Directors Report of Andhra Bank [Merged]

Mar 31, 2019

The place before you the Annual Report of the Bank together with the audited Statement of Accounts and Auditors’ Report for the financial year ended March 31, 2019.

FINANCIAL INCLUSION:

During the FY 2018-19, the Bank’s achievement against the set targets under Financial Inclusion schemes is given below

Particulars	Target	Actual	% of ach.
PMJDY Accounts	6,56,000	3,39,387	52.84
Issuance of RuPay Cards	6,56,000	2,01,498	23.67
Sanctioning and Disbursement of OD	No target	66,064	--
Coverage under Social Security Schemes	6,00,000	1,31,319	21.83

Aadhaar Seeding: Bank has achieved 78.20% of Aadhaar seeding and 69.58% in Aadhaar Authentication in active CASA accounts.

Atal Pension Yojana (APY): ‘the Bank has enrolled 2,23,454 APY accounts during the year with average of 76 accounts per branch against a target of 1,73,220. ‘the Bank has received an incentive of Rs.3.95 Cr of which 1.99 Cr towards fresh enrolments, Rs. 0.23 Cr towards volume based additional incentive and Rs. 1.72 Cr. towards persistency incentive.

Establishment of Aadhaar Enrolment Centres: DFS, Ministry of Finance, Govt. of India has advised all Banks to establish 1 enrolment centre for every 10 branches. As per existing branch network, Bank needs to establish 290 enrolment centres PAN India. Accordingly Bank has established 290 Aadhaar enrolment and updation centres and achieved 100% target.

- Our Vashi branch in Maharastra state has received Best Performing Branch award from UIDAI for registering highest number of enrollments.

- Bank has received capital incentive claim of Rs. 2.11 Crores form NABARD towards establishment of265 Aadhaar Enrollment Centres as on 31.03.2018.

Financial Literacy and Credit Counselling Centers: 3 FLCCs one at Sirguppa in Karnataka state, one each at Jagtial and Siddipet in Telangana state started operations. With this bank is having total of 11 FLCCs functioning and are providing services.

Bank Mitra Facilitators: As number of Bank Mitra activities are increasing on day to day basis, Bank has appointed Bank Mitra Facilitators in 8 Districts of Andhra Pradesh, 4 districts in Telangana and in 3 Districts of Odisha State.

Gram Swaraj Abhiyan (EGSA): Under this programme DFS has identified about 48,503 villages having above 1000 population for conducting campaigns to provide universal coverage under financial inclusion related schemes such as PMJDY, PMSBY & PMJJBY. Of 117 identified aspirational districts, our Bank presence is in 35 Districts under which 341 villages exist. Bank has exceeded the set targets under this campaign as indicated below.

PMJDY			PMSBY			PMJJBY
Target	Achievement	% of Achievement	Target	Achievement	% of Achievement	Target	Achievement	% of Achievement
28,263	31,335	110.87	33,657	34,996	103.98	20,233	21,439	105.96

SUBSIDIARIES & REGIONAL RURAL BANKS : ‘the Bank has one Subsidiary, namely, Andhra Bank Financial Services Limited (ABFSL), which is wholly-owned by the Bank. ‘the Company has earned a profit of Rs 127.04 Lacs before Income Tax and a Net Profit of 91.80 Lacs after Income tax during the year ending 31.3.2019, with this the accumulated losses of the company has been brought down from Rs 572.36 Lacs to Rs 480.56 Lacs as on 31.03.2019. Bank has one sponsored Regional Rural Bank namely Chaitanya Godavari Grameena Bank located in Guntur (Andhra Pradesh), covering the districts of Guntur, East Godavari and West Godavari with 218 branches. As on 31.03.2019, the total business stood at Rs.9080.49 Crore, and Net profit after Tax is Rs.71.71 Crore. Percentage of Gross NPA to Average Advances is 1.00%.

SECURITY ARRANGEMENTS : Bank has upgraded the security arrangements at branches, currency chests and ATMs. All branches in the Bank are provided with CCTV system for video surveillance. Conventional alarm system at 99 % branches have been upgraded to Integrated Intruder Burglar Alarm System (IIBAS). Centralized Alarm Monitoring Station has been established in Head Office for 24X7 monitoring of Integrated Intruder Burglar Alarm System installed in branches. 40 % of branches have already been integrated to CAMS at Head Office and are being monitored continuously. Integration of balance branches is in progress. State of Art integrated e-surveillance system has been provided in 88 % of the ATM Sites and Bank has reduced revenue expenditure to the tune of approximately 68 Crores per Annum, by replacing physical guarding with e-surveillance at these sites. Installation of e-surveillance system at balance sites is in progress. All efforts are on to ensure that all security gadgets are maintained in working condition at all times and minimize crime incidents against Bank.

NRI CELL: “The NRI Cell was set up with a view to serve as an effective channel of communication between the Bank and its NRI Clientele thereby increasing NRE Deposits. ‘the Cell supports and guides the branches & Representative Office in Dubai thereby ensuring betherment in Customer Service. During the Financial year, the Bank has closed its representative office in New Jersey. NRI Cell provides useful information related to Banking & Foreign Exchange to NRIs through NRI Bulletin (AB Connect) every month. At present nearly 54991 NRI Customers (both existing and prospective) are being connected and accessing the information provided in the NRI Bulletin (AB Connect). Total NRI business of the Bank of the Bank stood at Rs. 3403 Cr as on 31.03.2019.

BRANDING AND COMMUNICATIONS: “The Bank has undertaken publicity & branding during the financial year to derive good mileage and visibility for the Bank. Some of the major publicity activities include,

- Utilization of Ad Space (Big hoarding) at Nizam Club, Hyderabad for publicity on our products.

- Advertisement in Sri Venkateswara Bhakti Channel (SVBC) during live programmes.

- Exhibiting of our ADs on Bus Shelters, Central Medians at different places.

- Putting up of Bank’s Stall at All India Industrial Exhibition at Hyderabad which run for 45 days.

CORPORATE SOCIAL RESPONSIBILITY (CSR): As the Bank reported loss for the year ending March, 2018, there was no budget allocation for Donation which includes CSR activities for the financial year 2018-19.

BANK’S WEB SITE: ‘the Bank maintains its website www.andhrabank.in in three languages, viz., English, Hindi and Telugu for providing information about the Bank, its services and products offered. ‘the Bank has made its WCAG (Web Content Accessibility Guidelines) website accessible to ‘visually impaired persons’, as per Government of India guidelines. “The Bank being the Convener of State Level Bankers’ Committee, Andhra Pradesh, maintains separate website www.slbcap.nic.in. ‘this website communicates all the proceedings of SLBC Meetings, State Government directives, instructions to Bankers and public. ‘the Bank follows meticulously CERT-In (Indian Computer Emergency Response Team) guidelines issued from time to time in maintaining Bank’s Website securely.

AWARDS AND REWARDS: “The bank received the following awards during the FY 2018-19:

- IBA Banking Technology Awards-2019-Our Bank has won 4 awards at IBA Banking Technology Awards-2019- viz.,”the Best Technology Bank of Year-Winner, “‘the Best Financial Inclusion Initiatives-Runner up’, “‘the Best Payments Initiatives-Runner up’ and ‘The Most Customer Centric Bank using Technology-Runner up.

- Infosys Finacle Client Innovation Awards 2019- Our Bank has won 3 awards at Infosys Finacle Client Innovation Awards 2019 -viz., ‘Process Innovation-Winner, ‘Accelerated Transformation-Runner up’ and ‘Emerging Technologies Led Innovation-Runner up.

- Awards under APY : Bank got the following awards in campaigns announced by PFRDA

- Bank has been awarded as the “Second Best Performing Public Sector Bank” from PF RDA for the FY 2018-19.

- MD & CEO of our Bank was awarded in APY “Leadership Capital” campaign by PFRDA.

- Makers of Excellence - Executive Director of our Bank has been awarded as best Executive Director under APY.

- APY - Splendid 7 - General Manager FI of our Bank has been awarded as Best Performing General Manager under Major Banks category.

- APY - Passion for Performance - Nodal Officer - FI of our Bank has been awarded as best performing Nodal Officer under APY.

- Special Recognition Award for Excellent performance in “ AePS by NPCI” in “B” Category banks.

Indian Accounting Standards (Ind AS) - Progress: Implementation of Indian Accounting standards (Ind As) has been deferred till further notice, vide circular No. DBR. BP. BC. No. 29/21.07.001/2018-19 dated March 22, 2019. Bank shall comply with the Indian Accounting Standards (Ind AS) for financial statements for accounting period ending 31st March 2019 and thereafter in accordance with the guidelines of Reserve Bank of India. In order to facilitate smooth transition to the application of Ind AS , Bank is in the process of identifying the changes required to be made in the IT system & other policies to comply with Ind AS.

CHANGES IN THE BOARD DURING THE YEAR: “The following changes took place in the Composition of the Board during the FY 2018-19:

- Shri J Packirisamy, assumed charge as MD& CEO on 21.09.2018.

DIRECTORS’ RESPONSIBILITY STATEMENT:

The Board of Directors hereby state that

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

- Accounting policies have been selected and applied consistently, reasonable and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Bank as at 31.03.2019 and of the profit and loss of the Bank for the financial year ended on 31.03.2019.

- Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the relevant regulatory provisions for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

- ’the annual accounts have been prepared on a going concern basis.

- Internal Financial controls to be followed by the Bank have been laid down and such internal financial controls are adequate and are operating effectively.

- Proper systems have been devised to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.

ACKNOWLEDGEMENT: Andhra Bank is grateful to the Government of India, RBI, SEBI, NABARD, and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. ‘the Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Bank’s vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support.

For and on behalf of the Board,

Place : Hyderabad (J Packirisamy)

Date :13.05.2019 MD & CEO

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Mar 31, 2018

DIRECTORS’ REPORT

We place before you the Annual Report of the Bank together with the audited Statement of Accounts and Auditors’ Report for the financial year ended March 31, 2018.

MANAGEMENT’S DISCUSSION & ANALYSIS

MACRO ECONOMIC DEVELOPMENTS: In the first half of the financial year, India’s economic growth reversed momentum from that of the rest of the world, decelerating, as the rest of the world accelerated. A number of developments like, demonetization, implementation of new GST, high and rising real interest rates, the Twin Balance sheet challenge obstructed Indian economic growth. India’s GDP growth in 2017-18 at 6.6% was lower than 7.1% in 2016-17. Implementation of GST had a transient effect on urban Consumption through loss of output and employment in labour intensive unorganized sector. But in the second half of the year, the economy witnessed robust signs of revival. Economic growth improved as the transitory phase came to an end and the synchronous global economic recovery boosted exports. Government expenditure provided sustained support to aggregate demand, with a pick-up in pace in the second half.

Monetary and Liquidity Conditions: During the financial year 2017-18, Reserve Bank of India (RBI) maintained the stance of monetary policy as neutral in consonance with the objective of achieving medium term target for CPI inflation of 4%. The Average CPI inflation rate has come down to 3.3% during FY 2017-18 from 4.5% in FY 2016-17. RBI has cut repo rates by 25 bps points between April 2017 and March 2018. RBI has kept rates unchanged since August 2017 at 6.00%. Liquidity conditions remained favorable for the major part of the year. However during Q4 pick up in credit demand led to tighter liquidity conditions, thereby limiting the fall in the deposit rates as compared to last year.

Balance of Payments and External Sector: As observed the deceleration in economic growth is on account of decline in the export growth which led to widening of current account deficit (CAD) which worsened to USD 13.5 billion (2% of GDP) during Oct-Dec’17 (Q3 2017-18) from a level of USD 8 billion (1.4% of GDP) in the corresponding quarter a year ago. Further, the surge in crude oil prices, which rose by more than 20% YoY increased the import bill.

India’s trade deficit widened to USD 44.1 billion during Q3 2017-18 from a level of USD 33.3 billion in the year-ago period. Despite the soaring CAD, the forex reserves grew by USD 9.4 billion due to a stronger capital account surplus. This was in contrast to the deficit of

1.2 billion in the year-ago period.

The capital and financial account surplus rose to USD 12.6 billion in Q3 2017-18 from USD 7.3 billion in Q3 2016-17, supported by stronger portfolio investment inflows worth USD 5.3 billion. With the CAD soaring and concerns over potential fiscal slippage (as fiscal deficit reached 4% of GDP by end Jan’18), the rupee witnessed a downward pressure. The combination of soaring CAD and a high fiscal deficit (twin deficit scenario) will bring in inflationary pressures and likely weigh down the rupee, which has already lost 1.4% against USD since the beginning of 2018. There was an accretion to foreign exchange reserves, taking their level to US $ 424 billion as on March 30, 2018.

Financial Markets (Equity and Bond Markets): Domestic financial market segments have been mainly driven by idiosyncratic factors, barring phases of overwhelming global spill overs that impacted equity and forex markets intermittently during FY 2017-18. Excess liquidity, which had persisted till January following demonetization, turned into deficit towards close of the year. Bond markets have experienced some drying up of liquidity as yields rose amidst concerns about inflation and the fiscal situation with raising crude prices.

The BSE Sensex Equity markets extended their gains in FY 2018, with the Sensex closing at a historic high of 36,283 on January 29, 2018. A number of factors contributed to the market’s overall buoyancy: strengthening macroeconomic conditions; revival of corporate sales and improving prospects for future earnings; the announcement of PSU banks’ recapitalization; a jump in India’s ranking in the World Bank’s ease of doing business index; the ratings upgrade by Moody’s; sustained net investment by domestic institutional investors; and positive cues from global equity markets.

However, Market conditions and sentiment reversed dramatically in February and selling pressures intensified, with a variety of factors in play: global sell-offs in bonds and equities following stronger than expected job and inflation data for the US that prompted market participants to anticipate a faster pace of normalization of US monetary policy; expectations of tighter liquidity conditions going forward and other domestic policy developments announced in the Budget. During the year the gains from secondary market have reduced as compared to the last year. The BSE SENSEX registered a return of 11.3%, while NIFTY registered a return of 11.5% in FY 2017-18.

Bond Markets:

Since the beginning of August 2017, yields in the secondary government securities (G-sec) market hardened almost monotonically, driven mostly by domestic factors up to early March 2018. Among global factors, rising international crude prices through the quarter and the increase of 25 basis points in the federal funds target by FOMC pushed up the G-sec yields. The surge in 10-year G-Sec yields from 6.51 per cent at the end of Q1 (April-June) FY2018 to 7.32 per cent at the end of Q3 FY18 also resulted in an increase in yields of corporate bonds and impacted the corporate bond issuances with year-on-year de-growth in fresh bond issuances by 14 per cent and 24 per cent during Q2 (July-September) FY2018 and Q3FY2018, respectively.

The yields touched a high of 7.78 per cent, up 46 basis points from the level of 7.32 per cent at the end of the October-December quarter. G-Sec yields cooled off by 28-29 basis points to 7.33-7.34 per cent toward March end. The rise in G-sec yield is on account of fiscal concerns owing to increase crude prices and faster than expected normalization of monetary policy in advanced economies especially in US.

Trends in Banking Industry:

Impairment in the asset quality of the banking sector remained very high, necessitating sizeable provisioning and deleveraging, thereby restricting banks’ lending capacity, profitability and capital positions. However the overall credit growth for the financial year 2017-18 was higher at 10.3% as compared to 5.08 % in 2016-17. Demand has grown for both corporate & retail loans; particularly the services, real estate, consumer durables & agriculture allied sectors have led the growth in credit .The deposits of the banking system witnessed a lower growth of 6.7 % during 2017-18 as compared to 11.75% of the last financial year.

OUTLOOK

Indian economy has recouped from the disruptions and green shoots are visible with investment demand picking up supported by Infrastructure spending by the government. The bank recapitalization plan by Government of India shall provide the necessary impetus to the banks by providing growth capital to enhance credit supply to the economy with favorable forward linkages. Enhanced spending on infrastructure, implementation of new projects, digital payments revolution and continuation of reforms are expected to provide further momentum to growth. India’s banking sector is also poised for robust growth as the rapidly growing business will facilitate banks credit growth. The global growth is expected to remain robust supporting GDP growth which is projected to increase from 6.6% in 201718 to 7.4% in 2018-19. These developments augur well for revival in credit demand in FY 2018-19

PERFORMANCE HIGHLIGHTS OF THE BANK

Business: For the financial year ended 31st March 2018, Bank’s Business stood at Rs,3,72,605 Crores recording an increase of Rs,32,932 Crore from Rs,3,39,673 Crore as on 31.03.2017, with a growth rate of 9.70% (y-o-y).

Deposits: Bank’s Total Deposits stood at Rs,2,08,070 Crore as on 31.03.2018, recording an incremental growth of Rs,12,629 Crore (6.46%) over the previous year. The share of CASA deposits (Current and Savings) in Total Deposits stood at 31.05%.

- Current Deposits stood at Rs,10,360 Crore as on 31.03.2018 as compared to Rs,8660 Crore as on 31.03.2017, registering a growth rate of 19%.

- Savings Bank Deposits increased to Rs,54,236 Crore as on 31.03.2018, from Rs,48655 Crore as on 31.03.2017, growing at a rate of 11%.

- Term Deposits increased from Rs,138124 Crore as on 31.03.2017 to Rs,143469 Crore as on 31.03.2018, registering a growth rate of 4%.

Advances: Gross Bank Credit increased by 14.08% from Rs,1,44,232 Crore as on 31.03.2017 to Rs,1,64,535 Crore as on 31.03.2018.

- Credit to Agriculture Sector (including RIDF & non priority) stood at Rs,30,844 Crore as on 31.03.2018 as against Rs,27,573 Crore as on 31.03.2017 registering a growth rate of 11.86%.

- MSME portfolio registered a growth of 23.61% YOY basis from Rs,27260 Cr to Rs,33697 Cr

- Retail Credit portfolio registered a growth of 41.53% YoY from Rs,27,541 Cr to Rs,38,979 Cr.

Classification of Advances portfolio (Rs,in Crore)

Category	31.03.17	31.03.18	Variance
1. Food Credit	1059	825	-234
2. Non-Food Credit (2.1 to 2.4)	143173	163710	20537
2.1 Agricultural Advances	27573	30844	3271
2.2 Advances to MSME Sector	27260	33697	6437
2.3 Retail Credit (incl. DLs)	27541	38979	11438
2.4 Large Industries & Other Advances	60799	60189	-610
GROSS BANK CREDIT (1 2)	144232	164535	20303
Of which, Lending to Priority sector	61690	70121	8431

Area-wise distribution of Aggregate Deposits & Advances as on 31.03.2018 is set forth in the following Table.

Sl. No.	Category of Branches	Deposits 31.03.18	% to total	Advances 31.03.18	% to total
1	Rural	14084	7%	16705	10%
2	Semi-Urban	27170	13%	25198	15%
3	Urban	46886	23%	31360	19%
4	Metro	119931	57%	91271	55%
5	TOTAL (1 2 3 4)	208071	100%	164535	100%

Profitability: Total Income for the financial year 2017-18 of the bank stood at Rs,20347 Cr as compared to Rs,20336 Cr for FY 2016-17. The Non-interest income of the bank increased from Rs,2308 Cr to Rs,2372 Cr registering a YoY growth of 2.76% . Operating Profit of the Bank increased to Rs,5361 Crore compared to Rs,4388 Crore in the previous year registering a growth rate of 22%. However, on account of increased provisioning towards NPAs the Bank incurred a Net Loss of Rs,3412 Cr for FY 2017-18 as compared to Net profit of Rs,174 Cr for the financial year 2017-18.

The Total interest income of the Bank stood at Rs,17974 Cr as compared to Rs,18027 Cr of the previous year. Of this, Interest Income from Advances registered a fall by 5.25% from Rs,13598 Cr during 2016-17 to Rs,13069 Cr during 2017-18. Interest Income from investments increased by 8.41% from Rs,4230 Crore during 2016-17, and stood at Rs,4602 Crore during 2017-18.

Total Expenses during the financial year 2017-18 is Rs,14985 Crore against Rs,15948 Crore during the previous year. Of this, Operating Expenses stood at Rs,3346 Crore. Establishment Expenditure as a percentage of Total Expenditure stood at 12.40% for the financial year ended 31.03.2018.

Highlights of Revenue, Expenditure and Profitability- (Rs,in Crore)

	2016-17	2017-18	Absolute Growth	Percentage Growth
Total Interest Income	18027.42	17974.54	-52.88	-0.29%
Total Interest Expenditure	12495.78	11639.79	-855.99	-6.85%
Net Interest Income	5531.64	6334.75	803.11	14.52%
Other Income	2308.31	2372.07	63.76	2.76%
Profit on sale of Investments	764.34	489.36	-274.98	-35.98%
Core Other Income	1543.96	1882.71	338.75	21.94%
Operating Expenses	3451.99	3345.79	-106.2	-3.08%
Operating Profit	4387.95	5361.03	973.08	22.18%
Provisions and Contingencies	4213.63	8773.56	4559.93	108.22%
Net Profit	174.32	-3412.53	-3586.85	-2057.62%

APPROPRIATIONS: After making various provisions, the net loss for the year 2017-18 has been arrived at Rs,3412.53 Cr. Brought forward balance in P/L Account is Rs,1.53 Cr. The appropriations are given below.

Appropriations (Rs,in Crore)

	2016-17	2017-18
Appropriation out of Net Profit	174.33	-3412.53
Balance brought forward	95.00	1.53
Transfer to Statutory Reserves	43.60	13.02
Transfer to Capital Reserve	129.20	39.07
Transfer to Revenue Reserves	0	0
Transfer to Special Reserve	95.00	0
Transfer to proposed Dividend (incl. Dividend Tax)	0	0
Profit carried over to Balance Sheet	1.53	-3463.09

KEY FINANCIAL RATIOS:

The Banking Industry, as a whole, has been passing through a difficult phase and the bank has done well in key financial ratios in the present scenario. Net Interest Margin (NIM) stood at 3.33% compared to 3.07% in the previous year. Cost to Income Ratio stood at 38.43%, as compared to 44.03% for the previous year. Earnings per Share (EPS) stood at Rs,-42.12 and Book Value per Share (BVPS) stood at Rs,60.25. Gross Non-Performing Assets to Gross Advances stood at 17.09% and Net Non-Performing Assets to Net Advances stood at 8.48% for the financial year ended 31.03.2018.

Key Financial Ratios

Parameter	31.03.2017	31.03.2018
Yield on Advances (%)	9.77	8.84
Cost of Deposits (%)	6.43	5.57
Net Interest Margin (%)	3.07	3.33
Yield on Funds (%)	8.38	7.71
Cost of Funds (%)	5.81	4.99
Cost-to-income Ratio (%)	44.03	38.43
CRAR - Basel III (%)	12.38	11.00
Return on Assets (%)	0.08	-1.46
Earnings Per Share (Rs,)	2.56	-42.12
Book Value Per Share (Rs,)	153.84	60.25
Net NPA (%)	7.57	8.48
Gross NPAs (%)	12.25	17.09

CAPITAL & NET WORTH (Rs,in Crore)

Parameter	31.03.2017	31.03.2018
Equity Capital	681	1199
Reserves Surplus	10730	9619
Net worth of the Bank (Tangible)	10479	7223

CAPITAL ADEQUACY

As per the guidelines issued by Reserve Bank of India, the start date for implementation of Basel III guidelines in India is with effect from April 1, 2013. Accordingly, the Bank has been assessing its Capital Adequacy as per Basel III prescriptions. The total Capital Funds of the Bank are at Rs,16707 Cr as on March 31, 2018 and the Capital Adequacy Ratio at 11.00 %

The Bank has put in place an “Internal Capital Adequacy Assessment Process” (ICAAP) for assessing the adequacy of Capital levels keeping in view the expected increase in business levels and enhanced Capital requirements in the Basel III regime. The assessment process also includes a framework for inclusion of Pillar-II risks under Basel-III guidelines, such as Credit concentration risk, interest rate risk in the banking book, liquidity risk, etc.

CRAR Position	31 March 2018 (Basel III)
CET1	5.61%
AT1	1.83%
Total Tier-I	7.44%
Tier-II	3.56%
Total CRAR	11.00%

Priority Sector Lending: Total Priority sector advances net of PSLC (Priority Sector Lending Certificates) is Rs,59285 Cr which constitute about 41.25% of Adjusted Net Bank Credit (ANBC) as against the norm of 40%. Bank has made net sale of Rs,10836 Cr PSLC General / SF-MF through e-kuber portal of RBI and earned a premium / commission of Rs,93.91 Cr during the FY 2017-18.

Category	2017-18
1. Priority Sector Advances (2 to 7)	70121
2. Agriculture-Priority (2.1 2.2)	29637
2.1 Agriculture Loans-Priority	28443
2.2 Eligible Investments (RIDF)	1194
3. Micro, Small and Medium Enterprises	29654
4. Educational Loans	1397
5. Housing Loans (includes Indirect Finance& Investment in NHB)	9385
Category	2017-18
5.1 Eligible Investment in NHB	220
6. Social Infrastructure	18
7. Renewal energy and others	30
8. Priority Sector Advances (net of PSLC)	59285
8.1 PSLC Sales (General SF/MF)	10836
9. Agriculture-Priority (net of PSLC)	27787
9.1 PSLC Sales (SF/MF)	1850
10. NPA under Agri Credit	1269
I. Priority Sector Advances (% to ANBC)	41.25%
II. Agricultural Credit (% to ANBC)	19.33%
III. Small & Marginal Farmers (% to ANBC)	10.76%
IV. Direct Lending to Non-Corporate farmers (% to ANBC)	14.61%
V. NPA under Agri. as on 31.03.18 (% to Gross Agri advances)	4.11%

Credit to Agriculture-Priority: Agricultural advances (Agri-Priority) of the bank stood at Rs,29637 Crore at the end of Mar. 2018, registering a growth rate of 11.24% (Y-O-Y). The absolute increase over Mar. 2017 is Rs,2994 Crore. Agri. Priority advances (after net sale of PSLC SF/MF of Rs,1850 Cr) are at Rs,27787 Cr which constitutes 19.33% of as against the norm of 18%.

Lending to Small & Marginal Farmers: Total credit extended to Small & Marginal Farmers as on 31.03.2018 was Rs,15463 Cr (after net sale of Rs,1850 Crs under PSLC SF/MF) i.e., 10.76% of ANBC as against the statutory norm of 8%.

Direct Lending to Non-Corporate farmers: As against the statutory norm of 11.78% of ANBC to direct lending to non-Corporate farmers for the FY 2017-18, bank has reached 14.61% i.e., Rs,21005 Cr.

Lending to Self Help Groups: Bank has extended financial assistance to 241431 Self Help Groups with total exposure of Rs,6565 Cr as on 31.03.2018.

Credit to Weaker Sections: Advances to Weaker sections is at Rs,19080 Cr. at the end of Mar. 2018 (after net sale of Rs,1850 Cr under PSLC SF/MF). Bank surpassed the target of 10% of ANBC to weaker section by achieving 13.28% of ANBC as on 31.03.2018.

Credit to Minorities: Total credit extended to minority communities as on 31.03.2018 was at Rs,6126 Cr i.e., 10.33 % of Priority Sector advances as against norm of 15%.

Credit to Women: Total credit extended to women beneficiaries as on 31.03.2018 was at Rs,21104 Cr i.e., 14.58 % of Net Bank Credit as against norm of 5%.

Andhra Bank Rural Development Trust: Andhra Bank Rural Development Trust is running 14 Rural Self Employment Training Institutes in A.P (9), Telangana (2), Odisha (2), & Kerala (1) states and imparting need based training for capacity building/entrepreneurial development and dissemination of knowledge to farmers, SHG women, Rural unemployed youth and artisans. Since inception, 171400 candidates have been trained through 5911 programmes by the Institutes and around 72.30% of the trained candidates are engaged in gainful ventures. 42.10% of settled candidates are credit linked by the Bank branches. During the year FY 2017-18, the institutes imparted training to 11608 candidates through 454 programmes. 11 RSETIs out of 12 RSETIs under RSETI scheme of MoRD awarded with highest rating “AA” by Ministry of Rural Development, Govt. of India for the year 2016-17.

NIRED Rajam (Srikakulam District, Andhra Pradesh State), one of the RSETIs sponsored by Andhra Bank received “Best Performing RSETI” Award (1st place in the country other than North Eastern & Hilly Region and Union Territories) for 2017-18 from Minister for Rural Development & Panchayat Raj, Govt. of India on 05.05.2018 during Aajeevika Evam Kaushal Vikas Diwas & Mela held at Ranchi, Jharkhand. Another RSETI sponsored by the Bank i.e., RSETI Nellore (SPS Nellore District, Andhra Pradesh) also selected as Best RSETI (4th place in the country other than North Eastern & Hilly Region and Union Territories) for 2017-18.

Financial Literacy and Credit Counselling Centres: Bank has established Jana Chetana Financial Literacy and Credit Counselling Trust and running 10 Financial Literacy Centres in all Lead Districts. These centres are promoting financial literacy activities through campaign mode and providing service related extension services. Bank has approved for opening of 5 new FLCCs one at Sirguppa in Karnataka state, one at Srikalahasthi in Andhra Pradesh state and each one at Jagtial, Sircilla, and Siddipet in Telangana state. All our Rural Branches and RSETIs are organizing Financial Literacy Camps in the villages by utilizing the services of local artists/magicians and organizing Kala Jataas.

Credit to MSME Sector

Parameter (Rs,in Crore)	31.03.17	31.03.18	YOY Gr%
Micro	9701.53	11138.13	14.80%
Micro & Small Enterprises	20717.27	23059.08	11.30%
Total MSME	27260.10	33696.89	23.61%

- During the year, 296192 MUDRA loans are sanctioned with aggregate total limit of Rs,3673 Cr and an amount of Rs,3246 Cr is disbursed. Further 4102 applications were sanctioned with a limit of Rs,773 Cr under Stand Up India. The cumulative performance under Stand UP India is 6002 sanctions with a limit of Rs,1055 Cr.

The bank taken up the following initiatives under MSME financing in the FY 2017-18, to increase lending to MSME sector:

- To finance against GST receivables of MSME units - New Product -MSME Mitra had been launched

- Policy has been framed for participation in online digital platform of TReDS and joined RXIL for financing trade receivables

- To promote digital transactions and to encourage MSEs to move towards cashless transactions from cash based transactions, to field functionaries to include 30% of the digital portion of projected turnover instead of 20% while assessment of WC limits to MSE units under turnover method, for limits up to Rs,6.00 Crores.

- To MSME borrowers, Standby Term Loan is allowed irrespective of credit rating to the extent of 20% of the Fund Based limits subject to a cap of Rs,1.00 Crore for acquiring additional machinery

- To consider fixing a separate additional working capital limit for MSEs up to 20% of the regular working capital limit at the time of sanction / renewal of working capital limit, specifically for meeting the temporary rise in working capital requirements.

- Presently 9 SME Expresses are functioning at various Centres for scouting the new business and for reducing the TAT. 559 Branches are attached to SME Expresses and catering the various needs of MSME borrowers.

- Keeping in view of the importance of MSME sector in the economy our Bank introduced the following:

- 25% of assessed turnover can be allowed as working capital credit limit under turnover method up to Rs,6.00 crores instead of the existing 20% of the projected turnover.

- ABHIVRUDHI Scheme “Financing to MSEs (Micro and Small Enterprises) up to Rs,6.00 Crore against property” wherein assessment of credit limits is simplified and obtention of CMA data is waived.

- The bank has entered into agreement with NCGTC for providing guarantee cover under Loans sanctioned under PMMY (Mudra) and Stand up India. The bank has entered into MOU with M/s Bajaj Auto Ltd for financing cargo vehicles

- The bank has launched a new cluster specific product “AB SOLEACE” for financing manufacturing/trading units in Footwear Park, New Delhi . Further, the bank has identified 389 clusters were allotted to 240 Branches for focused approach and towards growth under MSME sector.

Retail Lending: The Bank’s Retail Credit portfolio stood at Rs,38,979 crores as on 31.03.2018 as against Rs,27,541 Crores as on 31.03.2017, with

year on year growth of Rs,11,438 Crs. The segment has registered a growth of 41.53% on YOY basis including deposit loans and credit card.

- Housing loans portfolio has increased from Rs,13,870 Crs as on 31.03.2017 to Rs,17,941 Crs as on 31.03.2018 with an absolute growth of Rs,4,071 Crs registering a growth rate of 29.35% on YOY basis.

- Vehicle Loans portfolio has increased from Rs,1,337 Crs as on 31.03.2017 to Rs,1,730 Crs as on 31.03.2018 with an absolute growth of Rs,393 Crs registering a growth rate of 29.42% on YOY basis.

- Education loans portfolio has increased from Rs,2,469 Crores as on 31.03.2017 to Rs,2,504 Crores as on 31.03.2018 with an absolute growth of Rs,36 Crores registering a growth rate of 1.44% on YOY basis.

- Property Loans (Loan against property) Portfolio has increased from Rs,2,692 Crores as on 31.03.2017 to Rs,4,912 Crores as on

31.03.2018 with an absolute growth of Rs,2,219 Crores registering a growth of 82.42% on YOY basis.

- Bank has waived processing charges on Housing Loans and Vehicle Loans during the financial year to have an edge in the market competition.

Advances - Industry wise Exposure: Bank has loan exposure to various sectors like Power, Housing Loans, NBFCs, Iron & Steel, textiles, etc. Exposure to top 10 industries constitutes 47.81% of gross bank credit as on 31.03.2018, signifying a diversified loan portfolio.

Industry wise Exposure of Advances (Rs,in Crore)

Sl.	Industry	Ceilings as % of Total Advances of previous Quarter	Actual Fund based exposure as on 31.03.18	Exposure as % of Total Advances of Previous Quarter i.e., 31.12.17
1	Housing Loans	15.00%	19791.64	13.06%
2	Power	12.00%	14605.06	9.64%
3	NBFC	10.00%	11957.44	7.89%
4	Iron & Steel	8.00%	7802.45	5.15%
5	Construction& Contractors	6.00%	6215.95	4.10%
6	Textiles	7.00%	6020.61	3.97%
7	Rice Mills	4.00%	4017.27	2.65%
8	Commercial Real Estates	4.00%	3499.78	2.31%
9	Engineering	3.00%	2416.22	1.59%
10	Drugs, Pharmaceuticals	5.00%	2344.35	1.55%
	Total		78670.77

INVESTMENTS:

In terms of RBI guidelines, the Bank is required to invest in SLR securities to the extent of 19.50% of NDTL. Bank’s investment decisions are based on risk-return trade-off and bank is scrupulously following the regulatory and internal guidelines. Statutory prescriptions relating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are complied with and being monitored on a continuous basis. Risk Management in treasury operations has been strengthened further by undertaking stress testing and back testing of the investment portfolio at quarterly intervals, besides daily monitoring of Duration and Value-at-Risk (VaR). External rating migration of the bonds and debentures portfolio is also being monitored on quarterly basis.

As on 31.03.2018, the Investments (net of depreciation) increased by 8.50% and stood at Rs,64770.30 Crore, up from Rs,59697.49 Crore as on 31.03.2017. SLR maintained as on 31.03.2018 was Rs,55,275.26 Crore, which constituted 26.43% of Net Demand and Time Liabilities (NDTL). Interest income from investments increased from Rs,4230.06 Crore in 2016-17 to Rs,4488.43 Crore in 2017-18. Profit on sale of investments stood at Rs,489.32 Crore during 2017-18, while it was Rs,764.62 Cr during 2016-17.

Classification of Investments (Rs,in Crore)

PARTICULARS	2016-17	2017-18	Var (%)
1. Government Securities	55870.79	59072.74	5.73
2. Other Approved Securities	0.00	0.00	0.00
3. Shares	545.48	796.58	46.03
4. Debentures & Bonds	1967.41	2499.91	27.07
5. Subsidiaries and / or Joint Ventures	361.79	357.63	-1.15
6. Others	952.02	2043.44	114.64
TOTAL (1 to 6)	59697.49	64770.30	8.50

Strategic Investments

Joint Venture Insurance: Our Bank is having Joint venture in insurance with Bank of Baroda and Legal and General Plc of UK named “India First Life Insurance Co. Ltd”. Our stake in the venture is 30% while Bank of Baroda holds 44% and Legal and General Plc holds 26% stake. Our investment in the life insurance venture is Rs,187.50 Crore.

Banking subsidiary in Malaysia: The Bank, along with Bank of Baroda and Indian Overseas Bank, has entered into a tie up for setting up a banking subsidiary in Malaysia. The Bank’s stake in the venture is 25%, amounting to RM 82.50 Million (book value Rs,143.28 Crore), in a total subscribed capital of RM 330 Million (approximately Rs,556.72 Crore @ 1 RM = Rs,16.8703 as on 31.03.2018).The joint venture viz. INDIA INTERNATIONAL BANK (MALAYSIA) BHD commenced business on 11.07.2012.

Treasury & Forex Business: The Bank is an ‘Authorized Dealer’, to deal in foreign exchange business through 56 designated ‘B’ category branches of the Bank. The Bank has speed remittance arrangements with an Exchange House based in Gulf.

Systems have been put in place for management of country risk, exchange risk and other foreign exchange risks. The country risk exposures for single country risk limit and aggregate risk limits for the group of countries under each risk category are fixed and are being monitored on daily basis.

- During the year 2017-18, the Bank recorded a merchant turnover of Rs,38,811.11 Crores in Forex, when compared to Rs,34,820.3 Crores during the year 2016-17.

- During the year 2017-18, the profit on Forex transactions is Rs,397.68 Crores when compared to Rs,382.19 Crores during the year 2016-17.

- The Bank recorded Inter-Bank turnover of Rs,10,14,325.95 Crores during 2017-18,when compared to Rs,5,76,024.16 Crores during 2016-17.

- Export finance of the Bank stood at Rs,4,223.81 Crores as on 31.03.2018, when compared to Rs,4,176.23 Crores as on 31.03.2017.

- The bank made a trading profit of Rs,10.94 Crores during the year 2017-18, when compared to Rs,9.27 Crores during the year 2016-17.

