Submitted By: HazratBilal Mujadadi

Assignment of Corporate Governance and

Finance

SUBMITTED TO: DR. CHANDAN TIWARI

PRN No: 15021021148

Section: A

Submission Date: 20/02/2017

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Content
Introduction

Corporate Governance and corporate Finance

STANDALONE FINANCIAL STATEMENTS OF AXIS BANK

Management's Responsibility for the Standalone Financial Statements

Auditor's Responsibility

Opinion

Other Legal and Regulatory Requirements

Internal Financial Controls under Clause (i) of Subsection 3 of Section 143 of

the Companies Act, 2013 ("The Act")

Management's Responsibility for Internal Financial Controls

Auditor's Responsibility

Meaning of Internal Financial Controls Over Financial Reporting

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Opinion

Committee of Whole-Time Directors

Acquisitions, Divestments and Mergers Committee

Corporate Social Responsibility Committee

Remuneration Policy

Evaluation of the Boards Performance

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AXIS BANK LIMITED GROUP - AUDITORS REPORT

Consolidated Financial Statements

Managements Responsibility for the Financial Statements

Auditors Responsibility

Other Legal and Regulatory Requirements

Ethical Issues in the Financial Services Industry

Unethical Practices In Financial Sector

4
Introduction

Corporate Governance the manner in which the stakeholders in a corporation

relate to one another. Corporate governance has a positive connotation and a
company with "good" corporate governance is said to be a company in which all
stakeholders relate to each other in a positive way. Good corporate governance is
considered an important quality of sustainable growth for a company; that is, if the
shareholders, management, and employees all fulfil their fiduciary responsibilities
to one another, the corporation is thought to have a greater likelihood of success.
Corporate governance is laid out in the corporation's charter and other applicable
documents.

corporate governance the duties and responsibilities of a company's BOARD OF

DIRECTORS in managing the company and their relationship with the
SHAREHOLDERS of the company Typically salaried professional managers have
acquired substantial powers in respect of the affairs of the company they are paid
to run on behalf of their shareholders. However, directors have not always had the
best interests of shareholders in mind when performing their managerial functions
(see PRINCIPAL-AGENT THEORY) and this has led to attempts to make directors
more accountable for their policies and actions.

A number of reports have been published in the UK in the 1990s prompted by the
public's concern at cases of gross mismanagement (for example, the collapse of
the BCCI bank and Polly Peck and the misappropriation of employees' pension
monies at the Mirror Group) and fat cat pay increases secured by executive
directors. The Cadbury Committee Report (1992), recommended a Code of Best
Practice relating to the appointment and responsibilities of executive directors,
the independence of non-executive directors and tighter internal financial controls
and reporting procedures. The Greenbury Committee Report (1995) specifically
addressed the issue of directors' pay recommending that executive directors' pay
packages should be determined by the company's Remuneration Committee
consisting solely of non-executive directors and that share awards under
EXECUTIVE SHARE OPTION SCHEMES and LONG-TERM INCENTIVE PLANS
(LTIPs) should be linked to the company's financial performance. The Hempel
Committee Report (1998) covered many of the same issues raised by these two
earlier reports recommending (Principles of Good Governance) checks on the
power of any one individual executive director (by, for example, separating the
roles of Chairman and Chief Executive), a more independent and stronger voice
for non-executives (including the appointment of a senior non-executive to offer
guidance to, and check empire building tendencies on the part of, executive
directors, and in liaising with shareholder interests), and more accountability to
shareholders at the AGM (including the approval of options and LTIP schemes).

5
In 1998 the Code of Best Practice and Principles of Good Governance were
combined and the combined code was formally incorporated into the listing rules
of the London STOCK EXCHANGE.

Increased concern with financial irregularities and malpractice resulted in two

reports (Turnbull, 1999 and Smith 2003) proposing guidelines to tighten internal
financial control and auditing practices. A similar stricter regime of financial
monitoring has been implemented in the USA (the Sarbanes-Oxley Act, 2002) in
the wake of scandals such as Enron.

More recently, the Higgs Report (2003) on the role of non-executive directors
recommended that they be given a more prominent position including: the
company's Chairman should be a non-executive and that at least half of the Board's
directors should be non-executive.

Corporate governance:
Corporate governance is the system of rules, practices and processes by which a
company is directed and controlled. Corporate governance essentially involves
balancing the interests of a company's many stakeholders, such as shareholders,
management, customers, suppliers, financiers, government and the community.

Corporate finance:
Corporate finance is the area of finance dealing with the sources of funding and the
capital structure of corporations, the actions that managers take to increase the
value of the firm to the shareholders, and the tools and analysis used to allocate
financial resources.

A combined treatment of corporate finance and corporate governance is herein

proposed. Debt and equity are treated not mainly as alternative financial
instruments, but rather as alternative governance structures. Debt governance
works mainly out of rules, while equity governance allows much greater discretion.
A project-financing approach is adopted. I argue that whether a project should be
financed by debt or by equity depends principally on the characteristics of the
assets. Transaction-cost reasoning supports the use of debt (rules) to finance
redeploy able assets, while non-redeploy able assets are financed by equity
(discretion). Experiences with leasing and leveraged buyouts are used to illustrate
the argument.

