Canara Bank

The Board of Directors have pleasure in presenting the 39th Annual
 Report together with the Balance Sheet as on 31st March, 2008 and
 Profit and Loss Account for the financial year ended March 31, 2008.
 
 MANAGEMENT DISCUSSION AND ANALYSIS
 
 I.  ECONOMIC ENVIRONMENT
 
 Indian economy entered into a higher growth trajectory during the 10th
 Five Year Plan, clocking an average growth of 7.8% compared to an
 average growth of 5.5% recorded during the previous Five Year Plan.
 After growing at the rate of above 9% during last two financials,
 growth momentum of the Indian economy is expected to moderate during
 2007-08. As per the advanced estimates released by the Central
 Statistical Organization (CSO), the economy has grown at 8.7% for
 2007-08 as compared to 9.6% recorded during 2006-07, with slowdown in
 agriculture and industry.
 
 The growth in agriculture and allied activities is estimated at 2.6%
 during the year as against 3.8% recorded in the previous year. While
 industry, as a whole, is estimated to record a growth of 8.6% compared
 to 10.6% a year ago, growth in the manufacturing sector is estimated at
 9.4% (12.0%), electricity, gas and water supply at 7.8% (6.0%) and
 mining and quarrying at 3.4% (5.7%).
 
 Services sector, which continued to post double-digit growth of 10.6%,
 slightly moderated compared to 11.2% a year ago. In the services
 segments, construction sector growth is expected to have moderated to
 9.6% from 12% in 2006-07, while trade, hotels, transport and
 communication registered a growth of 12.1% as against 11.8% in 2006-07.
 Finance, insurance, real estate and business services growth is
 estimated at 11.7% as against 13.9% in the previous year.  Indias
 external trade continued its uptrend during 2007 08 as well. As per the
 provisional data released by the Directorate General of Commercial
 Intelligence and Statistics (DGCI&S), during 2007-08 merchandise
 exports increased to US 5.5 billion, recording a growth of 23.0% as
 compared with 23.9% posted during the same period a year ago. The total
 value of imports increased to US$ 235.9 billion registering a growth of
 27.0% which was lower than 29.3% recorded a year ago. Non-oil imports
 recorded an increase of 23.4%, while oil imports showed a growth of
 35.3% during the financial. Merchandise trade deficit during 2007-08
 widened to US .4 billion from US .3 billion a year ago. Foreign
 Exchange Reserves recorded an increase of US$ 110.5 billion during
 2007-08 to reach a level of US 9.7 billion by end-March 2008.
 
 As reported in the Economic Survey, Savings and Investment rates as a
 proportion to GDP are estimated at 35.6% and 36.3% respectively for
 2007- 08. With stronger macroeconomic fundamentals, the savings and
 investments rates are likely to provide further impetus to sustain the
 higher growth trajectory in the coming years.
 
 Economic Environment in Karnataka
 
 Karnataka is of special significance to Canara Bank.  Besides being the
 State in which the Bank was born over a hundred years ago, it is also
 the State in which the Banks Head Quarter is located.  Karnataka
 economy has been growing at a rapid pace over the last few years.
 Apart from its growing international recognition in the fields of
 Information and Communication Technology (ICT), Information Technology
 Enabled Services (ITES) and Biotechnology, the State provides home to
 varied industrial activities, agro-processing industries, sericulture
 and horticulture activities.  As such, the Bank has been playing a
 prominent role in the economic development of the State.
 
 II.  MONETARY AND BANKING DEVELOPMENTS
 
 Money Supply (M3), on year-on-year basis, increased by 20.7% in 2007-08
 as compared to 21.5% in 2006- 07. Aggregate deposits of Scheduled
 Commercial Banks (SCBs), y-o-y, increased by 22.2% during 2007- 08 as
 compared with the increase of 23.8%, a year ago.
 
 Accelerated growth during last three financials notwithstanding,
 aggregate business of SCBs, especially gross bank credit, moderated
 during 2007- 08.  SCBs gross credit recorded a y-o-y growth of 21.6%
 compared to 28.1% growth recorded during 2006-07. Non-food credit
 extended by SCBs increased by 22.3% in 2007-08 compared to 28.5% a year
 ago. The incremental non-food credit-deposit ratio for the banking
 system declined to 72.3% during 2007-08 from 83.2% in 2006-07,109.3% in
 2005-06. Liquidity conditions during 2007-08 continued to be influenced
 by variation in cash balances of the Government and capital flows.
 Spurt in inflation, triggered by supply side deficiencies, was a major
 concern during the year. The year-on-year WPI inflation, which was 5.9%
 in end-March 2007, declined to a low of 2.97% in end-October 2007
 before firming up from mid-February onwards to reach 7.41% by end-March
 2008. Concerns on liquidity and inflation continued to draw attention
 from various quarters during the year.
 
 The year 2007-08 saw the following key policy measures announced by the
 Reserve Bank of India (RBI).
 
 * To control the liquidity and the impending pressures of inflation,
 RBI resorted to hikes in Cash Reserve Ratio (CRR). While Bank Rate was
 kept unchanged at 6%, CRR was hiked from 6.5% to 7.5% in two phases.
 
 * Repo rate and Reverse Repo rate was kept unchanged at 7.75% and 6.0%
 respectively.
 
 * The benchmark prime lending rates (BPLRs) of the Public Sector Banks
 (PSBs) increased by 75 basis points from a range of 12.25%-12.75% to
 12.25%- 13.50% during 2007-08.
 
 * Interest rates offered by the PSBs on deposits of above one year
 maturity moved from a range of 7.25%-9.50% in March 2007 to 8.00%-9.25%
 in March 2008.
 
 * The RBI withdrew the ceiling of Rs.3000 crore on daily reverse repo
 under the Liquidity Adjustment Facility (LAF).The Reserve Bank,
 however, retains the discretion to re-impose a ceiling as appropriate.
 
 * The Reserve Bank has the flexibility to conduct repo/reverse repo
 auctions at a fixed rate or at variable rates as circumstances warrant.
 
 * The Reserve Bank retained the option to conduct overnight or longer
 term repo/reverse repo under the LAF depending on market conditions and
 other relevant factors.
 
 Outlook for 2008-09
 
 Global growth is projected to drop to 3.7% in 2008 compared to 4.9%
 recorded in 2007, as per the World Economic Outlook, released by the
 International Monetary Fund (IMF) during April 2008. The Outlook
 foresees a 25% chance of growth slowing to 3% or less in 2008 and 2009,
 equivalent to a global recession due to unfolding events in financial
 markets, triggered by the US sub-prime imbroglio. Global economic
 situation was marked by three factors - rising inflation, slower growth
 and tightening monetary conditions. The projections for the advanced
 economies have been reduced significantly.  Projected growth for the
 USA in 2008 has been lowered to 0.5%, down from 2.2% in 2007. Growth in
 emerging market and developing economies is also expected to moderate
 from 7.9% in 2007 to 6.7% in 2008. As per the IMFs projection, Indias
 growth may shrink by 1.3% to 7.9% in the same period. Further,
 financial risks have increased notably as a result of the continued
 volatility in oil prices, sub-prime crisis, global imbalances and large
 leveraged positions in financial markets.
 
 Despite world economic slowdown, the Indian economy is likely to post a
 growth of 8-8.5% for 2008-09, as per the Annual Policy Statement for
 2008-09 released by the RBI.  The money supply is projected to grow at
 16.5-17.0% in 2008-09 in consonance with the outlook on growth and
 inflation so as to ensure macroeconomic and financial stability in the
 period ahead. Consistent with the projections of money supply, the
 growth in aggregate deposits in 2008-09 is placed at around Rs.5,50,000
 crore, translating into a growth of about 17%. Based on an overall
 assessment of the sources of funding and the overall credit
 requirements of the various productive sectors of the economy, the
 growth of non-food credit is projected at around 20% in 2008-09. In
 view of the lagged and cumulative effects of monetary policy on
 aggregate demand and conducive supply management, the annual policy
 endeavour would be to bring down inflation from the current high level
 of above 7% to around 5.5% in 2008-09. The Central Bank targets an
 inflation rate of around 3% as part of the medium-term objective.
 
 III.  CANARA BANK IN 2007-08
 
 FINANCIAL PERFORMANCE
 
 Profits and Profitability Net Profit at Rs. 1565 Crore Highest Since
 Inception Financial year 2007-08 was a year that saw many initiatives
 on varied fronts- rebalancing business focus witn a view to improving
 earnings profile, enhancing delivery channels and customer centricity,
 repositioning brand identity, successful migration to Basle II new
 capital adequacy framework, unrelenting focus on asset quality and risk
 management, business process revamp and accent on human capital
 development. The year was also characterised by introduction of several
 new products and services, which have an important bearing on the
 profitability of the Bank.
 
