The Directors have pleasure in presenting the Thirteenth Annual Report
together with the Audited Balance Sheet as at March 31, 2007 and the
Profit & Loss Account for the year ended on that day. The year ended
March 31, 2007 represents the second full year of operations of your
Bank as the merged entity after the amalgamation of Bank of Punjab
Limited with your Bank was consummated. The results for the last two
years are therefore comparable.
The summarized financial performance of the Bank was as under:
(Rs. in Crores)
Particulars For the year ended For the year ended
31st March 2007 31st March 2006*
Gross Income (Interest Income
plus Other Income) 1,673.97 1,017.38
Gross Expenditure 1,404.77 907.25
Operating Profit 269.20 110.13
Amount realised under
Financial Support Agreement - 62.51
Provisions St Contingencies 147.82 84.84
Net Profit/(Loss) after tax 121.38 87.80
Appropriations and Adjustments:
Transfer to Statutory Reserve 30.35 21.95
Balance in Profit and Loss Account
Brought forward from previous year 73.72 (121.39)
Adjustment of balance in Profit and
Loss Account against Securities
Premium Account - 82.90
Transfer from Investment Fluctuation Reserve - 45.36
Transfer from Debenture redemption Reserve - 1.00
Balance carried over to Balance Sheet 164.75 73.72
Deposits and borrowings as on
March 31, 2007 15,794.61 9,451.21
Advances as on March 31, 2007 11,221.35 6,533.44
* Previous year's figures re-grouped/re-classified, wherever necessary.
The Capital Adequacy Ratio (CAR) as at March 31, 2007 stood at 11.05%
as compared to 12.52% as on March 31, 2006, which is well above the
regulatory minimum of 9% stipulated by the Reserve Bank of India. Of
this, Tier I CAR stood at 9.91% and Tier II CAR stood at 1.14% as at
March 31, 2007.
The year 2006-07 has been another year of transformational growth for
your Bank. Your Bank continues to grow rapidly in all the business
areas that it operates in. The growth in the Bank's retail advances at
65% reiterates its retail focus^Additionally, the growth in the
Corporate/SME advances at 89%^ demonstrates the emergence of the SME
segment as a rapidly scaling up second growth engine for the Bank. Your
Directors continue to remain optimistic about the economic progress in
India, especially in the vibrant retail and SME sectors and believe
that your Bank is in an unique position to capitalize on these growth
During the year a Scheme of Amalgamation for consolidation of Lord
Krishna Bank Limited with your Bank was approved by the respective
Boards of Directors and the shareholders. The Scheme has been submitted
to the Reserve Bank of India for their final approval pursuant to
Section 44A of the Banking Regulation Act, 1949 and is awaited.
The Bank raised Rs.134.59 crores of Tier 1 capital through a
preferential allotment of 6,99,20,000 equity shares of Re.1/- each for
cash at a premium of Rs.18.25 per share in June 2006 and an additional
Rs.184.05 crores in January 2007 through a preferential allotment of
7,50,00,000 equity shares of Re.1/- each for cash at a premium of
Rs.23.54 to leading private equity investors. An amount of Rs.1.28
crores was realised on allotment of 32,00,000 equity shares against
exercise of warrants convertible into equity shares of Re.1/- each
(each warrant is convertible into one equity share) for cash at a
premium of Rs.3/- per share. These warrants had been issued in February
2004 in terms of the Scheme of Arrangement for re-capitalisation and
re-structuring of the Bank pursuant to Sections 391-394 of the
Companies Act, 1956.
The Bank also realised a total amount of Rs.12.35 crores on allotment
of 1,04,14,729 equity shares pursuant to the exercise of stock options
under the Key Employee Stock Option Plan-2004 and the General Employee
Stock Option Plan as detailed in the statutory disclosures regarding
ESOPs annexed to this report.
The Bank has its subordinated debt issue and deposit program rated by
Fitch Ratings India Private Limited. The Bank's subordinated debt issue
is currently rated as `A+ind)' and its certificates of deposits program
is rated as `F1+(ind) signifying the highest level of safety for such a
The following awards were received by your Bank during the year:
1) Fastest Growing Bank in its segment - Awarded by Business Today, a
leading business magazine.
2) Best Core Banking project for mid-sized banks - Asian Bankers IT
Implementation Awards 2006.
CAPITAL AND RESERVES
The Bank's Capital and Reserves as on March 31, 2007 stood at
Rs.1,371.59 crores. This is well above the minimum capital requirement
of Rs.300 crores stipulated by the Reserve Bank of India in the
guidelines on ownership of private sector banks issued in February
Subordinated Bonds of a value of Rs.50 crores carrying a coupon rate of
12% were redeemed in April 2006 on the date of maturity.
During the year, the Bank granted 3,14,78,793 stock options to
employees under the General Employees Stock Option Plan covering
permanent employees of the bank.
