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CHAPTER

I

INTRODUCTION HISTORICAL BACKGROUND: The law relating to banking, as we find in India today, is the outcome of the gradual process of evolution. Before 1949, the Indian Companies Act, 1913, contained special provisions relating to banking companies, which were felt inadequate and were subsequently incorporated in the comprehensive legislation passed in 1949. Since its enforcement in 1949, Banking Regulation Act was suitably amended a number of times to insert new provisions and to amend the existing ones to suit the needs of changing circumstances and to plug the loopholes in the main legislation. The Banking Laws (Amendment Act, 1968, introduced Social Control on banking by inserting regulatory provisions of far reaching significance. The Banking Laws (Amendment) Act, 1983 inserted a few new sections besides amending some of the important ones. ENTRY OF PRIVATE SECTOR BANKS: In January 1993. RBI had issued guidelines for licensing of new banks in the private sector. It had granted licenses to 10 banks, which are presently in business. Based on a review of experience

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gained on the functioning of new private sector banks, revised guidelines were issued in January 2003. Following are the major revised provisions. (a) Initial minimum paid up capital shall be Rs.200 crore which will be raised to Rs. 300 crore with in three years of commencement of business. (b) Contribution of promoters shall be a minimum of 40 percent of the paid up capital of the bank at any point of time. This contribution of 40 percent shall be locked in for five years from the date of licensing of the bank. (c) While augmenting capital to Rs.300 crore within three years promoters shall bring in at least 40% of the fresh capital, which will also be locked in for five years. (d) NRI participation in the primary equity of a new bank shall be to be maximum extent of 40%. Abolition of selective credit controls (scc): SCC introduced in India in 1956, pertains to regulation of credit for specific purposes. The technique of SCCs used by the RBI include fixing minimum margins for lending against securities ceiling on maximum advances to individual borrowers against stocks of certain commodities and minimum discriminatory rates of interest prescribed

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for certain kinds of advances SCCs have been used mainly to prevent the speculative holding of essential commodities like food grains to prevent price rise. Selective credit control has been abolished in the post liberalisation period. Other Measures: Credit restrictions for purchases of consumer durables have been removed / related similarly coverage of priority sector has been enlarged by the inclusion of software, agro processing industries and venture capital these measures have given the banks the much needed flexibility to manage their asset portfolios. Challenges & Opportunities of Banking Sector: Banking in India has undergone a complete transformation in the past few decades. This sector is going through major changes as a consequence of economic reforms. The changes affected the ownership pattern of banks, availability of funds, the cost of funds as well as opportunities to earn, range of services (both fee based and fund based) and management of priority sector lending. As a consequence of liberalization in interest rates, banks are operating on reduced spread. The biggest opportunity for the Indian banking system is the Indian consumer. Demographic shifts in terms of life style aspiration are changing the profile of Indian consumer. The Indian consumer now seeks to fulfill his life style aspirations at a younger age with optimal

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combination of equity and debt to finance consumption and asset creation. This is leading to growing demand for competitive sophisticated retail banking services. The consumer represents a market for a wide range of products and services. He needs a housing finance to construct his house, an auto loan for his car, a credit card for ongoing purchase, a bank account, along term investment plan to finance his childs higher education a pension plan for his retirement a life insurance policy and so on. Moreover this typical customer does not live in 10 cities of India he is present in towns, villages with increased awareness. Consumer good companies are a trading lapin this potential. It is for the banks to take the most of the opportunity to deliver solutions to this market. CENTURION BANK Bank refers to Centurion Bank Limited, a banking company in corporate in India under the Companies Act, 1956 and having its registered office at Shanta Durga Niwas, M. G Road, Panaji, Goa 403001, and India. The term Includes the successors and assigns of the Centurion Bank Limited and any branch/ office there of Internet Banking, Internet Banking Service, refers to the service mentioned in clause I here in above.

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THE BRANCH PROFILES The branch profiles were evolved using extreme cases on efficiency and satisfaction. The Vellore branch of the Centurion bank comes under the most satisfying branch. This branch has been rated as the best in terms of customer satisfaction from service. It had good amount of business deposit competition from Nationalised banks and ICICI. This branch attracted raided of customers as the Vellore town is attracting more purpose for various parties of the country for the medical people for various facts of the country for the medical treatment at CMC Hospital. The branch offered facilities for the operator of accounts advances and lockers. The branch was also distributing loans to the worker section of the society under differential rate of interest. The branch manage was a young and helpful man. He had been only recently promoted from the clerical group. The customers respected him but the customers did often not take him seriously because of his young age. Employees had positive attitude towards customers. They had shown interest in the growth of businesses at the branch in order to earn a good image. The employees perceived the organisational climate as good and open. They also had higher scores on the motivation to work competence adoptability job involvement and bank identification. The general employee attitude towards the manger was reported to be nurturance. The customers expressed satisfaction from service only if they felt impersonal touch of being cared for at being attended to. Secondly it approved for the customers point of view the two factors was an important component

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of efficient service. If the service was rendered quickly, it was efficient at if not it was not efficient. This was linked to the type of customer services at the location of bank. The bank was incorporated on June 30, 1994, under an overall economic reform program initiated by the Government of India 1991, when the RBI granted nine new licenses for the establishment of commercial banks in the private sector. It obtained certificate of incorporation on July 20, 1994 and subsequently received the banking license (BOM:57) from vide their letter no. DBOD/4577/16-01-104/95 dated January 13, 1995. The bank was founded by the erstwhile TCFC and its associates along with Keppel Tattle Bank Ltd. (which was earlier the Keppel Bank of Singapore) through Kephinance Investment (Mauritius) Ple. Ltd. Besides the promoters, the equity share capital was subscribed by ADB, manila and IFC Washington. The bank started operations with its registered office at T-2, Shabana chambers, Panaji, Goa which shifted to Durga Niwas, M.G Road, Panaji, Goa in January 1995. In Financial Year 2002, TCFC was merged with Centurion Bank Limited vide a scheme of arrangement under the Companies Act. The scheme was sanctioned by the Honorable High court of judicature at Bombay and Goa bench at Panaji on April 09, 2002 and April 16, 2002 respectively. The merger increased the branch network by adding 40 marketing offices of TCFC to our existing 30 branches at that time. The merger also marked the entry of the

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bank into retail financing, ahead of the other peer banks, and strengthened presence of the bank in southern India. The bank under look a re branding exercise and introduced new products like global debit cards, cash management services and depository services. The bank was among the first banks to enter the profitable 2-wheeler, commercial vehicles and construction equipment financing businesses. In February 2004, the bank planned a rights issue to augment its capital for growth purposes. The issue was not subscribed due to adverse capital market condition prevailing at that time.While the merger with TCFC helped shift the focus of the bank towards retail asst financing, the bank also inherited a legacy of stressed corporate assets in the form of leases and hire purchases contracts and contingent liabilities in the form of disputed tax demands. The bank came across reconciliation differences that required provisioning in the fiscal 2005 accounts. This eroded the banks capital and constrained its growth. On October 9, 2004 the board appointed Mr. V. Janakiraman the former MD of the State Bank of India and an experienced banker as the CMD to guide the bank towards an alternative strategy. The appointment of Mr. V. Janakiraman was duly approved by the Reserve Bank of India in accordance with the provisions of section 35B of the BR Act, 1949 non December 31, 2004. The erstwhile, TCFC promoter directors resigned from the board in March 2005 after Mr. Janakiraman assumed charge in January 2005. The board also appointed Mr. C.G. Somaiya, former Comptroller and Auditor General of India Mr.Kamlesh Vikamsey, chartered accountant, and presently the vice president of the Institute of Charted Accountants of India (ICAI) as non-executive directors in March 2005. The new management with the reconsolidated board introduced stringent accounting norms and instituted

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better corporate goverance. Thereafter the board engaged in discussions with several potential investors to infuse additional capital in the bank. These efforts culminated in a proposal from Sabre for recapitalisation of the bank using private financial investors and infusion of fresh capital through a court scheme coupled with the merger of the Bank of Muscat Banglore, being accepted. The bank presented a composite scheme of arrangement under section 100 (for reduction of capital) and sections 391 to 394 of the companies Act, 1956 for the approval of the High Courts at Mumbai and Banglore, Karnataka and the RBI and they have approved the same on September 12, 2006, October 27 2006 and January 20, 2007 respectively. The scheme of arrangement inter - alia involved re-organishing the banks share capital, merger of operations of Bank Muscat, Banglore with the bank and infusion of capital as a result of the scheme of arrangement till date Rs. 245 crores have been infused in the form of equity improving the banks CAR to 9.51% as on September 30 2007. The scheme also entailed vesting the entire shareholding of the banks erstwhile promoter TCFC in the Centurion Bank stock trust for the benefit of the bank. MAIN OBJECTIVES OF THE BANK: The main objectives of the bank, as set out in its memorandum of association inter-alia include: 1. To establish and carry on business of banking at the registered office of the company and at such branches, agencies, or offices in the State of

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Goa, and any other part of India or else here, as may from time to time be determined by the directors of the company. 2. To carry on the business of accepting for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft or otherwise. 3. To borrow raise or take up money; to lend or advances money either upon or without security; to draw, make, accept, negotiate, discount, buy, sell, collect and deal in bills of exchange, hundies, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, bonds, debentures, certificates, scrips and other instrument, and securities whether transferable or negotiable or not; to grant and issue letters of credit, travelers cheques and circular notes; to buy sell and deal in bullion and specie; to buy and sell foreign exchange including foreign bank notes: to acquire, holds issue on commission underwrite and deal in stock funds shares debentures debenture stock obligations securities and investments of all kinds to purchase and sell bonds scripts or other forms of securities on behalf of constituents or others; to negotiate loans and advances ; to receive money all kinds of bonds, scripts or valuable on deposit or for safe custody or otherwise to provide safe deposit vaults to collect money and securities. 4. To carry on the business of factoring by purchasing and selling debt receivables and claims including discounting and rendering bill collection, and debt collection and other factoring g services.

