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Directors Report of Canara Bank

Mar 31, 2017

DIRECTORS’ REPORT: 2016-17

The Board of Directors have pleasure in presenting the 48th Annual Report together with the Balance Sheet as on 31st March, 2017 and Profit & Loss Account for the financial year ended March 31, 2017.

MANAGEMENT DISCUSSION AND ANALYSIS

I. Economic Environment

Indian economy continues to remain as an economic bright spot, despite some growth moderation during 2016-17. As per the provisional estimates released by the Central Statistical Organization (CSO), India''s Gross Domestic Product (GDP) grew by 7.1% y-o-y in 2016-17 compared to 8.0% in the previous year (under the new base year 2011-12). Agriculture and allied activities grew by 4.9% during the year compared to a growth of 0.7% in last year. Mining & quarrying sector grew by 1.8% against a growth of 10.5% last year. Manufacturing sector grew by 7.9% compared to a growth of 10.8% last year. Electricity, gas, water supply and other utility services sector grew by 7.2% compared to 5.0% last year. Construction sector grew by 1.7% compared to 5.0% last year. Trade, Hotels, Transport, communication & services related to broadcasting sector grew lower by 7.8% compared to 10.5% growth in the previous year. Financial, insurance, real estate & professional services sector grew by 5.7% compared to 10.8% last year. Public administration, defense & other services sector grew higher by 11.3% compared to 6.9% in the last year.

The inflation rate remained well under control and remained within the Reserve Bank of India (RBI) comfort level. The retail inflation rate measured by Consumer Price Index (CPI) came down to 3.89% in March 2017 compared to 4.83% in March 2016. However, Wholesale Price Index (WPI) rose to 5.29% in March 2017 against a decline of 1.09% in March 2016. The divergence between WPI and CPI is expected to narrow under new base year series 2011-12.

Both exports and imports have picked up later during second half of the financial year 2016-17 as against a decline in the previous year. As per the provisional data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), total exports rose to US $274.65 billion compared to US $262.29 billion in the last year. Total imports stood at $380.37 billion against US $381.01 billion in the previous year. Trade gap, during the year, was lower at US $105.72 billion compared to US $118.72 billion last year. The pickup in exports was fuelled by rise in global orders for engineering goods, ready-made garments and petroleum products. Current Account Deficit (CAD) stood at 0.7% of GDP from 1.1% GDP in the last year.

Economic Environment in Karnataka

As per the Economic Survey of Karnataka, the Gross State Domestic Product (GSDP) grew lower by 6.9% during 2016-17 compared to 7.3% in the last year, in line with the national economy. Nevertheless, as an economically developed State in India, Karnataka contributes 7% to the country''s GDP.

Canara Bank, owing its origin to the State, is continuing its key position in the State. The Bank has been playing a leading role in the State through its 984 branches and 2,483 ATMs, spread across the State. The State contributes about 19.5% to total domestic business of the Bank. The total business of the Bank in the State stood at Rs,15,0401 crore, comprising Rs,90,949 crore under deposits and Rs,59,452 crore under advances as at March 2017, with a credit to deposit (C-D) ratio of 65.37%.

II. MONETARY AND BANKING DEVELOPMENTS

Growth in key monetary aggregates and money supply in 2016-17 reflected the changing liquidity conditions arising from domestic and global financial environment. The monetary policy stance during the year was primarily to contain inflation and manage liquidity.

Money supply (M3) growth, which was 10% at the beginning of the financial year, moderated to 7.3% by end-March 2017 due to demonetization of the high denomination currencies notes of Rs,1000 and Rs,500 (called specified bank notes- SBNs) in November 2016. Such notes, valued at Rs,15.4 lakh crore constituted 86.9% of the value of total currency in circulation. Money supply has improved since then with the progressive re-monetization by the RBI.

Aggregate deposits of the Scheduled Commercial Banks (SCBs) grew higher at 11.8% y.o.y compared to 9.9% growth in the previous year, backed by huge cash deposits in banks that came post demonetization.

The surge in deposits in the banking sector has created large surplus liquidity conditions post-demonization. On the other side, SCBs'' credit growth came down to a multi-decades low of 5.1% y.o.y against a growth of 11.3% in the last year. Consequently, SCBs'' C-D ratio stood at 72.91% as on March 31, 2017 compared to 77.72% as on March 18, 2016.

Even though there was some moderation in the incremental addition of NPAs, asset quality of the banking sector continued to be under stress during the year, affecting their profits and profitability.

The year 2016-17 saw the following changes in the key policy measures as announced by the RBI.

- Repo rate decreased by 50 basis points (bps) to 6.25% and reverse repo rate stood at 5.75%, the same level as of last year.

- Marginal Standing Facility (MSF) Rate and Bank Rate were aligned 50 bps above the repo rate at 6.75%.

- Cash Reserve Ratio (CRR) was kept unchanged at 4% of Net Demand and Time Liabilities (NDTL) during the year.

- Statutory Liquidity Ratio (SLR) was decreased by 75 basis points to 20.50% during the year.

Changes in Repo Rate and MSF Rate during the year

Effective

Since

Repo

Rate

(%)

Reverse

Repo

rate

(%)

Cash Reserve Ratio (CRR) (%) of NDTL

Statutory liquidity ratio (SLR) (%)

MSF

Rate

(%)

April 02, 2016

6.75

5.75

4.00

21.25

7.75

April 05, 2016

6.50

6.00

4.00

21.25

7.00

July 09, 2016

6.50

6.00

4.00

21.00

7.00

October 01, 2016

6.50

6.00

4.00

20.75

7.00

October 04, 2016

6.25

5.75

4.00

20.75

6.75

January, 07, 2017

6.25

5.75

4.00

20.50

6.75

RBI made the following major policy announcements / supervisory review / changes during the year.

- As part of the Asset Quality Review (AOR), the deadline for banks to clean up their balance sheets stood at end-March 2017.

- A Monetary Policy Committee (MPC) constituted with the amendment of the RBI Act, 1934 by the Finance Act, 2016 for maintaining price stability, while keeping in mind the objective of growth. The MPC has been given the task of fixing the benchmark policy rate or repo rate required to contain inflation within the specified target level of 4% with upper tolerance level of 6% and lower level of 2%, as notified in the Gazette of India Extraordinary on 6th June 2016.

- Notified the withdrawal of Legal Tender Status for ''500 and ''1000 in line with the Government of India Notification No. 2652 dated November 8, 2016.

- Issued ''500 banknotes with inset letter ''E'' in Mahatma Gandhi (New) Series and ''2000 banknotes with inset letter ''R'', with both bearing the signature of Dr. Urjit R. Patel, Governor, Reserve Bank of India.

- Issued guidelines on ''Scheme for Sustainable Structuring of Stressed Assets''(S4A) in order to further strengthen the lenders'' ability to deal with stressed assets. The Scheme envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments, which are expected to provide upside to the lenders when the borrower turns around.

- In its financial stability report, the RBI, as per the macro stress test, projected the Gross NPA ratio to increase from 9.1% in September 2016 to 9.8% by March 2017 and further to 10.1% by March 2018. If the macroeconomic conditions deteriorate, the GNPA ratio may increase further under such consequential stress scenarios. Iron & Steel, Construction, Power and Engineering are the high risk sectors that contribute to high NPAs for the banking industry.

- Issued guidelines for sale of stressed assets to Non - Banking Financial Companies (NBFCs) and Financial Institutions (FIs) in addition of securitization companies or reconstruction companies.

- Advised banks to set aside more funds against their exposure to sectors that are sitting on piles of debt viz., telecom, iron and steel and power sectors.

- Reviewed the extant guidelines on ownership in private sector banks which envisaged diversified shareholding in private sector banks by a single entity / corporate entity / group of related entities.

- Announced a package of measures for the development of fixed income and currency markets for further market development, enhance participation, facilitate greater market liquidity and improve communication.

- Established an Inter-disciplinary Standing Committee on Cyber Security to, inter alia, review the threats inherent in the existing/emerging technology; study adoption of various security standards/protocols; interface with stakeholders; and suggest appropriate policy interventions to strengthen cyber security and resilience.

- Issued Draft Circular on rationalization of Merchant Discount Rate (MDR) for Debit Card Transactions.

- Made it mandatory for banks to allow customers to register their mobile numbers through any ATM. In addition, banks have also been asked to make available mobile registration through internet banking.

- Set up a panel to decide on what exactly qualifies as a bank branch, a move aimed to provide more flexibility to banks as new technology enables them to extend most services without the trappings of a traditional branch.

- Issued the Master Circular on amalgamation of private sector banks, 2016 comprising of applicability, scope and statutory provisos for the banks to amalgamate.

- Issued draft guidelines on Investment Advisory services offered by banks and as per the draft, banks desirous of offering these services may do so either through a separate subsidiary set up for the purpose or one of the existing subsidiaries after ensuring that there is an arm''s length relationship between the bank and the subsidiary.

- In lines with the Basel III Framework on Liquidity Standards, Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards, banks were permitted to reckon government securities held by them up to another 1% of their NDTL under FALLCR within the mandatory SLR requirement as level 1 HQLA for the purpose of computing their LCR. The total carve-out from SLR available to banks would be 11% of their NDTL.

- As part of the Framework for Revitalizing Distressed Assets in the Economy, RBI amended certain guidelines relating to sale of non-performing assets (NPAs) by banks to Securitization Companies (SCs)/ Reconstruction Companies (RCs).

- Put in place the operating guidelines for small finance banks and payment banks in line with the BASEL standards Minimum capital requirement for a payment as well as small finance bank is fixed at 15%.

- In a significant move on consolidation of banks, Government of India approved 1/4/2017 as the record date for the merger of State Bank of India (SBI) with five of its associate banks, viz., State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP) and also Bharatiya Mahila Bank.

OUTLOOK FOR 2017-18

As per the World Economic Outlook, April 2017, by the International Monetary Fund (IMF), world output (global economy) growth has been projected to improve from 3.1% in 2016 to 3.5% in 2017, with positive growth emanating from Advanced Economies and Emerging Market and Developing Economies. The global trade volume has been projected to expand from 2.2% in 2016 to 3.8% in 2017. Further, the Indian Economy is projected to expand from 6.8% in 2016 to 7.2% in 2017. However, there are uncertainties revolving the protectionism stance, volatile global commodity prices and its ramifications, which may affect growth.

RBI, in its second bi-monthly policy review, has projected that India''s economy, as measured by Gross Value Added (GVA), would grow by 7.3% for 2017-18, with risks evenly balanced. The headline inflation has been projected in the range of 2-3.5% in the first half of the 2017-18 and in the range of 3.5-4.5% in the second half of 2017-18. The improved outlook is backed by several favorable domestic factors like the increased pace of demonetization and gradually improving economic activities in cash-intensive retail trade, hotels and restaurants, transportation and unorganized segments.

Structural reforms and initiatives undertaken by the Government of India and RBI are expected to positively impact growth in 2017-18. The transmission of past policy rate reductions into banks'' lending rates will also help encourage both consumption and investment demand in the economy. Likely roll-out of the Goods & Services Tax (GST) from July, 01, 2017, will establish a common market and the abolition of the Foreign Investment Promotion Board (FIPB) will boost investors'' confidence and bring in efficiency gains. The enabling amendments and policy initiatives undertaken the Government of India to address resolution of the stressed assets, like, institution of the Insolvency and Bankruptcy Code and empowering RBI to issue directions to a bank or banks to initiate resolution process under the Banking Ordinance, amending Banking Regulation Act, 1949, under Section 35 AA and Section 35 AB are expected to yield positive results and revitalize the banks.

Canara Bank performed better during the year in sync with its major thrust areas, viz., increasing retail deposits (including CASA), retail credit, fee income, containing NPA, recovery & up gradation and improving operational financial ratios, such as, Net Interest Margin (NIM), Return on Assets (RoA), Return on Equity (RoE) and Cost-to-Income Ratio.

FINANCIAL PERFORMANCE

During the year, the Bank posted improved performance on profitability and operational financial ratios. While total income was sustained at the previous year''s level, the Bank could substantially reduce its expenditure over last year, resulting in enhanced operating profit. Operating profit of the Bank increased by 24.72% to Rs,8914 crore compared to Rs,7147 crore last year. The Bank posted a net profit of Rs,1122 crore for 2016-17 compared to a net loss of Rs,2813 crore last year.

Key Financial Ratios (%)

March

2016

March

2017

Cost of Funds

6.31

5.59

Yield on Funds

8.11

7.35

Cost of Deposits

6.94

6.25

Yield on Advances

9.71

8.99

Yield on Investments

7.92

7.75

Net Interest Margin (NIM)

2.19

2.23

Return on Assets (RoA)

(0.52)

0.20

Return on Equity (RoE)

(10.69)

4.15

Cost to Income Ratio

50.65

48.85

While RoA and RoE increased to 0.20% and 4.15% respectively compared to negative levels in the last year, NIM improved to 2.23% against 2.19% last year and Cost to Income ratio reduced to 48.85% from 50.65% a year ago.

Income and Expenditure Analysis

During the year, total income increased to Rs,48942 crore, comprising Rs,29586 crore interest from loans and advances, Rs,10711 crore interest from investments, Rs,7554 crore from non-interest income and Rs,1091 crore from other income.

In line with the thrust areas for the Bank, non-interest income registered a robust increase of 54.95% to Rs,7554 compared to Rs,4875 crore recorded during last year. Excluding treasury trading profit of Rs,2982 crore, non-interest income rose by 17.68% to Rs,4572 crore. Apart from trading profit, other major sources of non-interest income, like, profit from exchange transactions (Rs,971 crore), recovery from written off accounts (Rs,489 crore), Government business (Rs,93 crore), banc assurance (Rs,87 crore) and service charges (Rs,1144 crore) contributed to the non-interest income of the Bank. The share of non-interest income to total income increased to 15.43% from last year level of 9.97%.

Total expenditure of the Bank came down by 4.13% y.o.y to Rs,40028 crore from Rs,41751 crore, including interest expenses, which declined by 8.01% to Rs,31516 crore. Operating expenses increased 13.62% to Rs,8512 crore, comprising staff cost of Rs,4915 crore and other operating expenses of Rs,3597 crore. Due to downward movement in the interest rates, the BankRs,s cost of deposits reduced by 69 bps to 6.25% from 6.94% during last year.

The net interest income, the difference between interest paid and interest earned by the Bank, increased to Rs,9872 crore compared to Rs,9763 crore last year.

Capital and Reserves

Net worth of the Bank, as at March 2017 increased to Rs,26914 crore compared to Rs,25911 crore as at March 2016. While the total paid-up capital of the Bank stood at Rs,597 crore, the reserves and surplus increased to Rs,33088 crore.

(Amt. Rs, Crore)

Composition of Capital

March 2016 Basel III

March 2017 Basel III

Risk Weighted Assets

333869

338999

CET I

27308

30226

CET I (%)

8.18

8.92

AT I

2064

2896

AT I (%)

0.62

0.85

Tier I Capital

29372

33122

CRAR (%) (Tier I)

8.80

9.77

Tier II Capital

7633

10472

CRAR (%) (Tier II)

2.28

3.09

Total Capital

37005

43594

CRAR (%)

11.08

12.86

Capital Adequacy Ratio, under Basel III, improved to 12.86% as at March 2017 against the regulatory requirement of 10.25%, including capital conservation buffer of 1.25%. Within the capital adequacy ratio, CET I ratio was at 8.92% and Tier I capital ratio was at 9.77%.

During 2016-17 the Bank raised Rs,5124 crore capital, comprising equity capital of Rs,1124 crore from the Rights Issue and Rs,1000 crore additional Tier I capital and Rs,3000 crore Tier II capital by issuing Basel III compliant Tier I and Tier II bonds.

The Bank is comfortable in the capital front. Given Government of India''s shareholding in the Bank at 66.30%, adequate headroom is available to raise capital in order to support the business growth momentum.

Deposits

Total Deposits increased Rs,495275 crore as at March 2017 compared to Rs,479792 crore a year ago, with a y.o.y. growth of 3.23%.

Current and Savings Bank (CASA) deposits of the Bank increased by 21.21% y-o-y to Rs,149749 crore as at March 2017. The Bank''s CASA deposits to domestic deposits improved to 32.85% from 27.38% last year. Savings deposits grew by 22.61% to Rs,127168 crore. Current deposits grew by 13.89% to Rs,22581 crore. A major portion of the accretion in CASA deposits had come with cash deposits of demonetized currencies of Rs,1000 and Rs,500 notes. Besides above, the focus on premier CASA products, like, Canara Galaxy, Canara Privilege, SB Power plus and NRI accounts was given to improve the average balances under CASA.

Pursuing a strategy of expanding deposit clientele, the Bank added 53 lakhs deposit clientele accounts during the year, taking the total number of deposit accounts to 6.97 crore.

Advances (net)

The Bank expanded its asset base to a well diversified one comprising of the productive segments of the economy, like, Agriculture and Micro, Small and Medium Enterprises (MSMEs) and other productive sectors in addition to the Retail assets, including Housing, Education, Vehicle loan segments.

In line with the banking sector credit growth, advances (Net) of the Bank grew by 5.33% to reach Rs,342009 crore as at March 2017 compared to Rs,324715 crore a year ago.

The number of borrowal clientele accounts increased to 82 lakhs as at March 2017.

Total business of the Bank increased to Rs,837284 crore, with a y-o-y growth of 4.07% compared to Rs,804506 crore in the previous year.

During the year, the Bank’s total clientele accounts increased by 54 lakhs to 7.79 crore from 7.25 crore last year.

In line with the thrust areas set for the year, the Bank''s retail lending operations recorded good y-o-y growth.

(Amt. Rs, Crore)

Outstanding retail loans portfolio grew by 8.95% y-o-y to Rs,58910 crore as at March 2017. The disbursals under various retail lending schemes amounted to Rs,34283 crore. The outstanding housing loan portfolio rose to Rs,32285 crore, with a y-o-y growth of 4.23% and accounted for 54.80% of the total retail lending portfolio. The Bank''s Vehicle loans and other personal loans increased by 19.34% and 14.82% y-o-y respectively.

Education Loans

Over the years, the Bank has assisted lakhs

of promising students to pursue higher education in India and abroad. The Bank''s education loan portfolio increased to Rs,7651 crore. The Bank has financed around 2.99 lakh students as at March 2017. The Bank is performing consistently well with progressive growth in education loan segment. During 2016-17, the Bank has disbursed education loans worth Rs,855.43 crore.

1000 institutions rated as ''A'' grade by NAAC have been mapped for providing education loans to students of these institutes. A Memorandum of Understanding (MOU) has been signed with M/s National Skill Development Corporation (M/s NSDC) for sanction of vocation education loans for students pursuing vocational courses in affiliated Institutes of NSDC throughout the country. MOU has also been signed with M/s The Institute of Company Secretaries of India, New Delhi for extending education loans. Tie-up arrangements are made with M/s BIOCON Ltd, M/s Bosch Ltd and M/s Bombay Stock Exchange Institute, M/s.Volvo Eicher Commercial Vehicles Pvt. Ltd., to encourage vocation education loans.

Government of India has set-up a fully IT-based Student Financial Aid Authority to administer and monitor Scholarship as well as Educational Loan Schemes, through Pradhan Mantri Vidya Lakshmi Karyakram to ensure that no student misses out on higher education for lack of funds. A Vidya Lakshmi portal <www.vidyalakshmi.co.in> has been made live on 15.08.2015. The students can apply online for Education Loan from any bank. The Bank has also in place ''Vidya Turant'', an online instant loan sanction facility to students and ''Vidya Sahay'', a bridge loan scheme for making down payment for Common Entrance Test (CET), at the time of selection and counseling.

The Bank has been designated as the Nodal Bank for administering subsidy schemes of Government of India, which includes Central Scheme of Interest Subsidy on Educational Loans (CSIS), National Rural Livelihood Mission(NRLM), Padho Pardesh subsidy scheme to provide Interest Subsidy on Education Loans for overseas studies pursued by students belonging to notified minority communities and Dr. Ambedkar Central Sector Scheme Of Interest Subsidy On Educational Loan for Overseas Studies for Other Backward Classes (OBCs) & Economically Backward Classes (EBCs).

Several initiatives were undertaken by the Bank to expand retail credit. During the year the Bank popularized its Online Instant in-Principle Sanction for Housing Loan and Car Loan platform, Pradhan Mantri Awaas Yojana, Housing cum Solar Loans and also Housing Loans to High Net worth Individuals (HNIs), Non-Resident Indians (NRIs) and Agriculturists. Nationwide launching of Campaigns, conduct of Expos, offering competitive interest rates, tie-ups with reputed Builders, Car Dealers, introduction of Direct Selling Agents etc., have helped the Bank in expanding its retail loan portfolio.

Sixteen new Retail Asset Hubs were opened, taking total number of RAHs to 81 across major centres in the country. The Bank also implemented several tech-based initiatives like missed call facility for retail lending Schemes, informing due dates and amount of EMIs for housing loans and introduction of web-based lead generation system.

INTEGRATED TREASURY

Aggregate investments (net) of the Bank stood at Rs,150266 crore as at March 2017. While modified duration of the investments portfolio stood at 5.10 as at March 2017, the modified duration of the Available for Sale (AFS) portfolio reduced to 4.02 from 4.45 in the last year. The trading profit under domestic treasury operations for the year increased to Rs,2982 crore as against Rs,990 crore in 2015-16. Following demonetization of the high value currency notes of Rs,500 and Rs,1000, the bond markets witnessed sharp fall in the yields due to excess system liquidity. The yield on investments declined to 7.75% as at March 2017 compared 7.92% a year ago, due to sale of securities and profit booking during the year.

The Bank continues to be an active player in the Government Securities Market as a Primary Dealer (PD). The total amount of bids submitted for underwriting was Rs,57,483 crore, of which, the underwriting commitment accepted by the RBI was Rs,19,172 crore. With regard to Treasury Bills under PD business, as against the minimum success ratio of 40% to be achieved in each half year, the Bank has a success ratio of 55.42% for the first half year ended September 2016 and 67.96% for the second half year ended March 2017.

Foreign Business Turnover of the Bank aggregated to Rs,235425 crore, comprising of Rs,107525 crore under exports, Rs,65047 crore under imports and Rs,62853 crore under remittances during the year ended March 2017.

The Bank has 8 overseas branches, viz., London and Leicester (U.K), Hong Kong, Shanghai (China), Manama (Bahrain), Johannesburg (South Africa), New York (U.S.A) and Dubai International Financial Centre(DIFC), Dubai (UAE). Besides the above 8 overseas branches, the Bank has a Representative Office at Sharjah (UAE), Canara Bank (Tanzania) Ltd., a wholly owned subsidiary at Dar es Salaam in Tanzania and Commercial Indo Bank LLC, a joint venture bank with State Bank of India in Moscow, Russia. The Bank''s wholly owned subsidiary at Dar es Salaam in Tanzania opened on 9th May 2016. Overseas business of the Bank crossed US $10 billion mark, constituting over 8% of the Bank''s total business as at March 2017. Total overseas business stood at Rs,68408 crore, comprising deposits of Rs,40666 crore and advances of Rs,27742 crore.

The Bank''s international operations are well supported by a wide network of 394 Correspondent Banks, spread across 80 countries and the Bank''s overseas branches and offices. Rupee Drawing Arrangement has been made with 36 Exchange Houses and 25 overseas banks for channelizing the remittances of Non-Resident Indians (NRIs). The Bank has been managing two Exchange Houses viz., Al Razouki International Exchange Company, Dubai and Eastern Exchange Est., Qatar under Secondment and Management Agreements respectively.

''Remit Money'', a web-based speed remittance product has been extended to 36 Exchange Houses and also to the Bank''s 4 overseas branches, viz., London, Shanghai and Hong Kong and Canara Bank (Tanzania) Ltd. To facilitate instant and hassle free remittances to the beneficiaries of Canara Bank in India, the ''Flashremit'', an instant credit facility in association with M/s. UAE Exchange, Abu Dhabi, UAE and ''Instant Remitmoney'' an instant credit facility with M/s. Al Razouki International Exchange Company, Dubai, M/s. Eastern Exchange Est., Qatar and M/s. Al Ansari Exchange LLC, UAE, continued during the year.

OTHER SERVICES

The Bank''s Merchant Banking Division handled Private Placement Capital Gain Bond Issues of National Highways Authority of India (NHAI) and Rural Electrification Corporation Ltd (REC) as Arrangers. The amount mobilized in respect of Capital Gain Bonds Issue of NHAI and REC during the year was ''87.19 crore.

The Bank acted as Collecting Banker for two Private Placement Issues and one Rights Issue, involving an amount of Rs,1998.30 crore. The number of Public and Debt Issues handled under Application Supported by Blocked Amount (ASBA) was 128 and the amount blocked was Rs,3018.02 crore. Two specialized assignments of ''Fair Valuation of EquityRs, were also handled by the Division during the year.

The Syndication Group handled projects, involving project cost of Rs,3691 crore during the year, with a total debt size of Rs,2030 crore. The Group earned a commission of Rs,3.40 crore during the year. The funds were arranged for projects in various segments, like, Special Economic Zone (SEZ), Hospital, Wind Energy, Solar Energy, Coal Based Power Generation, Textiles, Education Institution, Freight Corridor etc.

The Bank has tie-up arrangements in both life and non-life insurance segments under its ''Bancassurance'' arm. During the year, the Bank earned a commission income of Rs,38.3 crore from its joint venture, viz., M/s Canara HSBC OBC Life Insurance Company Ltd. Under the Mutual Fund business, the Bank earned a commission of Rs,14 crore from its joint venture, viz., M/s Canara Robeco Asset Management Company Ltd. A commission income of Rs,18.6 crore was earned under Non-Life (General) Insurance business from its tie-up arrangements with M/s United India Insurance Company Ltd (UIICL) and M/s Bajaj Allianz General Insurance Co Ltd. The Bank also earned a commission income of Rs,15.8 crore from its tie-up agreement with M/s Apollo Munich Health Insurance Co. Ltd for marketing their health insurance products. The Bank also has Corporate Agency Agreement with M/s Export Credit Guarantee Corporation of India for marketing export policies through its branches across India.

To give impetus to general insurance business and also offer innovative and new products at competitive prices to customers, Bank entered into corporate agency partnership with M/s Bajaj Allianz General Insurance Co. Ltd., as the second general insurance partner under the new IRDAI open architecture regulations. This partnership was launched on 26.11.2016 at Bengaluru.

Under Cards Business, the Bank took several initiatives to expand its card base. As at March 2017, total number of Debit Cards increased to 3.31 crore and Credit Cards base rose to 2.15 lakhs. The Bank earned a profit of Rs,13 crore from its card operation during the year.

The Bank offers its ''Depository Services'' from 47 DP Service Centres spread across 34 locations in the country. Through these Centres, the Bank is extending Online Trading Facility to DP clients from its own broking subsidiary M/s Canara Bank Securities Ltd., Mumbai. In order to have better synergy of operations and efficient delivery of services, its DP activity has been hived off to M/s Canara Bank Securities Ltd., with effect from 01.04.2017.

Executor, Trustee and Taxation Services outfit of the Bank provides services like Debenture / Security Trusteeship, Will and Executorships, Trusteeship, Personal Tax Assistance and Power of Attorney Services. During the year, it generated a fee based income of Rs,1.10 crore from the above services and availed Central Value Added Taxes (CENVAT) credit of Rs,106.80 crore during the year.

The Bank handles Government Business, comprising Direct and Indirect Tax collections, payment of Central Government and State Government Pensions, Handling of Postal Transactions and State Government Treasury Transactions, Public Provident Fund Scheme and Senior Citizens'' Saving Scheme and issue of Inflation Indexed Bonds of RBI, issuing Sovereign Gold Bonds, Sukanya Samridhi Scheme, accepting deposits under Pradhan Mantri Garib Kalyan Deposit Scheme (PMGKDS) and accepting tax under the Scheme. These products contributed to improvement of CASA and also earned a fee income of Rs,93.31 crore during year.

The Bank provides several online payment services, viz., E-payment of Sales Tax / Commercial Tax in Maharashtra, Tamilnadu, Karnataka, Andhra Pradesh, Bihar, Dadra & Nagar Haveli, Odisha, Punjab, West Bengal and Delhi, Virtual Treasury Package in Maharashtra, E-payment of Taxes to Transport Department in Tamilnadu, Collection of Property Tax for the Corporation of Chennai in Tamilnadu and Bengaluru in Karnataka, Online opening of PPF Accounts and E- Stamping project in Jharkhand, Uttar Pradesh, Tamilnadu and Karnataka.

The Bank has been authorized as the accredited banker for Ministry of Human Resources Development (MHRD), Ministry of Culture, Ministry of Youth Affairs & Sports, Archaeological Survey of India and Unique Identification Authority of India (UIDAI), New Delhi. The Bank implemented the National Pension System for Unorganized Sectors under Swavalamban Scheme during 2012-13. The Government of India has launched Atal Pension Yojana Scheme in place of Swavalamban with a view to provide defined pension to unorganized sector. The Bank could mobilise 1,05,232 accounts as at March 2017.

Agricultural Innovation Centre (AIC) outfit of the Bank handled 111 assignments. These 111 assignments consisted of 95 appraisals, 9 vetting, 6 viability studies and 1 project formulation. The total outlay of the assignments worked out to a term loan component of Rs,1011 crore and the Bank earned a fee income of Rs,4.76 crore during the year.

ASSET QUALITY

The Bank performed reasonably well in asset quality, despite continued stress at the industry level. The Bank was able to contain its Gross Non Performing Assets (NPAs) to gross advances ratio below 10% at 9.63% as at March 2017 compared to 9.40% as at March 2016. Gross Non Performing Assets (NPAs) as on March 31, 2017 stood at Rs,34202 crore compared to Rs,31638 crore in the previous year. With a Net NPAs of Rs,21649 crore, the net NPA ratio has come down to 6.33% from 6.42% a year ago.

Cash Recovery during 2016-17 aggregated to Rs,5042 crore compared to Rs,4758 crore in the last year. Recovery from written off accounts stood at Rs,705 crore of which, recovery from loss assets was Rs,352 crore. During the year, an amount of Rs,2265 crore was upgraded as against Rs,1460 crore in the previous year.

During the year, recovery amounting to Rs,541 crore was made on account of initiating action under SARFAESI Act. The Bank conducted 5513 recovery meets, which resulted in a recovery of Rs,404 crore. During the year 12515 cases were referred to Lokadalat, out of which, 6596 cases were settled, covering an amount of Rs,59 crore. Besides, the Bank took several initiatives to contain slippages and speed up recovery from overdue loan accounts. These include, identification of stressed accounts for restructuring/rephasing in time, conduct of Canadalats at branch level, cluster Adalats at Regional levels and mega adalats at Circle levels for one time settlements (OTS), Lokadalats at district levels, regular follow-up of overdues in loan accounts through Call Centre, conduct of e-auctions for sale of seized assets and initiation of stringent recovery measures against Wilful Defaulters. As at March 2017, there were 471 wilful defaulters, with an outstanding amount of Rs,3640 crore.

The Bank also formulated a Special Scheme for settlement of small NPAs (up to Rs,10 lakh), with a special focus on Education / Agricultural / MSME Loans. In the Educational Loan Sector, two Special OTS schemes were launched with liberal terms and additional concession for accounts with sanctioned limits up to Rs,4 lakh and for accounts with sanctioned limits above Rs,4 lakh and up to Rs,7.50 lakh. Special Scheme for small value agricultural loans with limit up to Rs,5 lakh and repeatedly restructured due to natural calamities and MSME loans up to Rs,1 crore launched to provide relief to the affected borrowers.

As at March 2017, the outstanding stressed assets portfolio (including restructured standard accounts) of the Bank stood at Rs,44581 crore, accounting for 12.55% of gross advances.

Risk Management

BASEL III Capital Adequacy Framework and Future Strategies

An independent Risk Management Wing at the Head Office is functioning as a nodal centre for overall implementation of various risk management initiatives across the Bank. Risk Management Sections are functioning at all 21 Circle Offices of the Bank as an extended arm of the Risk Management Wing.

The Bank has in place risk management policies across geographies and across all risks encompassing the entire gamut of risk profile. These include policies on Credit Risk Management, Operational Risk Management, Market Risk Management, Asset Liability Management and Group Risk Management.

The Bank has in place an Internal Capital Adequacy Assessment Process (ICAAP) under Pillar 2 of Basel III norms. The ICAAP exercise covers the domestic and overseas operations of the Bank, the Subsidiaries,

Joint Ventures, Sponsored Entities and Associates. Stress testing exercise is also performed by the Bank to ascertain the potential risks faced by the Bank. The ICAAP document is reviewed and approved by the Risk Management Committee of the Board and the Board of Directors.

The Bank has a Board Level Sub-Committee for Capital Planning Process. The Committee articulates macroeconomic scenarios vis-a-vis capital requirements of the Bank, in tune with business strategies. The Committee ensures maintenance of appropriate level of Capital to Risk Weighted Assets Ratio (CRAR) and evaluates various options for raising the capital.

Adoption of Advanced Approaches

In an Endeavour to move towards Advanced Approaches under Basel III for computation of capital for Credit, Market and Operational Risk, the Bank has engaged the services of a Consultant for implementation of Enterprise-wide Integrated Risk Management solution for itself and the Group Entities, so as to build requisite risk management framework.

As a pre-requisite for the implementation of Enterprise-wide Integrated Risk Management architecture, the Bank has procured a Risk Solution that would enable it to meet requirements of Advanced Measurement Approaches.

The Bank has submitted Letters of Intent to RBI for adoption of Internal Rating Based (IRB) Approach for calculation of capital charge for Credit Risk, Internal Models Approach for calculation of capital charge for Market Risk and Advanced Measurement Approach for calculation of capital charge for Operational Risk.

Preparedness for Basel III

The final guidelines on Basel III Capital Regulations became effective from 1st April, 2013. As per RBI guidelines, the transitional period for full implementation of Basel III Capital regulations is extended up to 31.03.2019. The banks in India need to maintain a minimum Common Equity Tier 1 (CET1) capital of 5.50%, Tier 1 capital of 7.00%, total capital of 9.00% and Capital Conservation Buffer (CCB) of 2.50% at the end of March 2019. The banks also have to maintain a minimum Tier 1 Leverage Ratio of 4.50% during parallel run from 1st January, 2013 to 1st January, 2017, as a credible supplementary measure to the risk based capital requirements.

The Bank endeavors to remain adequately capitalized and has drawn plans to meet the capital requirements stipulated by RBI in transitory phase. The Bank has adequate headroom to raise capital from the market, including recapitalization support from the Government of India. Moving ahead, the Bank''s capital requirement shall be met by injecting fresh equity capital, retention of profit, optimization of business levers, proactive capital planning and management.

Credit Risk Management

The Credit Risk Management process outlines the principles, standards and approach for credit risk management at the Bank. Systems, procedures, controls and measures are in place to actively manage the credit risks, optimize resources and protect the Bank against adverse credit situations. In order to comprehensively address the issues and concerns of the Credit Risk, the Bank has put in place a comprehensive Credit Risk Management Policy.

A robust system for appraisal of loan/credit proposals, including seeking adequate information for appraising the viability of the proposal and creditworthiness of the applicant for sanctioning credit limits, well defined credit approval process and authorization matrix, standards for collateral management, credit monitoring, restructuring of advances, MSME and Off Balance Sheet Exposures.

Risk Acceptance, Risk Measurement, Prudential Exposure Norms, Organizational Structure, Strategies and Operational Process are in place. In order to address the credit risk at portfolio level and the issue of concentration risk, the Policy prescribes fixation of various exposure ceilings. Risk Based Pricing is in tune with the Risk profile of the borrower to generate returns to achieve target RoA and NIM.

The Bank has a Loan Review Mechanism for constantly evaluating the overall performance of the borrowal accounts and for bringing about qualitative improvements in credit administration, monitoring and credit audit. The entire process of the Loan review and monitoring is dully administered by the Credit Administration & Monitoring Wing.

Market Risk Management

The Market Risk framework of the Bank aims at restricting loss from all types of market risk loss events and also to establish limit structure and triggers for various market risk factors.

Exposure limits, such as, Stop Loss Limits on Trading Book, Intraday and Overnight Limit for various Currency Positions, Dealer-wise Limits, Aggregate Gap Limit, Limits on Money Market Operations, Modified Duration Limits for investment portfolio and VaR Limits are fixed to act as risk mitigants/triggers. Mid Office of Risk Management Wing monitors these limits, along with other triggers, on a daily basis. A reporting framework has been put in place for effective and timely monitoring of market risk limits and triggers.

Operational Risk Management

Operational Risk Management framework in the Bank is based on ethics, organization culture and strong operating procedures, involving corporate values, internal control culture, effective internal reporting and contingency planning.

The Bank has adopted polices for management of Operational Risk, which covers various aspects, such as, Operational Risk Management Structure, Outsourcing Activities and Business Continuity Plan.

At present, the Bank is in the process of migration to Advanced Approaches of Basel III framework from Basic Indicator Approach (BIA). The Bank has initiated process and activities for implementation of Advanced Approaches and to put in place Incident Management, Key Risk Indicators (KRI), Risk Control & Self Assessment (RCSA) and Scenario Analysis to compute capital charge for Operational Risk.

Asset Liability Management

The ALM Policy of the Bank seeks to strike appropriate balance in the maturity and re-pricing profile of assets and liabilities, so as to reduce liquidity risk and manage interest rate risk. Within the policy framework, the Board of the Bank has set up Asset Liability Management Committee (ALCO), which is entrusted, inter alia, with the role of management of assets and liabilities including the funding strategies and its composition, product pricing, stress test and contingency action plan among others. A balanced ALM structure helps to sustain the spreads, profitability and long-term viability of the Bank.

The Bank has implemented the RBI guidelines with respect to Liquidity Coverage Ratio (LCR) with effect from 01.01.2015. As on 31.03.2017, LCR of the Bank is above the stipulated regulatory minimum of 80%.

Group Risk

The Bank has various Subsidiaries, Joint Ventures and Sponsored Entities, which are engaged in diversified activities. As the Bank has considerable stake in these Group Entities, Bank has put in place a Group Risk Management Policy to identify and manage risk in intra Group transactions and exposures to raise the standard of Corporate Governance by reducing and avoiding conflicts of interest between the Group Entities and also to ensure ''Arms Length Principle'' among Entities, with regard to business parameters. Presently, the Bank has introduced a Group Chief Risk Officer (GCRO) to supervise the risk management activities of the Group Entities.

NATIONAL PRIORITIES Priority Sector Advances

The Bank continues to accord importance to varied goals under national priorities, including agriculture, micro and small enterprises, education, housing, microcredit, credit to weaker sections and specified minority communities.

Priority Sector Advances of the Bank as at March 2017 reached Rs,160269 crore, recording a y-o-y growth of 10.11% and achieved 46.05% to Adjusted Net Bank Credit (ANBC) against 40% mandated norm.

