U-Sustain

Bank identifies that climate risk as a key risk type, which may affect Bank’s portfolio in medium to long-term. Historically, physical climate risks (viz., floods, draughts or cyclones) have affected Bank’s portfolio performance. Numerous scientific reports suggest that the frequency and intensity of these physical events are likely to rise due to climate change and increased greenhouse gas (GHG) emissions. Since climate risk is a developing field, the most effective strategies to comprehend the long term financial impact and avoid them, are still being established.

70%

Reduction in water consumption due to Low Flow Fixtures Installation in Utkarsh Tower

Utkarsh Tower is

40%

energy efficient than conventional building.

2,97,35,191

Papers saved in FY24

140 KWP solar PV

offset more than approx.

15%

of annual energy demand.

Bank considers natural resources as an important of business input, and recognizes the global action needed for sustainable consumption. The Bank is committed to continuously improving the resource efficiency of its operational processes. The Bank is committed towards conserving energy by: (i) implementing energy conservation projects, (ii) adopting energy efficient technologies, and (iii) promote usage of renewable energy sources. Energy Performance Index (EPI) for Utkarsh Tower has reduced by 21.35% and Energy Performance Metric (EPM) for branches reduced by 27.74% between FY15 and FY20. Refer to Section 5 for targets related to paper consumption and waste management.

Some of initiatives undertaken at Utkarsh Tower to conserve energy are given below:

3498

Trees Saved

by saving 2,97,35,191 papers in FY24

21,33,845

Accounts opened till 31st March 2024 through Digi Onboarding

14,135

UPI QR code digital collection for JLG Clients

2.92%

Increase in digital transaction volume on mobile UPI App

UPI App

Bank launched UPI App during FY 2021-22. Utkarsh was among the first SFBs to go live on UPI Lite Application which enables small-ticket transfers of up to Rs.500 far more conveniently. There is a consistent increase in the number of digital transactions on the UPI App.

Bank launched digital on-boarding of accounts in the FY 2020-21. Since then bank is continuously taking efforts to on-board customers. While there were challenges in onboarding customers in FY 2022-23, the organization has effectively bounced back and achieved increased engagement with its digital payment services.

Bank has strengthened their data analytics capabilities & digital onboarding process. Strengthening digital offerings with increased investments in technology helped in easy onboarding of customers, reduce operational costs and improve NPAs. The Bank invested in software upgradation in order to stay up to date with advancements in technology.

8.42%

Three-Year Employee Growth CAGR

11.48%

Three-Year Female Employee Growth CAGR

Empowering Fresh Talents

Bank conducts weekly hiring of freshers from tier-2, tier-3 cities, and villages, enrolling them in a comprehensive 15-day training program. This program equips them with banking knowledge and employability skills, leading to their employment at the bank. The bank has also recently tied up with a leading university and launched the ‘Probationary Officers Program’ for graduates with an objective of grooming young talent and make them job-ready and subsequently absorb them in the bank across different roles. The bank takes pride in the fact, that it has nurtured and will continue to nurture thousands of aspiring youngsters and grow them into future bankers.

Employee Turnover Rate

It can be observed from the table below that the employee turnover rate in last three FYs has grown by a CAGR of 7.7%. To compensate this Bank has stepped up its recruitment process

10,335

New Recruits in FY24

21.41%

CAGR of Female New-recruits over the three-year period

38.67%

Growth in movement of females from lower to middle level management in last three FYs

Bank believes that a diverse and inclusive approach is essential for a sustainable growth. It fosters a culture of diversity, equity, and inclusion, recognizing that a workforce with varied backgrounds and perspectives leads to better decision-making and ultimately, better outcomes for the customers.

Bank’s commitment to human capital is unwavering, and it will continue to prioritize it as they grow and evolve further as a bank. During FY 2023-24, Bank added 10,335 employees, of which, 1,557 were female employees. Refer to Section 5 for targets related to diversity and inclusion.

All employees of the bank hold Indian nationality

Zero cases of incidents on discrimination and incidents of violations involving rights of indigenous peoples were reported in FY 2023-24.

