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Directors Report of City Union Bank Ltd.

Mar 31, 2015

Dear Members,

The Board of Directors are pleased to present the Annual Report together with the audited accounts for the financial year ended 31st March 2015.

Financial Highlights (Rs. in crore)

Particulars 2014-2015 2013-2014 Growth(%)

Share Capital 60 54 11

Reserves & Surplus 2,636 1,971 34

Deposits 24,075 22,017 9

Advances (Gross) 18,089 16,224 12

Investments (Gross) 6,367 5,955 7

Total Assets / Liabilities 27,871 24,994 12

Net Interest Income 807 759 6

Operating profit 693 581 19

Net Profit 395 347 14

During the year, the Bank earned an operating profit of Rs. 693 crore representing an increase of 19.28% as compared to previous year figure of Rs. 581 crore. The net profit of the Bank for the current year is Rs. 395 crore as compared to Rs. 347 crore for the last year registering a growth of 13.83%. The deposits and advances figure for the current year stood at Rs. 24,075 crore and Rs. 18,089 crore respectively.

DEPOSITS

The total deposits of the Bank for the current year increased by Rs. 2,058 crore to Rs. 24,075 crore from Rs. 22,017 crore witnessing a growth of 9.35%. During the year under review, the CASA grew from Rs. 3,917 crore to Rs. 4,631 crore recording a growth of Rs. 714 crore. The cost of deposit of the Bank marginally decreased from 8.37% in the previous year to 8.15% in the current year.

ADVANCES

The Bank has shown a growth of Rs. 1,865 crore in advances from Rs. 16,224 crore to Rs. 18,089 crore, posting a growth of 11.50%. The yield on advances declined marginally from 13.43% to 13.18% during the year under review.

The Gross and Net NPA for the current year stood at 1.86% and 1.30% respectively as compared to 1.81% and 1.23% in the previous year.

Priority sector advances during the year, has increased by Rs. 902.38 crore from Rs. 7,409.84 crore to Rs. 8,312.22 crore. Your Bank has achieved 49.80% of Adjusted Net Bank Credit (ANBC) against the regulatory prescription of 40% of ANBC on priority sector lending requirements. The total agricultural advances stood at Rs. 3,041.31 crore as at 31st March, 2015 forming 18.22% of ANBC against mandatory level of 18%. The advances to weaker section were Rs. 1,836.22 crore representing 11% of ANBC (mandatory level 10%).

TREASURY OPERATIONS

Domestic Treasury

The gross investments increased from Rs. 5,955 crore as on 31st March 2014 to Rs. 6,367 crore in 31st March 2015, out of this, the investments in Government Bonds alone amounted to Rs. 5,488 crore. The benchmark yield softened during this year from a high of 8.80% to 7.74%. The Bank earned a profit of Rs. 60.32 crore as compared to Rs. 22.83 crore last year from the domestic treasury operations mainly on account of softening of yield and the total yield on investments increased from 7.71% in the previous year to 8.33% in the current fiscal year.

Forex Treasury

During the year Indian Rupee witnessed swings against major currencies. The INR against USD ranged from Rs. 58.33 to Rs. 63.89 and remained comparatively weaker against USD on account of global economic factors. The Bank earned an exchange profit of Rs. 68.89 crore compared to Rs. 32.67 crore last year, with integrated treasury operations contributing substantially.

OPERATING RESULTS HIGHLIGHTS (Rs. in crore)

Year ended Year ended Particulars 31st March,2015 31st March, 2014

Total Income 3,103 *2,826

Total Expenses 2,410 *2,245

Operating Profit 693 581

Provisions & Contingencies 309 234

Exceptional Items ** 11 0

Net Profit 395 347

Net Interest Income 807 759

* the figures of the previous year have been regrouped / reclassified wherever necessary.

** the method of depreciation on Fixed Assets has been changed to Straight Line Method determined on the basis of useful life as against WDV method w.e.f. 1st April, 2014, in accordance with Schedule II of Companies Act, 2013 being used hitherto. Consequent to the change, the Fixed Assets and Profit after Tax for the FY ended 31st March, 2015 are higher by Rs. 1,088.93 lakh.

The Bank has earned a total income of Rs. 3,103 crore as against Rs. 2,826 crore posting a growth of 9.80%. The total expenditure of the Bank increased to Rs. 2,410 crore as compared to previous year figure of Rs. 2,245 crore.

The Net Interest Income for the year under review increased by 6.32% from Rs. 759.39 crore to Rs. 807.37 crore. The non-interest income of the Bank increased from Rs. 279.86 crore to Rs. 404.10 crore registering a growth of 44.39%. The Bank has earned an income of Rs. 4.24 crore from Bancassurance business in tie up with Life Insurance Corporation of India.

The operating profit increased to Rs. 692.65 crore from Rs. 580.97 crore. The net profit increased from Rs. 347.07 crore to Rs. 395.02 crore recording a growth of 13.82%. The provision for tax for the year has increased from Rs. 66.50 crore to Rs. 126 crore. The provision for NPA stood at Rs. 165 crore vis-a-vis Rs. 148.50 crore last year. The total provisions increased by Rs. 74.62 crore from Rs. 233.90 crore to Rs. 308.52 crore.

APPROPRIATIONS

The summary of net profit appropriations is as follows: (Rs. in crore)

Year ended Year ended Particulars 31st March, 2015 31st March, 2014

Net Profit 395.02 347.07

Balance of Profit brought forward 6.87 6.87

Amount available for appropriations 401.89 353.94

Transfers to Statutory Reserve 103.00 88.00

Capital Reserve 7.60 0.57

General Reserve 173.35 165.00

Special Reserve under IT Act,1961 32.00 30.00

Proposed Dividend 65.62 54.27

Corporate Dividend Tax and Surcharge 13.36 9.23

Balance of Profit carried forward 6.96 6.87

Total 401.89 353.94

NET WORTH & CAPITAL ADEQUACY RATIO

The Net worth of the Bank improved to Rs. 2,666.39 crore as on 31st March, 2015 from Rs. 2,006.38 crore as of 31st March, 2014.

The paid up share capital of the Bank has increased from Rs. 54.27 crore to Rs. 59.66 crore as on 31st March, 2015. During the period the Bank allotted 4,66,35,576 equity shares to Qualified Institutional Buyers (QIB) through QIP (Qualified Institutions Placement) route and 71,91,961 equity shares to employees under CUB ESOS Scheme 2008, aggregating to 5,38,27,537 equity shares.

The BASEL II norm prescribes the minimum capital adequacy ratio to be maintained at 9% against which our Bank has attained 16.59%. The capital adequacy under BASEL III worked out to 16.52% for the year ended 31st March, 2015 as against 15.01% for the last year.

DIVIDEND

Your Bank has entered its 110th year and to commemorate this proud moment your Bank has recommended a dividend of 110% i.e., Rs. 1.10/- per equity share of face value of Rs. 1/- each. The diluted earning per share for 2014-15 is Rs. 6.63 as against Rs. 6.64 last year due to capital infusion.

BRANCH EXPANSION

Keeping in mind the business growth and wider customer participation, the Bank has expanded its branch network by opening 50 more branches and 121 ATMs across the country during the financial year ended 31st March 2015. The Bank has been successful in widening its presence pan India with 475 branches and 1,071 ATM''s. The Bank is focusing to enlarge its presence by tapping potential markets in southern India by opening majority of branches in this region besides other states.

FINANCIAL INCLUSION

The Government of India and the Reserve Bank of India have been making concerted efforts to promote financial inclusion as one of the important national objectives of the country. It is a process through which the weaker / low income groups are brought within the ambit of formal banking sector with a main focus to protect their financial wealth and other resources in exigent circumstances. Your Bank, as per RBI directions, in order to provide efficient and cost-effective banking services in the un-banked and remote villages of the country, have covered all the allotted 43 villages having population of over 2,000 by introducing ICT (Information, Communication & Technology) based services. Your Bank has also covered all the allotted 96 villages having population of over 1,000 and below 2,000 by introducing ICT based services paving way for the inclusive growth.

Further, during the year under review, Basic Savings Bank Deposits (BSBD) accounts numbering 93,856 were opened and 89,599 biometric smart cards were issued to the beneficiaries. SB linked overdraft facility, micro insurance products, Electronic Benefit Fund Transfer (EBT) payments have been extended to such account holders.

PRADHAN MANTRI JAN-DHAN YOJANA (PMJDY)

''Pradhan Mantri Jan-Dhan Yojana'' (PMJDY) is a flagship financial inclusion program of Govt. of India which was launched by our Hon''ble Prime Minister on 28th August, 2014 across the country. Under this program our Bank has been allotted 264 wards apart from 139 villages already allotted under the Rural Financial Inclusion scheme. Your Bank conducted survey of all 1,51,722 households in all these 264 wards and opened 76,707 Basic Savings Bank Deposit accounts and 59,331 Rupay Cards were issued under PMJDY scheme.

The Bank has opened 76,455 PMJDY accounts as on date through all our branches. As the overdraft facility is one of the features under PMJDY scheme, our Bank is considering the same based on the eligibility conditions fixed by IBA to the PMJDY account holders from Rs. 1,000 to Rs. 5,000.

EMPLOYEES STOCK OPTION SCHEME (ESOS)

The Bank implemented an Employee Stock Option Scheme called ''CUB ESOS 2008'' for the grant of stock options to eligible employees of the Bank. The shareholders of the Bank approved the scheme on 26th April, 2008 at Extra Ordinary General meeting of the Bank. The maximum aggregate number of options that may be granted under this scheme is 5,00,00,000. As per the scheme exercise price of the options shall be decided by the Compensation Committee at the time of issuing stock options. There is no lock-in period for shares issued under the scheme upon exercise of stock options. The details of employee stock option are annexed hereto as Annexure I.

HUMAN RESOURCE DEVELOPMENT

The Bank believes that, the Human Resource development is one of the key elements for ensuring qualitative business growth and profitability for any organization. The present global economy is highly competitive which necessitates efficient human resource management.

The Bank aims at optimum utilization of resources through deploying effective management tools viz. motivation, training, enhancing leadership qualities and succession planning. The Bank offers ESOPs to the employees so as to create a sense of ownership among them as the Bank believes that the very success of the Bank depends upon its employees only.

The Bank has a full fledged training college with experienced faculty and good training infrastructure supported by external specialists apart from in-house certified trainers to train the employees at various levels for maximizing the staff potential and to sharpen their skills. The Bank also deputes its employees to various training institutions like SIBSTC, NIBM, CAB, CAFRAL etc. There exists a cordial relationship between the management and the employees.

As on 31st March, 2015, your Bank has 4,365 employees, comprising of 48 Executives, 1,600 Officers, 2,380 Clerks and 337 Subordinate staff as compared to 4,215 employees in the previous year.

AUTOMATION

In today''s Banking scenario, ''Technology'' plays a vital role in managing and fulfilling the growing customer demands.

During the year under review, the Bank has widened the ATMs reach to 1,071 locations including 618 off-site ATMs. The Bank has also introduced Cash Accepting ATMs (Bulk Note Acceptor - BNA) numbering 122 and has proposed to install it in other branches, which would enable the customer to remit cash directly to the credit of their account.

