The Board of Directors is pleased to present the 97th Annual Report of the Bank for the Financial Year 2015-16 together with the 'Audited Balance Sheet', 'Profit & Loss Account', 'Cash-Flow Statement' and the report on 'Management Discussion & Analysis'. The 'Corporate Governance Report' and 'Business Responsibility Report' also form part of the Annual Report 2015-16.
1. Financial Highlights at a glance:
1.1. At the beginning of current financial year FY 201516 your Bank envisaged to move in pace with the market focusing on enhancing the earnings through efficiencies across the organization. With an asset rebalancing approach underway, your Bank has been focusing persistently on aligning the loan portfolio to improve margins and optimize risk weighted assets. The Bank's preferred segment has been the RAM (Retail, Agriculture and MSME) sector on the asset side and savings bank & retail term deposits on the liabilities side.
1.2. In the era of digitization, your Bank has emerged as a fine player to explore the transaction banking space by revamping digital offering and solutions meeting to need of the customers. The share of "transactions through digital channels" to "overall transactions" has increased to 66.7 per cent as on March 31, 2016.
2. Business: The strategic approach of balanced growth is reflected in the business figures as depicted in the following exhibits:
.1. Your Bank's global business increased by 7.0 per cent to Rs. 6,20,445 crore as on March 31, 2016. The Bank continued to mark its presence in the overseas business with its already operative three overseas branches at Hong Kong, DIFC (Dubai), Antwerp (Belgium) and a recent opening in Sydney, Australia. The Overseas business increased by 25.4 per cent (in rupee terms) compared to previous year.
2.2. Total deposits increased by 8.2 per cent, led by 19.7 per cent growth in CASA (Current Accounts & Savings Bank Accounts). Domestic deposits increased by 7.6 per cent whereas, overseas deposits grew by 43 per cent (in rupee terms). Current deposits increased by 41 per cent and savings deposits by 13.4 per cent during FY 2015-16. CASA share, therefore, improved by 310 bps (basis points) to 32.3 per cent from 29.2 per cent noted in previous year. The cost of deposits significantly reduced by 31 bps from 7.31 per cent in FY 2014-15 to 7.00 per cent in FY 2015-16.
2.3. Gross advances, registering a growth of 5.7 per cent over previous year, reached a level of Rs. 2,77,725 crore as on March 31, 2016. The overseas advances increased by 21.6 per cent. As on last reporting Friday of March 2016 your Bank's market share in credit stood at 3.12 per cent. Your Bank has been diversifying its loan portfolio towards retail, agriculture and MSME (RAM). During FY 2015-16, the RAM share to total advances increased to 52.0 per cent from 48.9 per cent in FY 2014-15. This resulted into the credit risk weighted assets (RWA) to loan ratio declining to 74.3 per cent from 75.7 per cent noted at the end of FY 2014-15
3.1. In sync with monetary policy easing through reduction in key policy rates, your Bank has also reduced its lending rates resulting in moderation of net interest income. Interest income increased marginally overprevious year reaching Rs. 32198.8 crore for the financial year 2015-16 and net interest income stood at Rs. 8313.1 crore.
3.2. With its focus on the core fee based income, the Bank was able to achieve non interest income of Rs. 3,632 crore for FY 2015-16, registering a growth rate of 3.1 per cent. On the expenditure side, establishment expenses reduced by 4.4 per cent. The Operating Profit for FY 2015-16 stood at Rs. 5722.0 crore. The provisions increased from Rs. 4041.8 crore in FY 201415 to Rs.4291.0 crore during FY 2015-16.
4. Profitability and Efficiency:
4.1. Under the adverse macroeconomic scenario, where asset quality remained a key challenge, your Bank has maintained financial soundness with regard to operational efficiency. During 2015-16, Return on Average Assets stood at 0.35 per cent, whereas Return on Equity stood at 6.84 per cent. The cost to income ratio was at 52.10 per cent.
5.1. Considering performance of the Bank, Basel III regulatory capital requirements and confidence of shareholders in the Bank's stock, the Board of Directors has proposed dividend of 19.50 per cent i.e. Rs. 1.95 per share on the face value of Rs. 10/- for the year 2015-16. The dividend payout ratio (excluding dividend tax) comes to 9.9 per cent for FY 2015-16.
6. Shareholders' Return
6.1. Your Bank's net worth improved by 7.9 per cent to Rs. 19764 crore during FY 2015-16 from Rs. 18,312 crore in the previous year and thus maintained the Book value per share at Rs. 287.51 for March 2016 and the Earnings per Share at Rs. 20.42.
