Annual Report - Canara Bank - 2010-2011

CANARA BANK

ANNUAL REPORT 2010-2011

DIRECTOR'S REPORT

DIRECTORS' REPORT: 2010-11:

The Board of Directors have pleasure in presenting the 42nd Annual Report
together with the Balance Sheet as on 31st March, 2011 and Profit and Loss
Account for the financial year ended March 31, 2011.

MANAGEMENT DISCUSSION AND ANALYSIS:

I. ECONOMIC ENVIRONMENT:

Global economic activity has recovered slowly but steadily in 2010-11 after
the sharp deceleration of growth in 2008 and the contraction in 2009. The
global economy is now in dual speed recovery process with advanced
economies growing slowly/stagnating and the developing economies, on the
other hand, experiencing stronger growth.

The Indian economy is one of the fastest growing economies in the global
growth process, with the GDP growth back to its pre-crisis growth
trajectory, aided by expansion in agriculture, industry and the service
sectors and positive momentum in savings and investment rates. As per the
revised estimates released by the Central Statistical Organization (CSO),
the Indian economy grew by 8.5% in 2010-11 vis-a-vis a 8% growth in the
previous fiscal.

The growth has been broad-based with agriculture sector growing by a
significant 6.6% (0.4%) for FY11 and the industrial and the service sectors
grew by 7.9% (8.0%) and 9.4% (10.1%) respectively. Savings and investment
rates for 2010-11 is likely to be at 34% and 37% respectively.

Inflation was a primary concern among the policy makers during 2010-11.
Inflation, which remained at elevated levels for a large part of FY11, was
largely driven by food and fuel items and later on transmitted to
manufacturing products to become a general phenomenon. The monthly
wholesale price inflation stood at 8.98% in March 2011 compared to 10.23%
in the corresponding month a year ago.

Growth in the industrial sector was buoyant during the first half of FY11.
The manufacturing sector grew at a robust rate of 12.7% and 10% in the
first two quarters of 2010-11 respectively. Thereafter, industrial output
growth started moderating. Index of industrial production (IIP) registered
a 7.8% growth for the financial year 2010-11 as against a growth of 10.5% a
year ago.



India's exports have posted a significant growth and surpassed the growth
target of US $220 billion set for 2010-11. Export growth for FY11 was lower
than the growth seen during the first half, but substantially higher than
the rates prevalent a year ago. As per the provisional data released by the
Directorate General of Commercial Intelligence and Statistics (DGCI&S),
during April-March 2010-11, merchandise exports of India increased to US
$246 billion, recording a growth of 37.6% as against a negative growth of
4.7% recorded for the last year. Cumulative value of imports during April-
March 2010-11 increased to US$351 billion, registering a growth of 21.6%.
As a result of the good performance by exports and lower oil imports,
India's trade deficit for April-March 2010-11 was estimated at US$105
billion, lower than the deficit of US $110 billion during April-March 2009-
10.

Financial markets in India remained, by and large, orderly in FY11 despite
the challenges posed by global uncertainties, high inflation and high
current account deficit. Money markets remained orderly in FY11 with call
money rate largely remaining within the LAF corridor. Asset prices,
including property prices, generally remained range bound. Stock markets
showed periodic volatility as a response to domestic and global
developments. In the foreign exchange market, the rupee remained volatile
against major international currencies during FY 11.

Economic Environment in Karnataka:

Karnataka is one of the fastest growing States in India. Widely acclaimed
for its internationally reputed Information Technology and Bio-technology
companies, the State is home to varied industrial activities, leading
research and development institutions and a pool of skilled manpower. As
per the Economic Survey of Karnataka 2010-11, the real growth in Gross
State Domestic Product (GSDP) is estimated to be around 8.2% during 2010-11
driven by higher growth in primary and tertiary sectors. Canara Bank, owing
its origin to the State, is continuing its key position in the State of
Karnataka. The Bank has been playing a leading role in extending financial
services to large number of people through its 632 branches spread across
the State. The total business of the Bank in the State rose to Rs. 72651
crore, with a share of 15% of its total domestic business as at March 2011,
which comprised Rs. 41755 crore under deposits and Rs. 30896 crore under
advances as at March 2011.

II. MONETARY AND BANKING DEVELOPMENTS:

Growth in key monetary aggregates and money supply in 2010-11 reflected the
changing liquidity conditions arising from domestic and global financial
environment and the monetary policy response. The key monetary policy
stance in FY11 was to contain inflation, maintain a consistent interest
rate regime and to actively manage liquidity.

The money supply (M3) growth during 2010-11 generally remained below the
indicative trajectory set out by the RBI in the Annual Policy Statement for
2010-11 as a result of lower growth in aggregate deposits and reduction in
money multiplier emanating from higher currency demand. Money supply (M3)
growth decelerated to 16% at March 2011 from 17.1% at March 2010.

In FY11, Scheduled Commercial Banks (SCBs) credit growth outpaced deposit
growth by a substantial margin. Aggregate deposits of scheduled commercial
banks increased by 15.8% in 2010-11 as against 17.2% recorded in 2009-10.
The growth in bank credit was higher at 21.4% y-o-y compared to 16.9% a
year ago. The sectoral credit data indicates that while credit to industry
and services was buoyant, agricultural credit (10.6%) and retail lending
(17%) lagged overall credit growth in FY11. With the y-o-y non-food credit
outpacing deposit growth throughout FY11, the credit-deposit (CD) ratio
increased sharply to 75.68% as at March 2011.

The banking sector in India remains healthy, resilient, profitable and
performed well during 2010-11. Public Sector Banks have performed
relatively better than their private sector counterparts in terms of
gaining ground in market share and reporting strong bottom-lines.

The year 2010-11 saw the following key policy measures announcements by the
RBI.

* Increase in CRR by 25 basis points from 5.75% to 6% of NDTL with effect
from the fortnight beginning April 24, 2010.

* During FY11, RBI increased the Repo rate by 175 bps to 6.75% and the
Reverse Repo rate by 225 bps to 5.75%.

* The statutory liquidity ratio (SLR) for scheduled commercial banks has
been reduced to 24% of their NDTL from 25% with effect from December 18,
2010.

Changes in CRR, Repo Rate and Reverse Repo Rate during the year:

Repo Reverse Repo CRR

April 20, 2010 5.25 (+0.25) 3.75 (+0.25) 5.75
April 24, 2010 5.25 3.75 6.00 (+0.25)
July 2, 2010 5.50 (+0.25) 4.00 (+0.25) 6.00
July 27, 2010 5.75 (+0.25) 4.50 (+0.50) 6.00
September 16, 2010 6.00 (+0.25) 5.00 (+0.50) 6.00
November 2, 2010 6.25 (+0.25) 5.25 (+0.25) 6.00
January 25, 2011 6.50 (+0.25) 5.50 (+0.25) 6.00
March 17, 2011 6.75 (+0.25) 5.75 (+0.25) 6.00

A few other important policy measures announced during the year as under:

* Loan to value (LTV) ratio in respect of housing loans was prescribed not
to exceed 80%.

* The RBI increased the risk weight for residential housing loans of Rs. 75
lakh and above, irrespective of the LTV ratio, to 125% and also increased
the standard asset provisioning by commercial banks for all such loans to
2%.

* To mandate banks not to insist on collateral security in case of loans up
to Rs. 10 lakh as against the present limit of Rs. 5 lakh extended to all
units of the micro and small enterprises (MSEs) sector.

* Banks are permitted to engage any individual, including those operating
Common Service Centres (CSCs), as Business Correspondents, subject to
banks' comfort level and their carrying out suitable due diligence.

* As per the roadmap, all scheduled commercial banks will convert their
opening balance sheet as at April 1, 2013 in compliance with the
International Financial Reporting Standards (IFRS) converged IASs.

* Banks are advised to study the new global developments including Basel
III and be in preparedness to meet the requirements.

* RBI, in its second quarter review of Annual Monetary Policy, increased
the threshold limit for RTGS transactions from Rs. 1 lakh to Rs. 2 lakh.

* In order to manage liquidity constraints, additional liquidity support to
scheduled commercial banks under the LAF to the extent of upto 1% of their
NDTL, was extended up to April 8, 2011. For any shortfall in maintenance of
the SLR arising out of availment of this facility, banks were advised to
seek waiver of penal interest purely as an ad hoc measure.

* RBI has permitted the settlement of repo in corporate bonds on a T+0
basis in addition to the existing T+1 and T+2 basis.

OUTLOOK FOR 2011-12:

The year 2011-12 is likely to be a year of strong but uneven global growth.
As financial markets continue to normalize and households and firms reduce
their indebtedness, growth is projected to gradually strengthen in the
emerging and developed economies in 2011-12. The International Monetary
Fund, in its latest World Economic Outlook, projected global growth at 4.4%
for 2011 and 4.5% for 2012. Emerging economies will continue to lead global
growth. However, uncertainties in the form of higher oil and non-oil
commodity prices, high inflation expectations and public debt pose risks to
global growth.

Indian economy is expected to continue its broad based growth momentum in
FY12 backed by strong investment and consumption demand. Domestic demand
will continue to hold the key to GDP growth. Inflation is likely to
moderate towards the end of the financial year. A strong savings and
investment rates, favourable capital market conditions, capital flows and
positive business outlook will also help the economy to maintain its growth
momentum. Savings and investment rates for 2011-12 is projected at 34.7%
and 37.5% respectively. Services sector will be a major contributor in the
positive domestic outlook and banking sector will continue to be among the
performing sectors in FY12. Efforts to bring in more inclusive growth and
focus on the rural economy would propel the growth engine of the economy
further.

Notwithstanding the concerns of high interest rates and high domestic
inflation, Indian economy will continue to remain one of the fastest
growing economies. The RBI in its Annual Monetary Policy Statement for
2011-12 placed real GDP growth for 2011-12 at 8%, lower than the 8.5%
growth estimated for FY11, primarily on account of high inflation and
higher interest rate cycle. Money supply (M3) is projected at around 16% in
consonance with the outlook on growth and inflation. Aggregate deposits of
SCBs are projected to grow by 17% and adjusted non-food credit to grow by
19% for 2011-12. The annual policy also endeavors to contain inflation at
6% by March 2012.

