Canara Bank

Ladies and Gentlemen, 
 
 I deem it my privilege to welcome you all to the second Annual General Meeting of your Bank. I am deeply
honoured by your gracious presence. 
 
 At the outset, I thankfully acknowledge your continued support during and subsequent to our Initial Public
Offer. As I mentioned last year, the rationale behind our IPO was three pronged – augment our long-term
resources, widen our investor base and maintenance of a healthy capital adequacy ratio. Our objective was
also to ensure good returns for our shareholders in keeping with our valued partnership. Looking back, I
believe that we have been able to accomplish these objectives in a fair measure so far. I am also optimistic
that we shall be reaching higher peaks under key parameters during the current year as well. 
 
 If 2002-03 was a year during which we amply demonstrated what we referred to as the Power of Performance ,
2003-04 was even more significant in the way your Bank reaffirmed the same with even greater vigour. I may
reiterate that the power of performance stemmed, inter alia , from our customer centric business ethos,
relentless IT related initiatives and a host of other policy focus. Highest profit making bank among the
Nationalized Banks, your Bank's outstanding results also emanated from active guidance from the Board of
Directors for strategic policy focus, thrust on sustained profitability, pursuit of total quality, technology
aided business process reengineering, commitment from the work force and support from all segments of our
stakeholders. 
 
 The final accounts of the Bank and the Directors' Report for the year ended March 2004 are already with you
and with your permission, I take them as read. 
 
 Economic Scenario 
 
 Significant feature of FY04 related to a marked improvement in the macroeconomic scenario with turnaround in
key real segments. Gross domestic product of the country grew by a robust 8.1%, propelled by 9.1% growth in
agriculture and 7.1% growth in manufacturing. Services segments continued to be buoyant whereas external
sector saw further consolidation. Despite considerable appreciation in the Rupee vis-à-vis US Dollar, forex
reserves reached a record level of 3 billion aided by 17.1% growth in exports and surge in investment
inflows. Prices also remained stable and low as reflected in the average annual rate of inflation of 4.5%
compared to 6.5% for the previous year. Definite signs of a global economic revival did augur well for the
Indian economy to embark on a higher growth path. 
 
 Banking sector also staged an impressive performance during FY04 with deposits of Scheduled Commercial Banks
growing by 17.3% compared to 13.4% registered in FY03. Non-food credit growth worked out to 17.6%, marginally
lower than 18.6% growth posted during the preceding financial. Growth in advances of banks was driven by
buoyancy in housing, infrastructure and other retail segments. For the first ten months of FY04, volume of
housing finance featured a 33% growth while advances to infrastructure sectors went up by 25%. On the policy
front as well, there were significant positives like the Supreme Court judgement regarding the SARFAESI Act
(2002) and expeditious pursuit of efficient payment systems like RTGS. 
 
 Review of Performance 
 
 During FY04, your Bank staged an excellent performance under major performance parameters, sustaining the
growth momentum it achieved during FY03. Enhanced profits and profitability as well as high overall growth in
business were the most significant features of your Bank during the year. With consistent improvement, key
efficiency parameters also reached new peaks during 2003-04. Continuing its number one position among
nationalized banks, your Bank's net profit for the year reached a new high of Rs.1338 crore, signifying a
healthy growth of 31.31%. Operating profits posted a robust 43.16% growth to move up from Rs.1997 crore to
Rs.2859 crore. High profit growth was also associated with improvement under profitability parameters. While
Return on Assets improved to 1.34%, up from 1.24% a year ago, Profit per Employee moved up from Rs.2.26 lakh
to Rs.2.97 lakh. 
 
 Overall business of your Bank grew by 19.03% to reach Rs.1,33,984 crore, up from Rs.1,12,567 crore a year
ago, comprising Rs.86345 crore under deposits and Rs.47639 crore under advances. While growth in deposits
worked out to 19.77%, net advances grew by 17.71%, backed by a robust 21.79% growth in non-food credit. As
during the previous year, advances growth was driven mainly by the buoyant retail segments. Disbursals under
the retail segments recorded a 29.77% growth to reach Rs.4,438 crore, while outstanding retail advances,
constituting 16.46% of net credit, grew by 44.47% to reach Rs.8041 crore. Housing finance (direct), in
particular, deserves a mention, having clocked a 80.58% growth during FY04 to reach a level of Rs.2864 crore.

