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Message from the Chairman & Managing Director
It is a pleasure to address you for the first time since assuming office as Chairman and Managing Director of IDBI Bank Ltd. in early July 2013. On behalf of the Board of Directors and the Management Team of IDBI Bank, I present to you the Annual Report of your Bank for the FY 2012-13.
During 2012-13, the Indian economy faced a multitude of macroeconomic headwinds - both on the global as well as on the domestic fronts. There was a reversal of fortunes for the Indian economy, as the GDP growth declined to a low of 5.0% on the back of tepid global economic growth. The condition was aggravated by weak domestic fundamentals, which contributed to a broad-based slowdown across all the three sectors -agriculture, industry and services. The amalgamation of various factors brought about the Indian economy's weakest performance, amidst increasing concerns. The lacklustre performance of advanced economies reduced the demand for India's exports, hurting the performance of the external sector of the economy. > depreciating currency against the US Dollar due to the strengthening valuation of the latter, along with volatile capital flows and higher Current Account Deficit (C>D) added to the woes as well. On the domestic front, the inflationary concerns continued to distress the policy makers. This restricted the Reserve Bank of India from adopting a more accommodative monetary policy, as it strived to maintain a sustainable growth-inflation dynamics. The hawkish monetary stance, in conjunction with a pessimistic outlook, resulted in a subdued saving and investment environment, further adversely impacting the growth momentum.
The spill-over effects of the economic headwinds hurt the banking industry's performance in 2012-13. This posed extreme challenges for the sector, which grew by 15.0% in the year, compared to 17.6% growth posted in the previous year. The credit and deposit growth rates were also below target levels and not commensurate with the need of the economy to maintain its high growth trajectory. The pressure to raise low-cost deposits, along with slowing loan growth, weighed down on the interest margins of the banks. Rising ZP>s, along with high operating costs, affected the profitability of the banking industry as a whole.
Despite these macroeconomic challenges, I am pleased to announce that the Bank's performance improved significantly on several fronts. It was aided by strategic policy initiatives by the management and the intensified focus on strategic network expansion. The business strategy of the Bank continued to remain multi-pronged with a balanced focus on the retail, corporate and priority sector businesses. This also enabled it to broaden its asset portfolio and thus diversify relevant risks. During 2012-13, your Bank undertook various initiatives, along with special emphasis on mobilisation of higher low-cost C>S> deposits, to drive growth in the retail business segment. Simultaneously, your Bank strategically enhanced and extended corporate and investment banking relationships. Special emphasis was laid on acquiring and expanding its Priority Sector Business, including the MSME and >gri business. Your Bank recognises the crucial need to support these sectors to facilitate sustainable economic growth. It continued to undertake novel initiatives across the verticals to serve the financial needs of varied segments across India.
Your Bank continued to position its customers at the crux of its business operations. During the year, your Bank delivered products and services in line with its 'Customer Focused Vertical' model, designed to ensure the highest level of customer satisfaction. The model successfully enhanced customer relationship management, improved credit delivery and brought about a sharper focus to business lines, which are sustainable and remunerative. As a part of its vision of ensuring unique and enhanced customer experience, your Bank leveraged its state-of-the-art technology platform. The latest technology in the most secure environment lent operational flexibility and efficiency to our customers, besides helping us deliver world-class products and services. Your Bank launched an ATM-enabled Kisan Credit Card (KCC), online PPF subscription facility and online loan application facility. Besides, your Bank also ensured highest level of security and confidentiality. Your Bank introduced two factor authentication for all our e-commerce transactions by providing SMS-based Online Shopping Password (OSP) for our retail customer. Moreover,your Bank implemented a Digital Signature-based authentication solution, TranSecure, for our corporate customers.
As a key player in the process of nation building, your Bank has assiduously endeavoured to facilitate inclusive growth in the country. Recognising the imperative for the growth process to be inclusive, it undertook a number of initiatives to ensure financial inclusion across the country. Moreover, it also achieved considerable success in implementing Direct Benefit Transfer (DBT) scheme through its branches.
As a socially responsible corporate, your Bank partnered with Tata Institute of Social Sciences (TISS) to fund a Rural Transformation Fellowship Programme (RTFP). Under this project, the Bank sponsored fellowships for 11 TISS graduates from selected villages in Maharashtra, Madhya Pradesh and Chhattisgarh. These graduates were delegated with the responsibility of conducting socio-economic surveys of the villages to provide financial assistance to the villagers through your Bank's financial inclusion initiatives.
