The Board of Directors take great pleasure in presenting this 92nd
 Annual Report on the business and operations of your bank together with
 the audited accounts for the year ended year ended 31st March 2011.
 
 Economic Overview
 
 The global economic recovery is broadly on track and continues to move
 rapidly though there are large output gaps in advanced economies and
 closing gaps in emerging and developing markets.  International
 Monetary Fund has projected world real GDP to slow down to 4.4% in 2011
 from 5% in 2010. The key to downslide was primarily on account of oil
 prices.
 
 Indian economy continued its good performance than most emerging
 markets during the fiscal 2010-11 and it retained its position as the
 second largest growing economy amongst the G20 countries. According to
 the Central Statistical Organisation (CSO) GDP factor cost at constant
 prices is expected to register a growth of 8.6% in FY 2010-11 while it
 grew by 8% in the previous fiscal.  Agriculture, aided by normal
 monsoon, provided the impetus to growth. The agricultural production
 rebounded in 2010-11 after suffering drought conditions in the
 preceding year. With good Kharif and Rabi crops, food grains production
 reached a new record. A satisfactory North-East Monsoon following
 normal South-West monsoon, favourable reservoir positions etc., led to
 the improved agricultural production. Higher agricultural production
 and significant rise in the outputs of key agricultural products would
 help in reducing the pressure on food prices. The agricultural growth
 may also lead to better rural incomes and thus benefit the demand for
 other sectors.
 
 The growth in industrial sector was moderated mainly on account of high
 base effect and sharp deceleration in capital and intermediate goods.
 Except consumer goods almost all sectors exhibited slowdown. Higher
 private consumption demand led to the higher growth in both durables
 and non-durables segment.
 
 The services sector growth was robust notwithstanding some deceleration
 in government spending related services.
 
 Exports improved during 2010-11. The exports grew by 37.5%, fastest
 since independence and totalled US $ 246 billion. Imports also showed
 an increase of 21.2% and totalled US $ 350 billion.  Strong growth
 performance facilitated moderation of the current account deficit to a
 certain extent.
 
 As the inflation stayed above the indicated projections during the
 fiscal 2010-11, monetary policy was continually tightened by the
 regulator throughout the year.
 
 Monetary and liquidity conditions responded to the policy measures with
 slow pace. Equity market witnessed good buying interest from FIIs
 during the second and third quarter of 2010-11 followed by some
 correction along with greater volatility. The calibrated policy
 measures adopted has not impacted the growth momentum.
 
 The stock market underperformed and remained volatile reflecting
 several uncertainties. The activity in the primary segment of the
 domestic capital market remained buoyant during the first three
 quarters and moderated during the last quarter. During the year
 resource mobilistion by mutual funds turned negative, owing to high
 volatility in the market, lower retail investments, lower corporate
 support and higher returns in bank deposits.
 
 The macro economic outlook for the year 2011-12 remains favourable
 though the high oil prices pose the biggest risk to both growth and
 inflation.
 
 Against this backdrop your banks performance during the last fiscal is
 highlighted below:
 
 Performance Highlights
 
 Sl. No.  Particulars                   (R s . i n cr)
 
 1        Gross Deposits                   24721.85
 
 2        Gross Advances                   18052.41
 
 3        Total Income                      2482.03
 
 4        Operating Profit                   600.58
 
 5        Net Profit                         415.59
 
 Sl. No.  Appropriations                 (Rs. in cr)
          Transfer to
 
 1        Statutory Reserve                  125.00
 
 2        Capital Reserve                       NIL
 
 3        General Reserve                    111.50
 
 4        Special Reserve -Sec36(i)(viii)
          as per income Tax Act               30.00
 
 5   a)   Proposed Dividend                  128.63
 
     b)   Dividend Tax (inclusive of
          Surcharge and Education cess)       20.87
 
 Sl. No.  Other Highlights:              (Rs. in cr)
 
 1        Net Worth                         2059.19
 
 2        Book Value per share (Rs.)         193.04
 
 3        Earning per share (Rs.)             44.90
 
 4        Capital Adequacy Ratio(%)-
 
          BASEL I                             12.16%
 
          BASEL II                            14.41%
 
 Deposits
 
 Aggregate deposits of the bank increased from Rs. 19271.85 cr in March
 2010 to Rs.24721.85 cr in March 2011 registering an impressive growth
 rate of 28.28%.
 
