT, MUMBAI
19-Dec-00
152807000.00
The break-up of the cases filed by the Bank above Rs. 50 lacs (including the above given top 10 cases) is given as under : S. No. 1 2 3 4 5 Amount of claim (Range wise) From Rs. 50 lacs upto Rs. 1 crore Above Rs. 1 crore upto Rs. 5 crore Above Rs. 5 crore upto Rs. 10 crore Above Rs. 10 crore upto Rs. 20 crore Above Rs. 20 crore and more TOTAL Number of outstanding cases 52 69 26 11 6 164 Total amount under dispute (Rs. in Crore) 38.80 162.64 189.10 158.23 191.08 739.85
169
1.
Company is holding the amount the amount of Rs. 50 Lacs. The amount will be released only after relevant Court Order, hence, no financial liability on WITECO. Debenture Trusteeship Business As per the information received there are 6 Cases are filed in DRT/Court & 13 Cases are filed in Consumer Court by various parities regarding default by Debenture issuing Companies, WITECO being Trustee to the said debenture issues proforma defendants. According to legal advice the chances of liability crystallising on WITECO is remote. As on 30.09.2005, the aggregate amount of tax involved in all cases filed against the company by the Income Tax Authorities relating to income tax matters is Rs. Nil. The issuer Company certifies that other than the above, there are no cases involving criminal offences, securities related offences, civil offences, statutory and other offences and other litigations pending against the company. Disputed Tax Liability As on 30.09.2005 the aggregate amount of tax involved as per demand notice against the company by the Income Tax authorities relating to Income Tax matters is Rs. Nil. Litigation involving Statutory Offences Except as mentioned above, no proceedings have been launched against the company for any of the offences under any enactment, irrespective of whether specified in Paragraph 1 of Part I of Schedule XIII to the Companies Act. No such litigation or disputes are pending as on today and there are no defaults or outstanding statutory dues. There are no Small-scale undertakings/creditors to which the Company owes any sum exceeding one lac where payment is outstanding for a period of more than 30 days. Defaults The Company has not defaulted in meeting any statutory dues, Institutional dues and has made all payment/ refunds on debentures/fixed deposits. It has not defaulted on dues to holders of other debt instruments and preference shareholders. The Company has not defaulted in meeting dues towards payment of interest or principal on due dates to holders of Bonds and Fixed Deposits. Other than the above there are no disputes/litigations towards tax liabilities or any civil or criminal prosecutions against the Company, its Directors and its Promoters for any offence, economic or otherwise. There are no pending proceedings initiated for economic offences. No penalties have been imposed on the Company by RBI or any other regulatory authority. No proceedings are known to be contemplated by Governmental authorities. No disciplinary action/investigation has been taken by the Securities and Exchange Board of India/Stock Exchange against the Company and its Directors. 170
171
GOVERNMENT/RBI APPROVALS
Reserve Bank of India (hereinafter referred to as RBI) has issued Banking License (License No. BOM.26) under section 22(1) of the Banking Regulation Act, 1949, to The United Western Bank Ltd., to enable it to carry on Banking business in India. It must be distinctly understood, however, that in issuing the license, the RBI does not undertake any responsibility for the financial soundness of the Bank or for correctness of any of the statements made or opinion expressed in this connection. As per circular No. DBOD.No.PSBS.BC.79/16.13.100/2001-02 dated March 20, 2002, issued by the Department of Banking Operations and Development, RBI, RBI approval is not required by private sector Bank for Rights Issue.
172
(ii)
WE CONFIRM THAT a. THE LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE;
173
c.
d. e.
THE FILING OF THE LETTER OF OFFER WITH SEBI DOES NOT, HOWEVER, ABSOLVE THE BANK FROM ANY LIABILITIES UNDER SECTION 63 OR 68 OF THE COMPANIES ACT 1956 OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCES AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE RIGHT TO TAKE UP, AT ANY POINT OF TIME, WITH THE LEAD MANAGER(S) (MERCHANT BANKERS), ANY IRREGULARITIES OR LAPSES IN THE LETTER OF OFFER. GENERAL DISCLAIMER The Issuer and the Lead Manager accepts no responsibility for the statements made otherwise than in the Letter of Offer or in the advertisements or any other material issued by or at the instance of the Issuer and that anyone placing reliance on any other source of information would be doing so at his/her own risk. CAUTION The Lead Managers and the Bank shall make all information available to the Equity Shareholders and no selective or additional information would be available for a section of the Equity Shareholders in any manner whatsoever including at presentations, in research reports, etc. after filing of this Letter of Offer with SEBI. DISCLAIMER IN RESPECT OF JURISDICTION This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulations made thereunder. Any disputes arising out of this issue will be subject to the jurisdiction of the appropriate Court(s) in Satara, State of Maharashtra, India only. This offer of equity shares is made in India to persons resident in India and NRIs and FIIs subject to requisite approvals. This Letter of Offer does not, however, constitute an offer to sell or an invitation to subscribe to equity shares offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person into whose possession this Letter of Offer comes is required to inform himself/ herself about and to observe any such restrictions. DISCLAIMER CLAUSE OF THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED The Bank has made application dated October 25, 2005 to The National Stock Exchange of India Limited, seeking its in-principle listing approval of its equity shares offered through this LoF. As required, a copy of this Letter of Offer has been submitted to The National Stock Exchange of India Limited (hereinafter referred to as NSE). NSE has given vide its letter Ref. NSE/LIST/19130-A dated December 16, 2005 permission to the Issuer to use the Exchanges name in this Letter of Offer as one of the Stock Exchanges on which this Issuers securities are proposed to be listed. The Exchange has scrutinised this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be deemed or construed that the Letter of Offer has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer, nor does it warrant that this Issuers securities will be listed or will be continued to be listed on the Exchange; nor does it take any responsibility for the financial or other soundness of this Issuer, its promoters, its management or any scheme or project of this Issuer. 174
175