(Amt. Rs, Crore)

Priority Sector Advances

As at March

Growth

2016

2017

Amount

%

Total Priority Sector

145558

160269

14711

10.11

Agriculture

67176

74079

6903

10.28

With a focus on credit delivery to Agriculture, the Bank''s advances under agriculture portfolio increased by 10.28% to Rs,74079 crore, covering over 60 lakh farmers. Under agriculture lending, the Bank achieved 19.45% to ANBC against 18% mandated norm. During 2016-17, the Bank''s agriculture credit disbursal increased to Rs,58691 crore compared to Rs,57018 crore in the previous year.

The Bank undertook special campaigns for extending Crop Loans facility to all farmers.

During the year, the Bank issued 6.50 lakh Kisan Credit Cards (KCCs), amounting to Rs,10017 crore. The credit outstanding under KCCs was at Rs,14305 crore as at March 2017. 7.41 lakh Kisan RuPay Cards were issued against eligible accounts of 7.44 lakh, with an achievement of 99.60%.

The Bank actively participated in various Government Sponsored Schemes, such as, Prime Minister''s Employment Generation Programme (PMEGP), National Rural Livelihood Mission (NRLM), National Urban Livelihood Mission (NULM), Swarna Jayanti Shahari Rozgar Yojana (SJSRY), and Differential Rate of Interest (DRI) Scheme.

As at March 2017, the outstanding advances under the following Government Schemes, aggregated to ''999 crore, involving around 1.92 lakh beneficiaries.

Performance under various Government Sponsored Schemes

(Amt. Rs, Crore)

Scheme

MARCH 2017

Accounts

Amount

Prime Minister Employment Generation Programme (PMEGP)

13895

483

National Rural Livelihood Mission (NRLM)

13625

284

National Urban Livelihood Mission (NULM)

2367

21

Differential Rate of Interest (DRI)

153186

141

Swarna Jayanti Shahari Rozgar Yojana (SJSRY)

8547

70

Total

191620

999

Advances to DRI stood at Rs,141 crore, consisting of 1.53 lakh beneficiaries, of which, advances by rural and semi-urban branches amounted to Rs,112 crore.

In support of the underprivileged sections of the society, the Bank''s advances to SCs/STs beneficiaries amounted to Rs,7354 crore as at March 2017, covering 5.45 lakh borrowers. The advances to SCs/STs comprised 4.59% of total priority sector advances.

Advances to weaker sections reached Rs,45106 crore, constituting 11.07% to ANBC against mandated norm of 10%.

Various components of advances to Weaker Sections as at March 2017

(Amt. Rs, Crore)

Sectors

Outstanding

Accounts

Amount

Small & Marginal Farmers, Landless Labourers, Tenant Farmers and Share Croppers

3894735

39550

Artisans, Village and Cottage Industries

43630

845

SC / ST Beneficiaries

544614

7354

DRI Loans

153186

141

SJSRY Beneficiaries

8547

70

Self Help Group

121350

2500

Joint Liability Group

26764

587

As at March 2017, advances to specified minority communities aggregated to Rs,27688 crore, accounting for 17.28% of the total priority sector advances against the stipulated 15% norm.

Deendayal Antyodaya Yojana (DAY) - National Rural Livelihoods Mission ( DAY-NLRM/ Ajeevika)

Under the Scheme Aajeevika, National Rural Livelihood Mission (NRLM) was launched by the Ministry of Rural Development (MoRD), Government of India in June 2011, with an aim to reduce poverty by enabling the poor household to access gainful self employment and skilled wage employment opportunity, resulting in a sustainable livelihood. The main objectives of the Scheme includes providing interest subvention to Women SHGs (WSHGs) from rural areas who avail loans up to Rs,3 lakhs at 7% per annum and to provide an additional subvention of 3% if WSHGs repay in time, thereby reducing the effective rate of interest to 4%. In the first phase, the focus was on 150 most backward districts.

RBI vide their Circular FIDD.GSSD.CO.BC.No.13/09.01.03/ 2016-17 dated 25/08/2016, has intimated that Interest subvention scheme on credit to Women SHG during 2016-17 for all Commercial Banks and Co-operative Banks will be implemented in 100 more districts along with existing 150 districts. All WSHGs (Women SHGs) promoted by NRLM, NGOs, Central or State Government,

NABARD under WSHG Programme which are linked with the banks are eligible for benefits under the Scheme. Ministry of Rural Development, Government of India, has designated Canara Bank as nodal bank for handling claims of banks. The Bank has developed a web portal, which enables all member banks to upload their claims.

(Amt. in Rs, Crore)

Interest Subvention Claims made by all Member Banks

Financial Year

No of Accounts

Amount

2013-14

361231

266

2014-15

500829

304

2015-16

568304

365

2016-17

29020

394

TOTAL

1720484

1330

Micro Small & Medium Enterprises (MSMEs) Lending

Advances to MSMEs increased to Rs,74302 crore as at March 2017, with a y-o-y growth of 11.42%. Credit to M&SE segments rose to Rs,53818 crore, with a 5.74% growth. The number of Micro Enterprises accounts recorded a growth of 16.46% against mandated norm of 10%.

Under Pradhan Mantri Mudra Yojana (PMMY), the Bank disbursed an amount of Rs,5182 crore during 2016-17. Sanctions and disbursals under different schemes of Mudra Yojana are as under:

Category

As on 31.03.2017 (Amt. in Rs, Crore)

No. of Accounts

Sanction

Amount

Disbursement

Amount

Outstanding

Amount

Shishu (< Rs,50,000)

232338

795

790

671

Kishore (Above Rs,50,000 -Rs,5 lakh)

156938

2873

2799

2459

Tarun (Above Rs,5 lakh to Rs,10 lakh)

21023

1633

1593

1459

Total

410299

5301

5182

4589

During the year, the Bank has taken following initiatives to increase flow of credit to MSME sector and also to bring about continued awareness about the steps taken.

- 166 SME Specialized Branches are functioning throughout India and for faster processing of credit proposals. Besides 166 SME Specialized Branches, 49 SME Sulabhs (Specialised SME Loan Processing Centres) are also functioning across the country.

- To extend financial assistance to micro and small enterprises without offering any collateral security and with relaxed lending terms, some segment specific schemes have been launched/ continued, such as, Doctors'' Choice (improved version), MSE SMART, MSME CAP, MSME Vahan, MSE Vijeta and Canara Contractors'' Scheme, Canara CARAVAN, Flavour and MSME Expo.

- To increase the Bank''s exposure to specific clusters and activities, new area / cluster specific schemes have been launched / continued, such as, Canara Textiles, catering to the Textile Sector, Special Scheme for lending to units engaged in Manufacturing of Ceramics and Vitrified Tiles and Weavers Mudra Scheme in lieu of Weavers Credit Card.

- Mega Credit camps are conducted to create awareness and pool sources for increased credit flow to MSME sector.

- Summits were arranged for Start-up Entrepreneurs involving functionaries from different Government Departments and local industrial bodies / organizations for necessary inputs and guidance for successful entrepreneurship.

- Micro Enterprises Business Centre’s were established at Circle Offices for handholding Micro Enterprises.

- The Bank has an exclusive website www. canaramsme.com for easy access and understanding of MSME initiatives.

- The online submission of MSME applications and tracking thereof by the customers are facilitated and used extensively by the MSME clientele.

- Entrepreneur Development Centre at Head Office have been catering to the needs of budding entrepreneurs by way of assimilation of information regarding the challenges and opportunities under MSME, conducting seminars, training initiatives, interaction with the concerned organizations and propagation of the same through regular bulletins.

-An exclusive set up established at Head office has been looking into the aspects of monitoring, slippage management and handholding in times of stress by way of rehabilitation and restructuring of MSME units as per Government guidelines.

The Bank is the nodal agency for Credit Linked Capital Subsidy Scheme (CLCSS) of Ministry of MSME, Government of India, for technology up gradation of Micro & Small Enterprises (MSEs). During 2016-17, subsidy amount received from the Ministry under the Scheme was ''11.22 crore and the same has been utilized fully during the financial year.

Empowering Women

Department of Women Empowerment at Head Office and Centre for Entrepreneurship Development for Women (CEDW) at 21 Circle Offices and 118 Regional Offices across the country are working relentlessly towards economic empowerment of women. These CEDWs have reached potential entrepreneurs, undertook counselling, supported training need, provided finance and marketing. A total of 350 programmes were organized by the CEDWs during 2016-17.

These centres have also assisted in the formation of Self Help Groups (SHGs) & Credit Linkages. Rural Self Employment Training Institute set up at Harohalli, Karnataka to provide EDP/ skill training to women in various vocations has trained 19,995 women since inception, out of which 630 women have been trained during 2016-17. Through 65 Training Institutes supported by the Bank, 4.05 lakh women have been trained in self employment ventures since inception, of which 33,393 have been trained during 2016-17. Apart from establishing two exclusive Mahila Banking Branches, the Bank has equipped over 80 branches with all women employees to give focused attention to women clientele. 18 Micro finance branches are also engaged in supporting the financial needs of micro & small women entrepreneurs & SHG members. 27.74 lakh women have been assisted with a credit outstanding to the tune of ''44766 crore as at March 2017 and achieved 13.59% to ANBC as against RBI''s requirement of 5%.

Several concessions have been provided to women borrowers that include relaxation in eligibility norms and 0.50% interest concession on educational loans to girl students. ''MSE Vijeta'', an exclusive loan Scheme for women entrepreneurs for loans up to Rs,2 crore under Micro & Small Enterprises and Canara Mahila Savings Scheme, a special Savings Bank deposit product, with many concessions have been devised for women.

During the year, six successful ''Women Entrepreneurs were given cash awards on the occasion of International Women''s Day under Canara Bank Best Woman Entrepreneur Awards (CBWEA), 2015-16''. Under marketing support, the Bank has provided five unique custom built, high-tech, solar powered mobile sales vans ''Canara Vahini'' with computerized billing and card swiping facility to enable women entrepreneurs and SHGs to exhibit or market their products at Bengaluru and Shivamogga (Karnataka) and Aligarh (Uttar Pradesh), Coimbatore (Tamil Nadu), and Thrissur (Kerala).

Lead Bank Responsibility

The Bank has lead bank responsibilities in 31 districts in the country, viz., 8 in Karnataka, 7 in Tamil Nadu, 5 in Kerala, 5 in Uttar Pradesh, 3 in Delhi, 2 in Telangana and 1 in Bihar. The Bank is the Convenor of the State Level Bankers'' Committee (SLBC) in Kerala.

Financial Inclusion

A Holistic Approach to Financial Inclusion

With the basic objective of bringing the large unnerved population under the banking mainstream, the Bank is striving towards a more inclusive growth by making financial products and services available to financially excluded and marginalized sections of the society in particular. As per the Government of India and the Reserve Bank of India directions, the Bank has been actively pursuing the agenda of Financial Inclusion (FI), with the key interventions, viz., expanding banking infrastructure, offering appropriate financial products, making extensive & intensive use of technology and through advocacy of financial literacy.

The Bank has 878 Financial Inclusion (FI) Branches under branch model and also engaged 2459 Business Correspondent Agents (BCAs) under Business Correspondents (BC) model. In addition, 473 Ultra Small Branches (USBs) are also operational in the Bank.

Pradhan Mantri Jan Dhan Yojana (PMJDY)

PMJDY is the initiative from Government of India for comprehensive financial inclusion of the population of India, particularly aiming at covering the households hitherto excluded from the purview of banking and empowering them with benefits and facilities provided by the banking industry. Accounts opened under PMJDY are issued with Rupay Debit card, accidental Insurance coverage to the extent of Rs,1 lakh, life insurance cover of ''30,000/- (for accounts opened up to 31.01.2015) and overdraft up to Rs,5000/- after six months of satisfactory dealing. The Bank was allotted 3962 Sub Service Area (SSAs) and 3371 Urban Wards for implementation of PMJDY.

Performance highlights under PMJDY

- Opened 64.66 lakh accounts under PMJDY and mobilized a CASA deposit of Rs,1858 crore.

- Covered all allotted 10049 villages comprising of 3962 allotted SSAs and 3371 Urban wards by opening of 878 brick & mortar branches and engaging 2459 Business Correspondent Agents (Bank Mitras) at remaining locations.

- Hand-held devices are provided to Bank Mitras for facilitating payments, which are enabled for accepting Rupay Cards. The Bank has Issued 42.59 lakh Rupay Debit Cards to all eligible account holders. Bank Mitras have done Rs,83.39 lakh transactions, amounting to Rs,1324 crore during the year.

- Zero balance accounts under PMJDY have been brought down to 14.24%.

- Established a Toll Free number 1800 425 11222 for PMJDY as a part of grievances redressal mechanism and popularized through publication in National Dailies.

-Provided overdraft facilities up to Rs,5000/- to all eligible PMJDY account holders. 2.14 lakh PMJDY accounts holders have been provided with overdraft facility, amounting to Rs,29.73 crore during the year.

So far the Bank has provided PMJDY overdraft facilities to 4.48 lakh account holders to the extent of Rs,74.26 crore.

Social Security Schemes

Under various social security schemes launched by the Government of India during the year, following enrolments have been made.

Scheme Enrolments

As at March 2017

Pradhan Mantri Suraksha Bima

37.18 lakh

Yojana (PMSBY)

Pradhan Mantri Jeevan Jyoti

13.65 lakh

Bima Yojana (PMJJBY)

Atal Pension Yojana (APY)

1.05 lakh

Under Sukanya Samriddhi Yojana, the Bank has mobilized 11419 accounts.

Apart from the above, the bank has also made significant progress in the Financial Inclusion related activities during the year as under.

Business canvassed in the FI Branches

FI branches have garnered business of Rs,15202 crore, which includes CASA deposits of Rs,4136 crore, constituting 57.13% of total deposits. Average business per FI branch stood at Rs,17.31 crore.

Position of Basic Savings Bank Deposit (BSBD) Accounts

The Bank has opened 12.27 lakh BSBD accounts during the year 2016-17, taking the tally of BSBD accounts as at March 2017 to 1.66 crore, with an outstanding deposits of Rs,4678 crore.

Formation & Credit Linking SHGs

Financing to Self Help Groups has played pivotal role for poverty alleviation and financial inclusion of the rural poor. The Bank has formed 31754 SHGs and credit linked to the extent to Rs,1239 crore to 40070 SHGs during the year. The outstanding SHG accounts were more than 1.21 lakhs, with an outstanding amount at Rs,2500 crore.

Farmers’ Clubs

The Bank has adopted a concept of forming Farmers'' Clubs, which is an association of progressive farmers, who have volunteered to disseminate the principals of development through credit and also inculcate better repayment ethics and promote peoples participation. During the year, the Bank has formed 705 farmers clubs.

Micro Finance Branches

The Bank has opened 18 Micro Finance Branches in the urban centres. These branches mobilized a total business of Rs,600 crore as at March 2017.

Financial Literacy Centres

Formed ''Canara Financial Advisory Trust'' to take care of the affairs of the Financial Literacy Centres (FLCs) of the Bank as well as the FLCs promoted by the Regional Rural Banks (RRBs) sponsored by the Bank. Pan India, the Bank has 71 FLCs in all 26 lead districts and 45 blocks across the country, managed by the Counsellors (retired bankers).

Financial Literacy Initiatives

- Financial Literacy Centres have educated 14.51 lakh persons during the year and 45 Lakh persons since inception.

- Engaged Financial Literacy Coordinators to monitor and motivate Bank Mitras to involve themselves in Financial Literacy in a big way in their sub-service areas and encourage people to do more transactions.

- Trained Bank Mitras through Indian Institute of Banking & Finance and Infrastructure Leasing & Finance Services (IL&FS). They were also provided with extensive training on Banking and Technology aspects by the Bank and the Corporate BCs.

- Special training was given to Branch Managers for conducting financial literacy programmes at their branches and in their service area.

-Conducted 2612 financial literacy camps under Financial Inclusion Fund Scheme from the NABARD.

AADHAAR Enrolments

The Bank has empanelled 6 Aadhaar Enrolment Agencies. A total of 174 lakh enrolments have been done. Aadhaar has been seeded in 241 lakh accounts and are on National Payments Corporation of India (NPCI) mapper.

CORPORATE SOCIAL RESPONSIBILITY

Setting Examples in CSR Activities

Following the founding principles and century old tradition, the Bank is engaged in varied Corporate Social Responsibility (CSR) activities. CSR initiatives of the Bank are multifarious, covering activities, like, training unemployed rural youth, providing primary health care, drinking water, community development, empowerment of women and other social initiatives.

Rural Development

The Bank, through its Canara Bank Centenary Rural Development Trust (CBCRDT), has established 34 exclusive training institutes, including 26 Rural Self Employment Training Institutes (RSETIs), 5 Institutes of Information Technology and 3 Artisan Training Institutes to promote entrepreneurship development among rural youth and encourage them to take up self employment activities. During 2016-17, these Institutes trained 30,384 candidates, taking the tally to 2.87 lakh unemployed youth since inception, with an impressive settlement rate of 75%.

The Bank has co-sponsored another 27 Rural Development and Self Employment Training Institutes (RUDSETIs) across 17 States, engaged in training of rural youth for taking up self-employment programmes. During 201617, these Institutes trained 26,284 candidates, taking the tally to 4.23 lakh unemployed youth, with a settlement rate of 72%. The Bank has also co-sponsored Andhra Pradesh Bankers Institute for Rural and Entrepreneurship Development (APBIRED) at Hyderabad, Telangana and

Canara Bank Deshpande RSETI at Haliyal, Karnataka Farmers Resource Centre (KFRC) at Bagalkot and Bharat Ratna Shri M Visvesvaraya Training Institute at Bengaluru, Karnataka. Cumulatively, the Bank has sponsored / co-sponsored 65 training institutes, which have trained more than 7 lakh unemployed youth so far, with a settlement rate of 72%. The Bank has donated 4 hi-tech, custom built, solar powered ''Retail Mobile Marketing Van'' to assist women entrepreneurs, SHGs and artisans to market their products. During the year, the Bank undertook a number of activities for the benefit of the communities as part of CSR.

The Bank has undertaken an ambitious project of providing De-fluoridation - RO plants for pure drinking water facility in fluoride affected villages of Kolar and Chikkaballapur districts, Karnataka. Pure (RO) Drinking water plants have been installed in 156 villages of Kolar District and made operational. Over 1,00,000 people from these villages are benefitted by the project. The Bank has also partnered with International Association for Human values (IAHV) Art of Living, Rejuvenation of Manjara River at Latur, Maharastra and District Administration, Aizawl, Mizoram for Construction of RCC Foot Bridge over Theihauliu stream.

Health care for the underprivileged

Dialysis machines are provided for free treatment to underprivileged in M/s Rangadore Memorial Hospital, Bengaluru, a unit of Shri Shri Jagadguru Shankaracharya Mahasansthanam, Shringeri. The Bank has provided Haemodialysis machines to Canara Bank Relief & Welfare Society, Bengaluru and carried out renovation of patients lounge in Sevakshetra hospital, Bengaluru. The Bank has donated equipments and vehicle for four Primary Health Centres in Kolhapur district, Maharashtra. Ambulance services were rendered to M/s Bidar Institute of Medical Sciences, Bidar, Karnataka. Ambulance services to serve sick tourists in dormitories and villagers were also provided to M/s Jagannath Ballav Endowment, Puri, Odisha and Central University of Himachal Pradesh, Dharmashaala. The Bank also provided Deep Freezer for Blood Bank for Indian Red Cross Society, Bengaluru and constructed SHE E-Toilets under Greater Hyderabad Municipal Corporation, Hyderabad.

Direct and Indirect support to Education

Education being one of the prime sectors of CSR and a vital part of personality development, Bank apart from its own initiatives, has assisted various educational institutions.

Canara Vidya Jyothi Scholarship scheme to meritorious SC / ST Girl Students

The scholarship was provided for those studying in Government and Government aided schools for the fourth successive year and 10,655 students have been benefitted utilizing a total amount of Rs,3.94 crore.

The Bank has assisted Canara Bank Jubilee Education Fund, Bengaluru for upgradation and automation of the Book bank and extending scholarships to students. The Bank has also sponsored tuition fee for students under MDM Course in Shri Vivekananda Youth Movement (SVYM) Mysuru. Government Secondary School, Gagsina, Karnal District, Haryana has been provided solar power system, computers, water purifier and furniture. The Bank has given 40 KVA Generator for Krishna Bal Vidya Mandir Inter college, Mangupura, Moradabad, Uttar Pradesh.

Financial assistance to combat Poverty & child development

M/s Akshaya Patra Foundation was given vehicle with accessories for carrying mid-day meals to children studying at Government Schools in Jodhpur, Rajasthan. The Bank has also provided stainless steel dining tables for dining hall of M/s Ramakrishna Math, Kolkata for the use of poor visitors.

For supporting persons with disability to lead a better life, a number of programmes in association with likeminded agencies have been taken up.

Visits by Parliamentary Committee

During the year 2016-17, Parliamentary Committees relating to Subordinate Legislation, Industries, Finance, Rural Development, Commerce, Women Empowerment and Official Language visited the Bank.

ORGANISATION AND SUPPORT SERVICES Branch Network

Expanding Pan India Presence

The Bank undertook branch expansion drive in 2016-17 and added 239 domestic branches during the year. As at March 2017, the Bank had 6083 branches, including 8 overseas branches.

Composition of Branch Network

Category

No. of Branches

Opened during the year

31.03.2016

31.03.2017

Metropolitan

1019

1228

44

Urban

1142

1138

54

Semi-urban

1815

1936

81

Rural

1865

1773

60

Overseas

8

8

--

Total Branches

5849

6083

239

Note: 5 branches were merged / closed during the year.

The Bank added 9 Specialized Branches during the year, taking the total tally under the Specialized Branches to 285 as at March 2017.

Categories of Specialized Branches

31.03.2017

SME

166

Mid Corporate

26

Micro Finance

18

Asset Recovery Management

19

Prime Corporate

12

Overseas

11

Agri-Finance

9

NRI

7

Savings

2

Industrial Finance

3

Stock Exchange

2

Capital Market

1

Mahila Banking

2

Branch for Physically Challenged

1

Specialized Govt Business Branch

6

TOTAL

285

Progress in Digital Banking & Alternate Delivery Channels

During 2016-17, the Bank added 1268 ATMs, taking the total number of ATMs to 10519. The Bank''s debit card base rose to 3.31 crore compared to 3.19 crore as at March 2016. Besides the above, 182 hi-tech E-lounges were also operational in select branches, with facilities like ATM, Cash Deposit Kiosk with voice guided system, Cheque Deposit Kiosk, Self Printing Passbook Kiosk, Internet Banking Terminal, Online Trading Terminal and Corporate Website Access. Interactive Video Conference System was also configured at select e-Lounges.

Accelerated adoption of digital payment channels by the customers have been witnessed post-demonetization. This has paved the way for moving towards a less cash economy. As a result, e-transaction percentage has jumped to a level of 64.7% as at March 2017 from 54.2% a year ago. All digital channels have witnessed exponential growth in value and volume of transactions. Net banking registrations recorded a growth of 183%, mobile banking transactions grew by 253% and Unified Payment Interface (UPI) registrations has recorded a growth of 220%. The number of Mobile Banking users increased to 51.59 lakhs and Net Banking users increased to 30.40 lakhs as at March 2017.

Customer-friendly InfoTech Initiatives

Apart from bringing improvement in the Mobile Banking and Net Banking features, during the year, the Bank introduced and improved upon several Apps, Tech-products/services for the convenience of the customers.

Canara Empower - Unified Payment Interface (UPI), a single platform to access multiple bank accounts.

- Canara mServe, which enables customers Bhh to hot list and Block/Unblock Cards.

- Canara Swipe, all missed call solution in a _ single application.

Canara GeoLocate, app for locating Branches and ATMs

Canara Cart, an umbrella app containing . all mobile based solutions.

- Introduced “Green PIN” functionality for enabling the customers themselves to generate Debit Card PIN at the time of Issuance of Card and also if PIN is forgotten.

- Customers can now download, register and activate Can Mobile without visiting a Brach or ATM. Mobile Banking registration through ATM introduced.

- Upgraded Internet Banking released with simplified functionalities.

- Instant Loan application portal for Housing Loan and Car Loan made live.

- Implemented Cheque Book indent through SMS

- Missed call / SMS based ePass sheet generation made live

- P2U (Person to UIDAI) funds transfer through Mobile Banking in WAP channel enabled.

- Implemented Social Security Schemes of Govt. of India, PMJDY OD Automation facility for eligible PMJDY customers for availing OD facility through ATMs. Introduced facility for online account opening under Atal Pension Yojana (APY). Subscription to the Social Security Schemes through ATM, SMS and Internet Banking enabled.

- Enabled Pradhan Mantri Garib Kalyan Yojana Deposit Scheme and tax payment through Net Banking and Branches.

- Web Portals under education loan interest subsidy released for Central Scheme for Interest Subsidy (CSIS), Ministry of HRD, GoI, Dr. Ambedkar Central Sector Scheme of Interest Subsidy (ACSIS), Ministry of Social Justice & Empowerment, Government of India and Padho Pardesh, Ministry of Minority Affairs, Government of India.

- Issued MUDRA Debit Card for overdraft accounts under MUDRA Card Scheme.

- Implemented SMS/Email Alerts to NPA Borrowers intimating to regularize overdues in accounts.

To enhance digital transactions, in the line with Government of India initiatives, the Bank is onboarding merchants for increasing usage of Debit and Credit Card payments, Unified Payments Interface (UPI), BHIM App, BharatOR Code and Aadhaar-enabled Payment Systems (AEPS). The Bank is in the process of implenting more digital initiatives for customer convenience and better service.

Compliance to International Standards

The Bank has fully implemented the recommendations of the RBI Working Group (Chairman, Shri G Gopalakrishna) on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds. The Bank obtained the ISO 27001: 2013 Certification on 12.04.2014.

Manpower Profile

As at March 2017, the Bank had 55,717 employees on its roll.

Cadre

March 2016

March 2017

Officers

24174

26127

Clerks

20194

20549

Sub-Staff *

9640

9041

Total

54008

55717

* Includes Part Time Employees (PTEs)

Total staff of the Bank comprised 47% Officers, 37% Clerks and 16% Sub Staff. Women staff of the Bank comprising 16,589, constituted 30% of the employees. The total number of ex-service men staff as at March 2017 stood at 3,779. There were 1337 Physically Challenged Employees on the rolls of the Bank.

During the year, the Bank recruited 4,952 in various cadres, out of which 822 belonged to Scheduled Castes (SCs) and 366 to Scheduled Tribes (STs) categories. 421 ex- servicemen were recruited in various cadres during the year. 1,498 women employees were recruited and 769 were promoted under various cadres during the year.

Reservation Policy in respect of Scheduled Castes and Scheduled Tribes

As at March 2017, the number of Scheduled Castes and Scheduled tribes together constituted 27% of the total staff strength of the Bank. The composition of SCs/STs employees as at March 2017 was as under:

Cadre

Scheduled Castes

Scheduled Tribes

Officers

4694

1989

Clerks

3843

1273

Sub-Staff

2724

500

Total

11261

3762

The Bank has been strictly adhering to the Reservation

Policy in respect of Scheduled Castes and Scheduled

Tribes as per the Government of India guidelines.

(a) Reservation Policy is implemented through mechanism of Post Based Rosters. In terms of the directives of the Ministry of Finance, Government of India, Bank has switched over to Post Based Rosters for all cadres.

(b) The Bank has been extending Reservation/ Relaxations / Concessions in Direct Recruitment as well as in promotions to candidates belonging to Scheduled Castes and Scheduled Tribes as per the Government guidelines.

(c) Pre-recruitment & Pre-promotion training is given to candidates belonging to Scheduled Castes and Scheduled Tribes. In the Advertisement inviting application from the eligible candidates for recruitment to Clerical Cadre, a specific reference is made with regard to imparting of pre-recruitment training to candidates belonging to SC / ST / PWD / Minority Communities / Ex-SM. Pre-recruitment training for Officer Cadre is provided to candidates belonging to SC / ST & Minority Communities. Such of those candidates who opt for pre-recruitment training are given training to prepare themselves for written test as well as interview. The duration of the training is for a week.

(d) The Bank has setup SC / ST Cell at the Head Office and also at Circle Offices to ensure maintenance of Rosters and proper implementation of other aspects of Reservation Policy.

(e) Chief Liaison Officer has been nominated at Head Office and Liaison Officers have been nominated at Circle Offices for ensuring implementation of Reservation Policy.

Further, representations received from Scheduled Caste / Scheduled Tribe employees, either directly or through the SC / ST Associations, are being looked into by the Liaison Officer / Chief Liaison Officer. Wherever required, necessary enquiries are conducted & appropriate action is taken. A separate register is maintained for recording various representations received from Scheduled Caste /

Scheduled Tribe employees and the action taken is also recorded in the register.

In addition to the above, the representatives of majority Scheduled Caste / Scheduled Tribe Employees'' Association are invited for Quarterly Meeting with the Chief Executive of the Bank to discuss on the implementation of guidelines on reservation policy. Quarterly Meetings are also held at Circle Offices, where Rosters are maintained and grievances, if any, are redressed by the Liaison Officer.

(f) The Board of Directors of the Bank also review the progress made in the implementation of Reservation Policy, half yearly and yearly.

Human Resource Development (HRD) activities

The HR policies of the Bank have been revisited to suit the changing banking scenario. HR initiatives, like, ''Soft skill training programme'' for bringing attitudinal change among frontline staff and Executives grooming through reputed institutes and other significant HR tools, like, Study Circles, Staff Meetings and Brain Storming Sessions have been implemented for effective team building and fostering collective excellence. Various Corporate Communications were brought out to boost the morale of the employees and educate them in various facets of banking.

A high sensitization training programme christened “UTTHAN” has been conducted by the Staff Training College (STC), Bengaluru. The training programme is imparted to empower large number of young employees who have been recently recruited and also other senior employees by sensitizing them regarding Bank''s culture, ethos, sense of belongingness, ownership and concern for customers with view to achieving the corporate objectives towards organization growth. The Bank has in place an exhaustive training process that cover Internal Training, External Training, In Company Training and Foreign Training. Internally, the Bank has STC at Bengaluru and 23 Regional Staff Training Colleges (RSTCs) across the country.

During the year, the Bank has trained 72,451 employees, covering a wide range of functional areas, including Credit Orientation, Marketing Skills, Induction Programme for Officers, Agriculture Extension Officers and Specialist Officers. Out of the trained staff, 14,878 personnel belonged to the Scheduled Caste category and 5,139 belonged to the Scheduled Tribe category. The total employees trained include 22,895 women employees.

The Bank has designed and implemented several new training programmes, including credit management and decision making skills, credit appraisal programme for Branch Managers and workshop on recovery aspects for Executives.

Under a novel programme, viz., Talent Bank Scheme, a talent pool was formulated, comprising Officers from Scale I to Scale IV, who are willing to take up challenging assignments in the identified critical or specialized areas. 1096 Officials have been selected under the Scheme. Intensive Credit Management Programme is being conducted in 2 phases. This is an in-depth and exhaustive programme on credit matters evolved by Staff Training College, for Officers in Scale I - III, to build specialization in credit. Intensive Training Programme on Credit over the years has built a talent pool of over 1000 Officers.

Further, the Bank''s quest to enhance the competencies of the workforce continued through focused and need based training at various institutes of repute, like, IIMs, JNIBF, ISB, XLRI and NIBM, etc. Customized programmes are also organized to develop expertise in certain niche areas, like, Credit, Risk Management, Treasury Operations and IT.

Specialized trainings to the Senior Management Level and Top Management Level Executives were conducted based on the requirement. The Bank has been able to add substantially to the skill level of its Officials through training intervention and motivating them to perform with renewed vigour and enthusiasm. A governing body for the training setup, headed by the Managing Director & CEO has been established to monitor and streamline the training policies of the Bank.

Changes brought about in the organizational set up during 2016-17

Organizational design and structure was reviewed and studied for further improvement and bringing in operational excellence. To establish more connect with customers and branches, from July 1, 2016, the Bank completely moved to a 4 tier structure for its retail business, comprising Head Office, 21 Circle Offices, 118 Regional Offices and Branches from earlier 3 tier structure, consisting of Head Office, 47 Circle Offices and Branches.

The Bank has also put in place a 2 tier structure for its corporate business with 12 Prime Corporate Branches under Prime Corporate Credit Wing at Head Office. Post reorganization and re-alignment of functions of Wings at Head Office, there were 21 Wings at HO apart from Staff Training College, Compliance Department and Corporate Communications Department.

Earlier, the Bank had launched ‘Project Shikhar’aimed at rejuvenating the Bank by focusing on various themes, like, better branch layout & customer service for customer delight, quality service delivery & reduction in service time, focus on digital banking by promoting transactions on self service machines and alternate channels, inculcating sales culture and focus on business, particularly CASA and fee income growth. In the journey of transformation of branches, number of ‘Shikhar Branches’ rose to 1211, with 165 branches under star 5 and 67 under star 4 categories as at March 2017.

Marketing and Publicity

The Marketing Vertical has played a significant role in improving the CASA share, retail business, fee income from the Associate Parties business, wallet maximization and propagating the multifarious technological products and services for the benefit of the customers.

The Bank further strengthened marketing vertical during the year by inducting specialized personnel into the setup, with the support of Marketing Sections in all Circle Offices, overseen by the dedicated Marketing Executives and lead management system. Marketing set up has taken initiatives in cross selling and up selling of Bank''s products by launching several campaigns during the year.

The Bank also launched publicity campaigns for its several new products and services introduced during the year and used effectively all channels of communication, including advertising, social media and marketing collaterals to enhance its brand image. The Bank is observing 5th of every month as “Help Our Customer Day” to create awareness about Health Insurance and “Protect Your Customer Day” on 15th of every month to educate customers on importance of adequate Life Insurance across branches.

Customer Orientation

Several initiatives were taken to remain customer focused through providing fast service, bringing in diversified products & services, responding to customers'' queries and redressal of customer complaints. The ''Code of Commitment to Customers'' issued by Banking Codes and Standards Board of India (BCSBI) and ''Revised Citizen''s Charter'' of Indian Banks Association (IBA) is available in the Bank''s homepage of the website . As per the instructions of IBA and RBI, the Bank has adopted the newly formulated Customer Rights Policy of RBI since July 2015, which spells out the Rights of the Customers and also responsibilities of the Banker. To assess the quality of customer service rendered by the branches and to get the feedback, Grievance Redressal - At Canara Bank we love to listen and a ''Customer Satisfaction Survey Form'' made available in the Bank''s homepage of its website. As per Damodaran Committee recommendations, the Bank has appointed a Chief Customer Service Officer (CCSO), who acts as an Internal Ombudsman of the Bank. Customers'' fortnight was conducted from 16.11.2016 to 30.11.2016, inviting suggestions from customers.

Further, during the year, the Bank undertook a Customer Satisfaction Survey through a professional External Agency to assess the level of customer service and customer satisfaction across the Country.

In order to enhance customer focus the ‘Project Shikhar - Branch Transformation’ was implemented during the year wherein various customer centric initiatives, like, Welcome Desk, Queue Management System (QMS), Single Window Operation and allocation of larger space for ''Customer Waiting Area'' etc., along with self-service kiosks are put in place. In order to enhance customer convenience, the Bank also made efforts at various levels to popularize various Apps, like, Missed Call Facility through Canara Swipe, Canara Empower, Internet and Mobile Banking, Canara e-info book, Canara m Serve, Canara Geo locate and Canara Easy Cash facilities etc. Besides, a Call Center with single point contact Toll Free Number 18004250018 is functioning to cater to customers in 6 regional languages of Kannada, Malayalam, Marathi, Tamil, Oriya and Telugu, besides Hindi and English for redressal of grievances.

The Bank has implemented online grievance redressal facility for customers in the website for lodging grievances online under the portal ‘Canara Public Grievance

Redressal System (CPCRS)’. The complaints received at Call Centre were also integrated with CPGRS package. During the year, Call Centre registered 7896 grievances in CPGRS and all grievances were redressed as per prescribed time norms. Centralized Pension Processing Cell has been established exclusively for handling pensions and resolving pension related grievances. 42 Central Processing Centres were functioning at selected places for account opening purposes.

During the year, ''Town Hall Customers Meet'' was held at Vythiri, Pulikal and Sultan Bathery in Kerala in association with the Banking Ombudsman, RBI and Customer Meets were conducted at Gurgaon, Ludhiana, Nasik, Kochi and Kolkata in association with BCSBI.

Systems and Procedures

Risk based Internal Audit (RBIA) was conducted in 4293 branches / units programmed for onsite RBIA during the year. Information Security audit was conducted along with RBIA. Concurrent / continuous audit was conducted in 963 branches / service units, of which 225 branches /units were subjected to concurrent / continuous audit by Internal Auditors and 738 branches / service units were subjected to concurrent audit by External Auditors, covering 70% of the total business of the Bank. 2304 branches were subjected to income/revenue audit, which included branches identified for income audit on quarterly basis.

A revision in the risk rating matrix for RBIA of Branches, Units and Circles was made from earlier 3 scales (Low, Medium and High Risk) to 4 Scales - A (Low), B (Normal), C (Moderate) and D (High) during the year.

The Bank has already implemented Computerized Audit through Web Based Audit Package called, ''DARPAN'', for RBIA of branches. The scope of such DARPAN is proposed to be extended for Concurrent Audit, RO Audit, Circle Audit, IS Audit, KYC Audit etc., during the current year. In case of branches which were witness to frauds, suitable provisions made in RBIA to re-rate the risk gradation and reducing their rating to either “High” or “A notch Lower” (higher risk grade).

As per the directions of RBI / DFS, Ministry of Finance, the Bank undertook SBN (Specified Bank Notes) audits through its Internal Audit Workforce in 1006 branches, including branches situated at border areas, far flung areas, North-East and Left Wing Extremism affected areas. Off Site monitoring was further strengthened to have an oversight of transactions on a near real time basis. Reports on certain identified scenarios have been generated and made available to Circles Offices for review and monitoring of transactions, including SBN verification.

Risk Based Supervision

The Bank is brought under Risk Based Supervision (RBS) regime by RBI, in lieu of Annual Financial Inspection (AFI) from 2014-15. Presently, the Bank has completed the 3rd cycle of RBS. RBS framework is named as Supervisory Programme for Assessment of Risk and Capital (SPARC). Under SPARC, a detailed qualitative and quantitative assessment of the Bank''s risks is made by the RBI on an on-going basis through a combination of offsite and onsite Risk Discovery Process (RDY).

Know Your Customers (KYC)/AML/CFT

The Bank undertook various measures for the effective implementation of guidelines on Know Your Customer (KYC), Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT).

Some of the major achievements and initiatives taken were as under:

- AML/CFT centralized unit formed on 30th June 2016 for exclusive processing and monitoring of AML/SDN (Specially Designated Nationals) alerts.

- System checks/enhancements are put in place to ensure compliance to guidelines on KYC/AML/CFT.

- System checks and enhancements implemented for Trade Based Money Laundering (TBML) alerts.

