State Bank of Hyderabad
Report of the Board of Directors

Period covered by the Report

1^st April 2007 to 31^st March 2008

1.     MACRO-ECONOMIC OVERVIEW:

1.1.  The domestic economy is estimated to have grown in 2007-08 by 8.7% as against a growth rate of 9.6% in 2006-07 as per advance estimates released by Central Statistical department (CSO).

1.2.  Agriculture sector is estimated to grow by 2.6% during the year 2007-08 as against 3.8% growth during 2006-07. This lower than anticipated growth in agriculture had its impact on the price situation with shortfall in domestic production & hardening of international prices like wheat, pulses, edible oil etc. The latest indications from IMD suggest normal monsoon for year 2008-09.

1.3.  The industrial sector is estimated to post a growth of 8.6% during 2007-08 slowing down from the level of 10.6% during 2006-07.  The manufacturing sector is estimated to grow at 9.1% during 2007-08 as compared to 12.2% growth during 2006-07. Construction sector is estimated to have grown at a lower rate of 9.6% as against the growth of 12% during 2006-07.

1.4.  The growth in services sector was in double digits in the major areas like Trade, Hotels, Transport and Communications services. The overall services sector is estimated to grow at 10.7% during 2007-08 as against 11.1% during 2006-07.

1.5.  The exports grew a healthy 22.9% in US dollar terms at USD 138.43 billion for the period April 2007 to February 2008 from USD 112.64 billion during April 2006 to February 2008.  Successive cuts in the US interest rates have impacted the exports & exporters profit margin. Imports during April 2007 to February 2008 grew by 30.2% to USD 210.89 billion compared to USD 161.96 billion during April 2006 to February 2007.

1.6.  Forex reserves (excluding gold & SDRs) of the country continued to be at a comfortable level and stood at US$ 299 billion as at March 2008 from US $ 192 billion as at start of the year.

1.7.  Interest rates have remained high during the current financial year. Reserve Bank of India raised CRR from 6% as on March, 2007 to 7.5% during the year as monetary measures to check inflation. Headline inflation, based on movement in the wholesale price index (WPI) was 7.41% for the week ended 29th March, 2008 as compared with 5.9% at end-March 2007. The jump in inflation during the year was mainly led by prices of food items like fruits, vegetables and pulses, and aviation fuel. Crude oil prices had been source of worry with the same breaching USD 110 per barrel.

1.8.  During the year 2007-08, Broad Money   (M3) grew by 20.6% up to March 28, 2008 as against 21.6% registered during the corresponding period of the last year. As on 28.03.2008, the gross   bank   credit of scheduled commercial banks stood at Rs. 23,48,493 crore representing an increase by 21.60% in 2007-08 vis-à-vis growth of 28.10% witnessed during the previous year.

1.9.  ASCB deposits stood at Rs. 31, 92,141 crore as at 28th March 2008. ASCB deposits grew 22.20% YoY against 23.80% in the previous year. Such growth had been driven by significant increase in the volume of discretionary deposit during the year.

2.      BANK’S PERFORMANCE:   

2.1.  Resource Mobilization:

The Bank’s total liabilities increased by Rs. 12,568 crore (25.62%) to Rs. 61,620 crore during FY8.The aggregate deposits stood at Rs. 51,796 crore as at March 2008 vis-à-vis the level of Rs. 42,083 crore as at 31.03.2007. Fresh accretion was of the order of Rs.9, 713 crore registering a growth of 23.08% in FY08 as against Rs.7, 587 crore during last year. The share of retail segment constituted 38.96% of the aggregate deposits as on 31^st March 2008.

 COMPOSITION OF AGGREGATE DEPOSITS 

                                                                                              As on

2.2.  Resource Deployment:

2.2.1.      The total loan portfolio (including food-credit) expanded by 26.60% during FY08 to Rs.36,015 crore from Rs. 28,448 crore as on 31.03.2007. Food credit declined by Rs.16 crore (1.61%) and Bank achieved a growth of Rs.7,583 crore (27.61%) in non food credit during FY08.

2.2.2.      Loans to individuals within the retail segment grew by Rs.968 crore (14.73%) and reached a level of Rs.7,537 crore vis-à-vis Rs.6,569 crore as at Mar’07.Finance to industry and trade accounted for Rs.19,931 crore (56.87%) of non food credit. The Bank’s credit Deposit Ratio stood at 70.13% as at March 2008 as against 67.97% in March 2007.