 
 Efficient liability management, in terms of cost effectiveness, continued to be a high point of your Bank's
higher operational margins. Notwithstanding a robust 19.77% growth in deposits, interest expenses continued
to decline during FY04, which came down by 2.44%. As a result, cost of deposits declined by a significant 92
basis points from 6.32% to 5.40% during 2003-04. 
 
 Last quarter of FY04 saw implementation of the new 90-day norm for income recognition, which your Bank had
already factored in its strategic agenda. Nonetheless, thanks to adequate preparedness, higher cash recovery
and prudent provisioning, Bank's net non-performing assets ratio came down to 2.89% from 3.59% a year ago. As
against Rs.563 crore during FY03, cash recovery during last year amounted to a much improved Rs.606 crore. A
well documented credit management policy, which entails early detection of potentially bad accounts, timely
response to warning signals and an objective & foolproof review mechanism, yet again proved to be your Bank's
major strength. 
 
 Capital to Risk Weighted Assets Ratio (CRAR) represents the true health of any financial entity in terms of
its real risk bearing ability. At the end of FY04, your Bank's CRAR improved further to 12.66% vis-à-vis the
9% benchmark and up from 12.50% as at March 31, 2003. 
 
 FY04 saw continued focus on rationalization as also expansion of your Bank's branch network in strategic
locations. As at March 2004, your Bank had 2469 branches against 2424 a year ago, including its London
branch, besides 274 Extension Counters. Branch network included 157 branches in the specialized category, for
exclusively serving various niche segments. 
 
 Returns to Shareholder 
 
 Continued excellence under profits and profitability was a hallmark of your Bank during FY04 and it was
recognized that the gains deserved to be translated into higher returns to shareholders. It is indeed
heartening to note that your Bank's Board of Directors have declared a final dividend of 25% for the year,
after complying with the recently announced RBI guidelines on dividend declaration policy. This, together
with the interim dividend of 25% already paid, takes total dividend payment for the year to a healthy 50%.
This is as against the 35% dividend paid for the year 2002-03. 
 
 Your Bank's strong commitment towards higher returns for the shareholders also gets reflected in the Earning
per Share (EPS) which shot up to Rs.32.63 from Rs.20.56 for the previous financial. The Book Value as at March
2004 also went up significantly to Rs.125.14 from Rs.98.14 a year ago. May I reassure you that enhanced value
for stakeholders will continue to command a pivotal position in your Bank's strategic endeavours in future as
well. 
 
 Technology Initiatives 
 
 In the times of the so called digital divide, technology has provided a cutting edge to your Bank and we
have achieved a host of objectives we had embarked upon a year ago in the realm of effective info-tech
application. Such applications were not merely confined to the front office operations but were also
effectively built into crucial back office functions like an integrated risk management system and strategic
planning machinery. This is evident from the level of computerization under which 97% of branches and 91% of
business were already captured in the IT mode by March 2004. Between March 2003 and March 2004, the Bank's
ATM strength more than doubled from 251 to 504 most of which were in the networked mode for client
convenience and wider reach. As at March 2004, number of branches under Anywhere Banking (AWB) mode,
providing networked services, significantly increased to 609 from 376 as at March 2003, with its coverage
going up from 12 centres to as many as 85 centres. FY04 was also noteworthy from th e viewpoint of launching
new hi-tech products by your Bank. Internet & Mobile Banking (IMB) services of the Bank were launched in July
2003 and as at March 2004, IMB services were being offered at 393 branches, spread across 26 locations. During
November 2003, we launched our Debit-cum-ATM Card, another hi-tech product aimed at customer convenience
through real time transactions. Several initiatives were also taken during the year towards implementing Core
Banking Solution in your Bank in a two year time frame. 
 
 Quality Drive 
 
 Your Bank's relentless pursuit of total quality has made it unique among the Indian banks, to have brought
more than 500 branches under the ISO certification. During 2003-04, 215 additional branches were brought
under ISO certification, taking the tally of such branches as at March 2004 to an impressive 521, apart from
nine administrative units. 
 
