Management Discussion And Analysis
1.0 Monetary and Credit Policy for 2010-11
1.1 The Annual Monetary Policy 2010-11 was drawn at a time when the Global Economycontinued its recovery from the global financial meltdown amidst ongoing policy supportand improving financial market conditions. The recovery process was led by Emerging MarketEconomies (EMEs), especially those in Asia, as growth remained weak in advanced economies.
1.2 In its World Economic Outlook Update for January 2010, the International MonetaryFund (IMF) projected that global growth will recover from (-) 0.8% in 2009 to 3.9% in 2010and further to 4.3% in 2011-12.
1.3 The recovery in Indian economy was firm. Exports expanded at a good pace, a trendthat was expected to continue. The industrial sector recovery increasingly becamebroad-based and was expected to take firmer hold going forward on the back of risingdomestic and external demand. The improved performance of the industrial sector also gotreflected in the improved profitability in the corporate sector. Service sector activitieshave shown buoyancy. Based on these positive sentiments, RBI projected the real GDP growthfor the year 2010-11 at 8% with an upward bias under the assumption of a normal monsoonand sustenance of good performance of the industrial and services sectors.
1.4 The regulator placed the WPI inflation for March 2011 at 5.5%. However, the conductof monetary policy targeted to condition and contain perception of inflation in the rangeof 4.0-4.5%. Three major uncertainties which clouded the outlook for inflation werefirstly, the prospects of the monsoon; second, the volatility in crude prices and thirdbeing the evidence of demand side pressures building up.
1.5 Keeping in view the need to balance the resource demand to meet credit off take bythe private sector and government borrowings, monetary projections have been madeconsistent with the growth and inflation outlook.
1.6 Money supply was projected to grow around 17.0% during 2010-11.
1.7 Growth projections for aggregate deposits during 2010-11 was placed at around 18.0%and for non-food credit was placed at 20.0%.
1.8 The overall stance of monetary policy in 2010-11 was intended to:
o Anchor inflation expectations, while being prepared to respond appropriately,swiftly and effectively to further build-up of inflationary pressures.
o Actively manage liquidity to ensure that the growth in demand for credit by boththe private and public sectors is satisfied in a non-disruptive way.
o Maintain an interest rate regime consistent with price, output and financialstability.
1.9 In the policy, the Bank Rate was left unchanged at 6.0%. The Cash seserve Ratio(CRR) of scheduled banks was raised by 25 bps to 6.0%. Repo and Reverse Repo Rate wasincreased by 25 bps each to 5.25% and 3.75%, respectively. Statutory Liquidity Ratio (SLR)was kept unchanged at 25% of NDTL. 1.10 Some of the other measures included :
o To facilitate settlement of secondary market trades in corporate bonds on adelivery versus payment-1 basis on the Real Time Gross Settlement (RTGS) system, theNational Securities Clearing Corporation Limited (NSCCL) and the Indian ClearingCorporation Limited (ICCL) were permitted to maintain transitory pooling accounts with theRBI. Further, guidelines were issued to all RBI regulated entities to mandatorily clearand settle all OTC trades in corporate bonds using the above arrangement introduced witheffect from 1st December 09.
o To facilitate the development of an active repo market in corporate bonds, theguidelines for repo transactions in corporate debt securities were issued on 8th January10. The guidelines, which came into force with effect from 1st March10,enabled repo in listed corporate debt securities rated AA or above.
o Considering that the long-term bonds issued by companies engaged ininfrastructure activities are generally held by banks for a long period and not traded andalso with a view to incentivising banks to invest in such bonds, it was proposed to allowbanks to classify their investments, in non-SLR bonds issued by companies engaged ininfrastructure activities and having a minimum residual maturity of seven years, under theHeld to Maturity (HTM) category.
o Investment in non-SLR debt securities (both primary and secondary market) bybanks where the security is proposed to be listed on the Exchange(s) was proposed to beconsidered as investment in listed security at the time of making investment.
o It was proposed to introduce a reporting platform for all secondary markettransactions in CDs and CPs.
o It was proposed to mandate banks not to insist on collateral security in case ofloans up to Rs. 10 lakh as against the present limit of Rs. 5 lakh extended to all unitsof the Micro and Small Enterprises (MSEs) Sector.
o The RBI planned to monitor the performance of banks to ensure that (i) allScheduled Commercial Banks achieve a 20% year-on-year growth in credit to micro and smallenterprises to ensure enhanced credit flow; (ii) any shortfall in the achievement ofsub-target of 60% for lending to micro enterprises of the total advances granted to themicro and small enterprises, would also be taken into account for the purpose ofallocating amounts for contribution to Rural Infrastructure Development Fund (RIDF) or anyother Fund with other Financial Institutions as specified by the RBI, with effect from 1stApril10; and (iii) all scheduled commercial banks should achieve a 15% annual growthin the number of micro enterprise accounts.
o Banks were required to put in place a Board-approved Financial Inclusion Plan(FIP) in order to roll them out over the next three years and submit the same to the RBIby March 10. The RBI decided to discuss FIPs with individual banks and monitor theirimplementation.
o With a view to meeting the increasing financing needs of infrastructuredevelopment the RBI proposed to treat annuities under Build-Operate-Transfer (BOT) modelin respect of road/highway projects and toll collection rights, where there are provisionsto compensate the project sponsor if a certain level of traffic is not achieved, astangible securities subject to the condition that Banks right to receive annuitiesand toll collection rights is legally enforceable and irrevocable.
o Infrastructure loan accounts classified as sub-standard would attract aprovisioning of 15% instead of the current prescription of 20%. To avail of this benefitof lower provisioning, banks were advised to place an appropriate mechanism to escrow thecash flows and also have a clear and legal first claim on such cash.
2.0 Macro-Economic Scenario in 2010-11
2.1 As per the revised estimates of Central Statistical Organisation (CSO), theeconomic growth for 2010-11 is estimated at 8.5% as compared to the growth rate of 8.0% in2009-10. The agriculture sector has shown a higher growth of 6.6% in 2010-11 as againstprevious years growth of 0.4%. Indias GDP growth in the fourth quarter of2010-11 is estimated at 7.8%, slower than the growth achieved in the first three quarters.Economy grew at 9.3% in the first quarter, 8.9% in the second quarter and 8.3% in thethird quarter of fiscal 2010-11.
2.2 The 2010-11 growth of the Index of Industrial Production (IIP), stood at 7.8%compared to a higher growth of 10.5% achieved during previous year. The growth rateachieved by Mining, Manufacturing and Electricity sectors during 2010-11, overcorresponding period of 2009-10, have been 5.9%, 8.1% and 5.6%, respectively, which movedthe overall growth in the General Index to 7.8%.
2.3 WPI inflation, as measured by year-on-year variations in the Wholesale Price Index(WPI), was high at over 11% during April - May 2011 moderated to 8.08% in November11, the lowest level attained in 2010-11. However, inflation reversed course to riseto 8.4% in December10 and further to 8.98% in March 11, exceeding theRBIs projection of 8.0% for March 11 set out in the mid quarter review onMarch 17, 2011. Food inflation remained double digits for greater part of 2010-11. Risingglobal commodity prices, particularly oil accompanied by a sharp increase in non-foodmanufactured products made the inflationary situation to become more generalized as theyear progressed.
2.4 During 2010-11, the monetary and liquidity conditions remained consistent with theanti-inflationary stance. A shift from absorption mode to injection mode in the LiquidityAdjustment Facility (LAF) implies effective rise in policy rates.
2.5 The countrys exports during 2010-11 registered growth of 37.5% to reach alevel of US$245.9 billion as against US$178.8 billion in the previous year. During thesame period imports grew by 21.6% to reach a figure of $350.7 billion ($288.4 billion).The countrys trade deficit figure narrowed down to US$ 104.8 billion from US$ 109.6billion in the previous year.
2.6 During 2010-11, Indias foreign exchange reserves increased by US$ 24.4billion to reach US$ 303.4 billion as at end-March 2011.
2.7 The global recovery was expected to sustain in 2011, although growth slowed downmarginally from its pace in 2010. According to the IMF, global growth is likely tomoderate from 5.0% in 2010 to 4.4% in 2011. Growth is projected to decelerate in advancedeconomies due to waning of impact of fiscal stimulus, and high oil and other commodityprices. Growth in EMEs is also expected to decelerate on account of monetary tighteningand rising commodity prices.
