Management Discussion And Analysis
1. Global Economy
1.1. Global activity is on recovery track with advanced economies (AEs) fine-tuningdebt & deficit levels to augur a jobs-driven-recovery. Global growth, which showedsigns of pick-up in early 2013, became broader gradually. Banks and financial institutionsare gradually becoming stronger, though balance-sheet effects still have held up growth.With activity stabilizing and fiscal consolidation slowing in the AEs, investors are nowless worried about debt sustainability. Although full recovery is seen still a year or twoaway, the key central banks have started pressing normalization levers of monetary policy.
1.2. Emerging market and developing economies (EMDEs) witnessed the consequent play ofglobal linkage effects through trade, finance and confidence channels. Beginning FY2013-14, in May 2013, the US Federal Reserve first signaled a possible reduction ofmonthly bond purchasing, popularly known as tapering of stimulus. The EMDEmarkets suffered a capital flight to advanced economies as risk adjusted return gotthinner. The yield on 10 year US treasury paper rose by 70-100 basis points between earlyMay 2013 and early July 2013. Consequent erosion of the return differentials of EMDEassets vis--vis the US treasury paper, made FIIs turn net sellers in these markets.EMDEs, particularly those with large twin deficits viz. current account deficit and fiscaldeficit, suffered sharp depreciation in the exchange rate, inviting unconventionalresponses by the policymakers. The Fed postponing tapering in September 2013,however, yielded some time for the EMDEs to prepare for the eventual tapering in future.To their credit, when the Fed actually effected reducing its monthly bond purchases inDecember 2013 policy, the EMDEs had made encouraging gains on improving their domesticmacros such that the tapering was accepted by markets rather positively.Further, given tapering also signaled a sustained pick-up in advancedeconomies, EMDEs have sensed increased demand for exports. Financial environment, however,is likely to remain challenging as the AEs gradually complete the normalization ofmonetary policy in 2014-15.
1.3. Global activity is expected to improve further in 2014-15, largely on account ofrecovery in the advanced economies. International Monetary Fund (IMF), in its April 2014issue of World Economic Outlook, projects global output growth to be slightly higher in2014, at around 3.7 per cent, rising to 3.9 per cent in 2015. Growth in the United Statesis expected to be 2.8 per cent in 2014, up from 1.9 per cent in 2013 and 3 per cent for2015. The euro area is turning the corner from recession to recovery. Growth is projectedto strengthen to 1.2 per cent in 2014 and 1.5 per cent in 2015, but the recovery is likelyto be uneven. Growth in China rebounded strongly in the second half of 2013, largely dueto acceleration in investment. This surge is expected to be temporary, in part because ofpolicy measures aimed at slowing credit growth and raising the cost of capital. Growth inChina is thus expected to moderate slightly, to remain around 7.5 per cent in 2014-15.
2. Domestic Economy
2.1. India has had another sub-potential growth year in financial year (FY) 2013-14. Asper the advanced estimates of the Central Statistics Office, Indias annual grossdomestic product (GDP) growth is estimated at 4.9 per cent during FY 2013-14 as comparedto 4.5 per cent noted during FY 2012-13. Agriculture & Allied, Industry (includingconstruction) and Services noted annual growth of 4.6 per cent, 0.7 per cent and 6.9 percent respectively during FY 2013-14 as against 1.4 per cent, 1.0 per cent, and 7.0 percent respectively during FY 2012-13. Services continued to be growth driver in FY 2013-14.Within services, trade, hotels, transport and communication sectors remain theworst hit of slowdown (3.5 per cent annual growth as against growth of 5.1 per cent in theprevious year). The sectors, financing, insurance, real estate and businessservices and community, social and personal services noted a growth rateof 11.2 per cent and 7.4 per cent respectively during FY 2013-14 as against 10.9 per centand 5.3 per cent respectively during FY 2012-13.
2.2. On expenditure based estimation, the slowdown hit consumption which decelerated to4.4 per cent in FY 2013-14 as against 5.2 per cent growth noted during FY 2012-13. Withinconsumption, the private expenditure and Government expenditure noted growth of 4.1 percent and 5.5 per cent respectively in FY 2013-14 as against 5.0 per cent and 6.2 per centrespectively during FY 2012-13. Investments meanwhile stayed flat. Government efforts tocontrol gold imports reflected in contraction in Valuables (declined 3.6 per cent).External sector however buoyed demand as net exports shrank in the period.
