DIRECTORS' REPORT

Your Directors have pleasure in presenting the One Hundred and Fourth Annual Report of Your Bank with the audited Balance Sheet, Profit & Loss Account and the Report on Business and Operations for the year ended March 31, 2012 (FY12).

Performance Highlights

• Total Business (Deposit + Advances) increased to Rs 6,72,248 crore reflecting a growth of 25.86%.

• Gross Profit and Net Profit were Rs 8,580.62 crore and Rs 5,006.96 crore respectively. Net Profit registered a growth of 18.04 % over previous year.

• Credit-Deposit Ratio stood at 86.86% as against 86.77% last year.

• Retail Credit posted a growth of 9.97% constituting 17.36% of your Bank's Gross Domestic Credit in FY12.

• net interest Margin (NIM) as per cent of interest earning assets in global operations was at the level of 2.97% and in domestic operations at 3.51%.

• Net NPAs to Net Advances stood at 0.54% this year against 0.35% last year.

• Capital Adequacy Ratio (CAR) as per Basel II stood at 14.67%.

• Net Worth improved to Rs 26,203.67 crore registering a rise of 32.67%.

• Book Value improved from Rs 504.43 to Rs 637.37 on year.

• Business per Employee moved up from Rs 1,229 lakh to Rs 1,466 lakh on year.

Segment-Wise Performance

The Segment Results for the year FY12 reveal that the contribution of Treasury Operations was Rs 887.72 crore, that of Corporate/Wholesale Banking was Rs 965.87 crore, that of Retail Banking was Rs 2,782.37 crore, and of Other Banking Operations was Rs 2,959.73 crore. Your Bank earned a Profit after Tax (PAT) of Rs 5,006.96 crore after deducting Rs 1,569.89 crore of unallocated expenditure and Rs 1,018.84 crore towards provision for tax.

Dividend

Your Bank's Directors have proposed a dividend of Rs 17 per share (on the face value of Rs 10/- per share) for the year ended March 31st, 2012. The total outgo in the form of dividend, including taxes, will be Rs 812.29 crore.

Capital Adequacy Ratio (CAR)

Your Bank's Capital Adequacy Ratio (CAR) was comfortable at 14.67% under Basel II as on 31st March 2012.

Your Bank's Net Worth as at 31st March 2012 was Rs 26,203.67 crore comprising paid-up equity capital of Rs 412.38 crore and reserves (excluding revaluation reserves) of Rs 25,791.29 crore. An amount of Rs 4,194.67 crore was transferred to reserves from the profits earned.

Provisions towards Retirement and Other Benefits

During the year FY12, your Bank made provision towards contribution to gratuity (Rs 145.63 crore), pension funds (Rs 671.88 crore), leave encashment (Rs 93.46 crore) and additional retirement benefits (Rs 80.97 crore) on actuarial basis. Total provisions under these four categories amounted to Rs 991.94 crore during the year FY12, against Rs 1,160.42 crore during FY11. Total corpus available with your Bank at the end of March 2012 under these heads was: Rs 1,416.85 crore (gratuity), Rs 5,935.62 crore (pension funds), Rs 566.01 crore (leave encashment), and Rs 446.62 crore (additional retirement benefits).

Management Discussion and Analysis

Economic Scene in FY12 and Outlook for FY13

The Central Statistical Organisation, Government of India has placed India's economic growth during FY12 at 6.9% much lower than the growth of 8.4% witnessed during the previous two fiscal years. During FY12, while the economy could draw support from relatively robust agriculture and services, the slowdown was quite acute in industrial sector. The growth in industrial production significantly decelerated from 8.2% in FY11 to 2.8% in FY12. Within the industrial sector, maximum stresses were seen in mining, capital goods & intermediate goods sectors, which posted negative growth rates during the year FY12. Factors like sustained input cost pressures, shortages of important intermediates like coal and iron ore, uncertainty in land acquisition and environment clearances, sharp depreciation in rupee of 19.0% against the US dollar between end-Dec, 2010 and end-Dec, 2011 substantially depressed the investment sentiment during FY12.

Both investment and savings rates declined significantly between FY10 and FY12. As per the International Monetary Fund's (IMF) calculation, India's savings rate declined from 33.5% in FY10 to 31.3% in FY12 and investment rate from 36.3% in FY10 to 34.0% in FY12. According to RBI, the deceleration in capital formation is apparent in the sharp moderation in the number/outlay of projects sanctioned by major banks and financial institutions during FY12. The decline in financial assistance was particularly acute for 'metal & metal products' and power industries.

Inflationary risks persisted throughout FY12 with headline (WPI) inflation averaging around 8.8% for the full year. Headline inflation, which was at 10.0% in Sept, 2011, however eased to 6.69% in Mar, 2012 on account of a seasonal decline in certain food prices and favourable base effect. After raising the policy rate by 375 bps during Mar, 2010 to Oct, 2011 to contain inflation and anchor inflation expectations, the RBI paused in its policy review in Dec, 2011. The emerging growth-inflation dynamics prompted the central bank to indicate that no further tightening was required and that future actions would be towards lowering the rates.

India's balance of payments (BoP) came under stress during FY12 due to deterioration of the trade balance and moderation in capital inflows. While exports grew at the modest pace of 21.0% (y-o-y) to US$ 304 billion in FY12, imports grew by 32.2% to US$ 489 billion, widening India's trade deficit from US$ 119 billion in FY11 to US$ 185 billion in FY12. Notwithstanding the rupee depreciation, the trade deficit increased in FY12 primarily due to a slowdown in global demand, inadequate pass-through of higher global oil prices and the relatively price inelastic nature of some of India's imports like gold and silver. India's current account deficit is expected to touch 4.0% of GDP in FY12. After the boom in FII inflows in FY11, rising global risk aversion and domestic policy concerns reduced the FII inflows by 43.0% (y-o-y) in FY12 to US$ 16.8 billion. This was the lowest FII investment in the last three years. Investment in Indian ADRs and GDRs too declined in FY12 to US$ 597 million.

Foreign Direct Investment (FDI) in India, however, spiked 34.0% (y-o-y) in FY12 to a record US$ 46.8 billion thanks to a spate of some big ticket deals like Vedanta or British BP, etc.

In nominal terms, India's rupee depreciated by 18.3% against the US dollar from the last week of Aug, 2011 to mid-Dec, 2011 after being largely range-bound during the first four months of FY12. Subsequently, the exchange rate stabilized in response to the measures taken by the RBI and the Government aimed at improving dollar supply in the foreign exchange market as also to curb speculation.

Lower tax revenues, poor disinvestment receipts and higher spending on subsidies pushed up the central government's fiscal deficit to 5.9% of GDP in FY12 as against the target of 4.6%.

Going forward into FY13, assuming a normal monsoon, the baseline GDP growth is projected at 7.3% by the RBI in its Annual Monetary Policy Statement for FY13 on the back of marginally improved global outlook and expected revival in domestic investment sentiment. Inflation, however, is forecast to remain above the RBI's comfort zone and placed at 6.5%. The fiscal correction, as indicated in the Union Budget for FY13, along with other policy measures to address supply-side bottlenecks in agriculture, energy and transport sectors, are expected to create conditions for revival of investment activity in India during FY13.

Performance of Indian Banking Sector in FY12 and Outlook for FY13

Credit growth of Indian commercial banks had been showing a decelerating trend from Dec, 2010 on the back of elevated inflation, interest rates and intensification of supply-side constraints. The year FY12 ended with bank credit growth of 19.3% and aggregate deposit growth of 17.4%. Even though the divergence between credit and deposit growth rates had narrowed during the first three quarters of FY12, it widened during the fourth quarter due to a sharper deceleration in deposit growth in Q4, FY12. This resulted in increased dependence of commercial banks on non-deposit sources of finance (i.e., borrowings) during Q4, FY12.

While the deceleration in bank credit growth was contributed by all the sectors, i.e., agriculture, industry, services and personal loans, the RBI data showed that the deceleration was particularly sharp in agriculture, real estate, hotels & restaurants, professional services, telecommunication, power, cement, textiles, iron & steel and personal vehicle loans.

Increasing stress in the corporate sector was reflected in the quantum jump in the corporate debt that came up for restructuring before the Corporate Debt Restructuring Cell during FY12. According to RBI, the Indian banking sector, in general became risk averse during FY12 to avoid the possibility of adverse selection in the given economic environment. As per the RBI's report, the Gross NPA ratio of the Indian banking industry worsened by 59 basis points (bps) between end-Mar, 2011 to end-Dec, 2011 due to continued economic stresses and capital to risk-weighted asset ratio (CRAR) of Banking industry deteriorated by 91 bps during the said period. These factors appear to have negatively impacted the Banking sector's capacity to extend credit during FY12. As a result, there was a compositional shift in Banks' asset portfolio in favour of investments in government securities.

Liquidity conditions remained in a deficit mode throughout FY12. However, beginning Nov, 2011, the liquidity deficit went beyond the comfort level of (+)/(-) one per cent of net demand and time liabilities (NDTL) of banks. As a result, the RBI took steps to inject primary liquidity of a more durable nature in the form of open market operations and the aggressive cuts in the cash reserve ratio (by 125 bps during Jan - Mar, 2012), which helped ease the liquidity tightness to a great extent.

Going forward into FY13, the RBI has projected aggregate deposits of commercial banks to grow by 16.0% and non-food credit by 17.0% in line with the overall GDP growth of 7.3% and broad money supply growth of 15.0%. Banks with good capital strength, a balanced loan-mix, stable net interest margins (NIMs) and lower incremental delinquency ratios are likely to see decent earnings growth in FY13 also, despite subdued economic environment.

Risk Management

Risk is an exposure to a transaction which may result in a loss with some probability. In financial institutions, risk results from variations and fluctuations in assets, liabilities, incomes and outflows & inflows of cash etc. While the types and degree of risks an organization may be exposed to, depend upon a number of factors, it is believed that generally Banks face Credit, Market, Liquidity, Operational, Compliance, Legal, Regulatory and Reputation risks.

Your Bank has set up a sound Risk Management architecture wherein the risks are assumed within the risk appetites defined by your Bank's Board.

Risk Management Structure

The Board of Directors of your Bank has the authority and responsibility to implement Risk Management Architecture of your Bank. Risk Management Committee of Executives and Risk Management Committee of the Board are looking after the implementation of integrated risk management systems in your Bank.

The Sub Committee of the Board on ALM (Asset Liability Management) and Risk Management Division assist the Board on financial risk related issues. Your Bank has a full-fledged Risk Management Department headed by a General Manager and consisting of a team of qualified, trained and experienced employees. Your Bank has set up separate committees, of Top Executives of your Bank to supervise the respective risk management functions as under.

Asset Liability Management Committee (ALCO) is a decision making unit responsible for balance sheet planning from a risk-return perspective including the strategic management of interest rate and liquidity risks. The business issues that an ALCO would consider, inter alia, typically include product pricing for both deposits and advances, desired maturity profiles of the incremental assets and liabilities, etc. It also plans out strategies to meet asset-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 your Bank's credit risk management functions on a regular basis.

Operational Risk Management Committee (ORMC) has the responsibility of evaluating and taking necessary steps for mitigation of operational risk by designing and maintaining an explicit operational risk management process. It also ensures that the norms, policies and guidelines laid down in Operational Risk Management Policy are strictly adhered to.

Risk Management Policy

Your Bank has Board-approved policies and procedures in place to measure, manage and mitigate various risks that it is exposed to. In order to provide ready reference and guidance to various functionaries of the Risk Management System in your Bank, it 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, Operational Risk Management Policy, Internal Capital Adequacy Assessment Process (ICAAP), Stress Test, Credit Risk Mitigation and Collateral Management Policy duly approved by its Board.

Risk Management - Implementation and Monitoring System

The monitoring mechanism of major risks like Liquidity Risk, Credit Risk, Market Risk and Operational Risk are as under.

Liquidity Risk

Liquidity risk is the current and prospective risk to earnings or capital arising from a bank's inability to meet its obligations when they become due without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.

During the year under review, Indian banking system exhibited a stiff systemic liquidity position with some adjustments done by the central monetary authority to balance credit growth and control inflation. In your Bank, the liquidity risk is measured by its flow approach on a daily basis through Structural Liquidity Gap reports and on a dynamic basis by Dynamic Gap reports prepared every fortnight for the subsequent three months. Under Stock Approach, your 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. Your Bank's 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 your Bank to meet any exigencies of a shortfall in funds' position. Your Bank has managed its liquidity by prudent diversification of the overall deposit base, control on the level of bulk deposits, and ready access to wholesale funds under normal market conditions. Your 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 defined as the possibility of losses associated with decrease in the credit quality of the borrower or the counter parties. In any bank's portfolio, losses stem from outside defaults due to inability or unwillingness of the customer or the counter party to meet their commitments. Losses may also result from reduction in the portfolio value arising from actual or perceived deterioration in credit quality. In general, credit risk management processes involve identification, measurement, monitoring and control of credit exposures.

In your Bank, the Credit Risk management ensures that your Bank's risk identification and reporting controls in credit processes are adequate and functional. Top management regularly gauges your Bank's economic standing and loss-prevention strategy by reviewing risk controls.

Your Bank has various policies in place such as Domestic Loan Policy, Investment Policy, Off-Balance Sheet Exposure Policy, etc to guide its operating units. It has specified various prudential caps for credit risk exposures. Your Bank also conducts industry studies to assess the risk prevalent in industries where your 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.

Your Bank has adopted various credit rating models to measure the level of credit risk in a specific loan transaction. Your Bank uses a robust rating model developed to measure credit risk for majority of the business loans.

Apart from estimating PD (probability of defaults), the credit rating model would also help your Bank in several other ways as under.