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The object clauses of the memorandum of associations of the company enable the company to undertake its existing activities and the activities for which the funds are being raised through the present offer. Business of the bank & its products and services Overview: The bank is among the new private sector banks with a strong technology and service culture. As on March 31, 2007, the bank had a network of fully networked branches covering 45 cities. 148 ATMs. 20extension counters and 23 marketing offices, the bank now have licenses to convert 14 of these into full service branches). Apart from this distribution network, the bank provides various other facilities such as the ability to operate accounts from any of its branches on a real time basis make payments and transfer funds instantly. The bank has presences in the major business centers in the country. The bank also has a pan India presence with a strong presence in the southern and western India. The banks key focus remains a successful retail banking strategy, which is evident from its strong retail customer base of around 495,000 deposit accounts, over 300,000 asset account holders and over 379,000 ATM / debit cardholders as on 31 March 2007, through constant product introduction and superior service, the deposit mix of the bank has evolved in favor or retail deposits which constitute about 80% of the total deposits as at March 31,2007 similarly 75% of the banks advances are to retail customers. On the assets side the bank has strengths in two-wheeler, where the bank is amongst the top three players in the organized market and in the

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financing of commercial vehicles and construction equipment. The bank also offers personal loans and loans against financial assets. Retail loans in India account for less than 5% of GDP and the percentage of retail loans to total loans in India also remains at a scientifically low level when measured against its aging peers. This presents an opportunity for the bank to further expand its retail business and differentiate itself from its competitors.

The bank has a suite of products and services on the liability side including a variety of deposit products, a global debit card, internet banking, mobile messaging, e-payments, depository and cash management services large at individuals and small businesses. On the corporate banking side, the bank extends the entire range of fund based and non-fund based commercial banking products to select corporate customers. It uses its strengths in channel financing to offer a gamut of services to meet the entire working capital retirements of dealers and distributors of leading corporate. Further the bank intends to leverage its existing relationships to cross self a range of fees based products including transaction banking and clearing services to its corporate customers. The bank is equipped with an integrated treasury backed by experienced dealers; well supported by information, communication and risk management systems. Treasury plays an active roe in the management of the banks liabilities, mismatches in structural and interest rate sensitive asset /

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liability flows and in generating low cost funds. The bank offers various treasury services to its corporate customers including foreign exchange services and currency swaps to help effectively manage their interest rate and foreign currency exposures.

Bank refers to Centurion Bank Limited, a banking company in corporate in India under the Companies Act, 1956 and having its registered office at Shanta Durga Niwas, M G Road, Panaji, Goa 403001, and India. The term includes the successors and assigns of the centurion Bank Limited and any branch / office there of Internet Banking, Internet banking service refers to the service mentioned in clause I here in above.

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Fig. No. 1.1 The organization structure of the company is as follows:

Board

Executive committee board

CEO & MD Mr. Shailendra Bhandari

Regional head

Functional heads COD / CFO company secretary/audit & compliance/ hr&n adminstration /IT/ operations & vigiliance / strategic planning

East, Gujarat & MP, Maharashtra & Goa, North & south

E corporate banking head corporate credit country head retail head retail assets

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STATEMENT OF THE PROBLEM: Urbanization is and the inevitable phenomenon and that it should be facilitated rather than restricted it is clear that past attempts to restrain. Urbanization has more often that not exacerbated the problem and increase district inequalities. It is here the Centurion Bank in India can play a vital role by canalizing the scattered savings of the India masses to fuel the process of urbanization and sometimes reduce the magnitude of inequalities in the country. However it is believed that the banks presently functioning in the country are highly closed institutions less bothered to be problems of common man, highly security conscious, and very much ill managed. OBJECTIVES OF THE STUDY: The objectives of the study in its precise from be stated as follows: 1. To study the various dimensions of Centurion Banks role in fostering the development of urban areas in general. 2. To study and evaluate the working of the Centurion Bank. 3. To critically evaluate the working of the Centurion Bank with reference to various urban development schemes.

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4. To summaries and suggest measures for the improvement of their working if necessary. 5. To critically evaluate the various welfare measures adopted by the bank for the welfare of staff. 6. To investigate the causes for the performance of banks. 7. To know the Administrative setup & performance of bank. METHODOLOGY: There were 157 branches in the country at the time of the study. Of these 35 banks are functioning in Tamilnadu out of these a many as eight were functioning in the district of Vellore. Of these eight banks the Centurion bank was chosen for the following reasons. 1. It is one of the new banks in Tamilnadu. 2. It is one among the top 200 banks in the state. 3. It has functioned for yearly 10 years in the district of Vellore with a growing population. 4. Proximity to the researcher: The present study has been carried out as a case by selecting the Centurion bank as a representative institution. PERIOD OF STUDY The present study covers a period of 10 years i.e. from 1999 to 2008 In financial statement and financial performance covers a period of 4 years i.e. 2004 to 2008.

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SOURCES OF INFORMATION: Information for the present study was collected through both secondary sources such as published records balance sheets reports manuals books. Journals, websites and newspapers etc., TOOLS OF ANALYSIS: In analysing the information these collected from secondary

sources tools such as statisfied tables percentages comparative statements, preparation of schedules, Balance Sheet, profit and loss account, Ratio analyses and financial highlights etc., have been used. IMPORTANCE OF THE STUDY: Being early adopter technology, whether the centurion bank has acquired competitive advantage by increasing sophistication, flexibility and cuplexibility of product and servicing and effective use of technology critical for managing the risks associated with the business.

How far the Centurion Bank has developed a well-trained work force, flexible responsive to customers as well as organisational dewarb. Whether the employees are expected to deliver the vision of the organisational demands

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How the Centurion Bank faces the increasal competition between the domestic player & foreign banks. How a the Centurion Bank has understood the customer, fulfill the customer needs and achieve high level of customer relation largely technology knowledge and human resources to provide quality products and services, 1. How for the Centurion Bank has delivered the value to all stakeholders. 2. How for Centurion Bank has developed various welfare sachems for the benefit of its employees. LIMITATIONS OF THE STUDY: 1. The present study confines itself to be part played by a Centurion Bank at Melvisharam Branch. The social geographical, economic and general features of the area under study may not be same for all other urban centers of be country and hence, the results of the study may not be applicable in total to banks role in centers of the country. 2. An intensive survey of the selected beneficiaries would have been more revealing, hence appropriate in assessing the impart of banks role in the field. 3. The scheme wise credit analysis also could not be made for want of time.

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CHAPTER ARRANGEMENTS: This study is presented in five chapters. The first chapter deals Introduction, Importance of the study, Statement of the Problem, Objectives of the study, Scope of the study, Methodology of the study, Limitations of the study and Chapter arrangements. The second Chapter deals Financial Institutions, Banking and Education. The third Chapter provides a Performance Of Centurion Bank, Proposed Amalgamation Of Bank Of Punjab Limited With Centurion Bank Limited, Dividend, And Management Discussions and Analysis The fourth Chapter is the core one Preparation of schedule, notes for accounting policies, balance sheet, profit and loss account, cash flow statement, ratio analysis and financial highlights are some of the tools for analysis. The fifth and final chapter presents the Summary, conclusion and suggestions for scope of the future research in this field. Following the concluding chapter, a bibliography of books, articles and journals related to the study is given.

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Conclusion: This introductory chapter outlined the background of the study its objectives, methodology and limitations of the study and the chapter arrangement of the dissertation. The next chapter provides a brief review Financial Institutions and Banking Information on banking services in Vellore District. .