The statutory disclosures as required by the revised SEBI guidelines on
ESOPs are given in the annexure to this report.
The Bank has demonstrated a strong growth potential and has made rapid
strides in achieving significant scale and size along with constantly
improving profitability. The need to conserve capital resources for
investment in growth opportunities continues to increase. The Board has
therefore decided not to recommend any dividend for the year even
though the profits for the year have increased considerably over those
in the previous year.
MANAGEMENT DISCUSSION AND ANALYSIS
MACRO ECONOMIC ENVIRONMENT
India's economy continued to be amongst the strongest performing
economies of the world, powered by a strong consumption led engine.
Early in the year, as central banks around the world raised interest
rates and removed monetary accommodation, there was a controlled
re-assessment of the inflation outlook in global economies. This led to
some re-pricing of risky assets and resulted in an equity market sell
off in emerging markets, including India. However India's strong growth
story remained intact and FII and FDI inflows resumed by the third
quarter of the year. The benchmark BSE, rose from 11,571 to close the
year at 13,070.
High prices of primary articles such as foodgrains, pulses, cereals and
edible oils pushed up the wholesale price inflation from 3.69% at the
beginning of the year to 6.46% by the end of the year and the consumer
price inflation to around 10%. Higher inflation coupled with growth of
bank credit especially to sectors considered sensitive to pricing
bubbles led to a talk of overheating of the Indian economy. The RBI
used several-measures to restrict the amount of money banks could lend
and the government also announced several measures to control
inflation. These measures resulted in a sharp rise in. domestic
interest rates. Despite the inflationary pressures the overall GDP
growth for 2006-07 was strong at 9%.
The Rupee witnessed two-way movements this year, falling to Rs.47/USD
when equity outflows were taking place and then strengthening rapidly
to end the year at 'Rs.43.37/USD. India's foreign exchange reserves
soared to USD 201 billion.
OPERATING AND FINANCIAL PERFORMANCE
The operating profit of the Bank has increased by 144.44% to Rs.269.20
crores during the current year as compared to Rs.110.13 crores earned
in the previous year. The Bank's profit after tax rose by 38.25% to
Rs.121.38 crores during the current year as compared to Rs.87.80 crores
(which included an amount of Rs.62.51 crores realised under a Financial
Support Agreement) during the previous year. As of March 31, 2007, the
Bank's ratio of gross non-performing assets (NPAs) to total customer
assets was 2.78% as against 4.63% as on March 31, 2006. During the
year, the Bank has assessed the delinquency level on its retail assets
portfolio and changed its estimate of accelerated provisioning on Two
Wheeler Loans, Personal Loans, Car Loans and Commercial Vehicle/
Equipments Loans. The Bank has on a prudential basis •created
provisions towards NPAs which are in specific and floating provisions,
The Bank follows a provisioning policy which is in excess of the
provisioning norms prescribed by the Reserve Bank of India. The Bank
continues to carry a provision of Rs.51.36 crores (including floating
provision of Rs.27.84 crores) in excess of the RBI prudential norms.
The Bank has also created a standard provision of Rs.75.77 crores on
the outstanding balance as at March 31, 2007 of personal loans,
advances qualifying as capital market exposures, residential housing
loans individually beyond Rs.20 lacs and commercial real estate loans
which are required to be provided under the RBI guidelines in the
financial year 2006-07. The net NPAs to customer assets ratio as at
March 31, 2007 is 1.26% as against 1.13% as of March 31, 2006. The
total assets of the Bank increased to Rs.18,482.78 crores as on March
31, 2007 from Rs.11,330.19 crores in the previous year. The Customer
Assets constituted Rs.11,240.80 crores as on March 31, 2007 as against
Rs.6,556.29 crores as of March 31, 2006. The total deposits have grown
to Rs.14,863.72 crores as on March 31, 2007 as against Rs.9,399.64
crores at the end of the previous year.
Gross Interest Income
The Bank's total interest, income has increased by 57.93%, gross
interest being Rs.1,268.53 crores for the year ended on March 31, 2007
as against Rs.803.20 crores for the year ended March 31, 2006. Of this,
the interest income on advances amounted to Rs.983.71 crores, an
increase of 69.76%, compared to the income in the previous year of
Rs.579.48 crores. The advances increased to Rs.11,221.35 crores as at
March 31, 2007 from Rs.6,533.44 crores at March 31, 2006, a growth of
71.75%. The share of interest income on investments was Rs.243.57
crores during the year ended March 31, 2007, as against Rs.179.90
crores during the previous year, reflecting a growth of 35.39%. The
investments increased to Rs.4,614.96 crores as on March 31, 2007 from
Rs.2,922.83 crores as on March 31,2006, registering a growth of 57.89%.