CREDIT CARD BUSINESS: Our Bank is a Pioneer in Credit Card Business, both as Issuer and Acquirer (merchant Business) since 1981. At present, our Card base is 236853 as against card base of 168393 for the year ended March 2017 showing a growth rate of40.65% for the year ending March 2018.The turnover of Credit Cards has increased from Rs,834.42 Cr for the Year ended March 2017 to Rs,1170.51 Cr for the Year ended March 2018 showing a growth rate of40.27%. The division has made a net profit of Rs,37.76 Cr. For the period ended March 2018 as against Rs,25.17 Cr. in the previous year showing a growth rate of 50.01%.

MERCHANT BANKING SERVICES: The Bank is having the following two Registrations with SEBI:

1. Debenture Trustees

2. Bankers to an Issue

The Bank is not undertaking any activities as Category-I Merchant Bankers or Debenture Trustees. (Merchant Banking registration cancelled in 2017-18)

The Bank is attending to the requests and redressing the grievances of the shareholders with regard to equity and dividend related issues, in coordination with the Bank’s Registrars & Share Transfer Agents, M/s. MCS Share Transfer Agents Limited, Mumbai.

Raising of equity capital for the Bank: During 2017-18 the Bank has raised Rs,1100 Crores and Rs,1890 Crores under Equity Capital from Government of India in Preferential basis.

Raising of debt capital for the Bank: During the Financial Year 2017-18, The Bank has raised the following debt bonds:

Additional Tier I Bonds	9.20%	Rs,500 Cr
Tier II Bonds	7.98%	Rs,1000 Cr

Rating of Debt Bonds and Certificate of Deposits borrowings of the Bank: The Bank is availing the services of M/s.CARE Ratings India Limited, M/s.Brickwork Ratings Pvt. Limited, M/s.India Ratings & Research Pvt. Ltd and M/s.CRISIL Limited for rating of the Debt Bonds and CD Issues of the Bank.

Holding of General Meetings: The 17th Annual General Meeting of shareholders of the Bank was held on 21.07.2017 and obtained their approval for adoption of annual accounts of the Bank for the FY ended 31.03.2017, special resolution on raising of capital through Qualified Institutional Placement, Follow-on Public Offer, etc. Department also conducted EGM on 06.05.2017 for Preferential issue and on 12th March 2018 for Election of shareholder Directors.

Compliance with SEBI Regulations / Guidelines and provisions of Listing Regulations: The Bank has complied with the SEBI Regulations / Guidelines issued from time to time. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 have come into effect from 01.12.2015. Henceforth, the same are complied with. The bank is Transferring Unpaid /Unclaimed dividend amount to Investor Education and Protection Fund (IEPF).

Application Supported by Blocked Amount (ASBA): SEBI vide Notification dated 10.11.2015, has mandated that all the investors applying in a public issue shall use only Application Supported by Blocked Amount (ASBA) facility for making payment. ASBA facility was enabled on August 24th, 2009 through our bank. As on March 31st, 2018, all branches (2911) of the Bank across pan India were enabled to accept ASBA applications. We have also extended the facility through our Net Banking Channel where customers can bid online hassle free.

BANCASSURANCE & FEE-BASED PRODUCTS: The Bank has been constantly focusing on augmenting non-interest income through diversification of income streams by taking up marketing of life and non-life insurance products, Mutual fund Products, Depository Services, Direct taxes, Commercial Taxes, Municipal taxes, Utility payments, Payment gateway services, Auto-Debit facilities etc.

Life Insurance: The Bank along with Bank of Baroda and Legal & General Group Plc of UK has formed a joint venture life insurance company named India First Insurance Co Ltd and it was formally launched in the month of March 2010. During the financial year 201718, total New Business premium ( including Retail and Group business) of Rs,190.88 Crore was mobilized. Renewal premium of Rs,214.31 Crore was collected upto 31.03.2018. Bank earned commission of Rs,29.40 Crore from sale of Life Insurance Policies.

Non-Life Insurance: The Bank has a tie up with M/s United India Insurance Co Ltd for General Insurance and Health Insurance,M/s Reliance General Insurance Co Ltd for General Insurance and has also tied up with M/s Cigna TTK Insurance Co Ltd for Health Insurance. During the year the Bank has mobilized the premium of Rs,148.25 Crore and earned a commission of Rs,23.89 Crore under General and Health Insurance.

Payment Gateways and Mutual Funds: The Bank is having a tie-up with 12 Payment Gateways and 11 Mutual Fund companies. Bank has earned a commission of Rs,1.69 Crore.

Fee Based Income: Bank has earned fee based income of Rs,241.86 Crore

Depository Services: Bank is offering Depository Services to the public under the brand name of “AB Demat”. The Bank is a Depository Participant (DP) with Central Depository Services (India) Limited (CDSL) as well as with National Securities Depository Limited (NSDL). The Bank has opened 1984 Demat a/cs and 1668 trading accounts in FY 2018-19 and earned a commission of Rs,38.57 Lakh.

IT Initiatives: During FY 2017-18, our Bank has taken the following I.T. initiatives to improve Customer Service:

AB-TEJ - Mobile Banking Application: The new Mobile app AB-Tej was launched on 29.05.2017. This app is user friendly and empowered with more security features. Initially the app was launched with basic features and subsequently many customer centric features were enabled.

Revamping of Internet Banking (FEBA): Bank has upgraded the earlier Internet Banking with the latest version offered by M/s Infosys. This new version has features like Bulk NEFT/RTGS facility, widgets & dashboards, better User Interface (UI), better user security etc.

Bharat Bill Payment System (BBPS): Bharat Bill Payment System (BBPS) was enabled with Internet Banking and released to customers. BBPS is an integrated and interoperable bill Payment Service for customers across geographies, initiated by RBI through NPCI.

IMPS through Speed Pay App is enabled for BSNL retailers on 18th April, 2017: IMPS services are extended to Speed Pay App users through new IMPS gateway from 18th April, 2017. Using this service Speed Pay app users can transfer their money from their wallet/ prepaid card to their Bank accounts.

APMIP - AP Micro Irrigation Project, Web Integration and Collection: AP Micro Irrigation Project under Department of Horticulture AP, sanctions differential subsidy to farmers on farming equipment’s. APMIP will verify the application and approve the percentage of subsidy then the balance non-subsidy amount to be paid by the farmer. Necessary modalities have been customized for collecting no subsidy portion and crediting of subsidy upon receipt form APMIP.

UPAVP - UP Awas Vikas Parishad, Web Integration and Collection:

Bank has developed Web API integration for receiving payment from customers for registering for affordable housing project. The challan details will be fetched using Web API integration between Bank and UPAVP server and payment is made. On verification of the payment a confirmation is sent to UPAVP.

SB account opening with OTP based e-KYC: As per RBI’s amendment to e-KYC guidelines, OTP based e-KYC was introduced and to comply with the same, a new scheme SBGOT has been created in Finacle for account opening using OTP to the registered mobile number with UIDAI.

Aadhaar Authentication through Branch, WEB Site, ATM, Cash Recyclers, ABTEJ & Micro ATMs: Based on PMLA guidelines issued by KYC AML dept. H.O for Aadhaar authentication of customers, facility is enabled in HEKYC menu for Aadhaar authentication of existing/new customers using Biometric/ OTP. Facility has also been enabled for Aadhaar authentication using OTP through Alternate Delivery Channels viz. website, ATMs, Cash Recyclers ABTEJ & Micro ATMs using which customers without visiting the Branch can self-authenticate themselves using the OTP based e-KYC service provided by UIDAI.

Credit Card Bill Payment by Non AB customers through NEFT/RTGS/IMPS using Card Number: Facility has been enabled for payment of Credit Card dues by Non-Andhra Bank customers through NEFT/RTGS/IMPS using Credit card number in the beneficiary account and IFSC CODE as ANDB0000782. This enables credit to the proper card account thereby avoiding any customer complaints and inconvenience.

e-Mandate: e-Mandate is an electronic mandate through which customer by himself provides the authorization to debit his/her account to any corporate or financial institution without providing physical mandate or cancelled cheque. Destination bank module for e-Mandate solution has been developed in-House. An SMS alert will be sent to the customers and Mandate registration charges will be debited to the customer’s account.

EVC (Electronic Verification Code)- Through Bank Account Number

We have successfully integrated to pre-validate bank account through Andhra Bank while e-filing the IT return through http://www. incometaxindiaefiling.gov.in. The facility of EVC through Bank Account number is extended to all Andhra Bank customers whose Mobile number & PAN number are seeded to customer id.

NETWORK EXPANSION: During the Financial Year 2017-18, Bank opened 4 Branches and added 80 ATMs/ BNAs/ CRs. With this, as on 31.03.2018, Bank had 6958 Delivery Channels consisting of 2911 Branches, 4 Extension Counters, 34 Satellite Offices and 4009 ATMs including BNAs/ CRs spread over 26 States and 3 Union Territories. The Bank has 47 Specialized Branches catering to the needs of the specific segments of clientele. The Bank also has ONE Representative (overseas) Office at Dubai (U.A.E) (opened in May 2006).

Population Group Wise classification of Branches

Sl. No.	Category	Number	% to total
1	Rural	745	25.59
2	Semi-Urban	771	26.49
3	Urban	665	22.84
4	Metro	730	25.08
	TOTAL	2911	100

The Bank had 47 Specialized Branches, as detailed hereunder:

S.No.	Category of Specialized Branches	No. of Brs.
1	Specialized SME Branches	18
2	Specialized Agricultural Finance Branches	2
3	Specialized Agri - Hitech Branches	6
4	Specialised Housing Finance Branches	4
5	Specialized Personnel Banking Branches	4
6	Specialized NRI Branches	3
7	Corporate Finance Branches	2
8	Auto-Tech Finance Branch	1
9	Overseas Branch	1
10	Asset Recovery Management Branches	5
11	Small B Branch	1
	TOTAL	47

Presence in Minority-Dominated Districts: At the end of 31.03.2018 we are having 335 branches in Minority dominated Districts. Of the Bank’s total network across the country, the percentage of Branches in minority dominated Districts stood at 11.50 % as on 31.03.2018.

QUALITATIVE ASPECTS:

Risk Management: The Bank had a comprehensive “Integrated Risk Management Policy” for the management of Credit risk, Market risk and Operational risk as per the guidance notes/guidelines issued by the Reserve Bank of India. As a part of moving to advanced approach and as a part of the integrated risk management solution the policy has been divided into the following policies.

i. Credit Risk Rating Policy.

ii. Model Risk Policy.

iii. Credit Risk Data Management Policy.

iv. Credit Risk Management Policy.

v. Credit Risk Mitigation and Collateral Management Policy.

vi. Loan Recovery & NPA Management Policy.

vii. Risk Based Pricing and Performance Management Policy.

viii. Operational Risk Management Policy.

ix. Market Risk Management Policy.

x. Asset Liability Management Policy.

xi. New Product Approval Policy.

xii. Integrated Risk Management Policy.

Apart from the above, the following policies are also framed by the department:

1. Stress Testing Policy.

2. ICAAP Policy.

3. Disclosure Policy.

4. Policy on Hedging of foreign currency exposures of the borrowers.

5. Outsourcing Policy.

All the policies shall be reviewed annually.

Credit Risk:

- Credit Risk Management Committee is responsible for implementation of the Credit policies approved by the Board and RMC.

- The Bank has a well-defined ‘Loan Policy’ duly approved by the Board prescribing standards for presentation of credit proposals, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentrations, standards for loan collateral, portfolio management, loan review mechanism, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning, regulatory/legal compliance, etc.

- Bank also is having in place the Credit Risk Management Policy, Credit Risk Mitigation & Collateral Management Policy, Credit Risk Rating Policy, Loan Recovery and NPA Management Policy.

- The Bank has in place comprehensive risk rating system for various categories of exposures. Bank has established a Rating cell for assigning internal ratings for all exposures of Rs,5 Crore and above. The Rating cell vets the internal rating given by the branch / Zonal office / Circle Office and assigns final rating.

- The Rating cell ensures comprehensive rating coverage, integrity of rating process and proper data maintenance.

- The Bank utilizes industry reports from CRISIL and the industry risk score service from CRISIL Research.

Market Risk: Market risk implies possibility of loss arising out of adverse movements of market determined rates and prices. The objective of market risk management is to avoid excessive exposure of Bank’s earnings and equity to such losses and to reduce Bank’s exposure to the volatility inherent in financial instruments such as securities, foreign exchange contracts, equity and derivative instruments, as well as balance sheet or structural positions. The Bank has in place a well-defined ‘Market Risk Management Policy’ and an organizational structure for market risk management functions. The Bank manages market risk through ‘Asset-Liability Management (ALM) policy and ‘Investments/Forex policy’.

A high level Executive Committee viz. Asset-liability Committee (ALCO) oversees the ALM in the Bank and deliberates on liquidity and interest rate scenario in the market and decides upon the pricing of various products. ALCO regularly monitors the identification, measurement, monitoring and mitigation of market risk in liquidity, interest rates, equity and forex areas.

The ‘liquidity risk’ is measured and managed through ‘gap analysis’ for maturity mismatches based on residual maturity. For assets and liabilities, which are of non-maturity nature, Bank is conducting behavioral studies and factoring the observations in the gap analysis. The behavioral study findings are subjected to back-testing and are validated regularly. Prudential limits are fixed for net gaps and also for cumulative gap up to one year and these limits are measured and monitored regularly. Liquidity profile of the Bank is also measured regularly through various liquidity ratios and monitoring of the same is done with the help of prudential limits fixed thereon.

The ‘interest rate risk’ is monitored on a regular basis through ‘Maturity gap analysis’ and ‘Duration gap analysis’. Tolerance limits have been fixed for impact on Net Interest Income (NII) due to adverse changes in interest rates. To measure the impact of interest rate changes on Bank’s equity, duration gap analysis is done and prudential limit is set for modified duration of equity. Modified duration of equity is within the prudential limits set for this purpose. VaR and duration analysis are used for measuring market risk including treasury operations. The Interest Rate Risk in Banking Book (IRRBB) is also being assessed on a monthly basis.

Other market related risks to which any bank is exposed are foreign exchange risk on foreign currency positions, liquidity or funding risk and price risk on trading portfolios. The Bank has clearly articulated policies to control and monitor its treasury functions. These policies comprise management practices, procedures, prudential risk limits, review mechanisms and reporting systems. These policies are revised regularly at fixed intervals in line with the changes in financial and market conditions.

Operational Risk: Management of Operational Risk is a part of the ‘Integrated Risk Management Policy’ and the Bank has a focused attention for management of the Operational Risk, in the light of the Reserve Bank of India guidelines. Operational Risk Management Cell is responsible for coordinating all the operational risk management activities of the bank and these include building an understanding of the risk profile, implementing tools related to operational risk management and working towards the goals of improved controls and lower risk. Operational Risk Management Committee [ORMC] ensures implementation and compliance of the Operational Risk policies and reports to the Board/Risk Management Committee [RMC]. The Bank has been computing capital charge for Operational risk by adopting ‘Basic Indicator Approach’ (BIA) as stipulated by the RBI.

Approaches followed for computation of Capital to Risk Weighted Assets Ratio (CRAR): As per RBI guidelines, all Commercial banks in India shall follow the Standardized Approach for Credit risk, Standardized Duration Approach for Market risk and Basic Indicator Approach for Operational risk under the ‘New Capital Adequacy Framework”.

Credit Risk: Bank at present is following the Standardized Approach for estimation of capital requirements for Credit Risk which also includes the HTM portfolio of Investments. Bank is gearing itself to move over to Advanced approaches for Credit risk. In this regard, Bank has developed a Credit Risk Rating Model (CRRM) with the consultancy assistance of National Institute of Bank Management (NIBM), Pune. This model is further strengthened internally by making it a WAN (Wide Area Network) based CRRM model so that it is accessible from any of the locations of the bank. This model is capable of providing transition matrices and default probabilities (Probability of default) and would help the Bank in moving over to the Advanced Approaches in future.

Market Risk: Bank is using the Standardized Duration method for computing capital charge for Market risk (investments in HFT and AFS categories) as per RBI guidelines.

Operational Risk: Bank is providing capital for Operational risk as per the Basic Indicator Approach (BIA).

Preparation for moving over to Advanced Approaches: Bank is in the process of migrating to Advanced Approaches through implementation of an Integrated Risk Management Solution.

Bank’s compliance to RBI guidelines on Basel requirements:

Pillar - I (Minimum Capital requirements): RBI has introduced in its Basel III guidelines the following enhanced capital requirements and has also prescribed transitional arrangements to confirm to these requirements in a phased manner by March 31, 2019.

	Regulatory Capital	As % to RWAs
(i)	Minimum Common Equity Tier 1 ratio	5.5
(ii)	Capital conservation buffer (comprised of Common Equity)	2.5
(iii)	Minimum Common Equity Tier 1 ratio plus capital conservation buffer [(i) (ii)]	8.0
(iv)	Additional Tier 1 Capital	1.5
(v)	Minimum Tier 1 capital ratio [(i) (iv)]	7.0
(vi)	Tier 2 capital	2.0
(vii)	Minimum Total Capital Ratio (MTC) [(v) (vi)]	9.0
(viii)	Minimum Total Capital Ratio plus capital conservation buffer [(vii) (ii)]	11.5

The Bank is calculating its Capital Adequacy in accordance with Basel II & Basel III guidelines. The Bank’s Capital Adequacy at present is in conformity with the transitional arrangements for Basel III as prescribed by RBI. However, to meet the growing business requirements, the Bank may have to supplement its Capital funds, especially by increasing Common equity in future.

Pillar - II (Supervisory Review & Evaluation Process): In compliance with the Pillar-II guidelines ofthe RBI under Basel III framework, the Bank has formulated a Policy of Internal Capital Adequacy Assessment Process (ICAAP) to assess internal capital in relation to various risks that it is exposed to Stress Testing and scenario analysis are used to assess the financial and management capability of the Bank to continue to operate effectively under exceptional but plausible conditions. The bank is calculating the Concentration risk on a quarterly basis to assess the portfolio level risks based on sectoral, geographical and borrower wise concentration. Bank is using statistical parameters like Herfindahl-Hirshman Index (HHI), Gini Coefficient, and Rosenbluth Index for determining the Credit Concentration Risk. The Bank has a Board approved Stress Testing Policy describing the various techniques used to gauge its potential vulnerability and also its capacity to sustain such vulnerability.

Pillar - III (Market Discipline): The Bank has a Disclosure Policy as per the disclosure requirements contained in the circular issued by the Reserve Bank of India on the implementation of the Basel III Capital Regulations. The guidelines therein are adhered to and compliance is reported to the Competent Authorities. Pillar-III (Market discipline) of Basel III, aims to encourage Market discipline by developing a set of disclosure requirements which allows market participants to assess key pieces of information on the scope of application, capital, risk exposures, risk assessment processes and hence the capital adequacy of the Bank. The Pillar-III Disclosures are published on a quarterly and half yearly basis on the Bank’s website plus a year-end disclosure as on March of every year. The Pillar-III year-end disclosures are also published in the Bank’s Annual Report apart from being available on the Bank’s website. In addition to the above, RBI has introduced several other measures of leverage and liquidity standards viz.

- A minimum Leverage Ratio of 4.5% to curb the excessive leverage of a bank’s balance sheet; and

- Liquidity standards by way of two ratios viz. Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

The LCR requires a bank to hold sufficient high-quality liquid assets to cover its total stressed net cash outflows over 30 days. The NSFR requires a bank to hold sufficient amount of stable funds to meet the requirement of stable funding over a one-year period of extended stress. The Bank is regularly calculating and monitoring the Liquidity ratios taking as reference the RBI guidelines issued for LCR and draft guidelines issued for NSFR. The Bank is also calculating and monitoring the Leverage ratio on a quarterly basis.

Management of Asset Quality: Gross NPAs of the Bank stood at Rs,28124.36 Cr as on 31.03.2018. Gross NPAs as a percentage to Gross Advances stood at 17.09% while Net NPAs as a percentage to Net Advances stood at 8.48%. The Provision Coverage of NPAs as on 31.03.2018 was 60.90%. Total reduction in NPA accounts amounted to Rs,3410 Crore.

Position of Non-Performing Assets (Rs,in Crore)

	2016-17	2017-18
Gross NPAs at the beginning of the year	11443.63	17669.98
Additions during the year	9410.34	13864.23
Reduction during the year	3183.99	3409.85
Gross NPAs at the end of the year	17669.98	28124.36
Net NPAs	10354.81	12636.87

The segment-wise distribution of NPAs as on 31.03.2017 is as under: Segment-wise Non-Performing Assets (Rs,in Crore)

Segment	Amount	NPA % to ADV*
I. Agriculture	1269.48	4.14%
II. MSME	4364.92	12.95%
III. Retail Credit	690.85	1.78%
IV. Large & Mid Corporate	21799.11	35.57%
Total	28124.36	17.09%

*NPA% to Advances indicates NPA to Advances of that segment.

Provisions held under different classes of NPAs are as under:

Table 17: Provisions held for Non-Performing Assets (Excluding floating Provisions of Rs,13 Cr.)

(Rs,in Crore)

Nature of Asset	Outstanding	Provision Held
Sub-Standard Assets	6241.56	1191.01
Doubtful Assets	21072.27	13454.97
Loss Assets	810.53	797.79
Total	28124.36	15443.77

Restructuring mechanism: During FY 2017-18, 5 accounts with outstanding amount of Rs,141.11 Cr were restructured in terms of the restructuring packages. The total balances in restructured accounts as at the end of March 2018 stood at Rs,1711.19 Crore in 27 accounts.

Lending Practices: The Bank had framed well defined Loan Policy Guidelines with the approval of the Board. These guidelines are reviewed by the Board at periodical intervals based on Reserve Bank of India guidelines, Bi-monthly Policy Statement of Reserve Bank of India, competitive environment prevailing among the banks, for accelerated credit growth envisaged in certain business segments, marketing & development of new products and taking into account the feedback received from the field level functionaries, credit departments at Head Office.

Credit Committees have been constituted in the Bank at Head Office, Circle Office and Zonal Office levels for exercising sanctions of credit proposals and suitable sanctioning powers have been delegated to these committees in terms of directions of Ministry of Finance. Further, based on feedback received from field level functionaries, the delegated powers of various sanctioning authorities are reviewed and revised to reduce turnaround time in the sanction of credit proposals. The loan review mechanism is further strengthened in the Bank ensuring review of sanctions made by all functionaries by the next higher committees / competent authorities as the case may be.

Techno Economic Viability (TEV) Cell: The Bank has a Techno Economic Viability (TEV) Cell which is independent of the credit processing & sanctioning Departments. The Cell undertakes preparation of project Information Memorandum (PIM), conducting Techno Economic Viability (TEV) study and Debt arrangement (loan Syndication) for corporate clients. The cell has earned a fee based income of Rs,103.71 lakhs (including ST & GST of Rs,11.57 lakhs) during the FY 2017-18. (Previous financial year was Rs,120.89 lakhs)

Management Information System: Bank has developed a robust Management Information System which captures data essential for vital functions such as risk management and planning and which serves as an effective tool for the Top Management in decision making. This has facilitated quick decision making. The Bank is in a position to analyse performance in major parameters even on a day to day basis using the information system available. Leveraging on the CBS platform of the Bank, the MIS has facilitated speedy decision making and its implementation.

Inspection & Audit: During the audit year 2017-18, department has met the targets prescribed in audit plan and completed:

- Annual RBIA inspection of 1917 branches

- SIFA audits of all controlling offices (HO/CO/ZO), other units like RRB, FSCS Centres, Service Centres, Currency Chests are completed in time.

- I&AD has caused Verification of SWIFT messages in Documentary Credit / trade finance messages in all B category branches and at IIB by Concurrent auditors.

- Significant changes were effected to RBIA&RBCA audit policies as per the suggestions of RBS and as per the guidelines of RBI to improve standards of audit system in our bank.

- To assess the Inherent Risk of the branches Watch List with certain parameters introduced.

- Introduction of Committee approach for closure of Inspection files of RBIA & RBCA.

- Verification of SWIFT messages and the underlying transactions on daily basis has been introduced.

- Demonetization Audit has been conducted at all branches besides Regular audits. Identification of branches for conducting Concurrent Audit and appointment of fresh auditors for more than 200 Branches.

- M/s Digital Age Strategies Pvt Ltd was selected for auditing CBS and Surrounding Applications and Related Infrastructure, and Audit is in process. Request for proposal process commenced for EFRMS(Enterprise Fraud Risk Management Solution) for selection of Bidder.

Off Site Monitoring Cell (OSM Cell) formed based on the report submitted by Shri Basanth Seth generates the reports of high value/ critical transactions happened at branches on previous day, scrutinize them and sensitize the controlling offices/Branches for taking corrective action wherever deficiencies are noticed in following the laid down systems and procedures. Besides sending the alerts, OSM cell reviews transactions based on different parameters and seek information/clarifications from branches regarding the transactions which they find critical or suspicious. OSM alerts were implemented for 67 items for better monitoring of Transactions.

Compliance Policy: The Bank has in place a comprehensive Compliance Policy. An executive of the Bank in the rank of Deputy General Manager has been appointed as the ‘Chief Compliance Officer’. As per the Policy adopted by the Bank, suitable organizational structure has been laid down defining the roles and responsibilities for Compliance Officers of various departments at Head Office, Zonal Offices and Branches. Compliance of statutory and regulatory guidelines is the scope of operation of the compliance function in the Bank. Suitable reporting system is put in place to ensure effective implementation of Compliance Policy in the bank.

Legal

- SARFAESI Act: During this Financial Year FY 18, 243 secured assets were sold and an amount of Rs,164.82 Cr was recovered by selling the secured assets under SARFAESI Proceedings. Total cash recovery effected by the bank during the FY 2017-18 under SARFAESI Proceedings is Rs,660.41 Cr (inclusive of cash recovery on sale of assets to ARC, closures, up- gradations and part recoveries).

- Lok Adalats: Recovered an amount of Rs,62.87 lakhs in 464 accounts during the FY 18.

- RTI Act: 1203 Requests and 167 Appeals were received under RTI Act during the financial year 2017-18. All the Requests and Appeals were disposed off on time.

Customer Service: Bank received 2,14,138 complaints through various channels viz. Public Grievance Redressal System (Portal), Banking Ombudsman and Departments like NEFT Cell, RTGS, Credit Card, CPPC, Retail Credit, MSME, MBD, Priority Sector, ATM Cell, Marketing & HR (outsourced complaints) and SMS Upset system during the year 2017-18 and resolved 2,12,567 (98%) complaints. As on date all the pending complaints pertaining to the year 2017-18 have since been resolved.

Human Resources Management

Manpower Planning: To augment the existing manpower, 336 general officers and 550 clerks were inducted during the financial year 2017-18.

Induction of new recruits: Through revised ‘PO-On boarding system’, the newly recruited probationary officers are provided intensive trainings on ‘field and forum approach. Competency mapping is done by closely monitoring these POS duly carrying out skill mapping exercise during the training programs conducted at our Apex College.

Career Progression: Bank ensured career progression by considering 1216 promotions in all cadres put together during 2017-18. The entire promotion exercise was successfully completed in time as per the directions of the Board.

Skill Upgradation & Training:With an objective to improve the core capabilities and competencies of employees on product awareness soft skills development and to bridge the skill gaps in key areas like Credit appraisal, Credit Monitoring/follow up, Recovery, Risk Management, Forex, IT., etc, various training programmes were conducted and provided in-house training to 10441 employees. With an aim to enhance the knowledge and productivity levels of the officers, 390 Officers were nominated for external trainings conducted by reputed institutes like NIBM, RBI-CAB, IDBRDT & FEDAI, in addition to the regular trainings conducted at our Apex College Hyderabad and STC Visakhapatnam. In addition, 17 Officers were also sent to external programmes conducted abroad.

E-learning: For ensuring extensive reach of learning facility, and to develop a learning culture among all staff members, Bank has developed an ‘E-learning portal’ for updating their professional knowledge. Around 200 e-lessons are uploaded into this portal. Besides this periodical on-line tests on different subjects are being conducted for continual upgradation of skills of employees.

Industrial Relations: With a view to maintain cordial Industrial relations in the bank and to sort out the issues to enhance the working conditions as well as customer service, Quarterly meetings were held with the representatives of the recognized Officers’ Federation and the Award Employees’ Union.

Succession Planning: As part of succession planning initiative, Bank has created a talent pool in various grades and these officers are groomed by providing intensive training programmes on various fronts, to occupy the top key posts in the years to come. As per the Capacity Building Policy, it has been made mandatory for certification of the staff manning key functional areas.

HR Digitalization: Online implementation of leaves during the financial year 2017-18.

Mentoring: The mentoring concept which has been designed with an objective to imbibe our Bank’s culture, systems and procedures etc among the new entrants, has been successfully implemented during the financial year 2017-18.

Staff Strength as on 31.03.2018:

Category	Strength	% to total
Officers	11174	56%
Clerks	5723	29%
Sub Staff*	3024	15%
Total	19921

,Excluding Part Time Sweepers.

SC/ST/OBC Profile: Our Bank has been implementing reservation policy for SCs & STs as per Government of India guidelines. The representation of SCs and STs is 4155 and 1691 respectively in total workforce of 21099 working in the Bank as on 31st March 2018. Out of the total of 11174 Officers, 1982 belong to SC category and 954 belong to ST category. Bank has nominated a General Manager as Chief Liaison Officer for SCs & STs at Head Office and all Zonal Managers as Liaison Officers at Zonal level to address the grievances, if any, of SC & ST employees. Bank has been conducting quarterly joint meetings with the representatives of Scheduled Castes & Scheduled Tribes Employees’ Welfare Association of Andhra Bank.

Our Bank has been implementing reservation policy for Other Backward Classes (OBCs) with effect from 08.09.1993 as per Government of India guidelines. The representation of OBCs is 5741 out of the total work force of 21099 working in the Bank as on 31st March, 2018. Bank has nominated a General Manager as Chief Liaison Officer for OBCs at Head Office and all second line executives at Zonal Office as Liaison Officers at Zonal level to address the grievances, if any, of OBC employees. Bank has been regularly conducting half yearly joint meetings with the representatives of All Andhra Bank BC Employees’ Welfare Association.

Differently Abled Persons: Our Bank is providing 3% reservation to the Persons with Disabilities in direct recruitment in all cadres on horizontal basis till 18.04.2017. The 3% posts are distributed amongst 3 categories of Persons with Disabilities i.e., Blindness or low vision (B/LV) - 1%; Hearing Impairment (HI) - 1%; Loco motor disability or cerebral palsy (LM) - 1%. The representation of Persons with Disabilities is 590 (2.79%) out of the total workforce of 21099 as on 31st March, 2018. As per new Act “The Rights of Persons with Disabilities Act, 2016, with effect from 19.04.2017, every appropriate Government shall appoint in every Government establishment, not less than Four per cent (4%) (as against the existing 3%) of the total number of vacancies in the cadre strength in each group of posts meant to be filled with persons with benchmark disabilities of which, one per cent each shall be reserved for persons with benchmark disabilities under clauses (a), (b) and (c) and one per cent for persons with benchmark disabilities under clauses (d) and (e), namely:-

(a) blindness and low vision;

(b) deaf and hard of hearing;

(c) loco motor disability including cerebral palsy, leprosy cured, dwarfism, acid attack victims and muscular dystrophy;

(d) autism, intellectual disability, specific learning disability and mental illness;

(e) multiple disabilities from amongst persons under clauses (a) to

(f) including deaf-blindness in the posts identified for each disabilities.

Accordingly, our Bank’s Board approved to adopt the revised guidelines on Reservation Policy as per the new legislation on “The Rights of Persons with Disabilities Act, 2016” and implement the same in all the recruitment processes with immediate effect.

OFFICIAL LANGUAGE: Rajbhasha Link in AB Staff Portal has been revamped. Besides ‘Rajbhasha Mission’, Banking Terminology, Administrative Phraseology, Rajbhasha Margdarshika, various formats, Important Circulars, other related information, Hindi House Magazine, Monthly Hindi e-bulletin, Annual Action Plan, Daily Hindi Word, Thought for the week and Hindi Workshop material etc have also been kept in our Portal. Our Bank won total 73 prizes in various Hindi Competitions conducted under the aegis of TOLIC.

Head Office was awarded First Prize in Use of Hindi in Hyderabad by Ministry of Home Affairs

VIGILANCE: During the Financial Year 2017-18, 9696 number of employees were enlightened on Preventive Vigilance aspects in 316 different training programs/sessions held at Apex College-Hyderabad, Staff Training College - Vishakhapatnam and Zonal Offices.

- Vigilance Department ensured introduction of 15 major systemic improvements for minimizing the occurrence of frauds.

- Department has investigated into and disposed off 73 complaints received during the year.

- Preventive Vigilance Inspection has been conducted in all the branches of the Bank to ensure implementation of extant guidelines. Reports were reviewed by the department and necessary instructions have been issued to the branches for compliance.

“Vigilance Awareness Week” Vigilance Department observed “Vigilance Awareness Week” from 30th October to 4th November 2017 as per the directions of Central Vigilance Commission. The theme for the Week was “My Vision - Corruption free India”. As part of the Vigilance Awareness Week, Andhra Bank organized a special programme which was attended by all the Bankers and also students of School/Colleges along with their parents/teachers at Hyderabad on 3rd November, 2017 where Hon’ble Central Vigilance Commissioner Shri K V Choudary, graced the occasion. Bank has conducted more than 3600 programmes to create awareness among the public about ill effects of corruption and promoting integrity. Bank has conducted 3248 Awareness Gram Sabhas across the country where more than 70,000 citizens have participated. 351 Essay Writing/Elocution/Debate competitions were organized in schools and colleges to give wide publicity to propagate the message/theme of Vigilance Awareness Week. Bank conducted Walkathon at Hyderabad and other places during VAW 2017 where a large number of people have participated. A free medical camp at Hyderabad in coordination with KIMS Hospital was organized for the participants. An online test on Preventive Vigilance Measures was conducted where 3936 staff members have taken the test. News Bulletin “SAVDHAN” is being published quarterly for updating the staff with latest information on frauds and measures to safeguard themselves as well as Bank. “The Right Direction - A Key Note from CVO’s desk” is being circulated to all branches and offices of the Bank to ensure enhancement of Vigilance Culture and Vigilance Compliance level in the Bank.

Major New Initiatives of Vigilance Department: An Online Compliant Registration Mechanism (OCRM) - [Whistle Blower Mechanism] has been devised by the Vigilance Department to enable the employees to register their complaint online as per Bank’s “Whistle Blower Policy”, to raise concerns about any allegation of corruption or of misuse of offices directly to the CVO. The OCRM works on Straight Through Processing (STP) system.

A new methodology for ranking performance of Zonal Offices has been devised wherein performance of Zones in respect of Vigilance Compliance level at Zonal Offices and the Branches under their jurisdiction would be assessed and ranked based on 23 key parameters covering major aspects in Vigilance Compliance.

Faculty Support: Chief Vigilance Officer interacted with the participants of various programmes at Staff College and expressed his concerns on vigilance compliance. Department has extended faculty support to Apex College, Hyderabad on 5 occasions wherein 399 participants were imparted inputs to on Vigilance related matters.

Broadcasting messages on Morals & Ethics through SMS amongst all employees to inculcate Vigilance Culture among them which are Essential Behavioral Traits that strengthen the organization’s “Brand Equity”.

Vigilance Training: Officers of Vigilance Department and staff from controlling offices and branches are being deputed for various training programme including External Training Programmes on Vigilance related matters.

Promotion of Integrity Pledge - New IT initiatives: Taking of Integrity Pledge propagated though various channel with the use of technology like Interactive Voice Response System, Placing Integrity Pledge Banner on Internet, Intranet, ATM Screen and Social Media (FB & Twitter).

Bank received “Vigilance Excellence Award - 2017 in the category of Timely Completion of Disciplinary Proceedings” from Central Vigilance Commission.

LEAD BANK SCHEME: Andhra Bank is the Convener Bank for State Level Bankers’ Committee, Andhra Pradesh since 1984. Consequent to re-organization of AP into Telangana & Residual Andhra Pradesh w.e.f 2nd June, 2014, responsibility of Convenership of SLBC of residual AP continued to be with Andhra Bank.

Andhra Bank is having Lead Bank responsibilities in fifteen districts, viz. Srikakulam, East Godavari, West Godavari, Guntur in Andhra Pradesh, Ganjam, Gajapathi districts in Odisha, Siddipet, Sircilla Rajanna, Jagtial, Peddapally, Mancherial, Wanaparty, Nagarkurnool, Jogulamba Gadwal and Warangal rural in Telangana State. Bank is discharging the responsibilities in implementation of Lead Bank Scheme.

So far 202 SLBC meetings have been organized including 19 SLBC Meetings in the reorganized state of Andhra Pradesh.

During the current year, SLBC has conducted various meetings involving RBI, NABARD, Bankers and Govt. Agencies. Besides these meetings, the Convener, SLBC has participated in various meetings and Video Conferences that are being organized by Government of India, Government of Andhra Pradesh, RBI, NABARD and various other Organizations on different subjects.

The State Credit Plan for 2017-18 was launched by the Hon’ble Chief Minister of Andhra Pradesh on 16.06.2017. SLBC has taken proactive role in formulating & organizing the following sub-committee meetings as requested by GoAP.

- Agriculture, Horticulture, Livestock and Aquaculture Development

- MSME, Govt. Sponsored Schemes and SHGs

- Service Sector and Industries

y Digital Transactions (Aadhaar Seeding, RuPay Cards distribution etc.)

APSLBC CALL CENTRE: SLBC has established a Call Centre namely ‘APSLBC CALL CENTRE’ on behalf of all Banks in the state with toll free telephone Number i.e., 18004258525 & 18004251525 exclusively for MUDRA operating from Vijayawada from 01.02.2017. Website: An exclusive website is set up for SLBC of Andhra Pradesh with URL www.slbcap.nic.in for the information of all the stake holders and general public. The website is being updated at regular intervals with the latest data and information.