The Bank has introduced CUB Mobile Banking, M Passbook (Mobile Passbook), IMPS in Internet Banking and Mobile Banking for speedy funds transfer across the Banks and Digital Signature authentication for Corporates as second factor authentication for safe and secure Internet Banking. Apart from 569 Xpress desk (Green Channel Counter) across the Bank branches, the Bank has installed 57 Kiosk in selective branches and planning to expand the same. This Kiosk acts as Self Service Machine, which can be used for funds transfer within own accounts, within CUB accounts and across the Banks, open deposit, etc. The Bank has obtained ISO/IEC 27001:2013 Certification from QSCert on IT Infrastructure & Operations Support, Maintaining and Monitoring of IT Outsourced Process.

A customer friendly Captive Contact Centre (Call Centre) with Interactive Voice Response System (IVRS), is in place to promote customer support on multi-languages 24x7 basis.

Your Bank has participated in the ''National Payments Excellence Awards 2014'' by NPCI and has been awarded as Runner up in recognition for excellent performance in National Automated Clearing House (NACH), under the category ''Small Banks'' on 3rd December, 2014.

AWARDS & ACCOLADES

* Your Bank has been adjudged as the Best Old Private Sector Bank for the financial year 2014 by the Financial Express / Ernst & Young Survey on 30th March, 2015.

weblink: (http://epaper.financialexpress.com/469135/fe-Indias-Best-Banks/ March-2015#page/4/2).

* Your Bank has been ranked the "Third Best Bank of the year 2014" by First Post e-Magazine on 31st December, 2014.

weblink: (http://www.firstpost.com/business/best-banks-2014-axis-citibank- surprise-city-union-bank-2024773.html).

BOARD OF DIRECTORS

Shri. N. Kantha Kumar, retired from Directorship on the Board of the Bank on 29th September, 2014, on completion of his tenure. The Board places on record its warm appreciation for the valuable services rendered by Shri. N. Kantha Kumar during his tenure as Director of the Bank.

In accordance with the provision of Section 161 of the Companies Act, 2013, Smt. CA. Abarna Bhaskar was co-opted as an Additional Director by the Board of Directors at its meeting held on 25th October, 2014. The Bank has received a notice in writing from a member pursuant to Section 160 of the Companies Act, 2013, signifying his intention to propose the candidature of Smt. CA. Abarna Bhaskar as Director.

In line with the provisions of Companies Act, 2013 read with the amended Clause 49 of the listing agreement, the position of Justice (Retd.) S.R. Singharavelu as an Independent Director on the Board of the Bank has been changed to Non-Executive Non-Independent Director, liable to retire by rotation. He retires at this Annual General Meeting and stands for re-election. The Board recommends his re-election as Non-Executive Non-Independent Director, liable to retire by rotation.

All Independent Directors have given declarations that they meet the criteria of Independence as laid down under Section 149 (6) of the Companies Act, 2013 and Clause 49 of the listing agreement.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the listing agreement, the Board has carried out a formal annual performance evaluation of its own performance, the directors individually as well as the functioning of its committees. A detailed explanation has been given in Corporate Governance Report.

Remuneration / Compensation Policy

The Bank has adopted Compensation Policy in accordance with the directives issued by the Reserve Bank of India and also, the Bank has constituted a Compensation & Remuneration Committee which oversees the framing, implementation and review of the compensation policy of the Bank.

Board Meetings

During the year under report, 15 meetings were duly held which is in compliance with Section 173 (1) of the Companies Act, 2013 and Clause 49 of the listing agreement.

DIRECTORS'' RESPONSIBILITY STATEMENT

In accordance with Section 134 (5) of the Companies Act, 2013, the Board of Directors hereby declares and confirms that:-

i) The applicable accounting standards have been followed in the preparation of the annual accounts and proper explanations have been furnished, relating to material departures.

ii) Accounting policies have been selected, and applied consistently and reasonably, and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit & Loss of the Bank for the financial year ended 31st March, 2015.

iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

iv) The annual accounts have been prepared on a going concern basis.

v) The Bank has laid down adequate internal financial controls and such internal controls are operating effectively.

vi) The Bank has in place a system to ensure compliance of all laws applicable to the Bank.

AUDITORS

Statutory Auditors

M/s. P. Chandrasekar, Chartered Accountants, Bangalore, the present Statutory Central Auditors, will retire at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment. The Reserve Bank of India has accorded its approval for the re-appointment of M/s. P. Chandrasekar, Chartered Accountants, to act as Statutory Central Auditors for the financial year 2015-16. Members are kindly requested to consider their re-appointment on a remuneration to be decided by the Audit Committee of the Board / Board, for the ensuing financial year 2015-16.

Secretarial Audit

Pursuant to provisions of Section 204 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Bank has appointed M/s B.K. Sundaram & Associates, Practicing Company Secretaries, to act as Secretarial Auditor for conducting the Secretarial Audit of the Bank. The report of secretarial auditor ''Secretarial Audit Report'' is annexed hereto as Annexure II.

STATUTORY DISCLOSURES

Considering the nature of activities carried out by the Bank, the provisions of Section 134 (m) of the Companies Act, 2013 relating to conservation of energy and technology observation do not apply to the Bank.

The Bank continues to encourage country''s export promotion by lending to exporters and offers them forex transaction facilities.

The disclosures required to be furnished under the provisions of Section 197 (12) of the Companies Act, 2013 read with Rule 5 (1) of the Companies (Appointment and Remuneration) Rules, 2014 are furnished as Annexure III.

The statement containing particulars of employees as required under Section 197 (12) of the Companies Act, 2013 read with Rule 5 (2) of the Companies (Appointment and Remuneration) Rules, 2014, are furnished as Annexure IV.

It is hereby confirmed that the Bank has proper systems in place to ensure compliance of all laws applicable to the Banks.

RELATED PARTY TRANSACTIONS

The Board of Directors of the Bank has adopted a policy on Related Party Transactions in line with the Companies Act, 2013 and the equity listing agreement. There were no significant "Related Party Transactions" of any material, financial & commercial nature with the Bank by the directors and their relatives that would have potential conflict with the interest of the Bank at large. A detailed policy on the Related Party Transaction is available at the Bank''s website.

EXTRACT OF ANNUAL RETURN

The extract of annual return as prescribed in form MGT - 9 is annexed hereto as Annexure V.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Bank has adopted a policy on Corporate Social Responsibility which is in strict compliance with the guidelines issued by the Ministry of Corporate Affairs.

The Annual Report on CSR activities is annexed hereto as Annexure VI.

CORPORATE GOVERNANCE

The Bank is committed to adopt and follow highest working standards in ensuring good governance. The corporate governance practices followed by the Bank are disclosed separately forming part of this report.

COMPLIANCE REPORTING UNDER EQUITY LISTING AGREEMENT

A. DELISTING from the Madras Stock Exchange Ltd. (MSE)

The Bank pursuant to Regulations 6 and 7 of SEBI (Delisting of Equity Shares) Regulations 2009 ''the regulations'', applied to Madras Stock Exchange Ltd., (MSE) for voluntary Delisting of equity shares as the Bank''s equity shares are not traded in MSE since the year 1998. The MSE accorded its approval to withdraw the name of the Bank from the list of listed securities in terms of the regulations and the admission granted to the Bank for dealing in Equity Shares was withdrawn w.e.f. 4th February 2015.

B. Details of Stock Exchanges where Bank''s shares are listed:

a. BSE Ltd., Scrip Code - 532210 Phiroze Jeejeebhoy Towers, 25th Floor, Dalal Street, Mumbai - 400 023

b. The National Stock Exchange of India Ltd., Scrip Code - CUB Exchange Plaza, 5th Floor, Plot No. C/1, G Block, Bandra - Kurla Complex, Bandra (E), Mumbai - 400 051

It is confirmed that the bank has paid annual listing fees to each of the above stock exchanges within due timelines as provided under law.

WHISTLE BLOWER / VIGIL MECHANISM

The Bank has formed a vigil mechanism to deal with instances of unethical behavior, actual or suspected fraud or violation of Bank''s code of conduct or ethics policy. The details of this policy have been described in the corporate governance section and the policy is available at the Bank''s website.

ACKNOWLEDGEMENT

The Board of Directors of the Bank would like to take this opportunity to thank all the stakeholders and wish to place on record its deep & sincere gratitude to the Reserve Bank of India, NABARD, NHB, IDBI, SIDBI, EXIM BANK, ECGC, DICGC, SEBI, Stock Exchanges, Depositories, Karvy Computershare Pvt. Ltd., Life Insurance Corporation of India, United India Insurance, New India Assurance, Tata Consultancy Services, CCIL, CIBIL, Correspondent Banks, Exchange Houses and other regulatory authorities for their continued support, guidance and co-operation and also, to Shri. N. Kantha Kumar, Director who completed his term during this financial year.

The Board hereby appreciates all the employees for their resolute support and commitment in pursuit of organizational growth & excellence.

FOR AND ON BEHALF OF THE BOARD

Place : Chennai S. Balasubramanian Date : 22nd June, 2015 Chairman


Mar 31, 2014

Dear Members,

The Board of Directors take immense pleasure in presenting the Annual Report and Audited financial statements for the year ended 31st March, 2014.

Performance Highlights in key business areas : (Rs. in crore)

Particulars 2013-2014 2012-2013 Growth

Share Capital 54 47 14.89%

Reserves & Surplus 1971 1593 23.73%

Deposits 22017 20305 8.43%

Advances ( Net) 16097 15246 5.58%

Investments (Net) 5954 5267 13.04%

Total Assets / Liabilities 24994 22977 8.78%

Net Interest Income 759 624 21.63%

Operating profit 581 523 11.09%

Net Profit 347 322 7.76%

During the year the growth of business was subdued due to the general slow-down in the economy. The deposit crossed Rs. 22,000 crore and the advances exceeded Rs. 16,000 crore. The net profit of the Bank increased from Rs. 322 crore to Rs. 347 crore registering a growth of 7.76% during the financial year 2013-14.

DEPOSITS

The total deposits of the Bank increased by Rs. 1,712 crore to cross the 22,000 mark to end up at Rs. 22,017 crore registering a growth of 8.43% over the last year. Low cost deposit, CASA deposits increased by 15.06% on account of persistent efforts and measures initiated by the Bank. The cost of deposit of the bank decreased to 8.37% from 8.44% as compared to previous year.

ADVANCES

The gross advances portfolio of the bank increased by 5.74% from Rs. 15,343 crore to Rs. 16,224 crore. However the average advances during the year was higher by 15.95% as compared to previous year. There was a marginal fall in the yield on advances also from 13.49% to 13.43%. The prime focus of the Bank remained towards growth in advances without comprising on the quality.

The gross NPA of the bank increased from 1.13% to 1.81% on the back of the slow down in GDP growth affecting the profits and margins of various units in different sectors. The net NPA was at 1.23% as against 0.63% in the previous year. The priority sector advances comfortably stood at 46.72 % (including NABARD RIDF) as against the regulatory prescription of 40%.

The bank has continued its policy of lending to retail segments to achieve a better return with minimum credit risk.

