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Directors Report of Karur Vysya Bank Ltd.

Mar 31, 2015

To the members

The Directors are pleased to present the 96th Annual Report of business and operations of your Bank together with audited accounts for the year ended March 31,2015.

Particulars 31.03.2015 31.03.2014 (Rs. in Cr) (Rs. in Cr)

Gross Deposits 44690.27 43757.68

Gross Advances 36690.77 34225.98

Total Income 5976.71 5680.41

Total Expenditure 5033.42 4842.62

Operating Profit 943.29 837.79

Net Profit 464.28 429.60

Appropriations: Transfer to

Statutory Reserve 120.00 128.00

Capital Reserve 12.16 1.75

General Reserve 58.50 157.00

Special Reserve 60.00 NIL

Investment Reserve 53.00 (21.00)

Proposed Dividend 158.42 139.99

Dividend Tax 32.25 23.79

Total Business

The total business of the Bank stood at Rs. 81381.04 Cr as on March 31,2015, against Rs. 77983.66 Cr a year before, growth of 4.36%.

Deposits

Gross deposits increased by 2.13% to Rs. 44690.27 Cr against Rs. 43757.68 Cr last year. Savings Deposits increased by 16.75% to Rs. 6314 Cr. Demand Deposits stood at Rs. 3528 Cr. CASA increased from Rs. 8989 Cr as at 31.03.2014 to Rs. 9842 Cr as on 31.03.2015 recording a y-o-y growth of 9.49%. CASA deposits constituted 22% of the total deposits.

Term Deposits increased from Rs. 34768.79 Cr as on 31.03.2014 to Rs. 34848.10 Cr as at the end of March 31,2015.

Advances

During this fiscal, your Bank recorded a growth of 7.20% in its loan book with the advances increasing to Rs. 36690.77 Cr as at 31.03.2015 from Rs. 34225.98 Cr as at the end of March 31,2014.

Priority sector advances were at Rs. 14332.70 Cr at the end of March 31, 2015, representing 41.43% of Bank''s Adjusted Net Bank Credit (ANBC) of the previous fiscal. Your Bank has thus achieved its overall priority sector lending requirements of 40% of ANBC.

Your Bank''s agriculture advances as at the end of the fiscal 2014- 15 were at Rs. 6447.81 Cr, representing 18.72% of the ANBC, as against the regulatory prescription of 18%. The Bank has also achieved its weaker section advances requirement which stood at 10.20% as against the mandatory norm of 10%.

Recovery

Your Bank has been focusing on containing the non-performing assets through better credit monitoring as well as intensified efforts to recover the impaired assets. The Bank took several initiatives to contain slippages and speed up recovery from overdue loan accounts. These include identification of stressed accounts for restructuring/rephasing in time, conduct of lok adalats at Divisional office levels, regular follow-up of overdues through call centre and e-auctions.

However in view of the continued slowdown in the economy and delinquencies in the corporate segment, the Bank''s gross NPAs have increased from Rs. 279.18 Cr as on 31.03.2014 to Rs. 677.78 Cr as at the end of the fiscal 2014-15. The Gross NPA of the Bank stood at 1.85% up from 0.82%, a year ago. The Net NPAs of the Bank stood at Rs. 280.97 Cr (0.78%) at the end of the fiscal under report as against Rs. 139.91 Cr (0.41%) at the end of previous fiscal 2013-14.

The Bank maintains a provision coverage ratio of 75.20%.

Share Capital

As at the end of the FY15, your Bank''s paid up share capital stood at Rs. 121.63 Cr, consisting of 12,16,29,609 Equity shares of Rs.10/- each fully paid up. There has been an increase in the paid up capital to the tune of Rs. 14.45 Cr on account of issue and allotment of shares to the Qualified Institutional Investors to the extent of Rs. 13.41 Cr during August 2014 and allotment of shares consequent to the exercise of options under Employees Stock Option Schemes. During the year under report, the Net owned funds of your Bank increased from Rs. 3326.34 Cr as at the end of FY 14 to Rs. 4246.03 Cr as at the end of FY15, an increase of Rs. 919.69 Cr (27.65%).

The Capital Adequacy Ratio stood at 14.63 % as per BASEL II and 14.62% under BASEL III norms. The Bank has been consistently maintaining the Ratio well above the minimum of 9% stipulated by the Reserve Bank of India. The market capitalization of your Bank''s shares at the end of March 31,2015 was Rs. 6615.43 Cr.

Employees Stock Options Scheme

During the fiscal 2014-15, the employees of the Bank exercised the stock options granted to them to the extent of 10,29,775 options. There were no unvested options at the end of the fiscal 2014-15. The Bank has not granted any stock options during the year under report.

Credit Rating

ICRA Limited had rated the Unsecured Redeemable Non- convertible Subordinated (Lower Tier II) debt instruments issued during the earlier year by re-affirming its A rating.

CRISIL has reaffirmed A1 rating (pronounced CRISIL A one plus) for Rs.30 bn Certificate of Deposits Programme of your Bank. ICRA Limited has confirmed ICRA A1 (pronounced ICRA A one plus) rating to the Bank''s Certificate of Deposits Programme for Rs.30 bn. Both the ratings indicate a very strong degree of safety regarding timely payment of financial obligations.

Dividend

Having regard to the overall performance of the Bank and the positive outlook for the current fiscal, the Board of Directors recommended a dividend of Rs. 13/- per share (i.e. 130% on the paid up capital same as the previous fiscal) for the reporting year, thus maintaining 100% dividend or more for the twelfth year in a row since 2004. The total dividend outgo including dividend distribution tax will be Rs. 190.67 Cr.

Investments

The aggregate investments of the Bank as on 31st March 2015 was Rs. 12833.03 Cr with maturity mix of securities consistent with risk perceptions and investment policies of the Bank.

Income earned on investments during the fiscal 2014-15 was at Rs.1177.56 Cr registering an slight decrease of Rs. 19.82 Cr (i.e. 1.6%) as against Rs.1197.38 Cr recorded during the previous fiscal 2013- 14.Profit on sale of investments was Rs. 71.03 Cr for the fiscal 2014- 15 as against Rs.103.73 Cr recorded in the previous fiscal 2013-14.

The average yield on investments decreased to 7.50% during the year under report over the previous fiscal of 7.61%. Liquidity position of the Bank was comfortable throughout the year.

The Bank has put in place the risk management tools like Duration, Modified Duration and Value at Risk for all interest bearing securities.

Forex Transactions

The merchant turnover of the Bank grew by 18.49% to reach Rs.18493 Cr as against Rs.15607 Cr during the previous fiscal 2013-14. The year on year export credit grew at 15%. Your Bank has earned a total income of Rs.89.13 Cr on Forex business during the fiscal 2014-15 as against Rs.79.07 Cr earned during the last fiscal 2013-14 registering an increase of 12.72%. Of this, Exchange Profit increased from Rs.35.59 Cr to Rs.43.76 Cr and other income (commission and others) increased from Rs.43.48 Cr to Rs.45.37 Cr with exchange profit recording an increase of 22.95% and commission income an increase of 4.34%.

Distribution Net Work

During the year your Bank opened 56 branches in 6 States. One Satellite branch was upgraded to full fledged branch. Your Bank has added 28 ATMs.

As at the end of fiscal 2014-15, your Bank has 2274 customer outlets comprising of 629 branches and 1645 ATMs, with PAN India presence.

Debit Cards

Your Bank has issued 9.81 lakh debit cards during the year taking the total number of cards issued viz: ATM card, VISA, Master EMV Chip, Maestro, Rupay Debit and Rupay Kissan to 53.63 lakh.

POS

During FY 15, your bank installed 800 POS terminals across various merchant locations, taking the total to 9234 as at 31.03.2015. During the year under report 80.76 lakh transactions were made through KVBPOS and the gross value of the transactions routed through such terminals stood at Rs. 2348.16 cr.

Technology Initiatives

The application of technology in day to day operations of the Bank has been responsible for augmenting and enhancing productivity levels apart from simplifying mundane tasks. The Bank''s success could be attributed to proper technology plan targeted at introducing customer friendly delivery channels providing value added services and facilitating improvement in overall internal efficiency and decision making process by bringing in an effective Management Information System and complying with the regulatory norms. In this direction, the Bank has been lining up various IT initiatives that add value to the customer convenience apart from enhancing the internal efficiency.

Technology initiatives launched during the fiscal 2014-15 are given below:

- Launching of Mobile POS and Handheld GPRS POS

In order to give impetus to CASA business, a preferred IT solution viz: Mobile POS and Handheld GPRS POS was launched. It guarantees a lot of mobility and ease in acquiring card transactions in real time purchase scenarios. It is a preferred payment method to replace Cash on Delivery Scenario. Wireless and Rechargeable battery gives the equipment the extra edge. It promotes the customer acceptance of POS Payment in a big way.

- Launching of Multi-Currency Travel Card Multi-Currency Travel Card obliterates the need for carrying different currencies during an overseas trip. Single card is used to load USD, EURO & SGD. Card can be used for ATM operations, POS purchases & E-Commerce transactions. Online Access to Travel Card Account is through Password. The card is loaded with all 3 currencies USD / EURO / SGD

- E-passbook

An in-house Android Application developed and styled as an E-Book, whereby customers of your bank having smart phones can view account statements and balance details in the mobile itself using the phone number registered with the bank database.

- Missed call facility

It provides banking services, if the customers give a missed call from his registered mobile to a designated mobile number for this purpose. The response is in the form of an SMS . The services offered are Balances of Running Accounts up to 5 in number and maximum limit of two missed calls a day. It also can provide Account Statement Enquiry for 3 accounts and a maximum limit of two missed calls per day.

- Anti-Phishing, Anti-Trojan and Anti-Pharming Services

Your bank has implemented Anti-phishing, Anti-pharming and Anti-Trojan services for preventing any malicious attacks from fraudsters.

Golden Vision Initiatives

Members of the Bank are aware that the Bank has embarked upon Golden Vision Initiatives during the year 2009 and M/s Boston Consulting Group, a global consultancy firm of consultants, has been engaged to assist and advise the bank in its journey of ''Golden Vision'' of attaining ''125000 Cr business by the centenary year of the Bank in 2016. Most of their recommendations were put in place since their engagement in the year 2009.

The following initiatives are launched during the fiscal under report.

1. Institutional sales force programs (Divisional sales force) to target liability (CASA) products from institutional customers (e.g. Mid - large Corporates, Trusts, Associations, Govt. institutions).

2. Collections / Receivables & Payment module, to meet out the specific requirement of corporate customers.

3. Commercial sales force team at the branch level comprising of relationship officers - Commercial Banking (RO - CBG). Target of this program was to mobilize CA deposits and SME advances.

4. Structured third party sales programs (insurance and mutual funds) to increase the other income of KVB. In addition, a focused program was launched in September last year focusing on the debit card usage of the bank to increase interchange income.

5. Special drives / campaigns viz., for increasing the usage of alternate delivery channel viz., usage of debit cards both on- line and in POS terminals and rewarding with loyalty points to the users.

6. Deployment of self-service machines, based on user patterns and transaction profile of the branches has been carried out. Your Bank has now covered 50% of branch network with Cash Deposit Machines.

Financial Inclusion

With the basic objective of bringing the unserved population under the banking mainstream, the Bank is striving towards the more inclusive growth by making financial products and services available to poor in particular. As per the Government of India and Reserve Bank directions your Bank has been actively pursuing the agenda of Financial Inclusion with key interventions in four groups namely expanding banking infrastructure, offering appropriate financial products, making extensive and intensive use of technology and through advocacy and stakeholder participation.

Your Bank has covered all the 117 allocated villages under rural Financial Inclusion. These 117 villages are spread over Tamilnadu, Andhra Pradesh, Telangana and Karnataka States.

Ultra Small Branches (USBs)

During the Fiscal under report, the Bank opened 14 USBs, taking the count of USBs to 42 as on March 31,2015.

We have conducted 140 Financial Literacy Campaigns through our 98 rural/unbanked branches. We have also conducted 914 Financial Literacy Campaigns through our metro, urban and semi- urban branches.

Pradhan Mantri Jan-Dhan Yojana (PMJDY)

As per the directions of Department of Financial Services, Government of India your Bank started implementing "Pradhan Mantri Jan-Dhan Yojana" which focuses on coverage of households in urban areas also as against the earlier plan which focused on coverage of villages. The PMJDY will ensure that all households in the country, both rural and urban, will get access to the financial services, like bank account with Rupay debit card, access to credit, remittance, insurance and pension. Under the PMJDY scheme our Bank has been allotted with 409 wards in semi urban and urban areas, apart from the 117 villages already allotted under rural financial inclusion scheme. Your Bank conducted survey of all 1,99,242 households in all these 409 wards and opened 108502 Basic Savings Bank Deposit Accounts and 104889 Rupay cards were issued under PMJDY Scheme. All the households bank accounts are now with either our bank or other bank/s.

Statutory Audit

M/s. Abarna & Ananthan, Chartered Accountants, Bangalore will retire at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment, subject to the approval of the Reserve Bank of India. The Bank has received consent from the Auditors and confirmation to the effect that they are not disqualified to be appointed as the Auditors of the Bank in terms of the provisions of the Companies Act, 2013 and the rules made thereunder. Accordingly, the Board of Directors has recommended to the shareholders for approval the re- appointment of M/s. Abarna & Ananthan, Chartered Accountants, Bangalore, as the Statutory Auditors of the Bank to hold office from the ensuing AGM till the conclusion of the next AGM on a remuneration to be decided by the Board or Committee thereof.

Secretarial Audit

Pursuant to the provisions of Sec 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Bank, with the approval of its Board appointed Shri S Solaiyappan, Practicing Company Secretary to undertake the Secretarial Audit of the Bank for the financial year ended 31.03.2015. The Secretarial Audit Report is annexed herewith as Annexure 1.

Statutory Disclosures

The Disclosures to be made under sub-section (3) (m) of Section 134 of the Companies Act, 2013 read with Rule (8) (3) of the Companies (Accounts) Rules, 2014 by your Bank are explained as under:

Considering the nature of activities of the Bank, the provisions of Section 134 of the Companies Act, 2013 relating to conservation of energy and technology absorption do not apply to the Bank.

However the bank has adopted the following in the areas of conservation of energy, technology absorption:

The Bank has installed one 850 KW Wind Turbine Generator at Govindanagaram Village, Theni District, Tamil Nadu in 2011 and has been utilizing the wind power generated for the Registered and Central Office at Karur and the Divisonal Office premises at Chennai. 14,57,545 units were generated during the fiscal under report by the windmill.

