On behalf of the Board of Directors it gives me great pleasure to place before you thehighlights of your Bank's performance during the financial year 2016-17.
Details of the achievements and initiatives taken by your Bank are provided in theenclosedAnnual Report for the year.
Given the unique and evolving circumstances I am grateful to our customers who havecontinued to repose their trust in us. I am very happy to report that your Bank hasemerged as one of the best performing banks in Asia in terms of market value despite theeconomic uncertainty surrounding the banking sector. Your Bank has been continuouslyperforming better than its peers in various parameters and has taken conscious decision toplace itself as a leader.
Digital India will play a vital role in driving the Indian economy's growth trajectoryaided by improved investor confidence lower food prices and better policy reforms
Performance of Banking Sector:
The Indian banking industry faced challenging times during the year due to the economicslowdown and rising NPAs in balance sheets of Public Sector Banks. As a resultpreservation of asset quality took precedence and a cautious approach towards growth wasadopted by most of the banks. Your Bank took earnest efforts to rebalance the assetportfolio from Corporate to a mix of Retail and Mid Corporate segment. More focus wasgiven to increase Retail business and selective approach was adopted for Corporate creditmatching the risk appetite for such credit.
As a strategic move based on its expertise Bank decided to position itself as 'MidSized Bank with Focus on Retail and Mid-Segment' by creating three separate Verticalsfor Mortgage Loan SME Loan and Other Retail Loan. Towards this objective Specializedbranches were opened and dedicated for growth in Retail sector viz. Ind-Retail Ind-MSMEInd-Mid Corporate for focused attention to offer end to end solution with reducedturnaround time.
Apart from the normal business Bank has always has had its sight on its nationalgoals. I am happy to announce that the Bank has surpassed all its national goals set underPriority Sector lending for each category viz. Level of 42.31% (Mandatory 40%) underPriority Sector advances 19.95% (18%) in Agriculture 12.08%(10%) for Advances to weakersections and 7.87% (7%) in lending to Micro Enterprises under MSME.
Economic Overview Global
Global economic outlook has considerably improved since 2016 on the back of improvedpolicy outlook in advanced economies. IMF in its World Economic Outlook (WEO) raised itsprojection for 2017 global growth to 3.5 percent and is expected to rise to 3.6 percent in2018. However the rising threat of protectionism is a concern as it may lead to tradewars particularly among the advanced economies.
Growth in advanced economies is projected to increase on the back of strong recovery inUnited States in terms of proposed fiscal stimulus policy directions improved employmentdata and inflation outlook. Growth is expected to remain solid in the United Kingdom(making a recovery post Brexit decision in June 2016) and increased economic activity inJapan on strong export performance. The general outlook for advanced economies in Europeand Asia is expected to be positive as most of them are expected to make a cyclicalrecovery in economic activity.
Emerging and developing economies is expected to grow further to 4.5 per cent and 4.8per cent in 2017 and 2018. While general outlook for developing economies is positive butcountry-wise the outlook remained mixed. China is expected to post a positive growthspurred by strong policy support while India is gaining its momentum back postdemonetisation.
Economic Overview Domestic
Domestic economy's forecast would not be apt if the impact and effect ofdemonetisation is not addressed. This move by the Government was iconic as it had not onlyset the ball rolling on large scale economic reforms it also aimed to put an end torising socio-economic evil of corruption.
As per the latest Gross Domestic Product (GDP) released by the Central StatisticsOffice second advance estimates the growth in GDP (constant prices) for 2016-17 is to beat 7.1% as against 7.9% in 2015-16. While Gross Value Added (GVA) at basic prices isestimated to grow at 6.7% in 2016-17 compared to 7.7% in 2015-16. The GDP growth for thethird quarter was higher-than-expected considering the quarter was when the demonetisationtook place in the economy. The marginal impact of demonetisation on GDP could be becauseof two reasons viz. the impact of unorganised sector (which took the biggest impact as itwas primarily cash centric sector) was not captured completely and sharp increase intransactions through digital channels to ease the consumption shock.
