Sbi Rar 2013

CONFIDENTIAL
RESERVE BANK OF INDIA
State Bank of India
Risk Assessment Report (RAR)

Position as of March 31, 2013
Supervisory Program on Assessment of Risk and Capital
SPARC
Table of Contents
Para. Assessment Areas Page
Part I : Risks and Control Gaps

Introduction 1
A.1 Summary of Aggregate Risk 1

B.1 Governance and Oversight 2
B.2.1 Credit Risk 7
B.2.2 Market Risk 13
B.2.3 Liquidity Risk 16
B.2.4 Operational (non-IT) Risk 19
B.2.5 Operational (IT) Risk 24
B.2.6 Pillar II Risk 27
Part il : Capital and Earnings Assessment
3.1 Pillar I Capital Assessment (Basel II) 30
3.2 Leverage Ratio 31
3.3 Earnings Assessment 31
4 Supervisory Review and Evaluation 33
5 Conclusion 35
0 Part III : Regulatory Compliance Review
Listing of compliance status I non-compliance I violation 1-17
Annex 1: Details of Divergences (Para 3.1) 1 -37
jperiod April
Note : All figures in the following pages refer to position of the bank as on March 31, 2013 or for
1, 2012 to March 31, 2013 and figures in parenthesis refer to corresponding previous year po ition unless
otherwise specified.
CONFIDENTIAL
CONFIDENTIAL
Inspection under Section 35 of Banking Regulation Act, 1949 —

State Bank of India - Position as of March 31, 2013
The on-going risk assessment of State Bank of India as of March 31, 2013 under
Risk Based Supervision (RBS) was concluded with Inspection for Supervisory
Evaluation (ISE) under Section 35 of the Banking Regulation Act, 1949 carried out
between September 10, 2013 and November 1, 2013. The audited financials of
March 31, 2013 were taken as the base for the limited purpose of assessment of
supervisory capital, as the overall risk assessments remains forward looking under
Supervisory Program for Assessment of Risk and Capital (SPARC). The major
outcomes of the process are enumerated in the following report.
Part I: Risks and Control Gap
A. Summary of Aggregate Risk
Abstract of Aggregate Risk (Scale 1 -4)
Inherent Risk Control Gap Aggregate Risk

Risk Category
A B 0.7 A + 0.3" B
Board 1.948
Senior Management 2.026
Risk Governance 2.140
Internal Audit 2.137
Governance & Oversight 2.061
Credit Risk 2.452 2.047 2.330
Market Risk 1.899 1.989 1.926
Liquidity Risk 1.721 1.829 1.754
Operational (non-IT) Risk 2.389 2.434 2.402
Operational (IT) Risk 2.412 2.309 2.381
Other Pillar II Risk 1.548 2.105 1.716
Business Risks 2.152
BANK LEVEL AGGREGATE RISK 2.138
As per the SPARC results for the captioned supervisory cycle . the Aggregate Risk
Score of the bank has been worked out to 2.138 under IRISc model. which is
denoted 'High Risk' level for the bank.
Page 1 of 35
CONFIDENTIAL
B. Critical Assessment of Risks and Control Gaps
1. Governance & Oversight

Aggregate Score 2.061
Major observations
1.1 Board Score: 1.948
(a) The composition of the bank's Board constrained by the SBI Act, 1955, was
not broad based enough to deal with the demands of dynamic and growing
business complexities and risk profile of the bank. while there was
concentration of directors from accounting/finance/IT The charters and
conduct of the Committees essentially only served compliance with minimum
regulatory stipulations in this regard. The ICAAP document for FY2014 was
approved by the Board on December 30, 2013 as against regulatory
requirement of its sign-off during the first quarter. The required reviews of
ICAAP processes of FY2012 for successful implementation of the objectives
of the Board were never done. Under certain circumstances, the RBI had
advised the bank in November, 2012 to conduct special audit to assess the
level of KYC/AML compliance and place the report before the Board by
December 31. 2012. The requirement was not complied with till date on the
grounds that such exercise before full implementation of in-house committee
recommendations meant duplication.
(b) While significant amount of time of the Board and its Committees was
devoted to transactional agenda. adequate attention to matters relating to
risk, internal controls and compliance and other structural issues trailed
behind. The significant portions of the reporting framework evolved out of
mandatory requirements. Ongoing refinements in the reporting framework or
prioritization based on risks associated were not attached to such reporting
systems. Mechanism to ensure sustenance of Action taken Report was not
robust due to non-addressal of many issues at a system level, causing
relapse / re-occurrence of same/similar deficiencies. The effectiveness of
Board superintendence was further undermined by frequent backlogs of
reviews spanning 1 to 9 months compared to scheduled calendar.
(C) The Chairman of the Board is an executive position, who is supported by 4

MDs and 12 DMDs. in imparting necessary strategic direction. As the apex
management structure for the bank approved by the Board in July 1996 had
not been revised, the responsibilities of MDs did not cover the entire business
of the bank and in discharging of operational responsibilities e.g. the Chief
Risk Officer and Chief Financial Officer moved between MDs and DMDs with
change in incumbency. Thus. the efficacy of distinctive role to be played by
the MDs as envisaged u/s 29(b) of the SBI Act, 1955 was compromised and
Page 2 of 35
CONFIDENTIAL
which could have affected the quality of oversight of senior managOnent and
regular review of suitability of delegation of powers by the Board
(d) The ACB recommended the reporting of financial results for FY2013 showing
a net profit of 2141050 mn which was higher by 210440 mn as compared with
the amount reckoned from the original audited Circle Returns. It was
observed that the Circle Returns had been re-certified by the SCAs in
supersession of the original signed returns after branches were advised to
modify security data in respect of 450000 'Doubtful' loans in the system within
5 days, purportedly to rectify erroneous omission of available securities.
Subsequent cross checks by RBI on 3057 sample accounts revealed that
many such accounts were later written off and 45% of remaining accounts
had security value as nil or less than modified value. Another special audit on
15022 samples by the same SCAs caused by the bank revealed clear under-
provisioning by 7.15% apart from serious qualifications on availability and
value of securities
(e) The Nomination Committee in January 2013 declared all.11. 1111111111

as 'fit and proper to be inducted as a director. Incidentally, he was the Head
of Assurance in PWC when the accounting fraud by M/s Satyam unfolded in
January 2009, who resigned from his management position on account of the
scam, though he continued as a partner. The Committee justified the
nomination stating that SEBI's investigation against PWC did not come in the
way of declaring .11.1111111111as 'fit and proper' as he had superannuated
from PWC in the normal course during 2011.
1.2 Senior Management Score: 2.026
a) The bank continued with a linear organization structure of business groups

without creating efficient matrix relationships The lateral expansion of Tiers
did not attempt leverage of improved technology in terms of rationalization of
the structure by eliminating redundancies and optimizing deployment of
human resources. The potential conflict of interest. duplicity of functions and
absence of effective reporting line pointed out in previous AFIs persisted. A
few key top management positions in critical operational areas such as
Banking Operations, Personal Bantling, and Compliance remained
temporarily vacant. The accountability of members of senior management for
various business decisions taken was often unclear under the veil of
committee approach despite unequal relationship between committee
members. The RMCB had observed that various driving factors for decisions
taken by the ALCO such as reasons for increasing / decreasing interest rates
•were not being recorded in the reviews. There were no other KPIs for senior
executives than those set out by the Gol for payment of bonus. The overall
compliance certificate submitted by the Group Compliance Officer Was based
on the declaration of various business groups / subsidiaries without any direct
control structure for such certification in place The review of all business
units (e.g restructuring accounts of MCG and CAG) were placed before Board
for review separately. A bank level risk view was rarely availa le to the
Page 3 of 35
CONFIDENTIAL
Management except in financial statements.

(b) The top down approach to business objectives development and varying
goals / stretch targets on same parameters for different purposes and
performance reviews without necessary backward or forward linkages diluted
the efficacy of oversight. Execution deficiencies continued to be a major
challenge. The quality of management accounting did not lend itself to ensure
that the bank's activities were consistent with the business strategy. risk
tolerance/appetite and policies approved by the Board. The management
information were not always comprehensive or conducive to informed
decision making necessitating demand for better analytical inputs / additional
information. The integrity/ consistency of data being submitted to various
Departments of RBI, MoF, Other regulators e.g. SEBI evoked adverse
communications from all such authorities.
(c) Lack of effective implementation by executive management led to
miscellaneous expenditure constituting 11.93 % of operating expenditure
increasing by 25.9% (yoy). With no business case analysis for
advertisements, publicity, promotions etc, the domestic publicity budget at
Corporate Centre at 22341 mn shot up by 77% over previous year As a
proportion of global net profit it went up to 2.22% (1.69%). The business
returns on excessive advertisements of 2 deposit products. viz. unfixed
deposits and tax saving deposits remained unclear. The management was
yet to target improved cost to income ratio.
(d) The reported results of own re - verification exercise in the wake of CAG
findings of irregular agricultural debt waiver scheme was yet to fully account
errors detected by CAG by DFS. MoF. While reporting the names of a large
number of auditors to ICAI for willful negligence / mala fides, none of the
internal controls were improved. Laxity in administration of subsidies /
subvention in govt. sponsored loan schemes did not receive adequate
attention from the senior management despite serious irregularities having
been brought on records during previous AFI. Though the bank confirmed to
have refunded the excess subsidies claimed from Govt / interest charged to
the beneficiaries, no system level controls were introduced as there were a
large number of cases with similar features.
(e) Three instances of appointment of consultants on nomination basis were
observed where the approval of ECCB was obtained without fulfilling the
stipulated CVC guidelines in the subject. The process lacked required
transparency on their deliverables and projected indispensability apart from
the reasonableness of high fees paid.
1.3 Risk Governance Score: 2.140
(a) Development of a Risk Appetite Framework, the cornerstone of risk

governance, has been postponed by the bank for a long time. Other forms of
expression of risk appetite statements e.g internal capital ratios, various limits
etc. meant for regulatory compliance, did not lend the risk management
function ability for correlation and aggregation of risks across businesses,
articulation of risk return trade-offs and risk preferences. Timely identification
and addressing emerging risks for the bank was missing in the absence of
formalized risk discussion and communication. The collaboration among risk,
compliance and legal functions was not in evidence. Investment in risk
Page 4 of 35
CONFIDENTIAL
management capabilities including risk teams and information systems was

not commensurate with the risk profile of the bank.
(b) The bank was yet to perfect an adequate and independent risk management
structure. The Chief Risk Officer (CRO) handled roles in potential conflict of
interest with each other such as Credit Policy & Planning, Green Batiking and
the Secretariat of the Corporate Centre Credit Committee. Despitt a direct
reporting line to Chairman, the position of CRO did not evidence any ability to
challenge or potentially vet risk related decisions of the management.
International Banking Group contributing about 6.07%( 5.52%) of revenue
continued to function as a self contained business unit mixing both business
and risk management functions. An integrated risk management fiamework
was missing as the Basel I risks and Basel II risks were entrusted to two
unrelated departments while the function of ERM Division was mere
compilation of ICAAP document for verification without other management
roles.
(c) The position of Group Compliance Officer (GCO) was titular as in respect of
the IBG compliance and compliance functions of other group entities the GCO
acted as an information/ declarations aggregator. The Compliance! outfits at
Circle level were yet directly report to the GCO
1-7
1.4 Internal Audit Score: 2.137
(a) The scope of the Risk Focused Internal Audit (RFIA) policy t adopt a
dynamic approach to audit targets against emerging risk areas as rather
limited vis-a-vis the business varieties and shifting sources of risk. The
environmental scan of the audit universe in terms of changed risk profiles to
plan or prioritize audits was not visible. The principle of every activity being
covered within the scope with adequate coverage of regulatory matters had
not been fully realized. The audit coverage of outsourced activitiqs, capital
allocation review, policies/internal controls to monitor cost and profitability
management by product lines / activities. business process and controls for
funding, liquidity management, hedging, derivatives, pricing and funds
transfer pricing, etc. remained particularly wanting. Internal audit al o did not
cover embedded compliance and control work streams in each business
groups. The audit function did not envisage benchmarking assessm nt of key
functions of the bank including the level of automated controls and ntinuous
monitoring
(b) Risk-tiering of auditee units was based on exceptions found in the samples
rather than use of a proper matrix of activities identified as critical arillpriori and
overlaying subsequent findings of exception frequencies. The com unication
of audit findings did not distinguish between control gaps and control break-
downs in the systems and processes or distinguish between significant and
housekeeping issues. Relevance of audit activities / execution tcf strategic
gage 5 of 35
CONFIDENTIAL
objective or value to the bank was not utilized to prioritize risks. The 18,MA
Department did not offer any practical ideas to the emerging risks or focus of
a particular audit cycle. Poor use of analytics / trending / horizontal analysis
despite centralized data warehousing undermined the effectiveness of
planning process. Internal Service activities such as accounting, finance
control etc. of the bank did not receive adequate audit focus.
(c) The audit plan did not provide measurable benefits in value terms, say, in
terms of risk coverage, cost savings, plugging income leakage etc. across
bank's value chain. The principle of internal audit complementing and
assessing operational management. risk management and other central
functions had not been fully embedded into the audit programs. Despite
routine follow up of compliance and its assessment. the audit activities
remained a point-in-time engagement rather than having a system of
continuous dialogues with all stake holders. The validation and amendments
to risk scores brought in by the Inspecting Officers and analysis of rating
migration did not get due attention of top management.
(d) The principle of professional competence of the internal audit functions had
not been fully complied with by the bank. Talent development and
management in audit functions along with succession planning remained a
routine matter for the bank on par with any other department. There was no
specific scheme to encourage personnel posted to Internal Audit to acquire
professional qualification relevant to audit. The bank had not furnished exact
details of the training requirements / actual training of officers posted to I&MA.
In the absence of a specialised outfit to carry out the activities of special
nature. the bank used non-related persons from the same Business Group for
such purposes. This too posed potential conflict of interest situation.
(e) Large quantum of divergence in asset classifications and other provisioning

norms, priority sector classification were indicators to inadequate audit
deliveries. The audit function had not mapped such findings to its own
execution to minimize the divergence. Though the ACB had expressed
concerns on frauds occurring at branches being awarded "well controlled"/
"adequately controlled" ratings recommending careful examination and
rationalization, audit function was not adequately challenged by the ACB for
its failure to flag many risks that manifested later.
Page 6 of 35
2. Business Risks
Aggregate Score 2.152
2.1 Credit Risk: Aggregate Score: 2.330
2.1.1 Inherent Risk Score: 2.452
Major Observations
(a) There was significant credit (default) risk manifest in the loan bpok. Undue
deferment in the recognition of non-performance in large accounts by
•
converting non-fund based facilities to fund based facilities (e.g SBLC),
unrecognized restructuring through refinance for longer residUal tenors,
upgradation of NPAs before restructuring in order to enjoy the special
regulatory treatment. etc. was observed in certain cases. Use of $BLCs as a
funding structure, particularly in stressed large value account , involved
additional credit and compliance risks.
(b) Outstanding in stalled large value (> Z10000 mn) projects, mainly in power
and telecom, amounted to 2121948 mn. High slippage ratio based on lesser
number of upgradation was indicative of higher default risk. The bank's
slippage to recovery ratio was 2.14 and the recovery as a % of IPA at the
beginning of year was 37.5% (38%). Around 34.37% of total ouWanding of
240150 mn under Special Mention Accounts (SMAs) as on March 31, 2013
were overdue between 60-90 days and 32.45 `)/0 were with 2250 mn or above
outstanding. The corporate loan portfolio of 2192160 mn was the largest
contributor to SMAs.
(c) Exposure as well as incremental exposure to top three stressed s ctors (viz.
textile, iron & steel. infrastructure) was substantial during FY2013 The bank
acquired significant exposure risk by way of accepting fresh exposures to
certain stressed industries, identified by incidence of past non-performance
and restructuring in the bank. The five industrial segments with total exposure
of 2100000 mn and above (viz. mining, fertilizers, cement, pqWer, other
infrastructure) registered more than 100% growth both in terms of the
incremental exposures to these industries (except cement) and in the level of
NPAs. Similarly, bank's exposure to the top four industries (viz. iron & steel,
textile, pharmaceutical, infrastructure) which had experiericed high
restructuring grew on an average between 21-58%. The exposure cpf the bank
to gems and jewellery segment increased by 31% despite NPAs 4ove 5% in
these segments. The direct exposure of the bank to high / medium risk
countries was also considered significant relative to its net worth / overall
country risk exposures. In the absence of an effective mechanism to compute
Page 7 of 35
CONFIDENTIAL
the indirect exposure to such countries the actual risk in this regard could not
be quantified .
(d) The tenor risk of the loan book was on an increase due to elongated residual
maturity upon restructuring as well as large scale deviation from loan policy in
adhering to tenor discipline permitted while sanctioning loans. The strategy of
the bank to move away from working capital finance towards term loans led
to taking more exposures in project loans adding to cyclical risks. In respect
of most of the lease rental discount loans. the bank exceeded the exposure
and tenor limits prescribed in the credit policy by multiple times. In certain
restructuring package, the tenor of the restructured loan was stretched to a
very long period.
(e) Concentration of credit exposure to large group borrowers was considered

significant. There were cases of loans being sanctioned against guarantee of
group companies. In such cases, the indirect exposure to the guaranteeing
company was not being reckoned from concentration risk perspective.
(f) The unrated exposures and not correlating/ mapping the internal ratings to
external ratings added to the inherent credit risks in terms of potential
underassessment of credit risk. A skewed concentration of exposures around
the hurdle rate too contributed to higher rating migration risk.
(g) The translation of currency risk of Foreign Currency exposures in the
domestic books to credit risk was considered significant and was
compounded by large parts of such exposures remaining without financial
hedge as sanction terms in many cases waived such requirements without
sufficient justification. Foreign currency exposure amounting to 21808950 mn,
constituting 10.68% of the total credit exposure was unhedged. Further, there
was excessive reliance on the branches in ensuring integrity of unhedged
foreign currency data.
(h) The proportion of unsecured non-investment grade exposures formed