TREASURY OPERATIONS

Forex Treasury

During the year Indian Rupee witnessed wild swing against major currencies and more particularly against USD. From a high of Rs. 53.66 it touched a low of Rs. 68.85 prompting RBI to step in to keep the volatility in check. Host of measure by RBI like hike in mark up over LIBOR for FCNR B Deposits, swap facilities for FCNR B Deposits / Overseas Borrowings, separate USD window for oil companies, reduction in ODI limits etc., reduced the volatility in USD/INR and consequent to these measures Indian Rupee against USD gradually strengthened to Rs. 59.91 from Rs. 68.85. The high volatility in a way offered more opportunity for trading and the forex treasury made a profit of Rs. 32.67 crore which was 77.75% higher than the previous year.

Domestic Treasury

The gross investments increased from Rs. 5,268 crore at the end of last financial year to Rs. 5,955 crore. Out of these, the investments in Government Bonds alone amounted to Rs. 5,319 crore which were made to maintain statutory reserve requirements on enlarged resources. The G-sec market was also very volatile. The yield softened in the first quarter of the financial year. However in the second quarter yields shot up as a consequence to the steps taken by RBI to control Forex volatility and falling Rupee and the banks were faced with the huge depreciation. The RBI permitted the banks as a special case to transfer the securities from AFS to HTM category for the second time in a financial year and to provide for depreciation in a staggered manner during the year. Your bank treasury managed the situation in the best possible manner to record lowest depreciation and provided for the same in a single shot without availing itself of the benefit offered by RBI to stagger the same. The domestic treasury earned a profit of Rs. 22.83 crore which was higher by 33.88% compared to last year.

Operating results:

The highlights of operating results of your Bank for the current and previous financial year are at a glance as mentioned below:-

(Rs. in crore)

Current Year ended Previous Year ended Particulars 31st March, 2014 31st March, 2013

Total Income 2847 2462

Total Expenses 2266 1939

Operating Profit 581 523

Provisions & Contingencies 234 201

Net Profit 347 322

Net Interest Income 759 624

The total income of the bank increased to Rs. 2,847 crore from Rs. 2,462 crore registering a growth of 15.64% reflecting the higher growth in average advances. The total yield on investments increased from 7.52% in the previous year to 7.71% in the current year. The total expenditure of the Bank increased by 16.88% as compared to previous year increase of 31.29%.

The operating profit increased from Rs. 523 crore to Rs. 581 crore. The net profit marginally increased from Rs. 322 crore to Rs. 347 crore due to higher provisioning for NPAs and taxation. The Net Interest Income increased from Rs. 624 crore to Rs. 759 crore by 21.63% as compared to previous year. The non-interest income of the bank increased from Rs. 274 crore to reach Rs. 301 crore. The Bank continues successively to maintain its top position in the Southern Zone in its bancassurance business in partnership with the Life Insurance Corporation of India.

APPROPRIATIONS:

The summary of net profit appropriations is as follows:

(Rs. in crore)

Current Year ended Previous Year ended Particulars 31st March, 2014 31st March, 2013

Net Profit 347.07 322.02

Balance of Profit brought forward 6.87 6.60

Amount available for appropriations 353.94 328.62 Transfers to

- Statutory Reserve 88.00 82.00

- Capital Reserve 0.57 1.90

- General Reserve 165.00 142.00

- Investment Reserve 0.00 0.34

- Special Reserve under IT Act,1961 30.00 40.00

- Proposed Dividend 54.27 0.00

- Interim Dividend 0.00 47.45

- Corporate Dividend Tax and Surcharge 9.23 8.06

- Balance of profit carried forward 6.87 6.87

Total 353.94 328.62

Net worth & Capital Adequacy Ratio

The Net worth of the Bank improved to Rs. 2006.38 crore as on 31st March, 2014 from Rs. 1631.37 crore as on 31st March, 2013.

The paid up capital of the bank increased to Rs. 54.27 crore from Rs. 47.44 crore on receipt of balance of call money of Rs. 10/- from the Rights Issue of 12,89,87,972 Equity Shares in the ratio of one share for every four shares held of face value Rs. 1 each at an issue price of Rs. 20 per share (including a premium of Rs. 19 per share) in the last year.

During the financial year 37,70,366 equity shares of Rs.1/- each at a premium of Rs. 10.60 per share under CUB ESOS - 2008 Series I and 30,039 equity shares of Rs. 1/- each at a premium of Rs. 28.60 per share under CUB ESOS - 2008 Series II was issued to the employees of the Bank.

The total paid up face value of equity share capital of the Bank after the Rights Issue went up to Rs. 53,89,39,858 and after issue of shares under ESOS to Rs. 54,27,40,263 as on 31st March, 2014.

The Capital Adequacy Ratio as at 31st March 2014 stood at 15.11% as per BASEL - II norms well above the prescribed regulatory norm of 9% and the same worked out to 15.01% as per BASEL - III.

DIVIDEND

The bank has been consistently rewarding the shareholders through regular & higher dividend payments. The diluted earning per share for 2013-14 has risen from Rs. 6.59 to Rs. 6.64. The Profit after Tax for the year 2013-14 was Rs. 347.07 crore as against Rs. 322.02 crore last year. Considering the overall performance and growth of the bank and the necessity of retaining profits for future growth, the Board of Directors has recommended a dividend of 100% i.e. Rs. 1 per equity share of face value Rs. 1, the same as paid during the last year. The dividend is subject to payment of Dividend Distribution tax to be paid by the bank.

BRANCH EXPANSION

Keeping in mind the future business growth and customer acquisition, the Bank has expanded its branch banking network by opening 50 more branches across the country to reach a total of 425 branches at the end of financial year 2013-14. 14 out of 50 branches were opened in Urban & Metro areas which have resulted in achieving a continuous growth in low cost CASA Deposits and higher fee income by cross selling of financial related products. The Bank proposes to open 75 more branches in the current year to take the tally to 500.

FINANCIAL INCLUSION

As informed in our last year''s report your Bank has complied with RBI directive on financial inclusion by covering all the 43 villages having population of over 2000 by introducing ICT (Information, Communication & Technology) based services within the stipulated time.

Your Bank has also covered all the 96 villages having population of over 1000 and below 2000 by introducing ICT based services as on 31st March, 2014.

During the financial year ended 31st March, 2014, Basic Savings Bank Deposits accounts numbering 86224 were opened and 75868 biometric smart cards were issued to the beneficiaries. SB linked overdraft facility, micro insurance products, Electronic Benefit Fund Transfer (EBT) payments have been extended to such account holders.

EMPLOYEES STOCK OPTION SCHEME

Statutory disclosures regarding ESOS under Clause 12 of the SEBI guidelines are provided in Annexure - 1 attached to this report.

HUMAN RESOURCE DEVELOPMENT

Human Resource Development is a key element of your Bank''s overall strategy for ensuring qualitative business growth and profitability. Meritocracy assumes great significance in the era of competition and therefore the Bank is dedicated to empower its employees with knowledge, adequate skill-set and right attitude.

The human resource policy is very flexible and aims to motivate employees through training, rewards and performance linked bonus. Career growth prospects are high as the bank is in high growth path. The Bank provides optimum opportunities to its employees to rise up in their career and shoulder higher responsibilities. "Fast Track Promotion" process has been institutionalized in the bank to meet the aspiration level of its employees, simultaneously catering to the manpower requirements of the Bank by identifying future potential leaders for taking up new challenges and business prospects. Bank is constantly imparting orientation programme for knowledge, soft skill development and on the job training to the new recruits.

The bank has a full fledged training college with experienced faculty and good training infrastructure supported by external specialists to impart and train employees at various levels for maximization of the potentiality of the staff and to sharpen their skills.

As on 31st March 2014, your Bank has 4215 employees, comprising of 54 Executives, 1465 Officers, 2335 clerks and 361 sub-ordinate staff.

AUTOMATION

In today''s Banking scenario Technology plays a vital role in meeting the growing demands of the customers. The bank has upgraded the software from Quartz to Bancs with the help of TCS to offer services on par with the industry standards. To enhance reach of customers and to offer more banking services the Bank has been pursuing a policy of installing more ATM''s with new features ensuring availability of banking services to customers on 24/7 basis. As on 31st March, 2014 the ATM network of bank is 950 of which, 390 are onsite while the balance of 560 is offsite ATM''s. The Bank has provided Xpress desks in 69 branches facilitating customers to do transactions without waiting in queues. Kiosks were just 5 in number last year increased to 29 in the year 2013-14. "Any Counter Any Transaction" implemented in 425 branches received high applause from customers as most of the transactions are done at single point interaction. Point of Sale (POS) Terminals have been installed in several merchant establishments for the benefit of the customers to do shopping with our VISA Debit Card without any hassle. The Bank has installed during the financial year 22 cash deposit machines to accept cash from customers for directly crediting to their own account or to third party account at select branches. Interactive Voice Response System (IVRS) with captive Contact Centre at Abhiramapuram, Chennai has been introduced to promote customer support on multi-languages on 24/7 basis.

BOARD OF DIRECTORS

Shri. S. Balasubramanian, was appointed as Non Executive (Part-time) Chairman of the Bank, with the prior approval of the Reserve Bank of India, for an initial period of three years with effect from 6th May, 2011. Now, he is re-appointed as Non Executive (Part-time) Chairman of the Bank for a further period from 6th May, 2014 to 3rd May, 2016 vide RBI approval letter No. DBOD.18032/08.42.001/2013-14 dated 5th May, 2014. Approval of members is sought for the re-appointment of Shri. S. Balasubramanian, as Non Executive (Part-time) Chairman of the Bank at the ensuing Annual General Meeting as per details provided in the Notice.

Dr. N. Kamakodi, was appointed as the Bank''s Managing Director & CEO for a period of three years from 1st May, 2011 to 30th April, 2014, with the prior approval of Reserve Bank of India. Now, he is re-appointed as the Managing Director & CEO of the Bank for a period of three years commencing 1st May, 2014 and ending on 30th April, 2017. RBI has vide its letter no. DBOD.16916/08.42.001/2013-14 dated 7th April, 2014, accorded its approval for the re-appointment as recommended by the Board of the Bank. Approval of members is sought for the re-appointment of Dr. N. Kamakodi, as Managing Director & CEO of the Bank at the ensuing Annual General Meeting as per details provided in the Notice.

Pursuant to Section 149 and 152 of the Companies Act, 2013, Section 10A and other applicable provisions of the Banking Regulation Act 1949, approval of the shareholders have been sought for the appointment of Shri. R. Mohan as Non Independent Non Executive Director of the Bank, liable to retire by rotation.

Pursuant to Section 149 and 152 of the Companies Act, 2013, Section 10A and other applicable provisions of the Banking Regulation Act 1949, approval of the shareholders have been sought for the appointment of following persons as Independent Non Executive Director(s) of the Bank, not liable to retire by rotation for the number of tenure specified against their respective names.

a. Shri. R. G. Chandramogan - 2 years

b. Shri. T.K.Ramkumar - 3 years

c. Justice (Retd.) S.R.Singharavelu - 4 years

d. Shri. C.R.Muralidharan - 4 years

e. Prof.V.Kamakoti - 5 years

f. Shri. S.Mahalingam - 5 years

Shri. N. Kantha Kumar, is an Independent Non Executive Director of the Bank, who will be completing his eight year term on 29th September, 2014 in terms of Section 10A(2A)(i) of the Banking Regulation Act, 1949.

Shri. S. Bernard has vacated his office as Director of the Bank on 30th June, 2014 on completion of his eight years term in terms of Section 10A(2A)(i) of the Banking Regulation Act, 1949. Further, the Board wishes to place on record its gratitude for the valuable contribution rendered by him during his tenure as Director on the Board.