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CHAPTER II FINANCIAL INSTITUTIONS AND BANKING The first chapter outlined the background of the study its objectives, methodology and limitations of the study and the chapter arrangement of the dissertation. In this chapter provides a brief Financial Institutions and Banking Information on banking services in Vellore District

Information on banking services in Vellore District Lead Bank for the District: Indian Bank Indian Bank is the Lead Bank for the District. It coordinates among the Government Departments, the Banks and the Non Governmental Organisations, which are involved in the implementation of various schemes for the overall development of the district 1. No. Of Banks in the District - 32 Nationalised commercial banks - 18 (Including State Bank of India and associates) Private Commercial Banks - 11 Co-operative Banks - 3

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TABLE - 2.1 THE TABLE SHOWN NUMBER OF BRANCHES Commercial Banks Co-operative Banks Total Rural 104 21 125 Semi-Urban 65 26 91 Urban 34 5 39 Total 203 52 255 Fully computerised Nationalised banks in the District: 14 3. Investment options for NRI Investors: 1. Foreign Currency Non-Resident (FCNR) Account: (a) Deposits can be opened for any period from 6 months to maximum of 36 months in any of the four designated currencies viz. Std. Pd., US $, DM, Japans Yen. (b) Deposits can be made by remittances from abroad or by funds held in existing Non-Resident External Accounts. Non-Resident (External) Rupee Account. Account can be opened by remittances from abroad /deposit of foreign exchange brought Into India/transfer from existing self-NRE / FCNR accounts.

4. Non-Resident Non-Repatriable Rupee Deposit Scheme (NR-NR-RDS):

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(a) Deposits can be made either out of fresh funds from abroad or by transfer from existing FCNR/NRE accounts. (b) Deposits cannot be repatriated; but, can be renewed/rolled over any number of times. However, once withdrawn or invested in other schemes, it will not qualify for renewal. 5. Types of Services rendered to customers by Banks: (a) Remittances: Transfer of funds through Demand Draft, Mail Transfer, and Telegraphic Transfer etc (b) Locker facilities: Banks offer Safe Deposit Lockers to customers for safe keeping of their valuables. 6. Computerisation in Banks: There are 14 fully computerised nationalised Bank branches in the District offering various customised services to the people. Besides, several others are partially computerized. 7. Participation in Social Welfare Schemes of the Government All the banks in the district participate in the various Anti-poverty and Employment generation oriented programmes of the Central and State Governments such as Swarnjayanti Gram Swarozgar Yojana (SGSY), Prime Minister's Rozgar Yojana (PMRY), Swarna Jayanthi Shahari Rozgar Yojama (SJSRY), Individual Entrepreneur Scheme (IES) of the Tamilnadu Adi Dravidar Housing Development Corporation (TAHDCO), Rural Housing etc. Besides providing financial assistance the Banks also arrange for technical

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support, counseling and consultancy services to the borrowers. During the past three years.The Banks have deployed credit under Government sponsored programmes as below (Rs. In Lacs):

2003-01 2004-02 2005-2003 IRDP 839 739 SGSY 227 PMRY 381 446 333 EDUCATION Development of Collegiate Education In The District The Vellore District is one of the leading districts of the state. and

Where the development of the education has been consistently good

commendable. The American Arcot mission, who was established in Vellore center in 1853, has the distribution of pioneering the cause of higher education by establishing The American Arcot Mission College. / Affiliated to the University of Madras as early as 1898. These later come to be known as Voorhees College. The Sacred Heart College, Tirupattur the Auxilium College, (for women) at Katpadi are other Christian institutions dedicated themselves to the cause of education. Govt.of TamilNadu with an ambitious scheme and ardent desire to promote higher education, setup series of Arts Colleges throughout the state. The Muthurangam Govt. Arts College, Vellore. Thirumagal mills Govt

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Arts College, Gudiyatham Arigar Anna Arts College for women, Walajah have been established in the rural end poor students. The private participation in the growth of higher education in the

District is also over whelming. The D.K.M. College for women Vellore is a fine example. Some Muslim Philanthropists and educationists, realising the need to wide open opportunities for the muslim youth to learn higher education, have established educational centers. The Islamiah college, Vaniayambadi, C. Abdul Hakeem college, Melvisharam, Mazhrul -uloom college, Ambur, the Muslim minority Institutions are also contributing their might in promoting higher education in the District. The Arabic College in Vellore town is another important educational centre for higher education. The district is not lagging behind in providing professional education. The Christian Medical College, Vellore. P.G. Which courses is one in of the some international repute, is offering even

specialised branches. Starting an Engineering College, the Govt. Also has fulfilled the aspiration of the student community of this district. In view of the financial constraints, in the Last few years, the Govt., has encourage self financing Institutions. The Vellore engineering College, Vellore , which has many academic distinction to its credit, The Priyadershini engineering college., Vaniyampadi, have come into existence as a result. The phenomenal growth of these educational institutions in the district only testifies the growing demand and the keen interest evinced by the student community for higher and professional Education.

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TABLE - 2.2 THE TABLE SHOWN COLLEGES FOR GENERAL EDUCATION Institution Name No. of Institutions Students Boys Girls Total Teachers

Government Colleges Aided Colleges Self Financed Colleges

4 8 2

1665 2443 5478 2386 0 583

4108 7864 583

167 410 31

TOTAL CONCLUSION:

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7143 5412 12555

608

In this chapter provides a brief Financial Institutions and Banking Information on banking services in Vellore District. The next chapter deals with performance of centurion bank, amalgamation of bank of Punjab Limited with Centurion Bank Limited, management discussion and analysis, Committees of the Board, and Centurion Bank employees Trust

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CHAPTER III PERFORMANCE OF CENTURION BANK: This chapter deals with performance of centurion bank, amalgamation of bank of Punjab Limited with Centurion Bank Limited, Management discussion and analysis, Committees of the Board, and Centurion Bank employees Trust. The accepted practice in the management of a business enterprise is to undertake activities that lead to the company continuing growth and profitability. The balance sheet does not reveal all the facts of a companys performance; it leaves many vital questions unanswered. A company would do well to evaluate its performance through an assessment of customer perceptions and attitudes towards the company as a whole and the customer response to its products or service offerings in particular. This needs to be done periodically on a long-term basis. The measure of a companys worth lies in what its customers think of it. A company could do well to evaluate its performance through an assessment of customer perception and attitudes towards the company as a whole and the customer responses to its products or service offering in particular. Mahatma Gandhis worlds should serve as a reminder The customer.. Is not an outsider to our business [But] the purpose of It These words are often quoted but, unfortunately, less often followed.

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MEASURES OF BUSINESS PERFORMANCE: For example when we go to a good restaurant we do not need to know the average age of it staff, the under of both at pass in the kitchen or the design of the logo. We are paging for its quality of food and service. So also as far as any organization is concerned the customer is only interested in the quality of what is being offered on a plate. Ultimately, customer preferences determine the corporate goal. All activities of the organisation must become subservient to this goal, if the organisational performance as a whole is to be rated in terms of absolute excellence. Within the organization, the setting of team goals and working down from these to individual goals is really a matter of convenience or pragmatism. Individual and team performances are collectively assessed as corporate performance, in terms of the customers response to the goods and services offered, all individual and team performance are vital, but they must be interrelated and seen a part of total performance. Three Levels Of Performance: The role of a manager is like that of a conductor in western music, which blends and harmonises the notes and sounds of diverse instruments to create a symphonic performance. The orchestra follows the script of music composed by a master other than the conductor, but the manger of an enterprise often has to compose his own music in an effort to maintain the harmony of people working towards a common goal.

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Getting people to perform in harmony becomes the basis for good organisational performance. The uniformity of perception and the common understanding of a need is the very basis of collective drive in reaching a common goal. If this foundation is strong then the organization will have the in built resilience to absorb shocks from variables like technological change, national or global economic vicissitudes government regulations and so on. A manager can also be highly intellectual or a great performer, but in the external world an identity or value base is perceived only in relation to his company. As such performance as an individual or as a member of a team is ultimately accepted only as a part of the corporate performance. Once this concept is accepted, personal goals will soon become related to that of the organisation. The success of this effort is purely due to the fact that we coordinated our actions, synergising the achievements of individuals, team and the entire organisation. History is witness to many great performers in various fields of activity who pursued their mission with great intensity and consistency. Today one can name many excellent performers who are pushing forward the frontiers of technical, commercial and industrial enterprise. Such pursuits of performance are based on a deep desire to achieve excellent at every milestone, on every plateau and every peak. Everyone seeks excellence in life, yet how many actually work towards achieving it? In any organized effort, and definitely so in the business environment, there usually are a number of teams working towards a common organizational goal. In this process, there is tremendous excitement when a

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particular effort results in an achievement that can be considered excellent. This is often far above the specification or standard set earlier, or far superior to the performance of other people engaged in similar tasks at the sane time. Challenging standards is a routine part of performance for excellence. Excellence is therefore superior performance within a time frame, whether compared to ones own past performance or against competition. The same is true of teams as well as organisations. Organisations with excellent individual performance and excellent team performance are bound to be recognised as excellent companies. The whole managerial pursuit of performance is to maintain a level of excellence in as many areas as possible and for as long as possible. The concept of customer can encompass a variety of individuals, from the actual users of the product to shareholders, employees, suppliers and dealers. Performance is different things to these different people. However, my focus is on the actual users of products or services. Customer satisfaction is more than a mere slogan. In fact, it is one of the fundamental tents of management. In simple terms, any business unit attempts of effectively invest resources to satisfy customers through empowered people in the face of market competition so as to realize a profitable return on its investments.

