City Union Bank Inspection Report

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RESERVE B A m OF INDIA
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Shri Subhash Chandra Agrawal

1975 Kucha Lattushah
Batiba, Chandni Chowk
New Delhi
PIN: 110006
Riqht to information A d , 2085

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Please refer our letters m . ~ . . ~ m d 7 & .(S3074)/01.12.00
d. 112022-23(Val. 8) dated
August 11, 2022 and *.hT.WRW&d. SS(406)/01.12.001fiO22-23(Vol. 7) dated
July 29, 2022 on the captioned subject advising you to make payment towards
photocopying charges and to furnish a copy of receipt to us.
2.In this connection, RBI Risk Assessment Repolas (RARs) for the financial years 2016-
77 & 20'18-79, Limited Review Report far the financial year 2017-18 and Inspection report
(IR] for the financial year 2018-79 of City Union Bank Lfd. are endosed after redacting
the information exempt from disclosure under Section 8(l)(j) of the RTI Act, 2005.
Yours faithfully,
Central Public Infomation Officer

End : as above
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022-2218 0731-39 h3. C22-22160932
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Central Ofilce, W d d Trade
Department of S~~pervision, Centre 1 , Cuffe Parade, Cglaba, Mwnkai - 401)OD5
Tel: 022-2218 U131-38Fdx 022-22110032
RESERVE BANK OF INDIA
City Union Bank Ltd.

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Risk Assessment Report-
(Financial posi'lion as on March 3f, 201 7) , '
Confidential Page 7 of 27
Table ofContents
Introduction
Part I: Risk Assessment

Summary of Aggregate Wisk at: Bank Level
Supervisory Evaluation of Risks and Control Gaps
Governance & Oversight
Credit Wisk
Market Risk
Liquidity Wisk
Operational Risk
Other Pillar II Risks
Part 11: Capital Assessment ( including Earnings)
Pillar I Capital & CRAR
Capital Management, ICAAP and Stress Tests
Assessment of Internal Generation of Capital
Scope &Ability to Infuse Capital
Assessment of Leverage Ratio
Supervisory Capital Prescription
Part Ill: Compliance Assessment
Compliance Culture
Major Areas of Financial Divergence
Major Areas of Non-corn piiance
Annexures
Annex-I : Major Areas of Financial Divergence

Annex-2: Computation sf Outside Liabilities
Annex-3: Assessed Net Worth 7
Annex-$: Computation of Assessed Capital
Annex-5: Assessment of Internal Generation of Capital
Annex&: Leverage Ratio 14
Note : AN figures in the report refer to position o f the bank as on March 3 7, 20 I7 or for the period
2016 to March 31, 201 7 and figures ~n parenthesis refer to corresponding previous year position unless
otherwise specified.
INTRODUCTION
The Risk Assessment of City Union Bank Limited for 2016-17 under the Supervisory
Program for Assessment of Risk and Capital (SPARC) was completed with March 31,
2017 as the reference date. The assessment has been made based on the off-site
analysis of the data and information furnished by the bank as well as the findings of
the on-site Inspection for Supervisory Evaluation (ISE) undertaken from October
16,2017 to November 17,2017 and various explanations offered by the bank during
the course of inspection.
As per the SPARC process. the Aggregate Risk Score of the bank is arrived at-
which is indicative of Medium risk. On applying the assessed CRAR of 15.76% to the
aggregate risk score, the Risk of Failure Score of the bank is arrived at m.
PART I: RISK ASSESSMENT
Aggregate Risk
Risk Category
Board
Senior Management
Risk Governance
Internal Audit
Governances Oversight Risk
Credit Risk
Market Risk
Liquidity Risk
operaZnal Risk
Other Pillar II Risk
Business Risk
BANK LEVEL AGGREGATE -
RISK
SUPERVISORY EVALUATION OF RISKS AND CONTROL GAPS
1. Governance and Oversight Aggregate score-

w~ajorobservations 7
I.I 1 Board score: -1
1.1.1 / The Board did not have directors with commercial banking experience,1
I I
1 I pertaining to investment banking, payment systems, risk management, etc.

Out of nine non-executive directors, only one director had previous banking
I
experience in credit management.
directors on the Board, eight
I 1 directors. Although the bank's Anicles of Association stipulated retirement (
I
1 I of at one-third directors in the non-executive non-independent 1
least of the
I category, this was not adhered to as there was only one such director.
The bank had re-appointed a non-executive director for another year even
I
h
though he had attained the upper age limit.of 70 years stipulated by RBI.
1.1.3 The calendar of reviews to be put up to the Board included
/ I ,
themes prescriSed by Nayak Committee and other items of importance. I
However, no agenda notes were placed before the Board on some of the
important matters such as banks preparedness for transition to Ind-AS and
I assessment of efficacy of software systemslskill sets of officials dealing
with Ind-AS implementation, review of recoveries in DRTlSARFAESl
cases, etc.
The agenda notes were not circulated to BoardlACB members
I / in advance to enable meaningful deliberation. Further, the table agenda 1
I
I
I items constituted a significant proportion (21%) of the total agenda items I
and the table agenda items outnumbered the regular agenda items in some
meetings.
Senior Management
credit proposals involving enhancements despite unsatisfactory conduct 1

and inherent weakness in the accounts (overdues, poor liquidity ratio, very
high leverage ratios, etc). Further, the credit proposals recommended to
the Credit Committee/Board also did not have a balanced view of positive
aspects as well as inherentlpotential risks existing in the borrowal
accounts.
I.2.2 In some cases, the agenda notes submitted to the Board did not contain
complete information and confirmation regarding compliance with RBI
stipulations and the bank's internal guidelines. This resulted in wrong
decisions in a few important proposals suck as re-appointment of a non-
executive director who had already attained the maximum age of 70 years
stipulated by RBI, approval of compromise settlement under OTS in one
fraudulent NPA account, which was not in tune with bank's internal
guidelines, etc.
1.2.3 Oversight in matters of regulatory compliance was not satisfactory as Red
Flagging of loan accounts was still being done manually and the same had
not yet been automated. FuPther, the bank had not yet uploaded the KYC
data of all the individual accounts opened after January I , 2017 with
Central KYC Records Registry, till date. Similarly, although pendency in
submission of export and import documents was quite high (I
0,474 cases),
no corrective measures were initiated to rectify the position.
1.3
I
Risk Governance Score: m-1

1 1.3.1 1 The role of risk was missing as several customer accounts were excluded 1
I 1 (whitelisted) from AML alert generation mechanism as pointed out in para 1
1 1 5.2.2(i) despite ongoing monitoring d transactions being an essential 1
1 1
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element of risk categorizationianti-money laundering measures.
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1.3.2 The bank had not reviewed and assessed the risk limits fixed for Individual
1 1 Gap Limit (IGL) (currency and buckets), overall Nostro limit, counter party I
11 1 limit for bank even though limits were breached during the period I
a the
underreview. I
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1.3.3 The bank did not have a framework for simulating external events for
1 1 quantifying the likely operational losses. I

1.3.4 1 The bank did not formulate new products policy. Further, it did not have
I
1 I any system for risk assessment of new products1 processes, although it (

had launched new products and sewiceslprocesses during
under review.
Confidential
Internal Audii
i) The rating model for risk rating of branches
I I Audit (RBIA) was deficient in several respects as foIIows:
(a) It was not aligned to suit the business prafilelspecific function of different
categories of branches.
(b) Inherent business risk assessment parameters also included business

strategy and liquidity risk components relating to business parameters,
which were normally managed at the corporate Level.
(c) The risk rating of certain branches either remained the same or
improved despite slippage of many accounts during the year, indicating
that the rating model was not adequately sensitive to inherent credit risk.
Out of 400 branches audited during the year, none of the branches were
classified as "High Risk" and "Very High R i s k category, which appeared to
be unrealistic position of risk profile of the branches.
(ii) The RBlA policy allowed a maximum period of 6 months for rectification
of deficiencies pointed out in the audit reports, which defeated the principle
of prompt mitigation of identified risks.
1.4.2 The trigger points outlined for undertaking Snap/Special audits did not
include events such as occurrence of frauds, increase in slippage of
accounts to SMAINFA category. pendency of exportlimport documents,
( 1.4.3 1 The scope of RBlA did not cover key functions such as Treasury. Risk 1
Management Deparirnent, KY C 1AML Cell,,Credit Processing Centres, etc.
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did not have a system of undertaking &site risk assessment of
L i branches prior to preparation of annual audit plan.

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2. Credit Risk Aggregate Score
Major observations
Inherent Risk
Default Risk
I (i) The gross NPAs increased by 33.20% from 75120 i n n as
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Confidential Page 6 OF 27
on March 31,2017. The amount of technical
also increased significantly by 31.43% during the period under review.
(ii) SMA advances increased by 9.26% from F39834 mn as on March 31,2016

to 743528 mn as on March 31, 2017. Fresh slippages from SMA-2 to NPA
1 I category accounted for 32.70% of outstanding amount of total SMA-2 1

1 1 (iii) Low level of upgradation from sub-standard exposures ('1219 mn) during 1
FY 2017 and increase of 14.31% in down-graded rated exposures and I
exposures not rated beyond one year'also contributed to the risk. Of the 1141
accounts with exposure more than T2.50 mn, 317 accounts (27.78%) were
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1 downgraded by two notches.
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m e c o v e r y Risk
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p
(i) The sacrifice of principal amount in cornpromiselsettled high value
I 1 accounts amounted to F28 mn in FY 2017 as against 'nil' sacrifice in the I

I I previous year.
(ii) The entire unapplied interest ( T I 3 mn) was waived off in

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compromisedlsettled high value accounts.
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2.1.3 1 Complexity of Exposure
10 Theexpasure to project loans increased by 17.57% in FY 2017 mainly due I
I 1 to incremental increase in sectors such as textile (19.14%) and basic metal 1
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1 products (7.60%).
i 1 (ii) The weighted average residual maturity of bank's exposures stood at 3.91 )
1 1 years in FY 2017, which was mainly due to bank's investment in long-term 1
1 1 Government securities with residual maturity of more than 10 years.
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increased by 11-72%due to incremental increase in exposure to sectors su
as retail, MSME and corporate manufacturing sector.
(ii)The increase in exposure to stressed sectors (Textiles, Metal & meta
I ( products. Engineering, Infrastructure) by 19.70% and exposure to sensitive 1

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sectors (Real Estate and Capital Market) by 10.96% also contributed to the
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1-70ntrol ~a~ Risk
F L o a n p o l i cframework
y for grant of moratorium didnot specify the ceiling on 1
I 1 moratorium period that could be allowed for various loan products/custorners I
11 I and it was extended on a case to case basis.
I
2.2.2 1 Risk Identification & Assessment I
( i ) In many cases (20% of sample size of 100), credit appraisal was not
comprehensive as it did not cover important aspects such as inter-
firmlindustry analysis, critical analysis of sales projections based on past
performance, justification for accepting deviations from internal policy
stipulationslbenchhark ratios, etc.
(ii) In some cases (16% of sample size of 30),particularly related to stressed

sectors, working capital limits were enhanced despite deterioration in the
financials of the borrower and their not being in line with bench mark ratios
stipulated in the loan policy. Also term loans were granted for long tenure
along with moratorium without any justification.
(iii) The score card based credit rating model did not capture conduct of
account related aspects such as number of occasions in which Short Term
Loans were allowed, cheque returns, devolvement of LC1 invocation of BG,
etc. Further, t h e credit rating models did not reflect the deterioration in the
financial health of the borrowal accounts as the borrower's ratings in some
cases had either improved or remained the same (20% of sample size of 50).
(iv) The pricing of loans was not strictly linked to credit rating as some
borrowers (20% of sample size of 30) with similar risk ratings were charged
differently. Further, there was no system of revising the pricing with change in
the rating of the borrowal accounts.
/ (v) In the case of loans extended to barrowers engaged in real estate 1

activities, the appraisal notes did not cover the status of RERA registra
and the likely impact in case of non-registration,
(vi) The bank did not assess the concentration in multiple dimensions such as
collaterals, highly leveraged borrowers, concentration based on RWAs,
incremental ofl-balance sheet exposure, tenor risk and high risk rated
exposures.
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(vii) The rating review of corporate borrowers of term loans was not carried
out regularly and resultantly the entry level rating assigned to suck borrowers
continued till maturity of the loans.
(viii) The bank did not have an automated system to capture non-financial
triggers such as DCCO, type of restructuring sanctioned, number of times
short term loans rolled over, etc., for flagging the accounts as NPAs.
(i) There was no mechanism in place to monitor adherence to loan policy
1 1 stipulation regarding maximum number of occasions (5 times) a borrower I

could be permitted short term increases (STls)lover drawings. In many cases
(8% of 133 cases), STlsloverdrawings were permitted to borrowers as a
I I matter of routine without analyzing the fund flow statements and assessing I
borrower's repayment capacity and the number of such instances exceeded
the ceiling stipulated.
(ii) In some cases (20% of 30 cases), jewel loans were granted in excess of
the stipulated LTV ratio of 75% and the CBS system was not enabled to trigger
the alerts to prevent breaches.
(iii) Although SMA-2 accounts had dropped significantly (by 37%) in the March
quarter and increased sharply (by 2'1%) in the June quarter, and this trend
1 1 had been visible in the previous year also, the bank had not undertaken any I
I I analysis of this unusual movemenl. Similarly, the bank had not undertaken I
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any analysis of accounts frequently moving from SMA- 2 to SMA-I category

and vice-versa to assess the impact on the overall asset quality.
Monitoring & Review
I I sanction terms and conditions was pending in 386 cases (for more than one 1
I . I year in some cases) and renewal of insurance was pending in 78 cases as on
September 30, 20'17. The bank had also not undertaken review of
restructured standard accounts to assess adherence to terms and conditions
of restructuring.
(ii) In several cases, BGs issued had expired (I796 BGs aggregating f 1108
mn) but the follow-up was not done to obtain the original guarantees for
cancellation. Resultantly, such BGs were continued to be treated as
contingent liabilities.
(iii) Monitoring of valuation of immovable properties as per the periodicity laid

down in the bank's toan policy was not automated.
3. Market Risk Aggregate score:

1 Major Observations . .
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3.1 Inherent Risk
3.1.1 1 Banking Book
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(i) The bank had elevated embedded optionality risklrollover risk in its balance
sheet due to high premature withdrawal of customer term deposits, which stood
at 763442 mn in FY 2017 and constituted 21.07% of total deposits.
(ii) The impact on the economic value of the networth clue to 200 bps shock
increased from 9.57% in FY 2016 to 7 1.72% in FY 2017.
1 3.1.2 1 Trading Book

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The PVOI of the trading book was significant due to concentration of interest
sensitive assets having maturity of nearly four years. The NOOP utilization was
high (50% utilization) in the last quarter of FY 20'17 indicating greater volatility
in the bank's forex currency positions.
1 3.2 1 Cantrot Gap Risk I

1 3.2.1 1 Policy Environment
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The integrated treasury policy had not prescribed any haircuts f 0 r P - a
k 6 ..
I I positions to assess the impact on profitability.
portfolio and ascertain its impact on the treasury income.
1
bank did not periodically assess the extent of illiquidity in the investment
(ii) The valuation of investments in preference shares of CCIL was carried out
using historical cost and was not in tune with extant instructions.
Controls
(i) The bank did not take into account ERBB

while
strategies, areas of growth, targeted and actual credit, market and liquidity
positions.
(ii)The bank did not monitor the intra-day forex exposure limits, domestic limits,
etc., as part of treasury operations on an ongoing basis.
(iii) The bank had not ensured compliance with mandatory leave policy
stipulation as one of the dealers had not taken mandatory leave even after one
year of posting in the dealing room. Further, none of the dealers attached to
domestic and forex dealing rooms were imparted training during the last two
years.
Monitoring and Review
The MIS and results of various analysis including stress tests,

Aggregate Gap Limit (AGL), etc., were not used for
strategy, business decisions and positions to be taken.
heba bank ad "not deducted the cash margins collected from the c u s t ~ m e r ~ l
while computing the Unhedged Foreign Currency Exposures (UFCE) leading
to incorrect reporting of UFCE position to CICs.
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4. Liquidity Risk Aggregate Score:

1 Major Dbsewations
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Inherent Risk
b. 1 concentration
1.1 of funding sources
-1 I
Confidential Page I of 27
(i) The proportion of unencumbered G-secs and T-bills in AFS and HFT was
only 31.74% in FY 2017, indicating lesser availability of saleable securities
during stressed liquidity conditions.
(ii) Though CASA deposits had improved from ? 55326 rnn (20.37% of total
deposits) in FY 2016 to T70389 mn (23.37% of total deposits) in FY 2017, the
bank was still dependent to a high degree on volatile sources such as market
borrowings.
(iii) Liabilities to top 20 depositors had increased by 10.03% from 7 32299 mn

in FY 201 6 to T 35540 rnn in FY 2017 and sudden withdrawals could trigger
short term funding mismatches during periods of stress.
1 4.1 -2 1 Market Liquidity I

