Dear Shareholders,
 
 1. It gives me immense pleasure to place before you the Annual Report
 of your Bank for the financial year 2011-12. I feel elated while making
 this maiden address to you on assuming the position of Chairman and
 Managing Director of this great institution. At the outset, I humbly
 submit that it was a challenge to us to sustain growth both in business
 and profitability of the Bank, in the backdrop of global slowdown and
 its impact on Indian economy. I am sure, you will appreciate that your
 Bank has done fairly well in both these important parameters during
 2011 — 12. I am happy to share with you in brief, the Indian Economic
 and banking scenario and salient features of your Bank''s performance.
 
 2. Economic Scenario
 
 2.1 After an impressive growth of 8.4% in the preceding two financial
 years, India''s economic growth has seen a moderation in the financial
 year 2011-12. As per the advance estimate of Central Statistical
 Organisation (CSO), the Gross Domestic Product (GDP) during 2011-12, is
 expected to grow at 6.9%. The moderated growth is largely due to the
 deceleration in Industrial performance.
 
 2.2 During the year, global demand experienced a slowdown due to the
 concerns in the European market and moderate recovery of the US
 economy. Growth also slowed down in emerging and developing economies
 (EDEs), reflecting the combined impact of higher inflation, monetary
 tightening and slowdown in global growth.
 
 2.3 India''s macro economic environment has been impacted by the
 concerns emerging from higher inflation, rising interest rates, fall in
 investments, higher fiscal & current account deficit, rising oil
 prices, depreciation of rupee, putting pressure on the growth of the
 economy.
 
 2.4 Even though the growth came down, the level of Wholesale Price
 Inflation (WPI) remained elevated for most part of the financial year
 2011-12. After remaining consistently at higher levels of above 9%
 during April November 2011, the level of inflation dipped to 6.9% by 
 end March 2012, consistent with the Reserve Bank of India''s projection 
 of 7%. However, the concerns remain in the form of food and fuel 
 inflation, with a rise in the prices of certain food articles and the 
 continuing high international commodity prices.
 
 2.5 Going forward, the market has not yet stabilized.  There have been
 growing concerns in Euro area which have been reflected in the recent
 credit down grade of Spain and recessionary trend in UK. The growth
 rate in the BRICS nations has also moderated. The overall domestic and
 international outlook does not seem to have improved as expected.
 However, the regulator has taken an optimistic outlook for 2012-13
 based on the projections made and recovery expected in Indian as well
 as global economy.
 
 2.6 The economic survey has indicated a growth of 7.6% for the
 financial year 2012-13, while the RBI has projected a growth of 7.3%.
 With an assumption of a normal monsoon, the growth in agriculture is
 likely to be close to the last year''s level. Industrial sector is
 expected to perform better than in the last year, showing some positive
 outlook for the growth of the economy.  However, considering the
 linkages with global growth outlook it can be said that the growth of
 the Indian economy would be dependent, to quite an extent on the growth
 being registered by the other major economies.  This is mostly relevant
 for the nations which are our predominant trade partners.
 
 2.7 On the banking front, the performance in FY12 has been impacted by
 the high interest rates and low credit off take. Higher inflation had
 prompted the regulator to raise policy rates 375 basis points between
 March — October 2011, thus making the credit costlier. Despite
 offering high interest rates, banks were not able to mobilize the
 desired funds through deposits, creating pressure on liquidity. There
 have also been concerns on asset quality across the banking industry
 because of the indirect impact of trade & demand slowdown and higher
 interest rates on repayment capacity of the clients.
 
 2.8 As on 30th March 2012, the aggregate deposits of Scheduled
 Commercial Banks (SCBs) increased by 17.4% compared to 15.9% recorded
 in the previous year. Bank credit growth decelerated to 19.3% from
 21.5% last year, reflecting slower economic activity.  Broad money (M3)
 as on 23rd March 2012, grew by 13.0% compared to 16.1% recorded in the
 corresponding previous year.
 
 2.9 In spite of the challenging environment, our Bank could register an
 overall business growth of over 16% to reach a level of Rs2.36 lakh
 crore for the financial year ended March 2012. Deposits have grown by
 17% to cross a level of Rs1.36 lakh crore, while overall credit
 surpassed a level of over Rs1 lakh crore with a growth of 16%. The Bank
 has continued its focused attention on the productive sectors of the
 country by giving support to various segments including SME,
 agriculture, retail etc., and by giving added thrust on financial
 inclusion.  Besides this, the Bank is also poised to have a pan India
 presence with expansion in the unbanked and underbanked, rural and
 other areas of the country where we do not have presence as of now. The
 Bank has also created another milestone by opening its 1500th branch
 showing our growing presence across the country.
 
