Karnataka Bank

The Directors have pleasure in presenting the Eighty Fourth Annual
 Report, the Audited Balance Sheet as at and the Profit & Loss Account
 for the year ended, 31stl March 2008, along with Auditors Report.
 
 PERFORMANCE HIGHLIGHTS
 
 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
                                       31.03.2008         31.03.2007
 
 Deposits                               17016.19          14037.44
 Advances                               10841.97           9552.68
 Investments                             5963.71           5048.16
 Total Income                            1797.90           1430.52
 Operating Profit                         390.60            356.59
 Net Profit                               241.74            177.03
 
 Your Bank witnessed satisfactory growth in all the key business areas
 during the year. The total business turnover of the Bank touched
 Rs.27858.16 Crore, an increase of 18.09% over the preceding year as
 against an increase of 12.15% achieved during the previous year.  The
 total assets of the Bank increased from Rs.16222.52 Crore to Rs.
 19339.82 Crore recording a growth of 19.22% as against 8.49% recorded
 in the previous year. The net interest income rose from Rs.419.86 Crore
 to Rs.469.10 Crore thereby registering a growth of 11.73%.  The
 operating profit increased from Rs. 356.59 Crore to Rs.90.60 Crore
 showing a growth of 9.54%. The net/profit of your Bank rose from Rs.
 177.03 Crores to Rs.241.74 Crores registering a growth of 36.55% over
 the previous year.
 
 The total deposits of the Bank grew from Rs. 14037.44 Crore as on
 31.03.2007 to Rs. 17016.19 Crore as on 31.03.2008, registering a growth
 of 21.22%. While, Savings and Current Account deposits grew by 14.85%
 over the previous year, the increase in retail term deposits has been
 substantial.
 
 The total advances grew from Rs.9552.68 Crore as on 31.03.2007 to
 Rs.10841.97 Crore as on 31.03.2008, an increase of 13.50%. While
 agricultural advances increased from Rs.791.39 Crore to Rs.821.80
 Crore, the priority sector advances increased from Rs.3058.90 Crore to
 Rs.3966.87 Crore. The lending under various socio-economic schemes have
 shown satisfactory progress.
 
 The total investments of the Bank as on 31st March 2008 stood at
 Rs.5963.71 Crore as against Rs.5048.16 Crore as on 31st March 2007, an
 increase of 18.14%. The modified duration of the investment portfolio,
 AFS category, stood at 2.54 years.
 
 PROFIT
 
 Your Bank posted an operating profit of Rs.390.60 Crore for the year as
 against Rs.356,59 Crore for the fiscal 2007.  The net profit of the
 Bank increased from Rs.177.03 Crore to Rs.241.74 Crore.
 
 APPOPRIATIONS
 
 The net profit of Rs.241.74 Crore which along with a sum of Rs.0.02
 Crore brought forward from the previous year aggregated Rs.241.76 Crore
 is appropriated as under.  The corresponding figure for the previous
 year was Rs.177.09 Crore.
 
 Appropriation                                   Rs. in Crore
 
 Transfer to Statutory Reserve                        148.00
 Transfer to Capital Reserve                            0,38
 Transfer to Revenue & General Reserve                 22.30
 Transfer to Proposed Dividend
 (including tax there on)                              70.98
 Balance carried to Balance Sheet                       0.10
 Total                                                241.76
 
 The Bank has adopted from April 1, 2007 Accounting Standard 15
 (Revised) on employee benefits issued by the Institute of Chartered
 Accountants of India. Pursuant to this, transitional obligation of
 Rs.33 Crore pertaining to employee benefit as determined by actuary has
 been drawn from opening balance of the Revenue Reserve.
 
 DIVIDEND
 
 Keeping in mind the overall performance of the Bank and the positive
 outlook for the future, the Directors are pleased to recommend a
 dividend of 50%. The total amount of dividend proposed to be
 distributed is Rs.60.67 Crore, which is 42.85% higher than the amount
 distributed for the year ended 31.03.2007 (Rs.42.47 Crore). The
 dividend payout ratio for the year stands higher at 25.10% as compared
 to 23.99% during the year 2006-07.
 
 EARNING PER SHARE/BOOK VALUE
 
 The earning per share (basic) and the book value of the share stood at
 Rs. 19.92 and Rs. 113.69 respectively as on March 31,2008.
 
 NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
 
 The net owned funds of your Bank increased from Rs.1238.63 Crore to
 Rs.1379.60 Crore, registering a growth of 11.38%. The capital adequacy
 ratio increased from 11.03% as on 31 st March 2007 to 12.17% as on 31
 st March 2008. The Bank has been consistently maintaining Capital
 Adequacy Ratio well above the minimum of 9% stipulated by the Reserve
 Bank of India.
 
 FOREX BUSINESS
 
 During the year, the Bank achieved foreign exchange business turnover
 of Rs.7836.62 Crore as against Rs. 6101,16 Crore for the previous year,
 registering a growth of 28.44%. The advances to export sector increased
 from Rs.1095.31 Crore to Rs. 1372.62 Crore.
 