2.2.3.      During FY08, the level of investment grew by 22.08% (YoY) to Rs.16,993 crore as at March 2008 from Rs 13,919 crore in March 2007. A major portion of the investment was in government approved securities.

3.      Priority Sector Lending:

3.1.  Advances to Priority Sector reached a level of Rs.12,869 crore as at the end of FY08 from the level of Rs.11,315 crore as at the beginning of the year. This constitutes 45.40% of the Adjusted Net Bank Credit of the bank vis-à-vis the RBI benchmark of 40%.

 3.2.  AGRICULTURE ADVANCES:   

The direct agriculture advances grew by Rs 1,239.67 crore & indirect agricultural advances grew by Rs 177.27 crore during FY08. Against disbursal target of Rs.2,337.00 crore under the Special Agricultural Credit Plan [SACP] for the year 2007-08 (Rs.1,437.00 crore under Production Credit and Rs.900.00 crore under Investment Credit), disbursements are Rs.1,324.84 crore under Production Credit and Rs.713.32 crore under Investment Credit achieving 92.19% and 79.26% of the targets respectively. The total achievement during the year stood at Rs.2,038.16 crore i.e.87.21% of the target under the Special Agricultural Credit Plan.  

(Rs. in crore)

3.3.  ACHIEVEMENT OF BENCH MARK: As against RBI stipulated benchmark of 18%, we have achieved 18.66% in total agricultural advances as on March 2008 as against 13.80% as at March 2007.

3.4.  KISAN CREDIT CARDS:   During the current year 1, 09,928 Kisan Credit Cards have been issued, with an outlay of Rs. 383.58 crore as against 1,31,003 KCC with an amount of Rs 365.16 crore for the year ended March 2007. Cumulatively 7, 08,883 Kisan Credit Cards have been issued by the Bank with an outlay of Rs. 1,843.74 crore up to March 2008.

During FY08 the Bank financed 1,42,964 new farmers which includes 42,098 marginal farmers and 17,167 tenant farmers.  

3.5.  SBH KISAN STAR CARD SCHEME (KSCS): 

During the current year 3,778 Kisan Star Cards were issued amounting to Rs.77.42 crore. Cumulative figure stood at 24,117 KSCs with an outlay of Rs.201.22 crore up to March 2008.

3.6.  TRACTOR FINANCE:  

During the year we have financed 4,247 new tractors amounting to Rs.188.32 crore. We have entered into MoU with 13 tractor companies to make the tractor finance customer friendly and hassle free. A new product – Scoring model for financing tractor loans with differential margin, security, interest etc. is introduced which is attractive for good borrowers.

3.7.  SELF HELP GROUPS:                                                                                              

34,842 Self Help Groups have been credit linked during the year with an outlay of Rs.312.59 crore. Cumulative figures stood at 1,87,339 SHGs with an outlay of Rs. 906.90 crore up to March 2008 vis-à-vis 1,52,497 No. of groups with exposure of Rs.594.31 crore as on March, 2007.

Instructions have been issued to consider sanction of term loans to the members of SHGs towards repayment of high cost debt availed from non-institutional lenders (private money lenders) keeping in view the past performance of SHGs and their credit needs.                      

4.      Micro Small & Medium Enterprises (MSME):

During the year, financing to Micro Small and Medium Enterprises (MSMEs) remained a focused area for the Bank. The outstanding credit to MSMEs stood at Rs.5, 042 crore as at the end of March 2008 as against Rs.3, 865 crore in March 2007 registering a growth of Rs.1, 177 crore. Advances to MSME sector grew by 30.47% as against stipulated annual growth of 20% p.a.                        

4.1.  Small Scale Industries:

Advances to Small-Scale Industries (SSI) grew by Rs.732 crore (44.12%) during the year to Rs. 2,391 crore from Rs. 1,659 crore as at the beginning of the year. The number of SSI units financed by the Bank has stood at 15,125 as on March 31, 2008.                        