AUDITORS

M/s. P. Chandrasekar, Chartered Accountants, Bangalore, the present Statutory Central Auditors, will retire at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment. We have received the approval from Reserve Bank of India for their re-appointment. Members are requested to consider their re- appointment on a remuneration to be decided by the Board or Committee thereof for the ensuing Financial Year i.e. 2014-15.

STATUTORY DISCLOSURES

Considering the nature of the activities of the Bank the provision of Sec 217 (1)(e) of the Companies Act, 1956, relating conservation of energy and technology observation do not apply to the Bank. However every effort is made to conserve energy. The Bank is constantly pursuing its goal of technological upgradation in a cost effective manner for delivering quality customer service and offer innovative products.

The bank encourages country''s export promotion by lending to exporters and offers them forex transaction facilities.

As required under the provisions of Sec 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975, as amended your directors report that during the fiscal year 2013-14 none of the employees were in receipt of remuneration requiring disclosure.

It is hereby confirmed that the bank has proper systems in place to ensure compliance of all laws applicable to the Bank.

CORPORATE GOVERNANCE

The Bank is committed to achieving the highest standards of corporate governance. The corporate governance practices followed by the Bank are enclosed as an annexure to this report.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with Sec 217 (2AA) of the Companies Act, 1956, the Board of Directors hereby declares and confirms that:- i) The applicable accounting standards have been followed in the preparation of the annual accounts and proper explanations have been furnished, relating to material departures.

ii) Accounting policies have been selected, and applied consistently and reasonably, and prudent judgments

and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit & Loss of the Bank for the financial year ended 31st March, 2014.

iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies (Amendment) Act, 2000, for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

iv) The annual accounts have been prepared on a going concern basis.

v) The Bank has in place a system to ensure compliance of all laws applicable to the Bank.

ACKNOWLEDGEMENT

The Board of Directors places on record to express their deep and sincere gratitude to RBI, NABARD, NHB, IDBI, SIDBI, EXIM BANK, ECGC, DICGC, SEBI, Stock Exchanges, Depositories, the Share Transfer Agents, Life Insurance Corporation of India, National Insurance Company Limited, Tata Consultancy Services, CCIL, CIBIL, Correspondent Banks, Exchange Houses, other government and regulatory authorities for their continued support, guidance and co-operation.

The Board also acknowledges the profound support and patronage of its shareholders and all its valued clients and customers in supporting the Bank towards achieving a good progress during the year 2013-14 in a challenging environment that prevailed throughout the year.

The Board records the appreciation for all its employees for their total commitment, strong work ethics and their initiatives in the progress of the bank during the year 2013-14.

FOR AND ON BEHALF OF THE BOARD

Place : Bengaluru S. Balasubramanian

Date : 28th June, 2014 Chairman


Mar 31, 2013

The Directors take great pleasure in presenting their report and the audited financial statements of your bank for the year ended March 31, 2013

Performance Highlights in key business areas :

(Rs.in crore) Particulars 2012-2013 2011-2012 Growth

Own Funds 1641 1243 32.02%

Deposits 20305 16341 24.26%

Advances ( Net) 15246 12137 25.62%

Investments (Net) 5267 4586 14.85%

Total Assets / Liabilities 22977 18351 25.21%

Net Interest Income 624 500 24.80%

Operating profit 523 427 22.48%

Net Profit 322 280 15.00%

During the year the bank had crossed a new mile stone of Rs. 20,000 crore in deposits and Rs. 15,000 crore in advances. The pace of growth in the business achieved by the bank in the last few years has been maintained in the year under reporting also.

DEPOSITS

The total deposit increased by Rs. 3,964 crore to cross the 20,000 mark to end up at Rs. 20,305 crore which is higher by 24.26% over the last year. CASA, the low cost component of the deposit increased by 15%. In the year of rising interest rate scenario the bank was able to contain the cost of deposit to a marginally higher level at 8.44% compared to 8.11% in the previous year. Steps are being taken on an ongoing basis to ensure that there is steady growth in deposits with an eye on the cost factor also.

ADVANCES

The gross advances of the bank increased by 25.54% from Rs.12,222 crore to Rs.15,343 crore while the yield on advances fell marginally from 13.56% to 13.49%. The banking industry has been witnessing difficulty in lending as the growth of economy slowed down considerably to touch a record low of 5% in the decade.

Thus when the credit off-take was sluggish in the banking industry your bank has managed to achieve a growth of 25.54%. The gross NPA of the bank increased marginally from 1.01% to 1.13%. The net NPA was at 0.63% as against 0.44% in the previous year. The provision coverage ratio stood at 71% and is above the prescribed level of 70%. The priority sector advances stood at 46.93% as against the regulatory prescription of 40% and the sub- targets set for agriculture & weaker sections have also been met.

The bank has continued its policy of lending to retail segments to achieve a better return with minimum credit risk. The bank has also issued Inter Bank Participation Certificate of Rs. 85 crore to other banks for the first time from out of its surplus in priority sector and agricultural lending.

TREASURY OPERATIONS

Forex Treasury

The rupee which was at Rs. 50.68 against US dollar at the beginning of the year depreciated due to the twin effects of slower growth of the domestic economy and the signs of positive growth of the US economy. The rupee reached a peak of Rs. 57.32 to an all time low but recouped later to reach the level of Rs. 54.30 at the end of the year still being 8% lower than which was at the beginning of the year. The two way movement facilitated active trading and the forex treasury took full advantage of the movements in its proprietary as well as in merchant trading to increase the profit to Rs. 18.37 crore which is 20.70% higher than as compared with last year.

Domestic Treasury

The gross investments increased from Rs. 4,594 crore as reported at the end of last year to Rs. 5,268 crore. Out of these, the investments in Government Bonds alone amounted to Rs. 4,564 crore which were made to maintain the statutory reserve requirements on enlarged resources. The G-Sec yields started declining gradually from December 2012 onwards. The Yield to Maturity (YTM) on the 10 year Government of India bond stood at 7.95% as on 31.03.2013 as against 8.57% a year ago. Stock market indices, Sensex and Nifty gained 8.20% and 7.30% respectively. During the year, the treasury department handled the trading/investment functions efficiently and earned a profit of Rs. 17.05 crore as against Rs. 7.77 crore in the previous year.

Operating results :

The highlights of operating results of your Bank for the current and previous financial year are at a glance as mentioned below:-

(Rs.in crore)

Current Year ended Previous Year ended Particulars 31st March, 2013 31st March, 2012

Total Income 2462 1904

Total Expenses 1939 1477

Operating Profit 523 427

Provisions & Contingencies 201 147

Net Profit 322 280

Net Interest Income 624 500

The total income of the bank increased to Rs. 2,462 crore from Rs. 1,904 crore registering an increase of 29.31%. This increase was achieved on the back of higher advances and investments coupled with increase in other income. The total expenditure also increased by 31.29% due to higher cost of deposit and increase in other operational expenditure resulting from large expansion in the number of branches.

The operating profit increased by a healthy 22.48%. The Net Interest Income recorded an impressive growth of 24.80%. The non-interest income of the bank increased by 32.11% to reach Rs. 274 crore. After provisioning for NPAs and taxation the net profit grew by 15% from Rs. 280 crore to Rs. 322 crore.

APPROPRIATIONS:

The summary of net profit appropriations is as follows:

(Rs.in crore) Current Year ended Previous Year ended Particulars 31st March, 2013 31st March, 2012

Net Profit 322.02 280.25

Balance of Profit brought forward 6.60 5.56

Amount available for appropriations 328.62 285.81

Transfers to

- Statutory Reserve 82.00 71.00

- Capital Reserve 1.90 0.00

- General Reserve 142.00 140.00

- Investment Reserve 0.34 0.73

- Special Reserve under IT Act,1961 40.00 20.00

- Proposed Dividend 0.00 40.82

- Interim Dividend 47.45 0.00

- Corporate Dividend Tax and Surcharge 8.06 6.66

- Balance of profit carried forward 6.87 6.60

Total 328.62 285.81

OWNED FUNDS & CAPITAL ADEQUACY RATIO

Owned funds of the Bank has increased from Rs. 1,243.10 crore as on 31.03.2012 to Rs. 1,640.67 crore as on 31.03.2013 due to Issue of Shares under Rights basis and plough back of profit. The paid up capital of the bank increased to Rs. 47.44 crore from Rs. 40.82 crore as a result of the Rights Issue of 12,89,87,972 Equity Shares ( partly paid ) in the ratio of one share for every four shares held at a face value of Rs. 1 each at a price of Rs. 20 per share (including a premium of Rs. 19 per share) of which Rs. 10 was received as application money during the year and the balance of Rs. 10 is to be received in the next fiscal. During the year, the bank allotted 17,39,237 shares to employees who have exercised their options under the Employee''s Stock Option Scheme, 2008.

The Capital Adequacy Ratio as at 31st March 2013 stood at 13.98 % as per BASEL - II norms well above the prescribed regulatory norm of 9%.

DIVIDEND

The bank continued its policy of rewarding the shareholders with high dividend payments by declaring an interim dividend @ 100% i.e Rs. 1 per equity share with a face value of Rs. 1 per share and Rs. 0.50 paise per partly paid equity share with a face value of Rs. 1 each on which Rs. 0.50 paise is paid up and the same was paid on 06.06.2013. The dividend is subject to payment of dividend tax. No final dividend is recommended by the Board in order to conserve capital for future growth and in view of the higher interim dividend declared and paid.

BRANCH EXPANSION

The bank has opened 75 more branches during the year to reach a total of 375 branches. In the last three years 153 new branches were added. The bank continued its focus on semi urban and rural areas which are the core business contributors to the bank by opening 80% of the new branches in these areas while not losing sight on metro and urban areas where 15 branches were opened. The policy of increased presence through more number of branches has resulted in continuous growth in business.

FINANCIAL INCLUSION

As informed in our last year report, your Bank has complied with RBI directive on financial inclusion by covering all the 42 villages having population of over 2000 by introducing ICT (Information, Communication & Technology) based services within the stipulated time.

Your Bank has also covered 58 villages out of 96 villages allotted having population of over 1000 and below 2000 by introducing ICT based services as on 31/03/2013 and the remaining 38 villages will be covered in the FY 2013-14.

During the financial year ended 31.03.2013, Basic Savings Bank Deposits Accounts numbering 54,197 were opened and 39,748 Biometric Smart Cards were issued to the beneficiaries. SB linked overdraft facility, micro insurance products, Electronic Benefit Fund Transfer (EBT) payments have been extended to such account holders.

EMPLOYEES STOCK OPTION SCHEME

Statutory disclosures regarding ESOS under Clause 12 of the SEBI guidelines are provided in Annexure - 1 attached to this report.

HUMAN RESOURCE DEVELOPMENT

Human resource occupies the centre stage in any organization and more so in a service industry like banking. The bank has been following a well defined accommodative and innovative HR policy. The innovative approach includes performance appraisal on an on going basis, identification of skill gap and imparting the required training and optimize the ability of the staff.

As on 31st March 2013, your Bank has 3785 employees comprising of 54 Executives, 1236 Officers, 2124 Clerks and 371 Subordinate staff.

The bank adopted the unique way of rewarding all the permanent employees on uniform basis by granting rights issue with consent of the share holders to increase the stake of employees in the bank and to make them proudly realize that the ownership rest with them also.

