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Directors Report of Lakshmi Vilas Bank Ltd.

Mar 31, 2015

Dear MEMBERS

The Directors of your Bank have great pleasure in presenting this 88th Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31st March, 2015 (FY 2014-15).

1. FINANCIAL PERFORMANCE

The highlights of the financial performance of your Bank for the year ended 31st March, 2015 are as under:

(Rs. in crore) For the year ended

31st March 2015 31st March 2014

Deposits 21,964.21 18,572.88

Advances ( Net) 16,352.02 12,889.19

Investments ( Net) 6,103.78 5,688.68

Total Income 2,498.56 2,187.54

Operating profit 376.44 309.00

Provisions and contingencies 244.15 249.34

Net Profit 132.29 59.66

Your bank registered appreciable growth in business volumes that compares very favorably with the industry average. The Bank attained total business of Rs. 38,316.22 Crores in FY 2014-2015 a growth of 21.79% over Rs. 31,462.07 Crores in FY 2013-2014.

Deposits grew by 18.26%, from Rs. 18,572.88 Crores as at 31st March 2014 to Rs. 21,964.21 Crores as at 31st March 2015, and total advances expanded by 26.87%, from Rs. 12,889.19 Crores to Rs. 16,352.02 Crores in FY 2014-2015. Of this, lending to Priority Sector rose from Rs. 5,216.52 Crores in the previous year to Rs. 5,849.89 Crores as on 31st March 2015. Agricultural Advances slightly decreased to Rs. 2,457.18 Crores from Rs. 2,462.00 Crores and advances to Weaker Section exposure also slightly decreased from Rs. 1,730.71 Crores to Rs. 1,712.77 Crores.

The Bank's exposures to sensitive sectors including Real Estate and Capital Market were maintained well within the regulatory limits.

As at the end of the year under review, the total investments of the Bank stood at Rs. 6,145.48 Crores as against Rs. 5,731.96 Crores as on 31st March 2014.

Your Bank's Treasury continues to focus on sound Asset-Liability Management and on servicing clients with appropriate treasury products and was managed well in a systematic way in a challenging year when yields were constantly rising.

2. PROFIT

The Bank has posted an operating profit of Rs. 376.44 Crores in FY 2014-2015 against Rs. 309.00 Crores in the previous year FY 2013-14 registering a growth of 21.83%. The net profit for the year, after provisions and taxes, amounts to Rs. 132.29 Crores as against Rs. 59.66 Crores recorded in 2013-14 recording a growth of 121.72%.

3. APPROPRIATIONS

(Rs. in crore) Particulars For the year ended 31.03.2015 31.03.2014

Profit brought forward 0.07 0.09

Amount available for appropriation 132.35 59.74

Transfer to:

Statutory Reserve 33.20 15.00

Capital Reserve 4.78 0.11

Other Reserve 41.40 24.00

Investment Fluctuation Reserve 0.73 0.00

Transfer to Special Reserve U/s 36(1) 9.15 9.15 (viii) of the IT Act, 1961.

Proposed Dividend 35.84 9.75

Corporate Dividend Tax 7.17 1.66

Balance of Profit carried forward 0.08 0.07

4. DIVIDEND:

Your Board of Directors are pleased to recommend a dividend of Rs. 2.00 (20%) per share for the post Rights Issue Capital for the year ended 31st March, 2015 as against Rs. 1.00 (10%) per share for previous year ended 31st March, 2014. The total out go in the form of dividend, including taxes, will be Rs. 43.01 Crores.

5. EPS / BOOK VALUE:

Earnings per Share stood at Rs. 9.16 for the year ended 31st March, 2015 as compared to Rs. 6.11 as on 31st March, 2014.

Book Value of the share, post rights issue stood at Rs. 82.48 on 31st March, 2015 as compared to Rs. 100.16 as on 31st March, 2014.

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO:

Net Owned Funds (NOF) of the Bank increased from Rs. 977.17 Crores as at the end of FY 2013-2014 to Rs. 1,477.69 Crores as at the end of FY 2014-2015, reflecting a growth of 51.22%.

The Capital Adequacy Ratio (CAR) as on 31st March 2015 as per BASEL III is 11.34%. The bank has been consistently maintaining Capital Adequacy Ratio well above the regulatory minimum of 9% stipulated by the Reserve Bank of India.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 9.33% and 2.01% respectively.

7. NON-PERFORMING ASSETS (NPA'S):

Indian Banking industry continued to experience accretion of NPA in recent past. This has largely been attributed to the weak performance of the global as well as Indian economy, resulting in the deterioration of asset quality held by the banking sector. This trend continued to persist to certain extent during this financial year also across the Indian banking sector. This position is expected to improve in the current year.

Against this backdrop, your bank has shown an improved performance in NPA management during the last financial year. The percentage of Gross & Net NPA of your bank decreased to 2.75 % and 1.85 % respectively as on 31.03.15 against the last year figure of 4.19 % & 3.44 %.

This was made possible due to the combined efforts put in by the employees, which yielded the desired results. Your Bank has also sold some hard core NPAs to ARCs which has also enabled the Bank to make substantial recovery from NPAs during the FY. Stressed accounts were upgraded through efficient recovery follow-up and cash recoveries were also significant during the period. Coordinated recovery efforts resulted in improved performance during the FY.

During the year, Credit monitoring has been strengthened and follow-up methodology was further improved which has resulted in a great reduction of slippage to NPA. Conducts of the high value credit portfolio was under constant monitoring. Monitoring process has been aided by technology. Wherever stress was noticed, immediate remedial steps were taken and stressed assets were nurtured back to performing assets.

8. BRANCH AND ATM NETWORK:

The bank has a network of 400 branches including a satellite branch and 7 extension counters, spread over 16 states and the union territory of Pondicherry. The Bank's focus is on customer delight, by maintaining high standards of customer service. LVB has a strong and wide base in the State of Tamil Nadu, one of the progressive States in the country. LVB has been focusing on retail banking, corporate banking and bancassurance, by rendering high-tech services.

The Bank has an ATM network of 820 (264 Onsite & 556 offsite), in vital / major locations for better service to our customers. Bank continues to invest in expanding the network of Branches & ATMs.

9. FINANCIAL INCLUSION:

Financial Inclusion may be defined as the process of ensuring access to financial services to vulnerable groups such as weaker sections and low income groups at an affordable cost and providing timely and adequate credit where needed. The essence of financial inclusion is to ensure that a range of appropriate Basic financial services are made available to every individual and enabling them to understand and access those services.

The bank has implemented the financial Inclusion plan in 356 villages & wards allotted by SLBC in Tamilnadu. The bank has opened 150370 Basic Savings Bank Deposit Accounts (BSBDA) including 70358 accounts under Prime Minister Jan Dhan Yojana (PMJDY).

10. INTERNATIONAL BUSINESS:

Global Dollar strength kept most currencies under pressure during the year. Strong Foreign Portfolio inflows and increase in Foreign Direct investment flows supported Indian Rupee from major weakness. Euro and Japanese Yen weakened as a consequence of sustained quantitative easing by the respective Central Banks. There is a consensus estimate that the US is widely expected to raise interest rates during the second half of 2015. During the year under the report, the Bank has achieved a foreign exchange turnover of Rs. 4,560.82 Crores as against Rs. 4,310.08 Crores in the previous year. The outstanding advances to export sector stood at Rs. 275.02 Crores as on 31st March 2015. The business turnover is expected to significantly improve as more branches are identified for undertaking foreign exchange business.

11. BANK TRANSFORMATION EXERCISE:

A Bank-wide transformation exercise - 'Project Lakshya' - is currently underway at LVB, in collaboration with Ernst & Young LLP, across areas ranging from Retail and Corporate Banking, Human Resources, Information Technology, Treasury, Risk Management and Compliance. Through a range of strategic initiatives, the Bank is being positioned for competitive advantage and growth while improving its operating efficiency, meeting evolving customer needs and ensuring greater employee engagement.

Last year, Ernst & Young LLP carried out a detailed Bank-wide diagnostic exercise, through which a range of actionable initiatives were identified. The current phase of the exercise focuses on implementing the high impact strategic initiatives identified through that exercise. Best-in-class processes are being implemented, that will further improve the turnaround time to serve customers. Customer focused products are being launched, to ensure customers get what they need. The human resources function is being further strengthened, so as to ensure that employees are happier and are able to serve customers even better. Risk management and compliance policies and controls are being further strengthened, so as to create an even stronger base, as the bank embarks on its growth journey. Select IT projects are also being implemented, which will drive greater degree of automation and seamless customer servicing. Last, but not the least of Project Lakshya's focus areas, is driving the overall effectiveness and efficiency of the treasury function.

There are also a range of initiatives which are aimed at creating high performance branches with strong customer orientation. Select branches have been identified across several regions for piloting these initiatives and implementation of these initiatives is currently underway at these branches.

12. LVB CROWN SERVICES:

Lakshmi Vilas Bank launched LVB Crown Services, a bespoke suite of products and services, designed exclusively for high net worth individuals. The Bank has envisioned a premium value proposition, with customers being mapped to either CROWN Relationship Managers or Branch Managers. This would ensure a responsive, superior service experience for customers. Also, the LVB CROWN Savings Bank account offers INR 25 lacs Personal Accident Cover, 25% discount on locker facilities, free RTGS, Platinum VISA International Debit card with higher limits on POS and ATM transactions, among a host of other benefits. The Bank is also creating LVB CROWN lounges for CROWN customers, in select Branches. The first LVB CROWN lounge was launched in Cantonment Branch, Bengaluru, in February'15, and more are slated for launch in the current financial year. The Bank would bring in more products and services as part of LVB CROWN, catering to the varied needs of our esteemed customers.

13. LISTING AGREEMENT WITH STOCK EXCHANGES:

The Equity Shares of the bank are listed with the National Stock Exchange of India Ltd, Mumbai and Bombay Stock Exchange,Mumbai which is enhancing the liquidity of our equity shares.

14. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE:

* Your bank has implemented various software tools and applications, customized CBS towards business needs and compliance.

* Your bank enabled the customers to receive LPG subsidy by enabling DBTL at branches through both Aadhar and Non-Aadhar Modes.

* Your bank has introduced product portability which will enable the customers to migrate from one product to another product without change in the account number.

* Your bank has made the Internet Banking more safe and secure by introducing Two Factor Authentication.

* Your bank has made the Internet Banking more user friendly by facilitating online password reset.

* Your bank has upgraded the branch business connectivity across all locations for better operational efficiency and deliverance of customer service.

IT Awards:

* Your bank has bagged National Payment Corporation of India (NPCI) award for NACH (National Automated Clearing House) operations under Scheduled banks category - "Small Banks".

* Your bank has bagged one of the prestigious Business Technology Industry award from "Data Quest" in the area of "Unified Communications".

15. WEALTH MANAGEMENT / PARABANKING ACTIVITIES:

i. Life Insurance: Bank has entered into a strategic alliance with one of the leading life insurers in the country M/s. Max Life Insurance Company Ltd (MLI) to offer Life Insurance products to our customers.

ii. General Insurance: Bank has tied-up with M/s. Future Generali India Insurance Company Ltd for General Insurance business distribution.

iii. Mutual Funds & PMS: The Bank is presently having tie-up with thirteen leading Asset Management Companies for promoting various Mutual Fund schemes. In addition, we are promoting Portfolio Management Services (PMS) through UTI, Reliance and Sundaram Asset Management Company.

iv. Money Transfer through Branch Channels: Foreign inward remittances are facilitated by arrangement with M/s. Weizmann Forex Ltd. for extending Western Union Money Transfer facility. In addition, tied-up with M/s. UAE Exchange & Financial Services Ltd., also for offering Global Money Transfer services through Xpress Money and Moneygram.

v. Money Transfer through Direct Remittances: Tied up with Times of Money - Remit 2 India for Inward remittance from Abroad, this enables the NRIs to directly remit the amount to their account / residents.

vi. Investment & Infrastructure Bonds: Bank empanelled with M/s. Bajaj Capital Ltd. for promoting Investment & Infrastructure Bonds.

vii. PAN Card Services: Bank has tied up with M/s. UTI Infrastructure & Technology Services Ltd., (UTIITSL) as PAN Service Agent (PSA) for collecting the PAN Application across the country through Branches.

viii. Depository Participant Services: Registered as Depository Participant with NSDL and with necessary clearances, this product is offered to our customers.

ix. Online Trading Services: Bank has tied up with M/s. IDBI Capital Market Services Ltd. for offering Online Trading Services (OLT) to customers.

x. New Pension System (NPS): Bank has registered with PFRDA and NSDL-CRA as Point of Presence (PoP) for offering NPS services for all Indian citizens except Government Employees already covered by NPS.

xi. ASBA: As Bankers to the issue, the Bank can now receive applications under ASBA mode thus enabling the investors to earn interest till allotment of securities.

16. RISK:

Risk is an integral component of the activities of any bank. Risk management is an attempt to identify, to measure, to monitor and to manage uncertainty. It is not only a requirement under several voluntary codes and statutes but also make business sense to identify the probability of not achieving strategic and business goals. Risk Management has to be embedded in business processes to ensure that it is being practiced and made part of the culture of the organization. With this in mind the bank has established systems and policies ensuring an ongoing assessment of relevant risk types on an individual basis and in the aggregate as well.

The Bank's board ensures that the risks are managed appropriately through laid down policies and effective systems. A Board Level Committee interalia oversees the implementation of Credit risk, Market Risk and Operational Risk policy prescriptions. The Asset Liability Management Committee (ALCO) looks into the management of Liquidity and Market risks and ensures adherence to the prudential limits. At Executive Level also, a committee consisting of Top Executives reviews periodically Liquidity Risk, Credit Risk & Market risk to take stock of the current situation. At the organization level, an Integrated Risk Management Department headed by General Manager is functioning at Corporate office to identify, measure, monitor and reduce risk, optimize returns and assess the required capital level. Bank has already automated the process of capital calculation and Base rate as per RBI Guidelines. Bank has a robust credit risk assessment system to ascribe borrower risk grades. This facilitates data collection and analysis for moving towards Advanced Approaches. Bank has in place well defined frame work for managing Market Risk. Basic Indicator Approach has been adopted for computation of capital charge for Operational Risk.

The Bank has migrated to Basel III in a phased manner (as per RBI guidelines) from April 2013 onwards and is preparing ICAAP document to assess its inherent risk and capital requirements. Bank is doing the Stress Testing as per the revised guidelines issued by RBI during December 2013 and Scenario Analysis for various risks as required under Pillar II for enhancing risk assessment and to provide the bank, a better understanding of the likely impact even in extreme circumstances. Technology is extensively used in measuring and discussing market risk using statistical tools including stress testing.

17. INTERNAL CONTROLS:

Bank has a separate Audit and Inspection Department which subjects all the branches besides the Treasury, Currency Chests, Service Branches, Regional Offices and every department of the Corporate Office through Regular Inspections. Key Functional areas including Integrated Treasury at Mumbai and Central Processing Cell, Chennai, Lotus-CPC, Karur and 100 branches are under Concurrent Audit which covers 59.00% of the total Deposits and 78.00% of the total Advance of the Bank. All the branches are subjected to IS Audit.

Audit Committee of the Board constituted in line with RBI guidelines and as per the requirements of clause 49 of the listing agreement, reviews the adequacy of the audit and compliance functions, including the policies, procedures and techniques.

