CHAIRMAN’S SPEECH FOR AGM ON JULY 15, 2010
Ladies and Gentlemen,
On behalf of the Board of Directors and all my colleagues in The Dhanalakshmi Bank Limited, let me extend to each one of you a very warm welcome to your Bank’s 83rd Annual General Meeting. The Directors’ Report and the audited accounts of the Bank for the year ended March 31, 2010, have been with you for some time and, with your kind permission, I shall take them as read.
At the outset, let me thank you all for the tremendous support and the faith you have shown in the Bank and its Management.
The past year was an eventful year for the global economy. After witnessing a severe slowdown during 2008-09, the international economic situation recovered somewhat during the second half of 2009-10 with the turnaround in industrial output and continuing resilience of the services sector. However, the global recovery proved to be fragile with sovereign risk concerns – especially those emanating from Greece and the Dubai World debt standstill -- posing threats to the financial markets across the world.
The Eurozone crisis has very clearly shown that excessive borrowings by national governments, as well as some unstated and unknown risks arising from these overleveraged sovereign balance-sheets, still pose substantial threats to the smooth recovery of the global economy. The crisis also holds out a salutary lesson – fiscal consolidation is imperative, but without derailing the frail and unstable recovery of the global economy.
The recent G-20 meeting held in Toronto, which was attended by our Prime Minister, Dr Manmohan Singh, has now seemingly put in place a mechanism that will allow nations to pursue fiscal consolidation as per their own requirement. In fact, many suggestions made by Dr Singh found their way into the final G-20 summit declaration. The most important suggestion was to avoid synchronized fiscal consolidation across the globe, which could adversely impact recovery. In effect, each country will be left free to pursue its own fiscal tightening programme. This is in stark contrast to the beginning of the financial crisis when almost all large nations across the globe launched an unprecedented and globally coordinated fiscal and monetary stimulus packages.
The stimulus programme has paid rich dividends in India. While Asia led the global recovery, India too has played a significant role with a handsome growth rate of 7.4 per cent for 2009-10. Despite the inflationary impact of last year’s deficient monsoon on agriculture production, the Indian economy exhibited a clear recovery momentum with a marked improvement in the overall macroeconomic conditions. While agricultural output recovered in the latter half of the year, it is very clear that the proactive crisis management measures put into place by the economic managers of the Government and the Reserve Bank of India had a large role to play in the Indian turn-around story. Today, the resilience of the Indian economy and its growth story is the toast of every global economic manager.
The stimulus measures put in place by the Government and the Reserve Bank were among the main drivers of growth, which helped the Indian economy escape the restrictive shackles of a slowdown. Coupled with the Sixth Pay Commission arrear payouts, consumption powered the economy for the better part of the year, with industrial production picking up the slack. No wonder then that the manufacturing sector was the star of the year with a 10.9% growth. Among the sectors that stood out were auto, consumer durables, capital goods and cement.
Last year, industrial output recorded a strong double-digit growth rate at 11% in August 2009, after a gap of 22 months. There’s been no looking back after that. India’s external sector position improved with exports recovering in October 2009, after declining for 12 consecutive months
This trend also provides a partial insight into the growth prospects for the current year. Overall, this financial year looks promising for the general economy on the whole.
India is expected to continue witnessing robust growth with significant improvement in the macroeconomic conditions. The current year has started on a good note. The Index of Industrial Production (IIP) has been in double digits for the past seven months, with the latest reading for April showing a 17.6% growth, against 13.9% in March. Manufacturing, which has over 79% weight in the Index, grew by an astounding 19.4% in April 2010.
The only crinkle in this otherwise happy story has been inflation. In this too, India is unique. While most of the countries across the world are trying to counter the resurgence of a deflationary threat, India is battling high inflation for some time. Initially, it was the deficient monsoon which fuelled food inflation. Later, as the stimulus measures and the consumption story took hold, many sectors in industry started operating near capacity, causing inflation to move to the manufactured goods segment. Consequently, headline inflation, as measured by WPI, crossed double digits in May 2010 to reach 10.2%. On the other hand, Consumer Price Index for urban, non-manual employees, something that touches us all, peaked to 14.4% for May 2010. It will be essential to see how the Government and Reserve Bank devise policies to combat this demand-side inflation, without destabilizing the growth impulses.
With the overall growth projected to cross 8% in the Indian economy, the financial sector, most specifically the banking sector, has a key role to play in the economic growth story of India. Let us take a look at the developments in the banking sector.
Banking Sector
With the turnaround in the overall domestic economic environment, the banking sector witnessed gradual improvement in credit off take. The industry registered 16.7% credit growth during 2009-10, surpassing Reserve Bank of India’s annual target of 16%.
As per the latest data released by the Reserve Bank of India, bank credit has grown by 19% during the 12 months ended June 4, 2010. With an improved agriculture crop expected this year, credit off take by the farm sector is also expected to improve further from June-end onwards. Similarly, demand from the manufacturing sector is picking up as well, creating the right environment for credit growth.
In line with the improvement in economic growth, companies are expected to revive stalled projects which would facilitate a strong pick-up in capacity expansion, thereby increasing the demands for bank funds.
This year promises to be very optimistic, as is evident from the fast-paced recovery.
The role played by the regulator has been quite commendable. Recently, the decision to implement Base Rate is seen as one of the many customer-friendly initiatives undertaken by the central bank. It will be interesting to see the real effect of the Base Rate and how customers benefit from it.
Overall, the sector is in recovery mode and expected to move on with the economic development.