III. CANARA BANK IN 2010-11:

As one of the leading commercial banks in India, Canara Bank in FY11
surpassed yet another milestone of Rs. 5 lakh crore in total business, to
attain the Status of the Systemically Important Financial Institution in
the country. The Bank's Net Profit crossed Rs. 4000 crore mark for FY11.
The Bank also expanded its domestic operations by opening more than 200
branches and 199 ATMs during 2010-11.

FINANCIAL PERFORMANCE:

For Canara Bank, 2010-11 was a year of robust performance on the business,
profits and profitability fronts.

Net profit reached an all time high of Rs. 4026 crore, signifying a strong
33.2% growth y-o-y and substantially higher than Rs. 3021 crore recorded
during the preceding year. Operating profit recorded a 20.7% growth to
reach a level of Rs.6107 crore. Return on average assets (RoAA) for the
year improved to 1.42%. Profit per employee, moved up to Rs. 9.76 lakh
compared to Rs. 7.35 lakh in the previous financial year.

Dividend of 110% for 2010-11:

Enhancing Shareholder Value:

The Bank showed steady improvement in Earnings Per Share (EPS) and Book
Value. While Book Value increased to Rs. 405 as at March 2011 as compared
to Rs.305.83 for the previous financial, EPS rose to Rs. 97.83 as at March
2011 compared to Rs. 73.69 a year ago. Ensuring increased value for the
shareholders year after year, the Bank's Board of Directors recommended a
dividend of 110% for 2010-11 compared to 100% last year.

March March
Key Financial Ratios (%) 2010 2011

Cost of Funds 5.65 5.37
Yield on Funds 8.10 8.13
Cost of Deposits 6.12 5.80
Yield on Advances 9.81 9.73
Yield on Investments 7.52 7.72
Spread as a % to AWF 2.45 2.76
Net Interest Margin (NIM) 2.80 3.12
Operating Expenses to AWF 1.50 1.56
Return on Avg. Assets (RoAA) 1.30 1.42
Return on Avg. Networth 26.76 28.26
Business per Employee
(Rs. in Crore) 9.83 12.28
Profit per Employee (Rs.
in Lakh) 7.35 9.76
Book Value (Rs.) 305.83 405.00
Earnings per Share (Rs.) 73.69 97.83

AWF - Average Working Funds:

Income and Expenditure Analysis:

The Bank's interest income recorded a y-o-y growth of 23% to reach Rs.23064
crore compared to Rs. 18752 crore recorded during the previous financial
year. Non-interest income increased to Rs. 2703 crore.

Despite increase in interest rates, the Bank could reduce the cost of
deposits by 32 bps to 5.80% compared to 6.12% a year ago, while yield on
advances maintained at 9.73%. Interest spread increased to 2.76% from 2.45%
as at March 2010.

Composition of Income (2010-11):

Non-Interest Income 10%
Loans and Advances 67%
Investments 22%
Others 1%

While interest expenditure increased to Rs. 15241 crore with a y-o-y growth
of 16.6%, the Bank's operating expenses increased by 27.1% to reach Rs.4419
crore. Notably, the net interest income of the Bank registered a good 37.7%
growth to reach Rs. 7823 crore and Net Interest Margin (NIM) improved by 32
bps to 3.12% compared to 2.80% as at March 2010.

Composition of Expenditure (2010-11):

Other Operating Expenditure 7%
Interest Expenditure 78%
Staff Cost 15%

Capital and Reserves:

Networth of the Bank, as at March 2011 increased to Rs. 17941 crore
compared to Rs. 12539 crore as at March 2010. While total paid-up capital
of the Bank increased to Rs. 443 crore from Rs. 410 crore last year,
reserves and surplus increased to Rs. 19597 crore. To augment the capital
resources, the Bank raised upper Tier II bonds to the extent of Rs. 1000
crore and Rs. 749.3 crore under Innovative Perpetual Debt Instrument. For
the first time, the Bank raised equity capital through Qualified
Institutional Placement (QIP) route for Rs. 1993.2 crore. Post QIP,
Government Shareholding in the Bank came down from 73.17% at March 2010 to
67.72% as at March 2011.

(Amt. in Rs. Crore)
March 2010 March 2011
Composition of Capital Basel II Basel II

Risk Weighted Assets 150623 176136
Tier I Capital 12870 19139
CRAR (%)(Tier I) 8.54 10.87
Tier II Capital 7362 7956
CRAR (%)(Tier II) 4.89 4.51
Total Capital 20232 27095
CRAR (%) 13.43 15.38

As at March 2011, Capital to Risk Weighted Assets Ratio (CRAR) of the Bank
under Basel II significantly improved to 15.38%, with a Tier I capital
ratio of 10.87%. The Bank has still adequate headroom available under both
Tier-I and Tier-II options to raise capital to support business growth
momentum.

BUSINESS GROWTH:

Business Volumes Cross Rs. 5 lakh Crore.

Deposits:

Total Deposits of the Bank registered a growth of 25.3% to reach Rs. 293973
crore as at March 2011 compared to Rs.234651 crore a year ago. The Bank's
CASA deposits grew by 21.8% to reach Rs. 83117 crore as at March 2011.
Savings deposits rose by 17.5% y.o.y to Rs. 58617 crore. The Bank opened
over 24 lakhs SB clientele during FY11. During FY11, the Bank had launched
a nationwide Savings Mahotsav' campaign to mobilize SB deposits, resulting
in fresh addition of over 16 lakhs SB clientele.

With a CASA per branch at Rs. 25.52 crore, the Bank continues to be one of
the best among the peers. Pursuing a strategy of broad basing deposit
clientele, all the branches together opened over 64 lakhs deposit accounts,
taking the total tally under deposit accounts to 3.42 crore.

Advances (Net):

During FY11, the Bank's net advances witnessed a robust 25.5% growth to
reach Rs. 2,12,467 crore compared to Rs. 1,69,335 crore a year ago. In
quantum terms, credit increased by over Rs. 43,000 crore during the year.
The Bank's diversified credit portfolio include all productive segments of
the economy like agriculture and Micro, Small and Medium Enterprises
(MSME), exposure to corporate and infrastructure segments. As at March
2011, the number of borrowal accounts stood at 45 lakhs.

25% Growth in Total Business for last 3 Years:

The Bank has recorded a Compounded Annual Growth Rate (CAGR) of 25% for the
last 3 financial years. During 2010-11, the total business of the Bank grew
by a robust 25.4% to reach Rs. 5,06,440 crore as against Rs. 4,03,986 crore
during the previous financial. Productivity, as measured by business per
employee, increased to Rs. 12.28 crore from Rs. 9.83 crore a year ago,
continuing to be one of the best among the peers.

During the year, the Bank's clientele base increased to 3.87 crore.

Retail Lending Operations:

Retail lending operations of the Bank registered a strong 32% to reach
Rs.31572 crore as at March 2011, accounting for 15.52% of the domestic
credit. The disbursals under the retail lending stood at Rs. 13826 crore.
The outstanding housing loan portfolio increased to Rs. 15219 crore,
constituting 48% of the total retail lending portfolio.

Composition of Retail Lending (2010-11):

Retail Trade 20%
Housing 48%
Other Personal 32%

(Amt. in Rs. Crore)
Retail Lending March 2010 March 2011 Growth (%)

Retail Lending 23902 31572 32.1

Housing Loans 10116 15219 50.4

Retail Trade 5383 6313 17.3

Other Personal
(Incl. Education
Loan) 8403 10040 19.5

The Bank took several measures during the year to expand retail credit. To
facilitate speedy disposal of proposals and credit flow, a total of 25
Centralized Processing Units (CPU) and 16 Retail Assets Hubs (RAH) for
housing and other retail loans are functioning at major centres across the
country.

TREASURY AND INTERNATIONAL OPERATIONS:

Aggregate investments of the Bank, as at March 2011, were of the order of
Rs. 83700 crore. Portfolio modified duration (years) came down to 4.75 as
at March 2011 from 4.95 a year ago. The modified duration of the Available
for Sale (AFS) portfolio has increased from 1.93 as at March 2010 to 2.23
as at March 2011 due to redemption of short dated securities and fresh
investments made in medium and long dated securities. The trading profit
for the year was Rs. 293 crore. The yield on investments improved to 7.72%
as at March 2011 as compared to 7.52% a year ago.

The Bank continues to be an active player in government securities as a
primary dealer. The total amount of underwriting commitments for the year
was Rs. 33216 crore. During the year, the Bank achieved over 55% success
ratio as against mandatory 40% of its obligation as a Primary Dealer.

Foreign Business Turnover of the Bank, as at 31st March 2011, aggregated to
Rs. 1,24,094 crore, comprising Rs. 45,658 crore under exports, Rs. 39,616
crore under imports and Rs.38,820 crore under remittances. Outstanding
export credit of the Bank was Rs. 10489 crore, with a y-o-y growth of 17%.

The Bank's overseas presence covered four branches one each at London, Hong
Kong, Leicester (UK) and Shanghai as at March 2011. Leicester branch was
opened on 12th April 2010 and the Representative Office at Sharjah was
opened on 20th June 2010. Besides, a joint venture bank, namely, Commercial
Bank of India LLC in Moscow is also operational in association with State
Bank of India.

All overseas branches recorded improved business performance during the
year. Total business of these 4 overseas branches aggregated to US $ 4376
million for the financial year ending March 2011.

To fund overseas assets expansion, the Bank raised foreign currency funds
of USD 350 million through London branch by issuing senior unsecured bonds
listed in Singapore Stock Exchange under Medium Term Notes Programme.

The Bank has approval from RBI for expansion in 8 other international
centres viz., Manama (Bahrain), Oatarjohannesburg (South Africa), Frankfurt
(Germany), New York (USA), Sao Paulo (Brazil), Dar-es-Salaam (Tanzania) and
Tokyo (Japan). The Bank has conducted survey in Sri Lanka, Kenya and
Nigeria to explore opening of branches in these countries.

The Bank's international operations are well supported by a wide network of
382 Correspondent Banks, spread across 80 countries. The Bank has rupee
drawing arrangements with 22 exchange houses and 17 banks in the Middle
East for channelising the remittances of expatriates. The Bank has been
managing two exchange houses viz., Al Razouki International Exchange
Company, Dubai and Eastern Exchange Est., Qatar, under secondment and
management agreement respectively. The Bank, during the year, expanded its
arrangement under 'Remit Money', a web based product by extending to 18
Exchange Companies/Banks and 4 branches abroad viz., London, Leicester,
Shanghai and Hong Kong. During the year, the Bank obtained approval from
RBI for remittance arrangements with 5 more Exchange Houses in UAE. It also
introduced lock Box' Service for quick collection of cheques drawn by NRIs
on Banks in the USA. One more Remittance Product 'Remit Worlwide' for NRIs
in the USA is on the cards and will be introduced shortly.