18. HUMAN RESOURCE:

During the year 2014-15 the Bank adopted strategy by introducing new verticals in the Organizational structure and redeploying Top executives. In this connection, strategic positions had been filled with competent resources, we have recruited 22 Executives, 238 Officers, 88 Clerks & 28 Sub-staff. We have also engaged 472 Sales Personnel to promote sales. The Bank has effected promotion to 140 staff members across different cadres. The number of employees as on 31.03.2015 was 3459 as against 3292 as on 31.03.2014. Business per employee has gone up from Rs. 8.59 Crores as on 31.03.2014 to Rs. 9.80 Crores as on 31.03.2015.

The Bank's focus on training the human resources on a continual basis gained momentum by conducting online e-learning duly leveraging technology. Bank has trained the executives and officers by deputing to various programmers offered by reputed external institutions such as RBI, CAB, SIBSTC, IDRBT, NIBM, ISB, IIFB and other specialized organizations.

19. PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS BY THE BANK:

Disclosure under Section 186 of the Companies Act, 2013 does not apply to Banking Company.

20. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

The related party transaction during the financial year was under ordinary course of business of the Bank and on arm's length basis and Form AOC-2 is not applicable to the Bank. During the FY 2014-15, the bank did not have any material Related Party Transaction.

The Bank has an approved policy on Related Party Transactions, which has been disclosed on the website and can be viewed at https://www.lvbank.com/UserFiles/File/RelatedPartyTransactions_ Policy.pdf

21. OUTLOOK 2015-16:

The broad-based decline in retail inflation since September 2014, plans announced in the Union Budget to step up infrastructure investment, depressed commodity prices and upbeat financial market conditions have improved the prospects for growth in 2015-16. Retail inflation is projected to remain below 6 per cent in 2015-16. Persisting slack in the economy and restrained input costs should sustain disinflationary impulses, unless disrupted by reversal in global commodity prices and/or deficiency in the south-west monsoon. The most significant change to forecasts has been the collapse of international commodity prices, particularly those of crude. For the Indian economy, this translated into a sizable softening of prices of both raw materials and intermediates.

Another factor vitiating baseline assumptions has been the different speeds at which global activity evolved across geographies. With several emerging market economies (EMEs) slowing down alongside sluggish advanced economies - barring the United States (US) - external demand fell away and sent prices of tradables into contraction. For India, import prices declined faster than export prices, conferring unexpected gains in net terms of trade as well as an appreciable easing of imported inflationary pressures. As data from the US allayed fears of early monetary policy normalisation and ultra-accommodative monetary policies took hold in Europe, Japan and China as also elsewhere, risk appetite roared into financial markets and India became a preferred destination for capital flows. The appreciating bias imparted to the exchange rate of the rupee brought with it a disinflation momentum.

Domestically, prices of fruits and vegetables ebbed from September 2014 after supply disruptions induced spikes in July-August. Aided by proactive supply management strategies and moderation in the pace of increase in minimum support prices, food inflation eased more than expected. Another favourable but unanticipated development that restrained cost-push pressures has been the sharp deceleration in rural wage growth to below 6 per cent by January 2015 from 16 per cent during April-October 2013. The confluence of these factors fortified the anti-inflationary stance of monetary policy and reinforced the impact of the policy rate increases effected between September 2013 to January 2014. In the event, CPI inflation retreated below the January 2015 target of 8 per cent by close to 300 basis points.

The Government of India and the Reserve Bank have committed to an institutional architecture that accords primacy to price stability as an objective of monetary policy. The Monetary Policy Framework Agreement envisages the conduct of monetary policy around a nominal anchor numerically defined as below 6 per cent CPI inflation for 2015-16 (to be achieved by January 2016) and 4 /- 2 per cent for all subsequent years, with the mid-point of this band, i.e., 4 per cent to be achieved by the end of 2017-18. Failure to achieve these targets for three consecutive quarters will trigger accountability mechanisms, including public statements by the Governor on reasons for deviation of inflation from its target, remedial actions and the time that will be taken to return inflation to the mid-point of the inflation target band. This flexible inflation targeting (FIT) framework greatly enhances the credibility and effectiveness of monetary policy, and particularly, the pursuit of the inflation targets that have been set. The commitment of the Government to this framework enhances credibility significantly since it indicates that the Government will do its part on the fiscal side and on supply constraints to reduce the burden on monetary policy in achieving price stability.

Inflation expectations of various economic agents polled in forward looking surveys have been easing, partly reflecting the adaptation of expectations to the decline in inflation as well as growing credibility around the Reserve Bank's inflation targets. Although households' expectations of inflation three months ahead as well as one year ahead appear to have firmed up modestly in March 2015 in response to the uptick in retail inflation in January - February 2015, the softening of food and fuel inflation will likely temper those expectations going forward. This is borne out by the survey of professional forecasters for March 2015 in which five years ahead inflation expectations have dropped by 50 basis points to 5.3 percent. Professional forecasters expect CPI inflation to average between 5.0 and 6.0 per cent in 2015-16. The industrial outlook survey of the Reserve Bank indicates that manufacturers expect softer input prices in the near-term, which could transmit to output prices with a lag in view of the slack in economic activity.

22. CORPORATE GOVERNANCE:

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interests of all the stakeholders. The Bank has complied with the code of corporate governance as enumerated in Clause 49 of the Listing Agreement. All the Directors on the Board have executed deed of covenant and undertaking individually in line with the recommendations of Dr. Ganguly Committee Report.

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis is presented in Annexure-A and Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meetings of the Board, its Committees and Annual General Meeting and the number of directorships held by them along with the details of Audit Committee and Stakeholders Relationship Committee are furnished in Annexure-C. General Shareholders' information is furnished in Annexure-D. Details pertaining to the Composition of Audit Committee are mentioned elsewhere in this report.

23. NUMBER OF MEETINGS OF THE BOARD:

During the financial year, the Board met 14 times. The Board meetings were held in accordance with the provisions of the Companies Act 2013. The details of the meetings held are given in the Corporate Governance Report that forms part of this Annual Report.

24. POLICY OF DIRECTOR'S APPOINTMENT AND REMUNERATION:

According to the Articles of Association of our Bank, the number of Directors of the Bank shall not be less than nine and more than twelve and not less than fifty-one percent of the total number of Directors shall be persons who satisfy the requirements of Section 10A of the Banking Regulation Act. The process of Due Diligence is undertaken in compliance of Directives/Guidelines/Circulars issued by RBI from time to time in the matter of appointment/re-appointment of Director. The Non-Executive Chairman of the Bank and the Managing Director are appointed with prior approval of the RBI. Based on the vacancies that may arise in the Board from time to time, the Board follows a due process of appointment of directors through prior due diligence in line with the regulatory advice given by RBI, SEBI and MCA by way of Circulars / Guidelines / Regulations / Act. The Nomination and Remuneration Committee of the Board has formulated evaluation criteria for the appointment or re-appointment of directors. The Managing Director and CEO is paid remuneration as approved by the RBI but is not paid sitting fees. Other than the MD&CEO, no other directors are paid any remuneration apart from sitting fees. The details of remuneration of the MD&CEO and that of the sitting fees paid to the directors are available elsewhere in the report. The senior management of the Bank along with the KMPs abide by the Code of Conduct prescribed by the Bank. The code of conduct has been disclosed at the Bank's website and can be viewed at http://www.lvbank.com/UserFiles/CODEOFCONDUCT.pdf.

The MD&CEO, CFO and Company Secretary are the Key Managerial Personnel (KMPs) of the Bank, as stipulated by the Companies Act, 2013. Other than MD&CEO, there is no other whole time director in the bank.

25. DECLARATION BY INDEPENDENT DIRECTORS:

The Company has duly obtained necessary declarations from each independent director under Section 149(7) of the Companies Act, 2013 that he/she meets the criteria of independence as laid down in the section 146(6) of the Companies Act 2013 and Clause 49 of the Listing Agreement and the Company has also obtained the 'Fit and Proper' declaration as prescribed by the Reserve Bank of India.

26. BOARD EVALUATION:

Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, yearly performance evaluation of the Board as a whole and that of the individual directors and of various committees of the Board is to be conducted. The Nomination and Remuneration Committee of the Board had formulated definite criteria for evaluation of Independent Directors and the Board. The Independent Directors, in their separate meeting had considered and evaluated the performance of the Board, the Chairman and the other non-independent Directors in the Board. The Board has taken note of the evaluation made by the Independent Directors and has also evaluated the performance of the Board, the Committees and the individual Directors taking into account the criteria formulated by the Nomination and Remuneration Committee.

The Board has also considered the participation by the members in the meetings of Board and its Committees, the composition and diversity of Board, the various Committees of the Board and its role play, the familiarization program given to the directors, the appropriateness of the decisions made, the quality, quantity and timeliness of flow of information to the Board, the positive contribution of the individual Directors who come from a professional background and the quality suggestions and guidance given by them through their participation in the meetings with an understanding of the business of the Bank and an understanding of their role and responsibilities and the overall effectiveness, the broad based discussions at Board / Committee Meetings, the understanding of the regulatory requirements, the contribution of the Board and the Committees to the specific strategies drawn and the overall growth of the bank. The evaluation of the individual Directors was done in absence of the Director being evaluated.

27. CHANGES IN THE BOARD OF DIRECTORS & KEY MANAGERIAL PERSONNEL:

Resignations/Cessation of tenure of appointment:

Shri. Rampriya Sharan, Director, resigned from the Board with effect from 23.08.2014 after having served on the Board for more than 2 years.

Shri. A Satish Kumar, Director, resigned from the Board with effect from 04.09.2014 after having served on the Board for more than 2 years.

Shri. Ashok Narain, Director - RBI Nominee has completed his tenure of appointment on 02.12.2014 after having served on the Board for 2 years.

Shri. B. K. Manjunath, Director, resigned from the Board with effect from 13.01.2015 after having served on the Board for more than 6 years.

Shri. Raghuraj Gujjar, Non-Executive Chairman has completed his tenure of appointment on 25.04.2015 after having served on the Board for 2 years.

Shri R. Ravikumar, Director - RBI Nominee's nomination was replaced by the appointing authority on 14.05.2015. Mr. Ravikumar has served on the Board for more than 2 years.

Appointments:

Shri. Vivek Deep, General Manager, RBI was appointed as Additional Director - RBI Nominee on 03.12.2014 for a period of two years or till further orders whichever is earlier.

Mrs. E. V. Sumithasri was appointed as an Additional Director on 10.03.2015 pursuant to the provisions of Section 161 of the Companies Act, 2013 and classified as a Non-Executive Independent Director as per Section 149 of the Act and in terms of Clause 49 of the Listing Agreement and under Majority Sector representing Information Technology Category as per provisions of Section 10A(2)(a) of the Banking Regulation Act, 1949.

During the FY 2015, the tenure of appointment of Mr. R. Ravikumar, General Manager, RBI came to an end on 03.12.2014 and his nomination period was extended to a further period of two years or until further orders whichever is earlier by RBI vide order dated 25.11.2014. However, RBI vide Order dated 14.05.2015 appointed Shri. K. Babuji, General Manager, RBI as Additional Director in the place of Shri R. Ravikumar for a period of two years or till further orders whichever is earlier.

Re-appointments:

Shri. S. G. Prabhakharan, Director will be retiring by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment.

Key Managerial Personnel:

There were no changes in the Key managerial Personnel during the year.

28. DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO SEC 134(3)(C) OF COMPANIES ACT, 2013:

The Board of Directors of your Bank confirms that in the preparation of the annual accounts for the year ended March 31,2015:

* The applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

* 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.

* The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

* The Directors had prepared the annual accounts on a going concern basis;

* The Directors, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively and

* 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.

29. SOCIAL INITIATIVES 2014-2015:

Donation

Your Bank as a responsible corporate citizen has been supporting various philanthropic activities by donating to such initiatives. Further, your bank has also taken several Initiatives in the area of CSR.

The Bank extended major donations for the following activities:

* Donated Rs.0.52 Lakhs to Karur Town Traffic Department for traffic monitoring activities.

* Contributions made to the tune of Rs.13.89 Lakhs to other philanthropic activities.

Corporate Social Responsibility (CSR):

In accordance with the directives of Government of India, Bank is required to spend 2% of the average net profit of the last 3 Financial Years or any part thereof on CSR activities. The Bank has disclosed its CSR Policy in the website and the same can be viewed at http://www.lvbank.com/download/Corporate_Social_Responsibility_ policy.pdf. The Annual Report on the CSR activities undertaken during the year as per the format specified by the Ministry of Corporate Affairs is forming part of this Report and is annexed to this Report as Annexure E.

30. EXTRACT OF ANNUAL RETURN:

Pursuant to Section 134(1)(a), the extract of Annual Return in Form MGT 9 as provided under Sub-Section (3) of Section 92 is appended to this Annual Report as Annexure F.

31. PARTICULARS OF EMPLOYEES:

The disclosures pursuant to the provisions of Section 197 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 and the Disclosures pursuant to the provisions of Section 197 (12) read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are enclosed as Annexure-G.

32. EMPLOYEES STOCK OPTION SCHEME:

In the year 2010, the shareholders of the Bank have approved the issue of shares through Stock Option Scheme. Statutory disclosures regarding ESOS as per clause 12 of SEBI (ESOS and ESPS) guidelines 1999 has been furnished in the Annexure H to this report. 500,000 options have been granted to Shri. Rakesh Sharma, Managing Director & CEO after obtaining prior approval of the RBI.

33. PARTICULARS REGARDING CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO:

The provisions of Section 134(1) (m) of the Companies Act, 2013 and the applicable rule under the Companies Accounts Rules, 2014 relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used Information Technology extensively in its operations. The Bank continued to encourage the country's exports and will endeavor to enlarge its export financing.

34. DETAILS OF MATERIAL CHANGES AND COMMITMENTS, IF ANY AFFECTING THE FINANCIAL POSITION OF THE BANK WHICH HAVE OCCURRED BETWEEN THE END OF THE FINANCIAL YEAR OF THE BANK TO WHICH THE FINANCIAL STATEMENT RELATE AND THE DATE OF THE REPORT:

There were no material changes and commitments affecting the financial position of the bank which have occurred between the end of the financial year of the bank to which the financial statement relate and the date of the report.

35. NUMBER OF CASES FILED, IF ANY, AND THEIR DISPOSAL UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013:

As part of the social responsibility to uphold and protect the dignity of women at work place, the Bank has a well-defined policy in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The complaints registered under the Act, on actions covered under the ambit of Sexual Harassment at work place are handled by a committee represented by senior Executives of the Bank, a lawyer and an external member. Redressal of such complaints are dealt in a prudent manner, giving equal opportunity to both the aggrieved and the accused for representation of the case and without affecting the dignity and self-esteem of the women employee (permanent, contractual, temporary, trainee).

Number of complaints pending as on the beginning of the financial year - Nil

Number of complaints filed during the financial year - 1

Number of complaints pending as on the end of the financial year - Nil

36. WHISTLE BLOWER POLICY:

Disclosure of information in the public interest by the employees of an organization is increasingly gaining acceptance by Public bodies for ensuring better governance standards and probity in the conduct of affairs. Large scale corporate frauds had necessitated, internationally, various legislative measures for safeguarding public interest through enactments.

As a proactive measure for strengthening financial stability and with a view to enhance public confidence in the robustness of the financial sector, RBI has formulated a scheme called "Protected disclosures scheme for private sector and foreign banks".

In the above perspective, our Bank has formulated and implemented a "Whistle Blower Policy" which is made available in the Bank's Website and local intranet. During the year 2014-15, no personnel has been denied access to the audit committee. The Web link thereto is https://www.lvbank.com/UserFiles/File/WhistleBlowerPolicy_2015.pdf.

