City Union Bank

The directors have immense pleasure in presenting their report on the
 financial results of the Bank along with audited Balance Sheet as on
 31st March, 2008 and Profit & Loss Account for the year ended 31st
 March, 2008.
 
 ECONOMY AND BANKING SCENARIO
 
 The Indian Economy witnessed slackening of momentum in 2007-08 while
 Global economic scene has been characterised by rising inflation,
 slower growth and tightening monetary conditions. The Central
 Statistical Organisation (CSO) in its advance estimates released in
 February 2008 placed our GDP growth at 8.7 %. The real GDP growth in
 Agriculture and Allied activities, Industry and Services sector was
 2.6%, 8.6% and 10.6% in 2007- 08 respectively as against 3.8%, 10.6%
 and 11.2% in 2006-07 respectively.
 
 Scheduled Commercial Banks demand and time deposits grew at 20.2% and
 22.6% respectively in 2007-08 compared to 17.9% and 25.1% respectively
 in 2006-07. Further, the banking sectors lendable resources were
 augmented substantially by capital raised through public issues and
 innovative capital instruments during 2007- 08. Bank credit to the
 commercial sector increased by 20.3 % in 2007-08 compared to 25.8% in
 2006-07.
 
 The weighted average yield on Government Securities increased by 23
 basis points from 7.89% in 2006-07 to 8.12 % in 2007-08.The weighted
 average call money rates ranged between 7.37% and 8.33%. Interest rates
 in various segments decreased during the year. The Scheduled Commercial
 Banks increased the deposit rates for long term deposits and reduced
 the interest rates for short term deposits. The lending rates of the
 Scheduled Commercial Banks increased during FY 2007-08 due to higher
 cost of funds. The Call money rates edged down during the year in
 tandem with movements in policy rates. Interest rates in the CBLO and
 market repo segments moved in sympathy with call rates and declined.
 
 In the fixed income segment, Government bond yields in the major
 economies, which had firmed up in the first half of 2007, have softened
 thereafter since demand for government debt has increased as investors
 shifted their funds to the treasuries acknowledging the likelihood that
 the economy is already in a recession and seeking safety. Since the
 beginning of the turbulence in August 2007, central banks of advanced
 economies have responded with both conventional and unconventional
 measures to ease liquidity stress in financial markets and solvency
 issues among large financial institutions.
 
 During the fourth quarter of 2007-08, financial markets were impacted
 by unusual swings and high volatility in foreign exchange flows as well
 as in cash balances of the Government with the Reserve Bank with
 consequent shifts in liquidity conditions. These variations were
 smoothened by active liquidity management through a combination of
 instruments such as the MSS, the LAF and the CRR so that volatility in
 overnight interest rates was broadly contained within the informal LAF
 corridor.
 
 The accelerated process of globalisation of financial markets and
 integration of Indian financial sector with rest of the world has
 enhanced both opportunities and challenges.
 
 With strong fundamentals and resilence of banks, the banking sector
 continues to occupy a strategic position in the Indian Economy with
 more than 70% of funds routed through banks. Bank credit as a
 proportion to GDP is over 50%. Extensive support by banks to SMEs,
 agriculture and other productive segments and inclusion of finance in
 growth strategy makes banks to play an important role in Indias growth
 and development. Further, banks in India have shown remarkable progress
 in operational efficiency, profitability and productivity due to the
 well sequenced and calibrated moves of RBI. Banks in India are poised
 to shift to the next frontier of growth with significant global scale
 of operations.
 
 PERFORMANCE OF YOUR BANK
 
 The Performance Highlights for the financial year in the key financial
 areas are as under:
 
                                                    (Rs. in Crs)
 Particulars                                 2007-08          2006-07
 
 Deposits                                      6425             4699
 
 Advances                                      4537             3329
 
 Investments                                   1718             1307
 
 Your Bank crossed another flag post of Rs.11,000 crore mark in total
 business during the Financial Year 2007-08.
 
 Your Bank continues to perform creditably to maintain its growth level
 above the industry benchmarks.
 
 The Bank achieved an operating profit of Rs.181.30 crs as against
 Rs.131.48 crs recorded in the previous year.  The net profit increased
 by 41.67% from Rs 71.81 crs to Rs 101.73 crs. The Net Interest Income
 rose from Rs. 167.50 crs to Rs. 204.97 crs thereby registering a growth
 of 22.37%. The return on average assets was higher at 1.60% when
 compared to 1.57% last year.
 
