Sbi Rar 2015

RESERVE BANK OF INDIA
State Bank of India
Risk Assessment Report

(Financial position as on March 31, 2015)
SPARC
Table of Contents
Introduction 2
Part I: Risk Assessment Report 3
Summary of Aggregate Risk at Bank Level 3
Supervisory Evaluation of Risks and Control Gaps 3
Governance & Oversight 3
Credit Risk 9
Market Risk 15
Liquidity Risk 18
Operational (Non-IT) Risk 21
Operational (IT) Risk 27
Other Pillar II Risks 29
Part II: Major Areas of Financial Divergence 32
Part Ill: Assessment of Capital and Earnings 33
Pillar I Capital & CRAR 33
Capital Management, ICAAP and Stress Tests 33
Assessment of Internal Generation of Capital 35
Scope & Ability to Infuse Capital 36
Assessment of Leverage Ratio 37
Part IV: Major Areas of Non-Compliance 38

Part V: Annex 1-14
Annex-1: Major Areas of Financial Divergence 1
Annex-2: Computation of Outside Liabilities 7
Annex-3: Assessed Net Worth 8
Annex-4: Computation of Assessed Capital 9
Annex-5: Assessment of Internal Generation of Capital 11
Annex-6: Leverage Ratio 14
Note : All figures in the report refer to position of the bank as on March 31, 2015 or for the period April 1, 1014 to March
31, 2015 and figures in parenthesis refer to corresponding previous year position unless otherwise specified
Confidential Page 1 of 44
INTRODUCTION
The Risk Assessment of State Bank of India for 2014-15 under the Superviso Program
for Assessment of Risk and Capital (SPARC) was completed with March 31, 21115 as the
reference date. The assessment has been made based on the off-site analysis iDf the data
and information furnished by the bank as well as the findings of the on-site Ins ection for
Supervisory Evaluation (ISE) undertaken from October 15, 2015 to Decembe 04, 2015
and various explanations offered by the bank during the course of inspection. he critical
observations emanating from the inspection of some Local Head Offices and two Zonal
Offices under Section 35 of the Banking Regulation Act, 1949, are also incor•orated in
the report.
A separate exercise of Asset Quality Review (AQR), 2015 was conducted .uring the
current supervisory cycle with specific focus on compliance with regulatory gui•elines on
Income Recognition and Asset Classification Provisioning norms. The revie covered,
inter alia, deficiencies in the systems and processes in the bank which led to improper/
incorrect classification of assets. The report containing findings of the AQR w re shared
with the bank and, after discussion, the bank has been advised to take a re iew of the
accounts covered under AQR by following a proactive approach with regard to
classification and provisioning by strictly applying the IRACP norms in letter an• spirit, by
March 31, 2016. Further, with a view to putting the viable assets back on track in case of
failed CDR restructuring cases, the bank was given time up to March 31, 201 to take a
review of these cases. However, in the interregnum, the bank will be required o build up
• prudential provision of 15% (including 5% regulatory provision for restructure° standard
asset as on March 31, 2016) for failed CDR restructuring cases by March 31, '017.
In view of the above, the full impact of AQR on the bank's profitability, capital earnings,
risk scores, etc., is not determinable in the current supervisory cycle. The impa t of AQR,
therefore, has not been included while presenting the assessment in this Inspection
report.
As per the SPARC process, the Aggregate Risk Score of the bank is arrive• at 2.332
which is indicative of High Risk. On applying the assessed CRAR (11.8 • /0) to the
aggregate risk score, the Risk of Failure score of the bank is arrived at 2.450.
Confidential age 2 of 44
PART I: RISK ASSESSMENT REPORT
Summary of Aggregate Risk at Bank Level
Inherent Risk Control Gap Aggregate Risk

Risk Category
A (1-4) B (1-4) A+B
Board 1.906
Senior Management 1.914
Risk Governance 2.072
Internal Audit 1.726
1.904
Credit Risk 2.808 2.209 2.628
Market Risk 2.309 2.278 2.300
Liquidity Risk 1.776 2.055 1.860
Operational (Non-IT) Risk 2.422 2.229 2.364
Operational (IT) Risk 2.526 2.276 2.451
Other Pillar II Risk 1.909 2.067 1.956
2.407
BANK LEVEL AGGREGATE RISK 2.332
SUPERVISORY EVALUATION OF RISKS AND CONTROL GAPS
1. Governance and Oversight: Aggregate Score (1.904)

Major observations
1.1 Board Score: 1.906
1.1.1 Board Oversight of Risk & Compliance Functions
1.1.1.1 There was need for focused direction from the Board for (i) compliance with
Accounting Standards relating to amortization of income on LC/BG in
domestic operations; (ii) identifying areas in forex business susceptible to non-
compliance and money laundering and redressing them accordingly and (iii)
pro-active follow up on AML alerts and triggers in view of high Inc dence of
fictitious offer cases. There was also a need for the Board to review the use
of reserves for past superannuation obligations arising out of 10th bi-partite
settlement as well as the present mechanism of asset classification n view of
continuing divergence as pointed out by statutory auditors and RBI. The Board
had not yet evolved any mechanism to evaluate the performance of the Board
committees.
1.1.2 Conduct of Board Level Committees
1.1.2.1 ACB directions on movement of stressed assets from overseas jur sdictions
having stringent regulations to Offshore Banking Units (OBUs) pr marily to
avoid adverse comments from such regulators, was not in line with acceptable
credit risk management practices. OBUs at Kochi and Mumbai had
incidentally been closed down as they did not meet business objectives.
Placement of proposals such as engagement of ex-statutory auditors for
various purposes to ACB needed to be avoided from the perspective of
maintenance of arms length relationship.
1.1.2.2 Risk Management Committee of Board (RMCB) deliberations did not capture
new products, suitability and appropriateness of derivative products,
operational risk elements, fraud risk, etc. Dichotomy in risk management
premises and practices by way of taking business decisions in stressed
sectors such as textiles at variance with recommendations of RMCB, needed
greater oversight.
1.1.3 Board's Engagement with Group Entities
1.1.3.1 Over dependence on SBICAPS in matters relating to credit advice needed
prompt mitigation. The subsidiary's advice on credit proposals relating to
restructuring, SDR, identification of strategic investor in several cases were
found to gloss over borrower/investor weaknesses and viability (e.g. Jyoti
Structures). Incidentally, bank's dividend income during 2014-15 was
significantly derived from SBICAPS (36.26%), and total turnover of
transactions through this broker stood at 33% and 28% of total transactions
in respective half years of 2014-15.
1.1.3.2 Performance of some domestic subsidiaries had not been satisfactory during
the year. PAT of SBI Pension funds had declined by 23.17% in 2014-15 due
to reduction in investment management fee from 0.2% to 0.01% brought in by
regulatory rigour specified by Pension Fund Regulatory and Development
Authority (PFRDA). SBI-SG Global Securities Private Limited which provided
custodial services had incurred losses. The bank had also factored infusion
of capital in two subsidiaries [SBI General Insurance (a loss making
subsidiary) and SBI Payments] during 2015-16 in its five year capital growth
plan implying need for support to subsidiaries.
1.1.4 Board's Oversight of Overseas Operations
1.1.4.1 Strategic re-visit by Board of overseas operations was required in view of
some under-performance / shortcomings noticed therein: (i) Some overseas
subsidiaries / branches (California, Botswana, CIBL Moscow, etc.) have been
unprofitable or have recorded depletion in profits; (ii) Certain overseas
branches posted low to moderate return on capital employed (ROCE) (iii)
Extensive overseas operations had not been accompanied by appreciable
turnover/increase in forex business or other income; (iv) Compliance functions
were rated as weak by several overseas regulators/supervisors; (v) Use of
external auditors for evaluating core processes was on the increase; (vi)
There was concentration risk (Diamond industry) in Antwerp; (vii) ACB in its
meeting on 30.6.2015 noted that 8 out of 48 branches audited by home office
had migrated down to "adequately controlled"; and (viii) Policy on buyers'
credit in foreign offices was not in alignment with host regulatory rigor as it
had not incorporated necessary due diligence on underlying borrowers and
consideration of operating cycle of the business (USA, Paris).
1.2 Senior Management Score: 1.914
1.2.1 Involvement of Senior Management
1.2.1.1 Frequency of Central Management Committee (CENMAC) reviews on
International Banking Group (only one dedicated review in Janua li 2015),
subsidiaries (reviewed only once, covering SBI Global factors) and cash
management / outsourcing channels needed enhancement.
1.2.2 Effectiveness of Senior Management Functions
1.2.2.1 (i) CENMAC deliberations continued to reveal concerns on overheads in
domestic circles/branches. (ii) Procedural delays in establishment of overseas
offices resulted in the bank seeking extensions in timelines from RBI. (iii)
Bunching of agenda items for the Board came in the way of timely and
effective evaluation of business risks, such as devolvement of LC/BG related
risks. (iii) The oversight of SME segment by senior management needed
enhancement as on accounted of increasing SMA slippages (iv) ACB had
mandated a study on impact of not routing amounts utilized out of
Countercyclical provisioning buffer, through P&L account, but it was yet to be
undertaken.
1.2.2.2 Management Information System (MIS) was found to be deficient in several
areas. Deficiencies in centralized KYC/AML functionality at Jaipur resulted in
delays in extracting KYC related details, alert details and submission of
CTR/STR. Core Banking System (CBS) and dedicated applications in various
areas were not optimized to meet all MIS needs. Process/ MIS f ows and
system adequacies needed improvement in business units like TFCPC and
forex branches.
1.2.2.3 IT strategy needed a comprehensive review by CENMAC Board,
accompanied by suitable reorientation, in view of the following gaps: (i)
Inadequate focus on quantitative targets/time lines with defined action for
slippages; (ii) Lack of dynamism to cope with changing technology scenario
and regulatory landscape; (iii) No follow up on audit delineated inherent risks
in IT architecture; (iv) Reliance on quick fix solutions rather than long term
plans, especially in the area of CBS limitations; (v) Absence of independent
review of critical IT projects.
1.2.3 Formulation of plan & Fixation of Targets
1.2.3.1 (i) Disconnect between projections under Statement of Intent (S01) and actual
performance was evident during the year with such projections having been
viewed as too steep by Board as well. (ii) Forex business had stagnated with
buy-sell transactions reducing to 18651460 mn as compared to 21323840
mn during the previous year, resulting in reduced market share of the bank in
such business. The bank's own assessment was that attention on forex was
muted at circle levels and needed greater fillip.
1.3 Risk Governance Score: 2.072
1.3.1 Enterprise-wide Risk Appetite
1.3.1.1 Though Enterprise wide Group Risk Management Committee (EGRMC) was
constituted in February 2015, operational difficulties evidenced in arranging
for quorum and timely conduct of meetings necessitated re-constitution in July
2015 by replacing Top Management with a smaller team as
members/alternate members (CGMs/GMs substituted MD/DMD in most
cases). Group Risk appetite statement needed to be expedited by EGRMC.
Group Liquidity Management Policy was not in existence as on March 31,
2015 despite regulatory instructions to the contrary and was formulated for
approval only in July 2015. EGRMC was yet to include liquidity stress tests
undertaken by overseas banking subsidiaries as part of the Group policy
1.3.2 Risk Governance Framework
1.3.2.1 The segregation of credit sanction and independent risk assessment functions
needed closure by fully operationalising Independent Risk Advisory (IRA) for
loans, which was yet to achieve completion.
1.3.2.2 The bank was undertaking parallel run under Foundation Internal Rating
Based (FIRB) approach for credit risk assessment. An impact study based on
March 2013 data revealed high capital requirement under FIRB framework
on account of system related deficiencies in extraction of credit data such as
missing values of collaterals, missing internal ratings in the system, etc., which
led to increased values for PD, EL, LGD and additional provisions. Besides,
the bank was yet to demonstrate improvements in the areas relating to
integration of IBG and domestic exposure data, incorrect internal ratings, for
assessment of credit risk parameters under FIRB.
1.3.3 Effectiveness of Risk Management Functions
1.3.3.1 Impurity of data elements hindered appropriate projection of various risks,
despite 'Project Ganga' which was aimed at data cleansing. Data points for
capture of risks under the Risk Based Supervision (RBS) process
necessitated multiple revisions (four times). Dynamic rating of borrowers
introduced during the year did not find a reflection in credit proposals.
Executive Committee of Central Board (ECCB) had commented on the need
to incorporate such ratings for enabling appropriate decisions on such
proposals.
1.4 Internal Audit Score: 1.726
1.4.1 Internal Audit Policy
1.4.1.1 The bank's policy on forensic audit depicted inherent conflict of interest as the
authority for assigning audit was vested in business units monitoring borrowal
accounts concerned. Circle Audit was also not independent as it reported to
the business units at the Circle level. Rating for branch audit, which
determined periodicity of audit, was not updated with subsequent
developments.
1.4.2 Quality of Internal Audit
1.4.2.1 There was no policy-driven system for identification of areas that needed IS
and management audits by outsourced functions. Instances of suspected
frauds identified in Business Process Re-engineering (BPR) entities/spot
audits were not followed by timely investigation and reporting of frauds. False
compliance to audit observations recurred. In some cases audit observations
were refuted and closed without any justification. Independent val dation of
quality assurance of the audit observations was not in place.
1.4.3 Review of Internal Audit Function
1.4.3.1 The bank's concurrent audit function was increasingly shifted to web based
concurrent audit system. However, the same was not reviewed to identify
gaps, if any, from the existing manual system. Delay in rectification of
irregularities pointed out in the concurrent audit beyond the prescribed
threshold was observed. Uploading of all eligible accounts for subjecting them
to offline audit under Web-based Concurrent Audit System (WBCAS) was not
ensured by some of the branches.
1.4.4 Compliance Review in the Bank
1.4.4.1 Compliance functions did not demonstrate enhanced capabilities to evaluate
information received from various business units and functioned more as data
disseminating units. Integration of overseas compliance framework with the
Group Compliance functions needed greater focus. Quarterly review of the
compliance function and annual report on compliance breaches to Board were
not evidenced. The functional reporting of Circle Compliance Officers to
respective circle heads involved significant conflict of interest. Compliance
functions were evaluated as 'needing improvement' by key regulators like
New York, Chicago, Male, etc. in their latest reviews.
2. Credit Risk - Aggregate Score: 2.628
Major observations
2.1 Inherent Risk Score:2.808
2.1.1 Default Risk
2.1.1.1 The restructured exposures constituted 2.22% of bank's standard exposure
and 0.37% of restructured standard exposure slipped to sub-standard
category. The exposure classified as SMA 1 and SMA 2 formed 4.45% of
bank's standard exposure. SMAs in industries viz. iron & steel (25.92% of total
SMAs), power (15.57% of total SMAs and infrastructure (11.95% of total
SMAs) were significant. The bank's exposure to stressed sectors was at
elevated level at 8.82%. Fresh accretion to NPA was as high as 1.31%. The
bank's exposure around hurdle rate was also significant at 38.53% of total
standard rated exposure. Down-graded rated exposures and exposures not
rated for more than 12 months together accounted for 13.68% of total standard
exposure, implying portfolio being sensitive to default risk.
Number of accounts categorized by credit audit as 'High' and 'Medium' risk
increased to 12% (11%) and 33% (31%) respectively of the total number of
accounts.
2.1.2 Concentration Risk
2.1.2.1 Exposure to top 20 single borrowers and top 10 group borrowers constituted
14.38% and 18.01% respectively of the bank's total exposure. The sensitive
sector exposures increased during the review period and accounted for 2.02
% of bank's total exposure. Food credit exposure at ' 428644 m I formed
significant part of the bank's total fund based exposure.

