bharat co operative bank ltd share price Management discussions

THE BHARAT CO-OPERATIVE BANK (MUMBAI) LIMITED ANNUAL REPORT 2008-2009 MANAGEMENT DISCUSSION AND ANALYSIS FINANCIAL RESULTS DURING 2008-09: Major economies in the world, are in the midst of deep global economic slump and financial market turmoil. The global financial situation is still uncertain and worldwide outlook has continued to deteriorate particularly from last quarter of the year 2008-09. The slowdown in growth of Indian economy has accentuated in the third quarter of 2008-09 on account of spillover effects of international developments. After registering annual growth of 8 to 9% on an average over the last five years (2003-08), India was headed for a cyclical downturn in 2008-09 under impact of the global crisis. In the first two quarters of 2008-09, the growth deceleration was quite modest, the full impact of the crisis began to be felt in the third quarter, which recorded a sharp downturn in growth. Like all emerging economies world over, India too has been impacted reflecting moderate growth, lower industrial production, negative exports and diminished business confidence. To tide over the situation the Reserve Bank of India has taken several steps to provide ample rupee liquidity like reduction in CRR, Repo and Reverse Repo Rates. Taking a cue from the Reserve Banks monetary easing initiatives triggered by current crisis, the bank reduced lending rates and revised interest rates on deposits on many occasions during the financial year. The global as well as domestic financial and economic outlook continues to be unsettled and uncertain, thus exposing Banks in general to higher risks, in the near future. Despite this, the Bank has continued to maintain the growth during the year under report. The gross income of the Bank for the financial year ended 31st March, 2009 was Rs.260.93 crones as against Rs.199.65 crores for the previous year. The Bank posted a net profit of Rs.30.52 crones as against Rs.26.15 crores for the previous year after making necessary provisions in accordance with the extant guidelines of the Reserve Bank of India and in terms of provisions of Section 62(2) of the Multi-State Co-operative Societies Act, 2002. APPROPRIATION: The net profit of Rs.30,52,20,269.09 is arrived at after adding the carried forward profit of Rs.16,011.61 of previous year. The sum of Rs.30,52,20,269.09 is thus available for appropriation. The Board of Directors in accordance with the guidelines of Reserve Bank of India and the provisions of Section 63 of the Multi-State Co-operative Societies Act, 2002 recommends appropriation of the Net Profit as under: (Rupees) Statutory Reserve 7,65,00,000.00 Contribution to Education Fund of NCUI 30,52,000.00 Special Reserve 3,07,00,000.00 Dividend to Shareholders 7,60,71,433.00 Building Fund 6,73,80,000.00 Investment Fluctuation Reserve 5,00,00,000.00 General Reserve 15,00,000.00 Balance carried forward to the next year 16,836.09 30,52,20,269.09 After the appropriation as above, Credit balance of Rs. 16,836.09 remains unappropriated and the same is carried forward to the next financial year. Subject to the approval of the Members to the recommendation as made above, the Banks Reserve and other Funds as on 31st March, 2009 would appear as under:- (Rupees) Statutory Reserve 54,04,37,108.79 Building Fund 68,13,80,000.00 Dividend Equalization Fund 1,55,00,000.00 Bad and Doubtful Debts Reserve 49,00,00,000.00 Contingent provision against Standard Assets 6,00,00,000.00 Charity Fund 10,00,000.00 Special Reserve 13,45,00,000.00 Investment Depreciation Reserve 1,86,70,693.00 Investment Fluctuation Reserve 25,00,00,000.00 Education Fund 10,00,000.00 Capital Reserve 1,53,37,500.00 General Reserve 50,00,000.00 General Reserve (Deferred Tax) 9,11,30,000.00 230,39,55,301.79 FINANCIAL PERFORMANCE DURING THE YEAR 2008-09: The Banks financial performance continued to record steady and cautious growth during the year under report. The comparative position of financial performance of the Bank is indicated below: (Rupees in crores) As on As on Growth 31/03/2009 31/03/2008 % Share Capital 56.60 46.62 21.40 Reserve Funds 198.67 175.51 13.20 Deposits 2226.64 1789.79 24.40 Advances 1497.90 1268.39 18.09 Investments 817.44 579.83 40.98 Working Capital 2603.73 2092.46 24.43 Gross Income 260.93 199.65 30.69 Net Profit 30.52 26.15 16.71 ANNUAL BUDGET FOR THE YEAR 2009-10: Rupees in Growth crores Share Capital 65.00 14.84 Reserve Funds 222.00 11.74 Deposits 2750.00 23.50 Advances 1900.00 26.84 Investments 985.00 20.50 Working Capital 3130.00 