Indian Overseas Bank

The Board of Directors have great pleasure in presenting the Annual Report together with audited Balance Sheet and Profit and Loss Account of the Bank for the year ended March 31, 2008. The Bank was ranked, on the basis of its overall performance in 2006-07, First among Public Sector Banks and third among 35 large banks in India by KPMG and Business Today Survey. Another survey done for the same period by Ernst & Young and Financial Express placed the Bank on top among the nationalised banks. The Banks performance was gratifying with the volume of business recording high growth. The Bank has performed better than the System in the growth of total business during 2007-08. While the System recorded a growth of 22% in total domestic business, the Bank achieved a growth 24% for the year ended March 2008. Profitability indicators also showed good improvement and there was all round progress in the year under review. Thus good performance witnessed in the previous year has been carried forward ,in the reporting year as well. Global Business Performance Global business increased significantly from Rs. 1,16,663 crore in March 2007 to Rs. 1,45,384 crore in March 2008, with a growth of 24.62%. Deposits at the global level improved by 22.67% from Rs. 68,740 crore to Rs. 84,326 crore in the same period while advances went up by 27.41% from Rs.47,923 crore to Rs. 61,058 crore. Global CD ratio improved from 69.72% to 72.41%. Overseas Branches During the year, the Bank opened a Representative Office at Ho Chi Minh City, Vietnam. The Bank has obtained approval from the Reserve Bank of India to open a branch at New Zealand and a Representative Office at Dubai. Preparatory work for opening these offices is underway. The Bank has also plans to upgrade the existing Representative Offices in Kualalumpur, Malaysia and Guangzhou, China into full-fledged branches. As at the end of March 2008, the Bank had 12 establishments abroad comprising of 6 full-fledged branches, 3 Representative Offices, 2 Remittance Centres and 1 Extension counter. The branches include two in Hong Kong and one each in Singapore, South Korea, Sri Lanka and Thailand. Representative Offices are located in Guangzhou, China, Kualalumpur, Malaysia, and in Ho Chi Minh City, Vietnam. Remittance Centres function in- Boon Lay and Serangoon, Singapore, while the Extension counter is located in Sri Lanka. Three officers have been deputed by the Bank at the UAE Exchange Centres who liaise between branches, in India and the NRI clientele of the Bank. Financial Performance The Bank posted an impressive global operating profit of Rs. 2,002 crore crossing Rs.2,000 crore mark which is a major milestone in the history of the Bank. The growth in operating profit recorded during the year was 28.33% and it marks a leap from Rs.1,560 crore of the previous year. Growth in profit can be attributed to expansion in volume of business and improvement in efficiency levels. Provisions A sum of Rs. 799 crore was set apart towards provisions and contingencies as per the extant guidelines. Net Profit / Dividend The Banks net profit reached a level of Rs. 1,202 crore in March 2008 from Rs. 1,008 crore in March 2007. Increase in net profit at 19.25% came about through improvement in yield on advances and non-interest income. Dividend for the year 2007-08 is being proposed at 32 %. Income and Expenditure Analysis The Banks total income increased to Rs. 8,776 crore during 2007-08 from Rs.6,219 crore with a growth of 41.12%. This was possible mainly due to higher credit growth at 27.41% and increased yield on advances with substantial recoveries in NPA accounts. Total interest income went up from Rs.5,832 crore to Rs.7,968 crore registering a growth of 36.63%. Non-interest income also increased to Rs.808 crore in 2007-08 compared to Rs.387crore in 2006-07 with a significant growth of 108.79%. The high growth is mainly due to increase in commission earnings by Rs. 81 crore, profit on exchange by Rs.24 crore and all other income including recoveries to P & L account by Rs. 115 crore. The Bank was able to maintain the treasury gains at Rs.230 crore in 2007-08 as compared to Rs.237 crore in the previous year. Interest expenditure increased at 61.69% to Rs.r,289 crore in 2007-08 as against Rs.3,271 crore in the previous year. The interest expenditure was higher during the year mainly due to substantial increase in cost of funds by 138 basis points when compared to last year. Interest on borrowings/others also increased by 35% to Rs.507 crore in 