• To migrate to internal rating based approaches (advanced 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.

Apart from assessing credit risk at the counterparty level, your Bank has appropriate processes and systems to assess credit risk at the portfolio level. Your 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 movements of market determined rates and prices. The objective of market risk management is to avoid excessive exposure of your Bank's earnings and equity to such losses and to reduce your 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 your Bank as a financial intermediary is interest rate risk due to your Bank's asset-liability management activities.

Other market related risks to which any bank is exposed are foreign exchange risk on foreign currency positions, liquidity, or funding risk, and price risk on trading portfolios.

Your Bank has clearly articulated policies to control and monitor its treasury functions. These policies comprise management practices, procedures, prudential risk limits, review mechanisms and reporting systems. These policies are revised regularly at fixed intervals in line with changes in financial and market conditions.

The Interest rate risk in your Bank is measured through interest rate sensitivity gap reports and Earning at Risk. Furthermore, your Bank calculates duration, modified duration, Value at Risk for its investment portfolio consisting of fixed income securities, equities and forex positions on monthly basis. It 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 ten days holding period at 99.0% 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, your 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, your Bank's Operational Risk Management Committee (ORMC) has the responsibility of monitoring the operational risk of your Bank. Your Bank monitors operational risk by reviewing whether its internal systems and procedures are duly complied with. It 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 without much loss of time.

Bank's Compliance with Basel II

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

In compliance with the Pillar-II guidelines of the RBI under Basel II framework, your Bank has formulated a Policy of Internal Capital Adequacy Assessment Process (ICAAP) to assess internal capital in relation to various risks that it is exposed to. Stress Testing and scenario analysis are used to assess the financial and management capability of your Bank to continue to operate effectively under exceptional but plausible conditions. Your Bank has a Board-approved Stress Testing Policy describing various techniques used to gauge their potential vulnerability and its capacity to sustain such vulnerability. Your Bank has been conducting its ICAAP tests on quarterly basis along with stress tests as per its ICAAP Policy.

The Pillar 3 of Basel II, (i.e. market discipline) aims to encourage market discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on the scope of application, capital, risk exposures, risk assessment processes, and hence the capital adequacy of your Bank.

The Pillar-3 Disclosures are published on quarterly and half yearly basis on your Bank's website plus a year-end disclosure as on March of every year. The year-end exposure is also published in your Bank's Annual report apart from being available on your Bank's website.

Preparedness for Basel III

Basel III guidelines of RBI have also introduced (i) a minimum Leverage Ratio of 4.5% as an additional standard of riskiness of a banks' balance sheet. (ii) Liquidity standards by way of two liquidity ratios namely Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

During the parallel run between January, 2013 and January, 2017, banks will strive to maintain a minimum Leverage Ratio of 4.5%. The regulatory leverage ratio requirements would be prescribed by RBI after a parallel becomes effective from Jan 1, 2018.

The LCR requires a bank to hold sufficient high-quality liquid assets to cover its total stressed net cash outflows over 30 days. The NSFR requires a bank to hold available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress.

With the quantum and quality of capital that your Bank is having in its books, with common equity constituting 93.05% of Tier I Capital as on March 2012, it is hoped that your Bank's transition to Basel III regime would be met without much difficulty up to FY14. But moving ahead your Bank may have to supplement capital funds, especially common equity funds, for FY15 and onwards.

Credit Monitoring Function

A continuous monitoring of credit is one of the most important tools for ensuring the quality of advances assets for any bank. Your Bank too has a well-established system of monthly monitoring of its advances accounts at various levels to prevent asset quality slippages and to take timely corrective steps to improve the quality of its overall loan-book.

In your Bank, a separate department for Credit Monitoring function at the Corporate level, headed by a General Manager, and one at the Regional/Zonal level, has been functional since September 2008. The Slippage Prevention Task Force formed at all Zonal/Regional offices in terms of your Bank's Domestic Loan Policy was activated for the purpose of arresting slippages and also for initiating necessary restructuring in potentially sick accounts at an early stage in conformity with the laid down norms and guidelines. Your Bank has placed special focus on sharpening of the credit monitoring process for improving the asset quality, identifying the areas of concern and the branches requiring special attention. It has also worked out strategies to ensure implementation in a time-bound manner.

The primary objectives of your Bank's Credit Monitoring Department at the Corporate level are fixed 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 a 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; Liaison with CDR Cell and Zonal/ Regional Offices.

• Taking necessary steps/regular follow up, for review of accounts and compliance of terms and conditions, thereby improving the quality of your Bank's credit portfolio;

• Endeavoring for upward migration of Credit Ratings.

• Monitoring progress of accounts under BIFR.

Restructuring of Advances Accounts

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

Your Bank's Credit Monitoring department at Corporate Office has taken several initiatives in identifying the incipient sickness/ potential default/weaknesses in the advance accounts for taking corrective actions including restructuring in deserving cases, for prevention of slippage and maintaining asset quality. The department had called for suggestions from Zonal and Regional Offices for modification of Monthly Monitoring Report (MMR) format. The MMR was modified, incorporating suggestions of these operational units to make it more effective.

Your Bank has 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 its credit portfolio.

Your Bank also initiated major 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 its credit portfolio.

Economic Intelligence Unit

At the Corporate Office of your Bank, a specialized Economic Intelligence Unit (EIU) supports the Top Management in several critical areas like Macroeconomic Forecasting, 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 as well as various operational units a periodic outlook on key macro variables like industrial and infrastructural growth, inflation, interest rates, stocks' movement, credit deployment & resource mobilization of Banking industry, liquidity conditions and exchange rates.

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

The EIU brings out a weekly e-publication on macro-economic, policy and regulatory developments to share its perspective with Bankers, investors, regulators and other industry leaders. The division works as an intellectual arm of your Bank in comprehending developments that eventually helps develop rightly aligned strategies.

Internal Control Systems

Your Bank has continued to register excellent business results year after year and maintained the record of doubling its business in three years without compromising on asset quality.

It may be noted that your Bank's Central Inspection & Audit Division has played an important role in protecting the standards of control and compliance for your Bank without hurting its business growth.

Your Bank's Central Inspection & Audit Division located at its Head Office in Baroda functions with extended arms of ten zonal Inspection Centres at Zonal Head Quarters and oversees the internal control system through Risk Based Internal Audit of all the branches. The Information Systems Audit (I.S. Audit), Concurrent Audit, Credit Audit and Management Audit keep a check that quality compliance is maintained by the operating units.

The Regular Branch Inspection Report is the most comprehensive feed-back to the Management about the degree of compliance of your 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 your Bank's Risk Based Internal Audit (RBIA). The assessment of the level of risk and its direction is as per the Risk Matrix prescribed by the RBI, 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. During the year FY12, 2,769 branches were inspected under RBIA. Around 1,893 branches (68.36%) were in the Low Risk, 748 branches (27%) were in the Medium Risk and 128 branches (4.63%) were in the High Risk category.

With 100.0% migration of your Bank's branches to Core Banking platform, the I.S. Audits are being conducted to ensure that IT related Risk Management Systems and processes are strengthened as per the I.S. Audit policy of your Bank. The I.S. Audit cell of your Bank also undertakes offsite surveillance through generations of various reports.

As against the RBI's requirement of coverage of 50.0% of business, 682 branches were subjected to Concurrent Audit during the year FY12 covering Total Deposits of 62.0% and Advances of 81.0%,and Overall Business of 70.0%.

As per the RBI directives, Credit Audit was conducted in 3,708 accounts covering total exposure of Fund & Non-fun based facilities of Rs.2,33,802 crore to improve the quality of credit assessment and compliance level of large loans.

During the year FY12, about 2,892 staff members were imparted training at your Bank's Staff College, Regional Training Centres and other external training institutes of repute on the matters relating to Risk Management.

The Inspections and Audits are carried out in your Bank under the supervision and guidance of the Audit Committee of Board and it is ensured that compliance is in focus all the time along with your Bank's business growth and interest.

Operations and Services

Customer-Centric Initiatives

As always, efficient customer service and customer satisfaction are the primary objectives of your Bank in its day to day operations. Your 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 without fail.

Recently, your 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 customer complaints. Your Bank has implemented Online Complaint Tracking Module (OCTM) so that the customers may also have a view on the status of their complaint.

Some of the other major initiatives are as under:

• Implemented Intra- Bank Saving Bank Account Portability

• The automatic payment of compensation for delay in collection of outstation cheques/instruments has been configured in the system

• Creation of On line Fixed Deposit account through Baroda Connect.

• Registration of nomination in all the existing accounts in Finacle system. It has also been advised that nomination should be offered in all new accounts to be opened and to record the nomination made / denied by the customer

• The SMS alert facility in respect of transactions where the amount is greater than or equal to Rs. 50,000 has been enabled to all resident SB/CA and OD customers of your Bank whose mobile numbers are registered in your Bank's record (CBS system)

• Branches were advised to send notices to customers having inoperative accounts requesting them to reactivate the account

Efforts to Improve Customer Service at Branches

The feedback on quality of customer service at branches is obtained through the Branch Level Customer Service Committee meetings that are held every month in which customers from various cross sections of the society are invited including Senior Citizens and Pensioners. The suggestions/ views generated during the meeting 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.

Your Bank is focused towards providing excellent customer service through all delivery channels and has been making continuous efforts for enhancing the level of customers' satisfaction by leveraging technology to provide e-products and alternative delivery channels e.g. ATM / DEBIT CARD, POS, Internet Banking, Mobile Banking, etc., best suited to the diverse needs of different customers. The varied interests and expectations of customers are taken care of by improving upon various processes and procedures.

Compliance

Your Bank is a member of Banking Codes and Standards Board of India (BCSBI) and has adopted the Code of Commitment to the Customers prescribed by the BCSBI in August 2009 and also, Code of Bank's Commitment to MICRO and Small Enterprises. The Code has been placed on your Bank's website and also made available to customers at the branches.

While announcing the Annual Monetary & Credit Policy for the year FY11, the Governor, RBI had proposed that banks should devote exclusive time in their Board Meetings once in every six months to review and deliberate on issues concerning customer service/customer care. To comply with this, two such six monthly reviews were undertaken by your Bank's Board for the sub-periods January-June 2011 and July-December 2011, in meetings dated 27th August 2011 and 13th April 2012, respectively.

Customer Service Committee of the Board

This Sub-Committee addresses the issues relating to the formulation of policies and assessment of its compliances which brings about consistent improvement in the quality of customer service. It 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, and reviews the status of implementation of Awards passed by Banking Ombudsman.

Standing Committee on Customer Service

Your Bank has also set up a Standing Committee on Procedures and Performance Audit on Customer Services, comprising of three eminent public personalities as members along with both the Executive Directors and four General Managers of your Bank. This Committee oversees timely and effective compliance of the RBI instructions on Customer Service and also reviews the practices and procedures prevalent in your Bank and takes necessary corrective steps on an on-going basis.

The suggestions emanating in the Branch Level Customer Service Committee meetings are obtained by the Head Office on quarterly basis from Regional Offices and placed before the Standing Committee on Procedure and Performance Audit on Customer Services. The feedback of the Committee meetings is then put up to the Customer Service Committee of the Board of Directors.

Customer-Centric Initiatives and Redressal of Complaints

• Your Bank has put in place a Customer Grievance Redressal Policy, approved by the Board, and a well structured Customer Grievance Redressal Mechanism. The General Manager in charge of Operations & Services is designated as Nodal Officer for customer complaints regarding your Bank. At Zonal and Regional levels, Zonal Heads and Regional Heads are designated as Nodal Officers for their respective Zones and Regions. The names of all Nodal Officers along with their contact numbers are displayed in all the branches.

• A note on Review of Customer Services & Grievances Redressal Machinery is placed before the Board of Directors every quarter giving position of customers complaints received at your Bank's Regional Offices and Head office and the follow up measures with important initiatives taken by your Bank for improving the quality of customer service.

• To eradicate customer complaints fully and to ensure hassle free customer service, a regular analysis is done on the complaints received from the customers and a suitable action is taken on time so that there is no repetition of such complaints in future.

• Your Bank has Board-approved policies on customer services and the same are placed on your Bank's website.

To facilitate customers, an in-house "Online Complaint Tracking Module" has been developed in consultation with Project Office, BCC, Mumbai. In Phase-I, the user-id and password generation for all the branches and your Bank's regional/zonal offices plus functional departments was completed. All the regional offices and functional departments were able to access the complaint Module successfully. The online complaint icon was then activated on the home page of your Bank's web site for quick access to the customer.

The salient features of "Online Complaint Tracking Module" are as follows.

• It allows tracking of the complaint both by the complainant as well as the concerned Branch/ Region/ Zone and Head Office concurrently

• It provides for generation of relevant MIS reports at all levels

• It provides for quicker transmission of complaint to the respective authority i.e. Branch /Region/Zone, thus increasing the time efficiency in redressal of a complaint.

• It provides for automatic escalation of the complaint in case action is not taken within the stipulated period by the respective authority, thus facilitating the controlling offices to follow up with the concerned branch for early resolution of the grievances.

• The module provides for generation of instantaneous "Tracker ID" along with an acknowledgement message of successful registration of complaint to the customer.

Based on the feedback and suggestions from the grass root level customer committees and various studies/surveys, a slew of customer centric initiatives and measures were taken by your Bank during the year under review to improve customer service at its branches.

KYC-AML-CFT

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

Your Bank has Board approved KYC-AML-CFT Policy in place. The said Policy is the foundation on which your Bank's implementation of KYC norms, AML standards, CFT measures and obligation of your Bank under Prevention of Money Laundering Act (PMLA) 2002 is based.