2.1.3 Exposure & Tenor Risk
2.1.3.1 Total exposure of the bank was leveraged to the extent of more than 18 times
its net worth. The incremental exposure to stressed sectors and infrastructure
constituted 9.74% and 27.11% respectively of total incremental exposures.
Project loans and loans to projects under Implementation accounted for 6.86%
and 3.93% of total exposures, signifying tenor risk. Weighted average maturity
of the bank' exposure continued to be on higher side at 3.01. Exposure in
foreign currency to corporates was 17.71 % of total exposure to corporate in
domestic operations.
2.1.3.2 A significant amount of bank's term loans was under moratorium. It was
observed from a sample of 0.98 mn non-agri, non-retail domestic accounts
that 22.55% was under moratorium and 5.82% of the sample was under
moratorium extending to over five years.
2.1.4 Recovery Risk
2.1.4.1 The fully unsecured exposure increased during the year and stood at 26.72%
(20.16%). The upgradation ratio of sub-standard exposure declined to 9.46
during the year. Asset under Collection Account (AUCA) recoveries had
stagnated around 10.50% in the current year (25 bps low). Charge creation
was completed only for 10.57% of the total secured exposure contracted
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during the previous FY. The bank's sacrifice in compromise / settled high value
accounts was recorded at 23.56%.
2.2 Control Gap Score: 2.209
2.2.1 Policy Environment
2.2.1.1 Deviations from approved credit norms and guidelines were observed without
sufficient credit risk mitigating measures in both domestic and overseas
offices. Pricing below the relevant risk grades, frequent extensions in timelines
for charge creation, waiver of stock audit, renewal on the basis of old
financials, overlooking serious credit audit observations, borrowers
maintaining multiple current accounts with consortium banks, etc. were some
of the deviation cases.
As part of RMP-2014, the bank had been advised to put in place a Board level
review to assess the extent of deviations from stipulated benchmark and also
put internal caps on the extent of deviation. The bank was in the process of
redefining the deviations and hence it had not yet complied with the RMP
point.
2.2.1.2 The bank needed to demonstrate a prudent approach while applying
regulatory guidelines on DCCO to infrastructure and non-infrastructure
projects. There was no proper policy framework to apply DCCO norms across
the bank, keeping in view regulatory and supervisory approach. The bank also
did not ascertain DCCO and review/renew proposals in certain cases where
other banks were lead lenders, in a timely manner. Recording of DCCO on
CBS was deficient and also attracted stringent observations from statutory
auditors.
2.2.1.3 An appropriate policy framework was needed for foreign operations of the
bank to apply risk mitigants, wherever needed, in diverse jurisdictions.
Unsecured exposures at SBI, Mauritius enjoyed treatment similar to secured
exposures. Unsecured exposures in corporate segment at Singapore
constituted 70% of the total exposure to such segment. MAS (Singapore) had
recommended that the bank assign asset classification based on inherent
weaknesses rather than payment performance. Loan policies in Mauritian
subsidiary were yet to be aligned with local regulations.
2.2.2 Risk Identification & Assessment
2.2.2.1 The examination of bank's credit portfolio revealed lack of discipline in credit
sanctioning process. There were several instances of sanction of advances
near balance sheet date, incorrect computation of Drawing Power, increased
inclination to sanction foreign currency loans to repay rupee term loans, etc.
The effectiveness of Early Sanction Review (ESR) was yet to be examined.
Further, it was observed that food credit was secured by a combination of
Stocks & Receivables as against the stipulation of backing against stock of
food grain.
2.2.2.2 There were some instances of restructuring which did not conform to
acceptable norms on restructuring: (i) TEV study undertaken was not
considered reliable by IEC/other members necessitating further studies; (ii)
Rectification was followed by restructuring and then recovery, which did not
adhere to the spirit of JLF guidelines; (iii) Timelines required to be followed in
cases involving both rectification and recovery were not complied with, (iv)
Borrowers were rated in default category by External Rating Agencies (ERA)
at the time of restructuring and scores on financial parameters were very low
as compared to admissible scores; (v) Several accounts did not perform as
per the projections made during restructuring/ estimates under TEV; (vi)
Dilution of standards before restructuring and compromise of CDR/JLF
conditions post restructuring; and (vii) Opting for flexible structuring and
Strategic Debt Restructuring (SDR) despite absence of viability of the project.
2.2.2.3 The mapping of external rating with internal rating had a restricted utility as
the bank had used PDs of only CRISIL. Risk ratings were not reviewed
annually and in several cases, were based on the dated financials. Review for
reported overdue ratings at bank level was absent.
2.2.2.4 System based identification of NPA needed continued strengthening in by way

of incorporating other regulatory, non-financial triggers e.g. non-achievement
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of DCCO, failed restructuring, etc., which were not captured by the system.
The bank needed to improve the validation of SMA-2 data being reported to
CRILC. There were instances where incorrect exposure and industry codes
were reported by the bank. Delays were observed in reporting of SMA-2
accounts.
2.2.2.5 Significant differences between year-end stock statements and balance sheet
data of borrowers implied incorrect computation of Drawing Power (DP). DP
computation also suffered from lack of appropriate controls for timely
identification of the deficiencies viz. overstatement of the closing stock by
including ineligible items, receivables from group entities of the borrower
without appropriate due diligence, not reckoning paid stock etc. in the
stock/receivables statement, affording concessions in the form of increased
cover period for receivables / reduction in margins. While stock audits brought
out errors in such computation, these reports were rejected in most cases and
decisions favoring borrowers were taken. Drawing power calculation was
primarily manual.
2.2.2.6 There were deficiencies observed in capturing borrowers' data regarding

unhedged foreign currency exposure. In some cases the certificates were not
received from borrowers.
2.2.3 Controls
2.2.3.1 Some CENMAC reviews advised the business groups to review cases where
loan sanctions did not happen due to stringent covenants, security conditions,
pricing decisions, etc.
2.2.3.2 Examination of top 200 NPAs revealed that the bank had not maintained
adequate provision for these accounts as per the ageing norms of IRAC.
Emphasis on accelerated provisions seemed muted and required greater
insight in cases of restructuring where diversion of funds, willful default and/or
non-co-operative borrowers was witnessed.
2.2.3.3 Combined share of `BBB-` and non-investment grade portfolio of the bank's
overseas investment book as on March 31, 2015 was at 61.70%. The bank
3.1.1.2 Modified Duration (MD) of the trading book increased significantly to 3.22 (2.40).
MD of the domestic investment book increased from 4.10 as on March 31, 2014
to 4.28 as on March 31, 2015.
3.1.1.3 NOOP limit of many of the overseas branches were breached on multiple
occasions during 2014-15. Further, NOOP during 2014-15 was under stated on
account of the bank setting off the open position against profit and loss, reserves
and retained earnings at foreign offices. The bank has now revised the
methodology to address the above referred non- compliance.
3.1.1.4 The share of unlisted equities in the trading portfolio (AFS and H FT) constituted
37.19% (56.04%).
3.1.2 Banking Book
3.1.2.1 The IRRBB from earning perspective was considered as a signifi ant risk on
account of the impact of NII for 200 bps shock.
3.1.2.2 Embedded optionality risk in the bank's loan book was at elevate• level with
39.19% (46.72%) of fixed tenor loans being prematurely repaid / ref nanced. On
the liability side, against overall 20.90% (20.27%) total premature r....emption of
fixed deposits, exercise of such option by non-institutional deposito - at 26.45%
(30.87%) was significant.
3.1.2.3 PV01 of the total investments book (HTM+AFS+HFT) as on March 31, 2015 was
Z 1913.40 mn ( Z 1432.50 mn). Modified duration for HTM portfo io was 4.86
(4.52) signaling increase in latent interest rate sensitivity of the ban ing book.
3.2 Control Gap Score: 2,78