2.3. Inflation: Weak demand conditions in economy, stabilizing currency, slowerincrease in minimum support price (MSP) of food crops, and better harvest in a normalmonsoon year have brought disinflationary pressures in economy. Wholesale price index(WPI) based build up inflation rate in the FY 2013-14 was 5.7 per cent. However, firmingup of Core inflation suggests cost-push spiral risks building up in economy. Retail levelinflation, as measured by consumer price index (CPI) meanwhile, remained sticky at about10 per cent for most of FY 2013-14, though moderated to average 8.4 per cent in Q4 FY2013-14.
2.4. Liquidity Conditions: Barring the market gyrations witnessed inJuly-September, 2013, which warranted deliberate liquidity tightening by the RBI in orderto check speculative attacks on Rupee, liquidity situation remained within acceptabledeficit levels from the RBIs perspective. Term repo facility together with theforeign currency non-resident (FCNR) deposits scheme helped steadying the resourcemobilization from banks to match incremental demand of loans. Though liquidity tightnessreflected in positive spike of call rate spread over repo rate, overnight money marketrates continued to remain in the target range, viz. +/-1 per cent spread over Repo,implying liquidity was effectively managed through open market operations (OMOs) and termRepos conducted by the RBI during second half of 2013-14.
2.5. Banking Aggregates
2.5.1. As on March 21, 2014, annual growth in M3 noted at 13.5 per cent. Meanwhile,scheduled commercial banks (SCBs) deposits and advances grew by 14.6 per centand 14.3 per cent, respectively. SCBs investment in SLR securities noted 10.7 percent annual growth. Spurt in deposits growth is also reflective of banks raising FCNRdeposits to benefit from the RBI swap facility that confined to November 30, 2013.
2.5.2. Non-food bank credit increased by 14.3 per cent as on March 2014 as comparedwith the increase of 13.5 per cent in March 2013. Credit to agriculture and alliedactivities increased by 13.5 per cent while credit to industry increased by 13.1 per centin March 2014. Deceleration in credit growth was observed in respect of mining andquarrying, textiles, wood and wood products, petroleum and coal products, chemical andchemical products, glass and glassware, cement and cement products, basic metals,engineering, gems and jewellery and infrastructure. Credit to the services sectorincreased by 16.1 per cent in March 2014. Personal loans increased by 15.5 per cent inMarch 2014.
2.6. External Sector
2.6.1. Merchandise exports stood at USD 312.4 billion during FY 2013-14, registering agrowth of 4.0 per cent over the same period last year. Meanwhile, imports stood at USD450.9 billion registering a negative growth of 8.1 per cent over the same period lastyear. Oil imports during FY 2013-14 were valued at USD 167.6 billion which was 2.2 percent higher over FY 2012-13. Gold & silver imports stood at USD 33.4 billion which wasUSD 22.4 billion lower than the FY 2012-13 level, reflecting the policy measures taken bythe Government. Accordingly, the trade deficit for FY 2013-14 stood at USD 138.6 billionwhich was lower than USD 190.3 billion trade deficit during FY 2012-13.
2.6.2. With Indias forex cover to imports rising to above 8 months and CAD seenat half of the level a year ago, Indian currency has turned more stable and predictable.Rupee ended the fiscal year 2013-14 at 60.10/US$ with 10.5 per cent loss against US$ onannual basis, recouping from its all time low on August 28, 2013 (68.85/US$).
2.7.1. Markets surged on improving investor confidence about a decisive and stablepolity outcome in General Elections 2014. Sentiments also gained with external and fiscalbalances showing improvement. Sensex and Nifty ended FY 2013-14 with 18.8 per cent and18.0 per cent annual gains respectively. Sectoral index, Bankex stood 3.8 per cent higherover the level year ago. However, commodities benchmark, MCXComdex posted 11.8 per centgains in FY 2013-14. Indian markets have benefitted of the up-turn in global macros evenas the domestic recovery remained slow and gradual. In two months period, i.e.February-March 2014, markets noted 9 per cent gains. Banking sector stocks meanwhile,gained about 25 per cent. IMF forecasts Indias growth in real GDP at market pricesrising to 5.4 per cent in fiscal year 2014-15 in India.
