Bank Of Baroda

The Directors have pleasure in presenting the One Hundredth Annual
 Report of the Bank with the audited Balance Sheet, Profit & Loss
 Account and the Report on Business and Operations for the year ended
 March 31, 2008 (FY08).
 
 PERFORMANCE HIGHLIGHTS
 
 Total Business (Deposit+ Advances) increased to Rs 2,58,735.45 crore
 reflecting a growth of 24.07%.
 
 Gross Profit and Net Profit were Rs 3,028.55 crore and Rs 1,435.52
 crore respectively. Net Profit registered a growth of 39.85% over
 previous year.
 
 Credit-Deposit Ratio stood at 77.32% as against 74.35%.
 
 Retail Credit posted a decent growth of 17.97% constituting 19.79% of
 Gross Domestic Credit against 20.98% last year.
 
 Net Interest Margin (NIM) as per cent of interest earning assets was at
 the level of 2.90%.
 
 Net NPAs to Net Advances declined from 0.60% last year to 0.47%.
 
 Capital Adequacy Ratio (CAR) as per Basel I stood at 12.91% & as per
 Basel II at 12.94%.
 
 Net Worth improved to Rs 9,526.97 crore registering a rise of 12.93%.
 
 Book Value improved from Rs 231.59 to Rs 261.54 Business per Employee
 moved up from Rs 548 lacs to Rs 704 lacs.
 
 SEGMENT-WISE PERFORMANCE
 
 The Segment Results for the year 2007-08 of Rs. 3,301.52 crore have
 been contributed by the Treasury Operations to the extent of Rs.788.79
 crore, Rs.175.14 crore by Corporate/ Wholesale banking, Rs 937.37 crore
 by Retail Banking and Rs 1,400.22 crore by Other Banking Operations.
 The Bank earned Profit after Tax of Rs.1,435.52 crore after deducting
 Rs.1,094.37 crore of unallocated expenditure and Rs.771.63 crore as
 provision for tax.
 
 DIVIDEND
 
 The Directors have proposed a dividend of 80.0% for the year ended
 March 31, 2008.Total outgo in the form of dividend, including taxes,
 will be Rs 340.94 crore.
 
 CAPITAL ADEQUACY RATIO (CAR)
 
 The Bank’s Capital Adequacy Ratio (CAR) is comfortable at 12.91% on
 31st March 2008. During the year, the Bank strengthened its
 capital-base by raising Rs 2,703.62 crore through Tier –II bonds out of
 which Rs 1,203.62 crore were raised overseas. As per the Basel-II,
 Capital Adequacy Ratio works out to 12.94%.
 
 The Bank’s Net Worth as at 31st March 2008 was Rs 9,526.97 crore
 comprising of paid-up equity capital of Rs 365.53 crore and reserves
 (excluding revaluation reserves) of Rs 9,161.44 crore. An amount of
 Rs.1,094.58 crore was transferred to reserves from the profits earned.
 
 KEY FINANCIAL RATIOS
 
 Particulars                                      2007-08       2006-07
 
 Return on Average Assets (ROAA) (%)                0.89         0.80
 Average Interest Bearing Liabilities 
 (Rs crore)                                  1,37,324.72  1,11,429.22
 Average Cost of Funds (%)                          5.75         4.87
 Average Interest Earning Assets (Rs crore)  1,34,896.47  1,17,105.08
 Average Yield (%)                                  8.76         7.69
 Net Interest Margin (%)                            2.90         3.05
 Yield Spread (%)                                   3.00         2.82
 Cost-Income Ratio (%)                             49.21        51.30
 Book Value per Share (Rs)                        261.54       231.59
 EPS (Rs)                                          39.41        28.18
 
 OTHER PRUDENTIAL MEASURES
 
 As a prudent measure, the Bank has made provision towards contribution
 to gratuity (Rs 78.60 crore), pension funds (Rs 365.00 crore), leave
 encashment (Rs 53.20 crore) and additional retirement benefits (Rs
 60.40 crore) on actuarial basis. The total provisions under these four
 categories amounted to Rs 557.20 crore during the year, against Rs
 486.46 crore during 2006-07. The total corpus available with the Bank
 at end March 2008 under these heads is: Rs 711.43 crore (gratuity), Rs
 2,062.70 crore (pension funds), Rs 240.64 crore (leave encashment), and
 Rs 193.54 crore (additional retirement benefits).
 
 MANAGEMENT DISCUSSION AND ANALYSIS Economic Scenario in 2007-08
 
 Indian economy grew by 9.0 per cent in 2007-08 supported by the growth
 of 4.5 per cent in agriculture, 8.5 per cent in industry and 10.8 per
 cent in services. The current growth phase of the economy is powered by
 the rise in capital investments. During April-February, 2007-08 the
 capital goods production recorded a robust growth of 17.5 per cent. The
 continued capacity addition by manufacturing firms helped this growth
 of capital goods.
 
 Corporate activity remained quite healthy during 2007-08, though in
 comparative terms, it witnessed some moderation in growth over the
 previous year. While the sales of a representative sample of private
 sector companies grew by 17.4 per cent in April-December 2007, the net
 profits grew by a robust 29.8 per cent.
 
 Inflation, however, emerged as the major macro risk towards the end of
 2007-08. On an annual average basis, inflation (measured in terms of
 WPI) at 4.7 per cent during 2007-08 was lower than 5.4 per cent in
 2006-07. However, on a year- on-year basis, it stood at 7.4 per cent at
 end-March 2008 as against 5.9 per cent a year ago. Major contributors
 to rising inflation have been high prices of foodgrains, fruits,
 vegetables, edible oils, crude oil and metals. International crude oil
 prices have been rising sharply since June 2007, reflecting tight
 supply situation, geo-political tensions, weakening of the dollar, etc.
 During the year 2007-08, the global crude oil price reached a high of
 0.2 a barrel on March 13, 2008 on the back of a sharp decline in the
 U.S. crude inventories.
 
 Global financial markets witnessed turbulent conditions during 2007-08
 as a result of deepening crisis in the U.S. sub-prime mortgage market.
 The Indian financial markets remained largely orderly during 2007-08
 except the equity market, which witnessed bouts of volatility in tandem
 with trends in major international equity markets. The domestic stock
 markets, which remained strong till early January 2008, witnessed a
 sharp correction beginning January 11, 2008 due to rising concerns over
 the severity of sub-prime crisis and its spill-over to other countries.
 As a result of the huge volatility witnessed during the year 2007-08,
 the Sensex gained 19.7 per cent and Nifty added 23.9 per cent on an
 annual basis.
 
 The Foreign Institutional Investors (FIIs) invested .7 billion in
 the Indian stock markets during 2007-08 as against net purchases of
 .7 billion during 2006-07.  The Mutual funds made net investments of
 Rs 15,775 crore during 2007-08 as against Rs 9,062 crore in 2006-07.
 The major gainers in the stock markets during 2007-08 were metals, oil
 & gas, capital goods, fast moving consumer goods, public sector
 undertakings, banking and consumer durable stocks. Resources raised
 through public issues by the corporate sector increased sharply by
 158.5 per cent to Rs 83,707 crore in 2007-08 over those in last year.
 All public issues during 2007-08 were in the form of equity except
 three, which were in the form of debt.
 
 According to the Ministry of Commerce, total foreign direct investment
 (FDI) inflows into India rose to .6 billion in 2007-08 from .9
 billion in 2006-07. The Commerce Ministry expects FDI inflows to India
 to rise to  billion in 2008-09 despite the growing uncertainties in
 the world economy.
 
 Even though the rupee appreciated 7.8 per cent against the U.S. dollar
 in 2007-08, India’s merchandise exports grew 23.02 per cent in 2007-08
 to 5.51 billion. The imports, however, stood at 5.91 billion
 primarily due the pressure of high oil import bill. The India basket of
 crude oil witnessed a rise of 27.0 per cent in 2007-08. As a result,
 the trade deficit for 2007- 08 expanded to .40 billion from .32
 billion a year ago.
 
 India’s total external debt was placed at 1.5 billion at
 end-December 2007. However, foreign exchange reserves remained in
 excess of the stock of external debt at end- December 2007. India’s
 foreign exchange reserves were 9.7 billion as at end-March 2008,
 showing an increase of 0.5 billion over end-March 2007. India holds
 the third largest stock of reserves among the emerging market
 economies.
 
 The government’s fiscal deficit in the first eleven months of 2007-08
 declined 13.5 per cent on year-on-year basis and accounted for 73.4 per
 cent of the revised budget target for the entire financial year. In the
 Union Budget for 2008-09, the government has projected that the central
 government’s fiscal deficit would narrow from 3.1 per cent of GDP in
 2007-08 to 2.5 per cent in 2008-09.
 
 Banking Sector: Performance, Opportunities & Challenges in 2007-08
 
 Credit Penetration
 
 Indian banking industry witnessed some slowdown in credit expansion
 during 2007-08. The non-food credit extended by the scheduled
 commercial banks (SCBs) increased by 22.3 per cent as against 28.5 per
 cent the previous year. The incremental non-food credit-deposit ratio
 of the banking system declined to 72.3 per cent from 83.2 per cent in
 the previous year. The sectoral deployment of credit shows that the
 credit to services sector recorded the highest growth (28.4%, Y-o-Y),
 followed by industry (25.9%) and agriculture sector (16.4%).  However,
 the growth in personal loans decelerated to 13.2 per cent (30.6% last
 year).
 
 Growth in housing and real estate loans decelerated to 12.0 per cent
 (25.8%) and 26.7 per cent (79.0%), respectively. Within the industrial
 sector, there was a sizeable credit pick-up in respect of
 infrastructure (42.1% as against 28.2% a year ago), food processing
 (32.0% as against 27.6%) and engineering (26.2% as against 18.1%).
 There was a moderation in credit growth to basic metals and metal
 products (19.0% as against 33.3%), textiles (23.0% as against 35.5%),
 petroleum (23.3% as against 64.4%), and chemicals (13.9% as against
 19.2%).
 
 Investment by SCBs
 
 While SCBs’ investment in bonds/debentures/shares of public sector
 undertakings and the private corporate sector and commercial paper (CP)
 increased by 14.2 per cent in 2007-08, their investment in government
 and other approved securities increased by 22.9 per cent This raised
 the proportion of SLR securities in net demand and time liabilities to
 27.4 per cent in 2007-08.
 
 Resource Mobilisation
 
 Aggregate deposits of SCBs increased by 22.2 per cent during 2007-08 as
 against 23.8 per cent the previous year. While the demand deposit
 growth at 20.2 per cent was higher than 17.9 per cent in 2006-07, the
 time deposit growth moderated to 22.6 per cent from 25.1 per cent the
 previous year. In addition to the mobilization of deposits, the banking
 sectors lendable resources were augmented substantially by capital
 raised through public issues and innovative capital instruments.
 
 Challenges and Opportunities for Banks in 2007-08
 
 During the year 2007-08, successive increases in the CRR and zero
 interest on CRR balances have had significant impact on interest yields
 for banks. According to CRISIL, the SCBs had to take a hit of 7 basis
 points (annualized) on their spreads and net profit margins solely due
 to these RBI measures. Operating cost pressures weighed on banks
 throughout 2007-08 due to higher investments in franchise, manpower,
 etc. The state- owned banks still face a greater burden due to the
 impending wage agreement.
 
