Voting Advisory

Allahabad Bank
BSE/NSE/ISIN: 532480/ALBK EQ/INE428A01015 Meeting Type: Extraordinary General Meeting Meeting date: 14 February 2012 Proxy deadline: 9 Feb 2012, 5:00 pm Scrutiny of nominations: 1 Feb 2012 Index: BSE 200/CNX 200 Meeting Time: 10:30 am Notice date: 11 Jan 2012

Meeting Venue: Purbashree Auditorium, Eastern Zonal Cultural Center, Bharatiyam Cultural Multiplex, IB-201, Sector-III, Salt Lake City, Kolkata 700106

Resolution 1: To elect three shareholder-directors of the bank To elect three directors from amongst the shareholders of the bank (other than the Central Government), in respect of whom valid nominations have been received to assume office from 15 February 2012 and hold office until the completion of a period of three years from the date of such assumption.

IIAS Recommendations/Comments Allahabad Bank (ALL BANK) is seeking to appoint three shareholder directors. These vacancies arose when the three shareholder directors - Deveshwer Kumar Kapila, Dr. Vasant Baburao Kaujalgi and Sudip Chaudhuri retired on 29 June 2011. As Deveshwer Kumar Kapila has completed two continuous terms of three years each is not eligible for re-appointment. The process for appointing shareholder-directors entails the bank inviting nominations from the public shareholders through the AGM/EGM notice. The nominations received are then scrutinized by the banks nomination committee which clears the candidates under the Reserve Bank of Indias Fit and proper criteria for elected directors on the boards of nationalised banks dated 1 November 2007. The bank then announces the approved names, in case the number of candidates is more than the vacancies. These candidates contest elections on the AGM/EGM date. However if the number of persons seeking appointment equals or is less than the vacancies, then these persons stand automatically elected with their names published in the newspaper. The EGM will then be cancelled as there are no other items on the agenda. The EGM notice sent out by ALL BANK did not contain the name of shareholders seeking appointment as shareholder-directors. This serves a limited purpose, as shareholders do not know who to vote for. After scrutiny the bank has disclosed (on 4 February) the names of four eligible candidates, but not given their profile or provided any information about them.

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Financial Profile (consolidated)

Rs bn, except per share FY09 FY10 FY11 figures Net profit 7.9 12.3 14.4 Net profit growth Y/Y % -20.5% 55.4% 17.2% EPS 17.7 27.5 32.2 EPS Y/Y% -20.4% 55.4% 17.2% Total Assets 978.3 1,219.5 1,516.1 Total Assets Y/Y % 17.7% 24.7% 24.3% Total Advances 886.3 1,102.5 1,371.3 Total Advances Y/Y % 20.9% 24.4% 24.4% Total Borrowing 888.2 1,114.9 1,388.0 Total Borrowing Y/Y % 21.0% 25.5% 24.5% Net worth 60.4 69.6 87.3 ROE % 13.1% 17.6% 16.5% Total CAR 13.1 13.6 13.0 Tier 1 CAR 8.0 8.1 8.6 Price to book (x) 1.1 1.0 0.8 Price to earnings (x) 8.5 5.5 4.7 Market capitalization:Rs.71.8 bn (CMP Rs.150.7) on 25/01/12
Source: Company filings, IIAS research

Price performance
250% 201% 200%

150% 102% 100%

94% 67%

50%
21% 19% 0% 3YR 5YR

Source: IIAS research

Above 1% public shareholding in Allahabad Bank

Name of the Shareholder 1 2 3 4 5 LIC of India ICICI Prudential Life Insurance HDFC Standard Life Insurance Bajaj Allianz Life Insurance Matthews India Fund Number of shares (in mn) 41.2 9.9 7.1 6.6 6.1 % of total shares outstanding 8.6% 2.1% 1.5% 1.4% 1.3%

Source: BSE

Change in shareholding pattern

Period Dec-11 Sep-11 Jun-11 Mar-11 Mar-10 Mar-09 Mar-08 Mar-07
Source: BSE

Shareholding as at 31 December 2011

FII 11.9% 13.0% 14.5% 15.1% 13.0% 10.3% 18.5% 19.4% Others 12.3% 11.8% 11.7% 11.4% 16.2% 20.1% 16.6% 17.9%
Source: BSE