- Two AML/CFT/KYC sensitization programmes were conducted on 09.09.2016 at Gurgaon and on 17.09.2016 at Bengaluru.

- Branch/Circle/Regional Office staff members were sensitized by way of issuance of guidelines and periodical training.

- AML/CFT Centralized unit has filed 5899 Suspicious Transaction Reports (STRs) during 2016-17 and 28061 STRs on account demonetization based on

5 Red Flag indicators of Financial Intelligence Unit (FIU) India.

- KYC Cell has been designated as one point contact for RBI, Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) etc for all KYC matters.

- KYC Cell has registered with CERSAI / Central KYC reporting.

Vigilance Setup

The Vigilance Wing of the Bank is headed by a Chief Vigilance Officer (CVO). The CVO is assisted by the Vigilance Officers stationed at Head Office, all Circle Offices, RRBs and the Bank''s Subsidiaries. The objectives of the Vigilance Wing are to ensure that discipline and development, go in tandem and help the Bank to reach greater heights. With an objective to ensure free, fair and healthy environment for all-round growth of the organization, the Vigilance Management in the Bank comprised preventive, participative and punitive functions. These goals are pursued and promoted through various means and channels.

As a part of the Vigilance Awareness campaign, Canara Bank observed ''Vigilance Awareness Week'' from 31st October 2016 to 5th November 2016 as per the directives of Central Vigilance Commission. Various programmes were conducted throughout the country with the support of Circle offices and branches to spread awareness regarding observance of Vigilance Week and its importance. Programmes, like, debates, impromptu speeches and quizzes were organized at 89 schools and colleges highlighting the theme “Public participation in Promoting Integrity and Eradicating Corruption” across the country.

On this occasion, on 2nd November 2016, Shri N Santosh Hegde, former Lokayukta, Karnataka, addressed the gathering on the theme of Vigilance Awareness Week. The function was presided over by Shri Rakesh Sharma, MD&CEO of the Bank in the presence of Shri Harideesh Kumar B, Shri Dinabandhu Mohapatra and Smt. P V Bharathi, Executive Directors of Bank. A one day workshop was organized for select Circle Vigilance Officers at Head Office on 21.10.2016.

Canara Bank is conferred with “Corporate Vigilance Excellence Award-2016-17” in the Banking Sector consecutively for the fourth year, instituted by M/s Institute of Public Enterprise, Hyderabad, for promoting excellence in the field of Vigilance amongst all PSBs / PSUs.

Security Arrangements

Out of 6075 branches and 104 currency chests, the Bank identified 52 branches as High Risk, 1635 branches as Medium Risk and 4388 as Low Risk. These branches and currency chests were periodically visited by Security Officers as per statutory guidelines. All the sensitive currency chests were visited by the Chief Security Officer during the year.

The following measures were initiated based on the instruction from the RBI and State Police Authorities:

a) All branches, currency chests & ATMs have been provided with CCTV Cameras / DVR.

b) 1558 ATMs are guarded with private Security Guards based on the threat perception and directions from Police Authority.

The security set up in the Bank has been under regular up gradation with the security apparatus and issuing of suitable instructions & guidelines to all branches from time to time, including focusing on fire safety measures.

Right to Information

Under the Right to Information Act, 2005, an exclusive Right to Information Act outfit is functioning to provide information and bring transparency. During June 2016, Department of Personnel Training, Ministry of Finance, Government of India has come out with a web based online RTI portal to enable the citizens to make online applications/appeals. This web based package has been given to the Bank with effect from 20th July 2016. To comply with the RTI guidelines and to cater to the needs, the Bank has nominated a Nodal Officer at Head Office and a Public Information Officer (PIO) and an Appellate Authority (AA) for all Regional Offices, Circle Offices and Head Office. Presently, there are 140 PIOs and 140 Appellate Authorities. During the year, the Bank received 3918 RTI applications, 905 First Appeals and 37 Second Appeals as per the provisions of RTI Act, 2005.

Implementation of Indian Accounting Standards

As per the RBI guideline, the Bank is in the process of implanting the Indian Accounting Standards (Ind AS). A Projects Steering Committee and an International Financial Reporting Standards (IFRS) Cell have been formed to take the required steps on a continuous basis for smooth convergence. The Bank has appointed M/s. Deloitte Haskins & Sells LLP as the consultant for assisting the bank in smooth implementation of Indian Accounting Standards. The pro-forma financial statement for the half year ended 30.09.2016 has been submitted to RBI within the due prescribed date.

Implementation of Official Language

The Bank made noteworthy progress under the implementation of official language and won many prizes at various levels during the year under review.

As at March 2017 around 98% of employees have obtained working knowledge in Hindi and the Bank has notified 3501 Branches under Rule 10(4) of OL Rules 1976. All the employees of the Bank possessing working knowledge of Hindi have been trained in functional Hindi through Hindi workshops. During the year under review, Bank has conducted 384 refresher training programmes for such employees.

In the sphere of using Information Technology in the Official Language, the Bank has furthered the use of Unicode package for word processing and also made provision in ATM screens of the Bank for carrying transaction in 10 Indian languages. Apart from Hindi and English, transaction slips can be obtained in Malayalam, Tamil, Telugu, Kannada, Punjabi and Marathi from ATMs and transactions done in concerned language. Telebanking facility has also been provided in Hindi and English and other 6 major regional languages. The Bank''s corporate website is in bilingual. The Bank is also giving SMSs in Hindi to all its customers on special occasions.

With effect from 1st July 2011, Bank has provided Hindi option in Core Banking System. The Bank''s bilingual address booklet ''CANPATHA'' is made available to all branches and offices in electronic form. Hindi option provided in Mobile Banking, E-Infobook and the Bank''s internet Banking portal.

To encourage effective implementation of Official Language in the Bank, 186 prizes were given to Circles, Branches, Regional Staff Training Colleges (RSTCs) and Sections of Head Office & Circle Offices under the Award Scheme formulated by the Bank under Canara Bank Rajbhasha Akshay Yojana and 148 employees were awarded under Rajbhasha Puraskar Yojana. Bank has also conducted Annual “All India Hindi Essay Competition” for its employees and cash prizes were given to prize winners.

Half Yearly Hindi Journal “Canarajyoti” - 17th & 18th issues were brought out during the year. The 17th issue was released by our MD&CEO Shri Rakesh Sharma during Hindi Day Celebration,2016 at Head Office & 18th issue was released by Prof. V R Jagannathan, Linguistic Expert & Rtd. Professor, IGNOU. Canarajyoti is brought out to encourage original writing in Hindi. This publication contains articles on banking related subjects as well as Poetry, Short Stories, Travelogues written in Hindi by employees. During the year, Canarajyoti awarded Silver Prize by ABCI under Indian Language category and awarded Bronze prize by PRCI under regional language Category.

The 34th All India Conference of OL Officers of the Bank was held at RSTC, Gurgaon on 3rd and 4th March 2017.

During the year, the Third Sub Committee ofParliamentary Committee on Official Languages had inspected the Bank''s Aurangabad Branch (under Pune Circle Office), Sirohi Branch (under Jaipur Circle Office), Kottayam Temple Road Branch (under Thiruvananthapuram Circle Office) and Head Office, Bengaluru. The Committee lauded the efforts put in by the Bank in the field of Official Language implementation. The Bank is convening the Town Official Language Implementation Committees of Agra, Coimbatore and Thiruvananthapuram. Official Language Implementation Committees are constituted in all the branches of the Bank as per the Government guidelines to propagate the progressive use of Hindi. The Bank awarded Encouragement Prize by the RBI for effective implementation of Official language in the Bank in Region ''A''.

Promotion of Sports

Canara Bank has always been encouraging and supporting sports and has contributed generously to sporting activities all over the country by sponsoring tournaments, providing scholarships to talented sports personalities. A Sports Council at Head Office was setup in the year 1982 to monitor and encourage sports activities in the Bank.

The Bank is presently having teams in 6 disciplines:

Athletics

Women

4 Members

Ball Badminton

Men

3 Members

Cricket

Men

16 Members

Hockey

Men

13 Members

Shuttle Badminton

Men

2 Members

Table Tennis

Men

3 Members

International Sportspersons in the Bank fold are Shri B K Venkatesh Prasad & Shri Sunil B Joshi (Cricket), Smt. M K Asha, Smt Suma Gopalakrishna (Athletics), Smt. H M Jyothi (present International Athlete), Shri P Shanmugam, Shri Bharath Kumar Chetri (Captain Indian Hockey Team, London Olympics-2012)

& Shri K M Somanna (Senior-Hockey), Shri K P Dinesh (Junior-Hockey), Shri D Guruprasad, Shri Vineet Manual (Shuttle Badminton) & Shri Nitin V Thiruvengadam (International Table Tennis Player). Some of the above sportspersons have represented the Bank in tournaments and competitions at the State and National levels.

During the year, Smt H M Jyothi secured GOLD Medals in 100 Meters, 200 Meters & 4x100 Meters Relay events in the National Inter State Senior Athletic Meet at Lucknow during September 2016. She also secured GOLD Medals in 100 Meters & 200 Meters (New State Record) the Senior State Athletic Meet held at Bengaluru, July 2016, 100 Meters event at the State Level Dasara Athletic Meet, Mysuru in October 2016 and 100 Meters

& 200 Meters GOLD Medals in the Senior State Athletic meet held at Hubballi & Dharwad, Karnataka. The Bank''s Badminton Team was the Runner-up for the State Level Ball Badminton tournament held at Alva''s in Moodbidiri, during August 2016 and winners at the State Level Ball Badminton Tournament at Chintamani during January, 2017 in Karnataka. The Cricket Team of the Bank was the Runner-up in the State Level Cricket Tournament, Mysuru, Karnataka. Shri D Guruprasad secured Bronze Medal in the All India Senior Ranking Shuttle Badminton Tournament at Kolkata and was the Runner-up in the State Ranking Shuttle Badminton Tournament, Davangere, Karnataka. Shri Nitin V Thiruvengadam was ranked 2nd in the Karnataka State Table Tennis and won all the State Ranking Tournaments. In Doubles Category, the Bank''s Table Tennis Team was ranked 1st for the year 2016-17.

Apart from the Teams at the Head Office, the Bank is also encouraging sports at the Circle levels by allotting annual budget for sports activities & also sports competition for employees, monitored by the Circle Sports Councils.

FINANCIAL SUPERMARKET

Canara Bank with an objective of offering ''One Stop Banking'' facilities for the customers forayed into diversified business activities by opening subsidiaries during late 1980s. Today, the Bank functions as a ''Financial Supermarket'', with ten Subsidiaries / Sponsored entities / Joint Ventures in diversified fields. All the Subsidiaries / Sponsored entities / Joint Ventures of the Bank recorded satisfactory performance during the year 2016-17.

CANFIN HOMES LIMITED (CFHL)

Canfin Homes Limited, a sponsored entity of Canara Bank is one of the premier housing finance entities in the country. Stake of the Bank in the Company in the beginning of the year was 43.45%. The Bank since sold 13.45% stake to a Singapore based Company M/s Caladium Investment Pte. Ltd (subsidiary of GIC Private Ltd, Singapore) for Rs,754 crore. The loans outstanding of the Company as at March 2017 was Rs,13313 crore. The Company earned a profit after tax of Rs,235.26 crore as against Rs,157.11 crore in the previous year, with y.o.y growth of 49.74%. Gross NPAs of the Company was Rs,27.91 crore and Net NPA was nil as on 31.03.2017. 100% dividend for the year 2016-17 has been proposed by the Company.

CANARA BANK SECURITIES LIMITED (CBSL)

Canara Bank Securities Limited is a wholly owned subsidiary of the Bank. The Company offers stock broking services to both institutional and retail clients. Online Trading Counter for retail customers is its flagship product and has diversified into Currency Derivatives and has a clientele base of 42,386. The Company has posted a profit after tax of ''10.53 crore and declared a dividend of 15% for the year 2016-17. CBSL has taken over the Depository Participant operations from Canara Bank with effect from 01.04.2017.

CANARA ROBECO ASSET MANAGEMENT CO LIMITED (CRAMC)

In the year 2007, Canara Bank divested 49% stake held by Canbank Mutual Fund in favour of M/s Robeco Groep N V and formed a joint venture for managing the assets under “Canara Robeco Asset Management Company Limited”. The Bank''s share in the JV is at 51%. Total Assets under Management was at Rs,9878 crore with investor base of 6.43 lakhs as at March 2017. The Company is currently managing 29 Mutual Fund Schemes, including Gold Exchange Traded Fund. The Company has posted a net profit of Rs,16.21 crore and declared a dividend of 10% for the year 2016-17.

CANBANK FACTORS LIMITED (CFL)

Canbank Factors Limited is a factoring Subsidiary of the Bank with 70% stake held by the Bank. During 2016-17, the Company had a total business turnover of Rs,2498 crore. The Company incurred a loss of Rs,39.82 crore due to provisioning of Rs,86.72 crore for the doubtful debts for the year 2016-17.

CANARA HSBC ORIENTAL BANK OF COMMERCE LIFE INSURANCE COMPANY LIMITED (CHOICE)

A Life Insurance Joint Venture was floated by the Bank in association with HSBC Insurance (Asia Pacific) Holding Limited and Oriental Bank of Commerce in the year 2007. The JV commenced its business operations with effect from 16.06.2008, with majority shareholding of 51% by the Canara Bank, followed by HSBC (26%) and Oriental Bank of Commerce (23%). The Company recorded new business premium of Rs,969 crore and gross premium of Rs,2295 crore during the year. The company has 3,30,717 in-force policies as on 31.03.2017. The company achieved a statutory profit of Rs,111 crore for 2016-17.

CANBANK VENTURE CAPITAL FUND LIMITED (CVCFL)

Canbank Venture Capital Fund Limited is the Trustee and Manager of Canbank Venture Capital Fund and a wholly Owned Subsidiary of the Bank. The company has managed 5 funds so far with total Asset under Management of Rs,552.78 crore. The latest fund is the Emerging India Growth Fund with a corpus of Rs,435.86 crore. CVCFL has been appointed by the Department of Electronics and Information Technology (DeitY) to manage the Electronic Development Fund (EDF) with a corpus of Rs,2206 crore with Rs,2200 crore from Govt. of India, Rs,5 crore from Canara Bank and Rs,1 crore from CVCFL. Another new fund has been named as “Empower India Fund” is being setup with a target corpus of Rs,650 crore. The Company recorded a profit after tax of Rs,5.02 crore and has proposed to pay a dividend of 1000% for the year 2016-17.

CANBANK COMPUTER SERVICES LIMITED (CCSL)

Canbank Computer Services Limited is the only Software Company promoted by a Public Sector Bank in the country, with a 69.13% shareholding by the Bank. CCSL is primarily engaged in IT and Software development services, BPO services, ATM/ Any Time Payment services, Training, Consultancy and R&T agent. The Company has posted a profit after tax of Rs,6.50 crore and proposed a 50% dividend for 2016-17.

CANBANK FINANCIAL SERVICES LIMITED (CANFINA)

Canbank Financial Services Limited is confining its activities to legal matter arising out of past transactions in securities and recovery of dues under decreed accounts. The Company received extension of time limit from the RBI for further period of three years up to 31.01.2020 for disposing off its assets.

COMMERCIAL INDO BANK LLC (CIBL)

Commercial Indo Bank LLC, a joint venture of Canara Bank and State Bank of India has been operational since April 2014 in Moscow, Russia. The company earned a profit after tax of US$ 5.31 million during the year.

CANARA BANK (TANZANIA) LIMITED

Canara Bank (Tanzania) Limited is wholly owned Subsidiary of the Bank at Dar es Salaam in Tanzania, registered in Tanzania on 02/11/2015 and obtained a banking license from the Bank of Tanzania on 05/05/2016. The subsidiary commenced its business operations from 09/05/2016. The company earned a profit after tax of US$ 0.17 million.

REGIONAL RURAL BANKS (RRBs)

As at March 2017, the Bank had two sponsored RRBs, viz., Kerala Gramin Bank (KGB) in Kerala and Pragathi Krishna Gramin Bank (PKGB) in Karnataka.

Kerala Gramin Bank (KGB) operates in all the 14 districts of Kerala State with 615 branches and 294 ATMs. The total business of the KGB was Rs,28816 crore as at

March 2017, comprising a total deposits of Rs,15075 crore and advances of Rs,13741 crore. Pragathi Krishna Gramin Bank (PKGB) operates in 11 districts of Eastern Karnataka with 648 branches & 270 ATMs. The total business of the PKGB was Rs,27761 crores as at March 2017 with a total deposits of Rs,15361 crore and advances of Rs,12400 crore.

Aggregate business of both the RRBs increased to Rs,56577 crore as at March 2017 with a y.o.y growth of 17.85% comprising deposits of Rs,30436 crore and advances Rs,26141 crore. Through the Bank''s infrastructure support, the RRBs are extending facilities, like, ATM cum Debit Card services and installed 564 ATMs/Cash Dispensers (294 by KGB, 270 by PKGB) as at March 2017. The sponsored RRBs are 100% CBS compliant and are ahead of their peer RRBs under technology front by extending IT based products, like, Mobile Banking, RuPay Debit Card services and also Aadhaar enabled services and remittance facilities through NEFT/RTGS to their customers. The RRBs have put in place Cheque truncation system and e-KYC technology.

Kerala Gramin Bank has received National Payments Excellence Awards, 2016, by National Payment Corporation of India (NPCI) for Excellent Performance in Cheque Truncation System (CTS) - RRB Category, Runner-up for IBA Banking Technology Awards-Technology Bank of the year, ASSOCHAM''s 4th SMEs Excellence Award, 2016, Micro Lending (Rural Sector) and Banking Excellence Award, 2016, by the State Forum of Bankers Clubs as the Best Bank contributed to the Rural Economy of the State during the year.

Pragathi Krishna Gramin Bank has been conferred SKOCH Order of Merit, SKOCH Highest Independent Honor in Financial Inclusion, SKOCH Order of Merit for Insurance, ASSOCHAM Social Banking Award-Winner Among RRBs and Co-operative Banks in the country under Priority Sector Lending to categories other than Agriculture, Best MSME Bank Award - Winner (RRB Category) and Eco-Technology Savvy Bank Award - Runner (RRB Category) for the year, 2016.

The Bank''s sponsored RRBs were the first amongst RRBs to implement e-KYC technology and Aadhaar Enabled Payment System (AEPS). Together these RRBs had done 10.82 lakh enrolments under the Social Security Schemes.

AWARDS / ACCOLADES

In recognition of the varied initiatives, the Bank was conferred with the following awards during the year 2016-17:

- National Award for Excellence - 1st position in MSE lending for 2013-14 and 2014-15 by the Government of India.

- National Award for Excellence in lending to Micro Enterprises, 1st position for 2013-14 and 2nd Position for 2014-15 by the Government of India.

- Best bank Award under PMEGP, South Zone in the field of Khadi and Village Industries for 2013-14 and 2014-15 by the Government of India.

- MSME Excellence Award, 2017, by Federation of Industrial Trade and Services.

- Skoch Award for SME Enablement, 2016.

- SME Excellence Award for Best SME lending during 2015-16 by ASSOCHAM.

- Golden Peacock Award, 2016, under CSR activities.

- CSR Leadership Awards, 2016, for best CSR practices by World CSR Congress

- Indy Wood CSR Excellence Award, 2016, for outstanding achievement in CSR by Indywood Film Carnival.

- FICCI CSR Social Responsible Bank Award under Women empowerment for 2016.

- ASSOCHAM Social Banking Excellence Awards, 2016.

- Dun & Bradstreet Award, 2016, for being the best Public Sector Bank under Priority Sector Lending and Retail Growth Performance.

- ‘SKOCH Order of Merit’ Award for initiatives under Financial Inclusion.

- ‘SKOCH ORDER OF MERIT’ and ‘SKOCH SILVER’ Awards, 2016, for Banc assurance during 46th SKOCH Summit.

- ‘Special Award for the Best Financial Institution-Gold’ for 7th year in succession by Federation of Karnataka Chamber of Commerce & Industry (FKCCI).

- Corporate Vigilance Excellence Award, 2016-17, in Banking Sector, consecutively for the 4th year, instituted by M/s Institute of Public Enterprise.

- Star Performer Award, 2016, in the 31st Depository Participant Conference.

- First Position (Bank Category) in New Demat Accounts opened for the 4th consecutive year by NSDL.

- MasterCard Innovation Award for Canara International Travel Prepaid Card under Prepaid segment.

- RuPay Special Award for being the highest RuPay Card Issuing Bank by NPCI.

- Visa Award on crossing a key milestone on issuance of 1.35 crore Visa Debit Cards.

- Best Strategy in HR & Training Excellence - Gold Awards, in 6th Annual Greentech HR Award 2016.

- 2 Silver Awards for House Magazine, ‘Shreyas’, special column (English) by the Association of Business Communications of India, 2016.

- 7 Awards (Collateral Awards Category) at 11th Global Communication Conclave held by Public Relation Council of India.

VARIOUS POLICIES OF THE BANK

There is a system of well-defined policies and procedures of the Bank. During the year, concerted efforts were made to streamline the policies and procedures of the Bank in the light of regulatory requirements of the RBI, the directions of the Government of India and the emergent requirements of the Bank in the present day context. Accordingly, there has been a sharper focus on policies relating to, among others, Credit Risk Management, Market Risk Management, Operational Risk Management, Asset Liability Management, Liquidity Risk Management, Group Risk Management, Country Risk, Counterparty Bank Risk, Corporate Governance,

Disclosures, Collateral Management, Stress Testing, Compliance Functions, Disaster Recovery and Business Continuity Planning, Business Lines, Outsourcing and ICAAP, KYC, AML, Recovery and Investments.

CHANGES IN THE BOARD OF DIRECTORS

Year 2016-17 saw the following changes in the composition of the Board of Directors of the Bank.

Tenure of the following Directors on the Board of the Bank ended during the period.

Changes in the Bank’s Board of Directors during the year 2016- 17

Name of the Director

Designation

Date of Appointment

Date of Cessation

Shri Pankaj Jain

GOI

Nominee

Director

14.12.2015

01.05.2016

Shri

Pradyuman Singh Rawat

Executive

Director

05.08.2013

31.05.2016

Shri Suchindra Misra

GOI

Nominee

Director

14.06.2016

Until

further

Orders

Shri Rajinder Kumar Goel

Shareholder

Director

27.07.2013

26.07.2016

Shri Sanjay Jain

Shareholder

Director

27.07.2013

26.07.2016

Shri

Krishnamurthy

H

Shareholder

Director

27.07.2016

Tenure on the Board ending on 26.07.2019

Shri Mahadev Nagendra Rao

Shareholder

Director

27.07.2016

Tenure on the Board ending on 26.07.2019

Shri

Venkatachalam

Ramakrishna

Iyer

Shareholder

Director

27.07.2016

Tenure on the Board ending on 26.07.2019

Smt. P.V. Bharathi

Executive

Director

15.09.2016

Tenure on the Board ending on 14.09.2019

Shri Sairam Mocherla

Part Time Non Official Director

05.12.2013

04.12.2016

Shri Sunil

Non Official

Hukumchand

Director - CA

06.12.2013

05.12.2016

Kocheta

Category

Other than

Shri G.V. Manimaran

Workmen

Represen

tative

Director

03.01.2014

02.01.2017

Brief Profile of the newly appointed Directors of the Board of the Bank during 2016-17

Shri Suchindra Misra, currently the Government of India nominee Director, was nominated to the Board on 14th June, 2016. He holds a Bachelor''s Degree in Science and a Postgraduate Diploma in Business Management in Marketing & Finance. He is the Joint Secretary at the Department of Financial Services, Ministry of Finance, Government of India.

Shri Krishnamurthy H, currently the Shareholder Director, was appointed to the Board on 27th July, 2016. He holds a Master''s Degree in Engineering and is the Chief Research Scientist at the Indian Institute of Science, Bengaluru. His areas of interest include banking technologies, communications and networking in particular.

Shri Mahadev Nagendra Rao, currently the Shareholder Director, was appointed to the Board on 27th July, 2016. He holds a Master''s Degree in Physics and is a Certified Associate of the Indian Institute of Bankers. Shri Mahadev Nagendra Rao is a retired Deputy Managing Director of State Bank of India and also previously held the positions of a nominee Director in various subsidiaries of State Bank of India as well as worked as the Managing Director and Chief Executive Officer of SBI Life Insurance Company Limited. He is also a Director on the Board of IDBI Federal Life Insurance Co. Ltd.

Shri Venkatachalam Ramakrishna Iyer, currently the Shareholder Director, was appointed to the Board on 27th July 2016. He holds a Bachelor''s Degree in Science and is a Certified Associate of the Indian Institute of Bankers and is a retired Deputy Managing Director of State Bank of India. Previously he was the nominee Director on the Boards of SBI General Insurance Company Limited and SBI Global Factors Private Limited. He is a nominee Director of SBI in Usha Martin Limited, Kolkata.

Smt. P V Bharathi, who was the General Manager of the Bank, took charge as an Executive Director of the Bank on 15th September, 2016. She holds a Postgraduate Degree in Arts and a Bachelor''s Degree in Science and

Education. Spanning over 3 decades of multi-dimensional banking exposures, Smt. Bharathi carries with her rich and vast experience. She has worked in the Bank''s rural, semi-urban, urban and metropolitan branches, in addition to administrative offices in various capacities. Additionally, she is a certified associate of the Indian Institute of Bankers.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors, in preparation of the annual accounts for the year ended March 31, 2017, confirm the following:

- That in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures.

- That they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for the period.

- That they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

- That they had prepared the annual accounts on a going concern basis.

ACKNOWLEDGEMENT

The Board wishes to place on record its sincere appreciation to the customers for their patronage, to the shareholders for their support, to the Government authorities and the Reserve Bank of India for their valuable guidance and support, to the Directors who completed their tenure during the financial year under review, to the Bank''s Correspondents in India and abroad for their co-operation and goodwill and to all the Staff Members for their full support in the pursuit of organizational growth and excellence.

RAKESH SHARMA

MANAGING DIRECTOR & CEO


Mar 31, 2013

The Board of Directors have pleasure in presenting the 44th Annual Report together with the Balance Sheet as on 31st March, 2013 and Profit and Loss Account for the financial year ended March 31, 2013.

FINANCIAL PERFORMANCE

During the year, the Bank took a conscious decision to de-risk the balance sheet by shedding a substantial portion of bulk business both on high cost, including Certificate of Deposits as well as short term unsecured corporate loans. The performance of the Bank on the business, profits and profitability fronts are as under.

The Bank earned a net profit of Rs.2872 crore for 2012-13 compared to Rs.3283 crore last year. Operating profit of the Bank stood at Rs.5890 crore compared to Rs.5943 crore last year. Return on average assets (RoAA) for the year stood at 0.77%. Profit per employee worked out to Rs.6.96 lakh for the year.

Enhancing Shareholders'' Value

Dividend of 130% for 2012-13

The Bank''s Board of Directors recommended a dividend of 130% for 2012-13 as against 110% last year. While Book Value increased to Rs.490.56 as at March 2013 compared to Rs.429.51 for the previous financial, EPS stood at Rs.64.83 as at March 2013. Return on Equity stood at 14.03% for 2012-13.

March March Key Financial Ratios (%) 2012 2013

Cost of Funds 6.72 6.96

Yield on Funds 8.95 9.05

Cost of Deposits 7.35 7.72

Yield on Advances 10.93 11.13

Yield on Investments 7.96 8.12

Spread as a % to AWF 2.23 2.09

Net Interest Margin (NIM) 2.50 2.40

Operating Expenses to AWF 1.35 1.37

Return on Avg. Assets (RoAA) 0.95 0.77

Return on Equity 18.75 14.03

Business per Employee 13.74 14.20 (Rs. in Crore)

Profit per Employee 8.21 6.96 (Rs.in Lakh)

Book Value (Rs.) 429.51 490.56

Earnings per Share (Rs.) 74.10 64.83

AWF - Average Working Funds

Income and Expenditure Analysis

The Bank''s interest income recorded a y-o-y growth of 10.5% to reach Rs.34078 crore compared to Rs.30851 crore recorded during the previous financial year. Non-interest income increased to Rs.3153 crore compared to Rs.2928 crore recorded last year.

The Bank''s cost of deposits increased to 7.72% due to high interest rates prevailing during the year. The yield on advances improved to 11.13% as at March 2013 compared to 10.93% last year. Interest spread stood at 2.09% compared to 2.23% as at March 2012.

While interest expenditure increased to Rs.26199 crore with a y-o-y increase of 13%, the Bank contained its increase in operating expenses at 10% amounting to Rs.5142 crore. The net interest income of the Bank stood at Rs.7879 crore and Net

Interest Margin (NIM) worked out at 2.40%.

Capital and Reserves

Networth of the Bank, as at March 2013 increased to Rs.21732 crore compared to Rs.19027 crore as at March 2012. While total paid-up capital of the Bank was Rs.443 crore, reserves and surplus increased to Rs.24435 crore. The Government Shareholding in the Bank stood at 67.72% as at March 2013.

(Amt. in Rs. crore)

Composition of Capital March 2012 March 2013

Risk Weighted Assets 210875 243348

Tier I Capital 21829 23776

CRAR (%)(Tier I) 10.35 9.77

Tier II Capital 7179 6388

CRAR (%)(Tier II) 3.41 2.63

Total Capital 29008 30164

CRAR (%) 13.76 12.40

Capital Adequacy Ratio stood at 12.40%, with Tier I capital ratio at 9.77% as at March 2013. The Bank has adequate headroom available under both Tier-I and Tier-II options to raise capital to support business growth momentum.

BUSINESS GROWTH

Deposits

Total Deposits of the Bank registered a growth of 8.8% to reach Rs.355856 crore as at March 2013 compared to Rs.327054 crore a year ago. During the year, the Bank shed about Rs.74500 crore of high cost deposits, including Certificate of Deposits. As a result, the share of high cost bulk deposits including CDs came down from 45% as at March 2012 to 20% as at March 2013.

The Bank''s CASA deposits reached Rs.86061 crore as at March 2013. The Bank''s CASA deposits to domestic deposits stood at 25.12%. Savings deposits rose by 9.8% to Rs.71168 crore as at March 2013. During FY13, the Bank launched nationwide campaigns to mobilize CASA deposits. During the campaign period, the Bank brought in about 30 lakh fresh CASA clientele and about Rs.6100 crore CASA deposits in the new accounts.

Pursuing a strategy of broad-basing deposit clientele, all the branches together added 42 lakh deposit accounts, taking the total number of deposit accounts to 4.17 crore.

Advances (Net)

During the year, the Bank''s net advances reached Rs.242177 crore compared to Rs.232490 crore a year ago. The moderate growth in advances was due to shedding of bulk advances viz., short term unsecured corporate loans amounting to Rs.22000 crore.

The Bank''s diversified credit portfolio include all productive segments of the economy like agriculture and Micro, Small and Medium Enterprises (MSME), exposure to corporates and infrastructure segments. As at March 2013, the number of borrowal accounts increased to 53 lakh from 45 lakh last year.

Productivity, as measured by business per employee, increased to Rs.14.20 crore from Rs.13.74 crore a year ago. During the year, the Bank''s total clientele base increased to 4.7 crore from 4.2 crore last year.

Retail Lending Operations

Outstanding retail lending of the Bank reached Rs.23084 crore as at March 2013. The disbursals under the retail lending stood at Rs.8710 crore. The outstanding housing loan portfolio stood at Rs.13134 crore, constituting 57% of the total retail lending portfolio. The Bank''s advances under Housing Loan (direct) increased to Rs.8688 crore.

The Bank took several measures during the year to expand retail credit. The Bank introduced new retail loan products, viz., Canara Home Loan Plus, Canara Consumer Loan and Canara Loan against Property. Two Central Processing Units (CPUs) at Bhopal and Ludhiana were upgraded as Retail Asset Hubs, taking the total tally under Retail Asset Hubs to 42 and 3 CPUs at major centres across the country.

Education Loans

Over the years, the Bank has supported lakhs of promising students to pursue higher education in India and abroad. The Bank''s education loan portfolio increased to Rs.4343 crore. The Bank has financed more than 2.17 lakh students as at March 2013. The Bank is designated as the nodal bank for administering subsidy under the Central Sector Scheme for Interest Subsidy on education loans.

TREASURY

Aggregate investments (net) of the Bank was at Rs.121133 crore as at March 2013. Portfolio modified duration increased to 4.73 years from 4.62 years as at March 2012. The modified duration of the Available for Sale (AFS) portfolio increased to 4.16 years as at March 2013 from 3.23 years as at March 2012 due to redemption of short dated securities and fresh investments made in medium and long dated securities. The trading profit for the year was Rs.676 crore as against Rs.324 crore last year. The yield on investments improved to 8.12% compared to 7.96% a year ago.

The Bank continues to be an active player in Government Securities as a primary dealer. The total amount of bids submitted for underwriting was Rs.107103 crore, of which, the underwriting commitment accepted by the RBI was Rs.69347 crore. During the second half year, the Bank achieved 51.84% success ratio as against minimum success ratio of 40% of its obligation as a Primary Dealer.

Foreign Business Turnover of the Bank aggregated to Rs.143795 crore, comprising Rs.54328 crore under exports, Rs.40391 crore under imports and Rs.49076 crore under remittances as at March 2013. Outstanding export credit of the Bank stood at Rs.10067 crore as at March 2013.

INTERNATIONAL OPERATIONS

The Bank''s overseas operations covered 6 countries with one branch each at London and Leicester (UK), Hong Kong, Shanghai (China) and Manama (Bahrain), a Representative Office at Sharjah (UAE) and a joint venture Bank, namely, Commercial Bank of India LLC in Moscow in association with State Bank of India.

All overseas branches recorded improved business performance during the year. Total business of the five overseas branches aggregated to Rs.28786 crore for the financial year ending March 2013, constituting 4.8% of the Bank''s total business.

The Bank has approval from RBI for expansion in 9 other international centres, namely, Qatar Financial Centre (Qatar), Johannesburg (South Africa), Frankfurt (Germany), New York (USA), Sao Paulo (Brazil), Dar-es- Salaam (Tanzania), Tokyo (Japan), Abuja (Nigeria) and Jeddah (Saudi Arabia). In this regard, the Bank has filed application with regulators of Qatar, Germany and USA. The Bank has already received consent from South African Reserve Bank for opening a branch at Johannesburg.

The Bank''s international operations are well supported by a wide network of 373 Correspondent Banks, spread across 79 countries. Rupee Drawing Arrangement has been made with 30 Exchange Houses and 16 Overseas Banks in the Middle East for channelizing the remittances of Non-Resident Indians. The Bank has been managing two Exchange Houses viz., Al Razouki International Exchange Company, Dubai and Eastern Exchange Est., Qatar under Secondment and Management Agreement respectively.

''Remit Money'', a Web Based Speed Remittance product has been extended to 29 Exchange Houses and to 4 overseas branches, viz., London, Leicester, Shanghai and Hong Kong. During the year, the Bank has approved arrangements under Remit Money with three more Exchange Houses in UAE.

OTHER SERVICES

The Bank''s Merchant Banking Division handled Private Placement Capital Gain Bond Issues of National Highways Authority of India (NHAI) and Rural Electrification Corporation Ltd (REC) as Arrangers. The amount mobilized in respect of Capital Gain Bonds Issue of NHAI and REC during the year was Rs.83.95 crore. Seven specialized assignments of ''Fair Valuation of Equity'' were also handled by the Division during the year.

The Bank acted as Collecting Banker for 3 Private Placement Issues, involving an amount of Rs.1285.78 crore. The number of Public and Debt Issues handled under Application Supported by Blocked Amount (ASBA) by designated Branches was 30 and the amount blocked was Rs.44.12 crore. The number of designated Branches under ASBA increased from 152 to 1874 as at March 2013.

The Syndication Group handled projects, involving project cost of Rs.3283 crore during the year, with a total debt size of Rs.2257 crore. The Group generated fee-based income from the syndication operations. The funds are arranged for projects in various segments like Road, Sugar, Metrorail, etc.

The Bank has tie-up arrangements in both life and non- life insurance segments under its ''Bancassurance'' arm. The Bank earned a commission income of Rs.25.90 crore from its joint venture viz., Canara HSBC OBC Life Insurance Company Ltd. Under the Mutual Fund business, the Bank earned a commission of Rs.4.95 crore from its joint venture viz., Canara Robeco Asset Management Company Ltd. The Bank''s tie-up arrangement with M/s United India Insurance Company Ltd (UIICL) for Non-Life (General) Insurance business has resulted in a commission income of Rs.11.92 crore during the year. The Bank has also Corporate Agency Agreement with M/s Export Credit Guarantee Corporation of India for marketing export policies through its branches across India.

Under Card Business, the Bank took several initiatives to expand credit and debit-cum-ATM card base. The total debit card base of the Bank increased to 95.53 lakh as at March 2013. Income under card business during the year was at Rs.131 crore.

The Bank offers its Depository Services from 46 DP Service Centres spread across 36 centres in the country. Through these Centres, the Bank is extending Online Trading Facility to DP clients from its own broking subsidiary M/s Canara Bank Securities Limited, Mumbai.

Executor, Trustee and Taxation Services outfit of the Bank provides services like Debenture/Security Trusteeship, Will and Executorship, Trusteeship, Personal Tax Assistance and Power of Attorney Services. During the year, it generated fee based income of Rs.1.52 crore.

Under Government Business, comprising Direct and Indirect Tax collections, payment of pensions of various departments, Ministry Accounts, Postal Department, Public Provident Fund Scheme and issue of bonds of RBI and Government of India, the Bank earned an income of Rs.72.43 crore during the year.

The Bank has been authorized as the accredited banker for Ministry of Human Resources Development (MHRD), handling Department of School Education and Literacy, Department of Higher Education, Department of Arts - Archeological Survey of India, Ministry of Culture and Ministry of Youth Affairs and Sports. The Bank has developed a Web-Portal for Ministry of HRD for e-tracking of funds under the Sarva Shiksha Abhiyan (SSA) Scheme and implemented the web portal in all the States. The Bank has implemented E-payment of Sales Tax/ Commercial Tax in Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Bihar and Delhi, Virtual Treasury Package in Maharashtra, E-Payment of Taxes to Transport Department in Tamilnadu and Collection of Property Tax for the Corporation of Chennai in Tamilnadu. The Bank has also introduced E-challans/Scrolls for CPPC Package and acceptance of online subscription for NPS.

The Bank is authorized as one of the accredited Bankers for Unique Identification Authority of India (UIDAI), New Delhi. The UIDAI was established in February 2010, as an agency of Government of India, responsible for implementing the Multipurpose National Identity Card or Unique Identification Card (UID Card) project in India. The project is implemented in 8 Centres at present and the Bank''s branches at these Centres have been designated as the branches for handling the UIDAI accounts.

During the year, the Bank has entered into a MoU with Ministry of HRD for implementing Maulana Azad National Fellowship, 6 UGC Scholarship Schemes and National Scheme of Incentives to Girls for Secondary Education (NSIGSE).