20.21 Gross Income 335.00 28.39 Net Profit 36.00 17.96 The above Annual budget is prepared keeping in view the Union Budget and monetary & credit policy of the Reserve Bank of India. The Board of Directors seeks support and co-operation from Members to achieve the Annual Budget for the financial year 2009-10. LONG TERM PERSPECTIVE PLAN: As part of long term perspective plan, and as proposed in the last years report, the Bank has applied to the Reserve Bank of India for Branch licenses for opening new Branch offices during the year 2009-10 in Goregaon West- Mumbai. Jayanagar-Bangalore, Suratkal - Mangalore, Navi Mumbai - Raigad District and Bhayandar-Thane District. The Reserve Bank of India vide letter dated 2nd April, 2009 has granted permission to open new branch offices of the Bank at Goregaon (West) - Mumbai, Jayanagar- Bangalore and Suratkal- Mangalore during the year 2009-10. Further, the Board of Directors propose to strengthen the technology front to cater a few more services to serve customers and members. PROVISION FOR TAXES: Members are aware that, with the removal of deduction enjoyed by the Co- operative Banks under section 80P of the Income Tax Act, 1961 till the year 2006, the Banks profts are liable to Income tax. Banks are also required to comply with the Accounting Standards (AS) issued by the Institute of Chartered Accountants of India (ICAI). As per Accounting Standard 22 Accounting for Taxes on Incomethe Bank is required to determine the amount of expenses or savings related to taxes on income in respect of an accounting period and disclose the amount in the financial statements. Adoption of AS 22 gives rise to the creation of either a deferred tax asset (DTA) or a deferred tax liability (DTL) in the books of accounts of banks. Accordingly, the provision for tax for the year has been worked out as under after giving effect to the deferred tax liability arising out of the timing differences and provisioning. (Rupees in lakhs) Net Tax Liability for the year 1190.00 Add:Fringe Benefit Tax 24.00 Add:Tax paid for earlier year 17.22 Add:Deferred Taxes 342.66 Provision made in Profit & Loss Account 1573.88 LOANS AND ADVANCES: Deployment of Fund was adversely affected due to the current economic downturn and the spillover effects of the global recession on the Indian economy particularly from September, 2008 onwards, due to sluggish credit demands. Inspite of this,during the year under Report, Loans and Advances of the Bank have increased from Rs.1268.39 crores to Rs.1497.90 crones showing increase of Credit portfolio by Rs.229.51 crones over the previous year. The Credit-Deposit ratio of67.27% indicates profitable use of the Banks resources. CREDIT POLICY AND CREDIT MANAGEMENT POLICY: The Board of Directors was circumspect of credit portfolio of the Bank taking into consideration the overheating in the national economy and slow credit off take during the financial year. The Board is confident that the demand for credit shall improve during the current financial year. Banks credit growth was driven by an increase in both corporate lending as well as retail lending. Considering the changes taking place in banking sector particularly in credit portfolio, the Board of Directors revised the existing Credit Policy of the Bank in tune with the guidelines from the Reserve Bank of India, to grant loans and advances to meet credit needs of the members and to deploy funds towards productive activities, which are viable and profitable and also to mobilize/maintain quality assets. The Board of Directors was cautious that spillover effects of the global recession might affect the repaying capacity of borrowers resulting in increase in NPAs. Due to cautious and timely actions supported by the Securifisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 the NPAs have decreased during the financial year under report. The Board of Directors also revised the Credit Management Policy of the Bank, which provides specific direction for effective supervision to ensure proper utilization of sanctioned credit facilities, to safeguard Banks funds and also to strengthen recovery procedure. INVESTMENT PORTFOLIO: The Bank has an investment of Rs.817.44 crores as on 31st March, 2009 out of which an amount of Rs.665.01 crones has been invested in Government and other approved securities. The Banks total investments in Government and other approved securities as on 31st March, 2009 works out to 29.25% of the Net Demand and Time Liability (NDTL) of the Bank, which is well above the limit stipulated by the Reserve Bank of India. The Bank