place. The
3.2.1.1 Guidelines on reckoning Illiquidity in various asset classes were not in
bank's policy on hedge effectiveness did not stipulate the operational
guidelines/methodology for the same. The authorities for approvi g recurring
breaches of some risk limits were not prescribed in the policy. Mar et risk limits
based on magnitude of change in risk indicators viz. modified dur tion, greeks
for derivatives, etc. were not prescribed in the policy.
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3.2.1.2 There was no mechanism to ascertain end use of funds in instances where the
bank acted as Issuing and Paying Agent for Commercial Papers (CPs) issued
by borrowers. CPs were considered at par with Non-Convertible Debentures
(NCDs) and limits were sanctioned for periods more than one year in some
cases.
3.2.1.3 In case of domestic offices, the risk the bank may bear on account of interest
rate volatility, was linked to bank's capital and reserves whereas in case of
foreign offices the same was linked to previous year's net interest income.
Rationale and periodic review for this difference in approach between domestic
and foreign offices was not in place.
3.2.2 Risk Identification and Assessment
3.2.2.1 The back office did not undertake independent valuation of investments in
associates and subsidiaries, instruments obtained as a part of restructuring
process, security receipts, etc. and depended on the market value furnished by
the respective business units. The bank measured the capital market exposure
by manual compilation of data submitted by the different business verticals
without any appropriate validation from system. While many circles continued to
submit 'nil' data as CME exposure, CBS data based on activity/product code
revealed existence of capital market exposure Market value of unlisted equity
assessed periodically under planning period where NAVs were not published
were valued at face value as against lower of the redemption value of the SRs /
PTCs, and the Net Book Value.
3.2.3 Controls
3.2.3.1 The application for entering deals currently being used by the bank did not allow
recording deals with settlement date other than T+1. Therefore, Commercial
Paper (CP) deals were not entered on trade date. Instruments where partial
redemption happened were not captured and quantity was adjusted instead of
the face value.
3.2.3.2 Flow of deals from some trade applications to murex / Finacle was not straight
through, resulting in time lag in entering the deals in bank's accounting
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application. The models used for measurement of risk were not validated
periodically.
3.2.3.3 Integration of the mid office of the overseas branches with domestic mid office
was pending implementation.
3.2.4 Monitoring and Review
3.2.4.1 Final deal confirmation for derivative deals was not obtained on a timely basis by
GM U Kolkata (back office for derivatives deal). Appropriate system for identifying
exceptions and escalation matrix were not in place. Deficiencies in obtaining
FEMA declarations, exchange contract for forwards etc. in time from the
borrowers were observed.
3.2.5 Reporting
3.2.5.1 Most of the reports for risk monitoring and submitted to senior management were
required to be compiled by way of manual consolidation from multip e systems.
4. Liquidity Risk: Aggregate Score: 1.860

4.1 Inherent Risk Score: 1.776
4.1.1 Structural Liquidity

The undrawn portion of committed credit lines at 16.62% (22.88%) of bank's
total fund-based commitments continued to be material. Short term resources
funding the illiquid assets of the bank to the extent of 25.95% (27.03%)
continued to pose liquidity risk, accentuated further by demand loans which
constituted 37.23% (47.80%) of total advances. The bank also held significant
illiquid non-SLR investments.
4.1.2 Stress Liquidity
Volatile liabilities formed 22.10% of the long term earning assets. Value of
unencumbered investments as a part of liquid asset improved to 39.60%
(8.23%) but still remained far below comfortable level. Top 100 depositors
formed 151.24% (173.64%) of assets liquefiable within two weeks' time.

I
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1
4.2.1.1 The ALM policy of the bank was yet to be integrated for domestic and IBG
operations. Intra-day liquidity management was not based on a calibrated
policy, which was framed in June 2015 only.
4.2.1.2 ALCO proceedings did not document rationale for retention / change / delay in
effecting change in Base Rate. Besides, going forward, the bank would be
computing Marginal cost of funds for Base rate. It was, therefore, necessary that
the bank document card rates on deposits above 50 crore to ensure correct
computation of MCLR and also to avoid negotiation of differential interest rates
on these deposits.
4.2.1.3 Absence of integration between domestic and overseas operations resulted in

delays in assessing and reviewing bank-wide structural liquidity with a time lag
of three days Overseas liquidity hubs lacked policy/tools for monitoring and
deploying liquidity optimally across geographies to avoid excesses in certain
places & shortages in others and unremunerated cash balances.
4.2.2 Risk Identification and assessment
4.2.2.1 The bank had, in its Foreign Offices (FO), significant investments in the form of
corporate bonds, which were normally held to maturity. Such bonds did not fall
under Level 1 /2 assets for contribution to Liquidity Coverage Ratio (LCR).
Certain jurisdictions like Paris had as less as 0.05% LCR as on March 31, 2015
and the bank expected regulatory reprieve from LCR requirements with effect
from October 2015.
4.2.2.2 Stress testing was not conducted on bank-wide basis. Further, there was no
segregation of portfolio into foreign currency and domestic currency while

subjecting liquidity to stress parameters. Stress test scenarios of the bank on
liquidity risk in foreign offices needed to factor in peculiarities in certain
jurisdictions like availability of abundant liquidity and excessive deposit
concentration of deposits amongst top 10/20 depositors, the resulting impact
on unanticipated withdrawals by such top depositors etc. Though inflows and
outflows were slotted under three time buckets extending upto 90 days,
mitigation plans were cumulative and did not distinguish between time horizons.
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4.2.3 Controls
4.2.3.1 There were some gaps in control of overseas liquidity: (a) nspection
observations of Monetary Authority of Singapore (MAS) had not beep factored
duly by the bank in matters relating to inclusion of off balance sheet exposures
in daily Liquidity Planning Schedule (LPS) and Monthly Maturity Mismatch
Schedule (MMS) up to July 2014. Subsequent inclusion was on weekly and not
daily basis and the process was yet to be automated. (b) Antwerp branch had
been paying additional tax arising out of inter branch borrowings exceeding five
times the NOF of the branch. (c) There was no transfer pricing mechanism for
overseas offices
4.2.3.2 A review of Contingency Funding Plan (CFP) revealed that the approach
followed till June 2014 was more granular with inclusion of signals/ ndicators,
such as cumulative negative mismatches in the 29-90 day bucket, decline in
deposits vis-a-vis advances, withdrawals greater than 2.5% of domestic
deposits, etc. These flow based indicators were changed from December 2014,
being replaced by stock ratios that were part of daily monitoring. A judicious
combination of the flow and stock based parameters may be more desirable.
Further, some instrument-wise haircuts had not been included in the CFP.
4.2.4 Monitoring and Review

4.2.4.1 Analysis of Dynamic Liquidity Statements of the bank revealed tha' in almost
all instances, the projected increase/decrease in components of outflows and
inflows did not match the actual position. The bank continued to project on the
same lines in successive periods as well despite contrary empirical evidence.
4.2.4.2 Analysis of Maturity Mismatch for foreign offices in respect of USD revealed
that the prescribed ratio (LTL+MTL/LTA+MTA) stood exactly at the threshold
limit of 80% as on March 31,2015 while LTL/LTA ratio coincided with threshold
limit of 70% as on September 30, 2014, which needed greater monitoring.
Mismatches were also seen in offices at London, Nassau, Singapore, etc. as
on March 31, 2015. During the year, certain other liquidity breaches were seen
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Confidential
in Singapore, Tel Aviv, Johannesburg and Doha branches, Osaka, Paris,
Sydney and Johannesburg.
4.2.4.3 There was no uniformity in monitoring stock ratios on liquidity - at times four
ratios and at other times three ratios were monitored. There was need for
constant review of inflow and outflow components covered under LCR returns
with specific emphasis on operational deposits (an outflow component).
5. Operational (Non- IT) Risk - Aggregate Score: 2.364

Major observations
5.1.1 People Risk
5.1.1.1 Existing and impending (due to retirement in the next one year) vacancies in
senior management cadre accounted for 21.28% of senior management and
key employees of the bank. Incidentally, there was no Board approved
succession plan in place for top line executives. Termination of employees on
account of unethical behavior increased by 4.98% during the review period.
14 cases of vigilance were filed against the top officials of the bank.
5.1.2 Process Risk
5.1.2.1 The number of customer complaints increased from 1.52 mn to 1.63 mn
during FY-2015, which formed 0.60% of the customer base. KYC non-
compliance continued to be on the higher side with 0.37% of the incremental
customers identified as KYC non-compliant.
5.1.3 External Risk
5.1.3.1 The number of fresh legal cases filed by customers increased from 534 to 792
during the period and 781 of them were outstanding at the end of the year.
Total amount involved in external frauds perpetrated by customers during the
period increased significantly from Z 8350 mn to 215481 mn and constituted
11.82% of bank's PAT. Total amount involved in external frauds perpetrated
by non - customers was Z 269 mn and formed 0.20% of bank's PAT. The
complaints against outsourced services constituted 12.12% of total
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Page 21 of 44
complaints.
5.1.4 Compliance Risk
5.1.4.1 The number of instances where action was taken by the regulators against
the bank had increased during the year and a penalty of Z 22 mn was levied
on the bank. Several other instances of non-compliance are given in Part IV.
5.2 Control Gap Score:2.229

