Allahabad Bank

ECONOMIC SCENE

Indian economy is now world s second fastest growing economy and has managed to passthrough the global crisis mainly due to the twin reasons viz. it was not at the centre ofthe crisis and its growth was well-balanced reliant mostly on domestic drivers. Among therecent trends, worth mentioning are: acceleration in GDP growth, turnaround in exports,strong recovery in industrial production, revival of stock market activities, revival incapital inflows and indications of positive corporate sales leading to signs of improvedprofitability and credit growth etc. All these put together have strengthened India s feetto leap forward.

As per RBI s Annual Monetary and Credit policy, announced on 20th April, 2010, Indianeconomy is expected to grow by 8.00% in 2010-11, having grown by 7.2% to 7.5% in 2009-10.Industrial growth has posted a growth of 15.1% in February 10 riding on the commendableperformance of Y-O-Y capital goods (44.4%) and consumer durables (29.9%) growth.Manufacturing, mining and electricity sectors recorded growth of 16.0%, 12.2% and 6.7%respectively in February 2010.

For the April-February 2009-10 period, the growth rate for the six industries was 5.3%,which was better than the 2.9% year-on-year increase during the corresponding 11 months of2008-09.

Production of electricity rose by 7.3% in February (against 0.6% in the same month of2009), while increasing by 6.8% (6%) for coal, 5.8% (8.3%) for cement, 4% (minus 6.2%) forcrude petroleum, 0.8% (0.5%) for refined petro-products and 0.9% (2.4%) for finishedsteel.

During April-February this fiscal, the country generated 701,073.7 million units ofelectricity, a 6.4% jump over the 658,736.3 million units in the first 11 months of2008-09.

The growth was mostly driven by a sharp rise in consumer durables production. Privateconsumption is anticipated to rise steadily in 2009 -10 to 2011-12 period as per experts.

Agricultural sector in India is expected to grow by 5.9% in 2010-11 as compared to amere 1.4% growth in 2009-10.

Indian Exports reached $14.36 billion in January 2010, compared to $12.86 billion inJanuary 2009 on a month-on-month basis, which is up by 11.5 %. This trend is most likelyto continue and in 2010, Indian exports are likely to close roughly about $165 billion.Considering the situation across the world Indian exporters are strategically finding newavenues.

The recovery process of global economic meltdown has started and after a year of beingdownbeat, prospects for the global economy is revised upwards from contracting by 1.1% in2009 to growing by 3.1% in 2010. However, world economy is expected to return to itspre-crisis level, with an anticipated average annual growth of little more than 4% after2010.

In this growth process, India, being one of the emerging and developing countries ofthe world, second only to China, is most likely to play the pivotal role. IMF has alreadyrevised up China s growth forecast for 2009-2010 to 9% from a July estimate of 8.5% andIndia s growth to touch 8% in 2009-2010. But the alarming feature for Indian economy, atpresent is rising inflation.

Hike in the food inflation to 17.7% for the week ended March 27, 2010 and the overallinflation to 9.89% and inflation in manufacturing to 7.4% in February, 2010 implies thatinflation is fast becoming a demand-driven problem. The primary articles inflation inIndia has started spilling over to manufacturing inflation and thus overall inflation isgoing up. So, it is apprehended that inflation may touch 10-11% in first quarter of FY-11,much beyond the RBI s comfort factor of 8.5%. This may affect the market adversely.

Hence, at this juncture, the challenge before Indian economy is to adopt such policymeasures which would strike a balance between controlling rising inflation and maintaininggrowth and stability. Keeping this in view, the Reserve Bank of India has hiked the repo,reverse repo to 5.25% and 3.75% respectively, while the CRR to 6% -raising the rates by 25basis points in the recent Annual Monetary and Credit policy for 2010-11.The hike in CRR,which came into effect from April 24, 2010 is expected to absorb Rs 12,500-crore excesscash from the banking system and help lowering the rate of inflation. In emerging markets,raising interest rates could happen sooner than in advanced economies but still anyimmediate hike in interest rates is being ruled out by the experts.

BANKING SCENE

In the Banking sector, with the industrial production growth likely to stay, increasedcapacity utilization may attract higher investment by the corporate sector which is mostlikely to support public sector banks credit growth. But, banks should be cautious nowbecause any hike in policy rates could affect credit offtake, which is still low. The RBIis most likely to allow banks to keep their BPLR at low levels. But as domestic inflationand the global trend in commodity prices, both are upward rising, net capital inflowspicking up and input costs rising, it is likely that RBI may start hiking interest ratesby the year-end because by then there would be more pressure on interest rates.

In order to address the impending challenges of inflation and maintaining growth withstability, the Annual Monetary and Credit policy for 2010-11 has focused on:

a) Shifting its policy priority to inflation from growth, at the moment and do awaywith the capacity constraints which are likely to put additional pressure on prices.

b) taking cautious measures as regards raising interest rates keeping in viewmacroeconomic and price stability.

c) As demand side pressures have clearly emerged in the economy, RBI s medium-termobjective is to contain the inflation at 3% and the policy will be tuned in a calibratedmanner to support the recovery process.