Gender Disaggregated Recruitment data

In last three years, total number of new recruits grew significantly at a CAGR of 66.08%. The female recruits increased at CAGR of 21.41%, whereas male recruits grew at a rate of 85.02%

Age-Wise Diversity

The number of male and female employees in 20 age group increased notably, indicating a positive trend in early career hiring and gender diversity efforts. There’s a significant increase in both male and female representation in the 20-30 age group, reflecting Bank’s robust recruitment drive and gender-inclusive hiring practices for young professionals.

Bank has taken efforts towards gender diversity across different age groups, with variations in workforce composition influenced by factors such as recruitment strategies, career progression, and retention initiatives. There is a significant increase in young employees (especially in the 20-30 age group), indicating a strong

recruitment drive targeting younger talent. However, there’s a notable decline in the 30-40, 40-50, and >50 age groups, which may indicate challenges in retention or a shift in workforce demographics.

There is positive trend towards gender diversity and inclusion across all management levels, with increasing representation of females over the years. However, there is still room for improvement, particularly in achieving more balanced gender ratios, especially at higher management tiers. At Junior

Management level, both male and female representation has increased, with CAGRs of 16.58% for males and 19.12% for females. A notable increase in female representation at middle management level can be seen with CAGR at 38.67%.

All the senior management level employees are hired from local community based on their skills and expertise.

Bank implements inclusive hiring practices from the initial stages of recruitment, avoiding discrimination based on attributes unrelated to job requirements, such as physical challenges, age, gender, religion, marital status, or any other irrelevant features.

In FY24, the bank employed 8 individuals with disabilities, doubling the count from FY23, and ensured a safe and inclusive work environment where all employees can develop and thrive.

29.2 hours

Average Training Hours per Full-time equivalent Employees in FY24

CEO & CXO Mentoring Club

In FY 2022-23, Bank initiated mentoring club for senior management wherein selected employees are groomed by engaging them in various meaningful projects

In FY 2023-24,

4

Employees were selected for CEO Mentoring Club.

5 Directors

Trained on Programs on governance and assurance, Enhancing Board Focus on Enterprise Risk Management, Familiarization Program for Independent Directors.

As part of the talent management initiative, bank organised for the senior management team.

a vision execution workshop,

and identified a list of competencies based on which a

‘360-degree feedback’

was conducted

for the senior management team.

972 Employees

Trained on ESG Policy & Guidelines, Ethical conduct, Disciplinary Procedures, Employee Benefits.

Bank’s strength lies in the key competencies of its employees. With shifting customer preferences, technological advancements, and banking techniques, the organization needs to keep employees’ competencies and skillset up-to-date. Utkarsh takes consideration in providing the necessary on-the-job trainings to all employees on a regular basis, enhancing their skillset and enabling their professional growth.

Bank prioritizes skill training for its employees, achieving a 51.50% CAGR in employee upskilling over the past three years. During this period, female employees experienced a 79.52% CAGR in upskilling, while male employees had a 47.53% CAGR. Skill enhancement remains a focal point, with 16,081 employees participating in diverse training programs, averaging 29.2 hours of learning per employee. A total of 71.18% of employees were covered under various skill upgradation programs in FY24.

Average Number of Training Hours

972 Employees were trained on ESG Policy & Guidelines, Ethical conduct, Disciplinary Procedures, Employee Benefits etc.

In FY 23-24, the average training hours varied by employee category is given below:

62%

Micro-Banking Loans

30+ Lakh

Micro-Finance Borrowers as on 31st March, 2024

86%

Micro-Banking Branches

Bank transitioned from a NBFC-MFI into a Small Finance Bank and commenced SFB operations from January 23, 2017. Bank aims to promote financial inclusion and provide access to banking services to underprivileged, underserved and unbanked sections of the society such as women entrepreneurs, low-medium-income households, micro and small enterprises, and affordable housing.