GoI 58.0% 58.0% 58.0% 58.0% 55.2% 55.2% 55.2% 55.2%

DII 17.8% 17.3% 15.8% 15.5% 15.6% 14.4% 9.6% 7.4%

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1 ALL BANK has nine directors on its board (refer table 2) after the vacancies caused by the retirement of shareholder - directors on 30 June 2011. Of these, three are executive directors and six non-executive directors including two employee nominee directors, one RBI nominee director, and three GoI nominee directors. Investors should note that ALL Bank has combined the role of the chairman with that of its managing director. This is in line with the existing practice followed in all government owned banks. In this context we take note of a recent speech by RBIs Governor D Subbarao favoring separation of the post chairman and managing director in state-run banks (see Annex B). IIAS will welcome this segregation of roles. Table 1: Datelines in the process of electing shareholder director
Sr no 1 2 3 4 5 Particulars Cutoff date Last date for receipt of nomination forms Scrutiny of nominations Proxy deadline EGM date Date 31-Dec-11 31-Jan-12 1-Feb-12 9-Feb-12 14-Feb-12

As shareholders other than GoI hold 42% of the share capital of the bank, under Section 9(3)(i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, ALL BANK is entitled to have a maximum of three directors representing the shareholders of the bank (other than the Central Government). To fill in the vacancies caused by the retirement of the shareholder-directors on 30 June 2011, the shareholders, other than GoI, are entitled to send their nominations as per the procedure detailed in relevant acts and regulations (described as Annex A). The elected directors will assume office on 15 February 2012 for a period of three years. The elected director is eligible for re-election, but cannot hold office continuously for a period exceeding six years. IIAS notes that generally there is a time lag in appointing shareholder directors by public sector banks - above seven months in the case of ALL BANK (30 June 2011 to 14 February 2012). IIAS recommends that going forward banks can use such time lag to invite nominations, so that the names and basic qualifications of candidates seeking appointment could be send out with the notice. Even otherwise, the bank should seek names of shareholder-directors prior to sending out the AGM/EGM notice. Post the scrutiny of nominations done on the 1 February 2012; the bank announced the names and addresses of four candidates eligible to contest elections at the EGM. However, as discussed earlier, information regarding these candidates has not been published by the bank.

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Table 2: Director Details IIAS Classification

Relationship Independent with another Age director First date of appointment as a director No. of meetings attended (total 15) No. of % of directorships meetings in listed attended companies

Sl. No

Name of Director

Designation on the board

Occupation

(1) Executive directors 1 2 3 Joginder Pal Dua M.R. Nayak Debabrata Sarkar CMD Whole time director Whole time director No No No No No No 59 59 58 Service Service Service 7-Nov-11 22-Jan-10 7-Dec-09 15 13 15 100% 87% 100% 1 1 1

(2) Non-executive directors 1 2 3 4 5 6 Nirmal Kumar Bari R M Chaturvedi Gour Das Deveshwar Narain Singh Dr. Shashank Saksena A. Udgata Officer employee director Nominee director GoI Workmen employee director Nominee director GoI Nominee director GoI Nominee director RBI Yes *No Yes *No *No Yes No No No No No No 50 52 58 55 49 55 Service Chartered Accountant Service Agriculture, Social worker Service Service 13-Jul-11 14-Jul-10 16-Aug-10 19-Jul-11 15-Nov-11 31-Oct-11 NA 9 9 NA NA NA NA 90% 100% NA NA NA 1 1 1 1 1 2

Source: Company filings and IIAS research * While ALL BANK and GoI treat as independent; IIAS holds the view that government nominee/s in a public sector undertaking (PSU) should not be treated as independent, as they represent a significant shareholder.

