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Dear Shareholders,
On behalf of the Board of Directors and on my personal behalf, it gives me immense pleasure in extending a warm welcome to each one of you at this Fourteenth Annual General Meeting of the Bank.
I trust you have all received a copy of the Bank’s Annual Report for the year 2009-10, comprising the report of the Board of Directors, Audited Financial Statements of the Bank along with the consolidated Financial Statement. With your consent, I take them as read.
Global Economic Scenario
The Global Economy, which was stunted by the impact of unprecedented ‘Global Meltdown’ of 2008-09 witnessed gradual recovery through the last year, supported largely by extraordinary policy intervention by the Governments and Central Banks of countries across the Globe. The pace of recovery, however, remained uneven across countries, with tepid growth by advanced economies and faster growth by emerging and developing economies. Although recovery process continues to progress, the recent sovereign debt crisis in several European countries has created new hurdles in the way of sustainable growth and stability. The fallout and contagion effect of European debt crisis has, however, been contained to a considerable extent with the $1 trillion aid package by the European Union, IMF, European Central Bank. However, should there be any cases of default or restructuring of sovereign European debt, it can adversely affect market sentiments, cause interest rates to rise, impact capital flows eventually affecting growth process. This apart, for sustaining global recovery and growth momentum the challenges will be surmounting high unemployment rate, high fiscal deficit and a high debt to GDP ratio prevailing especially in the case of Developed countries and the need to unwind fiscal and monetary stimulus measures sometime in the future.
The global GDP, as projected by World Bank recently, is expected to grow by 3.3% in 2010 and 2011 as against contraction by 2.1% during 2009. The growth rate of developing countries will remain higher at 6.0% than that of the Advanced countries who are to grow by only 2.3%. Among the developing economies, China and India will be at the fore front with growth rate for 2010 projected at over 9.5% and 8.2%, respectively.
Indian Economic Scenario
In contrast to advanced economies, Indian Economy saw a comparatively stronger and faster recovery during the year 2009-10. In spite of deficient rainfall and marginal growth in Agricultural output, the GDP registered a growth rate of 7.4 percent during 2009-10 as against 6.7 percent growth rate for 2008-09. The strong rebound in Industrial out put with 10.4% growth rate and resilience shown by the service sector with 8.3% growth rate, have contributed considerably to recovery in GDP growth. The Exports sector, which was reeling under negative territory till October, 2009 has bounced back with over 30% growth rate registered for the last three months since February, 2010. However, for the year as a whole, both exports and imports growth remained negative at -4.7 percent and -8.2 percent, respectively. The year 2009-10 saw large volatility in inflation. From a negative figure during June to August 2009 period, headline WPI inflation gradually rose to 9.9% by March,2010. Inflationary pressure, which emanated from rising food prices initially, gradually turned out to be generalized, spreading to non-food manufactured products. The fiscal deficit during 2009-10 rose by 25% during 2009-10 under the impact of lower tax revenue growth and additional burden on account of fiscal stimulus and stood at 6.6% of the GDP.
The outlook for Indian economy for the 2010-11 appears encouraging, with growth rate projected at over 8 percent, assuming a normal monsoon and higher Agricultural output. The continued buoyancy in Industrial output and Exports will help boost the growth momentum of the economy. However, certain downside risks like decline in Savings Rate, deceleration in private and Government consumption demand, any adverse global development and an early exit from fiscal stimulus and supportive monetary measures may dampen the growth prospects.
Banking Scenario
The Indian banking industry, which remained largely immune to global financial crisis, was however impacted by slow down prevailing in Real sector. The credit off take remained subdued for a prolonged period of time. The pressure on Net Interest Margin was visible as a result of reduction in PLR and the magnitude of stressed assets, which increased on account of global economic slowdown following the financial crisis, showed hardly any perceptible improvement.
The deposits growth of the Scheduled Commercial Banks during 2009-10 slowed down to 17.0 percent during the year as against 19.9 percent during the previous year. The Bank credit growth remained less than 5 percent during the first half of 2009-10. However, subsequent recovery in credit pick up enabled the system to log 16.7 percent growth during the year as against 17.5 percent in previous year. While the bank credit during the year decelerated, financing by corporate sector from non-bank sources increased sharply. The Credit Deposit ratio of the banking system, which remained below 70 percent for major part of the year improved to 72 percent by end March.