MFI Lending

Growth of MFI borrowers over last three FYs:

CAGR

9.01%

Out of Bank’s 888 total banking outlets, 612 are micro-banking During FY24, Bank opened 58 branches, out of which 33 were MB branches. Micro-Banking loans have increased at 18% CAGR over last four years (FY20-FY24). 62% of the loan book consist micro-banking loans. 86% Micro-banking branches are in rural & semi-urban areas. Micro-banking branches are spread across 13 states and further. In addition, the Bank is expanding its presence to other states / geographies.

Micro-banking portfolio crossed

₹ 11,000 Crore

mark

Bank’s MFI customer base is growing at a CAGR of 9.01% in last three FYs. This consistent growth indicates a rising trend in the utilization of microfinance services, potentially driven by increasing financial inclusion efforts of the bank and the need for accessible credit among underserved populations. The steady expansion of MFI lending underscores bank’s crucial role in addressing the financial needs of marginalized communities and fostering economic empowerment at the grassroots level.

There is robust growth of JLG portfolios in these states, reflecting the effectiveness and popularity of lending mechanisms in fostering financial inclusion and empowerment at the grassroots level. Despite being fourth among the top five states, Jharkhand demonstrates the highest

growth rate, with a remarkable CAGR of 19.90% over three-year period. Bihar leads with the highest number of active loan clients across all three fiscal years, showing consistent growth with a CAGR of 8.44%.

Keeping in view the objective of the Bank to serve the underserved and unserved, Bank has adequate presence in the less financial penetrated areas of Bihar, Uttar Pradesh and Jharkhand etc. These geographies offer the potential for growth for microfinance business and financial inclusion related opportunities.

Average Ticket Size of Gross Loan Portfolio

There is significant growth across various loan product segments, with particularly noteworthy expansions in MB loans. With a substantial increase from 0.3 lakhs in 2022 to 0.4 lakhs in 2024, the average ticket size for MB loans exhibited robust growth at a CAGR of 10.06% over the three-year time period.

Priority Sector Lending (PSL) Norms

Reserve Bank of India (RBI) has mandated a higher priority sector lending requirement for SFBs at 75% vs. 40% for universal banks. Owing to the Bank’s legacy of serving under-banked population of the country and promote financial inclusion, Bank meets PSL requirements set up by RBI, comfortably while monetizing surplus PSL portfolio through sale of Priority Sector Lending Certificate (PSLCs) or sale of surplus PSL portfolio through IBPC (Inter Banked Participation Certificates) / portfolio sell-down. As of 31 March 2024, around 86% of the Bank’s loan portfolio qualified for priority sector lending (PSL norms).

SFBs are required to achieve a PSL portfolio at 75% of the previous year’s ANBC (Adjusted Net Bank Credit). On overall basis, after netting of PSLC sale / IBPC, the Bank’s PSL achievement stood at 86.78% during FY 2023-24, against the regulatory minimum requirement of 75%.

Furthermore, Bank is comfortably placed on RBI’s norms for SFBs to maintain loans with ticket size of up to RS.25 lakh at least 50% of the Bank’s total loan portfolio. The Bank’s lending to the ticket size of less than Rs.25 lakh was at 72.17% of the loan portfolio as on March 31, 2024

Bank’s CSR philosophy is based on cardinal principle to make a meaningful and measurable impact in the lives of economically, physically and socially marginalized communities of the country. The Bank’s strategy is to integrate its activities in community development, social responsibility and environmental responsibility and encourage each business unit or function to include these considerations into its operations.

Bank recognizes the importance of good corporate governance and corporate social responsibility in promoting and strengthening the trust of its shareholders and other stakeholders. Bank undertakes continuous efforts to positively impact the society particularly the underserved and the underprivileged communities in the area of its operations. In accordance with Section 135 of the Act, the Board of Directors on the recommendation of CSR Committee had approved the CSR

Policy which provided for the activities to be carried out.

The CSR Policy is available on the Company’s website:
https://www.utkarsh.bank/uploads/pdf/
disclosures/template_eleven/CORPORATE
_SOCIAL_RESPONSIBILITY_POLICY.pdf

CSR Policy covers the entire process by which an organization approaches, defines and develops its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adopting appropriate strategies and projects. Thus, CSR is not charity or mere donations but a way of giving back to society by going beyond business as usual, creating shared value and contributing to social and environmental good.

