I am happy to share with you the highlights of the performance of your
 Bank for the year 2010-11. As you are aware, 2010-11 was a year which
 posed number of challenges both for the Indian economy as well as the
 banking industry.  On the economic landscape, GDP growth during 2010-11
 reverted to a high growth trajectory at 8.6%. While growth had
 moderated in the preceding two years as the global economy slowed down
 as a result of global financial crisis, the growth during 2010-11
 reflects a rebound in agriculture and sustained levels of activity in
 industry and services.  However, the growth story was at least
 partially camouflaged by a persistent rise in Inflation throughout the
 year. Inflation at 8.98% as at the end of Mar11 played the spoil sport
 on the otherwise good work done on the economic front.
 
 On the monetary front, as inflation stayed above the indicated
 projections during 2010-11, monetary policy was continually tightened
 through the year. For the industry as a whole, Credit expansion was
 above the indicative trajectory for the year, though it moderated
 towards the later part.  Deposit growth which lagged behind the credit
 expansion, picked up in Q4 of 2010-11, responding to the rise in
 deposit interest rates. Liquidity conditions were tight for most part
 of the year with some easing towards the last quarter.
 
 Against this background, let me briefly touch upon specific areas
 wherein we excelled last year. First and foremost, our core earnings
 improved throughout during the year. For the year, Nil growth worked
 out to 34% that helped us clock a Net Interest Margin of 3.04%, an
 improvement of 50bps over the March 2010 position. Growth in Nil was an
 outcome of our persistent efforts towards containment of interest cost.
 Our interest income for the year registered a growth of 12.4%, while
 our interest cost grew marginally by 3.9%. During the year, the cost of
 deposits declined by 35 bps while the yield on advances at 10.25%
 remained almost at last years level.  Similarly, while the yield on
 funds increased by 14 bps, Cost of funds declined by 33 bps, resulting
 in an improvement in Spread by 47 bps. For the year 2010-11, your Bank
 clocked an operating profit of Rs. 1047 crore.
 
 The net profit for the year was Rs. 524 crore that worked out to a 3.3%
 growth y-o-y. This was even after additional provision for employee
 benefits due to second option for pension and increase in gratuity
 ceiling to the tune of Rs. 301 crore and provision for NPA to the tune of
 Rs. 413 crore. Otherwise, the Bank would have posted a much higher growth
 in Net Profit.
 
 Let me now move on to key aspects of our top line growth.  We ended the
 year with an aggregate business ofRs. 122470 crore, notching a growth of
 18%. Our business volume comprised deposits of Rs. 73248 crore (18%) and
 advances of Rs. 49222 crore (17.4%). The CASA deposits as percentage to
 Aggregate deposits improved, albeit marginally from 24.6% to 25.3%
 during 2010-11. In the sphere of advances, Bank continued the strategy
 of rebalancing with a retail centric focus although the headway therein
 was not so very significant. Our outstanding retail advances at March
 31, 2011 were Rs. 10041 crore, recording a growth of 7.4%. As regards
 operations in the designated priority sectors, advances to these
 segments aggregated to Rs. 14671 crore, accounting for 34.9% of Adjusted
 Net Bank Credit as against the 40% norm. Within priority sectors,
 advances to MSME and weaker section segments recorded a growth of 25%
 and 10% respectively, reaffirming our continued commitment to issues of
 national priority. In respect of education loan, one of our priority
 areas, total outstanding were of the order of Rs. 603 crore, signifying a
 y-o-y growth of 13%.
 
 Support systems play a vital role in realizing various goals and as
 such, we continued to accord emphasis on basic aspects like branch
 expansion, technology up-gradation, expansion of alternative delivery
 channels, product innovation etc. The Bank launched V-Platinum Current
 Account a new deposit scheme during the year to improve HNI clientele
 base and to improve corporate deposits. Similarly, an innovative retail
 product viz., Vijaya Secured Overdraft Scheme (VSOD) was introduced to
 cater to the financial needs of Micro & Small Enterprises with
 liberalized terms and conditions. Bank has also been quite active on
 the Financial Inclusion sphere. As against a target of 75 villages to
 be covered under Financial Inclusion, the Bank covered 113 Villages in
 Karnataka and Kerala States as on 31.3.2011. It is proposed to cover
 all the remaining 264 villages under FIP well before the scheduled date
 viz., 31.3.2012.
 