OTHER SERVICES:

During 2010-11, Merchant Banking Division of the Bank handled Private
Placement of Capital Gain Bond Issues in respect of National Highways
Authority of India (NHAI) and Rural Electrification Corporation Ltd., (REC)
as Arrangers. Amount mobilized by Merchant Banking Division in respect of
Capital Gain Bonds Issue of NHAI and REC was Rs. 120crore. The Bank's Tier
I Bonds Issue (IPDI) amounting to Rs. 500 crore and Upper Tier II series
III bonds issue amounting to Rs. 1000 crore was also dealt by the Division
in preparing/compiling the Disclosure Documents in terms of SEBI
guidelines. During the period, it handled 5 specialized assignments of
'Fair Valuation of Equity' and 8 'Bankers to an Issue' assignments as
Escrow Bankers/ Collecting Bankers with total float funds, amounting to Rs.
3034 crore. The Division facilitated implementation of Application
Supported by Blocked Amount (ASBA), a supplementary process of applying for
Public/Rights issues with effect from 1st September 2010 as per SEBI
guidelines. As on date, 152 branches across the country have been
designated for ASBA facility.

The Syndication Group handled projects involving cost of Rs. 9604 crore
during the year, with a total debt size of Rs. 5240 crore. The Group has
generated substantial fee based income from syndication operations and
arranged funds for projects in diverse segments like Steel, Power, Hotel,
Road, Bus Terminal and Sugar.

The Bank has tie-up arrangements in both life and non-life insurance
segments under its bancassurance' arm. The Bank earned a commission income
of Rs. 51 crore from Canara HSBC Oriental Bank of Commerce Life Insurance
Company Limited. The Bank has tie up with M/s Canara Robeco Mutual Fund for
cross selling of mutual fund products business and earned net brokerage of
Rs. 3.4 crore.

The Bank's tie-up arrangement with M/s United India Insurance Company Ltd
(UIICL) for general insurance business has resulted in a commission income
of around Rs.11 crore during the year. The Bank has Corporate Agency
Agreement with M/s Export Credit Guarantee Corporation of India for
marketing export policies through its branches across India.

Corporate Cash Management Services (CCMS) network of the Bank, covering 94
Operating Centres and 595 Pooling Branches, provides services related to
local and upcountry cheque collection, bulk cheques collection and zero
balance account facility. The aggregate turnover under CCMS amounted to
Rs.979 crore during the year.

Under Card Business, the Bank took several initiatives to expand credit and
debit-cum-ATM card base. The total debit card base of the Bank increased to
59.69 lakhs as at March 2011. Profit under card business during the year
was at Rs. 21.4 crore.

The Bank offers its depository services from 54 DP Service Centres spread
across 36 centres in the country. The Bank is extending Online Trading
Facility to DP clients through its own broking subsidiary M/s. Canara Bank
Securities Limited, Mumbai.

Executor, Trustee and Taxation Services outfit of the Bank provides
services like Debenture/Security Trusteeship, Will and Executorship,
Trusteeship, Personal Tax Assistance and Power of Attorney Services. It
secured 7 new debenture/security trusteeship issues, amounting to Rs.3286
crore and generated fee-based income of Rs. 2.3 crore during the year.

Under Government Business, comprising Direct and Indirect Tax collections,
payment of pensions to various departments, handling Ministry Accounts,
Postal Transactions and Treasury, collection of Senior Citizen's Deposit,
Public Provident Fund Scheme and issue of relief/ savings bonds of RBI and
Government of India, the Bank earned income to the extent of Rs. 55 crore
during the year.

The Bank has been authorized as the accredited banker for Ministry of Human
Resources Development (MHRD), handling Department of School Education and
Literacy, Department of Higher education, Department of Arts
Archeological Survey of India, Ministry of Culture and Ministry of Youth
Affairs and Sports. The Bank has developed a Web-Portal for Ministry of HRD
for e-tracking of funds under the Sarva Shiksha Abhiyan (SSA) Scheme. The
Bank has implemented the web portal in all the States except Jammu and
Kashmir, Uttar Pradesh and Chattisgarh, wherein the facilities will be
implemented shortly. The Bank has implemented the e-payment of sales tax/
commercial tax in the states of Maharashtra, Tamil Nadu and Karnataka.

The Bank is authorized as the accredited Bankers for Unique Identification
Authority of India (UIDAI), New Delhi. The UIDAI was established in
February 2010, as an agency of Government of India responsible for
implementing the Multipurpose National Identity Card or Unique
Identification Card (UID Card) project in India. The project is implemented
in 8 centres at present and the Bank's branches at these centres have been
designated as the deal branches for handling the UIDAI accounts.

The Bank introduced e-stamping project in 5 branches in Bangalore and at
other 26 branches situated in the District Head Quarters in the State of
Karnataka, the project is under implementation.

Agricultural Consultancy Services (ACS) outfit of the Bank handled 138
assignments during the year under review with the total outlay of the
assignments at over Rs. 1363 crore. Apart from the regular assignments, the
outfit handled special projects. These projects include cultivation and
export of culinary herbs, cultivation of medicinal plants and manufacturing
herbal products, rice mill project, organic farming of fruits and
vegetables, tissue culture of banana, dairy farming and development through
embryo transfer technology, silvi culture sandalwood cultivation, food
processing, cheese manufacturing and prawn processing and exports.

Special studies and trainings were also conducted during the year, which
includes, study on identification of clusters in agriculture and allied
activities for finance, report on scope of Tamil Nadu mega foodpark at
Dharmapuri and Agriculture Extension Officers' training on project
appraisal of hi-tech agriculture.

ASSET QUALITY AND RISK MANAGEMENT:

All Time High Cash Recovery at Rs. 2032 crore:

Asset Quality:

In tune with the industry and economic conditions, the gross NPA level of
the Bank rose to Rs. 3089 crore during the year. Notwithstanding the above,
the Bank could contain its gross NPA ratio at 1.45% compared to 1.52% in
the previous year. The Bank's gross NPA ratio continues to be one of the
lowest among the peers. With a net NPA level of Rs. 2347 crore, net NPA
ratio stood at 1.11% as at March 2011. The Provision Coverage Ratio stood
at 72.99% as at March 2011 which is well above the RBI stipulated 70%.

Cash recovery during the year aggregated to an all time high of Rs. 2032
crore, well exceeding the preceding year's cash recovery of Rs. 1575 crore.

The performance under settlements and recovery was quite noteworthy. During
the year, recovery amounting to Rs. 830 crore was made under SARFAESI Act.
The Bank conducted 9969 recovery meets during the year which resulted in a
recovery of Rs. 351 crore. Besides, the Bank took several initiatives to
contain slippages and speed up recovery from overdue loan accounts. These
include identification of stressed accounts for restructuring/ rephasing in
time, frequent conduct of Canadalats at branch level and mega adalats at
Circle level for one time settlements, regular follow-up of overdues in
loan accounts through call centre and e-auctions.

Risk Management:

Basel II norms: Status and Future Strategies:

Risk Management Initiatives:

The Bank has put in place a unified risk management architecture to attain
global best practices for effective implementation of risk management
initiatives in consistence with the Basel II framework and RBI guidelines.
The Board of Directors drives the Risk Management initiatives in the Bank.
The Risk Management Committee of the Board is constituted and operational.
Top Executive Committees for Credit Risk, Operational Risk and Market Risk
Management oversee and monitor the respective risk management processes and
procedures. Asset Liability Committee (ALCO) meets periodically for
effective and pro-active ALM in the Bank.

Risk Management Wing at the Head Office is functioning as a nodal centre
for overall implementation of various risk management initiatives across
the Bank. Integrated Mid Office of both domestic and forex treasury are
functioning under the Risk Management Wing for effective and independent
supervision and monitoring of Market Risk in investment and forex
functions. Risk Management Sections are in place in all the 34 Zonal/Circle
Offices of the Bank as an extended arm of the Risk Management Wing at the
Corporate Office.

The Bank has in place various risk management policies, which include
policy for management of Credit Risk, Market Risk, Operational Risk, Asset
Liability, Liquidity Risk, Country Risk, Counterparty Bank Risk, Corporate
Governance, Disclosures, Collateral Management, Stress Testing, Compliance
Functions, Disaster Recovery and Business Continuity Planning, Business
Lines, Outsourcing, Group Risk, Legal Risk etc. The Bank also framed risk
management policies for its overseas branches, taking into account the
requirements of the respective regulators. These policies are reviewed and
fine tuned annually.

Migration to Basel II Norms:

The Bank transited to Basel II Norms as on 31.03.2008. The Capital to Risk
Weighted Assets Ratio (CRAR) is computed as per Pillar 1 requirement of
Basel II Norms, adhering to the New Capital Adequacy Framework (NCAF)
guidelines stipulated by the RBI.

The Bank has framed its Policy on ICAAP (Internal Capital Adequacy
Assessment Process) in consistent with the RBI guidelines under Pillar 2 of
Basel II Norms. A Capital Planning Committee is in place at the Corporate
Office which meets periodically to assess capital requirement of the Bank,
ensure maintenance of appropriate level of CRAR and evaluate various
options for raising Capital.

The Bank adheres to the Disclosure norms as per the RBI guidelines under
Pillar 3 of Basel II Norms. A Board approved Disclosure Policy is in place.
A Disclosure Committee, comprising of Top Executives has been constituted
to ensure adherence to the policy guidelines. The Bank also initiated steps
in preparation to migrate to the advanced credit risk and operational risk
approaches under the Basel II framework.

Credit Risk Management:

The Bank has adopted 'Standardized Approach' to estimate Credit Risk
Weighted Assets (RWA) for computing CRAR from the year 2007-08 onwards as
required under the NCAF.

The Bank has various risk management systems for managing credit risk. The
various initiatives taken by the Bank are as under:

* A comprehensive Credit Risk Management Policy in tune with the regulatory
guidelines and best practices in the industry.

* The Bank has in place specific rating definitions, processes and criteria
for assigning exposures to grades within a rating system, which results in
a meaningful differentiation of risk.