 NON-PERFORMING ASSETS
 
 Your Bank has been focusing on containing the non- performing assets,
 through better credit monitoring as well as intensified drive for the
 recovery of the impaired assets. Asset Recovery branches and steps
 under SARFAESI Act 2002 for speedy take over and disposal of the assets
 of defaulting borrowers resulted in reduction of Gross NPA from
 Rs.387.34 Crore (3.95%) as on 31.03.2007 to Rs.379.57 crore (3.42%) as
 on 31.03,2008.  The Net NPA stood at 0.98% as on 31.03.2008 down train
 1.22% as on 31.03.2007.
 
 CREDIT RATING
 
 The credit rating agency, ICRA Ltd, (ICRA), one of the leading credit
 rating agencies of the country 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
 assigned LA+ (pronounced L A plus) and CARE A+ [Single A Plus) ratings
 respectively indicating adequate credit quality to Rs 150 crore raised
 by the Bank during the year under report by way of Unsecured Redeemable
 Non-Convertible Subordinated (lower Tier-ll) Bonds.
 
 DISTRIBUTION NETWORK
 
 During the year under report, the Bank has opened 21 branches, one each
 in Chennai Ayanavarm, Raigarh, Bangalore-Marathahalli, Haridwar, New
 Delhi-Janakpuri, Nelamangala, Aurangabad, Devanahalli, Cuttack,
 Bangalore-Uttarahalli, Bangalore Kengeri Satellite Town,
 Bangalore-Hesaraghatta Main Road, Chennai-West Mambalam, Bareilly,
 Udaipur, Warangal, Bidadi, Hyderabad-Kukatpally, Navi Mumbai-Belapur,
 Mira Road East and Kolkata-Beliaghata. In addition, Bank has opened
 Central Processing Centre at Mangalore and Mumbai an Asset Recovery
 Management Branch in Bangalore and a Service Branch in Mangalore.
 Further, Bank has added 35 ATM outlets at various locations during the
 year 2007-08. As on March 31,2008, the Bank had 431 branches. 141 ATM
 outlets, 8 Regional Offices, one International Division, one Data
 Centre, one Customer Care Centre, 5 Service branches, 2 Currency
 Chests, 7 Extension Counters, two Central processing centres, spread
 over 19 states and 2 Union Territories.  Further, during the year
 2007-08, the Bank has shifted 10 branches and Delhi-Regional Office to
 spacious premises.
 
 EMPLOYEES STOCK OPTION SCHEME
 
 The shareholders of the Bank had approved the Employees Stock options
 scheme at the Annual general Meeting held on 15.07.2006. During the
 year under report, the Bank has implemented the Karnataka Bank
 Employees Stock Option Scheme 2006 (ESOS 2006) as per The Securities
 and Exchange Board of India (Employee Stock Option Scheme and Employee
 Stock Purchase Scheme) Guidelines 1999. As per the Scheme a total of
 1500000 stock options are available for grant to the eligible employees
 and a total of 990200 stock options have been granted to eligible
 employees. These Stock options would vest in a graded manner i.e. 40%,
 30% and 30% between August 22. 2008 and October 3rd 2015. The vested
 options are exercisable over a period FIVE years from the respective
 dates of vesting.
 
 Statutory disclosures regarding ESOS under Clause 12 of the SEBI
 Guidelines are provided in Annexure I attached to this report.
 
 BOARD OF DIRECTORS
 
 During the year under report, Shri Sitarama Murty M, former Managing
 Director of State Bank of Mysore was appointed as an additional
 director of the Bank w.e.f.  30.11.2007. The Board welcomes Shri
 Sitarama Murty M and seeks his guidance.
 
 CORPORATE GOVERNANCE
 
 Your Bank is committed to best practices of Corporate Governance to
 protect the interest of all the stakeholders of the Bank, viz
 shareholders, depositors, customers and employees and Society at large
 and aims to maintain transparency at all levels. A detailed report on
 Corporate Governance practices is given in the Annexure II 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 2007-08 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 Bankforthe financial year ended
 31.03.2008.
 
 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 31.03.2008 have been
 prepared on a Going Concern basis.
 
 STATUTORY DISCLOSURE
 
 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 for its
 operations.
 
 The information required under section 217(2A) of the Companies Act,
 1956 read with Companies (Particulars of Employees) Rules, 1975 is
 attached to this report as Annexurelll.
 
 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, correspondent Banks for their continued
 guidance and support. Your Directors also place on record their
 gratitude to the Banks shareholders, depositors and customers for
 their continued support, patronage and goodwill. Your Directors
 expresses their deep sense of appreciation to the employees, who have
 continued to display outstanding professionalism and commitment 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
 
 Place: Mangalore                                   Ananthakrishna
 Date : 19.05.2008                                      Chairman