37. FAMILIARISATION PROGRAMME:

Pursuant to the Clause 49 (II) (7) of the Listing Agreement, the Bank has to conduct familiarization programme for newly inducted Independent Directors. In line with the same, the Bank has conducted familiarisation programme for the Independent Directors. The details of the familiarisation programme conducted is disclosed in the website of the Bank at the following link http://www.lvbank.com/ noticeshares.aspx

38. CODE OF CONDUCT TO REGULATE, MONITOR AND REPORT TRADING BY INSIDERS IN SECURITIES OF THE LAKSHMI VILAS BANK LIMITED:

The Bank has formulated a Code of Conduct pursuant to the SEBI (Prohibition of Insider Trading) Regulations, 2015 to regulate, monitor and ensure reporting of trading by the employees and other connected persons towards achieving compliance with the SEBI Regulations and is designed to maintain highest ethical standards of dealing in securities of the Bank by persons to whom it is applicable. The code of conduct and related policy are available in the Bank's website.

39. AUDITORS:

Statutory Auditors:

The Statutory audit of the Bank was carried out by M/s. R. K. Kumar & Co, Chartered Accountants, Chennai whose report is annexed and forms part of this report. The Statutory Central and Branch Auditors have audited all the branches and other offices of the Bank.

With regard to the observations made by the Auditors 'without qualifying' their report dated 29.04.2015, our response to the same are furnished hereunder:-

Observation:

'Without qualifying our opinion', we draw attention to:

(i) Note No.3.4.4.C of the financial statements, regarding deferment of loss to the extent of Rs.72.99 Crore on sale of advances to Asset Reconstruction Companies;

Response:

As permitted by RBI vide its circular no. RBI/502/DBOD.BP.BC.No.98/ 21.04.132/2013-14 dated 26.02.2014, the net shortfall on account of sale of assets to Reconstruction Company amounting to Rs. 100.42 crores is amortised over a period of two years. Consequently, Rs. 27.43 crore has been charged to the Profit & Loss account for the year ended 31st March 2015. The unamortized amount on this account as on 31st March 2015 is Rs. 72.99 crore.

(ii) Note No.3.4.4.D of the financial statements, regarding deferment of loss to the extent of Rs. 40.18 Crore in respect of frauds in advances.

Response:

As permitted by RBI vide its circular RBI/2014-15/535/DBR.No.BP.BC.83/ 21.04.048/2014-15 dated 01.04.2015, the outstanding balance in fraud accounts relating to advances amounting to Rs. 53.54 crore, is provided over a period of four quarters. Consequently, Rs. 13.36 crore has been charged to profit & Loss account for the quarter ended 31st March 2015. The balance amount to be provided as on 31st March 2015 is Rs. 40.18 crore.

Secretarial Auditor:

Pursuant to the provisions of Companies Act 2013, the Bank has appointed Mr. K. Muthusamy, Practicing Company Secretary, Coimbatore (CoP 3176) as the Secretarial Auditor for the FY 2015. The Secretarial Audit Report dated 22.06.2015 is annexed to this report as Annexure-I. There are no qualifications, reservation or adverse remark or disclaimer in the report.

40. ACKNOWLEDGMENTS:

Your Directors would like to thank the shareholders and customers for their continued goodwill and support. The Board also gratefully acknowledges the guidance and co-operation received from the Reserve Bank of India and other regulatory and government authorities like SEBI, NSE, BSE, NSDL, CDSL and Department of Income Tax.

Your Directors would also like to express their sincere appreciation of the contribution made by the management and staff including the Employees' Union and Officers' Association for their support in delivering a significantly improved performance and look forward to a more evolved relationship as steps are taken to re-orient the bank for the future.

For and on behalf of the Board of Directors

K.R. Pradeep Rakesh Sharma Chairman of the Meeting MD&CEO

Place : Chennai Date : 23.07.2015


Mar 31, 2014

THE MEMBERS

The Directors of your Bank have great pleasure in presenting this 87th Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31st March, 2014 (FY 2013-2014).

1. FINANCIAL PERFORMANCE

The highlights of the financial performance of your Bank for the year ended 31st March, 2014 are as under:

(Rs in crore) For the year ended 31st March 2014 31st March 2013

Deposits 18,572.88 15,618.98

Advances ( Net) 12,889.19 11,702.80

Investments ( Net) 5,688.68 4,324.55

Total Income 2,201.94 1,957.61

Operating profit 309.00 251.15

Provisions and contingencies 249.34 159.57

Net Profit 59.66 91.57

Your bank registered reasonable growth in business volumes that compares well with the industry average. The Bank attained total business of Rs. 31,462.07 crore in FY 2013-2014 a growth of 15.15% over Rs. 27,321.78 crore in FY 2012-2013.

Deposits grew at 18.91% from Rs. 15,618.98 crore as at 31st March 2013 to Rs. 18,572.88 crore as at 31st March 2014 and total advances expanded by 10.14%, from Rs. 11,702.80 crore to Rs. 12,889.19 crore in FY 2013-2014. Of this, lending to priority sector rose from Rs. 4,565.54 crore in the previous year to Rs. 5,216.52 crore as on 31st March 2014. Agricultural advances increased to Rs. 2,462.00 crore from Rs. 2,286.35 crore and advances to weaker section recorded a significant growth from Rs. 1,582.68 crore to Rs. 1,730.71 crore.

The Bank''s exposures to sensitive sectors including Real Estate and Capital Market were well within the regulatory limits.

As at the end of the year under review, the total investments of the Bank stood at Rs. 5731.96 crore as against Rs. 4,347.93 crore as on 31st March 2013.

Your Bank''s Treasury continues to focus on sound Asset - Liability Management and on servicing clients with appropriate treasury products and was managed well in a systematic way in a challenging year when yields were constantly rising.

2. PROFIT

The Bank has posted an operating profit of Rs. 309.00 crore in FY 2013-2014 as against Rs. 251.15 crore in the previous year FY 2012-13 registering a growth of 23.03%. The net profit for the year, after provisions and taxes, amounts to Rs. 59.66 crore as against Rs. 91.57 crore recorded in FY 2012-13.

3. APPROPRIATIONS

(Rs in crore) Particulars For the year ended 31.03.2014 31.03.2013

Profit brought forward 0.09 0.09

Amount available for appropriation 59.74 91.66

Transfer to:

Statutory Reserve 15.00 29.00

Capital Reserve 0.11 3.44

Other Reserve 24.00 16.40

Transfer to Special Reserve U/s 36(1) (viii) of the IT Act, 1961. 9.15 8.50

Proposed Dividend 9.75 29.26

Corporate Dividend Tax 1.66 4.97

Balance of Profit carried forward 0.07 0.09

4. DIVIDEND

Your Board of Directors are pleased to recommend a dividend of Rs. 1.00 (10%) per share for the year ended 31st March, 2014 as against Rs. 3.00 (30%) per share for previous year ended 31st March, 2013. The total out go in the form of dividend, including taxes, will be Rs. 11.41 Crore.

5. EPS / BOOK VALUE

Earnings per Share stood at Rs. 6.11 for the year ended 31st March, 2014 as compared to Rs. 9.39 as on 31st March, 2013.

Book Value of the share, after reckoning payment of dividend, grew to Rs. 100.16 on 31st March, 2014 as compared to Rs. 92.88 as on 31st March, 2013

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

Net Owned Funds (NOF) of the Bank increased from Rs. 936.55 crore as at the end of FY 2012-2013 to Rs. 977.17 crore as at the end of FY 2013-2014, reflecting a growth of 4.34%.

The Capital Adequacy Ratio (CAR) as on 31st March 2014 as per BASEL III is 10.90%. The bank has been consistently maintaining Capital Adequacy Ratio well above the regulatory minimum of 9% stipulated by the Reserve Bank of India.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 7.87% and 3.03% respectively.

7. NON PERFORMING ASSETS (NPA''s)

Your bank''s gross & net NPA has increased to 4.19% and 3.44% as on 31st March 2014 as against 3.87 % & 2.43% as on 31st March 2013.

Your bank is taking effective steps to control accretion to NPA portfolio. In this regard, we have an effective credit monitoring system in place, which ensures early remedial action whenever incipient symptoms of sickness are noticed. By addressing the problem of NPA, the bank is working to turn back the stressed assets into performing assets. Further, credit appraisal process and credit disbursement is being constantly improved to take care of the changing economic dynamics.

Thus, your bank continues to address the NPA problem through a combination of recovery process improvement, technology solutions for early alerts and strict credit delivery. However, bank''s performance is closely linked to external factors also such as domestic and international economic performance. Bank is not insulated from cyclical performance of the economy as well. As we are all aware, the present economic situation is fraught with uncertainties. The economy is yet to recover from the contracting growth in GDP and industrial output besides high inflationary pressure. Under the circumstances, the performance of the bank also got affected to a certain extent, as some of the high value accounts in textiles, infrastructure and other core sectors slipped to NPA category.

However a major chunk of this portfolio is expected to be nursed back to performing category during the current financial year. Besides, the economy is expected to pick up this year, helping the industries in core sector to recover. Therefore, we are confident of registering a better recovery performance during the ensuing FY 2014-15.

8. BRANCH AND ATM NETWORK

The bank has a network of 361 branches, 1 satellite branch and 8 extension counters, spread over 15 states and the union territory of Puducherry. The Bank''s focus is on customer delight, by maintaining high standards of customer service. LVB has a strong and wide base in the State of Tamil Nadu, one of the progressive States in the country. LVB has been focusing on retail banking, corporate banking and bancassurance, by rendering high-tech services.

The Bank has an ATM network of 688 (208 Onsite & 480 offsite), in vital / major locations for better service to the customers; customers can access over 100000 ATMs across the country.

9. FINANCIAL INCLUSION

Financial inclusion may be defined as the process of ensuring access to Financial Services to vulnerable groups such as weaker sections and low income groups at an affordable cost and providing timely and adequate credit where needed. The essence of financial inclusion is to ensure that a range of appropriate Basic financial services are made available to every individual and enabling them to understand and access those services.

The bank has implemented the Financial Inclusion Plan in 131 villages allotted by SLBC in Tamil Nadu. The bank has opened 77426 Basic Savings Bank Deposit Accounts (BSBDA) to improve its penetration in rural areas.

10. INTERNATIONAL BUSINESS

It continued to be a challenging year for India as the country faced sluggish global demand on account of recession across the globe. US started showing signs of recovery over the past six months. Amidst such scenario of mild improvement, the bank has achieved a foreign exchange turnover of Rs. 4,310.08 crore as against previous year''s turnover of Rs. 4,239.03 crore. Lending to export sector has increased from Rs. 214.01 crore to Rs. 250.36 crore. As the overall prospects for global economy in FY 2014-15 appears to be moderately brighter, we expect to have a sustained growth in foreign exchange business by the branches.

11. BANK TRANSFORMATION EXERCISE

With the aim of transforming various aspects of the bank''s functioning, both strategic and operational, LVB embarked on ''Project Lakshya''. The project is aimed at changing the overall functioning of the bank to make it a more dynamic and vibrant organization. The project will draw a strategic roadmap for re-aligning the banks'' operating model to support the strategic growth objectives and delivering superior value to its customers.

To achieve these objectives, Ernst & Young has been appointed as a strategy partner to assist the Bank in designing and implementing a bank-wide business transformation program.

The aim of the Project is to assess the current state of the bank across the above functional areas and identify gaps in the current operations. The projects have been segregated into pilot projects which should be implemented at select branches to improve the branch operations, followed by a national roll out to the remaining branches and HO projects which should be implemented from the HO to improve operations and support functions.

12. LISTING AGREEMENT WITH STOCK EXCHANGE

The Equity Shares of the bank are listed with the National Stock Exchange of India Ltd., Mumbai and Bombay Stock Exchange Ltd., Mumbai which is enhancing the liquidity of your equity shares.

13. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

Your bank has introduced the following Technology products and Services:

1. Centralised Processing Centre was operationalized to open all the new Current and Savings accounts in a centralized location to improve efficiency and accuracy in the operations.

2. Expansion of Cheque Truncation System (Image Based Clearing) to Western Grid in addition to 169 branches in Southern Grid, which facilitates speedy clearance of cheques.

3. Implementation of various software tools and applications to meet business and compliance requirements.

4. Your bank has introduced Chennai Corporation tax collection facility at all Chennai branches.

5. Your Bank has enabled APBS (Aadhar Payment Bridge System) of NPCI - for linking Aadhar number with Bank account number and getting Government subsidies to the credit of customer accounts.

6. Your Bank has implemented NPCI''s MMS (Mandate Management System) and ACH (Automatic Clearing House) systems which is equivalent to current ECS.

Your Bank has bagged Best CIO - Network Pioneer Award 2013 given by IDG Media India Pvt Ltd in this financial year.

14. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

i. Life Insurance: Bank has entered into a tie up with the Giant in the Life Insurance sector - LIC of India for soliciting Life Insurance policies for the customers. All the products of LIC are available through the branches. It opens up a reliable and trustworthy investment avenue, making LVB a one stop shop for all financial requirements.

ii. General Insurance: Bank has tie-up with M/s. Bajaj Allianz General Insurance Company to market the General Insurance products.

iii. Mutual Funds & PMS: The Bank is presently having tie-up with thirteen leading Asset Management Companies for promoting various Mutual Fund schemes. In addition, we are promoting Portfolio Management Services (PMS) through UTI, Reliance and Sundaram Asset Management Company.

iv. Money Transfer through Branch Channels: Foreign inward remittances arrangement with M/s. Weizmann Forex Ltd. for extending Western Union Money Transfer facility, in addition, tied-up with M/s. UAE Exchange & Financial Services Ltd., for offering Global Money Transfer services through Xpress Money and Moneygram.

v. Money Transfer through Direct Remittances: Tied up with Times of Money - Remit 2 India, for Inward remittance from Abroad which enables the NRIs to directly remit the amount to their account / residents.

vi. Investment & Infrastructure Bonds: Bank empanelled with M/s Bajaj Capital Ltd. for promoting Investment & Infrastructure Bonds.

vii. PAN Card Services: Bank has tied up with M/s. UTI Infrastructure & Technology Services Ltd., (UTIITSL) as PAN Service Agent (PSA) for collecting the PAN Application across the country through Branches.

viii. Depository Participant Services: Registered as Depository Participant with NSDL and with necessary clearances, this product is offered to our customers

ix. Online Trading Services: Bank has tied up with M/s. IDBI Capital Market Services Ltd. for offering Online Trading Services (OLT) to the customers.

x. New Pension System (NPS): Bank has registered with PFRDA and NSDL-CRA as Point of Presence (PoP) for offering NPS services for all Indian citizens except Government Employees already covered by NPS.

xi. ASBA: As Bankers to the issue, the Bank can now receive applications under ASBA mode thus enabling the investors to earn interest till allotment of securities.

15. RISK

Risk and Return are two sides of the same coin in the activities of any bank. Risk Management is critical in the way modern business is operational because of dynamic business environment to which businesses are exposed. It is not only a requirement under several voluntary codes and statutes but also makes business sense to identify the probability of not achieving strategic and business goals. Risk Management has to be embedded in business processes to ensure that it is being practiced and made part of the culture of the organization. With this in mind, the bank has established systems and policies ensuring an ongoing assessment of relevant risk types on an individual basis and in the aggregate as well.

The Board of Directors effectively oversee the risk management and a Board Level Committee monitors the implementation of Credit risk, Market Risk and Operational Risk policy prescriptions. The Asset Liability Management Committee (ALCO) looks into the management of Liquidity and Market risks and ensure adherence to the prudential limits. At Executive Level also, a committee consisting of Top Executives periodically reviews Liquidity Risk, Credit Risk & Market risk to take stock of the current situation. At the organization level, an Integrated Risk Management Department is functioning at Head office to identify the measures, to monitor and to reduce risk; to optimize returns and to assess the required capital level. Bank has already automated the process of capital calculation and Base rate as per RBI Guidelines. Bank has a well defined credit risk assessment system to ascribe borrower risk grades. This facilitates data collection and analysis for moving towards Advanced Approaches. Bank has in place a well-defined frame work for managing Market Risk. Basic Indicator Approach has been adopted for computation of capital charge for Operational Risk.

