Home  »  Company  »  Union Bank of In  »  Quotes  »  Directors Report
Enter the first few characters of Company and click 'Go'

Directors Report of Union Bank of India

Mar 31, 2015

Dear Shareholders,

The Board of Directors is pleased to present the 96th Annual Report of the Bank for the Financial Year 2014-15 together with the ''Audited Balance Sheet'', ''Profit & Loss Account'', ''Cash- Flow Statement'' and the report on ''Management Discussion & Analysis''. The ''Corporate Governance Report'' and ''Business Responsibility Report'' also form part of the Annual Report 2014-15.

1. Financial Highlights

1.1. Strategic approach towards balanced growth, profitability and proactive risk management has helped your Bank in achieving the targeted growth, thereby strengthening the Bank''s business base for a more profitable growth in future.

Table 1: Income Statement

(Rs.crore)

Particulars FY FY Annual Growth

2014-15 2013-14

Absolute %

Interest Income 32084 29349 2735 9.3

Interest Expended 23640 21470 2170 10.1

Net Interest Income 8444 7879 565 7.2

Other Income 3523 2822 701 24.8

W/W Core fee based income 1872 1635 237 14.5

Total Income 35607 32171 3436 10.7

Operating Expenses 6144 5483 661 12.1

w/w Establishment Expenses 3786 3308 478 14.4

Operating Profit 5823 5218 605 11.6

Provisions 4042 3522 520 14.8

Net Profit 1782 1696 86 5.1

Earnings Per Share (Rs.) 28.1 28.0 0.1 0.2

1.2. As per the capital conservation and augmentative strategy, the Bank strives to generate higher profits from its operations. The total income of the Bank increased by 10.7 per cent to Rs. 35,607 crore during the financial year. The interest income grew by 9.3 per cent to Rs. 32,084 crore and the interest income on investments grew by 5.5 per cent.

1.3. The interest expenses of the Bank stood at Rs. 23,640 crore for the year ended March 31,2015. Operating expenses of the Bank increased at a decelerated rate of 12.1 per cent as against a growth rate of 21.5 per cent registered last year.

2. Non Interest Income

For enhancing its coverage of operating expenses, your Bank has undertaken several initiatives to boost income through alternative revenue streams which resulted in an increase of 24.8 per cent in Non Interest income of the Bank to Rs. 3,523 crore for the year 2014-15 compared to Rs. 2,822 crore for 2013-14. Fee based income has been one of the focus areas of the Bank for FY 2014-15; and it increased by 14.5 per cent to Rs. 1,872 crore mainly due to increase in commission & exchange, forex income and processing charges. The income from treasury operations also contributed with a growth rate of 44.7 per cent and stood at Rs. 1,334 crore, within which the profit of Rs. 709 crore was on sale of investment for FY 2014-15. Due to your Bank''s continuous efforts to improve the asset quality, the Bank has more than doubled in terms of cash recovery. The same thrust was also seen in recovery in written-off accounts which increased by 19.7 per cent during the year.

3. Provisions and Contingencies

3.1. The allocations for provisions and contingencies for the year 2014-15 amounted to Rs. 4,042 crore compared to Rs. 3,522 crore in FY 2013-14.

3.2. The provisions for non-performing assets stood at Rs. 2,537 crore during 2014-15 compared to Rs. 2106 crore in the previous year. The provision for standard assets was Rs. 246 crore compared to Rs. 310 crore in the previous year.

4. Profitability & Productivity

4.1. The operating profit of your Bank increased by 11.6 per cent during the year and reached Rs. 5,823 crore for FY 2014-15 compared to Rs. 5,218 crore for FY 2013-14.

4.2. The BankRs.s provisions to operating profit ratio at 43.6 per cent for FY 2014-15 as against 40.4 per cent for FY 2013-14.

Chart 2: Movement of Operating Profit and Provisions

4.3. Even after a proportionately higher increase in provisions, the net profit of the Bank increased by 5.0 per cent and reached Rs. 1782 crore for FY 2014-15 compared to Rs. 1696 crore for FY 2013-14.

4.4. Reviving the asset quality has been another focus area of the Bank as one of the causes of declining profits is the deteriorating asset quality. The higher amount of provisions against bad assets has adversely affected the net profits in the past. Your Bank laid special attention on restricting slippages and better recovery, as a result of which the total recovery improved to Rs. 3,060 crore within which the cash recoveries stood at Rs. 1,537 crore as on March 31, 2015 as against Rs. 765 crore as on March 31, 2014, registering a growth of 100.9 per cent during the year. The slippages were also restricted to Rs. 6,527 crore as of March 31,2015; thus, the gross NPA stood at 4.96 per cent of gross advances.

4.5. The following are the key productivity ratios of your Bank as on March 31,2015.

Table 2: Productivity Ratios

FY FY Annual Parameters Growth % 2014-15 2013-14

Average Business Per Employee (Rs. crore) 14.5 13.8 5.1

Average Business Per Branch (Rs. crore) 125.8 120.2 4.7

Net Profit Per Employee (Rs. lakh) 5.0 5.0 0.0

Net Profit per Branch (Rs. lakh) 43.7 43.8 -0.23

5. Spread Analysis

5.1. Your Bank took a pro-active stance in the dynamic macro-economic setting to withstand the pressure on the cost of funds. By rebalancing the portfolio and focusing on risk return trade off, the yield on advances were maintained at 10.4 per cent for FY 2014-15. Though there was no momentum on increase in yield on advances, the advances risk weighted assets to gross advances ratio came down to 75.7 per cent as on March 31, 2015 as against 77.4 per cent as on March 31,2014. Also the Bank was able to restrict the growth in risk weighted assets at a slower pace of 10.5 per cent for March 2015 compared to growth of 12.1 per cent registered by advances for March 2014.

5.2. The cost of deposits improved to 7.3 per cent for March 2015 as against 7.4 per cent for March 2014 and was mainly driven by the reduction in high cost deposits, a 9.9 per cent annual growth in saving deposits and an overall softening of interest rates in the domestic economy.

Table 3: Spreads

Parameters FY FY Growth

2014-15 2013-14 Absolute %

Average Working Funds 361392 328022 33370 10.2

Total Interest Income 32084 29349 2735 9.3

Total Interest Expenditure 23640 21470 2170 10.1

Net Interest Income 8444 7879 565 7.2

Net Interest Income (%) 2.3 2.4 -10 bps -

Yield on Advances (%) 10.4 10.5 -10 bps -

Cost of Deposits (%) 7.3 7.4 -10 bps -

Yield on Funds (%) 8.9 9.0 -10 bps -

Cost of Funds (%) 6.5 6.5 - -

Net Interest Margin (%) 2.5 2.6 -10 bps -

6.1. Your Bank''s approach towards customer acquisition and retention along with a robust human resources management system for ensuring excellence in customer services has resulted in increase in Bank''s total business mix by Rs. 47,620 crore to Rs. 5,79,627 crore as on March 31, 2015 from Rs. 5,32,007 crore as on March 31,2014. Total deposits increased to Rs. 3,16,870 crore, as of March 31, 2015 from Rs. 2,97,675 crore in the previous year, recording an annual growth of 6.4 per cent. During the year, your Bank adjusted the deposit mix by enhancing the CASA at 29.2 per cent of total deposits. Along with this, your Bank also reduced the share of high cost deposits in total deposits from 12.6 per cent as on March 31,2014 to 5.8 per cent as on March 31,2015.

6.2. For FY 2014-15, the banking industry witnessed a decelerated credit growth barring the agriculture and allied activities sector, which reflected a combination of factors such as alternative sources of funding, slack in demand as also an element of risk aversion and balance sheet repair on part of the banks. The credit portfolio registered growth of 12.1 per cent and stood at Rs. 2,62,757 crore as on March 31, 2015 as against Rs. 2,34,332 crore as on March 31, 2014. The credit growth was mainly attributable to a 23 per cent annual growth registered in the productive sectors of the economy i.e. retail, agriculture and micro, small & medium enterprises (MSME) sectors, which we termed as RAM sectors, thus increasing the share of RAM sectors in domestic advances to 48.9 per cent as on March 31,2015 compared to 44.3 per cent as on March 31,2014.

7. Dividend

7.1. In view of overall performance of the Bank and the objective of rewarding shareholders with cash dividends along with ploughing back a part of profit to maintain a healthy capital adequacy ratio (CAR) to support future growth, the Board of Directors has recommended a final dividend of Rs. 6 per equity share of face value of Rs. 10 each which is 50 per cent higher than dividend of Rs. 4 per equity share declared for the previous year. The dividend payout ratio (excluding dividend tax) comes to 21.4 per cent, higher than 14.9 per cent in the previous year.

8. Shareholders'' Return

8.1. Your Bank''s net worth improved by 7.8 per cent to Rs. 18,312 crore during FY 2014-15 from Rs. 16,979 crore in the previous year. Thus, the Book value per share increased to Rs. 288.0 for March 2015 from Rs. 269.4 for March 2014. The Return on Equity stood at 9.7 per cent and the Earnings per share stood at Rs. 28.1 for FY 2014-15.

9. Credit Rating

9.1. The ratings given by various credit rating agencies for the Bank''s Tier-1 & Tier-2 capital instruments point to the highest degree of safety regarding timely servicing of financial obligations and that these instruments carry lowest credit risk.

Table 4: Rating

Rating Perpetual Upper Lower Tier-2 Agency Bonds Tier-2 Tier-2 (Basel III Bonds Bonds compliant)

CRISIL CRISIL AAA CRISIL AAA CRISIL AAA CRISIL AAA

ICRA ICRA AA - ICRA AA -

CARE CARE AA CARE AAA CARE AAA -

India Ratings AA (Ind) AA(Ind) AA (Ind) -

Brickwork BWR AAA BWR AAA BWR AAA -

9.2. Issuer Credit Ratings: International credit rating agencies re-affirmed the Bank''s long-term issuer credit rating, which are equivalent to county''s sovereign rating grade. Standard & Poor''s assigns rating of ''BBB-'' while Moody''s rating for the Bank is ''Baa3''. These ratings denote that the Bank has adequate capacity to meet its financial commitments. In April 2015, Moody''s Investors Services while retaining the long-term ratings of the Bank changed the outlook from ''stable'' to ''positive'' for your Bank. Similarly, Standard & Poor''s upgraded your Bank''s outlook from ''negative'' to ''stable'' during FY 2014-15.

10. Capital Adequacy Ratio

10.1. Capital Adequacy Ratio (CAR), as per Basel III norms, stood at 10.22 per cent as on March 31, 2015. Common Equity Tier-1 (CET 1) capital of the Bank improved to 7.24 per cent as on March 31, 2015, which is well above regulatory minimum requirement of 5.5 per cent. Tier-1 CAR stood at 7.50 per cent and Tier-2 at 2.72 per cent as on March 31,2015.

