ESAF Small Finance Bank Ltd

To,

The Members of

ESAF Small Finance Bank Ltd.

On behalf of the Board of Directors (the "Board") of ESAF Small Finance Bank Ltd. (the "Bank"), it is our immense pleasure to present the Eighth Annual Report of the Bank along with the Audited Financial Statements and Auditor's Report thereon for the Financial Year 2023-24.

1. Financial Performance and State of the Bank's Affairs

The highlights of the standalone financial performance of the Bank for the Financial Year 2023-24, are presented below:

(? in millions)

on divergence in asset classification and provisioning for NPAs is required with respect to RBI's annual supervisory process for fiscal 2024.

The Bank has identified its business segments, segregating them into Treasury, Wholesale Banking, Retail Banking and Other Banking Segments after considering the internal business reporting system and guidelines issued by the Reserve Bank of India through its notification DBOD.No.BP.BC.81/ 21.01.018/ 200607 dated April 18, 2007 and Accounting Standard 17 (AS 17) - Rs.Segment Reporting'.

The Micro Banking vertical of the Bank is set up with the objective of providing quality banking services to the unbanked and under-banked through doorstep banking services. In order to provide high touch customer service, the Micro Banking business of the Bank is delivered through dedicated Business Correspondents (BCs). Under Micro Banking, loans are given to individuals of group or to individuals without group to set up and expand their own or of family member's micro or small business, to start any income generation activity or to meet any other household needs towards improving the quality of life.

Micro Banking group loan products are classified as Microfinance Loans and Other Micro Loans based on the annual household income of the customers. Accordingly, customers whose annual household income is up to 3 Lakhs can avail microfinance loans and customers whose annual household income is above 3 Lakhs can avail other micro loans. The product classification is as given below:

Apart from the group loan products, below individual loan products are also extended under micro banking for meeting the capital requirements of small entrepreneurs and traders.

• Micro Enterprise Loan (MEL) is a secured loan extended to graduated customers of microfinance segment to help them to meet their capital requirement to scale up the existing business activity. The loan is provided to existing micro banking customers of the Bank or any other SFB/ MFI having at least 3 years' vintage with satisfactory repayment and having business vintage of minimum 1 year in the same location. The customer should fall under the age group of 21 to 64 years and can avail loan amount ranging from .Rs75,000 to .Rs3,00,000 for a tenure of 35 months.

• Vyapar Vikas Yojana (VVY) loan is provided to customers of Micro and Small Trade segment having shop/ business with minimum business vintage of three months in the same location. The loan is given for meeting working capital requirements or for purchase of stocks. The customer should be between the age group of 18 to 64 years and can avail loan ranging from .Rs5,000 to .Rs1,50,000 for a tenure from 6 months to 24 months based on the loan amount.

As on March 31, 2024, the Bank has 35,34,992 micro banking borrowers with loan outstanding of .Rs1,40,464 million. We disbursed loans to the extent of .Rs1,02,204 million during the Financial Year 202324. As a part of disbursing loan to customers in faster manner, we simplified the loan process by implementing e-sign using bio-metric authentication, for disbursement of loans, which resulted in extending more loans to customers during the financial year, and also enhanced the customer experience. The innovative e-onboarding approach to micro banking loans, made the Bank eligible to win Special Jury Award of Kerala State Productivity Council, recognising as a commendable KAIZEN initiative. During the financial year, the Bank disbursed 14,33,157 number of loans to the extent of .Rs78,435 million through e-sign

documentation. The Bank also disbursed 1,702 number of water and sanitation loans with loan amount of .Rs43 million in view of creating a positive change and hygiene behaviour in the lives of the customers by providing access to clean drinking water and hygienic sanitation. The Bank also disbursed 466 numbers of Micro Enterprise Loan (MEL) to the extent of .Rs55 million for the graduated customers of microfinance for meeting higher financial needs for developing their micro business and disbursed 4200 Vyapar Vikas Yojana (VVY) loans to micro traders with a volume of .Rs272 million during this financial year. Micro banking business has expanded to new geographies in the existing operational states and also to new states - Andhra Pradesh, Telangana and Sikkim by adding more Business Correspondents. Retail Banking

Retail Liability book of the Bank as on March 31,2024 stands at .Rs1,98,676 million with a net addition of .Rs52,022 million total deposits during the Financial Year 2023-24. YoY growth in liability book is 35%. CASA ratio improved from 21.39% in Financial Year 2023 to 22.66% in Financial Year 2024 with CASA book of .Rs45,018 million as on March 31, 2024. Total Non-Resident deposit book stands at .Rs40,956 million. The aggregate number of Banking Outlets (BOs) as on March 31, 2024, stands at 753 numbers which includes 198 banking outlets opened in Unbanked Rural Centres (URC). In Financial Year 2023-24, Bank opened 53 new branches and out of total 753 Banking Outlets, 198 Banking Outlets are in URC, 77 Banking Outlets in Metro, 152 Banking Outlets in Urban, 305 Banking Outlets in Semi Urban and remaining 21 Banking Outlets servicing in Rural Centres. 26% of our Banking Outlets are opened in URCs which is in line with RBI mandated guidelines to have minimum 25% of Banking Outlets in unbanked rural centres. Total number of ATMs stands at 614 as on March 31, 2024 and net addition in Financial Year 2023-24 was 14.

The Treasury Department is responsible for maintaining the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) of the Bank, as well as handling its investments in securities under different market segments. Treasury also manages the balance sheet liquidity and ensures compliance with statutory requirements. It manages the treasury needs of customers for a fee.

The Bank maintains a portfolio of Government Securities in line with the regulatory norms governing the Statutory Liquidity Ratio (SLR). A significant portion of these SLR securities are in Rs.Held-to-Maturity' (HTM) category, while some are in Rs.Available for Sale' (AFS) and "Held for Trading" (HFT) category.

As on March 31, 2023, the total investment in securities was .Rs49,905 million, which increased by 12.67% to .Rs56,229 million as on March 31, 2024. The Bank has generated income from investment of .Rs3,529 million and .Rs972 million from AD-II foreign exchange activities for the Financial Year ended March 31,2024. The Bank was granted AD-1 License for operating in foreign exchange markets vide license FE.KOC.01/2023 dated April 20, 2023, and as per the approval received from Reserve Bank of India, the Bank has started AD-1 operations from April 01,2024.

The Bank offers its customers a multitude of digital products, including the internet banking portal, an uncomplicated but effective mobile banking interface for retail customers, SMS alerts, bill payments and RuPay branded ATM cum debit cards. All banking and payment transactions, such as remittances and utility payments, can be completed through these platforms. The Bank's customers are also able to register to Savings Accounts on a unified payment interface based mobile applications. The Bank's account opening, and loan underwriting processes have been digitalised by using tablets, which brought down the turnaround time and offers better service to customers. CASA accounts can be opened through tablets, which enable doorstep services to customers. By leveraging technology solutions, the Bank provides customers with pre-generated kits immediately upon account opening, enabling them to use the ATM- cum debit card provided with the pre-generated kits without having to wait for the ATM-cum-debit card to be activated across channels, thereby resulting in increased customer satisfaction. The Bank has crossed a milestone in technology with the successful adoption of e-signatures for Micro Loan disbursals. The Bank has a digitalised central credit-processing unit for its micro loans and have implemented all Micro Banking Loan Documents in Vernacular Languages. The Bank has enabled a Digital Receipt

Printing facility right after Collection is completed in the field. The customer onboarding process has been predominantly digitalised for its micro loans. The Bank leverages technology for underwriting and credit sanctioning for its loan products based on inputs from credit bureaus and/or the customer data analytics. The Bank has implemented technology solutions that enable it to ensure cashless disbursement of loans and implemented electronic signing for micro loans, both of which have reduced paperwork hence committing to the sustainability commitments.