 A two pronged business rebalancing strategy was adopted with a view to
 improving earnings for the year under review and for the subsequent
 years. The objective was to save cost on liabilities and improve yield
 on assets.  While focus on cost containment has led the Bank to shed a
 substantial amount of high cost preferential rate deposits, emphasis on
 improving and discovering better yield has prompted the Bank to cut
 down a sizeable amount of low yielding corporate advances. All these
 measures and initiatives, which started showing results during the
 year, would impact more perceptibly during FY09 and subsequent years.
 
 With the operating profit for the year increasing to Rs.2959 crore, net
 profit reached an all time high of Rs.1565 crore, substantially higher
 than Rs.1421 crore recorded for 2006-07.  Return on average assets
 (RoAA) for the year stood at 0.92%.  Containment of operating expenses
 was reflected in the ratio of operating expenses to Average Working
 Funds (AWF), which was 1.77% as at March 2007, declining to 1.63% as at
 March 2008. Consequently, profit per employee, moved up to Rs.3.65 lakh
 compared to Rs.3.24 lakh in 2006-07.
 
 Key Financial Ratios (%)            March 2007   March 2008
 
 Yield on Advances                    8.95          10.22
 Yield on Investments                 7.78           7.89
 Cost of Deposits                     5.46           6.80
 Spread as a % to AWF                 2.78           2.07
 Net Interest Margin (NIM)            3.15           2.42
 Operating Expenses to AWF            1.77           1.63
 Return on Avg. Assets (RoAA)         0.98           0.92
 Return on Networth                  18.78          19.08
 Business per Employee (Rs. in Crore  5.49           6.10
 Profit per Employee (Rs. in Lakh)    3.24           3.65
 Book Value (Rs.)                   197.83         202.33
 Earning per Share (Rs.)             34.65          38.17
 
 amounting to Rs.328 crore, was declared by the Board of Directors of
 the Bank, as against 70% (Rs.287 crore) paid in the preceding year.
 
 Income and Expenditure Analysis
 
 Resulting from buoyancy in the core operations and lending to
 productive segments, the Banks interest income recorded a y-o-y growth
 of 25% to reach Rs.14201 crore compared to Rs.11365 crore recorded
 during the previous financial. Interest income was driven by a 31.5%
 growth in income from loans/advances, which accounted for over 60% of
 the total income. Notably, non-interest income registered a growth of
 52.5%, with a 20% growth in fee-based income, well above the 10.3%
 growth in non- interest income during the previous year.
 
 Interest rates on deposits remained at a peak level during FY08,
 resulting in higher outgo on interest payment on liabilities than
 interest income. It had also a bearing on the average cost of deposits
 and average yield on loans/advances. While yield on advances rose by
 127 basis points to 10.22%, cost of deposits increased higher by 134
 basis points to 6.80%. Increase in cost of funds resulted in further
 narrowing down of interest spread to 2.07%forthefinancialyearended
 March 2008. While interest expenditure, comprising over 79% of the
 total expenditure, increased to Rs.10663 crore, the Bank reasonably
 contained its non-interest expenditure.
 
 Investments in lower yielding securities on account of statutory
 reserve maintenance hit the Net Interest
 
                                                    (Rs. in Crore)
 
 Composition of Capital             March 2007       March 2008
                                    Basle              Basle II
 
 Risk Weighted Assets               109478            116220   
 Tier  Capital                        7850              8148   
 CRAR (%)(Tier I)                      717               701   
 Tier II Capital                      6925              7250   
 CRAR (%)(Tier II)                     633               624   
 Total Capital                       14775             15398   
 CRAR(%)                              1350              1325   
 
 
 (NIM). The Bank has not earned any interest on CRR balances from
 31.3.2007. The Bank has taken a prudent risk containment measure by
 reducing the modified duration of the investments in the Available for
 Sale (AFS) category to 1.29 from 2.31 a year ago by concentrating
 incremental investment in short duration securities where the yields
 are lower. However, this helped the Bank in reducing the interest rate
 risk and consequently lowered the provisioning requirements.
 
 Capital and Reserves
 
 Networth of the Bank, as at March 2008, stood at Rs.8296 crore compared
 to Rs.8111 crore as at March 2007. With the paid-up capital at Rs.410
 crore, reserves and surplus increased to Rs. 10091 crore.  During the
 year, the Bank raised Tier II bonds worth Rs.700 crore so as to augment
 capital base. As at March 2008, Capital to Risk Weighted Assets Ratio
 (CRAR) of the Bank under Basle II stood at 13.25%, well above the 9%
 regulatory benchmark. The medium term objective of the Bank is to
 maintain the CRAR ratio above 12%.  Implementation of the Basle II
 norms with effect from March 2008 has been an important development
 during theyear. Canara Bank is at present Basle II compliant, with due
 adherence to all norms specified by the RBI and certified by the
 Auditors.
 
 BUSINESS GROWTH
 
 Business Volumes Cross Rs.2.6 lakh Crore
 
 Deposits
 
 In sync with the strategic focus, the Banks core deposits grew by a
 robust 25%.  With the strategic objective of rebalancing business
 portfolio, the Bank shed a substantial amount of preferential rate
 deposits and concentrated on mobilizing higher core deposits during the
 year under review. The Banks conscious decision to shed preferential
 rate deposits by about 24% had a moderating impact on its aggregate
 deposits, which grew by Rs.11691 crore to reach Rs.154072 crore.
 Responding to a clear focus on augmenting CASA (current and savings
 bank deposits), after seveial years, the Banks share of CASA deposits
 in aggregate domestic deposits moved up by 40 basis points to 32.39%.
 With a CASA per branch at Rs.18.12 crore, the Bank continues to be one
 of the best among the peers. Pursuing a strategy of broad basing
 deposit clientele, all the branches together added nearly 2.8 million
 accounts, taking the total tally under deposit accounts to 28.30
 million.
 
 Advances (net)
 
 The Banks advances (net) moved up by Rs.8732 crore to reach Rs.107238
 crore. The shedding of preferential rate deposits was accompanied by a
 corresponding rebalancing in advances portfolio with a clear focus on
 productive sectors. On the assets side too, the Bank consciously pruned
 a substantial low-yielding loans during the year. The Bank ensured that
 the credit growth to productive sectors like agriculture, small and
 medium enterprises, education and infrastructure grew at a fast clip.
 The number of borrowal accounls, as at March 2008, rose to 4.05
 million. The Banks credit to deposit ratio stood at 69.6% as at March
 2008.
 
 Clientele Base Rose to 32.35 Million -
 
 3 Million Accounts Added
 
 Aggregate business moved up from Rs.240887 crore as at March 2007 to
 Rs.261310 core as at the end of March 2008. Productivity, as measured
 by business per employee, increased to Rs.6.10 crore from Rs.5.49 crore
 a year ago, continuing to be one of the best among the peers. With
 several enterprise-wide initiatives and measures, the Bank added 3
 million clientele during the year.
 
 Retail Lending Operations
 
 The Banks retail lending operations moderated during the year
 following rebalancing of the credit portfolio.  Disbursals made under
 retail lending during 2007-08 amounted to Rs.4580 crore, taking the
 outstanding retail portfolio to Rs.17665 crore. Retail portfolio as a
 proportion of net credit was brought down to 16.2%.  Under retail
 segments, advances to housing finance (direct) reached Rs.6658 crore.
 Direct housing loan formed 37.7% of retail portfolio, with a major
 proportion coming under the priority ambit, reflecting the Banks
 continued alignment with national priorities. While advances to retail
 trade increased to Rs.3798 crore, loans to other personal segments
 stood at Rs.7209 crore.
 
 TREASURY AND INTERNATIONAL OPERATIONS
 
 Aggregate investments of the Bank, as at March 2008, were of the order
 of Rs. 49812 crore. In tune with the objective of bringing down the
 portfolio market risk, the modified duration of the Available for Sale
 (AFS) segment has been brought down significantly to 1.29 as at March
 2008 from 2.31 a year ago by concentrating incremental investment in
 short duration papers. The trading profit during the year stood at
 Rs.435 crore, as against Rs.134 crore of previous year.  In the wake of
 rising credit spreads and global uncertainties, Bank reduced the
 exposure to Non-SLR securities by 27% to Rs.5023 crore as at March
 2008. The Bank also continued to be an active player in the capital
 market by participating in Initial Public Offers (IPOs) and capturing
 better part of the market movements to improve its bottom-line.
 