Upon reduction in rate of interest on balance-maintained with the
Reserve Bank of India, interest on balances with RBI and other banks
was Rs,39.17 crores for the period ended March 31, 2007 as against
Rs.39.54 crores for the previous year ended March 31, 2006.
The Bank's total interest expenses have increased by 72.82% to
Rs.698.95 crores for the year ended March 31, 2007 as compared to
Rs.404.44 crores in the previous year. Of these, the interest cost on
deposits rose by 73.88% to Rs.653.46 crores for the current year as
compared to Rs.375.81 crores during the previous year. The average
deposit cost for the year has increased to 5.62% as compared to 4.60%
in the previous year.
Net Interest Income
The Net Interest Income for the year ended March 31, 2007 witnessed an
increase of 42.84% to Rs.569.58 crores from Rs.398.76 crores in the
previous year. This increase was primarily due to the growth in the
asset book. Retail Assets which constitute 69% of the total assets,
yield a higher interest as compared to corporate loans. The net
interest margin for the year ended March 31, 2007 was 4.6% as compared
to 4.8% for the year ended March 31, 2006.
The Bank's Non Interest income witnessed a significant increase of
89.30% to Rs.405.44 crores during the year ended March 31; 2007 as
compared to Rs.214.18 crores in the previous year. The retail loan
service income grew robustly during the year to Rs.114.14 crores from
Rs.50.03 crores in the previous year due to increase in disbursements
to Rs.5,447 crores from Rs.3,561 crores in the previous year. An
increase in third party product sales such as Bancassurance and Mutual
Funds contributed significantly to the fee based income. The forex
income was Rs.48.16 crores during the year ended March 31, 2007 as
compared to Rs.31.30 crores during the previous year ended March 31,
2006, reflecting a growth of 53.87%.
As required by RBI circular No. DBOD.BP.BC 87/21.04.141/2006-07 dated
April 20, 2007, the Bank has re-classified and adjusted from
Provisions & Contingencies the amortisation of premium on the Held
to Maturity portfolio for the year amounting to Rs.35.22 crores to
The Bank's operating expenses excluding interest expenses have
increased by 40.38% to Rs.705.82 crores during the year ended March
31,2007 from Rs.502.81 crores in the previous year. The staff strength
has increased to 5,832 as on March 31,2007 from 4,471 as on March 31,
2006. Accordingly, the staff costs have increased to Rs.221.31 crores
from Rs.142.4 3 crores in the previous year. Expenses incurred on
infrastructure, establishment of additional distribution channels and
expenses pertaining to marketing of retail loans have contributed to
the increase in operating expenses during the year.
The Bank has earned an operating profit of Rs.269.20 crores for the
year ended March 31, 2007 as against Rs.110.13 crores earned during the
Provisions & Contingencies
The Bank has made adequate provisions for non-performing assets and for
diminution in the value of investments. In respect of retail loans
(excluding mortgages) and certain other classes of loans' the Bank
follows an accelerated provisioning method whereby 100% of the value of
the asset is provided by the time the account has remained delinquent
for a period of nine months. A general provision @ 0.25% to 2.00% is
made on various categories of standard assets as prescribed by the RBI.
Pursuant to the change in the provisioning requirement for certain
categories of standard assets from 0.40% to 2.00% as notified by the
RBI, the Bank made an additional provision of Rs.19.75 crores during
the year ended March 31, 2007.
Details of provisions made for major items are as follows:
* Provision for NPAs at Rs.40.24 crores (previous year Rs. 78.05
* Provision for standard assets at Rs.45.91 crores (previous year
* Provisions for tax at Rs.62.31 crores (previous year reversal of
* Provisions for depreciation on investments - Rs.0.83 crores (previous
year reversal of Rs.8.87 crores)
The Bank has declared a net profit of Rs.121.38 crores for the year
ended March 31, 2007 as against a profit of Rs.87.80 crores in the
previous year. The Bank has appropriated Rs.30.35 crores to the
The total assets of the Bank increased to Rs.18,482.78 crores as on
March 31,2007 from Rs.11,330.19 crores in the previous year. The
Customer Assets (loans, leases) amounted to Rs. 11,240.80 crores as on
March 31, 2007 (previous year Rs.6,556.29 crores).
The gross NPAs, provisions and net NPAs as on March 31, 2007 were
Rs.317.88 crores (previous year Rs.314.9S crores), Rs.176.38 crores
(previous year Rs.241 crores) and Rs.141.50 crores (previous year
Rs.73.95 crores) respectively. The Net NPAs increased to 1.26% of Net
advances as on March 31, 2007 from 1.13% for the previous year.
Total deposits of the Bank grew to Rs.14,863.72 crores as on March 31,
2007 from Rs.9,399.64 crores in the previous year. Current Accounts and
Savings Accounts (CASA) deposits constituted 30.62% of the total
deposits for the year ended March 31, 2007 (previous year 38.73%).