5.2.1.1 The bank had recruited retired employees on contract for transaction
monitoring purpose, however selection panel was approved by Central
Human Resource Committee (CHRC). The criteria for selecting case
managers for examining alerts did not accord due weightage to their
experience in audit, transaction monitoring and branch experience, etc., nor
was their performance review carried out till date.
5.2.1.2 There was no system for assessing customer satisfaction; annual review of
depositors' satisfaction was not done. Instances of complaints under whistle
blower scheme were flagged to the same business unit/branch instead of an
independent investigation process.
5.2.1.3 The bank did not maintain feedback of separating employees obtained during
exit interview as an input to recruitment, transfer and promotion policies.
5.2.1.4 Identification of frauds was based solely on audit observations and complaints
and no operational guideline existed. Large number of suspected frauds were
pending classification as fraud. The bank had introduced a scrutiny of
transactions in personal accounts of BMs and FOs of branches by CM in their
region at quarterly intervals to identify staff related frauds, on which no MIS
was available. The Special Committee of Board on High Value Frauds met at
quarterly intervals and not as and when large value frauds were detected.
Staff accountability/lapse was not examined for delayed detection and
reporting of frauds
5.2.1.5 Risk Control Self-Assessment (RCSA) had not been implemented across all
the assessment units in the bank, such as. Fraud Monitoring Cell, omplaint
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Confidential
Redressal and Management System and AML/CFT Centre etc. RCSA
framework was manually driven with mapping of RCSA findings to Audit
findings being non-existent. Further, monitoring, follow up and timely
completion of the exercise remained a concern.
5.2.1.6 The Key Risk Indicators (KRIs) suggested by ORMD were non-binding; not
applied on bank-wide basis and were changed at will by business units. These
were also not tracked on regular basis. Most KRIs had been defined only on
the basis of audit and not RCSA findings. There were gaps in formulating
action plan based on such KRIs for addressing the relative risk and no review
of KRIs was effected at appropriate levels in Departments concerned.
5.2.1.7 The bank was granted approval for parallel run of Advanced Measurement
Approach (AMA) for calculating capital charge for operational risk in July
2015. The progress reports put up to the Board committee were very generic.
The progress made in the respective parameters was not commented upon
to show the quantifiable progress.
5.2.1.8 The bank had opened 45 mn accounts under the Jan Dhan scheme till
October 28, 2015 but 51% of the accounts remained inoperative. There was
perceptible lack of clarity on categorising accounts as zero balance accounts
and inoperative accounts. On the expense side, commission paid to BC/BF
had almost doubled, which was expected to be offset by commission
receivable from Government on DBT and making 65% of Jan Dhan accounts
operative.
5.2.2 Risk Identification & Assessment
5.2.2.1 Despite significant emphasis on de-duplication of CIFs, the bank had not been
able to achieve UCIC targets even in March 2015, which is matter of concern
considering high incidence of cases relating to fictitious offers, high volume of
CTRs and alerts.
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5.2.2.2 Date of complaint/date of receipt of complaints was not considered for
reckoning TAT, which was instead arrived at based on date of entry in the
bank's complaint management system. Complaints which involved CIBIL,
Income Tax, POS and other merchants took longer periods for redressal.
There was no quality check for closure of complaints by branches/circles.
There was no time limit prescribed for redressing the escalated complaints
5.2.2.3 Key person risk was evidenced in overseas operations as well as domestic
operations including outsourcing of examination of transaction alerts to retired
employees at AML/CFT Center. The job rotation policy had not been fully
implemented for all the sensitive desk positions. The mandatory leave policy
had also not been implemented.
5.2.2.4 There were 114 vigilance cases pending as on 31.03.2015 including 89 cases
pending for more than 3 months. Vigilance angle was not examined in case
of quick mortality to fix staff accountability.
5.2.2.5 There were many instances of frauds relating to fake title deed in advance
accounts, which also resulted in most high value frauds. Despite presence of
empanelled advocates at circle levels for title and search reports, "nstances
of over-valuation of securities, inordinate delay in perfection of securities, etc.
were witnessed. In case of housing loans and quick mortality cases (RACPC,
Baroda, for instance), there was concentration of valuation of property in one
particular empanelled valuer. Increasing legal expenses accentuated the
legal risk faced by the bank. Instances of cash shortages in branches / ATMs
recovered later from employees / outsourced vendors etc. were not reported
as fraud.
5.2.3 Controls
5.2.3.1 The bank's transaction alert monitoring system (AMLOCK, 2008) continued
with some modification and limitations. Limitations included (i) Non availability
of history of transactions, alerts and STR/CTRs filed resulting in inadequate

escalation of alerts to next higher level closure of alerts without adequate
follow-up; (ii) Lack of access for Case Managers to customer and risk profiles
Page 24 of 44
Confidential
on CBS; (iii) Risk categorization for same customers differed in AMLOCK and
CBS; (iv) MLROs had active user ID of other roles as well, review of user-ids
in general and relating to unused ids (>10 months) was absent; (v) 670901
alerts and 6749 STRs were pending as on March 31, 2015; (vi) Alerts were
closed abruptly.
As required, 5% review of closed alerts by supervisors and 30% review of

STRs rejected by supervisors by AMLROs was not being done. There was
significant delay in retrieval of KYC documents which impinged on operational
efficiency.
5.2.3.2 BCP testing was not conducted within stipulated time. The Integrated
Business Continuity Exercise conducted in August-2015 revealed that
stipulated Recovery Time Objective was not achieved in many critical
applications like LLMS, SI-SBI, and eKYC-SBI. Alternative arrangements in
case of failure of vendor/outsourced agent was not strategized and
temporary, cost-ineffective arrangements were resorted to as and when such
events occurred.
5.2.3.3 Sample scrutinies made on the subject of import advances during the course
of ISE revealed deficiencies relating to (i) inadequate follow-up of import
advance transactions, with significant number of transactions not having been
marked off, (ii) inadequate KYC rigor and risk categorization of transacting
firms/companies, (iii) MIS and follow-up weaknesses in TFCPCs (iv) opening
of multiple current accounts in the name of companies/proprietary concerns
and (v) structured remittances closer to the benchmark value of USD 0.1 mn.
5.2.4 Monitoring & Review
5.2.4.1 Three out of top five external frauds occurred in Kolkata based branches and
frauds were mostly related to diversion of funds and loan against fake
documents/ title deeds. The activities of fraud prevention, monitoring,
investigation, reporting and awareness creation was not owned and carried
out by an independent group in the bank separate from business. Reporting
of frauds for NBG groups was, however, done by a Division of banking
operations of the bank. Most high value and retail loan accounts frauds were
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detected after the account turned non-performing.
5.2.4.2 There was no half yearly review of records pertaining to material outsourcing.
The annual review of outsourcing arrangement was conducted with delay.
The bank had also not advised details of black listed vendors to IBA nor was
performance of their party vendors reviewed.
5.2.4.3 There was no analysis of claims received vis-a-vis amounts claimed to assess
benefits derived from insurance cover. During FY-2015 the bank had filed 366
claims amounting to Z 50 mn and the same were settled for Z 42 mn As on
March 31, 2015, 151 claims amounting to 2132 mn were pending for
settlement, which mostly pertained to forgery and alteration.
5.2.5 Reporting
5.2.5.1 There was no centralized monitoring of timely submission of various returns
to RBI, leading to default in submission of OSMOS returns on several
occasions. Many RBS related Tranche-I data points and data on top 200 N PA
reported by the bank were incorrect and the bank had revised and re-
submitted the same with delay, revealing weaknesses in MIS. Quality of
compliance testing conducted for RBS related Tranche-ll I was not
satisfactory. Data efficiencies for regulatory returns needed improvement.
5.2.5.2 Number of frauds reported had increased from 689 (amounting to Z. 9050 mn)
in 2013-14 to 938 (amounting to Z 16010 mn) in 2014-15. Detection and
reporting of frauds to RBI was delayed with no improvement over the last
three years. Average time for detection surpassed 500 days while the same
for reporting had risen to 244 days as on 30.9.2015.
5.2.5.3 Reconciliation of loss data with accounting and finance data was manual.
Incorrect credit data including repayment start date, segment code and
sanction was fed into CBS system.
5.2.5.4 Instances of Fictitious Offer of funds from abroad continued to increase during
the year and the bank's due diligence in these areas needed drastic
improvement. In several cases, the bank resorted to certify KYC as compliant
though there were significant deficiencies. Details on alerts generated and
account holders could not be furnished up-front by the bank despite a
centralized AML unit functioning in Jaipur.
6. Operational (IT) Risk - Aggregate Score: 2.451
6.1.1 Financial Risk

6.1.1.1 The bank's IT related operating expenses increased from Z. 14549 mn to Z.
23239 mn during 2014-15, which constituted 8.25% of the bank's operating
expenses as on March 31, 2015. License and/or maintenance fees and
additional expenses incurred/paid for captive IT and software packages
formed 93.53% of the license and/or maintenance fees paid for all software
packages.
Many projects/capex were not executed in time resulting in cost overrun.

6.1.2 Operational Risk
6.1.2.1 The bank's CBS was down for about 508 minutes during 2014-15. Further,
unscheduled down time in bank's critical applications was more than 9570
minutes during 2014-15 and resulted in non-availability/ slow availability of
CBS, Internet banking, ATM. etc. The bank depended on the vendor reports
for reporting down time and there was no system to ensure that the vendor
did not exclude instances of non-availability.
6.1.2.2 Number of bugs reported on IT applications of the bank increased from 249
to 298. Deficiencies in system for log generation and monitoring of all critical
applications / database logs impacted timely identification of such bugs.
6.1.2.3 The bank did not report any unauthorized access to its systems during 2014-
15. However, instances of internal frauds attempted by employees on account
of compromised passwords, instances of installation of applications/devises
to desktops without authorization, etc. were observed.
6.1.2.4 Straight Through processing (STP) had not been achieved in 10.34%
(11.11%) of the critical systems. Independent reconciliation was required in
58%.of interfacing systems.
6.2 Control Gap Score:2.276

6.2.1.1 The CISO of SBI was also CISO for 15 group entities. However, the resource
availability was not commensurate with the magnitude of operations of the
group. Framework and operational guidelines for identification, reporting and
approval of deviations from bank's Information Technology and Information
security policy was not in place. IT plan for 2014-17 did not take into account
views of all critical business verticals.
6.2.1.2 Quarterly review of technology, architecture and e-governance strategies did
not cover performance of newly launched applications, feedback from
business on adequacy of IT solutions, etc.
6.2.1.3 Security Operation Centre (SOC) set up, inter alia, for monitoring database
and application logs is yet to be fully operationalized and as a result
deficiencies were observed in handling incidents.
6.2.2 Risk Identification and Assessment
6.2.2.1 Critical aspects viz. computation of Drawing Power, computation of diminution
in fair value of restructured assets, charging of penal interest on account of
non-compliance with various conditions and defaults, etc. were done
manually without sufficient automation with validation to prevent manual
intervention.
6.2.2.2 The use of common set of user IDs to log on to some of the applications,
access to vendors for undertaking backend changes, files being sent to
vendor for further processing, non-renewal of service level agreements with
outsourced vendors on time, etc. were not assessed as IT risks by the bank.
Enhanced controls commensurate with the sensitivity/criticality of data/
applications for applications hosted from outsourced data Centre was
insufficient. Vendor concentration, outsourcing of support in case of some
critical applications, deficiencies in periodical review of performance of
vendors and absence of remedial action etc. were observed. Outsourced
Vendors were not subjected to audits.
Confidential age
6.2.2.3 Vulnerability assessment and penetration testing revealed vulnerability of
some of the bank's open web applications security risks already identified in
2013 by Open Web Application Security Project. VAPT did not include testing
for unknown issues/recent vulnerabilities.
6.2.3 Controls
6.2.3.1 Data base server was last scaled up in 2009. Despite capabilities to handle
480-500 mn accounts, existing account base stood at 446 mn. CPU utilization
during March 2015 quarter was around 70% during transaction processing
and 95% at end-of-day. Further, hardware upgrade in the present set up was
not compatible with current power availability. Assessment of functional
capacity of Core Banking Software (CBS) was not carried out by the bank.
6.2.3.2 Even after implementation of revised application for reconciliation of ATM
balances, unreconciled balances continued to get parked in separate BGL.
CCDP application for NPA management outside CBS provided for various
backend changes/manual intervention, which were not synchronized with
CBS, rendering system generated NPAs unreliable.
7. Pillar II Risk - Aggregate Score: 1.956

