Utkarsh Small Finance Bank Ltd

Dear Members,

The Board of Directors of Utkarsh Small Finance Bank Limited (Bank or USFBL) is pleased to present the 8^th Annual Report and the Audited Financial Statements of the Bank for the Financial Year ended, March 31, 2024 Our PRIDE - the guiding principle and values of the Bank, with an able leadership team, stood us in good stead and helped us tide over challenges.

FY23-24 has been the year where the Bank had reported the highest ever annual profit after tax of Rs.498 crore. The Bank's capital plus reserves position crossed a milestone of Rs.2,900 crore at the end of FY23-2424 and Bank's loan portfolio and deposits registered healthy business growth.

Total deposits increased by 27% to Rs. 17,473 crore as on March 31, 2024, from Rs. 13,710 crore as on March 31, 2023 Net Advances increased by 25% to Rs. 16,365 crore as on March 31, 2024, from Rs. 13,069 crore as on March 31, 2023 The Bank's operating profit increased by 19% to Rs.997 crore for FY23-2424 from Rs. 838 crore in FY23-24.

The Bank reported highest ever annual profit of Rs. 498 crore for FY23-24.

The Bank witnessed improvement in asset quality with reduction in Net NPAs to 0.03% as on March 31, 2024 vs. 0.39% as on March 31, 2023.

The Bank's overall provision cover (including floating provision) was at 99% as on March 31, 2024. The capital adequacy ratio of the Bank is 22.57% as on March 31, 2024.

The Bank's capital plus reserves increased to Rs. 2,973 crore as on March 31, 2024 from Rs. 2,000 crore as on March 31, 2023 There are 888 Branches spread across 22 States and 4 Union Territories as on March 31, 2024.

During the FY23-24, the Bank raised equity capital of Rs. 500 crore in July 2023 through its Initial public offering. The Bank's IPO witnessed a very good response from investors with overall subscription at more than 100 times.

The financial highlights for the year under review are presented below:

(Amount in Rs. crores)

_

*Net worth computed as per RBI guidelines $Business is the total of net advances and deposits (net of inter-bank deposits) **Ratio is based on average employee count

(Amount in Rs. Crores)

The details on the state of affairs and the business update of the Bank are separately provided in the Management Discussion and Analysis Report, which forms an integral part of the Annual Report of the Bank. However, the summary of the Bank's performance has been covered hereunder:

The Liabilities Business of the Bank, garnered through branches and alternate channels such as internet, mobile banking and fintech partnerships aims to build a sustainable liabilities franchise with a mix of Retail and Institutional deposits. During FY 23-24 the Bank built a deposits portfolio and the aggregate deposits of the Bank at the end of the year stood at H 17,472.60 crore. While the total deposits of the Bank grew by 27% on YoY basis, the CASA deposit witnessed a growth of 25.09% (YoY). Further the share of CASA plus Retail Term Deposit (RTD) stood at 66.11% of total deposits. During the period the Bank strategically focused on building a healthy and granular deposits profile. To further expand its outreach to a larger customer base, the Bank opened 25 General Banking (GB) branches during FY 23-24 including opening of branches in New States / UT's thereby increasing the Bank's GB branch network to 276 branches spread across 22 States and 04 Union Territories as on March 31, 2024. The Bank continued to set-up its GB branches primarily in metropolitan and urban locations with a potential for sizeable deposits mobilisation. The Bank further expanded presence of its Micro ATMs thereby providing cost efficient systems of offering basic banking facilities such as cash deposit, cash withdrawal, green pin generation among others.

In addition to strengthening the branch & ATM networks, the Bank further augmented its digital banking channels such as net banking, mobile banking, tab banking, digital onboarding, among others. During the period the Bank also expanded its bouquet of products and services to the customers including Digital Fixed Deposits, etc.

As a Small Finance Bank (SFB), the Bank, which is primarily focussed on micro banking products, has diversified its product offerings to its customers viz. retail loans, unsecured loans, business loans, personal loans, and secured loans such as loans against property, wholesale lending that includes short term and long-term loan facilities to small and medium enterprises (SMEs), mid and large corporate and institutional clients and gold loans. In addition, the Bank offers housing loans with a focus on affordable housing. Our micro banking and retail loan products are primarily aimed at customers who are not a part of the formal banking infrastructure.

Micro banking business is spread across 166 districts covering 13 states and provides a comprehensive package of financial inclusion products and business development services to the underprivileged or low-income individuals or groups who have limited access to financial services. In micro banking, the Bank offers ‘Joint Liability Group' (JLG) loans and business loans alongwith entire gamut of liabilities products through MB branches. In addition, the Bank provides micro banking loans through Business Correspondent (BC) partners.

The Bank provides group loans built on the peer-guarantee loan model (Joint Liability Group), which enables individuals to take loans without having to provide collateral or security on an individual basis while promoting credit discipline. This is achieved through mutual support within the group, prudent financial conduct among the group and prompt repayment of their loans.