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Information regarding the candidates, obtained through public sources, is given below: Candidates to contest elections at the EGM on 14 February 2012
1. Dr. Sudip Chaudhuri: Dr. Sudip Chaudhuri, ~60, is a MA (Economics) from Calcutta University and PhD (Economics) from Jawaharlal Nehru University, New Delhi. He is a professor in Economics at Indian Institute of Management, Calcutta since 1990. Dr. Chaudhuri has consulted RBI, Industrial Development Bank of India (IDBI), Government of India (GoI), Ministry of Commerce & Industry, United Nations Development Programme (UNDP), New York and World Health Organization (WHO), Geneva. He was appointed as a shareholder director in June 2010 to fill in the vacancy caused by Ashok Kumar Mahapatra. He attended nine out of 12 board meetings after his appointment. He has been a member of risk management committee, IT sub-committee, customer service committee and share transfer committee. 2. Ashok Vij: Ashok Vij, 56, is a fellow member of Institute of Chartered Accountants of India and a senior partner of Chartered Accountant firm - M/s Lamba Vij and Co. Ashok Vij is an independent director in Orissa Minerals Development Company Ltd since April 2010. He is also a chairman of audit committee and member of remuneration committee of the company. He also holds directorships in Principal PNB Asset Management Company Pvt Ltd, India Professional Services and Investments Ltd and Dedicated Digital Mechanics Company Pvt Ltd. 3. APVN Sarma: APNV Sarma, 62, is a graduate in Engineering and holds a degree in Law. He was a former member of Indian Administrative Services. He has held several senior posts in the Government of Andhra Pradesh, public sector undertakings and GoI. He retired as a secretary to GoI, Ministry of Shipping. He is on the board of Neyveli Lignite Corporation Ltd, SEW Vizag Port Terminal Limited, GATI Limited, Andhra Pradesh Gas Power Corporation Limited, Rashtriya Ispat Nigam Limited and Seaways Shipping and Logistics Limited. He is a chairman of the audit committee of Rashtriya Ispat Nigam Ltd and Andhra Pradesh Gas Power Corporation Ltd. 4. Ram Niwas Jain: Ram Niwas Jain, 60, is a mechanical engineer from Allahabad University. He has experience in engineering and auto component manufacturing. He has been a shareholder director at Allahabad Bank for three years (between 30 June 2005 to 12 February 2008) and UCO Bank for three years (between March 2008 to March 2011). In Allahabad Bank he was also a member of audit committee, management committee, remuneration committee, risk management committee and information technology sub-committee. In UCO Bank he was a member of audit committee, management committee, shareholders grievances redressal committee, and share transfer committee. Presently he is on the board of B.P. Engineers Pvt Ltd, the company that is engaged in the manufacturing aeronautical components. He is also a proprietor of a firm engaged in manufacturing auto components.

Of the four shortlisted candidates, Dr. Sudip Chaudhuri - if appointed will represent the shareholders for a second consecutive term. Ram Niwas Jain had been a shareholders director of the bank for one term (between June 2005 to February 2008). Ashok Vij and APVN Sarma are seeking appointment for the first time.

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IIAS recommends voting for any three of the four candidates in the ensuing EGM as all four meet the basic qualifications. IIAS also recommends that the process for appointing shareholder-directors of Banks be modified: The bank should seek names of shareholder-directors prior to sending out the AGM/EGM notice. This will enable banks to send out the AGM/EGM notice with the names and essential details (including basic qualifications) of the candidates seeking appointment. Even if the number of candidates equals or is less than the vacancies, they should not be automatically elected, but put to shareholders to vote.

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Annexures Annexure A: Process of electing a shareholder director Summary For a candidate to be eligible to be elected as a shareholder director he/she must hold at least 100 equity shares of the bank on the cut-off date (31 December 2011). If he/she is elected as a director representing the shareholders in the ensuing AGM/EGM, he/she is required to hold these shares for the duration of the term on the board. The candidate needs to be nominated by at least 100 shareholders of the bank and should qualify as a candidate as per Section 9 (3A) of Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980. The above act requires an individual to protect interest of depositors, represent interest of farmers, workers and artisans. Apart from this he/she is also expected to have special knowledge in one or more of the following a) agriculture and rural economy b) banking c) co-operation d) economics e) finance f) law g) small scale industry h) or any other matter in the opinion of the RBI be useful to the bank. As described earlier - the process for appointing shareholder-directors in public sector (PSU) banks entails inviting nominations from the public shareholders through the AGM/EGM notice. The nominations received are then scrutinized by the banks nomination committee which clears the candidates under the Reserve Bank of Indias Fit and Proper criteria for elected directors on the boards of nationalised banks dated 1 November 2007. The bank then discloses the cleared names through a newspaper advertisement, in case the number of candidates is more than the vacancies. If the number of persons seeking appointment equals or is less than the vacancies, then they stand automatically elected, and their names are published in the newspaper. The EGM will then be cancelled as there are no other items on the agenda.