Major observations
7.1 Inherent Risk Score:1.909
7.1.1 Strategy Risk
7.1.1.1 The targets as per the Business Strategy Document could not be met during
FY15 in respect of most of the financial parameters like growth in deposits,
advances, NII, etc. There was a decline in profitability parameters of foreign
branches like New York, Chicago. DIFC, Male and Shanghai, which mandated
a re-visit of business strategies.
7.1.2 Reputation Risk
7.1.2.1 Reputation risk arising out of penalties imposed by foreign regulators were not
factored in the bank's assessment of reputation risk. There had been a 7 %
increase in the number of customer complaints from 1.50 mn in FY14 to 1.63
mn in FY15, mainly on account of ATM and pension account related issues.
The number of legal cases filed against the bank by customers increased by
48 per cent during the year FY15.
7.1.2.2 The value of collaterals was reduced by 52.80% (27.70%) at the time of sale
from the value reckoned when the related asset slipped to NPA.
7.1.3 Residual Risk/Group Risk, etc.
7.1.3.1 The group risk associated with the acquisition of loans of associate banks with
lower credit rating was not assessed.
7.2.1.1 The bank's five year Business Strategy Document was more in the -lature of
projected business/financial parameters rather than focusing on k)ng term
vision, business strategy, etc. The rationale behind the assumptions made in
the Business Strategy Document was not documented. The bank's strategy
to boost other income through products of its group entities and
electronic/digital banking to reduce costs did not find a place in the business
strategy document.
The bank did not have a Reputation Risk Management Framework and the
same was still under finalization. No limits/triggers had been identifie to track
potential situations leading to reputation risk. There was no clearly de fined role
among the senior management for managing reputation risk n r was a
remedial plan for dealing with adverse reputation risk related e ents, in
existence. There was no standard operating procedure in place for a dressing
reputation risk arising out of adverse media publicity.
7.2.1.2 On an average, the bank sent 5.76 SMSs per day during 214-15 in
connection with ATM/POS transactions. A comparison of the amoulkt paid to
the vendors for providing this service and the amount recovered from the
customers revealed that the bank was charging customers at higher to when
compared to the amount paid to the vendor since the same was not levied on
an actual basis. The bank had recovered Z 2949.90 mn during 2013-14 and
1258.40 mn during April 2014 to September 2014. As against this, the bank
had paid 306.02 mn during 2013-14 and 194.64 mn during April 2014 to
September 2014. Non-recovery of service charge viz. SMS charges in cases
where the average balance maintained was more than 25000 per quarter
implied that SMS alert service was offered free of cost to HNIs at the cost of
other customers and was discriminatory.
Various reviews presented before the Top Management had expressed
concern at the declining share of the bank in the forex market as the forex
business during the year FY 15 had reduced to 18651 bn as compared to
21323 bn during FY14.
7.2.2 Monitoring & Review
7.2.2.1 Review of some of the models was yet to be completed and inconsistencies
in models were not corrected on time.
Part II: MAJOR AREAS OF FINANCIAL DIVERGENCE
The summary of major areas of financial divergence, including assessed risk weighted
assets, which determined assessed capital of the bank, is given below. Details are in
Annex 1.
1. Divergences (shortfall) in Provisioning
Particulars @ No. of Outstandln Shortfall Remark4
borrowers g amounts or
/ accounts Additional
provision
required
(In Z mn)
Reclassification of 7333 9005 Retail, Auto and Housirg Loans and
1785
Standard Loans as Retail express loans and SME accounts.
Non-Performing
Valuation of - 16855 Depreciation on restructijred standard
3969
Investment instruments were offset against the
appreciation in other securi ies held under
the AFS category.
Sub-total (NPAs) 7333 25860 5754
provisions / accounts/
outstanding
Shortfall in Standard - 114740 172 Additional provision of 0.15% on account
Asset Provisioning of PSL misclassification amounting to
114740 mn.
Overstatement - For frauds identified but not reported,
2441
Income / Other Assets retail advances frauds invocation
proceeds parked under other assets
Understatement of - 4006 Excess payment of centra government
Expenses / Liabilities pension, Provision for prior period
expenses in case of Tokyo , Shanghai,
Sydney, Frankfurt not provided for
Total additional 7333 140600 12373

provisions / accounts/
outstanding
2. Divergence in Risk Weighted Assets (RWAs)
RWAs (In mn)

Risks Reported Assessed Divergence Remarks
Credit Risk 10133781 10170069 36288 Details given in Annex
Overseas NOOP was calculated after setting off the

open position of the overseas jurisdiction with the
Market Risk 1041963 1096488 54525 respective profit and loss and reserve balance. This is
not in compliance with extant instruction whereby it was
clarified that accumulated surplus need not reckoned
for calculation of open position.
Operational
Risk 1029775 1029775 0
Total RWAs 12205519 12296332 90813
Part III: ASSESSMENT OF CAPITAL AND EARNINGS
1. Pillar I Capital & CRAR
The summary of reported and assessed capital position of the bank as on March 31, 2015
is given below. Details are in Annex 4.
Capital under Basel III (In mn)
Assessed Divergence Reasons for

Particulars Reported
divergence$
12201 TC reduced on
Total capital (TC) 1465190 1452989 of (i)
account
Additional Loan loss
Common Equity Tier 1135771 1123398 12373 provision (ii)
1 (CET1)capital understatement of
liabilities (iii) shortfall
Tier 1(T1) capital 1171572 1159199 12373 in provision in other
assets.
Tier 2 (T2) capital 293618 293790 172
CRAR under Basel III (in %)
Assessed Divergence Reasons for

Particulars Reported
divergence$
11.82 0.18 1. TC reduced on
Total capital (TC) 12.00 account of (i) loan loss
provision.
Common Equity Tier 9.31 9.14 0.17 understatement of
(CET1)capital liabilities and other
assets
Tier 1(T1) capital 9.60 9.43 0.17 2. RWAs increased on
account of reasons
Tier 2 (T2) capital 2.40 2.39 0.01 cited at table-VI in
Annex-1.
2. CAPITAL MANAGEMENT, ICAR, ICAAP AND STRESS TESTING
(a) Bank's Capital Planning and Business Projections
The Bank's reported total capital funds increased from 21401510 mn as at the end of
FY 14 to 21465190 mn as on March 31, 2015. The movement in capital funds was
on account of:
• Raising of equity capital of 229700 mn by way of preferential allotment of equity
in favour of Gol.
• Retained profits amounting to 2100240 mn after payment of dividend and dividend
tax.
• Non-equity capital (IPDI and Tier II bonds) (except for Tier II bonds of Z 20000 mn
raised during FY 14 being Basel III compliant) is being phased out (10% each
year), resulting in lower AT1/Tier II capital. The tier-2 component had seen a
downward trend of 4.05% from 2306040 mn to 2293620 mn.
The five year rolling plan of the bank assumed a balance sheet size growth ranging from
14.10 % to 16.99% over the period FY 16 to FY 20. The additional capital required to
meet the minimum Basel III standards as per the transitional arrangements for the 5 year
period till FY 2020 was 21105150 mn including CET I requirement of 2893300 mn. In
order to meet the Board mandated CRAR of 12%, the additional capital requirement
would be 21146450 mn with requirement of CET I at 2934600 mn.
The bank calculated future capital projections on the basis of historical credit risk, market
risk, and operational risk and inputs the capital projections as per the Board approved
Capital Plan in the annual ICAAP. Some of the deficiencies in this process included (i)
non- allocation of risk-adjusted capital for various business units and (ii) non-
documentation of the underlying methodologies, assumptions and rationale golirerning the
capital planning process.
(b) Assessment of Pillar I and Pillar II capital and Internal Capital Ratios.
Assessment of Pillar 1 capital suffered on account of incorrect computation of RWAs. The
1110 reported and assessed RWA of the Bank stood at Z 12205519 mn and Z 12296332 mn
respectively and the reported and assessed CRAR of the bank was 12.00 % and 11.82%
respectively. Deficiencies observed in computation of RWA included (i) assi nment of
incorrect risk weights to few consumer credit loans. personal loans, capi al market
exposure (ii) incorrect bucketing of accounts, (iii) wrong treatment of loans to retired
employees as staff loans, (iv) classification of commercial real estate loans as egulatory
retail.
(c) ICAAP
The solo ICAAP for the bank identified three risks in Pillar I and 12 risks in Pilla II. Out of
the 12 risks identified under Pillar II, the bank had allocated capital only for 5 risks, viz,
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country risk. reputation risk, compliance risk, liquidity risk and IRRBB. The bank had
assessed that there was no requirement for holding additional capital for the remaining
seven risks. Some specific shortcomings observed included (i) failure to address
reputation risk arising out of penalties imposed by foreign regulators (ii) need to provide
for credit concentration risk
(d) Stress Testing
Stress Tests scenarios were developed for three risks under pillar I and 5 risks under
pillar II. The Stress Testing was done at half yearly intervals as per the scenario/guidelines
stipulated vide circular dated December 2. 2013. In addition, the bank had done stress
testing based on few of its own scenarios. which were approved by the ICAAP Committee
and the Board. The total capital requirement under the worst stress scenario was
1819330 mn as against the total capital funds available of 21806520 mn. leaving a deficit
in capital availability of Z 12810 mn. The bank was required to consider articulating the
rationale for the assumptions considered under the various stress scenarios.
3. Assessment of Internal Generation of Capital
3.1 Retained earnings
There was marginal improvement in the ROA (0.68%) for the FY 15 as against 0.65% in
FY 14. Similarly. ROE also improved marginally from 10.49 in FY 14 to 11.17 in FY 15,
mainly on account of healthy growth in net interest income and non-interest income and
lower growth in staff and other operating expenses.
3.2 Quality of earnings
Operating profit grew by 21.19% in FY 15 primarily on account of growth in treasury

income and lower growth in operating expenses. NIM of the bank stagnated at the
previous year's level of 3.16 %. The bank was alive to the concerns arising out of
"overheads" in branches contributing significantly to stress on earnings. Staff expenses
had increased by 32%. Expenses under head Rent & Taxes increased by more than 15
per cent during the year FY 15.
The net stable income of the Bank increased by 10.17% during the year urlider review,
from 2618935 mn to Z 681881 mn. The gross volatile income also increased by 58 `)/0
from 259416 mn in FY 14 to 294031 mn in FY 15 on the back of increase in income from
trading and recovery/write off. The gross volatile income of the Bank was 5.2€ % per cent
of the total income.
While the contribution of National Banking Group to the bank's business stood at 67.8%,
its contribution in terms of profitability was negative during FY 15. CAG, with a moderate
business component of 10.22% of total business of the bank was able to generate 67.5%
of operating profits. Going forward, the same is expected to slow down considering the
incidence of fresh NPA evidenced in this vertical. Foreign offices had a modest
contribution of 11.13% to business and 9.4% in terms of contribution to operating profits
during FY15.
4. Scope and ability to infuse capital
Considering the fact that the Bank's paid up capital was Z 7465 mn against the authorised
capital of Z 50000 mn, there was headroom of Z 42535 mn for infusion of;
quity. The
ability of the bank to raise further capital was constrained by the fact that t e majority
shareholding was to be statutorily to be held by the Government of India. Gol, Which held
58.60 % of the paid up capital of the bank, had infused an amount of 253930 mn during
the year FY 16 as against the bank's request of 2150000 mn. The bank had pllans to exit
from non-core investments / subsidiaries / joint ventures, mainly divestment n SBI Life
(by 10%, from 74% to 64%) and divestment in SBI General (by 23%, from 74% to 51%).
For FY 16, in line with its assumed growth plans (growth in advances at 11.78% and
growth in RWA at 18.39% and net profit growth of 22.24%), and to meet the Board
mandated CRAR of 12%, the bank needed to augment its capital in the formcommon
equity. The additional capital requirement worked out to 2164550 mn of wh.ch Tier 1
would be about 229750 mn. The bank had also factored in the requirement of capital
conservation buffer and additional capital requirement on being classified as a domestic
systemically important bank, while arriving at the capital requirements. The bank had
raised capital of Z 83630 mn ( Z 29700 mn & Z 53930 mn) in 2015-16 y way of
preferential allotment of 10, 04, 77,012 shares & 19, 65, 59,390 shares resp ctively to
Confidential P ge 36 of 44
Govt. of India, thereby raising GOI shareholding to 60.18%. Though the bank expects a
further capital infusion of around 225000 mn from Gol during the current financial year,
there has been no commitment from the Government in this regard. The bank had plans
to raise equity capital about 2150000 mn in FY 16, if the market conditions were
favorable. The bank had listed down various options available to it for raising capital to
meet the requirements of business growth and regulatory requirements like FPO, QIP,
ADR. GDR or a combination of these, apart from capital infusion by the Government. For
additional Tier 1 capital, the options available were PNCPS and PDI.
5. ASSESSMENT OF LEVERAGE RATIO
The leverage ratio of the bank as on March 31, 2015, based on reported numbers was
4.93 % as against the assessed leverage ratio of 4.88%.
PART IV: MAJOR AREAS OF NON-COMPLIANCE (REGULATORY GUIDELINES)
SI. Regulation Area / Subject Nature & Description of Non- Compliance

