The Directors of your Bank take immense pleasure in presenting the 93rd Annual Report of the Bank for the year 2011-12 along with statement of the 'Audited Balance Sheet', 'Profit & Loss Account', 'Cash-Flow Statement' on standalone and consolidated basis and the report on 'Management Discussion & Analysis'. The Corporate Governance Report also forms part of the Annual Report.
a. Your Bank's objective is to create values on sustainable basis for its customers, shareholders and the employees. This is possible through continuously adding strengths in the organization. The prospects of your Bank would depend upon how efficient is its customer acquisition and retention strategy and how strong is its human resource management system for ensuring customer service excellence. Realizing this, during the financial year 2011-12, your Bank focused on two important initiatives directed at achieving 'customer service excellence' and building strong 'human resources'. Significant steps were undertaken in both these areas.
b. Business scenario during 2011-12 was not conducive due to weakness in global demand and challenging macroeconomic conditions in India. Banking sector growth was also subdued as high interest rate on account of RBI's monetary tightening led to fall in investment and consumption demand. Your Bank was also impacted by the slowdown. Even in this backdrop, total Business of your Bank crossed landmark of Rs. 4,00,000 crore; Operating Profit crossed landmark of Rs. 5,000 crore and Net Interest Margin remained high.
a. The Total Business of the Bank registered an annual growth rate of 13.62% from Rs. 3,55,483 crore as on March 31, 2011 to Rs. 4,03,900 crore as on March 31, 2012.
b. Deposits increased from Rs. 2,02,461 crore as on March 31, 2011 to Rs. 2,22,869 crore as on March 31, 2012 with annual growth of 10.08% and Advances increased by 18.30% from Rs. 1,53,022 crore as on March 31, 2011 to Rs. 1,81,031 crore as on March 31, 2012.
c. The business of Bank's sole overseas branch at Hong Kong registered a growth rate of 59.55% from Rs. 6,511 crore as on March 31, 2011 to Rs. 10,388 crore as on March 31, 2012. Deposits increased from Rs. 590 crore to Rs. 1,207 crore while advances increased from Rs. 5,941 crore to Rs. 9,181 crore during the same period.
a. Net Interest Income recorded an annual growth rate of 11.15% from Rs. 6,216 crore for the year 2010-11 to Rs. 6,909 crore for the year 2011-12. Net Interest Income registered a compound annual growth rate (CAGR) of 21.91% during the last three years.
b. Total Income of the Bank increased by 26.96% from Rs. 18,491 crore in 2010-11 to Rs. 23,476 crore in 201112. Interest income recorded an annual growth of 28.52%. Yield on advances increased to 11.22% for the year 2011-12 compared to 9.86% for the previous financial year. Yield on investments also increased to 6.96% for the year 2011-12 from 6.55% in the previous year. Thus, total yield on funds recorded an improvement of 107 basis points (bps) from 8.33% to 9.40%.
c. Non-interest income increased by 14.37% from Rs. 2,039 crore in 2010-11 to Rs. 2,332 crore in 201112. Persistently high rate of Inflation and successive hikes in policy rate by RBI resulted in lower prices of government securities (G-Sec) which adversely affected the Treasury Income during the financial year 2011-12. Recovery in written-off accounts, however, showed a growth of 66.98% during the year. Core non-interest income increased by 12.13% from Rs. 1,138 crore in 2010-11 to Rs. 1,276 crore in 2011-12.
d. Total Expenses increased by 28.45% from Rs. 14,186 crore during 2010-11 to Rs. 18,222 crore during 201112. Interest expenses increased by 39.07% from Rs. 10,236 crore to Rs. 14,235 crore, mainly due to increase in cost of deposits to 6.93% as compared to 5.53% in the previous year. Total cost of funds also moved up to 6.33% from 5.19% on account of tight liquidity conditions in the financial market and higher policy rates. However, increased costs were offset by higher Yield on Funds.
e. NIM for the year 2011- 2012 stood at 3.21% as against 3.33% in the previous year.
f. Return on Average Assets for the year 2011-12 stood at 0.79% compared to 1.05% for 2010-11.
g. Establishment expenses declined by 4.65% from Rs. 2,600 crore during 2010-11 to Rs. 2479 crore during 2011-12.
h. Cost-to-income Ratio declined to 43.15% from 47.85% reflecting control in establishment expenses and 12% growth in operating income.
i. The Operating Profit for the year 2011-12 crossed the landmark of Rs. 5,000 crore. It registered an annual growth rate of 22.04% to Rs. 5254 crore from Rs. 4,305 crore during the previous year due to strong growth in interest income and control in operating expenses.
j. Net Profit stood at Rs. 1787 crore for the year 2011-12. Net Profit for the year was affected due to higher provisions for restructured accounts to the extent of Rs. 507 crore.
4. Productivity Ratios:
a. Average Business per employee recorded CAGR of 15.52% during 2009 to 2012. During the same period, Average Business per branch and Gross Profit per Employee have shown CAGR of 11.39% and 15.01% respectively.