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Fig No: 3.1 Any business can be simply described as:Effective investing resources

Through empowering people

Employee motivation

To satisfy customer requirements

Customer satisfaction

In competition with others

Market share

To achieve a profitable return

ROA

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Customer Satisfaction Is Integral To Management

Customer satisfactions leads to increase customer loyalty, which in turn drives up market growth and share, and this makes for a positive return on assets (ROA). The growth of assets enables investments in technology and productivity to remain viable.

The traditional focus of management is on financial parameters and financial parameters only. Short - term imbalance may make it necessary to focus heavily on these, or any other individual segments of business. I feel that long-term business decline and failure, however, is often due to he neglect of customer satisfaction as a key priority.

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Fig No: 3.2 Customer satisfaction flow cycle:

Customer satisfaction

Drivers Investment and Investment Efficiency Drivers ROA Drives Market Share

Market share Drivers Revenue and ROA

ROA

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Measures of Customer Satisfaction In our organisations, we highlight five key parameters while conducting customer surveys, in order to understand the perceptions from which ultimately we derive our customer satisfaction rating. These are: Overall customer satisfaction with the company and its products; Rating in the industry on the basis of overall customer satisfactions; Satisfaction with value for money; Confidence to provide others with recommendations; and Loyalty in terms of repeat purchases. Each of the above parameters is analysed continuously through the year, and company polices and practices are revised regularly to ensure a progressively larger number of customers and higher ratings in subsequent surveys. The exercise is based on the simple premise that business has to along itself with customer demands and needs without which it cannot be viable in the long - term. Experience shows that conducting and administering surveys is easy. The greatest challenge to management is integrating the ability to analyse the underlying reasons for the result of successive surveys, and to follow up by making necessary changes to standard company practices.

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Customer delights a strategic decision: Customer area satisfied when their requirements are met. A noted Japanese management scientist, N. Kano of the University of Tokyo, identified three characteristics of customer requirements: basic, performance and delight. Fig.No: 3.3 The three characteristics of customer requirements: Very Satisfied Performing beyond Commitment Attractive Quality Claimed Features Unsatisfied Needs Satisfied Needs Performance Quality

Expected Feature Basic Quality Very dissatisfied

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Basic relates to requirements that the customer takes for granted. Customer expects the products they use to display such basic, hidden or assured characteristics. When we travel on an aircraft, we expect the flight to be safe. This is hardly a subject for negotiation with the airline. Meeting such a requirement may not necessarily create satisfaction, although not meeting it may result in creating considerable dissatisfaction! Performance parameters relate to customer requirements that are negotiated and agreed. For examples, if an airline releases a flight schedule, the passenger expects the flights to take off and land at the specified times. Meeting these stated or negotiated requirements may create customer satisfaction, but not meeting them will certainly lead to customer dissatisfaction. Finally, delighted. Most organisations are not even aware of the impact of their actions on the customer and the effects these generate. Enormous amounts of time and effort are often spent on upgrading technology, investment in publicity and sales promotion, as Well as cosmetic changes such as designer uniforms for employees. wherever the organisation performance far beyond

expectations, so as to create pleasant surprises, the customer feels truly

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Changes, whether necessary or facile, minor or major, simple or expensive, do not impress the customer when they are not purposefully directed. This happens only when a dedicated effort towards understanding their genuine needs is made. The result is performance that exceeds their requirements in a meaningful and relevant fashion. Without this effort, organisations continue to over - commit and under - deliver, ending up surprised that the customer should want to protest and write letters full of complaints. CAPITALS AND RESERVES The shareholders at the tenth Annual General meeting held on 4 th September, 2007 approved the cancellation of 150 crore equity share of Re.1/each of the Bank that were lying un issued out of the authorized capital. After the effect of the aforesaid cancellation, the authorized Capital of the Bank now stands reduced to Rs.150crores comprising of 150crores equity shares of Re. 1/- each. The Banks Capital and Reserves as on 31st March 2008 stood at Rs.468.56 crores. This is well above the minimum capital requirement of Rs.300 crores stipulated by the Reserve Bank of India in the guidelines on ownership of private sector banks issued in February 2008, after the exercise of the green shoe option on 6th April, 2008 by the lead managers to the GDR issue, the Capital and Reserves as adjusted for the issue expenses stood at Rs. 511.44 crores.

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Subordinate Bonds of a value of Rs. 100 crores outstanding as on 31st March 2008 and carrying a coupon rate of 12.95% were redeemed in May 2008 on the date of maturity.

In December 2007, the shareholders approved by means of special Resolutions (through a postal ballot procedure), two separate Employee Stock Option Plans (ESOPs). The first scheme called the Key Employees Stock Option plan-2007 (key ESOP-2007) covers key employees and non-executive directors of the bank while the second scheme called the General Employees Stock Option Plan-2007 (General ESOP-2007) covers all permanent employees of the bank including non-executive directors. TABLE 3.1 TABLE SHOWN THE CAPITAL ADEQUACY RATIO

S.NO QUARTERS 1 2 3 4 5 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08

RS. (INCRORES) 4.4 5.1 9.5 10.2 23.1

QFY Quarter of Financial Year

38

CHART 3.4

CAPITAL ADEQUACY RATIO (%) 25Rs. (in crores)

20 15 10 54.4 5.1 9.5 10.2 23.1

04QFY07 1QFY08 2QFY08 3QFY08 4QFY08 QUATORS

The statutory disclosures as required by the revised SEBI guidelines on ESOPs are given in the annexure to this report. Post infusion of capital of Rs.312.89 crores through the GDR issue (adjusted for the green shoe option exercised by the lead manager to the GDR issue in April 2008 and net of issue expenses), the Capital Adequacy stood at 23.1% as on March 31,2008 as compared to 4.4% as on March 31,2007.

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PROPOSED AMALGAMATION OF BANK OF PUNJAB LIMITED WITH CENTURION BANK LIMITED After the year under report, on 29th June 2008 your Directors have, subject to the approval of the shareholders and the sanction of the Reserve Bank of India in terms of section 44A of the Banking Regulation Act, 1949, approved a proposal for the amalgamation of Bank of Punjab Limited with your Bank. The synergies in terms of geographical presence, products, human resources and financial strength of both the banks will provide an opportunity to your bank to consolidate its position amongst the leading private sector banks in the country. The multiplier effect on the growth and profitability of the merged entity will add significant value to shareholders, customers and employees of your Bank. Based on the audited financials of both the banks as on 31 st March 2008, some of the parameters of the combined entity would be as follows: 1 . 2 . 3 . 4 . 5 . 6 . Number of Banking Offices Total Assets Deposits Advances Total Business (3+4) Total Market Capitalization of both the banks as at 30th June 2008. 235 (Rs. In Crores) 9,338.53 7,837.00 4,610.94 12,447.94 1,815.38

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DIVIDEND Though the Bank declared a profit for the year ended March 31,2008 thus heralding the beginning of a new phase, the Directors have decided not to recommend any dividend for the year in order to conserve capital resources and build for the future. MANAGEMENT DISCUSSIONS AND ANALYSIS The Indian macro economic environment remains conductive for high growth and sustained buoyancy. Although interest rates have risen in the current financial year and signs of liquidity tightening appear to be on the horizon, foreign investments in the Indian equity markets have been robust. The inflationary conditions have improved considerably as compared to last year and the high base effect will ensure benign inflation numbers in the first half of the current financial year. The foreign exchange reserves position continent is healthy. Although the Rupee appears to be overvalued on a REER basis, on an adjusted basis (adjusted for exports in software and services) it still remains competitive. Credit off take has been robust with the rapidly increasing investment in infrastructure to support industrial growth. Higher demands in the housing and consumer durable sectors have helped to fuel the demand for retail credit.

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In the aforementioned economic scenario, banks generally have a greater role to play there by providing them with plenty of business opportunities and means to enhance value to their customers your bank with its predominantly retail focus and its established retail franchise is will positioned to increase its market share in the retail segment and also penetrate into newer areas with a view to increasing value for its various stakeholders. Operating and Financial Performance The strengthening of the management team and the improved productivity through setting up of well established systems and procedures during the year have yielded significant operational improvements which has helped the Bank in achieving a faster turn around. The operating profit for the Bank was Rs.23.16 crores during the current year as compared to Rs. 12.13 crores earned in the previous year despite there being no treasury income in 2007-05 as compared to the income of Rs.22.74 crores in 2006-04. The Bank has eared an after tax profit of Rs. 25.11 crores during the year as compared to a loss of Rs.105.14 crores during the previous year. The provisions & contingencies for the year resulted in a credit fo Rs. 1.95 crores as compared to Rs. 117.27 crores accounted as a charge during the previous year. Improved recoveries out of previous years non performing accounts and close monitoring of the NPAs have resulted in the net NPA ratio improving to 2.5% as on March 31,2008 from 4.3% as on March 31,2007. During the year the Bank has maintained the momentum on assets build-up and consequently the retail assets have grown 69.3% (presecuritisation) and customer assets (post-securitisation) have registered an

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increase of 41% .The average deposits cost has declined t 5.1% from 6.3% Due to the fact that the composition of the Banks advances is predominantly retail, the bank has improved its net interest margin (5.8% over 4.6%). The Bank has reached a settlement with the sales tax department by which the previous years disputed tax liabilities have been paid off through an amnesty scheme. We are actively following up with the tax authorities to expedite resolution of all outstanding income tax matters. a) GROSS INTEREST INCOME The Bank earned a total interest income for the year ended march 31, 2008 of Rs.346.09 crores marginally higher than Rs.333.79 crores earned for the previous financial year. Of this income the interest income on advances for the year was higher at Rs. 268.15 crores as compared to Rs. 202.47 crores earned for the previous year representing an increase of 32.4%. The average advances for the year increased by 38.7% over the previous year, mainly due to growth in retail assets at the same time, the average yield on advances dropped to 12.3% from 13.2% prevalent in the previous year. The interest income on investments was lower for the year ended March31, 2008 at Rs. 54.12 crores as compared to rs. 83.93 crores for the previous year representing reduction of 35% corresponding, the average Investments held had reduced to Rs. 1186 crores for the year from Rs 1560 crores in the previous year. The average yield on investments declined during the year to 5.5 from 7.1% during the previous year in line with the market trend.

