DIRECTORS’ REPORT

Your Directors have pleasure in presenting the One Hundred and Second Annual Report of the Bank with the audited Balance Sheet, Profit & Loss Account and the Report on Business and Operations for the year ended March 31, 2010 (FY10).

PERFORMANCE HIGHLIGHTS

• Total Business (Deposit+Advances) increased to Rs 4,16,080 crore reflecting a growth of 24.0%.
• Gross Profit and Net Profit were Rs 4,935 crore and Rs 3,058 crore respectively. Net Profit registered a growth of 37.3% over previous year.
• Credit-Deposit Ratio stood at 84.55% as against 81.94% last year.
• Retail Credit posted a growth of 23.5% constituting 18.15% of the Bank’s Gross Domestic Credit in FY10.
• Net Interest Margin (NIM) in global operations as per cent of interest earning assets was at the level of 2.74% and in domestic operations at 3.12%.
• Net NPAs to Net Advances stood at 0.34% this year against 0.31% last year.
• Capital Adequacy Ratio (CAR) as per Basel I stood at 12.84% and as per Basel II at 14.36%.
• Net Worth improved to Rs 13,785.14 crore registering a rise of 20.6%.
• Book Value improved from Rs 313.82 to Rs 378.44 on year.
• Business per Employee moved up from Rs 911 lakh to Rs 1,068 lakh on year.

KEY FINANCIAL RATIOS

SEGMENT-WISE PERFORMANCE

The Segment Results for the year 2009-10 (FY10) reveal that the contribution of Treasury Operations was Rs 1,048 crore, that of Corporate/Wholesale Banking was Rs 1,585 crore, that of Retail Banking was Rs 779 crore, and of Other Banking Operations was Rs 2,732 crore. The Bank earned a Profit after Tax (PAT) of Rs 3,058 crore after deducting Rs 1,906 crore of unallocated expenditure and Rs 1,180 crore towards provision for tax.

DIVIDEND:

The Bank’s Directors have proposed a dividend of Rs 15/- per share (on the face value of Rs 10/-per share) for the year ended March 31st, 2010. The total outgo in the form of dividend, including taxes, will be Rs 639.26 crore.

CAPITAL ADEQUACY RATIO (CAR)

The Bank’s Capital Adequacy Ratio (CAR) is comfortable at 14.36% under Basel II as on 31st March 2010. During the year, the Bank strengthened its capital-base by raising Rs 1,000 crore through unsecured subordinated bonds and Rs 900 crore through innovative perpetual bonds.

The Bank’s Net Worth as at 31st March 2010 was Rs 13,785.14 crore comprising paid-up equity capital of Rs 365.53 crore and reserves (excluding revaluation reserves) of Rs 13,419.61 crore. An amount of Rs 2,419.07 crore was transferred to reserves from the profits earned.

OTHER PRUDENTIAL MEASURES

As a prudent measure, the Bank has made provision towards contribution to gratuity (Rs 131.93 crore), pension funds (Rs 120.21 crore), leave encashment (Rs 134.29 crore) and additional retirement benefits (Rs 16.28 crore) on actuarial basis. Total provisions under these four categories amounted to Rs 402.71 crore during the year 2009-10, against Rs 550.60 crore during 2008-09. Total corpus available with the Bank at the end of March 2010 under these heads is: Rs 948.54 crore (gratuity), Rs 2,835.10 crore (pension funds), Rs 488.31 crore (leave encashment), and Rs 340.56 crore (additional retirement benefits).

MANAGEMENT DISCUSSION AND ANALYSIS:

Economic Scenario in 2009-10

Indian economy strongly rebounded during the year FY10 ahead of most countries in the world, thanks to the timely monetary easing and strong fiscal stimulus provided by the Reserve Bank of India (RBI) and the Central Government, respectively, in the wake of the global crisis. Other factors that facilitated its bounce-back during FY10 were an improving global economy, a return of risk appetite in financial markets and large capital inflows.

Moreover, India was not at the centre of the crisis and its growth is largely dependent on domestic drivers. So, the global crisis could not dent the country’s medium-term growth potential.

The Government’s advance estimates for the year have put India’s real GDP growth at 7.2% for FY10 reflecting a marked improvement over the 6.7% recorded in FY09. The main contributors to this growth have been manufacturing (8.9%), mining & quarrying (8.7%) and the services sector (8.8%). Agriculture output, however, is estimated to have fallen by 0.2% as against a growth of 1.6% in FY09 reflecting the poor South-West monsoon rains. According to the Government reports, production of foodgrains and oilseeds is likely to have declined by 8.0% and 5.0%, respectively, on year on year basis. However, the adverse impact of sub-normal monsoon has been contained to a large extent by a better-than-expected rabi (winter) crop in FY10.

Within the manufacturing sector, the industries like infrastructure, cement, steel, automobiles, machinery & equipment, transport equipment, rubber, plastic & chemical products, etc., have grown strongly during FY10. However, sectors like consumer non-durables, power generation and labour intensive export-oriented industries like textiles, gems & jewellery, etc., continued to remain fragile.

The expansion of services sector was healthier at 8.8% in FY10. However, it slowed down from a year earlier due to a moderate pace of spending by the Government on compensation to employees.

Final consumption expenditure too remained subdued during FY10, as growth in both private and Government final consumption expenditure slowed down. However, investment demand, especially gross fixed capital formation showed a gradual recovery during the year.

The Wholesale Price Index (WPI) inflation, after remaining significantly subdued during the first half of FY10, increased at a faster pace in the second half and reached 9.9% by March, 2010. While a significant portion of inflation could be explained by a shortfall in agricultural production and spikes in international crude oil prices, indications of generalization of inflation became increasingly evident starting from November 2009. Inflation in non-food manufactured products increased from (-) 0.4% in November 2009 to 4.7% in March 2010.

A rebound in the economy and rising inflation pressures prompted the RBI to signal the beginning of an exit from its crisis policy stance since October 2009 when it restored the Statutory Liquidity Ratio (SLR) to 25.0% and tightened provisioning requirements for property loans. Subsequently, it raised the Cash Reserve Ratio (CRR) by 75 bps to 5.75% in late January, 2010. Again, it raised the Repo and Reverse Repo Rates by 25 bps each on March 19th 2010 ahead of the Annual Monetary Policy in April, 2010 to guard against inflationary expectations becoming entrenched. This was the first change in policy rates since April 2009.

A strong revival in global demand brought back India’s export growth to a positive zone in November 2009 after 13 months of year-on-year declines. Imports too moved to positive growth in December 2009 after 12 months of year on year contraction. In cumulative terms, however, exports declined by 11.3% (y-o-y) in Apr-Feb, FY10, while imports declined by 13.5%. The trade deficit during the first eleven months of FY10 stood at US$ 95.42 billion as against US$ 114.72 in the corresponding period of FY09. The robust growth in invisible receipts observed during the past few years was reversed in FY10 due to the lagged impact of recession in advanced economies. Despite lower trade deficit, the fall in invisibles surplus led to marginally higher current account deficit during FY10. The latest available data show that the current account deficit during April-December, 2009 stood at US$ 30.3 billion, higher than US$ 27.5 billion during April-December, 2008.

A noteworthy feature of economic revival during FY10 was the resumption of large capital inflows led by both the FII and FDI inflows. According to the RBI Report, the FII (net) investment in India during FY10 was US$ 29 billion while FDI inflows amounted to US$ 33.1 billion during April-February, FY10. In nominal terms, the rupee appreciated against the US Dollar by 11.5% during FY10 primarily due to an upsurge in capital inflows. However, an increase in inflation differentials between India and its trading partners during the year resulted in much higher appreciation of real exchange rate.

During FY10, India’s foreign exchange reserves (FER) increased by US$ 27.1 billion to reach US$ 279.1 billion as at end-March 2010. Furthermore, the RBI purchased 200 metric tonnes of gold from the IMF on November 3, 2009 as part of the RBI’s FER management operations.

India’s external debt stock at US$ 251.4 billion at end-December 2009 recorded an increase of US$ 26.8 billion over its level at March 2009 primarily on account of an increase in long-term debt.

Indian equity markets displayed vibrancy and increased momentum during FY10 except for some occasional corrections caused by Dubai World default and the Greek sovereign debt concerns during the last two quarters of FY10. On the whole, the benchmark indices Sensex and the Nifty gained 81.0% and 74.0% respectively, on year-on-year basis, primarily on the back of huge FII inflows.

The Central Government’s fiscal deficit for FY10 is expected to remain within the 6.8% of GDP target. Stronger divestment receipts and direct tax revenue could make up for the shortfall, if any, in 3G auction proceeds and indirect tax collections,while higher than budgeted spending on pensions and food & fertilizer subsidies can be accommodated through savings on other accounts.

The Government’s record market borrowings programme proceeded well and in a non-disruptive manner during FY10 with limited impact on bond yields.

The Union Budget for FY11 has set the goal of reducing the fiscal deficit to 5.5% of GDP in FY11 and further to 4.8% in FY12 and to 4.1% in FY13. This will be facilitated by the expected fall in expenditure items and likely revenue buoyancy, going forward.

The Union Budget for FY11 began the exit from fiscal stimulus by partially rolling back some of the duty relaxations introduced during the crisis period. It hiked the excise duty from 8.0% to 10.0%. The other tax proposals included rationalization of income tax slabs, additional excise duty on petrol & diesel, and a restoration of 5.0% customs duty on petroleum products, including crude oil. A landmark reform in the area of government subsidy is the introduction of nutrient-based subsidy for fertilizers. This policy is expected to improve agricultural productivity, contain the subsidy bill over time and offer environmental benefits. Furthermore, the government has decided not to issue any more special off-budget bonds from FY11 to finance subsidies for fuel, food and fertlisers. Another major fiscal development is a revival programme for the disinvestment of state-owned enterprises listed on the stock exchanges. During FY10, the government raised a record Rs 33,500 crore through this route, whereas the FY11 Budget calls for realisation of Rs 40,000 crore through disinvestment.

The outlook for India, going forward, looks strongly positive. Its economy has been showing steady improvement. Industrial recovery is expected to take firmer hold on the back of rising domestic and external demand. Exports and imports have bounced back since October-November, 2009. Flows of funds to the commercial sector from both bank and non-bank sources have picked up. Business outlook surveys by the RBI and other agencies suggest that business optimism has improved. On balance, under the assumption of normal monsoon and sustained good performance of the industrial and services sectors, the RBI has projected real GDP growth for India for FY11 at 8.0% with an upside bias.

Performance of Indian Banking Sector in FY10

Indian banking industry stood firm and resilient amid the global crisis on the back of its improved productivity since the mid-1990s and a robust regulatory and supervisory framework. The Industry’s financial soundness indicators remained strong with the Return on Average Assets (ROAA) at 1.13%, Capital Adequacy Ratio (CAR) at 13.98% and Net NPA ratio at 1.05% as at end-March, 2009.

During the year FY10, the banking industry posted a decent business and financial performance despite several challenges. For instance, the scheduled commercial banks’ (SCB) Aggregate Deposits grew by 17.1% (y-o-y). Within this, the term deposits grew by 16.2%, primarily due to a sharp decline in interest rates offered on term deposits by several banks. As credit growth was quite muted until November, 2009, the banks struggled to protect their net interest margins by reducing the pressure on cost of deposits. A slower growth in term deposits resulted in a slower growth of broad money supply or M3 by 16.8% (y-o-y) during FY10. However, the banks’ demand deposits grew healthily by 22.8% (y-o-y) during FY10 reflecting the industry’s aggressive efforts to mobilize low-cost (CASA) deposits to reduce the pressure on cost of funds.

Amongst the sources of money supply, Net Bank Credit to the Government grew at a strong pace till mid-November, 2009, as the Government financed majority of its market borrowing requirements during this period. However, after November, 2009 the growth in this component eased considerably. On year on year basis, the Net Bank Credit to Government (including the RBI Credit) increased by 30.6% during FY10.

The demand for non-food credit from the commercial sector started improving from November, 2009 and eventually posted a growth of 16.9% (y-o-y) by end-March 2010 as against the Reserve Bank of India’s (RBI’s) indicative target of 16.0%. In the year up to October 2009, deceleration in non-food credit had continued and reached a low of 10.3%. With the industrial recovery getting increasingly broad-based, demand for non-food credit revived since end-November 2009 and pushed upwards the incremental credit-deposit ratio in the second half of FY10. While, the state-owned banks played a major role in credit expansion during FY10, credit extended by private banks also showed some improvement in FY10 over last year. However, as per the RBI report, the loan portfolio of foreign banks contracted further in FY10.

Reflecting the revival in credit demand from the private sector, the SCBs’ investment in SLR securities increased at a lower rate of 18.5% (y-o-y) as on March 26, 2010 as against 20.0% a year ago. The SCBs’ holdings of SLR securities was at 28.8% of their net demand and time liabilities at the end of March, 2010.

Disaggregated data on sectoral deployment of gross bank credit in FY10 put out by the RBI show an improvement in credit growth (y-o-y) to all major sectors like agriculture, industry, services and retail loans from November 2009 onwards.

Within industrial sector, the sectors like infrastructure, basic metals and metal products led the demand. Within services sector, credit growth for transport operators, computer software, tourism, hotels, restaurants & trade accelerated in February 2010. The credit to real estate decelerated sharply in FY10 mainly on account of change in the concept of real estate introduced in September 2009.

Asset quality of Indian banks too remained largely stable during the year FY10 except for a few banks. The fears of rising delinquencies have faded now with improving economic outlook and resumption of capital inflows.