 The Bank continued to be one of the major players in the country for
 financing and facilitating the foreign trade through its 16 foreign
 departments and 139 designated branches across the country.  Foreign
 Business Turnover of the Bank, as at 31st March 2008, aggregated to
 Rs.136757 crore. Foreign business turnover comprised Rs.43759 crore
 under exports, Rs.41765 crore under imports and Rs.51233 crore under
 remittances. Outstanding export credit rose to Rs.9162 crore from
 Rs.7896 crore recorded at the end of the previous year.  Across the
 borders, the Banks presence covered one branch each at London and Hong
 Kong, a representative office at Shanghai and a joint venture bank,
 namely, Commercial Bank of India LLC in association with State Bank of
 India, in Moscow. Canara Bank has also an Offshore Banking Unit at
 Special Economic Zone(SEZ)NOIDA, Uttar Pradesh.
 
 The Bank has drawn up a medium term roadmap to expand global footprints
 in 21 internationally prominent financial centres. The year witnessed
 the Bank moving a step closer in its global expansion aspiration.  The
 Bank has obtained permission from the Reserve Bank of India to open
 branches at Johannesburg (South Africa), Frankfurt (Germany), Muscat
 (Oman), Manama (Bahrain) and Qatar, the Bank is in the process of
 obtaining regulatory approvals from the host countries for opening
 branches in the above centres. The Bank obtained, during the year,
 preliminary approval from China Banking Regulatory Commission to
 convert its representative office at Shanghai into a full-fledged
 branch.  The Banks international operations are supported by a wide
 network of 539 correspondent banks, spread across 94 countries. The
 Bank has rupee drawing arrangements with 19 exchange houses and 19
 banks in the Middle East for channelising the remittances of
 expatriates.  Canara Bank has been managing two exchange houses viz.,
 Al Razouki International Exchange Co, Dubai and Eastern Exchange Est.,
 Qatar, under secondment agreement. During the year, Electronic Funds
 Transfer (EFT) was extended to additional five exchange companies/
 banks for faster credit of remittances, taking the tally to 11 exchange
 companies banks. The Bank also introduced Web Basedremittance
 facility to facilitate quicker remittance of funds.
 
 OTHER SERVICES
 
 The Banks Merchant Banking Division handled diverse assignments as
 Co-Book Running Lead Manager and Advisor/Lead Manager /Manager
 /Arrangers. The Bank also forayed into specialized areas of Valuation
 of Shares for various usages, acting as Issuing and Paying agent for
 Commercial Paper Placements, supplementing fee based income.
 
 The year 2007-08 was the first year of operations of the Syndication
 Group. The Group has syndicated total debt of Rs.2780 crore with
 project cost amounting to Rs.3959 crore. The Croup generated a
 substantial increase in the fee based income. The debt component of the
 current projects under placement is to the tune of Rs.2404 crore.  The
 Group is also having projects to the extent of debt component of Rs.
 1214 crore under various stages of syndication. The Group has
 syndicated diverse projects from Manufacturing, Infrastructure,
 Services and Real Estate Sector.  The Bank has tie-up arrangements in
 both life and non- life insurance segments under its bancassurance
 arm.  The Bank has acorporate agency agreement with M/s Aviva Life
 Insurance Company (India) Pvt. Ltd. The Bank will be entering into
 corporate agency agreement with its new Joint Venture, viz., M/s Canara
 HSBC Oriental Bank of Commerce Life Insurance Company Ltd. The Bank has
 also a tie-up arrangement with M/s United India Insurance Company Ltd
 for general insurance business.
 
 Under Cross Selling, the Bank has commenced selling of Mutual Fund
 products of its own subsidiary, namely, M/s Canara Robeco Asset
 Management Company Ltd and HDFC Asset Management Company under the
 tie-up agreements. To make the marketing efforts more effective and
 result oriented, a number of measures were taken during the year, which
 are expected to result in substantial earnings from cross-selling of
 insurance, mutual funds and other products.  Corporate Cash Management
 Services (CCMS) network of the Bank, covering 94 Operating Centres and
 595 Pooling Branches, provides services related to local and upcountry
 cheque collection, bulk cheques collection and zero balance account
 facility. The aggregate turnover under CCMS amounted to Rs.2215 crore.
 
 Under Card Business, the Bank took several initiatives to expand its
 credit card and Debit-cum-ATM card base. The Banks debit and credit
 cards were enabled for global use, with a host of facilities and
 customer friendly features.  The total card base rose to 33.7 lakhs as
 at March 2008.  The Bank increased the number of NSDL depository
 service centres from 9 to 31 during the financial year ending March
 2008.
 
 Executor, Trustee and Taxation Services outfit of the Bank provides
 services like Debenture/Security Trusteeship, Will and Executorship,
 Trusteeship, Personal Tax Assistance and Power of Attorney Services.
 During the year under review, it secured 12 new bonds/security
 trusteeship issues, amounting to Rs.3607 crore and generated
 substantial fee-based income.
 
 Under Government Business, comprising Direct Taxes (Income Tax) etc.
 and Indirect Taxes (Excise and Customs), Departmentalized Ministry
 Accounts, Postal Transactions and Treasury, the Bank achieved a total
 turnover of Rs.33,134crore. The Bank has introduced Internet Payment
 (e-payment) of Excise and Service Tax, Customs Duty and Direct Taxes
 during the period.  The Bank has been authorized to handle accounts of
 Department of Education, Department of Culture, Department of Arts and
 Department of Youth Affairs and Sports under Ministry of Human
 Resources Development (HRD), Government of India. The Bank has
 developed a Web-Portal for Ministry of HRD for e-tracking the funds
 under the Sarva Shiksha Abhiyan Scheme. The Web-Portal has been
 implemented in Andhra Pradesh, Karnataka, Tamil Nadu and Union
 Territory of Puducherry. The total turnover in the accounts of the
 Ministry of HRD for the year 2007-08 was Rs.22,024 crore.
 
 Agricultural Consultancy Services (ACS) outfit of the Bank handled more
 than 80 assignments during the year under review. The assignments
 include project appraisal formulations in 47 projects with an outlay of
 Rs.350 crore.  Important assignments handled during the year include
 appraisal/viability studies in areas of agriculture and allied
 activities like floriculture, dairy, poultry, food processing, culinary
 herbs, aquaculture, cold storages and food parks.
 
 ASSET QUALITY AND RISK MANAGEMENT
 
 Net NPA Ratio Brought down to 0.84% All Time High Cash Recovery at
 Rs.1030 crore Asset Quality Unrelenting focus on assets quality,
 stringent credit review and monitoring mechanism brought about a
 reduction in the Banks NPA in absolute as well as ratio terms.  The
 gross NPA level declined during the year and stood at Rs.1416 crore.
 With a gross NPA ratio of 1.31%, the Bank continues to be the lowest
 among the peers.  With a net NPA level of Rs.899 crore, net NPA to net
 advances ratio also came down to 0.84% as at March 2008 from 0.94% a
 year ago.
 
 The performance under settlements and recovery was quite noteworthy.
 6142 Recovery Meets were conducted during the year, resulting in the
 recovery of Rs.545 crore. Cash recovery during the year aggregated to
 Rs.1030 crore, well exceeding the internal target of Rs.850 crore.
 
 Risk Management
 
 Smooth Transition to the Basle II Capital Adequacy Framework Risk
 Management Initiatives The Bank has put in place a unified risk
 management architecture to move towards global best practices for
 effective implementation of risk management initiatives in conformity
 with the Basle II framework and RBI guidelines. The Board of Directors
 drive the Risk Management initiatives in the Bank. The Risk Management
 Committee of the Board is constituted and operational. Top Executive
 Committees for Credit Risk, Operational Risk and Market Risk management
 supervise and monitor the respective risk management processes and
 procedures. Asset Liability Committee (ALCO) meets periodically for
 effective and pro-active A1..M in the Bank.
 
 An exclusive Risk Management Wing at the Head office is functioning as
 a nodal point for overall implementation of various risk management
 initiatives across the Bank.  Integrated Mid Office of both domestic as
 well asforex treasury is functioning under Risk Management Wing for
 effective and independent supervision and monitoring of market risk in
 investment and forex functions. Risk Management Sections are
 functioning in all the 30 Circle Offices of the Bank as extended arms
 of the Risk Management Wing at the Corporate Office.
 
 Migration to Basle II Norms
 
 The Bank has computed Capital to Risk Weighted Assets Ratio (CRAR) at
 31st March 2008, as per Pillar requirement of Basle II norms, adhering
 to the New Capital Adequacy framework guidelines stipulated by the RBI.
 The Bank has framed policy on Internal Capital Adequacy Assessment
 Process (ICAAP) to meet the requirements of Pillar 2 of Basle II norms.
 The Bank has constituted a Capital Planning Committee to assess capital
 requirement of the Bank, ensure maintenance of appropriate level of
 CRAR and evaluate various options for raising capital.
 