has not invested any amount in securities, which are not considered for Statutory Liquidity Ratio (SLR). The Bank is a direct member of the NDS System for settlement of Government securities for Treasury operations. The Bank is also a member of the Clearing Corporation of India for Collaterlised Borrowing and Lending Operations segment (CBLO). The Bank is borrowing and lending under CBLO as per the guidelines of the Reserve Bank of India and rules and regulations of the Clearing Corporation of lndia (CCIL). The Bank is using CBLO segment as an effective tool for liquidity and fund management. TECHNOLOGY UPGRADATION FUND SCHEME (TUFS): The Bank continued to be included as an eligible institution by the Small Industries Development Bank of India (SIDBI) under Technology Upgradation Funds Scheme (TUFS). Under this scheme, the Textile Industrial borrowers are eligible for claiming interest reimbursement upto 50/a of interest paid on term loans availed by them from the Bank. FINANCING TO PRIORITY SECTORS: In tune with the national objective of distributive justice, the Bank is continuing to emphasize channelising of credit to productive and infrastructural activities under the priority and weaker sections to meet the socio-economic objectives of the Government of India. The Loans and Advances of the Bank amounting to Rs.1497.90 crones have been deployed amongst different segments of the economy such as Micro & Small Scale Industries, Transport Operators, Small Business Enterprises, Housing, Traders, Self employed persons and Professionals. The Banks advances to priority sectors as an 31st March, 2009 stood at Rs.1009.04 crores forming 67.36% of the total advances. This includes a sum of Rs.158.55 crores sanctioned to weaker sections as per the guidelines of the Reserve Bank of lndia. The break-up of advances to priority sectors is given in the graph forming part of this Report. RECOVERY POSITION: The recovery position of Loans and Advances during the year under report is satisfactory. The percentage ovendues to total loans and advances was reduced to 2.11 as on 31st March, 2009 from 2.39 as on 31st March, 2008. This was achieved through constant monitoring of defaulted accounts at the branch as well as at the Central Office level. The Bank has also strengthened its recovery by referring disputes with regard to recovery of Banks dues to Justice S. M. Daud (Retd.) and Justice Rajan Jodharaj Kochar (Retd.) who are appointed as Arbitrators of the Bank by the Central Registrar of Co-operative Societies, New Delhi/Commissioner for Co-operation and Registrar of Co-operative Societies, Maharashtra State, Pune under sub-section (4) of Section 84 of the Multi-State Co-operative Societies Act, 2002 and to Shri A.H. Naik, Retired District and Session Judge and Practicing Advocate, High Court of Karnataka, Bangalore who has been appointed as Arbitrator of the Bank by the Registrar of Co-operative Societies in Karnataka, Bangalore under sub-section (4) of section 84 of the MSCS Act, 2002 for adjudications of disputes, vide notification No. RCS/D2/35/2006-07 dated 12th March, 2007. The Bank has also taken benefit under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which was made applicable to Co-operative Banks since 28th January, 2003. COMPUTATION OF NON-PERFORMING ASSETS (NPAs): All the loans and advances are taken into account for working out non- performing assets as per the guidelines of the Reserve Bank of India and accordingly the provisions were made towards non-performing assets. By regular monitoring of the loan accounts and continuous follow-up with the borrowers, the Non-Performing Assets (NPAs) were reduced to Rs.33.62 crores as on 31st March, 2009 from Rs.35.02 crones as on 31st March, 2008. Consequently the gross NPAs was reduced to 2.24% as on 31st March, 2009 from 2.76% as on 31st March, 2008 and the net NPAs was 0% as on 31st March, 2009, reflecting healthy loan portfolio of the Bank. The detailed classification of assets and provisioning made against non- performing assets as on 31st March, 2009 are given below, wherein you will notice that the provision required to be made as per guidelines of the Reserve Bank of India works out to Rs.25.58 crones and as against this the Bank has provision of Rs.49.00 crones. Classification of Assets and Provisioning made against Non-Performing Assets as on 31st March, 2009. (Rs. in Lacs) Classification A B C D E F G H of Assets 1 2 3 4 5 6 7 8 Total Loans and 29617 149790.20 Advances: of which A. Standard 28306 146428.08 97.76 0.40 585.71 000.00 - 600.00 9. Non-Performing 4500.00 