Directors Report of Lakshmi Vilas Bank Ltd.(Amalgmated)

Mar 31, 2018

TO THE MEMBERS

The Directors of your Bank wish to present this 91^st Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31^st March, 2018 (FY 2017-18).

1. FINANCIAL PERFORMANCE:

The highlights of the financial performance of your Bank for the year ended 31^st March, 2018 are as under:

	For the year ended
Particulars	(Rs. in crore)
	31st March 2018	31st March 2017
Deposits	33,309.48	30,553.35
Advances (net)	25,768.20	23,728.91
Investments (net)	10,767.75	8,651.73
Total Income	3,388.43	3,349.42
Operating Profit	355.38	634.06
Provisions & Contingencies	940.24	377.98
Net profit	(-)584.86	256.07

Your bank registered a growth of 10.64% in business and attained a total business of Rs. 60,314.02 crore in FY 2017-18 as against total business of Rs. 54,511.81 crore in FY 2016-17.

Deposits grew by 9.02%, from Rs. 30,553.35 crore as at 31^st March 2017 to Rs. 33,309.48 crore as at 31^st March 2018. CASA represented 21.06% of total deposits. Total advances (net) expanded by 8.59%, from Rs. 23,728.91 crore to Rs. 25,768.20 crore in the same period. The total Priority Sector Advances were Rs. 8801.64 crores forming 41.81% of Adjusted Net Bank Credit (ANBC) against the regulatory prescription of 40% of ANBC for the FY 2017-18.

The total Agricultural Advances stood at Rs. 3793.54 crores forming 18.02% of ANBC against the regulatory prescription of 18.00% of ANBC. Of which, loans to Small and Marginal Farmers stood at Rs. 1970.29 crores forming 9.36% of ANBC against the mandatory requirements of 8.00% of ANBC for the year 2017-18.

Our Bank’s advances to Micro Enterprises under MSME were at 7.60% of ANBC amounting to Rs. 1599.14 crores against the mandatory requirements of 7.50% of ANBC for the year 2017-18.

Bank’s advances to Weaker Sections were Rs. 2133.28 crores forming 10.13% of ANBC against the mandatory requirements of 10.00% of ANBC for year 2017-18.

The Bank continues to comply with the regulatory guidelines under priority sector, agricultural lending, micro enterprises and weaker section advances.

The Bank’s exposures to sensitive sectors including Real Estate and Capital Market were maintained well within the regulatory limits as well as overall internal ceilings prescribed for such exposures.

As at the end of the year under review, the total investments (net) of the Bank stood at Rs. 10,767.75 crore as against Rs. 8,651.73 crore as on 31^st March 2017.

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

2. PROFIT / LOSS

The Bank has posted an operating profit of Rs. 355.38 crores in FY 2017-18 against Rs. 634.06 crores in the previous year FY 2016-17. Excluding Treasury profits, the operating profit for 2017-18 was Rs. 290.98 crores as against Rs. 374.10 crores in the Previous Year. The net loss for the year, after provisions and taxes, amounted to Rs. 584.87 crores as against a net profit of Rs. 256.07 crores recorded in 2016-17.

3. APPROPRIATIONS:

Particulars	For the year ended (Rs. in crore)
	31st March 2018	31st March 2017
Profit brought forward	62.26	0.00
Transfer from Investment Reserve	0.00	0.00
Amount available for appropriation	(-)522.60	256.07
Transfer to
Statutory Reserve	0.00	64.10
Capital Reserve	86.26	77.16
Other Reserve		46.55
Investment Reserve	0.00	0.00
Special Reserve u/s 36(i)(viii)of the IT Act, 1961	0.00	6.00
Proposed Dividend/Dividend paid for FY 2016-17	51.79	0.00
Corporate Dividend Tax - FY2016-17	10.47	0.00
Balance of profit carried forward	(-)671.12	62.26

4. DIVIDEND:

In view of the Net Loss for the FY 2017-18, your Board of Directors is unable to recommend any dividend for the year.

Your Bank has a Board approved Dividend Distribution Policy which has been formulated in line with Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and extant RBI Circulars / Directives. The Dividend Distribution Policy has been enclosed as Annexure J to the Directors’ Report. The Policy has also been made available in the website of the Bank and can be accessed at https://www.lvbank.com/Policies.aspx

5. RIGHTS ISSUE 2017-18:

During the year 6,39,87,006 equity shares were allotted to eligible shareholders on Rights Basis in line with Chapter II (10) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. These shares were issued at a premium of Rs. 112/-to the face value of Rs. 10/-.

As on March 31, 2018, the post-issue paid-up capital of your Bank stood at Rs. 255,99,37,530 comprising 25,59,93,753 equity shares of Rs. 10 each.

6. STATEMENT OF DEVIATION OR VARIATION:

During the year, the Bank had allotted equity shares to eligible shareholders on Rights Basis on 03.01.2018. The issue was done in order to enhance the capital adequacy ratio in line with the RBI norms and the proceeds of the issue were used primarily to enhance the Bank’s Capital Adequacy Ratio and to increase our capacity to lend and for general corporate purposes subject to compliance of applicable laws. There was no variation prompting disclosure under Regulation 32 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015.

7. EPS / BOOK VALUE:

Earnings per Share stood at Rs. (-)28.29 for the year ended 31^st March, 2018 as compared to Rs. 14.07 as on 31^st March, 2017. Book Value of the share, stood at Rs. 84.39 on 31^st March, 2018 as compared to Rs. 102.74 as on 31^st March, 2017.

8. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO:

Net Owned Funds (NOF) of the Bank increased from Rs. 1,966.85 crores as at the end of FY 2017 to Rs. 2160.41 crores as at the end of FY 2018, reflecting a growth of 9.84%.

The Capital Adequacy Ratio (CAR) as on 31^st March 2018 as per BASEL III is 9.81%. The Tier-I and Tier-II components of Capital Adequacy Ratio were maintained at 8.05% and 1.76% respectively.

It is heartening to mention that the rights issue had received overwhelming response and participation by the existing shareholders. The Bank is proposing to go in for raising of further capital to bolster Tier-I to take care of regulatory prescriptions as well as to fund planned growth for at least the next two years.

9. STRATEGY OF IND-AS IMPLEMENTATION:

Ministry of Corporate Affairs (the “MCA”) had given a roadmap on convergence to Ind AS by banks mandating them to adopt Ind AS from April 1, 2018. Consequently opening balance sheet was required to be drawn as on April 1, 2018.

Progressing towards Ind AS, Bank has prepared the Proforma Statement (Unaudited) for the half year ended 30.9.2016 and for the Quarter ended 30.6.2017 with the opening Balance Sheet as on 1.4.2017 as per extant regulatory guidelines as advised by RBI circular DBR.BP.BC.No.2535/21.07.001/2017-18 dated September 13, 2017 and submitted to RBI.

However, on April 05, 2018, Reserve Bank of India (RBI) has announced deferment of implementation of Indian Accounting Standards (Ind AS) by one year for scheduled commercial banks. Accordingly the FY 2019-20 would be the first year of Ind AS with FY 2018-19 as the comparative year. Bank is in the process of upgrading the Core Banking System and has initiated necessary steps for the preparation of financial statements as per Ind AS.

10. NON-PERFORMING ASSETS (NPA):

The Gross NPA of all the banks in the country has seen upward movement during the FY 17-18. The Indian Banks’ Gross NPA/Bad loans stood at Rs. 10.25 lakh crores as on 31.03.18. This is 11.80% of the total loans given by the banking industry. During the FY2018, the total bad loans of scheduled banks rose substantially by Rs. 3.13 lakh crores. Both public and private sector banks have faced significant challenges from the bad loan.Our bank, despite accelerated efforts to maintain good health in the quality of the accounts could not control the addition of NPA during the FY 17-18 due to reasons beyond its control (i.e.,) the failure of majority of industries granted under infrastructure, Iron and steel, textiles, etc. The introduction of IBC (Insolvency and Bankruptcy Code) could not bring any drastic results as it is in its initial implementation stage.

With concerted efforts, substantial reduction in NPA of Rs. 862.Cr has been effected;while, the unprecedented slippage of standard assets to NPA has eclipsed the good recovery performance.

The Bank has intensified recovery efforts and these are expected to result in significant improvement in the NPA ratios during the year. Initiatives include disposal of secured assets under SARFAESI/DRT, enforcement of favourable decrees as well as sale of assets to ARCs. In this connection, the Bank has seen considerable interest to purchase such stressed assets, from various interested entities and with these efforts bank is hopeful of significant achievement in reduction of NPA.

11. BRANCH AND ATM NETWORK:

The Bank had obtained license to open 75 new branches (69 General Banking Branches and 6 Commercial Banking Branches) during 2017-18 to extend its reach and opened 67 branches during the year including 2 personal Banking (one in Chennai and the other in Bangalore) and 6 commercial banking branches. The Bank’s network spread as on 31^st March 2018 stood at 548 branches with 540 General Banking branches, 7 Commercial Banking Branches, 1 Satellite branch and 7 extension counters with its presence spread across 18 states and the union territory of Puducherry. The Bank has added 62 new ATMs during the Fiscal 2017-18 and the ATM network stood at 1020 which includes 596 Offsite ATMs.

The Bank’s augmented Branch and ATM network continues to provide quality banking and financial services to its customers. The Bank continues to focus on providing fine banking &financial services to all its customers.

12. FINANCIAL INCLUSION:

Financial Inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged, low income groups and providing timely and adequate credit where needed. The essence of financial Inclusion is to ensure that a range of appropriate basic financial services are made available to every individual, enabling them to understand and access those services. Pradhan Mantri Jan Dhan Yojana (PMJDY) project ensure to open at least one bank account to every family/household and issuing of personalized Rupay Debit cards. Rupay debit cards have in-built accidental insurance coverage.

The bank has implemented the financial inclusion plan in 363 Villages & wards allotted by SLBC in Tamilnadu. The Bank has opened 1,84,018 Basic Savings Bank Deposit Accounts (BSBDA) including 85,555 accounts under PMJDY, as on March 31, 2018.

13. INTERNATIONAL BUSINESS:

During financial year 2017-18, the rupee marginally depreciated by 0.5%, against a 2.1% gain in previous fiscal year on account of rising twin deficit. Rupee remained largely stable in comparison to other Asian currencies amid global recovery. Sovereign credit rating upgrade by Moody’s from Baa3 to Baa2, recovery of economic growth in second half of the year and record high RBI foreign exchange reserves of USD 424 Billion contributed to a stable rupee for most part of the year. U.S Federal Reserve continued to remain on tightening path by increasing interest rates thrice during the financial year with better than expected U.S.economic growth and rising inflation. The Bank of England increased its interest rates for the first time since 2008.

In the reporting financial year, the Bank has made a substantial growth in the foreign exchange turn over and achieved Rs. 11,192.64 Crores as against Rs. 6416.29 Crores in the previous year and is geared for a higher growth.

14. LIABILITIES PRODUCTS:

The liabilities business continued its growth trajectory in FY18.

- The Bank ended FY18 with total deposits of INR 33,309 Crores.

- Current and Savings Account (CASA) balances registered a y-o-y growth of 20%.

- The growth of CASA on a cumulative daily average balance (CDAB) basis was 23%. CASA as a part of total deposits grew to 21%, in line with the Bank’s objectives for the business.

PERSONAL BANKING AND BUSINESS BANKING:

- The Bank continued with the strategy of expanding the CROWN and NR franchise.

- A team of Relationship Managers acquire new CROWN relationships and work with our existing CROWN customers, to evolve as their preferred financial partner.

- The LVB CROWN SERVICES segment of customers accounted for a Savings Bank book of INR 668 Crores, a y-o-y growth of 81%.

- To enable non-resident customer to open accounts when they are overseas, the Bank has introduced “Virtual Relationship Manager”, and more importantly, pick up of Account Opening Forms and documents through DHL, absolutely free of cost.

- The NR book has grown impressively by 76% y-o-y.

- The Bank has continued to customize products and services to address banking requirements of various segments. Accordingly, 15 new and revamped products in Current and Savings Accounts have been launched, with bespoke benefits.

- LVB Vyapaar, launched towards the end of FY17 contributed handsomely with fee income as well as a growing Current Account book.

