Dena Bank

Dear Shareholders,
 
 I have great pleasure in presenting to you the Annual Report of the
 Bank along with the Balance Sheet as at 31st March 2009 and Profit &
 Loss Account for the year ended 31st March 2009.
 
 The Backdrop
 
 The year 2008-09, particularly the second-half of the fiscal witnessed
 global turmoil with recessionary trends prevailing in most economies in
 the aftermath of the Sub- prime crises in the US. The year saw the
 collapse of number of banks across the globe. International oil prices
 rose to touch an all time high before cooling down to more earthly
 levels. The global economic conditions deteriorated sharply during the
 year 2008 with several advanced economies experiencing sharp decline in
 their growth rates with a corresponding increase in unemployment
 levels.
 
 Inflation conditions witnessed sharp volatility globally during the
 year and in India headline inflation rose considerably up to July 2008,
 but declined sharply thereafter.
 
 The monetary and fiscal authorities of the country, realizing that fast
 and well calibrated responses were required to minimize the pains of
 the recessionary trends on the economy that had been riding high with
 9% growth over the previous 5 years, rose to the occasion and rolled
 out a series of monetary and fiscal measures aimed at restoring a
 balance in the economy.
 
 On the fiscal side, the Government of India had initiated a number of
 measures over and above the Budget pronouncements.
 
 Fortunately, Indian financial sector continued to be resilient even in
 the face of the global financial turmoil.  Indian financial markets
 continued to function in an orderly manner. Indias growth trajectory
 was, however, impacted both by the financial crisis and the global
 meltdown. The impact turned out to be deeper and wider than was
 anticipated earlier. Concurrently, both on account of the global
 developments and the supply and demand management measures initiated by
 Government of India and the Reserve Bank of India, WPI inflation
 declined considerably from the 12% in August 2008 to an all time low of
 0.14% by April 2009.
 
 Banking Sector
 
 The Indian banking industry showed tenacity in the face of extreme
 pressures that followed the sub-prime effects elsewhere mainly on
 account of the adequate levels of capitalization. Against the
 international norms of 8% CRAR, Reserve Bank of India had prescribed 9%
 as minimum CRAR for Indian banks for long. During the fiscal 2008-09,
 all scheduled commercial banks in the country adopted Basel II norms
 (New Capital Adequacy Framework laid down by Reserve Bank of India in
 April 2007). The public sector banks in the country that constitute the
 very backbone of the Indian banking scene by and large had CRAR of 12%
 and over. Furthermore, the Government of India has shown a clear
 inclination to further recapitalize the banks in which it has major
 stake.
 
 The growth in aggregate deposits of banks, was 18.8 per cent at
 end-March 2009 as compared to 21.7 per cent as at end-March 2008.
 Non-food credit by SCBs was moderated to 17.5 per cent, at end-March
 2009 in comparison with 23.0 per cent at end March 2008.
 
 Your Banks Performance
 
 Your Bank experienced pressure on Net Interest Income on account of
 interest rate movements and the need to further improve asset quality
 while reducing the non performing assets sizably. This had been a
 difficult task against the backdrop of the economic slowdown. I am
 happy to inform you that by and large, the bank had overcome these
 challenges reasonably well by constantly reviewing its interest rates
 on both sides of the balance sheet. The Banks benchmark prime lending
 rate (BPLR) peaked at 14.25% in August 2008 and had come down to 12.75%
 by March 2009 with a further reduction of 25 basis points in April
 2009. The interest rate on domestic term deposits with a tenor of 1
 year that was 8.25% in April 2008 had increased to 8.75% in March 2009.
 Thus despite the increase in cost of deposits and cut in BPLR,
 strategies like concentration on high yielding advances, faster
 recycling of funds through short term loans at competitive rates, etc
 led to an increase in yield on advances and thus contain the impact on
 NIM.
 
 I would like to touch upon some areas where your Bank has performed
 well during 2008-09.
 
 Business Growth and Earnings
 
 The Banks business comprising of deposits and advances, at Rs.72236
 crore registered an increase of 26.01% during 2008-09 as against 23.62%
 for the previous year. Total deposits grew by 26.83% and advances by
 24.82% as against the growth rates for previous year at 22.58% and
 25.15% respectively. The thrust areas for credit expansion, with
 emphasis on risk scattering continued to be on SME, retail and
 agriculture sectors.
 