 2.10 The Bank having been known for its technology initiatives has
 taken another step towards e-banking by developing applications that
 can be downloaded on to Android tablets and Smart Phones. We would
 continue to provide the best in class customer service as an endeavour
 to reach out to our existing as well as prospective customers and
 stakeholders.
 
 3.1 Business growth
 
 3.1.1 The Total Business of the Bank grew by 16.21% to reach to the
 level of Rs2,36,611crore as on 31st March 2012 from Rs2,03,598 crore
 recorded as on 31.03.2011.
 
 3.1.2 The Total Deposits has grown by 16.61% to reach Rs1,36,142 crore
 and the Total Advances, for the first time crossed the one lakh crore
 mark to reach Rs1,00,469 crore registering a growth of 15.68%.
 
 3.1.3 During the year, the Bank focused on lending to Agriculture, SMEs
 and Retail segment. While credit to Agriculture increased by 29.51% to
 reach Rs7,140 crore, Advances to SME segment improved by 22.9% to
 Rs14,340 crore. The Retail credit stood at Rs20,289 crore.
 
 3.1.4 The Credit-Deposit ratio (CD ratio) stood at 73.80%
 
 3.1.5 The Standard Assets constituted 98.74% of the Bank Credit.
 
 3.1.6 The aggregate investments stood at Rs47,598.53 crore, as against
 Rs43,539.31 crore in the previous year.
 
 3.2.1 The Total Income of the Bank increased by Rs4,119.27 crore to
 reach Rs14,510.40 crore, showing an increase of 39.64%.
 
 3.2.2 The Operating Profit rose to Rs2,855.97 crore registering a growth
 of 11.83%.
 
 3.2.3 The Net Profit of the Bank, for the first time, crossed a
 milestone figure of Rs1,500 crore to reach Rs1,506.04 crore.
 
 3.3 The Bank''s CRAR under Basel II stood at a comfortable level of
 13.00%.
 
 3.3.1 Networth of the Bank stood at Rs8,276 crore as against Rs 7,138
 crore last year.
 
 3.3.2 Return on Equity (ROE) works out to 18.20% and the Return on
 Average Assets (ROAA) is at 1.06%.
 
 3.3.3 The Cost to Income Ratio improved to 38.44% as compared to 39.13%
 in the previous year.
 
 3.3.4 The Non-interest income increased by 18.85% to Rs1,492 crore and
 the Net Interest Income increased by 7.05% to Rs3,146 crore. The Net
 Interest Margin works out to 2.48%.
 
 3.4 Earnings per Share has gone up to Rs101.67 from Rs98.50 and the Book
 Value per Share improved to Rs558.69 from Rs497.62.
 
 3.5 The Gross NPA stood at 1.26% and the Net NPA stood at 0.87%. The
 Bank has effected Cash recovery and up-gradation of NPAs to the extent
 of Rs 758.60 crore, which is higher by 20.93% over previous year.
 
 3.6 The Staff Productivity has recorded a marked improvement. The
 Business per Employee moved up from Rs15.73 crore to Rs17.13 crore, Net
 Profit per Employee remained at Rs10.9 lakh and Business per Branch
 improved from Rs149.59 crore to Rs157.74 crore.
 
 3.7 The Bank firmly believes that acquisition of new clients and
 nurturing the relationship with existing clients will only help in
 expansion of its business. During the year the clientele base of the
 Bank increased by 20.47 lakh to 142.48 lakh.
 
 3.8 Service Outlets : Bank''s total service outlets crossed 6,000 mark
 to reach 6,164 units, comprising of 1,500 branches, 1,274 ATMs and
 3,390 Branchless Banking units. Of these, 139 branches, 24 ATMs and 890
 Branchless banking units were operationalised during the year.
 
 3.9 The Bank has been setting standards in the area of Financial
 Inclusion. During the year, 890 villages have been covered to take the
 total number of units to 3,390. More than 1.65 lakh No frill SB
 accounts were opened taking the tally to 14.26 lakh accounts with a
 balance of Rs 67.49 crore. 23,970 General Credit Cards amounting to
 Rs33.17 crore were sanctioned. The Bank has covered all the 332 villages
 allotted by SLBCs of various states, within the stipulated time,
 covering 25 locations through Branch Model and 307 locations through
 Business Correspondent Model. The Bank has also implemented Urban
 Financial Inclusion in 105 urban locations spread across 6 states.
 
 3.10 Dividend
 
 The Board of Directors of your Bank was pleased to recommend an all
 time high dividend of Rs20.50 per equity share of Rs10/- each for the
 year 2011-12.
 