 Despite these challenges, Indian banking industry continues to remain
 strong on structural ground on the back of relatively stronger macro
 fundamentals, under-tapped potential in rural and semi-urban areas for
 credit penetration, favourable demographic profile and a stronger
 institutional and regulatory framework. During the year 2007-08,
 infrastructure and SME segments emerged as the major growth drivers for
 the Indian banking industry. The banks witnessed an encouraging fee
 income momentum as well. In the backdrop of relatively benign liquidity
 conditions, the banks significantly reduced their dependence on
 higher-cost funds. On the whole, the outlook for the sector remains
 positive despite heightened uncertainties in the economic environment.
 
 Risk Management
 
 The management of risk is a major determinant of success in any
 business and therefore your Bank places particular focus on actively
 managing and controlling the Bank’s risk exposures.  In the financial
 services industry, the three main risk exposures the Bank faces are
 credit risk, market risk and operational risk.  For all of these risks,
 the Bank has devised and implemented policies, procedures,
 organisational structures and control systems for their identification,
 measurement, monitoring and control. These systems are not static but
 are flexible enough to allow modifications, when necessary, in
 accordance with changes in the Bank’s risk profile.
 
 Risk Management Architecture in the Bank consists of Risk Management
 Structure, Risk Management Polices and Risk Management implementation
 and monitoring systems. The Board of the Bank is the ultimate authority
 to provide strategies and policies on risk management system in the
 Bank. The Board is supported by the Sub-committee of the Board on ALM
 and Risk Management which in turn is assisted by the Asset Liability
 Management Committee, the Credit Policy Committee and the Operational
 Risk Management Committee.
 
 In order to provide ready reference and guidance to the various
 functionaries of the Risk Management System in the bank , the bank has
 in place Asset Liability Management Policy, Domestic Loan Policy, Mid
 Office Policy, Off Balance Sheet Exposure Policy (domestic), Business
 Continuity Planning Policy, Pillar III Disclosure Policy, Stress Test
 Policy and Stress Test Framework, Operational Risk Management Policy,
 Internal Capital Adequacy Assessment Process (ICAAP), Credit Risk
 Mitigation and Collateral Management Policy duly approved by the Board.
 
 CREDIT RISK
 
 Credit risk is a risk inherent in the banking business and involves the
 risk of loss arising as a result of the diminution in credit quality of
 a borrower or counter-party and the risk that the borrower or
 counter-party will default on contractual repayments under an advance.
 The Bank has a sub- committee of Directors constituted by the Board of
 Directors who specifically oversee and co-ordinate the Bank’s credit
 risk management functions. Reporting to this sub-committee is a Credit
 Policy Committee, whose role is to formulate and implement various risk
 management strategies and monitor the Bank’s risk management functions
 on a regular basis.
 
 There are several credit risk management cells which work together to
 identify, measure, monitor and control the Bank’s credit risk exposure.
 These are the Corporate Research Cell, Portfolio Review Cell and Credit
 Review Cell.
 
 Corporate Research Cell
 
 The primary function of the Corporate Research Cell is the preparation
 and update of industry reports, which are used by credit officers at
 all levels, central management, zonal management, regional management,
 as well as at each branch. This cell conducts studies of all industries
 identified by the RBI for controlling sectoral deployment of credit and
 prepares over 135 industry and product reports, updated annually or
 half yearly, for use by the Bank.
 
 Portfolio Review Cell
 
 The role of the Portfolio Review Cell is to conduct studies on various
 aspects of credit risk management at the portfolio level, such as
 sectoral credit deployment, monitoring single borrower/ group borrower
 exposure and monitoring industry-wide credit exposures. The functions
 of this cell include conducting studies on the performance of specific
 loan portfolios and submission of reports to the Credit Policy
 Committee and Sub Committee of the Board on ALM and Risk Management
 
 Credit Review Cell
 
 The primary responsibility of the Credit Review Cell is to monitor the
 credit risk management techniques the Bank deploys and to provide
 recommendations for improvements to current credit management practices
 encompassing, among other responsibilities, the necessary policy
 preparation and roll out of credit rating models.
 
 The bank has a robust rating model for various types of segments of
 borrowers for assessing risk at individual level at the time of
 appraisal of the loan. Risk measurement for the business portfolio is
 assessed on a risk rated basis and for the consumer portfolio on a
 scoring basis. An independent rating validation team functioning at
 various levels in the bank is validating the rating. The bank has a
 well-defined credit process, which encompasses the pre sanction process
 as well as post sanction processes.
 
 Credit Exposure Ceilings
 
 Credit exposure ceilings are a prudential measure mandated by RBI aimed
 at improving risk management and avoiding concentration of credit
 risks. Ceilings are set in relation to single/group borrowers,
 unsecured borrowers and with respect to each industry sector.
 
 The Bank has set its own credit exposure ceilings based on the
 guidelines for substantial exposure limits set by RBI, but which are
 typically more conservative than those prescribed by RBI.  Broadly, the
 Bank’s credit exposure ceilings are as follows:
 
 The aggregate substantial exposure limit is set at 500 per cent of the
 Bank’s capital funds as per the previous year’s balance sheet. For the
 purposes of aggregating single borrower exposure for substantial
 exposure limit the threshold is 5% or more of capital funds.
 
 As per RBI’s guidelines, the credit exposure ceiling is fixed in
 relation to the Bank’s capital funds under capital adequacy standards
 (Tier I and Tier II capital).
 
 MARKET RISK
 
 Market risk is the risk that exposure to price movements of financial
 instruments arising as a result of changes in market variables, such as
 interest rates, exchange rates and other asset prices, will result in
 loss suffered by the Bank. The objective of market risk management is
 to avoid excessive exposure of the Bank’s earnings and equity to loss
 and to reduce the Bank’s exposure to the volatility inherent in
 financial instruments such as securities, foreign exchange contracts,
 equity and derivative instruments, as well as balance sheet or
 structural positions. The primary risk that arises for the Bank as a
 financial intermediary is interest rate risk due to the Bank’s
 asset-liabilities management activities. Other market related risks to
 which the Bank is exposed are foreign exchange risk on foreign currency
 positions, liquidity, or funding risk, and price risk on trading
 portfolios.
 
 The Bank has a clearly articulated integrated treasury management
 policy and asset liability management policy to address market risk.
 These policies comprise management practices, procedures, prudential
 risk limits, review mechanisms and reporting systems. These policies
 are revised periodically in line with changes in financial and market
 conditions.
 
 Interest rate risk is measured through interest rate sensitivity gap
 report and Earning at Risk. Further, Bank is calculating duration,
 modified duration, Value at Risk for its investment portfolio
 consisting of fixed income securities, equities and Forex positions on
 monthly basis. The bank monitors the short term Interest rate risk by
 NII (Net Interest Income) perspective and long term interest rate risk
 by EVE (Economic Value of Equity) perspective. Value at Risk for the
 treasury positions is calculated for 10 days holding period at 99%
 confidence level.  Stress testing of fixed interest investment
 portfolio through sensitivity analysis and equities through scenario
 analysis is regularly conducted. Based on the RBI directions the bank
 is also estimating the Economic value of equity impact on a quarterly
 basis.
 
 Liquidity Risk
 
 The primary aim of the Bank’s liquidity management is to maintain the
 Bank’s liquidity level in order to meet its liabilities as they become
 due and also to ensure that it is sufficient for the Bank’s normal
 operations as well as to overcome any liquidity crisis that may arise.
 The Overall responsibility for managing and monotoring the liquidity
 risk rests with Asset Liability Management Committee (ALCO) and Asset
 Liability management (ALM) Cell.
 
 To ensure that adequate liquidity is maintained consistently, the RBI
 has stipulated that in the time buckets of 1day, 2 to 7 days, 8 to 14
 days and 15 to 28 days, the cumulative negative liquidity gap should
 not exceed 5, 10, 15 and 20 per cent of cash outflows in the respective
 time periods. The Bank reviews the liquidity position on a daily basis
 to ensure that the negative liquidity gap does not exceed the tolerance
 limit in the first four time buckets.
 
 As a part of its liquidity risk management, the Bank focuses on a
 number of internal and external variables, including all available
 sources of liquidity, preserving necessary funding capacity and
 contingency planning. Maturity gap reports and liquidity assessment
 reports are prepared to facilitate the maintenance of an appropriately
 liquid combination of assets and liabilities. Liquidity risk is managed
 by flow approach as well as by stock approach process. Liquidity risk
 is measured by flow approach on a daily basis through Structural
 liquidity Gap reports and on a dynamic basis by Dynamic Gap reports on
 fortnightly basis for the next three months. In the stock approach, the
 Bank has established a series of caps on activities such as daily call
 lending, daily call borrowings, net short term borrowings and net
 credit to customer deposit ratio and prime asset ratio.
 
 OPERATIONAL RISK
 
 The Bank faces operational risk on account of inadequate or failed
 internal process, people and systems or external events.  To monitor
 operational risk on an on-going basis, the Bank has established an
 Operational Risk Management Committee (ORMC) under the overall
 supervision of Sub- Committee of Board on ALM and Risk Management. ORMC
 meets on a regular basis to review matters relating to operational
 risk.
 
 The Bank monitors operational risk by reviewing whether its internal
 systems and procedures are duly complied with. The Bank collects and
 analyses data on operational risk based on various different parameters
 on a half yearly basis and, where necessary, corrective steps are
 taken.
 
 BANK’S COMPLIANCE WITH BASEL-II:
 
 Your Bank has the largest overseas presence amongst the Indian banks
 and hence it was required to implement the Basel-II Guidelines from
 31st March 2008. In keeping with the guidelines of the Reserve Bank of
 India, the Bank has adopted Standardized Approach for Credit Risk,
 Basic Indicator Approach for operational risk, and Standardized
 Duration Approach for Market Risk for computing CRAR. The Bank has
 therefore been computing the Capital to Risk Weighted Assets Ratio
 (CRAR) on parallel basis under Basel-I and Basel-II Guidelines. Your
 bank is happy to report that it has attained the status of Basel II
 Compliance as on 31.03.2008 with a healthy CRAR of 12.91% under Basel I
 and 12.94% after providing for the additional capital charge for
 operational risk under Basel II
 
 Roadmap:
 
 The Bank has laid roadmap for implementing the advanced approaches
 under Basel-II Guidelines. With an objective to move to “Internal
 Rating Based Approach” the bank has already started rating of borrowal
 accounts in a New Credit Rating Model. The New Basel II compliant
 Rating Model is integrated with Core Banking Solution and facilitates
 estimation of “Migration of Rating”, “Calculation of PD (Probability of
 Default)” and “LGD (Loss Given Default)”. Therefore with build up of
 data over a period of time, the bank shall smoothly migrate to Internal
 Rating Based Approach under Basel-II in due course.
 
 Economic Intelligence Unit
 
 At the Corporate Office of the Bank, a specialized Economic
 Intelligence Unit supports the Top Management in critical areas like
 Strategic Business Planning, Investor Relations and Credit and Market
 Risk Management. The Unit regularly provides the Top Management and the
 Bank’s various operational units a periodic outlook on key macro
 variables like industrial and infrastructural growth, inflation,
 interest rates, credit penetration and resource mobilization of the
 banking industry, liquidity and exchange rates. By providing better
 understanding of macroeconomic aspects, corporate sector health and
 financial sector policies, this department supports the Bank’s efforts
 in tapping business opportunities and swiftly responding to market
 dynamics.
 