 The Bank continued with its strategies of concentrating on recoveries
 in written off accounts, commission income from government business and
 referral income from distribution of third party products etc and this
 approach had yielded good results. It is my pleasure to announce that
 as a result of all these efforts, your Bank has posted a sizeable
 increase in net profit by 17.47% over the previous year i.e. from
 Rs.359.79 crore to Rs.422.66 crore. A dividend at the rate of 12% as
 against 10% for the previous year has been recommended by the Board,
 considering the need of higher plough back of profits to augment
 capital funds to support growth of assets at higher rate in view of the
 limiting factors in accessing further equity by the Bank
 
 Asset Quality
 
 The Banks strategy on asset quality has been to build up a well
 diversified portfolio of credit and investments spread across various
 sectors and industries. The Bank has also put in place a strong credit
 monitoring system to aid identification of early warning signals in its
 assets portfolio and initiate timely corrective actions.
 
 Aided by efforts at all levels within the Bank, the ratio of Gross NPAs
 further improved from 2.45% to 2.13% during the year while the ratio of
 Net NPAs marginally increased to 1.09% from 0.94%.
 
 New Capital Adequacy Norms
 
 Your Bank has embraced the New Capital Adequacy frame work more
 popularly called Basel - II Norms as at 31st March 2009. The Capital
 Adequacy of the Bank stood at 12.07% under Basel - II despite having
 allocated capital for operational risk. The CRAR under Basel - II at
 12.07% compares well with that of 10.73% under Basel - I and is clear
 reflection of the Banks strategies to focus on Agriculture, Retail and
 SMEs and to carefully, select large borrowers with higher external
 credit rating.
 
 Retail Banking
 
 Bank has started opening Retail Assets Branches for giving speedy
 service to retail borrowers. During 2007-08 one branch at Mumbai and
 2008-09 three branches at Ahmedabad, New Delhi and Kolkata were opened.
 The Bank is planning to open eight more Retail Asset Branches during
 current year at various centres.
 
 Augmenting Non-Interest Income
 
 The bank continued to leverage its relationships with its loyal
 customer base by cross selling its products as well as third party
 products like life and non-life insurance, mutual funds etc. and
 strategic tie-ups with insurance companies and mutual funds also helped
 the Bank to augment its fee and referral income. The continued focus on
 recoveries in written off accounts yielded over Rs.100 crores for the
 third consecutive year. Trading activities in government securities and
 equity also contributed to non interest income of the Bank.
 
 Catalysts for Growth
 
 Ever expanding Outreach
 
 The traditional distribution channels of the Bank stood at 1184 as at
 the end of 2008-09 with the opening of 26 more Branches during the
 year. In all, the Bank has now a presence in 24 States and 4 Union
 territories. The alternative delivery channels also have increased
 during the year as 71 more ATMs were installed during the year.  The
 Banks ATMs include two Bio metric ATMs that form part of the Banks
 strategy for financial inclusion. As at 31st March 2009, the Bank had
 an installation base of 387 ATMs comprising of 284 on-site ATMs and 103
 Off- site ATMs for the convenience of customers.
 
 Human Resources
 
 The Bank views that the cutting edge of competitiveness at retail level
 and efficient customer service is the human resources of the Bank.
 During the year, the Bank continued with the task of upgrading the
 skill levels of employees at all levels by organizing a number of
 special programs, workshops etc. Induction training to new recruits was
 given special focus. The bank also recruited 259 new officers during
 2008-09 including various areas of specialization like Credit, Forex,
 IT, Marketing, Personnel etc.
 
 Transformation through Technology
 
 Technology along with Human Resources is the main catalyst for growth.
 The bank has extended the core banking project to 498 more branches
 including 26 newly opened branches during the year, taking the total
 number of branches covered to 606. As at 31st March 2009, 86.01 % of
 the Banks business has been covered under the prestigious Dena Garima
 Project (CBS) and the Bank has plans to cover all its Branches by
 December 2009.  Further, as CBS is expected to bring about a major
 transformation in the way the banking business is done, the bank has
 already taken steps to fully exploit the potential of CBS. In line with
 this strategy, the Bank has already launched its Internet Banking
 Services (Dena i Connect) at all CBS branches and some select non CBS
 branches during the year. The Bank has also launched a new technology
 based product Dena VISA International Gold Debit Card. Besides, to
 harvest the full benefits of core banking, the Bank has also
 implemented many initiatives for Business Process Reengineering aimed
 both at optimal utilization of man-power and reducing operational
 costs.
 