 The Bank has adhered to the Disclosure norms as stipulated in the
 guidelines of RBI to meet Pillar 3 requirements of Basle II norms. The
 Bank has framed a policy of Disclosures and formed a Disclosure
 Committee consisting of Top Executives to ensure adherence to the
 policy guidelines.  Improvement in awareness of Basle II norms among
 staff is continuously being enhanced through training, periodical
 publications of Risk Management Wing, such as Risk Focus and Industry
 Focus. Knowledge and skill levels of core staff at Corporate Office
 assigned with the responsibility of implementation of Basle II norms
 are being constantly upgraded through participation in external
 trainings, workshops and seminars.
 
 Credit Risk Management
 
 The Bank has adopted Standardized Approach to arrive at credit Risk
 Weighted Assets (RWA) for computing Capital to Risk Weighted Assets
 Ratio (CRAR). The data for arriving at RWA is being collected from the
 branches manually, which is validaced by internal/external  auditors.
 The Bank has embarked upon a software solution, viz., Comprehensive
 Data and System Architecture on Credit Risk Management (CDCRM) to get
 the system support for the MIS requirements to compute RWA, generate
 various credit related statements and conducting various analyses of
 credit portfolio for real time monitoring. The implementation of CDCRM
 project is in the final phase.
 
 The Bank has effective risk management systems for managing credit
 risk. The various initiatives taken by the Bank are as follows: Putting
 in place a comprehensive Credit risk management policy in tune with
 regulatory guidelines and best practices in the industry. This policy
 is reviewed annually.
 
 * Bank has put in place four different rating models, according to the
 asset class and size of borrower, for assigning internal ratings to the
 Banks new and existing loan exposures.
 
 * Rating of eligible accounts has been made mandatory as a pre-sanction
 exercise. Migration analysis of rated accounts is being done
 periodically for Head Office power accounts. Back testing/stress
 testing of rating models is being done.
 
 * Pricing linked to rating has been initiated.
 
 * Fixation of various exposure ceiling/prudential norms to avert
 concentration risk, such as, single and group borrowers, substantial
 exposures, term loans, unsecured advances, exposure to various
 industries, NBFCs, real estate, capital market and software sectors.
 
 * Effective loan review mechanism through various credit monitoring
 tools, such as, credit monitoring formats, mid-term reviews, stock
 audits, quarterly information system/half-yearly operating systems,
 special watch list accounts, intense monitoring of quick mortality
 accounts and review of sanctions by higher authorities.
 
 The Bank maps the ratings assigned by recognized external credit rating
 agencies to the exposures of the concerned borrowers strictly in terms
 of RBI guidelines to obtain capital leverage available under
 Standardized Approach. The Bank has initiated steps to encourage the
 borrowers to get the facilities rated in order to minimize unrated
 exposures.  The Bank has drawn a road map for moving to Internal Rating
 Based approaches. The process of identifying suitable software solution
 to adopt multiple approaches has been finalized.
 
 Operational Risk Management
 
 The Bank has computed capital charge for operational risk by adopting
 Basic Indicator Approach as stipulated by RBi.  The Bank has initiated
 steps for strengthening internal operational loss data base through
 incident reporting system by all branches/offices to capture loss/near
 miss operational loss incidents.  Risk Profile of the Bank is
 compiled on a quarterly basis based on the risk templates provided by
 RBI, to analyze the level and direction of various risks across the
 Bank.
 
 Proper organizational structure is in place as a first step to
 implement compliance of Regulatory/Statutory and internal guidelines
 across the Bank.  As an initiative to move towards Advanced Approaches
 for operational risk management, the Bank has put in place Business
 Line Policy, Outsourcing Policy, Legal Risk Management Policy and
 Policy on Insurance. The mapping of loss events into business lines is
 in progress. The exercise of Risk Control and Self- Assessment (RCSA)
 of various products and processes has already commenced.
 
 Market Risk Management:
 
 The Bank has computed capital charge for market risk on Available for
 Sale (AFS) and Held for Trading (HFT) portfolios under Investments, by
 adopting Standardised Modified Duration Approach.  integrated Mid
 Office at Risk Management Wing monitors market risk through on line
 connectivity with the domestic and forex treasury.  Exposure limits,
 such as stop loss limits on trading books, Dealer wise limits, limits
 on money market operations, M-duration limits for AFS category,
 Aggregate gap limit, Intra day and overnight limit for various currency
 position are fixed to act as risk mitigants and on line monitoring is
 being done by Risk Management Wing. Various risk reports formats are
 customized for effective market risk management.
 
 The Bank has initiated steps for putting in place VaR based model for
 estimating future volatility under trading book and for moving towards
 Internal Model approach for computation of capital charge for market
 risk. Pilot test of K-VaR model has been undertaken.
 
 Asset Liability Management
 
 The Bank has put in place an effective Asset Liability Management
 system. The Board of Directors of the Bank has constituted an Asset
 Liability Committee (ALCO) to oversee ALM functions, including fixation
 of interest rates for various components of assets and liabilities, its
 composition and maturity. A comprehensive software solution has been
 installed for quantifying risks and to analyze Maturity Gap, Duration
 and Sensitivity of assets and liabilities.
 
 Studies have been undertaken to analyze the behavioural patterns of
 various components of assets and liabilities.  Analysis of Earnings at
 Risk (EAR) and sectoral lending are being done on an ongoing basis.
 Stress testing exercises on various scenarios of liquidity and interest
 rates are being undertaken to estimate the stress cost as also the
 Economic Value of Equity (EVE). The change in the composition and
 residual maturity of assets and liabilities is evaluated by the
 Traditional Gap Analysis (TGA) as also by the Duration Gap Analysis
 (DGA).  With the issuance of the amended Guidelines on Asset Liability
 Management by the Reserve Bank of India, the liquidity position of the
 Bank is tracked on a daily basis by means of residual maturity of
 assets and liabilities.
 
 The ALCO meets regularly to discuss various issues pertaining to the
 liquidity position by considering the residual maturity profile of
 various assets and liabilities, takes stock of the dynamic interest
 rate scenario, discusses at length the changes taking place in economic
 and financial parameters which have a direct or indirect bearing on the
 banking industry and focuses on the impact of all these factors on the
 business profile of the Bank.
 
 NATIONAL PRIORITIES
 
 Priority Sector Advances
 
 As a responsible banking major of the country, Canara Bank has been
 relentlessly pursuing varied goals under national priorities. The
 performance during 2007-08 has further reaffirmed the Banks commitment
 to the large and growing productive segments of the economy including
 agriculture, small enterprises, education, weaker sections, SC/STs and
 minorities.
 
 Outstanding Priority Sector Advances of the Bank as at March 2008 rose
 by Rs.5359 crore to Rs.43203 crore, covering 32 lakh borrowers.
 Priority Sector Advances formed 44.15% of the Banks Adjusted Net Bank
 Credit (ANBC), well above the 40% stipulated norm. The incremental
 growth under priority sector credit (Rs.5359 crore) constituted almost
 62% of the incremental growth in gross credit (Rs.8682 crore) of the
 Bank.  With a focus on credit delivery to agriculture, the Bank has
 more than doubled the credit flow to agriculture in last three years in
 tune with Government policy. During the year 2007-08, the Bank
 disbursed Rs.11443 crore, an increase of 22% over the previous year.
 The Banks outstanding advances under agriculture reached Rs.17996
 crore, registering a 16% y-o-y growth during the financial year under
 review. Outstanding agriculture credit as a proportion of ANBC rose to
 18.39%, surpassing the mandatory targeted level of 18% after a gap of
 eleven years.
 
 Consequent to implementation of the revised guidelines on priority
 sector advances, advances under priority credit segment were
 reclassified, leading to moving out of a substantial amount of advances
 from the priority sector.  Factoring in the amount moved out of the
 priority sector, the y-o-y growth in advances would work out to 17% for
 the entire priority sector and 22% for agriculture during the year.
 Quite notably, the Banks Rural and Semi Urban branches have financed
 3.41 lakh new farmers at an average of 248 farmers per branch as
 against the stipulated minimum of 100 new farmers per branch.
 
 Under Kisan Credit Card Scheme, the Bank issued 3.37 Lakh cards during
 the year, with credit coverage of Rs.2221 crore. As at March 2008, the
 umulative number of Kisan Credit Cards reached 24.46 lakhs, involving a
 credit coverage of Rs.10257 crore.
 
 The Bank continues to support human capital formation in the country
 through financing higher education, sustaining the highest education
 loan portfolio among nationalized banks in India. The Banks
 outstanding advances under Vidyasagar Education Loan Scheme recorded a
 growth of 39% to reach Rs.1737 crore, covering more than 1,19,000
 students as at March 2008.
 
