KARNATAKA BANK LIMITED
ANNUAL REPORT 2009-2010
LADIES AND GENTLEMEN'S,
It gives me great pleasure to be amongst this august gathering of our
shareholders in this 86th Annual General Meeting of your esteemed Bank and
present to you the Annual Report of your bank your bank for the Financial
On behalf of the Chairman and the Board of Directors and on my personal
behalf, I have great pleasure in extending a warm welcome to each one of
you. I trust you all have received a copy of the Banks Annual Report for
the year 2009-10, comprising of the report of the Board of Directors and
Audited Financial Statements of the Bank.
Now let me present the economic environment in which your Bank had operated
during the year.
The global economy continues to recover amidst ongoing policy support and
improving financial market conditions. The recovery process is led by the
emerging market economies (EMEs), especially those in Asia, as growth
remains weak in advanced economies. The global economy continued to face
As stronger signs of global recovery became visible, the risks- in the
global financial markets declined for most part of the year. However,
sovereign risk concerns dominated the financial markets.
Core measures of inflation in major advanced economies are still moderating
as the output gap persists and unemployment remains high. Inflation
expectations also remain well anchored. In contrast, core measures of
inflation in emerging market economies, especially in Asia have been
rising. This has prompted central banks in some EMEs to begin phasing
out their accommodative monetary policies.
Indian Banking Scenario:
Aggregate deposits of Scheduled Commercial Banks (SCBs) increased by 20.72
per cent (Rs. 7,94,583.03 crore) during, 2409-10 as compared with 19.8 per
cent (Rs. 6,33,383 crore) in the previous year.
Non-food credit extended by scheduled commercial banks (SCBs) increased by
20.05 per cent (Rs. 5,56,610 crore) as compared with 17.28 per cent (Rs.
4,08,098 crore) in the previous year.
The Indian economy is firmly on the recovery path. Exports have been
expanding since October 2009, a trend that is expected to continue.
India's growth-inflation dynamics are in contrast to the overall global
scenario. The economy is recovering rapidly from the growth slowdown but
inflationary pressures, which were triggered by supply side factors, are
now developing into a wider inflationary process. The developments on the
inflation front are worrisome. WPI inflation is no longer driven by supply
side factors alone. What was initially a process driven by food prices has
now become more generalized.
The Base Rate system of loan pricing which has replaced the BPLR system
with effect from July 1,2010 is expected to facilitate better pricing of
loans, enhance transparency in lending rates and improve the assessment of
monetary policy transmission.
Financial markets functioned normally through the year. Surplus liquidity
that prevailed throughout the year declined towards the end of the year
consistent with the monetary policy stance. The large market borrowing by
the Government put upward pressure on the yields on government securities
during 2009-10. However, this was contained by active liquidity management
by the Reserve Bank of India. Lower credit demand by the private sector
also cushioned the yield. Equity markets generally remained firm during the
year with intermittent corrections in line with the global pattern.
The Union Budget for 2010-11 has begun the process of fiscal consolidation
by budgeting lower fiscal deficit (5.5 percent of GDP in 2010-11 as
compared with 6.7 per cent in 2009-10) and revenue deficit (4.0 per cent of
GDP in 2010-11 as compared with 5.3 per cent in 2009-10). As a result, the
net market borrowing requirement of the Central Government in 2010-11 is
budgeted lower at Rs. 3,45,010 crore as compared with that in the previous
year. M3 growth for 2010-11 is placed at 17.0 percent, Consistent with
this, aggregate deposits of Scheduled Commercial Banks (SCBs) are projected
to grow by 18.0 per cent. The growth in non-food credit of SCBs is placed
at 20.0 per cent. As always, these numbers are indicative projections and
Looking ahead, the Union Budget for 2010-11:
The agriculture sector occupies centre-stage in order to promote inclusive
growth, enhance rural incomes and sustain food security. To spur growth in
this sector, the Government intends to follow a four-pronged strategy
covering (a) agricultural production; (b) reduction in wastage of produce;
(c) credit support to farmers and (d) a thrust to the food-processing
During the year 2009-10, the flow of credit to the agriculture sector
increased significantly and banks have surpassed the target by extending
Rs. 3,67,000 crore worth of loan to farmers.