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b) INTEREST EXPENDED Total interest expenses for the year-ended march 31, 2008 decreased by 117.5% to Rs. 168.21 crores from Rs. 203.82 crores in the previous year. The Interest cost on deposits for the year has reduced to Rs.146.13 crores for the year from Rs. 180.79 crores for the previous year. The average deposits during the year has decreased marginally to Rs. 2907 crores as against Rs. 2960 crores in the previous year. The share of retail deposits (savings, current and term) on an average was 74.4% during the year (previous year 80.1%). The Banks strategy to increase the retail share continues through several Innovative measures. The average deposit cost for the year has dropped to 5.1% as compared to 6.3% in the previous year. c) NET INTEREST INCOME The Net Interest Income for the year ended March 31, 2008 witnessed an Increased of 37% to Rs.177.88crores from Rs.129.97crores in the previous year. This increase is primarily due to sustained improvement in Net Interest Margins (nearly 80% of the Banks loan book is retail which is higher yielding as compared to corporate loans) Increased volumes achieved during the year. Coupled with declining Interest cost. Consequently the net Interest margin has improved from previous years 4.6% to 5.8% for the year.

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TABLE 3.2 TABLE SHOWN NET INTEREST MARGIN S.NO QUARTERS 1 2 3 4 5 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 INCOME Rs. (in crores) 5.1 5.7 5.8 6.1 5.5

QFY Quarter of Financial Year

45

CHART 3.5

NET INTERST MARGION6.2

6

5.8

RS.(IN CRORES)

5.6

5.4

6.15.2

5.75

5.8 5.5

5.14.8

4.6 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08

QUARTER

46

d) OTHER INCOME (NON-INTEREST) Other Income (non interest) grew marginally to Rs. 64.46crores for the year-ended march 31,2008 from Rs.62.98 crores in the previous year. Income from the treasury operations (Trading profit /Loss as adjusted for amertisation and revaluation losses and forex profit) for the year resulted in net loss of Rs.2.60 crores as compared to a net gain of Rs. 19.88 crores booked in the previous year. Due to rising Interest rates during the year. Opportunities in the market for booking large profits in trading of securities have considerably diminished. The retail loans service income grew robustly in the year to Rs.23.60 crores from RS. 8.84 crores in lthe previous year as a result of an Increased volume of retail disbursements of Rs.1.829 crores (previous year Rs. 1020 crores) during the year, In FY 04-05 The Bank added new income Streams such as insurance and mutual funds which have helped to generate an income of Rs. 4.76 crores. Concerted efforts in recoveries helped to post an amount of Rs.6.40 crores as recoveries for the year, (previous year Rs.2.35 crores) Fees, commissions and exchange incomes posted healthy increases over the previous year. e) OPERATING EXPENSES The Banks operating (non interest) expenses increased 31% to Rs.189.45 crores during the year-ended march 31, 2008 from Rs.144.68 crores in the previous year. Staff costs Increased to Rs.42.70 crores from Rs.31.29 crores in the previous year as the Banks staff strength increased to 1374 from 112 as on March 31, 2007. Expenses on advertisement and publicity have risen to Rs.7.72 crores (previous year Rs.4.15 crores) in fandem with the high

47

growth in retail loans distribursed during the year. Expenses incurred on infrastructure, establishment of additional distribution channels and expenses pertaining to marketing of retail loans have also contributed to the increase in operating expenses during the year. F) OPERATING PROFIT The Bank has earned an operating profitofRs.23.16 crores for the year ended March 31, 2008 as against Rs. 12.13 crores profit earned during the previous year. 5. PROVISIONS AND CONTINGENCIES The Bank has made adequate provisions for non-performing assets and for diminution in the value of investment as per regulatory norms. In respect of retail loans and certain other classes of loans The bank follows an accelerated provisioning method where by 100% of the value of the assets is provided by the time the account has remained delinquent for a period of nine months. There has been a reversal of provisions for the year 2007-05 amounting to Rs.1.95 crores as compared to a charge of Rs, 117.27 crores in the previous financial year. Details of provisions made for major items are as follows. 1. Provision for NPAs at Rs.7.63 crores (previous year Rs.96.91d crores) 2. Provision for disputed income tax demands of earlier years Rs. Nil (previous year charge Rs.33.05 crores)

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3. Reversal of provision for disputed sales tax demands on lease transactions of earlier years Rs.2.70 crores (previous year charve of Rs. 5 crores.) 4. Reversal of provisions for depreciation on Investment Rs.1.07 crores (previous year reversal of Rs. 15.38 crores) 5. Reversal of provisions of Rs. 5crores against value of shares held in trust (previous year nil) 6. NET PROFIT The Bank has declared a net profit of Rs. 25.11 crores for the year ended March 31, 2008 as against a loss of Rs.105.14 crores in the previous years.

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TABLE 3.3 TABLE SHOWN THE NET PROFIT / LOSS S.NO QUARTERS RS. (In Crores) 1 4QFY07 -97.7 2 1QFY08 3.2 3 2QFY08 5.3 4 3QFY08 7.1 5 4QFY08 9.6 QFY Quarter of Financial Year CHART 3.6

The Net profit /loss203.2 5.3 7.1 9.6

0 Rs. (in crores) -20 -40 -60 -80 -10097.7

4QFY07

1QFY08

2QFY08

3QFY08

4QFY08

-120 QUARTERS

RS. (INCRORES)

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APPROPRIATIONS The following appropriations were made, An amount of Rs.6.28 crores t the statutory Reserve An amount of Rs. 8.83 crores to the Investment fluctuation Reserve. ASSETS The total assets of the Bank Increased to Rs.4, 490.29 crores as on march 31,2008 from Rs. 3,417.48 crores in the previous year. The customer asses (loans, leases) amounted to Rs.2, 194 crores as on March 31,2008 (previous year Rs.1, 556.41 crores.) The gross non performing assets, provisions and net NPAs as n March 31,2008 were Rs.156.41 crpres (previous year Rs.221.41 crores) Rs.101.36 crores (previous year Rs.152.51crores and Rs.55/05 crores (previous year Rs. 68.90 crores) respectively. The net NPAs reduced to 2.5 of net advances as on March 31, 2008 from 4.3% for the previous year.

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TABLE 3.4 TABLE SHOWN THE RETAIL LOANS S.NO QUARTERS RS. (In Crores) 1 4QFY07 1245 2 1QFY08 1393 3 2QFY08 1644 4 3QFY08 1873 5 4QFY08 2107 QFY Quarter of Financial Year CHART 3.7

THE RETAIL LOANS2500 2000RS. (INCRORES)

15001393 1644

1000 500 0 4QFY071245

1QFY08

2QFY08QUARTERS

3QFY08

1873

4QFY08

2107

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TABLE 3.5 TABLE SHOWN THE NET NPAS (%) QUARTERS PERCENTAGE (%) S. No 1 4QFY07 4.3 2 1QFY08 4.4 3 2QFY08 3.4 4 3QFY08 3.4 5 4QFY08 2.5 QFY Quarter of Financial Year CHART 3.8

THE NET NPAs (%)

5 4PERCENTAGE (%)

3 2 1 04.3 4.4 3.4 3.4 2.5

4QFY07

1QFY08

2QFY08QUARTERS

3QFY08

4QFY08

LIABILITIES

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Total Deposits of the Bank grew to Rs. 3530.39 crores as on March 31,2008 from Rs.3028.79 crores in the previous year. Retail deposits constituted 66% of the total deposits as on March 31,2008 as against 80% for the previous year. Current accounts (CA) and saving accounts (SA) Deposits Constituted 29 of the total Deposits for the year ended March 31,2008 (previous year 27.5%) TABLE 3.6 TABLE SHOWN THE DEPOSITS S.NO QUARTERS RS. (In Crores)) 1 4QFY07 3029 2 1QFY08 3005 3 2QFY08 2813 4 3QFY08 2989 5 4QFY08 3530 QFY Quarter of Financial Year

CHART 3.9

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THE DEPOSITS3750 3250 2750 2250 RS. (INCRORES) 1750 1250 750 250 4QFY07 1QFY08 2QFY08 QUARTERS 3QFY08 4QFY08 3029 3005 2813 2989 3530

STATUTORY DISCLOSURES

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1) Particulars of Employees pursuant to section 217(2A) of the companies Act, 1956 The information required under the provisions of section 217 (2A) of the companies Act, 1956 and companies (particulars of Employees) Rules, 1975 as amended by the companies (particulars of Employees) Amendment Rules 2005 is given in the annexure appended here to and forms part of this report, however, in terms of section 219(1) (b) (IV) of the Act, The report and accounts excluding the aforesaid annexure are being sent to the members. Interested members may write to the company secretary at the Registered office of the Bank for obtaining a copy of the said annexure 2. Particulars of conservation of energy and technology absorption as per section 217 (1) (e) The provisions of section 217 (1) (e) of the companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your bank. The bank has however extensively used information technology in its operations. 3. Directors Responsibility statements under section 217 (2AA) In terms of the provisions of section 217 (2AA) of the companies (Amendment) Act, 2003 the Directors state that: I. The applicable accounting standards have been followed in the preparation of annual accounts and proper explanation have been furnished relating to material departures.