FINANCIAL INCLUSION

Pradhan Mantri Jan Dhan Yojana (PMJDY): Bank has successfully implemented PMJDY in 24.01 lakh accounts by 31.03.2018. Total deposits of Rs,331.43 Crore have been mobilized vis-a-vis Rs,326.33 Crores during 2016-’17 with an average balance of Rs,1,432.33 as against Rs,1346.57 the previous year. Zero balance accounts stood at 16.09% as against 19.73% as on 31.03.2017.

Aadhaar Seeding: Bank has achieved 78.46% of Aadhaar seeding in active PMJDY accounts. Bank has also achieved 75.12% of Aadhaar seeding in active CASA accounts. Bank has achieved 64.44% in Aadhaar Authentication which is highest among the industry. Bank has achieved 74.88% under Mobile seeding in active SB accounts

Over Draft Facility under PMJDY: The last mile of PMJDY is the financial channel by extending the overdraft to the needy. About 3,50,634 customers are eligible for Over Draft and bank have sanctioned Over Draft to 51,299 customers. 14,290 customers availed over draft to the extent of Rs,192.30 lacs. Our Bank is the pioneer in introducing OD facility through ATMs and Micro ATMs.

Atal Pension Yojana (APY): Bank enrolled 2,34,879 accounts during the financial year and with average per branch enrollment of 81 accounts, which is top among all Banks PAN India. Bank earned total commission of Rs,446.97 lakhs during the FY 2017-18.

Activation of Bank Mitras: Bank has successfully deployed Bank Mitras in all 1,777 Sub Service Areas and also deployed 287 Bank Mitras in urban locations and also at One Stop Shop locations in the states of Andhra Pradesh and Telangana. Bank mitras are providing different Banking Services at these points. All Bank Mitras are provided with interoperable devices which are capable of taking up Rupay transactions and AEPS transactions. Andhra Bank stands 1st among all Banks in conducting AEPS in the State of Andhra Pradesh.

Aadhaar Enabled Public Distribution System (AEPDS): Bank has successfully implemented Aadhaar Enabled Public Distribution System (AEPDS) in 5 districts of Andhra Pradesh state (in Krishna and 4 Lead Districts viz; Guntur, East Godavari, West Godavari and Srikakulam) in which the Fair Price Shop dealers will provide the provisions in cashless mode on an average, around 216.36 lakh AEPDS transactions were happened during the FY 2017-18.

Establishment of Aadhaar Enrolment Centres: DFS, Ministry of Finance, Govt. of India has advised all Banks to establish 1 enrolment centre for every 10 branches preferably in the area where more talukas are covered. As per existing branch network, Bank needs to establish 290 enrolment centres PAN India. Bank has so far established 275 Aadhaar enrolment and updation centres.

Financial Literacy and Credit Counselling Centers: Bank has approved for opening of 5 new FLCCs one at Sirguppa in Karnataka state, one at Srikalahasthi in Andhra Pradesh state and each one at Jagtial, Sircilla, and Siddipet in Telangana state.

SUBSIDIARIES & REGIONAL RURAL BANKS: The Bank has one Subsidiary, namely, Andhra Bank Financial Services Limited (ABFSL), which is wholly-owned by the Bank. The Company has earned a profit of Rs,169.88 Lacs before Income Tax and a Net Profit of 123.11 Lacs after Income tax during the year ending 31.3.2018, with this the negative net worth of the company has been brought down from Rs,695.47 Lacs to Rs,572.36 Lacs as on 31.03.2018. Bank has one sponsored Regional Rural Bank namely Chaitanya Godavari Grameena Bank located in Guntur (Andhra Pradesh), covering the districts Guntur, East Godavari and West Godavari with 204 branches. The total business stood at Rs,8095.98 Crore, and Net Profit After Tax is Rs,81.90 Crore as on 31.03.2018. Percentage of Gross NPA to Average Advances is 1.04%.

SECURITY ARRANGEMENTS: Technology is adapted to up-grade security arrangements at branches, currency chests and ATMs. All branches in the Bank are provided with CCTV system for surveillance. Installation of Integrated Intruder Burglar Alarm System (IIBAS) by replacing conventional alarm system is completed in 91% of branches and is in progress at the remaining branches. Centralized Alarm Monitoring System is established in Head Office to monitor functioning of Integrated Intruder Burglar Alarms installed in branches. Installation of e-surveillance replaces physical guarding at ATMs and saves revenue expenditure. Its installation is completed in 86% of ATMs and is in progress at the remaining ATMs. Night watchman is deployed at non-strong room branches to protect Bank’s assets. Efforts are on to ensure for maintaining all security gadgets in working condition at all times and minimize crime rate against the Bank.

NRI CELL: The NRI Cell was set up with a view to serve as an effective channel of communication between the Bank and its NRI Clientele thereby increasing NRE Deposits. The Cell supports and guides the branches & Representative Office in Dubai thereby ensuring betterment in Customer Service. During the Financial year, the Bank has closed its representative office in New Jersey. NRI Cell provides useful information related to Banking & F oreign Exchange to NRIs through NRI Bulletin (AB Connect) every month. At present nearly 54915 NRI Customers (both existing and prospective) are being connected and accessing the information provided in the NRI Bulletin (AB Connect). Total NRI business of the Bank increased from Rs,3163 Cr as on 31.03.2017 to Rs,3496 Cr as on 31.03.2018, i.e. a growth rate of 10.53%. The total Deposits under NRE segment comprising of SBNRE, TD NRE and FCNR (B) Deposits increased from Rs,2862 Cr as on 31.03.2017 to Rs,3085 Cr as on 31.03.2018 registering an annual growth rate of 7.79%.

BRANDING AND COMMUNICATIONS: The Department has undertaken publicity & branding during the financial year to derive good mileage and visibility for the Bank. Some of the major publicity activities include,

- Utilization of Ad Space at Rajiv Gandhi International Airport for publicity on our products & services for a period of one year.

- Full train branding on 5 train rakes (80 coaches) of Narayanadri / Falaknuma Expresses which ply between Tirupati, Secunderabad & Howrah - for 6 months.

- Advertisement through Sri Venkateswara Bhakti Channel (SVBC) during live programmes.

- Sponsorship of FIBAC-2017 conducted by FICCI & IBA jointly. y Sponsorship of Partnership Summit (CII) held at Visakhapatnam and

- Putting up of Bank’s Stall at All India Industrial Exhibition at Hyderabad which run for 45 days, apart from several others.

CORPORATE SOCIAL RESPONSIBILITY (CSR): The Bank sanctioned an amount of Rs,1.71 crores under Donations Budget to different institutions / trusts during the financial year and gained substantial mileage for the Bank. The brand image of the bank also enhanced. The donation /CSR budget was distributed among all Zones of the bank with an objective to spread CSR activities pan India. Notable CSR activities of the bank include

- Donation to CM Relief Fund, Govt. of AP an amount of Rs,31 lakh

- Donation to CM Relief Fund, Govt. of Gujarat an amount of Rs,25 lakhs.

- Donation of Rs,30 lakhs towards cost of 24 Bicycles and Bicycle shelters to set up Public Bike Sharing System in AP Amaravathi Capital Region

- Donation to Sports Authority of India for development of sports.

The other major CSR activities are donations to charitable trusts, orphanages, municipalities etc. for undertaking social measures.

BANK’S WEB SITE: The Bank maintains its website www.andhrabank.in in three languages, viz., English, Hindi and Telugu for providing information about the Bank, its services and products offered. The Bank has made its WCAG (Web Content Accessibility Guidelines) website accessible to ‘visually impaired persons’, as per Government of India guidelines. The Bank being the Convener of State Level Bankers’ Committee, Andhra Pradesh, maintains separate website www.slbcap.nic.in. This website communicates all the proceedings of SLBC Meetings, State Government directives, instructions to Bankers and public. The Bank follows meticulously CERT-In (Indian Computer Emergency Response Team) guidelines issued from time to time in maintaining Bank’s Website securely.

AWARDS AND REWARDS: The bank received the following awards during the FY 2017-18:

- Our bank has been presented “ Award of Excellence for RSETIs” (First Prize) by Ministry of Rural Development, Govt. of India for FY 2014-15 & FY 2015-16 under category ‘C’ during National RSETI DIWAS held in New Delhi on 07.06.2017.

- The Bank Received “Enterprise Financing Index Award 2017” from Industries and Commerce Department, Govt. of Andhra Pradesh, on the occasion of International MSME Day.

- Awards under APY: Bank got the following awards in campaigns announced by PFRDA

- APY - Brand Ambassador

- APY - Honor the Best

- APY - People First campaign

- APY - Transformative Leaders-I&II

- APY- Makers of excellence award and

- Best Performing Bank among the PSBs for enrolling maximum number of APY.

- Our bank received the “Best Bank Award for Electronic Payment Systems” among Mid-Sized Banks13th IDRBT Banking Technology Excellence Awards.

- IBA-Our Bank has received IBA award under category ‘IT Risk and Cyber Security initiatives’ for the FY 2017-18 on 23 February 2018.

- Infosys- Finacle Client Innovation Awards 2017: Our Bank has received award under category ‘Process Innovation category Highly Commended’ award for ‘Optimizing credit card issuance process’ on 28^th Nov 2017.

- IDRBT- Technology Excellence Award - Our Bank has received ‘Best Bank Award for Electronic Payment Systems among Mid-Sized Banks’ on 1^st Sept 2017 at 13^th IDRBT Banking Technology Excellence Awards.

Indian Accounting Standards (Ind AS) - Progress: Bank shall comply with the Indian Accounting Standards (Ind AS) for financial statements for accounting period ending 31st March 2019 and thereafter in accordance with the guidelines of Reserve Bank of India.In order to facilitate smooth transition to the application of Ind AS, Bank is in the process of identifying the changes required to be made in the IT system & other policies to comply with Ind AS.

CHANGES IN THE BOARD DURING THE YEAR: The following changes took place in the Composition of the Board during the FY 2017-18:

- Tenure of Shri Suresh N Patel, Managing Director & CEO of the Bank came to an end on 31.12.2017 on his retirement on superannuation.

- Tenure of Shri SK Kalra, Executive Director of the Bank came to an end on 31.08.2017 on his retirement on superannuation.

- Tenure of Shri Anandrao Vishnu Patil, Govt. Nominee Director came to an end on 27.04.2017.

- Ms Anjana Dube, Govt. Nominee Director was nominated on the Board of Directors of the Bank on 28.04.2017.

- Shri Kul Bhushan Jain, Executive Director was appointed on the Board of Directors of the Bank on 09.10.2017.

- Shri Balgopal Mahapatra, Non-official Non-Executive Director (under CA Category) was nominated on the Board of Directors of the Bank on 27.12.2017.

- Shri A. Krishna Kumar, Director was re-elected as Director for a period of three years w.e.f. 14.03.2018 to 13.03.2021 from amongst shareholders other than Central Government.

- Shri G. Sivakumar, Director was re-elected as Director for a period of three years w.e.f. 14.03.2018 to 13.03.2021 from amongst shareholders other than Central Government.

Board wishes to place on record its appreciation of services rendered by the above members of the Board during their tenure.

DIRECTORS’ RESPONSIBILITY STATEMENT:

The Board of Directors hereby states that

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

- Accounting policies have been selected and applied consistently, reasonable and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Bank as at 31.03.2018 and of the profit and loss of the Bank for the financial year ended on 31.03.2018.

- Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the relevant regulatory provisions for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

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

- Internal Financial controls to be followed by the Bank have been laid down and such internal financial controls are adequate and are operating effectively.

- Proper systems have been devised to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.

ACKNOWLEDGEMENT: Andhra Bank is grateful to the Government of India, RBI, SEBI, NABARD, and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. The Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Bank’s vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support.

For and on behalf of the Board,

Place: Hyderabad Kul Bhushan Jain Ajit Kumar Rath

Date: 22.05.2018 Executive Director Executive Director

---

Mar 31, 2017

DIRECTORS’ REPORT:

Directors of your Bank are happy to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors'' Report for the financial year ended March 31, 2017

1. MANAGEMENT’S DISCUSSION & ANALYSIS 1.1. MACRO ECONOMIC DEVELOPMENTS

The global economic activity recovered at a slower pace than expected during FY 2016-17, barring few exceptions. The sluggish global growth has impacted the growth of Indian Economy and consequent investment and credit demand. The ebullient rebound in agricultural activity on the back of normal monsoon and record food grains production have boosted rural incomes and supported consumption. The Estimates of GVA that the Central Statistics Office (CSO) released recently, the growth rate of GVA at basic prices is at 6.7 per cent for 2016-17, mainly because private final consumption expenditure has accelerated to 8.7%. In GVA terms, Agricultural sector growth improved during FY 17 to 4.4%: Industry registered a GVA growth of 6.7%. Meanwhile, services sector growth moderated to 7.2%. Going forward, implementation of the Goods and Services Tax (GST) and the measures taken in the Union Budget to boost the rural economy, infrastructure, micro, small and medium enterprises (MSMEs) and low cost housing should help revitalize domestic demand.

1.2 Monetary and Liquidity Conditions

During the financial year 2016-17, Reserve Bank of India (RBI) maintained the stance of monetary policy as accommodative till its 6th bi-monthly monetary policy in which the stance was shifted to neutral. The demonetization exercise led to a surge in the liquidity in the system necessitating RBI to shift its policy stance. The Average CPI inflation rate has come down to 3.8% during FY 2016-17 from 4.9% in FY 2015-16. RBI has cut repo rates by 50 bps points between April 2016 and March 2017. The rates cuts were front loaded and the RBI has kept rates unchanged since October 2016 at 6.25%.

1.3 Balance of Payments and External Sector

The external position of India improved during the financial year 2016-17 notwithstanding the slowdown in global demand. Indian exports to both advanced economies and emerging economies have gained momentum during Q2 and Q3 for Financial year 2016-17. Imports have witnessed moderation during the first half of 2016-17 and picked up momentum in the second half of 2016-17. The current account deficit at 1.4% of GDP is at the same level of last year. While net FDI inflows at US$ 13.2 billion in second half of HY2:2016-17 (October 2016 - January 2017) moderated from the level a year ago, net portfolio flows turned positive in the fourth quarter. On a cumulative basis, net FDI inflows, however, rose to US$ 33.9 billion in April-January 2016-17 as compared with US$ 31.6 billion a year ago, suggesting India is becoming a preferred investment destination. There was an accretion to foreign exchange reserves, taking their level to US$ 370 billion as on March 31, 2017, equivalent to about 10 months of imports.

1.4 Equity Markets

During 2016-17, equity market remained volatile tracking domestic and global developments on BREXIT and US presidential results. However, the equity markets regained lost ground during Q4 with revived buying interest from FPIs and domestic investors. There is an increase in FPO offering in the current year as compared to last fiscal. Corporate raised resources to the tune of ''7.60 Lakh Crore in FY 2016-17 as compared to ''5.82 Lakh Crore in FY 2015-16. There is an increase in number of public issues from 95 in FY 2015-16 to 121 in FY 2016-17 of which 106 were IPOs as compared to 74 of last year. During the year the gains from secondary market have increased as compared to the last year. The BSE SENSEX registered a return of 17%, while NIFTY registered a return of 19% in FY 2016-17.

1.5 Bond Markets

The 10-yr Benchmark yield further softened during FY 201617, the average yield softened to 6.20% by Nov''16 from 7.8% in FY 15-16. However, the yields on G-Secs started to harden towards the year end tracking fed rate hike and shift in RBIs stance on Monetary from being accommodative to neutral. Yields rose to close to 7% by end of Mar''17. The fall in G-sec yields was supported by the surge in liquidity due to demonetization of Specified Bank Notes.

1.6 Trends in Banking Industry

The Banking business muted during the financial year 2016-17. Credit growth remained muted all through the year indicating the lack of strong credit demand in the economy despite the lowering of lending rates by banks. PSBs have reduced one Year MCLR by 50 to 105 bps. The overall credit growth for the Financial year 2016-17 was 5.08% as compared to 10.7% in 2015-16. However, the deposits of the banking system witnessed a growth of 11.75% during 201617 as compared to 9.72% of the last financial year. The growth is mainly on account of surge in funds due to demonetization of Specified Bank Notes in November''16.

2. PERFORMANCE HIGHLIGHTS OF THE BANK

2.1 Business

For the financial year ended 31st March 2017, Andhra Bank''s Business stood at Rs,339673 crore recording an increase of Rs.29000 Crore from Rs.310673 Crore as on 31.03.2016, with a growth rate of 9.33% (y-o-y).

2.2 Deposits

Andhra Bank''s Total Deposits stood at Rs,195441 Crore as on 31.03.2017, recording an incremental growth of Rs,21139 Crore (12.13%) over the previous year. The share of CASA deposits (Current and Savings) in Total Deposits stood at 29.33%.

- Current Deposits stood at Rs,8660 Crore as on 31.03.2017 as compared to Rs,7541 Crore as on 31.03.2016, registering a growth rate of 14.84%.

- Savings Bank Deposits increased to Rs,48655 Crore as on 31.03.2017, from Rs.37924 Crore as on 31.03.2016, growing at a rate of 28.3%.

- Term Deposits increased from Rs,128828 Crore as on 31.03.2016 to Rs,138124 Crore as on 31.03.2017, registering a growth rate of 7.22%.

2.3 Advances

Gross Bank Credit increased by 5.76% from Rs,136371 Crore as on 31.03.2016 to Rs,144232 Crore as on 31.03.2017.

- Credit to Agriculture Sector (including RIDF & non priority) stood at Rs.27573 Crore as on 31.03.2017 as against Rs,24679 Crore as on 31.03.2016 registering a growth rate of 11.7%.

- Credit to Micro, Small and Medium Enterprises (MSME) increased from Rs,23302 Crore as on 31.03.2016 to Rs,27260 Crore as on 31.03.2017 registering a growth rate of 17.0%.

2.4 Profitability

2.4.1 Total Income for the financial year 2016-17 increased by 5.9%, from Rs.19199 Crore during financial year 2015-16 to ''20336 Crore Non-Interest Income increased by 47.6%, to Rs,2308 Crore compared to Rs. 1564 Crore in the previous year. Operating Profit of the Bank increased to Rs,4388 Crore compared to Rs,3960 Crore in the previous year registering a growth rate of 10.8%. Net Profit stood at Rs.174 Crore for the financial year 2016-17.

2.4.2 The Total Interest Income recorded a growth rate of 2.23% and increased from Rs,17635 Crore during 2015-16 to Rs.18027 Crore during 2016-17. Of this, Interest Income from Advances grew by 0.97% from Rs,13467 Crore during 2015-16 to Rs,13598 Crore during 2016-17. Interest Income from investments increased by 9.14% from Rs,3876 Crore during 2015-16, and stood at Rs,4230 Crore during 2016-17.

2.4.3 Out of total Non Interest Income, Fee Based Income for the financial year ended 31.03.2017 stood at Rs,214 Crore

2.4.4 Total Expenses during the financial year 2016-17 were Rs,15948 Crore against Rs,15239 Crore during the previous year. Of this, Operating Expenses stood at Rs,3452 Crore Establishment Expenditure as a percentage of Total Expenditure stood at 13.15% for the financial year ended 31.03.2017.

Table 1: Highlights of Revenue, Expenditure and Profitability

(Rs, in Crore)

	2015-16	2016-17	Absolute Growth	Percentage Growth
Total Interest Income	17634.67	18027.42	392.8	2.23%
Total Interest Expenditure	12313.71	12495.78	182.1	1.48%
Net Interest Income	5320.96	5531.64	210.7	3.96%
Other Income	1564.47	2308.31	743.8	47.55%
Profit on sale of Investments	230.97	764.34	533.4	230.93%
Core Other Income	1333.5	1543.96	210.5	15.78%
Operating Expenses	2925.43	3451.99	526.6	18.00%
Operating Profit	3960.00	4387.95	428	10.81%
Provisions and Contingencies	3420.16	4213.63	793.5	23.20%
Net Profit	539.84	174.32	-365.5	-67.71%

APPROPRIATIONS

The appropriations made out of Net Profit are shown in Table

2. An amount of Rs,43.60 Crore was transferred to statutory reserves during 2016-17 and with this the statutory reserves now stand at Rs,2795.51 Crore Table 2: Appropriations out of Net Profit

(Rs, in Crore)

	2015-16	2016-17
Appropriation out of Net Profit	539.84	174.33
Balance brought forward	94.99	95.00
Transfer to Statutory Reserves	134.96	43.60
Transfer to Capital Reserve	36.80	129.20
Transfer to Revenue Reserves	126.64	0
Transfer to Special Reserve	200.00	95.00
Transfer to proposed Dividend (including Dividend Tax)	41.43	0
Profit carried over to Balance Sheet	95.00	1.53

2.5 KEY FINANCIAL RATIOS

The Banking Industry, as a whole, has been passing through a difficult phase and the bank has done well in key financial ratios in the present scenario. Net Interest Margin (NIM) stood at 3.07% compared to 3.18% in the previous year. Cost to Income Ratio stood at 44.03%, as compared to 42.49% for the previous year. Earnings per Share (EPS) stood at Rs, 2.56 and Book Value per Share (BVPS) stood at Rs,153.84.

Gross Non-Performing Assets to Gross Advances stood at 12.25% and Net Non-Performing Assets to Net Advances stood at 7.57% for the financial year ended 31.03.2017.

Table 3: Key Financial Ratios

Parameter	31.03.2016	31.03.2017
Yield on Advances (%)	10.71	9.77
Cost of Deposits (%)	7.18	6.43
Net Interest Margin (%)	3.18	3.07
Yield on Funds (%)	9.25	8.38
Cost of Funds (%)	6.46	5.81
Cost-to-income Ratio (%)	42.49	44.03
CRAR - Basel III (%)	11.58	12.38
Return on Assets (%)	0.28	0.08
Earnings Per Share (Rs.)	8.60	2.56
Book Value Per Share (Rs.)	150.68	153.84
Net NPA (%)	4.61	7.57
Gross NPAs (%)	8.39	12.25

2.6 CAPITAL & NET WORTH

(Rs, in Crore)

Parameter	31.03.2016	31.03.2017
Equity Capital	681	681
Reserves Surplus	9623	10730
Networth of the Bank (Tangible)	10264	10479

2.7 CAPITAL ADEQUACY

As per the guidelines issued by Reserve Bank of India , the start date for implementation of Basel III guidelines in India is with effect from April 1, 2013. Accordingly, the Bank has been assessing its Capital Adequacy as per Basel III prescriptions.

The total Capital Funds of the Bank are at Rs.19196.33 Crore as on March 31, 2017 and the Capital Adequacy Ratio at 12.38% is above the required RBI prescribed norm of 10.25%.

The Bank has put in place an “Internal Capital Adequacy Assessment Process” (ICAAP) for assessing the adequacy of Capital levels keeping in view the expected increase in business levels and enhanced Capital requirements in the Basel III regime. The assessment process also includes a framework for inclusion of Pillar-II risks under Basel-III guidelines, such as Credit concentration risk, interest rate risk in the banking book, liquidity risk, etc.

Table 4: CRAR Position (Rs, in crore)

	31st March 2017 (Basel III)
CET1	7.69%
AT1	1.48%
Total Tier-I	9.17%
Tier-II	3.21%
Total CRAR	12.38%

3. BUSINESS REVIEW

Total Business (Total Deposits plus Gross Bank Credit) of the Bank registered a growth rate of 9.33%, up from Rs,310673 Crore as on 31.03.2016 to Rs,339673 Crore as on 31.03.2017.

3.1 Aggregate Deposits

Aggregate Deposits (excluding inter-bank deposits) went up from Rs,174233 Crore as on 31.03.2016 to Rs,195381 Crore as on 31.03.2017, registering a growth rate of 12.14%. Aggregate Deposits comprised of current deposits of Rs,8602 Crore, savings deposits of Rs,48655 Crore and term deposits of Rs,138124 Crore

Table 5: Category-wise classification of Aggregate Deposits

(Rs, in Crore)

Sl. No.	Type of Deposits	Amount 31.03.2017	Percentage of Aggregate Deposits
1	Current Deposits	8602	4.40%
2	Savings Bank Deposits	48655	24.91%
3	CASA (Total of 1 2)	57257	29.31%
4	Term Deposits	138124	70.69%
5	TOTAL (3 4)	195381	100.00%

Area-wise distribution of Aggregate Deposits (excluding inter-bank deposits) as on 31.03.2017 is set forth in the following Table.

Table 6: Area-wise classification of Aggregate Deposits

(Rs, in Crore)

Sl. No.	Category of Branches	Amount 31.03.2017	% to total
1	Rural	12640.28	6.47%
2	Semi-Urban	26898.22	13.77%
3	Urban	39849.50	20.40%
4	Metro	115992.87	59.37%
5	TOTAL (1 2 3 4)	195380.37	100.00%

3.2 Gross Bank Credit

During the Financial Year ended 31.03.2017, Bank registered a growth rate of 5.76% in Gross Bank Credit over the previous year adding Rs,7861 Crore during the year, to reach Rs,144232 Crore as compared to Rs,136371 Crore for the Financial Year ended 31.03.2016.

Table 7: Classification of Advances portfolio

(Rs, in Crore)

Category	31.03.2016	31.03.2017	Variance
1. Food Credit	1878	1059	-819
2. Non-Food Credit (2.1 to 2.4)	134493	143173	8680
2.1 Agricultural Advances	24679	27573	2894
2.2 Advances to MSME Sector	23302	27260	3958
2.3 Retail Credit (incl. DLs)	24428	27541	3113
2.4 Large Industries & Other Advances	62084	60799	-1285
GROSS BANK CREDIT (1 2)	136371	144232	7861
Of which, Lending to Priority sector	54545	61690	7145

3.2.1 Priority Sector Lending

Priority Sector advances of the Bank stood at Rs,61689.71 Crore (including Rs,1642.74 Cr under RIDF and other funds) as at the end of March, 2017, registering a y-o-y growth of 13.10% with an absolute increase of Rs,7144.34 Crore Priority sector lending, net of PSLC, is Rs,59505.71 Crore which recorded 43.49% of ANBC as against statutory norm of 40%. Bank has made net sale of Rs,2184 Crore under PSLC General / SF-MF and earned premium/commission of Rs,36.19Crore

Table 8: Priority Sector Lending

(Rs, in Crore)

Category	2016 -17
1.Priority Sector Advances (2 to 7)	61689.71
2.Agriculture-Priority (2.1 2.2)	26643.33
2.1 Agriculture Loans-Priority	25194.56
2.2 Eligible Investments (RIDF)	1448.77
3.Micro, Small and Medium Enterprises	25030.53
4.Educational Loans	1605.61
5.Housing Loans (includes Indirect Finance& Investment in NHB)	8346.48
5.1 Eligible Investment in NHB	119.18
S.Social Infrastructure	1616.00
7.Renewal energy and others	47.60
Priority Sector Advances (net of PSLC)	59505.71
I. Priority Sector Advances (% to ANBC)	43.49
Agriculture-Priority (net of PSLC)	25443.33
II. Agriculture Advances (% to ANBC)	18.60
III.Small& Marginal Farmers (% to ANBC)	9.20
IV. Direct Lending to Non-Corporate farmers (% to ANBC)	13.28
V NPA under Agriculture as on 31.03.2017 (% to Gross Agril advances)	4.20

Credit to Agriculture-Priority

Agricultural advances (Agri-Priority) of the bank stood at Rs,26643 Crore at the end of March, 2017, registering a growth rate of 10.64% (y-o-y). The absolute increase over March, 2016 is Rs,2563 Crore. Agri. Priority advances (after net sale of PSLC SF/MF of Rs,1200 Crore) are at Rs,25443 Crore which constitutes 18.60% of ANBC under agriculture advances as on 31.03.2017 as against the statutory norm of 18%.

Lending to Small & Marginal Farmers

Total credit extended to Small & Marginal Farmers as on 31.03.2017 was Rs.12582 Crore (after net sale of Rs,1200 Crore under PSLC SF/MF) i.e., 9.20% of ANBC as against the statutory norm of 8%.

Direct Lending to Non-Corporate farmers

As against the statutory norm of 11.70% of ANBC to direct lending to non-Corporate farmers for the FY 2016-17, bank has reached 13.28% i.e., Rs.18170 Crore

Lending to Self Help Groups

Bank has extended financial assistance to 231359 self help groups with total exposure of Rs,5309 Crore as on 31.03.2017.

Credit to Weaker Sections

Advances to Weaker sections stood at Rs,15164 Crore at the end of March 2017 (after net sale of Rs,1200 Crore under PSLC SF/MF). Bank surpassed the target of 10% of ANBC to weaker section by achieving 11.08% of ANBC as on 31.03.2017

Credit to Minorities

Total credit extended to minority communities as on 31.03.2017 was at Rs,5292 Crore i.e., 8.89 % of Priority Sector advances as against norm of 15%.

Credit to Women

Total credit extended to women beneficiaries as on 31.03.2017 was at Rs,18396 Crore i.e., 13.49 % of Net Bank Credit as against norm of 5%.

Andhra Bank Rural Development Trust

Andhra Bank Rural Development Trust is running 14 Rural Self Employment Training Institutes in Andhra Pradesh(9), Telangana (2), Odisha(2), & Kerala (1) states and imparting need based training for capacity building/entrepreneurial development and dissemination of knowledge to farmers, SHG women, Rural unemployed youth and artisans.

Since inception, 159615 candidates have been trained through 5456 programs by the Institutes and around 65.80% of the trained candidates are engaged in gainful ventures. During the year, the institutes imparted training to 10688 candidates through 407 programs.

All our eleven RSETIs (3 RSETIs were recently opened) have been awarded with highest rating “AA” by Ministry of Rural Development, Government of India for the year 2015-16.

Financial Literacy and Credit Counseling Centres

Bank has established Jana Chetana Financial Literacy and Credit Counseling Trust and running 10 Financial Literacy Centres in all Lead Districts. These centers are promoting financial literacy activities through campaign mode and providing service related extension services. All our Rural Branches and RSETIs are organizing Financial Literacy Camps in the villages by utilizing the services of local artists/ magicians and organizing Kala Jataras.

3.3 Credit to MSME Sector

Performance under MSE & MSME (Rs, in Crore)

	31.03.16	31.03.17 Post Audit-After TWO		%of achieve ment to target	Growth (March 16-March 17)
					Am oun t	% of growth
	Actuals	Target	Achiev ement
Micro	6273.19	10823.40	9701.53	89.63%	3428.34	54.65%
Micro & Small En terprises	17746.68	22550.00	20717.27	91.87%	2970.59	16.73%
Total MSME	23277.77	29600.00	27260.10	92.09%	3982.33	17.10%

- Registered a y-o-y growth of 17.10%.

- During the current year, 1,10,261 MUDRA loans are sanctioned and an amount of Rs,1611.77 crore is disbursed. Achieved 64.47% of target.

- During the year Bank sanctioned , 2035 loans under Stand Up India a limit of Rs,345.32 crore

- Three SME Expresses were opened during the financial year 2016-17. Total 11 SME Expresses are functioning at various Centres like at Chennai, Mumbai, Ahmadabad, Pune, Coimbatore, Visakhapatnam, Guntur, Bangalore, Vijayawada, Nellore and Hyderabad.

- SME Expresses were strengthened and delegated with higher powers for speedy disposal of loan applications

- Our performance under CGTMSE scheme is as under

Year	No of A/cs	Amount
		(Rs, Crores)
31.03.15	13212	543.59
31.03.16	23427	740.31
31.03.17	28329	980.20

NEW INITIATIVES:

We have taken the following initiatives during the year to streamline the lending to MSE sector

- To promote digital transactions and to encourage MSEs to move towards cashless transactions from cash based transactions, 30% of the digital portion of projected turnover is sought to be taken instead of 20% while assessing Working Capital limits to MSE units under turnover method, for limits up to Rs,6.00 crores.

- Guidelines under Standby Term Loan were relaxed to MSME borrowers irrespective of credit rating to the extent of 20% of the Fund Based limits subject to a cap of Rs.1.00 crore for acquiring additional machinery.

- Sanctioning authorities are advised to consider fixing a separate additional working capital limit for MSEs up to 20% of the regular working capital limit at the time of sanction / renewal of working capital limit, specifically for meeting the temporary rise in working capital requirements.

- Entered into Memorandurm of Understanding (MOU) with Ministry of Textiles to finance Weavers under PMMY and new scheme had been launched in the name of “AB-Weaver Mudra”.

3.4 Retail Lending:

- BankRs,s Retail Credit portfolio stood at Rs,27541 Crore as on 31.03.2017 as against Rs,.24,429 Crore as on 31.03.2016, with year on year growth of Rs,3112 Crore. The segment has registered a growth of 12.74% on y-o-y basis including deposit loans and credit card.

- Housing loan portfolio has increased from Rs,11,811 Crore as on 31.03.2016 to Rs,13,870 Crore as on 31.03.2017 with an absolute growth of Rs,2059 Crore registering a growth rate of 17.43% on y-o-y basis.

- Vehicle loan portfolio has increased from Rs,1046 Crore as on 31.03.2016 to Rs,1337 Crore as on 31.03.2017 with an absolute growth of Rs,291 Crore registering a growth rate of 27.83% on y-o-y basis.

- Education loan portfolio has increased from Rs,2234 Crore as on 31.03.2016 to Rs,2469 Crore as on 31.03.2017 with an absolute growth of Rs,234 Crore registering a growth rate of 10.49% on y-o-y basis.

- Property loan (Loan against property) Portfolio has increased from Rs,1027 Crores as on 31.03.2016 to Rs,2692 Crore as on 31.03.2017 with an absolute growth of Rs,1666 Crore registering a growth of 162% on y-o-y basis.

- Bank has waived processing charges on Housing Loans and Vehicle Loans during the financial year to have an edge in the market competition.

3.5 Advances - Industry wise Exposure

Bank has loan exposure to various sectors like Power, Housing Loans, NBFCs, Iron & Steel, Textiles, etc. Exposure to top 10 industries constitutes 49% of gross bank credit as on 31.03.2017, signifying a diversified loan portfolio.

Table 9: Industry wise Exposure of Advances

(Rs, in Crore)

Sl. No.	Industry	Ceilings as % of Total Advances of previous Quarter	Actual Fund based exposure as on 31.03.2017	Exposure as % of Total Advances of Previous Quarter i.e. 31.12.2016
1	Power	22.00%	14335.77	10.09%
2	Housing Loans	15.00%	15990.10	11.25%
3	NBFC	10.00%	9534.18	6.71%
4	Iron & Steel	10.00%	7618.65	5.36%
5	Textiles	9.00%	6555.10	4.61%
6	Construction & Contractors	10.00%	5121.08	3.60%
7	Commercial Real Estates	7.00%	3527.34	2.48%
8	Rice Mills	6.00%	3650.18	2.57%
9	Engineering (Heavy & Light)	5.00%	2287.25	1.61%
10	Drugs & Pharmaceuticals	5.00%	2311.07	1.63%
	Total		70930.72

3.6 Area-wise position of Gross Bank Credit

The population group wise distribution of Credit as on 31.03.2017 is as under:

Table 10: Gross Bank Credit-Population Group Wise as on 31.03.2017___

Sl. No.	Category	Amount	% to total
1	Rural	14841	10.29%
2	Semi-Urban	20800	14.42%
3	Urban	27922	19.36%
4	Metro	80669	55.93%
5	TOTAL	144232	100.00%

4. INVESTMENTS

In terms of RBI guidelines, the Bank is required to invest in SLR securities to the extent of 20.50% of NDTL. Bank''s investment decisions are based on risk-return trade-off and bank is scrupulously following the regulatory and internal guidelines. Statutory prescriptions relating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are complied with and being monitored on a continuous basis. Risk Management in treasury operations has been strengthened further by undertaking stress testing and back testing of the investment portfolio at quarterly intervals, besides daily monitoring of Duration and Value-at-Risk (VaR). External rating migration of the bonds and debentures portfolio is also being monitored on quarterly basis.

As on 31.03.2017, the Investments (net of depreciation) increased by 10.83% and stood at Rs,59697.49 Crore, up from Rs,53864.19 Crore as on 31.03.2016. SLR maintained as on 31.03.2017 was Rs,63,458.96 Crore, which constituted 31.08% of Net Demand and Time Liabilities (NDTL). Interest income from investments increased from Rs,3875.86 Crore in 2015-16 to Rs,4354.89 Crore in 2016-17. Profit on sale of investments stood at Rs,764.62 Crore during 2016-17, while it was Rs,230.55 Crore during 2015-16.

Table 11: Classification of Investments

( in Crore)

	2015-16	2016-17	Var (%)
1. Government Securities	49671.88	55870.79	12.48
2. Other Approved Securities	0.00	0.00	0.00
3. Shares	312.52	545.48	74.54
4. Debentures & Bonds	2027.17	1967.41	-2.95
5. Subsidiaries and / or Joint Ventures	361.79	361.79	0.00
6. Others	1490.83	952.02	-36.14
TOTAL (1 to 6)	53864.19	59697.49	10.83

4.1 Strategic Investments

4.1.1 Joint Venture Insurance

Our Bank is having Joint venture in insurance with Bank of Baroda and Legal and General Plc of UK named “India First Life Insurance Co. Ltd”. Our stake in the venture is 30% while Bank of Baroda holds 44% and Legal and General Plc holds 26% stake. Our investment in the life insurance venture is Rs,187.50 Crore

4.1.2 Banking subsidiary in Malaysia

The Bank, along with Bank of Baroda and Indian Overseas Bank, has entered into a tie up for setting up a banking subsidiary in Malaysia. The Bank''s stake in the venture is 25%, amounting to RM 82.50 Million (book value Rs,143.28 Crore), in a total subscribed capital of RM 330 Million (approximately Rs, 483.25 Crore @ 1 RM = Rs,14.6440 as on 31.03.2017).

The joint venture viz. INDIA INTERNATIONAL BANK (MALAYSIA) BHD commenced business on 11.07.2012.

4.2 Treasury & Forex Business

The Bank is an ''Authorised Dealer'', to deal in foreign exchange business through 56 designated B category branches of the Bank. The Bank has speed remittance arrangements with two Exchange Houses based in Gulf.