2.8 The growth outlook for 2011-12 looks positive though with some downward bias. Theavailable projections for 2011-12 by various agencies give a mixed picture with someprojecting a growth of 9% while others within a range of 8.0 to 8.5%, suggesting amoderation in the growth process. Policy tradeoffs may arise as downside risks to growthand upside risks to inflation have increased. High top-line growth for firms indicatesstrong demand conditions. Continuation of fiscal consolidation process could providesupport for private investment. Recent improvement in exports and decline in importsprovides a good base for net external demand.
3.0 Banking Trends during 2010-11
3.1 To rein in demand-side inflationary pressures and manage inflationary expectationsand to contain the spillover of food and commodity prices into more generalized inflation,the regulator extensively used the tool of monetary tightening in 2010-11. The repo andreverse repo rates were increased by 200 and 250 bps since February10, reach toreach 6.75% and 5.75%, respectively as at March11.
3.2 Schedule Commercial Banks (SCBs) credit growth, which had been trending upwardsfrom the beginning of the year, reached an intra-year high of 24.2% (year-on-year) inDecember 2010. It slowed down subsequently to 21.2% by March 2011, which was marginallyhigher than the RBIs indicative projection of 20 per cent.
3.3 SCBs aggregate deposits registered a growth rate of 15.8% in 2010-11 (17.2% inprevious fiscal). RBI had projected 18% deposit growth for 2010-11. Deposits lagged behindthe targeted growth mainly due to tight money market position and inflation. Moreover,people preferred other sources of investment according to their needs, despite a hike indeposit rates. The increase in policy rates and tightness in liquidity and RBIsremark on higher incremental credit deposit ratio of over 100% in case of some banksresulted in aggressive hike in deposit rates offered by banks in the later part of thefinancial year 2010-11.
3.4 During 2010-11, money supply (M3) growth at 15.9% during 2010-11 was lower than theRBIs indicative trajectory of 17% due to slow deposit growth and acceleration incurrency growth.
3.5 The liquidity condition became very tight in 2010-11. The extent of tightness sinceOctober 2010 was outside the comfort level of (+)/(-) 1% of Net Demand and TimeLiabilities (NDTL) of SCBs. The RBI initiated several measures to ease the liquiditysituation. including (i) additional liquidity support under the Liquidity AdjustmentFacility (LAF) to SCBs up to 1% of their NDTL by temporary waiver of penal interest forany shortfall in maintenance of Statutory Liquidity Ratio (SLR) (for a brief periodthe limit was two per cent of NDTL), which was reduced to 1% following the permanentreduction in the SLR; (ii) conducting open market operations; and (iii) conducting theSecond LAF (SLAF) on a daily basis.
3.6 There had been a significant increases in credit flow to industry and services.Credit growth to infrastructure sector, especially, was robust. Credit flows improved inrespect of metals, textiles, engineering, food processing, and gems and jewellery, amongothers. Within services, credit growth accelerated to commercial real estate andNon-Banking Financial Companies. Housing and vehicle loans recovered in 2010-11.
3.7 As far as money market is concerned, the yields on government securities easedduring the first quarter of 2010-11 in expectation of an improved fiscal position due tohigher than anticipated revenues in spectrum auctions. Yields hardened thereafter tillJanuary 2011 on account of increase in inflation and consequent rate hike expectations aswell as tight liquidity conditions. Yields, however, moderated in February and March 2011on the back of improvement in liquidity conditions, lower than expected budgeted fiscaldeficit and the projected market borrowing programme for the first half of 2011-12.
3.8 The RBI introduced the Base Rate System from July 2010, which replaced theBenchmark Prime Lending Rate (BPLR) system. Banks were given time till end-December 2010to select the appropriate benchmark and other cost parameters for computing the Base Rate.Subsequently, some banks requested for extension of time. Accordingly, banks werepermitted to change the benchmark and methodology used in the computation of their BaseRates for a further period of six months, i.e., up to June 30, 2011.
3.9 The RBI decided to come out with mid-quarter monetary reviews so that its swiftmonetary actions in sync with changing economic conditions do not have a surprise element.The RBI now undertakes mid-quarter reviews roughly at the interval of about one and a halfmonths after each quarterly review.
4. Banks Operational Performance
4.1 Deposit Mobilisation
4.1.1 During the year 2010-11 emphasis was laid on clientele expansion with strategy oflining up a series of campaigns for CASA growth. The campaigns saw opening of over 15.69lakh Current and Saving accounts. Key Branches and new branches were focused for retaildeposits. Under the Recurring Deposit campaign 94278 accounts with an opening balance ofRs. 107 crore were opened.
4.1.2 Performance Highlights:
i) The Non Bank Deposits of the Bank has registered a net accretion of Rs. 16,926 croreto reach Rs. 96,911 crore as at 31st March, 2011 registering a growth of 21% during theyear.
ii) Current deposits have reached a level of Rs. 14,042 crore. Excluding the Taxcollections, the Y-O-Y growth is 25.8% with a net accretion of Rs. 2,858 crore.
iii) Savings Deposits reached Rs. 16,226 crore with net accretion of Rs. 3,201 crore at24.6% Y-O-Y growth.
iv) Term deposits reached a level of Rs. 66,643 crore with a net accretion of Rs.13,136 crore at a growth rate of 24.6% Y-O-Y.
v) The average Non Bank Deposits of the Bank increased by Rs. 11,457 crore and stood atRs. 79,201 crore as at 31st March, 2011 recording a growth of 17% year on year. AverageCASA grew by 26.8% with net accretion of Rs. 4,490 crore and stood at Rs. 21,256 crore.
vi) The Share of Demand Deposits in total Non Bank Deposits stood at 31%. DemandDeposits grew from Rs. 26,478 crore to Rs. 30,268 crore as at 31st March, 2011, registeringa growth of 14.3%.
vii) The Bank has added 18,29,221 New Deposit Accounts during the year.
4.2 Credit Growth
4.2.1 The credit portfolio of the Bank recorded a growth of 37.4% during the financialyear ended 31.03.2011. Growth in credit was achieved through intense marketing of variousloan products of the Bank, both under Retail and Corporate Segments. The level of advancesincreased from Rs. 63,203 crore as at 31.03.2010 to Rs. 86,850 crore [Net of Provision] ason 31.03.2011, thus registering an absolute growth of Rs. 23,647 crore.
4.2.2 The average advances grew by Rs. 14,121 crore from Rs. 50,290 crore as at March2010 to Rs. 64,411 crore as at March 2011 registering a growth rate of 28.1%. The CD Ratioas on 31.03.2011 stood at 73.0%.
4.2.3 Infrastructure Lending:
The Bank has been endeavouring to participate more in the nation building activities byextending credit to Infrastructure sector. During the FY 2010-11, the Bank could deploy26.4% of the Incremental Credit to Infrastructure Sector. Banks Credit toInfrastructure increased from Rs. 8,616 crore as at March-2010 to Rs. 14,867 crore as atMarch-2011, thereby showing a Y-O-Y growth of Rs. 6,251 crore [72.5%]. The InfrastructureExposure works out to 17.1% of the Banks Credit Exposure as at March-2011 which wasat 13.6% as at March 2010.
4.2.4 SME Credit:
The Banks thrust for lending to SME segment continued. During the FY 2010-11, theSME credit has improved from Rs. 6,485 crore, to Rs. 11,660 crore as on March 2011registering a Y-O-Y growth of Rs. 5,175 crore [79.8%]. SME credit constitute 13.4% of theNet Bank Credit of the Bank as at 31.03.2011. SME Care Centres have been established atall Zonal Offices of the Bank to ensure hassle-free flow of credit to this Sector.
4.3 Priority Sector Lending
4.3.1 Sectoral Deployment:
184.108.40.206 The total amount of credit deployment to Priority Sector by way of credit hasmoved up from Rs. 21,059 crore as at 31st March 2010 to Rs. 24,199 crore as at 31st March2011, recording an increase of Rs. 3,140 crore. The Priority Sector advances of the Bankstood at 38.29% of the Adjusted Net Bank Credit as against RBI norm of 40% of ANBC.
220.127.116.11 Under the Special Agricultural Credit Plan [SACP], the Bank disbursed Rs. 6,036crore as against the Annual Plan of Rs. 5,800 crore, registering an achievement of 104%.