The bank has a regular training college which trains all cadres and the freshers. In addition employees are also deputed to other training colleges, seminars, and workshop conducted by reputed organization to sharpen their skills.

AUTOMATION

Technology plays a key role in banking industry today, Realising the importance of leveraging technology for improving customer service, upgradation is done constantly in tune with the requirements.

To satisfy the basic banking needs of customers on 24/7 basis, more number of ATMs are added with new features, we have with us such ATMs also to offer enhanced more banking services. From mere cash delivery machines the ATMs of the day are giving more value added services like money transfer, payment of bills etc. As on 31/03/2013 there were 788 ATMs compared to 500 ATMs as on 31/03/2012 an increase of 57.60% as compared to previous year.

As a part of the efforts to deliver the most convenient way of banking for its customers, the facilities like opening of fixed deposit for individual customer through net banking, availing loan on these deposit, facility for pre closing of deposit and a host of other facilities have been made available through net banking.

"Any Counter Any transaction" was introduced in 161 branches where all needs of customers" are met at a single point interaction. Xpress desks are provided in 50 branches in which customers can deposit cash, with draw cash and make funds transfer without waiting in queues. Kiosks have been introduced in 5 branches where customers can transfer funds within CUB branches, make RTGS/NEFT payments, obtain mini statements, make requests for cheque book, etc.

BOARD OF DIRECTORS

Shri. S. Mahalingam has been co-opted as additional director at the meeting of the Board of Directors held on 22/07/2013 pursuant to Sec. 260 of the Companies Act, 1956. Your bank has received a notice from a member pursuant to Sec. 257 of the Companies Act, 1956 signifying his intention to propose the candidature of Shri. S. Mahalingam as Director.

Shri. K. S. Raman retired from the Directorship of the Bank on 07/12/2012. The Board wishes to place on record its deep sense of appreciation for his invaluable contribution to the growth and development of the Bank during his association with the Bank.

Prof. V Kamakoti, Shri. S R Singharavelu & Shri. C R Muralidharan are the directors retiring by rotation at the ensuing Annual General Meeting and are eligible and offer themselves for re-appointment.

AUDITORS

In accordance with the policy of rotation and resting the present Statutory Central Auditor ( SCA ) M/s Jagannathan & Sarabeswaran, Chartered Accountants, Chennai, retires at the conclusion of this Annual General Meeting. It is proposed to appoint a new Statutory Central Auditor (SCA) fully complying with the eligibility norms issued by the Reserve Bank of India.

In this regard, your Bank has received a special notice from the members under Sec 225 of the Companies Act, 1956 to appoint M/s. P Chandrasekaran, Chartered Accountants, Bangalore as the Statutory Central Auditor of the Bank at the ensuing Annual General Meeting in place of the above retiring auditor.

STATUTORY DISCLOSURES

Considering the nature of the activities of the Bank, the provision of Sec 217 (1) (e) of the Companies Act 1956 relating to conservation of energy and technology observation do not apply to the Bank. However, every effort is made to conserve energy. The Bank is constantly pursuing its goal of technological upgradation in a cost effective manner for delivering quality customer service and offer innovative products.

The Bank supports and encourages the Country''s export efforts through its export financing operations.

As required under the provisions of Sec. 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975, as amended, your Directors report that during the fiscal 2012-13, none of the employees were in receipt of remuneration requiring disclosure.

It is hereby confirmed that the bank has proper systems in place to ensure compliance of all laws applicable to the Bank.

CORPORATE GOVERNANCE

The Bank is committed to achieving the highest standards of corporate governance. The corporate governance practices followed by the Bank are enclosed as an annexure to this report.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with Sec 217 ( 2AA) of the Companies Act, 1956, the Board of Directors hereby declares and confirms that :- i) The applicable accounting standards have been followed in the preparation of the annual accounts and proper explanations have been furnished, relating to material departures.

ii) Accounting policies have been selected, and applied them consistently and reasonably, and prudent judgements and reasonable estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit & Loss of the Bank for the financial year ended 31st March 2013.

iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies (Amendment) Act, 2000 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

iv) The annual accounts have been prepared on a going concern basis.

v) The Bank has in place a system to ensure compliance of all laws applicable to the Bank.

ACKNOWLEDGEMENT

The Board of Directors take this opportunity to express their deep and sincere gratitude to RBI, NABARD, NHB, IDBI, SIDBI, EXIM BANK, ECGC, DICGC, SEBI, Stock Exchanges, Depositories, the Share Transfer Agents, Life Insurance Corporation of India, National Insurance Company Limited, Tata Consultancy Services, CCIL, CIBIL, Correspondent Banks, Exchange Houses, other government and regulatory authorities for their continued support, guidance and co-operation.

The Board records its deep sense of appreciation to the shareholders and all the customers in supporting the Bank in its endeavour to achieve a good progress during the year 2012-13 in a challenging environment that prevailed in the year.

The Board appreciates all its employees for their stellar performance with full commitment, strong work ethics, and professionalism, which have been making the Bank progress year after year and to reward the shareholders, stakeholders and the employees also.

FOR AND ON BEHALF OF THE BOARD

Place : Chennai S. Balasubramanian

Date : 22.07.2013 Chairman


Mar 31, 2012

The Directors take great pleasure in presenting their report and the audited financial statements for the year ended March 31, 2012

Financial Results : 2011-12

(Rs. in crore)

Particulars 2011-2012 2010-2011 Growth

Deposits 16341 12914 26.53%

Advances (Net) 12137 9255 31.14%

Investments (Net) 4586 3616 26.83%

Total Assets / Liabilities 18351 14592 25.76%

Net Interest Income 500 420 19.05%

Operating profit 427 361 18.28%

Net Profit 280 215 30.23%

It is gratifying to report that the Bank's high growth pattern was sustained in succession for the year ended 2011- 2012 also. The net profit increased to Rs. 280 crore from Rs. 215 crore in the previous year registering a growth of 30.23% during the financial year 2011-12.

DEPOSITS

The total deposits of the Bank increased by Rs. 3,427 crore to reach Rs. 16,341 crore as on 31-03-2012 which is 27% higher than the previous year. The low cost Current Accounts & Savings Bank (CASA) deposits increased by 18% to Rs. 2,972 crore on account of sustained efforts and measures initiated by the bank. The year witnessed an increasing interest rate scenario in which our cost of deposits too rose higher to 8.11% when compared to 6.94% prevailed in the previous year.

ADVANCES

The advances portfolio of the Bank increased by 31% from Rs. 9,329 crore to Rs. 12,222 crore. Corresponding with the increase in the cost of deposits, the Bank could enhance the yield on advances by 1.09% to 13.56% from 12.47%.

The prime focus of the bank remained towards growth in advances without compromising on the quality. The strict monitoring of advances portfolio coupled towards with early identification of potential slippages and aggressive recovery of bad loans helped the bank achieve a remarkable improvement in its quality of advances portfolio by bringing down the Gross NPA by 20 basis points to 1.01% from 1.21%. The percentage of Net NPA at 0.44% and the provision coverage ratio of 76.81% at the end of March, 2012 may be regarded as very good performance by the bank.

The Bank's priority sector advances stood at 47% and its agricultural finance reached 17% of the adjusted net bank credit.

TREASURY OPERATIONS Domestic Treasury

The gross investments increased from Rs. 3,625 crore at the end of last year to Rs. 4,594 crore. Out of these, the investments in Government Bonds alone amounted to Rs. 3,853 crore to maintain statutory reserve requirements on enlarged resources. The bond market was bearish during most part of the year with steady rise in market interest rates offering limited opportunities to trade and earn profits. The Yield to Maturity (YTM) on the 10 year Government of India bond stood higher at 8.57% as on 31.03.2012 as against 7.98% as on 31.03.2011. The equity market also reflected similar sentiments. Despite such difficult trading conditions, the treasury desk handled the trading functions efficiently and earned a profit of Rs. 7.77 crore, which is 17.55% higher over the previous year.

Forex Treasury

During the year there were two way movements of appreciation and depreciation for the rupee against major currencies. The rupee opened at 44.53 against US dollar to touch a high/low of 43.85/54.30 during the year and closed at 50.87 to a US dollar on. The currency market was volatile for most part of the year. The forex treasury made full use of the two way movements and market volatility in its proprietary trading deals and the profit from forex treasury operations touched Rs.15.22 crore registering a steep growth of 44% compared to the previous year.

FINANCIAL RESULTS

A snap shot of the working results for the current year and previous year is appended below :-

(Rs. in crore)

For the Current For the Previous Year ended Year ended Particulars 31st March, 2012 31st March, 2011

Total Income 1904 1376

Total Expenses 1477 1015

Operating Profit 427 361

Provisions & Contingencies 147 146

Net Profit 280 215

The higher yield on advances coupled with a growth in advances and investments has resulted in bank's total income rising by 38% to Rs. 1,904 crore. Similarly the total expenses increased to Rs. 1,477 crore on higher deposit interest and other operating expenses.

The expansion in the balance sheet size and improved efficiency of core banking operations culminated in the Net Interest Income (NII) attaining a mile stone of Rs. 500 crore, a significant mile stone for the Bank translating into a growth of 19% over the previous year.

The non interest income of the Bank increased by 32% from Rs. 157 crore to Rs. 207 crore. The Bank continues to maintain its top position in the Southern Zone in its banc assurance partnership with the Life Insurance Corporation of India.

The Bank achieved an operating profit of Rs. 427 crore against Rs. 361 crore recorded in the previous year recording a growth of 18%. The net profit too increased by 30% from Rs. 215 crore to Rs. 280 crore. The return on average assets for the year was also higher at 1.71% when compared to 1.67% last year reflecting better utilization of assets.

APPROPRIATIONS:

The summary of net profit appropriations is as follows:

(Rs. in crore)

For the Current For the Previous Particulars Year ended Year ended 31st March, 2012 31st March, 2011

Net Profit 280.25 215.05

Balance of Profit brought forward 5.56 5.56

Amount available for appropriations 285.81 220.61

Transfers to

- Statutory Reserve 71.00 56.00

- Capital Reserve 0.00 0.00

- General Reserve 140.00 98.40

- Investment Reserve 0.73 0.00

- Special Reserve under IT Act,1961 20.00 20.50

- Proposed Dividend 40.82 34.43

- Corporate Dividend Tax and Surcharge 6.66 5.72

- Balance of profit carried forward 6.60 5.56

Total 285.81 220.61

NETWORTH & CRAR

The Bank's paid-up capital was Rs. 40.82 crore as on 31st March, 2012 and the Net worth improved from Rs. 1,006.62 crore as on 31st March, 2011 to Rs. 1,243.09 crore as on 31st March, 2012. During the year the bank allotted 31,81,646 shares to employees who have exercised their options under the Employees' Stock Option Scheme, 2008. The Capital Adequacy Ratio as at 31st March, 2012 stood at 12.57% as per BASEL-II norms well above the regulatory norm of 9%.

DIVIDEND

The Bank has been pursuing a constant philosophy of rewarding shareholders through regular and higher dividend payments. The diluted earning per share (EPS) for 2011-2012 has risen to Rs. 6.82 from Rs. 5.30 last year. In view of the overall good performance of the Bank and with the objective of rewarding shareholders with higher cash dividends while retaining profits to maintain a healthy Capital Adequacy Ratio to support future growth, the Board of Directors has recommended a higher dividend of 100% i.e. Rs. 1.00 per equity share compared to Rs. 0.85 per equity share paid last year. This dividend shall be subject to tax on dividend to be paid by the Bank.