15. LISTING AGREEMENT WITH STOCK EXCHANGES:

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

16. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

During the financial year 2017-18, your bank had implemented the following digital initiatives:

Your Bank had introduced various digital features and services to serve you better. Bharat - QR, Card Management and Card Less Cash withdrawal features were enabled in mobile banking. Customers can now scan the QR at the merchant location and make payment instantly without need for swiping his/her debit card. The card management feature can be used for locking/unlocking the cards temporarily, manage the card limits for cash withdrawal, e-commerce and POS, set the Green Pin, change the debit card PIN. This is in addition to the card hot-listing feature already available in mobile banking.

Further to meet the ad-hoc cash requirements of customers, card-less cash feature is enabled through IMT (Instant Money Transfer). The customer can initiate cash payment to any other beneficiary in India using the mobile number. The beneficiary can use the secured credentials shared to him directly by the sender and also one received by him on his phone number to withdraw cash from any of IMT enabled ATMs including your Bank’s ATMs.

This year your Bank had launched UPI (Unified Payment Interface) application - LVB Upaay in IOS in addition to Android platform launched during last year. USSD 2.0 services are enabled for customers, wherein the customers can inquire the balance, carry out fund transfer by dialing *99#.

New version of Information Kiosk had been launched by your Bank with enhanced user experience which facilitates customers to recharge mobile, DTH, block debit cards, set Green Pin for debit card, cheque status inquiry including the stop payment, various intra and interbank fund transfer options, along with other options to inquire the account balances, account statement, last 10 transactions etc.

Now retail internet banking users are empowered to set and manage the limits for financial transactions and also set the limit for beneficiaries added by them. In addition to the above, ‘Aadhaar Seeding’ feature is enabled in retail internet banking.

17. WEALTH MANAGEMENT / PARABANKING ACTIVITIES:

Life Insurance:

Bank has entered strategic alliance with three leading Life Insurance companies in the country, Max Life Insurance, Birla Sun Life Insurance and DHFL Pramerica Life Insurance Company Ltd to offer life insurance cover to the valued customers of the Bank. The products offered to our clients are more diversified and tailor made to meet their requirements.

During the financial year 2017-18, the Bank has insured 9077 lives and grown by 54% and the premium collection has increased from Rs. 28.41 Crs to Rs. 38.07 Crs, registering Y-o-Y growth of 34%.

General Insurance:

Bank has tied up with Future Generali General Insurance Company Ltd to offer non-life insurance products to the various customer segments. During the year,the Bank collected the general insurance premium of Rs. 17.68 Crs while coveringthe assets of our customers.

Health Insurance:

The Bank has tied up with M/s. Cigna TTK Standalone Health Insurance Company Ltd to offer health insurance products to the customers; The Bank collected health insurance premium of Rs. 5.75 Crs during the year and covered 4721 customers.

Wealth Management:

1. FISDOM - Bank has tied up with M/s. Finwizard Technology Pvt Ltd (widely known as FISDOM) to offer mobile based wealth management services to our customers.

- Fisdom enables end-to-end digital transactions for mutual funds and this is first time in India.

- Our customers can invest in equity, debt and liquid instruments, through Fisdom, of almost all leading AMCs.

- The Bank has acquired 12500 clients with AUM of Rs. 35 Cr

- The monthly SIP book stood at Rs. 2 Cr.

- Bank has explored NPS enrollment option in Fisdom App, interested customer can enroll into NPS in fully digital platform and generate the PRAN instantly.

2. The Bank tied up with M/s. Centrum Wealth Management Limited (CWML) offering end to end wealth solution to our Ultra HNI clients, CWML is an established player in the market with AUM of INR 10,000Cr and expertise in area of complete Private Banking.

18. RISK:

The objective of risk management of the Bank is to achieve optimum return while operating within acceptable level of risk appetite. The Bank has an independent risk management function which is tasked with managing risk through policies and processes approved by the Board of Directors. These encompass identification, measurement and management or risks across the various businesses of the Bank. The risk management function in the Bank strives to scientifically study vulnerabilities of process across business portfolios through quantitative or qualitative examination of the embedded risks and controls. The function continues to focus on refining and improving its risk management systems through automation of processes and building and strengthening controls. The Bank has in place a Risk Management Committee of the Board of Directors. The Bank has formulated and adopted a robust risk management framework. The Bank has in place committees such as Credit Risk Management Committee (CRMC), Asset Liabilities Committee (ALCO), Operational Risk Management Committee (ORMC), Business Continuity Management Committee (BCMC), Information Systems and Steering Committee (ISSC). These committees meet frequently and discuss risk related issues arising from businesses and processes and have active participation from Top Management of the Bank.

The overall risk appetite and risk philosophy of the Bank is articulated by the Management to the Risk Management Committee and Board of Directors. The risk appetite framework provides guidance to the management on the permitted levels of exposure to various businesses and maps to the business strategy of the Bank. Further the Internal Capital Adequacy Assessment Process (ICAAP) of the Bank assesses all the significant risks associated with various businesses and projects the requirement of capital. The independent risk management structure within the Bank is responsible for managing the credit risk, market risk, liquidity risk, operational risk, other Pillar II risks like reputation risk and strategic risks and exercising oversight on risks associated with outsourcing. The Bank has in place well-defined policies appropriate for the various risks, viz. credit risk, market risk, operational risk, liquidity risk, counterparty risk, country risk, reputational risk, strategic risk and outsourcing risk. These are reviewed periodically in order to benefit from internal and external experience. IT and cyber risk has assumed significance in keeping with the rising risk in these areas and to keep pace with regulatory advisories.

19. INTERNAL CONTROLS:

The Bank has an independent Audit and Inspection Department, which subjects all the branches of the Bank besides the Treasury, Currency Chests, Service Branches, Regional Offices and every department of the Corporate Office, to regular inspection. The Bank also carries out regular IS audits covering application systems and processes in business units.

Key areas including Treasury, centralized operations departments and a large number of branches are under concurrent audit. Concurrent audit is carried out by qualified external auditors and meets requirements of Risk Based Supervision. In addition, the Bank also carries out thematic audits in selected businesses from time to time.

The Audit Committee of the Board constituted in line with RBI guidelines and as per the requirements of SEBI Regulationsreviews the adequacy of the audit and compliance functions, including the policies, procedures and techniques. The Composition of Audit Committee of the Board is provided elsewhere in the report.

During the year, there were no instances wherein the Board has not accepted the recommendations of the Audit Committee of the Board.

20. HUMAN RESOURCES:

The staff strength of the Bank was increased from 4043 as on 31.03.2017 to 4623 as on 31.03.2018 to cater to the manpower requirement on account of branch expansion and business growth. Further, 504 Sales Personnel were also engaged to boost sales. The Bank’s focus on training human resources on a continual basis gained momentum by conducting online e-learning, duly leveraging technology. The Bank has trained a considerable number of resources in offsite training programmes conducted by reputed institutions such as RBI, CAB, SIBSTC, IIBF, NIBM & FEDAI. Further, the Bank has entered into a strategic training collaboration with M/s. Manipal Global Academy of BFSI and launched “Mission Enlighten” which shall facilitate in bridging the skill gap and developing the internal talent pool.

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

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

22. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

There were no related party transactions during the year under review and Form AOC-2 is not applicable to the Bank. During the FY 2017-18, the Bank did not have any Material Related Party Transaction.

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

23. OUTLOOK 2018-19:

The expected growth in Global economy could provide an impetus to India’s exports. The various favourable indicators such as moderate levels of inflation, anticipated growth in the industrial sector, expectation of greater stability in GST, much awaited recovery in investment levels and ongoing structural reforms could propel India’s economy to grow at an accelerated pace. However, the country’s growth could be impacted by the increase in crude oil prices along with the protectionist tendencies in some countries. The outlook from the recently tabled Economic Survey depicts a positive trend for the economy in the long term, which forecasts India to be the world’s fastest growing large economy in the next 10 years.

Growth:

Going forward, economic activity is expected to gather pace in 2018-19, benefitting from a conducive domestic and global environment. First, the teething troubles relating to implementation of the GST are receding. Second, credit off-take has improved in the recent period and is becoming increasingly broad-based, which portends well for the manufacturing sector and new investment activity. Third, large resource mobilisation from the primary market could strengthen investment activity further in the period ahead. Fourth, the process of recapitalisation of public sector banks and resolution of distressed assets under the Insolvency and Bankruptcy Code (IBC) may improve the business and investment environment. Fifth, global trade growth has accelerated, which should encourage exports. Sixth, the thrust on rural and infrastructure sectors in the Union Budget could rejuvenate rural demand and also crowd in private investment.

India’s GDP growth saw a temporary dip in the last two quarters of 2016-17 and in the first quarter of 2017-18 due to demonetization and disruptions surrounding the initial teething trouble in implementation of GST. The Indian economy is set to revert to its growth trend in the coming years and growth is expected to firm up in 2018-19 on the back of higher private consumption and improvement in investment.

Output:

- Real Gross Domestic Product (GDP) is likely to grow by 6.6 per cent in 2017-18 and may accelerate by 70 basis points (bps) in 2018-19 to 7.3% on the back of support from private consumption and investment.

- Real Gross Value Added (GVA) is expected to grow by 7.1 per cent in 2018-19, supported by activity in the industry and services sectors.

Inflation:

Headline Consumer Price Index (CPI) inflation is expected to increase till Q1:2018-19 and thereafter remain below 5% till Q4:2018-19 Forecasters have assigned the highest probability of CPI inflation being in the range 4.5-4.9% in March 2019.

Exports and imports:

The volume of merchandise exports is forecast to rise by 9.4% in 2018-19, slightly more than the rate of growth in the previous year. The volume of imports, on the other hand, is expected to drop sharply. If lower imports help in increasing domestic production, that will be a positive.

Current account deficit:

The Current Account Deficit (CAD) is expected at 1.9% of GDP in 2017-18 and is likely to increase by 20 bps to 2.1% of GDP in 2018-19.

The banking sector:

The banking sector has been experiencing high balance sheet stress with the corporate debt overhang and associated banking sector credit quality concerns. The implementation of the new Insolvency and Bankruptcy Code is an important step towards improving the credit behaviour.

Recapitalization of the Public Sector Banks will improve the banking sector’s ability to support growth, have the potential to ease stress on the banking sector and reinvigorate bank credit.

Reserve Bank of India (RBI) has deferred the implementation of Indian Accounting Standards (Ind AS) by one year for Scheduled Commercial Banks i.e. 2019-20 would be the first year of Ind AS with 2018-19 as the comparative year. This will provide time for the banks to improve their preparedness on technical and operational side requirements, for the smooth implementation of Ind As.

24. CORPORATE GOVERNANCE:

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interests of all the stakeholders. The Bank has complied with the Corporate Governance provisions as specified in SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015. In addition to complying with the mandatory requirements, the Bank is also complying with having separate offices of the Chairman and Chief Executive Officer, which is a discretionary requirement under the Regulations. However, the same is also in compliance with the RBI directive. Further, all the Directors on the Board have executed deed of covenant and undertaking individually in line with the recommendations of Dr. Ganguly Committee Report. Pursuant to SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, a Management Discussion and Analysis is presented in Annexure-A and Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meetings of the Board, its Committees and Annual General Meeting and the number of directorships held by them alongwith the details of Audit Committee and Stakeholders Relationship Committee are furnished in Annexure-C, including composition of the Audit Committee. General Shareholders’ information is furnished in Annexure-D.

25. NUMBER OF MEETINGS OF THE BOARD:

During the financial year, the Board met 16 times. The Board meetings were held in accordance with the provisions of the Companies Act, 2013. The details of the meetings held are provided in the Corporate Governance Report that forms part of this Annual Report.

26. POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL:

According to the Articles of Association of our Bank, the number of Directors of the Bank shall not be less than three and more than fifteen and not less than fifty-one percent of the total number of Directors shall be persons who satisfy the requirements of Section10A of the Banking Regulation Act. The process of Due Diligence is undertaken in compliance of Directives/Guidelines/Circulars issued by RBI from time to time in the matter of appointment/re-appointment of Director. The Non-Executive Chairman of the Bank and the Managing Director of the Bank are appointed with prior approval of the RBI. Based on the vacancies that may arise in the Board from time to time, the Board follows a due process of appointment of directors through prior due diligence in line with the regulatory advice given by RBI, SEBI and MCA by way of Circulars / Guidelines / Regulations / enactments. The Nomination, Remuneration and Compensation Committee of the Board have formulated criteria for evaluation for the appointment or re-appointment of directors including Independent Directors. The Managing Director &CEO of the Bank is paid remuneration as approved by the RBI but is not paid any sitting fees. The Non-Executive Chairman of the Bank is paid honorarium as approved by the RBI along with sitting fees paid for attending Board/Board Committee meetings. Other than the MD&CEO and Part-time Chairman, no other directors are paid any remuneration/honorarium apart from sitting fees for attending Board and Board Committee Meetings. The details of remuneration of the MD&CEO and that of the sitting fees paid to the other directors are available elsewhere in the report. The Senior Management and the other KMPs of the Bank along with other employees are paid remuneration based on internal HR policies of the Bank. The senior management of the Bank along with the KMPs abide by the Code of Conduct prescribed by the Bank. The code of conduct has been disclosed at the Bank’s website and can be viewed at http://www.lvbank.com/UserFiles/CODEOFCONDUCT.pdf. For the FY 2017-18, the MD&CEO, ED&CFO (employed till 21.10.2017) and Company Secretary are the Key Managerial Personnel (KMPs) of the Bank, as stipulated by the Companies Act, 2013. As on 31.03.2018, other than the MD&CEO there are no other Whole Time Directors in the bank.

27. DECLARATION BY INDEPENDENT DIRECTORS:

The Company has duly obtained necessary declarations from each Independent Director under Section 149(7) of the Companies Act, 2013 that he/she meets the Criteria of Independence as laid down in the Companies Act, 2013 and Regulation 16 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 and the Company has also obtained the ‘Fit and Proper’ declaration as prescribed by the Reserve Bank of India.

28. BOARD EVALUATION:

The performance of the Board as a whole and that of the individual Directors and of various Committees of the Board were evaluated based on the ‘Criteria for evaluation of Independent Directors and the Board’ as formulated by the Nomination, Remuneration and Compensation Committee of the Board. The Board had already taken note of the evaluation made by the Independent Directors on the Board at their meeting held on 27.03.2018. During the evaluation, the Independent Directors had noted that the performance of the Non-Executive Chairman of the Board, the Non-Independent Directors and the Board as a whole was found to be satisfactory. Based on the inputs received from the evaluation conducted by the Independent Directors and also considering certain specific criteria depending on the role of the director/committee in the Bank and the criteria for evaluation framed by the Nomination, Remuneration and Compensation Committee of the Board, the subject of Board Evaluation consisted of the following:

1. Evaluation of Board as a whole.

2. Evaluation of Board Committees.

3. Evaluation of Individual Directors of the Board.

- Evaluation of Managing Director.

- Evaluation of Non-Independent Directors.

- Evaluation of Independent Directors

While evaluating the performance of the Board, Board Committees and Individual Directors, the Directors considered various parameters including those formulated by the Nomination, Remuneration and Compensation Committee of the Board and the Guidance Note on Board Evaluation prescribed by SEBI. Some of the factors considered include the Structure of the Board, the mix of qualification, the functions of the Board, etc. Being governed by the Banking Regulation Act, 1949, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act, 2013, the mandatory Committees of the Board have been entrusted with specific roles and responsibilities under the relevant regulatory provisions. Besides the mandatory Committees as prescribed by the regulators, the Board has separately constituted certain Committees with specific reasons viz., the HR Committee of the Board and the Capital Raising Committee of the Board.

The evaluation of Board Committees was done taking into account their mandate, composition, frequency of their meetings, independence of the Committees from the Board, contribution of the Committees to the decisions of the Board through recommendations and to the Management through decisions, etc. The Managing Director & CEO of the Bank was evaluated based on the Business targets set and the Bank’s overall performance during the year, managing and executing the Board approved business plans, operational plans, risk management, and financial affairs of the organization; ensuring proper coordination between the Board and the Senior Management; Motivating employees and resolving major employee related issues, thus maintaining a healthy work environment; Ensuring strict monitoring of the internal control processes.

The Non-Executive Directors (both Independent and Non-Independent) of the Bank were evaluated based on their attendance and active participation in the Board and Committee meetings, openness to new ideas and ability to challenge old practices and throwing up new ideas for discussion; Coordination and rapport with the fellow Board Members; the positive contribution of the individual Directors who come from a professional background and the quality of suggestions and guidance given by them through their

participation in the meetings with an understanding of the business of the Bank and an understanding of their role and responsibilities and the overall effectiveness; the broad based discussions at Board/Committee Meetings, the understanding of the regulatory requirements; remaining abreast of various developments in the Indian banking arena and keeping up with the various modifications / re-enactments of statutory enactments applicable to the Bank like the Companies Act, SEBI Regulations and the Banking Regulation Act, 1949; approach towards conflicts resolution and their contribution in enhancing the Board’s overall effectiveness and integrity and maintaining of confidentiality.

The Independent Directors of the Bank were also provided a familiarization program about the bank and their ability to bring in an independent judgment to the issues handled by the Board without getting influenced otherwise. The evaluation with respect to individual non-executive directors revolved around various factors as mentioned above and it was ensured that the Board members evaluated their fellow member Directors in the absence of the Director being evaluated.

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

Resignations/Cessation of tenure of appointment:

- Shri N.S. Venkatesh, Executive Director and Chief Financial Officer of the Bank resigned with effect from 21.10.2017 after serving on the Board of the Bank for a period of 1 year and 3 months.

- Shri S G Prabhakaran retired from the Board on 06.06.2018 as per the provisions of Section 10A (2A) of the Banking Regulation Act, 1949 after serving on the Board continuously for a period of eight years.

- Shri Pankaj Vaish vacated his office by operation of law on 18.07.2017 pursuant to the provisions of Section 161 of the Companies Act, 2013 after serving in the Board for around 10 months in the current tenure of appointment.

- Shri Prakash P Mallya vacated his office by operation of law on 18.07.2017 pursuant to the provisions of Section 161 of the Companies Act, 2013 after serving in the Board for around 10 months in the current tenure of appointment.

- During the year, Smt. E V Sumithasri retired from the Board on 03.09.2017 after completing the tenure of appointment approved by the shareholders. After her retirement, she was re-appointed by the Board as Additional Director (Non-Executive and Independent) on

27.09.2017. However, she resigned from the Board with effect from 30.03.2018 after serving on the Board for around 6 months in the present term.

- During the year, Shri S Dattathreyan retired from the Board on 26.09.2017 after completing the tenure of appointment approved by the shareholders. After his retirement, he was re-appointed by the Board as Additional Director (Non-Executive and Independent) on 27.09.2017. However, he retired from the Board on 07.03.2018 as per the provisions of Section 10A (2A) of the Banking Regulation Act, 1949 after serving on the Board continuously for a period of eight years.

Appointments:

- Shri G Sudhakara Gupta was appointed as an Additional Director on 27.09.2017 pursuant to the provisions of Section 161 of the Companies Act, 2013 and classified as Non-Executive and Non-Independent Director in terms of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Business under minority sector as per Banking Regulation Act, 1949.

- Shri H S Upendra Kamath was appointed as an Additional Director on 20.04.2018 pursuant to the provisions of Section 149 (4) and Section 161 of the Companies Act, 2013 and classified under Independent category in terms of Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Banking (Practical Experience) and Small Scale Industry (Special Knowledge) under majority sector as per Banking Regulation Act, 1949.

- During the year, the tenure of appointment of Shri Suvendu Pati was extended by RBI for a period of two years from February 12, 2018 to February 11, 2020 or till further orders, whichever is earlier.

Re-appointment of Director retiring by rotation:

Smt Anuradha Pradeep, Director, will be retiring by rotation at the ensuing 91^st Annual General Meeting and being eligible, offers herself for re-appointment.

Key Managerial Personnel

- Shri N S Venkatesh, who took charge as the Executive Director of the Bank on 01.07.2016, was additionally designated as the Chief Financial Officer of the Bank with effect from 26.12.2016, in addition to the responsibilities as Executive Director of the Bank, resigned with effect from 21.10.2017 after serving as Chief Financial Officer for about 10 months.

- Shri S Sundar took charge as the Chief Financial Officer of the Bank with effect from 27.04.2018.

Apart from the above, there were no changes in the Key Managerial Personnel during the year.

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

The Board of Directors of your Bank confirms that in the preparation of the annual accounts for the year ended March 31, 2018:

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

- The Directors had selected such accounting policies and applied them consistently and made judgments and estimates thatare reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the Company for that period.

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

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

- The Directors had laid down internal financial controls to be followed by the company and that such internal financial controlsare adequate and were operating effectively; and

- The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

31. SOCIAL INITIATIVES 2017-2018:

Your Bank as a responsible corporate citizen has been supporting various philanthropic activities by donating such initiatives to the tune of Rs. 15.56 Lacs. Further, your bank has also taken several initiatives in the area of CSR.

Corporate Social Responsibility (CSR)

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

32. BUSINESS RESPONSIBILITY REPORT:

The Business Responsibility Report prepared in accordance with the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 has been made available on the Bank’s website at https://www.lvbank.com/ BusinessResponsibilityReport.aspx

33. EXTRACT OF ANNUAL RETURN:

Pursuant to Section 134(3)(a) of the Companies Act, 2013, the extract of Annual Return in Form MGT 9 is appended to this Annual Report as Annexure F and a copy of the same will be made available in the website of the bank and can be accessed at www.lvbank.com.

34. STATEMENT ON COMPLIANCE TO APPLICABLE SECRETARIAL STANDARDS

The Bank has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI).

35. PARTICULARS OF EMPLOYEES:

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

36. EMPLOYEES STOCK OPTION SCHEME:

In the year 2010, the shareholders of the Bank have approved the issue of shares through Stock Option Scheme (ESOS 2010). During FY 17-18, total of 5,60,000 options were exercised by the Managing Director, Former Executive Director and Chief Risk Officer out of the grants made under ESOS 2010. In the year 2017, the shareholders of the Bank have approved the issue of shares through Employees Stock Option Scheme 2017 (ESOS - 2017). The implementation of both the said schemes is in accordance with the applicable SEBI Regulations.

All the options granted so far have been under ESOS 2010 and no options have been granted under ESOS 2017 till date. There is no material changes made in the schemes during the year and all the schemes are in compliance of Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014.

Statutory disclosures regarding ESOS have been furnished in Annexure H to the report and can be viewed at www.lvbank.com/ annualreport.aspx.

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

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

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

Attention is invited to Note 8 of Notes to Accounts (Schedule 18) for the year ended 31^st March 2018:

In the audited financial statement, it has been reported that the advances of the bank (net of provisions) was Rs. 25,768 crore after the adjustment of third party deposits amounting Rs. 794 crore. The said deposits relate to M/s. Religare Finvest Ltd and the same were held as security for the loans extended to M/s. RHC Holding Pvt. Ltd & M/s. RanchemPvt Ltd. On account of default in clearing the loans, the said deposits were closed and the proceeds were adjusted to clear the said loans. As per legal opinion received by the bank, the adjustment of deposits against loans is lawful. Now, M/s. Religare Finvest Ltd has filed a suit in CS.(COMM).940/2018 against our Janpath Branch before the Hon’ble High Court Delhi, disputing the said adjustment and the same is being defended appropriately by the bank.

Apart from the above, no further material changes have occurred between the end of the financial year to which the financial statements relate and the date of the report. Further to SEBI regulations, the Bank is already making disclosures which are material in nature, on an ongoing basis.

39. DETAILS OF SIGNIFICANT MATERIAL ORDERS PASSED, IMPACTING THE GOING CONCERN STATUS AND COMPANY’S OPERATIONS IN FUTURE BY REGULATORS OR COURTS OR TRIBUNALS

During the year under review no significant or material orders were passed by any regulators or courts or tribunals against the Bank other than those disclosed separately in the financial statements, Directors Report and in the Corporate Governance Report.

40. OTHER PENALTIES IMPOSED BY REGULATORS:

- The Bank was imposed a penalty of Rs. 74,500.00 on Specified Bank Notes (SBN) currency remittances made to RBI by our Currency Chests for defective/counterfeit currency detected (Rs. 1,000/-, Rs. 5,000/- & Rs. 68,500/- paid by our Vijayawada, Chennai and Salem currency chests respectively).

- The Bank was imposed a penalty of Rs. 89,000.00 on Specified Bank Notes (SBN) currency remittances made to RBI by our Ahmedabad Branch and Janpath Branch, Delhi for defective/counterfeit currency detected (Rs. 31,000/- & Rs. 58,000/- respectively).

