Union Bank of India

1.  The Directors are privileged to place before you the 89th Annual
 Report of your Bank together with the Management Discussion and
 Analysis, Audited Financial Accounts and Corporate Governance Report
 for the Financial Year (FY) ended 31st March, 2008. The Profit & Loss
 Account and the Cash Flow Statement for the said year also form a part
 of the Annual Report 2007-08.
 
 2.  Scaling New Financial Frontiers - Growth Takes a New Trajectory
 
 2.1 During 2007-08, your Bank has scaled new frontiers in Business
 Development by adopting several initiatives that will take the Bank in
 to new trajectory of growth. The one important milestone that your Bank
 has achieved during the course of the year is bringing all its branches
 under Core Banking Solution (CBS), thus becoming the first large Public
 Sector Bank in the country to have achieved 100% CBS roll out. A sound
 technology platform - Data center in Powai, Mumbai has been developed
 to take all our initiatives to the vast and expanding clientele. Your
 Bank has started offering several technology driven customer centric
 products. Your Bank has been able to set in motion a transformation
 process of turning branch units into sales outlets under the project
 Nav Nirman. More is dealt with on these issues under section
 Management Discussion and Analysis.
 
 2.2 Continuing the sustained growth momentum, during 2007- 08 your
 Banks total business mix increased by Rs.30,899 crore to Rs.179,737
 crore as on 31st March, 2008, from Rs.148,838 crore, recording a growth
 of 20.76%. Your Banks total business more than doubled in four years.
 
 2.3 The Banks total deposits as on 31st March, 2008 reached a level of
 Rs.103,859 crore from Rs. 85,180 crore, showing a growth of 21.93%. The
 Bank continued its focus on resource mobilization through retail
 deposits growth and focused on the share of low cost deposits i.e.
 current and savings (CASA) deposits and containment of high cost
 wholesale deposits with the twin objectives of controlling costs and
 widening the client base. Your Bank has been able to maintain its share
 of CASA deposits at 34.86% in the improved deposit level.
 
 2.4 The FY 2007-08 saw a deceleration in growth in industrial output
 and decline in credit demand. At the back of above scenario, your
 Banks credit portfolio increased by 19.20% to touch Rs.75,878 crore as
 on 31st March, 2008 from a level of Rs.63,658 crore as on 31st March,
 2007. The Bank has been continuously focusing on delivery of credit to
 productive sectors of the economy and rebalancing its credit portfolio
 to optimize yield on assets. This strategy paid rich dividends as the
 yield on advances improved substantially from 8.98% to 10.12% in
 2007-08.
 
 3. Revenue Analysis
 
 3.1 The total Income generated by your Bank has shown an excellent
 growth of 30.55%, moving from Rs.8,069 crore to Rs.10,534 crore during
 2007-08. Led by the significant buoyancy in the Core Banking Operations
 and rebalancing asset portfolio for maximizing yield, the Banks
 interest income reached Rs.9,447crore, showing a growth of 27.97% in
 2007- 08 as against 25.89% in the previous year. Also Non-interest
 income (other income) scaled new height at Rs.1,087 crore with a growth
 of 58.22% in 2007-08 as against 39.07% in the previous year.
 
 3.2 Due to concerted efforts taken by your Bank resulting in enhancing
 the portfolio of high yielding advances, the interest income from
 advances grew by 32.71 % during 2007-08. Interest income from
 investments grew by Rs.403 crore, from Rs.2,113 crore to Rs.2,516
 crore, showing a growth of 19.07% in spite of volatile market
 conditions during 2007-08. The interest income has been ably
 supplemented by other interest income.
 
 3.3 As the year witnessed hardening of interest rates the spreads came
 under pressure. But despite this, Net Interest Income rose by 10.61 %
 during the year. Further, the Banks efforts towards alternative
 revenue generation in the form of other income provided cushion to
 Operating Profit of the Bank.
 
 3.4 The major highlights of the revenue earned and the corresponding
 expenditure for the year are depicted in the table below:
 
                                                  (Rs. in crores)
 
                                                   2006-07   2007-08
 
 Particulars
 
 Total Interest Income                              7382      9447
 Total Interest                                     4592      6361
 Expenditure                   
 Net Interest Income                                2790      3086
 Other Income                                        687      1087
 a)   Profit on sale of                              -46       144
 Investment
 Net of Amortization
 a 1) Profit on sale of                              109       290
 Investment                   
 a 2) Amortization                                  -155      -146
 Net operating income                               3477      4173
 Operating Expenses                                 1476      1593
 Operating Profit                                   2001      2580
 Provisions                                          621       716
 Contingencies
 Profit before Tax                                  1380      1864
 Provisions for Tax                                  535       477
 Net Profit                                          845      1387
 