Your Directors are pleased to recommend a dividend of 80% for the year 2011-12, i.e. Rs. 8.00 for each share with face value of Rs. 10.00. The dividend is maintained at the same percentage as that for FY 2010-11 despite fall in net profit.
6. Shareholders' Return:
The Bank's net worth improved by 16.98% to Rs. 13075 crore from Rs. 11177 crore in the previous year. Thus, the Book Value per share increased to Rs. 237.48 from Rs. 213.17 in the previous year. Earnings per share stood at Rs. 34.07 as against Rs. 39.71 in the previous year. Return on Equity stood at 13.67% for the year 2011-12 from 18.63% in the previous year.
7. Rating & Capital Raising
a. The ratings given by various Credit Rating Agencies for Bank's Tier I & Tier II Capital instruments points to the highest degree of safety regarding timely servicing of financial obligations and these instruments carry lowest credit risk.
b. Bank allotted 2,62,16,620 equity shares of Rs.10/- each at a premium of Rs. 238.05 aggregating to Rs. 650.30 crore on preferential basis to Life Insurance Corporation of India. Consequently the Government shareholding of the Bank has come down from 57.07% as on March 31, 2011 to 54.35% as on March 31, 2012.
8. Capital Adequacy Ratio
Capital Adequacy Ratio (CAR), as per Basel II norms stood at 11.85% as on March 31, 2012, well above the regulatory benchmark of 9%. Tier I CAR stood at 8.37% and Tier-2 at 3.48%.
9. Delivery Channels
a. The Bank is having widespread network of branches and ATMs throughout India. During the year 201112, the Bank opened 185 branches and 1167 ATMs. As a result, total number of branches increased from 3016 to 3201 and number of ATMs increased from 2634 to 3801. The ratio of ATM to branches stood at 1.19, which is one of the best in the industry. The bank also introduced remittance product such as NEFT, Interbank Mobile Payment System (IMPS) and E-Cash remittance through ATMs.
b. The Bank is facilitating NEFT and RTGS services to branches across the country. As on March 31, 2012, all branches are NEFT and RTGS enabled.
c. Transactions through electronic channels increased to 54.75% as on March 31, 2012 from 50.49% as on March 31, 2011.
d. The Bank launched an online remittance product, popularly known as UNION FLASH in Dubai on 21st January, 2012. It is a 24 X 7 online remittance solution for Non-Resident Indians (NRIs) in the Gulf who can use the product for instant credit of funds to the resident Indians having account with Union Bank. The Bank became the first public sector Bank in India to introduce such remittance facility under tie-up with UAE exchange.
e. The Bank launched a Customer Care Unit on March 16, 2012 in Mumbai to resolve customer complaints & systematically eliminate the root causes of complaints across channels. The Integrated Case Management Tool (ICMT) has been put in place to integrate complaints across channels.
10. Awards & Accolades:
Your Bank received wide recognition and several awards for its performance and initiatives in many areas.
a. The Bank's Staff College at Bengaluru was selected as the winner of the 'Golden Peacock National Training Award' for the year 2011. This is the 4th occasion the Bank has bagged the prestigious Golden Peacock Award.
b. Bank won ACI Excellence Award 2011 for their project "Customer Empowerment using ACI solution BASE 24" in the Payment Transformation category. ACI Worldwide started ACI Excellence Award in 2010 in recognition of Banks and financial institutions doing most innovative use of their payment system solutions.
c. The Bank received the 'Best Middleware Implementation Award' at the Asian Banker's Technology Implementation Awards 2011 at the function held in Hongkong on April 7, 2011. The award is given for Enterprise Application Integration solution implemented by the Bank to facilitate seamless integration of different standalone applications being used by the Bank. The Asian Banker has instituted annual IT Implementation Awards programme to determine and award best practices of technological innovation in banking operations.
d. The Bank was awarded a Certificate of Recognition for adopting good Corporate Governance practices as part of the "ICSI National award for Excellence in Corporate Governance" for the year 2011 instituted by the Institute of Company Secretaries of India.
e. Your Bank's in-house journal 'Union Dhara' bagged 7 awards, second time in succession, along with most prestigious "Champion of the Champions Trophy" at 51st Award ceremony of Association of Business Communicators of India (ABCI).
During the year, the following changes took place in the Board of Directors:
a. Shri B.N. Bhattacharjee was nominated by the Government under sub-section 3 (f) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. May 4, 2011 as Officer Employee Director.
b. Shri Samir K. Sinha, an official of the Central Government was nominated by the Central Government as a non-wholetime director under sub section 3 (b) nominated on the Board w.e.f July 22, 2011 in place of Shri K.V. Eapen . Further, Shri Rajesh Khullar was nominated in place of Shri Samir K. Sinha w.e.f. November 15, 2011.
c. Shri S.K. Jain was nominated on the Board by the Government under sub-section 3 (a) of section 9 of the Banking Companies ( Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. September 1, 2011 as Executive Director in place of Shri S.C. Kalia whose term ended by superannuation w.e.f. August 31, 2011.