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Ethics
Ethics, also called corporate or business ethics, is often referred to as a code of
conduct or set of beliefs that dictate what is right, wrong, fair, and unfair. The
accounting profession is based on morals and ethics. We as accountants and CPAs
are required to uphold strict ethical standards because most of the time we are
fiduciaries to third parties. Investors and creditors rely on the financial
statements that we produce and certify. Our judgments must be based on facts,
reason, and ethical decisions.

History has shown us that if we as an profession sway from this foundation of ethical
behaviour not only our individual firms will fail but the accounting industry and
practice will be forced to change.

Example

Since many accounting principles leave actual rules and decisions up to the
accountants judgment, its important to be able to properly reason through a
situation. Most psychologists divide any moral decision into three steps.

First, you must identify the ethical concerns of the situation. For example, an
auditor might have a business relationship with one of his audit clients. This
relationship must be recognized as a possible ethical issue.

Second, you have to analyse the options and outcomes. The auditor might impair
his judgment on the client because he wants the clients business to succeed. The
related interest can clearly become a conflict of interest when and if the auditor
finds something wrong with the company. He will be torn between performing the
audit procedures properly and making the company look like it is doing fine.

Third, a decision has to be made. The auditor has to decide whether to severe ties
with the client and stop working as its auditor or hide his business relationship and
continue the engagement.

These issues are extremely important to the accounting profession. That is why we
have developed ethical standards as well as auditing standards to help guide
accountants and prevent unethical behaviour.

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Axis Bank is the third largest of the private-sector banks in India offering a
comprehensive suite of financial products. The bank has its head office in
Mumbai and Registered office in Ahmedabad. It has 2,959 branches, 12,743
ATMs, and nine international offices. The bank employs over 50,000 people and
had a market capitalization of 1.0583 trillion (US$16 billion) (as on March 31,
2016). It offers the entire spectrum of financial services large and mid-size
corporates, SME, and retail businesses. Axis Bank has its registered office in
Ahmedabad.

As of 30 Jun. 2016, 30.81% shares are owned by promoters & promoter group
(United India Insurance Company Limited, Oriental Insurance Company Limited,
National Insurance Company Limited, National Assurance Company Ltd, GIC, LIC
& UTI).[6] Remaining 69.19% shares are owned by Mutual Funds Institutions, FIIs,
Financial Institutions (banks), Insurance companies, corporate bodies & individual
investors among others.

STANDALONE FINANCIAL STATEMENTS OF AXIS BANK

We have audited the accompanying standalone financial statements of Axis Bank

Limited ("the Bank"), which comprise the Balance Sheet as at 31 March, 2016, the
Profit and Loss Account and the Cash Flow statement for the year then ended, and
a summary of significant accounting policies and notes to the financial statements.

Management's Responsibility for the Standalone Financial Statements

The Bank's Board of Directors is responsible for the matters stated in Section 134(5)
of the Companies Act, 2013 (the "Act") with respect to the preparation of these
standalone financial statements that give a true and fair view of the financial
position, financial performance and cash flows of the Bank in accordance with the
provisions of Section 29 of the Banking Regulation Act, 1949 and accounting

8
principles generally accepted in India, including the Accounting Standards
specified under section 133 of the Act read with Rule 7 of the Companies (Accounts)
Rules, 2014 and the Companies (Accounting Standards) Amendment Rules, 2016,
in so far as they apply to the Bank and the Guidelines issued by the Reserve Bank
of India. This responsibility also includes maintenance of adequate accounting
records in accordance with the provisions of the Act for safeguarding of the assets
of the Bank and for preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting policies, making judgments
and estimates that are reasonable and prudent; and the design, implementation
and maintenance of adequate internal financial control that were operating
effectively for ensuring the accuracy and completeness of the accounting records,
relevant to the preparation and presentation of the financial statements that give a
true and fair view and are free from material misstatement, whether due to fraud
or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these standalone financial statements

based on our audit. We have taken into account the provisions of the Act, the
accounting and auditing standards and matters which are required to be included
in the audit report under the provisions of the Act and the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing issued by
the Institute of Chartered Accountants of India, as specified under Section 143(10)
of the Act. Those Standards require that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the

amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal financial control relevant to
the Bank's preparation of the financial statements that give a true and fair view in
order to design audit procedures that are appropriate in the circumstances. An
audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of the accounting estimates made by the Bank's Directors, as
well as evaluating the overall presentation of the financial statements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion on the standalone financial statements.

9
Opinion

In our opinion and to the best of our information and according to the explanations
given to us, the aforesaid standalone financial statements together with the notes
thereon give the information required by the Banking Regulation Act, 1949 as well
as the Companies Act, 2013, in the manner so required for the banking companies
and give a true and fair view of the state of affairs of the Bank as at 31 March, 2016,
its profit and its cash flows for the year ended on that date.