ii. otherwise induces a Bank to allot or register any transfer of shares therein to him or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years. CONSENTS Consents in writing of the Auditors, Lead Managers, Legal Advisors, Registrar to the Issue and Banker to the Issue to act in their respective capacities have been obtained and filed with SEBI, along with a copy of the Letter of Offer and such consents have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges. The Auditors of the Company have given their written consent for the inclusion of their Report in the form and content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the time of delivery of this Letter of Offer to the Designated Stock Exchange. M/s. M. P. Chitale & Co., auditors have given their written consent for inclusion of income tax benefits in the form and content as appearing in this Letter of Offer, accruing to the Company and its members. To the best of our knowledge there are no other consents required for making this Issue. However, should the need arise, necessary consents shall be obtained by us. EXPERT OPINION Save and except as stated specifically in the relevant section of this Letter of Offer, the Bank has not obtained any expert opinions. EXPENSES OF THE ISSUE The expenses of the Issue payable by the Bank including fees and reimbursement to the Lead Manager, CoLead Manager, Registrars, printing and distribution expenses, publicity, listing fees, stamp duty and other expenses are estimated at around Rs. 1.00 crore (around 2.30 per cent of the total Issue size) and will be met out of the proceeds of the Issue. The following table gives a break-up of the estimated Issue expenses and contingencies. The break-up of the issue expenses is given as under:
176
FEES PAYABLE TO THE LEAD MANAGER AND CO-LEAD MANAGER TO THE ISSUE The fees payable to the Lead Manager and Co-Lead Manager to the Issue are set out in the separate Engagement Letter dated August 26, 2005, copies of which are available for inspection at the Registered Office of the Bank. FEES PAYABLE TO THE REGISTRARS TO THE ISSUE The fee payable to the Registrars to the Issue is as set out in the relevant documents, copies of which are kept open for inspection at the Registered Office of the Bank. UNDERWRITING COMMISION The Bank has decided to partially underwrite the Issue. The Lead Manager and Co-Lead Manager have, jointly, agreed to partially underwrite the issue to the tune of Rs. 15.00 crore (i.e., 62,50,000 Equity Shares of Rs. 10/each at a premium of Rs. 14/- per share aggregating Rs. 15.00 crore) at an underwriting commission of 2.50 per cent of the paid-up value of the shares underwritten. PREVIOUS ISSUES BY THE BANK The Bank has not come out with any Public or Rights Issue during last five years. ISSUES FOR CONSIDERATION OTHER THAN CASH Except issuance of bonus shares as stated in the Capital Structure on page no. 31 of this Letter of Offer, the Bank has not issued Equity Shares for consideration other than cash or out of revaluation reserves within the two years preceding the date of this Letter of Offer. PARTICULARS REGARDING LISTED COMPANIES UNDER THE SAME MANAGEMENT WHICH HAVE MADE CAPITAL ISSUES DURING THE LAST THREE YEARS The Bank has not come out with a Public or a Rights Issue during last three years. Also, there are no other listed companies under the same management within the meaning of Section 370(1B) of the Companies Act, 1956, which have come out with a Public or a Rights Issue. PROMISES V/S PERFORMANCE A. 1992 Rights Issue: The Bank had made a Rights Issue of shares aggregating Rs.6.00 crore during the year 1992-93. The main object of the Issue was to augment the Banks Owned Funds as directed by RBI. No projections were made in the Letter of Offer of this Rights Issue. 177
178
*The credit rating of all the above bond issuance has been downgraded to Care B+.
STOCK MARKET DATA The Banks shares are listed on the BSE, NSE and PSE. As the shares are actively traded on the NSE and BSE, the Banks stock market data have been given separate for each of these Stock Exchanges. The high and low closing prices recorded on the BSE, NSE for the preceding three years and the number of shares traded on the days the high and low prices were recorded are stated below: NSE
Year Ending March 31 High (Rs.) Date of High Volume on Date of. high (no. of shares) 18485 228487 1397467 664098 Low (Rs.) Date of Low Volume on date of low (no. of shares) 12529 23917 16800 14030 Average price for the year (Rs.) 22.79 28.14 34.84 55.16
BSE
Year Ending March 31 High (Rs.) Date of High Volume on Date of. high (no. of shares) 1780 1068 774576 589198 Low (Rs.) Date of Low Volume on date of low (no. of shares) 3479 10720 2360 26664 Average price for the year (Rs.) 22.78 28.19 34.85 55.09
The high and low prices and volume of shares traded on the respective dates during the last six months is as follows:
180
April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005
BSE
Year Ending March 31 High (Rs.) Date of High Volume on Date of. high (no. of shares) 282561 102936 34013 205380 318019 34961 29194 25818 57549 Low (Rs.) Date of Low Volume on date of low (no. of shares) 11418 11791 26664 16362 14269 21207 13902 100042 10675 Average price for the year (Rs.) 45.25 47.01 46.85 46.45 60.10 62.65 60.39 63.53 63.86
April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005
Week-end prices for the last 4 weeks (NSE) Period December 30, 2005 December 23, 2005 December 16, 2005 December 09, 2005 Period December 30, 2005 December 23, 2005 December 16, 2005 December 09, 2005 High (Rs.) 62.00 64.75 68.40 65.00 High (Rs.) 61.70 64.00 68.50 65.00 Low (Rs.) 60.00 63.00 64.50 63.00 Low (Rs.) 59.65 63.00 64.50 63.00 181
(1) 1 Change of address Duplicate dividend warrants Revalidation of dividend warrants Duplicate share certificates Share Transfer/ Transmission proposals Demat Request Remat Request
(3) 374
(4) 374
(5) Resolved within the periodicity prescribed as indicated in column 2 Resolved within the periodicity prescribed as indicated in column 2 Resolved within the periodicity prescribed as indicated in column 2 Resolved within the periodicity prescribed as indicated in column 2 Resolved within the periodicity prescribed as indicated in column 2 Resolved within the periodicity prescribed as indicated in column 2 Resolved within the periodicity prescribed as indicated in column 2
(6) NIL
189
189
NIL
Yes
525
525
NIL
Yes
42
42
NIL
Yes
747
747
NIL
Yes
1119
1119
NIL
Yes
Nil
Nil
NIL
Yes
Based on the above data, shareholders may assess the quality and efficiency of the services extended to them. Investors may contact the Compliance Officer in case of any pre-issue / post-issue related matters such as nonreceipt of Letter of Offer/ Letter of Allotment / CAF / share certificate(s)/ refund orders / demat credit, etc. The Bank has appointed Shri R.J. Joshi, Company Secretary of the Bank as the Compliance Officer.
