You are on page 1of 99

Management Discussions Asian Paints

The global economy staged a remarkable rebound in the last financial year reducing thefears of a double-dip recession that some had forecast in 2009. The recovery was aided bythe continuation of stimulus measures adopted during 2008-09 by developed as well asemerging economies including India. Increased liquidity in the developed economiesimpacted sentiment and boosted consumption as well as investment. Emerging markets nearedtheir pre-recession growth levels on the back of domestic demand and buoyant exports whiledeveloped economies began to show pickup in demand. However, globally, the year was alsocharacterized by periods of high uncertainty. The sovereign debt crisis that engulfedGreece and Ireland also threatened a number of other euro economies jeopardizing thestability of global financial markets. Short term policy interventions by the concernedgovernments did help to avert a crisis situation but a lot still needs to be fundamentalimprovement in doneforanysignificant the financial conditions of some of these countries.During the second half of the year, mass uprisings in Egypt, Libya and some other MENAcountries sent crude prices over the USD 100 per barrel mark. Brent spot, an importantindicator for crude went up by 41.7% during the year and 22.1% during the last quarter ofFY 2010-11. The environment continues to remain challenging on this front. India maintained its growth momentum on the foundation of relatively strongfundamentals of the economy. The year saw one of the highest rates of inflation in recenttimes and RBI increased the repo rates and reverse repo rates from 5% and 3.50% to 6.75%and 5.75% respectively in a bid to curb inflation.However, strong domestic consumption andbuoyant exports, enabled GDP to grow by around 8.5% during 2010-11. The rupee alsoremained range bound against US dollar to the comfort of both the exporters and theimporters. 1. PRODUCTS AND MARKETS The paint industry volume in India has been consistently growing at more than 15% perannum for some years now. The strong growth was supported by a favourable monsoon and goodindustrial growth especially in the automotive sector. Growth in turnover wassignificantly higher than the volume growth as large price increases had to be effectedduring the year. In International Business, political turmoil in Egypt and Bahrain impacted businessconditions in these countries during the last quarter of the year. While South Asianmarkets fared relatively better, the impact of economic slowdown persisted in some of theother international markets where your Company operates. DECORATIVE PAINTS Decorative paints (including interior and exterior wall finishes, enamels, woodfinishes and ancillary products) constitutes around 72% of the paint market in India.2010-11 was a good year

for the paint industry and your Company too did well. Sharp increase in raw material prices was one of the key concerns identified by yourCompany for FY 2010-11 and as expected, it posed significant challenges throughout theyear. The recovery of the global economy leading to a revival of demand especially incountries like India, China and the U.S., coupled with the rise in crude prices andshortage of key raw materials has led to a steady increase in prices across all categoriesof raw materials. In India, factors like power shortages, increase in labour andtransportation cost also contributed to the inflation. The overall impact of inflationduring the year was in excess of 13%. This was countered through price in all totalingincreases at regular intervals (five over 12% for the year). Fortunately, this substantialincrease in prices did not affect demand which continued to be robust. Margins, however,were under severe pressure during the year and continue to be a concern going forward. Net Sales grew ahead of volume sales on account of higher realizations due to a richerproduct mix as well as price increases. Emulsions have been growing much faster than theother categories of paints. Your Company saw success with many premium products like ApexUltima, Royale, Royale Shyne, Royale Play, Polyurethane wood finishes and water basedenamels After the overwhelming response to your Companys Signature Store at Mumbai, yourCompany has decided to invest in another store at Connaught Place, New Delhi which will beopened shortly. Your Company continued to expand its dealer network across all parts of the country.The expansion of Colourworld network also continued unabated with more than 18000 of yourCompanys dealers being covered currently. Most of the emulsion paint sale ishappening through this network. Considerable investments were made in upgrading over 3000 retail outlets with theoverall objective of improving the ambience, providing better service and more informationto consumers at these outlets. Your Company also significantly expanded the chain of stores called ColourIdeas, where the consumer is provided with an environment wherein he can experiencewhat colour can do to his home. Here he is also provided with Colour Consultancy Services.Consumers have responded very positively to this retail chain and your Company is in theprocess of expanding it across the country. During the year, your Company launched a number of new products. Water based woodfinishes launched in North India would be launched across the country in a phased manner.New textured finishes for the exteriors Duracast Pebbletex and Crosstex were launched andmet with good response from builders/ contractors for large projects. After commissioning of the Rohtak Plant in April 2010, the total installed paintscapacity in India stands at close to 6,00,000 KL. The synthetic resins and polymercapacity was also

augmented by 50,000 MT in FY 2010-11. In the first year of its operations, Rohtak Plant produced in excess of 80,000 KL ofpaints. Continuing ahead with its capacity expansion plans, your Company will increase theinstalled capacity at the Rohtak Plant from 150,000 KL per annum to 200,000 KL per annumby fourth quarter of FY 2011-12. Construction has also commenced at Khandala near Pune (in Maharashtra) for the seventhDecorative Paints plant with an initial capacity of 300,000 KL per annum of paints with aninvestment of around Rs. 1000 crores. The plant will be commissioned sometime around thelast quarter of FY 2012-13. The Khandala plant can be expanded to 400,000 KL per annumlater. These capacity additions would enable your Company to adequately meet the envisageddemand in the Indian market. The availability of power supply is, however, a matter ofconcern in Rohtak while in other plants, the reliability of continuous supply can be anissue. Your Company is, therefore, forced to rely on self generated power in theselocations, which is not cost effective. Construction of the Distribution Centre at Patancheru Plant is also underway and by thesecond half-year of FY 2011-12, all Plants would have an operating Distribution Centreallowing complete migration to the new Distribution Model which would facilitate higherservice levels at lower levels of inventory. INTERNATIONAL OPERATIONS The financial note. The International markets where your Company operates in, continuedto be impacted by the economic slow down, although the South Asian countries wererelatively less impacted. In addition, political turmoil in Egypt and Bahrain has impactedbusiness conditions in these countries in the last quarter of the year. Asian Paints International Limited, the Mauritius based subsidiary of your Company,bought the 80% stake in Samoa Paints Limited held by its subsidiary Taubmans Paints FijiLimited for a consideration of US$ 0.5 million. The focus in the International operations during the year was on strengthening positionin the market place by initiatives to improve customer centricity, expanding the dealernetwork, improving service levels, introducing new products and installing additionaldealer tinting systems. Emphasis was also placed on tighter management of credit risk andimproving internal efficiencies in all areas of operations including working capital,fixed assets, overheads and material cost. Sharp focus was accorded to enhance safetystandards. Material prices during the year were volatile and saw an inflationary trend due toshortages in critical raw materials and rising prices of crude oil. The impact ofinflation was mitigated to some extent by formulation re-engineering, economies of scalein purchasing, inventory build up and reducing losses in manufacturing.

The revenue from paint sales of the overseas operations of the group for the year isRs. 975 crores as compared to Rs. 979 crores during the previous year April 2009 - March2010. Profit after tax for the overseas operations of the group during the year is Rs. 87.9crores compared to Rs. 104.7 crores during the previous year April 2009 - March 2010. The revenue from paint sales of Berger International Limited, a subsidiary listed onthe Singapore Stock Exchange has decreased by 16% to S$ 108 million (equivalent to Rs. 372crores) from S$ 129 million (equivalent to Rs. 430 crores). The group operates in the following geographies: Region Caribbean Middle East Asia South Pacific Countries Barbados, Jamaica, Trinidad & Tobago Egypt, Oman, Bahrain & UAE Bangladesh, Nepal, Sri Lanka & Singapore Fiji, Solomon Islands, Samoa, Tonga & Vanuatu

The region wise performance is detailed below: Caribbean During the year under review, the revenue from paint sales has decreased by 3% to Rs. 157 crores from Rs. 161 crores. Adjusted for exchange rate impact, the revenue from paintsales has increased by 0.2%. PBIT (Profit before interest and tax) for the region hasincreased by 12% to Rs. 12 crores. An all round slow down in construction activity andreduction in tourism had a severe impact on the Caribbean economies and hence the top lineperformance of the region was impacted. However, all the subsidiaries in the region havebeen profitable Middle East During the year under review, the revenue from paint sales has decreased by 4% to Rs. 516 crores. Adjusted for exchange rate impact, the revenue from paint sales has increasedby 2%. PBIT for the region has decreased by 38% to Rs. 65 crores. The Middle East regionis the largest operating region for the group outside India. The region now contributes52% of the revenue from overseas operations. All the economies in the region have beenimpacted by the global recessionary trend with the impact being the most severe in UAE.Additionally, the performance of the subsidiaries in Egypt and Bahrain was also affectedin the last quarter due to the political turmoil in those countries. However, all thesubsidiaries have made profit. The green field plant in Egypt with an initial capacity of 50,000 KL per annum is nowfully operational. The plant has been designed to eventually produce 150,000 KL per annum. Asia

For the year under review, revenue from paint sales has increased by 20% to Rs. 240crores. Adjusted for exchange rate impact, the revenue from paint sales has increased by21%. The PBIT for the region has decreased by 10% to Rs. 24 crores. Expansion of the ColorWorld dealer network and increased influencer interactions through painter-dealer meetscoupled with the recovery in the construction sector has helped all the subsidiaries toachieve healthy sales growth. All the subsidiaries have made profit. South Pacific For the year under review, revenue from paint sales has increased by 4% to Rs. 75crores. Adjusted for exchange rate impact, the revenue from paint sales has increased by5%. The PBIT for the region has increased by 16% to Rs. 13 crores. All the subsidiaries inthe region have made profit. INDUSTRIAL COATINGS Automotive Coatings: Asian PPG Industries Limited (APPG) Your Company has a 50:50 Joint Venture (JV) with PPG Industries Inc., which was formedin the year 1997, for manufacturing Automotive OEM, Refinish and certain other IndustrialCoatings. APPG is the second largest automotive coatings supplier in the country. The Indian automobile industry witnessed a phenomenal growth during FY 2011-12,reaching sales of almost 3 million passenger vehicles. Indian automobile market is oncourse to a high growth trajectory owing to the overall economic fundamentals andincreasing disposable income of the working class. Good market conditions have helped APPGfurther strengthen its presence in the market. Total sales increased to Rs. 616.48 croresin FY 2010-11 from Rs. 476.88 crores in FY 2009-10 a growth of 29.3%. The profit after taxrose to Rs. 33.03 crores from Rs. 28.58 crores representing a growth of 15.6%. Theconsolidated sales were Rs. 637.77 crores and the profit after tax was Rs. 33.62 crores inFY 2010-11. Faaber Paints Private Limited (FPPL), a wholly owned subsidiary of APPG, reported salesof Rs. 23.26 crores in FY 2010-11 as compared to Rs. 15.0 crores in the previous year.Profit after tax declined to Rs. 0.7 crores as compared to Rs. 1.47 crores in the previousyear. Major improvements were effected in appearance, quality and durability of productsoffered to customers during FY 2010-11. Measures adopted to contain costs and expandvolume of business paid off and helped APPG achieve its targets in spite of concerns onraw material prices and availability. Competition amongst the coatings suppliers is alsogiving leveraging power in the hands of the customer forcing prices down. APPGsstrategy of offering better value to its customers by providing superior products andservice has enabled it to deliver superior results. In its maiden foray outside India,APPG has also decided to enter the Sri Lankan Auto Refinish market by setting up its ownsubsidiary. This wholly owned subsidiary is expected to be operational by July 2011. The licensed capacity of the facility at Sriperumbudur is 10,400 KL per annum; thepresent

installed capacity is 7,500 KL per annum. APPG has decided to further expand thecapacity of the plant to 9,140 KL at a cost of approximately Rs. 30 crores. The prospects of continuing high price of fuel and uncertain economic conditions haveled to doubts about sustainability of the pace of growth that the automotive industry haswitnessed in the recent past. However, while there may be a slow down temporarily owing tohigh base effect, APPG is confident about the long term prospects of the industry and feelthat it is in a position to take advantage of the growth in the market. NON AUTO INDUSTRIAL COATINGS The non auto industrial coatings market is serviced by your Company through its GrowthBusiness Unit (GBU) and a wholly owned subsidiary, Asian Paints Industrial CoatingsLimited (APICL). The major product segments are : Protective Coatings General Industrial Coatings Road Marking Coatings Floor Coatings Powder Coatings Demand for industrial products improved in the second half of FY 2010-11 against amodest increase during the first half, peaking towards the end of the fiscal year. Theimprovement in demand was mainly on account of various projects reaching the stage ofpainting during the second half of the year. Your Companys strategy of focusing on sales of middle to high end products hasresulted in an improvement in the mix of products sold. There has been an increase in theweighted average selling price on account of the improved product mix. The inflationary trend in major raw material prices that had commenced in the lastquarter of fiscal year 09-10 continued through the year and prices of most major rawmaterials increased steeply during the course of the year. This trend was witnessed acrossalmost all major raw materials such as pigments, resins, solvents, oils and monomers.Increased raw material costs combined with resistance from customers to accept the steepincrease in prices exerted pressure on margins through the year. The Industrial Paints plant at Taloja completed its fourth year of operations inFebruary 2011. The first long term settlement with the workers union was negotiatedand signed in January 2011. Though production was affected during the negotiation process,particularly during the third and fourth quarters of the fiscal year, the industrialrelations situation has normalized after the settelment and production levels have beenrestored to expected levels. Production was

stepped up at Toll Manufacturers to cover theshortfall in production. ASIAN PAINTS INDUSTRIAL COATINGS LIMITED Asian Paints Industrial Coatings Limited (APICL), a wholly owned subsidiary of yourCompany, is engaged in the manufacture and sale of Powder Coatings. There was a modestimprovement in demand conditions during the year and the sales performance of APICL duringthe year reflected this market situation. The two powder coating manufacturing facilitieslocated at Sarigam (Gujarat) and Baddi (Himachal Pradesh) operated satisfactorily to meetmarket requirements. As in the case of industrial liquid paints, a steep increase in the prices of allcritical raw materials such as epoxy and polyester resins and pigments was seen during theyear. Resistance from customers to the steep price increases that were asked for resultedin pressure on margins. PARTNERSHIP WITH PPG Your Company has a long standing and successful relationship with PPG Industries Inc.which is based in Pittsburgh, USA. It had formed a Joint Venture (JV), Asian PPGIndustries Ltd., with PPG in 1997, to cater to the growing requirements of the globalautomakers entering into the Indian market. APPG is now one of the leading coatingssuppliers in the Automotive OE sector and is the leader in the Auto Refinish sector. PPGis also present in other industrial businesses in India through its two subsidiaries. In order to further strengthen this relationship, your Company is in the process offorming a second 50:50 Joint Venture with PPG, which will focus on Protective Coatings,Light Industrial Coatings, Industrial Container Coatings and Powder Coatings in the Indianmarket. This Joint Venture will leverage the presence and channel significant access ofyour Company in the domestic market with the considerable global scale and technology ofPPG. Your Company will have effective management control of this new JV. APPG, the existing 50:50 JV in the area of transportation coatings, will nowadditionally cover Marine Coatings, Consumer Packaging Coatings and Other liquidindustrial coatings segments. PPG will have effective management control of this JV.Industrial Paints Plant (at Taloja) and APICLs two powder coating plants at Sarigamand Baddi will continue to be a part of your Company and APICL respectively and will notform a part of the new JV. The JVs production requirements will continue to beproduced by these industrial plants under a tolling arrangement. The formation of JV involves certain statutory and procedural formalities to becomplied with. As a first step to the JV formation, a new Company named AP CoatingsLimited (100% owned subsidiary of your Company) was formed by your Company. Till theformation of new JV, the Industrial business of your Company as well as the business ofAPICL will be carried out by AP Coatings Limited. AP Coatings Limited, along with the two companies of PPG in India, will be merged intoAPPG and subsequently the relevant businesses demerged to form the second 50:50 JV througha composite Scheme of Merger and De-merger as approved by High Courts of

respectivejurisdictions of all the Companies involved. OTHERS Your Company also produces Phthalic Anhydride and Pentaerythritol in manufacturingfacilities located at Ankleshwar (Gujarat) and Cuddalore (Tamil Nadu), respectively. Theseunits which were set up as backward integration initiatives in the late 1980s, primarilycater to in-house demand for these chemicals. During the year FY 2010-11, 69% of Phthalic Anhydride and 54% of Pentaerythritolproduced by your Company was transferred for internal consumption. The remaining quantitywas sold in the open market. Plant shut downs during the year owing to a planned catalyst change operation and someunanticipated stoppages in plant operations resulted in production of Phthalic Anhydridebeing lower than last year. The lifting of safe guard duty on imports from severalcountries also resulted in cheap imported material coming into the country, impactingprices in the local market. Overall, profitability from the Phthalic Anhydride businesswas affected due to the lower production and adverse market conditions. The profitability of the Pentaerythritol business was higher compared to previous year.Better sales realization resulted in higher margins from the business. 2. ENVIRONMENT, HEALTH AND SAFETY Environment, Health and Safety (EHS) is one of the primary values for your Company.Your Companys EHS policy is to consider compliance to statutory EHS requirements asthe minimum performance standard and is committed to go beyond and adopt stricterstandards wherever appropriate. Your Company focuses on pollution abatement, resourceoptimization and waste minimization, which leads to sustainable development. Your Companyalso gives priority and attention to the health and safety of its employees and trains allthe employees to work as per prescribed procedures designed to meet all EHS requirements.Your Company also endeavours to educate its customers and the public on safe use of itsproducts. Due to continued focus on Environment and Safety, the Penta plant was given theEnvironmental Best Practices Award - 2011 at a national level competitionorganized by CII - Green business Centre, the Ankleshwar plant was nominated by GujaratCleaner Production Center and Gujarat Pollution Control Board for exhibiting its cleanerproduction initiatives in an international environmental forum of "EarthCharter" organised by Center for Environment for Education, Ahmedabad and theSriperumbudur plant was presented with the Tamil Nadu State Safety Award by Inspectorateof Factories, Tamil Nadu for outstanding safety performance. Your Company received consents from Maharashtra Pollution Control Board andEnvironmental Clearance from State Environment Impact Assessment Authority of MoEF inMaharashtra for establishing the Khandala Plant in Maharashtra. APICLs Sarigam plantfor manufacture of powder coatings has been awarded consents for expansion by GujaratState Pollution Control

Board without any increase in pollution load. Your Companyssix paint plants and the two chemical plants have the ISO 14001 environmentalcertification. Your Companys seven paint plants and one chemical plant are Zero IndustrialDischarge plants and harvest rain water. Rohtak plant is working towards obtainingthe ISO 14001 certification. Your Company has always been environmentally conscious andbelieves in resource conservation. After achieving Zero Discharge of industrial effluent, minimization ofwaste through reduction at source and recycle /reuse has been a key focus area.This hasresulted in reduction in specific generation of effluents and solid wastes. Your Company also appreciates the need to monitor and reduce emission of Green HouseGases (GHGs) which are responsible for Global Warming and Climate Change. It hasinstitutionalized a mechanism to monitor GHGs emissions across all business units as perGreen House Gas (GHG) protocol [A Corporate Accounting and Reporting Standard by WorldBusiness Council for Sustainable Development]. GHGs emissions monitoring has beencategorised under Scope 1 - Direct GHG emissions (due to fuel consumption) and Scope 2 -Indirect GHG emissions due to electricity consumption (electricity bought from powergeneration companies) over which your Company has got direct control. Your Company hasfocused its efforts on enhancing energy efficiency in all its operations, right from thedesign of new manufacturing facilities. Your Company is participating in Carbon DisclosureProject (CDP) for disclosing information on carbon emissions. 3. HUMAN RESOURCES The year 2010-11 has been quite significant Human Resource where several initiativeswere taken forward. Talent Management was taken up as a specific focus area in HR towardsintegrating employee Development and succession planning. ' Learnscape is an ambitious initiative in the area of Learning and Developmentthat your Company launched. This initiative seeks to define for our managers andexecutives the expectations around Asian Paints way of managing people and thereafter aseries of initiatives to skill employees at every level was launched this year. At thecore of this initiative has been the focus on conversations that participants have hadwith several leaders within and outside the organization, thus enabling a process ofengagement and connectedness with the environment. Your organization has also worked on leveraging information technology to aid thedevelopment process for employees. With tie-ups with renowned organizations like HarvardBusiness Publishing and Skillsoft and combined with several custom built modules, we haveenabled world class learning that was delivered to employee independent of time anddistances. Your organization is also focused on building an internal array of trainers and coacheswho are committed to developing employees by bringing in skills and contextual expertisein a sustained manner. This has generated excitement and augmented opportunities for crossfunctional

collaborations and conversations. People Review Process was initiated to map and capture people capability in theorganization aiming towards succession planning for the organization and growth forindividuals. Promoting quality conversation was given thrust across organization throughdifferent HR processes and initiatives. Our organization placed a specific focus in the area of ethics and code of conduct.Creating heightened awareness amongst employees by way of active engagement across thecountry was a big initiative this year. Employee Engagement is one of the key elements by in the success of an organization.Your organization has embarked upon a path to build engagement among employees through theappreciative enquiry methodology. The first set of programs was launched for field salesorganization in India that has lead to greater employee engagement and energy amongst thefield sales force. 4. BUSINESS CONTINUITY PLANNING As your Company charts ambitious growth plans, it is imperative to ensure thatunexpected events do not disrupt existing operations by putting in the necessary processesand tools to ensure business continuity. Your Company has embarked on an enterprise wideBusiness Continuity Planning (BCP) initiative to evaluate risks arising from a disasterperspective and to recommend processes and tools to proactively mitigate the impact toensure that business operations are not disrupted. This exercise covers all the existingbusinesses and will address locational as well as systemic risks. 5. CORPORATE SOCIAL RESPONSIBILITY Your Company believes that "for growth to be responsible, it should go beyondnumbers. It should do good to the society, create a better world", and accordingly itis strongly aligned in its drive to create and enhance stakeholder value with itscommitment to good governance, ethical conduct and social responsibility. The key areaswhere it is striving to make a difference include socially relevant causes such as ElderlyCare, Healthcare, Education and Water Conservation. The manufacturing units at Kasna (Uttar Pradesh), Patancheru (Andhra Pradesh),Sriperumbudur (Tamil Nadu) and Ankleshwar (Gujarat) have been doing their bit to make apositive difference to the lives of the disadvantaged elderly citizens of the neighboringlocalities. The Mobile Medicare Units (MMUs) being operated in association with the NGOHelpAge India has made it possible to reach the doorsteps of the needy senior citizens.Several blood donation camps and other healthcare camps were conducted during the yearincluding a camp on cataract surgery with the motto of helping the needy elderlycitizens see colour again. Your Company strives to use the scarce resource recyclingof waterandefficientlyreusing, wherever possible. The Total Water Management (TWM) Centre located in thepremises of your Companys manufacturing facility in Mumbai has been championing theissue of water

conversation; informing and demonstrating techniques of water harvesting tothe public at large. 6. INFORMATION TECHNOLOGY During 2010-11, your Company embarked on an ambitious journey in the area ofInformation Management. In the dynamic and growing business scenario, leveraging theinformation assets to help managers make quicker and better decisions through the analysisof key trends and events that affect business is becoming an important factor forsustaining market leadership and competitive advantage. A three year roadmap was drawn upin the area of Information Management that will help in improving speed, governance andperformance of business by using all types of data, content and state of art analytics.The project will be executed in multiple phases spanning two years and the key phase ofdetermining the Business Intelligence Strategy for your Company has been completed. As your Company continues to grow and setup highly automated paint manufacturingfacilities, it is very critical that information flow from the shop floor to the top flooris Execution Systems have been deployed in both Rohtak and Sriperumbudur plants tooptimize the material flow and provide real time information visibility to shop flooroperations to aid better decision making. We are proud of the core capabilities that havebeen built by your Company in managing these complex integrations and the same will holdus in good stead as and when newer and complex automated factories are setup in comingyears. As the power of social collaboration using tools like Facebook and Twitter sweepsacross the world, tremendous benefits can be realized by unleashing the power ofinformation democracy within the enterprise by empowering employees, partners andcustomers to connect easily. Your Company too has realized the potential benefits of suchplatforms and has been an early adopter in deploying Enterprise Social Collaborationplatforms to facilitate exchange of ideas, building of vibrant virtual communities tofoster innovation to ultimately sustain competitive advantage in the marketplace. 7. RESEARCH & DEVELOPMENT Your Company is executing an integrated strategy for technology development anddeployment. The technology function is supporting your Companys strategy around fourmissions: technology development, development of substantially new products, productivityimprovement and cost reduction. The focus for your Company in the financial year 2010-11had been to maintain the lead in the development of environment friendly products. Duringthe year new emulsions platforms have been exploited to allow for the development of ecofriendly binders. New products offer the customer choice of water-based alternates tosolvent borne systems. Efforts have focused in the area of developing paints with reducedVolatile Organic Contents (VOC) much in line with leading paint companies across theglobe. This is to allow your Company to meet the mid and long terms strategic goals. Anumber of development programs aimed at productivity improvement and energy efficiencyhave borne fruit and their implementation is well underway. Cost reduction programscontinue with renewed vigor. Widespread shortage of crucial raw materials is foreseen asthe demand for materials is picking up with revival of economies of several countries. Inthis context, your Company is actively

working on alternate raw materials to ensure thatits ability to service its customers remains unaffected. Your Company continues to work incollaboration with leading academia to bring new knowledge into business and vendors withinternational presence to leverage the latest developments happening in other countries.Some of these programs are bearing fruit and will strengthen the overall technicalcapabilities in the area of resins and emulsions development. Your Company continues toincrease its presence in international forums through publications in peer reviewjournals. The recognition of the work of its scientists is helping shape an image of theorganization that attracts competent and committed scientists. Indeed, during the yearyour Company has been able to attract talent from international universities to strengthenits in house research base. 8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY Your Company is committed to carry out its operations within a well defined controlframework. The control framework is anchored on good governance, sound internal controlsand an independent internal audit. The framework was further strengthened during the yearthrough a mix of initiatives on all the three aspects. Most noteworthy among them are: 1. A revised code of conduct was published. The code of conduct was extended to allemployees and communication workshops held with the employees. 2. Your Company announced a whistle blower policy to its employees and key externalstake holders. Any communication received under this policy is treated withconfidentiality and investigated by a high powered committee in the organization. 3. The shared service center set up last year was streamlined. A concurrent audit ofits operations is done to have an additional pair of eyes monitoring the operations. 4. Your Company has, during the year, revisited policies and process manuals and mademodifications wherever required. These were communicated to all in your Company. The above initiatives have strengthened the governance framework within your Company.Along with increased levels of manual and automated controls, these initiatives provide agood internal check over the day to day operations of your Company. To complement the existing controls and to have an independent review of the adequacyand operation of existing controls, your Company has an independent internal auditdepartment which carries out periodic risk based audits of operations and key processes inyour Company. The audit plan is approved by the Audit Committee of the Board and the ChiefInternal Auditor periodically reports any control gaps along with management action planto the Audit Committee. Your Company has a separate Risk Management Council which meets periodically toidentify, assess and mitigate key strategic and business risks facing the organization.Milestones are arrived at and progress against the same monitored periodically.