On a year-on-year basis, bank credit grew by 16.7% or Rs 4,64, 849 crore, in thefortnight ending March 26, 2010, which is exceeding RBI s projected non-food credit growthtarget of 16% for FY2010. While advances by public sector banks grew at 19.5%, privatesector banks grew credit by only 11.7% and the loan portfolio of foreign banks contractedby 1.5%. Non-food bank credit grew by Rs 4,73,819 crore to Rs 32,49,369 crore. For thewhole banking system, credit grew by around 17% in 2009-10 as compared to the 17.5% growthin 2008-09 according to the report on macroeconomic and monetary developments for 2009-10released by the RBI on 19th April, 2010. There was an improvement in credit growth tomajor sectors such as agriculture, industry, services and personal loans. However, afterRBI has increased the risk weights on loans to the real estate sector in October, 2009,credit to the real estate has decelerated sharply.

Deposits also surged by Rs 83,630.57 crore to Rs 44,86,573.66 crore. Investments bybanks in government securities and other approved securities dipped marginally by Rs4,253.29 crore to Rs 13,82,683.58 crore in the fortnight ending March 26,2010.

Bank credit is expected to grow at over 20% in FY11. Deposit growth is also expected ataround 20-22%.

Maintaining assets and liabilities are an important challenge ahead of the Banks. RBI,in its bid to tame rising inflation, has hiked the CRR by 75 basis points from 5.0% to5.75%, in two phases in the second quarter review of the Monetary Policy and hiked CRR by25 bps in the annual monetary and credit policy. The former increase in CRR has sucked outRs. 36,000 crore of excess liquidity from the system and the second hike in CRR, which hascome into effect from April 24, 2010 is expected to absorb Rs 12,500-crore excess cashfrom the system. Even after the CRR hike, liquidity in the system would be more thanadequate to facilitate government borrowing as well as add to loan growth. As per theUnion Budget 2010-11, an additional sum of Rs.16,500 crore will be infused to the PSBs forthe year 2010-11. This will ensure the business growth of banks as well as availability ofgrowth capital for the economy.

OPERATING RESULTS

Bank's performance in key business parameters is presented below.

CAPITAL AND RESERVES

The paid-up capital of the Bank remained at Rs.446.70 crores as on 31.3.2010. Thereserves & surplus went up to Rs.6306.25 crores as at end of this year from Rs.5405.25crores as on 31.03.2009.

Operating Profit

The Operating Profit of the Bank grew by 34.05% to Rs.2548.55 crores during 2009-10from Rs.1901.15 crores during the preceding year. During 2008-09, the growth in operatingprofit was to the tune of 28.50%.

Net Profit

The net profit of the Bank grew by 56.95% to Rs.1206.33 crores during 2009-10 fromRs.768.60 crores during the preceding year. Higher profitability of the Bank may beattributed to increased volume of interest income from advances, enhanced fee-basedincome, reduction in cost of fund due to larger share of low cost deposits and refrainingfrom bulk deposits and better recovery in written off accounts.

Dividend

The Board of Directors of the Bank has recommended a dividend @ 55% i.e. Rs.5.50 perequity share of Rs.10 each.

Voluntary Delisting of Equity Share from The Calcutta Stock Exchange Limited (CSE)

In terms of approval granted by shareholders in the last Annual General Meeting, theequity share of the Bank got delisted from the CSE with effect from 09.03.2010.

FINANCIALS

Important ratios of the Bank are depicted below;

OFFICES & BRANCHES

The Bank opened 27 new branches during 2009-10, taking total branches to 2287 as on31.3.2010, with 976 rural, 411 semi-urban, 472 urban, 427 metropolitan branches and 1foreign branch. The specialized branches, numbering 76, including 7 Industrial FinanceBranches, 5 International Branches, 1 Industrial Finance-cum-International Branch, 1 NRIBranch, 2 Specialized Personal Banking Branches, 18 SME Finance Branches, 7 RecoveryBranches, 1 CMS Hub, 1 Specialized Savings Bank Branch, 2 Trading Finance Branches, 1Specialized Commercial Agricultural Finance Branch, 4 Agriculture Finance Branches, 2Agriculture

Development Branch, 3 Regional Processing Centres, 1 Forex-cum-Treasury ManagementBranch and 20 Service Branches. Extension Counters numbered 66 as on 31.3.2010. The Bankconstituted two more zonal offices- Berhampore & Bhagalpur for effective management.Moreover, one of the zonal offices was shifted from Jhansi to Agra.

DEPOSIT MOBILISATION

Total deposits of the Bank showed a significant growth of 24.81% to Rs.106056 crores ason 31.3.2010. Low cost deposits grew by 24.45 % to Rs.36587 crores as on 31.3.2010,constituting 34.82 % of aggregate deposits as compared to 35.08% a year ago. Cost ofdeposits decreased to 5.97 % from 6.62% during the period.

In line with the directions from Ministry of Finance, the Bank emphasized on low costdeposits mobilization and observed saving deposits & current deposits mobilizationcampaign during the year. During the SB mobilisation campaign (from 17.08.09-31.12.09),over 10 million new saving accounts were opened and saving deposit mobilized to the tuneof Rs.424.86 crores. During the Current Deposit Mobilisation campaign (from01.01.10-31.03.10), Current deposits of Rs.322.49 crores were mobilized in 20,393accounts.

CREDIT DEPLOYMENT

Total advances of the Bank went up by 21.86% to Rs.72,437 crores as on 31.3.2010.Credit-deposit ratio (gross) stood at 68.93% as against 70.93% last year. The Bankincrease its market shares in the system to 2.15% from 2.00% during the period. TheBenchmark Prime Lending Rate (BPLR) of the Bank was at 12.00%. Yield on advances stood at10.57 % during 2009-10 as against 10.88% during 2008-09 in line with the general marketscenario.