 The Bank has also extended financial assistance to other priority
 sectors, such as retail traders, housing and micro credit. As at March
 2008, outstanding advances to these sectors reached a level of Rs.
 11032 crore.  During the year, the Bank actively participated in
 various Government Sponsored Schemes, such as, PMRY, SCSY, SJSRY and
 SLRS. As at 31st March 2008, the outstanding advances under these
 schemes aggregated to Rs.571 crore, involving 1.3 lakh beneficiaries.
 Performance under Various Government Sponsored Schemes
 
 Name of the Schemes        No. of Accounts Amt.  in Rs. Crore
 
 
 PMRY                          82244                     374
 SGSY                          31426                     157
 SJSRY                         14748                      38
 SLRS                           1230                       2
 Total                        129648                     571
 
 In support of the underprivileged sections of the society, the Banks
 outstanding advances to SC/ST beneficiaries reached Rs.2055 crore as at
 March 2008. The recovery percentage of lending to SC/ST borrowers was
 72% as compared with 83.6% for the Banks entire priority sector
 advances. While outstanding advances to weaker sections aggregated to
 Rs.7528 crore, with a y-o-y growth of 34%, advances under DRI scheme
 stood at Rs.40 crore as at March 2008.  During the year, the Bank has
 formed 60,363 Self-Help Groups (SHGs).  The cumulative number of SHGs
 formed was 2,10,441 as at March 2008 with a credit linkage of 1,72,290
 SHGs. Outstanding advances to SHGs more than doubled to reach Rs.526
 crore as at March 2008.
 
 Advances outstanding to Small and Medium Enterprises
 
 (SMEs) recorded an increase of Rs.4355 crore during the financial to
 reach Rs.18600 crore, registering a y-o-y growth of 30.6%. Considering
 the importance of SME sector in the national economy, the Bank
 introduced several schemes to meet the diverse requirements of
 entrepreneurs in SME segment. Duringtheyear,the Bank entered into
 agreement with Credit Rating Information Services of India Ltd
 (CRISIL), SME Rating Agency of India Ltd (SMERA) and ICRA Ltd for SMEs
 ratings. The Bank has created SME Processing Units at select Circles
 enabling faster processing and sanction. It has also set up a dedicated
 marketing on a pilot basis. On enactment of the Micro, Small and Medium
 Enterprises Development Act (MSMED Act), 2006, the Bank adopted the
 revised definitions of the SME sector and rationalized rate of interest
 on advances to manufacturing as well as services segments.
 
 The Bank received an amount of Rs.3.3 crore from the Ministry of Micro,
 Small & Medium Enterprises, Government of India during the year as a
 Nodal Agency for Technology Upgradation of SSI units under Credit
 Linked Capital Subsidy Scheme (CLCSS) and amount utilized for the same
 was Rs.90.3 lakh.
 
 Financial Inclusion
 
 Reaching Out Through Financial Inclusion
 
 Pursuing its thrust on financial inclusion, the Bank continued to put
 its arms around the people outside the ambit of banking. The Bank
 mobilized 1.2 million no-frill accounts (CanSaral) during FY08,
 exceeding the target of one million. The Bank has taken several
 technology initiatives to further Financial Inclusion process. The
 initiatives include introduction of multi-lingual biometric ATMs,
 voice-enabled mobile bio-metric ATM and launching of Smart Card
 project.  Introducing technology in the Financial Inclusion process,
 the Bank launched multilingual biometric-voice enabled ATMs during the
 year. The Bank has completed the Total Financial Inclusion in 19 out of
 24 lead districts, namely, Bangalore Rural, Bangalore Urban,
 Chitradurga, Kolar, Shimoga, Hassan, Chikkaballapur and Davanagere in
 Karnataka, Palakkad.Trissur, Waynad, Calicut and Malappuram in Kerala,
 Sheikpura in Bihar, Coimbatore, Erode, Madurai, Nilgiris and Theni in
 Tamil Nadu.  The State of Kerala, where Canara Bank is the Convenor of
 State Level Bankers Committee, was the first major State to achieve
 total financial inclusion during December 2007.
 
 The Bank has also sanctioned 61,793 general purpose credit cards during
 the year as a means of enlarging the scope of financial inclusion
 services. Canara Bank is the first bank in the country to launch mobile
 Biometric-voice enabled ATM in Bangalore Rural. In a novel initiative,
 the Bank has launched Gram in Vikas Vahini -vehicles to spread
 financial literacy. Under the initiative, 50 vans have been operational
 in 50 districts across India. The Bank started Credit Counseling Centre
 in three districts in Karnataka.
 
 Lead Bank Scheme
 
 Canara Bank has lead bank responsibilities in 24 districts in the
 country, viz., eight in Karnataka, six in Tamil Nadu, five in Kerala,
 four in Uttar Pradesh and one in Bihar. The Bank is also acting as the
 convenor of the State Level Bankers Committee (SLBC) in the State of
 Kerala.
 
 Entrepreneurship Development among Women
 
 The Centre for Entrepreneurship Development for Women was established
 during 1988 at Head Office, Bangalore. At present 30 such Centres are
 functional at various Circles across the country. These Centres cater
 to the needs of the women by providing counselling services, conducting
 entrepreneurship development/skill training programmes, conducting
 seminars and providing marketing support by organizing exhibitions like
 Canutsav/Canmela/Canbazar. Towards providing exclusive banking services
 to women, 3 Mahila Banking Branches and 6 Mahila Banking Divisions have
 been set up by the Bank at different parts of the country. During
 2007-08,1003 skill development and 785 awareness programmes were
 conducted benefiting 54,807 and 55,018 women, respectively. 1,07,102
 women were counseled in the area of entrepreneurship development
 programme. During the last one year as many as 76 Canbazaars/Canutsavs
 - an exhibition-cum-sale of products manufactured by women were
 conducted through these branches/divisions. As at March 2008, the total
 amount of outstanding advances to women stood at a level of Rs.8982
 crore, constituting 9.17% of the Banks net credit, well above the 5%
 stipulation by the Government of India.
 
 CORPORATE SOCIAL RESPONSIBILITY A Responsible Corporate Citizen
 
 The Bank, as a responsible corporate social citizen, has
 
 been paying due attention to varied corporate social responsibilities
 since inception. Through a judicious mix of commercially sound banking
 practices with social banking initiatives, Canara Bank has
 distinguished itself in terms of numerous community oriented
 activities. The Bank has been taking a slew of initiatives over the
 years for societal development concerning underprivileged, especially
 in the countryside. Following the principles of corporate philanthropy,
 the Bank has set up many self- employment training institutes to
 counter poverty and unemployment among rural youth. The Bank has been
 addressing the need for basic amenities in the rural areas through
 encouraging setting up of rural clinics, providing drinking water
 facilities and engaging rural volunteers for betterment of the society.
 
 Rural Development
 
 The Bank through its Canara Bank Centenary Rural Development Trust, has
 established 14 exclusive training institutes to promote
 entrepreneurship development among rural youth and encourage them
 taking up self employment activities. These institutes have so far
 trained 65,161 unemployed youth, comprising 58% women and recording an
 impressive settlement rate of 73%. The Trust is also supporting the
 activities of Society for the Educational and Economic Development
 (SEED), a voluntary organization based in Sriperumbadur which works
 forthe welfare of the socially marginalized children and Abhayam, an
 NGO in Pulassery, Palakkad district of Kerala which provides basic
 necessities like food, shelter, clothing and medicines to the poor and
 destitute.
 
 The Bank, under the Rural Development and Self Employment Training
 Institutes (RUDSETIs), have been engaged in the training of rural youth
 for taking up self- employment programmes. 23 RUDSETIs, co-sponsored by
 the Bank, have trained more than 2,03,000 unemployed youth, with a
 settlement rate of 68%. During the year 2007-08, 3 new RUDSETIs have
 been opened at Baran in Rajasthan, Berhampore in West Bengal and
 Hajipur in Bihar.  Canara Banks Rural Clinic Service Scheme provides
 basic health care services in remote areas, lacking basic medical
 infrastructure facilities. Under the Scheme, the Bank encourages
 doctors to set up clinics in identified rural areas. As at March 2008,
 the total number of such clinics rose to 503.
 
 The Bank under Jalayoga, a scheme to provide safe drinking water, has
 so far implemented 35 projects in its lead districts. The Bank has also
 donated a hitech, custom built, solar powered Mobile Sales Van to
 assist women entrepreneurs, SHC groups and artisans to market their
 products.  The Bank has conducted more than 2000 social banking
 activities across the country benefiting more than 3 lakh poor and
 needy people. The service activities conducted by the Bank include
 blood donation camps, assistance to physically and mentally challenged
 people, cultural competition for visually challenged, assistance to
 NGOs working for the welfare of the society, poor students for their
 studies, honouring teachers and assisting best Government schools. The
 Bank has provided infrastructure facilities in 23 villages across the
 country at an outlay of Rs. 4.6 crore.
 
 During centenary celebrations, the Bank proposed to take up
 infrastructural development in 100 rural government schools. As at
 March 2008, 91 rural government schools were identified and provided
 with requisite infrastructure at a cost of Rs.l lakh per school.
 