significant part of total non investment grade exposures compounding the
recovery risk. Within the secured exposure, the proportion of readily
redeemable / liquidable non-financial collaterals was not considered
adequate for mitigation of recovery risks. The time lag in creation of charges
after assuming the exposure added to potential recovery risk. High amounts
of sacrifice / waivers in case of OTS/ compromise proposals indicated that the
bank's record of recovery has not been good in the past. While framing OTS
schemes for ATLs/ tractor loans. the bank ignored the value of agricultural
lands mortgaged as collaterals treating realizable value as nil. However, for
provisioning purpose, the bank considered the standing crops / agriculture
land as realizable security even for doubtful assets, without sufficient basis.
This was extended to loans which were unsecured ab initio also Such
securities. if considered intangible, had the impact of understating the
Page 8 of 35
CONFIDENTIAL
provision requirements in such loan portfolio by more than r15000 mn.
2.1.2 Control Gap Score: 2.047
Major Observations
(a) Control Environment
(i) The bank approached the loan policy as a general policy and permitted deviations
from policy stipulations based on approval by appropriate authorities 016 a case-to-
case basis, diluting credit rigours at origination Deviations rather than compliance
to major guiding parameters prescribed in the loan policy were more apparent in
•
many cases. Regardless of nature of deviations, e.g shortfall in GRA linked
minimum scores, tenor of the loan. extension of credit facilities to companies
having directors listed in the defaulter's list, etc., the ratification for the
deviations was done by the same sanctioning authorities. There were also several
instances of accounts turning into NPA without being identified as SMA.
Policy on specific coverage /requirements for collateral security was not
prescribed leaving it to being decided on a case to case basis.
(ii) In the absence of any binding loan pricing structure, the risk based pricing had
not been implemented by the bank. The Base Rate determination was pegged to
card rates for 180 days deposits e.g 6.50 `)/0 & 7 00% during the year, not reflecting
the actual cost of deposits e.g 6.29% during the year For computing Average
Return on Net Worth. the bank used total deposits instead of deployable deposits i.e
deposits net of share of deposits locked in CRR and SLR balances in the
denominator. Inconsistency was observed in case of calculation of unallocated non-
•
branch operating expenses. wherein the bank had arrived at the proportion of
expenses related to advances based on the factor Nil (including Interest from
investments) to Total Income. There was no back testing of the assumed
components of base rate calculation model against the actual/ market rates to refine
the base rate.
(iii) Up-front disbursement of housing loans, without linking them o various

stages of construction was not restricted by policy. The LTV Ratio was being
inflated by adjusting it with certain index value.
(b) Identification and Assessment
(i) Interference with the NPA identification system / data in different forms was
observed which had significant bearing on the reliability of reported level of
NPAs. There was misuse of 'holiday period' option available in the CBS by
many branches to defer classification of agricultural loan accounts as NPA.
Such options were not restricted by the system to agriculture loan! alone. As
per auditors' observations for financial results of September 2012. certain
regions (e.g Mumbai, Ludhiana) upgraded accounts based on cheques sent
Page 9 of 35
CONFIDENTIAL
in clearing which bounced subsequently. Upgrading accounts based on

credits received after the end of quarter was witnessed in 68 cases in Mid
Corporate Group (MCG) reportedly due to a technical failure. The auditors
had reported upgradation of 8000 accounts in Mumbai circle from Loss to
Standard / Doubtful category. The reason was explained as subsequently the
securities were found to be more than 10 % of outstanding. In Lucknow circle,
900 restructured accounts were not captured in the system. The bank
explained that most of the loans were housing loans and moratorium period
increased as per RBI norms except in case of 201 accounts. Large number of
errors in the date of NPAs, value of securities. different classification of
various accounts of the same borrower. non-classification of the accounts in
NPA category despite non-receipt of as many as 33 installments. etc was
observed. Instances of repeatedly restructured accounts, granting further
moratorium in retail loans, postponement of DCCO. etc were not being
captured by the system as NPA
(ii) The bank had not developed policies for recognition of realizable value of
different class of securities to realistically assess the recovery risks or while
giving approvals for ceding charges to other lenders. This had resulted in
situations of sudden erosion in securities at the time of disposal for recovery.
The bank had not prescribed any process for assigning haircuts on various
types of collaterals accepted as security against loans and advances. In the
absence of appropriate policy, interest booked during moratorium period was
not being reversed in all cases in housing/ education loans turning into NPAs.
(iii) There were several large loan accounts with apparent sign of fraudulent
activities, diversion of funds and loss of value to the bank which were not
identified / reported as fraud by the bank
(iv) The SCAs and BCAs had observed that restructuring was undertaken in
a number of cases without sufficient grounds to save them from slipping into
NPA. The quantum of accounts restructured but not identified as such on the
alleged grounds of NPV/ economic loss protection, often achieved through
unrealistic interest rate schedule, was not determinable.
(c) Information and Communication
(i) The system of monitoring SMAs on a monthly basis was done on business
group basis without a bank level view. The retail portfolios were not covered
under such monitoring. The delays in SMA reviews deprived the process of
its intended efficacy Stress signals not related to repayment records. such as
decline in share prices of the account, market intelligence about the
promoters, decline in performance of particular industry / sector. delayed /
non-submission of quarterly financial statements, stock statements. changes
in the current assets and liabilities. non maintenance of desired levels of
DSCR, non-opening of escrow accounts, extension of financial year. non-
Page 10 of 35
CONFIDENTIAL
submission of annual reports/audited balance sheet, etc. were not reported

for timely control activities.
(ii) The credit risk arising out of unhedged exposures of borrowers was not
being regularly monitored by top management.
(d) Adequacy of standards for retained risks
(i) In a large number of cases, the bank sanctioned corporate loan-is to enable
the borrowers repay their existing debts with other banks by offering lower
rate of interest and waiver/ concession of charges as a matter of strategy. To
be competitive, the tenor of WCDLs had been reduced to three days during
the year.
(ii) The recovery decisions were delayed in view of the tendency to first
restructure an account regardless of unrealistic assumptions in its viability
parameters. Cases of preferential treatment to specific borrowers were also
observed. There were also certain weaknesses viz; inadequate follow up in
case of recovery from AUCA accounts.
(iii) In large loans, the quality of borrowing company's equity did not get due
attention and certain debt items were also included to compute the
borrower's strength / compliance with internal financial parameters. When
equity shares were held with trustees with bank as the beneficiary or under
escrow accounts with NDU-POA structure, the exposures were not treated as
capital market exposure. In case of a road project, the bank had extended
excess funding than approved by NHAI in the project analysis by financing
the equity portions which were required to be brought in by the
concessionaire.
(iv)The internal credit rating did not form the basis for determining , exposure,
pricing of exposure or level of authorities for approving exposure. There was
no system level control to ensure that all irregularity reports / breach of
delegated authorities were being reported & all sanctions were placed up for
control reporting.
(v) The accounting integrity of recoveries in loan accounts partially written off
by the branches could not be demonstrated by the bank.
(e) Control Activities - Implementation / Monitoring
(i) There were instances of reporting collaterals like mortgaged securities as

cash collaterals, recognizing dated value of plant and machinery securities
without applying appropriate depreciation. Moreover, the bank. in a few
cases, was counting receivables/advances beyond six months under
security. In a case, the borrower had completely shifted its base to USA,
without the knowledge of the bank and the fact came to light only on physical
Page 11 of 35
CONFIDENTIAL
verification after the account had turned NPA
(ii) The bank's process of monitoring of the restructured accounts was weak
as the same was dependent on manual compilation of data through various
returns submitted by the branches. It was observed by the SCAs / BCAs that
some of the branches had not calculated diminution in fair value of advances
and had not submitted correct returns. Further, some branches had not
furnished data regarding restructured accounts in a satisfactory manner
which necessitated incorrect identification and reporting of restructured
accounts at the LHOs. Some NPA accounts were upgraded on the basis of
a few solitary credits received before being restructured so as to avail the
benefits of special regulatory treatment and moratorium which were granted
after restructuring.
(iii) Instances of the CDR restructuring of accounts being treated as

implemented even though several critical covenants were not complied
with/satisfied were observed. Also there were instances of restructuring done
with retrospective effect as the cut-off date was fixed to accommodate /
evergreen NPAs. Further, the bank's policy seemed to encourage repeated
restructuring/reworking of the accounts. Large number of accounts was
referred to the CDR Cell just before they turned NPA (around 80-90 days of
continuous irregularity period).
(iv) The bank continued to extend corporate loans to borrowers for repayment
of their debts from other banks! NBFCs/ LIC etc by offering lower rates of
interest. A large number of takeovers had happened in the retail segment.
There were deviations permitted while taking over loans by the approving
authority_ Some loans with no external rating were taken over as against
policy requirement of minimum of BBB rating i.e. investment grade. Similarly,
there were cases where the internal rating of taken over accounts were SB-7
and below as against minimum of SB-6. There were cases where
enhancements were given post takeover without adequate justification .The
bank had not ensured requirements relating to obtaining due diligence
reports relating to accounts being in standard category for last three years in
certain cases.
(v) LC bill discounting was being done by branches without reference to IRAC
status. Large limits sanctioned to certain groups of companies, where
required fuel linkages or PPAs were not in place. Non- adherence to post
sanction processes / tools viz, compliance of sanctioned terms prior to
disbursal of loans, obtaining of stock statements, obtaining of financial
statements. review/ renewal of accounts, unit visits, etc defined in the credit
manual of the bank had been pointed out by auditors. The bank did not
have any system for monitoring of covenants.
Page 12 of 35
CONFIDENTIAL
(vi) In the case of an OTS for the cement division of a compar4, the bank
sacrificed more than 21327 mn for transfer of the unit to a tiew set of
promoters and separately sanctioned the new promoters 21680 mh term loan
without even referring to the OTS. In another case, a mortgaged property
auctioned off at 2330 mn was reportedly resold by the successful bidder at
2400 mn within a week.
2.2 Market Risk: Aggregate Score: 1.926
Major Observations
(a) The Interest Rate Risk in Trading Book: Interest rate risk on the ihvestment
portfolio measured by PV01 was considered material relative to bank's net
worth. Contribution of long term investments (5 years+) to the overall PV01
was also assessed to be significant.
The currency risk in the forex dealings of the bank was reflected through large
deviations between the average and peak positions of various gaps and limits.
The equity price risk measured through portfolio beta was also donsidered
high for the bank
(b) The Interest Rate Risk in Banking Book (IRRBB): The IRRBB. from an
earnings perspective was significant as a 200 bps increase in the inierest rate
could wipe off around 18% of the bank's NII in a one year time hottizon. The
IRR arising out the embedded optionality in the banking book Was also
considered significant as a large proportion of fixed tenor loans were getting
regularly extended.
Major Observations
(i) The investment policy did not explicitly set out market risk management as
a major objective and risk mitigation as a part of acceptable business practice.
The guidelines for optimizing the risk adjusted return from investments and
measurement of portfolio / asset-class performance were insufficient. There
was no laid down policy to address embedded optionality and basis risks in
the bank's portfolios.
Pa+ 13 of 35
CONFIDENTIAL
(ii)The market risk management of domestic and overseas books were not
integrated. Even at the domestic level, risk monitors viz. VaR, etc were not
stipulated across all asset classes. The MRMD served only as a mid office to
the domestic treasury operations and did not have the remit to manage
market risk at bank level.
(iii) The investment policy for IBG had not been fully adapted to market
conditions and the regulatory/supervisory environment at the host
jurisdictions. Specific norms for investments in non-sovereign securities were
not fixed for investment in IBG books Uniformity in considering the reference
price for MTMs were not in place as in some cases the prices were taken from
the custodians while the same were taken from Reuters/Bloomberg etc.
Prescriptions regarding review of the correctness of the price were not in
place.
(iv) There should be an approved market risk product programme for all risk
taking units to operate within defining procedures, limits and controls for all
aspects of the product including market risk measurement at an individual
product level and aggregate portfolio level Individual product wise risk limits
at the domestic limit as also at the IBG level were not defined.
(i) System for measurement of market risk at the bank level was yet to be put
in place. Certain components of the trading portfolio e.g. non-active equity
portfolio etc. were not being captured for quantification of risk. IBG did not
have a system of monitoring the prescribed limits on a periodical basis in
investment positions and interest rate derivatives.
(ii) The VaR for domestic and overseas operations were calculated separately
and on different platforms. Decay factor was used without adequate review
which limited the possible VaR at the prescribed significance levels to very
few data points as opposed to 500 days historical prices Due to system flaw.
the VaR number was one value after the respective significance i.e. instead of
taking 495th value.
(iii) The updation of variables, crucial for risk measurement, for many of asset
classes was manual. MUREX system did not provide for mapping appropriate
yield curves as the system by default was able to build in only a single YTM
curve common for all the assets. The valuation of securities was
predominantly manual. Finacle, the platform used by IBG had very limited
interlaces. Errors in updation of variables, creation of masters, etc recurred
and pointed out by the concurrent audit.
(iv) Stress test was not conducted at whole bank level. The severity of shocks
applied e.g. 100 bps to bond portfolio etc. was far removed from actual stress
Page 14 of 35
CONFIDENTIAL
scenarios in the market.
(v) The NOOP calculation methodology was flawed inasmuch as position to

the extent of trading book only was reckoned in the case of domestic
operations. The NOOP was also captured manually.
(i) The performance measurement of fixed income securities was limited to

current yields. Periodical review of highly volatile asset classes was not in
vogue.
(ii) MIS relating to market risk at bank level without manual intervention
directly from the source database was practically absent. Many of the MIS to
top management, regulatory returns etc continued to be collated !based on
manual returns submitted by the respective branches. Validation of the same
with the source data or any other control figures was absent.
(d) Adequacy of Standards for Retained Risks
(i)The bank had set a maximum MD benchmark of 4.50 and total toss limits
arising out of 100 basis changes in interest rates was capped at a high 5 % of
capital and reserve. While the actual MD was lower at 2.73 (PY: 2.63). a
change in yield by about 115 bps would burst the limit and during the current
year 2013-14 the yield change had been to the extent of 155 bps. The overall
MD of entire portfolio (excluding HFT) was 3.66. Hence the above limits
appeared inconsistent and did not serve any control purpose.
(ii) In a few overseas jurisdictions clear distinction of work between the middle
office and back office were not defined. Multiple systems were used by the
domestic and overseas treasury with varying risk management capabilities.
(iii)The cut loss limits were approved without specifying definite lime line
within which to liquidate. Instances of rolling over the approvals were
observed. The worst loss scenario was assumed to be 17% which was less
than the trigger set by the exchange for stopping trade.
(e) Control Activities — Implementation and monitoring
(i) Monitoring of various limits was neither automated nor dynamic PV01 only
to the extent of interest rate swaps were being calculated and not Monitored
on periodic intervals. Exceptional MTM losses during June/September 2014
indicated high level market risk being taken by the bank which were not
assessed even under stress tests. Rate scan for merchant trades was not in
place. Mechanism to monitor utilisation of interbank forex limits allotted by the
Page 15 of 35
CONFIDENTIAL
bank was not in place.
(ii) Some of the corporate bonds were in the nature of deep discount bonds
akin to ZCBs. However, it was not ensured whether issuer build up sinking
fund for all accrued interest. In certain restructuring proposals, the equity
conversion was done at a higher price compared to the price at the time of
conversion based on old reference prices.
(iii) Triggers on cut loss limits were allowed to be breached with approvals for
a prolonged term. Prudential limits for equity investments in VCFs/private
equity cos were not being adhered to. Many of the limit monitoring was limited
to the active equity portfolio which was part of the trading book.
(iv)The securities for which Cut Loss Triggers were activated were not off-
loaded immediately but approval from appropriate authorities was being taken
to exit the scrips 'in a calibrated manner to minimize the impact cost'
2.3 Liquidity Risk: Aggregate Score: 1.754
Major Observations
(a) The funding liquidity risk from a stock perspective was significant with around
67% of long term funds locked in illiquid assets. High deviations between
quarter-end deposits and average deposits; fall in CASA ratio to
46.50%(46.64%) coupled with cost of domestic deposits rising to 6.29%
(6.24%) and cost of funds to 6.46% (6.41%) indicated stress on deposits as a
funding source. Within the overall CD Ratio of 82.40 % (78.50%), the
incremental CD ratio of 132 % indicated reliance on borrowed funds for
incremental lending activities. This had led to a small crisis when MSF window
was allowed at a higher interest rate during September 2013. The bank had
been discounting L/C backed bills upto 180 days at Base Rate and was
funding it by overnight borrowings from MSF window When the MSF rates
were raised. the bank had to resort to discontinuance of the product except to
limited clients. The impact of overstatement of cash due to system issues. at
21358 mn forming 1.18% of global cash-in-hand balance. on liquidity gaps
was not factored in by the bank.
(b) The asset liquidity risk was pronounced for the bank as illiquid assets formed
around 87% of the balance sheet assets. The excess SLR securities
proportion was too insignificant and value of unencumbered securities in
HFT/AFS portfolio was also low. Volatile liabilities had funded significant
proportion of long term earning assets. Thus the bank had high dependence
on market liability and was a net borrower in most of the days it was in market.
Page 16 of 35
CONFIDENTIAL
Major Observations
(i) The bank reported a Market Related Funds Transfer Pricing, (MRFTP)
mechanism for internal pricing of funds, albeit without any connection to any
current market rate/s. The FTP rates were instead pegged to bnk's own
card rates/actual rates for deposits and Base Rate/actual rates for loans with
a spread The accumulation at Funding Centre resulting from the above
unscientific method were distributed among business groups in proportion
their business size. The process made no attempt to quantify the cost and
benefits of liquidity for being incorporated into product pricing as the bank
followed the reverse process. The FTP played no role in performance
measurement and new product approval processes for material business
lines. products and activities. The entire mechanism was used as an arbitrary
method for the limited purpose of allocation of costs and returns among
branches somehow rather than an integral part of liquidity risk management.
(ii) The Contingency Funding Plan (CFP) for its domestic offices did not
include specific details of available / potential contingency funding sources
and the amount / estimated amount which can be drawn from each of these
sources, and the prioritisation procedures to be followed. Though the bank's
ALM policy stated that the review of the contingency funding plan will
evaluate the ability of the bank to withstand prolonged adverse liquidity
requirements under different scenarios, there has been no comprehensive
plan put up by the bank.
(i) There was no linearity in the assumptions made in the behavioraliSation of

liquidity. The bank had resorted to different time periods, ranging between 3
months to 3 years, for different indicators without any relation to actual
experience.
(ii) The stress testing assumptions were applied on product parameters
1 without distinguishing between retail and wholesale customers or related
causative triggers. The funding sources were not bucketed as per the stress
scenario. The mitigation funding sources in the case of stress scenarios did
not take into account the link between reductions in market liquidity and
constraints on funding liquidity. In setting of the haircuts and suggestion of
using CDs for generation of funds, the bank had not captured the likely
behavioural response of market participants, the size of the marilet and
amplified reactive effect in the market
i) The system used for maturity bucketing for preparation of SLS r quired
Page 7 of 35
CONFIDENTIAL
manual consolidation of data received in various forms without any control

check for its completeness. The bank had not captured the MSF availed on
March 30. 2013 in its audited SLS statement. The bank had also bucketed
"overdue time deposits" as per the maturity pattern instead of reckoning for
outflow under the first bucket. The entire investment portfolio was divided into
maturity buckets as per the maturity pattern as against bucketing certain
investments as per their defeasance period.
(i) Liquidity risk reports did not provide sufficient detail to assess the
sensitivity of the bank to changes in market conditions, its own financial
performance. and other important risk factors. It particularly missed out on
asset and funding concentrations, critical assumptions used in cash flow
projections. funding availability. results of stress tests. key early warning or
risk indicators, status of contingent funding sources, or collateral usage. etc.
(ii)The bank used manual overrides in model used for generating fortnightly
Dynamic Liquidity statement based on qualitative issues without any stated
justification In 3/26 cases. the back testing performed between the actual
and the projected results varied by more than 20%.
(i) Despite no policy guidelines, standalone intra-day limits were allowed in