NON-PERFORMING ASSETS (NPAs) MANAGEMENT

The Bank continued its emphatic thrust on recovery of non-performing assets. The thrustareas included, among others;

• Arrest of Fresh addition of NPAs by ensuring close monitoring and othercontrol measures,

• Reduction in NPA through invocation of SARFAESI Act and application of otherlegal measures for logical conclusion,

• Increase in income from derecognised interest through recovery in written-offdebt accounts,

• Strengthening credit risk management,

• Thrust on upgradation of fresh NPAs A/cs and accounts under restructuring/CDR,

• Settlement scheme for different segment of borrowers like; small & marginalfarmers, Govt. sponsored loans, agricultural credit etc,

• Recovery of small & cluster loans (including written off debts throughsettlement camps/recovery camps and Lokadalats),

Gross Non-performing assets of the Bank increased to Rs.1221.80 crores as on 31.3.2010from Rs.1078.25 crores as on 31.3.2009 while net non-performing assets increased toRs.470.15 crores from Rs.422.11 crores during the period. The gross NPAs as percentage togross advances declined to 1.69% from 1.81%. The ratio of net NPAs to net advances reducedto 0.66% from 0.72%. The provision coverage ratio of the Bank stood at 78.95% as comparedto 76.45% while the slippage ratio increased to 1.98% from 1.72% during the period.

Asset Recovery Management Branches:

The Bank has reconstituted the erstwhile Recovery Branches as Asset Recovery ManagementBranches (ARMBs) in terms of policy approved. According to the newly laid down policy,three of the existing Recovery Branch Kolkata, Mumbai & New Delhi have startedfunctioning. The fourth one is opened recently at Lucknow. The ARMBs at Chennai,Allahabad, & Patna are to be opened recently. These ARMBs are to deal with in all NPAcases of Rs 10.00 lacs & above including nonsuit filed accounts.

SOCIAL BANKING:

Bank's performance under Priority Sectors and Weaker Sections is presented below:

• Priority Sector Credit grew from Rs.20435 Crore as on 31.03.2009 to Rs.24279Crore as on 31.03.2010, registering an absolute YOY growth of Rs.3844 Crore (18.81 %).Bank has exceeded the National Goal (40.00%) of PSC to ANBC by achieving 41.29% as on Mar10.

• Agriculture Credit outstanding increased from Rs.9568 Crore as on March 2009 toRs.11567 Crore as on March 2010, registering an absolute YOY growth of Rs.1999 Crore(20.90%). Bank has exceeded the National Goal (18.00%) of Agriculture to ANBC by achieving18.68% as on Mar 10.

• Fresh Credit Disbursal in Agriculture Loans reached Rs.3615 Crore during thecurrent year 2009-2010.

• Kisan Credit Cards ( KCC ) :

The Bank issued 2.23 lacs Kisan Credit Cards involving a credit amount of Rs. 1335.97crores during 2009-10. The cumulative KCC numbered 9.12.lacs with a credit line ofRs4847.62crores as on 31.03.2010.

• Kisan Shakti Yojana ( KSY) :

The Bank extended credit facility to farmers under KSY to 1143 Kisan Credit Cardholders involving a credit limit of Rs. 26.29 Crores during 2009-10. Cumulative number ofKisan Credit card holders financed under KSY scheme was 147935 involving Rs. 1962.38Crores as on 31.03.2010.

Table 1: Priority Sector Credit

Table 2: Ratios (in percentage)

• MSME Sector Financing:

Credit to Micro and Small Enterprises (MSE) grew from Rs. 4593 Crore as on March 2009to Rs.8188 Crore as on March 2010, registering an absolute YOY growth of Rs.3595 Crore(78.27%). Share of Micro Enterprises to total Micro & Small Enterprises has exceededthe National Goal (60%) by achieving 62.25% as on Mar 10. Credit to Micro, Small &Medium Enterprises (MSME) increased to Rs.9770.71crores as on 31.03.2010, showing a growthof 77.39% during 2009-10.

• New Products / Schemes launched:

The Bank launched two new schemes under Priority Sector Credit to promote agro-basedindustries and support trading of farm produce.

(a) Scheme for Financing to Rice Shelling Units to meet the credit requirement of RiceShelling Entrepreneurs.

(b) Allbank Liquid Scheme for Artiyas (Commission Agents) to meet the creditrequirement of Artiyas for on lending to Farmers.

• State Level Bankers Committee (SLBC)

The Bank as SLBC convenor, continued to thrust in coordinating banking efforts foreconomic upliftment of State of Jharkhand. The Bank has been playing a lead role inorganizing banks operating in the state to plan and open Bank branches in unbanked andunderbanked areas on priority basis. Bank took necessary steps for implementation ofspecial package for Drought Relief announced by the Government of Jharkhand. Under thedirections of Government of India/Reserve Bank of India, our Bank, as SLBC convenor, inassociation with other banks operating in the state, drew roadmap for providing bankingfacilities to all villages having population over 2000. The Bank conducted meetings ofSLBC timely and the SLBC in the state has proved to be a strong forum to discuss andreview banking initiatives for the development of the state.