 Adequate & proactive customer care as well as inculcation of a customer centric ethos in every functional
aspect are indeed vital for achieving total quality in operations. In a premier service institution like your
Bank, I reiterate that our success depends not merely on the margins earned, but overwhelmingly on consistent
value creation for all stakeholders, including the customers. In a move befitting to our overwhelmingly
customer centric ethos and in tune with RBI guidelines, the Bank set up an adhoc Committee on Procedures and
Performance Audit on Public Service and made significant progress towards greater customer focus. 
 
 Role in Priority Segments 
 
 Our track record strongly vindicates our assiduous pursuit of banking on the priority segments and
consistently complying with the stipulated norms. As at March 2004, Bank's outstanding priority sector
advances stood at Rs.19580 crore, signifying a robust growth of 34%. Priority sector advances constituted
43.93% of our net credit vis-à-vis the 40% benchmark. While outstanding agricultural advances grew by 21% to
reach Rs.6545 crore, disbursements to agriculture during FY04 reached an all time high of Rs.4103 crore, with
a growth rate of 25%. Bank's advances to the SSI sector also recorded a 28% growth to reach Rs.4971 crore as
at March 2004. I am pleased to inform you that your Bank won the first national award for SSI lending during
2002-03, instituted by the Ministry of SSI, Government of India. Bank also stepped up its financial
assistance to the other priority segments and enhanced its portfolio under education loan schemes. During the
year, your Bank also issued 2.08 lakh Kisan Credit Cards vis-à-vis the targeted 1.3 lakh cards, with a credit
coverage of Rs.3074 crore and cumulative card population of 11.9 lakhs. 
 
 Social Responsiveness 
 
 Your Bank, in keeping with the founding principles, has time and again proved its credential as a socially
responsive corporate citizen by way of numerous initiatives in the socio-economic spheres and in the realm of
promoting rural development. Our efforts have received wide recognition and accolades, which will spur us to
continue our services in the social milieu. Canara Bank received ‘Corporate Social Responsibility–Citizen II'
award, instituted by FICCI-SEDF, for its outstanding social pursuits during 2003. Even going beyond the
mandate, your Bank has made a mark in various citizens' concerns including promotion of women
entrepreneurship, training for self-employment at sponsored institutes and furtherance of essential services
like “Jalayoga” related to drinking water and “Rural Clinic Services” scheme to encourage medical
practitioners in rural areas. 
 
 Treasury & International Operations 
 
 Aggregate investment portfolio of your Bank as at March 2004 amounted to Rs.35793 crore, which was 17.52%
higher than investment level a year ago. FY04 also featured completion of necessary modalities to commence
IT-enabled integrated treasury operations system. 
 
 As at March 2004, total foreign business turnover was of the order of Rs.67347 crore. Our export advances
moved up by more than 24% to reach Rs.5497 crore. Towards furthering our international operations, our
Representative Office at Moscow was taken up for conversion into a joint venture bank, in association with
the State Bank of India, under the name, Commercial Bank of India. The year also saw opening of our first
Off-shore Banking Unit (OBU) at Noida which will enhance our trade finance options. Our London branch also
exhibited improved overall performance during 2003-04. A fleet of over 600 correspondent banking arrangements
has also imparted requisite strength to our international operations. 
 
 Product Proliferation 
 
 An effective product design and product marketing process has been a major strength of your Bank all through
and during FY04, we continued our excellence in the realm of launching several new hi-tech and value added
products. During July 2003, we launched our Internet & Mobile Banking services at 300 designated branches
spread over six strategic locations. Our Debit-cum-ATM Card was introduced during November 2003, offering
value added and real time based service to the niche clients. Other important products launched during the
year included a loan scheme, CanMahila , exclusively for the women clientele and another scheme, namely,
Doctor's Choice , for medical practitioners. The Bank also started a group insurance scheme, Savings Suraksha
, for the deposit clients, insurance cover for housing loan clients and commenced cross selling of Mutual Fund
products. 
 
 Risk Management 
 
 Risk is an integral part of any business process, more so for the banking services, especially when seen in
the context of rise in risk dimensions. Your Bank is well prepared to move over to new global best practices,
like the Basel II, thanks to an integrated risk management system put in place. With well coordinated
Committees on Risk Management, Credit Policy and Asset Liability Management, your Bank has moved closer to
integrating credit, forex and treasury operations. A scientific Risk Based Internal Audit system has also
been devised for complete and objective compliance with the new Risk Based Supervision system. 
 
