Bank of baroda

BANK OF BARODA
Financial Performance Indicators
We use a variety of indicators to measure our performance. These indicators are presented in tabular form in the section
titled “Selected Statistical Information” on page 238. Our net interest income represents our total interest income net of
total interest expense. Net interest margin represents the ratio of net interest income to the fortnightly average of total
interest earning assets. Our spread represents the difference between the yield on the fortnightly average of interest
earning assets and the cost of the fortnightly average of interest bearing liabilities. We calculate average yield on the
fortnightly average of advances and average yield on the daily average of investments, as well as the average cost of the
fortnightly average of deposits and average cost of the fortnightly average of borrowings. Our cost of funds is the
weighted average of the average cost of the fortnightly average of interest bearing liabilities. For the purposes of these
averages and ratios only, the interest cost of the unsecured subordinated bonds that we issue for Tier II capital adequacy
purposes (“Tier II Bonds”) is included in our cost of interest bearing liabilities. In our financial statements, these bonds are
accounted for as “other liabilities and provisions” and their interest cost is accounted for under other interest expenses.
The Indian Economy
Our financial condition and results of operations are affected in large measure by general economic conditions prevailing
in India. The Indian economy has grown steadily over the past three years. GDP growth was 4.0% in fiscal 2003, 8.5%
in fiscal 2004, 6.9% in fiscal 2005. GDP growth in fiscal 2003 was adversely affected by insufficient rainfall, which
contributed to a decrease in agricultural production. GDP growth picked up in fiscal 2004 due to, among other things,
agricultural production recovery, resurgence of the industrial sector and continued growth in the services sector. GDP
growth was less in fiscal 2005 compared with fiscal 2004 primarily due to a smaller increase in the growth of the
agricultural sector.
Industrial growth was 6.2% in fiscal 2003, 6.5% in fiscal 2004 and 8.3% in fiscal 2005. The agriculture sector grew by
5.2% in fiscal 2003, 9.6% in fiscal 2004 and 1.1% in fiscal 2005. We have significant exposure to the industrial sector
and developments in that sector would impact our results.
The annual rate of inflation, as measured by variations in the wholesale price index (WPI), on a point-to-point basis was,
6.5% in fiscal 2003 and 4.6% in fiscal 2004, 5.10% in fiscal 2005. It was at 5.9% by April 23, but declined steadily
thereafter to 4.6 per cent by October 8, 2005.
In its Mid-Term Review of the Annual Policy Statement for 2005-2006 released on October 25, 2005, RBI forecasted GDP
growth for fiscal 2006 at 7% to 7.5% and has given the inflation rate forecast of 5.0% to 5.5%. The average exchange
rate of the Indian Rupee to one U.S. Dollar was Rs. 48.27 in fiscal 2003, Rs. 45.83 in fiscal 2004, Rs. 44.84 in fiscal
2005 and Rs. 43.46 for the six months ended September 30, 2005. Foreign exchange reserves were U.S.$ 141,636
million as of September 30, 2005.
In fiscal 2003 and 2004, there was a general downward movement in interest rates in India, reflecting local and global
economic conditions. Banks have generally followed the direction of interest rates set by the RBI and have adjusted both
their deposit rates and lending rates downwards. However, the RBI’s main influence is on short term interest rates, with
long-term rates being set more by market conditions. During fiscal 2005, following the general trend of interest rates in
the economy, deposit rates in the Banking industry also displayed an upward bias. In the six months ended September
30, 2005 interest rates remained stable.
The RBI has maintained a policy of assuring adequate liquidity in the banking system and has generally lowered the rate
at which it would lend to Indian banks to ensure that borrowers have access to funding at competitive rates. The RBI’s
primary motive has been to realign interest rates with the market to facilitate a smooth transition from a government-
controlled regime in the early 1990s, when interest rates were heavily regulated, to a market-oriented interest rate
regime.
The following table sets forth the bank rate, reverse repo rate, deposit rate and prime lending rates of Scheduled
Commercial Banks as of the dates indicated.

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