The Bank has since migrated to Basel II - New Capital Adequacy Framework (NCAP) - from March 2009 and Basel III from April 2013 and is preparing ICAAP document to assess its inherent risk and capital requirements. Bank uses Stress Testing and Scenario Analysis in various risks as required under Pillar II for enhancing risk assessment and to provide the bank a better understanding of the likely impact even in extreme circumstances. Technology is extensively used in measuring and discussing market risk using statistical tools including stress testing.

16. INTERNAL CONTROL

Bank has a separate Audit and Inspection Department which subjects all the branches besides the Treasury, Currency Chests, Service Branches, Regional Offices and every department of the Administrative Office through Regular Inspections. Key functional areas including Integrated Treasury at Mumbai and Central Processing Cells at Chennai and Karur are under concurrent Audit which covers 57.00% of the total Deposits and 77.00% of the total Advances of the Bank. All the computerized Branches are subjected to regular IS Audit.

Audit Committee of the Board has been constituted in line with RBI guidelines and as per the requirements of clause 49 of the Listing Agreement, the Audit Committee reviews the adequacy of the audit and compliance function, including the policies, procedures and techniques.

17. HUMAN RESOURCE

Staff strength of the Bank was augmented during the year 2013-14 with the recruitment of 15 Executives, 93 Officers, 160 Clerks & 78 Sub staff. We have also engaged 457 Sales Personnel to promote sales. Bank has effected promotion to higher cadre and 194 staff were promoted. Total number of employees as on 31.03.2014 was 3292 as against 3149 as on 31.03.2013. Business per employee has gone up from Rs. 7.75 Crore as on 31.03.2013 to Rs. 8.59 Crore as on 31.03.2014.

The Bank''s focus on training the human resources on a continual basis gained momentum with introduction of online e-learning duly leveraging technology. Bank has trained the executives and officers by deputing to various programmes offered by reputed external institutions such as RBI, CAB, SIBSTC, IDRBT, NIBM, ISB, IIFB and other specialized organization.

18. SOCIAL INITIATIVES

Social initiative is a strategic plan of action born from beyond the call of duty, realized through passion, diligence and a genuine concern for the enrichment of communities and the common good. It has emerged as an important way to develop standards for financial, social and environmental areas of organizational work and also to promote positive social and environmental change. In this regard, your bank had pioneered in various social initiatives by donating a sum of Rs. 37.02 lakhs for FY 2013-14 and the breakups are given below:

- Donated a sum of Rs. 1,32,000/- to Armed Reserve Force towards building a shed in their armed squad campus at Karur.

- Donated a sum of Rs. 25,00,000/- towards Prime Minister''s National Relief Fund for providing assistance to the victims of cloudburst and floods in Uttarakhand.

- Donated a sum of Rs. 50,000/- to M/s. Lions Eye Donor''s Forum of Karur (Lions Club of Karur) towards short film preparation on awareness of Eye Donation

- Donated a sum of Rs. 20,000/- to Mr. Ammaiyappan towards the Surgery for Cleft lip correction of Mr. V. Dinesh, Karur through M/s. Amaravathi Hospital.

- Donated a sum of Rs. 10,00,000/- to M/s. Karnataka Arya Vysya Charitable Trust, Bengaluru towards scholarships to the deserving poor meritorious students for their higher studies.

19. CORPORATE GOVERNANCE

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interest of all the stakeholders. The Bank has complied with the code of corporate governance as enumerated in Clause 49 of the Listing Agreement. All the Directors on the Board have executed deed of covenant and undertaking individually in line with the recommendations of Dr. Ganguly Committee Report.

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis is presented in Annexure-A, Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meetings of the Board, its Committees and Annual General Meeting and the number of directorships held by them along with the details of Audit Committee and Share Transfer & Investors'' Grievances Committee are furnished in Annexure-D.

20. CHANGES IN THE BOARD OF DIRECTORS

Mr. K. Ravindrakumar, Director, resigned from the Board w.e.f 26.04.2013 after having served on the Board for more than 7 years. Mr. Kusuma R Muniraju, Director resigned from the Board w.e.f 20.09.2013 after having served on the Board for more than 6 years. Mr. N. Saiprasad resigned from the Board w.e.f 05.03.2014 having served on the Board for 8 years. Mr. R. Sharan resigned from the Board w.e.f. 23.08.2014 after having served on the Board for more than 2 years.

Mr. K.S.R. Anjaneyulu, interim MD & CEO of the Bank resigned from the Board on 07.03.2014 upon joining of Shri Rakesh Sharma as the new MD & CEO of the bank.

Mr. K.R. Pradeep, Director will be retiring by rotation at the ensuing Annual General Meeting and being eligible, offers himself for reappointment.

Mr. Raghuraj Gujjar was appointed as an Additional Director and Non-Executive Chairman of the Board with effect from 26.04.2013 pursuant to the provisions of Section 260 of the Companies Act, 1956 and in pursuance of approval of RBI vide Ref. DBOD.10135/08.44.001/2012-13 dated 14.01.2013.

Mr. P.A. Shankar was appointed as an Additional Director on 06.08.2013 pursuant to the provisions of Section 260 of the Companies Act, 1956 and classified under Independent Director in terms of Clause 49 of the Listing Agreement and represent Agriculture under majority sector as per Banking Regulation Act.

Mr. N. Malayalaramamirtham was appointed as an Additional Director on 07.03.2014 pursuant to the provisions of Section 260 of the Companies Act, 1956 and classified under Non-Independent Director in terms of Clause 49 of the Listing Agreement and represent Business under minority sector as per Banking Regulation Act.

Mr. Rakesh Sharma was appointed as MD & CEO of the Bank on 07.03.2014 as per the Approval of RBI vide DBOD.10731/ 08.44.001/2013-14 dated 02.12.2013 for a period of 2 years.

Mr. Pankaj Vaish was appointed as an Additional Director on 23.08.2014 pursuant to the provisions of Section 161 of the Companies Act, 2013 and classified as a Non-Executive Independent Director as per Section 149 of the Act and in terms of Clause 49 of the Listing Agreement and under majority sector representing Information Technology Category as per provisions of Section 10A (2) (a) of the Banking Regulation Act, 1949.

Mr. Prakash P. Mallya was appointed as an Additional Director on 23.08.2014 pursuant to the provisions of Section 161 of the Companies Act, 2013 and classified as a Non-Executive Independent Director as per Section 149 of the Act and in terms of Clause 49 of the Listing Agreement and under majority sector representing Small Scale Industry Category (special knowledge) and Banking Category (practical experience) as per provisions of Section 10A (2) (a) of the Banking Regulation Act,1949.

21. DIRECTORS'' RESPONSIBILITY STATEMENT PURSUANT TO SEC 217 (2AA) OF THE COMPANIES ACT, 1956

The Board of Directors of your Bank confirms that in the preparation of the annual accounts for the year ended March 31, 2014:

- The applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

- The accounting policies framed in accordance with the guidelines of the Reserve Bank of India were applied consistently.

- Reasonable and prudent judgment and estimates were made wherever required so as to present a true and fair view of the state of affairs of the Bank as at the end of the financial year and the profit of the Bank for the year ended 31st March, 2014.

- Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India; and

- Accounts have been prepared on a ''going concern'' basis.

22. EMPLOYEES STOCK OPTION SCHEME

In the year 2010, the shareholders of the Bank have approved the issue of shares through Stock Option Scheme. Statutory disclosures regarding ESOS as per Clause 12 of Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 has been furnished in Annexure forming part of this report. No further option was granted during the year 2013-14.

23. STATUTORY DISCLOSURE

1. The provisions of Section 217(1) (e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used Information Technology extensively in its operations.

2. The Bank continues to encourage the country''s exports and will endeavor to enlarge its export financing.

3. The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, is annexed elsewhere in this report.

4. The report on the Corporate Governance is annexed and forms part of this report.

24. OUTLOOK 2014-15

- Since the January 2014 monetary policy statement, global growth outlook remains broadly unchanged though weaker initial data to some extent cloud optimism. Global economic activity had strengthened in HY2 of 2013. On the current reckoning, global growth is likely to be in the vicinity of 3½ per cent in 2014, about half-percentage higher than in 2013. The expansion in global output is expected to be led by advanced economies (AEs), especially the US. However, downside risks to growth trajectory arise from on-going tapering of quantitative easing (QE) in the US, continuing deflation concerns and weak balance sheets in the euro area and, inflationary pressures in the emerging market and developing economies (EMDEs). Weakening growth and financial fragilities in China that have arisen from rapid credit in recent years pose a large risk to global trade and growth.

- Growth also picked up in the EMDEs during H2 of 2013, but the momentum looks weaker than in the AEs and it faces new risks. Improved EMDE growth emanated largely from external demand on the back of currency depreciation in these countries. Going forward, drag on its sustainability may emerge from tightening monetary and financial conditions that can intensify further in case of a faster than-anticipated withdrawal of monetary accommodation by the AEs. Recent sovereign rating downgrade for Brazil and downward revision in rating outlook for Russia has also added to the growth risks for EMDEs.

- Global inflation remains benign with activity levels staying below potential in the AEs as well as in some large EMDEs and a softer bias for global commodity prices continuing into 2014. However, inflation in many EMDEs remains high, though actions in tightening monetary policy and slack in output are expected to help generate some disinflationary momentum. The divergent trends in inflation between AEs and EMDEs pose an added risk to global growth.

- After the unexpected shock from the May 2013 tapering indication by the US Fed, global financial markets have weathered the initial dose of actual tapering of the quantitative easing (QE) quite well. However, the global interest rate cycle has just begun to turn. Moreover, a large part of the withdrawal of monetary accommodation by AEs remains to play out. Consequently, capital flows to EMDEs could remain volatile, even if they do not retrench. Also, with corporate leverage rising in many EMDEs, capital flow volatility could translate into liquidity shocks impacting asset prices.

The Indian economy is set on a disinflationary path, but more efforts may be needed to secure recovery.

- While the global environment remains challenging, policy action in India has rebuilt buffers to cushion it against possible spillovers. These buffers effectively bulwarked the Indian economy against the two recent occasions of spillovers to EMDEs - the first, when the US Fed started the withdrawal of its large scale asset purchase programme and the second, which followed escalation of the Ukraine crisis. On both these occasions, Indian markets were less volatile than most of its emerging market peers. With the narrowing of the twin deficits - both current account and fiscal - as well as the replenishment of foreign exchange reserves, adjustment of the rupee exchange rate, and more importantly, setting in motion disinflationary impulses, the risks of near-term macro instability have diminished. However, this in itself constitutes only a necessary, but not a sufficient, condition for ensuring economic recovery. Much more efforts in terms of removing structural impediments, building business confidence and creating fiscal space to support investments will be needed to secure growth.

- Annual average CPI inflation has touched double digits or stayed just below for the last six years. This had a debilitating effect on macro-financial stability through several channels and has resulted in a rise in inflation expectations and contributed to financial disintermediation, lower financial and overall savings, a wider current account gap and a weaker currency. A weaker currency was an inevitable outcome given the large inflation differential with not just the AEs, but also EMDEs. High inflation also had adverse consequences for growth. With the benefit of hindsight, it appears that the monetary policy tightening cycle started somewhat late in March 2010 and was blunted by a series of supply-side disruptions that raised inflation expectations and resulted in its persistence. Also, the withdrawal of the fiscal stimulus following the global financial crisis was delayed considerably longer than necessary and may have contributed to structural increases in wage inflation through inadequately targeted subsidies and safety net programmes.

- Since H2 of 2012-13, demand management through monetary and fiscal policies has been brought in better sync with each other with deficit targets being largely met. Monetary policy had effectively raised operational policy rates by 525 basis points (bps) during March 2010 to October 2011. Thereafter, pausing till April 2012, the Reserve Bank cut policy rates by 75 bps during April 2012 and May 2013 for supporting growth. The easing course of monetary policy was disrupted by ''tapering'' fears in May 2013 that caused capital outflows and exchange rate pressures amid unsustainable CAD, as also renewed inflationary pressures on the back of the rupee depreciation and a vegetable rice shock. The Reserve Bank resorted to exceptional policy measures for further tightening the monetary policy. As a first line of defence, short term interest rates were raised by increasing the marginal standing facility (MSF) rate by 200 bps and curtailing liquidity available under the liquidity adjustment facility (LAF) since July 2013. As orderly conditions were restored in the currency market by September 2013, the Reserve Bank quickly moved to normalise the exceptional liquidity and monetary measures by lowering the MSF rate by 150 bps in three steps. However, with a view to containing inflation that was once again rising, the policy repo rate was hiked by 75 bps in three steps.

- Recent tightening, especially the last round of hike in January 2014, was aimed at containing the second round effects of the food price pressures felt during June-November 2013. Since then, inflation expectations have somewhat moderated and the temporary relative price shock from higher vegetable prices has substantially corrected along with a seasonal fall in these prices, without further escalation in ex-food and fuel CPI inflation. While headline CPI inflation receded over the last three months from 11.2 per cent in November 2013 to 8.1 per cent in February 2014, the persistence of ex-food and fuel CPI inflation at around 8 per cent for the last 20 months poses difficult challenges to monetary policy.

- Against this background there are three important considerations for the monetary policy ahead. First, the disinflationary process is already underway with the headline inflation trending down in line with the glide path envisaged by the Urjit

Patel Committee, though inflation stays well above comfort levels. Second, growth concerns remain significant with GDP growth staying sub-5 per cent for seven successive quarters and index of industrial production (IIP) growth stagnating for two successive years. Third, though a negative output gap has prevailed for long, there is clear evidence that potential growth has fallen considerably with high inflation and low growth. This means that monetary policy needs to be conscious of the impact of supply side constraints on long-run growth, recognising that the negative output gap may be minimal at this stage.

25. AUDITORS

The Statutory audit of the Bank was carried out by M/s. Sagar & Associates, Chartered Accountants, Hyderabad whose report is annexed and forms part of this report. The Statutory Central and Branch Auditors have audited all the branches and other offices of the Bank.

26. ACKNOWLEDGMENT

Your Directors would like to thank the shareholders and customers for their continued goodwill and support. The Board also gratefully acknowledges the guidance and co-operation received from the Reserve Bank of India and other regulatory and government authorities like SEBI, NSE, BSE, Depositories and Department of Income Tax.

Your Directors would also like to express their sincere appreciation of the contribution made by the management and staff including the Staff Union and Officers'' Association for their support in delivering the present performance and look forward to a more evolved relationship as steps are taken to re-orient the bank for the future.

For and on behalf of the Board of Directors

Place : Chennai (RAGHURAJ GUJJAR) Date :23.08.2014 Chairman


Mar 31, 2013

TO THE MEMBERS

The Directors of your Bank have great pleasure in presenting this 86th Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31st March, 2013 (FY 2012-2013).

1. FINANCIAL PERFORMANCE

The highlights of the financial performance of your Bank for the year ended 31st March, 2013 are as under:

(Rs. in crores)

For the year ended

31st March 2013 31st March 2012

Deposits 15,618.98 14,114.14

Advances ( Net) 11,702.80 10,188.68

Investments ( Net) 4,324.55 4,395.12

Total Income 1,957.61 1,677.18

Operating profit 251.15 235.44

Provisions and contingencies 159.57 128.42

Net Profit 91.57 107.02

Your bank registered growth in business volumes that compares favourably with the industry average. The Bank attained total business of Rs. 27321.78 Crores in FY 2012-2013 a growth of 12.42 % over Rs. 24302.82 Crores in FY 2011-2012.