d. Dr. Atul Agarwal Part-time non official Director was nominated by the Government under sub-section 3(h) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. September 22, 2011.
e. Shri Chandan Sinha, RBI Nominee Director was nominated by the Government under sub-section 3 (c) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 read with sub clause (1) of clause 3 of the Nationalized Banks (Management and Miscellaneous Provisions) Scheme 1970/1980 w.e.f. October 13, 2011, in place of Smt. Meena Hemchandra whose term ended on October 12, 2011.
f. Shri N. Shankar, was re-nominated by the Government under sub-section 3 (e) of section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. January 19, 2012 as Workmen Employee Director. His earlier term of three years ended on September 14, 2011.
g. Shri D. Sarkar was nominated on the Board by the Government under sub-section 3 (a) of section 9 of Banking companies (Acquisition & Transfer of Undertakings) Act, 1970/1980 w.e.f. April 1, 2012 as the Chairman & Managing Director in place of Shri M.V. Nair whose term ended by superannuation w.e.f. March 31, 2012.
h. Shri Arun Kumar Nanda, Shareholder Director resigned from the Board w.e.f. 28.11.2011 due to his personal reasons.
i. The term of Dr. Gulfam Mujibi came to an end during the year under review w.e.f. January 28, 2012. Appointment for vacancy thereof by the Government is awaited.
j. While welcoming all the new Directors, the Board places on record the valuable services rendered by Shri K.V.Eapen, Shri S.C. Kalia, Smt. Meena Hemchandra, Shri Samir K. Sinha, Shri Arun K. Nanda, Dr. Gulfam Mujibi and Shri M.V. Nair.
12. Directors' Responsibility Statement:
The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2012:
a. The applicable accounting standards have been followed and there are no material departures from prescribed accounting standards.
b. The accounting policies framed in accordance with the guidelines of the Reserve Bank of India, were consistently applied.
c. Reasonable and prudent judgment and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of Bank for the year ended on March 31, 2012.
d. Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India and,
e. The accounts have been prepared on going concern basis.
13. Corporate Governance:
The Board of the bank is committed to adopt good Corporate Governance practices in letter and spirit. A detailed report on Corporate Governance is given in a separate Section of the Annual Report. Bank was awarded with "Certificate of Recognition" for excellence in Corporate Governance at the 11th ICSI National Award for the second consecutive year. The Bank was selected as one of the Top 25 companies in India for excellence in Corporate Governance practices by the Institute of Company Secretaries of India partnering with Ministry of Corporate Affairs, Government of India for the years 2008-09 and 2009-2010. The Corporate Governance report for year 2011-2012 has no audit qualifications.
14. Corporate Social Responsibility:
a. Your Bank is actively engaged in community and social development. Various activities are carried out by this Foundation through a widespread presence of 202 Village Knowledge Centres (VKCs), adoption of 134 villages across the country and is actively involved in development of these villages under a special scheme by name 'Union Adarsh Gram Yojana'. Bank has been taking up various developmental activities in the adopted villages towards drinking water supply, sanitary and lighting. In said model villages, Bank has adopted 123 Girl children as part of the initiative to increase enrolment of girl child at the schools.
b. Further, Bank has 9 Financial Literacy and Credit Counseling Centres (FLCC), 14 R-SETIs (Rural Self-Employment and Training Institutes) across the country.
c. Each VKC assists in overall development of the village by coordinating with various developmental agencies/Government departments and disseminate knowledge to farmers about latest developments in methods of cultivation, technologies, proper use of fertilizers, pesticides, etc. Similarly, R-SETI and FLCC extend financial literacy, counseling and training to the needy people so that they become self-reliant.
d. Your Bank has also associated with TERI (The Energy and Resources Institute) towards the initiative titled 'Lighting a Billion Lives', through which, it aims to bring light into the lives of one billion people living in rural areas by replacing the kerosene and paraffin lanterns used by them, with solar lighting devices. This will facilitate education of children; provide better illumination and kerosene-smoke-free indoor environment for women to do household chores; and provide opportunities for livelihoods both at the individual level and at village level.
e. Bank has also been spearheading its CSR initiative through Union Bank Social Foundation Trust, a public charitable trust which caters to the needs of the poor and marginalized.
f. Besides, your Bank has been supporting various NGOs and other social organizations by donations to social project and initiatives including among other things, initiatives in health, education, sanitation and other social needs. During the year 2011-12, your Bank has spent an amount of Rs. 549.81 lacs by way of Donations.
The Board of Directors would like to express their sincere thanks to the Government of India, Reserve Bank of India, Securities & Exchange Board of India, Insurance Regulatory and Development Authority and Central Vigilance Commission for the valuable guidance and support received from them. The Board also thanks the financial institutions and correspondent banks for their cooperation and support. The Board also records its sincere gratitude to the bank's valuable shareholders, esteemed customers and all other stakeholders for their continued patronage. The Board also expresses its appreciation for every employee of the bank for their dedicated service.
For and on behalf of the Board of Directors,
Chairman & Managing Director
Dated: 26th May, 2012