The Directors have pleasure in presenting the Eighty Eighth Annual
 Report together with the Audited Statement of Accounts for the year
 ended, 31st March 2012, and the Auditors'' Report.
 
 PERFORMANCE HIGHLIGHTS
 
 Your Directors are pleased to inform that during the year under report,
 your Bank has been able to achieve three important milestones viz. (1)
 the turnover of your Bank crossed Rs. 50,000 crore (2) number of branches
 crossed 500 and (3) the client base has increased to over 50 lakh.
 Performance highlights for the financial year in the key financial
 areas are as under:
 
                                                          (Rs. in Crores)
 
 Particulars                         As on / for the  As on / for the
                                     year ended       year ended
                                     31.03.2012       31.03.2011
 
 Deposits                               31608.32        27336.45
 
 Advances                               20720.70        17348.07
 
 Investments                            12841.23        11506.34
 
 Gross Income                            3447.27         2662.60
 
 Operating Profit                         510.21          355.29
 
 Net Profit                               246.07          204.61
 
 The total business turnover of the Bank was Rs. 52329.02 crore as on 31st
 March 2012, an increase of 17.11 per cent over the preceding year. The
 total assets of the Bank increased from Rs. 31693.01 crore to Rs. 36321.57
 crore recording a growth of 14.60 percent for the year 2011-12.
 
 The total deposits of the Bank grew from Rs. 27336.45 crore as on 31st
 March, 2011 to Rs. 31608.32 crore as on 31st March 2012, registering a
 growth of 15.63 per cent.  During the year, low cost deposits of the
 Bank, viz.  Savings and Current Account Deposits, have shown growth of
 14.12 per cent due to the various measures undertaken by the Bank. The
 market share of the Bank in deposits was 0.51 percent.
 
 The total advances grew from Rs. 17348.07 crore as on 31st March, 2011 to
 Rs. 20720.70 crore as on 31st March, 2012, an increase of 19.44 per cent.
 While agricultural advances increased from Rs. 2031.23 crore to Rs. 2586.36
 crore, the priority sector advances increased from Rs. 6238.36 crore to Rs.
 7570.27 crore. Lending under various socio-economic schemes has shown
 satisfactory progress. The market share of the Bank in loans and
 advances was 0.43 per cent.
 
 As on 31st March, 2012 the total investments of the Bank stood atRs.
 12841.23 crore as against Rs. 11506.34 crore as on 31st March 2011, an
 increase of 11.60 per cent.
 
 OPERATIONAL PERFORMANCE
 
 Under the competitive and challenging business environment, the overall
 performance of your Bank during the year 2011-12 was satisfactory. The
 gross income of the Bank was Rs. 3447.27 crore and total expenditure
 (excluding provisions and contingencies) was Rs. 2937.06 crore. The net
 interest income was Rs. 744 crore.
 
 PROFIT
 
 Your Bank earned an operating profit of Rs. 510.21 crore for the year
 2011-12 as against Rs. 355.29 crore for the previous year showing a
 growth of 43.60 per cent. The net profit of the Bank increased from Rs.
 204.61 crore to Rs. 246.07 crore.
 
 APPROPRIATIONS
 
 The net profit of Rs. 246.07 crore which along with a sum of Rs. 0.03 Crore
 brought forward from the previous year aggregating Rs. 246.10 crore, is
 appropriated as under The corresponding figure for the previous year
 was Rs. 204.63 crore
 
 Appropriation                                 Rs. in Crore
 
 Transfer to Statutory Reserve                   110.00
 Transfer to Revenue, General &
 
 Special Reserves                                 59.48
 
 Transfer to Investment Reserve Account               0
 
 Transfer to Proposed Dividend (including tax)    76.59
 
 Balance carried to Balance Sheet                  0.03
 
 Total                                           246.10
 
 DIVIDEND
 
 Having regard to the overall performance of the Bank and the positive
 outlook for the future, the Board of Directors recommended a dividend
 of 35 per cent for the reporting year. The dividend payout ratio for
 the year works out to 26.78 percent.
 
 EARNING PER SHARE/BOOKVALUE
 
 The earnings per share (basic) and the book value of the share as on
 31st March, 2012 stood at Rs. 13.07 and Rs. 137.99 respectively.
 
 NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
 
 During the year under review the net owned funds of your Bank increased
 from Rs. 2429.09 crore to Rs. 2598.21 crore, registering a growth of 6.96
 per cent. The Capital Adequacy Ratio stood at 12.84 per cent as per
 BASEL II norms (Previous year 13.33 per cent). The Bank has been
 consistently maintaining the Ratio well above the minimum of 9 per cent
 stipulated by the Reserve Bank of India. The market capitalisation as
 on March 31, 2012 was Rs. 1800.94 crore.
 