 Internal Control Systems
 
 The Bank has a well established Central Inspection and Audit Division
 that examines the adherence to systems, policies and procedures of the
 Bank. The guidelines received on various issues of internal control
 from Reserve Bank of India, Government of India, Board and Audit
 Committee of the Board (ACB) have become part of the internal control
 system for better risk management. The Central Inspection & Audit
 Division through -10- Zonal Inspection Centres carry out inspection of
 branches/offices as per the periodicity decided by the ACB and examine
 adherence to such systems of internal control and risk management
 including various aspects like KYC/AML (i.e., Know Your Customers and
 Anti-money laundering) etc.
 
 The Regular Branch Inspection Report is the most comprehensive feed
 back to the Management about the degree of compliance of the Bank’s
 norms at the operational level and hence the most important tool for
 control. The compliance is monitored through Rectification Certificate.
 
 In 2007-08, all the branches were covered under Risk Based Internal
 Audit. The assessment of the level of risk and its directions is as per
 the risk matrix prescribed by RBI which helps the management in
 identifying areas of high risk requiring attention on priority basis.
 The position of the risk categorization of branches is reviewed by the
 ACB on quarterly basis.
 
 Besides regular inspection of the branches, various other inspections
 are also carried out in the Bank like inspection of subsidiaries,
 associate units, functional departments at Corporate, Head Office,
 Training Centres, Administrative Offices and Overseas branches through
 Bank’s Internal Auditors posted at those centres & the Management Audit
 of the Controlling Offices of the Bank, its subsidiaries and RRBs.
 
 The Central Inspection and Audit Division oversees the credit risk
 management through the Credit Audit. It covers large borrowal accounts
 both fund-based and non-fund-based as per the direction of the RBI.
 
 All the reports during the current year of the eligible accounts for
 credit audit have been attended and closed after compliance/necessary
 directions to the concerned Zones.
 
 In 2007-08, 2,214 Regular Branch inspections of domestic branches were
 carried out by inspecting officers attached to various Zonal Inspection
 Centres across the country, 434 inspections of overseas branches by
 Internal Inspectors posted overseas besides the Management Audit at
 Brussels branch. The Concurrent Audit of the Bank covers 461 branches
 including Specialized Integrated Treasury Branch which handles funds
 and investment management and forex dealing operations of the Bank.
 
 The Concurrent Audit covers more than 63.0 per cent of the total
 business of the Bank besides 100.0 per cent business of forex dealing
 and domestic investments.
 
 The Central Inspection and Audit Division compiles Risk Profile
 Templates on quarterly basis as per the direction of the RBI.  As per
 the risk Profile templates of the RBI, the Bank’s overall risk level is
 low and the direction is stable.
 
 The Central Inspection and Audit Division also shoulders the crucial
 responsibility of IS Audit and Data Migration Audit of branches
 shifting to the CBS platform.
 
 In 2007-08, the Bank upgraded its data base ASCROM for entire domestic
 credit portfolio from fox Pro to window. The migration has been audited
 by the IS auditors attached to CIAD.
 
 The Bank conducted training programme of its Inspecting Officers
 attached to Zonal Inspection Centres on IS Audit, Data Migration Audit
 and Risk Based Internal Audit.
 
 The Audit Committee of the Board comprises of five Directors.  The
 Chairman is an Independent Non-executive Director.
 
 The Inspection and Audit Division also ensures the Compliance of the
 Provision of SEBI (Prohibition of Insider Training) Regulations, 1992.
 
 The Agenda placed before the Audit Committee of the Board for review
 includes total audit function of the Bank.
 
 The compliance of direction of the Audit Committee of the Board is
 monitored through Action Taken Report System (ATRS).
 
 The compliance of direction received from the Reserve Bank of India,
 Government of India are placed before the Audit Committee of the Board
 for review.
 
 In 2007-08, the Bank framed “The Compliance Policy” as per the
 direction of the RBI with due approval of the Board.
 
 OPERATIONS AND SERVICES
 
 Compliance
 
 The Bank has initiated measures for implementation of “Banking Codes &
 Standards Board of India” (BCSBI). The Bank has proactively implemented
 the Code for widespread awareness about the Code amongst its staff. The
 Bank has got printed a large number of copies of the Code for
 distribution amongst the customers for their awareness and benefit.
 This has also been put up on the Bank’s website. The branches are now
 distributing the “Guidance Note” on deposits and advances to new
 customers.
 
 Customer-centric Initiatives taken in 2007-08
 
 In order to offer the basic banking services (such as issuance of
 drafts, remittance of funds and other essential banking services) to
 individuals, the relevant service charges have been reduced.
 
 The Bank has introduced the following four Model Policy Documents,
 which have also been placed on the Bank’s web site.
 
 a.  Model Policy on cheque collection
 
 b.  Model Policy on compensation
 
 c.  Model Policy on collection of dues and repossession of security
 
 d.  Model Policy on grievance redressal mechanism.
 
 Customer Service Committee
 
 In order to strengthen the corporate governance, the Bank has set up a
 Standing Committee on Procedures and Performance Audit on Customer
 Services having -4- General Managers of the Bank and -3- other eminent
 public personalities as members. The Committee is chaired by the
 Chairman and Managing Director of the Bank.
 
 This Committee has been set up to focus on inadequacies in banking
 services available to common person and looking into the need to (i)
 benchmark the current level of service, (ii) review the progress
 periodically, (iii) enhance the timeliness and quality, (iv)
 rationalize the processes taking into account technological
 developments, and (v) suggest appropriate incentives to facilitate
 change on an ongoing basis.
 
 The Bank has also constituted a sub-committee of the Board, known as
 the ‘Customer Service Committee of the Board’. The Committee has the
 following members:
 
 1.  The Chairman and Managing Director
 
 2.  Executive Directors
 
 3.  Shri A. Somasundaram - Director
 
 The functions of the sub-committee of the Board include suggesting and
 implementing innovative measures for enhancing the quality of customer
 services and improving the level of satisfaction for all the categories
 of clientele, at all times. Apart from the above, the terms of
 reference of the committee are as follows.
 
 i. to oversee the functioning of the Standing Committee on Procedure
 and Performance Audit on Public Services and also the compliance with
 the recommendation of the Standing Committee on Customer Services.
 
 ii. to review the status of the Awards remaining unimplemented for more
 than three months from the date of Awards and also the deficiencies in
 providing Banking services as observed by the Banking Ombudsman
 therein.
 
 iii. to review the status of the number of deceased claims remaining
 pending/outstanding for settlement beyond 15 days pertaining to
 deceased depositors/locker hirers/ depositor of safe custody articles.
 
 The details of the attendance of the meeting of ‘Customer Service
 Committee of the Board’ during the year ended 31.03.08 is as under:
 
 Name                                  Meetings held         Meetings
                                       during the period     attended
                                       of their tenure
 
 Dr. Anil K. Khandelwal                  06.09.2007              -
 Chairman & Managing Director            05.03.2008         05.03.2008
 Shri V. Santhanaraman                   06.09.2007         06.09.2007
 Executive Director                      05.03.2008         05.03.2008
 Shri S. C. Gupta.                       06.09.2007         06.09.2007
 Executive Director                      05.03.2008         05.03.2008
 Shri A. Somasundaram                    06.09.2007         06.09.2007
 Director                                05.03.2008         05.03.2008
 
 Know Your Customer (KYC)/Anti-Money Laundering (AML)
 
 Measures
 
 The Bank has been implementing KYC-AML Policy as approved by its Board
 of Directors in accordance with the PMLA 2002 (Prevention of Money
 Laundering Act 2002) and RBI/IBA (Reserve Bank of India/Indian Banks’
 Association) guidelines. Accordingly, Cash Transaction Reports (CTR)
 are being submitted electronically every month for the entire Bank to
 Financial Intelligence Unit (FIU), New Delhi. The Bank receives error
 free validation report from FIU-IND of CTRs submitted to them. The Bank
 is also expected to go live shortly with AML solution for the purpose
 of generating Alerts and detecting / reporting of Suspicious
 Transactions (STR) to FIU, New Delhi, presently attended manually.
 
 The Bank has also implemented Risk Categorization of Accounts
 considering the money laundering risk perceptions to enable its
 branches to effectively monitor “high risk” accounts.  The KYC/AML
 Department has been established at the Bank’s Head Office with
 trained/experienced officers. The audit of KYC compliance by branches
 is carried out during branch inspection by Internal
 Inspectors/Concurrent Auditors on continuous basis. The staff members
 are imparted training on KYC/AML aspects at the Bank’s Staff College at
 Ahmedabad and its various Training Centres. Senior level executives are
 regularly deputed to workshops/ seminars conducted by RBI, IBA and NIBM
 (National Institute of Bank Management) to enhance their awareness in
 these aspects.
 
 Vigilance
 
 The vigilance activity is a part of the success story of the Bank.  It
 is used as an aid to quality decision making with an objective of
 instilling confidence in the employees.
 
 A careful distinction is made between cases with malafide
 intentions/gross negligence, which put the Bank’s funds into avoidable
 jeopardy and cases of business decisions gone awry. More pragmatic view
 is taken while dealing with cases of bonafide business decisions, which
 has resulted in removing fear psychosis amongst operational
 functionaries at various levels. This has had a salutary effect on the
 confidence level of decision making authorities.
 
 The various initiatives/proactive steps taken towards improvement of
 vigilance administration have led to significant reduction of pending
 vigilance cases in general and long pending enquiries beyond six months
 in particular, which have drastically come down to a bare minimum.
 
 The ongoing review of systems and procedures in vogue is undertaken
 with a view to minimizing severity and recurrence of frauds. It is
 heartening to note that with the extraordinary alertness and vigil
 displayed by the operating staff, -63- attempts of defrauding the Bank
 by unscrupulous elements were thwarted during the year 2007-08, which
 saved the Bank from substantial monetary losses.
 
 Business Performance
 
 Resource Mobilisation
 
 The share of the Bank’s deposits to total resources was at 84.65 per
 cent as of 31st March 2008. Total deposits grew from Rs 1,24,915.98
 crore to Rs 1,52,034.12 crore, reflecting a growth of 21.71% over the
 previous year. Of this, Savings Bank Deposits – an important
 constituent of low cost deposits – grew by Rs 4,199.1 crore from Rs
 31,577.28 crore to Rs 35,776.38 crore. The share of low cost deposits
 (Current and Savings) in Global (Total) Deposits stood at 31.22 per
 cent and in Domestic Deposits at 35.93 per cent. The banking industry
 as a whole witnessed a movement from low cost deposits to term deposits
 during the year 2007-08, as a result of a sharp increase in the term
 deposits rates.
 
 Composition of Funds – Global
 
 Particular       End-March 2008        End-March 2007     Growth
                     (Rs crore)          (Rs crore)          %
 
 Deposits         1,52,034.12           1,24,915.98         21.71
 - Domestic       1,22,479.35             99,725.62         22.82
 - Overseas         29,554.77             25,190.36         17.33
 Borrowings          3,927.05              1,142.56         243.71
 
 Global Advances
 
 Particular     End-March 2008        End-March 2007       Growth
                  (Rs crore)             (Rs crore)           %
 
 Advances       1,06,701.33            83,620.87           27.60
 - Domestic       84,503.31            67,262.69           25.63
 - Overseas       22,198.02            16,358.18           35.70
 
 Wholesale Banking
 
 Wholesale Banking business has emerged as one of the most competitive
 business segments due to the aggressive role being played by large
 private and foreign banks. However, considering the fact that half of
 the Bank’s lending business is generated from Wholesale Banking, a
 strategy was adopted to penetrate into this segment with a different
 kind of business model, service standards, faster response and better
 accessibility.
 