 CASA constitute 23.28% of the total deposits. Savings deposits rose by
 Rs.765.40 cr to touch Rs.3253.07 cr from Rs.2487.67 cr.  registering a
 growth rate of 30.77%. The savings bank campaign launched by the Bank
 during the year under report accelerated savings deposits growth. Cost
 of Deposits was lower at 6.67% compared with 7.13% during the last
 fiscal.
 
 Credit Portfolio
 
 Your Bank continued its thrust on the quality while expanding the
 assets base. The gross advances grew from Rs. 13675 cr as on 31st March
 2010 to Rs.18052.41 cr as on 31st March 2011, an increase of 32.01%.
 The credit portfolio is well diversified.
 
 Your Bank continued to give added focus to the Priority Sector lending
 in conformity with the national policies, regulatory expectations and
 fulfillment of social objectives.
 
 As per the regulatory guidelines, achievement under priority sector for
 the fiscal 2010-11 is computed taking Adjusted Net Bank Credit (ANBC)
 of March 2010 as the base. For the fiscal under report the percentage
 of Priority Sector Advances to ANBC was at 41.05%, thus complying with
 the stipulated norm of 40% under Priority Sector Credit.
 
 Bank has also achieved the regulatory target of 18% under agricultural
 advances which was at 18.29% as at 31.03.2011. The weaker section
 advances was at 10.17% against the prescribed 10% norm.
 
 Recovery
 
 Your bank has adopted two pronged strategies to prevent slippages and
 manage NPAs. On the one hand, aggressive thrust was given to effect
 recovery by adopting specific strategies like conducting adalats,
 filing of suits with DRT, initiating action taken under SARFASEI Act
 and compromise settlements etc. On the other hand, thrust was given to
 appropriate management of NPAs.  Towards this end, willful defaulters
 were identified and quick mortality cases evaluated and corrective
 steps initiated. Sustained monitoring and continuous followup were
 carried out to prevent further slippages into NPA category.
 
 As a result , the Gross NPA level of the Bank came down from Rs. 235.34
 crs to Rs.228.15 crs. The percentage of Gross NPA to Gross Advances
 also registered a decline- i.e from 1.72% to 1.26%.  The Net NPA
 percentage came down significantly from 0.23%to 0.07% during the
 fiscal. The ratio is one of the lowest in the industry.  The Bank has
 been consistently building up provisions for impaired assets from time
 to time, which has resulted in achieving a Provision Coverage Ratio
 (PCR) of 93.92% of the total reduction under NPA during the fiscal,
 cash recovery accounted for 67.79%.  Despite robust growth of credit
 portfolio, during the past five years, the NPAs are constantly kept
 under control by relentless follow up and recovery drive.
 
 Share Capital
 
 During the year under report the Board announced Bonus shares to the
 shareholders in the ratio of 2 bonus shares for every five shares held
 on the record date. The Bonus shares were allotted on 20.09.2010. With
 the allotment of Bonus shares, the paid up share capital which stood at
 Rs.54.44 cr as at 31st March 2010 stood increased to Rs.76.21 cr. The
 Board also announced Rights shares in the ratio of 2 rights shares for
 every five shares held on the record date inclusive of the Bonus
 shares. The rights shares were issued and allotment of the said shares
 were made on 30.03.2011. With the allotment of Rights shares, the paid
 up share capital stands increased to Rs.94.49 cr. Further the bank has
 received in advance towards First call money a sum of Rs.22.45 cr.
 
 Credit Rating
 
 The credit rating agency, CRISIL has reaffirmed P1+ (pronouncd P one
 plus) rating for the Banks Rs. 10 billion Certificate of Deposit
 Programme. The rating symbol P1+ indicates that the degree of safety
 with regard to timely payment of interest and principal on instrument
 is very strong.
 