 FOREX BUSINESS
 
 During the year under report, your Bank achieved a turnover of Rs.9243.71
 crore in foreign exchange business as against Rs. 9006.19 crore in the
 previous year. The advances to export sector stood at Rs. 1454.41 crore.
 
 NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
 
 Your Bank has been focusing on containing the non- performing assets
 through better credit monitoring as well as intensified efforts to
 recover the impaired assets.  Bank''s Gross NPAs as on 31st March, 2012
 have decreased from Rs.702.17 Crore (3.97percent) to Rs. 684.72 crore (3.27
 percent) by the year end. The Net NPAs stood at Rs. 435.20 (2.11 per
 cent) as against Rs. 280.34 crore (1.62per cent) as on 31st March 2011.
 The Provision Coverage Ratio (PCR) computed in accordance with the RBI
 guidelines works out to 47.18% as on March 31,2012 (Previous year
 60.08%).
 
 CREDIT RATING
 
 The credit rating agency ICRA Ltd. (ICRA) has accorded ''A1 '' rating to
 the Bank''s Certificate of Deposit Programme.  The rating symbol, ''A1 ''
 indicates highest degree of safety for timely payment of principal and
 interest.
 
 Further, ICRA has revised the rating from ICRA A  to ICRA A
 (pronounced ICRA A) and Credit Analysis & Research Limited (CARE) has
 re-affirmed CARE A  (Single a Plus) ratings, (indicating adequate
 degree of safety regarding timely servicing of financial obligations.
 Such instruments carry low credit risk), in respect of Rs. 350 crore
 raised by the Bank during the previous years, byway of Unsecured
 Redeemable Non-Convertible Subordinated (lower Tier-II) debt
 instruments. Your Bank would continue its efforts in improving upon the
 above Ratings.
 
 DISTRIBUTION NETWORK
 
 During the year under report, your Bank opened its 500th branch at
 Shirur in Karnataka State on 29.03.2012. A total 25 new branches were
 opened viz at Tanuku, Karimnagar Miryalguda and L B Nagar in Andra
 Pradesh, Toranagallu Siddalingapura, Yellapur, Bangalore- 
 Rajarajeshwarinagar Siruguppa, Bangalore – Metropolitan Magistrate 
 Court, Kunigal, T Narsipura, Kairangala, Horanadu, Kampli, Sira, 
 Shirur, Yadgir, Indi, Nippani in Karnataka, Gwalior, in Madhyapradesh, 
 Rourkela in Orissa, Chennai- Velachery in Tamilnadu, Baruipur and 
 Memari in West Bengal. Further, your Bank added 85 ATM outlets at 
 various locations during theyear2011-12.
 
 As at 31 March, 2012, your Bank had 503 branches (including one
 Corporate Finance branch at Fort Mumbai and Agricultural Development
 branch at Chick magalore), 352 ATM outlets, 10 Regional Offices, an
 International Division, a Data Centre, a Customer Care Centre, 5
 Service branches, 2 Currency Chests, 3 Extension Counters, 2 Central
 Processing Centers and 3 Asset Recovery management branches spread
 across 20 States and 2 Union Territories. Further, for better ambience
 and improved customer service, your Bank shifted 27
 branches/officestonewpremises,duringtheyear2011-12.
 
 EMPLOYEES STOCKOPTION SCHEME
 
 A total of 93468 equity shares were allotted to the employees of your
 Bank, pursuant to the exercise of options vested under the Employees
 Stock Option Scheme of the Bank. Disclosure in respect of Employee
 Stock Options Scheme pursuant to SEBI (Employees Stock Options Scheme
 and Employees Stock Purchase Scheme) Guidelines 1999 is given in Annexure
 I to this report.
 
 DIRECTORS
 
 Messrs Ananthakrishna, D. Harshendra Kumar and Dr. H. Ramamohan are
 retiring by rotation and are eligible for re-appointment at the forth
 coming Annual General Meeting. Their brief resume and other details are
 furnished in the notice of the meeting.
 
 CORPORATE GOVERNANCE
 
 Your Bank is committed to following the best practices of corporate
 governance to protect the interests of all the stakeholders of the
 Bank, viz. shareholders, depositors, customers and employees and the
 society in general and maintains transparency at all levels. A detailed
 report on corporate governance practices is given as Annexure III to
 this Report.
 