In cognizance of our performance in the banking domain and beyond, we were bestowed with a number of awards and accolades during the year under review. Your Bank was awarded the Best Retail Bank in the Public Sector by Dun and Bradstreet, 2012. It was also a winner in the Development Finance-Led Poverty Reduction in the Association for Development Finance Institutions in Asia & the Pacific (ADFIAP) Awards 2012. IDBI Bank received the Greentech CSR Award for demonstrating the highest level of commitment to CSR activities, particularly for its Rural Transformation Fellowship Programme (RTFP).
Even as the US and Japanese economies exhibit incipient signs of growth, the global economic recovery to be patchy and uneven across countries as well as geographic zones. Buffeted by the old risks, the global economy is faced with the emergence of new risks, including the possibility of a longer growth slowdown in Emerging Market Economies (EMEs), especially given risks of lower potential growth, slowing credit and possibly tighter financial conditions if the anticipated unwinding of monetary policy stimulus in the US leads to sustained capital flow reversals. The IMF has warned of non-trivial risks of the global economy encountering a soft patch in the months ahead, while projecting a growth of 3.10% for CY 2013.
On the domestic front, the subdued macroeconomic conditions continue to weigh down on the outlook for the year ahead. The inflation indices, after moderating for some period, has re-emerged as a major concern in the economy on the back of higher food inflation and pass-through of pronounced rupee depreciation in the first quarter of FY 2013-14. The free-fall in the Rupee valuation in the foreign exchange market prompted the RBI to intervene to restore stability in the currency valuation and to purge it of speculative elements. With expected softening in the global commodity prices and the realisation of the impact of measures to restrict gold imports, the Current Account Deficit (CAD) of India is expected to moderate in 2013-14 from its record high levels evidenced last year. The glad tidings on the fiscal deficit front in 2012-13 and determined policy initiatives instill confidence that the fiscal deficit for 2013-14 would be contained at targeted levels. Consolidation in this regard is expected to mitigate the twin deficit risks to the outlook for the Indian economy. The normal monsoons to date are another comforting feature, laying the foundation for a better agricultural production. If the exchange rate volatility is brought under control soon, inflation stays range-bound through the latter half of the financial year and global market conditions, particularly those in EMEs, do not turn inimical to growth, the room for policy manoeuvre would open up sufficiently to stimulate investment and overall economic growth. Despite a plethora of uncertainties currently weighing down on the growth momentum in the economy, there is cautious optimism that the Indian economy would register a visibly improved performance in respect of GDP growth and associated macro-economic parameters during 2013-14 compared to the immediately preceding financial year. As the fortunes of the banking sector are inextricably linked to those of the economy, the expected uptick in macro-economic fundamentals is expected to have a beneficial impact on business volumes, asset quality as well as profit indices of your Bank.
On a positive note, we have a distinct edge over our peers owing to our dynamic and vivacious young workforce with an average age of 33 years. The indomitable spirit of the young people around inspires and drives us to drive your Bank forward towards becoming the indisputable industry leader. In 201314, your Bank will continue to strategically optimise business growth and profitability parameters to reflect overall improvement. The strategies will be focussed on raising low-cost deposits, to consciously drive down the cost while enhancing fee-based income by exploring alternative sources and cross-selling opportunities. In addition, initiatives will be undertaken to boost credit growth by adopting strategies to expand retail portfolio, while maintaining prominent position in corporate and infrastructure financing. The operating costs incurred by your Bank will be kept at minimal levels to enhance its profitability. Concerted efforts will be undertaken to achieve Priority Sector Lending targets and sub-targets. At the same time, your Bank will expand its branch and ATM network across the country with a special focus on its FI and DBT objectives. The operational strategies would be adequately complemented by policy initiatives to ensure that corporate objectives are expeditiously met on a sustained basis.
It has been possible for the Bank to attain this stature owing to your continued support and loyalty as well as gainful suggestions, which we have always sought to implement to our mutual advantage. We look forward to continue this treasured relationship, going forward, to enable us to help maximise value to all our stakeholders.
With best wishes to you and to your families,
Chairman & Managing Director