• Lead Bank Scheme:

Under Lead Bank responsibilities in 17 districts, 13 in Uttar Pradesh, 2 in Jharkhandand one each in Madhya Pradesh and West Bengal, the Bank disbursed Rs.1511.58 crores underDistrict Credit Plan 2009-10 achieving 98.24% of the target.

• Regional Rural Banks:

Government of India adopted One State One RRB for each sponsor Bank. In pursuance tothe above policy our two Sponsored RRBs in Uttar Pradesh were amalgamated into one largesize and strong RRB, Allahabad UP Gramin Bank, having 480 branches spread over 11districts in Uttar Pradesh.

Thus the number of Regional Rural Banks sponsored by our Bank now remain two, one inUttar Pradesh and another in Madhya Pradesh. These two RRBs continued to improve theirperformance with an aggregate profit of Rs.77.9 Crores during 2009-10 as against Rs. 47.66Crores during 2008-09.

The Bank-sponsored RRBs disbursed Rs.1308.67 crores during 2009-10 under the AnnualCredit Plan as against Rs.1033.02 Crores in 2008-09 achieving 101.44%.

• Agriculture Debt Waiver & Debt Relief Scheme, 2008(ADWDR)

A scheme in the name of Agriculture Debt Waiver & Debt Relief Scheme 2008 waslaunched by the Government of India on 23.05.2008. The scheme provided waiver ofagriculture loans of small and marginal farmers having land holding upto 5 acres foroverdue loan amount as on 31.12.2007 and remaining unpaid upto 29.02.2008. The scheme alsoprovided relief for farmers having land more than 5 acres upto an extent of 25% of overdueloan amount as on 31.12.2007 and remaining unpaid upto 29.02.2008 on the condition thateligible farmers pay 75% of the overdue amount by 30.06.2010.

The audited claim of the Bank for debt waiver is Rs.1041.80Crores, of which Rs.673.90Crores has so far been reimbursed by the Reserve Bank of India. The claim of debt reliefwill be submitted after June 2010.

• Providing Short Term Production Credit to Farmers

upto Rs.3lacs. at 7% p.a. interest.

Government of India is providing interest subvention of 2% to Public Sector Banks inrespect of short term production credit upto Rs.3lacs provided to farmers on the conditionthat such short term credit is provided at 7% p.a. at ground level. In addition Govt. isproviding additional interest subvention of those prompt paying farmers who pay theirshort term production credit within one year of disbursement of such loans. The Bank isimplementing the scheme. During 2009-10 Bank has claimed and availed of interestsubvention of Rs.22.36 Crores.

Corporate Social Responsibility

The Bank, as a responsible corporate citizen, has initiated the following measurestowards sustainable development of the society reflecting its concern for human rights andenvironment.

• Financial Inclusion:

Bank has achieved 100% Financial Inclusion in Nine Lead Districts of the Bank in theState of Uttar Pradesh and Jharkhand. The Bank has taken steps for achieving greaterfinancial inclusion through implementation of ICT Enabled Financial Inclusion by adoptingBiometric Smart Card solution through Business Correspondents. As per directions ofReserve Bank of India, our Bank has submitted Financial Inclusion Plan for providingBanking facilities to all Villages having a population over 2000. The Bank has decided tobring 1000 unbanked villages in the fold of banking services during 2009-10.

• Financial Literacy and Credit Counselling Centres

In order to provide financial education on one hand and to offer credit counselling onthe other to people having limited resources and skills to appreciate the complexities offinancial dealings, the Bank has opened Financial Literacy and Credit Counselling Centreschristened Samadhan at Kolkata and Banda (UP).

The Centres act independently on its own under the auspices of Allahabad Bank RuralDevelopment Trust.

The Centers are nonprofit organizations established with a view to rendering assistancein the form of advice to all those who are in need of advice on financial management eventhough they do not have any financial dealings with Allahabad Bank. The services offeredby the counsellors are on one to one basis.

• Training Facilities to Farmers / Unemployed Youths:

The Bank has established two more Rural Self Employment Training Institutes (RSETI)this year for imparting training to Farmers, unemployed youths, NGOs, SHGs etc. forimprovement of skills and entrepreneurship ability. Thus the Bank has at present sixRSETIs in the following centres :

1. Rae Bareilly, U.P.

2. Hazaribagh, Jharkhand

3. Bolpur, W.B.

4. Debra, W.B.

5. Dumka, Jharkhand

6. Banda(U. P.)

The target groups for training interventions are:

Small/Marginal/Tenant Farmers/Landless Labourers

Medium & Large Farmers

First Generation Entrepreneurs

Established Entrepreneurs

Up to 31.03.2010, 636 programmes were conducted and extended trainings to 17077 farmers/ unemployed youths , out of which 7376 trainees were credit linked involving an amount ofRs.49.29 Crores.

• Welfare of Wild Animal

As a part of its CSR activities, the Bank has initiated adoption of wild animals at VanVihar Bhopal showing its love for wild animals. The Bank has adopted following animals forone year commencing from 1st April, 2010.

1. Tigress BASANI

2. Leopard AGNI

3. Sloth Bear KAMAL

Retail Credit

The Bank has emphasized to augment the loans under various retail loan schemes to caterto the personal, consumer & business needs of all sections of the society. The Bankhas 126 Retail Banking Botiques (RRBs) all over the country. Again the Bank has opened 27Central Retail Banking Botiques (CRBBs) to further the easy processing & disbursementof the of Retail loans with strong operational guidelines & efficient manpower.

