Ladies & Gentlemen,
It is indeed a great pleasure to welcome you all to this meeting and present to you the Annual Report of your bank for the Financial Year 2008-09.
The Directors' Report and the final accounts of the Bank for the period ended 31st March 2009 have already been provided to all the shareholders. With your permission, I consider them as read.
At the outset, I would like to inform you that in deference to the advice of the Reserve Bank of India, the post of Chairman and Chief Executive Officer has now been split into (i) Part-time Non-Executive Chairman and (ii) Managing Director. I am glad to state that with the prior approval of the Reserve Bank of India Shri P. Jayarama Bhat, hitherto Chief General Manager of the Bank has taken over charge as the Managing Director of the Bank and I have assumed office as the part-time Non-Executive Chairman effective from 3rd week of July 2009.
Now let me present the economic environment in which your Bank had operated during the year.
Economic Scenario
The year 2008-09 witnessed unprecedented events both at the national and international level. The global turmoil in the financial sector has impacted the country's economy as well, although not in the same measure. The global outlook has continued to deteriorate in the last quarter with projections for global growth in 2009 undergoing rapid downward revision. According to the IMF's March 2009 forecast, global growth is projected to shrink by 0.5 to 1.0 per cent in 2009 in contrast to an expansion of 3.2 per cent in 2008. Other projections are even more dire. The World Bank estimates global GDP to contract by 1.7 per cent. In the US, economic activity has declined sharply, driven mainly by the decline in consumption and exports.
Like all emerging economies. India too has been impacted by the
crisis, and by much more than what was expected earlier. The extent of impact has caused dismay, mainly on two grounds: first, because our financial sector remains healthy, has had no direct exposure to tainted assets and its off-balance sheet activities have been limited; and second, because India's merchandise exports, at less than 15 per cent of GDP , are relatively modest. Despite these mitigating factors, the impact of the crisis on India evidences the force of globalization as also India's growing two-way trade in
goods and services and financial integration with the rest of the world. After clocking annual growth of 8.9 per cent on an average over the last five years (2003-08), India was headed for a cyclical downturn in 2008-09. But the growth moderation has been much sharper because of the negative impact of the crisis.
Decent regulation coupled with insignificant exposure to exotic products has ensured that the Indian financial system has remained relatively unscathed in the current global financial crisis. However, their aftershocks in the present economic downturn are staring at almost all the sectors, the fallout of which is reflecting on the Indian banks.
The Economic Survey predicts GDP growth as high as 7.75% in 2009-10 if the global economy turns up by autumn, and a reasonable 6.25% if the global recession drags on.
Indian Banking Scenario
Aggregate deposits of Scheduled Commercial Banks (SCBs) increased by 19.8 per cent (Rs.6,33,383 crore) during 2008-09 as compared with 22.4 per cent (Rs.5,85,006 crore) in the previous year.
Non-food credit extended by scheduled commercial banks (SCBs) increased by 17.28 per cent (Rs. 4,08,098 crore ) as compared with 22.3 per cent (Rs.4,30,725 crore) in the previous year.
The demand for credit moderated reflecting the slowdown of the economy in general and the industrial sector in particular. Working capital requirements had also come down because of decline in commodity prices and drawdown of inventories by the corporate. The demand for credit by oil marketing companies also moderated. In addition, substantially lower credit expansion by private and foreign banks also muted the overall flow of bank credit during the year. Significant variations have also been observed in the flow of credit to different sectors. Credit growth by public sector banks to industry accelerated in 2008-09. However, credit growth to personal loans and services decelerated. Reflecting moderation in both bank credit and funds from other sources, the total flow of resources to the commercial sector from banks and other sources during 2008-09 was significantly lower than that in the previous year.
Reserve Bank has cut repo rate and reverse repo rate besides cash reserve ratio (CRR) periodically. Currently, repo rate is 4.75 per cent, reverse repo rate is 3.25 per cent and cash reserve ratio is 5 per cent. Taking the cues from the reduction in the Reserve Bank policy rates and easy liquidity conditions, all public sector banks, most private sector banks and some foreign banks have reduced their deposit and lending rates.