One floor at the Central Office complex and some select branches were equipped with energy efficient LED lights. Motion detector sensors were installed in some select branches of the Bank.

The Bank is making extensive use of technology in all its operations and is also constantly pursuing its goal of technological upgradation in a cost effective manner to provide quality customer service.

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

The statement containing particulars of employees as required under Sec 197(12) of the Companies Act, 2013, read with Rule 5(2) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 forms part of this report.

The ratio of remuneration of each director to the median employee''s remuneration and other details in terms of sub-section 12 of Sec 197 of the Companies Act, 2013 read with Rule 5 (1) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 are forming part of this report as Annexure 2.

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

Extract of Annual Return

Pursuant to sub-section 3(a) of Section 134 and sub-section (3) of Section 92 of the Companies Act 2013, read with Rule 12 of the Companies (Management and Administration) Rules, 2014 extract of the Annual Return as at March 31, 2015 forms part of this report as Annexure 3.

Board of Directors

In accordance with the provisions of Companies Act, 2013 and the Articles of Association of the Bank, Director Shri G Rajasekaran, retires by rotation and being eligible, offered himself for re- appointment.

Shri. M K Venkatesan, Shri A K Praburaj and Smt K L Vijayalakshmi were appointed as Additional Directors of the Bank during the year under report in terms of the provisions of Section161 of the Companies Act, 2013 and Article 27 of the Articles of Association of the Bank. They hold office upto the date of the ensuing Annual General Meeting of the Bank. Bank has received notices from them individually signifying their candidature for the office of Director of the Bank, along with deposit prescribed under provision of Section 160 of Companies Act, 2013.

The brief resume and details of directors who are to be re- appointed/appointed are furnished in the Corporate Governance Report annexed.

Director Shri S Ganapathi Subramanian would be continuing upto the date of this AGM consequent upon attainment of maximum age criteria prescribed under the extant guidelines. Board places on record its sincere appreciation of the services rendered by him during his tenure as Director.

Directors'' Responsibility Statement

Pursuant to the requirement under Section 134 (5) of the Companies Act, 2013 with respect to the Directors'' Responsibility Statement, it is hereby confirmed that

(a) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) 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 Bank at the end of the financial year and of the profit and loss of the Bank for that period;

(c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities;

(d) The directors had prepared the annual accounts on a going concern basis;

(e) The directors had laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively; and

(f) The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Awards and Accolades

Your Bank has received the following awards and recognition during the year 2014-15.

1. Master Card payments Strategy Workshop, Goa 2014 - Karur Vysya Bank received the Innovation Award for implementation of RFID enabled Debit Card Program.

2. "Best Bank Award for Business Intelligence Initiatives among Small Banks" instituted by The Institute for Development and Research in Banking Technology (IDRBT) in the IDRBT- Banking Technology Excellence Awards 2013-14 from the Hon''ble RBI Governor Shri. Raghuram Rajan. Your Bank has bagged the said Information Technology Award from IDRBT consecutively for the sixth time.

3. "EDGE 2014 Award for managing IT Security" by Information Week magazine for the use of IT for maximizing business impact.

4. National Payments Excellence Awards 2014 - Runner Up in Mid Sized Banks Category in recognition of excellent performance in National Financial Switch (NFS) ATM Network. The award was sponsored by NPCI.

5. State Forum of Bankers'' Clubs (Kerala) in their 6th Banking Excellence Award 2014, adjudged KVB as the Second Best Bank in the Private Sector Category at National level and presented the award.

6. RUNNER UP AWARD in the old private sector bank category in FY 2012-13, Financial Express Best Banks Award.

7. Received BEST TECH SAAVY BANK- Runner Up award in MSME Banking Excellence Awards- 2014 constituted by Chamber of Indian Micro Small & Medium Enterprises (cimsme).

Acknowledgements

Your Bank is grateful to the RBI, Government of India, SEBI and other authorities and agencies, Financial Institutions and correspondent banks for their valuable support and guidance.

The Directors also express their deep sense of appreciation to all staff members of the bank for their dedicated service and commitment towards bank''s vision for sustainable growth. Finally, the Board wishes to sincerely thank all the customers, shareholders, other stake holders for their valuable support and look forward to their continued support in the years to come.

For and on behalf of the Board of Directors,

Place: Karur K P Kumar

Date : 28.05.2015 Chairman


Mar 31, 2014

Dear Shareholders,

The Board of Directors have great pleasure in presenting the 95th Annual Report together with audited Balance Sheet and Profit and Loss Account for the year ended March 31, 2014.

31.03.2014 31.03.2013 Particulars (Rs.in Cr) (Rs. in Cr)

Gross Deposits 43757.68 38652.98

Gross Advances 34225.98 29705.89

Total Income 5680.41 4694.99

Total Expenditure 4842.62 3846.16

Operating Profit 837.79 848.83

Net Profit 429.60 550.32

Appropriations: Transfer to Statutory Reserve 128.00 165.00

Capital Reserve 1.75 16.52

General Reserve 157.00 123.00

Special Reserve NIL 50.00

Investment Reserve (21.00) 21.00

Proposed Dividend 139.99 150.05

Dividend Tax 23.79 25.50

Total Business

During the year ended 31.03.2014, Total Business of the Bank recorded an increase of 14.08% at Rs. 77983.66 Cr as compared toRs. 68358.87 Cr as on 31.03.2013.

Deposits

Your Bank''s total Deposits stood at Rs. 43757.68 Cr as on 31.03.2014, showing an absolute increase of Rs. 5104.70 Cr and a growth rate of 13.21% over the previous year. The share of CASA deposits (Current and Savings) in Total Deposits stood at 20.54%.

- Current Deposits stood at Rs. 3580.44 Cr as on 31.03.2014 as compared to Rs. 3053.35 Cr as at the end of 31.03.2013 recording a y-o-y growth of 17.26%.

- Savings Bank Deposits increased to Rs. 5408.45 Cr as on 31.03.2014, up from Rs. 4385.80 Cr as on 31.03.2013, growing at a rate of 23.32%.

- Term Deposits increased from Rs. 31213.83 Cr as on 31.03.2013 to Rs. 34768.79 Cr as on 31.03.2014, registering a growth rate of 11.39%.

Advances

The Bank has registered qualitative credit growth of 15.22% during the FY 2013-14. The Gross Advances of the Bank increased from Rs. 29705.89 Cr as on 31.03.2013 to Rs. 34225.98 Cr as on 31.03.2014.

Priority Sector Advances aggregated Rs. 12617.70 Cr at the end of March 2014, representing 42.13% of Bank''s Adjusted Net Bank Credit (ANBC) of the previous fi scal. The Bank has achieved the prescribed target for Priority Sector Advances for the last three years consecutively.

KVB''s agricultural advances stood at Rs. 5895.29 Cr, constituting 19.69% of ANBC as at the end of March 2014 against the regulatory prescription of 18%. Additionally, your Bank''s fi nance to Weaker Sections were at 10.54% against the mandatory requirement of 10%.

Recovery

In spite of the difficult economic conditions that prevailed during the year under report, the Bank has taken necessary steps to contain NPAs and has used all available tools of recovery including negotiated settlements and legal means. Your Bank constituted special recovery teams and organized recovery camps at various centers. Bank has effectively used the provisions of SARFAESI Act to secure maximum recovery. Frequent Lok Adalats were conducted especially in respect of small value NPA accounts. The Bank has framed a policy for sale of assets to ARCs. Your Bank has revisited its Recovery Policy to facilitate quick settlement in existing NPA accounts. The Divisional Offices are empowered with more discretionary powers to settle existing NPAs. Focused attention was given to accounts which are under SMA categories to avoid slippages into NPAs.

In percentage term, gross NPA Ratio of the Bank stood at 0.82% as on 31.03.2014 as against 0.96% at the end of previous fi scal 12-13. In absolute term, Gross NPA stood at Rs. 279.18 Cr as on 31.03.2014. Net NPA Ratio of the Bank stood at 0.41% as on 31.03.2014 as against 0.37% as on 31.03.2013. In absolute term, Net NPAs stood at Rs. 139.91 Cr as at the end of the fi scal under report.

The Bank continues to maintain Provision Coverage Ratio of 75%.

Share Capital

As at March 31, 2014, the Paid-up Equity Capital of the Bank stood at Rs. 107.18 Cr consisting of 10,71,81,106 shares of Rs. 10/- each.

The Net Owned funds of the Bank as at 31st March 2014 was Rs. 3326.34 Cr comprising paid up equity capital and reserves.

The Capital Adequacy Ratio stood at 12.77% as per BASEL II norms. The Capital Adequacy under BASEL III norms stood at 12.60%. The Bank has been consistently maintaining the ratio well above the minimum of 9% stipulated by the Reserve Bank of India.

The market capitalization of your shares at the end of March 31, 2014 was Rs. 4022.51 Cr.

Employee Stock Options Scheme

The information required to be furnished pursuant to Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are annexed to this report and form part of this report.

Credit Rating

CRISIL has reaffi rmed A1 rating (pronounced CRISIL A one plus) for Rs. 30 bn Certifi cate of Deposits Programme of your Bank. ICRA Limited has confi rmed ICRA A1 (Pronounced ICRA A one plus) rating to the Bank''s Certifi cate of Deposits Programme for Rs. 30 bn. Both the ratings indicate a very strong degree of safety regarding timely payment of fi nancial obligations.

Dividend

The Board recommended dividend of Rs. 13/- per Equity Share i.e., 130% for the fi scal 2013-14. The dividend is subject to the approval of the shareholders at the Annual General Meeting. This is the tenth year in succession your Bank has been paying 100% or more dividend consecutively since 2004. The total dividend outgo including distribution tax will be Rs. 163.78 Cr which works out to 38.12% of the Net Profit for 2013-14.

Investments

The gross domestic investments of your Bank stood at Rs. 13445.46 Cr as at 31.03.2014 as against Rs. 13868.85 Cr as on 31.03.2013.

Income earned on investments during the fi scal 2013-14 was at Rs. 1197.38 Cr registering an increase of Rs. 247.03 Cr (i.e. 25.99%) as against Rs. 950.35 Cr recorded during the previous fi scal 2012-13. Profi t on sale of investments was Rs. 103.73 Cr for the fi scal 2013-14 as against Rs. 88.35 Cr recorded in the previous fi scal 2012-13.

The average yield on investments decreased to 7.61% during the year under report over the previous fi scal of 7.67%. Liquidity position of the Bank was comfortable throughout the year.

Forex Transactions

The merchant turnover of the Bank grew by 54.39% to reach Rs. 15607 Cr as against Rs. 10109 Cr during the previous fi scal 2012-13. The year on year export credit grew at 11%. Your Bank has earned a total income of Rs. 79.07 Cr on forex business during the fi scal 2013-14, as against Rs. 54.51 Cr earned during the last fi scal 2012-13, registering an increase of 45.06%. Of this, Exchange Profit increased from Rs. 23.16 Cr to Rs. 35.59 Cr and other income (commission and others) increased from Rs. 31.35 Cr to Rs. 43.48 Cr with forex Profit recording an increase of 53.67% and commission income an increase of 38.69%.

Branch Network

During the financial year 2013-14, Bank opened 21 Branches and added 345 ATMs. With this, as at the end of March 31, 2014 the Bank has a total network of 572 branches and 1617 ATMs with PAN India presence.

The aggregate customer outlets of the Bank (both Branch net work and ATMs installed) rose to 2189. To facilitate remittance of cash on real time basis to customers'' accounts, your Bank has introduced 153 Cash Deposit Machines or Bunch Note Acceptors (BNA).

Debit Cards

Your Bank has issued 8.48 lakh debit cards during the fi scal 2013-14 taking the total number of debit cards issued to 43.8 lakhs.

POS

During the year under report, your Bank installed 4552 POS terminals across various merchant locations, taking the total to 8434 numbers as at 31.03.2014. The gross value of transactions routed through such terminals stood at Rs. 964.76 Cr till 31.03.2014.

Technology Initiatives

Your Bank is a front runner in technology initiatives having implemented 100% Core Banking Solution (CBS) in 2005. In order to leverage CBS platform and robust IT infrastructure implemented in the Bank, many new initiatives were undertaken during the fi scal under report. Internal effi ciency, customer service, Business Process Re-engineering (BPR) as well as Information Security were the focus areas.

The following new initiatives were introduced to add value to the customer convenience during the FY 2013-14.

A special product known as ''Scholar Card'', for students and staff of educational institutions, was launched. This card, based on RIFD Technology, can be used for all kinds of payments and access system like attendance, library, laboratory etc.

Online Password reset/unlocking of user ID is implemented to strengthen the safety and security of our Net Banking System.

Your Bank has launched BNA – Remittance Card exclusively for depositing cash in Cash Deposit Machines.

Bank has also launched International EMV chip based debit cards.

Your Bank launched e-collect portal in our Bank''s website for collection of fee for Educational Institutions.

The Bank also has launched IRCTC ticket booking through Direct Debit Facility.

Golden Vision Initiatives

As already informed in the previous report, M/s Boston Consulting Group are assisting the Bank in its pursuit of attaining next higher level of growth and development including achieving the targeted business growth of Rs. 125000 Cr by the centenary year of the Bank in 2016. Their recommendations are being implemented under "Golden Vision" initiatives.

During the year under report, the following initiatives were undertaken:

(a) Introduced personalized service to HNI customers of the bank under KVB Pride. Under this, the services include door step banking, EMV certifi ed chip embedded debit card, free banking privileges, reward points etc.

(b) Branches having high potential of cash remittances are provided with Cash Deposit Machines (CDMs). The facility is available with instant cash credit to the customers accounts, 153 CDMs are deployed over 150 branches.

(c) Lead Management Software has been launched across all branches for effective and effi cient management of sales management team.

(d) Introduced Career Development System for all officer cadre employees across the Bank.

(e) Single Window system was rolled out to 75 branches this year taking the total of such branches to 212 across the country.

Financial Inclusion

Your Bank has covered all the 117 allocated villages for providing basic banking services under the Financial Inclusion Plan. These villages are covered under the Plan with Business Correspondent operated banking outlets. As at the end of March 31, 2014, 46,237 basic savings accounts (no frill accounts) with Bio-Metric smart cards were opened with BC agents in FI villages.Your Bank has also opened 28 Ultra Small Branches in the allotted villages to provide banking facility for the under privileged section of the society. Going forward the Bank is in the process of opening some more Ultra Small Branches/Brick & Mortar branches in the allotted villages wherever feasible.