No Reference (Para & of Non-
Circular no.) Compliance
Section 22(3)(a) of BR Solvency Against total outside liabilities of 218711007 mn (
Act 1949 Certification Z16657367 mn), the bank was considered to have
adequate assets to meet its liabilities. It continued
to maintain in 'real or exchangeable value', the
minimum capital required as per statutory
requirements.
Master Circular (MC)- Priority Sector The bank had not achieved targets in respect of
Lending to Priority Lending Total Priority Sector Lending (P$L) and Indirect
Sector- Agriculture Lending and overstated lending to
RPCD.CO.Plan.BC.1 priority sector by 21114300 mn.
0/04.09.01/2014-15
dated July 1, 2014
MC- Prudential NPAs and Under various provisions of the instant circular
norms on IRAC shortfall in instances of non-compliances were observed and
(Para 2.1.2, 2.2, provisions as a result additional NPAs and shortfall in
15.2.1,15.2.2 of provisions were observed.
DBOD. No. BP.BC.9
/21.04.048/2014-15
dated July 01, 2014)
MC - Loans and Non-obtention Some of the bank branches in the LHO had not
Advances — Statutory of declaration obtained the requisite declaration from the
& other (Paras from the borrowers to the effect that "Directors/ Promoters/
2.2.1.11 and 2.2.2.5 borrowers proprietor of the borrowing company/concern
of DBOD. No. Dir. were not directors or specified n ar relation of a
BC.16 /13.03.00/ director of a banking company/ n t related to any
2014-15 dated July senior officer(s) of the bank" in so e cases.
01, 2014)
MC- Disbursement of Recovery/Refu Overpayments of pension made by the bank were
Pension by Agency nd of not credited back to Government account in lump
Banks- (Para 31 of overpayment sum in some cases but were remitted in
DGBA. GAD.No.H-4/ of pension to installments as and when recovered from the
31.05.001/ 2014-15 the pensioner.
dated July 01, 2014) Government
Account
MC — Prudential Investment in SCs/RCs in planning period where NAVs where
Norms for securities NAVs where not available were valued at face
Classification, Issued by value instead of applying the redemption value or
Valuation and Securitization book value whichever is less
Operation of Company (SC)
Investment Portfolio
Confidential Fage 38 of 44
by Banks (Para 3.8 of Reconstructio
DBOD.No.BP. BC.20/ n Company
21.04.141/ 2014-15 (RC)
dated July 1, 2014)
MC- Prudential norms Prudential Depreciation on restructured standard instruments
on IRAC and Norms for were offset against the appreciation in other
Provisioning Conversion of securities held under the AFS category. After
pertaining to Principal into obtaining necessary clarification from DBR, the
Advances (Para 13.3 Debt / Equity bank resorted recognizing provision for these
of DBOD. No.BP.BC. depreciation from June 30, 2016.
9/21.04.048/2014-15)
dated July 1, 2014
MC- Import of Goods Obligation of Documents evidencing import of goods where not
and Services Purchaser of in place in some instances of imports under LCs.
(Para B-4 of Master Foreign It was observed in the RFIA of TFCPC of
Circular No.13/2014- Exchange Bangalore that 11 import usance bills against LCs
15 dated July 1, were outstanding beyond due date 166 import
2014) sight bills received for collection were outstanding
beyond due date.
Import of goods and Advance In case of imports, where value of foreign
services (Para C-1 of Remittance- exchange remitted / paid for import into India was
Master Circular less than USD 100.000 the bank did not have
No.13/2014-15 dated appropriate system and procedures prescribed to
July 1, 2014) ascertain genuineness of the transactions and
bonafides of the remitter. There were instances of
import advances not being followed up for
submission of documentary evidence of import/
due diligence for genuineness of the transactions
and bonafides of the remitter.
MC- Export of Goods Advance The system in the bank to monitor advance
and Services Payments remittances received against exports was
(RBI/2012-13/14 against inadequate. Some branches were not maintaining•
Master Circular No. Exports proper record of outstanding advance remittances
14 /2014-15 dated received against exports. MIS in this connection
July 1. 2014) was generally compiled manually. Instances of
non-availability of documentary evidence for
goods not being exported within the prescribed
time line for which advance payments were
received were observed.
Capital and Capital and In few instances bank had not obtained data on
Provisioning Provisioning the unhedged foreign currency exposure.
Requirements for Requirements
Exposures to for Exposures
Entities with to
Unhedged Foreign entities with
Currency Exposure Unhedged
(DBOD. No. BP.BC. Foreign
116/21.06.200/2013- Currency
14 dated June 03, Exposure-
2014) Clarifications
12 Guidelines on the -Advances The bank had renewed /extended advances at
Base Rate below base below base rate
(DBOD. No. Dir. BC .88/ rate
13.03.00/2009-10
dated April 09, 2010)__
13 Security and Risk ATM/POS & Instances of non-compliance an non-adherence
Mitigation Measures Internet to the prescribed time lines were observed.
for Electronic Banking Transactions in Green Channel Counters which
Payment were predominantly through POS styled hand held
Transactions (Para devices were allowed cumulative daily limits.
2.A (iii) to (vii) & para
2 B (iv) to (vii) of
DPSS (CO) PD.
No.1462/ 02.14.003
/2012-13 dated
February 28, 2013)
14 Foreign Exchange Applications by Appropriate system to ensure th t form A-1 was
Management Act, persons, firms obtained and kept on record was ot adequate.
1999 — Import of and
Goods into India companies for
A.P. (DIR Series) making
Circular No.76 payments,
February 12, 2015 exceeding
USD 5,000 or
its equivalent
towards
imports into
India must be
made in Form
A-1.
15 DCM.(CC).No.G- Clean Note Deficiencies continued to be identified in
4/03.35.01/2014-15 & Policy implementation of Clean Note Pdlicy, especially
DCM (CC) No.G- Scheme of exchange of soiled, cut notes at t e branch level
5/03.39.01/2014-15 & Incentives & needed improvement. Instance of penalties
dated July 1, 2014 & Penalties for levied by RBI on account of eficiencies in
DCM (CC) No.G- Bank customer service at bank branches in exchange of
5/03.39.01/2014- Branches soiled notes, distribution of coins across the
15 dated July 1, 2014 Based on counter were observed.
Performance
in Rendering
Customer
Service to the
Confidential Fage 40 of 44
Members of
Public
16 MC- Customer Acceptance of In case of branches having Cash Acceptor
Service in Banks cash over the machines, it was observed that the customers of
Para 5.9 of DBOD. counter the branches were forced to deposit their cash
No.Leg.BC.21/09.07. through such machines and the facility of
006/2014-15 dated acceptance of cash over the counter was denied
July 1, 2014 to them.
17 Para 1.6 & 3.1.4 of Frauds — Prescribed time limit for reporting of frauds and
DBS.CO.CFMC.BC.N Classification filing FMR I to RBI were not adhered to in many
o.1/23.04.001/2014- and Reporting instances. Of this in most of the cases staff
15 dated July 1, 2014. of Frauds accountability specifically to ascertain reason for
delayed reporting was not completed. In some of
the case the same was not even initiated.
18 Frauds — Attempted Instances of attempted fraud not being reported to4
Classification and frauds ACB were observed.
Reporting (Para 3.4 of
DBOD. No.Dir.BC.17/
13.03.00/2014-15
dated July 1, 2014.
19 Frauds — Final disposal The bank had not followed up vigorously with the
Classification and of fraud cases CBI for final disposal of cases where staff side
Reporting (para 4.1.4 action was completed and also not followed up
DBS.CO. CFMC.BC. vigorously with police and / or court for final
No.1/23.04.001/2014- disposal of fraud cases
15 dated July 1, 2014)
20 Master Circular - Payment of Advises from the beneficiaries including
Guarantees and Co- invoked PSUs/Government bodies for invocation of bank
acceptances (Para guarantees guarantees and payment was not responded
2.5 of DBOD.No.Dir. immediately in a few instances. Further, requests
BC.17/13.03.00/2014 for extension of BGs were obliged without explicit,
-15 dated July 1, 2014 concurrence of the beneficiary. 1
21 DBOD. Dir. BC.67/ Charges Bank was charging customers at unreasonably

13.10.00/2013-14 Levied by higher rate when compared with the amount paid
dated November 26, Banks for to the vendor.
2013 Sending SMS
Alerts
22 Guidelines on Monitoring and Activity outsourced were risk rated differently at