The balance of payments (BoP) developments during April-December 2008 reflected the impact of shocks emanating from the global economy through both trade and financial channels. It is indeed remarkable that that the contagion spreading from a severe global crisis could be managed with a reserve loss (excluding valuation) of only US$ 20.4 billion over the period April-December 2008, out of which US$ 17.9 billion was incurred in the last quarter of 2008 alone. As on March 27, 2009 Foreign Exchange Reserves stood at USD 252 billion. Foreign Exchange Reserves stood at $267.7 billion during the week ended July 24, 2009. India's external debt, debt sustainability indicators and the level of foreign exchange reserves continue to remain at comfortable levels and would ensure external stability.
Notwithstanding several challenges, particularly from the global economy, the Indian economy remained resilient, its financial institutions and private corporate sector remained sound and solvent. Furthermore, the macroeconomic management helped in maintaining lower volatility in both the financial and the real sectors in India relative to several other
advanced and emerging market economies.
Looking ahead, the Union Budget for 2009-10
With marginal relaxation in the tax structure and moderate boost to agriculture sector, the Budget projects a fiscal deficit of 6.8% of GDP, the highest ever in 16 years, which translates into a deficit of Rs.4,00,000 crore. Fiscal deficit is put at Rs.3,32,835 crore as per the 2009-10 interim budget estimates but now it is Rs.4,00,996 crore as per the 2009-10 final budget estimates. The fiscal deficit of 6.8% appears to be slightly above the comfort level and this level of fiscal deficit, half of which is likely to be met through market borrowings may pose some sort of challenge to banking industry as well.
Monetary Policy
Annual Policy Statement (quarter review of 2009-10 (Apr-Mar) left key policy rates unchanged even as it placed GDP growth for the current fiscal at 6 per cent with an upward bias. The benchmark rates such as bank rate, repo rate, reverse repo rate, cash reserve ratio (CRR) and statutory liquidity ratio (SLR) are kept intact.It also notched up the inflation projection for the current fiscal to 5 per cent from 4 per cent projected in the Annual Policy Statement in April 2009. It forecasts M3 at 18%, deposit growth at 19% and credit growth at 20% for FY10. RBI has maintained its accommodative monetary stance while sensitizing the market towards the need to withdraw the monetary accommodation gradually, once there are definite and robust signs of recovery in the economy.
Performance of your Bank during 2008-09
With the above background, I would proceed to brief you about the performance of your Bank during the financial year 2008-09. You will be happy to note that your Bank has registered satisfactory 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 stood Rs.32,143 crore as at 31st March 2009. Deposits have increased to Rs. 20333.29 crore at the end of March 2009 from Rs. 17016.19 crore during the same period last year thus recording a growth of 19.49 %. Advances have touched Rs.11810.05 crore at the end of the year as against Rs. 10841.97 crore as on 31.03.2008 indicating a rise of 8.93%. The advances to priority sector have increased to Rs. 4372.16 crore from Rs. 3966.87 crore. The net NPA stood at 0.98% at the end of March 2009.
Profitability and Working Results
The net profit of your Bank rose to Rs.266.70 crore from Rs. 241.74 crore. Your Bank posted an operating profit of Rs. 480.21 crore during 2008-09.
Capital Adequacy Ratio
The capital funds of your Bank increased from Rs.1618.73 crore to Rs.1991 crore, registering a growth of 23%. The Capital Adequacy Ratio of your Bank stood at 13.48% at the end of the fiscal 2008-09. This is well above RBI's prescription of 9%.
Forex Business
During the year, the Bank achieved foreign exchange business turnover of Rs. 7850.65 crore as against Rs.7836.62 crore for the previous year.
Distribution Network
I am happy to inform you that during the year under report your Bank opened 16 new branches at Moradabad, New Delhi-Karol Bagh, Thane, Mumbai-Vile Parle, Bommasandra, Bangalore-Chandra Layout, Bangalore-Sadashivanagar, Mysore-J P Nagar, Belgaum-Udyambag (Extension Counter upgraded), New Delhi-East of Kailash, Bangalore-Yelahanka New Town, Pune-Dhankawadi, Doddaballapur, Uppal Kalan, Bellandur and Hoskote.
As on March 31, 2009, the Bank had 447 branches, 171 ATM outlets, 8 Regional Offices, One International Division, One Data Centre, One Customer Care Centre, 5 Service branches, 2 Currency Chests, 6 Extension Counters and two Central Processing Centres, spread across 19 States and 2 Union Territories. Further, for better ambience and improved customer service, the Bank shifted 15 branches/offices to new premises, during the year 2008-09.
Technology Initiatives
The Bank which is tech savvy had launched a slew of technology backed products over the years launched a couple of services such as online shopping facility through MoneyClick payment gateway and KBL-QuikRemit (a web based inward remittance facility) which enables NRIs residing in Canada, UK & USA effect remittance from abroad.