Statutory Audit

M/s R K Kumar & Co., Chennai retire at the conclusion of the ensuing Annual General Meeting. They have been associated with the Bank as Statutory Auditors for the past four financial years and are not eligible for re-appointment in accordance with the RBI''s policy of rotation and resting. The Board places on record its deep appreciation of the professional services rendered by M/s. R K Kumar & Co., Chennai during their association with the Bank.

M/s. Abarna & Ananthan, Chartered Accountants, Bangalore are proposed to be appointed as Statutory Auditors of the Bank from the conclusion of the ensuing Annual General Meeting till the conclusion of next Annual General Meeting of the Bank in terms of Section 139 of the Companies Act, 2013 read with Sec 30 (1A) of the Banking Regulation Act, 1949.

Reserve Bank of India vide letter DBS.ARS.No. 15260/ 08.12.005/2013-14 dated June 3, 2014 conveyed their approval for their appointment as the Statutory Auditors of the Bank for the year 2014-15 for their fi rst year.

A certifi cate from M/s. Abarna & Ananthan has been received to the effect that their appointment, if made, would be within the prescribed limits under Section 141 of the Companies Act, 2013.

Statutory Disclosures

Considering the nature of activities of the Bank, the provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. However the Bank is making extensive use of technology in all its operations and is also constantly pursuing its goal of technological upgradation in a cost effective manner to provide quality customer service.

The Bank supports and encourages the country''s export efforts through its export fi nancing operations.

The Statement containing particulars of employees as required under the provisions of Sec 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975, as amended, forms part of this report.

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

Board of Directors

Shri K P Kumar, was appointed as (Part-time) Non- Executive - Independent Chairman of the Bank, with the prior approval of the Reserve Bank of India, for an initial period three years from 24.09.2010. He is re-appointed as the (Part-time) Non-Executive - Independent Chairman for a further period of two years from 24.09.2013 vide RBI letter DBOD.6277/08.41.001/2013-14 dated 01.10.2013. Approval of members is sought for the re-appointment of Shri K P Kumar, as (Part-time) Non-Executive - Independent Chairman of the Bank at the ensuing Annual General Meeting as per details provided in the Notice.

Shri K Venkataraman was appointed, with the prior approval of Reserve Bank of India, as the Bank''s Managing Director and CEO for three years from 01.06.2011. As his term of office was upto 31.05.2014, the Board of the Bank approved his re-appointment for a further period of three years from 01.06.2014. RBI has vide its letter DBOD. No. 18973/08.41.001/2013-14 dated 23.05.2014 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 Shri K Venkataraman as MD & CEO of the Bank at the ensuing Annual General Meeting as per details provided in the Notice.

In accordance with the provisions of Companies Act and the Articles of Association of the Bank, Non-Executive (Non-Independent) Director Shri A J Suriyanarayana, retires by rotation and is eligible for re-appointment.

Pursuant to Section 149 and 152 of the Companies Act, 2013 and Sec 10 A (2A) of the Banking Regulation Act, 1949, approval of the shareholders have been sought for the appointment of Shri K K Balu, as an Independent Director not liable to retire by rotation for a period up to two years, Shri N S Srinath, as an Independent Director not liable to retire by rotation for a period up to three years and B Swaminathan as an Independent Director not liable to retire by rotation for a period up to three years.

Shri CA K Ramadurai will hold office till the date of forthcoming Annual General Meeting consequent to the attainment of maximum age limit prescribed under extant guidelines of RBI. Board places on record its gratitude for the valuable contribution rendered by him during his tenure as Director on the Board.

The brief resume and details of directors who are to be appointed as Independent Directors are furnished in the Corporate Governance Report annexed.

Directors'' Responsibility Statement

Pursuant to the requirement under Section 217 (2AA) of the Companies Act, 1956 with respect to the Directors'' Responsibility Statement, it is hereby confi rmed that:

(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

(b) 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 and of the Profit and loss of the company for that period;

(c) the directors had taken proper and suffi cient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis.

Awards and Accolades

Your Bank has received the following awards and recognition during the year 2013-14.

(i) Best Small Bank Award given by Business World Magna Awards 2014 recognising Banking excellence.

(ii) State Forum of Banker''s Club, Kerala Excellence Awards 2014 selected KVB as the third Best bank among private sector banks at the national level and presented the award.

(iii) The Sunday Standard Best Bankers'' Awards 2013 awarded the Best Banker Growth Mid Sized award to your Bank.

(iv) Institute of Public Enterprises (IPE)-BFSI awarded "Best Bank in Private Sector" in June 2013.

(v) Kompella Portfolio Investment Advice Magazine, Hyderabad recognized KVB as the ''Top Bank in the Old Private Sector'' and "Third best Bank of the quarter" among public sector, old private sector and new private sector banks for the quarter ended 30.06.2013.

(vi) Best Bank award among small Banks by IDRBT for "Banking Technology (Electronic Payment Systems)" for the year 2012-13.

(vii) In the NSDL Star Performer Awards 2013, KVB bagged "Top Performer in New Accounts opened (Bank Category)".

Your Bank is ranked as the 188th rank among India''s Most valuable Top 500 Companies based on Market Capitalisation as per November 2013 issue of Business Today.

Fortune India December 2013 publication listed KVB as 227th Company under Top 500 Companies in India.

Corporate Social Responsibility

Your Bank, as a responsible corporate citizen, has been carrying out well over the years certain initiatives like participation in social, cultural, educational, medical and sports activities aimed at improving the quality of life of the people and society. Your Bank believes fi rmly that being an integral part of the society, it is the all round growth of the society which contributes ultimately the growth of the organization. Some of the CSR expenditure undertaken during the year 2013-14 are given below:

- Contributed a sum of Rs. 12.57 lakh towards educational cause.

- Donations amounting to Rs. 20.65 lakh to various organizations/hospitals for Health Care.

- Donations made to the tune of Rs. 15.20 lakh towards welfare of poor and downtrodden.

- Contribution made to the tune of Rs. 14.83 lakh for charitable purpose to various organizations/institutions.

- One lakh was sponsored to an athlete for participation in world championship in the World Biathle 2013 at Cyprus.

Acknowledgements

The Directors are grateful to the shareholders of the Bank for the trust and confi dence reposed by them in the Bank.

The Directors are also grateful to the Reserve Bank of India, Government of India, State Governments, Securities and Exchange Board of India and the Stock Exchanges for the guidance and support extended by them to the Bank.

The Board thanks its valued customers and other stakeholders for their patronage and looks forward to the growing of this mutually supportive relationship in future.

The Board expresses its deep sense of appreciation to all employees for their contribution in your Bank''s quest for sustained growth and profi tability and look forward to their continued contribution in scaling new heights.

Place: Karur For and on behalf of the Board of Directors,

Date : 15.06.2014 K P Kumar Chairman


Mar 31, 2013

Dear Shareholders,

The Directors are pleased to present the 94th Annual Report and the audited accounts for the financial year ended March 31, 2013.

Financial Performance

The financial performance for the year under review are presented below:

31.03.2013 31.03.2012 Particulars (Rs. In Cr) (Rs. In Cr)

Gross Deposits 38652.98 32111.59

Gross Advances 29705.89 24205.11

Total Income 4694.99 3620.52

Total Expenditure 3846.16 2894.81

Operating Profit 848.83 725.71

Net Profit 550.32 501.72

Appropriations: Transfer to

Statutory Reserve 165.00 150.50

Capital Reserve 16.52 3.14

General Reserve 123.00 156.80

Special Reserve 50.00 35.00

Investment Reserve 21.00 -

Proposed Dividend 150.05 150.05

Dividend Tax 25.50 24.34

The aggregate business of the Bank reached Rs. 68359 Cr as at 31st March 2013 showing an increase of 21.38% on a year-on- year basis (y-o-y).

Deposits

Deposits grew by 20.37% from Rs. 32111.59 Cr in FY 12 to Rs. 38652.98 Cr in FY 13. The growth recorded by your bank was higher than the 14.3% growth in deposits recorded in the banking system during the fiscal under report.

CASA deposits grew at 20.93% and stood at Rs. 7439.15 Cr as at the end of 31.03.2013 as against Rs. 6151.58 Cr as on 31.03.2012. Term deposits were at Rs. 31213.83 Cr as against Rs. 25960.01 Cr as at the end of the previous fiscal 2011-12, recording a growth of 20.24%.

Deposit growth in the banking system has slowed in the recent years largely due to households looking at investments in alternate assets such as gold, equities, real estate etc expecting higher and inflation adjusted returns.

Credit portfolio

The gross advances of your bank were at Rs. 29705.89 Cr as at the end of the fiscal 2012-13 as against Rs. 24205.11 Cr in the previous fiscal 2011-12 recording a growth of 22.73% during the year under report when compared to 14.1% growth seen in the banking system for 2012-13.

Priority sector advances of your bank surged from Rs. 7526.92 Cr as at the end of March 2012 to Rs. 10196.40 Cr as at the end of March 2013 and formed 42.04% of the Adjusted Net Bank Credit (ANBC) against the mandated target of 40%.

The total agricultural advances of your bank recorded a growth of 34.33% over the previous year and rose to Rs. 5194.32 Cr as at end-March 2013. Your Bank''s agricultural advances formed 21.42% of ANBC as at the end-March 2013 against the mandated target of 18%. Also the advances made to weaker sections were at 11.24% against the regulatory requirement of 10%.

Average Credit Deposit Ratio of the Bank during the fiscal was 75.48%.

Recovery

Your Bank has put in place strong systems for resolution and recovery of non-performing loans besides strengthening its due diligence, credit appraisal and post-sanction loan monitoring systems to minimize and mitigate the problem of increasing NPAs. Your Bank continues to apply a multi pronged strategy for better NPA management viz: Preventive actions, Recovery, upgradation, resolution and settlement, initiation of legal proceedings including under SARFAESI, besides sale of assets.

As a result of concerted action the Gross NPAs have declined from Rs. 320.99 Cr (1.33%) as at 31.03.2012 to Rs. 285.86 Cr (0.96%) as at the end of 31.03.2013. The Net NPAs which were at Rs. 78.78 Cr (0.33%) during FY 12 have risen marginally to Rs. 108.74 Cr (0.37%). Your Bank has a provision coverage ratio of 75.20% as at 31.03.2013.

Share Capital

The paid up capital of the Bank stood at Rs. 107.18 Cr as at 31st March 2013. During the year under report, the Bank made an allotment of 700 shares which was kept under abeyance category.

Your Bank''s net owned funds as at 31st March 2013 was Rs. 3085.19 Cr comprising paid up equity capital of Rs. 107.18 Cr and reserves of Rs. 2978.01 Cr.

Your Bank''s Capital Adequacy Ratio (CAR) was comfortable at 14.41% under Basel II as on 31.03.2013. The Bank has been maintaining a higher Capital Adequacy Ratio consistently over and above the regulatory prescription of 9%.

The market capitalization of your shares as at the end of fiscal 2012-13 was Rs. 4827.43 Cr. In terms of market capitalization, your Bank was at 187th rank in the country.

Employee Stock Options Scheme

Out of the 10 lakh Stock options available under KVBESOS 2008, 9,78,454 options were granted, exercised and allotted earlier. 21,546 options which were remaining under the said Scheme were granted to the employees on 01.03.2013.

Your Bank has framed KVBESOS 2011 pursuant to the 40 lakh options approved by the shareholders in the Annual General Meeting held on 27.07.2011. Out of the said 40 lakh options, 14,71,656 lakh options were granted on 01.03.2013.

Particulars pursuant to Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 are annexed to this report and form part of this report.

Credit Rating

CRISIL has re-affirmed A1 rating (pronounced "CRISIL- A one plus") for Rs. 20 billion Certificate of Deposits programme of your Bank. ICRA Limited has confirmed ICRA A1 (pronounced "ICRA-A one plus") rating to the Bank''s Certificate of Deposits Programme for Rs. 2000 Cr.

Both the ratings indicate a very strong degree of safety regarding timely payment of financial obligations.

Dividend

Inspite of the tough economic environment, keeping in tune with the good financial performance of the Bank, your Directors are pleased to recommend a dividend of Rs. 14/- per equity share of face value of Rs. 10/- each for the year ended 31.03.2013, amounting to Rs. 175.55 Cr (inclusive of tax of Rs. 25.50 Cr). The dividend will be paid to the members whose names appear in the Register of Members as on 19.07.2013; in respect of shares held in dematerialised form, it will be paid to members whose names are furnished by National Securities Depository Limited and Central Depository Services (India) Limited, as beneficial owners.

It may be noted that it is now for a decade (since 2003-04), that your bank has been paying 100% or more to its shareholders.

The dividend payout for the year under review has been formulated in accordance with the Bank''s policy to pay sustainable dividend linked to long term growth objectives of the Bank to be met by internal accruals and to meet the shareholders'' aspirations.

Investments

The gross domestic investments of your Bank stood at Rs. 13868.85 Cr as at 31.03.2013 as against Rs. 10581.27 Cr as on 31.03.2012, thus recording an increase of 31.07% during the fiscal 2012-13. Net investments registered an increase of Rs. 3331.16 Cr during the year to reach Rs. 13837.26 Cr as at the end of the fiscal 31.03.2013 from Rs. 10506.10 Cr as at 31.03.2012.

Income on investments stood at Rs. 950.35 Cr as at 31.03.2013, registering a rise of Rs. 234.11 Cr (32.68%) when compared to the previous fiscal income of Rs. 716.24 Cr. The profit on sale of investments was at Rs. 88.34 Cr for the fiscal 2012-13 as against Rs. 26.20 Cr recorded in the previous fiscal 2011-12.

The average yield on investments improved to 7.67% during the year under report over the previous fiscal of 7.49%. Liquidity position of the Bank was comfortable throughout the year.

Forex Transactions

The merchant turnover of the Bank was up by 8.36% during the fiscal 2012-13 to reach Rs. 10109 Cr as against Rs. 9329 Cr during the previous fiscal 2011-12. The Bank has earned a profit on exchange of Rs. 23.16 Cr and other income (commission and others) of Rs. 31.35 Cr during the fiscal 2012-13.

Branch Net work

During the year 2012-13, for the first time in the history of your bank, 100 new branches were opened across India, taking the number of branches from 451 to 551.