 Rural Initiatives and Financial Inclusion
 
 The bank has been in the forefront in taking rural initiatives as well.
 The bank was the pioneer in introducing Kisan Credit Cards for rural
 areas way back in 1988-89 to assist farmers, a concept that has
 subsequently caught up with all the banks. The bank has taken the lead
 in establishment of Farmers Clubs and extending financial assistance
 to Self Help Groups. The banks credit flow to weaker sections and
 SC/STs had registered growth of 24.77% and 26.85% respectively during
 2008-09.
 
 Coming to financial inclusion, the Bank has taken various steps to gear
 up the pace of bringing families into the banking fold, which were
 hitherto, not availing of banking facilities. During the year 2008-09,
 the Bank opened 3.17 lacs no frill accounts (Dena Alpa Bachat Khata )
 and the total number of these accounts stood at 4.05 lacs as on 31st
 March, 2009. Further the Bank also issued 2102 Bhoomiheen Kisan Credit
 Cards and 12021 Dena General Credit Cards during the year. The Bank
 rolled out its first Credit Counseling Center at Himatnagar in August
 2007.  Subsequently, the Bank has also opened Credit Counseling centers
 at Palanpur, Mehsana, Bhuj and Silvassa. These centers are christened
 as Dena Mitras.
 
 Corporate Social Responsibilities
 
 The Dena Rural Development Foundation set up by the Bank has set up 3
 RUDSETIs at Bhuj, Mehsana and Himatnagar which impart training to
 unemployed rural youth and women for capacity building so as to enable
 them to set up self employment ventures. Over 3530 rural youth/women
 have already been imparted training by these RUDSETIs.
 
 As a part of Corporate Social Responsibility, the Bank continues with
 its unique Dena Laxmi Shiksha Protsahan Yojana to sponsor education of
 Girl Child in the villages served by the Bank. The scheme aims at
 providing scholarship to identified girl students belonging to Below
 Poverty Line (BPL) family.The Bank has so far assisted 1603 children
 under the scheme. Further, In order to acquaint / empower the farmers
 with latest technological developments / knowledge in the field of
 agriculture, the Bank has been arranging locational training programmes
 to its farmer borrowers in association with various agricultural
 universities.
 
 The Road Ahead
 
 Economic slowdown, increased Government borrowings from the market and
 the resultant market volatilities, Interest Rate movements, increasing
 competition in terms of new & attractive products and services and
 optimal utilization of core banking platform constitute the main
 challenges before the Bank in the days ahead. However, the Bank has
 strategized its approach to these challenges and in responding to new
 developments in a timely manner. This approach has yielded the desired
 results during the last two years and the Bank is confident that it is
 adequately prepared for the current year also.
 
 During the current year, thrust areas of SME, Retail and Agriculture
 will continue to be in focus. Enhancing CASA deposits level, augmenting
 non interest income through better marketing of banks own products
 that generate fee based income, commission etc as well as distribution
 of third party products, aggressive recovery efforts addressing the
 written-off accounts / investments, focused implementation of Core
 Banking, improvement in asset quality with emphasis on avoidance of
 concentration risk etc will constitute important planks of the Banks
 strategies.  In the process, growth requirements will also be
 adequately addressed by a quantum increase in customer base by
 targeting for bringing in more and more new customer accounts.
 
 Upon perusing the Directors Report, the Balance Sheet and the Profit &
 Loss Account for the year 2008-09,1 am sure that you will appreciate
 that the shareholders sentiments have been respected by the banks
 Board, Management and all sections of the employees.
 
 I hope the Management will continue to have the privilege of your
 continued support and patronage in steering the Bank amidst innumerous
 challenges during the current year.
 
 Acknowledgements
 
 I express my sincere thanks to the Banks valued customers,
 shareholders and well wishers for their valuable contribution to the
 progress of the Bank and seek their continued support and co-operation
 in future.
 
 I acknowledge with gratitude, the timely advice, valuable guidance and
 support received from Government of India and Reserve Bank of India.
 
 I am also thankful to the Financial Institutions / Banks and
 Correspondents for their cooperation and support to the Bank.
 
 I wish to place on record, the deep appreciation of the valuable
 contribution of the staff, at all levels, without which the progress
 achieved, would have been unattainable. I look forward to your
 continued cooperation in faster business development and progress of
 the Bank.
 
                                                        D.L. Rawal
                                      Chairman & Managing Director