Managing Risks and Control of different LHOs. Outsourced vendors were not
Code of Conduct in Outsourced subjected to audit.
Outsourcing of Activities
Financial Services by
banks-DBOD.No. BP.
40/21.04.158/2006-
07 dated November 3,
2006 And DBS.CO.
PPD.BC.5/11.01.005/
2008-09 dated April
22, 2009
23 Compliance function Compliance Each Department in the Hepd Office and
in banks structure controlling offices and the branches (and / or
Para 5.7 & 5.8 of Strategic Business Units continued without distinct
DBS.CO.PP.BC.6/11. compliance function and such designated
01.005/2006-07 compliance official did not report to the Chief
dated April 20, 2007 Compliance Officer. The staff in the Compliance
Department at the Head Office as also
Compliance Officers at controlling offices and
branches / SBUs focus were assigned with other
functions hence diluting the focuS on compliance
function.
24 Para 2 of Reconciliation SB accounts of some customer were charged
DPSS.CO.PD.No.659 of failed with service charges even for first k/ithdrawal from
/02.10.002/2014- Transactions other bank ATMs. There was a technical flaw in
2015 dated at ATMs account setup and mapping, d e to which all
October 10, 2014 transactions at other Bank AT s were being
charged. This wrong mapping fo some batch of
cards issued in 2008 has remaine unresolved for
a prolonged period.
25 MC-Customer (BSBDA) —The bank charged a fee of Z 20. 0 for accounts
Service - Para 4.1 of The facilitiesopened by Business Correspond nts. Accounts
DBOD.No.Leg.BC.21/ will beopened by them included BSBD accounts. This
09.07.006/2014-15 provided arrangement was not in complia ce with extent
dated July 01, 2014 without any guidelines.
charges.
26 Revised Kisan Credit Validity period The policy on agriculture advance with respect to
Card Scheme of KCC and issue of loan under KCC , does of mention the
Para 10 & 11 of annex periodic validity period of KCC and periodi I renewal
to RPCD. FSD.BC.No renewal not
77/ 05.05.09/2011-12 mentioned.
dated May 11, 2012
27 Guidelines on Monitoring and Approval / consent for use of subcontractors by
Managing Risks and Control of the service provider for all or part of an outsourced
Code of Conduct in Outsourced activity in some instances were not in place.
Outsourcing of Activities
Financial Services by
banks (Para 5.9.2 &
5.9.4 of Annex DBOD.
No. BP.40/ 21.04.158
/2006-07 dated
November 3, 2006)
Confidential ge 42 of 44
28 Para 2(i) of DBOD. Lending under At the time of granting fresh facilities, the branch
No. BP. BC. 46/ Consortium had not obtained declaration from the borrowers
08.12.001/2008-09 Arrangement / about the credit facilities already enjoyed by them
dated September 19, Multiple from other banks in some cases.
2008. Banking
Arrangements
2 Para 4.2 of DBOD Willful Periodical certificate from the borrowers to the
No.CID.BC.3/20.16.0 Defaulters effect that loan funds have been utilized for the
03/2014-15 dated purpose for which they were sanctioned and there
July 01, 2014 is no diversion of funds was not obtained in some
cases.
30 MC- Housing Finance Housing Loan The branch had not obtained a certificate from the
Para 14 A (ii) and 14 for building Architect appointed by the bank that the 'built up
B (ii) of DBOD. No. construction / property was strictly as per sanctioned plan and/or
DIR.BC.18/08.12.001 Housing Loan building bye-laws', before disbursement of the
/2014-15 dated July 1, for purchase of loan.
2014 constructed
property/ built
up property
31 Para 3 (iv) of RPCD. Interest The requirement for observing seasonality with
FSD. BC. No. 45/ Subvention regard to both disbursement and recovery of Crop
05.02.02./2012-13 Scheme Loans was not ensured at the time of claiming
dated November 09, Monitoring of interest subventions in some instances.
2012. End-use of
Crop Loans
32 RPCD. No. FSD. BC. Interest Interest Subvention claimed by the bank also
71/ 05.04.02/2013-14 Subvention included Agriculture Gold loans disbursed (gold
dated December 04, Scheme jewellery was primary security) during 2014
2013 on Interest treating the Agriculture Gold Loans as Crop
Subvention Scheme Loans.
2012-13 and 2013-14 It was also observed in some cases that interest
respectively. subvention was claimed even though the account
was irregular (exceeded the limit) and short term
crop loan was not paid within one year.
33 MC- Guarantee & Co- Facilities to It was observed that in some instances, non-fund
acceptance (Para non- based facilities were extended to customers who
2.2.3 and 2.7.1 of constituents were not availing fund based facilities from the
DBOD. No. Dir. bank.
BC.17/ 13.03.00/
2014-15 dated July
01, 2014)
34 MC—KYC norms / Customer (i) It was observed that KYC documents were not
AML standards Identification authenticated properly, risk categorization and
(i)Para 2.4(e) of Procedure fixing of threshold limit was not done properly and
DBOD.AM L. BC.No.2 also not recorded on Account Opening Forms.
2/14.01.001/2014-15 (ii) Periodical Updation of KY„ information of
dated July 01, 2014 every customer was also not evidenced.
(ii) Para 2.4(j) of (iii) Copy of the monthly CTR submitted to FIU-IND
above circular in respect of branches was npt available with
(iii) para 2.25 a.vi (b) branches.
of circular ibid
35 DBOD.No.BP.BC.35/ Timelines for Exceptions were observed in some cases in
21.04.048/2014-15 Credit adhering with the time lines for credit decisions.
September 1, 2014 Decisions Adequate review mechanism and MIS for
identifying exceptions were not it place.
36 DBS.FrMC.BC.No.7/2 Legal Audit of The bank had not put in place appropriate system
3.04.001/2012-13 Title in place for the desired coverage) as envisaged in
dated June 7, 2013 Documents in the circular.
Respect of
Large Value
Loan Accounts
37 MC- Risk Calculation of Overseas NOOP was calculated' after setting off
Management and the Overall Net the open position of the oversea jurisdiction with
Inter-Bank Dealings Open Position the respective profit and loss and reserve balance
Para A.i.3 of annex 1 as on March 31. 2015. This is not in compliance
to Master Circular with extent instruction where by it was clarified that
No.5/2014-15 dated accumulated surplus need not be reckoned for
July 01, 2014 calculation of open position.
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State Bank of India Annex to RAR
Table-II: Valuation of Investments
Investment details Out Remarks

Standi Provision
ng
Held Requir Shortfall
ed
AFS — Restructured 16854 0 3969. 3969.35 Depreciation on restructu ed standard
standard instruments •95 35 instruments were offset against the

appreciation in other securiti-s held under
the AFS category. After obtai ing necessary
clarification from DBR, the sank resorted
recognizing provision for thi depreciation
from June 30, 2015.
Total 16855 0 3969 3969
Table-Ill: Other Assets
Details of Receivables Provision Remarks
Held Required Shortfal

I
Assets where frauds were 65.04 586.08 521.04 Frauds that occurred wer4 detected but
identified but not reported not reported. Appropriate provision for
in case of 48 accounts loss on frauds were not made as on
March 31, 2015
Assets where internal/spot 0 1754.19 1754.19 Observations of Internal Audit Report of

audit suspected fraud but BPRs viz. RACPC, Patna, Ghatkopar,
not reported till date and Kolkata revealed instances of suspected
•
provision not made frauds. Appropriate provision for loss on
frauds were not made as on March 31,
2015
Other assets parked under 69.63 2.07 180 accounts which are in the nature of
advances which are in the 67.56 dues on account of crystallized/
nature of frauds not suspected fraud were parked under
reported advances.
Other assets parked under 62.86 227.22 164.36 292 instances were observed where
advances which are accounts were opened and operated
unreconciled entries advances head which were of the
purpose of parking u reconciled /
intangible entries like ATM cash
shortages, clearing differ nces, overdue
export bills, excess pens on paid, short
credits sent for collection tc.
196 2637 2441

TOTAL
Page 3 of 14
State Bank of India-Annex to RAR
Table-IV: Understatement of Other Liabilities
Details of Understated Remarks

Liabilities Provision
Held Required Shortfall

Excess payment of central 0 3068.9 3068.9 In terms of DGBA.GAD.H-
government pension 10450/45.03.001/2011-12
Excess payment of Railway 0 110.71 110.71 dated June 1, 2009 banks
- southern pension were advised that whenever
excess payment is detected
the same needs to be
credited to respective
Government accounts.
However, the overpayment
has not been remitted to the
government and the liability
has not been recognized.
Provision for prior period 0 826.20 826.20 Provision for prior perio
expenses in some instances
of domestic operations as
also overseas operations
were not provided for
Total 0 4006 4006
Table-V: Standard Asset Provision
Standard Assets- Out Remarks

Portfolio details Standi Provision
ng
Held Requir Shortfall
Declassified direct
agriculture, micro
114740 287
ed
459 172 Shortfall in provision @(0.40-0.25)%
(Detailed in table- Major Areas of Non-
•
and small MSME Compliance' below-Outstanding amount in
from PSL Direct agri
Total 114740 287 459 172
Table-VI: Divergence in RWA
Particulars
As per bank As per SSM Shortfall Remark
Credit Risk 10133781 36288 i)Few consumer Credit loans, personal loans,
— RWA
10170069 exposure to capital market and commercial real
estate) were being classified as regulatory retail
loan and given risk weight of 75% whereas
such loans need to be classified as consumer
credit and given a risk weight of 125%.
ii) Loans outstanding to retired staff have been
treated as staff loans.
Page 4 of 14
State Bank of lndi Annex to RAR
iii)HL 0/s above Rs. 75 lakh have been

assigned 50%RW instead of 7$%.
Market Risk 1041963 1096488 54525 Overseas NOOP was calculated after setting
— RWA off the open position of the ove -seas jurisdiction
with the respective profit and loss and reserve
balance. This is not in compliOnce with extent
instruction whereby it was clarified that
accumulated surplus need not be reckoned for
calculation of open position.
Operational 1029775 1029775 0
Risk — RWA
Total RWA 12205519 12296332 90813
Table-VII: Priority Sector Classification

SI. Paramete Amount reported by Misclassif Actual Shortfall Reasons for
N rs bank ication Achieveme declassification
o identified nt as
by SSM assessed
Target Achieve by SSM
d
1 Total 4213040 3213480 114740 3098740 1114300
Priority (40%)
Sector
2 Direct 1421900 1213240 10010 1203230 218670 Not eligible as per para
agricultur 1.1 of Section 1 of
e master circular on
Priority Sector Lending-
Targets and
Classificat on dated July
01, 2014
3 Indirect 473960 367240 12083 355157 118803 Not eligible as per para
Agricultur (4.5%) 1.2 of ection 1 of
e master circular on
Priority Sector Lending-
Targets and
Classificat on dated July
01, 2014
4 Total 1895860 1580480 22093 1558387 337473
Agricultur
(18%)
e
5 Weaker N.A. 1057400 0 1057400 0

Section
6 Micro & N.A. 766020 92567 673453 0 Not eligible as per

Small section 2 of master
MSME circular on Priority
Sector Le ding- Targets
and Class fication dated
July 01, 2 14
Page 5 of 14
7 Medium N.A. 0 0 0 0
MSME
8 Housing N.A. 732170 65 732105 0 Not eligible as per

section 4 of master
circular on Priority
Sector Lending- Targets
and Classification dated
July 01, 2014
9 Education N.A. 132140 15 132125 0 Not eligible as per

section 3 of master
circular on Priority
Sector Lending- Targets
and Classification dated
July 01, 2014
As per Bank As per SSM

Adjusted Net Bank Credit 10532615 10532615
Page 6 of 14
State Bank of Ind+Annex to RAR
Annex 2: Computation of Outside Liabilities
Sr.
Particulars Amount
No.
A Total Liabilities excluding capital & reserves as
19196415
on March 31, 2015
Upper Tier II Instruments 60713
Subordinated debt 364714
Deposits ' 5767932
Borrowings 1626076
Other liabilities and provisions 1376980
• B Internal Liabilities
Provision for standard assets
Provision for diminution in fair value of
restructured accounts
485408
90814
Provision for NPAs

Floating provision
Provision for NPI
Provision for depreciation in investments
Any other (Country Risk Provision-569, Liability on interest
capitalisation Restructured (STD)-3413, Inter Office Adjustments- 394594
390612)
C Total outside liabilities [A-B] 18711007
Page 7 of 14
Annex 3: Assessed Net Worth
Sr.
Particulars Amount
No.
A Paid up capital [including ESOP outstanding & interest
7466
free funds from H.O. (foreign banks)]
B Reserves and Surplus 1215193
Statutory Reserve 478394
Share Premium 414447
Capital Reserve (excluding revaluation reserve) 18495
Special Reserve
Revenue Reserve 303854
General Reserve
Investment Allowance Reserve
Remittable surplus retained in Indian books [Foreign banks]
Credit Balance in P&L A/c
Any other free reserve (to be specified)
C Intangible assets (including net deferred tax assets) &
accumulated losses
D Reported net worth [A+B-C] 1222659
E Adjustments following inspection findings 12373
Investment Reserve Account
Additional Loan Loss Provision 1785
Shortfall in Standard Asset Provisioning 172
Net Deferred Tax Asset
Understatement of Liabilities 4006
Any other item (Other assets-2441, Valuation of Investment-
6410
3969)
F Assessed net worth or real/exchangeable value of paid
1210286
up capital and reserves [D-E]
Page 8 of 14
State Bank of Indi-Annex to RAR
Annex 4: Computation of Assessed Capital
Sr. Particulars / Items Eligible