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II. Accounting policies have been selected and applied consistently and reasonably, and prudent judgment and estimates have been made so as to give a true and fair view of the state of affairs of the bank as at the end of financial year on 31st March, 2008 and of the profit and loss of the bank for the financial year 2007-08. III. Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the companies (Amendment) Act 2003 for safeguarding the assets of the bank and for preventing and detecting fraud and other irregularities. IV. The annual accounts have been prepared on a going concern basis.BOARD OF DIRECTORS:

The board of directors of the bank comprises 10 directors.

TABLE 3.7 TABLE SHOWN LIST OF BOARD OF DIRECTORS

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S.No Name 1. Mr. Rana Talwar 2. Mr. Shailendra Bhandari 3. Mr. Teo Soon Hoe 4. 5. 6. 7 8. 9. 10. 11. 12 Mr.S. Venkiteswaran Mr. Kamlesh vikamsey Mr. S.K. Jain Mr. Y.k. Modi Mr. Rajiv Maliwal

Designation (Non-executive director chirman) (Executive managing director) (represendingkephinance investment (Mauritius ) pte ltd. Independent Independent

Independent Independent Represending sabre capital world wide Inc Mr. I.S. George Representing bank muscant (SAOG) Mr.k.k. Abdu Razak Representing bank Muscat (SAOG) Alternative directors Mr. Ahmed Mr.J.S. george representing bank Mohamed Al Abri Muscat (SAOG)) Mr. Abdul Razak Ali lssa Mr.k.k Abdul Razak representing bank Muscat (SAOG))

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REMUNERATION OF DIRECTORS: The banks remuneration policy is broadly in line with the trends in the banking sector. During the year 2007-05 Mr.Shailendra Bhandari, Managing director was paid an amount of Rs. 133.55 lakhs towards basic salary and allowances. In addition to the above Mr. Bhandari is entitled to the following perquisites and benefits: a). PERQUISITES: Memberships of one club, free furnished accommodation together with gas, electricity and water, free use of banks car and re-imbursement of salary and perquisites of driver of a sum not exceeding Rs.10000 per month leave travel allowances of Rs.200300 per annum. b). OTHER BENEFITS: Provident fund @ 12% of basic salary superannuating @ 15% of basic salary, gratuity @ half a months salary for every completed year of service payable only after 5 years of service, medical allowance of Rs. 15000 p.a medical cover including hospitalization for self and 3 dependent, two telephones and one mobile.

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COMMITTEES OF THE BOARD The board of directors of the bank has constituted eight committees of directors viz. Executive committee, audit committee, securities transfer, allotment & grievance redressed committee, risk policy committee, corporate governance committee, nomination committee, compensation committee and customer service committee. Policy formulation and control functions vest with the board of directors, whereas operational matters are delegate to the above committees. Composition of the committees of directors, terms of reference etc. are given below: a. Executive committee of the board: The executive committee of the board (ECB) comprises Mr. Rana talwar , Mr. S. Venkiteswaran, Mr . S. K. Jain, Mr.J. S.George, Mr. Rajiv Maliwal, Mr.Y.K. Modi and Mr. Shailendra Bhandari. Mr. Rana Talwar is the chairman of the Executive committee of the board. The Executive committee of the board discharges functions like sanction of expenditure, both capital and revenue, within the budget approved by the board, delegating power to committees of executives and all other functions pertaining to the operations of the bank, as delegated by the board. Executive committee of the board held 4 meeting During the year, attendance of the present directors at those meetings is given below:

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Name of the Director Mr. Rana Talwar Mr. S. Venkiteswaran Mr.S. k. jain Mr.J.S.George Mr.Rajiv maliwal Mr.Y.K. Modi (w.e.f 30.6.2007) Mr.Shallendra Bhandari b. Adult committee of the board:

No of meetings attended 4 1 3 4 4 1 4

The adult committee of the board (ACB) comprises Mr. Kamlesh Vikamsey (a chartered accountant), Mr. S.K. Jain, Mr.K.K. Abdul Razak, Mr.Rajiv Maliwal and Mr.Y K.Modi, Mr Vikarmsey is the chairman of the ACB the company secretary is the sectary to the audit committee. The terms of reference of the ACB are in accordance with the requirements of the RBI guidelines and the liking agreement.

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ACB held 7 meeting during the year attendance of the present directors at those meetings is given below. Name of the Director Name of the meetings attended Mr. KamleshVikamsey 5 Mr. S.K.Jain 6 Mr.K.K. Abdul Razak 6 Mr. Rajiv Maliwal (w.e.f1.7.2007) 5 Mr. Y.K. Modi 3 C. Securities transfer allotment & grievance redressal committee; The securities transfer allotment grievance redressal; committee comprises Mr.S. Venkiteswaran ,Mr.Kamlesh Vikamesy, Mr.Rajiv Maliwal and Mr.Shaenda Bhandari Mr.Venkiteswaran is the chairman of the committee Mr.N.E.Venkiteswaran company secretary is the compliance officer. During the year 814 shareholder quaires complains were received and 809 of them have been conclusively resolved there were 6 quarries complaints in process as on 31st march 205, which have since been disposed off. As on 31st March there was no pending share transfer proposal i.e. where the stipulated time period of 30 days had elapsed.

D. Risk policy committee.

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The risk policy committee consists of Mr.S.K. Jain Mr. Kamlesh Vikamsey Mr.J.S George Mr.Rajiv Maliwaland Mr.Shailendra Bhandarimr,.S.K Jain is the chairman of the committee. The terms of reference of the risk policy committee include formulating the credit risk policy of the bank sanction of credit facilities within the ambit of the credit policy approved by the board, review of the risk profile of the various assets of the bank and review and follow up from time to time of the actions initiated to be initiated by the bank with reference to specific cases the risk policy committee has also been designated by the board of directors as the special committee of the board for monitoring exclusively frauds involving amount of Rs. 1 crore and above in terms of the directives issued by the reserve bank of India in this regard. Risk policy committee held 4 meeting during the year attendance of the present directors at those meetings is given below. Name of the Director Name of the meetings attended Mr. KamleshVikamsey 3 Mr. S.K.Jain 3 Mr.J.S. George 4 Mr. Rajiv maliwal 4 Mr.Shailendra Bhandari 4

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E. Corporate goverence committee. The corporate governace committee (CGC) consists of Mr.S Venkiteswaran Mr.Teosoon Hoe, Mr.Kamlesh Vikamesy and Mr. K.K Abdulrazak Mr.S Venkiteswara is the chairman of the committee.

Terms of reference of the committee include considering grant of stock options to employees stock option scheme(s) approved by the shareholders. The Committee held 2 meetings during the year on11th October 2007 and10th

January 2008.Mr. Rana Talwar, Mr.J.S.George and Mr. Shailendra

Bhandari Were present at both the meetings of the committeewhile Mr. Kamlesh Vikamsey attended only one meeting. f. Nomination Committee: The nomination committee comprises Mr. Rana Talwar

Mr.S.Venkiteswaran Mr.S.K.Jain Mr.K.K.Abdul Razak and Mr.Shailendra Bhandari Mr.Rana Talwar is the chairman of the committee. The nomination committee ooks into aspects relating to appointment of chairman and whole time directors reconstitution of the board of directors performance evaluation and appointment of tap management personnel and related issues.

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G. Compensation committee. The compensation committee consists of Mr.Rana Talwar Mr.Kamlesh Vikamesy Mr.J.S George and Mr. Shailendra Bhandari Mr. Ranatawlar is the chairman of the committee. Terms of reference of the committee include considering grant of stock option scheme approved by the shareholders. The committee held 2 meetings during the year on 11th October 2007 and 10th January 2008. Mr.rana talwar Mr.J.S. George and Mr.Shailendhra Bhandari were present at both the meetings of the committee while Mr.Kamlesh Vikamsey attended only one meeting. H. Customer service committee. The customer service committee has been constituted on 4 th September 2007 as per the recommendation of the reserve bank of India the committee consist of Mr.S. Venkiteswaran, Mr.Bajivmaliwal and Mr. Shailenda Bhandari. The terms of reference of the committee include looking into the aspects relating to enchanting the quality of customer service and improving the level of customer satisfaction for all categories of clients at all times.