The Bank has implemented E-payment of Customs in 103 locations as per the direction of the Central Board of Excise and Customs, New Delhi, with effect from 16.01.2012.

E-stamping project is introduced in 10 branches in Bangalore. The project is under implementation at other 26 branches situated in the District Head Quarters in the State of Karnataka.

Agricultural Consultancy Services (ACS) outfit of the Bank handled 86 assignments. These 86 assignments consisted of 42 appraisals, 10 viability studies, 27 vettings and 7 other studies and trainings. The total outlay of the assignments works out to a term loan component of Rs.709 crore and non-interest income derived by the Bank in the form of processing fee was Rs.7.09 crore.

ASSET QUALITY AND RISK MANAGEMENT All Time High Cash Recovery at Rs.4006 crore

Asset Quality

The Bank has performed well in containing Non-performing Assets (NPA) and made record cash recoveries. The gross NPA level of the Bank stood at Rs.6260 crore, with a gross NPA ratio at 2.57% as at March 2013. The Bank''s gross NPA ratio continues to be one of the lowest among peers. With a Net NPA level of Rs.5278 crore, the net NPA ratio was at 2.18%.

Cash Recovery during FY13 aggregated to a record Rs.4006 crore compared to Rs.3296 crore for FY12. Out of this, recovery from written off accounts at branches, write- back and unapplied interest together amounted to Rs.1488 crore.

During the year, recovery amounting to Rs.1560 crore was made under SARFAESI Act. The Bank conducted 22500 recovery meets, which resulted in a recovery of Rs.1250 crore. Under Lokadalat, 820 cases were settled covering Rs.14.50 crore. During the year, an amount of Rs.851 crore was upgraded on account of recovery/ rehabilitation. Besides, the Bank took several initiatives to contain slippages and speed up recovery from overdue loan accounts. These include identification of stressed accounts for restructuring/rephasing in time, conduct of Canadalats at branch level and mega adalats at Circle level for one time settlements, regular follow- up of overdues in loan accounts through Call Centre and e-auctions. The Bank also formulated a special scheme for settlement of small NPAs and for MSMEs below Rs.1 crore.

Risk Management

Capital Adequacy Framework and Future Strategies

An Independent Risk Management Wing at the Head Office is functioning as a nodal centre for overall implementation of various risk management initiatives across the Bank. Integrated Mid-Office (Domestic and ForexTreasury) is functioning under the Risk Management Wing for effective and independent supervision and monitoring of Market Risk in investment and forex functions. Risk Management Sections are functioning at all the 34 Circle Offices of the Bank as an extended arm of the Risk Management Wing.

The Bank has in place Risk Management Policies across geographies and across all risks encompassing the entire gamut of risk profile. These include policies on Credit Risk Management, Market Risk Management and Operational Risk Management.

An Internal Capital Adequacy Assessment Process (ICAAP) under Pillar 2 of Basel II Norms is in place. The ICAAP exercise covers the domestic, overseas operations of the Bank, the subsidiaries, sponsored entities and associates. Linkages to Stress Test Scenarios are also documented in ICAAP The ICAAP document is reviewed and approved by the Risk Management Committee of the Board and the Board of Directors.

A Capital Planning Committee is operational at Head Office and this Committee articulates the macro economic scenarios vis-a-vis the Capital requirements of the Bank in tune with business strategies. The Committee ensures maintenance of appropriate level of CRAR and evaluates various options for raising Capital.

Adoption of Advanced Approaches under Basel II

In the Bank''s endeavor to move towards Advanced Approaches under Basel II for computation of Capital for Credit, Market and Operational Risk, the service of a Consultant for implementation of Enterprise Wide Integrated Risk Management solution in the Bank and its Group Entities is engaged to provide assistance to the Bank in building the requisite risk management framework.

The Bank has submitted Letter ofIntent to RBI for adoption of Internal Rating Based (IRB) Approach for calculation of capital charge for Credit Risk and applications for moving over to advanced approaches for Market Risk and Operational Risk shall be submitted in a phased manner.

Preparedness for Basel III

In response to Basel Committee on Banking Supervision (BCBS) guidelines, RBI issued the Basel III guidelines on May 2, 2012. The final guidelines on Basel III Capital Regulations is effective from 1st April, 2013 in a phased manner. As per RBI guidelines, with full implementation of Basel III guidelines by March 31, 2018, banks in India need to maintain a minimum Common Equity Tier 1 (CET1) capital of 5.50%, Tier 1 capital of 7.00%, total capital of 9.00% and Capital Conservation Buffer (CCB) of 2.50%. Banks also have to maintain a minimum Tier 1 Leverage Ratio of 4.5% during parallel run from 1st January, 2013 to 1st January, 2017, as a credible supplementary measure to the risk based capital requirements.

As per Bank''s internal estimate carried out to assess the impact of Basel III, the Bank shall remain adequately capitalized with CET 1 & Tier 1 capital well above the stipulated requirement. Also, sufficient headroom is available with the Bank to raise the capital in case of any shortfall in future.

With the quantum and quality of capital that the Bank is having in its books, it is expected that the transition to Basel III regime would be met without any difficulty upto FY 2014. Moving ahead, the Bank''s capital requirement shall be met by injecting fresh equity capital, retention of profit, optimization of business levers and proactive capital planning and management.

Credit Risk Management

The Bank has various risk management systems for managing Credit Risk with comprehensive policies and procedures in place.

- Pricing based on credit risk rating.

- Entry barriers fixed based on risk rating.

- Credit sanctioning powers are delegated to various authorities based on internal risk rating of the borrowers.

- Committee approach for credit sanctioning beyond branch powers have been introduced.

- An exclusive Credit monitoring policy has been put in place. The loan review mechanism articulated in the Credit Monitoring Policy covers the entire gamut of review and monitoring to be an effective tool for evaluating the loan book continuously and intends to bring out qualitative improvements in credit administration including Credit Audit duly administered by the Credit Administration & Monitoring Wing.

Market Risk Management

The Market Risk framework of the Bank aims at maximizing the return by providing inputs regarding the extent of market risk exposures, the performance of portfolios vis-a-vis the risk exposure and comparable benchmarks.

Integrated Mid-Office at Risk Management Wing is monitoring Market Risk Exposure. Exposure limits, such as, Stop Loss Limits on trading book, Intraday and overnight limit for various currency positions, Dealer- wise limits, Aggregate Gap Limit, Limits on Money Market Operations, Modified-duration limits for Investment portfolio and VaR limits are fixed to act as risk mitigants/ triggers. These limits along with other triggers are tracked daily and necessary actions are initiated. Reporting system is strengthened for effective Market Risk Management.

Operational Risk Management

Operational Risk Management framework in the Bank is based on ethics, organization culture and strong operating procedures, involving corporate values, internal control culture, effective internal reporting and contingency planning.

The Bank has adopted polices for management of Operational Risk, which covers various aspects, such as, Operational Risk Management Structure, Outsourcing Activities, Business Continuity Plan, Insurance and Legal Risks.

At present, the Bank is in the process of migration to Advanced Approaches of Basel II framework from Basic Indicator Approach (BIA). The Bank has initiated process/ activities for implementation of Advanced Approaches.

Asset Liability Management

An effective Asset Liability Management (ALM) system, addresses issues related to liquidity and interest rate risks in order to maintain a good balance among spreads, profitability and long-term viability. The Board of Directors of the Bank has constituted an Asset Liability Management Committee (ALCO) to oversee ALM functions, including fixation of interest rates for various components of assets and liabilities, its composition, maturity and duration.

Group Risk

The Bank has various Subsidiaries, Joint Ventures and Sponsored Entities, which are engaged in diversified activities. As the Bank has considerable stake in these Group Entities, it has adopted a Group Risk Management Policy to identify and manage risk in Intra-Group transactions and exposures, to raise the standard of Corporate Governance by reducing / avoiding conflicts of interest between the Group Entities and to ensure ''Arms Length Principle'' among the entities in regard to business parameters.

NATIONAL PRIORITIES Priority Sector Advances

The Bank continues to accord importance to varied goals under national priorities, including agriculture, micro & small enterprises, education, housing, micro- credit, weaker sections, SC/STs and specified minority communities.

Priority Sector Advances of the Bank as at March 2013 reached Rs.78998 crore, covering over 48 lakh borrowers.

(Amt. in Rs.Crore)

Priority Sector As at March Growth Advances 2012 2013 Amount %

Total Priority Sector 67383 78998 11615 17.24

Agriculture 31946 40786 8840 27.67

Direct Agriculture 27848 37984 10136 36.40

With a focus on credit delivery to agriculture, the Bank''s advances under agriculture portfolio increased to Rs.40786 crore, covering over 40 lakh farmers and achievied 18.22% of ANBC, surpassing the mandatory target of 18%.

Advances under Direct Agriculture stood at Rs.37984 crore. The major accretion under Agriculture was under Direct Agriculture lending. The Bank crossed the mandated level of 13.50% of ANBC, by reaching 16.97%. Advances to Direct Agriculture increased by Rs.10136 crore, showing a growth rate of 36.4%. The Bank undertook special campaigns for extending Crop Loans/General Credit Cards (GCCs) facility to all farmers/non-farmers.

The Bank disbursed Rs.33730 crore under Agriculture, covering 35.96 lakh farmers during the financial year, registering an increase of 23.4%.

Since inception of the Scheme, the Bank has issued a total of 41.27 lakh Kisan Credit Cards (KCCs), amounting to Rs.26524 crore. During the year, the Bank disbursed 3.90 lakh KCCs, amounting to Rs.4826 crore. As at March 2013, the credit outstanding under KCCs was Rs.5969 crore. The Bank has issued more than one lakh new KCCs RuPay debit cards (ATM) to all eligible farmers.

During the year, the Bank also extended financial assistance to other priority sectors, such as, state sponsored organization for SC/ST, housing and micro credit.

The Bank actively participated in various Government Sponsored Schemes, such as, Prime Minister''s Employment Guarantee Programme (PMEGP), Swarnajayanthi Gram Swarozgar Yojana (SGSY), Swarnajayanthi Shahri Rozgar Yojana (SJSRY) and Differential Rate of Interest (DRI) Scheme.

Advances to DRI stood at Rs.66.89 crore, consisting of 57232 beneficiaries, of which advances by rural and semi-urban branches constitute Rs.46.43 crore.

As at March 2013, the outstanding advances under the following Schemes aggregated to Rs.652 crore, involving 1.33 lakh beneficiaries.

Performance under various Government Sponsored Schemes

Name of the Scheme No. of Accounts Amt. in Rs.Crore

PMRY 21088 148.77

PMEGP 5857 163.32

SGSY 35518 196.36

SJSRY 13150 75.61

SLRS 195 1.25

DRI 57232 66.89

Total 133040 652.20

In support of the underprivileged sections of the society, the Bank''s advances to SC/ST beneficiaries reached Rs.5179 crore as at March 2013, covering 5.31 lakh borrowers. The advances to SC/ST comprised 6.56% of total priority sector advances.

Advances to weaker sections aggregated to Rs.26244 crore, with a y-o-y growth of 17.5%. Advances to weaker sections formed 11.73% of ANBC against the norm of 10%.

Various components of Advances to Weaker Sections as at March 2013 is as under:

(Amt. in Rs. crore)

Sectors Outstanding

Small & Marginal Farmers, Landless Labourers, Tenant Farmers and Share Croppers 22050.00

Artisans, Village and Cottage Industries 646.57

SC/ST Beneficiaries 5178.97

DRI Loans 66.89

SGSY Beneficiaries 196.36

SJSRY Beneficiaries 75.61

SHGs/NGOs/MFIs 1331.42

Advances to SLRS 1.25

As at March 2013, advances to specified minority communities aggregated to Rs.14369 crore, accounting for 18.19% of the total priority sector advances against the stipulated level of 15%.

MSME Lending

Advances to Micro, Small and Medium Enterprises (MSMEs) reached Rs.37016 crore as at March 2013. The Bank has covered 73083 accounts with a loan amount of Rs.2528 crore as at March 2013 under the Credit Guarantee Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Considering the importance attached to MSME sector, the Bank opened additional 7 SME Sulabhs, i.e., Centralized Loan Processing Units for faster clearance of loan proposals and opened 21 Specialized SME branches during 2012-13. As at March 2013, the Bank had 41 SME Sulabhs across the country. Further, the Bank formulated six area/ cluster specific schemes for exclusive lending under MSME sector. The Bank effected substantial reduction in interest rates varying from 0.25% to 2.50% and also reduced interest rate by 0.25% for loans upto Rs.100 lakh covered under CGTMSE Scheme. Women entrepreneurs are offered loans upto Rs.5 lakh at base rate and also interest concession is available for all other loans availed by them. The Bank also entered into MoU with BRICKWORKS India, CARE, CRISIL, ICRA and SMERA for rating of MSME units.

The Bank received an amount of Rs.20.82 crore from the Ministry of Micro, Small and Medium Enterprises, Government of India, during the year as a Nodal Agency for Technology Upgradation of SMEs under Credit Linked Capital Subsidy Scheme (CLCSS) and fully released the amount during the year.

Financial Inclusion

A Complete Solution for Financial Inclusion

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

The Bank has successfully covered all the allotted 1624 villages (spread across 24 States) with population above 2000 for providing banking facilities. After ensuring coverage of villages in the more than 2000 population category, the Bank has covered 1255 villages in the less than 2000 population category.

Further, 5867 villages (465 villages with 1600-2000 population, 1324 villages with 1000-1599 population and 4078 villages with less than 1000 population) and 150 Wards in urban centres have been allotted for providing banking services during the next three years.

During the year, the Bank added 64 branches in financial inclusion villages, taking the total tally of FI branches to 275 under branch model. During the last two years, 50% of the new branches opened are located in FI villages. The Bank has engaged 1426 Business Correspondents Agents (BCAs) under Business Correspondents (BC) model. Considering the need for close supervision and mentoring of BCAs and in order to ensure that a range of banking services are available to residents of villages, the Bank has set up 542 Ultra Small Branches, of which, one has already been upgraded to a regular branch.

Business canvassed in the new FI Branches

During 2012-13, the Bank opened 64 branches in FI villages, forming 50% ofthe total 128 branches opened as against RBI stipulation of 25% of new branches required to be opened in tier V and VI centres. 235 branches opened in the FI villages during FY12 and FY13 have shown good results with more than 8.37 lakh accounts and Rs.1399 crore business, working out to an average of 3562 accounts and Rs.5.95 crore business per branch.

Position of Basic Savings Bank Accounts

The Bank opened about 17.31 lakh Basic Savings Bank (BSB) accounts during the year, of which, 8.12 lakh BSB accounts were opened in FI villages. There was an accretion of Rs.323 crore in BSB accounts during the year. As at March 2013, the total number of BSB accounts stood at 60.55 lakh with total deposits of Rs.1143 crore.

One Family One Account Campaign

Under "One Family One Account" Scheme, out of 10883 service area villages, Campaign is completed in 9966 villages (92%) and Certificates are obtained in 80% of the villages.

Information and Communication Technology (ICT) Model

The Bank issued Smart Cards to 3.48 lakh customers. During the year, 3.40 lakh transactions involving an amount of Rs.35.15 crore were done through Smart Cards.

Micro Insurance

During the year, the Bank provided life coverage to 31117 group members under Micro Insurance Policy and 51185 group members cumulatively.

Electronic Benefit Transfer (EBT)

The Bank has taken up implementation of EBT for payment of MGNREGA wages and Social Security Pension (SSP) in Chitradurga, Bellary, Gulbarga and Yadgir districts in Karnataka. In Tamil Nadu, the Bank implemented EBT for the payment of SSP.

Micro Finance Branches

The Bank has opened 19 Micro Finance Branches in urban centres, which contributed a total business of Rs.211 crore.

Financial Literacy Centres (FLCs)

The Bank has set up FLCs in 26 Lead Districts and provided financial education to 38153 persons and conducted financial literacy programmes for children studying in government schools, using Tablet PC.

Farmers'' Clubs

During FY13, 123 farmers'' clubs were formed, taking the total tally to 1500 spread all over the country. These farmers'' clubs disseminate information to the rural people about the banking products and advanced technology.

Canara Gramin Vikas Vahini

The Bank has provided Canara Gramin Vikas Vahini Vehicles in 35 Districts across the country, with an objective of providing awareness about bank''s products and banking facilities among the rural households.

Biometric ATMs

The Bank has installed 29 biometric ATMs as at March 2013. These biometric ATMs enable the rural illiterate customers to access their accounts using biometric features like finger prints and withdraw the amount or get balance confirmation, using color codes.

Credit Linkage

Besides opening BSB accounts, the Bank endeavored to provide host of other facilities like In-Built Overdrafts (IODs), Kisan Credit Cards (KCCs), General Credit Cards (GCCs), Differential Rate of Interest Scheme (DRI), Self Help Groups (SHGs), Micro Credit Groups (MCGs), Micro Insurance and Micro Pension under Canara Nayee Disha Scheme.

- IOD - In built OD facility permitted to 13621 beneficiaries, amounting to Rs.466 lakh.

- GCC - During the year, the Bank issued 1.24 lakh GCCs, with total disbursement of Rs.276 crore. GCCs outstanding at the end of year was 2.85 lakh accounts, with balance of Rs.600 crore.

- KCC- During the year, the Bank issued 3.90 lakh KCCs, with total disbursement of Rs.4826 crore. KCCs outstanding at the end of year was 6.14 lakh accounts, with a balance of Rs.5951 crore.

- DRIs - During the year, the Bank financed 0.26 lakh persons under DRI Scheme, with total assistance of Rs.36 crore. DRI outstanding at the end of year was 0.57 lakh accounts, with balance of Rs.67 crore.

- SHGs - 26000 SHGs have been formed during the year. Credit linked 32000 SHGs, with credit of Rs.648 crore. The outstanding SHG balance at the end of the year stood at 82000 accounts, with balance of Rs.1331 crore.

Engaging Anchor NGOs for promoting Women SHGs (WSHGs) in Backward Districts

The Bank has the lead bank responsibility in Chitradurga district in Karnataka, Waynad and Palakkad districts in Kerala, which are classified as backward districts. As per the guidelines of the Ministry of Finance, Govt. of India, the Bank has signed MoU with Shree Kshetra Dharmasthala Rural Development Programme (SKDRDP) in Chitradurga district, Waynad Social Service Society Manantwadi in Waynad District, People Service Society and Hope Foundation in Palakkad district in Kerala for implementation of the Scheme. The Bank has also signed MoU with Mahalir Association for Literacy Awareness and Rights (MALAR) in Kanyakumari district of Tamil Nadu for implementation, since the Bank has major presence in the district.

SKDRDP has formed about 8018 WSHGs in Chitradurga district and credit linked 6071 WSHGs till 31.03.2013. 615 SHGs formed and opened SB accounts in Waynad district and in Palakkad (Kerala), 210 WSHGs are formed.

AADHAAR Enrolments

Pilot Project for Aadhaar enrollments is undertaken in 8 States, covering 1.95 lakh residents. The Bank has already entered into agreement with UIDAI by signing Aadhaar User Authentication (AUA) Agreement and with NPCI for Aadhaar Enabled Payment System (AEPS) & Aadhaar Payment Bridge System (APBS). The Bank is on-board with NPCI & UIDAI. The Bank is also participating in pilot project for direct credit of LPG subsidy.

Implementation of DBT Scheme

The Bank has already campaigned for ''One Family One Account'' in 43 identified Districts and opened over 2.71 lakh new accounts. The Bank has ensured that CBS can capture Aadhaar numbers and provided adequate number of access points i.e., branch, ATM, cash dispenser, BCA, etc. to enable the beneficiaries to withdraw the money as per their ease and convenience.

Bank as a Whole As on 31.03.2013

No. of Districts 43

No. of Branches participating 483

No. of Villages allocated 864

No. of Wards allocated 596

No. of New accounts opened 271396

No. of A/cs seeded with AADHAAR 362610

No. of new ATMs installed 109

Total No. of ATMs in 43 Districts 483

As on 31.03.2013, 1649 transactions were carried out under DBT, amounting to Rs.38.54 lakh.

Lead Bank Scheme

Canara Bank has lead bank responsibilities in 26 Districts in the country, viz., eight in Karnataka, seven in Tamil Nadu, five in Kerala, five in Uttar Pradesh and one in Bihar. The Bank works as the Convenor of the State Level Bankers'' Committee (SLBC) in the State of Kerala.

Entrepreneurship Development among Women

Centre for Entrepreneurship Development for Women (CEDW) at Head Office, Bangalore and Centres at 34 Circle Offices are working towards economic empowerment of women. These Centres conducted several training programmes during the year, including general Entrepreneurship Development Programmes (EDP), Entrepreneurship Awareness programmes, Seminars, Career Guidance programmes, Skills and provided marketing support to women entrepreneurs by organizing Canutsav/ Canbazar. CEDW Centres have also assisted in formation of SHGs and credit linkages. A Rural Self Employment Training Institute has been set up at Harohalli to provide EDP skill trainings to women in various vocations and enable them to take up self employment ventures. The Institute has so far trained 16486 women in EDP skill since inception. As against RBI''s requirement of 5% of Net Credit to women beneficiaries, the Bank has achieved 14% as at March 2013. Over 17.76 lakh women assisted to the tune Rs.31340 crore. In order to encourage entrepreneurship and reward successful women entrepreneurs, the Bank launched an Annual Award Scheme for successful women entrepreneurs financed by the Bank with 3 cash awards of Rs.25000, Rs.50000 and Rs.100000. To give focused attention to the needs of women clientele, the Bank is dedicating 10 all women employee branches. As a CSR initiative, the Bank would also take up a project for construction of toilets in 130 girl schools, 5 each in all its 26 lead districts with a financial outlay of Rs.1 crore.

CORPORATE SOCIAL RESPONSIBILITY

Setting Examples in CSR Activities

Following the century old tradition and founding principles, the Bank is engaged in varied Corporate Social Responsibility (CSR) activities. CSR initiatives of the Bank are multifarious, covering activities like training unemployed rural youth, providing primary health care, drinking water, community development, empowerment of women and other initiatives.

Rural Development

The Bank, through its Canara Bank Centenary Rural Development Trust (CBCRDT), has established 31 exclusive training institutes, including 24 Rural Self Employment Training Institutes, 3 Artisan Training Institutes and 4 Institutes of Information Technology to promote entrepreneurship development among rural youth and encourage them taking up self-employment activities. During 2012-13, these training institutes trained 26075 candidates, taking the tally to 1.76 lakh unemployed youth since inception, with an impressive settlement rate of 73%.

The Bank has co-sponsored 27 Rural Development and Self Employment Training Institutes (RUDSETIs) across 17 States, engaged in training ofrural youth for taking up self-employment programmes. During 2012-13, these institutes trained 34779 candidates. These RUDSETIs have, so far, trained over 3.21 lakh unemployed youth, with a settlement rate of 73%.

The Bank has co-sponsored Andhra Pradesh Bankers Institute of Rural and Entrepreneurship Development with Government of Andhra Pradesh at Hyderabad and co-sponsored Deshpande Memorial Trust, a rural self-employment training institute with Government of Karnataka at Haliyal, a backward region of North Canara District. The Bank has supported the setting up of Entrepreneurship Development Institute at Jammu and Kashmir, Karnataka Farmers Resource Centre at Bagalkot and sponsored Dr Ambedkar Self Employment Training Institute, Puduppur, Tamil Nadu.

During the year, the Bank set up its first Rural Self Employment Training Institute in Punjab at Tapa Mandi, Barnala District. The Institute was inaugurated by Shri Pawan Kumar Bansal, Hon''ble Union Minister for Railways on 16.12.2012.

Cumulatively, the Bank has sponsored/ co-sponsored/ supported 61 training institutes which have trained more than 5 lakh unemployed youth so far, with a settlement rate of 73%.

The Bank has a noble scheme of Rural Clinic Services at remote villages, lacking basic medical facilities. The Bank has so far assisted over 565 doctors to run 39 such clinics across the country.

The Bank has donated a hi-tech, custom built, solar powered ''Retail Mobile Marketing Van'' to assist women entrepreneurs, SHGs and artisans to market their products.

During the year, the Bank''s Social Action Cell organized blood donation camps, health camps and assisted people affected by natural calamities and challenged section of the society. It has also encouraged students by conducting various programmes and activities.

Visits by Parliamentary Committees

During 2012-13, Parliamentary Committee on Welfare of SC/ST, Standing Committee on Labour, Standing Committee on Social Justice and Empowerment and Standing committee on Commerce visited the Bank.

ORGANISATION AND SUPPORT SERVICES

Branch Network Expanding Pan India Presence

Continuing its branch expansion drive, the Bank added 128 domestic branches during the year. As at March 2013, the Bank had 3728 branches, including 5 overseas branches.

Composition of Branch Network

No. of Branches Category 31.03.2012 31.03.2013

Metropolitan 777 811

Urban 792 795

Semi-urban 1019 1055

Rural 1007 1062

Overseas 5 5

Total Branches 3600 3728

The Bank has 161 specialized branches, catering to the specific clientele segment.

Categories of Specialized Branches 31.03.2013

1. SMEs 72

2. Overseas 16

3. Agri-Finance 10

4. Micro Finance 19

5. Savings 6

6. NRIs 6

7. Asset Recovery Management 8

8. Prime Corporate 10

9. Industrial Finance 4

10. Stock Exchange 2

11. Capital Market 3

12. Mahila Banking 2

13. Housing Finance 1

14. Branch for Physically Challenged 1

15. Specialized Govt Business Branch 1

TOTAL 161

InfoTech Progress

The Bank took several initiatives on the InfoTech front during the year. The Bank now offers several technology banking services, such as, Internet Banking, Mobile Banking, Funds Transfer through NEFT and RTGS, SMS Alerts, IVRS based enquiry across all its branches. The Bank also offers online trading facility to its clients through its own subsidiary M/s Canara Bank Securities Ltd.

As at March 2013, the Bank had 3526 ATMs spread across 1296 centres. During the year, the Bank added 668 ATMs. E-lounges with hi-tech banking facilities like ATM, Cash/ Cheque Acceptor, Passbook printing kiosk, internet banking, online trading and telebanking have been set up in Bangalore and Delhi and more such lounges are planned during 2013-14. Under mobile banking, the Bank enabled interbank mobile payment service (IMPS) using IFSC code and account number for transfer of funds without mentioning MMID, M-commerce (mobile top up) and merchant payments (mobile top up) through IMPS on IVRS.

The Bank has made a few value additions under internet banking that include 24X7 fund transfer facility through IMPS, Electronic Payment Interface for Aggregators Times Money, Techpro, Atoms and CC Avenue for providing wide range of utility bill payments facility, ''Demat View'' enabled to view the details of holdings, option to subscribe for account statements at customized intervals and standing instructions facility for loan accounts.

SMS/ E-mail alerts have been enabled on rate of interest changes, inoperative CASA accounts, deposits due date reminder, reminder alerts on the issuance of cheque books, alerts on loan installment and arrears for customers. Internet based online loan applications and status tracking system was developed and released for 15 loan products including consumer loans, education loans, kisan credit card, farm machinery loan, diary loan, corporate loans, etc.

Canara Public Grievances Redressal System has been developed in-house and enabled for general public for registering grievances online.

Several Government business modules were implemented including core accounting solution (Govt. E-payment gateway) for disbursement of funds through digitally signed payment authorizations, software module for E-payment of Prime Minister''s National Relief Fund, release of National Pension System online software, E-scroll functionality implementation in Central Pension Processing Centre for claiming reimbursement of pension payments.

The notable development during 2012-13 was the completion of Automated Data Flow (ADF) process, ensuring accurate and timely data flow to the Reserve Bank of India without manual intervention. Enterprise- wide Data Warehouse (EDW) project has already been initiated for setting up an effective EDW architecture, with Business Intelligence/ Business Analytics modules for management decision support and business expansion.

Manpower Profile

As at March 2013, the Bank had 42693 employees on its rolls.

March 2012 March 2013

Total No. of Employees 42272 42693

Officers 17419 17835

Clerks 15802 16095

Sub-Staff* 9051 8763

* includes part-time employees (PTEs)

The Bank''s staff comprised 41.8% Officers, 37.7% Clerks and 20.5% Sub-Staff. Women employees comprising 10849, constituted 25.4% of the Bank''s total staff. The Bank recruited 1003 women employees and promoted 131 women employees under various cadres during the year.

During the year, the Bank recruited 3374 persons in various cadres, out of which 511 belonged to Scheduled Castes (SCs) and 205 to Scheduled Tribes (STs) categories. The total number of ex-servicemen staff as at the end of March 2013 stood at 2427. Out of which, 285 were recruited in various cadres during the year. There were 941 Physically Challenged Employees on the rolls of the Bank.

Reservation Policy in respect of SCs and STs

As at March 2013, the number of Scheduled Castes and Scheduled Tribes together constituted 25.92% of total staff strength of the Bank. The composition of SC/ST employees in the Bank as at March 2013 was as under:

Scheduled Scheduled Cadre Castes Tribes

Officers 3150 1200

Clerks 2875 957

Sub-staff PTEs 2499 384

Total 8524 2541

The Bank has been strictly adhering to the Reservation Policy in respect of Scheduled Castes and Scheduled Tribes as per the Govt. of India guidelines.

(a) Reservation Policy is implemented through mechanism of Post Based Rosters. In terms of the directives of the Ministry of Finance, Government of India, the Bank has since switched over to Post Based Rosters for all cadres.

(b) The Bank has been extending Reservation/ Relaxations/Concessions in Direct Recruitment as well as in promotions to candidates belonging to Scheduled Castes and Scheduled Tribes as per the Govt. guidelines.

(c) Pre-recruitment and Pre-promotion training is given to candidates belonging to Scheduled Castes and Scheduled Tribes. In the Advertisement inviting for the application from the eligible candidates for recruitment to Clerical and Officer cadres, a specific reference is made with regard to imparting of pre- recruitment training to candidates belonging to SC / ST / PWD / Minority Communities / Ex-Servicemen. Such of those candidates who opt for pre-recruitment training will be given training to prepare themselves for written test as well as interview. The duration of the training is 6 days.

Study materials, note book, stationeries are provided free of cost to all the participants. Wherever possible, respective State Governments are also providing the Lodging Facilities in Government / backward class hostels.

(d) The Bank has setup SC/ST Cell at the Head Office and also at Circle Offices to ensure maintenance of Rosters and implementation of other aspects of Reservation Policy.

(e) Chief Liaison Officer has been nominated at Head Office and Liaison Officers have been nominated at Circle Offices for ensuring implementation of Reservation Policy.

Further, representations received from Scheduled Caste / Scheduled Tribe employees, either directly or through the SC/ST Associations, are being looked into by the Liaison Officer/Chief Liaison Officer. Wherever required, necessary enquiries are conducted and appropriate action is taken. A separate register is maintained for recording various representations received from Scheduled Caste/Scheduled Tribe employees and the action taken is also recorded in the register.

In addition to the above, the representatives of majority Scheduled Caste/ Scheduled Tribe Employees'' Association are invited for Quarterly Meeting with the Chief Executive of the Bank to discuss on the implementation of guidelines on reservation policy. Quarterly Meetings are also held at Circle Offices, where Rosters are maintained and grievances, if any, are redressed by the Liaison Officer.

(f) The Board of Directors of the Bank also review the progress made in the implementation of Reservation Policy on half yearly and yearly basis.

Human Resource Development (HRD) Activities

The HR policies of the Bank have been revisited to suit the changing banking scenario. HR interventions like SPANDAN for bringing attitudinal change among front line staff and Executive grooming through reputed institutes and other significant HR tools like Quality Circles, Study Circles, Staff Meetings and Brain Storming Sessions have been implemented for effective team building and fostering collective excellence.

The Bank has an exhaustive training process covering 4 genres of activities, viz., Internal Training, External

Training, In company Training and Foreign Training. The Bank has Staff Training College at Bangalore and 13 Regional Staff Training Colleges. Various corporate communications are brought out to boost the morale of the employees and educate them in various facets of banking.

The Bank trained 31100 employees during the year, covering a wide range of functional areas including Credit Orientation, Marketing for Counter Staff and Induction Programme for Clerks, Officers, Rural Officers and Technical Field Officers. Out of the trained staff, 6452 personnel belonged to the Scheduled Caste category, 1829 belonged to the Scheduled Tribe category and 7528 were women employees. The Bank designed and implemented 2 new training programmes, viz., Jagaran and Basic Credit Appraisal and Monitoring.

''Jagaran'' was a soft skills training programme conceived to de-stress employees through the institutes of repute at external venues on residential basis. During the year, 7584 Officers and Clerks were trained under this programme.

The Bank has envisioned a novel programme, viz., Talent Bank to provide opportunities for generalist officers to assume the role of specialists in 10 identified streams. Establishing a proper Talent Management and Reward System will be the Bank''s focus in the coming years. There will be concerted efforts to identify potential leaders and groom them to take up higher responsibilities.

Further, the Bank''s quest to enhance the competencies of the workforce continued through focused and need based trainings at various institutes of repute like IIMs, JNIBF, ISB, XLRI and NIBM. Customized programmes are also organized to develop expertise in certain niche areas like Risk Management, Treasury Operations and IT.

Specialized trainings to the Senior Management Level/ Top Management Level Executives are conducted based on the requirement. The Bank has been able to add substantially to the skill level of its officials through this training intervention and motivating them to perform with renewed vigor and enthusiasm.

The Bank has formed a Sub-Committee of the Board of Directors on HR to review and improvise the existing HR policies and make suggestions to accelerate the employee engagement initiatives.

Changes in the Organizational Setup

The organizational design and structure are continuously revisited and studied for functional excellence.

Keeping in view the increased business complexities, the need for more focus on certain key functional areas, the re-organization/re-aligning functions of Wings at Head Office was undertaken. A new Wing, namely, Marketing and Business Process Reengineering Wing was formed during the year.

Customer Orientation

The Bank has taken several initiatives to remain customer focused through providing fast service, bringing in diversified products/services, responding to customer''s queries and redressal of customer complaints. The ''Code of Commitment to Customers'' issued by BCSBI is made available in the Bank''s website. To assess the quality of customer service rendered by the branches and to get feedback, "Customer Satisfaction Survey Form" is made available in the Bank''s website. Customer''s Fortnight was conducted from 15.11.2012 to 30.11.2012 inviting suggestions from customers.

Toll free contact at Customer Service Section, Head Office, is provided to facilitate the customers to represent their grievances. Toll free contact facility at ATM switch room and Card Division are provided to the users to represent the matters pertaining to ATM operations and Card business.

Call Centre is functioning to cater to customers in 6 regional languages for redressal of grievances. The number of calls received by the Call Centre during the year is more than 10.28 lakh and percentage of complaint redressal is 98%. During the year, 5075 complaints were received and 4968 complaints have been redressed. 1300 Banking Ombudsman cases were received during the year and resolved.

Centralised Pension Processing Cell has been established exclusively for handling Central Government pensions and resolving pension related grievances. Central Processing Centres are established at selected places for account opening purposes. The Bank has implemented online grievance redressal facility for customers in the Website, to lodge their grievances online under the portal Canara Public Grievance Redressal System (CPGRS).

"Town Hall Customers Meets" were held at different Centres including Mumbai, Delhi, Trivandrum, Mysore, Madurai and Vishakapatnam in association with the Banking Ombudsman, RBI and BCSBI.

Systems and Procedures

Risk Based Internal Audit (RBIA) was conducted in 2327 branches / units programmed for on-site RBIA during the year. Information Security Audit was conducted along with RBIA. Concurrent / Continuous Audit is conducted in 730 identified branches / units (covering 70.2% of deposits and 80.5% of advances) as on 31.03.2012 as per RBI guidelines. Income / revenue audit was conducted on quarterly basis in 543 identified branches as per Jilani Committee Recommendations. RBIA was also conducted in 26 Circle Offices and 15 Wings of Head Office during the year.

Besides having an Offsite Transaction Monitoring Cell (OTM Cell), the Bank opened Offsite Monitoring Cells at all Circle Offices during the year to strengthen the offsite surveillance and to track exceptional transactions. Mid- term Offsite risk assessment of branches/offices was carried out as per guidelines, to monitor movement of risk at branches.

Sampling Technique was introduced in select areas to know the extent of deviation, if any, in order to take corrective action immediately. Sustenance Audit was introduced to review the progress made in respect of RBIA, LFAR and AFI observations. 100% verification of EMT properties / documents during RBIA of branches was introduced to ensure safety of assets.

Know Your Customers (KYC)

The Bank took several measures for the effective implementation of Know Your Customer (KYC) and Anti Money Laundering (AML) guidelines and for ensuring KYC compliance by all branches.

To ensure better compliance of guidelines on KYC / AML, following steps have been initiated.

- The Bank has ensured 100% submission of Cash Transaction Reports (CTRs) and Non-profit Organizations Transactions Reports (NTRs) to Financial Intelligence Unit (FIU).

- Suspicious Transaction Reports (STRs) and Counterfeit Currency Reports (CCRs) are submitted to FIU promptly.

- Snap Audits conducted every month at 80 randomly selected branches, covering all Circles to verify adherence to KYC/AML norms.

- A onetime Special KYC audit was conducted at 343 randomly selected branches covering entire geographic area during July 2012 to verify updation of KYC data (document details) in the system.

- Risk Categorization of customers has been done centrally as per Hybrid Model recommended by the IBA Working Group.

- The Bank has a web based AML package to monitor transactions from the anti-money laundering angle. The AML package is generating alerts based on alert scenarios recommended by the IBA Working Group.

Vigilance Setup

The Vigilance Wing of the Bank is headed by the Chief Vigilance Officer (CVO) in the rank of General Manager. The CVO is assisted by Vigilance Officers stationed at all Circles, Head Office, RRBs and the Bank''s Subsidiaries. The objectives of the Vigilance Wing are to ensure that discipline and development, go hand in hand and help the Bank to reach greater heights.

As a part of the Vigilance Awareness campaign, as per the directives of the Central Vigilance Commission, the Bank observed Vigilance Awareness Week from 29th October to 3rd November 2012, with more focus on the theme "Transparency in Public Procurement". On this occasion, a two days programme on ''Preventive Vigilance in Public Procurement'' by Shri R Radhakrishnan, Retired General Manager of RBI and ex-Chief Vigilance Officer of State Bank of India/Bank of India, was conducted at the Bank''s Staff Training Colleges, Bangalore, Gurgaon and Delhi. The Programme was extremely beneficial to the Bank''s officials to take precautionary measures in the procurement process as also to bring general awareness amongst the Bank officials about Public Procurement.

Continuing the vigilance awareness campaign, a speech by Shri Srinivas Galgali, ITS Chief Vigilance Officer, Kudremukh Iron Ore Company Ltd, Bangalore on ''Transparency in Public Procurement'' was arranged on 03.11.2012 for the Executives of Head Office.