 Visits by Parliamentary Committees
 
 During FY08, Parliamentary Standing Committees on Personnel, Public
 Grievances, Law and Justice and Rajya Sabha Secretariat reviewed the
 implementation of Right to Information Act, 2005 in the Bank and
 expressed their satisfaction about the implementation of RTI Act in the
 Bank. The Parliamentary Committee on the Estimates, Government
 Assurances and National Commission for Scheduled Tribes also visited
 the Bank.
 
 ORGANISATION AND SUPPORT SERVICES
 
 Branch Network
 
 Over a Thousand New Delivery Channels Added Delivery channels,
 including branches and ATMs, have been further expanded for closer
 customer proximity and increasing business potentiality Branch network
 of the Bank is well spread across India. Expanding its network further,
 the Bank added 100 new branches, the highest in the last two decades.
 As at March 2008, the number of branches in India moved up to 2675,
 covering 733 in rural, 680 in semi-urban, 650 in urban and 612 in metro
 locations.The Bank has 195 Extension Counters functioning in prominent
 institutes and institutions across the country. The number of branches
 offering specialized services stood at 111, comprising 38 SMEs, 17
 Overseas, 10 Agri-Finance, 8 Industrial Finance, 7 branches each for
 NRIs and Asset Recovery Management, 6 Savings, 5 Stock Exchange, 4
 Corporate Service, 3 Capital Market, 3 Mahila Banking, one each in
 Consumer Finance and Housing Finance and a branch for physically
 challenged persons.  Enhancing reach and customer convenience, the Bank
 significantly expanded its ATM strength to 2006, by adding 874 ATMs
 during the year, spread across 694 centres. In terms of the number of
 ATMs, Canara Bank now stands first among the nationalized banks. With
 ATM sharing agreement with other banks, customers of Canara Bank have
 access to over 27,000 networked ATMs across the country. The Bank has
 installed 629 offsite ATMs and 178 ATMs in railway stations. It has
 also set up 109 e-kiosks for booking railway tickets. The Bank also
 introduced global Debit Card under VISA and MASTER franchise. The Bank
 had a Debit-cum-ATM card base of 3.29 million as at March 2008.
 
 InfoTech Progress
 
 Several initiatives were undertaken by the Bank in the InfoTech arena
 during the year. The tally of Core Banking Solution (CBS) branches
 reached 761 Branches, 84 Extension Counters, 13 Currency Chests and 3
 Accounts Section, covering all the 30 Circles. CBS comes with a lot of
 add-ons like Interactive Voice Response System (IVRS), Internet &
 Mobile Banking (1MB) and Centralized Credit Appraisal. Lending
 Automation Processing System (LAPS) Retail and Corporate modules are
 also implemented in all CBS branches.
 
 The Bank implemented Centralized Online Tax Accounting System
 (Government Business module) in 153 branches and Excise and Service Tax
 modules in 72 branches, under CBS setup. Sales Tax module has been
 implemented in several CBS Branches. The Bank has a well-designed and
 secured Corporate Network, covering all the Branches/Offices for
 rolling out network-based delivery channels.  The Bank expanded its
 number of Anywhere Banking (AWB) branches to 1911 and Internet and
 Mobile Banking (1MB) branches to 1200. The number of Customer Terminals
 increased to 1752 as at March 2008.
 
 Under the advanced payment and settlement system, all branches of the
 Bank have been covered under RTGS and NEFT facilities. E-payment of
 excise and service tax, direct tax and custom duty has also been
 implemented in a number of branches under CBS setup.
 
 Manpower Profile
 
 As at March 31, 2008, the Bank had 45,260 employees on its rolls,
 comprising 18,186 Officers, 16,776 Clerks and 10298 under Sub-Staff
 category Atotal of 233 personnel were recruited in various cadres
 during the year.  Women employees constituted over 21% of the Banks
 total staff with 9,582 women employees featuring on the rolls of the
 Bank.  During the year, the Bank recruited 49 persons and promoted 650
 employees to various cadres belonging to the Scheduled Caste (SC) and
 Scheduled Tribe (ST) categories. The total number of ex-servicemen as
 at the end of March 2008 stood at 2,064 and 96 of them were recruited
 in various cadres during the year There were 816 Physically Challenged
 Employees on the rolls of the Bank.
 
 Training / Human Resource Development
 
 An intensely competitive industry structure and the resultant new
 market dynamics call for ieveraging human resources through constantly
 upgrading knowledge in both soft and hard skills. The Bank has taken
 several initiatives in the human resources front during FY08.
 Training/re-skilling tally during 2007-08 moved up further to 1,14,000,
 surpassing the target of 1,00,000 and covering a wide range of
 functional areas, Including some of the new training programmes like
 CBS (FCC) Corporate, CBS (MIS), CDCRM and KYC Norms. Out of the trained
 staff, 24,670 personnel belonged to Scheduled Caste category and 7,256
 personnel received training under Scheduled Tribe category.
 
 The Bank implemented various innovative HR schemes like PRATIBHAfor
 grooming in-house talents in varied specialized areas and SPANDAN for
 bringing about an attitudinal change among frontline staff The Bank has
 also adopted merit based promotion and performance linked incentives
 and assessment development efforts received added emphasis.  With the
 formation ofClub 2020. first of its kind in the industry, the Bank
 also focused on leadership development by regularly training its senior
 management personnel in reputed institutes like ISB, IIMs, XLRI and
 NIBM.
 
 In another noteworthy step, the Bank has taken initiative to implement
 the concept of HRMS (Human Resource Management Solution), an efficient
 centralized global solution, covering all HR activities.  Other HRD
 concepts like Quality Circles, Brain Storming Sessions, Staff Meetings
 and Study Circles have also been invigorated for effective team
 building and achieving collective excellence.
 
 Changes in the Organizational Setup
 
 Following a major organizational restructuring by carving 30 Circles
 out of 13 Circles for greater business focus and expeditious decision
 making in 2006-07, the Banks major focus in 2007-08 was to
 decentralize operational activities. The Bank further brought about
 changes in its organizational/operational setup to facilitate smooth
 functioning like creation of a Compliance Department under Risk
 Management Wing, formation of Micro Finance Division under Priority
 Credit Wing.and need based reshuffling of departments at the Corporate
 Office.
 
 Customer Orientation
 
 Several new measures were introduced by the Bank towards further
 improving customer centricity and service quality. Most importantly,
 the Customer Satisfaction Survey by M/s. A/C. Nielsen Org Marg covering
 10000 customers from 25 branches each at Bangalore, Delhi, Chennai,
 Kolkata and Hyderabad was completed. The overall rating by the Survey
 has been highly satisfactory. Informative booklets containing all the
 relevant information on Frequently Asked Questions by customers was
 made available at all the branches towards better customer service. An
 educative information booklet on Setting Standards on Customer Service
 - Centenary Series was brought out to motivate the staff for greater
 involvement in customer service. The Bank also made arrangements for
 providing copies of the Code of Banks Commitment to Customers to
 customers through branches.The Policy guidelines relatingto Collection
 of Cheques/Instruments, Grievance Redressal Mechanism, Compensation
 Policy and Revision of operational procedure on settlement of death
 claims were put on the Banks Website for the use of customers.
 
 Systems and Procedures
 
 Duringtheyear under review, 1812 branches/ units were subjected to Risk
 Based Internal Audit (RBIA) and IS Audit, with nearly 99% of the
 branches/ units coming under satisfactory grade. Concurrent/
 Continuous Audit was conducted in all the 251 identified
 branches/units, covering 52% of deposits, 65% of advances and 92% of
 non-fund based business of the Bank. 589 branches were subjected to
 income / revenue audit. In addition to RBIA/Concurrent/Continuous
 audit, snap audit was conducted on monthly basis in 2/3 branches in
 each Circle at random, to verify adherence to KYC norms. More
 importantly, the Bank started the process of developing a web-based
 package for concurrent audit of branches.  In addition to the above,
 the Bank ensured 100% submission of Cash Transaction Reports (CTRs) and
 Suspicious Transaction Reports (STRs) to Financial Intelligence Unit
 India.
 
 Vigilance Setup
 
 The Banks Vigilance Wing at its Corporate Office is headed by Chief
 Vigilance Officer in the rank of General Manager and supported by
 Vigilance Officers at all Circles and RRBs, International Division and
 the Banks Subsidiaries. During the year under review, Guidelines on
 review, reporting and monitoring of frauds were issued and all the
 reported cases of frauds were reviewed from adequacy of existing
 systems and procedures angle and necessary preventive measures taken to
 prevent frauds.  Fraud awareness Circulars were issued to create
 awareness on prevention of frauds. The Vigilance Awareness Week was
 observed during the 2nd Week of November 2007 as directed by the
 Central Vigilance Commission. In February 2008, the Bank hosted the
 Southern Zone Annual CVOs Conference on behalf of the Central
 Vigilance Commission. CVOs of all South Zone Banks/Insurance Companies
 and Public Sector Undertakings attended the meeting chaired by the
 Central Vigilance Commissioner.
 