In pursuance of the recommendation of the High Level Committee on the Lead
Bank Scheme for the purpose of financial inclusion to react the benefits of
banking services to the' Aam AadmP, it has been decided to provide
appropriate Banking facilities to habitations having population in excess
of 2000 by March, 2012. It is also proposed to extend insurance and other
services to the targeted beneficiaries. These services will be provided
using the Business Correspondent and other models with appropriate
technology back up. By this arrangement, it is proposed to cover 60,000
Broadening of tax slabs will provide substantial relief to a large number
of taxpayers. The deduction of an additional amount of Rs. 20,000 for
investment in long-term infrastructure bonds as notified by the Central
Government will put more money in the hands of individual tax-payers for
both consumption and saving.
With marginal relaxation in the tax structure and moderate boost to
agriculture sector, the Budget projects a fiscal deficit of 5.5% of GDP
which translates into a deficit of Rs. 3,81,408 crore. Fiscal deficit is
Rs. 4,14,041 crore as per the 2009-10 revised estimates. The fiscal deficit
of 6.8% appears to be slightly above the comfort level and this level of
fiscal deficit, half of which is likely to be met through market borrowings
may pose some sort of challenge to banking industry as, well.
The Monetary Policy statement 2010-11 announced on July 27, 2010 by the RBI
Governor intends to
- Contain inflation and anchor inflationary expectations, while being
prepared to respond to any further build-up of inflationary pressures.
- Maintain an interest rate regime consistent with price, output and
- Actively manage liquidity to ensure that it remains broadly in balance so
that excess liquidity does not dilute the effectiveness of policy rate
The following are the policy measures announced.
- Bank rate has been retained at6.0percent.
- Repo rate under the Liquidity Adjustment Facility (LAF) increased by 25
basis points from 5.5 percent to 5.75 per cent with immediate effect.
- Reverse repo rate under the LAF increased by 50 basis points from 4.0 per
cent to 4.50 per cent with immediate effect.
- Cash reserve ratio (CRR) retainedat 6.0 per cent.
Performance of your Bank during 2009-10:
With the above background, I would proceed to brief you about the
performance of your Bank during the financial year 2009-10. Your Bank has
registered progress in important areas like deposits, advances,
geographical presence with new branches and their networking, etc.
I am pleased to report that your Bank's total business has stood at
Rs.38,166 yore as at 31st March 2010. Deposits have increased to Rs.
23,730.65 crore at the end of March 2010 from Rs. 20,333.29 crore during
the same period last year thus recording a growth of 16.71 %. Advances have
touched Rs.14,435.68 core at the end of the year as against Rs.11,810.05
core as on 31.03.2009 indicating arise of 22.23%.
The priority sector advances of the Bank increased from Rs. 4,372.16 crore
to Rs. 5,252.96 crore. The agricultural advances increased from Rs. 993.36
crore to Rs. 1,609.16 crore. While priority sector advances stood at
45.800!0 of total advances, agricultural advances stood at 11.97%. The Net
NPA of the Bank stood at 1.31 %. The net owned funds of the Bank grew by
16.96% and stood at Rs. 1,832.75 crore. The Bank had augmented Rs. 160.83
crore under its QIP issue during the year under report.
The Bank posted operating profit of Rs. 260,84 crore and net profit of
The capital adequacy ratio as per Basel II norms stood at 12.37% well above
the minimum of 9% prescribed by RBI.
The CASA deposits of the Bank stood at Rs. 5,118 crore as against the
target of Rs. 5,000 crore for March 2010, The same has increased by Rs.
1,360 crore showing a growth rate of 36.19% over March 2009. The share of
CASA has increased to 21.62%. The number of accounts under CASA stood at
28,13,457 as compared to 21,77,537 as at March 2009.
During the year, the Bank achieved foreign exchange business turnover of
Rs. 8,605.93 crore as against Rs. 7,850.65 crore for the previous year. The
advances to export sector stood at Rs.1, 369.12 Crore.
I am happy to inform you that during the year under report your Bank opened
17 new branches at Patna, Kanakapura, Tambaram, Vellore, Dhanbad, Kolkata
Bowanipore, Bangalore - Naganathapura, Gundlupet, New Delhi -Ashokvihar,
Ujjain, Ghaziabad, Kancheepuram, Chennai - Annanagar (West), Brahmapur,
Hyderabad - Serillingampally, Durg and Rajarhat-Kolkata.