Overview of the Performance of the Bank
3. New Initiatives: Your Bank has set for itself a mission to emerge as theleading retail bank in customer service excellence. During the year 2013-14 your Banklaunched various initiatives to work its way up in the customer preference.
3.1. Your Bank introduced Union Family Scheme addressing the banking needsof the entire family. Grouping the accounts benefits the customers in terms of betterpersonalization of product & deeper relationships with the Bank.
3.2. A new product Union Progress for micro enterprises was introduced inMarch 2014 giving added benefits to the borrower. The threshold limit of the margin of theproduct ranges from 5 per cent to 15 per cent. All the eligible cases under the scheme aremandatorily covered under Credit Guarantee Fund Trust for Micro and Small Enterprises(CGTMSE). Bank absorbs the entire guarantee fee (1 per cent) payable to CGTMSE in respectof our borrower covered under the guarantee scheme. No processing fee is charged forlimits up to Rs. 10 lakh, while a nominal processing fee of Rs. 1,000 is payable forlimits above Rs. 10 lakh.
3.3. During the year, the Bank has brought disbursement of all the Central Governmentpensions under Central Pension Processing Centers (CPPC). Disbursements of telecom,railway and postal pensions have been centralized. The Bank now has 90,000 pensionaccounts under centralized system of disbursement.
3.4. Further extending banking facilities to the unbanked and under banked populationyour Bank has come up with the concept of Mobile Van Banking. 20 mobile vansshall be deployed in various states so that the people at remote villages may accessbanking services at their doorstep.
3.5. Your Bank has entered into an agreement with CSC e-Governance IndiaLtd. for launching kiosk banking at various places. Under the scheme the kiosks,which are already providing state/central government services such as electricity billpayment, property tax payment, issue of birth/death certificates, issue of land/ revenuerecords etc. at village levels, will also provide banking services such as opening ofaccounts, deposit/ withdrawal from the accounts and other basic banking facilities. Thisproject has been launched on pilot basis in Andhra Pradesh and Kerala and is going to belive at many centers shortly.
3.6. The Bank has taken the lead in appointing the Internal Ombudsman foraddressing the customer grievances in a focused way. The purpose of creating this post isto ensure quick redressal of grievances and prevention of escalation to The BankingOmbudsman. The Internal Ombudsman has started functioning from August 2013.
3.7. Your Bank has successfully deployed the Fund Transfer Pricing and ProfitabilityManagement Modules of Oracles Financial Services Analytical Application (OFSAA) withthe assistance of M/s. HCL Technologies Ltd. This is the first implementation ofOracles 5.6 version of OFSAA in India. From April 2013, the Bank has moved over to amore robust and scientific transfer pricing mechanism called Matched Fund TransferPricing System from the existing gross basis concept where a single rate was fixedfor all assets and another rate for all liabilities. This new system enabled account wisetransfer pricing of all assets and liabilities based on the tenor, re-pricing and cashflow characteristics and would also enable centralization of interest rate risk at theCentral Funding Unit. The Matched Fund Transfer Pricing System would help in bettermanagement of interest rate risk and margins.
4. Resources Management: The global deposit of the Bank increased by 12.9per cent from Rs. 2, 63,762 crore as on March 31, 2013 to Rs. 2, 97,675 crore as on March31,2014 showing an absolute accretion of Rs. 33,913 crore. CASA portfolio increased by Rs.6,166 crore from Rs. 81,635 crore as on March 31, 2013 to Rs. 87,801 crore as on March 31,2014 showing a growth of 7.6 per cent. The share of CASA to total deposit stood at 29.5per cent.
Table 6: Resource Mobilization
|Parameter ||FY 2014 ||FY 2013 ||Annual Growth |
| || || ||Absolute ||% |
|Total Deposit ||297675 ||263762 ||33913 ||12.9 |
|CASA Deposit ||87801 ||81635 ||6166 ||7.6 |
|Term Deposit ||209874 ||182127 ||27747 ||15.2 |
5. Credit Management: Gross advances of the Bank increased to Rs. 2,34,332crore as of March 31, 2014, recording annual growth of 10.6 per cent during the lastfinancial year 2013-14. RAM (retail, agriculture and MSME) sectors continue to beBanks focus as these provide stable and consistent growth opportunities for theeconomy, too; these sectors contribute significant share in employment, exports andoverall growth. RAM sectors contribute 44.3 per cent of domestic advances as onMarch 31, 2014, higher than 37.4 per cent as on March 31, 2013.