The Bank's Treasury had a profitable year and was also able to leverage
corporate relationships developed by the Corporate and SME departments,
to generate increased business volumes for the Bank. The Treasury
undertook sales of new products to existing customers and was also
instrumental in bringing new customers to the Bank. To manage the needs
of customers better, the Treasury's geographical presence was expanded
and Treasury Relationship Managers are now present in Mumbai, Delhi,
Bangalore, Chennai and Ahmedabad.
The Bank was not very adversely affected by the rising interest rates
in the short-term inter-bank (Call) market and borrowing costs remained
within manageable limits.
The Retail Bank continued to remain the premier growth engine of the
Bank. The retail business continued to grow at a robust pace across
both deposits and advances. This growth was achieved despite hardening
of interest rates and tighter market liquidity, particularly during the
second half of the year. The Retail business will continue to be a
primary focus area for the Bank in the coming years. This is keeping in
mind the robust rates of economic growth, tremendous headroom for
increased consumer credit off-take, higher savings rates and raising
income levels that offer an increasing scope for wealth management
The Bank follows a customer-centric strategy built on the financial
life cycle of the consumer as well as existing and emerging consumer
The Bank has a well rounded suite of products in keeping with its focus
on the growth sectors of the economy and has emerged as a significant
player in many businesses spanning assets, wealth management,
agricultural lending and the NRI business.
The Bank expanded its distribution significantly, which helped it to
use different distribution channels to tap into both existing as well
as emerging market segments.
Branch Banking was the driver for deposits and wealth management
services for both existing and new Bank customers. The branches were
also drivers of a few other products such as Credit Cards and certain
The Direct Distribution channel of the Bank was focused on Mortgages,
Personal Loans and Credit Cards. This channel widened the Bank's reach
across different customer segments. In addition the channel also
delivered on deposit and wealth management products.
CONSUMER FINANCE BUSINESS
This channel focused on the large mass-market segment and was a big
driver of two-wheeler loans as well as the small ticket personal loans
that are addressed to the two-wheeler customers as a strong, robust and
branded feeder channel.
Given the importance of the infrastructure segment and its linkage to
the economic growth of the country, the Bank decided to create a
special unit catering to the needs of the infrastructure segment by
building on the existing business spanning construction equipment and
commercial vehicle financing.
The Bank grew its assets business significantly and created a
well-balanced asset portfolio keeping in mind both returns as well as
Mortgages emerged as a key business driver on the assets side. The
Bank became one of the fastest growing new generation private sector
banks in this business clocking an impressive 166% growth in the
mortgages book. Though a relatively new entrant, having entered the
business just two years ago, the Bank today has a top ten position in
the business in terms of new disbursements.
The Bank is tapping both the new home loan segment as well as high
opportunity segments such as Loan Against Property, Commercial Property
Loans as well as Lease Rental Discounting.
The Bank maintained its strong position in two-wheeler financing,
despite aggressive competition in the segment from both established and
emerging players. This was achieved due to a strong sales and
distribution network spanning over 700 locations, and well entrenched
relationships with all leading Two Wheeler manufacturers. The Bank
remained a strong top-3 financier in this market clocking 34% growth in
the book size during the year 2006-07.
The Bank tapped into one of the fastest growing segments in the
country-personal loans. Using its growing Direct Distribution channel
the Bank entered the top ten ,in personal loan disbursements. During
the year 2006-07 the Bank's personal loan book size grew by an
impressive 166% over the previous year. Personal Loans will continue
to be an area of focus for the Bank in the coming years.
Commercial Vehicle/Construction Equipment Loans
With the overall increase in the focus on infrastructure spending, the
Bank capitalized on the opportunity by increasing the book size in
2006-07 by 35% over the past year. The business focus was on quality
business as well as identifying greater cross-sell opportunities.
The book size of the Bank's agriculture portfolio has increased by 50%
during the year 2006-07. The Bank has made concentrated efforts to
maintain a quality portfolio.
The Bank's farmer friendly schemes like HNI farmers scheme, scheme for
takeover of selected accounts from other banks, financing post harvest
infrastructure development etc. continue to remain extremely popular
within the agricultural community.
The Bank crossed the milestone of 100,000 credit cards with the Miracle
The Miracle Credit Card is a differentiated offering with a strong
business foundation and corporate social responsibility combination
creating a `credit card with a conscience'.
The Miracle Credit Card collects a nominal initial contribution of
Rs.50 from every new customer that is matched by an equivalent
contribution from the Bank. This corpus is collected and handed over to
the Ved Vignan Maha Vidya Peeth, a school that has been set up by the
Art of Living Foundation to sponsor education for rural children who
will become first generation literates in their families.