In terms of the mix of the branches, the branch net work is fairly spread across all the population groups with Metro 16 %, Urban 26%, Semi-Urban 40% and Rural 18%.

Delivery Channels ATMs

Your Bank operationalised 465 ATMs across the country during the FY 13. Of the 465 ATMs, 124 are on-site and 341 are offsite. The total ATM population of your bank comes to 1277 as at the end of the fiscal 2012-13.

Taking into account the branches as well as the ATMs installed, the total customer outlets of the bank rose to 1826 as at 31.03.2013 from 1276 as at the end of the previous fiscal 2011-12.

Debit Cards

As at the end of fiscal 2012-13, the total number of cards issued by the Bank were at 3.54 million, of which 710365 cards were issued during the fiscal 2012-13.

POS

During the year under report, your Bank installed 3142 POS terminals across various merchant locations, taking the total to 5844 numbers as at 31.03.2013.

The gross value of transactions routed through such terminals stood at Rs. 422.58 Cr till 31.03.2013.

Technology Initiatives

Information technology continued to be the thrust area for the Bank as in the past. During the fiscal your Bank introduced/ developed various IT initiatives that are aimed at enhancing customer convenience and internal efficiency and decision making process through effective Management Information Systems.

State of the art Disaster Recovery (DR) Data Centre was built and your Bank deployed all latest technology in the Data Centre complying with robust and best in class technology infrastructure.

The following new initiatives were introduced to add value to the customer convenience:

- Installed 88 cash deposit machines to accept cash from customers for directly crediting to their own account or to third party account at select branches. The system can sort the cash, identify suspicious notes, accepts only good notes and provide receipt with denomination.

- Implementation of Interbank Mobile Payment System (IMPS) through net banking. This facility will enable the customer to make funds transfers to others (including accounts maintained in other banks) as an alternate channel. It will instantaneously remit the funds like RTGS and works on 24x7 basis.

- KVB has built its own captive Contact Centre at Tidel Park with 50 seater capacity and with Interactive Voice Response System (IVRS) for customers to do phone banking including funds transfer and also can avail customer support from the agents on multi-languages on 24x7 basis using proclaimed application.

- Implementation of mobile wallet: It is a pre-paid virtual card available on the mobile. No need for customers to carry cash or cards for purchases.

As the technology landscape is undergoing significant changes your Bank will continue to introduce systems in line with the new trends in the industry which delivers value to our customers.

Golden Vision initiatives

Members of the bank are aware that the bank has engaged the services of Boston Consulting Group (BCG) with the mandate to assist the bank in all spheres with particular reference to reaching the targeted business of Rs. 125000 Cr by the Centenary year 2016.

Their services are being continued and the bank has been implementing the recommendations of BCG. Organisational setup has been reoriented with a customer centric focus.

The Bank is in the process of putting in place a robust branch operating model capable of supporting the growing volumes of business. Your Bank has been focusing on improving the in-branch experience of the customers by redesigning the branches to create the best-in-class lay-out and ambience at its high footfall branches.

In order to reduce the waiting time for transaction processing, the bank has rolled out Single Window System of banking services in 75 branches.

Financial Inclusion

Your Bank was allotted 117 villages through SLBC for providing basic banking services under the Financial Inclusion Plan. The Bank has covered all the 117 villages by adopting Business Correspondent model. The Bank has opened 26278 basic savings accounts (no frill accounts) with Bio-Metric smart cards under Financial Inclusion Scheme. In order to take it forward further the Bank is in the process of opening Ultra Small Branches/Brick & Mortar branches in the allotted villages wherever feasible.

Special Reserve

In accordance with the provisions of Section 36 (1) (viii) of the Income Tax Act, 1961 (as amended), a deduction is available to a company for any Special Reserve created or maintained to the extent of 20% of the profit derived from the business for providing long term finance for industrial or agricultural development or development of infrastructure facility or housing in India. As your Bank has extended credit facility by way of term loans for housing, power, roads and other segments of infrastructure during last fiscal, it was decided to avail the said benefit. Your Bank has created special reserve to the extent of Rs. 50 Cr for the said purpose in 31.03.2013.

During the last four fiscal years commencing from 2009-10, your bank has created an aggregate amount of Rs. 145 Cr towards the Special Reserve.

Statutory Audit

The Statutory audit was carried out by M/s R K Kumar & Co, Chartered Accountants, Chennai. Their report is being annexed and forms part of this report.

The statutory auditors will retire at the ensuing Annual General Meeting. Their re-appointment is being placed before the shareholders for approval. The Bank has received a certificate from the Auditors confirming that their appointment, if made, would be within the prescribed limits specified under Sec 224 (1B) of the Companies Act, 1956 as also the extant guidelines issued by RBI. The auditors have also submitted the Peer Review certificate issued to them by the Institute of Chartered Accountants of India (ICAI).

Statutory Disclosures

Considering the nature of activities of the Bank, the provisions of Section 217(1) (e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. However the Bank is making extensive use of technology in all its operations and is also constantly pursuing its goal of technological upgradation in a cost effective manner to provide quality customer service.

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.

Board of Directors

Messrs K Parameshwara Rao, V Santhanaraman and Hemant Kaul have resigned as Directors during the year under report. The Board places on record its gratitude for the valuable contribution rendered by them during their tenure as Directors on the Board.

Shri N S Srinath was co-opted as an Additional Director of the Bank in the Board meeting held on 29.06.2012. He was elected as a Director of the Bank at the 93rd Annual General Meeting held on 30.07.2012.

Shri B Swaminathan was co-opted as an Additional Director by the Board effective 31st January 2013, to hold office till the 94th Annual General Meeting. Notice as required under Sec 257 of the Companies Act, 1956 has been received in respect of his appointment as Director of the Bank. Proposal to appoint him as Director, liable to retire by rotation, is being placed before the shareholders at the ensuing Annual General Meeting.

Directors Messrs MGS Ramesh Babu and S Ganapathi Subramanian are retiring by rotation at the forthcoming Annual General Meeting and are eligible for re-appointment. They have offered themselves for re-appointment.

As per Clause 49 of the Listing Agreement, brief resume of the Directors who are seeking re-appointment and the Additional Director seeking appointment as Director are furnished in the Corporate Governance Report attached to this Directors'' Report.

Directors'' Responsibility Statement

Pursuant to Section 217 (2AA) of the Companies Act, 1956 as amended, your Directors hereby report:

(a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of the Bank for that period;

(c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and

(d) The Directors have prepared the annual accounts on a going concern basis.

Awards and Accolades

Your Bank received several awards during FY13 for its consistent and all round performance. Given below are the awards won/ accolades received during the year 2012-13.

Financial Express-Best Old Private Sector Bank, 2012 (Runner up)

- Best Private Sector Bank award from Bloomberg UTV Financial Leadership Awards 2012

- Best Small Bank award from Business World - Price Waterhouse Coopers Awards 2012

- Award for Consistent Performance in growth and profits under Small Bank Category 2012 presented by CNBC TV 18.

- IPE BFSI Best Employer Brand Award 2012 given by Institute of Public Enterprises, Hyderabad.

- IPE Corporate Excellence Awards (CEO''s) Banking & Finance, 2012 presented by Institute of Public Enterprises, Hyderabad.

- Business Leadership Award Category given by Institute of Public Enterprises under Global HR Excellence Awards (CEO''s).

- ''Outstanding contribution to Brand building award'' presented by Indira group of Institutes, Pune in their 12th Indira Awards for Marketing Excellence.

Apart from the above, the Institute for Development and Research in Banking Technology (IDRBT) for its Annual Technology Excellence Awards 2011 selected KVB in respect of the following categories:

(a) Best IT Implementation and Management and

(b) Managing IT Risk Corporate Social Responsibility

Your Bank''s commitment, work ethics and business processes encourage all its employees and other participants to ensure positive impact and its commitment towards corporate social responsibility.

Your Bank has been extending its patronage by way of donations and sponsorship for various humanitarian activities in the field of education, health and other social causes as a part of its commitment towards Corporate Social Responsibility.

The Bank extended donations towards funding the following activities.

Health care

(a) Contributed a sum of Rs. 3.24 lakh to Rotary Texcity, Karur to conduct Medical Centre for one year

(b) Contributed a sum of Rs. 5 lakh to Sri Sathya Sai Trust, Mumbai towards free heart check up camp and surgery conducted by them for the benefit of economically weaker sections of the public

(c) A sum of Rs. 2 lakh was donated towards support to severly underweight children in Karur District programme organized by the District Collector, Karur- a mission initiative of District Administration to fight malnutrition among children in the age group of 6 months to 5 years.

Education

(a) Reimbursement of school fees to some children for Rs. 1.19 lakh

(b) Contributed to Rashtrotthana Parishat, Bangalore for running PARV School at Kolar District, Karnataka

(c) Donation of Rs. 3.60 lakh towards the Single Teacher School initiative of Swami Vivekananda Rural Development Society, Chennai

(d) Provision of 1000 numbers of ceiling fans to select schools in Tamil Nadu and Andhra Pradesh at a cost of Rs. 12.90 lakh.

Apart from the above your Bank has also contributed to the Anandam Charitable Trust, Chennai a home for destitute senior citizens in the age group of 63 to 93 years for their development activities.

Management Discussion and Analysis Report for the year under report and Report on Corporate Governance as stipulated under Clause 49 of the Listing Agreement are provided in separate sections forming part of the Annual Report.

Acknowledgements

Your Directors place on record their gratitude for the guidance and cooperation received from the Reserve Bank of India, Government of India, State Governments and other regulatory bodies. The Directors also place on record their appreciation of the encouragement and patronage received from valued customers and other stake holders and look forward to their continued support. The Directors also take this opportunity to express their appreciation for the hard work, dedication and efforts put in by the employees of the Bank.

For and on behalf of the Board of Directors

Karur K P Kumar

24.05.2013 Chairman


Mar 31, 2012

The Board of Directors is pleased to present 93rd Annual Report of the Bank along with the Audited Balance Sheet as on March 31, 2012 and the Profit and Loss Account for the year ended March 31, 2012.

Macroeconomic Developments

As per the Advanced Estimates released by the Central Statistical Office (CSO), the Indian economy was expected to register a growth rate of 6.9% in 2011-12.

Agriculture including allied activities accounted for 13.9% of the Gross Domestic Product (GDP) at 2004-05 prices as against 14.5% recorded in 2010-11. The production of food grains during 2011-12 has been estimated at 250.42 mn tones. This is mainly due to the increase in the production of rice in some of the major rice- producing states in the country viz: Assam, Jharkhand, West Bengal, Bihar and Uttar Pradesh. The stock position of food grains in the central pool is comfortable for meeting the Public Distribution System. Higher level of agricultural output and the ample stocks augur well for bringing down the headline inflation.

Industrial growth slowed down sharply during the fiscal under report led by contraction in mining and poor performance of the manufacturing sector. The industrial activity slowed down on account of variety of reasons such as subdued investment demand due to decline in business confidence, weak demand for consumer durables, cumulative impact of monetary tightening, reflecting interest rate sensitivity, domestic policy uncertainties and slackening of external demand. In the coal and natural gas segments of the mining sector there was contraction in production. Growth moderated in manufacturing sector and given its large share in IIP, led the slowdown in the industry. The cumulative growth rate of manufacturing sector during FY2012 slowed down to 2.9% compared to 8.9% in the same period of the FY2011.

The share of services in the India's GDP was 56.3% in 2011-12 as per the Advanced Estimates. The services sector is the principal source of employment in urban areas while the agriculture sector is the primary employment providing factor in the rural areas. There was a moderation in the services sector due to the slow down in construction.

The inflation remained persistently high and sticky at around 9% during 2011 and signs of moderation was there lately. The headline inflation which was 9.7% at the start of the financial year 2011-12, touched double digits in September 2011 and declined to 6.6% in January 2012. Consumer Price Index (CPI) inflation for the major indices declined to below 7% in December 2011. A major cause for the inflation continues to be high fuel prices driven by increase in international oil prices.

Monetary policy was strongly anti-inflationary till the third quarter and thereafter it has taken a neutral stance on account of deceleration and declining inflation momentum.

Going forward it is expected that the inflation would be at around current levels. The near terms inflation trajectory is subject to significant upside risks particularly from high oil prices, impact of significant depreciation of rupee, higher freight rates and taxes.

During the first half of 2011-12, India's exports witnessed a growth rate of 40.6%. However since October 2011, there has been a deceleration as a result of crisis originating in the periphery and spreading to the core economies in the euro area. Imports registered a growth of 29.4%. Non-POL imports grew by 25.7%. The Non-POL and non bullion imports reflect the import of capital goods needed for industrial activity and for imports needed for the exports. Bullion imports grew by 46.2%. The trade deficit at 40.4% was higher than the 2010-11 figure. India has to make progress in diversifying its imports and exports to weather the global crisis emanating from Europe and America.

The balance of payments came under significant stress during the third quarter of 2011-12 as the current account deficit (CAD) widened largely and capital inflows declined resulting in drawing down of reserves. A significant fall in capital flows particularly in the form of banking capital and investment inflows has pulled the overall balance of payments position to a deficit of $12.8 bn in Q3 2011-12. Cumulative Balance of payments during April to December 2011 stood as deficit of $7.1 bn against $11 bn surplus a year ago. The forex reserves during 2011-12 was $294.40 bn as against $274.33 bn for the year 2010-11.

The cumulative investment inflows during the FY 2012 stood at $64.26 bn, 3.1% lower than $66.32 bn during FY2011. Cumulative foreign direct investments for FY2011-12 amounts to $34.83 bn which was 17% lower than $21.38 bn in FY 2010-11.Cumulative portfolio investments was 45% lower during the FY 2012 from $ 31.47 bn in FY 2011 to $ 17.41 bn. However the cumulative external commercial borrowings rose by 40% to $35.97 bn during FY2011-12 from $25.78 bn in the previous fiscal 2010-11.

However going forward the global economy appears to be still in a stalemate with domestic risks to growth persisting globally. The euro zone crisis has not seen a credible resolution yet and the zone is entering into a recession. The growth in emerging markets like China and India appears to be slowing down than what is anticipated, but these two economies do have the potential to provide some support for the global recovery.

The external factors such as Euro zone crisis, volatility in foreign investment flows and the domestic factors such as continued monetary control policies and inflation control measures coupled with declining investment rates and weak and declining industrial production will place downside pressures on GDP growth in FY 2013.

It is however expected that the growth is expected to be marginally higher in the current fiscal 2012-13 than the previous fiscal.

