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Directors Report of State Bank Of Mysore

Mar 31, 2015

Dear Members

To the State Bank of India, Reserve Bank of India and the Central Government, in terms of Section 43(1) of State Bank of India (Subsidiary Banks) Act, 1959.

1. MANAGEMENT DISCUSSIONS AND ANALYSIS

Management Discussion and Analysis is available in separate section.

2. REVIEW OF BANKING OPERATIONS

2.1. Market Share and Business Growth

2.1.1. The business levels of the Bank and the position of market share in recent years are furnished hereunder:-

(RS. in crores) Year ended 31st March 2011 2012 2013 2014 2015

Aggregate Deposits 42,779 49,663 56,712 61,087 65,058 (Percentage of growth) (113) (161) (14.2) (1.1) (6.5)

Of which Non-Bulk (69.9) (706) (74 7) (831) (9°.6) Deposits (%) 29,844 35,041 42,360 50,753 58,946

Gr. In Non-Bulk Dep (%) (7.7) (17.4) (20.9) (19.8) (16.1)

Deposits Market share % 0 79 0 78 0 83 0.76* 0.76*

Total Advances 34,442 40,653 45,981 50,862 53,296 1 (Percentage of growth) (15 3) (18.0) (131) (106) (48)

Adavance Market share % 0.87 0.85 0.85 0.79* 0.78*

2.1.2. The Bank has seen continuity in growth during the current year, with aggregate deposits reaching a level of RS. 65,058 crs, a growth of RS. 3,971 crs over the previous year at a rate of 6.5%. The growth in Non Bulk deposit at 16.1% is in tune with the past trend and in accordance with our conscious policy of shedding high cost/bulk deposits. The total advances have reached a level of RS.53,296 crs, recording a growth of RS. 2,434 crs over the previous year at a growth rate of 4.8 %. As on 23.03.2015 the Bank''s market share of Deposits remained intact at 0.76%, though Bank''s market share of Advances has decreased marginally to 0.78% from 0.79%.

2.2 Kev Performance Indicators

Sl. No Key Indicators 2012-13 2013-14 2014-15

1. Net Profit (RS. in crs) 416.10 274.25 409

2. Return on Assets (%) 0.66 0.40 0.54

3. Return on Equity (%) 11.05 6.84 9.40

4. Expenses - Income Ratio (%) 46.26 53.40 53.34

5. Earnings per Share (in RS.) 88.91 57.39 85

6. (%) Gross NPA to Gross 4.53 5.54 4.00 Advances (%)

7. Net NPA to Net Advance (%) 2.69 3.29 2.16

8. Cost of Deposit 7.32 7.21 7.25

9. Yield on Advances 11.62 10.93 11.11

10. NIM 3.22 3.02 2.98

*The Bank has recorded improved performance over the previous year under these parameters

2.3. Income

Total Income of the Bank increased by 12%, from RS. 6,895 crs as at March 2014 to RS. 7,706 crs in March 2015. Interest Income increased from RS. 6,323 crs to RS. 6940 crs (10%). Average Yield on Advances increased from 10.93% in 2013-14 to 11.11 % during 2014-15, while Average Yield on Investments increased from 7.37% in March 2014 to 7.49 % during the same period. Non Interest Income increased by impressive 34% from RS. 572 crs to RS. 767 crs with the growth in profit from sale of investments improving from RS. 69.36 crs to RS. 125 crs (81%) and Recovery from Written Off Accounts recording whopping 155% growth over RS. 45 crs in Mar''14 to RS. 115 crs in Mar''15. The ratio of Non-Interest Income to Total Income, therefore, stood at a higher level of 10% (8.4% last year).

2.4. Expenses

The Total Expenditure (before provisions and contingencies) increased by RS. 574 crs, from RS. 5,732 crs in 2013-14 to RS. 6,376 crs in 2014-15. While Interest Expenses increased by RS. 456 crs (10.5%), the Operating Expenses increased by RS. 128 crs (9%) during the current year. The Average Cost of Deposits increased from 7.21% in March 2014 to 7.25.% in March,2015 owing to customers'' marked preference for investment in TD of 1-3 years maturities, despite increase in CASA share from 33.25% (31.03.14) to 33.73% (31.03.15) and decrease in higher cost bulk deposits.

2.5. Profit

While the Operating Profit increased from RS. 1164 crs in 2013-14 to RS. 1,331 crs in 2014-15 (14%), the Net Profit increased from RS. 274.25 crs to RS. 409 crs (49%). The improvement in bottom-line is on account of proactive steps taken by the Bank in recovery of NPAs and AUC and also by Strategic Sale of Assets. While Return on Assets (ROA) increased from 0.40% to 0.54% owing to improved profit despite growth in average assets, Return on Equity (ROE) also increased from 6.84% to 9.40% during the year.

2.6. Dividend

Keeping in mind the need to strengthen Tier I capital of the Bank in the current economic scenario, the Board of Directors has declared a dividend of 60% (Rs. 6 per Equity share of Rs. 10/-) for the year 2014-15. This involved a pay-out of Rs. 34.59 crs, including the tax component. The pay-out ratio for 2014-15 works out to 8.46 %, as against 5.25 % for 201314.

3. BUSIneSS reVIeW

3.1. Deposits

3.1.1. Total Deposits of the Bank grew by Rs. 4,504 crs, to reach the level of Rs. 66,064 crs. Aggregate Deposits (total deposits excl. inter Bank deposits) stood at Rs. 65,058 crs as at March 2015, recording a growth of Rs. 3,971 crs (6.5%) during the year. The share of CASA deposits to Aggregate Deposits increased from 33.25% in March 2014 to 33.73 % in March 2015.

3.1.2. Personal Segment Deposits

Personal segment deposits grew by RS.5,236 crs, registering a growth of 15.8% to reach a level of RS. 38,342 crs as on 31st March 2015. NRE deposit registered a growth of 26%, Recurring Deposit grew by 37% and Term Deposit by 21.5%. Share of Personal segment deposits to aggregate deposits has increased from 54.2% to 58.9% during the year. The number of deposit accounts under Personal segment have increased by 17,20,185 during the year.

3.1.3 To further boost deposits growth under Personal segment, a new product viz "Mybank Sanchay", a Savings Bank with add on benefits including free accidental Insurance Cover, free Gold/ Platinum Cards etc was introduced. A special campaign was also held from 02 Feb 2015 to 31st March 2015.

3.1.4 DEPOSITORS EDUCATION AND AWARENESS FUND (DEAF) SCHEME 2014

"Pursuant to the amendment of the Banking Regulation Act, 1949, and under the provision of section 26A inserted, the amount to the credit of any account in India with any Bank, which has not been operated upon for a period of 10 years and more shall be credited to the Fund within a period of three months from the expiry of said period of ten years. The amount due under the Scheme is to be transferred to DEAF account with Reserve Bank of India before closing of the banking hours of the last working day of every month".

''The Bank has transferred a sum of RS.46.15 crores to DEAF account from June 2014 to December 2014.''

3.2. Credit Expansion

3.2.1.While the total advances of the Bank increased from RS. 50,862 crs to RS.53,296 crs, thus registering a growth of RS. 2,434crs ( 4.8%) during the year. Net advances (i.e. net of NPA related/floating Provisions, and outstanding under Staff Festival Advance) of the Bank increased from '' 49,482crs in March 2014 to RS.52,026 crs. Credit Deposit Ratio of the Bank decreased from 83.3% in March 2014 to 81.9% in March 2015 due to our highly selective approach in taking further exposure in the Corporate sector.

3.2.2 Corporate network

Our Bank has a Corporate Network consisting of 11 large branches spread over Metro and other big centers of the country, for catering to the needs of large Corporates.

The Corporate Network of the Bank has achieved a business level of RS. 31,480.71crs, comprising RS. 4386.50 crs of deposits & RS. 27,094.21 crs of advances, as on 31.03.2015. The credit to CNW accounts form 51% of the total advance and 88% of the C&I advance of our Bank.

The current sluggishness in the economy has also impacted Corporate advances portfolio. In order to improve the quality of assets, the Bank has been consciously moving its portfolio to investment grade and above [BBB or above], which accounts for 78% of total advances. This strategy has started yielding desired results.

The CNW Network opened 1 more branch at Mysore and upgraded Ahmedabad Branch to Corporate Network grade in FY 2014-15, besides consolidating Advances from other nearby branches, to lend more strength and quality to its portfolio.

Highlights of the performance of Corporate Network in FY 2014-15 are summarized below:

* With the slew of measures like recoveries, restructuring, sale of assets, the Network has significantly brought down its NPA level by 33% with positive impact resulting in reduction of Bank''s NPA to 4%

* Total Forex Turnover of CNW was at RS. 24,46,526 crs, accounting for 89% of the total Bank''s Forex Turnover, recording an increase of 87% over FY14.

* The growth in AAA to A grade of advances [ECR] is apprx. 41%.

3.2.3. Credit Committees

Credit Committees were first established in May 2002, in order to facilitate taking decisions through committee approach to provide more professional touch to credit appraisal, by thread-bare discussion on the risk factors. Two committees have been constituted at Head office viz. HOCC-I chaired by Managing Director and HOCC-II chaired by Chief General Manager (CB) with CGM/GMs as members of the committee.

The Bank has held 53 HOCC-I and 39 HOCC-II Meetings, respectively, during 2014-15, to facilitate growth in advances.

Besides the above HOCCs, in order to provide speedier credit and consequent to devolution of wider powers to the Networks, 4 Network Credit Committees with Network General Managers as Chairmen were constituted and 97 meetings were held in aggregate.

Similar Committees are also constituted at Zonal & Regional office levels viz. ZOCC & ROCC respectively.

3.3 Personal Segment Advances

Personal segment advances registered a record growth of RS. 1,636 crs (18.46%) to reach a level of RS. 10,500 crs. Special campaigns were conducted during the year to provide boost to the growth in Housing loans including Overdraft under Max Gain facility, Car loans, Gold loans etc. Housing loans recorded a growth of RS. 974 crs (22.15%) to reach a level of RS.5,372 crs. Car loans recorded a growth of RS. 118 crs (16.67%) to reach a level of RS. 826 crs and Personal loans recorded a growth of RS. 287 crs (25.40.%) to reach a level of RS. 1,417 crs.

3.4. Priority Sector Lending and Social Banking

3.4.1. Total credit provided to the Priority sector as on March, 2015 stood at RS.19,401 crs (36.5% of ANBC), including Inter Bank Participation certificate (IBPC) of RS. 485 crs issued by Kaveri Grameena Bank, as against RS. 17,813 crs, including IBPC of RS. 375 crs, in the previous year ended March 2014 (yoy growth 8.9%). Segment-wise status of these advances are as under:

* agriculture: The direct Agricultural advances increased by 16.8% from RS. 6,377crs in FY14 to RS. 7,448 crs in FY15. Total agricultural advances went up from RS. 9,819 crs (including IBP of RS. 375 crs and RIDF investments of Rs.2,356 crs) to RS. 10,643 crs (including IBP of RS. 485 crs and RIDF investments to the extent of RS. 2,263 crs).

* FreshAgriculturalAdvances sanctioned during FY15 stood at RS. 4,988 crs benefiting 2.45 lacs farmers.

* Agricultural Gold loan registered a growth of 39%, from RS. 1,314 crs to RS.1,828 crs.

* Micro and Small Enterprises (MSE): The Bank''s Advances to Micro & Small Enterprises for year the ended FY14-15 stood at RS. 5,267 crs as against RS. 4,524 crs for FY13-14 reflects a yoy growth of over 16.4%.

* Personal & Services Banking (P&SB): Housing loans under priority sector reached a level of RS.2,865 crs during the year. Education loans under priority sector stood at a level of RS. 625 crs as at March 15.

3.5. Agriculture Finance:

The following initiatives were taken to increase the flow of credit to the Agriculture Segment.

* We have introduced a scheme for Polyhouse/Green House financing. Bank has financed RS. 3.41 crs consisting of 15 accounts under the said scheme.

* Bank has entered into an MOU with M/s RML information Services Pvt Limited for providing information on agricultural practices, local weather forecast and commodity specific market intelligence for crops through SMS to its subscribers.

* Bank has issued 15,149 Rupay Kisan cards to eligible KCC account holders during the year in compliance with GOI directives.

* Interest subvention amounting to RS.18.53 crs has been provided under Agri segment to farmers for prompt repayment of loan.

* During 2014-15, GOK declared 35 taluks as drought-hit. All branches of the Bank considered rephasement/ restructuring of dues from farmers who were in distress. Additional financing in the shape of production and investment credit was also extended to such farmers.

In order to provide some succour from the hardship suffered by the farmers from drought and other natural calamities, Bank launched OTS scheme to settle old NPA accounts. 4,083 accounts amounting to RS. 47.88 crs were settled during the year.

3.5.1 SELF HELP GROUP (SHG) LENDING

The Bank has credit linked 8,157 groups with an advance amount of RS. 288.35 cr during the current year, taking the cumulative total of such credit linkage programme to 1,64,616 groups with a financial outlay of RS. 2,620.37 cr up to March 2015. As on 31/03/2015, there are 22,143 SHGs with an outstanding balance of RS. 663.46 cr.

The Ministry of Rural Development, Government of India has launched National Rural Livelihood Mission by replacing SGSY scheme with effect from 01/04/2013. We have financed 6,226 women SHGs under National Rural Livelihood Mission (NRLM) with an advance amount of RS. 241.49 cr during FY2014-15 and as on 31/03/2015, there are around 19,926 women SHGs with an outstanding balance of RS. 490.50 cr. Necessary benefits have been passed on to all eligible women SHGs and claims for interest subvention have been lodged with NRLM Department of Ministry of Rural Development, Government of India.

The Bank has credit linked 672 Joint Liability Groups with an advance amount of RS. 9.33 cr during FY2014-15 and as on 31/03/2015, there are 1,925 JLGs with an outstanding balance of RS. 24.44 cr.

3.6. Micro and Small Enterprises (Manufacturing)

The Bank''s advances to Micro and Small Enterprises (Manufacturing) as at March RS.15 are RS. 2,781 crs, as against RS. 2,628 crs as on March 2014, registering an increase of RS. 153 crs (yoy 5.8%) during the year

3.7. Micro and Small Enterprises (Services)

The Bank''s advances to Micro and Small Enterprises (Services) as at March ''15 is RS. 2,486 crs, as against RS. 1,896 crs as on March 2014, registering an increase of RS. 590 crs (yoy 31%) during the year.

During the year 2014-15, Bank has taken various initiatives to increase flow of credit to MSE sector. Interest rates on all loan schemes were rationalized to give equal focus to each scheme under MSE segment. We have re-designating 14 General Banking branches as MSE Specialized branches in addition to 6 existing SME specialized branches, in compliance to the RBI''s guidelines of having at least one MSE Specialized branch in each district, We have also identified 74 more branches for targeted lending under this segment. Uniform loan application form for MSEs for loans upto RS. 1.00 cr has been introduced, which is simple and user-friendly.

During the year 2014-15, Bank introduced web-based Credit Proposal Tracking System (CPTS) exclusively for MSE segment, for online monitoring of loan applications received by the Bank at various levels. It has helped in ensuring timely delivery of credit to the MSE sector.

Bank also rolled out new product "SBM Pharma" to capture the business of Retail/Wholesale traders dealing in pharmaceutical and surgical. Customer meet/ Seminars and workshops were conducted at various key centres including Bangalore (Peenya), Karwar, Gulbarga, Mangalore, Hubli etc. in association with local trade bodies to get feedback from the customers/industry and increase our outreach.

During the year 2014-15, Bank has signed an MOU with National Small Industries Corporation to further boost up the lending to MSE Sector.

3.8 Credit Guarantee Scheme

The Bank continued to extend collateral-free financial assistance to MSE sector by participating in Credit Guarantee Scheme of CGTMSE. CGTMSE cover is available to eligible MSE units upto RS.1 crore. Guarantee fee on loans upto RS. 50 lacs are borne by the Bank. As at March 2015, 7,239 accounts amounting to RS. 462 crs were covered under the Scheme.

3.9 Assistance to Weaker Sections of the Society

The Bank continued to extend financial assistance to Weaker Sections of the Society, comprising small & marginal farmers with land-holdings upto 5 acres, landless labourers, tenant farmers, village & cottage industries with individual limits not exceeding RS. 50,000, besides assistance under schematic lending to SJSRY, SGSY, SLRS, DRI, Self-Help Groups and to SC/ST beneficiaries. The outstanding amount under lending to Weaker Sections stood at RS. 6,411 crs as on March 2015, constituting 12% of ANBC, as against the stipulated benchmark of 10%.

3.10 assistance to Women Entrepreneurs

Being fully conscious of the deep positive financial and social impact of extending credit to women entrepreneurs, we continued to lay special emphasis on extending liberalized credit to MSE units being run by women entrepreneurs. The Bank''s total credit to women as at March 2015 stood at RS. 3,636 crs covering 2.04 lacs beneficiaries, which works out to 6.8% of Adjusted Net Bank Credit, as against the stipulated benchmark of 5%.

3.11 Measures to improve the economic conditions of SCs/STs

In line with the national objective to extend all-out support for the development of SCs/STs, we, as a responsible corporate citizen, are ensuring that adequate credit is available to SCs/STs, in their role of self-employed entrepreneurs. Credit is extended to this section in tie-up with the State-level development corporations dedicated to SCs/STs. The Bank''s assistance to the SCs/STs under various schemes as at March 2015 stood at RS.672 crs covering 1,00,425 beneficiaries, which forms 3.5 % of Priority Sector Advances.

3.12 Finance to Minority Communities

With the objective of promoting economic activities amongst the notified minorities, Bank has been whole-heartedly participating in this national task for promoting self-employment activities amongst the eligible beneficiaries belonging to the minority communities. The Bank''s assistance to the notified minorities under various schemes as at March 2015 stood at RS. 2,038 crs covering 43,668 beneficiaries, which forms 10.5% of Priority Sector Advances.

3.13 Government Sponsored Schemes

The position of assistance rendered under various Government sponsored schemes by our Bank as at March 2015 is as detailed below:-

3.13.1 Prime Minister''s Employment Generation Programme (PMEGP)

"Prime Minister''s Employment Generation Programme (PMEGP)" is the scheme launched by GOI to empower first generation entrepreneurs to set up micro enterprises across the country, by subsuming the earlier Prime Minister''s Rozgar Yojana (PMRY) and Khadi & Village Industries Commission''s Rural Employment Generation Programme (REGP), from the FY 2008-09. The Bank''s total credit under PMEGP Scheme as at March 2015 stood at RS.57.7 crs, covering 1,540 beneficiaries.

3.13.2 National Urban Livelihood Mission Scheme (erstwhile SJSRY)

The Bank has extended financial assistance of RS. 11.25 crs under NULM during the year to 1,222 beneficiaries.

Total amount outstanding under NULM scheme as on March 2015 is RS. 33.74crs, covering 4,402 beneficiaries.

3.13.3 Differential Rate of Interest (Dn) Scheme

The Bank''s advances under DRI scheme stood at RS. 15.9crs as at March 2015 covering 13,605 beneficiaries and the share of advances to SC/ST beneficiaries under DRI scheme is 52.8%.

3.14 Investments

3.14.1. The total investments of the Bank in Government securities, other approved securities and Non-SLR securities increased from RS. 19,300 crs as at March 2014 to RS. 20,663 crs as at March 2015.

3.14.2. Profit on sale of investments increased from RS. 69.36 crs in 201314 to RS. 125.33 crs in 2014-15. During the year, interest and dividend income from investments, net of amortization charges, registered a growth of RS. 137.95 crs (10.54%) over March, 2014 level of RS. 1.309.03 crs. to RS. 1446.98 crs

3.14.3. While interest yield on investments increased from 7.37% (2013-14) to 7.49% (2014-15), due to the fact that new securities purchased were at higher yield levels, the total yield on investments, including profit on sale of securities, increased from 7.56 % to 7.73% during the same period.

3.14.4. Foreign Exchange Turnover of the Bank in 2014-15 increased to a level of RS. 403,102 crs (Merchant Turnover-RS. 51,904 crs and Trading Turnover- RS. 351,198 crs) against previous year''s level of RS. 297,331 crs (Merchant Turnover- RS. 30,635 crs and Trading Turnover- RS. 266,696 crs.)

3.14.5. The profit generated from Foreign Exchange business during FY 2014-15 was higher at RS. 74.13 crs as against RS.59.60 crs in the previous year.

3.15 International Banking

3.15.1. The level of Export Credit as on 31st March 2015 was RS. 1617 crs (RS. 1666 crs as on 31st March 2014) constituting 3 % of ANBC. With a view to encouraging export business, seminars of exporters/importers were conducted in Chennai, Bangalore and Delhi during the financial year 2014-15. Also, Exporters Gold Cards have been offered to eligible exporter units. The Bank has entered into an arrangement with two foreign banks for availing Buyer''s credit for our customers at affordable rates.

3.15.2. NRI Deposits as on 31.03.2015 stood at RS. 1525.76 crores as against RS. 1228.80 crs, as on 31.03.2014 comprising of FCNR (B)/RFC deposits of RS. 274.8 crs and NRE/NRO deposits of RS. 1250.96 crs.

3.15.3. As per Bank''s BPR objectives, the Bank had set up five TFCPCs at Bangalore, Chennai, Hyderabad, Mumbai and New Delhi. During FY 2013-14, more branches, including CAB branches have been linked to TFCPCs, in order to consolidate the front-line processing and contribute expertise to all such branches, for extending quality service to Exporters.

3.15.4. During the year Bank''s Export Credit portfolio, other than exposures to Central PSU and LC-backed bills business, have been covered under Export Credit Insurance for Banks (ECIB), Whole Turnover Packing Credit (WTPC) and Whole Turnover Post Shipment (WTPS) Schemes of Export Credit Guarantee Corporation of India.

3.16 Cross Selling

During the year over 24,588 lives were insured through various products of SBI Life Insurance Company Ltd with a premium collection of RS. 64 crs. The Bank has collected a premium of RS. 20 crs while marketing General Insurance Products. In respect of Investment Products, the Bank is extending Mutual Funds products of SBI MF. Applications for SBI Credit Cards are also sourced by the Bank. The Bank has earned an income of RS. 11 crs from Cross Selling Business during FY 2014-15.

3.17 Government Business

3.17.1. State Government Transactions:

The Bank has been handling a major share of Government of Karnataka transactions since inception (1913). About 88% of our total Government Business emanates from State Government transactions and the turnover is directly linked to the budget of the State Government. A turnover of RS. 69,569 cr has been achieved during the year 2014-15, as against RS. 63,886 crs in 2013-14 with a net accretion of RS.62.29 crs commission representing 92% of income from Government business.

3.17.2. Central Government Transactions:

During the year 2014-15, business from Central Government Departments like Postal, Railways, Defence, Central Board of Direct Taxes, Central Board of Excise and Customs and business from various Central Schemes like Public Provident Fund, Senior Citizens Savings Scheme, etc., constituted approximately 12% of the Bank''s total Government Business turnover. Our business turnover from Central Government departments during the year 2014-15 is placed at RS.9,622 crs against a turnover of RS. 9,005 crs registered during 2013-14 with an earnings of RS. 5.68 crs as commission.

3.18 NPA Management

3.18.1. The general economic slowdown coupled with high inflation and twin deficits of fiscal and CAD had its adverse affect on the health of the loan books of the Banks, leading to an increase in Non Performing Assets. Though the economy showed signs of recovery, on the ground are yet to be fully realized.

The problems faced by Textiles, Food processing, Steel, Gems & Jewellery and Infrastructure sectors continued to persist with Corporate sector accounting for major share in NPAs. This, coupled with problems on the agricultural front, caused by drought in some parts of the State further compounded our problems.

However Bank took pro-active steps to recover dues by way of strategic sale of Assets and other recovery mechanisms which resulted in reduction in GNPA from RS. 2,819 crs & NNPA from RS. 1,630 as on March 2014 to the present level of RS. 2,136 crs and RS. 1,122 respectively in the current year. A time-bound action plan with measures including effective use of SARFAESI Act, rehabilitation of viable units, sale of assets to ARCs and vigorous follow-up of DRT cases was put in place & regularly monitored at the highest level to reduce NPA levels.