The Bank's collections mechanism has also been digitalised with mobile applications and a payment gateway through which the borrowers can repay their loans. The Bank is continuously working towards improving its customers' experience using technology and has implemented a Customer Relationship Management solution to better handle requests from customer. The Bank believes that such initiatives have helped us improve our customer service and enable delivery of services in a more cost-effective manner. WhatsApp Banking: a simple platform to avail a host of basic banking services, which is a faster, convenient, and secure platform at the comfort and safety from anywhere. Customers can also get information on various products/ interest rates/ branch locations etc.

The Bank has enabled Customer facing channel features like Electronic Payment Advice through Branches, Additional Mobile Banking registration facility for international customers, Offline Account statement feature in Corporate Internet Banking (CIB), additional SMS and e-mail notifications on both successful and failed login attempts in CIB.

IT and Digital Transformation

IT and Digital Transformation (StratoNeXt) department plays a pivotal role in modernising the Bank's technological infrastructure and driving digital innovation. With a dedicated team of experts, the Bank focuses on leveraging cutting-edge technologies to enhance operational efficiency and deliver superior customer experiences. As the banking sector continues to evolve in the digital age, the role of the IT and Digital Transformation department becomes increasingly critical in ensuring the Bank remains competitive and responsive to changing market dynamics.

As part of its commitment to keeping pace with the Bank's growth and evolving customer preferences, the Bank initiated a comprehensive review of its existing IT and digital processes, designs, and architectures.

1 s1

Implement a digital-first approach for products and services to improve the bank's interaction with customers and the overall ecosystem.

2 ts

Overhaul the current technology stack and establish new capabilities by embracing open and interoperable systems and adopting a Cloud-first architecture.

3 st

Develop future-ready capabilities, including data engineering, integrated data for risk analysis, a skilled workforce, and a culture of continuous innovation.

Establish a comprehensive IT practice internally, aimed at empowering its IT team with the necessary skills and competencies to operate efficiently within the bank's ecosystem. By fostering subject matter expertise in domains such as IT service management, governance, and relevant technologies, the ankseeksolaya strong foundaton for sustainable growth and

jinnovation Reducing Single Vendor Dependency

Transitioning from the Bank-in-a-Box model aims to reduce reliance on single vendors, providing the bank with greater control over its IT systems and aligning with contemporary regulatory mandates. This shift enhances operational flexibility and resilience while mitigating risks associated with vendor

Reengineering or upgrading business processes focuses on leveraging the latest technology to enhance customer delight and improve business outcomes through streamlined processes and technological advancements. This initiatives seeks to optimize efficiency and agility across the organization's operational workflows.

Prioritzing regulatory compliance, particularly in area such as data security, cybersecurity, and information security, underscores the bank's commitment to upholding regulatory standards from the outset. This agile approach ensures proactive adherence to evolving compliance requirements, safeguarding the bank's reputation and integrity.

Designing end-to- end customer journeys that are simple and intuitive enhance the overall customer experience, fostering loyalty and satisfaction.seamless integration of applications minimizes friction points and enhance operational efficiency while ensuring compliance with regulatory framework.

Driving enhanced level of automation using existing and new application optimizes processes and resources effectively, improving operational efficiency and cost - effectiveness.robustbgovernance mechanism ensure accountability and transparency, facilitating continuous improvement and operational excellence.

Emphasizing digital provisioning of product and service serves as a key acquisition tool and enhances servicing for existing customers. This digital- first approach aligns with evolving customer preferences and positions the bank as a leader in the digital banking landscape

Exploring new ways to build strong relationships with customers and improve engagement and experience ia paramount. Leavraging data-driven products and services foster long- term relationships and enhances overall customer experience, driving loyalty and retention

Outsource IT & digital components to capable and competent third party, thereby retaining the ownership with bank and at the same time enjoying dedicated/expert service from the third party

^

Looking ahead, StratoNeXt remains steadfast in its commitment to driving innovation, enhancing customer experiences, and fostering operational excellence through its IT and Digital transformation initiatives. In the coming years, StratoNeXt will continue to prioritise the execution of its Programme, focusing on completing key IT and digital projects outlined in the strategic roadmap. This includes seamlessly integrating cutting-edge technologies, optimising operational processes, and enhancing digital capabilities to meet evolving customer expectations. As StratoNeXt moves forward, collaboration and stakeholder engagement will remain central to its approach. StratoNeXt will continue to work closely with internal teams, technology partners, and key stakeholders to drive alignment, foster innovation, and deliver tangible results.

In conclusion, StratoNeXt is well-positioned to navigate the challenges and opportunities presented by the rapidly evolving digital landscape. By staying agile, customer-centric, and innovative, the Bank is confident in its ability to achieve strategic objectives and deliver sustainable value to all stakeholders. The Bank looks forward to the exciting journey ahead as it continues to drive positive change and shape the future of banking through IT and Digital transformation initiatives.

The Bank is working towards being one of the best Social Bank in India for providing the best customer experience. The Bank has a Grievance Redressal Mechanism and Policy in line with guidelines of Reserve Bank of India which aims at resolution of queries and complaints with customer satisfaction. The Customer Service Quality department apprises the Board for review periodically about grievance handling and other initiatives undertaken for the improvement of overall quality in Customer Service. The Bank has enabled different channels for its customers to get connected for communication like Toll free 24-hour Call Centre with multi language and interactive voice recognition facility, Website communication link for grievances, Branches and Escalation matrix with phone numbers, Customer care emails, Complaint box, Complaint registers etc. Customer feedbacks in the form of surveys are conducted periodically to review the satisfaction levels of customers across the geography.

Branch level Customer Service Committee, Standing Committee on Customer Service, Customer Service Committee of the Board etc. are few areas for review of the effectiveness of Customer Service of the Bank at different hierarchy levels.

ISO 9001:2015 recertification for Customer Service Quality functions, NIL awards from the Banking Ombudsman, bagging Best Customer Experience Bank of the Year award at India CX Summit and Awards, engaging branches for internal contest on customer service quality - Customer Service Excellence awards, Workplace transformation in branches through Five-S to improve service quality and increase productivity, Staff motivation e-mail series on customer experience etc., were some of the initiatives undertaken by the Customer Service Quality department of the Bank during the Financial Year 2023-2024.

The Bank has a dedicated independent Compliance Department headed by a Chief Compliance Officer, which operates as per a well-documented compliance policy for ensuring regulatory / statutory compliance, across all businesses and operations. The key functions of the Compliance Department shall include ensuring core compliance areas such as statutory, regulatory, and other related mechanisms for dissemination of regulatory prescriptions and guidelines amongst respective functions and monitoring compliance with regulatory guidelines, oversight of statutory compliances, correspondence with the RBI, vetting the guidelines/ circulars issued, new product and processes, for compliance with regulatory guidelines, vetting of the Bank's Policies, coordinating and monitoring submission of the RBI returns, coordinating collection of inputs from various departments for the RBI Inspection and for rectification of the RBI inspection irregularities etc. The Bank has a well-defined and structured mechanism to assess the compliance risk and monitor its mitigation measures thereby ensuring the effectiveness of the compliance function in managing the compliance risk.