Table 5: Capital Adequacy Ratios

Basel III

Parameters FY 2014-15 FY 2013-14

Total Risk Weighted Assets 2,53,162 2,29,207

Total Capital Funds 25,885 24,751

CET 1 Capital 18,320 16,465

Tier 1 Capital 18,992 17,272

CRAR 10.22% 10.80%

CET 1 7.24% 7.18%

Tier 1 7.50% 7.54%

Tier 2 2.72% 3.26%

10.2. Conversion of Perpetual Non-Cumulative Preference Shares (PNCPS) held by the Government of India into equity shares during FY 2014-15: Your Bank allotted, on preferential basis, 54,72,563 (Fifty four lakh seventy two thousand five hundred and sixty three) equity shares of '' 10 each at a premium of Rs.192.83 to the Government of India after converting Rs. 111 crore of Perpetual Non- Cumulative Preference Shares (PNCPS) previously held by the Government of India. Consequently, the Government''s shareholding in the Bank increased from 60.13 per cent to 60.47 per cent. Also, Bank''s paid-up equity capital increased to Rs. 636 crore from Rs. 630 crore while Rs. 105.5 crore was added to share premium reserves.

11. Brand Rating

11.1. Brand rating is a breakdown of how the brand performed on various metrics of brand strength and benchmarked against its competitor. According to Brand Finance Plc, world''s leading brand valuation consultancy, brand value of your Bank improved significantly. Among the Scheduled Commercial Banks, Union Bank of India ranked 11th after an increase of 34 per cent in its brand value for 2015 with a Brand rating of ''AA''.

Table 6: Brand Rating

Particulars 2015 2014

Brand Ranking (Global) 274 312

Brand Value ($ millions) 430 321

Brand Rating AA A

Source: Brand Finance Banking 500, February 2015

12. Awards & Accolades

12.1. Your Bank received wide recognition and several awards for its performance and initiatives in multiple domains, particularly human resources, digital banking and financial inclusion.

12.2. The Bank won the prestigious Golden Peacock Award for "HR Excellence" and the training system was conferred with the "Golden Peacock National Training Award" for the fourth time in a row.

12.3. Your Bank won the Indian Banks'' Association''s (IBA) Technology Award under ''Best Payment Initiatives'' category and was the joint winner of Best Initiative to ''Enhance Customer Experience''. The "Tabulous Banking" initiative was recognized by the IDC Insights award.

12.4. The Bank has also received awards from NPCI (National Payments Corporation of India) for maximum number of transactions on IMPS Platform, one of the highest RuPay cards issuing banks among Public Sector Banks, Innovation of Value-added Services in ATMs.

12.5. In the area of financial inclusion, the Bank received three awards at the ''Global Conference by Financial Inclusion & Payment Systems'', and a Platinum award for Financial Inclusion category conducted by SKOCH Consultancy.

12.6. The Bank was also recognized as "Best MSME Bank Award for Large Bank" under MSME Banking Excellence Award - 2014 conducted by Chamber of Indian Micro, Small and Medium Enterprises. Your Bank has won "Best Education Loan Provider" award at "Outlook Money Awards 2014"

12.7. Your Bank actively promotes the usage of Hindi as official language and such efforts were recognized by awards like, Indira Gandhi Rajbhasha Shield (1st Prize; 2013-14), and, the Rashtrapati Puraskar.

13. Directors

13.1. The following changes took place in the Board of Directors of your Bank during the Financial Year 2014-15:

13.1.1. Shri Kishor Kharat was nominated on the Board by the Government under sub-section 3 (a) of section 9 of Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 on March 10, 2015 as the Executive Director in place of Shri S. K. Jain, whose term ended by superannuation on May 31,2014.

13.1.2. Shri Mihir Kumar, presently Director in Department of Financial Services, Ministry of Finance was nominated by the Government as a non-whole time director under sub section 3 (b) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. November 25, 2014 in place of Mohammad Mustafa, Joint Secretary, Dept. of Financial Services, Ministry of Finance.

13.1.3. Dr. Atul Agarwal, Part time Non-Official Director completed his term as Director on September 21,2014.

13.1.4. Shri B.N. Bhattacharjee, Officer Nominee Director has completed his term as Director on May 3, 2014. Further, Shri N. Shankar, Workmen Employee Director''s resignation has been accepted by Govt. vide its letter dated April 30, 2014.

13.2. While welcoming all the new Directors, the Board places on record the valuable services rendered by Mohammad Mustafa, Dr. Atul Agarwal, Shri B. N. Bhattacharjee and Shri N.Shankar.

14. Directors'' Responsibility Statement

14.1. The Directors confirm that in the preparation of the annual accounts for the year ended March 31,2015:

14.1.1. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards.

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

14.1.3. Reasonable and prudent judgement and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of Bank for the year ended on March 31,2015.

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

14.1.5. The accounts have been prepared on going concern basis.

15. Corporate Governance

15.1. The Board of the Bank is committed to adopt good corporate governance practices in letter and spirit. A detailed report on corporate governance is given in a separate section of the Annual Report. The corporate governance report for financial year 2014-15 has no audit qualifications.

16. Corporate Social Responsibility (CSR)

16.1. Your Bank is committed to its Corporate Social Responsibility by contributing to the society. In this endeavour, Bank has set up the ''Union Bank Social Foundation'', a Trust established for spearheading your Bank''s CSR initiatives. Through the trust, the Bank is engaged in empowering people through various developmental initiatives.

16.2. Also,while discharging the corporate social responsibilities; the Bank makes a conscious effort to address some of the socio-economic deprivations. This is done by identifying the villages for extending banking facilities and thus improving the quality of life there. The Bank has set up 201 Village Knowledge Centres (VKCs) across the country. Each VKC assists in overall development of Village by coordinating with various developmental agencies / government departments and disseminate knowledge to farmers about latest developments in methods of cultivation, technologies, proper use of fertilizers, pesticides, etc.

16.3. Your Bank patronizes 14 Rural Self Employment Training Institutes (R-SETIs) and 24 Financial Literacy and Credit Counseling Centres (FLCCs) across the country. During the year, 345 training programmes were conducted through these facilities, under which 9,862 persons received training and 6,172 beneficiaries have been settled with gainful employment. Your Bank was the first to open a branch at Jayapur, the village adopted by Prime Minister of India and the branch is functioning exclusively with solar power.

16.4. During the year 2014-15, Bank spent a total of Rs. 20.6 crore by way of donation. This included Rs. 2.6 crore under the Prime Minister''s Relief Fund for helping the flood affected state of Jammu & Kashmir.

17.1. The Board places on record its gratitude to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority, Central Vigilance Commission and other institutions for the valuable guidance and support received from them. The Board also acknowledges the unstinted support of the financial institutions, correspondent banks, valuable shareholders, esteemed customers and all other stakeholders. The Board also expresses its deep appreciation for the dedicated services and contribution made by members of staff in the overall performance of the Bank.

For and on behalf of the Board of Directors,

(Arun Tlwari) Chairman & Managing Director

Place: Mumbai

Dated: 21st May, 2015


Mar 31, 2014

Dear Shareholders,

The Board of Directors is pleased to present the 95th Annual Report of the Bank for the fi nancial year 2013-14 together with the ''Audited Balance Sheet'', ''Profi t & Loss Account'', ''Cash- Flow Statement'' and the report on ''Management Discussion & Analysis''. The ''Corporate Governance Report'' and ''Business Responsibility Report'' also form part of the Annual Report 2013-14.

1. Business

1.1. Focused approach towards enhanced customer service and network expansion helped your Bank surpass Rs. 5,00,000 crore mark in total business. It increased by Rs. 56,334 crore to Rs. 5,32,007 crore, as of March 31, 2014, showing an annual growth rate of 11.8 per cent.

1.2. Total deposits increased to Rs. 2,97,675 crore, as of March 31, 2014 from Rs. 2,63,762 crore in the previous year, recording an annual growth of 12.9 per cent. During the year, the focus of the Bank remained on enhancing low cost current and savings deposits (CASA) along with containing high cost deposits. The share of CASA in total deposits as on March 31 2014 stood at 29.5 per cent. Credit portfolio increased by 10.6 per cent to Rs. 2,34,332 crore as on March 31, 2014 from Rs. 2,11,911 crore as on March 31, 2013. The credit growth was mainly contributed by the retail, agriculture and micro, small & medium enterprises (MSME) sectors. This also helped the Bank in achieving priority sector targets equivalent to 40.4 per cent of adjusted net bank credit (ANBC) while benchmark stipulated by the Reserve Bank of India is 40 per cent.

2. Revenue and Expenditure

2.1. Your Bank''s total income increased by 16.2 per cent to Rs. 32,171 crore during fi nancial year (FY) 2013-14 from Rs. 27,677 crore in the previous year. The interest income grew by 16.8 per cent to Rs. 29,349 crore. Other income of the Bank stood at Rs. 2,822 crore, registering an annual growth of 10.6 per cent. Within other income, core fee based income increased by 15.0 per cent during the year and stood at Rs. 1,635 crore.

2.2. The interest expenses increased by 22.1 per cent for the year ended March 31, 2014 to Rs. 21,470 crore as from Rs. 17,582 crore in previous year. Operating expenses of the Bank increased by 21.5 per cent, thus taking the total expenses to Rs. 26,953 crore.

2.3. The following is the income statement of your Bank for the year 2013-14:

Table-1: Income Statement

(Rs. crore)

Particulars 2013-14 2012-13 Annual Growth Absolute %

Interest Income 29349 25125 4224 16.8

Interest Expended 21470 17582 3888 22.1

Net Interest Income 7879 7543 336 4.5

Other Income 2822 2552 270 10.6

w/w Core fee based income 1635 1421 214 15.0

Total Income 32171 27677 4494 16.2

Operating Expenses 5483 4512 971 21.5

w/w Establishment 3308 2755 553 20.1 Expenses

Operating Profit 5218 5583 -365 -6.5

Provisions 3522 3425 97 2.8

Net Profit 1696 2158 -462 -21.4

Earnings Per Share (Rs.) 28 39 -11 -28.0

3. Spread

3.1. The banking industry witnessed hardening of interest rates during FY 2013-14 due to a contractionary monetary policy stance of the Reserve Bank of India (RBI) in its fi ght against infl ation. In this backdrop of rising policy rates coupled with tight liquidity conditions, the term deposit rates remained high. However, helped by judicious planning for resources, your Bank was able to restrict cost of deposits to 7.4 per cent, same as in the previous year. The yield on advances stood at 10.5 per cent. The net interest income stood at Rs. 7,879 crore in FY 2013-14, recording an annual growth of 4.5 per cent.

3.2. Yield on investments was 7.5 per cent for FY 2013-14 as against 7.4 per cent for FY 2012-13. Yield on funds of the Bank stood at 9.0 per cent for FY 2013-14 as against 9.2 per cent recorded during FY 2012-13.