18.104.22.168 The agricultural credit stood at Rs. 5,513 crore as at 31.03.2011 compared toRs. 6,175 crore as at 31.03.2010. Funds deployed under Agriculture constituted 8.72% ofANBC as at 31st March 2011. Concerted efforts have been made for effective implementationof Annual Credit Plan. Suitable action plan and strategies have been worked out to ensureimproved performance during the fiscal 2011-12.
22.214.171.124 Credit to Micro & Small Enterprises increased from Rs. 5,707 crore as atMarch 2010 to Rs. 10,707 crore as at March 2011, witnessing a growth of Rs. 4,999 crore at87.60%. Bank bears the One Time Guarantee Fee and also the Annual Service Fee in respectof all loans up to Rs. 5.00 lakh to Micro & Small Enterprises covered under the CreditGuarantee Scheme.
4.4 Social Lending:
4.4.1 Dispensation of credit under various Government Sponsored Social Lending/ PovertyAlleviation Schemes and to Weaker sections of the society was given due importance so asto fulfill the Banks socio-economic obligations.
4.4.2 Lending to micro finance sector witnessed accelerated momentum during this year.Number of Self Help Groups credit linked increased from 98274 as at March 2010 to 103541as at March 2011. Likewise, credit to micro finance sector increased from Rs. 537.43 croreas at March 2010 to Rs. 897.59 crore as at March 2011, registering a growth of 67 %.Finance to women beneficiaries has improved from Rs. 2,450 crore to Rs. 3,816 crore at agrowth rate of above 55%. At 6.04% of ANBC, the performance is more than the stipulated 5%of ANBC.
4.4.3 As at March 2011, out of total priority sector credit of Rs. 24,199 crore, theoutstanding credit to Scheduled Caste/ Scheduled Tribes is Rs. 390.96 crore whereas ouradvances to Weaker Sections stood at Rs. 4,339.19 crore.
4.5 Retail Lending
4.5.1 Retail lending continued to be a focus area of the Bank during the year2010-11. The outstanding credit under Retail lending improved from Rs. 11,696 crore as on31.3.2010 to Rs. 15,671 crore as on 31.3.2011, recording a growth of Rs. 3,975 crore(33.99%). The share of the Retail Lending to the Net Bank Credit stood at 18.04%.
4.5.2 Growth under Corp Schemes during the Financial Year 2010-11 was Rs. 1,712 croreat 23% over the March 2010 figures whereas growth during the corresponding period lastyear was Rs. 1,191 crore at 19% .
4.5.3 Special promotional schemes were launched under Corp Home and Corp Vehicle loansfrom 19.07.2010 to 30.11.2010 at attractive interest rates with concessions in processingcharges. The campaign was successfully completed with a total sanction of Rs. 1,127 croreunder Housing loan and Rs. 227 crore under Vehicle loan schemes.
4.5.4 The following new products have been introduced during the year -
"Corp CA" Special Scheme for Chartered Accountants.
"Corp Ghar Shobha" a housing loan variant to finance repair/renovation/ furnishing of house.
"Corp Shubha Vivah" a scheme to finance marriage expenses- firstBank to introduce such scheme.
"Corp Tutor Fee" a scheme to finance tuition fees for entrance exam ofprofessional courses.
"Corp Home Premium-NRI" a special housing loan scheme for NRIs.
"Corp CS a special scheme for Company Secretaries.
4.6 Retail Asset Hubs :
4.6.1 At present 19 Retail Hubs are operating in the Bank. These Retail Asset Hubs intotal have sanctioned 44608 applications under various Corp Schemes amounting to Rs. 3,341crore during the year, as against 38180 Corp Scheme applications amounting to Rs. 2,298crore sanctioned during the previous year.
4.7 Education Loans :
4.7.1 Under in-principle approval of On-line education loan applications, during thefinancial year, 714 in-principle approvals were accorded amounting to Rs. 30.14 crore.
4.8 Credit Assets Quality and Classification
The Bank has maintained high standard in Asset quality as evidenced by lower NPA levelsover the years. Close surveillance and initiation of prompt remedial action in borrowalaccounts, ensured the quality of assets of the Bank.
The classification of the loan assets in terms of Prudential Norms issued by the RBI isas follows:
[Rs. in crore]
| ||As on 31.03.2009 ||As on 31.03.2010 ||As on 31.03.2011 |
| ||Amount ||% to total asset ||Amount ||% to total asset ||Amount ||% to total asset |
|Standard ||48,367.90 ||98.86 ||62,978.11 ||98.98 ||86,423.22 ||99.09 |
|Sub-Standard ||145.20 ||0.30 ||268.98 ||0.42 ||355.76 ||0.41 |
|Doubtful ||236.26 ||0.48 ||181.38 ||0.28 ||249.24 ||0.29 |
|Loss ||177.76 ||0.36 ||200.58 ||0.32 ||185.23 ||0.21 |
|Gross Loan Assets ||48,927.12 ||100.00 ||63,629.05 ||100.00 ||87,213.45 ||100.00 |
The high quality of the loan assets is evidenced by the fact that the Standard assetsconstitute 99.09% of the Bank Credit.
4.9 Financial Inclusion and Branchless Banking "Corp Grameen VikasKendras"
4.9.1 Financial Inclusion and Branchless Banking has been the thrust area for the Bank.During the financial year, the Bank added 1300 Branchless Banking units to take the totalnumber of units to 2500 as at the end of March 2011. The Bank has opened more than 12.60lakh "no-frill" savings bank accounts with a balance of Rs. 39.43 Crore andaround 23323 General Credit Cards with an outstanding balance of Rs. 30.23 Crore.
4.9.2 As per the High-Level Committee constituted by RBI, all villages with populationabove 2000 should be provided with banking facility either through brick and mortar branchor extension counter or service counter or ICT based solution. As per this, the Bank wasallotted 334 villages for implementation of the financial inclusion by 31.03.2012. TheBank has implemented financial inclusion in all the 334 locations, 13 locations by the wayof Branch Model and 321 locations by the way of BC Model, allocated by various SLBCs by31.12.2010 itself i.e. 15 months ahead of the schedule i.e. 31.03.2012.
4.9.3 The Bank has implemented Urban Financial Inclusion in 50 urban locations andbranded it as Corp Shahari Vitthiya Samaveshana Kendra. In association with M/s BharatPetroleum Corporation Ltd., the Bank has implemented Financial Inclusion in 15 locations.In Bangalore, the Bank has implemented Urban Financial Inclusion in 30 locations inco-ordination with one MFI and an NGO. In Pune, the same has been implemented in 4locations. A mobile based Urban Financial Inclusion was launched by Honourable Minister ofState for Finance Shri Namo Narain Meena at one location in Sawai Madhopur, Rajasthan.
4.9.4 A presentation on the Financial Inclusion Model of the Bank was made to theCommonwealth Secretariat in London. The Bank, in collaboration with CommonwealthSecretariat proposes to hold Youth Enterprise Financing program and is focusing onproviding sustainable Enterprise Development using Branchless Banking Model.
4.9.5 The Financial Inclusion Resource Centre of the Bank has been set up at HeritageCentre Udupi, on its inauguration on the 12th March 2011, by the Honourable FinanceMinister on the 106th Foundation day of the Bank. The building owned by the founder of thebank, has been dedicated as a heritage centre wherein the Bank has launched followingactivities. Financial Inclusion Resource centre (FIRC) Financial Literacy and CounselingCentre Financial Research center Corporation Bank Commonwealth Center Auditorium
4.9.6 The Bank has signed Memorandum of Understanding (MOU) with Unit Trust of Indiaand United India Insurance Company Ltd for providing Micro Pension and Micro Insurance(Non-Life) respectively, to all customers of Branchless Banking.
4.9.7 The Bank has also signed MOU with Unique Identification Authority of India(UIDAI) for acting as Registrars for issue of UID numbers to residents.