 The setting up of Wholesale banking branches for large corporates and
 mid corporates separately, Centralised Processing Center at the Bank’s
 Corporate Office, Client Service Teams at field level are some of the
 steps in this direction. During the current year ending March 2008, the
 Bank has already added more than 50 new clients and expects more
 additions to the list.
 
 With a view to retain and improve the asset quality by effective credit
 monitoring as well as containment of slippages, the Credit Monitoring
 and Assets Health Check System (CREMAS) and Early Warning Alert System
 (EWAS) are extensively used.  While ‘Hunting Limit Policy’ is used for
 securing new corporate business, ‘Exit Policy’ is used for shedding
 weak assets. The Bank has adopted Basel-II compliant risk rating model
 and has migrated to ‘Standardized Approach’ by end-March 2008 as per
 the regulatory norms.
 
 Considering the importance of higher skill requirement in the fast
 changing environment, effective steps have been taken to groom a talent
 pool in the area of credit through extensive in-house training and by
 nominating them to external training establishments.
 
 Retail Business
 
 Retail continued to be the thrust area for achieving business growth
 during the year 2007-08. For achieving sustained growth on both
 liabilities and assets side, the Bank initiated various customer
 centric measures besides launching special products. The performance
 highlights for the year 2007-08 are as under:
 
 The Bank’s overall Retail Credit stood at Rs 16,892.32 crore as at the
 end of March, 2008, registering the growth of Rs 2,573.31 crore over
 previous year. The primary objective of the Bank during the period was
 to maintain or improve the quality and to build a healthy “Retail Loan”
 portfolio, and, therefore, the emphasis was laid on Baroda Car Loan and
 mortgage- based products viz. Baroda Home Loan, Baroda Traders Loan and
 Baroda Advance against Property. In our quest to bring youth into the
 Bank’s fold, the thrust was also given on Baroda Education Loan product
 during the year.
 
 Home Loans for the Bank increased by Rs 1,195.88 crore during the year,
 registering the growth rate of 19.66 per cent over March, 2007. Traders
 Loan, Advances against Mortgages, Education Loans and Car Loans
 achieved a spectacular growth of 39.35 per cent, 56.06 per cent, 35.59
 per cent and 37.61 per cent during the year ended March, 2008,
 respectively.
 
 It has always been the endeavour of the Bank to review the norms and
 features of all existing products on an ongoing basis and modify,
 wherever required, to suit the changing needs of the customers. New
 products have also been launched during the year to cater to the needs
 of different segments of the society/clientele.
 
 New Retail Products
 
 As a part of the Bank’s Centenary Year celebrations, the Bank had
 launched following new deposits products with effect from 20 July,
 2007.
 
 1. Baroda Centenary Savings Account – An improved version of our
 existing Super Savings Account product, having following distinguishing
 features, was introduced in all the CBS branches.
 
 (a) Default threshold limit for triggering auto sweep to term deposits
 reduced to Rs 10,000 from Rs 20,000. This, we feel would increase the
 yield to Centenary Savings Accounts holders.
 
 (b) The customer has been given liberty to decide the amount of auto
 sweep subject to minimum amount of Rs 5,000 and, thereafter, in
 multiple of Rs 1,000 and the frequency of triggering auto sweep during
 a month.
 
 Thus, a wide choice was given to our customers to customize the product
 by themselves suiting their individual needs.
 
 2.  Baroda Centenary Term Deposit – A new term deposit product was made
 available for a limited period offering higher rate of interest.
 
 3.  In terms of guidelines circulated by the National Housing Bank
 (NHB), Baroda Ashray, a Reverse Mortgage Loan product was launched on
 the eve of the Annual Bankers’ Conference – Bancon, i.e., 26 November
 2007. The product provides loan to Senior Citizens against residential
 properties acquired by and standing in their name and also self
 occupied.
 
 4.  Economic reforms have opened up huge opportunities for young
 executives to take up challenging positions.  Therefore, many working
 executives generally go for pursuing Business Management courses. For
 catering to the financial needs of such working executives, a special
 product known as Baroda Career Development was launched on 6 December
 2007.
 
 Products Modification
 
 Baroda Traders Loan - a product meant for providing hassle free credit
 to traders, has received a good response from the target segment. For
 enlarging the scope of the product, credit limit ceiling was raised to
 Rs 2 crore.
 
 Similarly, a single rate of interest was introduced for Baroda Car Loan
 to make it more competitive.
 
 Centenary Retail Loan Festival
 
 In order to canvass a large number of retail loan accounts, the Bank
 organized special campaigns across all the domestic branches from 17
 September 2007 to 31 December 2007.  The Bank provided concession in
 the rate of interest and processing charges to customers during the
 campaign period.  The Bank sanctioned 21,707 loans amounting to Rs
 1,891.93 crore under this campaign.
 
 Traders Loan Campaign
 
 A special campaign for Baroda Traders Loan was organized from 1 January
 2008 through 25 March 2008. The branches sanctioned 5,603 loans
 aggregating Rs 992 crore during the campaign period.
 
 Structural Changes
 
 1.  In order to strengthen the Retail Credit Delivery System, the Bank
 opened two new Urban Retail Loan Factories (URLFs) at Varanasi and
 Indore during the year, thus raising the total URLFs to 15.
 
 2.  Gen-Next Branch - Focusing the youth segment, the Bank launched
 Gen-Next branch, a new format of branch banking for the youth and young
 IT professionals at Pune (April, 2007) and Bangalore (November, 2007).
 The branches are equipped with modern gadgets, ambience and all other
 facilities, which a youth requires in today’s modern era. Encouraged
 with the response, the Bank plans to open more branches at other
 centers in the country.
 
 Other Initiatives
 
 Technology Enabled Delivery Channels
 
 Online Education Loan Application facility – To facilitate the student
 community in getting hassle free loans for pursuing higher education,
 the Bank has introduced an “On Line Education Loan Application
 Facility”. This facility will enable applicants to apply online and get
 in principle approval within 48 hours through the system.
 
 Baroda Easy Pay – This is an electronic bill presentment and payment
 service launched from 4th June 2007. This system enables our customers
 to pay their bills online.
 
 Promotion of Internet Banking – The Bank aggressively promoted Baroda
 Connect, an e-Banking channel, during the year. The response from its
 retail customers has been very encouraging.
 
 Online booking of Railway Tickets - In our pursuit of providing
 convenience to our customers, a technology enabled online booking of
 Railway Tickets facility has been launched in collaboration with Indian
 Railway Catering and Tourism Corporation Ltd.  The Bank’s customers can
 now make an on line payment of their Railway Bookings through the
 Bank’s Gateway.
 
 Other Strategic Initiatives
 
 The Bank also launched the Sale of Gold coins as a new initiative to
 augment its non-fund-based income from 23 October 2007 through select
 branches, presently 250 branches acting as POS across various
 Regions/Zones.
 
 SME Business
 
 The Small and Medium Enterprises (SMEs), are the primary growth engine
 for Indian Economy. This segment plays a vital role and has contributed
 significantly in the progress of the Indian Economy since independence.
 The sector has provided a sound industrial base to exports as well as
 to Gross Domestic Product. The SMEs in India contribute over 46.0 per
 cent of industrial output and about 50.0 per cent of the country’s
 exports.
 
 The Bank has always been a forerunner in the development of small-scale
 industries and has formulated liberal and comprehensive SME Loan Policy
 for the SME customers.  Furthermore, to give a focused attention to
 emerging SMEs in India besides the enterprises covered under the
 regulatory definition of SMEs, the Bank has been considering other
 commercial units also with a turnover up to Rs 100 crore at par with
 the SMEs.
 
 SME Loan Factories
 
 The Bank has introduced a SME Loan Factory (SLF) model as a fast
 delivery channel for the benefit of SME units. This model incorporates
 an innovative concept of “Sale & Delivery Model” based on the assembly
 line principle, engaging the Bank’s staff and supported by simplified
 processes and technology. The SLF has two separate branches, viz.,
 “Sales” and “Credit” for credit marketing and credit processing.  The
 concept has been received quite well by the business communities. The
 Bank opened a record number of eleven new factories on foundation day
 of the Bank, i.e., 20th July 2007 taking the total number of SLFs to
 27.
 
 At present, the Bank has SLFs at several business centres across the
 country. The centres are Agra, Ahmedabad, Banglore, Baroda, Bhilwara,
 Bulsar, Chennai, Coimbtore, Delhi, Ghaziabad, Hyderabad, Indore,
 Jaipur, Jamshedpur, Kanpur, Kolhapur, Kolkata, Lucknow, Ludhiana,
 Mumbai (3 SLFs), Nagpur, Noida, Pune, Rajkot and Surat.
 
 Bank has planned to establish five new SME Loan Factories during the
 year 2008-09 including one additional Loan Factory at New Delhi.
 
 In aggregate, total loan sanctioned through SME Loan Factories during
 the year ended March 2008 increased to Rs 5956 crores from Rs 2016
 crores in previous year.
 
 SME Credit Growth
 
 Bank has maintained the growth rate of more than 31.0 per cent in
 financing the SME segment during the year 2007-08.  The total
 outstanding in SME sector worked out to Rs 11808.0 crore as on 31st
 March 2008 as per the regulatory definition of SMEs. It comprised 13.83
 per cent of the gross domestic credit of the Bank. The Bank’s
 performance in the SME segment is as follows.
 
 Total SME 31.40 31.11
 
 Initiatives taken during the year in SME financing
 
 - The Bank entered into a MOU with Dun & Bradstreet” in May 2007 for
 carrying out credit rating of SSI units at concessional rate.
 
 - The Bank redesignated 22 general branches as specialized SME
 branches. With this, the Bank has 60 Specialized SME branches across
 the country.
 
 - The Bank introduced many new customer centric area specific products
 to suit the local needs of the SME clusters.
 
 - The Bank liberalized systems and procedures with a view to provide a
 simplified process for faster credit appraisal.
 
 - The Bank designed Special Training Programme for grooming its
 officers in the SME business.
 
 - The Bank tied up with Bhartiya Yuva Shakti Trust to impart training
 to SME entrepreneurs for sponsoring them to Bank for finance.
 
 - The Bank organised customers’ meets by all SLFs. It also undertook
 continuous knowledge updating and skill building of officers attached
 to SLFs.
 
 Rural and Agricultural Lending
 
 The Bank has always been a frontrunner in the area of Priority Sector
 and Agriculture Lending, harnessing the vast potential of the rural
 market through its wide network of 1,097 rural branches and 624
 semi-urban branches. The Bank has opened 60 new branches in rural and
 semi-urban areas during 2007-08.
 
 The Bank is the convener of State Level Banker’s Committee (SLBC) in UP
 and Rajasthan. The Bank has Lead Bank Responsibility in 43 districts in
 the states of Gujarat (12), Rajasthan (12), Uttar Pradesh (14),
 Uttaranchal (2), Madhya Pradesh (1), and Bihar (2).
 
 The Bank has sponsored five Regional Rural Banks (RRBs) in various
 states with a branch network of 1,190 branches and total business of Rs
 11,999.70 crore as of end-March 2008.
 
 Performance of Priority Sector Lending in 2007-08
 
 Priority Sector Advances of the Bank surged from Rs. 25,290.84 crore as
 at end-March 2007 to Rs 31,681.26 crore as at end-March 2008 and formed
 47.10 per cent of the
 
 Net Bank Credit (NBC) against the mandated target of 40.0 per cent. The
 Agriculture Advances of the Bank recorded a growth of 28.0 per cent
 over the previous year and rose to Rs 13,269 crore as at end-March
 2008.
 