Systems have been put in place for management of country risk, exchange risk and other foreign exchange risks. The country risk exposures for single country risk limit and aggregate risk limits for the group of countries under each risk category are fixed and are being monitored on daily basis.

During the year 2016-17, the Bank recorded a merchant turnover of ''34,820.31 Crore in Forex. The bank achieved Inter-Bank turnover of Rs,5,76,024.16 Crore as on 31.03.2017 compared to Rs,4,94,560.91 Crore as on 31.03.2016. Export finance of the Bank stood at Rs,4,176.17 Crore as on 31.03.2017.

5. CREDIT CARD BUSINESS

Our Bank is a Pioneer in Credit Card Business, both as Issuer and Acquirer (Merchant Business) since 1981. At present, our card base is 168393 cards.

-The Turnover of Credit Cards has increased from Rs,686.98 Crore for the year ended MarchRs,16 to Rs,834.42 Crore for the year ended March'' 17 showing a growth rate of 21.46% for the year ending March ''17.

-The Division has made a Net profit of Rs,25.17 Crore in the current review period ended March''17, as against Rs,9.14 Cr in the previous year ended March''16.

6.MERCHANT BANKING SERVICES

A Shareholders and Investor Relation Section is functioning as a part of the Division. The Bank has received 6 complaints and 3884 requests during the Financial Year 2016-17. All the complaints and requests have been redressed by the Bank.

During the year, we have raised the following bonds to augment the overall capital resources of the Bank for strengthening the Capital Adequacy as per Basel III capital requirements and for enhancing the long term resources.

Additional Tier I Bonds	10.99%	Rs, 900 Crore
Tier II Bonds	8.65%	Rs,1000 Crore

Rating of Debt Bonds and Certificate of Deposits borrowings of the Bank:

The Bank is availing the services of M/s.CARE Ratings India Limited, M/s.Brickwork Ratings Pvt. Limited, M/s.India Ratings & Research Pvt. Ltd and M/s.CRISIL Limited for rating of the Debt Bonds and CD Issues of the Bank.

Holding of General Meetings:

The 16th Annual General Meeting of shareholders of the Bank was held on 20.07.2016 and we obtained shareholders’ approval for adoption of annual accounts of the Bank for the financial year ended 31.03.2016, declaration of dividend on equity shares for the FY 2015-16 and special resolution on raising of capital through Qualified Institutional Placement, Follow-on Public Offer, etc.

Application Supported by Blocked Amount (ASBA):

SEBI vide Notification dated 10.11.2015, has mandated that all the investors applying in a public issue shall use only Application Supported by Blocked Amount (ASBA) facility for making payment. ASBA facility was enabled on August 24th, 2009 through our bank. As on March 31st, 2017, all branches (2908) of the Bank across pan India were enabled to accept ASBA applications. We have also extended the facility through our Net Banking Channel where customers can bid online hassle free.

7.BANCASSURANCE & FEE-BASED PRODUCTS

The Bank has been constantly focusing on augmenting noninterest income through diversification of income streams by taking up marketing of life and non-life insurance products, Mutual fund products, Depository Services, Direct taxes, Commercial taxes, Municipal taxes, Utility payments, Payment gateway services, Auto-Debit facilities etc.

7.1 Insurance

The Bank along with Bank of Baroda and Legal & General Group Plc of UK has formed a joint venture life insurance company named India First Life Insurance Co Ltd and it was formally launched in the month of March 2010.

During the financial year 2016-17, total New Business premium (including Retail and Group business) of Rs,140.62 Crore was mobilized. Renewal premium of Rs,149.48 Crore was collected up to 31.03.2017. Bank earned commission of Rs,23.07 Crore from sale of Life Insurance Policies.

The Bank has a tie up with M/s United India Insurance Co Ltd for General Insurance and Health Insurance. During the FY 2016-17 the bank has tied up with M/s Reliance General Insurance Co Ltd. for General Insurance and has also tied up with M/s Cigna TTK Insurance Co Ltd for Health Insurance.

During the year the Bank has mobilized the premium of Rs,122.62 Crore and earned a commission of Rs,14.81 Crore under General Insurance and health insurance.

7.2 Mutual Fund Business

The Bank is having tie-up with Mutual Fund companies, namely, UTI Mutual Fund, SBI Mutual Fund, Principal Mutual Fund, Tata Mutual Fund, Sundaram Mutual Fund, Reliance Mutual Fund, Birla Sun Life Mutual Fund, Fidelity Mutual Fund, Kotak Mutual Fund, LIC Mutual Fund and Baroda Pioneer Mutual Fund.

7.3 Depository Services

Bank is offering Depository Services to the public under the brand name of “AB Demat”. The Bank is a Depository Participant (DP) with Central Depository Services (India) Limited (CDSL) as well as with National Securities Depository Limited (NSDL).

During year 2016-17, our Bank tied up with M/s Geojit BNP Paribas for three in one Demat Account.

8. IT INITIATIVES

1. Private Cloud implementation:

Bank has implemented private cloud at Bank''s Data Centre. So far, 38 virtual machines are allotted for various projects.

2. Financial Inclusion (FI) Gateway replacement:

The new FI gateway is implemented and NPCI certification completed for AEPS on us /off us transactions and moved to production on 22.11.2016.

After migration to new FI gateway, Bank has taken up AePDS project. At present around 11,000 AePDS terminals are in operation and around 11 lakhs AePDS transactions per day are happening during the first week of every month.

3. Call Centre Outsourcing:

Bank has outsourced Call Centre operation. The new Call Centre is operational from August 2016.

4. IMPS through Internet Banking:

This feature is enabled for both Retail and Corporate Internet Banking customers which allows customers to remit funds to other bank beneficiaries instantly and 24*7.

5. Techprocess, Atom & Zaakpay Payment Gateways :

In addition to the existing Payment Gateways, Bank has integrated payment gateways of service providers like Techprocess, Atom & Zaakpay for carrying out different types of bill payments online.

6. Atal Pension Yojana (APY) Registration through Internet Banking:

Bank has introduced a new facility to domestic Indian resident and NRI customers to enroll and enquire for ''Atal Pension Yojana'' scheme through Internet Banking.

7.Self sign up on Internet Banking:

Customer can register for Internet Banking facility online using debit card, PIN & OTP. The user will be created instantly and he/she can set the internet banking passwords online.

8.Self sign up on Mobile Banking:

Customer can download and install the Mobile Banking App (mPAY) from Google Play / Apple iStores and use "Sign Up" option to register.

9. Green Pin:

Bank has implemented Green PIN for Debit Cards. An option is provided to customers to generate the PIN for Debit Cards themselves in ATM after entering the OTP received in their registered mobile number.

10. Selfie Account Opening:

Selfie account opening app wherein prospective customers can take a selfie and submit request for new account opening by scanning Aadhar QR code and taking a scan of PAN card.

11. Unified Payment Interface (UPI):

Launched UPI App that enables linking of multiple bank accounts into a single mobile App and request money from anyone using the Virtual Payment Address.

12. Mobile Number seeding through Micro ATMs and Kiosk Outlets:

Seeding of mobile number to Customer Master through Micro ATMs and Kiosk Outlets was enabled. For mobile seeding two approaches were followed for authentication (1) Aadhaar Number with Biometric and (2) Debit/ATM Cards with PIN. In both cases vendor will take input from the customer and seeding request will be sent to Bank. After successful validations of all parameters mobile number will be updated in Customer Master.

13. AB Subh Yatra - Holiday Saving Plan:

Necessary customization was built in Internet Banking for enabling Ab Subh Yatra holiday saving plan. This holiday saving plan is provided in association with M/s Thomas Cook India Limited to enable our customers to avail their Holiday Packages.

14. AB eVyapar - Merchant Payment App:

AB eVyapar App is developed for Aadhaar enabled payments to merchant by customers. This App is now available in Android platform.

15. Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKD) :

New scheme PMGKD has been introduced to deposit the undisclosed income in terms of RBI guidelines. A new menu has been customized to capture the depositor details to accept the deposits under PMGKD scheme.

16.Aadhaar Seeding through SMS:

An APP has been developed to accept the request for Aadhaar Seeding through SMS mode.

17.CBS web integration with TRACES:

A new MENU has been customized in Finacle providing access to branches to login to TRACES. The process will simplify the authentication mechanism for filing, correction of statements and download of TDS certificates, Consolidated files etc.

9. NETWORK EXPANSION

During the Financial Year 2016-17, Bank opened 105 Branches and added 293 ATMs/ BNAs/ CRs, with this, as on 31.03.2017, Bank had 6875 Delivery Channels consisting of 2908 Branches, 4 Extension Counters, 34 Satellite Offices and 3929 ATMs including BNAs/CRs spread over 26 States and 3 Union Territories. The Bank has 47 Specialized Branches catering to the needs of the specific segments of clientele. The Bank also has two Representative (overseas) Offices at Dubai (U.A.E) (opened in May 2006) and New Jersey (U.S.A) (opened in November, 2008).

Table 13: Population Group Wise classification of Branches

As on 31.03.2017 the Bank had 47 Specialized Branches, as detailed hereunder

Sl. No.	Category	Number	% to total
1	Rural	745	25.62
2	Semi-Urban	770	26.48
3	Urban	664	22.83
4	Metro	729	25.07
	TOTAL	2908	100

Table 14: Specialized Branches

S. No.	Category of Specialized Branches	No. of Brs.
1	Specialized SME Branches	18
2	Specialized Agricultural Finance Branches	2
3	Specialized Agri - Hitech Branches	6
4	Specialized Housing Finance Branches	4
5	Specialized Personnel Banking Branches	4
6	Specialized NRI Branches	3
7	Corporate Finance Branches	2
8	Auto-Tech Finance Branch	1
9	Overseas Branch	1
10	Asset Recovery Management Branches	5
11	SmallB'' Branch	1
	TOTAL	47

9.1 Presence in Minority-Dominated Districts

At the end of 31.03.2017 we are having 335 branches in Minority dominated Districts. Of the Bank''s total network across the country, the percentage of Branches in minority dominated Districts stood at 11.50 % as on 31.03.2017.

10. QUALITATIVE ASPECTS:

10.1 Risk Management

The Bank had a comprehensive “Integrated Risk Management Policy” for the management of Credit risk, Market risk and Operational risk as per the guidance notes/guidelines issued by the Reserve Bank of India. As a part of moving to advanced approach and as a part of the integrated risk management solution the policy has been divided into the following policies.

i. Credit Risk Rating Policy

ii. Model Risk Policy

iii. Credit Risk Data Management Policy

iv. Credit Risk Management Policy

v. Credit Risk Mitigation and Collateral Management Policy

vi. Loan Recovery & NPA Management Policy

vii. Risk Based Pricing and Performance Management Policy.

viii. Operational Risk Management Policy

ix. Market Risk Management Policy

x. Asset Liability Management Policy

xi. New Product Approval Poloicy

xii. Integrated Risk Management Policy

Apart from the above, the following policies are also framed by the department:

1. Stress Testing Policy

2. ICAAP Policy

3. Disclosure Policy

4. Policy on Hedging of foreign currency exposures of the borrowers.

5. Outsourcing Policy

All the policies shall be reviewed annually.

10.1.1 Credit Risk

- Credit Risk Management Committee is responsible for implementation of the Credit policies approved by the Board and RMC.

- The Bank has a well-defined ''Loan Policy'' duly approved by the Board prescribing standards for presentation of credit proposals, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentrations, standards for loan collateral, portfolio management, loan review mechanism, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning, regulatory/legal compliance, etc.

- Bank also is having in place the Credit Risk Management Policy, Credit Risk Mitigation & Collateral Management Policy, Credit Risk Rating Policy, Loan Recovery and NPA Management Policy.

- The Bank has in place comprehensive risk rating system for various categories of exposures. Bank has established a Rating cell for assigning internal ratings for all exposures of Rs 5 Crore and above. The Rating cell vets the internal rating given by the branch / Zonal office / Circle Office and assigns final rating.

- The Rating cell ensures comprehensive rating coverage, integrity of rating process and proper data maintenance.

- The Bank utilizes industry reports from CRISIL and the industry risk score service from CRISIL Research.

10.1.2 Market Risk

Market risk implies possibility of loss arising out of adverse movements of market determined rates and prices. The objective of market risk management is to avoid excessive exposure of Bank''s earnings and equity to such losses and to reduce Bank''s exposure to the volatility inherent in financial instruments such as securities, foreign exchange contracts, equity and derivative instruments, as well as balance sheet or structural positions. The Bank has in place a well-defined ''Market Risk Management Policy'' and an organizational structure for market risk management functions. The Bank manages market risk through ''Asset-Liability Management (ALM) policy and ''Investments/Forex policy''.

A high level Executive Committee viz. Asset-liability Committee (ALCO) oversees the ALM in the Bank and deliberates on liquidity and interest rate scenario in the market and decides upon the pricing of various products. ALCO regularly monitors the identification, measurement, monitoring and mitigation of market risk in liquidity, interest rates, equity and forex areas.

The ''liquidity risk'' is measured and managed through ''gap analysis'' for maturity mismatches based on residual maturity. For assets and liabilities, which are of non-maturity nature, Bank is conducting behavioral studies and factoring the observations in the gap analysis. The behavioral study findings are subjected to back-testing and are validated regularly. Prudential limits are fixed for net gaps and also for cumulative gap up to one year and these limits are measured and monitored regularly. Liquidity profile of the Bank is also measured regularly through various liquidity ratios and monitoring of the same is done with the help of prudential limits fixed thereon.

The ''interest rate risk'' is monitored on a regular basis through ''Maturity gap analysis'' and ''Duration gap analysis''. Tolerance limits have been fixed for impact on Net Interest Income (NII) due to adverse changes in interest rates. To measure the impact of interest rate changes on Bank''s equity, duration gap analysis is done and prudential limit is set for modified duration of equity. Modified duration of equity is within the prudential limits set for this purpose. VaR and duration analysis are used for measuring market risk including treasury operations. The Interest Rate Risk in Banking Book (IRRBB) is also being assessed on a monthly basis.

Other market related risks to which any bank is exposed are foreign exchange risk on foreign currency positions, liquidity or funding risk and price risk on trading portfolios. The Bank has clearly articulated policies to control and monitor its treasury functions. These policies comprise management practices, procedures, prudential risk limits, review mechanisms and reporting systems. These policies are revised regularly at fixed intervals in line with the changes in financial and market conditions.

10.1.3 Operational Risk

Management of Operational Risk is a part of the ''Integrated Risk Management Policy'' and the Bank has a focused attention for management of the Operational Risk, in the light of the Reserve Bank of India guidelines. Operational

Risk Management Cell is responsible for coordinating all the operational risk management activities of the bank and these include building an understanding of the risk profile, implementing tools related to operational risk management and working towards the goals of improved controls and lower risk. Operational Risk Management Committee [ORMC] ensures implementation and compliance of the Operational Risk policies and reports to the Board/Risk Management Committee [RMC].

The Bank has been computing capital charge for Operational risk by adopting ''Basic Indicator Approach'' (BIA) as stipulated by the RBI.

10.1.4 Approaches followed for computation of Capital to Risk Weighted Assets Ratio (CRAR)

As per RBI guidelines, all Commercial Banks in India shall follow the Standardized Approach for Credit risk, Standardized Duration Approach for Market risk and Basic Indicator Approach for Operational risk under the ''New Capital Adequacy Framework”.

Credit Risk: Bank at present is following the Standardized Approach for estimation of capital requirements for Credit Risk which also includes the HTM portfolio of Investments. Bank is gearing itself to move over to Advanced approaches for Credit risk. In this regard, Bank has developed a Credit Risk Rating Model (CRRM) with the consultancy assistance of National Institute of Bank Management (NIBM), Pune. This model is further strengthened internally by making it a WAN (Wide Area Network) based CRRM model so that it is accessible from any of the locations of the bank. This model is capable of providing transition matrices and default probabilities (Probability of default) and would help the Bank in moving over to the Advanced Approaches in future.

Market Risk: Bank is using the Standardized Duration method for computing capital charge for Market risk (investments in HFT and AFS categories) as per RBI guidelines.

Operational Risk: Bank is providing capital for Operational risk as per the Basic Indicator Approach (BIA).

10.1.5 Preparation for moving over to Advanced Approaches

Bank is in the process of migrating to Advanced Approaches through implementation of an Integrated Risk Management Solution.

10.1.6 Bank''s compliance to RBI guidelines on Basel requirements:

Pillar - I (Minimum Capital requirements)

RBI has introduced in its Basel III guidelines the following enhanced capital requirements and has also prescribed transitional arrangements to conform to these requirements in a phased manner by March 31, 2019.

	Regulatory Capital	As% to RWAs
(i)	Minimum Common Equity Tier 1 ratio	5.5
(ii)	Capital conservation buffer (comprised of Common Equity)	2.5
(iii)	Minimum Common Equity Tier 1 ratio plus capital conservation buffer[(i) (ii)]	8.0
(iv)	Additional Tier 1 Capital	1.5
(v)	Minimum Tier 1 capital ratio [(i) (iv)]	7.0
(vi)	Tier 2 capital	2.0
(viii)	Minimum Total Capital Ratio (MTC) [(v) (vi)]	9.0
(viii)	Minimum Total Capital Ratio plus capital conservation buffer [(vii) (ii)]	11.5

The Bank is calculating its Capital Adequacy in accordance with Basel II & Basel III guidelines. The Bank''s Capital Adequacy at present is in conformity with the transitional arrangements for Basel III as prescribed by RBI. However, to meet the growing business requirements, the Bank may have to supplement its Capital funds, especially by increasing Common equity in future.

Pillar - II (Supervisory Review & Evaluation Process)

In compliance with the Pillar-II guidelines of the RBI under Basel III framework, the Bank has formulated a Policy of Internal Capital Adequacy Assessment Process (ICAAP) to assess internal capital in relation to various risks that it is exposed to. Stress Testing and scenario analysis are used to assess the financial and management capability of the Bank to continue to operate effectively under exceptional but plausible conditions. The bank is calculating the Concentration risk on a quarterly basis to assess the portfolio level risks based on sectoral, geographical and borrower wise concentration. Bank is using statistical parameters like Herfindahl-Hirshman Index (HHI), Gini Coefficient, and Rosenblatt Index for determining the Credit Concentration Risk. The Bank has a Board approved Stress Testing Policy describing the various techniques used to gauge its potential vulnerability and also its capacity to sustain such vulnerability.

Pillar - III (Market Discipline)

The Bank has a Disclosure Policy as per the disclosure requirements contained in the circular issued by the Reserve Bank of India on the implementation of the Basel III Capital Regulations. The guidelines therein are adhered to and compliance is reported to the Competent Authorities. Pillar-III (Market discipline) of Basel III, aims to encourage Market discipline by developing a set of disclosure requirements which allows market participants to assess key pieces of information on the scope of application, capital, risk exposures, risk assessment processes and hence, the capital adequacy of the Bank. The Pillar-III Disclosures are published on a quarterly and half yearly basis on the Bank''s website plus a year-end disclosure as on March of every year. The Pillar-III year-end disclosures are also published in the Bank''s Annual Report apart from being available on the Bank''s website.

10.1.7 In addition to the above, RBI has introduced several other measures of leverage and liquidity standards viz.

-A minimum Leverage Ratio of 4.5% to curb the excessive leverage of a bank''s balance sheet; and

-Liquidity standards by way of two ratios viz. Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

The LCR requires a bank to hold sufficient high-quality liquid assets to cover its total stressed net cash outflows over 30 days. The NSFR requires a bank to hold sufficient amount of stable funds to meet the requirement of stable funding over a one-year period of extended stress.

The Bank is regularly calculating and monitoring the Liquidity ratios taking as reference the RBI guidelines issued for LCR and draft guidelines issued for NSFR. The Bank is also calculating and monitoring the Leverage ratio on a quarterly basis.

10.2 Management of Asset Quality

Gross NPAs of the Bank stood at Rs,17670 Crore as on 31.03.2017. Gross NPAs as a percentage to Gross Advances stood at 12.25% while Net NPAs as a percentage to Net Advances stood at 7.57%. The Provision Coverage of NPAs as on 31.03.2016 was 51.03%.

Total reduction in NPA accounts amounted to Rs,3184 Crore Table 15: Position of Non-Performing Assets

(Rs, in Crore)

	2015-16	2016-17
Gross NPAs at the beginning of the year	6876.54	11443.63
Additions during the year	6332.04	9410.34
Reduction during the year	1764.95	3183.99
Gross NPAs at the end the year	11443.63	17669.98
Net NPAs	6035.65	10354.81

The segment-wise distribution of NPAs as on 31.03.2017 is as under: Table 16: Segment-wise Non-Performing Assets

(Rs, in Crore)

Segment	Amount	NPA % to ADV*
I. Agriculture	1156.88	4.20%
II. MSME	2703.06	9.92%
III. Retail Credit	458.26	1.66%
IV. Large & Mid Corporate	13351.78	21.58%
Total	17669.98	12.25%

*NPA% to Advances indicates NPA to Advances of that segment. Provisions held under different classes of NPAs are as under: Table 17: Provisions held for Non-Performing Assets (Excluding floating Provisions of Rs. 13 Crore)

(Rs, in Crore)

Nature of Asset Ou	tstanding	Provision Held
Sub-Standard Assets	6611.17	1154.18
Doubtful Assets	10999.78	6088.96
Loss Assets	59.03	59.03
Total	17669.98	7302.17

10.2.1 Restructuring mechanism

During FY 2016-17, 9 accounts with outstanding amount of Rs,1283.22 Crore were restructured in terms of the restructuring packages. The total balances in restructured accounts as at the end of March 2017 stood at Rs,7691.75 Crore in 96 accounts.

10.2.2 Lending Practices

The Bank had framed well defined Loan Policy Guidelines with the approval of the Board. These guidelines are reviewed by the Board at periodical intervals based on Reserve Bank of India guidelines, Annual Bi-monthly Policy Statement of Reserve Bank of India, competitive environment prevailing among the banks, for accelerated credit growth envisaged in certain business segments, marketing & development of new products and taking into account the feedback received from the field level functionaries, credit departments at Head Office.

Credit Committees have been constituted in the Bank at Head Office, Circle Office and Zonal Office levels for exercising sanctions of credit proposals and suitable sanctioning powers have been delegated to these committees in terms of directions of Ministry of Finance. Further, based on feedback received from field level functionaries, the delegated powers of various sanctioning authorities are reviewed and revised to reduce turnaround time in the sanction of credit proposals. The loan review mechanism is further strengthened in the Bank ensuring review of sanctions made by all functionaries by the next higher committees / competent authorities as the case may be.

10.2.3 Techno Economic Viability (TEV) Cell

The Bank has a Techno Economic Viability (TEV) Cell which is independent of the Credit Processing & Sanctioning Departments. The Cell undertakes preparation of Project Information Memorandum (PIM), conducting Techno Economic Viability (TEV) study and Debt Arrangement (Loan Syndication) for Corporate clients. The Cell has earned a Fee based income of Rs,120.89 lakhs during the Financial Year 2016-17, (Previous Financial Year was Rs,68.33 lakhs).

10.3 Management Information System

Bank has developed a robust Management Information System which captures data essential for vital functions such as risk management and planning and which serves as an effective tool for the Top Management in decision making. This has facilitated quick decision making. The Bank is in a position to analyse performance in major parameters even on a day to day basis using the information system available. Leveraging on the CBS platform of the Bank, the MIS has facilitated speedy decision making and its implementation.

10.4 Inspection & Audit

Opened three more new Zonal inspectorates at Bhubaneshwar, Mumbai and Vijayawada during the year. Thus, the system of Monitoring Internal Audits through Zonal Inspectorates is strengthened.

As per audit plan 2016-2017 and basing on the Risk profile, 2003 branches are subjected to audit. Apart from this, the new branches opened between the period April 2016 to September 2016 were also subjected to inspection.

Upgraded Risk Based Internal Audit (RBIA) module and added the templates prescribed by RBI.

During 2016-17, concurrent audit has been made online

- RBCA module and training has been imparted to all concurrent auditors by conducting auditors meet at all Zonal Offices.

IS Audit: Concurrent Audit for IS audit of Data Centre has been initiated by the Bank during the year for better monitoring of procedures and controls. Monitoring of outsourced activities and third party services has been undertaken in the financial year 2016-17 as per the regulatory guidelines.

Off Site Monitoring Cell (OSM Cell) formed based on the report submitted by Shri Basanth Seth generates the reports of high value/critical transactions happened at branches on previous day, scrutinize them and sensitize the controlling offices/Branches for taking corrective action wherever deficiencies are noticed in following the laid down systems and procedures. Keeping in view the operational risks involved in various critical/important transactions, few alerts are being sent by OSM cell to the concerned Zonal Office also for adding their confirmation through OSM online system.

10.5 Compliance Policy

The Bank has in place a comprehensive Compliance Policy. An executive of the Bank in the rank of Deputy General Manager has been appointed as the ''Chief Compliance Officer''. As per the Policy adopted by the Bank, suitable organizational structure has been laid down defining the roles and responsibilities for Compliance Officers of various departments at Head Office, Zonal Offices and Branches. Compliance of statutory and regulatory guidelines is the scope of operation of the compliance function in the Bank. Suitable reporting system is put in place to ensure effective implementation of Compliance Policy in the bank.

10.6 Legal SARFAESI Act:

1. During this Financial Year i.e., from 01.04.2016 to 31.03.2017, 152 secured assets were sold and an amount of Rs,62.50 Crore was recovered by selling the secured assets under SARFAESI Proceedings.

2. Total recovery effected by the bank during the Financial Year 2016-17 under SARFAESI Proceedings is Rs,280.24 Crore ( inclusive of sale of assets, up- gradations and part recoveries ).

Lok Adalats:

3. Recovered an amount of Rs,84.25 lakhs in 331 accounts during the Financial Year 2016-17.

RTI Act:

4. 1018 Requests and 157 Appeals were received under RTI Act during the Financial year 2016-17.

5. All the Requests and Appeals were disposed off on time.

10.7 Customer Service

-As a part of Customer Centric Initiatives we have started holding Segment Specific Customer Meets apart from the general Customer Meets are held.

10.8 Human Resources Management

During the year, several guidelines received from the Government of India on various H.R. matters were incorporated in HR Policy.

To augment the existing manpower and bridge the skill gaps in areas like Credit, Information Technology, Forex, Risk Management, Treasury etc., and to meet the demands of expansion, 195 Specialist Officers, 522 general officers and 999 clerks were inducted during the year.

Bank also ensured career progression by considering promotions in each grade as per the manpower and recruitment plan for the year.

Industrial Relations

Industrial Relations are cordial in the Bank. Quarterly meetings were held with the representatives of the recognized Officers'' Federation and the Award Employees'' Union. Apart from this, meetings were also held at Zonal level to sort out the local issues to better the working conditions as well as customer service.

Training:

Bank has an Apex College with state-of-the art training infrastructure located in the coveted IT hub of the Financial District in Hyderabad. In addition to Apex College, Bank has Staff Training College at Visakhapatnam to cater to the training needs of employees working in Orissa, West Bengal States and Coastal Districts of Andhra Pradesh.

To improve the core capabilities of employees, various training programmes on credit, leadership development and Product Awareness & Soft Skill development were conducted, besides induction & refresher programmes for newly inducted employees.

In Financial Year 2016-17, 338 in house training programmes / work shops were conducted covering 9048 employees. In addition to this, 474 officers were trained in external trainings conducted at NIBM, RBI/CAB/ BIRD, IDBRDT, & FEDAI.

To have an International exposure and to equip themselves with the accomplishments in the Global Financial Markets, 11 officers were sent to external programmes conducted abroad. Succession Planning: Bank has created a talent pool in various grades and these officers are groomed by providing intensive training programmes on various fronts to occupy the top key posts in the years to come.

POs on-boarding process:

In view of the introduction of this new PO on boarding process, bank has reduced the probation period of the Probationary Officers from the 2 years to 1 year.

MOU with Manipal Academy

As done in previous years, our Bank has entered into an MOU with Manipal University during the year for hiring job-ready Officers and selected 150 candidates for undergoing one year PGDBF course. Upon completion of the course, they will be inducted into the bank.

Discontinuation of Interview Process:

As per the directions of Government of India, Bank has discontinued the interview process in recruitment of Clerks, Subordinate Staff and Part Time Sweepers.

Staff Strength as on 31.03.2017:

Category	Strength	% to total
Officers	10967	56.59
Clerks	5604	28.92
Sub Staff *	2809	14.49
Total	19380	100.00

*Excluding Part Time Sweepers.

SC/ST/OBC Profile:

Our Bank has been implementing reservation policy for SCs and STs as per Government of India guidelines. The representation of SCs and STs is 4150 and 1645 respectively in total work force of 20981 working in the Bank as on 31st March 2017. Out of total 10967 officers, 1953 belong to SC category and 921 belong ST category

Our Bank has been implementing reservation policy for Other Backward Classes (OBCs) with effect from 08.09.1993 as per Government of India guidelines. The representation of OBCs is 5429 in the total work force of 20981 working in the Bank as on 31st March, 2017.

Differently Abled Persons:

Our Bank is providing 3% of total vacancies arising in Officer, Clerical and Subordinate staff cadre in a year. The 3% posts are distributed amongst 3 categories of Persons who are differently abled i.e., Blindness or low vision (B/LV)-1%; Hearing Impairment (HI)- 1%; Loco Motor disability or cerebral palsy (Lm)-1%. The representation of Persons with Disabilities is 550 (2.62%) in total workforce of 20981 as on 31st March, 2017.

11. OFFICIAL LANGUAGE

- Rajbhasha Link in AB Staff Portal has been revamped. Besides ''Rajbhasha Mission'', Banking Terminology, Administrative Phraseology, Rajbhasha Margdarshika, various formats, Important Circulars, other related information, Hindi House Magazine, Monthly Hindi e-bulletin and Hindi Workshop material has also been kept in our Portal.

- Use of Hindi in our Tirupati, Bangalore, N. Delhi, Meerut and Kochi Z.Os.,was appreciated by Ministry of Home Affairs.

- Our Bank won total 49 prizes in various Hindi Competitions conducted under the aegis of TOLIC.

- Head Office was awarded First Prize in Use of Hindi in Hyderabad by Ministry of Home Affairs.

12. VIGILANCE

- Preventive Vigilance Inspection has been conducted in 2625 branches to ensure implementation of extant guidelines. Reports were reviewed by the department and necessary instructions have been issued to the branches for compliance.

- Vigilance Department observed “Vigilance Awareness Week” from 31st October to 5th November 2016 as per the directions of Central Vigilance Commission. The theme for the Week was “Public participation in promoting Integrity and eradicating Corruption”. As part of the Vigilance Awareness Week, Andhra Bank organized a meeting of Bankers which was well attended by all the Bankers and also students of school/colleges along with their parents/teachers at Vijayawada on 4th November, 2016 and Hon''ble Central Vigilance Commissioner Shri K V Choudary, graced the occasion.

- Bank has conducted more than 2500 programmes to create awareness among the public about ill effects of corruption and promoting integrity. Bank has conducted 2055 Awareness Gram Sabhas covering 1899 Gram Panchayats across the country where more than 60,000 citizens have participated. 103 Essay Writing/Elocution/ Debate competitions were organized in schools and colleges, 231 Melas and 55 Choupals/Meetings with 7176 participants were organized to give wide publicity to propagate the message/theme of Vigilance Awareness Week. Two Grievances Redressal Camps were also organized at zonal offices.

- “Mass Integrity Pledge”, a concept envisaged by Central Vigilance Commission was also taken up by the Vigilance Department.

- Quarterly News Bulletin “SAVDHAN” is being published for updating the staff with latest information on frauds and measures to safeguard themselves as well as Bank. A special Vigilance Bulletin was issued on the occasion of Vigilance Awareness Week 2016.

- Vigilance Department received special Corporate Vigilance Excellence Award 2016-17 from Institute of Public Enterprise, Hyderabad.

13.LEAD BANK SCHEME

Andhra Bank is the Convener Bank for State Level Bankers'' Committee, Andhra Pradesh since 1984. Consequent to reorganization of AP into Telangana & Residual Andhra Pradesh w.e.f 2nd June, 2014, responsibility of Convenership of SLBC of residual AP continued to be with Andhra Bank.

Andhra Bank is having Lead Bank responsibilities in fifteen districts, viz. Srikakulam, East Godavari, West Godavari, Guntur in Andhra Pradesh, Ganjam, Gajapathi districts in Odisha, Siddipet, Sircilla Rajanna, Jagtial, Peddapally, Mancherial, Wanaparty, Nagarkurnool, Jogulamba Gadwal and Warangal rural in Telangana State. Bank is discharging the responsibilities in implementation of Lead Bank Scheme. So far 198 SLBC meetings have been organized including 15 SLBC Meetings in the reorganized state of Andhra Pradesh. During the current year, SLBC has conducted 37 meetings of different nature. Besides these meetings, the Convener, SLBC has participated in various meetings and Video Conferences that are being organized by Government of India, Government of Andhra Pradesh, RBI, NABARD and various other Organizations on different subjects.

The State Credit Plan for 2016-17 was launched by the Hon''ble Chief Minister of Andhra Pradesh on 09.06.2016. Special SLBC Meeting on Demonetization & Relief Measures in Drought Affected Areas was conducted on 21.11.2016 at Vijayawada. SLBC has taken proactive role in formulating & organizing the following committees as requested by GoAP

- Financing to Agriculture and Tenant Farmers

- MSME

- Integration of Welfare schemes with Bank finance

APSLBC CALL CENTRE: SLBC has established a Call Centre namely '' APSLBC CALL CENTRE'' on behalf of all Banks in the state with toll free telephone Number i.e. 18004258525 & 18004251525 exclusively for MUDRA operating from Vijayawada from 01.02.2017.

Website: An exclusive website is set up for SLBC of Andhra Pradesh with URL www.slbcap.nic.in for the information of all the stake holders and general public. The website is being updated at regular intervals with the latest data and information.

14. FINANCIAL INCLUSION

Pradhan Mantri Jan Dhan Yojana (PMJDY):

- Bank has successfully implemented PMJDY and as on

31.03.2017, 24.23 lakh accounts have been opened as against 21.78 lakhs during previous year.

- Total deposits of Rs,326.33 Crore have been mobilized vis-a-vis Rs,212.91 crores during 2015-''16 with an average balance of Rs,1346.57 as against Rs,977.51 the previous year.

- Zero balance accounts stood at 19.73% (20.84% as on 31.03.2016) as against the industry average of 20.80%.

Aadhaar Seeding:

- In order to pass on the DBT benefits directly into the beneficiaries accounts, Department of Financial Services has advised to take up Aadhaar Seeding.

- Accordingly Bank has achieved 72.73% of seeding in active PMJDY accounts.

Over Draft Facility under PMJDY:

- The last mile of PMJDY is the financial channel by extending the overdraft to the needy. About 1,67,578 customers are eligible for Over Draft and bank have sanctioned Over Draft to 47,124 customers.

- 14,127 customers availed over draft to the extent of Rs,187.67 lacs.

- Our Bank is the pioneer in introducing OD facility through ATMs and Micro ATMs.

Pradhan Mantri Jeevan Jyothi Bima Yojana (PMJBY):

- PMJBY offers Rs, 2 lakh life insurance cover at a premium of Rs,330 per annum. Bank account holders in the age 18 to 50 years are eligible to avail this facility. The life risk cover will get terminated after 55 years. Mobilized 7.12 lakh accounts and settled 2816 claims.

- Insurance Co. is settling the claims within 72 hours after receipt of complete set of documents.

Pradhan Mantri Suraksha Bima Yojana (PMSBY):

- PMSBY offers Rs,2 lakh accidental death cum disability insurance coverage for people who fall in the age group of 18-70 years, at ''12 premium. Our bank enrolled 67.50 lakh customers up to 31.03.2017.

Atal Pension Yojana (APY):

As on 31.03.2017 bank has enrolled about 1.39 lakh accounts under APY during the Financial Year.

- Bank was adjudged by PFRDA as the best performing bank among PSBs during the FY 2016 - ''17.

- Our Chakkan Branch in Maharashtra enrolled 2096 subscribers during the Financial Year 2016-''17, the highest amongst all Bank branches in both Public and Private sectors.

- Our Sultanabad branch in Telangana State enrolled 846 APY subscribers during the Freedom for Life Campaign held by PFRDA. And the branch was awarded for being the topper during the campaign.

Activation of Bank Mitras:

- Bank has appointed 1777 Bank Mitras covering all allotted Sub Service Areas. Presently about 1518 bank mitras are actively doing transactions as against 1476 Bank mitras during previous year.

- All Bank Mitras are provided with interoperable devices which are capable of taking up Rupay transactions and AEPS transactions.

- Andhra Bank stands 1st among all Banks in conducting AEPS transactions after implementation of cashless Aadhaar Enabled Public Distribution System (AEPDS) in the State of Andhra Pradesh.

Aadhaar Enabled Public Distribution System (AEPDS):

- Bank has successfully implemented AEPDS in four districts of Andhra Pradesh apart from Krishna District as pilot.

- On an average, Bank is taking up around 30.00 lakh AEPDS transactions, which is the highest in the industry.

Technological Developments in FI:

- Opening of accounts through e-KYC by capturing bio metrics of the customers and mapping the same with UIDAI.

- Enabling of AEPS Offus & Onus transactions

- Enabling of Rupay Onus & Offus transactions

- Enabling of Social Security Schemes enrolments through PoS device.

- Enabling of APY enrolments through PoS device.

- Availing of Over Draft at all Bank Mitra locations.

- Aadhaar and Mobile Seeding in all PoS devices.

- Remittance facility at all Bank Mitra locations.

15. SUBSIDIARIES & REGIONAL RURAL BANKS

The Bank has one Subsidiary, namely, Andhra Bank Financial Services Limited (ABFSL), which is wholly-owned by the Bank. The Company has earned a profit of Rs,173.37 lacs before Income Tax and a net profit of Rs,116.99 lacs after tax during the year ending 31-03-2017, with this the negative net worth of the company has been brought down from Rs,812.46 lacs to Rs,695.47 Lacs as on 31.03.2017 Bank has one sponsored Regional Rural Bank namely Chaitanya Godavari Grameena Bank located in Guntur (Andhra Pradesh), covering the districts Guntur, East Godavari and West Godavari with 192 branches. As on

31.03.2017, the total business stood at Rs,6336.39 Crore, and Net profit after Tax is Rs,55.17 Crore. Percentage of Gross NPA to Average Advances is 1.30.

