Vijaya Bank

Dear Shareholders,
 
 I am happy to share with you the working results of your Bank for the
 year ended March 31, 2009; a year that was quite challenging in the
 aftermath of the global financial crisis and the fallout of economic
 slowdown. Your Bank had to confront with these challenges with mixed
 results.  Let me, at the outset, sincerely thank each one of you for
 your unstinted support and cooperation without which your Bank would
 not have been able to surmount the difficulties.  As you are aware,
 during fiscal 2009-10, Bank may require such support from you even in a
 greater measure, given the prospects of our economy.
 
 Year 2008-09 witnessed several positives scored by your Bank. Prominent
 among those are the landmark 100% branch coverage under Core Banking
 Solution. Your Bank now figures among a select league of public sector
 banks that have achieved such a distinction. Such an enviable feat now
 opens up windows of opportunities to expand our size and scale of
 operations across all segments, in general, and retail segments, in
 particular.
 
 The second most redeeming feature of our performance related to a
 sustained growth in our Net Interest Income (Nil) — implying that our
 core business of lending and deposit taking is being carried out with
 higher profitability. You may recall the reversal your Bank had in the
 first quarter of last fiscal when the Net Interest Income came down in
 absolute terms.  Thanks to persistent efforts at all levels, your Bank
 could see consistent growth in Nil since the second quarter.
 
 Driven by consistent growth in Nil the operating profit exhibited a
 robust growth during the financial. It stood at Rs.898.91 Crore,
 recording Y-o-Y growth of 36 per cent.
 
 Strong Nil growth was also visible in progressive improvement in the
 Banks Net Interest Margin (NIM). For the year ended March 31, 2009,
 your Bank could register a 71 bps improvement in Yield on Advances
 compared to 43 bps rise in the cost of deposits, leading thereby to
 improved margins. However, we are quite aware that much more
 improvement needs to be achieved in this sphere.
 
 I would also like to share with you that for your Bank, capital is no
 more a constraint. During the last quarter, your Bank received capital
 support to the tune of Rs.500 Crore from the Government of India by way
 of issuance of non-cumulative preference shares. Your Bank is expected
 to receive additional capital support of Rs.700 Crore during 2009-10
 and with that, we have now adequate headroom to support good growth in
 the asset base. As at March 2009, your Banks Tier I ratio was 7.74%
 vis-a-vis the minimum 6% and the CRAR (Base) II) was 13.15% vis-a-vis
 the 9% norm.
 
 Your Bank added fifty branches during the year taking the tally of
 branches to 1101 as at March 2009, spread across 28 States and 4 Union
 territories. During 2008-09, 92 ATMs were operationalised taking the
 number of ATMs to 364.  With this, customers of your Bank have now
 access to over 31000 ATMs connected under the National Financial Switch
 all across the country.
 
 On the business front, your Bank registered a subdued growth of 13%,
 which was due, among others, to the operating environment and the
 effect of high base. You may recollect that during each of the two
 previous financials, we had added more than Rs. 18000 Crore to our top
 line. This time around, the issue of rebalancing was also uppermost in
 our strategy, keeping in view the profitability aspects.
 
 Banks business, as at 31st March 2009, aggregated to Rs.90410 Crore,
 comprising deposits of Rs.54535 Crore and advances of Rs.35875 Crore.
 Credit-Deposit ratio worked out to 65.8%, which was reasonably good
 given the dampened market sentiments. Your Bank ended the year with a
 CASA percentage of 24% which, I must say, is below the desired level
 and was due mainly to decline in current account deposits. We are
 working out a few initiatives, including a Mission under NRI deposits
 and an innovative incentive scheme, which should provide the required
 fillip to our CASA deposits.
 
 Within advances, lending to priority segments grew by 17% to Rs. 13450
 Crore, accounting for 42% of the Adjusted Net Bank Credit (ANBC) as
 against the 40% norm. Agricultural credit posted a 41% growth while
 loans to MSME segments shot up by over 31% to reach Rs.4552 Crore.
 Advances to weaker sections accounted for 9.51% of ANBC, marginally
 short of the 10% norm. Loans to women clientele formed 6.41% of ANBC
 (vis-a-vis 5% norm) while educational loans clocked a 39% growth to
 reach Rs.431 Crore.
 
 Technology has emerged as a key differentiator and in your Bank, a
 series of initiatives have been taken culminating in achievement of
 100% CBS and its attendant benefits.  Alternative Delivery Channels
 were given a big push, leading to a quantum jump in usage of Internet
 Banking and improved hits at the Banks ATMs. Debit Card base was also
 significantly improved from 3.95 lakh as at March 2008 to 7.06 lakh as
 at March 2009. The year also saw introduction of initiatives like Cash
 Back offer on Debit Card based purchases, SMS alerts for Internet
 Banking customers and IT-enabled Smart Card (Vijaya Vikas) under the
 financial inclusion initiative. Technology has also enabled better
 supervision and control over Banks portfolio in terms of receiving
 early warning signals, especially under potentially stressed loan
 assets.
 
 In the aftermath of economic slowdown, a series of stimulus measures
 were announced by the Government and Vijaya Bank took effective part in
 the loan restructuring exercise. In all, 9652 stressed accounts were
 restructured, involving an amount of Rs.974 Crore, comprising housing,
 industrial and MSME loans. The Bank proposes to restructure another
 about 11242 accounts with book balance to the tune of Rs.1860 Crore by
 June 2009.
 
 Slippage management was one of the biggest challenges for your Bank
 during 2008-09, triggered, among others, by the slowdown affecting
 industry, services and exports sectors alike. As a result, Gross NPA
 ratio and Net NPA ratio rose to 1.95% and 0.82% respectively. Slippages
 & other provisions did impact the Banks bottom line, notwithstanding
 robust growth in the operating profits.  While the operating profit for
 the year grew by 36%, net profit came down by 27%, impacted by
 provisioning for NPAs (Rs.134 Crore), for Tax (Rs.279 Crore), for
 Employee Benefit (Rs.106 Crore) and provision for wage revision to the
 tune of Rs.60 Crore.  Profitability, measured by Return on Average
 Assets, worked out to 0.59%.
 
 During the year, your Bank endeavored to tone up its support services
 by way of new processes and products. To name a few, the Bank launched
 5 Branch Service Centres (BSCs) at select Regions to provide back
 office support to the branches. A new product - V-Payroll studded with
 attractive features - was also launched which has evoked good response
 from the existing and prospective clientele. Your Bank also made steady
 progress in implementing Integrated Risk and Treasury Management
 systems that are so crucial in operating efficiently in the volatile
 business environment.  On the HR front, we continued specialized talent
 induction at various levels, apart from putting in place a progressive
 promotion and placement policy.
 
 Your Bank is now bracing up to achieve the targeted business growth of
 Rs. 1,12,000 Crore for the current year. The focus is now more on the
 CASA segment and towards achieving this, we have already launched a
 Mission for NRI deposits at select Regions. The Bank is also planning
 to take several initiatives under Alternative Delivery Channels and in
 other IT- related areas like Mobile Banking, Online Trading Portal,
 e-ticketing and many more. I am sure with your continued support and
 guidance, your Bank shall be able to achieve these goals and all that
 it is aspiring for.
 
 With best wishes,
 Yours sincerely,
 
 ALBERT TAURO
 Chairman & Managing Director