The major highlights of KYC-AML-CFT implementation across your 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 (STRs) to the Financial Intelligence Unit (FIU)

• System based Risk Categorization (from AML Measure) of Bank's customers' accounts every half year.

• Filing of Counterfeit Currency Reports (CCRs) to FIU-IND, New Delhi.

• Filing of Non Profit Organizations Transaction Reports (NTRs) to FIU-IND

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

• A comprehensive list of KYC documents is uploaded on your Bank's website (www.bankofbaroda.com) for the benefit of customers.

• Similarly for internal usage, a KYC-AML page is created at your Bank's INTRANET for posting reference material on KYC-AML-CFT education.

• Regular Training Sessions are conducted on KYC-AML-CFT Guidelines at your Bank's Training establishments.

• Training is being arranged for your Bank's Senior Officials / Executives at RBI, IBA and National Institute of Bank Management (NIBM).

• Sustained efforts are made to create expertise at your Bank's Head Office for corporate oversight and also KYC Audit of branches.

Back Office Operations

Regional Back Offices and City Back Offices

Two types of Back Offices have been conceptualized by your Bank - Regional Back Office (RBO) and City Back Office (CBO).The RBO deals with centralized processing of account opening forms (AOF) and centralized processing of issuance of Personalized Cheque Books (PCB). Your Bank has ten RBOs -one each at Baroda, Bhopal, Delhi, Coimbatore, Mumbai, Lucknow, Jaipur, Kolkata, Pune, Jamshedpur. The RBOs are opening accounts for 1,298 branches. Up to 31st Mar, 2012, the RBOs have opened more than 11 lakh accounts. The RBOs issue PCBs for 2,115 branches and have so far issued more than 36 lakh PCBs.

The CBOs deal with centralized upload of clearing transactions - both inward and outward - as well as government collections and ECS transactions. Your Bank has 21 CBOs (Service branches) where clearing and ECS are centralized for branches in each city centre. The centralization of clearing has also been introduced in 59 main branches (which handles clearing for local branches). The CBO concept has so far covered 1,308 branches.

Currency Chest and Government Business

New Business Avenues opened during the year FY12

• Your Bank has implemented payment of Custom Duties at 116 Custom House locations through e-payment across the country

• Two new branches authorised for physical payment of Custom Duties taking the total toten custom locations interfaced with ICES 1.5 Software

• Additional 267 branches have been authorized for undertaking PPF/SCSS Business

• Utility for enabling e-freight payment for Railways has been commissioned

• Conclusion of Agreement with Stock Holding Corporation of India (SCHIL) for sale of e-stamps. This business has been commenced in the state of Gujarat, Rajasthan and Delhi

• Development under way for (i) Maharashtra State Government (ii) Rajasthan State Government

• Implementation of e-payment of State Taxes during the year at (1) Karnataka, (2) Andhra Pradesh (3) West Bengal, (4) Delhi & (5) Bihar

• Authorization of e-payment of State Taxes obtained for Daman &Diu

• Additional authority for the payment of pension in the state of Madhya Pradesh, Chhatisgarh, Punjab and Haryana has been obtained

• Implementation of Swavalamban Scheme under New Pension Scheme

• Your Bank is selected as Implementing Agency Bank for Pension & Life Insurance Fund

• E-payment of Professional Tax in Maharashtra started with effect from 1st Jan, 2012

• Your Bank has identified its Service branch, New Delhi as Nodal Branch for e-payment of Ministry of Health & Family Welfare and the facility has been made operational for all the 11 Pay & Accounts Offices of the Ministry

• Your Bank has identified its International Business Branch in New Delhi as a Nodal branch for settlement of funds in respect of Banking arrangement with Ministry of External Affairs for Foreign Exchange Remittances between Mission/ Posts abroad

• Establishment of Centralised Pension Processing Centre for processing and payment of pension to the State Government Pensioners of Rajasthan state is under process

• Salary accounts of staff/student accounts of Reliable college, Ghaziabad canvassed

• A MOU with Kandla Port executed after permission from Indian Ports Association, Delhi

• Implementation of e-scroll on Postal Business

Strategic Plan on Currency Management (2011-14)

As a customer-centric initiative to improve payment system, your Bank has identified 26 new centers (given below) for opening New Currency Chests under its Strategic Plan on Currency Management 2011-14, thereby increasing the total number of Currency Chests from 84, at present, to 110.

Vigilance

It has been the endeavour of Vigilance department of your Bank to encourage and enable the operating level staff as also those at controlling offices to exercise due care and caution to take preventive and detective measures. This helps in increasing the efficiency and creating an environment of security for the honest work force.

A careful distinction is made between the cases of gross negligence which put your Bank's funds into avoidable jeopardy and the cases where business decisions have gone awry. Periodical monitoring of individual cases is carried out to ensure that inquiries are quickly concluded and are perceived as fair by all concerned. The endeavour is made towards ensuring that penalties, where necessary, are timely and just.

Coordination is maintained with the zones/functional authorities of your Bank to locate specific cases of irregularities in your Bank's operations. The complaints from the public/customers as also the cases of frauds and other irregularities are investigated promptly and followed up for corrective action, wherever necessary.

A study of fraud prone areas indicating loopholes/ obsolescence of the systems and procedures in vogue, is undertaken on an on-going basis to improve the controls and update operational procedures. On occurrence of such instances, detailed examination of the associated systems and procedures is carried out with the help of respective functional departments with a view to eliminate or minimise factors and processes likely to adversely affect your Bank's interest.

We are pleased to note that with the awareness, alertness and diligence exhibited by the operating staff, during the year April 2011 to March 2012, 45 fraudulent attempts by unscrupulous elements were thwarted that saved your Bank from substantial financial loss.

Business Performance

Given below are the details of your Bank's major achievements on business front during the year FY12.

Resource Mobilisation and Asset Expansion

The share of Bank's Deposits in total resources stood at 86.04% as of 31st March 2012. The Total Deposits grew from Rs 3,05,439.48 crore to Rs 3,84,871.11 crore, reflecting a growth of 26.01% over the previous year. Of this, Savings Bank Deposits - an important constituent of low cost deposits - grew by 15.71% from Rs 64,454.04 crore to Rs 74,579.53 crore. The share of low cost deposits (Current + Savings) in Total Deposits was at 26.90% and in Domestic Deposits at 33.18%.

Your Bank's Total Advances expanded by 25.67% during FY12 led by 19.28% expansion in Domestic Advances and 43.92% expansion in Overseas Advances.

Wholesale Banking

A strong corporate credit culture and healthy growth in credit - moderately above Banking industry average have been the consistent differentiators of Bank of Baroda for the past four years.

In fact, your Bank's Wholesale Banking Division offers a full range of loan products and services such as Term Loans, Short-Term Loans, Demand Loans, Working Capital Facilities, Trade Finance Products, Treasury Products, Bridge Loans, Syndicated Loans, Infrastructure Loans, Cross Currency/ Interest Rate Swaps, Foreign Currency Loans, Loan Against Future Rent Receivables and many more to its large and mid corporate clients depending upon their needs. The product offerings are flexible and suitably structured taking into account the customers' risk profiles and specific needs.

Based on the superior product delivery, passionate service orientation, timely and speedier sanctions with a customer-centric approach, your Bank has made significant achievements in providing an array of Wholesale Banking products and services to several multinationals, domestic business houses and prime public sector companies.

The Department places major thrust on faster delivery through efficient channels and adoption of better practices in credit administration. During FY12, the efforts were also made to improve the speed of decision making without compromising the quality of decision.

During FY12, the non-food credit growth, in general, remained low in the Indian banking industry. However, even during this phase, your Bank's Wholesale Banking Division created 130 new relationships through its Fast Track Desk. The department sanctioned fresh/increased credit facilities to the tune of Rs 60,955 crore during the year to various sectors /industries with projects /units spread across the country.

Under Wholesale Banking, the corporate customers are identified as large and mid corporates. Those having annual sales turnover of between Rs 150 crore to Rs 500 crore are classified as mid-corporates, and those with sales turnover over Rs 500 crore are classified as large corporates.

Sensing the need to focus and serve the potential mid corporate segment, your Bank took an important initiative of opening specialized Mid Corporate Branches in various potential locations throughout the country. These branches are equipped with mix of experienced and professionally qualified staff. Attaching high importance to the segment, your Bank arranged for training in soft skills plus domain-expertise knowledge for its staff identified for these specialized branches through an International Management Consultancy firm.

Your Bank also opened one more specialized CFS (Corporate Financial Services) Branch taking total number of CFS Branches to eleven.

Your Bank's Wholesale Banking Department also has a full-fledged 'Project Finance Division' (PFD). The PFD is well equipped with professionals from various disciplines and undertakes TEV (i.e. Technical Evaluation & Viability) studies for clients of your Bank as well as that of other banks. The Department is also equipped with Syndication Desk to syndicate domestic funding requirement of the clients. The Department earns significant fee-based income by carrying out TEV studies, vetting of projects and through syndication deals.

Your Bank attaches higher degree of importance to the quality of appraisal and efficient processing of credit proposals at all levels to maintain the asset quality and realizes the importance of skilled and motivated employees to achieve the same. Keeping this in view, your Bank continued its thrust on regular grooming of Credit and Forex Officers. Your Bank also continued to recruit specialized officers from campuses and lateral recruitment of professionals cum experienced staff.

Retail Business

As in the past, Retail Business continued to be one of the important segments of overall business during FY12. Your Bank's performance under its Retail Banking Segment during the year under consideration is as under.

Growth under Retail Lending

Your Bank's Retail Loan Book consisted of five key products (namely Home Loan, Auto Loan, Education Loan, Traders Loan and Mortgage Loan) which together constituted 74.0% of total retail loans and other products namely LABOD/ ODBOD that constituted 21.0% of total retail loans during FY12. Besides, the products like Baroda Personal Loan and other miscellaneous product viz. Doctors Loan, Loan against Government securities etc contributed around 5.0% to total retail loans.

Total Retail Loan outstanding as on 31st Mar, 2012 was Rs 35,668 crore as against the level of Rs 32,435 crore as on 31st Mar, 2011. A growth of Rs 3,233 crore (9.97%) was registered under total retail loans during FY12 as against a growth of 33.76% (Rs 8,187 crore) registered during FY11. The growth in retail business of your Bank during FY12 was in line with the overall segmental business trend witnessed by the Indian banking industry.

Growth under Five Key Retail Products

Under five key products which constituted 74.0% of total retail loans, an absolute growth of Rs 3,102 crore (13.43%) was registered during the year FY12 as against a growth of Rs 4,095 crore (21.56%) during the previous financial year.

Under Home Loans, an absolute growth of Rs 1,594 crore (12.71%) was registered during the year FY12 as against a growth of Rs 2,227 crore (21.59%) during the previous year.

Under Auto Loans, an absolute growth of Rs 384 crore (18.76%) was registered in FY12 as against a growth of Rs 612 crore (42.58%) during FY11.

Under Baroda Traders Loans, an absolute growth of Rs 876 crore (18.63 %) was registered in FY12 as against a growth of Rs 852 crore (22.15%) during FY11.

Under Baroda Mortgage Loans, an absolute growth of only Rs 97 crore (4.68%) was registered during FY12 as against a growth of Rs 176 crore (9.40%) during FY11.

Under Education Loans, an absolute growth of Rs 150 crore (8.72%) was registered during FY12 versus a growth of Rs 226 crore (15.11%) during FY11.

Under LABOD /ODBOD, a growth of Rs 2,307 crore was registered. Under Baroda Personal Loans, a negative growth of Rs 2,183 crore was posted over the level of 31st Mar, 2011 due to repayment of Loan for Earnest Money Deposits during the year FY12. The repayments of short term loans primarily led to low growth under the total retail loans during the year under consideration.

NPA under the Retail Loan

The amount of Non Performing Assets as on 31st Mar, 2012 under Retail Loan was Rs 682 crore (1.91%) versus the level of Rs. 662 crore (2.13%) as on 31st Dec, 2011 and Rs. 649 crore (2.17%) as on 30th Sept, 2011. As on 31st Mar, 2011, the NPA was at the level of Rs. 580 crore (1.79%).

Savings Bank Deposits

Your Bank's overall Saving Deposits stood at a level of Rs 72,570 crore as on 31.03.2012 registering a growth of Rs 9,611 crore (15.27%) over the level of Rs 62,959 crore as on 31.03.11. During the last FY 2010-11, a growth of Rs11,717 crore i.e. 22.87% was registered over the level of 31.03.2010.

Retail Term Deposits

Retail Term Deposit of your Bank stood at the level of Rs 1,18,727 crore as on 31st Mar, 2012 as against the level of Rs 95,325 crore as on 31st Mar, 2011 registering a growth of Rs 23,402 crore i.e. 24.55% versus the growth of Rs 12,295 crore i.e. 14.80% registered during the last financial year.

Under Total Retail Deposits i.e. Retail Term Deposit plus Savings Deposits, an absolute growth of Rs 33,013 crore i.e. 20.85% was posted during FY12 as against the growth of Rs 24,012 crore i.e.17.88.% registered during FY11.

Initiatives in Retail Banking during FY12

New Products Launched

• BarodaFirst Wealth Pack, a combo of two products namely BarodaFirst Savings Bank and BarodaFirst Regular Deposit jointly with two Insurance Products namely ULIP & Term Insurance Plan was launched on 2nd Jan, 2012. Until end-Mar, 2012, a total of 53,516 Packs were sold by your Bank.

• Baroda Samriddhi Quarterly Recurring Deposit & Baroda Samriddhi Half yearly Recurring Deposit Schemes were launched on 6th March 2012 primarily to facilitate Agriculturists, Self Employed & Professionals etc.

• Sales Operating Model was launched at 163 Baroda Navnirman Branches for developing Sales & Service culture to generate Business Leads.