Performance Highlights

Your Bank posted yet another year of impressive results with a healthy top line growth and robust earnings reflecting the efficacy of its corporate strategy. The business volume touched Rs. 56,317 Cr as at the end of the fiscal year 2012 over the corresponding previous fiscal year volume of Rs.42, 774 Cr.

The performance highlights of the bank for the year ended 31st March 2012 are as follows:

Sl. No. Particulars Amount (Rs in Cr)

1 Gross Deposits 32111.59

2 Gross Advances 24205.11

3 Total Income 3620.52

4 Operating Profit 725.71

5 Net Profit 501.72

Sl. No. Appropriations Amount (Rs in Cr)

Transfer to

1 Statutory Reserve 150.50

2 Capital Reserve 3.14

3 General Reserve 156.80

4 Special Reserve 35.00

5 a) Proposed Dividend 150.05

b) Dividend Tax (inclusive of Surcharge and Education cess) 24.34

Deposits

The gross deposits of the bank grew from Rs. 24,721.85 Cr as on

31.03.2011 to Rs.32,111.59 Cr as on 31.03.2012, recording a growth of 29.89% against the growth of the banking industry at 17.4% during 2011-12.

CASA deposits were at Rs. 6,151.58 Cr as at the end of 31.03.2012 as against Rs.5,755.32 Cr as on 31.03.2011. Time Deposits were at Rs.25,960.01 Cr as against Rs.18,966.53 Cr as on 31.03.2011.

During the fiscal 2011-12, your Bank conducted NRI Utsav to mobilise the NRI deposits and the result is encouraging.

Credit Portfolio

Your Bank has been according top priority to the asset quality. The total advances of the bank grew from Rs. 18,052.41Cr as on 31.03.2011 to Rs.24,205.11 Cr as on 31.03.2012, an increase of 34.08%. The growth in the advances portfolio was impressive when compared to the industry's growth rate of 19.3%.

The regulatory guidelines require that 40% of the Bank's adjusted net bank credit as at the end of the previous fiscal year, shall be lent to certain specified sectors categorized as 'Priority Sectors'. Your bank has lent Rs.7,526.92 Cr as on 31.03.2012 constituting 41.60%, well above the regulatory requirement of 40%. As at 31.03.2012, your bank has surpassed RBI stipulation of 18% in respect of agricultural credit by recording 21.90% and the advances made to weaker sections was at 10.18% against the regulatory requirement of 10%.

New Products

Your bank has expanded the product suite with the introduction of the following new products during the fiscal year under report.

In order to garner all types of retail business from Educational Institutions the bank launched a comprehensively packaged product to suit Educational Institutions called KVB Edu Plus Scheme.

To cater to the exclusive requirements of NRIs - Home Loan for NRIs was launched. The product has been titled 'KVB- Gruhapravesh'. It is a retail loan product with many features to attract NRI customers into our fold.

KVB has introduced KVB Transport Plus loan product for financing transport operators for Term Loans and Working Capital Limits.

Recovery

Your Bank has been able to contain the Non performing Assets to a large extent despite slow down in the economy and high interest rate prevailed during the fiscal under report.

As has been the practice, the Bank is following a cautious approach and focused very much on the asset quality especially in view of slow down in economic growth. Many pro-active measures were initiated such as dissemination of information, motivation, support to the operating units and monitoring progress at Central Office level. Thus the bank continued its triple action strategy viz: (a) Preventive Actions by constant monitoring (b) Recovery and Upgradation and (c) Resolution and Settlement which helped to contain growth of NPAs and maintain asset quality. These measures helped the functionaries at the operational level to identify early the accounts showing stress and classify them as Special Monitoring Accounts and follow up with these accounts to regularise / recover overdues in time and prevent slippages to NPAs.

The Gross NPA of the Bank as on March 31, 2012 was at Rs.320.99 Cr (1.33%) as against Rs.228.15 Cr (1.45%) as at the end of the previous year 2010-11. This is mainly on account of large amounts of slippages to NPAs despite the best efforts. The net NPAs of the Bank stood at Rs.78.78 Cr (0.33%) as at the end of the fiscal year 2012 up by 0.26% over the previous fiscal figure of 0.07%.

Share Capital

During the year under review the Bank called for the payment of First Call of Rs. 40/- and Second Call of Rs.35/- per share for the Rights shares allotted on 30.03.2011. The calls were duly paid by the shareholders and the shares upgraded to fully paid category. The amount collected towards the call monies amounted to Rs. 228.47 Cr. Out of this amount a sum of Rs. 12.18 Cr was credited to Share Capital account and the balance of Rs.216.29 Cr towards Securities Premium Account of the bank.

On 25.06.2011, the Bank allotted 5,08,204 equity shares under KVB ESOS 2008. The amount subscribed by the employees to the shares allotted under ESOS was Rs. 7.62 Cr.

The paid up capital of the Bank stood at Rs. 107.18 Cr as at the end of 31st March 2012 which includes Call amounts collected and the allotment of equity shares under ESOS.

The net owned funds of the bank stood at Rs. 2,708.22 Cr as at the end of the fiscal 2011-12 up 28.08% over the previous fiscal. The Capital to Risk Weighted Assets Ratio (CRAR) as per BASEL II as on 31.03.2012 stood at 14.33%. The bank has been consistently maintaining the ratio well above the regulatory minimum of 9% prescribed by Reserve Bank of India. The market capitalization as on March 31, 2012 was Rs.3,992 Cr.

Employee Stock Options Scheme

Out of the 10,00,000 stock options available under the KVBESOS 2008, 9,78,454 options were granted, exercised and allotted so far. 21,546 Stock Options are still available for grant.

Shareholders of the Bank have approved KVBESOS 2011 for 40,00,000 stock options in the last AGM held on 27.07.2011. The Bank is in the process of formulating the Scheme for the same.

No employee stock option was granted during the year either under KVBESOS 2008 or under KVBESOS 2011.

Particulars pursuant to Clause 12 of the SEBI (Employees Stock Option and Stock Purchase Scheme) Guidelines, 1999 do not arise as no stock option was granted during the fiscal under report and no stock option is outstanding as on 31.03.2012.

Credit Rating

The Credit Rating Agency, ICRA Ltd has accorded A1 rating to your Bank's Certificate of Deposit Programme of Rs.2,000 Cr. The rating symbol, A1 indicates very strong degree of safety regarding timely payment of financial obligations.

CRISIL has assigned A1 rating for the Certificate of Deposit Programme of 20 billion (Rs.2,000 cr) of the Bank. The said rating is considered to have very strong degree of safety regarding timely payment of financial obligations.

Dividend

In appreciation of the confidence reposed by the members in the Bank and their continued support and also taking into account the overall profitability position, future requirement of capital for incremental business projections and strengthening the capital adequacy, the Board of Directors of your Bank has recommended a dividend of Rs.14/-per equity share (140%) for the year ended March 31, 2012.

In terms of Sec 115 (O) of the Income Tax Act, 1961 the Bank will pay the Dividend Distribution Tax. Accordingly the total outflow on account of Dividend for the year 2011-12 will be Rs. 174.39 Cr including Dividend Distribution Tax.

Investments

The aggregate domestic investments of the bank were at Rs.10,581.27 Cr as on March 31, 2012 as against Rs.7,776.30 Cr as on March 31, 2011 registering an increase of 36.07% during the fiscal 2011-12. Net investments which were at Rs.7,731.76 Cr, registered an increase of Rs.2,774.34 Cr (35.88%) as on 31.03.2012 to reach Rs.10,506.10 Cr as at 31.03.2012.

Income on investments stood at Rs.716.25 Cr as on 31.03.2012, registering a rise of Rs.192.69 Cr (36.80%) when compared to the previous fiscal income of Rs.523.56 Cr.

The average yield on investments improved to 7.49% during the year under report over the previous fiscal of 7.20%. Liquidity position of the Bank was comfortable throughout the year.

Forex Transactions

During the year 2011-12, the merchant turn over increased from Rs.8,079 Cr to Rs.9,329 Cr registering a growth of 15.47%. The Bank has earned a profit on Exchange of Rs.32.99 Cr for 2011-12 with a growth of 34.60% over the previous year earnings of Rs.24.51 Cr. Other income (commission and others) earned during the fiscal 2011-12 was at Rs. 30.75 Cr with a growth of 27.75% over the previous fiscal year earnings of Rs.24.07 Cr.

Branch network

With the opening of 81 new branches during the fiscal 2011-12 and the upgradation of one satellite branch into a full fledged branch, your bank has been successful in expanding its network across the country as planned, with 451 branches. The Bank has also opened a new Divisional Office at Vizag taking the total number of Divisional Offices to 11 as at 31.03.2012.

Delivery Channels ATMs:

Your bank operationalised 337 new ATMs across the country. As at 31.03.2012, the Bank had a total of 825 own ATMs.

Taking into account the branches as also the ATMs installed, the total customer outlets of the bank rose to 1,276 as at 31.03.2012 from 857 as on 31.03.2011.

Debit Cards:

As at the end of March 31, 2012, the total number of debit cards issued by the bank were at 26,30,283. Out of which 5,33,954 cards were issued during the fiscal 2011-12.

POS Machines:

As on 31st March 2012, your bank installed 3,376 POS machines at various merchant establishments throughout the country. The total value of transactions routed through our terminals stood at Rs.162.29 Cr till 31st March 2012.

In order to incentivise the customers of our bank for carrying out more number of transactions through POS and e-POS by using our Debit cards, your bank has tied up with M/s Loylty Rewardz Management Pvt Ltd and launched a programme by the name Anmol Rewards for the benefit of the customer.

Technology initiatives

The following technology initiatives were implemented during 2011-12.

(a) Image based account opening for reducing the turn around time and for providing quick services to the customers of the Bank. This project has been short listed by MIS Asia Magazine, Singapore as one of the top 100 unique technology initiatives at Asia Level and taking a cue from the same the Bank launched this initiative.

(b) For on line bill payment, the bank has tied up Times Money.

(c) The bank also started video conferencing on regular and periodical basis with the Divisional Offices for review of their performance and for conducting product awareness programmes for the branches.

(d) Multi-redundant service providers for MPLS VPN for our branches to extend un-interrupted customer service.

(e) On line Deposit account opening by customers through net banking.

(f) Mobile ATM at Karur to provide ATM service to areas which does not have ATMs in the location.

(g) Master Card service. Bank has VISA principal membership.

(h) Inter-bank mobile payment service (IMPS) for funds transfer across banks through mobile banking.

As a part of the green initiative, your bank has implemented Solar based power for the UPS, Lighting, fans etc at 6 of our branches.

Other initiatives

Your Bank has entered into agreement with SBI Cards to issue KVB SBI Co-branded Credit Card to customers of our bank. The cards are issued with two variants viz: Gold & More and Platinum. The cards are visa enabled and has worldwide acceptance with 24 million across the world and in 6,00,000 outlets in India. It has many other features to suit the needs of the customers.

Bank's customers can make direct tax payment through net banking.

During the year we have introduced 'Door step' banking for cash pickup.

Your bank also launched sale of silver bars apart from the sale of gold coins in all its branches to augment fee based income.

In our last report, members were informed that the Bank has engaged the services of Boston Consulting Group (BCG) with the mandate to assist the Bank in areas such as attaining the target of the gross business of Rs.1,25,000 Cr business by the centenary year 2016, organizational restructuring, Business Reengineering Process, innovation in products and services etc.

The bank started implementing the major recommendations of BCG under "Golden Vision" Initiatives and periodically reviewing the progress of the project implementation. During the year among the implementation of various other recommendations, organizational restructuring has been carried out at Central Office and at the Divisional offices level. The Bank has to continue its journey of Golden vision consolidating the gains already made, ramping up the Key Business Development and support initiatives across the entire bank and targeting the crucial areas for transmission was felt required and their services are being continued.

Financial inclusion

Financial inclusion (FI) is a process which over a period of time makes a qualitative difference to the lives of all those who are covered under the process through financial literacy and awareness campaign and credible and easy access to banking facilities.

The bank has covered all the allotted 42 villages having a population of over 2,000 and above for implementing the financial inclusion programme. The bank has engaged Business correspondents in all the villages covered under the FI Plan. Under the financial inclusion plan, the bank has issued smart cards and opened 'no frill' accounts. The Bank has trained the nodal branch managers for the financial inclusion plan.

Going forward your bank will focus on leveraging branch network and utilise the Business Correspondents to enhance financial inclusion plan by offering banking facilities to the unbanked and growing relationships with those customers over a period of time.

Special Reserve

In terms of Sec 36 (1) (viii) of the Income Tax Act, 1961 (as amended), a deduction is available to a company for any Special Reserve created and maintained to the extent of 20% of the profit derived from the business for providing long term finance for industrial or agricultural development or development of infrastructure facility or housing in India. As your Bank has extended credit by way of term loans for housing, power, roads and other segments of infrastructure during the last fiscal, it was decided to avail the said benefit. Accordingly a sum of Rs.35 cr was created by way of special reserve during the fiscal under report. It may be noted that the bank has created special reserve to the extent of Rs.30 cr each for the said purpose in 31.03.2010 and 31.03.2011. The total special reserve created during the last three years till 31.03.2012 accounted for Rs.95 cr.

Statutory Audit

The statutory audit was carried out by M/s R K Kumar & Co, Chartered Accountants, Chennai. Their report is being annexed and forms part of this report. The statutory auditors will retire at the ensuing Annual General Meeting. Their re-appointment is being placed before the shareholders for approval. Certificate from the Auditors have been received to the effect that their re-appointment, if made, would be within the prescribed limits specified under Sec 224 (1B) of the Companies Act, 1956. The auditors have also submitted the Peer Review certificate issued to them by the Institute of Chartered Accountants of India (ICAI).

Statutory Disclosures

Considering the nature of the Bank's business, the provisions of Sec 217 (1) (e) of the Companies Act, 1956 relating to conservation of energy and technology do not apply to your Bank. The Bank has, however, used information technology extensively in its operations.

There was no employee who was in receipt of remuneration during the year ended March 31, 2012 requiring disclosure under Sec 217 (2A) of the Companies Act, 1956 read with Companies (Particulars of Employees) Rules, 1975.

Board of Directors

Your Board has ten members including the Non-Executive Chairman besides Managing Director and Chief Executive Officer.

Shri P T Kuppuswamy, demitted office of MD & CEO on 31st May 2011 consequent to the expiry of his term of office. Shri K Venkataraman took over as the MD & CEO on 6th June 2011. It may be noted that the terms of his appointment were already approved by the shareholders in the 92nd AGM held on 27.07.2011.