certain cases without considering as exposure for risk based pricing. There
was no standard process of sighting funds before allowing intraday facilities.
(ii) No process to measure market liquidity was followed by the bank. Even
the liquidity status of various G-secs published by CCIL was not used to
create a proper liquidity profile for its portfolio.
(iii) The bank had no policy provision on investment in SLR securities over
and above minimum required from collateral management perspective for
market liquidity management
(i) The LoC with various foreign banks, wherein funds are made available to
various foreign offices within specified limits were centrally monitored on a
monthly basis through a Maturity Mismatch Report (MMR). This monthly
monitoring did not capture the short term liquidity mismatches/issues faced
by overseas offices.
(ii) No separate buffer was carved out to offset the impact on liquidity arising
out of implicit or formalized through undertaking to overseas regulators on
account of associates / subsidiaries.
Page 18 of 35
CONFIDENTIAL
2.4 Operational (Non- IT) Risk: Aggregate Score: 2.402

r --r
J
Major Observations
(a) The compliance and legal risk of the bank was considered high in light of
continued imposition of significant penalty amounts by various donlestic and
overseas regulators/authorities. The cost of compliance trended upWard upon
continuing discovery of incorrect/ inadequate compliances and various
adverse observations on compliance/risk management framOwork by
regulators/ authorities. There was significant compliance risk in the bank in
KYC/ AML/ CFT regimes in both domestic and overseas operations. KYC
deficient CIFs was reported as 42.03 mn as on October 15. 2013 after
reduction of 19.54% during current year.
S (b) The inherent people risk was considered significant in as much as the per-
employee profit contribution from the segments contributing higher results
were much above the average per employee profit. The average short tenor
of front office employees/ sales forces, significant number of termination of
staff on vigilance grounds and instances of organized labour activities
disrupting the functioning of the bank added to people risk. From capability
perspective, the training expenses were a minuscule part of the operating
profit. In June 2013, the CENMAC had directed to use summer trainees to
complete the renewal of pending KCC accounts urgently.
(c) The people risk was further reflected in the number of internal frauds during
last three years. Total numbers of such cases reported were 148, 143 and
130 for 2010-11, 2011-12 and 2012-13 the amount involved was Z 412.5 mn,
2388.10 mn and 2436.11 mn respectively. Significant proportion of employees
involving non-superannuation separation was due to involvement in vigilance
related incidents. Most of the vigilance references in respect of top / senior
management executives were found prima facie fit for pursuing by the
vigilance authorities. The number of cases where the promotion of employees
were withheld due to pending charge sheets against them was on higher side
and there were 425 employees suspected of involvement in fraud against
whom investigative proceedings were initiated during last three years.
(d) External factors significantly added to the operational risk, in ter* of the
damages caused to bank's physical assets and frauds committed by non-
customers. Large loss caused to the bank from natural calamities in certain
parts of the country remained unmitigated in the absence of effective
insurance. The latency of loans frauds in retail books of the Onk was
considered to be significant. A thematic sample verification of genuinness of
title deeds reported to the Board Committee on Large Value Fraud iri August
2013 revealed at least 71 cases of fake title deeds mainly concentrated in
Pag 19 of 35
CONFIDENTIAL
Kolkata (33 cases) and Bhubaneswar (28 cases) Circles.
(e) The process risk in the bank was assessed as material as the income
leakage detected during FY2013 by RFIA, Credit Audit, Circle Audit,
Concurrent audit and income audit added up to 210147 mn (PY: 28990 mn)
forming 7.19% (7.69%) of the net profit of the year. The bank had reported to
be computing interest on LIBOR linked loans at rates accurate up to 2
decimals instead of 4 decimals as per sanction terms explained as industry
practice. Further, in several cases the bank followed annual resetting of
interest rates pegged to six-months LIBOR. The bank had no information on
margin triggers and margin calls made. High degree of inherent risk due to
poor execution of processes were also manifested in large number of
customer complaints, deal booking / execution errors.
Major Observations
(i) The compliance function continued to act as an aggregator of information

received from various business units without any independent control or
testing role. The ACB advice of April 2013 for examination of feasibility of
having a designated authority in the bank with powers and role clearly
defined for the purpose of ensuring rectification of deficiencies brought out in
the RBI report and ensuring non-recurrence reflected lack of clarity on role of
compliance function in the bank. The frequent inaccuracies of data submitted
to OSMOS by Compliance Department have been a major hurdle in
supervisory functions for RBI.
(ii) There was no structured collaboration between the governance;

compliance/legal and risk functions to deliver an adequate and integrated
compliance environment / culture. In a few cases, the Legal Department had
reversed its own opinion on specific products / services to conform to
business requirements e.g introduction of product creating third party lien on
TDRs. charging fees on KYC non-compliant accounts. Various Legal cases
were dealt with in silos without any feedback to change the extant product /
service characteristics to minimize the legal/compliance risks. The integration
of the legal aspects and compliance issues in product approval process had
not been strengthened. Control over costs of pursuing small value/ frivolous
suits/ disputes not involving serious policy matters was not in place.
(iii) The Operational Risk Management Policy did not cover procuring of
insurance for external events and the external events had not been identified
Page 20 of 35
CONFIDENTIAL
/ defined. Though the circles reportedly procured insurance cover for fixed
assets. cash etc. and for external events like flood, earthquake etc on their
own, the exercise remained un-monitored by the risk management functions.
The bank failed to demonstrate the extent of loss and insurance claims
lodged and received in respect of severe natural calamities which took place
in certain parts of the country.
(i) Three bank level KRIs under the operation risk framework bein• used to
assess the internal audit score for operational risk viz. RFIA score, ATM
downtimes and CBS outages were assessed to be inadequate against the
operational risk profile of the bank.
(ii) Despite increasing numbers of frauds under specific product lines,

geographic regions, securities, fraud scheme etc., the bank lagged behind in
identifying the patterns and take necessary control action. Frauds io deposit
accounts through email based instructions in both domestic and Overseas
branches have been following similar pattern and was on the rise over last 4
years. Such transactions neither had been defined in the bank's procedures
nor there was any systemic controls / procedures issued to prevent such
frauds. Of the 477 reported frauds each involving loss of 20.01 mn pr more,
309 were detected on the basis of external complaints / enfcircement
authorities and 96 after the loans turned NPAs poorly reflecting tpon the
bank's capacity to detect frauds.
(iii)The internal scrutiny of branches subsequent to publication by a website

of serious KYC/AML violation committed by these branches revealed
suspicious cash transactions for which alerts were closed without filing of
STR; suspicious transactions in accounts for which KYC documents were
obtained but not updated; non-maintenance of cash transaction register
above Z1 mn; obtaining 20 DDs favouring an individual against 20
applications by one person in different names; high value cash transactions
in account of property dealers without STR; large cash deposits in K'r'C non-
compliant accounts: allotment of multiple CIFs to KYC non-+npliant
customers, issue of NRE STDRs by funds from NRO accounts without
obtaining necessary forms: large cash transactions in certain trust accounts,
allotment of lockers without KYC process; cash deposits of 22.50 mn in
single Recalled Asset a/c. However. these violations were not reported to
RBI or acted upon.
(iv) The bank had not reconciled its cash-in-hand position despitp being
pointed out in previous AFI report. The ATM balances continued to show in
odd amounts in denominations / paise not loaded to ATMs and were not
reconciled with GL balance. There was an unexplained excess of 1705 mn
of book balance over Switch balances for all the working ATM which
Page 21 of 35
CONFIDENTIAL
included balances in non-existent ATMs
(v) A number of accounts involved in suspected fictitious offers, money mule

activities, advertising to be dealing in virtual currencies (viz. Liberty Reserve /
Bit Coins) involving forex remittance, job frauds. lottery frauds were
observed which were not being detected by the bank despite information
being available in public domain. Even after complaints forwarded by RBI on
the welcome kits of bank accounts being sold. there was no visible action by
the bank to prevent such potential money laundering activities.
(vi) The results of own its re-verification exercise in the wake of CAG findings
of irregular agricultural debt waiver reported by the bank to DFS. MoF was
found not to be commensurate with errors detected by CAG. Although large
number of names of auditors having been reported by the bank to ICAI for
willful negligence / mala fides was huge. the primary internal control lacunae
were not addressed and similar irregularities persisted in other segments
(i) The bank had framed a Whistle Blower Policy placed in its intranet
website. The response to whistle blower policy was not visible for various
reasons viz, absence of required awareness and exclusion of non-staff
insiders / stake holders from the process despite growing numbers of internal
frauds and other types of malfeasance being reported. The bank was yet to
put the name of the recovery agents engaged by it in its website.
(ii) The irregularities observed from Exception Reports and other off-site
sources were not catalogued / communicated across the related
functionaries to preclude its incidence in other business units.
(i) On minimizing the risk associated with multiple customer IDs. the ACB in
April 2013 was given misleading information that the validation for unique
customer ID could not be extended further as a large number of ID types
were permitted by RBI for opening customer accounts in the system. Lack of
single common ID or indicator for opening bank accounts was another
handicap for identification of multiple CIF, whether opening for fresh
accounts or de-duplication of existing accounts. De-duplication was carried
out whenever requests were escalated by business units
(ii) The inadequate process of staff accountability examination was reflected

in the fact that during FY2014 (YTD) out of 88 cases reported to CVO. in
respect of 69 cases more detailed information relevant to the outcome of the
examination had to be called for. Out of which, in 27 cases, the CVO agreed
with the examination outcome and in 41 cases (both vigilance & non-
Page 22 of 35
CONFIDENTIAL
vigilance), further processes were recommended
(iii) In 44 out of the 972 currency chests inspected during the year by RBI
inspectors/banks internal audit counterfeit notes/ mutilated notes had been
detected in soiled note packets during the currency chest inspections. In 235
instances penalty has been paid by the bank for detection of counterfeit
notes/soiled notes in remittance sent to RBI.
(iv) Many branches continued to open current /SB accounts in the mature of
Internal GL accounts despite being pointed out earlier. The bank also issued
multiple cheque leaves with same distinctive numbers. In certain cases the
bank gave faulty information to CGTMSE in respect of the coverage of the
loan amount, about non-obtaining of collaterals. guarantee etc. with potential
liability of refunds later.
(i) Despite being penalized by RBI for violations during FY 2013, there were
large numbers of cases of cash deposits being accepted in internal GL heads
of the bank circumventing the AML/ CTR checks. Cash deposits in System
Suspense A/c were frequent with highest amount of deposit at 27.80 mn.
Such cash deposits were also meant for issue of DDs in 21 case's where
each cash deposits were between 21.00 and Z 7.29 mn. Cash deposits in
excess of 21.00 mn representing recovery from written- off accounts / misc.
fee incomes were routinely made in bank's internal revenue headt. Other
internal GLs which were used to deposit customer's cash included interest
incomes in respect of many types of loans in personal / agricultural segment
etc. There were also heavy cash receipts from Axis Bank and other banks
which were not being credited to current account of those banks but taken to
System Suspense — Bankers' Cheque a/c. An Internal Committee in
November 2013 had observed that out of the 51 scenarios applicable to the
bank, 20 in first phase by June 30, 2013 and other 31 by December 31,
2013. The bank was yet to start implementing the scenarios.
(ii) The bank has not envisaged any technology based solution to BCP as
yet. In certain cases the third party service provider could not implement BCP
as per the agreement and refused to pay the penalty. There were a number
of such instances resulting in serious business disruption.
(iii) Many complaints were closed beyond the stipulated TAT of 21 days.l
Certain complaints were closed with a promise to credit the customer's
account. The bank has also paid penalties in the FY 2012-13 ilor not
resolving the ATM cash not dispensed issues within the mandated 7 clOys.
Page 23 of 35
CONFIDENTIAL
2.5 Operational (IT) Risk: Aggregate Score: 2.381
2.5.1 Inherent Risk I Score: 2.412
Major findings/ Observations
(a) The risk of significant impact of IT systems on the financials of the bank was
manifested through a cost escalation rate of 36% in IT projects, use of
proprietary systems where the technical service / support costs were nearly
monopolistic, high rate of raising 'change requests' within short period of
implementation of systems after due User Acceptance Test (UAT) adding to
Total Cost of Ownership (TOO). The total dependency of IT based solutions
for a significant proportion of non-interest income also added to the financial
risk of the IT systems.
(b) The dependency of the bank's IT systems on a single vendor was absolute as
the bank had not produced any transition plan to take care of all fall back
managements with internal resources. Further dependency on the vendor for
support and manual intervention to execute SOD/EOD jobs was still
significant. The frequency and number of instances of back-end data
modifications were large. The CBS was continuously down for 180 minutes
and internet banking for 165 minutes during the year.
(c) The risk to the integrity of the data in the systems was high in the absence of
STP between the core application and a number of subsidiary applications
and complete absence of a structure to reconcile balances against common
heads in both the systems. The number of bugs identified in the live systems
was also on the higher side.
(d) The robustness of certain aspects of internet banking security such as access
control, data encryption, system design, security on hostile platform,
benchmarking security best practices and other safeguards could not be
confirmed by the bank. In an incident of internet banking fraud involving 27.30
mn in December 2013 due to security bug in internet banking during
maintenance hours, the bank was yet to identify and fix the bug There have
been frauds committed in IMPS transactions through fund transfer in 'Night
Region' (after EOD in CBS) when debits were allowed by the system without
verifying availability of balance.
Major Observations
(i) There were several applications whose ownership remained with the user
departments e.g Basel II (BID). Murex (Treasury). Mercury Fx (Treasury),
Page 24 of 35
CONFIDENTIAL
Green Remit Card (CS&NB). Self Service Kiosk (CS&NB). New Pension
software (PBBU). Financial Planning and Wealth Management (PBBU) and
were without proper documented process In respect of only few applications
centrally maintained at GITC. viz. CBS, Internet banking, ATM switch, mobile
banking and ITFO a system of identification was maintained, albeit without an
uniform approach. There were several applications without proper security
configuration documents e.g Payment Hub, SBI tiny, Kisok banking, Rural
Banking, LOS (FinnOne CAS & FinnOne MASTER) of LOSPBBU etc.
(ii) The IT assurance function in terms of quality, risk and compliance

management initiatives within the IT vertical was not centralised. IT Assurance
was managed by respective application owners & IS Audit to some extent
issue-wise without a centralised review mechanism. The function of IT-Risk
Management Department was limited to consolidation related back office work
and did not discharge effective risk management function commensurate with
the size of the bank_ Formal system for "monitoring of security condition of
bank" was not in place to measure effectiveness of IS strategy, IS Security
policy and architecture.
) Identification and Assessment
(i) Metrics based effective tool for assessing effectiveness of various

components of their security policy and programs. the security of a specific
system, product or process, effectiveness and efficiency of security services
delivery, the impact of security events on business processes and the ability
of staff or departments within an organization to address security issues was
not in place. Delays in implementation and inadequacy of review of progress
existed in a few segments. Mystery shopping, vulnerability testing etp. of all
applications and timely review of the same was not in place. Pl6ns for
undertaking such tests were not drafted.
a (ii) System to assess the ability of a service. component or Component
Interfaces (CI) to perform the agreed function when required was not centrally
monitored in the absence of no guidelines on the process for its assessment.
Availability management framework was not in place. Identification of vital
business function as per RBI recommendation was not done.
(i) Electronic frauds were not reported to the Special Committee of thl bank
Review of new products and processes was done by System and ProOedure
Dept of bank, however same was not done by Fraud Monitoring Cell, BOD
and Compliance Dept and l&MA Dept. Awareness programmes were not
commensurate with the size of the bank.
(ii) Information on reported losses to the customers from various fo'ms of
Page 5 of 35
CONFIDENTIAL
phishing, non-disbursement of cash by ATMs not compensated by the bank

were not available. Financial impact resulting from existence of bugs was not
captured by the bank as a loss data.
(i) Definite time lines and documented review mechanism with mitigants in
case of cost/time for IT projects were not defined. There was no centralised/
documented process for reviewing the success of the project.
(ii) Network vulnerability scanning tools were not in place to detect wireless
access points connected to the wired network. As a result unauthorised
access cannot be averted. Security Information and Event Management
(STEM) tools were not implemented by the bank.
(iii) Monitoring of time lag in completion of the project, applications were not
commensurate with the size of the bank and projects were not completed in
the same phase as visualized in the expansion strategy 18% of
recommendations vide circular dated DBS.CO.ITC.BC.No 6/31.02.008/2010-
11 dated April 29, 2011 was yet to be implemented. Centralised Single Point
of Contact SPOC was not in place for change management

(i) User accounts with default passwords. or with passwords same as user ID
were open in oracle database. Large no of GLIF entries and BGL / CGL
differences cast shadow on accounting efficiency of the bank as a whole
(ii) Escrow arrangements for source codes were not implemented effectively.
Instances of applications where database administration as also application/
OS/Network administration were outsourced to the same vendor were
observed. Mitigants/controls to address concentration risk arising out of such
arrangements were not in place. Access management was done by respective
application owner in de-centralized manner. The bank has not been able to
demonstrate inclusion of liquidated damages clauses in SLAs and its
enforcement if and when triggered.
(iii) Off-site back up arrangements were yet to be put in place for several
applications such as mobile rural banking, SBI Tiny Bank. Kisok Banking,
CMS, mercury Fx, Biometric Authentication Solution etc.
(iv) Process to ensure that cost-justifiable IT capacity exists and matches to

current and future agreed business requirements as identified in Service Level
Agreement was not in place. The capacity management process framework
was not in place.
Page 26 of 35
CONFIDENTIAL
2.6 Pillar II Risk: Aggregate Score: 1.716
Major Observations
(a) The strategic risk of the bank was assessed in the bank's adopted strategy of
undercutting the loan prices/ relaxing fee charges from large borrowers for
market share and increasing the transaction costs of large number of deposit
account holders to increase its fee incomes without proper assessment of its
impact on revenues and deposit cost/ base
(b) The relative share price performance, poor revenue growth and higher
number of consumer court cases getting decided against the bank were an
inherent source of reputation risk to the bank
(c) The bank was exposed to group risk as its investments in group) entities
formed significant portion of its own capital funds and the large number of
unregulated entities existed within the group. The bank, along with its
associate banks, had amongst the highest NPA ratios in the industry which
impinged on the bank's reputation, The capital supports given by the' bank to
group entities did not afford much lead time for its own capital planning and
the thin capital base of SBI Pension Fund was a case in point. The bank had
not factored in the requirements of higher provisions for loan accounts in
e
overseas books mandated by local regulator. Though not significant r lative to
size of the bank, the need to comply with sudden capital support poses risk to
the bank. particularly when the bank is not in a position to forecast the same
and is driven by mandate from independent regulators. The existence of a
large number of such subsidiaries renders this risk enhanced for thle bank.
SEBI had rejected consent-settlement plea of SBI: probed for alleged Violation
of regulations contained in as many as 11 Sections, sub-sections, Clauses
including those related to code of conduct of the SEBI (Debenture Triustees)
Regulations.
.6.2 Control Gap
Major Observations
Control Environment:
(i) The bank did not have a long term strategy document and used a 5-year
rolling plan document without any strategic direction to guide the plans. The
strategic shifts had often been carried out by the executive managemei t and
participation of the Board in such decisions was not in evidence. Th bank
used mere disparate projections by business units as a substitute to strategy
Page 27 of 35
CONFIDENTIAL
documents. The vision and mission statements of the bank were meant for
internal purpose rather than a corporate positioning. Although, many of the
documents of the bank made a mention of the data like M3. GDP growth,
CMIE projections for its plan, there no evidence of such information being
embedded in business planning. In terms of Investment Policy of the bank,
ALCO was identified as the apex body for balance sheet strategy for the
bank as a whole In the absence of an overarching business strategy set out
by the Board, an executive committee was effectively delegated the role of
business strategy formulation.
(ii) There was no internal policy for/at overseas centers in respect of