No. amount
Computation of Common Equity Tier 1 capital (CETI)
A Common Equity Tier 1 capital (CETI): instruments and reserves 1209609

before regulatory / supervisory adjustments
B Total regulatory adjustments / deductions 73838
1135771
D Adjustments / deductions applied on CET 1 following 12373
Inspection for Supervisory Evaluation (ISE) findings under RBS
1 Additional Loan Loss Provision 1785
2 Shortfall in Standard Asset Provisioning 172
3 Understatement of Liabilities 4006
4 Net Deferred Tax Asset
5 Investment Reserve Account
6 Any other item (Other assets-2441, Valuation of Investment-3969) 6410
E Assessed Common Equity Tier 1 capital (CETI) [C — D] 1123398
Computation of Additional Tier 1 capital (AT1)
F Additional Tier 1 capital (AT1) : instruments before regulatory 65068

adjustments
G Total regulatory adjustments to Additional Tier 1 capital 29267
H Reported AT1 capital [F - G1 = 35801
I Adjustments / deductions applied on AT1 following ISE findings 0
1 Net Deferred Tax Assets
2 Any other item to be specified
J Assesse .
Computation of Tier 1 Capital (T1)
K Reported Tier 1 (T1) capital [C + H] 1171572

L Assessed Tier 1 capital (T1) [E + J] '1159199
Computation of Tier 2 Capital (T2)
M Tier 2 capital: instruments and provisions 313805
N Tier 2 capital: regulatory adjustments 20187
P Adjustments / deductions applied on T2 following ISE findings 172

1 Add: Additional Standard asset provisions 172
Q Assessed Tier 2 (T2) capital [0 - P] 293790
Computation of Total Capital (TC)
Page 9 of 14
State Bank of India-Annex to RAAR
R Reported Total capital (TC) [K + 0] 1 -11465190

S Assessed Total capital (TC) [L + Q] 1452989 4
Risk Weighted Assets (RWAs)
T Risk Weighted Assets in respect of Pre-Basel III Treatment

U Risk Weighted Assets (RWAs) 12205519
hit Reported Total Risk Weighted assets
W Adjustments / additions applied on RWAs following Inspection 90813
for Supervisory Evaluation (ISE) findings under RBS
1 Additional RWAs 90813
X Assessed RWAs [V + VV] 12296332
Capital Ratios / Summary
AA Reported Common Equity Tier 1 (CET1) Ratio [C/V*100%1 9.31%

BB Reported Tier 1 (T1) or Core Capital Ratio [KN*100%] 9.60%
CC Reported Tier 2 (T2) Capital Ratio [ON*100%] 2.40%
DD Reported Total capital (TC) Ratio or CRAR [RN*100%] 12.00% _.
EE Assessed Common Equity Tier 1 (CETI) Ratio [EIX*100%] 9.14%
FF Assessed Tier 1 (T1) or Core Capital Ratio [L/X*100%1 9.43% .
GG Assessed Tier 2 (T2) Capital Ratio [Q/X*100%] 2.39%
HH Assessed Total capital (TC) Ratio or CRAR [S/X*100%] 11.82%
Page 10 of 14
Annex 5: Assessment of Internal Generation of Capital
Sr. Break-up of income and expenditure Current FY FY T-1 FY T-2

No T (Mar-14) (Mar-13)
(Mar 15)
Total Interest/discount Income 1523971 1363508 1196551

(2+3+4+5)
2 Interest/discount on advance/bills 1123439 1024841 905371

3 Income on investments 370878 319419 271986
4 Interest on balances with RBI 1306 311 229
Interest on market lending/ Income on 28348 18937 18965

other interest earning assets
Fee based & stable misc. income

6
[6(a)+6(b) 131728 126113 114837
6a Fee based income 131728 126113 114837
6b Misc. income from stable sources
7 Gross stable income (1+6) 1655699 1489621 1311388
8 Interest Expended (9+10) 973818 870686 753258
Interest on deposits/ all other interest 934098 819178 712017

9
expense
10 Interest on borrowings 39720 51508 41241
11 Net Stable Income (7-8) 681881 618935 558131
12 Income from trading 36180 22794 11019
13 Realised gains on derivatives (1065) (2027) (38)
14 Gains on sale of asset (427) (386) (327)
15 Recovery from w/offs 23590 15429 10658
Extra-ordinary income/ Dividend income & 33623 23606 24220

16
other miscellaneous income
Gross volatile income 94031 59416 45532

17
(12+13+14+15+16)
Provisions and contingencies (17039) 44648 55758

18
(excluding tax) (19+20+21)
19 Provisions for Loan losses (48219) 27530 58128
Page 11 of 14
Provisions for depreciation in (5901) 5633 (9613)

20 .
investments/NPI
21 Other provisions 37081 11485 7243
22 Extra-ordinary expenses 0 0 0
23 Write-offs 213035 114706 55550
24 Net Volatile Income (17-18-22-23) (101965) (99938) (65777)
Assessed provision by supervisor 12201 50283 32525

25
(26+27+28+29+30+31+32+33)
26 Additional Provisions for frauds 2117 0
Additional Provisions for understatement of 1785 42520 29469

27
NPAs
Additional Provisions for Understatement 728 361

28
of NPIs
Additional Provisions for Understatement 4006
29
of Liabilities
Additional Provisions for claims not

30
acknowledged as debt
Additional Other Provisions (wage 4750

31
settlements, pension & gratuity)
Additional provisions-Valuation of 3969

32
Investment
Additional Other Provisions (other 2441 168 2695

33
provisions)
34 Assessed net volatile Income (24-25) (114166) (150221) (98302)
35 Reported net total income (11+24) 579916 518996 492354
36 Assessed net total income (11+34) 567715 468713 459829

37 Operational expenses (38+39+40) 386776 357258 292845
Staff expenses, Director's fees/Board 235371 225043 183809

38
Members' fees & expenses
Depreciation on bank's property and 11165 17679 15331

39
repairs
40 Other Operating Expenses 140240 114536 93705

41 Provisions for tax 62124 52827 58459
Page 12 of 14
State Bank of lndi -Annex to RAR
42 Reported profit (35-37-41) 131016 108912 141050
43 Assessed profit (36-37-41) 118815 58629 108525
44 Dividend paid (excluding tax) 26482 22397 28387
45 Reported Retained Earnings (42-44] 104534 36232 80138
46 Assessed Retained Earnings (43-44) 92333 36232 80138
Earnings Stability / Volatility Assessment
Sr Earnings / Profit Ratios Current FY T-1 FY T-2

FY T (Mar-14) (Mar-13)
No (Mar 15)
47 Net Interest Income [1-8] (NII Growth Rate) 550153 492822 443293
48 Share of Interest, Fee and Volatile Income

[1:6:17] 87:8:5 88:8:4 88:8:3
49 Gross Stable Income / Interest Expended

[7/8*100%] 170.02 171.09 174.10
50 Net Stable Income / Assessed Profit

[11/43100%] 573.90 1055.68 514.29
51 Gross Volatile Income / (Provisions &

Contingencies + Extraordinary Expenses +
Write-offs) [17/(18+22+23)*100%] 47.98 37.29 40.91
52 Assessed Net Volatile Income / Assessed Profit

[34/43100%] (96.09) (256.22) (90.58)
53 Reported Retained earnings / Reported Profit

[45/42100%] 79.79 79.44 79.87
54 Assessed Retained earnings / Assessed Profit

[46/43*100%] 77.71 61.80 73.84
55 Actual vs budgeted income [expressed as +ve /

-ve percentage] (4.18) (4.42) (20.02)
56 Actual vs budgeted profit [expressed as +ve / -

ye percentage] (7.24) (36.67) (10.76)
Page 13 of 14
Annex 6: Leverage Ratio under Basel Ill
Sr. Particulars Reported by Assessed by

No. Bank SSM
A Basel Ill Tier 1 Capital (T1) 1171572 1159199
B Leverage Ratio Exposures 23774284 23761911
On balance sheet (excluding derivatives 20813591 20813591
and Securities Financing Transactions
Derivatives 105575 105575
Securities Financing Transactions
Off-balance sheet exposures 2855118 2855118
Any other component (Divergence in NPAs, 0 (12373)

other assets, valuation of investments,
understatement of liabilities, Shortfall in
standard asset provisioning
C Leverage Ratio (A/B*100%) 4.93 4.88
r' 1Ar of-14

Sbi Rar 2015

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RESERVE BANK OF INDIA

State Bank of India

Risk Assessment Report

Assessment of Internal Generation of Capital 35

Scope & Ability to Infuse Capital 36

Assessment of Leverage Ratio 37

Part IV: Major Areas of Non-Compliance 38

Inherent Risk Control Gap Aggregate Risk

SUPERVISORY EVALUATION OF RISKS AND CONTROL GAPS

1. Governance and Oversight: Aggregate Score (1.904)

2. Credit Risk - Aggregate Score: 2.628

% of bank's total exposure. Food credit exposure at ' 428644 m I formed

significant part of the bank's total fund based exposure.

2.2.2.4 System based identification of NPA needed continued strengthening in by way

2.2.2.6 There were deficiencies observed in capturing borrowers' data regarding

3.2 Control Gap Score: 2,78

3.2.1 Policy Environment

4. Liquidity Risk: Aggregate Score: 1.860

4.1.1 Structural Liquidity

4.2 Control Gap Score: 2.055

4.2.1.3 Absence of integration between domestic and overseas operations resulted in

segregation of portfolio into foreign currency and domestic currency while

4.2.4 Monitoring and Review

5. Operational (Non- IT) Risk - Aggregate Score: 2.364

5.2 Control Gap Score:2.229

5.2.1 Policy Environment

of history of transactions, alerts and STR/CTRs filed resulting in inadequate

As required, 5% review of closed alerts by supervisors and 30% review of

6. Operational (IT) Risk - Aggregate Score: 2.451

6.1 Inherent Risk Score: 2.526

6.1.1 Financial Risk

Many projects/capex were not executed in time resulting in cost overrun.

6.2.1 Policy Environment

7. Pillar II Risk - Aggregate Score: 1.956

Total additional 7333 140600 12373

2. Divergence in Risk Weighted Assets (RWAs)

RWAs (In mn)

Credit Risk 10133781 10170069 36288 Details given in Annex

Overseas NOOP was calculated after setting off the

Total RWAs 12205519 12296332 90813

Assessed Divergence Reasons for

CRAR under Basel III (in %)

Assessed Divergence Reasons for

2. CAPITAL MANAGEMENT, ICAR, ICAAP AND STRESS TESTING

(a) Bank's Capital Planning and Business Projections

Assessment of Pillar 1 capital suffered on account of incorrect computation of RWAs. The

for credit concentration risk

(d) Stress Testing

3. Assessment of Internal Generation of Capital

3.1 Retained earnings

3.2 Quality of earnings

Operating profit grew by 21.19% in FY 15 primarily on account of growth in treasury

4. Scope and ability to infuse capital

5. ASSESSMENT OF LEVERAGE RATIO

SI. Regulation Area / Subject Nature & Description of Non- Compliance

21 DBOD. Dir. BC.67/ Charges Bank was charging customers at unreasonably

22 Guidelines on Monitoring and Activity outsourced were risk rated differently at

Annex 1: Major Areasof Financial Divergence

(All figures inthe Annexare in

bank was not in compliance with

the asset classification by the

0 CNJ 0 CNI CN1

Table-II: Valuation of Investments