Product Modification

• During FY12, a proposal was approved for increasing the maximum limit under Baroda Home Loan to Resident Indians and NRIs/PIOs at all Metro and Urban Centers from the existing Rs100 lakh to Rs300 lakh.

• Prepayment charges for foreclosure of Home Loan Accounts were completely waived with effect from 15th Dec, 2011.

Business Initiatives

• Savings Bank Deposit Campaigns:

For mobilizing low cost deposits, a Savings Bank Deposit Campaign was launched on 1st Jun, 2011 for two months. The period of this campaign was later extended upto 31st Aug, 2011 foreseeing the challenge of mobilizing savings bank deposits in a rising interest rate scenario. To accelerate the pace of Savings Bank accretion, Savings Bank campaign was reintroduced during 2nd Jan, 2012 to 31st Mar, 2012, besides the launch of a special incentive scheme i.e. "Evening with CMD & Picnic with staff" for the award winning branches & regional offices.

• Retail Loan campaign:

With a view to harness the potential of ongoing festive season and to augment your Bank's Retail Loan Book with a special focus on Home Loans and Car Loans, a Retail Loan Festival Campaign was launched during 26th Sept to 30th Nov, 2011. Going by the success of Retail Loan Campaign, it was further extended till 31st Mar, 2012, with a modification by increasing ROI concession from 0.25% to 0.50% in Auto Loans. Both the SB Deposit Campaign and the Retail Loan Campaigns yielded good results.

• Opening of New City Sales Offices:

Nine City Sales Offices were opened at Haldwani, Raebareilly, Faizabad, Raipur, Bhopal, Indore, Bengaluru, Ghaziabad & Rajkot during FY12.

• Opening of New Retail Loan factories:

Three new Retail Loan factories were opened at Haldwani , Dehradun and Nasik during FY12.

• Delegation of Additional Discretionary Powers for Concessions:

All Zonal Heads of your Bank were delegated with powers for considering concession to the extent of 100bps in the applicable interest rate on Baroda Trader Loan for mobilizing fresh business & to augment Retail Loan Book during FY12.

• Providing Group Life Insurance Cover:

The Facility of Group Credit Life Insurance cover was approved for Auto Loans and Personal Loan Borrowers, in addition to facility presently available for Home Loans & Education Loans. During FY12, a total of 18 death claims were settled by the insurers.

• Strategies adopted for Prevention of Frauds:

A system of verification of various steps undertaken by the branches for fraud prevention under Retail Loans through a checklist was also introduced.

• Under the Home Loan Suraksha Beema Scheme

(A Tie-up Arrangement with National Insurance Co. Ltd) a total of ten Accidental Death Insurance claims were settled by the insurer during the year under consideration.

Wealth Management Services

As a part of its customer centric measures, your Bank has been providing Wealth Management Services for its HNI & affluent customers since June 2004. At present, your Bank provides various 3rd party products in Life Insurance, Non Life Insurance including Health Insurance, Mutual Funds & Equity Trading under tie-up arrangements with different partners. Moving ahead further in the segment, your Bank also formed two joint ventures with leading international brands in Mutual Fund and Life Insurance.

The Baroda Pioneer Asset Management Co. Ltd., your Bank's joint venture in mutual fund in association with Pioneer Investments of Italy and the IndiaFirst Life Insurance Co.,ajoint venture in life insurance with Andhra Bank and L&G of U.K. have successfully positioned themselves in the Indian marketplace with consistently improving performance since their inception.

The year FY12 was destabilizing for Indian equities with wild fluctuations impacting the overall sentiment of investors. In these testing times, your Bank changed its strategies by focusing on mutual fund investments through a SIP route to safeguard the customers from the unpredicted movement in the market. The strategies were successful with a large number of customers yielding benefits and your Bank's business performance in the format being intact while nurturing a disciplined saving/ investing habit amongst its customers. During the last two years, your Bank has been endeavoring to widen the scope of ASBA (application supported by Blocked Amount) facility by extending it to a number of designated branches and enabling an on-line ASBA Facility for its net banking customers. During FY12, your Bank introduced Syndicate ASBA Facility for those customers who wish to make IPO/FPO/NFO application through other intermediaries such as brokers.

It is heartening to note that the initiatives of your Bank under its Wealth Management segment have been encouragingly contributing to its overall non-interest income.

MSME Business

The Micro, Small and Medium Enterprises (MSME) segment is a vital component of Indian economy. This sector accounts for around 40.0% of the nation's total industrial production, 34.0% of industrial exports, 95.0% of industrial units and 35.0% of total employment in manufacturing and services sectors. The contribution of Services Sector within the SME segment is quite significant; especially the IT enabled services, hospitality services, tourism, couriering, transportation, etc.

To give a focused attention to emerging SMEs in India, your 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, your Bank has launched a special and novel delivery model, viz. SME Loan Factory, which at present, is operational in 46 centres of your Bank and well accepted in the market place. 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 and a sales team to follow up on leads generated by branches. Given its success, your Bank has plans to open more such loan factories in the ensuing year. Your Bank has SME Loan Factories at all major business centres across the country, viz. Agra, Ahmedabad, Allahabad, Bangalore, Bareilly, Baroda, Bhilwara, Bhubhaneshwar, Bulsar, Bharuch, Chandigarh, Chennai, Coimbatore, Dehradun, two Factories in Delhi, Ernakulam, Gandhidham, Gorakhpur Hyderabad, Haldwani, Indore, Jaipur, Jamshedpur, Jamnagar, Jodhpur, Kanpur, Kolhapur, Kolkata, Lucknow, Ludhiana, 3 Factories in Mumbai, Meerut, Mehsana, Nagpur, Nashik, Pune, Patna, Rajkot, Raipur, Surat, Shahajahanpur, Varanasi and Vishakhapatnam. These SME Loan Factories sanctioned loans aggregating Rs 18,619 crore during FY12 as against Rs 14,530 crore in the previous year.

Growth of Business

The total outstanding in MSME Sector works out to Rs 34,512 crore as on 31st March 2012.

The percentage growth of MSME credit during FY10 was relatively high as the advances up to Rs 20 lakh to Retail Trade were classified for the first time under the "Micro & Small Enterprises Sector" during this year in line with the RBI's revised guidelines issued during September, 2009. The growth rate was normalized during the year FY11.

Major Achievements in FY12

Shri R.K. Bakshi, ED receiving the National Award for Bank's excellent performance in implementation of PMEGP scheme during 2010-11 in Central Zone from Shri Virbhadra Singh, Minister for MSMEs, Government of India.

The Bank took the following initiatives in its SME business segment during the year under review.

• The SME advances of Rs 34,512 crore as of end-Mar 2012 reflected a growth of Rs 7,147 crore (26.11%) over the SME advances of Rs 27,365 crore in the previous year.

• The advances of Rs15,455 crore to Micro Enterprises in total credit of Rs 28,047 crore to MSE sector stood at 55.10% in FY12 comfortably reaching the mandatory target fixed by the RBI.

• The SME advances as on 31st Mar, 2012 contributed 16.8% to the gross domestic advances of your Bank.

• The advances to Micro & Small enterprises reached the level of Rs 28,047 crore as against the government set mandatory target of Rs 27,000 crore by end-Mar, 2012.

• In FY12, your Bank opened ten New SME Loan Factories and eight New SME Specialized Branches.

• Your Bank introduced a New Product named as "Baroda Channel Financing" on pilot basis during FY12 to further promote its MSME business.

• Your Bank also introduced "Baroda Entrepreneur Awards" for Micro & Small Enterprises

Initiatives in MSME Financing During FY12

1. Your Bank introduced five new customer-centric area-specific products to suit the local cluster needs during FY12 while renewing the existing ten customer-centric area specific products.

2. Your Bank sponsored a Workshop on "Management Skills to source financing and Management of Technology by SMEs" for entrepreneurs arranged by AIMA at Hyderabad, Ahmadabad, Jaipur.

3. Your Bank introduced "Protrack"{an e-tracking system for SME credit proposals} with a view to have a firm control over turnaround time.

4. Your Bank celebrated SME Festival from 1st January 2012 to 31st March, 2012 in order to give boost to SME advances. Some concessions in rate of interest and service charges were also announced for loans sanctioned during the festival period.

5. Your Bank participated in the Workshops arranged by the CGTMSE on Bank Credit to Micro & Small Enterprises and the Role of Credit Guarantee.

6. Your Bank focused on collateral free credit under the CGTMSE scheme through special campaign.

7. To achieve total customer relationship through enhanced cross selling, several meetings at different locations were conducted and various trade bodies were involved at the national and the state level.

8. Your Bank undertook continuous knowledge updating and skill building of processing/ marketing officers attached to its SME factories through external training and special courses at the training centers and staff college.

9. Your Bank introduced monthly performance ranking to share performance of SME Loan Factories amongst all and to recognize/ felicitate/ award the best performing SME Loan Factory on Half yearly/annual basis.

10. The MOU was entered by your Bank with the NSIC for sourcing applications of MSME borrowers from it.

11. Your Bank released a booklet called Practical Guide to help entrepreneurs by giving them information on Your Bank's SME products and also on the CGTMSE scheme.

12. Your Bank also signed a MOU with four credit rating agencies for rating of the SME accounts.

Rural and Agricultural Lending

As you all are aware, your Bank has always been a frontrunner in the area of Priority Sector and Agriculture lending. It has been harnessing the vast potential of the rural market through its wide network of 1,270 rural branches and 1,045 semi-urban branches.

Even during FY12, your Banks opened 314 new branches in rural and semi-urban areas.

Your Bank is the proud Convener of State Level Banker's Committee (SLBC) in the states of Uttar Pradesh and Rajasthan. Your Bank shoulders the Lead Bank Responsibility in 45 districts in the states of Gujarat (12), Rajasthan (12), Uttar Pradesh (15), Uttaranchal (2), Madhya Pradesh (2) and Bihar (2).

Your Bank has also sponsored five Regional Rural Banks (RRBs) in various states with a network of 1,300 branches and total business of Rs 21,700 crore as of end-March, 2012.

Performance of Priority Sector Lending in FY12

Priority Sector Advances of your Bank surged from Rs 57,364 crore as at the end-March 2011 to Rs 68,527 crore as at the end-March 2012 and formed 43.37% of the Adjusted Net Bank Credit (ANBC) against the mandated target of 40.00%.

Agriculture Advances:

The Direct Agriculture advances of your Bank rose to Rs 21,423 crore with a rise of 24.86%over the previous year with an absolute growth of Rs 4,266 crore during the year. The total agriculture advances of your Bank recorded a growth of 18.38% over the previous year and rose to Rs 29,036 crore as at end-March 2012. Your Bank's Direct Agricultural advances formed 13.56% of ANBC as at end-March 2012 against the mandated target of 13.50%. Even the Total Agricultural Advances were at 18.06% of ANBC against the mandated target of 18.00%.

Under its flagship agriculture loan product "Baroda Kisan Credit Card", your Bank issued as many as 3,09,685 Credit Cards during FY12 to provide credit to farmers. Your Bank financed as many as 3,73,283 new farmers during FY12. As a part of its microfinance initiatives, your Bank credit linked 19,455 Self Help Groups with an amount of Rs 214 crore during FY12 thereby taking the total number of SHGs credit linked to 1,54,397 amounting to Rs1,171 crore.

Business and Social Initiatives

Your Bank introduced various initiatives/strategies during FY12 to harness the emerging opportunities for rural and agriculture lending. Some of them are mentioned below.

1. To augment the Agriculture advances, your Bank conducted special campaigns viz. Kharif and Rabi campaign for crop loans under which the disbursements of Rs 3,676 crore and Rs 2,013 crore were made respectively. Another Campaign for Investment Credit was also launched under which disbursements of Rs 1,178 crore were made.

2. Your Bank organized 5,944 Village Level Credit Camps and disbursed Rs 3,338 crore to 2,84,062 borrowers during FY12.

3. Your Bank identified 450 Thrust Branches across India to enhance Agriculture lending which constituted 33% of total Agriculture lending as at end-March 2012.

4. Your 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 22 area specific schemes were formulated to increase your Bank's agricultural lending.

Baroda Grameen Paramarsh Kendra (BGPK) is another initiative undertaken by your 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. Your Bank had 52 BGPKs as on 31st March, 2012.

About ten more Baroda Swarojgar Vikas Sansthan (BSVS), Baroda R-SETI Centers were opened during FY12. With this, the total number of BSVS has gone up to 46. Thus, each of your Bank's Lead Districts now has a R-SETI as per the GOI guidelines. Ajmer BSVS centre is 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 FY12, 42,786 youth beneficiaries were trained out of which 25,791 have established self-employment ventures. Out of the total 1,22,228 beneficiaries trained by these centers so far, 75,050 have established their self employment ventures.

Financial Literacy and Credit Counseling Centres (FLCC)-"SARATHEE"

Based on the guidelines issued by the RBI, your Bank has established 39 FLCCs, christened as "SARATHEE" to impart financial literacy and credit counseling services to the needy to help them avail financial services from Banking system and also to provide counseling services to those who are under financial distress due to debt burden.

Your Bank has opened these centers under its BSVS trust and counseling services are provided to the concerned free of cost.

Your Bank has opened 21 new FLCCs during FY 12, taking the total number of FLCCs to 39 by end-Mar, 2012.Your Bank will be opening FLCCs in each of its lead district in due course.

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 your 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 your Bank's outreach in the rural/semi-urban areas.

Micro Loan Factory

Your Bank has a opened Micro Loan Factoryat Rae Bareilly and Sultanpur in U.P. 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 RRBs Sponsored by the Bank

Your 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 21,693 crore as of March, 2012 from Rs 18,803 crore as at end-March, 2011, registering a growth of 15.37%.