During FY 23-24, JLG business through Micro Banking (MB) recorded a growth of 22.76% over the previous financial year. There were 33 new MB branches that were opened in FY 24.

In order to meet the increasing fund requirement of customers who have completed multiple loan cycles and are considered as matured borrowers, the Bank kept expanding Micro Banking business loans to eligible customers. The Bank provides individual loans especially to those who have begun their formal credit under JLG.

The total JLG portfolio of Micro Banking including MBBL and PMSvanidhi stood at Rs. 11,312.86 crore as on March 31, 2024, with a total base of more than 30 lakh clients.

The JLG portfolio through Business Correspondents reached H 455.70 crore in FY 23-24. The Bank has Seven (7) Business Correspondents which are operating in nine (9) states covering 71 districts through 127 branches.

In FY 23-24, the Bank implemented several initiatives in its processes for JLG clients like e-signature and e-kyc which made the entire process paperless. AEPS was enabled at all the MB branches. To facilitate digital collections from MB clients, the Bank implemented SMS - linked payment, UPI and BBPS. The Bank also deployed Cash Management Services through third party to provide additional facility for payment of installments to its clients.

The Bank extends a diverse array of both secured and unsecured loans tailored to meet the needs of individuals and non-individual entities, including micro, small, and medium enterprises (MSMEs). We have curated specialized products with adaptable security prerequisites to enhance accessibility to credit for retail and MSME borrowers.

Throughout the fiscal year 23-24, our retail assets loan portfolio demonstrated robust growth, expanding by 67% year-on-year to Rs. 2,556.99 crore, compared to Rs. 1,534.09 crore in FY 22-23. The expansion in our MSME loan portfolio was propelled by the incorporation of new service locations and the introduction of a wide range of products to address diverse customer segments.

The Bank provides comprehensive home loan solutions to individuals seeking financing for the construction, purchase, repair, and renovation of homes. We meticulously assess our customers' repayment capacity and offer bespoke loan solutions accordingly.

As of March 31, 2024, our Housing Loan portfolio, managed by our Mortgage team across 56 branches, amounted to Rs. 676.59 crore, marking a significant year-on-year growth of 30% compared to Rs. 519.25 crore as of March 31, 2023.

The Wheels business was launched in Oct'2020 with products i.e. Commercial Vehicles & Construction Equipment Loans offered in Chandigarh, Delhi NCR, Jharkhand, Rajasthan, Uttarakhand, Uttar Pradesh & West Bengal regions from 15 branch outlets. As of March 31, 2024 these loans are offered from states of Bihar, Chandigarh, Delhi NCR, Haryana, Jharkhand, Madhya Pradesh, Punjab, Rajasthan, Uttarakhand, Uttar Pradesh & West Bengal from 44 branches. The Bank's wheels loan portfolio grew to Rs. 944.44 crore as on March 31, 2024 from Rs. 560.36 crore as on March 31, 2023. The Loan book has grown by 69% from March 2023 to March 2024. Growth was driven by addition in new locations and new product offerings in Light & Intermediate Commercial Vehicles and fast moving Construction Equipment.

The Wholesale lending vertical includes lending, and other banking services provided to corporate customers of the Bank.

The Bank's Wholesale Lending book stood at Rs. 1,882.41,crore as on March 31, 2024, compared to Rs. 1,546.81 crore as on March 31, 2023. The Wholesale banking business customers are being offered term loans for on-lending to their customers and overdraft for meeting their working capital requirement. In addition, it provides non fund based limits in the form of bank guarantee to the customers.

The strategy of the Bank is to build its Asset portfolio through a combination approach.

Own Branches

Partnership Approach.

The partnership approach with a well-entrenched and networked individual/entity will help it gain significant presence in those markets of business interest. As on March 31, 2024 the Bank had a total loan book aggregating to _721.07 crore, in JLG _455.70 crore and Retail asset _265.37 crore with JLG contribution of 63% and Retail asset of 37%. This portfolio is being managed by 16 active BC partners (including 7 BC partners for JLG).

The Bank is further focussing on strengthening and deepening its BC partnerships including fintech partnerships for Retail Assets loans.

During FY 23-24, the Bank issued and allotted 20 crore Equity Shares (of face value of Rs. 10 each) at an issue price of H 25 each through its Initial public offering.

The Bank also allotted 35,52,797 equity shares (of face value of Rs. 10 each) pursuant to exercise of vested ESOPs to employees (including Managing Director & CEO).

The Bank's certificate of deposits programme is rated, at the highest credit rating grade, [ICRA] A1+ by ICRA Limited. As on March 31, 2024, the Bank's long term subordinated bonds were rated at A+ (Stable) rating by ICRA and CARE Ratings.