400.00 4900.00 Assets Assets 1. Sub-Standard 271 708.22 0.47 10 70.82 2. Doubtful (i) Upto 1 year a) Secured 26 132.25 0.09 20 26.45 b) Unsecured 159 108.08 0.07 100 108.68 (ii) Above 1 year and upto 3 years a) Secured 16 65.52 0.04 30 19.06 b) Unsecured 273 150.89 0.10 100 150.89 (iii) Above 3 years a) Secured 9 59.07 0.04 75 44.30 b) Unsecured 294 997.35 0.67 100 997.35 Total doubtful assets (i+ii+iii) 777 1513.76 1.01 1347.33 a) Secured 51 250.84 0.17 90.41 b) Unsecured 726 1256.92 0.84 1256.92 3. Loss Assets 263 1740.20 0.76 100 1740.70 Gross NPRS 1311 3302.18 2.24 2558.35 4500.00 480.00 4900.90 (B1+B2+B3) A = No. of A/Cs B = Amount Outstanding C = % of Col.3 to Total Loan & Advances Declared, D = Provision required to be made % E = Provision required to be made Amount F = Existing Provision at the beginning of the year G = Provisioning made during the year under report H = Total Provision as at the end of the year Particulars 31.03.2009 31.03.2008 1. Gross Advances 149790.20 120838.90 2. Gross NPAs 3362.18 3502.32 3. Gross NPAs as percentage to Gross Advances 2.24 2.76 4. Deductions - - - Balance in interest suspense account/ DIR - - - DIGCG/ECGC claims received and held pending - - - Part payment on NPA account received and kept - - in suspense account 5. Total NPA provisions held (BDDR Special BDDR Balance after appropriation) 4900.00 6500.00 6. Net Advances (1-4-5) 144890.26 120338.90 7. Net NPA (2-4-5) Nil Nil 8. Net NPAs as percentage of Net Advances Nil Nil NEW PREMISES: During the year the Bank has shifted the Banking activities of Dahisar Branch, Bhiwandi Branch, Indira Nagar Branch, Bangalore, Dombivli Branch, Andheri (West) Branch and Thane (West) Branch to new premises having increased banking opportunities. NEW BRANCHES: During the year the Banks 31st Branch at Pune, Maharashtra State was inaugurated on Thursday, the 5th March, 2009 and the Banks 32nd Branch at Udupi, Karnataka State was in augurated on Thursday, the 12th March, 2009. Both the Branches have received good response from the members and the customers. The Banks 33rd Branch at Panvel, Maharashtra State is scheduled to be inaugurated on Thursday, the 14th May, 2009. The Board of Directors solicits support and co-operation from the members for progress of these new Branches. CAPITAL TO RISK ASSETS RATIO: The Bank has always given importance to the Capital to Risk Assets Ratio as per Reserve Bank of India guidelines. The Capital to Risk Assets Ratio (CRAR) of the Bank stood at a healthy 16.89% , which is well above the regulatory minimum of 9%. BANKING TECHNOLOGICAL UPGRADATION: The Board of Directors has given utmost thrust on the Banking Technology front. Though the requirement of ATM of the Bank was in demand, the Board took the decision cautiously and opened Banks ATM services. The on-site ATM services were installed at Dahisar, Vile Parle, Bhiwandi, Indira Nagar - Bangalore, Dombivli, Andhed (West) and Thane (West) branches during the year under report. The Bank has plans to have on-site ATM services at Udupi, Pune and Panvel branches during the current financial year. The Bank has Telebanking and SMS services and Banks Website has been hosted. The Board of Directors requests the members to take the advantage of the sefacilities. NEW SERVICES/ PRODUCTS: The Bank in its endeavour to act as one stop shop for financial needs of its large base of customers by offering value added services is making all efforts to enter into tie-up arrangements with various agencies / banks for introduction of new products and services for the benefit of customers of the bank. The Bank has been authorized to provide franking special adhesive stamps of all types of documents such as Power of Attomey, Sale of Property Agreement or any other documents that attracts stamp duty as required within the state of Maharashtra by the Office of the Inspector General of Registration & Chief Controlling Revenue Authority, Maharashtra State, Pune. These services are available at Goregaon (East) Branch & Mulund Branch. The other products reported in earlier reports continues to give services with multifolds. FOREX BUSINESS: Members are aware that the Bank was in forex business as Full Fledged Money Changers since 2001. Subsequently the Bank was granted Authorized Dealer Category - 11 licence effective from 21st July, 2008. However, the Bank was offering forex related services to the needy in tie up arrangement with other Authorised Dealers. To render Banks customers, full fledged foreign exchange services, the Bank has made an application to the Reserve Bank of India on 4th