Other Legal and Regulatory Requirements

1. The Balance Sheet and the Profit and Loss Account have been drawn up in
accordance with the provisions of Section 29 of the Banking Regulation Act,
1949 read with Section 133 of the Companies Act, 2013 read with Rule 7 of
the Companies (Accounts) Rules, 2014 and the Companies (Accounting
Standards) Amendment Rules, 2016.

2. As required sub section (3) of section 30 of the Banking Regulation Act, 1949
and the appointment letter dated 28 July, 2015, we report that:

(a) We have obtained all the information and explanations which, to the best of our
knowledge and belief, were necessary for the purpose of our audit and have found
them to be satisfactory;

(b) The transactions of the Bank, which have come to our notice, have been within
the powers of the Bank; and

(c) The financial accounting systems of the Bank are centralised and therefore,
accounting returns for the purpose of preparing financial statements are not
required to be submitted by the branches; we have visited 192 branches for the
purpose of our audit.

3. Further, as required by Section 143(3) of the Companies Act, 2013, we

further report that:

(a) We have sought and obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purpose of our audit;

(b) In our opinion, proper books of account as required by law have been kept by
the Bank so far as it appears from our examination of those books;

(c) The Balance Sheet, the Profit and Loss Account and the Cash Flow Statement
dealt with by this Report are in agreement with the books of account;

(d) In our opinion, the aforesaid standalone financial statements comply with the
Accounting Standards specified under Section 133 of the Act, read with Rule 7 of

10
the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards)
Amendment Rules, 2016;

(e) On the basis of written representations received from the directors as on 31

March, 2016 taken on record by the Board of Directors, none of the directors is
disqualified as on 31 March, 2016 from being appointed as a director in terms of
Section

164 (2) of the Act;

(f) With respect to the adequacy of the internal financial controls over financial
reporting of the Bank and the operating effectiveness of such controls, refer to our
separate report in "Annexure 1" to this report;

(g) With respect to the other matters to be included in the Auditor's Report in
accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our
opinion and to the best of our information and according to the explanations given
to us:

i. The Bank has disclosed the impact of pending litigations on its financial position
in its standalone financial statements Refer Schedule 12.1 and 18.2.2.16 (a) to the
standalone financial statements;

ii. The Bank has made provision, as required under the applicable law or
accounting standards, for material foreseeable losses on longterm contracts
including derivative contracts Refer Note 18.2.2.16 to the financial statements.

iii. There were no amounts which were required to be transferred to the Investor
Education and Protection Fund by the Bank.

Annexure 1

To The Independent Auditor's Report of even date on the Standalone Financial

Statements of Axis Bank Limited

11
Internal Financial Controls under Clause (i) of Subsection 3 of Section 143 of
the Companies Act, 2013 ("The Act")

They have audited the internal financial controls over financial reporting of Axis
Bank Limited ("the Bank") as of 31 March, 2016 in conjunction with our audit of the
standalone financial statements of the Bank for the year ended on that date.

Management's Responsibility for Internal Financial Controls

The Bank's Management is responsible for establishing and maintaining internal

financial controls based on the internal control over financial reporting criteria
established by the Bank considering the essential components of internal control
stated in the Guidance Note on Audit of Internal Financial Controls Over Financial
Reporting issued by the Institute of Chartered Accountants of India (the "Guidance
Note"). These responsibilities include the design, implementation and
maintenance of adequate internal financial controls that were operating effectively
for ensuring the orderly and efficient conduct of its business, including adherence
to the Bank's policies, the safeguarding of its assets, the prevention and detection
of frauds and errors, the accuracy and completeness of the accounting records,
and the timely preparation of reliable financial information, as required under the
Companies Act, 2013.

Auditor's Responsibility

Our responsibility is to express an opinion on the Bank's internal financial controls

over financial reporting based on our audit. We conducted our audit in accordance
with the Guidance Note and the Standards on Auditing as specified under Section
143(10) of the Companies Act, 2013, to the extent applicable to an audit of internal
financial controls, both applicable to an audit of Internal Financial Controls and,
both issued by the Institute of Chartered Accountants of India. Those Standards and
the Guidance Note require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether adequate internal
financial controls over financial reporting was established and maintained and if
such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the
adequacy of the internal financial controls system over financial reporting and their
operating effectiveness. Our audit of internal financial controls over financial
reporting included obtaining an understanding of internal financial controls over
financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on
the assessed risk. The procedures selected depend on the auditor's judgement,

12
including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion on the internal financial controls system
over financial reporting.

Meaning of Internal Financial Controls Over Financial Reporting

A Bank's internal financial control over financial reporting is a process designed to

provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A Bank's internal financial control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Bank; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Bank are being made only in accordance
with authorisations of management and directors of the Bank; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorised
acquisition, use, or disposition of the Bank's assets that could have a material effect
on the financial statements.

