Annual Report - OBC - 2009-2010

ORIENTAL BANK OF COMMERCE

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

The Board of Directors have pleasure in presenting this Annual Report
together with the Audited Balance Sheet and Profit & Loss Account of the
Bank for the Year ended 31st March, 2010.



1. BUSINESS OPERATIONS:

The Business of the Bank crossed Rs. 200000 crore mark and stood at Rs.
204442 crore on March 31 st 2010 as against Rs. 167434 crores in the
previous year. Total deposits of the Bank stood at Rs. 120258 crore and has
shown an increase of Rs. 21889 crore depicting a growth of 22.25%. Cost of
deposit stood at 6.57%. The Bank has taken conscious decision of shedding
high cost bulk deposits and substituting the same with normal rate and
lower cost deposits so as to contain the level of bulk deposits. The
percentage of bulk deposits has declined marginally from 21.42% as on
31.03.2009 to 21.37% as on 31.03.2010. On the other hand, net advances as
at end-March 201.0 stood at Rs. 83489 crore, registering a growth of Rs.
21.88%. During the fiscal 2009-10, yield on advances has declined to 10.20%
from previous year's level of 10.82%. The measures taken up by the bank to
improve yield on advances through lending to SME, Mid Corporate and Retail
sector besides implementation of Base Rate would enable the bank to improve
yield on advances.

The credit deposit ratio of the Bank, as at end-March 2010, stood at 70.22%
. The Bank ensured adequate flow of credit to the productive sectors of the
economy. The Loans & Advances portfolio of the bank is well diversified and
balanced. The Bank has ensured that its exposure to sensitive sectors such
as Capital Markets, Real Estate, NBFCs etc. is well within the regulatory &
prudential cap.

2. CAPITAL & RESERVES:

During the year, the bank transferred a sum of Rs. 868.19 crore to Reserves
(which includes Rs. 284.00 crore transferred to Statutory Reserves, Rs.
411.00 crore to Revenue and other Reserves, Rs. 173.19 crs. to Capital
Reserves) out of the profit for the year 2009-10. With this, capital &
reserves as on March 31, 2010 have gone upto Rs.8237.95' crore as against
Rs. 7403.45 crore as at end March 2009 and the ratio of Capital & Reserves
to average working funds stood at 6.61% as on 31.03.2010 as against 7.17%
as on 31st March 2009.

3. CAPITAL ADEQUACY RATIO:

As on March 31. 2010 the Capital Adequacy Ratio of the Bank under Basel -II
stood at 12.54% as against 12.98% as on 31st March, 2009(under Basel-II).
This is well above the regulatory minimum requirement of 9.0%.

4. FINANCIAL PERFORMANCE:

The Bank has posted a total income of Rs. 11457.17 crore during the year as
against Rs. 9927.79 crore last year thus registering an increase of
Rs.1529.38 crore (a growth of 15.41%) during the fiscal 2009-10. Operating
Profit of the Bank went upto Rs. 2421.50 crore as against Rs. 1669.98 erore
last year showing a growth of 45.00%. The Bank has made a net profit of
Rs.1134.68 crore, after making all requisite provisions showing an increase
of Rs. 244.26 crore (growth of 27.43%) during the fiscal 2009-10.

Appropriation from the Net Profit have been effected as per table given
below:-

Table: Financial Performance (Rupees in crore)
31.03.2010 31.03.2009

Interest Income 10257.13 8856.47
Other Income 1200.04 1071.32
Total income 11457.17 9927.79
Interest Paid 7349.69 6859.97
Operating Expenses 1685.98 1397.84
Total Expenses 9035.67 8257.81
Operating Profit 2421.50 1669.98
Provisions & Contingencies 1286.82 779.56
Net Profit 1134.68 890.42
Add-Profit brought forward 0.83 0.51
Less-Amalgamation adjustment - -

Written-off:

Net Profit available for appropriation 1135.51 890.93

APPROPRIATION:

Transfer to Statutory reserve 284.00 227.00
Transfer to Revenue and Other reserves 351.00 21.00
Transfer to Special Reserve u/s 60.00 86.00
36(1)(viii) of I-T Act
Transfer to capital reserve 173.19 342.12
Proposed Dividend 227.99 182.90
Tax on Dividend 38.75 31.08
Balance carried over to Balance Sheet 0.58 0.83

5. DIVIDEND:

Your Bank's policy of declaring dividend is to reward the share holders as
well as to plough back profit for maintaining a healthy capital adequacy
ratio & for supporting future growth. Accordingly, your Directors are
pleased to propose a total dividend of 91 (Le Rs. 9.10 per share)for the
year ended 31st March, 2010 as against 73% (i.e. Rs. 7.30 per share) paid
for the preceding year.

6. SECTORAL DEPLOYMENT OF CREDIT TO PRIORITY SECTOR:

Bank's advances to priority sector increased by Rs. 7068.54 crore from
Rs.22315.07 crore in March 2009 to Rs. 29383.61 crore in March 2010
registering a growth of 31.68%. The Priority Sector Advances constituted
42.90% of the Adjusted Net Bank Credit (ANBC) against the stipulation of
40%. The comparative position of advances under various segments under
Priority Sector as at the end of March 2009 and March 2010 is as follows:

(Amount Rs. in crore)
S. Sectors March 2009 March 2010
No.

1. Priority sector credit 22315.07 29383.61
2. Agriculture 8614.03 11267.51
3. Direct Agriculture 4644.43 6564.47
4. Indirect Agriculture 3969.60 4703.04
5. SSI/SE 5576.33 10868.81
6. Educational Loan 767.97 942.72
7. Housing Loan 6197.17 6258.03
8. Other P.S. 1159.57 46.54

6.1. Agriculture Advances:

Bank's advances to agriculture increased by Rs.2653.48 crore from
Rs.8614.03 crore in March 2009 to Rs.11267.51 crore in March 2010,
registering a growth of 30.80%. The advances to direct agriculture segment
increased by Rs.1920.04 crore from Rs.4644.43 crore as on 31.3.2009 to
Rs.6564.47 crore as on 31.3.2010 constituting a growth of 41.34%. The
Indirect agriculture advances increased by Rs.733.44 crore from Rs.3969.60
crore as on 31.3.2009 to 83.4703.04 crore as on 31.3.2010 showing an
increase of 18.48%.

6.1.1 Flow of credit to Agriculture sector (Fresh disbursement):

During the financial year 2009-10, fresh flow of credit to agriculture
sector amounted to Rs. 4937.07 crore. During the year, a total of 207517
new agriculture loan accounts were added. There was an average addition of
305 new agriculture loan accounts per rural and semi-urban branch.

6.1.2. Hi-Tech Dairy:

The bank is providing credit to rural youths for their self employment
under Hi Tech commercial dairy scheme in Punjab & Haryana states. Under the
scheme Punjab Dairy Development Board /Animal Husbandry & Dairying
department Haryana impart one month training to unemployed youth for their
skill up gradation. As on 31.3.10, an amount of Rs. 77.32 Crore has been
sanctioned to 661 units.

6.1.3. Oriental Saur Urja Dohan Scheme:

The fossil fuel resources are limited in quantity and are fast depleting.
The poor use Kerosene as common fuel for lighting. The rural people face
problem of home lighting due to non-availability of grid electric power
supply. Even if there is power supply, frequent load shedding and low
voltage is a regular phenomenon in rural areas. To overcome these problems
the bank is implementing a scheme for financing solar water heating &
lighting system, for creating a viable alternate to conventional source of
energy. The scheme is open to individual, institutional, commercial and
industrial users.

Bank is also providing loan for solar water heating system, under MNRE
scheme of IREDA. The bank finance for Solar Water Heating System amounted
to Rs.4.78 Lac under MNRE tie up arrangement and bank claimed subsidy of
Rs.0.82 Lac during the year.

6.1.4. Small and Medium Enterprises (SMEs):

Bank's exposure to Small Enterprises sector stood at Rs.10868.80 crore at
the end of March 2010 and has shown an increase of Rs..5292.47 crore,
recording a growth rate of 94.91%. Further, SME advances increased by
Rs.5629.96 crore to Rs.12571.29 crore registering a growth of 81.1% against
the Year on Year growth stipulation of 20%. The Tiny/ Micro sector advances
increased by Rs.1962.30 crore to Rs.3366.23 crore posting a growth of
139.77%.