(i) High weighted average cost of term deposits (7.30%) coupled with
dependence on inter-bank money market borrowing (Net borrower for 212
days) indicated that the bank could face funding challenges in the short run.
(ii) The high proportion of illiquid, assets (89.37%) and illiquid investments
(44.73%),implied restricted market liquidity.
Liquidity
The risk arose on account of volatile average CASA deposits, which stood at
12.17% of total deposits in FY 2017 and decline in excess SLR securities from
9.10% of total investments in FY 2016 to 9.80% of total investments in FY
2017.
4.2 Control Gap Risk ,. I . I
Environment
stress test policy was not' reviewed since 2014.
(ii) The bank did not document the strategy far day-to-day management of
liquidity to be adopted across various currencieslgeographies and measures
that would be adopted in the event of unexpected disruption of fund flow.
(iii) The bank's MCLW policy had also prescribed charging of profit margin
spread (75-100 basis points), in addition to two spreads viz: credit risk
premium and business strategy spreads stipulated by RBI. Further, t h e policy
was not comprehensive as it had not specified (a) ineligible items of operating
expenses to be excluded and service charges(collected from
deducted while calculating operating cost (b) bandrange of business strategy
spread t o , be applied for a given category of borrower I type of loan.
Resultantly, the MCLW computation did not deduct ineligible items of
1 1 operating expenses and service charges while computing operating cost. 1

1 1 Further, the demand deposits was
core-portion of reckoned on the lower side. 1
I
1 1 The assessed MCLR figure revealed that l-year MCLR computed by the bank 1
as on March 31, 2017 was overstated by about 20 bps.
/) While conducting stress tests for liquidity risk, the bank ha-
I I consideration the behaviour of counter parties that would affect the timing of 1
I I cash flows, as prescribed by RBI.
(ii) The bank had not assessed the likely impact on P&L due to holding of float
or excess buffer to meet liquidity requirements. Similarly, the bank had not
assessed the potential impact on P&b on account of sell off of illiquid assets
in different stress scenarios.
I 1 (iii)The bank had not outlined any rnethod~logyfor determining the size of 1
1 1 haircuts for assets (liquid as well as illiquid) being used for collateralised 1
I 1 borrowing and for arranging liquidity through sale, based on the experience.
Controls
(i) The Contingency Funding Plan (CFP) had not clearly defined the liquidity
crisis and did not specify the potential trigger events, strategies for addressing
liquidity crisis, implementation ancl escalation procedure including authority to
invoke the CFP, etc.
(ii) The bank had not carried out the process of diversification of funding
sources, although the ALM policy had set an objective of establishing a
funding strategy that would provide an effective div
including the tenor.
Monitoring and Review

Though many of the buckets of Structural Liquidit
1 1 mismatches throughout the year,neither ALCO nor the Board had analysed 1
r I t h e a s o n s for such positive mismatches and its impact an Net lnteresti
1 I Income of the bank.

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P 1e 1
system to generate the regulatory reports such as structural liquidity
I statement, interest rate sensitivity statement, liquidity coverage ratio, etc., was (
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not fully automated.
5. Operational Risk ~ ~ ~ r eScore:

~ a t e
~~ajarabservations. 7
5.1 1 Inherent Risk 1
5.1 .I 1 IT-Operational Risk
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I I
1 IT Operational Risk arose mainly due to (i) absence-of Straight ~ h ~ o x l
I 1 Processing in critical systems namely SWIFT, Cash
three 1
Management
( account opening and (ii) nine instances of I
I Systemand system used for
1 unauthorised access bank's systems (debit card transactions) over e- I \
I 1 commerce sites.
to IT
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'&People Risk
The amount involved in internal frauds increased to 7227 mn during the year
'1 mn last year. Inadequate training imparted to officers
as compared to ?I
and negligible expenditure on training (0.15% of operating expenses)
accentuated the risk.
1 5.1.3 1
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IT-Financial Risk
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r 1
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The expenditure incurred on IT related activities increased from T960 mn in
II 1 FY 2016 to TI179 mn in FY 2017. The expenditure on the captive software I

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/ packages
- remained high
- at 7179 rnn in FY 2017 and cost of about 71 mn I
was incurred for change requests within a short peri
5.2 . Control Gap Risk

5.2.1 PolicyEnvironrnent
(i) The HR policy of the bank was not reviewed by the
1 1 Control Self-Assessment (RCSA) had not been implemented across the I

Confidential Page f 4 of 2 7
bank. (ii) The bank did not have a system of prescribing Key Risk Indicators (KRls)
in line with its risk appetite for business and strategic risks. Further, KRls
were not defined for frauds and complaints so as to provide an early warning
signal for potential risk with a view to take proactive action to mitigate such
risks.
(iii) Although the bank had provided remote access facility of IT networks to
its employees, the Information Security policy did not include guidelines in
this regard. The change management process did not define the back-up
plans detailing the steps and processes to be followed to restore the system,
in the event of failed changes or unexpected results.
5.2.2
I
Risk Identification & Assessment I
I (i) The bank had excluded (whitelisted) several current accounts (2035
accuunts) of nine groups of companies and some private colleges and
schools from AML alert generation mechanism on the pretext that there were
I 1 huge number of crediticash deposit transactions in the accounts.

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Resultantly, monitoring the transactions of such entities on an ongoing basis
was not carried out. Despite filing STRs in the case of three of the whitelisted
I 1 companies due to continuous deposit of Specified Bank Notes, the bank had I
not reviewed such accounts and included them as part of the AML monitoring
process.
(ii) Some of the desktops and ATMs were yet to be upgraded from Windows
XP to higher version of OS to protect the systems from cyber-attacks,
especially ransom-ware attacks.
(iii) The baseline cyber security and resilience requirements prescribed by

RBI had not been fully implemented. The Data Loss Prevention solution to
limit and control transfer of data from bank's networklsysterns and Network
Access Control solution for verification of security configuration of external
devices (before granting access to ban!& network) were not
Controls
(i) Compliance testing was inadequate as only few
T c r o s s 4 out of 12 regions) were covered.
I
(ii) The bank had not ensured that all the identified staff of sensitive areas
such as currency chests, etc., had availed the mandatory leave during the
review period,
I 1 (iii)The BCPIDR drills conducted for Treasury, SWIFT and LAPS (used for I
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1 1 I
loan processing, appraisal, etc) applications were not documented.
-toring 8 Review 1
(1) Pendency of vigilance cases stretched for more than three years in fei
cases and the bank had not stipulated any time limit for disposal of such
cases.
(ii) The following deficiencies in compliance with KYCIAML guidelines were

found to be persisting: (a) absence of review of risk categorization of
accounts (3141 2 accounts) including NRE accounts and non-ugdation of
KYC (3667 accounts) in many cases (b)fixation of abnormally high threshold
limits inconsistent with normal income levels in many of the SB accounts and
accounts of students, minors and housewives and ( c ) absence of
mechanism for reviewing and reclassifying the BSBBA-Small accounts as
normal BSBDNSB accounts, after the stipulated period of two years.
(iii)Some major observations of IS audit reports such as absence of non-

editable fields in Front Office module (E-Treasury), pendency in entering into
agreement with the vendor for pre-paid instruments, etc., and some of the
findings of Vulnerability Assessment audit were not complied with, despite
lapse of more than six months.
(iv) The bank kacl indicated 12 applications as critical while reporting under
RBS whereas its BCP policy indicated all the 57 applications as critical.
These includad PDO-NBS (in addition to NDS-OM) which has long been
discontinued by RBI, but for which the bank continued to maintain the
application server.
and mobile banking application
integrated with Security Information and Event Management (SIEM) tool for
real-time monitoring of security alerts generated.
6. Pillar I1 Risk Aggregate Score:

1 Major observations
-herent Risk
1 6.1.1 1 Reputation Risk
I
During the period under review, the number of customer litigations (27 ,cases
amounting to 95 rnn) lodged against the bank increased by 35%. The low
growth in revenue and client acquisition also contributed to the risk.
1 6.1.2 1 Strategic Risk

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1
based income remained stagnant at around TI800
mn in both FY 2016 and 2017 indicating high level of dependence on interest
income. There was no significant improvement in market share of advances
with marginal improvement from 0.26% as on March 31,2016 to 0.28% as on
I
March 31, 2017.
I- 6.2.1 Policy Environment

P
The bank had long term business plan coverincthe period 2015-16 to 2019-
29 but the strategies for achieving the targets were not spelt out in the plan.
1 6.2.21 Risk Identification & Assessment I

W
1
I
o t have a system of assessment of reputational risk covering
I peer group comparison, employee perception and share price movement.
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-11
I=
There was no defined strategic risk management framework with
responsibilities for Board and Senior Management.
6.2.3 Controls
The stancla-rds for model development, implementafion,

I limitations of the models in place were not covered in the model risk framework. 1
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, Confidential Page 77 of 27
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6.2.4 Monitoring & Review
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1
i I
The assessment of performance of the empanelled valuea engaged far
1 valuation of collateral securities was not done by the bank for the last several
Confidential Page -18 of 27

Part 11: CAPITAL ASSESSMENT (INCLUDING EARNINGS)
I.Pillar I Capital & CRAR
The summary of reported and assessed capital position of the bank as on March 31,
2017 is given below. Details are in Annex 4:
Basal Ill Capital under Basel I11 {In B mn)
Particulars Reported Assessed Divergence Reasons for

I
divergence
Total capital (TC) 36406 36289 117 Total Capital reduced
on account of:
Common Equity Tier 35318 35201 (i) Additional Loan
I (CETI) capital boss Provision (? 105
mn).
Tier I (TI) capital 3531 8 35201 113
(iillnterest Reversal
Tier 2 (T2) capital 1088 1088 0 (?I2 mn)
Basel Ill CRAR under Basel Ill (in O/p)
Particulars Reported Assessed Divergence Reasons for
I I
1 divergence
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Total capital (TC) 15.83% 1 15.76% 1 0.07% 1 Total Capital reduced

on account of:
Common Equity Tier 15.35% 15.28% 0.07%
(i) Additional Loan Loss
1 (CETI) capital ( k v i s i o n (?I05 mn). I
Tier 1(TI)capital 15.35% 15.28% 0.07% (ii) Interest Reversal
R 1 2 mn)
Tier 2 (T2) capital
2. CAPITAL MANAGEMENT, ICAR, I C M P AND STRESS TESTING
2.1 Bank's Capital Planning and Business Projections
The accretion to capital was articulated in ICAAP and Capital Management plan for
FYs 201 8-2020, which targeted projected profits, external infusion of capital through
QIP, etc. The bank had estimated infusion of capital to the tune o f ? I4410 mn in the
FY 2019 in order to meet the requirements prescribed by Basel Ill as per the I C M P
document for 2017-18. During the period under review, the bank had allotted 2.87 mn
equity shares to employees under employee stock option scheme on account of which
the share capital and share premium increased by ?3 mn and f 151 rnn respectively.
Public (50.32%) and Flls (36.30%) were the major shareholders of the bank.
The bank had projected capital position under Base! Ill at T41115 mn (14.51%),
? 55530 rnn (76,37%)and T 62510 rnn (15.25%) for the FYs 2018,2019 and 2020 as
against the minimum regulatory capital requirements assessed by it at 7 29856 mn,
? 37919 mn and ? 45938 rnn respectively. The bank had projected an operating profit
of ? 1'1100 mn, 7 12610 mn, and 9 14860 rnn for the FYs 2018, 2019 and 2020
respectively. The assessed CRAR of the bank had increased to 15.96% as on March
31, 2017from 15.49% on March 31, 2016.
The bank had formulated its annual business budget for the FY 2017 which was not
granular as growth targets in respect of RWAs, capital, reserves & surplus, C W R ,
etc., were not covered.
2.2. Assessment of Pillar I and Pillar I1 capital and Internal Capital Ratios
The bank in its ICAAP had projected minimum CRAR of 10.76%, 1I.42%, 12.08% and
12.08% as on March 31, 2017, 2018, 2019 and 2020 as against the regulatory
minimum of 10.25%, 10.88%, 11.50% and 11.50% respectively. The bank had
assessed the credit risk under standardized approach, market risk under standardized
duration approach and operational risk under basic indicator approach.
As per assessment conducted for capital as on March 31, 2019, the overall capital
requirement for Pillar 1 was F23576 rnn and an additional aggregate capital under Pillar
Illstressed conditions was evaluated at T I 044 mn. Against a total capital requirement
of ? 24620 mn (Pillar 1811 capital requirement), the bank had maintained a capital of
?36405 mn. The internal capital ratio assessed by the bank as on March 31,2013
under the lCAAP after considering Pillar I and II risks and additional risk weights due
to stress tests stood at 15.16%. The total CRAR reported under Basel Ill stood at
15.83% as on March 31, 2017 with Tier-l and Tier-ll capital ratios being 15.35% and
0.48% respectively.
2.3. ICAAP:
The ICAAP document suffered from the follawing deficiencies:
(i) The ICAAP outcome was not used for pricing of bank's loans and deposits
products.
(ii) The ICAAP document did not outline a general contingency plan for dealing
with divergences and unexpected events.
(iii) The bank had assumed 22.52% and 21.57% annual increase in advances for
the years 201 8 and 2019 in a base scenario though the actual increase in advances
was only 13.45% during the FY 201.5-17.
(iv) The ICAAP validation report obtained from the external reviewer or internal
auditor was not sent to RBI.
2.4. Stress Testing
The bank had conducted stress tests for credit risk, liquidity risk, interest rate risk,
market risk and operational risk. The following deficiencies were observed in this
regard:
(i) Stress testing methodotogy did not assess the impact of the changes in the
creditworthiness of the counterparty.
(ii) Stress testing did not include off balance sheet exposures in bank's credit risk
profile.
(iii) Stress testing scenarios did not include strategic or reputational risk for
significant business lines.
3. Assessment of Internal Generation of Capital
3.1. Retained earnings
The reported retained earnings increased from ?3186 rnn in FY 2015 to ?3668 mn in
FY 2016 and further to 54829 mn in FY 2017, while the dividend pay-out ratio
(excluding dividend tax) increased from 17.08% in FY 2015 to 19.52% in FY 2016 and
reduced to 3.94% in the FY 2017 due to reduction in dividend payout.
3.2. Quality of earnings
(i) The reported net profit increased from Z4447 mn in the FY 2016 to 75023 rnn
in FY 2017 primarily clue to increase in net interest income (by 72178 mn),decrease
in provision for standard advances( by FA32 mn ) and decrease in other provisions (by
?I92 mn). The profit after tax registered a Y-o-Y increase of 15.78% and 13.04% in
FY 2016 and 2017 respectively.
(ii) The reported gross volatile income of the bank increased from 77 981 mn in FY
2016 to T2646 mn in FY 2017 mainly due to higher trading income (7797 mn) and
recovery from write-offs (TI 00 mn). The gross stable income increased from F31561
mn in the FY 2016 to 733931 rnn in FY 2017 mainly due to increase in interest income
earned on jeans & advances.
(iii) The net interest margin of the bank had increased from 3.30% in FY 2016 to
3.58 % in the FY 2017 due to increase in interest income.
(iv) The cost to income ratio of the bank had marginally increased from 40.08% in
FY 2016 to 40.95% in FY 2017.
(v) The budgeted targets were not achieved in respect of a few parameters such
as net profit (T5027 mn as against F5100 rnn budgeted), investments (770314 mn as
against T79000 mn budgeted), interest income (937738 mn as against T32100 mn
budgeted) and net interest margin (3.58% as against 3.84% budgeted)
(vi) On account of additional provision of T I 0 5 mn suggested by the present
inspection for fresh NPAs and F72rnn towards interest reversal, net profit was
assessed at 14910mn.
4. Scope and ability to infuse capital

The authorized capital of the bank stood at ?I000 mn. The paid up capital was e601
\.
.
- ,
mn leaving head room of F399 mn for raising additional capital. As per Basel Ill norms,
the bank was maintaining CETI capital above RBI specified minimum requirement.
Confidential Page 22of27