The Board of Directors at their meeting held on April 26, 2024 recommended final dividend of Rs. 0.50 per share (5%) on the equity share capital for the financial year ended on March 31, 2024 subject to shareholders approval.

As required under RBI regulations, the Bank had transferred the following amount to reserves during the financial year ended March 31, 2024:

As on March 31, 2024, the Bank's net worth (Capital + Reserves) was Rs. 2,973 crore.

The Bank's internal controls, policies and procedures are adequate and are reviewed periodically by the Internal Audit Department for all its business units. The Audit Committee and Board reviews the effectiveness of the control as per the regulatory requirements from time to time / regular intervals.

The Corporate Governance report forming part of the Board's report for the year under review is attached separately as Annexure A.

The Board of Directors of the Bank is constituted in accordance with the provisions of the Companies Act, 2013 (Act), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 (SEBI LODR), the Banking Regulation Act, 1949 (the BR Act, 1949) and the Articles of Association. The Board consists of eminent persons with considerable professional expertise in business administration, audit, banking, payment & settlement, compliance, account, finance, human resource, risk, strategy, information technology etc. Their experience and professional credentials helped the Bank to gain insights for strategy formulation, monitoring control framework and direction, and adding value to set a strong foundation, enabling the overall growth objectives.

As on March 31, 2024, the Board comprises of Eight (8) Directors consisting of - Seven (7) Non-Executive Directors, of which Five (5) are Independent Directors (including 1 woman Director), two (2) are Non-Executive Non-Independent Directors out of which one (1) is a Nominee Director; and one (1) Managing Director and Chief Executive Officer. Further, in terms of Section 152 of the Companies Act, 2013, Mr. Muralidharan Rajamani, Non- Executive Non-Independent Director who retires by rotation this year, meets the fit and proper criteria as provided for under the RBI directions and as amended from time to time and being eligible offers himself for re-appointment at the 8^th Annual General Meeting (AGM).

A declaration under section 149(6) & (7) of the Companies Act, 2013 has been obtained from each of the Independent Directors.

There was no change in the Board of Directors and Key Managerial Personnel during FY 23-24.

For effective decision-making, the Board acts through various Committees, which oversee specific operational or strategic matters falling within the ambit of the specific terms of reference of that Committee. The Board has constituted 12 such Committees. All the Board Committees have a specific charter, and these Committees monitor activities falling within their terms of reference. Additional details of the Board Committees, its composition, attendance, meetings held during the FY 23-24 etc. have been provided separately in Corporate Governance Report.

The Board evaluation framework is designed in compliance with the requirements of the Companies Act, 2013 and Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR). The Board evaluation was conducted through a questionnaire designed containing qualitative & quantitative parameters, the manner in which the evaluation was carried out is set out in the Corporate Governance Report which forms part of this report.

During the period under review, thirteen (13) Board Meetings were held and the gap between the said meetings did not exceed the limit of 120 days as prescribed under the provisions of Companies Act and Rules made thereunder, Secretarial Standard-I Issued by the Institute of Company Secretaries of India and provisions of SEBI LODR. The dates of Board meetings and details of attendance of each Director have been disclosed in the Report on Corporate Governance annexed with Board's Report as Annexure A

As per the requirement of Section 149(8) read with Schedule IV of Act and Regulation 25 of SEBI LODR, 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.

Accordingly, the Independent Directors of the Bank met 2 (twice) on July 7, 2023 and March 14, 2024, chaired by Mr. Parveen Kumar Gupta and attended by all the Independent Directors of the Bank and discussed & reviewed inter alia below matters:

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

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

Assessed whether adequate time is spent by the Board/Committees on discussions on important issues.

Reviewed the criteria for evaluation of performance of Board Committees.

In accordance with Regulation 25(7) of SEBI LODR and RBI guidelines, the Bank conducts familiarisation programme for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank's Business, and its operations for better understanding of their responsibilities, roles, and rights for effective contribution in sustainable growth of the Bank. The Details of familiarisation programme policy is disclosed and on the website of the Bank under https://www.utkarsh. bank/uploads/pdf/our-policy/template_ten/Policy-for-familiarisation-Programme-for-Directors.pdf.

In accordance with provisions of Sections 149(6) and 149(7) of the Act, Schedule IV and Regulation 16(1)(b) and 25(8) of the SEBI LODR, the Bank has received necessary declarations/disclosures from all the Independent Directors confirming that they meet and comply with the criteria of independence. All the Independent Directors possesses requisite domain knowledge, experience, expertise, integrity, and proficiency as required under the Code applicable for Independent Directors as stipulated under Schedule IV of the Act and in terms of policies of the Bank.

In accordance with Section 135 of the Act, the Board of Directors on the recommendation of CSR Committee had approved the CSR Policy, which is available on the Company's website https://www.utkarsh.bank/uploads/template_forty_pdf/Corporate_Social_Responsibility_Policy.pdf.