 Absolute       %
 growth      Growth
 
 2065         27.97
 1769         38.52
  296         10.61
  400         58.22
  190           -
  181        166.06
    9           -
  696         20.02
  117          7.92
  579         28.94
   95         15.30
  484         35.07
  -58        -10.84
  542         64.14
 
 3.4.1 Your Bank took advantage of market conditions in capital, debt
 and exchange markets. Consequently, the profit on sale of securities,
 which is a part of other Income, rose to Rs.290 crore as on 31st March,
 2008 from Rs.109 crore in the previous year giving a substantial growth
 of 166.06%. However, due to amortization (Rs. 146 crore) the profit of
 Rs.290 crore has been reduced to Rs.144 crore.
 
 3.5 Alternate Revenue Streams
 
 3.5.1 The Bank has taken several initiatives to generate income through
 alternate revenue streams to boost fee-based income with the objective
 of enhancing its coverage of operating expenses. Following are some of
 the initiatives which helped substantially in generating revenue.
 
 3.5.2 The distribution of insurance products (both life & non-life) has
 boosted earnings by 50.18%, from Rs.16.42 crore as on 31st March, 2007
 to Rs. 24.66 crore as on 31st March, 2008.
 
 3.5.3 Incomefrom foreign exchange transactions like commission on
 bills, Letters of Credit, Guarantees, etc. increased from Rs.198.38
 crores to Rs.261.20 crores during the year.
 
 3.5.4 Miscellaneous income like rent on SDV lockers, processing
 charges, inter-sol charges, account maintenance charges, etc.
 increased from Rs. 261.62 crores to Rs. 380.98 crores
 
 4. Spread Analysis
 
                                                  (Rs. in crore)
 
 Parameters                                      2006-07     2007-08
 
 Average Working Funds                            91403      110359
 Total Interest Income                             7382        9447
 Total Interest Expended                           4592        6361
 Spread                                            2790        3086
 Yield on Advances                                 8.98%      10.12%
 Cost of Deposits                                  5.23%       6.19%
 Yield on Funds                                    8.08%       8.56%
 Cost of Funds                                     5.03%       5.76%
 Net Interest Margin                               3.05%       2.80%
 
       Growth
 Absolute   %
 
 18957    20.74
  2065    27.97
  1769    38.52
   296    10.61
 xxx       xxx
 XXX       XXX
 xxx       xxx
 xxx       xxx
 xxx       Xxx
 
 4.1 During 2007-08, there has been a pressure on mobilizing low cost
 resources due to changes in the preferences of the depositors to other
 markets and availability of several alternative investment
 opportunities. The rising interest rate scenario, at the back of tight
 monetary policy and spiraling inflation during the second half of
 2007-08 also had its impact on the cost of deposits of the Bank, which
 rose from 5.23% to 6.19% during 2007-08. Consequently, cost of deposits
 greatly impacted the overall cost of funds and despite a healthy
 increase in yield on funds, the Banks net interest income has shown a
 growth of 10.61%. The yield on advances has increased substantially to
 10.12% in 2007-08 as against 8.98% in the previous year due to focused
 approach of creating high yielding assets. The ultimate result has been
 an increase in Net Interest income to Rs. 3086 crore in-2007-08 from
 Rs. 2,790 crore in the previous year, registering a growth of Rs. 296
 crore or 10.61 per cent.
 
 4.2 Total Expenses
 
 4.2.1 The increase in expenses has been led by a rise in interest
 expenses by 38.52% but your Bank has been able to control the operating
 expenses, which increased marginally by 7.92% during the year.
 Consequently, the Bank incurred total expenses of Rs.7,954 crore during
 FY 2007-08 as compared to Rs-.6,068 crore last year, showing an
 increase of 31.08%.
 
 4.3 Operating Profit
 
 4.3.1 All the above factors resulted in an increase in the operating
 profit of your Bank to Rs. 2,580 crore for the year ended March 2008
 from Rs. 2,001 crore in the previous year, up by Rs. 579 crore or
 28.94%.
 
 5. Provisions & Contingencies
 
 5.1 The allocation for provisions and contingencies stands at Rs.1,193
 croce. during 2007-08 as against Rs.1,156 crore last year.
 
 5.2 The provision for standard assets in March 2008 has been reduced to
 Rs.80 crore as against Rs.136 crore in March 2007.  As a prudent
 measure the Bank has made additional provision of 2% over and above the
 minimum required as per RBI norm, for certain categories of standard
 advances such as consumer durables, educational loans, loans through
 credit cards and other personal loans.
 