Consequently, the Gross NPA ratio decreased from 5.54% to 4.00%. The net NPA ratio also declined from 3.29% to 2.16%. The SBM is one of the few Banks to have bucked the trend of rising NPAs and effected substantial recovery. Provision Coverage Ratio improved to all time high of 69.34%. The provision for Non Performing Assets (including floating provision and counter cyclical provisioning buffer) stood at RS. 1,189 (LY RS. 872 ) crs.

3.19 Restructuring of Debts

The Bank continues to provide Restructuring Package within the framework of RBI guidelines to deserving borrowers under the Rehabilitation Programme or under packages approved by CDR / BIFR, subject to the viability of such units. As at Mar''15,the Bank has extended the package to 45,468 borrowal accounts with dues amounting to RS. 4109 Crores as against 67,113 accounts amounting to RS. 4,068 crs in the previous year. During FY15, 3,157 accounts with outstanding debts of RS. 1579 crs. were restructured. Towards diminution in their fair value on account of economic loss caused in the process of restructuring, provision to an extent of RS. 256 crs (LY RS. 192 crs) has been made by the Bank.

3.20 LEAD BANK SCHEME

3.20.1 The Bank has been discharging lead Bank responsibilities in 3 districts viz. Mysore, Charmarajnagar and Tumkur. The Annual Credit Plan for 201516 has been launched with the combined annual credit plan target for all Banks in 3 districts going up from RS. 10,039 crs to RS.11,600 crs, at a growth rate of 15.54%.

The Block Level Bankers'' Committee (BLBC), District Consultative Committee (DCC), District Level Review Committee (DLRC), Standing Committee (SC) meetings are regularly conducted as per Reserve Bank guidelines in all the three Lead Districts.

Bank has established Financial Literacy Centres at our Lead District Office in all the three districts. Bank has been conducting literacy camps during Melas at village level besides distributing Literacy materials at all the rural branches.

3.20.2 Rural Self Employment Training Institute(RSETI) / Rural Development and Self Employment training Institute (RUDSETI ) :

The Bank has established RUDSETI type of training centres viz. MyBank Institute for Promotion of Self Employment and Development (MIPSED) at Tumkur. Similar Institute called JSS RUDSETI is established at Chamarajnagar in association with JSS Mahavidyapeetha. These Institutes have been established to impart entrepreneurial skill development and guidance to unemployed rural youth, to become gainfully self employed. We have also constructed our own building at MIPSED, Tumkur with financial grant from National institute of Rural Development (NIRD).

Total number of 1,756 participants have been trained during 2014-15 with 54% settlement rate through financial assistance from Bank loans and their own resources. The participants have been trained under various Government sponsored schemes such as PMEGP , Mobile servicing, Tailoring, Beautician courses, etc. Our RSETI has been awarded AA as per the latest rating released by MoRD.

3.20.3 Regional Rural Bank - Kaveri Grameena Bank

Our Bank has sponsored Kaveri Grameena Bank (KGB) which is headquartered at Mysore. The Bank is operating in 10 districts of Karnataka viz. Mysore, Hassan, Chamrajanagar, Tumkur, Bangalore-Urban, Bangalore-Rural, Ramangar, Chikmagalore, Kodagu and Mandya and crossed a land mark figure of 450 branches. Bank has opened 50 branches during 2014-15. All the branches are on CBS mode. The total deposits and advances of KGB as on March 2015 were RS. 5,907 crs and RS. 4,649 crs respectively, registering a total business of RS. 10,556 crs, with a growth of RS. 2,154 crs (25.6%).

3.21 Financial Inclusion

3.21.1 Bank has drawn a comprehensive Financial Inclusion Plan for 2013-2016 for coverage of villages with Banking infrastructure. The Bank having already covered all the 260 villages with a population of above 2,000 allotted under "Swabhiman", further covered all the allotted 152 villages with population between 1600 to 2000 under "extension of Swabhiman".

3.21.2 In respect of the villages with population below 2,000 allotted by SLBC for coverage with Banking infrastructure, the Bank has covered all 3,248 villages upto Mar''15. These villages are covered through 38 brick & mortar branches and remaining through BC outlets. In total, the Bank has so far opened 81 branches in unbanked rural centres. In addition, 154 Ultra Small Branches are also functioning in the unbanked rural centres.

3.21.3 Implementation of Pradhan Mantri Jan-Dhan Yoiana :

The Bank has covered all the 11.97 lakh households in the 713 SSAs and 634 Wards allotted to the Bank with atleast 1 bank account under PMJDY. Bank has opened 8,07,359 accounts under PMJDY during the period from 16.8.2014 to 31.3.2015 with a balance outstanding of RS. 37.31 crs. Tthe total number of accounts opened from inception of FI programme to 31st March 2015 are 14,91,758, with a balance of Rs.70.54 crores. The Bank has successfully seeded 53% Aadhaar numbers in PMJDY accounts. 7,60,196 (94%) RuPay Cards have also been issued to the PMJDY account holders.

3.21.4 Implementation of Modified Direct Benefit Transfer Scheme for LPG (MDBTL) :

The Bank is actively participating in implementation of Modified Direct Benefit Transfer Scheme for LPG (PAHAL). The progress in seeding of Aadhaar numbers in Bank accounts in the districts of Tumkur, Mysore and Chamarajanagara (Lead Districts) is to the extent of 94%, 94.59% and 70% respectively.

3.21.5 Implementation of Electronic Benefit Transfer Scheme for distribution of Social Security Pensions:

Bank has also implemented smart-card based Electronic Benefit Transfer (EBT) scheme for distribution of Social Security Pensions in all the Taluks in Chamarajanagar district and allotted service area villages in Bellary and Chitradurga districts. The Bank has so far issued 3,86,000 Smart Cards and distributed pensions amounting to RS. 39.83 Crs during the Financial Year.

4. HUMAN RESoURCES:

4.1. Manpower Profile

The total manpower strength of the Bank as at March 2015 stood as 10,193, as against 10,845 in the previous year. The staff strength comprised 3,477 officers, 4,731 clerical staff and 1,985 subordinate staff. Of these, 862 are Ex-defense personnel, 162 belong to physically handicapped category and 539 belong to the Minority community.

4.1.2 Women''s Representation:

As at March 2015, there were 2,891 Women employees (comprising 543 Officers and 2,348 Other Employees) in the Bank, compared to 2,991 as at March 2014 (comprising 542 Officers and 2,449 Other Employees). The share of women employees stood at 28.4% as at March 2015. The Bank continued to provide equal opportunity to women in their career progression.

4.1.3 Scheduled Castes/Scheduled Tribes - Representation:

As at March 2015, there were 1,738 Scheduled Caste employees, comprising 586 Officers, 691 Clerical Staff and 461 Subordinate staff. There were 561 Scheduled Tribe employees comprising 202 Officers, 241 Clerical staff and 118 Subordinate staff as at March 2015. All the guidelines of the Government of India for safeguarding the interests of SC/ST employees have been complied with.

4.1.4 Human resources Management Solutions (HRMS) :

BankhasimplementedHumanResources Management Solutions (HRMS) on 1st April 2010, to handle all HR activities in a phased manner. HRMS Cell was formed to integrate salary, perquisites, reimbursement and leave details of the employees. The cell has implemented salary, reimbursement of Annual Medical expenses, furniture supplied to officers, furniture maintenance charges, monthly reimbursements of perks, reimbursement of brief case expenses, besides sanction of increment through HRMS portal. Asset & Liability Statement and Annual Appraisal Report are also implemented through HRMS.

HRMS portal facilitates uploading of Annual Appraisal Report of officers which are reviewed and noted by respective authorities online. It is planned to integrate e-learning portal ''Gnanodaya'' with HRMS site so that lessons which are to be mandatorily attended gets automatically reflected in their Annual Appraisal Report.

4.2 Training:

4.2.1 Training Activities and Coverage:

The Bank regards its employees as its critical & valuable assets. To make the employees more competitive and knowledgeable in banking field, honing their skills is one of its priorities.

With a view to achieve the desired goals and to establish high-performance work culture, Bank''s learning centers at Bangalore, Mysore and Hubli are imparting training on wide spectrum of subjects viz. Advances and Deposits and knowledge about their various products, communication & leadership skills, marketing, behavioral science, etc. Also to gain competitive edge in new technology being adopted by the Bank, several programmes on latest technology developments like Internet Banking, Mobile Banking and other alternate delivery channels are conducted regularly.

4.2.2. In addition to the existing Learning Centres at Bangalore, Mysore & Hubli, we have added further capacity by setting up Strategic Training Unit "Gyan Jyothi"-a centralized training establishment with state-of-the art facility at Jakkur (Bangalore). The STU Campus is spread over 35,000 sq ft built-up area with 2 class rooms, 2 computer labs, Auditorium besides good residential facility, etc. The centre beside providing specialised high level training is also expected to undertake innovative research in the field of Banking and design products towards furtherance of customer satisfaction and enhancement. The centre is headed by a Senior official of the rank of DGM.

4.2.3. The training methodology of the Bank constantly aims at keeping its workforce pro-active and customer centric, so that they can discharge their duties effectively in the challenging Banking scenario. Bank continues to focus on imparting training to maximum number of employees to update their skills & knowledge periodically.

Our Learning Centers at Bangalore, Mysore and Hubli have conducted in all 172 training/workshops both functional and computer based programmes. During the year total 3,732 staff got trained at our Learning Centers.

4.2.4. The Bank regularly deputes officers, based on the job profiles, for training to Apex Training Institutes of SBI and other training institutes like NIBM, IIBF, College of Agricultural Banking- RBI (Pune), CAFRAL (Centre for Advanced Financial Research & Learning), IDRBT, etc. to hone their skills and update their knowledge. During the year, 956 officials were deputed to the Apex Institutes and external training institutes.

4.2.5. Keeping in view the need for imparting training in specialized areas, the Bank has also conducted several specialized training programmes/ workshops on MSME business, NRI business, Forex business (through FEDAI), Cross selling, currency management, Loan Originating System, Project Ganga, KYC compliance, workshop for EOs-POs, Disciplinary authorities (Vigilance Dept.) and retiring staff members to prepare them to face the new innings of their life confidence.

To bring conformity to the Govt. of India guidelines with regard to providing inservice training to the SC/ST officers, the Bank has also conducted specialized skill development training programme exclusively for officers belonging to SC/ ST category, which was well appreciated by all.

4.2.6 Conclave of Assistant General Managers:

We have organized a Conclave of AGMs (Controllers and select Branch Heads) from 23rd - 25th May''2014 at Madikeri on topics like- Motivation/ Leadership/ Change Management/ Target Orientation/ Marketing, etc. This programme was arranged with a vision of providing participants the required confidence to handle their assignments more effectively.

4.2.7 e-learning (Gyanodava):

In addition to the class-room training provided to employees at our Staff Learning Centres and ATIs, Bank had also launched an e-learning portal "Gyanodaya" with the objective of imparting on-line learning and training to all the employees of our Bank. SBM e-Learning portal is available 24X7 and all 365 days on internet system and also on intranet system.

4.2.8 AAROHAN

A mass communication programme was rolled out to cover all the employees of State Bank of Mysore - from clerical staff to Scale-V officers, in order to sensitize the employees about the current state of the Bank and necessity to change their orientation to meet the rising expectation of the customers in a fiercely competitive environment. The main objectives of the AAROHAN workshop were:

a) To make every one aware of the need to bring quality and professionalism in the workplace.

b) To bring in consciousness of our role in eliminating waste and maximizing returns.

c) To reinforce the importance of the Customer and inculcate our individual & collective responsibility to the Customer and the Bank.

4.2.9 Pre-promotional training:

Pre-Promotion training programmes for SC/ST/Minority Community employees were conducted at the Learning Centers at Bengaluru & Mysuru during the year, for eligible and aspiring candidates from Sub-Staff to Clerical, Clerical cadre to Officer and JMGS I to MMGS II cadres. During the year 314 employees belonging to SC/ST category were given training. Based on the feedback received the programmes were well appreciated by the participants.

4.2.10 Training to subordinate staff:

To bring about awareness among the subordinate staff and to make them realize their potential & importance in the organization, Bank has conducted one day capsule training programme exclusively for 519 subordinate staff at our Learning Centre, Bengaluru, Mysore and Hubli.

4.2.11 Training to KGB employees:

Our Mysore Learning Center has also imparted training to officers / clerical staff of Kaveri Grameen Bank (sponsored by SBM) as and when requested. During the current year 9 training programmes for KGB employees were conducted, covering 265 employees.

4.2.12 Training to retiring officers/ staff:

To enable our retiring officers / staff to lead a happy and peaceful retired life with inputs on financial planning matters, our Learning Center, Mysore had conducted 10 special training programmes for retiring employees during the year 201415 covering 376 employees.

5. Industrial RELATIoNS:

5.1 Terminal Benefits to Retired Staff: Terminal Benefits to Retired staff:

The Bank gives due importance to the timely settlement of terminal benefits to the staff, either on reaching superannuation or any other grounds. During the FY 2014-15 as many as 492 members of staff have retired from the service of the Bank. Their Provident Fund, Gratuity, Pension and Commutation benefits, were settled on top priority, on time.

5.2 New Pension Scheme (NPS):

Employees joining the service of the Bank w.e.f 01.04.2010 are eligible to join the New Pension Scheme (Corporate Model), which is governed by the provisions of the NPS introduced for employees of Central Government w.e.f. 01.04.2004 and modified from time to time. As at March 2015, as many as 2,643 employees have been covered under NPS.

5.3 Retired Employees Medical Benefit Scheme II:

In addition to the existing Retired Employees'' Medical Benefit Scheme (SBMREMBS), effective from 15.12.2012, a new scheme has been launched for employees retiring / retired under Superannuation, with upper limit for claims ranging from RS. 2 lacs to RS. 20 lacs, based on eligibility criteria. During 2014-15, the Bank has received 960 applications and disbursed an amount of RS. 218 lacs.

5.4 STAFF WELFARE ACTIVITIES :

Central Staff Welfare Committee allocates funds for various staff welfare activities.

The welfare measures provided to the members of the staff are : Holiday Homes, Group Insurance Cover, Scholarship Scheme, Farewell Scheme for the retiring employees, financial assistance to the employees with physically / mentally challenged children, Medical Expenses Reimbursement Scheme, Birthday Memento & recurring expenses for Staff Welfare Activities.

6. technology Up-gradation &Support functions

6.1.1 automated teller Machines as Acquirer and issuer

Our Bank crossed the milestone of installing its 1300th ATM at Double Road Chamrajanagara, Mysore and as on March 2015 the total ATMs installed stood at 1,327 including 9 Outsourced Model ATMs (Brown label).

With this the Bank has also complied with the Govt. of India, Ministry of Finance guidelines of One branch One ATM norm. With this every branch in Direct Benefit Transfer (DBT) districts is having an ATM.

6.1.2 Value added services:

In addition to the withdrawal of cash, many other value added services are also available through ATMs, like payment of insurance premium, mobile recharge, card payments, mobile Banking registration, etc. Bank has also introduced Platinum card for affluent class customers, which is a chip-based Magstripe card with higher limit for daily cash withdrawal and POS transactions.

6.1.3 Internet Banking:

Internet Banking as an alternate Banking channel has gained acceptability and has become popular among retail and corporate customers. The number of registrations and volume of transactions through internet Banking has seen a growth of 30% and 26%, respectively, during the year. The facility is now available for Visually-challenged customers also. Bank''s Internet Banking site www. onlinesbm.com is secured through 256 bit EVSSL (Extended Validation Secured Socket Layer) encryption. A new smart phone based application STATE BANK ANYWHERE for Internet Banking access was launched in Nov''14. With necessary anti-phishing measures in place, there has been no instance of phishing attack reported.

6.1.4 Mobile Banking:

Bank is offering Mobile Banking Services under the name State Bank Freedom to all its retail customers under four different modes viz.: Application mode, WAP mode, USSD and SMS banking, with a daily transaction limit of RS. 50,000/- and overall calendar month limit of RS. 2,50,000/- The services include enquiry, mini statements, Mobile/TV top-up and recharge, interbank fund transfer through NEFT and IMPS and bill payment facilities. During the year, Person to Account (P2A) and Person to Merchant (P2M) services through IMPS were also introduced. There is a steady growth in the number of registrations and transactions taking place through the channel. The number of mobile Banking registrations and transactions have grown by 133% and 112%, respectively during the FY 2014-15.

6.1.5 Electronic Payment System:

All branches of the Bank are enabled for RTGS/NEFT/GRPT remittance facility. In addition Bank also offers Electronic Clearing Service (ECS) and Immediate Payment Service (IMPS) over Mobile Banking Platform. Percentage of all electronic (ATM, Internet Banking, Mobile Banking, RTGS, NEFT and ECS) transactions to Total transactions of the Bank is over 49%. These figures have improved from 45% as on 31.03.2014.

6.1.6 Bank''s Website:

The Bank''s website (http://www. stateBankofmysore.co.in) is a repository of information about the Bank, its products and services available to the customers and general public alike, in bilingual and Braille form.

* Information on Schemes and products for various segments like Personal, Commercial and Institutional, Micro, Small and Medium enterprises and Agriculture is available on the website. Besides, information on the interest rates, service charges & fees, information on Bank''s financials, policies, acts, online loan enquiry form, online complaint form, etc. are also available.

* Online loan application on downloadable forms for Education, Housing, Car and Gold loan are also available, along with online tracking of the application status.

* Special links have been provided to access sites of RBI, IBA, SBI,SBI Life, SBI Cards, SBI Mutual Funds, SBI Capital & Security and RBI Financial Inclusion.

* Various downloadable formats are also available.

6.1.7 Digital Signage Solution:

Digital Signage Solution is a method of providing information to our branch customers on various products and services offered by the Bank, which is displayed on LED screen at the branches. The system is capable of working both in online and offline mode across various branches/offices.

We have installed centrally controlled Digital Signage Solution at 600 branches of Metro, Urban and Semi Urban locations and propose to cover remaining branches in FY15-16.

6.1.8 Access to CBS by staff and officers are enabled by implementing additional factor of authentication through biometric login in addition to the user id and password.

6.1.9 Bank has uploaded the features of Bank''s products and technological initiatives on Facebook, YouTube and Twitter site.

6.1.10 E-touch:

It is a ONE-STOP solution for all Banking needs like ATM, Cash Deposit, Mobile/ Cash Recyclers and Self Service Kiosks, Bar Code based Passbook printers, Automatic Cheque Drop Box and Internet kiosk, etc. Our Bank has installed its first E-lobby facility for its esteemed customers at its Avenue Road premises, Bangalore and plans are afoot to open 10 such lobbies at key centers in the city.

A new variant of card called as Euro Master Visa (EMV) card, which is chip-based with Magstripe is being issued to customers. The new card has more security features and protected database.

Bank has taken adequate measures to strengthen security at ATM kiosks, with guards, surveillance cameras and alarm systems.

6.2. NEW BUSINESS:

Under New Business initiatives, different range of IT products and services have been introduced in Bank. The intention is to maximize customer satisfaction, along with increasing business and minimizing transaction cost. Concepts like Point of Sale machine, Self Service Kiosk, Cash Deposit Machines are customised to cater to the new generation, which are self servicing in nature. The following New Business Initiatives have been launched in the Bank

6.2.1 MERCHANT ACQUIRING BUSINESS (MAB):

It is a mechanism of facilitating payment for purchase of Goods and services through the medium of debit/credit card, using Point of Sale (POS) machines. We introduced this concept in our Bank since 2013. For the merchant, it is favorable cash-less sale with increased volume of business. For the Acquiring Bank, it is increase in CASA deposit, float funds and additional income from Merchant in the form of Merchant Discount Rate (MDR). It is a convenience to the card-holder, as he need not carry cash for purchase of merchandise. In Mar''15, our Bank launched mobile POS (mPOS) facility to enable customer to pay for merchandise through vendors mobile application at their doorstep. We have so far installed 4,500 POS mPOS machines. Our target for the FY 2015-16 is 10,000 POS machines to achieve industry average of 10 POS per branch.

6.2.2 Cash DEPoSIT Machine (CDM):

Cash Deposit Machine accepts deposit of cash from customers into their accounts using Debit cards. Credit is extended instantly to the customer account. It is available to the customers 24 hours of the day 7 days a week. It is also a green initiative as no Chillan is to be written for deposit. The customer is provided with a printed receipt. Other functions like balance enquiry and mini statements are also enabled in the CDM''s. At present it is available in 34 branches which will be extended to 200 branches next year.

6.2.3 Green CHANNEL Counter (GCC):

Last year we had 425 GCC machines in 284 branches. The base now stands increased to 400 branches and 535 GCC machines. It is a green initiative where in cash deposit, withdrawal and transfer and remittances can be done by swiping the Debit card in Point of Sale like machine held at the single window operator (SWO) counters, without the need to enter voucher/cheque details.

6.2.4 SELF SERVICE KIOSKS (SSk):

Self Service Kiosks are the revised version of Multi Function Kiosks with added features like Pass book printing, Funds transfer, Balance enquiry, Account statement, Stop Cheque payment etc. SSKs are operated through the use of Debit cards. We have deployed in total 38 SSKs in various branches of our Bank.

6.2.5 SME Insta Deposit Card:

This facility enables SME a/c holder to deposit cash and use GCC facility by swiping their card. It is proposed to cover all SME borrowers in all branches where CDM/GCC facility is available.

6.3. Information Security, Business Continuity and Disaster recovery:-

6.3.1. In the backdrop of growing complexity of financial products and the increased leveraging of technology, operational risks have assumed critical importance in recent times. The treatment of technology risk/ operational risk as part of the movement towards Advanced/Management approach is a manifestation of the significance of the risks in impacting the risk profile of a Bank. Keeping this in mind our Bank has

* Adopted well-defined IT Policy and IS Security Policy, which is being periodically reviewed and updated.

* Become a part of well-established (common for State Bank Group) state-of-the art IT infrastructure which is certified as ISO 22301.

6.3.2 Our Bank has taken proactive measures to respond to business discontinuities and ensure uninterrupted availability of all key business resources that support critical Banking functions. The Bank has adopted a well defined Business Continuity Plan and Disaster Recovery Plan Policy. Our Bank is part of a well established high-end Business Continuity and Disaster Recovery infrastructure which ensures seamless continuity in case of need. The Disaster Recovery drill is being conducted on a half-yearly basis, during which the transactions of our branches are routed through the DR site. In addition to this, the Bank has a nearby site to ensure zero data loss in the event of a disaster. The Bank has implemented Business Continuity Plan in all the branches and also in the administrative offices together with periodic reviews and updates.

6.4 Management Information System (MIS):

6.4.1. The MIS Department consolidates and maintains the Credit Information System (CIS) database apart from collating information from branches and Head Office Departments for submission of various statements to Reserve Bank of India like Basic Statistical Returns, Sectoral Deployment of Funds etc,. The Department also provides information to the Top Management and other user Departments in Head Office.

6.4.2. The scope of CIS has also been extended to submission of data to Credit Information Companies to whom the Department is submitting individual borrower-wise credit information every month after due processing. In turn, the Credit Information Reports (CIRs), drawn from the CICs database, serve as important fraud prevention tool to the credit appraisal/sanction functionaries.

6.4.3. The Department coordinates with SBI-EDWP for submission of various reports validated from User Departments to RBI under Automated Data Flow (ADF) apart from collating logic information from Head Office User Departments and providing logic, source system to SBI-EDWP for generating various reports.

6.4.4. The Department coordinates with CDC and the Centralized Credit Data Processing (CCDP) for facilitating data correction and improvement in data quality.

7. SYSTEMS AND PROCEDURES

7.1.1. Systems and Procedures Department is a special resource available at Head office for effective management of work organization concerning the Systems and Procedures. The Department regularly reviews the systems and procedures in the area of general service charges. The Department vets process changes and reviews charges on the general service provided and modifies the same in accordance with the changing environment and aspirations of customers.

7.1.2. The Department in the year under review has issued circulars/guidelines in regard to Implementation of Aadhar based e-KYC service in the bank, Implementation of Depositors'' Education and Awareness Fund Scheme 2014 of RBI and Precautions & safeguards against frauds in respect of loan against Large Value Fixed Deposits.