GM & CVO conducted "Seminars on prevention of frauds and Vigilance" at the Circles visited during the year, wherein, apart from reviewing the pending disciplinary matters pertaining to the Circle, the CVO also dwelt upon various aspects related to Preventive Vigilance Mechanism in the Bank, fraud prone areas with special emphasis on CBS environment, handling of disciplinary matters and need for timely disposal, maintaining secrecy of passwords in computerized environment and effective role of Preventive Vigilance Committee at branches.

Under the auspices of the Vigilance Study Circle Bangalore, the Bank hosted series of programmes, such as, a lecture session by Prof. M V Rajeev Gowda, from Indian Institute of Management, Bangalore (IIMB) on "Electoral Reforms" on 22.06.2012; a speech on "Ethics & Values" by Prof. (Dr) R Venkata Rao, Vice Chancellor of National Law School of India University, Bangalore on 26.12.2012 and Quiz competition for students of various Schools in Bangalore on 08.01.2013.

Special emphasis was laid on popularizing the project ''VIGEYE'' and also the formation and activation of Preventive Vigilance Committees at all branches of the Bank.

Security Arrangements

During the year, security measures have been strengthened. To improve the security at branches, CCTV systems are installed in 1554 branches. In addition to the above, 1021 ATMs are also provided with CCTV system to monitor the security. 85 Currency Chests are provided with Biometric Access Control System as per RBI guidelines.

Ambience Improvement

During the year, ambience improvement work was carried out in more than 200 branches of the Bank. The Bank has initiated steps for ambience improvement including air conditioning in 1000 more branches during the current financial year.

Right to Information

Under the Right to Information Act, 2005, an exclusive Right to Information Act outfit is functioning to provide information and bring transparency. As per the requirement of the RTI Act, the Bank has nominated Public Information Officers and Appellate Authorities at Head Office and in all its 34 Circle Offices to provide information to the applicants. During the year, the Bank received 3352 RTI applications, 520 First Appeals and 65 Second Appeals as per the provisions of RTI Act, 2005.

Implementation of Official Language

The Bank made noteworthy progress under the implementation of official language and won many prizes at various levels during the year under review. The Bank was awarded first prize by Town Official Language Implementation Committees at Bangalore (Head Office), Karnal and Madurai Circles. Apart from this, many Circles and branches have received awards from respective Town Official Language Committees.

As at March 2013, around 98% ofemployees have obtained working knowledge in Hindi and the Bank has notified 2379 branches under Rule 10(4) of OL Rules 1976. All the employees of the Bank possessing working knowledge of Hindi have been trained in Hindi workshops. During the year under review, the Bank has conducted more than 238 refresher training programmes for such employees.

In the sphere of using Information Technology in the Official Language, the Bank increased the use of Unicode package for word processing and also made provision in ATM screens of the Bank for carrying transaction in 10 Indian languages. Telebanking facility has also been provided in Hindi and English and other 6 major regional languages. The Bank''s corporate website is fully in bilingual. The Bank is also giving SMSs in Hindi to all its customers on special occasions. With effect from 1st July, 2011, the Bank has provided Hindi option in Core Banking System. The Bank''s bilingual address booklet ''CANPATHA'' is made available to all our branches and offices in electronic form.

To encourage effective implementation of Official Language in the Bank, 164 prizes were given to Circles, Branches, RSTCs and Sections of offices under the Award Scheme formulated by the Bank viz., Canara Bank Rajbhasha Akshay Yojana and 107 employees were awarded under Rajbhasha Puraskar Yojana. The Bank has also started an annual "All India Hindi Essay Competition" for its employees and handsome cash prizes were given to prize winners.

Shri Sandip, Sr Manager, Advances Section, Circle Office, Agra has been awarded with Encouragement Prize under All India Hindi Essay writing Competition organised by RBI-College of Agricultural Banking (CAB), Pune.

The 30th All India OL Conference of OL Officers of the Bank was held at RSTC, Gurgaon on 4th and 5th March 2013. The Bank''s annual Hindi journal "Canarajyoti" - 10th issue- was released on the occasion by the Executive Director Shri. Ashok Kumar Gupta. Canarajyoti is brought out to encourage original writing in Hindi. This publication contains articles written by employees on banking related subjects in Hindi. On 06.03.2013, a Programme called "Rajbhasha Prabodhan Karyakram" was also conducted for the OL Officers at RSTC, Gurgaon.

The 3rd Sub Committee of Parliamentary Committee on Official Languages had inspected our new Tihri and Rishikesh Branches and Head Office was inspected by Drafting & Evidence Committee and lauded the efforts put by the Bank in the field of Official Language implementation. The Bank is convening the Town Official Language Implementation Committees of Bangalore, Coimbatore and Thiruvananthapuram. Official Language Implementation Committees are constituted in all the branches of the Bank to motivate and guide the employees towards effective implementation of Official Language Policy of the Govt. of India.

Promotion of Sports

Canara Bank has always been encouraging and supporting sports. A Sports Council at Head Office was set up in the year 1982 to monitor and encourage sports in the Bank.

The Bank has on its rolls 40 sports persons in six disciplines, viz., Cricket, Hockey, Women''s Athletics, Shuttle Badminton, Ball Badminton and Table Tennis.

International Cricketers Shri B K Venkatesh Prasad, Shri Sunil Joshi, Ms Shantha Rangaswamy are presently in the Bank''s fold.

Besides the Cricketers, Shri U Vimal Kumar, (Shuttle Badminton), Smt M K Asha, Smt Suma Gopalakrishna and Smt H M Jyothi (Athletics) and Shri Bharat Chhetri, Shri P Shanmugam, Shri K M Somanna, Shri K P Dinesh, Jr International, (Hockey) are also on the Bank''s rolls.

Over the years, Canara Bank has secured several distinctions in the sporting arena and the Bank''s Cricket, Ball Badminton, Shuttle Badminton and Table Tennis Teams rank numero uno in the State of Karnataka.

Notably during 2012-13, Shri Bharat Chhetri was nominated as the Captain of the Indian Hockey Team for the Summer Olympic Games, London, 2012.

The Bank''s Cricket Team won the 1st Bihar T-20 Gold Cup held at Patna. Shri C Raghu of the Bank''s Cricket Team won the Man of the Series Award. Shuttlers Shri D Gururprasad and Shri Vineeth Manuel (doubles pairing) were ranked 1st in Karnataka and 2nd in India. Cricketers Shri N C Aiyappa, Shri K B Pawan, Shri Rajoo Bhatkal and Shri Deepak Chougule are part of the Ranji Trophy squad.

Apart from the Teams at Head Office, the Bank is also sponsoring Teams at Circle Office level for the local/ regional Inter Bank Tournaments. More than 50% of the Bank''s sports personalities are representing the State of Karnataka in their respective sporting discipline.

FINANCIAL SUPERMARKET

Subsidiaries, Sponsored Entities and Joint Ventures Canara Bank, with an objective of offering ''One Stop Banking'' for the customers, forayed into diversified business activities by opening subsidiaries during late 1980s. Today, the Bank functions as a ''Financial Supermarket'' with as many as nine subsidiaries / sponsored entities / joint ventures in diversified areas. The Bank has taken significant steps towards strengthening fundamentals of these entities so as to emerge as a strong ''Financial Supermarket'' in India. All the subsidiaries / sponsored entities / joint ventures of the Bank recorded satisfactory performance during the reporting year.

Commercial Bank of India LLC (CBIL)

CBIL, a joint venture of Canara Bank and State Bank of India, has been operational since April 2004 in Moscow, Russia. The Company earned a profit after tax of US$4.11 million as on 31st March, 2013.

Canbank Venture Capital Fund Limited (CVCFL)

CVCFL, the Trustee and Manager of Canbank Venture Capital Fund (CVCF), is a wholly owned subsidiary of the Bank and is providing Venture Capital assistance. The Company recorded a profit after tax of Rs.7.19 crore for the year 2012-13 as against Rs.7.06 crore for 2011-12. The Company has proposed a dividend of 400% for the year 2012-13.

Can Fin Homes Limited (CFHL)

Canfin Homes Limited, a sponsored entity of Canara Bank, is one of the premier housing finance entities in the country. As on 31.03.2013, the Bank''s stake in CFHL is 42.35%. The Company sanctioned loans amounting to Rs.2092.65 crore and disbursed loans amounting to Rs.1813.77 crore during the year. The Company earned a profit after tax of Rs.54.12 crore for the year ended March 2013. The Company has proposed a 40% dividend for the year 2012-13.

Canbank Factors Limited (CFL)

Canbank Factors Limited is a factoring subsidiary of the Bank. During 2012-13, the Company achieved a total business turnover of Rs.3123 crore. The Company has earned Profit after Tax of Rs.15.98 crore for the year ended March 2013. The Company has proposed 20% dividend for 2012-13. The Company enjoys the highest rating of "P1 " by CRISIL for its short term debt programme.

Canbank Computer Services Limited (CCSL)

Canbank Computer Services Limited is the only Software Company promoted by a public sector bank in the country. CCSL is primarily engaged in IT and Software development services, training/consultancy and registrar and share transfer agency. The Company is a member of the NASSCOM and Registered as a software solution provider for World Bank projects. The Company has achieved the Profit after Tax of Rs.4.25 crore for the year against Rs.3.10 crore in the previous year. The Company has been successfully managing the Call Centre activity and ATM outsource services for 1200 plus ATMs of the Parent Bank.

Canara Bank Securities Limited (CBSL)

Canara Bank Securities Limited, (formerly Gilt Securities Trading Corporation Limited) has diversified into capital market related activities, mainly stock broking since 2007.

The Company offers stock broking services to both institutional and retail clients. Online Trading Counter for retail customers is its flagship product under portal ''Canmoney.in''. The Company has diversified into Currency Derivatives. The Company has posted a Profit after Tax of Rs.8.08 crore and paid 15% dividend of Rs.6.00 crore for 2012-13.

Canbank Financial Services Limited (Canfina)

Canbank Financial Services Ltd has confined its activities to legal matters arising out of past transactions in securities, besides concentrating on collection of lease rentals and recovery of dues under decreed accounts. During 2012-13, Canfina recorded a profit after tax of Rs.1.49 crore. It has repaid Rs.351.45 crore out of the hand holding support of Rs.376.45 crore given by the Bank and proposes to clear the entire liability of Rs.25 crore outstanding during the current fiscal year.

Canara Robeco Asset Management Company Limited (CRAMC)

To manage assets of Canbank Mutual Fund, M/s Canbank Investment Management Services Limited (CIMS) was established in 1993. In the year 2007, Canara Bank divested 49% stake of Asset Management Company in favour of M/s Robeco Groep N V forming a joint venture for managing the assets of Canbank Mutual Fund. The Company has since been renamed as Canara Robeco Asset Management Company Limited.

The JV aims to capture a worthwhile market share of mutual fund industry by bringing best international practices and expertise supported by the vast network of the Bank. With a majority share of 51% held by the Bank, the Assets under Management (AUM) of the Company increased to Rs.8550 crore, with an investor base of Rs.5.52 lakh. The Company is currently managing 24 Mutual Fund Schemes. The Company posted a net profit of Rs.13.55 crore for the year 2012-13.

Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited

An Insurance Joint Venture floated by the Bank in association with internationally reputed HSBC Insurance (Asia Pacific) Holding Limited and Oriental Bank of Commerce. The Company was incorporated during September 2007 and commenced its business operations from 16.06.2008, with a majority shareholding of 51% held by the Bank.

During the year, the Company reached total business premium of Rs.1894 crore. The Company recorded profit of Rs.14.80 crore. Out of the 23 private players in the insurance field in India, the Company ranked 12th position.

Regional Rural Banks (RRBs)

The Bank sponsored three Regional Rural Banks in three states viz., Pragathi Gramin Bank (Karnataka), South Malabar Gramin Bank (Kerala) and Shreyas Gramin Bank (Uttar Pradesh), with a total network of 963 branches. As at March 2013, all the RRBs were profit making and the capital adequacy ratio is above the mandatory norm of 9%. The aggregate business of the RRBs crossed the mile stone mark of Rs.25000 crore and stood at Rs.25106 crore, comprising Rs.13488 crore under deposits and Rs.11618 crore under advances as at 31.03.2013. Pragathi Gramin Bank ranks 2nd position amongst RRBs of Karnataka and South Malabar Gramin Bank ranks 1st position amongst RRBs of Kerala. 3 RRBs opened 77 new branches and 926 ultra small branches during the year.

All the RRBs ensured 100% coverage of all FI villages (population of more than 2000) with Business Correspondents. The priority sector advances were at 85% as against the norm of 60% set by the Ministry Agriculture Credit outstanding stood at Rs.7630 crore as at March 2013. Under technology advancements, all the RRBs have migrated to CBS platform, implemented IT products like NEFT, RTGS, ATM, SMS alerts, KCC RuPay cards, etc. Further, system based recognition of non-performing assets for all the accounts has been implemented.

Shreyas Gramin Bank and Aryavart Kshetriya Gramin Bank were amalgamated into a single Regional Rural Bank vide Ministry of Finance notification F No.7/9/2011- RRB (UP-1) dated 01.04.2013 under the sponsorship of Bank of India and has been renamed as Gramin Bank of Aryavart with its Head Office situated at Lucknow.

AWARDS/ACCOLADES Awards and Accolades

In recognition of the varied initiatives, the Bank was conferred with the following awards -

- Best Bank Award among large banks by IDRBT for "Use of Technology for Financial Inclusion" handed over by RBI Governor Dr. D Subbarao.

- Skoch Award for Financial Inclusion, handed over by Dr. C Rangarajan, Chairman, PMEAC.

- 1st Rank for Self Help Groups Linkage for the year 2011-12 in the State of Bihar.

- Award for ''Best Online Bank'' among Public Sector Banks- IBA Banking Technology Awards 2011.

- Award for ''Best Customer Relationship Initiative'' among Public Sector Banks - IBA Banking Technology Awards 2011.

- The Greatest Corporate Leaders of India - Leadership in Banking Award, instituted by World HRD Congress, 2013.

- Prestigious Platinum Greentech HR Award 2013 under HR Oriented CEO by M/s Greentech Foundation, New Delhi.

- Platinum Award, for Best HR Strategy and Training Excellence by M/s Greentech Foundation, New Delhi.

- National Vigilance Excellence Award - 2012 for the second consecutive year from Vigilance Study Circle, Hyderabad under the auspices of the Central Vigilance Commission.

VARIOUS POLICIES OF THE BANK

There is a system of well-defined policies and procedures of the Bank. During the year, concerted efforts were made to streamline the policies and procedures of the Bank in the light of regulatory requirements of the RBI, the directions of the Government of India and the emergent requirements of the Bank in the present day context. Accordingly, there has been a sharper focus on policies relating to, among others, Credit Risk Management, Market Risk Management, Operational Risk Management, Asset Liability Management, Liquidity Risk Management, Country Risk, Counterparty Bank Risk, Corporate Governance, Disclosures, Collateral Management, Stress Testing, Compliance Functions, Disaster Recovery and Business Continuity Planning, Business Lines, Outsourcing and Internal Capital Adequacy Assessment Process (ICAAP), Know Your Customers (KYC), Anti-Money Laundering (AML), Recovery and Investments.

CHANGES IN THE BOARD OF DIRECTORS

Year 2012-13 saw the following changes in the composition of the Board of Directors of the Bank.

- The tenure of Shri S Raman as Chairman & Managing Director ended on superannuation on 30.09.2012.

- Smt Sudha Krishnan was nominated as Government of India Nominee Director w.e.f. 16.11.2012 in place of Dr Thomas Mathew, whose term as Government of India Nominee Director consequently ended on 15.11.2012.

- Shri R K Dubey was appointed as Chairman & Managing Director of the Bank w.e.f 11.01.2013.

Brief Profile of the newly appointed Directors of the Board of the Bank during 2012-13

Smt Sudha Krishnan

At present, Smt Sudha Krishnan is the Joint Secretary (Personnel), Department of Expenditure, Ministry of Finance, Government of India.

Shri R K Dubey

Shri R K Dubey joined Punjab National Bank in the year 1977 as a Management Trainee and moved up to the ranks of a General Manager in 2008. He was appointed as Executive Director of Central Bank of India in 2010.

A techno-savvy banker with extensive multi-dimensional banking operational experience, Shri Dubey possesses enormous inter-personal, communication and leadership skills with proven abilities in team management and customer relationship management. He takes challenges and believes in setting own goals.

DIRECTORS'' RESPONSIBILITY STATEMENT

The Directors, in preparation of the annual accounts for the year ended March 31, 2013, confirm the following:

- That in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures.

- That they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for the period.

- That they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

- That they had prepared the annual accounts on a going concern basis.

ACKNOWLEDGEMENT

The Bank made several initiatives to maximize rewards for all its stakeholders, viz., shareholders, customers, investors, Government, RBI, employees and the public at large.

The Board wishes to place on record its sincere appreciation to the customers for their patronage, to the shareholders for their support, to the Government authorities and the Reserve Bank of India for their valuable guidance and support, to the Directors who completed their tenure during the financial year under review, to the Bank''s Correspondents in India and abroad for their co-operation and goodwill and to all the Staff Members for their full support in the journey towards growth and excellence.

R K DUBEY

CHAIRMAN AND MANAGING DIRECTOR


Mar 31, 2012

The Board of Directors have pleasure in presenting the 43 rd Annual Report together with the Balance Sheet as on 31st March, 2012 and Profit and Loss Account for the financial year ended March 31,2012.

FINANCIAL PERFORMANCE

During the year, due to slackened business growth and increase in stressed assets at the industry level, the Bank took a conscious decision to consolidate its business position and rebalance assets and liabilities. The performance of the Bank on the business, profits and profitability fronts areas under.

The Bank earned a net profit of Rs3283 crore for 2011-12 compared to Rs4026 crore last year. Operating profit of the Bank stood at Rs5943 crore compared to Rs6091 crore last year. Return on average assets (RoAA) for the year stood at 0.95%. Profit per employee worked out to Rs8.21 lakh for the year.

Dividend of 110% for 2011-12

Enhancing Shareholder Value

The Bank's Board of Directors recommended a dividend of 110% for 2011-12. While Book Value increased to Rs431.26 as at March 2012 as compared to Rs 3 59.2 5 for the previous financial, EPS stood at Rs74.10 as at March 2012 compared to Rs97.83 a year ago. Return on Equity stood at 18.75% for 2011-12.

March March

Key Financial Ratios (%) 2011 2012

Cost of Funds 5.37 6.72

Yield on Funds 8.13 8.95

Cost of Deposits 5.80 7.35

Yield on Advances 9.73 10.93

Yield on Investments 7.72 7.96

Spread as a % to AWF 2.76 2.23

Net Interest Margin (NIM) 3.12 2.50

Operating Expenses to AWF 1.56 0.51

Return on Avg. Assets (RoAA) 1.42 0.95

Return on Equity 29.47 18.75

Business per Employee (Rs in Crore) 11.96 13.74

Profit per Employee (Rs in Lakh) 9.76 8.21

Book Value (Rs) 359.25 431.26

Earnings per Share (Rs) 97.83 74.10 AWF - Average Working Funds

Income and Expenditure Analysis

The Bank's interest income recorded a y-o-y growth of 34.5% to reach Rs30851 crore compared to Rs22940 crore recorded during the previous financial year. Non- interest income increased to Rs2928 crore compared to Rs2811 crore recorded last year.

The Bank's cost of deposits increased to 7.35% due to uptrend in interest rates during the year. The yield on advances improved to 10.93% as at March 2012 compared to 9.73% last year. Interest spread stood at 2.23% compared to 2.76% as at March 2011.

While interest expenditure increased to Rs23161 crore with a y-o-y increase of 52%, the Bank contained its increase in operating expenses at 5.7% amounting to Rs4674 crore. The net interest income of the Bank stood at Rs7689 crore and Net Interest Margin (NIM) worked out at 2.50%. Capital and Reserves

Networth of the Bank, as at March 2012 increased to Rs19027 crore compared to Rs15915 crore as at March 2011. While total paid-up capital of the Bank was Rs443 crore, reserves and surplus increased to Rs22247 crore. The Government Shareholding in the Bank stood at 67.72% as at March 2012.

(Amt. in RsCrore)

March2011 March2012

Composition of Capital Baje|| Baje||

Risk Weighted Assets 176136 210875

Tier I Capital 19139 21829

CRAR(%)(Tierl) 10.87 10.35

Tier II Capital 7956 7179

CRAR(%)(Tierll) 4.51 3.41

Total Capital 27095 29008

CRAR(%) 15.38 13.76

Capital Adequacy Ratio stood at 13.76%, with Tier I capital ratio at 10.35% as at March 2012. The Bank has adequate headroom available under both Tier-1 and Tier- 11 options to raise capital to support business growth momentum.

BUSINESS GROWTH

deposits

Total Deposits of the Bank registered a growth of 11.5% to reach Rs327054 crore as at March 2012 compared to Rs293437 crore a year ago. The Bank's CASA deposits reached Rs79611 crore as at March 2012. The Bank's CASA deposits to domestic deposits stood at 25.16%.

Savings deposits rose by 10.5% to Rs64792 crore as at March 2012. During FY12, the Bank launched nationwide campaign to mobilize SB deposits in two phases. During the campaign period, the Bank has brought in about 24 lakhs fresh SB clientele and about Rs3000 crore SB deposits in the new accounts.

Pursuing a strategy of broad-basing deposit clientele, all the branches together opened over 33 lakhs deposit accounts, taking the total number of deposit accounts to 3.75 crores.

Advances (Net)

During 2011-12, the Bank's net advances witnessed a 10% growth to reach Rs232490 crore compared to Rs211268 crore a year ago. The Bank's diversified credit portfolio include all productive segments of the economy like agriculture and Micro, Small and Medium Enterprises (MSME), exposure to corporate and infrastructure segments. As at March 2012, the number of borrowal accounts stood at45 lakhs.

During 2011-12, the total business of the Bank grew by 10.9% to reach Rs559544 crore as against Rs504705 crore during the previous financial. The Bank's domestic business constituted about 96% of the total business.

Productivity, as measured by business per employee, increased to Rs13.74 crore from Rs11.96 crore a year ago. During the year, the Bank's clientele base increased to 4.20 crores.

Retail Lending Operations

Outstanding retail lending of the Bank stood at Rs24782 crore as at March 2012. The disbursals under the retail lending stood at Rs12279 crore. The outstanding housing loan portfolio increased to Rs15808 crore, constituting 64% of the total retail lending portfolio.

The Bank took several measures during the year to expand retail credit. Retail Loan festival was observed during September-March 2012, wherein rate of interest was reduced along with concession in processing charges. To facilitate speedy disposal of proposals and credit flow, 19 Centralized Processing Units (CPU) were upgraded to Retail Asset Hubs (RAHs). As at March 2012, the Bank had 37 RAHs and 6 CPUs at major centres across the country, covering 1456 branches. The Bank has implemented Online Loan Application and Tracking System.

TREASURY AND INTERNATIONAL OPERATIONS

Aggregate investments (net) of the Bank was at Rs102057 crore as at March 2012. Portfolio modified duration came down to 4.62 years as at March 2012 from 4.75 years a year ago. The modified duration of the Available for Sale (AFS) portfolio has increased to 3.23 years as at March 2012 from 2.23yearsasat March 2011 due to redemption of short dated securities and fresh investments made in medium and long dated securities. The trading profit fortheyearwasRs324crore as against Rs236 crore last year. The yield on investments improved to 7.96% as compared to 7.72% a year ago

The Bank continues to be an active player in Government securities as a primary dealer. The total amount of underwriting commitments for the year was Rs 52688 crore. During the year, the Bank achieved over 64% success ratio as against mandatory 40% of its obligation as a Primary Dealer.

Foreign Business Turnover of the Bank aggregated to Rs144624 crore, comprising Rs54036 crore under exports, Rs41151 crore under imports and Rs49437 crore under remittances as at March 2012. Outstanding export credit of the Bank stood at Rs10382 crore as at March 2012.

The Bank's overseas operations covered 6 countries with one branch each at London and Leicester (UK), Hong Kong, Shanghai (China) and Manama (Bahrain) and a Representative Office at Sharjah (UAE). These apart, a joint venture Bank, namely Commercial Bank of India LLC in Moscow is also operational in association with State Bank of India.

All overseas branches recorded improved business performance during the year. Total business of the five overseas branches aggregated to US$4.33 billion for the financial year ending March 2012.

The Bank has approval from RBI for expansion in 8 other International Centres, namely, Qatar, Johannesburg (South Africa), Frankfurt (Germany), New York (USA), Sao Paulo (Brazil), Dar-es-Salaam (Tanzania), Tokyo (Japan) and Abuja (Nigeria). In this regard, the Bank has filed application with regulators of South Africa, USA and Qatar.

The Bank's international operations are well supported by a wide network of 373 Correspondent Banks, spread across 79 countries. Rupee Drawing Arrangement has been made with 29 Exchange Houses and 17 Overseas Banks in the Middle East for channelizing the remittances of Non- Resident Indians. The Bank has been managing two Exchange Houses viz., Al Razouki International Exchange Company, Dubai and Eastern Exchange Est., Qatar under Secondment and Management Agreement respectively.

The Bank has implemented 'Remit Money' a Web Based Speed Remittance product by extending to 28 Exchange Houses and to 4 branches abroad viz. London, Leicester, Shanghai and Hong Kong. During the year 2011-12, the Bank obtained approval from RBI for remittance arrangements with 5 more Exchange Houses in UAE.

OTHER SERVICES

During 2011-12, Merchant Banking Division handled one Rights issue of equity amounting to Rs90.23 crore. The Division also handled Private Placement Capital Gain Bond Issues of National Highways Authority of India (NHAI) and Rural Electrification Corporation Ltd (REC) as Arrangers. Amount mobilized in respect of Capital Gain Bonds Issue of NHAI and REC during the year was Rs120.33 crore. Five assignments of 'Fair Valuation of Equity' were also handled by the Division During the year.

The Bank acted as Collecting Bankers in 1 Rights and 3 Private Placement Issues, involving an amount of Rs1147.16crore.The number of issues handled under Application Supported by Blocked Amount (ASBA) by the designated branches were 34 and the amount blocked was Rs140.54crore.

The Bank's Syndication Group handled projects involving project cost of Rs27221 crore during the year, with a total debt size of Rs6825 crore. The Group has generated substantial fee based income from the syndication operations. The funds are arranged for projects in various segments like Steel, Power, Road, Sugar,Textiles, etc.

The Bank has tie-up arrangements in both life and non-life insurance segments under its 'bancassurance' arm. The Bank earned a commission income of Rs 26.24 crore from its joint venture viz.,Canara HSBCOBC Life Insurance Company Ltd. Under the mutual fund business, the Bank earned a commission of Rs 3.9 crore from its joint venture viz., Canara Robeco Asset Management Company Ltd. The Bank'stie-up arrangementwith M/s United India Insurance Company Ltd (UIICL)for non-life (general) insurance business has resulted in a commission income of Rs 11.6 crore during the year. The Bank has also Corporate Agency Agreement with M/s Export Credit Guarantee Corporation of India for marketing export Policies through its branches across India.

Corporate Cash Management Services (CCMS) network of the Bank, covering 60 Operating Centres, provides services related to local and upcountry cheque collection facility. The Bank has planned to integrate the collection products with core banking services covering 300 centres with new features.

Under Card Business, the Bank took several initiatives to expand credit and debit-cum-ATM card base. The total debit card base of the Bank increased to 71.92 lakhs as at March 2012. Income under card business during the year was at Rs 1.4 crore.

The Bank offers its depository services from 55 DP Service Centres spread across 36 centres in the country. Through these Centres, the Bank is extending Online Trading Facility to DP clients from its own broking subsidiary M/s Canara Bank Securities Limited, Mumbai.

Executor, Trustee and Taxation Services outfit of the Bank provides services like Debenture/Security Trusteeship, Will and Executorship, Trusteeship, Personal Tax Assistance and Power of Attorney Services. During the year, it secured new debenture/security trusteeship issues, amounting to Rs905 crore.

Under Government Business, comprising Direct and Indirect Tax collections, payment of pensions of various departments, Ministry Accounts, Postal Department, Public Provident Fund Scheme and issue of bonds of RBI and Government of India, the Bank earned an income of Rs76 crore during the year.

The Bank has been authorized as the accredited banker for Ministry of Human Resources Development (MHRD), handling Department of School Education and Literacy, Department of Higher Education, Department of Arts - Archeological Survey of India, Ministry of Culture and Ministry of Youth Affairs and Sports. The Bank has developed a Web-Portal for Ministry of HRD fore-tracking of funds under the Sarva Shiksha Abhiyan (SSA) Scheme and implemented the web portal in all the States. The Bank has implemented the e-payment of sales tax/ commercial tax in the states of Maharashtra, Tamil Nadu, Karnataka and Delhi.

The Bank is authorized as one of the accredited Bankers for Unique Identification Authority of India (UIDAI), New Delhi. The UIDAI was established in February 2010, as an agency of Government of India, responsible for implementing the Multipurpose National Identity Card or Unique Identification Card (UID Card) project in India. The project is implemented in 8 Centres at present and the Bank's branches at these Centres have been designated as the branches for handling the UIDAI accounts.

During the year, the Bank has entered into an MoU with Ministry of HRD for implementing Maulana Azad National Fellowship and National Scheme of Incentives to Girls for Secondary Education (NSIGSE).

The Bank has implemented e-payment of Customs in 103 locations as Per the direction of the Central Board of Excise and Customs, New Delhi, with effect from 16.01.2012.

The Bank has introduced e-stamping project in 5 branches in Bangalore. The project is under implementation at other 26 branches situated in the District Head Quarters in the State of Karnataka.

Agricultural Consultancy Services (ACS) outfit of the Bank handled 105 assignments. These 105 assignments comprised of 75 appraisals, 1 viability study, 21 vetting and 8 other studies and trainings. The total outlay of the assignments was Rs 467 crore.

ASSET QUALITY AND RISK MANAGEMENT

Asset Quality

The Bank has implemented system based identification in collation of NPAs during the year, irrespective of size and category of the borrowal accounts.

With the moderation in the economy, asset quality of the banking sector was under stress. The gross NPA level of the Bank stood at Rs4032 crore with a gross NPA ratio of 1.73% as at March 2012.The Bank's gross NPA ratio continues to be one of the lowest among the peers. With a net NPA level ofRs3386 crore, net NPA ratio was at 146%=The Provision Coverage Ratio stood at 67.59% as at March 2012.

Cash recovery during the year aggregated to an all time high of Rs3295 crore, well exceeding the preceding year's cash recovery of Rs2032 crore. Out of this, recovery from written off accounts at branches, write back and unapplied interest together amounted to Rs1191 crore. Recovery from accounts where the liability is less than Rs1 crore was Rs2000 crore.

During the year, recovery amounting to Rs1270 crore was made under SARFAESI Act. The Bank conducted 17200 recovery meets which resulted in a recovery of Rs 1575 crore. Under Lokadalat, 800 cases were settled. Besides, the Bank took several initiatives to contain slippages and speed up recovery from= overdue loan accounts. These include identification of stressed accounts for restructuring/ rephasing in time, conduct of Canadalats at branch level and mega adalats at Circle level for one time settlements, regular follow-up of overdues in loan accounts through Call Centre and e-auctions. The Bank also formulated a special scheme for settlement of small NPAs and for MSMEs below =-lcrore.

Risk Management

The objective of Risk Management is to balance the trade- off between Risk and return. The Bank weighs the business growth and revenue generation in the context of the risks inherent in the business strategy adopted.

The Bank has put in place a unified Risk Management Architecture to attain global best practices for effective implementation of Risk Management initiatives in tune with the New Capital Adequacy Framework prescribed by the RBI. An independent Risk Management Structure is in place for Integrated Risk Management, covering Credit, Market, Operational and Group Risk.

The Board of Directors drive the Risk Management initiatives in the Bank and have oversight on the risks assumed by the Bank. The Board of Directors is well supported by the Risk Management Committee (RMC) Of the Board.

Various Risk Committees at the Top Executive level like Credit Risk Management, Market Risk Management, Operational Risk Management and Asset Liability Management are also constituted and operationalized to assist the Board and RMC of the Board. These Committees meet periodically to assess and proactively review all policies related to various risks and validating compliances, portfolio review on periodic basis. The Audit Committee of the Board (ACB) provides direction to and also monitors quality of internal audit functions and review of risk policy initiatives. The Bank's business activities are undertaken within the policy framework and independent departments are set up at all levels to facilitate implementation of all risk initiatives of the Bank.

The risk is managed through a framework of policies and principles approved by the Board of Directors and supported by an independent Risk Management Wing that ensures that the Bank operates within its risk appetite as well as defined limits.

An independent Risk Management Wing at the Head Office is functioning as a nodal centre for overall implementation of various risk management initiatives across the Bank. Integrated Mid-Office of both Domestic as well as Forex Treasury is functioning under the Risk Management for effective and independent supervision and monitoring of Market Risk in investment and forex functions. Risk Management Sections are functioning at all the 34Circle Offices of the Bank as an extended arm of the Risk Management Wing.

The Bank has put in place several Risk Management Policies. These include policies on Credit Risk Management, Market Risk Management, Operational Risk Management, Management of Conflicts of Interests, Disclosures, Group Risk Management, Collateral Management, Outsourcing, Corporate Governance, Investment, Compliance, Asset Liability, Credit Monitoring etc. Besides the above, the Bank has put in place Risk Management Policies for its overseas branches, taking into account the requirements of the regulators i.e. Chinese Banking Regulatory Commission (CBRC), Hong Kong Monetary Authority (HKMA), Financial Services Authority (FSA) and Central Bank of Bahrain (CBB).

All the Risk Management Policies framed by the Bank are approved by the RMC of the Board and Board of Directors at annual intervals. The policies are also reviewed by the Audit Committee of the Board (ACB) annually.

Migration to Basel II Norms: The Bank smoothly transited to Basel II Norms as on 31.03.2008. The Capital to Risk Weighted Assets Ratio (CRAR) is being calculated as per Pillar 1 requirement of Basel II norms, adhering to the New Capital Adequacy Framework guidelines stipulated by RBI.

The Bank has also put in place an Internal Capital Adequacy Assessment Process Document (ICAAP) in place under Pillar 2 of Basel II Norms. The ICAAP exercise covers the domestic, overseas operations of the Bank, the subsidiaries, sponsored entities and associates. Linkages to Stress Test Scenarios are also documented in ICAAP. The ICAAP document is reviewed and approved by the RMCB and the Board of Directors.

As part of ICAAP, the Bank has conducted stress testing under various hypothetical scenarios to assess effect on capital position. The methodology is approved by the Board of Directors and submitted to RBI annually as part of ICAAP. The stress test results are reported to the ALCO/ CRMC periodically for various risks associated with liquidity and credit risk.

A Capital Planning Committee is operational at Head Office and this Committee articulates the macro economic scenarios vis-a-vis the capital requirements of the Bank in tune with business strategies of the Bank. The Committee ensures maintenance of appropriate level of CRAR and evaluates various options for raising capital.

The Bank adheres to the Disclosure Norms in tune with RBIguidelinesunderPillar3ofBasel II Norms. A Disclosure Committee is functioning in the Bank, which ensures adherence to the Disclosure Norms.

The Bank has initiated necessary steps for moving over to Advanced Approaches for computation of capital in Credit, Market and Operational Risk.

Credit Risk Management

The Bank has a well defined Credit Risk Management Policy, which defines credit risk and outlines the type of products offered, customer categorization, target customers, credit approval / monitoring process, exposure limits and risk appetite, approved by the Board of Directors.

The Bank has a scheme of' Delegation of Powers' approved by the Board of Directors. The objective of Credit Risk Management Department of the Bank is to maintain a healthy and robust credit portfolio and Manage the credit risk inherent in individual exposures as well as at portfolio level.

Risk Rating is pre-sanction tool for credit assessment, which provides integrity, standardization and objectivity to the credit granting process.

The Bank has several risk management systems for managing Credit Risk. The various initiatives taken by the Bank areas under.

- A comprehensive Credit Risk Management Policy in tune with Statutory and Regulatory guidelines is put in place.

- Specific rating definitions, processes and criteria in place For assigning exposures to grades within a rating system.

- Four Credit Risk Rating Models are in place. These models have been developed internally for rating borrowal accounts based on the exposure limits. Rating of eligible accounts is made mandatory as a pre-sanction exercise.

- Migration Analysis of rated accounts is done periodically.

- The Bank is using the ratings assigned by recognized External Credit Assessment Institutions to optimize capital under Standardized Approach.

- Pricing is Linked to both internal and external Credit Risk Rating.

- Entry barriers / Hurdle Rate are fixed based on Credit Risk Rating.

- Well structured 'Delegation of Powers' to various authorities from Branch level to Management Committee is in place. Credit Sanctioning Powers are linked to Credit Risk Rating of Borrowers.

- To avoid Credit Concentration Risk, exposure ceilings for single/group borrowers, substantial exposures, Term loans, unsecured advances, exposure to various industries, NBFCs, Real Estate Sector, Capital Market Sector are in vogue.

- Credit Administration and Monitoring Wing is formed to have focused follow-up mechanism and to strengthen the loan review/monitoring mechanism.

- The Loan Review Mechanism articulated in the Credit Monitoring Policy of the Bank covers the entire gamut of review and monitoring to Bean effective tool for evaluating the loan book continuously and intends to bring out qualitative improvements in credit administration.

- Credit Audit System by external/ internal auditors of all Borrowers accounts of Rs l Crore and above is in place.

Market Risk Management

The Market Risk framework of the Bank aims at maximizing the return by providing inputs regarding the extent of market risk exposures, the performance of portfolios vis-a-vis the risk exposure and comparable benchmarks.

The Bank is computing Capital Charge for Market Risk on Available for Sale'(AFS)and'Held for Trading'(HFT) portfolio under investment by adopting Standardized Measurement Method.

Market Risk Management is governed by the Board Approved Policies for Investment and other Policies.

Integrated Mid-Office at Risk Management Wing is monitoring Market Risk Exposure. Exposure limits, such as, Stop Loss Limits on trading book, Intraday and overnight limit for various currency positions, Dealer-wise limits, Aggregate Gap Limit, Limits on Money Market Operations, Modified-duration limits for investment portfolio and VaR limits are fixed to act as risk mitigants/triggers. These limits along with other triggers are tracked daily and necessary actions are initiated. Reporting system has been strengthened for effective Market Risk Management.

Towards implementation of Internal Models Based Approach for calculation of Capital Charge for Market Risk, the Bank has put in place a VaR based model for estimating General Market Risk. The process of back testing of results generated by the model has been completed. Stressed VaR is being calculated as per RBI guidelines on a weekly basis. Stress testing exercise as per guide lines is under process.

Operational Risk Management

Operational Risk Management framework in the Bank is based on ethics, organization culture and strong operating procedures, involving corporate values, internal control culture, effective internal reporting and contingency planning.

The Bank has adopted polices for Management of Operational Risk, which covers various aspects, such as, Operational Risk Management Structure, Insurance, Business Continuity Plan, Out sourcing and Legal Risks.