For the year FY11, the outlook for Indian banking industry remains positive. With improving economic prospects for India, many International Credit Rating Agencies have revised their outlook for the Indian banking industry in the recent past. For instance, the Moody’s Rating Agency has changed the fundamental credit outlook for the Indian banking system from “negative” to “stable” on the back of favourable trends in India’s economic indicators over the last few months. Even the Fitch Rating Agency has stated in its latest report on Asian Banking Industry that the operating environment for banks in Asia (including India) has strengthened unexpectedly fast in June-December, 2009 shifting concerns away from potential bad loans arising from severe economic slowdown to concerns over asset price bubbles.

Risk Management

Managing various types of financial risks is an integral part of the banking business. Bank of Baroda has a robust and integrated Risk Management system to ensure that the risks assumed by it are within the defined risk appetites and are adequately compensated. The Risk Management Architecture in the Bank comprises Risk Management Structure, Risk Management Polices and Risk Management Implementation and Monitoring Systems.

Risk Management Structure

The overall responsibility of setting the Bank’s risk appetite and effective risk management rests with the Board and apex level management of the Bank. Bank has constituted a Sub Committee of the Board on ALM (Asset Liability Management) and Risk Management to assist the Board on financial risk related issues. The Bank has a full fledged Risk Management Department headed by a General Manager and consisting of a team of qualified, trained and experienced employees. The Bank has set up separate committees, of Top Executives of the Bank to supervise respective risk management functions as under.

Asset Liability Management Committee (ALCO) is basically responsible for the management of Market Risk and Balance Sheet Management. It has the responsibility of managing deposit rates, lending rates, spreads, transfer pricing, etc in line with the guidelines of Reserve Bank of India. It also plans out strategies to meet asst-liability mismatches.

Credit Policy Committee (CPC) has the responsibility to formulate and implement various enterprise-wide credit risk strategies including lending policies and also to monitor Bank’s credit risk management functions on a regular basis.

Operational Risk Management Committee (ORMC) has the responsibility of mitigation of operational risk by creation and maintenance of an explicit operational risk management process.

Risk Management Policy

The Bank has Board approved policies and procedures in place to measure, manage and mitigate various risks that the Bank is exposed to. In order to provide ready reference and guidance to the various functionaries of the Risk Management System in the Bank, the Bank has in place Asset Liability Management and Group Risk Policy, Domestic Loan Policy, Mid Office Policy, Off Balance Sheet Exposure Policy (domestic), Business Continuity Planning Policy, Pillar III Disclosure Policy, Stress Test Policy and Stress Test Framework, Operational Risk Management Policy, Internal Capital Adequacy Assessment Process (ICAAP), Credit Risk Mitigation and Collateral Management Policy duly approved by the Board.

Risk Management - Implementation and Monitoring System

In the financial services industry, the main risk exposures that the Bank faces are Liquidity Risk, Credit Risk, Market Risk and Operational Risk.

Liquidity Risk

Liquidity risk is the risk that the Bank either does not have the financial resources available to meet all its obligations and commitments as they fall due or it has to access these resources at excessive cost. During the year under review, the financial system exhibited a fair level of liquidity with some adjustments done by the monetary authority to balance credit growth and control inflation.

The Bank’s ALCO has the overall responsibility of monitoring liquidity risk of the Bank. The liquidity risk is measured by flow approach on a daily basis through Structural Liquidity Gap reports and on a dynamic basis by Dynamic Gap reports on fortnightly basis for the next three months. Under Stock Approach, the Bank has established a series of caps on activities such as daily call lending, daily call borrowings, net short term borrowings and net credit to customer deposit ratio and prime asset ratio, etc. The Asset Liability Management (ALM) Cell, working in the Risk Management Department reviews the liquidity position on a daily basis to ensure that the negative liquidity gap does not exceed the tolerance limit in the respective time buckets. Specialized Integrated Treasury Branch, Mumbai assesses the domestic liquidity in respect of all foreign currency exposures. In respect of overseas operations, each territory assesses its currency wise liquidity position at prescribed intervals. The funding requirements in case of contingencies are also examined at regular intervals to prepare the Bank to meet any exigencies of a shortfall in funds’ position. The Bank has managed its liquidity by prudent diversification of the deposit base, control on the level of bulk deposit, and ready access to wholesale funds under normal market conditions. The Bank has significant level of marketable securities, which can be sold, used for repo borrowings or as collaterals, if required.

Credit Risk

Credit Risk is the risk that the counterparty to a financial transaction will fail to discharge an obligation resulting in a financial loss to the Bank. Credit risk management processes involve identification, measurement, monitoring and control of credit exposures.

In order to provide clarity to the operating functionaries, the Bank has various policies in place such as Domestic Loan Policy, Investment Policy, Off-Balance Sheet Exposure Policy, etc, wherein the Bank has specified various prudential caps for credit risk exposures. The Bank also conducts industry studies to assess the risk prevalent in industries where the Bank has sizable exposure and also for identification of sunrise industries. The industry reports are communicated to the operating functionaries to consider the same while lending to these industries.

The Bank has adopted various credit rating models to measure the level of credit risk in a specific loan transaction. The Bank uses a robust rating model developed to measure credit risk for majority of the business loans (non personal loans). The rating model has the capacity to estimate probability of default (PD), Loss Given Default (LGD) and unexpected losses in a specific loan asset.

Apart from estimating PD and LGD, the credit rating model will also help the Bank in several other ways as under.

• To migrate to Rating Based Approaches of computation of Risk Weighted Assets
  
  
• To price a specific credit facility considering the inherent credit risk.
  
  
• To measure and assess the overall credit risk and to evolve a desired profile of credit risk. risk.

Apart from assessing credit risk at the counterparty level, the Bank has appropriate processes and systems to assess credit risk at portfolio level. The Bank undertakes portfolio reviews at regular intervals to improve the quality of the portfolio or to mitigate the adverse impact of concentration of exposures to certain borrowers, sectors or industries.

Market Risk

Market risk implies possibility of loss arising out of adverse price movements of financial instruments like bonds, equity, forex contracts, etc. The objective of market risk management is to avoid excessive exposure of the Bank’s earnings and equity to such losses and to reduce the Bank’s exposure to the volatility inherent in financial instruments such as securities, foreign exchange contracts, equity and derivative instruments, as well as balance sheet or structural positions. The primary risk that arises for the Bank as a financial intermediary is interest rate risk due to the Bank’s asset-liability management activities. Other market related risks to which the Bank is exposed are foreign exchange risk on foreign currency positions, liquidity, or funding risk, and price risk on trading portfolios.

The Bank has clearly articulated policies to control and monitor its treasury functions. The Bank also has an asset liability management policy to address the market risk. These policies comprise management practices, procedures, prudential risk limits, review mechanisms and reporting systems. These policies are revised periodically in line with changes in financial and market conditions.

The Interest rate risk is measured through interest rate sensitivity gap reports and Earning at Risk. Furthermore, the Bank calculates duration, modified duration, Value at Risk for its investment portfolio consisting of fixed income securities, equities and forex positions on monthly basis. The Bank monitors the short-term Interest rate risk by NII (Net Interest Income) perspective and long-term interest rate risk by EVE (Economic Value of Equity) perspective. The Value at Risk for the treasury positions is calculated for 10 days holding period at 99% confidence level. The stress testing of fixed interest investment portfolio through sensitivity analysis and equities through scenario analysis is regularly conducted. Based on the RBI directions, the Bank is also estimating the Economic Value of Equity impact on a quarterly basis.

Operational Risk

Operational risk is the risk of loss on account of inadequate or failed internal process, people and systems or external factors. As stated above, the Operational Risk Management Committee (ORMC) has the responsibility of monitoring the operational risk of the Bank. The Bank monitors operational risk by reviewing whether its internal systems and procedures are duly complied with. The Bank collects and analyses loss and near miss data on operational risk based on different parameters on a half yearly basis and, wherever necessary, corrective steps are taken.

Bank’s Compliance with BASEL II

The Bank has a very large overseas presence amongst the Indian banks and has implemented the Basel-II Guidelines from 31st March 2008. In keeping with the guidelines of the Reserve Bank of India, the Bank has adopted Standardized Approach for Credit Risk, Basic Indicator Approach for Operational Risk, and Standardized Duration Approach for Market Risk for computing the capital adequacy ratio. The Bank has, therefore, been computing the Capital to Risk Weighted Assets Ratio (CRAR) on parallel basis under Basel-I and Basel-II Guidelines. The Bank is also providing additional capital towards Operational Risk under Basel II guidelines. The CRAR of the Bank is summarized as under.

In compliance with the Pillar–II guidelines of the Reserve Bank of India under Basel II framework, the Bank formulated its Policy of Internal Capital Adequacy Assessment Process (ICAAP) to assess internal capital in relation to various risks the Bank is exposed to. Stress Testing and scenario analysis are used to assess the financial and management capability of the Bank to continue to operate effectively under exceptional but plausible conditions. Such conditions may arise from economic, legal, political, environmental and social factors

The Bank has a Board approved Stress Testing Policy describing various techniques used to gauge their potential vulnerability and the Bank’s capacity to sustain such vulnerability. The Bank conducted its ICAAP tests on semi annual frequency along with stress tests as per the ICAAP Policy of the Bank.

The disclosure under Pillar-III of market discipline guidelines of the RBI has been done as on 30th September, 2009 and 31st March, 2010. The year-end disclosure as on 31st March, 2010 is part of the Annual Report and is displayed on the Bank’s web site as well. The half-yearly disclosure as on 30th September, 2009 has also been displayed on the Bank’s web site.

Credit Monitoring Function

Credit The Bank has created a system for continuous monitoring of its Credit Portfolio to protect the quality of its loan assets. Furthermore, the Bank has the system for monthly monitoring of advances accounts at various levels to prevent slippages and to take corrective steps well in time to improve the asset quality.

The Bank has created a separate department for Credit Monitoring at the corporate level, headed by a General Manager, and also one at the Regional/Zonal level. The Department started functioning since September 2008 to step up quality of credit monitoring, as economic conditions had worsened following the global financial crisis. The Slippage Prevention Task Force was formed at all Zonal/Regional offices of the Bank. Moreover, the Bank’s Domestic Loan Policy has been aligned with appropriate provisions for the purpose of arresting slippages at an early stage in conformity with the laid down norms and guidelines. The Bank has placed a special focus on sharpening its credit monitoring process for improving the asset quality, identifying areas of concern and/or branches requiring special attention, working out strategies and ensuring their implementation in a time-bound manner.

The primary objectives of the Credit Monitoring Department at the corporate level are as under:

• Identification of weakness / Potential default / incipient sickness in the account at an early stage;
  
  
• Initiation of suitable and timely corrective actions for preventing impairment in credit quality, whenever signals are noticed in any account, e.g. decline in credit rating, delay in meeting liabilities in LC/Guarantee and delay in servicing of interest/ installments etc;
  
  
• Prevention of slippage in the Asset Classification and relegation in Credit Ratings through vigorous follow up;
  
  
• Identification of suitable cases for restructuring/ rescheduling/ rephasement as well as further financing in deserving and genuine cases with matching contribution from the borrower;
  
  
• Taking necessary steps / regular follow up, for review of accounts and compliance of terms and conditions, thereby improving the quality of Bank’s credit portfolio;
  
  
• To work towards improving the Credit Ratings.
  
  

Restructuring of Advance Accounts

As a part of an on-going business strategy to improve upon the quality of assets, the Bank has reaffirmed the need to monitor the quality of advances portfolio on a continuous basis, industry-wise as well as borrower-wise. It also requires an analysis of the present position and problems foreseen in near future and to identify weaknesses/potential default/incipient sickness in the advances accounts at an early stage so as to initiate suitable and timely corrective measures for preventing impairment of credit quality.

Restructuring of Advance Accounts (Domestic): FY10

The Bank’s Credit Monitoring Department at the Corporate Office has taken several initiatives in identifying the incipient sickness/potential default/weaknesses in the advances accounts for taking corrective actions including restructuring in deserving cases as per the RBI guidelines for supporting entrepreneurs facing temporary cash flow problems due to economic challenges.

During the year FY10, the Bank undertook restructuring of various advances accounts as per the table given below.

Besides, in its International Operations, the Bank undertook restructuring of 43 borrowal accounts working out to an overall outstanding balance of Rs 1,796.98 crore during FY10.

The Bank also initiated follow up actions for ensuring expeditious review of accounts, compliance of terms and conditions, up-gradation in credit rating, etc., in high value advance accounts for improving the asset quality of the Bank’s credit portfolio. This proactive approach has greatly helped the Bank in maintaining better asset quality in the industry.

Economic Intelligence Unit

At the Corporate Office of the Bank, a specialized Economic Intelligence Unit (EIU) supports the Top Management in critical areas like Business Strategy Formulation, Investor Relations, Asset-Liability Management and in discussions/deliberations with the Regulators (both domestic & international) and Rating Agencies. The Unit regularly provides the Top Management and the Bank’s various operational units a periodic outlook on key macro variables like industrial and infrastructural growth, inflation, interest rates, stock movement, credit deployment & resource mobilization of the banking industry, liquidity and exchange rates.

By providing better understanding of macroeconomic aspects, corporate sector health and financial sector policies, the EIU of Bank of Baroda supports the Bank’s efforts in tapping business opportunities and swiftly responding to market dynamics.

The EIU also brings out a weekly e-publication on macro-economic, policy and regulatory developments to share its perspective with the top management, market participants and with industry leaders. The division works as an intellectual arm of the Bank in comprehending developments that helps in the development of rightly aligned strategies.