Dr. V G Mohan Prasad demitted office as Director of the bank on 27.07.2011 consequent to the completion of his tenure in terms of the Banking Regulation Act, 1949. Dr S Krishna Kumar, has resigned as a Director of the bank with effect from 29.12.2011. Board places on record its sincere appreciation of the services rendered by them during their tenure as Directors of the Bank. CA Shri K Ramadurai and Shri K K Balu were inducted as Additional Directors of the bank during the year under report. They are seeking election as Directors of the Bank at the ensuing Annual General Meeting.

In terms of Clause 49 of the Listing Agreement, brief resume of the above directors who are seeking election at the ensuing Annual General Meeting is furnished in the Corporate Governance Report attached to this Directors' Report.

Directors' Responsibility Statement

As per Section 217 (2A) of the Companies Act, 1956 as amended, your Directors report that:

1. The Accounts for the year 2011-12 were prepared by following Accounting Standards in so far as they apply to the Banks.

2. Accounting policies adopted and applied consistently by the bank are in tune with the guidelines issued by Reserve Bank of India from time to time. Reasonable and prudent judgements and estimates have been made in the accounts so as to give a true and fair view of the state of affairs of the bank as on 31.03.2012 and of the profit of the bank for the financial year ended on 31.03.2012.

3. Proper and sufficient care was taken for maintaining adequate records in accordance with the provisions of the Companies Act, 1956 in so far as they apply to banks.

4. The annual accounts for the year ended 31st March 2012 have been prepared on a 'Going Concern' basis.

Awards and Accolades

The continued good performance of the bank has won laurels and appreciation from several quarters during the year 2011-12. The awards and accolades won during the year are listed below:

- Your Bank has been conferred the Best Cost Efficient Private Sector Bank by FICCI-IBA under FIBAC Best Bank Award 2011. The award was received from the hands of Shri Prithviraj Chavan, Hon'ble Chief Minister of Maharashtra.

- The Bank has won Best Bank Award for Mobile Banking among Small Banks from IDRBT Banking Technology Excellance Awards 2010-11 by the Institute for Development and Research in Banking Technology, Hyderabad.

- KVB was adjudged as the Best Old Private Sector Bank by CNBC-TV18 Best Banks & Financial Institutions Awards, 2011 by CNBC-TV18-MCX. The award was received from the hands of Hon'ble Minister for Corporate Affairs Shri Veerappa Moily.

- Financial Express India's Best Bank Awards, 2011 conferred Best Old Private Sector Bank- Runner Up. The award was presented by Shri Pranab Mukherjee, Hon'ble Finance Minister of India.

- Business World-Price Waterhouse Coopers Best Bank Awards, 2011 adjudged your Bank as the Best Small Bank and Fastest Growing Small Bank. Shri Pranab Mukherjee, Hon'ble Finance Minister of India, presented the award.

- The Bank was rated as the second in the Mid-sized banker category as also the best mid sized bank in quality of assets (Balance Sheet Size less than Rs.50,000 cr) by the Business To-day-KPMG.

- The State Forum of Bankers' Club, Kerala conferred the Best Private Sector Bank, 2010-11 award.

KVB is a responsible corporate citizen and the same is recognized by the Central Excise and Service Tax Commissionerate, Trichy by giving 'Top Tax Payer' award. We are second highest service tax payer under the 'Services' category.

During the current fiscal your bank received BEST PRIVATE SECTOR BANK 2012 award from the Bloomberg-UTV Financial Leadership Awards 2012. MD & CEO of the Bank received the award from the Hon'ble Finance Minister Shri Pranab Mukherjee.

Corporate Social Responsibility

Your Bank has been extending its patronage by way of donations and sponsorship for various humanitarian activities in the field of education, health and other social causes as a part of its commitment towards Corporate Social Responsibility.

The Bank extended donation towards funding the following activities

(a) Rs. 2.50 lakh towards Ambulane to Shakuntala Devi Maternity Hospital, Royapuram, Chennai

(b) Rs.2.70 lakh to Rotary Texcity, Karur, to conduct medical camps for one year

(c) Rs.3 lakh to Bharat Vikas Parishad Charitable Trust, Bangalore for establishment of Centre for manufacture of artificial limbs and re-habilitation.

(d) Rs.50,000/- to Arogya Sadan Charitable Trust, Kolkata for their care centre of mentally challenged persons.

(e) Rs.8.87 lakh to Akshaya Foundation, Bangalore for purchase of van for distribution of mid-day meals to school children.

(f) Rs. 5 lakh to B.W. Lions Super Speciality Eye Hospital, Bangalore for expansion of the eye hospital.

(g) Rs.50,000/- to Patthi Adinarayanaiah Ramakrishnamma Vidhya Samasthe, Munganahalli, Karnataka.

Your Bank has contributed Rs. 50 lakh to the Tamil Nadu Chief Minister's Thane Cyclone Relief Fund.

Besides the above the Bank has also contributed to the cultural cause by donating a sum of Rs. 25 lakh to the renovation of the auditorium of Narada Gana Sabha, Karur. Rs.2.76 lakh was donated to Sri Kasi Annapurna Vasavi Arya Vysya Vrudhashramam and Nithyanna Satram.

Management Discussion and Analysis Report for the year under report and Report on Corporate governance as stipulated under Clause 49 of the Listing Agreement are provided in separate sections forming part of the Annual Report.

Acknowledgements

The Directors thank the valued customers, shareholders, well- wishers and correspondent banks, business associates for their goodwill, patronage and support.

Your Directors acknowledge with gratitude the valuable and timely advice, guidance and support received from GOI, RBI, SEBI, NSE, Depositories and various State Governments in the functioning of the Bank.

The Directors place on record their deep appreciation of the valuable contribution of the members of the staff at all levels for the consistent growth of the Bank which took the bank to greater heights and look forward to their continued co-operation in realization of the corporate goals in the years ahead.

For and on behalf of the Board of Directors

Place : Karur K.P. Kumar

Date : 25.05.2012 Chairman


Mar 31, 2011

The Board of Directors take great pleasure in presenting this 92nd Annual Report on the business and operations of your bank together with the audited accounts for the year ended year ended 31st March 2011.

Economic Overview

The global economic recovery is broadly on track and continues to move rapidly though there are large output gaps in advanced economies and closing gaps in emerging and developing markets. International Monetary Fund has projected world real GDP to slow down to 4.4% in 2011 from 5% in 2010. The key to downslide was primarily on account of oil prices.

Indian economy continued its good performance than most emerging markets during the fiscal 2010-11 and it retained its position as the second largest growing economy amongst the G20 countries. According to the Central Statistical Organisation (CSO) GDP factor cost at constant prices is expected to register a growth of 8.6% in FY 2010-11 while it grew by 8% in the previous fiscal. Agriculture, aided by normal monsoon, provided the impetus to growth. The agricultural production rebounded in 2010-11 after suffering drought conditions in the preceding year. With good Kharif and Rabi crops, food grains production reached a new record. A satisfactory North-East Monsoon following normal South-West monsoon, favourable reservoir positions etc., led to the improved agricultural production. Higher agricultural production and significant rise in the outputs of key agricultural products would help in reducing the pressure on food prices. The agricultural growth may also lead to better rural incomes and thus benefit the demand for other sectors.

The growth in industrial sector was moderated mainly on account of high base effect and sharp deceleration in capital and intermediate goods. Except consumer goods almost all sectors exhibited slowdown. Higher private consumption demand led to the higher growth in both durables and non-durables segment.

The services sector growth was robust notwithstanding some deceleration in government spending related services.

Exports improved during 2010-11. The exports grew by 37.5%, fastest since independence and totalled US $ 246 billion. Imports also showed an increase of 21.2% and totalled US $ 350 billion. Strong growth performance facilitated moderation of the current account deficit to a certain extent.

As the inflation stayed above the indicated projections during the fiscal 2010-11, monetary policy was continually tightened by the regulator throughout the year.

Monetary and liquidity conditions responded to the policy measures with slow pace. Equity market witnessed good buying interest from FIIs during the second and third quarter of 2010-11 followed by some correction along with greater volatility. The calibrated policy measures adopted has not impacted the growth momentum.

The stock market underperformed and remained volatile reflecting several uncertainties. The activity in the primary segment of the domestic capital market remained buoyant during the first three quarters and moderated during the last quarter. During the year resource mobilistion by mutual funds turned negative, owing to high volatility in the market, lower retail investments, lower corporate support and higher returns in bank deposits.

The macro economic outlook for the year 2011-12 remains favourable though the high oil prices pose the biggest risk to both growth and inflation.

Against this backdrop your banks performance during the last fiscal is highlighted below:

Performance Highlights

Sl. No. Particulars (R s . i n cr)

1 Gross Deposits 24721.85

2 Gross Advances 18052.41

3 Total Income 2482.03

4 Operating Profit 600.58

5 Net Profit 415.59

Sl. No. Appropriations (Rs. in cr) Transfer to

1 Statutory Reserve 125.00

2 Capital Reserve NIL

3 General Reserve 111.50

4 Special Reserve -Sec36(i)(viii) as per income Tax Act 30.00

5 a) Proposed Dividend 128.63

b) Dividend Tax (inclusive of Surcharge and Education cess) 20.87

Sl. No. Other Highlights: (Rs. in cr)

1 Net Worth 2059.19

2 Book Value per share (Rs.) 193.04

3 Earning per share (Rs.) 44.90

4 Capital Adequacy Ratio(%)-

BASEL I 12.16%

BASEL II 14.41%

Deposits

Aggregate deposits of the bank increased from Rs. 19271.85 cr in March 2010 to Rs.24721.85 cr in March 2011 registering an impressive growth rate of 28.28%.

CASA constitute 23.28% of the total deposits. Savings deposits rose by Rs.765.40 cr to touch Rs.3253.07 cr from Rs.2487.67 cr. registering a growth rate of 30.77%. The savings bank campaign launched by the Bank during the year under report accelerated savings deposits growth. Cost of Deposits was lower at 6.67% compared with 7.13% during the last fiscal.

Credit Portfolio

Your Bank continued its thrust on the quality while expanding the assets base. The gross advances grew from Rs. 13675 cr as on 31st March 2010 to Rs.18052.41 cr as on 31st March 2011, an increase of 32.01%. The credit portfolio is well diversified.

Your Bank continued to give added focus to the Priority Sector lending in conformity with the national policies, regulatory expectations and fulfillment of social objectives.

As per the regulatory guidelines, achievement under priority sector for the fiscal 2010-11 is computed taking Adjusted Net Bank Credit (ANBC) of March 2010 as the base. For the fiscal under report the percentage of Priority Sector Advances to ANBC was at 41.05%, thus complying with the stipulated norm of 40% under Priority Sector Credit.

Bank has also achieved the regulatory target of 18% under agricultural advances which was at 18.29% as at 31.03.2011. The weaker section advances was at 10.17% against the prescribed 10% norm.

Recovery

Your bank has adopted two pronged strategies to prevent slippages and manage NPAs. On the one hand, aggressive thrust was given to effect recovery by adopting specific strategies like conducting adalats, filing of suits with DRT, initiating action taken under SARFASEI Act and compromise settlements etc. On the other hand, thrust was given to appropriate management of NPAs. Towards this end, willful defaulters were identified and quick mortality cases evaluated and corrective steps initiated. Sustained monitoring and continuous followup were carried out to prevent further slippages into NPA category.

As a result , the Gross NPA level of the Bank came down from Rs. 235.34 crs to Rs.228.15 crs. The percentage of Gross NPA to Gross Advances also registered a decline- i.e from 1.72% to 1.26%. The Net NPA percentage came down significantly from 0.23%to 0.07% during the fiscal. The ratio is one of the lowest in the industry. The Bank has been consistently building up provisions for impaired assets from time to time, which has resulted in achieving a Provision Coverage Ratio (PCR) of 93.92% of the total reduction under NPA during the fiscal, cash recovery accounted for 67.79%. Despite robust growth of credit portfolio, during the past five years, the NPAs are constantly kept under control by relentless follow up and recovery drive.

Share Capital

During the year under report the Board announced Bonus shares to the shareholders in the ratio of 2 bonus shares for every five shares held on the record date. The Bonus shares were allotted on 20.09.2010. With the allotment of Bonus shares, the paid up share capital which stood at Rs.54.44 cr as at 31st March 2010 stood increased to Rs.76.21 cr. The Board also announced Rights shares in the ratio of 2 rights shares for every five shares held on the record date inclusive of the Bonus shares. The rights shares were issued and allotment of the said shares were made on 30.03.2011. With the allotment of Rights shares, the paid up share capital stands increased to Rs.94.49 cr. Further the bank has received in advance towards First call money a sum of Rs.22.45 cr.

Credit Rating

The credit rating agency, CRISIL has reaffirmed "P1+" (pronouncd "P one plus") rating for the Banks Rs. 10 billion Certificate of Deposit Programme. The rating symbol "P1+" indicates that the degree of safety with regard to timely payment of interest and principal on instrument is very strong.

Dividend

Your banks policy of declaring the dividend is to reward the shareholders as well as to plough back profit for maintaining a healthy capital adequacy ratio and for supporting future growth. Accordingly your Directors are pleased to propose a total dividend of 120% (i.e Rs.12/- per share of Rs.10/-) for the year ended 31st March 2011 . However the proposed dividend is on the enhanced capital on account of Bonus and Rights shares allotted during the fiscal 2010-11. The payment on account of dividend would be Rs.149.50 cr including dividend tax. Board takes pleasure to mention here that this is 4th year in succession that a dividend of 120% is paid.

Net owned Funds and Capital Adequacy

The net owned funds of the Bank crossed Rs.2000 crs and stood at Rs.2136.98 cr. The Capital to Risk weighted Assets Ratio (CRAR) as per BASEL I as at the end of March 2011 stood at 12.16%. As per BASEL II norms, CRAR is 14.41 %. Your Bank continues to have the capital adequacy ratio well above the regulatory minimum of 9%. Banks CRAR of 14.41% under BASEL II norms offers comfort and cushion for future expansion and growth in asset portfolio.

Investments

The treasury is responsible for compliance with reserve requirements, management of liquidity and interest rate risk on the Banks Balance Sheet. Bank holds government securities in order to comply with the regulatory requirements to meet the statutory liquidity ratio (SLR).

