Bank Of India

Dear Shareholders,
 
 It is indeed a privilege to present the Annual Report of your great
 institution for the year ended 31st March 2009.
 
 The year 2008-09 was a very challenging year for the global economy
 since the great depression of thirties. The financial market
 turbulence, which originated in the U.S., quickly spread to advanced
 economies. As can be expected in the era of globalization, the after
 effects gradually engulfed the rest of the manufacturing world; India
 being no exception. The industrialized countries faced mammoth economic
 downturn with sharpest decline in GDP growth witnessed since 30’s,
 crippled industrial activity, unprecedented job losses, falling
 inflation indicative of deflationary pressure, sharp fall in commodity
 prices and shrinkage of global trade. Falling oil prices and near zero
 interest rates in US, UK and Japan did very little to boost market
 sentiments.
 
 These developments changed the complexion of financial markets in
 United States and Europe and the governments and central banks had to
 step in with massive rescue packages, involving strong macroeconomic
 policy measures, to support the crumbling global financial institutions
 and also to infuse confidence, which was a major casualty, and one of
 the important factors precipitating the global financial crisis. The
 current outlook continues to be exceptionally uncertain, with risk
 weighted to the downside.
 
 Indian economy was impacted mainly on account of reversal of capital
 inflows and sharp decline in exports which directly affected lead
 sectors like textile, real-estate, infrastructure, aviation,
 automobile, housing and information technology. However, it is
 pertinent to mention here that unlike the developed economies, where
 the problems started in financial sector and spread to real sector, in
 India, the problems started in real sector and spread to the financial
 sector. This, in my opinion, has immensely reduced the severity of
 impact of economic meltdown on the Indian economy. The Government and
 the RBI have taken timely and proactive measures to contain the fallout
 of global crises on the Indian economy. These included both fiscal and
 monetary measures aimed at ensuring adequate liquidity in the system,
 lowering interest rates, specific steps to help industry sectors
 affected by the downturn, assisting export sector and measures for
 stabilizing foreign exchange market, revival of capital flows and
 rationalization of duties.
 
 After registering high GDP growth at 9 per cent for the year 2007- 08
 and maintaining an average growth of 8.7 per cent for the period
 2003-04 to 2007-08, the Indian economy witnessed deceleration in growth
 encompassing all sectors during the year 2008-09. During the first
 three quarters, GDP growth was at 6.9 per cent and as per the estimates
 of RBI, the year 2008-09 may conclude with growth in the range of 6.5
 to 6.7 per cent. Headline inflation, which was a matter of deep concern
 at 12.63 per cent in August 2008, brought apprehension of disinflation
 when it fell to 0.26 per cent at the end of the year. During 2008-09,
 export grew by 3.4 per cent only with negative growth for 6 consecutive
 months in the second half of the year, forex reserve reduced by 
 bn., stock market value depleted by approximately 38 per cent and Rupee
 depreciated by around 22 per cent against US dollars.
 
 Because of its linkages with the Global economy, the revival in the
 Indian economy will be driven largely by easing of financial strains in
 the mature markets. Whereas good monsoon and revival of rural economy
 will definitely hasten recovery in the post election period, positive
 capital inflows and improved sentiments will hold the key to economic
 revival. Since the system has adequate liquidity the economic recovery
 will be demand driven, both in domestic and export fronts.
 
 I am extremely happy to report that in the midst of all adversities,
 your Bank completed yet another year of accomplishments of the highest
 order. Global business has reached Rs.334,440 crore (26.3 per cent
 growth on y-o-y basis), consisting of total Deposits of Rs.189,708
 crore (26.5 per cent growth) and gross Credit of Rs.144,732 crore (26.2
 per cent). In domestic operation, your Bank has performed above the
 system growth, thereby increasing its market share. Domestic Aggregate
 Deposits grew by 27.2 per cent (as against industry growth of 19.8 per
 cent) leading to increase in market share from 3.89 per cent to 4.13
 per cent. Domestic Credit grew by 26.2 per cent (as against industry
 growth of 17.3 per cent) and its market share increased from 3.87 per
 cent to 4.16 per cent.
 
 You will be happy to observe that the Net Profit earned by your Bank
 for the year 2008-09 at Rs.3007 crore, was highest ever and recorded 50
 per cent growth over previous year. During the year, Earning per Share
 improved from Rs.40.83 to Rs.57.26, Book Value per Share from Rs.164.02
 to Rs.211.89, Return on average Networth from 28.44 per cent to 30.42
 per cent and Return on average Assets from 1.25 per cent to 1.49 per
 cent. I am happy to inform that Board of Directors of your Bank has
 declared a dividend at the rate of 80 per cent (including 30 per cent
 interim dividend already distributed), which is the highest in the
 history of the Bank.
 
 For the year 2008-09, the Operating Profit of the Bank stood at Rs.5457
 crore as against Rs.3701 crore last year. Interest Spread improved from
 2.64 per cent to 2.72 per cent and Net Interest Margin from 2.95 per
 cent to 2.97 per cent. Non-Interest Income to Net Income ratio
 increased from 33.36 per cent to 35.69 per cent and non-interest income
 for the year has covered 99 per cent of Operating Expenses. The
 productivity has improved substantially as evident from increase of per
 employee - Business from Rs.6.52 crore to Rs.8.33 crore and Profit from
 Rs.4.95 lac to Rs.7.49 lac.
 