182
183
184
Face Value
Each Equity Share shall have the face value of Rs. 10/- each.
Issue Price
Each Equity Share of the face value of Rs.10/- each is being offered at Rs. 24/- each (including premium of Rs.14/- per share).
Entitlement ratio
The Equity Shares are being offered on Rights basis to the existing Equity Shareholders in the ratio of 1 Equity Share of Rs. 10 each for every 2 Equity Shares of Rs. 10 each held as on the Record Date. The entitlement of Rights shall be based upon the Post Bonus Share Capital of the Bank (please refer to Capital Structure on page no. 31 of this Letter of Offer for further details). TERMS OF PAYMENT The issue price per Equity Share shall be payable as follows: 100 per cent of the issue price i.e., Rs. 24/- shall be payable on Application. OPTION AVAILABLE TO THE EQUITY SHAREHOLDERS The Composite Application Form clearly indicates the number of Equity Shares that the Equity Shareholder is entitled to. If the Equity Shareholder applies for an investment in Equity Shares, then he can: Apply for his entitlement in part Apply for his entitlement in part and renounce the other part Apply for his entitlement in full Apply for his entitlement in full and apply for additional Equity Shares
Renouncees for Equity Shares can apply for the Equity Shares renounced to them and does have an option to apply for additional Equity Shares. OPTION TO SUBSCRIBE Other than the present Rights Issue, the Bank has not given any option to subscribe for any equity shares of the Bank. The investor shall have the option either to receive the security certificates in physical form or to hold the securities with a depository in electronic form. 186
3.
4.
5.
This will be treated as a renunciation. Fill in and sign Part B and the renouncees must fill in and sign part C.
Applicants must provide information in the CAF as to their savings Bank/current account number and the name of the Bank with whom such account is held, to enable the Registrar to print the said details in the refund orders after the names of the payee(s). Failure to comply with this may lead to rejection of the application. Bank account details furnished by the depositories will be printed on the refund warrant in case of shares held in electronic form. Applicants must write their CAF Number at the back of the cheque/demand draft. ISSUE OF DUPLICATE SHARE CERTIFICATE If any Equity Share(s) is/are mutilated or defaced or the cages for recording transfers of Equity Share are fully utilized, the same may be replaced by the Bank against the surrender of such Certificate(s). Provided, where the Equity Share Certificate(s) are mutilated or defaced, the same will be replaced as aforesaid only if the Certificate numbers and the Distinctive numbers are legible. If any Equity Shares Certificate is destroyed, stolen or lost, then upon production of proof thereof to the satisfaction of the Bank and upon furnishing such indemnity/ surety and/or documents as the Bank may deem adequate, duplicate Equity Share Certificate(s) shall be issued. NOTICES All notices to the Equity Shareholder(s) required to be given by the Bank shall be published in one English National daily with wide circulation, a regional language daily in Satara being the place where the registered office of the Bank is situated. 189
g. Applicants are advised to provide information as to their savings/current account number and the name of the Bank with whom such account is held in the CAF to enable the Registrar to the Issue to print the said details in the refund orders, if any, after the names of the payees. Application not containing such details is liable to be rejected. h. The CAF together with cheque/demand draft should be sent to the Bankers to the Issue/collection centers or to the Registrars and not to the Bank or Lead Managers to the Issue. Applicants residing at places other than cities where the branches of the Bankers to the Issue have been authorised by the Bank for collecting applications, will have to make payment by Demand Draft payable at Mumbai and send their application forms to the Registrars to the Issue by REGISTERED POST after deducting DD and postal charges. If any portion of the CAF is detached or separated, such application is liable to be rejected. i. Applications for a total value of Rs. 50,000/- or more, i.e. where the total number of securities applied for multiplied by the Issue price, is Rs. 50,000/- or more the applicant or in the case of application in joint names, each of the applicants, should mention his/her PAN number allotted under the Income-Tax Act, 1961 and also submit a photocopy of the PAN card(s) or a communication from the Income Tax authority indicating allotment of PAN (PAN Communication) along with the application for the purpose of verification of the number. Applicants who do not have PAN are required to provide a declaration in Form 60/Form 61 prescribed under the I. T. Act along with the application. Composite Application Forms without this photocopy/PAN Communication/declaration will be considered incomplete and are liable to be rejected In case of an application under power of attorney or by a body corporate or by a society, a certified true copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the relevant investment under this Offer and to sign the application and a copy of the Memorandum and Articles of Association and/or bye laws of such body corporate or society must be lodged with the Registrar to the Issue giving reference of the serial number of the CAF. In case these papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing Date, then the application is liable to be rejected.
j.
k. In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with the Bank. Further, in case of joint applicants who are renouncees, the number of applicants should not exceed three. l. In case of joint applicants, reference, if any, will be made in the first applicants name and all communication will be addressed to the first applicant at the address given in the CAF.
m. The shareholders must sign the CAF as per the specimen signature recorded with the Bank. n. Application(s) received from Non-Resident/NRIs, or persons of Indian origin residing abroad for allotment of Equity shares shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI 190
s. Bank Account Details: It is mandatory for the applicant to mention the applicants Savings Bank/Current Account number and the name of the Bank with whom such account is held in the space provided in the CAF, to enable the Registrars to the Issue, to print the said details in the refund orders after the name of the payees. Such applications not containing the above details are liable to be rejected. t. Only one mode of payment per application should be used. The payment must be either in cash or by cheque / demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a sub member of the Bankers Clearing House located at the centre indicated on the reverse of the CAF where the application is to be submitted.