Table-2: Spread

(per cent)

Parameters 2013-14 2012-13

Yield on Advances 10.5 11.1

Cost of Deposits 7.4 7.4

Yield on Funds 9.0 9.2

Cost of Funds 6.5 6.4

Net Interest Margin 2.6 3.0

4. Provisions and Contingencies

4.1. The allocations for provisions and contingencies for the year 2013-14 amounted to Rs. 3,522 crore compared to Rs. 3,425 crore for FY 2012-13.

4.2. The provisions for non performing assets stood at Rs. 2,106 crore during 2013-14 compared to Rs. 1556 crore in the previous year. The provision for standard assets was Rs. 310 crore compared to Rs. 222 crore in the previous year. There was accelerated provision on restructured standard advances during the year as per regulatory prescriptions.

5. Profi tability & Ratios

5.1. Operating profi t of the Bank for the year 2013-14 stood at Rs. 5,218 crore. Net Profi t for FY 2013-14 stood at Rs. 1,696 crore.

5.2. Return on equity stood at 10.0 per cent as of March 31, 2014. Bank''s net worth improved to Rs. 16,979 crore during FY 2013-14 from Rs.15,777 crore in the previous year. Thus, book value per share increased from Rs. 264.4 during FY 2012-13 to Rs. 269.4 for FY 2013-14. The earnings per share stood at Rs. 28 as on March 31, 2014 compared to Rs. 39 in the previous year.

5.3. The following are the key productivity ratios of your Bank as on March 31, 2014.

Table 3: Productivity Ratios

Parameters FY FY Annual 2013-14 2012-13 Growth

Average Business Per 13.8 12.2 13.3% Employee (Rs. crore)

Average Business Per 120.2 110.1 9.2% Branch (Rs. crore)

Net Profi t Per Employee 5.0 6.8 -26.1% (Rs. lakh)

Net Profi t per Branch 43.8 61.5 -28.7% (Rs. lakh)

6. Dividend

6.1. In view of overall performance of the Bank and the objective of rewarding shareholders with cash dividends while retaining capital to maintain a healthy capital adequacy ratio (CAR) to support future growth, the Board of Directors has recommended a fi nal dividend of 13 per cent for the year 2013-14, in addition to interim dividend of 27 per cent declared during the year. Thus, the total dividend for the year will be 40 per cent, i.e. Rs. 4 per equity share compared to 80 per cent declared in the previous year. The dividend payout ratio (excluding dividend tax) comes to 14.9 per cent compared to 22.1 per cent in the previous year.

7. Rating & Capital Raising

7.1. The ratings given by various credit rating agencies for Bank''s Tier I & Tier II capital instruments point to the highest degree of safety regarding timely servicing of fi nancial obligations and these instruments carry lowest credit risk.

Table 4: Rating

Rating Perpetual Upper Tier Lower Tier Tier II Agency Bonds II Bonds II Bonds (Basel III compliant)

CRISIL CRISIL CRISIL CRISIL CRISIL AAA AAA AAA AAA

ICRA ICRA AA - ICRA AA -

CARE CARE AA CARE AAA CARE AAA -

FITCH AA(Ind) AA(Ind) AA (Ind) -

Brickwork BWR AAA BWR AAA BWR AAA -

7.2. Issuer Credit Ratings: International credit rating agencies have re-affi rmed the Bank''s long term issuer credit rating, which are equivalent to county''s sovereign rating grade. S&P assigns rating of ''BBB-'' while Moody''s rating for the Bank is ''Baa3''. These ratings denote that the Bank has adequate capacity to meet its fi nancial commitments.

7.3. Capital Infusion by the Government of India during FY 2013-14: Your Bank has allotted, on preferential basis, 3,35,12,064 equity shares of Rs. 10 each at a premium of Rs.139.20 to Government of India. Consequently, the Government''s shareholding in the Bank increased from 57.9 per cent to 60.1 per cent. On account of this preferential issue to the Government of India, Bank''s equity capital increased by Rs. 500 crore. Also, Bank''s paid up capital increased to Rs. 630 crore from Rs. 597 crore while Rs. 466.5 crore was added to share premium reserves.

7.4. Basel III compliant Tier 2 Bonds: On November 22, 2013, the Bank raised capital of Rs. 2,000 crore by issue of Basel III compliant unsecured redeemable non- convertible Tier 2 Bonds. The Bonds, having a tenor of 10 years, are rated ''AAA/Stable'' by CRISIL and carry a coupon of 9.8 per cent.

8. Capital Adequacy Ratio

8.1. Capital Adequacy Ratio (CAR), as per Basel III norms, stood at 10.8 per cent as on March 31, 2014. Common Equity Tier I (CET I) capital of the Bank stood at 7.2 per cent as on March 31, 2014, well above regulatory minimum requirement of 5 per cent. Tier I CAR stood at 7.5 per cent and Tier-2 at 3.3 per cent. Basel III norms in India are effective from April 1, 2013 and, therefore, these numbers are not comparable with the previous year.

Table 5: Capital Adequacy Ratios as per Basel III

(Rs. crore)

Parameters FY 2013-14

Total Risk Weighted Assets 229207

Capital Fund 24751

Tier-I Capital 17272

CAR-Basel-III 10.8%

CET I 7.2%

Tier-I 7.5%

Tier-2 3.3%

9. Awards & Accolades

9.1. During the year, your Bank received wide recognition and several awards for its performance and initiatives in multiple domains.

9.2. Your Bank won the ''MSME Banking Excellence Awards-2013'', conferred by ''The Chamber of Indian Micro, Small & Medium Enterprises''. Your Bank bagged special award under Institute of Development and Research in Banking Technology (IDBRT), ''IT Excellence Award'' for innovative technologies introduced in fi nancial inclusion project.

9.3. The Bank received the ''Order of Merit'' Awards from SKOCH Group for implementation of fi nancial inclusion initiative under the category of ''Unique Technology Initiative'' during the 33rd Skoch Summit, conducted by SKOCH Consultancy at Delhi.

9.4. Your Bank was also presented ''Financial Inclusion Technology Initiative'' award in the ''Global Conference on Financial Inclusion & Payment Systems'' held at New Delhi. The award recognized Bank''s initiatives in the areas of biometric smart card system, FI gateway & centralized bio-metric authentication system, AADHAAR enabled payment system, AADHAAR payment bridge system, kiosk banking application, demographic verifi cation of Aadhaar holders, AADHAAR seeding and Direct Benefi t Transfer.

9.5. The Bank won the Indian Banks'' Association''s (IBA) Technology Award under ''Best Payment Initiatives'' category. The Bank was runner-up in IBA Technology awards under the categories of ''Best Technology Bank of the year, ''Use of Mobility Technology'' and ''Internet Banking''.

9.6. Your Bank also received the ''e-INDIA'' award under the category of Green IT Initiatives for its business process re-engineering (BPR) initiative which enhances the customer experience by improving customer service and cutting operational costs.

10. Directors

10.1. The following changes took place in the Board of Directors of your Bank during the fi nancial year 2013-14:

10.1.1. Shri Arun Tiwari was nominated on the Board by the Government under sub-section 3 (a) of section 9 of Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 on December 26, 2013 as the Chairman & Managing Director in place of Shri D. Sarkar whose term ended by superannuation on November 30, 2013;

10.1.2. Shri Rakesh Sethi was nominated as Executive Director on the Board by the Government under sub-section (3) (a) of section 9 of Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980, w.e.f. August 5, 2013.

10.1.3. Shri Mohammad Mustafa, presently Joint Secretary in Department of Financial Services, Ministry of Finance, was nominated by the Government as a non-whole time director under sub section 3 (b) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. September 30, 2013 in place of Dr. Achintan Bhattacharya whose term ended by superannuation on September 30, 2013.

10.1.4. Shri Deepak Singhal, Principal Chief General Manager and Regional Director of the Reserve Bank of India, was nominated by the Government as the RBI Nominee Director under sub section 3 (c) of the Banking Companies (Acquisition & Transfer of Undertakings) Act,1970/1980 on May 31, 2013 in place of Shri Chandan Sinha.

10.1.5. Shri Jag Mohan Sharma was nominated as part-time Non-offi cial Director under Chartered Accountant category by the Government of India under sub-section 9 (3)(g) of the Banking Companies (Acquisition & Transfer of Undertakings) Act,1970/1980 on December 5, 2013, in place of Shri B. M. Sharma whose term ended on April 15, 2013.

10.1.6. Shri S.K. Misra and Sushri Anusuiya Sharma were nominated as part time non-offi cial Directors by the Central Government under sub section 3 (h) of Section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. April 11, 2013 and May 6, 2013 respectively.

10.1.7. After March 31, 2014 Shri B.N. Bhattacharjee, Offi cer Nominee Director has completed his term as Director on May 3, 2014. Further, Shri N. Shankar, Workmen Employee Director''s resignation has been accepted by Government vide its letter dated April 30, 2014.

10.1.8. While welcoming all the new Directors, the Board places on record the valuable services rendered by Shri D. Sarkar, Dr. Achintan Bhattacharya, Shri Chandan Sinha, Shri B. M. Sharma, Shri B. N. Bhattacharjee and Shri N.Shankar.

11. Directors'' Responsibility Statement

11.1. The Directors confi rm that in the preparation of the annual accounts for the year ended March 31, 2014:

11.1.1. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards.

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

11.1.3. Reasonable and prudent judgment and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the fi nancial year and of the profi t of Bank for the year ended, March 31, 2014.

11.1.4. Proper and suffi cient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India, and

11.1.5. The accounts have been prepared on going concern basis.

12. Corporate Governance:

12.1. The Board of the Bank is committed to adopt good corporate governance practices in letter and spirit. A detailed report on corporate governance is given in a separate section of the Annual Report. The corporate governance report for fi nancial year 2013-14 has no audit qualifi cations.

13. Corporate Social Responsibility (CSR)

13.1. Your Bank has taken a number of initiatives to discharge its corporate social responsibility by addressing some of the socio-economic deprivations faced by the unreached or underprivileged.

13.2. The Bank has set up 202 Village Knowledge Centres (VKCs) across the country. Each VKC assists in overall development of the village by coordinating with various developmental agencies/government departments and disseminate knowledge to farmers about latest developments in methods of cultivation, technologies, proper use of fertilizers, pesticides, etc.

13.3. ''Union Adarsh Gram Yojana'' is a unique innovative project under which Bank has adopted 210 villages across the country. In these adopted villages, various developmental activities are being undertaken, like, providing safe drinking water, sanitation and solar lamps.

13.4. On International Women''s Day, i.e. March 8, 2014, Bank''s 14 lead districts adopted 210 girl children to support them for completing their education till class XII, and 994 saplings were planted at prominent places.

