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Text of the Speech delivered by Shri Ananthakrishna, Chairman & CEO, Karnataka Bank Limited at the 84th Annual General Meeting of the Shareholders held at Head Office on 12.07.2008

 

 

A STEADY PROGRESS ON YOUR SUSTAINED SUPPORT

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Ladies & Gentlemen,

 

It is indeed my immense pleasure to welcome you all to this meeting and present to you the Annual Report of your bank for the Financial Year 2007-08. The Directors' Report and the final accounts of the Bank for the period ended 31st March 2008 have already been provided to all the shareholders. With your permission, I consider them as read. Let me present the economic environment in which your Bank had operated during the year.

 

 

ECONOMIC SCENARIO

 

The year 2007-08 was an eventful year both nationally and internationally. The sub-prime crisis, rise in prices of oil, gold and commodities had a telling effect on the share market and the investors across the globe. The runaway inflation remained a major source of worry for Governments worldwide.

 

During 2007, the Global economy expanded by 4.9%. The growth in most of the advanced economies witnessed sharp deceleration in the last quarter of the year 2007, particularly on account of the financial crisis that spread beyond the US sub-prime mortgage market. In contrast, emerging and developing economies continued to grow against this trend, despite some slackening of exports and industrial production towards the end of the year. In the current year, the global economy is likely to register a relatively lower growth in the wake of inflation accentuated by rise in prices of food grains, oil, commodities and other industrial inputs.

 

As far as the national economy is concerned, based on the advance estimates released by the Central Statistical Organisation (CSO) in February 2008 the real gross domestic product (GDP) in 2007-08 was placed at 8.7 per cent as compared to 9.6 per cent in 2006-07. The moderation in growth occurred in all the three sectors, viz. agriculture and allied activities, industry and services.

 

Notwithstanding the slower growth rate during 2007-08 in comparison to the year before, India continued to be one of the fast growing economies of the world.

 

The forecast for the year 2008-09 is that the country's GDP growth will be in the range of 8.0-8.5 per cent. The accelerated process of globalisation of financial markets and greater integration of the Indian financial sector with the rest of the world has enhanced both opportunities and challenges.

 

Financial risks have increased sharply as a result of the runaway increase in oil prices, sub-prime meltdown, global imbroglio and large leveraged positions in the financial markets.

 

While aggregate supply capacities expanded and alleviated domestic macro-imbalances in 2007-08 to some extent, available indicators suggest that economic activity in India currently continues to be mainly demand-driven.

 

 

INDIAN BANKING SCENARIO

 

Aggregate deposits of Scheduled Commercial Banks (SCBs) increased by 22.2 per cent (Rs.5,80,208 crore) during 2007-08 as compared with 23.8 per cent (Rs.5,02,885 crore) in the previous year. Demand deposit growth at 20.2 per cent was higher than 17.9 per cent in 2006-07 but time deposit growth moderated to 22.6 per cent from 25.1 per cent in the previous year. In addition to the mobilisation of deposits, the banking sector's lendable resources were augmented substantially by capital raised through public issues and innovative capital instruments during 2007-08.

 

Non-food credit extended by scheduled commercial banks (SCBs) increased by 22.3 per cent (Rs.4,19,425 crore) as compared with 28.5 per cent (Rs.4,18,282 crore) in the previous year. The incremental non-food credit-deposit ratio for the banking system declined to 72.3 per cent during 2007-08 from 83.2 per cent in 2006-07, 109.3 per cent in 2005-06 and 130.0 per cent in 2004-05. Food credit of SCBs declined by Rs. 2,121 crore in 2007-08 as against an increase of Rs.5,830 crore in the previous year. Priority sector advances grew by 16.9 per cent with a moderation in their share in outstanding gross bank credit to 33.3 per cent in February 2008 from 34.7 per cent a year ago.

 

Money supply (M3) increased by 20.7 per cent (Rs.6,86,096 crore in 2007-08 as compared with 21.5 per cent (Rs.5,86,548 crore) in 2006-07.

 

Reserve money increased by 30.9 per cent (Rs.2,19,326 crore) during 2007-08 as compared with 23.7 per cent (Rs.1,35,935 crore) in the previous year.

 

During the year, the financial markets experienced alternating shifts in liquidity conditions. Tightness in liquidity on account of year-end adjustments in March 2007 persisted up to April-May, necessitating net repo injections under the LAF.

 

On a year-on-year basis, inflation based on the wholesale price index (WPI) stood at 7.4 per cent at end-March 2008 as compared with 5.9 per cent a year ago. However, now inflation is a matter of serious concern for policy makers since it has reached the 13-year high level of 11.89 per cent on 28.06.2008. The Reserve of Bank of India is trying its level best to contain inflation.