8. CONTROL AND SUPERVISION

8.1 RISK MANAGEMENT:

8.1.1. An independent Risk Governance structure is in place for Integrated Risk Management, covering Credit, Market and Operational Risks. This framework visualizes empowerment of business units at the operating level, with technology being the key driver, enabling identification and management of risk at the place of origination.

8.1.2 Basel Implementation

The Bank has migrated to the Basel II framework, with the Standardized Approach for Credit Risk, Basic Indicator approach for Operational Risk and Standardized Measurement Method for Market Risk.

Capital regulations under Basel III have come into effect in India w.e.f 01.04.2013.

Bank has complied with both the norms and has maintained its capital adequacy above the RBI mandated level of 9% along with Tier-I at 6%. The Capital Adequacy Ratio computed as per Basel III guidelines effective from 1st April 2013 stands at 11.42 % as at March 2015, against 11.08 % (recast under Basel III) as at March 2014. The CRAR of 11.42 % consists of CET - I of 8.37%, AT-I of 0.15% both forming TIER-I Capital besides 3.01% of TIER-II Capital. The CRAR under Basel II guidelines as at March 2015 stood at 12.02% as against 11.50% in the previous year. The Capital Adequacy ratio of the Bank increased on account of improved profitability, control on RWAs, raising of Tier-II capital of RS. 500 crs during the year.

8.1.3 CREDIT RISK MANAGEMENT

Reserve Bank of India has issued guidelines on implementation of Internal Ratings Based Approach for calculation of capital charge for Credit Risk in Dec 2011 and our Bank applied for permission to RBI for migrating to Advanced Approach for Credit Risk under Basel II. The Bank has submitted Letter of Intent to RBI in terms of the guidelines, where the Bank has developed the models for risk components - Probability of Default Estimation (PD), Loss Given Default (LGD) & Exposure at Default (EAD) and also adopted Basel II compliant policies approved by the Board of Directors. The Bank has received a response from RBI in July 2013, advising the Bank to further strengthen the areas of IRB framework before the commencement of parallel run process for Foundation IRB (FIRB) approach.

As part of migration to Advanced Approaches under BASEL-II, State Bank Group is building a technology platform known as the Credit Risk Data Mart (CRDM) to manage all the information required for computing, verifying and monitoring credit portfolio risks. The CRDM will be the single source of data for model implementation, risk component estimation and capital computation. This would subsequently be used for model development and validation purposes. EDWP (Enterprise Data Warehouse Project) team is building the database by capturing the Bank''s data for various reporting dates.

8.1.4 MARKET RISK MANAGEMENT

Bank is using Standardized Measurement Method (SMM) for computation of capital charge and the necessary systems for migration to IMA are in place. The Bank has submitted Letter of Intent to RBI in Oct 2013 for migration to IMA. The Bank would be on parallel run for computation of capital charge under both SMM & IMA, after the approval from RBI.

8.1.5. OPERATIONAL RISK MANAGEMENT:

Reserve Bank of India has prescribed three approaches for computing capital charge for Operational Risk, viz.

a) Basic Indicator Approach (BIA)

b) The Standardized Approach (TSA)

c) Advanced Measurement Approach (AMA)

Currently the Bank is following the Basic Indicator Approach. As per AMA guidelines, Banks are allowed to switch over from BIA to AMA directly. Bank is endeavoring to move directly to the Advanced Measurement Approach in view of the minimal changes in capital requirement under TSA, as compared to BIA. All the policies and documents have been reviewed, as suggested by our consultants, to meet minimum required standards. A Letter of Intent (LOI) was submitted to Reserve Bank of India in Oct 2013, seeking permission to migrate to AMA. However, as per the communication received from RBI, the AMA application has been put on hold till a detailed assessment is completed in respect of similar application by SBI. The Operational Risk Management Department (ORMD) has been organizing training programmes for creating awareness among officers about Basel II requirements, Operational Risk Management, Advanced Measurement Approach for Capital Computation and Fraud Prevention Measures.

8.1.6 ASSET LIABILITY MANAGEMENT

10.1. The Asset Liability Management System has been functioning as per the guidelines prescribed by RBI. The Asset Liability Management Committee (ALCO) of the Bank is entrusted with the task of managing liquidity and interest rate risk. The committee meets regularly to monitor the risks and Net Interest Margin (NIM) on an ongoing basis. The tolerance limits for liquidity mismatches and interest rate risks are fixed in accordance with RBI guidelines and Bank''s ALM Policy and these are reviewed by ALCO at regular intervals. Various interest rate revisions including the revision of Base Rate is thoroughly discussed and decided by ALCO duly considering all the relevant factors. Possible mismatches in the Structural Liquidity projections of the Bank are also discussed with regard to long term asset exposures and appropriate decisions are taken to mitigate the risk.

9. BUSINESS PROCESS RE-ENGINEERING (BPR)

Bank has rolled out various BPR initiatives since 2005, in consonance with the design principles provided by SBI. The BPR initiatives leverage technology to significantly enhance customers'' satisfaction and convenience. So far 19 BPR initiatives have been rolled-out. Loan Origination Software for processing of Retail Loans has been successfully implemented in our Bank at Bangalore, Mysore and Delhi Centres besides other Metro centres. The software is likely to be extended to other Urban / Semi-Urban centres next year thereby cutting down the processing period besides improving the quality of the processing and asset. In order to consolidate our presence in Bangalore, we have decided to open one more RACPC in the city to provide speedy sanctions to Housing loan, Car loan customers.

9.1.1 The Central Pension Processing Centre (CPPC):

The Central Pension Processing Centre (CPPC) is functioning at Mangalore and pension/arrears of pension is disbursed to 1,53,777 pensioners online throughout the Bank. CPPC is now using SBI package for disbursing Central Government pensions. We have also introduced system of online submission of Digital Life Certificate (Jeevan Praman),whereby pensioners can submit life certificate from the comfort of their house after seeding their Aadhar & Mobile numbers with the Bank.

9.1.2. Our Centralized Clearing Processing Centres (CCPCs) at Bangalore, Mysore, Chennai, Delhi and Mumbai undertake entire clearing work of all the linked branches. Further all the MICR Centres of Karnataka have been linked and brought under decentralized Model of Cheque Truncation System of clearing, obviating the necessity of physical transfer of cheques as per the directions received from Reserve Bank of India in this regard. GOI/GOK has also announced plans to completely switch over to CTS mode in respect of Govt cheques also and do away with Paper to Follow procedure.

9.1.3 Branch Redesigning:

Branches are designed as per BPR design principles, keeping in view the customer''s convenience and comfort. In the FY14-15, 71 branches were opened and 7 redesigned / renovated as per BPR design principles at various places.

9.1.4 Currency Administration Cells:

Rollout of 4 Currency Administration Cells at Davangere, Hubli, Bellary and Shimoga has been completed during the year. We are planning to add 2 more CACs at Tumkur and Hoskote besides setting up a Megachest at Bangalore.

9.1.5 In Branch Cash Handling (IBCH) System:

A new process viz. In Branch Cash Handling (IBCH) System has been approved by the Operational Risk Management Committee and is rolled out in March'' 2015. This process enables instantaneous cash transactions at commencement of business at the branches and is designed with a view to give better service to the customers.

10. AUDIT AND INSPECTION

10.1 Audit

10.1.1. "The overall objective of Internal Audit is to contribute to the effectiveness of the Internal Control System in achieving the Bank''s objectives, besides providing high quality counsel to management on the effectiveness of Risk Management and Regulatory compliance by the Bank. Towards this end, Risk Focused Internal Audit (RFIA) and IS Audit were conducted in all the 676 branches/BPR entities, envisaged in the Annual Audit Plan 2014-15. That apart, 96 newly opened branches were subjected to Spot Audit, besides 8 Head Office departments. We have also conducted Management Audit of 3 Zonal Offices and Kaveri Grameen Bank sponsored by us. During 2014-15, 100% of our branches have secured Well Controlled/ Adequately Controlled rating and none rated as ''Unsatisfactory'' branch. Only 1 Branch is rated ''Needs Improvement'' and we are taking steps to strengthen compliance level at that branch also.

10.1.2 Concurrent Audit is a major function which monitors proper followup of laid down systems and procedures on a continuous basis. 167 branches/ offices covering 50.8% of aggregate deposits and 71.62% of total advances and 8 Head Office departments were subjected to Concurrent Audit during this year.

10.1.3 We also conduct Special Revenue Audit every year to guard against income leakage. 462 branches with advances level of more than RS. 10 crs and income leakage of RS. 1 Lakh and above were subjected to Special Revenue Audit (as against 497 branches during the previous year).

The summary findings enumerated in these audit reports are appraised to the Audit Committee of the Board and follow up actions are ensured.

10.2. Credit Audit

The audit of loan appraisal and administration for high value credit accounts with the aim of improving the asset quality of the Bank is undertaken by the Credit Audit Department. Accounts with total exposure of RS. 2 cr and above are covered under Credit Audit. During the financial year 1,348 loan accounts in 190 branches were covered under Credit Audit. Out of 1,348 accounts, 1,196 accounts (89%) were rated as Low and Very Low Risk accounts.

10.3. Vigilance

10.3.1. Vigilance administration as an important aspect of management function is carried out as per the directives of the Central Vigilance Commission so as to achieve good Corporate Governance for the overall growth of the Bank.

10.3.2. "Whistle Blower" policy has been introduced in our Bank for the employees to report to the Management, instances of unethical behavior, actual or suspected fraud or violation of the Bank''s code of conduct or ethics policy.

10.3.3. The officers from Vigilance Department conducted surprise inspections of 84 offices/branches during the year under report. The main areas of scrutiny are adherence to systems and procedures, rotation of staff and deficiencies in fraud-prone areas. The deviations and other irregularities are brought to the notice of the Module/ Regional Heads for taking corrective actions. Vigilance Department is bringing out a Quarterly House Magazine, which contains vital information on vigilance related matters useful to the operating staff.

10.3.4 In accordance with the guidelines of the Central Vigilance Commission, the ''Vigilance Awareness Week'' was observed at all the offices of the Bank from 27th October 2014 to 1st November 2014. The focus of observing the Vigilance Awareness Week was "Combating Corruption-Technology as an enabler". Seminars and meetings were conducted, wherein information relating to evolving and effectively implementing preventive techniques in vigilance administration, which includes transparency accountability and fair play, objectivity and timely response in dealing with matters relating to public administration etc., were explained to customers/Staff members. Besides, the role of leveraging of technology in respect of all systems and process for deliverance of services, which has to be synchronized through use of technology was strongly emphasized.

10.3.5. As per the directions of Ministry of Finance, Banking Division, Vigilance section, Govt. of India, New Delhi, a vigilance setup has been established in Kaveri Grameena Bank and the Chief Vigilance Officer of the Bank is overseeing the vigilance administration.

10.3.6 Fraud Monitoring and Investigation Cell (FMIC):

The Fraud Monitoring and Investigation Cell (FMIC), functioning under the administrative control of the General Manager & CVO, monitors certain critical areas of branch functioning on regular basis. Thrust is laid for taking certain preventive measures by monitoring various exceptional reports generated through CBS covering transactions related to expenditure, advances, manual debits to interest a/c besides all other unusual transaction including those reported in Sundays and holidays.

11. other aspects

11.1.1 Customer Service:

The Bank continues to accord highest priority for customer service. The Bank has adopted the BCSBI Code of Commitment to Customers and has placed the same in the Bank''s website. The Bank is committed to provide service of highest order in a transparent manner.

As per the survey conducted by NIBM, Pune in Oct''14 on customer service, the customer affinity/satisfaction score is as high as 91% in Mysuru and slightly lower at 78% in Bengaluru. We are taking steps to improve our service to meet the rising aspirations of our esteemed customers.

New Initiatives for Customer Grievance Redressal:

11.1.2 Customer Grievance Redressal:

The Bank has also implemented a friendly Customer Redressal System called SMS UNHAPPY to facilitate customers air their grievances/complaints/ feed back by simply sending an SMS message "UNHAPPY" to 99 0002 0002. The bank''s dedicated staff from "Happy Room" call back the customers for speedy redressal of their grievance.

11.1.3 Complaint Management System (CMS) package:

The Bank has implemented a three tier automated system for complaints management and monitoring and resolution. All the complaints received at the Branches/Regional Offices/ Zones/Networks and Head Office level are lodged in a common digital platform. The complaints are acknowledged with a unique number on their receipt. Presently, the acknowledgements are being sent through e-mails registered by the complainants with us or by post.

11.1.4. Contact Centre-State Bank of Mysore has established a dedicated "SBM Contact Centre" to provide information on Products and Services of the Bank besides status of customer''s account through a toll free number 1800425-2244 accessible throughout the country. The information is provided in English, Hindi and Kannada languages 24x7x365 basis. Further, as a part of the initiative, Lead Management System (LMS) launched in our Bank generate leads through customer calls helpline No.1800 425 2244 which are forwarded to the concerned branches, and converted into business.

11.1.5 Online KIOSK

The Bank has developed a new software package for registering customer complaints online through ''online customer complaints kiosk''. Customers can now visit those kiosks and lodge their complaints themselves.

11.1.6 Customer Services Committee of the Board

The Bank has put in place Standing Committee on Customer Service and Customer Service Committee of the Board are in place to oversee the implementation of Customer service initiatives/directions of Government of India/Reserve Bank of India. Standing Committee on Customer Service held 2 meetings on 17.10.2014 and 03.02.2015 during the year. The Customer Service Committee of the Board has met thrice on 24.06.2014, 28.11.2014 and 07.03.2015 during the year.

11.1.7 Right to Information

The Right to Information Act 2005 -The required authority Structure for implementation of the Act has been put in place for prompt disposal of RTI requests for Information within the time frame period as prescribed under the Act. The Bank''s website also carries all the relevant information on the implementation of the Act.

11.2 Productivity

Business per employee increased from RS. 10.38 crs as at March 2014 to RS. 11.72 crs as at March 2015. The Business per branch has marginally decreased from RS.119.26 crs in March 2014 to RS. 117.75 crs in March 2015 due to addition of 71 new branches during the year besides our policy of going slow in the growth of bulk/corporate business.

11.3 Public relations

11.3.1 State Bank of Mysore has an enduring brand image of its own through its century old close association with its clients. It is known as ''Mysore Bank'' in its traditional area of operation. In order to preserve, project and enhance its corporate image and brand equity, a well laid out strategy has been put in place to effectively carry out publicity of its products and services through print and electronic media, with appropriate annual budget allocation.

11.3.2 The Bank has also organized free distribution of Bed sheets and Blankets to the patients of 5 Government run Hospitals on 2nd October 2014 to commemorate the Banks foundation day coinciding with Birth anniversary of Mahatma Gandhi.

11.3.3 The hoardings installed at vantage points were periodically changed with attractive themes, greeting the public on festivals with our latest deposits/lending schemes, revision of interest rates, etc. Special media campaigns covering the various loan schemes, special offer in housing, vehicle, gold loans, and MSME loans under CGTMSE scheme, other retails loans and new deposit schemes like Savings Bank, My Bank Sanchay, Term Deposit, Personal Accident Insurance, Centenary Liquid Deposit were carried out periodically in the print and electronic media and through hoardings.

11.3.4 Bank''s performance highlights, launching of new products and services, opening of new branches, ATMs, BPR initiatives and technological achievements were also extensively covered in print and electronic media.

12.4 Organizational Development

12.4.1. Branch Expansion:

The Bank has opened 71 new branches during the year 2014-15. With this, the Bank''s network of branches stands at 1,015 spread over 16 states. The Bank opened its 1000th Branch on 23.12.2014 at Siddaramanahundi; an unbanked village near Mysore, which was inaugurated by the Hon''ble Chief Minister of Karnataka through Telelink. As at 2015, the branch network comprised 239 Metro, 221 Urban, 222 Semi- Urban and 333 Rural branches.

12.4.2 With a view to consolidate our presence and tap vast potential from the burgeoning services sector, the Bank''s EC approved creation of one more zone at Bangalore to become operational from FY15-16.

12.4.3 Branches in Minority Concentrated Districts- Centers (MCDs)/ Under Banked Districts: During the year, the Bank has opened 6 branches in Minority Concentrated Districts/Centers and 10 branches in Under-Banked Districts. As at March 2015, out of 1,015 branches, the Bank has 86 branches in MCDs constituting 8.5% of the branch network and 113 branches in Under-Banked Districts, constituting 11.1% of the branch network.

12.5 Implementation of Official Language Policy:

12.5.1. Bank is progressively encouraging usage of Hindi and Regional Languages to facilitate ease of doing business to the customers in the language of their choice. Constant efforts are being made to create healthy atmosphere for use of Official Language.

12.5.2 For progressive use of Hindi, our Bank''s Website is also made available in Hindi and also Kannada with constant updates from time to time. The option of Hindi and Regional Language is provided in all ATMs of our Bank along with generation of transaction slips in Hindi. Hindi facility has been made available in Mobile Banking also.

12.5.3 For enriching knowledge of Hindi of our Staff, separate Quarterly Hindi Magazine "MYBANK BHASHADARSHINI" is being published regularly.

12.5.4 During the year under review, the Committee of Parliament on Official Language inspected Zonal Office, Mysore on 11.02.2015 and appreciated our efforts made for the progressive use of Hindi in our Bank.

12.5.5 Head Office received an "EXCELLENCE CERTIFICATE" and a "SHIELD" by the Town Official Language Implementation Committee (Banks), Bangalore for the special efforts made by the Bank in the field of Official Language Implementation. Mysore, Hubli, Central and Mangalore Zones also received awards from respective Town Official Language Implementation Committees.

12.5.6 Under the aegis of Government of India, "Hindi Sanghosti" and "Hindi Seminars" were organised at various places apart from organising "Functional" and "Computer" Workshops at various places.

12.6 Community Services Banking

12.6.1. Our Bank as a caring and responsible corporate entity is conscious of the nurturing we have received from society and are alive/ aware of our duty to payback a fraction of what we have received from them as a sense of gratitude. As per the Government of India guidelines, bank is authorized to spend 1% of its net profit towards Community Service activities by making equitable donations to any organization engaged in Community Development activity with a clean image and good track records. Such donations are made without any strings attached.

12.6.2 During the FY14-15, Bank took special interest in dedicating a multidisciplinary paediatric ward named ''State Bank of Mysore Centenary Block'' for augmenting facilities for treating children affected with cancer at Kidwai Memorial Institute of Oncology, Bangalore and constructed with a donation of RS. 1.57 crs from SBM.

12.6.3 During FY15, Bank generously donated over RS. 95 lac towards improvement of health services to various hospitals and Research Institutes which includes RS. 8 lac to Dharwad Institute of Mental health and Science, RS. 7.22 lac to NIMHANS, RS. 11 lac to Shankara Cancer Foundation for construction of SBM ward and RS. 7.5 lac to Jayadeva Institute of Cardiovascular science for purchase of Ambulance van.

12.6.4 Bank also participated in the Swachchh Bharat Abhiyaan and donated RS. 25 lac for constructing Green Toilet to rural schools.

13. observations made by the shareholders in the AGM in respect o matters pertaining to the "Profit ani Loss account and Balance Sheet fo 2013-14", clarification thereto:

observations of the Shareholders Clarifications by Chairman

Efforts made by the Bank The Bank will continue to give top towards the recovery proceedings. priority for recovery proceedings. Action under SARFAESI, filing suit under DRT, e-auction, sale of stressed assets are some of the measures that will be pursued with vigour for early recovery.

Reasons for reduction in the Income has come down due to higher payment of dividend from 115% provisioning for NPA as per RBI to 30%. guidelines and increase in the provision for superannuation and impending wage revision.

An option may be provided to the As a onetime measure, Management shareholders to select the was advised to seek the language language in which he/she wishes preference of shareholders to receive the Annual Report. for the Annual Reports.

Measures taken to provide adequate Bank has provided security to security to safe guard the Bank''s ATMs in Bangalore. SBI is working ATMs. towards provision of electronic surveillance devices in all the ATMs of the group across the country.

Appreciating the contribution of The observation to diversify CSR the Bank towards CSR activity, activities is well taken. To shareholders requested the Chairman benefit many, CSR activities like to diversify the activity further fixing of fans and tube lights and to entire Karnataka installation of water filters in schools, etc., have been implemented through Branches. The Management is advised to diversify the activities still further.

Clarification on the extension of Nomination facility would take Nomination facility to some more time as amendment in the shareholders of State Bank of legislation is required. As Mysore. nomination facility is available for dematerialised shares, shareholders are encouraged to dematerialise their shares.

14. Board of Directors 2014-15

* Shri.V G Kannan,Managing Director & GE(A&S),SBI, was nominated as a Director on the Board of the Bank representing SBI under section 25(1) (c) of SBI(Subsidiary Banks)Act 1959, with effect from 22.10.2014 in place of Shri. Vishvanathan.

* Shri B.Ramesh Babu, Chief General Manager (A&S) , SBI, was nominated as a Director on the Board of the Bank representing SBI under Section 25(1)(c) of SBI (Subsidiary Banks) Act 1959, with effect from 05.05. 2014 in place of Shri Rajeev N.Mehra.

* Shri.R C Srivastava, General Manager,(A&S), SBI was nominated as a Director on the Board of the Bank representing SBI under Section 25(1) (c) of SBI (Subsidiary Banks) Act, 1959, with effect from 17.07.2014 in place of Shri. P C Jena.

* Shri J.S.Phaugat, Under Secretary, Department of Financial Services, Government of India, New Delhi, was nominated as Government Nominee Director on the Board of the Bank under Section 25(1)(e) of SBI (Subsidiary Banks) Act 1959, with effect from 07.05.2014 in place of Shri M.M.Dawla.

The Board places on record its appreciation for the invaluable services rendered by Shri S.Vishvanathan, MD & GE (A&S), and Shri Rajeev N.Mehra, Chief Gen.Mansger(A&S), SBI,Shri. P C Jena, General Manager, SBI and Shri.M.M.Dawla, GOI Nominee Director and welcomes the new Directors.

15. ACKNOWLEDGEMENTS

The Board wishes to place on record its sincere appreciation of the patronage and support of the customers, shareholders, members of staff, Employees'' Union and Officers'' Association for their contribution to the overall development of the Bank.

By the Order of the Board Sharad Sharma Managing Director


Mar 31, 2013

To the State Bank of India, Reserve Bank of India and the Central Government, in terms of Section 43(1) of State Bank of India (Subsidiary Banks) Act, 1959.

1. REVIEW OF BANKING OPERATIONS:

1.1. Market Share and Business Growth:

1.1.1. The business levels of the Bank and the position of market-share in recent years are furnished hereunder.

(Rs. in crores)

Year ended 31st March 2009 2010 2011 2012 2013

Aggregate Deposits 32,388 38437 42779 49663 56,712

Percentage of growth 20.94 18.68 11.30 16.09 14.19

Market share % 0.84 0.86 0.79 0.78 0.83*

Total Advances 25,880 29,874 34,442 40,653 45,981

Percentage of growth 21.42 15.43 15.29 18.03 13.11

Market share % 0.93 0.92 0.87 0.85 0.85*

ASCB as on 22.03.2013

2.1.2. The Bank has seen continuity in growth during FY 2013 also, with aggregate deposits reaching a level of Rs. 56,712 crs., a growth of Rs. 7,049 crs. over the previous year, at a rate of 14.19%. The total advances have reached a level of Rs. 45,981 crs, recording a growth of Rs. 5,328 crs. over the previous year at a growth rate of 13.11% . As on 22.03.2013 the Bank''s market share of Deposits increased to 0.83% in the current year from 0.78% in the previous year, though, Bank''s market share of Advances remained static at 0.85%.

2.2 Key Performance Indicators

Sl. No Key Indicators 2010-11 2011-12 2012-13

1. Net Profit (Rs. in Crores) 500.62 369.15 416.10

2. Return on Assets (%) 1.03 0.67 0.66

3. Return on Equity (%) 16.17 10.82 11.05

4. Expenses-lncome Ratio (%) 43.87 49.55 46.29

5. Earnings per Share (in Rs.)* 121.66 78.88 88.91

6. Gross NPA to Gross Advances (%) 2.51 3.70 4.53

7. Net NPA to Net Advance (%) 1.38 1.93 2.69

*EPS restated on account of Rights Issue during financial year 2010-11.

