The Directors have pleasure in presenting the Eighty Seventh Annual
 Report, the Audited Balance Sheet as at 31st March 2011 and the Profit
 & Loss Account for the year ended, 31st March 2011, along with the
 Auditors Report.
 
 PERFORMANCE HIGHLIGHTS
 
 Performance highlights for the financial year in the key financial
 areas are as under: -
 
                                                (Rs. in crore)
 
 Particulars                  As on /for the   As on / for the 
                                  year ended        year ended
                                  31.03.2011        31.03.2010
 
 Deposits                           27336.45          23730.65
 
 Advances                           17348.07          14435.68
 
 Investments                        11506.34           9992.05
 
 Gross Income                        2662.60           2354.68
 
 Operating Profit                     355.29            260.84
   
 Net Profit                           204.61            167.12
 
 The total business turnover of the Bank was Rs. 44684.52 crore as on
 31st March 2011, an increase of 17.08 per cent over the preceding year.
 The total assets of the Bank increased from Rs. 27021.57 crore to Rs.
 31693.01 crore recording a growth of 17.29 percent for the year
 2010-11.
 
 The total deposits of the Bank grew from Rs. 23730.65 crore as on 31st
 March, 2010 to Rs. 27336.45 crore as on 31st March 2011, registering a
 growth of 15.19 per cent. During the year, low cost deposits of the
 Bank, viz Savings and Current Account Deposits, have shown an
 impressive growth of 23.23 per cent due to the various measures
 undertaken by the Bank. The market share of the Bank in deposits was
 0.53 per cent.
 
 The total advances grew from Rs. 14435.68 crore as on 31st March, 2010
 to Rs. 17348.07 crore as on 31st March, 2011, an increase of 20.17 per
 cent. While agricultural advances increased from Rs. 1609.16 crore to
 Rs. 1961.14 crore, the priority sector advances increased from Rs.
 5252.96 crore to Rs. 6238.36 crore. Lending under various
 socio-economic schemes has shown satisfactory progress. The market
 share of the Bank in loans and advances was 0.44 per cent.
 
 As on 31st March, 2011 the total investments of the Bank stood at Rs.
 11506.34 crore as against Rs. 9992.05 crore as on 31st March 2010, an
 increase of 15.15 per cent.
 
 OPERATIONAL PERFORMANCE
 
 Under the competitive and challenging business environment, the overall
 performance of Your Bank during the year 2010-11 was satisfactory. The
 gross income of the Bank was Rs. 2662.60 crore and total expenditure
 (excluding provisions and contingencies) was Rs. 2307.32 crore. The net
 interest income was Rs. 612.48 crore.
 
 PROFIT
 
 Your Bank earned an operating profit of Rs. 355.29 crore for the year
 2010-11 as against Rs. 260.84 crore for the previous year showing a
 growth of 36.21 per cent. The net profit of the Bank increased from Rs.
 167.12 crore to Rs. 204.61 crore.
 
 APPROPRIATIONS
 
 The net profit of Rs. 204.61 crore which along with a sum of Rs. 0.02
 Crore brought forward from the previous year, aggregating Rs. 204.63
 crore, is appropriated as under.  The corresponding figure for the
 previous year was Rs. 167.15 crore.
 
 Appropriation                     Rs. in Crore
 
 Transfer to Statutory Reserve          100.00
 
 Transfer to Revenue, General &          46.40 
 Special Reserves
 
 Transfer to Investment Reserve          -7.20 
 Account
 
 Transfer to Proposed Dividend           65.41
 (including tax)
 
 Balance carried to Balance Sheet         0.02
 
 Total                                  204.63
 
 
 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 30 per cent for the reporting year. The dividend payout ratio for
 the year works out to 27.59 per cent.
 
 EARNING PER SHARE/BOOK VALUE
 
 The earnings per share (basic) and the book value of the share as on
 31st March, 2011 stood at Rs. 15.20 and Rs. 129.08 respectively.
 
 ISSUANCE OF FRESH EQUITY SHARES
 
 During the year under report your Bank issued 5,37,69,935 equity shares
 of Rs. 10 each at a price of Rs. 85 per share including a premium of
 Rs. 75 per equity share on Rights basis in the ratio of Two equity
 shares for every
 
 Five equity shares held, aggregating Rs. 457.04 crore as permissible
 under SEBI (ICDR) Regulations, 2009. The issue has been over subscribed
 by 1.53 times. After keeping in abeyance entitlements to the extent of
 1320 shares, as the entitlements were sub judice, the Board has
 allotted 5,37,68,615 equity shares on 31.3.2011.  The Board of
 Directors places on record its appreciation for the confidence reposed
 by the share holders of the Bank and thanks them for their response to
 the Rights issue. Further 4,45,715 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. The issuance of
 equity shares has helped the Bank to improve its capital funds and the
 Capital Adequacy Ratio as on March 31, 2011.
 
 NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
 
 During the year under review the net owned funds of your Bank increased
 from Rs. 1832.75 crore to Rs. 2429.09 crore, registering a growth of
 32.54 per cent. The Capital Adequacy Ratio stood at 13.33 per cent as
 per BASEL II norms (Previous year 12.37 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, 2011 was Rs. 2022 crore.
 
 FOREX BUSINESS
 
 During the year under report, your Bank achieved a turnover of Rs.
 9006.19 crore in foreign exchange business as against Rs. 8605.93 crore
 in the previous year. The advances to export sector increased from Rs.
 1369.12 crore to Rs. 1502.04 crore.
 