Bank’s CSR activities will be driven by a dedicated CSR team under the guidance and support of senior functionaries, in particular, the MD & CEO. The CSR Committee would play a significant role in ensuring that the CSR Policy is embedded across the bank’s operations and the CSR initiatives are in line with this Policy. CSR Committee details can be viewed at:
https://www.utkarsh.bank/about-us#pills-committees-of-bank-tab

Customer Satisfaction Survey

Bank periodically conducts formal and informal customer satisfaction survey. Recently, Customer Satisfaction Survey as conducted in FY23. The NPS of 21 considered as “Good” from a range of (-100 to 100), derived from a significant sample size of 6,196 respondents, indicates a positive customer perception and satisfaction. This score, validated by the large number of participants, shows more promoters (2231) than detractors (929), reflecting a strong base of satisfied and loyal customers. /p>

Grievance Handling

Grievance Redressal Policy aims to provide a structured mechanism for receipt/resolution of customer complaints and an efficient review mechanism to improve product/service delivery based on review/analysis of complaints. The policy is a guidance document for timeframe for compliant resolution. Such timeframe is provided separately as well on: https://www.utkarsh.bank/uploads/pdf/
comprehensive/Timeframe_for_Complaint
_Resolution.pdf

Bank prioritizes robust risk management, focusing on credit assessment and monitoring across various risk categories: credit, market, liquidity, IT, and operational risks. The framework includes real-time monitoring of regulations and market trends, setting risk parameters, defining acceptable portfolio risk, and implementing early warning systems. Utkarsh Small Finance Bank adopts a structured approach, ensuring qualified and experienced officials that lead risk management independently from

business functions. The philosophy aims to safeguard stakeholders’ interests and the bank’s reputation while integrating risk management into growth strategies.

The composition of Risk Management Committee is available in the annual report 2023-24 on page number 48.

Risk Management Policy is available at: https://www.utkarsh.bank/uploads/pdf/our-policy/template_ten/Risk_Managment_Policy.pdf

ESG Steering Committee

Permanent Members

MD&CEO & Chairman – ESG Steering Committee

Chief Compliance Officer

Chief Risk Officer

Head Credit

(ESG Officer) (Convenor)

Independent External Member (BII)

Permanent Invitees

CFO

CHRO

Head-MB

Head-Assets

Head- Consumer Banking, Liabilities

Policies

To integrate ESG considerations into all aspects of bank’s operations, Utkarsh has adopted a variety of essential policies, codes of conduct, and guidelines. These measures actively foster and maintain its dedication to responsible banking throughout the organization.

Bank’s Philosophy

Corporate Governance report forming part of the Board’s report for the year under review is attached separately as Annexure A, in the annual report of FY23-24.

Constitution of Board of Directors

The Board of Directors of the Bank are constituted in accordance with the provisions of the Companies Act, 2013 (Act), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, the Banking Regulation Act, 1949 (the BR Act, 1949) and the Articles of Association. The Board consists of eminent persons with considerable professional expertise in business administration, audit, banking, payment & settlement, compliance, account, finance, human resource, risk, strategy, information technology and other related fields

Committees of the Board of Directors

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

Bank is committed to keeping Personally Identifiable Information (PII) secure and using it exclusively for banking-related activities. Bank has implemented a privacy policy designed to protect the personal information provided or disclosed by customers. This policy outlines how the bank collects, uses, discloses, stores, secures, and disposes of personal and sensitive data.

The policy is available on bank’s website:

https://www.utkarsh.bank/uploads/
policy/Data_Privacy_Policy.pdf

The security of personal information is a priority and is protected by maintaining physical, electronic and procedural safeguards that meet applicable laws. The Bank shall take reasonable steps and measures to protect the security

of the customer’s personal information from misuse and loss, un-authorized access, modification or disclosure. The Bank maintains its security systems to ensure that the personal information of the customer is appropriately protected and follows the extant standard protection norms followed for the transmission of information.

Bank is
ISO 27001:2013 certified.