In line with the statutory requirements under the Companies Act, 2013 and it's CSR Policy, the Company had undertaken projects in the areas of financial literacy, health initiatives, skill and entrepreneurship development progammes and other philanthropic initiatives (supporting orphanages and care centres for the elderly).

During the year under review, the Bank spent Rs. 3.24 crore towards aforesaid CSR projects and Rs. 1.88 crore which was unspent was transferred to "Utkarsh Small Finance Bank Limited Unspent CSR Account FY 2023-24 "with HDFC Bank Limited.

The required disclosure as per Rule 8 of Companies (Corporate Social Responsibility Policy) Rules 2014 is attached as Annexure B to this Report.

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, M/s BNP & Associates, Practicing Company Secretaries conducted the secretarial audit of the Bank for FY 23-24.

The Secretarial Auditor's Report for the FY 23-24 does not contain any qualification, reservation, or adverse remark. Report of the Secretarial Auditor for the FY 23-24 in Form MR-3 is annexed to this report as Annexure C

Basis the Market Capitalization as on March 31, 2024 published by the BSE Limited and National Stock Exchange of India Limited, the Bank is in the Top 1000 listed entities. The Business Responsibility and Sustainability Report ("BRSR") is annexed with Board's Report as Annexure D and disclosed on the website of the Bank.

As per the RBI circular RBI/2015-16/315 DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016 Implementation of Indian Accounting Standards (Ind AS), the Banks are advised to follow the Indian Accounting Standards as notified under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the RBI in this regard. The Banks in India currently prepare their financial statements as per the guidelines issued by the RBI, the Accounting Standards notified under Section 133 of the Act and Generally Accepted Accounting Principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new

Indian Accounting Standards (Ind AS), which were based on convergence with the International Financial Reporting Standards (IFRS), for scheduled commercial Banks, insurance companies and non-banking financial companies (NBFCs). In March 2019, RBI deferred the implementation of Ind AS for Banks till further notice as the recommended legislative amendments were under consideration of Government of India. The Bank had undertaken assessment of the I-GAAP & INDAS implementation & ensured its preparedness for Ind AS implementation under the oversight of a Management Level Committee Chaired by Managing Director & CEO alongwith CFO, CRO & other functional heads.

As required under the provisions of Sections 92(3) and 134(3)(a) of the Companies Act, 2013 read with the rules framed thereunder, the Annual Return of the Bank in the prescribed Form MGT-7 for the year under review is available on the website of the Bank at the following link: https://www.utkarsh.bank/investors

The particulars to be disclosed under Section 134(3)(m) of the Companies Act, 2013, relating to conservation of energy and technology absorption does not apply to the Bank. The Bank is constantly pursuing its goal in upgrading technology to deliver quality service to its customers in a cost-effective manner.

The Bank has foreign exchange earnings of H 0.82 crore during the financial year under review which includes cross border settlements. There was no foreign exchange outgo during the financial year.

The Bank, as a part of its prudent practice, has established a Vigilance Department to develop and execute a comprehensive strategy to deal with instances of fraud and mismanagement, if any, and as a preventive mechanism with active oversight, ensure holistic and smooth operations of the Bank on an ongoing basis. The Department is adequately staffed and conducts investigations on matters related to frauds committed and references received through whistle blower complaints.

Pursuant to the provisions of Section 177(9) of the Companies Act, 2013 read with rules made thereunder and RBI Guidelines and other applicable laws, the Bank has established the Vigil Mechanism as part of the Whistle Blower Policy. This empowers the Directors and employees to report concerns about unethical behaviour, actual or suspected fraud or instances of leakage of Unpublished Price Sensitive Information (UPSI), misappropriation of assets or violation of the Bank's Code of Conduct. Additionally, the Bank places zero tolerance for any incidents of doubtful integrity and corruption by employees. Towards this end, all employees are trained to maintain high standards of integrity in their work area.

The Whistle Blower policy is aimed at enabling the staff to escalate instances of doubtful integrity, mismanagement, abuse/misuse of power, undue influence/coercion exercised for indulging in undesirable practices, violation of the Bank's Code of Conduct, ethics, and corruption. It also provides adequate safeguards against probable victimisation of directors/ employees who avail of this mechanism and allows direct access to the Chairperson of the Audit Committee of the Board, in appropriate or exceptional cases.

The Audit Committee of the Board (ACB) reviews the details of Whistle Blower complaints received, the subsequent action taken, and the functioning of the Whistle Blower mechanism periodically.

The Audit Committee of the Board oversees the Vigil Mechanism as well.

The Whistle Blower Policy is periodically communicated to the employees and the key highlights of the Policy are available on the Bank's website at the following link: https://www.utkarsh.bank/uploads/pdf/our-policy/template_ten/Whistle_Blower_Policy%20_Final.pdf wherein the email and contact details of the Chairperson of Audit Committee of the Board are provided to enable complainants to reach out with their complaints under the Whistle Blower Policy. In addition to the above, the Bank has formulated a Vigilance Policy for effectively managing the risks arising on account of possible corruption, malpractices, and frauds.