The Bank follows a risk management approach that involves identifying, assessing, and continually monitoring different types of risks. The Bank's Board of Directors oversees risk management governance, approving policies updated in accordance with regulatory guidelines and internal directives. Pursuant

to Regulation 21 of the SEBI Listing Regulations and the applicable guidelines of the Reserve Bank of India, the Board of the Bank has constituted a Risk Management Committee of the Board which establishes and reviews processes and standards for risk management functions. The Risk Management Department coordinates bank-wide risk management efforts, implementing approved policies and procedures. It comprises five divisions managing major risk streams: Credit risk, Operational risk, Market risk, Information and Cybersecurity risk and Anti-Money Laundering and Transactional risks.

The Bank's executive-level risk management committees, such as the Credit Risk Management Committee, Operational Risk and Business Continuity Management Committee, Market Risk and Asset Liability Management Committee, Information Security Governance Committee, and Outsourcing and Vendor Assessment Committee, consistently evaluate their respective risks and take preventive and corrective actions as needed. The Committees report significant risk events, risk levels and trends to the Risk Management Committee of the Board. The Chief Risk Officer, who directly reports to the Managing Director and CEO, oversees all risk management functions. The Bank has developed a robust Internal Capital Adequacy Assessment Process to identify, assess, and monitor material risks, ensuring capital adequacy commensurate with the Bank's risk profile and growth strategy and satisfying the regulatory norms. Periodic stress testing is conducted to ensure that the Bank can effectively manage and mitigate both existing and emerging risks.

As on March 31,2024, the total number of employees of the Bank was 5,967. The Bank believes its employees are one of the most important assets and that a content and happy workforce will deliver the joy of banking to our customers and drive our performance. Internal promotions are conducted every year based on a well-defined process, published in advance to make the process fully transparent. Promoted employees are given special training on leadership and team building. The Bank recognises the importance of continuous learning and has adopted a comprehensive learning and development policy.

Each employee onboarded has to mandatorily undergo a minimum of two weeks' training, which includes on-the-job training in Microfinance at the

Banking Outlets. After the on-the-job training at the Banking Outlets, they are given one week's residential induction training and also another week's training on Core Banking Solutions software.

The Bank has facilitated a culture of self-learning for its employees by establishing an online learning portal, ESAF Small Finance Bank Online Academy. The Bank conducts various topic-based training sessions for its employees and also has tie-ups with coaching institutes in multiple locations for approved certification courses at concessional fees for employees and gives incentives to those employees who pass those courses. The Bank also regularly nominates senior staff to attend programmes arranged by certain financial educational institutes. The Bank is committed in attracting and retaining the right human talents and developing their capabilities and culture to meet the market demands that are continually changing. The human resource department of the Bank is committed to:

• Ensuring a work environment that attracts, retains and trains potential and performing employees.

• Fostering a work environment that promotes employees to be:

o Competent o Committed o Contributing o Customer Centric o Collaborative o Content

o Continuous Learners

• Facilitating the continuous performance of employees through objectives which are monitored, reviewed and improved.

• Satisfying all relevant customer, statutory and regulatory requirements.

Human Resource Department of the Bank has been assessed and found to conform to the requirements of ISO 9001:2015 to provide quality service to all employees and support and motivate them to continually improve their performance.

The Bank has a specialised Information Security Division within its Risk Management Department,

which is supervised by the Chief Information Security Officer, who reports directly to the Chief Risk Officer. The approval of the Information Security Policy and Cyber Security Policy by the Board of Directors establishes the framework for managing information technology risks and supervising security administration. Oversight of Information Security is led by the Board of Directors, with support from the Information Technology Strategy Committee and the Executive Level Information Security Governance Committee.

The Bank maintains a Security Operation Centre (SOC) and ensures 24/7 surveillance and stays consistently updated on the latest cyber threats. It utilises multiple monitoring tools to identify, track, record and analyse security events or incidents in real-time within IT environment.

The Bank's established plan for increasing information security awareness covers all stakeholders including customers, employees, vendors, and business channel partners. The Bank is disseminating alert message through different platforms including social media. Regular trainings are conducted through its learning platform as well as direct training sessions. The activities ensure the fostering of a culture of cyber security vigilance among all the stakeholders of the Bank.

The Bank is committed to ensuring data privacy of its customers, employees, and stakeholders. It is actively pursuing initiatives to strengthen and enhance its data privacy practices.

Utilising industry-leading practices, the Bank upholds the safety and security of customer transactions, data privacy, and information integrity across all data states: at rest, in use, and in transit. Additionally, it engages in partnerships with regulatory bodies like CSITE, RBI, CERT-In, IDRBT, and others to stay abreast of security incidents, protocols, and regulatory requirements.

The Bank has a Business Continuity Management Policy, approved by the Board of Directors and reviewed on an annual basis. The Bank conducts Business Impact Analysis (BIA) annually and prepares a Business Continuity Plan (BCP) Document, which deals with the measures to manage any unplanned disruption in services. The document identifies and prioritises processes and systems and evaluates the potential effects of natural and man-made events or disasters on the IT and other services that support

business. It also analyses the potential loss in transactions to the Bank in case of disruption, Critical and Non- Critical applications, their Recovery Point Objective (RPO) and Recovery Time Objective (RTO). The BCP contains the details of Key outsourcing arrangements and BC arrangements, how to deal with different business scenarios, certain situations like power failure, Cyber-attacks, Hardware and Software failures, Network failures, Natural disasters, etc.

The Bank has an executive level Crisis Management and Quick Response Team (CMQRT) which are responsible for initiating immediate actions in the event of the occurrence of a crisis and to guide Business Units/ Departments on steps to be taken to protect the assets and to ensure continuity of the business. The CMQRT initiates remedial actions in case of any breakdown or failure of critical systems, occurrence of natural disasters or accidents or any other events affecting business continuity.

The Bank also has an executive level Cyber Crisis Management Team (CCMT). The CCMT would be activated in case of a Cyber Security Crisis situation, wherein security characters of information are compromised as a result of failure of an IT system or network of IT systems, due to technical reasons, intentional acts or negligence, leading to consequences that may threaten lives, financial position, the trust, national security and public confidence.

The Ministry of Finance, Government of India ("GOI"), had vide its press release dated January 18, 2016, outlined the roadmap for implementation of International Financial Reporting Standards ("IFRS") converged Indian Accounting Standards ("Ind AS") for Scheduled Commercial Bank (excluding RRBs), NBFC and Insurance companies. The RBI vide its circular dated March 22, 2019, deferred the implementation of Ind AS for Scheduled Commercial Banks ("SCB") till further notice, pending the consideration of some recommended legislative amendments by GOI. The RBI has not issued any further notification on implementation of Ind AS for SCBs.

The Bank submits its Proforma Ind-AS financials on half yearly basis to the RBI based on the GAP assessment carried out by the Bank. The Bank is in the process of implementing necessary changes in its IT systems, wherever required and other processes in a phased manner.

