Dear Shareholders, 5. Credit-Deposit ratio improved to 70.1% from 68.
3%
I feel delighted in presenting to you
the Directors’ Report of your Bank
for the financial year ended March
31, 2008. The year 2007-08 was
characterized by several
developments in the global and
domestic economies and financial
markets. The deepening of sub-
prime crisis in the USA and
increasing inflationary expectations
around the major economies
coupled with a slowdown in growth rates led to stern policy
actions from the monetary authorities. Reserve Bank of India
(RBI), too, increased the cash reserve ratio of banks by 150
basis points during the year. Domestic equity, bond and
foreign exchange markets witnessed high volatility while credit
demand remained subdued throughout the year. This has
impacted the profitability margins of banks in general.
Nevertheless, I am happy to share with you that even in this
business environment your Bank could post healthy financials
while maintaining high asset quality and strong capital base.
During the year, your Bank alongwith Bank of Baroda and
Legal & General Group Plc of UK has decided to form a joint
venture Life Insurance Company. The shareholders’
agreement has already been signed and necessary formalities
are being completed for setting up the company and seeking
approval from the relevant authorities. Your Bank will have
shareholding of 30% in the proposed company. Your Bank is
also set to open its second Representative (overseas) Office
after successful experience of Dubai (U.A.E.) Representative
Office. The second office will be located in Jersey City in the
State of New Jersey in USA. The State of New Jersey has
granted their approval and license of authority for the
proposed office on January 29, 2008 and once the approval
of the Federal Reserve Bank of New York is obtained,
representative office in Jersey City will become operational.
These initiatives are set to provide your Bank a larger canvas
in the Indian banking space.
Coming to the business and financial performance during
the year 2007-08, your Bank has reported a healthy growth
in major business and profitability parameters. I am glad to
share with you some of the performance highlights of the
Bank for the year ended March 31, 2008:
1. Total business of Andhra Bank (“the Bank”) increased
by 20.5% to Rs.83,993 crore as on 31.3.2008 from
Rs.69,687 crore as on 31.03.2007.
2. Total Deposits increased by 19.3% to Rs.49,437 crore
from Rs. 41,454 crore
3. Low-cost deposits (CASA) increased by 15.9% to
Rs.16,594 crore from Rs.14,314 crore. CASA share in
total deposits stood at 33.6%
4. Gross Bank Credit increased by 22.4% to Rs.34,557
crore from Rs.28,233 crore
6. Priority sector advances increased by 16.4% to
Rs.13,298 crore from Rs.11,427 crore. Priority sector
advances constituted 47.1% of Adjusted Net Bank Credit
(RBI norm: 40%), up from 41.1% in the previous year.
7. Agriculture advances increased by 19.5% to Rs.6,156
crore from Rs.5,150 crore. Agriculture advances
constituted 21.8% of Adjusted Net Bank Credit (RBI
norm: 18%), up from 18.5%. All productive sectors
including agriculture, in tune with the government’s
objective, received priority in credit allocation.
8. Advances to micro, small and medium enterprises
increased by 22.7% to Rs.3,989 crore from Rs. 3,250
crore
9. The Bank extended finance to 1,48,288 Self-Help
Groups (SHGs) and the outstanding credit to such
groups as on 31.03.2008 was Rs.1,005 crore
10. A drive for financial inclusion was initiated by the Bank
in the districts of Srikakulam (A.P.) and Ganjam (Orissa)
and 100% financial inclusion was achieved in both the
districts. As a related measure, number of mobile ATMs
increased to 4 and biometric ATMs increased to 3.
11. Lending to retail sector, housing and education remained
the focus areas. Retail lending increased by 17.2% to
Rs.7,765 crore as on 31.03.2008 from Rs.6,623 crore
as on 31.03.2007.
12. Loans to housing sector increased by 18.6% to Rs.4,720
crore from Rs.3,980 crore
13. Educational loan portfolio increased by 29.1% to
Rs.1,167 crore from Rs.905 crore
14. On profitability front, Bank’s Operating Profit increased
by 13.5% to Rs.1,057 crore for the financial year ended
March 31, 2008 from Rs.931 crore in the previous
financial year.
15. Net Profit also improved by 7% to Rs.576 crore from
Rs.538 crore
16. Total Income increased by 29.5% to Rs.4,871 crore from
Rs.3762 crore, of which non-interest income increased
by 30.1% to Rs.581 crore from Rs.447 crore
17. Higher income and efficient cost-management helped
in bringing down cost-to-income ratio to 47.2% from
50.1%
18. Return On Assets (ROA) stood at 1.16% compared to
1.31% in the previous year while Net Interest Margin
(NIM) stood at 2.86% compared to 3.20%. Decline in
ROA and NIM was a general banking phenomenon
during 2007-08 due to increased cost of funds and
subdued credit demand
19. Net worth of the Bank stood at Rs.3,249 crore and Return
On Average Net Worth improved to 17.97% from
17.78%.
3
20. Earning per share increased to Rs. 11.9 from Rs.11.1
while book value per share increased to Rs.67.0 from
Rs.65.1
21. The Bank raised tier II capital of Rs.700 crore during
the year and including this, capital adequacy ratio of the
Bank improved to 11.61% from 11.33%
22. Continued focus on maintaining a healthy asset quality
helped in reducing Gross NPAs to Gross Advances to
1.07% from 1.41% in the previous year while Net NPAs
to Net Advances also came down to 0.15% from 0.17%.
23. The Clientele base of the Bank increased to 17.1 million.
Your Bank’s network of delivery channels increased to 2128
by end-March 2008, i.e., 198 additional delivery channels
during the year. The focus has been on ensuring higher
presence at all-India level while covering minority-dominated
districts, rural and semi-urban centres. A phased-
implementation of the core-banking solution (CBS) across
all the branches has also been started.
Keeping in view the needs of the debt-ridden borrowers, your
Bank launched two debt swapping schemes, namely, ‘AB
Kisan Rakshak’ for farmers and ‘AB Mahila Soubhagya’ for
SHGs. These special schemes are intended to reduce the
interest burden on select category of borrowers.
Your Bank has a comfortable Capital Adequacy Ratio and
has also put in place robust risk management systems. The
preparedness for migration from Basel-I to Basel-II capital
adequacy norms is underway and Bank is set to meet the
challenges of the new system, which will become effective
for your Bank from March 31, 2009. Besides Risk
Management, proper systems are in place for approval,
sanction and monitoring of credit.
It is indeed a matter of immense pleasure to share with you
that your Bank’s ranking amongst world’s top 1000 banks
has further improved to 532 in 2007, as is surveyed by ‘The
Banker’, London. Also, recently released ‘India’s Best Banks
2007’ survey of ‘Financial Express-Ernst & Young (FE-EY)’
ranked your Bank 5th amongst public sector banks. FE-EY
has ranked your Bank 8th under the ‘Credit Quality’ parameter
amongst 56 public, private and foreign banks. Your Bank was
also ranked First under “LIC of India- Bancassurance
business” in the country amongst all Agency Banks of LIC on
the basis of number of Life Insurance Policies mobilised.
These recognitions are a testimony to the sound performance
of the Bank.
Your Bank is committed to all its stakeholders. Their continued
support has been of immense value to the Bank. I place on
record sincere gratitude to all our shareholders, customers,
regulators and all concerned for being our strength and
motivation for a healthy performance year after year. I also
take this opportunity to express my sincere appreciation to
all the members of the Andhra Bank family who, with their
unstinted efforts ensured yet another year of sound financial
performance.
With best wishes,
Yours sincerely,
(Dr. K. Ramakrishnan)
Chairman & Managing Director
5
 Head Office: Dr. Pattabhi Bhavan, 5-9-11, Saifabad, Hyderabad – 500 004
NOTICE
Notice is hereby given that the Eighth Annual General Meeting of the shareholders of Andhra Bank will be held on Monday, the 23rd
June, 2008 at SHILPA KALA VEDIKA, SHILPARAMAM, CRAFTS VILLAGE, NEAR HI-TECH CITY, MADHAPUR, HYDERABAD-500
081 at 10.00 A.M., to transact the following business:
To discuss, approve and adopt the Balance Sheet of the Bank as at 31st March 2008 and the Profit and Loss Account for the year ended
on that date, the Report of the Board of Directors on the working and activities of the Bank for the period covered by the Accounts and
the Auditors Reports on the Balance Sheet and Accounts.
To declare dividend on Equity Shares.
Place: Hyderabad
Date : 25.04.2008
Notes:
1. A MEMBER ENTITILED TO ATTEND AND VOTE AT THE
MEETING IS ENTITLED TO APPOINT A PROXY OR PROX-
IES TO ATTEND AND VOTE THERE AT INSTEAD OF HIM-
SELF / HERSELF. A PROXY NEED NOT BE A MEMBER.
2. A Proxy, in order to be effective, must be deposited / lodged at
the Head Office of the Bank at least four days before the date
of the meeting. No employee of the Bank shall be appointed
as duly authorized representative or a proxy.
3. Appointment of a representative:
No person shall be entitled to attend or vote at the meeting as
a duly authorized representative of a Company, unless a copy
of the resolution appointing him as a duly authorized
representative certified to be a true copy by the Chairman of
the meeting at which it was passed shall have been deposited
at the Head Office of the Bank at Hyderabad not less than four
days before the date of the meeting.
4. Attendance slip cum entry pass:
For the convenience of the members, attendance slip is
enclosed to this report. Members are requested to fill in and
affix their signatures in the space provided therein and
handover the attendance slip cum Entry pass at the entrance
of the venue of the meeting. Proxy / Representative of the
shareholder should mark on the attendance slip as proxy or
representative as the case may be.
5. Dividend:
The Board of Directors recommend a final dividend of 20% for
the financial year 2007-2008 and the dividend shall be paid
on 2nd July, 2008 to the shareholders whose names appeared
in the Register of Shareholders as on 11th June, 2008.
6. Holding Bank shares in electronic form with National
Securities Depository Limited and Central Depository
Services (India) Limited:
The Bank has entered into agreement with National Securities
Depository Limited (NSDL) and Central Depository Services
(India) Limited (CDSL) as an issuer Company for
Dematerialization of Bank’s Shares. Request for
Dematerialization may be sent through respective Depository
Participants to our Registrars and Transfer Agents, M/s. MCS
Limited, Mumbai.
7. Bank mandate for dividend or Electronic Clearing Service:
In order to protect the investors from fraudulent encashment
of their dividend warrants, the Bank has offered Electronic
(K. Ramakrishnan)
Chairman & Managing Director
Clearing Service facility to the shareholders having Bank
accounts at the following centers:
Mumbai, New Delhi, Kolkata, Chennai, Ahmedabad,
Bangalore, Hyderabad, Nagpur, Chandigarh,
Thiruvanathapuram, Bhubaneswar, Guwahati, Jaipur, Kanpur
and Patna.
8. Consolidation of Folios:
The shareholders who are holding shares in identical order of
names in more than one account are requested to intimate to
the Registrars and Transfer Agent, the ledger folio of such
accounts together with the share certificates to enable the Bank
to consolidate all the holdings into one account. The share
certificates will be returned to the members after making
necessary endorsement in due course.
9. Lodgment for Transfers:
Share Certificates along with transfer deed should be
forwarded to the Registrars and Transfer Agent of the Bank at
the following address:
M/s. MCS Limited (Unit: Andhra Bank)
Kashiram Jamnadas Building
Office No. 21/22 Ground Floor
5, P.D’Mello Road, (Ghadiyal Godi)
Mumbai – 400 009
10. Request to Shareholders
a. Please note that copies of the Annual Report will not be
distributed at the Annual General meeting as an Economy
measure. Hence, shareholders are requested to bring their
copies of the Annual Report to the meeting.
b. Shareholders may kindly note that no gifts / coupons will be
distributed at the venue of the meeting.
c. Shareholders are advised to avoid bringing bags / brief
cases/ tape records / cameras etc. as these items are subject
to a security check and may not be allowed at the venue.
Note:
Bank shall highly appreciate if shareholders, desirous of making
any suggestion, seeking clarification, etc. at the Annual General
Meeting, relating to the item of agenda only may send their
suggestions. Queries, etc. so as to reach the shares Division &
Investors Services Cell at Head Office of the Bank atleast 15 days
before the date of meeting.
7
DIRECTORS’ REPORT 1.07%. Net interest margin stood at 2.86% while capital
adequacy ratio improved to 11.61%. Cost-to-income ratio has
Directors of your Bank have pleasure in presenting the Annual
further improved to 47.18% from 50.05%, reflecting increasing
Report of the Bank together with the audited Statement of
operational efficiency. Buoyed by improved profitability,
Accounts and Auditors’ Report for the financial year ended
earning per share also increased to Rs.11.87 from Rs.11.09
March 31, 2008.
and Book value per share increased to Rs.67.00 from
PROFITABILITY Rs.65.08 in the previous year.
During the financial year 2007-08, Bank sustained its growth Table3: Key Financial Ratios
momentum of the previous years. Business as well as
profitability parameters witnessed satisfactory growth. Net 31.3.2007 31.3.2008
Profit increased by 7% to Rs.575.57 crore in 2007-08 from Net NPA (%) 0.17 0.15
Rs.537.90 crore in the previous year (2006-07). Continued Gross NPAs (%) 1.41 1.07
buoyancy in the Bank’s core business income, increased fee- CRAR (%) 11.33 11.61
based income and focus on healthy asset-quality contributed Net Interest Margin (%) 3.20 2.86
to the improvement in profitability. Operating Profit of the Bank Return on Assets (%) 1.31 1.16
increased to Rs.1056.94 crore from Rs.931.24 crore, Yield on Advances (%) 9.88 10.81
registering an increase of 13.5%. Total income increased by Cost of Deposits (%) 5.32 6.58
29.5% from Rs.3,762.21 crore to Rs.4,871.21 crore while non- Cost-to-income ratio (%) 50.05 47.18
interest income registered a healthy growth of 30.1% and Earning per share (Rs.) 11.09 11.87
stood at Rs.581.35 crore compared to Rs.446.89 crore in Book value per share (Rs.) 65.08 67.00
the previous year. CAPITAL & NET WORTH
Table 1: Performance at a glance Paid-up capital of the Bank is Rs.485 crore while reserves
(Rs.in crore, except for percentages) and surplus increased from Rs.2,671.28 crore as on
31.03.2007 to Rs.2,764.29 crore as on 31.03.2008. There
31.03.2007 31.03.2008 % change was an adjustment of Rs.255.58 crore (net of taxes) from
Business 69687.44 83993.12 20.5 revenue reserves under revised AS-15 guidelines. The net
Deposits 41454.02 49436.55 19.3 worth (capital plus reserves & surplus) increased to
Advances 28233.42 34556.57 22.4 Rs.3,249.29 crore from Rs.3156.28 crore.
Operating Profit 931.24 1056.94 13.5
Net profit 537.90 575.57 7.0 CAPITAL ADEQUACY
Total Income 3762.21 4871.21 29.5 The Bank raised subordinated debt of Rs.700 crore at coupon
Interest income 3315.33 4289.87 29.4 of 9.15% during January 2008 to augment its capital funds in
Non Interest income 446.89 581.35 30.1 order to be able to meet the emerging challenges. The total
APPROPRIATIONS capital funds now stand at Rs. 4,221.34 crore, up 18.4% from
Rs. 3,565.41 crore in the previous year. With this, capital
The appropriations made out of net profit are shown in Table adequacy ratio stands at 11.61%, which has been above 11%
2. Rs.144.00 crore was transferred to statutory reserves for sixth year in a row when compared to RBI prescribed
during 2007-08, and with this, statutory reserves stood at norm of 9%. Coupled with this, a high Tier I capital ratio of
Rs.947.68 crore. Transfer towards dividend (including 8.54% provides the Bank sufficient headroom for future
dividend tax) amounted to Rs.226.97 crore. business expansion. According to RBI guidelines, Bank
Table 2: Appropriations out of Net Profit should shift to Basel-II capital adequacy norms from existing
(Rs. in crore) Basel-I norms with effect from March 31, 2009. Preparedness
for the migration to new norms is underway. Bank has also
Net Profit for the year 2007-08 575.57
put in place a ‘Capital Adequacy Assessment Process’
Profit brought forward from the previous year 76.23
(CAAP) for assessing the adequacy of capital levels keeping
Total 651.80
in view the expected increase in business levels and the
Appropriations
additional capital requirement for market risks and operational
Transfer to Statutory Reserves 144.00
risks. The assessment process also includes a framework
Transfer to Revenue and Other Reserves 204.00
for inclusion of Pillar-II risks under Basel-II guidelines, such
Proposed Dividend 194.00
as credit concentration risk, interest rate risk in the banking
Tax on Dividend 32.97
book, business cycle risks etc.
Profit brought forward 76.83
Total 651.80 DIVIDEND
KEY FINANCIAL RATIOS The Board of Directors of the Bank has recommended a final
dividend of 20% for the financial year 2007-08. With the interim
The Bank continues to have a healthy asset-profile and a
dividend of 20% announced in February 2008, the total
strong capital base. Net non-performing assets to Net
dividend for the year would be 40%, subject to the approval
Advances have come down to 0.15% and gross non-
of final dividend by the shareholders in the Annual General
performing assets to Gross Advances also came down to
Meeting of the Bank.