 DIRECTORS'' RESPONSIBILITY REPORT
 
 As per Section 217(2AA) of Companies (Amendment) Act, 2000, your
 Directors report that:
 
 i.  The Accounts for the year 2011-12 were prepared by following the
 Accounting Standards in so far as they apply to banks.
 
 ii.  Accounting policies adopted and applied consistently by the Bank
 are in tune with the RBI guidelines issued from time to time.
 Reasonable prudent judgments and estimates have been made in the
 accounts, so as to give a true and fair view of the state of affairs of
 the Bank and of the profit of the Bank for the financial year ended
 31st March 2012.
 
 iii. The Bank had taken proper and sufficient care for maintaining
 adequate records in accordance with the provisions of the Companies Act
 1956, in so far as they apply to banks.
 
 iv.  The annual accounts for the year ended 31st March 2012 have been
 prepared on a Going Concern basis.
 
 STATUTORY DISCLOSURES
 
 Considering the nature of the Bank''s business, 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, used information technology extensively in its
 operations.
 
 There were no employees who were in receipt of remuneration during the
 year ended March 31, 2012 requiring disclosure under section 217(2A) of
 the Companies Act, 1956 read with Companies (Particulars of Employees)
 Rules, 1975.
 
 SOCIAL INITIATIVES
 
 Businesses are an integral part of society and have a critical active
 role in the sustenance and improvement of a healthy ecosystem in
 fostering social inclusiveness and equity and to uphold the ethical
 practices and good governance. It is believed that integrating social,
 environmental and ethical responsibilities into governance of business
 ensures long term successes, competencies and sustainability With this
 in mind your Bank continues to engage in accepting various social
 responsibilities. The Corporate Social Responsibility initiatives of
 the bank are designed to ensure that the bank adds social,
 environmental and economic value in all its activities to make a
 positive, sustainable impact on both society and business. In this
 direction the bank has been responding well over the years through
 various initiatives like participation in social, cultural, educational
 activities etc., aimed at improving the knowledge, standard of living
 and the quality of life of the people and society The Bank firmly
 believes that being an integral part of society, it is the inclusive
 growth of society which contributes ultimately to the growth of the
 Bank.
 
 FINANCIAL INCLUSION
 
 Financial Inclusion is making available the full range of banking
 services at an affordable cost to the people who do not have access to
 Banking Services. It mainly focuses on the section of society not
 having formal financial institutional support.
 
 Your Bank has taken up implementation of Financial Inclusion in 80
 villages across Karnataka, Chattisgarah and Andhra Pradesh by utilizing
 appropriate information and Communication Technology (ICT) based model
 using Business Correspondents Model in 69 villages and Brick and
 Mortar branch models in 11 villages, for extending banking services
 in every village having a population of over 2000. Your bank has opened
 its first Financial Inclusion Branch at Kairangala and the second
 on eat Horanadu.
 
 With a view to spread awareness on financial services available from
 banks to the members of general public and to spread financial
 education and financial literacyto the common man at the remotest
 Village in the service area of the Bank, your Bank has implemented the
 mobile van model of Financial Inclusion Resource Center (FIRC) and has
 covered about 854 service area villages by 31.03.2012. Further, to
 educate the people in rural and urban areas regarding various financial
 products and services available from the financial sector, to provide
 financial counseling services regarding responsible borrowing and debt
 counseling and restructuring, your Bank has opened its first Financial
 Literacy Credit Counseling Center (FLCC) at B. C Road, Bantwal by
 joining hands with Syndicate Bank and Vijaya Bank, as an institutional
 sponsorer.
 
 Further your Bank is a Trustee of the Karnataka Farmers Resource Center
 (KFRC) set up by State Level Bankers Committee (SLBC), Karnataka at
 Bagalkot, Karnataka.  It serves as a resource center and provides
 bridging services to the farmers to develop the managerial capacity of
 farmers. It also coordinates the services of various service providers
 to provide training, consultancy: counseling and reference services.
 
 Your Bank is also participating in the pilot project of the Govt. of
 Karnataka for Bio-Metric Smart Card based payment system (Electronic
 Benefit Transfer) for National Rural Employment Guarantee Scheme
 (NREGS) and Social Security Pension (SSP) beneficiaries covering
 Chitradurga, Yadgir and Bellary Districts in Karnataka.
 
 ACKNOWLEDGEMENTS
 
 Your Directors would like to place on record their sincere gratitude to
 the Reserve Bank of India, other government and regulatory authorities,
 financial institutions and correspondent banks for their continued
 guidance and support. Your Directors also place on record their
 gratitude to the Bank''s shareholders, depositors and other customers
 for their continued support, patronage and goodwill. Your Directors
 express their deep sense of appreciation to the employees, for their
 contribution in your Bank''s quest for sustained growth and
 profitability and look forward to their continued contribution in
 scaling greater heights.
 
                           For and on behalf of the Board of Directors
 
 Place: Mangalore                                       Ananthakrishna
 
 Date : 18.05.2012                                            Chairman