Disbursement during the year 2009-10 was Rs. 3148.97 Crore as against Rs.1795.60 Croreduring the last financial year registering a growth of 75.37%. Total outstanding as onMar-2010 stood at Rs. 10082.14 Crore as against Rs. 8400.59 Crore as on Mar 2009. Thisshows an increase of 20.02% during the year. The share of Retail credit having outstandingof Rs10082.14 Crore is 13.92% to Gross credit which is 72437 Crore.

Distribution of Retail Loans are as follows:

Fee Based Income

The Bank has put a thrust towards promotion of third party products and other fee basedactivities. The income from TPP business grew by 39.88% to reach at Rs.17.57 crores during2009-10 from Rs.12.56 crores last year.

Under Life Insurance and General Insurance segment of TPP business, Bank is havingrespective tie up with LICI and Universal Sompo General Insurance Company Ltd. (USGICL).Under Mutual Fund business, the Bank is having Tie up arrangements with country s fiveleading Asset Management Companies viz. UTI, Principal PNB, Kotak Mahindra, FranklinTempleton & Reliance Mutual Fund for Providing wide range of products to its customerswho intend to park their surplus fund in MFs. Under Cash Management Services (CMS), newavenues have emerged post migration to CBS and introduction of new Application Software(cash@will), the Bank has plans to fully exploit the situation with varied new CMSproducts. In order to augment income under CMS, Bank is focusing on Payment Products likeDDF Drawing Dividend/ Interest Warrant and Direct Debit/ Direct Credit (Instrument andmandate based). Currently Bank is having six DPs and is in the process of expanding it atfew more strategic locations. The Bank has launched retail selling of Gold Coins underAllBank Gold and sold as many as 36760 Gold Coins weighing 274.36 Kgs & booked anincome of Rs.3.02 crore during 2009-10.

INVESTMENTS

Gross investments of the Bank were at Rs.38680 crores as on 31.3.2010 as againstRs.30081 crores as on 31.3.2009. The yield on investments declined to 6.83% during 2009-10from 7.57% during 2008-09, in line with the market trend.

RISK MANAGEMENT

The Bank has implemented BASEL II norms and the calculation of Capital Adequacy Ratio(CRAR) for the year 2009-10 has been done as per the RBI prescription in this regard. Inline with the RBI direction, the Bank has adopted Standardised Approach methodology forcalculation of Risk weight under Credit Risk, Basic Indicator Approach for Operationalrisk and Standardised Approach-duration based approach for market risk. In line with thebest practice in Industry, the Bank has set up a Comprehensive Risk Management Frameworkto effectively identify, measure and manage risk elements of Credit, Market andOperational Risks in an integrated and comprehensive manner. The Bank has evolved suitableRisk Management architecture comprising a Board Level Risk Management Committee. Further,towards preparedness for advance approach under BASEL II, the Bank is in theimplementation process of a technology-based MIS system covering all the branches andoffices.

Disclosures under BASEL - II norms is provided in a separate Annexure (Pg. No.54-81).

CUSTOMER SERVICE

The Bank's Customer Service Committee of the Board is pivoted on the improvement incustomer service. The suggestions of the Committee on Procedures and Performance Audit onPublic Services (CPPAPS), constituted by Reserve

Bank of India, are accorded top priority for implementation in the Bank. CustomerService Audit, conducted at the branch level, receives immediate attention forrectification of irregularities, if any. The improvement in customer service is appraisedto the Customer Service Committee of the Board of Directors on quarterly basis. Besides,the Standing Committee on Customer Service has been reconstituted with the induction ofthree personalities of public eminence as non-executive members. The meeting of thecommittee are held on quarterly basis.The Bank lays emphasis on improving customer servicepar excellence to strive and achieve an ideal situation of complaint free environment.However, whenever the complaints are received, remedial measures are immediately taken toredress them. The complaints are categorized on the basis on the nature and gravity of thecomplaint by way of ABC analysis and it is ensured to redress these within the timeframeprescribed for the category. Besides, steps are taken as per suggestions of the StandingCommittee on Customer Service towards grievance redressal and improvement of customerservice.

Know Your Customer & Anti Money Laundering Measures

Bank has adopted the comprehensive policy guidelines on Know Your Customer/ Anti MoneyLaundering Norms in consonance with the Reserve Bank of India directives.The guidelinesfor submission of mandatory returns viz. Cash Transaction Reports (CTRs), SuspiciousTransaction Reports (STRs) and Counterfeit Currency Reports as per the provisions of thePMLA, 2002 have been issued time-to-time and all branches/offices have been sensitized onsubmission of these return within the prescribed time limit. Bank continues to submit themonthly CTRs to Financial Intelligence Unit-India, Govt. of India. Adequate precautionsare taken by the Bank while opening of accounts to protect the Bank from the risk of doingbusiness with any individual or entity whose identity cannot be determined or refused toprovide information, or who have provided information that contains significantinconsistencies which cannot be resolved after due investigation.

Branch Computerisation

The Bank has achieved 100% computerisation as on 31.03.2010 by computerising all its2287 branches (including Foreign Branch), 66 Extension counters and various Zonal/ FieldOffices. The Bank has also computerised all its Currency Chests (41).

Centralized Banking Solution (CBS)

The Bank has been implementing CBS at a very rapid pace.

• 969 branches/offices CBS covering 81.68% of Bank s business.

• The CBS Project Office has been established at Vashi, Navi Mumbai for monitoringthe project.

