To

The Members

Equitas Small Finance Bank limited

Your Directors have pleasure in presenting the Sixth Annual Report on the business and operation of the Bank, together with the audited Accounts of the Bank for the financial year ended March 31, 2022 (FY 2021-22).

1. Summary of Financial Performance

The summary of Bank's financial performance for the FY 2021-22 compared to the previous year 2020-21 is given below:

*The Net profit of the Bank for FY 21-22 was lower compared to previous FY 20-21 due to increase in credit cost resulting primarily from higher provisioning for restructured advances and increase in Gross NPA during the year.

2. Dividend

Considering the need to preserve capital to support growth and expansion, the Board of Directors did not recommend any dividend for the financial year ended March 31, 2022. The Dividend distribution policy of the Bank is available in our website click here

3. Transfer to Reserves

As per the requirement of RBI Regulations, the Bank has transferred the following amounts to various reserves during year ended March 31, 2022.

4. Deposits

Being a Banking Company, the Bank receives and accepts deposits. The details of the deposits are enumerated in the financial statements for FY 2021-22.

5. Capital Adequacy

The Capital Adequacy ratio stood at 25.16% as on March 31, 2022 as against the minimum requirement of 15% stipulated by RBI. The Net Worth of the Bank as on the said date was Rs4,24,616.86 lakhs.

6. Material changes after the Balance Sheet Date as at March 31, 2022

There have been no material changes and commitments between the end of FY 2021-22 and the date of this report, affecting the financial position of the Bank.

7. Share Capital

During the year, there has been no change in the Authorised share capital of the Bank.

The Bank has allotted in aggregate 1,01,18,318 Equity Shares to employees of the Bank under the ESFB Employees Stock Option Scheme, 2019.

Except for issue of 10,26,31,087 Equity shares through QIP as detailed under paragraph 12 below, there was no capital infusion during the year. Total paid up share capital of the Bank was increased by Rs112,74,94,050 (One Hundred and Twelve crores seventy four lakhs ninety four thousand and fifty) and as on March 31, 2022 it stood at Rs1252,02,76,550 (One thousand two Hundred and Fifty two crores two lakhs seventy six thousand five hundred and fifty) comprising of 125,20,27,655 equity shares with face value of Rs10 each.

8. Information about Financial Performance / Financial Position of the Subsidiaries, Associates and Joint Venture Companies

The Bank does not have any subsidiaries, associates and Joint Venture Companies.

9. Operational highlights

The details of operations and state of affairs are given in the Management Discussion and Analysis [MD&A] Report.

10. Management Discussion and Analysis, Report on Corporate Governance and Business Responsibility Report

The enclosed MD&A Report, Report on Corporate Governance and Business Responsibility Report form part of this Report.

11. Corporate Social Responsibility (CSR)

The Bank has laid down a Corporate Social Responsibility (CSR) Policy, which is available on our website click here

The Bank contributes the higher of 5% of its previous year net profits or 2% of average net profits made during the preceding three financial years to Equitas Development Initiatives Trust (EDIT) and Equitas Healthcare Foundation (EHF), registered Public Charitable Trusts for carrying out CSR activities on its behalf. A report is enclosed as Annexure I.

The Bank has constituted a CSR Committee which a) recommends to the Board an Annual activity plan in line with the CSR policy and CSR contribution of the Bank for the year.

b) monitors the implementation of the Plan as approved.

c) Reviews and recommends changes to the policy from time to time.

12. Scheme of amalgamation between Equitas Holdings Limited (EHL) and Equitas Small Finance Bank Limited (the Bank)

The Board of Directors of Equitas Small Finance Bank Limited (ESFBL) and Equitas Holdings Limited (EHL) at their respective Meetings held on July 26, 2021 approved a Scheme of Amalgamation between EHL, ESFBL and their respective shareholders, contemplating amalgamation of EHL with ESFBL under applicable provisions of the Companies Act 2013. The Scheme was designed to achieve the RBI licensing requirement of dilution of promoter shareholding in the Bank and minimum public shareholding (MPS) requirements prescribed by SEBI Regulations, in a manner that is in the best interests of and without being prejudicial to EHL, ESFBL, their respective shareholders or any other stakeholders.

Subsequently, ESFBL achieved the MPS through a Qualified Institutions Placement (QIP) of its shares, in February 2022, after obtaining the necessary approvals. QIP comprised issue of 10,26,31,087 equity shares of Rs10/ each at premium of Rs43.59 per share, aggregating to a fund raise of Rs 550 crore utilised 100% for augmenting the Tier 1 capital of the Bank during the year. As a result of this QIP, the public shareholding in the Bank increased from 18.70% to 25.37%, thereby complying with the Minimum Public Shareholding (MPS) requirements prescribed by SEBI Regulations.