gifts/entertainment for business purposes and as such potential misuse of
such expenses was not considered to be controlled. The bank had not
reviewed such practice in terms of compliance with local regulations. Internal
audit and control / reporting systems did not have coverage in such matters.
(iii) The bank did not have a process for monitoring the analysis of loss
Events. Peer Group Comparison, Corporate Culture. Risk management &
Control environment and Customer satisfaction. The bank had not conducted
any customer service survey for many years.
f (i) Data on new cases of litigation has not been compiled / furnished by the
bank reflecting the lack of basic accounting framework and non-monitoring of
reputation risk emanating from there.
1 (ii) The bank had used 20 parameters to construct the Reputation Risk index
(RRI). While the bank reckoned reputation risk incidents of related entities for
scoring purpose, the reputation risk incidents pertaining to it own self were
ignored. Due linearity in aggregation and absence of objective
benchmarking, the reliability of the index in measuring the reputation was not
clear. ICAAP Committee of the bank was seen to have improved score for
financial performance in the face of deteriorating performance.
(c) Information and Communication: -1
While there were separate review meetings for different business groups at
different point of time. there was no consolidated monitoring of the business
plans targeted and achieved at overall level. There were no records of the
action proposed / mid-course correction ways for lagging business goals
emanating from such meetings.
(d) Adequacy of Standards for Retained Risks:
(i) The bank did not have social media risk management strategy, neither a
process to contain reputation risk arising from social media nor use of social
Page 28 of 35
CONFIDENTIAL
media by its employees. No social media audit was conducted. The bank did
not maintain any data on all the legal cases / claims filed against it except in
the files of the controlling authorities. This made the process of ascertaining
the quantum of contingent liabilities of the bank difficult.
(ii) The bank has not explained the currency risk in the balance sheet arising
from other items than FCNR deposits. As for indirect currency risks, in many
of the FCTLs, the sanctioning authorities were seen to be approving
exemption from hedging requirements There were a number of occasions
where Nostro balance limits were exceeded. The bank lacked necessary
controls to ensure completeness and correctness of computation of NOOP.
(iii) As stated by the SCAs for September 2012 results, recovery in respect of
bad debts written off had not been offered to tax by the bank relying on
opinions received from tax consultants. Contingent liabilities if any were
neither being provided for nor disclosed.
(iv) There was no discreet process of ensuring consistency of the operations

and risk measurement methodologies across group entities. Insfead, the
bank obtained a declaration from the CEO of the concerned group eritity. The
bank did not indicate any possible restrictions imposed by respective
regulators of its group entities, either in India or overseas, that might affect
transferability of capital to the bank. In Indonesia, the bank wa4 initially
constrained to surrender its capital in a subsidiary to a local partner, though
later brought back along with the shares of the latter at a cost.
(v) As the bank does not revalidate / fine-tune the assumptions on annual
basis, the model risks were considered material for the bank.
(e) Implementation and monitoring:
(i) During 2013, the bank received adverse press coverage in the case of
alleged misuse of the LTC facilities by its employees and reported
statements of CVC about illegal relaxations of the rules by SBI fort visiting
foreign countries. Instead of examining the potential vigilance / ta) issues
involved, the bank had taken a stand that the relaxations were as pet certain
decisions of IBA in 1982.
(ii) There was no process to assess the market perception about the bank
and the share price of the bank under-performed to a number of peers. The
bank has not targeted rating for itself by external rating agencies There was
downgrade of rating by 2 international credit agencies during a span of one
year The bank did not have an effective zero tolerance policy for an of the
matter affecting its reputation risk. Recent examples of adverse media
coverage by Cobrapost.com and CBI raids on one of the DMD's office /
house on alleged wrong practices were not adequately managed There
Page 29 of 35
CONFIDENTIAL
were allegations of arbitrary closure of complaints without final redressal. The

regulatory penalties on the bank were treated as fait accompli. There were
no prior or subsequent reviews for the same. Staff accountabilities were not
being called for. There was no process in the bank to review intra group
transactions by the ACB.
Part II: Capital and Earnings Assessment
3.1 Pillar I Capital Assessment (Basel II)
Capital(in Z million) CRAR

Particulars Reported Assessed Divergence* Reported Assessed Divergence
Tier I 949473 915814 33659 9.49 % 8.93 %4 0.56 %
Tier H 344152 344152 3.43 % 3.35 % 0.08 %
Total 12.92 % 12.28 % 0.64 %
RWAs 10009443 10260247 250804
Assessed Tier I CRAR had fallen below bank's internal minimum CETI Ratio of 9.00 %. The reported Tier I
CRAR for the bank on September 2012 and December 2012 were 8.97% and 8.66% respectively.
* Abstract of divergences are enumerated below:
(a) Divergences (shortfall) in Provisioning

____(Amount in r mnL
S. No. Area/ Description Shortfall
1. Reclassification of Standard Assets as NPLs 14274.62
2. Existing Non Performing Loans (NPLs) 15194.81
3. Shortfall in standard asset provisioning 95.31
4. Non Performing Investments 361.14
5. Other Assets 2586.08
6. Understatement of expenditures / liabilities 13.30
Total Additional Provisions 32525.26
Unamortised Expenses Adjusted to Tier I capital 1136.41
(b) Divergence in Risk Weighted Assets (RWAs):
As per Basel II (Z in mn)

RWAs for
Per bank Per assessment Remark
Credit Risk 8629120 60 8879924.64 Shortfall in provisions of n2,525.26 mn
deducted and additional RWAs of
X283,329.30 mn was added.
Market Risk 578025.10 578025.10
Operational Risk 802297.70 802297.70
10009443.40 10260247.44
Total RWAs
Page 30 of 35
CONFIDENTIAL
(c) Net worth Assessment
Net worth Reported by the bank 943951

Add: Balance in P&L A/c. 3
Total additional •rovision As mentioned in table above) 32525
Assessed Net worth 911429
Additional RWAs 283329
3.1.1 There were several infirmities in the process and implementation of instructions
in computation of correct Pillar I capital which presented a CRAR at a level higher
than actual. The bank didn't have the capability to compute the capital adequacy on
an ongoing basis as it continued to be manual consolidation from a number of
sources. There was no system of calculation of capital charge for the integrated
position of the trading book as the capital charge for domestic operations, overseas
operations and derivatives and contracts were calculated in silos and horizontal and
vertical disallowances for IRR were applied separately. There were no instructions/
guidelines/templates issued to overseas branches for computation of RWAs except
an outdated format. The back—up account level data on classification of accounts
into different buckets was not available.
3.1.2 There were several other aspects which were not reflected in the reported /
assessed CRAR. The bank showed 97.39 % of undrawn limits of Corporate and
99.46% undrawn limits of PSEs as unconditionally cancellable. There were no
instances where bank had actually cancelled the limits when the covenants had
been breached in the accounts. While the bank treated applicability of commitment
charge for undrawn/unutilized limits and borrowers' signing the unconditional
cancellability clause as mutually exclusive as per approval terms, it did not consider
the former cases for capital adequacy purpose. Certain receivables from Gol / RBI
were not yet approved / acknowledged as finally payable to the bank but applied 0
dri risk weight. The bank has precedence of returning / reducing varying amounts
waivers / subsidies / subvention etc. when irregularities crop up later Similar
situations also apply to net income tax assets where the refunds are contingent
items. For bills discounted against L/Cs , certain banks were shown as unrated
instead of indicating adverse credit rating of the bank attracting lower RW. In the
absence of any reconciling mechanism to book contingent liabilities, particularly
SBLCs and Claims Against Bank and based on the few cases of omission, the
adequacy RW for such items was not clear. The bank had not reckoned additional
capital requirement on account of exposures to central counterparties an 1credit
value adjustment risk for OTC derivatives for client deals in its ICAAP for 201
3.2 Leverage Ratio:
The leverage ratio of the bank as on March 31, 2013 based on reported numbers
deteriorated to 4.69 % (4.77 %) though well within the current regulatory prescription
of 4.50 % under Basel III.
Page 31 of 35
CONFIDENTIAL
3.3 Earnings Assessment - Internal Generation of Capital
3.3.1 Quality of Earnings
(a) Sustainability Perspective - While the operating profit before provisions fell by
1.56% and the net profit registered a growth of 20.48% due to 14.54% decline in
provisions. for the first time in 5 years, through creation of 29221.50 mn of DTA for
leave encashment, a non-recurring item. Top 2 components of earning. Nil and
income from commission / fees were weak as the former grew at 2.40% ( lowest in
5-years) against the growth ranging between 13.41%-37.41% earlier and the latter
declining for the first time in 5-years, by 5.02%. The reasons for this generally
emanated from bank's strategy to grow balance sheet by under-pricing loans /
waiving of fee based charges to corporate while not monitoring funding costs and
operating expenses.
(b) Cash Flow Perspective. While the cash flows from operating activities were
positive, the bank exhibited a pattern of alternative negative and positive cash flows
from operating activities during last six years. Such cash flow was, however, lower
than Operating Profit of the bank.
3.3.2 Retained Earnings
As Got, the largest share holder. mandates the bank to declare a minimum of 20% of
their capital or net profit, whichever is higher. as dividend. the bank has been
complying with a median dividend payout ratio of about 20% since last 6 years
regardless of net profit / EPS. To the extent. retained earnings were considered
inelastic The retained earnings growth was negative during the year by (-) 21.18 %
at 2142900 mn (2189290 mn) in sync with declining profit growth.
3.4 Scope and Ability to Raise Additional Capital
3.4.1 Considering issued capital of 26841 mn against authorized capital of 250000

mn and the scope to raise IPDIs / PNCPs, the total headroom available for Tier I was
determined at 2359407 mn and for Tier II 2605055 mn.
3.4.2 The ability to raise capital from the market was pegged to infusion by the Gol
as a minimum of 51% has to be statutorily held by it, leaving the bank fiscally
dependent. The Gol holding of 62.31% had not fallen below 59.40% during last 5
years. The pricing of its MTN programs overseas has been influenced by the bank's
rating (recently downgraded) as well as sovereign rating at the material time. The
ability to raise additional capital at competitive price in near future may also be
constrained in the supply side by lumping of capital raising plans by many Indian
banks while on the demand side. by the finite appetite of the domestic and global
investors for banking stocks. The bank in its Annual Report had disclosed that as the
rules for Tier II capital had become quite stiff and challenging, it did not think it
optimum to raise tier II capital.
Page 32 of 35
CONFIDENTIAL
4. Supervisory Review and Evaluation
4.1. ICAAP Document & Risk Reviews

4.1.1 The ICAAP document for FY2014 was forwarded to RBI in January 2014, with
a delay of more than 6 months, without any supporting documents such as risk
measurement methodologies / capital models used and validation results. The
ICAAP document missed out on the banks approach to capital raising and dividend
plans and specific capital management plan for FY2014. The most material risks
were not identified and included in the executive summary. The background did not
cover necessary historical financial data which had critical implications for bank's
future. The ICAAP also lacked in evaluating the internal capital adequacy; position
vis-a-vis strategic positioning, balance sheet strengths / weaknesses and non-
achievement of assumed profitability parameters during FY 2013 The key
sensitivities and future scenarios did not explain how the bank would be affected by
scenarios such as recession and its approach to manage business and capital
complying with minimum regulatory standards. The required financial projections for
•
3-5 years of with regard to its business plans and solvency were not calculated. The
document totally missed out on elaboration of management action assumed in the
design of ICAAP with required evidence of quantitative simulation of its impact. In the
absence of appropriate granular data, no risk aggregation was attempted and
instead, the total capital requirement was arrive at as simple sum of capital
requirements for identified risks ignoring their inter-linkages. The ICAAP was not
subjected to any testing by the internal group framing the document, internal auditors
or external reviewers.
4.1.2 The Pillar II risks identified by the bank included Information Technology Risks
which was a part of Pillar I risks. It was not clear if the bank intended to include it as
Information Risk, given the issues of information quality in the bank. No capital has
been set aside for credit concentration risk despite bank's exceeding the internal
significant exposure limits in some cases as well as for residual risks arising from
• credit risk mitigants. The group risk has not been considered under pillar II risks and
capital demands from group entities were not discreetly factored in the bank'$ capital
plan. The capital required for compliance risk has been determined in termsi of past
penalties paid rather than the business impact of regulatory / supervisory action
4.2. Capital Planning
4.2.1 Internal Capital Ratio (ICR)
Under extant capital prescription, the bank was mandated to maintain a m nimum
CRAR of 9 per cent on an ongoing basis and expected to operate at a level well
above the minimum requirement. The bank had set the ICR of 12% for CRAR and 9
% for Common Equity Tier 1 (CET1). The setting up of these limits looked just
intuitive rather than informed.
Page 33 of 35
CONFIDENTIAL
While these ratios were stated to encapsulate the risk appetite of the bank, these
were not being aligned in relation to prudential floor of 80% of the minimum capital
requirement computed as per Basel I framework for credit and market risks despite
actual change in risk profile of the bank.
4.2.2 Capital Planning

ICAAP took the capital infusion readiness by Gol as the starting point for capital
planning rather than making capital plans based on risks / business plan etc. After
PPR Department obtained the approval from Gol, the Enterprise Risk Management
(ERM) prepared the capital plan. The capital plan in the ICAAP varied from the
requisition submitted to Gol for capital The bank had identified but considered no
capital for credit concentration risk, residual risk arising from credit mitigants and
pension fund obligation risk although such risk factors have negatively impacted its
capital adequacy in the past
4.2.3 The 'Use Test'
There was nothing to demonstrate embedding of ICAAP or integrating of the capital

plan in the business processes of the bank. In the absence of Key Performance
Indicators being also set in terms of capital efficiency. understanding and support of
the senior management to ICAAP was not in evidence. In the absence of a
functioning ERM framework, end-to-end validation of the ICAAP was not in sight
4.2 4 Stress Testing Practices
(a) No robust stress testing framework had been put in place by the bank. The role of
Board and senior management in setting stress testing objectives. defining
scenarios, discussing the results of stress tests, assessing potential actions and
decision making on the basis of results of stress tests was not in evidence.
(b) As against regulatory guidelines to stress the relevant parameters at least at
three levels of increasing adversity. the bank applied two un-connected scenarios to
estimate the capital adequacy. The frequency of stress testing did not meet the
minimum regulatory guidelines. There was no evidence of identification / activation of
any remedial action on breach of any stress tolerance levels.
(c) The stress scenarios used by the bank did not capture all the potential
vulnerabilities in terms of depth and duration potentially faced by the bank The credit
risk stress did not include a single scenario on deteriorating NPA / slippage ratio in
non-restructured accounts, future higher provisioning requirements notified, etc. As
for market risks, the impact of change in the domestic yields or spreads overseas for
Indian Corporate Bonds that happened in FY 2014 had not been captured by the
stress tests and remedial measure taken in time. The bank did not visualize any loss
under stressed scenarios for reputation risk or compliance risk.
(d) Under a stress scenario for credit risk. while the computed capital requirement
was 2133,350 mn, the amount recognized in the approved ICAAP document was
235,230 mn underestimating the capital deficit.
Page 34 of 35
CONFIDENTIAL
5 Conclusion
In the light of overall risks assessed under IRISc model in the context of business
strategy / plans of the bank in a forward looking manner, the level of risks was
considered to be "High". Based on assessment of the quantum of capital / adequacy
of the capital planning process against the said risks. a supervisory add-on capital
and/or minimum Risk Mitigation Plan (RMP) for the bank as of March 31. 2013 are
also determined and recommended.
Page 35 of 35
CONRDENTIAL
Part III — Regulatory Compliance Review
SI. Compliance Compliance Subject / Matters Compliance Status / Non-compliance / Violation

No. Reference
1 Section 22(3)(a) of Solvency Certification Against total outside liabilities of 148408.04 mn (Z
BR Act 1949 124680.38 mn), the bank was considered to have
adequate assets to meet its liabilities_ It continued to
maintain in 'real or exchangeable value', the minimum
ca • ital required as per statutory requirements.
RPCD CO Plan BC 1 Lending to Priority Sector Si The bank had not achieved targets in respect of Total
2/04 09 01/2012-13 Priority Sector Lending and Indirect Agriculture Lending
dated July 2, 2012 and overstated lending to priority sector by Z 98038 mn
DBOD.No.Dir.BC.3/1 Cross Holding among Banks and Fls As per filing of LIC of India (an FI) under SAST
3.03.00/2012- 13 July Banks / Fls should not acquire any fresh stake in a Regulations with BSE on August 29, 2013, it holds
2. 2012 bank's equity shares, if by such acquisition, the 13.26% of the total share / voting capital of the bank after
investing bank's / F1's holding exceeds 5 percent of open market acquisition during Jan 2010-Aug 2013 The
Para 2.7.1 (ii)/(iii) the investee bank's equity capital except under above holding could not be demonstrated to have been
provisions of a Statute. supported by provisions of any statute.
Sec 11 of SBI Act restricts the voting right of any
non-Gol shareholder to a ca • of 10 %
Sec 34 of SBI Act, Holding of non-banking asset Though the provisions of Sec. 9 of B.R. Act 1949 was
1955 As per Sec 3(1) of SBI Act the bank was constituted not applicable to the bank, the bank acquired and held
to carry on the business of banking and other non-banking assets in satisfaction of financial claims
business in accordance with the provisions of this beyond 7 years and sought DBOD permission for the
Act and Sec. 3(3) empowers the bank to acquire same The bank treats its power to acquire and hold non
and hold property. whether movable or immovable. banking assets as open-ended in terms of Sec 33 of SBI
for the purposes for which it is constituted and to Act read with Sec 6(1)(g) of the B R Act without
dispose of the same. As per Sec. 34 ibid, save as application of Sec 34 of SBI Act
-otherwise provided in this Act, the State Bank shall
not own or acquire any immovable property except The barikThas been Taking the asset on its books even
for the purpose of providing buildings or other before it has got clear legal title (Ranka Cables) After
accommodation in which to carry on the business of amendments to SARFAESI Act. 2002 in December 2012,
the State Bank or for providing residences for its the bank has been itself bidding for assets when third
Page 1 of 17
CONFIDENTIAL
officers and other employees: parties fail to bid in auction and as such accumulating
non-banking assets without applying the provisions of
Provided that if any such building or other Sec. 34 of the SBI Act.
accommodation is not immediately required for any
of the purposes of the State Bank , the State Bank
may utilize it to the best advantage by letting it out
or in any other manner.
5 DPSS.CO.PD Payment Systems The bank charges 2.50% for POS transactions at petrol
No.2361/02.14.003/2 Merchant Discount Rates (MDR) structure for debit pumps through debit cards issued by it.
011-12 dated June card transactions
28. 2012 Not to exceed 0.75% for value up to Z 2000 and 1%
Para 3 for others.
DBOD No. Leg. Customer Service The personnel at counters of the bank refuse to
BC.21/09.07 006/201 Both the drop box facility and the facility for acknowledge instruments on the pay-in slip counterfoil.
2-13 dated July 02, acknowledgement of the cheques at regular
2012 collection counters should be available to the
Para 13 customers and no branch should refuse to give an
acknowledgement if the customer tenders the
cheques at the counters.
7 Sec.23 of B.R Act, Branch Authorisation The bank had not reported the case of dispute with
1949 Reporting of shifting of bank branches and disputes landlord w.r.t Edi Bazaar Branch, Hyderabad
with land lords
8 DBOD. NO BP 40/ Outsourcing — Annual Review The annual review of financial services outsourced to
2104.158/ 2006-07 Submission of certificate to RBI within stipulated third parties as on March 31 2012 was carried out with
dated November 3, time frame delay and was approved by ECCB on March 06. 2013,
2006 the certificate to RBI was yet to be submitted against
stipulated time period of before June 30, 2012. The
bank was yet to complete the process for the year ending
March 31. 2013 and yet to submit the certificate to RBI.
As per some of the report received from circles serious
irregularities by cash replenishing agencies had been
reported.
DBOD No Leg BC 18 — Opening of Minor's A/C The bank allows minors to open and operate SB
/09.07 006/2011- Accounts of Hindu Minors can be operated through accounts without any stipulation on guardians though BC
12 dated July 01, father / mother as guardians as Minors are not channel
Page 2 of 17
CONFIDENTIAL
2011 (eligible to enter into contract