The Bank has a Vigilance Department for investigating frauds, bribery cases, and complaints, including complaints received under the whistle-blower policy of the Bank. Vigilance Department makes concerted efforts to reduce fraud, forgery, and burglary incidents in the Bank with the help of new ideas, technology, previous experiences, and adopting preventive vigilance measures with appropriate tools.

RBI, on April 27, 2021 had issued guidelines for appointment of Statutory Central Auditors/Statutory Auditors of Commercial Banks excluding RRBs, UCBs and NBFCs (including HFCs). As per the said guidelines statutory audit of entities with asset size of H 15,000 crore and above as at the end of previous year, should be conducted under joint audit of a minimum of two audit firms. The audit firms can be appointed as the Statutory Auditors (SA) of the Bank for a continuous period of 3 years only and thereafter, reappointment in the same entity will be possible only after a cooling period of six years. Further, prior approval of RBI for appointment/reappointment of SAs on an annual basis is required in terms of the above guidelines. Based on recommendation of Audit Committee of the Bank, the Board of Directors at its meeting dated March 14-16, 2024, had proposed the re-appointment of M/s. Deloitte Haskins and Sells, Chartered Accountants and M/s. Kirtane & Pandit LLP, Chartered Accountants as Joint Statutory Auditors of the Bank subject to approval of the Shareholders of the Bank and prior approval of the Reserve Bank of India (RBI). RBI vide their letter reference no. DOS.CO.RPD. No.S1519/08.60.005/2024-25 dated May 28, 2024 approved the appointment of M/s Deloitte Haskins & Sells, Chartered Accountants (FRN 117365W) and M/s. Kirtane & Pandit, LLP, Chartered Accountants (FRN 105215W) as the Joint Statutory Auditors for FY 24-25 subject to the firms fulfilling the eligibility criteria as prescribed by RBI. Accordingly, the proposal for their appointment would be placed in the ensuing 8^th Annual General Meeting.

The Shareholders of the Bank had approved USFBL Employee Stock Option Plan 2020 (ESOP Plan 2020)

During the year ended March 31, 2024, the Bank has allotted 35,52,797 equity shares pursuant to the exercise of the vested options under the approved employee stock option scheme.

Under the ESOP Plan 2020, the Bank may grant upto 6,07,41,778 options under the ESOP Plan 2020.

The certificate from the Secretarial Auditor of the Bank that the scheme(s) has been implemented in accordance with these regulations and in accordance with the resolution of the company in the general meeting forms part of this report as Annexure - E.

Compliance certificate pursuant to Part F of Schedule – I of Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 forms part of this report as Annexure - F.

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

Most Trusted BFSI Brands by Team Marksmen Daily – 2023-24

Most Preferred Workplace 2023-2024 (BFSI Edition) By Marksmen Daily

Employee Excellence 2023 by the Times Group – ET EDGE

Best Tech Talent & Organization category in the Small Finance Bank segment by Indian Banks Association (IBA) in January 2024

Mr. Alok Pathak was recognized as the Chief Risk Officer of the year at BSFI Convex by Gain Skills Media Company

Credit Modeling & Risk Team of the Year Award at the India Credit Risk Summit & Awards

APY Excellence Award – Q1, 2023

Best Emerging Business Partner by Volvo Eicher Commercial Vehicles (VECV) for Bihar – Q1, 2023

Best Customer Experience at 18^th Annual Summit and Awards by ASSOCHAM - 2023

Best Customer Experience Strategy by India Customer Excellence (CX) Summit & Awards 2023

The ratio of the remuneration of each Director to the employees' median remuneration and other details in terms of sub-section 12 of Section 197 of Companies Act 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are given below: -

(i) the ratio of the remuneration of each Director to the median remuneration of the employees of the Bank for the FY 23-24:

Apart from sitting fees, the Bank does not pay any remuneration to any Non-Executive Directors. The part time Non-Executive Chairman of the Board is entitled to a monthly remuneration, as approved by the RBI and the Shareholders of the Bank.

(ii) The percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary in the FY 23-24 are as follows:

*As per RBI approval, there is increment of 10% in fixed remuneration of MD & CEO in FY 23-24 This is excluding variable remuneration of H 1.36 crore for FY22-23 approved in FY23-24.

The percentage increase in the median remuneration of employees in the financial year was 10.44%

(iii) The number of permanent employees on the rolls of the Bank, as on March 31, 2024, was 16,081 (includes 13,777 male employees and 2,304 female employees). (iv) Average percentile increase already made in the remuneration of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration.