Performance of your Bank
I am proud to announce that, for the second consecutive year, your Bank is one of the fastest growing private sector banks in India with business exceeding Rs. 12,100 crore. The Bank’s growth rates under deposits and advances are far ahead of the banking industry with increase of 43% and 57% respectively for the financial year ended March 2010.
Your Bank is always focused on asset quality while expanding business. By lending to large and mid-sized corporates, your Bank ensured that risks were kept to a minimum. As a result, your Bank’s gross NPA ratio improved to 1.54% in 2009-10 from 1.99% in 2008-09, while, net interest margin continued to grow, rising to 2.7% for three months ended March 31, 2010 from 2.5% from previous quarter ended December 31, 2009. The asset book has more than doubled in the past 18 months from Rs 2,490 crore to Rs 5,006 crore.
During 2009-10, your Bank expanded its branch network in northern and western India, while continuing its focus on a branch rationalization exercise from the viewpoint of profitability. From a regional Bank to a pan-India organisation, your Bank is today present in 15 states (including Union Territory - Chandigarh) from 8 states earlier. In terms of business mix, non-Kerala constitutes about 60% of the total business compared to 40% earlier.
In 2009, we had 1400 employees for 207 branches, with an average of 7 employees per branch against the industry average of 12. In 2010, we more than doubled staff strength across all businesses to reposition your Bank for a more competitive business environment. We believe that human resources are our key elements and we owe a large part of our success to them.
Your Bank has always used technology for customers’ convenience. We have constantly adapted and consistently upgraded technologies for integration of operations. Continuous upgradation of the information technology platform has enabled the Bank to offer end-to-end solutions through various channels such as ATM, telebanking, mobile alerts, e-mail alerts and electronic bill payments.
Your Bank has seamlessly integrated Centralised Banking Solution (CBS) on the Flexcube platform at all its branches for extending un-interrupted, anywhere/anytime banking for its customers. We also provide speedy cheque collection facilities to our constituents through Cash Management Services (CMS) at all our branch locations. Your Bank uses technology widely as an instrument for enhancing the quality of customer service. Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) systems have been used to facilitate large value payments and settlements through an on-line mode.
Your Bank also strives to provide end-to-end savings and investment solutions to its customers. To provide a wider choice of investments to our customers, we entered into tie-ups with leading financial services companies. For mutual funds, we tied up with HDFC Mutual Fund and UTI Mutual Fund besides leveraging the existing tie-ups with ICICI Prudential Mutual Fund and Kotak Mahindra Mutual Fund. For life and general insurance, we have an existing relationship with Bajaj Allianz. And, finally, your Bank has entered into an arrangement with Destimoney to provide customers with an internet stock trading option.
Due to the Bank’s focused thrust on fee-based business, non-interest income for the year ended March 31, 2010, increased to Rs. 90.99 crore, up 15%, from Rs. 79.36 crore for the corresponding period, last year. With the technology and processes in place, non-interest income is expected to contribute more to our total business. Your Bank has also been enrolled by Bombay Stock Exchange as one of its clearing and settlement banks.
While your Bank continued to exceed the regulatory norms with regard to priority sector lending, greater attention was paid towards inclusive banking through innovative rural schemes and programmes. At the end of March 2010, your Bank had an outstanding of Rs 680 crore under micro and agri-credit.
The changing demographic profile of the country, with over 50% of the population below 32 years of age, also requires your Bank to undertake certain changes. In 2010, your Bank successfully re-branded itself and transformed itself into a youthful, vibrant brand. With increased competition in the industry, it became necessary to position the Bank as a young, dynamic brand. A new brand identity was launched during the year while retaining the original name ‘The Dhanalakshmi Bank Limited’.
The rebranding has sharpened the Bank’s competitive edge as it seeks to expand its operations across the country. Branding was necessary to get a wider acceptability for a brand that has stood for trust and heritage for the past 83 years. The central message is: we’re changing, but without disturbing the core values and ethos of the brand that has stood the test of time.
The Bank also revamped its web-site using latest technology and added customer-friendly features for easy navigation and convenience.
Corporate Governance
The Bank attaches the highest importance to adopting well-recognized and time-tested practices in Corporate Governance. Driven by a professional and forward-looking Board, and a management committed to fair and equitable practices, the Bank’s corporate philosophy of integrity, transparency and accountability has been implemented in letter and spirit. There are systems and procedures in place for ensuring the Bank’s value orientation and ethical norms for its performance that have made the organization customer-centric, competitive and vibrant. This is sure to go a long way in achieving the Bank’s long-term vision.
The Bank has also been ensuring, on an ongoing basis, timely and appropriate compliance with the norms laid down by statutory and regulatory agencies in all areas. It has created a separate cell to provide the requisite focus to this area and to ensure effective monitoring of compliance.
Dividend
I am happy to inform you that the Board of Directors of your Bank had proposed a dividend of 10% for the year, which is subject to RBI approval.
Acknowledgement
Finally, on behalf of the board, I express my profound gratitude to all our shareholders and customers for their unanimous support, steadfast faith and confidence reposed in our Bank and Team Dhanalakshmi.
I sincerely thank all my colleagues on the Board for their support and immense encouragement and my heartfelt appreciation to all my colleagues at The Dhanalakshmi Bank Limited for their dedication and commitment.
I would also like to take this opportunity to place on record the board’s appreciation for all the help and guidance we have received from the Reserve Bank of India. I am also thankful to the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority, the stock exchanges and numerous banks and financial institutions for their valuable support during the year.
I am confident that with your continued support, FY2011 will be yet another year of productivity and high growth.
Thank you.