The bank's CRAR as on the DPI stood at 15.83% of which Tier I capital ratio
(comprising solely of CET1) was 15.35% and Tier-ll ratio was 0.48%. As on the March
31, 2017, the bank did not have any Easel Ill compliant AT1 instruments. Hence, the
bank had enough head room to raise additional Tier-I (AT-I) and Tier-ll (Basel lll-
compliant bonds) capital.
5. Assessment of Leverage Ratis
As against the minimum prescribed leverage ratio of 4.50%, the bank had a reported
leverage ratio of 9.42% as on March 31, 2017. The assessed leverage ratio was
9.40%. The primary reason for divergence in the assessed leverage ratio was on
account of reduced Tier-I capital arising mainly due to additional provisioning in
respect of fresh NPAs a n d reversal of interest identified by the present inspection. The
assessed leverage ratio had increased from 9.04% as on March 31,2016 to 9.40% as
on March 31, 2017 mainly on account of increase in Tier-l capital by '16.58% during
the year (i.e., from ? 30294 mn to ? 35318 mn).The leverage ratio of the bank was well
above the regulatory minimum of 4.50%.
6. Supervisory Capital Prescription
The required capital for the assessed aggregate risk is a model driven process. The
add-on capital is the difference between the required capital (by the model) and
assessed capital available with the bank. However, supervisory capital prescription is
based on supervisory judgment of other elements like quality of earnings, ability of the
bank to raise capital, sources of capital infusion, level of leverage
ratio, etc. Accordingly, based on the holistic supervisory assessment of risk and the
capital position of the bank, the bank's supervisorycapital is assessed as
"ADEQUATE".
In view of the extant transitional arrangements for augmenting of the Regulatory

Capital as per the requirements of Basel III norms till March 31, 20q9, the Supervisory
Capital Prescriptions, as of now, will only indicate the adequacy or otherwise, of
Supervisory Capital.
Going forward, the decision for imp!ementing quantitative prescription of supervi

capital will be communicated to the bank as and when taken.
Confidenlial
PART Ill- COMPLIANCE ASSESSMENT
A. Compliance Culture
The Compliance Department was headed by a Chief Compliance Officer in the rank
of GM who was reporting to the MD&CEO directly. The compliance department had
only three officers and one clerical staff, which was considered inadequate. Further,
the staff were not having fair knowledge of iawlaccountancy or adequate experience
in bank's operations and auditlinspection functions. The compliance testing done by
the department to test adherence to various regulatory guidelines needed further
improvement in view of various deficiencies pointed in the report. Further, the
compliance testing done by the SSM team revealed that the bank had not complied
with guidelines in many areas such as risk categorization of accounts, updation of
customers KYC details, uploading of KYC data with CKYC records registry, etc.,
whereas the bapk had claimed to be compliant in all these areas. Thus, there was
scope for improvement in compliance function of the bank.
B. MAJOR AREAS OF FINANCIAL DIVERGENCE
The summary of major areas of financial divergence, including assessed risk weighted
assets, which determined assessed capital of the bank, is given below. Details are
given h Annex 1.
1. Divergences (shortfall) in Provisioning

Particulars No. of Outstanding Shortfall or Remarks
borrowers I amounts Additional
accounts provision
required(ln T
mn)
Reclassification of 5 664 105
Standard Loans as
Non-Performing
Reciassification of
Nf As(Existing NPAs)
Sub-total (NPAS) 5 I05
provisions!accountf
outstandina 664 I
Overstatement of 5 12 Interest
IncomelOther Assets reversal-?I2mn
Understatement of
Expenses1 Liabilities
Total 664 117
2. Divergence in Risk Weighted Assets {RWAs)

-
RWAs (In ? mn)
Reported Assessed Divergence Remarks
199336 247 Divergence is due to
higher risk weights
applicable for fresh
NPAs in some cases
due to inadequate
I security coverage.
8401 1 8401 1 Nil 1
I Risk
Confidenfial Page 25 of 27
C. MAJOR AREAS OF NON-COMPLIANCE (REGULATORY GUIDELINES)
Master Direction exporters for followed up with the

No.16/2015-'16 dated completion of exporters to ensure
January 1,2016. shipment of export of completion of shipment of
goods. export of goods within the
stipulated time period as the
submissior! of export
documents by the exporters
was pending in 2644 cases.
2. Para C.10 of FED Follow-up for import The bank had
Master Direction No.171 evidence. vigorous[y followed-up with
the importers for submission
2016-17 dated January
of documents evidencing
1, 2016.
import of goods as the
submission of Bill of
Entry(BoE) by the imposters
3. Paras 2.1 & 2.3 of

DBS.CO.CFMC.BC.No.
7/23.04.00I/2014-15
dated May 7, 2015 read accounts Iabove same had not yet been
with paras 8.3.1 to 8.3.3 threshold exposure
automated.
of Master Direction limit of ?500 million).
dated July 1, 2016 on
Frauds.
-
4. Para 2.3.1 1 (a) of Maintenance of LTV In a few cases, non- Yes
Master Circular ratio of 75% in respect agricultural jewel loans were
DBR.No.Dir.BC. 10113. of non-agricultural granted in excess of L1"V
03.0012015-16 dated jewel loans. ratio of 75% stipulated by
July 7, 2015 on Loans RBI.
and Advances.
-
5. Paragraph 3 (b) of Obtention of credit In
DBOD Circular. information from the
No.BP.BC.104121.04.0 transferor bank before obtained necessary credit
481207 1-12 dated May- taking over the information reports from the
10, 2012. accounts.
Confidsntial Page 26 of 27
while taking over of borrowal
accounts.
Para 37(a) of Master Monitoring of The periodic review of risk
Direction transactions and categorization of accounts
DBR.AML.BC. No.811 periodic review of risk was not carried out once in
14.01.00112015-'16 categorisation of six months and it was
dated Februaiy 25, accounts. pending for more than one
2016 on KYC. year in many cases (31412).
Para 38 of Master Periodic updation of Periodic updation of Yes

Direction customers KYC customers KYC details was
DBR-AML-BC. details. not carried out at least once
N0.81114.01.00~12015- in every two years for high
16 dated February risk customers, once in every
25,2016 on KYC. I eight years for medium risk I I
customers and once in every
ten years for low risk
customers in many cases.
Para 57 of Master Sharing of customers
Direction KYC data with Central uploaded the KYC data
DBR.AML.BC. KYC Records pertaining to several new
N0.81114.~1.00112015- Registry. individual accounts opened
+I6 dated February 25, after January 1, 2017 with
2016 on KYC. Central KYC Records
Registry.
Indicating address In the final letters issued to
Master Circular particulars of banking the complainants regarding
Customer services ombudsman in the redressal of complaints, the
letters issued to the bank did not indicate the
complainants. address of the banking
ombudsman and specified
that the complainants can
approach him in the event of
non-satisfaction.
DBOD.No.BC.24108. Upper age limit for The bank had re-appointed a
139.00112002-03 dated non-executive non-executive director for
September 9, 2002. directors on the another year even though he
Boards of Private had atta-ined the upper age
Sector Banks. limit of 70 years stipulated by
RBI.
ISE 2017 of City Union Bank Ltd- Annex to FPAR
PART V: ANNEX to RAR

(All figures in the Annex are in Tmn)
Note: All figures except percentage may be rounded off. Percenfage may be shown in decimal (2digits)
Table-I: Divergence in Provisioning
A - Re-classification of Standard Assets (Fresh MPA)
- Bdmrwer Facility Net Out ; datebf NPA

Name , ' Type. Sfanding A
lkt@
~6G.s
Chimp
, , , , and
ideresf
, ,, <
,, A
.
reYer?$)
+.per'
'I I I
, ,
,:. :,
<
'
,
.. ' , *, Asper Aspet Held Requi Shori
, , Bank SSY , Bank, r red fall
Subburaj FB 467 Standard Sub- 296 296 NII 70 70 The borrower company, engaged in manulacturlng of
Spinnlng Standard coiinn yarn, was lnltially sanctlonad a working capital
Mills Pvt. Ltd limit of 770 mn in ihe year 2010 under sole banking
arrangernenl. Due to sudden and steep fall In colton
yarn prtces and also due lo shorlage of powsr, he
borrowal company could no1operate the mill al opl~rnurn
capac~ty and Incurred huge losses. Therabre as
requested by ihe bonuwer, the bank had raslructured
the account on December 13, 2013 by wnverlmg the
lttegular poriion of CC into WCTL (lo be repayable In 64
EMls from August 2015) and extending the repayment
perlod of the existing isrm loans. However despite the
above, the borrnwer company could not make funher
prnqreas and thelr performanm conlanued to be
Page f of ?4
ISE 2017 of City Union Bank Ltd- Annex to RAR
unsatisfactory. ResultantLy, the borrowercompany failed

to meet the repayment obligations promptly and the CC
account became out of order. The outstanding balance
in CC account remained in excess of the drawing power
since November 1,2016 and therefore the present
inspection has classifled the account as NPA with effwct
from January 30,2017 in terms~fpara2.1.2(i1) read with
para 2.2 of MC on 1RAC norms dated July 1, 20<5 and
suggested additional provjsion accordingly.
Interest reversal of 78 mn has afso besn suggested.
UPSA Standard Sub- Nil The borrower, engaged in the buslness of grinding and
Ra~ina Standard supplying of chilly and turmeric powder, was lnltially
Nadar sanctioned a CC Ilrn~tof ?60 rnn in November2009. Due
lo steep fall In prices ol chillies subsequent to
procurement of huge quanthy ob chillres, the borrower
incurred losses and therefore failed to repay the dues of
Ihe credililrs. To ease out the liquidity constraints, the
borrower was sanctioned a seasanal loan of 125 mn
subsequently. However, the borrower company could
not recover and could not repay me Interest and
inslalmenls prornplly. Resultantly, both the CC account
and loan account ' k a m e mgular due to non-
availability of adequaie DP and inslalmcnt overdues
respectively. The CC account was cont~nuouslyout of
order since December 31 2016 Slnce the account
rema~nedoul of order for more dhan 90 days, the present
inspecl~onhas clas16ed the account as NPA as on
March 31.2017 In terms of para 2 1.2 (11)read w~thpara
2.2 of MC on IRAC notms .dated July 1,2015 and
suggested additional provision accordingly interest
reversal of T I mn has also besn suggested.
3 Senthil Standard Sub- The bormwer, engaged in the business of grinding and
Andavar standard supplying of chilly powder, was initiallysanctioned a CC
Tmding limit of T0.50 mn in 2014. Due to steep drop in prices
Company of chillies, the borrower could npt collectthe rnoneyhm
the customers to whom he had supplied the chilly power
earher. To overcome the liquidiiy crunch, the borrower
was sanctioned adhoc seasonal limits aggregating 919
mn. However despite additional facilities, the borrower
could not recover and there were no operations in the
CC account other than the credit entries pertaln~ng40
loan proceeds.TheCCacmunt wascontinuously out of
.-
Confidential . . Page 2 of 74
order since December 29, 2016. Therefore the present

inspection has classified the account as NPA as on
March 29, 2017 In terms of para 2.1.2(ii) read w ~ l hpara
2.2 of MC on lRAC norms dated July 1. 2015 and
suggested additional provision of 25% due lo non-
availability of security.
Interest reversal of ?1 mn for this accouni has also bsen
suggested.
Standard Sub- The borrower company, engaged in wholesale trading

Standard of textiles, was sanctioned a CC facility for 770 mn In
January 2015.The operationsin theCC account was not
satisfactory throughout the year. Barring four days, the
outstanding balance In the CC account remained in
excess of sanctioned limit throughout the year. Further.
the borrower had not submitiad the stock statements
sfler July 2016. Since DP was permitted based on stock
slatements older than Ihree months continuously during
the year, the present inspection has classified the
account as NPA wlth effect from January 31,2017 in
terms of para 2.1 2(ii) read with para 2.2 and 4.2.4{i) of
MC on WAC norms dated July 1,2015 and suggested
additional provision accordingly.
interest reversal of 71 mn has also bean suggested.
Standard Doubtful- ~ h bank

b had restructured the a m u n t s on March 21,
1 2016 under normal circumstances but did not
downgrade them to NPA upon restructuring as required
in terms or extant IRAC norms. Therefore the present
inspect~onhas classified these accounts as NPAs with
effect from March 21, 2016 in terms of para 17.2.1 of
RBI Master C~rcularDBR.No.BP.BC.2/21.04.0481201&
16 dated July 1. 7015 on IRAC norms and suggested
Interest reversal of 71 mn has also been suggested:
Confidential Page 3 of 14 ,
IS€ 2047 of City Union Bank Lid- Annex C RAR
Table-Ill: Priority Sector Classification
/ Marginal
Farmers 1 (8.00%)
1 (8.70%)
1
'I4827 27224
19769 18051
sections
t
I I I I
5 Non-~orporate - 2321 3
Farmers (11.74%)
1 sector I
7 Overall Priority 79075 101 344 101344
Sector (40.00%) (5'i .27%) (51.27%)
Ad e s
figures a* inclusive of lnvesbnents made by the bank in IBPC.PSLC and RlDF deuos~ts
'* bank has msinta~nedRlDF depnslt for shorffall
As per Bank As per SSM '
Average &djusted N d derlk

Cwqlif (Previous Year) 197687 197687
* As Ihc amount receivablefrom Income tax rlepartmont 75633 mn I Tax p a ~ dIn advavccTTDS F5281 mn + DTA F372 mn)
13 more than the amount payable to it tm49 mn (lax pavable Fi845 mn + 1120.1 mn 1. 13048 rnn is treated as internal
l~ability
IS€ 2017 of City Union Bani Lid- Annex to M R
-
''' Partieulafs
"
~ r n ~ u 2& '"
Nu. t . ...<
I B
Paid up capital [including ESOP outstanding & interest free
funds from H.O. (foreiqn banks)]
I Reserves and Surplus
1I 35101 1
I I Statutory Reserve I 9360 1
Share Premium 8203
Capital Resewe (excluding revaluation reserve) 902
Special Resewe 2360
General Reserve 13925
Investment Reserve Account 24
1 Credit Balance in P&L A/c 1 327
Intangible assets (including net deferred tax assets) &
accumulated losses
I D I Reported net worth [A*B-C] I 35561 1
E ] Adjustments fdlowing inspection findings
Investment Resewe Account
1 Additional Loan Loss Provision
1 Interest reversal I l2 I
F Assessed net worth or reatlexchangeable value of paid up 35420
capital and reserves ID-€j
,. , Page 7pf!l,
,.." "".,"
ISE 2017 of City Unbn Bank Ltd- Annex to BAR
I '1 IAdd:Additional Standard asset provisions I Nil [

1 2 lAny o!her item to be specified
I Nil I
Cornputatlon ~f Total Capital (TC]
I T I ~ i s Weighted
k Assets in respect of Pre-Basel Ill Treatment 0 1
\ U 1 Risk Weiahted Assets lRWAsl I 230010 1
W ~ d j u s t m e n t sadditions
l applied on asfe fellow in^ Inspection for
Supervisory Evaluation (ISE) findings under 888
1 Additional RWAs
1 2 ] ~ n Other
y item to be specified
and &ehdifrire
Sr. ~~es~dbot.ineerne 1 1
y . Currem FY:: " FY T71 '' FY T-2
I <
b ,- 9b 2 > < . ' I (Mar-46) :(Mar-15)

T ~ t alnterestldiscount
l income 31738 29442 26988
(2+3*4+5)
2 lnterestldiscount on advancdbills 25902 23676 21662
3 Income an ~nvestments 5385 5410 4924
4 Interest on balances with RBI 0 0 0
Interest an market lending1 Income on 451 356 402
other interest earning assets
Fee based & stable rnisc. income
6
%6(a)Wb)l 2193 2119 1977
6a Fee based income 439 446 430
6b M ~ s cincome from stable sources 1754 1673 1547
7 Gross stable income (l+B) 33931 31561 28965
8 Interest Expended @+lo) 19758 19632 18915

Interest on deposits1 all other interest 19418 19230 18532
expense
10 Interest on borrowings 332 402 383

1I Net Stable Income (7-8) 14181 11929 IOQ50
12 Income from trad~ng 2056 1259 1292
13 Realised gains on derivatives 0 0 0
14 Gains on sale of asset 1 -4 -1

-
15 Recovery from w t ~ f f s 47 1 37q 747
Extra-ordinary income/ D~videndincome 355 26
l6
& other rn~scellaneousincome
IS€ 2017 of City Union Bank Ltd- Annex to RAR
Gross volatile income 2646 1983

l7
(12+13+14+35+16)
Provisions and contingencies 3010 2306
la
(excluding tax) (19+20+21)
19 Provisions For Loan losses 2515 2050
Provisions for depreciation in 490 0
20 .
~nvestmentslNPl
2'1 Other provisions 5 256
22 Extra-ordinary expenses 0 0
23 Write-offs 0 0
24 Net Volatile Income (17-1 8-22-23) -364 -325
Assessed provision by supervisor 117 186 7 92
"
(26+27+28+29+30+31+32+43)
26 Additional Provisions for frauds Nil 92
Additional Provisions for understatement q05 156 fOO
27
of NPAs
Additional Provisions for Nil Nil
28
Understatement of NPls
Additional Provisions for Nil Nil
29 Understatement of Liabilities
Additional Provisions for claims not Nit Nil
30
acknowledged as debt
31 Additional Other Provisions Nil Nil
32 Additional Other Provisions (PI, specify) Nil NII
33 Reversal of interest on additional NPAs 12 30 Nil
34 Assesseel net volatile Income (2435) -481 -511 47
35 Reported net totaI income (? 1+24) 13817 11604 10289