Internal Control Systems

The Bank has a well established Central Inspection & Audit Division (CIAD) that examines the adherence to systems, policies and procedures of the Bank. The guidelines received on various issues of internal control from Reserve Bank of India, Government of India, Board and Audit Committee of the Board have become part of the Internal Control System for better risk management. CIAD operates through ten zonal inspection centres to carry out inspection of branches/offices as per the periodicity decided by the Audit Committee of Board and examines adherence to such systems of internal control and risk management [including various aspects such as Know Your Customer (KYC)/ Anti-Money Laundering (AML) etc].

The Regular Branch Inspection Report is the most comprehensive feed-back to the Management about the degree of compliance of the Bank’s systems and procedures and guidelines at the operational level and, hence, the most important tool for exercising control. The compliance is monitored through submission of Rectification Certificate by the auditee units duly countersigned by the reporting authorities.

All the branches are covered under Risk Based Internal Audit (RBIA). The assessment of level of risk and its direction is as per the Risk Matrix prescribed by the Reserve Bank of India which helps the Management in identifying areas of high risk requiring attention on priority basis. The position of the risk categorization of the branches is reviewed by Audit Committee of the Board on quarterly basis.

Besides Regular Inspection of Branches, various other inspections are also carried out in the Bank such as Inspection of Subsidiaries, Associates, Functional Departments at Corporate, Head Office, Training Centres, Administrative Offices, Management Audit of the Controlling Offices of the Bank, its Subsidiaries and Regional Rural Banks (RRBs). Overseas branches are inspected through the Bank’s Internal Auditors posted at those centres.

During FY10, 2,357 Risk Based Internal Audits (RBIAs) of the domestic branches were carried out by the Inspecting Officers attached to various Zonal Inspection Centres across the country. Around 438 inspections of overseas branches were carried out by the Internal Auditors posted overseas. Besides, Management Audit of M.P. & Chhattisgarh Zone, North Zone, Maharashtra & Goa Zone, Projects & IT / Inter Branch Operations / HRM / Wholesale Banking Departments at Baroda Corporate Centre, and Nainital Bank Ltd. (Subsidiary) was carried out during FY10.

Concurrent Audit of the Bank covered 611 branches including Specialized Integrated Treasury Branch which handles Funds and Investment Management and FOREX Dealing Operations of the Bank. Concurrent Audit covers more than 79.0% of total domestic advances and 69% of total domestic business of the Bank, besides 100.0% domestic investments and FOREX Dealing Operations.

The CIAD oversees Credit Audit function which examines compliance with extant sanction and post-sanction processes/procedures laid down by the Bank from time to time, as per the RBI guidelines. The objectives of Credit Audit are as follows.

• Improvement in the quality of credit.
  
  
• Review of sanction process and compliance status of large loans.
  
  
• Feedback on regulatory compliance.
  
  
• Independent review of Credit Risk Assessment.
  
  
• Pick up early warning signals and suggest remedial measures.
  
  
• Recommend corrective action to improve credit quality,credit administration and credit skills of staff, etc.
  
  

Operations and Services

Customer-centric Initiatives Taken by the Bank in FY10

As always, efficient customer service and customer satisfaction are the primary objectives of the Bank in its day to day operations. The Bank is highly responsive to the needs and satisfaction of its customers, and is committed to the belief that all technology, processes, products and skills of its people must be leveraged for delivering superior banking experience to its customers on a sustainable basis. .

Recently, the Bank has taken several measures to improve customer service at the branches and at the same time, strengthened the customer complaint redressal machinery for fast disposal of the customer complaints.

Efforts to Improve Customer Service at Branches

• The feed-back on quality of customer service at branches is obtained through the Branch Level Customer Service Committee meetings in which customers from various cross sections of the society are invited to participate. The suggestions/views generated during such meetings are collated and appropriate follow up action is taken to examine the feasibility to implement the suggestions for improving the quality of customer service rendered at the branches.
  
  
• For bringing improvement in the customer services at branches, the employees of the Bank are imparted training through various training centres for upgrading their soft skills or for bridging the knowledge gaps.

Latest Developments for Better Customer Service

• In September 2009, the Bank brought all the branches of the Bank on CBS platform to offer “Anywhere Anytime” banking to all its customers. All the branches of the Bank have been enabled to provide e-banking services as well as electronic fund transfer facilities by way of RTGS and NEFT to its customers.

Bank’s Business Process Re-Engineering Project

• In order to derive the full benefit of technology and offer hassle free services to customers, the Bank has undertaken a comprehensive exercise on business process re-engineering (BPR), for which it has appointed the renowned consultancy firm viz. McKinsey & Company.
  
  
• The Bank has conceptualized two types of Back office operations – City Back Office (CBO) and Regional Back Office (RBO). The City Back Office has been designed to handle the centralised processing of clearing and collection functions, including the ECS, of all the branches in a city/centre. Such centralisation is intended to relieve the staff of the branches from the load of cumbersome back-office functions and enable them to focus more on sales and service. The -21- service branches and -47- main offices are functioning on the CBO model. These CBOs shall cater to 1,090 branches.
  
  
• Three Regional Back Offices (RBOs), one each at Baroda, • Jaipur and Coimbatore, are already in operation. The RBOs at Jaipur and Coimbatore were set up during FY10. Each RBO is designed to cater to 350-400 branches for back office activities. As on 31st March, 2010, the centralised processing of accounts opening at the RBOs has been extended to -344- branches. The centralised issuance of Personalised Cheque Books has been introduced at 104 branches. Two more RBOs – at Bhopal and Lucknow - have been planned to be operationalised during the first half of FY11.

Compliance

The Bank is a member of The Banking Codes and Standards Board of India (BCSBI) and has adopted the Code of Commitment to the customers revised by the BCSBI in August 2009 and, also, Code of Bank’s Commitment to Micro & Small Enterprises. The code has been placed on the Bank’s web site and also made available to the customers at the branches.

Customer Service Committees

Customer Service Committee of the Board

The Bank has a sub-committee of Board for Customer Service. The Committee has the following members as on 31st March 2010.

The sub-committee addresses the issues relating to the formulations of policies and assessment of its compliances, which brings about consistent improvement in the quality of customer service. The sub-committee also monitors the status of the number of deceased claims pending for settlement beyond 15 days pertaining to depositors/locker hirers/depositors of safe custody articles. It reviews the status of implementation of the Awards of Banking Ombudsman and also addresses issue of systemic deficiencies existing in the Bank, if any, brought out by the Awards.

The details of the attendance of the meeting of ‘Customer Service Committee of the Board’ held on 22.06.2009, 29.08.2009, 05.12.2009 and 05.03.2010 during FY10 are as follows.

Standing Committee on Customer Service

BThe Bank has also set up a Standing Committee on Procedures and Performance Audit on Customer Services as per the directives of RBI. The committee comprises three eminent public personalities as members along with four General Managers of the Bank. The committee is chaired by the Executive Director of the Bank.

The committee is set up to oversee timely and effective compliance of the RBI instructions on customer service and, also, review the practices and procedures prevalent in the Bank and take necessary corrective steps on an ongoing basis.

A brief report on the performance of the Standing committee is submitted periodically to the Customer Service Committee of Board.

KYC/AML

Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards/ Combating of Financing of Terrorism (CFT) and obligation of Bank under PMLA, 2002

The Bank has Board approved KYC-AML-CFT Policy in place. The said Policy is the foundation on which the Bank’s implementation of KYC norms, AML standards and CFT measures is based.

The major highlights of KYC-AML-CFT implementation across the Bank are as under.

• Generation of Cash Transaction Reports (CTRs) electronically for submission to Financial Intelligence Unit (FIU), through the electronic medium.
  
  
• Installation/Implementation of AML Solution for generating system based alerts.
  
  
• System-based detection and submission of Suspicious Transaction Reports (STR) to the Financial Intelligence Unit (FIU)
  
  
• System based Risk Categorization (from AML Measure) of the Bank’s customers every half year.
  
  
• Filing of Counterfeit Currency Reports (CCRs) to FIU-IND, New Delhi.
  
  

The full KYC compliance entails staff education as well as customer education for which the following measures are taken by the Bank.

• A comprehensive list of KYC documents is uploaded on the Bank’s web site (www.bankofbaroda.com) for the benefit of customers
  
  
• A KYC-AML page is created at the Bank’s INTRANET for • posting reference material on KYC-AML education.
  
  
• Regular training sessions are conducted on KYC-AML-CFT guidelines at the Bank’s training establishments.
  
  
• Training is organized for the Bank’s senior officials / • executives at RBI, IBA and National Institute of Bank Management (NIBM).
  
  
• Sustained efforts are made to develop expertise at the Bank’s Head Office for corporate oversight and, also, KYC Audit of branches.
  
  

Government Business

The Bank’s Operations & Services Department has taken following initiatives during FY10 in the domain of Government Business.

• It has established a Central Pension Processing Centre (CPPC) for Central Civil Pensioners. The CPPC has been accorded formal approval with effect from 1st January, 2010 by the Chief Controller (Pension) CPAO, New Delhi. Bank of Baroda is the first Nationalised Bank to have received such approval. The Bank has already accomplished the Centralisation of Pension Processing and Payments. The pension payment of more than 17,000 pensioners, is being processed every month at the CPPC. The processing and payment for new PPOs/Revised PPOs, Master Data Base for Central Civil Pensioners, Back Office functions and fund settlement through Link Cell, Nagpur etc. are the main functions of the CPPC which facilitate a faster and accurate payment of pension to pensioners and for Bank, a quick settlement of funds by the Reserve Bank of India.
  
  
• It has set up a Grievance Redressal Matrix. For instance, at the Bank’s CPPC, it has made operational a Toll Free Help Line exclusively for Pensioners (1800 233 2656 ). This provides an efficient set up for providing information to pensioners and also serves in grievance handling and redressal. The Bank has also provided on the home page of its website a separate link to the CPPC. Through this Link, pensioners can see Pension Payment Scheme Book, download various forms/certificates and also register a complaint for redressal.
  
  
• It has developed a system for Defence and Railway Pension Payment. For instance, the pension payment for more than 40,000 Defence and 50,000 Railway pensioners was scattered at various locations of the Bank. For making timely and accurate payment of pension to the Defence and Railway pensioners, the Department has centralized this function at the Bank’s ten nodal branches.
  
  
• It has started offering services for payment of taxes. The tax payers having Baroda Connect facility with transaction password can now pay Direct and Indirect Taxes through e-Mode. It has also been providing a physical tax payment facility at 550 branches for Direct Taxes and at 365 branches for Indirect Taxes.
  
  

Vigilance

Vigilance is not an impediment but is used as a tool for corporate governance. The Vigilance Department of the Bank has infused confidence amongst the employees of the Bank with an assurance that innocent employees would be protected and the guilty would be weeded out. Furthermore, checks and balances are put in place from time to time with respect to the nature of incidents reported. This has helped a great deal in increasing efficiency and creating an environment of security for the honest work-force.

The operating staff, thus, could execute their role with confidence thereby contributing to the business growth of the Bank during FY10. Compared to the quantum jump in the Bank’s business, the low incidence of frauds indicates highly effective systematic controls created by the Bank. Rapid computerisation has, however, exposed the Bank to new kinds of attacks. However, the Vigilance Department has studied the fraud prone areas under computerised environment in great detail and has come out with the fresh guidelines.

The Bank has also introduced a scheme for granting rewards to employees for detecting and foiling attempts of frauds/ prevention of frauds with a view to encourage the vigil and alertness displayed by the employees while performing their duties. It is heartening to note that, with the awareness, alertness and diligence exhibited by the operating staff, -44- attempts of defrauding the Bank by unscrupulous elements were thwarted during FY10, which saved the Bank from sustaining a sizeable financial loss.

The Bank has been making mammoth investment towards immovable properties and procurement of Works/ Stores/ Purchases/ Contracts. As a step towards improving vigilance administration, the Bank organised a workshop at its Corporate Office with the help of the officials of the Central Vigilance Commission, New Delhi, in which Chief Vigilance Officers and General Managers (IT) of major Public Sector Banks participated. A booklet giving clarifications on the issues raised during the workshop was compiled and sent to the participating Public Sector Banks for their reference.

The Vigilance Department of the Bank continues to remain a watchdog and helps the Management of the Bank to excel and reach higher scales of performance.

Business Performance

Given below are the details of the Bank’s major achievements on business front during FY10.

Resource Mobilisation & Asset Expansion

The share of Bank’s deposits in total resources stood at 86.61% as of 31st March 2010. The total deposits grew from Rs 1,92,396.95 crore to Rs 2,41,044.26 crore, reflecting a growth of 25.28% over the previous year. Of this, Savings Bank Deposits – an important constituent of low cost deposits grew by 23.67% - from Rs 42,487.28 crore to Rs 52,543.92 crore. The share of low cost deposits (Current & Savings) in Total Global Deposits was at 29.65% and in Domestic Deposits at 35.63%. Unlike the previous year, the banking industry witnessed a movement from term deposits to low-cost deposits during the year as interest rates offered on term deposits declined sharply during 2009-10.

The Bank’s Global Advances expanded by 22.19% during 2009-10 led by 21.28% expansion in domestic advances and 25.04% expansion in overseas advances.