Gross Domestic Product (GDP) is estimated to grow at 7.1% in 2016-17 compared to 7.9%in 2015-16). The relatively higher growth in GDP compared to GVA in 2016-17 is attributedto the robust tax collections during the demonetisation period where hoarders of oldcurrencies ( Rs. 500 and Rs. 1000) were allowed to pay tax.
The outlook for the current financial year 2017-18 is contingent upon the transienteffect of demonetisation rollout of GST impact of 7th Central Pay Commission and effectof global economic policies on the domestic economic development. All these factorstogether will work simultaneously shaping the economic development in the forthcomingyear.
Bank's Business and FinancialAchievements
Against this backdrop I would like to give an overview of the Bank's performance inimportant parameters.
Bank's Business grew modestly by 1.20% to Rs. 314654 crore as on 31st March2017. While Deposits grew by Rs. 4223 crore or 2.37% to Rs. 182509 crore Advances stoodat Rs. 132145 crore.
Operating profit of Bank for FY 2016-17 was at Rs. 4000.71 crore while NetProfit stood at Rs. 1405.68 crore.
Networth of Bank increased to Rs. 14461.59 crore as on 31st March 2017.
Earnings per share for FY 2016-17 and Book value per share were at Rs. 29.27 andRs. 301.10 respectively. Return on Equity was at 9.97% for FY 2016-17.
Bank's financial soundness as reflected by the CRAR (Capital to Risk weightedAssets Ratio) was strong at 13.64% under Basel III as on 31st March 2017. Bank isconsistently at the top in respect of this ratio and is adequately capitalized.
Banking sector Challenges and opportunities in 2017 - 18:
Green shoots are becoming visible after a long period of stress in the banking sectorafter most banks seen to have repaired their balance sheets post asset quality reviewexercise carried out by RBI. Thanks to demonetization banks are flush with abundantliquidity and strong treasury income as these surplus funds found their way into the moneymarket lowering bond yields. Banks were not able to capitalize on the reduction in costof funds as the advantage was nullified by muted credit growth rate cut wars risk ofhigher delinquencies and increased operational costs.
The challenges which the banks face include accretion in deposits post demonetizationleading to higher accumulation of CASA slowdown in fresh advances due to twin balancesheet problems i.e. over leveraged corporates and pile of bad loans in banks rate warsamongst banks deepened asset quality woes increasing competition from new set of banksand migrating towards less cash society.
Pockets of growth however are available in Retail Agriculture MSME and Infrastructuresectors aided by lending rate cuts initiatives and sops announced in the Budget increasein CGTMSE cover from Rs. 1 crore to Rs. 2 crore and increased Government spending oncapacity building and infrastructure creation including affordable housing.
With several policy initiatives on the anvil the Indian economy is on the brink of amajor transformation. The country's economic growth is likely get an impetus consideringthe number of initiatives taken by both the Government of India and Reserve Bank of Indiato stimulate positive business sentiments improve consumer confidence and controlinflation. With spending on infrastructure getting enhanced stalled projects gettingrevived and put on the road for speedy implementation and continuation of reforms areexpected to prop up growth in the Economy. All these are positive indicators towardsprospects of robust growth for India's banking sector as the credit needs of the rapidlygrowing business have to be fuelled by the banks.
With Government of India's push towards digitalization for enhanced efficiency andeffectiveness banking sector is laying greater emphasis on providing improved services totheir clients by upgrading their technology infrastructure. Advancements in technologywhich have brought the mobile and internet banking services to the fore would be assistingthe banks in this digital journey.
I would like to acknowledge the unstinted support and guidance from our valuedcustomers without which our sustained quest for excellence would not have been possible. Iwould like to place on record the support of all other stakeholders and I am grateful toeach one of them for their continued cooperation. I wish to sincerely thank you all thevaluable shareholders again for your continued confidence in your Bank.
I would also like to take this opportunity to express my sincere appreciation for thededicated and commendable efforts of the entire work force of the Bank which rose inunison during the demonetisation period to serve the general public and customers withutmost sincerity. This proves that with grit and determination every difficult situationcan be overcome. With their continued extraordinary efforts I am confident that the Bankundaunted by the challenges would march ahead in the new Financial Year towards itspinnacle of excellence.
With best wishes
T C VENKAT SUBRAMANIAN