 Dividend
 
 Your banks policy of declaring the dividend is to reward the
 shareholders as well as to plough back profit for maintaining a healthy
 capital adequacy ratio and for supporting future growth.  Accordingly
 your Directors are pleased to propose a total dividend of 120% (i.e
 Rs.12/- per share of Rs.10/-) for the year ended 31st March 2011 .
 However the proposed dividend is on the enhanced capital on account of
 Bonus and Rights shares allotted during the fiscal 2010-11. The payment
 on account of dividend would be Rs.149.50 cr including dividend tax.
 Board takes pleasure to mention here that this is 4th year in
 succession that a dividend of 120% is paid.
 
 Net owned Funds and Capital Adequacy
 
 The net owned funds of the Bank crossed Rs.2000 crs and stood at
 Rs.2136.98 cr. The Capital to Risk weighted Assets Ratio (CRAR) as per
 BASEL I as at the end of March 2011 stood at 12.16%. As per BASEL II
 norms, CRAR is 14.41 %. Your Bank continues to have the capital
 adequacy ratio well above the regulatory minimum of 9%. Banks CRAR of
 14.41% under BASEL II norms offers comfort and cushion for future
 expansion and growth in asset portfolio.
 
 Investments
 
 The treasury is responsible for compliance with reserve requirements,
 management of liquidity and interest rate risk on the Banks Balance
 Sheet. Bank holds government securities in order to comply with the
 regulatory requirements to meet the statutory liquidity ratio (SLR).
 
 The aggregate investments of the Bank increased to Rs.7,776.31 cr at
 the end of the financial year 2010-11 as against Rs.6,649.44 cr in the
 FY 2009-10, an increase of 16.95%. Net investments rose by Rs.1,129.60
 cr as on 31.03.2011, ie. from Rs.6602.16 cr to Rs.7,731.76 cr
 registering a growth of 17.11%.
 
 Incomes on investment stood at Rs.523.56 cr as on 31.03.2011,
 registering a rise of Rs. 127.29 cr (32.12%) compared to the previous
 year fiscal of Rs.396.27 cr.
 
 The average yield on investments improved to 7.20% during the year
 against previous fiscal of 7.00%. Liquidity position of the Bank was
 comfortable through out the year.
 
 Forex Transactions
 
 Your bank achieved a merchant turnover of Rs.8079 cr during the fiscal
 2010-11 as against Rs.6909 cr recorded in the previous fiscal.  The
 gross income earned from the forex operations was Rs.108.83 cr. The
 export credit of the bank stood at Rs.837.72 cr as on March 31, 2011 as
 against Rs.634.74 cr as on 31.03.2010, thus registering a growth of
 31.98%.
 
 Branch Network and Expansion
 
 During the fiscal 2010-11, 34 branches were added by the Bank including
 1 satellite branch that was upgraded as a full fledged branch, taking
 the total branch network of the bank to 369.
 
 During the fiscal 2010-11, 112 ATMs were brought into the network
 taking the total to 488 (364 on site and 124 offsite).
 
 Your Board continues to give thrust for opening brick-and-mortar
 branches covering all the parts of the country in order to have a wider
 pan India presence and has plans to open 75 branches and 150 ATMs
 during the current fiscal 2011-12.
 
 Technological Initiatives
 
 Your banks emphasis on technology deployment as an instrument for
 enhancing service quality continued during the year. A wide gamut of
 services has been provided under Internet banking facility.  The year
 saw the implementation of additional security using RSA technology for
 internet banking users, both corporate and retail.  There has been a
 steady increase in number of customers using the facility as also in
 the volume of transactions.
 
 The bank has also launched on line bill payments of Tamil Nadu
 Electricity Board. Also soft launched mobile banking payment services
 and inter-bank mobile payment service. Your bank implemented NEFT
 payments through internet banking services.
 
 At all your banks Currency Chests, Bio-metric and Proximity Card based
 access control system was implemented.
 