The Miracle continues as customers spend by using the card. The reward
points gathered by customers are converted to Seva points all of which
are periodically encashed in order to sustain the education of children
sponsored to the Ved Vignan Maha Vidya Peeth until they complete their
The Bank is proud to share with you that the Miracle Credit Card has
enabled one thousand children to discover the joy of education and this
is just the beginning.
Other Loan Products
The Bank also offers Education Loans in select geographies and segments
as well as Auto loans to existing customers.
WEALTH MANAGEMENT AND LIABILITIES
The Bank continued to focus on the liabilities business through the
Branch Banking channel.
The Bank emerged as a leading player in the Wealth Management segment
charting an impressive growth in business during the year 2006-07. In
order to tap into the fast growing Mass Affluent and Affluent sections
of society, the Bank launched Centurion Elite a top of the line
priority banking service.
The Bank became a distribution powerhouse for insurance products and
cemented its place in the bancassurance business. This led to greater
revenues and a significant increase in the Bank's fee income.
The Bank, which distributes AVIVA Life Insurance products, emerged as
one of the top five distributors of life insurance amongst banks. This
was achieved by adopting a multi-channel strategy across segments and
products and by leveraging the large customer base of the Bank.
The Bank also became one of the top three distributors amongst banks
for general insurance covering health, auto and other general insurance
products. The Bank distributes products from ICICI Lombard General
The Mutual Fund business has grown tremendously and the Bank is now
empanelled with over 32 leading mutual fund houses to distribute their
funds as well as New Fund Offerings. The Bank utilises a sophisticated
wealth management software to understand consumer needs, risk appetite
and uses the software to suggest initial model portfolio allocation as
well as track portfolio performance over time. The Bank targets to
further increase the penetration of this business through its expanding
The Bank has partnered with Ambit Corporate Finance and Web 18 (a TV18
venture) to pursue the stock broking business. The venture will be the
first of its kind with 3 domestic players coming together to capture
the fast-growing equity brokerage market. Apart from stock broking, a
range of financial services including distribution of third party
products, portfolio management services etc. will be offered by the
venture to retail, HNI and institutional customers. With increasing
Internet penetration in the country, retail customers will be offered a
state-of-the-art online trading platform by this venture.
The focus on NRI business during the year 2006-07 earned the Bank good
dividends. The business footprint in CCC increased by leveraging the
distribution of Bank Muscat in the region and through the Bank's own
Relationship Managers. The Bank also signed up agreements with leading
exchange houses in the region to help NRIs remit funds to India, in a
more convenient, faster and cost effective manner. The Bank will
continue to focus on attracting the Indian diaspora in the CCC, Canada,
UK and the USA.
Card Merchant Acquisition
The Bank's Card Merchant Acquisition business grew by 18% during the
year 2006-07. Thischannel has emerged as a gateway channel for CASA
growth, SME as well as the Asset Business.
The Bank has demonstrated its ability to compete and grow in the market
place during the year 2006-07 at a pace which is twice that of the
market growth .rate.
With the current environment and the state of customer confidence the
Bank is poised to reap the rewards of the growing economy through
customer-focused products, world class system and processes and an eye
on increased levels of customer service and delight. The Bank wishes to
create and sustain 'magic' in the lives of customers across geographies
The Wholesale Banking group provides a wide range of value added
services to Small & Medium Enterprises (SME), Emerging Corporates,
Large Corporates, Financial Institutions and Government clients.
Corporate and transaction banking products are offered through
qualitative relationship management and service. This group has grown
its risk weighted asset book to around Rs.4,500 crores.
Corporate Banking Segment
The Corporate Banking segment of the Bank caters to emerging and large
Corporates with turnover of Rs.150 crores and above. The Bank offers a
host of products to the segment which includes Fund Based Facilities,
Non Fund Based Facilities, Cash Management Services, Trade Finance
Services and Treasury Products. The Capital Markets Division which is
also a part of the segment grew its business significantly to about
Rs.200 crores by the end of the year.
The Bank's focus in the year 2006-07 was to double the book size,
increase the number of clients and focus on cross sell revenues. The
segment grew significantly, as the number of clients grew from 100 in
the previous year to 280 by the end of the year. The Fund Based Assets
have grown from Rs.995 crores in the year 2005-06 to Rs.1893 crores in
the year 2006-07 whereas the Non-funded Assets grew from Rs.472 crores
to Rs.13 75 crores. Another noteworthy feature has been the
significant contribution from fee income.
The customers to whom financial assistance is provided by the Bank are
spread across Textile, Infrastructure, Power, Pharmaceuticals,
Financial Intermediaries and Agro-processing industry segments.