13.5. Your Bank patronizes 14 Rural Self Employment Training Institutes (R-SETIs) and 24 Financial Literacy and Credit Counseling Centers (FLCCs) across the country. During the year, 1,406 training programs were conducted through these facilities, under which 38,975 persons received training and 25,593 benefi ciaries have been settled with employment.

13.6. During the year, 2013-14, Bank spent a total of Rs. 17.8 crore by way of donation. This included Rs. 2 crore under the Chief Minister''s Relief fund for the calamity affected states of Uttarakhand and Odisha. The Union Bank Social Foundation, a trust set up by the Bank, is spearheading its CSR initiatives. Through the trust, the Bank is engaged in empowering people through various developmental initiatives. During the year, Rs. 15 crore was allocated to the trust for its activities.

14. Acknowledgement

14.1. The Board expresses its gratitude to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority, Central Vigilance Commission and other institutions for the valuable guidance and support received from them. The Board also thanks the fi nancial institutions and correspondent banks for their co-operation and support. The Board also thanks Bank''s valuable shareholders, esteemed customers and all other stakeholders for their continued patronage. The Board would like to express its appreciation to each employee of the Bank for their dedicated service.

For and on behalf of the Board of Directors,

(Arun Tiwari)

Chairman & Managing Director

Place: Mumbai

Dated: 19.05.2014


Mar 31, 2013

Dear Shareholders, The Directors of your Bank are pleased to present the 94th Annual Report of the Bank for the financial year 2012-13 along with statement of the 'Audited Balance Sheet', 'Profit & Loss Account', 'Cash-Flow Statement' and the report on 'Management Discussion & Analysis'. The Corporate Governance Report also forms part of the Annual Report. 1. Overview 1.1. Your Bank's focus on customer centricity has guided the Bank's performance during the year. With focus on qualitative growth in business, lending to productive sectors and asset quality management, your Bank has once again delivered performance in key business parameters. Human Resource (HR) transformation initiatives aligning HR practices with business goals formed a key differentiator for marked productivity gains by your Bank. 1.2. Your Bank has aptly focused on responding to economy wide challenges, both global and domestic. The business strategies were aimed at consolidating Bank's business in chosen areas, focusing on core & retail business, taking steps for meaningful financial inclusion and strengthening systems & control. 1.3. The thrust areas included strategic positioning of the Bank, developing new ideas to reach client with new technology and deepening our customer relations. Your Bank has taken one more step towards marking its footprint in global arena. Bank's second overseas branch at Dubai International Financial Centre (DIFC), Dubai started its commercial operations during the last financial year. 1.4. The major highlights of business performance are detailed as under: Table - 1 : Key Performance Indicators (Rs. crore) Parameters FY2012 FY2013 Annual Growth Total Business 403900 475673 17.77% Net Interest Income 6793 7543 11.04% Operating Profit 5254 5583 6.26% Provisions 3467 3425 -1.22% Net Profit 1787 2158 20.76% Net Interest Margin (NIM) 3.16% 2.96% -20 bps Capital Adequacy Ratio 11.85% 11.45% -40 bps Gross Profit per 17.04 17.56 3.05% employee (Rs. lakh) Dividend (Rs. per share) 8.0 8.0 No Change Book Value per Share (Rs.) 237.48 264.37 11.32% bps - basis points 2. Business 2.1. Global Business of the Bank stood at Rs. 4,75,673 crore as of 31st March 2013, registering an annual growth rate of 17.77 percent. 2.2. Total Deposits increased to Rs. 2,63,762 crore as of 31st March 2013 recording annual growth of 18.35 percent and Advances increased to Rs. 2,11,911 crore as of 31st March 2013 with annual growth of 17.06 percent. 2.3. The overseas business increased to Rs. 15,780 crore as of 31st March 2013, recording annual growth of 51.90 percent. Deposits increased from Rs. 1,207 crore as of 31st March 2012 to Rs. 2,763 crore as of 31st March 2013 while advances increased from Rs. 9,181 crore as of 31st March 2012 to Rs. 13,017 crore as of 31st March 2013. 3. Revenue 3.1. Total Income of the Bank increased from Rs. 23,476 crore in FY 2011-12 to Rs. 27,677 crore in FY 2012-13, recording annual growth of 17.89 percent. Yield on advances of the Bank stood at 11.05 percent whereas Yield on investments was recorded at 7.38 percent for the financial year 2012-13. Total yield on funds of the Bank stood at 9.19 percent during FY 2012-13. 3.2. Net Interest Income increased from Rs. 6,793 crore in FY 2011-12 to Rs. 7,543 crore in FY 2012-13, recording annual growth of 11.04 percent. Net Interest Income registered a compounded annual growth rate (CAGR) of 21.63 percent during the last three years. 3.3. Non-interest income increased from Rs. 2,448 crore in FY 2011-12 to Rs. 2,552 crore in FY 2012-13, recording annual growth of 4.24 percent. Recovery in written-off accounts stood at Rs. 324 crore in FY 2012-13 compared to Rs. 354 crore during the last financial year. Core fee based income increased from Rs. 1,392 crore in FY 2011- 12 to Rs. 1,421 crore in FY 2012-13. Table - 2 : Non Interest Income (Rs. crore) Parameters FY2012 FY2013 Annual Growth 1. Core Non Interest 1392 1421 2.09% Income 2. Treasury Income 702 807 14.87% within which, - Profit on Sale of 441 477 8.28% investments - Exchange Profit 261 329 25.97% 3. Recovery in Written 354 324 (-) 8.40% off Accounts 4. Total Non-Interest 2448 2552 4.24% Income (1 2 3) 4. Expenses 4.1. Total Expenses of the Bank increased from Rs. 18,222 crore during FY 2011-12 to Rs. 22,094 crore during FY 2012-13 recording annual growth of 21.25 percent. Establishment expenses increased from Rs. 2,479 crore during FY 2011-12 to Rs. 2,755 crore during FY 2012- 13 with annual growth of 11.13 percent. Provision of Rs. 75 crore were made towards pending wage revision of employees of the Bank for FY 2012-13. 4.2. Interest expenses increased by 23.51 percent from Rs. 14,235 crore in FY 2011-12 to Rs. 17,582 crore in FY 2012-13, mainly due to increase in cost of deposits to 7.38 percent in FY 2012-13 as compared to 6.93 percent in the previous year, reflecting elevated interest rate scenario and tight liquidity conditions. Accordingly, total cost of funds also moved up to 6.43 percent in FY 2012-13 compared to 6.33 percent in the previous year. Table - 3: Operating Expenses (Rs. crore) Parameters FY2012 FY2013 Annual Growth Total Operating Expenses 3987 4512 13.17% Within which - Staff Expenses 2479 2755 11.13% - Other Operating 1508 1757 16.51% Expenses 4.3. Cost-to-income ratio marginally increased to 44.70 percent during FY 2013 from 43.15 percent during last financial year mainly due to opening of large number of new branches, provisioning for pending wage revision & pension liabilities. 5. Profitability 5.1. Operating Profit of the Bank increased to Rs. 5,583 crore in FY 2013 from Rs. 5,254 crore during the previous year, contributed by growth in interest income and control in operating expenses. 5.2. Net Profit for FY 2013 stood at Rs. 2,158 crore. Growth in net profit was 20.76 percent over FY 2012. 5.3. NIM stood at 2.96 percent during FY 2013 as against 3.16 percent in the previous year. Return on Average Assets for the year 2012-13 was maintained at 0.79 percent, same as in the previous year. 6. Productivity Ratios 6.1. Average business per employee increased to Rs. 1,215 lakh during FY 2013 recording annual growth of 13.55 percent. The net profit per employee increased to Rs. 6.79 lakh during FY 2013, recording annual growth of 17.07 percent. 6.2. Average business per branch and net profit per branch recorded annual growth of 6.73 percent and 10.08 percent respectively during FY 2013. Table - 4: Productivity Ratios (Rs. lakh) Parameters FY2012 FY2013 Annual Growth Average Business Per 1070 1215 13.55% Employee Average Business Per 10311 11005 6.73% Branch Net Profit Per Employee 5.80 6.79 17.07% Net Profit per Branch 55.83 61.46 10.08% 7. Dividend 7.1. Your Directors are pleased to recommend a dividend of 80 percent for FY 2012-13, i.e., Rs. 8.00 for each share with face value of Rs.10.00. The dividend is maintained at the same percentage as that for FY 2011-12. 8. Shareholders' Return 8.1. The Bank's net worth improved by 20.66 percent to Rs.15,777 crore during FY 2013 from Rs. 13,075 crore in the previous year. Thus, the Book value per share increased to Rs. 264.37 during FY 2013 from Rs. 237.48 in the previous year. Earnings per share increased to Rs. 38.93 during FY 2013 as against Rs. 34.07 in the previous year. Return on Equity stood at 13.68 percent during FY 2013 from 13.67 percent in the previous year. 9. Rating & Capital Raising 9.1. The ratings given by various credit rating agencies for Bank's Tier I & Tier II Capital instruments point to the highest degree of safety regarding timely servicing of financial obligations and these instruments carry lowest credit risk. Table - 5 : Ratings of Bonds (Rs. crore) Rating Perpetual Upper Tier Lower Tier II Agency Bonds II Bonds Bonds CRISIL AAA AAA AAA ICRA AA - AA CARE AA AAA AAA FITCH AA(Ind) AA (Ind) AA (Ind) Brickwork AAA AAA AAA 9.2. During the financial year 2012-13, Bank raised Unsecured Redeemable Non-Convertible Subordinated Lower Tier II Bonds amounting to Rs. 800 crore. 9.3. Bank allotted 4,62,45,174 equity shares of Rs. 10/- each at a premium of Rs. 230.89 aggregating to Rs. 1,114 crore to the Government of India. Consequently the Government's shareholding in the Bank increased from 54.35 percent as on March 31, 2012 to 57.89 percent as on March 31, 2013. 10. Capital Adequacy Ratio 10.1. Capital Adequacy Ratio (CAR), as per Basel II norms stood at 11.45 percent as on March 31, 2013, well above the regulatory benchmark of 9 percent. Tier I CAR stood at 8.23 percent and Tier-2 at 3.22 percent. Table - 6: Capital Adequacy Ratio (Rs. crore) Parameters FY 2012 FY 2013 Total Risk Weighted Assets 168178 203927 Capital Fund 19926 23341 Tier-I Capital 14081 16785 CAR-Basel-II 11.85% 11.45% Tier-I 8.37% 8.23% Tier-2 3.48% 3.22% 11. Delivery Channels 11.1. Your Bank added 309 domestic branches and one foreign branch in Dubai during the financial year 2012-13. This is the highest number of branches opened by the Bank in any particular year. Out of 309 domestic branches, 232 branches (75 percent) were opened in rural and semi- urban centres. Bank opened 33 percent of branches in Tier 5 and Tier 6 centers as against thereshold requirement of 25 percent mandated by the RBI. As a result, total number of branches including two overseas branches increased to 3511 as of 31st March 2013 compared to 3201 branches as of 31st March 2012. Your Bank has also opened its 1st branch at Aizwal in the state of Mizoram. 11.2. The number of ATMs increased from 3801 as on 31st March, 2012 to 4603 as on 31st March, 2013, thereby adding 802 new ATMs during the year. The ratio of ATM to branches further improved to 1.31 during FY 2013, which is one of the best amongst the public sector banks. The bank has installed 100 Talking ATMs as of end-March 2013. The talking ATM solution offered by your Bank is adopted by Indian Banks' Association (IBA) as a standard for accessible ATM for visually challenged persons. 11.3. Your Bank was one of the first bank to launch the RuPay cards in India. All the bank's ATMs are now enabled to accept RuPay Cards. RuPay is the Indian domestic card payment network set up by the National Payment Corporation of India (NPCI). The Bank has also deployed bunch notes accepting machines at select branches. 11.4. Your Bank is the first to start National Electronic Fund Transfer (NEFT) facility for its sponsored regional rural bank. Bank has also started issuing and receiving on-line letter of credit (LCs) through Structured Financial Messaging System (SFMS) since January 2013. All the branches are enabled to send and receive On-line LCs. 11.5. To meet the increasing transaction volumes, the Bank has increased computing capacity of core banking solution (CBS) system. Through middleware application, the Bank has integrated various applications like Foreign Inward Remittances, Treasury, HRM Solution, Swift, RTGS, NEFT, Online Trading Application etc with CBS to facilitate seamless flow of transactions. 11.6. Transactions through electronic channels increased to 60.02 percent as on March 31, 2013 from 54.75 percent as on March 31, 2012. 11.7. Your Bank has successfully implemented Aadhaar Enabled Payment System (AEPS) in 'OFF-US' mode. 11.8. The Bank's Customer Care Unit (CCU) was set up in Mumbai for resolving customer complaints and to eliminate the root causes of complaints across channels. The Integrated Case Management Tool (ICMT) has been put in place to integrate complaints across channels. 12. Awards & Accolades 12.1. Your Bank received several awards during FY 2013 for its consistent and all-round performance, superior management and dedication to excellence. 12.2. The Chairman & Managing Director of your Bank, Mr. D. Sarkar was awarded "Banker of the Year" award by the Skoch Consultancy Services as a part of their Financial Inclusion Awards 2013. Bank also received the Best Bank Award 2012 for Financial Inclusion from IBA. 12.3. Ernakulam district, one of the Bank's lead districts in the state of Kerela, was declared by the RBI Governor, Dr D Subbarao as country's first district to achieve 'Meaningful Financial Inclusion'. Under this project, Bank focused on "need" creation rather than simply opening of accounts. With the help of community-based organizations, Bank sensitized its customers about need for savings and credit. This helped sharp increase in usage of mobile banking and number of operative accounts. 12.4. The Bank won four awards at the IBA Banking Technology Awards function held at Mumbai in the following categories: 12.4.1. Best Financial Inclusion Initiative 12.4.2. Best Technology Bank of the Year 12.4.3. Best Use of Mobility Technology in Banking 12.4.4. Best Use of Business Intelligence 12.5. The Bank received the prestigious ACI Excellence Award 2012 for implementing three remittance products viz. NEFT, IMPS and Union e-Cash on ATMs. This is a global award given by ACI Worldwide Inc. every year for innovative use of its payment system software. Bank received the award for the second year in a row. 12.6. The Bank also won the prestigious IT Innovation Award from the Computer Society of India. The Bank was given this award for launching truly accessible Talking ATMs for the visually challenged. The solution works on normal debit cards for all bank customers. 12.7. The Bank received the Best Bank in public sector category award from the NPCI for operational excellence in national financial switch. These awards are given by NPCI based on excellence in performance in operation of ATMs covering parameters like dispute management, net work uptime, control on transaction declines, DR Drills etc. 12.8. The Bank was awarded with the prestigious Indira Gandhi Rajbhasha Shield for the year 2010-11 by the Hon'ble President of India, Shri Pranab Mukherjee. 12.9. 'Union Dhara', the Bank's in-house journal bagged the prestigious "Champion of the Champions Trophy" at the ABCI Annual Awards 2012. Union Dhara also won 6 trophies for its internal communication viz. 1 Gold, 3 Silver and 2 Bronze under various categories such as Special Column (English), Internal Magazine, Bilingual Magazine, Features (Language), Photo Features and Photography. 13. Directors 13.1. The following changes took place in the Board of Directors of your Bank during the financial year 2012-13. 13.1.1 Shri D. Sarkar was nominated on the Board by the Government under sub-section 3 (a) of section 9 of Banking companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. April 1, 2012 as the Chairman & Managing Director in place of Shri M.V.Nair whose term ended by superannuation w.e.f. March 31, 2012. 13.1.2 Dr. A Bhattacharya, Joint Secretary in the Ministry of Finance, Government of India, was nominated by the Central Government as a non-wholetime director under sub section 3 (b) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. July 20, 2012 in place of Shri Rajesh Khullar. 13.1.3 In the Annual General Meeting of the shareholders held on June 26, 2012, Shri R.H. Dholakia, Shri G.K. Lath and Shri D. Chatterji were elected as Shareholder Directors under sub section 3 (i) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. June 27, 2012, for a period of 3 years, in place of Shri M.S. Sriram, Shri S. Ravi and Shri A. K. Nanda. 13.1.4 Shri K. Subrahmanyam was nominated on the board by the Central Government, under sub section 3 (a) of Section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f January 21, 2013 as an Executive Director in place of Shri S.S. Mundra who was appointed as the Chairman & Managing Director of Bank of Baroda with effect from the same date. 13.2. After 31st March 2013, Shri S. K. Misra and Smt. A. Sharma were nominated as part time non-official Directors by the Central Government under sub section 3 (h) of Section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. April 11, 2013 and May 6, 2013 respectively. Also, the term of appointment of Shri B.M. Sharma has ended on April 15, 2013. 13.3. While welcoming all the new Directors, the Board places on record the valuable services rendered by Shri Rajesh Khullar, Shri S. S. Mundra, Shri M.S. Sriram, Shri S. Ravi, Shri A. K. Nanda and Shri B M Sharma. 14. Directors' Responsibility Statement 14.1. The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2013: 14.1.1. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards. 14.1.2. The accounting policies framed in accordance with the guidelines of the Reserve Bank of India, were consistently applied. 14.1.3. Reasonable and prudent judgment and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of Bank for the year ended on March 31, 2013. 14.1.4. Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India and, 14.1.5. The accounts have been prepared on going concern basis. 15. Corporate Governance 15.1. The Board of the Bank is committed to adopt good Corporate Governance practices in letter and spirit. A detailed report on Corporate Governance is given in a separate section of the Annual Report. The Corporate Governance report for financial year 2012-13 has no audit qualifications. 16. Corporate Social Responsibility (CSR) 16.1. Your Bank is committed to the objective of corporate social responsibility (CSR) by creating enablers for social and community development. The Union Bank Social Foundation, a trust set up by the Bank is spearheading its CSR initiatives. Through the trust, the Bank is engaged in empowering people through various developmental initiatives. 16.2. The Bank has set up 202 Village Knowledge Centres (VKCs) across the country. Each VKC assists in overall development of the village by coordinating with various developmental agencies/Government departments and disseminate knowledge to farmers about latest developments in methods of cultivation, technologies, proper use of fertilizers, pesticides, etc. 16.3. The Bank has also adopted 150 villages across the country and is involved in development of these villages through a special scheme known as 'Union Adarsh Gram Yojana'. In these adopted villages, various developmental activities are being undertaken, like, providing safe drinking water, sanitation and solar lamps. In these villages, Bank has adopted 150 Girl children as part of its initiative to increase enrolment of girl child at the schools. 16.4. Your Bank has also 14 R-SETIs (Rural Self- Employment Training Institutes) and 16 FLCCs (Financial Literacy and Credit Counseling Centers) across the country. The R-SETIs and FLCCs extend financial literacy, counseling and training to the needy people so that they become self-reliant. Through these R-SETIs, 28522 persons have been provided training so far and 18709 beneficiaries have been settled with employment. 16.5. During the year 2012-13, Bank spent a total of Rs. 1,23,99,700 by way of donation. This included Rs. 25,00,000 under the Chief Minister's Relief fund for the calamity affected state of Assam, Rs. 6,89,700 for the cancer relief fund, Rs. 28,00,000 for the purchase of two food distribution vehicles and Rs. 26,25,000 to the National Charitable Welfare Society (NCWS) for installation of solar lamps in Barabanki District of Uttar Pradesh. 17. Acknowledgement 17.1. The Board of Directors would like to express their sincere thanks to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority and Central Vigilance Commission for the valuable guidance and support received from them. The Board also thanks the financial institutions and correspondent banks for their co-operation and support. The Board also records its sincere gratitude to the Bank's valuable shareholders, esteemed customers and all other stakeholders for their continued patronage. The Board also expresses its appreciation to each employee of the Bank for their dedicated service. For and on behalf of the Board of Directors, (D.Sarkar) Chairman & Managing Director Place: Mumbai Dated: 9th May, 2013