9. RISK AND OUTLOOK The overall economic outlook for 2011-12 appears to be positive but challenging.Economic activity is expected to be buoyant in the Indian sub continent driven by goodinternal as well as export demand, with Indian GDP expected to register a growth of around8%. Also, with early forecast predicting a normal monsoon in 2011-12, your Company expectsthe rural economy to perform well and support paint demand in the rural areas. The marketfor Industrial products is expected to improve on the back of thrust on infrastructuredevelopment and industrial growth. However, there are certain risks that can impact the performance of your Company. The turmoil in the Middle East and North African region has already affected globalcrude supplies and prices. The events in Japan after the tsunami might force a re-look onnuclear energy globally. Amidst widespread concern on nuclear danger, it is expected thatfossil fuel consumption will only go up in the near future for lack of other reliable andproven sources. This could have a long term impact on the prices of these commoditiesglobally. Costs of some other key raw materials like Titanium Dioxide are expected to inch up dueto their relative shortage, inadequate investment in fresh capacities and buoyant demandconditions. Specific to India, factors like power shortages increase in labour cost andtransportation cost could also contribute to inflation. All these factors could put pressure on margins of products of your Company and forceprice hikes. Such price hikes, if any, could directly have an effect on the demand of theproducts. Risks of sovereign defaults in the European Union remain and the recovery in rest ofthe developed world is still quite fragile. Amidst talk of phasing out and withdrawal ofstimulus measures, it remains to be seen whether growth can be sustained going forward. The recent unearthing of huge scams and the resulting logjam in government functioningcould lead to policy reform taking a backseat thereby affecting the long term growthpotential of the country apart from impacting investor sentiments. Reserve Bank of India (RBI) has announced a series of rate hikes in FY 2010-11 and morehikes are expected in FY 2011-12 in a bid to control the spiraling inflation. This canhave an adverse impact on demand, particularly in interest rate sensitive sectors likehousing and automobiles. Directional movements of currency are hard to predict and volatility in currencymovements might have financial implications for your Company. Additionally, adverse impact of the political turmoil in Middle East or any otherpolitical, economic or natural crisis where your Company has significant presence can alsoaffect the business performance of your Company.

Management Discussions Punjab National bank

Economic Environment Echoing Indian economys renewed buoyancy, GDP growth rate is projected at 8.6% in2010-11 by CSO as compared to a growth rate of 8.0% in 2009-10. The economy has startedpursuing the pre crisis trajectory with the GDP projection for FY 2011-12 placed at 9.0%with an outside band of (+/-) 0.25%. As per April 2011 World Economic Outlook of International Monetary Fund (IMF), globalGDP growth is projected at 4.4% in 2011, lower than 5.0% growth in 2010. Risks to theglobal growth remain in the form of weak sovereign balance sheets and frail real estatemarkets in the Euro Area, commodity prices and geopolitical uncertainty in advancedeconomies (projected growth: 2.4% in 2011). Though Emerging economies (EMEs) are expectedto grow by 6.5% in 2011, risks emanate from overheating pressures and rising asset prices.As per IMF, inflationary pressures may build up further and there is a need of tighteningof macroeconomic policies. IMF expects Indian economy to grow by 8.2% in 2011 as against10.4% in 2010. The recovery of Indian economy has continued and the growth is quite broad based andspread across sectors. Helped by normal monsoon, agriculture sector is expected toregister a robust growth rate of 5.4% after experiencing stagnation at 0.4% growth duringlast year. Production of food grains is estimated at 236 million tonnes. Industrial growthas per Index of Industrial Production (IIP) registered a lower growth 7.8% duringApril-March 2011 (10.5% last year) due to lower growth in Manufacturing sector at 8.1 %(11.0%). Besides, Mining sector grew by a lower 5.9% (9.9%) and Electricity sectorregistered a decline in growth rate to 5.6% (6.0%) during the above period. Services sector is expected to grow by 9.4%, marginally lower than 9.7% achieved duringlast fiscal, due to low growth rate of 5.7% in "Community, Social and Personalservices" that grew by a higher 11.8% during last fiscal due to government spendingand sixth pay commission recommendations. Growth rates in other segments have been higherwith "Trade, hotels, transport and communication" registering a robust growth of11% (9.7%), "Financing, insurance, real estate and business services" growing by10.6% (9.2%) and "construction" registering growth of 8% (7%). Reflecting soundfundamentals of the economy, domestic savings rate rose to 33.7% of GDP during 2009-10from 32.2% in previous year. Gross Investment rate also rose to 36.5% of GDP from 34.5%during the same period a year ago. During 2010-11, exports grew to $ 246 billion from $ 178 billion last year registeringa YOY growth of 37.6%. During the period, Imports grew by 22% to $ 350 billion from $ 287billion

last year. While oil imports grew by 12.4% to $ 88 billion, non-oil imports stoodat $ 217 billion, growing by 20.4%. The current account deficit (CAD) is estimated at 2.5%of GDP for the year 2010-11 lower than 2.8% for the year 2009-10. Net capital flows at US $ 52.7 billion during April-December 2010-11 were higher ascompared to US $ 37.6 billion in corresponding period last year, primarily due toportfolio investments at US $ 30.1 billion (US $ 23.6 billion). Indian rupee got a newsymbol during the year and joined the club of few select currencies to have its own sign.Rupee stood at Rs 44.7 per US dollar as at end March 2011 showing an annual appreciationof 1.10%. Indias foreign exchange reserves crossed the US$ 300 billion mark andstood at US $ 310 billion as on April 22, 2011. Fiscal consolidation continues to remain a priority and is being facilitated bybuoyancy in tax and disinvestment receipts and gains in telecom spectrum auctions. Fiscaldeficit for the current financial year is estimated at 4.8 % of GDP and Revenue deficithas been pegged at 3.5% as against 6.3% and 5.1% respectively during previous fiscal. High level of inflation has been a cause of concern, leading to a high 8.98%year-on-year WPI inflation in March 2011. Reserve Bank in its Annual Policy 2011-12 hasestimated WPI inflation at 6% with an upward bias for the end March 2012. As indicated inthe policy, achievement of this objective will be helped by concerted policy actions andresource allocations to address domestic bottlenecks, particularly on the food andinfrastructure fronts. Banking Developments Indian banking industry has shown its resilience pre and post crisis and has withstoodthe test of time. Indian banks have continued to rise up in global rankings and some ofthem are expected to become top banks in next decade. During 2010-11, to rein in inflationary expectations, Central bank raised cash reserveratio by 100 basis points (bps) to 6.0%, reverse repo rate by 300 bps to 6.25%, and therepo rate by 250 bps to 7.25%. There was a significant liquidity shortage in the system inthe wake of 3G/broadband wireless access auctions and IPOs of bigger public sectorundertakings. In order to facilitate better liquidity management, RBI extended twoliquidity easing measures, viz., additional liquidity support under the LiquidityAdjustment Facility (LAF) to Scheduled Commercial Banks (SCB) up to 1% of their Net Demandand Time Liabilities (NDTL) and the Second LAF (SLAF) on a daily basis up to May 6, 2011. Money Supply growth at 15.9% at the end of March2011 remained below the RBIprojection of 17%. This was due to lower growth in Aggregate deposits of SCBs at 15.8%against 17.1% registered last year. Non-food credit growth at 21.2% was higher than theRBIs projection of 20% and last year growth of 17.1%. Second Financial Stability Report was released by RBI in the end -December, 2010 thatassessed disparate elements of the financial sector from a systemic risk perspective. Asper the report, Indian financial sector remained stress-free notwithstanding sporadicvolatility, especially in

equity and foreign exchange markets. The Report points at some apparent soft spots like the widening current account deficitwhile capital flows being dominated by volatile components. Fiscal conditions are underpressure with persisting inflationary pressures along with tightened liquidity conditions.Apart from asset quality of banks, their asset-liability management position continues towarrant monitoring. Challenges continue in the form of regulatory gaps in the non-bankingfinancial sector, need for a robust macro prudential framework for identification ofsystemic risks and convergence with the emergent international reforms agenda. Industry Structure There were 163 SCBs in the country and 4 Non-SCBs in the Indian Banking System as atend March 2010. Out of 163 SCBs, there were 27 Public Sector Banks, 82 Regional RuralBanks, 32 foreign banks and 22 other SCBs. PNB remained Number One amongst Nationalized Banks with more than 5100 branches spreadthroughout the length and breadth of country. PNBs share in systems depositand credit stood at 5.29 % and 5.44% respectively as on last Reporting Friday (LRF) ofMarch 2011. BUSINESS OVERVIEW 1. BUSINESS Banks domestic business stood at Rs. 5,36,457 crore at the end of March2011, registering an absolute increase of Rs. 1,11,863 crore and a growth of 26.3%. Afterincluding the business of foreign branches, Banks Global Business increased by 27.3% to Rs. 5,55,005 crore. 2. RESOURCE MOBILISATION Banks total deposits amounted to Rs 3, 12,899 crore at the end of March2011, showing an absolute accretion of Rs 63,569 crore and a growth of 25.5% over previousyear. The share of Banks deposits to total resources was 82.71% at the end of March2011, while the share of low cost deposits (current + savings) in total domestic depositswas over 39%. 3. CREDIT DEPLOYMENT & DELIVERY The credit portfolio of the Bank showed a robust and steady growth during 2010-11. Netadvances of the Bank at the end of March 2011 stood at Rs. 2,42,107 crore, comparedto Rs. 1,86,601 crore at the end of March 2010, registering an increase of Rs. 55,506crore or 29.7%. The loan portfolio of the Bank remains well diversified with yield on advancesimproving to 10.58% for the year ended March 2011 from 10.36% in the previous year. To meet specific credit needs of corporate clients enjoying credit limits of Rs. 25crore and above, the Bank has set up 11 Large Corporate Branches (LCBs) at Ahmedabad,Bangalore,

Chandigarh Chennai, Delhi, Gurgoan, Hyderabad, Kolkata, Ludhiana, Mumbai andNoida. Besides, Bank has established 13 Mid Corporate Branches (MCBs) at Coimbatore,Delhi, Goa, Indore, Jaipur, Jalandhar, Kolkata, Kota, Lucknow, Mumbai, Nagpur, Pune andVadodara which exclusively cater to the credit needs of Mid-cap segment. During thecurrent year, one branch of Hissar Circle was identified to be upgraded as MCB. PNB is the designated Nodal Bank under Technology Upgradation Fund Scheme (TUFS) of theMinistry of Textiles, Govt. of India. For speedier processing of claims under TUFS, adedicated cell at the corporate office facilitates distribution of subsidy to eligibletextile units. The Bank has 823 accounts in SSI and Non-SSI category along with 715 SSIaccounts covered under 15% credit linked capital subsidy (CLCS) scheme for TUFS. Duringthe Year 2010-11, Bank disbursed Rs. 162.60 crore to eligible textile units under TUFS. i. LOAN SYNDICATION During the year, the Bank broad based its loan syndication activity by establishingdedicated Syndication Cells at Mumbai and Chennai to function as extended arms of Headoffice. The Cells facilitated achievement of financial closure of number of projects andnew clients were acquired during the year. Bank also has a dedicated Technical Cell whichundertakes Project appraisal and Techno Economic Viability (TEV) studies. These studiesare for internal use and also for sharing with participating banks as part of syndicationassignments. During the year 2010-11, Bank gave approvals for Appraisal/ Syndicating debtaggregating Rs 33,514 crore, generating Fee Income of Rs 147.26 Crore. The sectors whereapprovals for syndication were given included infrastructure projects in power, roads andports, sugar, real estate, logistics, steel, textiles etc. Out of this, income amountingto Rs 55.10 crore has been booked during the financial year while the remaining incomeshall be booked based on confirmation and completion of mandates. ii. RETAIL CREDIT During the year under review, in order to improve credit flows and to cater to theneeds of various segments of the society, Bank realigned and improved its variousproducts/ offerings and made them more customer friendly. During the year, Bank convertedits Retail Hubs to Retail Asset Branches (RABs), resulting in faster delivery of retailcredit and higher level of customer satisfaction. Presently, 73 RABs are functioningsuccessfully. Going forward, Bank intends to increase the number of Retail Asset Branches.Value addition to Housing and Education Loan Schemes have been ensured through tie uparrangements with TATA AIG and Kotak Mahindra Old Mutual Life Insurance Ltd. (KLI)offering life insurance cover to borrowers. The focus on expansion of the retail loan book resulted in yoy growth of retail creditby 23% to Rs. 23, 621 crore at the end of March 2011 from Rs. 19,214 crore in previousyear. Core Retail portfolio comprising Housing, Vehicle, Education, Personal, Pensioner,Gold, Mortgage and Reverse Mortgage loans increased to Rs. 20,129 crore from Rs. 16,369crore, registering a yoy growth of 23%.

Education and Housing loans have been the thrust areas which received Banksfocused attention. Education Loans grew by 24% to Rs. 2820 crore at the end of March2011 from Rs. 2272 crore last year. Housing loans witnessed growth of 24% to Rs. 11, 816crore from Rs. 9538 crore during previous year. In order to give fillip to Retail loans, from time to time, Bank introduces specialoffers for its customers. In August 2010, Bank launched Festival Bonanza Offer for Housing& Car Loan customers whereby relaxations in interest rates, margin and processing/documentation fee, etc. were extended. In February 2011, Bank again launched anothercustomer friendly offer - Basant Bonanza - offering concession in processingfees/documentation charges under Housing Loan Scheme. Customized offers targeting specialcustomer segments like insurance agents, doctors and defence personnel were also launchedduring the year. Some of the other initiatives taken to boost the retail portfolio includesigning of MoU with Army Authorities for opening of salary accounts of Army Personnelunder PNB Rakshak Scheme, introduction of PNB Shikshak scheme for teachers, giving specialtreatment to our high networth (HNI) customers, PNB Bal Vikas scheme exclusively forchildren, etc. Further, steps have been taken to decongest the branches to optimizetechnology use, especially with the help of Business Correspondents in Metro/Urban areas. The Bank is leveraging on the strong technology backbone for improving customer servicethrough the system of online loan applications for housing, education, vehicle andpersonal loans. Branches have been equipped with Retail Loan Appraisal-cumApprovalSoftware (Lending Automation Processing System - LAPS) for speedy processing of loanapplications and faster service to retail customers. iii. PRIORITY SECTOR Credit under Priority Sector (PS) increased to Rs 75,652 crore at the end of March2011, registering a growth of 18.63%. With ratio of PS advances to Adjusted Net BankCredit (ANBC) at 40.67%, Bank continued to surpass the National Goal of 40%. Priority Sector Credit (As on Last Reporting Friday of March 2011) (Rs crore) March 2011 75652 (40.67) 35462 (19.30) 27398 8064

Priority Sector Credit (%age to ANBC) Of which: (a) Agriculture Sector (%age to ANBC) - Direct - Indirect

March 2010 63769 (40.55) 30207 (19.53) 23604 6603

(b) Small Enterprises (c) Others Credit to Weaker Section (%age to ANBC) Credit to Women beneficiaries (%age to ANBC)

24222 9340 15779 (10.33) 7848 (5.14)

29540 10650 18681 (10.13) 9218 (5.08)

Note: Figures in the brackets are %age to ANBC and are calculated based on LastReporting Friday data. Credit to Agriculture Credit to Agriculture sector grew by 17.4% to Rs 35,462 crore at the end of March 2011from Rs. 30,207 crore at end March 2010. The ratio of Agriculture Advances to ANBC at 19.30% was higher than the prescribedNational Goal of 18%. Direct Agriculture Advances of Bank rose to Rs 27,398 crore in March2011 showing a growth of 16.07% over March 2010. Bank issued 3.57 lakh Kisan Credit Cards(KCCs) during 2010-11, taking the cumulative number of KCCs issued to 36.16 lakh. Further,Bank disbursed Rs 6530 crore during 2010-11 to 5.54 lakh new farmers under SpecialAgricultural Credit Plan. During the year, Bank took various initiatives to accelerate flow of credit toagriculture sector. Under KCC Scheme, Loan application form and agreement have beensimplified for limit up to Rs. 1 lakh. Further, limit for Cash disbursement of investmentcredit has been enhanced from Rs 3 lakh to Rs 5 lakh. PNB Kisan ATM Card has been launchedfor KCC account holders to facilitate easy credit disbursement. While finance againstpledge of commodities kept in Covered and Plinth (CAP) storage in open compound waspermitted, relaxation in rate of interest for financing to food and agro processing unitsand cold storages has been extended in 28 Circles. The Dairy Vikas Card scheme to providecomposite loan to dairy farmers was extended throughout the country. Relaxations weregiven in rate of interest for activities like construction and running of coldstorages/warehouses/rural godowns and financing against pledge of warehouse receiptsissued by approved Collateral Managers for loans above Rs 10 lakh. Further, short termproduction credit upto Rs 3 lakh was provided to farmers at 7% interest with a 1.5%subvention support from Govt of India/RBI. Micro Credit Bank continued its efforts to promote micro finance through formation and creditlinkage of Self Help Groups (SHGs). At end of March 2011, the number of credit linked SHGsregistered a 10.23% increased to 1,65,355 SHGs with an amount of Rs 1254 Crore. Thecumulative number of SHGs that had been deposit-linked rose to 1,97,731 from 1,78,166(growth of 10.98%). Bank has credit linked 1,11,944 women SHGs and Saving linked 1,29,513women SHGs. In order to boost microcredit, relaxations were approved for financing of SHGssponsored by

different agencies. Further, modified scheme of "Micro Credit- SHGs- NonGovt Sponsored Scheme" was approved for financing of SHGs promoted by Bihar RuralLivelihoods Promotion Society (JEEVIKA). Credit to Weaker Sections & SC/ST Credit to weaker sections increased to Rs 18,365 crore at the end of March 2011,registering a growth of 16.39%. Ratio of weaker section advances to ANBC at 10.13%continued to be higher than the National Goal of 10 %. Credit to SC/ST beneficiariesamounted to Rs 3453 crore in 2010-11 as against Rs 3396 crore in 2009-10. Credit to Women beneficiaries Credit extended to women beneficiaries rose by Rs 1370 crore to Rs 9218 crore, at theend of March 2011 and as a percent to ANBC stood at 5.08%, higher than the National Goalof 5%. A separate Women Cell at corporate office closely monitors various lending schemesaimed at women beneficiaries and modifications in the schemes are brought about whereverrequired. Credit to Minority communities Banks credit to minority communities has increased to Rs 11,392 crore at the endof March 2011 showing a growth of 18.96% from Rs 9576 crore as on March 2010.It constituted 15.06% of Priority Sector advances, higher than the target stipulated underPrime Ministers 15 point programme for the welfare of Minorities. Micro, Small & Medium Enterprises The Micro, Small and Medium Enterprises (MSME) sector plays an important role ineconomic development through their contribution to GDP, exports and employment generationin manufacturing and service sector. At the end of March 2011, credit to MSME sector stoodat Rs 45,296 crore registering growth of 29.3% over March 2010 and constituting 20.2% oftotal credit. Advances to Micro Enterprises grew at 44.8% to reach a level of Rs 14,370crore. Bank has implemented recommendations of High Level Task Force constituted byHonble Prime Minister to address the issues of Micro, Small & Medium Enterprises(MSME) Sector. Against the envisaged growth of 20% as on March 2011, the outstanding Microand Small Enterprises (MSE) advances grew by 25.5% to Rs 35,032 crore. Share of MicroEnterprises in MSE lending stood at 51.5% against the envisaged share of 50% while annualgrowth in Micro Enterprises was more than 15% as against the target of 10%. For objectiveand speedier appraisal of loan proposals, Bank has developed and launched SME CreditScoring Model for loans upto Rs 50 lakh in all the branches. a. Collateral free Lending Bank leveraged Credit Guarantee Scheme of Micro & Small Enterprises (CGTMSE) forproviding Collateral free/ guarantee free loans upto Rs. 100 lakh. During 2010-11,

26,210cases were covered under the scheme involving credit outlay of Rs 1,428 crore b. Other initiatives A combo product for working capital requirement upto Rs 10 lakh was launched withconcession in rate of interest and current account. Bank also launched a new scheme foradvances to Tour & Travel operators. Bank has adopted the cluster based lendingapproach to meet the requirements of the MSME under which Bank has adopted 41 clustersincluding two Artisans Clusters. For providing better customer care and transparency inservices, Bank has adopted the Code of Banks Commitment to Micro and SmallEnterprises prescribed by the Banking Codes and Standards Board of India, Mumbai. Bank has identified MSME focus branches in addition to already existing SpecialisedMSME branches. As on date there are 523 such branches (59 specialised SME branches &464 MSME focus branches). Apart from extending 1.00% concessions on chargeable InterestRate to Micro Enterprises for loans up to Rs. 25 lakh, higher Loaning Powers have beenvested to Branch Managers for directly disposing proposals at Branch Level for financingmicro enterprises under CGTSME. Bank is also pro-actively participating in various schemesof Government of India like Prime Minster Employment Generation Programme etc. c. Recognition The CGTMSE conferred 2nd award for excellence in performance for obtaining CreditGuarantee Cover under CGTMSE up to the year 2010. The Khadi & Village IndustryCommission, Ministry of MSME, Government of India conferred National Award for Excellencein Lending to Khadi & Village Industries in North Zone. iv. FINANCIAL INCLUSION Financial inclusion has been priority area for the Bank not only for compliance withthe directives of the Government of India but also as a business proposition. Thus, Bankhas decided to extend the foot prints of the Bank to the hitherto unbanked areas and takeas many customers as possible on board. Status of Financial Inclusion (As on March 31, 2011) (Amount: Rs Lakh) Amount (No in Lacs) Accounts (Rs. Crores) 32.43 824.72 40.89 178.70 0.18 52.18

Sl. No Activity 1 No Frill Accounts through Branches 2 No Frill Accounts through Business Correspondents 3 Credit Driven Financial inclusion a. Technology Based Financial Inclusion

The Technology based FI programme was implemented in 39 different remote areas in thecountry thereby covering 3355 villages through 894 Business Correspondent (BC) Agents.Extensive use of technology leveraging the Core Banking Solution has been made forproviding banking services in these villages. Bank has been able to extend its reach to awider area by use of technology. Bank has been allocated 4683 villages with population in excess of 2000 for providingbanking services by March 2012. Of these, 2186 villages have already been covered andBC Agents have been deployed. Over 10 lac enrollments have been done. The remainingvillages shall be covered by end of March 2012. b. Training to Business Correspondents Business Correspondent is the face of the Bank in the village and his conduct has adirect bearing on the reputation of the Bank. Elaborate training in banking and softskills is provided to BCs immediately after appointment. A pool of trainers has beencreated in the Bank with help from the Indian Institute of Bank and Finance, Mumbai whichis used for providing training to the BCs. PNBs Central Staff College/Zonal TrainingCentres/Regional Staff Colleges have conducted 11 such programmes and trained 247 persons(LDMs, faculty members of training colleges, Agricultural officers, persons from RSETIs,etc.) who are used as faculty for further training to BCs. c. Outreach Programme of RBI As a part of Outreach programme of RBI, PNB was given the responsibility of providingbanking services to Village Kulharia (Koilwar Development Block in Bhojpur District,Bihar), Village Amarut (Gaya District, Bihar), Nalanda & Jehanabad Districts in Bihar,Village Mastabad (Dist. Alwar), CO: Bharatpur and Village Malikpur, Dist. Sikar.Resultantly, the Bank has been providing smart card/GCC/KCC/OD facility to at least onemember of the households in these villages. A follow up programme pursuant to inclusion ofthe village Amarut in Gaya District of Bihar was organized by RBI in Bihar. d. Credit Driven Functional Financial Inclusion Projects Over 18000 beneficiaries belonging to the under-privileged category of the society havebeen identified and provided financial assistance. Rickshaw Pullers, Weavers, Villagelevel entrepreneurs managing Common Service Centers, Vegetable sellers, Milk producers,Construction workers, Contract workers, Self Help Groups etc. have been provided withassistance over Rs. 53 crore. e. Banking KIOSKs 30 Banking KIOSKs have been set up in District Gaya (Bihar), Rohtak (Haryana) andBulandshahar (UP) for providing banking services through ICT based BC model. f. Registrar for Unique Identification Authority of India (UIDAI)

Bank has been acting as Registrar to the UIDAI for enrollments for issue of UniqueIdentification Numbers to the residents by the UIDAI. The work on UIDAI enrollment wouldbe started soon in the District of ALWAR in Rajasthan. g. New Products for Financial Inclusion Customer i. A new product for ICT based FI customers was developed for catering to therequirement of remittance of funds of the migrant labourers in big cities. This newproduct when implemented, will facilitate transfer of funds between : a. FI accounts b. FI account and CBS account (in PNB) c. FI account and CBS account (other banks) ii. In built overdraft: The FI account carries an in built overdraft of Rs 500/-.Overdraft up to Rs. 2500/- is available with prior approval of the Branch Manager. h. Financial Literacy and Credit Counseling Centres (FLCC) The Financial Literacy and Credit Counseling Centres have been set up to impartfinancial education and provide face to face counseling on financial issues related tobanking, viz., deposits, opening of No frill Accounts, preventive and curative creditcounseling, etc. Bank has Lead Bank responsibility in 57 districts where we have FLCCsalong with one in Delhi, taking the total number to 58. During the year 2010-11, 86,645number of enquiries were made in these FLCCs and 73,856 persons attended the seminarsconducted by them. v. ASSET QUALITY Ratio of Gross NPAs to Gross Advances of the Bank stood at 1.79% at the end ofMarch 2011, while the ratio of Net NPAs to Net Advances was 0.85%. In case of allNon-Performing Assets (NPAs), account-specific resolution strategies were implemented andprogress was monitored regularly. While thrust was given to upgrade NPAs to performingcategory, enforcement action under SARFAESI Act was initiated in eligible cases.Compromise/ negotiated settlement was adopted as another strategy to tackle NPAs. Based on experience gained and regulatory guidelines, Banks Policy onRecovery of Loans & NPA Management was fine tuned. Special recovery campaigns(Rin Mukti Shivirs) were launched at various locations where Senior Authorities fromCircle Office/Head Office and FGMs participated for on-the-spot decisions for resolutionof accounts i.e., One Time Settlement (OTS)/ Upgradation, etc. Bank has set up specializedbranches known as Asset Recovery Management Branches (ARMBs) and specialized cells knownas Special Asset Recovery Cells (SARCs) which function exclusively for resolving NPAs.Presently, 17 ARMBs and 50 SARCs are functioning. The Bank also took the following steps:

Special OTS Policy was formulated for Agriculture Debt Relief Accounts forresolution of NPAs under Agriculture Debt Relief Accounts. This special scheme has proveduseful in providing relief to borrowers under this segment. Continuing "Prayaas" staff Incentive Scheme for associating staffmembers in recovery efforts in non-performing advances and in written-off accounts. Engagement of Resolution Agents including ARCs and honorably retired bankofficials on commission basis. New ARMBs have been opened at five different centres for focused attention inresolution of NPAs particularly in category of Rs. 10 lac and above. Drawing accountspecific strategic plan, comprehensive review of ARMBs and steps for their revamp havebeen initiated. Recovery Campaign was celebrated during the period 15.07.2010 to 15.08.2010 forrecovery in written-off accounts, through which Rs 27.25 crore was recovered. The year 2010-11 was designated as "Year of NPA Resolution throughOTS" for faster resolution of NPAs and OTS in 66284 accounts was approved. For seizures and sale of vehicles of defaulter borrowers, Board approved theprocedure for repossession and sale of security including Tractors. Delegated powers were revised for sanction, filing/defending in the name ofBank, monetary suits, application to tribunals, reference to arbitration, recoveryproceedings, appeal, etc. Special campaign to hold Lok Adalats was launched at district level in 18Circles during the period 20.11.2010 to 20.12.2010 for resolution of NPA accountsinvolving amount upto Rs. 10 lac. Accounts with aggregate outstanding of Rs 409.96 crore were upgraded to"Standard" category. Total cash recoveries in NPA accounts amounted to Rs1170.01 crore during the year. Through well defined recovery policy, 66,573 NPAs amountingto Rs 893.76 crore were resolved through negotiated settlements. Besides, 3 NPAs amountingto Rs 7.93 crore have been resolved through sale to ARCs / other banks / NBFCs as per RBIguidelines. During the year 2010-11, Bank recovered Rs 513.34 crore out of the accountsearlier written-off. a. Industrial Rehabilitation Bank continued its efforts towards rehabilitation of potentially viable sick units toprovide the much needed relief to industrial sector by debt restructuring. Bank has beenassigned the role of Operating Agency of BIFR in number of accounts. During2010-11, Draft Rehabilitation Scheme (DRS) was formulated by the bank as OperatingAgency of BIFR in 4 accounts. Bank implemented rehabilitation package in 3 casessanctioned by BIFR during 2010-11. b. Corporate Debt Restructuring (CDR)