Bank has entered into a MOU with NSIC for outsourcing credit proposals for
lending. The Bank has entered into a tie-up arrangement with SME Rating
Agency of India Ltd. (SMERA) for providing comprehensive rating services of
SMEs borrowers of the Bank at subsidized rates.

6.1.5. Oriental Green Card (Kisan Credit Card) & Oriental Kisan Gold Card
(OKGC):

During the Financial Year 2009-10, Bank has issued 83,885 cards to farmers
to meet their credit requirement for crop production, repairing of
agricultural machinery & equipment, working capital for allied activities,
to repay their old debts taken from non institutional money lenders and
consumption needs. The total amount of loan disbursed through these cards
during the year was Rs.1278.47 crore. At the end of financial year 2009-10,
the total number of cards issued to farmers rose to 652528.

6.1.6. Oriental Bank Grameen Project( OBGP):

Bank is providing finance to rural poor under home grown model of micro
finance viz. Oriental Bank Grameen Project. It is being implemented through
Joint Liability Group concept consisting of 5 members in each group,
preferably women.

The Bank has formed 3745 Groups reaching out to 17340 poor families spread
across 280 villages. The cumulative amount advanced to these groups as at
the end of March 2010 was Rs. 28.36 crore. Savings to the tune of Rs. 13.11
crore have been mobilized by the groups.

Bank has also participated in the Janashree Bima Yojana a social security
group insurance scheme of Life Insurance Company of India (LIC). The JBY
scheme was launched with the aim of providing life and accidental cover to
women belonging to the un-organised sector. The scheme was launched by Bank
in the month of December 2008 and as on 31.03.2010, 1706 members of 481
SHGs were covered under the scheme.

6.1.7. Advances to Weaker Sections:

Advances to weaker sections, consisting of beneficiaries belonging to
scheduled castes/scheduled tribes, small and marginal farmers, landless
labourers, rural artisans, beneficiaries under Govt. Sponsored schemes
(except PMRY) were of the order of Rs. 4131.25 crore as a the end of March
2010 as against Rs. 3018.71 crore as at the end of March 2009.

6.1.8. Credit under Differential Rate of Interest Scheme:

Credit flow at concessional rate of interest of 4% p.a. to the lowincome
group of the society both in rural having annual family income upto
Rs.18,000/-and urban having annual family income upto Rs.24,000/- centres
was Rs. 90.06 crore as at the end of March 2010.

6.1.9. Loans to SCs/STs:

Bank continues its thrust in providing financial assistance to SCs/STs
beneficiaries. The advances to these beneficiaries improved to Rs.591.22
crore in March 2010 against Rs. 483.03 crore as at the end of March 2009.

6.1.10. Prime Minister Employment Generation Programme (PMEGP):

The Scheme has been implemented by the Government of India by merging the
two existing schemes viz. PMRY and REGP w.e.f. 1st April 2008. The scheme
aims for generation of employment opportunities through establishment of
micro enterprises in rural as well as urban areas. The bank has provided
financial assistance to the tune to Rs.62.45 crores to 1653 applicants
under the scheme during the year 2009-10.

6.1.11. Swaran Jyanti Shahri Rojgar Yojana (SJSRY):

For providing gainful employment to urban poor (living below the urban
poverty line) through setting up self employment ventures, bank is
providing financial assistance under the scheme since its inception. The
bank financed to 2244 beneficiaries to the tune of Rs.6.88 crores during
2009-10.

6.1.12. Swarn Jyanti Gram Swarojgar Yojana (SGSY):

The scheme is operative in rural areas of the country and cover the aspects
of self employment such as organization of rural poor into Self Help Group
(SHGs) training credit technology, infrastructure and marketing. The bank
is participating in the schemes. During 2009-10 bank provided financial
assistance to 3227 swarojgaries, to the tune of 13.60 crore.

6.1.13. Credit Flow to Women Beneficiaries:

Women are assuming greater responsibilities and playing an active role in
the economic growth of the nation but remain under represented while
receiving the credit delivery from the Financial Institutions of the
country. So for strengthening of credit flow to women, Bank has implemented
13-points action plan as advised by the Government of India. Bank has
designated 10 branches as specialized branches for women entrepreneurs.

A number of credit schemes, such as Oriental Mahila uikas Yojana, Loan
scheme for Professional & Self Employed Women, Loan scheme for Beauty
Parlour/ Boutiques/ Saloons/ Tailoring, Scheme for Financing Working Women,
Oriental Swaran Yojana etc. are designed by the bank especially for women.
Besides, a special project called Oriental Bank Grameen Project (OBGP)
provides all types of banking assistance to the rural poor women.

As a result the Bank's advance to women increased by Rs. 736.15 crore from
Rs. 2920.54 crore as on March 2009 to Rs. 3646.69 crore as on-March 2010
registering a growth of 24.86%. Bank's advances to women beneficiaries as
on March 2010 was 5.32% of ANBC against the required stipulation of 5%.

6.1.14. Financial Inclusion:

With a view to provide banking facilities to the sections of society so far
deprived from the formal financial sector, bank implemented financial
inclusion policy. Bank adopted three pronged strategies for financial
inclusion. First, rural branches of the bank adopted villages for financial
inclusion. Second, both Lead Districts of the bank volunteered for 100%
financial inclusion. Third, banks branches participated in districts
identified by the respective SLBCs.

Under village adoption scheme as on March, 2010, bank adopted 2162 villages
having 1426240 households. Bank has achieved 100% financial inclusion in
1958 villages covering 1130942 households and opened 6,76,476 accounts
under normal deposit/ loan schemes and 2,16,663 accounts under no-frills
savings scheme.

In Bank's Lead District of Ferozepur, completed 100% financial inclusion in
997 villages and 156 wards having 2,89,896 households and opened 68747 no-
frills accounts. In Sriganganagar District, Bank completed 100% financial
inclusion in 3031 villages and 231 wards having 3,22,270 households and
opened 109,552 new accounts.

Further, Bank has started project of implementing Financial Inclusion by
providing smart cards in 7 districts initially namely Muktsar, Delhi,
Sriganganagar, Ferozpur Amritsar, Gurdaspur and Dehradun. 124283 smart
cards have already been issued. Further the project for Financial Inclusion
has been extended to 6 blocks in Amritsar namely Jandiala Guru, Harsha
Chhina, Verka, Chogawan, Rayya and Tarsikka.

6.1.15. Lead Bank Responsibility:

Bank is performing the functions of Lead Bank in three Districts namely
Ferozpur in Punjab, Sriganganagar in Rajasthan and Palwal in Haryana.

6.1.16. OBC Rural Development Trust:

Bank has set up a special purpose vehicle in the name of Oriental Bank
Rural Development Trust (OBCRDT) for setting up Training Centres at various
places across the country for imparting training for capacity building in
rural areas. The Trust came into being on the 9 December 2005 as a
registered body.

The main objective of the Trust is to establish training colleges/
institutes and workshops for providing training for farmers on modern
techniques of farming, tractor/farm machinery repair & maintenance and
other aspects of agriculture/rural development; micro finance and capacity
building of the rural youth and women.

Presently four OBCRSETIs (OBC Rural Self Employment Training institutes)
are functional at Dehradun, Sriganganagar, Jaipur and Ferozepur.

We have been allotted land by the State Government in Chomu (Jaipur),
Rajasthan and Zira (Ferozepur), Punjab where fullfledged training centres
are being constructed and construction work has started in full swing. Govt
of India has sanctioned an amount of Rs. 2 crores for constructions of
these centres. Haryana and Uttar Pradesh are other two states where the
Trust plans to set up training centres in the near future.

During the Financial Year 2009-10, a total of 176 training programmes were
conducted and 6694 candidates were given training on subjects like
tailoring & dress designing, watershed management, phulkari embroidery,
milch animal rearing, crop production, beauty parlour, medicinal
plantation, etc. A total of 2323 trained persons were credit linked for
pursuing/setting up of economic activities. Emphasis is also given to train
candidates from BPL strata of the society for which list of candidates is
obtained by the centres from respective DRDA. Cumulatively these centres
have conducted 411 training programmes since inception benefiting 15214
candidates.