 Under its flagship agriculture loan product “Baroda Kisan Credit Card”,
 the Bank issued as many as 1,48,547 credit cards during 2007-08 to
 provide credit to farmers. The Bank has financed as many as 1,90,511
 new farmers during the year 2007-08. As a part of its microfinance
 initiatives, the Bank credit linked 13,256 Self Help Groups with an
 amount of Rs122.77 crore during 2007-08, out of which 77.0 per cent are
 women SHGs, thereby taking the total number of credit linked SHGs to
 70,995 amounting to Rs 422.28 crore.
 
 Business Initiatives and Strategies
 
 The Bank introduced various initiatives/strategies during 2007- 08 to
 harness the emerging opportunities for rural/agricultural lending such
 as:
 
 - To augment the Agriculture advances, the Bank has conducted special
 campaigns, viz., Kharif campaign for crop loans and Investment Credit
 Campaign disbursing Rs 950.53 crore and Rs 926.28 crore respectively.
 
 - The Bank organised 2,108 Village Level Credit Camps and disbursed
 Rs1,293 crore to penetrate/capture the rural markets. The Bank has also
 conducted 30 Mega Credit Camps disbursing Rs 508.88 crore.
 
 - The Bank identified 350 Thrust Branches across India to enhance
 agricultural lending which constituted 37.0 per cent of total
 agricultural lending as at end-March 2008.  These Thrust Branches have
 achieved a growth of 34.23 per cent during 2007-08.
 
 - The Bank formulated various area-specific schemes tailor made to the
 needs of local requirements, particularly where there is a
 concentration of industries like Rice Mills, Cold Storages, Poultry
 Units, etc. Suitable concessions in the rate of interest, charges,
 etc., were allowed under these schemes to garner maximum business
 outsmarting competition.
 
 - Towards effective use of technology in rural agricultural lending
 during 2007-08. the Bio-metric ATMs were installed in Gujarat and Uttar
 Pradesh. The Bank initiated efforts to introduce IT-enabled smart card
 based technology.  Currently, the Bank has about 247 ATMs in
 Rural/Semi- urban areas and 157 rural branches and 452 semi-urban
 branches are under the Core Banking Solution.
 
 - The Bank organized Centenary Year Gramotsav and National Level
 exhibition of SHGs at Rae Bareli on 20th February 2008, which was
 inaugurated by Smt. Sonia Gandhi, Chairperson, UPA. The Hon’ble Finance
 Minister P. Chidambaram also graced the occasion. The SHGs from various
 states displayed their products in the exhibition.  Moreover, around
 1000 SHGs, 151 Farmers Clubs, one BSVS centre, one BGPK Centre, one
 Biomentric ATM were inaugurated during the occasion in addition to
 disbursement of loans to the tune of Rs 341 crore.
 
 - The Bank during its Centenary Year launched many other initiatives.
 The Bank adopted Dungarpur district (a district in Rajasthan, which is
 primarily a tribal district and one of the most backward districts in
 the country), for “Total Integrated Rural Development and 100.0 per
 cent Financial Inclusion”. The project was launched on 1st October
 2007.  It may be noted that 100.0 per cent Financial Inclusion in
 Dungarpur district has already been achieved. The Bank now plans to
 provide financial assistance to 20,500 families with an outlay of Rs
 54.50 crore under Dairy Development, High Value Crops, Vegetable
 cultivation, etc. Various other developmental activities are also being
 done under the project.
 
 - The Bank adopted 101 villages (101 “Baroda Centenary Year Villages”)
 for Total Integrated Development spread over three years and 100.0 per
 cent Financial Inclusion.
 
 - 42 Baroda Grameen Paramarsh Kendra (BGPK) – This was an initiative to
 help the rural community by providing credit counseling and other
 services like information on the prices of agricultural products,
 scientific farming, etc.- were set up during the year.
 
 - With an additional Baroda Swarojgar Vikas Sansthan (BSVS) Centre at
 Raebareli exclusively for women entrepreneurs, 12 such centres in four
 states are functioning as of today. These are exclusive institutes for
 training the youth and imparting knowledge and skills required for
 taking up self-employment ventures. During 2007-08, around 5,577
 youth/beneficiaries have been trained out of which 3,449 have
 successfully established self-employment ventures.
 
 - The Bank has initiated various measures to achieve Financial
 Inclusion. Bank had adopted 500 villages for 100.0 per cent Financial
 Inclusion and 100.0 per cent Financial Inclusion has already been
 achieved in all these 500 villages. The Bank has also achieved 100.0
 per cent financial inclusion in Dungarpur District (Rajasthan),
 Nainital, Udamsinghnagar Districts (Uttarakhand,) Dang, Dohad
 Panchmahal districts (Gujarat). Besides, the Bank has achieved 100.0
 per cent Financial Inclusion in 8,160 villages in various districts
 identified by the State Level Bankers’ Committee (SLBC).
 
 - The Business Facilitators’ Model has been implemented across the
 country to accelerate Financial Inclusion of the excluded segment as
 well as to augment agriculture portfolio. The Business Facilitators
 will mainly canvass loan applications for the Bank for which Bank will
 pay them compensation. Individuals, NGOs, Farmers’ Clubs and SHGs are
 engaged as agents to greatly improve the Bank’s outreach in the rural
 /semi-urban areas.
 
 - The Bank has established a separate Microfinance Cell to deal with
 Microfinance portfolio exclusively. The Bank has also signed a MoU with
 CmF (Centre for Microfinance) to focus on skill up-gradation for Micro
 Finance activities for rural and agri business and formation of quality
 Farmers’ Clubs/ Self Help Groups and providing special training to them
 through CmF.
 
 Performance of Regional Rural Banks (RRBs) sponsored by the Bank The
 Bank has Sponsored five RRBs as under.
 
 - Baroda Uttar Pradesh Gramin Bank, Head Office : Raebareli.
 
 - Baroda Rajasthan Gramin Bank, Head Office : Ajmer.
 
 - Baroda Gujarat Gramin Bank, Head Office : Bharuch.
 
 - Nainital-Almora Kshetriya Gramin Bank, Head Office: Haldwani.
 
 - Jhabua-Dhar Kshetriya Gramin Bank, Head Office : Jhabua.
 
 The Aggregate Business of these five RRBs rose to Rs 11,999.70 crore as
 of March, 2008 from Rs 10,184.31 crore as of end-March, 2007,
 registering a growth of 17.83 per cent.
 
 These five RRBs together posted a net profit of Rs 49.99 crore during
 2007-08. The Net Worth and the Reserves and Surplus of all these
 RRBs together improved from Rs 275.63 crore at end-March, 2007 to Rs
 325.22 crore at end-March, 2008 and from Rs 173.11 crore at end-March,
 2007 to Rs 208.69 crore at end-March, 2008 respectively.
 
 Asset Quality Management
 
 The Bank continued its journey in improving its performance in the area
 of NPA management in the year 2007-08 as well.  Through the well
 co-ordinated and sustained efforts, the
 
 Global Gross NPA level was brought down from 2.47 per cent to 1.84 per
 cent and also the Net NPA from 0.60 per cent to 0.47 per cent as per
 the promise made by the Bank to its stakeholders.
 
 It is worth reporting that not only the Gross NPA and Net NPA were
 brought down in percentage terms but were also reduced in absolute
 terms to the level of Rs 1,981.38 crore and Rs 493.55 crore as at the
 end-March 2008 from the opening portfolio of Rs 2,092.14 crore (for
 Gross NPA) and Rs 501.67 crore (for Net NPA) respectively.
 
 During the year 2007-08, the asset quality improved further with the
 rise in the share of standard advances from 97.53 per cent at the end
 of the previous year to the present level of 98.16 per cent as per the
 table given below:
 
 Advance                    31st March 2008
 Category
                            Amount     total
                                      (Gross)
                          (Rs crore)
 
 Loss                      366.12       0.34
 Doubtful                  887.65       0.82
 Sub-Standard              727.61       0.68
 Gross NPA               1,981.38       0.68
 Standard             1,05,690.44      98.16
 Total loan           1,07,671.82     100.00
 assets
 
 31st March 2007
 Amount        % to total
 (Rs crore)
 
   312.69         0.37
 1,147.68         1.36
   631.76         0.74
 2,092.13         2.47
 82,622.15       97.53
 84,714.28      100.00
 
 The Bank’s NPA coverage ratio is at a comfortable level of 75.09%. The
 slippages were contained at 1.21 per cent of the Opening Standard
 Advances of the year.
 
 The aggressive and focused efforts in “Recovery and NPA Management”
 could result in the recovery of Rs 588.73 crore in the NPA and,
 additionally, accounts worth Rs 133.05 crore were upgraded.
 
 It is pertinent to note that the recovery in the prudentially-
 written-off accounts amounted to Rs 363.33 crore as against Rs 258.90
 crore in the previous year.
 
 During the year 2007-08, the Bank adopted a route of sale of old hard
 core financial assets and realized Rs 269.79 crore.
 
 Other recovery measures undertaken by the Bank include Maha Samjhautha
 Abhiyan, under which the recovery was Rs 60.22 crore in accounts with
 outstandings of Rs 5 lacs and below.
 
 Treasury Operations
 
 The year 2007-08 witnessed one of the worst crises hitting the global
 financial sector in the form of subprime collapse.  There were large
 write downs by the world’s major banks and some hedge funds collapsed
 as the spreads on the bonds they held increased. There was a liquidity
 crisis in the U.S.  corporate bond markets as the investors stayed away
 from the corporate bonds. A concerted action was taken in the form of
 increased funding limits by the central banks across the world to
 improve the liquidity but to little help. In order to restore normalcy,
 the Federal Reserve went on to cut its Fed funds rate aggressively.
 
 The Indian Bond markets too saw yields moving up in the first half-year
 owing to the big supply of Government securities as well as the MSS
 (Market Stabilisation scheme) auctions by the RBI as liquidity remained
 excess in the system. While the Reserve Bank kept its rate unchanged in
 its April policy review, it withdrew the ceiling of Rs 3,000 crore on
 the reverse repo. The RBI increased the CRR (Cash Reserve Ratio) twice
 during the year effective August 4, 2007 and November 10, 2007 by 50
 bps each. The sentiment improved a bit during the second half of the
 financial year 2007-08 after an aggressive cut in the Fed Funds rate
 brought an expectation of a rate cut in the domestic market. The yield
 on the 10-year benchmark, which had started the year at 7.99%, touched
 a low of 7.36% in the month of January 2008. But an increase in
 inflation towards the end of the year, which touched a high of 7.41% on
 14th March 2008, again led to selling spree in the market. The
 inflation crossing the RBI comfort level of 5.0 per cent led the
 participants into further monetary tightening.
 
 The yield on the 10 year benchmark, which started the year at 7.99%,
 moved to a low of 7.36% on 24th January 2008 but closed the year at
 7.94%. The corporate bond markets too saw the spread widening vis-à-vis
 the comparable government securities. In order to protect the
 portfolio, the Bank shifted its SLR securities from AFS to HTM at the
 start of the year.  A major portion of the portfolio was kept in the
 short-tenure securities in order to keep the duration lower and to
 protect the portfolio from adverse movement in yields.
 
 The Bank was, however, active in the Money Market, earning healthy
 income in the short-term operations, apart from exploiting arbitrage
 opportunities that existed between different markets, for augmenting
 its earnings.
 