To ensure timely restructuring of debt of viable borrowers availing credit facilitiesunder consortium/multiple banking, a transparent mechanism is available under CDR system.During the year 2010-11, 8 accounts with outstanding of Rs 410 crore were restructuredthrough the CDR mechanism. Out of the 8 restructured accounts, PNB has been assigned therole of Monitoring Institution in 5 accounts. c. Debt Restructuring Mechanism for Small & Medium Enterprises Bank has adopted Debt Restructuring Mechanism for Small & Medium Enterprises (DRMfor SMEs) on the lines of CDR since 2005-06. Under this, timely restructuring of SMEsfacing genuine problems is ensured. During the year under review, Bank restructured 224accounts with aggregate outstanding of Rs 459 crore. d. Restructuring Others Bank has also put in place a transparent mechanism for restructuring of debts ofpotentially viable units, which are facing temporary problems due to factors beyond theircontrol and those which cannot be covered under BIFR/CDR/DRM for SMEs. During the year2010-11, 577 accounts involving Rs 2349 crore were restructured/rescheduled under thiscategory. 4. FOCUS ON SUSTAINABILITY The risk management philosophy and policy of the Bank is an embodiment of theBanks approach to understand, measure and manage risks and aims at ensuring growthof healthy asset portfolio. This would entail adopting leadership approach in products andsegments well understood by the Bank and having pre-determined risk standards of moderateto low risk level, taking limited exposure in high risk areas, striking a balance betweenthe risk and return and also striving towards improving market share to maximizeshareholder value. a. Credit Risk The Bank has robust credit risk framework and has placed credit risk rating models oncentral server based system PNB TRAC, which provides scientific basis forassessing credit risk rating of a client. The Bank has added a new credit risk ratingmodel for Advance against Lease Rentals exposures. Periodic validationexercises of the rating models are undertaken and rating migration and default rateanalysis are carried out to test robustness of rating models. The output of the ratingmodels is used in the decision making of the Bank viz., sanction, pricing and monitoringof loan portfolio. The Bank has set a benchmarked portfolio distribution in terms of LowRisk, Medium Risk & High Risk Categories and the actual portfolio is monitored onquarterly basis and the same is placed before the Risk Management Committee (RMC) of theBoard. Taking a step further, the Bank has developed and placed on central server creditscoring models in respect of retail banking and SME sector advances. These processes havehelped the Bank to ensure efficient service delivery, uniformity in approach andfacilitate storage of data and analysis thereof. Scoring model for farm sector loans hasalso been developed.

b. Market Risk The Bank has in place a well defined organizational structure for market riskmanagement functions, which looks into the process of overall management of market riskviz. interest rate risk, foreign exchange risk, liquidity risk and implementsmethodologies for measuring and monitoring the same. Tools like stress testing, duration,modified duration, VaR etc are being used in managing risks in treasury operations. Asset liability management of the Bank is done on proactive basis to manage anyeventuality. Although liquidity position in the system remained tight during the year, theBank managed to tide over the situation through proactive liquidity management throughvarious prescribed tools like Repo, Reverse Repo etc. With Core Banking Solution (CBS)covering entire branch network, the Asset Liability Management in respect of all assetsand liabilities is being done on daily basis. Moreover, fixing BPLR/Base rate and interestrates in respect of assets and liabilities products is done on scientific basis. The Bankhas moved from BPLR to Base Rate System for pricing of fresh loans/renewal of existingloans with effect from 1st July 2010. c. Operational Risk Bank has established organizational structure for operational risk management functionswhich looks into the process of overall management of operational risk. Under theoperational risk management framework and ORM Policy, Bank is identifying, measuring,monitoring and controlling/ mitigating operational risks by analyzing historical lossdata, Risk and Control Self Assessment Surveys (RCSAs), Key Risk Indicators (KRIs) andScenario Analysis. Bank has also introduced an online OpRisk Solution under Enterprisewide Data Warehouse Project and placed it on central server to take care of variousaspects of data capturing and management information system at various levels. d. New Capital Adequacy Framework The Bank has migrated to New Capital Adequacy Framework (NCAF), popularly known asBasel II w.e.f March 2008. The approaches prescribed by the regulatory authorities viz.,Standardized Approach under Credit Risk and Basic Indicator Approach under OperationalRisk have been implemented. The Bank has adopted Standard Duration Approach for MarketRisk. As per RBI guidelines, relevant policies such as Policy for Internal CapitalAdequacy Assessment Process (ICAAP), Disclosure Policy, Credit Risk Mitigation &Collateral Management Policy and Policy on Stress testing have been approved by the Boardand since been implemented. Bank is working towards adoption of advanced approach tomanage different risks and the estimation of various risk elements is already in progress.Bank has already applied to RBI for migration to "Standardised Approach" underOperational Risk. 5. INTERNATIONAL BUSINESS Banks total forex turnover from exports, imports and remittances amounted to Rs1, 20,526 crore in FY 2011, registering a growth of 17.34% over previous year. Exportcredit outstanding stood at Rs 11,074 crore at the end of March 2011 against Rs 8,294crore at end March 2010,

registering a growth of over 34%. The Bank has 175 branches authorized to handle foreign exchange business (including twoForeign Exchange Offices) which are provided with the SWIFT connectivity. Over 520 banksworldwide have been approved to facilitate trade transactions of our clients. Besides,Bank has set up 11 specialized International Banking Branches (IBBs) at important centresfor dedicated service to exporter/importer clients. An International Service Branch and aCentralized Back Office for Trade Finance at Delhi, have also been set up to handle allforeign inward remittances and expeditious processing of export/import documents. Tofacilitate International travel, Bank has launched "World Travel Card" which isa prepaid card denominated in USD, GBP and EURO. In order to centralize opening of NRI accounts by any of the Banks branches inIndia and for offering speedy services like issuance of pass book, cheque book, ATM cumDebit cards, Internet Banking Services, etc, a Back Office (E-bay) has been set up atDelhi. Exchange bureaus at important tourist centres for encashment of foreign currencynotes/travellers cheques by foreign tourists/NRIs etc has also been set up. Bank hasentered into Rupee Drawing Arrangements (RDA) with 29 Exchange Houses in Gulf countriesand one in Singapore to facilitate remittances from NRIs. In addition, the Bank has webbased remittance arrangements under Money Transfer Service Scheme (MTSS) through XpressMoney, Money Gram, Buy India online, Ezremit and Western Union. 6. TREASURY OPERATIONS The Banks investment portfolio rose to Rs 95,513 crore at the end of March2011 from Rs 78,058 crore last year. During the period, income from Investments was Rs5698 crore against Rs 4577 crore last year. The Bank had meticulously complied withstatutory prescriptions relating to CRR and SLR, in compliance under section 19(2) ofBanking Regulation Act 1949 and prudential norms prescribed by RBI relating to treasuryoperations. 7. BUSINESS DIVERSIFICATION Mutual Fund: Bank is distributing and marketing Mutual Fund products of UTI AMC& Principal PNB AMC. During FY 2010-11, Bank earned brokerage to the tune of Rs.2.19crore. Gold Coin Business: Under the Gold Coin Scheme, the Bank is presently selling goldcoins of 2 gm, 5 gm, 8 gm, 10 gm & 20 gm through branches. During the year 2010-11,Bank sold 30,325 gold coins weighing 206 Kg as against 16,542 coins weighing 103 Kg during2009-10. Banks earning from sale of Gold Coins during 2010-11 stood at Rs 2.25 croreas against Rs.1.38 crore earned during 2009-10. Insurance Business: Under tie-up with Oriental Insurance Company Ltd for non-lifeinsurance, premium collection during FY 2010-11 amounted to Rs. 72.30 crore from 3.06 lacpolicies and Bank earned revenue of Rs.6.43 crore. Similarly, under tie-up with LIC ofIndia in respect of life-insurance business, the premium collections amounted to Rs. 113.91crore from 47,159 policies referred by the Bank which earned revenue of Rs.6.77 crore.

Depository Services: Bank is having a client base of 63,280 demat accounts. TheBank earned an income of Rs. 95.17 lac in 2010-11 as against Rs. 91 lac in 2009-10 byproviding depository services. On line trading facility: Out of a client base of 15,931 online trading accounts,Banks earnings increased to Rs. 55.76 lac in 2010-11 against Rs. 35.58 lac duringlast year. Merchant Banking: As a Category I Merchant Banker, the Bank handled 14assignments as "Banker to the Issue" and 90 assignments of dividendpayment/Interest payment etc. during the financial year 2010-11. The Bank is registeredwith SEBI as Self Certified Syndicate Bank (SCSB) and its select branches are offering thefacility of submitting applications in public issue (IPO/FPO/ Right issue) through theApplication Supported by Blocked Account (ASBA) process. The Bank is offering thisfacility online too. India factoring and Finance Solutions Pvt Ltd: PNB has formed a Joint Venture withFIMBank (Malta), a Non Banking Finance Company (NBFC), for offering products of factoring,forfeiting and other trade finance solutions to Indian Corporates particularly from SMEsegment. PNB has invested Rs. 30 crore, accounting for 30% stake in the Joint Venture. TheJoint Venture "India factoring and Finance Solutions Pvt Ltd" started itscommercial operations w.e.f 12.01.2011 from Delhi, Mumbai & Chennai. Cash Management Services & PayFee: Cash Management Services or the CMS facilityis offered to Corporates for efficient fund management. This product has been structuredwith flexible features for meeting the specific needs of the user-client. CMS facility isoffered to educational institutions through PayFee. 54 customers have optedfor CMS services, while more than 295 educational institutes have availed PayFee service. Door step Banking: Under the facility of Door Step Banking, cash is picked up fromthe premises of the customer. Door step banking is currently being provided to about 400customers and has helped in garnering Current Account business. DD Drawing Arrangement: Bank has also entered into DD Drawing arrangements withseveral foreign Banks, under which, apart from the revenue income from commissions earned,the Bank also enjoys substantial float in current account. Credit Card: Credit Card was launched by the Bank in February 2009. Keeping in viewthe need of corporate clients, Bank launched Corporate Credit Card with Individualliability in November 2009. During the year, soft launch of Corporate Credit Card withCorporate Liability was made and currently over 78,000 Credit Cards have been issued. Merchant Acquiring Business: Bank has also entered into Merchant Acquiring Businesswhich targets existing CA/CC customers, hotels, petrol pumps, educational institutions,corporate, etc. As on date over 2400 POS terminals have been installed and 8 InternetPayment Gateways have been integrated. 8. TRANSACTION BANKING

Transaction Banking Division, set up to harness the benefits of computerization,formulates products and services and makes the same available for the use of customers.Effectively, it works towards providing customer convenience embodying the true spirit ofAnytime Anywhere Banking. The focus of the Bank is on migrating customers from"Branch Based Banking" to "Alternate Delivery Channels" such as ATMs,Internet Banking, Mobile Banking, Call Centre etc. to de-congest branches and createadditional capacity within existing infrastructure for customer acquisition and servicingexisting customers. Back Office Operations Transaction Banking Division has introduced the system of Centralised Solutions, toimprove the efficiency of service being provided as well as to release the pressure frombranches. Towards this end, the following activities have been centralized: a. Opening of Back Offices to look after the processes of inward outward and outstationclearing of cheques b. Issuance of personalized cheque books c. Issuance of statement of accounts d. Centralised document storage Bank is shortly introducing the Enterprise Document Management System (EDMS) foropening of accounts at branches, and putting up innovative cheque drop boxes which wouldautomatically record and update the details of the cheques received. 9. GOVERNMENT BUSINESS During the year, all authorized branches handling PPF business were made live on GBMmodule in the CBS system. E-payment system for collection of Commercial Taxes (Sales/VAT)has been made "live" in the states of Bihar, Maharashtra, Himachal Pradesh,Chhattisgarh, Delhi and Orissa. Further, Bank is in the process of implementing e-stamping of documents in the 6 states i.e. Karnataka, Gujarat, Delhi, Maharashtra, Assamand Tamil Nadu. Extending the coverage of technology, provision of Direct tax paymentfacility through ATMs is nearing completion. Bank has plans to set up centralized PensionProcessing Centres to disburse all types of pensions. 10. BRANCH & OFFICE NETWORK Total Number of Branches at the end of March 2011 rose to 5189. The BranchNetwork comprises 2047 Rural, 1154 Semi Urban, 1111 Urban and 877 Metropolitan branches.During the review period 210 domestic branches were opened. With 5189 branches, including28 Extension Counters, the Bank has the largest network amongst the nationalized banks. Aspart of customer segmentation, Bank has opened specialized Branches that include 6 MicroFinance branches, 59 SME branches, 11 International Banking Branches, 17 Asset RecoveryManagement Branches, 13 Mid Corporate Branches, 11 Large Corporate Branches, 73

RetailAsset Branches, 11 Agriculture Finance Branches, 3 high-tech agriculture branches, 1Capital Market Services Branch and 1 International Service Branch. Besides, 41 BackOffices, 2 Special Foreign Exchange Offices, 17 Special MICR Centres, 41 Service (RegionalClearing Centre) centres, 4 Financial Inclusion Service Centres, 3 Centralised DraftPayable Centres, 1 Central Clearing Service Centre and 1 Depository Back Office areestablished to reduce delivery time and improve response time. The idea of introducing "Premium Customer Lounge" at select branches is aimedat providing superior customer experience to our premium customers. The Premium CustomerLounges are a means of ensuring that our Premium customers are extended exclusive serviceswithout disrupting our services to other customers of the Bank. A dedicated RelationshipOfficer will attend to these HNI customers for providing personalized services andbusiness development the moment they enter our branch. International Presence In pursuit of the objective of international expansion, Bank has opened one branch eachat Kabul and Dubai, two branches at Hong Kong and an Off Shore Banking Unit at Mumbai. Inaddition to the above, Bank has Representative offices at Almaty, Dubai, Shanghai andOslo, a wholly owned subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan& Bhutan, (Druk PNB Bank Ltd.) and joint venture with Everest Bank Ltd. Nepal. Duringthe year, Bank acquired majority equity stake of 63.64% in Dana Bank of Kazakhstan. Bank is in the process of opening a Representative Office in Sydney, Australia forwhich permission from the Australian regulator has already been received. Further, settingup a 100% subsidiary in Canada has been taken up for which approval from the regulator isawaited. 11. INFORMATION TECHNOLOGY Financial sector in general and banking industry in particular have undergonetransformation due to induction of Information Technology (IT). PNB has been in theforefront in use of technology. a. Implementation of Core Banking Solution(CBS) Core Banking Solution (CBS) is offered at all the branches of the Bank providingflexibility and convenience to all customers. The branch is effectively integrated withalternative channels of service delivery viz., ATMs, Internet Banking Services, mobilebanking, etc. Core Banking Solution is built on robust and scalable platform throughstate-of-art Network Operating Centre (NOC), dual network connection at all branches andautomated Business Continuity Plan (BCP). It is integrated with NEFT, RTGS and SWIFTpayment networks. The CBS setup handles approximately 4 million transactions per day. Highavailability of services (99.9%) is ensured with adequate redundancy at every layer of thesetup. b. CBS in Regional Rural Banks With 100% CBS at PNB, Bank rolled out CBS at all its six sponsored Regional Rural

Banks(RRBs) thereby extending the coverage of benefits of technology to the rural population.100% implementation of CBS in all 1450 plus branches/offices of six RRBs was completedmuch ahead of the deadline. c. CBS at overseas locations Banks data centre and Disaster Recovery Site (DRS) offers hosted services for alloverseas ventures, including Joint Ventures and subsidiaries. The data centre managesoperations of 13 entities with In House resources as against outsourced modelthereby reducing the operational costs considerably and affording complete control overoperations. d. Alternate Delivery Channels Transactions through Alternative Delivery Channels (ADC) have registered considerablegrowth during the past year. Currently, more than 28% of the total transactions in theBank are undertaken through ADC which includes ATM / Debit Card / RTGS / NEFT etc. e. Internet Banking Services Banks internet banking services offer a complete e-bouquet of banking andfinancial services. With over 11 lac retail and around 2 lac corporate Internet Bankingusers, PNBs Internet Banking is witnessing a steady shift of customers for transferof funds, inter-bank remittances and payments towards various services. The channel wasextended for collection of VAT/ State Taxes for the states of U.P, Bihar, Maharashtra, HP,Delhi, Orissa and Chhattisgarh during the year. By collaborating very actively in all thee-initiatives of Govt. of India as well as several state Governments, Bank has positioneditself as a leading e-service provider. The effectiveness of the channel is enhanced withthe utility payment facility for all the popular service providers. f. SMS Alert Services and Mobile Banking Services SMS Alert facility is being availed by over 21 lac customers through generation of SMSAlerts on identified financial transactions undertaken through branches and deliverychannels (POS, ATM, Internet Banking & Mobile Banking). The SMS Alerts are being sentfor certain nonfinancial activities as well. The channel was leveraged for providinginformation on Banks products and services over SMS under the SMS Pull Mechanism. The Bank launched its Mobile Banking services in February 2010. Utilizing thisplatform, a customer can undertake banking transactions through their Mobile handsets. Theextension of mobile payments has added value to the channel as the users can also makepayments of utility bills/services using their mobile phones, besides effecting transferof funds to third party accounts. g. ATM Services In order to provide greater convenience to customers, more than 1450 ATMs have beeninstalled during the year, taking the total count of ATMs of the Bank to 5050. Apart fromthe facility of

cash withdrawals, balance enquiry, mini statement and PIN change,Banks ATMs offer other value added services to the cardholders like Transfer, BillPayments, mobile registration for generation of SMS alerts etc. Some additional featureslike payment of Income Tax through PNB ATMs are also extended to our customers.Transactions through ATMs showed a growth of 36% during the year 2010-11. h. ATM/Debit Cards In order to provide greater flexibility and convenience to customers, the Bank hasissued more than 13 million ATM/ Debit Cards till date. Bank has introduced new freebenefits for PNB Debit Cards holders in the form of free accidental death insurance uptoRs. 2 lacs, and redeemable Reward Points on usage of Debit Cards at POS outlets or fore-commerce transactions. i. Real Time Gross Settlement System (RTGS) and National Electronic Fund Transfer(NEFT) The facility of RTGS and NEFT is being provided in all branches of the Bank and alsofacilitated through Internet Banking channel. Internet banking customers can remit fundsjust by click of a button without any bank/branch intervention to any RTGS/NEFT enabledbranch of other banks in India. j. New IT based Products/Services Bank has been launching new products/services with special focus on various customersegments. During the year, Bank introduced various products and services, some of whichinclude: World Travel Card as a pre paid card in 3 currency denominations for personsintending to travel abroad. Pre paid Gift Card (PNB Uphaar). Kisan Credit Card enabled for ATM. Introduction of Passbook facility to FI Customers. Value added services at ATMs under NFS network. VAT collection through internet banking channel Inward remittances with Western Money union, Money Gram etc. Web portal for State governments enabling them to monitor funds deployment atstate / district / panchayat level.

k. Enterprise wide Data Warehouse PNB is the first nationalized Bank to implement an Enterprise-wide Data Warehouse tointegrate data from multiple source systems and provide Business Intelligence and decisionsupport system. It also serves as a source of data feed for Anti-Money Laundering, riskmanagement and Customer Relationship Management system. IT Security Business Continuity Plan (BCP) In the present scenario where all the branches are under Centralized Network,connectivity is an important concern. Though precautions have been taken to take care ofconnectivity outage by providing dual connectivity to each branch, yet chances of outagecannot be ruled out completely. Bank has well defined Business Continuity Plan (BCP) toprovide uninterrupted customer Service in case of any exigency in the branches. Information Security The Bank has taken adequate steps to strengthen anti-phishing mechanism and monitoringprocess thereof to prevent online frauds. To monitor information security events acrossBanks network, a world class Security Operations Centre (SOC) has been establishedbeing first of its kind to be set up by any Indian Bank. The facility is being utilizedfor analysis and monitoring of various threats emanating from both within the network aswell as from outside the network in a very proactive manner. ISO 27001 Banks Critical Infrastructure Data Centre, Network Operation Centre &Disaster Recovery Data Site are ISO 27001 certified. All the policies are aligned withbest practices and are ISO 27001 standards compliant. Internet Monitoring/Website Monitoring 3 Daily malware monitoring of the official websites. 3 To safeguard the interests of our internet banking customers, Anti- Phishing, AntiPharming and anti -Trojan services are being availed. 3 To secure the interests of Internet banking customers, Site to userfunctionality of transaction Monitoring solution (IBS Shield) has been implemented. Recognition In recognition of technology initiatives, the Bank won various awards during the year.These include PC Quest Best IT Implementation Award 2010 for CBS, SKOCH Award 2010

for"Computerization of RRBs", SKOCH Financial Inclusion Award 2010, National Awardson e-Governance 2010-11, best IT initiative Gold award under the category Innovativeuse of ICT by PSUs for Customers Benefit and Best Technology Bank ofthe year Award by Indian Banks Association. 12. HUMAN RESOURCES MANAGEMENT To give due attention to the macro-level and strategic HR issues, a new HR Organizationstructure was established. This was done by carving out the routine administrativefunctions and delegating them to a separate Personnel Administration Division(PAD), thusenabling the Human Resources Development Division(HRDD) to focus on strategic thinkingnecessary for meeting HR challenges. PAD looks after administration / implementationissues such as Payroll, Transfer / Postings, Promotions, Disciplinary Action, IndustrialRelations etc while HRDD deals with the broader HR Policy framework, manpower planning anddevelopment & welfare issues. Bank has constituted a Sub-Committee on HR comprising ofsome of the Top Management executives for deliberating on various HR issues and forpiloting organization-wide HR interventions. The Bank recognizes its employees as the most vital and valuable asset. Total number ofemployees including those in the subsidiaries at the end of March 2011 was 57,020(56,928 as at March 31, 2010). Women employees constituted nearly 16% of the totalworkforce. Cadre-Wise Staff Strength CADRE OFFICER CLERICAL SUB STAFF (incl.PTS) Total Recruitment strategy During the year, Bank initiated recruitment process including campus recruitment frominstitutes through which 1335 Officers in various Grades/Scales were recruited. Out ofthese, 945 were Specialist Officers in various streams such as Marketing, Law, HRD, etc.Further, 1178 Clerical staff and 1062 Subordinate staff were inducted during the year. Talent Retention The attrition rate during the year was negligible at 0.83% (0.31% for the previousyear). This low attrition rate has been due to continuous investment in learning anddevelopment programs for employees, creating an enabling work environment, staff welfaremeasures and performancelinked incentives. March 2010 Number % 19869 34.90 24285 42.66 12774 22.44 56928 100 March 2011 Number % 20711 36.32 23065 40.45 13244 23.23 57020 100

Career Path The Bank has been implementing changes in the Promotion Policy from time to time toprovide fast-track career growth opportunities to employees. Technology-based HRMS Human Resources Management System (HRMS) or PNB Parivaar APeopleSoft package containing an exhaustive database of all the employees, has enabled theBank to effectively utilize technology for implementing all employee related tasks such ascompensation, staff welfare benefits, various reimbursements, transfer/ postings, terminalbenefits, leave rules etc. HRMS was also utilized by employees to exercise their optionfor pension as well as for centralized credit of pension to retired employees. Industrial Relations Industrial relations in the Bank continued to be cordial. Various meetings were heldbetween the Bank Management and the representatives of the majority OfficersAssociation / Workmen Union during the year. Reservation Policy The Bank follows the reservation policies for SCs, STs and OBCs as prescribed byGovernment of India from time to time. Strength of SC/ST/OBC Employee CADRE OFFICER CLERICAL SUB STAFF (incl.PTS) Total Staff Welfare During the year, the Bank implemented many Staff Welfare Schemes with an objective tomeet the aspirations of the employees. Significant among them was the Scheme for paymentof financial assistance to the employees having mentally retarded children. The limits forInterestfree Festival Advance facility being offered to the employees were increasedsubstantially. Bank recognized efforts made by our staff towards excelling in areas of their personalinterest. Bank is proud of the glorious achievement of Shri Basanta Kumar Singha Roy,posted at CO; Kolkata, who scaled the highest peak in the world, Mount Everest in hismaiden attempt by March 2010 SC ST 3117 1159 4786 800 5002 697 12905 2656 March 2011 SC ST 3394 1255 4422 722 5335 749 13151 2726

OBC 580 857 1222 2659

OBC 757 1022 1689 3468

hoisting PNB's flag. Similarly, Mr Satish Khanwalkar, posted at CO:Indore and a direct disciple of Pandit Vishwa Mohan Bhatt, was invited to play Mohan Veenaon PNB's 117th Foundation day celebrations and was felicitated by the Top Management. PNB Samadhaan The Scheme offers an opportunity to an employee to represent case of any workrelatedgrievance directly before the Chairman & Managing Director of the Bank. During theyear under review, 37 cases under the Scheme were suitably resolved. Team 2020 A 2020 Program has been initiated for grooming officers in SeniorManagement who are due to retire after 2020 so that they can assume leadership roles inthe Bank. Training Activities The Training system of the Bank endeavours to enrich Knowledge, Skill and Attitude(KSA) of staff at all levels in line with the organizational objective. Bank has a threetier training set up comprising of Central Staff College (CSC) at Delhi at apex levelcatering to training needs of Top / Senior / Middle Management Grade officers, threeRegional Staff Colleges (RSCs) located at Belapur-Navi Mumbai, Lucknow and Panchkulacatering to training needs of Middle / Junior Management officers as well as workman staffand seven Zonal Training Centres (ZTCs) at Dehradun, New Delhi, Jaipur, Kolkata,Kozhikode, Ludhiana and Patna looking after the training needs of Junior Management Gradeofficers & Workman Staff. IT Training Centre located at Faridabad caters to thetraining needs of officers exclusively in the areas of Information Technology. In addition, PNB IIT, an autonomous Institute has also been established by the Bank atLucknow, which conducts advanced IT courses and Special training programmes on IT / CBSfor the employees of the Bank as well as other Financial Institutions. Bank also imparts training to its officers in different Grades in specialized areasthrough outside training institutions of repute both in India & abroad viz. IIMAhemedabad, IIM Lucknow, NIBM Pune, CAB (RBI) Pune, ASCI Hyderabad, MDI Gurgaon, KelloggSchool of Management USA, APRACA Manila etc. During the year, the training activities inthe Bank focused on areas like credit, agriculture, SME & Micro credit, foreignexchange, information technology, NPA management, risk management & soft skilldevelopment etc. Training Policy of the Bank envisages a training reach of 50% of employees every year.During 2010-11, Bank imparted 1,34,913 man days training to 44,713 employees throughin-house training institutions. In addition, 1550 officers attended specialized trainingsat reputed outside Institutes in India and abroad. Bank is also encouraging utilization ofthe trained staff as agents of knowledge dissemination through the concept of "Eachone to teach one". In recognition of its efforts in training, Bank was awarded Golden Peacock Awardfor Training

by Institute of Directors (IOD) for the year 2011. Bankalso received the 6th BML Munjal Award for Excellence in Learning & KnowledgeDevelopment-2010 by Hero Mindmine Institute. E-learning Training system of the Bank makes extensive use of technology for facilitatingknowledge dissemination to its employees. Bank has created an exclusive Knowledge Centrewebsite, comprising e-circulars of all HO Divisions, which is a knowledge repository oflatest banking and economic updates. Bank has also launched an exclusive e-learningplatform i.e. PNB Gyan uday, which is accessible 24 X 7 to all theemployees across the country and abroad. In the interactive model of learning, topics onvarious areas viz. Credit, Foreign Exchange, Retail Banking, CBS/IT, Soft Skills,Marketing, Risk Management, Resolution of NPAs etc. are provided. 13. MANAGEMENT INFORMATION SYSTEM Management Information System Division (MISD) was set up with the objective ofcentralisation of MIS. To achieve this objective, Enterprise-wide Data Warehouse (EDW),had been implemented. EDW set up has facilitated ready access to data required forRegulatory/Statutory reporting as well as for analytical purposes. So far EDW hascustomised 345 returns pertaining to sixteen HO Divisions. LADDER (Loans and Advances DataDesk for Evaluation & Reports) System, comprising of BASEL & CIBIL modules, withmonthly data updation periodicity, is also being implemented for creating data base ofloan accounts, generation of credit related MIS & retrieval of credit relatedinformation, asset classification and provisions computation in respect of NPAs, etc. 14. CUSTOMER CARE PNB is committed to provide the best customer care and is using its technology platformfor ensuring consistent customer experience. The Bank has a well-defined GrievanceRedressal Policy, reviewed annually, emphasizing on quick redressal of complaintspreferably within 24 hours. This policy has a special consideration for Pensioners andSenior Citizens. Alternate delivery channels i.e. ATM/Debit Card, Credit Card, InternetBanking Services, etc. based on adoption of technology as solutions are being popularized.In bigger branches May I Help You Counters have been provided. CallCentre is working on 24*7 basis handling more than 80, 000 calls per day. Trainingprogrammes are being conducted for bringing attitudinal changes. Onlocation training programmes are also being conducted for up skilling of employees.Every month, a theme is being conveyed from HO to all the branches for educatingthe staff in a meeting called on single day on PAN India basis. Also two customerrepresentatives are made members of Circle Level Customer Service Committees who are beinginvited to attend quarterly meetings on a regular basis for better connect between thefield and corporate office. Officers are being sent from HO/Circles in Delhi & NCR for Mystery Shoppingas Decoy customers to check the level of customer service in branches. Corrective actionis taken on the issues brought to light.