- The Bank was imposed a penalty of Rs. 13,830 by Clearing Corporation of India Limited (“CCIL”) towards two instances of intra-day shortfall in maintenance of margin requirement in Security Guarantee Fund (SGF) deals on 22.09.2017 and 27.09.2017. The margin requirements were immediately replenished on the same date, however CCIL has charged a penal amount on technical ground for the shortfall on 27.09.2017.

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

In order to provide protection against sexual harassment of women at workplace and for the prevention and redressal of complaints of sexual harassment and for matters connected therewith or incidental thereto, as sexual harassment results in violation of the fundamental rights of a woman to equality under Articles 14 and 15 of the Constitution of India and her right to life and to live with dignity under Article 21 of the Constitution and right to practice any profession or to carry on any occupation, which includes a right to a safe environment free from sexual harassment, a well-defined policy in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 has been adopted in the bank. The complaints registered under the Act, on actions covered under the ambit of Sexual Harassment at work place are handled by a committee represented by Senior Executives of the Bank, a lady Law Officer and an external member. Redressal of such complaints are dealt in a prudent manner, giving equal opportunity to both the aggrieved and the accused for representation of the case and without affecting the dignity and self-esteem of the women employee (permanent, contractual, temporary, trainee).

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

Number of complaints filed during the financial year - 2

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

42. VIGIL MECHANISM:

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

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

In the above perspective, our Bank has formulated and implemented a “Whistle Blower Policy” which is made available in the Bank’s Website and local intranet. During the year 2017-18, no personnel has been denied access to the Audit Committee. The Web link thereto is https://www.lvbank.com/UserFiles/File/WhistleBlowerPolicy_2015.pdf.

43. FAMILIARISATION PROGRAMME:

Pursuant to the Regulation 25(7) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Bank has to conduct a familiarization programme for newly inducted Independent Directors and the Bank has done accordingly. In compliance with Regulation 46 (2) (i) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the details of the familiarisation programme conducted are disclosed in the website of the Bank and can be viewed at http://www.lvbank.com/ Independent_Directors-TnC.aspx.

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

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

45. AUDITORS:

Statutory Auditors:

The Statutory audit of the Bank was carried out by M/s. R. K. Kumar & Co, Chartered Accountants, Chennai whose report is annexed and forms part of this report. The Statutory Central and Branch Auditors have audited all the branches and other offices of the Bank. The qualified opinion of the Statutory Auditors together with the basis and our response to the same are furnished hereunder: Observation:

Basis for Qualified Opinion

* The financial statements of the bank include Advances (net of provisions) of Rs. 25768 crore after adjustment of third party deposits amounting to Rs. 794 crore, duly supported by legal opinions. The said adjustment is being questioned by the deposit holder. Pending resolution of the same, we are unable to comment on the impact, if any on the financial statements and legal/ regulatory consequences.

* The series of transactions leading to the above adjustment has resulted in shortfall in CRR maintenance. Penal consequences if any, thereon is not ascertainable.

Qualified Opinion

* In our opinion and to the best of our information and according to the explanations given to us, except for the possible effects of the matter described in the “Basis for Qualified Opinion” paragraph, the financial statements give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 in the manner so required for banking companies and give a true and fair view in conformity with accounting principles generally accepted in India of the state of affairs of the Bank, as at 31^st March 2018 and its loss and its cash flows for the year then ended.

Response:

In the audited financial statement, the advances of the bank (net of provisions) is shown at Rs. 25,768.20 crores after the adjustment of loans against third party deposits amounting Rs. 794.00 crores. The said deposits relate to M/s. Religare Finvest Ltd and the same were held as security for the loans extended to M/s. RHC Holding Pvt. Ltd & M/s. Ranchem Pvt Ltd. Over the last year, the Bank had continuously pursued with the depositor and borrowers for regularization of the loans resulting in some iterations in the deposits and loans.

Eventually, on account of continuing default in clearing the loans, the said deposits were closed and the proceeds were adjusted to clear the said loans. As per legal opinion received by the bank, the adjustment of deposits against the loans is lawful. M/s. Religare Finvest Ltd has filed a suit in the last week of May 2018 in CS.(COMM).940/2018 against the bank before the Hon’ble

High Court, Delhi, disputing the said adjustment and the same is being defended appropriately by the bank and based on the legal advice the bank believes that no loss will arise on this score.

On account of the iterations in the deposits and loans, mentioned above, there arose a small resultant shortfall in the maintenance of CRR for a short period. The Bank has already notified RBI of the shortfall in CRR maintenance and has also provided Rs. 76.62 lakhs towards interest payable, if any for the shortfall. No regulatory proceedings are pending in this regard.

Quote: We draw attention to

(i) Note No. 3.3.6 of the financial statements, regarding deferment of provision for Mark to Market (MTM) losses on investment of Rs. 98.29 crores; and

(ii) Note No. 4.4.2 of the financial statements, regarding deferment of Gratuity provision of Rs. 11.27 crores Our opinion is not qualified in respect of these matters.

Response:

(i) Note No:3.3.6. As permitted by RBI vide circular DBR.NO.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, the bank has opted to spread the provisioning for mark to market (MTM) losses on investments held in AFS and HFT for the quarter ended March 31,2018 equally over four quarters. Accordingly, Bank has provided Rs. 32.76 crore for depreciation of the Investment portfolio for the quarter ended March 2018. The balance amounting to Rs. 98.29 crore will be provided in the ensuing three quarters.

(ii) Note No:4.4.2. As permitted by RBI vide DBR.BP.9730/21.04.018/2017-18 dated 27.04.2018, the bank has opted to spread the additional liability on account of the enhancement in Gratuity limits from Rs. 10 lakhs to Rs. 20 lakhs. Accordingly, Employee cost for the quarter ended 31^st March 2018 includes the 1/4th of the impact amounting to Rs. 3.75 crore and unamortised portion of Rs. 11.27 crore as on 31^st March 2018 will be equally spread over the next three quarters.

Secretarial Auditor

Pursuant to the provisions of Companies Act 2013, the Bank has appointed Mr. K. Muthusamy, Practicing Company Secretary, Coimbatore (CoP 3176) as the Secretarial Auditor for the FY 2017-18. The Secretarial Audit Report dated 14.06.2018 is annexed to this report as Annexure-I. There are no qualifications, reservation or adverse remark or disclaimer in the report.

46. ACKNOWLEDGMENTS:

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

Your Directors would also like to acknowledge the unstinted support provided by the Management and staff including the Employees’ Union and Officers’ Association and look forward to a more evolved relationship, as steps are taken to re-orient the bank for the future.

For and on behalf of the Board of Directors

B.K. Manjunath Parthasarathi Mukherjee

Chairman of the Bank Managing Director & CEO

Place : Chennai

Date : 26.06.2018

---

Mar 31, 2017

TO THE MEMBERS

The Directors of your Bank have great pleasure in presenting this 90^th Annual Report on the business and operations of your Bank together with the Audited Accounts for the year ended 31^st March, 2017 (FY 2016-17).

1. FINANCIAL PERFORMANCE:

The highlights of the financial performance of your Bank for the year ended 31^st March, 2017 are as under:

Particulars	For the year ended (Rs. in crore)
	31st March 2017	31st March 2016
Deposits	30,553.35	25,430.96
Advances (net)	23,728.91	19,643.74
Investments (net)	8,651.73	6,545.40
Total Income	3,349.42	2,872.83
Operating Profit	634.06	407.12
Provisions & Contingencies	377.98	226.88
Net profit	256.07	180.24

Your Bank registered appreciable growth in business volumes that compares very favorably with the industry average. The Bank attained total business of Rs. 54,282.26 crores in FY 2016-17 a growth of 20.43% over Rs. 45,074.70 crores in FY 2015-16.

Deposits grew by 20.14% from Rs. 25,430.96 crores as at 31^st March 2016 to Rs. 30,553.35 crores as at 31^st March 2017 and total advances (net) expanded by 20.80% from Rs. 19,643.74 crores in FY 2015-16 to Rs. 23,728.91 crores in FY 2016-17. The Bank rolled out a new retail banking strategy for liabilities consisting of growth in CASA and Retail Term Deposits. Under this strategy, the bank is targeting consistent growth in CASA through the metric of Cumulative Daily Average Business or CDAB. This strategy has helped the bank to achieve smooth growth in CASA on CDAB basis to 17.50% of total deposits which is a growth of 3.29% Y-o-Y.

The overall Priority Sector advances during the year increased by Rs. 840.97 Crores from Rs. 7,349.81 Crores to Rs. 8,190.78 Crores. Your Bank has achieved 41.27% of Adjusted Net Bank Credit (ANBC) against the regulatory prescription of 40% of ANBC on Priority Sector lending requirements.

The Total Agricultural advances stood at Rs. 3,572.72 Crores as at 31^st March 2017 forming 18% of ANBC. Of which loans to Small and Marginal Farmers stood at Rs. 1,815.31 Crores forming 9.15% of ANBC against the mandatory requirements of 8% of ANBC.

The Bank''s advances to Micro Enterprises and Weaker Sections were at 7.83% and 10.17% respectively against the mandatory requirements of 7.50% and 10.00%.

The Bank continues to comply with the regulatory guidelines under Priority Sector, Agricultural lending, Micro Enterprises and Weaker Section advances.

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

As at the end of the year under review, the total investments (net) of the Bank stood at Rs. 8,651.73 crores as against Rs. 6,545.40 crores as on 31^st March 2016.

Your Bank''s Treasury continues to focus on sound Asset-Liability Management and on servicing clients with appropriate treasury products and was managed well in a systematic way in a year when yields were constantly decreasing. Your Treasury also took active trading positions to derive advantage from the fall in yields in the Indian debt market.

2. PROFIT:

The Bank has posted operating profit of Rs. 634.06 crores in FY 2016-17 against Rs. 407.12 Crores in the previous year FY 2015-16 registering a growth of 55.74%. The net profit for the year, after provisions and taxes, amounts to Rs. 256.07 crores as against Rs. 180.24 Crores recorded in 2015-16 recording a growth of 42.08%.

3. APPROPRIATIONS:

Particulars	For the year ended (Rs. in crore)
	31st March 2017	31st March 2016
Profit brought forward	0.00	0.08
Transfer from Investment Reserve	0.00	0.73
Amount available for appropriation	256.07	181.04
Transfer to Statutory Reserve	64.10	45.20
Capital Reserve	77.16	6.04
Other Reserve	46.55	50.00
Investment Reserve	0.00	0.00
Special Reserve u/s 36(i)(viii)of the IT Act, 1961	6.00	15.00
Proposed Dividend	0.00	53.84
Corporate Dividend Tax	0.00	10.96
Balance of profit carried forward	62.26	0.00

4. DIVIDEND:

Your Board of Directors are pleased to recommend a dividend of Rs. 2.70 (27%) per share for the year ended 31^st March, 2017 as against Rs. 3.00 (30%) per share for previous year ended 31^st March, 2016. The total out go in the form of dividend, including taxes, will be Rs. 62.21 Crores. Considering the conservation of capital for funding the further growth plans of the bank, your bank decided to recommend a dividend of 27% to the shareholders.

In accordance with revised Accounting Standards (AS) 4-Contingencies & Events occurring after the balance sheet date notified by the MCA on March 30, 2016, the proposed dividend including corporate dividend tax amounting to Rs. 62.21 crores has not been shown as an appropriation from the profit & loss appropriation account as of March 31, 2017 and consequently not reported the same under Other liabilities and Provisions as of March 31, 2017.

Your Bank has a Board approved Dividend Distribution Policy which has been formulated in line with Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and extant RBI Circulars/Directives. The Dividend Distribution Policy has been enclosed as Annexure J to the Directors'' Report. The Policy has also been made available in the website of the Bank and can be accessed at www.lvbank.com.

5. DETAILS OF SHARES ISSUED ON QIP BASIS:

During the year 1,19,85,138 equity shares were allotted to Qualified Institutional Buyers (QIBs) in line with Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. These shares were issued at a premium of Rs. 130 to the face value of Rs. 10.

As on March 31, 2017, the post-issue paid-up capital of your Bank stood at Rs. 191,44,67,470 comprising 19,14,46,747 equity shares of Rs. 10 each.