u. A separate cheque/draft must accompany each CAF. Outstation cheques/demand drafts or post-dated cheques and postal/money orders will not be accepted and applications accompanied by such cheques/demand drafts/ money orders or postal orders will be rejected. The Registrar will not accept payment against application if made in cash. (For payment against application in cash please refer point (w) below) v. No receipt will be issued for application money received. The Bankers to the Issue/Collecting Bank/Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF. w. Payment by cash: The payment against the share application should not be effected in cash if the amount to be paid is Rs. 20,000/- or more. In case payment is effected in contravention of this, the application will be deemed invalid and the application money will be refunded and no interest will be paid thereon. Payment against the application if made in cash, subject to conditions as mentioned above, should be made only to the Bankers to the Issue. GROUNDS FOR TECHNICAL REJECTION Applicants are advised to note that applications are liable to be rejected on technical grounds, including the following: 1. Amount paid does not tally with the amount payable for; 2. Bank account details (for refund) are not given; 3. Age of First Applicant not given; 4. Applications by Minors; 5. PAN photocopy / PAN communication / Form 60 / Form 61 declaration not given if application is for Rs. 50000 or more. 6. In case of application under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted; 7. If the signature of the existing shareholder does not match with the one given on the CAF and for renouncees if the signature does not match with the records available with their depositories; 191
193
198
g. All information shall be made available by the Lead Manager and the Issuer to the Investors at large and no selective or additional information would be available for a section of the Investors in any manner whatsoever including at road shows, presentations, in research reports, etc. UTILISATION OF ISSUE PROCEEDS The Board of Directors undertake that a. All monies received out of issue of shares to public shall be transferred to separate Bank account other than the Bank account referred to in sub -section (3) of section 73; b. Details of all moneys utilised out of the issue referred to in sub-item a) shall be disclosed under an appropriate separate head in the balance-sheet of the Bank indicating the purpose for which such monies had been utilised. c. Details of all unutilised monies out of the issue of shares, if any, referred to in sub-item (a) shall be disclosed under an appropriate separate head in the balance-sheet of the Bank indicating the form in which such unutilised monies have been invested. The funds received against this Rights Issue will be kept in a separate Bank account and the Bank will not have any access to such funds unless it satisfies the National Stock Exchange of India Limited (Designated Stock Exchange) with suitable documentary evidence that the minimum subscription of 90 per cent of the Issue has been received by the Bank. The funds raised through this Rights Issue of Equity Shares would be utilised only towards satisfactory fulfillment of the Objects of the Issue as mentioned on page no. 35 in this Letter of Offer. RESTRICTION ON FOREIGN OWNERSHIP The Government of India regulates foreign ownership in private sector Banks. Under guidelines recently issued by the Government, total foreign ownership in a private sector Bank from all sources (FDI, FII, NRI) cannot exceed 74 per cent of the paid-up capital. The limit of 74 per cent will be reckoned by taking the direct and indirect holding. At all times, at least 26 per cent of the paid up capital of the Private Sector Bank will have to be held by residents. In addition, the restrictions on shareholding as provided under Restrictions on Transfer of Shares shall be equally applicable to Foreign Direct investment. Shares held by foreign institutional investors under portfolio investment schemes through stock exchanges cannot exceed 49 per cent of the paid-up capital. Individual NRI portfolio investment is restricted to 5 per cent with the aggregate limit for all NRIs restricted to 10 per cent but can be raised to 24 per cent with the approval of Board/General Body. IMPORTANT 1. The present Rights Issue is pursuant to the resolution passed by the Board at its meeting held on August 26, 2005. 2. This offer is applicable only to those equity shareholders of the Bank whose names appear as beneficial owners as per the list furnished by the depositories in respect of the shares held in the electronic form and on the Register of Members of the Bank in respect of shares held in physical form as on Record Date January 25,2006 3. Please read this Letter of Offer (LoF) carefully. The instructions contained in the accompanying Composite Application Form (CAF) are an integral part of the conditions of this Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected. 199
200
Certificates (Articles 11 to 14) 11. The certificates of Title to Shares shall be issued under the seal of Bank, and signed by two Directors and countersigned by the General Manager/Secretary or any other Officer authorised by the Board, for the purpose. The Bank, unless prohibited by any provision of law or any order of any court, tribunal or other authority, shall within three months after the allotment of any of its shares and within one month from the date of lodgment of valid instrument of transfer of any shares, deliver in accordance with the procedure laid down in Sec. 53 of the Act, the certificate of all shares allotted or transferred. Members right to: Every member shall be entitled to one certificate for all the shares registered in his name. Every certificate of shares shall specify the number and denoting numbers of the shares in respect of which it is issued and the amount paid up thereon. For any further certificate the directors shall be entitled and prescribe such a charge as may be provided in the relevant rules or further amendments thereto under the Companies (Issue of share Certificate) Rules-1960 and for the time being in force. Issue of certificate in place of one defaced, lost or destroyed: If any certificate be worn out, defaced, destroyed or lost or if there is no further space on the back thereof for endorsements of transfer, it may be renewed or replaced on payment of such sum, as may be prescribed under the relevant Rules from time to time and for the time being in force and as the Directors may from time to time prescribe; provided that no fee shall be charged for issue of new certificates in replacement of those which are odd , decrepit or worn out or where the cages on the reverse for the recording transfers having fully utilised. Provided however that such new certificate shall not be granted except upon delivery up of the worn out or defaced used-up certificate for the purpose of cancellation or upon proof of destruction or loss to the satisfaction of the Directors and on such indemnity as the Directors deem adequate in the case of the certificate having been destroyed or lost. Any renewed certificate may be marked as such. Stamp duty on share certificate: Notwithstanding any thing contained in Articles 11, 12, 13 of the Articles Of Associations of the Bank, the Board of Directors may at the discretion charge and recover the stamp duty payable on the share certificate issued in replacement of those that are torn, defaced, lost or destroyed. No fees shall be charged for certificates issued upon splitting, and/or consolidation into marketable lots and such payment should be made by the shareholder receiving the certificate prior to the issue of share certificate. To which of joint holders certificates to be issued: The certificate of shares registered in the names of two or more persons shall, unless otherwise directed by them, be delivered to the person first named on the register.