Composition of Funds – Global

Particulars	End March 2009 (Rs crore)	EndMarch 2010 (Rs crore)	Growth %
Deposits	1,92,396.95	2,41,044.26	25.28%
- Domestic	1,51,408.99	1,85,282.59	22.37%
- Overseas	40,987.96	55,761.68	36.04%
Borrowings	12,767.91	13,350.09	4.56%

Global Advances

Particulars	End March 2009 (Rs crore)	End March 2010 (Rs crore)	Growth (%)
Advances	1,43,251.41	1,75,035.28	22.19%
- Domestic	1,08,548.51	1,31,643.62	21.28%
- Overseas	34,702.90	43,391.66	25.04%

Wholesale Banking

The Bank’s Wholesale Banking Division offers a full range of loan products and services such as Term loans, Working Capital facilities, Trade Finance products, Cash Management products, Treasury products, Bridge Loans, Syndicated Loans, Infrastructure Loans, Cross Currency/Interest Rate Swaps, Foreign Currency Loans and many more to its large and mid-corporate clients depending upon their needs. The product offerings are suitably structured taking into account the customers’ risk profiles and specific needs. Based on the superior product delivery, passionate service orientation and a customer-centric approach, the Bank has made significant inroads into providing an array of Wholesale Banking products and services to several multinationals, domestic business houses and prime public sector companies.

The focus of the Wholesale Banking operations during FY10 was on promoting innovative products and adopting a well-integrated approach to build new relationship management.

Under Wholesale Banking, the corporate customers are identified as Large and Mid corporates. Companies having annual sales turnover of over Rs 500 crore are classified as Large Corporates and those having annual sales turnover between Rs 100 crore and Rs 500 crore are classified as Mid Corporates.

During FY10, the Wholesale Banking Division sanctioned various credit facilities working out to 660 accounts, consisting of both new and existing ones, amounting to a sum of Rs 70,105.56 crore. The fresh sanctions were mostly given to sectors like Infrastructure, Petrochemicals, Oil exploration, NBFC, Commercial Real Estate, Iron & Steel, Aluminium etc.

Reduction in turnaround time in Wholesale Banking

Efforts were also made to improve the speed of decision making. The average turnaround time for sanction of a proposal was reduced considerably to less than 30 days during FY10 as against 45 days during FY09. With the continued thrust on faster delivery through efficient channels and adoption of better practices in credit administration, the Bank plans to reduce the turnaround time in according a sanction further to less than 20-25 days. The number of Fast-track proposals sanctioned during FY10 was 230 amounting to Rs 32,933.23 crore compared to 122 amounting to Rs 16,525.99 crore last year. The strengthening of fast track clearance of large credit helped in brining qualitative change in the credit dispensation.

Project Finance Division

The Project Finance Division, a part of the Wholesale Banking Division, earned total fee income of Rs 684.10 lakh during FY10 through conducting 110 TEV studies and vetting of projects as against Rs 327 lakh during the previous year. Out of this, a sum of Rs 397.80 lakh was earned from three Loan Syndication Deals.

Marketing Efforts in Wholesale Banking

In order to further broaden the corporate credit function a credit syndication cell commenced operations in October 2009. It has been tracking the ‘Projects Today’ database on a regular basis to identify upcoming projects and identified newer companies from the point of view of the significant business opportunities and syndication.

Other initiatives

• The processing of proposals has been simplified to reduce the turnaround time drastically.
• The time taken for according Agreement-in-principle has been reduced to 2-3 days.
• The Bank’s existing corporate customers have been proactively approached for building more robust relationships.
• A substantial improvement has been brought out in communication channels between the Corporate Office and Operating Units of the Bank.
• Higher focus is placed on upgradation of skills and • knowledge levels of officers working in the Department including the new campus recruits.

The wholesale banking department is set to bring about qualitative transformation in credit distribution and is committed to a broad-based, well-diversified growth.

Retail Business

Retail Business continued to be one of the thrust areas for achieving business growth during FY10. In order to achieve the sustained growth of assets/ liabilities, the Bank had improved and customized several retail lending products.

Retail Loan outstanding as on 31st March 2010 was Rs 24,247.71 crore as against the level of Rs 19,627.55 crore as on 31st March, 2009. A growth rate of 23.54% (Rs 4,620.16 crore) was registered during FY10 as against the growth rate of 16.19% (Rs 2,723.35 crore) posted during FY09. The growth under five key products (excluding LABOD/ODBOD etc) was 22.65% (Rs 3,507.36 crore) over the level of Rs 15,484.63 crore as of end-March, 2009. During the same period of FY09, growth under the five key products was 18.03% (Rs 2,365.85 crore) over the level of Rs 13,118.78 crore as of end-March, 2008.

NPA under the Retail Loan

The amount of Non Performing Assets as on 31st March, 2010 under the Retail Loan segment is Rs 511.77 crore (2.11%) as against the level of Rs 487.25 crore (2.48%) as on 31st March 2009 and Rs 507.72 crore (3.01%) as on 31st March 2008.

Savings Bank Deposits

The Bank’s overall Savings Deposits stood at a level of Rs 51,257.53 crore as on 31st March 2010 registering a growth of 24.03% (Rs 9,929.34 crore) over the level of Rs 41,327.00 crore as on 31st March 2009. The Bank’s CASA share has improved from 34.87% as on 31st March 2009 to 35.63% as on 31st March 2010 helping Bank in keeping good control over the cost of deposits.

Initiatives in Retail Banking

New Products Launched

• An exercise on realignment of assets was carried out on 28th March 2009 for reducing the total number of retail asset products from 26 to 9. This came into force on 1st April, 2009.
  
  
• At the instance of Ministry of Finance, Government of India, a new subsidy linked housing loan scheme under the Bank’s Home Loan Product styled as “Interest Subsidy Scheme for Housing the Urban Poor (ISHUP)” was launched on October 10, 2009.

Business Initiatives

• A “Home Loan Campaign” was launched from 15.06.09 to 14.08.09 with special emphasis on take-over of Home Loan accounts. A 100.0% waiver of Documentation and Processing charges was offered for Home loans and Auto loans. The campaign period was extended upto 31.08.09. An additional business of Rs 1,156 crore by way of fresh sanctions was generated during the campaign as against a target of Rs 750 crore.
  
  
• Another Retail Loan Festival Campaign was launched on 01.09.09 to encash the business potential of the festive season during September and October 2009. A fresh business of Rs 1,680 crore was mobilized during the campaign period as against the target of Rs 2,000 crore set for the campaign. One more Retail Loan campaign, launched on 15.01.10, generated additional business of Rs 772 crore.
  
  
• For mobilizing low cost deposits, a Savings Bank Deposit Campaign was launched on 15.06.09. An amount of Rs 2,437.35 crore as fresh Savings Bank Deposit was mobilized during the campaign as against the target of Rs 2,000 crore. Another SB deposit campaign, launched in January 2010, yielded fresh SB deposits of Rs 1,057.17 crore.
  
  
• For giving boost to the Auto Loan portfolio, MoUs were signed with M/s Honda Siel Cars India Ltd and M/s Toyota Kirloskar Motors Ltd on 11.06.09 and 16.09.09 respectively, in addition to MoUs already signed last year with a number of leading car manufacturing companies viz. Maruti Suzuki India Ltd, Tata Motors Ltd, Hyundai Motors India Ltd and Mahindra & Mahindra Ltd.
  
  
• Six new Retail Loan Factories (RLFs) have been opened during FY10 at Chandigarh, Gamdevi (MMSR), Patna, Coimbatore, Ranchi and Allahabad. The total number of operational RLFs is now 30.
  
  
• With a view to provide a high class banking experience to the young customers in general and IT/techno savvy youth in particular, our Bank has pioneered an outfit styled as Gen-next Branch. At present, the total number of Gen-next branches is seven.
  
  
• The Bank has already made Home Loan and Education Loan Application modules online. The Bank, now, proposes to bring Auto Loan Application module also online very shortly. With this, the applicants can have an online track to know the status of their loan applications.
  
  
• The Bank has made an arrangement with Kotak Life Insurance to provide life insurance cover to the Bank’s Home Loan borrowers against the entire loan outstanding balance and full tenure of the loan at the option of the borrower. This would be made available against the payment of a nominal premium amount paid by the Bank and recovered along with EMIs of the loan from the borrowers.

Wealth Management Services

During FY10, the Bank signed Corporate Agency Agreement with its joint venture company in life insurance, IndiaFirst Life Insurance Co. Ltd., to market their life insurance products under Wealth Management Services. The life insurance company is a joint venture amongst Bank of Baroda (share 44.0%), Andhra Bank (share 30.0%) and Legal & General, U.K. (share 26.0%).

As part of customer centric measures, the Bank has been providing Wealth Management Services to its High Net worth Individuals (HNI) and affluent customers as a total financial solution at one place since June 2004. At present, the Bank provides through the network of its branches various third party products in Life Insurance, Non Life Insurance including Health Insurance, Mutual Funds and Equity Trading under tie-up arrangements through different partners along with its own joint ventures in Life Insurance and Mutual Fund. In Mutual Fund segment, the Bank’s joint venture Baroda Pioneer Asset Management Co. Ltd. is in association with Pioneer Investments of Italy.

Moreover, the Bank extended the ASBA (application supported by Blocked Amount), the supplementary process of applying in IPO / FPO / Right issues to 60 more branches during the year to facilitate its customers. These 60 branches are located in centres, which have been traditionally inhabited by investors in the capital market.

The Bank has also established ‘Baroda Gold Lounge’ in 13 select strategically located branches which are distinct dedicated spaces to provide par excellence investment advisory services to HNI customers of the Bank. Various initiatives of the Bank under Wealth Management Services have been decently contributing to its “Non-Interest Income”, which has emerged as the important earning stream in recent years.

Bank of Baroda’s Joint Venture in Life Insurance Business

The Bank has diversified into life insurance business by forming a three-way Joint venture amongst Bank of Baroda, Andhra Bank and Legal & General Group Plc (UK). The initial authorised capital of the company is Rs 200 crore, which is subscribed by the three partners in the ratio of 44.0%, 30.0% & 26.0%. The company has been named as “IndiaFirst Life Insurance Company Ltd.” The IndiaFirst has received an overwhelming response from the Bank’s esteemed customers across the country making the company the fastest ever Insurance company to reach Rs 100 crore premium collections in the first 100 days. The company also proposes to service the rural markets with customized products and processes and make delivery more appropriate and cost efficient to match the practical realities of rural India.

MSME Business

The Micro, Small and Medium Enterprises (MSME) segment has been a vital component of Indian economy. This sector accounts for around 40.0% of total industrial production, 34.0% of industrial exports, 95.0% of industrial units and 35.0% of total employment in manufacturing and service sectors of India. The unorganized sector which forms a major component of the MSE segment comprises almost 95.0% of total industrial units and employs over 65 million people.

The contribution of Services Sector within the SME segment is quite significant; especially IT enabled services, hospitality services, tourism, couriering, transportation, etc. The SMEs have also been playing a vital role in the job creation process.

To give a focused attention to emerging SMEs in India, the Bank has been considering other commercial units with a turnover up to Rs 150 crore at par with the SMEs.

To promote the growth of SME Sector, the Bank has launched a special and novel delivery model, viz. SME Loan Factory, which at present, is operationalised in 36 centres of the Bank and well accepted in the marketplace. The SME Loan Factory is an innovative model for streamlining processes and for timely sanctions of SME loan proposals. The model comprises of the Central Processing Cell for speedy appraisal and sanctioning of proposals within the stipulated deadline.

Out of 36 SME Loan Factories as on 31st March 2010, three SME Loan Factories have been established during the year. The Bank has SME Loan Factories at all major business centres across the country, viz. Agra, Ahmedabad, Bangalore, Bareilly, Baroda, Bhilwara, Bhubhaneshwar, Bulsar, Chandigarh, Chennai, Coimbatore, Dehradun, two Factories in Delhi, Hyderabad, Indore, Jaipur, Jamshedpur, Jamnagar, Jodhpur, Kanpur, Kolhapur, Kolkata, Lucknow, Ludhaina, 3 Factories in Mumbai, Nagpur, Nashik, Pune, Rajkot, Raipur, Surat, Varanasi and Vishakhapatnam.

These SME Loan Factories sanctioned loans aggregating Rs 11,071 crore during FY10 as against Rs 8,508 crore in the previous year.

Growth of Business

The total outstanding in MSME Sector works out to Rs 21,111 crore as on 31st March 2010. The growth in lending to MSME Sector during the last three years is given in the table below.

Financial Year	Percentage Growth
2007-08	31.11%
2008-09	24.18%
2009-10	43.98%

The percentage growth of MSME credit during FY10 is relatively high as the advances up to Rs 20 lakh to Retail Trade are, now, classified under the “Micro & Small Enterprises Sector” after the RBI’s revised guidelines issued during September, 2009. The Bank has taken the following initiatives in its SME business segment during the year under review.

Initiatives in SME Financing During FY10

• The Bank set up three new SME Loan factories during FY10.
  
  
• The Bank sponsored workshop on “Management Skills to source financing and Management of Technology by SMEs” arranged by AIMA at Kolkata, Bangalore.
  
  
• The SME Meets and interactive sessions were held at various centres with SME customers
  
  
• The Bank introduced seven new customer-centric area specific products to suit the local cluster needs.
  
  
• The Bank Sponsored a full day Seminar on “Importance of CFO & Financial Advisory Services for SMEs” jointly with Maharashtra Industrial and Economic Development Association, India International Trade Centre (IITC-India), SME Training Institute of India and CFO and Financial Advisory Council for SMEs.
  
  
• The Bank celebrated SME Month from 1st December, 2009 to 31st December, 2009, which was subsequently extended upto 15th January, 2010 in order to give boost to SME advances. The concessions in rate of interest and service charges were announced for loans sanctioned during the celebration period.
  