 5.3 The provision for NPAs increased by Rs. 585 crore as of 31st March,
 2008 as against Rs.330 crore as of March 2007, which improved the
 Banks provision coverage ratio (provision on NPAs to Gross NPA), to
 92.27% as against a ratio of 67.89% as on 31st March 2007.
 
 5.4 The provisions for depreciation on Investments have gone down to
 Rs.30 crore as of March 2008 from Rs.116 crore as of March 2007 due to
 prudent policy/strategy followed in handling the portfolio.
 
 5.5 The provision for taxation has gone down to Rs.477 crore as of 31st
 March, 2008 from Rs.535 crore as of 31st March 2007.
 
 5.6 The profit before tax as of March 2008 is at Rs.1,864 crore as
 against Rs.1,380 crore in March 2007. Consequently, profit after tax
 increased to Rs.1387 crore as against Rs. 845 crore in 2006-07, despite
 higher provisioning of Rs. 1,193 crore when compared to the previous
 years level of Rs. 1,156 crore.
 
 6. Net Profit & Dividend
 
 6.1 Relentless pursuit of prudent business policies and operational
 efficiency complemented by sustainable top line growth made the year a
 true landmark. Buoyancy in the core business operations, cost
 containment and improvement in asset quality helped the Bank to achieve
 a Net Profit level of Rs.1387 crore registering a growth of Rs 542
 crore or 64.14% , the highest ever growth your Bank has witnessed.
 
 6.2 Your Banks policy of dividend is to suitably reward the
 shareholders as well as to plough back profit for maintaining a Msathy
 capital adequacy ratio and supporting future growth.
 
 Accordingly, your Directors are pleased to recommend for a dividend of
 40% for the year ended 31st March 2008 as against 35% in the preceding
 year, subject to approval of Government of India.
 
 6.3 The dividend for financial year 2007-08 shall be subject to tax on
 dividend to be paid by the Bank but will be tax free in the hands of
 shareholders. The payout ratio works out to 14.56%. The total outflow
 on account of dividend for 2007-08 is Rs.236.39 crore including
 dividend tax.
 
 6.4 Out of the net profit of Rs.1,387 crore, an amount of Rs.418 crore
 has been transferred to Statutory Reserve, as against Rs. 254 crore in
 2006-07.
 
 7.  NET WORTH & CRAR
 
 7.1 The net worth of the Bank improved to Rs.5616 crore as on 31st
 March, 2008 from Rs. 4,728 crore as on 31st March, 2007 reflecting a
 growth of 18.78%.
 
 7.2 The Capital Risk Adjusted Assets Ratio (CRAR) is 12.51 % as of
 March 2008 compared to 12.80% as of March 2007 against the benchmark of
 9%,
 
 7.3 Tier-I CRAR has marginally reduced to 7.45% as of 31st March, 2008
 from 7.79% as of 31st March, 2007. Tier II CRAR has increased to 5.06%
 from 5.01%.
 
                                                     As on
                                    31st March, 2007   31st March, 2008
 
 Tier-I Capita                             7.79%           7.45%
 Tier-ll Capita                           l5.01%           5.06%
 Total                                    12.80%          12.51%
 
 8. PROFITABILITY RATIO
 
 8.1 Return on Equity improved from 17.88% to 24.70% and Earnings Per
 Share improved to Rs. 27.46 as of 31st March, 2008 from Rs.16.74 in the
 previous year.
 
 8.2 The book value per share increased to Rs.111.19 as on 31st March,
 2008 from Rs.93.60 last year.
 
 9 Efficiency Ratio
 
 9.1 The Return on Average Assets increased to 1.26% as of March 2008
 from 0.92% as of March 2007, showing an efficient utilization of your
 Banks assets.
 
 9.2 Cost to Income ratio improved from 42.45% as on 31st March 2007 to
 38.17% as on 31st March, 2008, one of the best in the industry.
 
 9.3 The coverage ratio. {(Net Worth - Net NPAs) / Total Assets}
 improved from 4.02% as on 31st March 2007 to 4.43% as on 31st March
 2008.
 
 9.4 Operating Expenses (establishment and other operating expenses) to
 Average Working Fund came down from 1.61 % to 1.44% during the year.
 
 10. Branch Network
 
 10.1 Your Bank considering all round growth in the economy strongly
 feels that network of branches is an additional enabler for providing
 best customer service and increasing the revenue streams. The Bank has
 a geographically well-spread branch network in India now connected with
 each other under Core Banking Solution (CBS). During 2007-08, your Bank
 has opened 155 branches including upgradation of 18 extension counters
 thereby taking the total number of branches to 2361 as on 31st March,
 2008.
 