13. Transfer to Reserves

As per the requirement of the regulations of Reserve Bank of India, the Bank has transferred the following amount to various reserves during the Financial Year

14. Dividend

In accordance with Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the "SEBI Listing Regulations"), the Board of the Bank has formulated and adopted a Policy on Dividend Distribution, which is available on the website of the Bank at https://www.esafbank.com/wp-content/ uploads/2024/05/Policy_for_Dividend_Distribution. pdf. In view of the overall performance the Board of Directors of the Bank in their meeting held on May 08, 2024, recommended a final dividend of .Rs0.7 per equity share for the Financial Year 2023-24. The dividend, if approved by the members, in the ensuing Eighth Annual General Meeting of the Bank would entail a payout of approximately .Rs360 million based on the capital as of March 31, 2024. The dividend would be paid to all the equity shareholders, whose names would appear in the Register of Members/ list of Beneficial Owners on the Record Date fixed for this purpose i.e. August 07, 2024.

15. Change in the Nature of Business

There was no change in the nature of business of the Bank during the Financial Year 2023-24.

16. Listing of Equity Shares of the Bank

In the Financial Year 2023-24, the Bank successfully completed its Initial Public Offer (IPO) of 7,73,56,059 Equity Shares of face value of .Rs10 each for cash at a price of .Rs60 per equity share (including a share premium of .Rs50 per equity share) aggregating to .Rs4,630 million comprising a fresh issue of 6,53,06,060 equity shares aggregating to .Rs3,907 million and an offer for sale of 1,20,49,999 equity shares aggregating to .Rs723 million, comprising 82,10,000 equity shares aggregating to .Rs492.60 million by M/s. ESAF Financial Holdings Private Limited, the Promoter Selling Shareholder, and 21,11,666 equity shares aggregating to .Rs126.70 million by PNB Metlife India

Insurance Company Limited and 17,28,333 equity shares aggregating to .Rs103.70 million by Bajaj Allianz Life Insurance Company Limited. The offer included a reservation of 22,72,727 equity shares, aggregating to .Rs125 million, for subscription by eligible employees ("employee reservation portion"). The offer was opened on November 03, 2023 and closed on November 07, 2023. The issue was oversubscribed by 77 times. The equity shares of the Bank were listed and admitted for dealings with BSE Limited (BSE) and National Stock Exchange of India Limited (NSE) on November 10, 2023. The shares were listed at .Rs71.90 on BSE Limited and at .Rs71 on National Stock Exchange of India Limited, at a premium of 19.83% and 18.33% respectively.

17. Capital and Debt Structure

a. Share Capital

There were no changes in the Authorised Capital of the Bank during the Financial Year 2023-24.

As on March 31,2024, Authorised Capital of the Bank was .Rs6,00,00,00,000 (Rupees Six Hundred crore) divided into 60,00,00,000 (Sixty crore) Equity Shares of .Rs10 (Rupees Ten) each.

During the year, the Bank had allotted 6,53,06,060 equity shares of .Rs10 each at an issue price of .Rs60 per equity share (including premium of .Rs50 per equity share) by way of Initial Public Offer made by the Bank (employees were given a discount of .Rs5 per share). After the allotment of the aforesaid equity shares, the total issued, subscribed and paid-up share capital of the Bank as at March 31,2024, stands at .Rs5,14,77,98,580/- (Rupees Five Hundred and Fourteen Crore Seventy-Seven Lakhs Ninety-Eight Thousand Five Hundred and Eighty only) divided into 51,47,79,858 (Fifty-One Crore Forty-Seven Lakhs Seventy-Nine Thousand Eight Hundred and Fifty- Eight) Equity Shares of .Rs10 (Rupees Ten) each.

b. Debt Capital

Based on the shareholders' approval dated December 13, 2022 to raise funds through private placement of Unsecured, Rated, Redeemable Non-Convertible Debentures (NCDs), the Bank made the following allotment of Non-Convertible Debentures having a face value of .Rs1,00,000 (Rupees One Lakh) during the Financial Year 2023-24:

Further, the Bank, pursuant to a resolution passed by the Board of Directors in the meeting held on August 11, 2023, considered and approved the proposal to raise funds by way of issue of Unsecured, Rated, Redeemable Tier II bonds (in the form of Non-Convertible Debentures), aggregating up to .Rs5000 million (Rupees Five Thousand Million Only) on a private placement basis, in one or more tranches, in compliance with all applicable directions and regulations of the Reserve Bank of India, SEBI, other governmental authorities, and any other person, as may be required/ applicable. The Bank through notice dated December 04, 2023 sought the shareholders' approval for the aforesaid issue and the resolution was approved on December 29, 2023.

Pursuant to the aforesaid approval, the Bank made following allotments of Non-Convertible Debentures (NCDs) having a face value of .Rs1,00,000 (Rupees One Lakhs), during the Financial Year 2023-24:

The Bank is subject to the Basel II Capital Adequacy guidelines stipulated by the Reserve Bank of India. The Capital Adequacy Ratio of the Bank is calculated as per the standardised approach for credit risk. The Capital Adequacy ratio of the Bank as on March 31, 2024 is 23.27%, as against the minimum requirement of 15.00% stipulated by the Reserve Bank of India.

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

In order to recognise the contribution of the employees in the formation of the Bank and to create the feeling of inclusiveness and enable the employees to get a share in the value that they help to create for the organisation over a period of time, the Bank has formulated ESAF Small Finance Bank Employee Stock Option Plan 2019 (ESAF ESOP 2019) by way of a special resolution which also authorised the Nomination, Remuneration and Compensation Committee to grant up to 2,25,15,552 (Two Crore Twenty-Five Lakhs Fifteen Thousand Five Hundred and Fifty-Two) Employee Stock Options to the employees, in one or more tranches, from time to time. The Bank strongly believes that an equity component in the compensation goes a long way in aligning the objectives of an individual with those of the Bank. The objectives of ESAF ESOP 2019 are, among others, to attract and retain employees with Employee Stock Options as a compensation tool. Through ESAF ESOP 2019, the Bank intends to offer an opportunity of sharing the value created with those employees who have contributed or are expected to contribute to the growth and development of the Bank.

Through the scheme, the Bank intends to grant equity-based compensation to the employees in two categories namely:

1) Loyalty Grant to reward eligible employees for their contributions in the past tenure and continued employment in the Bank, which is a one-time grant and;

2) Performance Grant on the basis of employee's annual appraisals for their future performance and continuity of services.

The Nomination, Remuneration and Compensation Committee has been entrusted with the responsibility of administering the ESAF ESOP 2019 Scheme. As of March 31, 2024, the Nomination Remuneration and Compensation Committee of the Board granted 11,25,590 options as the first instalment of loyalty grant under the ESAF ESOP 2019 Scheme, to the employees identified under the implementation guidelines for ESAF ESOP 2019 as per the terms of granting. However, no ESOP was granted or exercised during the Financial Year 2023-24.

In accordance with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, the shareholders in the seventh Annual General Meeting of the Bank held on December 29, 2023, ratified the ESAF ESOP 2019.