  
• The Bank participated in the Workshops arranged by D&B in partnership with CGTMSE on Bank Credit to Micro & Small Enterprises and Role of Credit Guarantee.
  
  



Rural and Agricultural Lending

The Bank has always been a frontrunner in the area of Priority Sector and Agriculture lending, harnessing the vast potential of the rural market through its wide network of 1,126 rural branches and 721 semi-urban branches. The Bank has opened 97 new branches in rural and semi-urban areas during FY10. The Bank is the convener of State Level Banker’s Committee (SLBC) in UP and Rajasthan. The Bank shoulders the Lead Bank Responsibility in 44 districts in the states of Gujarat (12), Rajasthan (12), Uttar Pradesh (14), Uttaranchal (2), Madhya Pradesh (2) and Bihar (2).

The Bank has sponsored five Regional Rural Banks (RRBs) in various states with a branch network of 1,209 branches and total business of more than Rs 16,000 crore as of end-March, 2010.

Performance of Priority Sector Lending in FY10

Priority Sector Advances of the Bank surged from Rs 39,239.08 crore as at the end-March 2009 to Rs 48,552.36 crore as at the end-March 2010 and formed 44.43% of the Adjusted Net Bank Credit (ANBC) against the mandated target of 40.00%. Agriculture Advances of the Bank recorded a growth of 27.43% over the previous year and rose to Rs 21,617.30 crore as at end-March 2010.

Under its flagship agriculture loan product “Baroda Kisan Credit Card”, the Bank issued as many as 1,85,419 Credit Cards during FY10 to provide credit to farmers The Bank has financed as many as 1,93,816 new farmers during FY10. As a part of its microfinance initiatives, the Bank credit linked 24,954 Self Help Groups with an amount of Rs 187 crore during FY10 thereby taking the total number of SHGs credit linked to 1,15,685 amounting to Rs 793 crore.

Business and Social Initiatives

The Bank introduced various initiatives/strategies during FY10 to harness the emerging opportunities for rural and agriculture lending. Some of them are mentioned below.

To augment the Agriculture advances, the Bank has conducted special campaigns viz. Kharif and Rabi campaign for crop loans under which the disbursements of Rs 1,888 crore and Rs 818 crore were made respectively. Another Campaign for Investment Credit was also launched under which disbursements of Rs 742 crore were made.

The Bank organized 2,857 Village Level Credit Camps and disbursed Rs 2,484 crore to 1,90,534 borrowers during FY10.

The Bank has identified 450 Thrust Branches across India to enhance Agriculture lending which constituted 34.0% of total Agriculture lending as at end-March 2010.

The Bank formulated various area-specific schemes tailor made to the needs of local requirements, particularly where there is a concentration of industries like Rice Mills, Cold storages, cotton ginning units, Poultry units, etc. Suitable concessions in rate of interest, charges, etc. were allowed under these schemes to garner maximum possible business. As many as 18 area specific schemes were formulated to increase agricultural lending.

Towards effective use of technology in rural agricultural lending, the Bank has introduced IT-enabled smart card based technology for financial inclusion. At present, the smart card based financial inclusion is being implemented in the states of Uttar Pradesh, Rajasthan and Gujarat. Currently, the Bank has about 309 ATMs in Rural/Semi-urban areas. Moreover, all its rural and semi-urban branches are under the Core Banking Solution or the CBS platform.

The Bank has adopted Dungarpur district (Rajasthan) which is primarily a tribal district and one of the most backward districts in the country for Total Integrated Rural Development and 100.00% Financial Inclusion towards its Corporate Social Responsibility. The project was launched on 1st October 2007. We are pleased to share with you that 100.00% Financial Inclusion in Dungarpur district has already been achieved. So far, credit of Rs 35.91 crore has been disbursed to 15,440 borrowers for Dairy Development, Cultivation of High Value Crops, Vegetable cultivation, etc. Various other developmental activities like training, scholarships to girl students etc. are also being done under the project. Scholarships amounting to Rs 8.76 lakh to 30 tribal girl students have been provided under the project.

The Bank has adopted 101 villages as “Baroda Centenary Year Villages” for Total Integrated Development spread over three years and also for 100.00% Financial Inclusion. Furthermore, the Bank has provided social infrastructure like solar lamps, bus stand shelters, hand pumps, community halls etc. in 73 villages by giving grant of Rs 92.42 lakh.

Baroda Grameen Paramarsh Kendra (BGPK) – is another initiative undertaken by the Bank to help the rural community by providing Credit Counseling, financial literacy and other services like information on the prices of agricultural produces, scientific farming, etc. The Bank has established 52 BGPKs as on 31st March, 2010.

Around nine more Baroda Swarojgar Vikas Sansthan (BSVS), Baroda R-SETI Centres were opened during FY10. With this, the total number of BSVS has gone up to 25. Raebareli and Ajmer BSVS have been created exclusively for women entrepreneurs The BSVS are primarily the institutes for training the youth and imparting knowledge and skills required for taking up self-employment ventures. During FY10, 16,191 youth beneficiaries were trained out of which 10,135 have established self-employment ventures. Out of the total 37,230 beneficiaries trained by these centres so far, 21,704 have established their self employment ventures.

Business Facilitators Model

This model has been implemented across the country to accelerate Financial Inclusion of the excluded segment as well as to augment agriculture portfolio. Business Facilitators will mainly canvass loan applications for the Bank for which Bank will pay them compensation. Individuals including retired Bank and Government staff, NGOs, Farmers clubs and SHGs are engaged as agents to greatly improve the Bank’s outreach in the rural/semi-urban areas.

The Bank has opened Micro Loan Factory at Sultanpur in U.P. during the year under review. The Bank is already having mobile micro finance loan factory at Rae Bareilly. The Micro Finance Loan Factory has a mobile van with facilities and all related stationeries/ documents on SHG financing. It is manned by officers who are duly authorised to sanction and disburse loans upto Rs 25,000 to SHGs on the spot and at their door steps.

Performance of Regional Rural Banks (RRBs) sponsored by the Bank

The Bank has sponsored five RRBs as under.

• Baroda Uttar Pradesh Gramin Bank, Head Office : Raebareli.
  
  
• Baroda Rajasthan Gramin Bank, Head Office : Ajmer.
  
  
• Baroda Gujarat Gramin Bank, Head Office : Bharuch
  
  
• Nainital-Almora Kshetriya Gramin Bank, Head Office: Haldwani.
  
  
• Jhabua-Dhar Kshetriya Gramin Bank, Head Office : Jhabua.
  
  



The aggregate business of these five RRBs rose to Rs 16,244.41 crore as of March, 2010 from Rs 14,278.28 crore as at end-March, 2009, registering a growth of 13.77%.

The five RRBs together posted a net profit of Rs 118.93 crore during FY10 as against Rs 103.32 crore earned during FY09. The "Net Worth" and the "Reserves and Surplus" of all these RRBs put together improved from Rs 490.19 crore at end-March, 2009 to Rs 609.12 crore at end-March, 2010 and from Rs 272.35 crore at end-March, 2009 to Rs 354.43 crore at end-March, 2010, respectively.

Bank’s Drive towards Financial Inclusion

As indicated earlier, the Bank has taken several initiatives for Financial Inclusion and has achieved 100.00% Financial Inclusion in 21 out of 44 of its lead districts. Over two million no-frill savings accounts have been opened in the Bank so far.

As part of the financial Inclusion initiatives, the Bank has opened Financial Literacy and Credit Counselling Centres (FLCCs) christened as “SAARTHEE” at Ajmer, Raebareli, Amethi and Baroda. These centres will be providing financial literacy and credit counselling to needy persons. The Bank has plans to open more such centres in its lead districts in due course.

The Bank has approved Financial Inclusion Plan for providing banking services in the un-banked/under-banked 20,000 villages during the next three years. The Bank has planned to cover 6,000 villages during FY11 including villages having population of 2,000 and above allocated by the respective DCCs. The remaining 14,000 villages will be covered during the next two years, covering 7,000 villages each in the financial years FY12 and FY13. The banking services will be provided to these villages through Information and Communication Technology based models like smart cards, micro ATM, mobile vans and brick and mortar branches, wherever feasible.

The banking products like No frill SB accounts with inbuilt overdraft facility, Recurring Deposit, Baroda Kisan Credit Card (BKCC), Baroda General Credit Card (BGCC) as well as non banking products like Small remittances, Insurance products, etc., will be provided to the rural masses.

The Bank expects to open more than 41 lakh no-frill accounts and also generate substantial amount of business in terms of deposits, advances, remittances and selling of insurance products under this plan.

Advances to SC/ST Communities during FY10

The outstanding advances granted by the Bank to SC/ST communities have been growing year after year. This is evident from the fact that the outstanding advances granted to these beneficiaries went up from Rs 2,799.93 crore as at end-March, 2009 to Rs 3,100 crore as at end-March, 2010. In fact, the SC/ST communities accounted for a share of 28.0% in the total advances granted to Weaker Sections during the year under review. Furthermore, a special thrust is laid by the Bank in financing SC/ST under various government sponsored schemes namely Swaranjayanti Gram Swarojgar Yojana (SGSY), Swarna Jayanti Shahari Rojgar Yojana (SJSRY), Prime Minister Employment Generation Programme (PMEGP), etc.

Around 25 Baroda Swarojgar Vikas Sansthan (BSVS) have been giving due preference to SC/ST communities while selecting the trainees. It is heartening to indicate that so far, these centres have trained 7,501 youths under the SC/ST category of which 3,568 have already established their self employment ventures.

International Business

With the global economic scenario not having completely settled down after the financial crisis, the Bank faced several challenges in pushing the growth of its overseas business and, at the same time, maintaining good quality of assets. Yet, the Bank’s international operations showed a good growth in all the business parameters during FY10. The profitability too got a big boost with reversal of provisions made during FY09 on ‘mark to market’ of Investments.

As the Bank has a large customer base for mobilization of deposits, it did not face any liquidity problem during the year under review. Yet, it raised funds in the International market at competitive rates so as to create a good capital base.

During the year under review, the Bank further strengthened risk management procedures & AML systems, launched aggressive marketing campaigns, expanded customer base and took various steps in the interest of long-term growth of business. The Bank continued with its aggressive branch expansion plans to take advantage of the business opportunities available in various countries around the world.

Business & Profit Performance in Overseas Operations

During FY10, the total business (Deposits+Advances) of the Bank’s overseas branches registered a growth of 30.92%. Out of this, the Customer Deposits increased by 33.67%, Total Deposits by 36.04% and Advances increased by 24.90%.

The International Operations contributed 23.8% to Bank’s global business as on 31st March, 2010.

Total Assets

Total Assets of the Bank’s International Operations increased from Rs 51,165 crore to Rs 68,375 crore registering a growth of 33.64% during the year.

Net Profit

The Net Profit of International Operations during FY10 increased by 108.08% over that of the previous year. This substantial increase came from some improvement in global market conditions and sizeable reversal of provision made during the previous year on ‘Mark to Market’ of Investments. The contribution of international operations to the Bank’s global Net Profit was 28.65% during FY10.

Asset Quality

The Bank further strengthened the monitoring of assets to contain slippages and also intensified the efforts for recoveries in accounts already classified as NPAs. The accounts restructured during FY09 as per regulatory norms were given added attention during FY10 so as to contain incremental delinquencies.

In fact, the Bank was able to further improve the quality of its overseas assets. The Gross NPAs to Total Advances have been brought down from 0.51% as of end-March 2009 to 0.47% as of end-March, 2010.

The Net NPAs were also contained at 0.1% - close to almost zero level.

International Presence

The Bank’s international presence covers 25 countries through its 78 offices, the break-up of which is given below.

Bank’s Overseas Branches	48
Bank’s Representative Offices	03
Branches of Bank’s Overseas Subsidiaries	27
TOTAL	78

In addition to the above, the Bank’s associate in Zambia has -12- branches.

Overseas Expansion

During the year under review, four new branches of the Bank’s subsidiaries were opened at San Fernando (Trinidad &Tobago), Chaguanas (Trinidad & Tobago), Mukono Uganda) and Lira (Uganda).

Future Expansion Plans

The Reserve Bank of New Zealand registered the subsidiary, Bank of Baroda (New Zealand) Ltd., as a Bank from 1st September, 2009 and the branch at Auckland will be opened shortly. Steps have been initiated for opening of branch at Ilford, Essex (U.K.) and approval has been received for opening of three Electronic Banking Service Units in UAE. The Bank has also filed application with the host country Regulators for setting up a subsidiary in Suriname. In Malaysia, application has been filed with Bank Negara Malaysia for setting up a subsidiary in Joint Venture with two other Public Sector banks of India.

The Bank has initiated steps for further expanding the overseas network to canvass business and enhance the profitability. The growing volume of India’s external trade and investments and the increasing presence of Indian Corporates/NRIs/PIOs around the world offer tremendous opportunities for canvassing business.

The Bank has initiated steps for opening of branches/offices in Canada, Russia, Qatar, and upgradation of Representative Office in Australia to a Branch. Applications filed with home country regulators for opening of branches in Russia, Canada, New Zealand, Australia, Qatar and Mozambique are under process. The Bank also has plans to further expand its branch network in UAE, Oman, UK, USA, Uganda, Kenya and Botswana etc. to take advantage of the business opportunities.

Syndication Center

The Bank has set up Global Syndication Centres at London and Dubai to focus on the business of Syndication Loans in International Market. The Offshore Banking Unit at Singapore is also actively contributing in canvassing this business. The activities are supported by the specialized outfit – International Merchant Banking Cell (IMBC) at Corporate Office, Mumbai to serve the increasing demand of Indian Corporates for raising funds from International markets. The IMBC is being further strengthened to focus on loan origination.