 10.2 The comparative position of the branch network as on 31st March,
 of 2007 and 2008 in given below:
 
                                               31st March,  31st March,
 Branch Network                                    2007       2008
 
 Total Branches                                    2206       2361
 Extension Counters                                 136        118
 Specialised Branches                                56        100
 Of which
 Industrial Finance Branches                          8          8
 MSME Branches                                       34         34
 NRI Branches                                         4          4
 Overseas Branches                                    9          9
 Personal Banking Branches                            1          1
 Retail Asset Branches                                -         32
 Asset Recovery Branches                              -         10
 Cash Management Branches                             -          2
 
 11. Alternate Delivery Channels
 
 11.1 During the year, your Bank has used alternate delivery channels
 such as ATMs, Internet Banking, Tele-banking/SMS banking as important
 tools to optimize the customer satisfaction, which have attracted young
 and old alike. These channels also generate alternate revenue streams
 in the form of fee-based income.
 
 11.2 The Bank has taken the right initiatives to provide conducive
 atmosphere to drive the transactions through various delivery channels
 by migrating all the branches to Core Banking Solution.  Installation
 of a large network of ATMs coupled with ready kits, a robust Internet
 banking platform, introduction of SMS banking, NEFT (National
 Electronic Fund Transfer) and RTGS (Real Time Gr6ss Settlements)
 through internet banking, cent per cent CBS etc., have enabled
 customers of your Bank to enjoy anytime any where banking with
 operational efficiency and convenience.
 
 11.3 In its endeavour to provide convenience banking to its customers,
 bank is adding more value to alternative delivery channels viz., ATMs,
 Internet Banking, and SMS Banking. During the year Bank has added 377
 ATMs, taking the ATM network to 1,146 as on 31st March, 2008. The
 bilateral and multilateral sharing arrangements provide access to its
 customers at more than 32,000 ATMs across the country. The Bank
 proposes to take the number of ATMs to 2500 during 2008-09.
 
 11.4 The banking services are also made available through Tele- banking
 and Internet banking. Internet banking services are made available for
 retail as well as corporate customers of all branches. The customer
 base of Internet Banking has increased from 41,000 accounts on 31st
 March, 2007 to 1,91,000 accounts as on 31st March, 2008, registering a
 nearly 500% growth. Bank has launched SMS Banking during the year,
 providing various types of account information to customers through
 their mobile phones.
 
 12. Information Technology Of The Bank
 
 12.1 To address the rapidly changing customer expectations and
 competition from new generation banks, the Bank, in the year 2000
 adopted long term IT strategy. As part of the strategy it was decided
 to introduce Core Banking Solution in order to achieve efficiency in
 operations as also to offer right product mix to the customers. The
 Bank has been able to use technology as a great business enabler and
 expects to reap business benefits out of the same, besides being able
 to successfully meet the competition. Besides migration of all branches
 to CBS, the Bank will be using it for Management Information System
 (MIS) for tracking business opportunities and development.
 
 12.2. Core Banking Project:
 
 12.2.1 As per the IT road map envisaged in year 2000, it was decided to
 implement Core Banking Project in our Bank at 500 major branches
 covering 70% of the business over a period of 5 years. Pilot
 implementation started in December 2002 and 20 branches were rolled out
 to CBS by 31st March, 2003. Bank had achieved the initial target of
 connecting 500 branches to CBS well ahead of the planned time of 5
 years. With a view to extend the anywhere, anytime banking to all the
 customers, the Bank has taken up 100% CBS project during the year
 2007-08.  The Data Center was also moved to our new premises, named
 Technology Center at Powai, Mumbai on 18th August, 2007.
 
 * includes 31 service branches.
 
 12.2.2 We have started aggressive roll out of branches immediately
 after shifting the systems to new data center. All remaining 1340
 branches & extension counters were rolled out to CBS by March 2008,
 thus achieving 100% CBS status for Bank.
 
 12.2.3 The major challenge in achieving 100% CBS is establishing of
 network infrastructure. Some of the telephone exchanges at remote
 locations are not yet upgraded and cannot support leased line/MPLS
 connectivity. To meet this challenge, bank has opted for VSAT
 connectivity.
 
 12.2.4 With 2392 branches and 121 extension counters on core banking,
 1146 ATMs at 351 centers, about 2 lakh Internet banking users and
 20,000 SMS banking users, the Bank is pioneer in extending hi-tech
 products to customers at metro and rural centers alike.
 