Table 7: Advances
|Parameter ||FY 2014 ||FY 2013 ||Annual Growth |
| || || ||Absolute ||% |
|Gross Advances ||234332 ||211911 ||22421 ||10.6 |
|Retail Advances ||24931 ||19560 ||5371 ||27.5 |
|Agriculture Advances ||25614 ||20224 ||5390 ||26.7 |
|MSME Advances ||45372 ||34699 ||10673 ||30.8 |
|Mid & Large Corporate Advances ||113976 ||110002 ||3974 ||3.6 |
6. Retail Lending
6.1. The Banks retail lending portfolio saw an impressive growth of 27.5 per centduring the year, from Rs. 19,560 crore as on March 31, 2013 to Rs. 24,931 crore as onMarch 31, 2014. Retail loans as per cent to domestic advances increased from 9.8 per centas on March 31, 2013 to 11.5 per cent as on March 31, 2014.
Table 8: Retail Loans
|Schemes ||2013-14 ||2012-13 ||Annual Growth |
| || || ||Absolute ||% |
|Home Loans ||15424 ||12366 ||3058 ||24.7 |
|Auto Loans ||2199 ||1704 ||495 ||29.0 |
|Education Loans ||2219 ||2046 ||173 ||8.5 |
|Mortgage Loans ||3732 ||2335 ||1397 ||59.8 |
|Others ||1357 ||1109 ||248 ||22.4 |
|Total Retail Loans ||24931 ||19560 ||5371 ||27.5 |
6.2. The Banks Union Personal (personal loan) and UnionMortgage (loan against property) schemes were modified on key parameters, includingpricing. The pricing structure under the Union Home scheme was also revised.Currently each scheme offers loans at very attractive terms and conditions. The Bankopened 4 new Union Loan Points (ULPs), the special retail lending branch, at Allahabad,Agra, Haldwani and Tirupathi. This takes the total number of ULPs to 61 across thecountry.
7. Agriculture Lending
7.1. Agriculture is one of the thrust areas for the Bank. The Bank has formulatedvarious area specific schemes for financing under agriculture and allied sectors likepoultry, sugarcane, tobacco growers, green house etc, along with reintroducing the valueadded schemes like RuPay Kisan Credit Cards, Union Agri Service, scheme forfinancing dealers of inputs, agriculture machineries & implements, scheme for cottonginners, scheme for construction of rural godowns. Agriculture advance increased by Rs.5,390 crore registering a growth of 26.7 per cent. As on March 31, 2014, Banksagricultural advances stood at Rs. 25,614 crore covering 18.1 lakh borrowers. Lending todirect agriculture contributes a major share in agricultural advances; the directagriculture advances recorded an annual growth of 29.1 per cent. During the financialyear, 2.5 lakh new farmers were added to the Banks fold and 1.9 lakh additionalKisan Credit Cards (KCC) were issued with credit facility of over Rs. 2,636 crore. DuringFY 2013-14, total disbursement of Rs. 16,548 crore was made under Special AgricultureCredit Plan (SACP) registering an increase of 12.0 per cent over FY 2012-13.
8. Micro, Small & Medium Enterprises
8.1. MSME continues to be our area of focus. During the year, your Bank has ensuredenhancement in the base of MSME clientele and hassle-free flow of credit to this sector byassuring quick turnaround time (TAT), credit delivery at affordable prices and customizedproducts as per the requirements of the clients. While the Bank has large network forreaching out to MSME clientele across the country, in order to have special focus yourbank has 700 dedicated business banking branches (BBBs) for credit delivery to MSMEs and20 SARALs (Central Processing Centres) for speedy appraisal and sanction of MSME loans.These BBBs & SARALs have been established in potential centres across the country, soas to accelerate delivery of credit to MSMEs and for quicker decisions on sanction ofloans to MSMEs, which is critical for MSME growth. During FY 2013-14, the Bank hasincreased the number of BBBs from 350 to 700 and number of SARALs from 19 to 20 for bettercredit appraisal, ensuring lower TAT and for increasing the focus on the core segment ofmicro & small advances (MSE). As a result, Banks MSME portfolio stood at Rs.45,372 crore registering an annual growth of 30.8 per cent at the end of the FY 2013-14.The share of the MSME lending constituted 20.9 per cent of the Banks domesticadvances.