2.3. Income:

Total Income of the Bank increased by 16.42% from Rs. 5,595 crs. as at March, 2012 to Rs. 6,514 crs. in March,2013. Interest Income increased from Rs. 5,078 crs. to Rs. 5,965 crs. (17.47%). Average Yield on Advances increased from 11.44% in FY 2012 to 11.62% during FY 2013, while Average Yield on Investments increased from 7.22% in March 2012 to 7.30% during the same period. Non Interest Income increased by Rs. 32 crs. (6.2%) from Rs. 516 crs. to Rs. 548 crs.; the growth in profit from sale of securities increased from Rs. 38.60 crs. to 7 66.53 crs.

2.4. Expenses:

The Total Expenditure (before provisions & contingencies) increased by 15.3% from Rs. 4,535 crs. in 2011-12 to Rs. 5,230 crs. in 2012-13. While Interest Expenses increased by Rs. 631 crs. (18.1%) the Operating Expenses increased by Rs. 64 crs. (6.1%) during the current year. The Average Cost of Deposits increased from 7.09% in March, 2012 to 7.32% in March 2013. CASA deposit share declined marginally from 32.1% as on 31.03.12 to 31.4% as on 31.03.13.

2.5. Profit:

The Operating Profit increased by 25% from X 1,059.61 crs. in FY12 to Rs. 1,331.03 crs. in FY13, while the Net Profit increased from Rs. 369.15 crs. to Rs. 416.10 crs. (12.7%). Return on Assets (ROA) remained largely static at 0.66 (0.67 in FY12) .Return on Equity (ROE) increased from 10.8% to 11.1% during the year.

2.6. Capital Adequacy Ratio:

The Capital Adequacy Ratio under Basel II guidelines stood at 11.79% as on 31st March 2013, against 12.55% as on 31st March 2012, consequent upon an increase in Risk Weighted Assets by 14%, as against an increase in Capital funds by 7%.

2.7. Dividend:

The Board of Directors has declared a dividend of 115% (Rs. 11.50 per equity share of Rs. 10/-) for the year 2012-13, our Centenary Year. This will involve a pay-out of Rs. 62.56 crs. including the tax component. The pay out ratio for 2012- 13 works out to 12.93% as against 12.68% for 2011-12.

3. BUSINESS REVIEW:

3.1. Deposits:

3.1.1. Total Deposits of the Bank grew by Rs. 6,784 crs. to reach the level of Rs. 56,970 crs. Aggregate Deposits (total deposits excluding Inter Bank deposits) stood at t 56,712 crs. as at the end of March 2013, recording a growth of Rs. 7,049 crs. (14.2%) during the year.

3.1.2. Personal Segment Deposits Personal segment deposits grew by Rs. 4,248 crs., registering a growth of 18.03%, to reach a level of Rs. 27,810 crs. as on 31st March 2013. To augment deposit growth under Personal segment, three new deposit products were introduced.

3.2. Credit Expansion:

3.2.1. While the total advances of the Bank increased from Rs. 40,653 crs. to Rs. 45,981 crs. registering a growth of Rs. 5,335 crs. (13.1%) during the year. Net advances (i.e. net of NPA related/ floating Provisions, and outstanding under Staff Festival Advance) of the Bank increased from Rs. 39,835 crs. in March 2012 to Rs. 44,932 crs. Credit Deposit Ratio of the Bank decreased from 81.9% in March 2012 to 81.1% in March 2013. Average Total Advances grew by Rs. 5,705 crs. (16.06%) during the year.

3.3. Personal Segment Advances:

Personal segment advances grew by Rs. 1,081 crs. to reach a level of Rs. 7,459 crs. Housing loans grew by Rs. 516 crs. and reached a level of Rs. 3,732 crs. Bank has waived Pre-payment penalty/Pre- closure charges for floating rate Housing loans and Car loans, besides Educational loans.

3.4. Priority Sector Lending and Social Banking:

3.4.1. The total credit provided to the Priority Sector for the year ended March 2013 stood at Rs. 13,483 crs., including Interbank Participation Certificate of Rs. 685 crs. invested in Kaveri Grameena Bank, which constitutes 33.8% of the Adjusted Net Bank Credit (ANBC). Segment-wise status of these advances is as under:

- Agriculture: The direct Agricultural advances increased by 17.2% from Rs. 4,404 crs. to Rs. 5,179 crs. Total agricultural advances went up from Rs. 5,247 crs. to Rs. 5,752 crs, registering a growth of 10%.

- Micro and Small Enterprises (MSE): The Bank''s advance to Micro and Small Enterprises as on 31.03.2013 is Rs. 3,756.41 crs.

- Personal & Services Banking (P&SB): While housing loans under priority sector reached a level of Rs. 2,808.22 crs. during the year, education loans grew by over 5.1% and were Rs. 593.89 crs. during 2012-13.

3.5. Agriculture Finance:

- SBM RECOTRAC SCHEME: A special OTS scheme for tractor NPA accounts was introduced during the year. A recovery of Rs. 40.64 crs. was made, involving closure of 620 accounts.

- DROUGHT RELIEF MEASURES:

With the prevalence of drought like situation in 157 of the 175 taluks in Karnataka State, 63,809 farmers were relieved of repayment of Agriculture loans by restructuring/ rescheduling of their loans, amounting to Rs. 707 crs. Fresh finance was also considered for the affected farmers.

3.6. Micro and Small Enterprises (Manufacturing):

The Bank''s advances to Micro and Small Enterprises (Manufacturing) as on 31.03.2013 is Rs. 2,311.54 crs.

3.7. Micro and Small Enterprises (Services):

Bank''s advances to Micro & Small Enterprises (Services) as on 31.03.2013 is Rs. 1,444.87 crs.

- Credit Guarantee Scheme: The maximum limit of coverage under the scheme is Rs. 100 lakhs. As at 31st March 2013, 8,727 accounts amounting to Rs. 530 crs. were covered under the Scheme.

- Assistance to Weaker Section of Society: The outstanding amount under lending to Weaker Sections at Rs. 5,787 crs. as at March 2013 constitutes 14.37% of ANBC, as against stipulated benchmark of 10%.

3.8. Assistance to Women Entrepreneurs:

The Bank''s total credit to women as at March 2013 stood at Rs. 2,502 crs, covering 1,66,998 beneficiaries, which works out to 6.27% of Adjusted Net Bank Credit, as against the stipulated benchmark of 5%.

The Bank''s assistance to the Minorities under various schemes as at March 2013 stood at Rs. 1,416 crs. covering 35,187 beneficiaries, which forms 10.50% of Priority Sector Advances. The Bank has extended financial assistance of Rs. 3.77 crs. to 93 beneficiaries under PMEGP during the year. The Bank''s total credit under PMEGP Scheme as at March 2013 was Rs. 50 crs, covering 999 beneficiaries. The Bank has extended financial assistance of Rs. 3.46 crs. under SJSRY during the year to 289 beneficiaries. The Bank''s advances under DRI scheme stood at Rs. 25.32 crs. as at March 2013 covering 15,181 beneficiaries and the share of advances to SC/ST beneficiaries within this is 53.2% (Rs. 13.48 crs.). The Bank has extended financial assistance under SGSY during the year to 69 group beneficiaries and individual beneficiaries were also extended financial assistance to the tune of Rs. 143 lacs.

3.9. Banking Codes and Standards Board of India (BCSBI) issued revised guidelines on Code for Banks commitment to Micro and Small Enterprises, 2012 during the year. The guidelines are hosted in Bank''s website also.

3.10.1. The total investments of the Bank in Government securities, other approved securities and Non-SLR securities increased from Rs. 14,786 crs. as at March 2012 to Rs. 16,864.01 crs. as at March 2013.

3.10.2. Profit on sale of investments increased from Rs. 38.60 crs. in 2011-12 to Rs. 66.53 crs. in 2012-13. Yield in investment increased from 7.22% to 7.30%.

3.11.1. Foreign Exchange Turnover of the Bank 2012-13 touched Rs. 404,178 crs. (Merchant Turnover - Rs. 24,978 crs. and Trading Turnover - Rs. 379,200 crs.) against previous year level of Rs. 177,988 crs.

3.11.2. The exchange profit generated from Foreign Exchange business during the 2012-13 was Rs. 58.25 crs.

3.12 International Banking

3.12.1. The level of Export Credit as on 31st March 2013 was Rs. 1,395.44 crs. (Rs. 1,325.17 crs. as on 31st March 2012) constituting 3.50% of ANBC.

3.12.2. NRI Deposits as on 31.03.2013 stood at Rs. 972 crs. showing an increase of Rs. 201.02 crs. as against Rs. 770.98 crs., comprising FCNR(B)/ RFC deposits of Rs. 181 crs. and NRE/ NRO deposits of Rs. 791 crs.

3.12.3. As per Bank''s BPR objectives, the Bank had set up five TFCPCs at Bangalore, Chennai, Hyderabad, Mumbai and New Delhi. During FY 2013, more branches have been linked to TFCPCs in order to consolidate the front line processing and contribute expertise to all such branches, for extending quality service to Exporters.

3.12.4. During the year Bank''s Export Credit portfolio other than exposures to Central PSU and LC backed bills business, have been covered under Export Credit Insurance for Banks (ECIB), Whole Turnover Packing Credit (WTPC) and Whole Turnover Post Shipment (WTPS) Schemes of Export Credit Guarantee Corporation of India.

3.13. Cross Selling:

During the year over 33,125 lives were insured through various products of SBI Life Insurance Company Ltd with a premium collection of Rs. 47.17 crs. The Bank has collected a premium of Rs. 1.87 crs. while Marketing General Insurance Products.

3.14. Government Business: State Government Transactions:

About 86% of our total Government Business emanates from State Government transactions and the turnover is directly linked to the budget of the State Government. A turnover of Rs. 55,854 crs. has been achieved during FY 2012-13, as against Rs. 60,394 crs. in 2011-12. The decrease of Rs. 4,540 crs. is on account of rise in the number of participating Banks in the e-payment initiatives of the Government.

3.14.1. Income from Government Business: In FY 2012-13 we have earned a commission of Rs. 67.95 crs. (FY 2011-12 Rs. 68.04 crs.) from Government business. The average yield on Government transactions for the year is 0.104%.

3.15.1. Contact Centre - As a customer friendly service, State Bank of Mysore has established a dedicated "SBM Contact Centre". The Centre is provided with a Toll Free Number 1800-425-2244 which is accessible from throughout the country. A separate Primary Rate Interface (PRI) Number 080-22300020 is also provided. The information from Contact Centre is available in English, Hindi and Kannada and it provides services "24 hours on 365 days (24*7*365) basis."

3.15.2. Customer Grievance Redressal:- The Bank has launched a Customer Redressal System called SMS Unhappy. The system facilitates customers to air their feedback/ grievances through the process of a simple SMS message "Unhappy" to 99 0002 0002. On receipt of the message the Bank''s dedicated Happy Room staff calls back the customer for the purpose of Grievance Redressal.

3.16. NPA Management:

3.16.1. The stresses in the various sectors of the economy has ied to the pressures on the quality of assets. The problems faced by textiles, food processing and infrastructure sector contributed to a substantial increase in NPAs in the C & I Segment. This, coupled with problems on the agricultural front, caused by drought in most parts of the State, has resulted in an increase of NPAs from Rs. 1,503 crs. as on March 2012 to Rs. 2,081 crs. as on March 2013. The Gross NPA ratio increased from 3.70% to 4.53%. The net NPA ratio also increased from 1.93% to 2.69%. The provision for Non Performing Assets (including floating provision and counter cyclical provisioning buffer) stood at Rs. 872 (735) crs. Provision Coverage Ratio is at 60.10%. A time bound action plan with measures including effective use of SARFAESI Act, rehabilitation of viable units, vigorous follow-up of DRT cases has been put in place to reduce NPA levels.

3.16.2. Restructuring of Debts; The Bank continues to provide Restructuring Package within the framework of RBI guidelines to deserving borrowers under the Rehabilitation Programme or under packages approved by CDR / BIFR, subject to the viability of the units being established. The Bank has extended the package to 60491 (19569) borrowal accounts with dues amounting to Rs. 3237.13 crs. (Rs. 2671.23crs.). Towards diminution in their fair value on account of economic loss caused in the process of restructuring, provision to an extent of Rs. 180.20crs. (Rs. 90.95*) crs. has been made by the Bank, (''indicate last year''s figure)

3.17. Lead Bank Scheme:

3.17.1. The Bank has been discharging Lead Bank responsibilities in three districts viz., Mysore, Tumkur and Chamarajanagar. The Annual Credit Plans for 2013-2014 have been launched. The combined annual credit plan target for 2013-2014 for all Banks in the three districts has gone up to Rs. 8,186.87 cr„ from Rs. 6,513.17 cr. showing a growth of Rs. 1,673.70 cr. (25.70% growth). As regard achievement of previous year''s credit plan i.e. for 2012-13 it is more than 100% in all the districts concerned.

3.17.2. To impart entrepreneurial skill and guidance to Unemployed Youth, in general and rural youth in particular and become gainfully self employed the Bank has established RUDSETI type of Training Centers viz., MyBank Institute for Promotion of Self Employment and Development (MIPSED) at Hirehally Industrial Estate, Tumkur. A similar institute called "JSS RUDSET" is established at Mariyala, Chamarajanagar Taluk, in association with JSS Mahavidyapeetha. Both the institutes are being managed by personnel on deputation from the Bank.

3.18. Financial Inclusion:

3.18.1. Bank has a comprehensive Financial Inclusion Plan for the years 2013 to 2016 for covering 3,232 villages in Karnataka with population below 2,000 as per census 2001 based on Gram Panchayat wise allocation of villages by SLBC. The Bank had earlier covered all 254 allotted villages with population above 2.000 with BC outlets before 31.03.2012 and another 143 villages with population of 1,600 to 2,000 as part of extension of "Swabhiman" by 31.03.2013.

3.18.2. Further the Bank implemented the smart card based EBT Scheme in Chamarjanagar District covering all the villages in the District in all the 4 taluks. The SSP Scheme is operational in the entire district covering more than 53.000 beneficiaries.

3.18.3. The Bank is also participating in the Direct Benefit Transfer Scheme of Government of India for direct credit of benefits under Central Sponsored schemes.

3.19. Self Help Group (SHG) Lending:

The Bank has credit linked 6,790 groups with an advance amount of Rs. 348.96 crs., during the current year and taking the cumulative total of such credit linkage programme to 1,50,103 groups with a financial outlay of Rs. 2,041.62 crs., upto 31st March 2013.

3.20. Regional Rural Banks (RRB):

Kaveri Grameena Bank (KGB) the RRB sponsored by the Bank is having its Head Office at Mysore, and covers 10 districts viz. Mysore, Hassan, Chamarajanagar, Tumkur, Bangalore Urban, Bangalore Rural and Ramanagara. After amalgamation of Chickmagalur Kodagu Grameena Bank and Vishveshvaraiah Grameena Bank, three more districts are added viz Chickmagalur, Kodagu and Mandya districts. Their total branch network is 331 branches. All the branches are functioning under CBS. The total deposits and advances of the KGB as on 31.03.2013 stood at Rs. 3845 crs. and Rs. 3013 crs. respectively.

4. HUMAN RESOURCES:

4.1. Manpower Profile:

4.1.1 Staff Strength: The total strength of the Bank as at March 2013 stood at 10,784, as against 10,249 as at March 2012. The staff strength comprised of 3,661 officers, 4,899 clerical staff and 2,224 subordinate staff.

4.1.2. Women''s Representation: As at March 2013, there were 2,843 Women employees (comprising of 520 Officers and 2,323 Other Employees) in the Bank, compared to 2,821 as at March 2012.

4.1.3. Scheduled Castes/Scheduled Tribes - Representation:-As at March 2013, there were 2,062 Scheduled Caste employees comprising 667 Officers, 742 Clerical Staff and 653 Subordinate staff. There were 626 Scheduled Tribe employees comprising 253 Officers, 232 Clerical staff and 141 Subordinate staff as at March 2013.

4.1.4. Human Resources Management Solutions (HRMS):

Bank has implemented Human Resource Management Solutions (HRMS) to handle all HR activities in a phased manner.

4.2. Training:

4.2.1. Training Activities and Coverage: The Bank regards its employees as its critical assets and honing their skills to make them more competitive and knowledgeable is one of its priorities. With a view to achieve the desired results and to establish high-performance work culture, Bank''s Learning Centers at Bangalore and Mysore are imparting training on various subjects such as Advances and Deposits, Bank''s various products, communication skills, marketing, behavioral science, etc. and also to familiarize with the new technology adopted by the Bank and upgraded on a continuous basis. Several programmes on latest technology developments like internet Banking, mobile Banking and other alternate delivery channels are also conducted. During the year the Bank had trained nearly 600 newly recruited Probationary Officers successfully. The training methodology of the Bank aims at keeping its work-force proactive and customer centric at all times, to meet the challenges of the competitive environment. The Bank continues to focus on imparting training to maximum number of staff. A new Learning Centre is due to commence operation in Hubli shortly.

4.2.2. Our Learning Centers at Bangalore and Mysore have conducted in all 106 training / workshops both functional and computer based programmes. During the year, 3.625 staff got trained at our Learning Centers.

4.2.3. E-Learning: - Bank launched e- learning portal, "Gyanodaya" with the help of State Bank of India e-learning Dept, for providing its staff with on-line learning and training. This has an in- built facility for self-evaluation through on-line tests. The portal is available 24X7 and all 365 days on internet. The portal is going to help management in training and identifying the suitable staff for specialized areas of operation.

5. Industrial Relations

The Bank gives due importance to the settlement of terminal benefits well in time to the staff on leaving the service of the Bank, either on superannuation or on other grounds. During the current year 2012-2013, as many as 449 staff members have retired from the services of the Bank. Gratuity, Pension and commutation benefits, wherever applicable, have also been settled on top priority. Employees joining the services of the Bank from 01st April, 2010 are eligible under the Defined Contributory Pension Scheme (Corporate Model). Keeping the increase in medical cost in mind, Bank has extended limit of the existing Retired Employees'' Medical Benefit Scheme.

5. The Banks relationship with its employees remained harmonious and cordial through-out the year.

6. SUPPORT FUNCTIONS:

6.1. Technology Up-qradation:

6.1.1. Automated Teller Machines as Acquirer and Issuer: We have analyzed the ATM Operations for the year 2012-13 and observed that the Bank is a NET acquirer i.e. other Bank customers using our Bank''s ATMs are more than our Bank customers using other Bank ATMs.

6.1.2. Value added service in our ATMs and launch of new debit cards:- In addition to the withdrawal of cash, many other value added services are also available through ATMs, like payment of insurance premium, mobile recharge, card payments, mobile Banking registration, etc. The Point of Sale transactions have registered a consistent growth and with a view to further increase the POS usage and e- commerce transactions, a new card strategy has been formulated and introduced in our Bank. Accordingly, new 16 digit Debit Cards and Card Verification Value (CVV) have been rolled out. Bank has recently introduced Platinum card for affluent class customers, which is a chip-based Magstripe card, with higher limit for daily Cash withdrawal and POS transaction.

6.1.3. Dash-Board/Trackina in our ATMs:- We have launched a dedicated page for ATMs on our intranet site, furnishing the month-wise performance of all the ATMs in various parameters with regard to availability/ Zone wise, Region-wise down-time, frequency of breakdown, etc., and is used as a Dash Board for monitoring individual ATM, Branch, Region, Zone- wise ATM performance.

6.1.4. Internet Banking:- Bank is offering Internet Banking facility to both retail and corporate customers under the url www.onlinesbm.com, with a host of functionalities, which includes inter-bank fund transfer, e-payment of State and Central taxes, e-commerce facilities for online shopping of goods and services, online opening of fixed and recurring deposits, etc., The number of registrations and volume of transactions through Internet Banking has seen a growth of 38.34% and 64.52%, respectively, during the year.

6.1.5. Mobile Banking: Mobile Banking service, under the name State Bank Freedom, is available through four different modes viz. Application mode, WAP mode, Unstructured Supplementary Services Data (USSD) and SMS-based, for use by customers. All important functionalities, including enquiry, mini statements, inter-bank fund transfer through NEFT and IMPS and bill payment facilities are offered. The service has seen a growth of 193.36% and 476% in terms of the number of registrations and transactions, respectively, during the year.

6.1.6. Electronic Payment System:

Percentage of transactions through Alternate Delivery Channels to total transactions of the Bank is 31.06%. Percentage of all electronic (ATM, Internet Banking, Mobile Banking, RTGS, NEFT and ECS) transactions to Total transactions of the Bank is 33.28%. These figures have improved from 28.68% as on 31.03.2012 to 31.06% as on 31.03.2013

6.1.7. Bank''s Website :

www. statebankofmysore.co.in. The Bank''s Website started as a technology platform to showcase Bank''s products and schemes in the cyberspace, has transformed slowly into a compendium of information encompassing all areas of Bank''s business initiatives, financials, acts, codes, policies, charters, products and services, interest rates, NRI/Forex services etc. Information on Technology initiatives products like Internet Banking, Mobile Banking, Automated Teller Machines are provided in the website. Customers can also know their KYC status through the website.

6.1.8: Online Customer Complaint Kiosk: Bank has developed new software packages for registering of customer complaints through Online Customer Complaints Kiosk. Customers can now visit these Kiosks and lodge their complaint themselves. Currently the Kiosk has been installed in Head Office and all Zonal Offices and will be rolled-out to Regional Offices shortly.

6.1.9. Cheque Truncation System: CTS (Cheque Truncation System) is basically an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting Bank branch and transmitted electronically. The objective of CTS is faster clearing of cheques through truncation or stopping of physical movement of cheques. In addition to Chennai and Delhi centers, CTS has been successfully rolled out in Bangalore, Coimbatore, Hyderabad and Kolkata centers during 2012-13.

6.2. NEW BUSINESS:

6.2.1: Merchant Acquiring Business (MAB): It is a New Business initiative, which is a mechanism of facilitating payment for goods and services purchased through medium of a debit/ credit card, using Point of Sales (POS) machines. It is advantageous to the merchants since it involves cash-less and increased volume of sale. Merchant Acquiring Business has been successfully launched by our Bank in various Merchant establishments. We propose to install 2,000 POS machines within FY 2013-14.

6.2.2: Cash Deposit Machine:- Cash Deposit Machines are designed to accept cash from customers using Debit Cards. It instantly gives credit to the customer''s a/c online. We have deployed 4 CDMs and intend to deploy 30 more CDMs in the year 2013-2014.

6.2.3: Self Service Kiosk (SStO:- Presently we have 40 Multi Functional Kiosks (MFK) in various places. We have undertaken to convert them into SSKs with their improved features of pass book printing, fund transfer through NEFT/RTGS/GRPT by using ATM Debit Cards.

6.2.4: We are going to introduce Business Debit cards for our Commercial Customers, in order to divert such transactions to the Alternate channels. Initially we plan to issue 5000 VISA Pride Business Debit Cards.

6.2.5: We already have a base of 300 Green Channel Counters (GCC) machines deployed in 153 branches. GCC is a device of paperless transactions by using ATM Debit cards in order to decongest the single window counters. We propose to deploy 200 more GCC machines for our branches in the year 2013-2014.

6.3. Business Continuity Planning:

6.3.1. In the backdrop of growing complexity of financial products and the increased leveraging of technology, operational risks have assumed critical importance in recent times. The treatment of operational risk as a distinct risk category along with credit and market risks in the Basel II framework is a manifestation of the significance of operational risk in impacting the risk profile of a Bank. Working in this direction our Bank has adopted well defined IT Policy and IS Security Policy which is being periodically reviewed and updated.

6.4.1.The MIS Department consolidates and maintains the Credit Information System (CIS) database apart from collating information from branches and Head Office Departments for submission of various statements to Reserve Bank of India like submission of Basic Statistical Returns, Sectoral Deployment of Funds etc,.

7. SYSTEMS AND PROCEDURES:

7.1.1. Systems & Procedure Department is a special resource available at Head Office for effective management of work organization, concerning Bank''s Systems and Procedures. The department regularly reviews the systems and procedures in the area of general service charges and systems & procedure of the Bank.