Inherent Limitations of Internal Financial Controls Over Financial Reporting

Because of the inherent limitations of internal financial controls over financial

reporting, including the possibility of collusion or improper management override
of controls, material misstatements due to error or fraud may occur and not be
detected. Also, projections of any evaluation of the internal financial controls over
financial reporting to future periods are subject to the risk that the internal financial
control over financial reporting may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Opinion

In our opinion, the Bank has, in all material respects, an adequate internal financial
controls system over financial reporting and such internal financial controls over
financial reporting were operating effectively as at 31 March, 2016, based on the
internal control over financial reporting criteria established by the Bank
considering the essential components of internal control stated in the Guidance
Note on Audit of Internal Financial Controls Over Financial Reporting issued by the
Institute of Chartered Accountants of India.

13
Committee of Whole-Time Directors
The Committee of Whole-Time Directors of the Board of Directors of the Bank
exercises powers delegated to it by the Board, for managing the affairs of the Bank,
to review and exercising control of various operational areas such as treasury,
branch banking etc., and for ensuring speedy disposal of matters requiring
immediate approval.

The Committee comprises of all the Whole-Time Directors of the Bank.

Acquisitions, Divestments and Mergers Committee

The main function of the Acquisitions, Divestments and Mergers Committee of the
Board of Directors of the Bank is to discuss and consider any idea or proposal for
merger and acquisition. This Committee will consider and give its in-principle
approval for acquisition of greater than 25% stake in a company, acquisition of
stake in a company where the proportion is 25% or lower but where the Bank
intends to have management participation, strategic divestments - sale of an
existing business of the Bank, acquisition of business business
takeover/acquisition as distinct from portfolio or asset purchase and sale of stake
(including minority stake) in strategic investments/ subsidiaries.

One meeting of the Acquisitions, Divestments and Mergers Committee was held
during the year 2014-15 on 24th December 2014. The details of the Committee
meeting attended by the Directors during the year 2014-15, are given below:

Corporate Social Responsibility Committee

The main functions of the Corporate Social Responsibility Committee of the
Board of Directors of the Bank are as follows:

i. To formulate and recommend to the Board, the Corporate Social

Responsibility (CSR) strategy of the Bank including the CSR Policy and its
implementation such that the Banks social, environmental and economic
activities are aligned.

14
 ii. To formulate and recommend to the Board, the CSR activities to be
undertaken by the Bank either directly or through Axis Bank Foundation
and determining the CSR projects/programmes which the Bank plans to
undertake during the year of implementation, specifying modalities of
execution in the areas/sectors chosen and implementation schedules for
the same.

iii. To recommend the amount of expenditure to be incurred on the CSR

activities.

iv. To review and monitor the compliance of initiatives undertaken and

evaluate performance of the activities against the agreed targets.

v. To conduct an impact-assessment of the various initiatives undertaken in

terms of the CSR Policy at periodic intervals.

vi. To institute a transparent monitoring mechanism for ensuring

implementation of the projects/ programmes/activities proposed to be
undertaken by the Bank.

vii. To review and recommend the annual CSR report for the Boards approval
and for public disclosure.

viii. To perform such other duties with respect to CSR activities, as may be
required to be done under any law, statute, rules, regulations etc. enacted
by Government of India, Reserve Bank of India or by any other regulatory
or statutory body.

The details of the CSR activities undertaken by the Bank during the year under
review have been provided elsewhere in this Annual Report.

In all, 2 meetings of Corporate Social Responsibility Committee of the Board of

Directors were held during the year 2014-15 on 26th June 2014 and 22nd
December 2014. The details of the Committee meetings attended by the
Directors during the year 2014-15, are given below:

15
Remuneration Policy
The compensation philosophy of the Bank aims to attract, retain and motivate
professionals in order to enable the Bank to attain its strategic objectives and
develop a strong performance culture in the competitive environment in which it
operates. To achieve this, the Bank follows the principles of competitiveness in the
talent market, pay for job through fixed pay, pay for performance to drive
meritocracy through variable pay, employee stock options for long-term value
creation and aligning the benefits and perquisites with market practices and
affordability. The compensation structure for the MD & CEO, Whole-Time Directors
(WTDs) and employees at the level of Vice President and above in Risk Control
and Compliance functions of the Bank, is aligned to RBIs guidelines for sound
compensation practices. It addresses the general principles of effective and
independent governance and monitoring of compensation, alignment of
compensation with prudence in risk-taking through well designed and consistent
compensation structures and clear and timely disclosure for facilitating
supervisory oversight by all stakeholders.