* Four credit risk rating models are in place, developed internally, for
rating borrowal accounts based on the exposure limits. Rating of eligible
account has been made mandatory as a pre-sanction exercise. Migration
analysis of rated accounts is done periodically.

* The Bank is using/ mapping the ratings assigned by recognized external
credit rating agencies to the exposures of the concerned borrowers to
optimize capital under a standardized approach.

* Pricing based on credit risk rating has been introduced.

* Entry barriers are fixed based on risk rating.

* Credit sanctioning powers are delegated to various authorities based on
internal risk rating of the borrowers.

* To avert concentration of risk, fixation of various exposure ceiling/
prudential norms, such as, single and group borrowers, substantial
exposures, term loans, unsecured advances, exposures to various industries,
NBFCs, real estate sector and capital market are in vogue.

* For strengthening loan review and monitoring mechanism, Credit Monitoring
and Credit Administration Wings were formed.

* An exclusive credit monitoring policy has been put in place. The loan
review mechanism articulated in the credit monitoring policy covers the
entire gamut of review and monitoring to be an effective tool for
evaluating the loan book continuously and intends to bring out qualitative
improvements in credit administration including credit audit.

* Credit Audit system by external / internal auditors of all borrowal
accounts of Rs. 1 crore and above has been put in place.

Operational Risk Management:

The Bank computed capital charge for operational risk by adopting 'Basic
Indicator Approach' as stipulated by the RBI.

A proper organizational structure is in place to oversee and guide the
operational risk initiatives of the Bank. To move towards advanced
approaches for operational risk, the following initiatives have been taken-

* Formulation of Operational Risk Management Policy, which covers the
objectives, identification, assessment, monitoring and control of
operational risk loss incidents.

* Training imparted to staff to create awareness on operational risk
management system.

* The Bank has compiled a comprehensive Best Practices Codes (Manual of
Instructions) and Desk Cards on all the activities carried out at branches
for their guidance.

Market Risk Management:

The Bank has been computing capital charge for market risk on 'Available
For Sale' (AFS) and 'Held For Trading' portfolio under investments, by
adopting Standardized Measurement Method.

Integrated Mid Office at Risk Management Wing monitors market risk
exposure. Exposure limits, such as, Stop Loss limits on trading books,
Dealer-wise limits, limits on Money Market Operations, M-duration limits
for AFS category, VaR limits, Aggregate Gap limit, Intra day and overnight
limit for various currency positions are fixed to act as risk mitigants and
are monitored. Reporting system has been strengthened for effective market
risk management.

Towards implementation of Internal Models Based Approach for calculation of
capital charge for market risk, the Bank has put in place a VaR based model
for estimating General Market Risk. The process of back testing of the
results given by the model has been completed. Stress testing exercise as
per the guidelines is envisaged.

Asset Liability Management:

An effective Asset Liability Management (ALM) system, addressing issues
related to liquidity and interest rate risks is in place. The Board of
Directors of the Bank has constituted an Asset Liability Committee (ALCO)
to oversee ALM functions, including fixation of interest rates for various
components of assets and liabilities, its composition, maturity and
duration. A comprehensive software solution has been installed for
quantifying risks and to analyze Maturity Gap, Duration and Sensitivity of
Assets and Liabilities to interest rate variations.

The liquidity position of the Bank is tracked on a daily basis by means of
residual maturity of assets and liabilities. Periodical studies are
undertaken to analyze the behavioral patterns of various components of
assets and liabilities to estimate the liquidity on a dynamic basis. The
Bank's liquidity policy sets the tolerance limit for its structural
liquidity positions. The liquidity positions of overseas branches are
managed in line with home and host country regulatory guidelines. Such
positions are reviewed by the Bank's ALCO along with domestic positions.
To evaluate the impact of changes in interest rate on Bank's earnings, an
analysis of Earnings at Risk (EAR) and its impact on Net Interest Income
(NII) are done on an ongoing basis. The change in the composition and
residual maturity of assets and liabilities is evaluated by the Traditional
Gap Method as also by the Duration Gap Method. Stress testing exercises by
simulating scenarios of liquidity and interest rates are undertaken to
estimate the stress cost as also the Economic Value of Equity (EVE).

The ALCO meets regularly to discuss various issues pertaining to the
liquidity position by considering the residual maturity profile of various
assets and liabilities, takes stock of the dynamic interest rate scenario,
discusses at length the changes evolving in economic and financial
parameters, which have a direct or indirect bearing on the banking industry
and focuses on the impact of all these factors on the business profile of
the Bank.

Risk Management Committee of the Board:

The Board level Risk Management Committee is already in place in the Bank,
which meets regularly to provide guidance and direction in implementing the
risk management initiatives of the Bank.

In conformity with the RBI guidelines, the Bank has implemented the New
Base Rate system of interest application on loans and advances with effect
from 1st July 2010.

NATIONAL PRIORITIES:

Priority Sector Advances:

As one of the leaders in the domestic banking arena, the Bank continues to
accord importance to varied goals under national priorities, including
agriculture, small enterprises, education, micro-credit, weaker sections,
SC/STs and minorities.

During the last 3 years, the Bank has achieved stipulated mandatory targets
under Total Priority, Total Agriculture, Agriculture (Direct) and Weaker
Sections.

Priority Sector Advances of the Bank as at March 2011 increased by Rs.11447
crore to reach Rs. 70757 crore, recording a y-o-y growth of 19.3%, covering
over 40 lakhs borrowers. Priority sector advances formed 44.08% of the
Bank's Adjusted Net Bank Credit (ANBC), well above the 40% stipulated norm.

[Amt. in Rs. Crore]
Priority Sector Advances As at March Growth
2010 2011 Amount %

Total Priority Sector 59310 70757 11447 19.3
Agriculture 25052 29656 4604 18.4
Micro & Small Enterprises 24180 29558 5378 22.2

With a focus on credit delivery to agriculture, the Bank's advances under
agriculture rose by Rs. 4604 crore to reach Rs. 29656 crore, covering over
31 lakh farmers. Agriculture credit as a proportion of ANBC crossed the
mandatory targeted level of 18% to reach 18.48%. Advances to agriculture
(direct) reached a level of Rs. 22669 crore, with an 18.9% growth and
accounting for 14.12% of ANBC as against the mandatory 13.5% norm.

Under Kisan Credit Card Scheme, the Bank issued 3.68 lakh cards during the
year, with credit coverage of Rs. 3082 crore. As at March 2011, the
cumulative number of Kisan Credit Cards reached over 33 lakhs, involving
credit coverage of Rs. 17589 crore.

Over the years, the Bank has supported lakhs of promising students to
pursue higher education in India and abroad.

The Bank has further increased its education loan portfolio and sustained
its premier position among nationalized banks in India for FY11. The Bank's
advances under Education Loan Scheme recorded a growth of 21% to reach
Rs.3503 crore.

The Bank has financed more than 1.92 lakhs students as at March 2011. The
Bank is designated as the nodal bank for administering subsidy under the
Central Sector Scheme for Interest Subsidy on educational loans. The Bank
also extended financial assistance to other priority sectors, such as,
retail traders, housing and micro credit.

During the year, the Bank actively participated in various Government
Sponsored Schemes, such as, PMRY, SGSY, SJSRY, SLRS and DRI. As at March
2011, the outstanding advances under these schemes aggregated to Rs. 610
crore, involving over 1.46 lakhs beneficiaries.

Performance under various Government sponsored schemes:

Name of No. of Amt. in
the Scheme Accounts Rs. Crore

PMRY 49167 252.63
SGSY 48189 234.39
SJSRY 16005 69.40
SLRS 691 1.38
DRI 32057 51.91
Total 146109 609.71

* In support of the underprivileged sections of the society, the Bank's
advances to SC/ST beneficiaries reached Rs. 5087 crore as at March 2011,
with a y-o-y growth of 30%. The advances to SC/ST comprised 7.19% of total
priority sector advances.

* Advances to weaker sections aggregated to Rs. 17823 crore, with a y-o-y
growth of 21.8%. Advances to weaker sections formed 11.10% of ANBC against
the norm of 10%.

* As at March 2011, advances to specified minority communities aggregated
to Rs. 11718 crore and accounted for 16.56% of the total priority sector
advances as against the norm of 15%.

Advances to Micro, Small and Medium Enterprises (MSMEs) reached Rs. 37684
crore, with a y-o-y growth of 21.3% vis-a-vis mandatory y-o-y growth of
20%.

The Bank has covered 49,260 accounts with an exposure of Rs.1471 crore as
at March 2011 under the Credit Guarantee Scheme of Credit Guarantee Fund
Trust for Micro and Small Enterprises (CGTMSE).

Considering the importance of cluster based approach of lending to MSME
sector, the Bank has focused on adoption of select industrial clusters
across the country and expanded lending under cluster based approach.

During the year, the Bank has increased the number of independent
centralized loan processing centres for MSMEs, viz., 'SME SULABH' to 25
centers. It is proposed to increase the number of such centres to 34
during 2011-12. The Bank has embarked upon reaching out to large section of
MSMEs at major centres in the country through this model.

The Bank received an amount of Rs. 16.9 crore from the Ministry of Micro,
Small and Medium Enterprises, Government of India, during the year as a
Nodal Agency for Technology Upgradation of SSI units under Credit Linked
Capital Subsidy Scheme (CLCSS) and amount utilized during the year stood at
Rs. 13.3 crore.

Financial Inclusion:

Canara Nayee Disha- A Complete Solution for Financial Inclusion:

Not just mobilizing no-frill accounts from the financially excluded, the
Bank is providing total solution for the Financial Inclusion by extending
credit facility under General Credit Cards, Credit linking Self-Help Groups
(SHGs), making provision of small insurance facilities, enhancing outreach
through Business Correspondents and using of technology- Smart Cards and
Bio-Metric ATMs.

The Bank achieved total Financial Inclusion in all the 26 Lead Districts
spread over five States, namely, Karnataka, Kerala, Tamil Nadu, Bihar and
Uttar Pradesh. During 2010-11, the Bank mobilized 6.05 lakhs no-frill
accounts (CanSaral) and reached a cumulative level of 27.84 lakhs since
inception. The Bank has opened 913 new accounts per Rural and Semi urban
branches as against the Government of India target of 250 per annum. The
total savings in the no-frill accounts reached a level of Rs. 520 crore.
During the year, the Bank has formed 31121 SHGs, taking the cumulative
number of SHGs formed to 3.51 lakhs as at March 2011. With 45977 SHGs
credit linked during the year, the cumulative tally under credit linking
reached 3.21 lakhs since inception. The total exposure of the Bank under
SHG finance rose to Rs. 1064 crore, spreading over 90172 SHGs accounts.

