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Dear Shareholders,
On behalf of the Board of Directors and on my personal behalf, it gives me immense pleasure in extending a warm welcome to each one of you at this Thirteenth Annual General Meeting of the Bank.
I trust you have all received a copy of the Bank’s Annual Report for the year 2008-09, comprising the report of the Board of Directors, Audited Financial Statements of the Bank along with the consolidated Financial Statement. With your consent, I take them as read.
Economic Environment
As you are aware, the global economy has been passing through the most difficult period since World War II. The problems, which originated in the US, were initially thought as a sector specific problems in the real estate sector in the US .However, they soon developed into a major global financial crisis following collapse of Lehman Brothers in September,2008. The crisis engulfed historic financial institutions, destabilizing advanced economies. The infamous ‘Sub Prime Crisis’ took its toll cutting across countries and financial institutions- ranging from mortgage banks, insurance companies, investment and commercial banks and threatened to inflict irreparable damage on the leading economies of the world. The resultant impact was unprecedented fall in GDP of major G-8 countries, massive job losses, dwindling manufacturing output, crashing of stock markets and shrinkage in world trade. The slowdown resulted in softening of commodity prices leading to deflationary conditions and severely affecting non-industrialized exporting countries as well. As per the latest IMF estimates, the global output is expected to contract by 1.4 percent during 2009 over the previous year. In case of advanced economies the contraction is much steeper ranging between 6.6 percent (Japan) to 2.3 percent (Canada).
To counter these unprecedented developments, the governments and central banks had to intervene with massive and often unconventional fiscal and monetary measures. Notwithstanding these best efforts, the crisis changed the complexion of financial sector specially in USA and U.K.
Though Indian financial sector was not directly exposed to the global financial turmoil, Indian economy was adversely affected mainly because of steep fall in exports and reversal of capital inflows. Exports have contracted continuously for nine months since October 2008. Resultantly, the export growth rate has declined to 3.4 percent during fiscal year 2009 compared to over 29 percent during fiscal 2008. The trend has continued during the current fiscal year with export declining by 31.2 percent for the first two months. Net capital inflows during 2008-09 were much lower as compared to the previous year, mainly due to net outflows under portfolio investment, banking capital and short-term trade credit. However, inflows under foreign direct investment (FDI) were higher during 2008-09 than previous year which partly compensated outflows on account of FIIs and ECB.
GDP registered a growth of 6.7 percent during 2008-09 as against more than 9 percent average growth rate for the last three years and 9 percent growth rate for 2007-08. All the three sectors i.e. agriculture, industry and services witnessed deceleration in growth rate. The agricultural growth rate declined to 1.6 percent as against 4.9 percent during 2007-08. The industrial sector registered a steep fall from 7.4 percent in 2007-08 to 2.6 percent in 2008-09. The deceleration of growth in 2008-09 was spread across all sectors except mining and quarrying, community, social and personal services.
Banking Scenario
The Indian Banking Sector passed through a difficult period during the past year. Deposit and Credit growth of banking system at 19.8 percent and 17.3 percent was much lower than growth rate of 22 percent recorded in both Deposit and Advances during 2007-08. The credit deposit ratio at about 72 percent as on March 2009 was also lower as compared to 73.9 percent as of March,2008. Money supply increased by 18.6 percent as against 21.1percent in previous year. The liquidity condition continued to be volatile during the year but improved towards Q4 following measures taken by RBI and Government of India.
The Indian financial sector continues to be healthy despite turmoil in the Global markets. As the global economies revive, the Indian Banks will be able to capitalize on their strength and exploit emerging opportunities.
Highlights of the Bank’s Performance
Against the background of such a difficult economic and banking scenario, performance of your bank has been quite outstanding and exemplary and the Bank remains a frontrunner in the Indian banking industry in terms of business and profitability growth.
Business Volumes
Global Business of your bank registered 26.3% growth and crossed Rs.3,00,000 Crore. Total deposits reached Rs. 1,89,708 crore and gross advances 1,44,732 crore. Your Bank’s growth in deposits and advances at 26.46 percent and 26.08 percent respectively has been higher than the Banking system’s deposit growth of 19.8 percent and advances growth of 17.3 percent.
Profits and profitability
Net Profit of your Bank reached another milestone of Rs.3007 crore, over and above the profit level of Rs2009 crore recorded last year. The operating profit of the bank went up by 47.45 percent from Rs.3701 crore in 2007-08 to Rs.5457 crore in 2008-09. The Returns on Assets of your Bank has consistently remained above the bench mark level of 1.0 percent. During the year, the ratio further improved to 1.49 percent from 1.25 percent last year. Similarly, Return on Net Worth has gone up to 30.42 percent from 28.44 percent.
Other Key Financial indicators
As you may be aware, your bank has successfully migrated to Basel II during 2007-08. The Capital Adequacy ratio of your Bank (under Basel II) stood at 13.01 percent as on March 31, 2009 as against 12.04 percent as on March 31, 2008. You may appreciate that the ratio is well above the RBI’s stipulation of 9 percent.