12.
13.
13A.
14.
Forfeiture and Lien (Article 23 to 33) 23. If call or installment not paid, notice may be given: If any member fails to pay any call or installment on or before the day appointed for the payment of the same the directors may at any time thereafter during such, time as the call or installment remains unpaid serve a notice on such member requiring him to pay the same, together with any interest that may have accrued, and all expenses that may have been incurred by the Bank by reason of such non-payment.
201
25.
26.
27. 28.
29.
30.
31.
Application of proceeds of sale: The net proceeds of any such sale and the whole or any portion of the dividends due by the Bank on such shares, shall be received by the Bank and applied in or towards payment of such part of the amount in respect of which the lien exists is presently payable and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares on the date of the sale. Validity of sales under clauses 26 and 30: Upon any sale after forfeiture or for enforcing a lien in purported exercise of the powers herein before given, the directors may cause the purchasers name to be entered in the respect of the shares sold, and the purchaser shall not be bound to see to the regularity of the proceedings, or to the application of the purchase money, and after his name has been entered in the register in respect of such shares, the validity of the sale shall not be impeached by any person, and the remedy of any person aggrieved by the sale shall be in damages only and against the Bank exclusively. A certificate in writing under the seal of the Bank that the shares of the Bank have been duly forfeited or sold in accordance with the Regulations of the Bank shall be sufficient evidence of the facts therein stated as against all persons claiming such certificate and the receipt of the Bank for the price of such shares shall constitute a good title to the sale. 202
32.
Transfer and Transmission (Articles 34 to 43) 34. Execution of transfer, etc.: The instrument of transfer of any share shall be signed both by the transferor and transferee, and the transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in the registered in respect thereof. Form of transfer: The instrument of transfer of any share shall be in writing in such form as from time to time, may be prescribed by the Central Government under the Act. Nothing contained in the foregoing Articles shall apply to transferee, of security effected by the transferor and the transferee both of whom are entered as beneficial owners in the records of Depositories However, any person / group intending of acquiring Banks shares which together with his / its existing holding, if any, reaches a level of 5 per cent or above of the total issued capital of the Bank, should obtain the prior approval for the same from Reserve Bank of India subject to which his / its name will be entered as beneficial owners in the records of Depositories and the provisions of Article 36 shall be applicable to such persons / group to the extent necessary. 35B: In the case of transfer of shares or other marketable securities where the company has not issued any certificates and where such shares or securities are being held in an electronic and fungible form, the provisions of the Depositories Act, shall apply. Directors power to refuse to register a transfer: Subject to the provisions of Section 111 of the Act, the Board may refuse whether in pursuance of any power of the company under these Articles or otherwise to register the transfer of, or the transmission by operation of law, of the right to, any shares or interest of a member in, and the company shall within one month from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the Bank, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. Provided that the registration of a transfer shall not be refused on the ground of the transferor being either alone or jointly with any other person or persons in-debted to the Bank on any account whatsoever except where the Bank has a lien on the shares. 2) It is hereby expressly declared that the powers conferred under sub clause 1 of the Articles shall be subject to the provisions of Section 22A of the Securities Contract (Regulation) Act, 1956 or any statutory modification or re-enactment thereof. No transfer to infant etc: No transfer shall be made to a person of unsound mind and except in cases where the right to a share gets transmitted by operation of Law, the Bank shall not be obliged to register a share in the sole name of a minor. Transfer to be left at office, and evidence of title given: Every instrument of transfer shall be left at the office for registration accompanied by the certificate of the shares to be transferred, and such other evidence as the Bank may require to prove the title of the transferor or his right to transfer the shares. When transfers to be retained: All instruments of transfer, which shall be registered, shall be retained by the Bank but any instrument of transfer which the Directors may decline to register shall be returned to the person depositing the same. Fee on transfer: The Bank shall not charge any fee for registration of a transfer of shares. When transfer books and register may be closed: The transfer books and Register of Members may be closed during such time as the Directors think fit, not exceeding in the whole 45 days in each year, but not exceeding 30 days at any one time; provided that atleast seven days previous notice by advertisement in some news-paper circulating in the District in which the Registered Office of the Bank is situated is given. 203
35. 35A:
36. 1)
37.
38.
39.
40. 41.
43.
Sub-division and Consolidation of Shares (Articles 50 to 51) 50. 51. Sub-division and Consolidation of Shares: The Bank may also, by special resolution, sub-divide or, by ordinary resolution, consolidate its shares or any of them. Sub-division into Preferred and Ordinary: The Special Resolution where by any share is sub-divided may determine that as between the holders of the shares resulting from such sub-division, one or more of such shares shall have some preference or special advantage as regards dividend, capital, voting, or otherwise over or as compared with the others or other.
Modification of Rights (Article 52) 52. Power to Modify Rights: Whenever the capital, by reason of the issue of preference share or otherwise, is divided into different classes of shares, all or any of the rights and privileges attached to each class may be modified, commuted, affected, abrogated, or dealt with by agreement between the Bank and any person purporting to contract on behalf of the class, provided such agreement is ratified in writing by the holders of at least three-fourths in nominal value of the issued shares of the class, or is confirmed by an Extraordinary Resolution passed at a separate General Meeting of shares of that class and all the provisions hereinafter contained as to General Meetings, shall mutatis mutandis, apply to every such meeting. But so that the quorum thereof shall be members holding, or representing by proxy one fifth of the nominal amount of the issued shares of the class. This clause is not to derogate from any power the Bank would have had if this clause where omitted.