Small and Medium Enterprises Segment (SME)
This division caters to the banking requirements of borrowers with an
annual turnover of Rs.2 crores to Rs.150 crores. The Bank aims to be
one of the top 3 SME players in the next 3 years. The division has done
exceedingly well doubling the book size with a significant increase in
the number of clients. The client base for the segment has increased
from 500 to 1800 whereas the Book size has increased from Rs.860
crores in the year 2005-06 to Rs.1834 crores in the year 2006-07. Fund
Based Assets have grown from Rs.760 crores to Rs.1591 crores in the
year 2006-07 and Non-funded Assets have grown from Rs.100 crores to
Rs.243 crores in the year 2006-07.
Financial, Institutions & Government Group (FIG)
FIC established itself as a full-fledged business Group during the year
2005-06. The segment offers commercial and transaction banking products
to Financial Institutions, Public Sector Undertakings, Central and
State Government Departments. The main focus for the segment is
accepting Demand and Time Deposits besides deepening relationships by
offering funded, non-funded, treasury and forex products. The year
2006-07 has been a year of excellent growth in deposits from Rs.1257
crores in March, 2006 to Rs.2958 crores in March, 2007.
Major achievements in the year 2006-07 were empanelment with Haryana
Government to conduct Government Business in the State and the
clinching of the Haj deal, that involved delivery of approx. 220.05
Mio Saudi Rials to over 105,000 Haj pilgrims across India.
The segment was instrumental in the largest IPO collection of Rs.1060
crores, of the Power Finance Corporation. During the year 2006-07, the
Bank got a record 51 new empanelments done with various Central and
State PSUs, Financial Institutions & Apex Co-operative Banks.
Remedial Division functions within the Wholesale Banking Group with the
primary objective of effecting recoveries from the impaired and loss
assets. The Remedial Team has achieved commendable results in the year
2006-07. It effected recovery of Rs.51 crores from about 174 borrowers
during the year. Due to the concerted efforts, the Gross NPAs came down
from Rs.186 crores to Rs.96 crores and net NPAs came down from Rs.65
crores to Rs.27 crores. An amount of Rs.8.27 crores was credited to
the Profit and Loss Account while provision was released to the extent
of Rs.18.12 crores.
Trade Finance (TF)
In TF business, the Bank provides wide range of services, viz. export
trade, import trade, remittance, domestic trade,, structured trade,
buyers' credit etc. The TF business unit of the Bank is building on its
existing presence in various locations as well as developing new
markets with an emphasis on high quality service and relationship
management. In addition to the Corporate Sector which has.
traditionally remained a key segment for this business, the Bank has
also built healthy and growing TF business from small and medium
In order to provide efficient financing option, the Bank has been
arranging Buyers' Credit for its import customers. Fee based non-credit
collections and structured trade/buyers' credit businesses will be the
key focus areas for TF, whose vision is: To become a trusted and
responsive partner for trade services by providing highest delivery
The Bank has, for the first time, organised export-import seminars at
various locations all over the country with a view to growing and
further developing its Trade Finance franchise. The usual topic at
these seminars has been Emerging Trends in International Trade
Cash Management Business
The Bank is actively focused to leverage its branch network and provide
a complete range of transaction banking products under Cash Management
Services to various Customer segments such as Corporates, SME, Utility
providers and domestic correspondent Banks. To achieve this, the Bank
has strengthened its delivery infrastructure and created a robust
technology platform to be able to handle large volumes. All centres of
the Bank have also been migrated to a common platform for cash
management services. During the year, the Bank has also launched
technology enabled payment products in keeping with the emerging trends
in payment systems.
Foreign Exchange Services (FES)
With India becoming tourism's new address across the world coupled with
the fact that Indians are now travelling abroad in large numbers for
business, leisure, education etc, the travel & tourism industry (both
outbound as well as inbound) is poised for stupendous growth stimulated
by the buoyant Indian & Global economy. This unprecedented boom in the
industry is reflected in the growing numbers of Foreign Exchange
Services in the year 2006-07, enabling it to surge forward to the
position of an undisputed market leader in travel related foreign
exchange services across the banking industry.
Clearly the focus for the year was on outbound travel business where
the Bank registered growth of over 200%, signed up major corporates and
tied up with immigration agents and other travel agents to provide a
thrust in the direct sales. FES also spread its wings geographically to
almost double its locations across the nation.
FES also added products and services to ensure value to the Bank's
customers by offering a one stop window for all foreign exchange
related requirements. FES demonstrated its superlative service
standards while servicing over 105,000 pilgrims across the country
during Haj 2006 without a single complaint, thus setting new standards
of service for the business.
FES consolidated its leadership position in the wholesale segment by
virtue of exclusive service arrangements with top banks of India and
continues to remain the largest principle agent of Western Union Money
Transfer amongst all the banks across the country. The Bank maintains
this leadership position while at the same time accelerating its growth
in these businesses.