The five RRBs together posted a Net Profit of Rs 120 crore during FY12 as against Rs 117 crore earned during FY11.

The "Net Worth" and the "Reserves and Surplus" of all these RRBs put together improved from Rs 730 crore at end-March, 2011 to Rs 883 crore at end-March, 2012 and from Rs 453 crore at end-March, 2011 to Rs 566 crore at end-March, 2012, respectively.

Bank's Efforts towards Financial Inclusion (FI)

Targeted villages and models adopted

• As per the original communication received from RBI in January 2010, your Bank prepared a Financial Inclusion (FI) plan to cover 20,000 villages under Financial Inclusion within a span of three years commencing from 2010-11 to 2013-14.

• However, the Finance Minister in his speech on Union Budget for FY11 gave emphasis on the coverage of villages having population of more than 2,000 under FI by March 2012.

• Accordingly, 2,864 villages having population of more than 2,000 were allocated to your Bank through SLBCs for provision of basic banking services by March 2012.

• Out of the above, 1,200 villages were targeted to be covered in FY11 and the rest in FY12.

• Your Bank has adopted ICT based Business Correspondent (BC) model and Mobile Banking van model for coverage of the allotted villages. Wherever feasible, new branches are also being opened.

Service Providers

• Your Bank has selected M/s TCS and M/s HCL Info systems as the service providers for end to end solution under the BC model. The service area has been allocated to these service providers.

• Out of 2,864 villages allocated to your Bank by SLBCs, 1,979 villages are allotted to M/s TCS and 885 villages to M/s HCL.

Technology and Data Security

• The FI data and transactions are integrated to your Bank's CBS (Core Banking Solution) through an FI server/ Gateway of the service provider. The FI server is kept in the Data Centre of your Bank for which the vendor will have only limited access to the application software for the purpose of maintenance. The data will be under the control of your Bank. Hence the data security is well taken care of.

• Smart cards are issued to the customers after uploading the accounts in CBS and KYC verification by the link branches.

Business Correspondents (BC)

• The service provider has appointed corporate BCs at the state/zonal level. The field level business agents are selected in consultation with your Bank's link branches following the BC selection policy approved by the Board.

• The technical training to BCs is provided by the service provider as and when BCs are appointed. Your Bank's R-SETI, Training Centres and Baroda Grameen Paramarsh Kendras (BGPK) have been providing training on banking products and customer service. The BCs are also encouraged to take up the BC certificate programme of IIBF {Indian Institute of Banking & Finance, Mumbai} through accredited training establishments. All your Bank's BSVS centres are accredited by IIBF for this purpose.

Training of Your Bank Staff in Financial Inclusion

• Training to about 1,079 Branch Managers involved in FI activity was completed by Your Bank's training centres during FY12.

• Your Bank has tied-up with National Institute of Rural Development (NIRD), Hyderbad for designing and conducting special training programme for its officers on FI.

• Your Bank has also introduced e-learning module on FI on your Bank's intranet portal for educating the staff.

Monitoring the Implementation under Financial Inclusion

• Your Bank has a clear structure for implementation and monitoring of Financial Inclusion.

• In order to have an effective supervision of the BCs, retired bank officials are appointed as BC supervisors for every 10-15 BC agents.

• Your Bank's Chairman & Managing Director (CMD), Executive Directors (EDs) and General Managers (GMs) at the Corporate Office are visiting villages in different states.

• Besides, all the regional heads and zonal heads are also visiting the villages in their respective regions/ zones and monitoring the activities regularly.

• Your Bank's Board reviews the implementation of Financial Inclusion in your Bank every month on various parameters suggested by the Ministry of Finance, Government of India.

Publicity

• Specially designed banners/posters/leaflets are being used by your Bank's Zones/Regions/Branches at various stages of FI.

• Leaflets/posters have been prepared in regional languages and distributed in the villages.

• Usage of publicity material has helped to keep the people updated with the FI concept and also to remain informed about the FI enrolment dates, venue etc.

• Your Bank's Swabhiman logo is being used in village sign boards, BC ID cards, T- shirts, Caps etc.

Financial Literacy Efforts

• Your Bank has opened 39 Financial Literacy and counseling Centres (FLCC) out of 45 lead districts of the Bank.

• Your Bank has also established 46 R-SETIs (Baroda Swarojgar Vikas Sansthan) of which 42 are in its lead districts which will also facilitate financial literacy efforts.

• Village level meetings are organized by your Bank in all the identified villages to create awareness on the banking products and services.

• Camps are also organized in the villages at the time of enrolment.

Mobile Banking Vans

• Your Bank has introduced Mobile Banking vans for increasing the pace of Financial Inclusion.

• These vans will have connectivity to CBS through CDMA technology and they visit the villages on specified dates and time. The services are provided by your Bank's own staff travelling in the van.

• Five such Vans have been made operational and they cover around 41 villages. (One in Gujarat, two in UP, one in Bihar and one in Goa.)

Performance

• Your Bank has completed coverage of 100% villages allotted under financial inclusion well before the dead line of end-Mar, 2012. More than 7.61 lakh FI accounts have been opened in these villages as against the target of 7.10 lakh.

Ultra Small Branches (USBs)

The technology based BC model is an evolving concept and various issues were encountered by your Bank in implementation of FI through this model. The Ministry of Finance, Government of India as well as the RBI were issuing various guidelines from time to time to make implementation of financial inclusion more effective. In the strategy and guidelines on financial inclusion issued by Ministry of Finance in Oct, 2011, there was a suggestion to open brick and mortar branches in larger habitations with population of 5,000 and above in the under-banked districts. However, keeping the viability of brick and mortar branches in such villages, they further issued guidelines on opening of thin structures called Ultra Small Branches in all the villages allotted for financial inclusion.

USB Model Adopted by the Bank

• A BC is appointed in a village and provided with POS machine/ hand held terminal to provide banking services in the village through USB.

• The place for USB is identified preferably in Gram Panchayat or Common Service Centre in village.

• The board is displayed inside each USB indicating various banking services being provided by your Bank at USB. There is also a board giving details of BC, his contact number, name/contact number of link branch, fixed day/ time of visit by officer etc. for the convenience of villagers.

• The business correspondent is providing services like cash deposits, payments up to certain limit, remittances, account balance enquiry, mini-statement etc.

• A bank officer from the link branch visits the USB once in week at pre-fixed time and day for financial inclusion activities in village, as specified by the Ministry of Finance.

• Minimum furniture such as table, three to four chairs etc. have been provided in an ultra small branch.

Initiatives Taken for Effectiveness of USBs

• The village level publicity campaign has been conducted to create awareness amongst the villagers, with the help of Gram Panchayats as well as in some cases block development offices.

• The signboard along with swabhimaan logo is displayed at a prominent place in the village indicating details of the BC and link branch along with working hours.

• The BCs are provided with a brief profile of the villages including population of village, number of households in village, number of KCCs/ GCCs issued in respective village and other details, so that they can perform with better focus on village needs.

• All USBs are mapped for weekly visits by the officers of respective link branch. We have also devised a proper reporting system for monitoring these visits by the respective regional offices and corporate office.

• All the BCs are provided with the uniform T-Shirts, Caps and Identity cards in all the villages.

• The uniform posters about the services available at USBs are provided to all the zones and regions in local languages for displaying at the USBs.

• In order to overcome shortages and cater to the requirement of manpower in officer cadre, we are starting capacity building programmes to train other cadres to perform the job role of officers in the same spirit as desired by the MoF from visiting officer. The preference would be given to local staff as far as possible so that they can converse in the local language and get appropriately connected with villagers. This will also facilitate a confidence building amongst the villagers about the FI initiatives of your Bank/ Govt. of India. The pilot project of such capacity building initiative would be started in Gujarat and rolled out in other states upon success of said pilot project.

Advances to SC/ST Communities during FY12

The outstanding advances granted by your 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 3,760 crore as at end-March, 2011 to Rs 4,336.02 crore as at end-March, 2012. In fact, the SC/ST communities accounted for a share of 27.0% in the total advances granted to weaker sections by the Bank during the year under review. Furthermore, a special thrust is laid by your 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. Baroda Swarojgar Vikas Sansthans (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 55,761 youths under the SC/ST category.

International Business

The global economy has not fully come out of the turmoil witnessed following the global financial crisis in 2008 in spite of the prompt measures taken by several countries around the world. Even in such challenging scenario, the International Operations of your Bank could achieve excellent results during FY12 and again proved the Bank's resilience to global shocks.

In order to achieve the stated goals, it was necessary to continuously understand the economic and banking environment in which your Bank operates, take lessons and make suitable changes in the business approach and actions. Your Bank kept a continuous watch on the trends emerging in the economic/financial sectors of the countries of its operation by factoring in the impact of global events.

Your Bank is in an advantageous position having large network of overseas branches and strong customer base built over the years. Your Bank has taken various technological and other initiatives at its overseas centres to garner a larger share of the business.

The excellent performance was possible during FY12 due to the Bank's focused attention and persistent efforts to stretch and improve upon its own capabilities and the support that it received from all its stakeholders.

The International Operations of your Bank are keeping pace with the fast changing environment to become increasingly more competitive in global terms and aiming for higher growth with profitability

The Branch Expansion plan was continued during the year to take advantage of the business opportunities. During the year FY12, five new branches/offices were opened, including four branches of the subsidiaries. Your Bank primarily concentrated on expanding the network in countries where it is already present to tap the opportunities offered by the upcoming centres and enhance the market share in the country of operation.

Business and Profit Performance

During FY12, the total business (Deposits + Advances) of your Bank's overseas branches registered a growth of 44.64%. The Customer Deposits increased by 40.41%, Total Deposits by 45.23 % and Advances by 43.92%. The growth numbers look slightly aggressive because of the depreciation of rupee to the tune of 14.11% between end-March, 2011 and end-March, 2012.

During FY12, the International Operations contributed a sizeable 28.27% to the Bank's global business in line with its business aspirations.

Total Assets

Total Assets of your Bank's International Operations increased from Rs 91,273 crore as of March 2011 to Rs 1,28,398 crore as on March 2012 registering a growth of 40.67% during the year.

Profit

The Gross Profit for the year FY12 registered a healthy growth of 48.51% over the level of previous year. The Net Profit too recorded commensurate growth of 45.19% during the year. Your Bank was able to improve the spreads and also show good increase in Other Income.

Contribution of international operations to your Bank's global Net Profit is 23.35%.

Asset Quality

In the current scenario of economic downturn and uncertainties, there was a stringent monitoring of assets by the Bank's Top Management to safeguard your Bank's interest. Your Bank has put in place an efficient loan processing, credit audit and credit monitoring mechanism.

Borrowal accounts experiencing liquidity mismatch/crunch due to recessionary trends prevailing in the global economy/delay in projects for reasons beyond their control were restructured during the year FY12 based on their future cash flows and keeping the RBI guidelines in the matter in focus. These accounts as well as the accounts restructured in previous years were monitored regularly to maintain the asset quality and avoid any slip back.

Gross Advances during the year increased by 43.73% over the level of Mar'11, which means your Bank could maintain the healthy growth trend even during the challenging times. There were a few slippages and the Gross NPAs of your Bank as percentage to Total Advances marginally increased from 0.62% as of Mar'11 to 0.68% as on Mar'12.

Overseas Expansion

During the year FY12, your Bank opened five new branches/ offices (including that of the subsidiaries). An Electronic Banking Service Unit (EBSU) was opened at Hamriya Free Zone, Sharjah (UAE) and four branches of the subsidiaries were opened at Ovino Market (Uganda), Kakamega (Kenya), Nyali (Kenya) and Mon Repos (Guyana). The Representative Office in Malaysia was closed during the year as the Joint Venture Bank, namely, 'India International Bank (Malaysia) Bhd.' is expected to commence operations during the year FY13.

Future Plans in Overseas Business

Your Bank has initiated steps for further expanding its overseas network to tap the opportunities for canvassing business and enhancing the profitability. Necessary infrastructure is being created for further expanding the network in UAE, Oman, Mauritius, Uganda, New Zealand, Tanzania, Botswana and Ghana.

Your Bank has received 'In Principle' approval for upgradation of its Representative Office in Australia to a branch. An approval of RBI is awaited for opening of two additional branches in U.K. New centres are being identified in countries where your Bank is already present and also in new territories for further expanding the branch network.

Syndication Centre

Your Bank has Global Syndication Centres at London and Dubai which focus on the business of Syndication Loans in International Market. The Offshore Banking Unit in Singapore has been further strengthened to play a more active role in canvassing the business. The International Merchant Banking Cell (IMBC) set up at the Bank's Corporate Office, Mumbai plays a supportive role to the Regional Syndication Centres and also canvasses substantial business as there was increased demand from Indian Corporates for Foreign Currency resources.

The Bank's IMBC also actively participates in loan origination.

Products and Services

Your Bank has taken several steps to leverage the technology for introduction of products and services to meet the requirements of customers in the area of operation.

Your Bank's products and services are compatible with those offered by multi-national banks and local banks. These are being popularized through marketing campaigns in electronic and print media.

Technology

• The number of ATMs at overseas territories and subsidiaries increased to 76 (45 onsite and 31 offsite) as on 31st March, 2012 from 68 (42 onsite and 26 offsite) as on 31st March, 2011.

• The Global Treasury Solution is implemented by your Bank at UK, UAE, Bahamas, Bahrain, Hong Kong, Singapore and Belgium.

• The Centralized SWIFT activity is operating from the Data Centre of your Bank.

• All Territories/Subsidiaries except UK and USA are routing their Swift operations through SWIFT Cell, Data Centre.