7. Asset Quality:
7.1. High stress level in credit portfolio impacted the asset quality of Indian Banks. Over the past one year, India's banking system in general has seen a higher level of loan default. Crimped cash flows of stalled projects made it difficult for many corporate borrowers to repay their debts, prompting them to seek debt restructuring or default on payments. The Gross NPA consequently stood at 8.70 per cent whereas Net NPA noted at 5.25 per cent. The provisions for NPA increased by 83.5 per cent to Rs. 4655 crore for FY 2015-16 from Rs. 2537 crore noted in FY 2014-15
8. Credit Rating:
8.1. Your Bank's debt instruments are considered to have high degree of safety, with a very low credit risk regarding timely servicing of financial obligations. The following are the ratings issued by major agencies for FY 2015-16
8.2. Issuer Credit Ratings: International credit rating agencies re-affirmed the Bank's long-term issuer credit rating, which are equivalent to County's Sovereign rating grade. Standard & Poor's assigns rating of 'BBB-' with a stable outlook while Moody's rating for the Bank is 'Baa3' with a positive outlook. These ratings denote that the Bank has adequate capacity to meet its financial commitments.
9. Capital Adequacy Ratio:
9.1. The Capital Adequacy Ratio as per Basel III norms stood at 10.56 per cent as on March 31, 2016. Common Equity Tier I (CET I) capital of the Bank improved to 7.95 per cent in March 2016 from 7.24 per cent in March 2015.
9.2. Your Bank has emphasized on increasing equity capital base through internal generation of capital. With introduction of additional capital conservation buffer (CCB) of 0.625% every year (effective from March 31, 2016) up to March 2019, there will be further thrust on raising core equity base. The Bank has been working on the capital light model which would attract less capital charge.
9.3. Preferential Allotment of Equity Shares to Government of India: In September 2015, your Bank issued and allotted 5,16,62,281 equity shares of Rs.10 each to Government of India. The preferential allotment of equity shares to the Government of India was done at an issue price of Rs.209.05 (including a share premium of Rs.199.05). Consequent to this, Government of India's shareholding in the Bank increased to 63.44 per cent from 60.47 per cent earlier. Also the Bank's paid up capital increased to Rs. 687 crore from Rs. 636 crore while Rs. 1028 crore was added to share premium reserves.
9.4. Raising of Tier 2 Bonds: Your Bank raised Rs. 1000 crore of Tier 2 capital by way of issuing of 10,000 Basel III compliant Tier 2 bonds of face value of Rs.10,00,000 each at par, with 10 year tenure, bearing 8.61 per cent p.a. coupon payable annually and withcall option after 5 years on March 29, 2016 on private placement basis. The Bonds are rated "IND AA+" by India Ratings.
10. Brand Rating :
Your Bank has strived to improve its brand value, to take the relationship between customer and the organization to a next level. As per the report of "Brandz Top 50 Most Valuable Indian Brands 2015", your Bank has improved its brand value by 72% on account of successful digitization efforts especially on the front of IMPS transactions. Your Bank's rank improved in the "Brand Finance Banking 500" ranking on account of its consistent performance with regard to financial parameters as well as efforts to leverage technology.
11.1. Your Bank has a branch network of 4,196 branches across the county and four branches abroad. During the financial year 2015-16, 124 new branches were opened in India and one branch was opened in Sydney (Australia).
11.2. During the year 2015-16 greater focus was given on deepening non-branch network, i.e. digital channels which include ATMs, mobile-based payments system etc.
12. New Business Initiatives:
12.1. Your Bank took several new initiatives during FY 2015-16 which included launching of the Union 24x7 Comfort Lobbies, mPassbook, mobile wallets, selfie mode of account opening, business debit card, signature credit card and Usecure credit cards.
12.2. Your Bank embarked upon a journey of business process transformation - under the flag of Project Utkarsh. Project Utkarsh will enable the Bank to achieve its aspirations by focusing on key objectives - enhanced customer experience, superior process efficiency and improved employee productivity.
13. Awards & Accolades : During FY 2015-16, your Bank reached new heights by pioneering in various digital initiatives, steering role of HR towards potential growth, strengthening participative vigilance action amongst its employees and has also attempted to provide a life of self-esteem and dignity to the needful. In this process, the efforts of your Bank havebeen acknowledged through various awards during FY 2015-16.
13.1. Technology Award: Your Bank has bagged all 6 awards from the Indian Banks' Association under the categories of Best Technology Bank of the year; Best use of Digital & Channels Technologies; Best use of Technology to enhance Customer Experience; Best Risk Management, Fraud, Cyber Security; Best Financial Inclusion Technology Initiatives and Best Payment Initiative. The National Payments Corporation of India felicitated your Bank under the special category for implementation of IMPS through branches and a special recognition award for issuance of RuPay cards. The SKOCH has merited your Bank under the categories of eKYC implementation; Financial Inclusion Technology and a merit award for Kendriya Vidayalaya Fee Collection. The International Data Corporation (IDC) has also awarded the Bank with its "Excellence in Innovation" award 2015 for implementation of mPassbook (a mobile-app based account passbook). Your Bank has received development Awards for its Tabulous Banking, eKYC application and mPassbook application by the ASSOCHAM (Associated Chambers of Commerce and Industry of India). The Multi Channel Payment Solution (Immediate Payment Service-IMPS) of your Bank was awarded by the Elets Technomedia Pvt. Ltd.