The Bank undertook several technology initiatives to further financial
inclusion process like multi-lingual biometric ATMs, voice-enabled mobile
bio-metric ATM and Smart Cards. The Bank has installed Bio Metric Voice
Enabled ATMs/ Biometric Mobile ATMs in 23 Rural/Semi urban locations and
has issued around 84000 Smart Cards as at March2011. The Bank also issued
3.02 lakhs General Credit Cards (GCC) since inception and the total
exposure under GCCs as at March 2011 increased to Rs. 359 crore, spread
over 1.75 GCC accounts. The Bank on its founder's day on 19th November
2010, distributed 1 lakh GCCs, 50,000 Smart Cards and opened 9 Financial
Literacy and Credit Counseling Centres (FLCCs) across India.

The Bank's FLCCs called 'Amulya' are in operational in 10 districts, viz.,
Kolar, Chitradurga and Chikkaballapur in Karnataka, Madurai, Erode and
Dindigul in Tamil Nadu, Malappuram, Waynad and Trissur in Kerala and
Sheithpura in Bihar. The Bank has registered a new Trust, viz., 'Canara
Financial Advisory Trust' to manage the Financial Literacy and Credit
Counseling Centres.

To create awareness about banking facilities and the Bank's products among
the rural households, the Bank has deployed 'Gramin Vikas Vahini'
(vehicles) in 35 districts across the country. To disseminate information
to the rural people about the banking products and advanced technology, the
Bank formed 127 Farmers' clubs during the year, taking the total to 1360
across the country.

For catering to the needs of the urban poor and urban financial inclusion,
the Bank opened 19 Exclusive Microfinance branches in urban centres viz.,
Madurai, Hyderabad, Mumbai, Amritsar, Chandigarh, Lucknow, Coimbatore,
Bangalore, Chennai, Bhopal, Bhubaneshwar, Delhi, Jaipur, Kolkata, Patna,
Pune, Shimoga, Trivandrum and Visakapatnam.

The Bank is allotted 1573 villages with population more than 2000, across
the country for provision of banking facilities. The Bank has already
covered 626 villages as at March 2011 and will cover all the 1573 allotted
villages with population of more than 2000, through ICT model or through
'Brick and Mortar' branch by 31.03.2012.

The Bank is the registrar for Unique Identification Authority of India and
it has taken up enrollment for issue of UID numbers by engaging an
enrollment agency, namely, M/s. Smart Chip Ltd. The Bank has started the
enrollment and set up a work station at Parliament Street branch, New
Delhi, on 29.03.2011.

Lead Bank Scheme:

Canara Bank has lead bank responsibilities in 26 districts in the country,
viz., eight in Karnataka, seven in Tamil Nadu, five in Kerala, five in
Uttar Pradesh and one in Bihar. The Bank works as the Convenor of the State
Level Bankers' Committee (SLBC) in the State of Kerala.

Entrepreneurship Development among Women:

Centre for Entrepreneurship Development for Women (CEDW) at Head Office,
Bangalore and Centres at 34 Zonal/Circle Offices are working towards
economic empowerment of women. These Centres have conducted several
training programmes during the year, including general Entrepreneurship
Development Programmes (EDP), Entrepreneurship Awareness programmes,
Seminars, Career Guidance programmes, Skills and provided marketing support
to women entrepreneurs by organizing Canutsav /Canbazar. CEDW cells have
also assisted in formation of SHGs and credit linkages. Two exclusive
Mahila Banking Branches at Bangalore and Chennai are also operating
specifically to cater to women clientele. 19 micro finance branches also
cater to the financial needs of women SHGs.

* As at March 2011, the Bank has extended credit to women to the tune of
Rs. 27022 crore, accounting for 16.84% of ANBC against the RBI norm of 5%.
The Bank has covered nearly 12.78 lakhs women beneficiaries.

* During the year, fresh disbursement of Rs. 9298 crore was made to women
beneficiaries.

* The Bank has financed Rs. 18549 crore to women beneficiaries under
priority sector.

* The Bank has provided certain special benefits to women entrepreneurs in
MSME sector for loans up to Rs.5 lakh to encourage more and more women to
undertake entrepreneurial activities.

CORPORATE SOCIAL RESPONSIBILITY:

Setting Examples in CSR Activities:

Following the century old tradition and founding principles, the Bank is
engaged in varied Corporate Social Responsibility (CSR) activities. CSR
initiatives of the Bank are multifarious, covering activities like training
unemployed rural youth, providing primary health care, drinking water,
community development, empowerment of women and other initiatives.

Rural Development:

The Bank, through its Canara Bank Centenary Rural Development Trust
(CBCRDT), has established exclusive training institutes to promote
entrepreneurship development among rural youth and encourage them taking up
self-employment activities. During the year, 3 new training institutes were
opened at Kanshiram Nagar and Hathras in Uttar Pradesh and Tiruppur in
Tamil Nadu taking the number of such training institutes to 29. For the
year 2010-11, CBCRD training institutes have trained 26753 candidates,
taking the tally to 125049 unemployed youth since inception. The
candidates trained comprised 68% women and 31% SC/ST, with an impressive
settlement rate of 67%.

The Bank has co-sponsored 24 Rural Development and Self Employment Training
Institutes (RUDSETIs) engaged in training of rural youth for taking up
self-employment programmes. During 2010-11, the RUDSET institutes have
trained 21459 candidates. The 24 RUDSETIs have, so far trained 2,59,036
unemployed youth, with a settlement rate of 71%.

Canara Bank's Rural Clinic Service Scheme provides basic health care
services in remote areas lacking basic medical infrastructure facilities.
Under the Scheme, the Bank encourages doctors to set up clinics in
identified rural areas. As at March 2011, the total number of such clinics
rose to 544. The Bank under 'Jalayoga', a scheme to provide safe drinking
water, implemented 35 projects in its lead districts.

AN EXAMPLE FOR NURTURING AND FINE-TUNING THE SKILLS OF RURAL ARTISANS IN
INDIA:

A lot of talented Rural Artisans have found their ways to fine-tune and
master their skills with the aid of training imparted by the Bank's
sponsored/cosponsored Rural Training Institutes. One such success story is
that of Shri. Sadashiv Shenoy, an artist par excellence who has seen to it
that the long tradition of his family , who are renowned artists, is well
nurtured. Though a born artist, he did not have a single specific area but
concentrated on wide ambit of art in multifarious fields. He spent almost
two years at the C E Kamath Institute for Artisans at Karkala as a trainee
to further excel his skills and attain mastery over arts.

Completing an eventful training of two years at the C E Kamath Institute
for Artisans at Karkala , he went back to his own family work shed and
started executing the master pieces. Wood Carving, Sculpture were his area
of strength and he employed 4 Master Craftsmen and 25 Artisans at his work
shed. The products created by him and his team has wide appreciation and
demand in India and abroad. His pieces are decorated in many temples
across the Country and the Ganapathy statue is very popular in Mangalore
and USA.

Being an artist with excellent creativity and fineness, there is no dearth
of money and recognition. This should be enough motivation to sustain the
famed art of the nation, he says. Just focus on the job, everything will
follow you is his conviction and message.

Son of late Shri. Surendra Shenoy, an artist of eminence and recipient of
numerous awards, Shri Sadashiv Shenoy hailing from Bantwal Taluk has
dedicated his life towards art and improving the skill.

The Bank donated a hi-tech, custom built, solar powered 'Mobile Sales Van'
to assist women entrepreneurs, SHGs and artisans to market their products.

The Bank's Social Action Cell organized Blood Donation camps, Health camps,
assisting people affected by natural calamities, assisting challenged
section of the society, including encouraging students by conducting
various programmes and activities.

Visits by Parliamentary Committees:

During 2010-11, Parliamentary Committees on Industry, Parliamentary
Committee on Personnel, Public Grievances, Law & Justice, Parliamentary
Committee on Government Assurance, Parliamentary Committee on Subordinate
Legislation and Committee of Parliament on Official Language visited the
Bank.

ORGANISATION AND SUPPORT SERVICES:

Branch Network:

Expanding Pan India Presence:

During the year, the Bank undertook a major branch expansion drive across
the country. The Bank, on its Founder's Day on 19th November 2010, opened
100 new branches and 100 new ATMs across the country, inaugurated by the
Hon'ble Union Finance Minister Shri Pranab Mukherjee. The Bank added 210
domestic branches in FY11, taking the total tally under the branch network
to 3257 branches, including 4 overseas branches one each at London,
Leicester, Hong Kong and Shanghai.

Composition of domestic branch network:

No. of Branches
Category 31.03.2010 31.03.2011

Metropolitan 727 758
Urban 744 762
Semi-urban 793 922
Rural 779 811
Total Branches 3043 3253

The Bank has 139 specialized branches catering to the specific clientele
segment.

Categories of Specialized Branches 31.03.2011

1. SMEs 49
2. Overseas 16
3. Agri-Finance 10
4. Micro Finance Branches 19
5. Savings 6
6. NRIs 7
7. Asset Recovery Management 7
8. Prime Corporate 10
9. Industrial Finance 4
10. Stock Exchange 3
11. Capital Market 3
12. Mahila Banking 2
13. Consumer Finance 1
14. Housing Finance 1
15. Branch for Physically Challenged 1
TOTAL 139

Info Tech Progress:

The Bank took several initiatives in the InfoTech front during the year.
The Bank covered all its branches/offices under Core Banking Solution
(CBS). With 100% CBS, the Bank now offers technology banking services,
such as, Internet Banking, Funds Transfer through NEFT and RTGS, SMS
Alerts, IVRS based enquiry across all its branches. The Bank also offers
online trading facility to its clients through its own subsidiary M/s
Canara Bank Securities Ltd.

As at March 2011, the Bank had 2216 ATMs spread across 846 centres. These
ATMs have also been enabled to offer value added services like Travel
ticket booking, Mobile top up and Utility Bill payments.