6.2. Retail Credit:

Retail Credit segment continues to be the Thrust area of lending. The Bank
is having 10 Retail Credit Scheme including Home, loans to meet the
requirements of various sections of the society. Our Retail Credit Schemes
are customer friendly, competitive and specifically designed to suit all
sections of the society. The Bank has been formulating customized schemes
and is also having tie-ups with various reputed builders and auto
manufacturers to boost its Retail segment.

6.3. Education Loan:

The education loan portfolio of the Bank stood at Rs.971.75 crores as on
31.03.10 and showed Y.O.Y. Growth of 23%. Bank continued its efforts for
extending education loans to students on soft terms & conditions and
competitive rates besides 0.50% concessions in rate of interest is being
given to girl students. During the admission season, education loan camps
were organized in the campus of the educational institutions.

7. TREASURY OPERATIONS:

The G-Sec yields hardened across the curve as the underlying market
sentiment was bearish on account of expectations of RBI reversing its easy
monetary stance due to increase in Food led Inflation. However RBI
continued its easy monetary stance during the major part of the financial
year and reversed its monetary stance from January 2010 onwards. The equity
market remained positive on account of economic recovery across the globe.
Consequent upon this, turnover in the secondary market has increased from
Rs.28,526 crore in the year 2008-09 to Rs.65,312.05 crore in the year 2009-
10. The net profit from the secondary market operation was Rs.423.55 crore
during the year 2009-10. During the Financial Year 2009-10 the bank shifted
Government securities having book value of Rs.1271.48 crore from Available
For Sale' (AFS) category to Held To Maturity' (HTM) category and booked
depreciation of Rs.137.76 crore and shifted securities having book value of
979.59 from HTM to AFS category ignoring the appreciation as per RBI
guidelines. The aggregate investment of the Bank increased to Rs.35785.32
crore at the end of the financial year 2009-10 as against Rs. 28658.39
crore in the FY 2008-09, an increase of 24.87%. The yield on investment has
decreased to 7.08% from 7.63% as compared to last year due to maturing of
high coupon securities and issuance of securities bearing low coupon in the
FY 2009-10. Valuation of HFT & AFS portfolio is done on daily & quarterly
basis respectively and depreciation, if any, is booked on quarterly basis.

8. MERCHANT BANKING ACTIVITIES:

The Bank has been registered as Depository Participant with both NSDL &
CSDL. Nearly 78,000 customers are availing the demat services of the Bank
and PAN non-complaint zero balance accounts have been closed as per SEBI
directive. The number of branches offering demat services has gone up from
106 to 295 during the year 2009-10. The Bank is also offering online
trading services in collaboration with IDBI Capital market services for its
customers. During the fiscal year, the Bank raised Tier I Capital through
issue of Innovative Perpetual Debt Instrument aggregating Rs.300 crore on
private placement basis at the coupon of 9.100l0 p.a with a step up of 50
bps after 10 years in case the call option is not exercised. The Bonds were
allotted to 27 subscribers on; 17.12.2009.

8.1 Applications Supported by Blocked Amount (ASBA):

The Bank has been registered with SEBI as Self Certified Syndicate Bank
(SCSB) for providing Applications Supported by Blocked Amount (ASBA)
facility to its customers. ASBA is an application containing an
authorisation to block the application', money in the bank account
maintained with SCSB. Under the 'S ASBA facility, the application amount
for subscribing to an issue (IPO/Right issue), remains in the bank account
of the customer till allotment is finalized and actual amount equal to
allotted shares is only debited instead of total application amount.

9. FOREIGN EXCHANGE BUSINESS:

The financial year 2009-10 has witnessed remarkable turnaround in domestic
as well as overseas market activities. The impact of global meltdown
started fading away in the beginning of financial year due to various steps
taken by Government. Industrial activities also got revived in the
international market and global demand was also strengthened giving support
to exports from our country. Our country was almost untouched by subprime
crisis thankfully due to prudent actions taken by Government and RBI. The
performance of our bank on forex front may be seen as synchronized with
revival of business activities in domestic and overseas market. During the
fiscal year 2009-10, Forex turnover increased to Rs.49924 Crores as on
31.03.2010 as against Rs.42500 Crore as on 31.03.2009, thus registering a
growth of 13.60%. The non-interest income from forex operations also
registered a growth of 21.51% over the preceding financial year. The impact
of global meltdown which affected the growth of export during the year
2008-09, had however been reversed during the financial year under review.
The export credit of the bank stood at Rs.3963 Crores as on 31.03.2010 as
against Rs.3283 Crores as on 31.03.2009, thus registering a growth of 20.71
%. During the year under review, 4 more branches were authorized to conduct
foreign exchange business taking up such authorized branches to 87. Bank
has also identified 37 branches for NRI business to augment NRI deposit
base. Bank is in the process of revamping the International Banking
Division at Head Office so that our Bank's share in foreign exchange
business reaches the desired level. Bank has also launched speed remittance
facility for NRIs in association with three exchange houses. We are also
expanding exchange House remittance tie-ups to garner more & more NRI
accounts. The bank has mobilized non resident deposits to the tune of
Rs.1665 Crores as on 31.03.2010. The operations at Representative Office at
Dubai have also stabilized and it is expected that our non resident
portfolio may get boost by marketing non-resident accounts of Indian
expatriates at Dubai by our Representative Office. The fee-based products
like Western Union Money Transfer have also shown growth during the
preceding financial year. Bank has also rationalised the Nostro accounts,
reducing from 24 to 17 for better management of funds in Nostro accounts.
The balances in the mirror accounts & forward position are revalued at
FEDAI rate at every month end.

10. THIRD PARTY PRODUCTS:

10.1 Life Insurance Business:-

During April 2009- March 2010 the Bank sold 38097 policies with First
Premium Collection of Rs. 121.60'Crores and has earned commission of
Rs.37.10 Crores.

10.2 General Insurance Business:

Under General Insurance Business the Bank has been registering steady
growth and has collected around Rs. 22.00 Crores as Premium collections and
income byway of Commission Of Rs. 2.77 Crores.

10.3 Mutual Fund Business:

The Bank has been selling the Mutual Fund products of 4 Mutual Fund Houses.
During the Financial Year 2009-10 the Bank has sold Mutual Fund Products
and collected AUM of Rs. 10.00 crores and earned income of Rs. 18 Lacs
under this segment.

10.4 Demat Accounts:

The Bank is a depository participant for both NSDL and CDSL. It has more
than 78000 accounts under this category of business and has recorded a
revenue generation of Rs. 3.47 crores in the Financial Year 2009-10. The
Bank has tied up with the IDBI Capital Market Services Ltd. for providing
Online Trading facilities to its DEMATAccount holders through 276
identified Branches..

10.5 Cash Management:

The Bank provides an efficient and tailor-made CMS solution to suit the
customer requirements. The Bank is offering Collections, Payments and
Custodial Services to the Customers under the Cash Management Services. The
Bank has coverage of 117 cities through its own Branches and 500 Locations
through Correspondent arrangements offering CMS services to clients across
the country. The Bank has registered a turnover of above Rs. 858 Crore and
earned non-interest income of Rs. 0.97 Crore during the financial year of
2009-10.

11. BRANCH EXPANSION:

During 2009-10, the Bank has opened 93 new branches besides up gradation of
14 Extension Counters. As on 31/03/2010, the total number of branches stood
at 1508 as against 1401 as on 31/03/2009. The population group-wise
classification of branches as at end- March, 2010 is as under:

Sr. Classification 31.03.2010 31.03.2009
No.

1. Rural 306 282
2. Semi-urban 373 341
3. Urban 473 443
4. Metropolitan 356 335

Total 1508 1401

12. CUSTOMER SERVICE:

The Bank in its endeavor to achieve excellence in customer service has
started many customer friendly services viz. Mobile Banking (OBCmPAY)
besides Internet Banking Services both for individuals and corporates, SMS
alert service, Cheque/Cash deposit facility through some of the Bank's
ATMs. Funds transfer through ATMs (only among accounts linked to a ATM
card), facility of Cheque Status Inquiry and Stop cheque payment available
24x7 on Bank's ATMs, deployment of Point of Sale (POS) Terminals at the
identified prospective Merchant Establishments, Cheque deposit machines at
some of the branches to facilitate cheque deposit with acknowledgment
generated by the machine itself, online payment of service taxes etc. These
services are helpful for the customers to get their transactions done
speedily and easily. For Senior Citizens customers there is provision for
separate queue in the branches. In Saving Bank accounts the interest is now
being provided on daily products basis with effect from 1.4.2010.