Remuneration of Directors

i. Dr. Sanjiv Misra was appointed as Non-Executive Chairman of the Bank

for a period of three years w.e.f. 8th March 2013. The details of
remuneration of Dr. Sanjiv Misra during the year under review are:
Salary of `25 lacs per annum. The Bank has received approval of RBI and
of the shareholders for payment of the said salary to Dr. Sanjiv Misra.

ii. Smt. Shikha Sharma was re-appointed as the MD & CEO of the Bank for a
period of three years w.e.f. 1st June 2012. During the year, the Bank has
made an application to RBI for re-appointment of Smt. Shikha Sharma as
MD & CEO of the Bank for a further period of three years w.e.f 1st June
2015. The said re-appointment is subject to the approval of RBI and
shareholders of the Bank. The details of remuneration paid to Smt. Shikha
Sharma during the year under review are given below in sub-para viii.
Smt. Shikha Sharma was granted 55,00,000 options, under various
tranches under the Employee Stock Option Plan. From the above,
32,75,000 options were vested, out of which 13,25,000 options have been
exercised up to 31st March 2015 and balance 19,50,000 options remain
unexercised. 22,25,000 options have not been vested as on 31st March
2015.

iii. Shri Somnath Sengupta was appointed as the Executive Director of the
Bank and he took charge with effect from 15th October 2012. The term of
Shri Somnath Sengupta was up to 31st May 2015, the last day of the month
in which he would reach the age of superannuation. Shri Somnath

16
 Sengupta retired as the Executive Director of the Bank with effect from
1st September 2014. The details of remuneration paid to Shri Somnath
Sengupta during the year under review are given below in sub-para viii.
Shri Somnath Sengupta was granted 30, 19,400 options, under various
tranches under the Employee Stock Option Plan. From the above, 19,
99,400 options were vested, out of which 10, 79,400 options have been
exercised up to 1st September 2014 and balance 9, 20,000 options
remain unexercised. 10, 20,000 options were unvested as on 1st
September 2014.

iv. Shri V. Srinivasan was appointed as the Executive Director of the Bank
and he took charge with effect from 15th October 2012. The term of Shri
V. Srinivasan is for a period of three years i.e. up to 14th October 2015.
The details of remuneration paid to Shri V. Srinivasan during the year
under review are given below in sub-para viii. Shri V. Srinivasan was
granted 25, 75,000 options, under various tranches under the Employee
Stock Option Plan. From the above, 14, 30,000 options were vested, out
of which 4, 87,500 options have been exercised up to 31st March 2015
and balance 9, 42,500 options remain unexercised. 11, 45,000 options
have not been vested as on 31st March 2015.

v. Shri Sanjeev K. Gupta was appointed as the Executive Director of the

Bank and he took charge with effect from 4th September 2014. The term
of Shri Sanjeev K. Gupta is for a period of three years i.e. up to 3rd
September 2017. The details of remuneration paid to Shri Sanjeev K.
Gupta during the year under review are given below in sub-para viii.
Shri Sanjeev K. Gupta was granted 12, 40,250 options, under various
tranches under the Employee Stock Option Plan. From these tranches, 8,
55,250 options were vested, out of which 6, 05,250 options were
exercised up to 31st March 2015 and balance 2, 50,000 options were
unexercised. 3, 85,000 options have not been vested as on 31st March
2015.

vi. The Bank does not grant Stock Options to its non-Whole-Time Directors.
Further, the Bank does not pay any remuneration, other than sitting fees
to its non-Whole-Time Directors.

vii. The Whole-Time Directors of the Bank are not entitled to any
remuneration from its subsidiary companies.

viii. The details of remuneration paid to the Whole-Time Directors of the Bank
during the year 2014-15 are as under:

17
Perquisites (evaluated as per Income Tax Rules, 1962 wherever applicable, or
otherwise at actual cost to the Bank) such as the benefit of the Banks furnished
accommodation, electricity, water and furnishings, club fees, personal accident
insurance, loans, use of car and telephone at residence, leave encashment,
medical reimbursement, travelling and halting allowances, newspapers and
periodicals, and others were provided in accordance with the Rules of the Bank.
The Bank does not pay any severance fees to its Managing Director or its Whole
Time Directors.

ix. All the non-Whole-Time Directors of the Bank were paid sitting fees of
`20,000 for every meeting of the Board and also for every meeting of the
Committees of Board of Directors attended by them. However, with effect
from 1st July 2014, the sitting fees paid to the non-Whole-Time Directors
for attending every meeting of the Board was revised to `1, 00,000 and
for attending every meeting of the Committees of Board of Directors was
revised to `50,000. During the year 2014-15, an amount aggregating to
`1, 01,06,000 was paid to the non-Whole-Time Directors of the Bank,
towards sittings fees, detailed as under.

18
 None of the non-Whole-Time Directors of the Bank hold any equity shares of the
Bank as on 31st March 2015, except Shri V. R. Kaundinya, who holds 5,000 equity
shares of `2 each of the Bank.

Evaluation of the Boards Performance

Pursuant to the provisions of the Companies Act, 2013 and revised Clause 49 of the
Listing Agreement, the Board had adopted a formal mechanism for evaluating the
performance of its Committees, Independent Directors, and Non-Independent
Directors including Chairman of the Board. A structured questionnaire was
prepared after taking into consideration inter-alia the inputs received from the
Directors. The structured questionnaire covered various aspects of the Boards
functioning such as strategic alignment and direction, engagement alignment,
composition and structure, dynamics and culture, ethical leadership and corporate
citizenship, support to the Board, Committees evaluation and self-evaluation etc.
The performance evaluation of individual Directors including Chairman of the
Board was done in accordance with the provisions of the Companies Act, 2013 and
revised Clause 49 of the Listing Agreement and also based on the structured
questionnaire mentioned above.