FES continues to build a solid foundation by investing in creating new
products, services and infrastructure, building a world class team,
expanding distribution including set-up of offsite bureaus and a new
relationship management center with a nationwide toll free number to
provide service to all categories of clients with foreign exchange
requirements across India.
Banking business of lending involves risk, which is adequately
mitigated by the returns attached to the same. The Bank has continued
to achieve steady progress in the realm of risk management through
standardisation of processes the procedures. In the area of Retail
banking the individual exposure is granular in nature and the process
and management is the key for success. In this area your Bank has
implemented the state-of-art systems to manage the retail lending
including identification, measurement, monitoring and management of
risks. The retail credit is managed through a team of professionals,
who handle policies, credit evaluation, operational risk, fraud
control, collections fit recoveries. The vast geographic St product
mixes make it mandatory to manage the same on portfolio basis and hence
separate product programs are laid down defining customer segments,
credit evaluation standards, operational procedures etc.
Corporate/Small & Medium Enterprises (SME) Credit
Envisaging a rapid growth in the corporate asset portfolio a suitable
credit management process was put in place which involves separation of
credit sourcing, credit appraisal, credit administration and operations
with suitable checks and balances so as to de-risk the entire process.
The credit process though strict on credit quality is quick and
flexible enough to facilitate business teams on deal closures.
Even as the portfolio grew rapidly, an early warning process was put in
place to foresee and pre-empt problems at individual and portfolio
The entire loan documentation was overhauled and simplified. A credit
rating system for large corporates from CRISIL was introduced.
In an environment of high growth the Bank is well equipped to control
and manage credit quality of corporate assets at individual and
During the year 2006-07, the Bank's Information Technology (IT)
Department successfully completed the implementation of Finacle
7.0.11 across all the branches of the Bank. The Bank now has a single
Core Banking Platform. In addition new software systems for Retail
Assets, ATMs, Cash Management, Depository Operations, Electronic
Payment Gateway and Wealth Management were implemented during the year.
In addition to the software changes and to support growth in business
transactions across all businesses, branches and staff, the Information
Technology team enhanced the Bank's Network by implementing the latest
MPLS technology and this has resulted in an optimum utilization of the
The Network Architecture was redesigned to support online access to
data with adequate information security measures to facilitate
implementation of the Disaster Recovery and Business Continuity Plans
INTERNAL CONTROL AND AUDIT
The Internal Audit Department of the Bank undertakes regular internal
audit and inspection of the operations of the Bank through its various
branches/offices. The concurrent audit of the branches/offices were
undertaken by independent Chartered Accountant firms, covering
approximately 74% of the total business of the Bank.
The Bank has built up a system of internal controls, audit trails and
individual rating of the branches based on different parameters such as
business performance, operations, earning, compliance, housekeeping,
etc. The internal and concurrent audit functions are periodically
reviewed by the Bank's Audit Committee of the Board (ACB).
During the year all the branches/offices were subject to regular
internal audit as welt as risk based internal audit. A risk matrix was
drawn up for every branch/office indicating the level of risk measured
for various activities. The internal audit department is also
conducting a separate Information Security Audit of branches in
addition to the Risk Based Internal Audit.
The Bank has an Information Security Officer, who exclusively monitors
information technology related system and security aspects as per
regulatory and internal guidelines issued from time to time.
The Securities and Exchange Board of India (SEBI) had conducted a
special scrutiny, inter alia, of the Depository Participant and IPO
funding activities of the Bank. As part of an ad interim ex-parte
measure taken by SEBI vide an Order dated April 27, 2006, SEBI had
restrained the Bank from opening new Depository Accounts as a
Depository Participant. The Bank provided a detailed response to SEBI
on the ex-parte Order, explaining the Bank's position and the facts
relating to the matter. The Bank also made representations during the
course of personal hearings to SEBI in the matter and vide an Order
dated February 21, 2007 SEBI has permitted the Bank to resume its
activities as a Depository Participant.
SEBI has issued an enquiry/adjudication notice in relation to the same
finding and the Bank has prepared a detailed response to the same
re-iterating its commitments to maintaining highest internal control
standards and adopting best practices in its Depository Participant
The Reserve Bank of India (RBI) also conducted an independent scrutiny
in relation to adherence to Know Your Customer (KYC) norms connected
with opening of accounts in one of our branches. While the Bank
represented its point of view, the RBI concluded that there were
deficiencies in complying with the KYC norms and a penalty of Rs.15
lakhs was imposed by RBI during the year. The Bank has since further
strengthened the account opening processes to ensure adherence to the
The Bank has a network of 279 branches across 147 locations, 47 Asset
Finance Division offices, 77 administrative offices and 408 ATMs as on
March 31, 2007. In addition, 18 service centres and two Centralised
Operations Offices have been set up that would help enhanced
productivity and utilization i.e. sales and customer relationship
management. Out of the licences granted by the Reserve Bank of India
for setting up of 28 off-site ATMs, the validity in respect of 23
off-site ATMs has been extended from March 1, 2007 to September 1,
The Bank's employee strength has grown substantially consequent to the
amalgamation of Bank of Punjab Ltd. with the Bank. There were 5832
employees on the Bank's rolls as of March 31, 2007.