2007-08 as against Rs.375 crore in the last year mainly on account of increased borrowings, especially to meet the CRAR at a comfortable level. Total Net Interest Income improved to Rs.2,679 crore when compared to Rs.2,561 crore last year at a marginal growth of 5%. However, NIM increased significantly in Q4 2007-08 to 3.26% as against 3.11% both in Q3 & Q2 and 3.71 % in Q1. Despite non-payment of interest on CRR balances, higher cost of deposits and lower yield on investments, the Bank was able to maintain its Net Interest Margin at 3.29% for the year as a whole. Operating expenses increased moderately by 7% to Rs. 1,485 crore compared to Rs. 1,388 crore during last year. Thus, the total expenses for the year 2007-08 was contained at Rs.6,774 crore with an increase of 45.40% as against Rs.4,659 crore in 2006-07. Overall, the Banks operating profit increased by 28.33% from Rs. 1,560 crore last year to Rs.2,002 crore. Capital Adequacy Ratio The Bank has adopted new Basel II norms with effect from 31.03.2008. As per the revised capital adequacy framework, the Capital to Risk Weighted Assets Ratio (CRAR) as at the end of 31.03.2008 works out to 11.62%. However, the CRAR subject to prudential floor prescribed by the Reserve Bank of India stands at a healthy 11.13% as against regulatory stipulation of 9.00%. Branch Network In branch expansion, the main thrust, during the year, was on relocation of the branches of the erstwhile Bharat Overseas Bank Ltd., which was taken over with a network of 101 branches, effective March 31,2007. Out of the branches taken over, the Bank closed 37 branches, of which 20 branches have since been relocated and 17 branches are in the process of being opened in the new locations. During 2007-08, the Bank opened 21 new branches and upgraded 62 extension counters into full-fledged branches. As at the end of the reporting period, total domestic branch network stood at 1,847. Population- group wise break-up showed 574 rural branches, 463 semi-urban, 453 urban and 357 metropolitan branches. The number of extension counters stood at 51. The Bank has plans to take over certain assets and liabilities of a co-operative bank, Shree Suvarna Sadakari Bank Ltd., Pune, having a network of 12 branches subject to due diligence and approval of Central Government and the RBI. Customer Service The Bank has adopted the Code of Commitment of Banking Codes and Standards Board of India (BCSBI). Sensitisation programmes were conducted at the Banks Staff college/ Staff Training centres to disseminate the Code to staff members in compliance with instructions of BCSBI. During the year, the following policy documents related to customer service, were amended as per the instructions of BCSBI. 1. Policy on Collection of Cheques/ Instruments. 2. Policy on Grievances Redressal and 3. Policy on collection of Dues and Repossession of Security. The details of customer complaints received and redressed are given below: a. No. of complaints pending at the beginning of the year 83 b. No. of complaints received during the year 1,055 c. No. of complaints redressed during the year 1,084 d. No. of complaints pending at the end of the year 54 No. of awards passed by the Banking Ombudsman and implemented by the Bank are as follows. a. No. of unimplemented awards at the beginning of the year 2 b. No. of awards passed by Banking Ombudsman during the year Nil c. No. of awards implemented during the year Nil d. No. of unimplemented awards at the end of the year 2 During the year 2007-08,1,138 complaints were handled (including the complaints carried over from the earlier year), of which, 1,084 complaints were resolved. The settlement rate was 95.25 %. Customer Service Centre, for which the Bank is the Convenor in Chennai City had resolved all the complaints during 2007-08. The complaints are being received directly by Central Office and Regional Offices (through letters, e-mails and telephone) and also through other channels like Reserve Bank of India, Banking Ombudsman, and Government of India. Customers are provided with the facility of Toll Free Tele services (No. 1800-425-4445) by engaging an outside agency for receiving complaints. These complaints are being resolved within 48 hours. Revised edition of Citizens Charter was published in October 2007 and copies of the same were made available at all the Branches. During the year, IBA has undertaken a survey on customer service at the Banking Industry Level by engaging the services of Gallup India Pvt. Ltd. The Bank is also participating in the Survey. The