In view of the increased attacks of phishing and pharming, the Bank has put
in place a 24X7 centralized monitoring system of anti phishing and anti
malware. To make the Internet Banking facility more secure a slew of
measures like implementation of OTP (One Time Password) module, two live
validation of account number for NEFT/RTGS transaction through Net Banking
and mutual authentication of Internet Server customer PC (CAN SECURE) were
introduced. With increased confidence, the number of customers enrolled
for Internet Banking has moved up to 3.86 lakhs.

The Bank upgraded its Data Centre infrastructure to comply with ISO 27001
standards and did the upward migration of database to Oracle 11G version.
The Bank has a well designed and secured corporate network covering all the
branches and offices. Local Processing Centres (LPCs) have been extended to
31 Centres. The Bank has also established one Central Pension Processing
Cell and 3 NRI Hubs during the year.

A customer terminal has been provided in the branches for easy and ready
reference to own accounts of customers. Bank has also implemented
Electronic Data Interchange Module for payment of customs duty and
fulfilling the related formalities in electronic mode.

To connect with the youth of the country and obtain first hand unrestricted
feedback, the Bank has a presence at Twitter
(http://twitter.com/canarabanktweet).

Manpower Profile:

As at March 31, 2011, the Bank had 43397 employees on its rolls.

March March
2010 2011

Total No. of Employees 43380 43397
Officers 17338 17649
Clerks 16285 16178
Sub-Staff* 9757 9570

* Includes part-time employees (PTEs).

The Bank's employees comprised 40.7% officers, 37.3% Clerks and 22.0% Sub-
Staff. Women employees comprising 10281 constituted over 23.5% of the
Bank's total staff. The Bank recruited 1089 women employees and promoted
303 women employees under various cadres during the year.

During the year, the Bank recruited 2335 persons in various cadres, out of
which 412 belonged to Scheduled Castes (SCs) and 179 to Scheduled Tribes
(STs) categories. The total number of ex-servicemen staff as at the end of
March 2011 stood at 1652, out of which 169 were recruited in various cadres
during the year. There were 870 Physically Challenged Employees on the
rolls of the Bank.

Reservation Policy in respect of SCs and STs:

As at March 2011, the number of Scheduled Castes and Scheduled Tribes
together constituted 26% of total staff strength of the Bank. The
composition of SC/ST employees in the Bank as at March 2011 was as under:

Cadre Scheduled Scheduled
Castes Tribes

Officers 3245 1172
Clerks 2814 894
Sub-staff + PTEs 2721 448
Total 8780 2514

The Bank has been strictly adhering to the Reservation Policy in respect of
Scheduled Castes and Scheduled Tribes as per the Govt. of India guidelines.

* Reservation Policy is implemented through the mechanism of Post Based
Rosters. In terms of the directives of the Ministry of Finance, Government
of India, Bank has since switched over to Post Based Rosters for all
cadres.

* The Bank has been extending Reservation/ Relaxations/Concessions in
Direct Recruitment as well as in promotions to candidates belonging to
Scheduled Castes and Scheduled Tribes as per the Govt. guidelines.

* Pre-recruitment and Pre-promotion training is given to candidates
belonging to Scheduled Castes and Scheduled Tribes. In the Advertisement
inviting for the application from the eligible candidates for recruitment
to Clerical and Officer cadres, a specific reference is made with regard to
imparting of pre-recruitment training to candidates belonging to SC / ST /
PWD / Minority Communities / Ex-service men. Candidates who opt for pre-
recruitment training are given training to prepare themselves for written
test as well as interview.

* Study materials, note book, stationery are provided free of cost to all
the participants. Wherever possible, respective State Governments are also
providing the lodging facilities in government / backward class hostels.

* The Bank has setup SC/ST Cell at the Head Office and also at Circle
Offices to ensure maintenance of Rosters and implementation of other
aspects of Reservation Policy.

* Chief Liaison Officer has been nominated at Head Office and Liaison
Officers have been nominated at Circle Offices for ensuring implementation
of Reservation Policy.

* Further, representations received from Scheduled Caste / Scheduled Tribe
employees, either directly or through the SC/ST Associations, are being
looked into by the Liaison Officer/Chief Liaison Officer. Wherever
required, necessary enquiries are conducted and appropriate action is
taken. A separate register is maintained for recording various
representations received from Scheduled Caste/Scheduled Tribe employees and
the action taken is also recorded in the register.

* In addition to the above, the representatives of majority Scheduled Caste
/ Scheduled Tribe Employees' Association are invited for Quarterly Meeting
with the Chief Executive of the Bank to discuss on the implementation of
guidelines on reservation policy. Quarterly Meetings are also held at
Circle Offices, where Rosters are maintained and grievances, if any, are
redressed by the Liaison Officer.

* The Board of Directors of the Bank also reviewed the progress made in the
implementation of Reservation Policy on a half yearly and yearly basis.

Training / Human Resource Development (HRD):

The HR policies of the Bank have been reinvented and refocused time and
again to suit to the changing banking scenario. HR interventions like
SPANDAN for bringing attitudinal change among front line staff, PRATIBHA
for grooming in-house talents in varied specialized areas and executive
grooming through reputed institutes and other significant HR tools like
Quality Circles, Study Circles, Staff Meetings and Brain Storming Sessions
have been implemented for effective team building and fostering collective
excellence.

The Bank's quest to enhance the competencies of the workforce will continue
through focused and need based trainings at various institutes of repute
like IIMs, ISB, XLRI and NIBM. Customised programmes are also being
organised to develop expertise in certain niche areas like Risk Management,
Treasury Operations and IT.

Specialised trainings to the Senior Management Level / Top Management Level
executives are conducted based on the requirement. The Bank has been able
to add substantially to the repertoire of knowledge of its officials
through this training intervention and motivating them to perform with
renewed vigour and enthusiasm.

The Bank has trained 26875 employees during the year, covering a wide range
of functional areas Out of the trained staff, 6937 personnel belonged to
the Scheduled Caste category and 2022 under the Scheduled Tribe category.

Establishing a proper Talent Management and Reward System will be the
Bank's focus in the coming years. There will be concerted efforts to
identify potential leaders and groom them to take up higher
responsibilities.

Changes in the Organizational Setup:

The Bank brought out further changes in its organizational/ operational
set-up to facilitate smooth functioning and driving results.

After completely moving into a 3 tier structure comprising of Head Office,
Circle Offices and Branches, during FY11, the Bank has carved out 3
functional Wings, viz., MSME Wing, Credit Administration Wing and
Transaction Banking Wing to expand lending to MSMEs, to have focused credit
administration and expand alternative delivery channels respectively.

Customer Orientation:

The Bank has taken initiatives to remain customer focused through providing
fast service, bringing in diversified products/services, responding to
customers' queries and redressal of customers' complaints. The Bank made
arrangements for providing copies of the 'Code of Bank's Commitment to
Customers' to customers at branches. An informative booklet containing all
the relevant information on 'Frequently Asked Questions by Customers' was
made available at all branches towards better Customer Service. The Policy
guidelines relating to Collection of Cheques/Instruments, Grievance
Redressal Mechanism and Compensation Policy were placed on the Bank's
website for use of the customers. In order to assess the quality of
customer service rendered by our branches and to get feedback a 'Contact
Questionnaire' is made available in the Bank's website. A survey to measure
customer satisfaction was conducted by M/s Campaign India Research and
Marketing Services Pvt. Ltd. As a part of Customer Relationship Management
initiatives, a Call Centre is functioning. The call centre caters to the
customers in 6 languages viz., English, Hindi, Kannada, Tamil, Telugu and
Malayalam. The number of calls received by the Call Centre during the year
was more than 6.50 lakhs. The Bank redressed all the customer complaints
within the stipulated period, with 95% customer complaint redressed.

Systems and Procedures:

Risk Based Internal Audit (RBIA) was conducted in 2057 branches/ units
programmed for on-site RBIA during the year. Information Security Audit
was conducted along with RBIA. Concurrent / Continuous Audit was conducted
in 752 identified branches/ units covering 60% of deposits and 78% of
advances of the Bank as per RBI guidelines. Income/revenue audit was
conducted on quarterly basis in 481 identified branches as per Jilani
Committee Recommendations. Apart from the above, 341 branches were
subjected to Special Income Audit. On-site RBIA of Circles/Wings was
introduced with effect from 01.04.2010 as per the directions of the RBI.

Know Your Customers (KYC):

The Bank took several measures for the effective implementation of Know
Your Customer (KYC) and Anti Money Laundering (AML) guidelines and for
ensuring KYC compliance by all branches.

To ensure better compliance of guidelines on KYC / AML following steps have
been initiated.

* All Zones/Circles have nominated an Executive as Nodal Compliance Officer
for monitoring and ensuring compliance of guidelines on Know Your Customer
(KYC)/Anti Money Laundering (AML)/Combating of Financing of Terrorism
(CFT).

* Branches were advised to strictly adhere to the guidelines on KYC/AML/CFT
to prevent abuse of banking system by money launderers using money mules.

* NREGA job card/ Aadhar document has to be accepted as identification
document for opening of accounts. Accounts opened exclusively with these
documents will have restrictions applicable to 'small accounts'.

* Printing and dispatch of Thanks giving letters to new account holders and
introducers are done centrally at Zonal/Circle Office. This system has been
implemented at all Zones/Circles.

Vigilance Setup:

The Vigilance Wing of the Bank is headed by the Chief Vigilance Officer
(CVO) in the rank of General Manager, assisted by 34 Vigilance Officers
from all Zonal/Circles, RRBs and the Subsidiaries. The functions of the
vigilance machinery of the Bank is broadly divided into 3 types viz.,
Preventive, Predictive and Punitive. Vigilance Wing of the Bank constantly
reviews existing systems and procedures in various areas and wherever
required recommends changes to strengthen prevention of frauds and
eradication of corruption. To educate the employees of the Bank, the Wing
brings out various Fraud awareness Circulars and other periodical
publications. During the year, the Wing has brought out a Compendium on
Vigilance and Disciplinary matters - a comprehensive reference book on all
Vigilance aspects.

The Wing has organized Training Programmes and Conferences for the benefit
of all CVOs of all Banks. In addition, the Wing has undertaken the task of
imparting training to the Police Department Personnel on issues relating to
frauds in Banks, particularly on Cyber Crime matters having severe impact
on the technological advancements in the Industry.