(v) Average increase in remuneration is 10.42% for employees other than managerial personnel and 0.02% for managerial personnel (Executive Directors including Managing Director and Chief Executive Officer, Chief Financial Officer, and Company Secretary).

(vi) The key parameters for any variable component of remuneration availed by the Directors are as specified in the Remuneration Policy.

(vii) Affirmation that the remuneration is as per the remuneration policy of the Bank. The Bank is in compliance with its Remuneration Policy.

The statement containing particulars of employees as required under Section 197(12) of Companies Act 2013 read with Rule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this report. In terms of Section 136 of Companies Act 2013, the Annual Reports are being sent to the members, excluding the information as required under Rule 5(2) as mentioned aforesaid and the same is open for inspection at the Registered Office of the Bank. A copy of this statement may be obtained by the members by writing to the Company Secretary of the Bank at secretarial.usfb@utkarsh.bank.

In terms of the provisions of Companies Act 2013, SEBI LODR and applicable provisions of the Banking Regulation Act, 1949, the Board on the recommendation of the Nomination & Remuneration Committee (NRC), formulated Remuneration Policy for the remuneration of Directors, Key Managerial Personnel (KMPs) & Senior Management Officials.

The Nomination and Remuneration Policy is available on the website of the Bank at the following link: https://www. utkarsh.bank/uploads/template_forty_pdf/NRC_Policy.pdf

The Board considered the recommendation of NRC and approved the revision in remuneration of Managing Director and Chief Executive Officer in their meeting held on June 09, 2023, subject to members and regulatory approvals. The Bank received RBI approval vide their letter dated October 06, 2023 and shareholders approval on September 23, 2023. The remuneration payable to Managing Director and Chief Executive Officer is subject to prior approval of the RBI. Therefore, the remuneration or any revision in the remuneration is payable only after receipt of approval from RBI.

The remuneration payable to the Part Time Non-Executive Chairman is subject to prior approval of RBI. Therefore, the remuneration or any revision in remuneration of the Part Time Non-Executive Chairman is payable only after receipt of approval from RBI.

The NEDs (excluding Nominee Directors of the Bank) are paid sitting fees for attending each meeting of the Board of Directors or any Committee thereof. The NEDs are also entitled to reimbursement of expenses for participation in the meetings of the Board and Committees thereof.

RBI vide Circular No. RBI/2023-24/121, DoR.HGG.GOV.REC.75/29.67.001/2023-24 dated February 09, 2024, issued Guidelines on Compensation of Non-Executive Directors of Private Sector Banks emphasizing that in order to enable banks to attract and retain professional Directors, it is essential that such Directors are appropriately compensated. Pursuant to the aforesaid RBI Circular, the maximum amount that can be paid as commission was capped at H 30 lakh per Director, per annum. Also, Section 197 of Companies Act 2013 permits payment of profit-based commission to the Directors who are neither managing directors nor whole-time directors, not exceeding one percent (1%) of the net profits of the Bank, if there is a managing or whole-time director or manager; in any other case three per cent (3%) of the net profits.

During FY 23-24, the Bank has not paid any commission on profit or granted any stock options to NEDs. However, the Board of Directors at the recommendation of Nomination & Remuneration Committee at their respective meetings held on April 26, 2024 approved the proposal of payment of remuneration to NEDs (other than Part Time Non-Executive Chairman and Nominee Directors) subject to approval of shareholders. The Bank received shareholders approval on the proposal for payment of remuneration to NEDs vide resolution passed by remote E-voting on June 13, 2024.

In accordance with Section 124 and 125 of the Companies Act, 2013 ("Act") read with applicable rules, as amended, there was no unclaimed/unpaid dividend or shares or interest liable to be transferred to the IEPF during the FY 23-24. Further, details of the unclaimed/un-encashed interest/dividends lying in the unpaid dividend accounts as on end of the financial year are provided on website of the Bank at https://www.utkarsh.bank/uploads/pdf/disclosures/template_eleven/IEPF_2_unclaimed_interest_March_31_2023.pdf.

The Bank during FY23-24 had completed the process of initial public offer and raised H 500 crore by issue of 20 crore equity shares which got listed on both BSE Limited (BSE) and National Stock Exchange of India Limited (NSE) on July 21, 2023. During the period under review, the Authorised Share Capital of the Bank is as follows: 1,30,00,00,000 Equity shares of Rs. 10 each 20,00,00,000 Preference shares of Rs. 10 each Issued, subscribed and Paid-up capital as on March 31, 2024 1,09,94,57,460 Equity shares of Rs. 10 each

The Bank is in the list of Top 1000 listed entities of India as per list published by the BSE Limited and National Stock Exchange of India Limited basis the market capitalization as on March 31, 2024.

The Bank has not changed its nature of business during FY 23-24.

Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given or securities provided or acquisition of securities by a banking company in the ordinary course of its business are exempted from disclosure in the Annual Report.