 Security Arrangements
 
 The security environment in the Bank remained by and large normal
 during 2007-08. As against 49 incidents of crime in 2006-07 involving a
 loss of Rs. 16.70 lakh, there were 48 incidents of crime this year
 involving a loss of Rs.13.34 lakh. There were three major fire
 incidents during the year.  CCTV systems and time locks were provided
 in all Currency Chests. Fire risk audit of all the branches/offices was
 also undertaken.
 
 Right to Information
 
 During 2005-06, under the Right to Information Act, 2005, the Bank set
 up an exclusive Right to Information Act outfit to provide information
 and bring transparency.  During the year under review, the Bank dealt
 with all the applications received as per the provisions of the Act.
 
 Implementation of Official Language
 
 The Bank made noteworthy progress under the implementation of official
 language and won many prizes at various levels during the .year under
 review. The Town Official Language Implementation Committees at
 Coimbatore and Trivandrum, have been honoured with Third and Second
 prize respectively by the Government of India. Apart from this, many
 Circles/Regional Offices and branches have received awards from
 Official Language Department, Government of India and the respective
 Town Official Language Committees.
 
 In addition to the impressive percentage of trained employees as at
 March 2008, the Bank has notified 1985 of its branches under Rule 10(4)
 of Official Languages Act, 1976. Official Language Implementation
 Committees have been constituted at 2430 branches to motivate and guide
 the employees towards effective implementation of Official Language
 Policy of the Government of India.  In the sphere of using Information
 Technology in the Official Language, the Bank has furthered the use of
 Shabdaratna and Akruthi packages for word processing, usage of
 Bankscript package for Data processing and also made provision in ATM
 screens of the Bank for carrying transaction in 10 Indian languages.
 Telebanking facility has also been provided in Hindi and English and
 other 6 major regional languages. The Banks corporate website is fully
 in bilingual.
 
 Promotion of Sports
 
 Committed to the cause of promoting sports, the Bank has in its roll 84
 sports persons of outstanding calibre in various disciplines. During
 the year, many of the sports persons have participated in the events
 organized at the national and international levels. The Banks Cricket
 Team won the The Hindu Trophy and secured 3rd Position in KSCA League
 Championships in 2007. Smt. H M Jyothi represented India at the South
 Asian Federation Games held at Kochi (India). Shri Bharat Chetri
 represented India in various International Hockey Tournaments. Shri
 Venkatesh Prasad is currently serving as the Bowling coach of the
 Indian Cricket Team.
 
 FINANCIAL SUPERMARKET
 
 Subsidiaries, Sponsored Entities and Joint Ventures
 
 Canara Bank functions as a Financial Supermarket with as many as nine
 subsidiaries, sponsored institutions and joint ventures in diversified
 areas. The Bank has taken significant steps towards strengthening
 fundamentals of these entities so as to emerge as a strong Financial
 Supermarket in India. With incorporation of two new joint ventures,
 namely, Canara Robeco Asset Management Company Ltd and Canara HSBC
 Oriental Bank of Commerce Life Insurance Company Ltd, the Bank is all
 set to tap the growing asset management and insurance segments. The
 performance of the Banks subsidiaries, sponsored entity and joint
 ventures Was satisfactory duringthe financial.
 
 Commercial Bank of India LLC (CBIL)
 
 CBIL, a joint venture of Canara Bank and State Bank of India, has been
 operational since April 2004 at Moscow, Russia. The Company earned a
 profit after tax of USD 1.42 million as 31st March 2008.
 
 Canbank Venture Capital Fund Limited (CVCFL)
 
 CVCFL, the Trustee and Manager of Can bank Venture Capital Fund (CVCF),
 is a wholly owned Subsidiary of the Bank. Currently, it manages three
 Funds with a corpus of Rs.65.85 crore. During the financial year
 2007-08, CVCFL has assisted 10 Ventures and disbursed Rs.24.91 crore.
 Till March 2008, CVCFL has assisted 94 ventures, involving financial
 assistance to the tune of Rs.99 crore. The Company recorded a profit
 after tax of Rs.97.48 lakh for the year 2007-08. The Fifth Fund of CVCF
 is planned to be launched during 2008-09,with a corpus of Rs.500 crore.
 
 Can Fin Homes Limited (CFHL)
 
 CFHL, a sponsored entity of Canara Bank, is one of the premier housing
 finance entities in the country. The Company sanctioned and disbursed
 loans amounting to Rs.264 crore and Rs.247 crore respectively, taking
 cumulative sanctions to Rs.5162 crore and disbursement to Rs.4482 crore
 as at March 2008. The Company posted a profit after tax of Rs.28.40
 crore, and proposed a Dividend of 15%-20% for the financial year
 2007-08.
 
 Canbank Factors Limited (CFL)
 
 Canbank Factors Limited, which is a factoring subsidiary of the Bank,
 is a member of Factors Chain International.  Factors Chain
 International is an umbrella organization for factoring companies
 across the world. The Company achieved a total business turnover of Rs.
 3483 crore as at March 2008 and posted a profit after tax of Rs.20.19
 crore. With sound fundamentals, the Company achieved a NIL Net NPA
 position as at March 2008. The Company proposed a dividend of 15% for
 the year. Canbank Factors has plans to provide consultancy services to
 SMEs.
 
 Canbank Computer Services Limited (CCSL)
 
 CCSListhe only Software Subsidiary of a Public Sector Bank in the
 country. CCSL is primarily engaged in IT and software development
 services, training/consultancy and Registrar and Share Transfer Agency
 Services. The Company is a member of the NASSCOM and registered as a
 Software Solution Provider for World Bank projects. The Company bagged
 several key contracts during the year and posted a profit aftertax of
 Rs.107.92 lakh. During the year, CCSL has taken up ATM related services
 and Call Centre management of the Canara Bank.
 
 Gilt Securities Trading Corporation Limited (GSTCL)
 
 GSTCL, which was established as Primary Dealer Subsidiary of the Bank,
 had hived off Primary Dealer business to the parent bank. During the
 year, the Company diversified and forayed into Stock Broking, On- line
 Trading and other equity related activities. With the diversification
 of GSTCL into equity broking and online trading, Canara Bank became one
 of the few banks in the country to have in-house stock broking
 activity. The Company has posted a gross profit of Rs.20.55 crore and
 profit after tax of Rs.17.94 crore during the reviewed period.
 
 Canbank Financial Services Limited (Canfina)
 
 Canfina confined its activities to legal matters arising out of past
 transactions in securities, besides concentrating on collection of
 lease rentals and recovery of dues under decreed accounts. During the
 year, Canfina recorded a profit after tax of Rs.160.71 crore.  Canara
 Robeco Asset Management Company Limited A joint venture floated by the
 Canara Bank in association with international major Robeco Groep N.V.
 of Netherlands, for management of assets of Mutual Funds.  This Company
 was incorporated during September 2007.  With a majority share of 51%
 held by the Bank, Assets Under Management (AUM) of the Company improved
 to Rs.2583 crore as at March 2008. Corpus funds increased to Rs.1849
 crore during the year, with investor base of 2.85 lakhs as at March
 2008. The Company recorded an adjusted profit of Rs.13.83 crore for the
 financial under review.
 
 Canara HSBC Oriental Bank of Commerce Insurance Company Limited
 
 An insurance joint venture floated by the Bank in association with
 internationally reputed HSBC (Asia Pacific) Holdings and Oriental Bank
 of Commerce. The Company, incorporated during September 2007, has
 already obtained Insurance Regulatory Development Authority (IRDA) nod
 for commencing insurance business.  The Company is expected to rollout
 its products during the second quarter of FY09. With a majority
 shareholding of 51% in the Company, the Bank has ventured into niche
 segment, with a fine blend of international expertise and its own
 domestic outreach.
 
 Regional Rural Banks (RRBs)
 
 Canara Bank sponsored 3 RRBs in three States, viz., Pragathi Gramin
 Bank in the State of Karnataka, Shreyas Gramin Bank in the State of
 Uttar Pradesh and South Malabar Gramin Bank in the State of Kerala.
 All RRBs sponsored by Canara Bank are profit making as at March 2008
 with a combined operating profit level at Rs.126.5 crore and profit
 after tax of Rs. 103 crore.  Aggregate business level of these RRBs
 crossed the Rs.10,000 crore mark to reach Rs.11481 crore, comprising
 deposits of Rs.5985 crore and advances of Rs.5496 crore as at March
 2008. Reflecting financial soundness and asset quality, all these RRBs
 recorded a decline in their NPAs in both absolute and ratio terms.
 While gross NPA ratio further came down to 2.85% as at March 2008, net
 NPA ratio decreased to 1.30% from 2.46% a year ago. In tune with policy
 focus to double the credit flow to agriculture sector, these RRBs
 disbursed an amount of Rs.3400 crore, recording a y-o-y growth of 25%
 during the year under review.
 