BRANCH EXPANSION

As one of the key planks for business growth and customer acquisition, the bank continued to enlarge its distribution network. Widening geographical reach is critical for extending service delivery and for tapping growth opportunities in newer markets, especially in the areas of low cost CASA deposits, lending to borrowers in the retail segment, agriculture and cross selling of financial related products. This year the Bank has added 54 branches to its network by opening new branches at various centers and the distribution network now covers 300 branches as on 31st March 2012. Of these 149 branches are in semi-urban and rural areas and 151 branches are in Metropolitian and Urban areas covering a total of 15 states in India.

FINANCIAL INCLUSION PROGRAMME

Your Bank has complied with RBI direction of financial inclusion of covering all the 42 villages having population of over 2000 by introducing ICT (Information, Communication & Technology) based services within the stipulated time frame.

Your Bank has also covered 26 villages having population over 1000 and below 2000 by introducing ICT based services during the financial year 2011-12.

During the financial year ended 31.03.2012, 19189 "no frills" accounts were opened and 8120 biometric smart cards were issued to the beneficiaries. SB linked overdraft facility has also been permitted to all such account holders.

EMPLOYEES STOCK OPTION SCHEME

Statutory disclosures regarding ESOS under Clause 12 of the SEBI guidelines are provided in Annexure - I attached to this Report.

HUMAN RESOURCE DEVELOPMENT

The bank aims to create and develop human capital to realize its vision of nurturing a mutually beneficial relationship with its employees. The bank's human resources policy is very flexible and aims to motivate the employees through training, rewards and performance linked bonus. As the bank is in the high growth path the opportunities for career growth prospects are very bright. HR objective during the year occupied centre stage by employee engagement and learning, effective leadership development, productivity enhancement and building communication platforms.

A strong work force with a pool of best talent is a dream of any organization. It is a challenging task for any organization to attain the dream and more so for the service industry like banking. Your bank is constantly upgrading and revisiting its human resources policy. Your bank has embarked on a massive pan India campus recruitment to suit its needs. The induction of freshers into system throws up challenges. The new recruits are given orientation programme for knowledge and soft skill development, followed by on job training to further their domain knowledge.

The bank has a full fledged training college with a good training infrastructure and experienced faculty supported by external specialists to impart and train employees at various levels. Employees are also deputed to external training centres for up-dating and up-grading their knowledge skills

As on 31st March, 2012, your Bank has 3347 employees comprising of 47 executives, 1006 officers, 1906 clerks and 388 sub-ordinate staff.

AUTOMATION

Technology is used to create better delivery systems for the old products and introduce new products to meet the demands of the customers. The bank has been consistently upgrading its technological platforms to offer services on par with the industry standards. To enhance reach of customers and to ensure availability of banking services to customers at all times, the bank has been aggressively pursuing a policy of installing more ATMs. As on 31.03.2012 the ATM network of bank is 500 of which, 234 are onsite while the balance of 266 are offsite ATMs. The bank has been offering a host of technology aided services like internet banking, mobile banking including on line funds transfer and fixed deposit operations.

BOARD OF DIRECTORS

Shri. P. Vaidyananthan demitted his office of Non Executive Chairman of the Bank on 26th April 2011 and also tendered his resignation from the directorship of the Bank. Shri. S. Balasubramanian took over as the Non- Executive Chairman of the Bank on 6th May 2011. Shri. S. Balasubramanian demitted office of MD & CEO on 30th April 2011 consequent to the expiry of his term of office. Dr. N. Kamakodi took over as MD & CEO on 1st May 2011. Prof. V. Kamakoti has been appointed as Director of the Bank on 27th April 2011. It may be noted that the above terms of appointment were already approved by the share holders in the AGM held on 27th August 2011.

Shri N. Sankaran has resigned as Director of the Bank on 26th April 2011.

The Board wishes to place on record its deep sense of appreciation for their invaluable and immeasurable contribution to the growth and development of the Bank during their association with the Bank.

Shri. T K Ramkumar, Shri. S Bernard and Shri. N Kantha Kumar are the directors retiring by rotation at the ensuing Annual General Meeting are eligible and offer themselves for re-appointment.

AUDITORS

M/s. Jagannathan & Sarabeswaran, Chartered Accountants, Chennai, the present Statutory Central Auditors, retire at the conclusion of this Annual General Meeting and they, being eligible, offer themselves for re- appointment. The Bank has received a certificate from the Statutory Central Auditors to the effect that the re- appointment, if made, will be in accordance with the limits prescribed under Section 224 (1B) of the Companies Act, 1956. The Board of Directors places on record their appreciation of the professional services rendered by M/s. Jagannathan & Sarabeswaran as the Statutory Central Auditors of the Bank.

CONSERVATION OF ENERGY, ABSORPTION OF TECHNOLOGY, FOREIGN EXCHANGE EARNINGS AND OUTGO

Considering the nature of the activities of the Bank the provision of Sec. 217 (1)(e) of the Companies Act 1956 relating to conservation of energy and technology observation do not apply to the Bank. However every effort is made to conserve energy. The Bank is constantly pursuing its goal of technological up gradation in a cost effective manner for delivering quality customer service and offer innovative products.

CORPORATE GOVERNANCE

The Bank is committed to achieving the highest standards of corporate governance. The corporate governance practices followed by the Bank are enclosed as an annexure to this report.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with Sec. 217(2AA) of the Companies Act, 1956, the Board of Directors hereby declares and confirms that :-

(i) The applicable accounting standards have been followed in the preparation of the annual accounts and proper explanations have been furnished, relating to material departures.

(ii) Accounting policies have been selected, and applied consistently and reasonably, and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit and Loss of the Bank for the financial year ended 31st March 2012.

(iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies (Amendment) Act, 2000 for safeguarding the assets of the bank and for preventing and detecting fraud and other irregularities.

(iv) The annual accounts have been prepared on a going concern basis.

(v) The Bank has in place a system to ensure compliance of all laws applicable to the Bank.

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation and gratitude to RBI, NABARD, SIDBI, ECGC, DICGC, SEBI, Stock Exchanges, Depositories, the Share Transfer Agents, Life Insurance Corporation of India, National Insurance Company Limited, Tata Consultancy Services, CCIL, CIBIL, Correspondent Banks, Exchange Houses, other Government and Regulatory Authorities for their continued support, guidance and co-operation.

The Board recognizes the support of the shareholders and sincerely thanks all its valued clients and customers for their continued support. The Board greatly appreciates all its employees for their strong work ethic, excellent performance, professionalism, team work, commitment and initiative which has enabled the Bank to achieve commendable progress during 2011-12 amidst stiff competition and challenges in the banking environment.

FOR AND ON BEHALF OF THE BOARD

Place : Chennai S. Balasubramanian

Date : 22.06.2012 Chairman


Mar 31, 2011

Dear Members,

The Directors take immense pleasure in presenting their report on the financial results of the Bank along with the Audited Balance Sheet as on 31st March, 2011 and Profit and Loss account for the year ended 31st March, 2011.

PERFORMANCE HIGHLIGHTS

The performance of the Bank in key financial areas during the year under review in comparison with those of the last year is as under:

(Rs. in Crore)

Particulars 2010-11 2009-10

Deposits 12914 10285

Advances 9255 6833

Investments 3616 3210

Net Interest Income 420 278

Operating Profit 361 256

Net Profit 215 153

You would be happy to observe that the performance on all areas has improved during the year and that the Bank has crossed yet another milestone of Rs.22000 crores of total business during the Financial Year 2010-11 as compared to Rs.17000 crores for the last year. The growth rate is healthy at 30%, as reflected by the enlarged Balance Sheet size of Rs.14592 crores.

DEPOSITS

The total deposits of the Bank stood impressively at Rs.12914 crores as on 31-03-2011 having grown by Rs.2629 crores or 26% over the last year. A welcome feature of the growth is the concurrent increase of the low cost deposits comprising Current Account & Savings Account (CASA) by 12% to Rs.2528 crores. The cost of total deposits was also contained at 6.94% during the year when compared to 7.73% that prevailed in the last year. Considering the beneficial saving in costs and other cross selling revenues arising from CASA, the Bank has initiated a series of measures to reach a significant share of CASA in total deposits in the next year.

ADVANCES

The robust GDP growth and the sustained drive of the Bank to tap business opportunities resulted in an impressive growth of 35% over the last year and the aggregate outstanding Gross Advance stood at Rs.9329 crores as on 31.03.2011. Despite the pressures of a stiff and competitive market as well as a lower interest rates scenario- particularly during the first half of the last year, the Bank could maintain the yield on advances at 12.47% though at a slightly lower level than the rate of 13.04% in the year before.

The quality of loan portfolio was always accorded prime focus, despite the fast growth witnessed in credit expansion. This coupled with the vigorous efforts to monitor the recovery of bad loans, yielded favourable results and the Bank maintained a healthy credit portfolio with a lower level of bad loans. As a result of relentless steps taken in recovery, the level of Gross Non-Performing Assets has been brought down to 1.21% from 1.36% of the Gross advances and the Net Non-Performing Assets got reduced to 0.52% from 0.58% to the Net advances. The Bank has also achieved a Provision Coverage Ratio of 76.69% well above the regulatory prescription of minimum 70%.

The Bank could comfortably cross the priority sector loan target of 40% by achieving 49%. Lending to agriculture sector constituted 17% of its adjusted net credit.

INVESTMENTS/TREASURY OPERATIONS

During the year under review, the gross investments increased from Rs.3218 crores to Rs.3625 crores. The investment in Government Bonds moved higher from Rs.2577.49 crores to Rs.2892.27 crores to maintain statutory reserve requirements on enlarged resources. While the yield on Govt. Bonds softened in the first half of the year, it moved up subsequently mainly driven by excess supply resulting from enhanced borrowings of the Government on one hand and on the other by the tight liquidity conditions witnessed in the second half of the year. The bearish market conditions were not conducive to earn higher trading profits either from fixed income securities or equity shares.

FOREX OPERATIONS

In comparison with the steep fall against US dollar witnessed last year, the Rupee staged some recovery in the year and the bank could convert the narrow currency movements both in spot and forwards into reasonable profits. For the year ended 31st March, 2011, your Bank's turnover in Foreign Exchange Business stood at Rs.2413.85 Cr.

FINANCIAL RESULTS

Your Directors are pleased to give hereunder the highlights of the working results for the year ended 31st March 2011 vis-a-vis those of 2009-10.

(Rs. in crore)

For the Current For the Previous

Year ended Year ended

Particulars 31st March, 2011 31st March, 2010

Total Income 1375.81 1100.11

Total Expenses 1014.78 844.32

Operating Profit before Provisions & Contingencies 361.03 255.79

Provisions & Contingencies 145.98 103.03

Net Profit 215.05 152.76

Despite a fall of 57 basis points in the yield on advances,the bank's total income was higher by 25% at Rs.1375.81 crores thanks to a good quantum of growth in business. The escalating cost emanating from rise in wages and other operating expenses led to a 20% increase in total expenditure which to some extent was mitigated by 79 basis points reduction in the interest cost on deposits.