36 Assessed net total income (1I+34) 13700 11418 10098
37 Operational expenses (38+39+40) 6890 5577 5188
- A -
A--
m
,. --
Confidential ,,,,.,,,, .,, , . ,. ,, Page ??. O! !rL
ISE 2017 of Clty Union Bank Ltd- Annex to RAR
Staff expenses, Director's feeslBoard 2991 1

Members' fees & expenses 1 2139~ 2110~
Depreciation on bank's property and 1209 I 997 1 805 1
40 1 Other Operating Expenses
I41 Provisions for tax
2690
1900
244 1
1580
2273
1260
42 Reported profit (35-37-41) 1 5027 4443 3841
I 43 j Assessed profit (36-37-41) I 4910 1 4261 1 3649 1
1 44 ] Dividend paid (excluding tax) 1 198 1 779 1 656 1
1 45 1 Reported Retained Earnings I42441
- -
1 4828 ( 3668 ] 3'186 (
46 Assessed Retained Earnings (43-44) 4712 3482 2993
, \
Earnf ngs Stability 1Vcrtakility Asses%ment
Earnings I Profit Ratios

1 Current FY T
(Mar 17) 1 FY T-i
(Mar-16) 1 FY T-2
(Mar-j5) 1
I
47
48
Net Interest Income 11-81 (NII Growth
, Rate)
Share of Iriterest, Fee and Volatile
(22.20%) (21 52%) 1
(6.32%)
Income [?:6:'i7] 87: 8:

7 88: 6:6 87: 8: 3
49 Gross Stable lncome 1 Interest

Expended [7/8*100%] 1.72 1.61 T .53
50 Net Stable Income /Assessed Profit
[I1143*1OD%] 2.89 2.80 2.75
51 Gross Volatile Income I (~rovisians&

Contingencies + Extraordinary Expenses
+ Write-offs) [171(18+22+23)*100%]
Profit [45f42"1OQ%] 0.96 0.82 0.83 1

54 Assessed Retained earnings l Assessed

Profit [46143'100%] 0.96 0.82 0.82
55 Actual vs budgeted income [expressed
as +ve I -ve percentage] 99.80% 96.97% 96.06%
56 ActuaI us budgeted profit [expressed as
+ve I -ve percentage] 98.57% 98.82% 99.77%
. - "-- . A a" ,,, , ., ,, Page 13 o i 74.

Sr-. Pgqiculars Reparfed by Bank ' Assessd by S 4 M

@a " - ) >
A Basel Ill Tier I Capital (TI) 35318 35201

I
s x t i a Exposures 374749 374632

On balance sheet (excluding 352565 1 352448
1 derivatives and Securities
Derivatives 2875 2875
Securities Financing Transactions 0
Off-balance sheet exposures j9309 I9309
Deduction in exposum due to 0
additional non-performing assets
C Leverage Ratio (NB"IOO%) 9.42% 9.40%
, , -A ," I4 d i 4
Page
RBS 2018-Cjk Union Bank Ltd-Lirnitec Review
Annex-l
(AII figures in the Annex am in 7 mnJ
Note: All figures except percentage are rounded off Percentage is shown in decimal (2 digits)
Table-1: Divergence in Provisioning
A - Re-classification of Standard Assets (Fresh NPA)

--
Bwrower Dat4 of Faality Type .Net Out Date of NFA Seyrityi Interest Provision ,
Name Lasf Eidica~ as Standing valu@tion, Reversal

Sanction either Funel (NI2t.of ,: #ail&
' Based f Now .k c ~ e , , .
Fund Basad) ;Claims)^ ,,, ,, ,

L '
i ' ,
, ,
, , , . , . ,
,
,
- ,,
,;,'',."
,,
2
- ,
,
,
,
"
As per As per As , ,
Bank SSM " ,p$r per

,, ,
- ,, ,, . - -mnk SSM
Enhance Fund Based 27.3. Standard 146 146 The outstanding in the CC
Proteins 2015 Stand account exmeded the
&
Limited sanctioned limit since December
Non-Fund 27. 20'17.Further, the borrower
Based company had stopped submiKing
stock statements since the
month of June 2017 onwards.
Presenlly there are no operations
in the account. Since the CC
account was out of order
continuously for 90 days, the
present inspection has
clasafied the accounts as NPA
with effect from March 27,2018,
~n terms of para 2.2 read with
Page 1 of ? 9
ir
RBS 2018-Gitv Union Bank Lid-Limited Review
continuously in excess of the

drawing power for 90 days since
, 2018, in terms of Para

with para 2.1.2Iii) of
IRAC norms and
additional provision
RBS 2018-Citv Un~onBank Ltd-Limited Review
-
htd drawing power cantinuously for
90 days since December 1,2017
and therefore the present
inspection has classified the
account as NPA with effect from
March I , 2018 in terms of para
2.2 read with para 2.1.2Iii) of MC
on IRAC norms and suggested
Everbest The SBLC sanctioned to the
Lumber borrower devolved on December
Private Ltd 20, 2016, and was debited to the
current account of the borrower
company resulting in TOD. The
borrower company was allowed
to repay the said TOD on or
before October 31, 2017.
However, it could not repay the
TOO on the due date. The bank
did not allow any extension
thereafter and therefore the
present inspect~onhas classified
the account as NPA with effect
forn January 30, 2018 in terms
of para 2.2 read with para
2.1.2(ii) of MC on IRAC norms
and suggested additional
provision accordingly.
Janata Slnce adequate drawing power
Timber & was not available in the account
Saw Mill from June 2017 onwards, the
outstanding balance in the CC
account exceeded and remained
in excess of the drawing power
continuously for 90 days since
July I , 2017 and therefore the
present inspection has classified
the account as NPA with efTect
from September 29,2017 in
terms of para 2.2 read with para
2.1.2 (ii) of MC on IRAC norms
and suggested additional
Page 3 of 19
RBS 2018-Citv Union Bank Ltd-LimitedReview
provision accordingly.
TotaI 584 679 679 14 0 89 89
B - Re-classification I Short Provisions of NPAs (Existing NPA)
.,.Fa,KiiiyType 0 : f ,.,, ,: ; 'Cl'&~ificafiiih!' , i, ,,:, ,.:-,, 'aqusi@hlj~kiti&, : t '; intelieht?- ":. ';' ek&i$Tbn ::. ..':' :: : :
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A5 pet ,*,der, : ,' k per , ' ~ F , R ~ P : :
- Bank
'
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per ' : As per , ,

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Sunstar 26.12. Fund Based 744 4.5. 1.5. Doubtful 221 221 NIL 396 811 215
Overseas 2 2 compute the
2015 & Non Fund 2015 2015 provis~oning
Limited based requirement correctly at
the applicable rates of
40% for secured portion
and 100% for
unsecured portion as
required in terms of
para 5.3 (i) and (ii) of
Master Circular on
IRAC norms dated July
1, 201.5 resulting in
shortfall of i215 mn in
the provision made in
the account.
acmunb: H D W ~ Vthe
~~,
total value of. me
20 cover Pnly the first;
-2018-CitvM-L~mited Review
Page 5 of 49
Bank Ltd-Limited R&
m D l B C ~ r Un~on
v
fable-ll: Divergence in Capital elements (Apart from provlsionslDTA vix, in acknowledgtng

capltal instrumentdapproprlatinglresewes)
, As per +Asper SF? Ghoflhll .

- .
: wemdiis' -
'
bagk
Tier I 41205 40844 362 Total Cap~talreduced on
account of
(i) Add~lionalLaan Loss
Provrslon (7347mn).
01)Interest reversal (el4rnn)
A. Debt Instruments Nil Nil Nil
B. Reserves 41205 40844 361 Total Caprtal reduced on

(Including equity account of
capital)
(I) Additional Loan Loss
Provis~on(7347rnn).
(ii)interest reversal(?l4mn)
Table - Ill: Divergence in RWA

Parliculars
Azperhnk ' "As per SSM Shortfan Remark
Credit Risk - 228192 227216 (976) qWAs adjustment on account
RWA of regulatory classifrcahon of
standard account into NPA
I and divergence In ex~sting
Page 6 of 16
RBS ~018-CivUnion Bank Ltd-Limlted Redw
---
Sr.
No.
[ Panlsularr
Amaurrt
Paid up capital [including ESOP outstanding i%
interest
free funds from H.O. (foreign banks)]
1 B ] Reserves and Surplus I 40703 1
I I Statutory Reserve 1 10860 1
I Share Premium 8389
1
I
Capital Reserve (excluding revaluation reserve)
I
1 I Special Reserve I 2860 1

General Reserve
Investment Altowance Reserve
I I Credit Balanm in P&L N c I 110* 1
C Intangible assets (including net deferred %sex
assets) & 139
accumulated losses
I3 Reported net worth [A+BC] 41229
\ E I Adjustments following inspection findings I I
Investment Reserve Account
1 Additional Loan Loss Provision
1 Shortfall in Standard Asset Provisioning
1 Net Deferred Tax Asset
Understatement of Liabilities
Interest reversal
Page 9 O f 16
RBS ZOI&CiW Union Bank LM-Lfmted R&sw
$a ParfP~ularsI Ifems n I ElQibIa

No, amount'
, * 2Fl* $;
5 $, ",?; : &drnpuht[~d
~+&hu?ion ~ q u i t Tier
y I cap3al (CETI ) c
-
I: g;~>
>fl < -- Lh (73
reserves before regulatory Isupervisory adjustments

(including items such as DTA, revaluation reserve and Foreign
currency translafion reserve as per
I B I ~ o t areaulatow
l adiustments Ideductions t 139 1
I D IAdiustments I deductions applied on CET I following I I

I Iln&ectjon far Su~ervisorvEvaluation (ISE) findings under I I
1 I
Loan Loss Provision
(~dd~tional
I 347~
F 1~dditionalTier 1 capital (ATI) : instruments before 1 Mil

1 regulatory adjustmeiits L - 1
I G 1 ~ o t areaulatorv
l adiustments to Additional Tier Icapital I Nil I
I I l~cljustmentsI deductions applied on AT1 following ISE I Nil 1
1- Cprnputahon of h e r 2 Capital (q
M Tier 2 capital: instrumentsand provisions 1120
I I I ~ d dAdditional
: Standard asset provisions
I Nil I
1 2 lAny other item to be specified
I Nil I
>
> >
5 (1, 1- ,
T l ~ i s Weighted
k Assets in respect of Pre-Basel Ill Treatment 1 NIL
I U 1~ i s weighted
k Assets tRWAsl 1 260870 1
\ 1
I additions applied On R ~ A following
S
Inspection for Supervisory Evaluation (ISE) findings under
l~djustrnentin RWAs on account of divergence in provisioning

I
I
476
-976
I
1
Page I I of 76
RBS 2018-CiW Union Bank Lid-Limtled Rwiew
rCbtrent FY T
Total lnterestldiscountIncome 34024

(2+3+4*5)
InteresUdiscounton advancelbrlls 28404
Income on investments
Interest on balances with RBI I 0
Interest on market lending/ Income on

other interest earning assets
Fee baaed & stable rnisc. income

[6(a)*6(b)
I 6a 1 Fee based income I 4951 4391 M6 1
I 6b 1 Misc. income from stable sources I 22581 77541 16731
7 Gross stable income (1*6) 36737 33951 31561
8 Interest Expended (9*10) 19921 19750 19632
-
Interest on deposits/ all other interest 19271 19418 19230
expense
I0 Interest on borrowings 450 332 402

1 11 I Net Stable income (76) I 17056 1 14181 1 11929 1
I Income from trading I 16821 20561 12591
/ Realised gains on derivatives

1 Gains on sale of asset
I Recovery from wloffs I 705 1 471 1 371 1
Extra-ordinary i ncomel Dividend
jncome & other miscellaneous income
I I Gross volatile income A
-757 Page 12 of 16
Page 13 of 76
Page 14 of I6
,
RBS 2018- Citv Union Bank Lid-Limited Review
Limited Review of CifV Union Bank Ltd as of March 31,2048-Maior Observations

I.Credit Risk
I Major observations
PoIicy Environment
ad-hoc credit facilities did not specify
the eligibility criteria for grant of such facilities.
1.2 1 Risk Identification 8 Assessment l n
(i). Credit appraisal standards were weak as evident from the following:
(a). Some key aspects were not factored in the assessment viz., the financial
position sf grouplasssciate companies and degree of borrower's financial
dependence on them, credit information shared by the consortium or MBA
member banks, inter-firm c~mgarison,-verification of CFR, CRlLC and
CERSAI data, past trend in achievement of sales projections, rollover of NFB
limits and instances of LC devotvements and BG invocations.
(b). Instances were observed of excess funding of w ~ r k i n gcapital requirement

in few cases by resorting to various means viz. ,not undertaking assessment
policy stipulation (9 out of 40 -23%),
using turnover method, contrary to l ~ a n
inflating current assetsldeflating current liabilities or accepting
ambitiousfunrealistic sales turnover projected by the borr~wers(5 out of 30-
A7%), deviating from internal benchmarks relating to minimum liquidity!
teveragelcaveragelpsofitability ratios (30 out of 80-37%), permitting
renewalslenhancements based on the provisional financials without
subsequent review based on audited financials (8 out of 30-27%) and
sanctions exceeding the limits assessed under the internally prescribed MPBF
method (7 out of 30-23%).
(c). LC limits were assessed based on the higher levels of sales turnover and
credit purchases (under LC) projected by the b
RBS 2078-City Union Bank Ltd-Limited Review
of 30-20%). BG limits were grantedlenhanced without analysing

number and amount of work orders on hand and milestones for completion of
the projects (6~ uoft 30-20%). In a few cases, BG limits were renewed without
any assessment (5out of 30-q7%).
(ii). In the case of housing loans, the bank had computed EM1 amount based
on the gross annual i n c ~ r n edeclared by the borrowers in the IT returns,
without considering the disposable income after current debt obligations and
subsistence expenses. In some eases, the yearly EM1 payments fixed
exceeded the gross annual income of the borrowers (4 out of 30-13%),
(iii). The bank had granted working capital loans to pawn brokers and
borrowers engaged in money lending activities without critically examining the
need for extending bank finance to such borrowers (60 cases). The loan policy
was also silent in this regard.
I ( (iv). System-based identification of NPAs was deficient 1 as (i)
I I marking/classification of NPAs was done at the quarter-end even though I I
I I identification was done on daily basis and (ii) debit balances in current and 1
I / savings bank accounts were not considered for NPA classification. An 1
1 I examination of CBS data revealed that 13 current accounts aggregating T42 1
1 1 rnn were not marked as NPAs by the system even though debit balances 1
I continued for more than 91 days as on March 31,2018. One such large value
1 account had been downgraded as NPA by the present inbpection.
Ip .3
I
1 Controls
I
I
I
( 1(i). Collateral management was not automated to ensure timely completion of I
I I charge creation, valuation and CERSAI registration of securities. Pendency (
was observed in charge creation (440 cases), re-valuation of collateral 1
securities (6565 properties) and CERSAI registration of1
mortgagedfhypothecated securities (7735 cases). Collateral securities for
I I NPA accounts (541 irnmoveable properties) were also not revalued once in I
L--L three years, contrary to internal guidelines.
~ 0 1 - Union Bank w
8 City
.e . d Reviey
(ii). There was no monitoring of breaches of Loan To Value (LTV) ratios in the
case of housing loans and jewel loans. The LTV ratios stipulated in the loan
policy were exceeded in 'I64 eases (housing loans) and 5164 cases (jewel
loans). The Core Banking System (CBS) did not have the facility to throw alerts
in case of such breaches.
(iii). Down-gradation in the credit rating sf borrowal accounts did not translate
in revision of pricing of loans. The R81 was not increased proportionately even
when the credit: rating of borrowers was downgraded by 3 to 4 notches in few
cases(l9 accounts).
(iv). The bank did not make Aadhar linkage mandatory for availing crop loans
under interest subvention scheme as per extant RBI guidelines. In some cases
(220 accounts), interest subvention was granted to borrowers even though
their accounts were not linked with the Aadhar numbers.
(v). BsrrowaI accounts were taken over from other banks despite financial
ratios not: being in line with benchmark ratios stipulated for takeover accounts
(7 out of 30-23%) and non-availability of credit information reports from the
transferor banks (I 87 out of 2'10-89%).
(vi). The bank had granted ad-hoe credit facilities in SMA accounts routinely
without assessing the financial and operational performance of the borrowers
based on the fund flow analysis. In some cases, it had granted ad-hoc credit
facilities to SMA borrowers near the balance sheet date (246 accounts
aggregating ?31%2 mn) and the same resulted in reduction of SMA accounts
during the month ~f March 2018. Examination of data dump revealed that
outstanding amount sf SMA 1 and 2 accounts had dropped significantly (by
34.02%) in March 2018 but had increased sharply (by 54.44%) in the next
month April 2018. The bank had not analysed the reasons for such unusual
movement of SMA accounts in the last month of the year.
I.4 Monitoring & Review