Mar 31, 2012

The Directors of your Bank take immense pleasure in presenting the 93rd Annual Report of the Bank for the year 2011-12 along with statement of the 'Audited Balance Sheet', 'Profit & Loss Account', 'Cash-Flow Statement' on standalone and consolidated basis and the report on 'Management Discussion & Analysis'. The Corporate Governance Report also forms part of the Annual Report.

1. Overview:

a. Your Bank's objective is to create values on sustainable basis for its customers, shareholders and the employees. This is possible through continuously adding strengths in the organization. The prospects of your Bank would depend upon how efficient is its customer acquisition and retention strategy and how strong is its human resource management system for ensuring customer service excellence. Realizing this, during the financial year 2011-12, your Bank focused on two important initiatives directed at achieving 'customer service excellence' and building strong 'human resources'. Significant steps were undertaken in both these areas.

b. Business scenario during 2011-12 was not conducive due to weakness in global demand and challenging macroeconomic conditions in India. Banking sector growth was also subdued as high interest rate on account of RBI's monetary tightening led to fall in investment and consumption demand. Your Bank was also impacted by the slowdown. Even in this backdrop, total Business of your Bank crossed landmark of Rs 4,00,000 crore; Operating Profit crossed landmark of Rs 5,000 crore and Net Interest Margin remained high.