Borrowing Powers (Articles 53 to 56) 53. 54. 55. Power to Borrow: The Directors may, from time to time, at their discretion, raise or borrow or secure the payment of any sum or sums of money for the purposes of the Bank. Conditions on which money may be borrowed: The Directors may raise or secure the payment of repayment of such sum of sums in such manner and upon such terms and conditions in all respect as they think fit. Securities may be assignable free from equities: Debentures, debenture stock, and other securities may be made assignable free from any equities between the Bank and the person to whom the same may be issued.
204
Votes of Members (Articles 75 to 84) 75. Votes of members: Upon a show of hands every member present in person shall have one vote and upon a poll every member present in person or by proxy shall have one vote for every share held by him, provided that no member shall, in respect of any shares held by him exercise voting rights on poll in excess of one per cent of the total voting rights of all the members of the Bank. Where a Corporation being a member is present either through a representative appointed under Section 187 of the Companies Act, 1956 or by a proxy shall be entitled to vote for such corporation as if it were an individual member. Votes in respect of shares of deceased and Bankrupt members: Any person entitled under the transmission clause to transfer any shares may vote at any General Meeting in respect thereof in the same, manner as if he were the registered holder of such shares, provided that forty-eight hours at least before the time of holding the meeting or adjourned meeting as the case may be, at which he proposes to vote, he shall satisfy the Directors of his right to transfer such shares, or the Directors shall have previously admitted his right to vote at such meeting in respect thereof. Joint holders: Whether there are joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; and if more than one of such joint holders be present at any meeting, personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such share, shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose name any share stands shall for the purposes of this clause be deemed joint holders thereof. Proxies permitted: Votes may be given either personally or by proxy. Instrument appointing proxy to be in writing: The instrument appointing a proxy shall be in writing, under the hand of the appointer or of his attorney, or, if such appointer is a Corporation, under its common seal. A proxy need not be a member of the Bank and shall not have the right to speak at the meeting and shall not be entitled to vote except on a poll. And to be deposited at office: The instrument appointing a proxy and the power of attorney, if any under which it is signed, shall be deposited at the office not less than forty eight hours before the time for holding the meeting or adjourned meeting or taking of the poll, at which the person named in such instrument proposes to vote but no instrument appointing a proxy shall be valid after the expiration of twelve months from the date of its execution. Every member entitled to vote at the meeting of the Bank or on any resolution to be moved there at shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the Bank, provided that not less than three days notice in writing of the intention so to inspect is given to the Bank. 81. When vote by proxy valid, though authority revoked: A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death of the principle, or revocation of the proxy, or transfer of the share in respect of which the vote is given , provided no intimation in writing of the death, revocation, or transfer shall have been received at the office before the meeting. Form of proxy: The instrument appointing a proxy shall be in any of the forms set out in schedule IX of the Companies Act, 1956. 205
76.
77.
78. 79.
80.
82.
84.
Directors (Articles 85 to 95) 85. 86. Number of Directors: Until otherwise determined by a General Meeting the number of the Directors shall not be less than six or more than twelve. Power for Directors to appoint Additional Directors: The Directors shall have power at any time and from time to time to appoint any qualified person as a Director either to fill a casual vacancy or as an addition to the Board but so that the total number of Directors shall not, at any time, exceed the maximum number fixed as above. Any Director appointed to fill up a casual vacancy shall hold office only upto the date upto which the Director in whose place he is appointed would have held office if it had not been vacated and shall be eligible for re-election. Any Director appointed as an Additional Director shall hold office until the next following Ordinary General Meeting of the Bank and shall then be eligible for re-election. Explanation: With this amendment to the Article of Association, it is intended to bring the provisions of the Articles of Association of the Bank in conformity with provisions of sub-section (2) of Section 262 of the Companies Act, 1956 which permits a Director appointed by the Board of Directors in a casual vacancy to hold office upto the date to which the Director in whose place he is appointed would have held office if it had not been vacated. Other provisions of the original Article remain unchanged. 87. Qualification of Directors: The qualification of a Director shall be the holding of shares in the Bank of nominal value of Rs. 2,000/-. Provided however, that the Chairman and Chief Executive, by whatever name called, the Debenture Director and alternate or Special Director shall not be required to hold any qualification shares. Special Director: Notwithstanding anything contained in these presents the Bank in General Meeting may by an extraordinary resolution allow subject to such conditions and regulations as they think fit any class of shareholder to nominate one or more Directors or may allow a shareholder holding a particular number or a higher number of shares to nominate one or more Directors or if the management be entrusted to a firm or Company, may allow the said firm or Company to nominate one or more Directors. The Directors who are thus nominated under this article will be called Special Directors and shall not subject to any or all of the following articles viz. 87, 93, 96, 97, 98, 99, 101 and 102. These Special Directors shall ordinarily be entitled to hold office until requested by the authority appointing them to retire. As and whenever a Special Director vacates office whether upon request as aforesaid or under any condition or regulation or by death or otherwise, the authority aforesaid may appoint another in his place. He may also at any time by notice in writing to the Bank resign his office. Appointment of Alternate Director: A Director who is out of the Head Office town or about to go out of the Head-Office town, may, with the approval of the Directors, by notice in writing under his hand, appoint any duly qualified person to be Alternate Director during his absence, and such appointment shall have effect and such appointee, whilst he holds office as an Alternate Director, shall be entitled to notice of meeting of the Directors and to attend and vote thereat accordingly, but he shall ipso facto, vacate office, if and when the appointer returns to the Head Office town or vacates office as a Director or removes, the appointee from office by notice in writing under his hand. 206
88.
88A:
90.
91.
92.