(i). Significant deficiencies observed in post-sanction monitoring were as
follows: (a) pending compliance of important sanction terms suck as infusion
R B S 20.18- Citv Union Bank Ltd-Limited Review
of capitall unsecured loansllong term funds by borrowers (11 out: of 50-22%)

(b) under insurance or non-renewal of insurance policies (5333 securities) and
(c) non-conduct of stock audit (31 accounts).
(ii). The bank had not operationalized the Early Warning Signals (EWS) for
identification and red flagging ~f potential loan frauds. As a result, certain
accounts (1 1 accounts) were not red flagged despite presence of indicative
signals such as frequent ad-hoe sanctions, cheque bouncing and devolvement
of LCsl invocation of BGs.
(iii). In respect of crop loans (agriculture-jewel loans) sanctioned under interest

subvention scheme, the following discrepancies were obsewed: (a) the bank
had granted multiple agriculture-jewel loans to individual borrowers
aggregating more than 53 lakh , contrary to extant regulatory instructions (105
cases pertaining to FY 207 8-1 9); (b) in case sf individual loans up to ?I lakh,
neither were the land records of the borrowers obtained and verified, nor were
the full particulars of land held, survey number and nature of crops cultivated,
recorded in the appraisal notes1 loan applications. Furlher, the bank did not
carry out any pre-sanction and post-disbursement checks to verify that the
borrower had not availed multiple loans from banking system and that the
loans sanctioned were used for the stated purpose, despite few instances of
loan proceeds being transferred to borrowers' accounts maintained with other
banks.
2. Liquidity Risk
Major Observations
2.1 1 Risk Identification & Assesstnent
1 The bank had not estimated short-term dynamic liquidity (STDL) for 90 days
I
II 1 on the basis of the business projections. The liquidity risk under stock 1
Page 4 of 8
RBS 2018- Citv Union Bank Lid-Limi:ed Review
(i). The contingency funding plan did not prioritize the available avenues for
raising funds from various sources in the event sf liquidity crisis. 1
(ii). The bank did not prescribe ceilingsllimits based on residual maturity of the
investment portfolio for better liquidity management.
(iiij. The ALCO did not consider diversification of funding sources despite
continued dependence on short term borrowings and high level of credit
deposit ratio (86%).
Monitoring & Review

(i). While conducting stress tests for liquidity risk, the bank had not taken i n s
consideration the behaviour of counter parties which would affect the timing
of cash flows, as prescribed by RBI. Further in respect of stress test for illiquid
assets, the bank had considered lower haircut without taking into account
concentration and market conditions for the illiquid securities.
(ii). The review of the risk appetitefrisk limits for liquidity risk in the ICAAP did I
I
not factor the elevated level of credit deposit ratio and short-term borrowings
resorted to by the bank.
(iii). The justification for the assumptions considered for behavioural studies
for preparing flow statements was not articulated in respect of period for the
devolvement of hCs and invocation of BGs.
Reporting
to extant instructions, the bank had not reckoned the market
of Level 1 HQLA securities for the purpose of computing the Liquidity
Coverage Ratio (LCR).
3. Operational Risk
I Major observations I
I (i). The bank did not have a board approved policy for merchant acquisition inI
I
RBS 2018- Citv Union Bank Ltd-Limited Review
I I respect of card transactions.
(ii). The policy on staff rotation did not prescribe the periodicity of rotation
applicable to sensitive departments such as Treasury, International Banking
Division, Risk Management Department and Accounts Department.
1 3.2 1 Risk Identification B Assessment

I
I
(i). The bank did not ensure that the officers attacked to specialized
I 1 departments such as Credit, IBD, Risk Management. Treasury and Accounts 1

I 1 departments had completed the mandatory certification courses relating to 1
1 1 their respective work areas as per extant RBI instructions.
i1
(ii). Five out of six officials attached to AM1 Cell were not imparted any training
in AMLICFT related areas,
(iii). Critical desktops located in ceflain important departments such as

centralized Processing Centres, Credit and Treasury departments were not
connected to SlEM system for monitoring of l ~ data.
g
(iv). The internal audit reports on outsourced IT vendors did not review the
financial position sf the service providers, contrary to extant instructions.
Controls
(i). Except for Credit Department, Risk and Control Self-Assessment (RCSA)
was not conducted for any other Department. The critical observations of
RCSA of Credit Department were not complied with.
(ii). Though the number of customer complaints increased by about three

times (7898 during FY 2017 to 22114 in FY 20181, the reasons for such
increase were not analysed for taking corrective measures.
(iii), The monitoring of LRS remittances was not automated to provide alerts
in case of breach of upper limit of USD 0.25 mn stipulated by RBI.
I 1 (iv). The HRMS system was not automated to capture deviations in 1

I 1 implementation internal policy stipulations regarding completion of 1
of
I I performance appraisals, staff rotation and availment of mandajory leave by I
RBS 2018- Citv UnionBaokltd-Limited Review
the staff. Some of the officers attached to sensitive departments (13 out of 26)
did not avail the mandatory leave, contrary to internal guidelines.
(v). The bank did not impress upon its vendors and partners to implement
Domain-based Message Authentication, Reporting & Conformance (DMARC)
in their mail systems to mitigate email spoofing.
(vi). The bank had not yet implemented the Payment Card Industry Data
Security Standard (PC1 DSS) for optimizing the security ~f credit and debit
card transactions and protecting the card holders against misuse of their
personal information.
(vii). Significant number of employees (nearly 68%) were not imparted with
lnforrnation Security Awareness related training during the period.
(viii). The bank had not complied with same of the critical and high risk
observations (14 observations) ~f IS Audit for the year 2017-18 till the
conclusion of ISE 2818. Further, some of the observations of the IT
Examination report (conducted by CSITE Cell, RBI in May 2017) had not been
complied with till date@ out of 59 observations).
3.4 1 Monitoring 8 Review

(i). Follow-UPwith importers and exporters f ~clearance
r of outstanding entries
in IDPMS and EDPMS continued to be weak as 5159 Bills of Entry, 620 export
shipping bills and 3099 export advance remittance related entries remained
pending beyond the time limits (six months, nine months-and one year) as
stipulated by the RBI,
(ii). Several deficiencies in adherence to KYCIAML norms were observed

such as (a) accounts of politically exposed persona (37 accounts) were
categarised as "low risk" contrary to internal guidelines, (b) high risk category
accounts (960) were not reviewed once in two years contrary to extant
instructions, (c) threshold limits fixed in the case of low risk category accounts
were high and not consistent with the annual income declared by the
customers (2214), (d) de-duplication of accounts having multiple UClC was
RBS 201 8-Citv Union Bank Ltd-Lrmjted Xeview
not completed (1241 accounts), (e) SB accounts (4 accounts) were opened

for ineligible entities (f) large number ~f accounts did not have PAN Card or
Form60 details (18640) and (g) Savings accounts opened in the name of
resident Indians (226) were not designated as NRO accounts on their
attaining non-resident status, while in some other cases NRI customers.(238)
were allowed to maintain both NWOlNRE accounts and normal SB accounts.
(iii). The bank did not ensure allotment of distinct 'product code' in the CBS to
Zero balance accounts opened for beneficiaries under various CentrallState
Government schemes io prevent these accounts turning inoperativeldormant.
(iv). Basic input Output System (BIOS) password was not enabled and auto
run facility was not disabled in 25% of ATMs.
(v). The bank did not implement terminal security solution, time-based admin
access and whitelisting solution i~ 50% of the ATMs. It had also not disabled
USB ports of computers attached to ATMs. The bank did not subject the select
ATMs to rnalware analysis to identify its presence.
(vi). The bank did not implement certain important recommendations of

G.Gopalakrishna Committee such as conduct of business impact analysis
(BIA) and setting up of near site DR architecture for critical applications
including CBS.
(vii). The bank had not complied with five of the directions contained in the
RBI Circular dated February 20, 2018 on 'Time Bound Implementation and
strengthening of SWIFT related operational controls', for which it was issued
a Show Cause Notice on August 23,2018.
Reporting
The bank did not submit the returns on
Page 8 of 8
RESERVE BANK OF INDIA
City Union Bank Ltd..

< '
, ,
, ,-
, ,
,
, .
. ,
, ,
Risk Assessment Report

(Financial position as on Mafch 31, 2879)
The Risk Assessment Report (RAR) has been prepared by Reserve Bank of India. For
the purpose o f %hisreport, the word 'bank', wherever if appears, means the %ify Union
Bank'. This RAR is based on the books and records of the bank, statements made by
executives, officers and employees of the bank, returns and other information
furnished by the bank and obtained from other sources believed to be reliable during
fhe course of inspection. It n-raybe added thaf an inspection is not an audit and does
not replace if.
Table of Contents
Introduction.. .............................................................................
3
Section 1: Supervisory Evaluation of Risks and Control Gaps .......... 3
A . Governance & Oversight
Board .............. .
................................................................ 3
Senior Management ..........

...
............................................ 4
Risk Governance .................

... .......................................... 5
Internal Audit ....................................................................... 6
Compliance ........................................................................... 6
Risk Culture ...................................................7

......................
B. Business Risk
CtaeditRisk................ ....... ......~......................................7

Market Risk............... ......
..........I.................................-..10
Liquidity Risk..................................................................... II
Operational Risk................................................................... 12
Other Pillar I[ Risks .............................................................. 44
Section 11: Summary of Aggregate Risk at Bank-level ............................

15
Note: A// figures in the report refer to position of the bank as on March 3 1. 2019 or for
fhe period April 7. 2048 to March 31. 2019 and figures in parentheses refer to
cor&sponding previous year position unless otherwise specified.
Page 2 of 15
The Risk Assessment of City Union Bank for 2018-19 under the Supervisory Program
for Assessment sf Risk and Capital (SPARC) was completed witk March 31, 201 9 as
the reference date. The assessment has been made based on the off-site analysis of
the data and information furnished by the bank as well as the findings of the on-site
Inspection for Supervisory Evaluation (ISE) undertaken from July 8, 2019 to August 3,
2019 and various explanations offered by the bank during the course of inspection.
The critical observations emanating from the inspection of Head Office under Section
35 of the Banking Regulation Act, 1949, are incorporated in the report.
SECTION 1: SUPERVISORY EVALUATION OF RISKS AND CONTROL GAPS
I.Governance & Oversight

1 M Jor Observations I
1.1 I Board
1.1.11
, ,
bank did not have a Director with special knowledge in the area of
I
I 1 Payment 8 Settlement Systems and Information Technology, in violation of 1
I ( extant instructions. I
The Articles of Association of the bank were not fully aligned with the changes
brought in by the Companies Act, 2013. For eg. Requirement of holding
qualification shares by a Director.
The Board had not done review of some of the policies to update the same in
accordance witk regulatory changes. (Policy on collection of cheques
linstruments, policy of grievance redressal, related party transaction policy)
The agenda notes were not circulated to Board members sufficiently in
advance to enable meaningful deliberations as the table agenda provided
during the meeting constituted a significant proportion (40%) of the total
agenda items. The minutes of the Board meeting were lengthy in some cases
with almost re-production of terms of loan proposals sanctioned but did not
capture the deliberations.
Committee of
the Credit Comm
including chairperson of Credit Committee and Audit Committee were
common.
(ii) The oversight of the Audit Committee of the Board (AC8) was inadequate
as the bank continued with the practice of regularisation of stressed accounts
through sanction of adhoc limits1 enhancement to avoid NPA classification,
despite being pointed out in the previous Limited Review by RBI. The ACB
did not issue any directions in this regard. lnfact, only two directions emanated
From the ACB during the year and both of them were not related to the Limited
Review observations.
IT Strategy Committee's direction regarding on-site verification of cyber
security by external auditor was pending for more than six months as on DPI.
The compensation policy on variable pay to MD&CEO specified parameters
Tor grant of variable pay i.e. business performane; Return on Assets, Net
Interest Margin, Return on Equity, Asset Quality, recovery and technological
initiatives, staff welfare measures; compliance with regulatory guidelines and
customer satisfaction etc.; but did not specify the bandlrange for these
parameters to arrive at the variable pay.
Senior Management
Three loans (each more than Z0.25 crore), were sanctioned to two borrowal
accounts in which Ghairmanldirector of other banks were interested as
directorlpartner, without prior approvallknowledge of the Board, contrary to
extant instructions. The information was later put up to the Board which ratified
the same without giving any directionlguidance to put up such cases to the
Board for prior approvallknowledge.
(i) Several credit proposals (120 proposals in March 2019 amounting to ?I583
crore) were sanctioned1 ratified by MD&CEOI Senior officials just near year-
end, enhancing oversight lapse risk. Few of these accounts involved sanction
of new facilities to the irregular borrowers, to avoid being tagged as SMAl
NPA. In few SMA-2 accounts (2 out of sample of 5) upgraded (out of SMA) as
on DPI, it was found that overdues were cleared thro
Page 4 of 15
(ii) During the previous year and %heyear under review, fresh sanctions
aggregating 734.9crore were made to nine borrowers which got classified as
NPA as on DPI. Out of fresh sanctions as above, T29.9 crore was to cover the
then existing overdues.
(i) A critical review of succession planning was required as many (8 out of 18)
senior officers were to retire in next two years.
(ii) One official in credit department and some officers (19) and assistants (2)
in the treasury department were not transferred for more than 3 and 5 years
respectively, against its internal policy.
(iii) Four out of five employees attached to the deal~ngroom had not taken the
mandatory leave of 10 days.
Risk Governance
The bank had undertaken Enterprise-Wide Risk review at quarterly intervals
but did not factor impact of invocation of guarantees issued on behalf of
borrower with weak financialslaccount later turning NPA. The loan policy of
the bank, restricted issue of BGs more than 10 years in general, with tenure
upto 15 years permitted with approval of MD & CEO. The implication on Asset
Liability Management (ALM) in case of guarantees above 10 years was not
assessed and the bank's loan policy was also silent as to impact on its ALM
of issuance of guarantees with more than ten years tenor
(i) Even though the total exposure to the borrower required Risk Management
Department (RMD) vetting, as per Policy, the credit proposals for sanction of
adhoc / shod term loans, even to CUB 5 (Fair Risk) or CUB 6 (High Risk)
rated borrowers, were beyond the purview of RMD.
(ii) The formal interaction between InspectionlCreditlHR heads and RMD on
risk matters was not evidenced.
The Board reduced the overall unkedgecl exposures of all borrowers from
50% to 40% of the capital funds and with a cap of 30% as trigger point.
However, MDlCEO was delegated the power to ratify upto 10% over and
above the recommended limit of 40% and hence the intention of Board to
eschew risk on said count did not materialise.
The risk arising from guarantees issued and live as on date but not invoked
(f 2 bank guarantees aggregating F2.5 crore) but the fund based limits were
NPA was not captured.
Internal Audit
The model for risk rating of branches under Risk Based Internal Audit (RB1A)
was deficient as follows:
(a) Inconsistencies (2 out of 10) were observed in awarding lower risk in RBIA
of the branches than that required based upon business risk parameters or in
grading of branches (3 out of 16) than as indicated by RBIA.
(6) The rating model while assessing business risk did not capture
regularisation of overdues by sanction of adhoc I enhancement of limits,
reported by StabutorylConcurrent auditor.
The prescription of internal policy for rotation of concurrent auditor after three
years was not followed in 11 branches out of total 162 branches under
concurrent audit.
Even though Credit Processing Centres (CPCs) were required to process
credit proposals forwarded by branches, processing of such proposals for
adhoc IShort term loans directly at Corporate office without: routing through
CPC was not specifically captured in scope of RBIA for any irregularities nor
early warning signal could be captured.
The system logic for computing provision in accounts with CGTMSE cover
was not as per IRAC norms. CGTMSE cover instead of security value was
being first deducted from outstanding to arrive at provision on
securedlunsecured portion. IS Audit had not identified this flaw in logic.
In a few cases of Management Audit of Central Office departments, instead
of evaluating management decision taken by the department concerned, was
in the nature of routine inspection.
Compliance
The Chief Financial Officer (CFO) had been entrusted responsibilities of Chief
Compliance Officer also which was a conflict of interest. Imposition of penalty
by RBI and continuation of practices pointed out far rectification in the last
Limited Review Report indicated need for further improvement in compliance
1,6 Wsk C~~ltrire
.
1.6.1 The risk culture of the bank manifested itself in taking calibrated risk as
cellateralisecl model sf lending was followed. However, Short Term
LoanslAdhoclenhancement in some cases and utlisation of proceeds to
recover overclues was not in sync with principles of sound credit discipline.
B. Business risk
2. Credit Risk
1 Major observations 1
1 2-1 Inherent Risk
(i) SMA 1 & 2 advances formed 9.51 % of gross standard exposures
I 1(12.74% as on March 31, 2018). constituted 1