4.9.8 Bank has bagged following awards for Financial Inclusion Initiatives:
SKOCH Financial Inclusion Award 2011-"Inclusion Champion of the year"from SKOCH Foundation
Best Financial Inclusion Initiative Award from IBA
5.1 The Bank has been complying with the RBI guidelines relating to Income Recognition,Asset Classification and Provisioning. The Bank continues to apply a three prongedstrategy of better NPA Management:
a. Preventive Actions
b. Recovery and Upgradation
c. Resolution and Settlement
5.2 The Gross NPA of the Bank was Rs. 790.23 crore as on 31.03.2011 compared to Rs.650.94 crore as at the end of the previous financial year. The Gross NPA constituted 0.91%of the Gross Advances as on 31st March 2011 as against 1.02% at the end of thecorresponding previous financial year.
5.3 The Net NPA of the Bank was Rs. 397.74 crore as on 31st March 2011 compared to Rs.197.25 crore as at the end of the previous financial year. The net NPA ratio of the Bankagainst the Net Advances has slightly increased from 0.31% of the previous year to 0.46%as at 31.03.2011. As a matter of prudence, the Bank provides in full for all NPA accountswith borrower wise aggregate liability of less than Rs. 25,000/- irrespective of thenature and extent of securities held.
5.4 The Cash recovery and Upgradation during the Financial Year 2010-11 stood at Rs.627.33 crore, compared to Rs. 320.08 crore in the previous Financial Year. The improvementin the recovery has taken place on account of continuous monitoring and close follow up ofborrowal accounts at Branches/Zonal Offices, effective implementation of One TimeSettlement (OTS) schemes/ Compromise settlements and Recovery Camps. The SARFAESI Act hasbeen used as an enabling tool to ensure further improvement in Recovery Performance.
5.5 An OTS scheme called "Corp Samjotha" for small NPA accounts with balanceinclusive of Rs. 5 lakh was in operation between 15.09.2010 to 31.03.2011. Under thisscheme, the Bank has recovered Rs. 6.94 crore from 3489 eligible accounts. In the process3402 eligible accounts with a total amount of Rs. 8.13 crore were closed.
5.6 A special Recovery Campaign was operational from 01.04.2010 to 31.12.2010 forrecovery of all NPA accounts with outstanding balance upto Rs. 5 lakh, which are notbacked by any securities. During the campaign period Rs. 11.80 crore was recovered withthe active participation of 1277 staff members.
5.7 During the year, the Bank held 250 Recovery Camps across the country and recoveredRs. 44.67 crore. The Bank also held 41 "Lok Adalats" in select centers torecover small and chronic NPAs in which NPAs amounting to Rs. 3.34 crore was settled in826 accounts and recovery of Rs. 0.84 crore was made in 710 accounts.
6. Treasury and Investment Operations
6.1 The aggregate Investment of the bank as on 31st March 2011 were Rs. 43,453 crorewith maturity mix of securities consistent with risk perceptions and investment policiesof the Bank.
6.2 The Bank is an active player in the Corporate/PSU Bonds segment, Certificate ofDeposits and commercial paper market.
6.3 The average yield on investments during the report year stood at 7.04% compared tothe previous years level of 6.84%.
6.4 The net profit from sale of investments was Rs. 209.48 crore for the year-ended31.03.2011 as compared to Rs. 308.83 crore in the previous year.
6.5 The Bank has put in place the risk management tools like Duration, ModifiedDuration and Value at Risk for all interest bearing securities.
7. International Banking
7.1 During the year 2010-11, the total forex turnover registered a growth of 13.79%.Out of the total forex turnover, interbank turnover was Rs. 4,46,090 crore during the yearrecording a growth of 15.46%. Merchant turnover increased from Rs. 59,973 crore to Rs.61,790 crore.
7.2 The Bank has 52 "B" category branches, which cater to the foreignexchange business. There is an encouraging growth in the area of Merchant turnover, feebased income, clientele growth and export credit in all these branches.
7.3 In order to increase forex business, Exporter-importer meets were conducted atimportant trade centers.
7.4 Executives from Corporate Office and Investment & International BankingDivision (IIBD) of the Bank addressed meeting of NRIs and also met Foreign InstitutionalInvestors during their visit to Dubai, Hong Kong and Taiwan.
7.5 During the year, FCNR transactions have also been brought under Straight ThroughProcessing (STP) ambit. Furthermore, SWIFT payment messages are now being relayed to theconcerned Designated Branches along with the Nostro transactions for efficient handling ofNostro credits.
7.6 Sustained focus and improvement in Reconciliation has helped in bringing down theoutstanding Nostro entries substantially.
7.7 Bank has entered into tie ups with five new Exchange Houses viz. Al RostamaniExchange-Dubai, Emirates International Exchange-Dubai, Asia Exchange-Dubai, Al GhurairExchange-Dubai, Al Fardan Exchange-Dubai to facilitate inward remittances from NRIs basedin Gulf. With this the total number of tie up arrangements with Gulf based Exchange houseshas reached 16.
7.8 An official of the Bank was deputed to Al Zaman Exchange, Doha Qatar with which thebank has a tie up for Speed Remittance arrangement.
8. Merchant Banking Activities
During the year Bank handled 32 dividend payout and 79 issue collection assignmentssuccessfully.
9. Precious Metal Business
9.1 During the year, the Bank achieved an aggregate turnover of Rs. 6006.11 croreearning an Income of Rs. 6.27 crore from Precious Metals Business excluding gold loans.
9.2 Gold coins in the denominations of 2, 4, 5, 8, 20 and 50 grams are being sold atover 360 branches.
10. Designated Branches and Investment and International Banking Division :
10.1 Process Improvement
a) Straight Through Processing (STP) has been enabled between Designated Branches andInvestment and International Banking Division (IIBD) for all types of Forex Transactions.Almost all transactions done by branches are auto uploaded at IIBD through STP.
b) During this year, Link Branches have been enabled with "rate seekingfacility" and all the FCNR transactions are brought under STP. Mirror balance at IIBDis updated instanteously and more than 97% of the FCNR transactions are under auto mode.
c) Nostro Credits are uploaded to CBS thereby enabling auto reconciliation of Nostroaccounts to the extent of more than 80%.
d) Entered into Tie-up arrangement with Weizman Forex Pvt. Ltd., for Western UnionMoney Transfers which would enable global remittances to India.
e) Initiated installation of Electronic Display Board for online display of Forex Ratesat Designated Branches
f) Uploading of Forex & Gold Positions to Risk Management Server for easyprocessing.
g) Exchange Houses Reconciliation simplified.
11. Collection and Payment Services (CAPS)
11.1 The Bank, a preferred Cash Management Services (CMS) Banker in Corporate sectorcontinues to retain its premier position under CMS. The Bank has shown consistentperformance under Turnover, Income and Clientele growth during the year.
11.2 As pro-active CMS Banker, the Bank has initiated host of customercentric new Product/technological initiatives.
11.3 Amongst them are:
i) Automated Channel Financing Facility: Under this facility, the Bank will financeagainst invoice to the dealers of the OEMs/Suppliers and the entire process is fullyautomated right from invoice generation to settlement of funds on due dates. During theyear, focussed attention was given to improve the facility.
ii) The bank has set-up Electronic Payment Gateway (ePG) for facilitating card basedonline payments. The payment gateway accepts all Visa/Master credit/debit cards issued byany bank. During the year the services are extended to Educational institutions,telecommunication Division and LIC.
iii) RTGS /NEFT based collection facility from any branch of the Bank (core enabled) inthe country.
iv) The local cheque collection centres have been increased to 448 in order to expandthe reach under collection management.
v) The above initiatives have improved the service delivery standards throughoperational efficiency to stay ahead in the highly competitive CMS market.
12. Inter-Branch Aaccounts Reconciliation
12.1 Timely reconciliation and speedy elimination of Inter-Branch transactions continueto be the forte of the Bank. The bank has a Central Inter Branch reconciliation system forProcessing of Inter-Branch Transactions, in order to maintain efficiency in this vitalarea of housekeeping.
12.2 During the financial year 2010-11, the Bank continued to maintain its corecompetence in the area of timely reconciliation of Inter-Branch transactions. TheInter-Branch transactions were generally processed and reconciled on the next day of thetransaction. All Inter-Branch transactions emanated up to 31.03.2011 stand reconciled andall entries (other than credits in respect of Demand Drafts issued) up to 15.03.2011 standeliminated as at 31.03.2011.