All related party transactions that were entered into during FY 23-24 were on an arm's length basis and in the ordinary course of business and accordingly, AOC - 2 is not applicable to the Bank. There are no materially significant related party transactions entered into by the Bank with Directors, KMP or other designated persons, which may have a potential conflict with the interest of the Bank at large. The Bank has Related Party transactions policy in place for identification and monitoring of any potential related party transactions.

There were no significant/material orders passed by the Regulators / a Court / Tribunal etc. during FY 23-24, which would impact the going concern status of the Bank and its future operations. However, during the FY 23-24, SEBI vide their order dated September 20, 2023 imposed a monetary penalty of Rs. 1,00,000/- on the Bank in the matter of NCDs of Rs. 25 crore issue to Karvy Capital Limited. There was no application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year under review.

The details of Risk Management Policy & its framework are separately provided in the Management Discussion and Analysis Report.

The Bank is a subsidiary company of Utkarsh CoreInvest Limited. The Bank does not have subsidiary or associate company. Hence the details of sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014 are not applicable to the Bank.

The provisions for maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013 are not applicable to the Bank.

There are no adverse observations/qualifications in the Statutory Auditors' Report. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

All recommendations of the Audit Committee were approved by the Board.

Proper internal financial controls are in place, and that the financial controls have been adequate and operating effectively. There are no material changes and commitments, affecting the financial position of the Bank that have occurred between the end of the financial year of the Bank i.e. FY 23-24 and the date of the Boards' Report

For a financial institution, transparency and the highest standards of corporate governance are important prerequisites for establishing a compliance-oriented bank. Towards this end, the Bank endeavours to ensure that all its activities are fairly aligned with the highest standards of personal and professional integrity and the highest level of ethical conduct. The Bank has adopted a Code of Conduct and norms for the avoidance of conflict of interest, all the Senior Management officials, KMPs, employees with loan sanctioning authority, employees directly related with sourcing/servicing corporate or wholesale banking relationships and employees directly involved in the procurement of goods and services, conduct duties according to the aforesaid Code of Conduct. Some of the areas that have been covered by the Code of Conduct are: fairness of employment practices, protection of intellectual property, integrity, customer confidentiality and conflict of interest. The Bank's Code of Conduct for Directors and Senior Management is hosted on the website of the Bank at https://www.utkarsh.bank/uploads/pdf/ourpolicy/template_ten/CODE_OF_CONDUCT_FOR_THE_BOARD_OF_ DIRECTORS_AND_SENIOR_MANAGEMENT_PERSONNEL.pdf.

The Bank adheres to the RBI's KYC / AML Guidelines issued from time to time. The Bank's KYC / AML Policy has been prepared in accordance with the Prevention of Money Laundering Act, 2002 (PMLA) and RBI / Indian Banks' Association (IBA) guidelines, amended from time to time. The Bank complies with various regulatory reporting requirements, as set out by the Financial Intelligence Unit (FIU) of the Government of India. The Bank has a transaction monitoring mechanism in line with regulatory requirements with an automated system solution, closely monitored by a centralised AML team. The Bank's employees are imparted training on KYC / AML aspects regularly. Executives of the Bank also attend periodic workshops/seminars organised by FIU - IND, RBI, IBA and National Institute of Bank Management (NIBM) to enhance their awareness in these aspects. Recent changes as contained in the PMLA notifications and RBI guidelines have been followed and embedded in the customer acquisition processes of the Bank. The Bank's KYC/AML Policy is duly reviewed by the Board on annual basis taking into account the various amendments to guidelines / regulations.

The Bank is committed to create a safe environment where all employees are treated with respect and dignity. The Bank takes a strong stand and has zero-tolerance policy on the issue of sexual harassment at workplace. We follow all the guidelines prescribed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and seek to protect women from sexual harassment at the place of work.

The Prevention of Sexual Harassment Policy (POSH Policy) at Utkarsh Small Finance Bank is gender neutral and is implemented for all employees and other stakeholders/ partners. Any complaint of sexual harassment made against any individual working within the Bank's premises, including third-party vendors, is investigated in line with this POSH Policy.

The Internal Complaints Committee (ICC) of the Bank deals with all complaints relating to sexual harassment and has laid down the processes and guidelines pertaining to sexual harassment related complaints. The Bank does not tolerate any form of sexual harassment and all individuals of the Bank are responsible to ensure a workplace free of harassment.

POSH Policy is applicable to all employees (permanent/ fixed term/ on contract) of the Bank across the Board and is equally applicable to all genders, grades, and stakeholders of the groups.

The POSH Policy is periodically communicated to all employees and is available on the Bank's website for information and compliance thereof. https://www.utkarsh.bank/uploads/policy/Prevention_of_Sexual_Harassment_Policy.pdf For FY 23-24, a total of 10 cases were reported under POSH. Out of 10 cases, 09 cases have been resolved and 01 cases are under investigation.