 The Equity Market witnessed high volatility during the year.  The
 benchmark sensex, which was 13,072 on 31st March 2007 rose up to 21,207
 on 10th January 2008 on the back of robust economic growth as reflected
 by the GDP growth and good corporate results. However, it nose dived to
 14,677 points on 18th March 2008 as a result of a global meltdown.
 During the last quarter of the year, the markets remained highly
 volatile.  They showed some strength towards the end of the year and
 moved up and closed at 15,644 points on 31st March 2008.  However, the
 Equity Desk of the Bank remained active and has earned substantial
 growth in equity income through prudent market operations.
 
 In the Foreign Exchange Market, Indian rupee appreciated by 7.26%
 against the US Dollar during the year. It moved from Rs 43.26 per USD
 to Rs 40.12 per USD mainly on account of accelerated inflows of foreign
 capital during the first nine months. It oscillated between a high of
 Rs 43.30 and a low of Rs 39.20 against the US Dollar. The Bank’s
 integrated Treasury continued to be a prominent market maker in USD/
 INR and USD/Euro. The Bank’s Foreign Exchange Dealing Room took
 advantage of the increasing foreign exchange volume triggered by steady
 foreign exchange inflows and enhanced the volume of merchant
 transactions to earn good profit for the Bank.
 
 State-of-the-Art Dealing Room of the Bank at Mumbai handles the entire
 gamut of foreign exchange transactions and derivative products. The
 advanced technology environment is being leveraged by the Bank to offer
 a variety of products to its clients by way of hedging instruments such
 as Interest Rate Swaps, Currency Swaps and Options. Through the
 Automated Dealing System, the Bank quotes auto generated real time
 foreign exchange rates to its customers at all authorized branches in
 India, thereby providing them the feel of the real time market. A new
 system to provide live rates to customers is also on the anvil.
 
 As part of its business reengineering, the Bank is in the process of
 implementing Global Treasury Solution across main money centers. It was
 implemented successfully in London In November 2007. The rollout for
 other centers is in progress.  When implemented, the Bank will have
 better Global Risk Management setup and can achieve optimum deployment
 of resources.
 
 The Bank has set up an active Derivatives’ Desk at its Treasury Branch,
 which offers customized products to meet the requirement of corporates
 in hedging their interest rate and currency risks.
 
 A full-fledged Mid-office in the Treasury Division monitors and manages
 various exposures and limits fixed by the Board of Directors on real
 time basis, using advanced technology. The Risk Management Tool such as
 Value at Risk (VaR) is used to measure the Market risk on all
 portfolios. Furthermore, the back testing of VaR number is conducted on
 daily basis to confirm the veracity of the forecasted values. The
 Stress Testing of all portfolios is also done to complement the VaR
 analysis.
 
 Overseas Business
 
 The Bank’s presence in different geographies and markets around the
 world was further strengthened by opening of 11 new overseas offices
 during the year 2007-08. This is a landmark in the 54 years history of
 International Operations of Bank of Baroda. The year had been marked
 with economic turmoil, rising oil prices, appreciation of Indian Rupee,
 liquidity crunch etc. Despite the difficult economic situation in
 various overseas territories, the business and profit performance
 during the year has been good.
 
 In the year 2007-08, the Bank’s footprints were extended to four new
 countries, i.e., Australia, Bahrain, Ghana and Trinidad & Tobago
 besides extending network in seven existing countries. Raising of
 resources from international markets; pursuing other expansion
 opportunities around the globe, active participation in overseas loan
 syndication, arranging of funds, assisting Indian corporates and
 funding their requirements for acquisition finance, aggressive
 marketing campaigns, technology upgradation and strengthening of risk
 management systems abroad were some of the landmark developments during
 the year.
 
 Business & Profit Performance
 
 Total Business (Deposits + Advances) of the Bank’s overseas branches
 (excluding overseas subsidiaries and joint venture) registered a growth
 of 24.56 per cent - Deposits by 17.33 per cent and Advances by 35.70
 per cent during the year. The Bank’s international operations
 contributed 20.00 per cent to the Bank’s global business.
 
 Total Assets
 
 Total assets of the Bank’s international operations grew by 31.68 per
 cent over the previous year.
 
 Net Profit
 
 The Net Profit from international operations, however, remained at the
 same level, mainly due to a sharp appreciation of rupee and additional
 provision requirements on investments.  The contribution of
 international operations to the Bank’s global Net Profit stood at 23.79
 per cent in 2007-08.
 
 Asset Quality
 
 The Gross NPAs in overseas business were brought down to 0.55 per cent
 from 0.73 per cent in the previous year. The Net NPA was at almost zero
 level. The Gross NPA level of the Bank’s international operations at
 0.55 per cent is comparable to the best international standards.
 
 International Presence
 
 The Bank’s international presence covers 25 countries through its 71
 branches/offices:
 
 Bank’s Overseas Branches 46
 
 Bank’s Representative Offices 04
 
 Branches of Bank’s Overseas Subsidiaries 21
 
 TOTAL 71
 
 In addition to the above, the Bank’s associate in Zambia has nine
 branches.
 
 Overseas Expansion
 
 During the year, the Bank opened 11 new overseas offices, which
 included four branches/offices of the Bank, and one Representative
 office at Sydney, Australia. The branches of two new subsidiaries
 commenced operations at Trinidad & Tobago and Ghana and four branches
 of existing Subsidiaries were opened.
 
 The upgradation of Hong Kong operations: The Bank’s operations in Hong
 Kong through its subsidiary – with Restricted Bank License - were
 upgraded to Full Service Bank. The Bank’s two branches in Hong Kong
 commenced full service banking operations from April 2007.
 
 Future Plans
 
 The Bank has drawn further ambitious plans for expansion abroad,
 besides penetration in countries where it has presence to serve its 33
 million global customers still better. Other countries, where the
 process is under way are Canada, New Zealand, Russia, GCC countries -
 Qatar, Kuwait, Saudi Arabia and Mozambique in Africa.
 
 The Bank is also planning to upgrade/expand its existing network in
 countries like China (branches – Guangzhou and Shanghai); Malaysia
 (Joint Venture); Kenya (Nakuru); UAE (Fujairah) and Oman (Sohar).
 
 The Bank has plans to extend its service area in UAE, where it is the
 only Indian Bank with full banking license, by opening five Electronic
 Banking Service Units (EBSUs) and installation of additional ATMs.
 
 The Bank already had two specialized outfits at Global Syndication
 Center at London and International Merchant Banking Cell (IMBC) - at
 International Division, Mumbai focusing on the business of syndicated
 loans and Credit- Linked Notes (of Indian corporates only) in the
 international market for both Indian and Non-Indian corporates. The
 Bank has played a major role in overseas “acquisitions & mergers” of
 Indian companies through active participation.
 
 Another Syndication Centre was set up at Dubai during the year, with a
 view to tap growing business opportunities in the Middle East. The Bank
 is in the process of setting up one more Regional Syndication Center at
 Singapore to capture the opportunities of South Asian market.
 
 Products and Services
 
 The Bank continues to expand its vast array of international banking
 products and services for meeting the needs of its global customers.
 These include – customer-centric assets & liabilities products,
 international trade finance – buyers/ suppliers credit, treasury
 products, arranging funds from international markets through foreign
 currency loans, syndications for large foreign currency requirements,
 debt instruments like FRN/Bonds, structured/tailor-made financial
 solutions, payments and receipts, remittances, merchant
 banking/advisory services for foreign currency convertible bonds/
 ADR/GDR, full banking services to joint ventures/ wholly-owned
 subsidiaries (WOS) of Indian corporates in the countries where it
 operates.
 
 The Bank launched many customer-centric initiatives during the year
 with a view to enhance customer service and convenience. A retail
 shoppe; SME loan factory, central processing cell were opened in UAE.
 
 Various value-added services for NRIs were launched during the year.
 “RapidFunds2India” an instant remittance facility to India was extended
 to US, Seychelles and Mauritius besides existing countries of UAE, Oman
 and UK. Through this facility, money can be transferred instantly to
 over 1,700+CBS branches of the Bank in India and for near-instant
 remittances to RTGS/NEFT-linked branches of other banks in India.
 
 Steps were also taken to tie up with various Exchange Houses in the
 Middle East to increase the collection points for inward remittances.
 
 Realty sector in India has been booming. With a view provide margin
 money to NRIs seeking Home Loans in India, a special product was
 launched in UAE & Oman.
 
 Technology Upgradation
 
 As part of its technology upgradation programme, the Bank’s all
 overseas offices except USA, Belgium, and OBU Mumbai were brought under
 Centralized Core Banking Solution (CBS) – connecting them to the Bank’s
 Global Data Center in Mumbai and Disaster Recovery Site at Hyderabad.
 
 Besides the CBS platform, overseas territories have taken steps to
 expand various e-delivery channels like ATM network, tele and mobile
 banking, internet banking, in order to provide world-class banking
 experience to the customers. Also, e-banking was inaugurated at
 Mauritius and will be extended to all the overseas centres in a phased
 manner. The number of ATMs in UAE were increased from 8 to 18 besides
 installing 8 new ATMs in Fiji.
 
 Risk Management
 
 With substantial growth of business of international operations in last
 three years and complex financial derivatives products available in the
 market, risk management has assumed greater importance. There has been
 a basic shift in the paradigm of the Bank’s risk management practices
 and greater emphasis has been placed on the successful identification,
 quantification, mitigation and control of risks. Special
 risk-management cells are being created in the U.S., U.K., UAE and
 Belgium to strengthen its risk management systems and comply with Basel
 II guidelines.
 
 Regulatory Compliance
 
 Over the years, the Bank has built up a reputation of being a
 regulatory-compliant Bank and a good corporate citizen in various
 overseas territories.
 
 The Bank is putting in place systems to scrupulously adhere to the
 Anti-Money Laundering Guidelines of the host country regulators.
 
 Overseas Subsidiaries & Associates of Bank of Baroda as of March 31,
 2008
                                                             (Rs crore)
                                               Total           Net
                                               Assets    Profit/ Loss
                                                         Subsidiary:
 
 1.  Bank of Baroda (Uganda) Ltd*              561.87        25.06
 2.  Bank of Baroda (Kenya) Ltd*               925.06        31.31
 3.  Bank of Baroda (Tanzania) Ltd *           210.57         2.52
 4.  Bank of Baroda (Botswana) Ltd**           418.58         6.51
 5.  Bank of Baroda (Hong Kong) Ltd**$         126.24         2.64
 6.  Bank of Baroda (Guyana) Ltd**             108.53         1.11
 7. Bank of Baroda(T&T) Ltd.                    47.32         1.83
 8.  Bank of Baroda (UK) Ltd**                   0.03            0
 9.  Bank of Baroda (Ghana) Ltd. $$             35.77         0.50
     Total                                    2398.20        67.32
 
 Associate:
 
 1. Indo-Zambia Bank Ltd (Lusaka)**            839.70        25.59
 
    Staff                                          Dividend
    No.                                              %
 
   149                                            70% Proposed
   124                                            10% Proposed
    19                                                  -
    21                                     (Proposed 10% subject to
                                            their board approval)
    -
   16                                                     -
   11
    8                                                     -
  348
  222                                   30% (Interim already paid)
 
 (Proposed 30% final dividend subject to their Board approval).
 
 Total dividend will be 60%
 
 * Audited Figures belong to year ended 31st Dec 2007.
 
 ** Audited Figures belong to the year ended 31st March 2008
 
 $ The Subsidiary stopped taking fresh business w.e.f.31.03.2007 and
 winding up is underway.
 
 $$ The Subsidiary commenced operations w.e.f. 11.02.2008. (Accounting
 year Jan-Dec.)
 