4.2.  Small Business Finance:

Advances under Small Business Finance schemes of the Bank covering retail trade, transport operators, professionals & self-employed persons and small business enterprises increased by Rs.135 crore to reach a level of Rs.1,129 crore as on 31.03.2008. The total number of SBF units financed by the Bank reached 1, 38,037 as on 31.03.2008.

4.3.  SME Credit Plus: Under SME Credit Plus scheme, the Bank has financed 956 units with total limits of Rs.46 crore during FY08.

4.4.  Laghu Udyami Credit Card Scheme (LUCC):

The Laghu Udyami Credit Card Scheme is designed for providing hassle free credit for small business units with working capital limits up to Rs.10 lacs with its simplified procedures and operational convenience. Under the scheme 5,210 cards with a total outlay of Rs.153 crore are issued during FY08.   

4.5.  SPECIALISED MSME BRANCHES:

Apart from financing MSMEs through normal activity at almost all its general branches, the Bank has 11 specialized MSME branches designed to exclusively meet the credit requirements of the Micro, Small and Medium Enterprises. All the specialized MSME branches are located in Andhra Pradesh and these branches contribute to about 9% of total MSME advances of the Bank.

5.      Retail Lending:

5.1.  Housing finance has remained a thrust area in 2007-08. The Bank recorded a growth of Rs. 532.75 crore during the year against Rs 434 crore in 2006-07. Bank extended loans to 8,441 new borrowers under Housing loan scheme thereby increasing the total number of Housing loan borrowers to 73,490. The housing portfolio of the bank stood at Rs 2,808 crore as at March 2008.

5.2.  Education Loans:

The bank recorded a growth of Rs.179.57 crore during the year, under Education loans to students as against Rs 148 crore during 2006-07. The bank extended Education Loans to 8,758   fresh applicants under the scheme. The total number of accounts as at the end of FY08 stands at 33,098. As per RBI policy, Bank raised the ceiling on Education Loans from Rs 7.5 lakhs to Rs 10 lakhs for studies in India and from Rs 15 lakhs to Rs 20 lakhs for studies abroad, to qualify under priority sector. The education loan assistance to students stood at Rs   598 crore as at March 31, 2008.  

5.3.  Vehicle/Car loans:

Under this portfolio the number of accounts increased from 30,181 to 31,908 thereby adding 1,727 fresh borrowers. There is a growth of Rs.80.09 crore from April 2007 and the present outlay stands at Rs.363.74 crore.   

Bank waived Third Party Guarantee and also obtention of liquid security for all Vehicle loans. Bank introduced uniform margin of 15% on road price of the vehicle. Tie-up arrangements are being continued with reputed manufacturers such as Maruthi, Hyundai, Hero-Honda, Bajaj Auto etc.

6.      Profitability:             

6.1.  Gross Profit & Net Profit  

Ø      The Operating Profit for FY08 at Rs 991.19 crore declined by 1.26% as against Rs. 1,003.81 crore for FY07. The Net Profit for FY08 increased by 10.19% on YOY basis to Rs 556.99 crore as against Rs. 505.50 crore for FY07. The total earnings during FY08 improved by 28.72% to Rs.5, 080.29 crore as against Rs. 3,946.84 crore for FY07. Total expenditure during FY08 increased by 38.94% to Rs. 4,089.10 crore as against Rs. 2,943.03 crore for FY07.

6.2.  Net Interest Income & Net Interest Margin:

Ø      Interest & Discount on Advances during FY08 improved by 42.15% to Rs. 3,144.62 crore as against Rs. 2,212.15 crore for FY07. The yield on advances increased by 105 bps from 9.16% as at March 2007 to 10.21% as at March 2008.

Ø      The average yield on investments improved to 7.69% as at March 2008 as against 7.60% as at March 2007. The average yield on call money lending for the year ending March’08 stood at 6.59% and average yield on CBLO lending at 5.32%. **

Ø      Interest paid on deposits during FY08 grew by 55.27% to Rs. 3,142.20 crore as against Rs. 2,023.71 crore for FY07. The cost of deposits increased by 132 bps from 5.43% as at March 2007 to 6.75% as at March 2008.

Ø      The Net Interest Income during FY08 declined by 9.37% to Rs. 1,112.91 crore as against Rs. 1227.96 crore for FY07. Higher cost of deposits impacted the Net Interest Income.