Our Bank is a member of Banking Code and Standards Boards of Indiawhich has set minimum standards of banking practice for the Bank to follow while dealingwith individual customers. Bank has a Customer Compensation Policy to compensate customers for the lossessuffered by them due to deficiency in Customer Service. Meetings of Customer Service Committee of the Board and Standing Committee onCustomer Service are being held on quarterly basis broadly to evaluate the nature andsource of complaints. Minutes of the meetings are placed to Board. Committees also suggestcertain preventive steps/measures to reduce the inflow of complaints. Board discusses the quality of Customer Service in the Bank on half yearly basisand gives directions for improvement of Customer Service. Customer Complaints a) No. of complaints pending at the beginning of the year b) No. of complaints received during the year c) No. of complaints redressed during the year d) No. of complaints pending at the end of 2011 the March Awards Passed By The Banking Ombudsman a) No. of unimplemented awards at beginning of the year b) No. of awards passed by the Banking Ombudsman during year c) No. of awards implemented during the year d) No. of unimplemented awards at the end of March 2011 15. STRATEGIC PLANNING & BUSINESS PROCESS RE-ENGINEERING Strategic Planning & Business Process Re-engineering Division has been set up withan objective to carry out overall strategic planning of the Bank and to leverage theadvantages of CBS and manage change through BPR Initiatives involving people, processesand technology. Bank is in the process of introducing Relationship Managers to attractpremium customers, and facility of privilege lounge for High Net worth individualcustomers in Exceptionally Large Branches (ELBs) and Very Large Branches (VLBs) havingadequate space and proper ambience. 16. INTERNAL CONTROL SYSTEM a. Credit Audit & Review Credit Audit & Review is undertaken as part of Loan Review Mechanism (LRM) toexamine compliance with extant sanction and post-sanction processes/procedures laid downby the Bank from time to time. During 2010-11, credit audit was conducted in B& above risk rated standard accounts with exposure of Rs. 10 crore & above and weak(C & D risk rated) 227 51100 50991 336 Nil 13 12 1

standard accounts with exposure of Rs.3crore & above. Further, 5% of accounts (selected on random basis) with exposurebetween Rs. 5 crore and Rs. 10 crore and outstanding balance of Rs. 3 crore and above werealso subjected to Credit Audit. As against RBI requirement of at least 30 to 40% of credit portfolio to be reviewedevery year, during 2010-11 credit audit covered 69.25% of Banks credit portfolio(Fund based and Non Fund based). b. Internal Control The main objective of Internal Audit System is to bring effectiveness in the internalcontrol system, which has become more crucial in conducting banking business in the fastchanging scenario. Inspection & Audit Division (IAD) at apex level with its extendedarms of Zonal Audit Offices and a team of Internal/External Auditors at field level laysemphasis on identification, measurement, monitoring and mitigation of risks in day to dayoperations at branches of the Bank. To achieve these objectives, various types of auditsare conducted viz, Risk Based Internal Audit (Onsite & Offsite), Revenue Audit,Information System (IS) Audit, Credit Audit, Snap Audit, Segment Audit, Compliance Audit,etc. As on 31st March 2011, 806 branches/offices were under concurrent audit. The coverageof branches and business through concurrent audit is in line with RBI guidelines. All the branches were subjected to Risk Based Internal Audit (RBIA) except newly openedbranches, where inspection was not due during current year. The Bank branches have beencategorized as Low Risk (1233), Medium Risk (3612) and High Risk (13), while no branch hasbeen categorized either in "Very High Risk" or "Extremely High Risk"category, as on 31.12.2010. Computerization of Risk Based Internal Audit (RBIA) &Revenue Audit through application software named as e-RBIA, which supports onlinepreparation, submission, processing, compliance, follow up and closure of Audit Reports.Initially, e-RBIA has been implemented in all the Concurrent Audit Branches. A Cyber Crimereporting Cell has also been established at IAD to oversee and help in recovery of theamount transferred to different Mule accounts (i.e. beneficiary accounts wherefraudulent amount has been credited through Internet Banking channel). c. Know Your Customer(KYC)/Anti Money Laundering The Bank strictly follows KYC and AML guidelines issued by RBI from time to time andonly KYC compliant customers are accepted by the Bank. For identifying the transactions ofsuspicious nature, monitoring of customers transactions is done on a day to daybasis for which Bank has installed sophisticated AML software. The software is a part ofBanks EDW (Enterprise-wide Data Warehouse) project for generating alerts ontransactions of unusual nature. The reports like Cash Transaction Reports (CTRs), Counterfeit Currency Reports (CCRs)and Suspicious Transaction Reports (STRs) are periodically sent to Financial IntelligenceUnitIndia (FIU-IND).

d. Management Audit In accordance with the Risk Based Management Audit Policy and Annual Audit Plan2010-11, the regular audit of all 65 Circle Offices, 12 Zonal Audit Offices, 6 Trainingestablishments, 3 Regional Rural Banks, both Subsidiaries of the Bank in India and 5 FieldGeneral Managers Offices and 1 Head office Division was conducted. e. Compliance Division Board has appointed a Chief Compliance Officer in the rank of a General Manager for afixed term. In pursuance to the compliance Policy of the Bank, Divisional ComplianceOfficers, Circle Compliance Officers, Branch Compliance officers, Compliance officers ateach training centers, ZAOs, Foreign Branches, subsidiaries etc. have been designated inall Divisions of HO, Circle offices, branches and other offices. Further, compliancefunctions have been identified for all HO Divisions/ Circles/Branches and reporting linehas also been established at various levels for compliance in accordance with theguidelines of RBI. Compliance testing/mapping review on various products of the Bank isbeing carried out on a regular basis. f. Vigilance Bank continued its emphasis on vigilance matters to ensure that vigilance cases areidentified quickly and disciplinary action in accordance with Central Vigilance Commission(CVC) guidelines is completed in time. In order to strengthen the vigilance mechanism andalso to improve the preventive vigilance measures, Vigilance Officers in the rank of ChiefManagers have been posted at all the 12 Zonal Audit Offices of the Bank to exclusivelymonitor the vigilance function of cluster of Circles. Regular training was given toofficers & staff to update their skills in the area of vigilance administration. 17. RIGHT TO INFORMATION ACT The Right to Information Act has been implemented by the Bank. The relevant informationas per the Right to Information Act has been posted on the Banks website(www.pnbindia.in). During 2010-11, the Bank received 12493 applications, of which 8119applicants were provided information while 330 applicants were not eligible and 4044applications were exempted under the provision of the Act. 18. IMPLEMENTATION OF OFFICIAL LANGUAGE POLICY Bank has always been leading in the area of implementation of Official Language and hasachieved most of the targets in all parameters fixed by Govt. of India, Ministry of HomeAffairs, Deptt. of Official Language for the financial year 2010-11. On 14th September,2009 i.e. on the occasion of Hindi Divas, Bank launched bilingualisation of "CoreBanking" and on 14th September, 2010, Bank has completed the work. Inrecognition of the use of Hindi, Bank has been awarded several prizes including IndiraGandhi Rajbhasha Shield of Govt. of India, RBI Rajbhasha Shield and other State/Regionallevel prizes of Ministry of Home Affairs. The third sub-committee of Committee ofParliament on Official Language has

appreciated the efforts made by the Bank forprogressive use of Hindi. 19. PNBS SUBSIDIARIES & REGIONAL RURAL BANKS a. PNB HOUSING FINANCE LIMITED During the year, the Company achieved overall 57% growth in fresh business anddisbursed loans to the tune of Rs. 1267 crore. The main focus of fresh business wasindividual housing loans (total disbursements Rs. 971 crore), a growth of 71 % overprevious year. During 2010-11, the Company earned a total income of Rs. 364 crore, a growth of 15% overprevious year. Operating expenditure during the year increased by 20% at Rs. 258 crores.During 2010-11, the Company earned Operating Profit of Rs. 106 crore (Rs. 100 crore),Profit before tax of Rs. 97 crore (Rs. 94 crore) and Profit after Tax of Rs. 69 crore (Rs.67 crore). Despite rising interest rate scenario, the Company continued to maintain Net InterestMargin at above 3% throughout the year by controlling cost of funds. Total Net Worth ofthe Company as on 31st March, 2011 was Rs. 326 crore and the CRAR was 20.83%. Gross NPAswere contained at 1.31% and Net NPAs were 0.94% of the net loans outstanding. The Company has undertaken a business transformation project in consultation with KPMGAdvisory Services Pvt Ltd, which will bring positive changes in process and delivery in2011-12. b. PNB GILTS LIMITED In the Govt securities market, monetary policy, inflationary concerns and supply issueswere the major factors influencing yields on govt securities. Initially, higher thanbudgeted collections from auctions of 3G and BWA licences receded the concerns on fiscaldeficit with yield on 10 year G sec touching a low of 7.35% in mid May from 7.87% as onMarch 31, 2010. Improved sentiments were, however, offset by high inflation and tightmonetary policy stance by RBI and 10 year yield rose to as high as 8.25% in mid Januarybefore closing the year at 7.98% as on March 31, 2011. Moreover, with consistently tightliquidity conditions prevailing almost throughout the year, the short term rates remainedhigh resulting in a flat yield curve with spread between 1 year and 30 year securitydeclining to 102 bps from 300 bps in the beginning of the year. Against the above backdrop of tight money market rates and firm G sec yields, PNB GiltsLtd continued to fulfill all its obligations as a Primary dealer in Primary &secondary market. In Treasury bill auctions, as against the stipulated success ratio of40%, company achieved 58.83% and 49.66% in first and second half of the FY 2010-11.Company also fulfilled its commitments under Additional committed Underwriting (ACU) andMinimum Underwriting Commitment (MUC) in G sec auctions. Total turnover of the companyamounted to Rs 87,858 Crore during the year as against Rs 63,726 crore in the previousyear. Total Profit before tax of the company stood at Rs 44.04 crore in 2010-11 whilecompany continued to strengthen its fee based and non

core activities. c. PUNJAB NATIONAL BANK (INTERNATIONAL) LIMITED (PNBIL) During the year 2010-11, PNBIL added two more branches at Ilford and Wembley, to takethe total number of branches to seven. Deposits increased from $405.13 million to $654.66million, thus recording growth of 61.59%. As a result of major focus on increasing theretail base, the number of accounts has gone up from 17,931 to 28,135. During the sameperiod, advances have gone up from $ 569 million to $ 705.36 million. Thus total businesshas gone up from $ 974 million as on 31st March 2010 to $1360 million as on31.03.2011, registering a growth of 39.58%. Operating profit has gone up from $6.68million to $ 10.78 million, registering growth of 61.38%. The Bank is planning to add onemore office at Wolverhampton, in UK in the year 2011-12. Rating of PNBIL by Moodys continues to remain at investment grade with Baa3/P3for local and foreign currency deposits and D- for BFSR (Bank Financial Strength Rating)with stable outlook. Banks strength is on account of its clear strategic plan and well identifiedretail customer base for penetrating the Indian sub sector of the UK market with potentialfor money transfers and related non interest income. Strategic integration, parentalsupport, niche positioning and competitive advantage in its targeted customer base are thekey advantages the Bank is enjoying in UK. Bank has in place its well defined and clearly laid down policies on Risk Management,Audit and Compliance. It has its own dedicated dealing room at London and a back office inIndia. Bank is complying with all regulatory and capital adequacy guidelines of FinancialServices Authority of UK. d. PUNJAB NATIONAL BANK INVESTMENT SERVICES LIMITED (PNBISL) To improve our share of income in various fee based activities relating to the CapitalMarket, Project Appraisal, Loan Syndication and Security Trustee Business, Bank had set upa 100 % owned subsidiary named as PNB investment Services Limited (PNBISL) in the FY2009-10. PNBISL is registered as a Category I Merchant Banker with SEBI and offers a basket offinancial services such as Issue Management for IPO/FPO/Rights issues, Advisory to PublicIssue, Syndicate Member, Placement of Equity Shares with Qualified Institutional Buyers(QIBs), Private Placement of Debt/Equity and fair market valuation of shares/businesses.In addition to the above mentioned services, PNBISL is offering Debt / Loan Syndication,Project Appraisal, Financial Restructuring, Security/Debenture Trustee services andAdvisory to SME. PNBISL also has a dedicated Doctors Cell to provide end-to-endadvisory solutions for doctors who aspire to become entrepreneurs and are keen to set uphospital network across the country. Company has recently decided to commence brokingbusiness in a phased manner.

e. REGIONAL RURAL BANKS After amalgamation of our sponsored RRBs, presently bank has 6 RRBs operating in 6States covering 67 districts with a network of 1483 branches. 75 new branches have beenopened during 2010-11. During the year, RRBs have made fresh disbursement of Rs 7276crore to Agriculture andAllied Sector registering a growth of 36.94% over the previous year. Core advances of RRBsincreased to Rs 9576 crore showing a growth of 15.32% and core Deposits of all the RRBsincreased to Rs 15604 crore, registering growth of 17.14%. During the year 2010-11, profitof the RRBs grew by 15.89 % to Rs. 266.78 crore. The process of migration of our RRBs to CBS has since been completed and all branchesof all our RRBs stand migrated to CBS system. Further, all the new branches are beingopened under CBS system only. Towards provision of improved customer service, process forimplementation of NEFT / RTGS in RRBs has since been initiated. Further, issuance of ATMcards to customers of RRBs is also in progress. RBBs also share the vision of PNB on financial inclusion. Our RRBs have been allocated1924 unbanked villages having population of more than 2000 for undertaking ICT basedfinancial inclusion by 31st March 2012. Out of these allotted villages, ourRRBs selected 131 villages for financial inclusion implementation during the financialyear 2010-11. Out of this, financial inclusion has been implemented in 147 villages and4155 new accounts have been opened in these villages till 31st March 2011. 20. Awards and Accolades Conferred on the Bank During the year, in recognition of its performance and initiatives, Bank receivedvarious awards, some of which are: Gold trophy of SCOPE Meritorious Award for Best Managed Bank, FinancialInstitution or Insurance Company by Standing Conference of Public Enterprises. Wind Power India 2011 Awards -Second Prize under the category of "Best WindPower Project Financier" 2011 by World Institute of Sustainable Energy. Golden Peacock Award for Corporate Social Responsibility 2010 by Institute OfDirectors (IOD). Golden Peacock National Training Award 2010 by IOD. Rolta Corporate Award 2010 by Dun and Bradstreet. 6th BML Munjal Award for Excellence in Learning & KnowledgeDevelopment-2010 by Hero Mindmine Institute.

Best Corporate Social Responsibility practice Award 2011 for 2nd year in a rowby Bombay Stock Exchange. Skoch Awards 2010 for "Computerization of RRBs". Outlook Money Award 2010 for " Best Home and Education Loan Provider" "Global HR Excellance Award 2010" for the outstanding Contribution tothe cause of Education and "Asia Best Employer Brand Award" by World HRDCongress. "Award for Brand Excellance" under Banking & Financial Services ByCMO Asia. "CSR Excellence Award 2010" by ASSOCHAM. 21. THE YEAR AHEAD Opportunities Having successfully withstood the global economic crisis, the focus now is on shiftingback the economy to the high growth trajectory. The emerging trends give rise to optimismthat the economy will continue to show stellar performance despite pressures on the pricefront. This promises significant business opportunities for the banking system. With rising middle class and disposable incomes, new opportunities for financialservices are emerging. India is set to reap the benefits of demographic dividend and asyounger population which wields increasing purchasing power and as lifestyles change,demand for financial planning and wealth management will increase. Income levels in ruralareas are also improving and as quality of life improves, demand for innovative financialproducts will gain momentum. Retail banking, therefore, will be a key driver of businessgrowth in the coming period. India continues to face significant deficit in infrastructure. To meet the hugeinvestment demand, private investment in commercially viable infrastructure projects isbeing encouraged. Infrastructure financing by banks has shown consistent increaseindicating a strong demand for such finance. Considering the unique nature ofinfrastructure assets they are typically natural monopolies, are not subject tocyclical fluctuations and provide regular and fixed stream of income financinginfrastructure projects provide ample opportunities for business growth of the Bank. Despite rapid spread of banking, large chunk of the population does not have access tobanking services. Financial inclusion is aimed at bringing the benefits of banking andother financial services to the people at the bottom of the pyramid. With cost-effectiveand scalable technology, reaching the unbanked population would be faster and this willgive a big push to growth of banking business. Challenges

While the fundamentals of banks are getting strengthened, it is imperative that thefocus on asset quality remains strong. The management and swift resolution of NPAs will berequired and banks need to avail of all available means for the same including use ofSARFEASI Act, sale of impaired assets to Asset reconstruction companies, negotiatedsettlements, remedial measures through Lok Adalats, Recovery Camps/Rin Mukti Shivirs, etc. Even though reasonably well capitalized at present, banks will be facing the challengeof growing their business due to capital constraints. Achieving allocational efficiency ofthe banking system is strongly predicated on the capital strength of banks. Withrequirements of Basel III looming large, banks would be facing challenges in raisingadditional capital for meeting the financing needs of the economy potentially growing at9% plus. Core banking has emerged as the most used technology platform amongst banks and inbuilding their technology infrastructure banks have made huge investments. While this hascontributed to growth of business, the return on investment is yet to be realized. As corebanking technology is versatile, banks need to move up in the technology value chain andoffer value-added services. While development of alternative channels is important, banksneed to guard against depersonalization of service and ensure that they provideconsistent banking experience to customers irrespective of the channel used. Thoughtechnology would help in building large data repository which could be used forcross-selling purposes, banking continues to remain essentially a service business wherecustomers prefer to feel the personal touch. Risks Maintaining the quality of asset portfolio, particularly, in case of accounts earlierrestructured will be a major risk before banks. Banks will have to exercise constantvigilance to avoid slippage of such accounts into impaired category. While technologybrings about efficiencies in service delivery, it also unsettles business processes,propels competitive forces and leads to innovation. Use of technology also would requirere-skilling of employees. Management of discontinuity and change pose risks which banksneed to address. As the second largest bank in the country, Punjab National Bank recognizes theaforesaid challenges and risks and is fully prepared to proactively address them. The Bankhas put in place a well articulated risk management system to protect asset quality andimprove earnings. Banks strategy to ensure channel integration is aimed at reapingthe benefits of technology and providing cost-effective, secure and convenient bankingsolutions. Innovative product offerings are aimed at moving up the value chainfacilitating customer acquisition and topline growth. At the same time, the Bank issharply focused on maintaining and improving its bottom line by seeking opportunities forrevenue maximization while keeping costs under strict control.

Management Discussions Indian bank

A. ECONOMIC ENVIRONMENT After witnessing slowdown in 2008-09, the global economy is slowly regaining with thelarge unprecedented interventions by governments. The speed of recovery, however, remainssignificantly divergent. The projections for global output for 2010 generally point toconsolidating recovery, led by the Emerging Market Economies (EMEs), especially those inAsia. However, the global economy faces several challenges such as high levels ofunemployment, which are close to 10 per cent in the US and the Euro area. Despite signs ofrenewed activity in manufacturing and initial improvement in retail sales, the prospectsof economic recovery in Europe are clouded by the acute fiscal strains in some countries.Inflation in major advanced economies is still moderating as the output gap persists andunemployment remains high. INDIAN ECONOMY During 2009-10, the Indian economy showed resilience with a broadbased recovery.This was possible due to a rebound in industrial output, better prospects for the Rabicrop and continuing resilience of the services sector. The advance estimates released by the Central Statistical Organisation (CSO) inearly February 2010 placed the real GDP growth during 2009-10 at 7.2 per cent. Theagriculture sector supported by good rabi prospects is expected to show a lower decline of(-)0.2 percent. Industrial output, which was affected by the cyclical slowdown recoveredsubstantially in 2009-10 and expected to record a growth of 8.8 per cent. The services sector, exhibited significant recovery in the second quarter of2009-10, with growth in the output of the sub-groups viz., 'construction' and 'trade,hotel, transports & communication', accelerating while growth in 'community, social& personal services' slowed down and, the growth in this sector would be 8.5 per cent. INDUSTRIAL SECTOR The industrial sector recovered with the Index of Industrial Production (IIP)registering double digit growth during October 2009-February 2010 and IIP????? weightedcontribution of 88.8 per cent, higher than its weight of 79.4 per cent in the IIP Sectoral growth rates in February 2010 registered a growth of 8.4 per cent inBasic goods, 44.4

per cent in Capital goods and 15.6 per cent in Intermediate goods. TheConsumer durables and Consumer non-durables recorded growth of 29.9 per cent and 2.3 percent respectively, with the overall growth in Consumer Goods being 8.9 per cent. The use-based classification of industries shows that capital goods sinceSeptember 2009 and intermediate goods since August 2009 have registered double digitgrowth, which will support the growth momentum in several downstream industries. Durables production witnessed double-digit growth since the beginning of 2009-10and accelerated further between November 2009 and February 2010. The growth in basic goodsremained relatively moderate during 2009-10, with intermittent spikes. Industry segmentslike 'transport equipment and parts', 'machinery and equipment other than transportequipment' and 'metal products and parts, except machinery and equipment' recorded growthrates in the range of 36-59 per cent during December 2009-February 2010. The surge ingrowth of 'transport, equipment and parts' during the last few months is also corroboratedby the robust performance seen in automobiles production. The performance of core infrastructure after improving significantly duringNovember 2009 to January 2010, decelerated in February 2010 mainly due to slowdown in thegrowth of cement and steel, which may be attributed partly to adjustment in inventories.The accelerated growth in power was led by the robust manufacturing sector performance,while the growth in the output of cement and steel until February 2010 has been on accountof improved construction activity. EXTERNAL SECTOR India's external sector witnessed improvement with the recovery seen in theglobal economy as reflected in the turnaround in exports, buoyancy in capital inflows andfurther accretion to the country's foreign exchange reserves. Exports recovered from 12months of consecutive decline and posted an average growth of 20.5 per cent duringNovember 2009-February 2010.????growth of about 43.0 per cent during December2009-February 2010, mirroring the impact of strong recovery in growth. During 2009-10, Foreign Exchange reserves increased by US$ 27.1 billion, to US$277.04 billion, as on Mar.26, 2010, comprising mainly of increase in gold holdings (US$8.4 billion), SDRs (US$ 5.0 billion) and foreign currency assets (US$ 13.3 billion). India's balance of payments position during April-December 2009 remainedcomfortable with a modest increase in current account deficit, despite a lower tradedeficit, on account of decline in invisibles surplus. There has been a turnaround incapital inflows, mainly led by portfolio inflows, reflecting the buoyant growth prospectsof the Indian economy. PRICE SCENARIO Inflationary conditions in India during 2009-10 were marked by two distinctphases. During the first half of 2009-10, the year-on-year WPI inflation remainedsignificantly low (negative during June-August 2009) on account of the high base of sharpincreases in prices recorded a year ago.