9
MANAGEMENT’S DISCUSSION & ANALYSIS
1. MACROECONOMIC DEVELOPMENTS
The global economy witnessed a marked slowdown, with
greatest impact on advanced economies, particularly in the
United States where the sub-prime crisis continues to deepen
the financial stress. Similar is the situation in European
economies. According to International Monetary Fund (IMF),
the financial market crisis that erupted in August 2007 has
developed into the largest financial shock since the Great
Depression, inflicting heavy damage on markets and
institutions at the core of the financial system. However,
emerging and developing countries, including India, have
been less affected so far although economic activities in these
countries are coming off the peak. Headline inflation has
increased around the world, led mainly by the food and energy
prices. Commodity markets have continued to boom despite
global slowdown. This has been supported by the strong
demand for commodities from the emerging economies and
also bio-fuel related demand for food crops. World Economic
Outlook, released in April 2008 by the IMF, projects a
slowdown in world output to 3.7% in 2008 from 4.9% in 2007;
of which growth in advanced economies will slowdown to
1.3% from 2.7% while growth in emerging and developing
countries (including India) is projected at 6.7% in 2008
compared to 7.9% in 2007.
Despite global slowdown, Indian economy continued to exhibit
robust growth during 2007-08. Though there was some
moderation in the domestic growth rates, too, when compared
to the previous two years, GDP (gross domestic product)
growth rate for 2007-08 has been estimated by the Central
Statistical Organisation at 8.7% compared to the growth rate
of 9.6% in 2006-07 and 9.4% in 2005-06. The ‘agriculture &
allied activities’ sector is likely to show a growth rate of 2.6%
during 2007-08, as against the previous year’s (PY) growth
rate of 3.8% while growth for Industrial sector is estimated at
9.7% (PY: 11.0%) and estimates for Services sector is 10.3%
(PY: 11.1%). GDP at market prices for 2007-08 is estimated
at Rs.46,93,602 crore and, therefore, under market exchange
rate, size of the Indian economy has now crossed US $ 1
trillion. The per capita income (PCI) is a broad quantitative
indicator of the well being of the people and in real terms (at
1999-2000 prices) PCI, during 2007-08, is estimated at
Rs. 24,256 compared to Rs. 22,553 for 2006-07, i.e., an
increase of 7.5%. Faster economic growth of the immediate
past is also translating into more inclusive growth, both in
terms of employment generation and poverty reduction.
Rising domestic savings and investments have been the chief
engines of growth for the Indian economy. India has been a
domestic-driven economy and as such it has largely been
insulated from adverse developments in the global economy.
On fiscal side, key deficit indicators for 2007-08 are estimated
to be better than budgeted, backed by buoyancy in revenue
receipts. Revised estimates for fiscal deficit stand at 3.1%
for 2007-08 against budgeted 3.3%. In absolute terms, too,
fiscal deficit for 2007-08 has improved to Rs. 1,43,653 crore
against budgeted figure of Rs. 1,50,948 crore. Budget
Estimates of fiscal deficit for 2008-09 is Rs. 1,33,287 crore,
which amounts to 2.5% of GDP.
The growth forecasts from leading agencies demonstrate that
Indian economy would continue to see growth in the range
of 7.5%-8%, a bit lower than the near-9% average growth
rate of previous three years. Goldman Sachs has also
revealed similar growth forecasts while domestic agencies
like CSO, CRISIL and ICRA have pegged growth estimates
between 8.0%-8.5%. More fiscal and monetary policy steps
are expected in the current year for bringing down the inflation
in the range of 4.5-5.0%. This will ensure that while inflation
is managed in the comfortable range, growth prospects are
not hurt.
2. FINANCIAL & BANKING SECTOR DEVELOPMENTS
Indian economy could contain the inflationary pressures
despite global rise in commodity and energy prices and higher
capital inflows. However, monetary and liquidity aggregates
have shown high growth during 2007-08. RBI’s ‘Annual policy
statement’ for the year 2007-08 made projections, inter-alia,
for money supply growth, deposits growth and credit demand.
Broad money (M3) increased by 20.7% during 2007-08 against
projection of 17.0-17.5%, deposits recorded growth of Rs.
5,80,208 crore (projection: Rs.4,90,000 crore) while adjusted
non-food credit increased by 21.9%, lower than projection of
24-25% growth. Reserve money increased by 24.6%, higher
than the increase of 22.0% in the previous year. Inflation,
measured by the wholesale price index, remained benign for
major part of the year, but increased to 7.41% for the week
ended March 29, 2008.
One of the leading developments on the domestic front during
the financial year 2007-08 was appreciation of the Rupee
by more than 10% against the US Dollar. This has resulted in
several sectors taking a hit on their bottom-line. Interest
subvention scheme for export credit was extended to needy
sectors. The Annual Foreign Trade Policy also announced
several sops for the export sectors hit by the Rupee
appreciation.
Interest rates on deposits of over one-year maturity of public
sector banks (PSBs) moved up from 7.50-9.00% in April 2007
to 8.25-9.00% in March 2008. The decline in benchmark prime
lending rates was effected by many banks taking a cue from
the third quarter review of monetary and credit policy
announced by the RBI on January 29, 2008. With higher
deposit rates and lower lending rates, the margins of banks
have come under further pressure. In 2007-08, RBI used
various tools such as MSS bonds and open-market operations
in managing the liquidity. In addition to the above, RBI raised
the Cash Reserve Ratio (CRR) in various stages by 150 basis
points to 7.50%. The RBI has also introduced several new
measures aimed at development of the financial system. One
such measure is the permission granted to the FIIs for short
selling as well as lending and borrowing of shares. This is
aimed at providing the capital market with the much needed
depth as well as liquidity. Other measures include taking the
11
‘when-issued transactions’ outside the NDS-OM market, Table 4: Category-wise classification of deposits
permitting intra day short sale in central government securities (Rs. in crore, except for percentages)
etc. Sl. Type of Deposits Amount Percentage of
3. PERFORMANCE HIGHLIGHTS OF THE BANK No. total deposits
1 Current Deposits 4409.66 8.92
• During the financial year 2007-08, Andhra Bank’s (20.4%)
Business increased to Rs.83,993.12 crore from 2 Savings Bank Deposits 12184.18 24.65
Rs.69,687.44 crore in the previous financial year (2006- (14.4%)
07), recording an annual growth rate of 20.5% 3 Term Deposits 32842.71 66.43
• Total Deposits increased by 19.3% from Rs.41454.02 (21.0%)
4 TOTAL (1+2+3) 49436.55 100.00
crore as on 31.03.2007 to Rs.49,436.55 crore as on
(19.3%)
31.03.2008
Note: Figures in ( ) indicate annual growth rate
• Gross Bank Credit increased by 22.4% from
Area-wise distribution of aggregate deposits (total deposits less
Rs.28233.42 crore to Rs.34,556.57 crore
inter-bank deposits) as on 31.03.2008 is set forth in Table 5.
• Operating Profit improved to Rs. 1056.94 crore Table 5: Area-wise classification of aggregate deposits
compared to Rs. 931.24 crore in the previous year,
(Rs. in crore, except for percentages)
recording a growth rate of 13.5%
Sl. Category of branches Amount % to total
• Net Profit also improved to Rs. 575.57 crore vis-a-vis No.
Rs.537.90 crore in the previous year, registering a growth
1 Rural 3579.2 7.26
rate of 7.0%
(20.0%)
• Net Interest Income stood at Rs. 1,419.88 crore 2 Semi-Urban 9701.7 19.67
• Gross NPAs to Gross Advances came down to 1.07% (16.8%)
and the Gross NPAs stood at Rs. 372.43 crore in 3 Urban 13117.2 26.60
absolute terms from 1.41% and Rs. 397.01 crore (16.8%)
respectively in the previous year 4 Metro 22919.2 46.47
(21.7%)
• Net NPAs stood at Rs. 53.70 crore (constituting 0.15%
of net advances) from Rs.47.25 crore (constituting 5 TOTAL (1+2+3+4) 49317.3 100.00
0.17% of net advances) in 2006-07 Note: Figures in ( ) indicate annual growth rate
• Capital Adequacy Ratio of the Bank (CRAR) stood at 4.2 Advances
11.61% as on 31.03.2008, as against 11.33% as on Advances (gross bank credit) increased by 22.4% from
31.3.2007. Rs.28,233.42 crore as on 31.3.2007 to Rs. 34,556.57 crore
as on 31.3.2008. Non-food credit increased by 23.2% to Rs.
4. BUSINESS REVIEW
33,675.51 crore from Rs.27,335.85 crore. Credit to
The total business (deposits plus gross bank credit) of the agriculture, SME and large industries constituted 17.81%,
Bank registered a growth of 20.5% from Rs. 69687.44 crore 11.54% and 22.67% of gross bank credit respectively. Like in
as on 31.3.2007 to Rs. 83,993.12 crore as on 31.3.2008. the previous years, Bank achieved its priority sector lending
This was on top of 23.55% growth recorded in the year targets including those under agriculture and also achieved
2006-07. the self-set targets under lending to MSME sector.
4.1. Deposits Table 6 sets forth the broad classification of the advances
portfolio of the Bank for the last two fiscals:
Total deposits (aggregate deposits plus inter-bank deposits) Table 6: Classification of Advances portfolio
registered a growth of 19.3% from Rs. 41,454.02 crore as on
31.3.2007 to Rs. 49,436.55 crore as on 31.3.2008. Total (Rs. in crore, except for percentages)
deposits included Rs.4,409.66 crore of current deposits, Rs. Category 31.03.07 31.03.08 Growth %
12,184.18 crore of savings bank deposits and Rs. 32,842.71 1. Food Credit 897.57 881.06 -1.84
crore of term deposits. The composition of low-cost deposits 2 Non-Food Credit (2.1 to 2.4)
(current and savings deposits) in total deposits stood at 2.1 Advances to Agricultural Sector 4975.05 5998.35 20.57
33.6%. 2.2 Advances to MSME sector 3249.74 3988.79 22.74
2.3 Advances to Large Industries 7341.77 7833.18 6.70
2.4 Other Advances 11769.29 15855.19 34.72
GROSS BANK CREDIT (1+2) 28233.42 34556.57 22.40
Of which, Lending to Priority sector 11427.23 13297.56 16.37