June, 2008 for grant of Authorised Dealer Category-I licence. The Board of Directors is pleased to inform the members that the Reserve Bank of India has issued Authorised Dealer Category- I Licence to the Bank on 26th September, 2008 to conduct full fledged forex business and is happy that this has fulflled the long cherished desire to have authorized dealership licence to conduct forex business independently. The Bank has started full-fledged forex business on and from 16th March, 2009. Members may be pleased to note that the Bank could start forex business within six months from the date of issue of licence by the Reserve Bank of India. Members may also be pleased to note that the Bank is one of the youngest Co-operative Banks to get Full Fledged Authorised Dealer Category -I Licence. As Authorized Category -I Dealer, the Bank offers following foreign exchange services: * Export bill collection and purchase/discount/negotiation. * Pre & Post shipment finances for exporters. * Advising of Export Letters of Credit. * Opening of Foreign Letters of Crefit for import. * Outward remittances for both import & non-import payments. * Opening of NRE/NRO/FCNR(B), RFC, RFC(D) and EEFC accounts. * Issue & Purchase of foreign currency notes and travelers cheques for private & business visits abroad. * Issue of foreign DDs in selected foreign currencies for education and other purpose. * Undertaking transactions related to External Commercial Borrowings &trade credits * Hedging products like booking of forward contracts onbehalf of exporter/importer clients. * Any other forex activities as permitted by the Reserve Bank of lndia guidelines issued from time to time and or as permitted by FEMA. INSURANCE BUSINESS: The Board of Directors is pleased to inform the Members that the Insurance Business of both Life Insurance and General Insurance undertaken by the Bank through all the 30 branches is receiving encouraging response. The Board of Directors seeks co-operation from the Members to strengthen the insurance business with a view to broaden customer services and to augment commission income of the Bank. AWARDS RECOGNITIONS: The Bank continued to receive awards and recognitions for meritorious performances in various fields. i) The Brihan Mumbai Nagari Sahakari Banks Association, Mumbai has awarded the Bank V Prize for the overall performance in the various fields during the year 2006-07. ii) The Bank has received Banking Frontiers Awards-2008 for innovations in HRD and Advertisements. iii) Life Insurance Corporation of India has awarded the Bank, in recognition of outstanding contribution in spreading Life insurance protection during the year2008-2009. STAFF WELFARE ACTIVITIES: The Board of Directors continues to have effective role in improving work environments by pursuing staff welfare measures under the aegis ofstaff welfare club. The welfare club arranges sports, quiz competition, educational/career guidance to employees children, yoga classes and annual day gathering to encourage cordial relations through cultural activities amongst the staff members and their families. The Bank is also publishing quarterly in-house magazine (BCB Bulletin) to infuse cohesiveness and sense of belonging ness amongst the employees. The Board of Directors believe that the family happiness and healthiness will have better cohesiveness amongst the employees which will yield better results. The Bank has also had health check activities for the employees and their families. STAFF RELATIONS: The Board of Directors is pleased to record its appreciation of the sincere and dedicated services rendered by Managerial Personnel and employees at all levels. Relations between the Management and Employees continued to be cordial during the year under report. The Board of Directors is also pleased to inform the members that the Bank has introduced the under mentioned employee welfare measures during the year under report. i) Group Gratuity Scheme of Life Insurance Corporation of India. The Gratuity Fund stands remitted to the Life Insurance Corporation of India under this scheme. ii) Group Leave Encashment Scheme of Life Insurance Corporation of India. The provision made towards Leave Encashment stands remitted to the Life Insurance Corporation of lndia under this scheme. iii) Superannuation Scheme with an option to the employees to invest in Superannuation Scheme of Life Insurance Corporation of India and / or HDFC. iv) Group Mediclaim Policy with Cashless Hospitalization Facility for the benefit of all permanent employees, their parents and other family members.