Credit ratings assigned to various debt instruments of the Bank during the Financial Year ended March 31, 2024 are as follows:

In compliance with the provisions of the Banking Regulation Act, 1949, the guidelines issued by the Reserve Bank of India, Section 178 of the Companies Act, 2013 and SEBI Listing Regulations, the Bank has formulated and adopted a Nomination Policy for selection and appointment/ re-appointment/ removal of Directors, which is disclosed on the Bank's website (https://www.esafbank.com/wp- content/uploads/2024/05/Nomination_Policy.pdf). Through the said policy, the Bank has formulated criteria for the appointment of directors, and based on the said criteria, Nomination, Remuneration and Compensation Committee of the Board (NRCCB) shall conduct a due diligence process to determine the suitability of every person who is being considered for being appointed or re-appointed as a Director of the Bank, based on the range of skills, experience, expertise, qualifications, specialised knowledge etc. of the candidate, and recommend his/ her appointment to the Board. The Nomination, Remuneration and Compensation Committee identifies potential candidates from diverse backgrounds including but, not limited to Accountancy, Agriculture and Rural Economy, Banking, Co-operation, Finance, Law, Small Scale Industry, Economics, Human Resources, Payment and Settlement Systems, Business Management, Risk Management and Information Technology, thus providing the Board with members who have diverse knowledge, practical experience and skills to serve the business interests of the Bank. Every such person shall meet the Rs.fit and proper' criteria the Reserve Bank of India may stipulate from time to time, and accordingly, any appointment or re-appointment of a Director shall be subject to prior approval by the NRCCB of the Bank.

The key objectives of the Nomination Policy shall inter- alia include the following:

• To guide the Board in relation to appointment, re-appointment or removal of directors and lay down a selection criterion for appointment of directors.

• To ensure compliance with applicable laws, rules and regulations including compliance to the Rs.Fit and Proper criteria' of Directors at the time of their appointment and on a continuous basis.

• To devise a policy on the size and composition of the Board taking into account the available and needed diversity and balance in terms of experience, knowledge, skills and judgment of the Directors.

During appointment/ re-appointment/ removal of Directors of the Bank, the Bank has always ensured that, the provisions of the Companies Act, 2013, Banking Regulation Act/ RBI Guidelines and directives and guidelines of SEBI to the extent applicable are adhered to. In all respects, the Bank has also kept high standards and met the diversity, structure and size compositions of the Board and its Committees as prescribed in various statutes.

The NRCCB is responsible to the Board for leading the succession planning process in respect of appointments/ re-appointments in respect of Directors, employees in the grade of Senior Management and Key Managerial Personnel of the Bank.

The Bank has accordingly obtained prescribed declarations/ undertakings from the Directors as per the guidelines of the Reserve Bank of India and the same are placed before the Board of Directors for its review and noting. An assessment on whether the

Directors fulfill the prescribed criteria is carried out by the Nomination Remuneration and Compensation Committee of the Board on an annual basis and also at the time of their appointment or re-appointment. Wherever necessary, the Nomination Remuneration and Compensation Committee is authorised to engage the services of an External Consultant(s)/ expert in the field of succession planning, to identify and assess the suitability of candidates for the post of a Director of the Bank.

The RBI, vide its circular no. DOR. Appt. BC.No.23/29.67.001/2019-20 dated 04th November 2019, has issued the Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff of Private Sector Banks on Compensation Policy. In accordance with the aforesaid RBI Circular, the Board of the Bank has adopted a revised Compensation Policy for its Whole-time Directors, Chief Executive Officer of the Bank and other employees. The salient feature of the Compensation Policy is to provide a fair and transparent structure that helps the Bank to retain and acquire the talent pool critical to building competitive advantage and brand equity as a Social Bank focused on social transformation and community development.

The composition of the Board of Directors of the Bank is in conformity with the Companies Act, 2013, the Banking Regulation Act, 1949 and SEBI Listing Regulations. As of March 31, 2024, the Board of Directors comprised a combination of ten directors out of which there were six Independent Directors including a Woman Independent Director, two NonExecutive Nominee Directors, one Non-Executive Director and one Executive Director. The size of the Board commensurate with the size and business of the Bank. The Board mix provides a combination of professionalism, knowledge and experience required in the banking industry and also meets the criteria prescribed under the Nomination Policy adopted by the Board.

Pursuant to Section 152 of the Act and Articles of Association of the Bank, two-thirds of the total number of directors are liable to retire by rotation out of which one-third shall retire from office at every Annual General Meeting. The provisions of retirement

of Directors by rotation shall not be applicable to Independent Directors and Executive Directors. Accordingly, Shri. Ajayan Mangalath Gopalakrishnan Nair (DIN: 09782416), Non-Executive Nominee Director of the Bank, who retires by rotation as Director, at the conclusion of this Annual General Meeting and who has offered himself for re-appointment, is proposed to be re-appointed.

The Board of Directors in their meeting held on August 11, 2023, had appointed Prof. Biju Varkkey (DIN: 01298281) as Additional Director (Independent Director) of the Bank in terms of Section 149 and 161 of the Companies Act, 2013, with effect from August 17, 2023, considering his vast knowledge and experience in the field of Banking and Human Resources.

The Shareholders in the 07^th Annual General Meeting of the Bank held on December 29, 2023, approved the appointment of Prof. Biju Varkkey as the Non-Executive Independent Director of the Bank, for a period of three consecutive years with effect from August 17, 2023 up to August 16, 2026.

Dr. Joseph Vadakkekara Antony (DIN: 00181554), Non-Executive Independent Director of the Bank, retired from his directorship on completion of two terms as Independent Director on August 16, 2023. The Board of Directors of the Bank placed on record their appreciation for the invaluable contributions during his tenure as Director of the Bank.

The Board of Directors in their meeting held on November 18, 2023, had appointed Dr. Joseph Vadakkekara Antony (DIN: 00181554) as Additional Director (Non-Executive Director) of the Bank in terms of Section 161 ofthe Companies Act, 2013, with effect from November 18, 2023, considering his vast knowledge and experience

in the field of Banking, Human Resources, Law and Economics.

The Shareholders in the 07^th Annual General Meeting of the Bank held on December 29, 2023, approved the appointment of Dr. Joseph Vadakkekara Antony as the Non-Executive Director of the Bank, for a period of two consecutive years with effect from November 18, 2023 up to November 17, 2025.

Complying with SEBI Listing Regulations, provisions of the Companies Act, 2013 and the RBI guidelines, Familiarisation Programmes were conducted during the Financial Year 2023-24 to give an overview and introduction to the Independent Directors about the Bank's business and operations.

Under this programme, newly appointed directors are appraised with the organisation structure, operational overview, financial overview, board matters and procedures, key risk issues and its mitigation strategy, among others.

Further, all the newly appointed Directors undergo a face to face induction schedule where the Bank's Management Team provides insights about the affairs of their function and of the Bank as a whole. The details of the familiarisation programme imparted to Independent Directors are available on the website of the Bank at https://www.esafbank.com/pdf/corporate- governance/Familiarisation%20Programme%20 for%20Independent%20Directors.pdf

In accordance with the provisions of Section 149(8) read with Schedule IV, Section 178(2) of the Companies Act, 2013, Regulation 17 and other applicable regulations of SEBI Listing Regulations, and in consonance with Guidance Note on Board Evaluation issued by the SEBI, the Board has formulated a Performance Evaluation Policy including a questionnaire for performance evaluation of the Individual Directors including Chairman and Managing Director and CEO, Committees of the Board, and the Board as a whole. The questionnaire designed for the performance evaluation covering various aspects of performance, including structure of the board, meetings of the board, functions of the board, role and responsibilities of the board, governance and compliance, evaluation of risks, grievance redressal

for investors, conflict of interest, stakeholder value and responsibility, relationship among directors, director competency, board procedures, processes, functioning and effectiveness, was circulated to all the directors of the Bank for the annual performance evaluation. The appraisal of each of the Directors of the Bank is done based on the evaluation conducted with a set of pre-determined evaluation factors:

• The performance evaluation of the Board as a whole shall be carried out by all the Directors;

• The performance evaluation of the Board Committee(s) shall be carried out by the members of each of the Committees;

• The performance evaluation of Managing Director and CEO/ Executive Director shall be done by all the directors except the Managing Director and CEO.