16. SECURITY ARRANGEMENTS

High priority was accorded to up-grade security arrangements at branches, currency chests and ATMs. 2877 branches and 2510 ATMs were brought under CCTV surveillance. Installation of CCTV system in remaining branches and ATMs is in progress. Improved Integrated Burglar Alarm System was installed in 1753 vulnerable branches. This is an innovative system which is capable of protecting and notifying criminal attempts of various natures perpetrated against branches. The branches connected with the IIBAS are further monitored 24 X 7 at Head Office through Central Monitoring Station (CAMS). E-surveillance is installed in 2125 ATMs which enables centralized monitoring of security of ATMs 24x7. Technology is being used to enhance security measures and minimize crime rate against the Bank.

17. NRI CELL

The NRI Cell was set up with a view to serve as an effective channel of communication between the Bank and its NRI Clientele thereby increasing NRE Deposits. The Cell supports and guides Representative Offices in Dubai & USA thereby ensuring betterment in Customer Service.

NRI Cell provides useful information related to Banking & Foreign Exchange to NRIs through NRI Bulletin (AB Connect) every month. At present nearly 30260 NRI Customers (both existing and prospective) are being connected and accessing the information provided in the NRI Bulletin (AB Connect). Total NRI business of the Bank increased from Rs,2504 Crore as on 31.03.2016 to Rs,3163 Crore as on 31.03.2017, i.e. a growth rate of 26.31%. The total Deposits under NRE segment comprising of SBNRE, TD NRE and FCNR (B) Deposits increased from Rs,.2340 Crore as on 31.03.2016 to Rs,2862 Crore as on 31.03.2017 registering an annual growth rate of 22.31%.

18. BRANDING AND COMMUNICATIONS

The Department has undertaken publicity & branding during the financial year to derive good mileage and visibility for the Bank. Some of the major publicity activities include

1) acquiring naming rights at City Bus Port, Vijayawada, AP with our Branding ,

2) utilization of Ad Space at Rajiv Gandhi International Airport

Hyderabad for publicity on our products & services ,

3) full train branding on 5 train rakes (80 coaches) of Narayanadri / Falaknuma Expresses which ply between Tirupati, Secunderabad & Howrah - .

4) broadcast of audio jingles through FM Radio on ''Retail Rythm & Mega Vehicle Loan Carnival'', the campaigns for marketing of our retail products - in multiple languages across pan India during festive season,

5) advertisement through Sri Venkateswara Bhakti Channel (SVBC) during live programmes of Srivari Brahmotsavams

6) sponsorship of ''Hyd 10 K Run'' organised by Freedom 10K Run at Hyderabad - as image building activity,

7) sponsorship of 99th Annual Conference of Indian Economic Association conducted at Tirupati,

8) sponsorship of Partnership Summit (CII) held at Visakhpatnam and

9) Putting up of Bank''s Stall at All India Industrial Exhibition at Hyderbad which run for 45 days, apart from several others.

23. CHANGES IN THE BOARD DURING THE YEAR

The following changes took place in the Composition of the Board during the FY 2016-17:

- Tenure of Shri K.Thamaraiselvan, Director came to an end on 24.11.2016.

- Tenure of Dr. Naina Sharma, Director came to an end on 11.12.2016

- Tenure of Shri Amit Goel, Director came to an end on 17.02.2017

Board wishes to place on record its appreciation of services rendered by the above members of the Board during their tenure.

24. DIRECTORS’ RESPONSIBILITY STATEMENT

The Board of Directors hereby states that,

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

- Accounting policies have been selected and applied consistently, reasonable and prudent judgments and

estimates have been made so as to give a true and fair view of the state of affairs of the Bank as at 31.03.2017 and of the profit and loss of the Bank for the financial year ended on 31.03.2017.

- Proper and sufficient care has been taken for the maintenance of adequate accounting records in

accordance with the relevant regulatory provisions for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

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

- Internal Financial controls to be followed by the Bank have been laid down and such internal financial controls are adequate and are operating effectively.

- Proper systems have been devised to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively.

25. ACKNOWLEDGEMENT

Andhra Bank is grateful to the Government of India, RBI, SEBI, NABARD, and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. The Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Bank''s vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support.

For and on behalf of the Board,

Place : Hyderabad (Suresh N Patel)

Date :20.05.2017 Managing Director & CEO

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Mar 31, 2015

Dear Members,

Directors of your Bank are happy to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors'' Report for the financial year ended March 31,2015.

1. DIRECTORS'' RESPONSIBILITY STATEMENT The Board of Directors hereby states that

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

- Accounting policies have been selected, and applied consistently and reasonably, and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit & Loss of the Bank for the Financial Year ended 31.03.2015.

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

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

2. ACKNOWLEDGEMENT

Andhra Bank is grateful to the Government of India, RBI, SEBI and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. The Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Bank''s vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support.

For and on behalf of the Board,

Place: Hyderabad (C.VR Rajendran)

Date : 26.04.2015 Chairman & Managing Director

---

Mar 31, 2014

Directors of the Bank are happy to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors' Report for the financial year ending March 31, 2014.

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Mar 31, 2013

Directors of your Bank are happy to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors'' Report for the financial year ended March 31,2013.

1. PERFORMANCE HIGHLIGHTS OF THE BANK

1.1 Business

During the financial year 2012-13, Andhra Bank''s Business increased to Rs. 2,23,933 Crore as on 31.03.2013 from Rs.1,90,535 Crore as on 31.03.2012, recording a robust annual growth rate of 17.5%.

1.2 Deposits

Andhra Bank''s total Deposits amounted to Rs. 1,23,796 Crore as on 31.03.2013, showing an absolute accretion of Rs. 17,945 Crore and a growth rate of 17.0% over previous year. The share of CASA deposits (current and savings) in Total Deposits stood at 25.7%.

- Current Deposits stood atRs. 7,029 Crore as on 31.03.2013 as compared to Rs. 6,369 Crore as on 31.03.2012, recording a y-o-y growth of 10.4%.

- Savings Bank Deposits increased to Rs. 24,730 Crore as on 31.03.2013, up from Rs. 21,578 Crore as on 31.03.2012, growing at a rate of 14.6%.

- Term Deposits increased from Rs. 77,904 Crore as on 31.03.2012 to Rs. 92,037 Crore as on 31.03.2013, registering a growth rate of 18.1 %.

1.3 Advances

Gross Bank Credit increased by 18.2% from Rs. 84,684 Crore as on 31.03.2012 to Rs. 1,00,138 Crore as on 31.03.2013.

Credit to Agriculture Sector registered a growth rate of 32.0% from Rs. 12,459 Crore as on 31.03.2012 to Rs. 16,451 Crore as on31.03.2013.

Credit to Micro, Small and Medium Enterprises (MSME) registered a growth rate of 28.4% from Rs. 13,132 Crore as on 31.03.2012 to Rs. 16,863 Crore as on 31.03.2013.

1.4 Profitability

Total Income for the Financial Year 2012-13 increased by 14.4% from Rs. 12,199 Crore during the 2012-13 to Rs. 13,957 Crore. Non-Interest Income increased to Rs. 1,047 Crore compared to Rs. 860 Crore in the previous year. Operating Profit of the Bank for 2012-13 stood at Rs. 2,767 Crore, while Net Profit stood at Rs. 1,289 Crore.

1.4.1 The Total Interest Income recorded a growth rate of 13.9% and increased from Rs. 11,339 Crore during 2011-12 to Rs. 12,910 Crore during 2012-13. Of this, Interest Income from Advances grew by 11.3% from Rs. 9,278 Crore during 2011-12 to Rs. 10,327 Crore during 2012-13. Interest Income from investments increased by 25.4% from Rs.1,974 Crore during 2011- 12 and stood at Rs.2,476 Crore during 2012-13.

1.4.3 Of the total Non Interest Income, Fee Based Income stood at Rs.62.42 Crore for the financial year ended 31.03.2013.

1.4.4 Total Expenses during the financial year 2012-13 were Rs.11,190 Crore against Rs.9,384 Crore during the previous year. Of this, Operating Expenses stood at Rs.2,037 Crore. Establishment Expenditure as a percentage of Total Expenditure stood at 11.5% for the financial year ended 31.03.2013.

Table 1: Highlights of Revenue, Expenditure and Profitability

(Rs. in Crore)

2011-12 2012-13 Absolute Percentage Growth Growth

Total Interest Income 11338.73 12909.69 1570.96 13.9%

Total Interest Expenditure 7579.41 9152.67 1573.26 20.8%

Net Interest Income 3759.32 3757.02 -2.30 -0.06%

Other Income 859.93 1047.42 187.49 21.8%

Profit on sale of Investments 120.91 188.93 68.02 56.3%

Core Other Income 739.02 858.49 119.47 16.2%

Operating Expenses 1804.25 2037.21 232.96 12.9%

Operating Profit 2815.00 2767.23 -47.77 -1.7%

Provisions and Contingencies 1470.33 1478.10 7.77 0.5%

Net Profit 1344.671 1289.131 -55.54 -4.1%

APPROPRIATIONS

The appropriations made out of Net Profit are shown in Table 2. An amount of Rs.322.28 Crore was transferred to statutory reserves during 2012-13, and with this, the statutory reserves now stand at Rs.2,348.45 Crore. Transfer towards Dividend (including Dividend Tax) amounted to Rs.327.34 Crore.

Table 2: Appropriations out of Net Profit

(Rs. in Crore)

2012-13

Appropriation out of Net Profit 1289.13

Balance brought forward 99.07

Transfer to Statutory Reserves 322.28

Transfer to Capital Reserve 11.38

Transfer to Revenue Reserves 319.20

Transfer to Special Reserve 310.00

Transfer to proposed Dividend (including Dividend Tax) 327.34

Profit carried over to Balance Sheet 98.00

1.5 KEY FINANCIAL RATIOS

The Bank has done considerably well in key financial ratios, given the performance of the Industry as a whole. Net Interest Margin (NIM) stood at 3.21% compared to 3.67% in the previous year. Cost to Income Ratio stood at 42.40%. Earnings per Share (EPS) stood at Rs.23.04 and Book Value per Share (BVPS) increased from Rs.126.36 to Rs. 144.67.

Gross Non-Performing Assets to Gross Advances stood at 3.71% and Net Non-Performing Assets to Net Advances stood at 2.45% for the financial year ended 31.03.2013.

Table 3: Key Financial Ratios

Parameter 31.03.2012 31.03.2013

Yield on Advances (%) 12.45 12.02

Cost of Deposits (%) 7.51 7.87

Net Interest Margin (%) 3.67 3.21

Yield on Funds (%) 10.04 9.88

Cost of Funds (%) 6.71 7.00

Cost-to-income Ratio (%) 39.06 42.40

CRAR (%) 13.18 11.76

Return on Assets (%) 1.19 0.99

Earning Per Share (Rs.) 24.03 23.04

Book Value Per Share (Rs.) 126.36 146.11

Net N P A (%) 0.91 2.45

Gross NPAs (%) 2.12 3.71

1.6 CAPITAL & NET WORTH

Andhra Bank''s Equity Capital stood at Rs. 560 Crore for the Financial Year ended 31.03.2013. The Reserves and Surplus of the Bank increased from Rs. 6,920 Crore at the end of 2011-12 to Rs. 7,882 Crore at the end of 2012-13, registering a y-o-y growth of 13.9%.

Tangible Net Worth of the Bank improved from Rs. 7,071 Crore as on 31.03.2012 to Rs. 8,176 Crore as on 31.03.2013 registering an absolute increase of Rs. 1,105 Crore.

1.7 CAPITAL ADEQUACY

The total Capital Funds of the Bank stand at Rs. 11899.77 Crore, up 6,66% from Rs. 11,156.34 Crore as at the end of the previous year. With this, the Capital Adequacy Ratio as per Basel II norms stands at 11.76% as compared to the RBI prescribed norm of 9%. Coupled with this, a high Tier I Capital ratio of 8.52% provides the Bank sufficient headroom for future business expansion. As per RBI guidelines, Bank has already moved over to Basel II Capital Adequacy Norms with effect from 31.03.2009 and computed CRAR for Credit risk, Operational risk and Market risks. The Bank is gearing up to move over to Basel III by strengthening the Risk Management systems as well as assessing the capital adequacy and Liquidity standards to meet the Basel III requirements. Bank has also put in place an "Internal Capital Adequacy Assessment Process" (ICAAP) for assessing the adequacy of Capital levels keeping in view the expected increase in business levels and increased Capital requirements in Basel III regime. The assessment process also includes a framework for inclusion of Pillar-ll risks under Basel-ll guidelines, such as Credit concentration risk, interest rate risk in the banking book, liquidity risk, etc.

Table 4: CRAR Position

31 March 31 March 2012 2013

Tier-1 Capital 9.02% 8.52%

Tier-II Capital 4.16% 3.24%

Total 13.18% 11.76%

1.8 DIVIDEND

The Board of Directors of the Bank recommended a Dividend of 50% for the financial year 2012-13.

2. BUSINESS REVIEW

The Total Business (Total Deposits plus Gross Bank Credit) of the Bank registered a growth rate of 17.5%, up from Rs. 1,90,535 Crore as on 31.03.2012 to Rs.2,23,933 Crore as on31.03.2013.

2.1 Aggregate Deposits

Aggregate Deposits (excluding inter-bank deposits) went up from Rs.1,05,762 Crore as on 31.03.2012 to Rs.1,23,714 Crore as on 31.03.2013, registering a growth rate of 17.0%. Aggregate Deposits comprised of Current Deposits of Rs.6,991 Crore, Savings Deposits of Rs:24,730 Crore and Term Deposits of Rs.91,993 Crore.

Table 5: Category-wise classification of Aggregate Deposits

(Rs. in Crore)

SI. Type of Deposits Amount Percentage of No. Aggregate Deposits

1 Current Deposits 6990.72 5.7%

2 Savings Bank Deposits 24730.26 20.0%

3 Term Deposits 91992.93 74.3%

4 TOTAL (1 2 3) 123713.91 100.0%

Growth rate over 17.0% previous year (%)

Area-wise distribution of Aggregate Deposits (Total Deposits less Inter-Bank Deposits) as on 31.03.2013 is set forth in the following Table.

Table 6: Area-wise classification of Aggregate Deposits

(Rs. in Crore) SI. Category of Amount % to total No. Branches

1 Rural 7528(20.3%) 6.1%

2 Semi-Urban 19621 (18.7%) 15.9%

3 Urban 32332 (18.6%) 26.1%

4 Metro 64233 (15.3%) 51.9%

5 TOTAL (1 2 3 4) 123714 (17.0%) 100.0%

Note: Figures in ( ) indicate annual growth rate over the previous year

2.2 Gross Bank Credit

For the Financial Year ended 31.03.2013, Bank registered''a growth rate of 18.2% in Gross Bank Credit over the previous year adding Rs.15,454 Crore during the year, to reach Rs. 1,00,138 Crore as compared to Rs.84,684 Crore for the Financial Year ended 31.03.2012.

Table 7: Classification of Advances portfolio

(Rs. in Crore) Category 31.03.2012 31.03.2013 Variance

1. Food Credit 1372.91 1848.94 476.03

2. Non-Food Credit (2.1 to 2.4) 83311.04 98288.81 14977.77

2.1 Advances to Agricultural Sector (Excl. RIDF) 12458.53 16450.54 3992.01

2.2 Advances to MSME Sector 13132.44 16862.64 3730.20

2.3 Retail Credit (inci. DLs) 11300.72 14327.95 3027.23

2.4 Large Industries & Other Advances 46419.35 50647.68 4228.33

GROSS BANK CREDIT (1 2) 84683.95 100137.75 15453.80

Of which, Lending to Priority sector 27026.96 35132.02 8105.06

3.2.1 Priority Sector Lending

Priority Sector Advances of the Bank stood at Rs.35132.02 Crore as at the end qf March 2013, registering a growth of 30.0% on Y-o-Y basis. The absolute increase in Priority Sector Advances on Y-o-Y is Rs.8105.06 Crore. Priority Sector Advances constitute 41.29% ofANBC.

Table 8: Priority Sector Lending (as on 31.03.2013)

(Rs.Crore)

Category 2012-13

1. Priority Sector Advances (2 to 6) 35132.02

2. Agriculture Loans 16450.54

3. Micro and Small Enterprises 12249.92

4. Micro Credit 2.68

5. Educational Loans 1343.05

6. Housing Loans (including indirect finance) 5085.83

Memo items

I. Priority Sector Advances (%) 41.29%

II. Agriculture Advances (%) 19.33%

3.2.1.1 Credit to Agriculture

The Total Agricultural Advances of the Bank were at Rs.16450.54 crore, registering a growth of 32.04% on Y-o-Y basis. The absolute increase on Y-o-Y is Rs.3992.01 crore Agricultural advances constitute 19.33% ofANBC whereas Direct Finance to Agriculture alone is 17.02% ofANBC.

3.2.1.2 Lending to Self Help Groups (SHGs)

Bank covered a total number of 2,26,873 Self Help Groups with outstanding financial assistance of Rs.3394.74 crore.

3.2.2 Lending to Micro & Small Enterprises (MSE)

The Total Advances to Micro & Small Enterprise of the Bank were at Rs. 12249.92 Crore registering growth of 38.44% on Y- o-Y basis. The absolute increase on Y-o-Y is Rs.3401.39 crore.

3.2.3 Credit to Weaker Sections

Advances to Weaker Sections stood at Rs.9997.24 Crore.

The Weaker Section Advances, as a percentage to ANBC, stood at 11.75%.

3.2.4 Credit to Minorities

Credit extended to Minorities stood at Rs. 2794.38 crore, constituting 7.95% of Priority Sector Advances.

3.2.5 Credit to SC/ST Borrowers

Total credit extended to SC/ST beneficiaries under Priority Sector ad vances was at Rs. 1124.01 crore.

3.2.6 Credit to Women

Total credit extended to Women beneficiaries was at Rs.9791.62 Crore, which is 9.78% as against target of 5% of Net Bank Credit.

3.3 Credit to MSME Sector

Growth of MSME Sector is vital for the economic development of our country. Extending credit to this sector has been a high priority for Andhra Bank fora long time.

Credit to Micro & Small Enterprises (Priority and Non Priority) has grown by 47.51 % y-o-y against the norm of 20%. Out of this, credit to Priority Sector stood at Rs. 12,250 Crore against Rs.8,849 Crore during previous year i.e., a y-o-y growth of Rs.3,401 Crore (38.4%).

As part of Corporate Governance and with an objective of increasing customer convenience, online filing and tracking of loan applications has been introduced in our Bank. It provides efficient and convenient services to the customers and brings greater transparency in the processing of loan applications and allows tracking the status of such applications.

With an aim to improve the credit off-take substantially and to improve the quality of advances under SME sector, we have opened SME centralized Processing Cells at five places in Chennai, New Delhi, Kakinada, Hyderabad I Zone and Hyderabad 11 Zone in the middle of October 2012.

There are 18 Specialized MSME Branches operating in the states of Andhra Pradesh, Orissa, Tamil Nadu, Punjab and Chattisgarh. To tap the potential in MSME sector, three more branches are identified as Specialized MSME Branches viz. Rajam Branch in Andhra Pradesh, Red Hills Branch in Tamil Nadu and Jalandhar Branch in Punjab.

We have opened Small B Branch in Madhapur, Hyderabad in the month of January 2013 as per Government of India guidelines with a view to provide debt assistance for Innovative Enterprises / Start ups.

The Bank is giving thrust for collateral free lending under the segment consisting of Micro and Small Enterprises coming under Priority Sector category and covered under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme.

Year No of Increase in Amount % Growth A/Cs number of A/Cs (Rs Crore) in Amount

31.03.2011 2980 137.44

31.03.2012 4212 1232 189.47 37.86%

31.03.2013 5697 1485 274.28 44.76%

3.4 Retail Lending

Retail credit of the Bank registered an impressive growth rate of 26.8% during the year and stood at Rs. 14,328 Crore. The growth achieved is around three times to that registered during the previous financial year. The customer centric initiatives taken up by the Bank in retail loan products are well received and accepted by the customers. Housing loans and Car Loans are the major growth drivers during the year.

The Bank has introduced a new variant in Gold loans intended to meet the credit needs of Micro and Small Enterprises in a hassle free manner.

The rates of interest on Educational Loans are reduced and over 1000 educational institutes are accredited by the Bank to render credit services to the students admitted to these institutes. The Bank made a policy of rewarding meritorious students with concessional rates of interest on educational loans for their further study. Educational loans are made cheaper by 100 to 150 basis points for those who have academic excellence at prequalifying public examination / top rankers of state/national level entrance tests for admission to professional/technical courses. Similar concessions are allowed for those securing admissions in premier educational institutes of the country like IIM, IIT, ISB, etc.

3.5 Advances - Industry wise Exposure

Bank has loan exposure to various sectors like Power, Housing Loans, NBFCs, Iron & Steel, textiles, etc. Exposure to top 10 industries constitutes 58.1% of gross bank credit, signifying a diversified loan portfolio.

3.6 Area-wise position of Gross Bank Credit

The population group wise distribution of Credit as on 31.03.2012 is as under:

Table 10: Gross Bank Credit-Population Group Wise as on 31.03.2013

SI. No. Category Amount % to total

1 Rural 10989(31.2%) 11.0%

2 Semi-Urban 13886(22.4%) 13.9%

3 Urban 21536(17.0%) 21.5%

4 Metro 53727(15.4%) 53.6%

5 TOTAL 100138(18.2%) 100.0%

Note: Figures in ( ) indicate annual growth rate over the previous year

4. INVESTMENTS

In terms of RBI guidelines, the Bank is required to invest in SLR securities to the extent of 23% of NDTL. Bank''s investment decisions are based on risk-return trade-off and bank is scrupulously following the regulatory and internal guidelines. Statutory prescriptions relating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are complied with and being monitored on a continuous basis. Risk Management in treasury operations has been strengthened further by undertaking stress testing and back testing of the investment portfolio at quarterly intervals, besides daily monitoring of Duration and Value-at-Risk (VaR). External rating migration of the bonds and debentures portfolio is also being monitored on quarterly basis.

As on 31.03.2013, the Investments (net of depreciation) increased by 27.01% and stood at Rs 37632 Crore, up from Rs 29,629 Crore as on 31.03.2012. SLR maintained as on 31.03.2013 was Rs 31097 Crore, which constituted 24.62 % of Net Demand and Time Liabilities (NDTL). Interest income from investments increased from Rs 1,973.53 Crore in 2011 - 12 to Rs 2475.76 Crore in 2012-13. Profit on sale of investments stood at Rs 188.93 Crore during 2012-13, while it was Rs 120.91 Crore during 2011 -12.

Table 11: Classification of Investments

(Rs. in Crore)

2011-12 2012-13 Var (%)

1. Government Securities 26727.92 32973.62 23.36%

2. Other Approved Securities 10.36 8.16 -21.24%

3. Shares 212.85 326.43 53.36%

4. Debentures & Bonds 705.97 1338.80 89.63%

5. Subsidiaries and / or Joint Ventures 199.29 307.27 54.18%

6. Others 1772.52 2678.12 51.09%

TOTAL (1 to 6) 29628.91 37632.40 27.01%

4.1 Strategic Investments

4.1.1 Joint Venture Insurance

Our Bank is having Joint venture in insurance with Bank of Baroda and Legal and General Pic of UK christened IndiaFirst Life Insurance Co. Ltd. Our stake in the venture is 30% while Bank of Baroda holds 44% and Legal and General Pic holds 26% stake. Both the banks have commenced sale of insurance policies through their branch outlets. Our investment in the life insurance venture is Rs 142.50 Crore.

4.1.2 Banking subsidiary in Malaysia

The Bank, along with Bank of Baroda and Indian Overseas Bank, has entered into a tie up for setting up a banking subsidiary in Malaysia. The Bank''s stake in the venture is 25%, amounting to RM 77.50 Million (book value Rs.133.77 Crore), in a total subscribed capital of RM 310 Million (approximately Rs.519.25 Crore @ 1 RM = Rs. 16.75).

The joint venture viz. INDIA INTERNATIONAL BANK (MALAYSIA) BHD commenced business on 11.07.2012. The joint venture bank has a business of Rs.203.07 Crore at the end of 31.03.2013.

4.1.3 United Stock Exchange of India Ltd

United Stock Exchange of India Ltd is promoted by a consortium of banks, of which our bank is also a partner. The other major banks* are Canara Bank, Bank of Baroda, Allahabad Bank, Bank of India, Indian Overseas Bank and Oriental Bank of Commerce. The Bank''s Investment in United Stock Exchange of India Ltd. is Rs 3 Crore.

4.1.4 MCX Stock Exchange Ltd. (MCX-SX)

The Bank''s investment in the equity of MCX-SX is Rs 25 Crore. The Exchange commenced trading in Equity Cash and Equity Derivatives from February 11,2013.

4.2 Treasury & Forex Business

The Bank is an ''Authorised Dealer'', to deal in foreign exchange business through 49 designated B category branches of the Bank. The Bank has speed remittance arrangements with Three Exchange Houses based in Gulf.

Systems have been put in place for management of country risk, exchange risk and other foreign exchange risks. The country risk exposures for single country risk limit and aggregate risk limits for the group of countries under each risk category are fixed and are being monitored on daily basis.

During the year 2012-13, the Bank recorded a merchant turnover of Rs.25,148.28 Crore in Forex. The bank achieved Inter-Bank turnover of Rs.3,38,153 Crore as on 31.03.2013 compared to Rs 4,38,338 Crore as on 31.03.2012. Export finance of the Bank stood at Rs. 3570 crore as on 31.03.2013.

5. CREDIT CARD BUSINESS

Wide publicity programme was initiated through various Print and Electronic media on Platinum Credit Cards, Gift Cards and International Travel Cards. The awareness through News Paper Advertisement, FM Channel broadcasting, Commercial Ad through TV, Hoarding display at select places etc., has resulted in good inflow of new card applications at the Branches.

Performance during the Financial Year ended 31.03.2013

- The Division has issued 9,507 new Credit Cards as against 5217 cards during the previous Financial Year.

- 3,175 New Platinum Credit Cards have been issued during the year.

- The Credit Card usage has increased from Rs.344 Crore during the previous year to Rs.430 Crore for the Financial Yearended 31.03.2013.

- NPA on card dues declined from 7.53% during the previous year to 6.44 % in the current year.

- On International Travel prepaid cards issued during the year, an amount of USD 7,24,216 was loaded.

- Govt. Prepaid Cards issued during the year to various beneficiaries was loaded with Rs 4.95 Crore, which is interest free CASA fund to the Bank.

NEW PRODUCTS & SERVICES INTRODUCED

- The highly secured EMV Chip card implementation process is successfully completed. The chip card is a PIN based card and shall be issued to the select customers.

- As per RBI direction, various Risk mitigation measures under Card issuance and card acquiry aspects are adopted to prevent fraudulent usage and misuse of stolen cards. The VAA/VRM solution of VISA is introduced for continuous monitoring process.

- Reward Points programme on Merchant usage of cards is introduced. The 25% increase in card usage during the year shows that the features viz. transparency and auto credit of cash back, has been welcomed by all the cardholders.

- The income eligibility criterion is relaxed for Platinum card issuance from Rs.5.00 lakhs to Rs.3.00 lakhs.

- Titanium Credit Card, a secured card is initiated for launch.

6. MERCHANT BANKING SERVICES

The Bank acted as a ''Paying Banker'' for payment of dividend warrants of three companies.

A Shareholders''and Investors''Grievances Cell is functioning as a part of the Division. The Bank has received 32 complaints and 5745 requests during the year. All the complaints and requests have been redressed by the Bank.

The Share Transfer committee of the Bank met three times during the year and confirmed the 1301 share transfers totalling to 6,20,588 shares.

The Bank has tied up with M/s TATAAIG General Insurance Company Limited towards Corporate Guard for Directors and Officers for an amount of Rs.50 Crore for a period of one year with effect from 03.11.2012.

Application Supported by Blocked Amount (ASBA):

SEBI had introduced a new mode of payment in public and rights issues called Application Supported by Blocked Amount (ASBA), wherein the application money remains blocked in the Investor''s bank account till finalization of basis of allotment in the issue.

ASBA process facilitates retail individual investors bidding at cut-off, with single option, to apply through Self Certified Syndicate Banks (SCSBs) in which the investors have Bank accounts. SCSBs are those Banks which satisfy the conditions laid down by SEBI. SCSBs would accept the applications, verify the application, block the funds to the extent of bid payment amount, upload the details in the web based bidding system of NSE / BSE, unblock when the basis of allotment is finalized and transfer the amount for allotted shares to the Bank account of the issuer.

The ASBA facility is also available for New Fund Offers of Mutual Funds.

In view of the inherent benefits of ASBA to investors, issuers and the market, w.e.f. May 1, 2010, the reach of ASBA was subsequently expanded to QIB bidders also on 100% payment of application money including various other investor categories like High Net Worth Individuals, Corporate Investors, etc.

As per SEBI circular dated 25.09.2012, the Bank has enabled the ASBA facility in all the Metro and Urban Branches of the Bank numbering to 740 Branches towards implementation of first phase of increasing the designated branches for ASBA by 31st October 2012. Further, in the second phase of implementation, the Bank has provided the facility in all the Semi-Urban and Rural Branches as on 18.12.2012 totalling to 1074 Branches. Thp Bank has also provided the facility in all the New Branches 6pened thereafter. .

The Bank has handled 36 issues through ASBA facility during the Financial Year2012-13. Outofthesame, 13arelPOs, 19 are FPOs, 1 Rights Issue, 2 NFOs and 1 issue under Institutional Private Programme.

7. BANCASSURANCE & FEE-BASED PRODUCTS

The Bank has been constantly focusing on augmenting non- interest income through diversification of income streams by taking up marketing of life and non-life insurance products, Mutual fund products, Depository Services, Direct taxes, Commercial taxes, Municipal taxes, utility payments etc. Bank is utilizing Marketing Officers specifically for spreading awareness of our products and services and also for marketing our products.

7.1 Insurance

The Bank along with Bank of Baroda and Legal & General Group Pic of UK has formed a joint venture life insurance company named India First Life Insurance Co Ltd and it was formally launched in the month of March 2010. The Bank has shareholding of 30% in the company, while Bank of Baroda has 44% and 26% is held by Legal and General Group Pic. During the FY 2012-13, bank sold 52864 policies and collected premium of Rs 125.20 Cr.

7.2 Mutual Fund Business

The Bank is having tie ups with Mutual Fund companies, namely, UTI Mutual Fund, SBI Mutual Fund, Principal Mutual Fund, Tata Mutual Fund, Sundaram Mutual Fund, Reliance Mutual Fund, Birla Sun Life Mutual Fund, Fidelity Mutual Fund, Kotak Mutual Fund, LIC Mutual Fund, Baroda Pioneer Mutual Fund and ING Vysya Mutual Fund.

7.3 Depository Services

Bank is offering depository Services to the public under the brand name of "AB Demat". The Bank is a Depository Participant (DP) with Central Depository Services (India) Limited (CDSL) as well as with National Securities Depository Limited (NSDL). 158 branches of the Bank are authorized to open demat accounts.

7.4 Retail Sale of Gold Coins

Bank is selling denominations of 2,4,5,8,10 Grams in round shape and 20 Grams and 50 grams in ingot shape. During the FY 2012-13 a total of 524 Kgs of Gold coins were sold and commission of Rs. 5.40 Crores is earned.

8. IT INITIATIVES

- CDM: Bank has installed 10 Cheque Deposit Machines during the year.

- Bunch Note Acceptor: In order to facilitate the customers to deposit cash through machines, Bank has deployed Bunch Note Acceptor machines at e-banking centres and planning to deploy more machines in the coming year.

- Passbook Printing Kiosks: Bank has deployed 100 self- service passbook printing kiosks that enable the customers to print the passbooks on their own during the year.

- NEFT: During the year transactions under National Electronic Fund Transfer (NEFT) have gone up substantially by 83.7% from 55 lakhs to 101 lakhs.

- RTGS: The Real Time Gross Settlement (RTGS) transactions increased from 10.84 lakhs to 13.52 lakhs, recording a growth of 24.7%.

- Internet Banking: The Internet Banking transactions increased from 3.96 lakhs to 7.88 lakhs, recording a growth of 98.9%.

- Mobile Banking: The mobile banking transactions have increased to 1,68,453 from 26,407 transactions.

- IMPS (IMmediate Payment Service) through P2A (Person to Account): Bank has launched IMPS P2A funds transfer facility using beneficiary account number as IFSC code.

- IMPS through ATM: Bank has extended the IMPS facility to customers through our Bank''s ATMs also.

- IMPS using USSD: Bank has enabled IMPS on USSD (Unstructured Supplementary Service Data) platform also in addition to the existing SMS and application (mPAY) modes.

- Security features in Internet Banking: Bank has enhanced security features for Internet Banking transactions by introducing One Time Password (OTP) for financial transaction, One time Access Code (OAC) and cooling period for addition of third party payee.

- Email Alerts for ATM & POS Transactions: In addition to existing SMS alerts, Bank is sending transaction alerts through e-mail to customers for ATM and POS transactions irrespective of the amount of transaction. Same facility has also been extended to Credit Card Transactions.

- CTS: Bank has implemented CTS Southern grid solution and covered all the MICR centres in the states of Tamilnadu, Karnataka, Kerala, Andhra Pradesh, West Bengal and Union Territories of Pondicherry and Chandigarh covering 443 branches.

- Damodaran Committee Recommendations on Customer Service in Banks: Bank has provided the following features suggested by Damodaran Committee, to the customers during the year.

- Printing of the additional details like MICR Code, IFSC Code of the Branch on front page of customer''s passbook.

- Printing of Acronyms on Statement of Account.

- Sending of SMS alerts when an account is about to become Inoperative.

- SMS alerts when cheques are returned in inward clearing.

- Unclaimed Deposits/Inoperative Accounts: Bank has placed the details of unclaimed deposits/inoperative accounts (accounts not operated during last 10 years) in Bank''s Website with a provision for search option.

- Reserve Bank of India Working Group Recommendations on Information Security, Electronic Banking, Technology Risk Management & Cyber Frauds:

- Board level IT Strategy Committee was constituted to advice on strategic direction on IT.

- Bank has designated a Chief Information Security Officer (CISO) in SM-V cadre reporting to General Manager (Risk) to oversee Information Security activities.

- Bank has implemented a robust IT policy and Information System Security policy which are in line with the industry best practices. These policies are being reviewed periodically and suitably strengthened in order to address emerging threats.

- IT Security consultant was appointed to guide the Bank in the implementation of Industry best IT Security Practices.

- The Data Centre audits are conducted periodically by external agencies.

- In order to have an assurance on the Fire Safety features available at Data Centre, Bank has got the Fire Safety Audit of Data Centre conducted by an external agency.

- Employee awareness trainings/tests conducted to ensure security and increase awareness among staff.

- Business Continuity Management System (BCMS):

- Bank has built a Disaster Recovery Site in a different seismic zone with redundancy built in every single point of failure to ensure uninterrupted banking service delivery to customers.

- Bank is regularly conducting DR drills on quarterly basis where in all the critical applications of the Bank are functioning on DR centre infrastructure.

9. NETWORK EXPANSION

During the Financial Year 2012-13, Bank opened 155 Branches (including up-gradation of 2 Extension Counters and 1 satellite office) and added 151 ATMs. With this, as on 31.03.2013, Bank had 3125 Delivery Channels consisting of 1867 Branches, 13 Extension Counters, 38 Satellite Offices and 1207 ATMs spread over 25 States and 3 Union Territories. The Bank has 55 Specialized Branches catering to the needs of the specific segments of clientele. The Bank also has two Representative (overseas) Offices at Dubai (U.A.E) (opened in May 2006) and New Jersey (U.S.A) (opened in November, 2008).

Table 13: Population Group Wise classification of Branches

SI. Category Number % to total No.

1 Rural 524 28.1%

2 Semi-Urban 528 28.3%

3 Urban 523 28.0%

4 Metro 292 15.6%

TOTAL 1867 100.0%

As on 31.03.2013 the Bank had 55 Specialized Branches, as detailed hereunder:

Table 14: Specialized Branches

S. Category of Specialised Branches No. of No. Brs.

1 Specialised SME Branches 18

2 Specialised Argicultural Finance Branches 3

3 Specialised Agri - Hitech Branches 6

4 Specialised Housing Finance Branches 4

5 Specialised Personnel Banking Branches 4

6 Specialised NRI Branches 4

7 Specialised Retail Credit Branches 8

8 Corporate Finance Branches 2

9 Auto-Tech Finance Branch 1

10 Overseas Branch 1

11 Asset Recovery Management Branch 3

12 Small B Branch 1

TOTAL 55

9.1 Presence in Minority-Dominated Districts

At the end of 31.03.2013 we are having 268 branches in Minority dominated Districts. Of the Bank''s total network across the country, the percentage of Branches in minority dominated Districts stood at 14.35% as on 31.3.2013.

10. QUALITATIVE ASPECTS:

10.1 Risk Management

The Bank has put in place a comprehensive "Integrated Risk Management Policy" for the management of credit risk, market risk and operational risk as per the guidance notes/guidelines of RBI. Accordingly, all the risk management functions, viz., credit Risk, Asset-Liability Management (ALM), Mid-office of the domestic treasury and operational risk functions have been integrated. The "Integrated Risk Management Policy" of the Bank is being reviewed every year in tune with the notifications given by the RBI.

10.1.1 Credit Risk

- The Bank has constituted ''Credit Risk Management Committee'' for analyzing all issues relating to credit matters and for recommending to the Board.

- The Bank has a well defined ''Loan Policy'' duly approved by the Board. The Bank has formulated policies on standards for presentation of credit proposals, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentrations, standards for loan collateral, portfolio management, loan review mechanism, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning, regulatory/legal compliance, etc.

