lord krishna bank ltdmerged Management discussions

LORD KRISHNA BANK LIMITED ANNUAL REPORT 2005-2006 MANAGEMENT DISCUSSION AND ANALYSIS Economy The Indian economy has maintained the growth momentum of the previous two years, during 2005-06 also. The growth rate of the countrys Gross Domestic Product (GDP) is higher above 8% in 2005-06 as compared to 7.5% in the previous year. Though inflation generally remained under control during the year with wholesale Price Index contained at a growth rate of 4.5%, as against a growth rate of 6.5% in 2004-05, the Consumer Price Index rose to 4.5%, compared to 3.8% in 2004. Banking Sector Although the financial market remained generally stable during the year 2005-06, the interest rates firmed up in all segments, and the call money market experienced tightness during the last quarter 2005-06. The financial sector has been witnessing many changes. The growth of Capital market and emergence of mutual funds is posing a threat to the deposit accretion with the commercial Banks. Yet another threat faced by the Bank is shrinking margins. The pressure on margin due to increased competition on both liability and asset products is affecting the profitability. Your Bank Performance Your Bank reported a net profit this year though the previous year ended up with a net loss of Rs.24.40 crores owing to unfavourable Treasury market. This could be achieved inspite of the adverse movements in interest rates, and the phenomenon of shrinking margins. Your Bank achieved a total business of Rs.3,726.17 crores during the fiscal 2005-06, a growth of 3.65% over the previous year. Gross deposits of the Bank stood at Rs.2278.88 crores as on 31.03.2006, with an increase of 4.72% over the previous years deposit level of Rs.2176.13 crores. Gross Loan and advances stood at Rs.1447.29crores as on 31.03.2006 compared to Rs.1419.00 crores during the previous year, registering a marginal increase of 1.99%. The total income of the Bank was Rs.210.95 crores as against the previous fiscal income of Rs.196.22 crores. Operating Profit for the year grew to Rs.12.16 crores from a negative figure (loss) of Rs.1.05 crores, the previous year. The net interest income as a percentage of average working funds has increased to 2.56% for the year ended 31.03.2006 as against 2.40% for the last year, despite competitive conditions witnessed amongst banks to bring quality assets to their fold. Financial Performance The highlights of performance of your Bank during the fiscal under report, are given under:- * Operating Profit up from (-) Rs.1.05 to (+) Rs.12.16 crores; * Average Cost of Deposit down from 6.35% to 6.04% * Gross NPA percentage is 4.89% as against 6.39% on 31.03.2005; * Net NPA percentage is 3.11% as against 4.22% on 31.03.2005; * Net Interest Income as percentage of Average Working Funds has increased from 2.40% to 2.56%; * Net owned funds has increased by 2.31%. Profitability The year ended 31.03.2006 presented several challenges to the operational results of the Bank owing mainly to hardening of G-Sec yields, resulting in lower market value of the security portfolios, thereby causing substantial depreciation to the Book value. The Bank made a turnaround in results, and achieved an Operating Profit of Rs.12.16 crores in place of a loss of Rs.1.05 crores during the previous year. The Bank earned a Net Profit of Rs. 3.69 crores for the year ended 31.03.2006. In view of the long term perspectives, the Directors desist from recommending any Dividend for the year. Net worth & Capital Adequacy The net owned funds of the Bank increased from Rs.160.12 crores to Rs.163.82 crores as on 31.03.2006. The Capital to Risk Adjusted Assets Ratio (CRAB) stood at 10.11% as on 31.03.2006 as against 11.74% as on 31.03.2005, which is above the norm of 9% prescribed by Reserve Bank of India. Investments The yield curve continued its northward journey during 2005-06 with the 10 year benchmark government security yield touching a 4 year high of 7.55% by the end of the fiscal, arise of almost 90 basis points from the level witnessed a year ago. To minimise the investment portfolio from future interest rate risk, the Bank followed the strategy of bringing down excess SLR securities, resulting to the level of Rs.17.43 crores. The Gross investment has decreased to Rs. 812.84 crores as compared to Rs. 862.97 crores as on 31.03.2005, showing a decrease of Rs. 50.13 crores ie., 5.81%. The