Karnataka Bank Directors Report, Karnataka Bank Reports by Directors
Karnataka Bank
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Directors Report Year End : Mar '14    « Mar 13
Dear Members.
 The Directors have pleasure in presenting the Ninetieth Annual Report
 together with the Audited Statement of Accounts for the year ended 31s''
 March 2014 and the Auditors'' Report.
 Your Directors are pleased to inform that during the year under report,
 your Bank has been able to achieve satisfactory growth in its business,
 Performance highlights for the financial year in the key financial
                                                         ( Crore)
 Particulars                            As on/for the   As on/for the
                                           year ended      year ended
                                           31.03.2014      31.03.2013
 Deposits                                    40582.83        36056.22
 Advances                                    28345.49        25207.68
 Investments                                 15226.78        13432.48
 Grosslncome                                  4694.41         4161.93
 Operating Profit                              687.05          635.34
 Net Profit                                    311.03          348.08
 The total business turnover of the Bank was Rs.68928.32 crore as on 31 st
 March 2014, an increase of 12.51 percent over the preceding year. The
 total assets of the Bank increased from Rs. 41526.38 crore to Rs.47028.80
 crore recording a growth of 13.25 percent fortheyear2013-14.
 The total deposits of the Bank grew from Rs.36056.22 crore as on 3V''1
 March, 2013 to Rs.40582.83 crore as on 31 st March 2014, registering a
 growth of 12.55 percent, During the year, low cost deposits of the
 Bank, viz. Savings and Current Account Deposits, have shown a growth of
 14.75 percent and constitute 25.40 percent of the total deposits of the
 Bank. The market share of the Bank in deposits was 0.51 percent.
 The total advances grew from Rs.25207.68 crore as on 31 st March, 2013 to
 728345.49 crore as on 31 st March, 2014,3P increase of 12.45 percent. The
 priority sector advances increased from 79362.62 crore to 710882.20
 crore which together with RIDF exposure formed 46.91 percent of
 Adjusted Net Bank Credit (ANBC) and agricultural advances increased
 from 73715.24 crore to Rs.4141.16 crore which together with eligible RIDF
 exposure constituted 17.29 percent of ANBC.  Lending under various
 socio-economic schemes has shown satisfactory progress. The market
 share of the Bank in loans and advances was 0.45 percent.
 As on 31 st March, 2014 the total investments of the Bank stood
 atRs.15226.78croreas against Rs.13432.48 crore as on 31 st March 2013, an
 increase of 13.36 percent.
 In the competitive and challenging business environment, the overall
 performance of your Bank during the year 2013-14 was fairly
 satisfactory. The gross income of the Bank was 74694.41 crore and total
 expenditure (excluding provisions and contingencies) was 74007.36
 crore. The net interest income was 71056.07 crore.
 Your Bank earned an operating profit of 7687.05 crore for the year
 2013-14 as against 7635.34 crore for the previous year showing a growth
 of 8.14 percent.  However the net profit of the Bank decreased from
 7348.08 crore to 7311.03 crore on account of higher provisioning needs.
 The net profit of 7311.03 crore which along with a sum of 70.09 Crore
 brought forward from the previous year, aggregating 7311.12 crore, is
 appropriated as under. The corresponding figure for the previous year
 was 7348.11 Crore
 Appropriation                                Rs in Crore
 Transfer to Statutory Reserve                     147.00
 Transferto Revenue, General &
 Special Reserves                                   87.22
 Transferto Investment Reserve                    (11.48)
 Transferto Proposed Dividend
 (including tax)                                    88.22
 Balance carried to Balance Sheet                    0.16
 Total                                             311.12
 Having regard to the overall performance of the Bank and the positive
 outlook for the future, the Board of Directors recommended a dividend
 of 74 per share (i.e. 40 percent on the paid up capital same as the
 previous year) for the reporting year. The dividend payout ratio forthe
 year works out to 24.25 percent.
 The earnings per share (basic) and the book value per share as on 3V
 March, 2014 stood at 716.51 and 7162 respectively.