 Technology Upgradation
 
 In the year 2005-2006, the Bank embarked on an IT enabled Business
 Transformation Project to reposition itself in the intensely
 competitive banking environment. The Project envisaged a host of
 applications to be implemented in the Bank over a five year period
 ending March 2010, which would help the Bank to transform itself into a
 customer-centric organization and reduce the cost of its services.
 
 To support the integrated transformation project, the Bank set up its
 own state-of-art Data Centre on 10th December 2005 conforming to Uptime
 Institute Tier-3 standard. The Bank also established a 1:1 replicant
 Disaster Recovery Site at Hyderabad taking into account international
 requirements of 500 km distance and different seismic zone.
 
 Technology Progress in 2007-08
 
 > Core Banking Solution: As of 31st March 2008, 1,718 branches in India
 are on the CBS. This covers 908 centers in 34 states/union territories
 and approximately 92.0 per cent of the Bank’s domestic business.
 Additionally, 41 branches in 11 countries and 21 branches of seven
 overseas subsidiaries are on Finacle CBS. The overseas branches on CBS
 account for about 75.0 per cent of total overseas business.
 
 > Wide Area Network: The implementation of CBS and other centralized
 applications requires a robust Wide Area Network (WAN) with adequate
 redundancy built in at every layer. The Bank’s WAN architecture is
 built on the three layer model of Core, Distribution and Access. As on
 March 2008, 2,044 offices and 65 overseas offices are on the Bank’s
 WAN.
 
 > Internet Banking: The Bank has launched a full-fledged
 transaction-enabled Internet Banking in India, which has received good
 response from both retail and corporate customers. Through this
 platform, our customers have the facility to pay both direct and
 indirect taxes online, make payment of utility bills and also book rail
 tickets. The corporates also have the facility of direct salary
 uploads.  A view-based internet banking has also been launched in
 Mauritius, UAE, Oman and Seychelles.
 
 > ATM Network: The Bank’s ATM network has increased to 1,106, which
 includes two Biometric ATMs installed at Gandevi in Bulsar district and
 Malik Mau in Rae Bareli district. The Bank has also installed 42 ATMs
 at Railway stations.
 
 The Bank has a network of 31 ATMs in its overseas territories, mainly
 in UAE, Oman, Mauritius, Fiji, Uganda and Tanzania. The Bank’s
 inter-connected ATM network now stands fully migrated to world-class
 BASE-24 Switch, except for the two biometric ATMs. The Bank, being a
 member of National Financial Switch (NFS), its ATM cards can be used by
 the customers through ATMs of other banks, who are also members of the
 NFS. The Bank’s ATM network is also affiliated to VISA Electron and is
 Master Card compliant. As a value added service, school fee payments in
 UAE are enabled through the ATMs and BASE 24.
 
 > RTGS/NEFT All CBS branches are enabled for inter bank remittances
 through RTGS and NEFT
 
 > Online Money Transfer Service: An online money transfer service -
 Rapid Funds2India - has been enabled in the Bank’s branches of UAE,
 Oman, UK, USA, Mauritius and Seychelles. The NRI’s in these territories
 can avail of this service, which facilitates almost instant credit to
 their accounts in any CBS branch in India. Also, wherever they maintain
 accounts with other banks, same day or next day credit is facilitated
 through RTGS/NEFT.
 
 > Global Treasury: The Global Treasury solution is implemented in the
 UK.
 
 > City Back Offices (CBOs): In order to relieve branches of cumbersome
 back office operations, 17 Service Branches and 21 Main Offices are
 functioning on the City Back Office model. These offices handle the
 entire clearing and collection functions of all branches in the city.
 
 > Help Desks: A “24x7x365 Global Help Desk” is functioning at the Data
 Centre, which is manned by HP personnel and supported by other
 application vendors and the Bank’s application team. The Bank has also
 set up Local Help Desks (LHDs) at all zonal centers manned by the
 Bank’s trained officers to handle day-to-day operational issues and
 these LHDs function from 8 am to 10 pm. All branches are connected to
 Global Help Desk and Local Help Desks by the VOIP phones.
 
 > IS Security: A robust Information Security Management System has been
 put in place to protect the technology against security threat.
 
 > Other IT Initiatives: The Bank has developed in-house six software
 applications viz., Defence Pension software, Estate Management System,
 CRR computation software, STR (Suspicious Transactions Report)
 software, XRECON (Exchange House Drafts Reconciliation System), FCNR
 Link Cell software.
 
 > Anti Money Laundering: The AML has been implemented in UAE, Oman and
 Fiji. It is pertinent to mention that in Fiji, Bank of Baroda is the
 first bank submitting CTR (Cash Transaction Report) and EFTR
 (Electronic Fund
 
 Transfer Report) in electronic form to the FIU. The Bank has received
 commendation from the Fijian Authorities for this unique effort.
 
 > Human Resources: The Bank’s training establishments have trained
 nearly 15,000 employees on the CBS modules and other technology
 applications. Moreover, refresher courses are also conducted on
 week-ends covering specific Finacle modules and other applications.
 
 Future Plans on Technology Front
 
 > 1,919 domestic branches will be brought on the CBS platform by
 September, 2008 and two overseas branches in New York and Brussels will
 be brought on the CBS platform by December, 2008.
 
 > Internet Banking will be launched in Fiji, Tanzania and Hong Kong
 during the current year.
 
 > During the period April -September 2008, RTGS and NEFT will be
 interfaced with the Bank’s internet banking portal. This will give the
 Bank’s customers the facility of making inter bank money transfers
 without approaching the branch.
 
 > AML will be implemented in India during April-June 2008 along with
 two to three other overseas territories.
 
 > Three Regional Back Offices (RBOs) are expected to be operational
 during the period July-December 2008. These will be at Baroda, Chennai
 and Jaipur. The remaining two RBOs are planned for the first calendar
 quarter of 2009.  The RBOs will cater to a cluster of 350 - 400
 branches for back office activities, such as, account opening,
 signature scanning, cheque book issue, statement printing, FDR
 renewals, TDS certificates and some part of MIS.
 
 > Single integrated Global Treasury covering India as well as the
 Bank’s Treasury Operations at overseas locations in Singapore,
 HongKong, UAE, Oman, Mauritius, Bahamas and Bahrain will be completed
 by December 2008.
 
 > Several other Projects like Corporate Cash Management, Online Trading
 and Centralised Pension Processing Cell will also be enabled during
 2008-09.
 
 The implementation of “IT-enabled Business Transformation Project”
 provides “Anytime, Anywhere and Anyhow Banking” to the Bank’s customers
 and an organized and better work set up to its operational staff at
 branches. The Bank’s ultimate objective is to reorient itself as a
 highly technology enabled Bank to emerge as a leader in the global
 market place.
 
 Human Resources
 
 In an environment where technology, business models are
 
 being replicated and a level playing field is created, people factor
 becomes the key differentiator in achieving business excellence. The
 Bank, foreseeing this emerging scenario conceptualized and initiated
 numerous HR interventions.  Aligning Human Resources with the Business
 Transformation demands at Corporate and local levels in different areas
 like hiring, performance management, and talent identification and
 employee engagement. The technology up gradation in HR is also a major
 development in the year 2007-08.
 
 HRnes (Human Resources network for employees’ services & Employee
 Payroll System
 
 The HRnes (Human Resources network for employees’ services), the
 web-enabled enterprise wide HR solution and the Employee Payroll
 System, was launched on 26 November 2007 by Mr. P.K.Bansal, Honorable
 Minister of State for Finance on the occasion of the Annual Bankers’
 Conference (BANCON - 2008) jointly organized by the IBA and the Bank of
 Baroda. These HR solutions are expected to ensure greater efficiencies
 in HR operations and also make it highly user friendly.
 
 Leadership Development – Project LEAP
 
 Post-2009 technology environment, competitive compulsions, entry of
 foreign banks, M&A will all tend to change the course of banking
 necessitating new breed of leaders at different levels. Managing and
 leading a financial services organization in such an environment would
 be a new challenge for future leaders.
 
 Furthermore, one of the key drivers for market leadership will be the
 Bank’s internal leadership. It is in response to this, the Project LEAP
 (Leadership enhancement and appreciation process) was conceived and
 launched aimed to groom our executives in leadership and capability
 building.
 
 Around 300 executives are being groomed by the Bank in the leadership
 in a phased manner. This process involves:
 
 - Identifying a competency framework for future leaders in the Bank.
 
 - Administration of psychometric instruments and 360 degree feedback
 for each identified executive for building on their strength and
 working in the areas where development is needed.
 
 - Classroom orientation & action learning projects.
 
 - Succession planning.
 
 Centenary Year KHOJ
 
 KHOJ was initially launched as an in-house talent identification and
 development exercise in 2005. An element of self development and career
 planning is built into the system as this is a voluntary exercise where
 aspiring employees apply for selection for grooming in various areas
 they perceive as their areas of strength.
 
 Encouraged by the huge response to the initiative, KHOJ exercise was
 repeated in 2006 and in 2007 it was named as the ‘Centenary Year KHOJ’.
 The selected candidates are groomed, placed in the area of operation of
 their choice. As part of their development, many are identified as
 change champions in many of the new initiatives. The Banks has also
 assigned mentors for their grooming.
 
 Exclusive conclaves of KHOJ selectees, giving due weightage of their
 contribution in career progression and rewards, special assignments,
 etc. make the KHOJ selectees a vibrant and visible group.
 
 Career Progression
 
 To meet the Bank’s growth requirements and aspirations of employees,
 avenues for career growth have been numerous.  Special efforts have
 been made to maintain relatively younger employees manning key
 positions. Following promotion exercises were completed during the
 year:
 
 Clerical to Officer 661
 
 MMG/S III to MMG/S IV
 
 (Sr. Manager to Chief Manager) 187
 
 SMG/S IV to SMG/S V
 
 (Chief Manager to Asst. General Manager) 100
 
 SMG/S V to TEG/S VI 19
 
 (Asst. General Manager to Dy. General Manager)
 
 TEG/S VI to TEG/S VII 9
 
 (Dy. General Manager to General Manager)
 
 Training
 
 To keep up with the fast changing business scenario, product profile,
 customer preferences, numerous technology applications and compliance &
 regulatory requirements, training has become a centre-stage activity.
 
 The Bank conducted 511 training programmes in the areas of Sales and
 Marketing covering 11,733 employees. In the area of information
 Technology, 304 training programs on CBS (Core banking technology) have
 been organized covering 5,360 staff members. In addition, 73 other
 programs in niche areas covering 1,353 staff members were part of the
 training activity this year.
 
 Specialized and intensive orientation in credit, forex, risk
 management, new financial services and new avenues of business totaling
 to 273 programs covering 4,732 staff members were also conducted during
 the year 2007-08.
 
 Employee Conclaves
 
 The Corporate vision and strategies to yield results should reach and
 get institutionalized at the operational unit levels.  The very nature
 of widespread and distributed pattern of our operating units pose
 challenges for smooth percolation and we need to have conscious,
 focused, planned localized interventions for the corporate vision and
 strategies to reach effectively and get translated to business results.
 As one of the interventions to address these challenges, “Employee
 Conclaves” were organized at different centers for cluster of branches
 covering all staff members of such branches. This facilitated brain
 storming, jointly thought-out action processes and ownership of the
 plans chalked out. This initiative also achieved more involvement at
 all levels, generating excitement, awareness and passion for
 performance. The response of employee to “Conclaves” organized in five
 centers was highly encouraging generating tremendous enthusiasm and
 positive energy.
 