At present, the Bank is moving towards migration to Advanced Measurement Approach (AMA) from Basic Indicator Approach of Basel II framework. In AMA approach, the Bank can use its own method to assess its exposure to operational risk, by identifying Key Risk Indicators (KRI), by conducting Risk Control and Self Assessment (RCSA).

In this direction, the Bank has initiated following process/ Activities for implementation of Advanced Approaches.

- Mapped different products and services offered and activities undertaken into eight business lines in Core Banking Software. The Bank is in the process of evolving suitable Management Information System for mapping of activities/ products to eight business lines in order to compute Capital Charge for Operational Risk under the Standardized Approach.

- Operational Loss events database is being strengthened, through collection of loss data / near miss data through incident reporting, which is made more comprehensive. Operational Risk Loss data are collected since2006.

- Web based incident reporting package is in place to facilitate real time reporting of Operational Risk Loss events occurring at Branches / Offices.

- Identified audit related Key Risk Indicators, which is one of the prerequisites for AMA.

- Vetting of New Products from operational risk angle, which is one Of the standards of Operational Risk Management Framework (ORMF).

- The Bank has joined the loss data consortium proposed by I BA, which provides the external incidents for scenario analysis and internalization at the time of adoption of advanced approaches.

- Reporting mechanism for Risk Mitigants, such as, Insurance and Outsourcing activities is in place.

- Collection of External Operational Loss events from sources, such as, print media, internet etc, which can be used for development of scenarios.

- Escalation of Operational Risk Loss events to Top Management as one of the requirements of Advanced Approaches.

- Various risk mitigation measures are suggested on issues involving Human Resources, Industrial Relations and Internal Control etc.

Asset Liability Management

An effective Asset Liability Management (ALM) system addresses issues related to liquidity and interest rate risks to maintain a good balance among spreads, profitability and long-term viability. The Board of Directors of the Bank have constituted an Asset Liability Management Committee (ALCO) to oversee ALM functions, including fixation of interest rates for various components of assets and liabilities, its composition, maturity and duration.

The ALCO meets regularly to discuss various issues pertaining to the liquidity position by considering the residual maturity profile of various assets and liabilities, takes stock of the dynamic interest rate scenario, discusses at length the changes evolving in economic and financial parameters, which have a direct bearing on the banking industry and focuses on the impact of all these factors on the business profile of the Bank.

The liquidity position of the Bank is tracked on a daily basis by means of residual maturity of assets and liabilities. Periodical studies are undertaken to analyze the behavioural patterns of various components of assets and liabilities to estimate the liquidity on a dynamic basis. The Bank's liquidity policy sets the tolerance limit for its structural liquidity positions. The liquidity positions of overseas branches are managed in line with home and host country regulatory guidelines. Such positions are reviewed by the Bank's ALCO along with domestic positions.

To evaluate the impact of changes in the market interest rate on Bank's financial position, an analysis of Earnings at Risk (Impact on profit assessed through Traditional Gap Analysis) and Market Value of Equity (Impact on net- worth assessed through Duration Gap Analysis) are done on an ongoing basis. Liquidity Stress tests are conducted at periodic interval by simulating various stress scenarios.

Liquidity Risk Framework under Basel III

In view of the need to improve the liquidity risk management in banks, the Basel Committee on Banking Supervision (BCBS) published "Principles for Sound Liquidity Risk Management and Supervision" in September 2008 in the form of 17 high level liquidity principles.

To complement these principles, the Committee in December 2010 came out with two new liquidity ratios viz., Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)for funding liquidity.

The Bank's liquidity risk framework is broadly in tune with BCBS's "Sound Principles". Further, the Bank has been computing the new Basel III liquidity ratios viz., LCR and NSFR on a quarterly basis since March 2011 as a part of BCBS Quantitative Impact Study (OIS). RBI has recently issued draft guidelines for implementation of Basel III norms by banks in India.

Group Risk

The Bank has various Subsidiaries, Joint Ventures, Sponsored Entities, which are engaged in diversified activities. As the Bank has considerable stake in these Group Entities, it has adopted a Group Risk Management Policy approved by the Board. The main objectives of the Policy areas under:

- To identify and manage risk in Intra Group Transactions and Exposures.

- To raise the standard of Corporate Governance by reducing/avoiding conflicts of interest between the Group Entities.

- To ensure Arms Length Principle' among the entities in regard to business parameters.

The Bank has devised suitable reporting mechanism calling for necessary feedback at quarterly intervals. Based on the feedback, the Risk Management Wing of the Bank makes an assessment of risks faced by the group entities including RRBs from Credit Risk, Operational Risk, Market Risk, Liquidity Risk, Compliance Risk, Reputational Risk, Liquidity Risk and Conflict of Interest perspectives and places a half-yearly consolidated note before the Risk Management Committee with its observations in the matter of compliance to the Group Risk Management Policy and any specific issues, which would contribute to Group Risk.

NATIONAL PRIORITIES

Priority Sector Advances

The Bank continues to accord importance to varied goals under national priorities, including agriculture, micro & small enterprises, education, housing, micro-credit, weaker sections, SC/STs and minorities.

Priority Sector Advances of the Bank as at March 2012 reached Rs67383 crore, covering over 43 lakh borrowers.

[Amt. in Rs Crore]

Priority Sector Advances As at Growth March

2011 2012 Amount %

Total Priority Sector 62108 67383 5275 8.49

Agriculture 26305 31946 5641 21.44

Direct Agriculture 22154 27848 5694 25.70

With a focus on credit delivery to agriculture, the Bank's advances under agriculture portfolio increased to reach Rs31946 crore, covering over 35 lakh farmers.

Advances under Direct Agriculture stood at Rs27848 crore. The Major accretion under Agriculture has been under Direct Agriculture. The Bank has crossed the mandated level of 13.50% of ANBC, by reaching 13.83%. Advances to Direct Agriculture has increased by Rs5694 crore, showing a growth rate of 25.7%. The Bank has taken up special campaigns for extending Crop Loans/General Credit Cards (GCC) facility to all farmers/non-farmers during Special Credit Campaigns for the period 01.09.2011 to 15.10.2011 and for the period from 01.01.2012 to 15.02.2012, as per the Government of India guidelines.

The Bank has disbursed Rs27327 crore under Agriculture, covering 33.93 lakh farmers during the financial year, registering an increase of 22%.

Since inception of the Scheme, the Bank has issued a total of 37.37 lakh Kisan Credit Cards (KCC) amounting to Rs21698 crore. During the year, it disbursed 3.67 lakh KCCs amounting to Rs4072 crore. As at March 2012,thecredit outstanding under KCCs was Rs6328crore.

Over the years, the Bank has supported lakhs of promising students to pursue higher education in India and abroad. The Bank has further increased its education loan portfolio which increased to Rs3948 crore. The Bank has financed more than 2.08 lakh students as at March 2012. The Bank is designated as the nodal bank for administering subsidy under the Central Sector Scheme for Interest Subsidy on educational loans.

During the year, the Bank also extended financial assistance to other priority sectors, such as, state sponsored organization for SC/ ST, housing and micro credit.

The Bank actively participated in various Government Sponsored Schemes, such as, Prime Minister Employment Guarantee Programme (PMEGP), Swarnajayanthi Gram Swarozgar Yojana (SGSY), Swarnajayanthi Shahri Rozgar Yojana (SJSRY) and DRI. As at March 2012, the outstanding advances under these schemes aggregated to Rs680 crore, involving 1.37 lakh beneficiaries.

Performance under various Government sponsored schemes

Name of the Scheme No. of Accounts Amt. in Rs Crore

PMRY 33654 196.28

PMEGP 4788 147.49

SGSY 41520 212.27

SJSRY 14348 65.00

SLRS 395 0.98

DRI 42215 57.71

Total 136920 679.73

In support of the underprivileged sections of the society, the Bank's advances to SC/ST beneficiaries reached Rs4293 crore as at March 2012, covering 4.64 lakh borrowers. The advances to SC/ST comprised 6.37% of total priority sector advances.

Advances to weaker sections aggregated to Rs22333 crore, with a y-o-y growth of 25.3%. Advances to weaker sections formed 11.09%of ANBC against the norm of 10%.

Various components of Weaker Sections Advances as at March 2012 is as under:

(Amt. in Rs crore) No. Sectors Outstanding

1 Small & Marginal Farmers, Landless Labourers, Tenant Farmers and Share Croppers 19089

2 Artisans, Village and Cottage Industries 582

3 SC/ST Beneficiaries 4293

4 DRI Loans 58

5 SGSY Beneficiaries 212

6 SJSRY Beneficiaries 65

7 SHGs/NGOs/MFIs 1231

8 Advances to SLRS 0.98

9 Loans to Distressed Poor to repay their debt to informal sector 0.07

As at March 2012, advances to specified minority communities aggregated to Rs13220 crore, registering a growth of 12.8% and accounting for 19.62% of the total priority sector advances against the stipulated level Of 15%.

MSME LENDING

Advances to Micro, Small and Medium Enterprises (MSMEs) reached Rs34893 crore as at March 2012. The Bank has covered 60661 accounts with an exposure of Rs2013.59 crore as at March 2012 under the Credit Guarantee Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Considering the importance attached to MSME sector, the Bank has opened additional 9 SME Sulabhs, i e., Centralized Loan Processing Units for faster clearance of loan proposals and opened 4 Specialized SME branches during 2011-12. As at March 2012, the Bank had 34 SME Sulabhs across the country. It is proposed to open additional 10 SME Sulabhs and 47 Specialized SME branches during 2012-13. With this, the Bank has embarked upon reaching out to large section of MSMEs at all major centres in the country. The Bank received an amount of Rs10.26 crore from the Ministry of Micro, Small and Medium Enterprises, Government of India, during the year as a Nodal Agency for Technology Upgradation of SSI units under Credit Linked Capital Subsidy Scheme (CLCSS) and fully utilized the amount during the year.

Under cluster based approach of lending to MSME sector, the Bank has focused on adoption of select industrial clusters across the country. With a view to supporting women entrepreneurs, the Bank has introduced a scheme of financing under Micro and Small Enterprise Category to women entrepreneurs with relaxation in margin, rate of interest, processing charges etc., in respect of loans upto Rs5 lakh. During the year, the Bank has introduced a scheme for financing Road Transport Operators for purchase of vehicles of M/s Ashok Leyland Ltd. The facility of on-line submission of Loan applications by Micro and Small Enterprises was also introduced during the year.

Financial Inclusion

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

The Bank has successfully covered all the allotted 1618 villages (spread across 23 States) with population above 2000 for providing banking facilities. Under the Financial Inclusion Plan drawn by the Bank, 206 villages were covered by providing Brick & Mortar Branch facility (of which 167 financial inclusion branchesopenedduring2011-12)and by engaging 1412 Customer Service Providers (CSPs) under Business Correspondents (BC) model, which includes 30 Ultra Small Branches opened in these Centres.

In a major thrust to financial inclusion, the Bank, on its Founder's Day on 19th November 2011 issued 1.06 lakh Smart Cards, 25000 General Credit Cards (GCCs), Credit linking of 5000 SHGs, opened 106 Farmers Clubs and 15 Financial Literacy and Credit Counseling Centres (FLCCs) on the occasion.

Business Canvassed in the NewFI Branches

The Bank opened 167 new branches at Financial Inclusion villages. This worked out to 48% of the 342 branches opened by the Bank during 2011-12 as against RBI stipulation of 25% of new branches required to be opened in tier V and VI centres. The branches opened in the financial inclusion villages also showed good results with more than 4 lakh accounts, Rs405 crore business translating into an average of 2395 accounts per branch and Rs 2.43 crore business per branch.

No Frill Accounts

The Bank opened about 17 lakh no-frill accounts during the year with an accretion of Rs300 crore in the no-frill accounts. The total number of no-frill accounts in the Bank at the end of 2011-12 reached 44 lakh with a balance of Rs820 crore. On an average, the Bank covered about 1000 accounts per village. The Bank's endeavor is to credit link at least 50% of all the eligible beneficiaries through KCC,GCC and DRI Schemes during2012-13.

Information and Communication Technology (ICT) Model Under ICT Model, the Bank canvassed 6.5 lakh no-frill accounts during the year through Customer Service Providers (CSPs) engaged by Bank's Business Correspondents. The Bank issued Smart Cards to 2.14 lakh customers.

Micro Insurance

The scheme was originally launched to cover women SHG members for insurance. The member of SHGs gets coverage ofRs25000 by paying an annual premiumofRs100.Thescheme has now been extended to all members of SHGs irrespective of gender. During the year, the Bank extended Micro Insurance Schemetomorethan20000customers.

Micro Pension

The Bank is also implementing Pilot Micro Pension Scheme in association with NABARD and M/S Invest India Micro Pension Services (IIMPS) in Madurai District of Tamil Nadu.

Electronic Benefit Transfer (EBT)

The payment of wages under Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Social Security Pension has been taken up in four districts of Karnataka under EBT. In two districts of Tamil Nadu, the Bank is participating in pilot projects for Old Age Pension payment and in Nadauta Village of Agra District, the Bank is participating in Pilot Project for MGNREGA payments.

AADHAAR Enrolments

Pilot Project for Aadhaar enrolments has been undertaken in 8 States,coveringl.95 lakh residents.

Micro Finance Branches

The Bank has opened 19 Micro Finance Branches in urban centres, which contributed a total business of Rs 150 crore.

Financial Literacy and Credit Counselling Centres (FLCCs)

The Bank has set up FLCCs in 24 districts. The Bank sponsored RRBs viz., Pragati Gramin Bank (PGB) and Shreyas Gramin Bank (5GB) set up one FLCC each in Shimoga and Etah respectively. With this, the Bank has set up FLCCs in all the 26 Lead Districts. The Bank registered a new trust by name "Canara Financial Advisory Trust" for managing the FLCCs.

Farmers'Club

During the financial year, 151 Farmers' Clubs were formed. Presently, the Bank has about 1360 farmers' clubs all over the country. These farmers' clubs disseminate information to the rural people about the banking products and advanced technology.

Canara Gramin VikasVahini

The Bank has provided Canara Gramin Vikas Vahini (Vehicles) in 35 districts across the country, with an objective of providing awareness about Bank's products and banking facilities among the rural households.

Bio-metric ATMs

During the year, the Bank has installed six Bio-metric ATMs, taking the total to 29. These Bio-Metric ATMs enable the rural illiterate customers to access their accounts, using biometric features like finger prints and with draw the amount or get balance confirmation, using colorcodes.

Credit Linkage

The Bank has not limited its activity in financial inclusion for opening of No-frill accounts alone. Besides No-frill accounts, the Bank has endeavored to provide host of other facilities like General Credit Cards (GCCs), Differential Rate of Interest (DRI) Scheme, Self Help Groups (SHGs), Micro Credit Groups (MCGs), Micro Insurance and Micro Pension under Canara Nayee Disha Scheme.

- GCC: Extending credit under financial inclusion, the Bank has so far issued 4.19 lakh GCCs, amounting to Rs727 crore.

- SHGs: The Bank has so far formed 3.71 lakh SHGs as at March 2012, with credit linking of 3.59 lakh SHGs.

- Under the intensive SHG improvement for women's SHGs, Canara Bank has been allotted Waynad in Kerala and Chitradurga in Karnataka and in both the districts anchor NGOs have been identified viz., M/s Waynad Social Service Society in Waynad and M/s SKDRDP in Chitradurga. Anchor NGOs have started formation of Groups and openingoftheiraccounts in Both the districts.

Canara Mega Rural Outreach Utsavs

Canara Mega Rural Outreach Utsavs have been held in 13 States. Besides providing basic bank accounts, the Bank has given thrust on disbursement of Consumption Credit through GCC, extension of Farm Credit through KCC, Skill updation and Livelihood Creation activities through Financial Literacy, Financial Awareness and Financial Support Programme. Holistic financial inclusion has been achieved by providing other facilities like Micro insurance and Aadhaar Enrolments.

Position of Financial Inclusion in the sponsored Regional Rural Banks

All the three sponsored RRBs implemented financial inclusion plan in all 968 allotted villages by opening 30 'Brick and Mortar' branches and engaging 938 Customer Service Providers (CSPs) under Business Correspondents (BC) model, which includes 3 Ultra Small Branches opened in these Centres.

Lead Bank Scheme

Canara Bank has lead bank responsibilities in 26 districts in the country, viz., eight in Karnataka, seven in Tamil Nadu, five in Kerala,five in Uttar Pradesh and one in Bihar. The Bank works as the Convenor of the State Level Bankers' Committee (SLBC) in the State of Kerala.

Entrepreneurship Development among Women

Centre for Entrepreneurship Development for Women (CEDW) at Head Office, Bangalore and Centres at 34 Circle Offices are working towards economic empowerment of women. These Centres conducted several training programmes during the year, including general Entrepreneurship Development Programmes (EDP), Entrepreneurship Awareness programmes, Seminars, Career Guidance programmes, Skills and provided marketing Support to women entrepreneurs by organizing Canutsav /Canbazar. CEDW cells have also assisted in formation of SHGs and credit linkages.

A Rural Self Employment Training Institute has been set up at Harohalli to provide EDP skill trainings to women in various vocations and enable them to take up self employment ventures. The Institute has so far trained 14836 women in EDP skill since inception.

CORPORATE SOCIAL RESPONSIBILITY

Following the century old tradition and founding principles, the Bank is engaged in varied Corporate Social Responsibility (CSR) activities. CSR initiatives of the Bank are multifarious, covering activities like training unemployed rural youth, providing primary health care, drinking water, community development, empowerment of women and other initiatives.

Rural Development

The Bank, through its Canara Bank Centenary Rural Development Trust (CBCRDT), has established 30 exclusive training institutes, including 23 Rural Self Employment Training Institutes, to promote entrepreneurship development among rural youth and encourage them taking up self-employment activities. During the year, a training institute in the field of Information Technology was opened at Berhampore, West Bengal. During 2011-12, these training institutes trained 24072 candidates, taking the tally to about 1.49 lakh unemployed youth since inception, with an impressive settlement rate of 73%.

The Bank has co-sponsored 26 Rural Development and Self Employment Training Institutes (RUDSETIs) across 16 States, engaged in training of rural youth for taking up self-employment programmes. During 2011-12, these institutes trained 26370 candidates. These RUDSETIs have, so far, trained over 2.86 lakh unemployed youth, with a settlement rate of 71%.

Besides the above 26 RUDSETIs, the Bank has co-sponsored Andhra Pradesh Bankers Institute of Rural Development with Government of Andhra Pradesh at Hyderabad and Deshpande-RUDSETI at Hailyal, Karnataka. The Bank has supported the setting up of Entrepreneurship Development Training Institute at Jammu and Kashmir.

Canara Bank's Rural Clinic Service Scheme provides incentives to doctors for providing basic health care services in remote areas lacking basic medical facilities. As at March 2012,thetotal number of such clinics rose to 565.

The Bank has donated a hi-tech, custom built, solar powered 'Mobile Sales Van' to assist women entrepreneurs, SHGs and artisans to market their products.

During the year, the Bank's Social Action Cell organized blood donation camps, health camps and assisted people affected by natural calamities and challenged section of the society. It has also encouraged students by conducting various programmes and activities.

Visits by Parliamentary Committees

During2011-12, Parliamentary Committee on Sub-ordinate Legislation (Rajya Sabha) and Parliamentary Committee on Government Assurance (Rajya Sabha) visited the Bank.

ORGANISATION AND SUPPORT SERVICES

Branch Network

Continuing its major branch expansion drive, the Bank added 342 domestic branches during the year. This includes 106 branches and 106 ATMs opened across the country on 19th November, 2011 to commemorate the Bank's Founder's Day and 106th year of service to the nation. The Founder's Day function was graced by the Hon'ble Union Finance Minister, Shri Pranab Mukherjee. The Bank opened an overseas branch at Manama, Bahrain and a Representative Office at Sharjah during the year. As at March 2012, the Bank had 3600 branches, including 5 overseas branches.

Composition of Branch Network

No. of Branches

Category 31.03.2011 31.03.2012

Metropolitan 758 777

Urban 762 792

Semi-urban 922 1019

Rural 811 1007

Overseas 4 5

Total Branches 3257 3600

The Bank has 145 specialized branches, catering to the specific clientele segment.

Categories of Specialized Branches 31.03.2012

I.SMEs 53

2.Overseas 16

3.Agri-Finance 10

4.Micro Finance Branches 19

5.Savings 6

6.NRIs 7

7.Asset Recovery Management 8

8.PrimeCorporate 10

9.Industrial Finance 4

10.Stock Exchange 3

II.Capital Market 3

12.Mahila Banking 2

13.Consumer Finance 1

14.Housing Finance 1

15.Branch for Physically Challenged 1

16.Specialized Govt Business Branch 1

TOTAL 145

InfoTech Progress

The Bank took several initiatives on the InfoTech front during the year. The Bank covered all its branches/offices under Core Banking Solution (CBS). The Bank now offers several technology banking services, such as, Internet Banking, Mobile Banking, Funds Transfer through NEFT and RTGS, SMS Alerts, IVRS based enquiry across all its branches. The Bank also offers online trading facility to its clients through its own subsidiary M/s Canara Bank Securities Ltd.

As at March 2012, the Bank had 2858 ATMs spread across 1139 centres. During the year, the Bank added 642 ATMs. Funds Transfer through IMPs (Inter Bank Mobile Payment Services) has been enabled through the ATMs. During the year, the ATMs have also been enabled to offer value added services like direct tax payments and institutional fee payment facility' ATM facilities have been extended to customers of the Banks 3 sponsored Regional Rural Banks (RRBs).

The Bank has made a few value additions under internet banking that include enabling ASBA facility to internet banking users, facility of viewing the details of tax deducted at source, e-filing of tax returns, funds transfer facility for corporate customers and internet and mobile banking gateway for Government business. Customer Terminal facility has been provided in 223 branches for enabling customers to use facilities like internet banking from a dedicated terminal provided at the branch. Several new investor friendly features have been enabled under online trading including ASBA.

SMS/ E-mail alerts have been enabled for various transactions like ATMs, Net banking, Point of Sale (PoS), Mobile banking, online payments made through debit cards on internet, irrespective of the amount. Online loan application for retail and MSME through internet and tracking facility for the customer has been implemented.

Further, the Bank has made a number of advancements in payment systems including auto reversal of NEFT service charges and extending NEFT facilities to 3 sponsored RRBs. Several Government business modules were implemented including internet based application for UGCMaul and Azad National Fellowship Scheme, Web Portal for National Scheme for Girl Child Secondary Education, Electronic Accounting Systems of e-Receipts-Customs (EASeR-C) for collection of customs duty and e-payment of Commercial Taxes module for Uttar Pradesh, Karnataka, Delhi and Tamil Nadu.

The Bank has introduced Financial Supply Chain Management (FSCM) facility to corporate customers - a technology product for Channel finance to extend working capital finance to the suppliers as well as dealers of corporate clients.

Passbook printing through self service Kiosk has been provided at 5 pilot locations. Other functional value additions include issue of non-personalized debit cards on opening of CASA account, facility of automatic sending of CASA pass sheets through e-mail and automatic renewal of term deposits. The Bank has initiated the process of Automated Data Flow (ADF) to the RBI and is scheduled to be completed during2012-13 as per the time line stipulated by the RBI. During the year, the Bank embarked on a very important project, namely, Enterprise-wide Data Warehouse (EDW). The project has already been initiated with requirement from all functional Wings for setting up an effective EDW architecture loaded with Business Intelligence/ Business Analytics modules for management decision support and business expansion.

As per the RBI Working Group (Chairman, Shri G Gopalakrishna) Report on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds, the Bank has conducted a Gap Analysis vis-a-vis the recommendations. Out of the 71 recommendations, 67 recommendations stand fully implemented in the Bank as at March 2012. The remaining 4 recommendations are under various stages of implementation and will be completed within the timeline permitted by the RBI i.e., 31.10.2012.

Manpower Profile

As at March 2012, the Bank had 42272 employees on its rolls.

March March

2011 2012

Total No. Of Employees 43397 42272

Officers 17649 17419

Clerks 16178 15802

Sub-Staff* 9570 9051

* includes part-time employees (PTEs)

The Bank's staff comprised 41.2% Officers, 37.4% Clerks and 21.4% Sub-Staff. Women employees comprising 10256, constituted 24.3% of the Bank's total staff. The Bank recruited 517 women employees and promoted 186 women employees under various cadres during the year.

During the year, the Bank recruited 1188 persons in various cadres, out of which 269 belonged to Scheduled Castes (SCs) and 54 to Scheduled Tribes (STs) categories. The total number of ex-servicemen staff as at the end of March 2012 stood at 1703. Out of which, 151 were recruited in various cadres during the year. There were 886 Physically Challenged Employees on the rolls of the Bank.

Reservation Policy in respect of SCs and STs

As at March 2012, the number of Scheduled Castes and Scheduled Tribes together constituted 26% of total staff strength of the Bank. The composition of SC/ST employees in the Bank as at March 2012 was as under:

Scheduled Scheduled

Cadre Castes Tribes

Officers 3162 1139

Clerks 2817 910

Sub-staff PTEs 2542 404

Total 8521 2453

The Bank has been strictly adhering to the Reservation Policy in respect of Scheduled Castes and Scheduled Tribes as per the Government of India guidelines.

(a) Reservation Policy is implemented through mechanism of Post Based Rosters. In terms of the directives of the Ministry of Finance, Government of India, the Bank has since switched over to Post Based Rosters for all cadres.

(b) The Bank has been extending Reservation/ Relaxations/ Concessions in Direct Recruitment as well as in promotions to candidates belonging to Scheduled Castes and Scheduled Tribes as per the Government guidelines.

(c) Pre-recruitment and pre-promotion training is given to candidates belonging to Scheduled Castes and Scheduled Tribes. In the advertisement inviting for the application from the eligible candidates for recruitment to Clerical and Officer cadres, a specific reference is made with regard to imparting of pre-recruitment training to candidates belonging to SC / ST / PWD / Minority Communities / Ex-SM. Those candidates, who opt for pre-recruitment training, are given training to prepare themselves for written test as well as interview.

Study materials, note book, stationeries are provided free of cost to all the participants. Wherever possible, respective State Governments are also providing the lodging facilities in Government / Backward Class Hostels.

(d) The Bank has set up SC/ST Cell at the Head Office and also at Circle Offices to ensure maintenance of Rosters and implementation of other aspects of Reservation Policy.

(e) Chief Liaison Officer has been nominated at Head Office and Liaison Officers have been nominated at Circle Offices for ensuring implementation of Reservation Policy.

Further, representations received from Scheduled Caste / Scheduled Tribe employees, either directly or through the SC/ST Associations, are being looked into by the Liaison Officer/Chief Liaison Officer. Wherever required, necessary enquiries are conducted and appropriate action is taken. A separate register is maintained for recording various representations received from Scheduled Caste/ Scheduled Tribe employees and the action taken is also recorded in the register.

In addition to the above, the representatives of majority Scheduled Caste/ Scheduled Tribe Employees' Association are invited for Quarterly Meeting with the Chief Executive of the Bank to discuss on the implementation of guidelines on reservation policy. Quarterly Meetings are also held at Circle Offices, where Rosters are maintained and grievances, if any, are redressed by the Liaison Officer.

(f) The Board of Directors of the Bank also review the progress made in the implementation of Reservation Policy, half yearly and yearly basis.

Training / Human Resource Development (HRD)

The HR policies of the Bank have been revisited to suit the changing banking scenario. HR interventions like SPANDAN for bringing attitudinal change among front line staff, PRATIBHA for grooming in-house talents in varied specialized areas and Executive grooming through reputed institutes and other significant HR tools like Quality Circles, Study Circles, Staff Meetings and Brain Storming Sessions have been implemented for effective team building and fostering collective excellence.

The Bank's quest to enhance the competencies of the workforce continued through focused and need based trainings at various institutes of repute like IIMs, I SB, XLRI and NIBM. Customized programmes are also being organized to develop expertise in certain niche areas like Risk Management, Treasury Operations and IT. Specialized trainings to the Senior Management Level / Top Management Level Executives are conducted based on the requirement. The Bank has been able to add substantially to the skill level of its officials through this training intervention and motivating them to perform with renewed vigor and enthusiasm. The Bank has trained 29120 employees during the year, covering a wide range of functional areas. Out of the trained staff, 7114 personnel belonged to the Scheduled Caste category and 1962 under the Scheduled Tribe category. Several new training programmes were conducted during the year for various levels of Officers and SC/ST employees. These include training on customer service, risk management, product awareness, frauds and preventive vigilance, financial inclusion, KYC/ AML, credit appraisal and monitoring and transaction banking.

Establishing a proper Talent Management and Reward System will be the Bank's focus in the coming years. There will be concerted efforts to identify potential leaders and groom them to take up higher responsibilities.

The Bank has formed a Sub-Committee of the Board of Directors on HR to review and improvise the existing HR policies and make suggestions to accelerate the employee engagement initiatives.

Changes in the Organizational Setup

The organizational design and structure are continuously revisited and Studied for functional excellence.

Taking cognizance of the need for greater emphasis in managing technology risk and to develop fraud prevention methodologies in the organization, Technology Risk and Fraud Prevention Wing was formed during the year. Post re-organization, there are 21 Wings at Head Office.

Customer Orientation

The Bank has taken several initiatives to remain customer focused through providing fast service, bringing in diversified products/services, responding to customers' queries and redressal of customers' complaints. The 'Code of Commitment to Customers' issued by BCSBI is made available in the Bank's website. In order to assess the quality of customer service rendered by the branches and to get feedback, a 'Contact Questionnaire' is made available in the Bank's website. During the year, a Customer Fortnight was conducted from 15.11.2011 to 29.11.2011 in order to invite suggestions from customers. Toll Free contact at Customer Service Section, Head Office is provided to facilitate the customers to represent their grievances. Toll Free contact facility at ATM Switch Room and Card Division is also provided to the users to represent the matters pertaining to ATM operations and Card Business. Notably, the Bank has implemented online grievance redressal through the Bank's website. As a part of Customer Relationship Management initiatives, a Call Centre is functioning. The Call Centre caters to the customers in Hindi, English and 6 regional languages viz., Kannada, Tamil, Telugu, Malayalam, Bengali and Marathi. The number of calls received by the Call Centre during the year was more than 8.52 lakh. In financial year 2011-12, percentage of customer complaint redressal was 95.10%. All complaints were redressed within stipulated period. As far as cases referred to the Banking Ombudsman is concerned, the percentage redressal of complaints was 91.83%. The Bank has implemented 88 out of the 107 recommendations of Damodaran Committee accepted by the Indian Banks' Association.

Systems and Procedures

Risk Based Internal Audit (RBIA) was conducted in 2368 branches/ units programmed for on-site RBIA during the year. Information Security Audit was conducted along with RBIA. Concurrent/ Continuous Audit is being conducted in 539 identified branches/ units (covering 61.5% of deposits and 77.4% of advances) of the Bank as per RBI guidelines as on 31.12.2011. Income/revenue audit was conducted on quarterly basis in 379 identified branches as per Jilani Committee Recommendations.

Apart from the above, 414 branches were subjected to Special Income Audit. The Bank introduced new fraud prevention measures viz., offsite monitoring system to track exceptional transactions and offsite RBIA of the branches on an experimental basis.

Know Your Customers (KYC)

The Bank took several measures for the effective implementation of Know Your Customer (KYC) and Anti Money Laundering (AML) guidelines and for ensuring KYC compliance by all branches.

To ensure better compliance of guidelines on KYC / AML, following steps have been initiated.

- The Bank has ensured 100% submission of Cash Transaction Reports (CTRs) and Non Profit Organizations Transaction Report (NTR) to Financial Intelligence Unit (FIU).

- Suspicious Transaction Reports (STRs) and Counter fiet Currency Reports (CCRs) are submitted to FIU, as and when received from branches.

- Snap Audit is conducted on monthly basis in 2-3 branches in each Circle at random to verify adherence to KYC norms.

- Snap Audit for verification of KYC Compliance conducted in all the financial inclusion branches opened during2011-12.

- Software for system based centralized risk categorization of customers is currently under development as per the AML guidelines.

Vigilance Setup

The Vigilance Wing of the Bank is headed by the Chief Vigilance Officer (CVO) in the rank of General Manager. The CVO is assisted by 34 Vigilance Officers stationed at all Circles, RRBs and Bank's Subsidiaries. The objectives of the Vigilance Wing are to ensure that discipline and development go hand in


Mar 31, 2011

The Board of Directors have pleasure in presenting the 42nd Annual Report together with the Balance Sheet as on 31st March, 2011 and Profit and Loss Account for the financialyearended March 31,2011.

FINANCIAL PERFORMANCE

For Canara Bank, 2010-11 was a year of robust performance on the business, profits and profitability fronts.

Net profit reached an all time high ofRs.4026 crore, signifying a strong 33.2% growth y-o-y and substantially higher than Rs.3021 crore recorded duringthe preceding year. Operating profit recorded a 20.7% growth to reach a level of Rs.6107 crore. Return on average assets (RoAA) for the year improved to 1.42%. Profit per employee, moved up to Rs.9.76 lakh compared to Rs.7.35 lakh in the previous financialyear.

Dividend of 110% for 2010-11

Enhancing Shareholder Value:

The Bank showed steady improvement in Earnings PerShare (EPS) and Book Value. While Book Value increased to Rs.405 as at March 2011 as compared to Rs.305.83 for the previous financial, EPS rose to Rs.97.83 as at March 2011 compared to Rs.73.69 a year ago. Ensuring increased value for the shareholders year after year, the Banks Board of Directors recommended a dividend of 110% for 2010-11 compared to 100% last year.

March March

Key Financial Ratios (%) 2010 2011

Cost of Funds 5.65 5.37

Yield on Funds 8.10 8.13

Cost of Deposits 6.12 5.80

Yield on Advances 9.81 9.73

Yield on Investments 7.52 7.72

Spread as a % to AWF 2.45 2.76

Net Interest Margin (NIM) 2.80 3.12

Operating Expenses to AWF 1.50 1.56

Return on Avg. Assets (RoAA) 1.30 1.42

Return on Avg. Networth 26.76 28.26

Business per Employee (Rs. in Crore) 9.83 12.28

Profit per Employee (Rs.in Lakh) 7.35 9.76

Book Value(Rs.) 305.83 405

Earnings perShare(Rs.) 73.69 97.83

AWF - Average Working Funds

Income and Expenditure Analysis

The Banks interest income recorded a y-o-y growth of 23% to reach Rs.23064 crore compared to Rs.18752 crore recorded during the previous financial year. Non-interest income increasedtoRs.2703 crore.

Despite increase in interest rates, the Bank could reduce the cost of deposits by 32 bps to 5.80% compared to 6.12% a year ago, while yield on advances maintained at 9.73%. Interest spread increased to 2.76%from 2.45% as at March 2010.

While interest expenditure increased to Rs.15241 crore with a y-o-y growth of 16.6%, the Banks operating expenses increased by 27.1% to reach Rs.4419 crore. Notably, the net interest income of the Bank registered a good 37.7% growth to reach Rs.7823 crore and Net Interest Margin (NIM) improved by 32 bps to 3.12% compared to 2.80% as at March 2010.

Capital and Reserves

Networth of the Bank, as at March 2011 increased to Rs.17941 crore compared to Rs.12539 crore as at March 2010. While total paid-up capital of the Bank increased to Rs.443 crore from Rs.410 crore last year, reserves and surplus increased to Rs.19597 crore. To augment the capita resources, the Bank raised upperTier II bonds to the extent of Rs.1000 crore and Rs.749.3 crore under Innovative Perpetual Debt Instrument. For the first time, the Bank raised equity capital through Qualified Institutiona Placement (01P) route for Rs.1993.2 crore. Post 01P, Government Shareholding in the Bank came down from 73.17% at March 2010to67.72%asat March 2011.

(Amt. in fCrore)

March 2010 March 2011 Composition of Capital Basel II Basel II

Risk Weighted Assets 150623 176136

Tierl Capital 12870 19139

CRAR(%)(TierI) 8.54 10.87

Tierll Capital 7362 7956

CRAR (%)(Tier II) 4.89 4.51

Total Capital 20232 27095

CRAR(%) 13.43 15.38

As at March 2011, Capital to Risk Weighted Assets Ratio (CRAR) of the Bank under Basel II significantly improved to 15.38%, with a Tier I capital ratio of 10.87%. The Bank has still adequate headroom available under both Tier-I and Tier-ll options to raise capital to support business growth momentum.

Deposits

Total Deposits of the Bank registered a growth of 25.3% to reach Rs.293973 crore as at March 2011 compared to Rs.234651 crore a year ago. The Banks CA5A deposits grew by 21.8% to reach Rs.83117 crore as at March 2011. Savings deposits rose by 17.5% y.o.y to Rs.58617 crore. The Bank opened over 24 lakhs SB clientele during FY11. During FY11, the Bank had launched a nationwide Savings Mahotsav campaign to mobilize SB deposits, resulting in fresh addition of over 16 lakhs SBclientele.

With a CA5A per branch at Rs.25.52 crore, the Bank continues to be one of the best among the peers. Pursuing a strategy of broad basing deposit clientele, all the branches together opened over 64 lakhs deposit accounts, taking the total tally under deposit accounts to 3.42 crore.

Advances (Net)

During FY11, the Banks net advances witnessed a robust 25.5% growth to reach Rs.2,12,467 crore compared to Rs.1,69,335 crore a year ago. In quantum terms, credit increased by over Rs.43,000 crore during the year. The Banks diversified credit portfolio include all productive segments of the economy like agriculture and Micro, Small and Medium Enterprises (M5ME), exposure to corporate and infrastructure segments. As at March 2011, the number of borrowal accounts stood at 45 lakhs.

25% Growth in Total Business for last 3 Years

The Bank has recorded a Compounded Annual Growth Rate (CAGR) of 25% for the last 3 financial years. During 2010-11,the total business of the Bank grew by a robust 25.4% to reach Rs.5,06,440 crore as against Rs.4,03,986 crore during the previous financial. Productivity, as measured by business per employee, increased to Rs.12.28 crore from Rs.9.83 crore a year ago, continuing to be one of the best amongthe peers.

During the year, the Banks clientele base increased to 3.87 crore.

Retail Lending Operations

Retail lending operations of the Bank registered a strong 32% to reach Rs.31572 crore as at March 2011, accounting for 15.52% of the domestic credit. The disbursals under the retail lending stood at Rs.13826 crore. The outstanding housing loan portfolio increased to Rs.15219 crore, constituting 48% of the total retai lending portfolio.