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QUALIFICATIONS FOR A CANDIDATE A. In terms of Section 9 (3A) of the Act, a candidate, being a shareholder of the Bank and who desires to be elected as Director of the Bank under Section 9 (3)(i) of the Act shall: 1. have special knowledge or practical experience in respect of one or more of the following matters namely: a. agriculture and rural economy b. banking c. co-operation d. economics e. finance f. law g. small scale industry h. any other matter the special knowledge of and practical experience in, which would, in the opinion of the RBI be useful to the Bank, 2. represent the interests of depositors; or 3. represent the interest of farmers, workers and artisans B. In terms of Section 9(3AA) of the Act and RBI Notification a candidate being a shareholder of the Bank and who files nominations to be a Director of the Bank should possess Fit and Proper status based upon track record, integrity and such other criteria as the Reserve Bank may notify from time to time in this regard. C. Further the elected Director should execute a Deed of Covenants and is required to furnish annual declarations as prescribed by the Reserve Bank of India in this regard. DISQUALIFICATIONS FROM BEING ELECTED AS A DIRECTOR OF THE BANK A. In terms of Clause 10 of the Nationalized Banks (Management & Miscellaneous Provisions) Scheme, 1970, a person shall be disqualified for being appointed, as and for being a Director: i. if he has at any time being adjudicated an insolvent or has suspended payment or has compounded with his creditors; or ii. if he has been found to be of unsound mind and stands so declared by a competent court; or iii. if he has been convicted by criminal court of an offence which involves moral turpitude; or iv. if he holds any office of profit under any nationalized Bank or State Bank of India or any Subsidiary Bank of SBI except for holding the post of whole time Director, and B. In terms of Notifications of Reserve Bank of India - if he is not found to be fit and proper person, by the Nominations Committee of the Directors of the Bank. VALIDITY OF NOMINATIONS In terms of notifications of Reserve Bank of India and other applicable provisions of various Acts and Regulations, nomination of a candidate for election as a director will be valid provided: (a) he is a shareholder holding, as on Cutoff date, a minimum of 100 (one hundred) shares in Allahabad Bank and continues to hold a minimum of 100 shares till 14 February 2012 and thereafter if he is elected. (b) as on the last date for receipt of nomination, he/she is not disqualified to be a director under the various acts and regulations (c) the nomination is in writing signed by at least 100 shareholders entitled to elect directors or by their duly constituted attorney. (d) the nominations by the shareholders is accompanied by a declaration by the candidate, as per the specimen forms of nomination and declaration furnished in this Notice, duly signed by the candidate before a Judge, Magistrate, Registrar or other Gazetted officer. Source: Bank

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Annexure B: Dr. D. Subbarao, Governor, Reserve Bank of India view on Splitting the Posts of Chairman and CEO of Banks
Splitting the posts of the Chairman and the CEO of banks is another issue that has generated a contentious debate. The Ganguly Committee appointed by the Reserve Bank had recommended that the posts of the chairman of the board and the CEO of the bank should be bifurcated. The logic is that such a bifurcation of leadership of the board from the day to day running of the business will bring about more focus and vision as also the necessary thrust to the functioning of the top management of the bank. It will also provide effective checks and balances. The Reserve Bank implemented the Ganguly Committee recommendations in all the private sector banks in 2007. Experience shows that this arrangement has worked well. In fact, the Ganguly Committee recommendation to this effect has been echoed by the Basel Committee on Banking Supervision (BCBS) in its document entitled, Principles for Enhancing Corporate Governance which was put out last year. Let me quote briefly from the document. It says, to achieve appropriate checks and balances, an increasing number of banks require the chair of the board to be a nonexecutive, except where otherwise required by law. Where a bank does not have this separation and particularly where the roles of the chair of the board and Chief Executive Officer (CEO) are vested in the same person, it is important for the bank to have measures in place to minimize the impact on the banks checks and balances of such a situation (such as, for example, by having a lead board member, senior independent board member or a similar position). Given our own positive experience as well as the global endorsement for this position, the question is whether we should extend the principle of separation of the posts of chairman of the board and CEO to public sector banks as well. An important criterion for deciding on this will be to what extent we will be able to lay down and enforce strict eligibility criteria for the position of the chairman of the board of a public sector bank. We will discuss this issue with the Government. Meanwhile, it will be useful if there is some debate on this issue. Source: RBI

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Disclaimer
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