As on March 31, 2010, the Bank had 464 branches, 217 ATM outlets, 8
Regional Offices, One International Division, One Data Centre, One Customer
Care Centre, 5 Service branches, 2 Currency Chests, 6 Extension Counters
and 2 Central Processing Centres, spread across 20 States and 2 Union
Territories. Further, for better ambience and improved customer service,
the Bank shifted 16 branchesloffices to new premises, during the year 2009-
The Bank which is tech savvy launched a slew of new products operated on
technology operated platform namely, student prepaid card, mobile banking
(mobile payment solutions), online payment through debit card and free
plant 8 international gold debit card. The Bank also launched a few
technology backed products such as KBL-Kishore, KBL-Tarun, KBL- Salary
Privilege, SB-Money Platinum, CA-Money Platinum etc. While KBL Kishore is
for minor students between 12 and 18 years of age, KBLTarun is for students
in the age group oil 825. KBL Salary Privilege is a zero balance any branch
banking account for salaried persons. SB Money Platinum is the highest
category under SB account schemes targeting the High Net worth Individuals.
I take this opportunity to inform the august gathering that your Bankwhich
had won the prestigious Sun and NDTV Green IT award instituted by Sun
Microsystems and NDTV a year back, has bagged 'Special Award for use of IT
for Internal effectiveness' for the year 2009, instituted by Institute for
Development and Research in Banking Technology (IDRBT). Dr. K. C.
Chakrabarty, Deputy Governor, RBI presented the award in the presence of
Dr. D. Subbarao, Governor, Reserve Bank of India at a function held at
IDRBT, Hyderabad on 18th June, 2010.
Bank proposes to pay a dividend of 40% for the year ended March 31, 2010.
Risks and Internal Control System:
Risk is inherent in all kinds of business activities and is an integral
part of the banking business. In normal course of business, a bank is
exposed to various risks namely Credit Risk, Market Risk and Operational
Risk besides other residual risks such as Liquidity Risk, Concentration
Risk, Strategic Risk, Reputation Risk etc. With a view to efficiently
manage such risks, your Bank has put in place various risk management
systems and practices. A separate Compliance Department has been set up.
The Audit Committee of the Board of Directors also oversees the internal
audit and compliance functions. The system of regular inspection, short
inspection and EDP Audit (IS Audit) of all the branches/offices, Concurrent
IS Audit of Data Centre and concurrent audit of select branches, Treasury
Department and International Division etc., form part of the internal
control mechanism. Besides, the Bank has been ensuring stock audit and
credit audit of large borrowal accounts by professional audit firms to
further strengthen the credit administration. The Risk-based Internal Audit
System has already stabilized in the Bank and all the branches have been
subjected to such Audit. The Bank introduced the on line marking of NPA's
with effect from 30th September 2009 and has also initiated steps for
offsite monitoring of all the borrowal accounts with limits above Rs.
The survival and prosperity of any industry depends largely on the quality
of its human resources and it is true even in the case of banking industry
which is service oriented. Efforts are being made to give appropriate
training to the staff to improve their skills for efficient service to
The business per employee (excluding inter-bank deposits) has increased
from Rs. 6.49 crore as on 31st March 2009.to Rs. 7.27 crore as on 31st
Tribute to Founders:
On 18th February 2010 Bank celebrated its Founders' Day as a mark of
respect to the founding fathers. 'Naadoja' Dr. Justice S. R. Nayak (Former
Chief Justice of Chhattisgarh), Chairperson, Karnataka State Human Rights
Commission graced the occasion and delivered the keynote address. The
lecture was followed by an enthralling vocal recital by Padma Shri Smt.
The Corporate Plan for 2010-11 envisages
(I) Business Turnover of Rs. 45,000 crore with Deposits of Rs. 27,500 crore
& Advances of Rs.17,500 sore and a turnover per employee of Rs. 7.76 crore
(ii) 480 blanches
(iii) 300 ATMs
(iv) Introduction of
a. Online trading
b. Travel Card
c. Gift Card
d. Smart Card
e. POS Terminal
f. Special Zero Balance account for women.
Before concluding, on behalf of the Bank and on my own behalf I would like
to place on record our gratitude to our shareholders and customers for
their sustained support and patronage which has immensely contributed
towards the growth of the Bank. The Board of Directors has always been
supportive and I thank the Chairman and members of the Board for their
The contribution made by Auditors, Legal Advisers, Consultants and
Correspondents is thankfully acknowledged.
I am pleased to record my appreciation for the positive role played by the
employees' and Officers' unions and the rich contribution made by the
dedicated workforce in serving the customers to their satisfaction.
I also gratefully acknowledge the continuous guidance and support of the
Reserve Bank of India, Indian Banks' Association, SEBI, Stock Exchanges and
I am confident that your 86-year old Bank will continue to take strides on
the profitable growth path and scale new heights in future with the
continued support and patronage of the shareholders, customers, employees
and well wishers.
Place : Mangalore P Jayarama Shat
Date : 31.07.2010 Managing Director & CEO.