The'Bank has adopted and implemented voluntary codes of BCSBI for
individual customers , Fair Practice code for lenders, Micro and Small
Enterprise (MSEs) code to provide fair , transparent and quality service to
all the customers and to provide greatest satisfaction to the customers.
The codes are displayed on the Bank's website for information and printed
copies are also available at branches for customers information. The
updated information on Bank's Deposit Schemes, Loan Schemes, Citizen's
Charter, Banking Ombudsman, SSI Charter, Forex Remittances, Service Charges
and Bank's Policies viz Financial Inclusion Policy, Cheque Collection and
Compensation Policy, Grievance Redressal Policy, Policy on Collection of
dues & Repossession of Security etc. have been displayed in Public domain
of Bank's website. These are also available at branches in booklet/pamphlet
form. 'Query & Suggestion' link is provided on website to get feedback from
customers. Complaint/Suggestion Boxes are provided at branches where a
customer can drop his/her complaint or suggestion.

Web-based Customer Grievance Redressal system is provided for prompt
redressal of customers grievances. A dedicated Customer Care Centre on toll
free Number 1800-180-1235 has been set up for clarifying the customers
account related and other queries.

The Customer Service Meetings are being held regularly at Branch level,
Regional Office level and Head Office level. These meetings ensure the
proper implementation of guidelines issued by regulatory authorities. The
customers are invited to attend these meetings and give their valuable
suggestion/feedback on bank's services and schemes. The Bank is committed
to give excellent customer service for the customers' maximum satisfaction.

13. KNOW YOUR CUSTOMER (KYC) NORMS AND ANTIMONEY LAUNDERING (AML) MEASURES:

To comply with the various laws and regulations, national as well as
international, Govt of India and Reserve Bank of India directives /
instructions & guidelines, primarily to prevent the Bank from being used,
intentionally or unintentionally, by criminal elements for money laundering
activities, KYC' Policy has been formulated. The Policy combines four key
elements viz. 'CustomerAcceptance Policy', 'Customer Identification
Procedures', 'Monitoring of Transactions' and 'Risk Management'. This will
enable the Bank to know / understand the customers and their financial
dealings better and shall further help in managing risks more prudently.
The detailed guidelines and subsequent instructions are being reiterated
from time to time for strict compliance by field functionaries. The Bank is
already complying with the requirement of submission of statutory returns
to the Financial Intelligence Unit - India (FIU IND) as a sequel to the new
legislation on prevention of Money Laundering Act - 2002. The Bank has
already operationalised Anti Money Laundering Software solution for
complying with KYC /AML norms and generation of alerts to detect any
suspicious nature transactions. The AML Cell is scrutinizing the alerts
generated by the system for detecting any suspicious type of transaction
(s) (STRs) for onward submission to, FIU-IND.

14. USE OF HINDI IN THE BANK:

During the year 2009-10, Bank continued its concerted efforts to further
accelerate use of Hindi in its working and to implement the
guidelines/directives received from Govt. of India and Reserve Bank of
India. Concrete and effective steps were taken to achieve the region wise
targets set by the Department of Official Language, Ministry of Home
Affairs,Govt. of India in the Annual Programme- 2009-10.

Bank was awarded Consolation prize in 'A' region under Reserve Bank
Rajbhasha Shield Competition 2008-09 for Public Sector Banks/Financial
Institutions for its good performance in the field of Rajbhasha Hindi.
Regional Office, Delhi was awarded Second prize for doing excellent work in
Hindi for the year 2008-09 by Regional Implementation Office, Official
Language Deptt., Ministry of Home affairs, Govt. of India. The Bank was
also awarded first prize under Inter Bank Rajbhasha Shield Competition
2008-09 by the Bank's Town Official Language Implementation Committee,
Delhi. Further, our staff members won different prizes in various Inter
Bank Competition conducted by the said committee.

During the year under review, concerted efforts were made to propagate use
of Hindi on computers. Bilingual word processing software 'Akruti Office'
has been loaded in the P.Cs installed in all the administrative offices and
the branches. The necessary training was imparted to the staff by
conducting Hindi workshops as well as other programmes at regular
intervals. Hindi Officers and IT Officers of Head Office and regional
offices were imparted Hindi Unicode Training on computers by officials of
Reserve Bank of India. To provide banking facilities to customers in Hindi
also by the CBS branches, the bilingual Data Processing Software Script
Magic was installed in the branches of the Bank and IT Officers and Hindi
Officers of the Bank were imparted trainerstraining regarding use of this
software.

During the year, Hindi version of OBC web portal was launched and e-
circulars as well as Home page and other contents were made bilingual so
that all staff members of the Bank are able to view circulars, executive's
messages, policies, various job cards,deposit / loan schemes, retail
schemes, branch directory, ATM list and other contents in Hindi on the
portal. Bank's website is available in bilingual form. The option of Hindi
is available on ATMs and Telebanking. IT Ready Reckoner was made available
in Hindi for the convenience of the employees.

All the editions of Bank's quarterly In-House Magazine 'AADHAAR' were
published regularly in bilingual form i.e. in Hindi and English. Quarterly
In-House magazines were published by Regional Offices at Regional Office
level.

15. RECOVERY:

During the Financial Year 2009-10, concerted recovery efforts continued at
all levels and consequently, the Bank could effect cash recovery of
Rs.399.34 crore. Out of cash recovery a sum of Rs.133.09 crore has added to
the Revenue of the Bank. The bank has effectively utilized the various
recovery mechanism e.g. holding recovery camps, One Time Settlement Schemes
for MSE borrowers and Special One Time Settlement Scheme for NPA accounts
with outstanding upto Rs.1.00 lac, LokAdalat, provisions of SARFAESI Act
and general settlement policy of the Bank. However, due to the impact of
global recession, the NPA of the Bank has increased in comparison to the
previous financial year resulting in increase in Gross NPA percentage to
gross advances to Rs.1.74% as against 1.53% of corresponding year.

The Bank is taking all possible efforts to strengthen the recovery
mechanism to minimize the higher delinquencies.

16. HUMAN RESOURCE DEVELOPMENT & TRAINING:

The year 2009 -2010 has been the year of challenges for the Banking
industry. The Indian Banking adapted to the changed Banking scenario
admirably and helped in renewing the confidence levels and confirming
resilience in our financial system. The changed economic environment has
necessitated up-gradation of skill sets. The Bank has endeavored to match
these requirements through extensive process of training. The focus of
training during the year was on the following areas:-

Credit Management, Risk Management, Forex Management. Lending Strategies to
SMEs, Soft Skills Development, Marketing of Bank's Products, Induction
Programmes for newly recruited officials, General Banking in CBS, IT
enabled Products, Treasury Management, Risk Ratings, Management Development
Programmes for Executives, SC/ST/OBC Reservation policy, Human Resources
Management System etc.,

In 394 programmes 9325 employees were imparted training in the above
streams and other areas of Banking. In addition, 1337 officers were
nominated in Advanced Training Programmes in key operational and behavioral
areas in pioneering institutions like NIBM Pune, College of Agriculture
Banking Pune, Indian Banks Association, MDI, Gurgaon, Indian Institute of
Management, Ahmedabad, Administrative Staff College of India, Hyderabad,
NIBSCOM, Noida etc., to quote a few. Few senior and top management
functionaries were deputed for overseas training to give exposure to
international best practices and their impact in Indian Banking.

During the year 2009-10, the Bank recruited 221 Probationary Officers, 812
Clerks and 243 Specialist Officers in different grades and streams such as
Manager (IT), Marketing Managers, Agriculture Officers etc., Further the
process for recruitment of 313 Probationary Officers, 916 Clerks and 373
officers in the Specialist cadre of Marketing, Agriculture, IT, Security,
Forex, Law, HRD etc., is under way. The total staff strength as on 31st
March 2010 is 15358 comprising of 7989 officers, 4799 Non-subordinates and
2570 subordinates.