The Bank's Human Resources Policy (HR Policy) is aligned for the achievement of the Bank's vision and mission and constant efforts are made to motivate its employees for excellence in performance and at the same time endeavors to provide a better work-life balance through various employee welfare activities.

In its constant endeavours to promote learning and capacity building of all its employees, the Bank utilised its "Learning Management System (Utkarsh U-Learn)" to engage its employees through continuous educational programs delivered via e-modules and virtual classrooms.

In FY 23-24, our focus continued with our transformation agenda and delivering secured services to our customers. The IT intent remains towards making products user friendly and secure so that users can manage effortlessly. For us, Information Technology is an important driver for improving the efficiency & productivity of the organization. This is a major differentiator, and the Bank is constantly working on enhancement of existing technology solutions and engaging with new technology / technology partners to achieve business growth.

Our digitization and automation journey mainly focus on two fundamental aspects. First, transforming the Bank through new platforms and customer experiences offered shall be the best-in-class products and services through our digital enhancements. Second, running the Bank efficiently by reinforcing our core technologies with enhanced performance and resilience at scale, to achieve organization vision and business growth. The Bank continues strengthening IT horizon initiatives like cash less collection through QR code or through billdesk UPI or through Spice Money channel, Paperless banking experience by introducing e-Sign feature, Interoperable Cardless Cash withdrawal (ICCW) initiative, etc. Implemented Lead Management System (LeMS) to cater leads from multiple channels. Collection System for tracking loan repayments, Personal Loan Processing system on Salesforce platform, upgradation to new age Bank Website, etc. Along with these initiatives, the Bank implemented API Manger and Middleware platform to ensure centralized management of all API for smooth and secured integration within systems and FinTech. Enhanced Digital customer onboarding platform for current accounts and fixed deposits along with existing saving bank. Introduced Credit Card Product for the Bank. The Bank upgraded data centre Infrastructure with latest hardware. Further strengthened regulatory reporting systems like ADF, CIMS, Finnet 2.0, etc. Utkarsh Small Finance Bank has received an award from Indian Banks Association (IBA) for Best Tech Talent & Organization category in the Small Finance Bank segment in January 2024.

As a Business Technology Transformation Project (AbhiVridhi), the Bank engaged with external consultant. The last financial year bank completed Transformation study to review existing product and Technology. This financial year, the Bank initiated "Design and Implementation" phase of Abhivridhi projects where cloud strategy for the Bank has been finalized and vendor evaluation initiated for identified applications / systems.

The Bank has complied with the provisions of 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 FY 23-24, the Bank completed prolonged settlement application w.r.t. SEBI LODR reporting non-compliances for prior period vide SEBI's settlement order dated April 10, 2024. The Bank had paid settlement amount of Rs. 1,24,23,600/- to SEBI on March 27, 2024

RBI Master Circular DBR.No.BP.BC.4/21.06.001/2015-16 dated July 01, 2015, on ‘Prudential guideline on Capital Adequacy and Market Discipline – New Capital Adequacy Framework (NCAF)' requires banks to make Pillar 3 disclosures, as applicable. These disclosures have not been subjected to audit or limited review. These disclosures are available on the Bank's website at https://www.utkarsh.bank/

FY24 has been excellent year from financial performance perspective for the Bank. The Bank had reported highest ever annual profit after tax of Rs.498 crore in FY 23-24. The Bank's loan portfolio and deposits registered healthy business growth. The Directors are of the view that there is immense opportunity to cater to the unserved and underserved sections of client base in the country, particularly the area in which the Bank is currently operating.

As per the requirements of Section 134(3)(c) of the Companies Act, 2013, the Directors hereby confirm and declare that: In the preparation of the annual accounts for the financial year ended March 31, 2024, the applicable accounting standards have been followed, and there is no material departure from the same.

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

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

The Directors have prepared the annual accounts for the financial year ended March 31, 2024 on a going concern basis. The Directors had laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and operating effectively.

The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws, and that such systems were adequate and operating effectively.

The Board expresses its gratitude to the Central and State Governments, Reserve Bank of India, Ministry of Corporate Affairs, SEBI, NABARD, SIDBI, MUDRA, NHB and all other Regulatory Authorities including Local Governing Bodies for the continuous support and guidance provided to the Bank.

The Board appreciates the precious support provided by the Auditors, Lawyers and Consultants. We place on record our appreciation for the contribution made by our employees at all levels. Our consistent growth has been made possible by their hard work, solidarity, cooperation, and support.

The Directors wish to place on record their gratitude to Shareholders of the Bank for the confidence reposed by them and thank all the clients, dealers, and other business associates for their contribution to the Bank's growth and for extending their assistance and co-operation.

The Directors also express their gratitude to all stakeholders and partners for extending their support.

For and on behalf of the Board of Directors