 13. Strategic Investment
 
 13.1 Insurance penetration is very low in India. A growing economy with
 rising income levels, particularly in the tier-l and II cities, there
 is a great need for insurance and related products by the vast number
 of people. Realising the great scope and potential available, on 6th
 December 2007, your Bank has signed a joint venture agreement with Bank
 of India and Dai-lchi Insurance of Japan, a leading insurance company
 in the world.  This joint venture will provide innovative life
 insurance products to the Indian market and is expected to boost the
 Banks other income.
 
 14. Changes in the Board During the year
 
 14.1 During the year under review, the following changes took place in
 the Board of Directors of the Bank:
 
 14.2 The Government of India created an additional post of Executive
 Director and Shri T.Y. Prabhu has been appointed as Executive Director
 w.e.f. 6th June, 2007.
 
 14.3 Shri Ashok Singh, Non-Official Director was appointed by the
 Government of India w.e.f. 19th February, 2008.
 
 15. DIRECTORS RESPONSIBILITY STATEMENT
 
 15.1 The Directors confirm that in the preparation of the annual
 accounts for the year ended 31st March, 2008:
 
 15.2 The applicable accounting standards have been followed along with
 proper explanation relating to material departures, if any;
 
 15.3 The accounting policies framed in accordance with the guidelines
 of the Reserve Bank of India, were consistently applied;
 
 15.4 Reasonable and prudent judgment and estimates were made so as to
 give a true and fair view of the state of affairs of the Bank at the
 end of the financial year and of the profit of the Bank for the year
 ended on 31st March, 2008.
 
 15.5 Proper and sufficient care was taken for the maintenance of
 adequate accounting records in accordance with the provisions of
 applicable laws governing banks in India; and
 
 15.6 The accounts have been prepared onan ongoing concern basis.
 
 16. Corporate Governance
 
 16.1 The Board of the Bank is committed to adopt good corporate
 governance practices in letter and spirit. A detailed report of the
 Bank on Corporate Governance is given in separate section of the Annual
 Report. We would like to place on record that the observations made
 during the previous year relating to corporate governance has since
 been attended and set right as under in the current year.
 
 1.  The Chairman of the Audit Committee of Board of Directors Shri.
 K.S. Sreenivasan, attended the last AGM to reply to the queries of the
 shareholders.
 
 2.  During the year, the Bank has appointed a Company Secretary in the
 rank of Assistant General Manager.
 
 Furthermore, the corporate governance report for FY 2007-08 has no
 audit qualification.
 
 17. CORPORATE SOCIAL RESPONSIBILITY
 
 17.1 Your Bank is committed to its role as a responsible corporate
 citizen by adopting ethical business practices and contributes to
 economic development beyond its statutory obligation. The Bank fully
 realizes its social responsibility to improve the quality of life of
 the local community and society at large. The Bank has now moved a step
 ahead in this direction. In order to pay a focused attention, the Board
 of the Bank has decided to set apart 1% of its annual public profits to
 undertake Corporate Social Responsibility Activities through its trust
 named Union Bank Social Foundation.
 
 17.2 The trust would provide for infrastructure facilities in rural
 areas and committed to undertaking one major project in each of the 13
 lead districts across the country, namely, Ernakulam and Idukki in
 Kerala, Varanasi, Ghazipur, Jaunpur, Azamgarh,Chandauli, Bhadohi and
 Mau in U.P., Rewa and Sidhi in M.R and Samasthipur and Khagaria in
 Bihar.
 
 17.3 The Bank has established Village Knowledge Centres (VKCs) in
 nearly 200 villages across the country, which provides knowledge
 dissemination and extension services to the rural community helping
 them in improving their productivity. These VKCs are non-profit
 entities, fully funded by the bank. The Bank has also established two
 Rural Development and Self- employment activities in Perambavur
 (Kerala) and Varanasi (U.P) funded jointly by the Bank, NABARD and
 respective State Governments.
 
 18. Acknowledgements
 
 18.1 The Board expresses its gratitude to the Government of India,
 Reserve Bank of India and Securities & Exchange Board of India for the
 valuable guidance and support received from them. The Board also thanks
 the financial institutions and- correspondent banks for their
 co-operation and support. The Board acknowledges the unstinted support
 of its customers and shareholders. The Board wishes to place on record
 its appreciation of the dedicated services and contribution made by
 members of staff at all levels for the overall performance of the Bank.
 
                         For and on behalf of the Board of Directors,
 
 Place: Mumbai                               (M.V. Nair)
 Dated: 26.05.2008                    Chairman & Managing Director