 During the year under report, the net owned funds of your Bank
 increased from 72857.08 crore to 73052.20 crore, registering a growth
 of 6.83 percent. The Capital Adequacy Ratio stood at 13.30 percent as
 March 31, 2014, as per BASEL II norms (Previous year 13.22 percent) and
 13.20 percent as per BASEL III norms. The Bank has been consistently
 maintaining the Ratio well above the minimum of 9 percent stipulated by
 the Reserve Bank of India. The market capitalisation
 During the year under report, your Bank achieved a turnover of
 Rs.12840.55 crore in foreign exchange business as against Rs.10083.26 crore
 in the previous year. The outstanding advances to export sector stood
 at Rs.1671.01 crore as on March 31,2014.
 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 continuing slow down
 in the economy and delinquencies in select sectors, the Bank''s, Gross
 NPAs as on March 31, 2014 has increased from Rs.638.86 crore (2.51
 percent) to Rs.835.93 crore (2.92 percent) by the year end. The Net NPAs
 stood at Rs.538.04 crore (1.91 percent) as against Rs.377.75 crore (1.51
 percent) as on 31 st March 2013.  The Provision Coverage Ratio (PCR)
 computed in accordance with the RBI guidelines works out to 53.21
 percent as on March 31, 2014 (Previous year 55.36 percent).
 ICRA Limited and Credit Analysis and Research Limited, (CARE) who had
 rated the Unsecured Redeemable Non-Convertible Subordinated (Lower
 Tier-ll) debt instruments issued during the earlier years have retained
 the rating ICRA A and CARE A respectively. The instruments with
 these rating are considered to have adequate / high degree of safety
 regarding timely servicing of financial obligations.  Such instruments
 carry very low credit risk.
 During the year under report, your Bank has opened 50 new branches in
 11 States viz. two each in Andhra Pradesh and Rajasthan, one each in
 Assam, Goa, Gujarat, Maharashtra, Uttar3khand, West Bengal, 34 in
 Karnataka, three in Kerala and three in Tamil Nadu.  Out of 34 new
 branches opened in Karnataka, 13 are in unbanked rural centres under
 financial inclusion initiatives of the Bank. Further, as per the
 direction of Govt, of India, your Bank has opened 17 Ultra Small
 Branches in the villages where Brick & Mortar Branches are not viable.
 Further, your Bank has added 196 ATM outlets at various locations
 during theyear2D13Rs.14.
 As at March 31, 2014, your Bank had 1,304 Service Outlets i.e. 600
 branches (which include two Corporate Finance branches at Fort, Mumbai
 & New Deihi-Connaught Place, ten Agricultural Development branches, 160
 specialised MSME Branches and 60 Financial Inclusion Branches), four
 Extension Counters & 700 ATMs spread across 21 States and two Union
 Territories. Apart from the above, your bank has 10 Regional Offices,
 an International Division, a Data Centre, a Customer Care Centre, five
 Service branches, two Currency Chests, two Central Processing Centres
 and three Asset Recovery Management Branches.
 Further, for better ambience and improved customer service, your Bank
 shifted 26 branches/offices to new premises during the year 2013-14.
 A total of 69062 equity shares were allotted to the emptoyees 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 Option Scheme pursuant to SEBI (Employees Stock Option Scheme and
 Employees Stock Purchase Scheme) Guidelines 1999 is given in Annexure I
 to this report.
 Mr Sitarama Murty M, retired as a Director of the Bank upon attaining
 the upper age of 70 years on 18.12.2013 as per the extant guidelines of
 RBI. Messrs R VShastri and URBhat completed their term of eight years
 in Office and retired from the Office as Directors of the Bank on
 27,01.2014, The Board places on record its appreciation of the active
 involvement and useful contribution made by the above directors.