Bank has got the awards from IBA for better Cyber Risk Management consecutively for the past two years (2021-22 & 2022-23).

Cyber Risk Insurance coverage is in place for the bank as a fallback against the risks of cyber incidents.

Bank has Cybersecurity Policy, Cyber Crisis Management Plan (CCMP) and Information Security Policies in place approved by the Board.

Security Operations Centre (SOC) is active on 24x7 basis for real-time monitoring and protection of the bank’s assets.

Cybersecurity Incident Response Team (CSIRT) and Cyber Crisis Management Team (CCMT) are constituted as prescribed under the Cyber Crisis Management Plan (CCMP).

Bank has an independent information security group to manage cyber risks, governed by a board-approved policy. Periodic awareness exercises keep employees updated on security practices. The information security function is driven by both technology and process driven controls. The bank has established effective processes in line with RBI guidelines, ensuring

cybersecurity compliance. Governance and management processes are in place to implement, maintain, and improve policies. Bank meets RBI’s Baseline Cybersecurity Resilience requirements, employing defense-in-depth security measures. Robust Cybersecurity awareness program is in place as part of overall Cybersecurity program for customers, employees, and

partners. Risk Management committee ensures compliance with internal cyber risk policies.

(Risk Management Policy-https://www.utkarsh.bank/uploads/pdf/our-policy/template_ten/Risk_Managment_Policy
.pdf)

Bank has well established Business Continuity Plan (BCP) framework which has been put in place to ensure continuity of service to its large customer base. The effectiveness of the approved Business Continuity Plan (BCP)

framework is tested for all identified critical units to ensure readiness to meet various contingency scenarios and take corrective actions wherever any issues are observed. The Bank has smoothly managed to run its operations

by adapting to various continuity plans. Treasury has put in place robust Business Continuity Plans (BCP) and periodically conducts business from alternate locations as part of BCP

Process framework within the compliance department

Bank’s Compliance Department (CD) consists of Regulatory Compliance, AML Compliance and Legal Compliances. The Compliance Department has an established process of dissemination of guidelines or circulars released by various regulators, review of policies and tracking creation of new policies by the stakeholders, tracking timely submission of returns to regulatory authorities, correspondence with regulatory authorities, transactional alerts monitoring, drafting and vetting of agreements and advising various internal stakeholders on legal Compliances matter. This helps the Bank to ensure effective compliances with policies, regulatory guidelines, and applicable legal framework and action points as per the Regulator’s expectations.

In addition to the interaction with the regulators, the compliance department periodically apprises the bank’s management, Board of Directors, and Board Committees on the changes in the regulatory environment and the status of compliance thereof in the bank. Necessary steps have been initiated towards cultivating and building a strong compliance culture within the bank.

Key Process Framework of Compliance Department (CD)

Bank is committed towards maintaining transparency and highest standards of integrity wherein emphasis is placed on the timely and accurate compliance. The tax function is embedded under leadership of Chief Financial Officer. The Board / Audit Committee is periodically kept informed on tax litigations, compliances and updates on tax developments and also tax issues that could have significant impact on organisation. Bank observes compliance with the tax legislation of the country, discharging tax liabilities duly and respects the underlying policy intent

Bank endeavors act in integrity and does not indulge in artificial arrangements to avoid tax through unethical means. Bank observes strong governance practices to abide with the tax principles

Bank adheres to the “maker-checker-reviewer” control mechanism for monitoring the compliance reporting. Bank adheres to the internal SOP’s and the compliance due date calendar / checklist / risk control matrix (RCM) to fulfil the tax compliance. This is further audited by the Internal Audit function on quarterly basis. The grievances raised

elated to tax are addressed within specified TAT and with the collaboration of internal stakeholders. Bank engages with tax consultants for a timely review of reporting requirements and for their opinions on the tax positions of the bank. The same is duly disclosed in the financials and the annual reports. Tax authorities are one of the important stakeholders and we believe in an honest and transparent approach/disclosures in all our submissions. Approach towards managing the tax matters is in line with its corporate purpose, strategy and culture.