The deposits and lending rates softened during 2009-10, with rates on deposits of above one year maturity coming down from 8.0-9.25% in March, 09-end to 6.00-7.50% by end March, 2010. The Benchmark Prime Lending Rate (BPLR) of five major PSB banks came down from 11.50-12.50% in March, 2009 to 11.0-12.0 percent in March, 2010.
During 2009-10, considering the pace of recovery in economy and to rein in the inflationary pressure, RBI initiated gradual exit from the expansionary policy from the second half of the year. During the last quarter, CRR and Repo rates were also raised on concerns of inflationary expectation. Banks have been advised by RBI to maintain a minimum NPA provision coverage ratio of 70 percent by end-September 2010. More leeway has been given to banks for opening branches in Rural and Semi Urban areas. In pursuance of the recommendation of RBI Working Group, BPLR now has been replaced by Base Rate from July, 2010. The base rate will ensure transparency and would be beneficial to the borrowers at large.
Highlights of the Bank’s Performance
During the year 2009-10, your Bank achieved several milestones and took several measures to consolidate its position in the Banking industry. I have immense pleasure in announcing that the Business mix of your Bank crossed Milestone of Rs.4,00,000 Cr. The CASA deposits, which is key to higher NIM and profitability, rose by 27 percent, which is not only the highest growth shown by the Bank in the last five years, but also one of the highest among the PSU banks. Your Bank has completed the implementation of the Core Banking Solution for all the branches and now the customers of the Bank can have the convenience and pleasure of ‘Anywhere Banking’. In order to augment the credit growth to the Mid Corporate/ MSME segment, 28 specialised Mid Corporate Banking Branches have been opened during the year. For enhancing fee based income and for higher credit growth, Syndication desk has been reactivated and projects involving outlay of Rs. 10,000 Crore have been processed during the year. To improve credit delivery, online Credit Application Processing System (CAPS) has been introduced by the Bank. For facilitating NRE remittances from across the world, Global Remittance Centre has been opened in Mumbai.
Let me now update the Bank’s performance in various areas in some details.
Business Volumes
The Global business of your Bank registered a growth of 20 percent to reach Rs.4,01,079 crore. Total Deposits went up by 21 percent to reach Rs. 2,29,762 crore and Gross Advances went up by 18.4 percent to reach Rs. 1,71,317 crore. Domestic Aggregate Deposits grew by 23.2 per cent and domestic Credit grew by 17.2 per cent. In domestic operation, your Bank has performed above the Banking System’s growth rate in Deposits, thereby improving its market share in deposits from 4.04 percent in March,2009 to 4.19 percent in March,2010.
Your bank showed impressive/ remarkable performance on Current and Savings Deposits front. The current deposits rose by 31.6%, savings deposits by 25.9% and the overall CASA growth recorded growth by 27.2%. As a result, the CASA percentage improved from 30.76% in March, 2009 to 31.75% in March, 2010.
Profits and profitability
The Operating Profit of the Bank for the year 2009-10 stood at Rs.4705 crore against Rs.5457 crore last year and the Net Profit stood at Rs.1741 crore as compared to Rs.3007 crore for the last year. The Returns on Assets (ROA) of the Bank came down from 1.49% during 2008-09 to 0.70% in 2009-10. Higher growth in business by the Bank could not be translated into higher profits due to certain bottlenecks. There was drop in Net Interest Margin mainly because of high cost deposits picked up during the initial period of the year and decline in the yield on advances. The fall in treasury income due to adverse market conditions and higher NPA provisions occasioned by the impact of global slowdown and economic factors on certain sectors also significantly affected the profit level. The Bank has taken several proactive steps to reverse the trend, with the result the profitability is expected to improve during the current financial year.
Other Key Financial indicators
Your Bank has a robust capital base, with a Net Worth of Rs.12456 crore which went up by 11.8% from Rs.11144 crore in March, 2009. The Capital Adequacy Ratio (Basel II) of your Bank stood at 12.94 percent and the Tier-I Capital Ratio stood at 8.48%, which is much higher than the RBI’s stipulation. To strengthen the capital base, your Bank raised Rs.325 crore by way of Innovative Perpetual Debt Instrument (IPDI) as Tier I capital and Rs.2000 crore by way of Upper Tier II Bonds. The Bank also successfully raised USD 500 million under Medium Term Note programme at a fine rate.