As per the directions of Central Vigilance Commission, Vigilance Awareness
period was observed from 25th October 2010 to 1st November 2010. This year
the main focus was on the Generation of Awareness and Publicity against
Corruption'. While all the Circles of the Bank observed the Awareness
Period with alacrity, the culmination of the event was marked by the Guest
Lecture rendered by the eminent Lokayukta of Karnataka State, Hon'ble
Justice N Santosh Hegde.

The Wing has also introduced a New Link on the intranet, enabling even the
remote branches to have an instant updation of all Vigilance
Communications, especially on fraud prevention in CBS environment.

The vibrancy and dynamism of the Vigilance Wing has enabled the Bank to
take timely steps to improve the turnover time to less than six months, for
closure of vigilance cases, from the date of issue of charge sheet. All
complaints received are disposed off in less than two months. The Whistle
Blowing' mechanism has been encouraged, as a result of which, many
fraudsters have been brought to book.

The Vigilance Management function has gone hand-in-hand with the business
development function of the Bank.

Security Arrangements:

The security environment in the Bank remained, by and large, normal during
2010-11. There were 68 incidents of crime during the year involving a loss
of Rs. 30 lakh. There was one major fire incident during the year and loss
approximated to Rs. 15.30 lakh. The security arrangements have been
reinforced by installation of CCTV in all Currency Chests and identified
branches. Modern fire safety devices have been introduced at select
offices. Fire safety drills have been introduced and conducted at regular
intervals in order to minimize damage to property and prevent injury and
loss of life.

Ambience Improvement:

All the new branches opened in prime localities and branches shifted to new
premises during the year were provided with suitable interior to meet the
present day requirements of the customers. New branches were opened in
Ground Floor as far as possible. Besides, the Bank is providing better
interiors to augment the requirements of computer environment and also
proposes to enhance the ambience at all branches. Ambience improvement has
been taken as a core agenda for FY12.

Right to Information:

Under the Right to Information Act, 2005, the Bank set up an exclusive
Right to Information Act outfit to provide information and bring
transparency. As per the requirement of the RTI Act, Canara Bank nominated
Public Information Officers and Appellate Authorities in all its 34
Zonal/Circle Offices to provide information to the applicants. During the
Financial Year 2010-11, Bank received 3541 RTI applications, 531 First
Appeals and 155 Second Appeals as per the provisions of RTI Act, 2005.

Implementation of Official Language:

The Bank made noteworthy progress under the implementation of official
language and won many prizes at various levels during the year under
review. The Bank was awarded second prize in Region 'C' under Reserve Bank
of India Shield Scheme. Town Official Language Implementation Committee
(TOLIC), Trivandrum and Coimbatore, where the Bank is the Convenor, were
awarded first prize and third prize respectively by the Regional
Implementation Office, Department of Official Language, Government of
India. Apart from this, many Zones/Circles and branches have received
awards from Official Language Department, Government of India and the
respective Town Official Language Implementation Committees.

As at March 2011, around 95% of employees have obtained working knowledge
in Hindi and the Bank has notified 2192 Branches under Rule 10(4) of OL
Rules 1976. All the employees of the Bank possessing working knowledge of
Hindi have been trained in Hindi workshops. The Bank has conducted 120
refresher training programmes for such employees during the year.

In the sphere of using Information Technology in Official Language, the
Bank has furthered the use of 'Unicode' and also made provision in ATM
screens of the Bank for carrying transactions in 10 Indian languages.
Telebanking facility has also been provided in Hindi and English and in
other 6 major regional languages. The Bank's corporate website is fully
bilingual. Steps have been initiated for providing Hindi option in Core
Banking System. In three pilot branches one each in 'A', 'B' & 'C' region,
Hindi option was successfully installed. The Bank's bilingual address
booklet 'CANPATHA' is made available to all branches and offices in
electronic form.

To encourage effective implementation of Official language in Bank, 148
prizes were given to branches and offices under the award scheme formulated
by the Bank viz., Canara Bank Rajbhasha Akhay Yojana and 103 employees were
awarded under Rajbhasha Puraskar Yojana.

A table top 'Karyapalak Noting Sahayika' was brought out to assist
Executives to carry out Notings in Hindi and the same was released by our
C&MD on the occasion of Hindi Day Function 2010. Annual Hindi Journal
'Canarajyoti' was brought out to encouage original writing in Hindi.

The Parliamentary Committee on Official Language had inspected a few
branches and the Bank's Zonal/Circle Offices at Delhi and Coimbatore. The
Committee lauded the efforts put by the Bank in the field of Official
Language implementation.

Promotion of Sports:

Canara Bank has always been encouraging and supporting sports and
contributed generously to sporting activities all over the country,
sponsoring tournaments and providing scholarships to talented
sportspersons. The Bank has also shown a keen and abiding interest in
recruiting sportspersons and today has on its rolls 41 sports persons in
six disciplines viz., Cricket, Hockey, Women's Athletics, Badminton, Ball
Badminton and Table Tennis.

International Cricketers Shri B K Venkatesh Prasad, Shri Sunil Joshi, Ms
Shantha Rangaswamy, Ms Kalpana and Ms Sudha Shah (Coach of the Indian
Women's Cricket Team) are presently in the Bank's fold. Ace Shuttler and
former National Champion and former coach of the Indian Badminton Team,
Shri U Vimal Kumar, International Athletes Smt. M K Asha, Smt. Suma
Gopalakrishna and Smt. H M Jyothi and Hockey Internationals Shri Bharat
Chhetri and Shri P Shanmugam are also in the Bank's rolls.

Canara Bank recorded several distinctions in the sporting arena and the
Bank's Cricket, Ball Badminton and Table Tennis Teams rank numero uno in
the State of Karnataka.

FINANCIAL SUPERMARKET:

Subsidiaries, Sponsored Entities and Joint Ventures:

Canara Bank, with an objective of offering 'One Stop Banking Mart' for the
customers, forayed into diversified business activities by opening
subsidiaries during late 1980s. Today, the Bank functions as a 'Financial
Supermarket' with as many as eight subsidiaries/ sponsored entities/ joint
ventures in diversified areas. The Bank has taken significant steps
towards strengthening fundamentals of these entities so as to emerge as a
strong 'Financial Supermarket' in India. All the subsidiaries/ sponsored
entities/ joint ventures of the Bank recorded satisfactory performance
during the reporting year.

Commercial Bank of India LLC (CBIL):

CBIL, a joint venture of Canara Bank and State Bank of India, has been
operational since April 2004 in Moscow, Russia. The Company earned a profit
after tax of USD 2.85 million as at 31st March 2011.

Canbank Venture Capital Fund Limited (CVCFL):

CVCFL, the Trustee and Manager of Canbank Venture Capital Fund (CVCF), is a
wholly owned subsidiary of the Bank. For the year, the Company posted a
profit of Rs. 4.08 crore as compared to Rs. 0.71 crore for 2009-10. It
launched its 5th Fund with the corpus of Rs. 500 crore on 15.06.2010. The
Company has proposed a 100% dividend for the year 2010-11.

Can Fin Homes Limited (CFHL):

CFHL, a sponsored entity of Canara Bank, is one of the premier housing
finance entities in the country. As at 31.03.2011, the Bank's stake in CFHL
was 42.35%. The Company disbursed loans amounting to Rs. 473 crore during
the year, taking cumulative disbursement to Rs. 2199 crore. CFHL posted a
net profit of Rs. 42.02 crore for FY11. The Company proposed a 25% dividend
for the year 2010-11.

Canbank Factors Limited (CFL):

Canbank Factors Limited, which is a factoring subsidiary of the Bank, is a
member of Factors Chain International. Factors Chain International is an
umbrella organization for factoring companies across the world. The
Company achieved a total business turnover of Rs. 3998 crore as at
31.03.2011. The Company earned Profit after Tax of Rs.18.25 crore and paid
a dividend of 16% for FY11. The Company enjoys the highest rating of 'P1+'
by CRISIL for its short term debt programme.

Canbank Computer Services Limited (CCSL):

Canbank Computer Services Limited is the only Software Company promoted by
a public sector bank in the country. CCSL is primarily engaged in IT and
Software development services, training/consultancy and registrar and share
transfer agency. The Company is a member of the NASSCOM and Registered as
a software solution provider for World Bank projects. The Company has
posted profit after tax of Rs. 1.26 crore as on 31.03.2011. The Company
has been successfully managing the Call Centre activity and ATM outsourced
services for 673 ATMs of Canara Bank.

Canara Bank Securities Limited (CBSL):

Canara Bank Securities Limited (formerly Gilt Securities Trading
Corporation Limited) has diversified into Capital Market related
activities, mainly stock broking since 2007.

The Company offers stock broking services to both institutional and retail
clients. Online Trading Counter for retail customers is its flagship
product and has diversified into Currency Derivatives. The Company has
posted a Profit after Tax of Rs. 6.39 crore as at March 2011 and paid a
dividend of 10% for 2010-11.

Canbank Financial Services Limited (Canfina):

Canbank Financial Services Ltd confined its activities to legal matters
arising out of past transactions in securities, besides concentrating on
collection of lease rentals and recovery of dues under decreed Accounts.
During the year, Canfina posted a profit after tax of Rs.7.57 crore. It has
repaid Rs. 326.45 crore out of the funding support of Rs. 376.45 crore
given by the Bank and proposes to clear the outstanding liability of Rs.
50 crore during FY12.

Canara Robeco Asset Management Company Limited (CRAMC):

To manage assets of Canbank Mutual Fund M/s Canbank Investment Management
Services Limited (CIMS) was established in 1993. In the year 2007, Canara
Bank divested 49% stake of Asset Management Company in favour of M/s Robeco
Groep N V forming a joint venture, for managing the assets of Canbank
Mutual Fund. The Company has since been renamed as Canara Robeco Asset
Management Company Limited. The JV aims to capture a worthwhile market
share of Mutual Fund industry by bringing best international practices and
expertise supported by the vast network of the Bank. With a majority share
of 51% held by the Bank, Assets Under Management (AUM) of the Company was
Rs. 5593 crore and Corpus fund was Rs. 4115 crore, with investors base of
4.44 lakhs as at March 2011.