7.1.2. The Department during the year has also reviewed the service charges structure with regard to NEFT/SBGRPT Transactions, Multi-city cheque transactions removal of charges for non-maintenance of minimum balance and revision of Inter core service charges.

8. CONTROL AND SUPERVISION:

8.1. RISK MANAGEMENT:

8.1.1. An independent Risk Governance structure is in place for Integrated Risk Management, covering Credit, Market anet Operational Risks. This framework visualizes empowerment of Business Units at the operating level, with technology being the key driver, enabling identification and management of risk at the place of origination.

8.1.2. BASEL IMPLEMENTATION: The Bank has migrated to the Basel II framework, with the Standardized Approach for Credit Risk and Basic Indicator approach for Operational Risk. Bank has implemented the Standardized Measurement Method for Market Risk.

8.1.3. CREDIT RISK MANAGEMENT:

Reserve Bank of India has issued final guidelines on implementation of Internal Ratings Based (IRB) Approaches for calculation of Capital Charge for Credit Risk on 22.12.2011 and our Bank (along with SBI and other Associate Banks) has decided to apply for permission to RBI for migrating to Advanced Approach for Credit Risk under Basel II.

8.1.4. MARKET RISK MANAGEMENT:

Bank is using Standardized Measurement Method (SMM) for computation of capital charge and preparations are on for migrating to Internal Models Approach (IMA) for which the Bank has been utilizing the services of a consultant. The Bank is likely to make an application to RBI, for migration to IMA by 30th June 2013.

8.1.5. OPERATIONAL RISK MANAGEMENT: Reserve Bank of India has prescribed three approaches for computing capital charge for Operational Risk, viz. (i) Basic Indicator Approach (BIA), (ii) The Standardized Approach (TSA) and (iii) Advanced Measurement Approach (AMA). Currently the Bank is following the Basic Indicator Approach. As per AMA guidelines Banks are allowed to switch over from BIA to AMA directly. Bank is endeavoring to move directly to the Advanced Measurement Approach in view of the minimal changes in capital requirement under TSA as compared to BIA. All the policies and documents have been reviewed as suggested by the consultants to meet minimum required standards.

9. BUSINESS PROCESS RE- ENGINEERING (BPR}:

9.1.1. Bank has rolled-out various BPR initiatives since 2004, in consonance with the design principles provided by the Corporate Centre. The BPR initiatives leverage technology to significantly enhance customers'' satisfaction and convenience. BPR initiatives rolled out over the years have stabilized and started yielding desired results. So far 19 BPR initiatives have been rolled-out. CCPC Mangalore has been rolled-out during this year.

10. ASSET LIABILITY MANAGEMENT:

10.1. The Asset Liability Management System has been functioning as per the guidelines prescribed by RBI. The Asset Liability Management Committee (ALCO) of the Bank is entrusted with the task of managing liquidity and interest rate risk. The tolerance limits for liquidity mismatches and interest rate risks are fixed in accordance with RBI guidelines and Bank''s ALM Policy, and these are reviewed by ALCO at regular intervals. Various interest rate revisions, including the revision of BPLR/Base Rate are thoroughly discussed and decided by ALCO, duly considering all the relevant factors. Possible mismatches in the Structural Liquidity projections of the Bank are also discussed with regard to long term asset exposures and appropriate decisions taken.

11. AUDIT AND INSPECTION:

11.1 .Audit:

11.1.1. The overall objective of Internal Audit is to contribute to the effectiveness of the Internal Control System in achieving the Bank''s objectives besides providing high quality counsel to management on the effectiveness of Risk Management and Regulatory compliance of the Bank. Towards this end, Risk Focussed internal Audit (RFIA) and IS Audit is conducted in 567 branches/BPR entities, as against a target of branches/BPR entities envisaged in the Annual Audit Plan 2012-13.

11.1.2. Concurrent Audit is a major function which monitors proper follow-up of laid down systems and procedures on a continuous basis. 142 branches/offices covering 54.42% of deposits and 73.62% of advances and 7 Head Office Departments were subjected to Concurrent Audit during this year.

11.1.3. We conduct Special Revenue Audit every year to guard against income leakage. 480 branches with advances level of more than Rs. 10 crs. and income leakage of Rs. 1 lakh and above were subjected to Special Revenue Audit (as against 423 branches during the previous year).

11.1.4. Structured meetings were held at quarterly intervals at Zonal Centres and half-yearly intervals at Regions headed by Deputy General Managers during 2012-13, to follow up pending compliances and bring about qualitative improvement in compliances at all levels.

11.2. Credit Audit:

The audit of loan appraisal and credit management for high value credit accounts, with the aim of improving the asset quality of the Bank, is undertaken by the Credit Audit Department. Accounts with total exposure (FB&NFB) of Rs. 2 crs. and above are covered under Credit Audit. During the FY 2013 1,229 loan accounts in 214 branches were covered under Credit Audit. Out of 1,229 accounts, 1,109 accounts (90%) were rated as low and very low Risk accounts.

11.3. Vigilance:

11.3.1. Vigilance administration as an important aspect of management function is carried out as per the directives of the Central Vigilance Commission, so as to achieve good Corporate Governance for the overall growth of the Bank.

11.3.2. As an initiative, the "Fraud Cell" has been revamped, strengthened and christened as "Fraud Monitoring and Investigation Cell (FMIC)" and brought under the Vigilance Department. The FMIC will monitor certain critical areas of branch functioning on regular basis as part of surveillance responsibilities.

11.3.3. In accordance with the guidelines of the Central Vigilance Commission, the ''Vigilance Awareness Week'' was observed at all the offices of the Bank from 29th October 2012 to 3rd November 2012.

11.3.4, The Vigilance Department is maintaining liaison with outside agencies like the Central Vigilance Commission and Central Bureau of Investigation and also effectively coordinating with various departments within the Bank so that vigilance cases are disposed of speedily.

12. OTHER ASPECTS:

12.1. Customer Service:

12.1.1. The Bank continues to accord highest priority for customer service. The Bank has been a voluntary member of Banking Code and Standards Board of India (BCSBI) and is committed to provide services of a high order, in a transparent manner. Bank has adopted the BCSBI Code of Commitment to Customers and placed the same in the Bank''s website. The Policy guidelines relating to Collection of Cheques, Grievance Redressal Mechanism and Compensation were placed on the Bank''s website for the use of the customers.

12.1.2. Right to Information: The Right to Information Act 2005 - The required authority structure for implementation of the Act has been put in place for prompt disposal of RTI requests for information, within the time frame period as prescribed under the Act. The Bank''s website also carries all the relevant information on the implementation of the Act.

12.2. Productivity: Business per employee increased from Rs. 8.81 crs. as at March 2012 to Rs. 9.55 crs. as at March 2013. The Business per branch increased from Rs. 124.27 crs. in March 2012 to Rs. 132 crs. in March 2013.

12.3. Public Relations:

12.3.1. As a part of its strategy to give a thrust to its corporate image and brand equity, the Bank''s publicity has been effectively carried out through the medium of attractive hoardings, press advertisements, banner displays, glow sign displays at Bangalore International Airport Limited, Railway Station and Bus Stations, in important cities/towns and advertisements on modern bus shelters, etc. Customers meetings were conducted in many of the branches, especially in rural centres, to project the image of the Bank and publicize the advantages of thrift and timely repayment of Bank loans.

The Bank also co-sponsored ''Smarananjali'' - tribute to Jawans - held at Rajbhavan Bangalore. These activities have resulted in good publicity thus enhancing the Bank''s image in the eyes of the public. A LCD based video hoarding has also been put up in the Head Office compound for improved publicity display of our products and services.

12.4. Organizational Development:

12.4.1. Branch Expansion: The Bank has opened 44 new branches during the year 2012-13. With this, the Bank''s network of branches stands at 780 spread over 15 States.

12.5. Implementation of Official Language Policy:

12.5.1. In pursuance of constitutional provisions, Bank is making all-out efforts to speed up propagation of Official Language Hindi and its progressive use in day-to-day official work. Bank is progressively improving usage of Hindi and Regional Language to serve the customers to their best satisfaction bringing transparency in administration. Efforts have also been made to create favorable atmosphere for use of our own languages.

12.6. Our Bank as a caring and responsible corporate entity is alive to the social expectations and well-being of society, and is undertaking community services activities through the network of Branches, and associating with community development projects.

12.6.1. During this year our Bank actively participated in the State Bank Group initiative of donating water purifiers to Government/Aided schools through each of its branches /offices on Teachers Day -2012 and also on the eve of New Year-2013. The Bank donated a total of 1,553 water purifiers at a cost of Rs. 140 lacs (approximate) for the benefit of the students at Rural schools. The Bank has sanctioned an amount of Rs. 100 lacs to Bharata Ratna Sir M. Visvesvaraya National Training Facilities for skills for all (BMV NTSFA) Society Project.

13. CORPORATE GOVERNANCE:

13.1.1 State Bank of Mysore, as an organization driven by values, is committed to pursue objectives that are in the interests of the Bank, shareholders and all stake holders and the society at large, in consonance with best practices.

14.AUDIT

M/s. Bhasin Raghavan & Co., M/s. K. P. Rao & Co., M/s. B. L. Ajmera & Co., M/s. M K P S & Associates, M/s. Bubber Jindal & Co ., and M/s. Maharaja N. R. Suresh & Co., have been appointed as the Statutory Central Auditors of the Bank for the accounting period ended 31 st March, 2013 by State Bank of India, with the approval of Reserve Bank of India. 402 branches of the Bank were subjected to Statutory Branch Audit, as against 654 branches audited last year.

15. ACKNOWLEDGEMENTS

The Board wishes to place on record its sincere appreciation of the patronage and support of the customers, shareholders. members of staff, Employees'' Union and Officers'' Association for their contribution to the overall development of the Bank,

Sharad Sharma

Managing Director


Mar 31, 2012

REPORT OF THE BOARD OF DIRECTORS

To the State Bank of India, Reserve Bank of India and the Central Government, in terms of Section 43(1) of State Bank of India (Subsidiary Banks) Act, 1959.

2. REVIEW OF BANKING OPERATIONS

2.1. Market Share and Business Growth

2.1.1. The business levels of the Bank and the position of market share in the recent years are furnished hereunder.

Year ended 31st March 2008 2009 2010 2011 2012



Aggregate Deposits 26,781 32,388 38437 42779 49663

Percentage of growth 25.17 20.94 18.68 11.30 16.09

Market share % 0.84 0.84 0.86 0.79 0.78*



Total Advances 21,315 25,880 29874 34442 40653

Percentage of growth 27.09 21.42 15.43 15.29 18.03

Market share % 0.90 0.93 0.92 0.87 0.85*

ASCB as on 30.03.2012

2.1.2. The Bank has seen continuity in growth during the current year also with aggregate deposits reaching Rs 49663 crores, a growth of Rs 6884 crores at 16.09% and total advances reaching a level of Rs.40653 crores recording a growth of t 6211 crores at 18.03%. As on 30.03.2012 the Bank's market share in deposits decreased to 0.78% from 0.79%, and the Bank's market share in Advances also reduced to 0.85% from 0.87% during the year 2011-12. The marginal decline in the market share is on account of subdued growth in advances at 15.76% as on 30.3.2012 as against ASCB growth of 19.35%. The market share under advances marginally declined, notwithstanding to the fact an increase in growth rate in advances from 15.29% as on 31st March 2011 to 18.03% as on 31st March 2012. The Bank is proposing a corporate business plan for the year 2012-13 to improve its retail business base & hence improve its market share.

2.2 Key Performance Indicators 2009-10 2010-11 2011-12

Key Indicators SI. No.

1. Net Profit (Rs in Crores) 445.77 500.62 369.15

2. Return on Assets (%) 1.06 1.03 0.67

3. Return on Equity (%) 21.50 16.17 10.82

4. Expenses-lncome Ratio (%) 43.60 43.87 49.55

5. Earnings per Share (in Rs) 111.07* 121.66 78.88

6. Gross NPA to Gross Advances (%) 2.00 2.51 3.70

7. Net NPA to Net Advance (%) 1.02 1.38 1.93

EPS restated on account of Rights Issue during financial year 2010-11.

2.3. Income

Total Income of the Bank increased by 23.39% from Rs4534 crores as at 31st March, 2011 to Rs5595 crores in 31st March,2012. Interest Income increased from Rs4079 crores to Rs 5078 crores (24.50%). Average Yield on Advances increased from 10.33% in 2010-11 to 11.44% during 2011-12, while Average Yield on Investments increased from 6.95% as on 31st March 2011 to 7.22% as on 31st March,2012. Non Interest Income increased by Rs 61 crores (13.45%) from Rs 455 crores to Rs 516 crores; the growth in profit from sale of securities from Rs 13.62 crores to Rs 38.60 crores. The ratio of Non-Interest Income to Total Income was lower at 9.23% (10.04% last year).

2.4. Expenses

The Total Expenditure (before provisions and contingencies) increased by 34.96% from Rs3361 crores in 2010-11 to t 4535 crores in 2011-12. While Interest Expenses increased by X 1051 crores (43%) the Operating Expenses increased by Rs 124 crores (13%) during the current year. The Average Cost of Deposits increased from 5.56% in March, 2011 to 7.09% in March, 2012 predominantly owing to reduction in CASA share from 33.97% (31.03.11) to 32.03% (31.03.12).

2.5. Profit

While the Operating Profit decreased from Rs1173.75 crores in 2010-11 to Rs 1059.61 crores in 2011-12 (down by 9.72%), the Net Profit decreased from X 500.62 crores to Rs 369.15 crores (26.26%). The decline in net profits was predominantly on account of the necessity to provide more on our non- performing assets. Return on Assets (ROA) decreased from 1.03 % to 0.67% and Return on Equity (ROE) decreased from 16.17 % to 10.82% during the year.

2.6. Capital Adequacy Ratio

The Capital Adequacy Ratio under Basel II guidelines stands at 12.55% as on 31st March 2012, against 13.76% as on 31st March 2011. The Capital Adequacy Ratio of the Bank, however, is above the statutory requirement of 9%.

2.7. Dividend

The Board of Directors has declared a dividend of 100% (Rs10 per equity share of Rs10/-) for the year 2011-12. This will involve a pay-out of Rs 54.39 crores including the tax component. The pay out ratio for 2011-12 works out to 12.68% as against 9.35% for 2010-11.

3. BUSINESS REVIEW

3.1. Deposits

3.1.1. The Total Deposits of the Bank grew by Rs 6961 crores to reach the level of Rs 50186 crores and the Average Total Deposits grew by Rs 5475.05 crores (13.71%) during the year 2011-12. While the Aggregate Deposits (total deposits excluding inter bank deposits) stood at Rs 49663 crores as at the end of 31st March 2012 recording a growth of Rs 6884 crores (16.09%) during the year, the share of CASA deposits to Aggregate Deposits decreased from 33.97% as on 31st March 2011 to 32.03% as at 31st March 2012.

3.1.2. Personal Segment Deposits

The Personal segment deposits grew by Rs 4100 crores, registering a growth of 21.07% to reach a level of Rs 23562 crores as on 31st March 2012. Campaigns were conducted to increase the Personal segment deposit base of the Bank. As a result the share of Personal segment deposits in the aggregate deposits has increased to 47.44% during the year from 45.49%. The number of deposit accounts under Personal segment has increased by 7,08,574 during the year.

To increase Savings Bank growth under Personal segment three new deposit products viz. Mybank Suraksha Savings, Mybank Suraksha Savings Plus and Mybank Suraksha Time deposit account were introduced. These products provide depositors free Accidental death cover upto Rs 5.00 lacs

3.2. Credit Expansion

3.2.1. While the total advances of the Bank increased from Rs 34442 crores to Rs 40653 crores registering a growth of Rs 6211 crores ( 18.03%) during the year, net advances (i.e. net of NPA related/floating Provisions, and outstanding under Staff Festival Advance) of the Bank increased from Rs 34030 crores as on 31st March 2011 to Rs 39835 crores as at 31st March,2012. Credit Deposit Ratio of the Bank increased from 80.51% as on 31st March 2011 to 81.86% as at 31st March 2012. The Average Total Advances grew by Rs 4543 crores (14.66%) during the year.

3.2.2. The Head Office Credit Committee - I (HOCC-I) with the Managing Director as Chairman and Head Office Credit Committee - II (HOCC-II) with the Chief General Manager as Chairman, which have been set up in order to make the credit process speedier and to take decisions through a committee approach, held 63 and 38 meetings respectively to facilitate growth in Non-food Advances. In addition, Zonal Office Credit Committees are functioning at all the five Modules of the Bank, while in respect of DGM headed branches, a committee called HOCC-III is functioning.

3.3 Personal Segment Advances

Personal segment advances grew by Rs 443 crores to reach a level of Rs 5815 crores. Housing loans grew by 235 crores and reached a level of Rs 3216 crores. The Bank has introduced a new scheme Mybank Suraksha Loan, which provides loans to cover the life insurance premium for Home loan borrowers. To increase the Gold loan business under Personal segment a Special Campaign was conducted. As a result gold loans grew by Rs 31 crores to reach a level of Rs 58 crores.

The Bank has waived Pre-payment penalty/Pre-closure charges for floating rate Housing loans and Car loans. The Bank has introduced a facility of applying online for Home loans and Car loans besides Education loans.

3.4. Priority Sector Lending and Social Banking

3.4.1. The total credit provided to the Priority Sector for the year ended March 2012 stood at Rs11631.10 crores, which constitutes 34.16 % of the Adjusted Net Bank Credit (ANBC). Segment wise status of these advances are as under:

- Agriculture: The direct agricultural advances increased by 16.87% from Rs 3767.94 Crores to Rs 4403.68 Crores. However, the overall agricultural advances declined by 2.43% from Rs 5377.75 Crores to Rs 5247.21 Crores mainly due to decrease in indirect agriculture from Rs 1609.81 crores to Rs 843.53 crores.

- Micro and Small Enterprises (MSE): The Bank's advances to Micro and Small Enterprises as on 31.03.2012 is Rs 3353.68 crores.

- Personal & Services Banking (P&SB): While housing loans under priority sector grew by 2.85 % and reached a level of Rs 2465.34 crores during the year, education loans grew by over 1.66% and reached a level of 564.87 crores during 2011-12.

3.5. Agriculture Finance

3.5.1. During the year ended 31st March 2012, the Bank has sanctioned 57295 Kissan Credit Cards amounting to Rs 1000.31 crores. A special campaign was also conducted during the year for coverage of all eligible farmers with KCC limits and all non- farmers in rural areas with SB-cum-OD Limit in the bank's Service Area.

3.6. Micro and Small Enterprises (Manufacturing)

3.6.1. The Bank's advances to Micro and Small Enterprises (Manufacturing) as on 31.03.2012 is Rs 2209.07 Crores.

3.6.2. While continuing all the existing products and schemes introduced to take care of the varying financial needs of the sector, the Bank has introduced MyBank Surya Kiran Scheme to extend finance for purchase of Solar Photo Voltaic home Lighting system at a concessionary rate of interest. The bank has introduced a Scheme for issuance of Weavers Credit Card for the handloom weavers for their working capital and investment requirements. Bank has several schemes to cater to the needs of Micro and Small Enterprises (Manufacturing) sector.

3.7. Micro and Small Enterprises (Services)

3.7.1.The Bank's advances to Micro and Small Enterprises (Services) as on 31.03.2012 is Rs 1346.99 Crores.

3.7.2.The Bank has introduced My bank Home Stay to help development of tourism in the State of Karnataka. Initially the Scheme is restricted to branches in Kodagu and Chikmagaluru District.

3.8. Credit Guarantee Scheme

3.8.1.The Bank continued to extend collateral free financial assistance to MSE sector by participating in Credit Guarantee Scheme of CGTMSE. The maximum limit of coverage under the scheme is Rs 100 lakhs. As at 31st March 2012, 6169 accounts amounting to Rs 349.23 crores were covered under the scheme.

3.9. Assistance to Weaker Sections of the Society

3.9.1.The Bank continued to extend financial assistance to Weaker Sections of the Society comprising of small & marginal farmers with land holdings of 5 acres or less, landless labourers, tenant farmers etc., village & cottage industries whose individual limits does not exceed Rs 50,000/-, SJSRY, SGSY, SLRS, DRI, Self-Help Groups and advances to SC/ST beneficiaries. The outstanding amount under lending to Weaker Sections at Rs 4756 crores as at the end of March 2012 constitutes 13.97% of ANBC, as against the stipulated benchmark of 10%.

3.10. Assistance to Women Entrepreneurs

3.10.1.A booklet on "Charter for Women" containing the details of concessions available to women has been supplied to all the branches for display and distribution. The Bank's total credit to women as at the end of March 2012 stood at X 2006 crores covering 140461 beneficiaries, which work out to 5.89% of Adjusted Net Bank Credit as against the stipulated benchmark of 5%.

3.11. Measures to improve the economic conditions of Minority Communities

3.11.1.The Bank's assistance to the minorities under various schemes as at the end of March 2012 stood at Rs 1359.87 crores covering 31298 beneficiaries, which forms 11.69% of Priority Sector Advances.

3.12. Government Sponsored Schemes

The position of assistance rendered under various Government sponsored schemes by our Bank as at the end of March 2012 is as detailed below:-

3.12.1. Prime Minister's Employment Generation Programme (PMEGP)

The Government of India has launched the new scheme "Prime Minister's Employment Generation Programme (PMEGP)" to empower first generation entrepreneurs to set up micro enterprises across the country by merging the earlier Prime Minister's Rozgar Yojana (PMRY) and Khadi & Village Industries Commission's Rural Employment Generation Programme (REGP) from the financial year 2008- 09. The Bank has extended financial assistance of Rs.6.62 crores to 154 beneficiaries under PMEGP during the year. The Bank's total credit under PMEGP Scheme as at the end of March 2012 stood at Rs 41.50 Crores covering 812 beneficiaries.

3.12.2. Swarna Jayanthi Shahari Rojgar Yojana (SJSRY) Scheme

The Bank has extended financial assistance of Rs 6.42 crores under SJSRY during the year to 542 beneficiaries. Total amount outstanding under SJSRY scheme as at the end of March 2012 is at Rs 20.70 crores covering 4232 beneficiaries.

3.12.3. Differential Rate of Interest (DRI) Scheme

The Bank's advances under DRI scheme stood at Rs 15.94 crores as at the end of March 2012 covering 16790 beneficiaries and the share of advances to SC/ST beneficiaries within this is 52.24 % (Rs 8.32crores).

3.12.4. Swarna Jayanthi Gram Swarozgar Yojana (SGSY) Scheme

The Bank has extended financial assistance of Rs 359.00 lacs under SGSY during the year to 92 group beneficiaries, and 120 individual beneficiaries were also extended financial assistance to the tune of Rs 76.00 lacs.

3.13.lnvestments

3.13.1. The total investments of the Bank in Government securities, other approved securities and Non-SLR securities increased from Rs 12,949 crores as at the end of March 2011 to Rs 14,786 crores as at the end of March 2012.

3.13.2. The Profit on sale of investments increased from Rs 13.62 crores in 2010-11 to Rs 38.60 crores in 2011-12 due to churning in liquid mutual funds & softening of G-Sec yields in the second half of the year. During the year interest income from investments, registered a growth of Rs 135.66 crores (15.69%) over March, 2011 level.

3.13.3. While interest yield on investments increased from 6.95 % (2010-11) to 7.22 % (2011-12) due to the fact that new securities purchased were at higher yield levels, the yield on investments including profit on sale of securities increased from 6.97 % to 7.24 % during the same period.

3.13.4 As part of Group Synergy exercise Integrated Forex Module was introduced in the Bank effective from 05th September 2011. Foreign exchange transactions are now under Core Banking Solutions.

3.13.5. The exchange profit generated from Foreign Exchange business during the year 2011-12 was Rs 32.56 crores

3.14. International Banking

3.14.1. The level of Export Credit as on 31st March 2012 was Rs 1,325.17 Crores (Rs 1260.62 Crores as on 31st March 2011) constituting 3.85% of ANBC. In order to encourage exports, more eligible exporting units were offered Gold Card Scheme on ' competitive terms including interest rate concession of 0.25%. Exporters1 meets were arranged at strategic centers periodically.