Table - 1:

Key Performance Indicators (Rs crore)

Parameters FY 2011 FY 2012 Annual Change(%)

Total Business 355483 403900 13.62

Net Interest Income 6216 6909 11.15

Operating Profit 4305 5254 22.04

Provisions 2223 3467 55.96

Net Profit 2082 1787 -14.17

Net Interest Margin (NIM) 3.33% 3.21% -12 bps

Capital Adequacy Ratio 12.95% 11.85% -110 bps

Gross Profit per employee 15.52 17.04 9.79 (Rs lakh)

Dividend (Rs per share) 8.0 8.0 No Change

Book Value per Share (Rs) 213.171 237.481 11.40

Brief details on the Bank's performance are as hereunder:

2. Business:

a. The Total Business of the Bank registered an annual growth rate of 13.62% from Rs 3,55,483 crore as on March 31, 2011 to Rs 4,03,900 crore as on March 31, 2012.

b. Deposits increased from Rs 2,02,461 crore as on March 31, 2011 to Rs 2,22,869 crore as on March 31, 2012 with annual growth of 10.08% and Advances increased by 18.30% from Rs 1,53,022 crore as on March 31, 2011 to Rs 1,81,031 crore as on March 31, 2012.

c. The business of Bank's sole overseas branch at Hong Kong registered a growth rate of 59.55% from Rs 6,511 crore as on March 31, 2011 to Rs 10,388 crore as on March 31, 2012. Deposits increased from Rs 590 crore to Rs 1,207 crore while advances increased from Rs 5,941 crore to Rs 9,181 crore during the same period.

3. Profitability:

a. Net Interest Income recorded an annual growth rate of 11.15% from Rs 6,216 crore for the year 2010-11 to Rs 6,909 crore for the year 2011-12. Net Interest Income registered a compound annual growth rate (CAGR) of 21.91% during the last three years.

b. Total Income of the Bank increased by 26.96% from Rs 18,491 crore in 2010-11 to Rs 23,476 crore in 2011- 12. Interest income recorded an annual growth of 28.52%. Yield on advances increased to 11.22% for the year 2011-12 compared to 9.86% for the previous financial year. Yield on investments also increased to 6.96% for the year 2011-12 from 6.55% in the previous year. Thus, total yield on funds recorded an improvement of 107 basis points (bps) from 8.33% to 9.40%.

c. Non-interest income increased by 14.37% from Rs 2,039 crore in 2010-11 to Rs 2,332 crore in 2011- 12. Persistently high rate of Inflation and successive hikes in policy rate by RBI resulted in lower prices of government securities (G-Sec) which adversely affected the Treasury Income during the financial year 2011-12. Recovery in written-off accounts, however, showed a growth of 66.98% during the year. Core non-interest income increased by 12.13% from Rs 1,138 crore in 2010-11 to Rs 1,276 crore in 2011-12.

Table - 2: Non Interest Income

(Rs In crore)

Parameters FY-11 FY-12 Growth%

1. Core Non Interest Income 1138 1276 12.13

2. Treasury Income 689 702 1.89 of which,

Profit on Sale of 464 441 -4.96

Investment

Exchange Profit 225 261 16.00

3. Recovery in Written off 212 354 66.98 Accounts

4. Total Non-Interest Income 2039 2332 14.37 (1 2 3)

d. Total Expenses increased by 28.45% from Rs 14,186 crore during 2010-11 to Rs 18,222 crore during 2011- 12. Interest expenses increased by 39.07% from Rs 10,236 crore to Rs 14,235 crore, mainly due to increase in cost of deposits to 6.93% as compared to 5.53% in the previous year. Total cost of funds also moved up to 6.33% from 5.19% on account of tight liquidity conditions in the financial market and higher policy rates. However, increased costs were offset by higher Yield on Funds.

e. NIM for the year 2011- 2012 stood at 3.21% as against 3.33% in the previous year.

f. Return on Average Assets for the year 2011-12 stood at 0.79% compared to 1.05% for 2010-11.

g. Establishment expenses declined by 4.65% from Rs 2,600 crore during 2010-11 to Rs 2479 crore during 2011-12.

Table - 3: Operating Expenses

(Rs In crore)

Parameters FY-11 FY-12 Growth%

Staff Expenses 2600 2479 -4.65

Other Operating Expenses 1350 1508 11.70

Total Operating Expenses 3950 3987 0.94

h. Cost-to-income Ratio declined to 43.15% from 47.85% reflecting control in establishment expenses and 12% growth in operating income.

i. The Operating Profit for the year 2011-12 crossed the landmark of Rs 5,000 crore. It registered an annual growth rate of 22.04% to Rs 5254 crore from Rs 4,305 crore during the previous year due to strong growth in interest income and control in operating expenses.

j. Net Profit stood at Rs 1787 crore for the year 2011- 12. Net Profit for the year was affected due to higher provisions for restructured accounts to the extent of Rs 507 crore.

4. Productivity Ratios:

a. Average Business per employee recorded CAGR of 15.52% during 2009 to 2012. During the same period, Average Business per branch and Gross Profit per Employee have shown CAGR of 11.39% and 15.01% respectively. Growth in productivity indicators during FY 2009 to FY 2012 is furnished in the table below:

Table - 4: Productivity Ratios:

(Rs In Lakh)

Parameters FY-09 FY-10 FY-11 FY-12 CAGR (%)

Average Business 694 853 1043 1070 15.52 Per Employee

Average Business 7461 8449 9596 10311 11.39 Per Branch

Gross Profit Per 112 13.18 15.52 17.04 15.01 Employee

Gross Profit per 120 130 143 164 10.97 Branch

5. Dividend:

Your Directors are pleased to recommend a dividend of 80% for the year 2011-12, i.e. Rs 8.00 for each share with face value of Rs 10.00. The dividend is maintained at the same percentage as that for FY 2010-11 despite fall in net profit.

6. Shareholders' Return:

The Bank's net worth improved by 16.98% to Rs 13075 crore from Rs 11177 crore in the previous year. Thus, the Book Value per share increased to Rs 237.48 from Rs 213.17 in the previous year. Earnings per share stood at Rs 34.07 as against Rs 39.71 in the previous year. Return on Equity stood at 13.67% for the year 2011-12 from 18.63% in the previous year.

7. Rating & Capital Raising

a. The ratings given by various Credit Rating Agencies for Bank's Tier I & Tier II Capital instruments points to the highest degree of safety regarding timely servicing of financial obligations and these instruments carry lowest credit risk.

Table - 5: Ratings of Bonds:

Rating Perpetual Upper Tier II Lower Tier II Agency Bonds Bonds Bonds

CRISIL AAA AAA AAA

CARE CARE AAA CARE AAA CARE AAA

Brickwork BWR AAA BWR AAA BWR AAA Ratings

ICRA L AA L AA L AAA

Fitch Ratings AA(Ind) AA(Ind) AA (Ind)

b. Bank allotted 2,62,16,620 equity shares of Rs10/- each at a premium of Rs 238.05 aggregating to Rs 650.30 crore on preferential basis to Life Insurance Corporation of India. Consequently the Government shareholding of the Bank has come down from 57.07% as on March 31, 2011 to 54.35% as on March 31, 2012.

8. Capital Adequacy Ratio

Capital Adequacy Ratio (CAR), as per Basel II norms stood at 11.85% as on March 31, 2012, well above the regulatory benchmark of 9%. Tier I CAR stood at 8.37% and Tier-2 at 3.48%.

Table-6: Capital Adequacy Ratio

(Rs In crore)

Parameters FY-11 FY-12

Total Risk Weighted Assets 140095 168178

Capital Fund 18146 19926

Tier-I Capital 12178 14081

CAR-Basel-II 12.95% 11.85%

Tier-I 8.69% 8.37%

Tier-2 4.26% 3.48%

9. Delivery Channels

a. The Bank is having widespread network of branches and ATMs throughout India. During the year 2011- 12, the Bank opened 185 branches and 1167 ATMs. As a result, total number of branches increased from 3016 to 3201 and number of ATMs increased from 2634 to 3801. The ratio of ATM to branches stood at 1.19, which is one of the best in the industry. The bank also introduced remittance product such as NEFT, Interbank Mobile Payment System (IMPS) and E-Cash remittance through ATMs.

b. The Bank is facilitating NEFT and RTGS services to branches across the country. As on March 31, 2012, all branches are NEFT and RTGS enabled.

c. Transactions through electronic channels increased to 54.75% as on March 31, 2012 from 50.49% as on March 31, 2011.

d. The Bank launched an online remittance product, popularly known as UNION FLASH in Dubai on 21st January, 2012. It is a 24 X 7 online remittance solution for Non-Resident Indians (NRIs) in the Gulf who can use the product for instant credit of funds to the resident Indians having account with Union Bank. The Bank became the first public sector Bank in India to introduce such remittance facility under tie-up with UAE exchange.

e. The Bank launched a Customer Care Unit on March 16, 2012 in Mumbai to resolve customer complaints & systematically eliminate the root causes of complaints across channels. The Integrated Case Management Tool (ICMT) has been put in place to integrate complaints across channels.

10. Awards & Accolades:

Your Bank received wide recognition and several awards for its performance and initiatives in many areas.

a. The Bank's Staff College at Bengaluru was selected as the winner of the 'Golden Peacock National Training Award' for the year 2011. This is the 4th occasion the Bank has bagged the prestigious Golden Peacock Award.

b. Bank won ACI Excellence Award 2011 for their project "Customer Empowerment using ACI solution BASE 24" in the Payment Transformation category. ACI Worldwide started ACI Excellence Award in 2010 in recognition of Banks and financial institutions doing most innovative use of their payment system solutions.

c. The Bank received the 'Best Middleware Implementation Award' at the Asian Banker's

Technology Implementation Awards 2011 at the function held in Hongkong on April 7, 2011. The award is given for Enterprise Application Integration solution implemented by the Bank to facilitate seamless integration of different standalone applications being used by the Bank. The Asian Banker has instituted annual IT Implementation Awards programme to determine and award best practices of technological innovation in banking operations.

d. The Bank was awarded a Certificate of Recognition for adopting good Corporate Governance practices as part of the "ICSI National award for Excellence in Corporate Governance" for the year 2011 instituted by the Institute of Company Secretaries of India.

e. Your Bank's in-house journal 'Union Dhara' bagged 7 awards, second time in succession, along with most prestigious "Champion of the Champions Trophy" at 51st Award ceremony of Association of Business Communicators of India (ABCI).