 One Stop Financial Supermarket 
 
 The Bank has been functioning as a financial supermarket with its eight subsidiaries/sponsored entities
providing a wide array of services to its diverse clientele. These services include housing finance,
factoring, venture capital assistance, investment management services and software consultancy. For the year
ended March 2004, the Bank's subsidiaries and sponsored entities put up a satisfactory all-round performance.
It is heartening to note that all the eight Regional Rural Banks sponsored by the Bank were profit making as
at March 2004. 
 
 Corporate Governance 
 
 Your Bank looks at the concept of corporate governance as doing everything better in the interest of
stakeholders, backed by market discipline of the highest order. A well participative and empowered system has
been put in place in the functioning of the Board, Executives and other functionaries with adequate
professionalism built into the distinctly defined roles. Bank's corporate governance philosophy is premised
on assiduous pursuit of sound business ethics and strong professional acumen that aligns the interests of all
segments of the stakeholders as also the society at large. 
 
 Looking back, FY04 was a highly rewarding year for your Bank. Your Bank made it to the ‘Forbes' magazine
list of 2000 firms worldwide, and was positioned first among the nationalized banks in the prestigious list
of 27 Indian companies. The Bank was also placed 14 th among the 500 companies rated by Dun & Bradstreet,
world's leading provider of business information services. 
 
 Future Outlook 
 
 Going by our performance during FY04 and the new objectives embarked upon, outlook for your Bank during the
current year is expected to be quite upbeat. With a targeted growth of 15.68%, your Bank's business level is
slated to reach Rs.1,55,000 crore by March 2005, up from Rs.1,33,984 crore as at March 2004. While deposits
are targeted to grow by 14.66% to reach Rs.99000 crore, advances are expected to be around Rs.56000 crore,
signifying a 17.55% increase. Retail portfolio will provide a major impetus to the Bank's asset portfolio as
nearly 40% of our incremental advances are targeted to emanate from retail segment. Our product
diversification will also continue during the current year. 
 
 Plans are already underway to strengthen your Bank's info-tech capabilities during the current year,
including achievement of 100% computerization by September 2004. Bank's fleet of ATMs is targeted to reach
1000 while Internet & Mobile Banking services are to be expanded to 750 branches and coverage under Anywhere
Banking will be enhanced to 1200 branches. Current year has already seen significant headway in the ground
work for implementing core banking solution (CBS) in the Bank. Within a two year timeframe, 1000 branches are
planned to be brought under the CBS mode. 
 
 Acknowledgement 
 
 Your Bank's continued performance excellence is due to my colleagues on the Board who have extended their
unstinted guidance, support and co-operation, the Auditors, the Legal Advisors and the correspondent banks
for their continued support, the Government of India and the Reserve Bank of India for their valuable
guidance and the Media for its constructive and continued coverage. 
 
 I record my sincere appreciation for the support extended by the Securities & Exchange Board of India
(SEBI), Stock Exchanges and the investor community for reposing adequate faith in your Bank's professional
prowess and proven capabilities. 
 
 Lastly, for a knowledge organization like Canara Bank, human resources continue to be of strategic
significance. Your Bank today boasts of a pool of talented manpower imbued with the penchant for success and
for whom, commitment has been of a high order. I place on record my sincere appreciation to the members of
the Canbank family for contributing wholesomely to the Bank's success. 
 
 The Corporate Vision of your Bank is to emerge as a world class bank by adapting best practices in the
realms of asset management, customer orientation, IT application, product innovation, profitability and
enhanced value to stakeholders. Last year, your Bank's corporate objective was EPOCH , which stood for E
fficiency, P rofitability & P roductivity, O rganizational Effectiveness, C ustomer-Centric and H i-tech
Banking. With accomplishment of the varied objectives, FY04 was truly epoch making. EPOCH continues to be our
goal which we plan to pursue with renewed vigour during the current year. 
 
 I have every reason to believe that with your continued support, 2004-05 will be another year of excellence
for your Bank. 
 
 Thanking you,
 Yours sincerely,
  
   July 21, 2004 
 Bangalore 
  R.V. SHASTRI
 Chairman & Managing Director