3.14.2. NRI Deposits as on 31.03.2012 stood at Rs 770.98 Crores showing an increase of Rs 114.30 crores as against Rs 656.68 Crores, comprising of FCNR(B)/RFC deposits of Rs 189.02 Crores and NRE/NRO deposits of Rs 581.96 Crores.

3.14.3. As at the end of the current financial year, the export credit denominated in foreign currency stood at USD 136.02 million as at the end of current financial year 2011-12, against USD 101.08 million as at the end of previous year 2010-11.

3.14.4. The Bank has also been offering Foreign Currency Loans (FCNR(B) Loans) to its customers at LIBOR linked rates which stood at USD 37.41 million as at the end of the current financial year 2011-12 as against USD 42.29 million as at the end of previous year 2010-11.

3.14.5. The Foreign Exchange Turnover of the Bank 2011-12 touched Rs 177988 crores (Merchant Turnover - Rs 31583 crores and Trading Turnover - Rs 146405 crores) against the previous year level of Rs 172001 crores (Merchant Turnover- Rs 34343 crores and Trading Turnover - Rs 137658 crores)

3.14.6. As per Bank's BPR objectives, the Bank had set up five Trade Finance Central Processing Centres (TFCPC) at Bangalore, Chennai, Hyderabad, Mumbai and New Delhi. During the current financial year (2011-12), more branches have been linked to TFCPCs for extending quality service to Exporters.

3.15. Cross Selling

During the year the Bank sold 29135 policies of SBI Life Insurance Company Ltd and collected a premium of Rs 46.83 Crores. The Bank has collected a premium of Rs 19.76 Crores, while marketing General Insurance Products. In respect of Investment Products, the Bank is selling Mutual Funds products of SBI MF and UTI MF. Applications for SBI Credit Cards are also sourced by the Bank. The Bank has earned an income of Rs 8.77 Crores from Cross Selling Business during the Year 2011.12.

3.16. Government Business

3.16.1. State Government Transactions: The bank has been handling a major share (about 46% during 2011-12) of Government of Karnataka Transactions for the past many years. About 86% of our total Government Business emanates from State Government transactions and the turnover is directly linked to the budget of the State Government. A turnover of Rs 60,394 crore has been achieved during the year 2011-12.

3.16.2. Central Government Transactions: During the year 2011- 12, business from various Central Government Department like Postal, Railways, Defence, Central Board of Direct Taxes, Central Board of Excise and business from various Central Schemes like Public Provident Fund, Senior Citizens Savings Scheme, etc., constituted approximately 14% of the Bank's total Government Business turnover. Our business turnover from Central Government departments during the year 2011-12 was Rs 10,075 crores over the turnover of Rs 9,628 crores registered during 2010-11 (up by Rs 446 crores (4.64%).

3.16.3. Income from Government Business: We have earned a commission of Rs 68.06 crores (an increase of Rs 3.30 crores) from Government business during the year 2011-12. The average yield on Government transactions for the year was 0.09%.

3.16.4.The New system of e-Payment of Commercial Taxes/VAT introduced by Government of Karnataka has been successfully launched during the year in our bank.

3.16.5.We are actively involved in e-governance initiative of Govt, of Karnataka in their proposed roll out of "Khajane-N" for integration of operations of various stakeholders during 2012-13.

3.16.6. A major breakthrough was achieved by the bank in introducing a "Straight Through Process" for timely and accurate transfer of New Pension Scheme (NPS) subscriptions to the trustee bank account, to mitigate the problem of reconciliation.

3.16.7. The Bank is actively involved in the e-governance initiatives of Karnataka State Government for automation of all treasury payments.

3.17. Marketing Initiatives

3.17.1. For sustainable growth marketing of Bank's products and services on an ongoing basis, assumes central role in its operational activities. The institutional setup to meet the new challenges in marketing, using the power of technology, has accordingly been strengthened at various operating levels. Besides, a Marketing Department functioning at Head Office, marketing functionaries are also placed at Zonal/ Regional offices. To further strengthen the marketing activities, Customer Relationship Managers are also placed in large branches.

3.17.2. Marketing efforts at various levels of the Bank have enabled the Bank to open large number of the salary accounts of Government Employees.

3.17.3. Focused marketing efforts directed towards improving Retail/ Personal Segment advances by conducting Home Loan/Car Loan and Educational Loan Melas at important centres of the Bank were conducted during the year. With a view to provide our customers a wide basket of products, the Bank has been introducing new products/services regularly.

3.17.4. Contact Centre - As a customer friendly service, State Bank of Mysore has established a dedicated "SBM Contact Centre". The Centre is provided with a toll free number 1800-425-2244 which is accessible from throughout the country. A separate primary rate interface (pri) number 080-22300020 is also provided. The information from the Contact Centre is available in English, Hindi and Kannada and it provides services for 24 hours on 365 days (24*7*365) basis.

3.17.5. Customer Grievance Redressal: The Bank has launched a Customer Redressal System called SMS Unhappy. The system facilitates customers to air their feedback/ grievances through the process of a simple SMS message, 'Unhappy', to 99 0002 0002. On receipt of the message, the Bank's dedicated Happy Room staff call back the customer for the purpose of Grievance Redressal.

3.18. NPA Management

3.18.1. Liquidity crisis and the recession that followed adversely affected many sectors of the economy lending to a spurt in Non Performance Assets.

The problems faced by the Iron & Steel and Aviation sector contributed to a substantial increase in NPAs in the C & I Segment. This, coupled with problems on the agricultural front, caused by severe drought in most part of the state has resulted in the increase of NPAs from Rs 864 crores as on 31st March 2011 to Rs 1503 crores as on 31st March,2012. The Gross NPA ratio increased from 2.51% to 3.70%. The net NPA ratio also increased from 1.38% to 1.93%. The provision for Non Performing Assets (including floating provision and counter cyclical provisioning buffer) stood at Rs 734 crores (P.Y Rs.396 crores). Provision Coverage Ratio is at 65.22%. An action plan with measures including effective use of SARFAESI Act, rehabilitation of viable units, and vigorous follow-up of DRT cases have been put in place to reduce NPA levels.

3.18.2. Restructuring of Debts: The Bank continues to provide Restructuring Packages within the framework of RBI guidelines to deserving borrowers under the Rehabilitation Programme or under packages approved by CDR / BIFR, subject to the viability of the units being established. The Bank has extended the package to 19569 (15879*) borrowal accounts with dues amounting to Rs 2671.23 (Rs 2417*) crores. Towards diminution in their fair value on account of economic loss caused in the process of restructuring, provision to an extent of Rs 90.95 (Rs 80*) crores has been made by the Bank.

*Indicates last year's figure

3.19.Lead Bank Scheme

3.19.1. The Bank has been discharging Lead Bank responsibilities in three districts viz., Mysore,Tumkur and Chamarajanagar, The Annual Credit Plan for 2012-2013 has been launched. The combined annual credit plan target for 2012-2013 for all banks in the three districts has gone up to Rs 6513.17 crores, from Rs 5014.28 crores last year showing a growth of Rs 1498.89 crores (29.89% growth).

3.19.2. In order to impart entrepreneurial skill and guidance to Unemployed Youth, in general and rural youth in particular to enable them to become gainfully self employed, the bank has established Training Centers viz.,Mybank Institute for Promotion of Self Employment and Development (MIPSED) at Hirehally Industrial Estate, Tumkur. A similar institute called "JSS RUDSET" is established at Mariyala, Chamarajanagar Taluk, in association with JSS Mahavidyapeetha. Both the institutes are being managed by personnel on deputation from the Bank. During the year, both the centers have conducted 104 programs, wherein 4269 trainees were given training.

3.20.Financial Inclusion

3.20.1 In terms of Reserve Bank of India directives, the Bank's Board has approved the Disaggregated Financial Inclusion plan to implement Financial Inclusion plan covering 254 villages in Karnataka and 6 villages in Tamil Nadu with population above 2000 (as per census 2001) and the same has been submitted to RPCD, Reserve Bank of India.

3.20.2. Further the Bank has shouldered the responsibility of implementing the smart card based EBT Scheme in Chamarajanagar District covering all the villages in the District and the SSP scheme will be fully operational shortly.

3.20.3. Apart from this the Bank is participating in EBT program in Bellary and Chitradurga Districts through the allotted service area villages.

3.20.4. The Bank has covered all the 254 villages with populations above 2000 in Karnataka and 6 villages in Tamil Nadu by appointing Business Correspondents for providing minimum banking facilities to the rural populace at their doorstep.

3.20.5. Further the Bank has established 3 Financial Literacy and Credit Counseling Centers in 3 Lead District of the Bank to impart knowledge of banking and to inculcate saving habits and the repayment responsibility of loans availed among the rural populace.

3.21 .Self Help Group (SHG) Lending

The Bank has credit linked 10355 groups with an advance amount of Rs 492.88 crores, during the current year, taking the cumulative total of such credit linkage programme to 143313 groups with a financial outlay of Rs 1692.66 crores upto 31st March 2012. These efforts of the Bank have been recognized and the Bank has been awarded the Best Performance Award instituted by NABARD under the Commercial Banks Category for its overall performance under SHG Bank Linkage Programme for the year 2010- 11. The Bank has been the winner of either the 1st or the 2nd prize award since March 2000 continuously.

3.22.Regional Rural Banks (RRB)

3.22.1 .Cauvery Kalpatharu Grameena Bank, the RRB sponsored by the Bank is having its Head Office at Mysore, and covers 7 districts viz., Mysore,Hassan, Chamarajanagar, Tumkur, Bangalore Urban, Bangalaore Rural and Ramanagara. The Bank has a net work of 230 branches, with the opening of fifteen new branches. All the 230 branches have been functioning under CBS. The total deposits and advances of the RRB, as on 31st March 2012, stood at Rs 2604 crores and Rs 2042 crores, respectively (provisional). The RRB has been the winner of the Best Bank Award instituted by NABARD under RRB category for its overall performance under SHG Bank Linkage program for the past six years continuously from March 2006 to March 2011.

4. HUMAN RESOURCES

4.1. Manpower Profile

4.1.1 Staff Strength: The total strength of the Bank as at the end of March 2012 stood as 10249 as against 9926 as at the end of March 2011. The staff strength comprised of 3187 officers, 4914 clerical staff and 2148 subordinate staff. Of these, 814 are Ex- defence personnel, 161 belong to physically handicapped category and 599 belong to Minority community.

4.1.2. Women's Representation:

As at the end of March 2012, there were 2821 Women employees (comprising of 382 Officers and 2439 Other Employees) in the Bank compared to 2514 as at the end of March 2011 (Comprising of 358 Officers and 2156 Other Employees). The share of women employees rose from 25.32% as at 31.03.2011 to 27.52% as at 31.03.2012.

4.1.3. Scheduled Castes/Scheduled Tribes - Representation: As at the end of March 2012, there were 1983 Scheduled Castes employees comprising of 588 Officers, 764 Clerical Staff and 631 Subordinate staff. There were 628 Scheduled Tribe employees comprising of 250 Officers, 239 Clerical staff and 139 Subordinate staff as at the end of March 2012. All the guidelines of the Government of India for safeguarding the interests of SC/ST employees have been complied with.

4.1.4. Human Resources Management Solutions (HRMS): Bank has implemented Human Resource Management Solutions (HRMS) to handle all HR activities in a phased manner. Mechanization of HR activities has resulted in substantial reduction of man power for HR activities and also helped in uniform HR policy across the Bank.

4.2.Training 4.2.1.Training Activities and Coverage:

To make progress in this competitive environment, it is imperative for the Bank to hone the skills of its employees by imparting training to improve their knowledge as well as soft skills. Further, it is necessary to establish a high-performance work culture, both in the operational and administrative areas. Towards this end, Bank's learning centres at Bangalore and Mysore are conducting training programmes on various topics viz., credit appraisal (both basic and advanced), communication skills, marketing, Behavioural Science, Personal Segment & MSME product awareness etc. Several programmes, aimed at keeping the employees updated on the latest technology developments like internet banking, mobile banking and other alternate delivery channels were also conducted. All the programmes are designed, keeping the customer- needs in mind. Bank has a focused approach to training and intends to subject each employee to one or two trainings within a span of 2 years.

4.2.2 Our Learning Centers at Bangalore and Mysore have conducted 181 training / workshops. During the year, a total of 5250 members of staff got trained at our Learning Centers. Based on the job-role being played by the officers, bank is regularly deputing them for training to Apex training institutes of SBI and others like NIBM, IIBF, RBI's College of Agri. Banking etc. to update their knowledge with latest developments in the area of Banking. During the year 608 officials were deputed to the Apex Training Institutes of SBI and other premier training institutions. Bank also conducted an exclusive work-shop for the Regional Heads of the Bank with the assistance of faculty from State Bank Staff College, Hyderabad. Training schedules were drawn up for imparting training to the Probationary Officers and newly recruited clerical staff and both were carried out smoothly.

4.2.3.Pre-examination and Pre- promotional training:

Pre-examination trainings for candidates belonging to SC / ST / Minority communities and appearing for Probationary Officers / Clerical recruitment examination for selection to Associate Banks of SBI were conducted during the year at the Learning Centers, Bangalore & Mysore. Faculty guided the participants in their preparation for the written examination and also provided them with the reading material.

Pre-Promotion training programmes for SC/ST/Minority Community employees were also conducted at the Learning Center, Bangalore during the year. These trained candidates appeared for written examination for promotions from subordinate cadre to clerical cadre, from clerical cadre to officers' cadre and within officers' cadre, from JMGS I to MMGS II.

4.2.4.Training to CKGB Staff :

Our Mysore Learning Centre had conducted training programmes for officers & staff of Cauvery Kalapatru Grameen Bank (sponsored by SBM). In the current year 9 training programmes for CKGB employees were conducted covering 236 employees.

4.2.5.The Center also imparted pre- recruitment training to candidates belonging to SC/ST/Minority/ Ex- Servicemen who applied for officers' posts and Office Assistant posts in CKGB.

4.2.6.Training to retiring officers/staff:

To enable our retiring officers & staff to lead a happy, healthy and peaceful retired life, our Learning Centre, Mysore conducted 7 special training programmes for retiring employees, with inputs on financial planning, health tips, yoga and relaxation techniques, during the year 2011-12 covering 246 employees.

5. INDUSTRIAL RELATION

5.1. Terminal Benefits to Retired : Staff: The Bank gives due importance to the settlement of terminal benefits well in time to the Staff on their ' termination from service of the Bank f either on superannuation or on other grounds. During the current year 2011 - 2012 as many as 438 staff members retired from the services of the Bank. Pension and Commutation benefits wherever applicable have also been settled on top priority.

5.2. Defined Contributory Benefit Scheme:

Employees joining the services of the r Bank after 01st April, 2010 are eligible under the Defined Contributory Pension Scheme - which will be governed by the provisions of New Pension Scheme introduced for employees of Central Government with effect from 01.01.2004 and as modified from time to time. As at the end of March, 2012 as many as 1156 are covered under "Defined Contributory Benefit Scheme".

5.3. Staff Welfare Activities:

The major welfare measures extended f to the members of the staff include Holiday Homes, Group Insurance Cover, Scholarship Scheme, Farewell Scheme for the retiring employees, Financial Assistance to the employees with physically handicapped/ mentally challenged children, Medical ' Expenses Reimbursement Scheme etc,. During the year, Mysore and Goa Holiday Homes were shifted to new hotels.

5.4. The Banks relationship with its employees remained harmonious and cordial through out the year.

6. SUPPORT FUNCTIONS

6.1. Technology Up-gradation

6.1.1. Automated Teller Machines: Our customers can now transact through 802 of our ATMs and the daily average hits at these ATMs during the year were 218. Our Bank has earned a record net income per ATM and we stand first among the State Bank Group Banks in this respect. The Point-of-Sale transactions have registered a consistent growth and with a view to further increase the POS usage and e- commerce transactions, a new Card strategy has been formulated and introduced in our Bank. Accordingly, new 16 digit Debit Cards with Card Verification Value (CVV) have been rolled out.

6.1.2 Internet Banking:

www.onlinesbm.com, the Internet Banking portal of our Bank, facilitates instant, convenient, secure and safe Banking Solutions, for both Corporate and Personal Banking customers alike. Apart from regular e-Banking functionalities, the Bank Customer can transfer funds through RTGS/NEFT/ SBGRPT, pay direct & indirect taxes, book train tickets online, make utility bill payments, etc. A simplified version of the Corporate Internet Banking, SARAL, was introduced during September 2011 for the use of micro enterprises with single entrepreneur and small business enterprises managed by individuals. The Bank has seen a 38.52% growth in Internet Banking registrations with 1,68,379 customers, of which 16,585 are Corporate Customers.

6.1.3. Mobile Banking Service: State Bank Freedom is a simple, convenient, secure, anywhere and anytime banking service offered by the Bank since 2009. Some of the functionalities available through this Mobile Banking service include enquiry, funds transfer, cheque book requests, bill payments, mobile top-ups, etc. The total number and volume of Mobile Banking transactions during the year 2011-2012 increased by 52.17% and 206.55% respectively.

6.1.4. Interbank Mobile Payment Service (IMPS) : The functionality of Interbank Mobile Payment Service (IMPS) through Mobile Banking has been made live during March 2012. This service enables better and faster transfer of funds by the customers using the mobile number of the recipient instead of the account number. Funds can be remitted by a registered user of our Bank's Mobile Banking Service to a beneficiary holding a 7 digit MMID (Mobile Money Identifier). The transfer is routed through National Payment Corporation of India (NPCI).

6.1.5. Electronic Payment System:

Seamless and secure remittance of funds between accounts maintained at different Banks / Branches are enabled through RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer). Interbank Electronic Funds transfer amongst the State Bank Group is available through SBGRPT (State Bank Group Payment Transactions). The Bank has recorded 67.27% growth in NEFT Inward transactions and about 50% growth in SBGRPT transactions during the year ending 31st March 2012.

Cheque Truncation System: CTS

(Cheque Truncation System) is basically an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting Bank branch and transmitted electronically. Introduced by Reserve Bank of India, the objective of CTS is faster clearing of cheques through truncation or stopping of physical movement of cheques. CTS has currently been successfully rolled out in Chennai & Delhi, and has effectively benefited all our customers in these centres. Coimbatore and Bangalore Centres will implement CTS shortly.

6.1.6. Bank's Website:

The Bank's website, http:// www.statebankofmysore.co.in, available in English, Hindi and Kannada, hosts a variety of information on our Products & Services, our Branches & ATMs, Interest Rates, Technology Initiatives including e- Banking & Mobile Banking , NRI/Forex Services, Bank's Profile & Financials, various application form downloads, etc. For the benefit of the visually challenged, an official text version of the web site has also been hosted. The home page also provides a link to Grievance Redressal Mechanism which includes feedback and complaints. The Bank's website also facilitates online requests for Home Loans, Car Loans, Education Loans and SME Loans. Customers can now check their eligibility before submitting their application and can also track the status of their loan application through the site.

6.1.7 Green Initiatives: As part of the Green Initiative, the Bank is moving towards less paper banking in all its administrative offices and branches.

* The Bank's intra-net web site 'SBM Nest' has been put to effective use for minimizing paper usage. SBM Nest is deployed as a channel for routing all circular letters, instructions and inter- office communications.

6.1.8. Green Channel Counter (GCC):

Is an innovative step towards migrating from the traditional paper based banking in a limited way to card based 'Green Banking' focusing on reduction in paper usage as well as saving transaction time. Transaction Posting Device (TPD), a machine used for this purpose, is very similar to the POS (Point of Sale) machines used at merchant establishments for card transactions. The initiative has been successfully launched in our Bank in some of the Bangalore City Branches on pilot basis. Cash deposit, withdrawal and intra-bank funds transfer up to Rs 40,000/- can be made using the ATM cum Debit Card at Green Channel Counters (GCC).

6.2. Business Continuity Planning

6.2.1. In the backdrop of growing complexity of financial products and the increased leveraging of technology, operational risks have assumed critical importance in recent times. The treatment of operational risk as a distinct risk category along with credit and market risks in the Basel II framework is a manifestation of the significance of operational risk in impacting the risk profile of a Bank. Keeping this in mind our Bank has:-

- Adopted well defined IT Policy and IS Security Policy which is being periodically reviewed and updated.

- Become a part of well established (common for State Bank Group) state-of-the art IT infrastructure which is certified as BS 25999- 2:2007 by BSI.

6.2.2. Our Bank has taken proactive measures to respond to business discontinuities and ensure uninterrupted availability of all key business resources that support critical banking functions. In this connection the Bank has adopted a well defined Business Continuity Plan and Disaster Recovery Plan Policy. Our Bank is part of a well established high- end Business continuity and Disaster Recovery infrastructure which ensures seamless continuity in case of need. The Disaster Recovery drill is being conducted on a half-yearly basis during which the transactions of our branches are routed through the DR site. In addition to this, the Bank has a nearby site to ensure zero data loss in the event of a disaster. The Bank has implemented Business Continuity Plan in all the branches and also in the administrative offices together with periodic reviews and updates.

6.3. Management Information System (MIS):

6.3.1.The MIS Department consolidates and maintains the Credit Information System (CIS) database apart from collating information from branches and Head Office Departments for submission of various statements to Reserve Bank of India like submission of Basic Statistical returns, Sectoral Deployment of Funds etc,.

6.3.2. The scope of CIS has also been extended to submission of data relating to Credit Information Bureau (India) Limited (CIBIL) and other credit information companies (CICs).

6.3.3. The Department has developed a webpage in the SBMNEST, providing useful information to the controlling offices and the branches. The Department has also developed the software/ formats of Balance Sheet, Profit and Loss Account, MOC etc,, and has hosted the same in the SBMNEST for use by the branches.

7. SYSTEMS AND PROCEDURES

7.1. Systems and Procedure Department is a special resource available at Head Office for effective management of work organization concerning Bank's Systems and Procedures. The department regularly reviews the systems and procedures in line with the technological developments in the areas of Core Banking and the alternate delivery channels.

The department has, in the year under report, introduced Inter Office Instrument in all branches/SBI and other Associate Banks in lieu of Demand Draft and Banker's Cheque payable in any branches of the Bank/ SBI and Associate Banks. The department has introduced Universal Pass Book for both deposits and advances accounts. The department has promoted Government of India Green Initiative Policy by effecting payments to vendors/contractors through NEFT/RTGS.

7.2. The department also reviewed the service charges structure with regard to locker, multicity cheques transactions, non-maintenance of any time quarterly balance in SB accounts of P segment customers etc. The department has also updated directory of offices and designed monthly visit report of single officer branch/fence sitting branches.

8. CONTROL AND SUPERVISION

8.1. Risk Management:

8.1.1 The Bank has achieved substantial progress in the implementation of risk management systems, envisaged in RBI guidelines. An Integrated Risk Management approach is followed, with a well- designed organizational structure consisting of committees, viz. Risk Management Committee of the Board (RMCB) at the Board level, Asset Liability Management Committee (ALCO), Credit Risk Management Committee (CRMC), Market Risk Management Committee (MRMC) and Operational Risk Management Committee (ORMC). These committees meet at periodic intervals to oversee the functions of Risk Management and Asset Liability Management.

8.1.2 With regard to Credit Risk, a Credit Risk Mitigation and Collateral Management Policy is in place. Bank has a comprehensive Loan Policy document in place which addresses Credit Risk Management and is reviewed and revised periodically.

8.1.3 Credit Risk Assessment System (CRAS) which is in the Bank has separate models designed for trading and non-trading/service sectors. While limit aggregating to Rs 5.00 crores and above will warrant borrower as well as facility ratings, limits from Rs 25.00 lacs and upto Rs 5.00 crores will carry only borrower rating.

8.1.4. With a view to controlling the risk relating to exposure on domestic and foreign counterparty banks, detailed guidelines are laid down and bank- wise exposure limits have been fixed and allocated among the various user/ departments/branches. The exposures taken at the branches/departments are being monitored at periodic intervals.

8.1.5. For managing risks arising out of adverse movement in market interest rates, currency exchange rates, equity prices and commodity prices, the Market Risk Management Policy has been framed. A Back Testing Policy envisaging testing of market risk measurement models is also included in this policy.