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GENERAL BODY MEETINGS: TABLE 3.8 TABLE SHOWN SCHEDULES OF THE ANNUAL GENERAL MEETINGS S.No Particulars 1. 6th AGM 2. 3. 4. 5. 6. 7th AGM 8th AGM 9th AGM 10th AGM 11th AGM Day, Date and Time Venue th Monday 29 May 2003 at Hotel mandori 10.30 A.M panaji GOA 430 001 th Saturday 25 August 2004 Hotel mandori at 2.45 P.M panaji GOA 430 001 th Monday 11 November Hotel mandori 2005 at 3.00 P.M panaji GOA 430 001 th Monday 8 Sep.2006 at Hotel mandori 11.30 A.M panaji GOA 430 001 th Saturday 4 sep. 2007 at Goa marriof 11.00 A.M resort panaji 403001 Goa th Monday 5 sep 2008 at Goa marriof 3.00 P.M resort panaji 403001 Goa

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13. Centurion Bank Employees Trust. The bank had established a trust for the benefit of its employees in the year 1994-95. The trust was allotted 12,50,000 equity shares of the bank in 1999 out of interest free advance granted by the bank. As per the scheme of allotment of shares approved by the executive committee of the board, the specified category of employees are entitled to apply for and obtain allotment of the numbers of shares specified in the scheme for that category. Under the schema 4,27,500 shares have been allotted at par to employees up to 31st march 2007. No allotments were made during the year. During the year, the trust has under the rights issue of equity shares of the bank. Been allotted 1,64,46,488 shares against its entitlement for equity shares held and rights renunciation purchased. The aggregate investments cost of Rs. 1137.86 lacs to the trust in respect of equity shares allotted was funded by a loan from the bank to the trust at market related interest rate. Staff Retirement Benefits. Provident fund contributions made by the employees and the bank are managed by a separate trust established for the said purpose. The banks contributions towards the provident fund is account as an expense in the year incurred.gratuity liability of the bank is covered by a group gratuity and insurance scheme of the life insurance corporation of India (LIC). The banks annual contribution under the group gratuity scheme is based on LICs actuarial valuation and is charged to the profit and loss account of the period to which it relates.

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The banks has a superannuating scheme for all its employees, management and administers by the LIC. The bank annually contributes a sum equivalent to 15% of the basic salary to the LIC. The banks contribution towards this liability is accounted as an expense in the year incurred. Leave encashment entitlement is provided for on accrual basis. Earnings per share: The bank reports basic and diluted earnings per equity share in accordance with the Accounting Standard-20 (AS-20) on earnings, per share issued by the ICAI. Basic earnings per equity share has been computed by dividing net profit/ (loss) after tax by the weighted average number of equity shares outstanding during the period diluted earning per equity share has been computed using the weighted average number of equity shares and dilative potential equity shares outstanding during the period. Wealth Management The bank has launched financial planning advisory services for mass affluent customers where risk profiling and financial need analysis is carried out to arrive at a customers financial portfolio. This way the customer is advised a particular portfolio suiting his her age and risk appetite. 1) The mutual fund business has been expanded by the empanelment of a total of 22 mutual fund houses by the end of the year the bank targets an increased penetration of business through its extensive branch network. 2) Portfolio Management Service (PMS)

68

An agreement has been signed with ask Raymond James to distribute pms to the banks customers having a portfolio above Rs.50 lacs 3) Insurance The bank state life insurance distribution in October 2007. The first two quarters has witnessed the premium and revenue generated far exceeding the targets life insurance training has been organized in all regions, which focuses on product knowledge and sales. The marketing and distribution of the product have been strengthened and product managers have been specially recruited for this area.

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LIABILITIES In order to attract more savings and current account deposits, the bank has launched special programmes like gold universal access. Account whereon can withdraw cash at any other Banks ATM (where MasterCard is cirrus applicable) without any additional charge. Similarly, the bank has launched four various current account with multiple facilities and benefits like cash & cheque pick up from customers place. LOANS: The Bank launched its mortgage business in February 2008, in three locations by offering products such as Home loans, Loans against property and loans for purchase of commercial property. During the year two wheeler disbursements and book size both registered impressive growth of 84% over the previous year. The Banks market share amongst the organized financiers has improved to 17% for the year from 14% during the previous year. In CV-CE financing the growth in disbursements over the previous year was 59% and the book size grew by 61%. While the bank has been growing its retail assets at high rates, it as also put in place securities a portion of its two-wheeler and CV-CE portfolio. Securitisation has aided the bank in reducing its balance sheet risk, improve capital adequacy and enhance its ROE. The personal loan disbursements grew by 84% over the previous year and the book size by 95%. A two pronged distribution channel was set up for up-selling the banks products to exiting asset finance customers, branch

70

customers and in the open market. A 500 member strong universal banking offices (UBO) team was set up at allocations with product training completed across the country. Booking of personal loans commenced through centralized operations (COPS) route and independent credit and risk teams were set up at most locations. Risk Management The bank has polices clearly enunciated for corporate and retail credit. Detailed norms for various categories of lending have been laid down. The bank monitors its exposure to different segments of industries. The retails loans portfolio is widely distributed. Internal Control and Audit The internal audit department of the bank undertakes regular internal audit and inspection of the operations of the bank through its various branches / officers. The concurrent audit of the branches / officers was undertaken by independent chartered accountant firms, covering approximately 67% of the total business of the bank. The bank has built up a system of internal controls. Audit trails and individual rating of the branches based on different parameters such as business performance, operations, earnings, compliance, house keeping, etc. The banks Audit Committee of the Board (ACB) periodically reviews the internal and concurrent audit functions.

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During the year all the branch/ offices, which were subject to regular internal audit, were also covered under Risk Based Internal Audit [RBIA] system as per the guidelines issued by the reserve bank of India from time to time. A risk matrix was drawn up for every branch / office indicating the level of risk measured for various activities. The bank has an information security officer who exclusively monitors informations technology related system and security aspects as per regulatory and internal guidelines issued from time to time branch network. The bank has network of 99 outlets including branches and extension counters covering 59 Cities, 154 ATMs and 47 asset finance divisions on march 31,2008. 1. It has set up four service branches and one centralized operations office to relieve the load of branches, enabling enhanced productivity and utilization i.e. marketing and relationship. Trade finance operations have been brought under operations to have better management and customer delivery. 2. Central monitoring and reconciliations units are set up to have centralized mentoring of branch transactions. Human resources the bank had on its rolls 1374 employees as on march 31,2008. The human resources department launched its-learning platform this year, which is being used for imparting knowledge on banking, the banks products and processes to its employees. art of living workshops are being organized across the bank for about 500 centurions, to enable them to realize their potential and de-stress themselves

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The top management team has been revitalized. We have successfully recruited 520 banking professionals with proven track record this year. 90 management trines included in the above count] have been recruited this year. Scheme like referral scheme like and internal job posting have been launched successfully to source and deploy the right talent in the bank To recognize extraordinary contributions of the employees the Aha! scheme was introduced an annual performance appraisal exercise is carries out, which reflects good hr practices of sharply differentiating between the performances of employees. As per performance ratings, the employees have been awarded increments and target variable incentives this year. For some of the good performances a salary correction is made in order to match their salaries with that of the market. Conclusion: This chapter deals with performance of centurion bank, amalgamation of bank of Punjab Limited with Centurion Bank Limited, Management discussion and analysis, Committees of the Board, and Centurion Bank employees Trust. The next chapter provides a brief of analysis of preparation of schedule, Notes for accounting policies , Balance sheet for four years, profit and loss account , cash flow statement, Ratio analysis and financial highlights.

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CHAPTER - IV PREPARATION OF SCHEDULE This chapter provides a brief of analysis of preparation of schedule, Notes for accounting policies, Balance sheet for four years, profit and loss account, cash flow statement, Ratio analysis and financial highlights. Significant Accounting Polices: 1. Basis of preparation The financial statements have been prepared on a historical cost convention and on the accrual basis of accounting unless otherwise started and comply with the accounting standards, statutory provisions and generally accepted practices prevailing within the banking industry in India. The preparation of financial statements requires the management to make estimates and assumptions that are considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of financial statements and the reported income and expense during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates any revision to financial estimates are recognized prospectively in the financial statements, when revised.

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2. Recognition of income and expenditure Income and expenditure are accounted for on accrual basis expect as otherwise stated income on non performing assets including lease and hire purchase assets recongnised on realisation basis as per the reserve bank of India (RBI) guidelines. In case of assets covered by consent decrees, receipts are first adjusted against principal amounts outstanding. Thereafter any further receipts are recognized as income. Income by way of exchange, commission, brokerage etc., is recognized on realization basis. Commission on guarantees is recognized as income over the period of the guarantees. Income on lease/ hire purchase finance. Income from assets given on lease prior to 1 st April 2004, is recognized on the basis of interest rate implicit in such leases in accordance with the guidance note issued by the Institute of Chartered Accountants of India (ICAI) no assets has been given on lease after 1st April 2004. Income from loan cum hypothecation/ hire purchase finance is recognized on the basis of interest rates implicit in these transactions. Income from distribution of life insurance products is recognized on receipt on confirmation of business from the insurance company.