 Further, the Board has appointed Mrs Usha Ganesh (IAS Retd), former
 member of Karnataka Administrative Tribunal, Bangalore and Mr Rammohan
 Rao Belle, former Managing Director and CEO of SB1 General Insurance 
 Company Ltd, as additional directors on 31.07.2013 and 21.10.2013 
 Even though one third of the total number of directors were liable to
 retire by rotation at the Annual General Meeting under erstwhile
 Section 256 of the Companies Act, 1956, with the coming into force the
 provisions of Section 149 and 152 of the Companies Act, 2013 relating
 to appointment and retirement of directors by rotation at every Annual
 General Meeting w. e. f April 1,2014, your Bank has received necessary
 declarations from all the directors other than whole- time director as
 required under Section 149(6} of the Companies Act, 2013. The Board,
 after having taken into consideration the declarations and other
 information is of the opinion that all the directors of the Bank other
 than whole time director are ''Independent Directors'' and therefore are
 not liable to retire by rotation under Section 152 of the Companies
 Act, 2013. It is proposed to reappoint them for a term as required
 under Section 149(10) of the Act having regard to the provisions of the
 Banking Regulation Act, 1949 and the extant guidelines at the ensuing
 Annual General Meeting.
 The brief resume and other details relating to the above directors who
 are to be re-appointed are furnished in the notice of the Annual
 General Meeting (AGM).
 Your Bank is committed to follow the best practices of corporate
 governance to protect the interests of all the stakeholders of the
 Bank, viz. shareholders, depositors, other customers, employees and the
 society in general and maintain transparency at all levels. A detailed
 report on corporate governance practices is given as Annexure III to
 this report.
 As per Section 217(2AA) of Companies (Amendment) Act, 2000, your
 Directors report that:
 i. The accounts for the year 2013-14 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
 31 stMarch,2014.
 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 31s! March, 2014 have been
 prepared on a Going Concern basis.
 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
 There were no employees who were in receipt of remuneration during the
 year ended March 31, 2014 requiring disclosure under section 217(2A) of
 the Companies Act, 1956 read with Companies (Particulars of Employees)
 Rules, 1975.
 Businesses are an integral part of society and play a critical role in
 the sustenance and improvement of a healthy ecosystem, in fostering
 social inclusiveness and equity and in upholding 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 fulfil its 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, your bank has been responding well over the years through
 various initiatives like participation in social, cultural,
 educational, environment awareness activities etc., aimed at improving
 the social values, promotion of cultural heritage, knowledge, standard
 of living and the quality of life of the people and the environment at
 large. 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 and in this direction, your Bank has been
 strengthening its rural orientation through initiatives aimed at
 imparting financial literacy and extending banking services to the
 people in rural unbanked areas, in a fair and transparent manner, at an
 affordable cost. Towards this end, your Bank had opened 13 branches in
 unbanked rural centres during the FY 2013-14 as part of its financial
 inclusion initiative, thus taking the total Financial Inclusion
 branches to 60. Your Bank had also opened 17 Ultra Small Branches, thus
 taking the total number of such branches to 41 as on March 31,2014.
 The customer has always been the focal point of our initiatives. We
 have been endeavouring to empower our customers by rolling out
 innovalive products and services through optimal use of technology
 without compromising on the quality of service rendered across the
 counter and without losing sight of the safety and security aspects. In
 this direction, the Bank is actively involved in putting in place
 systems and procedures to comply with the recommendations of the
 Damodaran Committee on Customer Service, constituted by the Reserve
 Bank of India, to look into the banking services rendered to customers
 and the grievance redressal mechanism prevalent in banks.  Most of the
 recommendations made by the said Committee have been complied with 3nd
 the remaining few which require up-gradation of the Bank''s Core Banking
 Solution are being pursued for early compliance.
 Financial inclusion means 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. Through the Financial
 Inclusion Plan, Bank aims at ''connecting people'' with the Bank and not
 just opening accounts.  This includes meeting the small credit needs of
 the rural public, giving them access to the payments system, providing
 remittance facility and life and health insurance. Efforts are being
 made to optimize the resources to achieve the goal of extending banking
 facilities to the un-banked areas f deprived sections.