6. STATEMENT OF DEVIATION OR VARIATION:

During the year, the Bank had issued equity shares to Qualified Institutional Buyers through Qualified Institutional Placement on 03.01.2017. The issue was done in order to enhance the capital adequacy ratio in line with the RBI norms and the proceeds of the issue were used primarily to enhance the Bank''s Capital Adequacy Ratio and to increase our capacity to lend and for general corporate purposes subject to compliance of applicable laws. There was no variation prompting disclosure under Regulation 32 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.

7. EPS / BOOK VALUE:

Earnings per Share stood at Rs. 14.07 for the year ended 31^st March, 2017 as compared to Rs. 10.05 as on 31^st March, 2016. Book Value of the share, stood at Rs. 102.74 on 31^st March, 2017 as compared to Rs. 88.70 as on 31^st March, 2016.

8. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO:

Net Owned Funds (NOF) of the Bank increased from Rs. 1,591.86 Crores as at the end of FY 2015-2016 to Rs. 1,966.85 Crores as at the end of FY 2016-2017, reflecting a growth of 23.56%.

The Capital Adequacy Ratio (CAR) as on 31^st March 2017 as per BASEL III is 10.38%. The bank has been consistently maintaining Capital Adequacy Ratio well above the regulatory minimum of 9% stipulated by the Reserve Bank of India.

The Tier-I and Tier-II components of Capital Adequacy Ratio were comfortable at 8.75% and 1.63% respectively. The Bank is working out capital raising plans in order to ensure that it meets capital requirement for meeting its business plan.

9. STRATEGY OF IND-AS IMPLEMENTATION:

Ministry of Corporate Affairs (the "MCA") has given a roadmap on convergence to Ind AS by banks mandating them to converge with Ind AS from April 1, 2018. Consequently opening balance sheet needs to be drawn as on April 1, 2017.

RBI, vide circulars DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016 and RBI/2015-16/429 DBR.BP.BC. No.106/ 21.07.001/2015-16 dated June 23, 2016, directed banks to be in preparedness to submit the proforma Ind AS Financial Statements from the half-year ended September 30, 2016 onwards. The Bank has formed an interdepartmental Steering Committee to oversee the implementation process under the guidance of the Audit Committee of the Board. The Bank has engaged a consultant for the smooth implementation of Ind AS. The Bank has prepared the Proforma Statement (Unaudited) for the half year ended 30.9.2016 and submitted to RBI.

The country is gearing up to roll out Goods and Services Tax (GST) which is a landmark taxation reform bringing in a consolidated set of tax laws to administer tax on sale of goods and services. The Bank is gearing up to meet the rollout deadline of 1^st July 2017. The new tax regime is expected to improve efficiencies for all economic agents in the country and also help to keep a check on inflation and leakage of income.

10. NON-PERFORMING ASSETS (NPA):

There is no respite in asset quality deterioration for the Indian Banking industry and almost all banks have been affected by this phenomenon during the FY 2016-17, though by varying degrees. The NPA portfolio of banks enticed more attention as the RBI undertook Asset Quality Review (AQR) in commercial banks and directed banks to clean their balance sheet. Asset quality slippage and the consequent provisioning have dented the profitability of most of the Indian banks during the financial year. The situation is expected to remain challenging throughout FY 2018 as well due to the twin factors of flat GDP and debt overhang on the corporate balance sheets. It remains to be seen how the new Insolvency and Bankruptcy Code along with steps from RBI would help address the large stock of bad debts in the banking system.

Against this backdrop, your Bank reported GNPA Percentage of 2.67% as at the end of the FY 2016-17 against 1.97% as on 31.3.2016. The Bank has also sold some hardcore NPAs to ARCs which has also enabled it to maintain the NPA at this level during the FY. At the same time, other stressed accounts were upgraded through efficient recovery follow-up which was significant during the period.

During the year, your bank has taken steps to improve borrower selection and credit assessment. The Bank is implementing a relationship-based corporate business model and is implementing a transformation of its MSME business model in order to derive value from its strong leadership in various geographies and to gain entry in quality companies. Credit monitoring has been strengthened and the follow up methodology was further improved. Conduct of high value credit portfolio was put under constant monitoring. Monitoring process has been guided by technology. Wherever stress was noticed, immediate remedial steps were taken and stressed assets were nursed.

11. BRANCH AND ATM NETWORK:

The Bank continued to expand its distribution network, which remains an integral part of the Bank''s strategy for tapping CASA deposits, lending to retail & MSME segments and cross selling third-party products.

During the fiscal 2016-17, the Bank added 21 new branches to its network across the country and as on 31^st March 2017, the Bank had a network of 480 branches, 1 satellite branch and 7 extension counters, spread across 16 states and the union territory of Puducherry. The Bank also has ATM network of 958 (362 Onsite & 596 Offsite), in vital / major locations for better service to our customers.

The enhanced network of branches and service outlets contributes to sizeable increase in the business. As more and more branches are opened, the clientele base improves vis-a-vis the business levels. The branch expansion in the recent past has contributed significantly to the increase in the business level.

The Bank''s focus is on customer delight by maintaining its known high levels of customer service. The Bank has a strong and wide base in the southern states of India and is focusing on retail and MSME sector, by technology-based solutions.

12. FINANCIAL INCLUSION:

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

The Bank has implemented the financial inclusion plan in 363 villages and wards allotted by SLBC in Tamilnadu. The Bank has opened 174872 Basic Savings Bank Deposit Accounts (BSBDA) including 96274 accounts under Prime Minister Jan Dhan Yojana (PMJDY).

13. INTERNATIONAL BUSINESS:

During the year, the Indian Rupee outperformed its peers and touched its highest level since October 2015. The Rupee appreciated by around 4% in 2017 compared to depreciation of 2% in 2016 against USD. With rising interest rates in the US, Dollar remained fundamentally supported against all major currencies including emerging market currencies. The uptrend in Dollar gained momentum after the US Presidential election on expectations that the new President''s plan to boost fiscal stimulus would benefit the currency. During the year, the Bank achieved foreign exchange turnover of Rs. 6,416.29 Crores as against Rs. 5,219.18 Crores in the previous year.

14. LIABILITIES PRODUCTS:

The liabilities business grew significantly during FY 17. Total deposits over achieved the Annual Target of Rs. 30,500 crores showing a Y-o-Y growth of 20%. CASA, the low-cost component of deposits, also grew beyond its Annual Target of Rs. 5,800 crores registering a Y-o-Y growth of 32% contributing substantially to a lower cost of deposits. The growth of CASA on a CDAB basis is much more (42%) indicating that the balances grew at a healthy pace. In fact, during the year percentage of CASA (as a part of total deposits) on CDAB basis grew by an unprecedented 329 basis points.

The growth has been spectacular even in the field of account opening. From 2.25 lacs accounts opened during 2015-16, the bank reached a level of 3.26 lacs accounts by end of 2016-17. Of the various products in the Liabilities suite, "Crown" the specialty product for HNI customers, has been a big success. As at March-end, there are almost 10000 Crown customers with a total book of Rs. 369 Crores at an average balance of Rs. 3.70 lacs. The Bank has expanded the crown franchise to introduce LVB crown NRE & NRO accounts.

LVB Saanvi: An updated and refurbished product for women.

Lakshmi Dynamic Current Account: Gives convenience of automatically transferring balances from current account to savings bank account.

LVB Vyapaar Current Account: A specialized current account for small traders and merchants with a zero balance facility and connected along with a POS terminal.

The constantly evolving suite of products and services have also been backed with a well thought out resourcing and training strategy to assure that our teams are able to provide optimal service to all our esteemed customers.

The Bank is well geared up to proceed aggressively on the growth path along with maintaining services of the highest order.

15. LISTING AGREEMENT WITH STOCK EXCHANGES:

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

16. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE:

Payments:

The Bank is leveraging its mobile banking applications to address fast-paced customer behaviour in the payments space. The government has given clear mandate to banks to push digital payments and reduce dependence of economy on cash mode of payments. Your bank has taken steps in this direction. Further the Bank is investing resources to improve its applications with a view to offering more delight and convenience to customers.

LVB Mobile:

Your bank had launched the LVB Mobile app in January 2016 and has since then released various updates with new features. The Bank is in the continuous process of enriching the LVB Mobile App and as part of the same, the following features were enabled during the financial year 2016 - 2017:

1. Introduced enhanced security feature to identify and authenticate customer during on boarding process.

2. To have mass reach across the nation, the App was enhanced with multilingual facility of regional languages such as Hindi, Telugu, Tamil, Kannada and Malayalam in addition to default English language.

3. During the demonetization episode it enabled LVB Merchants to accept payments from LVB customers through LVB Mobile QR based scan and pay feature.

4. Enabled On-boarding of customers to devices like Android Tablets & Apple iPads through QR code based flow from their registered device.

5. Enhanced with features of bill payment facility to Tamil Nadu Electricity Board which is in addition to various other states electricity bill payments.

6. Customers were provided with features of demat details like Statement of Account, Statement of Holding, Statement of Billing and Latest transaction details.

LVB UPAAY:

Your bank had successfully launched an app called LVB UPAAY during February 2017 based on the NPCI Unified Payments Interface platform, in line with the Government''s initiatives of "Go Digital" as well as your Bank''s business objectives.

The app is the latest in a series of technology initiatives launched by the Bank. It would significantly facilitate payment and collection of amounts across multiple accounts, multiple banks and multiple account holders. It can be used by LVB customers as well as noncustomers, so that the Bank''s visibility, reach and fee based income can improve.

Salient features of LVB UPAAY:

-Users can link, manage and transact on several accounts of multiple banks (participating in UPI) from a single app.

-Users can do various kinds of transactions like viewing balance in accounts, remitting funds, collecting funds etc., from all the linked accounts.

-Facilitates users to do the transactions using Virtual Payment Address- VPA.

-However, transactions can also be carried out using Account Number & IFSC code or Mobile Number & MMID

-Facility to collect funds from others in addition to usual remitting.

-Other features like Recharge of Mobile & DTH are also available, which only very few UPI apps in the market are having.

In addition, the bank has kicked off important projects such as CRM and Business Analytics which are expected to deliver strong business value in years to come.

Technology Award:

Your bank has bagged CIO100 award from M/s. IDG Media Pvt. Ltd. for effectively implementing Mobility platform.

17. WEALTH MANAGEMENT / PARABANKING ACTIVITIES:

Life Insurance:

Bank has progressed with 31% growth Y-o-Y, in this business line and insured 5600 lives last year. To further enhance our product basket, we have partnered with "Birla Sun Life Insurance" and "DHFL Pramerica", under the open architecture adding a few new products, thus providing a diversified set of options to our clients to satisfy their specific needs.

Following life insurance products will complement our present product suit through the new tie-up''s

-School Fees Protection Solution

-Rakshak Gold - Life cover for Defense segment

-Dengue Group Shield

-ULIPS General Insurance:

Collected premium of Rs. 16.22 Crores during the FY, by covering the assets of our corporate and retail customers and registered Y-o-Y growth of 37% in premium collections.

Health Insurance:

The Bank has tied up with M/s. Cigna TTK Standalone Health Insurance Company Ltd to offer Health Insurance Products to the customers; the Bank has collected health insurance premium of Rs. 5.16 Crores during the year and covered around 5800 customers.

Wealth Management:

1. FISDOM - Bank has tied up with M/s. Finwizard Technology Pvt Ltd (widely known as FISDOM) to offer mobile based wealth management services to our customers.

-Fisdom enables end-to-end digital transactions for mutual funds for the first time in India.

-Here our customers can invest in equity, debt and liquid instruments through Fisdom and Fisdom has covered almost all leading AMCs.

2. The Bank has tied up with M/s. Centrum Wealth Management Limited offering end to end wealth management solutions to our Ultra HNI clients. CWML is an established player in market, with AUM of Rs. 10,000 Crores and expertise in area of complete Private Banking.

18. RISK:

The risk management objective of the Bank is to balance between risk and return while operating within acceptable level of risk appetite. The Bank has an independent risk management function which is tasked with managing risk through policies and processes approved by the Board of Directors. These encompass identification, measurement and management of risks across the various businesses of the Bank. The risk management function in the Bank strives to scientifically study vulnerabilities of process, across business portfolios through quantitative or qualitative examination of the embedded risks and controls. The function continues to focus on refining and improving its risk management systems through automation of processes and building and strengthening controls.