Deposits grew 10.66 %, from Rs. 14,114.14 Crores as at 31st March 2012 to Rs. 15,618.98 Crores as at 31st March 2013, and total advances expanded by 14.86%, from Rs. 10,188.68 Crores to Rs. 11,702.80 Crores in FY 2012-2013. Of this, lending to priority sector rose from Rs. 3,453.59 Crores in the previous year to Rs. 4,565.54 Crores as on 31st March 2013. Agricultural advances increased to Rs. 2,286.35 Crores from Rs. 2,051.60 Crores and advances to weaker section recorded a significant growth from Rs. 1,021.01 Crores to Rs. 1,582.68 Crores.

The Bank''s exposures to sensitive sectors including Real Estate and Capital Market were maintained well within the regulatory limits.

As at the end of the year under review, the total investments of the Bank stood at Rs. 4,347.93 Crores as against Rs. 4,410.51 Crores as on 31st March 2012.

Your Bank''s Treasury continues to focus on sound Asset-Liability Management and on servicing clients with appropriate treasury products and was managed well in a systematic way in a challenging year when interest rates are constantly rising.

2. PROFIT

The Bank has posted an operating profit of Rs. 251.15 Crores in FY 2012-2013 as against Rs. 235.44 Crores in the FY 2011-2012 thereby registering a growth of 6.67%. The net profit for the year, after provisions and taxes, amounts to Rs. 91.57 Crores as against Rs.107.02 Crores recorded in 2011-2012, which is mainly on account of higher provisions towards income tax and restructured advances. With the anticipated improved earnings in the corporate sector, the Bank is hopeful of recouping the provisions made, to a considerable extent in the current financial year.

3. APPROPRIATIONS

(Rs. in Crores) Particulars For the year ended

31.03.2013 31.03.2012

Profit brought forward 0.09 0.25

Amount available for appropriation 91.66 107.37

Transfer to:

Statutory Reserve 29.00 28.00

Capital Reserve 3.44 0.85

Other Reserve 16.40 32.25

Transfer to Special Reserve U/s 36(1) (viii) of the IT Act, 1961. 8.50 6.50

Proposed Dividend 29.26 34.14

Corporate Dividend Tax 4.97 5.54

Balance of Profit carried forward 0.09 0.09

4. DIVIDEND

Your Board of Directors are pleased to recommend a dividend of Rs. 3.00 (30%) per share for the year ended 31st March, 2013 as against Rs. 3.50 (35%) per share for previous year ended 31st March, 2012. The total out go in the form of dividend, including taxes, will be Rs. 34.23 Crores.

5. EPS / BOOK VALUE

Earnings per Share stood at Rs. 9.39 for the year ended 31st March, 2013 as compared to Rs. 10.97 as on 31st March, 2012.

Book Value of the share, after reckoning payment of dividend, grew to Rs. 92.88 on 31st March, 2013 as compared to Rs. 88.43 as on 31st March, 2012.

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

Net Owned Funds (NOF) of the Bank increased from Rs. 879.14 Crores as at the end of FY 2011-2012 to Rs. 936.55 Crores as at the end of FY 2012-2013, reflecting a growth of 6.53%.

The Capital Adequacy Ratio (CAR) as on 31st March 2013 is 12.32%. The bank has been consistently maintaining Capital Adequacy Ratio well above the regulatory minimum of 9% stipulated by the Reserve Bank of India.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 9.15% and 3.17% respectively.

7. NON PERFORMING ASSETS (NPA''s)

Your bank continues to address the NPA problem through a combination of process improvement, technology solutions for early alerts and strict credit delivery. During FY 2012-13, macro-economic conditions affected some of our clients with resultant stress on NPAs, but the bank is supporting customers where the issues are temporary and not structural, and is confident that the level of NPAs will come down significantly no sooner the market conditions revive. There have been no concentration issues either and stress has been fairly dispersed. Some of our exposure in infrastructure, textiles and real estate sectors got affected during the year under review. Consequently, our bank gross & net NPA increased to 3.87% and 2.43% as on 31st March 2013 as against 2.98 % & 1.74% as on 31st March 2012, notwithstanding the strong recovery efforts that yielded Rs. 247.97 crores during the year.

The bank has already initiated remedial measures to improve the performance during the FY 2013-14 to arrest slippage and improve recovery, and is confident that the planned changes initiated by the board will ensure a successful future with a much stronger portfolio at the end of FY 2014.

8. BRANCH AND ATM NETWORK

The bank has a network of 291 branches, 1 satellite branch and 8 extension counters, spread over 15 states and the union territory of Pondicherry. The Bank''s focus is on customer delight, by maintaining high standards of customer service. LVB has a strong and wide base in the State of Tamil Nadu, one of the progressive States in the country. LVB has been focusing on retail banking, corporate banking and bancassurance, by rendering high-tech services.

The Bank has an ATM network of 651 as on 31.03.2013 (183 Onsite & 468 offsite), in vital / major locations for better service to our customers; customers can access over 83000 ATMs across the country. Bank continues to invest in expanding the network of ATMs.

9. FINANCIAL INCLUSION

The bank has implemented the Financial Inclusion Plan in 131 villages allotted by SLBC in Tamilnadu. The bank has opened 46484 Basic Savings Bank Deposit Accounts (BSBDA) to improve its penetration in rural areas.

10. INTERNATIONAL BUSINESS

It has been a challenging year for India as the country faced with sluggish global demand on account of recession across the globe. During the year, the bank has achieved a foreign exchange turnover of Rs. 4,239.03 Crores as against the previous year turnover of Rs. 4,358.73 Crores. Lending to Export sector has increased from Rs. 175.44 Crores to Rs. 214.01 Crores. However, going forward, the financial year 2013-14 will see our focused attention to improve our foreign exchange business with more vigour and sustained efforts by our branches.

11. LISTING AGREEMENT WITH STOCK EXCHANGE

The Equity Shares of the bank are listed with the National Stock Exchange of India Ltd, Mumbai and Bombay Stock Exchange, Mumbai which is enhancing the liquidity of our equity shares.

12. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

Your bank has introduced the following Technology products, Delivery Channels and Services.

1. Increased the ATM network from 541 to 651 during this financial year.

2. Implemented Cheque Truncation System across (Image Based Clearing) Southern Grid, which facilitates speedy clearance of cheques.

3. Implemented various in-house tools and applications for better operational efficiency. Your bank has implemented the following major projects during this financial year:

1. As per the RBI guidelines, the bank is implementing the in-house developed Automated Data Flow (ADF) project in a phased manner, by which the periodical reports/details submitted to the regulators from the system directly without the manual intervention.

2. Human Resource Management System (HRMS) project is implemented in the bank, which will ensure more transparency and better operational efficiency in the Bank.

3. To ensure effective monitoring and follow up of our Loan Assets, we have implemented Automated NPA movement in our Core Banking.

4. Bank has enabled online payment of TNEB bill through Internet Banking.

5. Bank has introduced three in one account for online Trading facility (OLT) with IDBI CAPITAL MARKETS.

6. Bank has enabled payment of Income Tax (e-tax) through Internet Banking.

7. Bank has implemented issuance of Electronic Bank Realization Certificate (EBRC) to the exporter customers.

13. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

i. Life Insurance: Bank has entered into a tie up with the Life Insurance Corporation of India for soliciting Life Insurance policies for our customers. All the products of LIC are available through our branches. It opens up a reliable and trustworthy investment avenue, making LVB a one stop shop for all financial requirements.

ii. General Insurance: Bank has tie-up with M/s. Bajaj Allianz General Insurance Company to market the General Insurance products.

iii. Mutual Funds & PMS: The Bank is presently having tie-up with thirteen leading Asset Management Companies for promoting various Mutual Fund schemes. In addition, we are promoting Port Folio Management Services (PMS) through UTI, Reliance and Sundaram Asset Management Company.

iv. Money Transfer through Branch Channels: Foreign inward remittances arrangement with M/s. Weizmann Forex Ltd. for extending Western Union Money Transfer facility, in addition, tied-up with M/s. UAE Exchange & Financial Services Ltd., for offering Global Money Transfer services through Xpress Money and Moneygram.

v. Money Transfer through Direct Remittances: Tied up with Times of Money - Remit 2 India & Al-ahalia for Inward remittance from Abroad which enables the NRIs to directly remit the amount to their account / residents.

vi. Investment & Infrastructure Bonds: Bank empanelled with M/s Bajaj Capital Ltd. for promoting Investment & Infrastructure Bonds.

vii. PAN Card Services: Bank has tied up with M/s. UTI Infrastructure & Technology Services Ltd., (UTIITSL) as PAN Service Agent (PSA) for collecting the PAN Application across the country through Branches.

viii. Depository Participant Services: Registered as Depository Participant with NSDL and with necessary clearances, this product is offered to our customers.

ix. Online Trading Services: Bank has tied up with M/s. IDBI Capital Market Services Ltd. for offering Online Trading Services (OLT) to the customers.

x. New Pension System (NPS): Bank has registered with PFRDA and NSDL-CRA as Point of Presence (PoP) for offering NPS services for all Indian citizens except Government Employees already covered by NPS.

xi. ASBA: As Bankers to the issue, the Bank can now receive applications under ASBA mode thus enabling the investors to earn interest till allotment of securities.

14. RISK

Risk and Return are two side of the same coin in the activities of any bank. Risk Management is critical in the way modern business is operational because of dynamic business environment to which business are exposed. It is not only a requirement under several voluntary codes and statutes but also make business sense to identify the probability of not achieving strategic and business goals. Risk Management has to be embedded in business processes to ensure that it is being practiced and made part of the culture of the organization. With this in mind, the bank has established systems and policies ensuring an ongoing assessment of relevant risk types on an individual basis and in the aggregate as well. With a view to mitigate credit risk in the portfolio, more importance is being given to retail credit and taking proactive steps to identify the credit relationship likely to result in stressed accounts through close monitoring.

The Board of Directors effectively monitor the risk management. A Board Level Committee oversees the implementation of Credit risk, Market Risk and Operational Risk policy prescriptions. The Asset Liability Management Committee (ALCO) looks into the management of Liquidity and Market risks and ensure adherence to prudential limits. At Executive Level also a committee consisting of Top Executives reviews periodically Liquidity Risk, Credit Risk & Market risk to take stock of the current situation. At the organization level an Integrated Risk Management Department headed by Dy. General Manager Functions at Head office to identify measure, monitor and mitigate risk; optimize returns and assess the required capital level. Bank has already automated the process of capital calculation and Base rate as per RBI Guidelines. Bank has a robust credit risk assessment system to ascribe borrower risk grades. This facilitates data collection and analysis for moving towards Advanced Approaches. Bank has in place a well defined frame work for managing market risk. Basic Indicator Approach has been adopted for computation of capital charge for Operational Risk.

The Bank has since, migrated to Basel II - New Capital Adequacy Framework (NCAP) - from March 2009 and is preparing ICAAP document to assess its inherent risk and capital requirements. Bank uses Stress Testing and scenario analysis in various risks as required under Pillar II for enhancing risk assessment and to provide the bank a better understanding of the likely impact even in extreme circumstances. Technology is extensively used in measuring and discussing market risk using statistical tools including stress testing.

15. INTERNAL CONTROL

Bank has a separate Audit and Inspection Department which subjects all the Branches including Integrated Treasury, Currency Chest, Service Branches and every department of the Administrative Office to regular inspection. Key branches including Integrated Treasury at Mumbai are under concurrent audit which covers 66% of the Bank''s business. All computerized branches are subjected to IS Audit regularly.

Audit Committee of the Board has been constituted in line with RBI guidelines and as per the requirement of clause 49 of the Listing Agreement, the Audit Committee reviews the adequacy of the audit and compliance function, including the policies, procedures, and techniques.

16. HUMAN RESOURCES

Staff strength of the Bank as on 31.03.2013 increased to 3149 as against 3054 as on 31.03.2012. During the year 2012-13, 3 Executives, 45 Officers, 38 Clerks and 651 Sales personnel were recruited besides absorption of 192 Part Time Sweepers. Promotion to higher scale and cadre effected and 243 staff got promoted. Business per employee had gone up from Rs. 7.99 Crores as on 31.03.2012 to Rs. 8.73 Crores as on 31.03.2013.

The Bank''s focus on training included nomination of resources to reputed external training institutions such as RBI, CAB, SIBTC, IDRBT, NIBM, CAFRAL & FEDAI. In house e-learning modules are under development.

Industrial Relation was cordial during the year.

17. SOCIAL INITIATIVES

- Donated to Branch library Karur East towards purchase of computer under "Namakku Namae Thittam".

- Donated to Sri Sarada Ashram, Ulundurpet towards purchase of new water tanker lorry for providing water to the people of Ulundurpet.

- Donated Reverse Osmosis (RO) treatment plant to Sri Periyakandi Amman temple, Avalpoondurai to provide hygiene drinking water to the devotees.

- Donated two computers to Arulmigu Dhandayuthapani Swamy Temple, Palani.

- Donated two computers to Siddhartha Muthiyor Illam.

- Donated Reverse Osmosis (RO) treatment plants to Elementary School at Thindal, Government Primary School, Corporation Middle School and Corporation Primary School at Erode through Inner wheel club of Erode to provide hygiene drinking water to the students and staffs.

- Donation to Karnataka Arya Vysya Charitable Trust for providing scholarships to the deserving poor meritorious students for their higher studies.

- Donated to Dr.S.R.Chandrasekhar Institute of speech and hearing towards, Bangalore construction of a multipurpose hall to accommodate more number of patients.

- Donated to Sakthi Tamil School for Mentally Challenged, Karur towards construction of hostel.

18. LISTING WITH BSE

Your banks'' Equity Shares was listed with Bombay Stock Exchange, Mumbai wef 24.09.2012 in addition to National Stock Exchange, Mumbai which enhances the Liquidity to the investors, and also provides additional forum to purchase or sell the equity shares and further enhances the visibility for investors all around the world.

19. CORPORATE GOVERNANCE

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interest of all the stakeholders. The Bank has complied with the code of corporate governance as enumerated in Clause 49 of the Listing Agreement. All the Directors on the Board have executed deed of covenant and undertaking individually in line with the recommendations of Dr. Ganguly Committee Report.

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis is presented in Annexure-A, Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meetings of the Board, its Committees and Annual General Meeting and the number of directorships held by them along with the details of Audit Committee and Share Transfer & Investors'' Grievances Committee are furnished in Annexure-C. General Shareholders'' information is furnished in Annexure-D.

20. CHANGES IN THE BOARD OF DIRECTORS

Shri P.R. Somasundaram resigned from the Bank from the position of MD & CEO on 21.11.2012. Shri K.S.R. Anjaneyulu was appointed as Additional Director and temporary MD & CEO on 10.01.2013 till the regular MD & CEO takes charge. Mr. R. Ravikumar and Mr. Ashok Narain were appointed as Additional Directors for a period of two years by the Reserve Bank of India vide their letter DBOD.PSBD.No.7928/16.05.04/2012-13 dated 03.12.2012 in accordance with Section 36AB(1) of the Banking Regulation Act, 1949.

Mr. K.Ravindrakumar, Director, resigned from the Board w.e.f 26.04.2013 after having served on the Board for more than 7 years. Mr. Raghuraj Gujjar was appointed as Additional Director and Non- Executive Chairman of the Board with effect from 26.04.2013 pursuant to the provisions of Section 260 of the Companies Act, 1956 and in pursuance of approval of RBI vide Ref.DBOD.10135/08.44.001/2012-13 dated 14.01.2013.