 All the branches of the Bank are under Core Banking Solution (CBS) and
 all the branches to be opened in future will also be under CBS. Out of
 600 branches, Bank has 108 Rural branches and all these branches are
 provided with CBS offering all banking facilities to
 the rural clientele in the gram panchayats or villages where these
 branches are located. All the rural branches are acting as financial
 literacy centers (FLCs) and imparting Banking literacy among the rural
 In accordance with revised Strategy & Guidelines of Department of
 Financial Services (DFS), Ministry of Finance, Govt, of India,
 financial inclusion plan of the Bank has been revised. Under the
 revised financial inclusion plan, Bank has been allocated with 207 Gram
 Panchayats consisting of 1002 villages with a population of about
 10,31,000 as per 2001 census, in Karnataka, Andhra Pradesh &
 Chhattisgarh states.  The Gram Panchayats are being financially
 included through Brick and Mortar Branches and Business Correspondents
 Brick and Mortar Branches
 As on March 31, 2014 bank has covered 465 villages of 94 GPs through
 Brick & Mortar Branches. 10 Branches were opened during financial year
 Business Correspondent Services {BC Services):
 Bank has entered in to an agreement with M/s BASIX Sub-k (Transaction
 Ltd and M/s Integra Micro Systems Pvt. Ltd. to provide online
 transaction facility and as on March 31, 2014 113 GPs with 537 villages
 of Karnataka, Andhra Pradesh and Chhattisgarh states were covered under
 the above arrangement. Total coverage through BC Model stood at 92 GPs
 covering 512 villages as on March31,2014.
 Ultra Small Branches |USBs|
 During the financial year, the Bank opened 17 Ultra Small Branches,
 talcing the count of USBs to 41 as on March 31, 2014 (after accounting
 for upgradation of two USBs into regular Branches during the Financial
 Year 2013-14).
 Electronic Benefit Transfer (EBT) - Pilot Project of Govt, of Karnataka
 Bank is participating in Govt, of Karnataka (GOK) EBT
 Pilot project for NREGA/SSP beneficiaries under -
 One District - Many Bank Model and has started disbursing the
 payments under the above schemes to The beneficiaries using smart card
 and hand held machines at 5 Gram Panchayat locations in Chitradurga,
 Bella ry and Yadgir districts.
 Direct Benefit Transfer (DBTI
 Bank is actively participating in Direct Benefit Transfer (DBT)
 Programme of Govt. India, wherein, the Govt.  would transfer benefits
 of various Schemes directly to the beneficiaries Aadhaar enabled bank
 accounts.  For this purpose, Bank has on boarded with NPCI for Aadhaar
 Payment Bridge System (APBS) under National Automated Clearing House
 (NACH). DBT for LPG is now implemented in 284 districts and out of
 this, Bank has its presence in 103 Districts with 447 branches,
 Financial Literacy and Credit Counseling Centers
 Bank has sponsored two FLCCs at BC Road and Kundagol in Karnataka
 State. During the financial year FLCCs sponsored by the Bank has
 conducted 212 Financial Literacy campaigns and 11763 participants had
 been covered. In adherence to RBI guidelines all the rural branches of
 our Bank are conducting financial literacy Camps.
 Your Bank bagged the following awards during the year under report in
 recognition of its achievement under customer relations, risk
 management, HR, technology initiatives as well as for social banking
 and lending for export promotion.
 1.  The Sunday Standard Best Bankers'' Awards 2013:
 0 Best Banker award for customer orientation amongst private sector
 ii) Best Banker award for customer friendliness in midsized bank
 iii) Best Banker for HR amongst private sector banks.
 2.  IDRBTawards:
 i) Best Bank award among small banks for managing IT risk
 ii) Best Bank award among small banks for use of IT in business
 3.  IBA Banking awards:
 Second runner up in the category of the best customer management
 initiative amongst private sector banks.
 4.  ASSOCHAM social banking excellence awards 2013:
 i) Runner-up of ASSOCHAM social banking excellence awards 2013 under
 the private sector banks category.
 5.  Southern region export excellence award 2012-13 from Federation of
 Indian Export
 Organisation (FIEO)
 6.  BFSI best bank (private sector} award,
 Further IMQA, a leading assessment, verification and certification body
 accredited to the United Kingdom Accreditation Service (UKAS) has
 renewed ISO 27001:2005 certificate for our three IT set-ups viz.  Data
 Centre, Near Line Site and Head Office - IT Department including
 Disaster Recovery Site.
 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 a!l the staff members, 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: Bangalore                                       Ananthakrishna
 Date : 07.06.2014                                            Chairman
Source : Dion Global Solutions Limited
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