This period, however, was characterised by asignificant build-up of inflationary momentum, largely on account of the partialpass-through of increases in international prices. During the second half of the year, increasing food prices, on account ofunfavourable agricultural supply conditions caused by the deficient South-West monsooncoupled with the waning of base effect led to sharp increase in inflation and the headlineWPI inflation reached 9.9 per cent (y-o-y) in February 2010. EQUITY MARKETS The activity in the primary segment of the domestic capital market displayedsigns of revival in Q2 and Q3 of 2009-10.Stock prices displayed a continuous upwardmomentum throughout the year, except for some occasional corrections during the last twoquarters caused by Dubai World default and the Greek sovereign debt concerns. Followingthe optimism on account of measures announced in the Union Budget 2010-11 such as theroadmap for fiscal consolidation and PSU divestment, stock prices recorded further gains.As at end-March 2010, the Sensex and the Nifty both registered gains of 81 per cent and 74per cent, to close at 17528 and 5249 respectively. The gains in stock prices were also led by the FN investments, while at the sametime mutual funds turned net sellers. Flls made net purchases of US$ 23.7 billion in theIndian equity market during 2009-10 (net sales of US$ 10.4 billion in 2008-09), while themutual funds' net sales during 2009-10 amounted to Rs.10,512 crore (net purchases ofRs.6,985 crore in 2008-09) B. MONETARY DEVELOPMENTS During the first half of 2009-10, growth in both broad money (M3) and non-foodcredit decelerated. However, during the second half it reversed with economic recoverygaining pace. By the end of the financial year, growth in both M3 and non-food creditexceeded the Reserve Bank's indicative projections of growth of 16.5 per cent and 16.0 percent, respectively. Aggregate Deposits as on Mar.26,2010 showed a year-on-year growth of 17.0 percent, compared to 19.9 per cent in the previous year. Deposits of the banking systemslowed down mainly due to the gradual decline in interest rates on time deposits in laggedresponse to the lower policy rates. With the increasing demand for credit from the bankingsystem, deposit mobilisation gained strength, and deposit rates also moved up end March.Even after the absorption of Rs.36,000 crore through the 75 basis points hike in CRReffected in February 2010, liquidity conditions have remained comfortable, as evident fromthe reverse repo operations under the Liquidity Adjustment Facility (LAF) DETAILED BUSINESS OVERVIEW GLOBAL BUSINESS Global Business of the Bank increased to Rs. 1,50,886 crore as on March 31, 2010 fromRs. 1,24,413 crore as on March 31, 2009 registering an increase of Rs. 26473 crore and agrowth of 21.28 %. Domestic Business of the Bank increased by Rs.26749 crore toRs.1,45,269 crore as on

that date from Rs. 1,18,520 crore as on 31.3.2009 registering agrowth of 22.57 %. RESOURCE MOBILISATION Global Deposits of the Bank improved to Rs. 88,228 crore as on 31.3.2010 from Rs.72,582 crore as on 31.3.2009 with an accretion of Rs. 15646 crore and growth of 21.56%.Domestic Deposits of the Bank increased by Rs. 15647 crore to Rs. 85306 crore as on31.3.2010 from Rs. 69,659 crore as on 31.3.2009 registering growth of 22.46 %. Current Deposits reached the level of Rs.6570 crore as on 31.3.2010 against Rs. 5,252crore as on 31.3.2009, a growth of 25.10 %. Savings Bank Deposits grew by 23.34 % toRs.21790 crore as on 31.3.2010 from Rs. 17,667 crore as on 31.3.2009. The share of lowcost deposit in total deposits improved to 32.14% as on 31.3.2010 from 31.58 % as on31.03.2009. CREDIT DEPLOYMENT Gross Advances of the Bank touched the level of Rs.62,658 crore as on 31.3.2010 againstRs. 51,831 crore as on 31.3.2009 recording a growth of 20.89 %. Domestic Credit increasedby Rs. 11102 crore (22.72 %) to Rs. 59963 crore as on 31.3.2010 against Rs. 48,861 croreas on 31.3.2009. The growth mainly accrued from Non food credit. Domestic Non food credit increased by Rs. 11098 crore (23.24 %) to Rs. 58842 crore ason 31.3.2010 against Rs.47,744 crore as on 31.3.2009. The CD ratio of the Bank as on 31.3.2010 stood at 71.02% The Bank continues its thruston improving its yield on advance and asset quality. Priority Sector advances with an outstanding of Rs. 21665 crore constituted 44.34% ofthe Adjusted Net Bank Credit and registered an increase of Rs. 3239 crore. BRANCH NETWORK AND EXPANSION As on 31.03.2010, the Bank had 1756 domestic branches comprising of 498 Rural, 455 SemiUrban, 441 Urban and 362 Metropolitan branches. There were 41 Extension Counters, 26Satellite Offices, 1 Collection Counter, 20 Rural Banking Service Centres and 1 ForexBureau. During the year, the Bank opened 114 branches. Besides, the Bank has 2 foreignbranches in Colombo and Singapore. SEGMENT-WISE PERFORMANCE Priority Sector Credit Priority Sector advances of the Bank increased by Rs.3239.23 crore to reach Rs.21664.94 crore as on 31st March 2010 registering a Year on Year growth rate of 17.58%. Itconstituted 44.38% of Adjusted Net Bank Credit (ANBC) as against the 40% norm stipulatedby RBI

Agriculture credit Credit to Agriculture increased by Rs. 1306.45 crore to reach Rs. 9143.99 croreas on 31st March 2010 and registered a YoY growth rate of 16.67%. It constituted 18.73% of ANBC as against the 18% norm. To improve Agricultural lending, Branches observed "Intensive Farm CreditCampaign" coinciding with South West Monsoon between 15th June and 15thAugust 2009 and farm credit extended to 28040 farmers to the tune of Rs.278.67crore. Similarly during Nov and Dec 09, coinciding with North East Monsoon, Branches inSouthern States observed "Agri Plus - 2009" - Campaign for intensive farm creditduring which farm credits were extended to 27914 farmers amounting to Rs. 332.28 crore. With the objective of sensitizing Branch Managers of Rural / Semi Urban Branchesand RDOs, one day workshops were organised in all Circles during June / July 2009. Agriculture Disbursement Special Agricultural Credit Plan: Against the annual target of Rs. 5300crore for the year 2009-10, Branches have disbursed a total of Rs. 6580.11 crore,recording 124% achievement. New Farmers financed: During the year 4.11 lakh new farmers were financed,working out to 432 farmers per Rural / Semi Urban Branch against the norm of 250 in ayear. Finance to Small and Marginal Farmers: During the year a total of 6.67 lakhfarmers were financed to the tune of Rs. 3204.76 crore, which works out to 56% of directagricultural disbursements against the norm of 40%. Disbursement under Interest Subvention Scheme: During the year 9.51 lakhfarmers were extended credit under subvention scheme, amounting to Rs.3659.94 crore. TheBank is eligible for a subvention of Rs.27.55 crore as of 31.03.2010 @ 2%. Further, GOIannounced 1% incentive for the prompt repayers from 1st April 2009 under which1.37 lakh farmers were benefitted during 2009-2010 and the Bank is eligible for anadditional subvention of Rs.1.57 crore. Microfinance The Bank's SHG portfolio was at Rs. 1917.12 crore covering 1.90 lakh SHGs. as on31.03.10 improving by Rs. 566.26 crore from the level of Rs 1350.86 crore as on 31.03.09covering 1.55 lakh SHGs During the year, the Bank disbursed Rs. 1458.53 crore as credit assistance to112135 SHGs. The Bank has been adjudged by Government of Tamil Nadu as the "BestPerforming Bank in

the State of Tamil Nadu - First Place" for the year 2008-09. Theaward was presented to the Chairman and Managing Director on 16.11.2009 at Chennai byShri. M.K. Stalin, Hon'ble Deputy Chief Minister, Tamil Nadu. Besides, five of theBranches have received State Level awards. The Bank has established 27 MICROSATE branches (specialized Micro Finance branches) ofwhich 5 were opened during the current financial year. During 2009-10, 23901 groupshave been financed to the tune of Rs. 398.24 crore. Total credit outstanding of MicrosateBranches stood at Rs, 467.30 crore covering 37424 groups as at the end of March 2010. Education loan scheme Education loan portfolio was at Rs.2300.07 crore as on 31st March2010 benefitting 165594 students. During the year, Education Loans were extended to 92153 students amounting toRs.603.62 crore compared to Rs.540.17 crore disbursed during 2008-09. On-line Education Loan Application system was implemented in the Bank from15.10.07. During 2009-10, a total of 1932 applications were received out of which 1241were sanctioned amounting to Rs.42.43 crore. Interest Concession @ 0.50% on the applicable card rate on Fresh EducationalLoans sanctioned to Girl students with effect from 01.07.2009. Financial Inclusion (Fl) Total Financial Inclusion (involving all Banks)achieved in UT of Puducherrywhere the Bank holds SLBC responsibility and in Cuddalore (TN) & Kollam (Kerala) wherethe Bank has Lead Bank role. In remaining 11 other Lead Districts, the Branches haveimplemented 100% Financial Inclusion. 100% Fl has also been completed by the Bank inNilgiris (ST concentrated), Tiruvarur (SC concentrated) and Kanniyakumari (minoritiesconcentrated) districts of Tamil Nadu as per RBI directions. As per recommendations of High Level Committee to review the Lead Bank Schemechaired by Smt. Usha Thorat, Deputy Governor, RBI, banks have been advised to prepare aroad map to provide Banking Services in every village having a population of over 2000 byMarch 2011. The Bank has been allotted 1468 villages covering 18 States. A FinancialInclusion Plan has been rolled out by the Bank to provide Banking services in identifiedvillages before March 2012. Under Financial Inclusion project, a total of 22.31 lakh No-Frills accounts wereopened in 4637 villages. Cumulatively, Overdraft / General Credit Card facility wasallowed in 52678 accounts to the tune of Rs.11.60 crore. Under Janashree Bima Yojana (JBY), the micro insurance scheme launched inassociation with Life Insurance Corporation of India, intended for providing life cover toSHG members, the

Bank provided insurance cover to 54177 members during the year taking thetotal cumulative coverage to 1.30 lakh members. Weaker Section Advances Credit outstanding to Weaker Sections stood at Rs. 5205.97 crore as at the endof March 2010, working out to 10.67 % of ANBC against stipulated norm of 10%. DRI Advances: Weaker Section Fortnight with focus on DRI loans, was observed bythe Branches (i) between 18.05.09 & 30.05.09, (ii) between 16.11.09 & 21.11.09 and(iii) between 01.03.10 & 06.03.2010. As a result, during the year the Branchesdisbursed 23645 DRI loans amounting to Rs. 29.86 crores. Outstanding level which stood atRs.11.44 crore as of March 09 improved by Rs.16.09 crore to reach Rs.27.53 crore as of31.03.10, working out to 0.06% of total advances as of 31.03.09. Advances to SC/STs : Outstanding credit to SC/ ST beneficiaries stood at Rs.1667.08 crore as of 31.03.2010, working out to 7.69% of Priority Sector Advances of theBank. Lending to Minorities: Advances granted to Minorities which stood at Rs.2442.45crore as of March 2009 increased by Rs.751.08 crore during the year to reach Rs. 3193.53crore as of 31.03.2010, working out to 14.74 % of total Priority Sector Advances. Agricultural Debt Waiver and Debt Relief Scheme 2008 In terms of the announcement made by the Gol in the Union Budget 2007-08, theBank provided debt waiver amounting to Rs.459.01 crore benefiting 2.36 lakh Small andMarginal Farmers. Besides 42892 lakh other farmers were identified as eligible for a Debt Reliefof Rs.84.67 crore out of which 30602 farmers have paid their share (75%) as of 31.03.2010,and a relief of Rs.58.58 crore passed on by the Branches. GOI has extended the period forpayment of 75% share by Other Farmers up to 30.06.2010. As on 31.03.2010, amount of Debt Waiver receivable from GOI stood at Rs. 164.07crore and Debt Relief receivable at Rs.58.58 crore. Fresh loans are being issued to the beneficiaries of the Debt Waiver / DebtRelief scheme from 01.07.08. Accordingly during 2008-09, 97357 fresh loans were disbursedamounting to Rs.283.19 crore. During the year, 105566 fresh loans have been disbursedamounting to Rs. 403.30 crore. Capacity Building Initiatives As a step towards getting closer to the rural people, the Bank has set up aTrust by name "Indian Bank Trust for Rural Development" (IBTRD) for undertakingvarious developmental activities. Under the trust, the Bank has established FinancialLiteracy and Credit Counseling

(FLCC) centers at Dharmapuri and Puducherry. The Bank hasalso established RUDSETI Model Training institutes named as "Indian Bank SelfEmployment Training Institute (IND SETI) in five centers viz., Salem, Puducherry, Vellore,Chittoor and Tiruvallur. Of the five, three Centers were opened during the year. A totalof 90 training programmes have so far been conducted by our INDSETIs benefitting 2457individuals. Apart from the above, exclusive initiatives of the Bank towards capacitybuilding, the Bank is already participating in Rural Training Centre, Karaikudi, TamilNadu (jointly with and NABARD & IOB) and Andhra Pradesh Bankers' Institute of Rural&Entrepreneurship Development -APBIRED, Hyderabad (jointly with Government of AP &four other Banks). These two training institutes offer wide range of skill orientedtraining programmes with a focus on rural population. A total of 178 training programmeshave so far been conducted by RTC, Karaikudi (benefitting 4442 members) and 72 programmesby APBIRED, Hyderabad (benefitting 1952 members). Rural Technology Initiatives Banking Service Centre (BSC): 20 opened by the Bank in rural areas across thecountry on a pilot basis to enable door step banking, by providing basic banking servicesat village level. These centers extend financial and non-financial services in the fieldof Agriculture, Education, Health etc. with the help of Internet facility. For Self Help Groups, an exclusive software application has been developed forenabling dual biometric authentication of SHG members (i.e. with finger print). So far 57Biometric ATMs have been installed in the Bank. Smart Card Project in Andhra Pradesh : Government of Andhra Pradesh isimplementing Smart Card Project for disbursement of NREGP wages and Social SecurityPensions. The Bank is implementing the project in Chittoor District, where the Bank hasLead Bank role. Customer enrollment has been completed for 25666 accounts in Karvetnagar /Vedurukuppam mandal and card distributed to 24835 beneficiaries. The Chairman and ManagingDirector inaugurated the project by distributing Smart Cards to the beneficiaries atChittoor on 19.09.09. Payment of Government Pension (Social Security Pension) throughsmart cards commenced on 01.10.09. So far payments to the tune of Rs.2.25 crore have beendisbursed to wage earners and pensioners through the project. Lead Bank Scheme The Bank holds SLBC responsibility in UT of Puducherry and Lead Bank role in 13districts (10 in Tamil Nadu, two in Andhra Pradesh and one in Kerala). Under Annual Credit Plan 2009-10, Banks in the above Lead Districts disbursed PrioritySector Credit to the tune of Rs.16514.81 crore during the nine month period ended Dec 2009registering 74.81% of annual target. For 2010-11, Banks in above Lead Districts have madeprojections of Rs.25309.80 crore under ACP, which is 14.65%) increase over 2009-10 target.

The Lead Districts are actively involved in implementing Financial Inclusion Plan toprovide Banking Services in unbanked villages. Accordingly, 2863 unbanked villages withpopulation over 2000 have been identified and allocated to member Banks for providingBanking Services before March 2012. Of the above, 931 villages have been allotted to theBank. CREDIT FLOW TO SMALL AND MEDIUM ENTERPRISES (SME) For the year 2009-10, the SME exposure was at Rs. against the 20% stipulated by Gol under SME, The Y-O-Y growth under SME works out to33% as on 31.03.2010 by excluding the "Retail Trade" under SE. The Bank is following the Internal Credit Rating system (RAM) for rating SMEs.Rate of interest is linked to the Credit Rating based on Internal Credit Rating system ofthe Bank or credit rating acquired by the SME borrowers from SMERA / CRISIL. The Bank has in place a policy on Debt Restructuring of SME accounts sinceDecember 2005. During 2009-10 SME accounts involving an amount of Rs 142.49 crore wererestructured. The Bank has in place a policy package for financing Small and MediumEnterprises since January 2006. The policy has been reviewed recently in March.2010. The Bank with three exclusive SME branches at Peenya Industrial Estate,Bangalore, Coimbatore and at Trichy (Thuvakudi) and 59 other General Banking Branchesconverted /redesignated into Specialised SME Branches for enhancing the quality SMEportfolio. An additional 102 branches identified for lending composite loans to SmallEnterprises. PERSONAL SEGMENT LOANS During the year, the Bank continued its focus on Personal Segment Loans. The Bank hasRetail Banking Centre at each of its 28 Circle Offices for processing and sanctioning ofPersonal Segment Loans. Personal loans consists mainly of Home Loans, Automobile Loans,Personal Loans, Education Loans, Rent Encash, Ind Mortgage, Reverse Mortgage and loansagainst financial securities like Deposits / NSCs. During the year, fresh disbursements to the tune of Rs. 5027.90 crore were made inPersonal Segment Loans. The total amount outstanding under Personal Segment Loans stood atRs10856.40 crore at the end of March 2010 as compared to Rs.9664.14 crore in the previousyear, The segment wise exposure is given below: Rs. in Crore Exposure as on 31.03.10 5306.76

S.No 1

Product Home Loan

2 3 4 5 6 7 8

Automobile Personal Loan Education Loan Rentencash Indmortgage Reverse Mortgage Others

248.09 365.48 2300.07 160.81 226.90 4.44 2243.85 10856.40

Tie-up Arrangements: During the year, tie-up was made with Hyundai Motors for financing their Cars. Bancassurance Business: The Bank has Corporate Agency Tie up Arrangement with United India Insurance Co. Ltd.(UIICO) for non life insurance business and with HDFC Standard Life Insurance Co for lifeinsurance business. The Bank has Distribution Tie up Arrangement with UTI AMC and Reliance AMC fordistributing their Mutual Fund Products. Various Group Insurance Products are offered by the Bank to customers on OPTIONAL BASISby arrangement with UIICO/LIC/Kotak Mahindra OM Life Insurance Co (Kotak) as given below: 1. IB Jeevan Kalyan & IB Jeevan Varishta (from LIC); IB Yatra SurakshaScheme & IB Chhatra Schemes from UIICO for all customers 2. IB Griha Jeevan (from LIC) and IB Home Suraksha (from Kotak) are offered to coverthe life of Home Loan Borrowers and IB Jeevan Vidhya (from LIC) offered to cover the lifeof Education Loan Student borrowers. Bank earned commission income of Rs. 18.21 crore by way of marketing third partyproducts like Life Insurance, Non Life Insurance and Mutual Fund Products during the year(corresponding figure for the period ended 31.03.2009 was Rs. 15.24 crore.) OTHER FINANCIAL PRODUCTS IB Swarna Mudra Scheme The Bank is in to the sale of Gold Coins since 24.03.2006. These products are availablein 2g, 4g, 5g, 8g, 10g, 20g, 50g coins/bars currently at 1423 branches. Credit Card

Indian Bank launced Visa Business Card in March 2010 to address card and paymentrequirements of Corporate and SME clientele segments of the Bank. Earlier in Personal CardSegment the Bank had launched Global Credit Cards in two variants viz. Gold andClassic and Bharat Card for the common man. IB cards and related services are pricedcompetitively along with lower interest rate. Other value additions offered include freeinsurance cover and tieup with United India Insurance and a sure cash back credit ofReward Points. Bharat Card has been launched as part of Bank's financial inclusionProgramme and benefits the large number of lower income groups. Wealth Management Services The Bank launched Wealth Management Services (WMS) on 7th February 2009 on apilot basis in Chennai. Under this, the Bank offers Financial Advisory Services to HighNetworth Individuals (HNI) clients. Wealth Management Services involve structuring ofsuitable financial plans for customers, depending upon their risk tolerance, life goals,cash flows and investment horizon and also includes regular monitoring and rebalancing ofthe client's portfolios. WMS is a highly personalised service, wherein a dedicated team ofClient Relationship Managers and Wealth Managers interact regularly with HNI customers forall their financial needs. Depository Participant Services The Depository Participant Services launched on 22.05.2006 are now being offeredthrough 362 branches as on 31.03.2010. The Bank has tie up with Indbank Merchant BankingServices Limited for on-line trading facility for the customers who can also have accessthrough internet banking to view their holdings. ASSET QUALITY MANAGEMENT Consistent focus on quality assets along with prudent risk management has improved theBank's asset quality. Under NPA Management, the Bank focused on arresting the slippages ofstandard assets to NPA category. In this regard, the Bank took timely action, byidentifying and monitoring the Special Mention Accounts. Bank continued the good performance in NPA Recovery Management during theFinancial Year 2009-10 as well. Bank achieved an aggregate Global Recovery of Rs. 587.48 crore. Of which,Contribution to Income was Rs.448.89 crore. Bank has been proactive and vibrant in recovering the money staked in StressedAssets. All the fora available for the Bank, like Lok Adalat, DRT, SARFAESI, negotiatedsettlements etc were effectively used for resolution of NPAs. In tune with the emerging scenario of the economy, the Recovery Policy wasrefined further and front officers sensitized for scaling up recovery performance further.

OTS policy for small loans NPAs upto Rs 2.00 lakh implemented to address theissue of small loan NPAs. Bank's Gross NPA ratio has been brought down . During the year 3357 accounts for Rs.3234.71 crore were restructured of whichless than 1% became NPA. RISK MANAGEMENT The Bank complied with all the guidelines of the Reserve Bank of India on creation ofRisk Management architecture. The Bank is BASEL II compliant w.e.f 31 03 2008. Necessary initiatives have been takenfor moving over to higher approaches under Basel II as per the time lines indicated byRBI. An independent Risk Management department is functioning for effective Risk Managemententerprise wide. Risk is managed through the three Apex committees viz. (i) Credit Risk Management Committee (CRMC) (ii) Asset and Liabilities Management Committee (ALCO) and (iii) Operational Risk Management Committee (ORMC). These committees work within the overall guidelines and policies approved by the RiskManagement Committee of the Board. The Bank has in place various policies to manage the Risk. To analyse the Riskenterprise wide and with the objective of integrating all the risks of the Bank anIntegrated Risk Management policy is in place. The important risk policies comprise CreditRisk Policy, Asset and Liabilities Management Policy, Operational Risk Management Policy,Business continuity planning and Policy on Corporate Governance. The Risk management systems are in place to identify and to analyse the risks at theearly stage, set and maintain prudential limits and manage them to face the changing riskenvironment. Software driven rating mechanism is in place to confirm the rating to ensurecredit quality. An entry level scoring system is in place. Loan Review Management Committee reviews the Loan Review Mechanism and Credit Auditfunctions periodically. In addition, Standard Assets Monitoring Committee reviews theSpecial Mention Accounts periodically to initiate timely action to prevent slippage ofstandard assets to non-performing assets. The liquidity risk is managed through studying structural liquidity on a daily basis,which is being discussed in the Funds and Investments Committee and reviewed every monthby ALCO

.The interest rate risk is managed through monthly interest rate sensitivitystatements monitored by ALCO. The mid office, directly reporting to Risk ManagementDepartment monitors integrated treasury transactions independently. Operational risk ismanaged by integrating the operational risk management systems into day to day managementprocesses and adopting various risk mitigating strategies. The risk perception in variousproducts / procedures is critically analysed. Stress tests are conducted periodically forthe credit risk, liquidity risk and interest rate/ exchange rate risk. Policy on Internal Capital Adequacy Assessment Process (ICAAP) is in place whereby theBank identifies / measures and allocates Capital for various residual risks identifiedunder Pillar II on quarterly basis and reviewed by the Board half yearly. The CRARposition of the Bank is reviewed by the Board on a half yearly basis and assessment forthe next three years is also provided based on projected business position. In compliance with the Reserve Bank of India guidelines on Basel II - Pillar 3 MarketDiscipline, the Bank has in place a Disclosure Policy duly approved by the Board and thedisclosures on Quarterly / Half Yearly / Annual basis as per the Policy are ported /incorporated in the Bank's Website / Annual Report. The Disclosure Policy is also revisedannually. HUMAN RESOURCES MANAGEMENT (HRM) The Bank is committed to create a congenial working environment where there is mutualtrust and respect duly recognizing the talents, rights and dignity of every employee. Thefocus is on placing officers in suitable positions, matching their job skills, talents,ability to take decisions and solve problems, explicitly making clear that such staffmembers should be aware of what exactly the Bank expects from them. As a part ofsuccession planning, recruitment and promotion in the Bank are aimed at articulating andspearheading the future growth of the Bank. To align with the fast changing businessneeds, Human Resources Management Department is giving top priority to "training andimparting of knowledge" to each and every employee. Thus Human Resources is alignedto meet the organizational needs of the Bank. MANPOWER POSITION The position of manpower in the Bank as on 31.03.2010 is as follows: CATEGORY OFFICERS CLERKS SUB STAFF TOTAL TOTAL 7610 9124 2907 19641 SC 1278 2111 1038 4427 ST 451 237 133 821 OBC* 158 450 172 780 MALE 6851 6124 2778 15753 FEMALE 759 3000 129 3888

*Reservation for OBCs in direct recruitment came into force only with effect from8.9.1993. Employees belonging to OBC recruited in the Bank prior to 8.9.1993 wereclassified as General Category and included in General list.

RECRUITMENT AND PROMOTION A comprehensive manpower exercise was carried out by HRM Department and a SuccessionPlan was placed to the Board at its meeting dated 19.11.2009 and it was duly approved.Based on the plan, promotion of personnel from one scale to another was carried out. In the recruitment process initiated for the year 2009-10,550 candidates in clericalcadre were posted to branches. A Chief Security Officer in AGM Cadre ((SMG-Scale V) was appointed on 04.01.2010 and 40Rural Marketing Officers were appointed on Contractual Basis. Recruitment process is under way for selection and appointment of 204 SpecialistOfficers in various functional areas in Scale I to Scale V and 118 Probationary Officersin JMG Scale I. Out of the same, 27 Specialist Officers were selected in Scale II, ScaleIII, IV and V in different functional areas. The process of selection of the remainingSpecialist Officers in Scale I and II will be completed shortly. In the process of Promotion from Clerical to Officer cadre, the Written examination forMerit and Seniority cum Merit was conducted on 28.03.2010. ON-LINE test was conducted in285 centres throughout India. Total of 2541 eligible Clerical candidates appeared for theexamination and the list of 470 successful candidates was released on 28.03.2010 itself. As a one time measure, stenographers who were drawing special allowance wereinterviewed through "Video Conferencing" and 18 candidates were promoted assteno officers. Further, during the year the bank has promoted 209 sub-staff members toclerical cadre to those who qualified a written test conducted in basic compuers. During the year, promotions also took place in various cadres including executives. Thetests for promotion upto Scale IV were conducted On-Line and the interviews were conductedthrough "Video Conferencing" thereby leveraging the technology available to theoptimum level. The Bank has effected the following promotions in various scales during this year: At the Top Management Grade, 6 Deputy General Managers were promoted as GeneralManagers, 25 Asst. General Managers were promoted as Deputy General Managers. Similarly,at the Senior Management level, 48 Chief Managers were promoted as Asst. General Managersand 204 Senior Managers were promoted as Chief Managers. At the Junior and MiddleManagement level, 846 Managers were promoted as Senior Managers, 1402 Asst. Managers werepromoted as Managers. Further, the Bank has promoted 667 Clerical staff as JuniorManagement Scale I officers. WELFARE MEASURES FOR SC/ST/OBC/PWD EMPLOYEES As per Government of India's guidelines, reservations are ??? ided to Scheduled Castes(SCs), Scheduled Tribes (STs), Other Backward Classes (OBCs) and Persons WithDisability PWD)

candidates in the Direct Recruitment. Reservation in promotions areprovided as per Government guidelines. Periodical Quarterly Meetings with All India Indian Bank SC/ST Employees' WelfareAssociation are conducted and grievances if any are resolved then and there. The SC/ STwelfare at HO/HRM also ensures prompt disposal of grievances / representations of SC/STemployees. A General Manager is nominated as Chief Liaison Officer to look after theinterest of employees representing SC/ST category. Similarly, to look-after the welfare ofemployees belonging to OBC category, a General Manager has been nominated as Chief LiaisonOfficer. UPGRADATION OF SKILLS The Bank's training infrastructure constitutes the State-of-the art Training College byname "Indian Bank Management Academy for Growth and Excellence" (IMAGE) and 8Staff Training Centres across the country enabling the staff and the officers to upgradetheir skills. During the year 10647 Officers, 10049 Clerks and 1186 Sub-staff members were trainedthrough internal training system. 523 officers and Executives had attended externaltrainings at various institutions. During the year 6 executives were nominated foroverseas training. E-learning The Bank has an e-learning portal which can be accessed through CBS Help Desk. Thereare 53 course libraries in various banking topics. Login is provided to all Staff.Presently 9033 active users are there. INDUSTRIAL RELATIONS The Top Management of the Bank interacts with the leaders of Employees' Unions,Officers' Associations and their response is positive resulting in the desired growth andharmonious Industrial Relations during the year. SAP This robust HR software being put in use by the Bank has been immensely useful in theretrieval of data and providing uninterrupted service to all Circles / Branches addressingall HR functionalities. SAP is also effectively used as a decision support system incritical areas like promotion, online PF Loan disbursal to staff etc. As a measure ofextending technological advancement to the entire workforce and in aiming to achieve apaperless processing of HR related issues and reducing the transit time, a cohesiveweb-site for Human Resources Management through Intranet has been hosted. STAFF WELFARE MEASURES The Central Welfare Committee of the Bank constantly reviews the welfare schemesavailable to

the employees and improvements are being made based on need. HOUSE MAGAZINE To build up an effective two way communication which is vital for the organization andto share knowledge, gauge progress, know limitations, learn from failures, solve problems,innovate and support, HRM Department has a House Magazine - "HR Active- it is".The Bank also publishes quarterly house journal 'IND IMAGE'. CUSTOMER SERVICE Customer Service and redressal of complaints/grievances continued to receive thehighest focus during this year. Branches were periodically sensitized over the importanceof customer service and were also directed to conduct Monthly Joint Customer ServiceCommittee meetings by including at least 3 customers and a senior citizen as members, toget feedback on the Bank's services and their suggestions for improvement of customerservice. The Bank's endeavour is always to reach out the customers and to meet their needs/requirements. Towards creating awareness of the Bank's products, services and the Bank'scommitments to them in terms of redressal mechanism, policies, codes, Citizens' charter,KYC norms, rules for operating the accounts, were made available to the customers inbooklet form "Booklet on Customer Centric Services" in all the branches. The Bank's Board in its meeting held on 12.10.2009 approved the Policy of GeneralManagement of the Branches. This Policy for General Management of the Branches is areflection of the Bank's ongoing efforts to provide better service to the customers andset higher standards for performance. This Policy is based on principles of transparencyand fairness. The Bank's systems are oriented towards providing better customer service. Standing Committee on Customer Service, chaired by Chairman & Managing Directorwith Executive Directors and Functional General Managers as members, is being conductedonce in a quarter. The committee also consists of 4 non-official members who are customersof branches in Chennai. The committee has been formed to safeguard the interests of thecommon persons, depositors and borrowers. The committee also reviews the nature ofcomplaints received and efforts taken to redress their grievances. BCSBI "The Bank is a member of Banking Codes and Standards Board of India(BCSBI), wherein , the Bank has made commitments to its customers that it would actfairly and reasonably in its dealings with them and would ensure that all dealings withthe customers rest on ethical principles of integrity and transparency. The Bank adoptedthe revised .BCSBI Code-August 2009. Copies of the revised Code would fee madeavailable to all the new customers, staff and to those old customers who ask for the same. Bank has also adopted the Code of Bank's Commitment to the Micro and Small Enterprisesand

given a commitment for providing speedy and efficient credit service delivery. Right to Information (RTI) Act A separate desk attached to customer service cell is handling the requests/applications and appeals received by the Bank under the RTI Act. Since its inception, theBank is adopting a single window approach suggested by Parliamentary Committee onimplementation of RTI Act. The Bank received 1213 applications and 180 Appeals under the RTI Act during the period2009-10. All the applications were disposed off within the time frame. FOREX BUSINESS The Bank handled forex business turnover of Rs. 25155 crore during the year. Of this,export and other inward remittances amounted to Rs. 9665 crore while imports and otheroutward remittances amounted to Rs. 15490 crore. During the year total turnover in theinter bank forex market amounted to Rs.110551 crore. 99 Branches are authorized to handleforex business, of which 72 branches are provided with SWIFT connectivity. The Bank hascorrespondent arrangements with 190 banks in 69 countries. 353 branches are authorized to handle Foreign Currency Non-Resident (FCNR) Accounts.Non Resident Indian (NRI) Deposits as on March 31, 2010 were at Rs. 3212 crore.Remittances from Singapore are credited to the beneficiary in India instantly on receiptof funds at Singapore through the new remittance scheme "Enterprise RemittanceScheme" launched in January 2010. As per this scheme, the beneficiary account inIndia is credited with rupee equivalent of the foreign remittances within minutes ofreceipt at Singapore and an SMS message is forwarded to the remitter at Singaporeinforming the credit. This facility is available on all days of the week. The other remittance facilities for NRIs offered by the Bank include "XpressMoney", "Money Gram" and internet based "IndRemit". Apart fromthese the Bank handles remittances to India in the form of DD drawing arrangements through3 prominent Exchange Houses in the Middle East and Speed Remit from Singapore besidesnormal SWIFT based Money Transfer from across the globe. International Operations The Bank has two foreign branches located at Singapore and Colombo. Total Deposits andAdvances (gross) of the overseas branches as on 31.03.2010 were Rs. 2921 crore and Rs.2690 crore respectively. Singapore branch, established in 1941, has carved a niche in offering a variety ofbanking services using the latest technology and enjoys enormous goodwill and customerloyalty. The branch is presently maintaining its business in two accounting units,Domestic Banking Unit (DBU) for Singapore Dollar business and Asian Currency Unit (ACU)for business in currencies other than Singapore Dollar.