8.1.6. Operational Risk Management Policy duly approved by the Board is put in place. Monitoring through the process of audit has been tightened. As part of Risk Based Supervision, the Bank has introduced Risk Focused Internal Audit (RFIA) as the exclusive form of audit effective from 1st Aug 2003. The Audit Report Format (ARF) has been suitably modified and adopted. A Fraud Risk Management Policy covering identification and control, accountability, reporting and follow up measures has also been formulated for effective control over incidence of fraud.

8.1.7. The Bank has put in place a policy on Disclosures as required by RBI under Pillar-3 of Basel-II and necessary disclosures are being made periodically as stipulated.

8.1.8. Reserve Bank of India has issued final guidelines for migration to Advanced Approaches for computation of Capital charge for Credit Risk, as per Basel II guidelines, on 22.12.2011.

8.1.9. Having complied with the requirements of the basic approaches in credit risk, market risk and operational risk for computation of capital adequacy, the bank is preparing for migration to advanced approaches viz. Internal Rating Based Approach in credit risk, Internal Models Approach in market risk and Advanced Measurement Approach in operational risk for computation of capital. With the proposed migration, Bank's risk management systems would be further strengthened.

8.1.10. To facilitate smooth migration to Advanced Approaches, individual committees are in place for Credit Risk, Market Risk and Operational Risk to interact with the Consultants and to oversee the execution of the required tasks in time.

9. BUSINESS PROCESS RE- ENGINEERING (BPR)

9.1. The Bank has rolled out various BPR initiatives since 2004, in consonance with the design principles provided by the Corporate Centre. The BPR initiatives leverage technology to significantly enhance customers' satisfaction and convenience. BPR initiatives rolled out over the years have stabilized and started yielding desired results. So far 19 BPR initiatives have been rolled out.

9.2. Based on the feedback received from the branches and the initiatives, some changes in the processes have been brought out to improve efficiency.

9.3. Our Centralized Clearing Processing Centres (CCPCs) at Bangalore., Mysore and Chennai undertake entire clearing work of all the linked branches. All the branches at Mysore have been linked to CCPC Mysore during the year. Service branch, Chennai and Bangalore were integrated with CCPC, Chennai and Bangalore respectively during the year.

9.4. Cheque Truncation System has been implemented during the year at Chennai and is working successfully. The process of implementing the Cheque Truncation System at Bangalore is in progress and it will be extended to other centers in a phased manner as the Reserve Bank of India will direct from time to time.

9.5. 33 new branches have been opened at Bangalore, Mysore Zone, Hubli Zone, Chennai Zone, and Delhi Region as per BPR design principles. 59 branches have been redesigned during renovation/shifting to new premises as per BPR design principles at Bangalore, Mysore, Chennai, Hyderabad, Mumbai, Delhi and Kolkata.

9.6. Mid Corporate Central processing Centre (MCCPC)

9.6.1. As part of the Bank's BPR initiative, a Mid Corporate Central Processing Centre (MCCPC) was set up during February 2010 in our Bank for Bangalore centre, with a view to pool specialized credit skills, to standardize the credit processes, to improve the quality of assets and to provide speedy credit delivery and reduction in turn around time (TAT).

9.6.2. Initially 25 branches of Bangalore Zone I which were having Medium Enterprises (ME) and mid-corporate accounts were linked to MCCPC. During FY 2011-12 a further 10 branches of Bangalore Zone II have been added. Currently there are 67 mid-corporate accounts with aggregate sanctioned limit of X 1243.38 crores and outstanding of t 1,125.16 crores as on 31.3.2012.

9.6.3. MCCPC is engaged in the credit appraisal, sanction, supervision and follow-up of corporate and mid- corporate advance accounts of Bangalore. MCCPC is extending support to branches in the adjoining district of Tumkur in the above matters.

10. ASSET LIABILITY MANAGEMENT

10.1. The Asset Liability Management System has been functioning as per the guidelines prescribed by RBI. The Asset Liability Management Committee (ALCO) of the Bank is entrusted with the task of managing Liquidity and Interest rate risk. The Committee meets regularly to monitor the risks and Net Interest Margin (NIM) on an ongoing basis. The tolerance limits for liquidity mismatches and interest rate risks are fixed in accordance with RBI guidelines and Bank's ALM Policy and these are reviewed by ALCO at regular intervals. Various interest rate revisions including the revision of BPLR/Base Rate are thoroughly discussed and decided by ALCO duly considering all the relevant factors. Possible mismatches in the Structural Liquidity projections of the Bank are also discussed with regard to long term asset exposures and appropriate decisions are taken.

11. AUDIT AND INSPECTION

11.1 Audit

11.1.1. As against a target of 545 branches/ BPR entities envisaged in the annual audit plan, 586 branches / BPR entities were subjected to Internal Audit and IS Audit during the year under reference. That apart, 17 newly opened branches were subjected to Spot Audit, 7 Head Office Departments and 2 Staff Training Centres were also subjected to Internal Audit.

11.1.2. 73 branches (Scale IV & above) were subjected to Expenditure Audit during the year. 423 branches selected, with advance levels of more than Rs10.00 Crores and income leakage of Rs 1.00 lakhs & above were subjected to Special Revenue Audit to ensure that there is no income leakage (as against 388 branches during previous year).

11.1.3. 140 branches/offices covering 55.66% of deposits and 72.59% of advances and 7 Head Office Departments were subjected to concurrent audit for bringing improvement in functioning, compliance with the laid down systems and procedures. The findings enumerated in these audit reports are appraised to the Audit Committee of the Board and follow-up actions are ensured.

11.1.4. Structured meetings were held at quarterly intervals at Zonal Centres and half-yearly intervals at Regions headed by Deputy General Managers during 2011-12, to follow up pending compliances and bring about qualitative improvement in compliances at all levels. Workshops were conducted at various centres (Bangalore, Hyderabad, Chennai, Mumbai, Mysore & Delhi covering all the Modules) during 2011-12 for concurrent auditors to update their knowledge and skills. Also, two training programmes were conducted for RFIA (Risk Focussed Internal Audit) auditors during 2011-12

11.2. Credit Audit

The audit of loan appraisal and amount management for high value credit accounts with the aim of improving the asset quality of the Bank is undertaken by the Credit Audit Department. Accounts with total exposure of Rs 2 crore and above are covered under Credit Audit. During the financial year 1135 loan accounts in 173 branches were covered under Credit Audit. Out of 1135 accounts 1019 accounts (90%) were rated as Low and Very Low Risk accounts.

11.3. Vigilance

11.3.1. Vigilance administration as an important aspect of management function is carried out as per the directives of the Central Vigilance Commission so as to achieve good Corporate Governance for the overall growth of the bank.

11.3.2. To create better preventive vigilance awareness and to prevent incidence of frauds, various preventive vigilance activities like surprise visit to branches, formation of preventive vigilance committees at all major branches and BPR entities, sessions in the staff training centers, surprise verification of cash etc., are being undertaken by the Vigilance Department.

11.3.3. The Fraud Monitoring and Investigation Cell (FMIC) under the Vigilance Department monitors certain critical areas of branch functioning on regular basis as part of surveillance responsibilities. Besides, to speed up and monitor disciplinary proceedings, the Chief Managers, General Banking/ Administration at the Zonal/Regional Office level are designated as Zonal Vigilance Officers as an extension of the Vigilance structure at Head Office.

11.3.4. The officers from Vigilance Department conducted surprise inspections of 53 offices/branches during the year under report. The main areas of scrutiny are adherence to systems and procedures, rotation of staff and deficiencies in fraud-prone areas. The deviations and other irregularities are brought to the notice of the Module/Regional Heads for taking corrective actions. Vigilance Department is bringing out a Quarterly House Magazine, which contains vital information on vigilance related matters useful to the operating staff.

11.3.5. In accordance with the guidelines of the Central Vigilance Commission, the 'Vigilance Awareness Week' was observed at all the offices of the Bank from 31st October 2011 to 5th November 2011. The focus of observing the Vigilance Awareness Week was oriented towards evolving and effectively implementing preventive techniques in vigilance administration, which includes transparency, accountability and fair play, objectivity and timely response in dealing with matters relating to public administration. Besides, the role of leveraging of technology in respect of all systems and processes for deliverance of services, which has to be synchronized through use of technology was strongly emphasized.

11.3.6. The Vigilance Department is maintaining liaison with outside agencies like the Central Vigilance Commission and Central Bureau of Investigation and also effectively coordinating with various departments within the bank so that vigilance cases are disposed of speedily.

11.3.7. As per the directions of Government of India, a Vigilance set up has been established in Cauvery Kalpatharu Grameena Bank sponsored by the bank and the Chief Vigilance Officer of the bank is overseeing the vigilance administration in that Bank.

12. OTHER ASPECTS

12.1. Customer Service

12.1.1. The Bank continues to accord highest priority to Customer Service. The Bank is a member of Banking Code and Standards Board of India (BCSBI) and is committed to provide service of a high order in a transparent manner. Bank has adopted the BCSBI Code of Commitment to Customers and placed the same in the Bank's website. The Policy guidelines relating to Collection of Cheques, Grievance Redressal Mechanism and Compensation were placed on the Bank's website for the use of the customers.

12.1.2. Right to Information

The Right to Information Act 2005 - The required authority structure for implementation of the Act has been put in place for prompt disposal of RTI requests for Information within the time frame period as prescribed under the Act. The Bank's website also carries all the relevant information on the implementation of the Act.

12.2. Productivity

Business per employee increased from Rs 7.95 crores as at the end of March 2011 to Rs 8.81 crores as at the end of March 2012. The Business per branch increased from Rs 109.86 crores in March 2011 to t 124.27 crores in March 2012.

12.3. Public Relations

12.3.1.Effective publicity of the Bank's schemes and services was carried out through the medium of captivating hoardings at important vantage points, advertisements in print and electronic media, glow sign displays at railway and bus stations in important cities/ towns and advertisements on modern bus shelters and police kiosks.

12.3.2. Special media campaigns covering the various loan schemes, special offer in housing, vehicle, gold loans, MSE loans under CGTMSE scheme, other retail loans and new deposit schemes like My Bank Suraksha Savings Bank, Savings Bank Plus and Term Deposit account were carried out in the print and electronic media and through hoardings.

12.3.3. The Bank has sponsored various State level seminars, District ustavas, Fruit and Flower show at various districts/taluks, musical, cultural and sporting events. Besides the Bank also sponsored Mysore Dasara festivitites-2011 in a big way, India Finance Conference -2011 organized by Indian Institute of Management and a Bus Shelter and drinking water facility at World Heritage site, Hampi, The Bank extended financial aid to Sankalpa a unique theatre festival enacted by prison inmates and supported the 12th Convocation organized by Karnataka State Open University etc. These activities have resulted in good publicity besides further enhancing the bank's image.

12.3.4. Bank's performance highlights, launching of new products and services, opening of branches, ATMs, BPR initiatives and technological achievements were extensively covered in print and electronic media.

12.4. Organizational Development

12.4.1. Branch Expansion: The Bank has opened 33 new branches during the year 2011-12. With this, the Bank's network of branches stands at 737 spread over 15 states. As at the end of March,2012, the branch network comprised of 197 Metro, 156 Urban, 159 semi- urban and 225 rural branches.

12.4.2. Branches in Minority Concentrated Districts- Centers (MCDs)/ Under Banked Districts: During the year, the Bank has opened 2 branches and 4 branches in Minority Concentrated Districts/Centers and Under-Banked Districts respectively. As on 31st March 2012, out of 737 branches, the Bank has 70 branches in MCDs constituting 9.50% of the branch network and 83 branches in Under- banked Districts constituting 10.85% of the branch network.

12.5. Implementation of Official Language Policy:

12.5.1. In pursuance of constitutional provisions, Bank is making all efforts for the propagation of the Official Language, Hindi, and its progressive use in day-to-day official work. Bank is progressively improving the usage of Hindi and the Regional Language to serve customers to their satisfaction bringing transparency in administration.

12.5.2. To ensure the usage of Hindi in official correspondence, routine forms used on computers were identified and converted in bilingual/trilingual form and were made available to the staff members, providing Script Magic Hindi Software in our CBS and Unicode Mangal fonts for word processing. Our Bank's website is made available in Hindi and Kannada also and being updated simultaneously. Operating option of Hindi & Regional Language is provided in all the ATMs of our Bank.

12.5.3. Apart from publishing Hindi Articles in the House Magazine "Sambrama", a separate Quarterly Hindi Magazine "Mybank Bhashadarshini" is being published for enriching the Hindi knowledge of our staff. Hindi version of Fire and Pension Manuals were issued during the year under review besides publishing Bank address book in bilingual form.

12.5.4. 24 Functional/Computer Workshops/ On the Desk Training were organized at different places and imparted functional knowledge of Hindi to the 289 Staff Members and organized All India Official Language Conference at Pondicherry inviting local dignitaries to create favorable atmosphere for implementing Official Language Policy of Government of India. Our efforts in this regard are appreciated by various Town Official Language Committees.

12.5.5. Kannada being the Official Language of Karnataka , occupies the place of prominence in the Bank, as more than 80% of our branches are in Karnataka.

12.5.6. Account opening forms, pay in slips, withdrawal forms, DD and pay order challans, all Agricultural and SHG loan applications and other important forms are in Kannada / trilingual form. All our ATMs display operational instructions in Kannada also. Correspondence with the State Government and its departments is done in Kannada. Bank has Kannada version for its website.

12.5.7. All press releases of the Bank, including quarterly and annual financial results are being simultaneously published in Kannada. Reports of community services and cultural programmes at Branches are published in Kannada in the Bank's house magazines "Sambhrama" and "Mybank Bhasha Darshini".

12.5.8. Kannada Rajyotsava is celebrated every year at Head Office, Zonal Offices and Regional Offices during the month of November. Renowned Kannada writers and aged artists are felicitated on the occasion.

12.5.9. Our Kannada Department conducts Kannada language classes for the Probationary Officers who do not know Kannada.

12.6. Community Services Banking

12.6.1. As a committed and responsible Corporate Citizen, the Bank effectively associated with various community development activities pertaining to education, health, social, art, culture and sports. The Bank has sponsored 130 programmes during the year with a financial outgo of Rs 130.02 lakhs including contributions for purchase of utility assets by various social and charitable institutions.

12.6.2.The other activities/ programmes include conduct of various health camps like eye camp, asthma camp, animal health check up camp, general check up camp, conducting Tree Planting Programme, honoring meritorious students in SSLC, sponsoring Taluk and District level sports tournament, donating text books, utensils, blankets to orphanages, supported the Care Earth Trust engaged in conserving biodiversity, Sponsored prevention of cancer awareness programme and SHG awareness programmes like health, girl child education programme etc.

12.6.3. The Bank had, among others, made a donation to 'Ekal Vidyalaya Movement for Elementary Education of Tribals' in Chamrajnagar and Mysore District by adopting schools in 10 villages and an Ambulance to SDS Tuberculosis Research Centre and Rajiv Gandhi Institute of Chest Diseases. The Bank made a donation to Tumkur University to construct a building for their Fine Arts College. It donated a Corpus Fund for instituting a Chair at Visvesvaraya Technological University (VTU), and to Mysore University for installing statues of Sir M.Visvesvaraya and Nalwadi Krishnaraja Wadeyar.

13. CORPORATE GOVERNANCE

13.1. Statement of Bank's Philosophy on Corporate Governance

13.1.1 State Bank of Mysore, as an organization driven by values, is committed to pursue objectives that are in the interests of the Bank, shareholders and all stake holders and the society at large, in consonance with best practices. The primary objectives of Corporate Governance are:

- To protect the interests of the shareholders and all stakeholders and to ensure that shareholder get the maximum benefit in the long run.

- To act in the best interests of all stakeholders like customers, employees, government and the society.

- To ensure transparency, fairness, courtesy and dignity in all transactions within and outside the Bank which form the hallmark of good governance.

- To maximize operational efficiency in a well defined and transparent manner and achieve excellence and benchmarks at all levels.

- As custodians of public thrift, ensure safety of funds and investments.

- Focus on core competence areas, planned expansions and sustained growth.

The Bank believes that Corporate Governance facilitates effective management and better internal controls.

13.1.2.Compliance function is an integral part of corporate governance along with internal control and risk management process. In view of increasing complexities and sophistication in Banking business there is a critical need for management of compliance risk arising out of compliance failures.

13.1.3.The Compliance Department ensures that the guidelines of various regulators like RBI, GOI, SBI, SEBI etc are complied with by the Bank in its conduct of business.

13.1.4.During the year, the Department has conducted Compliance Audit based on closed Branch Internal Audit Reports for 61 branches and Compliance Credit Audit of 161 accounts, pointing out the omission and commission committed, to the branches and the controllers for rectification and sensitization.

13.1.5.KYC/AML Cell is a part of Compliance Department. The cell is responsible for timely submission of Cash Transaction reports and Counterfeit Currency Reports in addition to submission of Suspicious Transaction Reports based on analysis of alerts.

The cell is responsible for the following:

- Framing and implementing Board approved policies on KYC/AML and Combating Financing of Terrorism (CFT) measures.

- Analysis of transaction alerts for identifying transactions of suspicious nature for reporting to the Financial Intelligence Unit- India (FIU) and sharing of information as required under the law.

- Monitoring the process of risk categorization of accounts by branches.

- Monitoring of KYC non-compliant Accounts (old/existing a/cs)

- Monitoring the implementation of provisions of 'Unlawful Activities (Prevention Act 1967 (UAPA) on combating financing of terrorism.

- Issue of circulars regarding the list of individuals/entities banned by United Nations received from RBI.

- Observance of KYC Compliance and Fraud Prevention day on 1st August Every year.

- Detailed information on KYC guidelines and Anti Money Laundering has been uploaded in the Bank's Website as a measure of customer education.

- To sensitize and create awareness, the cell has brought out 5 issues of KYC- AML news letter.

- Job card on KYC/AML procedural guidelines put of on Bank's Internet under tutorials menu, for the users.

13.1.6.The Compliance Department ensures submission of monthly and quarterly DSB a


Mar 31, 2011

To the State Bank of India, Reserve Bank of India and the Central Government, in terms of Section 43(1) of State Bank of India (Subsidiary Banks) Act, 1959.

14. BOARD OF DIRECTORS 2010-11

14.1. Smt. Madhumita Sarkar Deb, Chief General Manager, Reserve Bank of India, Central Office, Mumbai was nominated as RBI Nominee Director, under section 25{1) (b) of SB) (Subsidiary Banks) Act 1959 with effect from 3rd January 2011, in place of Smt.Ratna K.Makhija.

14.2. Shri S.A.Thimmiah, General Manager (A&S), SBI Corporate Centre, tendered his resignation on 24th December 2010 consequent to his transfer from SBI, Corporate Centre, Mumbai. In his place, Shri B.Ramesh Babu, Deputy General Manager (A&S), Spi Corporate Centre, was nominated as Director on the Board of the Bank representing SBI, under Section 25(1) (c) of SBI (Subsidiary Banks) Act 1959, with effect from 25th December 2010.

14.3. Shri Milind S.Katti, was appointed as Workmen Director, with effect from 31st August 2010 under section 25(1) (ca) of SBI (Subsidiary Banks) Act 1959 consequent to the expiry of the term of Shri S.R.Powar.

14.4. Shri Gururaja Rao was appointed as Non-workmen Director with effect from 7th September 2010 under section 25(1) (cb) of SBI (Subsidiary Banks) Act 1959 consequent upon the expiry of the term of Shri D.S.Nagaraj.

14.5. The Board places on record its appreciation of the valuable services rendered by Smt.Ratna K.Makhija, Shri SAThimmiah, Shri S.R.Powar and Shri D.S.Nagaraj. The Board welcomes the new Directors.

15. AUDIT

M/S Gopala Iyer & Subramanian, Coimbatore, M/S Ramraj & Co., Bangalore, M/S Grover, Lalla & Mehta, New Delhi, M/S K P Rao & Co, Bangalore and M/S Bhasin Raghavan & Co., New Delhi have been appointed as the Statutory Central Auditors of the Bank for the accounting period ended 31s March, 2011 by State Bank of India, with the approval of Reserve Bank of India. 670 branches of the Bank were subjected to statutory audit as against 660 branches audited last year.

16. ACKNOWLEDGEMENTS

The Board wishes to place on record its sincere appreciation of the patronage and support of the customers, shareholders, members of staff, Employees Union and Officers Association for their contribution to the overall development of the Bank.

By the Order of the Board

DILIP MAVINKURVE

Managing Director


Mar 31, 2010

To the State Bank of India, Reserve Bank of India and the Central Government, in terms of Section 43(1) of State Bank of India (Subsidiary Banks) Act, 1959.

2.2 Key Performance Indicators

Sl.No. Key Indicators 2007-08 2008-09 2009-10

1. Net Profit (Rs. in Crores) 318.86 336.91 445.77

2. Return on Assets (%) 1.08 0.91 1.06

3. Return on Equity (%) 23.14 20.16 21.50

4. Expenses-Income Ratio (%) 52.08 50.43 43.60

5. Earnings per Share (in Rs.) 88.57 93.59 123.83 Face value of the Share was Rs.100 as on 31.03.2008 and Rs. 10/- from 31.03.2009. Suitable adjustments in EPS effected for the year 2007-08

6. Gross NPA to Gross Advances (%) 1.68 1.42 2.00

7. Net NPA to Net Advance (%) 0.42 0.50 1.02

2.3 Income

The Total Income of the Bank increased by 6.89% from Rs.3728 crores at March, 2009 to Rs.3985 crores in March, 2010. Interest Income increased from Rs.3247 crores to Rs.3559 crores (9.60%). The Average Yield on Advances decreased from 10.68% in March, 2009 to 10.24% in March, 2010, while Average Yield on Investments stood at 6.80% in the same period. Non Interest Income decreased by Rs.55 crores (11.37%) from Rs.480 crores to Rs.426 crores, mainty owing to reduction in profit from sale of securities (This is caused partly by hardening of yields on government securities and partly owing to our switching over to investment in dividend bearing liquid mutual funds as against growth oriented liquid mutual funds for deployment of short term surplus funds). The ratio of Non-Interest Income to Total Income also therefore stood at a lower level of 10.69% (12.88% last year). Efforts are being made to improve this ratio, in the coming years.

2.4 Expenses

The Total Expenditure (before provisions and contingencies) decreased by 0.88% from Rs.3074 crores in 2008-09 to Rs.3047 crores in 2009-10. While Interest Expenses decreased by Rs.86.66 crores (3.60%) the Operating Expenses increased by Rs.59.78 crores (8.99%) during the current year. The Average Cost of Deposits decreased from 6.92% in March, 2009 to 6.01% in March, 2010 due to soft interest rates prevailing in the market during the year.

2.5 Profit

While the Operating Profit increased from Rs. 653.52 crores in 2008-09 to Rs.937.40 crores (43.44%) in 2009-10, the Net Profit increased from Rs. 336.91 crores to Rs.445.77 crores (32.31%). Return on Assets (ROA) increased from 0.91 % to 1.06% and the Return on Equity (ROE) increased from 20.16 % to 21.50%.

2.6 Capital Adequacy Ratio

The Capital Adequacy Ratio under Basel II guidelines stands at 12.42% as on 31st March 2010, against 12.99 % as on 31st March 2009. The Bank had proposed raising equity Share Capital through a right issue, to shore up Tier-I Capital and Capital Adequacy Ratio, and, had filed Draft Offer Document with SEBI. Clearances in this regard, however, are still awaited.

2.7 Dividend

Keeping in mind the need to strengthen Tier I capital of the Bank in the current economic scenario, the Board of Directors has declared a dividend of 100% for the year 2009-10. This will involve a pay-out of Rs.41.98 crores including the tax component. The pay out ratio for 2009-10 was 8.08% as against 10.69% for 2008-09.