 SPECIAL INITIATIVES
 
 Canara Bank has changed its Logo four times in the last 100 years, to
 remain contemporary and reorient itself to the changing times. Seizing
 the opportunity, Canara Bank launched a New Brand Identity on 29th
 December 2007.  Shri P Chidambaram, Honble Union Finance Minister
 inaugurated the Banks new brand identity. The new logo for Canara Bank
 is based on the idea of a bond and is a representation of the close
 ties between the Bank and its varied stakeholders- customers,
 investors, employees, institutions and society at large, with a tagline
 Together We Can. The colour palette and typography have been
 carefully chosen. The rich blue represents stability, scale and depth.
 This contrasts with accents of bright yellow that evoke optimism,
 warmth and energy.  The Canara Bank logotype has been hand-crafted. Its
 classic, serif letter forms communicate heritage and stature.
 
 The new brand identity is an attempt to position Canara Bank as the
 value creator and further reinforce its image as a customer centric
 bank. The new brand identity is not just a change in the external
 outlook; it has been supplemented by much needed changes in the
 internal structure and reorientation in terms of people, technology and
 business process management in keeping up with the new brand promise.
 No wonder, within a short time, the new brand has been recognized as a
 Superbrand.  A series of special initiatives were undertaken during
 2007-08. Canara Robeco Asset Management Company Ltd and Canara HSBC
 Oriental Bank of Commerce Life Insurance Company Ltd, are the two joint
 ventures incorporated during the year, with a majority 51%
 shareholding. To give a thrust on augmenting non- interest income
 sources and avenues, the Bank has entered into a Corporate Agency
 agreement with Export Credit Guarantee Corporation of India Ltd. (ECGC)
 for soliciting and procuring export credit insurance business.
 
 Another key initiative relates to engaging the services of a
 
 world renowned consultant- M/s Boston Consulting Group for a
 comprehensive study on Corporate Business Strategy. The project aims
 at taking the Bank on a well- designed transformational journey to take
 on emerging global challenges.
 
 NEW PRODUCTS/SERVICES
 
 Canara Bank, known for its customer centricity, has been bringing
 various improvements in the realm of customer service. The Bank has
 started a Call Centre for providing information on various
 products/services. The Banks CBS branches have been enabled so that
 customers get account related information and place requests for
 statement of accounts, interest certificates and the like.  The Bank
 also introduced 24X7 ATM cheque deposit facility for the Banks Debit
 card holders.
 
 The Bank launched several new products during the year.
 
 * Online Trading portal- canmoney.in: Canara Bank became the first
 major PSB to launch the product in association with its wholly owned
 subsidiary- M/s Gilt Securities Trading Corporation Ltd. The facility
 is now available in 24 major centres across the country.
 
 * SB Gold: A Savings Bank Account, with value added services for High
 Networth Individuals (HNIs).
 
 * Can Premium Current Account Scheme: A Current Account with added
 features for HNIs.
 
 * Canara Super Saving Salary Account Scheme: A zero balance savings
 account scheme designed for employees/salaried class at the Banks CBS
 branches.
 
 * Canara Guide: A loan scheme for tax return preparers.
 
 * Canara Jeevan: A reverse mortgage scheme for senior citizens.
 
 * Krishi Mitra Card and Joint Liability Group Finance Scheme: For
 hassle  free lending to tenant farmers with simple procedures.
 
 * Canara Kisan OD: A comprehensive farmer friendly scheme for multiple
 purposes including repayment of private debt.
 
 * SME OD: A hassle  free working capital facility for SMEs against the
 security of immovable property.
 
 * SME Joint Liability Group: A micro-finance product launched for joint
 liability group in the handloom and agarbathisectors.
 
 * Bio-Metric ATM: Commissioned multi-lingual bio- metric ATMs and
 voice-enabled mobile bio-metric ATM.
 
 * Canara Vikas: A smart card project launched for facilitating
 financial inclusion and taking financial services to the masses at an
 affordable cost.
 
 * Multi-city Cheque: A customer-friendly initiative by the Bank.
 
 AWARDS/ACCOLADES
 
 In recognition of the varied initiatives, the Bank was conferred with
 several awards and accolades during the year. Some prominent awards
 received are as under:
 
 * First National Award, instituted by the Ministry of Micro, Small &
 Medium Enterprises, Govt, of India for Excellence in Micro & Small
 Enterprises (MSE) Lending for 2006-07.
 
 * Golden Peacock Award for Corporate Social Responsibility for the
 year 2007. Canara Bank is the first PSB to receive the award since its
 institution in the year 1991.
 
 * Golden Peacock National Training Award-2007, instituted by the
 Institute of Directors, New Delhi, a pioneer in Quality Revolution.
 
 * Conferred the Business Superbrands Status for 2008.
 
 * The Organization of the Year Award- for PR Excellence, instituted
 by Public Relations Council of India.
 
 * Excellence in the field of Khadi & Village Industries in South Zone
 for the year 2006-07, instituted by Khadi & Village Industries
 Commission, Ministry of Micro, Small & Medium Enterprises, Government
 of India
 
 VARIOUS POLICIES OF THE BANK
 
 There is a system of well-defined policies and procedures of the Bank.
 During the 3year, concerted efforts were made to streamline the
 policies and procedures of the Bank in the light of regulatory
 requirements of the RBI, the directions of the Government of India and
 the emergent requirements of the Bank in the present day context.
 Accordingly, there has been a sharper focus on policies relating to,
 among others, such as, Credit Risk Management, Market Risk Management,
 Operational
 
 Risk Management, Asset Liability Management, Liquidity Risk Management,
 Country Risk, Counterparty Bank Risk, Corporate Governance,
 Disclosures, Collateral Management, Stress Testing, Compliance
 Functions, Disaster Recovery & Business Continuity Planning, Business
 Lines, Outsourcing and Internal Capital Adequacy Assessment Process
 (ICAAP), Know Your Customers (KYC), Anti-Money Laundering (AML),
 Recovery and Investments.
 
 CHANGES IN THE BOARD OF DIRECTORS
 
 Year 2007-08 saw changes in the composition of the Board of Directors
 of the Bank.  Shri D.L Rawal was appointed as Executive Director of the
 Bank on 6th June 2007, as Shri Alok Kumar Misra, the then executive
 director of the Bank, was elevated as the Chairman & Managing Director
 of Oriental Bank of Commerce on 3rd June 2007.  Shri C.S. Vedi was
 appointed as Executive Director of the Bank on 7th November 2007.  With
 the completion of tenure of Shri S.C Gupta and Shri U.N. Kapoor as
 Shareholder Directors on the Board of the Bank on 8th June 2007, Shri
 P.V. Maiya and Shri B. B.  Tandon were elected as Shareholder Directors
 on the Board of the Bank on 27th July 2007.  Shri Sunil Gupta and Dr.
 Yogendra Pati Tripathi were nominated as Part time Non-Official
 Directors on the Board of the Bank.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 The Directors, in preparation of the annual accounts for the year ended
 March 31, 2008, confirm the following:
 
 * That in the preparation of the annual accounts, the applicable
 accounting standards had been followed along with proper explanation
 relating to material departures.
 
 * That they had selected such accounting policies and applied them
 consistently and made judgments and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Bank at the end of the financial year and of the profit or loss of
 the Bank for the period.
 
 * That they had taken proper and sufficient care for the maintenance of
 adequate accounting records in accordance with the provisions of
 applicable laws governing banks in India for safeguarding the assets of
 the Bank and for preventing and detecting fraud and other
 irregularities.
 
 * That they had prepared the annual accounts on a going concern basis.
 
 ACKNOWLEDGEMENT
 
 The Bank is making concerted efforts to maximize its latent potential
 to the benefit of all its stakeholders, viz , shareholders, customers,
 investors, Government, RBI, employees and the public at large.  The
 Board sincerely appreciates the significant contribution made by the
 Directors on the Banks Board who completed their tenure during the
 financial year under review, to customers for their patronage, to the
 shareholders for their support, to the Government and the RBI fortheir
 valuable guidance and support, to the Banks correspondents inland and
 abroad for their cooperation and goodwill and to all the staff members,
 who rendered whole-hearted support. At this critical juncture of growth
 and structural transformation, the Bank received unstinted support from
 all sections and gratefully acknowledges their unqualified help and
 support, which facilitated the steady upward climb of the Bank in FY
 08.
 
 
 
                                       By Order of the Board of Directors
 
 
 Place : Bangalore                                      M B N RAO
 Date  : 07.05.2008                   Chairman & Managing Director