Products and Services

To take advantage of the CBS, the Bank has been launching new products and services and also modifying existing products to bring these in line with the local requirements and at par with those offered by other International Banks.

The Bank has been making efforts for popularization of these products through marketing campaigns.

Technology Up gradation

• Installation of additional ATMs : The number of ATMs at Overseas Territories and Subsidiaries increased to 55 (36 onsite and 19 offsite) as on 31st March, 2010 from 45 (31 onsite and 14 offsite) as on 31st March, 2009.
  
  
• Global Treasury Solution has been implemented at UK, UAE, Bahamas, Bahrain and Hong Kong. The Bank’s Singapore Territory will be covered by June, 2010.
  
  
• Swift Centralisation activity has been started at the Bank’s Mumbai Main Office.
  
  
• SAM has been implemented in China, Mauritius, Seychelles, Bahrain, Ghana, Trinidad & Tobago (T&T), Kenya, Oman, Uganda, Hong Kong, Bahamas, Tanzania, Fiji, UAE and Guyana.
  
  
• Payment Messaging Solution• is being implemented at various overseas centres. It is an interface between Core Banking Solution (Finacle) and Swift, which will help in straight through processing of incoming and outgoing swift messages with Anti Money Laundering check. The PMS has been implemented in UAE, Oman, Fiji, Tanzania, Bahamas, Uganda, Guyana, HK, Botswana, Seychelles, Mauritius, South Africa & Kenya. PMS in Ghana, T&T, China, Singapore, New Zealand and Bahrain will be covered by the end of FY11.
  
  
• Anti Money Laundering Compliance The AML online list match and AML Erase Solution have been implemented in 14 overseas territories/subsidiaries. The facility will be extended to T&T, Ghana, Singapore & Bahrain by end of May 2010.
  
  
• A view based E-BANKING has been launched in Mauritius, Seychelles, Fiji, UAE, Oman, Botswana and Tanzania. A transaction based e-banking is presently being implemented in Botswana, Uganda and will be extended to all other territories in a phased manner.



Risk Management in Overseas Business

In compliance of the BASEL II guidelines, “integration and processing of data of all the overseas territories” are dealt with at the Bank’s International Division. To comply with the Regulatory Norms on Credit Deployment, Asset Quality, Provisioning and Computation of Risk Weighted Assets, the Bank will be implementing ASCROM (Asset Classification and Credit Monitoring) System in all its overseas territories in a phased manner. To generate Global RWA master summary as per the Bank’s policy, the solution will be customized as per the territory specific requirements to compute Risk Weighted Assets (RWA) based on more stringent of norms applicable in Host or Home country. The introduction of ‘ASCROM’ will also be helpful for other MIS purposes and Credit Monitoring.

Regulatory Compliance

The Bank scrupulously follows the home country regulations and has built up a reputation of a regulatory-compliant Bank in all the overseas countries of its operation. The Bank has put in place all the necessary systems to adhere to the Anti-Money Laundering guidelines of the host country regulators

Treasury Operations

The global outlook improved significantly during the year FY10 with most advanced economies posting positive growth. Throughout the year, ample liquidity remained in the domestic financial system, keeping the short-term interest rates near the Reverse Repo Rate. However, given the business confidence in the economy, the RBI has started sequencing the ‘exit’ from an expansionary Monetary Policy in a calibrated way so that while the recovery process is not hampered, inflationary expectations remain anchored.

During the year, medium to long-term bond yields increased considerably. From as low as 6.12% in April 2009, the 10-year GOI Bond Yield peaked to 8.0% towards the end of the year. Looking at the overall economic strengths of India and having doubts about the sustainability of lower interest rates for a longer term, the Bank’s Treasury Division focused on reducing the duration of the portfolio and exited longer duration bonds in the market and booked profits during the first quarter of the year. This strategy helped safeguard the “Bonds Portfolio” from excessive depreciation and left an opportunity to invest in these long-term bonds when the yields rose later in the year. Given the volatility in the yields, focus remained on active trading. This helped boost trading income. Besides, the Treasury continued to actively encash the arbitrage opportunities available between Money market, CBLO, G-sec and resources generated through USD/INR swaps. The treasury branch was active in utilizing market opportunities and used Rupee interest rate swaps viz Overnight Indexed Swaps and INBMK swaps to hedge the assets and liabilities from time to time. The Bank has an active Derivatives desk at its Treasury Branch, which offers customized solutions to suit the requirements of corporate clients in hedging their interest rate and currency risks. The Derivatives desk has also initiated trading in exchange traded Interest rate futures reintroduced in the market during the year.

The Corporate Bond markets saw the spreads shrinking vis-à-vis the comparable government securities leading to large issuances in the primary market. During the year under review, Treasury Branch was active in raising long-term resources for the Bank. It raised Rs 1,900 crore in four tranches through a mix of Upper tier II and innovative perpetual Bonds.

Successive good growth figures locally, fortified the thought that India to a large extent is a decoupled economy leading to higher business confidence. A sense of investor confidence prevailed and the FIIs and DIIs started investing in the stock market, sensing growth opportunities in the Indian Economy. Echoing the sentiment, BSE Sensex peaked from 9,900 in April, 2009 to 17,700 in March, 2010. The operation at the Equity Desk of the Bank remained active and vibrant. Sensing the opportunity, the Treasury accumulated stocks at lower levels. This strategy of accumulation when the Index was lower helped in active churning of the portfolio and generated good profits for the Bank.

In the foreign exchange market, Indian rupee appreciated against US Dollar during the year. It rose by 12.29%, moving from Rs 51.19 as on 1st April, 2009 to Rs 44.90 as on 31st March 2010 against the USD. The Bank’s integrated Treasury continued to be a prominent market maker in USD/INR, EUR/USD & GBP/USD. The Forex market remained very volatile, during the year under review, due to spiral effect of sub-prime crisis across all Financial Centres. The Bank’s Foreign Exchange Dealing Room has been able to encash the volatility and earned good profit for the Bank. The Forex desk introduced trading in the exchange traded Currency Futures during the year.

A State-of-the-Art Dealing Room of the Bank at Mumbai handles the entire gamut of foreign exchange transactions and derivative products. The advanced technology environment is being leveraged by the Bank to offer a variety of products to its clients by way of hedging instruments such as Exchange traded Currency and Interest Rate Futures, Interest Rate Swaps, Currency Swaps and Options. Through the Automated Dealing System, the Bank quotes auto generated real time foreign exchange rates to its customers at all authorized branches in India, thereby, providing them the feel of the real time market.

As part of its business reengineering, the Bank is in the process of implementing Global Treasury Solution across key financial centres. It has been implemented successfully in London, Dubai, Brussels, Bahrain & Bahamas. During the year FY10, the Global Treasury platform was successfully implemented in the Bank’s Specialized Treasury Branch in Mumbai. The roll out for other centres is in progress. Upon implementation, the Bank will have better Global Risk Management set-up and can achieve optimum deployment of resources.

A full-fledged Mid-office in Treasury Division monitors and manages various exposures and limits fixed by the Board of Directors on real time basis, using advanced technology. The Risk Management Tool such as Value at Risk (VaR) is used to measure the Market risk on all portfolios. Furthermore, the back testing of VaR number is conducted on daily basis to confirm the veracity of the forecasted values. The Stress Testing of all portfolios is also done to complement the VaR analysis.

Corporate Social Responsibility (CSR)

As a responsible corporate citizen, it has been the vision of the Bank to empower the community through socio-economic development of underprivileged and weaker sections. In its continued efforts to make a difference to the society at large, the Bank further intensified its efforts in this direction in FY10. The Bank has established Baroda Swarozgar Vikas Sansthan (Baroda R-SETI) for imparting training to unemployed youth, free of cost for gainful self employment and entrepreneurship skill development which help them improve their family economic status and also gives a boost to the local economy in those locations. So far 25 such Santhans have been established by the Bank in which more than 37,000 youth have been trained and around 22,000 have been gainfully self employed.

Most of the Bank’s social activities are linked to rural masses. The Bank has established 52 Baroda Gramin Paramarsh Kendra for knowledge sharing, problem solving and credit counseling for rural masses across the country. In order to spread awareness among the rural mass on various financial and banking services and to speed up the process of financial inclusion, the Bank has also established four Financial literacy and Credit counseling Centres (FLCC) at Ajmer, Amethi, Baroda and Raebareli.

The Bank has adopted 101 villages across India for their all-around development and providing financial assistance for development of infrastructure facilities like setting up village libraries, community hall and solar lighting systems in villages. The Bank has also adopted Dungarpur District in Rajasthan for total integrated rural development and 100.00% financial inclusion. Under the project, the Bank has also provided scholarships to 50 tribal girls to promote education among tribal community.

Asset Quality Management

The Bank has continued to maintain its outstanding performance in asset quality/NPA Management during FY10 also. In spite of huge slippages experienced by the banking industry due to economic downturn, the Bank could restrict its Gross NPA level to Rs 2,400 crore i.e. 1.36% of Gross Advances as on 31st March 2010 as against 1.27% as on 31st March 2009.

It is worth mentioning here that, despite the Reserve Bank of India permitting to treat accounts falling under “ADWRS’ as ‘STANDARD’ (due to the extension of repayment period by Government of India), the Bank has continued to treat such advances amounting to Rs 205.39 crore as NPA/Loss assets as a prudent measure. If the same are netted out, Gross NPA Ratio improves to 1.23% as at the end of FY10 as against 1.27% last year. The Net NPA has slightly increased to 0.34% as on 31st March 2010 as against 0.31% as on 31st March 2009.

The Incremental Delinquency Ratio during FY10 was contained at 1.13% as against 0.95% during FY09. This ratio is arrived at by taking the share of fresh slippages during the year in the opening balance of standard accounts at the beginning of the year.

This was made possible by the Bank’s two-fold strategy of NPA management i.e. preventing slippages by adopting strict control measures, and by pursuing aggressive and rigorous recovery effort. Various novel steps undertaken by the Bank during FY10 are well reflected in the increased standard advances portfolio as under.

(Rs crore)
Asset Category (Gross)	31st March 2010	31st March, 2009
Standard	1,74,736.43	1,43,001.94
Gross NPA	2,400.69	1,842.92
Total	1,77,137.12	1,44,844.86
Gross NPA is comprising of:
Sub-Standard	894.83	665.26
Doubtful	743.23	832.32
Loss	762.63	345.34
Total Gross NPA	2,400.69	1,842.92

The Bank’s NPA coverage ratio at 74.90% as on 31st March, 2010 was comfortably above the new norm of 70.0% set by the Reserve Bank of India during FY10.

The Bank’s strategy of rigorous follow up of all NPA accounts has yielded cash recovery of over Rs 383 crore, besides upgrading of accounts of over Rs 194 crore into standard category during the year under review. Over and above this, the cash recovery in prudentially written off accounts amounted to over Rs 300 crore during FY10.

The Bank has launched a special drive viz Sankalp-2 for recovery in non-performing loans with small outstanding balances up to Rs 10 lakh. The scheme was highly successful and yielded cash recovery of over Rs 128 crore during the campaign period. Pursuant to the RBI directive, the Bank also formulated one-time-settlement scheme (or OTS scheme) for non performing loans in the MSE sector with outstanding up to Rs 10 crore and recovered a sum of over Rs 28 crore.

Technology Environment

The Bank has been continuously implementing a total end-to-end business and IT strategy project covering the Bank’s domestic, overseas and subsidiary operations. Some of the major IT initiatives/technological achievements of the Bank during FY10 are mentioned below..

• The Bank has achieved 100.0% CBS for all its domestic branches during September, 2009.
  
  
• The Bank’s Internet Banking, viz., Baroda Connect, is an important delivery channel, both for its retail and corporate customers, providing facility to transfer funds, query account status, pay both Direct and Indirect Taxes online, certain State Taxes, make payment of utility bill and book rail tickets, online interbank payment using NEFT/RTGS. Online bill presentation and payment and shopping for selected portal and donation to selected temples
  
  SMS Alert facility are provided to eBanking customers To protect our customers from phishing attempts, beneficiary registration for third party fund transfer activities has been introduced. The Bank has also launched School Fee Collection Module.
  
  
• The Bank has implemented the ATM Switch application to meet the Bank’s objective of integrating with a wide variety of front-end delivery channels including ATM, POS, Payment Gateway, Debit Card Management System and providing online authorization services by connecting to Bank’s Core Banking Solution. BASE 24 is fully operational for all domestic ATMs and for ATMs in 7 overseas territories. The Bank has launched School Fee Collection Module in
  
  August 2009 which enables payment of School / Institution fees through Bank’s ATM. The Bank has also implemented multiple accounts being linked to a single Debit Card. Debit Card is also enabled for online shopping on the merchant website.
  
  
• The Bank has launched Phone Banking facility to customers, which enables them to get the Bank’s products information, enquire balances in their account, status of cheques, order statement of account through fax or email.
  
  
• All CBS branches of The Bank are enabled for inter bank remittances through RTGS and NEFT.
  
  
• The Bank has activated a Rapid Funds2India – an online money transfer service in its overseas branches located within UAE, Oman, UK, Mauritius, Seychelles, Botswana, HongKong, Fiji, Ghana, Kenya, Guyana, S.Africa, Tanzania, Uganda, Trinidad & Tobago, US and Zambia. The non-resident Indians or NRIs in these territories can avail of this service which facilitates almost instant credit to their accounts in any CBS branch in India. In case, they are maintaining accounts with other banks, same day or next day credit is facilitated through RTGS / NEFT.
  