3. BUSINESS REVIEW

3.1 Deposits

3.1.1. The Total Deposits of the Bank grew by Rs.5965 crores to reach the level of Rs. 38,880 crores and Average Total Deposits grew by Rs. 5,832 crores (20.04%) during the year 2009-10. The share of CASA deposits to Total Deposits increased from 28.88% in March 2009 to 31.58% in March 2010. The Aggregate Deposits (total deposits excluding inter bank deposits) of the Bank stood at Rs.38,437 crores as at the end of March 2010, recording a growth of Rs.6,049 crores (18.68%). Deposits under Personal Segment increased by Rs. 2,228 crores (14.80%) to reach a level of Rs. 17,274 crores as on 31st March 2010. Term Deposits and Savings Bank under personal segment stood at Rs. 11,140 crores and Rs. 5,738 crores forming a share of 64.49% and 33.21% of the total personal segment deposits respectively.

3.2 Credit Expansion

3.2.1 While the Total Advances of the Bank increased from Rs. 25880 crores to Rs. 29874 crores registering a growth of Rs. 3994 crores (15.43%) during the year, Net Advances (i.e. net of NPA related/floating provisions, outstandings under staff festival advance and Interest Not Collected Account) of the Bank increased from Rs. 25616 crores in March 2009 to Rs. 29536 crores. Credit Deposit Ratio of the Bank decreased from 79.91% in March-2009 to 77.72% in March 2010, partly owing to general slowdown in the credit off take and partly owing to reduction of low yielding advances. Average Total Advances grew by Rs.3296 crores (14.17%) during the year.

3.2.2 The Head Office Credit Committee-I, (HOCC-I) with the Managing Director as Chairman and Head Office Credit Committee II (HOCC-II) with the Chief General Manager as Chairman, which have been set up in order to make the credit process speedier and to take decisions through a committee approach, held 89 and 57 meetings respectively and facilitated growth in Non-food Advances. Zonal Office Credit Committees are functioning at all the five Modules of the Bank and HOCC-III examines proposals of DGM - headed branches.

3.3 Personal Segment Advances

3.3.1. Personal segment advances grew by 19.30 % to reach a level of Rs.4758 crores. Housing loans grew by 18.73 % and reached a level of Rs.2595 crores. Vehicle loans grew by 36.54 % to reach a level of Rs.398 crores. Education loans grew by 25.42 % to reach a level of Rs.491 crores and Mortgage loans grew by 24.08 % to reach a level of Rs.239 crores.

3.3.2 To stimulate growth in Housing/ Car loan segment the bank has introduced SBM Easy Home Loan, SBM Advantage Home Loan and SBM Ezee Car loan scheme during the year. The scheme envisages fixed rate of interest on the loans for the first 3 years and an option to the borrower to have fixed or floating rate after 3 years. With a view to targeting mid size and above car segments and also providing a suitable scheme to the affluent customers, a new car loan scheme called SBM Advantage Car loan scheme was introduced.

3.4 Priority Sector Lending and Social Banking

The total credit provided to the Priority Sector for the year ended March 2010 stood at Rs.9314.22 crores constituting 35.99% of Adjusted Net Bank Credit (ANBC) of Rs.25,881 crores as against the Bench mark of 40%. In order to achieve the desired bench mark, the following action has been drawn up for the year 2010-11.

a) Renewed efforts will be made to cover all farmers in the villages financed by our Branches under Kisan Credit Cards

b) A target of Rs.770 crores has been taken for financing of Micro and Small Industrial units both towards Manufacturing and Service Sectors. Efforts will be made to cover loans under CGTMSE wherever industrial units are not able to offer the required Security to Bank.

3.5 Agricultural Finance

3.5.1 The agricultural advances of the Bank increased from Rs.3,839 crores to Rs.4,123 crores as at the end of March 2010, registering a growth of Rs.284 crores (7.40%). This constitutes 15.36% of the Adjusted Net Bank Credit (ANBC).

3.5.2 During the year 2009-10, Bank implemented new loan schemes to assist farmers viz., Tractor Naveekarana (for renovation/repairs to tractors), Comprehensive relief measures to persons affected by natural calamities and Organic Coffee Scheme. An OTS within OTS Scheme to assist farmers and to enable them to avail benefit under the extended Debt Relief Scheme of ihe Government of India is currently in force.

3.6 Micro and Small Enterprises (MSE) Lending

3.6.1 Government of India, Ministry of MSME has conferred to our Bank

"National Award for Excellence in MSE Lending" and "National Award for Excellence in lending to Micro Enterprises" (amongst Associate Banks) for the year 2008-09. This special award is conferred to us in recognition of our creditable performance in lending to MSE sector and Micro Enterprises.

3.6.2 Micro and Small Enterprises (Manufacturing)

The Banks advances to Micro and Small Enterprises (Manufacturing) sector has increased from Rs. 1290.26 crores in March 2009 to Rs.1476.08 crores as at the end of March 2010 registering a growth of 14.40% . The impact of the economic slowdown had its effects during this year also. The Bank has extended all the initiatives of the Government of India and Reserve Bank of India to the MSE sector this year also to help them to tide over the problems.

3.6.3 The prominent steps taken are:

• Reduction in the rate of interest on working capital limits.

• Sanction of additional credit limits of 20% of the fund based working capital limits.

• Relaxing the norms for carry inventory and receivables to support the elongated working capital cycle.

• Reduction in the margin requirements for issuing Letters of Credit and Bank Guarantees.

• Rescheduling the installments of term loans wherever felt necessary.

• Extending term loans for purchase of gensets, machineries, tools at a concessional rate of interest @ 9% p.a. for the first year.

• Setting of MSE Care Centers at all Zonal/Controlling Offices to address the grievances of the entrepreneurs.

3.6.4 While continuing all the existing products and schemes introduced to take care of the varying financial needs of the sector, the* Bank has also introduced following schemes to extend finance at a concessionary rate of interest to all the new accounts for a period of one year.

• SME Help

• SME Care

• Micro Sector Collateral Free Loan upto Rs.5.00 lacs (this facility is continued on an ongoing basis).

3.6.5 Micro and Small Enterprises (Services):

Banks lending to this sector increased from Rs.958.38 crores as at the end of March 2009 to Rs.999.83 crores as at the end of March 2010 registering a growth of 4.33%. Bank has several schemes to cater to the needs of Small Business Customers. Important among the schemes are as under:

• Laghu Udyami Credit Card (LUCC) Scheme

• My Bank Professional Plus

• Small Retail Trades

• Small Road Transport Operators

• REMOT (upgradation of Coir Industry)

• Contractors Plus

3.7 Credit Guarantee Scheme

The Bank continued to extend Collateral Free financial assistance to MSE sector by participating in Credit Guarantee Scheme of CGTMSE. The coverage under the scheme is 1555 accounts amounting to Rs.99.60 crores.

3.8 Assistance to Weaker Sections of the Society

The Bank continued to extend financial assistance to Weaker Sections of the Society comprising of small & marginal farmers with land holdings of 5 acres or less, landless labourers, tenant farmers etc., village & cottage industries whose individual limits does not exceed Rs.50,000/-, SJSRY, SGSY, SLRS, DRI, Self-Help Groups and advances to SC/ ST beneficiaries. The outstanding amount under lending to Weaker Sections at Rs.2593.27 crores as at the end of March 2010 constitutes 10.02.% as against stipulated benchmark of 10% of ANBC .

3.9 Assistance to Women Entrepreneurs

A booklet on "Charter for Women" containing the details of concessions available to women has been supplied to all the branches for display and distribution. The Banks total credit to women as at the end of March 2010 stood at Rs. 1527.11 crores covering 127760 beneficiaries, which works out to 5.90.% of Adjusted Net Bank Credit as against the stipulated benchmark of 5%.

3.10 Measures to improve the economic conditions of Minority Communities

The Banks assistance to the minorities under various schemes as at the end of March 2010 stood at Rs. 1189.78 crores covering 99014 beneficiaries, which forms 12.97% of Priority Sector Advances.

3.11 Government Sponsored Schemes

3.11.1 The position of assistance rendered under various Government sponsored schemes by our Bank as at the end of March 2010 is as detailed below.

3.11.2 Prime Ministers Employment Generation Programme (PMEGP)

The Government of India has launched the new scheme "Prime Ministers Employment Generation Programme (PMEGP)" to empower first generation entrepreneurs to set up micro enterprises across the country by merging the existing Prime Ministers Rozgar Yojana (PMRY) and Khadi & Village Industries Commissions Rural Employment Generation Programme (REGP) from the financial year 2008-09. The Banks total credit under PMEGP Scheme as at the end of March 2010 stood at Rs.15.06 crores covering 481 beneficiaries while total credit under PMRY scheme is Rs.60.84 crores covering 11568 beneficiaries.

3.11.3 Swarna Jayanthi Shahari Rojgar Yojana (SJSRY)

The Bank has extended financial assistance of Rs.3.57 crores under SJSRY during the year to 469 beneficiaries. Total amount outstanding under SJSRY scheme as at the end of March 2010 is Rs. 12.82 crores covering 3356 beneficiaries. *

3.11.4 Scheme For Rehabilitation Of Manual Scavengers (SRMS):

The Bank has extended financial assistance of Rs.0.11 crores under SRMS to 35 beneficiaries as at the end of March 2010.

3.11.5 Differential Rate of Interest (DRI) Scheme

The Banks advances under DRI scheme stood at Rs.18.18 crores (Rs. 14.53 crores) as at the end of March 2010 covering 18095 beneficiaries (13134), of which advances to SC/ST beneficiaries is at about 51.02% (Rs.9.27 crores).

3.12 Investments

3.12.1 The total investments of the Bank in Government, approved and other securities increased from Rs.11476 crores as at the end of March, 2009 to Rs. 11525 crores as at the end of March, 2010.

3.12.2 Profit on sale of investment decreased from Rs. 121.22 crores in 2008-09 to Rs. 32.41 crores in 2009-10 mainly due to hardening of yields on debt securities. During the year, interest & dividend income from investments net of amortisation charges registered a growth of Rs. 68.35 crores (9.69%) over March, 2009 level.

3.12.3 Yield on investments including profit on sale of securities is at 6.98% as on 31st March 2010, as compared to 8.75% as on 31st March 2009.

3.13 International Banking

3.13.1 The knock-on effects of the global financial crisis, economic slowdown and falling commodity prices in the global market has affected the Indian economy to some extent. International credit channels continue to be constrained; capital market valuations remain un- improved over the previous year. Industrial production growth has slackened and the anticipated export growth has not been registered during the first two quarters of the financial year. However, there was growth in export credit business during the latter half of the current financial year.

3.13.2 The level of Export Credit as at the end of 2009-10 was Rs. 1214 crores as against Rs. 1158 crores of the previous year constituting 4.69% of ANBC. In order to encourage exports, more number of exporting units have been offered Gold Card Scheme on competitive terms and consequent benefit of subsidized interest rates of 0.15%. Exporters meets were arranged at strategic branches.

3.13.3 As per Banks BPR objectives, the Bank has set up five TFCPCs at Bangalore, Chennai, Hyderabad, Mumbai and New Delhi. During the current financial year (2009-10), more branches have been linked to TFCPCs in order to consolidate the front line processing and for extending quality service to Exporters.

3.13.4 In the current financial year, due to easy availability of dollars in the International Market, the export credit denominated in foreign currency stood at USD 89.98 mio as at the end of the current financial year, as against USD 55.21 mio in 2008-09.

3.13.5 The Bank has also been offering foreign currency loans (FCNR Loans) to its customers at LIBOR related rates which stood at USD 38.18 mio as at the end of 2009-10 as against USD 35.14 mio as at the end of previous year.

3.13.6 NRI Deposits as on 31.03.2010 stood at Rs.627.72 crores, of which FCNR (B) deposit is at Rs.188.54 crores and NRE deposits at Rs.439.18 crores.

3.13.7 The Foreign Exchange turnover of the Bank during 2009-10 improved to Rs. 155835 crores (Merchant Turnover - Rs.30678 crores and Trading Turnover - Rs.125157 crores) recording an increase of Rs. 44030 crores over the previous year level of Rs. 101805 crores (Merchant Turnover - Rs. 19608 crores and Trading Turnover - Rs.82197 crores).

3.13.8 The exchange profit generated from Foreign Exchange business during 2009-10 was at Rs. 39.17 crores.

3.14 Cross selling

3.14.1 During the year over 26000 lives were insured through various products of SBI Life Insurance Company Limited with a premium collection of Rs.49.38 crores. Bank has collected a premium of Rs. 17.53 crores while marketing general insurance products. In respect of investment products, Bank is extending mutual fund products of SBIMF and UTIMF. Bank also sourced applications for SBI Credit Cards.

3.15 Government Business

3.15.1 State Government Transactions:

The bank has been handling a major share (55.11% during the year 2009-10) of Government of Kamataka Transactions for the past many years. Around 86% of its total government business comes from State Government transactions which is linked to the budget of the State Government for the year. A Turnover of Rs.50,856 crore (provisional) with a growth rate of 12.54% has been achieved during the year 2009-10.

3.15.2 Central Government Transactions

During the year 2009-10, business from various Central Govt, departments like Postal, Railways, Defence, Central Board of Direct Taxes, Central Board of Excise and business from various Central Schemes like Public Provident Fund, Senior Citizens Savings scheme etc. constituted approximately 14% of the Banks total Govt. Business turnover. The turnover (provisional) of Central Government business during the year 2009-10 has increased by Rs.1,038.81 crores registering a growth of 13.86% and reached a level of Rs 8531.15 crores. Previous year the turnover had increased by Rs 881.41 crores registering a growth of 13.33% and reached a level of Rs.7,492 crores.

3.15.3 Income from Government Business

The average yield on Government transactions for the year is 0.09 %.

3.15.4 Qualitative improvements achieved

Special attention was given during the year 2009-10 to bring in improvement in the reporting and reconciliation of Government business and the following measures were initiated leveraging the technology available.

• Funds settlement at Focal Point branches for most Government Transactions were brought online based on the string generated at CDC after the transactions are put through by the dealing branthes.

• Accounting and settlement procedure for all Government transactions was streamlined and revised with effect from 1st February, 2010 to facilitate prompt reconciliation of the transactions between the dealing branches and Focal Point Branches.

• Link Cell, Nagpur, which is the focal point branch for settlement of Central Govt, transactions, was brought under core-banking solution.

• Payment of Commercial Taxes (VAT & CST) through emode was introduced in the State of Maharashtra.

• An add on utility was provided to G-Seva Branch for reporting of the ICCOM transactions to RBI after reconciliation of the data with CBS.

3.16 Marketing

3.16.1 A full fledged Marketing Department is functioning in the Bank. Marketing Officers have been placed in all the Regions. This initiative has increased the visibility and marketing of Banks products and services.

3.16.2 The marketing initiatives have resulted in getting a large number of accounts from various Government Departments/Agencies.

3.16.3 A Toll Free Contact Centre set up to help the customers, has been functioning actively. Bank has been giving adequate publicity in electronic media, through news papers and hoardings regarding establishment of our contact centre to enable the general public/customers to call and collect the necessary information on various products and services of our Bank.

3.17 NPA Management

3.17.1 Global recession and slowing down of the economy affected the performance of all segments. This resulted in increase in NPAs from Rs.368 crores as on 31st March 2009 to Rs.595 crores as on 31 st March 2010. The gross NPA ratio increased from 1.42% to 2.00%. The net NPA ratio also increased from 0.50% to 1.02%. The provision for NPAs stood at Rs.293 crores. Aggressive measures including effective use of SARFAESI Act, rehabilitation of viable units, vigorous follow up of DRT cases will be taken this year to reduce NPA levels.

3.17.2 Restructuring of Debt

The global recession of 2008 had contagion effect on the Indian economy too. Industries across different sectors were affected by the downturn with decline in sales, delay/default in realizations etc. As part of the regulatory action, to protect the affected industries and provide a stimulus for them to sustain and revive, Reserve Bank of India permitted a Special Regulatory Treatment by allowing restructure of accounts of such affected companies, without affecting their IRAC (Income Recognition Asset Classification) status. Against this back drop with a view to helping the affected sectors, our Bank extended the special dispensation to 19592 borrowal accounts with dues amounting to Rs.2330 crores. Towards diminution in their fair value on account of economic loss caused in the process of restructuring, provision to an extent of Rs.83 crores has been made by the Bank.

3.18 Lead Bank Scheme

3.18.1 The Bank has been discharging Lead Bank responsibilities in three districts viz., Mysore, Tumkur and Chamarajanagar. Annual Credit Plans for 2010-11 have been launched. The combined annual credit plan target for 2010-11 for all banks in the three districts has gone up to Rs.4327.09 crores from Rs.3422.64 crores showing a growth of Rs.904.45 crores (26.43 % growth).

3.18.2 To impart entrepreneurial guidance to Educated Unemployed Youth, in general and rural youth in particular and enabling them to become gainfully self-employed in their own ventures, the bank has established RUDSETI type Training Centres viz., Mybank Institute for Promotion of Self Employment and Development (MIPSED) at Hirehally Industrial Estate, Tumkur. A similar institute has been established at Mariyala, Chamarajanagar Taluk, in association with JSS Mahavidyapeetha viz., RUDSETI, Mariyala. Both the institutes are being managed by personnel on deputation from the Bank. Both the institutes impart training to candidates selected under various Government Sponsored Schemes, such as PMEGP, SGSY, BCM Corporation, Watershed Development Program, Stree Shakthi SHG Programs, Bee Keeping, Sericulture, Farmers Club Program, Dairy Development Program etc. During the year, both the centres have conducted 166 programs, wherein 5678 trainees were given training.

3.18(a) Regional Rural Bank

Cauvery Kalpatharu Grameena Bank, the RRB sponsored by the Bank is having its Head Office at Mysore, and covers 7 districts viz., Mysore, Hassan, Chamarajanagar, Tumkur, Bangalore Urban, Bangalore Rural and Ramanagara. The Bank is having a net work of 210 branches. The total deposits and advances of the RRB, as on 31st March 2010, stood at Rs. 1799 crores and Rs. 1413 crores respectively (provisional). The RRB has been the winner of the Best Bank Award instituted by NABARD under RRB category for its performance under SHG Bank Linkage Program for the past four years continuously from March 2006 to March 2009.

3.19 Financial Inclusion

3.19.1 In terms of the Reserve Bank of India directives, the Bank completed the first phase of the Financial Inclusion programme well before the cut off date fixed by RBI in the lead districts. The Bank actively implemented the programme in non lead districts also. The Number of No Frill Accounts increased to 2,39,230 as on March 31st 2010 from 1,80,404 as on March 31st 2009 with an increase of Rs.1.68 crores in the balance outstanding during the year.

3.19.2 The Bank is actively participating in the Renewed Drive programme under Financial Inclusion, to cover all the house holds who have been issued with Photo Identity Ration Cards from Food and Civil Supplies Department of Government of Karnataka. Under this, project the bank has opened more than 13,000 No Frill Accounts during the period January to March 2010, when the programme was undertaken.

3.19.3 The Bank has achieved the benchmark of operationalising 50% of its No Frill Accounts maintained as on 31st

March 2009 by sanctioning of GCCs / KCCs / Small Overdrafts and also by means of effecting payments from GOK like SSP and NREGP through the No Frills Accounts during the year.

3.19.4 The Bank has participated in implementing the second phase of the Financial Inclusion Programme by issue of Smart Cards that will herald branch- less banking in the remote rural areas, in 25 villages through 11 rural branches covering 3019 rural folks on a pilot basis in the districts of Bellary, Chitradurga and Tumkur under One district - Many Banks Model.

3.19.5 Further the bank has shouldered the responsibility of implementing the Smart Card based EBT scheme under One district - One Bank Model successfully in Chamarajanagar district wherein, 2800 Smart Cards have already been issued while enrolments were to a tune of 43570 accounts. The number of villages covered in this project is 39 in 2 taluks.

3.20 Self Help Group Lending

The Bank has credit linked 37454 groups with an advance amount of Rs.337.70 crores during the current year and taking the cumulative total of such credit linkage programme to 1,16,040 groups with a financial outlay of Rs.897.19 crores upto 31st March 2010. These efforts of the Bank have been recognized and the Bank has been awarded the 1st Best Bank Award instituted by NABARD under the Commercial Banks Category for its performance under SHG Bank Linkage Programme for the year 2008-09. The Bank has been the winner of either the 1 st or the 2nd prize award since March 2000 continuously.

3.21 Corporate Social Responsi- bility - Green Banking

As a part of the national initiative, the Bank has adopted a pblicy on "Corporate Social Responsibility, Sustainable Development and Non-Financial Reporting - Role of Banks". As part of the policy, Green Banking Committees have been formed at Head Office, Zonal Offices and all Regional Offices of the Bank. More emphasis is being given through Farmers Clubs, the need to concentrate on Organic Farming and Rain Water Harvesting. Further, a campaign has been started in a number of branches, to replace all fused GSL bulbs into CFL bulbs.

13. CORPORATE GOVERNANCE

13.1 Statement of Banks philosophy on Corporate Governance

13.1.1 State Bank of Mysore, as an organization driven by values, is committed to pursue objectives that are in the interests of the Bank, shareholders and all stake holders and the society at large,in consonance with best practices. The primary objectives of Corporate Governance are:

• To protect the interests of the shareholders and all stakeholders and to ensure maximization of long term shareholder value in a legal and ethical manner.

• To act in the best interests of all stakeholders like customers, employees, government and the society.

• To ensure transparency, fairness, courtesy and dignity in all transactions within and outside the Bank which form the hallmark of good governance.

• To maximize operational efficiency in a well defined and transparent manner and achieve excellence and benchmarks at all levels.

• As custodians of public thrift, ensure safety of funds and investments.

• Focus on core competence areas, planned expansions and sustained growth.

The Bank believes that Corporate Governance facilitates effective management and better internal controls.

13.1.2. Compliance function is an integral part of corporate governance along with the internal control and risk management process. In view of increasing complexities and sophistication in Banking business, there is a critical need for management of compliance risk and reputation arising out of compliance failures.

13.1.3. During this year, the Compliance Department has conducted Compliance Audit of branch Internal Audit report for 52 branches and Credit Audit Compliance of 123 accounts which were closed during the period ended 31/12/2009. The major observations pointed out were taken up for rectification. All concerned have been sensitized to the need of full compliance in this regard.

13.1.4. KYC/AML (Know Your Customer/ Anti Money Laundering) Cell is also part of Compliance Department. Specified KYC standards to be followed by the bank, measures to be taken with regard to AML and Combating of Financing of Terrorism (CFT) are strictly adhered to. The cell is technically equipped with appropriate systems and manpower for analyzing alerts and wherever necessary reporting the same to authorities. The cell also handles Cash Transaction reports and Counterfeit Currency Reports in case of detection of counterfeit currency.

13.1.5. Off-site Surveillance Cell an integral part of Compliance Department submits its compliance reports on DSB returns to RBI periodically.

13.1.6. The Bank is committed to:

• Ensure that the Banks Board of Directors meet regularly, provide effective leadership, exercise control over the management and monitor executive performance with their blend of expertise and professionalism.

• Establish a frame work of strategic control and continuously review its efficacy to promote integrity, openness and accountability. Better disclosures and transparency will bolster investor/ share/stakeholder confidence.

• Establish clearly documented and transparent management processes for policy planning and development, coherent business strategies, implementation and review, decision- making, monitoring control and reporting.

• Ensure adherence to good business ethics and principles while carrying out banking transactions and be responsive to the needs and interests of wide range of constituencies.

• Practice sound financial and accounting procedures to ensure statutory and regulatory compliances and constantly review organisational structure and control systems to respond to new challenges.

13.1.7. The Bank has implemented the revised Clause 49 of the Listing Agreement. A code of conduct for the Directors and senior management personnel is put in place and is also posted on the Banks website.

15. AUDIT

M/S PKKG Balasubramaniam & Associates, Chennai, M/s. Dhawan & Company, New Delhi, M/S Gopala Iyer & Subramanian, Coimbatore, M/S Ramraj & Co., Bangalore and M/S Grover, Lalla & Mehta, New Delhi have been appointed as the Statutory Central Auditors of the Bank for the accounting period ended 31st March, 2010 by State Bank of India, with the approval of Reserve Bank of India. 660 branches of the Bank were subjected to statutory audit as against 639 branches audited last year.

16. ACKNOWLEDGEMENTS

The Board wishes to place on record its sincere appreciation of the patronage and support of the customers, shareholders, members of staff, Employees Union and Officers Association for their contribution to the overall development of the Bank.

By the Order of the Board DILIP MAVINKURVE

Managing Director