Para 5.3(xi) / 5.10
10 DBOD.No.BP.BC .78/ Long Term Employee Benefits On the basis of IBA letter dated April 25, 2013 for
C 686/91-92 dated The bank should include other staff benefits like actuarial assumptions. the gap between the fund needs
February 6. 1992 provident fund, pension. gratuity. leave fare and existing fund for SBI was determined at 109955.20
DBOD. concessions. etc under Operating expenses and it mn for pension However the bank had made
No. BP BC.89/21 04.0 must comply with AS-15 issued by ICAI incremental provisions for only 25532 40 mn during the
18/2002-03 dated year. The following gaps were observed in compliance of
March 29 2003 the bank with proper provisioning as envisaged in the
Accounting Standard (AS15) and acceptable parameters
IBA Guidelines for assumptions recommended by IBA
PS&BT/Pension- (a)The actuarial assumptions on Salary Escalation Rate
DgN/6816 dated (SER) had been taken as 5% by the bank for many years
February 23. 2013 without any review As per IBA guidelines (i) Average
increase in salary due to increments promotions. usually
2.5-3 0%: (ii) Average increments in DA usually 6 % and
(iii) Future increase in salary owing to Wage Revision ,
agreements
This is considered to be understated in view of IBA
benchmark of 5 to 5.50 % only on account of (i) and (ii)
components While the bank made additional provisions
from June 2013 onwards are towards current liabilities on
account of the likely wage revision. the same had not
been extended to actuarial assumptions The IBA. vide
its letter dated April 25 2013 had conveyed 6% as the
Salary Escalation Rate to be used by the banks. As per
ICAAP document of the bank (sensitivity analysis) for FY
2014, the additional provision required for SER of 6 %
was 219780 mn.
(b) For the purpose of actuarial estimation for pension
liabilities. the Average Future Payment Term has been
stated to be 11+20 years against which a Discount Rate
of 8.50% has been used The FIMMDA benchmark
annualized yield for 30 years (maximum tenor at present)
was 8.35% and if it were to be extended further, it would j
Page 3 of 17
CONFIDENTIAL
be slightly lower in view of the inverted yield curve at the

long-end as on March 28. 2013 Given the explanation of
the bank/ actuaries that it is a practice to round the rate
to nearest 25 bps, this Discount Rate is considered
higher by at least 25 basis point implying understatement
of pension liabilities. However, the additional provision on
the count could not be quantified by the bank
(c) Against assumed attrition rate of 2%. the observed
attrition rate reported in its MIS for FY2013 was 1.21% for
supervisory staff and 0.61% for non-supervisory staff.
(d) Provisions for the following other Long Terms Benefits
(Ref. Sch.18 7(1)(iii) of Balance Sheet for FY2013) have
registered decline during the year reportedly due to write
backs of such provisions as liabilities had been met from
current expenses
- LTC 2.249.6 mn (2.443 3 mn)
- Sick Leave Z 181 7 mn ( Z 747.7 mn)
- Resettlement Expenses Z.14.4 mn ( Z 117 mn
However. the actuarial position could not be
demonstrated by the bank.
(e) As regard a few governance points recommended by
IBA, the bank had not adhered to the following:
(i) Board approved policy for funding of defined benefit
superannuation schemes incorporating the factors
suggested in the IBA Guidance Note so as to render the
assumptions made every year policy-driven rather than
ad hoc.
(ii) Obtaining comments of Statutory Central Auditors on
the rationality of assumptions used in actuarial
calculation.
(iii) Ensuring that Discount Rates applied by the parent
bank and its subsidiaries being normally the same or
consistent.
11 DBOD FSD BC 62/24 Investments in subsidiaries and other The bank did not have a system to monitor such
.01.001/2011-12 corn•anies breaches.
Page 4 of 17
CONFIDENTIAL
dated Dec 12, 2011 Equity investment by a bank in companies engaged

in non financial services activities would be subject
Para 8 1 to a limit of 10 per cent of the investee company's
paid up share capital or 10 per cent of the bank's
paid up share capital and reserves. whichever is
less.
12 Sec. 10 of B.R Act, No banking company shall employ or continue the While introducing an incentive scheme for staff for
1949 employment of any person whose remuneration or recovery in AUCA /Written off accounts. legal clearance
part of whose remuneration takes the form of for adherence to B R .Act was not obtained from the legal
commission or of a share in the profits of the department The employees received commission as a
company percentage of recovery which purely formed profits of the
bank.
13 DBOD No.BP.BC. Comprehensive Guidelines on Derivatives System for measurement of market risk at the bank level
86/21.04.157/2006- Banks should assess the probability of future loss in was yet to be put in place Even at the domestic level risk
07 dated April 20. derivative positions by estimating a) the sensitivity of monitors viz VaR etc were not across all asset clauses.
2007 the instruments in the portfolio to changes in the As a result the triggers arrived at by the bank were
market factors which affect their value and b) the grossly overstated Further. the bank was using decay
tendency of the relevant market factors to change factor without proper review which limited the possible
based on past Volatilities and correlations. VaR at the prescribed significance levels to very few data
points as opposed to 500 days historical prices. Further,
the system was designed in such a way that the VaR
number was one value after the repecive significance i.e.
instead of taking 495th value.
14 DBOD No BP 520/21 Guidance Notes on Market Risk Management The system in place for monitoring NOOP and AGL till
04.103/2002-03 The banks should fix its open foreign exchange March 31. 2013 had not taken into account all the heads
dated October 12, position limits and monitor the overall open position of balance sheet. The NOOP compilation system took
2002 limit for the bank on a real time basis data only from treasury related operations_
15 DBOD No. Dr BC.3/ Exposure Norms Breach of single and group borrower exposure limits was
13.03.00/ 2012-13 The exposure ceiling limits would be 15/20 percent observed in case of one borrower This breach was over
dated July 2, 2012 of capital funds in case of a single borrower and and above the two instances of breaches of group
—Para 21.1 -40/50 percent of capital funds in the case of a . borrower exposure limits known to the bank. (Ms. Tata
borrower group. The additional 5/10 percent was on Steel)
account of credit to infrastructure projects Another
5% of capital funds can be allowed with the approval
Page 5 of 17
CONFIDENTIAL
of the Board under exceptional circumstances

subject to the borrower agreeing to disclosure of the
information in the bank's balance sheet The capital
funds for the purpose will comprise of Tier I and Tier
II capital as defined under capital adequacy
standards.
16 DBOD. No. Dir. Exposure Norms The bank had sanctioned an OD of Z.46 mn to one
BC.3/13 03.00/ 2012- Loans against security of shares convertible bonds, individual borrower (Mithilesh Kumar' Aggarwal) on
13 dated July 2, 2012convertible debentures and units of equity oriented March 30. 2012 against bonds and debentures
Para 24 mutual funds to individuals from the banking system
should not exceed the limit of Z.1 mn per individual
if the securities are held in physical form and Z. 2
mn per individual if the securities are held in demat
form
17 DBOD.No.BP.BC.16 Prudential Guidelines on Capital Adequacy and Substantial exposure limit of 10% and 30% of capital
/21.06.001 / 2012-13 Market Discipline -(NCAF). funds for single and group borrowers were breached in
dated July 2. 2012 As a prudent practice. banks may like to ensure that case of four single borrowers and two group borrowers as
Para 13 6 their aggregate exposure (including non-funded on March 31, 2013
exposures) to all 'large borrowers' does not exceed
at any time. 800 per cent of their 'capital funds. (as
defined for the purpose of extant exposure norms of
the RBI). The 'large borrower' for this purpose could
be taken to mean as one to whom the bank's
aggregate exposure (funded as well as non-funded)
exceeds 10 per cent of the bank's capital funds.
18 DBOD No. Dir Guarantees and Co - acceptances The bank continued to issue bank guarantees to
BC.02 /13 03.00 / Banks should refrain from issuing guarantees on customers who did not enjoy credit facilities from the
2012-13 dated July 2, behalf of customers who do not enjoy credit facilities bank during 2012-13
2012 with them
Para 2.2.3
19 DBOD. No. Dir. Guarantees and Co-acceptances The bank continued to issue LCs to customers who did
BC.02 /13 03.00 / Banks should not extend any non-fund based not enjoy credit facilities from the bank during 2012-2013.
2012-13 dated July 2, facilities or additional/ad-hoc credit facilities to
2012 parties who are not their regular constituents, nor
• Page 6 of 17
CONFIDENTIAL
•
Para 2.7 should they discount bills drawn under LCs or
otherwise. for beneficiaries who are not their regular
clients.
20 DBOD. No. Dir. Exposure Norms There were 25 cases of breach of extant regulatory
BC 3/13.03.00/ 2012- A uniform margin of 50 per cent shall be applied on instructions relating margin requirements in loans and
13 dated July 2, 2012 all advances / financing of IPOs / issue of advances given to stock brokers
Para 2 4 11 guarantees on behalf of stockbrokers and market
makers. A minimum cash margin of 25 per cent
(within the margin of 50%) shall be maintained in
respect of guarantees issued by banks for capital
market operations. These margin requirements will
also be applicable in respect of bank finance to
stock brokers by way of temporary overdrafts for
DVP transactions. The above minimum margin of 50
percent and minimum cash margin requirement of
25 percent (within the margin of 50 percent) will also
apply to guarantees issued by banks on behalf of
commodity brokers in favour of the national level
commodity exchanges.
2 1 DBOD.No.BP.BC.59/ Guidelines on Banks' Asset Liability Behavioral Study
21 04 098/ 2010-11 Management Framework - Interest Rate Risk - The bank's behavioural study was found to be lacking in
dated November 04, Behaviourilastion the following aspects-
2010 Banks to have an appropriate process to conduct 1. A time frame of 6 months was used for performing
Para 4.2 1 behavioural studies in a consistent manner and trend analysis incase of identifying the core and volatile
have a detailed framework to review these studies portions This might not take into account various cyclical
and their output periodically The behavioural and seasonal components,
studies should be based on at least three years 2. In case of unavailed cash credit/OD loans, the bank
data. Banks may evolve a suitable mechanism, had studied the 9 months data to arrive at the standard
supported by empirical studies and behavioural deviation and mean. This was against the guidelines
analysis to estimate the future behaviour of assets issued in Appendix IV A of circular
and liabilities and off-balance sheet items with DBOD.BP.No 56/21 04.098/ 2012-13 dated November 7,
respect to changes_in market variables. 2012
-Tri-dase Ordemand deposits. the bank had taken 6 -
month data for statistical processing to arrive at various

assumptions including that of roll over, core and volatile
Page 7 of 17
CONFIDENTIAL
portion and bucketing. This might not be effective as the

seasonal and cyclical components may not be captured.
4 The bucketing in terms of Letters of Credit /
Guarantees were not in line with the guidelines issued in
the liquidity management circular ref
DBOD.BP No.56/21.04 098/ 2012-13. Instead. the bank
had taken a point value and applied the same Bank did
not have appropriate process to conduct behavioural
studies in a consistent manner and detailed framework to
review these studies and their output periodically.
22 DBOD No. BP BC. Guidelines on ALM System The following deficiencies were observed in the
38 / 21.04. 098/ Banks may undertake dynamic liquidity preparation of SLS.
2007-08 dated management and should prepare the Statement of Instead of bucketing different types of investments as per
October 24. 2007 Structural Liquidity on daily basis. Annexure II. the entire investment portfolio was being
totalled and divided into maturity buckets as per the
maturity pattern.
The bank was bucketing working capital demand loans
(WCDL) as per residual maturity as against bucketing it
as per behavioural study as outlined in point 5 (ii) of
Annexure II
While bucketing term loans, the bank assumed that 1%
of total term loans will be prepaid Hence it added this 1%
of total in the first four buckets in the ratio 10. 20. 20. 50.
This is not line with point 5 (iii) of Annexure II. which
states that Interim cash flows may be shown under
respective maturity buckets.
Interest. interest suspense and instalments from

advances and investments which were overdue for more
than one month (but before classification as NPAs) were
not placed in the 29 days to 3 months bucket
Delay in submission of SLS and DLR statements to
ALCO had also been observed
23 DBOD.No.BP (SC).B Fund Transfer Pricing The bank had migrated to a new transfer pricing
C.98/21.04.103/99 A scientific internal Funds Transfer Price (FTP) mechanism policy based on spreads over the actual
Page 8 of 17
CONFIDENTIAL
dated October 07, mechanism could be evolved to supplement the rates/ card rates for each product type from its Market
1999 ALM. Related Fund Transfer Pricing (MRFTP) methodology in
Para 1 FY 12. This change was effected. as the true position of
branches' profitability was not being captured by the
earlier method as the funding centre was in deficit
continuously for two years (FY 2010& 2011)
Though the new policy had effectively curbed the deficit
in the funding centre, it was inefficient as the funding
centre had been continuously accruing surplus since the
implementation of the new policy. These have been
redistributed amongst the various business units based
on the respective share in the total business at the
funding centre A review of the same was undertaken in
January 2013 to reduce the surplus. Also. the manner in
which the pricing is undertaken is "ad-hoc" than scientific,
with the reason for the quantum of the change not been
documented
As per the new policy. there was an effective reduction of
50 bps in the transfer price for advances granted to
(BBB- A-) rated borrowers, which might incentivise units
to lend to lower rated borrowers at lower rates This might
impact the quality of loan portfolio. It had disincentivised
personal Loans by undertaking no change for loans with
floating rates and increasing for fixed rates.
The demand deposit rates were largely increased by 100
bps, while the term deposits were left unchanged
Further, it has also incentivised CAG/MCG and other
business units for booking syndication business through
merchant bankers. wherein the amount as
calculated/advised by CAG would be provided to the BU
for onward distribution out of the ALM funding pool This
might lead to take-over of loans without proper diligence.
case-of foreign offices, the policy stated that the pricing
was based on the market lending rates.
24 Master Circular No. 1 Cash Transaction Reporting The bank's AML monitoring system was deficient and—
Page 9 of 17
CONFIDENTIAL
/2012-13 July 02, In terms of the PML rules. APs (Indian Agents) are bank is yet to implement IBA recommended scenarios for
2012 required to report information relating to cash and alert generations. In some of the accounts STR was filed
Para 4.12 suspicious transactions to Financial Intelligence after being followed up by RBI or scrutiny of the accounts
Unit-India (FIU-IND) in respect of transactions by investigating agencies like CBI.
referred to in Rule 3.
25 DBOD AML.BC.No.1 Transaction Monitoring As mentioned above due to non-implementation of IBA
1/14.01.001/2012-13 Banks to monitor all complex. unusually large recommended scenarios for generation of alerts, banks
dated July 2. 2012 transactions and all unusual patterns having no AML monitoring system was not capable of monitoring
Para 2.10 apparent economic or visible lawful purpose complex. unusually large transactions and all unusual
patterns having no apparent economic or visible lawful
Ur ose
26 DBS.FrMC.BC.No.1/ Fraud Reporting In many instances police case was not filed
23.04.001/2012 Frauds must be reported to Police / CBI
dated 13 July 2. 2012
Para 6
27 DBOD.AML.BC.No.1 KYC Norms In case of inward remittance meaningful information was
1/14.01.001/2012-13 All cross border wire transfers be accompanied by not available in most of the cases
dated July 2, 2012 accurate and meaningful originator information.
Para 2.19
28 DBS.CO.PPD.BC/13/ Submission of LFAR The SCA had submitted the LFAR on July 31, 2013 with
11.01.005/2007-08 The Statutory Central Auditors are required to a delay of one month. The bank is yet to submit the
dated May 13. 2008 submit the LFAR to the banks latest by 30th June compliance to the LFAR to the Board.
every year and the banks are advised to forward a ACB on 26/12/2012 had noted that the annual 'Whole
copy each of the LFAR. relative agenda note along Bank LFAR' had become a routine exercise highlighting
with Board's views or directions to the concerned issues of transactional nature , mostly brought out earlier
Regional Office of Department of Banking in the bank's internal audit reports and suggested to be
Supervision within 60 days of submission of LFAR safely dropped from plethora of audits already in place
by the Statutory Auditors. without losing any value.
29 DB& FrMC.BC. No_ 1/ Fraud Reporting Delay of reporting of fraud ranging from one month to six
23.04 001/2012 Frauds should be reported to RBI in form FMR-1 month was observed in many instances
dated 13 July 2, 2012 within 3 weeks of detection
Para 3
30 DBOD No .Leg. BC. Customer Complaints The time line of 7 days was not adhered to in many
21 / 09 07 .006/2012- The time limit for resolution of customer complaints instances.
13 dated July 02, by the issuing banks shall stand reduced from 12
Page 10 of 17
CONFIDENTIAL •
2012 working days to 7 working days from the date of
receipt of customer complaint. Accordingly, failure to
Para 5.12 recredit the customer's account within 7 working
days of receipt of the complaint shall entail payment
of compensation to the customer @ 100/- per day
by the issuing bank. Non-adherence to the
provisions contained in para 5.12 (a) to (d) shall
attract penalty as prescribed under the Payment and
Settlement Systems Act 2007 (Act 51 of 2007).
31 DBOD. No. Dir. BC.4/1 Financing Govt. Budget There was practice of sanction of such limits over a long
3 03.00/2012-13 July In terms of extant regulatory guidelines Bridge period of time, even though the loans were being repaid
2, 2012 Loans against receivables from Government are not within 60 days in most cases.
permitted. although finance subsidy receivable
Para 2 3.24 under the normal Retention Price Scheme (RPS) for
periods upto 60 days in case of fertilizer industry is
an exception However, the exception is granted as
a purely temporary measure and the fertilizer
companies should strengthen their financial position
gradually so that they do not depend on the banks
for finance against subsidy.
32 DBOD.NO BP.BC 88 Dividend Pay out While computing distributable income for dividends as
/ 21.02. 067 / 2004- per regulatory guidelines, the bank did not ensure that (a)
05 Only current year ordinary income was taken and (b) the
Dated May 4, 2005 items such as income accounted from creation of DTAs
were excluded. Nonetheless, the bank was within the
stipulated ceiling for FY 2013 after accounting for the
said 2 factors.
33 DBOD.No.Dir. BC. 11 Advances against FCNR(B) deposits - Manner of The bank sanctioned Rupee Term Loans for maturity
/13 03 00 / 2013-14 charging interest longer than that permitted for with swing option for FCNR
dated July 1 , 2013 Advances against FCNR(B) deposits - Manner of (B) loans without any restrictions
charging interest
Para 2.7
(i) When a loan or an advance is granted against an
FCNR(B) term deposit which stands in the name of
a borrower either singly or jointly, a bank would be
Page 11 of 17
CONFIDENTIAL
free to charge a rate of interest without reference to