11. Directors:

During the year, the following changes took place in the Board of Directors:

a. Shri B.N.Bhattacharjee was nominated by the Government under sub-section 3 (f) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. May 4, 2011 as Officer Employee Director.

b. Shri Samir K. Sinha, an official of the Central Government was nominated by the Central Government as a non-wholetime director under sub section 3 (b) nominated on the Board w.e.f July 22, 2011 in place of Shri K.V. Eapen . Further, Shri Rajesh Khullar was nominated in place of Shri Samir K. Sinha w.e.f. November 15, 2011.

c. Shri S.K. Jain was nominated on the Board by the Government under sub-section 3 (a) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. September 1, 2011 as Executive Director in place of Shri S.C. Kalia whose term ended by superannuation w.e.f. August 31, 2011.

d. Dr. Atul Agarwal Part-time non official Director was nominated by the Government under sub-section 3(h) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. September 22, 2011.

e. Shri Chandan Sinha, RBI Nominee Director was nominated by the Government under sub-section 3 (c) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act ,1970/1980 read with sub clause (1) of clause 3 of the Nationalized Banks ( Management and Miscellaneous Provisions) Scheme 1970/1980 w.e.f. October 13, 2011, in place of Smt. Meena Hemchandra whose term ended on October 12, 2011.

f. Shri N. Shankar, was re-nominated by the Government under sub-section 3 (e) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. January 19, 2012 as Workmen Employee Director. His earlier term of three years ended on September 14, 2011.

g. Shri D. Sarkar was nominated on the Board by the Government under sub-section 3 (a) of section 9 of Banking companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. April 1, 2012 as the Chairman & Managing Director in place of Shri M.V.Nair whose term ended by superannuation w.e.f. March 31, 2012.

h. Shri Arun Kumar Nanda, Shareholder Director resigned from the Board w.e.f. 28.11.2011 due to his personal reasons.

i. The term of Dr. Gulfam Mujibi came to an end during the year under review w.e.f. January 28, 2012. Appointment for vacancy thereof by the Government is awaited.

j. While welcoming all the new Directors, the Board places on record the valuable services rendered by Shri K.V.Eapen, Shri S.C. Kalia, Smt. Meena Hemchandra, Shri Samir K. Sinha, Shri Arun K. Nanda , Dr. Gulfam Mujibi and Shri M.V. Nair.

12. Directors' Responsibility Statement:

The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2012:

a. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards.

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

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

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

e. The accounts have been prepared on going concern basis.

13. Corporate Governance:

The Board of the bank is committed to adopt good Corporate Governance practices in letter and spirit. A detailed report on Corporate Governance is given in a separate Section of the Annual Report. Bank was awarded with "Certificate of Recognition" for excellence in Corporate Governance at the 11th ICSI National Award for the second consecutive year. The Bank was selected as one of the Top 25 companies in India for excellence in Corporate Governance practices by the Institute of Company Secretaries of India partnering with Ministry of Corporate Affairs, Government of India for the years 2008- 09 and 2009-2010.The Corporate Governance report for year 2011-2012 has no audit qualifications.

14. Corporate Social Responsibility:

a. Your Bank is actively engaged in community and social development. Various activities are carried out by this Foundation through a widespread presence of 202 Village Knowledge Centres (VKCs), adoption of 134 villages across the country and is actively involved in development of these villages under a special scheme by name 'Union Adarsh Gram Yojana'. Bank has been taking up various developmental activities in the adopted villages towards drinking water supply, sanitary and lighting. In said model villages, Bank has adopted 123 Girl children as part of the initiative to increase enrolment of girl child at the schools.

b. Further, Bank has 9 Financial Literacy and Credit Counseling Centres (FLCC), 14 R-SETIs (Rural Self-Employment and Training Institutes) across the country.

c. Each VKC assists in overall development of the village by coordinating with various developmental agencies/Government departments and disseminate knowledge to farmers about latest developments in methods of cultivation, technologies, proper use of fertilizers, pesticides, etc. Similarly, R-SETI and FLCC extend financial literacy, counseling and training to the needy people so that they become self-reliant.

d. Your Bank has also associated with TERI (The Energy and Resources Institute) towards the initiative titled 'Lighting a Billion Lives', through which, it aims to bring light into the lives of one billion people living in rural areas by replacing the kerosene and paraffin lanterns used by them, with solar lighting devices. This will facilitate education of children; provide better illumination and kerosene-smoke-free indoor environment for women to do household chores; and provide opportunities for livelihoods both at the individual level and at village level.

e. Bank has also been spearheading its CSR initiative through Union Bank Social Foundation Trust, a public charitable trust which caters to the needs of the poor and marginalized.

f. Besides, your Bank has been supporting various NGOs and other social organizations by donations to social project and initiatives including among other things, initiatives in health, education, sanitation and other social needs. During the year 2011-12, your Bank has spent an amount of Rs 549.81 lacs by way of Donations.

15. Acknowledgement

The Board of Directors would like to express their sincere thanks to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority and Central Vigilance Commission for the valuable guidance and support received from them. The Board also thanks the financial institutions and correspondent banks for their co- operation and support. The Board also records its sincere gratitude to the bank's valuable shareholders, esteemed customers and all other stakeholders for their continued patronage. The Board also expresses its appreciation for every employee of the bank for their dedicated service.

For and on behalf of the Board of Directors,

(D.Sarkar)

Chairman & Managing Director

Place: Mumbai

Dated: 26th May, 2012


Mar 31, 2011

The Directors have pleasure in presenting the 92nd Annual Report of your Bank along with statement of Audited Balance Sheet, Profit & Loss Account, Cash-Flow Statement on standalone and consolidated basis and the Report on Management Discussion & Analysis for the financial year ended 31st March 2011. The Corporate Governance Report also forms part of the Annual Report.

1. Overview

a. Your Bank continued with the healthy performance track record during the year 2010-11 while pursuing its broad Vision & Mission objective of becoming the Bank of frst choice in chosen areas. These objectives have short-term as well as long-term goalposts. In the short-run, customer acquisition, business expansion and a profitable growth are the key outcomes while in the long-run Bank pursues a sustainable improvement in the process effciency, product enrichment and people productivity. Our journey towards accomplishing the Vision involves creating values for our customers, our employees and you, our shareholders.

b. During the fiscal year 2010-11, the business environment was not so benign; however, your Bank reported healthy results. Bank also launched two initiatives during the year, for achieving customer service excellence and building a strong human capital chain in the organization. These two initiatives, along with a number of enablers created in the recent years would help your Bank become one of the most preferred banks amongst the existing customer pool and the two emerging customer classes, namely the NextGen customers and new Bankable class. Your Bank is laying a strong foundation for a sustainable growth in the future that would enhance the market share and shareholders value.

Table - 1

Key Performance Indicators (Rs. crore)

FY 2010 FY 2011 Annual Change

Total Business 291289 355483 22.04%

Net Interest Income 4192 6216 48.28%

Operating Profit 3659 4305 17.66%

Provisions 1584 2223 40.34%

Net Profit 2075 2082 0.34%

Net Interest Margin (NIM) 2.71% 3.33% 62 bps

Capital Adequacy Ratio 12.51% 12.95% 44 bps

Gross Profit per employee 13.18 15.52 17.75%

(Rs. lakh)

Dividend (Rs. per share) 5.5 8.0 45.45%

Book Value per Share (Rs.) 173.38 213.17 22.95%

c. The brief highlight of the Banks performance is discussed below, followed by a detailed report on Management Discussion and Analysis.

2. Business Performance

a. Total Business of your Bank increased by 22.04% from Rs. 2,91,289 crore as on March 31, 2010 to Rs. 3,55,483 crore as on March 31, 2011.

b. This comprised Deposit growth of 19.07% from Rs. 1,70,040 crore to Rs. 2,02,461 crore and Advances growth of 26.20% from Rs. 1,21,249 crore to Rs. 1,53,022 crore.

c. Bank has one branch outside India at Hong Kong. The business of Hong Kong branch increased by 94.53%, though on a lower base. Deposits increased from Rs. 370 crore to Rs. 570 crore and advances increased from Rs. 2,977 crore to Rs. 5,941crore.

3. Financial Performance

a. Net Interest Income recorded a growth rate of 48.28% from Rs. 4,192 crore for the year 2009-10 to Rs. 6,216 crore for the year 2010-11.

b. Total Income of the Bank increased by 21.04% from Rs. 15,277 crore to Rs. 18,491 crore. Interest income was the major contributor, within which interest on advances recorded a growth of 24.08% from Rs. 9,696 crore to Rs. 12,031 crore. Interest income on investments increased by 14.93% from Rs. 3,482 crore to Rs. 4,002 crore. Yield on advances stood at 9.86% for the year 2010-11 from 9.94% in the previous year. Yield on investments, however, increased to 6.55% for the year 2010-11 from 6.32% in the previous year, refecting higher coupon on government securities. Total yield on funds also recorded an improvement of 29 basis points (bps) from 8.04% to 8.33%.

c. Non-interest income increased by 3.24% from Rs. 1,975 crore to Rs. 2,039 crore. The major drag was 19.02% fall in income from profit on sale of investments due to volatile and uncertain market conditions prevailing during the year. Excluding this item, non-interest income growth would be 12.34%.

Table - 2

(Rs. In crore)

FY-10 FY-11 Growth%

Inland Commision 352 365 3.69

Treasury Income 573 464 -19.02

Income from Forex 323 429 32.82 transaction

Recovery in Written 183 212 15.85 -off Accounts

Miscellaneous 544 569 4.60

Total 1975 2039 3.24

d. Total Expenses increased by 22.10% from Rs. 11,618 crore to Rs. 14,186 crore. Interest expenses growth was contained at 12.36% by prudent liability management. It increased from Rs. 9,110 crore to Rs. 10,236 crore. The cost of deposits was contained at 5.53% as of March 2011 compared to 5.94% in the previous year. Total cost of funds also declined from 5.51% to 5.19% despite tight liquidity conditions in the financial market and higher policy rates.

e. A decline in cost of funds and increase in yield on funds resulted in 62 bps gain in the Net Interest Margin from 2.71% in the year 2009-10 to 3.33% for 2010-11. NIM remained above 3% for all quarters of the year, and touching 3.44% during the last two quarters of the fscal.

f. However, establishment expenses increased by 91.88% from Rs. 1,355 crore to Rs. 2,600 crore, mainly due to second pension option on account of implementation of bipartite wage settlement and gratuity liabilities due to statutory increase in gratuity limit from Rs. 3.5 lakh to Rs. 10 lakh. The liability on account of pension was Rs. 1,146 crore for the year 2010-11 as against Rs. 178 crore in the previous year. This additional provision impacted the Profitability of the Bank. Further, in accordance with RBI guidelines pension liabilities of Rs. 1,352 crore and Gratuity liability of Rs. 260 crore have been carried forward to be charged over the next four years.

Table - 3

(Rs. In crore)

FY-10 FY-11 Growth%

Staff Expenses 1355 2600 91.88

Other Operating 1153 1350 17.09 Expenses

Total Operating 2508 3950 57.50 Expenses

g. The Operating Profit for the year 2010-11 was Rs. 4,305 crore, an increase of 17.66% over Rs. 3,659 crore recorded in the previous year.

h. Provisions for the year 2010-11 stood at Rs. 2,223 crore, an increase of 40.34% over Rs. 1,584 crore in the previous year. The increased provisions were mainly on account of non-performing assets.

i. The higher pension & gratuity liabilities, provisions for non-performing assets and lower treasury income impacted the Net Profit of the Bank. It stood at Rs. 2082 crore for the year 2010-11 compared to Rs. 2075 crore in the previous year. However, the major hits on the Net Profit of the Bank are one-time in nature.

j. The factors impacting net profit also impacted effciency and Profitability ratios of the Bank. The Return on Average Assets for the year 2010-11 stood at 1.05% compared to 1.25% for 2009-10. During the same period, Cost-to-income Ratio increased to 47.85% from 40.66% reflecting sharp rise in establishment expenses.