The Bank has in place a Risk Management Committee of the Board of Directors. The Bank has formulated and adopted a robust risk management framework. The Bank has in place committees such as Credit Risk Management Committee (CRMC), Asset Liabilities Committee (ALCO), Operational Risk Management Committee (ORMC), Business Continuity Management Committee (BCMC), Information Systems and Security Steering Committee (ISSC). These committees discuss risk related issues arising from businesses and processes and have active participation from Top Management of the Bank.

The overall risk appetite and risk philosophy of the Bank is articulated by its Board of Directors. The risk appetite framework provides guidance to the management on the desired level of risk for various types of risks in the long term and helps steer critical portfolio decisions. Further, the Internal Capital Adequacy Assessment Process (ICAAP) of the Bank assesses all the significant risks associated with various businesses. The independent risk management structure within the Bank is responsible for managing the credit risk, market risk, liquidity risk, operational risk, other Pillar II risks like reputation risk and strategic risks and exercising oversight on risks associated with outsourcing. The Bank has in place well-defined policies appropriate for the various risk categories viz, credit risk, market risk, operational risk, liquidity risk, counterparty risk, country risk, reputational risk, strategic risk and outsourcing risk, supplemented by monitoring. These are reviewed periodically in order to benefit from internal and external experience.

19. INTERNAL CONTROLS:

Bank has a separate Audit and Inspection Department, which subjects all the branches of the Bank besides the Treasury, Currency Chests, Service Branches, Regional Offices and every department of the Corporate Office, to regular inspection. All the branches are subjected to IS Audit.

Key Functional areas including Treasury at Mumbai, Central Processing Centre at Karur, Central Processing Cell, Chennai, Depository Participant Cell, Technology Centre, Chennai and 105 branches are under Concurrent Audit which covers 61% of the total deposits and 75% of the total advances of the Bank.

The Audit Committee of the Board constituted in line with RBI guidelines and as per the requirements of SEBI Regulations reviews the adequacy of the audit and compliance functions, including the policies, procedures and techniques. The Composition of Audit Committee of the Board is provided elsewhere in the report.

During the year, there were no instances wherein the Board has not accepted the recommendations of the Audit Committee of the Board.

20. HUMAN RESOURCES:

The Staff strength of the Bank was augmented during the year 2016-17 with recruitment of 40 executives, 280 officers, 133 junior officers, 319 clerks and 9 subordinate staff. Further, 526 Sales Personnel were also engaged to boost sales. Total number of employees as on 31.03.2017 was 4043 as against 3565 as on 31.03.2016.

The Bank''s focus on training the human resources on a continual basis gained momentum by conducting online e-learning duly leveraging technology. The Bank has trained a considerable number of resources in offsite training programmes conducted by reputed institutions such as RBI, CAB, Great Lakes Institute of Management, SIBTC, IIBF, NIBM & FEDAI. The introduction of competency based interview model and psychometric tools are helping in hiring the right person for the right role.

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

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

22. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

There were no related party transactions during the year under review and Form AOC-2 is not applicable to the Bank. During the FY 2016-17, the Bank did not have any material Related Party Transaction.

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

23. OUTLOOK 2017-18:

Risks are evenly balanced around the inflation trajectory at the current juncture. There are upside risks to the baseline projection. The main one stems from the uncertainty surrounding the outcome of the south west monsoon in view of the rising probability of an El Nino event around July-August, and its implications for food inflation. Proactive supply management will play a critical role in staving off pressures on headline inflation. A prominent risk could emanate from managing the implementation of the allowances recommended by the 7^th CPC. In case the increase in house rent allowance as recommended by the 7^th CPC is awarded, it will push up the baseline trajectory by an estimated 100-150 basis points over a period of 12-18 months, with this initial statistical impact on the CPI followed up by second-order effects. Another upside risk arises from the one-off effects of the GST. The general government deficit, which is high by international comparison, poses yet another risk for the path of inflation, which is likely to be exacerbated by farm loan waivers. Recent global developments entail a reflation risk which may lift commodity prices further and pass through into domestic inflation. Moreover, geopolitical risks may induce global financial market volatility with attendant spillovers. On the downside, international crude prices have been easing recently and their pass-through to domestic prices of petroleum products should alleviate pressure on headline inflation. Also, stepped-up procurement operations in the wake of the record production of food grains will rebuild buffer stocks and mitigate food price stress, if it materializes.

GVA (Gross Value Added) growth is projected to strengthen to 7.4 per cent in 2017-18 from 6.7 per cent in 2016-17, with risks evenly balanced. Several favourable domestic factors are expected to drive this acceleration. First, the pace of remonetisation will continue to trigger a rebound in discretionary consumer spending. Activity in cash-intensive retail trade, hotels and restaurants, transportation and unorganized segments has largely been restored. Secondly, significant improvement in transmission of past policy rate reductions into banks'' lending rates post demonetization should help encourage both consumption and investment demand of healthy corporations. Thirdly, various proposals in the Union Budget should stimulate capital expenditure, rural demand, and social and physical infrastructure all of which would invigorate economic activity. Fourthly, the imminent materialization of structural reforms in the form of the roll-out of the GST, the institution of the Insolvency and Bankruptcy Code and the abolition of the Foreign Investment Promotion Board will boost investor confidence and bring in efficiency gains. Finally, the upsurge in initial public offerings in the primary capital market augurs well for investment and growth.

The global environment is improving, with global output and trade projected by multilateral agencies to gather momentum in 2017. Accordingly, external demand should support domestic growth. Downside risks to the projected growth path stem from the outturn of the south west monsoon; ebbing consumer optimism on the outlook for income, the general economic situation and employment as polled in the March 2017 round of the Reserve Bank''s consumer confidence survey; and, commodity prices, other than crude, hardening further. While economic conditions are unlikely to change significantly, factors like oil prices and geo-political disruptions are unknown factors that can have negative impact in 2017-18. Though India is expected to maintain GDP levels above 7 pct, which would possibly be the highest in the world, credit demand is unlikely to recover significantly, as new capacity creation in the industrial sector is still some time away, and borrowers continue to grapple with leverage on their balance sheet.

24. CORPORATE GOVERNANCE:

Corporate Governance of the Bank continues to rest on the fundamental pillar of high ethical values, designed to enhance and protect the interests of all the stakeholders. The Bank has complied with the Corporate Governance provisions as specified in SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015. All the Directors on the Board have executed deed of covenant and undertaking individually inline with the recommendations of Dr. Ganguly Committee Report.

Further pursuant to SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, a Management Discussion and Analysis is presented in Annexure-A and Report on Board Committees is furnished in Annexure-B. Composition of the Board of Directors together with the attendance of Directors at various meetings of the Board, its Committees and Annual General Meeting and the number of directorships held by them along with the details of Audit Committee and Stakeholders Relationship Committee are furnished in Annexure-C, including composition of the Audit Committee. General Shareholders'' information is furnished in Annexure-D.

25. NUMBER OF MEETINGS OF THE BOARD:

During the financial year, the Board met 13 times. The Board meetings were held in accordance with the provisions of the Companies Act 2013. The details of the meetings held are provided in the Corporate Governance Report that forms part of this Annual Report.

26. POLICY ON APPOINTMENT AND REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL:

According to the Articles of Association of our Bank, the number of Directors of the Bank shall not be less than three and more than fifteen and not less than fifty-one percent of the total number of Directors shall be persons who satisfy the requirements of Section 10A of the Banking Regulation Act. The process of Due Diligence is undertaken in compliance of Directives/Guidelines/Circulars issued by RBI from time to time in the matter of appointment/re-appointment of Director. The Non-Executive Chairman of the Bank, the Managing Director and the Executive Director of the Bank are appointed with prior approval of the RBI. Based on the vacancies that may arise in the Board from time to time, the Board follows a due process of appointment of directors through prior due diligence in line with the regulatory advice given by RBI, SEBI and MCA by way of Circulars / Guidelines / Regulations / enactments. The Nomination, Remuneration and Compensation Committee of the Board has formulated criteria for evaluation for the appointment or re-appointment of directors including Independent directors. The Whole Time Directors of the Bank i.e., the Managing Director & CEO and the Executive Director & CFO of the Bank are paid remuneration as approved by the RBI but are not paid any sitting fees. Other than the MD&CEO and ED&CFO, no other directors are paid any remuneration apart from sitting fees for attending Board and Board Committee Meetings. The details of remuneration of the MD&CEO and ED&CFO and that of the sitting fees paid to the other directors are available elsewhere in the report. The Senior Management and the other KMP, being the Company Secretary of the Bank along with other employees are paid remuneration based on internal HR policies of the Bank. The senior management of the Bank along with the KMPs abide by the Code of Conduct prescribed by the Bank. The code of conduct has been disclosed at the Bank''s website and can be viewed at http://www.lvbank.com/UserFiles/CODEOFCONDUCT.pdf.The MD&CEO, ED&CFO and Company Secretary are the Key Managerial Personnel (KMPs) of the Bank, as stipulated by the Companies Act, 2013. Other than MD&CEO and ED&CFO there are no other whole time directors in the bank.

27. DECLARATION BY INDEPENDENT DIRECTORS:

The Company has duly obtained necessary declarations from each independent director under Section 149(7) of the Companies Act, 2013 that he/she meets the criteria of independence as laid down in Section 146(6) of the Companies Act, 2013 and Regulation 16 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 and the Company has also obtained the ''Fit and Proper'' declaration as prescribed by the Reserve Bank of India.

28. BOARD EVALUATION:

The Board discussed in detail and reviewed the performance of the Board as a whole and that of the individual Directors and of various Committees of the Board based on the Criteria for evaluation of Independent Directors and the Board as formulated by the Nomination, Remuneration and Compensation Committee of the Board. The Board had already taken note of the evaluation made by the Independent Directors on the Board at their meeting held on 28.02.2017. During the evaluation, the Independent Directors had noted that the performance of the Non-Independent Directors, the Board, the Managing Director & CEO and Executive Director & CFO in the Board was satisfactory during the year 2016-17.

Based on the inputs received from the evaluation conducted by the Independent Directors and also considering certain specific criteria depending on the role of the director/committee in the Bank and the criteria for evaluation framed by the Nomination, Remuneration and Compensation Committee of the Board, the subject of board evaluation consisted of the following:

1. Evaluation of Board as a whole.

2. Evaluation of Board Committees

3. Evaluation of Individual Directors of the Board.

-Evaluation of Managing Director and Executive Director.

-Evaluation of non-Independent Directors.

-Evaluation of Independent Directors

While evaluating the performance of the Board, Board Committees and Individual Directors, the Directors considered various parameters including those formulated by the Nomination, Remuneration and Compensation Committee of the Board and the Guidance Note on Board Evaluation prescribed by SEBI. Some of the factors considered include the Structure of the Board, the mix of qualification, the Functions of the Board, etc. Being governed by the Banking Regulation Act, 1949, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act, 2013, the mandatory Committees of the Board have been entrusted with specific roles and responsibilities under the relevant regulatory provisions. Besides the mandatory Committees as prescribed by the regulators, the Board has separately constituted certain Committees with specific reasons viz., the HR Committee of the Board and the Capital Raising Committee of the Board.

The evaluation of Board Committees was done taking into account their mandate, composition, frequency of their meetings, independence of the Committees from the board, contribution of the Committees to the decisions of the Board through recommendations and to the Management through decisions, etc. The Managing Director & CEO and the Executive Director & CFO of the Bank were evaluated based on the Business targets set and the Bank''s overall performance during the year, managing and executing the Board approved business plans, operational plans, risk management, and financial affairs of the organization; ensuring proper coordination between the Board and the Senior Management; Motivating employees and resolving major employee related issues, thus maintaining a healthy work environment; Ensuring strict monitoring of the internal control processes.

The non-executive Directors (both Independent and non-Independent) of the Bank were evaluated based on their attendance and active participation in the Board and Committee meetings, openness to new ideas and ability to challenge old practices and throwing up new ideas for discussion; Coordination and rapport with the fellow Board Members; the positive contribution of the individual Directors who come from a professional background and the quality of suggestions and guidance given by them through their participation in the meetings with an understanding of the business of the Bank and an understanding of their role and responsibilities and the overall effectiveness; the broad based discussions at Board/Committee Meetings, the understanding of the regulatory requirements; remaining abreast of various developments in the Indian banking arena and keeping up with the various modifications / re-enactments of statutory enactments applicable to the Bank like the Companies Act, SEBI Regulations and the Banking Regulation Act, 1949; approach towards conflicts resolution and their contribution in enhancing the Board''s overall effectiveness and integrity and maintaining of confidentiality. The Independent Directors of the Bank were also provided a familiarisation program about the bank and their ability to bring in an independent judgment to the issues handled by the Board without getting influenced otherwise. The evaluation with respect to individual non-executive directors revolved around various factors as mentioned above and it was ensured that the Board members evaluated their fellow member Directors in the absence of the Director being evaluated.