The aggregate investments of the Bank increased to Rs.7,776.31 cr at the end of the financial year 2010-11 as against Rs.6,649.44 cr in the FY 2009-10, an increase of 16.95%. Net investments rose by Rs.1,129.60 cr as on 31.03.2011, ie. from Rs.6602.16 cr to Rs.7,731.76 cr registering a growth of 17.11%.

Incomes on investment stood at Rs.523.56 cr as on 31.03.2011, registering a rise of Rs. 127.29 cr (32.12%) compared to the previous year fiscal of Rs.396.27 cr.

The average yield on investments improved to 7.20% during the year against previous fiscal of 7.00%. Liquidity position of the Bank was comfortable through out the year.

Forex Transactions

Your bank achieved a merchant turnover of Rs.8079 cr during the fiscal 2010-11 as against Rs.6909 cr recorded in the previous fiscal. The gross income earned from the forex operations was Rs.108.83 cr. The export credit of the bank stood at Rs.837.72 cr as on March 31, 2011 as against Rs.634.74 cr as on 31.03.2010, thus registering a growth of 31.98%.

Branch Network and Expansion

During the fiscal 2010-11, 34 branches were added by the Bank including 1 satellite branch that was upgraded as a full fledged branch, taking the total branch network of the bank to 369.

During the fiscal 2010-11, 112 ATMs were brought into the network taking the total to 488 (364 on site and 124 offsite).

Your Board continues to give thrust for opening brick-and-mortar branches covering all the parts of the country in order to have a wider pan India presence and has plans to open 75 branches and 150 ATMs during the current fiscal 2011-12.

Technological Initiatives

Your banks emphasis on technology deployment as an instrument for enhancing service quality continued during the year. A wide gamut of services has been provided under Internet banking facility. The year saw the implementation of additional security using RSA technology for internet banking users, both corporate and retail. There has been a steady increase in number of customers using the facility as also in the volume of transactions.

The bank has also launched on line bill payments of Tamil Nadu Electricity Board. Also soft launched mobile banking payment services and inter-bank mobile payment service. Your bank implemented NEFT payments through internet banking services.

At all your banks Currency Chests, Bio-metric and Proximity Card based access control system was implemented.

Other initiatives

Members are aware that the Bank appointed Boston Consulting Group (BCG) with the mandate to assist the bank in the areas such as attaining the target of total business of Rs.1,25,000 cr

by the centenary year 2016, restructuring the organization, Business re-engineering process, innovation of Products and services, study the recruitment and promotion policies etc. The recommendation of the said Group is being implemented under "Golden Vision Initiatives". While the bank has implemented some of the important modules suggested by them, the roll out of other modules is under study and will be implemented in stages during the current fiscal. The modules that are rolled out under the Golden Vision Initiatives are encouraging.

Your bank launched sale of Gold Coins during the year under report and the income earned is quite encouraging.

Your bank has also launched the following products during the FY2010-11:

(a) KVB Gift Card

(b) KVB Travel Card

(c) KVB Prestige - an SB product for High Networth Individuals

On the assets portfolio the following new products have been introduced:

(a) KVB Rice Plus - to finance the Rice Mills

(b) KVB Timber Plus- to finance Timber merchants

Financial inclusion

With a view to provide banking facilities to the sections of society which are so far deprived from the formal financial sector, the bank implemented financial inclusion policy. SLBC, Tamilnadu had allotted 36 villages to your bank for implementation of the financial inclusion scheme. The bank has adopted Business Development Model and has rolled out the scheme in 34 villages taking the implementation to very impressive rate of around 95%. As a part of the financial inclusion drive, your bank formulated a special no frills savings bank product known as "KVB Grama Jyoti" . Distibution of smart cards has also begun.

Special Reserve

Income tax deduction under Sec 36 (1) (viii) is available for any Special Reserve created and maintained to the extent of 20% of the profit derived from the business of providing long term finance for industrial or agricultural development or development of infrastructure facility or housing in India. As the Bank has extended Term Loans for housing, power, roads and other segments of infrastructure in the last year, it was decided to avail the said tax benefit. Accordingly your bank has created a special reserve of Rs.30 cr during the fiscal under report (previous year Rs.30 cr).

Statutory Audit

The statutory audit was carried out by M/s R K Kumar & Co., Chartered Accountants, Chennai whose report is being annexed and forms part of this report. The statutory auditors will hold office until the conclusion of the ensuing Annual General Meeting. Their re-appointment is being placed before the shareholders for approval. Certificate from the Auditors has been received to the effect that their re-appointment, if made, would be within the limits prescribed under Sec 224(1B) of the Companies Act, 1956. The auditors have also submitted the Peer Review Certificate issued to them by the Institute of Chartered Accountants of India (ICAI).

Statutory Disclosures

The information required under the provisions of Sec 217 (2A) of the Companies Act, 1956 read with The Companies (Particulars of Employees) Rules 1975 as amended is NIL since none employed was in receipt of the remuneration as specified in the said Rules.

Considering the nature of activities as an entity in the financial services sector, the provisions of Sec 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. The Bank has however made optimum use of information technology in its various operations.

Employees Stock Option Scheme

The information pertaining to the Employees Stock Option Scheme 2008 is given as an Annexure to this report.

Board of Directors

The Board consists of ten members including the Non-Executive Chairman and Managing Director & Chief Executive Officer.

Reserve Bank of India, on the recommendation of the Board of Directors appointed Shri K P Kumar as the Non-Executive Chairman of the bank for a period of three years effective from 24.09.2010. The terms of appointment are placed before the shareholders for their approval at the ensuing Annual General Meeting.

As the term of the present Managing Director & Chief Executive Officer Shri P T Kuppuswamy expires on 31st May 2011, the Board recommended the appointment of Shri Krishnamoorthy Venkataraman as the MD & CEO for a period of three years to RBI. The terms of his appointment as approved by RBI are being placed before the shareholders for approval at the ensuing Annual General Meeting.

Shri A J Suriyanarayana was co-opted as an Additional Director on 27.10.2010. He is seeking election as a Director at the ensuing Annual General Meeting.

Directors Shri S Krishnakumar and Shri S Ganapathy Subramanian retire by rotation and being eligible offer themselves for re- appointment.

In terms of Clause 49 of the Listing Agreement, brief resume of the above directors who are seeking election at the ensuing Annual General Meeting is furnished in the Corporate Governance Report attached to this report.

During the year under report Shri A S Janarthanan, Non-Executive Chairman, demitted office on 23.09.2010, after completing his tenure of office. The Board wishes to place on record its deep sense of appreciation for invaluable and immeasurable contribution to the growth and development of the Bank during his long tenure as Director and as Non-Executive Chairman.

Directors Responsibility Statement

In terms of Sec 217 (2A) of the Companies Act, 1956, your Directors of the Bank report as under:

a. in the preparation of the annual accounts, the applicable accounting standards as modified and advised by RBI have been followed together with proper explanations for the deviations, if any.

b. Generally accepted accounting policies and the guidelines issued by Reserve Bank of India have been followed consistently.

c. Reasonable and prudent judgments and estimates had been made so as to give a true and fair view of the state of affairs of the bank as at 31.03.2011 and the profit of the bank for the year ended on that date.

d. Proper and sufficient care was taken for the maintenance of adequate accounting records as per the applicable provisions governing banks in India.

e. The annual accounts had been prepared on a going concern basis.

Awards and Recognition

1. Your Banks technological efforts were recognized yet again by the Institute for Development and Research in Banking Technology, Hyderabad. Your Bank has been awarded the Special Award - Best IT Infrastructure Management, 2009. The Banking Technology Awards, 2009 were presented at a function at Hyderabad on 18th June 2010.

2. Your Bank was adjudged as the "Best Small Bank- 2010" by Business World - Price Waterhouse Coopers

Corporate Social Responsibility

The Bank believes that its success is intrinsically linked to sustainable environmental practices. Your Board resolved to go green banking during the fiscal under report by installing a windmill of 850 KW at Rs.5.22 cr at Theni District, Tamil Nadu. The Bank has partnered with Gamesa Wind Turbines for installation of the wind mill for its captive use. The power generated by the windmill would be wheeled to various HT consumption points of the bank in the State.

The bank has been associating with social and charitable initiatives for the betterment of the society at large. Some of the initiatives the bank associated with during the fiscal under report are:

1. Donations made to the Karnataka Arya Vysya Charitable Trust for funding student scholarship.

2. Sponsored Cardiac service camp at Karur in association with Lions Club and Madras Medical Mission

3. Donation made to the Sathyasai Trust for conducting Jaipur Foot Camp

Acknowledgements

The Board of Directors wishes to place on record its sincere thanks to the Reserve Bank of India, SEBI, Ministry of Finance, National Stock Exchange, other Government and regulatory authorities, financial institutions and correspondent banks, business associates for their support and guidance. The Board of Directors are also grateful to the valued customers, esteemed shareholders, stakeholders and public at large for their patronage and confidence reposed in the bank.

The Board of directors also place on record their appreciation of the commitment, sense of involvement and dedication exhibited by each staff member in the overall development, growth and prosperity of the bank and look forward to their continued support and whole-hearted co-operation for realization of the corporate goals in the years ahead.

For and on behalf of the Board of Directors

Place : Karur K.P. Kumar

Date : 20.05.2011 Chairman


Mar 31, 2010

The Directors take pleasure in presenting the 91 st Annual Report, the Audited Balance Sheet as at 31st March 2010 and the Profit and Loss Account tor the year ended 31 st March 2010 along with the Auditors Report.

ECONOMIC OVERVIEW

The global economy, which saw an unprecedented government intervention during the economic crisis in 2008, continues to recover in the wake of policy support and improving financial market conditions.

The Indian economy recovered quickly from the global financial crisis thanks to the monetary and fiscal stimulus initiated by the RBI and the Government. These factors ensured not only mitigating the adverse impact but also quick recovery of the economy. The Indian economy is now placed firmly on the recovery path. The advance estimates released by the Central Statistical Organisation puts the GDP growth at 7.2% in fiscal 2009-10, with industrial and service sectors growing at 8.2 and 8.7 percent respectively.

In the Agricultural front, South-West monsoon, deficient during 2009 with a shortfall of 23% in precipitation, brought drought in several states. However the North-East monsoon during 2009 has been satisfactory. The delayed withdrawal of South-West monsoon and the above normal North-East monsoon and focused government attention towards increasing the rabi production would result in higher rabi output and thus off-set the losses in Kharif output. As per the advance estimates for 2009-10, the total food grain production would decline by 7.5% over the previous year.

The industrial production, affected by cyclical slowdown and international commodity price shocks in 2007-08 and global recession during the last fiscal 2008-09, showed recovery path substantially. There was a double digit growth in Index of Industrial Production (IIP). The industrial growth was broad based, driven by the manufacturing sector.

The services sector, which exhibited recovery in the second quarter, showed down trend in third quarter of 2009-10. The decline was on account of decline in growth of community, social and personal services. There has been accelerated growth in the output of sub-groups such as construction, trade, hotel, transport and communication.

The countrys external sector showed improvement with recovery signs seen in the global economic environment resulting in turnaround of exports, buoyancy in capital flows and acceleration in foreign exchange reserves. The balance of payments position remained comfortable and there has been a modest increase in current account deficit. As at the end of March 2010, the countrys forex reserves were at US$ 279.10 billion.

Gaining traction from the economic turnaround the annual growth in Bank credit recorded a 16.04% growth in line with the regulators projection of 16% for the FY 2009-10. The deposits went up by 18.14% y-o-y as against the revised growth projection of 18% fixed by RBI.

The aggregate business of your bank crossed yet another milestone figure of Rs. 30,000 cr and stood at Rs. 32,946.85 cr at the end of the financial year 2009-10. The total business of the bank increased by Rs. 7,282.56 cr from the previous years figure of Rs. 25,664.29 cr registering a y-o-y growth of 28.38%.

PERFORMANCE HIGHLIGHTS

Against the backdrop of the economic turnaround, your bank has posted good performance. The financial performance of your bank for the fiscal 2009-10 is given below:

Particulars Rs. (in cr) 01 Deposits 19,271.85 02 Gross Advances 13,675.00 03 Total Income 2,004.92 04 Operating Profit 463.22 05 Net Profit 336.03 Appropriations: Transfer to 01 Statutory Reserve 101.00 02 Capital Reserve 5.20 03 General Reserve 133.00 04 Special Reserve-Sec 36(1 )(viii) as per Income Tax Act 0.00 05 (a) Proposed Dividend 65.32 (b) Dividend Tax (inclusive of Surcharge and Education cess) 11.10 Other Highlights: 01 Net Worth 1,619.98 02 Book Value per share (Rs.) 297.60 03 Earning per share (Rs.) 62.23 04 Capital Adequacy Ratio (%) (under BASEL II) 14.49

DEPOSITS

The total deposits of the Bank have grown by Rs. 4,170.46 cr from Rs. 15,101.39 cr as on 31 st March 2009 to Rs. 19,271.85 cr as on 31st March 2010, registering a growth of 27.62 %. Savings Deposits have grown from a base of Rs. 1,808.82 crto Rs. 2,484.67 cr showing an increase of Rs.675.85 cr from the previous financial year (37.36%), mainly on account of the Savings Deposit campaign launched by the bank during the year. The Demand Deposits grew by 37% to reach Rs. 2,050.53 cr as at the end of FY 2009-10 from Rs. 1,496.77 cr as at the end of the previous fiscal 2008-09. Thus your bank posted an impressive growth of 37.20% (y-o-y) under LCD segment.

CREDIT PORTFOLIO

Your Bank continued its prudent approach in expanding quality credit assets in line with its policy on credit risk management. The advances of the bank increased by Rs. 3,112.10 cr from Rs. 10,562.90 cr as on 31.03.2009 to Rs. 13,675.00 cr as on 31.03.2010, recording an impressive growth of 29.46%. The growth of credit has been marked by a broad-based expansion across sectors as diverse as agriculture, small and medium industry, large industry and infrastructure.

During the year, the bank has adopted a number of strategies to achieve sustainable credit growth and asset quality improvement thereby ensuring higher earnings besides maintaining a well diversified credit portfolio.

The priority sector credit accounts for Rs.4,521.86 cr as at the end of the fiscal 2009-10, constituting 42.80% of the net bank credit of the previous fiscal as per regulatory norms.

In terms of regulatory guidelines under BASEL II, the banks corporate clients are to be rated by a credit rating agency. In this connection your bank has already entered into MOU with CARE and also with CRISIL for rating corporate clients. Further the bank has also entered into MOU with SME Rating Agency of India Ltd (SMERA) for rating of the SME borrowers.