Mr. Kusuma R Muniraju, Mr. D.L.N. Rao and Mr. N. Saiprasad are the directors retiring by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for reappointment.

21. DIRECTORS'' RESPONSIBILITY STATEMENT PURSUANT TO SEC 217 (2AA) OF THE COMPANIES ACT, 1956

The Board of Directors of your Bank confirms that in the preparation of the annual accounts for the year ended March 31, 2013:

- The applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

- The accounting policies framed in accordance with the guidelines of the Reserve Bank of India were applied consistently.

- Reasonable and prudent judgment and estimates were made wherever required so as to present a true and fair view of the state of affairs of the Bank as at the end of the financial year and the profit of the Bank for the year ended on March 31, 2013.

- Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India; and

- Accounts have been prepared on a ''going concern'' basis.

22. EMPLOYEES STOCK OPTION SCHEME

In the year 2010, the shareholders of the Bank have approved the issue of shares through Stock Option Scheme. Statutory disclosures regarding ESOS as per Clause 12 of Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 has been furnished in Annexure forming part of this report. No further option was granted during the year 2012-13.

23. STATUTORY DISCLOSURE

1. The provisions of Section 217(1) (e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used Information Technology extensively in its operations.

2. The Bank continued to encourage the country''s exports and will endeavor to enlarge its export financing.

3. The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, is annexed elsewhere in this report.

4. The report on the Corporate Governance is annexed and forms part of this report.

24. OUTLOOK

- During 2013-14, economic activity is expected to show only modest improvement over last year, with a pick-up likely only in the second half of the year. Conditional upon a normal monsoon, agricultural growth could return to trend levels. The outlook for industrial activity remains subdued, with the pipeline of new investment drying up and existing projects stalled by bottlenecks and implementation gaps. With global growth unlikely to improve significantly from 2012, growth in services and exports may remain sluggish. Accordingly, the baseline GDP growth for 2013-14 is projected at 5.7 per cent.

- By March 2013, WPI inflation at 6.0 per cent turned out to be lower than the Reserve Bank''s indicative projection of 6.8 per cent, mainly due to a sharp deceleration in non-food manufactured products, inflation occurred in the second half of the year. The global inflation outlook for the current year appears more benign compared to last year on expectations of some softening of crude oil and food prices. Accordingly, imported inflation is likely to be lower provided the exchange rate remains broadly stable. Indicators of corporate performance, industrial outlook and PMIs are pointing to a declining pricing power. On the other hand, food inflation is likely to be a source of upside pressure because of persisting supply imbalances. Also, the timing and magnitude of administered price revisions, particularly of electricity and coal, will impact the evolution of the trajectory of inflation in 2013-14.

- Keeping in view the domestic demand-supply balance, the outlook for global commodity prices and the forecast of a normal monsoon, WPI inflation is expected to be range-bound around 5.5 per cent during 2013-14, with some edging down in the first half on account of past policy actions, although there could be some increase in the second half, largely reflecting base effects.

- It is critical to consolidate and build upon the recent gains in containing inflation. Accordingly, the Reserve Bank is expected to endeavour to condition the evolution of inflation to a level of 5.0 per cent by March 2014, using all instruments at its command.

- It is important to re-emphasise that although the most recent episode of high and persistent inflation played out over the past three years, during the 2000s as a whole, inflation averaged around 5.4 and 5.8 per cent, in terms of WPI and CPI, respectively, down from its earlier trend rate of about 7.5 per cent. Given this record and the empirical evidence on the threshold level of inflation that is conducive for sustained growth, the objective is to contain headline WPI inflation at around 5.0 per cent in the short-term, and 3.0 per cent over the medium-term, consistent with India''s broader integration into the global economy.

- Given the macro economic outlook, your bank is taking adequate measures in terms of expanding management bandwidth and safety measures in identifying new credit relationship, Credit Monitoring and Credit Management besides continuing unflagging focus on recovering stressed accounts.

25. AUDITORS

The Statutory audit of the Bank was carried out by M/s.Sagar & Associates, Chartered Accountants, Hyderabad whose report is annexed and forms part of this report. The Statutory Central and Branch Auditors have audited all the branches and other offices of the Bank.

26. ACKNOWLEDGMENT

Your Directors would like to thank the shareholders and customers for their continued goodwill and support. The Board also gratefully acknowledges the guidance and co-operation received from the Reserve Bank of India and other regulatory and government authorities like SEBI, NSE, BSE, Depositories and Department of Income Tax.

Your Directors would also like to express their sincere appreciation of the contribution made by the Management and Staff for their support and look forward to a more evolved relationship as steps are taken to re-orient the bank for the future.

For and on behalf of the Board of Directors

Place : Mumbai (RAGHURAJ GUJJAR)

Date :10.07.2013 Chairman of the Meeting


Mar 31, 2012

The Directors of your Bank have great pleasure in presenting this 85th Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31st March, 2012 (FY 2011-2012).

1. FINANCIAL PERFORMANCE

The highlights of the financial performance of your Bank for the year ended 31st March, 2012 are as under:

(Rs. in crores)

For the year ended

31st March 2012 31st March 2011

Total Deposits 14,114.14 11,149.51

Total Advances 10,188.68 8,094.42

Investments 4,395.12 3,518.85

Total Income 1,677.18 1,201.85

Operating profit 235.44 273.86

Provisions and contingencies 128.42 172.72

Net Profit 107.02 101.14

Your bank continued to register good growth in business, comparing very favorably in many respects with the industry. The Bank achieved total business of Rs. 24302.82 Crores in fY 2011-2012 a growth of 26% over Rs. 19243.96 Crores in FY 2010-2011.

Deposits grew 27%, from Rs. 11149.51 Crores as at 31st March 2011 to Rs. 14114.14 Crores as at 31st March 2012, and total advances expanded by 26%, from Rs. 8094.42 Crores to Rs. 10188.68 Crores in FY 2011-2012. Of this, lending to priority sector rose from Rs. 2635.22 Crores in the previous year to Rs. 3525.03 Crores as on 31st March 2012. Agricultural advances increased to Rs. 2099.42 Crores from Rs. 1199.35 Crores and advances to weaker section recorded a significant growth from Rs. 736.02 Crores to Rs. 1020.63 Crores.

The Bank's exposures to sensitive sectors including Real Estate and Capital Market were maintained well below the regulatory limits.

As at the end of the year under review, the total investments of the Bank stood at Rs. 4395.12 Cr as against Rs. 3518.85 Cr as on 31st March 2011.

Your Bank's Treasury continues to focus on sound Asset-Liability Management and on servicing clients with appropriate treasury products, market risk was managed well in a systematic way in a challenging year when interest rates were constantly rising.

2. PROFIT

The Bank posted an operating profit of Rs. 235.44 Crores in FY 2011-2012 against Rs. 273.86 Crores in the previous year FY 2010-2011. The net profit for the year, after provisions and taxes, rose to Rs. 107.02 Crores as against Rs. 101.14 Crores recorded in 2010-2011 registering a growth of 6%. This is the second consecutive year when the bank's profit grew above Rs. 100 Cr, after continuing investments in I.T, Staff and Infrastructure. Several branches were refurbished, new products launched with improved I.T capabilities and staff hiring continued, all of which will address fundamental issues of productivity and competitiveness in the ensuing years.

3. APPROPRIATIONS

Particulars (Rs. in Crores) For the year ended

31.03.2012 31.03.2011

Profit brought forward 0.25 0.16

Amount available for appropriation 107.37 101.30 Transfer to:

Statutory Reserve 28.00 26.00

Capital Reserve 0.85 1.27

Other Reserve 32.25 40.25

Transfer to Special Reserve U/s 36(1) (viii) of the IT Act, 1961. 6.50 5.00

Proposed Dividend 34.14 24.38

Corporate Dividend Tax 5.54 4.15

Balance of Profit carried forward 0.09 0.25

4. DIVIDEND

Your Board of Directors are pleased to recommend a dividend of Rs. 3.50 (35%) per share for the year ended 31st March, 2012 as against Rs. 2.50 (25%) per share for previous year ended 31st March, 2011. The total out go in the form of dividend, including taxes, amount to Rs. 39.68 Crores against Rs. 28.53 Cr in the previous year.

5. EPS / BOOK VALUE

Earnings Per Share was sustained at Rs. 10.97 for the year ended 31st March, 2012 against Rs. 10.37 for the previous year.

Book Value of the share, after reckoning payment of dividend, grew to Rs. 88.43 as on 31st March, 2012 as compared to Rs. 82.38 as on 31st March, 2011.

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

Net Owned Funds (NOF) of the Bank increased from Rs. 811.70 Crores as at the end of FY 2010-2011 to Rs. 879.14. Crores as at the end of FY 2011-2012, reflecting a growth of 8.31%.

The Capital Adequacy Ratio (CAR) as on 31st March 2012 is 13.10%. The bank has been consistently maintaining Capital Adequacy Ratio well above the regulatory minimum of 9% stipulated by the Reserve Bank of India.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 8.86% and 4.24% respectively, against 10.78% and 2.41% respectively as at 31st March 2011. The increase in Tier II bank follows new issuance of subordinated debt of Rs. 250 Cores in February 2012.

7. NON PERFORMING ASSETS (NPA's)

Your bank continues to address the NPA problem through a combination of process improvement, technology solutions for early alerts and strict credit delivery. During FY 2011-12, macro-economic conditions affected some of our old clients with resultant stress on NPAs, but the bank is supporting customers where the issues are temporary and not structural, and is confident that the level of NPAs will come down significantly no sooner the market conditions revive. There have been no concentration issues either and stress has been fairly dispersed. Some of our exposure in infrastructure, textile and real estate sector got affected during the year under review. Consequently, our bank Gross & Net NPA increased to 2.98% & 1.74% as on 31st March 2012 as against 1.93% & 0.90% as on 31st March 2011, strong recovery efforts have also yielded Rs. 133.03 Crores during the year.

The bank has already initiated remedial measures to improve the performance during FY 2012-13 to arrest slippages and improve recovery, and is confident that the systemic changes initiated by the Board will ensure repeat of the success of the previous year with a much stronger portfolio at the end of FY 2013.

8. BRANCH AND ATM NETWORK

The bank has a network of 290 branches, 1 satellite branch and 10 extension counters, spread over 15 states and the union territory of Pondicherry. The Bank's focus is on ensuring faster technology driven service, as it prepares to meet the challenges of the future, but whilst to continue to emphasize on personalized contact and service, its traditional values. Your bank has a strong and wide base in the State of Tamil Nadu, one of the progressive States in the country, which has a vibrant industrial environment but is emerging strong in the states like Andhra Pradesh, Karnataka, Maharashtra and Gujarat where its traditional presence in strong clusters has contributed immensely to the economic growth of its customers and the areas it was present. Your bank has been focusing on retail banking, corporate banking and banc assurance, by rendering high-tech services.

The Bank has an ATM network of 541, in vital / major locations for better service to our customers; customers can access over 83000 ATMs across the country. Bank continues to invest in expanding the network of ATMs.

For better span of control and speed to market, 4 Zonal Offices have been replaced with 8 Regional Offices.

9. FINANCIAL INCLUSION

Your Bank continues to play an active role in the Financial Inclusion campaign, extending basic banking services to the unorganized sectors of the economy, through Business Facilitator and Business Correspondent model. During FY 2011-12, the bank has implemented the Financial Inclusion plan in 32 villages besides the 18 villages covered during last year, thus covering all the 50 villages allotted by SLBC with population of over 2000 in Tamilnadu. The Bank has opened 25818 no-frill accounts to improve its penetration in rural areas.

10. INTERNATIONAL BUSINESS

The global economic issues have had their impact on India's exports. This made it challenging to achieve our stated purpose of expanding the exports business. During the year the Bank achieved Foreign Exchange business Turnover of Rs. 4358.73 Crore as against the previous year Turnover of 4900.58 Crore. Lending to Export Sector however decreased from Rs. 215.43 Crore to Rs. 175.44 Crore. The financial year 2012-13 will see a refreshed approach to service clients on the export front and to substantially increase the Foreign Exchange Volume. The bank is taking various initiatives including staff training and line of credit, to address the needs of the export fraternity in the areas it operates and is confident that this will be a growth area in the next few years.

11. LISTING AGREEMENT WITH STOCK EXCHANGE

The Equity Shares of the bank are listed on the National Stock Exchange of India Ltd, Mumbai. The Bank also made necessary arrangement for listing of our equity shares with Bombay Stock Exchange, Mumbai which will enhance the liquidity of our shares and investors get additional forum to purchase or sell the shares through over 13,300 trading terminals spread across 295 cities and will add visibility to the global investors through BSE Web Site - the most widely viewed exchange in the world.

12. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

Leveraging on the robust technology platform & Core Banking Solution, your bank has introduced the following Technology Products, Delivery Channels and Services to serve our wide spectrum of customers, cutting across geographical location, age etc.

1. Increased the ATM network from 250 to 541.

2. Introduced flexible retail term deposit product (Lakshmi Flexi Deposit) and Current Account Product (Lakshmi Current Flexi Account)

3. Deployed point of sales devices across various locations.

4. Enabled on line Term Deposit opening in internet banking.

5. Introduced Instant VISA Debit Cards, VISA Gold Cards, Rupay Cards, Prepaid and Gift Cards.

6. Introduced centralized issue of personalized cheque book.

7. Enabled interbank fund transfer through bank

Acknowledging the progress made in implementation and promotion of alternate delivery channels and electronic payment systems your bank has been awarded with Best Bank award among small banks for 'Electronic Payment Systems' by the Institute for Development and Research in Banking Technology (IDRBT).

National Payment Corporation of India (NPCI), in recognition of Bank's pioneering efforts for implementing Cheque Truncation System in Chennai, has included your Bank in the list of pilot Banks for implementation of Cheque Truncation System (CTS) in Bangalore and Coimbatore.

Your Bank has embarked on the following strategic initiative in tune with the business objectives of the Bank.

- Your Bank has decided to implement a comprehensive system for Business Process Management (BPM) and Document Management System (DMS) to centralize and manage back office operations like new account opening process, service request etc. The ultimate objective is to streamline business processes and to provide the same level of fast, error-free and quality service across the bank.

- A Human Resource Management System (HRMS) project, which will aid better manpower planning, on boarding, motivation and monitoring of our Human Resource is under implementation.

- Enterprise wide General Ledger was implemented to have better control over fixed assets and Budget Management.

The bank's aggressive investment behind technology will ensure that the bank is poised to raise the bar on its products and services addressing the needs of customers of all ages, comparable to the best in the industry.

13. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

i. Life Insurance: Bank has entered into a tie up with the Giant in the Life Insurance sector - LIC of India for soliciting Life Insurance policies for our customers. All the products of LIC are available through our branches. It opens up a reliable and trustworthy investment avenue, making LVB a one stop shop for all financial requirements.

ii. General Insurance: Bank has tie-up with M/s. Bajaj Allianz General Insurance Company to market the General Insurance products.

iii. Mutual Funds & PMS: The Bank is presently having tie-up with thirteen leading Asset Management Companies for promoting various Mutual Fund schemes. In addition, we are promoting Port Folio Management Services (PMS) through UTI, Reliance and Sundaram Asset Management Company.

iv. Money Transfer through Branch Channels: Foreign inward remittances arrangement with M/s. Weizmann Forex Ltd. for extending Western Union Money Transfer facility, in addition to this, the bank has also tied-up with M/s. UAE Exchange & Financial Services Ltd., for offering Global Money Transfer services through Xpress Money and Money gram.

v. Money Transfer through Direct Remittances: Tied up with Times of Money - Remit 2 India. & Al-ahalia for Inward remittance from Abroad which enables the NRIs to directly remit the amount to their account / residents.

vi. Investment & Infrastructure Bonds: Bank empanelled with M/s Bajaj Capital Ltd. for promoting Investment & Infrastructure Bonds.

vii. PAN Card Services: Bank has tied up with M/s. UTI Infrastructure & Technology Services Ltd., (UTIITSL) as PAN Service Agent (PSA) for collecting the PAN Application across the country through Branches.

viii. Depository Participant Services: Registered as Depository Participant with NSDL and with necessary clearances, this product is offered to our customers.

ix. New Pension System (NPS): Bank has registered with PFRDA and NSDL-CRA as Point of Presence (PoP) for offering NPS services for all citizens except Government Employees already covered by NPS.

x. ASBA: As Bankers to the issue, the Bank can now receive applications under ASBA mode thus enabling the investors to earn interest till allotment of securities.

xi. POS: The bank is realigning and retraining the branch staff to focus on a fuller range of services that customers expect and is improving capabilities to design specific products for specific category of clients.

14. RISK MANAGEMENT

Risk and Return are two sides of the same coin in the activities of any bank. Risk Management is critical in the way modern business is operational because of dynamic business environment to which business is exposed. It is not only a requirement under several voluntary codes and statutes but also make business sense to identify the probability of not achieving strategic and business goals. Risk Management has to be embedded in business processes to ensure that it is being practiced and made part of the culture of the organization. With this in mind, the bank has established systems and policies ensuring an ongoing assessment of relevant risk types on an individual basis and in the aggregate as well.

The Board of Directors effectively monitors the risk management. A Board Level Committee oversees the implementation of Credit risk, Market Risk and Operational Risk policy prescriptions. The Asset Liability Management Committee (ALCO) looks into the management of Liquidity and Market risks and ensure adherence to prudential limits. At Executive Level also a committee consisting of Top Executives reviews periodically Liquidity Risk, Credit Risk & Market risk to take stock of the current situation. At the organization level an Integrated Risk Management Department functions specifically to identify measure, monitor and reduce risk; optimize returns and assess the required capital level. Bank has already automated the process of capital calculation and Base rate as per RBI Guidelines. Bank has a robust credit risk assessment system to ascribe borrower risk grades. This facilitates data collection and analysis for moving towards Advanced Approaches. Bank has in place a well-defined frame work for managing market Risk .Basic Indicator Approach has been adopted for computation of capital charge for Operational Risk.

The Bank has since, migrated to Basel II -New Capital Adequacy Framework (NCAP) - from March 2009 and is preparing ICAAP document to assess its inherent risk and capital requirements. Bank uses Stress Testing and scenario Analysis in various risks as required under Pillar II for enhancing risk assessment and to provide the bank a better understanding of the likely impact even in extreme circumstances. Technology is extensively used in measuring and discussing market risk using statistical tools including stress testing.

15. INTERNAL CONTROL SYSTEMS

The Bank has put in place well articulated internal control measures in tune with the complexity of business operations, organization's size and supervisory compliance standards. There is continuous review of the efficacy of the systems. and the following Audit & Inspections are carried out:

- Regular comprehensive transaction based inspection by trained internal inspector of branches.

- Risk Based internal Audit to measure the risk in branches and work out the mitigating techniques.

- Pre-disbursement credit audit.

- Concurrent Audit by Empanelled Chartered Accountant Firms.

- Information System Audit by Specialized and trained inspectors.

- Statutory Audit of branches and Controlling offices by Chartered Accountant Firms in terms of the guidelines of the Reserve Bank of India.

The Inspection Committee of the Executives review the inspection of branches carried out by the internal inspectors. The Audit Committee of the Board (ACB) is supervising the entire audit functions of the Bank and the compliance thereof. Budgets are agreed on various parameters including Revenue and Costs, and progress measured for appropriate mid-term corrective measures at the Board Level.

16. HUMAN RESOURCES

Staff strength of the Bank was augmented during the year 2011-12 with recruitment of 6 Executives, 64 Officers, 430 Clerks, 82 Sub Staff and 246 Sales personnel, a significant scale-up. Promotion to higher scale and cadre rolled out and 371 staff got promoted. Total number of employees as on 31.03.2012 was 3054 as against 2626 as on 31.03.2011. Business per employee had gone up from Rs. 7.19 crores as on 31.03.2011 to Rs. 7.99 crores as on 31.03.2012, notwithstanding an increase in Human Resources during the financial year 2011-12.

The bank's focus on training the internal resources on a continual basis gained momentum with introduction of online e-learning duly leveraging technology. Bank has trained considerable number of resources in offsite training programmes in reputed institutions such as ISB (Hyd), COD, ASCI, CAB, SIBTC, IDRBT, NIBM & FEDAI.

Industrial Relations were cordial during the year.

17. SOCIAL INITIATIVES

Your bank continues its tradition of being active in supporting worthy social causes. In FY 2011-12, your bank has contributed to the following social causes:

i) Assisted Government Higher Secondary Schools at Uppidamangalam and Velliyanai for Construction and Renovating of toilets through M/s. Rotary Club of Karur Angels.

ii) Contributed for Purchase of New Ambulance to Inner Wheel Club, Bangalore.

iii) Donated a new PC to Madurai Jesuit Province, Dindigul.

iv) Funded to Nanjundeswara Seva Trust, Bangalore to carry out various social services.

v) Donated used furniture and photo copier to Govt. Higher Secondary School, Pugalur.

vi) Donated to Naradha Gana Sabha, Karur for constructing and renovating Sabha Auditorium in order to conduct cultural performances to motivate the youngsters.

vii) Donated to Karnataka Arya Vysya Charitable Trust for scholarships for students to pursue their education.

viii) Your bank continues to support the Rotary Medical Centre, a Platinum Jubillee initiative of the bank, managed by the Rotary Club of Karur.

18. ISSUE OF TIER II CAPITAL

The Bank issued 11.4% Unsecured Redeemable Non-Convertible Subordinated Tier II Bonds Series VII in the year 2011-2012 for Rs. 250 Crores. The issue was fully subscribed. The issue was rated 'BWR A' by Brickwork Ratings India Pvt Ltd and 'A-' (Single A-) by Credit Analysis and Research Ltd (CARE). The issue opened on 03rd January 2012 and closed on 03rd February 2012 successfully. This is the first large issue your bank has made and the wider participation of banks and insurance companies as investors reflected the confidence the market has reposed on your bank's long term success.

19. CORPORATE GOVERNANCE

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interest of all the stakeholders. The Bank has complied with the code of corporate governance as enumerated in Clause 49 of the Listing Agreement. All the Directors on the Board have executed deed of covenant and undertaking individually in line with the recommendations of Dr. Ganguly Committee Report.

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis is presented in Annexure-A, Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meetings of the Board, its Committees and Annual General Meeting and the number of directorships held by them along with the details of Audit Committee and Share Transfer & Investors' Grievances Committee are furnished in Annexure-C. General Shareholders' information is furnished in Annexure-D.

20. CHANGES IN THE BOARD OF DIRECTORS

Mr. S.G. Prabhakaran, Mr. S. Dattathreyan and Mr. K. Ravindrakumar are the directors retiring by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for reappointment.

Mr. R. Sharan and Mr. A. Satish Kumar were appointed as Additional Directors on the Board with effect from 30.05.2012 pursuant to the provisions of Section 260 of the Companies Act, 1956.

21. DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO SEC 217 (2AA) OF THE COMPANIES ACT, 1956

The Board of Directors of your Bank confirms that in the preparation of the annual accounts for the year ended March 31, 2012:

- The applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

- The accounting policies framed in accordance with the guidelines of the Reserve Bank of India were applied consistently.

- Reasonable and prudent judgment and estimates were made wherever required so as to present a true and fair view of the state of affairs of the Bank as at the end of the financial year and the profit of the Bank for the year ended on March 31, 2012.

- Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India for safeguarding the assets of the bank and for preventing and detecting fraud and other irregularities; and

- Accounts have been prepared on a 'going concern' basis.

22. EMPLOYEES STOCK OPTION SCHEME

In the year 2010, the shareholders of the Bank have approved the issue of shares through Stock Option Scheme. The necessary statutory disclosures regarding ESOS as per Clause 12 and Certificate from Auditors as per Clause 14 of Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 has been furnished as part of this report.

23. STATUTORY DISCLOSURE

1. The provisions of Section 217(1) (e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used Information Technology extensively in its operations.

2. The Bank continued to encourage the country's exports and will endeavor to enlarge its export financing.

3. The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, is annexed elsewhere in this report.

4. The report on the Corporate Governance is annexed and forms part of this report.

24. FY 2012-13 - AN OUTLOOK

The Union Budget 2012-13 indicates a subdued yet favorable macroeconomic outlook in terms of real GDP growth (7.6 per cent), inflation scenario (6.4 per cent) and expected moderation in current account deficit. The budgetary estimates for 2012-13 indicate the commitment to carry forward fiscal consolidation. The RD, as a ratio to GDP, is budgeted to decline by 1 percentage point to 3.4 per cent of GDP in 2012-13. Similarly, the GFD-GDP ratio is budgeted to decline to 5.1 per cent in 2012-13 from the level of 5.9 per cent in the previous year.

The macro conditions will continue to be relatively challenging and in this context, your bank's focus will continue to be on consistent profitable growth, whilst investing behind network of new branches and upscaling talent and productivity. The bank is focused on sustainable growth, influencing employee productivity up to match competition and to strengthen the credit portfolio in a manner that fundamentally addresses near term challenges and long term strategy. We will continue to expand the branch network and technology investments addressing products and processes will continue aggressively. System-based identification of NPAs will be introduced and process centralization will be carried out, leaving branches to focus more on marketing and client service. Retail credit will drive growth in advances. The strategy is to continue the trend of growth in business, strengthen portfolio, drive employee productivity, invest behind I.T and yet maintain growth in profit. FY 2013 should enable the bank to consolidate the efforts of transformation and mark a sharp change towards a higher trajectory of growth. To this end, the Bank will also explore raising additional capital under TIER I or TIER II with appropriate approvals of the shareholders and regulators.

25. AUDITORS

The Statutory audit of the Bank was carried out by M/s. Sagar & Associates, Chartered Accountants, Hyderabad whose report is annexed.

M/s. Sagar & Associates, Chartered Accountants, Statutory Auditors of the Bank will retire on the conclusion of this Annual General Meeting and are eligible for re-appointment, subject to the approval of Reserve Bank of India and the shareholders. Resolution for their re-appointment is placed before the shareholders for approval.

As regards the auditor's qualification on reconciliation of accounts with other banks in Note No.1 in Schedule 18 to the annual accounts, reconciliation of some of these accounts is in progress and the impact, if any on the financial results is not material.

26. ACKNOWLEDGMENT

Your Directors wish to place on record their earnest appreciation of the support and guidance of all the shareholders, investors and customers, the Reserve Bank of India, SEBI, NSE, Department of Income tax and other regulatory agencies.

Your Directors would also like to express their sincere appreciation of the contribution made by the Management and Staffs including the Employees Union and Officers' Association and look forward to a more evolved relationship as steps are being taken to re-orient the bank for the future.

For and on behalf of the Board of Directors

Place : Chennai (K.R. PRADEEP)

Date : 31.07.2012 Chairman of the Meeting


Mar 31, 2011

TO THE MEMBERS

The Directors of your Bank have great pleasure in presenting this 84th Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31st March, 2011 ( FY 2010-11).

1. FINANCIAL PERFORMANCE

The highlights of the financial performance of your Bank for the year ended 31st March, 2011 are as under:

(Rs in crores)

For the year ended

31st March 2011 31st March 2010

Total Deposits 11149.51 9075.38

Total Advances 8094.42 6277.50

Investments 3518.85 2983.22

Total Income 1201.85 1012.88

Operating profit 273.86 166.21

Provisions and contingencies 172.72 135.54

Net Profit 101.14 30.67

Your bank registered appreciable growth in business volumes that compares very favourably with the industry average. The Bank attained total business of Rs. 19,243.96 crores in FY 2010-11, a growth of 25.35% over Rs. 15,352.88 crores in FY 2009-10.

Deposits grew 23%, from Rs. 9075.38 crores as at 31st March 2010 to Rs. 11149.51 crores as at 31st March 2011, and total advances expanded by 29%, from Rs. 6277.50 crores to Rs. 8094.42 crores in FY 2010-11. Of this, lending to priority sector rose from Rs. 2142.44 crores in the previous year to Rs. 2635.22 crores as on 31st March 2011. Agricultural advances increased to Rs. 1199.35 crores from Rs. 980.26 crores and advances to weaker section recorded a significant growth from Rs. 569.27 crores to Rs. 735.02 crores.

The Bank's exposures to sensitive sectors including Real Estate and Capital Market were maintained well within the regulatory limits.

2. INVESTMENTS

As at the end of the year under review, the total investments of the Bank stood at Rs. 3518.85 crores as against Rs. 2983.22 crores at 31st March 2010.

Your Bank's Treasury continues to focus on sound Asset-Liability Management and on servicing clients with appropriate treasury products, and was managed well in a systematic way in a challenging year when interest rates kept moving up and liquidity conditions were tight for some part of the year.

3. PROFIT

The Bank has posted a healthy operating profit of Rs. 273.86 crores in FY 2010-11 against Rs. 166.21 crores in the previous year FY 2009-10, an increase of 65%. The net profit for the year, after provisions and taxes, crossed Rs. 100 Crores for the first time in the history of the bank, ending at Rs. 101.14 crores as against Rs. 30.67 crores recorded in the previous year - a growth of 240%.

4. APPROPRIATIONS

(Rs in crores) Particulars For the year ended

31st March 2011 31st March 2010

Profit brought forward 0.16 0.28

Amount available for appropriation 101.30 30.96

Transfer to:

Statutory Reserve 26.00 10.00

Capital Reserve 1.27 0.66

Other Reserve 40.25 12.32

Transfer to Special Reserve u/s 36 (1) (viii) of the IT Act, 1961 5.00 1.00

Proposed Dividend 24.38 5.85

Corporate Dividend Tax 4.15 0.97

Balance of Profit carried forward 0.25 0.16

In FY 2010-11, transfer to Reserves from profits amounted to Rs. 72.52 crores as against Rs. 23.98 crores in FY 2009-10.

5. DIVIDEND

Your Board of Directors are pleased to recommend a dividend of Rs. 2.50 (25%) per share for the year ended 31st March, 2011 as against Rs. 0.60 (6%) per share for previous year ended 31st March, 2010.

6. EPS / BOOK VALUE

Earnings Per Share stood at Rs.10.37 for the year ended 31st March, 2011 as compared to Rs. 4.95 as on 31st March, 2010.

Book Value of the share, after reckoning payment of dividend, has increased to Rs. 83.23 as on 31st March, 2011 as compared to Rs. 75.79 as on 31st March, 2010.

7. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

Net Owned Funds (NOF) of the Bank increased from Rs. 738.99 crores as at the end of FY 2009-10 to Rs. 811.70 crores as at the end of FY 2010-11, reflecting a growth of 9.83%. During the year, your Bank revalued its fixed assets portfolio of owned properties and transferred an amount of Rs. 80.73 crore to Revaluation Reserve.

As on 31st March, 2011 your Bank's Capital Adequacy Ratio (CAR) stood at 13.19% (Basel-II), well above the regulatory minimum of 9.00%. Without considering the Revaluation Reserve, the CAR would be 12.70%.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 10.78% and 2.41% respectively.