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

Resignations/Cessation of tenure of appointment:

-Shri K. Babuji, RBI Nominee Director''s nomination was withdrawn by RBI (appointing authority) on 13.05.2016 after having served on the Board for about a year.

-Shri P.A. Shankar attained superannuation as per RBI Directive on 03.06.2016 as he had attained 70 years of age.

-Shri DLN Rao retired on 14.08.2016 as per the provisions of Section 10A (2A) of the Banking Regulation Act, 1949 after serving on the Board continuously for a period of eight years.

-Shri K.R. Pradeep retired on 27.02.2017 as per the provisions of Section 10A (2A) of the Banking Regulation Act, 1949 after serving on the Board continuously for a period of eight years.

-Shri Vivek Srivastava, RBI, Nominee Director''s nomination was withdrawn by RBI (appointing authority) on 17.05.2017 after having served on the Board for about a year.

Appointments:

-Shri Vivek Srivastava, General Manager, RBI, was appointed as Nominee Director by the RBI on 13.05.2016 for a period of two years or till further orders whichever is earlier.

-Shri Y.N. Lakshminarayana Murthy was appointed as an Additional Director on 10.06.2016 pursuant to the provisions of Section 149 (4) and Section 161 of the Companies Act, 2013 and classified under Independent category in terms of Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Agriculture & Rural Economy under majority sector as per Banking Regulation Act, 1949.

-Shri N.S. Venkatesh was appointed as the Executive Director of the Bank by RBI vide its letter no.DBR.Appt.No.10514/08.44.001/ 2015-16 dt. 22.02.2016 as per Section 35B of BR Act, 1949 for three years from date of his taking charge. Shri N S Venkatesh assumed office as the Executive Director of our Bank on 01.07.2016.

-Shri B.K. Manjunath was appointed as the Part-Time Chairman of the Bank by RBI vide its letter no DBR. Appt.No. 4061/ 08.44.001/2016-17 dated 05.10.2016 as per Section 10 B(1A)(i) of the Banking Regulation Act, 1949 for three years from the date of his taking charge. Shri B.K. Manjunath was inducted to the Board on 06.06.2017 and classified under Independent category in terms of Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Accountancy under minority sector as per Banking Regulation Act, 1949.

-Shri Kusuma R. Muniraju was appointed as an Additional Director on 01.07.2016 pursuant to the provisions of Section 149 (4) and Section 161 of the Companies Act, 2013 and classified under Independent category in terms of Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Law under majority sector as per Banking Regulation Act, 1949.

-Smt. Anuradha Pradeep was appointed as an Additional Director on 21.03.2017 pursuant to the provisions of Section 161 of the Companies Act, 2013 and classified as Non-Executive and Non-Independent Director in terms of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Law under minority sector as per Banking Regulation Act, 1949.

-Shri Hemant Kaul was appointed as an Additional Director on 26.04.2017 pursuant to the provisions of Section 149 (4) and Section 161 of the Companies Act, 2013 and classified under Independent category in terms of Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and representing Banking under majority sector as per Banking Regulation Act, 1949.

-Shri Rajnish Kumar, General Manager, RBI, was appointed as Nominee Director by the RBI on 17.05.2017 for a period of two years or till further orders whichever is earlier.

Shri Pankaj Vaish and Shri Prakash P Mallya were appointed as Independent Directors by the shareholders of the Bank at the 87^th Annual General Meeting held on 26.09.2014 for a period of two years in line with the provisions of Sections 149, 152 and other applicable provisions, if any, of the Companies Act, 2013 read with the Companies (Appointment and Qualification of Directors) Rules, 2014 read with Schedule IV to the Companies Act, 2013. Their term of office came to an end on 25.09.2016 after which, considering the knowledge and rich experience, they were appointed as Additional Directors on 27.09.2016 under Independent category.

Re-appointment of Director retiring by rotation:

Shri N. Malayalaramamirtham, Director, will be retiring by rotation at the ensuing 90^th Annual General Meeting and being eligible, offers himself for re-appointment.

Key Managerial Personnel

-Shri M. Palaniappan, Chief Financial Officer of the Bank vacated office as per the terms of appointment with effect from 31.10.2016 after serving the Bank as the Chief Financial Officer for about six years.

-Shri N.S. Venkatesh, who took charge as the Executive Director of the Bank on 01.07.2016, was additionally designated as the Chief Financial Officer of the Bank with effect from 26.12.2016, in addition to the responsibilities as Executive Director of the Bank.

Apart from the above, there were no changes in the Key Managerial Personnel during the year.

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

The Board of Directors of your Bank confirms that in the preparation of the annual accounts for the year ended March 31, 2017:

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

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

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

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

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

-The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

31. SOCIAL INITIATIVES 2016-2017:

Your bank as a responsible corporate citizen has been supporting various philanthropic activities by donating such initiatives to the tune of Rs. 4.51 Lakhs. Further your bank has also taken several initiatives in the area of CSR.

Corporate Social Responsibility (CSR)

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

32. BUSINESS RESPONSIBILITY REPORT:

The Business Responsibility Report prepared in accordance with the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 has been made available on the Bank''s website at www.lvbank.com.

33. EXTRACT OF ANNUAL RETURN:

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

34. PARTICULARS OF EMPLOYEES:

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

35. EMPLOYEES STOCK OPTION SCHEME:

In the year 2010, the shareholders of the Bank have approved the issue of shares through Stock Option Scheme. Employees of the bank including the ED&CFO have been granted with options of 20,10,190 in the FY 2016 - 17. Statutory disclosures regarding ESOS have been furnished in Annexure H to this report and can be viewed at www.lvbank.com/annualreport.aspx.

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

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

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

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

38. DETAILS OF SIGNIFICANT MATERIAL ORDERS PASSED, IMPACTING THE GOING CONCERN STATUS AND COMPANY''S OPERATIONS IN FUTURE BY REGULATORS OR COURTS OR TRIBUNALS:

During the year under review no significant or material Orders were passed by any regulators or courts or tribunals against the Bank other than those disclosed separately in the financial statements, directors report and in the Corporate Governance Report.

39. OTHER PENALTIES IMPOSED BY REGULATORS:

-Reserve Bank of India ("RBI") vide order dated 30.12.2016 had imposed a penalty of Rs. 3 crores towards "Unauthorised Bill discounting in Cathedral Road Branch, Chennai".

-RBI had imposed a penalty of Rs. 7,600/- relating to soiled currency remittances made to RBI by our currency chest for defective/ counterfeit currency detected.

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

In order to provide protection against sexual harassment of women at workplace and for the prevention and redressal of complaints of sexual harassment and for matters connected there with or incidental thereto, as sexual harassment results in violation of the fundamental rights of a woman to equality under Articles 14 and 15 of the Constitution of India and her right to life and to live with dignity under Article 21 of the Constitution and right to practice any profession or to carry on any occupation, which includes a right to a safe environment free from sexual harassment, a well-defined policy in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 has been adopted by the Bank. The complaints registered under the Act, on actions covered under the ambit of Sexual Harassment at work place are handled by a committee represented by a senior executive of the Bank, a lady Law Officer and an external member. Redressal of such complaints are dealt with in a prudent manner, giving equal opportunity to both the aggrieved and the accused for representation of the case and without affecting the dignity and self-esteem of the women employee (permanent, contractual, temporary, trainee).

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

Number of complaints filed during the financial year - Nil

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

41. VIGIL MECHANISM:

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

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

In the above perspective, our Bank has formulated and implemented a "Whistle Blower Policy" which is made available in the Bank''s Website and local internet. During the year 2016-17, no personnel has been denied access to the audit committee. The Web link thereto is https://www.lvbank.com/UserFiles/File/WhistleBlowerPolicy_2015.pdf.

42. FAMILIARISATION PROGRAMME:

Pursuant to the Regulation 25(7) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Bank has to conduct a familiarization programme for newly inducted Independent Directors and the Bank has done accordingly. In compliance with Regulation 46 (2) (i) of the SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015, the details of the familiarization programme conducted are disclosed in the website of the Bank and can be viewed at http://www.lvbank.com/ Independent_Directors-TnC.aspx.

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

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

44. AUDITORS:

Statutory Auditors:

The Statutory audit of the Bank was carried out by M/s. R. K. Kumar & Co, Chartered Accountants, Chennai, whose report is annexed and forms part of this report. The Statutory Central and Branch Auditors have audited all the branches and other offices of the Bank. With regard to the observations made by the Auditors ''without qualifying'' their report dated 26.04.2017, our response to the same are furnished hereunder: -Observation:

Quote: "We draw attention to

(i) Note No.2.4.4.C of the financial statements, regarding deferment of charging off to Profit and Loss account, the loss of Rs. 31.29 Crores on sale of advances to Asset Reconstruction Companies;

(ii) Note No. 4.27 of the financial statements, regarding deferment of charging off to Profit and Loss account, the loss of Rs. 19.15 Crores relating to advance accounts reported as fraud;

Our opinion is not qualified in respect of these matters.

Response:

(i) As permitted by RBI, the bank has opted to provide for the net shortfall on account of sale of assets to Reconstruction Companies over a period of eight/four quarters. Consequently, Rs. 74.90 Crores has been charged to the Profit & Loss account for the year ended 31^st March 2017. The unamortized amount on this account as on 31^st March 2017 is Rs. 31.29 crores and is debited to ''Other Reserves'' and credited to ''Other Provisions'', as per RBI guidelines vide no.DBR.No.BP.BC.102/21.04.048/2015-16 dated 13.06.2016.

(ii) As permitted by RBI vide its circular RBI/2014-15/535/DBR.No.BP.BC.83/21.04.048/2014-15 dated 01.04.2015, the outstanding balance in fraud accounts relating to advances amounting to Rs. 31.72 crores, is being provided over a period of four quarters. Consequently, Rs. 12.51 crores has been charged to profit & Loss account for the period ended 31^st March 2017. The unprovided amount on this account as on 31^st March 2017 is Rs. 19.15 crores and is debited to ''Other Reserves'' and credited to ''Other Provisions'', as per RBI circular no.DBR.No.BP.BC.92/21.04.048/2015-16 dated 18.04.2016.

Details of frauds reported by auditors:

There were no offences involving fraud committed against the Bank by its employees or officers that required immediate reporting to the central government as per Section 143 (12) of the Companies Act, 2013.

Secretarial Auditor

Pursuant to the provisions of Companies Act 2013, the Bank has appointed Mr. K. Muthusamy, Practicing Company Secretary, Coimbatore (CoP 3176) as the Secretarial Auditor for the FY 2017. The Secretarial Audit Report dated 22.05.2017 is annexed to this report as Annexure-I. There are no qualifications, reservation or adverse remark or disclaimer in the report.