 The other performance indicators show that your Bank has further
 strengthened sustainability as well. Net worth increased by 29.2 per
 cent to Rs.11144 crore, Net Non Performing Assets reduced from 0.52 per
 cent to 0.44 per cent and Capital Adequacy Ratio in terms of Basel II
 stood at 13.01 per cent (13.21 per cent under Basel I). During the
 year, your Bank has raised Rs.400 crore by way of Innovative Perpetual
 Debt Instrument (IPDI) as Tier I capital and Rs.500 crore by way of
 Upper Tier II Bonds to strengthen capital adequacy.
 
 Your bank has always been committed towards its social responsibility
 to the Nation. In line with the trends of the past years, the Bank
 surpassed all targets for priority sector lending.  Priority Sector
 Advances stood at 47 per cent of net adjusted credit and Agriculture
 financing grew by 24 per cent despite the huge reduction in outstanding
 on account of loan waiver. In tune with the government policies for
 bringing back the economy on the growth track, your Bank sanctioned
 loans under Special Home Loan package for Rs.200 crore after
 15.12.2008, and growth during the year for Auto finance was 50 per
 cent.The Bank also continued to support two vital sectors of the
 economy – SME and education in line with the Government priorities.
 Bank’s assistance to SME sector recorded growth of 25 per cent and
 educational loan portfolio grew by robust 31 per cent.
 
 To enable your Bank to reach wider geographical areas, 118 new branches
 were opened and 20 extension counters converted to branch, thus
 increasing domestic outlets to 3091. About 62 per cent of branches are
 in rural and semi urban areas affording your Bank a crucial advantage
 for intrusive financial inclusion happening throughout the country.
 Also, the Bank’s delivery channels include 136 specialised Branches
 catering to the specific needs of target beneficiaries, including
 Corporates, foreign trade, NRIs, SMEs and retail segments. Banks
 initiative to strengthen the net work of Service Branches and setting
 up of back offices has enabled branches to offer much better counter
 services and has led to higher customer satisfaction.
 
 On Global front your Bank perceives International Operations as being
 potential growth areas. Accordingly, during the year the Overseas
 network was strengthened by setting up two outfits, a branch at Glasgow
 (UK) and representative office in Dubai. The bank now has presence at
 28 locations in 15 countries across four continents. Besides, the Bank
 has one associate bank in Zambia and three subsidiaries in Kenya,
 Tanzania and Indonesia.
 
 You will be happy to know that Bank’s joint venture insurance company –
 Star Union Dai Ichi Life Insurance Company Ltd.  became fully
 operational during the year. Capitalizing on the strong network of
 large number of branches of both joint venture partners, the company is
 poised for capturing increasing share of the domestic insurance market.
 
 Your Bank has now reached the last leg of centralized operation under
 Core Banking Solution by adding 1067 branches in the net work during
 the year and I can see that within a month or two, we will achieve 100
 per cent connectivity for all branches. A revamped website has been
 launched for meeting the requirements of next-generation customers.
 Solar Power is extensively used in remote branches making technology
 initiative as ‘Green Projects’.  Beside owned 500 ATMs, around 35000
 ATMs are made available to customers through shared ATM networks.
 
 The brand “Bank of India” now stands for Growth, Quality and Trust. I
 am extremely pleased to announce that as in the previous years, your
 Bank has been conferred with several awards and accolades. Some of them
 are – India’s Best PSU Bank by NDTV Business Leadership Awards 2008,
 Number 1 Public Sector Bank by Business World - PWC Survey, Rank No.1
 by Business Today - KPMG Survey, Best Public Sector Bank and Overall
 Best Bank in the country by Dun & Bradstreet Study 2008, Top Indian
 Company under ‘Banks’ by Dun & Bradstreet–Rolta Corporate Awards 2008,
 Prestigious CIO 100 Award 2008 for the Bank’s Green IT initiative
 wherein solar energy is put to use to power technology in rural
 branches.
 
 Performance of such magnitude in the past casts upon us additional
 responsibility to raise our own benchmarks to meet with your growing
 expectations. This will be particularly challenging in the current year
 in view of persisting uncertainties in both Global and domestic fronts
 and resultant moderate growth forecast for the economy and banking
 sector. In the Annual Policy Statement, the RBI has projected GDP
 growth rate at around 6.0 per cent and Deposit and Credit growth rate
 of scheduled commercial banks at 18.0 per cent and 20.0 per cent
 respectively.  Speaking about specific challenges, on one hand, the Net
 Interest Margin (NIM) will come under growing pressure due to volatile
 interest rate scenario and carry over effect of high-cost deposits and,
 on the other hand, the after effects of economic downturn will be felt
 on asset quality cutting across sectors. The Bank will have to reorient
 it strategies to face emerging challenges. I am confident that the
 resources pool available with your Bank, including the most modern
 technology, will enable the bank to meet the challenges.
 
 As you all are aware I will be laying down office on superannuation by
 end of May 2009.1 take this opportunity to express my sincere gratitude
 and acknowledge the unstinted support provided and unfaltering faith
 reposed by you in the Board of Directors, management and employees of
 the Bank, which has enabled us to take this great institution to
 enviable heights. I have no doubt that your trust, encouragement and
 patronage will continue to motivate and guide the Bank in the days to
 come.
 
                                                    With warm regards,
 Date : 29.04.2009                                 (T.S. Narayanasami)