Consequently, the aforesaid Scheme was revised to include the change in capital structure arising from QIP as well as the necessary change in objects of the Scheme. The Scheme, so revised was approved by the Boards of EHL and ESFBL in their respective Meetings held on March 21, 2022. The Scheme has been filed with the Stock Exchanges and RBI for necessary approvals/ sanctions. The RBI vide its letter dated May 6, 2022 has granted its conditional NOC to the Scheme while other approvals are awaited.

Upon coming into effect of this Scheme and in consideration of the amalgamation of EHL with ESFBL, ESFBL, without any further application, act or deed, shall issue and allot to each of the equity shareholders of EHL as on the Record Date defined in the Scheme, 231 equity Shares of Rs 10/- each credited as fully paid up of ESFBL, in respect of every 100 Equity Shares of

Rs 10/- each fully paid up held by them in EHL.

13. Meetings of the Board

During FY 2021-22, our Board met Eighteen (18) times.

The details of Meetings are given in the Report on Corporate Governance. The maximum interval between any two Meetings did not exceed 120 days, as prescribed in the Companies Act 2013.

14. Directors and Key Managerial Personnel

As on the date of this Report, the Bank has Ten Directors out of which there are nine Independent Directors including a Woman Independent Director.

Change in Directors

14.1 Section 152 of the Companies Act 2013 provides that two-thirds of the total number of Directors are liable to retire by rotation out of which one-third shall retire from office at every AGM. In terms of Section 149(13) of the Companies Act 2013, the provisions of retirement of Directors by rotation shall not be applicable to Independent Directors and an Independent Director shall not be included in the total number of Directors liable to retire by rotation.

The Bank has only one Director viz., Mr. Vasudevan P N, MD & CEO liable to retire by rotation. Mr. Vasudevan P N will retire in the ensuing AGM of the Bank and being eligible, offers himself for reappointment. The Directors recommend his re-appointment and the same is being placed for approval of the shareholders at the ensuing Annual General Meeting.

14.2 During the year, Mr Sridhar Ganesh and Ms Tabassum Inamdar, Independent Directors ceased to be Directors of the Bank upon expiry of their term w.e.f.

September 04, 2021 and October 21, 2021 respectively.

The Board of Directors place on record its appreciation for the valuable services rendered by Mr Sridhar Ganesh and Ms Tabassum Inamdar during their tenure as Directors of the Bank.

Pursuant to recommendation of Nomination

& Remuneration Committee (NRC), the Board of Directors of the Bank at its Meeting held on December 27, 2021, appointed Ms Geeta Dutta Goel and Prof Samir Kumar Barua as Additional Director (Independent) of the Bank w.e.f. close of business hours on December 27, 2021. NRC recommendation was made after evaluating various candidates as per the Criteria set out at its meeting held on December 23, 2021.

The terms and conditions of appointment of Independent Directors are also available on the website of the Bank, click here.

The appointment of Independent Director during the year was made with satisfaction of the Board after ascertaining the integrity, expertise, experience and proficiency of the Directors. Appropriate resolution recommending their appointment as Independent Director with effect from December 27, 2021 with brief profile and explanatory statement is placed for approval of shareholders at the ensuing Annual General Meeting.

14.3 Pursuant to recommendation of Nomination & Remuneration Committee and subject to approval of RBI and shareholders, the Board in its Meeting held on May 4, 2022 has approved the appointment of Mr Rohit Gangadharrao Phadke, Sr President- Retail Assets and Mr Murali Vaidyanathan, Sr President & Country Head- Branch Banking- Liabilities as Whole-time Directors of the Bank to be designated as Executive Directors, to take effect from the date of approval of proposal by RBI. The appointment shall be for a period of three years or for such other period as may be approved by RBI.

Familiarisation Programme

The Bank has familiarised the Independent Directors of the Bank of their roles and responsibilities in the Bank, nature of industry in which the Bank operates, business model of the Bank, etc. The details of the familiarisation programme imparted to Independent Directors are available on the website of the Bank click here

Key Managerial Personnel (KMP)

There were no changes in KMPs during the Financial Year 2021-22. As at March 31, 2022, the Bank had the following KMPs:

There were no change in the Key Managerial Personnel during the year.

15. Declaration from Independent Directors

The Board has received declarations from the Independent Directors as required under Section 149(7) of the Companies Act 2013 and the Board is satisfied that the Independent Directors meet the criteria of independence as mentioned in Section 149(6) of the Companies Act 2013.

16. Evaluation of Board Performance

The performance of the Board, Committees of the Board, Chairman, Individual Directors & the Key Managerial Personnel, were evaluated on the basis of criteria as approved by the Board for the FY 2021-22. All the Directors were provided the criteria for evaluation and forms, which were duly filled. The feedback from the Directors was collated. Feedback relating to the Directors were shared with the respective Directors and feedback relating to the Committees and the Board were discussed in the Board.

