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
<<Click here for KANNADA version>>
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)