RECOVERY

The bank has devised a strategic policy for recovery of NPAs. The various measures adopted for recovery included one time settlements/out of court settlements, Lok Adalat, filing of suits before the Debt Recovery Tribunals and action taken under SARFASEI Act etc. Continuous monitoring of stressed accounts at the Central Office as also at the Divisional Offices yielded desired results in arresting slippage to NPAs.

As a result of pro-active approach and the sustained efforts taken by the bank, Gross NPA at the end of the fiscal amounted to Rs. 235.34 cr (1.72%) as against Rs.205.86 cr (1.95%) previous fiscal. The percentage of net NPA declined from 0.25% to 0.23%.

The bank has been keeping a strict vigil on the delinquency aspect, keeping in view the dynamic credit growth. This has been amply testified by the fact that the credit portfolio of the bank has posted a four fold growth since 2003 from Rs.3,424 cr to Rs.13,675 cr, while the Gross NPA has declined from Rs.255.47crtoRs.235.34cr.

As against the regulatory prescription of 70% coverage ratio for NPAs, your bank maintains a higher provision of 86.85%.

SHARE CAPITAL

The paid up capital of the bank as on 31.03.2010 stood at Rs. 54.44 cr as against Rs.53.95 cr during the previous year. The increase in the paid up capital was due to the issue and allotment of 4,70,250 equity shares under Employees Stock Option Scheme 2008 (Tranche I) as also allotment of 13,710 equity shares which were kept in abeyance consequent to settlement of legal disputes.

TIER II SUBORDINATED DEBTS

To augment capital adequacy, the bank issued during the year Unsecured Redeemable Non-Convertible Subordinated (Tier II) Bonds (Series I) in the nature of promissory notes for cash to the extent of Rs.150 cr. The said bonds were allotted to a financial institution and a bank. The subordinated debts are assigned a rating of LA+ (pronounced as LA Plus) by ICRA. The rating indicates adequate credit quality.

CREDIT RATING

The Certificate of Deposit programme of the Bank for INR 20 billion (Rs.2,000 cr) are rated P1+ by the credit rating agency CRISIL for INR 10 billion (Rs.1,000 cr) and another INR 10 billion (Rs.1,000 cr) by ICRA which has assigned the rating A1+. Both the ratings indicate highest credit quality.

DIVIDEND

Rewarding shareholders with rich cash dividends as well as ploughing back of profits to support banks future growth have been the twin objectives of your bank over many years. Keeping in mind the overall performance of the bank, your directors recommend a dividend of Rs.12/- per equity share of Rs.10/- each. Shareholders are aware that this is the third time in a row the bank has declared 120% dividend and the seventh successive year the bank rewarding the shareholders with 100% and above dividend. The outgo in the form of dividend (inclusive of dividend tax) during the year 2009-10 would amount to Rs. 76.42 cr.

NET OWNED FUNDS AND CAPITAL ADEQUACY

The net owned funds of your bank increased from Rs. 1,350.16 cr to Rs. 1,619.98 cr, registering a growth of 19.98 %. The capital adequacy ratio stood at 14.49% as per BASEL II norms and at 12.48% as per BASEL I norms. The Bank has been maintaining Capital Adequacy Ratio well above the regulatory minimum of 9% stipulated by the Reserve Bank of India.

INVESTMENTS

The Gross investments of the bank grew by 39.82% to reach Rs.6,649.44 cr as on 31 st March 2010 from the level of Rs.4,755.61 cr as at the end of the previous fiscal. The net investments rose from Rs.4,715.98 cr as on 31 st March 2009 to reach Rs.6,602.16 cr as at the end of fiscal 2009-10.

Interest income on investments grew by 43.36% to reach Rs. 396.27 cr as against Rs.276.41 cr earned during the last fiscal. The average yield on investments during the year was 7% as against 6.92% during the earlier fiscal. Liquidity position was generally comfortable throughout the year. In order to improve the overall yield on the available short term surplus funds, the bank deployed the funds judiciously in other avenues.

FOREX OPERATIONS

During the year the bank achieved a merchant turnover of Rs.6,909 cr in foreign exchange business. The gross income earned from the foreign exchange operations was Rs.100.34 cr. The advances to export sector were at Rs.634.74 cr as at the end of the fiscal 2009-10.

BRANCH NETWORK AND EXPANSION

In order to increase the market share over the years your bank has been expanding its network. During the fiscal 2009-10, the bank has opened 23 new branches and 54 new ATMs. As at the end of the fiscal the total number of branches and ATM centres of the Bank were at 335 and 376 respectively.

RISK MANAGEMENT

The bank has put in place a robust risk management system as per the guidelines of the Reserve Bank of India to manage credit, market and operational risks. The risk management architecture of the Bank is being upgraded with the support of the external consultants by enhancing the coverage of risk management policies, improving the risk infrastructure and review mechanisms. The bank is also in the process of installing sophisticated software system for integrated risk management. Your bank has Board approved policies for Advances, ALM, Investments and Information Security.

TECHNOLOGY INITIATIVES

Your bank is one of the forerunners in introducing technology. Ever since it has embarked upon technology for its operations, it has been constantly upgrading and foraying into various areas to leverage technology to the benefit of the customers as well as the bank. The technology initiatives during the year under report are:

(a) Virtual Key Board Security for internet Banking users.

(b) Secured instant Messaging System

(c) RTGS Service through internet banking

(d) Utility bill through Billdesk.com

(e) Online bill payments through our debit cards using VISA Bill pay.

(f) Two factor Authentication Tokens for internet Banking Users

The Bank has also revamped its Information Security Policy.

The Bank has also replaced all desktops in the bank which are more than five years old.

Your bank has also implemented Digital Certificates issuance through a registration office set up for E-mudhra.

OTHER INITIATIVES

During the year under report your Bank appointed Boston Consulting Group (BCG) to suggest ways and means for the business re-engineering process of the bank to achieve the total business of Rs.1,25,000 cr by the time the bank celebrates its centenary year.

Theterms of appointment include restructuring of the organization, business re-engineering process, developing brand equity, rationalization of expenditure etc. The Group has submitted its preliminary report and the bank has initiated steps to implement its suggestions.

Your bank has made concerted efforts for brand building and the bank continued to communicate messages on products, services, interest rates and performance to the customers, shareholders and the general public through advertisements and outdoor publicity units.

As a part of the brand building exercise, your bank has sponsored The Business Line Club for the year 2009-10 under which the publication arranges for lectures being delivered by leading management gurus and industrialists in various educational institutions in Tamil Nadu and Andhra Pradesh. Out of the 250 events planned by Business Line, 175 events have been conducted so far.

FINANCIAL INCLUSION

In terms of the RBI directives, your Bank has a Board approved policy on financial inclusion to deliverbanking services at affordable cost to vast sections of the disadvantaged and low income groups. As each bank has been permitted to have its own strategy in line with its own business model and comparative advantage, your bank has also planned its model on financial inclusion. The policy covers the financial inclusion for next three years through branchless banking model. Your Bank has plans to implement the project in 2010-11 by appointing Business Correspondents in villages where the population is above 2000. In all the villages allotted by SLBC, no frill accounts will be opened and Micro Credit and Micro Insurance products will be encouraged.

The bank has relationships with 19 micro finance institutions and has extended credit facilities whereby nearly one lakh households have been the beneficiaries of financial inclusion. Besides this, the bank has extended direct credit to several SHGs and thereby sizeable households have been brought under Financial Inclusion.

SPECIAL RESERVE

Sec 36 (1 )(viii) of the Income Tax Act, 1961 provides for deduction in respect of any Special Reserve created and maintained to the extent of 20% of the profit derived from the business of providing long term finance for industrial or agricultural development or development of infrastructure facility or housing in India. In view of the Banks term lending for housing, power, roads and other segments of infrastructure in the last fiscal, it was decided to avail the tax benefit under Sec 36(1) (viii) of the Income Tax Act, 1961. Accordingly, the Bank has created a Special Reserve of Rs. 30 cr during this year.

STATUTORY AUDIT

The statutory audit was carried out by M/s J L Sengupta & Co, Chartered Accountants, Chennai (H.O.: Kolkata) whose report is being annexed and forms part of this report. The Statutory Auditors will hold office until the conclusion of the ensuing Annual General Meeting.

The Central Statutory Auditors have been associated with the bank continuously for the last four years. In terms of the guidelines issued by the Reserve Bank of India, the Statutory Auditors cannot continue to hold the office beyond four years.

Reserve Bank of India, on the recommendation of the Board of the Bank, approved the appointment of M/s R.K.Kumar & Co., Chartered Accountants, Chennai as the Statutory Auditors to hold office from the conclusion of the ensuing Annual General Meeting until the conclusion of the next Annual General Meeting. The Bank received a certificate from the said Auditors stating that their appointment, if approved by the members, would be within the limits prescribed under Sec 224 (1B) of the Companies Act, 1956.

STATUTORY DISCLOSURES

The information required under the provisions of Sec 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, is annexed elsewhere in this report.

The provisions of Sec 217 (1) (e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your bank. However the bank has used information technology extensively in its operations.

EMPLOYEES STOCK OPTION SCHEME

The shareholders of the Bank approved 10,00,000 Employees Stock Options at the Annual General Meeting held on 24.07.2008.

During the year under review first tranche stock options were vested on 01.01.2010. 4,70,250 stock options were exercised by the eligible employees of the bank. The exercised options were duly allotted on 24.02.2010. The shares allotted underfirsttranche have a lock in period of three years from the date of allotment.

The Bank granted second tranche of 5,29,750 stock options on 24.02.2010 to the eligible employees as determined by the Compensation Committee of the Board and these stock options would vest after one year. The vested options are exercisable over a period of one month from the date of vesting.

Statutory disclosures regarding the grant of second tranche of ESOS under Clause 12 of the SEBI Guidelines are provided in Annexure attached to this report.

BOARD OF DIRECTORS

The Board has ten members as on 31.03.2010 including Part- Time (Non-Executive) Chairman and a Managing Director and Chief Executive Officer.

Shri M K Venkatesan, has not sought re-election at the last Annual General Meeting due to personal reasons and hence demitted office of the Director on 26.07.2009. The Board places on record its appreciation for the valuable services and guidance rendered by him to the bank during his tenure.

CA K Ramadurai, who was a member of the Board vacated office on 06.08.2009 in terms of Sec 10-A (2-A) (i) of the Banking Regulation Act, 1949 viz: completion of tenure of office. He was also the Chairman of the Audit Committee of the Board. The Board places on record its sincere appreciation for the valuable contributions rendered by him for the overall growth of the bank during his tenure.

CA S Ganapathi Subramanian, was co-opted as an Additional Director on 26.08.2009. He presently heads the Audit Committee of the Board.

Shri K Parameshwara Rao was co-opted as an Additional Director on 25.09.2009.

Shri V Santhanaraman was co-opted as an Additional Director on 13.03.2010.

The Additional Directors are seeking election as Directors of the Bank in the ensuing Annual General Meeting.

Director Shri M G S Ramesh Babu retires by rotation and being eligible, offers himself for re-appointment.

In terms of Clause 49 of the Listing Agreement, brief resume of the above directors who are seeking election at the ensuring Annual General Meeting is furnished in the Corporate Governance Report attached to this report.

Director Dr T R Ramanathan, is not seeking re-election in view of the attainment of the maximum age limit prescribed under the regulatory guidelines. The Board also places on record its sincere appreciation for the valuable services rendered by him during his tenure as a Director of the Bank.

DIRECTORS RESPONSIBILITY STATEMENT

Pursuant to Sec 217 (2AA) of the Companies Act, 1956, the Directors of the Bank state that:

a. in the preparation of the annual accounts, the applicable accounting standards as modified and advised by RBI have been followed together with proper explanations for the deviations if any.

b. generally accepted accounting policies and the guidelines issued by the Reserve Bank of India have been followed consistently.

c. reasonable and prudent judgments and estimates had been made so as to give a true and fair view of the state of affairs of the bank as at 31.03.2010 and the profit of the bank for the year ended on that date.

d. proper and sufficient care was taken for the maintenance of adequate accounting records as per the applicable provisions governing banks in India.

e. the annual accounts had been prepared on a going-concern basis.

AWARDS AND RECOGNITION

Your bank has received the following awards and recognition during the fiscal under report:

1. Adjudged as the second best bank in the mid-size banks category (balance sheet size Rs. 24000 cr and number of branches being more than 10) in a study conducted by the Business To-day magazine and KPMG. The study was based on the published annual reports for the year 2008-09. The award was given on 26.11.2009 at Mumbai.

2. Your bank has secured llo.1 position under the parameter "productivity and efficiency" in the above mentioned survey.

3. The Banker Magazine, London has featured your bank among the TOP 1000 world banks and KVB is one of the 32 Indian banks featured in the list.

4. Received the Gold CIO Award in the more than Rs. 1000 cr. category of the Enterprise Connect Awards09 instituted by CIOL (Cybermedia India Online Limited).

CORPORATE SOCIAL RESPONSIBILITY

The bank has been discharging its role as a corporate citizen to various sections of the society on different occasions. Your bank has undertaken several initiatives in the area of education, health care, environment etc signifying its continued and long standing commitment to social and community welfare. Your banks initiatives in this area are channeled through institutions/ organizations who specialize in these activities.

Some of the initiatives include: Contributions made to the KVBOA Matriculation School, Karur, provision of ambulance to the St. Margaret Education Society, New Delhi, construction of modern bio-gas crematorium at Udumalpet and construction of open air stadium at Karur. Liberally contributed to the project Green Hands of the Isha Foundation.

The bank rose to the occasion when devastation struck Andhra Pradesh in the form of floods in October 2009, the Bank on its own contributed Rs.1 cr to the Chief Ministers Relief Fund there.

ACKNOWLEDGEMENTS

Your Directors convey their sincere gratitude to the Reserve Bank of India, National Stock Exchange, SEBI, other Government and regulatory authorities, financial institutions and correspondent banks for their continued guidance and support.

Your Directors also place on record their gratitude to the banks valuable shareholders, esteemed customers and other well- wishers for their continued patronage and confidence reposed in the bank.

The Board wishes to place on record its appreciation for the dedicated service rendered by the employees of the bank at all levels.

For and on behalf of the Board of Directors

Place: Karur, A S Janarthanan Date: 20.05.2010 Chairman

 
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