8.2. Micro & Small Enterprises: Micro & Small Enterprises constitute 72per cent of the total MSME portfolio. During the Financial Year 2013-14, Bank has reducedits interest rates for MSE advances by 25 basis point (bps) to 150 bps. Your Bank has alsoconducted a series of mega credit campaigns for canvassing accounts of micro enterprisesacross all the branches in the country during the last fiscal. With greater thrust oncoverage of MSE loans under CGTMSE, the Bank covered more than 14,000 MSE loans under theCollateral Free Loan scheme during FY 2013-14. Of the 388 SME Clustersidentified by United Nations Industrial Development Organization (UNIDO) & Ministry ofMSME, your Bank has presence in 387 clusters. MSE Rehabilitation Cell has been establishedin each of our Regional Offices for timely detection & monitoring of sick units and toprovide necessary rehabilitation to sick but viable units. Further, for canvassing newbusiness of corporates with a turnover between Rs. 100 crore to Rs. 500 crore, your Bankhas opened a total of 21 new Mid-Corporate Branches across major centres of the country ason March 31, 2014. MSE portfolio stood at Rs. 32,622 crore, as on March 31, 2014,registering a growth of 33.2 per cent.
9. Priority Sectors
9.1. As per RBIs new guidelines issued on May 15, 2014, it has been decided toinclude the outstanding deposits placed by scheduled commercial banks under RuralInfrastructure Development Fund (RIDF) and certain other funds established with NABARD, onaccount of their shortfall in lending to priority sector as part of indirect agricultureunder priority sector classification. The outstanding deposits under the above funds withNABARD as on preceding March 31st will form part of Adjusted Net Bank Credit (ANBC). Theseguidelines are applicable with effect from March 31, 2014. Thus, the numbers shown herehave been adjusted accordingly.
9.2. Priority sector advances registered a growth of 40.6 per cent and stood at Rs.79,869 crore as on March 31, 2014 constituting 40.4 per cent of the ANBC.
Table 9: Priority Sector Lending
|Schemes ||2013-14 ||2012-13 ||Annual Growth |
| || || ||Absolute ||% |
|Adjusted Net Bank* Credit ||197646 ||163636 ||34010 ||20.8 |
|Priority Sector* ||79869 ||56809 ||23060 ||40.6 |
|As % to ANBC ||40.4 ||34.7 || ||569 bps |
|Agriculture* ||28769 ||20224 ||8545 ||42.3 |
|As % to ANBC ||14.6 ||12.4 || ||220 bps |
|Direct Agriculture ||19875 ||15395 ||4480 ||29.1 |
|As % to ANBC ||10.1 ||9.4 || ||65 bps |
*Note: Numbers for 2013-14 include eligible outstanding deposits under RIDF &other funds, as per RBIs revised norms issued on May 15, 2014. Thus, these numbersare not strictly comparable to 2012-13.
9.3. Weaker Section: Banks finance to weaker section has improved from Rs.15,023 crore to Rs. 20,334 crore, registering a growth of 35.4 per cent to reach a levelof 10.3 per cent of ANBC against benchmark of 10 per cent set by GOI/RBI.
9.4. Women Beneficiaries: With a view to encourage entrepreneurs amongst thewomen and to make them self sufficient, Bank is providing credit to women. The Bank hasfinanced 7.7 lakh women beneficiaries, and outstanding loans to women beneficiaries haveimproved from Rs. 9,053 crore to Rs. 11,657 crore i.e. 5.9 per cent of ANBC againstbenchmark of 5 per cent set by GOI/RBI.
9.5. Minority Communities: In line with Government of India directive onwelfare of minority communities, the Bank has been extending finance to the minoritycommunities. During FY 2013-14, Bank has financed Rs. 2,991 crore to the 86,118 minoritycommunity borrowers. The total outstanding to minority community stood at Rs. 8,280 crore,registering an annual growth of 56.6 per cent.