final report is awaited. Retail Banking and Marketing Retail banking activities picked up momentum during the year and the business on all spheres of retail banking has improved. Group Life Insurance Linked Product, IOB Jeevan continued to generate good numbers. Group Health Insurance linked product, IOB Healthcare Plus also had a better reach. Banks tie up with LIC of India and United India Insurance Co. Ltd. as a Corporate Agent for distribution of Life and Non-Life Insurance products has resulted in increased fee based business and income for the bank. The premium on LIC policies has improved from Rs.23.07 crore in March 2007 to Rs.49.18 crore in March 2008. The commission earned has increased by 37% from Rs.159.58 lacs to Rs.218.71 lacs in this period. Likewise premium on non-life policies of United India insurance Co. Ltd. has also increased from Rs.17.41 crore in March 2007. to Rs.23.50 crore in March 2008. The revenue earned has increased by 18% from Rs.132.53 lacs to Rs. 156.60 lacs. The mobilization under Mutual Fund Distribution has crossed Rs.190 crore during the reporting period. Higher retail mobilization has improved fee-based income by about 90 % over the previous year. The performance under Retail Loans was impressive with a growth of about 23 % over the previous year. The four Retail Loan Processing Centres (RLPCs), which were opened as a part of business process re-engineering initiatives, have started generating good volumes in processing and disbursement of retail loans. The Bank has plans for opening RLPCs in four more centres. The joint venture non-life insurance venture, Universal Sompo General Insurance Company Ltd. received the final regulatory approvals and the company has already launched two products. In the product development side, product improvements were made with customer-friendly features for two products - Home Decor Scheme and Easy Trade Scheme. Personal Accident Cover of Rs.1 Lac for individual deposit account holders was introduced during the year. The following business focused campaigns were conducted during the year 2007-08. 1. CASA Deposit Campaign 2. Retail Deposit Mobilisation Campaign 3. Campaign on Retail Sale of Gold Coins There was all round business improvement in the retail- banking segment with an increase in overall income of about 60 % through insurance products and mutual fund distribution. Official Language Policy The Bank has taken all efforts to implement the Official Language Policy of Government of India during the year 2007-08. Special efforts were taken to train maximum number of staff members in Hindi and impart training to work in Hindi on computers. During the year 345 members were trained in IOB Praveen. In all, 910 members were given training in working in Hindi on computers. Raj Bhasha Sanghosthi was conducted for all top executives of Central Office on August 9, 2007. Banks Hindi house magazine Vani was made online. Data bank for all officers and employees was prepared in Hindi. The minutes of all Board level committees were translated in to Hindi. The Bank has been awarded first prize in B region and third prize in A region by Reserve Bank of India for commendable work done for Official Language Implementation for the year 2006-07. Bank has been awarded third prize for the Hindi house magazine Vani for the year 2005-06 by Reserve Bank of India in the competition conducted by RBI for Hindi house magazines of banks and financial institutions which was received from Dr. Y V. Reddy, Governor of RBI on July 19, 2007. Indira Gandhi Rajbhasha Shield for commendable Official Language implementation was awarded to the Bank by the Honorable Home Minister Shri Shivraj Patil oh September 14, 2007. Regional Offices were inspected on Official Language Implementation .by the Official Language Department, Central Office and Rajbhasha Shields were awarded to Regional Offices and branches for their performance in this regard. The third Sub-Committee of Parliamentary Committee on Official Language inspected the Banks Regional Office, Puducherry on October 29,2007 and appreciated the Banks efforts in this regard. The drafting and evidence Sub-Committee of Parliamentary Committee on Official Language had discussions with the Chairman and heads of Banks of Town Official Language Committees at Bhubaneswar, Chandigarh, Ahmedabad, Mumbai and Pune. The Bank was also included for discussion at all places and the committee expressed their satisfaction over the performance of the Bank in these locations. Chennai Town Official Language