The Bank complied with Government guidelines in respect of reservation in
recruitment and promotion for SC/ST/OBC/PWD/ Ex-servicemen besides
extending concessions/relaxation as prescribed. The grievances of SC/ST/OBC
employees, if any, were resolved through SC/ST and OBC cells created at all
Regional. Offices and at Head Office under the charge of Liaison Officers/
Chief Liaison Officer. The Bank also launched a Special Drive to fill up
the backlog of SC/ST vacancies in promotion as per the guidelines of the
Ministry of Finance, Govt. of India.

BOARD OF DIRECTORS:

During 2009-2010, 12 meetings of Board of Directors, 20 meetings of
Management Committee of Board & 6 meetings of Audit Committee of Board were
held.

During the year, Sh.TY Prabhu, Chairman and Managing Director, took charge
of the Bank on 27.08.09 after the elevation of Sh.Alok K Misra to the post
of Chairman and Managing Director of Bank of India. Two Directors namely
Sh.V Vijay Sai Reddy & ShXamal Bhushan, Directors appointed under Sec 9 (3)
(g) & Sec 9(3)(f) of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980, as per their notifications, retired from the Board
of the Bank due to expiry of their term on 13.12.09 and 22.11.09
respectively. ,

DIRECTOR'S RESPONSIBILITY STATEMENT:

The Directors confirm that, in the preparation of the Annual Accounts for
the year ended 31st March, 2010:-

(a) the applicable standards have been followed along with proper
explanation relating to material departures, if any,

(b) the accounting policies framed in accordance with the guidelines of the
Reserve Bank of India, were consistently applied,

(c) reasonable and prudent judgment and estimates were made so as to give
true and fair view of the state of affairs of the Bank at the end of
financial year and of the profits of the Bank for the year ended on 31st
March, 2010,

(d) 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 the accounts have been prepared on a going
concern basis.

ACKNOWLEDGEMENTS:

The Board of Directors thanks Government of India, Ministry of Finance,
Department of Economic Affairs and Reserve Bank of India and other
Government & Regulatory Agencies for their valuable guidance and continued
support provided to the Bank throughout the year. The Board of Directors
are also grateful to the valued customers, esteemed shareholders,
stakeholders and public at large for their patronage and confidence reposed
in the Bank.

The Board of directors place on record their great appreciation of the
commitment, sense of involvement and dedication exhibited by each staff
member in the overall development, growth and prosperity of the Bank and
look forward to their continued support and whole-hearted co-operation for
realization of the corporate goals in the year ahead.

For and on behalf of the Board

New Delhi (T.Y. PRABHU)
29th April 2010 CHAIRMAN & MANAGING DIRECTOR

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. MACRO-ECONOMIC SCENARIO

1.1 Gross Domestic Product:

According to the advance estimates of the Central Statistical Organization,
the growth of real Gross Domestic Product (GDP) in 2009-10 is placed at
7.2% at Rs.44,53,064 crore as against a growth of 6.7% during 2008-09.
Relative share of the various economic activities in GDP is as follows:
Agriculture, Forestry and Fishing - (-)0.2%, Mining & Quarrying - 8.7%,
Manufacturing 8.9%, Electricity, Gas & Water Supply - 8.2%a, Construction
6.5%, Trades, Hotels, Transport and Communication - 8.3%, Financing,
Insurance, Real estate & business services - 9.9% and Community, Social &
Personal services - 8.2%. Further, estimated growth during 2010-11 in these
sectors are 5.0%, 7.5%, 8.9%, 8.0%, 9.0%, 9.0%, 10.0% and 7.0%,
respectively.

1.2 Industrial Production:

According to Quick Estimates of Index of Industrial Production (IIP) with
base 1993-94 for the period April-March 2009-10, the cumulative growth in
General Index stands at 10.4% over the corresponding period of the previous
year.

The cumulative growth during April-March 2009-10 over the corresponding
period of 2008-09 in the Mining, Manufacturing and Electricity sectors have
been 9.7%,10.9% and 6.0% respectively, which moved the overall growth in
the General Index to 10.4%.

In terms of industries, as many as fourteen (14) out of the seventeen (17)
industry groups have shown positive growth during the month of March 2010
as compared to the corresponding month of the previous year. The industry
group Metal Products and Parts, except Machinery and Equipment' have shown
the highest growth of 42.8%, followed by 40.1% in Other Manufacturing
Industries' and 26.2% in 'Food Products'. On the other hand, the industry
group 'Jute and Other Vegetable Fibre Textiles (except cotton)' have shown
a negative growth of 9.6% followed by 5.4% in Textile Products (including
Wearing Apparel)' and 3.9% in Wool, Silk and Man-made Fibre Textiles'.

As per Use-based classification, the Sectoral growth rates in March 2010
over March 2009 are 10.1% in Basic goods, 27.4% in Capital goods and 12.7%
in Intermediate goods. The Consumer durables and Consumer non-durables have
recorded growth of 32.0% and 3.3% respectively, with the overall growth in
Consumer goods being 10.6%.

1.3 Six Core Industries:

The Index of Six core industries having a combined weight of 26.7 per cent
in the Index of Industrial Production (IIP) with base 1993-94 stood at
257.4 (provisional) in March 2010. During AprilMarch 2009-10, six core
industries registered a growth of 5.5% (provisional) as against 3%o during
the corresponding period of the previous year. The Crude Oil production
registered a growth of 0.5% (provisional) during April-March 2009-10
compared to (-)1.8% during the same period of 2008-09. The Petroleum
refinery. production registered a growth of (-)0.4% (provisional) during
April-March 2009-10 compared to 3.0% during the same period of 2008-09.
Coal production grew by 7.9% (provisional) during April-March 2009-10
compared to an increase of 8.0% during the same period of 2008-09.
Electricity generation grew by 6.5% (provisional) during April-March 2009-
10 compared to 2.7% during the same period of 2008-09. Cement Production
grew by

10.5% (provisional) during April-March 2009-10 compared to an increase of
7.2% during the same period of 2008-09. Finished (carbon) Steel production
grew by 4.9% (provisional) during April-March 2009-10 compared to an
increase of 1.60/o during the same period of 2008-09.

1.4 Agriculture:

India's foodgrain production for 2009-10 is estimated to 216.85 million
tonnes (MT), significantly lower than the 233.38 MT estimated for 2008-09
because of the deficient rainfall and drought-like conditions in nearly
half the districts of the country during south-west monsoon last year. Due
to the deficient and erratic distribution of rainfall during the last
monsoon, the production of Kharif crops, particularly of rice, coarse
cereals and sugarcane had been affected adversely. Early trends indicated
that the production would be better during the Rabi season, with the
foodgrains production during Rabi 2009-10 expected to exceed last season's
all-time high.

1.5 Foreign Trade:

Cumulative value of exports for the period April 2009 to March 2010 was US
$ 176574 million (Rs.835264 crore) as against US $ 185295 million (Rs.
840754 crore) registering a negative growth of 4.7 percent in Dollar terms
and 0.7 percent in Rupee terms over the same period last year. As regards
Imports, the Cumulative value for the period April 2009 - March 2010 was US
$278681 million (Rs.1318188 crore) as against US $303696 million (Rs.
1374434 crore) registering a negative growth of 8.2 percent in Dollar terms
and 4.1 percent in Rupee terms over the same period last year. The trade
deficit for April 2009- March 2010 was estimated at US $102106 million
which was lower than the deficit of US $118401 million during April
2008March 2009.

Oil imports during April 2009- March 2010 were valued at US$ 85473 million
which was 8.7 percent lower than the oil imports of US $93667 million in
the corresponding period last year. Nonoil imports during April 2009- March
2010 were valued at US$ 193208 million which was 8.0 percent lower than the
level of such imports valued at US$ 210029 million in April 2008- March
2009.

1.6 Forex Reserves:

Total Foreign exchange reserves as on April 02, 2010 was valued at USD
2,79,096 million and recorded an increase of USD 23,936 million over end -
March 2009 level. Out of the total reserves, foreign currency assets were
valued at USD 2,54,730 million while gold reserves were valued at USD
17,986 million.