13. Information Technology Initiatives
13.1 The Banks IT initiatives are aimed at providing customer oriented productsand services that enhance customer convenience while at the same time improve internalefficiency and decision making process through effective Management Information System.The various customer friendly delivery channels that add value to the customer convenienceare :
13.2 Core Banking
All the 1423 units of the Bank are under CBS i.e. 100% of the branches/offices arefunctioning under Core Banking. The important modules implemented during the year are-Regional Electronic Clearing Service Module, Post funding software under the Payable atPar facility, Corp-Pragathi - Pre-defined overdraft limit, AML package, NRO RD module andLoan Tracking pertaining to Retail Hubs.
The Bank has operationalised and networked 1250 ATMs across the country inclusive of 8Biometric ATMs. This is inclusive of 69 ATMs installed under the outsourcing model.
Instant Debit Cards, Pin Entry after every ATM transaction as per RBI guidelines andOTP facility for all IVR transactions are some of the new facilities provided in ATMsduring the year.
13.4 POS Terminals
As at the end of March 2011, the Bank has 16420 Point of Sale (POS) Terminals installedat different merchant establishments all over the country
13.5 Net Banking
In view of the wide acceptability of the product amongst the customers due to theconvenience of operation it provides, the Bank has enhanced infrastructure facilities ininternet banking.
The new facilities introduced under CorpNet during the year are :
The online Banking has been made more user friendly and feature rich during the yearwhich include -
Implementation of Load Balancer to improve speed of access Online viewing facility for26AS Tax credits by customers.
Enabling e-Payment of taxes in states of Goa, Gujarat & Maharashtra
Port Community System payment Gateway for Kandla and NMPT ports
Online Loan tracking enabling customers track the status of their loan application.
A unified easy plug-in merchant module for acquiring e-commerce transaction.
Confirmation SMS and Email message for all online transaction introduced
Option to file upload for bulk payment of taxes
Payment Gateway facility to LIC of India and New India Assurance Co.
Enabling collection of taxes through Non-Agency Banks.
13.6 SMS Banking
As a value addition, the Bank has introduced Short Message Service (SMS) Bankingfacility for its customers with effect from 06.02.2007. As on 31.03.2011, 153628 customersenjoy this facility. The new facilities introduced under SMS Banking during the year are -
SMS Alert for Debit card based transactions done at POS terminals and through internet.
SMS Alert for NEFT credit/return confirmation for all customers.
SMS Alert for NEFT, ECS, NECS (both credit and debit) for all registered customers.Implementation of Inter Bank Mobile Payment Service (IMPS) to enable customers to send andreceive funds from other Banks. The Bank was one of the first set of Banks to implementthis module in association with the National Payment Corporation of India (NPCI)
13.7 Mobile Payment facility
PayMate is a mobile payment platform, which enables the customers to transact usingtheir mobile phones. It allows customers to pay for their purchases through SMS. PayMatefacility can be used to make payments at over 2500 merchant establishments, primarilyonline merchants.
13.8 Government Business Modules
Collection of Direct tax [OLTAS] :E-payment of Direct taxes has gained in importanceand acceptance due to the online hassle free payment facility it provided in completingthe transactions, ensuring safety and confidentiality. This facility has been provided inall the branches for the purpose of remitting TDS.
Collection Of Indirect Tax [Easiest] The Easiest module, the E-payment mode forremittance of Indirect tax (Central Excise and Service Tax), has widely been accepted asthe number of customers opting for it is increasing. The facility has been made availableat all the branches of the Bank.
Collection Of Customs Duty : Software for collection and remittance of Customs duty hasbeen enabled through icegate. com in Delhi, Chennai and Vishakhapatnam air cargo andcustoms offices.
Collection Of State Taxes : In addition to physical collection of VAT in Delhi,Maharashtra and Goa, e-payment of State Taxes is enabled in Maharashtra, Gujarat and Goa.It is proposed to introduce this module in the states of Karnataka, Kerala and AndhraPradesh in the near future on getting the permission from the respective stategovernments.
Tax Upload By Non-Agency Banks: With the customization of the software, 23 non-agencybanks are making use of the tax upload module of the Bank.
13.9 Real Time Gross Settlement (RTGS)
Inter Bank and Customer Transactions under RTGS system are enabled through 1234 units(including Branches and Extension Counters). RTGS transactions are enabled throughStraight Through Processing (STP). During the year 15,57,936 transactions amounting to Rs.14,89,695 crores were made through RTGS.
13.10 National Electronic Funds Transfer (NEFT)
NEFT Scheme for funds transfer across banks has been implemented in 1214 units of theBank. NEFT facility is also provided through CorpNet and ATM. During the year 26,26,180transactions amounting to Rs. 13,838 crore were made using NEFT.
13.11 Integrated Treasury Management System
Integrated Treasury Management System (ITMS) Software for International BankingBusiness of the Bank is fully operationalised and interfaced to RTGS. All the ForexDesignated Branches are enabled for Straight Through Process (STP) and Chat Module withIIBD:
1) Straight through Processing for Link branch FCNR transactions implemented.
2) The FCNR module was redesigned and modified to make it user friendly and additionalfacilities like auto renewal of FCNR deposits and transfer of deposits from one branch toanother were facilitated through the system apart from obtaining the rates directly fromthe dealers.
3) With the modifications in Core Banking Software and Integrated Treasury Module,Programs have been developed to offer Direct Rate to customers.
4) All FCNR transactions are under STP between Designated, Link branches and IIBD.
5) Provided a facility to Upload Forex Card rates to Advance display systems as per therequired format. Boards for displaying Card Rates have been provided to all the DesignatedBranches.
6) As per the requirement of AFI, Display of reuter deals and ccil online positionarranged.
7) Generation of Flash Report on Gold Positions, facility to upload the Forex Positionsand Gold Positions for Risk Management, Capturing of Counter Party Branch Exposure, GapReport to display EEFC, RFCA, RFCT, DOTH on spot bucket and Domestic daily Revaluation(rates pickup from market risk rates) are the other initiatives introduced underInternational Business.
13.12 RAM (Risk Assessment Model)
The RAM system is being introduced for processing and sanction of new as well asreview/renewal of credit proposals at all levels of the Bank at Head office, Zonaloffices, at 40 Big branches, SME, Large Corporate Branches, Overseas branches andIndustrial Finance Branches, wherein the proposals are processed on risk perception.
The Bank has established an e-Learning set up. Leveraging Information &Communication Technology (ICT) for Real-time Interactive Onsite Learning (IOL) platformseamlessly integrating the strengths of the methods of education i.e. classroom teaching with the latest technology.
13.14 Other Initiatives :
Dividend Payout module developed and implemented in Core to facilitate handling ofDividend and Interest Warrants, Digital Video Recordings at Off-site ATMs/Branches, ChequeTruncation System introduced at Delhi National Capital Region, being extended to Chennaicity, Email facility at all feasible branches/offices, Direct Debit facility facilitatingdebit to various accounts across branches and pooling the credits to meet the demands ofvarious hire purchasing and insurance companies for their small value, recurring payments,improvement in HRMS package, Centralised Inter-branch reconciliation in Core, Enhancing ITSecurity, Disaster Recovery Set up for different applications etc., are some of the otherinnovative technological initiatives introduced for enhancing the customer convenience.
The outstanding achievements of the Bank in technology integration enabled the Bank toreceive following awards for the year 2010-11:
"Skoch Financial Inclusion Award 2011" for Financial InclusionInitiatives instituted by Skoch Consultancy Services Pvt. Ltd.
The Bank had bagged three awards in the IBA/TFCI (Indian Banks Association/TradeFinance Corporation of India) Awards 2010:
Winner Award under the category "Best Financial Inclusion Initiative"
Winner Award under the category "Best use of Technology in Training &eLearning Initiatives" and
Runner Up Award under the category "Best Online Bank"
14. Credit Cards
14.0 Credit Card portfolio of the Bank forms an important and a very potential elementof Bank Credit. In view of the large potential associated with it the Bank has taken stepsto expand this portfolio.
14.1 As on 31st March 2011, the Bank had issued a total of 34076 credit cardsaggregating a limit of Rs. 183.09 crore. The Bank is predominantly issuing Cards to itsexisting customers.
14.2 To quicken the process of issuing the cards, Bank has started issuing ofpre-approved cards to its customers. In addition to this a new scheme called CORP FAIDAhas been introduced to cover borrowers of retail segment.