(Amt. in Rs.Crore)

Retail Lending March 2010 March 2011 Growth (%)

Retail Lending 23902 31572 32.1

Housing Loans 10116 15219 50.4

Retail Trade 5383 6313 17.3

Other Personal (Incl. Education Loan) 8403 10040 19.5

The Bank took several measures du ring theyear to expand retail credit. To facilitate speedy disposal of proposals and cred it flow, a total of 25 Centralized Processing Units (CPU) and 16 Retail Assets Hubs (RAH) for housing and other retai loans a re functioning at major centres across the country

TREASURY AND INTERNATIONAL OPERATIONS

Aggregate investments of the Ba n k, as at Ma rch 2011, were of the order of Rs.83700 crore. Portfolio modified duration (years) came down to 4.75 as at March 2011 from 4.95 a year ago. The modified duration of the Available for Sale (AF5) portfolio has increased from 1.93 as at March 2010 to 2.23 as at March 2011 due to redemption of short dated securities and fresh investments made in medium and long dated securities. The trading profit for the year was Rs.293 crore. The yield on investments improved to 7.72% as at Ma rch 2011 as compared to 7.52% a year ago.

The Bank continues to be an active player in government securities as a primary dealer. The total amount of underwriting commitments fortheyear was Rs.33216 crore. During theyear, the Bank achieved over 55% success ratio as against mandatory 40% of itsobligationasa Primary Dealer.

Foreign Business Turnover of the Bank, as at 31st March 2011, aggregated to Rs.1,24,094 crore, comprising Rs.45,658 crore under exports, Rs.39,616 crore under imports and Rs.38,820 crore under remittances. Outstanding export credit oftheBankwasRs.10489crore,withay-o-ygrowth of 17%.

The Banks overseas presence covered four branches one each at London, Hong Kong, Leicester (UK) and Shanghai as at March 2011. Leicester branch was opened on 12th April 2010 and the Representative Office at Sharjah was opened on 20th June 2010. Besides, a joint venture bank, namely, Commercial Bank of India LLC in Moscow is also operational in association with State Bank of India.

All overseas branches recorded improved business performance during the year. Total business of these 4 overseas branches aggregated to US $ 4376 million for thefinancia I yea rending Ma rch 2011.

To fund overseas assets expansion, the Bank raised foreign currencyfundsof USD 350 millionthrough London branch by issuing senior unsecured bonds listed in Singapore Stock Exchange under MediumTerm Notes Programme.

The Bank has approval from RBI for expansion in 8 other international centres viz., Manama (Bahrain), Qatarjohannesburg (South Africa), Frankfurt (Germany), New York (USA), Sao Paulo (Brazil), Dar-es-Salaam (Tanzania) and Tokyo (Japan). The Bank has conducted survey in Sri Lanka, Kenya and Nigeria to explore opening of branches in these countries.

The Banks international operations are well supported by a wide network of 382 Correspondent Banks, spread across 80 countries. The Bank has rupee drawing arrangements with 22 exchange houses and 17 banks in the Middle East for channelising the remittances of expatriates. The Bank has been managing two exchange houses viz., Al Razouki International Exchange Company, Dubai and Eastern Exchange Est., Qatar, under secondment and management agreement respectively. The Bank, during the year, expanded its arrangement underRemit Money, a web based product by extending to 18 Exchange Companies/Banks and 4 branches abroad viz., London, Leicester, Shanghai and Hong Kong. During the year, the Bank obtained approval from RBI for remittance arrangements with 5 more Exchange Houses in UAE. It also introduced lock Box Service for quick collection of cheques drawn by NRIs on Banks in the USA. One more Remittance Product Remit Worlwidefor NRIs in the USA is on the cards and will be introduced shortly.

OTHER SERVICES

During 2010-11, Merchant Banking Division of the Bank handled Private Placement of Capital Gain Bond Issues in respect of National Highways Authority of India (NHAI) and Rural Electrification Corporation Ltd., (REC) as Arrangers. Amount mobilized by Merchant Banking Division in respect of Capital Gain Bonds Issue of NHAI and RECwasRs.120crore.TheBanksTierl Bonds Issue (IPDI) a mounting to Rs.500 croreand Upper Tier II series III bonds issue amounting to Rs.1000 crore was also dealt by the Division in preparing/compiling the Disclosure Documents in terms of SEBI guidelines. During the period, it handled 5 specialized assignments ofFairValuation of Equityand 8 Bankers to an Issueassignments as Escrow Bankers/ Collecting Bankers with total float funds, amounting to Rs.3034 crore. The Division facilitated implementation of Application Supported by Blocked Amount (ASBA), a supplementary process of applying for Public/Rights issues with effect from 1st September 2010 as per SEBI guidelines. Ason date, 152 branchesacrossthe country have been designated for ASBA facility.

The Syndication Group handled projects involving cost of Rs.9604 crore during the year, with a total debt size of Rs.5240 crore. The Group has generated substantial fee based income from syndication operations and arranged funds for projects in diverse segments like Steel, Power, Hotel, Road, BusTerminal and Sugar.

The Bank has tie-up arrangements in both life and non-life insurance segments under its bancassurance arm. The Bank earned a commission income of Rs.51 crore from Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. The Bank has tie up with M/s Canara Robeco Mutual Fund for cross selling of mutual fund products businessand earned net brokerageofRs.3.4crore.

The Banks tie-up arrangement with M/s United India nsurance Company Ltd (UIICL) for general insurance business has resulted in a commission income of around Rs.11 crore duringtheyear. The Bank has Corporate Agency Agreement with M/s Export Credit Guarantee Corporation of Indiaformarketingexport policiesthrough its branchesacross India.

Corporate Cash Management Services (CCMS) network of the Bank, covering 94 Operating Centres and 595 Pooling Branches, provides services related to local and upcountry cheque collection, bulk cheques collection and zero balance account facility. The aggregate turnover under CCMS a mounted to Rs.979 crore duringtheyear.

Under Card Business, the Bank took several initiatives to expand credit and debit-cum-ATM card base. The total debit card base of the Bank increased to 59.69 lakhs as at March 2011. Profit under card business during the year wasatRs.21.4crore.

The Bank offers its depository services from 54 DP Service Centres spread across 36 centres in the country. The Bank is extending Online Trading Facility to DP clients through its own broking subsidiary M/s. Canara Bank Securities Limited,Mumbai.

Executor, Trustee and Taxation Services outfit of the Bank provides services like Debenture/Security Trusteeship, Will and Executorship, Trusteeship, Personal Tax Assistance and Power of Attorney Services. It secured 7 new debenture/security trusteeship issues, amounting to Rs.3286 crore and generated fee-based income of XI.3 crore duringtheyear.

Under Government Business, comprising Direct and ndirect Tax collections, payment of pensions to various departments, handling Ministry Accounts, Posta Transactions and Treasury, collection of Senior Citizens Deposit, Public Provident Fund Scheme and issue of relief/ savings bonds of RBI and Government of India, the Bank earned income to the extent of Rs.55 crore duringtheyear.

The Bank has been authorized as the accredited banker for Ministry of Human Resources Development (MHRD), handling Department of School Education and Literacy, Department of Higher education, Department of Arts - Archeological Survey of India, Ministry of Culture and Ministry of Youth Affairs and Sports. The Bank has developed a Web-Porta I for Ministry of HRD fore-tracking of funds under the Sarva Shiksha Abhiyan (SSA) Scheme. The Bank has implemented the web porta I in a II the States except Jammu and Kashmir, Uttar Pradesh and Chattisgarh, wherein the facilities will be implemented shortly.The Bank has implemented the e-payment of sales tax/ commercial tax in the states of Maharashtra, Tami Nadu and Karnataka.

The Bank is authorized as the accredited Bankers for Unique Identification Authority of India (UIDAI), New Delhi. The UIDAI was established in February 2010, as an agency of Government of India responsible for implementingthe Multipurpose National Identity Card or Unique Identification Card (UID Card) project in India.The project is implemented in 8 centres at present and the Banks branches at these centres have been designated as the deal branches for hand ling the UIDAI accounts.

The Bank introduced e-stamping project in 5 branches in Bangalore and at other 26 branches situated in the District Head Quarters in the State of Karnataka, the project is under implementation.

Agricultural Consultancy Services (ACS) outfit of the Bank handled 138 assignments during the year under review with the total outlay of the assignments at over Rs.1363 crore. Apart from the regular assignments, the outfit handled special projects. These projects include cultivation and export of culinary herbs, cultivation of medicinal plants and manufacturing herbal products, rice mill project, organic farming of fruits and vegetables, tissue culture of banana, dairy farming and development through embryo transfer technology, silvi culture - sandalwood cultivation, food processing, cheese manufacturingand prawn processing and exports.

Special studies and trainings were also conducted during theyear,which includes, studyon identification of clusters in agriculture and allied activities for finance, report on scope of Tamil Nadu mega food park at Dharmapuri and Agriculture Extension Officers training on project appraisal of hi-tech agriculture.

All Time High Cash Recovery at Rs 2032 crore

Asset Quality

In tune with the industry and economic conditions, the gross NPA level of the Bank rose to Rs.3089 crore duringthe year. Notwithstanding the above, the Bank could contain its gross NPA ratio at 1.45% compared to 1.52% in the previousyear. The Banks gross NPA ratio continues to be one of the lowest among the peers. With a net NPA level of Rs.2347 crore, net NPA ratio stood at 1.11% as at March 2011. The Provision Coverage Ratio stood at 72.99% as at March 2011 which is well above the RBI stipulated 70%.

Cash recovery during the year aggregated to an all time high ofRs.2032 crore, well exceeding the preceding years cash recoveryofRs.1575 crore.

The performance under settlements and recovery was quite noteworthy. During the year, recovery amounting to Rs.830 crore was made under 5ARFAE5I Act. The Bank conducted 9969 recovery meets during the year which resulted in a recovery of Rs.3 51 crore. Besides,the Banktook several initiatives to contain slippages and speed up recovery from overdue loan accounts. These include identification of stressed accounts for restructuring/ rephasing in time, frequent conduct of Canadalats at branch level and mega adalats at Circle level for onetime settlements, regular follow-up of overdues in loan accountsthroughcallcentreande-auctions.

Risk Management

Basel II norms: Status and Future Strategies

Risk Management Initiatives

The Bank has put in place a unified risk management architecture to attain global best practices for effective implementation of risk management initiatives in consistence with the Basel II framework and RB guidelines. The Board of Directors drives the Risk Management initiatives in the Bank. The Risk Management Committee of the Board is constituted and operational. Top Executive Committees for Credit Risk, Operational Risk and Market Risk Management oversee and monitor the respective risk management processes and procedures. Asset Liability Committee (ALCO) meets periodica I lyfor effective and pro-activeALMintheBank.

Risk Management Wing at the Head Office is functioning asa nodal centre for overall implementation ofvarious risk management initiatives across the Bank. Integrated Mid Office of both domestic and forex treasury a re functioning under the Risk Management Wing for effective and independent supervision and monitoring of Market Risk in investment and forex functions. Risk Management Sections a re in place in a II the 34 Zona I/Circle Offices of the Bankasan extended arm ofthe Risk Management Wingat the Corporate Office.

The Bank has in place various risk management policies, which include policy for management of Credit Risk, Market Risk, Operational Risk, Asset Liability, Liquidity Risk, Country Risk, Counterparty Bank Risk, Corporate Governance, Disclosures, Collateral Management, Stress Testing, Compliance Functions, Disaster Recovery and Business Continuity Planning, Business Lines, Outsourcing, Group Risk, Legal Risk etc. The Bank also framed risk management policies for its overseas branches, taking into account the requirements of the respective regulators.These policies are reviewed and fine tuned annually.

Migration to BaseI 11 Norms

The Banktransitedto Basel II Normsason 31.03.2008.The Capital to Risk Weighted Assets Ratio (CRAR) is computed as per Pillar 1 requirement of Basel II Norms, adhering to the New Capital Adequacy Framework (NCAF) guidelines stipulated bytheRBI.

The Bank hasframed its Policy on ICAAP (Internal Capital Adequacy Assessment Process) in consistent with the RBI guidelines under Pillar 2 of Basel II Norms. A Capital Planning Committee is in place at the Corporate Office which meets periodicallytoassesscapital requirement of the Bank, ensure maintenance of appropriate level of CRAR and evaluate various options for raising Capita I.

The Bank adheres to the Disclosure norms as per the RBI guidelines under Pillar 3 of Basel II Norms. A Board approved Disclosure Policy is in place. A Disclosure Committee, comprising of Top Executives has been constituted to ensure adherencetothe policy guidelines. The Bank also initiated steps in preparation to migrate to the advanced credit risk and operational risk approaches undertheBasel llframework.

Credit Risk Management

The Bank has adopted Standardized Approach1 to estimate Credit Risk Weighted Assets (RWA) for computing CRAR from the year 2007-08 onwards as required underthe NCAF.

The Bank has various risk management systems for managing credit risk. The various initiatives taken by the Bankareasunder:

A comprehensive Credit Risk Management Policy in tunewiththe regulatoryguidelinesand best practices in the industry

The Bank has in place specific rating definitions, processes and criteria for assigning exposures to grades within a rating system, which results in a meaningful differentiation of risk.

Four credit risk rating models are in place, developed internally, for rating borrowal accounts based on the exposure limits. Rating of eligible account has been made mandatory as a pre-sanction exercise. Migration analysis of rated accounts is done periodically.

The Bank is using/ mapping the ratings assigned by recognized external credit rating agencies to the exposures of the concerned borrowers to optimize capital undera standardized approach.

Pricing based on credit risk rating has been introduced.

Entry barriers a re fixed based on risk rating.

Credit sanctioning powers are delegated to various authorities based on internal risk rating of the borrowers.

To avert concentration of risk, fixation of various exposure ceiling/ prudential norms, such as, single and group borrowers, substantial exposures, term loans, unsecured advances, exposures to various industries, NBFCs, real estate sector and capita market a re in vogue.

For strengthening loan review and monitoring mechanism, Credit Monitoring and Credit Administration Wings wereformed.

An exclusive credit monitoring policy has been put in place. The loan review mechanism articulated in the credit monitoring policy covers the entire gamut of review and monitoring to be an effective tool for evaluatingthe loan book continuously and intendsto bring out qualitative improvements in credit administration including credit audit.

Credit Audit system by external / internal auditors of all borrowal accounts of Rs. 1 croreand above has been put in place.

Operational Risk Management

The Bank computed capital charge for operational risk by adoptingBasic Indicator Approach1 asstipulatedbythe RBI.

A proper organizational structure is in place to oversee and guide the operational risk initiatives of the Bank. To move towards advanced approaches for operational risk, thefollowing initiatives have beentaken-

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

Training imparted to staff to create awareness on operational risk management system.

The Bank has compiled a comprehensive Best Practices Codes (Manual of Instructions) and Desk Cards on all the activities carried out at branches for theirguidance.

Market Risk Management

The Bank has been computing capital charge for market risk on Available For Sale (AF5) and Held For Trading portfolio under investments, by adopting Standardized Measurement Method.

Integrated Mid Office at RiskManagement Wing monitors market risk exposure. Exposure limits, such as, Stop Loss limits on trading books, Dealer-wise limits, limits on Money Market Operations, M-duration limits for AFS category, VaR limits, Aggregate Gap limit, Intra day and overnight limit for various currency positions are fixed to act as risk mitigants and are monitored. Reporting system has been strengthened for effective market risk management.

Towards implementation of Internal Models Based Approach for calculation of capital charge for market risk, the Bank has put in place a VaR based model for estimating General Market Risk. The process of back testing of the results given by the model has been completed. Stress testing exercise as per the guidelines isenvisaged.

Asset Liability Management

An effective Asset Liability Management (ALM) system, addressing issues related to liquidity and interest rate risks is in place. The Board of Directors of the Bank has constituted an Asset Liability Committee (ALCO) to oversee ALM functions, includingfixation of interest rates for various components of assets and liabilities, its composition, maturity and duration. A comprehensive software solution has been installed for quantifying risks and to analyze Maturity Gap, Duration and Sensitivity of Assetsand Liabilitiesto interest rate variations.

The liquidity position of the Bank is tracked on a daily basis by means of residual maturity of assets and liabilities. Periodical studies are undertaken to analyze the behaviora patterns of various components of assets and liabilities to estimate the liquidity on a dynamic basis. The Banks iquidity policy sets the tolerance limit for its structure iquidity positions. The liquidity positions of overseas branches are managed in line with home and host country regulatory guidelines. Such positions are reviewed by the Banks ALCO along with domestic positions.

Toevaluatethe impact of changes in interest rate on Banks earnings, an analysis of Earnings at Risk (EAR) and its impact on Net Interest Income (Nil) are done on an ongoing basis. The change in the composition and residual maturity of assets and liabilities is evaluated by the Traditional Gap Method as also by the Duration Gap Method. Stress testing exercises by simulating scenarios of liquidity and interest rates are undertaken to estimate the stress cost as also the Economic Value of Equity (EVE).

The ALCO meets regularly to discuss various issues pertaining to the liquidity position by considering the residual maturity profile of various assets and liabilities, ta kes stock of the dynamic interest rate scenario, discusses at length the changes evolving in economic and financia parameters, which have a director indirect bearing on the banking industry and focuses on the impact of all these factors on the business profile of the Bank.

Risk Management Committee of the Board:

The Board level Risk Management Committee is already in place in the Bank, which meets regularly to provide guidance and direction in implementing the risk management initiatives of the Bank.

In conformity with the RBI guidelines, the Bank has implemented the New Base Rate system of interest application on loans and advances with effect from lstJuly2010.

NATIONAL PRIORITIES

Priority Sector Advances

As one of the leaders in the domestic banking arena, the Bank continues to accord importance to varied goals under national priorities, including agriculture, smal enterprises, education, micro-credit, weaker sections, SC/STsand minorities.

During the last 3 years, the Bank has achieved stipulated mandatory targets under Total Priority, Total Agriculture, Agriculture (Direct) and Weaker Sections.

Priority Sector Advances of the Bank as at March 2011 increased byRs.11447 croreto reach Rs.70757 crore, recording ay-o-y growth of 19.3%, covering over 40 lakhs borrowers. Priority sector advances formed 44.08% of the Banks Adjusted Net Bank Credit (ANBC), well above the 40% stipulated norm.

[Amt. in Rs. Crore]

Priority Sector Advances As at Growth March

2010 2011 Amount %

Total Priority Sector 59310 70757 11447 19.3

Agriculture 25052 29656 4604 18.4

Micro & Small 24180 29558 5378 22.2 Enterprises

With a focus on credit delivery to agriculture, the Banks advances under agriculture rose by Rs.4604 crore to reach Rs.29656 crore, covering over 31 lakh farmers. Agriculture credit as a proportion of ANBC crossed the mandatory targeted level of 18% to reach 18.48%. Advances to agriculture (direct) reached a level ofRs.22669 crore, with an 18.9% growth and accounting for 14.12% of ANBC as againstthe mandatory 13.5% norm.

Under Kisan Credit Card Scheme, the Bank issued 3.68 lakh cards duringtheyear, with credit coverage of Rs.3082 crore. As at March 2011, the cumulative number of Kisan Credit Cards reached over 33 lakhs, involving credit coverage of Rs.17589 crore.

Over the years, the Bank has supported lakhs of promising students to pursue higher education in India and abroad.

The Bank has further increased its education loan portfolio and sustained its premier position among nationalized banks in ndia for FY11. The Banks advances under Education Loan Scheme recorded a growth of 21%to reach Rs.3503 crore.

The Bank hasfinanced morethan 1.92 lakhs students as at March 2011. The Bank is designated as the nodal bankfor administering subsidy under the Central Sector Scheme for Interest Subsidy on educational loans. The Bank also extended financia assistance to other priority sectors, such as, retail traders, housingand microcredit.

During the year, the Bank actively participated in various Government Sponsored Schemes, such as, PMRY, SGSY, SJSRY, SLRS and DRI. As at March 2011, the outstanding advances under these schemes aggregated to Rs.610 crore, involvingover 1.46 lakhs beneficiaries.

Performance under various Government sponsored schemes

Name of the Scheme No. of Accounts Amt. in Rs. Crore

PMRY 49167 252.63

SGSY 48189 234.39

SJSRY 16005 69.40

SLRS 691 1.38

DRI 32057 51.91

Total 146109 609.71

- In support of the underprivileged sections of the society, the Banks advances to 5C/5T beneficiaries reached Rs.5087 crore as at March 2011, with a y-o-y growth of 30%. The ad va nces to 5C/5T com prised 7.19% of total priority sector advances.

- Advances to weaker sections aggregated to Rs.17823 crore, with a y-o-y growth of 21.8%. Advances to weaker sections formed 11.10% of ANBC against the norm of 10%.

- As at March 2011, advances to specified minority communities aggregated to Rs.11718 crore and accounted for 16.56% of the total priority sector advancesasagainstthenormof 15%.

Advances to Micro, Small and Medium Enterprises (MSMEs) reached Rs.37684 crore, with a y-o-y growth of 21.3% vis-a-vis mandatoryy-o-ygrowth of 20%.

The Bank has covered 49,260 accounts with an exposure of Rs.1471 crore as at March 2011 under the Credit Guarantee Scheme of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

Considering the importance of cluster based approach of lending to MSME sector, the Bank has focused on adoption of select industrial clusters across the country and expanded lending underclusterbased approach.

During the year, the Bank has increased the number of independent centralized loan processing centres for MSMEs, viz., "SME SULABH"to 25 centers. It is proposed to increase the number of such centres to 34 during 2011-12. The Bank has embarked upon reaching out to large section of MSMEs at major centres in the country through thismodel.

The Bank received an amount of Rs.16.9 crore from the Ministry of Micro, Small and Medium Enterprises, Government of India, during the year as a Nodal Agency for Technology Upgradation of SSI units under Credit Linked Capital Subsidy Scheme (CLCSS) and amount utilized duringtheyearstoodatRs.13.3 crore.

Financial Inclusion

Canara Nayee Disha- A Complete Solution for Financial Inclusion

Not just mobilizing no-frill accounts from the financially excluded, the Bank is providing total solution for the Financial Inclusion byextendingcreditfacilityunderGeneral Credit Cards, Credit linking Self-Help Groups (SHGs), making provision of small insurance facilities, enhancing outreach through Business Correspondents and using of technology- Smart Cardsand Bio-Metric ATMs.

The Bank achieved total Financial Inclusion in all the 26 Lead Districts spread over five States, namely, Karnataka, Kerala, Tamil Nadu, Bihar and Uttar Pradesh. During 2010-11, the Bank mobilized 6.05 lakhs no-frill accounts (CanSaral) and reached a cumulative level of 27.84 lakhs since inception. The Bank has opened 913 new accounts per Rural and Semi urban branches as againsttheGovernment of India target of 250 per annum. The total savings in the no-frill accounts reached a level of Rs. 520 crore.

Duringtheyear,the Bankhasformed 31121 SHGs,taking the cumulative number of SHGs formed to 3.51 lakhs as at March 2011. With 45977 SHGs credit linked during the year, the cumulative tally under credit linking reached 3.21 lakhssince inception.Thetotal exposureofthe Bank under SHG finance rose to Rs.1064 crore, spreading over 90172 SHGs accounts.

The Bank undertook several technology initiatives to further financial inclusion process like multi-lingual bio- metric ATMs, voice-enabled mobile bio-metric ATM and Smart Cards. The Bank has installed Bio Metric Voice Enabled ATMs/ Biometric Mobile ATMs in 23 Rural/Semi urban locations and has issued around 84000 Smart Cards as at March 2011. The Bank also issued 3.02 lakhs General Credit Cards (GCC) since inception and thetotal exposure under GCCs as at March 2011 increased to Rs. 359 crore, spread over 1.75 GCC accounts. The Bank on its founders day on 19th November 2010, distributed 1 lakh GCCs, 50,000 Smart Cards and opened 9 Financial Literacy and Credit Counseling Centres (FLCCs) across India.

The Banks FLCCs called Amulya are in operational in 10 districts, viz., Kolar, Chitradurga and Chikkaballapur in Karnataka, Madurai, Erode and Dindigul in Tamil Nadu, Malappuram, Waynad and Trissur in Kerala and Sheithpura in Bihar. The Bank has registered a new Trust, viz., Canara Financial Advisory Trust to manage the Financial Literacyand CreditCounselingCentres.

To create awareness about banking facilities and the Banks products among the rural households, the Bank has deployed Gramin Vikas Vahini1 (vehicles) in 35 districts across the country.To disseminate information to the rura people about the banking products and advanced tech nology the Ban kformed 127 Fa rimersclubsduringthe yea r,takingthetota I to 1360 across the country.

For catering to the needs of the urban poor and urban financial inclusion, the Bank opened 19 Exclusive Microfinance branches in urban centres viz., Madurai, Hyderabad, Mumbai, Amritsar, Chandigarh, Lucknow, Coimbatore, Bangalore, Chennai, Bhopal, Bhubaneshwar, Delhi, Jaipur, Kolkata, Patna, Pune, Shimoga, Trivandrum andVisakapatnam.

The Bank is allotted 1573 villages with population more than 2000, across the country for provision of banking facilities. The Bank has a I ready covered 626 villages as at March 2011 and will cover all the 1573 allotted villages with population of morethan 2000,through ICTmodel or through Brickand Mortar branch by 31.03.2012.

The Bank is the registrar for Unique Identification Authority of India and it has taken up enrollment for issue of UID numbers by engaging an enrollment agency, namely, M/s. Smart Chip Ltd. The Bank has started the enrollment and set up a work station at Parliament Street branch, New Delhi, on 29.03.2011.

Lead Bank Scheme

Canara Bank has lead bank responsibilities in 26 districts in the country, viz., eight in Karnataka, seven in Tami Nadu,five in Kerala,five in Uttar Pradesh and one in Bihar. The Bank works as the Convenor of the State Level BankersCom mittee(SLBC) in the State of Kerala.

Entrepreneurship Development among Women

Centre for Entrepreneurship Development for Women (CEDW) at Head Office, Bangalore and Centres at 34 Zonal/Circle Offices are working towards economic empowerment of women.These Centres have conducted several training programmes during the year, including general Entrepreneurship Development Programmes (EDP), Entrepreneurship Awareness programmes, Seminars, Career Guidance programmes, Skills and provided marketing support to women entrepreneurs by organizing Canutsav /Canbazar. CEDW cells have also assisted in formation of SHGs and credit linkages. Two exclusive Mahila Banking Branches at Bangalore and Chen nai a re also operating specifically to cater to women clientele. 19 micro finance branches also cater to the financial needsofwomen SHGs.

- As at March 2011, the Bank has extended credit to women to the tune of Rs.27022 crore, accounting for 16.84% of ANBC against the RBI norm of 5%. The Bank has covered nearly 12.78 lakhs women beneficiaries.

- During the year, fresh disbursement of Rs.9298 crore was madeto women beneficiaries.

- The Bank has financed Rs.18549 crore to women beneficiaries under priority sector.

- The Bank has provided certain special benefits to women entrepreneurs in MS ME sector for loans upto Rs.5 lakh to encourage more and more women to undertake entrepreneurial activities.

CORPORATE SOCIAL RESPONSIBILITY

Following the century old tradition and founding principles, the Bank is engaged in varied Corporate Social Responsibility (CSR) activities. CSR initiatives of the Bank are multifarious, covering activities like training unemployed rural youth, providing primary health care, drinking water, community development, em powerment of women and other initiatives.

Rural Development

The Bank, through its Canara Bank Centenary Rural Development Trust (CBCRDT), has established exclusive training institutes to promote entrepreneurship development among rural youth and encourage them taking up self-employment activities. During the year, 3 new training institutes were opened at Kanshiram Nagar and Hathras in Uttar Pradesh and Tiruppur in Tamil Nadu taking the number of such training institutes to 29. For the yea r 2010-11, CBCRD training institutes have trained 26753 candidates, taking the tally to 125049 unemployed youth since inception. The candidates trained comprised 68% women and 31% SC/ST, with an impressive settlement rate of 67%.

The Bank has co-sponsored 24 Rural Development and Self Employment Training Institutes (RUDSETIs) engaged in training of rural youth for taking up self-employment programmes. During 2010-11, the RUDSET institutes have trained 21459 candidates. The 24 RUDSETIs have, so far trained 2,59,036 unemployed youth, with a settlement rate of 71%.

Canara Banks Rural Clinic Service Scheme provides basic health care services in remote areas lacking basic medical infrastructure facilities. Under the Scheme, the Bank encourages doctors to set up clinics in identified rural areas. As at March 2011, the total number of such clinics rose to 544. The Bank under Jalayoga, a scheme to provide safe drinking water, implemented 35 projects in its lead districts.

AN EXAMPLE FOR NURTURING AND

FINE-TUNING THE SKILLS OF RURAL

ARTISANS IN INDIA.

A lot of talented Rural Artisans have found their ways to fine-tune and master their skills with the aid of training imparted by the Banks sponsored/co- sponsored Rural Training Institutes. One such success story is that of Shri. Sadashiv Shenoy an artist par excellence who has seen to it that the long tradition of his family, who are renowned artists, is well nurtured. Though a born artist, he did not have a single specific area but concentrated on wide ambit of art in multifarious fields. He spent almost two years at the CE Kamath Institute for Artisans at Karkala as a trainee to further excel his skills a nd attain mastery overarts.

Completing an eventful training of two years at the C E Kamath Institute for Artisans at Karkala , he went back to his own family work shed and started executingthe masterpieces. Wood Carving, Sculpture were his area of strength and he employed 4 Master Craftsmen and 25 Artisans at his work shed. The products created by him and his team has wide appreciation and demand in India and abroad. His pieces are decorated in many temples across the Country and the Ganapathy statue is very popular in Mangaloreand USA.

Being an artist with excellent creativity and fineness, there is no dearth of money and recognition. This should be enough motivation to sustain the famed art of the nation, he says. Just focus on the job, everything willfollowyou is his conviction and message.

Son of late Shri. Su rend ra Shenoy, an artist of eminence and recipient of numerous awards, Shri Sadashiv Shenoy hailingfrom Bantwal Taluk has dedicated his life towards art and improving the skill.

The Bank donated a hi-tech, custom built, solar powered Mobile Sales Van1 to assist women entrepreneurs, SHGs and artisansto markettheirproducts.

The Banks Social Action Cell organized Blood Donation camps, Health camps, assisting people affected by natural calamities, assisting challenged section of the society, including encouraging students by conducting various programmes and activities.

Visits by Parliamentary Committees

During 2010-11, Parliamentary Committees on Industry, Parliamentary Committee on Personnel, Public Grievances, Law & Justice, Parliamentary Committee on Government Assurance, Parliamentary Committee on Subordinate Legislation and Committee of Parliament on Official LanguagevisitedtheBank.

ORGANISATION AND SUPPORT SERVICES

Expanding Pan India Presence

During the year, the Bank undertook a major branch expansion drive across the country. The Bank, on its Founders Day on 19th November 2010, opened 100 new branches and 100 new ATMs across the country, inaugurated by the Honble Union Finance Minister Shri Pranab Mukherjee. The Bank added 210 domestic branches in FYll,takingthetotal tally underthe branch networkto 3257 branches, including4overseas branches one each at London, Leicester, Hong Kong and Shanghai.

Composition of domestic branch network

No. of Branches Category 31.03.2010 31.03.2011

Metropolitan 727 758

Urban 744 762

Semi-urban 793 922

Rural 779 811

Total Branches 3043 3253

The Bank has 139 specialized branches catering to the specific clientele segment.

Categories of Specialized Branches 31.03.2011

1. SMEs 49

2. Overseas 16

3. Agri-Finance 10

4. Micro Finance Branches 19

5. Savings 6

6. NRIs 7

7. Asset Recovery Management 7

8. Prime Corporate 10

9. Industrial Finance 4

10. Stock Exchange 3

11. Capital Market 3

12. Mahila Banking 2

13. Consumer Finance 1

14. Housing Finance 1

15. Branch for Physically Challenged 1

TOTAL 139

Info Tech Progress

The Bank took several initiatives in the InfoTech front during the year. The Bank covered all its branches/offices under Core Banking Solution (CBS). With 100% CBS, the Bank now offers technology banking services, such as, nternet Banking, Funds Transfer through NEFTand RTGS, SMS Alerts, IVRS based enquiryacrossall its branches. The Ba nk also offers on I inetradingfacility to its clients through its own subsid ia ry M/s Ca na ra Ba n k Secu rities Ltd.

As at March 2011, the Bank had 2216 ATMs spread across 846 centres. These ATMs have also been enabled to offer value added services like Travel ticket booking, Mobile top up and Utility Bill payments.

In view of the increased attacks of phishing and pharming, the Bank has put in place a 24X7 centralized monitoring system of anti phishing and anti malware. To make the nternet Bankingfacility more secure a slew of measures like implementation of OTP (One Time Password) module, two ive validation of account numberforNEFT/RTGS transaction through Net Bankingand mutual authentication of Internet Server customer PC (CAN SECURE) were introduced. With increased confidence, the number of customers enrolled for nternet Banking has moved upto 3.86 lakhs.

The Bank upgraded its Data Centre infrastructure to comply with ISO 27001 standards and did the upward migration of database to Oracle 11G version. The Bank has a well designed and secured corporate network covering all the branches and offices. Local Processing Centres (LPCs) have been extended to 31 Centres.The Bank has also established one Central Pension Processing Cell and 3 NRI Hubsduringtheyear.

A customer terminal has been provided in the branches for easy and ready reference to own accounts of customers. Bank has also implemented Electronic Data nterchange Module for payment of customs duty and fulfillingthe related formalities in electronic mode.

To connect with the youth of the country and obtain first hand unrestricted feedback, the Bank has a presence at Twitter (http://twitter.com/canarabanktweet).

Manpower Profile

As at March 31, 2011, the Bank had 43397 employees on its rolls.

March March 2010 2011

Total No. of Employees 43380 43397

Officers 17338 17649

Clerks 16285 16178

Sub-Staff 9757 9570 * includes part-time employees (PTEs)

The Banks employees comprised 40.7% officers, 37.3% Clerks and 22.0% Sub-Staff. Women employees comprising 10281 constituted over 23.5% of the Banks total staff. The Bank recruited 1089 women employees and promoted 303 women employees under various cadres duringtheyear.

During the year, the Bank recruited 2335 persons in various cadres, out of which 412 belonged to Scheduled Castes (SCs) and 179 to Scheduled Tribes (STs) categories. The total number of ex-servicemen staff as at the end of March 2011 stood at 1652, out of which 169 were recruited in various cadres during the year. There were 870 Physically Challenged Employees on the rolls of the Bank.

Reservation Policy in respect of SCs and STs

As at March 2011, the number of Scheduled Castes and Scheduled Tribes together constituted 26% of total staff strength ofthe Bank.Thecomposition of SC/STemployees in the Bank as at March 2011 was as under:

Scheduled Scheduled Cadre Castes Tribes

Officers 3245 1172

Clerks 2814 894

Sub-staff + PTEs 2721 448

Total 8780 2514

The Bank has been strictly adhering to the Reservation Policy in respect of Scheduled Castes and Scheduled Tribes as perthe Govt, of India guidelines.

- Reservation Policy is implemented through the mechanism of Post Based Rosters. In terms of the directives ofthe Ministry of Finance, Government of India, Bank has since switched over to Post Based Rosters for all cadres.

- The Bank has been extending Reservation/ Relaxations/Concessions in Direct Recruitment as well as in promotionsto candidates belongingto Scheduled Castes and Scheduled Tribes as per the Govt, guidelines.

- Pre-recruitment and Pre-promotion training is given to candidates belonging to Scheduled Castes and Scheduled Tribes. In the Advertisement inviting for the application from the eligible candidates for recruitment to Clerical and Office read res, a specific reference is made with regard to imparting of pre-recruitment training to candidates belonging to SC/ST / PWD / Minority Communities / Ex-service men. Candidates who opt for pre-recruitment training are given training to prepare themselvesforwrittentestas well as interview.

- Study materials, note book, stationery are provided free of cost to all the participants. Wherever possible, respective State Governments are also providing the lodgingfacilities in government/backward class hostels.

- The Ba n k has setu p SC/ST Cel I at the Head Office a nd a Iso at Circle Offices to ensure maintenance of Rosters and implementation of otheraspects of Reservation Policy

- Chief Liaison Officer has been nominated at Head Office and Liaison Officers have been nominated at Circle Offices for ensuring implementation of Reservation Policy.

- Further, representations received from Scheduled Caste / Scheduled Tribe employees, either directly or through the SC/ST Associations, are being looked into by the Liaison Officer/Chief Liaison Officer. Wherever required, necessary enquiries are conducted and appropriate action is taken. A separate register is maintained for recording various representations received from Scheduled Caste/Scheduled Tribe employees and the action taken is also recorded in the register.

- In addition to the a bove, the representatives of majority Scheduled Caste / Scheduled Tribe Employees Association are invited for Quarterly Meeting with the Chief Executive of the Bank to discuss on the implementation of guidelines on reservation policy. Quarterly Meetings are also held at Circle Offices, where Rosters a re maintained and grievances, if any, are redressed by the Liaison Officer.

- The Board of Directors of the Bank also reviewed the progress made in the implementation of Reservation Policyona halfyearlyandyearlybasis.

Training /Human Resource Development (HRD)

The HR policies of the Bank have been reinvented and refocused time and again to suit to the changing banking scenario. HR interventions like SPANDAN for bringing attitudinal change among front line staff, PRATIBHA for grooming in-house talents in varied specialized areas and executive groomingthrough reputed institutes and other significant HR tools like Quality Circles, Study Circles, Staff Meetings and Brain Storming Sessions have been implemented for effective team building and fostering collective excellence.

The Banks quest to enhance the competencies of the workforce will continuethrough focused and need based trainingsat various institutes of repute like IIMs, ISB,XLRI and NIBM. Customised programmes are also being organised to develop expertise in certain niche areas like Risk Management, Treasury Operations and IT.

Specialised trainings to the Senior Management Level / Top Management Level executives are conducted based on the requirement. The Bank has been able to add substantially to the repertoire of knowledge of its officials through this training intervention and motivating them to perform with renewed vigour and enthusiasm.

The Bank has trained 26875 employees during the year, covering a wide range of functional areas Out of the trained staff, 6937 personnel belonged to the Scheduled Caste category and 2022 under the Scheduled Tribe category.

Establishing a proper Talent Management and Reward System will be the Banks focus in the com ingyears. There will be concerted efforts to identify potential leaders and groom them to take up higher responsibilities.

Changes intheOrganizational Setup

The Bank brought out further changes in its organizational/ operational set-up to facilitate smooth functioning and driving results.

After completely moving into a 3 tier structure comprising of Head Office, Circle Offices and Branches, during FY11, the Bank has carved out 3 functional Wings, viz., MSME Wing, Credit Administration Wing and Transaction Banking Wing to expand lending to MSMEs, to have focused credit administration and expand alternative delivery channels respectively.