 4. New Initiatives
 
 The Bank has taken up the following new initiatives during the year to
 improve its functioning:
 
 - The Bank opened 12 new Zonal Offices at Thiruvanantapuram,
 Tiruchirapalli, Nellore, Vadodara, Thane, Meerut, Jaipur, Delhi
 (additional), Bangalore (additional), Patna, Ludhiana and Mangalore to
 have better control, monitoring, administration and faster decision
 making process. With this the total number of Zonal offices has
 increased to 31.
 
 - For faster business development and quick decision making, 6 Circle
 Offices headed by General Managers were operationalised at Mumbai,
 Delhi, Bangalore, Chennai, Kolkata and Ahmedabad with effect from 1st
 May, 2012.
 
 - For a focused approach and faster dispensation of SME credit, the
 Bank is operationalising 7 new SME loan centres at Mangalore, Trichy,
 Ahmedabad, Kolkata, Ludhiana, Chandigarh and Jaipur.
 
 - The online Banking has been made more user friendly and feature
 rich with many new features being introduced to enhance customer
 convenience.
 
 - The Bank has initiated several steps towards people development,
 organizational re-design and process changes to accelerate growth with
 quality.
 
 - Planning to open more Retail hubs to cater to the increasing demand
 for vehicle loans, housing loans and other loans under retail segment.
 
 - Planning to open 300 new branches to have pan- India presence.
 
 - Exploring the possibility of opening overseas branches at Hongkong
 and Dubai in the near future and in Kenya, Zambia and Malaysia etc. in
 the pipeline.
 
 - More Mobile ATMs and Financial Inclusion Resource Centres will be
 launched.
 
 - Continuing to innovate new products and services leveraging IT.
 
 5. Awards and Accolades
 
 The Awards and Accolades received from various organizations of repute
 speak volumes about the Bank''s performance. Some of them are:
 
 - SKOCH Financial Inclusion Award 2011, instituted by SKOCH
 Consultancy Services Pvt.  Ltd. - for completion of financial inclusion
 outreach at all the villages having population of above 2,000 allotted
 to the Bank by various State Level Bankers'' Committees (SLBCs), in
 December 2010, way ahead of the given deadline of March 2012.
 
 - Award for Financial Inclusion Programme by Association of
 Development Financing Institutions in Asia and the Pacific (ADFIAP).
 
 - IBA Banking Technology Awards 2010 (Three Awards): Winner Award -
 under the category Best Financial Inclusion Initiative and
 Best Use of Technology in Training & e-Learning Initiatives and
 Runner-up Award under the category Best Online Bank amongst
 Public Sector Banks.
 
 - Bagged the Best PSU Bank of the Year award in the Financial
 Leadership Awards 2011 conducted by Bloomberg UTV.
 
 - Awarded India''s Most Customer Friendly Bank by Outlook
 Money (A Personal Finance Magazine) & TNS [Taylor Nelson Sofre] (A
 reputed international market research firm).
 
 - In the Best Banks Survey conducted by Financial Express in
 association with Ernst & Young, your Bank was ranked Number One
 Nationalised Bank 2010-11 at FE-India''s Best Banks Awards.
 
 - In the CNBC-TV18 Best Bank and Financial Institution Awards
 presented by MCX for FY2011, the Bank was ranked Best Mid-Size
 Public Sector Bank.
 
 - Received the First Prize under National Award for Excellence in
 Lending to Micro Enterprises for the year 2010-11 from Ministry of
 Micro, Small and Medium Enterprises, Government of India.
 
 - Bagged the Best Manpower Efficiency Award in Public Sector Bank
 category, instituted by Federation of Indian Chambers of Commerce
 and Industry (FICCI) and Indian Banks'' Association (IBA) at FIBAC
 Banking Awards 2011.
 
 - Bagged SKOCH Financial Inclusion Award 2012 for SHG
 Initiatives instituted by SKOCH Consultancy Services Pvt. Ltd.
 
 - Bagged Best Performance Award 2010-11 in SHG Bank Linkage in
 Karnataka — from National Bank for Agriculture and Rural Development
 (NABARD) for its Highest recovery performance in lending to Self
 Help Groups (SHGs) among all the participating Banks in the State of
 Karnataka.
 
 6. Finally, I express my sincere thanks and gratitude to all the
 shareholders of the Bank for reposing their faith and confidence in the
 Management. I also thank all the employees for their active involvement
 and contribution towards the growth of the Bank. Customers are the
 backbone of our organization. I sincerely thank our valuable customers
 for their continued support and patronage. I also owe my gratitude to
 the Reserve Bank of India and the Ministry of Finance, Government of
 India for their support and guidance in the effective functioning of
 the Bank.
 
 Yours sincerely,
 
 Place : Mangalore                                      [Ajai Kumar]
 
 Date : 22.05.2012                     Chairman and Managing Director