Indian Overseas Bank

The Board of Directors have great pleasure in presenting the Annual Report togetherwith audited Balance Sheet and Profit and Loss Account of the Bank for the year endedMarch 31, 2010.

During 2009-10, the Bank's performance is to be viewed in the backdrop of economic slowdown. The Bank has grown in a balanced manner and crossed the business level ofRs.1,90,000 crore mark. The Bank has focused its attention in consciously shedding highcost deposits, cautious credit expansion and NPA Recovery during the year.

Global Business Performance

The Bank's global deposits went up from Rs. 1,00,116 crore in 2008-09 to Rs.1,10,795crore in 2009-10 by 10.67%. Global gross advances expanded from Rs. 75,810 crore to Rs.80,782 crore at 6.56%. Total business reached Rs.1,91,577 crore (growth at 8.90 %).

Overseas Branches

During the year the Bank has opened Representative Office at Dubai and the Office hasbecome fully operational from February 2010. The Bank signed the joint venture with Bankof Baroda and Andhra Bank to open a Banking subsidiary in Malaysia. The subsidiary hasapplied for license from Bank Negara, the central bank of Malaysia.

As at the end of March 2010, the Bank had 13 establishments abroad, comprising 6full-fledged branches (two branches in Hongkong and one each at Singapore, South Korea,Sri Lanka and Bangkok) 4 Representative offices (Guangzhou-China, Kuala Lumpur-Malaysia,Ho Chi Minh City-Vietnam and AI karama-Dubai), 2 Remittance Centres (Boonlay andSerangoon, Singapore) and 1 Extension counter in Sri Lanka.

Financial Performance

Global operating profit of the Bank was at Rs.1,845 crore in 2009-10 as againstRs.2,524 crore mainly due to lower treasury gains in the subdued market condition andincreased liability for Pension, Gratuity and wage revision relating to employees of theBank in the backdrop of ongoing wage settlement negotiation process.

Provisions

The Bank has made a total provision of Rs.1,138 crore in keeping with the guidelinesissued by the RBI.

Net Profit / Dividend

Net profit of the Bank was at Rs.707 crore for 2009-10 as against Rs.1,326 crore in2008-09 due to lower operating profit and increased provision for ageing Non PerformingAssets as per RBI guidelines. Dividend for the year 2009-10 is proposed at 35% as against45% paid last year.

Income and Expenditure Analysis:

The total income increased to Rs. 11,389 crore in 2009-10 compared to Rs.11,237 crorein 2008-09, with a marginal growth of 1.35% on account of reduction in treasury income byRs.345 crore over last year and lower growth in credit due to global economic recession.The total interest income increased to Rs. 10,246 crore in 2009-10 from Rs.9,641 crore in2008-09 at 6.28%. Interest income on Advances increased to Rs. 7660 crore compared toRs.7,290 crore in the last year. Interest received on advances impacted by decline indomestic yield on advances to 10.44 % in 2009-10 from 11.13% in 2008-09 on account ofdownward revision in Bench Mark Prime Lending Rate by 50 basis points effective from July1, 2009.

The commission and exchange earnings stood at Rs. 578 crore against Rs.594 crore lastyear. Profit on exchange was at Rs. 127 crore as compared to Rs.157 crore due tovolatility in the currency market. The profit on sale of investments was lower at Rs. 292crore against Rs. 637 crore last year in the subdued market.

The increase in interest expenditure was significantly brought down to 4.52% in 2009-10from 28.04 % in 2008-09, due to conscious shedding of card-plus deposits and successiveinterest rate realignment on domestic term deposits during the year. Card- plus depositsas percentage to total domestic deposits significantly came down to 3.82 % at the end ofMarch 2010 compared to 14.10% in March 2009. As a result, the domestic cost of depositsdeclined by 51 basis points from 6.87% in 2008-09 to 6.36% in 2009-10.

Total operating expenses increased to Rs.2,466 crore compared to Rs.1,942 crore lastyear due to increased provision for pension, gratuity and wage revision which is undernegotiation at the industry level. The non-staff expenditure increased to Rs.731 crorefrom Rs. 670 crore mainly due to higher depreciation, rent and taxes during the year. NetInterest Income increased to Rs.3,168 crore in 2009-10 with a growth of 10.39%.Consequently Net Interest Margin was lower at 2.74% as against 2.84% in last year mainlydue to downward revision in Bench Mark Prime Lending rate in line with the market. Hencethe Bank's operating profit stood at Rs.1,845 crore for 2009-10 as against Rs.2,524 crorein 2008-09.