MSME, CRE and Services
I 1 56.88% of the overall SMA advances of the bank. bank had significant 1
The
I 1 exposure to Textile (cotton and others) industry and in of extreme 1

case
stress (100%) in the said industry, Gross NPA ratio would worsen to 12.99%
from the existing 2.95%.
(ii) Internally rated exposures that got downgraded this year (of which
5135.30 crore got downgraded by more than 2 notches) and exposures not
I 1 rated for more than 12 months increased by 25.48%. Incidentally, the 1

internal rating of borrowers was maintained in a separate system that was
not integrated with CBS.
(iii) The GNPA amount has in~reasedby 14.04%, 25.60% and 33.20% for
the PI 18-A 9; 17-18 and 16-17 respectively. Compared to an increase of
17% in advances during the year, the corresponding increase in GNPA was
14.04%. PCR of the bank stood at 63.02% as on March 31, 2019.
(iv) CRE exposure formed 5.80% of total exposure as on March 31, 2019
and grew by 40.38% during the year while the overall GNPA ratio stood at
2.95% (compared to 3.03% last year).
(v) Technical write-offs increased by 39.65%. High value compromise
settlements involved considerable interest waivers and sacrifice, indicating
1 2.2 Control Gap Risk I
12.2.1 F
w
s
a no policy regarding reversalf i
I
interest on standard loan
accounts, though bank had reversed interest from retrospective effec6 (even
going back to 2014-15).
The Board had given direction to enhance the internal exposure limits of
Gems & Jewelry and Construction sector (identified as stressed sectors) as
they were close to breaching the existing limits.
(i) Deficiencies in systexased identification of NPAs were as fol[ows:
/ ( (a) Marking 1 Classification of NPAs was done at the quarter-end even I

I I though identification was done on daily basis. I
(b) Some accounts (seven retail: education loans) were not captured as
NPA (aggregate outstanding of % 0.1 3 crore), despite 90 days' overdue and
they were reckoned via MOC of Statutory Auditor. The primary reason was
that the moratorium period was entered incorrectly in the system and the
I / system made the moratorium applicable post the repayment start date. I
I 1 (ii)System driven NPA identificationlprovisioning got undermined as: I
I I (a) The interest application package was run after the NPA application with I
the result that interest applied at end of the month got ignored for NPA
identification;
(b) The market value instead of realisable value of the security had been
entered into system in case of doubtful assets;
(c) The margin for arriving at drawing power on stocklbook-debts had a
I
I
2.2.4
1I default percentage and
( entered.
I --
(i) The bank's internal policy stipulated higher margin against
( NBFCs engaged in financing of second hand1 used vehides/machinery, I
-
debt
book
I
higher margins stipulated in sanctionls were not
I
1 of
I / however in practice the bank sanctioned loans a margin. I

I such at lower
( (ii) It observed that the bank had financed Chit Company for the I
I purpose
was
of dep~siting margin
a
money with Sub-Registrar of Chit for running
a Chit Scheme.
(iii) Few accounts were regularised near to the balance sheet date by
providing new facilities to the irregular borrowers, to avoid being tagged
I 1 SMAI NPA. 11
I 1 (iv) The bank has a separate loan product for pawn broken. However, it
was observed that the bank granted gold loans to an individual customer on
more than 100 occasions within a short span of Lime without adequate due 1
dili'gence. These were classified as agri jewel loans without ensuring end
use.
(v) It was observed that few ex-staff accounts (54 accounts with outstanding
of T0.79 crore) were classified as NPA by the Statutory Auditor. These were
non-superannuation exits but the loan accounts were not settled before exit.
RMD was not even made aware of suck accounts. I
(i) Collateral management was not effective as pendency was observed in
charge creation (94 cases), re-valuation of collateral securities (19370 1
properties) and CERSAI registration of mortgagedlhypothecated securities
(97 cases). ColIateral securities for NPA accounts (1474 immoveable
properties) were also not revalued once in three years, contrary to RBI
instructions;
(ii)The Loan Policy stipulated at least two valuation reports in case of
collateral value exceeding 810 crore, however, only single valuation was
obtained for top nine borrowers;
(iii) The legal audit of documents in respect of 227 accounts comprising
25.30% of eligible accounts were not completed by March 31, 2019.
-
(i) The bank has not implemented RBI Guidelines on Loan System for
delivery of bank credit for all eligible accounts, tilI the conclusion of present
inspection.
(ii) In case of 'taken-over accounts', the bank sanctioned enhanced loan
I
limits without obtaining the credit opinion of the transferor bank (238 out of
640 customers). Interest rate concessions were also granted in several such
cases.
(iii) The ad-hoc limits sanctioned were not communicated to other lenders
(in consortium/MBA) as and when sanctioned.
(iv) The breach of LTV limit in respect of gold loans was not monitored by 1
3. Market Risk
Major observations
3.1 Inherent Risk
(i) Increase in prepayments of large loans (> ?I crore) by 61.98% from T2786
crore in FY 2017-18 to 94513 crore in FY 2018-19 and premature withdrawal
of term depos~tsby 13.29% from 79485 crore in FY 2017-18 to ?8480 crore
in FY 20-l8-19 contributed to elevated embedded optionality risk.
(ii) Investments were concentrated in long duration tenor (49.35% of
I 1 investment portfolio had residual maturity above five years), increasing the 1
vulnerability to adverse interest rate movements.
-
3.2 ,
Control Gap
, , ,
3.2.1 (i)The bank hab not specified the parameters for evaluation of ~erforrnance
Linked Pay (PLP) for the treasury branch, though it was done for other
I 1 branches. I
(ii) The bank had not mandated any training programmes to be completed by
1 1 3,*.2
dealers (both domestic and farex front office) inducted in front office of the
yasurr.
i) The bank did not calculate Net Overnight Open Position (NOOP)and
I I Value at Risk (VaR) for forex transaction using rolling over method. I
1 I (ii)Modified Duration (MD) limit for the overall investment portfoli~was not
prescribed.
I
(iii) The bank was not diligent in adhering to the stop loss limit of equity AFS
(93 instances of breach during the year, sale of Tata Motors). Further, the
mid office had not reported these breaches to the Risk Management
Department and the ratification for the breaches was not carried out during
I 1 the year. I1
I 1 (iv) The bank had not specified the concentration limit for an individual scrip
within the overall investment portfolio (nearly 33% of equity portfolio was o
account of,.investreent in a private sector bank which had increased
T0.06 crore to 33.38 crore du
Page 10 of 15
(i) The deal ticket information from the dealing terminal passed through the
treasury system to back office in editable mode, making it susceptible to
editing at front office.
(ii) Domestic treasury deals were flowing from the dealing terminal to the
domestic treasury software with a gap of one hour rather than on real time
basis.
(iii) The bank did not analyse the reasons for cancelled deals (total 87 deals).
(iv) There were certain inaccuracies in daily reports of clay light and overnight
position for some of the currencies.
4. Liquidity Risk
, .
,,
I
4.1 Inherent Risk
1 (i) The increase in liabilities to top 20 depositors by 32.55% was higher than
I the
I1
I growth of deposits at 17.03% and indicated the concentration risk of
funding sources. Proportion of bulk deposits in overall deposits stood at
11.69%, as on March 31, 2019.
I I (ii) The CASA deposits were only 25.22% of total deposits on March 31,1
as
I 1 2019 and the bank was largely dependent on short term borrowing and term 1
deposits for funding. The increase in the weighted average cost of term 1
deposit from 6.97% in FY 2017-18 to 7.25% in FY 2018-19 and the fact that
1 I bank was net borrower in the inter-bank borrowing on days highlighted 1

208
I
I I the risk due to bank's heavy dependence on term deposit and money market 1
I I for funding and short-term liquidity management. I
(iii) There was high degree of illiquidity embedded in the balance sheet (illiquid
assets to total assets stood at 99.09% and illiquid investment ratio was at
39.41%).
42 Control Gap Risk
4.2-1 (i)The bank did not include factors such as credit deposit (CD) ratio and short-
term borrowing while deciding the risk appetite for liquidity risk in the ICAAP.
1 1 dl3 ratio of the bank was nearly 85% during FY 2018-1 9. 1

1 1 (ii) The bank had not prescribed any contrgl
Page 11 of 15
powers to CFO as regards maximum interest rate to be offered on the bulk
I
deposits over and above the then prevailing card rate. The CFO (who was
also the CCO)had exercised discretion ranging from 2 bps to 210 bps above
the card rate, during the year.
(iii)Though the prior permission of the GM (CFOICCO) was required before
acceptance of bulk deposit at branches to ensure liquidity management, the
same was not taken when the deposits were accepted in smaller lots on the
same day from the same customer (791 such cases during the year).
' (i) The bank had not carried out the evaluation of the impact of stress test as
per their internally approved methodology for bank specific crisis situation and
stress due to "what if' scenario.
(ii) The bank had last reviewed the underlying assumptions and computation
methodologies used for liquidity stress test in 2014.
(iii) The assessment af illiquidity of the investment portfolio did not include
depth of the market for the respective security.
(iv) The bank had not conducted behavioural study to analyse the profile of
on-balance sheet items impacted by the expected level of approval of new
loan requests, which could lead to liquidity gap.
(v) The bank did not c o n d ~ ~ adequate
ct cost-benefit analysis1 risk analysis
while floating special deposit schemes during the year. The schemes were
subsequently closed in June 2019.
-
5. Operational Risk
1 Major observations 1
5.9 1
Inherent Risk
(s.r-i) The bank was imposed a penalty of t 3 crore for not adhering to the guidelines
I II on(ii)The
time bound implementation of SWIFT related operational controls.
1
year) of attempts of unauthorised I
I higher number (774 compared to 80 last
) I access in$cit6dilulnerability of their systems.

I
(iii) The amount of external frauds (78.2 crore during the year as compared to
T0.069 crore previous year) as also the number of customer complaints (increa
of 44%) have increased during the year, pointing to increased external risk.
-
Control Gap Risk
(i) IS ( i n f o r m x n Security) ~ o l i cdid
~ not cover SWIFT-related operational
controls. Although the bank had provided remote access facility to few employees,
the Information Security (IS) Policy did not include the guidelines1SOP regarding
the same. The periodicity of user access review of applications was also not
documented in IS Audit Policy
(ii) Timeline to complete vigilance action against staff members was not laid down
in Vigilance Policy of the bank.
(iii) The bank did not take any initiatives to encourage independent certification of
their employees for capacity building.
(iv) The bank had not defined periodicity I policy framework for review of the
extraction logic used in MIS.
(i)Risk Control Self ~ssessment(RCSA) was done only for Credit Risk, despite
pointing out in Limited Review Report of f Y 2018.
(ii) The bank had not reviewed the performance of the Security Auditor (SA)
contrary to RE31 instructions on Effectiveness of Vulnerability Assessment and
Penetration Testing Exercise.
(iii)lS Audit of source code of critical applications such as E-treasury/ CTS was
not carried out by the bank.
(iv)lS Audit-External observations (2 high risk, ? medium risk) and IS Audit-
Internal observations (3 high risk, 'i medium risk) of FY 2018 were pending for
compliance as on DPI.
(v) There was no integration of HRMS with CBS and SWIFT regarding user IDS
(pending observation from RBI's IT Examination of 2017). The deletionlremoval
of users of SWIFT, CBS, e-treasury and HWMS was done manually. Even the
user-id of staff removed from service in Sep 2018 for fraud related case was found
active in CBS as on DPI.
(i) The compliance to the observations o f x c h n i c a l Audit of prepaid instrument
issuers (carried out in November 2018;10 observation of which four were high
risk) was yet to be submitted to the Board/ IT sub-committee of the Board.
(ii) The desktops at Data Centre (DC) and Dis
connected to Security
not yet fully implemented the Active Directory (AD) and Light Weight Directory
i
1 1 Access Protocol (LDAP) regarding Windows and Linux operating system at the
i
branches to monitor and control the desktops.
to CASA accounts
1 1 year, high value receipts crore in 11 accounts spread across various (

(t3.5
1 1 transactions) and nominal value credits (?I)

in large number were noticed in 1
certain accounts. However, the bank had not effectively analysed the issues from
AML angle.
Import remittances aggregating to 7553.6 crore (4002 instances) were pending
submission of bill of entry for more than six months and exports with value
aggregating to 7432.7 crore (3290 instances) were pending submission of
documents for more than one year in IDPMSlEDPMS respectively as per latest
data.
No police complaint was filed in respec! of frauds involving staff (2 cases) and in
94 ATM card skimming incidentslATM frauds Iunauthorised ATM transactions
(aggregating to 78.45 crore), the bank reported to RBI with an average delay of
seven months from date of reporting of security incident. Even though a member
bank under the consortium arrangement reported an account as fraud, the bank
had not examined the case for appropriate action.
6. Other Pillar I! Risks
Major obsewations
6.7 The bank did not factor ATM complaints, litigations filed against the bank and
peer group comparison while analysing reputation risk. The legal risk
assessment score card did not factor the pendency in legal audit. In strategy
risk assessment score card, the competition parameter did not include the
competition from NBFCs.
6.2 The study on What-if scenario of natural calamity in State of Ta
most of the business of the bank was concentrated, made a
of the assets coming lander stress without any rationalel unde
I
Page 14 of 15
Section II SUMMARY OF AGGREGATE RISK AT BANK LEVEL
As per the SPAR@ process, the Aggregate Risk Score of the bank is arrived at =,
indicative of bow risk. On applying the assessed CRAR of 15.39% to the Aggregate
Risk Score, the Risk of Failure Score of the bank is arrived at -.
Risk Category " ,"" &$mate Rfsk

-
"IJ
Board =
1 Senior Management
Internal Audit =
Governance& Oversight Risk
I
Credit Risk =
Market Risk =
1 Liquidity Risk
I
1 Operational Risk I =
Other Pillar II Risk =
Business Risk =
Page 15 of 15
Inspection Report
The City Union Bank Ltd.
Table of Contents
Section I - Regulatory Operations .............................. ............

A. Capital Assessment
B. Annexures far Capital Assessment
C. Compliance Assessment
D. Annex for Compliance Assessment
Section II - Conduct of Business .....................