45. ACKNOWLEDGMENTS:

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

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

For and on behalf of the Board of Directors

B.K. Manjunath Parthasarathi Mukherjee

Chairman of the Bank Managing Director & CEO

Place : Chennai

Date : 06.06.2017

---

Mar 31, 2015

Dear MEMBERS

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

1. FINANCIAL PERFORMANCE

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

(Rs. in crore) For the year ended

31st March 2015 31st March 2014

Deposits 21,964.21 18,572.88

Advances ( Net) 16,352.02 12,889.19

Investments ( Net) 6,103.78 5,688.68

Total Income 2,498.56 2,187.54

Operating profit 376.44 309.00

Provisions and contingencies 244.15 249.34

Net Profit 132.29 59.66

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

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

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

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

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

2. PROFIT

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

3. APPROPRIATIONS

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

Profit brought forward 0.07 0.09

Amount available for appropriation 132.35 59.74

Transfer to:

Statutory Reserve 33.20 15.00

Capital Reserve 4.78 0.11

Other Reserve 41.40 24.00

Investment Fluctuation Reserve 0.73 0.00

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

Proposed Dividend 35.84 9.75

Corporate Dividend Tax 7.17 1.66

Balance of Profit carried forward 0.08 0.07

4. DIVIDEND:

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

5. EPS / BOOK VALUE:

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

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

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO:

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

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

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

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

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

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

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

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

8. BRANCH AND ATM NETWORK:

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

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

9. FINANCIAL INCLUSION:

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

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

10. INTERNATIONAL BUSINESS:

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

11. BANK TRANSFORMATION EXERCISE:

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

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

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

12. LVB CROWN SERVICES:

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

13. LISTING AGREEMENT WITH STOCK EXCHANGES:

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

14. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE:

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

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

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

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

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

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

IT Awards:

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

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

15. WEALTH MANAGEMENT / PARABANKING ACTIVITIES:

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

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

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

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

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

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

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

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

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

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

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

16. RISK:

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

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

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

17. INTERNAL CONTROLS:

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

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

18. HUMAN RESOURCE:

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

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

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

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

20. PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES:

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

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

21. OUTLOOK 2015-16:

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

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

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

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

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

22. CORPORATE GOVERNANCE:

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

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

23. NUMBER OF MEETINGS OF THE BOARD:

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

24. POLICY OF DIRECTOR'S APPOINTMENT AND REMUNERATION:

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

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

25. DECLARATION BY INDEPENDENT DIRECTORS:

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

26. BOARD EVALUATION:

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

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

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

Resignations/Cessation of tenure of appointment:

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

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

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

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

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

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

Appointments:

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

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

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

Re-appointments:

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

Key Managerial Personnel:

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

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

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

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

* The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the Company for that period.

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

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

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

* The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

29. SOCIAL INITIATIVES 2014-2015:

Donation

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

The Bank extended major donations for the following activities:

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

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

Corporate Social Responsibility (CSR):

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

30. EXTRACT OF ANNUAL RETURN:

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

31. PARTICULARS OF EMPLOYEES:

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

32. EMPLOYEES STOCK OPTION SCHEME:

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

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

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

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

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

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

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

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

Number of complaints filed during the financial year - 1

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

36. WHISTLE BLOWER POLICY:

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

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

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

37. FAMILIARISATION PROGRAMME:

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

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

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

39. AUDITORS:

Statutory Auditors:

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

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

Observation:

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

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

Response:

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

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

Response:

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

Secretarial Auditor:

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

40. ACKNOWLEDGMENTS:

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

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

For and on behalf of the Board of Directors

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

Place : Chennai Date : 23.07.2015

---

Mar 31, 2014

THE MEMBERS

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

1. FINANCIAL PERFORMANCE

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

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

Deposits 18,572.88 15,618.98

Advances ( Net) 12,889.19 11,702.80

Investments ( Net) 5,688.68 4,324.55

Total Income 2,201.94 1,957.61

Operating profit 309.00 251.15

Provisions and contingencies 249.34 159.57

Net Profit 59.66 91.57

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

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

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

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

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

2. PROFIT

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

3. APPROPRIATIONS

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

Profit brought forward 0.09 0.09

Amount available for appropriation 59.74 91.66

Transfer to:

Statutory Reserve 15.00 29.00

Capital Reserve 0.11 3.44

Other Reserve 24.00 16.40

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

Proposed Dividend 9.75 29.26

Corporate Dividend Tax 1.66 4.97

Balance of Profit carried forward 0.07 0.09

4. DIVIDEND

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

5. EPS / BOOK VALUE

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

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

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

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

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

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

7. NON PERFORMING ASSETS (NPA''s)

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

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

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

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

8. BRANCH AND ATM NETWORK

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

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

9. FINANCIAL INCLUSION

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

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

10. INTERNATIONAL BUSINESS

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

11. BANK TRANSFORMATION EXERCISE

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

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

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

12. LISTING AGREEMENT WITH STOCK EXCHANGE

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

13. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

Your bank has introduced the following Technology products and Services:

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

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

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

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

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

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

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

14. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

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

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

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

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

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

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

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

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

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

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

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

15. RISK

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

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

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

16. INTERNAL CONTROL

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

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

17. HUMAN RESOURCE

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

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

18. SOCIAL INITIATIVES

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

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

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

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

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

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

19. CORPORATE GOVERNANCE

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

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

20. CHANGES IN THE BOARD OF DIRECTORS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

22. EMPLOYEES STOCK OPTION SCHEME

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

23. STATUTORY DISCLOSURE

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

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

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

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

24. OUTLOOK 2014-15

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

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

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

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

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

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

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

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

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

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

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

25. AUDITORS

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

26. ACKNOWLEDGMENT

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

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

For and on behalf of the Board of Directors

Place : Chennai (RAGHURAJ GUJJAR) Date :23.08.2014 Chairman

---

Mar 31, 2013

TO THE MEMBERS

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

1. FINANCIAL PERFORMANCE

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

(Rs. in crores)

For the year ended

31st March 2013 31st March 2012

Deposits 15,618.98 14,114.14

Advances ( Net) 11,702.80 10,188.68

Investments ( Net) 4,324.55 4,395.12

Total Income 1,957.61 1,677.18

Operating profit 251.15 235.44

Provisions and contingencies 159.57 128.42

Net Profit 91.57 107.02

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

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

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

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

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

2. PROFIT

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

3. APPROPRIATIONS

(Rs. in Crores) Particulars For the year ended

31.03.2013 31.03.2012

Profit brought forward 0.09 0.25

Amount available for appropriation 91.66 107.37

Transfer to:

Statutory Reserve 29.00 28.00

Capital Reserve 3.44 0.85

Other Reserve 16.40 32.25

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

Proposed Dividend 29.26 34.14

Corporate Dividend Tax 4.97 5.54

Balance of Profit carried forward 0.09 0.09

4. DIVIDEND

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

5. EPS / BOOK VALUE

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

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

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

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

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

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

7. NON PERFORMING ASSETS (NPA''s)

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

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

8. BRANCH AND ATM NETWORK

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

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

9. FINANCIAL INCLUSION

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

10. INTERNATIONAL BUSINESS

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

11. LISTING AGREEMENT WITH STOCK EXCHANGE

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

12. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

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

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

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

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

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

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

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

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

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

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

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

13. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

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

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

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

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

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

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

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

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

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

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

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

14. RISK

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

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

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

15. INTERNAL CONTROL

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

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

16. HUMAN RESOURCES

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

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

Industrial Relation was cordial during the year.

17. SOCIAL INITIATIVES

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

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

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

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

- Donated two computers to Siddhartha Muthiyor Illam.

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

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

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

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

18. LISTING WITH BSE

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

19. CORPORATE GOVERNANCE

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

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

20. CHANGES IN THE BOARD OF DIRECTORS

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

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

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

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

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

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

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

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

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

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

22. EMPLOYEES STOCK OPTION SCHEME

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

23. STATUTORY DISCLOSURE

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

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

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

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

24. OUTLOOK

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

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

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

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

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

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

25. AUDITORS

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

26. ACKNOWLEDGMENT

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

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

For and on behalf of the Board of Directors

Place : Mumbai (RAGHURAJ GUJJAR)

Date :10.07.2013 Chairman of the Meeting

---

Mar 31, 2012

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

1. FINANCIAL PERFORMANCE

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

(Rs. in crores)

For the year ended

31st March 2012 31st March 2011

Total Deposits 14,114.14 11,149.51

Total Advances 10,188.68 8,094.42

Investments 4,395.12 3,518.85

Total Income 1,677.18 1,201.85

Operating profit 235.44 273.86

Provisions and contingencies 128.42 172.72

Net Profit 107.02 101.14

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

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

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

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

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

2. PROFIT

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

3. APPROPRIATIONS

Particulars (Rs. in Crores) For the year ended

31.03.2012 31.03.2011

Profit brought forward 0.25 0.16

Amount available for appropriation 107.37 101.30 Transfer to:

Statutory Reserve 28.00 26.00

Capital Reserve 0.85 1.27

Other Reserve 32.25 40.25

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

Proposed Dividend 34.14 24.38

Corporate Dividend Tax 5.54 4.15

Balance of Profit carried forward 0.09 0.25

4. DIVIDEND

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

5. EPS / BOOK VALUE

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

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

6. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

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

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

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

7. NON PERFORMING ASSETS (NPA's)

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

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

8. BRANCH AND ATM NETWORK

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

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

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

9. FINANCIAL INCLUSION

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

10. INTERNATIONAL BUSINESS

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

11. LISTING AGREEMENT WITH STOCK EXCHANGE

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

12. ALIGNING TECHNOLOGY WITH BUSINESS OBJECTIVE

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

1. Increased the ATM network from 250 to 541.

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

3. Deployed point of sales devices across various locations.

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

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

6. Introduced centralized issue of personalized cheque book.

7. Enabled interbank fund transfer through bank

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

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

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

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

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

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

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

13. WEALTH MANAGEMENT / PARABANKING ACTIVITIES

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

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

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

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

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

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

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

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

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

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

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

14. RISK MANAGEMENT

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

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

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

15. INTERNAL CONTROL SYSTEMS

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

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

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

- Pre-disbursement credit audit.

- Concurrent Audit by Empanelled Chartered Accountant Firms.

- Information System Audit by Specialized and trained inspectors.

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

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

16. HUMAN RESOURCES

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

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

Industrial Relations were cordial during the year.

17. SOCIAL INITIATIVES

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

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

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

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

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

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

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

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

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

18. ISSUE OF TIER II CAPITAL

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

19. CORPORATE GOVERNANCE

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

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

20. CHANGES IN THE BOARD OF DIRECTORS

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

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

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

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

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

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

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

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

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

22. EMPLOYEES STOCK OPTION SCHEME

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

23. STATUTORY DISCLOSURE

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

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

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

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

24. FY 2012-13 - AN OUTLOOK

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

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

25. AUDITORS

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

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

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

26. ACKNOWLEDGMENT

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

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

For and on behalf of the Board of Directors

Place : Chennai (K.R. PRADEEP)

Date : 31.07.2012 Chairman of the Meeting

---

Mar 31, 2011

TO THE MEMBERS

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

1. FINANCIAL PERFORMANCE

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

(Rs in crores)

For the year ended

31st March 2011 31st March 2010

Total Deposits 11149.51 9075.38

Total Advances 8094.42 6277.50

Investments 3518.85 2983.22

Total Income 1201.85 1012.88

Operating profit 273.86 166.21

Provisions and contingencies 172.72 135.54

Net Profit 101.14 30.67

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

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

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

2. INVESTMENTS

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

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

3. PROFIT

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

4. APPROPRIATIONS

(Rs in crores) Particulars For the year ended

31st March 2011 31st March 2010

Profit brought forward 0.16 0.28

Amount available for appropriation 101.30 30.96

Transfer to:

Statutory Reserve 26.00 10.00

Capital Reserve 1.27 0.66

Other Reserve 40.25 12.32

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

Proposed Dividend 24.38 5.85

Corporate Dividend Tax 4.15 0.97

Balance of Profit carried forward 0.25 0.16

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

5. DIVIDEND

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

6. EPS / BOOK VALUE

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

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

7. NET OWNED FUNDS / CAPITAL ADEQUACY RATIO

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

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

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

8. NON PERFORMING ASSETS (NPA's)

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

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

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

9. BRANCH AND ATM NETWORK

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

10. IMPROVING CUSTOMER SERVICE THROUGH TECHNOLOGY

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

- Interbank Mobile Payment Services.

- Funds transfer and Ticket Booking through mobile.

- Funds transfer facility in ATMs.

- Fee payment through ATM.

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

- Revamped website with more interactive functionalities / facilities.

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

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

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

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

11. INTERNATIONAL BUSINESS

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

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

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

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

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

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

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

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

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

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

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

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

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

13. RISK

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

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

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

14. INTERNAL CONTROL SYSTEMS

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

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

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

- Pre-disbursement credit audit.

- Concurrent Audit by Empanelled Chartered Accountant Firms.

- Information System Audit by Specialized and trained inspectors.

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

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

15. HUMAN RESOURCE

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

16. SOCIAL INITIATIVES

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

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

17. CORPORATE GOVERNANCE

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

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

18. BOARD OF DIRECTORS

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

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

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

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

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

19. DIRECTORS' RESPONSIBILITY STATEMENT

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

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

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

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

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

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

20. STATUTORY DISCLOSURE

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

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

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

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

21. FY 2011-12 : OUTLOOK

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

22. AUDITORS

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

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

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

23. ACKNOWLEDGMENT

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

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

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

For and on behalf of the Board of Directors

Place : Mumbai K.R.Pradeep

Date : 20.07.2011 Chairman of the Meeting