13.2. Vigilance: Your Bank won the prestigious '1st Best Vigilance Excellence Award (2015-16) in Corporate Category' by the Institute of Public Enterprise, Hyderabad. The Chief Vigilance Officer of the Bank was also awarded the 'Vigilance Excellence Award (2015-16) in Individual Category'.
13.3. Corporate Social Responsibility: World CSR Congress in collaboration with ABP News has presented the Bank with Best CSR practices award to Union Bank Social Foundation; CSR Leadership Award for promoting Employment for the Physically Challenged; CSR Leadership Award for best use of CSR practices in Banking Sector; Excellence in Banking (PSU category) and Best Bank award in Public Sector under Banking Financial Services & Insurance category.
13.4. Human Resource Management: Union Bank of India was presented with the Golden Peacock Awards for excellence in HR practices during the 10th International Conference on Corporate Social Responsibility conducted by the Institute of Directors.
14. Directors: The following changes took place in the Board of Directors of your Bank during the financial year 2015-16.
14.1. Shri K. Subrahmanyam, Executive Director attained superannuation on July 31, 2015.
14.2. Shri Kishor Kharat, Executive Director was elevated to the post of MD & CEO, IDBI Bank vide Ministry of Finance, Government of India, letter No.Fno.4/2/2015-Bo.I.GOI.MOF dated August 14, 2015.
14.3. Shri Vinod Kathuria has been appointed as Executive Director of the Bank vide Government of India notification No. F. No. 4/5/2015-Bo.I dated January 22, 2016.
14.4. Shri Anil Kumar Misra, has been nominated as RBI Nominee Director on the Board w.e.f. July 6, 2015 in place of Shri Deepak Singhal, vide Dept. of Financial Services, Ministry of Finance letter No. F.No. 6/3/2011-Bo.I dated July 6, 2015.
14.5. Shri Dipankar Chatterji, Shri G. K. Lath and Dr. R. H. Dholakia, Shareholder Directors completed their term on June 26, 2015. Dr. R. H. Dholakia and Shri G. K. Lath were re-elected as Shareholder Directors for a new term of three years w.e.f. June 27, 2015, in the AGM of June 26, 2015. Dr. Uttam Kumar Sarkar was elected as the third Shareholder Director in place of Shri Dipankar Chatterji.
14.6. While welcoming all the new Directors, the Board places on record the valuable services rendered by Sarvashri K. Subrahmanyam, Kishor Kharat, Deepak Singhal and Dipankar Chatterji.
15. Directors' Responsibility Statement: The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2016:
15.1. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards.
15.2. The accounting policies framed in accordance with the guidelines of the Reserve Bank of India, were consistently applied.
15.3. Reasonable and prudent judgment and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of Bank for the year ended on March 31, 2016.
15.4. Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India and,
15.5. The accounts have been prepared on going concern basis.
16. Corporate Governance:
16.1. The Board of the Bank is committed to adopt good Corporate Governance practices in letter and spirit. A detailed report on Corporate Governance is given in a separate section of the Annual Report. The Corporate Governance report for financial year 2015-16 has no audit qualifications.
17. Corporate Social Responsibility (CSR): Your Bank has been in the forefront for meeting its CSR commitments. Towards this initiative, the Bank has established Union Bank Social Foundation Trust (UBSFT). Major CSR activities of the Bank are being carried out through this trust aimed at improving the quality of life of the society.
17.1. UBSFT has enabled world class integrated disabled rehabilitation center by funding MBA Foundation's pet project 'A life of Self Esteem and Dignity for the differently abled'. The Bank has provided entire gamut of facilities ranging from early childhood intervention to facilitating employment of deserving disabled persons.
17.2. During the year 2015-16, the Bank has spent an amount of Rs. 1.22 crore by way of donation. This includes Rs. 1 crore under Swach Bharat Fund. Your Bank through its CSR arm has undertaken participation in the social causes for addressing larger issues viz. poverty, hunger, skill updation, community development and social justice. UBSFT has synergized efforts of the Bank and social sector agencies towards sustainable growth and development of social objectives at large. During the year 2015-16, UBSFT has approved Rs. 9.41 crore for 47 projects under various sectors like health, sanitation, education and rural development etc and an amount of Rs. 5.76 crore has been disbursed in the year 2015-16.
17.3. In its endeavorer to support the differentially abled persons for their self esteem, the Bank has donated more than 700 tricycles, artificial limbs to physically handicapped persons at a total cost of Rs. 30.00 lakhs. Your Bank has also undertaken healthcare facilities through Bank's mobile vans to flood affected, hilly and inaccessible areas of Uttarakhand thereby providing relief to 23 villages benefiting more than 12000 people. In support of underprivileged cancer patients the Bank donated an amount of Rs. 19.94 lakhs to cancer societies.
18.1. The Board places on record its gratitude to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority, Central Vigilance Commission and other institutions for the valuable guidance and support received from them. The Board also acknowledges the unstinted support of the financial institutions, correspondent banks, valuable shareholders, esteemed customers and all other stakeholders. The Board also expresses its deep appreciation for the dedicated service and contribution made by members of staff in the overall performance of the Bank.
For and on behalf of the Board of Directors,
Chairman & Managing Director