Colombo branch, established in the year 1932, has active market presence extendingtrade finance. The Foreign Currency Banking Unit (FCBU), Colombo is engaged in offshorebanking operations. Technology Initiatives a) Core Banking Solution All the 1756 branches and 41 Extension counters in India are now on CBS. Boththe overseas branches at Singapore & Colombo have been connected to CBS network. The Bank has adopted versatile approach for ensuring uninterrupted connectivitylike Leased line with ISDN Backup, VSATs., GPRS etc. CBS implemented in 62 administrative offices (including departments in HeadOffice, Circle offices, IMAGE, STCs, Inspection Centers, Stationery Departments, etc.). All the 28 Circle Offices and IMAGE have Video Conferencing facility. b) Services available to customers under CBS Roaming Account Facility - Through Multicity cheques & 'Sweep' facility Internet Banking, Mobile Banking, Telebanking Cash Management Services Inward remittance facility in all CBS branches through 'Moneygram' 'Xpressmoney'etc. E-payment for Central Excise collection, Customs Duty and Service Tax throughinternet banking. Depository Services made available at 324 branches at select centres. Interbank remittance facility through RTGS, National Electronic Funds Transfer. Payment of fees / charges to Registrar of Companies. IND CORP NET BANKING (Corporate Internet Banking) facility extended to corporatecustomers. The Bank is the first to implement bilingual facility in CBS branches. c) Disaster Recovery (DR) Drill In accordance with RBI guidelines. Disaster Recovery drills for the critical systemhave been

conducted twice in the period 2009-10 as per details below: The first DR Drill for the year 2009-10 was conducted on 09.08.09. The second DR Drill for the year was conducted on 13 24.01.2010 by shifting the entireData Center operations to Secondary Data Center (DR site) at Hyderabad andrunning CBS applications for the entire day. It is a composite ???? consisting of CBSoperations, ATM operations, Internet Banking operations, etc. The operations were revertedback to the Primary Data Center after completion of the operations. DR drill for RTGS was successfully conducted on 1st and 2nd Aug2009. d) Centralization of activities for customer benefit ATM Service Centre: Centralized ATM Service centre established to take care ofreconciliation, accounting and to redress customer grievances regarding ATM transactions. Centralized Pension Processing: Centralized Pension Processing successfullyimplemented. Centralized Deposit Processing: Specialized branches established at Chennai,Bangalore, Delhi and Mumbai Circles for facilitating centralized processing ofapplications for opening of accounts, issue of statement of accounts, issue of chequebooks, etc., Centralized clearing operations: Outward clearing operations have been centralizedin all Service Branch locations. Inward clearing operations have been centralized inChennai and Delhi using "in house" software. Centralized Storage of TBC data: "In house" program has been developedfor conversion of erstwhile TBC data into Oracle & centralized storage. Web-basedsoftware has also been developed for generation & downloading of Statement of A/c bybranches. Data collection and migration has been completed. e) ATMs: 1005 ATMs (Including 274 offsite ATMs) are in operation. All ATMs areinterconnected for online ATM transactions. The Bank has opened 57 Biometric ATMs. Biometric ATMs opened for extending 24x7services to Self Help Groups (SHG), ATM operations by Joint Account holders introducedfirst by the Bank, enabling round the clock ATM services for SHGs. ATM installed at 59 Railway Stations, of which ATM with Kiosk installed at 34Railway Stations Voice interface provided in ATMs for guiding the users .

ATM card-base of the Bank is 43.51 lakhs including 'Maestro' branded cards of38.09 lakhs. Bank's Maestro cards can be used in the Mastercard branded POS terminalsinternationally. All the Maestro, Cirrus and MasterCard branded cards can be used in the Bank'sATMs for balance enquiry and Cash withdrawal. More than 54000 ATMs are available to Bank's customers through abovearrangements. Collection of fees for Vellore Institute of the Technology (VIT), RamakrishnaCollege, Coimbatore and GRD Matriculation School, Coimbatore; booking of air tickets forKingfisher Airlines and booking of railway tickets through IRCTC are enabled throughBank's ATM by using the Bank's ATM card / Debit card. Collection of Electricity Bill charges of TNEB through internet enabled from theyear 2009. As an additional feature, this facility is extended to Bank's customers byusing their ATM/ Debit Cards w.e.f. 01.02.2010. f) Other initiatives: The Bank has implemented "FinDNA"- software developed by M/s. TCS Ltdas an upgrade to the CBS software, for Anti Money Laundering ( AML) monitoring. As of now,AML implemented in 1568 branches. The Bank has been authorized by 'AP Online' (Andhra Pradesh Government'sinitiative) for payment of Electricity Bills, Water Tax, Property Tax, Trade License,etc., by the Bank's customers using Internet Banking services. Treasury Branch opened for integrated treasury transactions and Forextransactions. Common Gateway Server installed at Bank's Treasury Branch and connected toINFINET through leased line. This is the common gateway for all inter-bank, SystemicallyImportant Payment System (SIPS) applications developed by Reserve Bank of India. New Electronic Accounting System in Excise and Service Tax (EASIEST) in webplatform developed inhouse replaced the existing Packages at Collecting, Focal as well asLink level branches. The Bank is one of the 5 banks identified to implement MCA21 programme for theMinistry of Company Affairs. The following interbank applications like Negotiated Dealings SettlementSystem(NDS), Real Time Gross Settlement Systems(RTGS), Structured Financial MessagingSolution (SFMS), Centralised Funds Management System (CFMS), Collateralised Borrowing andLending Obligations(CBLO) SW, FX clear for Foreign Exchange operations. NationalElectronic Funds Transfer (NEFT), On-line Tax Accounting System (OLTAS), implemented inall designated branches.

Electronic Clearing Service (ECS both debit and credit) enabled in all CBSbranches. Electronic Data Interchange (EDI): EDI between Harbour branch and Chennai SeaCustoms (for payment of import duty and disbursement of duty drawback amounts) and betweenPort Trust Chennai (for payment of shippers' charges) and Harbour branch have beenimplemented. EDI also implemented with Hyderabad Inland Container Depot, Chennai andCochin Airports, and Visakhapatnam Port Trust for collection of customs duty. Cheque Truncation Project: RBI implemented CTS in NCR Delhi on pilot basis. Allthe Banks' branches including branches of the Indian Bank in NCR are participating in CTS In compliance with RBI guidelines , Bank has implemented 3D Secureauthentication by way of additional authentication in the form of a PIN known only to thecustomer, in addtion to the CVV number for Debit/Credit card operations for all onlinetransactions. As per RBI guidelines, the Bank has implemented "Online Alerts"through mobile phone to the card holders for all 'Card not present' transactions of thevalue of Rs.5000/-and above. Rollout of Financial inclusion Project using contactless smart cards in AndhraPradesh to make payment of wages under National Rural Employment Guarantee Act (NREGA) andSocial Security Pension (SSP) in select districts of AP was launched. Applications Supported by Blocked Amount (ASBA) module implemented. The Banksparticipating in the IPO process will be able to upload the bids of their customers intothe electronic book of BSE/NSE. Application processing, blocking and unblocking ofrequired funds from the customers accounts, generating files in the required formats forNSE/BSE and updating the data would be the major function. Financial Inclusion - As a part of outreach, Banking through ICT based SmartCard operation was introduced in Chettipattu Village in the service area of ThirukkanurBranch, for the first time in the Union Territory of Puducherry and at SorakolathurVillage in Tiruvannamalai district. Under this project banking transactions are enabledthrough POS terminals, integrating the same with Bank's CBS solution through internet. 20 Banking Service Centres are operational in various parts of the country toincrease the Bank's reach under financial inclusion. Use of Bio-metric Authentication for secured transactions: As a part ofstrengthening the security in the conduct of transactions and for authentication andnon-repudiation, besides User ID and Password, Finger Print authentication is used assecond factor authentication in 50 branches on pilot basis. 100% CBS implementation achieved in all the 3 RRBs (Pallavan Grama Bank,Pudhuvai Bharathiar Grama Bank and Saptagiri Grameena Bank) sponsored by the Bank. 24 Hours region implemented successfully on 15/08/2009. This facilitates onlineATM

transactions on a 24 hour basis enabling the customers to avail full online limitthrough ATMs and other delivery channels. The enhanced Mobile banking facility (INDMobile) has been introduced in the Bankusing J2ME (Java 2Micro Edition) application which works on a secured, menu based and userfriendly J2ME technology. g) Forex related developments in CBS All Foreign Currency deposits (FCNR, EEFC and RFC) and loans (FCPC, FCFBD andFCL) are migrated to CBS and being maintained in true currencies. Also the Bank isgenerating the Multi currency balance sheet for the branches having the assets andliabilities in true currencies. A facility is provided to Treasury Branch to upload the SWIFT MT103 messages fordirect credit of customer accounts at various branches without time delay. h) Management Information System To derive full benefit of automation through 100% CBS, the MIS department has beenproviding various reports/data for furnishing to different agencies and departments.Further, valuable information is being provided for decision making process. Internallythe MIS acts to relieve the various tiers from preparation of data. Ultimately the accentis to push applications further and maximize fruits of technology. i) Information Systems Security Separate Information Systems Security Department is in place. IS audit of Core Banking Solutions software, Network infrastructure of the Bank,Internet Banking and ATM network has been done by an external agency. Guidelines issued to observe Computer Security on an on-going basis. Security Operation Center (SOC) housed at HO:TMD for monitoring of all theexisting and proposed security devices on a 24x7x365 basis.Under this projectfirewalls,Network Intrusion Prevention System (NIPS) Host Intrusion Detection System(HIDS) are deployed in Central Data Centre (CDC) and Disaster Recovery (DR) site. Implementation of Asset and Patch Management Solution: As part of the enterprisewide security project, the Asset and Patch Management Solution implemented, using whichthe computer hardware / assets can be identified, tracked and maintained by deploying thenecessary operating system patches. The solution has been deployed in HO, Circle Officesand all CBS branches. Enterprise System Management Solution, a sophisticated server monitoring toolinstalled at the Bank's data Centre for real time monitoring of the various criticalservers at DC and DR site.

j) Antiphishing measures provided for internet banking Dynamic Virtual Keypad in the Bank's Login Page for those customers accessingfrom cybercafes or shared networks Right Click and Menu Bar disabled to avoid copying/ duplication of the HTMLsource codes. To enforce better security to the customers, the login page has been segregatedinto 2 screens. In the first screen the user has to enter only the user-id. User will beprompted to enter the password only in the next screen which will have the welcome messagefor the customer with his account name, along with a personalised message and colourpattern of customers' choice. These features will not be available in phished sites. Display of necessary Security Tips in the Internet Banking Home Page aboutPhishing Attacks for customer education and guidance on how to avoid such attacks like"Not to part with details of personal credentials on any site other than the loginpage of Internet Banking site". k) Encrypted Communication: The Bank uses digital certification from VERISIGN and 256 bit encryptionfacility to ensure security of online transactions and confidentiality of the data ofInternet Banking Customers. URL Encryption using Salted Hash Algorithm to encrypt all URL requests from theCustomers Browser to the Internet Banking Server Password encryption using SHA Hash Algorithm before transmission Extended validation Certificate from Verisign which, in addition to the existinglock symbol, will display the URL bar in green colour for genuine sites. In the case ofphishing sites, the URL bar will be displayed in Red colour in higher versions ofbrowsers. INTERNAL CONTROLS Risk Based Internal Audit has been carried out in 1343 branches, while InformationSystem Audit covered 1338 branches and 2000 ATM audits covered all ATMs {half yearly auditof ATMs}. Inspection of 2 Foreign branches have been completed, during the financial year200910. Credit audit has been carried out covering 496 accounts. Revenue audit covering all branches with credit exposure of Rs. 2 crore and above werecarried out, resulting in Identification and recovery of leaked income to the tune of Rs.2287.56 lakh during the 12 months ending March 2010 . 59 Management audits (28 circle offices, 2 Regional Rural Banks, 3 subsidiaries,7inspection centres, IMAGE, 9 staff Training centres, 3 computer Learning centres, 6Regional stationery

centres), carried out and follow up action initiated for compliance. Fraud Risk Management Policy has been framed in compliance of RBI guidelines on followup of large value frauds. Information Systems (IS) Audit of Information & Communication Technology (ICT)Infrastructure - CBS application suite. Data Centre & Project Office carried out bythe external IS Audit firm completed; followed up by confirmation audit, on fixing up ofthe deficiencies/issues identified in IS Audit. New Format for Audit of Overseas Branch, Chennai has been introduced, in compliance ofAnnual Financial Inspection observations. Review Meeting of concurrent auditors have been conducted in all Inspection Centres, totone up the efficiency of concurrent audit system and for improving the quality ofconcurrent audit reports. Skill development program covering 19 newly joined inspectors has been conducted forensuring effective and quality reporting. VVR checking in electronic mode introduced in all the branches which enables bettermonitoring by Circle Office. Backlog in signature scanning followed up with Circle offices and reduced from 5.19lakhs to 0.24 lakhs Risk Based Internal Audit (RBIA) format has been revisited & updated with focus onareas of internal control so as to effectively capture areas of control weakness, if any,and to initiate necessary corrective measures Automated weekly control return in lieu of AUF1 (control return on sanction of advances/TOD/Excess etc under their Discretionary powers by Branch Managers) has been introducedin 2 circles i.e Chennai & Puduchery circles on parallel run on pilot basis to enablecircle office to have better monitoring/follow up without time delay. Inspection centres are carrying out off-site monitoring covering the branches in theirarea of operation through CBS connectivity. All the inspectors have been trained in CBSenvironment with focus on "Auditing in CBS environment" and reporting in RBIAreport format CONSTRUCTION OF NEW HEAD OFFICE BUILDING AT ROYAPETTAH, CHENNAI The Bank is constructing a modern Hi-Tech Office building in the land owned by it atRoyapettah, Chennai, to meet the requirements of its growing business. The foundationstone for the new building was laid by Shri P. Chidambaram, the then Union FinanceMinister on 9th July 2008.

The new building is designed for a built up area of 1.85 lakh sq.ft havingBasement+Ground+3 upper floors. The building is also designed to have 2 additional upperfloors in future. COMPLIANCE FUNCTION IN THE BANK The Bank has Compliance Policy duly approved by the Board. In accordance with theReserve Bank of India guidelines, an independent Compliance Department headed by a DeputyGeneral Manager has been set up in the Bank. The Department monitors adherence to variousstatutory and regulatory guidelines governing the Bank's functioning such as: Various legislations such as Banking Regulation Act, Reserve Bank of India Act,Foreign Exchange Management Act, Prevention of Money Laundering Act etc. Regulatory guidelines issued by Reserve Bank of India (RBI), Securities andExchange Board of India (SEBI), Insurance Regulatory and Development Agency (IRDA) etc. Voluntary standards and codes prescribed by industry Associations such as IndianBanks' Association (IBA), Banking Codes and Standards Board of India (BCSBI), ForeignExchange Dealers' Association of India (FEDAI), Fixed Income Money Market DealersAssociation (FIMMDA) etc. and The Bank's internal policies, codes of conduct, guidelines etc. issued by way ofCirculars, manuals etc. VIGILANCE A well structured vigilance system is in place and is functioning in a proactive mannerin disposing all vigilance cases in line with the Central Vigilance Commission'sguidelines. In the area of preventive vigilance, the Bank, through its quarterly News Letter'Ind-Chetana' and 'Preventive Vigilance Awareness Series' circulars, shares with all thestaff, the details of adverse incidents that has taken place in the branches, so as toinculcate preventive measures against recurrence of frauds. SECURITY The Bank has a well established security mechanism synergized with the operational riskmanagement system. Latest security gadgets concurrent with the present day requirement areprovided to the branches. To track the movement of cash vans continuously from controllingoffices, a tracking system called Resource Tracking Management System (RTMS) is put inplace. Training of Security Officers and Armed Guards is being carried out periodically toensure that they retain their perception and alertness. IMPLEMENTATION OF OFFICIAL LANGUAGE The Bank is actively implementing Official Language based on the Official Language Act1963

and Rules 1976. Official Language is implemented as per the Annual Programme issued by the Ministry of HomeAffairs, Government of India and guidelines issued from time to time by the Ministry ofFinance and the Reserve Bank of India. In keeping with the Bank's objective of 'Taking Banking Technology to the Common Man'the facility of Hindi in CBS has been provided and entries in Hindi in Pass Book have beenmade possible. The Facility of Hindi screens has been made available in ATMs also. Touchscreen material is made available in Hindi which gives information about various productsof the Bank. All computers of the Bank have the facility of word processing in Hindi. Special emphasis is continued to be given by the Bank to train staff members throughworkshops. Hindi workshops are also conducted at various Circle Offices. Hindi website isavailable alongwith Home Page in Hindi. Hindi section has been made available in Bank'sintranet. CORPORATE SOCIAL RESPONSIBILITY Voluntary Blood Donation The Bank sponsored 4283 blood donors during the year by organizing 37 blood donationcamps. Since 1980, the Bank has sponsored 53817 donors and marked a new milestone ofcrossing 50000 donors during this financial year. The Bank was awarded 2 rolling shieldsby the Madras Voluntary Blood Bank for its highest performance among all institutions andthe Bank maintains NUMBER ONE position for the 22nd consecutive year since1988. Eye Screening Camp: Free Eye Screening Camp was organized for the school children and senior citizensthrough Venkatapuram Santhome, Washermanpet and Purasaiwakkam branches wherein 900 peoplewere screened for various eye problems and 130 senior citizens were treated for cataractin various eye hospitals. Social Responsibility: Indian Bank donated uniforms to the Children of SEERS - an organisation working foruplifting street children. Uniforms, Note Books, Stationery items, Fans etc. were donated to 2 needy organizationsviz., Seva Chakra and Corporation School, Chindatripet, Chennai by the Employees forsocial service movement by name 'CONCERN'. Achievement in Sports Indian Bank is a familiar name in Indian Sports. It has teams in 9 disciplines likeathletics,

basketball, carrom, chess, cricket, football, hockey, table tennis, andvolleyball. There are 125 active sportspersons out of whom more than 30 have represented the country injunior/senior international competitions. A recruitment policy to recruit talented sportspersons and promotion policy to the achievers in the national and international events isbeing consistently followed. Shri S Sathya of the Bank became the fastest man in India when he won the gold medal inthe 100m event in the 49th inter state senior athletic championship held atChennai from 21st to 24th October 2009. Mrs Parimala Devi of the Bank's Carrom team became No.1 in India when she won thenational championship defeating the current world champion Ms. Elavazhagi in the finals on31st March 2010. Mrs. Revathy (former world carrom champion) and Mrs. Parimala Devi of the Bank won thetrination carrom test series held at Male, Maldives from 20th to 23rdDec 09. Mrs. Sai Meera, an international women chess master participated in 4 internationaltournaments organized by Spanish Chess Federation from 24th June to 10thAug 09 and performed creditably, missing the women grand master title by half a point. SUBSIDIARIES & REGIONAL RURAL BANKS Subsidiaries The Bank has three Subsidiaries viz., Ind Bank Merchant Banking Services Ltd., Ind BankHousing Ltd., and Indfund Management Ltd. Regional Rural Banks (RRBs) The Bank has sponsored three RRBs namely Saptagiri Grameena Bank head quartered atChittoor, Pallavan Grama Bank head quartered at Salem and Puduvai Bharathiar Grama Bankhead quartered at Puducherry. As on 31.03.2010, Saptagiri Grameena Bank has 131 branches with a total business of Rs.2628.59crore. (Deposits - Rs.1243.97 crore; Advances - Rs. 1384.62 crore) Pallavan Grama Bank has 92 branches with a total business of Rs.1146.36 crore.(Deposits Rs.528.77 crore; Advances - Rs.617.59 crore) Puduvai Bharathiar Grama Bank, inaugurated on 01.06.08 has 19 branches with atotal business of Rs.86.33 crore. (Deposits - Rs.40.81 crore; Advances - Rs.45.52 crore) All the three RRBs have fully migrated to CBS, well ahead of the stipulated timelimit set by the Government of India i.e., September 2011.

Awards & Accolades Indian Bank is ranked 4th by Economic Times intelligence group's first survey onpublicly listed banks in India (published in their issue dated 23.11.09) based on overallperformance and the daily stated that - "in terms of efficiency and financialstrength, it (Indian Bank) ranks among the Best". The Bank was ranked 6th by Business Today among 39 big banks with a balancesheet size of Rs.24,000 crore for the year 2008-09. The Bank was also awarded Business World's FASTEST GROWING MID SIZE BANK and thesecond best bank. The Magazine commended thus - "Stock Prices of Indian Bank and SBIwere on equal footing in terms of price multiples.... The Bank is among the best for anymeasure of efficiency - ROE, ROA or Cost of deposits." Celent, a research & advisory firm, selected Indian Bank as the 'model bank'for innovative and extensive use of Core Banking Solution (CBS). The Bank was conferred with the 'Golden Peacock National Training Award' for theyear 2009. The award was presented to Bank's CMD on October 9, 2009 at the 10thInternational Conference of Corporate Governance held in London. Govt, of Tamil Nadu awarded Manimegalai Award for lending to SHGs on 16.11.2009at Chennai. Best Commercial Bank in lending to SHGs in Madurai District for the year2008-09. Best performing Bank in rendering full support to SHGs by disbursing credit inVellore District. Won the IBA AWARD for "Best Risk Management Initiatives" under Publicsector Banks category for the year 2009. The Award was adjudged on the basis of theinitiatives undertaken to strengthen risk framework, risks identified and steps taken tomitigate the same and also the tangible benefits in terms of the monetary, reputation andcompliance requirements brought about by these initiatives. YEAR AHEAD The Bank is clearly in a branch expansion mode by opening more than 100 branches eachduring the last 3 years giving equal emphasis on improvement in customer service as well.While we are going ahead with opening more number of branches in different parts of thecountry during the coming years. Bank's motto remains providing best customer service , tomaintain the trust and goodwill the customer/stakeholder is having with us and alsoenhance the shareholders' value through volume growth in business and betterprofitability.