Ø      The Net Interest Margin stood lower at 2.43% as at March 2008 as compared to 3.12% as at March 2007. **

6.3.  Non Interest Income:

The Bank’s non interest income during FY08 improved by 15.88% to Rs. 677.14 crore as against Rs. 584.35 crore during FY07. **

(** As per RBI guidelines the Amortization expenditure is reduced from Interest income in FY 08. In FY 07, the same was reduced from other income. The figures for FY 07 have been recalculated for better comparison.)  

Ø      Exchange and Commission income during FY08 improved by 9.14% to Rs. 429.12 crore as against Rs. 393.18 crore for FY07.

Ø      Profit from sale of investments during FY08 improved by 100.21% to Rs. 169.25 crore as against Rs. 84.54 crore for FY07. The increase is mainly on account of sale of equities, equity oriented mutual funds and debt mutual funds.

Ø      Income from government business during FY08 declined by 9.26% to Rs. 91.65 crore as against Rs. 101 crore during FY07. Income from Forex business during FY08 improved marginally to Rs. 68.41 crore as against Rs. 68 crore for FY07. Commission on LC / BG during FY08 improved to Rs. 63.93 crore as against Rs. 55 crore for FY07. Recovery in written off accounts is lower at Rs 79.38 crore during FY08 as compared to Rs 107 crore during FY07.

6.4.  Operating Expenses:

The total operating expenses during FY08 declined to Rs. 798.86 crore as compared to Rs. 808.50 crore for FY07.

7.      Provisions and Contingencies:

7.1.  Net Worth & Capital Adequacy:

The Banks Net Worth declined marginally from Rs 2,488.38 crore as at end of FY07 to Rs. 2,443.55 crore as at end of March 2008. The Book Value per share declined marginally from Rs 14,425.39 as at March’07 to Rs. 14,165.51crore as at March 2008 on account of draw down from reserves for making one time full provision towards implementation of AS-15.  

The Bank’s CRAR stood at 12.35% as on 31.03.2008 as against 12.51% as on 31.3.2007. The Bank became Basel II compliant as on March 31, 2008. The Capital Adequacy Ratio as per Basel II (CAR B II) stood at 11.97% as on March 31, 2008. 

8.      Cross Selling:

State Bank of Hyderabad started cross selling activities by marketing the Insurance policies of SBI Life Insurance Company by obtaining a Corporate Agency during the year 2002. We market group products and individual products through our entire branch network.

The Bank has tie-up arrangements with SBI Mutual Fund to mobilize mutual fund applications / investments from our customers. Further the Bank has entered in to tie-up arrangements with M/S UTI Mutual Funds to market their mutual fund products.

The Bank has entered in to a memorandum of understanding (MOU) / tie-up arrangements with United India Insurance Company to market their products and   obtained Corporate Agency.  Under this agreement, SNEHA and AROGYA SURAKSHA - products are marketed across the branches besides insuring the assets financed with M/s United India Insurance Company.

The Bank earned an income of Rs 12.45 crore during the year 2007-08 from cross selling activities as against Rs 9.29 crore during the previous year.

8.1.  SBI LIFE: The Bank has collected a premium of Rs 57.91 crore during FY08 as against the premium of Rs. 35.37 crore during FY07. Bank earned commission of Rs 6.25 crore during FY08 as against Rs. 5.82 crore during FY07 from SBI Life Products.

 The Bank marketed various group products/schemes under Creditors Life Insurance Schemes (Home Loan/Car Loan/Tractor Loan borrowers), Group products like Swadhan and two new Individual products, Child Plan and Elite Plan.

8.2.  GENERAL INSURANCE:

The Bank earned a commission of Rs. 1.45 crore during FY08 through marketing General Insurance products of United India Insurance Company Ltd., as against an income of Rs. 1.45 crore in the year 2006-2007.

8.3.  Mutual Fund: The Bank has earned a brokerage of Rs. 3.26 crore during the year from the sale of SBI and UTI Mutual Funds products, as against income of  Rs. 1.98 crore in the year 2006-2007.  The Bank mobilized funds of Rs. 43.54 crore in SBI Infrastructure Fund and we stood first among all the Associate Banks.

8.4.  CREDIT CARDS:

The Bank earned commission of Rs. 6.25 lacs as against the budget of Rs.5.00 lacs for the year 2007-08.