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3. Foreign exchange transactions: Foreign currency assets and liabilities (monetary items) as at the end of the year are reported at the year end-closing rates notified by the foreign exchange dealers association of India (FEDAI) and the resultant gains or losses are accounted in the profit and loss account Forward exchange contracts intended for trading or speculation and outstanding at the balance sheet date, are revalued at the year-end forward rates for the residua maturity period and the resultant gains and losses are accounted in the profit and loss account. Such forward rates are derived from the yearend forward rates notified by FEDAM. The premium discount on other forward contracts is amortized to the profit and loss account over the contract period. All forward exchange contracts are reflected as contingent liabilities at the contracted rate. Income and expenditure items are accounted for at the exchange rates ruling on the date of transactions.

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4. Investments: Investments are reported in the balance sheet under six groups, viz. government other approved securities shares debentures and binds investments in subsidiaries joint ventures and other investments.In terms of RBI guidelines the investment portfolio is classified as under: Held to maturity investment that the bank intends to hole to maturity. Held for trading investments that are held for resale within 90 from the date of purchase. Available for sale all other securities the classification of investments is determined at the time of other acquisition subsequent transfers from one classification to the other are done at the least of the acquisition cost book value and market value prevailing on the date of the transfer and the resultant depreciation if any is provided for. a) Valuation Held to maturity Investment is carried in the books at their acquisition cost. Any premium on acquisition of security over its face Value is amortized over the balance period remaining to its maturity. Available for sale and held for trading Investments are marked to market in each group, viz government securities other approved securities shares debentures and bonds investments in subsidiaries joint ventures and other investment as shown in schedule 8 net appreciation in each group if any is ignored and net depreciation if any is provided for by debiting the profit and loss account. days

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Treasury bills are valued at carrying cost. Cost of investments excludes broken period interest paid on acquisition of investments. Market value of investments classified in available for sale and held for trading categories where current quotations are not available is determined as per the norms laid down by RBI as under: Market value of unquoted government securities is determined based on the yield to maturity (YTM) rate for government securities of equivalent maturity published by fixed income money market and derivates association of India (FIMMDA). In case of unquoted bonds debentures and preference shares where interest dividend is received regularly the market price is determined based on YTM for governments securities with suitable markup for credit risk applicable to the credit rating of the instrument the credit risk mark up for various credit ratings and maturity are determined on the basis of the credit spread matrix published by FIMMDA. Unquoted bonds, debentures and preference shares where dividend interest is not received regularly are valued on the basis of prudential norms prescribed by RBI as applicable to advance. Unquoted equity shares are carried at lower of cost and break up value ascertained from the latest available balance sheet. Units of mutual funds and securitisation receipts are valued at lower of cost and net asset value. Subordinated pass through certificates held by the

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bank in respect of its securities portfolio, are carried at cost as reduced by expected delinquency losses. 5. Provisioning an Advance: Advances are classified into standard substandard doubtful and loss assets and appropriate provision as applicable to each category is made in terms of RBI guidelines. In respect of retail loans and certain other loans, the bank follows and accelerated provisioning method whereby 100% of the assets value is provided by the time the account is delinquent for 9 months. A general provision of 0.25% is made on standard assets portfolio on a global basis as per prudential guidelines of RBI. 6. Fixed Assets Fixed assets are carried at cost less accumulated depreciation as adjusted for impairment if any in terms of accounting standard 28 on impairment of assets. Assets taken on finance lease after 1-4-2004 are included under fixed assets own assets in compliance with the accounting standard-19 (AS-19) accounting for leases issued by the ICAI. Assets given on lease prior to 1.4.2004 have been accounted for in accordance with the guidance note issued by the ICAI no assets were given on lease after 1.4.2004 In respect of assets for own use depreciations is provided on straight line method (slm) at the rates and in the manner specified in schedule XIV to the companies act, 1956 expect the assets specified as under where depreciation is provided on SLM at rates which are higher than those specified in schedule XIV tto the companies act 1956.

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In respect of assets given on lease prior to 1st April 2004. Depreciation is provided on written down value method at rates specified in schedule XIV of t have companies act, 1956 ease equalizations and lease terminal adjustment are accounted in accordance with the guidance note issued by the ICAI. That the bank took over from the erstwhile TCFC depreciation is provided on the following basis(a) Leased assets acquired on or after 1st April 1989 are depreciated by a

method derived from the guidance note issued by the ICAI under which 100% of the cost of the asset is depreciated over the primary lease period using the weighted average interest rate implicit in the leases calculated for each of the accounting periods and applied to the weighted disbursements during each such period to calculate the principal recovery which is provided as depreciation for the year. As per those method the useful life and the primary leased period of al categories of leases assets is considered to be five years on an average. (b) On assets sold/ terminated depreciation is provided only up to the end of the previous financial year. The profit or loss on sale/ termination of such assets is accounted for in the year of such sale/ termination based on the book value as at the end of the previous financial year. Provisions on non-performing leased assets are made as per RBI guidelines. Premium paid on leasehold land is amortized over the initial lease period.

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9. Taxes Income taxes comprise the current tax provision and the net change in the deferred tax asset or liability in the year. Provisions for current tax is computed are accordance with applicable tax laws. Deferred tax assets and liabilities are recognized for the timing differences, where there are carry forward losses or unabsorbed depreciation as per tax laws, deferred tax assets are recognized only if there is a reasonable certainty of their realization. 10. Share and debenture issue expenses. Share and debenture issue expenses are adjusted against securities premium account. 11. Net profit / (loss) The net profit/ (loss) in the profit and loss account is after adjustment of all usual and necessary provisions including provisions for taxes.

12. Change in accounting policy: Forward contracts other than those intended for trading or speculation and outstanding as at the balance sheet date were in earlier years revalued on the balance sheet date and the resultant gains or losses were recognized in the profit and loss account. During the year the bank has changed the method of accounting such contracts by amortizing to the profit

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and loss account the premium or discount on such contracts over the contract period instead of their revaluation, The aforesaid change does not have material impact on the profits of the year and reserves at the end of the year. II. NOTES TO ACCOUNTS 1. Share Capitals and Securities Premium: a) Authorized Capital: In the annual general meeting held on 4 th September 2007. The shareholders of the bank approved the cancellation of 150 crores equity shares of Re.1/- each of the bank lying unused out of the authorized capital. After effecting the aforesaid cancellation, authorized capital of the bank now stands at Rs.150 crores comprising of 150 crores equity shares of Re.1/-each. b) Rights issue: In accordance with the scheme of arrangements under sections 391 to 394 with section 81(1A) and sections 100 to 103 act, 1956 amongst bank Muscat (SAOG) centurion bank ltd, and shareholders of Centurion Bank Ltd. Which was approved by the shareholders of the bank and sanctioned by the honorable high court of judicature at Bombay Goa bench and the honorable high court of Karnataka, a rights issue of 22, 69,88,077 equity shares of the bank of Re1/- each at a premium of Rs, 3/- was made. The securities transfer allotment and grievances committee of the board of directors in their meeting held on 15th Oct, 2007 have allotted 22,69,44,320 equity shares under the rights issues.

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Pursuant to a CDR issue made by the bank, the securities transfer, allotment and grievances committee of the board of directors (the committee) in their meeting held on 29th March, 2008 issued to the depository 218749500 equity shares of Re.1/- each at a total premium of Rs.28473 lacs (approximately Rs.13.02 per share) the depository has in turn issued CDRS to the overseas investors at a price of US$ 4.80 per GDR with each GDR representing 15 underlying equity shares of the bank. Pursuant to the exercise of the option by the lead mangers to the CDR issue, the bank further issued to the depository 3,12,51,000 equity shares of Re.1/- each for an aggregate premium of Rs. 4063 lacs 6th April 2008 refer table after schedule-2. c) Convertible warrants: Under the scheme of arrangement referred to in note 1.2 the bank has issued on 6th February 2007, 13,50,00,000 warrants convertible in to 13,50,00,000 equity shares of the face value of Re.1/- per share at a premium of Rs.3/- per share. The warrants can be exercised at any time upon completion of the capital infusion of Rs.21900 lacs envisaged in the scheme of arrangement but prior to 60 months from the date of issue of the warrants these warrants are outstanding as on 31st March 2008 and have not been converted into equity shares. In December 2007, two employee stock option plans (ESOPS) were approved by the shareholder through postal ballot. One scheme covers key employees of the bank (key ESOP scheme). The remuneration committee is

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empowered to identity the key employees and directors for the coverage under the scheme. The other scheme (General ESOP scheme) coves all the permanent employees of the bank including directors as may be decided by the remuneration committee. Under the terms of the shareholders approval, the aggregate value of option granted the ESOPS must not exceed 10% of the paid up capital of the bank Under the key ESOP scheme: 600 lacs options were granted to sabre at an exercise of Rs.4/- per share on 11th October 2007 (the date of approval of the