The Bank stays committed to augment its talent with quality resources
from the top Management Schools in the country. 253 Management Trainees
joined the Bank during the year 2006 - 07. Further, 427- Management
Trainees have been recruited who will join in 2007-08. Over 3659
banking professionals with proven track records have joined during the
year-in varied roles including operations, unit management and sales.
Training programmes for Relationship Managers, Branch Heads, Financial
Advisors and others were instituted to enhance product knowledge,
selling skills and customer service across the Bank and also to bring
continuous improvement in operations. 63 training programmes were
conducted on Finacle for 1040 employees to facilitate smooth transfer
to the new software.
To ensure that the lateral hire employees are oriented effectively
towards the Bank's background, history and policies, a one-day
induction programme `Centegration' was launched. 1370 employees have
been inducted through `Centegration'.
To help employees integrate with the Vision, Mission & Values (VMV) of
the Bank, 40 one-day workshops were conducted by internal VALUE
facilitators who are business managers trained in conducting this
workshop. 1249 employees have been trained through VMV workshops.
The Bank continued to use the online HRMS system, now re-christened as
'OASIS' and additional modules like online transfers, confirmations,
leave records, etc. were launched during the year. The online Appraisal
system was further refurbished and was used for conducting performance
appraisals during the year.
Particulars of Employees pursuant to Section 217 (2A) of the Companies
The information required under the provisions of Section 217 (2A) of
the Companies Act, 1956 and Companies (Particulars of Employees) Rules,
1975 as amended by the Companies (Particulars of Employees) Amendment
Rules, 2002 is given in the Annexure appended hereto and forms part of
this report. However, in terms of Section 219(1)(b)(iv) of the Act, the
Report and Accounts excluding the aforesaid Annexure are being sent to
the Members. Interested members may write to the Company Secretary at
the Registered Office of the Bank for obtaining a copy of the said
Particulars of conservation of energy and technology absorption as per
The provisions of Section 217(1)(e) of the Companies Act, 1956
relating to conservation of energy and technology absorption do not
apply to your Bank. The Bank has however, extensively used information
technology in its operations.
Directors' Responsibility Statements under Section 217 (2AA)
In terms of the provisions of Section 217(2AA) of the Companies
(Amendment) Act, 2000 the Directors state that:
i. The applicable accounting standards have been followed in the
preparation of the Annual Accounts and proper explanations have been
furnished relating to material departures.
ii. Accounting policies have been selected and applied consistently and
reasonably, and prudent judgment and estimates have been made so as to
give a true and fair view of the state of affairs of the Bank as at the
end of financial year on March 31, 2007 and of the Profit of the Bank
for the financial year 2006-07.
iii. Proper and sufficient care has been taken for the maintenance* of
adequate accounting records in accordance with the provisions of the
Companies (Amendment) Act, 2000, for safeguarding the assets of the
Bank and for preventing and detecting fraud and other irregularities.
iv. The annual accounts have been prepared on a going concern basis.
A separate section on Corporate Governance has been included as part of
the Directors' Report.
Mr.S.Venkiteswaran retires by rotation at the ensuing Annual General
Meeting (ACM) and is not seeking re-appointment as he has completed the
maximum stipulated contiguous tenure of 8 years as a Director as per
the relevant provisions of the Banking Regulation Act, 1949 and the RBI
guidelines on the subject.
The directors wish to place on record their sincere appreciation of the
contribution made by Mr. S.Venkiteswaran during his tenure as a
director, especially the leadership and guidance provided by him at the
time of re-capitalization and re-structuring of the Bank.
Mr.Kamlesh Vikamsey and Mr.Shital Kumar Jain also retire by rotation at
the ensuing AGM and being eligible offer themselves for re-appointment.
M/s. BSR & Co., Statutory Auditors of the Bank, would be retiring at
the conclusion of the ensuing AGM and are eligible for re-appointment
subject to the approval of the RBI. Members are requested to consider
their re-appointment on a remuneration to be recommended by the Audit
Committee of the Board.
The Board of Directors thanks the Reserve Bank of India for extending
valuable guidance and support to your Bank. The Board expresses its
gratitude to all depositors, customers, other banks and correspondents,
financial institutions and shareholders for their continued support.
The Board wishes to place on record its deep appreciation of the
strenuous and sincere efforts put in by all employees in meeting the
challenges of the market place.
For and on behalf of the Board
Place : Mumbai Rana Talwar
Date : 24th May 2007 Chairman