17. Policy on Directors' appointment, remuneration and other details

Pursuant to the provisions of Section 178 of the Companies Act, 2013, the Bank has formulated and adopted Policy on selection of Directors and Remuneration Policy, which are disclosed in our website, Click here and here.

18. Directors' Responsibility Statement

The Board of Directors of the Bank, to the best of their knowledge and belief confirm that:

i) in the preparation of the annual accounts for the year ended March 31, 2022, the applicable accounting standards have been followed along with proper explanation relating to material departures,

ii) such accounting policies as specified in Schedule 17 to the Financial Statements have been selected and applied consistently and judgements and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at March 31, 2022 and of the profit of the Bank for the year ended on that date,

iii) proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities,

iv) annual accounts have been prepared on a going concern basis,

v) internal financial controls to be followed by the Bank were laid down and that the same were adequate and were operating effectively, and

vi) proper systems to ensure compliance with the provisions of all applicable laws was in place and the same were adequate and operating effectively.

19. Overall Remuneration:

Details of all elements of remuneration of all the Directors are given in the Corporate Governance Report. The Non-Executive Directors of the Bank are not entitled to stock options.Details of remuneration as required under Section 197 (12) of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below.

*Ms Geeta Dutta Goel has waived her right to receive remuneration for FY 2021-22

In accordance with Section 136 of the Companies Act, 2013, the report and accounts is being sent to the Members and others entitled thereto, excluding the statement prescribed under rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The aforesaid information is available for inspection at the registered office of the Bank during the business hours on working days of the Bank. If any member is interested in obtaining a copy, such member may write to the Company Secretary in this regard.

21. Whistle Blower Policy/ Vigil Mechanism

The Bank has adopted a Whistle Blower Policy and Vigil Mechanism in compliance with the relevant provisions of Companies Act, 2013 and Rules thereunder and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. This Policy provides an opportunity to address concerns of employees & Directors relating to fraud, malpractice or any other activity or event which is against the interest of the Bank or society as a whole. The Policy is available in the Bank's website, click here.

During the year under review, the Bank received six complaints under the Whistle Blower Policy of the Bank, all of which were redressed and reported to Audit Committee. The functioning of the Mechanism is reviewed by the Audit Committee from time to time. No employee of the Bank has been denied access to the Audit Committee for raising a whistle blower complaint.

22. Ratings of Debt Instruments

23. Auditors & their Report

Reserve Bank of India ("RBI") has on April 27, 2021, issued the Guidelines for Appointment of Statutory Central Auditors/Statutory Auditors of Commercial banks which are applicable for the FY 2021-22 ("RBI Guidelines"). The RBI Guidelines has capped the term of statutory auditors at three years, replacing the earlier cap of four years.

The Board of Directors of the Bank in their Meetings held on April 29, 2021 and June 01, 2021 had appointed M/s T R Chadha & Co LLP (TRC), Chartered Accountants and M/s Varma and Varma, Chartered Accountants as Joint Statutory Auditors of the Bank till 2023-24 in accordance to the RBI guidelines. Subsequently, the said appointment was approved by the Shareholders at the Fifth AGM on August 12, 2021. The appointment was approved by RBI for FY 2021-22 vide letter dated June 13, 2022.

As per the RBI guidelines, the appointment of Joint statutory auditors should be subject to annual approval from Reserve Bank of India. The Audit Committee of the Board had reviewed the performance of the Auditors during the financial year 2021-22 and their Independence by taking note of the eligibility letters received from the Auditors stating that they continue to satisfy the criteria provided in Section 141 of the Companies Act, 2013 and RBI Regulations, their continuance, if approved, will be in accordance with the conditions prescribed under the Companies Act, 2013 and Rules thereunder as well as the applicable RBI Regulations and recommended their continuance to the Board. Board of Directors at its Meeting on May 04, 2022 considered the recommendation and approved the continuance of the Joint Statutory Auditors for the FY 2022-23 as they satisfy with the eligibility Norms as per the RBI guidelines.

Auditor's Report

There are no qualifications, reservations or adverse remarks made by the Joint Statutory Auditors of the Bank, M/s. Varma & Varma and T R Chadha & Co LLP, Chartered Accountants (ICAI Firm Registration No. 006711N/N500028,) in their report on the financial statements for the FY 2021-22. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

24. Details of Employee Stock Options Scheme (ESOS)

The Bank, pursuant to the resolutions passed by the Board and the Shareholders of the Bank on January 31, 2019, adopted the ESFB Employee Stock Option Scheme (ESOS), 2019 ("ESFB ESOP 2019"). The Bank has amended the ESFB ESOP 2019 pursuant to the resolutions of the Board and Shareholders of our Bank dated November 7, 2019 & November 22, 2019 respectively.