- The Bank has in place comprehensive risk rating system for various categories of exposures. Bank has established a rating cell for assigning the internal ratings for all exposures of Rs 5 Crore and above. The rating cell validates the internal rating given by the branch/ Zonal office and specify a Risk Based Price (for above Rs 25 Crore exposures). The rating model was subjected to external validation by "CRISIL Risk & Infrastructure Solutions Ltd".

- The rating cell would ensure comprehensive rating coverage, integrity of rating process and proper data maintenance.

- The Bank utilizes industry reports from CRISIL and the industry risk score service from CRISIL Research.

10.1.2 Market Risk

Market risk implies possibility of loss arising out of adverse movements of market determined rates and prices. The objective of market risk management is to avoid excessive exposure of your Bank''s earnings and equity to such losses and to reduce your Bank''s exposure to the volatility inherent in financial instruments such as securities, foreign exchange contracts, equity and derivative instruments, as well as balance sheet or structural positions. The Bank has in place a well-defined ''Market Risk Management Policy'' and organizational structure for market risk management functions. The Bank manages market risk through ''Asset- Liability Management (ALM) policy and ''investments/forex policy''.

A high level executive committee, namely, Asset-liability Committee (ALCO) oversees the ALM in the Bank and deliberates on liquidity and interest rate scenario in the market and decides upon the pricing of various products. ALCO regularly monitors the identification, measurement, monitoring and mitigation of market risk in liquidity, interest rates, equity and forex areas.

The ''liquidity risk'' is measured and managed through ''gap analysis'' for maturity mismatches based on residual maturity. For assets and liabilities, which are of non-maturity nature, Bank is conducting behavioural studies and factoring the observations in the gap analysis. The behavioural study findings are subjected to back-testing and validated regularly. Prudential limits are fixed for net gaps and also for cumulative gap up to one year and these limits are measured and monitored regularly. Liquidity profile of the Bank is also measured regularly through various liquidity ratios and monitoring of the same is done with the help of prudential limits fixed thereon.

The ''interest rate risk'' is monitored on a regular basis through ''Maturity gap analysis'' and ''Duration gap analysis''. Tolerance limits have been fixed for impact on net interest income (Nil) due to adverse changes in interest rates. To measure the impact of interest rate changes on Bank''s equity, duration gap analysis is done and prudential limit is set for modified duration of equity. Modified duration of equity is within the prudential limits set for this purpose. VaR and duration analysis are used for measuring market risk including treasury operations. The Interest Rate Risk in Banking Book (IRRBB) is also being assessed on monthly basis.

Other market related risks to which any bank is exposed are foreign exchange risk on foreign currency positions, liquidity, or funding risk, and price risk on trading portfolios. The Bank has clearly articulated policies to control and monitor its treasury functions. These policies comprise management practices, procedures, prudential risk limits, review mechanisms and reporting systems. These policies are revised regularly at fixed intervals in line with changes in financial and market conditions.

10.1.3 Operational Risk

Management of Operational Risk is a part of the ''Integrated Risk Management Policy'' and the Bank has focused attention for the management of Operational Risk in the light of RBI guidelines. Operational Risk Management Department is responsible for coordinating all the operational risk management activities of the bank which includes building an understanding of the risk profile, implementing tools related to operational risk management, and working towards the goals of improved controls and lower risk. Operational Risk Management Committee [ORMC] ensures implementation of the Operational Risk policies and monitors the compliance with limits approved by the Board/Risk Management Committee [RMC].

The Bank has been computing capital charge for operational risk by adopting ''Basic Indicator Approach'' (BIA) as stipulated by the RBI. To move towards advanced approaches for Operational Risk Measurement the Bank has putin place the following:

- Operational Risk Management Policy which covers the objectives, identification, assessment, monitoring and control of operational risk loss incidents.

- Historical Loss Data is being created for 5 years. We have a system in place to track the Operational Loss events at branch level.

- Business Line Mapping Policy is framed and approved by Board.

- Capital Charge on Operational Risk is being calculated using The Standardized Approach (TSA) on parallel basis.

- Bank sought permission from RBI to move over to TSA from BIA for calculation of capital charge on Operational Risk. We are yet to receive the permission from RBI.

10.1.4 Preparation for moving over to Advanced Approaches

As per RBI guidelines, all commercial banks in India shall follow the Standardised Approach for credit risk, Standardized Duration Approach for market risk and Basic Indicator Approach for operational risk under the ''New Capital Adequacy Framework".

Credit Risk: Bank at present is following Standardized Approach for estimation of capital requirements for Credit Risk and HTM portfolio under investments. Bank is gearing up to move over to advanced approaches of credit risk. In this regard, Bank has developed a Credit Risk Rating Model (CRRM) with the consultancy assistance of National Institute of Bank Management (NIBM), Pune. This model is further strengthened internally by making it as a WAN (Wide Area Network) based CRRM model so that it is accessible from any of the locations of the bank. This model is capable of providing transition matrices and default probabilities (Probability of default) and would help the Bank in moving over to the Advanced Measurement Approach in future. Bank is working towards more risk sensitive measures like Risk Adjusted Return on Capital (RAROC), Risk Based Pricing (RBP).

Market Risk: The Bank is using the Standardized duration method for computing capital charge for market risks (investments in HFT and AFS categories) as per RBI guidelines.

Operational Risk: Bank has provided capital for operational risk as per the Basic Indicator Approach (BIA) with effect from 31.03.2009. Bank has already applied to RBI for moving over to The Standardised Approach (TSA). For this, the process of segregating the gross income into eight business lines to arrive at capital charge is already over. Bank is also working towards meeting the requirements of the Advanced MeasurementApproach (AMA).

10.1.5 Bank''s compliance with Basel II

In compliance with the Pillar—II guidelines of the RBI under Basel II framework, the Bank has formulated a Policy of Internal Capital Adequacy Assessment Process (ICAAP) to assess internal capital in relation to various risks that it is exposed to. Stress Testing and scenario analysis are used to assess the financial and management capability of the Bank to continue to operate effectively under exceptional but plausible conditions. The bank is calculating the concentration risk on a quarterly basis to assess the portfolio level risks based on sectoral, geographical and borrower wise concentration. The bank is using statistical parameters like Herfindahl-Hishman Index (HHI), Gini Coefficient, and Rosenbluth Index for determining the Credit Concentration Risk. Bank has a .Board-approved Stress Testing Policy describing various techniques used to gauge their potential vulnerability and its capacity to sustain such vulnerability.

10.1.6Bank''s preparedness to Basel III

RBI has introduced in its Basel III guidelines, enhanced capital requirements:

Regulatory Capital As % to RWAs

(i) Minimum Common Equity Tier 1 ratio 5.5

(ii) Capital conservation buffer (comprised of Common Equity) 2.5

(iii) Minimum Common Equity Tier 1 ratio plus capital conservation buffer [(i) (ii)] 8.0

(iv) Additional Tier 1 Capital 1.5

(v) Minimum Tier 1 capital rario [(i) (vi)] 7.0

(vi) Tier 2 capital 2.0

(vii) Minimum Total Capital Ratio (MTC) [(v) (vi)] 9.0

(viii) Minimum Total Capital Ratio plus capital conservation buffer [(vii) (ii)] 11.5

In addition to the above, RBI has introduced several other measures of leverage and liquidity standards.

- A minimum Leverage Ratio of 4.5% to curb the excess leverage of banks'' balance sheet.

- Liquidity standards by way of two liquidity ratios namely Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

RBI has prescribed transitional arrangements so as to conform to Basel III guidelines in a phased manner. The LCR requires a bank to hold sufficient high-quality liquid assets to cover its total stressed net cash outflows over 30 days. The NSFR requires a bank to hold sufficient amount of stable funds to meet the requirement of stable funding over a one- year period of extended stress.

The bank is regularly calculating and monitoring the liquidity ratios (LCR and NSFR) taking as reference the draft guidelines issued by the RBI.

The leverage ratio is being calculated on a monthly basis and is above the regulatory prescribed ceiling of 4.5%.

The bank''s Capital Adequacy at present is in conformity with the transitional arrangements as prescribed by RBI. However, to meet the growing business requirements, bank may have to supplement capital funds, especially common equity in later years.

10.1.7 Disclosure Policy

The Bank has a Disclosure Policy as per the disclosure requirements contained in the circular issued by the Reserve Bank of India on the implementation of the new capital adequacy framework. The guidelines therein are adhered to and compliance is reported to the Competent Authorities. Pillar 3 of Basel II, (i.e. market discipline) aims to encourage market discipline by developing a set of disclosure requirements which will allow market participants to assess key information on the scope of application, capital, risk exposures, risk assessment processes, and hence the capital adequacy of the Bank. The Pillar-3 Disclosures are published on quarterly and half yearly basis on the Bank''s website plus a year-end disclosure as on « March of every year. The Pillar 3 year-end disclosures are also published in the Bank''s Annual Report apart from being available on the Bank''s website.

10.2 Management of Asset Quality Gross NPAs of the Bank stood at Rs.3,714 Crore as on 31.03.2013. Gross NPAs as a percentage to Gross Advances stood at 3.71 % while Net NPAs as a percentage to Net Advances stood at 2.45%. The Provision Coverage of NPAs as on 31.03.2013 was 49.57%.

Total reduction in NPA accounts amounted to Rs.825 Crore.

Table 15: Position of Non-Performing Assets (Rs. in Crore)

2011-12 2012-13

Gross NPAs at the beginning of the year 995.64 1798.01

Additions during the year 1287.31 2741.67

Reduction during the year 484.94 825.19

Gross NPAs at the end the year 1798.01 3714.49

Net NPAs 755.85 2409.18

The segment-wise distribution of NPAs as on 31.03.2013 is as under:

Table 16: Segment-wise Non-Performing Assets

(Rs. in Crore)

Segment Amount % to Total Advances*

I. Agriculture 410.04 2.5%

II. MSME 422.27 2.5%

III. Retail Credit 316.31 2.2%

IV. Large & Mid Corporate 2422.56 4.8%

V. Others 143.31 6.5%

Total 3714.49 3.7%

*NPA% to Advances indicates NPA to Advances of that segment.

Provisions held under different classes of NPAs are as under:

Table 17: Provisions held for Non-Performing Assets (including floating Provisions)

(Rs. in Crore

Nature of Asset Amount Provision Held

Sub-Standard Assets 1985.74 373.50

Doubtful Assets 1688.53 853.53

Loss Assets 40.22 40.22

Total 3714.49 1267.25

10.2.1 Restructuring mechanism

During FY 2012-13, 165 accounts with outstanding of Rs 4068.73 Crore were restructured in terms of the restructuring packages. The total balances in restructured accounts as at the end of March 2013 stood at Rs 9692.56 Crore in 1148 accounts.

10.2.2 Lending Practices

The Bank had framed well defined Loan Policy Guidelines with the approval of the Board. These guidelines are reviewed by the Board at periodical intervals taking into account feedback received from the field level functionaries, credit departments at Head Office, competitive environment prevailing among the banks, for accelerated credit growth envisaged in certain business segments, marketing & development of new products, Reserve Bank of India guidelines, Annual Policy Statement of Reserve Bank of India.

Credit Committees have been constituted in the Bank at Head Office and Zonal level for exercising sanctions of credit proposals and suitable sanctioning powers have been delegated to these committees in terms of directions of Ministry of Finance. Further, based on feedback received from field level functionaries, the delegated powers of various sanctioning authorities are reviewed and revised to reduce turnaround time in the sanction of credit proposals. The loan review mechanism is further strengthened in the Bank ensuring review of sanctions made by all functionaries by higher committees. The Bank''s Monitoring Cell has been reviewing all the sanctions with limits of over Rs.3 Crore on a monthly basis and the details of stressed accounts, if any, are being brought to the notice of the Top Management for taking coercive action in time.

The guidelines of the Bank on Loan Policy, Delegation of Powers and Credit Monitoring Policy have been reviewed by the Bank and a comprehensive booklet is released during the year on 28.11.2012.

10.2.3Techno Economic Viability (TEV) Cell & Syndication Desk

The Bank has a Technical Appraisal Cell (TAC) which is independent of Credit Processing & Sanctioning Departments. The Cell undertakes preparation of Project Information Memorandum (PIM), conducting Techno- Economic Viability (TEV) Study and Debt Arrangement (Loan Syndication) for corporate clients. The Cell has earned Fee based income of Rs.229.18 Lakhs during the Financial Year 2012-13.

10.2.4 Credit Monitoring Cell

Credit Monitoring Cell of the Bank is reconstituted for both Large and Mid Corporate Departments separately and continues to monitor the accounts falling under the powers of Head Office. This Monitoring Cell is exclusive and separate from the Credit monitoring done by Credit Monitoring & Review Department (CMRD) at Head Office.

10.3 Management Information System

Bank has developed a robust Management Information System which captures data essential for vital functions such as risk management and planning and which serves as an effective tool for the Top Management in decision making. This has facilitated quick decision making. The Bank is in a position to analyse performance in major parameters even on a day to day basis using the information system available. Leveraging on the CBS platform of the Bank, the MIS has facilitated speedy decision making and its implementation.

10.4 Inspection & Audit

As on 31.03.2012, the Bank had 1712 Branches, out of which 1503 Branches were due for inspection during 2012-13 as per Audit Plan and in tune with the same, inspection was conducted for 1504 branches. Additionally, all the 45 B category Branches were subject to inspection under FEMA regulations.

For the Financial Year 2012-13, 308 Branches were brought under the purview of Concurrent Audit, covering 65.36% of Deposits, 79.56% of Advances and 71.68% of Total Business as on 31.12.2011. In addition, the following were also covered under Concurrent Audit: (a) Investments & International Banking, Mumbai, (b) Credit Card Division Head Office, (c) DIT Head Office, (d) HR Department Head Office, (e) Depository Participant (D.P. - Main) Branch Hyderabad; and Service Centres situated at Chennai, Hyderabad, Vijayawada, New Delhi and Mumbai.

In addition to the Branches, the following Offices were subjected to inspection during the Financial Year 2011 -12:

Systems Inspection & Financial Audit of Controlling Offices (23) and Head Office Departments (24), Inspection of Service Centres (19), Credit Card Centres (19), Regional Rural Banks (1), Financial Service Centres (7), Currency Chests (29) and our Financial Services Subsidiary, ABFSL (1). As a part of providing assistance to the Inspectors of branches for on-site inspection and improving the quality, the IS Audit Cell of Inspection & Audit Department is providing various reports to the Inspectors of Branches immediately on commencement of inspection.

All the Branches subject to regular inspection were also covered under IS Audit during 2012-13. Areas for Offsite Surveillance Audit under CBS environment were also identified and tools for OSS Audit covering identified areas were developed. IS audit was also conducted for Credit Card Division, purchases section in DIT and CTS (Cheque Truncated System) at Chennai and New Delhi.

IS Audit Cell also conducted software audit in the following areas: (a) Internet Banking, (b) Asset classification and (c) use of SFMS (Structured Financial Messaging System) in Inland Letters of Credit, Bank Guarantee Bills, etc. Compliance Audit of ATM switch and Registration Authority office in DIT was also conducted.

IS Audit Cell also generates off site alerts for select 14 parameters. PML (Rs.ell of the department is reporting the monthly Suspicious Transactions Report (STR) to FIU.

10.5 Compliance Policy

The Bank has in place a comprehensive Compliance Policy. An executive of the Bank in the rank of Deputy General Manager has been appointed as the ''Chief Compliance Officer''. As per the Policy adopted by the Bank, suitable organizational structure has been laid down defining the roles and responsibilities for Compliance Officers of various departments and Zonal Offices. Compliance of statutory, regulatory and internal guidelines of the Bank is the scope of operation of the compliance function of the Bank. Suitable reporting system is put in place to ensure effective implementation of Compliance Policy in the bank.

10.6 Adherence to Right to Information Act

R TI Act, 2005 came into force with effect from 18.10.2005 and the act was implemented in our Bank from the date of inception as the Bank is Public Authority under Sec. 2 (h) of the Act.

All Zonal Managers are designated as Central Public Information Officers (CPIOs) for all offices in the Zone to deal with request and render reasonable assistance/information and at Head Office DGM (Law) is designated as Central Public Information Officer to dispose off the requests received at Head Office. General Manager at Head Office is the Appellate Authority under the Act.

During the Year 2012-13, Bank received 877 Requests and 136 Appeals under RTI Act. All the requests and appeals were responded and replied in time.

10.7 Customer Service

As per the directions of Department of Financial Services, Ministry of Finance our Bank has put in place a Board approved Centralized Public Grievance Redress System (PGRS) for registration of complaints online. The website of our Bank would enable the customers to lodge their grievances/suggestions directly. Grievances received through website will be automatically registered into the system and will generate a unique number. The customer is also provided with a facility of tracking the complaint online by mentioning the unique number. When the grievance has been resolved, a reasoned reply in writing or by email would be given to the complainant clearly stating the action taken. There would be a clear cut time line of disposal specified at all the three levels i.e. Branch 10 days, Zonal Office 5 days and Head Office 6 days, the total of which should not exceed 21 days.

Customers'' Meet

During the Financial Year 2012-13, Bank conducted Customers'' Meet across the country on a single day i.e. on 15.09.2012. Top Management and Senior Officers from Head Office and Zonal Offices visited the Branches as special observers and interacted with the customers. The suggestions received during the customers'' meet were circulated to all the Zones for implementation to the extent possible as per Bank norms. In coordination with the Banking Codes & Standards Board of India (BCSBI), we have conducted Town Hall meetings at Hyderabad, Chandigarh anal Lucknow to create awareness among the customers on the BCSBI code of Bank''s commitment to customers.

10.8 Human Resources Management

During the year, several guidelines received from the Government of India on various H.R. matters in the areas of Promotions, Recruitment, Performance Appraisal etc were incorporated in HR Policy. Bank has also adopted "Train - Recruit - & Induct" model in recruitment of officers in addition to the traditional method of "Recruit - Induct - & Train". Accordingly, Bank has entered into a MOU with Manipal Global Education Services, Bangalore under which Bank sponsored candidates for the 1 yearPGDBF programme with the institute, on successful completion of which, the candidates will be absorbed as Probationary Officers in the Bank. The first batch of the trained candidates of the Manipal Global Education will be available for absorption in October, 2013.

To augment the existing manpower and bridge the skill gaps in areas like Credit, Information Technology, Forex, Risk Management, Treasury etc., and to meet the demands of expansion, 266 Specialist Officers, 335 General Officers and 1267 Clerks were inducted during the year.

Bank also ensured career progression by considering promotions in each grade as per the manpower and recruitment plan for the year. Bank considered conversion of Part Time Sweepers to full time subordinate staff cadre in a phased manner.

10.9 Industrial Relations

Industrial Relations are cordial in the Bank. Quarterly meetings were held with the representatives of the recognized Officers'' Federation and the Award Employees'' Union. Apart from this, meetings were also held at Zonal level to sort out the local issues to better the working conditions as well as customer service.

10.10 Training

Bank has a newly built Apex College with state-of-the-art training infrastructure located in the coveted IT hub of the Financial District in Hyderabad.

To improve the core capabilities of employees, various training programmes on credit, leadership development, Product Awareness & Soft Skill development were conducted, besides induction & refresher programmes for newly inducted employees. Training programmes - viz. Towards Cutting Edge Leadership'' and ''Creating a Winning Branch'' were conducted for Assistant General Managers and Chief Managers respectively by inviting eminent external faculty.

Workshops and programmes on specialized areas were incorporated in the calendar of trainings to create awareness among employees about latest developments / changes that are taking place in Banking Sector.

In Financial Year 2012-13,242 in house training programmes / workshops were conducted covering 7312 employees. In addition to this, 246 officers were trained in external trainings conducted atNIBM, RBI/CAB/BIRD, IDBRDT&FEDAI.

To have an International exposure and to equip themselves with the accomplishments in the Global Financial Markets, 15 employees in different cadres were sent to external programmes conducted abroad.

10.11 Staff strength

Strength % to total

Officers 8487 51.4%

Clerks 4854 29.4%

Sub Staff* 3182 19.2%

Total 16523 100.0%

* Excluding Part Time Sweepers

10.12 SC/ST Profile

Our Bank has been implementing reservation policy for SCs & STs as per Govt, of India guidelines. The representation of SCs and STs is 3519 and 1659 respectively in the total work force of 18060 working in Bank as on 31st March, 2013. Out of total 8487 officers, 1448 belong to SC category and 614 belong to ST category. Bank has nominated a General Manger as Chief Liaison Officer SCs & STs at Head Office and all Zonal Managers as Liaison Officers at Zonal level to address the grievances of SC & ST employees. Bank has been regularly conducting quarterly joint meetings with the representatives of SC & ST Employees'' Welfare Association of Andhra Bank.

Smt. Kamla Gurjar, Hon''ble Chairperson, National Commission for Safai Karmacharis, New Delhi, visited our Head Office on 03.11.2012 and reviewed service benefits and other welfare measures available to sweepers.

Smt. Latha Priya Kumar, Hon''ble Member of National Commission for Scheduled Castes, New Delhi, visited our Head Office on 20.12.2012 and reviewed implementation of Reservation policy for Scheduled Castes in the Bank.

10.13 Sports & Games

The Bank is encouraging sports in order to facilitate promotion of sports and games to achieve excellence. The Bank has recruited outstanding sports personnel in a few disciplines like Cricket, Kabaddi and Chess.

10.14 Persons with Disability (PWD)

Our Bank is providing 3% total vacancies arising in Officer, Clerical and Sub Staff cadre in a year. The 3% posts are distributed amongst 3 categories of Persons with Disabilities i.e., Blindness or low vision (B/LV)-1%; Hearing Impairment (HI) - 1%; Loco motor disability or cerebral palsy (LM). The representation of Persons With Disabilities is 282 (1.56%) in total workforce of 18060 as on 31 st March, 2013.

11. OFFICIAL LANGUAGE

Hindi Quarterly Progress Report Submission has been made Online throughout the Country. Our Bank is the first Bank to introduce such an innovative on-line submission which facilitates prompt and error-free submission of Hindi Quarterly Progress Reports.

Online Memory Test has been introduced for all Zonal Offices and Branches where staff strength is 10 or more. This is another novel and innovative online test introduced by our Bank.

An exclusive 4 page brochure was prepared and printed regarding OL Implementation at Zonal and branch level. The same was sent to all ZOs and branches.

Rajbhasha Link in AB Staff Portal has been revamped. Besides ''Rajbhasha Mission'', various formats, Important Circulars, other related important information, Hindi House Magazine, ''Akruti'' Hindi Software and Hindi Workshop material has also been kept in our Portal.

Official Language Implementation Committee of HO was cbnducted on 27.06.2012, 25.09.2012, 21.12.2012 and 20.03.2013.

Andhra Bank is the convener of TOLIC (Banks) Hyderabad. This committee was awarded 2nd prize in O.L. implementation by Govt, of India for the year 2011 -12.

Learn a Hindi Word Everyday Scheme and ''Thought for the Week'' up to June 2013 was prepared and sent to all Branches and Zones in the form of a circularfor implementation.

RBI Master Circular regarding OL Implementation was printed and circulated to all Zones and branches.

Meeting of Town Official Language Implementation Committee was conducted on 21.05.2012 and 19.10.2012. Various Inter-Bank Hindi Competitions were conducted. Prize Distribution Function and "Geet Sandhya" was held on 09.10.2012 at HO. Two Hoardings were displayed in Hyderabad on the occasion of Hindi Day for a week. TOLIC Website was launched on 19.10.2012.

Our website is being monitored on weekly basis in order to ensure that Hindi version is kept updated. RBI has appreciated Website of our Bank amongst all Banks in previous Review meeting.

Hindi Month was celebrated at HO and all ZOs from 14.09.2012 to 13.10.2012. All branches celebrated Hindi Day on 14.09.2012. Various Hindi Competitions were conducted during Hindi Month.

On-Line OL test was successfully conducted throughout the Country from 24th to 27th September, 2012.

A Pocket Nirdeshika regarding Use of Hindi was printed and released on 14.09.2012. The same was sent to all Zones and , branches for implementation.

Quarterly Issue of "Rajbhasha Sarita" Quarterly Hindi Magazine was printed every quarter in time.

"Rajbhasha Vani" - Hindi monthly e-bulletin was launched. Our Bank is the Second Bank to launch Hindi monthly e-bulletin.

Hindi word is displayed daily on AB Staff Portal. It is also being sent to all Zones and branches by e-mail.

Hindi Workshops were conducted by Head Office and all Zones.

Dec.2012 issue of "Bharti" - TOLIC Hindi Magazine was printed.

OLO (OL Officers) Conference was conducted on 17 & 18 December, 2012 to review use of Hindi in our Bank.

One week Training Programme was conducted for all newly recruited OL Officers at Head Office.

"Rajbhasha Guide" and "Margdarshika" was prepared and sent to all Zones. The booklets contain guidelines about OL Implementation and Help Literature respectively.

12. VIGILANCE

As per the Vigilance Manual the Vigilance administration of the Bank is being reviewed in the prescribed formaj on quarterly basis by Chairman & Managing Director with the Chief Vigilance Office Compliance / Investigation wherever necessary has been done and complaints disposed off. Vigilance Department initiated steps for quick disposal of pending cases of disciplinary proceedings. Preventive Vigilance Inspection of 1379 Branches was conducted during this Financial Year 2012-13.

The Agreed List and the list of Officers with Doubtful Integrity for the year 2012 were prepared. Annual Property Statements of officials for the Financial Year 2012-13 have been reviewed. Based on the experiences gained out of the frauds detected and their modus operandi, several systemic changes were suggested to other departments for implementation.

Vigilance Department is extending required inputs/guidance / faculty support to Staff College in all training courses to refresh the staff with regard to Preventive Vigilance measures. During this Financial Year, 348 sessions were conducted.

In-house magazine "Savdhan" was released quarterly up to December 2012. Online test on Preventive Vigilance was conducted among all branches of the Bank and the top performers were awarded. A workshop on Transparency in Public Procurement was conducted on 02.11.2012 at Head Office, Hyderabad. As a part of Vigilance Awareness Period, Bank observed the Vigilance Awareness Week from 29.10.2012 to 03.11.2012 and conducted a Meeting at Head Office on 03.11.2012.

13. LEAD BANK SCHEME

Andhra Bank is the Convener Bank for State Level Bankers'' Committee, Andhra Pradesh since 1983 and so far conducted 180 SLBC meetings and during the current year, SLBC has conducted 43 meetings of different nature. Andhra Bank is also having Lead Bank Responsibilities in six districts, viz. Srikakulam, East Godavari, West Godavari, Guntur in Andhra Pradesh and Ganjam, Gajapathi districts of Odissa State. Bank is discharging all the responsibilities in implementation of Lead Bank Scheme.

Andhra Pradesh State is leading the country with outstanding Agricultural credit of Rs.1.18 lakh crore and SHG Bank linkage finance of Rs.17,520 crores extended to 13.99 lakh SHGs as at the end of December, 2012.

The Bank has effectively coordinated the implementation of Ministry of Finance, Government of India guidelines for coverage of uncovered farmers and other non farming households and implementation of Financial Inclusion plan in respect of villages with above 2000 population.

As Convener Bank for SLBC, Andhra Pradesh, sub committees were constituted on Financial Inclusion, Housing Loans, Agricultural Credit, Government Sponsored Schemes, Lending to Minority Communities and MSME sector for focused attention.

SLBC has established a Call Centre namely ''APSLBC CALL CENTRE'' on behalf of all Banks in the state with toll free telephone Number, SMS service and email queries / facilities to provide for an effective and centralized grievance redressal and facilitation mechanism for opening of Bank accounts and other banking related queries.

An exclusive website is set up for SLBC of Andhra Pradesh with URL www.slbcap.nic.in for the information of all the stake holders and general public.

14. APBIRED

Andhra Pradesh Bankers Institute of Rural and Entrepreneurship Development (APBIRED) is a non-profit society formed by Government of Andhra Pradesh, NABARD and six Public Sector Banks including Andhra Bank. The Institute imparts capacity building, entrepreneurship development, project opportunity guidance, etc., to rural men and women (in the age group of 18 years to 35 years), Rural Entrepreneurs, rural SHG women and also promotes transfer of appropriate technology to farmers and agriculturists in Agriculture and Allied Activities.

15. FINANCIAL INCLUSION Financial Inclusion Plan

Bank has covered all the allotted villages having population above 2000 with Business Correspondent operated banking outlets by March 2012. At the end of March 2013, 7.01 lakh AB Gram Kranthi Savings accounts, with built in overdraft facility of Rs 500/- were opened through BC agents in FI villages. As at the end of March 2013, 495 new FI villages have been covered under FIP as against a target of 316.

Direct Benefit Transfer Scheme implementation:

Govt, of India has launched the Direct Benefit Transfer (DBT) scheme in 43 districts on pilot basis across the country under phase-l w.e.f. 1st January, 2013. Out of the above, 5 districts namely East Godavari, Ananthapur, Chittoor, Ranga Reddy and Hyderabad are located in Andhra Pradesh State, where Bank has larger presence. We have Lead Bank responsibility in East Godavari district. Our Bank has initiated the required steps for ensuring readiness for DBT implementation.

Our Bank was on-board of Aadhaar Payment Bridge (APB) and receiving the files from NPCI based on Aadhaar mapping details. Bank is getting set for Aadhaar Enabled Payment System (AEPS). Bank has also sourced ''FI-Gateway'' solution. The testing for inter-operability of BC operations is underway and necessary steps are in place to ensure its readiness before the stipulated date i.e. 30th June, 2013. Bank has also sourced ''kiosk'' Banking technology for Financial Inclusion operations to pave way for direct deployment of Customer Service Providers / B.C agents at the needy villages.

Coverage of FI villages:

All the allotted FI villages having population above 2000 have been covered by Bank during the year 2011-12. During 2012-13, the focus was on customer enrollments, transactions through the CSPs, roll out of other products in these villages. As at the end of March, 2013,7.01 lakh FI customer accounts were opened which have built-in overdraft facility of Rs.500/- General Purpose Credit facility up to a maximum limit of Rs.25,000/- was enabled to the FI customers through the BC agents. The transactions are happening in both off-line and in on-line mode.

Out of the total 2692 FI villages having population below 2,000 as per the allocation made by the SLBCs in different States, Bank hqs covered 495 villages as on 31.03.2013. As per the road map submitted to Reserve Bank of India, the remaining FI villages in this category are targeted for coverage during the year 2013-14.

Ultra Small Branches (USBs):

Ultra Small Branches are functioning in all the FI villages having population above 2,000. Designated officers from the link branches are visiting the USBs on a specified day in a week along with a laptop having VPN connectivity to CBS for undertaking the specified works.

Smart card project - MGNREG scheme wages & Social security pension disbursements:

Bank is continuing the disbursal of Government benefits such as MGNREGS wages and Social security pensions to the identified beneficiaries in the allotted districts - Guntur and Srikakulam under '' one District- one Bank'' mode and through service area mode in East Godavari District and in one mandal of Warangal district of A.P. State. We have enrolled over 22 lakh beneficiaries in 2656 gram panchayats and during the year Rs 533 crores was disbursed as benefit amount through CSPs.

Smart card project - Self Help Groups (SHGs):

To facilitate providing banking services at the doorstep of SHGs, Bank is undertaking SHG-Smart Card Project through Business Correspondent agents on pilot basis at 4 branches, viz., Rayavaram, Kadiam, Anaparthi and Bibinagar. By this method, the SHG women are able to undertake banking transactions at their door step without visiting the branches. This system has enabled them to save on time and money.

Coverage of Non-Loanee Farmers:

Bank has taken up a special campaign to cover 100% farmers through bank finance in Bank''s Service Area Villages. 62,041 new farmers are covered with Bank finance during year up to March 31 st, 2013.

SB-Overdraft Facility to landless rural poor:

A new product of SB Overdraft facility (upto Rs 10,000) is introduced and special campaign started to coverall landless rural poor in Bank''s 5148 Service Area Villages.

Financial Literacy and Credit Counseling Centres:

Bank has established six Financial Literacy and Credit Couoseling Centres in 6 Lead Districts of the Bank - viz., Eluru, Guntur, Kakinada and Srikakulam ( in Andhra Pradesh) Ganjam and Gajapathi ( in Odisha). The centers are promoting financial literacy and providing credit related extension services. Bank has formed new FLCC trust "Jana Chetana Financial Literacy and Credit Counseling Trust (JCFLCCT)" on 6th February 2013 for coordinating the financial literacy activities.

Financial Literacy initiatives:

Ground level publicity initiatives have been taken up in the form of release of pamphlets, visit of villages, audio-video documentary, mobile vans mounted with publicity material etc., to promote Financial literacy in the FI villages. As Convenor, SLBC of A.P. State, a Call-Centre has been set up at the Bank for responding to the people''s enquires on opening of bank accounts.

The Rural Self Employment Training Institutes and Financial Literacy Centres established by Bank in various locations across the country are also undertaking programs to educate the people on banking and financial matters.

16. SUBSIDIARIES & REGIONAL RURAL BANKS

The Bank has one Subsidiary, namely, Andhra Bank Financial Services Limited (ABFSL), which is wholly-owned by the Bank. During the year 2012-13, one of the major civil suits No 45/1995 filed against the company and long pending in the Special Court, Mumbai was completed without any liability to the company. The contingent liability shown till now in the Balance sheet of Rs 40.07 Crore was removed in the Balance sheet as at 31.03.2013 on account of the judgment in the special court, Mumbai on 13.07.2012. The Company has earned a profit of Rs. 115.53 Lakhs before Income Tax and a Net Profit of Rs.92.44 Lakhs after Income tax during the year ending 31.03.2013. With this, the negative net worth of the company has been brought down from Rs. 1268.59 Lakhs to Rs.1176.15 Lakhs as on 31.03.2013.

Bank has two sponsored Regional Rural Banks namely Chaitanya Godavari Grameena Bank located in Guntur (Andhra Pradesh), covering the districts Guntur, East Godavari and West Godavari and Rushikulya Gramya Bank in Ganjam and Gajapati Districts in the state of Odisha. Rushikulya Gramya Bank sponsored by Andhra Bank and Utkal Gramya Bank sponsored by State Bank of India are amalgamated in to single Regional Rural Bank called as Utkal Grameen Bank and the effective date of amalgamation is 01-11-2012. The amalgamation was done as part of re- organisation of Regional Rural Banks and as per the Notification of Government of India.

As on 31.03.2013, Bank is having one RRB namely Chaitanya Godavari Grameena Bank and the total business stood at Rs. 2576.68 Crore.

17. VISITS OF PARLIAMENTARY COMMITTEES

Four Parliamentary committees of Rajya Sabha/Lok Sabha have visited during the period from 01.04.2012 to 31.03.2013 on fulfillment of various Assurances, Reservation in employment and welfare measures for OBC, Security Interest (Enforcement) Rules, 2002 and Grievance redressal mechanism and Empowerment of Women. Andhra Bank was directed to coordinate the visits of the Committees and make necessary arrangements for conducting the meetings. National Commission for Safai Karmacharis has also visited our Bank on 3rd November, 2012.

Parliamentary Committee on O.L. visited our Zonal Office, Vijayawada in February, 2013. Our Bank was the convener for the same. The Committee appreciated use of Hindi in our Bank.

18. ANDHRA BANK RURAL DEVELOPMENT TRUST

Under the aegis of Andhra Bank Rural Development Trust, Bank has set up 11 Rural Self Employment Training Institutes (RSETIs) at various centres (in A.P, Odisha, and Kerala states) and is imparting need based training for capacity building/entrepreneurial development and dissemination of knowledge to farmers, SHG women , Rural unemployed youth and artisans.

Since inception, 1,17,559 candidates have been trained through 3,807 programmes by the Institutes and around 65.98% of the trainejJ candidates are engaged in gainful ventures. -''

During the year 2012-13, the institutes imparted training to 10,199 candidates through 402 programmes.

Out of 11 Institutes, 5 institutes were awarded A /A rating by Ministry of Rural Development, Government of India. Further, Andhra Bank Institute of Rural Development (ABIRD) Rajahmundry secured First Prize among all RSETIs in the Country.

19. SECURITY ARRANGEMENTS

High priority is being accorded to upgrade security arrangements at Branches, Currency Chests and ATMs. CCTV Surveillance System has been installed in additional 179 Branches, 100 offsite and 22 onsite ATMs. With this, 1122 Branches, 303 onsite and 100 offsite ATMs of the Bank were brought under CCTV surveillance. Installation of CCTV system in remaining Branches and ATMs is underway. Board approval has been obtained for installation of Improved Burglar Alarm and Time Lock System in 1077 Vulnerable Branches in the current FY 2013-14.

Annual security Inspections of all Currency Chests and Branches have been conducted. High level of physical security of ATMs is being ensured. Efforts are being made to further improve security systems to minimize crime against our Bank/Branches.

20. NRI CELL

The NRI Cell was set up with a view to serve as an effective channel of communication between the Bank and its NRI Clientele. The Cell supports and guides the Representative Offices for betterment of Customer Service among NRIs of respective countries by maintaining liaison with the officials of Representative Office. It does regular correspondence with the NRI customers of the Bank and attends to the clarifications, grievances if any, besides marketing products of Bank.

To spread financial literacy and awareness on foreign exchange among general public, NRI Cell has participated in exhibitions at Warangal, Kakinada and Tirupati. These exhibitions were conducted under the guidance of Reserve Bank of India in their endeavour to spread awareness on foreign exchange matters among general public. NRI Cell has put up a Stall to attract NRIs at World Telugu Conference which was held at Tirupati.

21. BRANDING AND COMMUNICATIONS

With the objective of Brand Building and providing support to the marketing activities of the Bank and to disseminate information to the general public, prospective customers and stakeholders, the Department embarked upon various publicity campaigns in Print and Electronic media, FM Radio Channels, In-theatre branding, TV commercials, Digital Media, various outdoor media and so on.

