Federal Bank

Dear Shareholders,
 
 It is my privilege to place your Banks Annual Report for the year
 2007-08 before you for your perusal.
 
 This moment brings me joy as our Bank has achieved reasonable bottom
 line and top line growth amidst turbulence in the financial markets
 across the world. Even though financial experts speculated on
 decoupling theory, Indian financial space was not totally insulated
 from the mayhem witnessed in the global markets. Inflation, which was
 under control in the first half of last financial year, showed signs of
 trend reversal during the second half and was on an upward journey.
 
 As a result of adverse global conditions, Indian Banking industry also
 faced challenging situations requiring agile movements. At a time, when
 those without clear vision of the emerging situations are struggling to
 survive, I can, with pride and self-confidence, assure of the
 adaptability and resilience of your Bank in these testing times.
 Customer satisfaction, tailor made products and improved turn around
 time by streamlining product delivery processes are the main pillars of
 strength of any growing institution. Your Bank strives to be ahead in
 all the spheres with the central theme of enhancing value for all the
 stakeholders.
 
 The financial results for FY 2007-08, placed before you all, have
 without doubt, proved the efficiency of this Bank amidst the
 turbulence. The book value of your share has gone up from Rs. 175.48 to
 Rs. 229.53. Earning Per Share has moved up to Rs. 32.42 from Rs.28.74.
 Net worth has taken a quantum leap from Rs. 1,502.21 Crore to Rs.
 3,925.70 Crore, consequent to the Rights Issue.
 
 Your Bank continues its tradition of adding value to its shareholders.
 The increase in stature by increasing business volume, introducing new
 customer-friendly products, adopting technology to stay ahead and such
 other measures prove the commitment of the Bank in enhancing the
 shareholder value. Concentrating on organic growth opportunities to
 gain a critical mass has been an important element in our strategy for
 growth. Towards this end, your bank has taken significant steps, like
 expansion of retail business, expanding footprints across places and
 centres with business potential. Accordingly during the last FY, the
 Bank opened 65 new branches, upgraded two extension counters and opened
 141 new ATMs. The total number of branches has increased from 536 to
 603. As on May 29, 2008, the Bank has 606 branches, 544 ATMs, 10
 extension counters and one satellite office. In tune with the strategy
 to further extend the reach across major centres, the Bank plans to
 open more new branches during the current fiscal. To cater to the
 growing needs of the Indian diaspora in the Middle East, the Bank
 opened a representative office in Abu Dhabi, U.A.E. This office will
 coordinate operations in the Gulf countries and will enhance the
 customer convenience for our Non Resident Indian clientele.
 
 The Bank has switched over to its Core Banking Platform at a record
 pace and all its branches are now operating under CBS. The Bank has
 started leveraging the CBS and offering an array of new products with
 customer segmentation as the core objective. The Bank is fully prepared
 to meet the situations of Basel II implementation.
 
 In the last Annual Report, I informed you that our Joint Venture in
 Life Insurance would be functional during the FY 2007-08. I am happy to
 inform you that IDBI Fortis Life Insurance Company Limited, our life
 Insurance J.V. has become fully operational and has started offering
 its products. So far, the response from the public is encouraging.
 Increase of fee-based income through various avenues continues to be on
 top of the agenda. Distribution of Life and General Insurance products
 and sales of Mutual Funds are expected to add revenue in good numbers.
 
 The subsidiary of the Bank, FedBank Financial Services Limited, is
 acting as a channel to market asset products of the Bank. This is
 resulting in significant and broader penetration to various classes of
 customers.
 
 It is a rare privilege to announce that your Bank has passed through
 the strictest standards when benchmarked against the best and results
 of these litmus tests are truly encouraging.
 
 The performance of your Bank continued to win accolades from various
 institutions in India and abroad and these recognitions are sure to
 instil confidence in us to take on new challenges. The major
 recognitions bestowed on your Bank in 200708 are:
 
 - In the annual survey conducted by Business Today in association with
 KPMG Consulting, Federal Bank was adjudged the most efficient Bank in
 the large Bank category. The Bank won this award second year in a row.
 
 - A survey conducted by The Financial Express in association with Ernst
 & Young, on the basis of five key parameters, viz.  strength and
 soundness, growth, profitability, efficiency and credit quality,
 adjudged Federal Bank among top three Banks in the Old Private Sector
 Banks category. This recognition has also been bestowed for a second
 time.
 
 - Federal Bank won the Best Core Banking Project Award 2007 at the
 Asian Banker IT Implementation Awards 2008
 
 - FITCH Ratings have upgraded the Banks National Long-term rating to
 AA - (ind) from A + (ind). FITCH has also upgraded the Banks INR 6
 Bn Subordinated debt to AA-(ind) from A + (ind). The outlook on the
 ratings has been changed to Stable.
 
 Your Banks endeavour is to be amongst the best and continue to remain
 in the list. This agenda will continue to guide us. Setting high level
 of standards and achieving them has been the hallmark of the journey so
 far.  The Banks solemn pledge will be to assiduously follow the set
 pattern in the future as well.
 
 The most valuable asset that the Bank has religiously been carrying
 with it all through these years is the unflinching loyalty of the
 customers. The Bank will strive to protect the interests of our
 customers and other stakeholders in the present scenario of global
 financial uncertainties.
 
 I, with gratitude, record our acknowledgment for the contributions,
 cooperation and guidance being received from all shareholders,
 customers and employees. In our continuing voyage to newer vistas, I
 humbly seek the loyalty and patronage from all the stakeholders.
 
 With best wishes and warm regards,
 
 Yours sincerely,
 
                                          M. Venugopalan
                                          Chairman & CEO