• Data centre has been set up at DAKC, Navi Mumbai.

• Disaster Recovery Site (DRS) has been built at Lucknow.

• Help Desk has been set up at CBS Project Office for assisting the CBS branchesand trouble shooting for daily operations.

Internet Banking

Internet Banking, Mobile Banking, SMS Banking and e-Payment facilities for customers ofCBS branches are fully operational. The customers of CBS branches can avail the facilityof Internet Banking and e-payment facility through Bank's Internet Banking websitehttps://www.allahabadbank.in. Online fund transfer through RTGS/NEFT provided to ourInternet Banking Customers.

Automated Teller Machines (ATMs)

Instant debit card facility to the customers has started during the year. The Bank hasinstalled 211 ATMs and added 892 branches on its network. In order to broaden the customerbase and facilitate wider service coverage, Bank has joined National FinancialSwitch(NFS), a project by M/S IDRBT Hyderabad, an institute set up by RBI, for sharing ATMnetwork across 28 member Banks. Our Bank customers can access all VISA & NFS ATMacross the country for all sorts of transaction without any charges from 01.12.2008.

The Bank is also having principal membership of VISA for issue of ATM-cum-Debit cardand has issued more than 6.46 lacs ATM-cum-Debit cards including 81 thousand Instant ATMcards to customers.

Electronic Payment/Settlement System

896 branches of the Bank are participating in RBI sponsored RTGS transactions. SFMSapplication required for doing the RTGS inter branch transactions has been implemented in896 branches. The Disaster Recovery Site for RTGS has been set up at DIT, Head Office,Kolkata. Server for NDS/PDO is also operational. NEFT has been made live in 897 branches.

Electronic Accounting in Excise and Service Tax (EASIEST) for Indirect Taxes

The Bank has made all of its 183 authorised branches enabled for participating inElectronic Accounting in Excise and Service Tax(EASIEST). e-Payment facility for IndirectTaxes (CBEC-EASIEST) has been launched for Tax payers.

Online Tax Accounting System(OLTAS) for Direct Taxes

The Bank has made all its 167 designated branches enabled for participating in OLTASsystem. e-Payment facility for Direct Taxes(CBDT-OLTAS) has been launched for Tax payers.

Networking

• 39 NAPs (Network Aggregation Points) for CBS has been set up across the country.

• Corporate mail messaging system LOTUS DOMINO is in the process ofimplementation.

• 271 VSATs (both offsite & onsite) has been set up for ATM connectivity.

• Bank has launched its Tri-lingual website (www.allahabadbank.in) with theintroduction of Vernacular language Bengali along with Hindi & English.

• The Internet Server has been shifted from USA to India and was set up at Pune.

Video Conferencing

Video Conferencing System has been installed at the following 21 locations facilitatingExecutives in holding meetings, group discussions, conducting training programmes etc. forofficers/ employees of the Bank.

12 CHEQUE TRUNCATION

• The Bank has already initiated the process of implementation of Chequetruncation system under National Capital Region (NCR) of Delhi as per RBI requirement. M/sNCR Crop. India Pvt. Ltd. Mumbai was selected as vendor.

• Branches are participating in live operation of RBI CTS system from serviceBranch New Delhi since 27.06.2008.

CTS Report

Achievements in the Field of Research & Technology

The Bank has set up Institute for Research & Technology at Panchkula, Haryana toimpart high quality technical education to its employees and to conduct research anddevelopment in banking technology. The bank has formed a team of IT specialists forimplementation, maintenance and supporting branches for development and bug fixing of HKIBanksoft Software.

INTERNATIONAL BANKING

The Bank carries out its International business through its 53 authorised / designatedbranches, which includes 6 International branches and 1 International cum IndustrialFinance branch. Export Credit of the Bank as on 31.03.2010 stood at Rs. 2345.61 crores.The Bank is taking steps to increase the credit flow to exporters. Exporters meets arearranged at various centres to explain various facilities available to them. The bankmaintains correspondent relationship with prime banks abroad and Standard Settlementinstructions in various currencies with 15 foreign banks. The Bank is also catering to theneed of Non-Resident Indians through its branches. The Bank is having one NRI branch atJalandhar.

Overseas presence

Bank is having one overseas branch at Hong Kong which has earned net profit in thecurrent financial year. The branch is earning operational profit during last two years.Branch is having a Representative Office at Shenzhen, China which is eligible forupgradation into a full fledged branch.

INSPECTION AND AUDIT

Bank has a comprehensive Inspection & Audit Policy for undertaking InternalInspection, Concurrent Audit, Revenue Audit, EDP/IS Audit, Risk Based InternalAudit(RBIA), Management Audit, Human Resource (HR) Audit and System Audit. EDP/IS Audit,RBIA, HR Audit & System Audit are carried out concurrently with regular inspection ofBranches.

Branches including Large, Very Large, Exceptionally Large, Forex-cum-Treasury Branchand Dealing Rooms etc. are subjected to Concurrent Audit, that is, simultaneous checkingof transactions , by outside Chartered Accountant Firms.

During the year 2009-10, regular inspection was carried out at 1649 branches, 42Currency Chests, 13 Zonal Offices, 15 Head Office Departments, 03 Staff Training Centres(STC) and 02 Field Inspection Offices(FIO). Management Audit was also conducted in 32Zonal Offices whereas Regular Inspection (Revenue Part) was covered at the 45 ZonalOffices, 08 FIOs and 06 STCs.