Capital Adequacy Ratio

The capital adequacy ratio of the Bank improved from 13.20% as at the end of March 2009to 14.78% as at the end of March 2010 as per the Basel II norms.

Branch Network

The Bank opened 65 new branches and upgraded 20 extension counters into full-fledgedbranches in the year ended March 2010. Total domestic branch network reached 2,002 as atthe end of the reporting year. As regards population group wise break-up, rural branchesnumbered 589 accounting for 29.4% of the total branches, semi-urban 520(26%), urban492(24.6%) and metropolitan 401(20%).

Customer Service

The Bank has adopted the Code of Commitment to Bank's Customers as drafted by BankingCodes and Standards Board of India (BCSBI). The Code has been revised during August 2009.As part of customer education 'Information to Customers' Booklet is made available at allbranches. Customer Fortnight was observed in select branches in May 2009 and in allbranches during November 2009.

During the year, incorporating certain provisions of USD Cheque Collection Policy, theCompensation Policy document related to customer service was amended.

The details of customer complaints received and redressed are given below.

During the year 2009-10, 1338 complaints were handled (including the complaints carriedover from the earlier year) of which 1280 complaints were resolved. The redressal rate was95.67%.

Number of awards passed by the Banking Ombudsman and implemented by the Bank are asfollows.

Customer Service Centre, Chennai City, for which the Bank is the Convener, had resolvedall the complaints during the year. Customers are provided with the facility of Toll FreeTele-services (No.1800425-4445) by engaging an outside agency for receiving complaints.These complaints are resolved within 48 hours. This facility is being upgraded for 24x7model.

Retail Banking and Marketing:

Income from fee-based products including Life and General Insurance Products andInsurance Linked Products, grew by 53.69% over the previous year. Life Insurance LinkedProducts, IOB Jeevan, IOB Healthcare Plus, Vidya Jyothi with Suraksha performed well withwider coverage and improved income.

Distribution of life policies, as a Corporate Agent of Life Insurance Corporation ofIndia, witnessed growth both in premium as well as commission. So also were the non-lifeinsurance products of Universal Sompo General Insurance.

The income from marketing of life policies, life insurance linked policies, non-lifepolicies including health care was Rs.14.28 crore. Income from sale of retail gold coinsclocked Rs.8.64 crore. Retail Loans grew at 15.5% over the previous year with majorcontribution from Housing Loans.

The following campaigns were conducted during the year 2009-10.

1. CASA campaign

2. Retail Sale of Gold Coins.

3. Marketing of Healthcare Plus Policies.

4. Campaign for Asset Insurance Cover.

5. Marketing of Debit Cards.

6. Special Tax Saver Campaign

There was all round improvement in volume and increase in income in the retail-bankingsegment.

Official Language Policy:

During the year 2009-10, the Bank has taken all efforts to implement the OfficialLanguage Policy of Government of India. During the year, 248 Staff members, who did notpossess working knowledge of Hindi, were trained in IOB Praveen and Banking PragyaCourses. 2,809 Staff members, possessing working knowledge of Hindi, were trained inGeneral Hindi Workshops held during the year. Rajbhasha Sangoshti was held on September12, 2009 for heads of Central Office departments to strengthen the Official LanguageImplementation in Central Office.

Minutes of meetings of all board level committees were translated in Hindi. As per thedirectives of Govt. of India, the Bank has enabled Hindi Unicode font in all RegionalOffices and has provided the facility of Hindi font Shusha on IOB ONLINE for downloadingpurpose in branches. Bank has also provided the Banking terminology on IOB ONLINE for thebenefit of staff members. Bank has given necessary training to 2,445 staff members for theuse of Hindi in computers. Bank has published all the four issues of quarterly HindiMagazine 'VANI' in print as well as in digital form. Bank's website has been madeavailable in Hindi also.

Bank won the First Prize under Indira Gandhi Rajbhasha Shield for the year 2008-09 forcommendable work in the area of Official Language Implementation. Shri S A Bhat, Chairman& Managing Director of the Bank, received this Award from Her Excellency President ofIndia Smt. Pratibha Devi Singh Patil on September 14, 2009.

Reserve Bank of India awarded Second Prize to the Bank for Hindi house magazine 'VANI'for the year 2008-09 in the Inter-Bank & Financial Institutions Hindi in-houseMagazine Competition.