  
• The Bank has completed a 3D Secure Implementation under the Internet Payment Gateway Project (IPG). The IPG facilitates direct customer merchant transactions and settlement through the Bank’s central ATM Switch.
  
  
• The Bank has launched Corporate Cash Management services, which enable its corporate customers to manage their funds efficiently through bulk payment services, local /outstation fund collection (paper based or electronic) and liquidity through fund pooling facility.
  
  
• The Bank has also launched Institutional Trading under the Online Trading Project on 17th October 2009.
  
  
• It has also made Retail Depository Services available to its customers With a centralized depository application, its branches are equipped to provide depository services for both National Securities Depositories Lt. (NSDL) as well as Central Depository Securities Ltd. (CDSL). The depository customers can now avail of these services from any of the designated branches.
  
  
• The Bank has implemented Global Treasury Solution in UK, UAE, Bahamas, Bahrain, Hong kong. The Global Treasury for India too went live on 14th December 2009
  
  
• The Bank’s Back office functions have been centralized at the branch level to relieve the operational staff from the load of cumbersome back-office functions and enable them to focus more on sales and services.
  
  
• The Bank has set op three Regional Back Offices, at Baroda, Jaipur and Coimbatore, for the process of centralized account opening and issuance of personalized cheque book. The Centralized Pension Payment Cell was also rolled out in Baroda on 7th October 2009.
  
  
• The Bank has implemented Payment Messaging Solution (PMS) in 126 of its domestic branches (B category branches) and 13 overseas territories. The PMS facilitates Straight through Processing (STP) of SWIFT messages generated from the CBS, and also goes through the AML (anti-money laundering) check.
  
  
• The Bank has fully implemented Enterprise wide General Ledger in India and in 19 overseas territories.
  
  
• The Bank is also in the process of implementation of Data Warehouse Project (DWH). The DWH systems will enable the Bank to use their data in making strategic decisions and forecasting future business trends.
  
  
• The Bank has operationalised its Risk Management Project. This Project provides desired risk scoring models (for individual proposal) to the Bank, enabling workflow automation of the rating process and estimation of capital requirements for credit portfolio of the Bank.
  
  
• The Bank has already implemented Anti-Money Laundering system (AML) in 14 overseas territories, viz., Oman, UAE, Fiji, Mauritius, Seychelles, Tanzania, Bahamas, Kenya, Uganda, Guyana, Hongkong, Botswana, U.K., S. Africa. The AML has also been implemented in India and 14 overseas territories through a Batch Process mode.
  
  
• The Bank has successfully implemented the Human Resource Networking for Employees Service with the main objective of creating a centralised database of its employees for facilitating decision-making, promotion and selection exercise as also for automating other HR processes. In Payroll, Salary module, e-TDS modules have been implemented for all domestic offices in India. The “Leave Module” has also been launched and the employees are provided with the functionality of self-service.
  
  
• The Knowledge Management Project is also being implemented by the Bank. This Project will help the Bank to manage information and knowledge through its lifecycle and ensure maximum utilization of its intellectual assets.
  
  
• The Bank has commenced implementation of Customer Relationship Management Project. This project will assist in getting greater customer insight, increased customer access, more effective interactions and integration through all customer channels.
  
  
• To ensure Business Continuity at all times, the Bank has implemented a state-of-the-art Data Centre and also a Disaster Recovery (DR) Site. The drills are being conducted at regular intervals and the operations are transferred to the DR site seamlessly to ensure continuity of operations at all times.
  
  
• Under the Green Initiative, the Bank has adopted environment-friendly systems and technologies in the design of the new Data Center.
  
  
• The Bank has also implemented Solar Power Generation System (SPGS) in 19 branches and further roll out for 79 branches is under process. The SPGS will provide an alternate source of energy through UPS at branches that face acute power shortage or suffer from large load shedding.

Technology Initiatives under Progress

Given below is the information on some select projects, which are at the implementation stage in the technology department of Bank of Baroda.

• Mobile Banking
  
  
• Various customer centric customization/facilities on ATM
  
  
• Online Trading – Retail
  
  
• Upgrading SMS delivery system
  
  
• Implementation of Fraud Management Solution
  
  
• Card Management
  
  
• Upgrading IT setup for NEFT Straight Through Processing
  
  
• Implementation of CBS in the Regional Rural Banks (RRBs).

The Bank’s objective is to reorient itself as a technology-enabled Bank and the Bank of the first choice for its customers. Towards this goal, the Bank’s technology department is looking at newer ways to make a customer’s banking experience more convenient, efficient and effective. In collaboration with various operating units, the Bank’s IT department has been continuously developing new tech-based, tailor-made products for the Bank’s retail as well as corporate customers.

E-business

The Bank’s dedicated cell to e-Business operations provides different types of Alternate Delivery Channels such as ATMs, Internet Banking (Baroda Connect), RTGS/NEFT, Phone Banking, Internet Payment Gateway etc. In addition to this, the e-business cell looks after Depository Services, Cash Management Services and the non-resident Indian (NRI) Services.

Following are the achievements under various segments of e-Business of the Bank during FY10.

ATM/Debit Card Operations

	31/03/2009	31/03/2010
No. of ATMs operationalised	1,179	1,315
No. of Debit Cards issued	32.60 lakh	45.95 lakh

New Initiatives during FY10

a) Payment of school fees through ATMs (tie up with four schools)

b) Fund Transfer within self-linked accounts through ATM.

BARODA CONNECT (Internet Banking)

	31/03/2009	31/03/2010
No. of Users	2,21,963	3,66,605
No. of A/cs Linked	7,18,075	12,91,847

• The Bank launched a system for an online donation to Temples/Trusts (at present, this facility is available for three Temples).
  
  
• The Bank implemented Beneficiary registration for second factor of authentication to prevent “Phishing” incidents.

Baroda RTGS/NEFT

Particulars	2008-09		2009-10
	RTGS	NEFT	RTGS	NEFT
No. of Inward Transactions	3,42,145	6,12,701	8,85,527	15,83,158
No. of Outward Transactions	4,43,353	1,50,081	12,93,970	6,61,923
Avg Transactions per day (Inward)	1,133	2,029	2,951	5,277
Avg Transactions per day (Outward)	1,468	497	4,303	2,206

Phone Banking

• This facility was launched 19th March, 2009.
  
  
• Number of Users Registered as on 31st March, 2010 was – 2,42,770.
  
  
• The Bank is experiencing per day average hits of about 450.
  
  

Non-Resident Indian (NRI) Services

• Total NRI Deposits increased to Rs 16,792 crore as on 31st March, 2010 from the level of Rs 15,066 crore as on 31st March, 2009, representing a growth of 11.46% during FY10.
  
  
• The Bank participated in ‘Pravasi Bhartiya Divas-2010’ in January 2010 at New Delhi.
  
  

Baroda Cash Management Services (BCMS)

• During FY10, these services were started at ten centres within India.
  
  
• There are four modules under the BCMS, out of which three modules have been made operational, i.e., Payment Module, Collection Module & Clearing Module. The fourth module i.e. Invoice Module is yet to be started.
  
  
• During FY10, the total number of transactions in BCMS were 9,30,000 with total turnover of Rs 5,000 crore.
  
  
• It is proposed to extend these services to 100 more centres in a phased manner.
  
  

Depository Services

• The number of identified branches for providing depository services has been increased from 280 to 1,007 during FY10.

Sale of Gold Coins

• The Bank started selling Gold Coins in October, 2007. The Gold Coins in denomination of 2 gm, 4 gm, 5 gm, 8 gm & 10 gm are being sold. These coins are imported from Switzerland and purity of the coins is 99.99%.

New Services to be Started during FY11

• Internet Payment Gateway (Baroda e-Gateway).
  
  
• Mobile Banking.

Human Resources

Human Resource strategies have been a key component of the Bank’s overall efforts for business transformation and augmenting performance of its operational units. The prime objective of the HR function is to harness the employee potential for serving the customers better. The Bank is endowed with a competent and highly motivated employee base of around 38,000 who are engaged in handling the mammoth business operations of the Bank.

Some of the major HR initiatives taken by the Bank during FY10 were as follows.

Implementation of HR Technology

The Bank implemented an Oracle e-business suite covering HRM and Training under the name of Human Resource network for Employee services (HRNes). Another product from M/s Fluous has been implemented for Payroll, and leave modules. All the Indian employees have been covered in these packages and HRNes has been rolled out to cover even the overseas branches of the Bank. Various modules of the Web enabled Enterprise-wide HR Solution – HRnes were made operational during the year, which enables automation of various functionalities pertaining to core employee data, Roster, pay fixation, seniority, Industrial relations, Disciplinary action, self-service, intimations and permissions, generating alerts, transfer requests, separation, manpower planning, grievance redressal, confirmations, selections, promotions, etc. An E-Learning module was also rolled out on a pilot basis during the year, which takes care of scheduling of training programmes, training enrolments and nomination, monitoring of training budget and training cost, post-training utilization besides linkage to E-learning

HR Initiatives in Capability Building

Substantial training and development activities were carried out during FY10, which included comprehensive grooming programmes in the area of Credit, Forex, Dealing, Branch Management, Planning, Risk Management, etc. besides all-round development and grooming of young officers and new recruits.

The Bank conducted 1,194 training programmes in-house (through its network of 12 Training Centres across the country, two IT training centres and an Apex Training College at Ahmedabad) and thereby trained 26,830 people during the year. Besides, the Bank also sent around 768 employees for undergoing training in various reputed external training institutes of the country and even abroad.

Recruitment Drive

Various recruitment exercises were undertaken by the Bank during the year. The Bank significantly increased its intake of people from Campuses of various reputed Business Schools which increased from around 75 in the year FY09 to almost 330 officers in the year FY10. The Bank, for the first time, visited some of the Top Business Schools of the country like IIM, Ahmedabad, Lucknow, Kolkata, etc. and other Tier I Business schools, from where people were taken directly in Middle Management Grade. In the current year, the Bank has recruited almost 650 people from the Campus recruitment mode and they would be joining the Bank in and around June 2010.

Apart from the Campus Recruitment channel, the Bank also recruited almost 530 Probationary Officers, 63 Agricultural Officers and 214 Specialist Officers, besides 1,720 Clerical Staff. The recruitment process continues in the current year also with various recruitment projects underway for filling up almost 1,850 posts of officers and 2,000 posts of clerks.

Framework for Career Progression

Special efforts were made during the year to fulfill the growing aspirations of the employees for faster career progression thereby motivating employees for higher productivity. Keeping this in view, a large number of promotions were released during the year as shown below.

Clerk to Officer	509
JM-I to MM-II (Officer to Manager)	892
MM-II to MM-III (Manager to Sr. Manager)	1190
MM-III to SM-IV (Sr. Manager to Chief Manager)	220
SM-IV to SM-V (Chief Manager to Asstt. Gen. Manager)	60
SM-V to TEG-VI (Asstt. Gen. Manager to Dy. Gen. Manager)	36
TEG-VI to TEG-VII (Dy. Gen. Manager to General Manager))	12

Review of HR Policies and Systems

A focused review of all major HR policies and schemes was undertaken during the year in order to bring about more employee friendly rules, ease of processes and more transparency. Key among the policies that were reviewed, framed and put in place during the year included a transparent Transfer Policy for officers, Promotion Policy for Officers, Overseas Selection Policy, HR Resourcing Policy, a revised Employee Performance Management System, etc.

Special Thrust on Development of SC/ ST/ Other Backward Communities

The Bank is committed to the constitutional safeguards and social objectives for development and welfare of persons belonging to SCs, STs and other backward classes in society. Our Bank is one of those banks in the entire banking industry that have the highest number of employees belonging to SCs and STs, which itself shows the commitment of the Bank towards their development and upliftment. Some of the highlights of the Bank’s efforts for development and welfare of people belonging to SCs and STs are enumerated as under.

Reservation in Employment: The Bank observes all guidelines stipulated by the Government of India for reservation of posts in employment in All India recruitment and local recruitment. Around 15.0% posts are reserved for SCs and 7.5% posts are reserved for STs in all India recruitments. For other recruitments made on Regional basis, appropriate percentage prescribed for various States are being observed.

Special efforts are made like offering pre-recruitment orientation training to SC / ST applicants for recruitment in the Bank. Relaxation in age limit and qualifications are given and interviews of SC / ST candidates are done on relaxed standards in order to ensure that appointment of candidates to the reserved posts happen. In the Interview Panel for recruitment, a member belonging to SC / ST is invariably associated. Candidates belonging to SC / ST, who are called for interview, are reimbursed traveling expenses. In addition to providing reservation in employment, the Bank is also providing reservation and other enabling mechanisms in career growth and promotions for SC and ST employees as per guidelines in vogue.

Pre-promotion training before participating in promotion exercises is also provided. 10% of the available residential accommodation of the Bank is also reserved for SC / ST candidates.

The staff strength and representation of SCs and STs as of 31st March 2010 is as under.

Cadre	Total	SC	SC %	ST	ST%
Officers	14,427>	2,611	18.10	957	6.63
Clerks	15,376	2,260	14.70	828	5.39
Substaff	8,268	2,934	35.49	730	8.83
Total	38,071	7,805	20.5	2,515	6.60

SC/ST Cell: An exclusive SC/ST Cell in the Bank has been set up to monitor the reservation and other enabling provisions for SC/ST employees in the Bank. An Executive in the rank of General Manager is appointed as Chief Liaison Officer for SC/ST employees who ensures compliance of various guidelines pertaining to SC / ST employees. A Liaison Officer for SC/ST has been appointed in each Zone of the Bank who takes care of all matters and grievance redressal of SC/ST employees of that Zone.