The Net Interest Income being the contribution arising directly from efficiency of core banking operations recorded a smart growth of 51% over the last year to reach Rs.420.03 crores. The cost to income ratio of the Bank lowered to 37% from 39% last year on the back of higher net interest income.

The fee based income of the Bank increased by 44% from Rs 69.04 crores to Rs.99.22 crores. The Bank continues to maintain its top position in the Southern Zone in its bancassurance partnership with the Life Insurance Corporation of India.

The Bank achieved an operating profit of Rs.361.03 crores against Rs.255.79 crores recorded in the previous year translating into a rise of 41%. The net profit too increased by 41% from Rs.152.76 crores to Rs 215.05 crores. The return on average assets for the year was also higher at 1.67% when compared to 1.52% last year reflecting better utilization of assets.

APPROPRIATIONS:

The summary of net profit appropriations is as follows:

(Rs. in crore)

For the Current For the Previous

Particulars Year ended Year ended

31st March, 2011 31st March, 2010

Net Profit 215.05 152.76

Balance of Profit brought forward 5.56 5.01

Amount available for appropriations 220.61 157.77

Transfers to

- Statutory Reserve 56.00 39.00

- Capital Reserve 0.00 5.73

- General Reserve 98.40 67.00

- Special Reserve under IT Act,1961 20.50 5.50

- Proposed Dividend 34.43 30.00

- Corporate Dividend Tax and Surcharge 5.72 4.98

- Balance of profit carried forward 5.56 5.56

Total 220.61 157.77

NETWORTH & CRAR

The Bank's paid-up Capital was Rs.40.50 Cr as on 31st March, 2011 and the Net worth improved from Rs.825.64 Cr as on 31.03.2010 to cross a significant milestone and reach Rs.1006.62 Cr as on 31.03.2011. The Capital Adequacy Ratio as at 31st March, 2011 stood at 12.75% as per BASEL-II norms well above the regulatory norms of 9%.

DIVIDEND

The Bank has been pursuing a constant philosophy of rewarding shareholders through rich dividend payments. At the same time it becomes absolutely imperative to retain a reasonable portion of profit in order to have a comfortable Capital Adequacy Ratio when higher volume of business is expected in the current growth phase of the Bank. Striking a proper balance between these two factors, your Directors have immense pleasure to recommend a dividend of 85% on the equity shares for the financial year 2010-2011 as against 75% paid out last year.

BRANCH EXPANSION

During the year under review, your Bank has expanded its network by opening new branches at the various centres, thus taking our network to 246 branches as on 31.03.2011. During the current year 24 branches have been opened so far and 38 more new branches are proposed to be opened before the end of 2011.

FINANCIAL INCLUSION PROGRAMME

Financial inclusion programme is a Government of India's Mission to provide banking services in the un-banked regions of the country. Towards this mission, RBI directed banks to provide banking services to 73000 villages having more than 2000 population by March 2012 and simultaneously to cover villages having 1000 plus population.

As for 42 villages allotted to our bank in Tamil Nadu, we have completed coverage of 22 villages by March 2011 in the first phase and efforts are on to cover the remaining villages by December 2011 well before the deadline of March 2012. The Scheme has been successfully implemented in our Bank with technology support from Tata Consultancy Services and the NGOs, who act as BCs.

EMPLOYEES STOCK OPTION SCHEME

The Shareholders of the Bank had approved the Employees Stock Option Scheme at the Extraordinary General Meeting held on 26.04.2008 to grant upto 5,00,00,000 stock options to the eligible employees both present and future. Of this, 2,02,50,000 options were granted to 1275 eligible employees at an exercise price of Rs.13 per share on 06.12.2008. Out of the above, 50,31,003 shares were exercised by the employees during this year.

Further during the FY 2010-11, the bank had granted 3,46,000 options at Rs.32/- per option on 26.05.2010 and 28,00,000 options at Rs.47/- per option on 05.10.2010.

Statutory disclosures regarding ESOS under Clause 12 of the SEBI guidelines are provided in Annexure - I attached to this Report.

HUMAN RESOURCE DEVELOPMENT

The human resource agenda of the Bank aims at employees empowerment and orienting them towards the realization of the Bank's vision. During the year, some of the key HR issues that were in focus related to learning & skill development, management of performance, ensuring a good working environment in the organization. The employee engagement initiatives focused on providing opportunities to staff to meet their aspirations through internal job postings and periodic job rotations. The more competitive compensation structure would help in streamlining the performance linked rewards and incentives thus sending a clear message of meritocracy.

Creation of a work force with a pool of best talent is a challenging task and more so maintaining the standard over a period of time. In tune with the future expansion, your bank is constantly upgrading and revisiting its manpower planning policy. In this endeavor we have recruited personnel taking into account the new business needs. The new recruits were given orientation programme which not only aimed at imparting knowledge to them but ensured their harmonious integration into the organization.

The bank has also built a good training infrastructure which seeks to upgrade the operational efficiency (functional/behavioral skill levels) across all grades through a combination of both in house and external programmes.

As on 31st March, 2011, your Bank has 2836 employees comprising of 38 executives, 847 officers, 1544 clerks and 407 sub-ordinate staff.

AUTOMATION

As one of the key plans for business growth and customer acquisition, the bank continued to enlarge its distribution network. Widening geographical reach is critical for extending service delivery and for tapping growth opportunities in newer markets, especially in the areas of low cost CASA deposits, lending to borrowers in the retail segment, agriculture and cross selling of financial related products. The distribution network now covers 246 branches as on 31st March 2011. Of these 119 branches are in semi-urban and rural areas and 127 branches are in Metropolitan and Urban areas covering a total of 13 states in India. To enhance reach of customers and to ensure availability of banking services to customers at all times, the bank has been aggressively pursuing a policy of installing more off-site ATMs. As on 31.03.2011, the ATM network of bank is 231 of which, 183 are Onsite while the balance of 47 are Offsite ATMs. The Bank is determined to install more number of ATMs during the current financial year for operational convenience of the customer and to ensure availability of alternative channels for delivery of products.

BOARD OF DIRECTORS

Shri. S. Balasubramanian has demitted his office of Managing Director & CEO of the Bank on 30.04.2011. Reserve Bank of India, on the recommendation of the Board of Directors conveyed its approval for the appointment of Shri. S. Balasubramanian as the Non Executive Part-time Chairman of the Bank for a period of three years effective from the date of assuming his office . He has assumed office of Non Executive Part-time Chairman of the Bank on 06.05.2011.

Further Reserve Bank of India, on the recommendation of the Board of Directors conveyed its approval for the appointment of Dr. N. Kamakodi as Managing Director and Chief Executive Officer of the Bank for a period of three years effective from 01.05.2011. He has assumed office of Managing Director and Chief Executive Officer of the Bank on 01.05.2011.

Prof. V. Kamakoti has been co-opted as additional director at the meeting of the Board of Directors held on 27.04.2011 pursuant to section 260 of the Companies Act, 1956. Your Bank has received notice from a member pursuant to section 257 of the Companies Act, 1956 signifying his intention to propose the candidature of Prof. V. Kamakoti as Director.

Shri. P. Vaidyananthan demitted his office of Non Executive Chairman of the Bank on 26.04.2011 and also tendered his resignation from the directorship of the Bank.

Shri. V. Jayaraman & Shri. M. Naganathan and Shri. N. Sankaran has tendered their resignation from the directorship of the Bank on 03.09.2010 and 26.04.2011 respectively on attaining the age ceiling in terms of Ganguly Committee recommendation.

The Board wishes to place on record its deep sense of appreciation for their invaluable and immeasurable contribution to the growth and development of the Bank during their association with the Bank.

Justice S.R. Singaravelu, Shri. C.R. Muralidharan and Shri. R.G. Chandramogan, directors retiring by rotation at the ensuing Annual General Meeting are eligible and offer themselves for re-appointment.

AUDITORS

M/s. Jagannathan & Sarabeswaran, Chartered Accountants, Chennai, the present Statutory Central Auditors, retire at the conclusion of this Annual General Meeting and they, being eligible, offer themselves for re- appointment. The Bank has received a certificate from the Statutory Central Auditors to the effect that the re- appointment, if made, will be in accordance with the limits prescribed under Section 224 (1B) of the Companies Act, 1956. The Board of Directors place on record their appreciation of the professional services rendered by M/s. Jagannathan & Sarabeswaran as the Statutory Auditors of the Bank.

CONSERVATION OF ENERGY, ABSORPTION OF TECHNOLOGY, FOREIGN EXCHANGE EARNINGS AND OUTGO

All efforts are being made to reduce energy consumption to the maximum extent possible.

Being a Banking Company, the required technology is deployed keeping in view the nature of activities.

Your Bank, being a Banking company and an Authorised Dealer in foreign exchange, has been taking all steps to improve forex earnings by active consideration of need based credit limits of exporters and extending all facilities and services to NRIs and remitters of foreign exchange to our country. The bank has operationalised number of arrangements for remittances from abroad with Exchange Houses and Banks.

CORPORATE GOVERNANCE

The Bank is committed to achieving the highest standards of corporate governance. The corporate governance practices followed by the Bank are enclosed as an annexure to this report.

DIRECTORS' RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956, the Board of Directors hereby declares and confirms that :- (i) The applicable accounting standards have been followed in the preparation of the annual accounts and proper explanations have been furnished, relating to material departures.

(ii) Accounting policies have been selected, and applied consistently and reasonably, and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit and Loss of the Bank for the financial year ended 31st March 2011.

(iii) Proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies (Amendment) Act, 2000, for safeguarding the assets of the bank and for preventing and detecting fraud and other irregularities.

(iv) The annual accounts have been prepared on a going concern basis.

(v) The Bank has in place a system to ensure compliance of all laws applicable to the Bank.

ACKNOWLEDGEMENT

The Board of Directors places on record its sincere appreciation and gratitude to RBI, NABARD, NHB, IDBI, SIDBI, EXIMBANK, ECGC, DICGC, SEBI, Stock Exchanges, Depositories, the Share Transfer Agents, Life Insurance Corporation of India, National Insurance Company Limited, Tata Consultancy Services, CCIL, CIBIL, Correspondent Banks, Exchange Houses, other government and regulatory authorities for their strong and continued support, guidance and co-operation.

The Board acknowledges the support of the shareholders and also places on record its sincere thanks to its valued clients and customers for their continued patronage. The Board also expresses its deep sense of appreciation to all employees of the Bank for their strong work ethic, excellent performance, professionalism, team work, commitment, and initiative which has enabled to make the Bank commendable progress during 2010-11 amidst stiff competition and challenges in the banking environment.

FOR AND ON BEHALF OF THE BOARD

Place : Chennai S . Balasubramanian

Date : 24.06.2011 Chairman


Mar 31, 2010

The Directors have great pleasure in presenting their report on the financial results of the Bank along with audited Balance Sheet as on 31st March, 2010 and Profit & Loss Account for the year ended 31st March, 2010.

ECONOMY AND BANKING SCENARIO

The Indian economy exhibited clear momentum in recovery, and despite the impact of a deficient monsoon on agricultural production, the GDP growth for the year 2009-2010 has been estimated at 7.2%, up from 6.7% recorded in the previous year on the back of double digit expansion in the manufacturing sector and not so dismal show by the farm sector. The monetary and fiscal stimulus measures initiated in the wake of the global financial crisis played an important role, first in mitigating the adverse impact from contagion and then in ensuring that the economy recovered quickly.