Publicity blitz apart, the Department also undertook various CSR activities which includes: Donation of Ambulance to UHC Hospital, IDA, UPPAL, Hyderabad, Distribution of Note Books to children of Saraswati Vidya Mandir, Hyderabad, Donation of Ambulance to Red Cross Society, Orissa State Branch, Donation of Desks to Government Schools of twin cities of Hyderabad, Donation of vehicle to Akshyay Patra Foundation for distribution of Mid-day meals to school , children, Donation to Cancer Institute, Adyar, Chennai, Donation to Bhagwan Mahaveer Vikalang Samiti, Jaipur, Provison for supply of Water Purifiers in Mahabubnagar District, Infrastructure facilities at Govt Schools at various places spread across the State.

22. BANK''S WEB SITE

The Bank maintains its website www.andhrabank.in in three languages, viz., English, Hindi and Telugu for providing information about the Bank, its services and products offered. This website is facilitating visitors to interact with Bank in the form of inquiry, feedback, grievance, thereby paving the way for availing its services. The interest rates on various products offered by the Bank are being updated on continuous basis. Information relating to Online services like Internet Banking, utility payments, Tax payment and other online services are made available on the website. The Bank has made its WCAG (Web Content Accessibility Guidelines) website accessible to ''visually impaired persons'', as per Government of India guidelines.

The Bank has put new online module for displaying Inoperative accounts as per RBI guidelines and is being updated monthly.

The Bank being the Convener of State Level Bankers'' Committee, Andhra Pradesh, maintains separate website www.slbcap.nic.in. This website communicates all the proceedings of SLBC Meetings, State Government directives, instructions to Bankers and public.

The Bank follows meticulously CERT-ln (Indian Computer Emergency Response Team) guidelines issued from time to time in maintaining Bank''s Website securely.

23. AWARDS AND REWARDS

- Based on the evaluation of 503 Rural Self Employment Training Institutes (RSETIs) spread across the country, our Rajahmundry Institute has been adjudged the Best RSETI in the country for the year 2011-12 by Ministry of Rural Development, Government of India.

- At a function organised at Vignan Bhavan, New Delhi on 28th July 2012, Sri Jairam Ramesh, Hon''ble Minister of Rural Development, GOI presented an award which was received by Sri K K Misra, Executive Director of Andhra Bank and Sri M Subramayeswara Rao, Director ABIRD, Rajahmundry in the presence of Dr.D.Veerendra Heggade, Chairman, National Advisory Council forRSETIs.

- In the NFS Operational Excellence Awards 2012 (National Payment Corporation of India) held at Mumbai on 14.12.2012, our Bank was presented "Special Jury Award" in recognition of our Bank''s excellent performance in key parameters in respect of ATMs and Switch connected to NFSATM Network.

- Andhra Bank was awarded 4th Prize by RBI for 2011 -12 in O.L. implementation in ''C'' region.

24. OUTLOOK FOR 2013-14

RBI''s 60th round of the Industrial Outlook Survey conducted during Q3 of 2012-13 showed marginal improvement in the business sentiments of the manufacturing sector. RBI''s 11th round of Consumer Confidence Survey conducted in December 2012 continued to show a decline in the index in the latest quarter. There was deterioration in the perceptions on current economic conditions, current household circumstances and current spending. The Future Expectations Index also indicated a decline in consumers'' perceptions of the future.

Several risks for global outlook remain, with the impact of sequestration in the US on global economy likely to be muted in view of legislation initiated to avert the debt ceiling, and lead indicators point to a sluggish global growth. Political economy risks that block or delay credible and determined policy actions in advanced economies (AEs) are inhibiting recovery. For Emerging and Developing Economies (EDEs), risks of spillovers from AEs remain significant. While global inflationary pressures are likely to be subdued, given still large output gaps, several EDEs could potentially face the threat of elevated energy prices.

The Central Statistics Office (CSO) has projected GDP growth for 2012-13 at 5.0 percent, lower than RBI''s baseline projection of 5.5 per cent, reflecting slower than expected growth in both industry and services. The government has a critical role to play by remaining committed to fiscal consolidation, easing the supply bottlenecks and improving governance surrounding project implementation.

The foremost challenge for the economy to return to a high growth trajectory is to revive investment. A competitive interest rate is necessary for this, but not sufficient. Sufficiency conditions include bridging the supply constraints, staying the course on fiscal consolidation, both in terms of quantity and quality, and improving governance.

25. CHANGES IN THE BOARD DURING THE YEAR

The following changes took place in the composition of the Board of the Bank during the Financial Year 2012-13:

- Sri A.A.Taj ceased to be Executive Director of the Bank due to superannuation on 31.08.2012.

- Sri S.K.Kalra assumed charge as Executive Director of the Bank on 05.10.2012.

- Smt Madhulika P.Sukul, Govt. Of India Nominee Director ceased to be Director on 24.09.2012.

- Sri Mohammad Mustafa assumed charge as Govt. Of India Nominee Director on 25.09.2012.

26. DIRECTORS''RESPONSIBILITY STATEMENT

The Board of Directors hereby states that

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

- Accounting policies have been selected, and applied consistently and reasonably, and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit & Loss of the Bankforthe Financial Year ended 31.03.2012. -

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

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

27. ACKNOWLEDGEMENT

Andhra Bank is grateful to the Government of India, RBI, SEBI and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. The Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Bank''s vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support. For and on behalf of the Board,

Place : Hyderabad (B.A. Prabhakar)

Date : 02.05.2013 Chairman & Managing Director

---

Mar 31, 2012

The Directors of your Bank are happy to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors' Report for the financial year ended March 31, 2012.

1. PROFITABILITY

The Bank continued to grow well showing a good performance during the Financial Year 2011-12. Profitability Parameters saw satisfactory growth. Total Income increased by 32.8% from Rs 9,188 Crore to Rs 12,199 Crore while Non- Interest Income (excluding Profit on Sale of Investments) stood at Rs 739 Crore compared to Rs 756 Crore in the previous year. Operating Profit of the Bank increased to Rs 2,815 Crore from Rs 2,413 Crore, registering an increase of 16.7%. Net Profit increased by 6.1% to Rs 1,345 Crore in 2011-12 from Rs 1,267 Crore in the previous year.

Table 1: Highlights of Revenue, Expenditure and Profitability

(Rs. in Crore) 2010-11 2011-12 Absolute Percentage Growth Growth

Total Interest Income 8291.28 11338.73 3047.45 36.8%

Total Interest Expenditure 5070.31 7579.41 2509.10 49.5%

Net Interest Income 3220.97 3759.32 538.35 16.7%

Other Income 896.96 859.93 -37.03 -4.1%

Profit on sale of Investments 140.78 120.91 -19.87 -14.1%

Core Other Income 756.18 739.02 -17.16 -2.3%

Operating Expenses 1704.86 1804.25 99.39 5.8%

Operating Profit 2413.06 2815.00 401.94 16.7%

Provisions and Contingencies 1145.99 1470.33 324.34 28.3%

Net Profit 1267.07 1344.67 77.60 6.1%

1.1 The total Interest Income has shown a robust growth of 36.8% from Rs 8,291.28 Crore as on 31.3.2011 to Rs 11,338.73 Crore as on 31.3.2012. Of this, Interest Income from Advances grew by 38.7% from Rs 6,689.17 Crore as on 31.3.2011 to Rs 9,278.24 Crore as on 31.3.2012. Interest Income from investments increased by 28.2% from Rs 1,539.39 Crore and stood at Rs 1,973.53 Crore for the financial year ended March, 2012.

1.2 The focus on credit expansion, high yielding advances in particular and the consequent increase in interest income from advances has contributed for the increase in Net Interest Income by 16.7 %.

1.3 Of the total Non Interest Income, Fee Based Income stood at Rs 101.93 Crore for the financial year ended March 2012 against Rs 96.19 Crore in the previous year.

1.4 Total Expenses were Rs 9,383.66 Crore as on 31.3.2012 as against Rs 6,775.17 Crore as on 31.3.2011. Of this, Operating Expenses stood at Rs 1,804.25 Crore (an increase of 5.8%). Establishment Expenditure as a percentage of Total Expenditure stood at 12.25% for the year ended 31.3.2012.

APPROPRIATIONS

The appropriations made out of Net Profit are shown in Table 2. An amount of Rs 336.17 Crore was transferred to statutory reserves during 2011-12, and with this, the statutory reserves now stand at Rs 2,026.17 Crore. Transfer towards Dividend (including Dividend Tax) amounted to Rs 357.70 Crore.

Table 2: Appropriations out of Net Profit

(Rs in crore)

2011-12

Appropriation out of Net Profit 1344.67

Transfer to Statutory Reserves 336.17

Transfer to Capital Reserve 4.45

Transfer to Revenue Reserves 675.00

Transfer to Special Reserve 165.00

Transfer to proposed Dividend (including Dividend Tax) 357.70

Profit carried over to Balance Sheet 99.06

2. KEY FINANCIAL RATIOS

The Bank has shown good performance in key financial ratios. Net Interest Margin (NIM) stood at 3.67% compared to 3.80% in the previous year. Cost to Income Ratio improved from 41.40% to 39.06%, reflecting enhanced Operational Efficiency. Earnings per Share (EPS) stood at Rs 24.03 and Book Value per Share (BVPS) increased from Rs 116.02 to Rs 126.36.

The Asset Profile of the Bank continues to be very healthy. Gross Non-Performing Assets to Gross Advances stood at 2.12% and Net Non-Performing Assets to Net Advances stood at 0.91%, at the end of March 2012.

Table 3: Key Financial Ratios

Parameter 31.03.2011 31.03.2012

Yield on Advances (%) 11.16 12.45

Cost of Deposits (%) 5.90 7.51

Net Interest Margin (%) 3.80 3.67

Yield on Funds (%) 8.93 10.04

Cost of Funds (%) 5.46 6.71

Cost-to-income Ratio (%) 41.40 39.06

CRAR (%) 14.38 13.18

Return on Assets (%) 1.36 1.19

Earning Per Share (Rs) 26.05 24.03

Book Value Per Share (Rs) 116.02 126.36

Net NPA (%) 0.38 0.91

Gross NPAs (%) 1.38 2.12

3.CAPITAL & NET WORTH

(Rs in Crore)

Parameter 31.03.2011 31.03.2012

Equity Capital 560 560

Reserves Surplus 5932 6920

Net Worth of the Bank 6492 7480

4.CAPITAL ADEQUACY

The total Capital Funds of the Bank stand at Rs 11,156.34 Crore, up 13.1% from Rs 9,861.04 Crore as at the end of the previous year. With this, the Capital Adequacy Ratio stands at 13.18% which has been above 12% for the fourth year in a row when compared to the RBI prescribed norm of 9%. Coupled with this, a high Tier I Capital ratio of 9.02% provides the Bank sufficient headroom for future business expansion. As per RBI guidelines, Bank has already moved over to Basel II Capital Adequacy Norms with effect from 31.03.2009 and computed CRAR for Credit risk, Operational risk and Market risks. Bank has also put in place an "Internal Capital Adequacy Assessment Process" (ICAAP) for assessing the adequacy of Capital levels keeping in view the expected increase in business levels and the additional Capital requirement. The ICAAP is subjected to validation by Internal Auditors. The assessment process also includes a framework for inclusion of Pillar-II risks under Basel-II guidelines, such as Credit concentration risk, interest rate risk in the banking book, liquidity risk, etc.

Table 4: CRAR Position

31 March 2011 31 March 2012

Tier-1 Capital 9.68% 9.02%

Tier-II Capital 4.70% 4.16%

Total 14.38% 13.18%

5. DIVIDEND

The Board of Directors of the Bank recommended a Dividend of 55% for the financial year 2011-12.

2. PERFORMANCE HIGHLIGHTS OF THE BANK

2.1 Business

During the financial year 2011-12, Andhra Bank's Business increased to Rs 1,90,535 Crore as on 31.3.2012 from Rs 1,64,310 Crore as on 31.03.2011, recording an annual growth rate of 16.0%.

2.2.Deposits

Bank's total Deposits amounted to Rs 1,05,851.22 Crore as on 31.03.2012, showing an absolute accretion of Rs 13,694.94 Crore and a growth rate of 14.9% over previous year. The share of CASA deposits (current and savings) in total Deposits stood at 26.4%.

- Current Deposits stood at Rs 6,369 Crore as on 31.3.2012 as compared to Rs 7,160.10 Crore as on 31.3.2011.

- Savings Bank Deposits increased to Rs 21,578 Crore as on 31.03.2012, up from Rs 19,619 Crore as on 31.03.2011, growing at a rate of 10.0%.

- Term Deposits increased from Rs 65,377 Crore as on 31.3.2011 to Rs 77,904 Crore as on 31.03.2012, registering a growth rate of 19.2%.

2.3 Advances

Gross Bank Credit increased by 17.4% from Rs 72,154 Crore as on 31.3.2011 to Rs 84,684 Crore as on 31.3.2012.

Credit to Agriculture Sector registered a growth rate of 20.2% from Rs 10,369 Crore as on 31.3.2011 to Rs 12,459 Crore as on 31.3.2012.

Credit to Micro, Small and Medium Enterprises registered a growth rate of 18.3% from Rs 11,105 Crore as on 31.3.2011 to Rs 13,132 Crore as on 31.03.2012.

2.4 Profitability

Operating Profit for the Financial Year 2011-12 went up to Rs 2,815 Crore as compared to Rs 2,413 Crore for the Financial Year 2010-11, recording a growth rate of 16.7%.

Net Profit improved from Rs 1,267 Crore during 2010-11 to Rs 1,345 Crore during 2011-12, growing at a rate of 6.1%.

Net Interest Income for the Financial Year 2011-12 improved to Rs 3,759 Crore as compared to Rs 3,221 Crore for the Financial Year 2010-11, showing an increase of 16.7%.

2.5 Asset Quality

For the Financial Year ended 31.03.2012, Gross NPAs stood at Rs 1,798 Crore and Gross NPAs as per cent of Gross Advances stood at 2.12%.

Net NPAs stood at Rs 755.85 Crore and as per cent of Net Advances stood at 0.91% for the Financial Year ended 31.03.2012.

2.6 Capital Adequacy

Capital Adequacy Ratio of the Bank (CRAR-Basel II) stood at 13.18% as on 31.03.2012 as compared to 14.38% as on 31.3.2011.

3. BUSINESS REVIEW

The Total Business (Total Deposits plus Gross Bank Credit) of the Bank registered a growth rate of 16.0%, up from Rs 1,64,310 Crore as on 31.3.2011 to Rs 1,90,535 Crore as on 31.3.2012.

3.1Aggregate Deposits

Aggregate Deposits (excluding inter-bank deposits) went up from Rs 91,962 Crore as on 31.3.2011 to Rs 1,05,762 Crore as on 31.3.2012, registering a growth rate of 15.0%. Aggregate Deposits comprised of Current Deposits of Rs 6,327 Crore, Savings Deposits of Rs 21,578 Crore and Term Deposits of Rs 77,857 Crore.

Table 5: Category-wise classification of Aggregate Deposits

(Rs in Crore)

Sl. Type of Deposits Amount Percentage of No. Aggregate Deposits

1 Current Deposits 6327.15 6.0%

2 Savings Bank Deposits 21578.29 20.4%

3 Term Deposits 77856.54 73.6%

4 TOTAL (1 2 3) 1,05,761.98 100.00

Growth rate over previous year (%) 15.0%

Area-wise distribution of Aggregate Deposits (Total Deposits less Inter-Bank Deposits) as on 31.03.2012 is set forth in the following Table.

Table 6: Area-wise classification of Aggregate Deposits

(Rs in Crore)

S. No. Category of Branches Amount % to total

1 Rural 6257 (11.5%) 5.9%

2 Semi-Urban 16524 (18.7%) 15.6%

3 Urban 27272 (17.4%) 25.8%

4 Metro 55709 (13.2%) 52.7%

5 TOTAL (1 2 3 4) 105762 (15.0%) 100.0%

Note: Figures in ( ) indicate annual growth rate over the previous year

3.2 Gross Bank Credit

For the Financial Year ended 31.03.2012, Bank registered a growth rate of 17.4% in Gross Bank Credit over the previous year adding Rs 12,530 Crore during the year, to reach Rs 84,684 Crore as compared to Rs 72,154 Crore for the Financial Year ended 31.03.2011.

Table 7: Classification of Advances portfolio

(Rs in Crores)

Category 31.03.2011 31.03.2012 Variance

1. Food Credit 1222.28 1372.91 150.63

2. Non-Food Credit (2.1 to 2.4)

2.1 Advances to Agricultural Sector 10369.15 12458.53 2089.38 (Excl. RIDF)

2.2 Advances to MSME Sector 11104.77 13132.44 2027.67

2.3 Large Industries 31309.91 38458.89 7148.98

2.4 Other Advances 18148.34 19261.18 1112.84

GROSS BANK CREDIT (1 2) 72154.45 84683.95 12529.50

Of which, Lending to Priority sector 23082.42 27026.96 3944.54

3.2.1 Priority Sector Lending

Priority Sector Advances of the Bank stood at Rs.27,027 Crore as on 31.03.2012, registering a growth of 17.1% over the previous year. The absolute increase in Priority Sector Advances over the previous year is Rs 3,945 Crore. Total Credit extended to Women Beneficiaries was Rs 5,113 Crore, registering a growth of 16.36% over the previous year.

Table 8: Priority Sector Lending (as on 31.3.2012)

(Rs in Crores)

Category 2011-12

1. Priority Sector Advances (2 to 6) 27026.96

2. Agriculture Loans 12458.53

3. Micro and Small Enterprises 8848.53

4. Educational Loans 1515.86

5. Housing Loans (including indirect finance) 4204.04 Memo items

I. Priority Sector Advances (%) 37.29

II. Agriculture Advances (%) 17.19

3.2.1.1 Credit to Agriculture

The Total Agricultural Advances of the Bank stood at Rs 12,459 Crore, registering a growth of 20.2% over the previous year. The absolute increase over the previous year is Rs 2,090 Crore.

3.2.1.2 Lending to Self Help Groups (SHGs)

Bank covered a total number of 2,30,668 Self Help Groups with outstanding financial assistance of Rs 2,911 Crore.

3.2.2 Lending to Micro & Small Enterprises (MSE)

The Total Advances to Micro & Small Enterprises of the Bank were at Rs 8,849 Crore registering a growth of 24.4% over the previous year. The absolute increase over the previous year is Rs 1,737 Crore.

3.2.3 Credit to Weaker Sections

Advances to Weaker Sections stood at Rs 7,821 Crore. The Weaker Section Advances as a percentage to ANBC stood at 10.79%.

3.2.4 Credit to Minorities

Credit extended to Minorities stood at Rs 2,756 Crore, constituting 10.2% of Priority Sector Advances.

3.2.5 Credit to SC/ST Borrowers

The total Credit extended to SC/ST Beneficiaries under Priority Sector Advances was Rs 1,147 Crore.

3.3 Credit to MSME Sector

MSME Sector is playing a crucial role in the economic development of our country. The Bank has been according high priority in lending to this sector since a long time.

The MSME Advances which were at Rs 11,105 Crore as on 31.03.2011 rose to Rs 13,132 Crore as on 31.03.2012, registering a y-o-y of 18.3%.

In order to encourage the women borrowers in MSME Sector, Bank is extending a concession of 0.50% in the interest rate. Bank has also set up MSME Care Cells at Head Office and all Zonal Offices to facilitate MSME borrowers for quick redressal of their grievances.

Bank is also adhering to the code of commitment of Banking Codes and Standards Board of India (BCSBI) regarding lending to MSME Sector.

Simplified loan application form along with check list for Loan facilities up to Rs 1.00 Crore for Micro and Small Enterprise Borrowers is in place.

3.4 Retail Lending

During the Financial Year 2011-12, Retail Credit has registered a growth of 8.8% and the portfolio as on 31.03.2012 stood at Rs 10,065 Crore. In order to consolidate and improve upon the quality of the portfolio, Bank had to put focused efforts on Recoveries. The major growth drivers were Housing Loans and Non-Agricultural Gold Loans.

In the Fourth Quarter of the Financial Year 2011-12, interest rates on Housing Loans and Vehicle Loans were revised in line with market particularly to build up high end portfolio of above Rs 20 lakhs.

Attractive new products were launched in this Financial Year aiming at Doctors and other professionals like Chartered Accountants, Company Secretaries, Engineers, Architects, Management Consultants, etc. A Special Scheme "AB Swarna Loan" Scheme was launched to increase Non- Agricultural Gold Loans. A Special Scheme was launched for financing Cars to Corporate Clients.

Two Centralized Retail Credit Processing Centers were established in Hyderabad City to facilitate speedy processing of Retail Loans.

3.5 Advances - Industry wise Exposure

Bank has loan exposure to various sectors like power, construction and contractors, iron & steel, housing loans, NBFCs, textiles, etc. Exposure to top 10 industries constitutes 60.8% of gross bank credit, signifying a diversified loan portfolio.

Table 9: Industry wise Exposure of Advances

(Rs in Crore)

Sl. Industry Ceilings Actual Exposure No. as % of Fund as % of Total Total based Advances advances exposure of previous of Previous as on quarter i.e Quarter 31.03.2012 31.12. 2011

1 Power 25.00% 17186.76 22.24%

2 NBFC 10.00% 6312.04 8.17%

3 Housing Loans (includes residential mortgages & indirect finance to Housing Intermediaries) 15.00% 6010.03 7.78%

4 Iron and Steel 10.00% 5192.54 6.72%

5 Textiles 9.00% 4692.53 6.07%

6 Engineering (Heavy &Light) 5.00% 2899.70 3.75%

7 Commercial Real Estates 7.00% 2872.70 3.72%

8 Construction and Contractors 10.00% 2684.49 3.47%

9 Rice Mills 6.00% 2075.70 2.69%

10 Drug and Pharmaceuticals 5.00% 1574.58 2.04%

Total 51,501.07

3.6 Area-wise position of Gross Bank Credit

The population group wise distribution of Credit as on 31.03.2012 is as under:

Table 10: Gross Bank Credit- Population Group Wise as on 31.3.2012

Sl. No. Category Amount % to total

1 Rural 8377 (14.5%) 9.9%

2 Semi-Urban 11341 (14.5%) 13.4%

3 Urban 18414 (17.9%) 21.7%

4 Metro 46552 (18.4%) 55.0%

5 TOTAL 84684 (17.4%) 100.0%

Note: Figures in ( ) indicate annual growth rate over the previous year

4.INVESTMENTS

In terms of RBI guidelines, the Bank is required to invest in SLR securities to the extent of 24% of NDTL. Bank's investment decisions are based on risk-return trade-off and Bank is scrupulously following the regulatory and internal guidelines. Statutory prescriptions relating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are also maintained. Risk Management in treasury operations has been strengthened further by undertaking stress testing and back testing of the investment portfolio at quarterly intervals, besides daily monitoring of Duration and Value- at-Risk (VaR). External rating migration of the bonds and debentures portfolio is also being monitored on quarterly basis.

As on 31.03.2012, the Investments (net of depreciation) increased by 22.4% and stood at Rs 29,629 Crore, up from Rs 24,204 Crore as on 31.03.2011. SLR maintained as on 31.03.2012 was Rs 27,252.47 Crore, which constituted 25.3% of Net Demand and Time Liabilities (NDTL). Interest Income from Investments increased from Rs 1,539.59 Crore in 2010- 11 to Rs 1,973.53 Crore in 2011-12. Profit on sale of Investments stood at Rs 120.77 Crore during 2011-12, while it was Rs 140.78 Crore during 2010-11.

Table 11: Classification of Investments

(Rs in Crore) 2010-11 2011-12 Var (%)

1. Government Securities 22719.55 26727.92 17.6%

2. Other Approved Securities 23.59 10.36 -56.1%

3. Shares 196.38 212.85 8.4%

4. Debentures & Bonds 585.97 705.97 20.5%

5. Subsidiaries and / or Joint Ventures 135.36 199.29 47.2%

6. Others 543.14 1772.52 226.4%

TOTAL (1 to 6) 24203.99 29628.91 22.4%

4.1 Strategic Investments

4.1.1 Joint Venture Insurance

Our Bank is having Joint Venture in Insurance with Bank of Baroda and Legal and General Plc of UK christened "India First Life Insurance Co. Ltd". The Bank's stake in the venture is 30% while Bank of Baroda holds 44% and Legal and General Plc holds 26% stake. Both the Banks have commenced sale of insurance policies through their Branch outlets. Bank's investment in the life insurance venture is Rs 142.50 Crore.

4.1.2 Banking Subsidiary in Malaysia

The Bank along with Bank of Baroda and Indian Overseas Bank, has entered into a tie up for setting up a Banking Subsidiary in Malaysia. The Bank's stake in the Venture is 25%, amounting to RM 77.50 Million (approximately Rs 129.82 Crore), in a total subscribed Capital of RM 310 Million (approximately Rs 519.25 Crore @ 1 RM = Rs 16.75). So far, we have subscribed to 585025 shares of RM 10 each amounting RM 5,850,250 (Rs 9.29 Crore).

The joint venture has been incorporated on 13.08.2010 in the name of INDIA INTERNATIONAL BANK (MALAYSIA) BHD and is in the process of commencing operations. The Bank has issued necessary Letter of Undertaking / Letter of Comfort favoring Bank Negara Malaysia forming part of the application for license.

The joint venture is the first of its kind in Malaysia and is expected to cater to the needs of the Indian Diaspora there. Eight percent of the population of Malaysia, which is approximately 2.1 million are Persons of Indian Origin. The joint venture is very much beneficial considering that our bilateral trade with Malaysia is rapidly growing and stands at approximately USD 10 billion. The commercial operations are likely to commence soon.

4.1.3 United Stock Exchange of India Ltd

United Stock Exchange of India Ltd. is promoted by a consortium of Banks, of which our Bank is also a partner. The other major Banks are Canara Bank, Bank of Baroda, Allahabad Bank, Bank of India, Indian Overseas Bank and Oriental Bank of Commerce. The Company has tied up with Bombay Stock Exchange which is providing the trading platform and clearing services for the currency and interest rate derivate products. The Bank holds 2.39% stake in the Company.

4.1.4 Multi Commodity Exchange of India Ltd.

With a view to be associated with one of the major commodity exchanges, our Bank has a tie up with the Multi Commodity Exchange (MCX-SX) Ltd. The Exchange commenced operations during the financial year 2004-05. The Bank has an Equity stake of 4.6% in the Exchange.

4.2 Treasury & Forex Business

The Bank is an 'Authorised Dealer', to deal in foreign exchange business through 46 designated B category Branches of the Bank. The Bank has speed remittance arrangements with Five Exchange Houses.

Systems have been put in place for management of country risk, exchange risk and other foreign exchange risks. The country risk exposures for single country risk limit and aggregate risk limits for the group of countries under each risk category are fixed and are being monitored on daily basis.

During the year 2011-12, the Bank recorded a merchant turnover of Rs.24,569.09 Crore in Forex. The Bank achieved Inter-Bank turnover of Rs.4,38,338 Crore as on 31.03.2012 compared to Rs.4,34,402 Crore as on 31.03.2011.

5.CREDIT CARD BUSINESS

The Bank issued 8,133 new credit cards in the Financial Year 2011-12, including 2,916 upgrades. The total outstanding Credit Card dues as on 31.03.2012 amounted to Rs.95.46 Crore. The Bank also issued around 40,830 prepaid Cards.

The Merchant Business turnover is Rs.751 Crore, with 341 Merchants enrolled.

Reward Points on credit card merchant spend, a long time demand of the card holder is now fulfilled. The unique feature is automatic redeeming on accumulation of 500 points with cash back to the card accounts.

The Branch Heads are now delegated with the power to sanction credit cards up to a limit of Rs.1 lakh for customers. The Zonal Offices have been delegated with the power to sanction credit cards to non-customers and customers with less than 6 months of account operation up to a limit of Rs.1 lakh.

In order to create competitive environment, Incentive Programme for mobilization of cards by Branches and Zones has been introduced. This also creates an avenue of Non Interest Income to the Branches for sanctioning cards.

NEW PRODUCTS & SERVICES INTRODUCED

Gift Cards

Gift Cards in flexi denomination from Rs.250 to Rs.50,000 with built in security unique features introduced.

International Travel Cards

International Travel Cards in USD with attractive features like PIN enabled at POS, Stand-in Card with Locking facility when the card is not in use introduced.

Health Card

A co-branded Health Card along with M/s India First Life Insurance Co. for facilitating Health Insurance claim settlement introduced.

Prepaid Cards

Prepaid cards provided to Government of Andhra Pradesh for disbursing the pension payment to the ART patients introduced.

6. MERCHANT BANKING SERVICES

The Bank acted as a 'Paying Banker' for payment of dividend warrants of three companies. The Bank's Shareholders' and Investors' Grievance Cell received 21 complaints and 7016 requests during the Financial Year 2011-12, and all the complaints and requests were redressed by the Bank. The Share Transfer Committee of the Bank met three times during the year and confirmed 1740 share transfers totalling to 8,29,800 shares.

The Bank tied up with M/s TATA AIG General Insurance Company Limited towards Corporate Guard for Directors and Officers for an amount of Rs.50 Crore for a period of one year with effect from 04.11.2011. The Bank has an agency agreement with M/s Stock Holding Corporation of India Limited to accept the physical applications for Infrastructure Bonds and other Initial Public Offers of the companies from the general public through the designated Branches.

Three Directors from amongst the Shareholders of the Bank have been elected unanimously and they assumed charge with effect from 14.3.2012.

Application Supported by Blocked Amount (ASBA):

SEBI had introduced a new mode of payment in public and rights issues called Application Supported by Blocked Amount (ASBA), wherein the application money remains blocked in the Investor's Bank account till finalization of basis of allotment in the issue.

ASBA process facilitates retail individual investors bidding at cut-off, with single option, to apply through Self Certified Syndicate Banks (SCSBs) in which the investors have Bank accounts. SCSBs are those Banks which satisfy the conditions laid by SEBI. SCSBs would accept the applications, verify the application, block the funds to the extent of bid payment amount, upload the details in the web based bidding system of NSE / BSE, unblock when the basis of allotment is finalized and transfer the amount for allotted shares to the Bank account of the issuer.

The ASBA facility is also available for New Fund Offers of Mutual Funds. In view of the inherent benefits of ASBA to investors, issuers and the market, w.e.f. 11.05.2010 the reach of ASBA was subsequently expanded to QID bidders also on 100% payment of application money including various other investor categories like High Net Worth Individuals, Corporate Investors, etc.

Presently, ASBA facility is available at 26 select Branches and through internet banking also .

The Bank has handled 41 issues through ASBA facility during the Financial Year 2011-12. Out of the same, 38 are IPOs, 2 are FPOs and 1 issue under Institutional Private Programme.

7. FEE-BASED PRODUCTS

The Bank has been constantly focusing on augmenting non-interest income through diversification of income streams by taking up marketing of life and non-life insurance products, mutual fund products, collection of telephone bills, direct taxes, commercial taxes, municipal taxes, utility payments, etc. Bank is utilizing Marketing Officers specifically for spreading awareness of our products and services and marketing our products. Marketing Officers are posted at select Branches, with every Zone having a Nodal Officer for monitoring the marketing efforts. As part of marketing initiatives, Bank has also entered into tie ups with Mutual Funds for distribution of Mutual Fund products and with automobile companies for financing automobiles.

7.1 Insurance

The Bank along with Bank of Baroda and Legal & General Group Plc of UK has formed a joint venture life insurance company named M/s India First Life Insurance Co Ltd. and it was formally launched in the month of Nov. 2009. The Bank has shareholding of 30% in the Company, while Bank of Baroda has 44% and 26% is held by Legal and General Group Plc, UK. During the FY 2011-12, Bank sold 46,262 IFLIC policies and collected premium of Rs 111.29 Crore.

7.2 Mutual Fund Business

The Bank is having tie ups with Mutual Fund companies, namely, UTI Mutual Fund, SBI Mutual Fund, Principal Mutual Fund, Tata Mutual Fund, Sundaram Mutual Fund, Reliance Mutual Fund, Birla Sun Life Mutual Fund, Fidelity Mutual Fund, Kotak Mutual Fund, LIC Mutual Fund, Baroda Pioneer Mutual fund and ING Vysya Mutual fund.

7.3 Depository Services

Bank is offering depository Services to the public under the brand name of "AB Demat". The Bank is a Depository Participant (DP) with Central Depository Services (India) Limited (CDSL) as well as with National Securities Depository Limited (NSDL). 158 Branches of the Bank are authorized to open demat accounts.

7.4 Retail Sale of Gold Coins

- During the period from 01.04.2011 to 30.03.2012, Bank sold 397.760 Kgs of gold coins and earned an income of Rs 4.16 Crore (previous year 306.346 Kgs were sold and an income of Rs 3.41 Crore was earned).

- Special Campaigns Akshaya Thruthiya 2011, Diwali Dhamaka 2011 and Gold coins Dhamaka 2012 were launched for sale of Gold coins.

- 2 Gram, 20 Gram and 50 Gram coins were introduced to improve sale of Gold coins.

8. NEW PRODUCTS & SERVICES INTRODUCED

8.1 Abhaya First Wealth Pack

An innovative product Abhaya First Wealth Pack was launched on 12.01.2012. This includes a ULIP, Life Insurance Cover, Recurring Deposit, and Saving Account. Till 31st March 2012, 10260 Abhaya First Wealth packs with total amount of Rs 37.27 Crore mobilized of which Premium is Rs 17.97 Crore and Deposit with Bank is Rs 19.30 Crore.

8.2 Western Union Money Transfer

New software was loaded in 263 Branches in Hyderabad I, Hyderabad II, Karimnagar and Kakinada Zones to enable instant authorization and to provide quick payment to the customers.

8.3 Direct Tax Collection / OLTAS

- Bank introduced accepting of Direct Taxes through net banking and ATMs.

- Public Provident Fund Scheme (PPF-1968) and Senior Citizen Savings Scheme (SCSS-2004) of Government of India was launched in November 2011 in 418 designated Branches.

- Online acceptance of VAT/ CST on behalf of Commercial Tax Department commenced in the States of Andhra Pradesh and Maharashtra.

- Agreement signed for Point of Presence under National Pension System from PFRDA. Process of Implementation is under way.

- Bank has integrated our net Banking with Port Community System to enable receipts for Ennore Port, Tamil Nadu and Vizag Port, Andhra Pradesh.

9. IT INITIATIVES

Following migration of the Bank to CBS in March 2009, all our customers can now transact from any of our branches across the country. Internet Banking (Retail and Corporate) with transaction facility was also launched for Customers as part of initiatives under CBS. As on 31.03.2012, 1.74 lakh customers have registered for Internet Banking facility.

Our Customers are enabled to pay their taxes through Internet Banking in CBS. Fund Transfer facility is made available for our Bank accounts and other Bank accounts through Internet Banking. Payment of our Bank's Credit Card Bills is also enabled through Internet Banking facility. As of 31.03.2012, total 72032 e-challans were paid with a value of Rs 1183.13 Crore.

SMS Alerts facility has been provided to our customers for various types of transactions including ATM Drawals / POS transactions, Online Internet Banking transactions, etc. As on 31.03.2012, 23.25 lakh customers registered for this facility and on an average 90 lakh SMS messages are being sent every month.

Option to register for the SMS Push Alert facility was provided on Bank's ATMs also. Under SMS Pull facility, the customers can get account related information as and when they require by sending an SMS to Bank. The features include balance enquiry, mini-statement, cheque status, etc.

Our Bank Introduced Transaction based Mobile Banking as per RBI guidelines. This facilitates funds transfer from mobile to mobile and mobile to account, donations to temples and utility payments.

Tele-Banking with Interactive-Voice-Response and a 20 seater Call Centre facility has been launched for Customers. Customer can dial up Toll-free number 1800- 425-1515 and register online.

During the year transactions under National Electronic Fund Transfer (NEFT) have gone up substantially by 83.5% from 29.97 lakhs to 55.00 lakhs transactions. Under Real Time Gross Settlement (RTGS) transactions increased from 9.28 lakhs to 10.84 lakhs, recording a growth of 16.8%.

Number of ATMs increased from 981 as on 31.03.2011 to 1056 as on 31.03.2012. Number of Debit cards issued during 2011-12, stood at 796634.

Bank started issuing Debit Cards with CVV so that they can be used for Online Payments. A new security feature "Verified by VISA" was introduced as per RBI guidelines for transactions through Internet using Bank's Credit and Debit Cards. For remote Branch and offsite ATM connectivity, Bank has deployed 450 VSATs. Bank is also sending Statements of Account through Email to all registered customers.

A New MIS solution is launched through which reports are provided to Branches / Zonal Offices / Head Office Departments. The solution facilitates export of data into various report formats like excel, pdf, etc. All the data of pensioners is centralized and 41567 pensioners are served through 1245 Branches.

Collection of Commercial Taxes/VAT for AP State Government: One more value added service namely 'Cyber Treasury" has been added to our Internet Banking offerings. Now our customers can pay their Commercial Tax/VAT for AP State Government online using our Internet Banking.

Direct Tax Payments through our ATMs: Hitherto, our customers were able to pay direct taxes through Internet Banking or at select branches across the counter. Now this facility is enabled on our ATMs also.

Inter-Bank Mobile Payment Service (IMPS): This is an initiative by NPCI. Using IMPS, funds transfer can be done across Banks for the customers registered for the facility. This product has been soft launched.

Integration with Port Community System: We have integrated our Internet Banking with Port Community System of Port Trust of India whereby our customers who are using port services at Visakhapatnam and Ennore Ports can make payment to Port towards services availed by them using our Internet Banking.

Mobile Push Alerts: This facility has been extended to many types of non financial transactions also. We have started sending SMS Alerts to customers on their birth days wishing them Happy Birth Day.

Opening of Term Deposit Accounts by customers through Internet Banking: A new e-product has been launched on our Internet Banking using which our customers can themselves open Term Deposit Accounts through Internet Banking without a need to visit the branch. The deposit receipt will be printed by the Branch and be sent to the customers by courier along with the system generated application form.