 Staff Strength
 
                           Year ended March
 
                 2004       2005      2006     2007        2008
 
 Officers      11,996     11,848    12,345    13,636     13,840
 Clerks        19,302     19,284    18,231    16,979     15,777
 Sub-staff      8,505      8,397     8,198     7,989      7,643
 Total         39,803     39,529    38,774    38,604     37,260
 
 Composition of Scheduled Castes and Scheduled Tribes in the Employee
 Strength
 
 Cadre                             SC %                     ST %
 
 Officers                           17.93%                  6.23%
 Clerks                             14.90%                  4.88%
 Sub-staff                          34.65%                  9.64%
 
 Marketing
 
 The brand “Baroda” has steadily gained the mind share over the past two
 years driving the Bank towards higher growth trajectory. During the
 last two years, the Bank’s focus was on quality reach. Towards this,
 the marketing department put in place a progressive sales structure on
 the one hand and had conceived and implemented sales campaigns with
 specific business targets, and lead generation programs. As a part of
 best practice initiatives, the endeavor has been to impact an
 attitudinal change across the operational level where customer
 interface takes place through consistent sales and soft skills
 training.
 
 The specific product campaigns in liability and asset products have
 helped the Bank achieve higher business growth. The Centenary Savings
 Bank Campaign fetched Savings Bank deposit of Rs1,593 crore, while the
 Centenary Current Account Campaign mobilized Rs1,098 crore. The
 Traders’ Loan and Retail Loans Campaigns generated business to the tune
 of Rs 2,884 crore.
 
 As the Bank stands at the threshold of its next century, marketing
 would become a key growth driver. The thrust areas would be on
 enhancing sales, raising brand equity through continuous market
 research for information. The existing sales structure needs to be
 expanded. The department is working out a strategic mass communication
 and events plan for the financial year 2008-09 focused towards brand
 enhancement.  Significant initiatives in customer education are also
 envisaged in the coming year for our CRM initiatives.
 
 As a result of above initiatives, the Bank has received recognitions
 both nationally and internationally. The Baroda brand is ranked at
 Number One among nationalized banks by Brand Finance. The Bank moved up
 to 258th rank, improving by 158 positions over the previous year in
 The Banker a magazine published from U.K. Besides these, the Baroda
 brand won many industry level awards for its marketing and business
 initiatives and strives to optimize its competitive edge in the banking
 space.
 
 The Baroda brand positioning was entrenched in the consumer mind as
 “India’s International Bank”, balancing its time tested values over its
 100 years of existence with the contemporary challenges of being market
 sensitive and responsive as it marches tirelessly towards its next
 century.
 
 Premises Re-Engineering & Ambience Enhancement
 
 The following construction and other activities have been undertaken by
 the Bank during the year 2007-08.
 
 Construction Projects completed during the year and are in
 use/operation:
 
 i) Baroda Aditya -53- residential flats for Bank’s Executives and
 Bank’s Guest House at Bandra Kurla Complex
 
 ii) Baroda Towers at Salt Lake, Kolkata for Eastern zonal Office, three
 Regional offices, Training Center etc.
 
 The following construction projects are in progress
 
 i) Corporate Center at C-34, Bandra Kurla Complex, Mumbai
 
 ii) Administrative building at Gomtinagar, Lucknow
 
 iii) Administrative building at Jamshedpur, Jharkhand
 
 Refurbishment
 
 During 2007-08, the Bank took several steps for refurbishment, up
 gradation, face-lifting, redesigning and improved ambience of key CBS
 and other branches around the country, for facilitating convenience
 banking to customers. About 180 branches during the year and more than
 450 branches during last four years were refurbished. The Bank has also
 initiated important steps for standardization of the interior of
 branches and offices.
 
 Besides, the Mumbai Main Office Building at Fort was thoroughly
 refurbished in 2007-08 along with a plush Business Center and converted
 the same to One Stop Center for Financial Services.
 
 Branch Network: Brick & Mortar Distribution Channels Closer to the
 Customer
 
 No of
 Area Classification (India)                                 % to total
                                           branches
 
 Metro                                      613                 21.48
 Urban                                      519                 18.19
 Semi-urban                                 624                 21.87
 Rural                                     1097                 38.45
 Total Domestic                            2853                100.00
 Overseas                                    46                     -
 
 Domestic Subsidiaries & Associate Bank
 
 The performance of the “Subsidiaries” and the “Associate Bank” of the
 Bank during 2007-08 was good except for that of the BOBCARDS Ltd.,
 which incurred a loss of Rs 21.20 crore, due to stringent application
 of IRAC norms (Prudential Norms on Income Recognition, Asset
 Classification and Provisioning).
 
 A turnaround strategy is being evolved for the BOB Capital Markets
 Ltd., by commencing Stock Broking operations and for BOB Asset
 Management Co. Ltd., by converting it into a Joint Venture Company with
 the Pioneer Group of Italy.
 
 During 2007-08, the Bank made significant progress in promoting and
 propagating the use of Official Language and ensured compliance of
 various other statutory requirements
 
 Summary of performance of the Subsidiaries:
                                                              (Rs lacs)
 
 Entity                                     Country          Owned
 (with date of registration) Funds
 
 BOB Capital Markets Ltd. 11 Mar. 1996      India         10237.82
 BOB Asset Mgmt. Co. Ltd., 5 Nov. 1992      India          3087.19
 BOBCARDS Ltd. 29 Sept. 1994                India          8021.30
 Nainital Bank Ltd. 31st Jul 1922           India         14563.93
 
 Total            Net Profit           Offices             Staff
 Assets
 
 10417.14          842.59                   1                 12
  3087.19          218.69                   1                 11
 24497.68         2120.02                  38                185
 205914.90        2713.72                  87                627
 
 besides recommendations of Parliamentary Committee on Official
 Language. The Bank could achieve all major targets set by the
 Government of India. In recognition of the Banks outstanding
 performance, the Bank was appreciated at various levels and awarded
 with prestigious Indira Gandhi Rajbhasha Shield on all India level.
 
 The Town Official Language Implementation Committees functioning at
 Baroda and Jaipur under the convenorship of the Bank have performed
 their responsibilities excellently and provided suitable guidance to
 their member Banks.
 
 The Bank has introduced innovative incentive scheme for the meritorious
 students and awarded two students of Mumbai University and SNDT
 University who secured First position in MA Hindi. Such students were
 also awarded at Rajasthan University and Vansthali Vidhyapeeth, Jaipur.
 
 During the year, the Bank conducted two Hindi essay-writing competition
 at all-India level. One competition was for the staff members of Public
 Sector Banks and Financial Institutions and the other was
 Inter-University competition for the students at the Post Graduation
 level. The Bank gave away attractive cash prizes to winners of these
 Hindi competitions.
 
 The Third Sub-committee of Parliament on Official Language visited Puri
 and Mandapam (Rameshwaram) branches of the Bank and appreciated the
 efforts/work done by the Bank in Official Language Implementation.
 
 The Banks in house Hindi magazine Akshayyam was awarded three prizes
 by Association of Business Communicators of India under the special
 column (Language).  Besides, the Bank’s House Journal BOBMAITRI was
 awarded by the Reserve Bank of India under bilingual House Journal
 competition.
 
 Board of Directors
 
 Dr. Anil K. Khandelwal, ceased to be Chairman and Managing Director on
 reaching superannuation on 31.03.2008. Shri M. D.  Mallya was appointed
 as Chairman & Managing Director of the Bank w.e.f. 07th May, 2008 to
 30th November, 2012.
 
 Shri Satish C. Gupta, was appointed as Whole time Director w.e.f. 06th
 June 2007 by Government of India under section 9(3) (a) of the Banking
 Companies (Acquisition & Transfer of Undertakings) Act, 1970.
 
 Shri Milind N. Nadkarni, was nominated as Director w.e.f.  1st May,
 2007 by Govt. of India under section 9(3)(e) of the Banking Companies
 (Acquisition & Transfer of Undertakings) Act, 1970 representing
 workmen. He is appointed on the Board for a period of 3 years.
 
 Shri T. K. Balasubramanian, ceased to be Director w.e.f. 01st July, on
 his superannuation. Shri Ranjit Kumar Chatterjee, was nominated as
 Director w.e.f. 20th December 2007 by Govenment of India under section
 9(3)(f) of the Banking Companies (Acquisition & Transfer of
 Undertakings) Act, 1970 representing non-workmen. He is nominated on
 the Board for a period of 3 years.
 
 Dr. Atul Agarwal, was nominated as Director w.e.f. 23rd November, 2007
 by Govt. of India under section 9(3)(h) of The Banking Companies
 (Acquisition & Transfer of Undertakings) Act, 1970 .
 
 Shri G. C. Chaturvedi, ceased to be a Director with effect from 10th
 June, 2008 and Shri Amitabh Verma has been nominated as Director
 representing Government of India in his place under section 9(3)(b) of
 the Banking Companies (Acquisition and Transfer of Undertakings) Act
 1970.
 
 Directors’ Responsibility Statement
 
 The Directors confirm that in the preparation of the annual accounts
 for the year ended March 31, 2008:
 
 - The applicable accounting standards have been followed along with
 proper explanation relating to material departures, if any;
 
 - The accounting policies framed in accordance with the guidelines of
 the Reserve Bank of India, were consistently applied.
 
 - Reasonable and prudent judgment and estimates were made sp as to give
 true and fair view of the state of affairs of the Bank at the end of
 financial year and of the profit of the Bank for the year ended on
 March 31, 2008;
 
 - Proper and sufficient care was taken for the maintenance of adequate
 accounting records in accordance with the provisions of the applicable
 laws governing banks in India; and
 
 - The accounts have been prepared on a going concern basis.
 
 Acknowledgement
 
 The Board of Directors of the Bank is pleased to place on record its
 deep appreciation for the valuable contribution made by Dr Anil K.
 Khandelwal during his stint as Chairman and Managing Director of the
 Bank, who could provide effective leadership in creating best brand
 value for the Bank in the industry, good business growth by doubling
 the business and winning many accolades and laurels for the Bank in
 various sphere of Banking.
 
 The Board also places on record its appreciation for the contribution
 made by Shri T. K. Balasubramanian, Director representing non-workmen.
 
 The Board of Directors of the Bank placed on record their appreciation
 for the valuable services rendered by Shri G.  C. Chaturvedi during his
 tenure as a Director representing Government of India from 31st
 October, 2006 to 9th June, 2008.
 
 The Bank has taken in the recent year a number of initiatives on the
 marketing, technology, customers’ and HR fronts.  Successful
 translation of these initiatives into business and earnings growth has
 been primarily due to the staff of the Bank, which has embraced the
 philosophy of change to help the Bank emerge as a modern and
 customer-centric bank. We are grateful to our people for their
 continued commitment and dedication towards the Bank. Our customers
 have always supported us in all our endeavors. If in the process of
 transformation, a few of our customers have been inconvenienced, they
 have borne the same with patience and equanimity. We are grateful to
 them for their continued patronage and encouragement.
 
 Our shareholders have been our Key Partners in progress.  We are
 grateful to them for their support and “confidence” that they have
 placed in us. The Board of Directors of the Bank places on record its
 appreciation for the continued support and patronage received from its
 customers, shareholders and well-wishers in India and abroad.
 
 The Board is also indebted to the Government of India, RBI, SEBI, other
 regulatory authorities, various financial institutions, banks and
 correspondents in India and abroad for their unflinching and valuable
 support and guidance to the Bank from time to time.
 
                          For and on behalf of the Board of Directors
 
                                               M. D. Mallya
                                      Chairman and Managing Director
 
 Mumbai
 20th June, 2008