.................
A. Customer Conduct
l3. Conduct governance
Page 2 of 30
Section 1 - Regulatory Operati~ns
A Capital Assessment
i. Pillar 1 capital and CRAR -

The capital adequacy of the bank showed a mixed trend with reported CRAR improving in
March 31, 2018 to 16.22% (March 20'19 CRAR was 15.83%) but declined to 15.55% as
on March 31,2019 and further to 15.68% as on June 30, 2019. Post March 31, 2019,the
bank has enabled itsesf to raise funds upto T 500 crore though Qualified Institutional
Placement. The assessed CRAR of the bank declined from 15.76% as on March 31,2017
(bank was subjected to limited review as on March 31, 2018) to 15.39% as on March 31,
2019.
The summary of reported and assessed capital position of the bank as on March 31,2019
is given below. Details are in Annex 4.
Capital under B a s d tll an T crare)
Reported Assss$ed
'
1
divergence
I Total capital (TC) / 4894 ( 4838 / 56 ( Additional provisions

1 Common Equity ( 4731 1 4675 1
I
56 identif ed , interest
Tier 1 capital reversal etc. details of
Tier 1 (TI) capital 1 4731 4675 56 which are given in
Particulars Reported divergence

I Total Capital (TC) --=0.181~dditionai loan
)m~n Equity ~ i e r j p 5 . 0 3 % - ) 14.87% 1 0.16 loss provision on
divergence in
asset
classification.
ii. Capital Management, ICAR, I C M P and Stress Testing
(a) During the year under review, the bank had allotted 3,236,341 equity shares
(aggregating T21 crore) pursuant ta exercise of options under ESOP. The bank had
also issued 66,535,268
shares in the ratio of one share for every ten shares held as
Bonus, shares.
(b) The ICWP 2018 had projected CRAR of 15.92% for March 3*1,2019
(reporled CRAR
was 15.55% as on March 31, 2019) As per ICAAP 2818, the bank had projected a
CRAR of 15.69% and 15.44% as on March 31, 2020 and 2021 respectively, which
has been reduced to 14.89% and 14.23% respectively in ICAAP 2019.
(c)The bank had failed to achieve targets of FY 2019 in respect of advances (projected:
F41000 cmre; actual: 333065 crore) and deposits (projected: 750000 crore;
actual:738448 crore).
(d) The projections in the business plan for FY 2019 for total deposits, advances and
total business varied from the assumptions made in this regard in -the ICAAP
document.
(e) The RWA of Treasury assets declined sharply from 32539 crore to T563 crore due
to wrong calculation of RWA in 2017-18, which was not disclosed in the ICAAP
document.
iii. Assessment of Internal Generation of Capital
(a) Retained earninqs
The dividend pay-out ratio declined to 5.38% in FY 2019 from 3.71O h In FY 2018 and
t h e reported retained earnings increased to T3836.80 crore in FY 2019 from q3229.10
crore in FY 2018 in line with increase in net profit.
(b)
(i) During F Y 2019,gross stable income improved by 70.90% primarily due to an
increase of 1I.87% in interest on loans and advances and 5.89% on income on
investments. The gross volatile income declined considerably by 20.9 1%.
(ii) Net interest income witnessed a growth of 12.67%, due to increase in total interest
income by 10.72%.Operating expenses increased by 17.40% during the year mainly
due to increase in staff expenses by 15.35%.
(iii)The net profit stood at 7683 crore from 7592 crore mainly contributed by increase
in recovery from write-offs (by 319.20crore) and reduction in loan loss provisions (by
?33 crore).
Page 4 of 30
(c) Assessment of Assets and Liabilities
(i) The balance skeet size of the bank stood at 745258.90 crore as on March 31,2019
as compared to 739937.20 crore as on March 31, 2018.
(ii) The deposits increased by 75595.30 crore (17.03%) to 738447.90 crore as on
March 31, 2019. Time Deposits, which constituted 74.78% of total deposits, grew by
75.48% while CASA improved by 21.89% during the period under review. The
advances increased by 17.09% from 728238.60 more as on March 31, 2018 to
f33065.20 crore as on March 31, 2019. The increase was mainly contributed by
Agriculture, MSME, CRE exposure and, advances to lnfra sector.
(iii)The total Contingent Liabilities reduced (by 15.40%) from ? 4835.40 crore as on
March 31, 2019 to 75916.00 crore as on March 31, 2018. The decrease was mainly
due to decrease (by 19.83%) in outstanding Forward Exchange Contracts and also
due to stopping of proprietary trading after SWIFT cyber-attack.
iv. Scope & Ability to Infuse Capital
While the authorised capital of the bank was TI00 crore, the paid-up capital as on
March 31, 2019 was q68.6 crore leaving a headroom of t33.4 crore for capital
augmentation.
The bank has enabled itself with plan to raise capital of ?500 crore (including premium)
during 2019-20 through QIP route (as per filing with BSE in July 2019).
v. Assessment af Leverage Ratio
The reported leverage ratio increased from 9.82% in FY 2018 to 10.01% in FY 2019.
The leverage ratio was assessed at 9.90%. The leverage ratio of the bank was above
the regulatory requirement of 4.50%.
vi. Supervisory capital prescription

Based on the holistic supervisory assessment of risk and the capital
bank, the bank's supervisory capital is assessed as "ADEQUATE".
Page 5 of 30
B Annexures for Capital Assessment (pertaining to section LA)
-
Annex I Major Areas of Financial Divergence
(a) Divergences (shortfall) in Provisioning (7 in crore)
--
Particulars
$ accounts
[In Fctare)
-
Provisions of NPAs (Existing

-NPAs)
Sub-total (NPAs) provisions I
38
I( 294
accounts/ --outstandinn
- 55 I
Valuation of Investments
I
Nilp- Nil 1 Nil-P

Shortfall in Standard Asset
Provisioning
Nil I Nil
Overstatement Income I Other 1

Assets
Understatement of Expenses I
Liabilities
Interest Reversal
Total
1 1 i
294
11
56 I
(b)Divergence in Risk Weighted Assets (RWAs)

--
RW+ (hi F crare)
Risks
reclassification of standard
Credit Risk assets into NPAs and
divergence in provision, in
Market Risk
Operational
Risk
Total RWAs
Page 6 of 30
* This includes divergence in RWA to the tune of P27 crore identified during the current
inspection on account of (a) incorrect assignment of riskweights for clean credit (credit card,
consumer loan, personal loan) and education loan to staff not fully covered by
superannuation benefits and credit cards issued to the customers, (b) assignment of .
sovereign risk weight as regards exposure to public sector insurance company, (c) incorrect
underlying security value for an %]PAaccount and (d) L I T ratios computed considering
collateral and realisable value of the primary security, instead of considering only the
realisable value of the primary security.
Page 7 of 30
(All Ti gures in the Annex are in 7 Crore)
Tabla-I: Divergence in Provisioning
A - Re-classification of StandardAssets (Fresh NPA)

Page 9 of 30
2019, the class~ficat~un~f assat
n bem SubsWard Asset
conbnued i
as at March 31.2019 Thus. as
requ~redin terns of para S 3 I) and (11)
of Master C~rmlaron IRA: porms
7 3 4 cmre rn the prowslor made in
Sub-standard oh March 31, 2019

Hcwmfer. I wes observed that the
account vms n d having any securiv
Tt12remre. In fsms of Para 4.1 3 of MC
d an addlhonal pronslon
Page 10 of
Qn IRAC norms, the present
speclion has suggested an
Page 12 of 30
Appendix-I
- Amt. in T crore
I
CUSTOMER NAME
ASSET
BALAPICE a s
on March 31.
2019
Per
System
Securlty
F::Rf;sscurity Secured
portian
Unsecured
portlon
Provision
Secured
Pmvlslon
Unsecured
~
ii,
~ held
,(in q ) $Provi$ion
Provision
~ ~
shomafl
1 2 3 4 s - 8 t =3-5 Or0 8=6*0.25 9=1PD% of 7 10=8+9 11 12- 10-I?

SREE BALAJII 1.19 0.87 0.87 0.25 0.21 0.25 0.47 0 28 0.18
1.13
ENTERPRISES DA1
1 :;1 11:
SARAVANA 1.42 3.55 0.72 0.72 0.70 0.18 0.70 0.88 - 0.35 0.52
TRADERS DA1 8 -
TIRUPUR SK
ROYAL MOTORS
3.39 2.36 2.36 4.87 4.46 4.69 0.76
PRIVATE LIMITED
IMPEL
1-
3.55 0.61 0 87 5.18 5.18 5.33 3.10 2.22
HEALTHCARE
PRIVATE LIMTIED ,
1.89 3.36 0.90 0.10 2.78 0.02 1.79 1.82 0.47 1,3g
DA1
SA1 MARUTHI
2.42 2.13 1.45 1.45 0 87 0.36 0.97 2.33 0.82 - 0.51
CDnON
TRADERS
- DA? - - -
VIJAYALAKSHMI 1.93 7.28 0.00 0 00 1.93 0.00 1.93 1 93 0.48 1.44
DALL INDUSTRIES OAl
KISHORE DALL 1 29 1.92 0.44 0.44 0.85 a.11 0.85 C.96 0.32 0 63
MILL DA 1 -
VASAVI DACC 2.67 1.99 1 62 1.82 0.84 0.45 0 84 1.30 1.17 0 13
PRODUCERS DAl
1.30 1.85 0.82 0.82 0.48 0.20 0.48 0.68 5.32 0 36
LAYA STEELS DA1
NAACHIAR PAPER 18.05 24.39 28 9f 25.50 3.41
42.44 58.4a 18-05 4.51 24.39
BOARDS P R I V A E
-LTD
SHALlNl TEXTILES
I DAZ
1.77 1.72 - 1151 1.5t 0 25 ' 0.37
-
AND READYMADE DA1

NAVEEN 1.33 1.41 1 , D.97' '0.97' 0.36 0.24
AGENCIES DAl I
Page 13 of 30
as Pmv'Sion
CUSTOMERNAME
ASSET
CLASS ON March 31,
2019
gr& RgiEF
Secudty aecurity
Secured
ponlon
Unsecu.4
porli~n
Provlaicn
Secured
Pmvislon
Unsecured
(in f j
Requ'reu
Provision
held (In 1 )
Provision
shortfall
I 2 3 4 5 6 1 =3-5 0rQ 8=6'0.15 9riP0% of 7 10=8~9 1P 12= 10-tf

1.37 1.41 1.00 100 6.37 0 26 C.37 0.62 C.34 0 27
BALAJI AGtNLIES DA1
J 0 FLUX 1.13 1 52 7.06 1.06 C (16 0.25 0.06 0.33 0.28 0 05
INDUSTRY DA1
ENHANCE 7.91
PROTEINS 15.95 9.89 7.91 8.04 I.97 8.04 70.02 8.53 1 IR
LIMITED
SCM TEXTILES
DAi I -
2.04 1.55 1.40 1.40 0.63 0.35 0.63 0.98 0.87 0.1 1
(1NDIA)PRIVATE
OK -
M G IMPEX 6.07 4.84 4.71 4.71 2 28 117 7 76 ? .44 3 34 0 39
PRIVATE LIMITED DA.1
m 1.61 2 07 1 08 1..38 0.52 0.27 0.52 1 6.79 1 0.40 1 0.39
D A1 -
MAHAK i.49 1.54 1.23 1.23 0.26 0.30 0 26 C.57 0.37 0.20
ENTERPRISES
I
DA1 - -
403.26 113.04 48.18 48.18 55.08 12.04 5548 67.12 5232 j4.60
TOTAL -
Page 14 of 30
1
AS Per
$:$: - REALISABLE
;; S5yltem
sewrd UnapcuRd
Provision Frovlsion Provision
pmvision Pmvi*ion
-
Security Value Secured Unsecured required shortfall
2019 held
Value
1 2 3 4 5 6 7=6 or0 -
8=0.4'8 -
9=1[10% of M -
f0=8+9 , 11 -
$2=40-11
D S R M STEELS P
-
63.50 23.53 23.63 18.10 3.45 18.10 2755 16.69 10 BB
45.73
-
LTD DA2
I
DM ID02
' 11.96 8.46
'
I
8.46 1.54 3.38 I 54 4.93 4 00 0 92
A
-
--
DA2 12.26 18.27 8 42 9.42 2.83 3.77 2 83 6.60 4.90
DA2 5.75 4 68 3.50 3.50 2.25 1.4C 2.25 3 65 2.95 0.70
--
HARAN TEXTILE DA2 10.77 8.00 2.70 2.10 8 67 0.84 8.67 9 51 5.87 3 54
COMPANY --
SRI SELVAV UA2 2.85 21.36 2.49 2.48 0.15 0.99 0.15 1.15 1.06 0.Ofl
TRADERS
RASUZAAH DA2 I
6.20 12.12 2.75 2 75 2.44 2.10 2.44 3.54 2 oa
GENERAL
TRADING-ALP
1.38 1.23 0 55 1.23 1.78 1.04
I.7Q 7.59 0.71 1.59 2 31 1.35 0.95

I
0.00 0.98. 0.00 0.M 0.98 0 51 0.46

TEKNOLOGIES
2.55 2 55 0.55 1 02 0 55 1.57 1.24 0 33
160.92 58.10 40.38 23.24 40.36 63.62 41.83 21.79

- -
-
Page 15 of 30
Table-X: Divergence in RWA
b - - " -.
d: - * - "'
- 5- < " - ' : -
'.
I "
-
" _ r -x
--
I I
" + W
--
0
RafliQdmis . .
A
- , ~t$srswk&paSSM $ihqdfdk ;- - - - -&&&

; - -- - , A 7
27868.0 23834.2 (33.8) Adjustments on account of

reclassificat~on of standard
Credit Risk - RWA assets into NPAs and divergence
in provision, in case of ex~sting
NPAs.
- --
Market Risk - RWA 563.0 563.0 -- Nil
Operational Risk - RWA
--
3037.2 3037.2 1 Nil ----
T O M RWA 31468.28 3"134,40 (33.8)
Table-XI: Priority Sector Classification

{Amount in T Cr)
Si PakWr APiraunt ieprartkd by Mkclassmr: - Ac€@t '^^. SkarWaI' .Reasan~fpi

5. baQR ation : &hk.rrem 1 A
declaasifi~at-
-M " f i - a s 4- - - v.
.JRn- -
i::
A
Q ass-ed ~
--. - +:'Tar&: -- "- <:---
=-p ----
,-
, -& ;#fi~"P@ k
- -- -
A
"
; >
: - -"- . -,,
-".-1 g g ~ : ; l ""< "

" -'
--3 I ,
& I^ "
- "4 >,, > ,
Total 5 00 14520.50
Priorlty .: (W& 2($&24Y&m (59.22%)
Sector A <
Advances - -, -
1 Agriculture 4413.40 4656.30 4656.30 NA
(1 118.99°/~1 (1 8 99%)
Page 17 of 30
-
Annex 2 Computation of Outside Liabilities
A Total Liabilities excluding capital & resewes as

on March 31, 2019
1 HIW.70
Upper Tier II Instruments 0

Subordinated debt
Deposits
--+ 38447.90
*-
Borrowings 480.90
------
Other liabilities and provisions 2471 -90
B Internal Liabilities
Provision for Standard Advances
Provision for Restructured Standard Advance 3.40
-- I
--
Provision for diminution in fair value of restructured
accounts
Provision for NPAs I 362 -60
I Floating provision 9
(cGn for NPI 0.3

Provision for depreciation in investments 150.80
Others
t Provision for Counter Cyclical Buffer

Provision for other losses
b~rovisionfor lass on Jewel Loan
9.60
51.30
0.4
l~rovisionfor country risk
Provision for unhedged exposure 2.60
I 1
I~e~reciation
on fixed assets 1 439.80
Page 18 of 30
Annex 3 - Assessed Net Worth
Paid up capital [including ESOP outstanding 8r

interest free funds from H.O. (foreign banks)]
- -
Reserves and Surplus

Statutory Reserve
Share Premium
Capital Reserve (excluding revaluation reserve) 125.60
Special Reserve 346 1
Revenue Reserve
General Reserve 2066.504
Investment Allowance Reserve 33.20
-
Credit Balance in P&L Alc (excluding proposed
1 dividend & dividend tax)
-
Any other free reserve (to be specified)

-
Intangible assets (inchding net deferred tax assets)

&accumulated losses (software)
4- 32.50
-
Reported net worth [A+B-C] 4808.30

) E I Adjustments following inspection findings I
I -I
Investment Reserve Account
- - - -
h
Additional Loan Loss Provision 54.70 1
Shortfall in Standard Asset Provisioning
Net Deferred Tax Asset
Understatement of Liabilities
Interest Reversal
Unrealised income represented by FlTL for which
1 ) corresponding credit is not available in an account
.styled as "Sundry Liab Alc (Interest capitalisation )
-
I I
Assessed net worth or reallexchangeable value of
paid up capital ancl reserves [D-€1
- --
Page 19 of 30
Annex 4 - Computation of Assessed Capital
A
+- -" - A
Common Equity Tier 4 capital (CETI): instruments and reserves

-
~ ~ r h f i & t i ~ -d P @ m n ~ n rnq1.79 &;ieitai@ev)-.
before regulatory d supervisory adjustments (it~cludingitems such as

- ' -
-% "
A
4763.30
I -
D TA, revalua flon resewe and Fore~gncurrency translation reserve as

perBBR.No.BP.BC.83/21.06.20lB015f6 dated March I , 2016)
I B I ~ o t a regulatory
l adjustments I deductions 32.501
rD
-
IadJustments I deductions applied on CET following Inspection ] 54.70 1

for Supervisory Evaluation (ISE) findings under RBS
1 Additional Loan Loss Provision 54.70
1 2 I Shortfall in Standard Asset Provisioning I -1
I
-
1 3 I Interest reversal 1.20 1

4 Unrealised income represented by FtTt for which corresponding credit -
is not available in an account styled as "Sundry Liab A/c (Interest
capitalisation )
I 1
( G
F Additional Tier 7 capital (ATI) : instruments beforeregulatory
adjustments
( ~ o t aregulatory
l adjustments to Additional Tier 1 capital 1 -1
1 I 1 ~djustrnents deductions
I applied on AT1 following ISE findings
I - -I
1 1 I~ eDeferred
t Tax Assets
I- -I
I 2 l ~ n other
y item to 6e specifid
,, ,,, ,<<<,-:
$:;;,;;;;-;;,
:
; ;y?>,;;r" ;; ;, ,;,;::;<;;;c::+:;
,,
:- - .X...~.'' ..
.--:,,?-,,,<=-::
. . .
Ttl::I:, -,
,, ,
' ' < , ,
-:: :-,-,::,,
-:: .
", --' ,:A, ,<?-" ;,
'
---
, ,-:: . , , ,
:;;,,FA:,:
;:,:,-
, i : ~ ~ ~ ~K: ~ v;.,.-:,.;
~.; c ~a,.>?.:.:<,(p gj ~p @ - ~Q ~ ~~~
~~j~~~:~;;,~:;~;~-~
-..- :-. :,,!
~. ~
....~ .,, ~ 1, ~
~ ~& )~~i~j~' ': ' ~&$~~~
??,X,>,C&
,,,,L..
,
;,
"
?'
; . -
'
-
. " Q
, :
-..:
A'
' ,
",,;'?;;
;
:,,
,,L*,y
,,,
>f?; ,,,,;g>;,:+:.
y ,.
,, ;:;;;;;,;
- ..
,--A,',,
:;;,G,y: , : :
L, ,,,,.,.
.", .x-
..:::::",.
, , .,
,,
;- ,,
,
,, *-<, *;,;.. -:"":'?A'
".7"7*.
. . ,i:g...- :;;;:, iJE: . " .,<~:::::,..:~''':~Ar:y:.__:.

