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Your Directors have pleasure in presenting the 69th Annual Report of The Ratnakar Bank Limited (the Bank) along with the audited statement of accounts for the year ended March 31, 2012.
The Bank's progress towards 'Transformation' aims to create a vibrant New Age entity with a high degree of competitiveness and professionalism leading to a higher growth business. This growth will be the result of creating size and scale with robust controls in the key market segments that we operate in. All of these will need significant and continuous investments in infrastructure, processes, branches, technology etc. especially in the initial years. While the Bank has successfully raised capital in early 2011, there is a need to continue reinvesting our earnings so as to be able to achieve scale, size and earnings momentum in a timely manner.
At this stage of transformation there is a need to balance the short and long term interests of the shareholders. For the longer term, in a high growth entity, retained earnings have a multiplier effect on the market value of the organization and hence the share price. This reinvestment of earnings is a key component of delivering a higher "total return to shareholders". Taking all these factors into account, the Directors are pleased to recommend a 50% growth in dividend from 2% last year to 3% for FY12. This dividend shall be subject to the approval of shareholders in Annual General Meeting and subject to tax on dividend to be paid by the Bank. Total outgo on this account, inclusive of taxes, will be Rs. 7.48 crore.
CAPITAL ADEQUACY RATIO (CAR)
The Bank's Capital Adequacy Ratio (CAR) as on March 31, 2012 is at a comfortable level of 23.20% (CAR as on March 31, 2011 was 56.41%). The Bank's business has grown significantly during the year which has helped the Bank in the efficient deployment of capital.
Net Worth of the Bank as at March 31, 2012 was Rs. 1,130.99 crore comprising of paid–up equity capital of Rs. 214.95 crore and reserves of Rs.916.04 crore (excluding revaluation reserve, investment reserve and intangible assets).
MANAGEMENT DISCUSSION AND ANALYSIS
The past year has been a challenging year for the world economy. The looming Eurozone sovereign debt crisis and slower than expected recovery in the US economy cast its shadow on the year. While the concerns about a crisis had abated somewhat during the year, the recent developments suggest a worsening situation in the Eurozone. The US economic recovery continues to remain uneven and brittle.
Similarly, growth risks have surfaced in emerging and developing economies (EDEs) too.
Domestically, the state of the economy is a matter of growing concern. Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed significantly. Concerns over the fiscal deficit situation, the current account deficit and deteriorating asset quality loom large.
GDP growth moderated to 6.1% during Q3 of FY12 from 6.9% in Q2 and 8.3% in the corresponding quarter of 2010–11. This was mainly due to moderation in industrial growth from 2.8% in Q2 to 0.8% in Q3. The GDP further dropped drastically to 5.30% during Q4 of FY12, lowest in three years mainly driven by manufacturing sector negative growth of –0.3%. The services sector held up relatively well (with growth being 8.7% in both Q2 and Q3 of 2011–12). Overall, GDP growth during FY12 slowed to 6.5% from 8.4% in FY11.
Inflation in 2011–12 evolved broadly along the trajectory projected by the Reserve Bank. The March 2012 inflation at 6.9% was close to the Reserve Bank's indicative projection of 7.0%.
On the exchange rate front, the rupee has come under severe pressure due to several external as well as internal factors and has been one of the weakest performers in the emerging market economies. The currency volatility has impacted domestic liquidity and inflation adversely.
The fourth Financial Stability Report (FSR) was released by RBI in December 2011. According to the assessment made in the report, the domestic financial system remained robust, though risks to stability increased in the recent period. That the financial system remained robust was evidenced by a series of macro–financial stress tests, which assessed the resilience of the banking system to adverse macroeconomic developments. Stress tests also revealed that banks' capital adequacy remained above regulatory requirements, even under severe stress scenarios.
The Reserve Bank instituted a systemic risk survey (SRS) to supplement its assessment of systemic risks through wider consultation. The findings of the SRS also reaffirmed the stability of the system. However, according to the survey, deterioration in asset quality was identified as one of the major risks faced by banks.
Going into FY13, the global outlook also appears to be somewhat uncertain with all eyes on some of the Eurozone developments, growth in the US and Chinese economies. Continuing softness in the Eurozone economies have built expectations about further quantitative easing. On the domestic front, a weaker monsoon is likely to impact agricultural growth negatively and recent Industrial growth numbers suggest challenging conditions going ahead though softening oil and commodity prices could help the country's financial position as well as inflation somewhat. The economy is dealing with higher current account deficit, reduced savings and investment rate, persistent high inflation and tighter inter–bank liquidity although offset by a weaker rupee. Concrete and positive macro–economic as well as commercial policy decisions would be required to be taken to prop the economy for sustaining an above 6% GDP growth rate. Such headwinds are likely to further impact adversely the credit environment requiring a cautious approach to growth and customer selection for banks, including us. This environment will require banks such as ours to focus on cost containment and factors that enhance productivity to remain competitive.
During FY12, the Bank focused on diversification of resources, advances growth, new client acquisition, CASA mobilization, credit recoveries and designing new products and services. We believe that we have made substantial progress on all the parameters of this strategy. We have significantly improved our funding profile, asset quality and profitability. The Provision Coverage Ratio (PCR) for the Bank is a healthy at 79.9% providing the necessary credit cushion in the present economic scenario.
Deposits And Borrowings
Deposits of the Bank increased from Rs. 2,042.16 crore as at March 31, 2011 to Rs.4,739.33 crore as at March 31, 2012, registering a growth of 132%. High interest rate environment led to an industry–wide shift in customer behaviour in favour of term deposits. This bias towards term deposits coupled with tighter liquidity conditions resulted in rise in rates of interest on deposits and consequent increase in cost of deposits. Deregulation of interest rate during the year also led to increase in the savings account deposit rates offered by some Banks. The Bank raised the rate of interest on savings deposit from 4% to 5.5% in November 2011. This helped the Bank to increase its savings deposits balances. Concerted efforts at increasing the CASA Balances have led to increase in CASA dep