Net Worth of the Bank surpassed Rs. 11,000 crore at the end of March,2009.
Consistent growth in profits has resulted in upward movement in shareholder value of your Bank. The Earnings Per Share jumped to Rs. 57.26 from Rs.40.83 and the Book Value Per Share rose to Rs. 211.89 from Rs.164.05.
While growth in business and profits has been the driving force of the Bank, there has always been an eye on asset quality while pursuing business expansion. As a result, Net NPA ratio of the Bank improved to 0.44% in 2008-09 from 0.52% in 2007-08.
During the year, non-interest income got quantum jump of 44.16 percent and it covered 98.6 percent of the Bank’s operating expenses. The cost to income ratio of your Bank improved further to 36.18 percent from 41.68 percent which is one of the lowest in the industry. Similarly, the Net Interest Margin of the Bank improved to 2.97 percent from 2.95 percent.
You will be pleased to learn that your Bank, as in the past, surpassed all stipulated targets of social Banking under Priority sector.
Strategies at work
As you are aware, your bank has always been forward looking and has strategized to meet future challenges. A key initiative by the Bank i.e. Business Process Re-engineering (BPR) is now driving and redefining our business strategies in line with the market expectations and business opportunities. It involves technology, people, processes and products. The bank has already started reaping benefits from various BPR initiatives and over a period they are expected to enhance customer satisfaction and also add value for the stakeholders.
I am happy to inform you that under the other initiative taken by the Bank i.e. Core Banking, all domestic branches of the Bank have been networked. Since 41 percent of our branches are in rural areas, some in the most backward regions of the country, reach through branch networking will enable the bank to partly support the most important agenda of the government viz. financial inclusion. Apart from discharging our social responsibilities towards less privileged citizens of rural area, we consider this as an opportunity for fostering business growth.
As a part of organizational restructuring and with a view to decentralization and to quicken the decision making process, the concept of Local Head Office has been implemented last year. The Bank now has seven Local Head Offices and the Bank’s Top Executives are available at grass root level for faster decision making and improved customer services.
Your Bank has a robust risk management system for assessing and controlling the overall risk level so as to ensure business continuity. Apart from the usual risk management measures, the Bank undertakes Internal Capital Adequacy Assessment Process (ICAAP) and Stress Testing Process for a more rigorous risk assessment and for devising necessary control mechanism.
As you are aware, your bank has made a foray into Life Insurance business by way of a Joint Venture with Union Bank of India and Dai-ichi Mutual Life Insurance Co., Japan. The company has now commenced life insurance business from February,2009. This is yet another initiative which will help the Bank to exploit vast untapped insurance market and also add value to the stake holders in the long run.
In case of your Bank, the market oriented business strategy is seamlessly interwoven with the social objective and social responsibilities. To name a few, the Bank has been a front runner in fostering the cause of financial inclusion- the prestigious project/initiative undertaken by the Government of India. The Bank has been using I.T. enabled financial inclusion and under the Bank’s initiative, six districts across four states have been covered under 100% financial inclusion. Similarly, the Bank has successfully implemented the Debt relief & waiver scheme initiated by the Government, by which as many as 3 lakhs 25 thousands needy farmers have been benefitted.
Branch Expansion
To enlarge the reach, your Bank opened 118 new branches and converted 20 extension counters into full-fledged branches during 2008-09. With this, the branch net work of your Bank has gone up to 3021 in India. The Bank has 136 specialised branches, which are catering to the specific banking needs of niche segments of the population.
International Operations
Your Bank is one the few Indian Banks with vast global presence. With the opening of a branch at Glasgow (U.K.) and Representative office at Dubai, the Bank has extended its geographical reach abroad to 28 offices, spread over 15 countries. This marks the presence of your Bank in all time zones and internationally important financial centres.
Expanding Technological Support
Technology for customer care and convenience has always been the focus area of the Bank. You will be pleased to know that all the branches of your bank are now covered under Core Banking Solution (CBS). The 100% coverage under CBS has been a unique achievement, considering a huge branch net work of the Bank. All CBS branches are RTGS/NEFT enabled for fund transfer. Besides the bank’s owned 500 ATMs, customers can now access more than 35,000 ATMs across the country through shared ATM network.
Continuous upgradation of Information Technology platform has enabled the Bank to extend multifarious activities and services like Internet Banking, E-payments, Share Trading, Online payment, Booking of Airlines and Railway tickets.
The Bank’s revamped web-site using latest Next Generation Web 2.0 technology has now added features like Customer Corner for suggestions/ redressal of grievances etc.
Corporate Governance
Your Bank is maintaining the highest standard of corporate governance with total commitment to ethical practices in the conduct of its business, recognising the importance of accountability of the Board to all its stake holders. The inter-relation between the Board, the executives and other functionaries is so configured as to have distinctly demarcated roles and improved corporate performance.