10. Corporate Credit
10.1. The mid and large corporate credit portfolio of the Bank is well diversified.While corporate can avail facilities from branches across India, the Bank has 9 dedicatedIFBs (Industrial Finance Branches) at important centers, viz; Mumbai, New Delhi, Kolkata,Hyderabad, Chennai, Ahmedabad, Pune and Bangalore. The advances portfolio of 9 IFBsconstitute nearly 60 per cent of Banks total mid and large corporate loans. TheseIFBs report directly to large corporate vertical at central office. The Large CorporateVertical initiative was taken to ensure faster movement of the proposals of corporateclients, providing industry specific specialized services and introduce CorporateRelationship Manager (CRM) model. The credit proposals at Large Corporate Verticalare processed at the respective industry desk. Industry reports are prepared on varioussectors to guide the branches for taking exposures/enhancing exposures in potentialindustry/sector.
Table 10: Mid and Large Corporate Advances
|Particulars ||2013-14 ||2012-13 ||Growth |
| || || ||Absolute ||% |
|Mid & Large Corporate Advances ||113976 ||110002 ||3974 ||3.6 |
|w/w 9 IFBs Advances ||73496 ||71121 ||2375 ||3.3 |
11.1. The treasury division handles domestic treasury operations, forex operations,fixed income, derivatives products, equity and other alternate asset classes. Treasury isequipped with a state-of-the-art dealing room with all facilities to extend all types oftreasury services to its clients spread across the country.
11.2. The gross investment portfolio of the Bank stood at Rs. 94,169 crore as of March2014 as against Rs. 81,189 crore as of March 2013, registering annual growth of 16.0 percent. The investment portfolio comprises investments made in Government securities, statedevelopment loans and other approved securities for maintenance of Statutory LiquidityRatio (SLR) and non-SLR investments like equity shares, corporate debentures, PSU bonds,commercial papers, certificate of deposits, mutual funds, venture capital funds,subsidiaries and joint ventures.
11.3. The average yield on investment, as of March-2014 was 7.5 per cent against 7.4per cent as of March-2013. Average yield on interest bearing securities as of March-2014was 7.9 per cent against 7.7 per cent for the last year. During FY 2013-14, Treasuryprofits on sale of investment and exchange earnings were Rs. 486 crore and Rs. 461 crorerespectively.
12. Domestic Foreign Business & International Banking
12.1. Domestic Business: The export credit stood at Rs. 10,041 crore as on March31, 2014 compared to Rs. 8,917 crore as on March 31, 2013 registering an annual growth of12.6 per cent. During the year Bank had categorized four branches as authorized dealingbranches for undertaking trade finance and to make forex services accessible locally tomore customers. Additional sixteen such branches are proposed to be categorized asauthorized dealing branches during 2014-15. An NRI back-office has been set up for openingof NRI accounts sourced by Overseas Relationship Managers (ORMs) from Gulf CooperationCouncil (GCC) countries for expediting the account opening process of NRI customers fromoverseas centres. Global Travel card co-branded with American Express has been introduced.The Banks NRI deposits increased by 66.2 per cent during the year to Rs. 15,899crore as on March 31, 2014 from Rs. 9,564 crore as on March 31, 2013. The non-interestincome from forex business was Rs. 227 crore for FY 2013-14 as against Rs. 172 crore in FY2012-13 registering an annual growth of 32 per cent.
12.2. Overseas Business: The total business of the Bank from overseas operationsat Dubai International Financial Centre (DIFC), Dubai and Hong Kong branches increased by28.9 per cent over the year to USD 3,746 million as on March 31, 2014.
Table 11: Overseas Operations
|Particulars ||FY ||FY ||Annual Growth |
| ||2013-14 ||2012-13 ||Absolute ||per cent |
|Overseas Deposits ||812 ||509 ||303 ||59.5 |
|Overseas Advances ||2935 ||2398 ||537 ||22.4 |
|Total Overseas Business ||3746 ||2907 ||839 ||28.9 |
12.3. The Banks second foreign branch at DIFC, Dubai, has achieved breakeven inits first year of operation. For FY 2014-15, Bank proposes to operationalize two foreignbranches at Sydney (Australia) and Antwerp (Belgium) and one overseas subsidiary at London(UK) to further strengthen its global footprint. The Bank already has representativeoffices at Shanghai (China), Abu Dhabi (UAE), Beijing (China) and Sydney (Australia).<