9.      New Products:

The Bank has launched a few new products during year to cater to the needs of various market segments.

10. Consultancy Services:

During the FY 2007-08, the Bank’s Technical Consultancy Department (TCD) handled 33 operational references for conducting techno-economic viability studies, which involved total outlay of Rs.205.41 crore and total credit requirements of Rs.137.70 crore.

11. Industrial Rehabilitation:

31 large sick industrial units with aggregate outstanding of Rs.270.15 crore are being monitored by the Bank as on 31.03.2008. Of the 31 accounts, 23 accounts are under reference to BIFR. There are 11 accounts under reference to CDR aggregating to Rs.158.99 crore.

12. NPA Management:          

During FY 08, the gross Non performing assets declined from Rs 350.83 crore to Rs 311.94 crore. The gross NPA as a percentage to total advances declined from 1.23% as at March 31, 2007 to 0.87% as at March 31, 2008. The Net NPAs stood at Rs. 56.97 crore as at March’08 as against Rs 61.30 crore as at March’07. The Net NPAs as a percentage to net advances were at 0.16% as compared to 0.22% as at March’07. Provision coverage stood healthy at 80.45% as at March 2008.

13. International Banking: 

13.1   Foreign Exchange Turnover: The Bank achieved a merchant turnover of Rs.23, 239 Crore as on March 2008 as compared to a turnover of Rs.16, 663 Crore during the corresponding period in the previous year. Foreign currency sales turnover recorded a figure of Rs.14, 669 Crore and purchases Rs.8, 570 crore. The trading turnover stood at Rs 1, 44,096 Crore (42.63% YoY growth) as on March 2008 compared to Rs 1, 01,023 crore during previous year. The forex operations have yielded exchange revenue of Rs. 40.41Crore during the year 2007-08 as against Rs.30.79 Crore in the previous year.

           13.2    Export Finance: 

The Bank’s credit assistance to exporters has grown by 10.37% to Rs.1, 724 crore as on 31.03.2008 from Rs.1, 562 crore as on 31.03.2007.

13.3   International Services Branch (ISB):

The ISB branch was opened during the financial year 2006-07 for facilitating on line credits to the account of beneficiaries of all branches in respect of collections of foreign currency instruments and foreign inward remittances. It registered a turnover of Rs.547 crore during the current financial year. Reduction in the cooling period from existing 21 days to 14 working days has been introduced in respect of collection of foreign instruments and the facility extended to the Branch Managers to exercise discretion for affording credit in 7 working days from the date of credit to our NOSTRO account (on selective basis) has contributed to increased turnover in the first year of operation itself.

14. Merchant Banking:       

Since most of the present day IPOs are launched through book building route, the Bank is mainly focused on Debenture Trusteeship and Depository Services.

 Debenture Trusteeship: The Bank has earned income of Rs 94.03 lacs during FY08 by acting as debenture trustee.

15. Depository Services: 

The Gunfoundry branch maintains 5,743 accounts with NSDL for Depository Services and has earned income of Rs. 10.04 Lacs. During the year, the Bank has entered into a franchisee arrangement with SBI Cap Securities Ltd. (SSL) for opening of Demat, Online Trading / E-broking account to its customers. The Bank has 557 online trading D- mat accounts with total turnover of Rs. 6.87 crore up to March 2008.

16. Social Banking:      

16.1 Assistance to Weaker Sections:

The total finance extended to weaker sections stood at Rs.3, 265.22 crore as at the end of March 2008 as against Rs 2,813 crore as at March 2007. This constituted 11.52% of the Adjusted Net Bank Credit of the Bank vis-à-vis the benchmark of 10%.

16.2 Credit to Women Beneficiaries:

Outstanding financial assistance to women beneficiaries stood at Rs.2, 051.23 crore as at the end of March 2008 as against Rs 1,468 crore as at March 2007. Credit to women constitutes 7.23% of Adjusted Net Bank Credit [ANBC] as against the benchmark of 5%.

16.3 Prime Minister Rojgar Yojana (PMRY):

The financial assistance provided under the scheme during the year ended 31.03.2008 was Rs.63.29 crore covering 8,010 beneficiaries achieving 81% of the target.