93. (1)
(b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his application is pending;
(d) he has been convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of the expiry of the sentence, unless this disqualification has been removed by the Central Government. (e) he has not paid any call in respect of shares held by him whether alone or jointly with others and six months have elapsed form the last date fixed for payment of the call, unless the disqualification has been removed by the Central Government. (f) an order disqualifying him for appointment as a director has been passed by a Court in pursuance of Section 203 of the Companies Act, 1956 and is in force, unless the leave of the Court has been obtained for his appointment as provided in that Section;
(g) he is a director of any other Banking Company to which Section 16 of the Banking Regulation Act, 1949 applies; (h) he is a director of other companies, which among themselves are entitled to exercise voting rights in excess of twenty per cent of the total voting rights of all the shareholders of the Bank. (2) The office of the Director shall ipso facto be vacated if: (a) fails to obtain the share qualifications prescribed by Article 87 within two months after his appointment as such, or at any time thereafter ceases to hold the share qualification; (b) he is found to be of unsound mind by a Court of competent jurisdiction; (c) he applies to be adjudicated an insolvent;
(d) he is adjudged an insolvent; (e) he is convicted by a Court of any offence involving moral turpitude and is sentenced in respect thereof to imprisonment for not less than six months; (f) he fails to pay any call in respect of shares of the Bank held by him whether alone or jointly with others within six months from the last date fixed for the payment of call, unless the Central Government has removed the disqualification incurred by such failure. 207
The disqualifications under sub-clauses (d), (e) and (i) of clause (2) shall not take effect:(a) for thirty days from the date of adjudication sentence or order; (b) where any appeal or petition is preferred within thirty days aforesaid against the adjudication, sentence or conviction resulting in sentence or order until the expiry of seven days from the date on which such appeal or petition is disposed off; or (c) where within seven days aforesaid any further appeal or petition is preferred in respect of the adjudication, sentence or conviction or order and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed off.
(4)
A Director may by notice in writing addressed to the Board or the Chairman of the Board of Directors resign his office. The director so resigning shall be deemed to have vacated his office when such notice is received by the Board or by the Chairman of the Board. Directors may contract with Bank: No Director shall be disqualified by his office from contracting with the Bank either as vendor, purchaser, or otherwise, nor shall any such contract, or any contract or arrangement entered in to by or on behalf of the Bank in which any Director shall be in any way interested, be avoided nor shall any Director so contracting or being so interested be liable to account to the Bank for any profit realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relation thereby established, but it is declared that the nature of his interest must be disclosed by him at the meeting of the Directors at which the contract or arrangement is determined on, if his interest then exists or in any other case at the first meeting of the Directors after the acquisition of his interest, and that no Director shall as a Director vote in respect of any contract or arrangement in which he is so interested as aforesaid; and if he do so, his vote shall not be counted; but this prohibition shall not apply to any contract by or on behalf of the Bank to give to the Directors or any of them any security for advances or by way of indemnity, or to a settlement or set-off of cross claims. A general notice that a Director is a member of any specified firm or company, and is to be regarded as interested in any subsequent transactions with such firm or company, shall be sufficient disclosure under this clause, and after such general notice it shall not be necessary to give any special notice relating to any particular transaction with such firm or company. Directors may be Directors of companies promoted by the Bank: A Director other than the Chairman and Chief Executive by whatever name called, may subject to the provisions of the Banking Regulation Act, 1949 be or become a Director of any company irrespective of whether such company is promoted by the Bank or in which it may be interested as a vendor, shareholder, or otherwise and subject to the provisions of the Companies Act, 1956 and these presents no such Director shall be accountable for any benefits received as Director or Shareholder of such company, provided, however, that the Chairman and Chief Executive by whatever name called may be or become a Director of subsidiary of the Bank or a Director of a company registered under Section 25 of the Companies Act, 1956 or such other company or companies as may be permissible under the provisions of the Banking Regulation Act, 1949 for the time being in force and he shall not be accountable for any benefits received as a Director or Shareholder of such company or companies.
94.
95.
208
97.
98.
99.
100.
101.
102.
Chairman/ Managing Director/ Executive Director/ Chief Executive Officer (Articles 103 to 106) 103. Power to appoint Chairman & Chief Executive / Managing Director / Executive Director: Subject to the provisions of the Companies Act, 1956 and The Banking Regulation Act, 1949, the Directors may from time to time appoint one of their body to be the Chairman on a whole time or part time basis and or a Managing Director / Executive Director / Chief Executive on full time basis. Whereas Chairman is appointed on part time basis, the management of the whole of the affairs of the Bank shall be entrusted to a whole time Managing Director / Executive Director / Chief Executive, who shall exercise his powers subject to the superintendence, control and direction of the Board. Chairman, when appointed on whole time basis and/or Managing Director/ Executive Director/ Chief Executive shall be in the employment of the Bank and shall hold office for such period not exceeding five years at any one time as the Board may fix but shall subject to the statutory provisions be eligible for re-appointment. The Board may from time to time, subject to the provision of said Acts remove or dismiss any of them from their office and appoint another in his place. What provisions he will be subject to: The whole time Chairman/ Managing Director/ Executive Director/ Chief Executive shall not, while he continues to hold that office be subject to retirement by rotation and he shall not be taken in to account in ascertaining the directors to retire for the purpose of Article 96, but he shall, subject to the provisions of any contract between him and the Bank, be subject to the same 209
104.
106.
Proceedings of Directors (Articles 107 to 115) 107. Meetings of Directors and quorum: The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings and proceedings as they think fit, provided that atleast one meetings shall be held in every three calendar months and atleast four such meetings shall be held in every year. The quorum for the meetings of the Directors shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one) or two Directors, whichever is higher; provided that where at any time the number of Directors, who cannot vote because they are interested is equal to or exceeds two-thirds of the total strength the number of remaining Directors shall be the quorum during such time. Explanation: For the purpose of this Article the total strength of the Board of Directors shall be the maximum number prescribed under Article 85 minus the number of directors, if any whose places may be vacant at the time. 108. Directors may summon meeting: A Director may at any time convene a meeting of the Directors. Notice of every meeting of the Directors shall be given in writing to every Director for the time being in India, and at his usual address in India to every other Director. How questions to be decided: Questions arising at any meeting shall be decided by majority of votes. 109. Chairman: The Chairman and Chief Executive by whatever name called for the time being shall be Chairman of the Board of Directors. All meetings of the Directors shall be presided over by the Chairman and Chief Executive by whatever name called if the Chairman and Chief Executive by whatever name called if present, but if at any meeting of the Directors he be not present at the time appointed for holding the same then and in that case the Directors present shall choose someone of their number then present to preside at the meeting. Power of quorum: A meeting of the Directors for the time being at which a quorum is present shall be competent to exercise all or any of the authorities, powers, and discretions by or under the articles of the Bank for the time being vested in or exercisable by the Directors generally. Powers to appoint committees and to delegate: The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Directors. 210
110.