13
4.2.1 Priority sector lending
The Bank’s priority sector lending increased to Rs. 13298
crore as on last reporting Friday of March 2008 from Rs.
11,427 crore as on the last reporting Friday of March 2007,
i.e. an annual increase of 16.4%. As a percentage to adjusted
net bank credit (as defined by RBI), priority sector advances
of the Bank stood at 47.1%, compared to 41.1% in the
previous year. This is above the RBI’s norm of Banks’ priority
sector advances to be minimum 40% of Adjusted Net Bank
Credit. RBI, during 2007-08, introduced definitional changes
for priority sector lending by banks. Accordingly, priority sector
lending comprises lending to agriculture, small enterprises,
retail trade, micro credit, housing loans and educational loans.
Table 7 sets forth the details of priority sector lending of the
Bank for 2007-08.
Table 7: Priority sector lending
(Rs. in crore, except for percentages)
Category 2007-08
1. Priority sector advances (2 to 7) 13297.56
2. Agriculture (2.1 + 2.2) 6156.42
2.1 Agriculture loans 5998.35
2.2 Eligible investments 158.07
3. Small enterprises 2632.24
4. Retail Trade 300.42
5. Micro credit 69.32
6. Educational Loans 1106.81
7. Housing Loans 3032.35
Memo items
I. Priority sector advances (%) 47.1
II. Agriculture advances (%) 21.8
Lending to agriculture under priority sector increased to Rs.
6156.42 crore as on last reporting Friday of March 2008 from
Rs.5149.78 crore as on last reporting Friday of March 2007.
This included agriculture loans of Rs. 5998.35 crore (Previous
Year - PY: Rs.4975.05 crore) and eligible investments of Rs.
158.07 crore (PY: Rs. 174.73 crore). Lending to agriculture
constituted 21.8% of adjusted net bank credit (RBI norm: 18%)
during 2007-08 compared to 18.5% in the previous year.
4.2.2 Credit to Women & Weaker Sections
With a view to encourage women entrepreneurs to make them
self-supportive, Bank has been encouraging the flow of credit
to women beneficiaries. Credit to women entrepreneurs stood
at Rs.2123.09 crore as on 31.03.2008, i.e. an increase of
25.1% from Rs.1696.87crore as on 31.3.2007. In percentage
terms, exposure increased to 7.5% of adjusted net bank credit
during 2007-08 from 6.01% in the previous year. The Bank
provides concessions in interest rates to women borrowers
under various loan schemes.
The lending to borrowers under “weaker sections” increased
by 25.2 % to Rs. 3317 crore as 31.03.2008 from Rs. 2,649
crore as on 31.03.2007. Loans to weaker sections now
constitute 11.75% of adjusted net bank credit compared to
9.54% in the previous year. Beneficiaries under weaker
sections include SC/ST borrowers, small & marginal farmers,
SHGs, benficiaries of SGSY, SJSRY, SLRS, DRI Schemes
etc.
4.2.3 Credit to Minorities
The Bank has presence in 38 minority-dominated districts
across the country. Number of Bank’s branches in such
districts as on 31.03.2008 stood at 165, including 11 new
branches opened during the year. However, with focused
approach for minority communities, Bank promotes lending
to these communities across all branches. The Bank is also
following the “Prime Minister’s new 15-point programme for
the welfare of the minorities” by encouraging lending to
borrowers from these communities under self-employment
and wage-employment programmes like SGSY, SSRY, SGRY
and NREGP. An important objective of the aforesaid
programme is to ensure that an appropriate percentage of
the priority sector lending is targeted for the minority
communities and that the benefits of various Government
sponsored schemes reach the under-privileged, which include
the disadvantaged sections of the minority communities.
Accordingly, Bank has set targets so that lending to minorities
as a percentage of priority sector lending is 13% and 15% by
March 2009 and March 2010 respectively.
With a view to ensure smooth flow of credit to these
communities, Bank has created a “Special Minorities Cell’
with a ‘Nodal Officer’, which monitors the credit flow to
minorities on a regular basis. Total loans given by the Bank
to persons from minority communities, all over the country,
increased by 13.1% to Rs.512.49 crore (1,27,030 borrowal
accounts) as on 31.03.2008 from Rs.453.19 crore (1,12,614
borrowal accounts) as on 31.03.2007. During the same
period, loans to minorities in the minority-dominated districts
increased to Rs.111.39 crore (13,481 borrowal accounts) from
Rs.17.13 crore (9325 borrowal accounts). The Bank is also
encouraging the educational loans to students from such
communities. Educational loans to minorities also increased
by 39.4% to Rs.94.03 crore (4,895 borrowal accounts) from
Rs.67.47 crore (3501 borrowal accounts).
4.2.4 Lending to Self-Help Groups (SHGs)
Self-help group (SHG) formation and their linkage with the
Bank has acquired a significant importance in Bank’s efforts
to uplift the weaker sections of the society. Linkage of SHGs
has been seen as an important activity for the economic
development of the rural areas and for reaching out to the
rural poor. Andhra Bank since 1998 is actively participating
in SHG-bank linkage programme.
During 2007-08, Bank has linked 1,48,288 groups and
provided financial assistance to the extent of Rs.1005.17
crore. All the groups financed are women groups. Rural
indebtedness has remained the most persistent constraint
for the development of rural economy in India too. With this
background, a new scheme “AB Mahila Soubhagya”, to
reduce the indebtedness of SHGs, was launched by
Hon’ble Union Finance Minister, Sri P. Chidambaram on
15.12.2007.
4.2.5 Lending to Micro, Small & Medium Enterprises
(MSME)
The Bank has a focused approach for MSME sector which
comprises micro enterprises and SME sector. While there is
15
no sub-target fixed for lending to small enterprises sector, as Sugar 495.18 1.43
per the policy package announced by the Government of India Educational Institutions 238.85 0.69
for stepping up credit to MSME sector, banks were advised Tobacco 195.42 0.57
to fix self-set target for growth in advances to MSME sector Cement and Cement Products 95.21 0.28
in order to achieve a minimum 20% year-on-year growth in Total 11419.94 33.05
credit to MSMEs with the objective to double the flow of credit 4.2.8 Retail lending
to the MSME sector within a period of 5 years i.e. from 2005-
Retail credit portfolio of the Bank increased from Rs. 6,622.56
06 to 2009-10. Following the spirit of government guidelines
crore as on 31.3.2007 to Rs. 7764.65 crore as on 31.3.2008,
for development of MSME sector, Bank is having continuous
registering an increase of 17.2%. Retail loans now form 22.5%
thrust on this sector. Consequently, credit to MSME sector
of gross bank credit. There was a healthy growth in the
was more than doubled within three years itself from Rs.1,915
housing loans and educational loans portfolio. Housing loans
crore as on 31.03.2005 to Rs. 3989 crore as on 31.03.2008,
to individuals increased by 12.6% to Rs. 1,995 crore from
registering a compound annual growth rate of 27.4%. In order
Rs.1,772 crore in the previous year. Similarly, educational
to encourage the women borrowers in MSME sector, Bank is
loans increased by 29.1% to Rs. 1,167 crore from Rs.905
extending a concession of 0.50% in the interest rate. The
crore. The Bank encourages loans to students, both for
Bank also provides finer rates to SMERA-rated borrowers.
studies in India and abroad. A concession of 0.50% in interest
15 specialised SME branches are functional to have special
rate is extended to the women borrowers under educational
focus on this sector.
loan scheme. Educational loans to women increased by
4.2.6 Table 8 sets forth the area-wise position of gross bank 39.5% to Rs. 249.06 crore (15797 borrowal accounts) as on
credit as on 31.03.2008: 31.03.2008 from Rs.178.56 crore (12170 borrowal accounts).
Table 8: Area-wise classification of gross bank credit 4.3 Investments
(Rs. in crore, except for percentages) The Bank is required to make investments as a statutory
Sl. No. Category of branches Amount % to total requirement as per norms of the RBI. Bank’s investment
1 Rural 4387.4 12.70 decisions are based on risk-return trade-off and the regulatory
(21.1%) and internal guidelines. Statutory prescriptions relating to cash
reserve ratio (CRR) and statutory liquidity ratio (SLR) are
2 Semi-Urban 5642.3 16.33 also maintained. Risk Management in treasury operations
(21.5%) has been strengthened further by undertaking the stress
3 Urban 7098.2 20.54 testing and back testing of the investment portfolio at quarterly
(15.1%) intervals besides daily monitoring of duration and value-at-
4 Metro 17428.7 50.43 risk (VaR). External rating migration of the bonds and
(26.3%) debentures portfolio is also being monitored on quarterly
basis. The capital charge has been computed for market risk
5 TOTAL 34556.6 100.00
for investment portfolio under available for sale (AFS) and
Note: Figures in ( ) indicate annual growth rate held for trading (HFT) (including the derivatives transactions
4.2.7 Industry-wise exposure of advances for trading purposes and the hedging positions whose
Bank’s major loan exposure is to sectors like textiles, power, underlyings are in AFS) for the year ended March 31, 2008
iron & steel, rice mills, construction & contractors, diamonds, as per RBI guidelines.
gems & jewelry etc. Exposure to top 10 industries constitutes As on 31st March, 2008, the Investments (net of depreciation)
only 33.05% of gross bank credit, signifying a diversified loan increased by 4.18% to Rs. 14898.2 crore from Rs.14,300.7
portfolio. No single industry has exposure of more than 6% crore as on 31.03.2007. Of the total investments, SLR
of gross bank credit as on 31.03.2008. investments were Rs.13156 crore, which was 25.82% of net
Table 9: Industry-wise exposure of advances demand and time liabilities (NDTL). Interest income from
investments increased from Rs.896.4 crore during 2006-07
(Rs. in crore, except percentages)
to Rs. 1048.2 crore in 2007-08, i.e. an annual increase of
Type of industry Fund-based exposure % to gross 16.9%. Profit on sale of investments increased to Rs. 119.18
as on 31.03.2008 bank credit crore during 2007-08 from Rs.53.71 crore during 2006-07,
Textiles 1827.85 5.29 registering an increase of 121.9%. A high growth in profit on
Power 1792.57 5.19 sale of investments was possible due to favourable market
Iron and Steel 1502.10 4.35 conditions and prudent portfolio management. Yield on
Rice Mills 917.22 2.65 investments increased to 8.27% during 2007-08 from 7.34%
Construction and Contractors 1270.38 3.68 in 2006-07. The classification of Bank’s investment portfolio
Diamonds, Gems and Jewellery 673.45 1.95 for the last two years is set forth in Table 10.
Drugs and Pharmaceuticals 881.08 2.55
Engineering (Heavy & Light) 810.50 2.34
Real Estate and Hotels 720.13 2.08