14.3 For customer convenience, Bank has introduced tech-savvy services such as AutoDebit facility, SMS alerts, e-statements, online viewing of credit card details, ATMinterface and Verified by Visa authentication for on line transactions and issuance of OTP(One Time Password) to IVR transactions.(Interactive Voice Response System). All thesefacilities are expected to help the customers to use the Cards efficiently.
14.4 SMS alerts for all transactions is proposed to be introduced with effect from 30thJune 2011.
14.4.1 Delivery Channels
14.4.2 ATMs: As of 31.03.2011, the Bank installed 1,250 ATMs. During 2010-11, more than6.75 crore transactions were executed at the ATMs. The Bank installed second ATMs at 45sites with high footfalls. The Bank has started to install 2000 more ATMs under outsourcedmodel.
14.4.3 Debit Cards: As of 31.03.2011, the total number of cards issued by the bank isnearing 48 lakhs of which 7.85 lakh cards were issued during 2010-11. In our endeavor tooffer more and more card products, the Bank has launched Platinum variance of PremiumDebit Card with additional features. To start with, the Bank is issuing Platinum DebitCards to Priority Customers. The Bank has also launched Instant Debit Card which acustomer will get immediately on opening the account and enable him to operate his accountthe next day.
14.4.4 POS Machines: During 2009-10, the Bank rolled out the POS project across India.The feedback on the terminals is encouraging and as on 31.03.2011, the Bank installed16,420 machines.
14.4.5 Prepaid Gift Cards: The Bank launched Prepaid gift cards on 13.10.2009 to meetthe gifting requirements of corporates and individuals. The product has been well receivedand as of 31.03.2011, the Bank issued about 40,000 cards amounting to nearly Rs. 8crore.The Bank has also rolled out prepaid Payroll Card to meet the requirements of thecorporate customers with regard to the salary pay out of their employees.
14.4.6 Campus Cards: This product targeted at the student community has further gainedpopularity and as of 31.03.2011, the Bank enrolled 92 institutions for issue of campuscards. The cumulative campus card population as on 31.03.2011 was 42,000 cards.
14.4.7 Depository Services
The Bank is a participant of National Securities Depository Ltd.,(NSDL) and offersDemat services to its customers such as opening of Demat Accounts, Dematerialization,Rematerialisation, delivery & settlement of shares, pledge & hypothecation ofsecurities, facilitating corporate action etc. The DP services are presently being offeredin more than 80 branches of the bank. The Bank has also tied up with M/s. HSBCInvestDirect Securities (India) Ltd., and M/s. Religare Securities Ltd., for offeringOnline and Offline Trading facilities to its customers. The Bank is in the process ofexpanding its network DP and ASBA (Application Supported by Blocked Amount) designatedbranches across the country.
14.4.8 ASBA (Application Supported by Blocked Amount)
Our Bank was one of the first four banks identified by SEBI to introduce ASBA. It is anadditional payment mechanism for the benefits of investors who apply in IPO, FPO &Rights Issues through book building route or through Fixed Price Issue. This option isavailable to all segments of investors QIBs, Non Institutional Investors such asBody Corporates, HNI etc and Retail segment consisting of individual investors investingupto Rs 2.00 lacs. The types of accounts enabled for blocking of amount for ASBAapplicants are - Savings,Current,CLSB,CCSDL,ECOD and C ASBA. Our Bank is offering ASBAthrough more than 500 outlets across the country. For net banking customers the bank hasintroduced a very convenient mode of applying for ASBA through internet i.e only withsimple information such as Demat Client ID, DP ID, Name, PAN Number etc. at the firstregistration level under the Maintain Investors sub-heading available in thewebsite of the Bank under ASBA head. The bank has been able to attract substantial fundsfrom investors in major IPOs /FPOs such as Coal India, MOIL, Power Grid, Punjab & SindBank, Shipping Corporation of India etc. The applicants account does not get debiteduntil shares are alloted to him. This allows the investor customers money to remainwith the bank till the shares are allotted after the Issue and allotment of securities.This eliminates the need for refunds on shares not being allotted. The Bank has introducedthis facility as a value addition for the benefit of its customers. The investorcustomers funds are not parted at the time of submission of the application andhence keep earning interest till the applied shares are allotted. The process relieves theinvestor from the hassles of delay in getting refund orders and its misplacement etc..
15. Marketing Initiatives
15.1 A cohesive, competent and a vibrant marketing set up has been put in place tosupport the efforts of the Bank in reaching out to the customers and institutions from thepoint of view of Business development.
15.2 Clientele Acquisition under CASA: Mobilizing CASA accounts has been thetop most priority for the Banks Marketing Force. During the current year, the Bankcould mobilise 45000 Current Accounts and 16.50 lakh Savings Bank Accounts. This is asagainst 38400 Current Accounts and 9.05 lakh Savings Bank Accounts mobilized during theprevious year. With this, the Bank has crossed the landmark figure of 12 million customerbase. Further, the average rate of mobilizing SB accounts has reached 5 accounts perbranch per day in March 2011 from around 2 accounts in March 2010.
15.3 Millionaire Recurring Deposit Scheme & Sales PromotionDrive: An aggressive 3 month long nation-wide sales promotion drive was carried outfor popularizing the Recurring Deposit Scheme from 15th of May 2010 till 31st of August2010 in which an amount of Rs 107 crore has been mobilized from 94000 accounts.
15.4.1 Savings Bank Campaign: A five month long Savings Bank Campaign washeld from August to December 2010. During the campaign, Rs. 820 crore was mobilized from7.75 lakh Savings Bank Accounts.
15.4.2 Current Account focused Activity: A Current Account focused activitywas conducted from December 2010 till March 2011 for a period of 4 months. The campaignhas helped in mobilizing 16670 accounts with a balance of Rs 895 crore.
15.4.3 NRI Campaign: With a view to attract the NRI investments, a monthlong NRI Campaign was conducted from 15th of December 2010 till 15th of January 2011 inwhich 3269 new accounts with a balance of Rs. 161 crore was opened.
15.5 Introduction of Priority Banking Services: Priority Banking Service has beenintroduced in select branches of the Bank to cater to the High Networth Individualcustomers maintaining more than Rs. 5 lakh as Quarterly Average Balance in Savings BankAccounts. The services provided include special benefits like access to Priority Lounge, aDedicated Relationship Manager and Platinum Debit Card, etc.
15.6 Introduction of Senior Citizen Counters: Select Branches of the Bank have beendesignated as Senior Citizen Branches with dedicated counters to cater to the requirementsof Senior Citizens. These branches are also provided with exclusive facilities such ashealth care monitoring equipment, tie-up with a local clinic, etc.
16. Customer Service
16.1 Technology driven products and services with a prompt and efficient customerservice aid the Bank in getting new customers and additional business. With this in mind,the Bank has taken a number of initiatives that help in improving its customer service.Customer Relationship Managers (CRMs) have been appointed at every Zonal office toco-ordinate with the customers and the branch for ensuring speedier disposal ofgrievances. Meetings of the Customer Service Committee with two customers of the branchforming the committee, are held on a monthly basis at Branch/Zonal office level to discusson the issues related to the service area. A customer meet is also held on quarterlybasis. A Standing Committee on Customer Service and Customer Service Committee of theBoard are in place to take care of the Customer representations.
17. Integrated Risk Management
17.1 Basel II Compliance
17.1.1 Consequent upon globalization, Banks and other Financial Institutions all overthe world are exposed to different types of risks. The emergence of Basel-II accord andits increasing applicability throughout the world, calls for sound practices in riskmanagement. Risk Management is an integral part of a Banks organizational structureand business strategy. Identification, measurement, monitoring and controlling the riskenables the Bank to minimize losses and maximize profits. The major types of risks facedby the Bank are Credit Risk, Market Risk and Operational Risk.
17.1.2 Risk Management Committee of Executives and Risk Management Committee of theBoard are looking after the implementation of integrated risk management systems in thebank. The Bank has well laid down risk management policies for management of credit risk,market risk and operational risk. 17.1.3 The Bank has put in place Internal CapitalAdequacy Assessment Process (ICAAP) to assess the risks to which it is exposed and therisk management processes in order to manage and mitigate those risks and to furtherevaluate its capital adequacy relative to its risks. Stress Testing Process is in placefor enhancing risk assessment by providing the Bank a better understanding of the likelyimpact even in extreme circumstances. Going forward, this exercise is expected to renderan objective basis for decision making both to the risk control function and to the entireinstitution.