1.7 Price Trend:

The annual rate of inflation, based on monthly WPi, stood at 9.900/a
(Provisional) for the financial year 2009-10 as compared to 1-.20% in the
corresponding period of the previous year. Inflation had remained in the
negative zone for three months from June 2009 to August 2009, primarily due
to negative inflation in non-food articles like raw cotton, oilseeds;
minerals like iron ore; fuel, power, light & lubricants like mineral oils,
coal mining and electricity; manufactured products like edible oils man-
made fibers, leather & leather products, fertilizers, metals and machinery
& machine tools. The annual average inflation for 2009-10 was 3.74 per cent
compared to 8.41 .per cent during 2008-09. The official Wholesale Price
Index for'All Commodities' (Base: 1993-94 = 100) for the month of March,
2010 stood at 250.8 (Provisional).

2. MONETARY AND BANKING TRENDS:

2.1 Money Supply:-

Money supply (M3) increased by 16.8 percent (Rs.8,02,498 crore) in 2009-10
as compared with 18.9 percent (Rs.7,59,186 crore) in 2008-09. Bank credit
to the commercial sector increased by 15.4 percent (Rs.4,65,931 crore) in
2009-10 as compared with increased of 16.7 percent (Rs.4,31,828 crore) in
the previous year. Net bank credit to Government recorded an increase of
Rs.3,41,209 crore with increase in ba'nk's investment of Rs.2,31,897 crore.
The net foreign exchange assets of the Banking sector was declined by
Rs.79,142 crore during 2009-10 as against the increase of Rs. 48,653 crore
in 2008-09.

2.2 Scheduled Commercial Banks (SCBs Business):

2.2.1 Aggregate Deposits of Scheduled Commercial Banks:

Aggregate Deposits of SCBs increased by 17.4 percent (Rs.6,54,798 crore)
during 2009-10 as compared with 20.0 percent (Rs.6,26,838 crore) in the
previous year. Demand deposits recorded a growth during 2009-10 at 22.2
percent (Rs. 1,16,053 crore) as against the negative growth of (-) 0.8
percent (Rs. 1,225 crore) during 2008-09. Time deposits shown a moderate
growth of 16.2 percent during 2009-10 as against the higher growth of 23.9
percent in the previous year. In addition to the mobilization of deposits,
the banking sector's lendable resources were augmented substantially by
capital raised through innovative capital instruments during 2009-10.

2.2.2 Bank Credit of Scheduled Commercial banks:

Non-food credit extended by the Scheduled Commercial banks (SCBs) increased
by 16.7 percent (Rs.4,64,849 crore) to reach a level of Rs. 32,40,399 crore
as compared with growth of 17.5 percent (Rs.4,13,636 crore) in the previous
year. The incremental non-food credit- deposits ratio for the banking
system increased to 70.9 percent during 2009-10 from 64.4 percent in 2008-
09. Food-Credit of SCBs increased by Rs. 2,278 crore in 2009-10 as against
an increase of Rs. 1,812 crore in 2008-09.

2.2.3 Investments of Scheduled Commercial Banks:

Total SLR investment of Scheduled Commercial Banks stood at Rs. 13,82,684
crore showing a growth of 18.5 percent during 2009-10 as against the growth
of 20.0 percent during 2008-09. Investment in Government Securities stood
at Rs. 13,75,704 crore whereas other approved securities was to the tune of
Rs. 6,980 crore. The Investment-Deposit ratio of the SCBs as at end March
2010 stood at 30.82 percent as against 30.43 percent as at end March 2009.

Accommodation provided by the SCBs to the commercial sector in the form of
Investment in commercial Paper / Shares / Debentures / Bonds etc amounted
to Rs. 1,16,021 crore in March 2010, a y-o-y increase of Rs. 11,248 crore
over March 2009 level of Rs. 1,04,773 crore.

3. RISK MANAGEMENT:

The Bank has put in place requisite Risk Management Systems which are
reviewed and updated periodically in the light of guidelines received from
.Reserve Bank of India and other regulatory bodies from time to time. The
Supervisory Committee of Directors on Risk Management (Board Level
Committee) oversees the overall Risk Management functioning of the Bank.
Further, Executive level committees such as Asset Liability Management
Committee (ALCO) for Market Risk, Credit Risk Management Committee for
credit risk and Operational Risk Management Committee for operational risk
have also been constituted in the Bank, which meet at regular intervals to
supervise and monitor the progress on an ongoing basis.

3.1 Implementation of Basel II

The bank is Basel II compliant in terms of the New Capital Adequacy
Framework guidelines issued by the Reserve Bank of India. The bank's CRAR
as on 31.03.2010 was 12.54% under Basel II, (out of which Tier I CRAR was
9.28%) as against minimum regulatory requirement of 9%. The bank is now
gearing fel# to adopt the adva'ced approaches m due course of tsme under
different risks as per RBI guidelines.

The credit risk management policy and loan policy of the bank articulate
policies, processes and prudential limits covering exposure levels for
individual borrowers / group exposure, industry wise exposure, limits on
exposure to sensitive sectors, pricing policies, lending specifications,
thrust and restricted areas of lending etc. Risk Based Supervision (RBS)
has been fine tuned for risk profiling of branches through a scientific
risk based internal audit (RBIA) system. The Loan Review Mechanism,
functioning independent of the Credit department and Risk Management
Department, reviews and monitors large credit exposures of the Bank on
periodic basis. Training of the staff of risk management department for
upgrading their skills is undertaken both internally as well as through
reputed training institutions.

4. RISK BASED INTERNAL AUDIT:

The Bank implemented Risk Based Internal Audit (RBIA) in a phased manner,
starting from March 2004. The Risk Based Internal Audit Policy and the
Audit format(s) were revised in sync with revised guidelines of RBI and
experience gained by the Bank in due course. The Bank has fully migrated to
Risk Based Internal Audit w.e,f. 01-10-2006 on the revised policy
format(s). Risk Based Internal Audit (RBIA) of 1385 Branches was conducted
during the year 2009-2010.

5. ASSET LIABILITY MANAGEMENT:

The bank has constituted the Asset Liability Management Committee (ALCO) in
terms of RBI guidelines, which meets at regular intervals to review the
interest rates scenarios, maturity profile of deposits / advances,
liquidity position and management of Net Interest Margin etc. The ALM
policy sets out the parameters for Market Risk and Liquidity Risk
Management. This policy is reviewed annually in line with the latest market
conditions and is duly approved by the Board of Directors. The committee on
Asset Liability Management of the bank (ALCO) manages and supervises the
Market Risk by setting and reviewing liquidity and interest risk limits,
reviewing the profitability and CRAR (Capital to Risk weighted Assets
Ratio) position,, reviewing of the rates of interest on deposit/advances,
adherence to various risk limits fixed and impact of external factors on
the Bank's Balance Sheet and determining business strategy in the light of
prevailing liquidity position in the market with a view to optimizing
profits.

6. CREDIT RISK MANAGEMENT:

The Credit Risk Management Process forms an integral part of overall Risk
Management of the bank & monitors the credit risk on continuous basis. The
concentration of risks is regulated through fixing, monitoring and
reviewing of the credit exposure limits in terms of single borrower
exposure, Group exposure, exposure to sensitive sectors (including real
estate and capital market), laying down thrust, restricted and prohibited
areas of lending, industry exposure, Substantial exposure and inter-bank
exposure. Industry studies are conducted on an on-going basis. The bank has
constituted Credit Risk Management Committee (CRMC) which reviews the
policies, procedures and systems relating to credit administration and
monitoring at periodic intervals. The Bank has put in place 10 credit
rating models for covering the entire range of advances, including
Infrastructure, Greenfield project, Real Estate etc. These models
(Developed by our Risk Management Consultants Ms. IMaCS, a fully owned
subsidiary of ICRA) are more robust and scientific. The credit exposure
required to be covered through approved external rating agencies specified
by RBI is covered to the extent of 71% and 50% of the rating is AAA to A,
reflecting high credit quality of the Bank.

7. OPERATIONAL RISK MANAGEMENT:

The bank has established an Operational Risk Management Committee (ORMC)
which meets on regular basis to review the matters related to operational
risk. The Operational Risk Management Policy of the bank outlines the
structure and framework for measuring, monitoring and controlling
operational risk in the bank. The data/ information relating to loss events
and key risk indicators are being compiled for assessing risk areas. The
Bank has also joined External Data Pooling company named as Credit and
Operational Risk Loss Data Exchange (CORDEX) initiated by IBA. The Bank
lays due emphasis on identifying risk prone areas and taking suitable
remedial steps by streamlining / reviewing systems and procedures,
imparting training so as to guard against such incidents. In this respect,
guidelines received from Government of India and Reserve Bank of India are
also kept in view while making any change in the policy / manual.