 DEPOSITS
 
 During the year, deposits have increased to Rs. 6425 crs as on
 31-03-2008 from Rs. 4699 crs as on 31-03-2007 recording a growth rate
 of 36.73%. The cost of deposits increased to 7.23% from 5.95%.
 
 ADVANCES
 
 The Advances have increased from Rs.3329 crs as on 31-03-2007 to
 Rs.4537 crs as on 31-03-2008 translating into an impressive growth rate
 of 36.29 %. The yield on advances increased from 11.32% to 12.82%. The
 priority sector advances aggregated to 45.80% of Banks adjusted net
 credit.
 
 NON PERFORMING ASSETS
 
 Your Bank has given greater thrust on minimizing the quantum of
 non-performing assets and as a result of persistent efforts on
 recovery, the level of Gross Non-Performing Assets has been brought
 down to 1.81 % from 2.58% and the Net Non-Performing Assets have been
 reduced to 0.98% from 1.09%. The Bank is taking continuous efforts to
 reduce the level of non-performing assets.
 
 INVESTMENTS/TREASURY OPERATIONS
 
 During year under review gross investments have increased from Rs. 1313
 crs to Rs. 1728 crs to maintain reserve requirements on the back of
 higher resources mobilised. Yield on investments worked out to 7.70%.
 On account of upward movement in interest rate with no softening
 anticipated in the near future, the bank has trodden cautiously in the
 security trading operations. The movements in interest rates vastly
 enabled the bank to profitably leverage its integrated treasury
 operations.
 
 RISK MANAGEMENT
 
 Risk management enables banks to identify, assess and manage their
 Credit, Market and Operational risks proactively. In light of the fast
 changing, dynamic and competitive Banking scenario, it is important
 that banks develop robust risk management policies and procedures which
 are very clear and responsive to these changes.
 
 In your bank, a high level Risk Management Committee comprising of
 Directors oversees the functioning of three key bodies - Asset
 Liability Management Committee, Credit Risk Management Department and
 Task Force for Risk Based Internal Audit which act in coordination with
 the large branches of the bank to mitigate the overall risks faced by
 the bank. The bank is gearing itself to move over to Basel II
 requirements within the time frame set by Reserve Bank of India.
 
 FINANCIAL RESULTS
 
 Your Directors are pleased to furnish below the financial results for
 the year ended 31st March 2008.
 
                                                       (Rs. in Lakhs)
                                      For the                   For the
 Particulars                   Current Year ended   Previous Year ended
                                31st March, 2008       31st March, 2007
 
 Gross Income                           68624.63             45413.60
 
 Total Expenses                         50494.52             32265.31
 
 Profit before Provisions 
 & Contingencies                        18130.11             13148.29
 
 Provisions & Contingencies              7957.04              5967.32
 
 Net Profit                             10173.07              7180.97
 
 APPROPRIATIONS:
 
 The summary of appropriations is given hereunder:
 
                                                      (Rs. in Lakhs)
                                         For the               For the
 Particulars                  Current Year ended   Previous Year ended
                                31st March, 2008      31st March, 2007
 
 Net Profit                             10173.07              7180.97
 
 Balance of Profit brought forward          6.54                 4.10
 
 Amount available for appropriations    10179.61              7185.07
 
 Transfer to Statutory Reserve           2601.09              2000.00
 
 Capital Reserve                          271.19                99.22
 
 General Reserve                         4948.07              3900.00
 
 Proposed Dividend                       1600.00              1008.00
 
 Proposed Corporate Dividend Tax          271.92               171.31
 and Surcharge
 
 Balance of profit carried forward        487.34                 6.54
 
 NETWORTH & CRAR
 
 Pursuant to the approval of our Shareholders at the Extra Ordinary
 General Meeting held on 02-06-2007 and in terms of the approval of the
 Reserve Bank of India (RBI) dated 26th September, 2007, the Board of
 Directors at its meeting held on 8th October, 2007 have allotted by way
 of preferential allotment, 68,00,000 equity shares of Rs.10/- each
 aggregating to Rs. 125,44,70,000 (including share premium of Rs.
 118,64,70,000) to the following entities.
 