Management Discussions
1. Macro Economic Scenario 1.1 Global Economy a. The global economy recorded a growth rate of 5.0% in the calendar year 2010 comparedto a decline of half-a-percent in the previous year. There was recovery in advancedcountries, particularly US, Japan and Canada; but a more pronounced recovery in emerging& developing economies which registered a growth rate of 7.3%. The unemploymentsituation remains a key concern in advanced economies and particularly weak housing sectorgrowth in the US. The year was characterised by rise in international commodity and crudeoil prices and political developments in the MENA (Middle East & North Africa).Further, devastating earthquake in Japan in early part of 2011 had bearing on investorsentiments. b. Monetary and fiscal actions in the developed world remained accommodative while manyemerging market Central Banks, including India continued with policy tightening whereoutput gaps almost closed. The challenge in emerging economies is to contain demandpressures and inflationary expectations amidst very high global food and fuel prices. c. World trade volume of goods and services recorded a growth rate of 12.4% in 2010from a dip of 10.9% in the previous year. There was revival in import as well as exportvolume, well supported by advanced and emerging countries. Imports of emerging anddeveloping countries are back to pre-crisis trends. d. The outlook for growth in advanced countries is positive. The global purchasingmanagers' index for manufacturing and services sector indicate continued expansion. Thegrowth in advanced countries in the year 2011 is projected by the International MonetaryFund at 2.4% and for emerging and developing countries at 6.5%. The key downside risk togrowth is further spike in crude oil prices which is projected to average at $107 perbarrel during the year. While inflation is the main risk in emerging economies as outputgaps close, advanced economies faces three challenges going forward - regain fiscalcredibility, reform fi n anci al sector an d reduce hi gh unemployment. 1.2 Domestic Economy a. Growth: Indian economy registered a growth rate of 8.5% during the fiscal2010-11, according to revised estimates of the Central Statistical Organization. The majorimprovement is in agriculture sector, which supported by a good monsoon recorded a growthrate of 6.6% compared to 0.4% in the previous year. Industry segments exhibited slowdownin the second half of the year, as reflected in Index of Industrial Production,particularly for capital goods. However, leading indicators of services sector like creditto services sector, production of commercial vehicles, telecom connections etc. showedacceleration. India continues to be a favourite investment destination; the WorldInvestment Report 2010 reported India to be the second most attractive location for FDIfor 2010-2012.

b. External Sector: India's merchandise exports reached $246 billion,registering a growth of 37.5 per cent while imports topped $351 billion, up 21.6 per centyear-on-year during financial year 2010-11. While the recovery had been happening at asluggish rate in developed economies, bulk of the growth came from newer markets. Thetrade deicit stood at $105 billion. The good performance of exports is expected tocontinue as developed economies continue to recover, while rising crude oil prices posesan upward risk to imports bill. In FY 2010-11, growth in exports came mainly fromengineering products rising by a staggering 84.8 per cent to $60.1 billion, petroleumsoaring by 50.6 per cent at $42.5 billion, electronic goods by 34.5 per cent at $7.4 billi on, textil es at $21 bi ll ion, drugs and pharmaceuticals at $10.3 billion and carpetsat $1.1 billion. Total FDI inflow into the country was lower during the year at $27.0billion compared to $37.8 billion during 2009-10. The country requires a healthy inflow ofFDI to ffinance growth and also the current account deicit. c. Inflation: The year 2010-11 continued to witness high level of pricesdriven by combination of factors, both structural and transitory. The initial phase ofinflation was more due to supply side shocks caused by untimely rains in some parts of thecountry. Another signiicant development was the changing food habits of the people due toupward shifts in income patterns, which led to high demand for protein sources such asmilk, eggs, meat and fish. Though domestic fuel prices remained largely unchanged, highglobal crude oil & commodity prices resulted in imported price inflation to someextent. A combination of factors led to rise in inflation expectations and pass-through offood and fuel inflation to a more generalised inflation. The headline Wholesale PriceIndex based inflation rose to 9.04% (provisional) for the month of March 2011. The averageWPI inflation rate for 2010-11 was 9.4% as compared to 3.6% during 2009-10. 1.3 Financial Market a. Liquidity: During 2010-11, liquidity conditions were influenced bystructural as well as frictional factors. The beginning of the year was the period ofcomfortable liquidity; however, outflow of money in May/June 2010 on account of spectrumlicense fee payment by mobile service operators for 3G and BWA services shifted liquidityinto deficit mode. Soon after, Reserve Bank of India changed its monetary policy stance tokeeping liquidity in deficit mode so as to enhance the effectiveness of monetary policytransmission. The factors like large government cash balances with the RBI, relativelylower deposit growth rate pushed liquidity deficit beyond RBI's stated tolerance level of1% of Net Demand and Time Liabilities (NDTL) of banking system. The higher demand forcurrency also resulted in tight liquidity conditions. The Reserve Bank introduced a numberof measures with the aim of limiting the scale of the deficit, including reduction in SLRon an enduring basis, Open Market Operations (OMOs), facility for banks to borrow up to 1%of NDTL against SLR portfolio. b. Money Supply: RBI's indicative projection for broad money supply growthwas at 17%. The actual growth in money supply during 2010-11 was 15.9%, due to lowerdeposit growth and higher than expected growth in currency with the public. The aggregatedeposits of scheduled commercial banks recorded a growth rate of 15.9% as on lastreporting Friday of the fiscal 201011. Time deposits increased by 18.7% as interest ratesbecame attractive while demand deposits

declined marginally by 0.6%. c. Bank Credit: The demand for non-food credit remained above the targetedlevel. Flow of ffinance from non-banking sources lagged behind the incremental flow ofbank credit. Non-food credit of banks recorded a growth rate of 21.3%. There was broadbased trend in sectoral deployment of bank credit. Major part of the credit to industrywas towards infrastructure sectors while there was a revival in demand for vehicle andhousing loans during the year. d. Policy Environment: RBI pursued the objective of normalization of policyrates which were drastically reduced in the aftermath of global financial crisis. Thefirst step was taken in March 2010 itself with a 25 bps hike in both, reverse repo andrepo rates. A total of 175 bps hike in repo rate and 225 bps in reverse repo rate wereeffected during the year. As prices started rising, policy rates also responded in orderto anchor inflationary expectations. To make policy rates more effective and reduce thevolatility in inter-bank money market, RBI narrowed the spread of liquidity adjustmentfacility by 50 bps and maintained the stance of keeping liquidity in the deficit mode. Thestatutory liquidity ratio (SLR) of banks was also reduced by 100 bps to 24 percent on anenduring basis. The overall stance of the policy was to contain the inflationaryexpectations and maintain interest rate regime consistent with price, output and financialstability. Besides, 'Base Rate' system of benchmark lending rate was implemented by bankswith effect from June 1, 2010. This is intended to enhance the effectiveness of interestrate channel of monetary policy transmission. e. Capital Market: The equity capital market exhibited mixed trend during2010-11. Between July-November 2010, equity markets outperformed due to huge inflows fromForeign Institutional Investors (FIIs); however, the trend reversed during the next fourmonths on slowdown in net FII inflows. The benchmark Sensex recorded an annual increase of10.9% as on March 31, 2011. The resource raised from the primary market during the yearwas 15.4% higher than the previous year. f. Debt Market: The prevalence of deficit liquidity conditions, elevatedinflation and tight policy rate environment resulted in higher interest rates in the bondmarket and increase in yield on government securities. The central government raised agross amount of Rs. 4,37,000 crore while state governments borrowed Rs. 1,04,309 crorefrom the market. The weighted average yield of central govt issuances was higher at 7.9%compared to 7.2% in 2009-10. The net increase in the commercial paper issuances was aroundRs. 5,000 crore but the net increase in certificate of deposits was over Rs. 80,000 crore. g. Forex Market: The Indian rupee exhibited a two-way movement in the range of Rs. 44.03 to Rs. 47.58 per US dollar. With the sharp appreciation of the rupee during October2010, forward premia firmed up across maturities, reflecting the increased demand forforward cover. Forward premia eased subsequently, but remained higher than in the irst twoquarters of 2010-11. Foreign Currency Assets stood at US $ 274.6 billion at end March 2011compared to US$ 254.9 billion at end March 2010. 1.4 Performance of Banking Industry

a. The deposit growth of the scheduled commercial banks in the first half of the fiscal2010-11 was subdued while credit growth was healthy, supported by demand from telecomcompanies and general broad basing of sectoral trend. With increase in deposit rates bybanks, there was positive momentum in the resource mobilization in the second half but theannual growth in deposits remained at 15.9%, lower than the RBI's indicative projection of17.0%. However, increase in bank credit of SCBs was 21.4%, higher than the projection of20.0%. The credit to retail loan segments, including housing and vehicle loans registeredrevival in growth. b. The growth in Profit of most of the banks was lower during the year when compared to200910. The lower treasury income and higher provision requirements impacted theproitability of banks. Majority of public sector banks witnessed deterioration in assetquality and gross NPA to gross advances ratio increased during the year. 2 NEXSTEP Nav Nirman a. Your Bank embarked on a transformation journey in early 2007 with an objective ofbecoming the bank of first choice in chosen areas. This necessitated initiatives fortechnology adoption, centralization, creating a marketing organization, building a stronghuman capital and a brand value for the Bank. Between 2007 and 2010, your Bank took anumber of measures in each of these areas that supported a higher growth compared to thebanking industry. However, Bank is determined to prepare itself for seizing opportunitiesemanating from unfolding economic transformation of the country. It is imperative that theBank creates a successful customer service model and integrates it with the internalcustomers, the employees. b. Therefore, your Bank launched two key initiatives during the year for customerservice excellence and human resource transformation. These are nexstep Nav Nirman. Bankderives value from the services it offers to the customers. The aspiration of the Bank isto become the No 1 Retail Bank in Customer Service Excellence by the year 2012.This has seven tenets: i. Establish a new branch model by recalibrating traffic flows, branch format,choreography and stafing models ii. Streamline call centre operations and other alternate channel operations iii. Redesign key Moment of Truths using lean principles iv. Develop a change leader program to sustainably scale up initiatives across UnionBank v. Establish a customer grievance cell vi. Institute Academy of Customer Service Excellence vii. Create a world class Customer Intelligence Unit c. As a first step, "branch-of-the-future" concept was implemented on pilotbasis in 3 branches in Mumbai. The experience has been quite satisfying when measured bythe customer feedback,

incremental business mobilized and staff involvement. This waspossible through innovative steps like queue management system, sales and service team,self-service kiosks and customer rel ationship management. The plan is to cover additional250 branches with similar model by end of March 2012. d. Simultaneously, Bank is focusing on Call Centre Operations, ATMs and has alreadytaken steps for setting up a Customer Care Unit. This Customer Care Unit will provideservice solutions and grievance redressal in ensuring flawless customer experience. Thiswill include root-cause analysis and customer service initiatives as inputs for redeiningsystems and processes. e. Yet another significant initiative is in the area of human resources. The challengesof human resources starts from manpower recruitment, training, retention and cover issueslike succession planning, leadership development, performance management system etc. Thesechallenges are common to all the public sector banks; however, your Bank has taken a leadin addressing the issues. The HR transformation project has three steps to it -diagnostic,design and implementation. During 201011, first two critical steps have been completedinvolving an indepth study of the existing HR and training processes and policies in theBank and benchmarking these against the best-in-class HR practices. Thereafter in thedesign phase, eight important steps involved designing HR structure, HR policies, jobdescriptions, performance management system, competency model, succession planning, careerpathing and manpower planning. In all these areas, specific actions will emanate duringthe fiscal year 2011-12. f. Your Bank firmly believes that the above initiatives would help in expanding thecustomer base and becoming one of the most preferred banks in the country. Business Segment Update 3. Resources a. The deposit mobilization of banks during the year was subdued, possibly due tonegative real interest rate on deposits for major part of the year and inflation-inducedhigh currency demand of the public. However, your Bank continued to focus on expandingclient base and on building and nurturing customer relationship. As a result, Bank added26.75 lakh new SB accounts and 69,000 new CD accounts, mobilizing over Rs. 8,200 crore,through these new relationships. During the second half of 2010-11, the Bank launchedspecial deposit schemes viz. UNION 500/700/ 1100 DAYS and mobilised over6.45 lakh accounts with deposit amount of Rs. 10,600 crore. The total deposits increasedfrom Rs. 1,70,040 crore to Rs. 2,02,461 crore, registering a growth of 19.07%. b. The low cost Current and Savings Account (CASA) deposit continued to remain corefocus area. CASA portfolio increased by 19.18% from Rs. 53,957 crore as on 31.03.2010 toRs. 64,307 crore as on 31.03.2011. The share of CASA to total deposits stood at 31.76%.The average CASA deposits increased by 26.07%, reflecting steady growth. Table-6 : Deposit Segmentation

Parameter Total Deposit SB Deposit Current Deposits CASA Term Deposit

F.Y.2010 1,70,040 37,728 16,229 53,957 1,16,083

F.Y.2011 2,02,461 44,689 19,618 64,307 1,38,154

% Y-O-Y Growth 19.07 18.45 20.88 19.18 19.01

(Rs. In Crore) % Share ** 22.07 9.69 31.76 68.24

** (Share represents share to total deposits.) 4 Credit Management a. Bank's advances portfolio grew at 26.20% to Rs. 1,53,022 crore during 2010-11 fromRs. 1,21,249 crore in the previous year. The non-food credit growth was 26.11% toRs.1,50,324 crore as on March 31, 2011. There was broad based growth across the sectors;however major part of credit to industry was towards infrastructure sectors. b. Retail advances registered a growth of 20.23% while Agriculture and MSME advancesgrown by 13.98% and 9.04% respectively. The break-up of advances portfolio is given below: Table 7 : Advances Portfolio (Rs. in crore) %YOY 26.20% 9.04% 13.98% 20.23%

Total Advances of which: MSME Advances Agriculture Advances Retail Advances 4.1 Retail Loans

FY10 1,21,249 22,685 18,464 13,506

FY11 1,53,022 24,735 21,046 16,238

a. The retail lending portfolio witnessed a growth of 20.23% in the year 2010-11, fromRs. 13,506 crore as on 31st March 2010 to Rs. 16,238 crore as on 31stMarch 2011. The share of total retail loans in the total domestic advances was 11.04% asof 31st March 2011. Table 8: Retail Advances Portfolio (Rs in crore) Share in Retail Advances 100% 56.72 %

Retail Advances - Union HOME

FY10 13506 8115

FY11 16238 9211

% YOY 20.23% 13.51%

- Union Mile - Union Education - Other Retail Loans

1189 1301 2901

1230 1582 4215

3.45% 21.60% 45.29%

7.57% 9.74 % 1.97%

b. The Union Loan Points (ULPs) set up during Nav Nirman transformation forfocused approach on retail lending has become centres of excellence in retail lending.Bank has 46 ULPs in various parts of the country that contributed more than 1/5thof total retail loans. Bank will continue to ensure that the ULP setup is strengthened andits performance improves during FY 2011-12. c. In order to cater to varying customer demands and to ensure a robust growth underthe retail advances, different product modification and marketing initiatives wereadopted. These include introduction of the Reverse Mortgage Loan-enabled Annuity plan, intie-up with Star Union Daiichi Life Insurance Company, under the Union Reverse Mortgagescheme, incentive scheme for staff of the bank etc. d. In FY 2010-11, the bank disbursed Rs. 414 crore under the Union Education scheme.The special education schemes for students of premier educational institutes like IIMs,ISB, XLRI were promoted during the year. 4.2. Corporate Credit a. The credit needs of large corporate clients are addressed through 11 dedicatedWholesale Banking branches (WBB), 9 Industrial Ffinance Branches (IFB) and 2 overseasbranches. This ensures fast movement of the proposals of corporate clients, providingindustry specific specialized services. The performance under Corporate Credit is asunder: Table-9 - Performance of Corporate Credit (Rs in crore) March 2009 (Act) 35,336 151 10.05% March 2010 (Act) 40,618 226 9.05% Growth % 14.95 49.66 March 2011 Growth % (Act) 54,428 34 250 9.58% 10.62 -

Total Advances Non-Interest Income Yield on Advances

b. The Credit to large corporates crossed an important milestone of Rs. 50,000 crore asof 31.03.2011, constituting 36% of total advances of the bank. The Non Fund Based businessgrew by 38% and crossed a milestone of Rs. 10,000 crore. c. The concept of Corporate Relationship Manager (CRM) has also been adopted with aspecific objective of enhancing the Relationship value with thrust on gaining higher sharein non-fund

business limits and augmenting the non-interest income. 4.3 Micro, Small & Medium Enterprises (MSME) a. Bank's Micro, Small & Medium Enterprises (MSMEs) portfolio has increased fromRs. 22,685 crore during the year 2009-10 to Rs. 24,735 crore during the current fiscal2010-11, registering a growth of 9.04%. The lower growth is on account of higher base ascategory reclassification of some accounts was done as per RBI guidelines in the year2009-10. The share of the MSME lending constituted 16.16% of the total advances. MSME is afocus area and Bank emphasizes on assured Turn Around Time (TAT), credit delivery ataffordable prices, customized products, enhancing the base of MSME clientele and skilledmanpower & resources. b. The bank has 250 dedicated Business Banking Branches (BBBs) for promoting finance toMSMEs and 17 SARALs (Central Processing Centres) for speedy appraisal and sanction of MSMEloans. These BBBs & SARALs are established in potential centres across the countrywhich serve as the main driver for growth of MSME advances. 4.4 Rural and Agricultural Business a. Priority Sector: The Bank is actively involved in pursuing the nationalpolicies for rural development and empowerment of rural populace through its wide networkof rural and semiurban branches. Priority Sector Advances registered a growth of 13.27%and stood at Rs. 50,967 crore as on 31st March 2011, constituting 43.46% of theAdjusted Net Bank Credit (ANBC), higher than the mandatory stipulation of 40%. b. Agriculture: Agriculture is one of the thrust areas for the Bank. The totalagricultural advances increased from Rs. 18,464 Crore in the previous year to Rs. 21,046crore, as on March 31, 2011 recording a growth of 13.98%. The share of agriculturaladvances to adjusted net bank credit (ANBC) was 14.52% as on March 31, 2011. Totaldisbursements of Rs. 8,034 crore were made under Special Agriculture Credit Plan (SACP)against the target of Rs. 7,500 Crore, recording an achievement of 107.12%.During 201011,additional 1,38,997 Kisan Credit Cards were issued with credit facility of over Rs. 845Crore. c. Small Enterprises: Total advances to Small Enterprises stood at Rs. 17,543Crore, as on March 31, 2011 as against Rs. 15,790 Crore, in the previous year, registeringa growth of 11.10%. d. Tertiary Sector: The outstanding under Tertiary sector as of 31.03.2011 stoodat Rs. 12,378 crore as against Rs. 10,739 crore as of 31.03.2010. e. Specific Lending For Social Upliftment: With a view to encourageentrepreneurs among the women and to make them self-sufficient, your Bank is providingcredit to women entrepreneurs. Bank has financed 5.35 lakh women beneficiaries andoutstanding loans to women beneficiaries have improved from Rs. 5,066 crore to Rs. 6,307crore, i.e. 5.38% of ANBC thereby surpassing the stipulated benchmark of 5% of ANBC set bythe GOI/RBI. The assistance to Weaker Section improved from Rs. 9,449 crore to Rs. 11,867crore, a growth of 25.59%. Advances to SC/ST

covered 215609 beneficiaries, withoutstanding loans of Rs. 1,450 crore as of March 31, 2011 from Rs. 1427 crore in theprevious year. f. Lending to Minority Communities: In line with Government of India directiveon 'Welfare of Minorities', the assistance provided to Minority Communities has improvedfrom Rs. 4,624.64 crore to Rs. 5,836.17 crore, covering 3,31,400 beneficiaries during2010-11. The share of these advances to Total Priority Sector Advances stood at 11.45% ason March 31 2011. 4.5 Self Help Groups (SHGs) a. Micro-financing through SHG formation and credit linkage is a cost effective way toextend banking services to the poor. During the year, 16,086 groups have been formed and12,459 groups have been linked with financial assistance amounting to Rs. 166.27 crore.The progress in formation of Self Help Groups is mentioned below: Table 10: Self Help Groups (Rs. in crore) % Growth 11.64 12.29 16.52 11.92 15.09

Particulars Groups formed (No.) Groups financed (No.) Amt. Financed (Rs. in crore) w/w Women SHGs (No.) Amt. (Rs. in crore)

March 2010 March 2011 Absolute Growth 138160 154246 16086 101362 113821 12459 1006.37 1172.64 166.27 87828 98295 10467 886.91 1020.76 133.85

With a view to make SHG programme more attractive, your Bank has introduced"Janashree Bima Yojana", a scheme of Life Insurance Corporation of India for themembers of Women SHGs wherein they will get a cover of Rs. 50,000 by paying a nominalpremium of Rs. 200, to be equally shared by SHG members and GOI. 5 Lead Bank Scheme a. Bank has the lead bank responsibility in 14 districts spread over 4 States viz.Azamgarh, Jaunpur, Varanasi, Ghazipur, Maunath Bhanjan, Bhadohi and Chandauli in UttarPradesh; Rewa, Sidhi and Singrauli in Madhya Pradesh; Ernakulam and Idukki in Kerala andKhagaria & Samastipur in Bihar. With 428 branches in these districts, Bank's depositsand advances increased to Rs. 19,461 crore and Rs. 5,846 crore respectively during theyear ended March 2011 as against Rs. 16,461 crore and Rs. 4,937 crore respectively in theprevious year. 6 Regional Rural Banks (RRBs) a. Bank has sponsored 2 RRBs, viz. Kashi Gomti Samyut Gramin Bank (KGSGB), Varanasi, inUttar Pradesh and Rewa Sidhi Gramin Bank (RSGB), in Madhya Pradesh. Both the RRBs

areprofit making. Both the RRBs have 100% branches under CBS and are poised to install ATMsat prime branches/ locations to provide benefits of technology/alternative deliverychannels to rural customers. 7 Financial Inclusion 7.1 Overview a. The country has moved on to a higher growth trajectory. To sustain and acceleratethe growth momentum, it is imperative to ensure increased participation of theeconomically disadvantaged segments of population in the process of economic growth.Financial inclusion of hitherto excluded segments of population is essential. FinancialInclusion has become the core of banking activities. b. Your bank has been pioneer in providing meaningful Financial Inclusion to theseeconomically disadvantaged segments of the society by extending banking services at theirdoorstep. Bank is working towards this as per Board approved 3 year Financial InclusionPlan (2010-2013), encompassing bank's commitment to extend its reach to 32000 unbankedvillages by March 2013 through branchless banking by adopting appropriate ICT basedtechnology and engaging 20,000 Business Correspondents/ Customer Service Points to serve10 million new customers by end of the plan period. 7.2 Achievement a. Bank has achieved the following as part of its Financial Inclusion initiatives: b. The Hon'ble Ffinance Minister announced in his budget speech for the year 2010-11that banks may cover, by March 2012, all habitations in the country having population ofover 2000, with banking services. Accordingly, your Bank was allotted 3159 villages withan intermediate target of 2500 villages up to March 2011. Your Bank has covered 2511 suchvillages, thereby surpassing the mandated target. Your Bank has established bankingservices in 16,242 villages to avail banking services through branchless doorstep banking. c. Bank opened 31 lakh No-Frill accounts during the year taking the total number to 75lakh (March 2011) from 44 lakh in the previous year. d. Bank is also extending micro-loans and micro-insurance to deepen banking habit andpromote economic activity among the rural/urban poor, as well as to provide insurencecover at nominal premium. e. Bank introduced innovative scheme for inancing farmer members of PrimaryAgricultural Cooperative Societies (PACs) through branchless banking. Under this project,Bank will extend ffinance to about 1.25 lakh farmer members of 650 PACs in the State of Andhra Pradesh targeting a loan disbursement of Rs. 500 crore. Your Bank has beenawarded the "SKOCH Financial Inclusion Award - 2011" for this innovativeproject.

f. Micro remittance facility for migrants through BC model has been extended to newerlocations like Kolkata-Bihar/U.P., Surat-Ganjam and Jalandhar/ Ludhiana to Eastern U.P.With this, Bank's remittance facility to migrant workers is being extended to sixcorridors. g. Bank has also launched "Union Bank Money" with co-partner Nokia, a uniquemobile based pre-paid banking service. This service is a irst of its kind in India on alarge scale, which will not only make money related transactions for millions of mobileusers easy, simpler and secure but will also help to reach to such populace in the countrywhere mobile has penetrated but banking services are yet to make an impact. Customers cantransfer money to another person just by using the person's mobile phone number, payutility bills as well as recharge their prepaid SIM card and make merchant transactionsfor goods and services. Using Union Bank Money Services to send money is as simple asmaking a voice call or sending a text and much more secure than handling cash. The serviceis operational in Gurgaon, Delhi, Noida and Faridabad. Pan India coverage will beavailable by end of 2011, with availability in all major cities and migrant corridors. h. In order to make financial inclusion efforts meaningful and effective, spreadingfinancial literacy is imperative. The Bank has established 8 Financial Literacy and CreditCounselling Centres (FLCCs) in the states of Uttar Pradesh, Madhya Pradesh, Bihar andKerala. These centers are taking efforts to create awareness on formal banking and providefree counseling on various financial services. i. With an objective to train unemployed youth in rural/ semi urban areas to take upself employment ventures and to arrest their migration to urban areas, Bank has set upRural Self Employment Training Institutes (RSETIs) in 13 Lead Districts viz. Ernakulam,Idukki, Varanasi, Mau, Azamgarh, Ghazipur, Jaunpur, Bhadohi, Chandauli, Samastipur,Khagaria, Rewa and Sidhi. Upto March 2011, 755 Training Programmes have been conducted and17,419 beneficiaries have undergone training through these R-SETIs, out of which 11,673beneficiaries have been settled with gainful employment and the settlement rate works outto 67.01%. 8 Asset Quality a. The Bank's Gross NPA increased from t 2,671 Crore to t 3,623 Crore and Net NPA fromt 965 Crore to Rs 1,803 Crore. In percentage term, Gross NPA increased from 2.20% to2.37%, while Net NPA increased from 0.81% to 1.19%. The reasons for increase innon-performing loans were large number of agricultural accounts that were not settledunder the Agricultural Debt Wavier Scheme and slippages in high value accounts of certainclients dependent on export markets. Secondly, your Bank also adopted the system-basedrecognition of non-performing assets during the year. Major part of loan accounts has beenmoved to system-based recognition. b. However, there is declining trend in slippages that indicates better outlook forasset quality in the coming year. Slippages in quarter ended September 2010 was t 1130crore, which declined sequentially to t 765 crore (December 2010) and then to t 406 crorein the fourth quarter. c. The movement of NPA is as indicated below: Table- 11 - Movement Of NPA

Particulars Gross NPAs (Opening) Additions Less: (I) Upgradation (II) Recoveries (III) Write-off Gross NPAs (Closing) Net NPAs - Opening - Closing

31 March 2011 2671 2924 268 578 1126

st

(t in Crore) 31 March 2010 1923 1785


st

1972 3623 965 1803

123 401 513

1037 2671 326 965

d. The Cash recovery and upgradation was t 846 Crore as compared to t 524 Crore in theprevious year. Percentage of recovery / upgradation to opening NPA level has shown robustgrowth from 27.24% in previous year to 31.67% in the current year. Bank has made highestever recovery of t 212 Crore in written off accounts. e. Bank issued notices under Securitization & Reconstruction of Financial Assetsand Enforcement of Security Interest Act (SARFAESIA), 2002 to 9,457 defaulting borrowersinvolving dues of t 1,444 Crore. One Time Settlement was approved in 562 cases, resulting in a recovery of t 179 crore.Further, assets worth t 626 Crore were seized in 2,282 cases and the Bank has recovered anamount of t 85 Crore. f. Under One Time Settlement (OTS Schemes), the Bank could settle more than 78,500cases with settlement amount of t 329.99 Crore, of which t 207.55 Crore has already beenrecovered. g. Bank has 10 Asset Recovery Branches across the country for providing focusedattention to high value NPAs. This has given thrust to the recovery efforts. During theyear, these branches could recover t 97.29 Crore. h. Bank had formulated a special scheme for settlement of low value NPAs withoutstanding of less than t 1 lakh. During the year Bank had settled 69,376 cases withsettlement amount of t 104.56 crore and recovered t 79.78 crore from the same. i. Forum of Lok Adalat was also utilized as an effective tool for recovery. During theyear, Bank has organized 139 Lok Adalat and settled 5545 cases involving t 25.53 Crore. j. Bank conducted 5,528 recovery camps at various centers throughout the country, where45,276 cases were settled and t 155.82 Crore were recovered. k. Big borrowal accounts in NPA category are reviewed at regular intervals byControlling

Offices at different levels. NPA position of the Bank is also reviewed atquarterly intervals by the Management Committee of Board. 9 Treasury a. The total investment portfolio of the Bank stood at t 58,505 crore as on March 31,2011 against t 54,483 crore as on March 31, 2010. This comprised investments made inGovernment Securities, State Development Loans and Other Approved Securities formaintenance of Statutory Liquidity Ratio (SLR) and Non-SLR investments like Equity Shares,Corporate Debentures, Public Sector Undertaking Bonds (PSU Bonds), Commercial Papers(CPs), Certiicates of Deposit (CDs), Security Receipts, Mutual Funds, Venture CapitalFunds, and Subsidiaries & Joint Ventures. The yield on investment portfolio was 6.55%for the year ended March 31, 2011 against 6.32% for the year ended March 31, 2010. b. The Bank's total profit from Treasury operations in domestic and forex marketsaggregated to Rs. 689.55 crore during the year as against Rs. 729.90 crore in the previousyear. c. Bank extends hedging facilities to customers through Derivative Transactions inaddition to its Proprietary Trading in derivatives. The transactions are undertaken withinthe framework of RBI guidelines. d. The Bank is one of the most active players to trade in currency futures market andoperates on three exchanges viz. National Stock Exchange, MCX-SX and United Stock Exchangeplatforms. The Bank also offers currency futures to its customers. 10 International Banking a. During the year 2010-11, Indian exports reached a level USD 246.00 billion(provisional), a growth of 39.38% over 2009-10. This supported the forex business ofbanks. The foreign exchange turnover of the bank increased by 18.62% to Rs. 1,02,789.26crore as on March 31, 2011 as compared to Rs. 86,657 crore registered previous year. b. Bank is having correspondent relationship with 322 leading International banks atall major international centres. The Bank has Rupee Drawing Arrangement (RDA) with 22international Banks and 22 Exchange Houses as on March 31, 2010. The online remittanceproduct for immediate credit to the account of the customers has seen wider acceptance. c. The export credit of the Bank increased to Rs. 6,375 crore as of March 31, 2011 fromRs. 6,273 crore as of March 31, 2010, with a growth of 1.63% as on March 31, 2011 againsta negative growth of 7.01% in the previous year. 11 Overseas Operations a. The Bank has its overseas Branch in Hong Kong, operational since May 7, 2008. TheBranch carries out normal commercial banking operations like acceptance of deposits, tradefinance, External Commercial Borrowing (ECBs) and syndicated loans. Deposits reached alevel of USD

128.15 million as of March 31, 2011 up from USD 82.00 million as of March 31,2010 registering a growth of 56.28%. Advances reached a level of USD 1,337.95 million asof March, 2011 up from USD 664.00 million as of March 31, 2010 registering a growth of101.50%. The operating profits reached USD 18.42 million as of March 31, 2011 up from USD12.92 million as of March 31, 2010 registering a growth of 42.57%. b. Bank opened its representative offices in London (UK) in April 2010. Besides, Bankhas representative offices at Shanghai (China), Abu Dhabi (UAE), Beijing (China) andSydney (Australia). c. Bank issued CHF 160 million bonds in Swiss Market on 7th February 2011 under its MidTerm Note (MTN) Programme. The transaction marked the first Swiss Franc Bond issue by anIndian entity following a hiatus of 23 years and the third Swiss Franc transaction out ofIndia. d. During the current year, Bank received approval from Reserve Bank of India forconverting the representative office at Sydney into Branch and the representative officein London (UK) into a subsidiary. Bank also has approvals for opening a branch in Antwerp(Belgium) and representative offices at Johannesburg (South Africa) and Toronto (Canada).Consequent to RBI's approvals, further processes are at different stages e. The Bank has also put in place a system enabling all its branches to open ForeignCurrency Non Resident Accounts in three major currencies. 12 Transaction Banking 12.1 Alternate Channels : Towards better customer service, Bank hasendeavoured to extend multiple delivery channels to the customers besides brick and mortarbranches. The alternative delivery channels like ATMs, internet banking, mobile bankingand call centre provide convenience and speed to the customers. In March 2008, when allbranches of the Bank were brought under core banking solution, the share of transactionsthrough alternative delivery channels was mere 8%. This increased subsequently year afteryear and as at end-March 2011, share of such transactions was 50%. 12.2 ATMs and Cards a. Bank has added 307 ATMs to its network and issued more than 1.65 million debitcards. Bill payment and tax payment facilities were introduced through ATMs during theyear. Bank shall continue to focus on increasing the number of services a customer canavail at ATMs. b. Advanced technology oriented facilities like ATM PI N Reset facility at IVR, selfuser creation facility to register for Internet and Mobile Banking through Bank's website,etc. are being extended to the Customers. 12.3. Internet and Mobile Banking

a. Introduction of two factor authentication has been a key initiative to enhance thesecurity of internet banking transactions. Your bank is one of the first few to implementIMPS (inter mobile payment service) service that enables customers to make inter-bank fundtransfers through mobile on real-time basis. b. Bank has implemented a Cashless Campus Project in a University in Bhopal (MadhyaPradesh), an initiative to popularize internet and mobile banking channels among studentsby enabling them to make all payments like fee payments, fund transfers, canteen payments,mobile recharge using internet and mobile banking. c. Bank has implemented payment gateway solutions on college/ university portals tocollect fee payments and also introduced Mobile Point of Sale Terminal (PoT) which can bea powerful acquiring tool in future. Bank is planning to rollout the project in many morecampuses across the country and attract customers to these secured low cost channels. 12.4. Acquiring Products a. Your bank is the first to launch Cash at Point of Sale (PoS), a service tofacilitate the low ticket cash withdrawals for the customers in unbanked areas at theirnearest merchant using their debit cards at a nominal fee. b. Bank has also implemented Credit/Debit Card payment gateway during the current yearand has started adding online merchants for the facility. c. Given a rich card base, the acquiring products will help bank to garner significantfee based and commission based income in future. 12.5 Currency Chest a. Bank is adhering to RBI 'Clean Note Policy' by circulating clean, unstapled goodquality notes to the public. In addition to 250 branches covered during 2009-2010, 162more branches having average cash receipt of Rs. 50 lakh and above were provided withhigh-speed note sorting machines during this year. b. Bank opened a new Currency Chest at Perumbavoor (Kerala) during the year. c. RBI has come up with the concept of opening 'Cash Processing Centres' at differentlocations to facilitate processing of cash of large corporate clients in line with their'Clean Note Policy'. The first 'Cash Processing Center' of the Bank was opened atLahartara Currency Chest under Varanasi Region in the month of October 2010. d. Bank is ensuring efficient cash management through in-house capabilities as well asselective outsourcing of professional cash handling services by a reputed agency. This hasalso enabled introduction of doorstep banking services to customers. The facilities atCurrency Chest have been upgraded by providing hygiene factors like masks, aprons, gloves,air puriiers, portable oxygen bottles besides Air Conditioners.