• The performance evaluation of Chairman of the Bank is done by all the Directors except the person being evaluated.

• The performance evaluation of Independent Directors is done by all the Directors except the person being evaluated.

• The performance evaluation of the Non-Executive Director is done by all the Directors except the person being evaluated.

The performance evaluation of the Board of Directors, Committees of the Board and individual Directors were conducted during the Financial Year. The Board and the Nomination, Remuneration and Compensation Committee of the Board reviewed the performance of the Individual Directors and noted that the results of the performance evaluation indicated a high degree of satisfaction among Directors.

In accordance with Regulation 17(5) of SEBI LODR Regulations, the Bank has adopted the Code of Conduct for Directors and Senior Management Personnel. The code of conduct sets forth the guiding principles for orderly and fair conduct by Directors and SMPs. All Directors and SMPs have affirmed the compliance of the code for the Financial Year 2023-24 and a declaration to this effect signed by the Managing Director and CEO forms part of Report on Corporate Governance. The Bank's Code of Conduct for Directors and SMPs is disclosed on the website of the Bank. (https://www.esafbank.com/pdf/policies/other-

disdosures/Code%20of⁰/o20Conduct⁰/o20for⁰/o20

Directors%20and%20Senior%20Management%20v1. pdf)

The Board has received declarations from the Independent Directors as required under Section 149(7) of the Companies Act, 2013, and the Board is satisfied that the Independent Directors meet the criteria of independence as mentioned in Section 149(6) of the Companies Act, 2013 and Regulation 16(1) (b) of SEBI Listing Regulations and that they have complied with the code of conduct for independent directors as prescribed under Schedule IV of the Companies Act, 2013.

In the opinion of the Board, all the Independent Directors meet the criteria with regards to integrity, expertise and experience as required under applicable laws.

All Independent Directors of the Bank have registered themselves in the data bank as specified under Section 150 of the Companies Act, 2013, read with Rule 6 of Companies (Appointment and Qualifications of Directors) Rules, 2014 and have qualified the prescribed proficiency test. The Independent Directors (not exempted under the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2020 as notified on December 18, 2020) have qualified the online proficiency selfassessment as required under aforesaid rule within the prescribed timeline.

The terms and conditions of appointment of Independent Directors are available on the website of the Bank. (https://www.esafbank.com/pdf/policies/ other-disclosures/Terms%20and%20conditions%20 of%20appointment%20of%20Independent-Directors. pdf)

The Bank has a Directors and Officers Liability Insurance Policy which protects Directors and Officers of the Bank from any breach of fiduciary duty.

The Bank is committed to achieving and adhering to the highest standards of Corporate Governance and it consistently benchmarks itself with the best practices in this regard. A report on Corporate Governance for the Financial Year 2023-24 has been annexed to the Annual Report.

Shri. M. Vasudevan, Secretarial Auditor of the Bank, has issued a certificate confirming compliance with the provisions of Corporate Governance by the Bank for Financial Year as stipulated in Regulations 17 to 27 and clauses (b) to (i) of Regulation 46(2) and paragraphs C, D and E of Schedule V to the SEBI Listing Regulations, and the same is attached along with the Report on Corporate Governance.

The Management's Discussion and Analysis Report as stipulated under Regulation 34(2)(e) of the SEBI Listing Regulations, forms part of this Annual Report.

The Board of Directors met Sixteen (16) times during the Financial Year 2023-24.

The meetings of the Board of Directors were convened in accordance with applicable laws and standards and the intervening gap between the said meetings was not exceeding 120 days. The details of Board Meetings and details of attendance of each director have been disclosed in the Corporate Governance Report which forms part of the Annual Report of the Bank for the Financial Year 2023-24. During the year, Shri. Ravimohan Periyakavil Ramakrishnan, Dr. Vinod Vijayalekshmi Vasudevan and Prof. Biju Varkkey had sought leave of absence from one (1) meeting each, of the Board of Directors.

As on March 31, 2024, the Bank had Ten (10) Board Committees:

1. Audit Committee of the Board (ACB)

2. Risk Management Committee of the Board (RMCB)

3. Nomination, Remuneration and Compensation Committee of the Board (NRCCB)

4. IT Strategy Committee of the Board (ITSCB)

5. Management Committee of the Board (MCB)

6. Corporate Social Responsibility and Sustainability Committee of the Board (CSRSCB)

7. Customer Service Committee of the Board (CSCB)

8. High Value Fraud Monitoring Committee of the Board (HVFMCB)

9. Stakeholders Relationship Committee of the Board (SRCB)

10. Human Resource Committee of the Board (HRCB)

Note: IPO Steering Committee of the Board (IPOSCB) was dissolved upon successful completion of listing of equity shares of the Bank on November 10, 2023.

The details of composition, number of meetings held and date thereof and terms of reference of the above Committees are available in the Corporate Governance Report which forms part of the Annual Report of the Bank for the Financial Year 2023-24.

In terms of the Section 149(8) read with Schedule IV of Act and Regulation 25 of SEBI Listing Regulations, a meeting of the Independent Directors of the Bank is required to be held at least once a year in absence of Non-Independent Directors.

During the Financial Year 2023-24, the Independent Directors of the Bank met on March 26, 2024, chaired by Shri. Ravimohan Periyakavil Ramakrishnan and attended by all the Independent Directors of the Bank.

The following officials of the Bank are the "Key Managerial Personnel" pursuant to the provisions of Section 203 of the Companies Act, 2013:

In addition to the above, the Board of the Bank has designated the following senior officials of the Bank as Key Managerial Personnel in terms of Section 2(51) of the Companies Act, 2013:

Following changes took place in the list of Key Managerial Personnel during the Financial Year 202324:

The Board of Directors confirms that the Bank has laid down a set of standards, processes and structures which enable it to implement internal financial controls across the organisation with reference to Financial Statements and that such controls are adequate and are operating effectively. The Internal Financial Control framework of the Bank ensures that:

• Internal Financial Controls are established for critical and material processes handled by the Bank.

• Draw up recommendations based on good practices to develop or strengthen the internal control systems.

• Ensure that, the IFCs are adequate and operating effectively, by periodic review and testing.

• Periodic reporting of the status to the Audit Committee of the Board.

• The existence and adequacy of IFCs is demonstrated to various internal and external stakeholders.

The Internal Audit Department of the Bank has tested each of the controls and during the year under review, there are no material or serious observations of inefficiency or inadequacy of such controls.

Pursuant to Section 134(3) of the Companies Act, 2013, the Board of Directors hereby declare and confirm to the best of their knowledge and belief that:

i) In the preparation of the annual accounts for the year ended March 31, 2024, the applicable accounting standards had been followed along with proper explanation relating to material departures;

ii) Such accounting policies as specified in Schedule III to the Financial Statements have been selected and applied consistently and judgements and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at March 31, 2024 and of the profit of the Bank for the year ended on that date;

iii) Proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities;

iv) Annual accounts have been prepared on a going concern basis;

v) Internal financial controls to be followed by the Bank were in place and that the same were adequate and were operating effectively, and

vi) Proper system to ensure compliance with the provisions of all applicable laws was in place and the same was adequate and operating effectively.