                                                     Amount per Share
 No. of Equity   Name of the Investors            (Inclusive of premium)
 Shares                                                  Rs.   P.
 
 3,00,000        Larsen & Toubro Limited                  169.15
 
 15,00,000       Life Insurance Corporation of India      169.15
 
 15,00,000       Nederlandse Financierings Maatschappij   190.00
                 Voor Ontwikkelingslande N.V. (FMO)
 
 12,50,000       Ares Investments                         190.00
 
 12,50,000       Argonaut Ventures                        190.00
 
 10,00,000       Yatish Trading Company Private Limited   190.00
 
 The Banks paid-up capital stood at Rs.32.00 Crs as on 31st March,
 2008. The Banks networth increased from Rs.365.71 Cr as on 31-03-2007
 to Rs.566.86 Cr as on 31-03-2008. The Capital Adequacy Ratio as at 31st
 March, 2008 stood at 12.48 % well above the stipulated norm.
 
 DIVIDEND
 
 Your Directors are pleased to recommend a final dividend of 20% on the
 equity shares for the financial year 2007- 2008 in addition to the 30%
 interim dividend paid during the financial year in pursuance of the
 constant philosophy of rewarding shareholders.
 
 BRANCH EXPANSION
 
 During the year under review, your Bank has expanded its network by
 opening branches at Belgaum, Hubli, Mangalore, Davengere (Karnataka)
 Prodattur, Warrangal (Andhra Pradesh), Gandhi Nagar, Kumbakonam (Tamil
 Nadu), Tiruvannamalai (Tamil Nadu), Sivaganga (Tamil Nadu), Nandyal
 (Andhra Pradesh), Ramanathapuram (Tamil Nadu), Thane (Maharashtra),
 Ichalkaranji & Nagpur (Maharashtra), Anantapur (Andhra Pradesh),
 Dharmavaram (Andhra Pradesh), Rajkot (Gujarat), Nashik (Maharashtra)
 and Devakottai (Tamil Nadu). In the current financial year, three
 branches K.K.Nagar, Chennai, Maraimalai Nagar, and Uthukkuli have been
 opened so far taking our network to 185 branches. Your Bank has
 proposed to open more branches during the current financial year.
 
 EMPLOYEES STOCK OPTION SCHEME
 
 The Shareholders of the Bank had approved the Employees Stock Option
 Scheme at the Extraordinary General Meeting held on 26.04.2008 and it
 will be implemented during the current financial year, subject to the
 regulatory norms.
 
 HUMAN RESOURCE DEVELOPMENT
 
 Being alive to the need of attracting, motivating and retaining
 talented work force, your Bank has been recruiting qualified and
 skilled personnel in different cadres and continues to focus on
 imparting training to its employees to sharpen their functional and
 behavioural skills. As on 31st March, 2008, your Bank has 2171
 employees comprising of 28 executives, 605 officers, 1204 clerks and
 334 sub-ordinate staff.
 
 The information required under the provisions of Section 217(2A) of the
 Companies Act, 1956 read with the Companies (Particulars of Employees)
 Rules, 1975 as amended is not furnished since no employee employed
 throughout/part of the year, was in receipt of remuneration of Rs.
 24,00,000/- or more per annum or Rs. 2,00,000/- or more per mensem, as
 the case may be.
 
 AUTOMATION
 
 During the year under review, 24 more ATMs have been installed in
 various branches. Your Bank has plans to install more ATMs both onsite
 & off site at different centres. The integration of bank branches has
 led to enhanced customer service and has paved the way for enlarging
 the customer base.
 
 INTERNATIONAL BANKING
 
 As at 31st March, 2008, your Banks turnover in Foreign Exchange
 Business was Rs.1805.67 Crs thereby registering an increase of 31.05 %
 over the corresponding period last year. The non-resident deposits as
 on 31st March, 2008 stood at Rs. 129.38 Crs.
 
 BOARD OF DIRECTORS
 
 Shri. S. Balasubramanian, Chairman and Chief Executive Officer, has
 been reappointed for a further period of one year from 31.01.2008 at
 its Board meeting held on 30th January, 2008.
 