17.2 Credit Risk
17.2.1 In the area of credit risk management, the Bank has implemented credit ratingsystem, namely Risk Assessment Model (RAM) developed by CRISIL for assigning internalrating. Commercial credit proposals of Rs. 10 lakh and above are processed through thissoftware. This software will help the bank to move over to Internal Rating Based (IRB)Approach of BASEL II. The software also has a module called Capital AssessmentModel (CAM), which is used to compute capital for credit risk under Standardized Approachof Basel-II. Stress testing of credit risk is conducted every quarter.
17.2.2 Bank has formulated a Group Credit Policy, which lays down policy guidelines forcredit management covering all areas of operation where credit risk is involved. Thepolicy would enable the bank to enhance the risk management capabilities thus making itpossible for the bank to show a steady and healthy growth in its credit portfolio,resulting in overall improved performance.
17.2.3 In terms of the above policy, the Bank has set prudential limits to individualborrowers, non-corporate borrowers, entry level exposure norms, substantial exposurelimits, benchmark financial ratios, borrower standards, exposure limits/ceilings toindustries, sensitive sectors, rating category etc. The Board reviews the prudentiallimits regularly.
17.2.4 The Bank has implemented a multi-tier credit approving system wherein the loanproposals are cleared by an "Approval Grid" before being placed to therespective sanctioning authorities. For speedy and efficient disposal of credit proposals,the Bank has established Retail Hubs at major centres for retail credit approval andCentralized Credit Processing Cells at each of the Zones for appraising larger creditproposals.
17.2.5 The Bank has put in place a Loan Review Mechanism to improve the quality of loanproducts and to ensure adherence to the policies, procedures and other statutoryrequirements. For the year ended 31.03.2011, the Bank has reviewed approximately 68% ofthe credit portfolio of the Bank under Loan Review Mechanism.
17.2.6 Offsite surveillance through the core banking platform is now made use of totrack exceptions in the conduct of borrowal accounts and initiate timely corrective actionto protect/ improve the health of credit portfolio. Credit monitoring cells have also beenformed at all the zonal offices for independent and effective monitoring of borrowalaccounts.
17.2.7 The Bank has also undertaken Industry Risk Assessment and Portfolio Studies inorder to assess the credit risk at the portfolio level and adopt strategies to improve thequality of portfolio and reduce the potential adverse impact of concentration of exposuresto certain borrowers or industries. 17.2.8 Study on rating migration of borrowal accountsis undertaken and appropriate corrective actions are initiated to protect the portfolioquality.
17.3 Market Risk
17.3.1 Market Risk is the risk to the Bank resulting from the movements in marketprices particularly due to the changes in the interest rates, equity and commodity prices.The changes will have direct impact on the Banks earnings and its capital. Thesechanges can have ramifications on Banks liquidity and profitability.
17.3.2 For management of Market Risk, the emphasis has been placed on stabilization andsteady growth of Banks net interest income (NII). Market position, funding patterns,duration, counter party limits and various sensitive parameters are monitored. Theadvanced Risk Management tools such as Value at Risk (VaR), Earning at Risk (EaR), NetOvernight Open Position Limits (NOOP) and Modified Duration limits are used in managingmarket risk.
17.4 Operational Risk
17.4.1 Operational Risk is embedded in all business operations and the management ofoperational risk is an important part of the sound Integrated Risk Management Structure.In the background of the size and complexity of business and risk philosophy of the bank,emphasis is being given to impart knowledge at the field level through continuous trainingprocess. In order to move over to the advanced approaches under the Basel II framework andadopt industry best practices in risk management, the bank has appointed consultants andsoftware vendor for implementing operational risk management framework conforming tointernational standards.
17.4.2 Bank is planning to roll out the operational risk software to collect theoperational risk loss data across the different business lines in a phased manner. RiskControl Self Assessment (RCSA) exercise and Key Risk Indicator (KRI) monitoring forcritical units will also be carried out with the help of this software in a phased manner.
17.4.3 Under the Risk Based Supervision, Risk Profile Templates covering five businessrisks and two control risks are prepared on quarterly basis and submitted to RBI.
18 Asset Liability Management (ALM)
18.1 The ALM Function involves planning, directing and controlling the flow, level,mix, cost and yield of consolidated funds of the Bank. The primary objective of ALM is notto eliminate risk, but to manage it in such a way that the volatility of net interestincome is minimized.
18.2 As a part of Risk Management and Control, the Bank is using the ALM system forstudying and analyzing the interest rate sensitivity (Gap Analysis), Maturity andLiquidity analysis of Assets and Liabilities. Models like Earning at Risk and Duration areused for interest rate risk management and improving the Net Interest Margin. Stresstesting of liquidity risk and interest rate risk is conducted every month. The Bankapplies Value-at-Risk (VaR) to measure the trading risk.
18.3 The Bank has constituted the Asset Liability Management Committee (ALCO) whichmeets at regular intervals to review the interest rates scenario, product pricing for bothdeposits and advances, desired maturity profile of the incremental assets and liabilities,demand for bank funds, cash flows of the Bank, Profit Planning and overall balance sheetmanagement.
19. Human Resources Management
19.1 To meet the requirements of Business Growth, Branch Network expansion andattrition / retirements, Bank has recruited 1367 fresh employees during the year. Thetotal staff strength stood at 13861 on 31st March 2011 as compared to 13143 as on last dayof the previous year.
19.2 Staff productivity in the Bank increased from Rs. 12.69 crore as on 31.03.2010 toRs. 15.73 crore. as on 31.03.2011 recording a growth of 24.05%. Net Profit per employeeincreased from Rs. 9.52 lakhs to Rs. 10.92 lakhs during the year.
19.3 The Bank has been following the guidelines for reservation in employment tospecified categories. During the year 1367 candidates were recruited out of which 302candidates belong to Scheduled Caste and Scheduled Tribe categories. The representation ofScheduled Caste/Scheduled Tribe employees in the total staff strength was 3677 (26.53%) ason 31.03.2011.
19.4 The Bank also has a fair representation of other reserved categories. As on 31stMarch 2011, 1951 other Backward Communities, 284 physically handicapped and 718Ex-servicemen were on the rolls of the Bank.
20. Human Resources Development & Training
20.1 In keeping with the organizational growth, there have been adequate promotionalopportunities in the Bank. During the fiscal year 912 members of staff were promoted tothe next higher cadre / scale.
20.2 The Bank has effected improvements in the Staff Welfare Schemes. The Bank alsocontinued to promote sports, games and cultural activities.
20.3 Skill development of the workforce improves the competitiveness of theorganization. Bank has trained 11241 employees to improve their behavioral aspects andskills. This includes workshops on Anti-Money Laundering, E-learning programmes on KYC andrelated non-technical areas.
20.4 Bank has received award from IBA for usage of e-learning for training. As per thePeople Engagement Plan, the Bank is administering various incentive schemes with monetaryand non-monetary incentives for business leaders and team to activate the innate potentialand prompt them to contribute extra towards organizational growth. While continuing toadminister Corporate Awards for rewarding performance of business units, performances onspecial campaigns/drives are rewarded on attaining specific performance parameters. TheBank is permitted to earmark 1% of Profit after Tax (PAT) of the year for releasingincentives and has utilized this limit optimally for business development.
20.5 Succession Planning
To enhance the psychological motivation among the officers, the Bank is providingopportunity of "Fast Track Promotion" in promotion process from clerical toofficer cadre, for promotion from one scale to next scale from Scale I upto Scale IV.During the year 2010-11, promotions were effected under "Fast Track" as under:
|Junior Management Scale I to MM Scale II ||84 |
|MM Scale II to MM Scale III ||35 |
|MM Scale III to Executive cadre scale IV ||22 |
Even though direct recruitment is usually restricted to scale I, looking at the ageprofile of existing officers, Bank has proactively taken initiative during the year2010-11 to directly recruit officers at higher levels as under:
|MM Scale II ||: 10 |
|MM Scale III ||: 4 |
These initiatives will strengthen the middle management and entry level executivepositions and build young managers who can take up responsibility during the ensuingyears.