 NON-PERFORMING ASSETS
 
 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. However in view of delinquencies in select
 sectors, the Banks, Gross NPAs as on 31st March, 2011 have increased
 from Rs. 549.64 crore (3.73 per cent) to Rs. 702.17 crore by the year
 end (3.97 per cent). The Net NPAs stood at Rs. 280.34 (1.62 per cent)
 as against Rs. 188.61 crore (1.31 per cent) as on 31st March 2010.
 
 CREDIT RATING
 
 The credit rating agency, ICRA Ltd. (ICRA) has accorded ‘A1+ rating to
 the Banks Certificate of Deposit Programme. The rating symbol, ‘A1+
 indicates highest degree of safety for timely payment of principal and
 interest.
 
 Further, ICRA and Credit Analysis & Research Limited (CARE) have
 re-affirmed LA+ (pronounced L A plus) and “CARE A + (Single A Plus)
 ratings assigned respectively
 
 indicating adequate credit quality to Rs. 350 crore raised by the Bank
 during the previous years, by way of Unsecured Redeemable
 Non-Convertible Subordinated (lower Tier-II) debt instruments.
 
 DISTRIBUTION NETWORK
 
 Your Bank opened its ninth Regional Office in Hyderabad on 30th April,
 2010 for operational convenience. During the year under report, your
 Bank opened 14 new branches at Arsikere – Hoysaleshwara College Campus,
 Kadur, Bangalore - Varthur, Bangalore - Raghuvanahalli, Uppinangady,
 Mudhol, Bangalore - City Civil Court, Bangalore - Herohalli and Sindagi
 in Karnataka, Jajpur Road and Angul in Orissa, Mumbai – Dadar (W), New
 Delhi- Vikaspuri, Amtala in West Bengal. Further, your Bank added 50
 ATM outlets at various locations during the year 2010-11.
 
 As at 31 March, 2011, your Bank had 478 branches, 267 ATM outlets, 9
 Regional Offices, an International Division, a Data Centre, a Customer
 Care Centre, 5 Service Branches, 2 Currency Chests, 4 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 11
 branches/offices to new premises, during the year 2010-11.
 
 EMPLOYEES STOCK OPTION SCHEME
 
 The information pertaining to Employees Stock Options is given in
 Annexure I to this report.
 
 
 
 
 DIRECTORS
 
 During the year under report, some changes have taken place in the
 Board of Directors. Mr. M Bheema Bhat completed the term of 8 years and
 ceased to be a director w.e.f. September 28, 2010. The Board places on
 record its appreciation of the active involvement and useful
 contribution made by Mr M Bheema Bhat.  The Board has appointed Mr T R
 Chandrasekaran, a Chartered Accountant, Chennai as an Additional
 Director w.e.f. October 15, 2010. The Board welcomes the new Director
 and seeks his guidance.
 
 CORPORATE GOVERNANCE
 
 Your Bank is committed to following the best practices of corporate
 governance to protect the interest 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 2010-11 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 2011.
 
 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 2011 have been
 prepared on a “Going Concern” basis.
 
 STATUTORY DISCLOSURES
 
 Considering the nature of the Banks 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, 2011 requiring disclosure under section 217(2A) of
 the Companies Act, 1956 read with Companies (Particulars of Employees)
 Rules, 1975.
 
 SOCIAL INITIATIVES
 
 As a responsible corporate citizen, your Bank has been responding well
 over the years through certain initiatives like participation in
 social, cultural, educational activities aimed at improving the quality
 of life of the people and society. Your Bank believes firmly that being
 an integral part of the society, it is the all-round growth of the
 society which contributes ultimately to the growth of the Bank.
 
 FINANCIAL INCLUSION
 
 Financial inclusion is the availability of the full range of banking
 services at an affordable cost to disadvantaged and low-income groups.
 It mainly focuses on the poor who do not have formal financial
 institutional support for getting them out of the clutches of local
 money lenders.  The RBI has simplified the KYC (Know your customer)
 norms for opening a ‘No frills account. Your Bank has been allocated
 81 villages across various states to extend the outreach to the remote
 corners of the country, by utilizing appropriate Information &
 Communication Technology (ICT) based model including either by using
 Business Correspondents Model or “Brick and Mortar” branch models, for
 extending banking services in every village having a population of over
 2000.
 
 With a view to spread awareness on financial services available from
 banks to the members of general public and spread financial education
 and financial literacy to the common man at the remotest village in the
 service area of the Bank, your Bank is implementing the Financial
 Inclusion Resource Center (FIRC) - Mobile Van model covering about 909
 service area villages by 31.03.2012.
 
 Your Bank has launched the first two mobile van FIRC units in Hassan
 and Chikmagalur Districts on 31.03.2011 in order to cover the 330
 service area village of bank branches in these districts. Further, in
 order to educate the people in rural and urban areas regarding various
 financial products and services available from the formal financial
 sector, to provide financial counseling services regarding responsible
 borrowing and debt counseling and restructuring, your Bank has joined
 hands with other banks in setting up of Financial Literacy and Credit
 Counseling Centers (FLCCs).
 
 Further, your Bank has joined as a Trustee of the Karnataka Farmers
 Resource Center (KFRC) set up by State Level Bankers Committee (SLBC),
 Karnataka at Bagalkot, Karnataka, to serve as a resource centre for
 providing bridging services to the farmers to develop managerial
 capacity of farmers, coordinating 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
 Bellary, Chitradurga, Yadgir and Gulbarga Districts in Karnataka. Your
 Bank is also taking part in the national level awareness campaign on
 Financial Inclusion - ‘SWABHIMAN targeting people covered under the
 Financial Inclusion Action Plan, by way of print and electronic media.
 
 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 Banks 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 Banks 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
 
 
                                                       Ananthakrishna
                                                             Chairman
 
 Place: Mangalore 
 Date: 23rd May, 2011