 Shri. M. Mahalingam and Shri S. Rajaratnam have submitted their
 resignation owing to personal reasons. The Board places on record their
 valuable services rendered / contribution made in the conduct of the
 affairs of the bank during their tenure as Directors of the Bank.
 
 Shri. N. Sankaran and Shri M. Naganathan have been co-opted as
 Additional Directors in the meeting of the Board of Directors held on
 22.02.2008 and Shri. R.G. Chandramogan has been co-opted as Additional
 Director in the meeting of the Board of Directors held on 30.07.2008
 respectively pursuant to Sec.260 of the Companies Act. They will hold
 office upto the date of ensuing Annual General Meeting. Your Bank has
 received notices from some of the members pursuant to Section 257 of
 the Companies Act, 1956 signifying their intention to propose the
 candidature of Shri. N. Sankaran, Shri. M. Naganathan and Shri. R.G.
 Chandramogan as Directors.
 
 Shri VR. Arunachalam, Dr. S Kasinathan and Shri K.V. Raman have vacated
 their offices on 25.02.2008 in terms of Sec. 10A(2A)(i) of the Banking
 Regulation Act, 1949. The Board places on record its sincere
 appreciation for the valuable services rendered by them during their
 tenure as Directors of the Bank.
 
 Shri. P. Vaidyanathan, Shri. S. Bernard and Shri. N. Kantha Kumar will
 retire by rotation at the ensuing Annual General Meeting and are
 eligible for reappointment.
 
 AUDITORS
 
 M/s.Abarna&Ananthan, Chartered Accountants, Statutory Central Auditors,
 retire at the conclusion of this Annual General Meeting and they, being
 eligible, offer themselves for re-appointment. The Bank has received a
 certificate from the Statutory Central Auditors to the effect that the
 re-appointment, if made, will be in accordance with the limits
 prescribed under Section 224(1B) of the Companies Act, 1956.
 
 CONSERVATION OF ENERGY, ABSORPTION OF TECHNOLOGY, FOREIGN EXCHANGE
 EARNINGS AND OUTGO
 
 Your Bank, being a Banking Company and an authorised dealer in foreign
 exchange, has been taking all steps to improve forex earnings.
 
 CORPORATE GOVERNANCE
 
 The Bank complies with the requirements of Clause 49 of the listing
 agreement entered into with Madras, National and Bombay Stock Exchanges
 where its shares are listed. The reports on Corporate Governance &
 Management Discussion and Analysis are attached.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 In accordance with Section 217(2AA) of the Companies Act, 1956,
 
 (i) the Directors of the Bank hereby state that in the preparation of
 the annual accounts for the financial year ended 31st March, 2008, the
 applicable Accounting Standards have been followed along with proper
 explanation relating to material departures.
 
 (ii) the Directors 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 company at the end of the financial year 2007-08 and of the
 profit of the company for that period.
 
 (iii) the Directors had taken proper and sufficient care for the
 maintenance of adequate accounting records in accordance with the
 provisions of the Companies Act, 1956 for safeguarding the assets of
 the company and for preventing and detecting fraud and other
 irregularities.
 
 (iv) the Directors had prepared the annual accounts for the financial
 year ended 31st March, 2008 on a going concern basis.
 
 ACKNOWLEDGEMENT
 
 The Board expresses its sincere appreciation to all the shareholders,
 customers and well wishers of the Bank for their excellent co-operation
 and support extended to the Bank and looks forward to their continued
 patronage in the years to come.
 
 The Board also takes on record its sincere appreciation and gratitude
 to RBI, NABARD, NHB, IDBI, SIDBI, EXIM BANK, ECGC, DICGC, SEBI, Stock
 Exchanges, Depositories, the Share Transfer Agents, Life Insurance
 Corporation of India, National Insurance Company Limited, M/s. Weizmann
 Forex Limited, Tata Consultancy Services, CCIL, CIBIL, Correspondent
 Banks and various Government Agencies for their patronage and support.
 
 The Board also places on record the significant contribution made by
 the employees at all levels and conveys its appreciation for their
 dedication, devotion to duty and their exemplary involvement in all the
 developmental activities.
 
                                        FOR AND ON BEHALF OF THE BOARD
 
 Kumbakonam                                   S. Balasubramanian
 30th July, 2008                                   Chairman