At Zonal Office level, Zonal Inspection Committees (ZIC) are formed with Zonal Head asconvener and FIO Head as member to ensure effective monitoring of Internal control system,progress in rectification and considering closure of inspection report files. The meetingsof ZIC are conducted at bi-monthly interval.

VIGILANCE

The vigilance policy followed by the Bank is in consonance with the variousguidelines/directives issued by the Central Vigilance Commission, Reserve Bank of Indiaand Ministry of Finance from time to time. Requisite steps are taken to contain andcontrol fraud, forgery, malpractice etc, in the Bank through various preventive measures.Modus operandi of such cases, as also causative factors leading to the same, are regularlycommunicated to the field functionaries through Circulars, so as to educate them properlyand avoid recurrence. Surprise Vigilance Inspection of fraud-prone Branches is to plug theloopholes. As measures of educative vigilance, training sessions and seminars areregularly conducted. In every training programme of duration 6 days & above, one ortwo sessions are incorporated on preventive vigilance. Systems improvement, whenevernecessary, is taken up, to usher internal control mechanism. All these aspects arehighlighted during field visits by the executives. However, punitive action is also takenagainst the erring officials through disciplinary proceedings, which acts as a deterrentto others. Stress is also given on measures of educative vigilance through trainingsessions, seminars & workshops.

Official Language

Compliance of various provisions under the Official Language Policy was ensured inorder to achieve the targets stipulated in the Annual Programme. Accordingly, statutoryrequirements in regard to bilingual issuance of documents under Section 3 (3) of OfficialLanguage Act, reply of Hindi letters in Hindi, bilingual publication of manuals &codes, bilingualisation of stationery items was ensured. During the year, a large numberof Officers & employees, not having working knowledge of Hindi, were nominated forvarious Hindi courses conducted by the Government of India. 86 Hindi workshops (1613officers/ employees participated) and 78 Desk Training programmes (695 officers/employeesparticipated) were organized, during the year.

The Parliamentary Committee on Official Language conducted an inspection of our PannaBranch under Satna Zone on 31.10.2009 regarding use of Official Language.

The Drafting and Evidence sub-Committee of the Committee of Parliament on OfficialLanguage held a discussion programme on 21.10.2009 and 19.03.2010 with Zonal Office,Hyderabad and Zonal Office, Raipur respectively through the Town Official LanguageImplementation Committee. The members of the Committee appreciated the efforts being madeby our Bank in regard to use of Official Language.

Our General Manager (Official Language) was invited as a specialist of Banking and Lawin a meeting of the Banking Glossary Standing Committee of Reserve Bank of India tofinalise legal words.

The Reserve Bank of India inspected our Zonal Office, Kanpur on 29.07.2009, ZonalOffice, Chandigarh on 26.06.2009 and Zonal Office, Kolkata (Urban) & Kasba Branch on06.06.2009 and appreciated the efforts being made by our Bank in regard to use of OfficialLanguage.

Joint Director, Financial Services Department, Ministry of Finance, Government of Indiainspected our Head Office on 27.03.2010 and found the efforts being made by our Bank inregard to use of Official Language very satisfactory. The Deputy Director, RegionalImplementation Office (Eastern Region), Kolkata, Government of India, Ministry of HomeAffairs, Official Language Deptt. inspected our Zonal Office, Behala on 04.12.2010 andappreciated the efforts made by the Bank towards the use of Hindi.

The Bank observed the month of September as Hindi Month throughout the country. On thisoccasion, our Hon'ble Chairman & Managing Director called upon all the officers andemployees for progressive use of Hindi, through an appeal. During the month, variouscompetitions including All India Essay Writing in Hindi were organized.

The Bank received several national level prizes for outstanding performance in the areaof implementation of official language; Third Position in linguistic region A underReserve Bank Rajbhash Shield Competition for the year 2007-08. The Bank has also beenawarded Third Position in linguistic region A for year 2008-09 under Resereve BankRajbhash Shield Competition. Also, Zonal Office, Kolkata (Metro) was awarded First Prizeby Regional Implementation Office, Govt. of India, Ministry of Home Affairs, Deptt. ofOfficial Language under Regional Implementation Rajbhasha Puraskar Scheme in Easternregion. Zonal Office, Guwahati was awarded Second Prize by Regional Implementation Office,Govt. of India, Ministry of Home Affairs, Deptt. of Official Language under RegionalImplementation Rajbhasha Puraskar Scheme in North-East region. Zonal Office, Meerut wasawarded Third Prize by Regional Implementation Office, Govt. of India, Ministry of HomeAffairs, Deptt. of Official Language under Regional Implementation Rajbhasha PuraskarScheme in Northern region.

Our Bank's bilingual House Magazine Triveni Dhara received First Prize by the ReserveBank of India among all the public sector banks and financial institutions for the year2007-08 and again the First Prize has been announced for Triveni Dhara for the year2008-09 under bilingual House Magazine Competition.

Under the Town Official Language Implementation Committee prizes, Bank's Head Officereceived the Excellency Certificate , Staff Training Centre, Hyderabad received the FirstPrize , Zonal Office Dehradun and Zonal Office, Chennai received the Second Prize forexcellent implementation of Official Language.

During the year, two meetings of Town Official Language Implementation Committee(Bank), Ranchi were organized in the convenorship of our Zonal Office, Ranchi with theparticipation of members in large number.