8. INDUSTRIAL RELATIONS:

Industrial Relations in the Bank continued to remain cordial and
harmonious. The Bank continued to follow the principle of Participative
Management and collective bargaining. As a result of cordial and harmonious
industrial relations, the Bank has been able to show improved performance
year after year. The grievance redressal mechanism in the Bank is quite
effective. The grievances of the employees, if any are promptly resolved
through mutual and bilateral discussions in the regularly held industrial
relations meetings.

9. INTERNAL CONTROL SYSTEM

The Bank has 12 Regional Inspectorates at different locations to oversee
the working of Branches and to ensure that the internal control systems are
strengthened to bring the desired improvement and give timely feedback to
the Top Management to take immediate corrective steps. Risk Based Internal
Audit (RBIA) of Branches is conducted every year by internal inspectors.
The Income and Expenditure Audit of all the Branches (other than branches
under Concurrent Audit) was also got conducted from Chartered Accountants
for calendar year 2009. In conformity with RBI directives, Concurrent Audit
of the Branches is also being conducted by reputed Chartered Accountants
covering 69% of the Deposit and 82% of Advances and 74% as per total
working as on 31-03-2010. A total number of 345 branches and 20 other
offices including services Branches, Depository Service Cell and certain
select Departments of Head office are under Concurrent Audit as on 31-03-
2010.

9.1 CUSTOMER COMPLAINTS:

i. No. of complaints pending at the beginning 347
of the year 2009-10

ii. No. of complaints received during the 8576
year 2009-10

iii. No. of complaints redressed during the 8443
year 2009-10

iv. No. of complaints pending at the end 480
of the year as on 31.03.10

9.2 AWARDS PASSED BY THE BANKING OMBUDSMAN:

i. No. of unimplemented Awards at the NIL
beginning of the year

ii. No. of Awards passed by the Banking 06
Ombudsman during the year

iii. No. of Awards implemented during the year 06

iv. No. of unimplemented Awards at the NIL
beginning of the year

10. LOAN REVIEW MECHANISM:

Loan Review Mechanism (LRM), which was started in our Bank in the year
2004, has proved to be an effective tool for constantly evaluating the
quality of loan book and to bring about qualitative improvement in credit
administration. The findings of the review are discussed by the loan review
team with the Branch Managers and corrective action for all deficiencies is
initiated immediately to rectify them within the stipulated time period.
During the financial year 2009-10, the LRM teams conducted review of 555
Large Borrowal accounts with a total exposure amounting to Rs. 34,298 crore
covering 142 branches.

11. VIGILANCE MACHINERY:

The Vigilance set up of the Bank is under the overall supervision of the
Chief Vigilance Officer of the rank of General Manager and comprises full-
fledged department at Head Office and 16 Vigilance Officers posted in the
field (at selected Regional Headquarters) functioning directly under the
control of the Chief Vigilance Officer.

As per guidelines of Central Vigilance Commission, the Bank is taking
measures for substantial improvement in all areas of vigilance i.e.
preventive, detective and punitive. The systems & procedure of the Bank are
reviewed periodically and initiatives are taken to further strengthen the
same.

As a preventive vigilance measure, the Vigilance Officers conduct Surprise
Inspection of branches mainly directed towards adherence to Systems &
Procedure with special focus on fraud prone areas. The deviations observed
are brought to the notice of the concerned authorities for taking
corrective measures in time. During the year 2009-10, Surprise Inspection
of 176 branches and extension counters was conducted.

In order to make the staff more vigilant and ensure their participation in
the vigilance functions, Vigilance Committees have been formed at branches
having more than 15 employees and at specialised branches. Similarly,
Regional Vigilance Committees have been constituted at Regional Offices to
deliberate on the observations of branch level Vigilance Committee meetings
and review their functioning. The Vigilance Department at Head Office
oversees the functioning of these committees through feedback received from
the Regional Heads and the Vigilance Officers posted in the field.

As per the directions of Central Vigilance Commission, 'Vigilance Awareness
Week' was observed at all the offices of the Bank with emphasis on
'effectively implementing preventive techniques in vigilance administration
which includes transparency, accountability, fair-play, objectivity and
timely response in dealing with matters relating to public administration'
and also to synchronise all systems & processes for deliverance of services
through use of latest technology. Accordingly, meetings were organised with
customers/public and they were informed of the IT initiatives taken by the
Bank to improve the quality of the services, giving details of the products
and services offered by the bank and redressal of the grievances of
customers, if any, and making them aware of their Rights &
Responsibilities.

With a view to improve the investigating skills of the Vigilance officers,
they were exposed to various training programmes organised by reputed
institutions. In-house training programmes were also organised on the
matters of significance from the vigilance administration point of view.

The Vigilance Department maintains liaison with Central Vigilance
Commission and Central Bureau of Investigation and also coordinates with
various departments within the Bank to ensure efficacy of vigilance
administration.

12. SYSTEMS & PROCEDURES:

The review of existing systems & procedures is an integral part of Bank's
functioning. Fast changing banking scene and partial shift of banking from
brick & mortar model to click banking has necessitated many changes in the
way we work. More over, with the 100% migration to CBS platform the
existing systems & procedures need constant review. Further, with
advancement of technology new products/services are being offered by the
banks. The O&M cell is monitoring the Query & Suggestions received from the
constituents on the website of the bank. The cell gives prompt response to
the queries received and ensures providing of instant solutions to the
problems faced by the customers of the Bank.

13. INFORMATION TECHNOLOGY:

13.1 Core Banking Solution (CBS) and Wide Area Network:-

Leveraging its IT capability of 100% CBS Network of 1508 branches and 52
extension counters offering an array of IT products viz. Internet Banking,
Electronic Remittance facilities through RTGS/ NEFT, Online Education Loan,
e-Shoppe, e-Taxes, Online Trading of Shares, SMS Alerts, Proton Debit
Cards, Cash Mate Cards for Students, Ready Kits and Mobile Banking, the
Bank has successfully upgraded its IT Infrastructure to support its
increasing Business and to further improve overall functionality of the
various services, during the current financial year.

The CBS software has been customized to generate large number of Statutory
and Statistical Returns thereby .ensuring correct generation of the
information at Corporate Level on instantaneous basis. To strengthen the
Bank's commitment towards uninterrupted service to its customers, it has
built a robust Corporate Network using Leased lines and VSATs with highest
level uptime.

13.2 DR Setup:-

Bank has implemented 3-way DR architecture through Primary Data Centre at
IDC-II, DAKC,Vashi, New Mumbai, Near Line Site at its IDC-I and Disaster
Recovery Site at Greater Kailash, New Delhi for Zero Data Loss for CBS.The
data is synchronously replicated from PDC to NLS and is asynchronously
replicated from NLS to DRS. This ensures that in case of major problem at
PDC, complete data of CBS can be made available at DRS within the shortest
possible time. The infrastructure at DR site, has also been upgraded during
the current financial year.

13.3 ATMs:-

During this financial year, Bank has deployed 135 additional ATMs out of
which 28 ATMs deployed at Metro locations, 41 ATMs deployed at Urban
locations, 48 ATMs at Semi-Urban locations and 18 ATMs at Rural Areas.
Thus, as on March 2010, Bank's ATM network stands at 980 ATMs, which
includes 704 Onsite ATMs, 270 Offsite and 6 mobile ATMs. The ATM cards of
the Bank are accepted across more than 52000 ATMs deployed in the country.
As of now total Cardbase of ATM-cum-Debit card is 18.43 lacs and about 70%
of eligible cash transactions are happening through the ATMs for the Bank
as a whole. In order to issue ATM card to the customers immediately at the
time of opening accounts, the 'Ready Kit' system has been put in place
through which ATM Card, ATM PIN is made available to the customers
immediately at the time of opening of account.

13.4 Internet Banking:-

During the year under reference, the Bank has launched facility to deposit
Indirect Tax online through both Retail and Corporate Internet Banking
customers. Additional features such as Online NEFT/ RTGS, e-Commerce,
Online Trading of shares etc. have also been made available through
Internet Banking. Within this year, Bank's Internet Banking for Retail
customers has seen 50% increases in daily hits. During the financial year,
77000 new customers have been registered for Internet Banking, taking the
total base to 2.75 lacs. The average daily hits has also increased to 21000
per day.