Regional Offices were inspected on Official Language implementation by OfficialLanguage Department, Central Office and Rajbhasha Shields were awarded to Regional Officesand branches doing good work in official language implementation.

The drafting and evidence Sub -Committee of Parliamentary Committee on OfficialLanguage had discussions with the Chairmen and heads of Banks of Town Official LanguageCommittees at Raipur. The Bank was also invited for discussion and the committee expressedsatisfaction over the performance of the Bank at this centre.

As convener of Chennai Town Official Language Implementation Committee, the Bank hasreceived the Second Prize for its efforts in implementation of Official Language Policyduring the year 2008-09 from Official Language Department, Ministry of Home Affairs,Government of India. The Prize was given by Shri Ajay Makan, Minister of State for HomeAffairs, New Delhi on October 9, 2009. On behalf of the committee, the Bank conducted twoGeneral Hindi Workshops, 12 Inter-Bank Hindi competitions, Joint Hindi Month Celebrationfunction and Hindi Unicode training programme for the staff members of member banks /Financial Institutions. A special Seminar in Hindi on Customer Service for Managers ofScale IV was held on January 8, 2010. In addition to this two half yearly meetings werealso conducted.

Regional Rural Banks

The Regional Rural Banks (RRBs) sponsored by the Bank, viz Pandyan Grama Bank andNeelachal Gramya Bank performed well during the year. Both the RRBs recorded net profitduring the year.

Corporate Governance

The Bank prides itself on its diligence in ensuring compliance with norms laid down byregulatory authorities. The Bank lays emphasis on the need for ensuring that structuresand processes are put in place to help in fulfilling its governance responsibilities. TheBoard recognizes its role in promoting good governance and in creating a framework of bestpractices, processes and ethics to observe and foster high ethical standards.

The Bank has laid down a well-defined Code of Conduct, which address issues ofintegrity, conflict of interest and confidentiality and stress the need for ethicalconduct, which is the basis of good governance. This Code of Conduct is applicable to allthe members of the Board and Senior Management (i.e. General Managers) of the Bank.

High standards of reporting and disclosure are essential for proper accountabilitybetween an entity and its investors/stakeholders. Thus, the Bank facilitates and adoptsgood Corporate Governance by its commitment to ensuring timeliness and integrity ofdisclosures and financial reporting so as to keep investors and stakeholders adequatelyinformed to ensure transparency and efficiency.

Pursuant to Clause 49 of the Listing Agreement, Management Discussion & AnalysisReport, Report on Corporate Governance as well as Certificate by the auditors regardingcompliance of the conditions of Corporate Governance, form part of this Annual Report.

Board of Directors

Shri G. Narayanan, Executive Director, demitted office on October 31, 2009. Smt. NupurMitra assumed charge as one more Executive Director on December 7, 2009 . Shri M. RavindraVikram, Director under section 9 (3) (g) of the Banking Companies (Acquisition andTransfer of Undertakings) Act 1970 - Chartered Accountant Category, demitted office asdirector on October 10, 2009 on completion of his tenure of three years.

The Government of India nominated Shri Sooraj Khatri as a part-time non-officialDirector for a second term of three years with effect from October 26, 2009.

Shri J. D. Sharma, presently President of the Indian Overseas Bank Officers'Association (IOBOA) demitted office as Officer Employee Director on November 30, 2009. TheGovernment of India nominated Shri K. Ananda Kumar, presently General Secretary of IOBOA,as Officer Employee Director for a period of three years with effect from March 26, 2010.

The Board of Directors place on record the valuable contributions made by the erstwhileDirectors and extend a warm welcome to the new Directors.

Acknowledgements

The Board of Directors place on record their gratitude to the valued customers,shareholders, other stakeholders and correspondents of the Bank in India and abroad, fortheir goodwill, patronage and support.

The Board of Directors acknowledge with gratitude the valuable guidance and cooperationreceived from the Government of India, Reserve Bank of India, Securities and ExchangeBoard of India, Stock Exchanges, various State Governments and Financial Institutions. TheBoard is also thankful to the Hong Kong Monetary Authority, Monetary Authority ofSingapore, Financial Supervisory Services - Korea, Central Bank of Sri Lanka, ChinaBanking Regulatory Commission, Bank Negara - Malaysia, Bank of Thailand, State Bank ofVietnam and Central Bank of UAE for their support.

Industrial relations in the Bank have been cordial due to the positive attitude of theEmployees' Union and Officers' Association. The Board of Directors expresses theirappreciation of the contribution made by the members of the staff.

For and on behalf of the Board of Directors