The per employee business-mix of the Bank improved substantially from Rs.8.33 crore in 2008-09 to Rs.10.11 crore during 2009-2010.
Strategies at work
It has been constant endeavour of the Bank to introduce new products and adding value to the existing bouquet of products. Towards this end, two new products, “Star Suraksha SB account” with insurance cover and “Star Benefit CD account” with certain added advantages were launched during the year.
In order to give a boost to Retail lending business, the Bank launched special packages on Home and Auto loan schemes with attractive concessional features and entered into tie-up arrangement with various reputed builders and Auto manufacturers.
With the introduction of Applications Supported by Blocked Amount (ASBA) by SEBI, the Bank has provided ASBA facility for the customers having Internet Banking. The use of this facility will help customers in their resources management.
Bank has launched the web-site in Regional Language “Marathi” and is planning to roll out in other Regional Languages. In order to make credit processing activity faster and more objective, Credit Application Processing Systems (CAPS) was introduced which covers all major credit segments – Retail, Corporate, MSME and Agriculture.
Your Bank recognizes the importance of Human resources, particularly in a service industry like banking and has been pursuing proactive policies for meeting future challenges on this front. During the year, the Bank embarked on a massive recruitment drive for recruitment of 4452 staff members and imparted training to as many as 27206 staff for upgrading their skills.
Branch Expansion
To enable your Bank to reach wider geographical areas, 173 new branches were opened and 13 extension counters converted to branches, thus increasing domestic outlets to 3207 in March,2010 from 3021 in March, 2009. The Bank’s delivery channels include 201 specialised Branches catering to the specific needs of customers.
International Operations
Your Bank is one of the leading Indian banks having international presence. To strengthen International position further, a branch at Phnom Penh (Cambodia) was opened during the year. The bank now has presence at 29 locations in 18 Countries across four Continents. Besides, the Bank has an associate bank in Zambia and two subsidiaries in Tanzania and Indonesia. Your Bank is acting as Mandated Lead Arranger (MLA) and Joint Book Runner (JBR) for Multicurrency International Syndication loans. In order to facilitate inward remittance business, the Bank has opened Global Remittance Centre (GRC) Mumbai. With this, inward remittances and opening of accounts of NRI customers have been centralized at GRC.
Technological Initiatives
Building up a suitable technological infrastructure and leveraging on the technological capability has been one of the thrust areas of the Bank. As I said earlier, the Bank completed the process of net working of all the branches in May, 2009, making the 100% branches of the Bank under Core Banking Solution (CBS). In addition to this, implementation of Core banking solution among the branches of RRBs sponsored by the Bank is in progress. In order to render better access to the Bank’s services, the ATM network of the bank has been expanded to 951 as against 500 in March, 09.
During the year, Mobile Banking Services has been extended to all retail internet banking customers. As a proactive fraud prevention measure, the system of sending SMS alerts to customers for various debit transactions was made operational. To make internet banking safe and secure, the Bank implemented TWO-Factor Authentication (2FA) – Star Token for both Retail and Corporate internet banking customers as an additional security measure. You will be glad to know that your Bank is the first PSU Bank to have initiated such a preventive measure. In recognition of various technology initiatives taken, your Bank has been conferred Winner award in the Best Business Enablement Initiative Category by IBA.
Priority Sector Initiatives and Financial inclusion
Your bank has always been at the forefront in extending finance to Priority Sector. The Bank’s lending to priority sector during the year increased by 25.7 percent to reach the level of Rs.52,125 Crore and constituted 46.38 percent of the Adjusted Net Bank Credit, which is above the 40 percent norm prescribed by the RBI. Advances to Agriculture increased by 12.1% and that to Small Enterprises rose by 43.9%.