Meeting with SC/ST Welfare Association: With a view to have direct dialogue and review of reservation and other special provisions for SC and ST, the Bank holds quarterly meetings with the representatives of SC/ST Welfare Association of our employees in the Bank. Chairman and Managing Director and Senior Executives including Chief Liaison Officer for SC/ST attend the meeting.

Bharat Ratna Dr. Babasaheb Ambedkar Memorial Trust: The Bank established the “Bharat Ratna Dr. Babasaheb Ambedkar Memorial Trust” in 1991 for promoting welfare activities for the benefit of SC/ST employees and their family members Apart from scholarships to children of employees belonging to SC/ST, the Trust also provides scholarship to needy students belonging to SC/ST community, in general in major centres of the country.

Visit of National Commission for Scheduled Castes: The National Commission for Scheduled Castes visited the Bank on 30th December, 2009, had discussions and interactions and examined the level of implementation of policies and programs. The suggestions and guidance of the Commission are being scrupulously observed by the Bank.

Marketing

During FY10, the Bank decided to adopt a balanced approach in marketing and sales by giving due focus to both brand building and business development. While the focus has been on effective utilization of print/electronic/online and OOH media, the emphasis has also been given to direct sales through branch network, Retail Loan/SME Loan Factory and City Sales Offices.

Brand Building Campaign

In FY09, the Bank had launched its sub-brand ‘Baroda Next - State of the Art - Straight from the Heart’. Encouraged by a good response to this campaign and resultant improvement in brand recall, the Bank conducted a follow-up corporate campaign to reinforce the brand ‘Baroda Next’ in July-August 2009 with an aim to emphasize that the Bank is committed to deliver tomorrow’s technology today with a human touch and, thereby, improve Bank’s ability to compete effectively. The main focus was to create interest in the Bank’s alternate delivery channels. All media vehicles viz. print, electronic, OOH, in-branch publicity were used effectively during this campaign. The messages were direct and well-received by the target audience.

Product Promotions

During FY10, a number of product promotion campaigns were conducted to promote Retail Loans, Current Deposits, Saving Deposits, SME products, Agriculture schemes, e-service delivery channels and gold coin. A combination of all media vehicles [print, electronic and OOH media] was used to support the sales effort of field level units. Their efforts were also aided by suitable in-branch publicity through display of banners, posters and leaflets and promotional events at ground level.

Focus on Sales

In FY10, the Bank introduced a new outfit called ‘City Sales Office’ to focus specifically on out-bound sales. The concept of City Sales Office (CSO) is to establish a dedicated sales unit putting all its effort on out-bound sales for asset, liability and investment products. The CSO units, along with Retail Loan Factory and SME Loan Factory, are envisaged to support the efforts of the branches in improving sales performance under various product categories.

As on 31st March, 2010, nine City Sales Offices have been established at eight locations in the country. The CSO units have been successful and have resulted in improving sales lead generation activities.

Other Initiatives in Marketing

In order to spread awareness on alternative delivery channels like ATMs/Baroda Connect/RTGS/ NEFT/ASBA etc., the Bank has conducted various Customer Education Workshops and has also created a pool of 1500 + trainers at the grass root level for these workshops.

Awards and Industry Recognition for Bank of Baroda

The Bank’s consistent performance accompanied with various marketing efforts has helped improve the Bank’s Brand Ranking in the Indian banking industry. It is evident from the results of various independent media surveys as given below.

• Bank of the Year Award' in India Leadership Conclave at Delhi by Wockhardt Foundation - 14th Sep. 2009.
  
  
• SKOCH Challenger Award for ‘Bank of the Year’ - 18th March 2010.
  
  
• Second Rank as ‘Best Nationalized Bank’ in ‘India’s Best Bank Survey 2009-10’ by Financial Express Group.
  
  
• Rank 34 [up from Rank 39 last year] - India’s Most Valuable Brand 2009 (Brand Finance, UK)
  
  
• Rank 33 [up from Rank 36 last year] – ET 500 2009
  
  
• Rank 4 [up from Rank 17 last year] – Business Today KPMG Survey 2009

The Bank has also been awarded a ‘Gold Trophy’ for the Indian Language Publication, a ‘Silver Trophy’ for the Corporate Website and a ‘Bronze Trophy’ for Bilingual Internal Magazine and Chairman & Managing Director’s message (in Corporate Communications category) by the Association of Business Communicators of India (ABCI).

Premises Re-Engineering & Ambience Enhancement

The following construction projects have been in progress and are expected to be completed within the reasonable time limit.

1. Administrative building at Gomtinagar, Lucknow
2. Administrative building at Jamshedpur, Jharkhand.
3.Commercial-cum- Residential complex at Ghod Dod Road,Surat.
4.Commercial building for Branch and Zonal/ Regional office at Mylapore, Chennai.
5.17 Residential flats at Alwarpet, Chennai
6.Residential flats on plot at East of Kailash, New Delhi.
7. Construction of Bank of Baroda Centenary year (2007-7. 2008) Sir Sayajirao Auditorium at Baroda for handing over to the Vadodara Municipal Corporation as an appreciation to the city of Baroda on completion of 100 years of Bank of Baroda.

Also, construction of residential building at Janakpuri, New Delhi is initiated and tenders will be issued shortly. It is the endeavour of our Bank to make use of all the landed property purchased by the Bank to put to use by constructing either commercial or residential premises.

The construction projects completed during the course of the year and in use/operation are -

• Baroda Sun Tower at C-34 , Bandra Kurla complex, Mumbai
  
  
• Building for Branch at Rajpipla.
  
  
• VKI, Jaipur.
  
  
• Pant Nagar, SIDCUL.

The Bank has initiated steps for construction of premises for establishment of Baroda Swarojagar Vikas Sansthan (BSVS) at various locations such as Baroda, Bulsar, Jaipur, Ajmer, Rampur and Pantnagar SIDCUL. The Bank has taken a special initiative to increase awareness level to adhere to Green Building norms, energy saving measures and also to create barrier free environment for the handicapped.

Refurbishment

On implementation of CBS at all its branches, the Bank has made it a point to ensure that maximum number of branches are put under refurbishment, upgradation, face lifting, redesigning and improved ambience for facilitating convenient banking to customers During FY10, 396 branches have been refurbished. The Bank has also initiated steps for standardization of the interior of branches and offices. Under Business Process Re-engineering, the Bank has initiated steps to establish Regional Back Offices (RBO) and City Back Offices (CBO) at different centres of the country. The RBOs at Jaipur and Baroda have already been furnished as per the requirement and made operational. The RBOs at Bhopal and Coimbatore are under refurbishment.

Increased Use of IT to Improve Efficiency

The Estate Management Department of the Bank has been extensively using Information Technology in its day to day functioning to improve efficiency. For instance, payments to contractors etc. are being made through the RTGS/NEFT mode.

Other Activities of Estate Management Division

As a part of the Bank’s conscious efforts to reduce “rental burden”, continued efforts are being made to ensure optimum use of existing premises and to surrender excess/surplus premises to the extent possible. As a result, the Bank could surrender as much as 85,631 sq.ft. leased area during FY10. It is the policy of the Bank to go in for surrendering maximum area every year. The Estate Management Department has released a revised Premises’ Policy Guidelines for 2009-2012. It has also developed the Construction Work Manual and framed the Purchase Policy which will be released shortly for the benefit of all the functionaries at various levels. The detailed guidelines on refurbishment will also be released soon.

Branch Network

Given below is the information on the Bank’s brick And mortar distribution channels as on 31st March, 2010, which are observed to be closer to customers as compared to the e-banking channels, which are generally preferred by the tech savvy urban masses.

Area Classification (India)	Number of Branches	% Share in Total
Metro	673	22
Urban	580	19
Semi-urban	721	23
Rural	1,126	36
Total	3,100	100
Overseas	48	-

Domestic Subsidiaries and Associates

The performance of “Subsidiaries & the Associates” of Bank of Baroda was satisfactory during FY10. The BOBCARDS Ltd. has successfully cleaned up its balance-sheet and is in the process of setting up a new business plan. The BOB Capital Markets Ltd. has been activated by appointing a professional CEO and recruiting a professional team. The Company has commenced an Institutional Broking business in October 2009 and will be commencing retail broking shortly. The Baroda Pioneer Asset Management Co. Ltd. is in its second year of operation and has witnessed significant growth in their Asset Under Management (AUM). This Company also has plans to launch various new schemes shortly. As stated earlier, the IndiaFirst has received an overwhelming response from the Bank’s customers across the country making it the fastest ever insurance company to reach Rs 100 crore premium collections in the first 100 days of its operations.

Given below are the audited performance figures of the Bank’s subsidiaries and Associates.

(Rs lakh)

Entity (with date of registration)	Country	Owned Funds	Total Assets	Net Profit	Offices	Staff
BOB Capital Markets Ltd.11 March, 1996	India	11,851.05	11,852.96	645.27	1	23
BOBCARDS Ltd.29 September, 1994	India	10,316.75	18,808.80	-(1062.74)	36	139
Associate Baroda Pioneer Asset Mgmt. Co. Ltd. 5 November, 1992	India	6,906.67	7,355.73	-(909.61)	1	31
India First Life Insurance Co. Ltd. 19 June, 2008	India	27,840.13	45,314.14	- (4,479.21)	1	893
Nainital Bank Ltd.31 July 1922	India	23,979.10	2,87,712.24	4,337.49	103	734

Implementation of Official Language (OL) Policy

During the year FY10, the Bank made significant progress in promoting and propagating the use of Official Language and ensured compliance of various other statutory requirements besides recommendations of Parliament Committee on Official Language. The Bank could achieve all major targets set by the Government of India. In recognition of the Bank's outstanding performance, the Bank was appreciated at various levels.

The Town Official Language Implementation Committees functioning at Jaipur and Baroda under the convenorship of the Bank have discharged their responsibilities excellently and provided suitable guidance to their member Banks. The Bank’s Jaipur committee was awarded first prize by Government of India for its outstanding performance/functioning. Besides, its Staff College, Ahmedabad and Zonal office, Jaipur were also awarded by the respective Regional O.L. Implementation offices, Ministry of Home affairs for implementation of O.L. Policy of Government of India in their area of operations.

The Bank has successfully completed one year of computer training programme on use of Hindi based Unicode fonts for their employees with a view to promote use of Hindi in day-to- day banking. During the year FY10, more than 450 employees were trained at the Bank’s Corporate Office apart from the training imparted by various other administrative offices across the Bank.

The Third Sub-committee of Parliament on Official Language visited Regional Office, Goa and Allahabad of our Bank and appreciated the efforts/work done by the Bank in the area of Official Language Implementation.

Two of our Bank employees have written books on burning issues/topics of banking under Reserve Bank of India’s ‘original book writing in Hindi’ scheme.

The Bank's in-house Hindi magazine "Akshayyam" was awarded by the Reserve Bank of India under Hindi magazine category. The magazine was also awarded by the ABCI, Mumbai with Gold (First) prize under Indian Language Publication category. Besides, the Bank’s House Journal "BOBMAITRI" was awarded with bronze prize by the ABCI, Mumbai under bilingual House Journal category.

Board of Directors

Shri N. S. Srinath, was appointed by the Central Government as Whole time Director, designated as Executive Director on 07th December 2009, under section 9(3) (a) of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970, to hold the position till 31st May 2012 or until further orders, whichever is earlier. He was appointed consequent upon Shri V Santhanaraman, ceasing to be a Director on his attaining superannuation on 31st August 2009.

Shri Alok Nigam, IAS was nominated by the Central Government as a Director on 09th December 2009 under section 9(3) (b) of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 representing the Central Government vice Shri Amitabh Verma, IAS who ceased to be a Director on the nomination of Shri Nigam. Shri Nigam shall hold office until further orders from the Central Government.

Dr. (Smt.) Masarrat Shahid was nominated by the Central Government, as a part time non-official Director on 29th October, 2009 under section 9(3) (h) of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Dr. Shahid was nominated for a second term of three years from 29th October, 2009 to 28th October 2012 or until further orders, whichever is earlier.

Shri Amarjit Chopra, who was nominated as Director for a period of three years on 13th October 2006, by the Central Government under section 9 (3) (g) of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970, ceased to be a Director on 12th October 2009, on the expiry of his term of appointment

Directors’ Responsibility Statement

The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2010:

• The applicable accounting standards have been followed along with proper explanation relating to material departures, if any;
• The accounting policies framed in accordance with the guidelines of the Reserve Bank of India, were consistently applied.
• Reasonable and prudent judgement 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 profit of the Bank for the year ended March 31, 2010;
• Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of the applicable laws governing banks in India; and
• The accounts have been prepared on a going concern basis.

ACKNOWLEDGMENT:

The Directors express their sincere thanks to the Government of India, Reserve Bank of India, Securities and Exchange Board of India, other regulatory authorities, various financial institutions, banks and correspondents in India and abroad for their valuable guidance and support.

The Directors acknowledge with appreciation the assistance and cooperation extended by all stakeholders of the Bank like customers, shareholders and well wishers in India and abroad.

The Directors place on record deep appreciation for the hard work and dedication of the members of the staff at different levels, which enabled the Bank to record high quality, consistent growth even during the turbulent times and consolidate its position as one of the leading banks in the country.



For and on behalf of the Board of Directors

M. D. Mallya
Chairman & Managing Director

Mumbai
25 May, 2010