• The Payment Messaging System implemented is a middleware between Core Banking Solution (Finacle) and SWIFT, which help in "Straight Through Processing of Incoming and Outgoing SWIFT Messages" with Anti Money Laundering check. It is implemented in all Territories/ Subsidiaries, except in UK and USA.

• The Anti Money laundering Erase (Batch mode) is implemented in all the overseas centres of your Bank except in Belgium and USA.

• An "Anti Money Laundering Online List Matching Solution" is also implemented in all the overseas centres with the exception of USA.

E-Banking in Overseas Operations

Your Bank is gradually implementing and popularizing the e-banking services at its overseas centres.

Transaction based e-banking has been implemented in UAE, UK, Mauritius, Fiji, Seychelles, Uganda, Kenya, Botswana and New Zealand. It is in the process of being implemented in Oman and Tanzania. (At present, a view based e-banking is available at both these centres).

In T&T, Guyana and South Africa, it will be introduced in the next phase which will start shortly.

The transaction based e-banking is being implemented gradually at the Overseas Centres looking to their retail base and the cost effectiveness.

Risk Management in Overseas Operations

Your Bank implemented Basel II guidelines at all its overseas territories with effect from 31st March 2008 and has already adopted Standardised Approach for Credit Risk, Standardised Duration Method for Market Risk and Basic Indicator Approach for Operational Risk.

The Risk Management Systems and their implementation are being continuously strengthened. A separate Risk Management Department has been set up at all centres to effectively deal with the credit, market and operational risk. Risk Managers are posted at all the overseas territories and subsidiaries of your Bank.

During the year under review, BOB RAM Model was implemented at all the overseas centres for capturing vital information related to advances accounts and their pricing.

An ASCROM Model for Asset Classification and Credit Monitoring is also in the advanced stage for implementation at your Bank's overseas centres.

Regulatory Compliance

Your Bank is well known for its regulatory compliance and has always followed home country regulations rigorously.

Your Bank has a dedicated compliance team at major overseas centres for ensuring regulatory compliance across all the businesses and operations. They are responsible for identification and assessment and compliance related matters from a regulatory compliance perspective and monitoring and reporting.

All the overseas centres have prudential policies in place as per the local regulatory requirements. The territories/subsidiaries ensure that these are periodically reviewed in line with the type of business undertaken, changing scenario and taking into account modifications if any in the regulatory guidelines.

Treasury Operations

Your Bank operates a State of the Art Dealing Room at Baroda Sun Tower at its Corporate Office in Mumbai. Through this dealing room your Bank is well positioned to scale up its Treasury Operations. The Treasury handles your Bank's domestic treasury operations and covers activities in various markets i.e. Foreign Exchange, Interest Rates, Fixed Income, Derivatives, Equity and other alternative asset classes. The advanced technology platforms are used by your Bank to offer a basket of financial products to its clients including Interest rate swaps, currency swaps, forwards and options.

Your Bank has also put in place a sophisticated Automated Dealing system to offer auto generated real time foreign exchange rates to the clients of its authorised branches spread across the country. As a customer friendly initiative, during the year FY12, enhancements were made in the "Global Treasury Solution" facilitating instant flow of information about credits received by your Bank in favour of its customers through its foreign correspondents.

Under the Business Process Re-engineering, your Bank has successfully implemented Global Treasury solution across major financial centres. The Global Treasury Platform is running smoothly in Mumbai, London, Bahamas, Brussels, Dubai, Bahrain, Singapore, Hongkong and New York.

During the year FY12, managing growth and price stability emerged as the key challenges against the backdrop of a slowing economy weighed down by the impact of tight monetary policy and slower economic growth. The advance estimates of Indian economy suggest a growth of approximately 6.9% in FY12, after having grown at the rate of 8.4% in each of the two preceding years. This indicates a slowdown compared not just to the previous two years but 2003 to 2011 (except FY09 a year of global financial crisis). During FY12, the RBI hiked interest rates by 125 bps taking repo rate to 8.50% before signaling a pause in Dec, 2011. To infuse liquidity into the system, the RBI reduced CRR [Cash Reserve Ratio] by a cumulative 125 bps in the last quarter of FY12 and conducted open market operations to the extent of Rs 1,29,252 crore.

Your Bank's Treasury offers customized solutions using available products viz IRS, CIRS, Forwards and Options to meet the Interest rate and Foreign Exchange risk mitigation requirements of the corporate clients. During FY12, your Bank's Treasury Division was active in taking benefit of the arbitrage opportunities available between various Treasury market asset classes including Money Market CBLO, Call, Market Repo, Government Securities and Forex markets. The Treasury actively utilised the market movements and used Overnight Indexed swaps, INBMK swaps for harnessing available hedging and trading opportunities.

Tight monetary policy coupled with a higher than announced borrowing program resulted in the benchmark 10 year Government security touching a high level of 9.0% in Nov, 2011. Against this backdrop, the Treasury focused on maintaining appropriate duration of portfolio, keeping minimal adverse impact on valuation and maintaining a good average yield on investment portfolio. The average yield on Domestic SLR investments was 7.87%. During FY12, the Treasury earned Rs 6,032 crore as Interest/Discount earnings, while the Profit on Sale of Investment and Exchange Earnings were Rs 622 and 412 crore, respectively.

The Indian Equity markets were subdued for most part of FY12. This was due to the cumulative impact of weaker recovery of the US economy, European sovereign debt crisis and muted FII inflows into the emerging markets including India. The FII inflows picked up during the last quarter resulting in the market moving to higher levels. The Equity Desk of the Treasury actively churned its portfolio and booked profits at regular intervals whenever an opportunity emerged in the markets.

The unfolding of the euro zone crisis and uncertainty surrounding the global economy have impacted the Indian economy causing drop in growth, higher current account deficit (CAD) and declining capital inflows. As in 2008, the transmission of the crisis has been mainly through the Balance-of-payments (BoP) channel. Export growth too decelerated in the third quarter of FY12, while imports remained high, primarily because of very high international oil prices. At the same time, foreign institutional investment flows declined, straining the capital account and the rupee exchange rate that touched an all-time low of Rs 54.23 per US dollar on 15 December 2011 during intra-day trading

The Foreign exchange desk of the Treasury retained its position as one of the premier market players in the Forex desks of the Public Sector Banks. The Proprietary trading desk was active in cashing in of available arbitrages, using volatility in the markets and mobilised resources in a tight liquidity position impacting the Indian markets. The turnover of the Foreign Exchange deskof your Bank's Treasury increased by nearly 14.0% on y-o-y basis during FY12.

Your Bank's Treasury Mid-Office monitors market exposures and limits fixed by the Board of Directors, on a real time basis. The Risk Management parameters, including Value-at-risk (VaR) are used to measure Market Risk on all portfolios. These measures are backed up by the Back Testing on risk numbers and Stress Testing of various investment and currency portfolios.

Corporate Social Responsibility (CSR)

As a responsible corporate citizen, it has been the vision of your 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, your Bank intensified its efforts further in this direction in FY12.

Your 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 various regional economies within these locations. All the Lead Districts of your Bank have R-SETI each. About 46 such Sansthans have been established by your Bank in which more than 1,22,000 youth have been trained and around 75,000 have been gainfully self employed.

Your 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, your Bank has also established 21 Financial Literacy and Credit counseling Centres (FLCC)during FY12 making the total number of FLCCs to 39.

Asset Quality Management

The year FY12 has been a challenging year for the banking industry to maintain the Asset Quality due to a fragile economic environment. However, your Bank has continued its practice of rigorous monitoring and recovery of the NPA portfolio besides preventive mechanism for restricting slippages at the minimum level. Your Bank has continued its leadership position in the NPA management area in the Indian banking sector.

Indian banks, in general, witnessed heavy incidence of slippages in FY12 due to volatile financial markets both within and outside India, higher inflation and higher interest rate regime throughout the year FY12. In spite of various depressed economic parameters impacting the Bank, fresh slippages, during the year, were kept under control at 1.44% of the opening Standard Advances of your Bank. Against the backdrop of high slippages, the ratio of Gross NPA to Gross Advances was at 1.53% as on 31st Mar, 2012.Consequently, the ratio of Net NPA to Net Advances marginally increased to 0.54% by end-Mar, 2012.

Your Bank continued to maintain the Loan Loss Provisioning ratio at higher level than the mandated norms set by the RBI during FY11. Its Loan Loss Provisioning ratio was higher at 80.05% as on 31st Mar, 2012 after taking into account the Prudential/ Technically Written-off advances.

During the year under review, your Bank laid down a comprehensive structure of recovery and credit monitoring function at the Branch, Region, Zone and Corporate levels. Besides this, the Nodal officers at each DRT centre were assigned the role of a follow-up of legal cases on day to day basis so as to minimize the delay in obtaining decrees and execution thereof in order to expedite and maximize recoveries. Additionally, Lok Adalats, Recovery Camps and Village Chaupal Meets were regularly conducted by your Bank's branches to reduce long pending cases and expedite recoveries in small accounts.

Your Bank continued its emphasis on follow-up mechanism to explore recovery prospects of NPA accounts. The system of monitoring of large value NPA accounts of say Rs 25 lakh and above directly from the corporate office has ensured proactive action by branches, advocates, recovery agents, etc. Therefore, the cash recovery in NPA accounts during FY12 was Rs 580 crore, much higher than the cash recovery of Rs 455 crore during FY11. The upgradation was substantially higher at Rs 336 crore during FY12 compared to Rs 189 crore during FY11.

During the year FY12, your Bank laid specific focus on recovery of small accounts by organizing Lok Adalats and Recovery Camps at village/town level. Your Bank also launched an incentive- linked recovery scheme called "Sankalp - IV" to enlist personalized attention of each and every staff member in pursuing recovery efforts of small value accounts with an outstanding up to Rs 15 lakh. The cash recovery made during the year FY12 under the scheme was very impressive at Rs 191 crore.

Information technology

Your Bank has undertaken a total end-to-end business and IT strategy project covering your Bank's domestic, overseas and subsidiary operations.

• Your Bank has built the best of technology infrastructure by implementing a state-of-the-art Data Centre conforming to Uptime Institute Tier-3 standard and also a Disaster Recovery Site in different seismic zone with redundancy built in every single point of failure to ensure uninterrupted banking service delivery to customers. After successfully migrating Data Centre to new Data Centre in the Bank's own premises during previous financial year, your Bank had undertaken Disaster Recovery Centre expansion during the year to support its business growth and technology expansion.

• Your Bank has also undertaken various other technology initiatives like windows server virtualization, desktop virtualisation and backup consolidation as green initiatives and also to improve Data Centre operational efficiency. Bank wide network was migrated to new technology based on MPLS for improving uptime and on demand upgrade. Enterprise Management System was upgraded and new modules deployed to effectively manage and monitor Bank's growing IT infrastructure.

• The Core Banking System was migrated to higher version with enhanced features. Various new modules like Fixed Assets maintenance, sales tracker module, centralized service tax, eBRC (Bank Realisation Certificate) module, account number portability, workflow automation for New Pension Scheme - Swavalamban were implemented during the year.

• I n order to enhance security and confidence in Internet Banking, your Bank introduced enhanced security features by deploying Fraud Management Solution, including two factor authentications. Your Bank continued to add more facilities under its Internet Banking channels. Internet Banking, viz., Baroda Connect, now provides speedy and secured facility to transfer funds to self, third party (within BOB) and inter-bank. Other facilities available are online opening of Fixed Deposits, Railways Freight Payment, online payment of Direct and Indirect Taxes and certain State Government Taxes, utility bills, rail tickets, online shopping, donation to temples and institutional fee payment. Corporates also have the facility of direct salary uploads, trade finance. Various State Tax payments have been enabled during the year. The SMS Alerts, RTGS/ NEFT transactions are also provided in internet banking portal. ASBA (Application Supported by Blocked Amount) functionality has been provided in Baroda Connect for Online subscription to Initial Public Offers and Follow-on Public Offers for applying for Equity Shares. Transaction based Internet Banking has also been implemented in Uganda, Botswana, New Zealand, UAE, Kenya, Mauritius, Seychelles, Fiji and UK providing facilities such as fund transfer to self and third party, bill payments, corporate salary upload and online shopping. View based internet banking has been implemented overseas in Oman and Tanzania.

• Mobile Banking - BARODA M-CONNECT - one more alternate delivery channel was added to provide various facilities to customers, viz., Balance Enquiry, Mini Statement, Linking of Multiple Accounts, Fund Transfer, Request to the Bank, Bill Payments, Ticket Booking, Shopping, Feedback/ Complaints etc. The IMPS was also enabled through Mobile Banking for interbank fund transfer.

• The ATM Switch was upgraded during the year to support increasing volume of transactions and ATMs. The ATM switch is operational in India, UAE, Oman, Mauritius, Fiji, Tanzania, Botswana, T&T and New Zealand. ATM switch is integrated with seven interchanges viz. National Switch NFS (NPCI), Visa, MasterCard, CBUAE (UAE), CBOMAN (Oman), Link (T&T), Paymark (New Zealand) to provide convenience to customers by increasing delivery points through ATMs covered under these switches. As a customer centric initiative, Bank has implemented self-linked fund transfer, Institution fees payment, mobile banking registration, mobile number updation, biometric authentication enabled ATMs, tax payment, multiple accounts being linked to a single Debit Card, Verified by VISA, CVV2, Visa Platinum, Maestro Debit Card, Biometric Card, PIN change and mini statement through other Bank ATMs. Mobile ATMs have been launched in Ahmedabad, Pune, Lucknow and New Delhi. Some value added features like online cash deposit and cheque deposit, cheque book request, statement request, envelope cash and cheque deposits services are introduced in UAE.