Launching of PPF and SCSS: Our Bank has been authorized to open accounts for customers under Public Provident Fund (PPF) and Senior Citizen Savings Schemes (SCSS) of Government of India. These schemes have been parameterized in our Government Business Module and have been launched simultaneously.

e-Banking Centre: Andhra Bank has set up e-Banking centre at Nanakramguda financial district and Vidyanagar branch in the state Capital. E-Banking centre is facilitated with self service such as ATM, Self service passbook printer, Internet Banking, Hot line for Telebanking and Cheque deposit.

Online Cheque Book through Internet Banking: Our Internet Banking Customers now can apply online for issuance of a cheque book. Under the said facility, personalized cheque books are being issued to the customer.

RTGS facility through Internet Banking: Hitherto, our customers were able to make inter-bank fund transfer through Internet Banking using NEFT facility. Now, the RTGS facility has also been extended on our Internet Banking.

Collection of Commercial Taxes/VAT for Maharashtra State Government: One more value added service has been added to our Internet Banking offerings. Now our customers can pay their Commercial Tax/VAT for Maharashtra State Government also online using our Internet Banking.

Account Number Portability: A new feature of account number portability for CASA has been made available to customers from 15.03.2012. Under this facility, Customers can get their accounts transferred to any Branch of the Bank without the account number being changed.

10. NETWORK EXPANSION

During the Financial Year 2011-12, Bank opened 80 Branches (including up-gradation of 10 Extension Counters) and added 75 ATMs. With this, as on 31.03.2012, Bank had 2821 Delivery Channels consisting of 1712 Branches, 15 Extension Counters, 38 Satellite Offices and 1056ATMs spread over 25 States and 3 Union Territories. The Bank has 54 Specialized Branches catering to the needs of the specific segments of clientele. The Bank also has two Representative (overseas) Offices at Dubai (U.A.E) (opened in May 2006) and New Jersey (U.S.A) (opened in November, 2008).

Table 12: Population Group Wise classification of Branches

S. No. Category Number % to total

1 Rural 454 26.5 %

2 Semi-Urban 479 28.0 %

3 Urban 509 29.7 %

4 Metro 270 15.8 %

TOTAL 1712 100.0 %

As on 31.03.2012 the Bank had 54 Specialized Branches, as detailed hereunder :

Table 13: Specialized Branches

S No. Category of Specialized Branches Branches

1 Specialised SME Branches 18

2 Specialised Agricultural Finance Branches 3

3 Specialised Agri - Hitech Branches 6

4 Specialised Housing Finance Branches 4

5 Specialised Personnel Banking Branches 4

6 Specialised NRI Branches 4

7 Specialised Retail Credit Branches 8

8 Corporate Finance Branches 2

9 Auto-Tech Finance Branch 1

10 Overseas Branch 1

11 Asset Recovery Management Branch 3

TOTAL 54

10.1 Presence in Minority-Dominated Districts

The number of branches in Minority dominated Districts increased from 209 as on 31.3.2011 to 220 as on 31.3.2012. Of the Bank's total network across the country, the percentage of Branches in minority dominated Districts stood at 12.9% as on 31.3.2012.

11. QUALITATIVE ASPECTS:

11.1 Risk Management

The Bank has put in place a comprehensive "Integrated Risk Management Policy" for the management of credit risk, market risk and operational risk as per the guidance notes/ guidelines of RBI. Accordingly, all the risk management functions, viz., Credit Risk Management, Asset-Liability Management (ALM), Mid-office of the domestic treasury and operational risk functions have been integrated. The "Integrated Risk Management Policy" of the Bank is being reviewed every year in tune with the notifications given by the RBI. The Risk Management Committee (RMC) of the Board meets at regular intervals to provide guidance and directions in implementing the risk management initiatives of the Bank.

11.1.1 Credit Risk

- The Bank has constituted a 'Credit Risk Management Committee' for analyzing all issues relating to credit matters and for recommending to the Board.

- The Bank has a well defined 'Loan Policy' duly approved by the Board. The Bank has formulated policies on standards for presentation of credit proposals, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentrations, standards for loan collateral, portfolio management, loan review mechanism, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning, regulatory/legal compliance, etc.

- The Bank has in place a comprehensive Internal Credit Risk Rating system for various categories of exposures.

- Bank has entered into a Memorandum of Understanding with the External Credit Assessment Institutions (ECAIs) for rating the Corporate exposures.

- The Bank utilizes industry reports from CRISIL and the industry risk score service from CRISIL Research.

- The Bank undertakes portfolio studies on industries/ sectors where the exposures are substantial and the findings of such studies are discussed by the 'Credit Risk Management Committee'.

11.1.2 Market Risk

The Bank has in place a well-defined 'Market Risk Management Policy' and organizational structure for market risk management functions. The Bank manages market risk through 'Asset-Liability Management (ALM) Policy' and 'Investments/Forex Policy'.

A high level executive committee, namely, Asset-liability Committee (ALCO) oversees the ALM in the Bank and deliberates on liquidity and interest rate scenario in the market and decides upon the pricing of various products. ALCO regularly monitors the identification, measurement, monitoring and mitigation of market risk in liquidity, interest rates, equity and forex areas.

The 'liquidity risk' is measured and managed through 'gap analysis' for maturity mismatches based on residual maturity. The liquidity position of the bank is tracked on a daily basis by means of structural liquidity statements and projections. For assets and liabilities, which are of non- maturity nature, Bank is conducting behavioural studies and factoring the observations in the gap analysis. The behavioural study findings are subjected to back-testing and validated regularly. Prudential limits are fixed for net gaps and also for cumulative gap up to one year and these limits are measured and monitored regularly. Liquidity profile of the Bank is also measured regularly through various liquidity ratios and monitoring of the same is done with the help of prudential limits fixed thereon.

The 'interest rate risk' is managed through 'gap analysis' and 'duration gap analysis'. Tolerance limits have been fixed for impact on net interest income (NII) due to adverse changes in interest rates. To measure the impact of interest rate changes on Bank's equity, duration gap analysis is done and prudential limit is set for modified duration of equity. Modified duration of equity is within the prudential limits set for this purpose. VaR and duration analysis are used for measuring market risk including treasury operations. The Interest Rate Risk in Banking Book (IRRBB) is also being assessed on monthly basis. Stress testing exercises by simulating scenarios of liquidity and interest rates are undertaken to estimate their impact.

11.1.3 Operational Risk

Management of Operational Risk is a part of the 'Integrated Risk Management Policy' and the Bank has focused attention for the management of Operational Risk in the light of RBI guidelines. Operational Risk Management Department is responsible for coordinating all the operational risk management activities of the bank which includes building an understanding of the risk profile, implementing tools related to operational risk management, and working towards the goals of improved controls and lower risk. Operational Risk Management Committee [ORMC] ensures implementation of the Operational risk policies and monitors the compliance with limits approved by the Board/Risk Management Committee [RMC].

The Bank has been computing capital charge for operational risk by adopting 'Basic Indicator Approach' (BIA) as stipulated by the RBI. To move towards advanced approaches for Operational Risk Measurement the Bank has put in place the following:

- Operational Risk Management Policy which covers the objectives, identification, assessment, monitoring and control of operational risk loss incidents.

- Historical Loss Data is being created for 5 years. We have a system in place to track the Operational Loss events at branch level.

- Business Line Mapping Policy is framed and approved by Board.

- Capital Charge on Operational Risk is being calculated using The Standardized Approach (TSA) on parallel basis.

- Bank sought permission from RBI to move over to TSA from BIA for calculation of capital charge on Operational Risk. We are yet to receive the permission from RBI.

11.1.4 Basel - II Preparedness

As per RBI guidelines, all commercial banks in India shall follow the Standardised Approach for credit risk, Standardised Duration Approach for market risk and Basic

Indicator Approach for operational risk under the 'New Capital Adequacy Framework".

Credit Risk: Bank has successfully migrated to Standardised Approach for Credit risk for total balance sheet including the HTM portfolio under Investments as on March 31, 2009. Bank has entered into a Memorandum of Understanding with the External Credit Assessment Institutions (ECAIs) for rating the Corporate exposures. The Bank has also developed a Credit Risk Rating Model (CRRM) with the consultancy assistance of National Institute of Bank Management (NIBM), Pune. This model is further strengthened internally by making it as a WAN (Wide Area Network) based CRRM model so that it is accessible from any of the location of the Bank. This model is capable of providing transition matrices and default probabilities and would help the Bank in moving over to the Advanced Measurement Approach in future.

Market Risk: The Bank is adopting the Standardised duration method for computing capital charge for market risks (investments in HFT and AFS categories) as per RBI's guidelines.

Operational Risk: Bank has been providing capital charge for operational risk as per the Basic Indicator Approach (BIA) with effect from 31.03.2009. Bank sought permission from RBI to move over to TSA from BIA for calculation of capital charge on Operational Risk. We are yet to receive the permission from RBI.

Pursuant to the RBI guidelines, the Bank would be disclosing its Capital Adequacy under Basel II as well as under Basel III Capital Adequacy Framework from the financial year 2012-13 onwards.

11.1.5 Disclosure Policy

The Bank has a Disclosure Policy as per the disclosure requirements contained in the circular issued by the Reserve Bank of India on the implementation of the new capital adequacy framework. The guidelines therein are adhered to and compliance is reported to the competent authorities.

11.2 Management of Asset Quality

Gross NPAs of the Bank stood at Rs 1,798.01 Crore as on 31.3.2012 and Gross NPAs as a percentage to gross Advances is 2.12% while Net NPAs as a percentage to net Advances stood at 0.91%. The Provision coverage of NPAs as on March 31, 2012 was 71.13%.

Total reduction during the year in NPA accounts amounted to Rs.484.94 Crore.

Table 14: Position of Non-Performing Assets

(Rs in Crore) 2010-11 2011-12

Gross NPAs at the beginning of the year 487.87 995.64

Additions during the year 794.68 1287.31

Reduction during the year 286.91 484.94

Gross NPAs at the end the year 995.64 1798.01

Net NPAs 273.68 755.85

The segment-wise distribution of NPAs as on 31.03.2012 is as under:

Table 15: Segment-wise Non-Performing Assets

(Rs in Crore) Segment Amount % to Advances*

I. Agriculture 369.85 2.97

II. MSME 425.56 3.24

III. Retail Credit 322.46 2.85

IV. Large and Mid Corporate 590.86 1.26

V. Others 89.28 4.97

Total 1798.01 2.12

*NPA% to Advances indicates NPA to Advances of thatt segment.

Provisions held under different classes of NPAs are as under:

Table 16: Provisions held for Non-Performing Assets (including floating Provisions)

(Rs in Crore)

Nature of Asset Amount Provision Held

Sub-Standard Assets 1084.16 371.57

Doubtful Assets 642.48 599.22

Loss Assets 71.37 71.37

Total 1798.01 1042.16

11.2.1 Restructuring mechanism

During FY 2011-12, 1296 accounts with outstanding of Rs 3,947.85 Crore were restructured in terms of the restructuring packages. The total balances in restructured accounts as at the end of March 2012 stood at Rs 6,081.03 Crore in 43364 accounts.

11.2.2 Lending Practices

The Bank has a Board approved Loan Policy in place and is being reviewed and revised taking into account market conditions and risk perceptions. During the Financial Year 2011-12, a comprehensive review and revision of Loan Policy Guidelines was made with the approval of the Board and a booklet with comprehensive guidelines was released. The Bank has fixed constitution wise and industry / sector wise substantial exposure ceilings (internal exposure ceilings) along with the exposure ceilings fixed by RBI.

During the Financial Year 2011-12, the Bank has released an updated booklet on Delegation of Powers for field level functionaries, and the sanctioning powers of AGMs heading Zones has been substantially enhanced. Guidelines on New Impaired Assets Study (IAS) Policy were issued in accordance with the directions of CVC, with effect from 01.04.2011. The Bank's Monitoring Cell has been reviewing all the sanctions with limits of over Rs.3 Crore on a monthly basis and details of stressed accounts, if any, are being brought to the notice of the Top Management for taking corrective action in time.

11.2.3 Technical Appraisal Cell (TAC) & Syndication Desk

The Bank has a Technical Appraisal Cell (TAC) which is independent of Credit Processing & Sanctioning Departments and is in line with other project consultants in the market, viz., SBI CAPs, APITCO, etc. The Cell undertakes preparation of Project Information Memorandum (PIM), conducting Techno-Economic Viability (TEV) Study and Debt Arrangement (Loan Syndication) for corporate clients. The Cell has earned Fee based income of Rs.22.26 Lakhs during the Financial Year 2011-12.

11.2.4 Credit Monitoring Cell

Credit Monitoring Cell of the Bank is reconstituted for both Large and Mid Corporate Departments separately to monitor the accounts falling under the powers of Head Office. This Monitoring Cell is exclusive and separate from the Credit monitoring done by Credit Monitoring & Review Department (CMRD) at Head Office.

11.3 Management Information System

Bank has developed a robust Management Information System which captures data essential for vital functions such as risk management and planning and which serves as an effective tool for the Top Management in decision making. This has facilitated quick decision making. The Bank is in a position to analyse performance in major parameters even on a day to day basis using the information system available. Leveraging on the CBS platform of the Bank, the MIS has facilitated speedy decision making and its implementation.

11.4 Inspection & Audit

As on 31.03.2011, the Bank had 1632 Branches, out of which 1434 Branches have fallen due for inspection during the year 2011-12. The Bank has completed inspection of all the 1434 Branches, as per the Audit Plan 2011-12. Additionally, 45 B category Branches were subject to inspection under FEMA. All the Branches subject to regular inspection were also covered under Off Site Surveillance Audit for the period 2011-12. Areas for Off Site Surveillance under CBS environment were also identified.

For the Financial Year 2011-12, 300 Branches were brought under the purview of Concurrent Audit, covering 63.5% of Deposits, 73.5% of Advances and 70.2% of Total Business as on 31.12.2010. Investments & International Banking Mumbai, Credit Card Division Head Office, DIT Head Office, HR Department Head Office, Depository Participation Branch Hyderabad and Service Centres situated in Hyderabad, Vijayawada, New Delhi, Mumbai and Chennai were also covered under Concurrent Audit.

In addition to the Branches, the following Offices were subjected to inspection during the Financial Year 2011-12: Systems Inspection & Financial Audit of Controlling Offices (23) and Head Office Departments (24), Inspection of Service Centres (19), Credit Card Centres (21), Regional Rural Banks (2), Financial Service Centres (7), Currency Chests (28) and our Financial Services Subsidiary, ABFSL (1).

11.5 Compliance Policy

The Bank has in place a Comprehensive Compliance Policy. An executive of the Bank in the rank of Deputy General Manager has been appointed as the 'Chief Compliance Officer'. As per the Policy adopted by the Bank, suitable organizational structure has been laid down defining the roles and responsibilities for Compliance Officers of various Departments and Zonal Offices. Compliance of statutory, regulatory and internal guidelines of the Bank is the scope of operation of the compliance function of the Bank. Suitable reporting system is put in place to ensure effective implementation of Compliance Policy of the Bank. Under Annual Compliance Risk Assessment, Bank has identified Fraud Risk Management - Preventive Measures and assessed in the year 2011-12. Outsourcing Policy for the year 2011-12 is updated taking into consideration RBI guidelines.

11.6 Adherence to Right to Information Act

R T I Act, 2005 came into force with effect from 18.10.2005 and the act was implemented in our Bank from the date of inception as the Bank is Public Authority under Sec. 2 (h) of the Act.

All Zonal Managers are designated as Central Public Information Officers (CPIOs) for all offices in the Zone to deal with request and render reasonable assistance / information. General Manager at Head Office is the Appellate Authority under the Act.

During the Year 2011-12, Bank received 1310 requests and 151 Appeals under RTI Act. All the requests and Appeals were responded and replied in time.

11.7 Customer Service

The Bank is adopting a Board approved Grievance Redressal Policy for customers complaints and their timely disposal at Branch, Zonal Office and Head Office levels. All the data relating to pensions are centralized and linked to Centralized Pension Processing Centre (CPPC) to facilitate timely credit of pension and arrears without any delays. The Bank has received the recognition of the Centralized Pension Processing Centre from Central Pension Accounting Office, Government of India, New Delhi.

Customers' Meet

In accordance with the directions of Department of Financial Services, Ministry of Finance, the Bank observed Customer Contact Week in mid December 2011 (12.12.2011 to 17.12.2011) in order to improve the customer service, sensitize the staff for attending the Customers in a courteous manner, for cleanliness of the Branches, etc.

As a part of the Customer Contact Week, Bank also conducted Customers' Meet across the country on a single day, i.e., 15.12.2011 (such Customers' Meets are being conducted at regular intervals). Top Management and Senior Officers from Head Office and Zonal Offices visited the Branches as Special Observers and interacted with Customers. The suggestions received during the Customers' Meet were consolidated and circulated to all the Zones for implementation to the extent possible as per Bank Norms.

11.8 Human Resources Management

A comprehensive HR Policy covering the entire gamut of HR functions was put in place during the year. Bank has also received several guidelines from the Government of India on various HR matters in the areas of promotions, Recruitment, Performance Appraisal, etc. All these guidelines were incorporated in the HR Policy. Bank is also in receipt of the accepted recommendations of the Khandelwal Committee on HR Matters in Public Sector Banks from the Government of India for adoption. The accepted recommendations are being implemented in a phased manner.

To augment the existing manpower and bridge the skill gaps in areas like Credit, Information Technology, Forex, Risk Management, Treasury, etc., and to meet the demands of Financial Inclusion, 199 Specialist Officers, 322 General Officers and 928 Clerks were inducted during the year.

11.9 Industrial Relations

Industrial Relations are cordial in the Bank. Quarterly Meetings were held with the representatives of the recognized Officers' Federation and the Award Employees' Union. Apart from this, meetings were also held at Zonal level to sort out the local issues to better the working conditions as well as customer service. For the benefit of the Employees, enhancement in the limits was considered under staff welfare schemes and improvements were made in the areas of customer service and work related matters.

11.10 Training

- Bank's newly built Apex College with state-of-the-art training infrastructure located in the coveted IT Hub of Financial District in Hyderabad was inaugurated by the Hon'ble Chief Minister on 28.11.2011.

- To improve the core capabilities of employees, various training programmes on Advanced Credit, Leadership Development, Product Awareness, Attitudinal Change & Soft Skill Development were conducted besides induction & follow-on refresher programmes for grooming the newly inducted employees.

- Workshops/programmes on specialized areas like Financial Inclusion, Risk Management, NPA Management, Cyber Security, International Financial Reporting Standards, etc., were incorporated in the calendar of trainings to create the awareness among the Employees about latest developments / changes that are taking place in Banking Sector.

- In FY 2011-12, 233 in-house training programmes were conducted covering 5566 Employees which constitute 47% of the total staff strength in Clerical and Officers Cadre up to MMGS III. In addition to this, 221 Officers were trained through external trainings conducted by reputed institutions like NIBM, CAB, IDRBT, RBI, BIRD, IIBF, IIBM, etc.

- For enhancing the operational efficiency of Employees on technology front, inputs on advanced features of different modules of Core Banking Solutions were imparted by conducting 66 exclusive CBS Refresher Programmes.

- The Bank has sponsored Employees to Orientation Programme on Foreign Exchange organized by other Banks on behalf of FEDAI, Mumbai.

- To have an international exposure and to equip themselves with the accomplishments in the Global Financial Markets, 15 Employees in different Cadres were sent to External Programmes conducted abroad.

- Special focus is being placed on training and mentoring of the new recruits in the Bank.

11.11 Staff strength

Strength % to total

Officers 8209 54.37

Clerks 3903 25.85

Sub Staff* 2987 19.78

Total 15099 100.00

- Excluding Part Time Sweepers

11.12 SC/ST Profile

Bank has been implementing the reservation Policy for SCs & STs as per Govt. of India guidelines. The representation of SCs and STs is 3288 and 1094 respectively in the total workforce of the Bank as on 31st March 2012. The total Officers in the Bank as on date are 8209, of which 1390 Officers belong to SC category and 586 Officers belong to ST category. Bank has nominated a General Manager as Chief Liaison Officer for SCs & STs at Head Office and all Zonal Managers as Liaison Officers at Zonal Level to address the Grievances of SC & ST Employees. Bank has been conducting the quarterly joint meetings with the representatives of SC & ST Employees' Welfare Association of Andhra Bank. Dr. Rameshwar Oraon, Chairman, National Commission for Scheduled Tribes, New Delhi, along with all the Honorable Members visited our Head Office Hyderabad on 23.08.2011, and reviewed implementation of Reservation Policy for Scheduled Tribes in the Bank. Shri K. B. Krishna Murthy, Hon'ble Member, National Commission for Safai Karamcharis, New Delhi, visited our Head Office, Hyderabad on 04.01.2012 and reviewed service benefits and other welfare measures available to Part-Time Sweepers.

11.13 Sports & Games

The Bank is encouraging sports in order to facilitate promotion of sports and games to achieve excellence. The Bank has recruited outstanding sports personnel in a few disciplines like Cricket, Kabaddi and Chess. During the year 20011-12, Bank has won several trophies and medals in the above fields.

11.14 Persons with Disability (PWD)

The Bank is prudently following the Govt of India guidelines regarding recruitment of physically challenged persons. As on 31.3.2012, the Bank had a total of 240 Staff under the 'Persons with Disabilities' category consisting of 81 Officers, 111 Clerks, 35 Subordinate Staff and 13 Part Time Sweepers.

12. OFFICIAL LANGUAGE

Bank is implementing all directives of Reserve Bank of India and Official Language Department, besides implementing Annual Action Plan regarding Official Language Implementation. Hindi Month, four Hindi Workshops, Liaison Officers (Hindi) Annual Conference, General Banking Training (Hindi Medium) is being conducted every year by all the Zones.

Bank is conducting on-line Official Language Test successfully for the last two years. Our Bank is the first and the only Bank to conduct such an innovative Rajbhasha test. "Script Magic" interface facility has been provided in all the Branches, besides loading 'Akruti' bilingual Computer Software. All the Zones have been provided with a CD on 'O.L. Implementation' which contains important circulars, various formats, reminders, guidelines and various presentations regarding use of Hindi. Various standard letters, proformas, training material of Staff College, important circulars of O.L. Department, Hindi House Magazine, 'Akruti' bilingual software and other relevant material are made available on the Bank's portal in order to facilitate increase in use of Hindi.

'Thought for the Week' and 'Learn a Hindi word everyday' Schemes are implemented in all the Branches. Unicode has been enabled in all the Administrative Offices and training is being provided to all the Employees.

Our Bank is the convenor of Town Official Language Implementation Committee (Banks) in Hyderabad, Kurnool and Visakhapatnam. Town Official Language Implementation Committee (Banks), Hyderabad was awarded Third Prize by Regional Implementation Office, Government of India.

13.VIGILANCE

As per the directives of RBI, a separate Fraud Risk Management Group (FRMG) as part of the Integrated Risk Management Department (IRMD) has been created to monitor frauds with effect from 08.08.2011.

As per

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Mar 31, 2011

The Directors of your Bank are glad to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors Report for the financial year ended March 31, 2011.

1. PROFITABILITY:

The sustained growth momentum of the previous years was continued and satisfactory performance was achieved during the financial year 2010-11. With more efficient management of interest expenses and steps taken to augment interest income, the Bank could post higher Net Profit during the current year, despite reduction in Profit on Sale of investments by Rs. 184 Crore and additional establishment expenses of Rs. 280 Crore on account of wage revision and extension of pension as second option and increase in the gratuity amounts due to the amendment to the Gratuity Act.

Total Income increased by 25.23% from Rs. 7,337 crore to Rs. 9,188 Crore. while core non- interest income (excluding sale of Profit on Investments) registered a growth of 18.13 % and stood at Rs. 756 crore compared to Rs. 640 crore in the previous year. Operating Profit of the Bank increased to Rs. 2,413 crore from Rs. 1,810 crore, registering an increase of 33.33 %. Net Profit increased by 21.15 % toRs. 1,267.07 crore in 2010 - 11 from Rs. 1,045.85 crore in the previous year.

Table 1: Highlights of Revenue, Expenditure and Profitability

(Rs. in crore)

2009-10 2010-11 Absolute Percentage Growth Growth

Total Interest Income 6372.87 8291.28 1918.41 30.10

Total Interest expenditure 4178.13 5070.31 892.18 21.35

Net interest Income 2194.74 3220.97 1026.23 46.76

Other income 964.62 896.96 -67.66 -7.01

Profit on sale of investments 324.50 140.78 -183.72 -56.62

Core other Income 640.12 756.18 116.06 18.13

Operating expenses 1349.54 1704.86 355.32 26.33

Operating profit 1809.82 2413.06 603.24 33.33

Provisions and contingencies 763.97 1145.99 382.02 50.00

Net Profit 1045.85 1267.07 221.22 21.15

1.1. The total interest income has shown a robust growth of 30.10% from Rs. 6,372.87 crore as on 31.3.2010 to Rs. 8,291.28 crore as on 31.3.2011. Of this, interest income from advances grew by 29.60% from Rs. 5,161.28 crore as on 31.3.2010 to Rs. 6,689.17 crore as on 31.3.2011. Interest Income from investments increased by 29.56 % and stood at Rs. 1,539.59 Crore for the financial year ended March, 2011.

1.2. The focus on credit expansion, high yielding advances in particular and the consequent increase in interest income from advances has contributed for the increase in Net Interest Income by 46.76 %.

1.3. Of the total non interest income, fee based income stood at Rs. 96.19 Crore for the financial year ended March 2011 against Rs. 107.52 Crore in the previous year.

1.4. Total expenses wereRs. 6,775.17 crore as on 31.3.2011 as against Rs. 5,527.66 crore as on 31.3.2010. Of this, operating expenses stood at Rs. 1,704.86 crore (an increase of 26.33 %). Establishment expenditure as a percentage of Total Expenditure stood at 16.30 % for the year ended 31.3.2011.

APPROPRIATIONS

The appropriations made out of Net Profit are shown in Table 2. An amount of Rs. 316.92 crore was transferred to statutory reserves during 2010-11, and with this, the statutory reserves now stand at Rs. 1,690.00 crore. Transfer towards dividend (including dividend tax) amounted to Rs. 357.70 crore.

Table 2: Appropriations out of Net Profit (Rs. in crore)

2010-11

Appropriation out of Net Profit 1267.07

Transfer to Statutory Reserves 316.92

Transfer to Capital Reserve 4.40

Transfer to Revenues Other Reserves 400.00

Transfer to Special Reserve 96.00

Transfer to proposed dividend (including dividend tax) 357.70

Profit carried over to Balance sheet 92.05

2. KEY FINANCIAL RATIOS

2.1. The Bank has shown good improvement in key financial ratios. Net Interest Margin (NIM) improved to 3.80% compared to 3.21% in the previous year. Operating Profit improved to Rs. 2,413 Crore compared to Rs. 1,810 crore in the previous year, with a growth of 33.33 %. The Cost to Income ratio improved to 41.40% from 42.72% in the previous year, reflecting enhanced operational efficiency. Buoyed by improved profitability, Earning Per Share (EPS) increased rom Rs. 21.56 to Rs. 26.05 and Book Value Per Share (BVPS) increased from Rs. 90.93 to Rs. 116.02. The capital adequacy ratio rose to 14.38 %, following infusion of capital (including share premium amount) to the extent of Rs. 1,173 crore by Govt, of India, increase in Reserves & Surplus etc.,

Gross Non-Performing Assets to Gross Advances stood at 1.38 %, and Net Non-Performing Assets to Net Advances stood at 0.38% as at the end of Mar11.

Table 3-Key Financial Ratios

Parameter 31.3.2010 31.3.2011

Yield on Advances (%) 10.92 11.16

Cost of Deposits (%) 6.10 5.90

Net Interest Margin (%) 3.21 3.80

Yield on Funds(%) 8.49 8.93

Cost of Funds(%) 5.57 5.46

Cost-to-income Ratio (%) 42.72 41.40

CRAR (%) 13.93 14.38

Return on Assets (%) 1.39 1.36

Earning Per Share (Rs.) 21.56 26.05

Book Value Per Shared) 90.93 116.02

NetNPA(%) 0.17 0.38

Gross NPAs(%) 0.86 1.38

3. CAPITALS NET WORTH

During the year 7.458 crore of equity shares were allotted preferentially to Govt, of India at a premium of Rs. 147.28 per share and with this the capital increased by Rs. 74.58 Cr and the Share Premium account increased by Rs. 1,098 Crore. Due to Net Profit of Rs. 1,267 Crore earned and capital infusion of Rs. 1,173 crore, the capital and Net worth have improved substantially as detailed hereunder:

(Rs. in crore)

Parameter 31.3.2010 31.3.2011

Equity capital 485.00 559.58

Reserves Surplus 3925.04 5932.84

Net worth of the Bank 4410.04 6492.42

4.0. CAPITAL ADEQUACY

Consequent to issuance of 7.458 crore shares to GOI, the shareholding of GOI increased to 58%. This has helped the Bank to shore up its Tier I capital and have a higher CRAR to meet the requirements arising out of increased lending activity.

The total capital funds as at the end of Mar11 stood at Rs. 9,861.04 crore, up 30.95% from Rs. 7,530.27 crore in the previous year. The capital adequacy ratio stood at 14.38%, which is above the RBI prescribed norm of 9%.

The higher Tier I capital ratio of 9.68% provides the Bank sufficient headroom for future business expansion. As per RBI guidelines, the Bank has already moved over to Basel II Capital Adequacy norms with effect from 31.03.2009 and computed CRAR for Credit risk, Operational risk and Market risks. However, as advised by RBI, the Bank continued to compute the CRAR as per Basel-1 norms also as a parallel run.

Bank has also put in place "Internal Capital Adequacy Assessment Process" (ICAAP) for assessing the adequacy of capital levels keeping in view the expected increase in business levels and the additional capital requirement. The ICAAP is subjected to validation by Internal Auditors. The assessment process also includes a framework for inclusion of Pillar-ll risks under Basel-ll guidelines, such as credit concentration risk, interest rate risk in the banking book, liquidity risk etc.,

Table 4: CRAR Position (%)

31 March 2010 31 March 2011

Tier-1 capitalai 8 9.68

Tier-II capital 5.75 4.70

Total 13.93 14.38

5. DIVIDEND

The Board of Directors of the Bank recommended a dividend of 55% for the financial year 2010-11, which is 5% higher than previous year.



29. DIRECTORS RESPONSIBILITY STATEMENT

The Board of Directors hereby states that

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

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

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

- The annual accounts have been prepared on a going concern basis

30. ACKNOWLEDGEMENT

Andhra Bank is grateful to the Government of India, RBI, SEBI and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. The Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Banks vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support.

For and on behalf of the Board,

Place: Hyderabad, (R Ramachandran)

Date: 05.05.2011 Chairman & Managing Director

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Mar 31, 2010

Directors of your Bank are happy to present the Annual Report of the Bank together with the audited Statement of Accounts and Auditors Report for the financial year ended March 31, 2010.

1. PROFITABILITY

The Bank continued its growth momentum of the previous years and recorded reasonably good performance during the financial year 2009-10. Profitability parameters saw satisfactory growth. Buoyancy in the Banks Core income, Increased non interest income and good Asset quality contributed to the improvement in profitability. Total income increased by 19.50% from Rs.6140 crore to Rs 7337 Crore while non- interest income registered a growth of 26.03% and stood at Rs 964.62 Crore compared to Rs.765.38 crore in the previous year. Operating Profit of the Bank increased to Rs 1809.82 Crore from Rs. 1288.03 Crore, registering an increase of 40.51%. Net Profit increased by 60.15% to Rs. 1045.85 Core in 2009-10 from Rs.653.05 Crore in the previous year.

Table 1: Highlights of Revenue, Expenditure and Profitability

(Rs. in crore)

2008-091 2009-10 Absolute Percentage Growth Growth

Total Interest Income 5374.62 6372.87 998.25 18.57

Total Interest expenditure 3747.71 4178.13 430.42 11.48

Net interest Income 1626.91 2194.74 567.83 34.90

Other income 765.38 964.62 199.24 26.03

Profit on sale of investments 237.61 324.50 86.89 36.57

Operating expenses 1104.26 1349.54 245.28 22,21

Operating profit 1288.03 1809.82 521.79 40.51 Provisions and contingencies 634.98 763.97 128.99 20.31

Net Profit 653.05 1045.85 392.80 60.15

1.1. The Total Interest Income has shown a robust growth of 18.57% from Rs.5374.62 Crore as on 31.3.2009 to Rs 6372.87 Crore as on 31.3.2010. Of this, interest income from advances grew by 22.45% from Rs.4215.06 Crore as on 31.3.2009 to Rs 5161.28 Crore as on 31.3.2010. Interest Income from investments increased by 8.13% and stood at Rs 1188.32 Crore for the financial year ended March, 2010.

1.2. The focus on credit expansion, high yielding advances in particular and the consequent increase in interest income from advances has contributed for the increase in Net Interest Income by 34.90%.

1.3. Of the total non interest income, fee based income stood at Rs 107.52 Crore for the financial year ended March 2010 against Rs.80.20 Crore in the previous year.

1.4. Total expenses were Rs 5527.66 Crore as on 31.3.2010 as against Rs.4851.97 Crore as on 31.3.2009. Of this, operating expenses stood at Rs.1349.54 Crore (an increase of 22.21%). Establishment expenditure as a percentage of Total Expenditure stood at 14.91 for the year ended 31.3.2010.

APPROPRIATIONS

The appropriations made out of Net Profit are shown in Table 2. An amount of Rs.262 Crore was transferred to statutory reserves during 2009-10, and with this, the statutory reserves now stand at Rs. 1373.08 Crore. Transfer towards dividend (including dividend tax) amounted to Rs.282.78 Crore.

Table 2: Appropriations out of Net Profit

(Rs. in crore)

2009-10

Appropriation out of Net Profit 1045.85

Transfer to Statutory Reserves 262.00

Transfer to Capital Reserves 93.36

Transfer to Revenue Reserves 300.00

Transfer to Special Reserves 60.00

Transfer to proposed dividend (including dividend tax) 282.78

Profit Carried Over to Balance Sheet 200.65

2. KEY FINANCIAL RATIOS

2.1. The Bank has shown good improvement in key financial ratios. Net Interest Margin (NIM) stood at 3.21% compared to 3.03% in the previous year. The capital adequacy ratio improved to13.93% following improvement in reserves, raising of Upper Tier II bonds to the tune of Rs 800 Crore and subordinated debt of Rs.320 Crore during 2009-10. Cost-to income ratio improved from 46.16% to 42.72%, reflecting enhanced operational efficiency. Buoyed by improved profitability, Earning Per Share (EPS) increased from Rs 13.46 to Rs.21.56 and Book Value Per Share (BVPS) increased from Rs.75.20 to Rs. 90.93.

The asset profile of the Bank continues to be very healthy. Net Non-Performing Assets to Net Advances stood at 0.17% and Gross Non-Performing Assets to Gross Advances stood at 0.86%, as at the end of Mar10

Table 3 - Key Financial Ratios

Parameter 31.3.2009 31.3.2010

Yield on Advances (%) 11.41 10.92

Cost of Deposits (%) 6.96 6.10

CRAR (%) 13.22 13.93

Return on Assets (%) 1.09 1.39

Yield on Funds(%) 8.97 8.49

Cost of Funds(%) 6.26 5.57

Net Interest Margin (%) 3.03 3.21

Cost-to-income Ratio (%) 46.16 42.72

Earning Per Share (Rs.) 13.46 21.56

Book Value Per Share ( Rs.) 75.20 90.93

Net NPA (%) 0.18 0.17

Gross NPAs (%) 0.83 0.86

3. CAPITAL & NET WORTH

3.1. There is no change in equity capital during 2009-"IO and it stood at Rs.485 Crore. At the same time the Reserves and Surplus increased from Rs.3161.99 Crore as on 31.03.2009 to Rs.3925.04 Crore Thus, the Net worth (capital plus reserves & surplus) increased from Rs.3646.99 Crore as at the end of Mar09 to Rs. 4410.04 Crore as at the end of Mar10.

4. CAPITAL ADEQUACY

The Bank raised subordinated debt of Rs.320 Crore during December 2009 to augment its capital funds. The Bank has also raised upper Tier-ll bonds to the tune of Rs. 800 Crore (Rs.520 Crore in June 2009 and Rs. 280 Crore in December 2009). With this, the total capital funds stand at Rs.7529.34 Crore, up by 35.33% from Rs.5563.83 crore in the previous year. The BASEL-II Capital Adequacy Ratio is at 13.93%. Coupled with this, a high Tier I capital ratio of 8.18% provides the Bank sufficient headroom for future business expansion. As per RBI guidelines, Bank has already moved over to Basel II Capital Adequacy norms with effect from 31.03.2009 and computed CRAR for Credit risk, Operational risk and Market risks. However, as advised by RBI, Bank continues to compute the CRAR as per Basel I norms also as a parallel run. Bank has also put in place a "Capital Adequacy Assessment Process" (CAAP) for assessing the adequacy of capital levels keeping in view the expected increase in business levels and the additional capital requirement for various Pillar I risks.

Table 4: CRAR Position

(In Percentage) 31 March 2009 31 March 2010

Tier-1 capital 8.67 8.18

Tier-ll capital 4.55 5.75

Total 13.22 13.93

5. DIVIDEND

The board of directors of the Bank has recommended a dividend of 50% for the financial year 2009-10.

17. DIRECTORS RESPONSIBIUTY STATEMENT The Board of Directors hereby states that

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

- Accounting policies have been selected, and applied consistently and reasonably, and prudent judgments and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit & Loss of the Bank for the financial year ended 31 March 2010.

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

The annual accounts have been prepared on a going concern basis

18. ACKNOWLEDGEMENT

Andhra Bank is grateful to the Government of India, RBI, SEBI and other authorities/agencies, Financial Institutions and Correspondent Banks for their valuable support and guidance. The Directors also express their deep sense of appreciation to all the staff members of the Bank for their dedicated service, outstanding professionalism and commitment towards Banks vision for a sustainable growth. Finally, the Directors wish to sincerely thank all the customers, shareholders and other stakeholders for their valuable support.

For and on behalf of the Board,

Place: Hyderabad, (R.S. Reddy)

Date: 29.4.2010. Chairman & Managing Director