Implementation Committee, for which the Bank is the convenor, has received the first prize for its efforts in implementation of Official Language Policy during the year 2006-07 by the Ministry of Home Affairs, Government of India on October 5, 2007. On behalf of the committee, the Bank conducted two general Hindi workshops, Joint Hindi month celebration, bilingual computer training and Rajbhasha Sanghoshti during the year 2007-08 apart from two half yearly meetings. The Bank, on behalf of the committee, sponsored a seminar in Hindi on Risk Management for Chief Managers of member banks / financial institutions. Regional Rural Banks The Regional Rural Banks (RRBs) sponsored by the Bank, viz., Pandian Grama Bank and Neelachal Gramya Bank (amalgamated entity of erstwhile Puri Gramya Bank and Dhenkanal Gramya Bank in Orissa) performed well during the year. Both the RRBs have Recorded net profit during the year. Corporate Governance Corporate Governance promotes fairness, transparency and accountability in a corporate environment. Good Corporate Governance is critical to enhance investor wealth and retain investor confidence. The timely and accurate disclosure of information regarding the financial situation, performance, ownership and governance of the Bank plays an important part in Corporate Governance. The policies of the Bank to promote Corporate Governance are based on the principle that Management is the trustee and custodian of public funds. Therefore, such policies should ensure that relevant laws are being satisfied both in letter and spirit. The transparent policies of the Bank in turn ensure a high degree of disclosures. In short, Corporate Governance involves commitment to high ethical standards and corporate values. The Bank has been scrupulously ensuring compliance with norms laid down by regulatory authorities in all areas. The Bank has always been proactive in adopting good Corporate Governance. The Board recognizes its accountability to all stakeholders of the Bank. The Bank has laid down a well-defined Code of Conduct, which is applicable to all the members of the Board and Senior Management. Pursuant to Clause 49 of the Listing Agreement, a Management Discussion & Analysis Report, a Report on Corporate Governance as well as a certificate by the auditors regarding compliance of the conditions of Corporate Governance form part of this Annual Report. Board of Directors Shri T.S. Narayanasami, Chairman & Managing Director, demitted office on June 4, 2007, upon his appointment as Chairman & Managing Director of Bank of India. Shri S.A. Bhat assumed charge as Chairman & Managing Director of the Bank with effect from June 4, 2007. Shri G. Narayanan assumed charge as one more Executive Director on November 7, 2007. Shri A.V.Dugade, Executive Director, demitted office on superannuation on March 31, 2008. Dr. Shashank Saksena was nominated to the Board with effect from August 20,2007 in place of Shri Madhusudan Prasad. Shri N. Sridaran, presently Vice President of All India Overseas Bank Employees Union, was appointed as Workmen Employee Director for a period of three years with effect from April 20, 2007 in place of Shri S. Srinivasan. The Board of Directors placed oh record the valuable contributions made by the erstwhile Directors and extended a warm welcome to the new Directors. Acknowledgements The Board of Directors acknowledge with gratitude the valuable guidance received from the Government of India, Reserve Bank of India, Securities and Exchange Board of India (SEBI), Stock Exchanges, various State Governments and Financial Institutions. The Board places on record its thankfulness to the Hong Kong Monetary Authority, Monetary Authority of Singapore, Financial Supervisory Services, Korea, Central Bank of Sri Lanka, China Banking Regulatory Commission, Bank Negara, Malaysia, Bank of Thailand and State Bank of Vietnam, for their support and guidance. The Board of Directors record the appreciation of the goodwill and support of the valued customers, shareholders, other stakeholders and correspondents of the Bank in India and abroad. The Directors are very happy that the industrial relations are very cordial and happy on account of positive attitude on the part of Employees Union and Officers Association. The Board of Directors also express their appreciation of the valuable contribution of the members of the staff in the achievements of the Bank during the year. For and on behalf of the Board of Directors Chennai S. A. BHAT April 28, 2008 Chairman and Managing Director