12.6 Cash Management Services (CMS) a. The Bank mobilized 201 new connections under various CMS products and earned a feeIncome of t 6.18 crore on a turnover of Rs 36,211 crore during the year. b. CMS facilitates the corporate customers to have a specialized service towards thereceivables & payables management at a high speed, with minimal cost, supported by acustomized MIS. The collection of cheques deposited at various locations is made fasterand funds credited at a single point. Similarly CMS helps customers to manage their bulkpayments from any single point. Collection products are Local Cheque Collection (LCC),Upcountry Cheque Collection (UCC), Virtual account etc. Payment products are Remote chequeprinting, DD drawing arrangement & Corporate Cheque Payment (CC PAP). In CMS,activities such as Bulk RTGS/NEFT, Centralised cheque & Mandate based Debits andcredits, are also carried out which facilitate clients like Mutual Funds, Non BankingFinancial Companies (NBFC's) etc. 12.7 Trade & Channel Finance, Merchant Banking a. Bank has made available ASBA (Application Supported by Blocked Amount) facility forapplying in Public Issues through Internet Banking and also extended the facility ofregistration of applicant and their details. b. Bank has gone live with the facility of Transmission of Inland Trade Messages fromits 25 select branches, through Structured Financial Messaging System (SFMS) of IDRBT. c. Bank has gone live with its Channel Ffinance software and will be driving ChannelFfinance business as a thrust area in the days to come. d. Bank has turned active in handling of Payment and Collection assignments ofcorporate clients/PSUs. 12.8 Third Party Product Distribution a. Under 'Third Party Products', Bank offers to its customers value-addedproducts/services like Life Insurance, Non-life insurance, Mutual Fund, Stamp Vending etc. b. During FY 2010-2011, Bank earned a commission income of t 31.99 crore throughdistribution of insurance products (both life and non-life insurance), mutual fund andother third party products compared to last year's income of t 27.54 crore. c. Bank's JV Mutual Fund Company, "Union KBC Asset Management Company"received approval for launching of products in March 2011. 13 Information Technology 13.1 Achievement

a. Bank has taken a number of initiatives in technology implementations through CoreBanking Solution (CBS) and other supporting systems such as Lending Automation Solution(LAS), Alternate Delivery Channels, and use of Business Intelligence tools for ManagementReports and Dashboards, Document Management System, Uniied Communications and DigitalMedia Signage. Increase in the technology intensity has helped in the product developmentand in achieving higher productivity. b. To meet the increasing transaction volumes, the Data Centre servers were upgraded to45 lakh transactions per day and the present transaction load is about 36 lakh per day.The Data Centre has been operating on 24x7x365 basis without any downtime. c. With the focus on extending customer service through various delivery channels, Bankhas launched many more services like Mobile top up, Multilanguage screens in Malayalam,Telugu, Oriya, Kannada, Tamil, Bengali, Marathi implemented in respective regional ATMs,Direct tax payment through ATM, E cash through ATMs, Debit Card PIN change through IVR andMini statement, PIN change for other bank customers (NPCI) d. Bank is presently having 2,634 ATMs. These ATMs can be used both by VISA andMasterCard holders of all Banks. Bank customers can access 60000+ ATMs across the country. e. Bank has introduced Lobby Banking, whereby the customer on his own can update hisPassbook, view his balance in the various accounts, and deposit cheques with the help ofself deposit cheque machines. f. Bank is facilitating National Electronic Funds Transfer (NEFT) and Real Time GrossSettlement (RTGS) services to branches across the country, covering 1894 centres. NEFT andRTGS, being very secure, efficient and fast method of sending/receiving funds to/fromother Banks, has gained momentum in the banking industry. During the year, Bank carriedout 13.99 lakh inward and 18.97 lakh outward RTGS transactions; 31.26 lakh inward and14.35 lakh outward NEFT transactions g. Through Bulk upload, branches are uploading large number of transactions at one goand thereby giving fastest service to customers across the country. Confirmation of NEFTto all our sender customers is provided. h. Under Networking, Unified Communication has been implemented, which integratesvoice, video and data on the desktop. It will help Officers to interact with each otherover voice and video while sharing documents / presentations. Implementation of UnifiedCommunications has increased the eficiency and lowered the costs. i. Digital Media Signage (DMS) has been implemented at 50 branches across the country.DMS is a centrally controlled system to display the content addressed to customers andemployees. While Bank's product features and beneits will be beamed to customers throughDMS, the contents of circulars will be displayed to its employees. The informationdisplayed through DMS will be broad based.

j. Bank is implementing Document Management System (DMS) comprising of documentimaging, process workflow and archival of documents. It will address the businessrequirements by enabling the system to capture, manage, store, preserve and deliverinformation and digitized documents related to business and organizational processes. 13.2. Future Projects a. Bank is undertaking an ambitious Data warehousing Project and implementation ofanalytical and operational CRM. This will bring eficiency in our operations and MISfunction. This will also help to analyze the customer behavior and promote cross sellingof products. 14. Risk Management 14.1 Overview a. Bank has a proactive approach towards risk management. Its risk philosophy involvesdeveloping and maintaining a healthy portfolio within its risk appetite and regulatoryframework. The Risk Management framework is speciically designed to identify key riskareas, measure, and monitor and manage them efficiently in order to deliver enhancedshareholder value by achieving an appropriate tradeoff between risk and returns. Bankconstantly endeavors to ensure that business function partners with the Risk Managementfunction to derive value and the available capital is used most effectively. b. The Risk Management Architecture of the Bank comprises of an Independent RiskManagement Organisational structure both at the Corporate and Field level, Risk ManagementPolicies, Risk Measurement Tools and Risk Monitoring and Management Systems. By postingRisk Oficers at the field, Bank is a pioneer in inculcating a risk culture throughout theorganization. Risk proiling of the Bank for various risk areas and for Regional Offices isbeing done on a quarterly basis. Bank has a well defined risk appetite statement and theindependent risk function ensures that the Bank operates with its risk appetite framework. c. The Board of Directors of the Bank are primarily responsible for laying down riskparameters and establishing an integrated risk management and control system. The Bank'sBoard approves Risk Management policies and also sets out limits taking into account therisk appetite of the Bank and the skills available for managing the risks. Board ofDirectors are supported by a SubCommittee of the Board known as Supervisory Committee ofthe Board on Risk Management and Asset Liability Management (ALM), which in turn issupported by the Credit Risk Management Committee(CRMC), Asset Liability Committee (ALCO) and Operational RiskManagement Committee (ORM C). These Committees are Committees of Executives headed byChairman and Managing Director. 14.2 Credit Risk: a. The credit risk mechanism consists of policies and practices that ensure credit riskis measured, and monitored at account level and portfolio level. The Credit RiskManagement

policy along with Real Estate Lending Policy and Collateral Management Policyaddress the Credit Risk related to lending. Credit Approving Authority, PrudentialExposure Limits, Risk Rating System, Risk Based Pricing, Portfolio Management are thevarious instruments for management of Credit Risk. b. Bank has standardized and well-defined approval processes for all credit proposalsto minimize the credit risk associated with them. Bank has set up Credit Approval Grids atRegional Offices/ Field General Manager's Offices and Central Office. Bank has alsodeveloped credit rating models for exposure above Rs. 2 lakh and scoring model for Retaillending schemes. Entire credit portfolio of the bank is subject to internal credit rating.Bank has credit rating migration and default probability data for the last 9 years. c. It continuously monitors portfolio concentrations by borrower, groups, industry,geography, etc and constantly strives to improve credit quality and maintain a riskprofile that is diverse in terms of borrowers, products, industry types and geography. 14.3 Market Risk: a. Asset Liability Management Policy and Treasury Policy aid the management of MarketRisk in the Banking and trading books. Overall responsibility of managing the market risklies with the Asset Liability Committee (ALCO). The Committee meets regularly and decideson the size, mix, tenor, pricing and composition of various assets and liabilities. Itprimarily does identification, measurement, monitoring and management of liquidity andinterest rate risk. It uses tools such as Ratio analysis, Gap analysis reports -Structural liquidity, Dynamic Liquidity, Interest Rate Sensitivity etc, Value At Risk, Duration Gap Analysis etc for management of liquidity and interest rate risks. Thefundamental focus is to add value both from the earnings perspective and from the economicvalue perspective. Bank has an independent mid office positioned in treasury and reportingto risk management. It ensures compliance in terms of exposure analysis, limits fixed andcalculation of risk sensitive parameters like Value at Risk, PV01(Present Value),Duration, Defeasance Period etc and their analysis. 14.4 Operational Risk: a. Comprehensive systems and procedures, internal control system and audit are used asprimary means for managing Operational Risk. Bank has in place a Board approvedOperational Risk Management Policy based on Reserve Bank guidelines. All new productsintroduced by the Bank pass through a New Product Approval Process to identify and addressoperational risk issues. Operational loss data has been captured for the last four yearsand mapped into 8 business lines and 7 loss events. Bank's income is also mapped into 8business lines and Bank is in readiness to migrate to the Standardised Approach. It hasalso agreed to join External Data Pooling initiative of IBA. b. As a good Corporate Governance measure, Bank has formulated a Disclosure Policy tohave greater transparency in its working. It has also developed a Business Continuity Plan(BCP)and

implemented the same. BCP provides a blueprint detailing a wide range ofresponses under a disruptive environment to protect its staff, assets and interest of thecustomers. BCP contains steps to be adhered to both at the Preventive as well as Recoveryphase when challenged with real life incidents. 14.5 Implementation of Basel-II: a. Bank has implemented the New Capital Adequacy Framework as per the timelinesprescribed by RBI. Whi le the Bank, to start with, has adopted Standardised Approach forCredit Risk, Standardised Duration method for market risk and Basic Indicator approach forOperational risk, the initiatives so far undertaken/ envisaged are geared towards enablingthe Bank to comply with the standards set out for more advanced capital measurementapproaches in the Basel-II Accord. b. Bank has appointed a Consultant for Integrated Risk Management Consultancy; whowould assess the preparedness for moving over to advanced approaches and assist the bankin developing necessary frameworks and taking necessary steps for migrating to advancedapproaches. c. Bank has set up an Internal Rating Based (IRB) Module which enables two dimensionalobligor and facility rating required for moving over to advanced approaches. The modulehas been implemented and all accounts are now rated only through the system. To computekey IRB parameters viz. Probability of default (PD), Loss Given Default (LGD), Exposure atDefault (EAD) & Maturity (M), Bank is in the process of collecting data and putting inplace necessary framework for computation of the same. In the area of Operational risk,Bank has started the process of putting in place a Risk and Control Self-Assessment (RCSA)framework. Groundwork for development of Key Risk Indicators (KRI) is also on. d. For enhancing manpower skills on risk management, Bank conducts in-house trainingprograms and also nominates oficials for attending training programs on risk management inreputed external training institutes. Bank has an excellent training system in place andits own Union Bank School of Management vide which it attempts to develop the professionaland managerial skills of its employees. Bank has also recruited qualified professionalsfrom reputed business schools who would help in reining the risk management practices,measurement and management tools. e. Bank has also developed a framework for quantifying the Pillar-2 risks and has putin place comprehensive Internal Capital Adequacy Assessment Process (ICAAP) framework inline with RBI guidelines. Bank is also in the process of introducing a Risk BasedPerformance measurement system to assess the profitability of its business units, productsand customers. f. The Bank strives to provide maximum returns to its stakeholders while maintaining asolid capital base to support the risks associated with its diversiied businesses. It hasa strong Tier 1 capital adequacy ratio in order to support the execution of its growthplans and business strategies, while meeting the regulatory capital requirements at alltimes. 15 Compliance:

a. In line with Reserve Bank guidelines and as part of its ongoing efforts to enhancesound practices, Bank has also set up a Compliance Department whose main role is toco-ordinate the identification of compliance issues, assess and mitigate compliance risk.Both the functions are bank-wide and continuous. Compliance Policy is framed andfunctional department wise compliance issues are identiied. Role responsibility as regardscompliance function is deined for every tier in the Bank. A reporting system has also beenintroduced to ensure compliance of regulatory and statutory compliance issues through i. Self certiication ii. Random testing / monitoring through Risk Oficers b. A comprehensive database on various compliance issues for the Bank is beingdeveloped. It is our endeavor to create a robust compliance culture in the Bank.Comprehensive training programs on compliance are designed to create awareness amongstaff. In the journey towards vision 2020, Bank is envisioning not only growth in businessparameters but also all round development of the Bank's value as a most trusted corporatecitizen. 16. KYC-AML a. Bank has taken various measures to strengthen Know your Customer - Anti MoneyLaundering (KYC-AML) compliance. A revised account opening form with additional featuresfor customer proiling and a KYC checklist has been developed. Interview & Customer dueDiligence form are revised to cover additional information. Efforts are being made toensure customer proiling, risk categorization in all accounts. The KYC-AML software isbeing enhanced to cover additional features and reports. Special training sessions /workshops on KYC_AML are conducted and one session on KYC-AML is introduced in allinternal trainings to sensitize all staff across the bank. Bank continuously strives toimprove the compliance on KYC-AML. 17 Human Resource Management The human capital is critical to the growth of your Bank. Keeping this in view, a HRtransformation project was launched during the year to address the issues of manpowerrecruitment, training, performance management, succession planning, leadership developmentetc. The project is now in the implementation stage. During the year 2010-11, Bank focusedon recruitment in various cadres as well as elevating the deserving staff to highercadre/scale besides several employee related initiatives. 17.1 Manpower Strength: The total Manpower of the Bank as on 31.03.2011stood at 29462. Table-12 - Category wise Employees Parameter Total Employees Officers 13343 Of Which Clerks 8914 Sub-staff 7205 Total 29462

Scheduled Castes (SCs) Scheduled Tribes (STs) Other Backward Classes (OBCs) Persons with Disability (PWD) Ex-Servicemen Women 17.2 Recruitment

2612 808 1707 92 70 1804

1853 431 1144 221 237 2412

2782 590 1377 119 1366 876

7247 1829 4228 432 1673 5092

a. During the year, the Bank completed recruitment process for 2,122 posts, consistingof 693 officers, 207 Customer Relationship Executives, 1018 clerks & 204 sub-staff.This also included 480 Specialist Officers and 213 candidates selected from variouscampuses including IIMs. During 2010-11, a total of 1,735 new employees joined the Bank.Besides, at the end of the Financial Year, the Bank had four Recruitment projects on handfor recruitment of 547 officers through campus selection, 1165 Probationary Officers and1640 clerks. 17.3 Promotions a. In order to provide Career Progression opportunities to the performing/talentedemployees and to motivate them towards further excellence, the Bank promoted 1,552 staffduring 2010-11 in various cadres. Further promotion processes for filling 3021 vacanciesin various cadres was under progress at the end of financial year. 17.4 Reservation Policy a. The department continued to have regular dialogues with the various SC/ST and OBCWelfare Associations in the bank and the platform was fully utilized to redress thegrievances of the various reserved category employees including issues concerning policymatters. Reservations, Relaxations and Concessions were extended to the various reservedcategories as per the extant government guidelines. 17.5 Industrial Relations a. The Industrial Relations Scenario in the Bank continued to be cordial on account ofthe constant dialogue held with the majority Trade Unions and resolving all thecontentious issues. Cases involving Disciplinary Matters were disposed of speedily in themost judicious manner and with a Human face. 17.6 Staff Benefits a. Pension: As per the bipartite agreement, 2nd Pension Option was extended to allthe existing PF optees including employees who retired after 29.09.1995. A DefinedContributory Pension Scheme on the lines of the New Pension Scheme applicable to theCentral Government employees was introduced by the Bank for employees joining w.e.f1.4.2010.

b. Others: Consequent to the Industry-wide settlement signed on 27.04.2010,the Pay and Allowances of the Bank's employees was revised upwards w.e.f 01.11.2007.Consequent to the amendment to the Payment of Gratuity Act 1972 and Income Tax Act 1961 bythe Government of India, the ceiling on Tax-free Gratuity payable on cessation of serviceby employees was raised from Rs. 3,50,000 to Rs. 10,00,000 w.e.f 24.05.2010. Certain vitalstaff related benefits like Staff Housing Loan, Rental Ceiling for Residential Quartersfor Officers, etc. were improved and made more attractive during the year. 17.7 Policy Amendments a. To suit the changing Business environment and to provide the required impetus forthe Bank in fulfilling its objectives, necessary Policy amendments were taken up duringthe year in respect of Recruitment and Promotions. b. In order to reduce the time lag involved in the recruitment processes, the Bankamended its Recruitment Policy by incorporating the provisions of the Common RecruitmentProgramme on behalf of Public Sector Banks to be undertaken by the Institute of BankingPersonneI Selection (IBPS). c. Consequent to the rationalization of Special Pay carrying posts in the 9thBipartite settlement the Bank's Management entered into a fresh agreement with theMajority Workmen Union for codifying the revised Higher Assignment Policy for its Clericalstaff. d. During the year, it was decided to abolish the post of Part-time Housekeepers and toconvert them into Full-time Housekeepers with a new designation 'Housekeepers-cum-Peon'w.e.f 01.04.2011 and a Memorandum of Settlement to that effect was signed by Bank'sManagement with the Majority Workmen Union. 18 Official Language Implementation During the year under review our Bank has taken various measures to promote the use ofOfficial Language. Salient features of the same are as follows: a. Introduction of Unicode enabled APS Saral Software for word processing requirements. b. Publication of Books in Hindi on banking subjects. 'Samvyavahar Banking - VividhAayam' c. Publication of comic strips in Hindi- 'Khushhali' d. Holding On-line competition in Hindi on Banking Products for staff. e. Introduction of language option (Marathi, Hindi, Tamil, Telugu, Kannada, Malayalam,Oriya and Bengali) in ATM Slips. 19 Union Dhara:

a. Our Bank's house journal 'Union Dhara' continued to be an excellent medium ofinternal communication between management and employees with objectives of creatingoneness amongst the staff members and stimulating employees about their duties, loyaltiesand creativity. This year 'Union Dhara' clinched 7 prizes in all at the differentcompetitions. RBI also awarded Union Dhara in the category of 'Bilingual House Journal'. 20 Security a. During the year under review the Security Division made concerted efforts to enhancethe level of Security in the Bank by strengthening the security infrastructure, impartingtraining and carrying out extensive security inspections to improve the Security Standardof branches. As part of our thrust to add electronic surveillance, Closed CircuitTelevision systems were installed in additional 1173 branches bringing the total number ofbranches with CCTV systems to 1803 branches. Training of security staff was givenimportance during the year. b. Emphasis was also laid on security awareness among the staff members and to this endSecurity Division has commenced publication of 'UNION SENTINEL', an exclusive quarterlyNews Letter on security circulated among all branches and offices. 21 Internal Audit a. The Bank has migrated to Risk Based Internal Audit w.e.f. 1st April 2009.During the current year the Bank has finetuned the risk parameters for various categoriesof branches viz. ULPs/business banking branches and Agri Banking Branches. The Bank is inthe process of implementing Risk Based Internal Management Audit of Regional Offices. TheBank has put in place a well defined Audit Policy for 201012 both for Regular audit aswell as Concurrent audit, duly approved by the Audit Committee of the Board. b. Regular audit and IS audit of 2791 branches was conducted. This also includes,audits of 82 foreign exchange dealing branches, 45 Service Branches and 62 CurrencyChests, 54 Management Audits of Regional Offices and one Field General Manager's Office.The Bank had 641 branches/offices covering 68.84% of the Banks business under ConcurrentAudit by external firms of Chartered Accountants. The Audit Committee of the Board met 12times during the year and made suggestions for improving operating efficiency andstrengthening the systems and control. 22 Vigilance a. Vigilance is an essential tool to bring about excellence in the organization as itplays an important and positive role in creating an ethical climate with discipline andsafety of operations.An elaborate and well structured Vigilance system has been put inplace, covering all areas of operations and in tune with the guidelines issued by theCentral Vigilance Commission. Bank's thrust is on Preventive Vigilance, as it helps inchecking occurrence of frauds, achieve growth and profitability. Number of interactivesessions with ield functionaries are arranged so as to create necessary awareness andsharpen their skills, enhance their knowledge of systems and procedures and to sensitizeabout the pitfalls. 197 such Preventive Vigilance visits were

made to various offices ofthe Bank during the year 20102011. Improvements in systems and procedures are suggestedwherever warranted. 23 Customer Service and Grievances Redressal Mechanism 23.1 Customer Service Excellence Bank's aspiration of becoming the 'No.1 Retail Bank in Customer Service Excellence',aims at delivering consistent customer service through a motivated frontline, supported bysimple processes which are fast, accurate and eficient. Bank has taken several initiativesfor the improvement of customer service: a. Re-model the branches to enable them to offer better customer service throughefficient processes, empowered staff and automation. b. Improvement in operation of Call Centres and Alternate Delivery Channels c. Strengthen the Customer Grievance Cell (CGC) to resolve complaints andsystematically eliminate the root causes of complaints. This Cell is designed on four keybuilding blocks viz. People, IT infrastructure, Process and Performance. Adequatemanpower, with necessary knowledge of the systems and procedures, is proposed for CGC,which can take care of all the solutions and training needs of staff, handling thegrievances. The Cell is expected to start functioning by June, 2011. d. Ombudsman cases have been brought down drastically by the Bank, particularly duringthe last 3 months of the year by pro-actively taking up compromises with the complainants.The Regional Heads were advised to personally seek intervention of the Ombudsman for anexclusive hearing on pending complaints against the Bank and resolution steps were taken.The Bank has also taken steps for preventing escalation of complaints to Ombudsman bysensitizing the staff to aim for resolution at the first instance itself. e. Bank has taken certain initiatives to bring down incidence of complaints. Processflow and centralized response facility are crucial to bringing down complaints. Forexample, complaints on non-receipt of PIN generation for Internet Banking, ATM have comedown drastically through self-user creation and IVR based re-setting of PIN facility.Strengthening Call Centre response capabilities in areas like nondelivery of cheque-book,non-dispensation of cash through ATM. An easy accessibility, with an assured Turn AroundTime (TAT) is re-assuring to customers. 24 Geographical Reach a. Bank opened 211 branches during the year, taking the total number of domesticbranches to 3,015 as on 31.03.2011 from 2804 in the previous year. Bank also has a branchin Hong Kong. The total outlets including extension counters and service branches stood at3,104. The distribution of the branches is diversiied in rural, semi-urban, urban &metro areas.

25. Opportunities Your Bank is well placed to capture the emerging opportunities. Its expanded reachthrough branches and newer channels of delivery, rich product and service offerings, youngand dynamic workforce and eficient responsiveness to customer needs will help in proitablebusiness expansion during the year 2011-12. There is revival in retail demand and yourBank is set to create higher value for the customers through dedicated Union LoanPoints as well as other branches. As we roll-out more and more'branches-of-the-future', higher will be the financial relationship with the customers.Expecting a normal monsoon and demand for creating agriculture related infrastructure,Bank foresees ample opportunity in extending ffinance to this sector. Rural market, ingeneral is exhibiting sound expansion led by government schemes and percolation of growthbeneits. Bank will also pursue its goal for financial inclusion and is determined to reachout to all the allotted 3159 villages with population of over 2000 as per the mandatedschedule. 26. Threats a. The biggest threat during the year for the economy as well as banks is oninflation front that may further impact real GDP growth and several other sectors. Theeconomic growth during the year 2011-12 is expected to be lower than the previous year asmonetary tightening and fiscal prudence may dampen demand. This may exacerbate withfurther negative developments in the global economy, particularly rise in crude oil andcommodity prices which are at their highest in recent times. Yet another threat mayemanate from the domestic economy if prediction of a normal monsoon does not materialize. 27 Outlook a. In its annual monetary policy statement for the year 2011-12, the Reserve Bank ofIndia has given indicative projection of 17% growth in deposits and 19% growth in creditof scheduled commercial banks. The demand for credit from various sectors is likely toremain broad-based; however, some interest rate sensitive sectors like automobiles andconsumer goods may show lower credit off-take. It is expected that the investment demandmay revive in the latter part of the year which will give opportunity to banks. On theliabilities side, savings deposit as well time deposits may register good growth due tohigher interest rates. b. Your Bank has the capability to grow higher than the growth rate of scheduledcommercial banks. This has been possible in recent years backed by various initiativesundertaken. The capacity building in the Bank is a continuous process. The nexstep NavNirman is the current initiative underway. Your Bank believes that the growth duringthe year will be profitable and rewarding to the shareholders.

You might also like