HUMAN RESOURCES DEVELOPMENT

The Bank laid prime importance on developing human capital in tune with its quest toemerge a bank of global stature. Initiatives have been taken for capacity building ofhuman resources by focusing their competencies and maximizing their potential in critical& vital functional areas, handling international business and adequate successionplan.

Manpower

The manpower complement of the Bank is depicted hereunder:

Recruitment & Promotion

During 2009-10, the Bank undertook processes for recruitment of 1,000 Officers(including Specialist Officers) & 1000 clerical cadre employees. Promotion Processeswere completed in all cadres during the year starting from the lowest rung in subordinatestaff cadre to the highest rank in Officers cadre. For the first time, three of ourGeneral Managers were elevated to the post of Executive Director in other Public SectorBanks.

Industrial Relations

In the backdrop of prevailing cordial & harmonious industrial relations climatescenario, the collective grievances and issues of mutual interest were discussed andsettled in the bilateral forums with the recognized Officers Association and WorkmenUnion.

Welfare

In tune with Bank's conviction that the Human Resources are the greatest asset of theorganisation , Various welfare shemes such as i) Group Mediclaim Insurance Policy for allthe Employees/ Officers ii) General Health Check up for all eligible employees /officersabove 40 years & their spouse iii) Scholarship to the Wards of the Employees/OfficersIV) Financial assistance to the Employees/Officers having mentally challenged children v)Death exgratia of Rs 1.00 lakh to the bereaved family of the deceased employee/ Officerdying in harness and vi) Reimbursement of Mediclaim Insurance premium to all retiredemployees and their spouse with a floater coverage for an amount of Rs. 1.00 lakh havebeen extended in the year 2009-10.

ALLBANK FINANCE LTD.

AllBank Finance Ltd. a wholly owned subsidiary of Allahabad Bank with a capital base ofRs.15 crores. The company has obtained Category-I Merchant Banking and Underwritingregistration from SEBI. AllBank Finance Ltd. engaged in

Corporate Advisory Services, Project Appraisal, Issue Management, Loan SyndicationDebenture and Trusteeship Underwriting. The subsidiary posted a profit of Rs.7.15 croresduring 2009-10 as against Rs.9.41 crores during 2008-09.

FUTURE PLANS

• The Bank has projected a business growth of around 25% during the current year.

• The Bank will focus on Retail Business, Loan Syndication, Sale of Gold Coins CMSand Bancassurance etc. in addition to the core banking activities.

• The Bank is looking ahead to spread out overseas. The process has already beeninitiated with a branch at Hong Kong and representative office at Shenzen, China. Arepresentative office at Dhaka , Bangladesh is also being contemplated after receipt ofapproval from Reserve Bank of India and Government of Bangladesh.

• The Bank has initiated various steps to develop a pool of knowledgeable HumanCapital.

BOARD OF DIRECTORS

The Board of Directors, the Management Committee and the Audit Committee of the Boardmet 12, 20 and 8 times respectively during 2009-10. The Director's Promotion Committee,Shareholders /Investors Grievance Committee, IT Sub-Committee, Fraud Monitoring Committee,Customer Service Committee, Renumeration Committee and Risk Management Committee,Nomination Committee, Share transfer Committee of the Board met 5, 2,7, 3, 4, 4,1 and 16times during 2009-10.

Shri D. Sarkar has assumed the office of Executive Director of the Bank on 07.12.2009.Prior to his present appointment, Shri Sarkar was the General Manager (Wholesale Banking /Credit) of Bank of Baroda at Corporate Office, Mumbai. He has 27 years experience ofBanking and had worked in various capacities and had worked in various capacities inBranches, Regional Office, Zonal Office and Corporate / Head Office.

Shri M.R. Nayak has assumed the office of Executive Director of the Bank on 22.01.2010.Prior to his present appointment Shri Nayak was the General Manager of Corporation Bank,Head Office, Bangalore. Shri Nayak has 39 years experience of Banking. He has worked invarious capacities in Branches and Corporate / Head Office. He was instrumental inintroducing gold banking import of bullion by the Bank, one of the first in bankingindustry in India.

Dr. Kaujalgi is deemed to be elected as Director representing shareholders with effectfrom 12.06.2010. Dr. Kajulgi, an M.Tech in Production Engg. from IIT, Mumbai, M.S. inOperations Research and Computer Science from Case Institute of Technology, U.S.A. andPh.D. from IIT, Mumbai, has been serving Indian Institute of Management, Bangalore since1975. He has over 40 publications in National & International journal. His areas ofinterest include Computer Science, Information Systems, Operation Research, Statistics andProduction / Operation Management. He was the Director, Central Board, State Bank of Indiafrom November 1995 to October 1998. Also, he was the Shareholder Director on the Board ofBank of India from 25.10.2005 to 24.10.2008.

ACKNOWLEDGEMENTS

The Board of Directors records its appreciation for continued support and patronage ofthe shareholders/investors of the Bank. The Board of Directors gratefully acknowledges thevaluable and timely advice, guidance and support from the Reserve Bank of India,Government of India and other regulatory agencies and look forward to their continuedsupport and co-operation. The Board of Directors is thankful to the customers for theircontinued trust and confidence on the Bank.

The Board records its appreciation for valuable contributions of the outgoing membersand welcomes the new incumbents.

The Board of Directors is pleased to place on record their appreciation of thecommitted services of the Bank's employees.

For and on behalf of the Board of Directors,