In accordance with Section 135 of the Companies Act, 2013, read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, as modified from time to time, the Bank has established the Corporate Social Responsibility and Sustainability ("CSRSCB") Committee of the Board.

In the financial and banking industry, ESG has become a critical area of focus and the Bank Endeavours to continually improve its ESG performance. There is a robust ESG policy framework which articulates ESG focus areas and provides guidance for ESG practices such as corporate governance, environmental and employee related initiatives, policy revisions and other ESG related projects undertaken. There is a Sustainability Council in the Bank, comprising representatives from relevant functions for the implementation of the framework. This council plays a critical role in providing data on various ESG parameters which is subsequently collated, analysed and reported to the Head of Sustainable Banking. The progress is also reported to the CSRSCB and the Board periodically.

The Bank follows a social business strategy seeking a Triple Bottom Line impact: People, Planet and Prosperity and believe that the social, environmental, and economic outcomes of the Bank's business create synergies that have an amplified impact on our stakeholders of the Bank. The legacy of a mission, fighting the partiality of prosperity (i.e., the drive for inclusion of marginalised sections of society and the equity of opportunities) led to the formation of the Bank. With a vision to become India's leading Social Bank that offers equal opportunities for the whole society, the Bank has adopted various policies to implement the Bank's triple bottom line approach, including an Environmental, Social and Governance ("ESG") policy. Pursuant to the ESG policy, the Bank is committed to (i) the protection of the environment and ensuring sustainable development, (ii) promoting financial inclusion and gender equality through specialised financial services; and (iii) establishing a governance framework to ensure accountability, transparency and compliance with internal and external ESG standards. The Bank won the "Global Sustainability Award 2020" for outstanding achievements in sustainability management by the Energy and Environment Foundation. The Bank's ESG Grading scores from CARE Advisory Research & Training Limited in its report titled "ESG Grading Report of ESAF Small Finance Bank" published in June, 2023 were: (i) 62% for the Environmental pillar, with remarks including The Bank's commitment to green finance and environment conscious operations; (ii) 68% for the Social pillar, with remarks including that, the Bank has demonstrated healthy labour management practices, including the implementation

of various policies that embody international and national Human Rights standards; and (iii) 76% for the Governance pillar, with remarks including that, the Bank has aligned with leading governance practices, such as adequate independence of the Board (66% independent members on the Board) and committee levels. The Bank received a rating of CareEdge ESG 3 (good), with an overall score of 71 compared with the industry average overall score of 59.8. CARE Advisory Research & Training Limited's ESG specialist team undertook the ESG Grading of the Bank during May, 2023. The Bank has adopted a four-year ESG Roadmap for 2023-27 as follows:

• Impacting 10 Million (One Crore) Direct Customers with any of many SDGs.

• Fostering Local Sustainable Economic Growth through 1 Million Joint Liability Groups.

• Fostering Food Security through financial services to 5 Million Farmers

• Fostering Energy Security through 2,00,000 Renewable Energy Installations (1GW)

• Energy conservation and greater reliance to renewable energy in operations in line with government's net zero plan.

The Bank has received ISO 26000:2010 certification during the Financial Year 2023-24. It is a recognition for the Bank's range of inclusive financial services for social and environmental resilience and returns to individuals, professionals and businesses through ethical practices and global standards. It is a comprehensive certification on the Social Responsibility covering seven core subjects:

• Community Engagement and Development

• Environmental Stewardship

• Human Rights

• Labour Practices

• Consumer Protection

• Fair Operating Practices

• Organisational Governance

The Bank has adopted a CSR policy in compliance with the requirements of the Companies Act, 2013 and the Companies (Corporate Social Responsibility) Rules, 2014. The Bank's CSR focus areas are education, healthcare, sanitation and livelihood development and other priority segments aligning its focus to the 17 Sustainable Development Goals (SDGs) as adopted by the United Nations, by setting targets linking to SDGs

and monitoring the same for a significant participation to the achievement of SDGs. The Bank has engaged ESAF Foundation (formerly known as Evangelical Social Action Forum) and Prachodhan Development Services for implementing the CSR projects approved by the Board.

The Bank's CSR Projects and CSR Project Expenditure for Fiscal Year 2023-24 are in accordance with the CSR mandate as specified in Sections 134 and 135 of the Act read with Schedule VII to the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended from time to time, and in accordance with notifications issued by the Government of India from time to time.

Every year, the Bank allocates 5% of its average net profits, computed in accordance with the manner as prescribed in the Section 135 of the Companies Act, 2013, as against the requirement of 2%. During the Financial Year 2023-24, the Bank has allocated .Rs12,25,00,000 towards CSR expenditures, as against the allocation of .Rs8,26,00,000 for the Financial Year 2022-23. The CSR projects and programmes were implemented directly and/ or through implementing partner organisations with a proven track record of implementing process efficient CSR projects and/ or programmes that were scalable, sustainable, outcome driven, and committed to making a positive societal impact in Fiscal Year 2023-24. Based on the CSRSCB's review and recommendation, the Board reviewed and approved all CSR Projects, CSR Project Expenditure Payments and CSR Administration Overhead Expenses, including the Unspent CSR Project Expenditure Funds of Financial Year 2023-24, which were transferred to the Unspent CSR Account Financial Year 2023-24 on March 31,2024. The Annual Report on CSR Activities, which is annexed to this report as Annexure - I, contains a brief summary of the CSR Policy, including an overview of the programmes implemented, the makeup of the CSR Committee, and CSR expenditure for the fiscal year under review. This year, the Bank has innovated a new CSR initiative of industry academia integration by a new CSR project - ESAF Chair for Business on Values at IRMA (Institute of Rural Management Anand). This synergy to promote value-based businesses will show forth long term impact. Similarly, another CSR innovation was the establishment of Centre of Excellence in collective enterprises that will nurture collective enterprises starting from small JLGs to big FPOs. The CSR Policy of the Bank is available on the Bank's website. (https:// www.esafbank.com/pdf/policies/CSR%20Policy.pdf)

In May 2021, the SEBI made an amendment to Regulation 34(2)(f) of the SEBI Listing Regulations, by introducing enhanced disclosure requirements regarding ESG parameters through a revised format called the Business Responsibility and Sustainability Report ("BRSR"). The Business Responsibility Report has been replaced by BRSR, which is a more comprehensive disclosure that can showcase ESG performance with enhanced transparency, shifting the focus to quantifiable metrics by providing essential and voluntary indicators rather than qualitative and subjective metrics. The Bank has published the BRSR for the Financial Year 2023-24.

BRSR for Financial Year 2023-24 is a part of the Annual Report of the Bank and is also available on the Bank's website.

The Bank continues with the belief of zero tolerance towards sexual harassment in workplace and

continues to uphold and maintain itself as a safe and non-discriminatory organisation. To achieve the same, the Bank reinforces the understanding and awareness of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 ("POSH"). The Bank has in place, a policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and an Internal Complaints Committee has been set up for redressal of complaints. Any complaint pertaining to sexual harassment is diligently reviewed and investigated, and treated with great sensitivity. The Internal Committee members have been trained in handling and resolving complaints and have also designed an online e-learning POSH Awareness module, which covers the larger employee base. During the Financial Year 2023-24, two (2) complaints were received and the same was disposed of.