4. Productivity Ratios

a. Average Business per employee recorded 18.93% average annual growth rate during the last four years. During the same period Average Business per branch and Gross Profit per Employee have shown average annual growth rate of 12.42% and 15.66% respectively. During the year 2010-11, Bank recorded growth in productivity indicators.

Table - 4

(Rs. In Lakh)

FY-08 FY-09 FY-10 FY-11 CAGR(%)

Average Business 620 694 853 1043 18.93 Per Employee

Average Business 6752 7461 8449 9593 12.42

Per Branch

Gross Profit Per 10.03 11.2 13.18 15.52 15.66 Employee

Gross Profit per 109 120 130 143 9.47 Branch

5. Dividend

Your Directors are pleased to recommend a dividend of 80% for the year 2010-11, i.e. Rs. 8.0 for each share with face value of Rs. 10.0, as compared to 55% in the previous year. Total outflow on account of dividend is Rs. 488.06 crore including dividend tax. The dividend policy of your Bank intends to suitably reward the shareholders while pursuing the objective of adequate capital adequacy ratio for supporting the growth in business.

6. Shareholders Return

Your Banks net worth improved by 27.56% to Rs. 11172 crore from Rs. 8758 crore in the previous year. Thus, the Book Value per share increased to Rs. 213.17 from Rs. 173.38 in the previous year. Earnings per share stood at Rs. 39.71 from Rs. 41.08 in the previous year. Return on Equity was reported at 18.63% for the year 2010-11 from 23.69% in the previous year.

7. Rating and Capital Raising

a. CRISIL assigned AAA/Stable rating to Union Bank of Indias Upper Tier II bonds. The rating factors in Union Banks healthy market position, comfortable resource profle, and adequate earnings profle.

b. Bank raised Capital through issuance of Tier II bonds of Rs. 500 crore during the financial year 2010 -2011.

c. The Bank received an amount of Rs. 111 crore on the 14th July, 2010 towards contribution of the central government in the Perpetual Non Cumulative Preference Shares (PNCPS) of the bank. Bank has allotted 11,10,00,000 Perpetual Non-Cumulative Preference Shares (PNCPS) of Rs. 10/- each to Govt. of India, carrying annual foating coupon benchmarked to Repo Rate with a spread of 100 bps, to be readjusted annually based on the prevailing Repo Rate on the relevant date.

d. Bank also allotted on preferential basis 1,92,14,515 equity shares of Rs. 10/- each at a premium of Rs. 344.94 to Govt. of India. Consequently the Government shareholding in the Bank increased from 55.43% to 57.06%. On account of this preferential issue to Government of India, Banks capital increased by Rs. 682 crore.

8. Capital Adequacy Ratio

Capital Adequacy Ratio (CAR), as per Basel II stood at 12.95% as on March 31, 2011, refecting an increase of 44 basis points from 12.51% in the previous year. The CAR of your Bank is well above the regulatory benchmark of 9%. Tier I CAR stood at 8.69% compared to 7.91% a year ago.

Table-5

(Rs. In crore)

FY-10 FY-11

Total Risk Weighted Assets 122598 140095

Capital Fund 15336 18146

Tier-I Capital 9697 12178

CAR-Basel-II 12.51% 12.95%

Tier-I 7.91% 8.69%

Tier-2 4.60% 4.26%

9. Delivery Channels

a. Your bank crossed a branch network milestone of 3000 during the year. As on March 31, 2011, Banks total branches in India stood at 3015, including 211 new branches opened during the year 2010-11. Besides, Bank also has a branch in Honk Kong. The total number of outlets including extension counters and service branches is 3104 as on March 31, 2011 compared to 2910 outlets in the previous year. Total number of ATMs increased to 2634 during the year, implying an addition of 307 ATMs.

b. Your Bank believes that the customers must get choice of channels including alternative delivery channels. With this objective, Bank has channel facilities of Call Centre, internet banking and mobile banking besides branches and ATMs. There is continuous addition of services offered through these alternative channels and they are fnding favour with the customers.

c. The overseas presence of the Bank includes one branch and fve representative offces at Shanghai, Beijing (both in China), Abu Dhabi (UAE), Sydney (Australia) and London (UK). The offce at London was opened during the year 2010-11.

d. During the year, Bank also received approval from the Reserve Bank of India for converting the representative offce at Sydney into a branch and the representative offce in London (UK) into a subsidiary.

Bank also has approvals for opening a branch in Antwerp (Belgium) and representative offices at Johannesburg (South Africa) and Toronto (Canada). Consequent to RBIs approvals, further processes are at different stages.

10. Brand Building

In todays competitive banking industry, brand building has become imperative for banks. Your Bank regained the brand power through a series of initiatives in the recent years including re-branding exercise undertaken during the year 2008-09. This continued during 2010-11 with various customer centric measures and publicity campaigns. Union Home 10 on 10 media campaign received wide publicity across all media. Similarly, Banks brand power and brand recall gained positively during ICC World Cup. Your Bank is building a brand which is responsive and value creating for the customers and shareholders. Another aspect of brand building that your Bank pursues is becoming a strong employer brand so that the Bank is able to attract and retain talents.

11. Awards & Accolades

Your Bank received recognition and awards for its performance and initiatives in many areas.

a. Dale Carnegie leadership award was conferred on Union Bank of India by Dale Carnegie Training for the Banks transformation initiatives undertaken through project Nav Nirman. With this, your Bank is in the coveted club of previous winners like Ford Motor Company, Coca-Cola, Adidas, Boeing and Wipro Technologies.

b. Award for Excellence in Corporate governance was given at the 10th ICSI National Award for Excellence in Corporate Governance, 2010

c. Outlook Money recognized the Bank as the Best Home Loan Provider

d. Skoch Financial Inclusion Award 2011 was received for innovative work in the area of financial inclusion, particularly fnancing of farmer members of Primary Agriculture Cooperative Societies

e. Bank received Special Prize from IDRBT for excellence in implementing Mobile Banking and Payment application

f. Bank received Asian Banker (Singapore) award for Best Implementation of Middleware

g. Bank received ABCI (Association of Business Communication of India) award for Marketing and Brand communication

h. Banks in-house journal, Union Dhara bagged 7 awards along with most prestigious "Magazine of the year Award" at 50th Award ceremony of ABCI

i. For promotion of Offcial Language, Bank received Reserve Bank Rajbhasha Shield as First Prize under linguistic Region B" for the year 2009-10. Bank also received during the year First Prize under Indira Gandhi Rajbhasha Shield (2008-09) announced by the Government of India.

12. Directors

During the year, the following changes took place in the Board of Directors:

1. Shri B.M. Sharma, Chartered Accountant was nominated by the Government under sub-section 3 (g) of section 9 of Banking companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. April 16, 2010 as Non-Executive Director under Chartered Accountant category.

2. Smt. Meena Hemchandra, RBI Nominee Director was nominated by the Government under clause (c) of sub-section 3 of section 9 of Banking companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 read with sub clause (1) of clause 3 of The Nationalized Banks (Management and Miscellaneous Provisions) Scheme 1970/1980 w.e.f. 30.07.2010, in place of Shri K. Sivaraman whose term ended on 29.07.2010.

3. Shri S. S. Mundra was appointed Executive Director by the Government of India and joined the Bank on September 1, 2010, in place of Shri S. Raman who was appointed as the Chairman & Managing Director of Canara Bank

4. The term of offce of Shri Ashok Singh Part Time Non-offcial Director came to an end during the year under review on his resignation w.e.f. 25.01.2011. Appointment for the vacancy thereof by the Government is awaited.

5. While welcoming all the new Directors, the Board places on record the valuable services rendered by Shri K.Sivaraman, Shri S. Raman and Shri Ashok Singh.

13. Directors Responsibility Statement

The Directors confrm that in the preparation of the annual accounts for the year ended March 31, 2011.

1. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards.

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

3. Reasonable and prudent judgement and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the Profit of the Bank for the year ended on March 31, 2011.

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

5. The accounts have been prepared on going concern basis.

14. Corporate Governance

The Board of the bank is committed to adopt good Corporate Governance practices in letter and spirit. A detailed report on Corporate Governance is given in a separate Section of the Annual Report. Bank has been awarded with "Certifcate of Recognition" for excellence in Corporate Governance at the 10th ICSI National Award. The Bank was selected as one of the Top 25 companies in India for excellence in Corporate Governance practices by the Institute of Company Secretaries of India partnering with Ministry of Corporate Affairs, Government of India for the years 2008-09 and 2009-2010. The corporate Governance report for year 2010-2011 has no audit qualifcations.

15. Corporate Social Responsibility

a. Your Bank is actively engaged in community and social development and pursues this goal under the aegis of specially set up Union Bank Social Foundation. Various activities are carried out by this Foundation through a widespread presence of 202 Village knowledge Centres (VKCs), 103 Union Adarsh Gram, 8 Financial Literacy and Credit Counseling Centres (FLCC), 13 R-SETIs (Rural Self- employment and Training Institutes) across the country. This includes 1 VKC and 7 FLCC opened during the year.

b. Each VKC assists in overall development of the village by coordinating with various developmental agencies/Government departments and disseminate knowledge to farmers about latest developments in methods of cultivation, technologies, proper use of fertilizers, pesticides etc. Under Union Adarsh Gram Yojana, Bank undertakes a holistic development of the village by converting it into a model village. Similarly, R-SETI and FLCC extend financial literacy, counseling and training to the needy people so that they become part of the mainstream.

c. During the year 2010-11, your Bank extended a donation of Rs. 175.65 lakh to various entities for the purpose of education, health and medical emergency, relief, basic amenities etc. Your Bank is examining the possibility of providing the solar-powered lanterns to the households in the103 Union Adarsh Gram. The objective is to provide illumination to the electricity deprived villages that will facilitate livelihood by increasing the productive hours for rural entrepreneurs, help spread education, improve health, bio-conservation and moreover, a ray of hope for everyone.

16. Acknowledgement

The Board expresses its gratitude to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority and Central Vigilance Commission for the valuable guidance and support received from them. The Board also thanks the financial institutions and correspondent banks for their co-operation and support. The Board acknowledges the unstinted support of customers, shareholders and all other stakeholders. The Board wishes to place on record its appreciation of the dedicated services and contribution made by members of staff in the overall performance of Bank.

For and on behalf of the Board of Directors,

(M. V. Nair)

Chairman & Managing Director

Place: Mumbai Dated: 20th May, 2011

 
Subscribe now to get personal finance updates in your inbox!