19
AXIS BANK LIMITED GROUP - AUDITORS REPORT
Consolidated Financial Statements

1. We have audited the accompanying consolidated financial statements of

Axis Bank Limited (the Bank) and its subsidiary and its associate (together,
the Group), which comprise the consolidated Balance Sheet as at 31
March, 2015, the consolidated Profit and Loss Account and Cash Flow
Statement for the year then ended, and a summary of significant accounting
policies and notes forming part of the accounts.

Managements Responsibility for the Financial Statements

2. The Banks Board of Directors is responsible for the matters stated in Section
134(5) of the Companies Act, 2013 (the Act) with respect to the
preparation of these consolidated financial statements that give a true and
fair view of the financial position, financial performance and cash flows of
the Group in accordance with accounting principles generally accepted in
India, including the Accounting Standards specified under Section 133 of the
Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This
responsibility also includes maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding of the assets of
the Group and for preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting policies; making
judgments and estimates that are reasonable and prudent; and the design,
implementation and maintenance of adequate internal financial control that
were operating effectively for ensuring the accuracy and completeness of
the accounting records, relevant to the preparation and presentation of the
financial statements that give a true and fair view and are free from material
misstatement, whether due to fraud or error.

Auditors Responsibility

3. Our responsibility is to express an opinion on these consolidated financial

statements based on our audit. We have taken into account the provisions of
the Act, the accounting and auditing standards and matters which are
required to be included in the audit report under the provisions of the Act
and the Rules made thereunder. We conducted our audit in accordance with
the Standards on Auditing, issued by the Institute of Chartered Accountants
of India, as specified under Section 143(10) of the Act. Those Standards
require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.

4. An audit involves performing procedures to obtain audit evidence about the

amounts and disclosures in the financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the
risks of material misstatement of the financial statements, whether due to

20
 fraud or error. In making those risk assessments, the auditor considers
internal control relevant to the preparation of the financial statements that
give a true and fair view in order to design audit procedures that are
appropriate in the circumstances but not for the purpose of expressing an
opinion on whether the Bank has in place an adequate internal controls
system over financial reporting and the effectiveness of such controls. An
audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of the accounting estimates made by the
Groups management, as well as evaluating the overall presentation of the
financial statements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion on the
consolidated financial statements.

Other Legal and Regulatory Requirements

5. As required by section 143 (3) of the Act, we report that: (a) We have sought
and obtained all the information and explanations which to the best of our
knowledge and belief were necessary for the purpose of our audit; (b) In
our opinion, the aforesaid consolidated financial statements comply with the
Accounting Standards specified under section 133 of the Act, read with Rule
7 of the Companies (Accounts) Rules, 2014. Other Matters

6. The accompanying financial statements include total assets of Rs. 3,326

crores as at 31 March, 2015, and total revenues and net cash flows of Rs. 768
crores and Rs. 25 crores for the year ended on that date, in respect of certain
subsidiaries, which has been audited by other auditors, which financial
statements, other financial information and auditors reports have been
furnished to us. Our opinion, in so far as it relates amounts and disclosures
included in respect of the subsidiary is based solely on the report of such
other auditors.

7. The consolidated financial statements also include the Groups share of net
profit of Rs. 1.36 crores for the year ended 31 March, 2015, as considered in
the consolidated financial statements, in respect of an associates, whose
financial statements have not been audited.

8. Our opinion is not modified in respect of these matters.

9. The financial statements for the year ended 31 March, 2014 were audited by
another auditor who expressed an unmodified opinion on these financial
statements on 25 April, 2014.

21
Ethical Issues in the Financial Services Industry

Ethical issues in the financial services industry affect everyone, because even if
you dont work in the field, youre a consumer of the services. That was the
message of Ronald F. Duska and James A. Mitchell in their presentation at the Oct.
24, 2006, meeting of the Business and Organizational Ethics Partnership.

The public seems to have the perception that the financial services sector is more
unethical than other areas of business, Mitchell began. For the past five years, he
has been Executive Fellow-Leadership at the Center for Ethical Business Cultures,
which is affiliated with the University of St. Thomas College of Business. He assists
business leaders in developing ethical and profitable cultures.

This misperception persists for several reasons, Mitchell said. First of all, the
industry itself is quite large. It encompasses banks, securities firms, insurance
companies, mutual fund organizations, investment banks, pensions funds,
mortgage lendersany company doing business in the financial arena. Because of
its vast size, the industry tends to garner lots of headlines, many of which tout its
ethical lapses.

This business that were talking about is really big. It is, to be precise, $50 trillion
in assets. Its growing 8 percent a year, which is more than twice as fast as the gross
domestic product, Mitchell said. Its also highly profitable. The financial services
sector of the S&P 500 represents 20 percent of this indexs market capitalization.
These companies are making a lot of money serving you.

So, he theorized, with trillions of dollars of assets, billions of transactions every

yearevery day probablywhen a small percentage of them is inappropriate, the
absolute numbers are still pretty big.