The Company is currently managing 27 Mutual Fund Schemes. It achieved break
even during 2009-10 and has posted a net profit of Rs. 6.11 crore for the
year 2010-11. Income Fund Scheme has been awarded Best Fund Award under
Income Fund category by ICRA, CNBC TV 18, CRISIL Mutual Fund Awards and
Business World MF Awards 2010. Equity Diversified and Equity Tax Saver
Schemes received Best Fund Award under 'Equity: Large & Mid Cap' and
'Equity: Tax Planning' respectively by NDTV Profit MF Awards 2010. In FY11,
the Company was ranked 16th out of 42 Fund Houses compared to 26th out of
32 Fund Houses in FY10.

Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited:

An Insurance Joint Venture floated by the Bank in association with
internationally reputed HSBC Insurance (Asia Pacific) Holding Limited and
Oriental Bank of Commerce. The Company was incorporated during September
2007. With a majority shareholding of 51% in the Company, the Bank has
ventured into niche segment, with international expertise and domestic
outreach.

The Company commenced its business operations from 16.06.2008. The
Company's investments during the year stood at Rs. 2740 crore. It has
registered an Annualized Premium Equivalent (APE) of Rs. 802 crore during
the year and crossed Rs. 1500 crore in terms of total premium since
inception. The Company became the fastest to achieve this milestone in a
record time of 33 months. Out of the 22 private players in the insurance
field in India, the Company ranked 10th.

Regional Rural Banks (RRBs):

Canara Bank has sponsored 3 RRBs in three States with a network of 806
branches, viz., Pragathi Gramin Bank in the State of Karnataka, Shreyas
Gramin Bank in the State of Uttar Pradesh and South Malabar Gramin Bank in
the State of Kerala. All RRBs sponsored by Canara Bank are profit making as
at March 2011 with a combined operating profit level at Rs. 148 crore and
profit after tax of Rs.72.49 crore. Aggregate business level of these RRBs
stood at Rs. 19860 crore, comprising Rs. 10698 crore under deposits and Rs.
9162 crore under advances as at March 2011. Gross NPA ratio of these RRBs
was 2.93% and Net NPA ratio was 1.26% as at March 2011. Priority sector
advances constituted 87%. Agriculture credit outstanding stood at Rs. 6095
crore as at March 2011.

NEW TECHNOLOGY PRODUCTS:

The Bank has further enhanced its basket of new tech-products for customer
convenience like Canara Gift Cards, Canara Campus Card, Canara Platinum
Card, Bills Desk for utility bills payment, Cash withdrawal at Point of
Sale (PoS) machines at Merchant Establishments, VISA money transfer and the
ASBA (Application Supported by Blocked Amount) facility during FY11. The
Bank has launched another new product, viz., Mobile Banking, for the
convenience of customers on 6th une 2011, inaugurated by Smt. Shyamala
Gopinath, Deputy Governor, RBI at Bangalore.

CONVERGENCE TO IFRS:

The Bank has appointed External Consultant for smooth convergence to
International Financial Reporting Standards (IFRS). The consultant has
submitted the impact study for initiating further steps.

Bank has formed a high level Committee viz., Project Steering Committee
headed by Executive Director as Chairman. The Committee is responsible for
smooth transition to IFRS framework, framing accounting policies and
solution for convergence, ensuring adequate and sound internal control over
parallel run reporting, recommending auditors to audit opening Balance
sheet and fixing the auditors' role and responsibilities and responsible
for timely communication of impact of IFRS convergence to External World.

AWARDS/ACCOLADES:

In recognition of the varied initiatives, the Bank was conferred with
several awards and accolades during the year. Some prominent awards
received are as under:

* The Bank has been conferred with the Second Best Bank Award under
National Awards for Excellence in lending to Micro Enterprises for the year
2009-10, by the Ministry of MSME and Outstanding Performer at National
level for implementation of Interest Subsidy Eligibility Scheme (ISEC) of
KVIC in the country for 2009-10.

* The Bank was conferred 4 awards by the Public Relations Council of India
(PRCI), in the following categories:

- Silver Award for Corporate Film ( TV Commercial ) - English
- Bronze Award for House Journal/Magazine-Languages
- Bronze Award for Table Calendar
- Bronze Award for Corporate Advertisement - Single- English

VARIOUS POLICIES OF THE BANK:

There is a system of well-defined policies and procedures of the Bank.
During the year, concerted efforts were made to streamline the policies and
procedures of the Bank in the light of regulatory requirements of the RBI,
the directions of the Government of India and the emergent requirements of
the Bank in the present day context. Accordingly, there has been a sharper
focus on policiesrelating to, among others, Credit Risk Management, Market
Risk Management, Operational Risk Management, Asset Liability Management,
Liquidity Risk Management, Country Risk, Counterparty Bank Risk, Corporate
Governance, Disclosures, Collateral Management, Stress Testing, Compliance
Functions, Disaster Recovery and Business Continuity Planning, Business
Lines, Outsourcing and Internal Capital Adequacy Assessment Process
(ICAAP), Know Your Customers (KYC), Anti-Money Laundering (AML), Recovery
and Investments.

CHANGES IN THE BOARD OF DIRECTORS:

Year 2010-11 saw changes in the composition of the Board of Directors of
the Bank.

* Shri Khalid Luqman Bilgrami, Chartered Accountant, nominated as Part-time
Non-Official Director on 22.06.2010.

* Shri Sunil Gupta resigned as Part-time Non-official Director on
19.07.2010.

* Shri Sunil Gupta and Shri P. V. Maiya were elected as Shareholder
Directors with effect from 27.07.2010.

* Shri. G. Padmanabhan nominated as Reserve Bank of India Nominee in place
of Smt. Vani J. Sharma. The term of Smt. Vani J. Sharma as Director on the
Board of the Bank ended on 29.07.2010.

* Shri. A.C. Mahajan, Chairman and Managing Director, attained
superannuation on 31.07.2010.

* Shri. S. Raman appointed as Chairman and Managing Director on 01.09.2010.

* Dr. Thomas Mathew nominated as Government of India Nominee Director in
place of Dr K. P. Krishnan. The term of Dr K. P. Krishnan as Director on
the Board of the Bank ended on 28.10.2010.

* The term of Dr. Yogendra Pati Tripathi as Director ended on 22.11.2010.

* Shri. G.V. Manimaran nominated as Other than Workmen Representative
Director on 14.12.2010.

Brief Profile of the newly appointed Directors of the Board of the Bank
during 2010-11:

* S Raman is the Chairman and Managing Director of the Bank. He holds a
Master's Degree in Economics from Nagpur University. He also holds a
Diploma in Business Management and is an Associate of the Chartered
Institute of Bankers, London. Further, he is also a Certified Associate of
the Indian Institute of Bankers, Mumbai. He has over 34 years of experience
in Bank of India and has had exposure to different segments, including
Corporate Banking, International Business and Human Resource Development.
He had two overseas assignments at Jersey (UK) from 1983-1987 and was the
Chief Executive of Bank of India's US operations from June 2005 to October
2008. He joined the Union Bank of India as Executive Director on October
15, 2008. He is the Chairman and Managing Director of the Bank since
September 1, 2010.

* Dr. Thomas Mathew is the GOI Nominee Director on the Board of the Bank
since October 29, 2010. He is an Officer of the 1983 batch of the Indian
Administrative Service. He holds a Master's Degree in International
Relations from Jawaharlal Nehru University, New Delhi and an M. Phil in
Strategic Studies from the School of International Studies and a Doctorate
on US Foreign Policy from Jawaharlal Nehru University. He was the Deputy
Director General of the Institute for Defence Service and Analysis. He is

currently the Joint Secretary, Ministry of Finance (Capital Markets).

* G. Padmanabhan, M.A, CAIIB, MBA is the RBI Nominee Director of the Bank
since 30.07.2010. He is the Chief General Manager of RBI, currently heading
the Department of Payment and Settlement System, of the Bank in Mumbai.
Areas of work experience include Bank Regulation & Supervision, Regulation
& Supervision of the Foreign Exchange Market in India as also Regulation
and Supervison of Markets.

* G.V. Manimaran, B.Sc., (Agri), CAIIB Part-I is the officer employee
Director of the Bank since December 14, 2010. He joined the Bank on
February 19, 1986 as Agriculture Extension Officer and is currently working
in IIT Branch, Chennai as Manager.

* Khalid Luqman Bilgrami is a Part-time Non-official Director of the Bank
under Chartered Accountant category. He has extensive experience in
Management and Consultancy in Industrial Sector and has exposure to diverse
socio-economic development projects spanning various Ministries/Departments
in Government of India. He has been a Director of the Bank since June 22,
2010.

* P.V. Maiya is the Shareholder Director of the Bank since 27.07.2010. He
holds a Master's degree in Economics and is a Certified Associate of the
Indian Institute of Bankers. He has more than 32 years of experience in
State Bank of India, including a four years of experience in their foreign
offices. He was the Executive Director of Shipping Credit and Investment
Corporation of India, a Director on the Board of Indian Bank. He is the
founder Chairman of ICICI Bank and was the first Managing Director of CDSL.

* Sunil Gupta is a Share holder Director of the Bank. He holds a Degree in
Commerce and is a Chartered Accountant. He has experience in Banking,
Finance and Income tax laws. He has been in professional practice as a
Chartered Accountant since 1986. Further, he was a Non-official Part-time
Director on the Board of the Bank since November 23, 2007 to July 19, 2010.
He has been a Share holder Director of the Bank since July 27, 2010.

DIRECTORS' RESPONSIBILITY STATEMENT:

The Directors, in preparation of the annual accounts for the year ended
March 31, 2011, confirm the following:

* That in the preparation of the annual accounts, the applicable accounting
standards had been followed along with proper explanation relating to
material departures.

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

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

* That they had prepared the annual accounts on a going concern basis.

ACKNOWLEDGEMENT:

2010-11 was an eventful year for the Bank as it sustained the business
growth momentum, surpassed business milestones and maintained growth under
profits and profitability. The Bank made several initiatives to maximize
rewards for all its stakeholders, viz., shareholders, customers, investors,
Government, RBI, employees and the public at large.

The Board sincerely appreciates the significant contribution made by the
Directors on the Bank's Board and the Directors who completed their tenure
during the financial year under review, to customers for their patronage,
to the shareholders for their support, to the Government and the RBI for
their valuable guidance and support, to the Bank's correspondents inland
and abroad for their co-operation and goodwill and to all the staff members
for their full support in the journey towards high growth and collective
excellence.

S. RAMAN
CHAIRMAN AND MANAGING DIRECTOR