Your Bank has made considerable progress in the area of Financial Inclusion, the unique initiative launched by the Government and RBI for promoting inclusive growth. The Bank is using IT enabled solution and is adopting Business correspondent/ Business Facilitator model for expansion for Financial Inclusion initiative. During the year the Bank launched Biometric Smart Card for further penetration of banking in unbanked areas. As a result of various initiatives taken by the Bank, the number of no-frill accounts has expanded from 20.69 lakhs in 2008-09 to 32.63 lakhs during 2009-10. The Bank has ambitious plan for implementing Financial Inclusion Initiative. Under the plan, total number of no-frill accounts is to be increased to 100 lakhs by March, 2013 and will engage over 15000 business correspondents by March, 2013.
Corporate Social Responsibility
As part of Corporate Social Responsibility initiative, the Bank has set up Financial Literacy and Credit Counselling Centres at 5 Centres under the trust ‘Abhay’. Your Bank has also opened training Centres ‘Star Rojgar Prashikshan Santhan (RUDSETI) at 24 places for imparting training to educated unemployed youth.
Your Bank has adopted for Integrated Development 128 villages spread over 17 States and 78 districts. Your bank has disbursed Rs. 293.75 Crores as credit in these villages. The Bank has also sanctioned more than 37,000 proposals to rural households for construction of sanitation in 312 villages under its ‘Nirmal Gram Yojana’ scheme.
Awards and Accolades
Your Bank has been conferred with several awards and accolades in recognition of its multifaceted performance. To quote a few,
- Second best performance award in lending to Micro & Small Enterprises sector by the Government of India at the hands of our Hon’ble Prime Minister, Dr. Manmohan Singh.
- NDTV Profit Business Leadership Awards 2009 for Best PSU Bank,
- The second Most Trusted Brands” (MTB), 2009 under PSU category 2009,
- Outlook money NDTV Profit Awards 2009 – Best Education Loan Provider Runner up.
- Best Bank under Banking Category by Dun & Bradstreet – Rolta Corporate Awards 2009,
- FE-EY Most Efficient Public Sector Bank Awards 2010 by Dalal Street
Dividend
In recognition of your unstinted support, the Bank has declared a Dividend of 70 percent for 2009-10. Total Dividend payment amounted to Rs.428.65 Crore, including dividend distribution tax.
Board level changes
Shri T. S. Narayanasami, who remained as the Chairman & Managing Director of the Bank laid down office on 31st May,2009 on superannuation and I took over as the Chairman & Managing Director since 5th August,2009. Shri Rameshwar Prasad and Shri Kamal K. Gupta retired from Directorship on 31st July 2009 and 12th October 2009 respectively. We would like to place on record the valuable contribution made by Shri Narayanasami, Shri Rameshwar Prasad and Shri Kamal Gupta to the Bank’s functioning.
Way forward
For last two years, banking sector across the Globe has been passing through turbulent times, with the closure and merger of several banks. Although the global economy is on recovery path and we expect a higher GDP growth rate, higher trade volume in the current year, still the process of adjustment in respect of certain sectors is not complete. The Global recovery is still fragile, uneven and uncertain in the short run. Presuming the continuance of growth stimuli by the Governments and Central Bankers across the globe, we expect moderate degree of turn around by the affected sectors in the coming years. Your Bank’s performance should also mirror this movement.
The entire rank and file in your Bank is committed to sustainable business development, profitability growth and for building up an enterprise which is vibrant, innovative and which fulfills the aspiration of all the stake holders. The focus areas of your Bank for the current year will be :
- Customer acquisition on a wider scale and inclusive Banking
- Higher profitability and accent on asset quality
- Enlarging Mid Corporate and SME segment
- Enhancing and harnessing the capabilities of our Human Resources
- Reaching out to the community through a larger Branch Network, ATMs and vigorous pursuit of Financial Inclusion and thus be a catalyst for inclusive growth.
Acknowledgments
I take this opportunity to thank all the stakeholders and millions of our valued customers for their unstinted support and assure them of our commitment to enlarge the stakeholders’ value constantly. I acknowledge the support and guidance throughout the year accorded by Ministry of Finance, Government of India, Reserve Bank of India and Securities Exchange Board of India. I also thank the Officers’ Association and Staff Unions of the Bank for the co-operation extended by them. I wish to place on record my appreciation to the employees for their commitment, dedication and hard work, which has stood the Bank in very good stead.
I look forward to your continued support and patronage.
Thanking you,
Date: 14th July 2010 (Alok K. Misra)
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