its own Base Rate
(ii) If the term deposit against which an advance was

granted is withdrawn before completion of the
prescribed minimum maturity period, such an
advance should not be treated as advance against
term deposit and interest should be charged as
prescribed in terms of Reserve Bank of India's
directive on interest rates on advances issued from
time to time
(iii) When a loan or advance is granted out of

resources mobilised under the scheme. interest rate
chargeable should be at the rate as prescribed in
terms of Reserve Bank of India's directive relating to
Interest Rates on Advances.
34 DPSS(CO) RTGS RTGS Transactions The bank put through customer transactions in RTGS
No 1959 / 04 04 All RTGS participants are. therefore. advised to under interbank window.
002/ 2008-2009 strictly adhere to the RTGS procedural guidelines
dated May 11 2009 and desist from the practice of pushing customer
transactions in the interbank mode. Violations. if
any. brought to our notice would be viewed seriously
and would attract penalty under Section 30 of the
Payment and Settlement Systems Act. 2007(51 of
2007).
35 DBOD No BP.BC 16/ Review of the ICAAP Outcomes This requirement was not being complied with
21.06 001/2012-13 The board of directors shall, at least once a year,
dated July 2. 2012 assess and document whether the processes
relating the ICAAP implemented by the bank
Para 12 4 successfully achieve the objectives envisaged by
the board The senior management should also
receive and review the reports regularly to evaluate
the sensitivity of the key assumptions and to assess
the validity of the bank's estimated future capital
• Page 12 of 17
requirements. In the light of such an assessment,
appropriate changes in the ICAAP should be
instituted to ensure that the underlying objectives
are effectively achieved
36 DBOD.No.FSD.BC.3 IRDA Guidelines on Tele marketers TRAI had penalized SBI for failing to comply with TRAI
0/24 01.001/2013-14 As per, It was reiterated that banks should engage regulations related to tele marketing.
dated July 15. 2013 only those telemarketers who are registered in
terms of the guidelines issued by TRAI, from time to
time, for all their promotional / telemarketing
activities.
37 DBOD.BP.BC.No.41/ Investment portfolio of banks - Classification, The bank had amortized the depreciation of whole year
21.04 141/2013- Valuation and Provisioning during its September 2013 results where RBI
14 dated August forbearance was only for the quarterly MTM losses
23, 2013 Banks are required to periodically value their AFS
and HFT portfolio and provide for net depreciation in
accordance with paras 3.2 and 3..1 of the Master
Circular dated July 1. 2013 referred to above Banks
will now have the option of distributing the net
depreciation on the entire AFS and HFT portfolios
on each of the valuation dates in the current
financial year in equal installments during the
financial year 2013- 14.
38 DBS.CO.ITC.BC.No. Banks need to ensure implementation of basic Time lag in completion of the project, applications not
6/ 31.02 008 / 2010- organizational framework and put in place policies commensurate with the size of the bank and not in the
11 dated April 29, and procedures which do not require extensive same phase with the expansion strategy etc were
2011 budgetary support. infrastructural or technology
observed 18% of recommendations vide circular dated
Changes. by October 31. 2011. The rest of the
DBS.CO ITC.BC.No 6/31.02 008/2010-11 dated April
guidelines need to be implemented within period of
one year unless a longer time-frame is indicated in 29. 2011 was yet to be implemented
_ the circular.
— -- ------ ---- — _.
39 RPCD.GSSD.BC.No. Priority Sector Lending- Special Programmes There were 75457 TDRs with lien of 68327 mn market
7/09 16.01/2012-13 The loans granted under the scheme should be in favour of loans qualifying for govt. subsidies There
dated July 2, 2012 treated as advances under priority sector and were 3829 TDRs which were created out of loan
Page 13 of 17
CONFIDENTIAL
I accordingly the loan applications should be accounts involving subsidies / subventions and were
And disposed of expeditiously within the time schedule utilised to close the same loan accounts where total limits
prescribed in this regard i.e. applications for loans added up to 2521642 mn Further, subsidy claims were
RPCD GSSD.BC.No. made from 56547 accounts involving total limits of Z
upto Z 25000 within a fortnight and those for credit
1/09.01.01/2012-13 10509 mn where the allocated loan codes were not
dated July 2. 2012 limits above Z 25000 within 8 to 9 weeks
eligible for subsidies. In sample 18 cases, a total subsidy
claims for about 20.88 mn were made in respect of
Subsidy under SGSY will be uniform at 30 percent PMEGP/ SGSY schemes before lock in period of 3 years.
of the project cost, subject to a maximum of Z 7500. There were 55135 CIFs which were linked to 2 to 46 loan
In respect of SC / STs it will be 50 percent of the accounts each eligible for subsidy and one CIF linked to
project cost subject to a maximum of 210000. 1459 accounts for a State specific subsidy scheme.
There were 145 CIFs under PMEGP/SJSRY scheme
The group is entitled to subsidy of 50% of the which were linked to 2 to 16 loan accounts each. The
project cost subject to per capita subsidy of Z bank's system still showed a number of live loans
10000/- or 2.1.25 lakhs. whichever is less. There accounts under IRDP scheme aggregating 23923 mn
will be no monetary limit on subsidy for irrigation There were 1657280 TDRs with outstanding of 256377
projects. mn which earned no interest without any reconciliation
whether all represented subsidy / margin amounts
Subsidy under SGSY will be back ended. Banks
should not charge interest on the subsidy amount.
The availability of the benefit of subsidy to
Swarozgaris would be contingent on the proper
utilisation of loan as also its prompt repayment and
maintaining the asset in good condition The
procedure for operation of Subsidy Reserve Fund
accounts as detailed in paragraph 4.17 and 4.24 of
the SGSY guidelines may please be followed.
DRDAs will be opening savings banks accounts

with the principal participating bank branches for
administration of subsidy These accounts are to be
reconciled every three months and they will be
subject to annual audit.
40 DBOD.No.BP.BC.16/ Prudential Guidelines on Capital Adequacy and In order to lower the risk weight for marking down the
21.06.001/2012-13 Market Discipline -(NCAF) Lending to individuals LTV ratio the bank revalued the securities for existing
Page 14 of 17
CONFIDENTIAL
dated July 02, 2012 meant for acquiring residential property which are loans with higher LW ratio based on an NHB index (viz.
fully secured by mortgages on the residential RESIDEX) for increasing the security value.
Para 5.10 property that is or will be occupied by the borrower,
or that is rented, shall be risk weighted as indicated
as per Table 7k based on Board approved
valuation policy. LTV ratio should be computed as a
percentage with total outstanding in the account
(viz "principal + accrued interest + other charges
pertaining to the loan" without any netting) in the
numerator and the realisable value of the residential
property mortgaged to the bank in the denominator
41 DBOD.No BP.BC.1/2 Prudential norms on IRAC The Audit Committee in their meeting dated July 2013
1.04.048/2013-14 had approved a proposal for changing restructured retail
dated July 1, 2013 a. Restructured housing loans should be risk loan risk weights from 125% to 100%
weighted with an additional risk weight of 25
Para 12 5 percentage points
b. With a view to reflecting a higher element of

inherent risk which may be latent in entities whose
obligations have been subjected to restructuring /
rescheduling either by banks on their own or along
with other bankers / creditors, the unrated standard /
performing claims on corporates should be assigned
a higher risk weight of 125% until satisfactory
performance under the revised payment schedule
has been established for one year from the date
when the first payment of interest / principal falls
due under the revised schedule
42 DBOD.No BP BC, Prudential Guidelines on Capital Adequacy and The Audit Committee in their meeting dated July 2013
79/21.06.001/2013-14 Market Discipline -(NCAF) had approved a proposal for changing the CCF of
July 1, 2013 The credit equivalent amount in relation to a non- unused portion cifTC to 0%.
market related off-balance sheet item like, direct
Para 5.15 credit substitutes, trade and performance related
Page 15 of 17
CONFIDENTIAL
contingent items and commitments with certain

drawdown, other commitments, etc will be
determined by multiplying the contracted amount of
that particular transaction by the relevant credit
conversion factor (CCF).
$$ Details of divergence in Priority Sector Lending are given below
Z in mn
SI Parameter Amount reported by Misclassi I Actual Shortfall Reasons for declassification
. No s bank fication Achievement
--
Target Achieve identified as assessed
d by SSM by SSM
1 Total 3036328 2764839.5 ' 98038 2,666,801.50 369,526.50
Priority
Sector
2 Direct 1024760 7 1085840 14438.7 1,071,401.30 Not eligible as per para 1.1 of section I of master circular
Agriculture on Priority Sector Lending — Targets and Classification
dated July 20, 2012
RPCD. CO Plan BC 13/04 09.01/ 2012-13
3 Indirect 341586 162500 27497.4 135,002.60 206,583.40 Not eligible as per para 1 3 of section I of master circular
Agriculture on Priority Sector Lending — Targets and Classification
dated July 20, 2012
RPCD. CO. Plan BC 13/04 09.01/ 2012-13
_____ --,-----
4 Total 1366347 1248340 41936.1 1,206,403.90 159,943.10
Agriculture
— -
5 Weaker 160510 770290 770,290.00
sections
6 Differential 15940 1150 1,150.00 14,790.00
Rate of
Interest
7 Micro 439995 463601 463,601.00
MSME
Page 16 of 17
CONFIDENTIAL
r
SI Parameter Amount reported by Misclassi Actual Shortfall Reasons for declassification
. No s bank fication Achievement
Target Achieve identified as assessed
d by SSM by SSM _
8 Small 269724 49101 9 220,622 10 Not eligible as per para 2.1 1 (b) of section I of master
MSME circular on Priority Sector Lending — Targets and
Classification dated July 20, 2012
RPCD. CO. Plan. BC 13/04.09.01/ 2012-13
—
9 Housing 655712 7000 648,712.00 Not eligible as per para 5 of section I of master circular on
Priority Sector Lending — Targets and Classification dated
July 20, 2012
RPCD. CO Plan BC 13/04 09 01/ 2012-13
1 Micro
0 Credit
As per Bank As per SSM
Adjusted Net Bank Credit 759082 759082
Page 17 of 17
CONFIDENTIAL
ANNEX 1
Divergences taken in to account for paragraph 3.2
Table-I
Divergence in NPAs Provisioning
Borrower Name Date of Facility Net Out Date of NPA Classification Security/valuation details Provision Remarks
Last Type Standing
Sanction (indicate
as either
Fund
Based I
NonFund
Based )
As As As per As As per Bank As per SSM Held Required Shortfall
per per Bank per
Bank SSM SSM
Essar Steel Ltd 14-12- Fund 49548 31- Standard SS Charge on Charge on 0 7432.2 7432.2 The CC a/c was
Banking 2012 Based 08- Current Assets Current Assets considered
2012 and Equitable and Equitable overdrawn
Industry
Mortgage on Mortgage on
Exposure- continuously from
Fixed assets of Fixed assets of
Rs.372260 mn June 2012 to March
the company- the company-
Date of Initial 2013 on the
26020 26020
Sanction- grounds that the
March, 2011 sundry creditors
were not reduced
for arriving at the
DP. The overdrawn
CC a/c , after
knocking off the
sundry creditors
from the DP would
make the a/c NPA
as on August 2012.
I Also, repayment of_
Page 1 of 37
CONFIDENTIAL
•
September 2012
instalment of TL was
paid by the sanction
of SpI corporate
loan (SCL) of Rs.
20000 on November
2012 meant for
shoring the NWC. TL
was thus
regularised on
November 23, 2012.
K S Oil Ltd 30-12- Fund 8035.27 31- Standard D2 Charge on Charge on 0.0 3214.1 3214.108 The account was
2011 Based 03- Current Assets Current Assets upgraded after
2010 and Equitable and Equitable being restructured
Mortgage on Mortgage on
in FY 12. Several
Fixed assets of Fixed assets of
important CDR
the company- the company-
conditions are yet to
9791 9791 be fulfilled. So, the
account had been
classified as NPA.
Retail NPA #N/A Fund 7970.2 #NJA #N/A #N/A #N/A #N/A #N/A 1088.67 1787.97 699.3 Additional
Accounts Based provisions, in lieu of
shortfall in
provisioning has
been suggested.
PSL Ltd 12-12- Fund 6394.7 31- Standard SS Charge on Charge on 0.0 959.2 959.2 The account has
2012 Based 03- Stocks & Stocks & been prevented
2013 Receivables Receivables from being classified
and Fixed and Fixed
as NPA by the bank
Assets of the Assets of the
by credits near
company- company- -
6769
balance sheet date.
6769
Thus, the account
has been classified
as NPA due to
Inherent weakness
in the account as
Page 2 of 37
CONFIDENTIAL
per para 4.2.6 of MC

on IRAC.
Surya 27-02- Fund 5273.7 18- 18- SS Loss Charge on 0 2031.2 5273.7 3242.5 The borrower was
Pharmaceuticals 2013 Based 04- 04- Current Assets issued several LCs of
Ltd 2012 2012 and Fixed suspect bona fides
Assets of the
for merchanting
company-
trade as against the
17290
initial sanction
terms. These LCs
devolved serially
from October 2011.
The credit audit
undertaken by the
bank in 2008 had
identified various
issues with this
account. Further,
various irregularities
including
submission of bogus
Bills of lading,
diversion of bank
funds to other
group entities and
procedural lapses in
LCs were observed
in the account.
Hence, the account
has been treated as
Fraud as per para
4.2.9 of the Master
circular .
Page 3 of 37
CONFIDENTIAL
Hotel Leela 28-09- Fund 4883.6 31- Standard D1 First Charge First Charge 0.0 1220.9 1220.9 The bank has
2012 Based 03- on Stocks and on Stocks and granted the loan
Ventures
2012 EM on Fixed EM on Fixed originally for a
Banking
assets at assets at specific real estate
Industry
Chennai, Chennai,
Exposure- Rs project which was
Mumbai, Goa, Mumbai, Goa,
50061.7 mn shown to be run as
Delhi and Delhi and
Date of Initial Udaipur- Udaipur- a hotel on
Sanction- July 7569 7569 completion. SBI's
2007 exposure of Rs. 500
cr was against the
first pari passu
charge on the Delhi
(Rs. 440 cr)&
Chennai hotels (Rs.
60 crore) which was
part of syndicated
loan of Rs. 980 cr.
The entire exposure
of the borrower
was restructured
under CDR on
September 28,
2012. The CDR
package envisages
pooling of the
borrower's entire
assets and selling
the non-core/less
profitable ones to
reduce the
borrower's loan
liability. The
remaining o/s would
he met out of the
cash flows from the
other assets.
Page 4 of 37
CONFIDENTIAL
The account could