 Other initiatives
 
 Members are aware that the Bank appointed Boston Consulting Group (BCG)
 with the mandate to assist the bank in the areas such as attaining the
 target of total business of Rs.1,25,000 cr
 
 by the centenary year 2016, restructuring the organization, Business
 re-engineering process, innovation of Products and services, study the
 recruitment and promotion policies etc. The recommendation of the said
 Group is being implemented under Golden Vision Initiatives. While the
 bank has implemented some of the important modules suggested by them,
 the roll out of other modules is under study and will be implemented in
 stages during the current fiscal. The modules that are rolled out under
 the Golden Vision Initiatives are encouraging.
 
 Your bank launched sale of Gold Coins during the year under report and
 the income earned is quite encouraging.
 
 Your bank has also launched the following products during the
 FY2010-11:
 
 (a) KVB Gift Card
 
 (b)  KVB Travel Card
 
 (c) KVB Prestige - an SB product for High Networth Individuals
 
 On the assets portfolio the following new products have been
 introduced:
 
 (a) KVB Rice Plus - to finance the Rice Mills
 
 (b) KVB Timber Plus- to finance Timber merchants
 
 Financial inclusion
 
 With a view to provide banking facilities to the sections of society
 which are so far deprived from the formal financial sector, the bank
 implemented financial inclusion policy. SLBC, Tamilnadu had allotted 36
 villages to your bank for implementation of the financial inclusion
 scheme. The bank has adopted Business Development Model and has rolled
 out the scheme in 34 villages taking the implementation to very
 impressive rate of around 95%. As a part of the financial inclusion
 drive, your bank formulated a special no frills savings bank product
 known as KVB Grama Jyoti . Distibution of smart cards has also begun.
 
 Special Reserve
 
 Income tax deduction under Sec 36 (1) (viii) is available for any
 Special Reserve created and maintained to the extent of 20% of the
 profit derived from the business of providing long term finance for
 industrial or agricultural development or development of infrastructure
 facility or housing in India. As the Bank has extended Term Loans for
 housing, power, roads and other segments of infrastructure in the last
 year, it was decided to avail the said tax benefit. Accordingly your
 bank has created a special reserve of Rs.30 cr during the fiscal under
 report (previous year Rs.30 cr).
 
 Statutory Audit
 
 The statutory audit was carried out by M/s R K Kumar & Co., Chartered
 Accountants, Chennai whose report is being annexed and forms part of
 this report. The statutory auditors will hold office until the
 conclusion of the ensuing Annual General Meeting. Their re-appointment
 is being placed before the shareholders for approval. Certificate from
 the Auditors has been received to the effect that their re-appointment,
 if made, would be within the limits prescribed under Sec 224(1B) of the
 Companies Act, 1956. The auditors have also submitted the Peer Review
 Certificate issued to them by the Institute of Chartered Accountants of
 India (ICAI).
 
 Statutory Disclosures
 
 The information required under the provisions of Sec 217 (2A) of the
 Companies Act, 1956 read with The Companies (Particulars of Employees)
 Rules 1975 as amended is NIL since none employed was in receipt of the
 remuneration as specified in the said Rules.
 
 Considering the nature of activities as an entity in the financial
 services sector, the provisions of Sec 217(1)(e) of the Companies Act,
 1956 relating to conservation of energy and technology absorption do
 not apply to the Bank. The Bank has however made optimum use of
 information technology in its various operations.
 
 Employees Stock Option Scheme
 
 The information pertaining to the Employees Stock Option Scheme 2008 is
 given as an Annexure to this report.
 
 Board of Directors
 
 The Board consists of ten members including the Non-Executive Chairman
 and Managing Director & Chief Executive Officer.
 
 Reserve Bank of India, on the recommendation of the Board of Directors
 appointed Shri K P Kumar as the Non-Executive Chairman of the bank for
 a period of three years effective from 24.09.2010. The terms of
 appointment are placed before the shareholders for their approval at
 the ensuing Annual General Meeting.
 
 As the term of the present Managing Director & Chief Executive Officer
 Shri P T Kuppuswamy expires on 31st May 2011, the Board recommended the
 appointment of Shri Krishnamoorthy Venkataraman as the MD & CEO for a
 period of three years to RBI.  The terms of his appointment as approved
 by RBI are being placed before the shareholders for approval at the
 ensuing Annual General Meeting.
 