Distribution of products
Bank has entered into a Distribution Agreement with M/s ICICI Prudential Asset Management Company Ltd for distribution of their mutual fund products.
Your Bank made arrangements with Universal Sompo General Insurance Company Ltd. (USGICL) for distribution of general insurance products.
I am pleased to inform you that your Bank has won the prestigious Sun and NDTV Green IT award instituted by Sun Microsystems and NDTV recognizing organizations which have pledged their positive commitment to the planet and engage in eco-efficient green technologies to run their business. Sun Microsystems and NDTV have recognised the Bank's implementation of core banking in rural branches using thin client server run by solar power modules and VSAT connection thereby reducing the power consumption and carbon footprint accounting for global warming, a burning issue worldwide.
Dividend recommended
Bank proposes to pay a dividend of 60% for the year ended March 31, 2009.
Risks and concerns
While Indian banks have limited direct exposure to the international markets for mortgage linked securities, they are unlikely to be completely insulated from the turmoil in the global financial markets. Reduced availability of global finance through external commercial borrowings on the back of rising risk aversion in the global markets could affect domestic growth.
The Bank as a financial intermediary is exposed to various kinds of risks both financial and non-financial. With the expansion both in size and business, the Bank has established a comprehensive risk management structure in tune with the RBI guidelines for managing various risks through appropriate risk-return pattern which helps in maximizing shareholders' value.
The risks faced by the Bank mainly are Credit Risk, Market Risk and Operational Risk, besides other residual risks such as Liquidity Risk, Reputation Risk etc. Your Bank has put in place a sound Risk Management System under the supervision of the Board of Directors for identification, measurement, monitoring and management of these risks. A Board level Integrated Risk Management Committee periodically reviews the risk profile of the Bank, evaluates the overall risks faced by the Bank, and develops policies and strategies for their effective management.
The Bank has clearly chalked out its plan for Basel II implementation in line with the RBI guidelines and we are happy to report that your Bank is Basel II compliant as at 31st March 2009.
Internal Control Systems
A separate Compliance Department has been set up. The Audit Committee of the Board of Directors supervises the internal audit and compliance functions. The system of regular inspection and short inspection of all the
branches/offices and concurrent audit of select branches, Treasury Department and International Division etc., form part of the internal control mechanism. Besides, the Bank has been ensuring stock audit and credit audit of large borrowal accounts by professional audit firms to further strengthen the credit administration. The Risk-based Internal Audit System has already stabilized in the Bank and all the branches have been subjected to such Audit. Adequate measures have also been taken to work under the computerized environment. All the branches and offices are additionally subjected to EDP/IS audit to mitigate the associated risks. Concurrent IS audit of Data Centre (including Disaster Recovery Site) by a competent external IS Audit firm, is also put in place.
Human Resources
It is my strong belief that human beings are critical to the success of any organisation, especially in the case of banking industry. Efforts are being made to give appropriate training to the staff to improve their skills for efficient service to customers.
Per Employee Turnover of your Bank has increased from Rs.5.89 crore during 2007-08 to Rs.6.49 crore during the year 2008-09.
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. Padmabhushan Dr.D. Veerendra Heggade, Dharmadhikari, Shree Kshetra Dharmasthala graced the occasion and delivered the keynote address. Indeed it was highly appreciated by all those present on the momentous occasion. The lecture was followed by an enthralling violin recital by Dr. L. Subramanian, a well known violinist.
Future Plans
The Corporate Plan for 2009-10 envisages
(i) Business Turnover of Rs.39000 crore with Deposits of Rs.24,000 crore & Advances of Rs.15,000 crore and a turnover per employee of Rs. 7.09 crore
(ii) 475 branches and 200 ATMs
(iii) Better profits
Acknowledgements
Before I conclude, I on behalf of the Bank and on my own behalf, would like to place on record our gratitude to our shareholders and customers for their sustained support and patronage which has immensely contributed towards the growth of the Bank. The Board of Directors has always been supportive and I thank the members of the Board for their encouraging guidance.
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.
Conclusion
I am confident that your 85-year old Bank will continue to take strides on the profitable growth path and scale new heights in future with the continued support and patronage of the shareholders, customers, employees and well wishers.
Thank you.
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(Note: This does not purport to be a record of the proceedings of the Annual General Meeting)