Dear Stakeholder,

Financial Year 2006–07 was quite eventful, as a number of initiatives started in 2005-06 were carried through and some new initiatives were added. Bank of Baroda continued to make excellent progress in 2006-07 achieving record new business, net profits, credit growth and considerable reduction in NPA levels. Your Bank has also achieved significant success in International operations and created new benchmarks for future performance.

I am happy to report that the Bank achieved all the 4 key objectives that it set for itself for FY-07: a.) To be a Rs.200,000 Crore Bank, b) CBS Branch Network to cross 1000, c) ATM Network to reach 1000, d) Global Net Profit to cross Rs.1000 Crore. I am further happy to share that the Bank could not only achieve but also surpass the targets set under “Statement of Intent” with the Government of India.

The Bank firmly moved towards implementation of “Multi-Specialist Banking”, rolled out new Business Models for Wholesale, Retail and SME Segments; set-up a chain of 13 Retail and 16 SME Loan Factories acrossthe country; launched many new deposit and loan products, and added over 2.2 million to the Global Customer Base. The Bank today enjoys the trust and confidence of over 29 million customers around the globe.

New Initiatives:

During the year, we continued our momentum for transformation, for improving operational efficiency, speeding up the decision-making processes – all with a view to distinctly improve our response time to the customer. In our quest to add new revenue streams, we reorganized many business functions, entered into strategic tie-ups for distribution of third-party products, launched Wealth Management Services, signed MoU with a foreign partner for JV in Mutual Fund and identified a foreign partner for JV in Life Insurance. The year was also marked by rapid strides in expansion of CBS Network and ATM Network and launch of many ebanking products. In the International arena, we launched a new innovative online money transfer product “RapidFunds2India” from UAE, Oman and UK. An important step was to restructure Gujarat operations by merging erstwhile three zones into a unified Gujarat operations. The results have started showing up.

Business Performance Highlights:

On the Business front, we could firmly place the Bank on a higher growth trajectory. Global business growth recorded an all-time high of 35.79%. Domestic credit growth was at a robust level of 33.53%, with Retail & SME credit given big thrust. With special efforts mounted, we could sharply improve the asset quality and bring down Gross NPA to less than 3% and Net NPA to 0.60%. With Integrated Risk Management Systems in place, the Bank is well placed for BASEL-II compliance.

Our International operations have always been a key comparative advantage to the Bank. Overseas business grew by as high as 72%, contributing handsomely to the Bank’s topline and bottomline. We expanded our network abroad reaching 60 Branches / Offices.

Employee Engagement:

I have always believed that it is the total engagement of employees at all levels that is crucial for Business results. Throughout the year, apart from monthly communication to employees, I have gone around the country and addressed several groups of managers and employees, sharing with them the ambition of the Bank to reach Rs.200000 crores landmark, smooth implementation of Core Banking Solution (CBS), palpable improvement in customer Service and reducing customer response time in crucial business matters. In open houses with employees, I sought feedback from them about the operating environment and suggestions to improve the same. During these meetings, I have shared my concerns and impressed upon the need to improve skills to meet the new challenges. I called upon employees to increasingly participate in the Centenary Year KHOJ-II : an organization-wide Talent Identification and Development Programme. We also set in motion a number of new initiatives in HR such as Fast-Track promotion channels, management trainee scheme for placement at overseas Branches and intensive Management Development programmes for developing our executives.

I am extremely delighted to find that our colleagues at operating level showed tremendous enthusiasm and aspiration to improve the level of business and customer service. It is gratifying that with the cooperation of all, we could achieve our ambition to achieve Rs. 200000 crores business.

Entering the Centenary Year:

This year is a special year for us in the Bank. On the 20th July 2007, the Bank will enter its Centenary Year. When we revisit the past, I feel inspired by the enormous contribution of our yesteryear leaders including the Visionary Founder who steered the Bank through all times and took the Bank to the premier status that it enjoys today.

The Road Ahead - Crafting a Bank of the Future:

It’s a continuous journey. We in the Management Team are conscious of what we have inherited and are dedicating ourselves to craft a Bank for the Next Century. I and my Team are putting together a concrete agenda to pursue this goal - pursuing "Multi- Specialist Banking" Global Best Practices, deploying most modern technology, reskilling the employees, reaching out to the chosen markets and customers and continually innovating Business Models, Delivery Channels, Products and Services; constantly looking at systems, processes and structures to redesign them to modern day’s requirements to respond to the emerging customers,. We have also taken some first steps – Our Mumbai Main Office – flagship office of the Bank for many years – is being repositioned as a modern “One Stop Financial Supermarket”. Over 100 Branches under CBS net are being positioned as “Branches of the Future”.

Inspired by the grand vision of our Founder, the late Sir Maharaja Sayajirao Gaekwad – III of Baroda, we are fully committed to catapult the Bank into the top league and join the global banking community. Towards this, we plan to add atleast 10 Branches / Offices in different overseas locations across geographies, during the Centenary Year. We would also largely complete the process of technology upgradation and extend the boundaries of banking through our offering of a larger basket of financial services to the customers. I do realize that what we have accomplished thus far is only a modest beginning and we have miles to go to realize our ambitions. In this endeavour, I solicit your continued cooperation and patronage.

Thank you.

(DR. ANIL K. KHANDELWAL)
Chairman & Managing Director