Net Investments have decreased to Rs 789.49 crores from Rs. 847.03 crores showing a decrease of Rs. 57.54 crores ie.,6.79% which is on account of the conscious decision taken to improve the CD ratio and reduce the Investment Portfolio. Forex Business The Foreign Exchange Management business of the Bank recorded a turnover of Rs. 1872 crores during the year registering an increase of 6.98% over the last year figure. The total forex turnover including interbank operations was recorded at Rs.5511 crores as against Rs.5316 crores during the previous year. Rupee Drawing Arrangement was entered with Al Razuki Exchange Co. during the year raising the total umber of Exchange Houses having Rupee Drawing Arrangement, to six. Non Performing Assets The Gross NPA stood at Rs. 70.71 crores as at 31.03.2006. The Gross NPA percentage as at 31.03.2006, is 4.89% as against 6.39% as of 31.03.2005. The Net NPA percentage has reduced to 3.11% as at 31.03.2006 from 4.22% as at 31.03.2005. There is substantial improvement in Asset quality of the bank as is evident from reduction in NPA level both in absolute terms and in percentages. Your Bank could achieve the reduction in NPA through intensified drive for recovery of the impaired assets and checking further slippage. Steps under SARFAESI Act, 2002 for speedy takeover and disposal of the assets of defaulting borrowers, and sale of impaired assets, also contributed to reduction in Gross NPAs. Information Technology Your Bank has achieved 100% computerisation of the branch operations. As on today, there are 54 branches under Core Banking Solution (CBS) with Flexcube as the CBS package, and the remaining branches under Integrated Standard Banking System (ISBS). The core banking implementation was completed as per schedule and all modules are stabilised. All branches / offices under CBS are connected with leased line of 64 Kbps or 128 kbps band width with ISDN as fall back. The Bank has 44 ATMs connected to these branches, thus enabling anytime / any where banking. The rest of the branches are using ISBS, a robust Total Branch Automation package (TBA) from Tata Consultancy Services (TCS). Branch Network and Expansion As on 31.03.2006, the Bank had 72 branches and 12 Extension Counters. With ambitious plans for increasing the spread of network, the Bank has approached Reserve Bank of India for permission to open 22 new branches in various states. Asset Liability Management (ALM) and Risk Management(RM) The Asset Liability Management (ALM) has established itself as an essential management tool in day-to-day management of affairs, such as guiding interest rates of deposits and advances, management of investment portfolio etc. The Executive Level Committee (ALCO) meets regularly to analyse and review the structural liquidity and interest rate sensitivity position and suggests corrective measures to rectify the mis-matches. Implementation of BASEL norms in Banks has enhanced the role of various Risk Management techniques adopted by Banks with the stipulation of capital adequacy for market risk and operational risk apart from credit risk. The Risk Management Committee (Board level) constituted is monitoring the requisites periodically. The Board and senior management of the Bank are fully aware of the RBI guidelines on Risk management and take active participation in establishing robust Risk management systems and procedures in the Bank. Various policies like Loan Policy, Investment Policy, ALM Policy, Forex Policy, Recovery Policy, Policy on Risk Based Internal Audit, Policy on Business Continuity Planning, Country Risk Policy etc. are put in place to take care of various risks and are subjected to periodical review. The risk based internal audit, information security audit, midterm review of large borrowal accounts, etc. are being carried out to assess the efficacy of the systems and to take timely mitigative steps. Human Resources The workforce constitutes the most vital asset of any organisation. The Bank attaches utmost importance to the development of human resources. In order to enhance the working knowledge and efficiency of staff the bank imparted inhouse and external trainings to the staff at different levels. 948 personnel attended training programmes for upgradation and development of skills during the year. By the end of the year the Bank had a staff strength of 1192 comprising 592 officers, 366 clerks 176 sub-staff and 58 PTS.