17
Table 10: Classification of investments
(Rs. in crore, except for percentages)
2006-07 2007-08 % change
1. Government Securities 11357.02 13086.90 15.2
2. Other Approved Securities 148.54 129.13 -13.1
3. Shares 216.29 207.75 -3.9
4. Debentures & Bonds 947.47 889.65 -6.1
5. Subsidiaries and/
or Joint Ventures 9.31 9.31 0 5. FINANCIAL INCLUSION
6. Others 1622.09 575.50 -64.5
TOTAL (1 to 6) 14300.72 14898.24 4.2
4.3.1. International treasury and Forex business
The Bank has a license as an ‘Authorised Dealer’, issued by
the RBI to deal in foreign exchange business through bank’s
47 designated branches. Accordingly, the Bank maintains
independent Nostro accounts with overseas correspondent
in its own name. The Bank also has rupee drawing
arrangements with 5 Exchange Houses and ‘Speed
Remittance’ facility has been introduced with one of the
exchange houses.
Systems have been put in place for management of country
risk, exchange risk and other foreign exchange risks. The
country risk exposures for single country risk limit and
aggregate risk limits for the group of countries under each
risk category are fixed and are being monitored on daily basis.
During the year 2007-08, the profit on foreign exchange
transactions has increased to Rs. 33.41 crore from Rs. 32.27
crore in the previous year. The Bank recorded a merchant
turnover of Rs. 25,077 crore during 2007-08 compared to
Rs.20,859 crore in the previous year, i.e. an increase of
20.2%. Inter-bank turnover increased by 15.45% to Rs.
1,44,674 crore during 2007-08 from Rs. 1,25,306 crore during
the previous year. Export finance of the Bank stood at Rs.1918
crore as on 31.3.2008.
4.4. Credit card business
The Bank is also engaged in ‘Credit Card Business’. The
Bank offers four types of cards, namely, VISA Classic, VISA
Gold, MasterCard and MasterCard Electronic. All these cards
are accepted in India and Nepal at merchant establishments
that display a VISA or MasterCard acceptance logo. The VISA
Gold Card is accepted worldwide. Several initiatives have
been taken during recent years for increasing the reach and
profitability of the credit card business, like launch of co-
branded cards. Credit card business turnover increased by
16.55% to Rs. 1,380 crore as on 31.03.2008 from Rs.1,184
crore in the previous year. Net profit earned by the credit
card business for the year 2007-08 stood at Rs. 27.6 crore,
which is 19.7% increase over the previous year’s profit.
4.5. Demat Services
Since 2005, Bank is offering depository Services to the public
under the brand name of “AB Demat”. The Bank is a
Depository Participant (DP) with Central Depository Services
(India) Limited (CDSL) as well as with National Securities
Depository Limited (NSDL). 26 branches of the Bank are
authorized to open demat accounts.
4.6. Merchant Banking Services
The Bank is registered with SEBI to act as the collecting/
paying banker for public/rights offerings, paying banker for
the payment of dividend warrants and as issuing and paying
agent for commercial papers. Bank acted as a “paying Banker”
for payment of Dividend Warrants for 7 companies during
the just concluded financial year. The Bank also continued to
act as Debenture Trustees during the period under review.
i. Financial inclusion is the delivery of banking services at an
affordable cost to the vast sections of disadvantaged and
low-income groups. The Bank has a ‘no-frills’ savings bank
account facility for the unbanked population, where minimum
balance requirement is only Rs.5. The Bank launched a
scheme for achieving 100 percent “Financial inclusion” by
providing a “no-frills” savings bank account in ’Srikakulam’
district of Andhra Pradesh and ‘Ganjam’ district in Orissa.
Both, Srikakulam and Ganjam districts have been declared
100% financially included by the State Level Bankers’
Committee (SLBC) of Andhra Pradesh and Orissa
respectively. So far, Bank’s branches have opened 1.94 lakh
‘no-frills’ accounts and outstanding deposits in such accounts
as on 31.03.2008 was Rs. 9.16 crore.
ii. In order to mitigate acute distress faced by the farmers
due to heavy burden of debt from non-institutional lenders
(moneylenders), Reserve Bank of India desired that banks
should provide relief to them. With this background a new
scheme “AB Kisan Rakshak” was launched by Hon’ble Union
Finance Minister, Sri. P. Chidambaram on 15.12.2007 for
farmers to help them come out of heavy interest burden on
loans taken by them.
iii. A Pilot project on ‘AB Smart Cards’ with use of Business
Correspondents & IT connectivity in consultation with Govt.
of Andhra Pradesh has been launched in July 2007. The Bank
is participating in a pilot project along with select banks for
payments to pensioners & wage earners through AB smart
cards. The scheme is proposed to be extended to 6 districts
in the State of Andhra Pradesh.
iv. Presently, the Bank is having interconnectivity of branches
including many rural branches. ATMs are also installed in
semi-urban and rural areas. Other measures taken up by the
Bank include launch of fingerprint-enabled biometric ATMs,
mobile ATMs and mobile biometric ATMs.
v. The Bank has started at Srikakulam (Andhra Pradesh) a
“Financial literacy-cum-credit counseling centre”. The centre
works with the following objectives:
• educate the weaker sections of the society about the
benefits of financial services
• making people aware of various schemes of the financial
institutions and to inculcate the habit of savings
• help the people in opening of savings bank accounts
• building awareness about the services rendered and
various products of the banks.
19
6. NEW PRODUCTS
a. The Bank introduced two schemes, namely, AB Kisan
Rakshak (Debt Swapping Scheme for Farmers) and AB
Mahila Soubhagya (Debt Swapping Scheme for SHGs) during
2007-08. These schemes were launched by Hon’ble Union
Finance Minister, Shri P. Chidambaram. Two schemes are
intended to reduce the indebtedness of the borrowers in
specific categories.
b. The Bank re-launched the ‘kiddy bank’ scheme with value
added features for young children, with an idea of inculcating
savings habit at an early stage instilling the value of money
in them. This account has facilities such as accidental
insurance coverage to the child and parent alongwith life
insurance cover for the parent in the specified age group.
7. MARKETING
The Bank has been constantly focusing on augmenting non-
interest income through diversification of income streams by
taking up marketing of life and non-life insurance products,
mutual fund products, collection of telephone bills, direct
taxes, municipal taxes, utility payments etc. The Bank has
21 Financial Service Centres (FSC), including 5 added during
2007-08, throughout the country to cater to the needs of clients
related to financial investments. FSCs function as a branch
within a branch.
7.1 Bancassurance
The Bank is selling insurance policies through a ‘Corporate
Agency’ arrangement with LIC for life cover and with United
India Insurance Company Ltd. for sale of non-life insurance
products. The Bank has achieved Number 1 position in terms
of number of policies mobilised amongst all agency banks
dealing with the LIC. The Bank has covered 1.65 lakh lives
under this arrangement. The commission earned by the Bank
through sale of life insurance polices amounted to Rs. 29.7
crore during 2007-08 compared to Rs. 14.9 crore in the
previous year. Similarly, commission earned on non-life
business stood at Rs. 16.1 crore during 2007-08 from Rs.
10.3 crore in the previous year.
7.2 Distribution of Mutual Fund products
The Bank is having tie ups with five Mutual Fund companies,
namely, UTI Mutual Fund, SBI Mutual Fund, Principal Mutual
Fund, Tata Mutual Fund and Sundaram Mutual Fund.
Commission income earned through this service stood at
Rs.1.91 crore in 2007-08, up from Rs.1.38 crore in the
previous year.
7.3 Cash Management Services (CMS)
AB Cash Track is the premier cash management system that
is being extended by the Bank to various corporate clients all
over India for collection of their receivables. The Bank has
143 clients as on 31.3.2008 and the business turnover under
AB Cash Track is Rs. 1155 Crore. Number of branches
covered by CMS facility across the country is 149.
8. IT INITIATIVES
• The Bank has decided to migrate to Core Banking System.
The Bank has signed, on 22 nd October 2007, an
agreement with Hewlett Packard (HP) India for
implementation of a comprehensive core banking solution
(CBS) at its branches. As per the contract, the pilot project
will be done in about 25 branches and within 24 months,
nearly 550 branches will be brought under CBS, covering
around 80% of the Bank’s business. Hyderguda became
the first branch where CBS was implemented on
31.03.2008.
• At present, “Cluster Banking” module is operational in
1195 Units including 1122 branches, 56 Extension
Counters and 17 Service Centres
• Branches linked to Instant Fund Transfer facility increased
from 1045 to 1162
• Number of ATMs increased from 505 as on 31.03.2007
to 656 as on 31.03.2008. The Bank also has three
biometric ATMs (including two with mobile facility) in the
twin cities of Hyderabad & Secunderabad as an initiative
towards financial inclusion and one Mobile ATM at
Kottayam, Kerala. 1161 branches / ECs as on 31.03.2008
are linked to ATM Switch
• Number of ATM/Debit Cards increased from 23.35 lakh
to 28.42 lakh
• Branches connected to RTGS for customer transactions
increased from 650 in the previous year to 736 as on
31.03.2008.
• All the controlling offices and 1366 branches are having
e-mail connectivity.
• ECS has been implemented in RBI-identified 9 Service
Centres.
• 1130 branches, 60 ECs, 17 Service Centres, 16 Zonal
Offices and Head Office are connected to the data centre.
• The Bank has installed 608 voice-over-internet protocol
(VoIP) telephones at administrative offices and branches.
This has helped in reducing the telecommunications
expenditure.
• The Bank has established a “Centralized Pension
Processing Centre” to handle all pension payment
processes.
9. NETWORK EXPANSION
During the year, Bank opened 79 branches (including
upgradation of 31 extension counters) and 151 ATMs. With
this, as at the end of 31st March 2008, Bank had 2128 delivery
channels consisting of 1366 branches, 68 extension counters,
38 satellite offices and 656 ATMs spread over 22 States and
2 Union territories. The Bank has 40 specialised branches,
catering to the needs of the specific segments of clientele.
The Bank also has one Representative (overseas) office at
Dubai (U.A.E), which was opened in May 2006.
9.1 The population group-wise classification of branches is
set forth in Table 11.
21
Table 11: Classification of branches
S.No. Category Number % to total
1 Rural 402 29.43
2 Semi-urban 399 29.21
3 Urban 366 26.79
4 Metro 199 14.57
TOTAL 1366 100.00
9.2 As on March 31, 2008, the Bank had 40 Specialised
Branches, as set forth in Table 12.
Table 12: Classification of specialised branches
Sl. Category of Specialized Branches Number of
No. branches
1 Specialized SME Branches
2 Specialized Agriculture Finance Branches
3 Specialized Agri-Hitech Branches
4 Specialized Housing Finance Branches
5 Personal Banking Branches
6 Corporate Finance Branches
7 Auto Tech Branch
8 Overseas Branch
9 Hitech Branch
10 Specialized Asset Recovery Management Branch
TOTAL
9.3 Presence in minority-dominated districts
The Bank has presence in 38 minority-dominated districts.
Number of branches in such districts increased from 154 as
on 31.03.2007 to 165 as on 31.03.2008, i.e. almost 12% of
Bank’s total branch network across the country. The Bank is
planning to open about 15 more branches in such districts
during 2008-09.
10. RISK MANAGEMENT
The Bank has put in place a comprehensive “Integrated Risk
Management Policy” for the management of credit risk, market
risk and operational risk as per the guidance notes/guidelines
of RBI. Accordingly, all the risk management functions, viz.,
credit Risk, asset-liability management (ALM), mid-office of
the domestic treasury and operational risk functions have
been integrated. The “Integrated Risk Management Policy”
of the Bank is being reviewed every year in tune with the
notifications given by the RBI.
10.1 Credit Risk
• The Bank has constituted ‘Credit Risk Management
Committee’ for analyzing all issues relating to credit
matters and for recommending to the Board.
• The Bank has a well defined ‘Loan Policy’ duly approved
by the Board. The Bank has formulated policies on
standards for presentation of credit proposals, financial
covenants, rating standards and benchmarks, delegation
of credit approving powers, prudential limits on large credit
exposures, asset concentrations, standards for loan
collateral, portfolio management, loan review mechanism,
risk concentrations, risk monitoring and evaluation, pricing
of loans, provisioning, regulatory/legal compliance, etc.
• The Bank has in place comprehensive risk rating system
for various categories of exposures.
• The Bank utilizes industry reports from CRISIL and the
industry risk score service from CRISINFAC
• The Bank undertakes portfolio studies on industries/
sectors where the exposures are substantial and the
findings of such studies are discussed at ‘Credit Risk
Management Committee’ and put up to Board for
information.
10.2 Market Risk
The Bank has in place a well-defined ‘Market Risk
Management Policy’ and organizational structure for market
15 risk management functions. The Bank manages market risk
3 through ‘asset-liability management’ (ALM) policy and
6 ‘investments/forex policy’.
6 A high level executive committee, namely, Asset-liability
4 Committee (ALCO) oversees the ALM in the Bank and
2 deliberates on liquidity and interest rate scenario in the market
1 and decides upon the pricing of various products. ALCO does
1 identification, measurement, monitoring and mitigation of
1 market risk in liquidity, interest rates, equity and currency
1 areas.
40 The ‘liquidity risk’ is measured and managed through ‘gap
analysis’ for maturity mismatches based on residual maturity.
For assets and liabilities, which are of non-maturity nature,
Bank is conducting behavioural studies and factoring the
observations in the gap analysis. The behavioural study
findings are subjected to back-testing and validated regularly.
Prudential limits are fixed for net gaps and also for cumulative
gap up to one year and these limits are measured and
monitored regularly. Liquidity profile of the Bank is also
measured regularly through various liquidity ratios and
monitoring of the same is done with the help of prudential
limits fixed thereon.
The ’interest rate risk’ is managed through ’gap analysis’ and
‘duration gap analysis’. Tolerance limits have been fixed for
impact on net interest income (NII) due to adverse changes
in interest rates. To measure the impact of interest rate
changes on Bank’s equity, duration gap analysis is done and
prudential limit is set for modified duration of equity. Modified
duration of equity is within the prudential limits set for this
purpose. VaR and duration analysis are used for measuring
market risk including treasury operations.
10.3 Operational Risk
Management of Operational Risk (OR) is a part of the
‘Integrated Risk Management Policy’ and the Bank has
focused attention for the management of OR in the light of
RBI’s guidelines. Bank has taken many initiatives in tune with
the notification of “Management of Operational Risk”.
‘Operational Risk Management Committee’ (ORMC) is
responsible for controlling/mitigating the ORs through
periodical reviews and directions. Operational Risks in the
areas of credit, people and technology are reviewed on
quarterly basis. Rating of the branches is being done under
Risk-Based Internal Audit (RBIA) and the ratings are reviewed
23
every quarter. The Bank has developed a system of capturing Under SARFAESI Act, during the financial year 2007-08, 588
historical data on operational losses. A separate sub-head in new notices were issued involving an amount of Rs. 196.47
the Profit & Loss Account named “Operational Losses” has crore. The Bank recovered an amount of Rs.90.3 crore under
been created and all the losses incurred under this category SARFAESI Act. As on March 31, 2008, a total of 494 secured
are being debited to this head. assets worth Rs. 145.96 crore (cumulative) were sold.
10.4 Basel – II Preparedness Through concerted efforts, the Bank could bring down the
RBI has issued final guidelines on ‘New Capital Adequacy level of Gross NPAs from Rs. 397.01 crore as on 31.03.2007
Framework’ during April 2007. As per the final guidelines, all to Rs. 372.43 crore as on 31.03.2008. Gross NPAs as
commercial banks in India shall follow the Standardised percentage to gross advances came down from 1.41%
Approach for credit risk, Standardised Duration Approach for (31.3.2007) to 1.07% (31.3.2008) and Net NPA as a
market risk and Basic Indicator Approach for operational risk. percentage to net advances stood at 0.15% as on 31.03.2008,
Foreign banks and the banks which are having operational down from 0.17% as on 31.03.2007. The provision coverage
presence outside India should migrate to above selected of NPAs as on March 31, 2008 was 85.39%. The Movement
approaches with effect from March 31, 2008. All other of NPAs is set forth in Table 13.
commercial banks are encouraged to migrate to these Table 13: Position of non-performing assets
approaches in alignment with them, but in any case not later
than March 31, 2009. The Bank is preparing to migrate to (Rs. in crore, except for percentages)
these approaches by 31.03.2009. An executive level 2006-07 2007-08
committee headed by the Executive Director of the Bank is Gross NPAs at the beginning of year 436.91 397.01
monitoring the progress in this regard. Additions during the year 243.66 201.52
Credit Risk: For moving to standardised approach for credit Reduction during the year 283.56 226.10
risk, Bank has been conducting a parallel run beginning Gross NPAs at the end the year 397.01 372.43
quarter ended June 2006. So far CRAR has been calculated Net NPAs 47.25 53.70
on a parallel basis for 8 quarters. The Bank is in a position to The segment-wise distribution of NPAs as on 31st March,
migrate to standardised approach for credit risk and is also 2008 is set forth in Table 14.
in the process of entering into memorandum of understanding
with the External Credit Assessment Institutions (ECAIs) for Table 14: Segment-wise non-performing assets
rating the corporate borrowers. The Bank has also developed (Rs. in crore, except for percentages)
a Credit Risk Rating Model (CRRM) with the consultancy Segment Amount % to Bank’s
assistance of National Institute of Bank Management (NIBM), Gross NPAs Total Advances
Pune. This model is capable of providing transition matrices
and default probabilities and would help the Bank in moving 1. Agriculture 12.74 0.04
to the Advanced Measurement Approach in future. 2. Small Enterprises 70.40 0.20
3. Other Priority Sector 53.43 0.15
Market Risk: The Bank is applying the standardised duration
Total Priority Sectors 136.57 0.39
method for computing capital requirement for market risks
4 Medium & Large Scale Industry 93.23 0.27
(investments in HFT and AFS categories) as per RBI’s
5. Other Non-priority Sectors 142.63 0.41
guidelines.
Total Non-priority sectors 235.86 0.68
Operational Risk: While the Bank is required to provide Grand Total 372.43 1.07
capital for operational risk under the Basic Indicator Approach
(BIA) with effect from 31.03.2009, the Bank is in a position to Provisions held under different classes of NPAs are set forth
adopt the BIA and is working towards requirements under in Table 15.
the Advanced Measurement Approach. For this, process of Table 15: Provisions held for non-performing assets
segregating the gross income into eight business lines to (Rs. in crore)
arrive at capital charge is under progress.
Nature of Asset Amount Provision Held
11. ASSET QUALITY MANAGEMENT
Sub-standard Assets 186.25 131.85
The Bank has been consistently maintaining a healthy asset Doubtful Assets 184.59 184.59
quality. Gross and net Non Performing Assets (NPAs) of the Loss Assets 1.59 1.59
Bank are at lower levels when compared to industry Total 372.43 318.03
standards. For better management of impaired assets, Bank
has been taking measures like monitoring of borrowal 12. LENDING PRACTICES
accounts under the mechanism of ‘Early Alert System’ (EAS) The Bank has a Board approved ‘Loan Policy’ in place and
and ‘Special Mention Accounts’ (SMA), restructuring of viable guidelines contained therein are invariably followed. There
NPAs and impaired asset accounts under CDR (Corporate is a credit approval department which deals with sanctions
Debt Restructuring) scheme, focused attention on and there is also a Credit Monitoring department as well to
upgradation of assets, recovery through persuasion and legal monitor the post-sanction status of accounts. As a prudent
remedies, recovery through compromise route in accordance measure aimed at better risk management and avoidance of
with the corporate compromise policy etc. concentration of credit risk, the Bank has a prescribed credit