 With a view to improving fee based income Bank had entered into
 Corporate Agency Agreement with LIC of India to cater to the life
 insurance needs of customers. Bank has also entered into an agreement
 with M/s Bajaj Allianz Ltd for Group coverage of Individual borrowers.
 Besides, Bank has taken several new initiatives during the year to
 provide value added services to customers, viz, tie up with MoneyGram
 and XpressMoney for money transfer services, tie up with Times of
 Money Ltd for online transfer of funds etc.
 
 We added 42 new branches and 110 additional ATMs during the year taking
 the tally of our branches and ATMs to 1200 and 545 respectively. V-Net,
 the Internet Banking module offered by the Bank was also upgraded
 during the year, featuring new value propositions for the tech savvy
 clients.  The Mobile banking service, which the Bank launched last
 year, has picked up very well and as at the end of March 2011, there
 were 22545 registered users. Also, the SMS alert services which was
 offered to customers proved to be a instant hit again with over 693726
 registered users as at March 2011.
 
 Slippage management was a major task on hand right from the beginning
 of the year under reference. Towards this end, bank took several
 measures viz, identifying accounts showing signs of stress, treating
 them as Special Watch Accounts and monitoring them closely; initiating
 stringent recovery measures against wilful defaulters etc. Total Cash
 recovery and upgradation in NPAs was quiet impressive during 2010-11 at
 X 659 crore and Rs. 332 crore respectively, as against Rs. 425 crore and Rs.
 163 crore a year ago. As a result of all these efforts, we have been
 largely successful in bringing down the NPA ratio progressively
 although there is a fair distance to cover under absolute NPAs. The
 Gross Non-Performing Assets of the Bank as at March 2011 as percentage
 to Gross Advances worked out to 2.56% while the Net NPA ratio was
 1.52%.
 
 For the year 2011-12, we have envisaged a business goal of Rs. 1,53,000
 crore that works out to a 25% growth y-o-y, comprising Rs. 90,000 crore
 under deposits and Rs. 63,000 crore under advances. We propose to add
 further 100 branches and 205 ATMs during the current year. Banks key
 focus in the year 2011 -12 will be Retail and Recovery and I am sure
 bank will scale much greater heights in terms of financial performance,
 deriving its core strength from retail business.
 
 Going forward, FY 12 would throw open both challenges and
 opportunities for banks. Some of the key challenges would be the
 persistent Inflation which may lead to a continuous spell of hardening
 of interest rates. While Banks may transmit this to customers by way of
 increasing the interest rates for Advances, a persistently higher
 Inflation continuing since last FY will make the real interest rates at
 the hands of Depositors negative and this may eventually lead to a
 situation where Banks have to increase their deposit rates as well;
 Further, a major paradigm shift is happening on the S.B deposits front;
 With the RBI likely to deregulate the S.B interest rates sooner or
 later, banks will face tremendous pressure on their margins; While low
 cost deposits can no longer be sourced really at low cost, transmitting
 this to borrower customers continuously may affect loan growth,
 although not in a proportionate manner; Thus, Banks may have to sharply
 focus on improving their non-interest income, under the circumstances,
 to improve their profitability; On the positive side, there is a
 vibrant economy almost set to achieve a growth in GDP upwards of 8.0%,
 which will invariably translate into much wider and bigger business
 opportunities; There is also a growing population of Generation Next,
 who will continue to spearhead changes in the way banking business is
 done. While these are some of the emerging trends and circumstances
 under which your Bank has to carry on its business, I am sure, with
 your unstinted support, the Bank will achieve much greater heights in
 business performance in the coming years.
 
 With best wishes
 
                                                     Yours Sincerely
 
                                                  H S UPENDRA KAMATH
 
                                        Chairman & Managing Director