Customer Orientation

The Bank hastaken initiatives to remain customerfocused through providing fast service, bringing in diversified products/services, responding to customers queries and redressal of customers complaints. The Bank made arrangements for providing copies of the Code of Banks Commitment to Customersto customers at branches. An informative booklet containing all the relevant information on Frequently Asked Questions by Customers was made available at all branches towards better Customer Service. The Policy guidelines relating to Collection of Cheques/Instruments, Grievance Redressa Mechanism and Compensation Policy were placed on the Banks website for use of the customers. In order to assess the quality of customer service rendered by our branches and to get feedback a Contact Questionnaire is made available in the Banks website. A survey to measure customer satisfaction was conducted by M/s Campaign ndia Research and Marketing Services Pvt. Ltd. As a part of Customer Relationship Management initiatives, a Call Centre is functioning. The call centre caters to the customers in 6 languages viz., English, Hindi, Kannada, Tamil,Telugu and Malayalam. The number of calls received by the Call Centre during the year was more than 6.50 lakhs. The Bank redressed all the customer complaints within the stipulated period, with 95% customer complaint redressed.

Systems and Procedures

Risk Based Internal Audit (RBIA) was conducted in 2057 branches/ units programmed for on-site RBIA during the year. Information Security Audit was conducted along with RBIA. Concurrent / Continuous Audit was conducted in 752 identified branches/ units covering 60% of deposits and 78% of advances of the Bank as per RBI guidelines. ncome/revenue audit was conducted on quarterly basis in 481 identified branches as per Jilani Committee Recommendations. Apart from the above, 341 branches were subjected to Special Income Audit. On-site RBIA of Circles/Wings was introduced with effect from 01.04.2010 as perthe directions of the RBI.

Know Your Customers (KYC)

The Bank took several measures for the effective implementation of Know Your Customer (KYC) and Anti Money La undering(AML) guidelines and for ensuring KYC compliancebyall branches.

To ensure better compliance of guidelines on KYC / AML followingsteps have been initiated.

- All Zones/Circles have nominated an Executive as Nodal Compliance Officer for monitoring and ensuring compliance of guidelines on Know Your Customer (KYC)/Anti Money Laundering (AML)/Com bating of Financing of Terrorism (CFT).

- Branches were advised to strictly adhere to the guidelines on KYC/AML/CFT to prevent abuse of banking system by money launderers using money mules.

- NREGA job card/Aad ha r document has to be accepted as identification document for opening of accounts. Accounts opened exclusively with these documents will have restrictions applicable tosmall accounts.

- Printing and dispatch of Thanks giving letters to new account holders and introducers are done centrally at Zonal/CircleOffice.Thissystem has been implemented at all Zones/Circles.

Vigilance Setup

The Vigilance Wing of the Bank is headed by the Chief Vigilance Officer (CVO) in the rank of General Manager, assisted by 34 Vigilance Officers from all Zonal/Circles, RRBs and the Subsidiaries. The functions of the vigilance machinery of the Bank is broadly divided into 3 types viz., Preventive, Predictive and Punitive. Vigilance Wing of the Bank constantly reviews existing systems and procedures in various areas and wherever required recommends changes to strengthen prevention of frauds and eradication of corruption. To educate the employees of the Bank, the Wing brings out various Fraud awareness Circulars and other periodical publications. During the year, the Wing has brought out a Compendium on Vigilance and Disciplinary matters - a comprehensive reference book on all Vigilance aspects.

The Wing has organized Training Programmes and Conferences for the benefit of all CVOs of all Banks. In addition, the Wing has undertaken the task of imparting training to the Police Department Personnel on issues relating to frauds in Banks, particularly on Cyber Crime matters having severe impact on the technologica advancements inthe Industry.

As per the directions of Central Vigilance Commission, Vigilance Awareness period was observed from 25th October 2010 to 1st November 2010. This year the main focus was on the Generation of Awareness and Publicity against Corruption. While all the Circles of the Bank observed the Awareness Period with alacrity, the culmination of the event was marked by the Guest Lecture rendered by the eminent Lokayukta of Karnataka State, HonbleJustice N Santosh Hegde.

The Wing hasalso introduced a New Linkonthe intranet, enabling even the remote branches to have an instant updation of all Vigilance Communications, especially on fraud prevention in CBS environment.

The vibrancy and dynamism of the Vigilance Wing has enabled the Bank to take timely steps to improve the turnover time to less than six months, for closure of vigilance cases, from the date of issue of charge sheet. All complaints received are disposed off in less than two months. The Whistle Blowing mechanism has been encouraged, as a result of which, many fraudsters have been broughtto book.

The Vigilance Management function has gone hand-in- hand with the business developmentf unction of the Bank.

Security Arrangements

The security environment in the Bank remained, by and arge, normal during 2010-11. There were 68 incidents of crime during the year involving a loss of Rs.30 lakh. There was one major fire incident during the year and loss approximated toRs. 15.30 lakh. The security arrangements have been reinforced by installation of CCTV in all Currency Chests and identified branches. Modern fire safety devices have been introduced at select offices. Fire safety drills have been introduced and conducted at regular intervals in orderto minimize damage to property and prevent injuryand lossof life.

Ambience Improvement

All the new branches opened in prime localities and branches shifted to new premises during the year were provided with suitable interior to meet the present day requirements of the customers. New branches were opened in Ground Floor as far as possible. Besides, the Bank is providing better interiors to augment the requirements of computer environment and also proposes to enhance the ambience at all branches. Ambience improvement has been taken as a core agenda forFY12.

Rightto Information

Underthe Rightto Information Act, 2005,the Bank set up an exclusive Right to Information Act outfit to provide information and bring transparency. As per the requirement of the RTI Act, Canara Bank nominated Public Information Officers and Appellate Authorities in all its 34 Zonal/Circle Offices to provide information to the applicants. During the Financial Year 2010-11, Bank received 3541 RTI applications, 531 First Appeals and 155 Second Appeals as per the provisions of RTI Act, 2005.

Implementation of Official Language

The Bank made noteworthy progress under the implementation of official language and won many prizes at various levels during the year under review. The Bank was awarded second prize in Region "C" under Reserve Bank of India Shield Scheme. Town Official Language implementation Committee (TOLIC), Trivandrum and Coimbatore, where the Bank is the Convenor, were awarded first prize and third prize respectively by the Regional Implementation Office, Department of Official Language, Government of India. Apart from this, many Zones/Circles and branches have received awards from Official Language Department, Government of India and the respective Town Official Language Implementation Committees.

As at March 2011, around 95% of employees have obtained working knowledge in Hindi and the Bank has notified 2192 Branches under Rule 10(4) of OL Rules 1976. All the employees of the Bank possessing working knowledge of Hindi have been trained in Hindi workshops. The Bank has conducted 120 refresher training programmes for such employees during theyear.

In the sphere of using Information Technology in Official Language, the Bank has furthered the use of Unicode and also made provision in ATM screens of the Bank for carrying transactions in 10 Indian languages. Telebanking facility has also been provided in Hindi and English and in other 6 major regional languages. The Banks corporate website is fully bilingual. Steps have been initiated for providing Hindi option in Core Banking System. In three pilot branches one each in A, B & C region, Hindi option was successfully installed. The Banks bilingual address booklet CANPATHA is made available to all branches and offices in electronicform.

To encourage effective implementation of Official language in Bank, 148 prizes were given to branches and offices under the award scheme formulated by the Bank viz., Canara Bank Rajbhasha Akhay Yojana and 103 employees were awarded under Rajbhasha Puraskar Yojana.

Atabletop"Karyapalak Noting Sahayika" was brought out to assist Executives to carry out Notings in Hindi and the same was released by ourC&MD on the occasion of Hindi Day Function 2010. Annual Hindi Journal "Canarajyoti" was brought out to encouage original writing in Hindi.

The Parliamentary Committee on Official Language had inspected a few branches and the Banks Zonal/Circle Offices at Delhi and Coimbatore. The Committee lauded the efforts put bythe Bank in thefield of Official Language implementation.

Promotion of Sports

Canara Bank has always been encouraging and supporting sportsand contributed generously to sporting activities at over the country, sponsoring tournaments and providing scholarships to talented sportspersons. The Bank has also shown a keen and abiding interest in recruiting sportspersons and today has on its rolls 41 sports persons in six disciplines viz., Cricket, Hockey, Womens Athletics, Badminton, Ball Badminton and Table Tennis.

International Cricketers Shri B K Venkatesh Prasad, Shri Sunil Joshi, Ms Shantha Rangaswamy, Ms Kalpana and Ms Sudha Shah (Coach of the Indian Womens Cricket Team) are presently in the Banks fold. Ace Shuttler and former National Champion and former coach of the Indian Badminton Team, Shri U Vimal Kumar, Internationa Athletes Smt. M K Asha, Smt. Suma Gopalakrishna and Smt. H M Jyothi and Hockey Internationals Shri Bharat Ch hetri a ndShriPShanmuga ma re also in the Banks rolls.

Canara Bank recorded several distinctions in the sporting arena and the Banks Cricket, Ball Badminton and Table TennisTeamsrankni/meroi/nointheStateof Karnataka.

FINANCIAL SUPERMARKET

Subsidiaries, Sponsored Entities and Joint Ventures Canara Bank, with an objective of offering One Stop Banking Mart1 for the customers, forayed into diversified business activities by opening subsidiaries during late 1980s. Today, the Bank functions as a Financial Supermarket with as many as eight subsidiaries/ sponsored entities/joint ventures in diversified areas. The Bank has taken significant steps towards strengthening fundamentals of these entities so as to emerge as a strong Financial Supermarket in India. All the subsidiaries/ sponsored entities/joint ventures of the Bank recorded satisfactory performance during the reportingyear.

Commercial Bankof India LLC (CBIL)

CBIL, a joint venture of Canara Bank and State Bank of ndia, has been operational since April 2004 in Moscow, Russia.TheCompanyearned a profit aftertax of USD 2.85 million as at 31st March 2011.

Canbank Venture Capital Fund Limited (CVCFL)

CVCFL, the Trustee and Manager of Canbank Venture Capital Fund (CVCF), is a wholly owned subsidiary of the Bank. For the year, the Company posted a profit of Rs.4.08 crore as com pa red to Rs.0.71 crore for 2009-10. It lau nched its 5th Fund with the corpus of Rs.500 crore on 15.06.2010. The Company has proposed a 100% dividend for the year2010-ll.

Can Fin Homes Limited (CFHL)

CFHL, a sponsored entity of Canara Bank, is one of the premier housing finance entities in the country. As at 31.03.2011, the Banks stake in CFHL was 42.35%. The Company disbursed loans amounting to Rs.473 crore during the year, taking cumulative disbursement to Rs.2199 crore. CFHL posted a net profit of Rs.42.02 crore for FY11. The Company proposed a 25% dividend for the year 2010-11.

Canbank Factors Limited (CFL)

Canbank Factors Limited, which is a factoring subsidiary of the Bank, is a member of Factors Chain Internat


Mar 31, 2010

The Board of Directors have pleasure in presenting the 41st Annual ReporttogetherwiththeBalanceSheetason 31st March, 2010 and Profit and Loss Account for the financial year ended March 31,2010.

CORPORATE SOCIAL RESPONSIBILITY

Setting Examples in Corporate Social Responsibility Activities

Following the century old tradition and founding principles, the Bank has set fine examples in fulfilling varied Corporate Social Responsibility (CSR) activities. The Bank has been taking numerous initiatives over the years to promote rural development and has set up many self-employment training institutes to counter poverty and unemployment among rural youth. To provide basic amenities in rural areas, the Bank is encouraging setting up of rural clinics, drinking water facilities and engaging rural volunteers for betterment of communities.

Rural Development

The Bank, through its Canara Bank Centenary Rural Development Trust, has established exclusive training institutes to promote entrepreneurship development among rural youth and encourage them taking up self-employment activities. During the year, 9 new training institutes were opened at Aligarh and Etah districts in Uttar Pradesh, Sheikhpura district in Bihar, Calicut and Palakkad districts in Kerala, Nilgiris, Erode, Theni and Dindigul in Tamil Nadu, thus enhancing the

number of such training institutes to 26. These institutes have so far trained 94935 unemployed youth, comprising 60% women with an impressive settlement rate of 70%. The Trust is also supporting the activities of Society for Educational and Economic Development (SEED), a voluntary organization based in Sriperambudur, Tamil Nadu, working for the welfare of the socially marginalized children.

The Bank has co-sponsored 23 Rural Development and Self Employment Training Institutes (RUDSETIs) engaged in the training of rural youth for taking up self-employment programmes. 23 RUDSETIs have trained more than 2,38,000 unemployed youth, with a settlement rateof 70%.

The Bank is also co-sponsoring Deshpande-RUDSET! at Haliyal in Karnataka and Andhra Pradesh Bankers Institute of Rural Development (APBIRED) at Hyderabad in Andhra Pradesh. These two institutes are also engaged in promoting entrepreneurship development among rural unemployed youth.

The new campus for Canara Bank Institute for Artisans, Karaikudi was inaugurated by Honble Union Home Minister, ShriP Chidambaram, during theyear.

An Example for many unemployed youth in Rural India

Thousands of youth have found their ways to decent living with the aid of training imparted by the Bank sponsored/co-sponsored rural training institutes. One such worthy example is the case of Shri M S Nagaraj, born to a poortraditionalcarpenterfamily. Bowed down by the hardships of life, Shri Nagaraj had to leave his formal schooling halfway at the age of 12 to supplement his family income. He did not know what to do in life and was not sure whether his traditional carpentry job could provide a decent living until he joined Canara Bank Institute for Artisans, Mangalore, Karnataka, sponsored by the Bank. His training at the institute has given him the objective to finesse his skills and learn new techniques of sculpting. After successfully completing the training, he has never looked back. Now he is a full-fledged sculptor and is successfully handling large projects. A confident and proud Nagaraj stilt remembers the day of opting for sculpting and sincerely thanks the Institute for all that he has achieved in life. Today he earns an average Rs.15,000 to Rs.20,000 per month and is happy to be a supportive son to his parents and brotherto his sisters.

Canara Banks Rural Clinic Service Scheme provides basic health care services in remote areas lacking basic medical infrastructure facilities. Underthe Scheme, the Bank encourages doctors to set up clinics in identified rural areas. As at March 2010, the total number of such clinics rose to 518. The Bank under Jalayoga, a scheme to provide safe drinking water, has so far implemented 35 projects in its lead districts.

The Bank donated a hi-tech, custom built, solar powered Mobile Sales Vanto assist women entrepreneurs, SHGs and artisans to market their products.

Visits by Parliamentary Committees

The third Sub-Committee of Parliamentary Committee on Official Languages had inspected our Khajuraho, Chaziabad, Raipur Branches and CO Mysore and lauded the efforts put in by the Bank in the field of Official Language implementation.

ORGANISATION AND SUPPORT SERVICES

Branch Network

The year was significant for the Bank in expanding domestic operations across the country. Befitting its 104th year of existence, the Bank on its Founders Day i.e. 19th November, 2009, opened 104 branches acrossthe country, inaugurated by Honble Finance Minister Shri Pranab Mukherjee. The Bank opened 314 branches during the year, taking the total tally under the branch networkto 3046 branches.

Composition of domestic branch network

Category No. of Branches 31.03.2009 31.03.2010

Metropolitan 629 727 Urban 674 744

Semi-urban 691 793

Rural 735 779

Total Branches 2729 3043

The Bank has 118 specialized branches catering to the specificfinancial needs of different clientele categories.

Categories of Specialized Branches 31.03.2010

1. SMEs 37

2. Overseas 17

3. Agri-Finance 10

4. Micro Finance Branches 9

5. Savings 7

6. NRIs 7

7. Asset Recovery Management 7

8. Prime Corporate 7

9. Industrial Finance 5

10. Stock Exchange 3

11. Capital Market 3

12. Mahila Banking 3

13. Consumer Finance 1

14. Housing Finance 1

15. Branch for Physically Challenged 1

TOTAL 118



InfoTech Progress

The Bank took several initiatives in the InfoTech front during the year. As at the end of March 2010, a number of branches were covered under Core Banking Solution (CBS) expanded to 1809, besides 29 Extension Counters, 92 Currency Chests and 80 Service Units (Accounts Sections/Clearing Sections/Local Processing Centres/ Foreign Departments) along with Integrated Voice Recording System (IVRS) and Internet and Mobile Banking (1MB). Several modules/facilities come along with CBS like SPEED-e-module for enabling clients to deliver instruction through internet, Funds Transfer Facility for the purpose of online trading, sales and marketing module for marketing purposes, Lending Automation Processing System (LAPS) for Retail and Corporate and Anti-Money Laundering (AML) modules. CBS branches covered 90% of the Banks total business as at March 2010.

As at March 2010, the Bank had 2017 ATMs spread across 728 centres, including 745 offsite ATMs and 180 ATMs in railway stations. It has also set up 150 e-kiosksfor booking railway tickets. Debit card base of the Bank further increased to about 50 lakhs as at March 2010.

The Bank implemented Centralized Online Tax Accounting System (Government Business module) in 463 branches and Excise and Service Tax modules in 144 branches, under CBS setup. Sales Tax module has been implemented in all designated branches of Delhi and Maharashtra.

Local Processing Centres (LPC) have been established in 25 centres all over India, covering 542 branches. Centralized Pension Processing cell was introduced and 84 branches of Bangalore Metro Circle Office have been covered. The Bank has a well-designed and secured Corporate Network, covering all the Branches/Offices for rolling out network-based delivery channels. All the Circle Offices have been provided with video conference facility.

Infotech Progress 31.03.2009 31.03.2010 Core Banking Branches 1053 1809

Anywhere Banking Branches 2062 2091

Internet and Mobile Banking Branches 1362 1959

NEFT and RTGS 2729 3037

Manpower Profile

As at March 31, 2010, the Bank had 43,380 employees on its rolls.

March March 2009 2010

Total No. of Employees 44090 43380

Officers 17551 17338

Clerks 16500 16285

Sub-Staff 10039 9757

* includes part-time employees (PTEs)

During the year, the Bank recruited 1181 persons in various cadres out of which 177 belonged to Scheduled Castes (SCs) and 129 to Scheduled Tribes (STs) category. The total number of ex-servicemen as at the end of March 2010 stood at 1,573 and 156 of them were recruited in various cadres duringtheyear.There were 845 Physically Challenged Employees on the rolls of the Bank.

Reservation Policy in respect of SCs and STs

As at March 2010, the number of Scheduled Castes and Scheduled Tribes together constituted 25.83% of total staff strength of the Bank. The composition of SC/ST employees in the Bank as at March 2010 was as under:

The Bank has been strictly adhering to the Reservation Policy in respect of Scheduled Castes and Scheduled Tribes as perGovt. of India guidelines

- Reservation Policy is implemented through the mechanism of Post Based Rosters. In terms of the directives of the Ministry of Finance, Government of India, Bank has since switched over to Post Based Rosters for all cadres.

- The Bank has been extending Reservation/ Relaxations/Concessions in Direct Recruitment as well as in promotions to candidates belongingto Scheduled Castes and Scheduled Tribes as per Govt, guidelines.

- Pre-recruitment and Pre-promotion training is given to candidates belonging to SC and ST. In the Advertisement inviting applications from eligible candidates for recruitment to Clerical and Officer cadres, a specific reference is made with regard to imparting of pre-recruitment training to candidates belonging to SC / ST / PWD / Minority Communities / Ex-servicemen. Candidates who opt for pre-recruitment training are given training to prepare themselves for written test as well as interview.

- Study materials, note book, stationeries are provided free of cost to all participants. Wherever possible, respective State Governments are providing Lodging Facilities in Government/backward class hostels.

- The Bank has setup SC/ST Cell at the Head Office and at Circle Offices to ensure maintenance of Rosters and implementation of other aspects of Reservation Policy.

- Chief Liaison Officer has been nominated at Head Office and Liaison Officers have been nominated at Circle Offices for ensuring implementation of Reservation Policy.

- Further, representations received from Scheduled Caste / Scheduled Tribe employees, either directly or through the SC/ST Associations, are being looked into by the Liaison Officer/Chief Liaison Officer. Wherever required, necessary enquiries are conducted and appropriate action is taken. A separate register is maintained for ^recording various representations received from Scheduled Caste/Scheduled Tribe employees and the action taken is also recorded in the register.

- In additiontotheabove,therepresentativesof majority Scheduled Caste / Scheduled Tribe Employees Association are invited for Quarterly Meeting with the Chief Executive of the Bank to discuss on the implementation of guidelines on reservation policy. Quarterly Meetings are also held at Circle Offices, where Rosters are maintained and grievances, if any, are redressed bythe Liaison Officer.

- The Board of Directors of the Bank also reviews the progress made in the implementation of Reservation Pol icy on a ha Ifyearly and yearly basis.

Training / Human Resource Development (HRD)

Human resources form the basic lifeline for a service- oriented industry like banking. The HR policies of the Bank have been reinvented and refocused time and again to suit to the changing banking scenario. HR interventions like SPANDAN for bringing attitudinal change among front line staff, PRATIBHA for grooming in-house talents in varied specialized areas and executive grooming through reputed institutes and other significant HR tools like Quality Circles, Study Circles, Staff Meetings and Brain Storming Sessions have been implemented for effective team building and collective excellence.

The Banks quest to enhance the competencies of the workforce will continue through focused and need-based training at various institutes of repute like IIMs, ISB, XLRI, NIBM etc. Customised programmes are also being organised to develop expertise in certain niche areas like Risk Management, Treasury Operations, IT etc.

Specialised training to Senior Management Level / Top Management Level executives are conducted based on the requirement. The Bank has been able to add substantially to the repertoire of knowledge of its officials through this training intervention and motivating them to perform with renewed vigourand enthusiasm.

The Bank has trained 31,587 employees during the year, covering a wide range of functional areas including some of the new training programmes like Control aspects of CBS, Financial Inclusion, Advanced Credit Management, Marketing Programme for Counter Staff, CBS Help Desk Training, Quality reporting for inspecting officials and Programme on Credit Audit, Cluster MSME Programmes, HRMS package, CBS- FCR- Champions, CBS-FCC- Champions and CASA Marketing. Out of the trained staff, 7047 personnel were women employees, 6715 personnel belonged to the Scheduled Caste category and 1845 personnel who received training were under the Scheduled Tribe category.

Establishing a proper Talent Management and Reward System will be the Banks focus in the coming years. There will be concerted efforts to identify potential leaders and groom them to take up higher responsibilities in the days to come. An attempt is being continuously made to empower deserving employees so that they will become future leaders of the organisation.

Changes in the Organizational Setup

The Bank brought out further changes in its organizational/ operational set-up to facilitate smooth functioning and effective results. The Organizational design and structure are continuously revisited and studied to make inroadsforfunctional excellence.

The Bank has completely moved towards a 3 tier structure comprising Head Office, Circle Offices and Branches. The re-structuring was effected by delayering the Regional Office setup and thus providing significant opportunities for growth by building stronger clientele relationsthrough faster and effective decisions. The Organizational Structure has been reworked to enable better execution of strategy and ensure smooth functioning.

Customer Orientation

The Banks endeavour has always been to respond to customers by taking conscious initiatives and showing proactive response to changing customer expectations. The Bank offers a personalized range of specialized and diversified products and quality service to customers. The Bank made arrangements for providing copies of the Code of Banks Commitment to Customersto customers at branches. An informative booklet containing all the relevant information on Frequently Asked Questions by Customers was made available at all branches towards better Customer Service. The Policy guidelines relating to Collection of Cheques/Instruments, Grievance Redressal Mechanism and Compensation Policy were placed on the Banks website for use of the customers. As part of Customer Relationship Management initiatives, a Call Centre was setup during March 2008. The Call Centre caters to the customers in 6 languages viz., English, Hindi, Kannada, Tamil, Telugu and Malayalam. The number of calls received by the Call Centre during the year was more than 7.5 lakh.

Systems and Procedures

Risk Based Internal A^idit (RBIA) was conducted in all the 2078 branches/units programmed for on-site RBIAduring theyear. Information Security Audit was conducted along with RBIA. Concurrent / Continuous Audit was conducted in 763 branches/service units, of which 250 branches and

35 units were subjected to concurrent/continuous audit by internal auditors and 461 branches and 17 service units were subjected to concurrent audit by external auditors covering 55.01% of deposits and 87.5% of advances (as per the Business position as at 31.3.2009). 357 branches were subjected to income/revenue audit, which included branches identified for income audit on quarterly basis in addition to 763 branches which are under concurrent/continuous audit on monthly basis.

Know Your Customers (KYC)

The Bank took several measures for the effective implementation of Know Your Customer (KYC) and Anti Money Laundering (AML) guidelines and ensured 100% KYC compliance by all branches.

To ensure better compliance of guidelines on KYC / AML following steps have been initiated.

- Printing and dispatch of Thanksgiving letters to new account holders and introducers, centrally at Circle Office. On a trial basis the system has been implemented at Bangalore Metro and Rural Circles.

- Branches have been advised to ensure that all the accounts are KYC compliant.

- All Circles have nominated an Executive as Nodal Compliance Officer for monitoring and ensuring compliance of guidelines on Know Your Customer (KYC)/Anti Money Laundering (AML)/Combating of FinancingofTerrorism (CFT).

Vigilance Setup

The Banks Vigilance Wing at its Corporate Office is headed by Chief Vigilance Officer (CVO) in the rank of General Manager. The CVO is ably aided by Vigilance Officers at all Circles, RRBs and most of the Banks Subsidiaries. Guidelines on review, reporting and monitoring of frauds have been issued and all the reported cases of frauds were reviewed from adequacy of existing systems and procedures angle and necessary preventive measures taken to prevent frauds. Fraud awareness Circulars were issued to enhance awareness on prevention of frauds. During the year, a leaflet was brought out containing the message of the CVO highlighting the effective measures undertaken through system improvements and leveraging of information technology to create increased transparency and awareness to fight corruption besides providing more efficient service to the customers and general public.

For preventing and detecting frauds and other irregularities, the Bank took adequate measures, such as introduction of early warning signals, revised norms for security verification and introduction of surveillance audit, visit of General Manager, Inspection Wing for effective monitoring of the Circles, where large scale frauds have occurred. As directed by the Central Vigilance Commission, Vigilance Awareness Week was observed from 3rd to 7th November, 2009.

Security Arrangements

The security environment in the Bank remained, by and large, normal during 2009-10. There were 52 incidents of crime during the year involving a loss of Rs. 12.61 lakh. There was one major fire incident during theyear and loss approximated to Rs. 21 lakh. The security arrangements have been reinforced by installation of CCTV in all Currency Chests and identified branches. Modem fire safety devices have been introduced at select Offices. Fire safety drills have been introduced and practiced at regular intervals in order to minimize damage to property and prevent injury and loss of life.

Ambience Improvement

All the new branches opened in prime localities and branches shifted to new premises during the year were provided with suitable interiors to meet the present day requirements of the customers. Besides, the Bank is providing better interiors to augment the requirements of the computer environment and also proposes to enhance theambienceatall branches.

Right to Information

Under the Right to Information Act, 2005, the Bank set up an exclusive Right to Information Act outfit to provide information and bring transparency. During the year under review, the Bank dealt with all the 1666 applications/ appeals received as perthe provisions of the Act.

Implementation of Official Language

The Bank made noteworthy progress under the implementation of Official Language during the year under review. As at March 2010, around 95% of employees have obtained working knowledge in Hindi and the Bank has notified 2290 branches under Rule 10 (4) of OL Rules 1976. All the employees of the Bank possessing working knowledge of Hindi have been trained in Hindi workshops. During the year under review, Bank has conducted 179 refresher training programmes for such employees.

In the sphere of using Information Technology in the Official Language, the Bank has furthered the use of Shabdaratna and Akruti packages for word processing, usage of Bankscript package for Data Processing and also made provision in ATM screens of the Bank for carrying transaction in 10 Indian languages. Telebanking facility has also been provided in Hindi and English and other 6 major regional languages. The Banks corporate website isfully bilingual.

To encourage effective implementation of Official Language, the Bank has introduced various schemes and awards to its employees. Official Language Implementation Committees are constituted in all the branches of the Bank to motivate and guide the employees towards effective implementation of Official Language Policy ofthe Govt, of India.

Promotion of Sports

Canara Bank has always been encouraging and supporting sports and contributed generously to sporting activities all overthe country by sponsoringtournaments and providing scholarships to talented sports persons. The Bank has shown a keen and abiding interest in recruiting sports persons and has on its rolls 42 sports persons in six disciplines viz., Cricket, Hockey, Womens Athletics, Badminton, Ball Badminton andTableTennis.

International Cricketers Shri B K Venkatesh Prasad, Shri Sunil Joshi, Ms Shantha Rangaswamy, Ms Kalpana and Ms Sudha Shah (Coach of the Indian Womens Cricket Team) are presently in the Banks fold. Ace Shuttler and former National Champion and former coach ofthe Indian Badminton Team, Shri U Vimal Kumar, International Athletes - Smt. M K Asha, Smt. Suma Gopalakrishna and Smt. H M Jyothi and Hockey Internationals - Shri Bharat Chhetri and Shri PShanmugam are also on the Banks rolls.

Canara Bank recorded several distinctions in the sporting arena and the Banks Cricket, Ball Badminton and Table Tennis Teams rank numero uno in the State of Kamataka.

FINANCIAL SUPERMARKET

Subsidiaries, Sponsored Entities and Joint Ventures

Canara Bank, with fhe objective of offering OneStop Banking Mart for the customers, forayed into diversified business activities by opening subsidiaries during late 1980s. Today, the Bank functions as a Financial Supermarketwith as many as nine subsidiaries/sponsored entities/joint ventures in diversified areas.

The Bank has taken significant steps towards strengthening fundamentals of these entities so as to emerge as a strong Financial Supermarket" in India. All the subsidiaries/ sponsored entities/ joint ventures of the Bank recorded satisfactory performance duringthereportingyear.

Commercial Bankof India LLC(CBIL)

CBIL, a joint venture of Canara Bank and State Bank of India, has been operational since April 2004 in Moscow, Russia. The Company earned a profit aftertax of USD 2.15 million as at 31st March 2010.

Canbank Venture Capital Fund Limited (CVCFL)

CVCFL, the Trustee and Manager of Canbank Venture Capital Fund (CVCF), is a wholly owned subsidiary of the Bank. Currently, it manages two Funds with a corpus of Rs. 23.85 crore. During the financial year 2009-10, CVCFL assisted 95 Ventures, involving a sum of Rs. 108.90 crore. The Company recorded a profit after tax of Rs.71.02 lakh for the year 2009-10. CVCF is all set to float 5th Fund with a corpus of Rs. 500 crore. The Company has been continuously payingdividend.

Can Fin Homes Limited (CFHL)

CFHL, a sponsored entity of Canara Bank, is one of the premier housing finance entities in the country. The Company sanctioned and disbursed loans amounting to Rs.653 crore and Rs.547 crore respectively, taking cumulative sanctions to Rs.6172 crore and disbursement to Rs.5329 crore as at March 2010. The company posted a profit after tax of Rs.39.18 crore as at March 2010 as against Rs.31.52 crore duringthepreviousyear.

Canbank Factors Limited (CFL)

Canbank Factors Limited, which is a factoring subsidiary of the Bank, is a member of Factors Chain International. Factors Chain International is an umbrella organization for factoring companies across the world. The company achieved a total business turnover of Rs. 3735 crore as at 31.03.2010. The Company has earned Profit after Tax of Rs. 24.37 crore as at March 2010. The Company paid a dividend of Rs. 224 lakh to the Bank.

Canbank Computer Services Limited (CCSL)

Canbank Computer Services Limited is the only Software Company promoted bya public sector bank in the country.

CC5L is primarily engaged in Hand Software development services, training/consultancy and registrar and share transfer agency. The Company is a member of NASSCOM and Registered as a software solution provider for World Bank projects. The Company has posted profit after tax of Rs. 110.31 lakh as on 31.03.2010. CCSL received orders for managing CBS Help Desk of Canara Bank and its operation is likely to commence from May 2010. The Company has been successfully managing the Call Centre activity of Canara Bank and started attending outbound calls also. During the year, the Company also conducted Information System Audit Training for Officials in Inspection Department and IT Department of Pragathi Gramin Bank.

Canara Bank Securities Limited (CBSL)

Canara Bank Securities Limited (Formerly Gilt Securities Trading Corporation Limited) which was established as Primary dealer, has hived off Primary Dealer business to the parent Bank. The Company has diversified into Capital Market related activities, mainly stock broking since 2007. The Company offers stock broking services to both institutional and retail clients. Online Trading Counter for retail customers is its flagship product. The Company entered Currency Derivatives during 2009-10. The Company posted a Profit after Tax of Rs. 6.51 crore as at March 2010. The Company declared its maiden dividend and paid dividend of Rs. 4 crore to the Bank.

Canbank Financial Services Limited (Canfina)

Canbank Financial Services Ltd confined its activities to legal matters arising out of past transactions in securities, besides concentrating on collection of lease rentals and recovery of dues under decreed accounts. Du ri ng theyear, Canfina posted a profit aftertax of Rs. 2.58 crore. It repaid Rs. 326.45 crore out of the funding support of Rs. 376.45 crore given by the Bank and proposes to clear the entire liability of Rs. 50 crore outstanding, during the current fiscal year.

Canara Robeco Asset Management Company Limited (CRAMC)

To manage assets of Canbank Mutual Fund, M/s Canbank Investment Management Services Limited (CIMS) was established in 1993. In the year 2007, Canara Bank divested 49% stake of Asset Management Company in favour of M/s Robeco Groep N V forming a joint venture, for managing the assets of Canbank Mutual Fund (since renamed as Canara Robeco Mutual Fund). The company has since been renamed as Canara Robeco Asset Management Company Limited. The JV aims to capture a worth while market share of Mutual Fund industry by bringing best international practices and expertise supported by the vast network of the Bank. With a majority share of 51% held by the Bank, Assets Under Management (AUM) of the Company improved to Rs. 7632 crore and Corpus fund increased to Rs. 5879 crore, with investors base of 3 lakh as at March 2010. The Company is currently managing 18 Schemes.The Fund crossed the milestone AUM of Rs. 10000 crore during February 2010. Canara Robeco Asset Management Company was nominated for Best AMC - ranked as the 2nd best AMC at Business world MF Awards and received Best Bond Fund House Award at Lipper Fund Awards 2010.The company has improved its rankingfrom 26 out of 32 fund houses to 16 out of 37 fund houses as at March 2010.

Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited

An Insurance Joint Venture floated by the Bank in association with internationally reputed HSBC Insurance (Asia Pacific) Holding Limited and Oriental Bank of Commerce. The Company was incorporated during September 2007. With a majority shareholding of 51% in the Company, the Bank has ventured into a niche segment, with a fine blend of international expertise and its own domestic outreach. The Company commenced its business operations from 16.06.2008 by offering products viz., Child Plan, Saral Bima Plan, Stay Smart, Retire Smart and Saral Bima Plus. In addition, mandatory and non-mandatory Group Credit protection schemes were also launched. The Companys assets under management (AUM) during the year stood at Rs. 1314 crore as on 31.03.2010. The Company has registered an Annualized Premium Equivalent (APE) of Rs. 644 crore in its second year of operation.The Company has crossed Rs. 1000 crore in terms of total premium since inception and has become the fastest to achieve this milestone in a record time of 21 months. Out of the 22 private players in the insurance field in India,the Company is ranked 13th.The Company has doubled its market share at 1.8% during 2009-10 from 0.9% in 2008-09.

Regional Rural Bank; (RRBs)

Canara Bank sponsored 3 RRBs in three States with a network of 793 branches, viz., Pragathi Gramin Bank in Karnataka, Shreyas Gramin Bank in Uttar Pradesh and

South Malabar Gramin Bank in Kerala. All RRBs sponsored by Canara Bank are profit making as at March 2010 with a combined operating profit level at Rs.165 crore and profit aftertax of Rs. 108 crore. Aggregate business level of these RRBs crossed the Rs.17000 crore mark to reach Rs.17509 crore, comprising Rs.9444 crore under deposits and Rs.8065 crore under advances as at March 2010. Gross NPA ratio of these RRBs was 2.28% and Net NPA was 1.24% as at March 2010. In tune with policy focus to double the credit flow to agriculture sector, the RRBs disbursed an amount of Rs.5125 crore, recording a y-o-y growth of 27.9% during the year under review. Priority sector advances constituted 88.79%. Agriculture credit outstanding stood at Rs.5768 crore as at March 2010. During this financial, Pragathi Gramin Bank achieved number one position in business in South India, apart from maintaining the number one position in Karnataka. While South Malabar Gramin Bank continues to occupy number one status in Kerala, Shreyas Gramin Bank was number one under Employee productivity in Uttar Pradesh. All the three RRBs are taking necessary steps to implement CBS in all their branches by September 2011.

AWARDS/ACCOLADES

In recognition of the varied initiatives, the Bank was conferred with several awards and accolades during the year. Some prominent awards received areas under:

Best Bank in South Zone Award for the year 2008-09 in respect of lending under KVIC and PMEGP Schemes. The award was handed over by Dr. Manmohan Singh, Honble Prime Ministerof India.

The Bank received the Credit Guarantee Approval Certificate issued by CGTMSE from Shri Pranab Mukherjee, Honble Finance Minister of India.

VARIOUS POLICIES OF THE BANK

There is a system of well-defined policies and procedures of the Bank. During the year, concerted efforts were made to streamline the policies and procedures of the Bank in the light of regulatory requirements of the RBI, the directions of the Government of India and the emergent requirements of the Bank in the present day context. Accordingly, there has been a sharper focus on policies relating to, among others, Credit Risk Management, Market Risk Management, Operational Risk Management,

Asset Liability Management, Liquidity Risk Management, Country Risk, Counterparty Bank Risk, Corporate Governance, Disclosures, Collateral Management, Stress Testing, Compliance Functions, Disaster Recovery and Business Continuity Planning, Business Lines, Outsourcing and Internal Capital Adequacy Assessment Process (ICAAP), Know Your Customers (KYC), Anti-Money Laundering (AML), Recovery and Investments.

CHANGES IN THE BOARD OF DIRECTORS

Year 2009-10 saw changes in the com position of the Board of Directors of the Bank.

- The term of Shri Ajay Mathur as Part-time Non-Official Director on the Board ended on 12.10.2009.

- The term of Shri S KKohli as Officer Employee Director ended on 07.03.2010.

DIRECTORS RESPONSIBILITY STATEMENT

The Directors, in preparation of the annual accounts for theyearended March 31,2010, confirm thefollowing:

- That in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures.

- That they had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bankforthe period.

- That they had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India for safeguardingthe assets of the Bank and for preventing and detecting fraud and other irregularities.

- That they had prepared the annual accounts on a going concern basis:

ACKNOWLEDGEMENT

2009-10 was an eventful year for the Bank as it regained growth momentum and crossed three major milestones. The Bank made several initiatives to maximize rewards for all its stakeholders, viz., shareholders, customers, investors, Government, RBI, employees and the public at large.

The Board sincerely appreciates the significant contribution made by the Directors on the Banks Board and the Directors who completed their tenure during the financial year under review, to customers for their patronage, to the shareholders for their support, to the Government and the RBI for their valuable guidance and support, to the Banks correspondents inland and abroad for their cooperation and goodwill and to all the staff members for their full support in the journey towards excellence.

A C MAHAJAN

CHAIRMAN AND MANAGING DIRECTOR

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