not be considered
as performing as the
major asset, Delhi
Hotel., against
whose cash flows it
had financed the
borrower was
considered as a less
profitable venture
and hence was
proposed to be sold.
Bilcare Ltd 17-08 - Fund 2193 29- 29- ol D1 Charge on Charge on 607.6 869.6 262.0 As there was a
2011 Based 10- 10- Fixed Assets/ Fixed Assets/ shortfall in the
2011 2011 P&M and P&M and provision held by
current Assets current Assets
the bank as per
of Bilcare Ltd- of Bilcare Ltd-
provisioning norms,
1724 1724
the team has
suggested
additional provision
as per para 5.3 of
the MAster circular.
The security details
are as under:
i. 31.3%
of 2160.13
(P&M from Annual
Report)
ii. Depreciation
applied on 748 mn
iii. Bilcare Research
AG valued at 345
mn (as per CCDP)
Page 5 of 37
CONFIDENTIAL
Spanco Ltd 14-08- Fund 2039.78 29- 29- SS D1 Fixed Assets Fixed Assets 306.0 1282.7 976.7 Since the value of
2011 Based 08- 08- (W.D.V) as on have been security had
2012 2012 31.3.12 and revalued deteriorated by
Current Assets accounting for
more than 50% of
of the Depreciation
the outstanding
company as at 15%-
amount, the present
on 31.12.2012 1009.47
AFI has downgraded
1068.50 the account to Dl.
Therefore, the AFI
had classified the
account as NPA
under Para 4.2.9 (i)
of Master circular.
Spentex 21-OS- Fund 2168.7 31- Standard D1 CA (Including CA (Including 0.0 522.0 522.0 The account was
Industries Ltd 2012 Based 03- Government Government restructured and
2012 Receivables) Receivables) the package was
and Fixed and Fixed
Banking implemented on
Industry 31.3.2009. The
company - company-
Exposure- Rs. package was
6847.7 mn 2469 2469 reworked with NPV
Date of Initial protection in June
Sanction- 2009. The a/c was
August, 2004 overdue from June
2011 to August
FITL- 80.7 2011 continuously
and was made
regular in
September 2011 out
of the proceeds
from the sale of
current assets, just
before it was
referred to CDR in
September _2011
and the package
was sanctioned on
Page 6 of 37
CONFIDENTIAL
12.3.2012.
However, the bank
itself had submitted
that SIL's net worth
has been fully
eroded in FY 2011-
12 Under such
circumstances, the
viability of the
account and
therefore the
implementability of
the CDR package
were suspect.
Therefore, in view
of the above, it may
be observed that
the a/c had already
become a NPA
much before it was
referred to BIFR on
23.05.2013.
Shree 08-10- Fund 1998.2 31- 31- SS D1 Land Civil Land Civil 299.7 665.5 365.8 The account was
Maheshwar 2009 Based 07- 03- Works at Works at classified as NPA as
Hydel Power 2012 2012 Mandleshwar Mandleshwar
on March 2012 by
Khargone Khargone
Corporation Ltd AFI 2012, and the
(M.P) - (M.P) -
said change was not
1776.89 1776.89
effected in the
system. In liue if the
same, the asset has
been classified as
Doubtful 1 as per
extant asset
classification norms,
and the requisite
provision has been
Page 7 of 37
CONFIDENTIAL
suggested in line
with the Master
Circular.
Sterling Biotech 18-12- Fund 1895.67 28- 31- SS 01 Charge over all Charge over all 284.4 473.9 189.6 The account was
Ltd (SAMB) 2012 Based 07- 03- the the classified as NPA as
2012 2012 immovable immovable on March 2012 by
properties and properties and
AFI 2012, and the
fixed assets fixed assets
said change was not
and second and second
charge on effected in the
charge on
Current Current system. In liue if the
Assets- Assets- same, the asset has
5089.6 5089.6 been classified as
Doubtful 1 as per
extant asset
and the requisite
provision has been
suggested in line
with the Master
Circular.
Birla Surya Ltd 22-01- Fund 1838.94 18- 01- SS D1 Charge on Charge on 275.8 459.7 183.9 The account was
2013 Based 03- 07- Land & Land & restructured in 2011
2013 2011 Building and Building and wherein COD was
P&M-2385 P&M-2385
shifted and
rephasement of the
repayment schedule
undertaken, and
therefore as per
para 11.2.4 of the
MC, the division has
classified the,
--1
account NPA
according to pre-
I restructuring terms
Page 8 of 37
CONFIDENTIAL
and suggested
provisions as per
extant asset
classification norms.
S. Kumars 12-11- Fund 1584.73 28- 31- SS D1 Charge on CA Charge on CA 211.0 396.2 185.2 The account was
Nationwide Ltd 2010 Based 08- 03- and Fixed and Fixed classified as NPA as
2012 2012 Assets- Assets- on March 2012 by
1811 1811
AFI 2012, and the
said change was not
effected in the
system. In lieu of
the same, the asset
has been classified
as Doubtful 1 as per
extant asset
and the requisite
provision has been
suggested in line
with the Master
Circular.
Deccan Cargo 22-01- Fund 1532.99 28- 28- di d2 Charge on Charge on 1195.5 1263.9 68.4 Since there has
Expressways 2011 Based 08- 08- P&M and P&M and been an erosion in
2011 2011 stocks as per stocks after value of security by
valuation on accounting for
more than 50% of
31/3/2011- depreciation-
the outstanding
1013.5 448.5
amount the present
AFI has downgraded
the account to D2.
Therefore, the AFI
had classified the
account as NPA
of Master circular
Page 9 of 37
CONFIDENTIAL
Maithan (spat 17-01- Fund 1491.64 31- 05- SS DI. Charge on Charge on 247.5 372.9 125.4 The account, which
Ltd 2013 Based 03- 09- Land & Land & was restructured in
2013 2011 building and building and Sep, 2011, turned
Current Current
into a NPA in
Assets- Assets-
decemebr 2012.
2580 2580
Thus, the account
has been treated as
case of failed
restructuring, the
AFI had classified
the account as NPA
from September,
2011 as per para
11.2.4 of the Master
— Circular
Blue Horizon 30-08- Fund 1409.1 31- 07- ss D2 Charge on Charge on 211.3 563.6 352.3 The project was an
Hotels 2011 Based 12- 09- Land & Land & IPRE as per the
Banking 2012 2010 Building - Building - bank's own
2449 2449
Industry submission and the
Exposure- 3300 bank had treated it
mn as CRE as stated in
Date of Initial para 1.2, 1.3 and 2.1
Sanction- March of the circular ibid.
2008 The account was
classified as NPA on
the ground that it
was restructured by
way of extending
the DCCO and CRE
exposure need to be
classified as NPA
immediately on
restructuring.
Page 10 of 37
CONFIDENTIAL
Sree Metaliks 15-06- Fund 1284.36 22- 01- SS D1 Charge on Charge on 191.0 321.1 130.1 The DCCO was
Ltd 2012 Based 10- 12- Fixed Assets Fixed Assets originally scheduled
2012 2011 including Land including Land for December 2011
& Building- & Building-
and was postponed
2266 2266
and the repayment
schedule was
rephased. As the
account turned NPA
in October 2012, the
account has been
classified as NPA as
per pre-
restructuring
conditions and
made NPA as on
1/12/2011 as per
para 11.2.4 of the
Master Circular
S E Forge Ltd 17-01- Fund 1278.44 28- 31- SS D2 Charge on Charge on 191.7 511.4 319.7 The account was
2013 Based 10- 03- Stovks, Plant & Stovks, Plant & restructured in the
2012 2011 Machinery, Machinery, year 2010, wherein
Land & Land &
rephasement of
Building- Building-
Term Loan by 18
2221 2221
months was
sanctioned by the
bank. As the
account has not
evidenced
satisfactory
performance, the
account has been
treated as a case of
failed restructuring
as per para 11.2.4 of
the master circular,
and classified as
Page 11 of 37
CONFIDENTIAL
NPA from March 31,

2011. Additional
Provisions in lieu of
the same has been
suggested.
Euro Multi 03-12- Fund 1242.72 01- 31- 02 D3 EM of Plant & EM of Plant & 1007.3 1242.72 235.4 The account was
2011 Based 6- 03- Machinery, Machinery, restructured in
vision Ltd
2009 2007 Land & Land & 2007, wherein the
Building and Building and repayment schedule
Hypothecation Hypothecation
was rephased. Thus,
of Stocks- of Stocks-
the account has
552 552
been classified as
NPA as per pre-
restructuring norms
in line with para
circular on IRAC
dated july 2, 2012.
Duplex 18-03- Fund 1113.1 T 14- 14- SS Loss EM on EM on 984.4 1113.1 129.0 There was an
2011 Based 7- 07- Agricultural Agricultural erosion in the value
industries
2012 2012 Land, Flat and Land, Flat and of security to less
Charge on Charge on than 10% of the
Plant & Plant &
outstanding.
machinery- machinery-
Moreover, the plant
108 108
has not been
functioning. Thus,
the account was
classified as Loss as
per para 4.2.9 of the
circular ibid.
Spentex 07-01- Fund 1055.77 01- 01- D1 D3 Charge over Charge over 263.9 1055.8 791.8 The account was
2010 07- 07- Spinning Mill Spinning Mill restructured in
Netherlands B.V Based
2011 2009 and and 2010, and there or e
of Assignment of
Inter-company Inter-company
the MC, the division
Term Loans- Term Loans-
Page 12 of 37
CONFIDENTIAL
1427 1427 has classified the

account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
Basal Steel Pvt 01-12- Fund 988.1 23- 23- D1 D2 Charge on Charge on 840.9 870.3 29.5 The account has
Ltd 2010 Based 01- 01- Land & Land & been identified on
2012 2011 Building - 196 Building - 196 March 2011 as NPA
by AFI 2012. As the
change has not
been effected, it is
classified as D2 as
per extant asset
Summer India 30-04- Fund 971.8 28- 31- SS D3 Charge on Charge on 135.2 971.8 836.7 The account has
Textile Mills P 2010 Based 10- 03- Fixed and Fixed and been restructured
Ltd 2012 2008 Curretn Curretn three times, with
Assets - 2191 Assets- 2191
the first
restructuring having
taken place in 2007.
So as per para
11.2.4, the SSM
division has
classified the
account as Doubtful
3 and suggested full
provisions as per
extant provisioning
norms.
Saraf 27-06- Fund 780.12 01- 31- SS D2 Charge on Charge on 104.3 312.0 207.8 The account was
Infraprojects Ltd 2008 Based 11- 03- Project Land Project Land restructured in
2012 2010 and Other and Other 2010, and therefore
Fixed Aseets- Fixed Aseets-
917 917
Page 13 of 37
CONFIDENTIAL

has classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
classification norms
Devi Ispat 17-01- Fund 776 16- 16- SS D1 Charge on Charge on 116.4 708.5 592.1 Since there has
2012 Based 01- 01- Land & Land & been an erosion in
2013 2013 building -176.7 Building ( value of security,
value as per
with current value
the latest
less than 50% of the
valuation
report in
outstanding amount
2013) 90 the present AR has
downgraded the
account to Dl.
Therefore, the AFI
had classified the
account as NPA
of Master circular
Servalakshmi 28-12- Fund 741.49 22- 26- D1 02 Charge on Charge on 157.1 335.8 178.7 The account which
Papers Ltd 2012 Based 09- 06- Curretn Assets Curretn Assets was restrucutred on
2011 2009 and Fixed and Fixed 26.6.2009 turned
Assets- Assets-
into NPA on
676.1 676.1
22.09.2011. As per
para 11.2.4 of the
Master circular, it is
a case of failed
restructuring and
the SSM Division
classified
account as NPA as
on 26.06.2009
Page 14 of 37
Biltube 00-01- ' Fund 740.273 30- 31- SS D1 Charge on Charge on 253.2 185.1 No The account was
Mauritius Ltd 1900 Based 06- 12- Fixed Assets- Fixed Assets- Shortfall classified as NPA by
2012 2011 1023 1023 AFI 2012 due to the
fact that account
was restructured on
27-06-2011 but
slipped to sub-
standard due to
non-payment of
Sept installment.
Therefore, current
AFI has classified
the account
doubtful as per Para
11.2.4 of circular.
Sagar infrarail 24-12- Fund 717.1 23- 23- D1 D1 Charge on Charge on 448.3 610.2 162.0 . The bank had
international Ltd 2010 Based 05- 05- Stocks and Fixed Assets considered the
2012 2012 Fixed Assets- (Stock value stocks of the
358.5 not considered
company worth Rs.
as no stock
210 crore in the the
audit was
security value
undertaken)-
142.5 without any stock
audit. Thus,
has been suggested
in lieu of para 5.3 of
Master Circular
S A L Steel Ltd 23-08- Fund 714.96 31- 31- SS D2 Charge on Charge on 107.6 286.0 178.4 The account was
2012 Based 03- 07- Strocks, P&M, Strocks, P&M, restructured in
2013 2009 Land & Land & 2009, and therefore
Building- 1079 Building- 1079
the MC on IRAC, the
division has
classified the
account NPA
according to pre-
Page 15 of 37
CONFIDENTIAL
restructuring terms
and suggested
provisions as per
extant asset
Jupiter Solar 14-11- Fund 692.10 12- Standard SS Charge on Charge on 0.0 103.8 103.8 The original DCCO of
Power Ltd. 2012 Based 09- Current and Current and Jan,2009 was not
industry 2012 Fixed Assets- Fixed Assets
achieved and this
exposure Rs 742 742
was considered as
1917 mn 1st restructuring
Date of Initial (infact the bank was
Sanction April able to produce only
2008 the document
pertaining to the
commencement of
trial production in
June 2009 and not
that of actual
production). The
bank had internally
restructured the a/c
by rescheduling the
TL repayment from
Dec, 2009 to Dec,
2010 on Feb 10,
2009. This was
considered as
second
restructuring.
Thereafter, the
account was with no
overdues /defaults
from Dec, 2010 to
March -4012.
However, the a/c
was referred to CDR
Page 16 of 37
CONFIDENTIAL
on March 31, 2012

and restructured
with NPV
protection.
Meanwhile , on the
basis of record of
recovery , the a/c
was classified as
NPA in July 2012
and was upgraded
on 16.11.2012 with
the implementation
of the package
within the specified
time period.
Technically the a/c
is a case of repeated
restructuring and
hence should be
NPA on the date of
second
restructuring. The
fact that again the
a/c had to be
referred to CDR and
that the bank was
not able to produce
any document on
the completion of
DCCO even now also
support the stress
levels in the a/c.
S V Power Pvt 20-03- Fund 690 29- 04- SS D2 Charge on Charge on 103.9 276.0 172.1 The account, which
Ltd 2012 Based 01- 11- Stocks and Stocks and turned into NPA,
2013 2010 P&M- 1340 P&M- 1340 was previously
restructured and
• • Page 17 of 37
CONFIDENTIAL
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
SRC Steel P Ltd 30-09- Fund 683.7 06- 31- SS D1 Charge on Charge on 102.6 612.8 510.2 Account was
2011 Based 08- 03- Fixed Assets- Fixed Assets- classified as NPA as
2012 2012 94.6 94.6 on March 31, 2012
by last AF1 on
- 4 account of
irregularity at time
of restructuring in
August 2011 and
deterioration in
performance. The
change has not
been effected. As
there was a shortfall
in the provision held
by the bank as per
provisioning norms,
the team has
suggested
as per para 5.3 of
the MAster circular.
Damodar 27-11- Fund 644.97 22 - 23 - SS D1 Charge over Charge over 93.5 412.8 320.4 Since there has
-Developers 2012 --Based- 113,____ 03 - I and & _Land & been-an---er-osiew-in-
2012 2012 Building- Building- value of security by
309.49 309.49
more than 50% of
Page 18 of 37
CONFIDENTIAL
the outstanding
amount the present
AFI has downgraded
the account to Dl.
Therefore, the AFI
had classified the
account as NPA
of Master circular
Royal Palm Ltd 30-03- Fund r 643.2 31- Standard D3 Charge on Charge on 0.0 643.2 643.2 A complete TEV
Banking industry 2009 Based 03- Fixed and Fixed and study as required in
since Rs 1021.60 2009 Movable Movable para 11.1.4 of the
mn assets- 6494 assets- 6494
master circular on
Date of Intial Income recognition
sanction and Asset
January 2007 Classification was
not undertaken. The
referred TEV study
was mor ethan 2
years old and only
assumptions were
validated. SO the
account has been
downgraded.
FUrther, the
account was not
reviewed for more
than 18 months as
prescribed by RBI as
per para 4.2.4. ii of
the Master Circular
on IRAC. So the
account has been
classified as NPA.
Page 19 of 37
CONFIDENTIAL
Perfect engine 29-07- Fund 603.2 28- 30- 55 D2 Charge on Agri Charge on Agri 90.5 373.2 282.6 The account was
components Pvt 2011 Based 06- 06- Farm Land, Farm Land, restructured in June
2012 2009 Building, Plant Building, Plant 2009 due to
Ltd
Machinery and Machinery and devolvement of LCs
Stocks- 384.1 Stocks- 384.1
and turned NPA as
in liue of para 11.2.4
of the Master
Circular on IRAC
dated July 2, 2012,
and additional
provision has been
t suggested.
Prathamesh 02-07- Fund 601.2 04- 04- D1 D1 Charge on Charge on 73.2 150.3 77.1 The account was
Ceramics Pvt Ltd 2012 Based 07- 07- Stocks, P&M Stocks, Land & classified as NPA as
2011 2011 and Land & Building and on july 2011 and is
Building- 817 P&M (After currently treated
accounting for
asDoubtful 1. As
depreciation
there is a shortfall in
as date of
valuation was provisioning as per
Jan, 2012)- extant asset
731.78 classification norms,
has been suggested
as per the para 5.3
of Master Circular.
,
Navin Gems 18-05- Fund 599.35 30- 30- D1 02 Charge on Charge on 414.5 451.4 36.9 ' Since there has
India 2010 Based 06- 06- Land, Building Land, Building been an erosion in
2011 2011 and Factory and Factory I
value of security by
Plot- 247 Plot- 246.5 more than 50% of
the outstanding
1 amount the present
AFI has downgraded
the account to D2.
Therethe
-fore, AF4
had classified the
account as NPA
Page 20 of 37
CONFIDENTIAL

of Master circular
Naihaa Retail 30-03- Fund 565.85 31- 31- SS D1 Charge on Charge on 118.8 252.7 133.8 The account which
Pvt Ltd 2013 Based 03- 07- Stocks and Stocks and was restrucutred on
2013 2011 Fixed Assets- Fixed Assets- 31/7/2011 turned
417.6 417.6 on
into NPA
31.3.2013. As it is a
case of failed
restructuring, the
SSM Division
classified the
account as NPA as
on 31.7.2011 in line
with para 11.2.4 of
the Master circular
on IRAC dated July,
2012
Hiran Orgochem 14-05- Fund 559.65 30- 31- dl D3 Charge on Charge on 445.1 559.7 114.5 The account was
Ltd 2010 Based 07- 03- P&M, L&B - P&M, LAB - rehabilitated in
2011 2009 153.13 153.14 2009 wherein the
irregularity in the CC
account was carved
into WCTL. Thus,
the account has
been classified as
NPA as per the pre-
restructuring
schedule in line with
para 11.2.4 of the
_ Master Circular.
Glory poly Films 26-11- Fund 524.4 29- 26- SS D2 Charge on Charge on 85.2 207.0 121.8 The account which
Ltd 2011 Based 04- 06- P&M, L&B -- P&M, L&B -- was restrucutred on
2012 2009 1150.34 1150.34 26.6.2009 turned
into NPA on
Page 21 of 37
CONFIDENTIAL
31.3.2013. As it is a
case of failed
restructuring, the
SSM Division
classified the
account as NPA as
on June 26, 2009.
BBF Industries 31-03- Fund 518.7 31- 31- dl d2 Charge on Charge on 250.1 354.2 104.1 The account turned
2011 Based 03- 03- P&M, L&B - P&M, L&B - NPA as on
Ltd
2011 2011 274.2 274.2 31./3/2011 and as
per extant asset
should be classified
as Doubtful 2. The
team has suggested
additional
provisions in line
with the instructions
issued in the Master
Circular on IRAC
dated July 2, 2012.
Regency 21-06- Fund 490 28- 29- SS D3 Charge on Charge on 72.6 490.0 417.4 The account, which
Ceramics Ltd 2010 Based 06- 10- urrent Assets, urrent Assets, turned into NPA,
2012 2008 P&M, L&B - P&M, L&B- was previously
305.1 305.1 restructured and
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as- ---per-
extant asset
Page 22 of 37
CONFIDENTIAL
Kanifushi 04 - 12 - Fund 478.31 31- 01- ss D2 Charge over Charge over 119.6 191.3 71.7 1 The account was
Investments P 2007 Based 12- 07- Kanifushi Kanifushi classified as NPAas
Ltd\ 2012 2010 Island Resort - Island Resort - on 1/7/2010 by AFI
1121.24 1121.24
2012, and the
change was not
effected by the
bank. Thus, the
account has been
classified as
Doubtful 2 following
the ageing process
as suggested in the
Master Circular on
IRAC, and additional
provisions have
been suggested.
Aakash Tiles Pvt 10-12- Fund 476.05 31- 28- 01 D2 Charge on Charge on 139.4 180.5 41.2 The account which
Ltd 2011 Based 08- 09- Fixed Assets- Fixed Assets- was restrucutred on
FITL 24.71 2011 2009 542.44 542.44 28/09/2009 turned
into NPA on
31.8.2011. As it is a
case of failed
restructuring, the
SSM Division
classified the
account as NPA as
per pre-
restructuring norms
in line with para
Circular on IRAC
dated July 2, 2012.
Page 23 of 37
CONFIDENTIAL
Svizera Holdings 28-03- Fund 469.08 26- 26- D1 D2 51% stake in 51% stake in 407.2 423.0 15.7 Since there has
BV 2011 Based 06- 06- Tillomed Lab Tillomed Lab been an erosion in
2011 2011 and Fixed and Fixed value of security by
more than 50% of
parent- 131 parent
the outstanding
Accounting for
amount the present
depreciation) -
76.83 AFI has downgraded
the account to D2.
Therefore, the AFI
had classified the
account as NPA
of Master circular
Shanthi Fortune 20-11- Fund 465.6 31- 31- SS D3 Charge on Charge on 66.34 465.6 399.26 The account, which
India Pvt Ltd 2011 Based 12- 03- P&M and L&B- P&M and L&8- was restructured in
2012 2009 160 161 December 2008 ,
turned into a NPA in
decemebr 2012.
Thus, the account
has been treated as
case of failed
restructuring, the
AFI had classified
the account as NPA
fas per pre-
restructuring norms
the Master Circular
___ on IRAC
Pankaj 11-10- Fund 463.94 28- 01- SS D3 Charge on Charge on 69.6 463.9 394.4 The account was
Extrusions Ltd 2011 Based 05- 12- P&M and L&B- P&M and L&B- restructured in
2012 2008 - 745 - 746 December 2008
with cut off date as
1/10/-2008 due to-
bad financial health
of the company. The
Page 24 of 37
CONFIDENTIAL
SSM division has