 

Mobilisation of resources through issuance of commercial papers (CPs) was stepped up during 2007-08 as the weighted average discount rate on CP declined by 95 basis points from 11.33 per cent at end-March 2007 to 10.38 per cent in end-March 2008 and the outstanding amount of CPs increased from Rs.17,688 crore to Rs.32,592 crore during this period.  The weighted average discount rate for certificates of deposit (CDs) also declined from 10.75 per cent at end-March 2007 to 10.00 per cent in end-March 2008, accompanied by a significant increase in outstanding amounts from Rs.93,272 crore to Rs.1,47,792 crore.

 

During the financial year 2007-08, there have been several realignments of interest rates on deposits and PLRs of banks in tune with the market conditions and measures taken by the RBI.

 

The Indian foreign exchange market generally witnessed orderly conditions during 2007-08 with the exchange rate exhibiting two-way movements. Country's exports grew by 22.9 per cent in FY'08, marginally higher than 22.6 per cent growth registered in the previous fiscal. India's foreign exchange reserves were US$309.07 billion as on 31.03.2008. But the reserves have seen a dip in the first quarter of the current fiscal.

 

With strong fundamentals and in-built resilience, the banking sector continued to maintain its strategic position in the Indian economy, with substantial portion of funds flow routed through banks. Bank credit formed over 50 per cent of GDP. Extensive support by banks to SMEs, agriculture and other productive segments and the thrust on financial inclusion as an integral element of the broader inclusive growth strategy has made banks an important enabler in India's economic growth and development.

 

Looking ahead, the Union Budget for 2008-09 is likely to provide a stimulus to both private and government consumption in view of the effective reduction of the tax burden under personal income and excise as well as the revenue expenditure implications emanating from the recommendations of the Sixth Pay Commission. Waiver of farm loans to the tune of Rs. 60,000 crore proposed in the budget followed by Rs.11,680 crore announced recently will bring relief to the farming community. This will enable banks to cleanse their loan portfolio.

 

The dominance of investment demand in the economy is likely to persist in 2008-09 and beyond, supported as it were by the buoyancy in corporate saving in view of the sustained resilience of sales and profitability, and the ongoing improvement in public sector saving. Available indicators suggest that economic activity in India currently continues to be mainly demand-driven. But the galloping inflation has seen interest rates hardening and they are expected to stay there for some more time.

 

 

MONETARY POLICY

 

With the inflation on the rise, RBI has slammed the brakes harder on the economy growth. The CRR has been hiked from 8.25 per cent as on 31.03.2008 to 8.50 per cent as on date. It will further increase to 8.75 per cent with effect from 19.07.2008.

 

Loans will become dearer as there is a hike in Repo rate as well as in CRR. These anti-inflationary measures are expected to tighten the liquidity in the system, as the CRR hike would suck out around Rs.19,000 crore. Banks' margins are expected to be hit. All Banks are required to be Basel II compliant by 31.03.2009. This would require the Banks to rework their business strategies with risk management techniques.

 

 

PERFORMANCE OF YOUR BANK DURING 2007-08

 

With the above background, I would proceed to brief you about the performance of your Bank during the financial year 2007-08. You will be delighted to note that your Bank has registered moderate progress in important areas like deposits, advances, recovery of impaired assets, profitability, geographical presence with new branches and their networking, etc.

 

I am pleased to report that your Bank's total business has crossed Rs.27,858 crore as at 31st March 2008. Deposits have increased to Rs. 17016.19 crore at the end of March 2008 from Rs.14037.44 crore during the same period last year thus recording a growth of 21.22%. Advances have touched Rs.10841.97 crore at the end of the year as against Rs.9552.68 crore as on 31.03.2007 indicating a rise of 13.50%. The advances to priority sector have increased to Rs.3966.87 crore from Rs.3058.90 crore. There is a notable reduction in net NPA which stood at 0.98% at the end of March 2008.

 

 

PROFITABILITY AND WORKING RESULTS

 

The net profit of your Bank rose to Rs.241.74 crore from Rs.177.03 crore. Your Bank posted an operating profit of Rs.390.60 crore during 2007-08.

 

 

CAPITAL ADEQUACY RATIO

 

The capital funds of your Bank increased from Rs.1305.74 crore to Rs.1618.73 crore, registering a growth of 23.97%. The Capital Adequacy Ratio of your Bank stood at 12.17% at the end of the fiscal 2007-08. This is well above RBI's prescription of 9%.

 

 

FOREX BUSINESS

 

During the year, the Bank achieved foreign exchange business turnover of Rs.7836.62 crore as against Rs.6101.16 crore for the previous year thereby registering a growth rate of 28.44%. The advances to export sector increased from Rs.1095.31  crore to Rs.1372.62 crore.

 

 

DISTRIBUTION NETWORK

 

I am happy to inform you that during the year under report your Bank opened in all 21 new branches taking the total to 431 at the end of the fiscal. The new branches opened were at Chennai-Ayanavaram, Raigarh, Bangalore-Marathahalli, Haridwar, New Delhi-Janakpuri, Nelamangala, Aurangabad, Bangalore-Devanahalli, Cuttack, Bangalore-Uttarahalli, Bangalore-Kengeri Satelite Town, Bangalore-Hesaraghatta Main Road, Chennai-West Mambalam, Bareilly,Udaipur, Warrangal, Bidadi, Hyderabad-Kukatpally, Navi Mumbai-Belapur, Mira Road (East) and Kolkata-Beliaghata.