Details of remuneration as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

The Bank has implemented a vigil mechanism through the adoption of a Whistle Blower and Protected Disclosure Policy in compliance with the relevant provisions of the Companies Act, 2013 and rules thereunder. The Bank provides an opportunity to raise concerns of employees, vendors and directors relating to fraud, malpractice or any other activity or event which is against the interest of the Bank or society as a whole. The details of Whistle Blower complaints received and subsequent action taken and the functioning of the Whistle Blower mechanism are reviewed periodically by the Audit Committee of the Board. During the Financial Year 2023-24, five (5) complaints were received under the Whistle Blower Mechanism. The functioning of the mechanism is reviewed by the Audit Committee from time to time. No employee of the Bank has been denied access to the Audit Committee for raising a whistle blower complaint.

The policy is available on the official website of the Bank. (https://www.esafbank.com/pdf/policies/

Whistle%20Blower%20Policy.pdf)

The Bank has in place, a Policy for Monitoring Insider Trading which inter alia acts as the Code of Conduct

to Regulate, Monitor and Report ("Code") insider trading in the securities of the Bank and the Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information ("UPSI"). The Code, inter alia, prohibits dealing in securities by insiders while in possession of UPSI. The said Code has been amended, from time to time, to give effect to the various notifications/circulars of the Securities and Exchange Board of India ("SEBI") with respect to the SEBI (Prohibition of Insider Trading) Regulations, 2015. The Policy for Monitoring of Insider Trading is available on the Bank's website. (https://www. esafbank.com/wp-content/uploads/2024/05/Policy_ for_Monitoring_of_Insider_Trading.pdf)

In accordance with the Rs.Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)' dated April 27, 2021 ("RBI Guidelines") issued by RBI, the Bank is required to appoint Joint Statutory Auditors for a continuous period of three (3) years, subject to the firms satisfying the eligibility norms each year and the approval of RBI on an annual basis.

Accordingly, the shareholders of the Bank in the sixth Annual General Meeting held on December 13, 2022, and seventh Annual General Meeting held on

December 29, 2023, had appointed M/s. Abama and Ananthan, Chartered Accountants (Firm Registration Number: 000003S) and M/s. Kirtane and Pandit, Chartered Accountants (Firm Registration Number: 105215W/ W100057) respectively, as Joint Statutory Auditors of the Bank for a period of three Financial Years. The appointment is subject to approval of the Reserve Bank of India every year.

The Statutory Auditors have confirmed their eligibility under Section 141 of the Act and as per the guidelines issued by RBI from time to time. Further, as required under the relevant provisions of SEBI Listing Regulations, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India ("ICAI") and they hold a valid certificate issued by the Peer Review Board of ICAI.

The Shareholders in the 7^th Annual General Meeting held on December 29, 2023 had approved an aggregate professional fee of .Rs8 million plus GST and reimbursement of reasonable out of pocket expenses per Financial Year, to be allocated by the Bank between M/s. Abarna and Ananthan and M/s. Kirtane and Pandit, Chartered Accountants, depending on roles and responsibilities and the scope of work undertaken by each of them during the course of audit.

Pursuant to the provisions of Section 204 of the Companies Act, 2013, and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of SEBI LODR Regulations, 2015, the Board of Directors of the Bank in the meeting held on December 26, 2023 has appointed Shri. M. Vasudevan, FCS, Practicing Company Secretary (COP: 2437), Thrissur, holding Membership No: F 4177 for a fourth term to conduct a Secretarial Audit of the Bank for the Financial Year 2023-24 and to hold the office till the conclusion of eighth Annual General Meeting of the Bank. The Secretarial Audit Report does not contain any qualification, reservation or adverse remark and the report for the Financial Year 2023-24 is enclosed herewith as Annexure - II. The Bank has complied with the Secretarial Standards specified by the Institute of Company Secretaries of India and notified by the Ministry of Corporate Affairs under Section 118(10) of the Companies Act, 2013.

During Financial Year 2023-2024, all the related party transactions were entered in the ordinary course of the business of the Bank and on an arm's length basis. Accordingly, there were no transactions entered during the fiscal year that fall under the scope of Section 188(1) of the Companies Act, 2013, hence, form AOC-2 is not applicable to the Bank.

Pursuant to the provisions of Section 134(3)(a) and Section 92(3) of the Act read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, the Annual Return of the Bank for the Financial Year 2023-24 will be hosted on the Bank's website at www.esafbank.com/investor-relations-info/.

During the Financial Year 2023-24, no instances of fraud committed by its officers or employees were reported by the Joint Statutory Auditors or the Secretarial Auditors of the Bank.

None of the Directors of the Bank are disqualified as per provisions of Section 164(2) of the Companies Act, 2013. The Directors have made necessary disclosures, as required under various provisions of the Companies Act, 2013, Securities and Exchange Board of India Regulations and Guidelines of Reserve Bank of India.

i) As part of the ESG initiatives of the Bank, the Bank has taken various steps for conservation of energy and technologically driven business. The details of the same are provided in the Business Responsibility and Sustainability Report forming part of the Annual Report.

ii) During the Financial Year 2023-24, the Bank had foreign currency expenditure of .Rs86,52,450.94/- and there were no foreign currency earnings during the period.

There have been no material changes and commitments between the end of the Financial Year 2023-24 and the date of this report, affecting the financial position of the Bank.

There are no qualifications, reservations, adverse remarks or disclaimers in the Auditor's Report and the Secretarial Audit Report.

The Bank does not have any subsidiaries, associates or joint venture companies.

Being a Banking Company, the disclosures required as per Rule 8(5)(v) and (vi) of the Companies Accounts Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013, are not applicable to the Bank.

Being a Banking Company, the provisions of Section 186 of the Companies Act, 2013 is not applicable.

The Bank is not required to maintain cost records as specified by the Central Government under subsection (1) of Section 148 of the Companies Act, 2013.

In accordance with Rule 8(5)(vii) of the Companies (Accounts) Rules, 2014, there have been no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and the future operations of the Bank.

The MCA has issued General Circular No. 20/2020 dated May 05, 2020 read with other relevant circulars, including General Circular No. 10/2022 dated December 28, 2022 and applicable circulars/ notifications issued by SEBI relaxing the requirement of dispatching physical copies of the Annual Report and the Notice convening the AGM to Shareholders. Members who wish to have a physical copy may write to the Company Secretary of the Bank at investor. relations@esafbank.com or submit a written request to the Registered Office of the Bank. In accordance with the aforesaid circulars, the web link of the Annual Report and the Notice convening the AGM of the Bank is being sent in electronic mode only to members whose e-mail address is registered with the Bank or the Depository Participant(s). Those members, whose email address is not registered with the Bank or with their respective Depository Participant(s) and who wish to receive the Notice of the AGM and the Annual Report for the Financial Year ended March 31,2024, can get their email address registered by following the steps as detailed in the Notice convening the AGM. The Annual Reports of the Bank are available on the Bank's website viz., URL: https://www.esafbank.com/ report/esaf-small-finance-bank-annual-reports/.

The penalties or strictures imposed by the regulators on the Bank is as follows:

The Directors are grateful to the Reserve Bank of India, other government and regulatory authorities, other banks and financial institutions for their support and guidance. The Directors gratefully acknowledge the excellent relationship with the Board of M/s. ESAF Financial Holdings Private Limited, Corporate Promoter of the Bank and their continued guidance and support for executing various activities of the Bank. The Directors also place on record their sincere thanks to the valued clients and customers for their patronage. The Board also expresses its deep sense of appreciation to all employees of the Bank for their commitment and contribution to the growth of the Bank.