8. NON PERFORMING ASSETS (NPA's)

Your bank addressed the challenge of NPAs through structural and process changes led by the Board. Combining strong recovery efforts with tightening of credit processes and monitoring, Gross and Net NPAs were reduced significantly. Gross NPA to Gross Advance as on 31st March 2011 stands at 1.93% and net NPA at 0.90% corresponding to 5.12% and 4.11% respectively as at 31st March 2010.

The Provision Coverage Ratio stood at 77.17% against the stipulated level of 70% as on 31st March 2011.

In FY 2010-11, provisions against NPAs was Rs. 56.64 Crores as against Rs.119.27 Crores in the previous year. The Board is constantly monitoring the performance of your Bank on the NPA front through frequent reviews aided by technology solutions for identifying NPAs in the system. Credit origination and monitoring skills are being added significantly to strengthen the ongoing efforts to build a strong credit portfolio so that NPAs remain under control and the bank continues to grow consistently and profitably as a significant player.

9. BRANCH AND ATM NETWORK

As mentioned in our previous report, during FY 2010-11, the Bank opened 3 branches, Surat in Gujarat (a second Branch), Punjagutta in Andhra Pradesh and Raipur in Chhattisgarh. The Bank now has 274 branches including one satellite office and 9 Extension counters spread across 15 states and one Union Territory. Your bank has also increased the number of own ATMs for better service to its Retail customers, increasing it from 175 to 274 as on date. More investments are in progress to expand the network of branches and ATMs in FY 2011-12. Besides, for better administration and operational efficiencies, 8 Regional offices have now replaced 4 Zonal offices, of which 6 have already started operations.

10. IMPROVING CUSTOMER SERVICE THROUGH TECHNOLOGY

Your Bank has a robust technology platform extending services that address customer needs across segments. Your Board is now focused on strengthening sales orientation at the branch level and through specific vertical streams to be able to market the capabilities more effectively. The strategy is to be amongst the top banks in the emerging technology products. In FY 2010-11, the emphasis has been on developing alternate channels as a powerful service delivery platform, focused on enhancing customer service. ATM and Mobile banking have become very important tools for your Bank for customer retention as well as acquisition. A string of technology-aided products and services were launched in FY 2010-11, namely:

- Interbank Mobile Payment Services.

- Funds transfer and Ticket Booking through mobile.

- Funds transfer facility in ATMs.

- Fee payment through ATM.

- Secured Intra / Inter Bank Funds transfer with multi factor authentication, in Internet Banking.

- Revamped website with more interactive functionalities / facilities.

Your Board is pleased to note that your Bank is the first Private Sector Bank in South India to launch "Interbank Mobile Payment Services" (IMPS) in association with National Payment Corporation of India (NPCI) and was the tenth bank pan India Bank to launch this facility. Your Bank is also ahead in commencing the Cheque Truncation System (CTS) at Chennai, an initiative by NPCI.

Investments continue by way of network expansion - opening of branches and more ATMs. FY 2011-2012 could see the number growing to 500 ATMs. Your Bank is also focused on improving customer service at all points of contact, including making the ATM experience delightful for customers through innovation and new ideas. There are also initiatives on safe banking underway to benefit customers who are fast shifting to electronic channels. Through tie ups, our Customers now have the benefit of using over 70,000 ATMs across the country including those of other banks.

Bank has successfully implemented Enterprises Storage solution at its primary and DR site for high availability of critical applications. To ensure Business Continuity and Disaster Recovery regular DR Drills are being conducted.

Your bank's website has been given a new contemporary look to facilitate more features & services to the customers by introducing features like map based search, make an appointment with the bank etc. Technology will be used as an integral tool in the business strategy as we scale up our operations.

11. INTERNATIONAL BUSINESS

During the year, the Bank achieved Foreign Exchange Business turnover of Rs. 4900.58 crores as against Rs. 3462.43 crores during the previous year registering a growth of 41.53%. Lending to export sector however, decreased from Rs. 274.28 crores to Rs. 215.43 crores, FY 2011-12 will see a refreshed approach to service clients on the export front and to substantially increase the Foreign Exchange volumes through better reach of Treasury functions. Your Bank does not have any overseas operations. 12. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

- Life Insurance: Bank has entered into a tie-up with LIC of India to solicit Life Insurance policies for our customers. All the products of LIC are available through our branches. Bancassurance tie up has been successfully embedded through training and we see this as a big step in improving fee income.

- General Insurance: Bank has tie-up with M/s.Bajaj Allianz General Insurance Company to market the General Insurance products.

- Mutual Funds & PMS: The Bank is presently having tie-up with Ten leading Asset Management Companies for promoting various Mutual Fund Schemes. In addition we are promoting Port Folio Management Services (PMS) through UTI Asset Management.

- Money Transfer through Branch Channels: In addition to foreign inward remittances arrangement with M/s.Weizmann Forex Ltd. for extending Western Union Money Transfer facility, Bank has tied-up with M/s.UAE Exchange & Financial Services Ltd., for offering Global Money Transfer services through Xpress Money and Moneygram.

- Money Transfer through Direct Remittances: Your Bank has tied up with Times Money - Remit 2 India & Al-ahalia for Inward remittance from Abroad which enables the NRIs to remit the amount directly to their account / other residents.

- PAN Card Services: Bank has tied-up with M/s.UTI Infrastructure & Technology Services Ltd., (UTIITSL) as PAN Service Agent (PSA) of collecting the PAN application across the country through Branches.

- Depository Participant Services: Your Bank has registered as a Depository Participant with NSDL and with necessary regulatory clearances, this product is part of the suite that is offered to our customers. As responsible equity culture spreads, this business will offer a good platform for more value added products.

- ASBA: As Bankers to the issue, the Bank can now receive subscriptions under ASBA mode thus enabling the investors to earn interest till allotment of securities.

- Financial Inclusion : Your bank has been actively participating in the Financial Inclusion campaign, extending basic banking services to the unorganized sectors of the economy, through Business Facilitator and Business correspondent model. During FY 2011-12, as a part of the policy initiatives of Reserve Bank of India, Business Correspondents have been engaged to implement financial inclusion in 18 allotted villages with population of over 2000 in Tamilnadu, based on this experience, this service will be extended to the 50 allotted villages. In addition, your Bank has opened over 28,000 No Frills Accounts to gradually improve banking penetration through its branches.

Wealth Management opportunities, in the towns your branch traditionally has presence, are significant and these new products are intended to improve the overall customer service and provide exposure to these products.

Even as more and more new products are being made available to the customers, responsible service continues to be imbedded in the Bank's tradition, and your Bank has an effective customer grievance redressal framework as well. Your Bank is committed to treating customers fairly as part of the BCSBI code and the policies and processes are designed to strict adherence, under Board's monitoring.

It will also be a matter of pride to note that your Bank was adjudged the second fastest growing Bank in the small Bank category in the BT-PWC survey in FY 2010-11.

13. RISK

Risk and Return are two sides of the same coin in the activities of any bank. Risk Management is critical in the way modern business is operated because of dynamic business environment to which businesses are exposed. It is not only a requirement under several voluntary codes and statutes, but also makes business sense to identify the probability of not achieving strategic and business goals. Risk management has to be embedded in business processes to ensure that it is being practised and made part of the culture of the organization. With this in mind, the bank has established systems and policies ensuring an ongoing assessment of relevant risk types on an individual basis and in the aggregate as well.

The Board of Directors effectively monitor the risk management. A Board Level Committee oversees the implementation of Credit risk, Market risk and Operational risk policy prescriptions. The Asset Liability Management Committee (ALCO) looks into the management of Liquidity and Market risks and ensure adherence to prudential limits. At the organizational level, an Integrated Risk Management Department functions at Head Office to identify, measure, monitor and reduce risk; optimize returns and assess the required capital level. Bank has automated the process of Capital Calculation and introduced Base Rate as per RBI Guidelines during this financial year. Bank has a robust credit risk assessment system to ascribe borrower risk grades. This facilitates data collection and analysis for moving towards Advanced Approaches. Bank has in place well defined framework for managing Market Risk. Basic Indicator Approach has been adopted for computation of capital charge for Operational Risk.

The Bank has migrated to Basel II- New Capital Adequacy Framework (NCAF) - from March 2009 and is preparing ICAAP document to assess its inherent risks and capital requirements. Bank uses Stress Testing and Scenario Analysis in various risks as required under Pillar II for enhancing risk assessment and to provide the bank a better understanding of the likely impact even in extreme circumstances. Technology is extensively used in measuring and discussing market risk using statistical tools, including stress testing.

14. INTERNAL CONTROL SYSTEMS

The Bank has put in place well articulated internal control measures in tune with the complexity of business operations, organization's size and supervisory compliance standards. The following Audit & Inspections are carried out:

- Regular Comprehensive transaction based inspection by trained internal inspector of branches.

- Risk Based internal Audit to measure the risk in branches and work out the mitigating techniques.

- Pre-disbursement credit audit.

- Concurrent Audit by Empanelled Chartered Accountant Firms.

- Information System Audit by Specialized and trained inspectors.

- Statutory Audit of branches and Controlling offices by Chartered Accountant Firms in terms of the guidelines of the Reserve Bank of India.

The Audit Committee of the Executives review the inspection of branches carried out by the internal inspectors. The Audit Committee of the Board (ACB) is supervising the entire audit functions of the Bank and the compliance thereof. Budgets are agreed on various parameters including Revenue and Costs, and progress measured for appropriate mid-term corrective measures at the Board Level.

15. HUMAN RESOURCE

As on 31st March, 2011, the total number of employees of the Bank stood at 2626. The employee productivity measured in terms of Business per employee, increased to Rs.7.19 crores from Rs. 5.60 crores in the previous year. Following the 9th Bipartite settlement, significant arrears of salary was paid to employees. Gratuity too has been raised to the substantially revised statutory limit. Bank also offered the Defined Benefit Pension Option as per the All India Settlement signed by the Indian Banks Association on behalf of several banks including your own, with the All India Staff and Officers Unions / Federation, to 1386 eligible employees - both serving and retired. This employee benefit involved a significant investment of Rs. 90 Cr. Industrial relations in the Bank remained cordial during the year and both Staff Union and Officers Association continued to lend significant support to the management's initiatives in improving the productivity.

16. SOCIAL INITIATIVES

Your bank continues its tradition of being active in supporting worthy social causes. In FY 2010-11, your bank had given financial assistance for construction of building to Karur Anbu Karangal, an orphanage. The bank is sponsoring a medical centre at Vengamedu, Karur since 1994 catering to the medical requirements of the needy people under the aegis of Karur Rotary Club. Your bank has lent financial support to the Karnataka Arya Vysya Charitable Trust, Bangalore which extends scholarships to the needy students for their education. The bank has also joined hands with the Isha Foundation, Karur to plant 500 trees in Karur. The renovation work undertaken at the Sri Kadhir Narasinga Perumal Temple has had financial support from your bank. The bank has also provided material support to the orphanage during their visit to theme park, arranged by the Rotary Club of Karur.

Your bank has a policy of being a responsible corporate citizen, at the forefront of environmental and social causes in its areas of operations and this is built into the operational framework.

17. CORPORATE GOVERNANCE

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interest of all the stakeholders. The Bank has complied with the code of corporate governance as enumerated in Clause 49 of the Listing Agreement. All the Directors on the Board have executed deed of covenant and undertaking individually in line with the recommendations of Dr. Ganguly Committee Report.

Pursuant to Clause 49 of the Listing Agreement, a Management Discussion and Analysis is presented in Annexure-A, Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meeting of the Board, its Committees and Annual General Meeting and the number of directorships held by them along with the details of Audit Committee and Share Transfer & Investors' Grievances Committee are furnished in Annexure-C. General Shareholders' information is furnished in Annexure-D.

18. BOARD OF DIRECTORS

Mr.S.Narayan demitted office as the Non-Executive Chairman of the Board on 27.01.2011 on completion of his two year term. Your Board wishes to place on record their sincere appreciation of the valuable services and guidance Mr.S.Narayan rendered during his tenure.

Mr.P.R.Somasundaram was appointed as Managing Director of the Bank with effect from 02.08.2010 for a period of three years as per the approval of Reserve Bank of India and Mr.K.S.R.Anjaneyulu, who functioned as the interim Managing Director from January 2010 has since reverted to his role as

Executive Director of the Bank. The Board places on record their appreciation of the effective role played by Mr.K.S.R.Anjaneyulu as the Managing Director in the interim.

Mr.K.Balaji, Director, resigned from the Board effective 19th July 2011 after having served on the Board for close to 6 years. Your Board wishes to thank Mr.K.Balaji for the advice and support he gave during his tenure.

Mr.B.K.Manjunath, Mr.N.Saiprasad and Mr. K.R.Pradeep are the directors retiring by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for reappointment.

19. DIRECTORS' RESPONSIBILITY STATEMENT

The Board of Directors of your Bank confirm that in the preparation of the annual accounts for the year ended March 31, 2011:

- The applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

- The accounting policies framed in accordance with the guidelines of the Reserve Bank of India were applied consistently.

- Reasonable and prudent judgment and estimates were made wherever required so as to present a true and fair view of the state of affairs of the Bank as at the end of the financial year and the profit of the Bank for the year ended on March 31, 2011.

- Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India; and

- Accounts have been prepared on a 'going concern' basis.

20. STATUTORY DISCLOSURE

1. The provisions of Section 217(1) (e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your Bank. The Bank has, however, used Information Technology extensively in its operations.

2. The Bank continued to encourage the country's exports and will endeavor to enlarge its export financing.

3. The information required under Section 217(2A) of the Companies Act, 1956 and the rules made there under, is annexed elsewhere in this report.

4. The report on the Corporate Governance is annexed and forms part of this report.

21. FY 2011-12 : OUTLOOK

The Bank will continue its emphasis on consistent profitable growth even as it steps up investments behind improved customer service through a network of new branches and ATMs, refurbishment of existing branches, significant hiring of new talent from Tier 2 towns, training and significant process changes, with outsourcing where relevant. Responsible growth in Advances will be coupled with appropriate de-risking strategies on the portfolio to control NPAs while improving NIM. New products will focus on increasing fee income and Retail business will be strengthened. Staff productivity will be key to improved profitability and technology-aided products will drive growth. Administrative functions like H.R and Audit will be significantly strengthened. Risk management and strict regulatory compliance will continue to be the platforms on which FY 2011-12 will consolidate the growth platform. The strategy should enable your Bank to rise sharply in the league of private sector Indian banks and reflect good growth in profitability.

22. AUDITORS

The Statutory audit of the Bank was carried out by M/s.Sagar & Associates, Chartered Accountants, Hyderabad whose report is annexed and forms part of this report. The Statutory Central and Branch Auditors have audited all the branches and other offices of the Bank.

Explanation is offered below on the auditors' qualification on Note 1(a) & (b) in Schedule 18 to the audited annual accounts.

Unadjusted items in Inter-Branch accounts adjusted till date have no significant impact on the published accounts. Reconciliation of entries continues to be in progress.

23. ACKNOWLEDGMENT

Your Directors would like to thank the shareholders and customers for their continued goodwill and support. The Board also gratefully acknowledges the guidance and co-operation received from the Reserve Bank of India and other regulatory and government authorities like SEBI, NSE and Department of Income Tax.

Your Directors would also like to express their sincere appreciation of the contribution made by the management and staff including the Staff Union and Officers' Association for their support in delivering a significantly improved performance and look forward to a more evolved relationship as steps are taken to re-orient the bank for the future.

A special word of thanks is recorded here from every member of the Board to the Executive administration and all the employees during the year for crossing the milestone of Rs.100 crores in Net Profit.

For and on behalf of the Board of Directors

Place : Mumbai K.R.Pradeep

Date : 20.07.2011 Chairman of the Meeting



 
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