25
exposure limits for lending to individual borrowers and to all
companies in a single group. Bank also has internal limits of
exposure to specific sectors and regularly reviews party-wise
exposure and industry-wise credit exposure.
13. INSPECTION AND AUDIT
At Head-office level, Bank has centralised inspection system,
which is responsible for internal audit/inspection of operational
and non-operational areas. It includes inspection of all
branches of Bank and also of all its departments. Bank has
an audit plan duly approved by the Board and all the
inspections and audits are carried out as per the same. The
audit functions of the Bank come under the scrutiny of the
Audit Committee of the Board.
The frequency of inspection is according to the ‘Inspection
Manual’ of Bank and Concurrent Audit, i.e. audit of select
branches and operational departments on daily basis, forms
part of Bank’s internal inspection system. The inspection and
monitoring system is treated as an important feed-back and
control mechanism for the management. The Inspection
system continues to remain dynamic to the ever-changing
needs of the organisation and in meeting corporate goals. In
compliance with Reserve Bank of India guidelines, Bank has
introduced Risk Based Internal Audit (RBIA) in the
organisation.
Other than the Concurrent Audit, inspection of all branches
of Bank, Controlling Offices and Head Office is done at annual
frequency. A system of Concurrent Audit (done on daily basis)
at large and other select branches is in vogue in most banks
for quite long. Concurrent Audit of branch is conducted,
wherein the transactions of the branch is verified on a day-
to-day basis in all respects. A day’s transaction of the branch
is examined fully on the next day. Besides branches, other
important functional areas of the Bank like Investments and
International Banking and Credit Card departments are
subject to concurrent audit. The auditor reports his findings
once in a month to the controlling office of the Bank.
The total number of Bank’s branches as on 31.03.2007 was
1289, of which 1267 branches were due for inspection during
2007-08. Besides various internal inspections at 1267
branches, bank entrusted Concurrent audit to professional
audit firms at 209 branches covering more than 60% of bank’s
total business.
The annual inspection covers all aspects of branch functioning
such as business development, credit management and
house-keeping etc. Based on the risk level, branches are
rated as low/moderate/fair/high risk under Risk Based Internal
Audit (RBIA) system. The rating awarded to the branch under
RBIA is integrated with the overall rating of the branch for
arriving at a composite rating as very good/good/satisfactory/
unsatisfactory.
14. COMPLIANCE POLICY
The Bank has a policy on “Compliance & Compliance
Functions” and timely reports are reviewed by the board. An
executive of the Bank in the rank of General Manager has
been appointed as the “Compliance Officer”. As per the policy,
all the regulatory, statutory and internal compliances are being
monitored.
15. DISCLOSURE POLICY
The Bank has a Disclosure Policy as per the disclosure
requirements contained in the guidance note on the
implementation of the new capital adequacy framework. The
guidelines therein are strictly adhered to and compliance is
reported to the competent authorities.
16. ADHERENCE TO ‘RIGHT TO INFORMATION ACT’
The Bank is in compliance with the directives and principles
of the Right to Information Act. Accordingly, all ‘General
Managers’ are designated as ‘Public Information Officers’.
The Bank is committed to provide information to the public
on information sought by them.
During the year 2007-08, Bank received 182 requests for
information under the RTI Act. All the requests were suitably
responded to within the stipulated time frame.
17. CUSTOMER SERVICE
Bank operates on the principle of ‘care and concern’ towards
all its customers. The Bank has constituted a customer service
Committee as well as a mechanism for redressal of customer
grievances. A Citizen Charter is in place and new initiatives
are being taken to ensure a higher degree of customer
satisfaction. As a part of enhancing information to customers,
Bank prints and distributes booklets and brochures on unique
features of ATM, Clean Note Policy, Deposit Schemes,
Personal Banking Schemes and facilities available to NRIs.
During 2007-08, as per RBI guidelines, Bank conducted
special coin distribution programme and distributed coins
worth Rs. 5 crore across the country through special outlets,
besides conducting training programmes to traders and public
for identification of counterfeit notes. The Bank has also
conducted Clearance fortnight twice during 2007-08. There
is a well-defined policy in place for addressing the complaints
of the customers and their timely disposal. The position of
“Customer Complaints” and “Awards passed by the Banking
Ombudsman” is as under:
A. Customer Complaints
a) No. of complaints pending at the beginning of the year
(as on 01-04-07) 261
b) No. of complaints received during the year 12,649*
c) No. of complaints redressed during the year 11,595
d) No. of complaints pending at the end of the year 1315
* Complaints received during the year includes 11,696 ATM related
complaints, 156 Credit Card related complaints and 797 complaints of
general nature.
B. Awards passed by the Banking Ombudsman
a) No. of unimplemented Awards at the beginning of the year NIL
b) No. of Awards passed by the Banking Ombudsman
during the year NIL
c) No. of Awards implemented during the year NIL
d) No. of unimplemented Awards at the end of the year NIL
17.1 Member of BCSBI: The Bank became a member of
Banking Code & Standards Board of India (BCSBI) in June
2006. “Code of Commitment to Customers” has been printed
27
in Hindi, Telugu and English and is made available at all
branches for use of the customers. It is also available on
Bank’s website. As a part of compliance to BCSBI guidelines,
a profile of deposit schemes of the Bank (for resident
individuals) has been designed and is provided to customers.
18. HUMAN RESOURCES MANAGEMENT
During the year 2007-08, a ‘Manpower Planning Policy’ for
the Bank was formulated covering succession planning,
recruitments as well as training requirements. The Bank
recruited 611 officers (including 163 specialists officers) in
various grades and 123 clerks and 117 sub-staff during 2007-
08. The Bank has also introduced performance-linked
incentive schemes for branch managers and zonal managers.
A new fast-track promotion policy was also introduced for
young deserving officers.
18.1 Training
The Bank continued to lay emphasis on training and
development of its human resources through in-house training
and external training. The in-house training mainly takes care
of the induction of new recruits and other officers in
reinforcement of skill and knowledge in traditional banking
operations as well as in the application of information
technology in banking. Separate sessions were conducted
exclusively for newly posted managers and credit officers
with due emphasis on functions like credit approval, sanction
and monitoring. The training programmes were restructured
catering to the present day requirements in areas of retail
banking, SME etc. Number of employees trained in-house
and at outside institutions (including foreign institutions) during
the year 2007-08 was 7196, higher than 6232 trained during
2006-07. The Bank has embarked on giving training in the
areas of leadership development, motivation, negotiating skills
to middle-level and senior-level officers both in-house and at
reputed institutions. Senior and top executives were also
nominated to various programmes in India and abroad.
Suitable training programmes were also arranged during the
year for the Directors of the Bank at external institutions.
18.2 SC/ST Profile
The Bank has been implementing the reservation policy for
SCs & STs as per guidelines of the Government of India. The
representation of SCs & STs in the Bank’s workforce is 2636
and 788 respectively, forming 18.5% and 5.5% of the total
workforce as on 31.03.2008. Officers’ strength in the Bank
as at end-March 2008 is 8437, of which 1343 officers belong
to SC category and 497 belong to ST category. Meetings
with the representatives of the SC & ST Employees’ Welfare
Association are held regularly for discussion on the matters
related to the reservation policy and other constitutional
safeguards.
18.3 Physically challenged persons
The Bank is following the Govt. of India guidelines with respect
to reservation policy for physically challenged persons. As
on 31.03.2008, Bank has 233 staff under this category.
18.4 Human Resource Management System and
Employee Payroll System
Bank has completed the process of putting in place a Human
Resources Management System (HRMS). The HRMS will
bring greater efficiency and convenience in HR operations
and would ensure better delivery of HR services. The HRMS
package will not only improve the efficiency in transactions
for managing personnel in the Bank but also aims to serve
Management Information System (MIS) which is a tool for
talent management.
18.5 Industrial Relations
The industrial relation in the Bank has been cordial and
harmonious. The joint consultative machinery is active and
quarterly meetings are being held with the representatives of
the recognized officers’ federation and the award employees
union. Regular meetings are also conducted with the
representatives of the SC/ST and OBC employees’ welfare
associations. As a result, during the year 2007-08, many of
the HR Policies of the Bank were reviewed and improvements
were made on par with the peer banks’ policies. Number of
welfare measures and enhancement in ceilings/limits in
rentals and lodging expenses were considered for the benefit
of the employees. Apart from the Central Joint Consultative
Mechanism, meetings were also held at zonal level to sort
out the local issues and improvements were made in the areas
of customer service and work related matters.
18.6 Sports and games
Bank is encouraging sports in order to facilitate promotion of
sports and games to achieve excellence. During the year
2007-08, Bank won several trophies and medals in various
sports events at State & National level. Bank is also having a
music team.
19. OFFICIAL LANGUAGE IMPLEMENTATION
As per the directives of Govt. of India, the Bank formulates
action-plan for implementation of Hindi. The Bank regularly
conducts Hindi workshops and general banking training
programmes through Hindi medium and also imparts desk
training to staff members. The Bank has achieved region-
wise targets under various parameters of Official Language
implementation. In order to popularise various schemes and
products of the Bank, brochures, pamphlets and banners are
printed in Hindi and regional languages. The Bank also
publishes a quarterly magazine in Hindi, namely ‘Rajbhasha
Sarita’ and a half-yearly Hindi magazine, ‘Bharati’ on behalf
of ‘Town Official Language Implementation Committee –
Banks (TOLIC)’.
During the year, Bank complied with the guidelines related to
Official Language. The Bank was awarded by the RBI for
implementation of Official Language in ‘Region C’. The Bank
also received First Prize for its Hindi in-house magazine,
‘Rajbhasha Sarita’. The Bank is the convenor of TOLIC,
Hyderabad and was awarded First Prize by the Ministry of
Home Affairs, Dept. of Official Language for TOLIC activities.
The Bank has taken corporate license for ‘Akruti Multilingual
Word Processing Software’ and training is imparted to staff
on an ongoing basis. ATM screens have interface in Hindi,
Telugu and Tamil along with English. Website of the Bank is
also available in Hindi. In core banking solution, too, facility
for use of Hindi has been provided. During the year,
29
Parliamentary Sub-Committees on Official Language visited
three of Bank’s offices and found the performance satisfactory.
20. VIGILANCE
The Bank recognizes vigilance as an integral management
function. Preventive, detective and punitive vigilance are
accorded importance. Greater emphasis has been laid down
for implementation of preventive vigilance at all levels. A
session on preventive vigilance is invariably included in all
in-house training programmes. As part of the ‘Vigilance
Awareness’ week, customer awareness meets were
conducted at the Head Office and various Zonal Offices of
the Bank.
In tune with the guidelines of the Central Vigilance
Commission, a committee of General Managers has been
constituted to scrutinize and determine existence of vigilance
related functions. All cases of frauds of Rs.1 lakh and above
are monitored individually by the Audit Committee of the
Board. Large value frauds are also being closely monitored.
The Bank has also constituted a Board-level special
Committee to review large value frauds involving Rs.100 lakh
and above
21. SECURITY ARRANGEMENTS
Due to constant security enforcement efforts and awareness
amongst the staff at branches, ATMs, ECs, currency chests
etc. crime rate against the Bank has decreased with no loss
reported during the year 2007-08.
22. ANDHRA BANK RURAL DEVELOPMENT TRUST
The Andhra Bank Rural Development Trust (ABRDT) is
another initiative of the Bank, started in the year 1989. There
are 9 ‘Institutes of Rural Development’ under ABRDT, spread
across the States of Andhra Pradesh, Orissa and Kerala. The
objective is to address some major issues confronting the
rural population such as low productivity in agriculture and
animal husbandry, unemployment of educated youth, lack of
infrastructure/technical skills, lack of entrepreneurial qualities
and market knowledge etc
The objective of providing training to youth in rural and semi-
urban areas is to enable them to take up self employment
ventures, to conduct various vocational and human resource
development training programmes, to provide consultancy
services, etc. This would enable them to settle down in their
villages with gainful employment instead of migrating to urban
areas. So far, training has been imparted to 71,666
participants in self-employment ventures and in capacity
building.
23. LEAD BANK RESPONSIBILITY
Bank is having Lead Bank responsibilities in six districts, viz.,
Guntur, West Godavari, East Godavari and Srikakulam
districts in the State of Andhra Pradesh and Ganjam and
Gajapathi districts in the State of Orissa. In all the six districts,
‘District Credit Plans’ for the year 2008-09, were launched
before 31st March, 2008.
24. STATE LEVEL BANKERS’ COMMITTEE (SLBC)
The Bank is the Convenor of the State Level Bankers’
Committee (SLBC) in the State of Andhra Pradesh since 1984.
In the year 2007-08, a total of 35 meetings were organised
(as against the prescribed level of 12 meetings in a year).
There is continuous, regular and timely follow-up and review
of progress in the implementation of government sponsored
schemes. Besides central sponsored schemes like Prime
Minister Rozgar Yojana (PMRY), Swarna Jayanthi Gram
Swarozgar Yojana (SGSY), Swarna Jayanthi Shahari Rozgar
Yojana (SJSRY), etc. many State-specific schemes are being
implemented under the aegis of SLBC. The progress made
in regard to the flow of credit to the minority communities is
also reviewed regularly at the meetings of the SLBC.
25. SUBSIDIARIES AND REGIONAL RURAL BANKS (RRBs)
The Bank has one subsidiary, namely, Andhra Bank Financial
Services Limited (ABFSL), which is wholly-owned by the
Bank. During the year 2007-08, ABFSL did not conduct any
business.
Bank has sponsored two RRBs, namely, Chaitanya Godavari
Grameena Bank located in Guntur (Andhra Pradesh),
covering the districts of Guntur and East Godavari & West
Godavari and Rishikulya Gramya Bank in Ganjam district of
Orissa. The combined business of the two RRBs as on
31.03.2008 stood at Rs.1720 crore with a total branch network
of 166. Both the RRBs are profit making with an aggregate
profit of Rs. 13.11 crore for 2007-08.
26. PARLIAMENTARY COMMITTEES
Three Parliamentary Standing Committees and three
Parliamentary Sub-committees visited various offices of the
Bank during the year 2007-08. Standing committee on
‘personnel, public grievance, law & justice’ visited during
January 2008 to discuss the implementation of RTI Act and
reservation policy in appointments and promotions. The
‘Standing Committee on Industry’ visited during February 2008
with the purpose of studying the SME sector. During February
itself, ‘Standing Committee on urban development’ also
visited. Parliamentary sub-committee on official language
visited thrice during the year at three different places to study
the performance and implementation of the Official Language.
27. NEW INITIATIVES
27.1. Life Insurance Joint Venture
During the year, the Bank alongwith Bank of Baroda and Legal
& General Group Plc of UK has decided to form a joint venture
Life Insurance Company. The shareholders’ agreement has
already been signed and necessary formalities are being
completed for setting up of the company and seeking approval
from the relevant authorities. The Bank will have shareholding
of 30% in the proposed company while Bank of Baroda will
hold 44% and 26% will be held by Legal and General
Group Plc.
27.2. Representative Office at New Jersey
The Bank’s first Representative Office at Dubai was opened
in May 2006. The Bank is set to open its second
Representative (overseas) Office after successful experience
of Dubai (UAE) Representative Office. The second office will
be located in Jersey City in the State of New Jersey in USA.
The State of New Jersey has granted their approval and
31
license of authority for this office in January, 2008 and once
the approval of the Federal Reserve Bank of New York is
obtained, Representative Office in Jersey City will become
operational.
28. BRANDING AND COMMUNICATIONS
28.1 The Bank has been continuously and actively engaged
in building up and enhancing its corporate brand image. The
Bank co-sponsored the Brand Summit held by the
Confederation of Indian Industry in Hyderabad. As a part of
the Financial Inclusion Programme, Bank inaugurated its first
Bio-Exhibition Stall at all-India Industrial Exhibition at
Hyderabad and received wide appreciation from the public.
28.2 Further, as part of image building exercise, the Bank
also carried out publicity activities by exploring the print and
electronic media and out-door advertising through new wave
publicity channels like branding through hoardings, passenger
trolleys at airports, bus shelters, websites, posters at
supermarket chains, railway tickets, scrollers etc. Wide range
of advertising through TV Channels has been taken up
through sponsoring popular programmes.
28.3 Greater interaction with the representatives of the print
and electronic media and investors has always been focused
upon as they constitute a powerful medium of external
communication. Press meets are organised regularly where
Bank’s top management led by the Chairman and Managing
Director discusses the quarterly results of the Bank. Investors’
meet were also organised in USA, UK and Hong Kong where
Bank’s international investors interacted with the Chairman
& Managing Director and the Executive Director and shared
the vision and mission of the Bank. Such meets have helped
in building a strong brand name for the Bank even outside
India.
29. BANK’S WEBSITE
The Bank’s website (www.andhrabank.in) has valuable
information for the customers, investors and other
stakeholders. There is continuous updation of the information
on the website. Details on branch network, deposit products,
loan products, service charges, citizen charter, Right to
Information Act and other important policies are available on
the Bank’s website and can be accessed in a user-friendly
way. The website is available in Hindi, English and Telugu
and is serving as a storehouse of information and also as a
tool of transparency.
30. AWARDS AND RECOGNITIONS
The Bank was ranked 532nd for the year ended 31.03.2007
amongst the Top 1000 Banks in the world by “The Banker”, a
London-based Financial Times’ publication. This ranking is
based on strength of ‘Tier I Capital’ as defined by Basel’s
Bank of International Settlements (BIS). Recently released
‘India’s Best Banks 2007’ survey of ‘Financial Express-Ernst
& Young’ ranked the Bank 5th amongst public sector banks
and was ranked 8th under the ‘Credit Quality’ parameter
amongst 56 public, private and foreign banks. The Bank was
ranked First under “LIC of India- Bancassurance business”
in the country amongst all Agency Banks of LIC on the basis
of number of Life Insurance Policies mobilised. The Bank
was also awarded ‘Indira Gandhi Rajbhasha Puraskar’ for
the overall performance in implementation of the Official
Language. These recognitions are testimony to the sound
performance of the Bank.
31. CORPORATE SOCIAL RESPONSIBILITY
Being an integral part of society, Bank is aware of its corporate
social responsibilities and has engaged in community and
social investments. During the year, Bank has taken many
initiatives with the objective of providing philanthropic
assistance for development, education etc. Under the aegis
of Andhra Bank Rural Development Trust, Bank is imparting
training to youth in rural and semi-urban areas so that the
poor people can take up self-employment ventures. This also
conducts various vocational and human resource
development training programmes. So far, training has been
imparted to 71,666 participants in self-employment ventures
and in capacity building.
The Bank has taken initiatives towards implementing ‘financial
inclusion’ in some of the districts for bringing more and more
people of the marginalized and the downtrodden sections
into banking system. The Bank has already implemented
100% financial inclusion in the districts of Srikakulam (Andhra
Pradesh) and Ganjam (Orissa). During the year 2007-08,
Bank has adopted the Gundugolanu village in the district of
West Godavari in Andhra Pradesh for improving health,
sanitation, education and social service facilities in the village,
with a comprehensive budget of Rs.5.50 crore.
In a move towards encouraging higher studies, Bank is setting
up ‘Andhra Bank School of Business’ in the campus of Andhra
University, Visakhapatnam (Andhra Pradesh). The Bank along
with Government of Andhra Pradesh, NABARD and other
select banks sponsored the “Andhra Pradesh Banker’s
Institute of Rural & Entrepreneurship Development
(APBIRED)”, which will offer training to unemployed youth
for improving their skills. This is located at Hyderabad. The
Bank is also making donations to charitable trusts and other
institutions engaged in the upliftment of the society. During
2007-08, an amount of Rs.2.14 crore was donated to 9 such
trusts/institutions.
32. OUTLOOK
The Bank looks forward to strengthening its network and
customer base while also focusing on further enhancement
in the customer service through innovative products and
services. True to its vision, Bank will continue leveraging
technology for an all-round performance, in order to meet
the expectations of millions of its stakeholders. It will be in
lookout for the opportunities that come its way and will
translate them into realities. The Bank is also aware of the
challenges from its competitors, markets and the challenge
of maintaining the highest standards of service and would
continue to take appropriate steps from time to time for
meeting such challenges.
33. CHANGES IN THE BOARD
1. Sri Madhusudan Prasad was appointed as the Govt. of
India nominee Director with effect from 20.08.2007, in
place of Sri G.B.Singh
33
2. Sri Ramchandra Kuntia, Part-time Non-official Director,
resigned from the Board, which was accepted on
14.03.2008
34. DIRECTORS’ RESPONSIBILITY STATEMENT
The Board of Directors hereby states that:
a. The applicable accounting standards have been followed
in the preparation of the annual accounts and proper
explanations have been furnished, relating to material
departures.
b. Accounting policies have been selected, and applied
consistently and reasonably, and prudent judgments and
estimates have been made so as to give a true and fair
view of the state of affairs of the Bank and of the Profit &
Loss of the Bank for the financial year ended 31 March
2008.
c. Proper and sufficient care has been taken for the
maintenance of adequate accounting records, in
accordance with the provisions of the Companies
(Amendment) Act, 2000, for safeguarding the assets of
the Bank and for preventing and detecting fraud and other
irregularities.
d. The annual accounts have been prepared on a going
concern basis.
35. ACKNOWLEDGEMENT
Andhra Bank is grateful to the Government of India, RBI,
SEBI and other authorities/agencies, financial institutions and
correspondent banks for their valuable support and guidance.
The Directors also express their deep sense of appreciation
to all the staff members of the Bank for their dedicated service,
outstanding professionalism and commitment towards Bank’s
vision for a sustainable growth. Finally, the Directors wish to
sincerely thank all the customers, shareholders and other
stakeholders for their valuable support.
For and on behalf of the Board,
Place: Hyderabad (Dr. K. Ramakrishnan)
Date: April 25, 2008 Chairman & Managing Director
35
CORPORATE GOVERNANCE REPORT
1. CORPORATE GOVERNANCE - PHILOSOPHY
The Philosophy of Andhra Bank is to continue to remain dynamic to the ever changing needs of the customers. The
Bank believes that proper Corporate Governance facilitates effective management and control of business. This, in
turn, enables the Bank to maintain a level of business ethics and to optimize the value for all its stakeholders. The
principles of Corporate Governance require the commitment of the Bank to attain high level of transparency,
accountability, responsibility and financial stability with the ultimate objective of building up values to the stakeholders.
The objectives can be summed up as under:
n to enhance shareholders value;
n to protect interest of shareholders and other stakeholders including customers, employees and society at large;
n to ensure transparency and integration in communication and to make available full, accurate and clear information
to all concerned.
2. BOARD OF DIRECTORS
2.1 Andhra Bank has been constituted as corresponding new Bank under the Banking Companies (Acquisition & Transfer
of Undertakings) Act 1980.
2.2 The Board is constituted in accordance with the Banking Companies (Acquisition & Transfer of Undertakings) Act
1980 and Nationalised Banks (Management and Miscellaneous Provisions) Scheme 1980.
2.3 The Board is headed by the Chairman & Managing Director who is appointed by the Central Government in consultation
with the Reserve Bank of India. The Chairman & Managing Director is appointed in exercise of the powers conferred
by Clause (a) of sub section (3) of Section 9 of the Banking Companies (Acquisition & Transfer of Undertakings) Act,
1970/1980 read with sub-clause (1) of clause 3, clause 5, clause 6, clause 7 and sub-clause (1) of clause 8 of
Nationalized Banks (Management and Miscellaneous Provisions) Scheme 1970/1980.
2.4 A whole time director (Executive Director) of the Bank appointed by the Central Government in consultation with
Reserve Bank of India is also a member of the Board. The Executive Director of the Bank is appointed in exercise of
the powers conferred by Clause (a) of sub-section (3) of Section 9 of the Banking Companies (Acquisition & Transfer
of Undertakings) Act, 1970/1980 read with sub-clause (1) of clause 3 and sub-clause (1) of clause 8 of the Nationalized
Banks (Management and Miscellaneous Provisions) Scheme, 1970/1980.
2.5 As on 31st March, 2008 there were 9 other directors (non executive) out of which 6 were independent directors as the
members of the Board represented by persons with diversified professional experience.
2.6 The Board has constituted various committees as under, which provides specific and focused governance in the
important functional areas and control the affairs of the Bank:
n Management Committee
n Audit Committee
n Shareholders’ and Investors’ Grievances Committee
n Special Committee for monitoring large value of frauds
n Departmental Promotion Committee
n Risk Management Committee
n Customer Service Committee
n Share Transfer Committee
n Remuneration Committee
n Nomination Committee of Board
2.7 The details of the committees of the Board are provided in the following pages.
2.8 The Board and its Committees meet at frequent intervals and guide the Bank to achieve its objectives in a prudent and
efficient manner to ensure high standards of customer services, ethical practices and professional Management of
the Bank.
2.9 The responsibilities such as policy formulations, performance review and analysis are discharged by the Board. The
Board has delegated various powers to the Executives, and Committees of Executives of the Bank in tune with the
policies laid down by the Bank. The delegated powers are periodically reviewed by the Board and necessary revision
is made for effective functioning of the Bank.