The industry is also highly regulated, so its likely that a higher percentage of these
bad transactions are identified and reported, perhaps more so than in other less
regulated industries.

But ethical lapses do occur, and Duska discussed five reasons why these misdeeds
may happen. He holds the Charles Lamont Post Chair of Ethics and the Professions
at The American College. The Post Chair supports research and studies of the
social responsibilities and ethical challenges facing the financial services industry.

1) Self-interest sometimes morphs into greed and selfishness, which is

unchecked self-interest at the expense of someone else. This greed
becomes a kind of accumulation fever. If you accumulate for the sake of
accumulation, accumulation becomes the end, and if accumulation is the
end, theres no place to stop, he said. The focus shifts from the long-term to
the short-term, with a big emphasis on profit maximization.

22
For example, swaps (where two communication companies agree to exchange the
right to use excess bandwidth on their networks) fall into this category. Each
company recognizes the income generated in the quarter earned and defers the
expenses through capitalizing them as an asset and logging the cost as a
recognized expense over time, resulting in an inflated bottom line. This is what
happened at Qwest during the first three quarters of 2001, when the company was
selling $870 million of capacity, while at the same time buying $868 million of
capacity. These swaps appeared to be round-trip transactions, which served no
purpose other than to inflate Qwests revenues, Duska said.

Companies were making money out of their finance departmentnot from selling
products, not from doing what the company did, not from fulfilling the companys
mission, but from playing around with its asset mix, he said.

2) Some people suffer from stunted moral development: I think this happens
in three areas: the failure to be taught, the failure to look beyond ones own
perspective, and the lack of proper mentoring, Duska said. Business
schools, he said, too often reduce everything to an economic entity. They
do this by saying the fundamental purpose of a business is to make money,
maximize profit, or the really jazzy words maximize shareholder value, or
something like that. And it never gets questioned, he said. Now if the
fundamental purpose never gets questioned, the ethics never get
questioned, because the fundamental purpose of something gives you the
reason for its existence. It tells you whether you're doing it well or not. It's
the ultimate ethical question: What's your purpose?

3) Some people equate moral behavior with legal behavior, disregarding the
fact that even though an action may not be illegal, it still may not be moral.
You ought to remember that the reason for all laws is that the moral
agreement begins to break down, and the way to get other people in line is
to legislate so that we can stipulate punishments, Duska said. Yet some
people contend that the only requirement is to obey the law. They tend to
ignore the spirit of the law in only following the letter of the law.

For example, IRS regulations repeatedly single out actions with no legitimate
business purpose (like swaps.) If you are doing things with no legitimate
business purpose in order to avoid taxation, what are you doing? Youre violating
the spirit, are you not? Youre staying within the letter, but theres no purpose there
except to get you around the law, he said.

4) Professional duty can conflict with company demands. For example, a faulty
reward system can induce unethical behavior. A purely self-interested
agent would choose that course of action which contains the highest returns
to himself or herself, he said.

23
For example, consider the misguided practice of selling indexed annuities to the
elderly. If a company is paying a high commission for that product, say 15 percent,
versus a lower commission for a more appropriate product, say 3 percent, a
salesperson may disregard the needs of the client and/or assume that the company
supports this product and its applicability by its willingness to pay five fold the
compensation. Sooner or later, people are going to give in to that temptation. The
purely self-interested agent is just responding to the reward system that is in
place, Duska said. You need to take a look at what you are rewarding. In
general, organizations get exactly what they reward. They just dont realize that
their rewards structures are encouraging dysfunctional or counter-productive
behavior or turn a blind eye to the outcome

5) Individual responsibility can wither under the demands of the

client. Sometimes the push to act unethically comes from the client. How
many people expect their accountants to pad their expenses where
possible? How many clients expect their insurance agents to falsify their
applications or claims? Thats the temptationyou like your client, youve
gotten to know your client, you really want to help your client outthats just
another conflicting loyalty, Duska said. Mitchell concluded the
presentation with several suggestions for improvements in the industry to
encourage more ethical behavior. My experience [in the financial services
industry] is that people who do business are, for the most part, highly ethical
people trying to do the right thing most of the time. Most of them are trying
to help their clients achieve their financial objectives, he said. But how
could this be better, because clearly, even if Im right, there are still a lot of
issues and problems in the business?

First of all, consumers need to be better informed. It is your responsibility to take

control of your own financial security, he said, which doesnt mean you need to
know everything about the product you are buying in advance, but you should
read enough to know what some of the right questions are to ask. Ask those
insightful questions of an advisor whom you know, trust, and who has the proper
credentials, if applicable.

24
Unethical Practices In Financial Sector

1. Introduction:

The study of unethical practices and their impacts on financial sector are important
to study as Unethical financial practices may create a negative attitude of the
customer towards financial service and the same may result in the less
channelization of funds which is not good for the health of any financial system. It
is needed to be studied because the financial sector is one of the most crucial areas
for people to invest. The success of financial services corporation is highly
correlated with customer orientation and satisfaction. In most of the financial
sectors either a customer commits funds or he is charged for the funds committed
to him by the services providers. Ethical Issues in the Financial Services Industry
and impacts that affect the financial sectors are been covered in study. The rules
and regulations that are made to control the unethical practices by government,
analyses of cases and impacts of these cases on the company as well as on other
related financially involved people are studied.