Post listing of Equity shares of the Bank the ESFB ESOP 2019 was ratified by the Shareholders by way of a special resolution dated February 08, 2021 as required by Regulation 12 of erstwhile SEBI (Share Based Employee Benefits) Regulations 2014. Further, as recommended by NRC, the Board of Directors at its Meeting dated January 28, 2022 had approved modifications to the ESFB ESOP 2019 aligning the scheme as per the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

The Bank may grant an aggregate number of up to 11,00,00,000 employee stock options under ESFB ESOP 2019. The objective is to enable the Bank to attract and retain the best available talent to contribute and share in the growth of the Bank.

The Scheme is administered by the Nomination and Remuneration Committee constituted by the Board of Directors of the Bank.

Information as required under Section 62 of the Companies Act, 2013 and Rule 12 of the Companies (Share Based Employee Benefits) and the SEBI SBEB & SE Regulations 2021:

Employee Wise details of the options granted to

A) Key Managerial Personnel

B) any other employee who receives a Grant of options in any one year, of options amounting to 5% or more of options granted during that year

C) identified employees who were granted option, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and Conversions) of the Company at the time of Grant. - Nil

25. Secretarial Auditors

The Secretarial Audit Report of M/s B Ravi & Associates, Practising Company Secretaries (C.P. 3318) is enclosed as Annexure – II. The Bank has complied with the applicable Secretarial Standards relating to ‘Meetings of the Board of Directors' and ‘General Meetings' during the year. There are no qualifications, reservations, adverse remarks or disclaimers made by the Secretarial Auditors.

Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014

26.1 During FY 2021-22, the Bank had no activity relating to conservation of energy or technology absorption.

26.2 During FY 2021-22, the Bank and incurred foreign currency expenditure of Rs 45.19 lakhs.

Related Parties

During FY 2021-22, there were no transactions requiring reporting under Section 188(1) of the Companies Act, 2013 in Form AOC-2. The Policy on dealing with material Related party transactions is available at Click here

28. Risk Management

The Bank has formulated and adopted a robust Risk Management framework. The Bank has also constituted Risk Management Committee of the Board, which periodically reviews the risks faced by the Bank and the practices/ processes followed to manage them. Details of the same are covered in the MD&A report.

29. Internal Financial Controls

The Bank has clear delegation of authority and standard operating procedures, which are reviewed periodically by the Audit Committee. These measures help in ensuring adequacy of internal financial controls commensurate with the nature and size of operations of the Bank. The Board also reviews the adequacy and effectiveness of the Bank's internal financial controls with reference to the financial statements. The procedures and internal controls relating to the latter provide reasonable assurance on the preparation of financial statements and the reliability of financial reporting. The Bank also ensures that the internal controls are operating effectively.

30. IND AS Implementation

The Ministry of Corporate Affairs (MCA), Government of India has notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. Further, a Press Release was issued by MCA on January 18, 2016 outlining the roadmap for implementation of Indian Accounting Standards (IND AS) converged with International Financial Reporting Standards (IFRS) for banks. Banks in India were required to comply with the Indian Accounting Standards (IND AS) for financial statements for accounting periods beginning from April 1, 2018 onwards, with comparatives for the periods ending March 31, 2018 or thereafter.

On April 05, 2018, the RBI has announced deferment of implementation date by one year for scheduled commercial banks. Subsequently, on March 22, 2019, RBI has deferred implementation of Ind AS for banks until further notice, pending necessary legislative amendments to the Banking Regulation Act, 1949. The same is yet to be notified.

31. Loans / Guarantees / Investments

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided by a Banking Company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

32. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Bank has in place, a Policy on Prevention of Sexual Harassment at Workplace in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee has been set up for redressal of complaints. During FY 2021-22, six complaints were received under the Policy which were dealt with as per the process laid down and disposed of.

33. Depository System

As the Members are aware, the Bank's Equity Shares are tradable in electronic form. As on March 31, 2022, out of the Bank's total equity paid up share capital comprising of Equity Shares, only 115 equity shares were in physical form and the remaining shares were in electronic form. In view of the numerous advantages offered by the Depository System, the Members holding shares in physical form are advised to avail themselves of the facility of dematerialisation.

34. The Annual Return MGT-7 as required under the

Companies Act, 2013 is available at the website of the Bank, click here.

35. There have been no significant and material orders passed by the Regulators or Courts or Tribunals impacting the going concern status and the future operations of the Bank.

Acknowledgement

The Directors are grateful to RBI, other Government and Regulatory Authorities, other Banks and Financial Institutions for their support and guidance. The Directors gratefully acknowledge the guidance provided to the various activities of the Bank by the Board of the Holding company. The Directors place on record their sincere thanks to the valued constituent of the Bank. for their support and patronage and their deep sense of appreciation to all the employees of the Bank for their unstinted commitment to the growth of the Bank.