37
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2008

(Á. 000 ¼ßëÝ Rs in ‘000s)

àËßËßÀ¢ß Particulars 31.03.2008 ‰~íë 31.03.2007 ‰~íë

Year Ended 31.03.2008 Year Ended 31.03.2007

²ßäÐßæ½ßã SCHEDULE - 15 :: Ë¾ß¾ß à‰~¾ßß ß¾ßß ¹¾ßßÌß INTEREST EXPENDED

I. Ìß¼ßßÀßàÍß¾ßíëÝ µßÀ ¹¾ßßÌß INTEREST ON DEPOSITS 2777,82,64 1810,78,06
II. ºßßÀ£ßã¾ß àÀÌßËßà ¹ßì݉~ / Þ£ßÀ ¹ßì݉~ ƒ±ßßÀíëÝ µßÀ ¹¾ßßÌß
INTEREST ON RESERVE BANK OF INDIA/INTER-BANK BORROWINGS 42,03,48 40,21,18
III. ²¾ß OTHERS 50,13,47 46,79,37

‰ä~Éß TOTAL 2869,99,59 1897,78,61

²ßäÐßæ½ßã SCHEDULE - 16 :: µßàÀ½ßßÉß²ß Ë¾ß¾ß OPERATING EXPENSES

I. ‰~¼ßýßßàÀ¾ßíëÝ ‰~íë ºßäß£ßß²ß ßìÀ ƒ²ß‰ë~ àÉ߈ µßÆßËß±ßß²ß
PAYMENTS AND PROVISIONS FOR EMPLOYEES 509,38,98 548,80,25
II. à‰~Àß¾ßß, ‰~À ßìÀ ÀíëÍß²ßã RENT, TAXES AND LIGHTING 112,51,21 93,74,39
III. ¼ßä§Æ¢ß ßìÀ ÉßëÛß²ß Ðß߼ߐßÆã PRINTING AND STATIONERY 14,40,37 12,65,83
IV. àËßÒßßµß²ß ßìÀ µßƽßßÀ ADVERTISEMENT AND PUBLICITY 9,89,18 12,39,52
V. ¹ßì݉~ ‰~ã ÐßÞµßà££ß µßÀ ¼ßæɾßÑÅßÐß DEPRECIATION ON BANK’S PROPERTY 61,32,93 55,72,80
VI. à²ß§ëÍ߉~ßëÝ ‰~ã ¶~ãÐß, ºß££ßë ßìÀ ˾߾ß
DIRECTORS’ FEES, ALLOWANCES AND EXPENSES 53,87 59,50
VII. ÉßëÛßß µßÀãß‰~íëÝ ‰~ã ¶~ãÐß ßìÀ Ë¾ß¾ß (ÍßßÛßß ÉßëÛßß µßÀãß‰~ ÐßàÑ£ß)
AUDITORS’ FEES AND EXPENSES (Including Branch Auditors) 13,13,19 10,10,97
VIII àËßà±ß µßƺßßÀ LAW CHARGES 2,57,91 1,51,27
IX. Ê߉~ ˾߾ß, £ßßÀ ßìÀ ÖëÉßã¶~íë²ß ßà§
POSTAGE, TELEGRAMS, TELEPHONES ETC. 18,68,07 14,18,73
X. ¼ßÀ¼¼ß£ß ßìÀ ²ßäÀß¢ß REPAIRS AND MAINTENANCE 34,15,94 32,60,03
XI. ¹ßã¼ßß INSURANCE 49,70,17 37,71,50
XII. ²¾ß Ë¾ß¾ß OTHER EXPENDITURE 117,95,65 113,13,84