treated this as case
of failed
restructuring as per
para 11.2.4 of the
master circular and
classified the
account as Doubtful
3 as per the pre-
restructuring norms.
Additional
provisions in lieu of
the same has been
suggested.
PCH Global 26-06- Fund 450.92 30- 31- 01 D2 191 191.37 307.4 336.1 28.7 I Since there has
Systems Pvt Ltd 2010 Based 03- 03- been an erosion in
2012 2012 value of security by
more than 50% of
the outstanding
amount the present
AFI has downgraded
the account to D2.
Therefore, the AFI
had classified the
account as NPA
of Master circular
General Nice 10-01- Fund 448 31- Standard D2 Charge on Charge on 0.0 179.2 179 2 Advance payment
resources (hong 2013 Based 03- Stocks and Stocks and was the payment
Kong) Ltd 2011 Fixed Assets- Fixed Assets-
the borrower has
Banking since 1029 1029
already made and
March, 2011 cannot not be part
of the WC for which
bank finance is sort
generally. As per SBI
policy too, the same
Page 25 of 37
CONFIDENTIAL • t
applies, but
deviation was
permissible for six
months but it was
extended for one
year with no
approval.Not
considering the
above extension of
six months without
approval, the a/c
was overdrawn for
more than 90 dys
continuously from
December zu.w.
The bank itself, in its
submission, had
proposed to classify
the account as NPA
on August 28, 2012.
The account was
classified as NPA
from 31. 3.2011.
Sara Shrey 20-10- Fund 400 26- 31- SS D3 Charge on L & Charge on L & 59.8 400 340.2 The account, which
Spinntex Pvt Ltd 2011 Based 09- 03- B, P&M-- 345 8, P8o-- 345 was restructured for
2012 2009 the second time in
March 2009, turned
into a NPA in
Decemeber 2012.
Thus, the account
has been treated as
case of failed
restructuring, the
-ct-a5sifi
the account as NPA
fas per pre-
Page 26 of 37
CONFIDENTIAL
restructuring norms
the Master Circular
on IRAC
Yazdani Steel 31-03- Fund 391.3 24- 31- SS D3 Charge on L & Charge on L & 58.7 391.3 332.6 The account, which
and Power Ltd 2012 Based 10- 03- B, P&M and B, P&M and was restructured for
2012 2009 current assets- current assets- the second time in
1185 1038
January 2009 ,
turned into a NPA in
Decemeber 2012.
Thus, the account
has been treated as
case of failed
restructuring, the
AFI had classified
the account as NPA
fas per pre-
restructuring norms
the Master Circular
on IRAC
l---
Rap..t Paints Ltd 27-09- Fund 362.6 28- 28- SS D1 Charge on L & Charge on L & 57.4 304.2 246.8 Since there has
2011 Based 12- 12- B, P&M and B, P&M and been an erosion in
2012 2012 current assets- current assets- value of security by
115 77.9
more than 50% of
the outstanding
amount the present
AFI has downgraded
the account to D2.
Therefore, the AFI
had classified the
account as NPA
of Master circular
Page 27 of 37
CONFIDENTIAL
Mukul Sales 25-01- Fund 353.4 31- 14- SS D2 Charge on Charge on 53.0 141.4 88.4 The account was
Corporation 2012 Based 12- 03- Assets-384 Assets-384 restructured in
2012 2011 2011, and therefore
has classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
Grand Luxe 12-09- Fund 297.24 31- 31- 55 03 Charge on Charge on 44.6 297.2 252.7 The account was
Hotels Ltd 2006 Based 01- 03- Hotel Hotel restructured in
2013 2009 Properties- Properties- 2008, and therefore
1750 1750
has classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
CCDP Data study Fund 202.8 #N/A #N/A #N/A #N/A #N/A #N/A 65.5 131.3 65.8 A sample study of
Based 2721 accounts were
undertaken by the
SBI SSM division to
verify the veracity of
the security value
held in these cases.
____— The issue
processed in the
department and a
Page 28 of 37
CONFIDENTIAL
letter was sent to

the bank.
In this connection,
additional
provisions to the
tune of Rs 65.5 mn
has been suggested
duw to reckoning of
wrong secuity value
for calculation of
provision.
Arvind 20-07- Fund 100 30- 13- D-1 D3 Charge on Charge on 26.2 100.0 73.8 The account, which
Internationl Ltd 2010 Based 03- 2- Fixed and Fixed and turned into NPA,
2012 2007 Current Current was previously
Assets- 140 Assets- 141
restructured and
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
Silktex Ltd 26-03- Fund 100 30- 19- SS D2 Charge on Charge on 14.9 40.0 25.1 The account, which
2012 Based 09- 3- Fixed and Fixed and turned into NPA,
Assets514 Assets514
restructured and
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
Page 29 of 37
CONFIDENTIAL
restructuring terms
and suggested
provisions as per
extant asset
Khwaja Exports 28-01- Fund 100 29- 29- SS d2 Charge on Charge on 18.4 40.0 21.6 The account, which
Ltd 2013 Based 11- 06- Fixed and Fixedand turned into NPA,
Assets- 783 Assets- 784
restructured and
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
Chariot Steel 01-05- Fund 60 10- 31- SS D3 Charge on Charge on 8.7 60.0 51.3 The account, which
and Power Ltd 2010 Based 07- 03- Fixed and Fixedand turned into NPA,
Assets-365 Assets-366
restructured and
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
Page 30 of 37
CONFIDENTIAL
Vangal Amman 17-03- Fund 50 28- 22- SS 02 Charge on Charge on 7.4 20.0 12.6 The account, which
Health Services 2009 Based 01- 09- Fixed and Fixed and turned into NPA,
ltd 2013 2010 Current Current previously
was
Assets-50 Assets-50
restructured and
therefore as per
para 11.2.4 of the
classified the
account NPA
according to pre-
restructuring terms
and suggested
provisions as per
extant asset
Total 123979.3128 14934 44334 29469.43
Table-II
Non Performing Investments
Z in mn
Investme Out --i- Security /val

Classificatio
nt Standi Date of NPI uation Provision Remarks
n
Details ng details
As As As As
As per As per per per per per Requir
Bank SSM Bank SSM Bank SSM Held ed Shortfall
Page 31 of 37
• 6,
CONFIDENTIAL
•
Tulip 542.84 Sub- Loss NA NA 317.41 542.84 225.43 The FCCE3, which was the underlying of the CLN in which
Telecom Novem Novemb stand the bank has invested, has devolved on the bank since
Ltd ber 26. er 26, ard
November 2012. The bank had already made good the
2012 2012
money to the investor (Barclays) Now. in turn, it has to
recover the outstanding from the borrower. This being an
unsecured exposure, the provision may be made
according to the recovery assumptions made while
pricing the CLN for the first year and there after fully.
However, it was observed that the bank do not have any
info on the prospects of recovery of the outstanding from
the borrower. (The bank had no other exposure towards
the borrower). Hence, 100% provisioning on the
outstanding amount was suggested.
Great 271.42 Januar January Sub- Loss NA NA 135.71 271.42 135.71 The bank had sold protection. CDS with the FCCBs
Offshore y 12, 12, stand floated by the borrower as the underlying to Barclays. On
Ltd. 2013 2013 ard
the occurrence of the credit event, the bonds had
devolved on the bank and the bank had paid -off Barclays
fully. This was unsecured exposure and it was observed
that the bank did not have any information on the
prospects of recovery of the outstanding from the
borrower (The bank has no other exposure towards the
borrower). Hence, 100% provisioning on the outstanding
amount was suggested
Total 453.12 816.26 361.14
Page 32 of 37
CONFIDENTIAL
Table-III
Valuation of Investments
in mn
Provision held Remarks
Name Outstanding Depreciation as per 10 Shortfall
APPRECIATION DEPRECIATION
Nil
Table-IV
Other Assets
in mn
Details of Receivables Provision Remarks

Held Required Shortfall
Pre-paid expenses towards 0.00 736.00 736.00 The amount reps sents revenue expenditures incurred for import of gold on
Customs Duty of Z 709.20 consignment basis The bank amortised such expenses till actual sale of the gold in
mn, Octroi Duty of Z15 00 future which was iuncertain and reversed proportionate amount of such duties paid
mn and Meta CIP 211.80 from the sale proce eds. The amount was treated as ordinary revenue expenditures and
mn recommended for t eing provided for.
Short provision on account 3428.61 3458.92 30.31 As against outstan ding fraud of 23458.92 mn attracting full provision as on March 31,
of frauds reported during 2013 provision of 3428.61 mn was held
the period
Software forming Integral 0.00 560.00 560.00 Bank was not able to furnish details of about 21400.00 mn worth of software forming
part hardware (Operating Integral part hard\ are (Operating Systems as per bank's explanation) purchased
Systems as per bank's during FY2013. In the absence of any information, the amount is considered to be non-
OS software warra nting 100% depreciation as per bank's accounting policy Hence an
explanation) purchased
additional liability of Z 560.00 mn is recommended
during FY2013 were
depreciated at 60% instead
of 100% depreciation as per
bank's accounting policy.
Pdge 33 of 37
CONFIDENTIAL
Unreconciled debit 0 185.80 185.80 Unreconciled debit balances frozen at the time of introduction of CBS details of which
balances are not available whose amount got inflated during the year instead of reducing.
1991505001 FD ON CORE -TAKE ON A/C(IF DR) 15,691.07
1991505001 FD ON CORE -TAKE ON A/C(IF DR) 2,17,565.21
1991505001 FD ON CORE -TAKE ON A/C(IF DR) 10,95,125.57
2147505002 TAKE ON BALANCES-GOVT. GEN 7,43,76,036.00
2147505003 TAKE ON BAL REC BR-GOVT. GEN 11,00.94,228.94
Total 18,57,98,646.79
Other assets overseas 0 943.00 943.00 f

1 Unamortized Brokerage paid up-front to Brokers for raising CDs in USA - 754.54
mn
2. Unamortized Prepaid Brokerage for loans in USA operations - Z 151 26 mn
3. Unamortized fees/ discounts paid on Term borrowings at LAA branch - Z37 20 mn
unamortised premiums on 0 130.97 130.97 Unamortised discounts on MTN Issues (5 tranches) USA ops - -Z87 19 mn
borrowing in USA Money Market Borrowing - Upfront Int paid USA ops - Z28.78 mn
Pre-paid Premium on loan - Z15.00 mn
3428.61 6014.69 2586.08
Table-V
Understatement of Other Liabilities
Zimmn
Details of Understated _iabilities Provision Remarks

Unprovided expenses - T ianjin Branch 0 13.30 13.30 Unprovided e) penses incurred / paid for fit-out of Tianjin Branch (Shanghait
(Shanghai) 13.30 mn
Tota l 0 13.30 13.30
Page 34 of 37
CONFIDENTIAL
Table-VI
Claims Not Acknowledged as Debt
Details of COD Provision

Held Required
Nil
Table-VII
Standard Asset Provision
Standard Assets-Portfolio details Out Provis Remarks

Standing ion
Held Requi Shortfall
red
Declassified direct agriculture, micro and small 63540.6 158.85 254.1 95.31 Shortfall in provision @(0.40-0,25)% (Detailed in table- Major
MSME from PSL 0 6 Areas of Non-Compliance. below-Outstanding amount in
Direct agri- 214438.70 mn. Small enterprises-- 249101,90 mn,
total 263540.60 mn j
Table-VIII
Provision for Diminution in fair Value Restructured Account
Borrower Name Out Standing Provision Remarks

Nil
Table-IX
Divergence in Capital elements (Apart from provisions/DTA viz in acknowledging capital instruments/appropriating reserves)
As per bank As per SSM Remarks
Tier I
A.Debt Instruments Nil
Page 35 of 37
CONFIDENTIAL
B. Reserves
As per bank As per SSM Remarks
Tier II
Eligible Bonds
Subordinated Debt
Reserves
Table-X
Divergence in RWA
mn
Divergence in additional risk weighted assets
Description of deficiency Additional Risk

Weight in mn
Regulatory Retail Portfolio (RRP) was a residual portfolio. The criteria for the exposures to be qualified as RRP were not adhered to. In 300.00
some instances some of the counterparts having more than one accounts and having combined limit/outstanding of more than 50.00mn
were included in RRP portfolio The system didn't have the capability to exclude such accounts having same CIF number maintained
across branches. As the de-duping exercise was yet to be completed same customer having multiple CIF and having combined
limit/outstanding of more than 50.00mn were included in RRP portfolio There was no system in place to check the turn over criteria of
Rs 500.00 rm. No system/definition had been put in place to calculate the exposure to one counterpart Some of the facilities of
corporate were included in RRP Being a residual category some of unauthorized internal accounts opened by the branches and
possible fraudulent accounts were also captured in the bucket No default study was carried out by the banks in RRP
In many accounts the Basel II collateral fed was not available and in some instances it was in negative indicating deficiencies in data 13650.00
entry and lack of system level check in the software. In some of the NPA accounts some of the branches had fed the collateral securities
in nature of land & building etc. as Basel II collateral and in some instances it was arbitrarily high vis a vis the outstanding in the
accounts
In the rated portfolio the rating action of ECAIs were not monitored and updated. Many of the accounts migrated to worse rating 87000 00
categories were shown as better rated. Some of the rated accounts attracting 150 % RW were shown as unrated accounts. On
verification of some of the accounts captured as exposure up to one year and applied short term rating were actually sub-limit of CC/OD
accounts attracting Tong term rating. ( Baja' Hindushtalf-Ltd.. Ruchi Soya Industries Ltd. Bhilosa Incliistries Ltd, Alex Astral Ltd.) In
accounts with issue specific rating there was no system of verifying double counting of Basel II collateral (Paradeep Phosphate). In both
fund based and non-fund based facilities in some instances rating of different ECAIs and different ratings of same rating agencies were
Page 36 of 37
CONFIDENTIAL
used for same borrower for same type of exposure. In some instances borrower with external long term rating/short term rating
warranting risk weight of 150 per cent, risk weight of 150 per cent was not applied to the unrated claims on the same counter-party. In
one overseas branch rating of parents were extended to subsidiaries (Frankfurt)
The LC bills discounted by overseas branches and buyers credit extended against LC/LOC issued by domestic branches were shown 57090.00
as exposure to banks instead of exposure to counterparties and RW of 20% was applied
Against an eligible ECGC cover of 222500 mn for the bank as a whole in any year (Maximum Liability) ECGC guarantee were 120960.00
recognized in all the accounts covered under ECGC
Air India as per DBOD dispensation 150°/s Risk weight was to be applied instead 125% Risk Weight was applied 1370.00
The bank had received an amount of Z 1993 mn on account of interim distribution received by it in terms of the special Court order 1993.00
dated February. 25 2011. Treatment of funds so released on interim basis should have been treated as an item for which the bank was
contingently liable and maintain capital charge (applying a RW of 100%)
As per para 5 (v) of the CGTMSE scheme "Any credit facility which has been sanctioned by the lending institution against collateral 389.30
security and / or third party guarantee" are not eligible under the Scheme However on verification of around 5000 accounts out of
123000 accounts covered under CGTMSE it was observed that more than 100 accounts are not eligible for the scheme as bank has
taken collateral security in these accounts as per the CCDP data. ( 152 accounts with net outstanding balance of 2519 10 mn where
Zero percent risk weight was applied (Additional RWA of 519.10 '75%, will be added treating these accounts as Regulatory Retail
accounts)
Committed capital expenditure (CCF - 100%) 577.00
Total Additional Risk Weighted Assets 283329.30
Divergence in Deductions from Tier I
1136.41
LlJnamortised Insurance Premium paid for Special Home Loan Scheme
Page 37 of 37

Sbi Rar 2013

Cargado por

Información del documento

Título original

Derechos de autor

Formatos disponibles

Compartir este documento

Compartir o incrustar documentos

Opciones para compartir

¿Le pareció útil este documento?

¿Este contenido es inapropiado?

Copyright:

Formatos disponibles

Sbi Rar 2013

Cargado por

Copyright:

Formatos disponibles

CONFIDENTIAL

RESERVE BANK OF INDIA

State Bank of India

Risk Assessment Report (RAR)

Supervisory Program on Assessment of Risk and Capital

Para. Assessment Areas Page

Part I : Risks and Control Gaps

A.1 Summary of Aggregate Risk 1

B.2.1 Credit Risk 7

B.2.2 Market Risk 13

B.2.3 Liquidity Risk 16

B.2.4 Operational (non-IT) Risk 19

B.2.5 Operational (IT) Risk 24

B.2.6 Pillar II Risk 27

Part il : Capital and Earnings Assessment

3.1 Pillar I Capital Assessment (Basel II) 30

3.2 Leverage Ratio 31

3.3 Earnings Assessment 31

4 Supervisory Review and Evaluation 33

Annex 1: Details of Divergences (Para 3.1) 1 -37

Inspection under Section 35 of Banking Regulation Act, 1949 —

outcomes of the process are enumerated in the following report.

Part I: Risks and Control Gap

A. Summary of Aggregate Risk

Abstract of Aggregate Risk (Scale 1 -4)

Inherent Risk Control Gap Aggregate Risk

denoted 'High Risk' level for the bank.

B. Critical Assessment of Risks and Control Gaps

1. Governance & Oversight

1.1 Board Score: 1.948

(C) The Chairman of the Board is an executive position, who is supported by 4

(e) The Nomination Committee in January 2013 declared all.11. 1111111111

1.2 Senior Management Score: 2.026

a) The bank continued with a linear organization structure of business groups

Management except in financial statements.

(a) Development of a Risk Appetite Framework, the cornerstone of risk

management capabilities including risk teams and information systems was

(e) Large quantum of divergence in asset classifications and other provisioning

2.1 Credit Risk: Aggregate Score: 2.330

2.1.1 Inherent Risk Score: 2.452

(e) Concentration of credit exposure to large group borrowers was considered

(h) The proportion of unsecured non-investment grade exposures formed

provision requirements in such loan portfolio by more than r15000 mn.

2.1.2 Control Gap Score: 2.047

(a) Control Environment

(iii) Up-front disbursement of housing loans, without linking them o various

(b) Identification and Assessment

in clearing which bounced subsequently. Upgrading accounts based on

(c) Information and Communication

submission of annual reports/audited balance sheet, etc. were not reported

(d) Adequacy of standards for retained risks

(e) Control Activities - Implementation / Monitoring

(i) There were instances of reporting collaterals like mortgaged securities as

verification after the account had turned NPA

(iii) Instances of the CDR restructuring of accounts being treated as

2.2 Market Risk: Aggregate Score: 1.926

2.2.1 Inherent Risk Score: 1.899

2.2.2 Control Gap Score: 1.989

(a) Control Environment

(b) Identification and Assessment

scenarios in the market.

(v) The NOOP calculation methodology was flawed inasmuch as position to

(c) Information and Communication