13.5 Electronic Payment System:-

All the branches of the Bank offer Inter-Bank remittances through RTGS and
NEFT which uses secured channel of SFMS managed by IDRBT. Internet Banking
subscribers of Bank are encouraged to use online facility of NEFT for
inter-bank remittances.

The above Electronic Payment System has witnessed many fold increase in
transactions on year to year basis. RTGS and NEFT transactions have reached
a cumulative figure of 7.92 lacs and 2.58 lacs respectively for the year
ended March 2010 showing an increase of 243% and 276% respectively on year
to year basis. 54% of the Domestic remittances from our Bank are presently
being routed through Electronic Payment Systems only.

13.6 Corporate Website:

Bank has totally revamped, its Corporate Website by making it more
interactive and informative. The look and feel has been enhanced keeping in
view the Corporate identity and value added interfaces like NSE Market
Tracker, NSE Foreign Exchange Tracker, BSE Sensex, NSE Nifty, S&P CNX etc.
have been incorporated in the site. The website has also been secured by
implementing SSL encryption from VeriSign.

Bank has also implemented Online Customer Complaint system on its.
Corporate website for prompt disposal of complaints. Customers are also
encouraged to give suggestions and raise queries through Bank's corporate
website.

13.7 SMS Banking:

The Bank received an overwhelming response for SMS Banking Alert Service
and it is being widely accepted by the customers. It is an effective tool
to monitor transactions and prevent Cyber crime. As on March 2010, there
are about 5.35 lacs registered customers and about 52 lacs SMS messages are
being sent per month.

13.8 Mobile Banking:

During the year, the Bank added one more Delivery Channel for the customers
and launched Mobile Banking Services on its foundation day i.e. on 19th
February 2010. As of now, the customer can avail services like, Account
Balance information, viewing last 10 transactions, Inter-Bank and Intra-
Bank Fund Transfer, Branch Locator and ATM Locator.

13.9 IT Security:

Bank has put in place state of the art security equipments and monitoring
tools at its Primary and Secondary Data Centres. The security events are
monitored on 24x7x365 basis. During the year, Bank has also obtained ISO-
27001 Certification for the Primary Data Centre, DR Site, Nearline Site and
for the related processes at Department of Information Technology, Head
Office thereby achieving highest security standards for Information
Security Management System (ISMS).

All the transactions / information flows from branches to Data Centres are
secured by way of implementing IPSec at Router level and installing VPN
Concentrator at Data Centres.

Bank's Corporate Web Portal https://obcindia.co.in and Internet Banking
Application https://obconline.co.in are secured through internationally
accepted VeriSign SSL certification, thereby bringing in security comfort
for users of the Bank's websites.

Bank has also been guarding its customers through Internet Banking as well
as Corporate website against any possible Phishing and social engineering
attacks. Bank's staff has also been advised to educate customers on such
kind of attacks. Separate session on Information Security is incorporated
in all trainings held across all the Training Centres of the Bank.

13.10 IT Projects under implementation:

The Following major IT Projects of the Bank are presently under
implementation:-

Mobile Banking Services are being popularized for enhanced usage.

SFMS for non-financial transactions His being popularized.

Deployment of Real Time MIS System and Dash Board through D2K Technologies
Ltd.

Document Management system is being expanded to cover more departments at
Head Office.

Major modules of HRMS package have been implemented in the Bank. Other
modules are also being implemented in phased manner.

Proposal Tracking System for Credit proposal is being implemented which
shall also be available to the public through Internet.

13.11 Staff Education:

Bank has taken strong initiatives to train its staff on various aspects of
Banking including training on latest IT Products. Regular Training
Programmes are being conducted at Bank's Training colleges and at other
reputed institutes. Officials are extensively trained on latest IT Products
to further promote these services. Bank has prepared comprehensive CD
containing information on IT Based products and services of the Bank which
is being used by Regional Offices and branches for making presentations
during the Customers' Meet. Seminars were organized at large number of
Regional Offices on correction and completion of MIS data and also for
handling of the advanced CBS features such as Loans, NPAs, etc.

All IT Specialist Officials of the Bank were exposed to contemporary
technologies including Business Intelligence, Data Warehousing during the
year under reference.

14. THREATS:

The global economy continues to recover amidst ongoing policy support and
improving financial market conditions. The recovery process is led by
Emerging Market Economies (EMEs), especially those in Asia, as growth
remains weak in advanced economies. The global economy continues to face
several challenges such as high levels of unemployment, fiscal constraints
etc. Core measures of inflation in major advanced economies are still
moderating as the output gap persists and unemployment remains high. In
contrast, inflation in EMEs, especially in Asia, has been rising. This is
putting pressure on operations in banking sector. Growth in monetary and
credit aggregates during 200910 remained broadly in line with the
projections set out in of monetary policy. Non-food bank credit expanded
steadily during the second half of the year. The overall profitability
indicators of the banking sector have been maintained during the year
200910. Improving interest margins compensated for a decline in the non-
interest revenues and rise in credit costs. Some downward pressure on
overall profitability expected next year due to rise in credit provisions
and adverse impact of likely rise in bond yields. The NPA level of the
industry has risen in the current year leading to some deterioration in the
reported asset quality. The Reserve Bank of India has calibrated the
monetary policy response in India since October 2009 as per India's
specific macroeconomic conditions. This policy instilled confidence in
market participants, mitigated the adverse impact of the global financial
crisis on the economy and ensured that the economy started recovering ahead
of most other economies. However, in view of the rising food inflation and
the risk of it impinging on inflationary expectations, the Reserve Bank
began the process of exit from the expansionary monetary policy beginning
October 2009. Despite the increase of 25 basis points each in the repo rate
and the reverse repo rate in mid-March 2010, the real policy rates are
still negative. RBI in its monetary policy statement 2010 has, ensured to
maintain balance in absorbing liquidity and availability of credit to both
the Government and the private sector.

15. OPPORTUNITIES:

As at end-March 2010, the bank has crossed a milestone of total business of
Rs.2,00,000 crore and has set a target of growth of more than 20% in total
business with a growth of 30% in CASA by March 2011. The bank has pan-India
presence with 1508 branches & 54 extension counters. Bank plans to open
more than 150 new branches in the year of 2010-11. The number of ATMs
stands at 980 consisting of 704 on-site, 276 off-site (Inclusive of 6
mobile & 2 Bio-metric ATMs). During the current year, the Bank has also
launched Mobile Banking services in addition to the SMS Alert Based Banking
which is already being enjoyed by more than 5.35 lakh customers of our
Bank. During the year, the Bank introduced e-payment of Indirect Taxes that
includes Customs and Excise Duty and Service Tax. The Bank has also
obtained ISO-27001 certification for Data Centres at Delhi & Mumbai. During
the first full year of the operations of the joint venture company Canara
HSBC Oriental Bank of Commerce Life Insurance Company Ltd', the Bank
marketed over 38000 policies with first premium collection of Rs. 121.60
crore. 2162 villages have been adopted by the Bank till 31st March 2010 and
plans to adopt 1000 more villages during the year 2010-11. During the year,
Bank opened 2.60 lakh No Frill Accounts and plans to mobilize 3.64 lakh
fresh no-frill accounts in 2010-11. During the year 200910, Bank recruited
1291 personnel including specialist officers.

16. OUTLOOK:

In India, economic recovery, which began around the second quarter of 2009-
10, has since shown sustained improvement. Industrial recovery has become
more broad-based and is expected to take firmer hold on the back of rising
domestic and external demand. Under the assumption of a normal monsoon and
sustained good performance of the industry and services sectors, for policy
purposes, the Reserve Bank projects real GDP growth for 2010-11 at 8.0 per
cent with an upside bias.

On balance, keeping in view domestic demand-supply balance and the global
trend in commodity prices, the baseline projection for WPI inflation for
March 2011 is placed at 5.5 per cent. Money supply (M3) growth for 2010-11
is placed at 17.0 per cent. On the front of Banking system, RBI mandating
banks to switch over to the system of Base Rate from July 1, 2010 to
facilitate better pricing of loans, enhance transparency in lending rates

and improve the assessment of monetary policy transmission.