‰ä~Éß TOTAL 944,27,47 933,18,63

81
SCHEDULE –17 SIGNIFICANT ACCOUNTING POLICIES
1. GENERAL:
a) The financial statements are prepared on histori-
cal cost convention and accrual basis, unless oth-
erwise stated, by following going concern concept
and conform to the statutory provisions, account-
ing standards/guidance notes issued by Institute
of Chartered Accountants of India and practices
prevailing in the banking industry in India.
b) Interest on overdue deposits is accounted on
renewal.
c) In the case of suit filed accounts, legal expenses
are charged to profit and loss account. At the time
of recovery of legal expenses in respect of suit filed
accounts, the amount recovered is accounted as
income.
2. REVENUE RECOGNITION:
a. Interest on non-performing advances and
investments is recognised as per the norms laid
down by Reserve Bank of India.
b. Income arising from commission on the issuance
of letter of guarantee and letter of credit is
recognised at the issuance of such documents in
view of the performance of service having been
achieved on such date.
c. Interest on overdue bills, other commission,
exchange, brokerage and rent on lockers are
accounted on realization.
3. FOREIGN EXCHANGE TRANSACTIONS:
a. Income and Expenditure items are recorded at the
exchange rates prevailing on the date of
transaction.
b. Monetary items are recorded at weekly average
rate. Such monetary items are reported at closing
rates as at balance sheet date. Exchange
differences arising on the reporting of such
monetary items at rates prevailing at the year end
or on the settlement of monetary items at rates
different from those at which they were initially
recorded, are recognized as income or expenses,
as the case may be.
c. On entering into a forward exchange contract, to
establish the amount of the reporting currency
required at the time of settlement of transaction,
the premium or discount arising on the inception
of such contract is amortized as income or
expenses over the life of the contract. Such forward
contracts are revalued on the basis of prevailing
exchange rate at the end of each month and profit
or loss on such revaluation is recognised as income
or expenses as the case may be. Any profit and
loss arising on cancellation of a forward exchange
contract is recognized as income or expense as
the case may be.
d. Foreign letters of credit and letters of guarantee are
recorded at the rates prevailing on the date of entering
into such commitment. Outstanding items are re-stated
at the rate prevailing at the balance sheet date.
e. Derivative contracts undertaken on back-to-back basis
are recorded at the rate prevailing on the date of the
contract and are reported at the closing rates at the
balance sheet date. The revenue in respect of these
transactions is recognised on expiry of the contract or
for the proportionate period on early termination of the
contract.
f. The exchange rates used for this purpose are those
notified by FEDAI.
4. INVESTMENTS:
A) The Investment portfolio of the Bank is classified
into the following three categories:
i) Held to Maturity (HTM)
ii) Available for Sale (AFS)
iii) Held for Trading (HFT)
“Held to Maturity” category comprises of securities acquired
with the intention to hold them up to maturity. “Held for Trading”
category comprises securities acquired with the intention of
trading. “Available for Sale” securities are those which are
not classified in either of the above two categories.
B. Investments are grouped and shown in Balance
Sheet under the following six heads:
i) Government Securities
ii) Other Approved Securities
iii) Shares
iv) Debentures and Bonds
v) Subsidiaries and Joint Ventures
vi) Others
C. Valuation:
The securities in each classification are valued in
accordance with Reserve Bank of India guidelines on
the following basis:-
i) Held to Maturity:
a. Investments classified under this category are
stated at acquisition cost net of amortisation. The
excess of acquisition cost over the face value, if
any, is amortised over the remaining period of
maturity.
b. Any diminution, other than temporary in nature, in
the value of investments is determined and
provided for, each investment individually.
ii) Available for Sale:
a. Investments classified under this category are marked
to market on quarterly basis and valued as per Reserve
83
Bank of India guidelines at the market rates available on the
Balance Sheet date from trades/quotes on the Stock
Exchanges, prices/yields declared by the Fixed Income
Money Market and Derivatives Association of India
(FIMMDA). Unquoted securities are also valued as per
the Reserve Bank of India guidelines.
b. The net depreciation under each of the six heads (Para
B above) is fully provided for, whereas the net
appreciation, if any, under any of the aforesaid heads is
ignored. The book value of the individual securities does
not undergo any change after marking to market.
iii) Held for Trading:
a) Investments classified under this category are
valued at market price based on market quotations,
prices/yields declared by FIMDA at the end of every
month.
b) Depreciation is recognised scrip wise and
appreciation, if any is ignored.
c) The book value of the individual securities does
not undergo any change after marking to market.
D Prudential Norms:
The identification of non performing investments and
provision made thereon is as per Reserve Bank of India
guidelines. Provision requirement in respect of non-
performing investments is not set off against the
appreciation of other performing investments.
E Profit / Loss on sale of Investments:
i) Profit or Loss on sale of investments is recognised
on the trade dates on the basis of weighted average
cost. Premium on redemption of Debentures/
Bonds is recognised on the date of redemption.
ii) Profit on sale of investments held in “Available for
Sale” and “Held for Trading” categories is
recognised in the Profit and Loss Account.
iii) Profit on sale of investments in “Held to Maturity”
category is first taken to the Profit and Loss Account
and an equivalent amount of profit is appropriated
to the Capital Reserve.
iv) Loss on sale of investments in any of the three
categories is recognized in Profit and Loss Account.
F General
i) Transfer of securities from one category to another
is done at lower of acquisition cost/book value/
market value on the date of transfer. Depreciation,
if any, on such transfer is provided for and the book
value of the security is changed accordingly.
ii) Upfront fee / Incentives on subscription of securities
are reduced from the cost of securities. The
incentives received after sale of securities is
credited to Profit and Loss account.
iii) Brokerage, Commission and Stamp Duty paid in
connection with the acquisition of securities are
treated as revenue expenditure.
5. A. INTEREST RATE SWAPS: (Hedging)
a) Income on continuing swap transactions is recognised
on accrual basis except the swap designated with an
asset or liability that is carried at market value or lower
of cost or market value in the financial statements. In
that case, the swap is marked to market with the resulting
gain or loss recorded as an adjustment to the market
value or designated asset or liability.
b) Gains/ losses on terminated swap transactions are
recognised when the offsetting gain or loss is recognised
on the designated asset or liability. Thus, the gain or
loss on the terminated swap is deferred and recognised
over the shorter of the remaining contractual life of the
swap or the remaining life of the asset/liability.
B. INTEREST RATE SWAPS (Trading)
a) Trading swaps are marked to market with changes
recorded in the Profit and Loss account;
b) Income and expenses relating to these swaps are
recognized on the settlement date;
c) Fee is recognized as income or expenses as the case
may be;
d) Gains or losses on the termination of the swaps are
recorded immediately as income or expenses on such
termination.
6. ADVANCES
A) Advances are stated in accordance with the Prudential
Norms issued by Reserve Bank of India:
i. Advances are classified into standard, sub-standard,
doubtful and loss assets borrower-wise.
ii. Provisions are made for non performing assets and
iii. General provision is made for standard assets.
B) Advances stated in the Balance Sheet are net of
provisions made for :
(i) Non performing assets
(ii) Additional Provision made for Non-performing
Assets
(iii) Standard Assets
C) Partial recoveries in Non Performing Assets are
apportioned first towards charges and interest, thereafter
towards principal.
7. FIXED ASSETS
Premises and other Fixed Assets are stated at historical
cost net of depreciation.
85
 A. DEPRECIATION
(i) Depreciation on premises and on other assets
except Computers and ATM’s is provided on
written down value method at the rates specified
in Schedule XIV of the Companies Act 1956.
(ii) The depreciation on Computers and other
Peripherals is provided @ of 33.33 % on straight
line method.
(iii) Depreciation on ATM s is provided on straight line
method based on the useful life of ATMs which is
estimated by the Bank as seven years.
B. AMORTIZATION
i) Premium paid for acquisition of leasehold land for
a period of less than 60 years and cost of the
buildings constructed thereon is amortised over the
period of lease.
ii) Software acquired is amortised in the year of
acquisition.
8. EMPLOYEES BENEFITS
(a) Short Term Employee Benefits
Short Term Employee Benefits such as short-term
compensated absences are recognized as an
expense on an undiscounted basis in the Profit
&Loss Account of the year in which the related
service is rendered.
(b) Post Employment Benefits
i) Defined Contribution Plans:
Defined Contribution Plans such as Provident Fund
are recognized as an expense and charged to the
Profit &Loss Account
ii) Defined Benefit Plans
(a) Gratuity:
The employees Gratuity Fund Scheme is funded
by the Bank and managed by LIC through a
separate trust. The present value of the Bank’s
obligations under Gratuity is recognized on the
basis of an actuarial valuation as at the year end
and the fair value of the Plan assets is reduced
from the gross obligations to recognize the
obligation on a net basis.
(b) Pension:
The employees Pension Fund is funded by the
Bank and is managed by a separate trust. The
present value of the Bank’s obligations under
Pension is recognized on the basis of an actuarial
valuation as at the year end and the fair value of
the Plan assets is reduced from the gross
obligations to recognize the obligation in this case
on a net basis.
(c) Other Long Term Benefits:
Other Long Term Benefits such as Leave
Encashment, Sick Leave, LFC/LTC availment/
encashment, Employee Incentive Scheme, Ex-
gratia to retirees and Relocation of expenses on
exit are recognized on the basis of actuarial
valuation made as at the end of the year.
9. PROVISION FOR TAXATION:
I. Provision for taxation includes current tax, Fringe
benefit tax and deferred tax.
II. In compliance with AS-22 Accounting for Taxes on
Income, issued by the Institute of Chartered
Accountants of India, accounting for deferred
income tax is made after considering tax rates and
laws that have been enacted or substantively
enacted as of balance sheet date.
10. IMPAIRMENT OF ASSETS
An assessment is made at each balance sheet date
whether there is any indication that an asset is impaired.
If any such indication exists an estimate of the
recoverable amount is made and impairment loss, if any
is provided.
11. CONTINGENT LIABILITIES AND PROVISIONS
Past events leading to, possible or present obligation is
treated as contingent liabilities. Provision is recognised
in the case of present obligation where the reliable
estimate can be made and where there are probable
out flow of resources embodying forgoing of economic
benefits to settle the obligation.
12. Earnings per Share
Basic earnings per share (EPS) reported is computed
by dividing net profit after tax by the weighted average
number of equity shares outstanding for the year.
13. NET PROFIT
The Net Profit disclosed in the Profit and Loss Account
is after:-
(a) Provision for depreciation on Investments.
(b) Provision for Taxation.
(c) Provision on loan losses as per prudential
guidelines.
(d) Provision for non-performing investments as per
Reserve Bank of India guidelines.
(e) Other usual and necessary provisions.
Place: Hyderabad
Date : 25.04.2008
87
SCHEDULE 18 - NOTES ON ACCOUNTS Rs.50.36 crores and transferred to a Special Purpose
Vehicle (SPV) Trust pursuant to the Deed of Assign-
1. Reconciliation of Inter Branch and Inter Bank transac- ment executed between National Housing Bank (NHB)
tions has been done up to 31.03.2008. and the Bank, the NHB has issued Pass Through Cer-
2. Legal formalities with regard to the registration of prop- tificates (PTCs) of said amount, out of which part was
erty in favour of Bank are yet to be completed in respect subscribed by various Banks/Financial Institutions as
of one property valued at Rs. 0.06 crores (Rs. 0.06 PTC Class-A investments and the balance was sub-
crores). scribed by the bank as PTC Class B. Such PTC class B
3. a) No provision is considered necessary towards dis- investment with a book value of Rs. 4.82 crores (Rs.
puted tax demand of Rs.297.60 crores (Rs. 44.69 crores) 5.53 crores) has been shown as a part of investments
in view of judicial pronouncements in similar cases. by the bank at the year end.
The present outstanding balance of the pool as on
b) Deferred Income Tax:
31.03.2008 is Rs.20.04 crores (Rs.25.13 crores).
Pursuant to Accounting Standard –22 issued by The
The bank is acting as service provider to the SPV Trust.
Institute of Chartered Accountants of India in respect of
An amount of Rs.68 lakhs has been provided by the
“Accounting for taxes on Income”, necessary deferred
bank as cash collateral in addition to Investment in PTC-
tax liability and deferred tax assets have been recog-
B as Credit Enhancement.
nized. The major components as on 31.03.2008 are as
follows:- 8.1. Capital
(Amount in crores) Items 2007-08 2006-07
Timing Difference 31.03.2008 31.03.2007 1. CRAR (%) 11.61 11.33
DTA DTL DTA DTL 2. CRAR - Tier I capital (%) 8.54 9.98
(1) Provision created in books but not 3. CRAR - Tier II Capital (%) 3.07 1.35
Claimed in Income Tax 35.00 25.56 -- 4. Percentage of the shareholding
(2) Excess/Less Depreciation 3.14 -- 0.41 of the Government of India in
claimed as per I.T. Act nationalized banks 51.55 51.55
5. Amount of subordinated debt
(3) DTL on Special Reserve created
raised as Tier-II capital (Rs. Crores) 700 NIL
u / s 36(1) (viii) of I.T. Act -- 31.95 -- 16.49
8.2. Investments
(4) DTA on transitional provision
as per AS-15(R) 131.60 -- -- -- (Rupees in crores)
Total 169.74 31.95 25.56 16.90 Items 2007-08 2006-07
(c) Deferred Tax Asset of Rs.131.60 crores has been (1) Value of investments
recognized on the amount of Rs.387.18 crores being (i) Gross Value of Investments
the transitional liability on implementation of AS-15(R)–
“Employee Benefits” draw down from opening Revenue In India 14987.95 14406.30
Reserves. Outside India *0.00 0.00
(d) Provision for Income Tax has been made on the ba- (ii) Provisions for Depreciation
sis of the applicable laws and various judicial pronounce- In India 89.72 105.58
ments in this regard. Outside India 0.00 0.00
4. Investments include Rs. 8.26 crores invested in Regional (iii) Net Value of Investments
Rural Banks as Share Capital Deposit pursuant to a let-
In India 14898.23 14300.72
ter by Government of India. Since RRBs are not com-
panies there is no requirement for issue of shares in Outside India *0.00 0.00
certificate form. (2) Movement of provisions held towards depreciation
5. Additional Provision of Rs. 167.47 crores (Rs.167.47 on investments.
crores), is held as at 31.03.2008 in respect of gross i) Opening balance 105.58 64.26
non performing advances over and above the mini- ii) Add: Provisions made
mum prescribed as per RBI guidelines with a view to during the year 44.93 46.47
strengthening the financial stability of the Bank. Such
additional provision is netted off from Advances. iii) Less: Write-off/(write-back) of
excess provisions During the year 60.79 5.15
6. There is no material prior period item included in Profit
iv) Closing balance 89.72 105.58
and Loss account required to be disclosed as per AS-
5 issued by the Institute of Chartered Accountants of * Includes investments in 21,141 shares (Class C Series – I)
India read with RBI guidelines. of Visa Inc valued at Re.1 and 2,120 shares (Class B) of
Master Card Inc valued at Re. 1. These shares are allotted in
7. In respect of 1437 individual housing loan accounts
securitised during the year 2003-04 amounting to kind, free of cost, as an incentive in view of the past business
relation with these entities.