• Internet Payment Gateway services for debit cards/credit cards are increasingly offered to merchants and internet shopper as a safe and secure channel for online purchases.

• The SMS Alerts delivery gateway was upgraded to extend the facility to all customers of your Bank.

• During the year, customers are provided with one more service delivery channels with the launch of Contact Centres in Lucknow and Baroda.

• The Retail Depository Services are made available to your Bank's customers. With a centralized depository application, branches are equipped to provide depository services for both NSDL as well as CDSL. With Online Trading System, your Bank will be able to provide complete suite of online services to the customers for trading in instruments like equities, mutual funds, bonds and initial public offering (IPOs).

• Cash Management System is a full-function web enabled cash management solution offered to your Bank's customers, covering services like Receipt Management (Collections), Payment Management and Invoice Management (Receivable and Payable Management).

• New Credit Card Management System has been implemented to provide comprehensive management and support for your Bank's Credit Card operations.

• All CBS branches are enabled for interbank remittances through RTGS and NEFT. RTGS and NEFT have also been interfaced with our internet banking portal. The Straight Through Processing (STP) of NEFT Inward Messages have been implemented for the Bank as well as RRBs.

• The SWIFT facility for worldwide inter-bank financial communication is provided at Foreign Exchange Authorised Branches in India as also in overseas territories.

• The Payment Messaging Solution (PMS) is implemented in 20 overseas territories & all authorised branches in India. PMS facilitates validation and formatting of SWIFT messages generated from CBS as per SWIFT standards, and also goes through AML check.

• During the year, a grid based Cheque Truncation System (CTS) was implemented in Chennai, Coimbatore and Banglore.

• For improving your Bank's service delivery, the Back Office functions have been centralised at City Back Offices and Regional Back Offices. During the year, your Bank added five more Regional Back Offices. Your Bank now has 70 City Back Offices and 10 Regional Bank Offices. The personalised cheque books issuance has been centralized. Your Bank has also started centralised FCNR operations.

• Automated Cheque Processing Centre (Inward & Outward) was implemented in Mumbai. Your Bank has also initiated the process of implementation in Surat, Ahmedabad, as a part of Business Process Re-engineering under its Project Navnirmaan.

• The Integrated Global Treasury Solution has been implemented in UK, UAE, Bahamas, Bahrain, Hongkong, Singapore, Belgium and in India, reducing the cost of operations and better fund management.

• For regulatory compliance, the Anti Money Laundering (AML) has been implemented in India and 20 overseas territories. Your Bank has also implemented Risk Management solution.

• Enterprise wide GL Solution has been implemented. This provides variety of inputs to your Bank for strategic decision making in business development and also generates enterprise wide consolidated reports.

• The Centralised Payroll, Salary module, e-TDS module and Leave Module have been implemented for all your Bank's offices in India.

• The Human Resource Networking for Employees Service has been implemented with the objective of creating a central database of the Bank employees for facilitating decision-making, promotion and selection exercise as also for automating other HR process.

• Your Bank had also undertaken as a part of its business strategy, Data Warehouse for providing flexible and interactive source of strategic information, Customer Relationship Management for better customer insight and uniform customer view across channels.

• The IT setup has been developed for account opening process and transactions, both online and offline, to be carried out through Business Correspondent thus enabling Financial Inclusion. The Mobile Van Banking is launched in Gujarat, UP & Bihar on a pilot basis as the Bank's Financial Inclusion initiative.

• The Solar Power Generation System (SPGS) was implemented during the year in additional rural branches to ensure uninterrupted banking services to the Bank's rural customers. The SPGS will provide an alternate source of energy through UPS at branches that face acute power shortage or have large load shedding.

• A robust Information Security Management System was put in place during the year under review to protect the technology against security threat.

Future Plans in IT

• Various IT initiatives under Financial Inclusion are being proposed like - Aadhaar Enabled Payment System (AEPS), Aadhaar Payment Bridge (APB), Ultra Small branches, etc.

• Some more Customer Centric initiatives are proposed like Interbank Mobile Payment Service (IMPS) through ATM, Internet Banking, RuPay Card - ATM & Point of Sale (POS) implementation, European Master Visa (EMV) implementation, Chipbased card, more facilities through Interactive Voice Response System (IVRS), NEFT through ATM, utility bill payment through ATM, etc.

• The advanced phases of Customer Relationship Management and Data Warehouse are also being planned.

• Your Bank has plans to upgrade existing applications like Exchange, eBusiness suite with enhanced features.

• It also proposes implementation of Business Analytics, Employee Performance Management System, Employee Incentives and Manpower Planning.

• It further proposes implementation of Security Operation Centre for enhanced IT security.

• It has planned technology projects like optimal utilization of IT infrastructure, archival project, IPV6 implementation, Biometric authentication for internal users, IT infrastructure for growth, etc.

E-business

Your Bank's e-business department provides different types of Alternate Delivery Channels (ADC) such as ATMs, Internet Banking (Baroda Connect), RTGS/NEFT, Phone Banking, Internet Payment Gateway (IPG) etc. In addition to this, the e-banking department of your Bank looks after Depository Services, Cash Management Services & Sale of Gold Coins. This year, the Bank successfully launched Contact Centers from Lucknow & Baroda, mobile banking and pre-paid gift card etc. Given below is the performance of various segments under the e-Business activity, during FY12.

ATM/DEBIT Card Operations

During FY12, your Bank received NFS Operational Excellence Award for ATMs from National Payments Corporation of India (NPCI) - Best Bank in Public Sector category.

New Initiatives in FY12

a) Fraud Management Solution (FMS) was implemented in August 2011 to make internet banking system foolproof/ secured. No Phishing induced transactions were reported in the previous two months.

b) Online FDR through Baroda Connect was launched in January 2012.

Baroda RTGS/NEFT

Baroda Cash Management Services

• During financial year FY12, the total number of transactions in BCMS was 14.19 lakh with total turnover of Rs 10,355 crore. A profit of Rs1.39 crore was earned.

• The number of customers has increased from 92 as on 31st March 2011 to 206 as on 31st March 2012.

• It is proposed to extend these services to 100 more centers in a phased manner.

Baroda e-Gateway (Internet Payment Gateway)

• As on 31st March 2012, 124 Merchants were registered as against 52 as on 31st March 2011 and total turnover during FY12 was Rs 26.49 crore. A Profit of Rs 27.94 lakh was earned during FY12.

Sale of Gold Coins

• Your Bank started selling the gold coins since October 2007.

• At present, gold coins in denomination of 2gm, 4gm, 5gm, 8gm, 10gm, 20gm and 50gm are sold. During the year FY12, 80,958 gold coins weighing 668.45kg were sold.

• A profit of Rs11.20 crore was earned from this activity during the year FY12.

New Products to be Launched Shortly

1. Launch of Foreign currency international travel card.

2. Value added services like top-up, DTH recharge, utility payment, ticketing etc. through multiple delivery channels like internet banking, mobile banking, ATM, website etc.

3. Introduction of corporate business solutions including web based Cash Management, e-commerce portal, reimbursement/payroll for their staff etc. to garner new/ additional business through e-products/services.

4. Structured loyalty and rewards program to increase debit card usage and associated earnings.

Human Resources

Human Resource strategies have been a key component of your 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. Your Bank is endowed with a competent and highly motivated employee base of around 42,175 people who are engaged in handling the mammoth business operations of your Bank.

Your Bank took some major HR initiatives during the year FY12 in order to cement its position in the top league of banks. Some of these initiatives, as described below, are unique and path-breaking for the entire Public banking sector as a whole.

Your Bank initiated this innovative resourcing channel during the year FY12, in tie-up with Manipal Global Education Services. The Baroda Manipal School of Banking will provide a batch of around 180 fully trained officers per quarter with effect from Sept, 2012 onwards who shall be deployed against your Bank's requirement of specific profiles of officers. The students undergo a focused grooming which is tailored to BOB's requirements, while undertaking a one-year full-time PG course in Banking & Finance in Baroda Manipal School of Banking, before being absorbed in your Bank with first-day, first hour productivity as the main objective.

Launch of HR transformation project - 'SPARSH'

This focused project was initiated by your Bank during this year to revamp its existing HR processes, structures and policies in order to support the technology and business transformation of your Bank. Various initiatives like Talent management, Succession planning, creating a scientific staffing model & manpower planning, development and capability building, performance management, etc. were started under this project.

Implementation of HR Technology

Your Bank has created a very comprehensive HR technology platform covering HRM, Training, Payroll & Leave modules christened the Human Resources Network for Employee Services (HRNes). This technology platform has enabled automation of various Hr functionalities and various modules under this system were continued to be implemented during the year.

HR Initiatives in Capability Building

Substantial training and developmental activities were carried out during FY12, which included comprehensive grooming programmes in the area of Credit, Forex, Dealings, Branch Management, Planning, Risk Management, etc. besides soft skills programmes and ensuring all-round development and grooming of young officers and new recruits through a structured six-month long new joinee induction programme.

Your Bank conducted 2,334 training programmes in-house (through its network of 12 Training Centres across the country, one IT training center and an Apex Training College at Ahmedabad) and thereby trained 48,090 people during the year. Besides, your Bank also sent around 1,221 employees for undergoing training in various reputed external training institutes of the country and even abroad. All General Managers and Dy. General Managers of your Bank were sent to undergo a Top Management programme at one of India's best B-Schools viz. ISB, Hyderabad whereas in another initiative, your Bank trained more than 400 especially identified people across your Bank to undergo a focused Mentoring programme in order to act as 'mentors' to newly recruited officers.

Leadership Development

Taking into account the critical need for building leadership competencies in people, your Bank has launched a comprehensive leadership development program 'Project UDAAN' covering Branch Heads of all Urban and Metro Branches and all the Assistant General Managers and Deputy General Managers with the objective of creating leaders for the future. Such a massive and comprehensive leadership development effort is unparalleled in the industry and first of its kind for an Indian state-owned Bank.

The programme has been structured around three modules of leadership viz. 'Leading Self', 'Leading Others' and 'Leading Business' and each of the three modules are being addressed through a combination of off-site Forum events and Coaching clinics. The programme covered around 960 participants in seven batches (waves) across seven zones of your Bank during the year FY12 and around 460 more participants shall be covered in another three batches in the next year.

Recruitment Drive

Your Bank has been undertaking focused hiring efforts on a sustained basis year on year, to cater to superannuation, sustained business growth and rapid Branch expansion. Various recruitment exercises were undertaken during the year to address the emerging manpower requirements in your Bank. Recruitment of Specialist officers, probationary officers, recruitment of young MBAs directly from the campuses of renowned Business Schools were initiated in large numbers to meet the needs of your Bank, both in terms of replacements for normal attrition and factoring in the business growth needs. Your Bank recruited 1,726 Officers in various Grades/Scales (both Generalists & Specialists), 1,395 Clerks and 629 Subordinate staff members. With another 125 new hires in the process of joining, your Bank has thereby inducted a total of 3,875 new employees during the period FY12. The recruitment process is continued in the year 2012-13 also with various recruitment projects underway for filling up almost 1,000 posts of officers and 2,000 posts of clerks.

Framework for Career Progression

Special efforts were made during the year under review to fulfill the growing aspirations of the employees for faster career progression, thereby, motivating employees for higher productivity. Your Bank has been regularly promoting people in all grades / scales, year after year, without a break, in order to keep on continuously rewarding its top performers and make them assume higher responsibilities faster.

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

Your 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. Your 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 your Bank's efforts for development and welfare of people belonging to SCs and STs are enumerated as under.

Reservation in Employment

Your 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 is being observed.

Special efforts are made like offering pre-recruitment orientation training to SC/ST applicants for recruitment in your Bank. Relaxation in age limit and qualifications are given and interviews of SC/ST candidates are taken on relaxed standards in order to ensure that appointment of candidates to the reserved posts happens. 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, your Bank is also providing reservation and other enabling mechanisms in career growth and promotions for SC and ST employees as per the guidelines in vogue. Pre-promotion training before participating in promotion exercises is also provided. Around 10.0% of the available residential accommodation of your Bank is also reserved for SC/ST candidates.

SC/ST Cell

An exclusive SC/ST Cell in your Bank has been set up to monitor the reservation and other enabling provisions for SC/ ST employees. 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 the 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, your Bank holds quarterly meetings with the representatives of SC/ST Welfare Association of the Bank. Your Bank's Chairman and Managing Director and Senior Executives including the Chief Liaison Officer for SC/ST participate in the meeting.

Bharat Ratna Dr. Babasaheb Ambedkar Memorial Trust

Your Bank has 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 your Bank at various places during the year viz. at Ahmedabad (09.09.2011), Rajkot (16.09.2011), Surat (08.10.2011), Anand (09.11.2011), Bulsar (11.11.2011), Jamnagar (23.12.2011), Bharuch (05.12.2011), Udaipur (29.12.2011), Mehsana (27.01.2012), Godhra (17.03.2012), Kolkata (21.02.2012) and Jodhpur (29.03.2012) to review the implementation of the reservation policy of the Government of India for SCs in your Bank, had discussions and interactions and examined the level of implementation of the policies and programmes. It may be noted that the suggestions and guidance of the Commission are being scrupulously observed by your Bank.

Marketing

The breakthrough marketing communication path with the introduction of the animated mascot "Stickman" by Bank in the year FY11 had enhanced the Bank's branding and set the pace for different branding initiatives.

Taking forward this brand rejuvenation journey, the Bank had introduced the brand in Sonic Medium by launching its "Signature Tune" on the occasion of its Foundation Day on 20th July, 2011. Your Bank's marketing communication continued to focus on enhancing the recall value of the brand and thereby providing absolute support to the field staff.