The service sector, exhibited significant recovery in the second quarter of 2009-10, with growth in the output of the sub-groups viz., construction and trade, hotel, transport & communication, accelerating while growth in community, social & personal services slowed down and the growth in this sector would be 8.5%.

Aggregate Deposits of banks as on March 31, 2010 showed a year-on-year growth of 17%, compared to 19.90% in the previous year. Deposits of the banking system slowed down mainly due to the gradual decline in interest rates on time deposits in lagged response to the lower policy rates. With the increasing demand for credit from the banking system, deposit mobilisation gained strength, and deposit rates also moved up towards the end of the year. Even after the absorption of Rs.36,000 crore through the 75 basis points hike in CRR effected in February, 2010, liquidity conditions have remained comfortable, as evident from the reverse repo operations under the Liquidity Adjustment Facility (LAF).

PERFORMANCE OF YOUR BANK

The Performance Highlights for the financial year in the key financial areas are as under :

(Rs. in crore) Particulars 2009-10 2008-09

Deposits 10285 8207

Advances 6833 5645

Investments 3210 2397

Your Bank crossed yet another milestone of Rs.17,000 cr in total business during the Financial Year 2009-10 with all-round growth in various parameters above the industry benchmarks.

The Bank achieved an operating profit of Rs.255.79 cr against Rs.226.72 cr recorded in the previous year. The net profit increased by 25.08% from Rs.122.13 cr to Rs.152.76 cr. The Net Interest Income rose from Rs.242.57 cr to Rs. 278.14 cr registering a growth of 15%. The return on average assets worked out at 1.52% when compared to 1.50% last year.

DEPOSITS

During the year, the deposits increased to Rs.10285 cr as on 31-03-2010 from Rs.8207 cr as on 31-03-2009 growing at the rate of 25.32%. The cost of deposits decreased from 7.98% to 7.73%.

ADVANCES

The advances increased from Rs.5645 cr as on 31-03-2009 to Rs.6833 cr as on 31-03-2010 registering a growth rate of 21.05%. The yield on advances decreased from 13.46% to 13.04%. The priority sector advances aggregated to 44.26% of the banks adjusted net credit.

NON-PERFORMING ASSETS

Your bank devotes highest attention to reduce non-performing assets and as a result of relentless efforts on recovery, the level of Gross Non-Performing Assets has been brought down to 1.36% from 1.80% and the Net Non- Performing Assets have been steeply reduced to 0.58% from 1.08%. The bank is taking continuous efforts to reduce the level of non-performing assets.

INVESTMENTS/TREASURY OPERATIONS

During the year under review gross investments increased from Rs.2405 cr to Rs.3218 cr to maintain statutory reserve requirements on enlarged resources. The total yield on investments worked out to 7.84%. While the yield on Govt. Bonds softened in the first half of the year, it moved up subsequently mainly driven by excess supply resulting from enhanced borrowings of the Government despite abundant liquidity available in the system. The Rupee staged some recovery in the year when compared to the steep fall against US dollar witnessed last year and the bank could convert the narrow currency movements both in spot and forward into reasonable profits.

FINANCIAL RESULTS

Your Directors are pleased to give hereunder the highlight of the working results for the year ended 31st March 2010.

(Rs. in crore) For the Year ended For the Year ended Particulars 31st March, 2010 31st March, 2009

Gross Income 1100.11 928.08

Total Expenses 844.32 701.36

Profit before Provisions & Contingencies 255.79 226.72

Provisions & Contingencies 103.03 104.59

Net Profit 152.76 122.13

APPROPRIATIONS:

The summary of net profit appropriations is given hereunder: (Rs. in crore) For the Year ended For the Year ended Particulars 31st March, 2010 31st March, 2009 Net Profit 152.76 122.13 Balance b/f from previous year 5.01 4.88 Total 157.77 127.01 Appropriations - Transfer to - Statutory Reserve 39.00 31.25 - Capital Reserve 5.74 21.36 - General Reserve 67.00 37.00 - Investment Reserve Account 0.00 1.31 - Special Reserve Account under IT Act 5.50 3.00 - Proposed Dividend Account 30.00 24.00 - Dividend distribution tax including surcharge 4.98 4.08 - Balance carried forward 5.55 5.01 Total 157.77 127.01

NETWORTH & CRAR

The Banks paid-up capital was Rs.39.96 cr as on 31st March, 2010 and the net worth improved from Rs.660.92 cr as on 31-03-2009 to Rs.825.64 cr as on 31-03-2010. The bank successfully completed its Rights Issue of 8,00,00,000 equity shares during the year offering one equity share for every four held at an issue price of Rs.6/- per share including the premium. The Capital Adequacy Ratio as at 31st March, 2010 stood at 12.09% (BASEL-I) and 13.46% (BASEL-II) well above the stipulated regulatory norms.

DIVIDEND

Your Directors have immense pleasure to recommend a dividend of 75% on the enlarged equity shares for the financial year 2009-2010 in pursuance of the constant philosophy of rewarding shareholders.

BRANCH EXPANSION

During the year under review, your Bank has expanded its network by opening new branches at the following centres, so far taking our network to 222 branches. Further the Bank has proposed to open 56 more branches before the end of the current financial year.

Sl. Name of the Branch State Date of Opening No. 1 SRIPERUMBUDUR TAMIL NADU 10.07.2009

2 AURANGABAD MAHARASTRA 03.08.2009

3 RAMANATHAPURAM - COIMBATORE TAMIL NADU 03.08.2009

4 KINATHUKADAVU TAMILNADU 03.08.2009

5 KOLHAPUR MAHARASTRA 03.08.2009

6 THONDAMUTHUR TAMILNADU 03.08.2009

7 VALASARAVAKKAM - CHENNAI TAMILNADU 03.08.2009

8 LUDHIANA PUNJAB 07.08.2009

9 INDORE MADHYA PRADESH 10.08.2009

10 JAIPUR RAJASTAN 17.08.2009

11 BILWARA RAJASTAN 19.08.2009

12 DOMBIVILI - MUMBAI MAHARASTRA 24.08.2009

13 BHAVANAGAR GUJARAT 26.08.2009

14 SURAT II GUJARAT 26.08.2009

EMPLOYEES STOCK OPTION SCHEME

The Shareholders of the Bank had approved the Employees Stock Options Scheme at the Extraordinary General Meeting held on 26.04.2008 to grant upto 5,00,00,000 stock options to the eligible employees both present and future. Of this, 2,02,50,000 options were granted to 1275 eligible employees at an exercise price of Rs.13/- per share. Consequent upon the Rights Issue, the exercise price got reduced from Rs.13/- to Rs.11.60 per option and accordingly the number of options was increased to 2,27,81,250. The Exercise period in respect of 15% of the stock options granted in 2008 commenced on 06.12.2009 and shall be open for 3 years there from. The process of exercising the vested options by the employees has started.

Statutory disclosures regarding ESOS under Clause 12 of the SEBI guidelines are provided in Annexure - I attached to this Report.

HUMAN RESOURCE DEVELOPMENT

The bank has been periodically recruiting qualified and experienced personnel to meet the requirements arising from branch expansion and retirement of existing staff. Considering the significant role played by staff in converting the corporate goals to achievements, your bank has been sponsoring them to various training programmes, workshops and seminars conducted in house and by other agencies as well. As the service industry calls for better interpersonal skills, these programmes are oriented towards sharpening and improving their functional behaviour skills. As on 31st March, 2010, your Bank has 2628 employees comprising of 31 executives, 771 officers, 1437 clerks and 389 sub-ordinate staff.

The information required under the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended is attached to this report as Annexure-II

AUTOMATION

In response to meeting the growing demand of customers for technology based services, your bank has installed 30 onsite ATMs thus taking the total to 152. Your Bank has plans to install more ATMs both onsite & off site at different centres. The integration of bank branches has led to enhanced customer service and has paved the way for enlarging the customer base.

INTERNATIONAL BANKING

As at 31st March, 2010, your Banks turnover in Foreign Exchange Business stood at Rs. 2187.42 cr. The non- resident deposits as on 31st March, 2010 stood at Rs.148.86 cr.

BOARD OF DIRECTORS

Shri C.R. Muralidharan and Justice S.R. Singharavelu have been co-opted as Additional Directors in the meeting of the Board of Directors held on 25.02.2010 pursuant to section 260 of the Companies Act. They will hold office upto the date of ensuing Annual General Meeting. Your Bank has received notices from some of the members pursuant to Section 257 of the Companies Act, 1956 signifying their intention to propose the candidature of Shri C.R. Muralidharan and Justice S.R. Singharavelu as Directors.

AUDITORS

M/s. Jagannathan & Sarabeswaran, Chartered Accountants, Chennai, the present Statutory Central Auditors, retire at the conclusion of this Annual General Meeting and they, being eligible, offer themselves for re-appointment. The Bank has received a certificate from the Statutory Central Auditors to the effect that the re-appointment, if made, will be in accordance with the limits prescribed under Section 224 (1B) of the Companies Act, 1956.

CONSERVATION OF ENERGY, ABSORPTION OF TECHNOLOGY, FOREIGN EXCHANGE EARNINGS AND OUTGO

Your Bank, being a Banking company and an authorised dealer in foreign exchange, has been taking all steps to improve forex earnings by active consideration of need based credit limits of exporters and extending all facilities and services to NRIs and remitters of foreign exchange to our country. The bank has operationalised arrangements for remittances from abroad with Exchange Houses and Banks.

CORPORATE GOVERNANCE

The Bank complies with the requirements of Clause 49 of the listing agreement entered into with Madras, National and Mumbai Stock Exchanges where its shares are listed. The reports on Corporate Governance & Management Discussion and Analysis are attached.

DIRECTORS RESPONSIBILITY STATEMENT

In accordance with Section 217(2AA) of the Companies Act, 1956,

(i) the Directors of the Bank hereby state that in the preparation of the annual accounts for the financial year

ended 31st March, 2010, the applicable Accounting Standards have been followed along with proper explanation relating to material departures.

(ii) the Directors had selected such accounting policies and applied them consistently and made judgments and

estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year 2009-10 and of the profit of the company for that period.

(iii) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in

accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

(iv) the Directors had prepared the annual accounts for the financial year ended 31st March, 2010 on a going

concern basis.

ACKNOWLEDGEMENT

The Board expresses its sincere appreciation to all the shareholders, customers and well wishers of the Bank for their excellent co-operation and unstinted support extended to the Bank and looks forward to their continued patronage in the years to come.

The Board also takes on record its sincere appreciation and gratitude to RBI, NABARD, NHB, IDBI, SIDBI, EXIMBANK, ECGC, DICGC, SEBI, Stock Exchanges, Depositories, the Share Transfer Agents, Life Insurance Corporation of India, National Insurance Company Limited, Tata Consultancy Services, CCIL, CIBIL,

Correspondent Banks, Exchange Houses and various Government Agencies for their patronage and support.

The Board also places on record the significant contribution made by the employees at all levels and conveys its appreciation for their dedication, devotion to duty and their exemplary involvement in all the developmental activities.

FOR AND ON BEHALF OF THE BOARD Chennai P. Vaidyanathan 29th June, 2010 Chairman

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