89
8.2.1. Repo Transactions
(Rupees in crores)

Particulars Minimum Maximum Daily Average Balance

outstanding outstanding outstanding As on 31st
during the year during the year during the year March 2007
Securities sold under repos 0.00 0.00 0.00 0.00
(157.50 ) (525.00) (4.36) ( 0.00)
Securities purchased under 0.00 2520.00 149.33 (0.00 )
reverse repos ( 49.88) (2772.00 ) (730.16) ( 0.00)

8.2.2. Non S.L.R. Investment Portfolio

i) Issuer composition of Non SLR Investments (Rupees in crores)

Sr. No. Issuer Amount Extent of Extent of ‘below Extent of Extent of

Private Investment Grade ‘unrated’ ‘unlisted’
Placement securities’ securities securities
(1) (2) (3) (4) (5) (6) (7)
1 PSUs 327.88 297.63 13.60 — —
2 FIs 359.07 320.78 16.02 9.00 25.02
3 Banks 583.30 312.18 — — 5.00
4 Private Corporates 426.78 180.34 — — —
5 Subsidiaries/
Joint Ventures 14.31 14.31 — — —
6 Others 29.20 29.20 — — 12.50
7 Total 1740.54 1154.44 29.62 9.00 42.52
8 Less: Provision held
Towards Depreciation 58.33 xxxxxxx xxxxxx xxxxxx xxxxxxx
9 Total 1682.21 1154.44 29.62 9.00 42.52

91
Total under column 3 include the following categories of investments specified in Schedule 8 to the Balance Sheet:
(Rupees in crores)
Particulars Net Value
Shares 207.75
Debentures & Bonds 889.65
Subsidiaries / Joint Ventures 9.31
Others 575.50
Total 1682.21
ii) Non Performing Non SLR Investments
(Rupees in crores)
Particulars 2007-08 2006-07
Opening Balance 0.47 1.31
Additions during the year 0.01 ——-
Reduction during the period —- 0.84
Closing Balance 0.48 0.47
Total provisions held 0.48 0.47
8.2.3. During the year, the Bank has shifted certain SLR securities aggregating to Rs. 741.16 crores from “Available for
Sale” (AFS) category to “Held to Maturity “ (HTM) category at lower of acquisition cost/book value /market value and
the resultant depreciation of Rs. 9.12 crores has been provided.
8.2.4. The Bank has shifted certain securities aggregating to Rs. 35.41 crores relating to investment in IFCI Ltd from “Held
to Maturity” (HTM) category to “Available for Sale”(AFS) category and consequent depreciation of Rs. 18.91 crores in
accordance with the RBI letter DBOD. NO. FID. 202/03.01.03/2007-08 dated 5th July 2007, has been provided till 31st
March 2008.
The Bank has also shifted certain Zero Coupon Optionally convertible Debentures (ZCOCD) aggregating to Rs. 23.56
crores relating to investments in IFCI Ltd from “Held to Maturity” (HTM) category to “Available for Sale”(AFS) category
and depreciation of Rs. 10.28 crores (as computed on 30.09.07) in accordance with the RBI letter DBOD. NO. FID.
202/03.01.03/ 2007-08 dated 5th July 2007 has been provided.
8.3. Derivatives
8.3.1. Forward Rate Agreement / Interest Rate Swaps of Investment portfolio
(Rupees in crores)
Items 2007-08 2006-07
The notional principal of swap agreements 575.00 600.00
Losses which would be incurred if counter parties failed to fulfill their
obligations under the agreements 0.37 0.99
Collateral required by the bank upon entering into swaps 0.00 0.00
Concentration of credit risk arising from the swaps 3.24 3.99
The fair value of the swap book (14.21) (29.30)
8.3.2 Exchange Traded Interest Rate Derivatives:
(Rupees in Crores)
S.No. Particulars Amount
(i) Notional principal amount of exchange traded interest rate derivatives
undertaken during the year (instrument-wise) NIL
(ii) Notional principal amount of exchange traded interest rate derivatives
outstanding as on 31st March 2008 (instrument-wise) NIL
(iii) Notional principal amount of exchange traded interest rate derivatives
outstanding and not “highly effective” (instrument-wise) NIL
(iv) Mark-to-market value of exchange traded interest rate derivatives outstanding and
not “highly effective” (instrument-wise) NIL

93
8.3.3. Disclosures on risk exposure in derivatives
A) Qualitative Disclosures:
a) Structure and Organization for Management of risk in
derivatives trading:
i) In terms of Reserve Bank of India guidelines on Interest
Rate Swaps (IRS) and Forward Rate Agreements (FRA)
dated 7th July 1999, the Bank approved policies and pro-
cedures, Counter party exposure limits, delegation of
powers, Accounting Policy, policy for valuation, ISDA
documentation, cut loss, reporting etc., for Interest Rate
Swaps and fixed a cap of Rs.3000 crores for interest rate
swaps (sub-limit of Rs. 1500 crores for Trading Book).
Bank has conducted the derivative operations within the
overall framework of these guidelines.
ii) The Bank has approved policies and procedures, coun-
ter party exposures limits delegation of powers, account-
ing policy, ISDA documentation, reporting etc., for under-
taking forex derivatives in various forms of currency swaps
& various types of interest rates swaps not specifically
prohibited by RBI with the corporate borrower custom-
ers, other banks and non-borrower customers to be con-
verted on back to back basis. Bank’s policy also permits
entering into Plain Vanilla Europeon Style Option to Bank’s
customers for hedging / pricing their forward exposures
on back to back basis.
Mark to Market valuation are sent to customers on monthly
basis and capital charge is provided as per current expo-
sure method.
Derivative contracts undertaken on back to back basis
are recorded at the closing rates on the balance sheet
date. The revenue in respect at these transactions is rec-
ognized over proportionate period for running contracts
and in case of contracts terminated before maturity rev-
enue is recognized on termination date.
b) Scope and nature of risk measurement, risk reporting
and risk monitoring systems:
Bank is availing the services of a consultant in respect of the
derivative transactions undertaken. The consultant firm is
providing daily mark to market position of all the outstanding
swaps and the Bank, at periodical intervals, is reviewing the
same. The position of all outstanding swaps, new swaps
entered, swaps exited, Mark to Market value of swaps etc.,
is being reviewed by the Bank’s Investment Committee and
the Board at monthly intervals. Details of transactions un-
dertaken in IRS are also reported to RBI on a fortnightly ba-
sis.
c) Policies for hedging and / or mitigating and strate-
gies and processes for monitoring the continuing effec-
tiveness of hedges / mitigants:
Depending on the market opportunities and in consultation
with the Consultant, a view on interest rate movement is taken
and acted upon. Though the settlement of swaps takes place
on due date/dates as per the terms of the swaps, the value
monitoring is carried out daily to know the impact of market
changes on Swap Book. When unfavorable market move-
ments are unidirectional, swaps are exited cutting loss. Cut
loss limits, exit powers, reviewing authority etc., are pre-
scribed.
d) Accounting policy for recording the hedge and non-
hedge transactions, recognition of income, premiums
and discounts, valuation of outstanding contracts,
provisioning, collateral and credit risk mitigation:
Detailed accounting policy and valuation policy are approved
by Board. Transactions for hedging purposes are accounted
for on accrual basis except the swap designated with an as-
set / liability that is carried at lower of cost or market value.
In that case, the swap is marked to market, with the resultant
gain or loss recorded as an adjustment to the market value
of designated asset or liability. On termination of swap, gain
or loss is recognized when the offsetting gain or loss is rec-
ognized on the designated asset or liability. Any gain or loss
on the terminated swap was deferred and recognized over
the shorter of the remaining contractual life of the swap or
the remaining life of the asset / liability.
Trading transactions have to be marked to market with
charges recorded in the income statement. Income, ex-
penditure, fee, gains or losses on termination of swaps are
all recorded as immediate income or expenses.
95
B) Quantitative Disclosure (Rupees in Crores)
Sr No. Particulars Currency Interest Rate
Derivatives Derivatives
1 Derivatives (Notional principal Amount) 300.88 575.00
a) For Hedging 300.88 575.00
b) For Trading — —
2 Market to Market Positions
A. Hedging
a) Asset (+) — —
b) Liability(-) — (0.48)
B. Trading
a) Asset(+) — —
b) Liability(-) —
3 Credit Exposure 43.22 3.24
4 Likely Impact of one percentage change in Interest rate (100*PV01)
a) On hedging derivatives — (22.23)
b) On trading derivatives — —
5 Maximum and Minimum of 100*PV01 observed during the year
a) On hedging — Max : (48.23)
Min : (2.89)
b) On trading — Max : —
Min : —

Bank is having Mark to Market position of Rs. 34.45 crores (Negative with counter party banks) on account of derivative
deals. All derivative deals are covered Back to Back. Hence there is no net Mark to Market Profit or Loss for the bank
on outstanding deals.
8.4 Asset Quality
8.4.1. Non-Performing Asset (Rupees in Crores)
Items 2007-08 2006-07

(i) Net NPA to Net Advances 0.15% 0.17%

(ii) Movement of NPAs (Gross)
(a) Opening Balance 397.01 436.91
(b) Additions during the year 201.52 243.66
(c) Reductions during the year 226.10 283.56
(d) Closing Balance 372.43 397.01
(iii) Movement of Net NPAs
(a) Opening Balance 47.25 52.46
(b) Additions during the year 6.45 0.00
(c) Reductions during the year 0.00 5.21
(d) Closing Balance 53.70 47.25
(iv) Movement of provisions for NPA’s
(a) Opening Balance 343.49 381.00
(b) Additions during the year 98.67 92.59
(c) Reductions during the year 118.38 130.10
(d) Closing Balance 323.78 343.49

97
8.4.2 Details of Loan Assets subjected to Restructuring
(Rupees in crores)
Item 2007-08 2006-07
(i) Total amount of loan assets subjected to restructuring, rescheduling,
renegotiation; 143.55 332.70
- of which under CDR 24.87 0
(ii) The amount of Standard assets subjected to restructuring,
rescheduling, renegotiation; 143.55 332.70
- of which under CDR 7.47 0
(iii) The amount of Sub-Standard assets subjected to restructuring,
rescheduling, renegotiation; 17.40 0
- of which under CDR 17.40 0
(iv) The amount of Doubtful assets subjected to restructuring,
rescheduling, renegotiation; 0 0
- of which under CDR 0 0
Note: [ (i) = (ii)+(iii)+(iv) ]

8.4.3 Details of Loan Assets (MSME sector) subjected to Restructuring

(Rupees in crores)
Item 2007-08 2006-07
(i) Total amount of loan assets subjected to restructuring,
rescheduling, renegotiation; 14.14 27.70
- of which under CDR NIL NIL
(ii) The amount of Standard assets subjected to restructuring,
rescheduling, renegotiation; 14.14 27.46
- of which under CDR NIL NIL
(iii) The amount of Sub-Standard assets subjected to restructuring,
rescheduling, renegotiation; NIL 0.24
- of which under CDR NIL NIL
(iv) The amount of Doubtful assets subjected to restructuring,
rescheduling, renegotiation; NIL NIL
- of which under CDR NIL NIL
Note: [ (i) = (ii)+(iii)+(iv) ]

8.4.4 Details of Loan Assets (Priority sector) subjected to Restructuring

(Rupees in crores)
Item 2007-08 2006-07
(i) Total amount of loan assets subjected to restructuring,
rescheduling, renegotiation; 15.77 NIL
- of which under CDR NIL NIL
(ii) The amount of Standard assets subjected to restructuring,
rescheduling, renegotiation; 15.77 NIL
- of which under CDR NIL NIL
(iii) The amount of Sub-Standard assets subjected to restructuring,
rescheduling, renegotiation; NIL NIL
- of which under CDR NIL NIL
(iv) The amount of Doubtful assets subjected to restructuring,
rescheduling, renegotiation; NIL NIL
- of which under CDR NIL NIL
Note: [ (i) = (ii)+(iii)+(iv) ]

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8.4.5 (a) Details of financial assets sold to Securitisation / Reconstruction Company for Asset Reconstruction
( Rupees in crores)

Item 2007-08 2006-07

No. of accounts 1 NIL
Aggregate value (net of provisions) of accounts sold to SC/ RC 20.14 NIL
Aggregate consideration 25.88 NIL
Additional consideration realized in respect of accounts transferred in NIL NIL
earlier years
Aggregate gain over net book value. 5.74 NIL

(b) Details of non performing financial assets sold

( Rupees in crores)

Sl. No. Particulars 2007-08 2006-07

1 No. of accounts sold NIL NIL

2 Aggregate outstanding NIL NIL

3 Aggregate consideration received NIL NIL

8.4.6 Provisions on Standard Asset

( Rupees in crores)

Particulars 2007-08 2006-07

Provisions towards Standard Assets 150.00 125.00

8.5.1. Business Ratios

Particulars 2007-08 2006-07

(i) Interest income as percentage to average working funds 8.61% 8.08%

(ii) Non-interest income as percentage to average working funds 1.17% 1.09%
(iii) Operating profit as percentage to working funds 2.12% 2.27%
(iv) Return on assets 1.16% 1.31%
(v) Business (deposits plus advances) per employee (Rs. in lakhs) 626.53 536.06
(vi) Profit per employee ( Rs. in lakhs) 4.30 4.14

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ABRIDGED FINANCIAL STATEMENT OF ANDHRA BANK IN FOREIGN CURRENCY
BALANCE SHEET AS ON MARCH 31, 2008
(Amount in Indian Rupee converted into US dollar at RBI Reference rate for two currencies applicable as on the date of
balance sheet i.e. US$ 1= Indian Rs.40.12)

CAPITAL AND LIABILITIES (Indian Rupees in crore) (US $ in million)

Capital 485.00 120.89

Reserves & Surplus 2764.29 689.00
Deposits 49436.55 12322.17
Borrowings 590.51 147.19
Other Liabilities & Provisions 3316.04 826.53
Total 56592.39 14105.78
Assets
Cash & Balances with RBI 4901.67 1221.75
Balances with banks & Money at call & Short Notice 792.65 197.57
Investments 14898.24 3713.42
Advances 34238.38 8534.00
Fixed Assets 219.46 54.70
Other Assets 1541.99 384.34
Total 56592.39 14105.78
Contingent Liabilities 19730.00 4917.75
Bills for collection 2898.72 722.51
Profit and Loss account for the year ended 31.03.2008
Income
Interest earned 4289.87 1069.26
Other Income 581.35 144.90
Total 4871.22 1214.16
Expenditure
Interest Expended 2870.00 715.36
Operating Expenses 944.28 235.36
Provisions & Contingencies 481.37 119.98
Total 4295.65 1070.70
Net Profit for the year 575.57 143.46
Profit Brought Forward 76.23 19.00
Total 651.80 162.46
Appropriations
Tr to Statutory Reserve 144.00 35.89
Tr to Revenue Reserve 204.00 50.85
Tr to Proposed Dividend 194.00 48.35
Tax on Dividend 32.97 8.22
Balance carried to Balance Sheet 76.83 19.15

127