^XI,,,, ,; ; ,> :-:A
, , , l, ;
. ,;,,
,,
,,
"
;'":.;
, " - A ,
, ,, ;
:
.
,
,,,.
, ,,., ,< , ,
'
M Tier 2 capital: instruments and provisions 163.20

I -, I
N I ~ i e2r capital: regulatory adjustments
I P 1 ~djustmentsIdeductions applied on T2 following ISE findings I -1
I 1 J ~ d dAdditional
: Standard asset provisions 1 -1
1 2 I Any other item to be specified I -1
I T I ~ i s Weighted
k Assets in respect of Pre-Basel Ill Treatment 1 -1
1 U I ~ i s weighted
k Assets (RWAs) I 31468.20 1
Adjustments I additions applied on RWAs iollowing Inspection for

I Supervisory Evaluation (ISE) findings under RBS
2 Any other item to be specified (Adjustments on account of reclassification

of standard assets into NPAs and divergence in provision, in case of
existing NPAs)
I
-
Annex 5 Assessment of Internal Generation of Capita!
I I I I
4 1 Inlerest
1 -on balances with RBI 01 0 1
Interest on market lending1 Income on 39.20
5 35.90
- -other interest earning assets
R
Fee based & stable misc. income 311.30 275.30 219.30
"
Is(a)+e(b)I
6Ia). . Fee based income
6(b) Misc. income- from-stable
- sources
- 256.80
--
--
225.80 175.40
7 Gross stable income (7+6) 4078.50 3677.70 3393.111
8 Interest Expended (9+10) -- 2.155.70 -
1972.10 1975
Interest on deposits/ all other interest 2108 7927.10 1941.80
9
expense
10 Interest on borrowings 47.70 45 33.20
I Net Stable Income (7-8) . -
1922.80 1 705.60 1418.10
12 Income from f rading 1 87.10 168.20 205.60
( 13 ( Realised gains on derivatives 1

14 Gains on sale of asset -- 2.70
- -
I
15 Wecoveryfromwloffs 89.80 70.50 47.10
Extra-ordinary income/ Dividend income
1 16 & other miscellaneous income
23.50
18.10 11.80
Gross volatile income 203.1 0 256.80 264.60
-l7 (1 2+13+14+15+16)
,
Provisions and contingencies 315.1 0 417.80 301

'I8
(excluding tax) (1 9+20+21)
,
I9
20
21
22
Provisions
--for
Provisions
investments
- Loan
-
for
Other provisions
losses (Incl NPI)
~xtra-ordinaryexpenses
depreciation in
270
22.50
22.60-19
303
95.80
0
-7
251.50
0.5
0
0 0
23 Write-offs
Page 22 of 30
1 24 ( Net Volatile Income (17-18-22-23) 1 -'I2 I -36-40 I
Assessed provision by supervisor 55.90 36.10 11.70
25
(26+27+28*29+30+31+32+33)
26 Additional Provisions for frauds Nil Nil Nil
Additional Provisions for understatement 54.70 34.70 10.50
27
of NPAs I *
-- 0 m n a l provisions for Understatement
LO
Nil
I
' Nil ]
L
Nil /
I of NPls
29
Additional Provisions for Understatement
of ~iabilities
1
Additional Provisions for claims not
I
acknowledged
- -
as debt
Additional Other Provisions
1
I I
I
1 I Nil I I
1 32 Additional Other Provisions (PI. Specify)
additional NPAs
Income I24-25)
4 1-20
-167.90
I Nil
1.40
-197.10
1 Nil
1.20
-48.1 0
1
3 b 1 e d net total income (11;241
I i e d net total inco&(ll+34) 1164.901 I3 4
Operational expenses (38+39+40]
Staff expenses, Director's feesleoard 317.30
Members' fees & expenses
Depreciation on bank's property and -
1
2
7.
4
0
gs I Profit Ratios
Page 23 of 30
-
"z;'
SF.,
t"& /
' Breal&tp id i+"rn.;G*n- d-wp~dikri&
.>-
+
t* **- - --
I"
-t
-
"
-
XU~ &,~:"FX
-""-z
- - ,:pacrgi:';
i
"
"
TI
- . +
%
-
>
"
<
'."
"-- - .pa- " ?
a:
- > . A - -?L-
,
M T*
- >:l":&#iia);_ - "Tfyaytq.
H2P
-
1
I . -
" * I
'
XX
49 Gross Stable lncome / Interest Expended

189 20% q86.49% 171 80%
[7/8"1OO%]
50 Net Stable lncome ! Assessed Profit
281.58% 306.82% 288 82%
111143*700%] -
51 Gross Volatile lncome f (Provisions &
Contingencies + Extraordinary Expenses + 64.46% 61.46% 87.91?4
Write-offs) I17lf ?8+22*23)*100%]
52 ( Assessed Net Volatile lncome / Assessed "
(-135.46% (-)9.80°h
Profit [34/43"1DO%] )26.78%
-
53 Reported Retained earnings ! Reporled
95.52% 95.25%
Profit [45142*100%1 94.62%
54 Assessed Retained earnings I Assessed
92.92% 95.23% 95.1 3%
Profit
-- [46/43*100%]
-----
55 Actual vs budgeted income [expressed as
96.66% 97.39% 99.80%
*ve J -ve percentage]
56 Actual vs budgeted profit [expressed as +ve
100.44% 10120% 98.57% 4
I -ve percentage]----- -
57 investment lncome I Total
-- Income
- 13.69% 15.67% 17.67%
58 Investment Portfolio I Total Assets 17.04% 19.73% 1994%
Annex 6 Leverage Ratio -

.
%*- 'Patii~uhr6." " - -- - - . - A&W~A?+i
Ns. $3-w".:-L-
A
A Basel Ill Tier 1 Capital ( T I ) 4674.90
B
I
Leverage Ratio Exposures 1 4 i P 4719 7 . q
On balance sheet (excluding derivatives

45226.40
and Securities Financing Transactions
-
'I42.4 142.40
Securities Financing Transactions 0

1- OR-balance sheet exposures 1885
I
1885
1 Deductions in exposure due to additional

I I
0
I .
Page 24 of 30
C Compliance Assessment
I.CCOwas also designated as the CFO which led to conflict of interest as he would be
involved in business1profit optimisation targets that could undermine his role as CCO.
2.The compliance testing done by the SSM Team revealed that the bank had not
complied with extant regulatory instructions in areas such as disbursal of housing loan
(disbursal as made without linking it to stages of construction), customer service and
updation of customers W C details.
3.Though the bank had sanctioned loans to borrowal accounts in which
Chairmanldirector of two other banks were interested as directorlpartner without prior
approvallknowledge of the Board, it was reckoned that the extant instructions were
complied.
4.The bank had not reviewed the performance of the Security Auditor (SA) contrary to
RBI guidelines on Effectiveness of Vulnerability Assessment and Penetration Testing
Exercise.
5.0nly 58% of the total 1685 ATMs were EMV enabled, thus bank was not compliant in
respect of Security and Risk Mitigation Measures for Card Present (CP) Transactions.
6.The bank has not yet implemented fully the Payment Card Industry Data Security
Standard (PC1 DSS) for optimising the security of credit and debit card transactions,
despite being pointed out in previous Limited Review report (timeline for which was June
30,2013).
Page 25 of 30
1
D. Annex for Compliance Assessment (Section 1.C)
Major Areas of Non-Compliance (Regulatory Guidelines)
Welt her 5 ha
Regulation
Referema Nature & Des~dptianof: NOR-
canrpYancs
-A
Circular Security ATMs were EMV enabled.

DPSS.CO.PD.N and Risk
0.289 Mitigation
5102.7 0.0021201 measures for
5-16 Card Present
dated May 26, Transactions.
2016,
Para 2 A (iv) of Security and The bank has not yet
DPSS (CO)PD Risk Mitigation implemented the Payment
I No. 1462102.14. Measures for Card Industry Data Security
003 / 2012-13 Electronic Standard (PC1 DSS) for
dated optitmising the security of credit
28,2013 Transactions and debit card transactions.
Master Direction updation of medium risk customers and

DBR.AML.BC.N customers 1583 low risk customers were
0.81114.01.0011 KYC details pending for periodic risk
207 5-16 dated updation as on May 31,201 9.
February 25,
2016
Para 6 of Master Reporting of No police complaint was filed in
Direction frauds to respect of frauds involving
Regulatian
Afqa J Subject
Wture & Dewcriptron6f Nen-
N of Nan-
I
:
!Para ^& carrpliaace ++
; b" Compliinee was tWre in

Circular no.)
dated July 01,

2016 updated as
on July 03,2017 1
I
Para 3 of Loans against The LW ratio had exceeded Yes

DBOD.No.BP.6 1 Gold 1 75% in 454 accounts.
C.27J21.04.0481 Ornaments
2014-15 dated and Jewellery
July 22,2014 1 for Non- 1
/I Agricultural I
I
End-uses
The bank had obtained
FIDD.MSME&N
1 - I
collateral security from MSME
FS.12106.02311 Lending
I
to borrowers for loans upto 7 one
2017-18 dated Micro, Small & lakh in case of 563 borrowers
July 24, 2017 Medium during the FY 2018-19.
1 updated as ( Enterprises I
on
I
( I April 2018. 1 (MSME) I
25.
I I
Sector
Para 2 of Collateral Free The bank had obtained
RPCD.SME&NF Loans coljateral securities for
Educational education loans less than 74
Loan Scheme lakhs limit in case of 120
I I dated April 12,
I 1 accounts.
I
I
1
i- 5.3 (ii) of / valuation of 7
he valuation of col~ateralsin-
- = .
I - Whether the
~e&~&n
Sf. A m l Subject i non-
Referencfi Mature & Pescriptftkn of Milon-
N
B
of Nan-
comp&ice
,: campTiamd
. {para
ah Compliance . was: 'there in
Efrclltar nu*]
last year
- -
5-16 dated July provisioning after three years from the
1,2015 purposes previous valuation date.
--
9 Para 2.3.16 (b) bending under The Ad-hoc limits sanctioned No
were not communicated to
consoriiumlMBA) as and when
one lakh (180 accounts),

aga~nst the deposits of the
borrowers instead of collateral
Customer (KYC)
norms I Anti-
Page 28 of 30
Whethep the
:-Regulatiwn
:Subject
Referenee Nahre .& qes~rtpl7onef Nan-
Q " - NOPI-
(Para & "
~ornpliancrs.
Cornplianca
Clrcutar no,)
last year
ating Financ~ng I
of Terrorism I
(CFT)/Obligatio 1
( I n of banks andl 1 I I
1 1 financial I
I
I I I
1 1 institutions I1 I I
I I
under PMLA,
I
Secti~nI1 - Conduct sf Business
A. Customer Conduct
The following deficiencies Isupervisory concerns were observed:
(i) The Customer Selvice Committee (CS6)of the Board held only one meeting (in
March 2019), as against regulatory stipulation of two meetings during the year. The data
presented to the CSC on customer grievances arising from failed ATM transactions was
also not updated (only quarter ended June 30, 2018 data). The bank was not compliant
in respect of Security and Risk Mitigation Measures for Card Present (CP) Transactions,
as only 58% of the total 1685 ATMs were EMV enabled.
(ii) Though the bank has waived RTGSINEFT charges as per RBI directions for online
banking, it was charging customers for RTGSlNEFT transactions effected through
branches.
(iii) The lack of KYC discipline was indicated in non-updation of beneficial owner in 2243
accounts, pendency in KYC de-duplication for 1214 accounts,1640 domestic accounts
which are wrongly
- - flagged
-- as Non-residents,424 NRI accounts where the Non-residents
are wrongly flagged as residents, pendency in periodic risk updation of accounts (
High risk/ 197 Medium risW1583 Low risk) was observed as on March 31,2019.
(iv) Rise in proportion of ATM related complaints (95% of total 32205 complaints)
during the FY 2019 and lack of analysis for taking corrective measures indicated
inadequate attention to Customer complaints.
(v) In three cases, bank's liability to the customer for unauthorised electronic banking
transactions (aggregating ? one lakh) were met after four months and that too with the
intervention of Banking Ombudsman.
B. Conduct Governance
The Board had approved reversal of interest rate in standard accounts (9 7 crore in two
accounts) even with retr.osppetive effect (going back to as much as 2014-1 5). However,
the concessional rate of interest applied for backdates, as a means to effect the interest
reversal, was below the. then prevailing Base RatelMCLR. This interest reversal were
neither disclosed nor get captured in any risk monitoring reports, during the financial
year under review.
Page 30 of 30

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rn~t+&h3$~>$~ -G?Lm X I ~ > X > T

Shri Subhash Chandra Agrawal

Riqht to information A d , 2085

Central Public Infomation Officer

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City Union Bank Ltd.

Part I: Risk Assessment

Annex-I : Major Areas of Financial Divergence

1. Governance and Oversight Aggregate score-

1 I pertaining to investment banking, payment systems, risk management, etc.

credit proposals involving enhancements despite unsatisfactory conduct 1

Risk Governance Score: m-1

1 1 quantifying the likely operational losses. I

1 I any system for risk assessment of new products1 processes, although it (

I I Audit (RBIA) was deficient in several respects as foIIows:

(b) Inherent business risk assessment parameters also included business

L i branches prior to preparation of annual audit plan.

(ii) SMA advances increased by 9.26% from F39834 mn as on March 31,2016

1 I category accounted for 32.70% of outstanding amount of total SMA-2 1

I 1 accounts amounted to F28 mn in FY 2017 as against 'nil' sacrifice in the I

(ii) The entire unapplied interest ( T I 3 mn) was waived off in

(ii)The increase in exposure to stressed sectors (Textiles, Metal & meta

I ( products. Engineering, Infrastructure) by 19.70% and exposure to sensitive 1

(ii) In some cases (16% of sample size of 30),particularly related to stressed

/ (v) In the case of loans extended to barrowers engaged in real estate 1

(i) There was no mechanism in place to monitor adherence to loan policy

1 1 stipulation regarding maximum number of occasions (5 times) a borrower I

any analysis of accounts frequently moving from SMA- 2 to SMA-I category

Monitoring & Review

(iii) Monitoring of valuation of immovable properties as per the periodicity laid

3. Market Risk Aggregate score:

1 3.1.2 1 Trading Book

1 3.2 1 Cantrot Gap Risk I

(i) The bank did not take into account ERBB

Monitoring and Review

The MIS and results of various analysis including stress tests,

4. Liquidity Risk Aggregate Score:

(iii) Liabilities to top 20 depositors had increased by 10.03% from 7 32299 mn

1 4.1 -2 1 Market Liquidity I

1 1 operating expenses and service charges while computing operating cost. 1

Monitoring and Review

1 I Income of the bank.

5. Operational Risk ~ ~ ~ r eScore:

The expenditure incurred on IT related activities increased from T960 mn in

II 1 FY 2016 to TI179 mn in FY 2017. The expenditure on the captive software I

5.2 . Control Gap Risk

1 1 Control Self-Assessment (RCSA) had not been implemented across the I

I 1 huge number of crediticash deposit transactions in the accounts.

(iii) The baseline cyber security and resilience requirements prescribed by

(ii) The following deficiencies in compliance with KYCIAML guidelines were

(iii)Some major observations of IS audit reports such as absence of non-

6. Pillar I1 Risk Aggregate Score:

1 6.1.2 1 Strategic Risk

March 31, 2017.

I- 6.2.1 Policy Environment

1 6.2.21 Risk Identification & Assessment I

The stancla-rds for model development, implementafion,

Confidential Page -18 of 27

I.Pillar I Capital & CRAR

Basal Ill Capital under Basel I11 {In B mn)

Particulars Reported Assessed Divergence Reasons for

Basel Ill CRAR under Basel Ill (in O/p)

Particulars Reported Assessed Divergence Reasons for