The Corporate employees are against unethical practices in business

organisations; their opinions for the unethical practices are the element of
unethical behaviour comes into existence due to competition in corporate,
government interference and pressure from the top for meeting targets and
achieving profits.

The work environment affect the work done by employees and in same way good
people in a good environment do good work. If this premise is accepted, then the
real role of top management is to create an organizational climate where people
can join together to accomplish some purpose. It is essential that this climate
include a focus upon what must be done to promote an atmosphere of socially
harmonious relationships. Essential to such efforts must be a commitment to drive
out fear, break down barriers between individuals and departments, and replace
competition win-lose with cooperation win-win. In short, management must be
willing to call into question all policies and practices that inhibit organizational
efforts to support socially harmonious relationships. The climate of competition
among individual managers may also lead to attitudes that sacrifice the interests of
other company stakeholders, such as stockholders, employees, and the
community.

The connection between ethics and profitability is added to by examining the

connection between published reports of unethical behaviour by publicly traded
US and multinational firms and the performance of their stock. The analysis shows
that the actual stock performance for those companies was lower than the expected
market adjusted returns. Unethical practice impact on the shareholders by

25
lowering the value of the stock. Managers should be able to see a connection
between unethical behaviour and the worth of their firms stock. Stockholders, the
press and regulators should find this information important in pressing for greater
corporate and managerial accountability.

There are many types of unethical practices in form of Corruption:

i. Democratic Corruption, referring to illegal payment by the people, of the

people and for the people;

ii. relating to bribery which must be compulsorily paid to get political party
interested cum social utility work, devoid of prudent financial management
considerations, accomplished/executed with the blessings of the political
party (Government) in power through the chain of middlemen (who may not
belong to any political party) acting as agents, money laundering, fraud and
allied issues are important issues and which have caused
government.(Swamy, M R Kumara,2011)

The determinants of unethical financial reporting, exploring the views of

professional and academic accountants in Nigeria. The study utilized the survey
design with a sample of 212 respondents drawn from a population made of
professional and academic accountants resident in Benue State of Nigeria. The
postulated hypotheses were tested using multinomial logistic regression, Kruskal-
Wallis H and Chi-square tests, and Mann-Whitney U test. The results, suggested
significant differences in the views of respondent groups on the identified
determinants of unethical financial reporting with manifest implications on how
policies aimed at addressing the phenomenon of interest would be initiated. The
major recommendation of the study is the urgent need to incorporate good
corporate governance systems in the overall strategies of corporations in order to
curtail incidences of unethical financial reporting.

The Effects of publication of financial statements, the risk of a takeover of the

auditee and the auditees financial position on auditors willingness to allow
material errors in financial statements in case of management pressure.

The results show that all factors significantly influence auditors willingness to allow
errors in financial statement there is also study take placed on unethical misuse of
three derivative securities of mortgage-backed securities (MBS), credit default
swap (CDS), and collateralized debt obligations (CDO) to understand the cause of
the global financial crisis. Also examine how the unethical misuse of these
securities and their effects on market volatility contributed to the global financial
crisis.

The criticism against banks profiteering in an economy where other sectors are
almost paralyzed, (Ugwu, Enitar, 2000) said that the real problem is the official

26
policy, actively promoted commerce (or trading to put it bluntly) to the detriment
of real production premised on this, he urged regulatory authorities against
ethical misconducts to save the industry from another round of systemic distress.

The bankruptcy has become an integral part of day to day business activities as
evidenced by experiences where righteousness is at a discount (account
tampering, manipulation/falsification of accounts and frauds are rampant); truth
has become rare, corporate-related financial institutions resorting to heinous
business practices of money laundering, etc. is spreading and integrity is
vanishing; and selfishness is growing alarmingly in all spheres of human business
life. The research paper is based on case studies of major corporate related
financial institutions with recommendations to come out with practical solutions.

Conclusion:
There are many issues of unethical practise which are now become a part of daily
life of the business but this affects business and customers financially. Government
has taken step to control these activities. The organisations must understand that
the break down barriers between individuals and departments, and replace
competition win-lose with cooperation win-win. In short, management must be
willing to call into question all policies and practices that inhibit organizational
efforts to support socially harmonious relationships.

27
References
1. https://www.axisbank.com/docs/default-source/annual-reports/for-axis-
bank/annual--report-2014-2015.pdf?sfvrsn=8

2. http://profit.ndtv.com/stock/axis-bank-ltd_axisbank/reports-auditor-
report

3. https://www.scu.edu/ethics/focus-areas/business-
ethics/resources/ethical-issues-in-the-financial-services-industry/

4. http://www.sachdevajk.in/2016/02/10/unethical-practices-in-financial-
sector/

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