111.
113.
114.
115.
Powers of Directors (Articles 117 to 121) 117. General Powers of Bank vested in Directors: The management of the business of the Bank shall be vested in the Directors, who, in addition to the powers and authorities by these presents or otherwise expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the Bank and are not hereby or by statute expressly directed or required to be exercised or done by the Bank in General Meeting, but subject nevertheless to the provisions of the statutes, and of these presents, and to such regulations being not inconsistent with the aforesaid provisions as may from time to time be made by the Bank in General Meeting; provided that no regulations so made shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made. Specific powers given to Directors: Without prejudice to the general powers conferred by the last preceding clause, and the other powers conferred by those presents, it is hereby expressly declared that the Directors shall have the following powers, that is to say power:(1) To Pay expenses: To pay the preliminary expenses incurred in the promotion and registration of the Bank.
118.
(2) To acquire property: The purchase or otherwise acquire for the Bank any property, rights, or privileges which the Company is authorized to acquire at such price, and generally on such terms and conditions as they think fit. (3) To pay for property in Debentures &c: At their discretion, to pay for any property, rights or privileges acquired by, or services rendered to the Bank, either wholly or partially in cash or in Shares, Bonds, Debentures etc. (4) To secure contracts by mortgage: To secure the fulfillment of any contracts or engagements entered into by the Bank by mortgage or charge of all or any of the property of the Bank or in such other manner as they may think fit. (5) To appoint officers &c: To appoint, and at their discretion, remove or suspend such Manager, Secretaries, Officers, Clerks, Agents, and Servants, for permanent, temporary or special services, as they may from time to time think fit, and to determine their powers and duties and fix their salaries or emoluments, and so require security in such instance and to such amount as they think fit. 211
120.
121.
Notices (Articles 152 to 162) 152. How notices to be served on Members: A notice may be served by the Bank upon any Member, either personally or by sending it through the post in a prepaid envelope or wrapper addressed to such Member at his registered place of address. Members resident abroad: Each holder of registered shares, whose registered place of address is not in British India, may from time to time notify in writing to the Bank an address in British India, which shall be deemed his registered place of address within the meaning of the last preceding clause. 213
153.
155.
156. 157.
158.
159.
160.
161. 162.
165.
167.
215
THE UNITED WESTERN BANK LIMITED MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION
The contracts referred to below (not being contracts entered into in the ordinary course of business carried on by the Bank or entered into more than two years prior to the date of the Letter of Offer) which are or may be deemed to be material have been entered into by the Bank. Copies of these contracts, together with the copies of the documents referred to below, may be inspected at the Registered and Head Office of the Bank between 10.00 A.M. and 12.00 noon on any working day of the Bank from the date of the Letter of Offer until the date of closing of the subscription list. MATERIAL CONTRACTS 1. The Memorandum of Understanding between the Bank, A. K. Capital Services Ltd. and Centrum Capital Ltd. dated August 29, 2005. 2. The Memorandum of Understanding between the Bank and MCS Ltd. dated October 18, 2005. 3. The Underwriting Agreement between the Bank, A. K. Capital Services Ltd. and Centrum Capital Ltd. dated January 6, 2006. 4. The Memorandum of Understanding between the Bank and Makharias dated November 26, 2002. 5. The Shareholders Agreement dated December 6th, 2002 MATERIAL DOCUMENTS 1. Memorandum and Articles of the Bank. 2. Certificate of Incorporation dated October 17, 1936, and Certificate of Commencement of Business dated March 8, 1937. 3. Banking License from RBI under section 22(1) of the Banking Regulation Act, 1949, vide their letter-dated May 3, 1960 to enable the Bank to carry on banking business in India. 4. Copy of RBI letter no DBOD N0. 267/08.56.001/2002-03 dated December 5, 2003 granting approval for appointment of Shri Satish K. Marathe as Chairman and CEO of the Bank. 5. Copy of the Shareholders Resolution passed at the Annual General Meeting held on August 9, 2004 appointing M/s. M. P. Chitale & Co. as statutory auditors for the financial year 2004-05. 6. Copy of the Board Resolution dated August 26, 2005 approving this Rights Issue. 7. Copy of the resolution passed by the Board of Directors at their meeting held on August 26, 2005 authorising Chairman & CEO and Company Secretary of the Bank to sign the necessary agreements with the intermediaries involved in the said Rights Issue and to carry out the necessary actions in respect to the Rights Issue for and on behalf of the Board. 8. Copy of the Board Resolution dated October 18, 2005, appointing M/s. MCS Ltd. as the Registrars to this Rights Issue. 9. Consents of the Directors, Company Secretary, Lead Manager to the Issue, Co-Lead Manager to the Issue, Legal Advisors, Registrars to the Issue, Underwriters to the Issue and Bankers to the Issue, to include their names in the Letter of Offer to act in their respective capacities. 10. Copy of Board Resolution dated August 26, 2005 appointing Company Secretary as Compliance Officer. 11. Consent from M/s. M. P. Chitale & Co., Chartered Accountants, the Auditors to the Bank, dated December 12, 2005 for inclusion of their report on the Accounts in the form and context in which they appear in the Letter of Offer and also on the Tax Benefits mentioned therein. 12. Copy of the Engagement Letter dated August 26, 2005 received from the Bank appointing A. K. Capital Services Ltd. to act as Lead Manager to the Issue and engagement letter dated August 26, 2005 received from the Bank appointing Centrum Capital Ltd. as Co-Lead Manager to the issue. 216
217
CAF Enclosed.
218