Product Support

During FY12, a number of product promotion campaigns were conducted to promote Retail Loans, Current Deposits, Saving Deposits, SME products, NRI products and sale of gold coins. 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 general promotional events through the expanding branch network.

Marketing Initiatives

• Your Bank introduced the brand in Sonic Medium by launching its "Signature Tune" on the occasion of Bank's Foundation Day on 20th July, 2011.

• Corporate branding initiatives like launch of signature tune, advertisements about financial results and awards and various product campaign promotions have aided

• Increase of Bank's Brand Value to $ 675 Million in 2012 from $ 585 Million in 2011.

• Improvement in Bank's Brand Ranking to 166 in 2012 from 214 in 2011.

Signature Tune

The year FY12 saw the launch of the 'Signature Tune' of your Bank. The signature tune is an audio piece which articulates brand personality, enhancing and impressing the visual form of Bank's logo to create a strong association of the Bank's brand with its customer and employees. It has been envisaged that this signature tune will articulate the spirit of the Bank as a vibrant, energetic, young organization complementing the Logo and its introduction signifies the commencement of a new brand era which will give a 360 degree recall value to the Bank's brand.

Other Marketing Endeavours

Various on-ground activities helped to broaden your Bank's competitive edge by improving visibility, image, prestige and credibility by supporting events where your Bank could capture attention of prospective customers and generate business. Your Bank organized and participated in many such events. Some of the major events where your Bank's branding was enhanced included viz. Vadodara Marathon - 2012, President Fleet Review Nite - 2012, Mint Annual Banking Conclave -2012 - "Opportunities and Challenges", 10th Pravasi Bhartiya Divas - 2012, Jaipur, Mumbai Marathon - 2012, FICCI Series of Seminars on MSME Financing - 2011, FICCI-IBA Banking Conference 2011, 28th Skoch Summit on Financial Inclusion and The Baroda Cup Polo Tournament. The Out-of-Home media was also well leveraged to ensure customer recall.

Awards and Industry Recognition for Bank of Baroda

Your Bank received several awards during FY12, for its consistent outstanding and all-round performance (both business and financial), superior management, dedication to excellence and contribution to rural economy and financial inclusion.

Given below are a few select awards won by Bank during the year FY12:

• T A Pai Memorial "Best Banker" award.

• Most Efficient Bank in Kenya

• Best Initiatives in Inclusive Banking - FIBAC Banking Awards

• Dun & Bradstreet (D&B) Leading Public Sector Bank in 'Global Business Development' category

• National Award for performance under implementation of PMEGP scheme.

• India Best Banks and Financial Institutions Awards: MCXand CNBC-TV18, -

a. Best Public Sector Bank

b. Outstanding Financial Professional - 2010 was conferred upon Shri M D Mallya

• Commendation Certificate: Department of Official Language - Ministry of Home Affairs.

• HR Excellence Award for Best Intellectual Human Resource Utilization Practices by Amity International Business School, New Delhi.

• Golden Peacock Award for Excellence in Corporate Governance.

• "Dainik Bhaskar India Pride Awards - Lifetime Achievement Award to M D Mallya

• ABCI Awards 2011.

a. Gold Trophy in Indian Language Publication- Akshayyam

b. Bronze Trophy in New Publication- Navnirmaan

c. Bronze Trophy in Special Column - Apni Baat

d. Gold Trophy in Web Communication online - Retail Product Campaign

• Business World Best Bank 2011 Awards

a. Fastest Growing Bank- Large

b. Banker of the Year to Shri M D Mallya, CMD

• Best Public Sector Bank Award by State Forum of Bankers Club, Kerala.

• ICAI awards for Excellence in Financial Reporting

• Best Public Sector Bank by NDTV Profit

• My FM Stars of the Industry Brand Leadership Award

Premises Re-Engineering and Ambience Enhancement

Your Bank, in a ceremony held at Baroda on 27th June, 2011 symbolically handed an Auditorium "Sir Sayajirao Nagar Gruh" having 1,008 seats, to the Vadodara Municipal Corporation, as a Centenary Year Gift to the city of Baroda.

Maharaja Ranjitsinh ji Gaekwad, the heir of H.H. Sir Sayajirao Gaekwad III and other dignitaries greatly appreciated your Bank's gesture. The State-of-the-Art building depicts all the rich cultural heritage of the town using the talents of local artisans and artists. The beautiful building has since become a landmark of Baroda City. Major Cultural events of the city are since held there.

The administrative office cum residential complex at Ghod Dod Road Surat is since completed. It is equipped with ultra modern gadgets and systems with energy efficient equipments, rain water harvesting system, eco friendly materials. Bank's presence by this building in the Diamond City is admired by one and all.

Other Initiatives in Estate Management

• As per the directives from Ministry of Finance, your Bank linked its Corporate Office and all Zonal and Regional offices through State-of-the-Art Video Conferencing Systems with MPLS connectivity. Interaction of functional heads through VC has expedited the decision making process in more efficient and cost effective manner.

• Your Bank is also marching towards technology based initiatives in the form of e-tendering, e-procurement, etc.

• All payments to vendors are being made through RTGS / NEFT or credited to beneficiary account.

• Migrated all the assets, located at branches and calculation of depreciation thereon, to CBS platform with the assistance of Projects & IT Department

• Looking to the changed scenario and available delivery channels, furnishing of RBO, CBO, and Contact Center have been carried out in-house, at various locations, to ensure efficient customer services.

• In tune with your Bank's policy to have its administrative offices in owned premises, your Bank has purchased land at Bangalore (Karnataka), Hyderabad (A.P), Faizabad (U.P), Indore (MP), Udaipur, Kota, Jaipur (Rajasthan) and New Raipur (Chhatisgarh) for construction of commercial building.

• During the year, your Bank surrendered surplus/unutilised area of approximately 30,000 sq. ft. of branches/ offices thereby saving the rental outgo.

• Looking to the ever increasing rentals, need is being felt to use every nook and corner of the available premises. Layouts are being revisited while renovation and furnishing of branches / offices is being done by introducing eco friendly and ergonomically designed sleek furniture items.

• To have uniformity in systems and procedures pan-India, Premises Policy Guidelines, Constructions Manual, Refurbishment Manual have been formulated.

Projects under Implementation

• Construction of commercial complex at Mylapore, Chennai is in the final stage of completion to house Zonal Office, Branch and Currency Chest and is expected to be occupied by the end of June 2012

• Construction of residential complex at Cenotaph Road, Chennai is nearing completion, to house the executives and VIP guests and is expected to be occupied by the end of June 2012

• Residential complex at East of Kailash, New Delhi is in the advanced stage of completion.

• Construction of commercial cum residential complex at (Tata Nagar) Jamshedpur is also nearing completion to house the RO, RBO, TC and 23 flats.

Future Plans for Estate Management

• Face lifting of Bank's building at Parliament Street New Delhi

• Redevelopment of Ram Nagar Premises at Coimbatore, to have optimum utilisation of available space for Branch / officers flats

• Construction of own building for Disaster Recovery Site at Hyderabad

• Construction of training centre at Bangalore and Zonal Office building at Jaipur.

• Renovation of Bank of Baroda Institute of Information Technology at Gandhinagar (Gujarat)

• Redevelopment of Bhandup Staff Quarters building, Mumbai, thereby to construct about 138 residential flats for transferee Officers/ Executives.

• Redevelopment of Jogeshwari Staff Quarters, Mumbai, to construct a building for residential and commercial use.

• Construction of residential cum commercial complex at Indore (MP)

• Construction of BSVS at various centers across India as per the directives from the Gov. of India

Branch Network

Given below is the information on your Bank's brick and mortar distribution channels as on 31st March, 2012, which are observed to be closer to common customers as compared to the E-Banking channels, which are generally preferred by the tech savvy urban masses.

Domestic Subsidiaries and Associates

The performance of "Subsidiaries, Joint Venture & Associates" of Bank of Baroda was satisfactory during FY12. The BOBCARDS Limited turned around during FY11 and has made profit during FY12. The Company has focused on all qualitative aspects of business development, which has resulted in better profitability, quality card base and ME base.

The BOB Capital Markets Ltd. has been activated by appointing a professional CEO and recruiting a professional team. The focus is on Debt Syndication, Private Equity Syndication and Capital Market activities. The Company commenced Institutional Broking business in October 2009 and will be commencing retail broking shortly.

The Baroda Pioneer Asset Management Company Ltd. is in its fourth year of operation. The Company focused on Systematic Investment Plans (SIPs). During the year under review, the Company launched successful SIP campaigns in your Bank's network and has raised significant SIPs.

IndiaFirst Life Insurance Company Ltd., a joint venture company, commenced its business operations on 16th November 2009 and has received an overwhelming response from Your Bank's customers across the country. IndiaFirst has outperformed the industry by having maximum y-o-y growth of 40%. From 22nd entrant in FY10, the Company has become the 10th player among private players by 31st March, 2012. IndiaFirst has launched embedded products like BarodaFirst and Abhaya First, one of its kind in the industry.

Implementation of Official Language (OL) Policy

During the period under review, your Bank made significant progress with regard to implementation of Official Language Policy and ensured compliance of various statutory requirements of Official Language Act/Official Language Rules. Your Bank could achieve all major targets set by the Government of India under its Annual Implementation Programme and fulfilled the assurance given to the committee of Parliament on Official Language.

In recognition of your Bank's outstanding performance, the Bank was awarded 1st prize in Linguistic Region 'A', IInd prize in Linguistic Region 'B' & 'C' under RBI Rajbhasha Shield Competition. Your Bank's in-House magazine BOBMAITRI also got 4th prize from RBI. The Town Official Language Implementation Committees functioning at Jaipur and Baroda under our convenorship were awarded 1st& 2nd prizes respectively for their outstanding performance by Dept. of O.L., Government of India. Your Bank's Zonal Office, Ahmedabad & Zonal Office Jaipur got 1st& 2nd Prizes respectively from Regional O.L. Implementation office of Government of India.

Your Bank's in House Hindi Magazine 'Akshayyam' was awarded by the 'ABCI' with 'Gold Prize' under Indian Language Publication category, 'Apni Baat' awarded with 'Bronz prize' under special column (Language) category, 'Navnirman News letter' awarded with 'Bronz prize' under new publication category and your Bank's website got 'Silver prize' under the website category by ABCI.

The Town Official Language Implementation Committees functioning at Jaipur & Baroda under the convernorship of your Bank discharged their responsibilities excellently. During the year, three newly constituted Town Official Language Implementation Committees started functioning at Surat, Rajkot & Jodhpur under your Bank's Convenorship and now the Bank is the Convener of a total of five Town Official Language Implementation Committees.

Your Bank recruited 28 new specialist Hindi Officers at Regional Offices for effective Implementation of Official Language Policy of Government of India.

The Third Sub-Committee of Parliament on Official Language visited your Bank's Manali Branch and appreciated the efforts undertaken by the Bank in the area of Official Language Implementation.

Your Bank introduced bilingual software namely 'Script Magic' in the finacle system across all its branches (which are already on the CBS) and started generating and printing of Passbooks/ Account Statements and other reports in Hindi in Region 'A' & 'B'. The publication of e-bulletin in Hindi namely 'Baroda Hindi. Com' is promoting the use of Hindi through technology.

Board of Directors

Shri Sudarshan Sen was nominated as a Director w.e.f. 30.05.2011 by the Central Government u/s 9 (3) (c) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 to hold the post until further orders.

Shri Vinil Kumar Saxena was appointed as a Workmen Employee Director w.e.f. 25.07.2011 by the Central Government u/s 9 (3) (e) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 for a period of three years or till he ceases to be workmen employee of Bank of Baroda or until further orders, whichever is earlier.

Shri Maulin Arvind Vaishnav was re-elected as a Director by shareholders of the Bank other than the Central Government u/s 9 (3) (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 at the Extra Ordinary General Meeting held on 23.12.2011 for a period of three years from 24.12.2011 to 23.12.2014.

Shri Surendra Singh Bhandari was elected as a Director by shareholders of the Bank other than the Central Government u/s 9 ((3) (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 at the Extra Ordinary General Meeting held on 23.12.2011 for a period of three years from 24.12.2011 to 23.12.2014.

Shri Rajib Sekhar Sahoo was elected as a Director by shareholders of the Bank other than the Central Government u/s 9 ((3) (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 at the Extra Ordinary General Meeting held on 23.12.2011 for a period of three years from 24.12.2011 to 23.12.2014.

Shri R. Gandhi, who was nominated as a Director w.e.f. 30.07.2010 by the Central Government u/s 9 (3) (c) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, to hold the post until further orders, ceased to be a Director w.e.f. 30.05.2011 upon nomination of Shri Sudarshan Sen in his place.

Dr. Dharmendra Bhandari, elected as a Director by shareholders of the Bank other than the Central Government u/s 9 ((3) (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 for a period of three years from 24.12.2008 to 23.12.2011, ceased to be a Director w.e.f 24.12.2011 on completion of his tenure.

Dr. Deepak B. Phatak elected as a Director by shareholders of the Bank other than the Central Government u/s 9 ((3) (i) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 for a period of three years from 24.12.2008 to 23.12.2011, ceased to be Director w.e.f. 24.12.2011 on completion of his tenure.

Directors' Responsibility Statement

The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2012:

• 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 RBI, were consistently applied.

• Reasonable and prudent judgment and estimates were made so as to give true and fair view of the state of affairs of your Bank at the end of financial year and of the profit of your Bank for the year ended on March 31, 2012;

• 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.

Acknowledgement

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 your 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 your Bank's staff at different levels, which enabled your Bank to record high quality, consistent growth year after year despite economic challenges and consolidate its position as one of the premier banks in the country.

For and on behalf of the Board of Directors,

M. D. Mallya

Chairman and Managing Director