21. Inspection and Audit
21.1 Internal Inspection
21.1.1 Effective Audit system with focused approach on proper assessment, effectiverisk containment measures that provides adequate internal control mechanism for improvedefficiency, sustained quality, low risk and smooth functioning of the Bank are the keypolicy perspectives of the Internal Inspection of the Bank. In the light of fast changingdynamics of todays banking and in line with the guidelines issued by the ReserveBank of India, the Bank has adopted this policy of risk based internal Audit with effectfrom 01.04.2003.
21.1.2. Risk Based Internal Audit lays focus on Risk Identification, Risk Management,adequacy of Control Systems and Procedures as well as optimum use of resources. It aims atgiving an assurance to the Management on the level of regulatory and systemic compliancebesides assisting in accomplishment of corporate governance objectives.
21.1.3. Branches and other Offices of the Bank are subjected to different types ofInspection & Audits so as to contain risk, have proper control mechanism and improveefficiency of operation.
21.1.4. As part of decentralization of certain audit functions of branches/offices, 10Zonal Audit Offices (ZAOs) were set up at important centers so as to carry out internalaudit functions of branches at regular periodicity. The various functional divisions atHead Office, Zonal offices and Lead Bank Offices were also subjected to regular inspectiononce in two years, COBSETI at Chikmagalur, Corp Bank Securities, Chiko Bank and CurrencyChests are subjected to Regular Inspection once in a year. The Investment &International Banking Division at Mumbai is subjected to Inspection once in 6 months.Regular concurrent audit is being carried out at the branches/ Offices identified as perthe Inspection and Audit Policy.
21.1.5. Important findings of inspection is placed before the Audit Committee ofExecutives (ACE)/Audit Committee of the Board for information and suitable directions.
21.1.6 Banks are often the front-line defense against financing of terrorism and cancontribute significantly by increasing vigilance against the abuse of the financialsystem. Keeping in mind the said objective, detailed guidelines on Anti Money Laundering(AML) covering the areas of customer acceptance, customer identification, monitoring oftransactions and risk management etc. have been issued to branches/offices of the Bankfrom time to time.
22. Legal Services
Legal Services Division of the Bank plays a significant role in the various commercialactivities undertaken by the Bank, including recovery of the monies lent. It has beenperforming diversified activities such as scrutiny of title to immovable propertiesoffered as security, preparation of case specific documents, conduct of legal audit,advising branches as to the initiation of necessary steps to recover the dues of the Bankand examination of applications and appeals received from citizens under the Right toInformation Act. Legal Services Division has also been taking effective steps in defendingthe Bank in legal proceedings initiated before various forums like Civil/Criminal Courts,Consumer Forums, Banking Ombudsmen and various other statutory authorities. Matterspertaining to orders of attachments from income tax, sales tax or other authorities areeffectively handled. The Division has devised a simplified procedure for settlement ofclaims relating to deceased depositors with least amount of inconvenience and delay. TheLaw Officers are regularly and continuously handling varied legal matters and offeringlegal guidance to branches and Administrative Offices in a time bound manner and takesteps to safeguard the interest of the Bank in all its spheres of activities.
23. The Right to Information Act 2005
23.1 Bank in pursuance of the enactment of Right to Information Act, 2005, hasdesignated Public Information Officers and Appellate Authorities at Head Office and ZonalOffices. The disclosures under the Act are displayed in the Banks website. Bank iscomplying with the provisions of the said Act at all levels and disposing of all theapplications and appeals received from the public within the stipulated time frame.
24.1 In the back drop of challenging law and order situation across the country withspecific reference to attack against banks and financial institutions, the Bank has beenalert, conscious and concerned about the safety of public assets, customers, employees andbanks property. Efforts were channelised to strengthen the risk management system ofthe Bank. Bank has adopted forward posture in implementing measures to avoid/minimisesecurity risk by heavily leaning on technology as force multiplier in addition to ruthlessimplementation of physical security measures like fire alarm, security alarm, accesscontrol system, CCTVs and video surveillance. Frequent interactive sessions with theemployees manning the show windows by Security Managers adds additional dimension ascontributing factor in sensitising them with prevalent threats and measures. Bank isabreast with latest development in the security management field aiming to constantlyrediscover the key matrixes for breaking new grounds and to tread untraveled tracks withthe sole aim of providing utmost comfort to the customers.
25.1 The Bank has a Compliance Division in place as mandated by Reserve Bank of India.An Executive of the rank of Deputy General Manager heads the division and represents asthe Chief Compliance Officer (CCO) of the Bank.
The compliance function in the Bank maintains a system of internal checks and balancesdesigned to ensure, strict observance of applicable statutory provisions contained invarious legislations, compliance with rules and regulations applicable to banks andadherence to internal policies and fair practices codes
26. Vigilance Machinery
26.1 As custodians of public funds, the Bank is expected to maintain highest standardsof honesty, integrity and efficiency. Banking Organizations essentially work on thephilosophy of mutual trust and confidence. The roles and responsibilities of eachfunctional division in Banks are well defined and documented for better clarity andeffectiveness. The vigilance functions in the Bank are primarily in the nature ofprevention and detection rather than taking punitive action. The vigilance machinery playsthe role of a watchdog so as to ensure that the laid down systems and procedures are nottampered with for any personal gain or benefit. It believes in the principles of naturaljustice and punishing the guilty irrespective of rank and position.
26.2 Wherever instances of serious violation in the systems and procedures are reportedor complaints received against the Bank officials, which primarily reflects on theintegrity of the Official, an investigation is ordered and preventive measures are takenincluding taking punitive action against the erring officials wherever required. As apro-active measure, the Vigilance Division also conducts preventive checks and reports onthe deviations observed. It also suggests how such violations can be avoided with thecollective effort of all.
26.3 The Bank has a Preventive Vigilance Mechanism in place. Branches have beendirected to convene Preventive Vigilance Meetings every month. In the said meetings, staffmembers have to discuss, share information and their work experiences so that alertnessand awareness is generated through out the Bank.
26.4 The Bank has framed its own "Whistle Blower Policy", the objective ofwhich is to identify any untoward events with the help of the employees and to take timelycorrective measures so as to prevent / protect the Bank at the initial stage itself. Thismechanism also provides adequate safeguards against victimization of employees who availof this mechanism.
At the close of the financial year 2010-11, the bank has crossed the land mark totalbusiness of Rs. 2,00,000 crore and stood at Rs. 2,03,598 crore with a growth of 30.56%.
The bank has pan-India presence with 1361 Branches, 1250 ATMs & 2500 BranchlessBanking units and has registered its global presence through its foreign representativeoffices at Dubai and Hongkong.
Corporation Bank has very strong fundamentals which are reflected in the businessfigures, profitability numbers, NPA level and with a track record of profit and dividendpayment since its inception, for the last 106 years.
It is amongst the best banks in the industry in terms of employee productivity. A highcalibre workforce, high network of branches better infrastructure facilities, acompetitive customer service and an advanced tech savvy environment helped the bank to geta prime slot in the minds of the people.
Pioneer in Financial inclusion with 2500 branchless banking units spanning over 13states across the country.
A trendsetter in the IT based innovations, bank is having fully computerisedenvironment in all its branches with interconnectivity through core banking.
A wide range of Delivery Channels, strong presence in the metro centres, comparativelyyounger workforce as compared to other Public Sector Banks.
The banking industry in India is undergoing a major transformation due to changes ineconomic conditions :
High rate of inflation of the Economy have a say on the growth pace of the BankingIndustry.
Banks, like any other industry are exposed to credit, Market and operational risks inthe day to day operation, thinning of Interest spread affects the profitability structureof the Bank.
Any change in the interest rate by Reserve Bank of India for the business products,Regulatory guidelines, Policies, Provisions etc. may affect the operational viability ofthe Bank.
Effectiveness of Recovery Management, Asset Liability Management and Risk Managementmay have its own impact on performance.
Thinning of margins and pressure on profitability due to competition.
29. Road map towards the future
To become the most preferred Bank with Global Standards, Corporation Bank has takenvarious initiatives to attain this coveted goal.
The bank has a visionary target of achieving business size of Rs. 5 lakh crore with anetwork of 2155 branches by March 2014-15.
To reach a customer base of 37 million by 2014-15 and 12000 branchless banking units.
Strengthening the international presence by opening branches in more European andAfrican countries.
| ||For and on behalf of the Board of Directors |
|Place : Mangalore ||(Ramnath Pradeep) |
|Date : 01-06-2011 ||Chairman & Managing Director |