16.4 Swarna Jayanthi Shahari Rozgar Yojana (SJSRY):

 Under the scheme, 1,601 beneficiaries were provided financial assistance of Rs.6.45 crore during the year achieving 99% of the target.

16.5 Assistance to Members of SC/ST Community:

The Bank continued to accord due priority to extend financial assistance to SC / ST borrowers. Financial assistance to SC / ST borrowers as at the end of March 2008 amounted to Rs.687.82 crore covering 1, 27,065 beneficiaries.

17. Lead Bank Scheme:

17.1 The Bank holds Lead Bank responsibilities in six districts of Andhra Pradesh and two districts of Karnataka. In addition, the Bank also has Lead Bank responsibilities of Hyderabad Metro District.  Under the annual Credit Plan 2007-2008, the Bank achieved 87.43% of its allocated share of 2003 crore.

17.2 Rural Institute for Self Employment Training:

During the year one “Rural Institute for Self Employment Training” was opened in Utnoor (Adilabad District) taking the total number of RISETs to seven. These Institutes have conducted 120 Programmes during the year 2007-08 and trained 7,049 rural youth with 73% settlement.

17.3 Financial Inclusion

Districts of Nizamabad & Rangareddy in A.P. and Koppal and Raichur in Karnataka where the Bank has lead bank responsibilities have achieved 100% Financial Inclusion.

Our Bank launched a pilot project in June 2007 in Raiparthy Mandal in Warangal district, Andhra Pradesh as a part of financial inclusion drive with other major commercial banks for effecting payments under Social Security Pensions (SSP) and National Rural Employment Guarantee Schemes (NREGS) through the smart card technology. The Bank has covered 23 villages under the Raiparthy Mandal with details of beneficiaries covered till March 2008 as under:  

*Started from last week of March 2008

18.  DECCAN GRAMEENA BANK:

Deccan Grameena Bank sponsored by the Bank is having a combined network of 173 branches. The aggregate deposits and advances of the Deccan Grameena Bank stood at Rs1, 444 crore and Rs.1, 002 crore respectively as on 31.03.2008.   The net profit for FY08 stood at Rs. 1.00 crore as compared to the profit of Rs.1.00 crore recorded last year.  The average credit-deposit ratio of the Bank stood at 69.34% as on 31.03.08. Deccan Grameena Bank financed 87,204 Self Help Groups with a credit linkage of Rs.345 crore benefiting 11, 90,335 individuals and had issued 1, 86,353 Kisan Credit Cards with aggregate limits of Rs. 319 crore.

The DGB has also been marketing SBI Life products and during the year 39,489 policies were sold and premium of Rs. 0.81 crore was collected. DGB earned Rs. 0.18 crore by selling the policies.

19. Customer Service:

All the 1001 branches of the bank are on Core Platform.  The Bank leveraged its technology to provide several value added service facilities viz. Multi-City Cheques; Transaction based Internet Banking Facility for Personal and Corporate customers, Real Time Gross Settlement (RTGS), Electronic Funds Transfer (EFT), National Electronic Funds Transfer (NEFT) and Core Power facilitating Anytime Anywhere Banking. A total of 510 ATMs had been installed up to 31^st March 2008. The customers enjoy access to the network of over 8,500 State Bank Group ATMs.

19.1 A website, viz. www.onlinesbh.com is maintained for customers of all branches, to avail Internet Banking services. A transaction-based Internet Banking facility has been extended to retail and corporate customers.

19.2 The Bank has set up a Call Center with a toll-free telephone facility for attending to the queries, complaints and grievances of the customers and also for extending guidance, assistance and information about Bank’s services and schemes. Initiatives are on to make the facility 24x7 by leveraging technology.

19.3 The Bank has in place a Code of Fair Banking Practices and Citizens’ Charter to facilitate excellence in customer service and to enhance transparency in all its operations.

19.4 As a part of our sustained initiatives of empowering the customers, the Bank has become a member of the Banking Codes & Standards Board of India.  The Bank has placed its various policies in the website for the information of the customers regarding their rights in dealing with the Bank.

19.5 The Charter and Deposit Policy are available on the Web-site “sbhyd.com/custrights/citizencharter.asp”

19.6 The Bank has since adopted a Fair Practices Code for Lenders. The Code provides detailed information to customers in key areas such as bank charges, terms & conditions of sanction, t