 Shri A J Suriyanarayana was co-opted as an Additional Director on
 27.10.2010. He is seeking election as a Director at the ensuing Annual
 General Meeting.
 
 Directors Shri S Krishnakumar and Shri S Ganapathy Subramanian retire
 by rotation and being eligible offer themselves for re- appointment.
 
 In terms of Clause 49 of the Listing Agreement, brief resume of the
 above directors who are seeking election at the ensuing Annual General
 Meeting is furnished in the Corporate Governance Report attached to
 this report.
 
 During the year under report Shri A S Janarthanan, Non-Executive
 Chairman, demitted office on 23.09.2010, after completing his tenure of
 office. The Board wishes to place on record its deep sense of
 appreciation for invaluable and immeasurable contribution to the growth
 and development of the Bank during his long tenure as Director and as
 Non-Executive Chairman.
 
 Directors Responsibility Statement
 
 In terms of Sec 217 (2A) of the Companies Act, 1956, your Directors of
 the Bank report as under:
 
 a.  in the preparation of the annual accounts, the applicable
 accounting standards as modified and advised by RBI have been followed
 together with proper explanations for the deviations, if any.
 
 b.  Generally accepted accounting policies and the guidelines issued by
 Reserve Bank of India have been followed consistently.
 
 c.  Reasonable and prudent judgments and estimates had been made so as
 to give a true and fair view of the state of affairs of the bank as at
 31.03.2011 and the profit of the bank for the year ended on that date.
 
 d.  Proper and sufficient care was taken for the maintenance of
 adequate accounting records as per the applicable provisions governing
 banks in India.
 
 e.  The annual accounts had been prepared on a going concern basis.
 
 Awards and Recognition
 
 1.  Your Banks technological efforts were recognized yet again by the
 Institute for Development and Research in Banking Technology,
 Hyderabad. Your Bank has been awarded the Special Award - Best IT
 Infrastructure Management, 2009. The Banking Technology Awards, 2009
 were presented at a function at Hyderabad on 18th June 2010.
 
 2.  Your Bank was adjudged as the Best Small Bank- 2010 by Business
 World - Price Waterhouse Coopers
 
 Corporate Social Responsibility
 
 The Bank believes that its success is intrinsically linked to
 sustainable environmental practices. Your Board resolved to go green
 banking during the fiscal under report by installing a windmill of 850
 KW at Rs.5.22 cr at Theni District, Tamil Nadu. The Bank has partnered
 with Gamesa Wind Turbines for installation of the wind mill for its
 captive use. The power generated by the windmill would be wheeled to
 various HT consumption points of the bank in the State.
 
 The bank has been associating with social and charitable initiatives
 for the betterment of the society at large. Some of the initiatives the
 bank associated with during the fiscal under report are:
 
 1.  Donations made to the Karnataka Arya Vysya Charitable Trust for
 funding student scholarship.
 
 2.  Sponsored Cardiac service camp at Karur in association with Lions
 Club and Madras Medical Mission
 
 3.  Donation made to the Sathyasai Trust for conducting Jaipur Foot
 Camp
 
 Acknowledgements
 
 The Board of Directors wishes to place on record its sincere thanks to
 the Reserve Bank of India, SEBI, Ministry of Finance, National Stock
 Exchange, other Government and regulatory authorities, financial
 institutions and correspondent banks, business associates for their
 support and guidance. The Board of Directors are also grateful to the
 valued customers, esteemed shareholders, stakeholders and public at
 large for their patronage and confidence reposed in the bank.
 
 The Board of directors also place on record their appreciation of the
 commitment, sense of involvement and dedication exhibited by each staff
 member in the overall development, growth and prosperity of the bank
 and look forward to their continued support and whole-hearted
 co-operation for realization of the corporate goals in the years ahead.
 
                           For and on behalf of the Board of Directors 
 
 Place : Karur                                              K.P. Kumar
 
 Date : 20.05.2011                                            Chairman