 

As on March 31, 2008, the Bank had 431 branches, 8 Regional Offices, One International Division, One Data Centre, 5 Service branches, 2 Currency Chests, 7 Extension Counters, 141 ATM outlets spread over 19 States and 2 Union Territories.

 

The Bank proposes to have a total of 460 branches by the end of March 2009 so as to increase its geographical presence.

 

 

TECHNOLOGY INITIATIVES

 

All the Branches of the Bank have been networked. Our customers have the advantage of Anytime Anywhere Banking at all our branches. Bank has tied up its Debit Card with Corporation Bank, National Financial Switch (NFS) and Cash Tree networks and Visa Franchise arrangement. The Debit Card holders of the Bank can virtually “carry their Bank account in their pocket” and access their account at over 20000 ATMs of NFS, over 4300 ATMs of Cash Tree apart from Visa enabled over 1.2 million ATMs and over 27.3 million POS globally under the Visa network.

 

Bank has also initiated the following new technology backed products and services like

(i)         SMS alerts facility to non-Internet Banking customers who have mobile phones.

(ii)        Online Shopping facility through MoneyClick payment gateway for the goods purchased by our customers through window shopping portals.

(iii)       Online payment in Merchant Establishments by tying up with Tech Process Solutions Ltd. for online payment in merchant establishments.

(iv)       Mutual Fund distribution through pacts with TATA Mutual Fund and ICICI Prudential Asset Management Company Limited for distribution of their mutual fund products.

(v)        Derivatives hedging by signing White Label agreement with Calyon Bank of the Credit Agricole Group of France, to provide risk management services, which will enable your Bank to provide hedging products like Derivatives to customers.

 

Bank has made arrangement for collection of BSNL land line bills at branches located in Dakshina Kannada and Udupi Districts.

 

Your Bank inked pacts with M/s Mahindra and Mahindra Ltd. and M/s SAS Motors Ltd for financing purchase of Tractors/ Power Tillers/vehicles and farm equipments.

 

 

DIVIDEND RECOMMENDED

 

Bank proposes to pay dividend of 50% for the year ended March 31, 2008.

 

 

HUMAN RESOURCES

 

It is my strong belief that human beings are the key to the success of any organisation, more so in the case of banking industry. Efforts are being made to give suitable training to the staff to improve their skills for efficient service to customers.

 

Per Employee Turnover of your Bank has increased from Rs.5.29 crore during 2006-07 to Rs.5.95 crore during the year 2007-08.

 

 

TRIBUTE TO FOUNDERS

 

You would be happy to know that your Bank celebrated its Founders' Day as a mark of respect to the founding fathers. Dr. Arjun K. Sengupta, Chairman, National Commission for Enterprises in the Unorganised Sector, Govt. of India, New Delhi, graced the occasion and delivered the keynote address. Indeed it was highly thought-provoking and was well responded to by all. The lecture was followed by an enthralling flute recital by Shri Shashank, a well known flutist.

 

 

FUTURE PLANS

 

The Corporate Plan for 2008-09 envisages

Business Turnover of Rs.35000 crore (Deposit: Rs.21,000 crore & Advances:  Rs.14,000 crore) with

(i)         A turnover per employee of Rs.7.00 crore

(ii)        Net Profit of Rs.280 crore

(iii)       Net NPA of 0.7%

(iv)       460 branches and 180 ATMs

 

Further, due focus will be given to

 (i)        Introduction of Students' Prepaid Card

(ii)        Online Trading facility for capital market products

(iii)       Participation in initiatives of RBI like NECS

(iv)       Expansion of centralised loan account opening at CPC for all branches

(v)        Expeditious implementation of MIS by optimum utilisation of technology

(vi)       Transition to Basel II framework

 

 

ACKNOWLEDGEMENTS

 

I, on behalf of the Bank and on my own behalf, take this opportunity to express my sincere and deepest gratitude to our shareholders and customers for their sustained support and patronage which has immensely contributed towards the growth of the Bank.

 

I gratefully acknowledge the contribution made by my esteemed colleagues on the Board in taking our great institution in the right direction.

 

The contribution made by Auditors, Legal Advisers, Consultants and Correspondents is thankfully acknowledged.

 

I am pleased to record my appreciation for the positive role played by the employees' and Officers' unions and the rich contribution made by the dedicated workforce in serving the customers to their satisfaction and thereby taking the Bank to greater heights.

 

I also gratefully acknowledge the continuous guidance and support of the Reserve Bank of India and the Indian Banks' Association, the Securities and Exchanges Board of India and the Stock Exchanges.

 

Thank you,

 

Place: Mangalore                                                                                                                        Ananthakrishna

Date: 12. 07. 2008                                                                                                                     Chairman & CEO

 

(Note: This does not purport to be a record of the proceedings of the Annual General Meeting)

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2003 Karnataka Bank