Customer Service
Your Bank has always kept customer service as prime objective in all its operations. Towards this end, the Bank has been a voluntary member of Banking Codes and Standards Board of India (BCSBI) and is complying with the various commitments there under. In order to bring about standardization of services, the bank has adopted various policies such as i) Cheque collection policy ii) Compensation policy. Iii) Collection of dues and repossession of Security policy, iv) Grievance redressal policy, v) Policy for settlement of claims in respect of missing persons etc..
As a measure for continuous improvement in customer services, a Customer Service Committee of Directors and Standing Committee on Customer Service have been set up.
In order to better our services as per the expectations of our customers, an advanced computerised Customer Complaint Management System has been initiated.
Awards and Accolades
Our consistent performance has been recognized and appreciated by the Government, Industry, Customers and the world at large, which is reflected in the number of awards and accolades, which your bank has received. I take great pride and privilege in sharing with you some of the accolades received by your bank, which are as under:
• India’s Best PSU Bank by NDTV Business Leadership Awards 2008
• Number 1 Public Sector Bank by Business World - PWC Survey
• Rank No.1 by Business Today - KPMG Survey, Best Public Sector Bank
• Overall Best Bank in the country by Dun & Bradstreet Study 2008
• Top Indian Company under ‘Banks’ by Dun & Bradstreet–Rolta Corporate Awards 2008,
• Prestigious CIO 100 Award 2008 for the Bank’s Green IT initiative wherein solar energy is put to use to power technology in rural branches.
You will also be happy to know that your Bank has a strong brand image in the country. Recently, the Bank was ranked Second under PSU banking category and 8th under Top Service Brands category in the country as per the ‘Most Trusted Brands (MTB) Survey, 2009 conducted by Economic Times & the Nielsen Company.
Dividend
Your unstinted support has enabled us to reap higher profits. In recognition of the same, the Bank has declared a dividend of 80 percent for 2008-09 compared to 40 percent for the last year. Total dividend payment amounted to Rs.420.14 Crore, excluding dividend distribution tax.
Board level changes
Shri T. S. Narayanasami, who remained the Chairman & Managing Director of your Bank during the year, superannuated on 31st May,2009 and a new Chairman & Managing Director is to be appointed by the Government of India soon. The Board places on record its appreciation for the excellent services rendered by Shri Narayanasami as the Chairman and Managing Director during whose tenure your Bank could show outstanding performance in business growth and profitability. During the year, there were a few changes in the composition of Board of Directors. I joined as Executive Director of the Bank on 15th October, 2008 and my colleague Shri M. Narendra also joined as Executive Director on 6th November,2008. Shri K.R.Kamath, who was Executive Director of the Bank, joined Allahabad Bank as Chairman and Managing Director on elevation by the Government of India. Shri A. K. Motayad was nominated as Non-Workmen Employee Director in July,2008 in place of Shri V.Eswaran. On expiry of term, Dr. (Smt.) Prabha Taviad and Shri V.B.Kaujalgi, stepped down from the Board as directors from 30th September,2008 and 25th October,2008, respectively. The Board places on record its appreciation for the valuable services and guidance rendered by Shri K.R.Kamath, Shri V.Eswaran, Dr. (Smt.) Prabha Taviad and Shri V.B. Kaujalgi during their tenure as directors. On the otherhand, Shri M.N.Gopinath, Shri P.P.Mallya, Shri P.M.Sirajuddin were elected as share holder directors of the Bank from October,2008.
Way forward
Despite sporadic signs of recovery in the domestic sector, the year 2009-2010 will continue to pose challenges for the Banking sector. Since the major growth drivers in the form of revival of exports and capital inflows are still weak, economic recovery is likely to be slow and spread over a longer period. This will have a direct bearing on the credit offtake and liquidity in the market. However, your Bank has enough resilience and strength to face the challenges ahead. The achievements of the Bank for just concluded year bear testimony to its strength. The Bank has been successful in surpassing milestones in the past and in future also, with your unstinted support, we will be able to scale greater heights. Your Bank is already a front runner in the industry. We will further consolidate our position with the state of the art technology, pro-active strategic initiatives and exemplary customer services. The bank is committed to continuing its “Growth Story’ both domestically and in its international operations and thereby delivering enhanced value to all its stake holders.
Acknowledgments
I take this opportunity to thank all the stakeholders and millions of valued customers for their unstinted support and assure them of our commitment to enlarge the stakeholders’ value constantly. I acknowledge the support and guidance throughout the year accorded by Ministry of Finance, Government of India, Reserve Bank of India and Securities Exchange Board of India. I also thank the Officers’ Association and Staff Unions of the Bank for the co-operation extended by them. I wish to place on record my appreciation for the employees for their commitment, dedication and hard work which has contributed to the outstanding performance of the Bank.
Thanking you,
Date: 11th July 2009 (B.A. Prabhakar)
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