THE DHANALAKSHMI BANK LIMITEDPreliminary Placement Document Subject to Completion Not for circulation Serial No. ___ THE DHANALAKSHMI BANK LIMITED* * The shareholders of the Bank have

Preliminary Placement Document Subject to Completion

Not for circulation Serial No. ___

THE DHANALAKSHMI BANK LIMITED* * The shareholders of the Bank have at their meeting dated July 15, 2010 approved a change of name from “The Dhanalakshmi Bank Limited” to “Dhanlaxmi Bank Limited” and the name change will be effected on receipt of

the Fresh Certificate of Incorporation consequent to change in name from the RoC.

The Dhanalakshmi Bank Limited (the “Bank”) incorporated with limited liability under the Indian Companies Act, 1913.

Issue of [●] equity shares of face value of Rs. 10 each (the “Equity Shares”) at a price of Rs. [●] per Equity Share, including a premium of Rs. [●] per Equity Share, aggregating Rs. [●] millions (the “Issue”).

All of the outstanding Equity Shares of the Bank are listed on The National Stock Exchange of India Limited (the “NSE”), the Bombay Stock Exchange Limited (the “BSE”) and the Cochin Stock Exchange Limited (the “CoSE”). The closing prices of the outstanding Equity Shares on the NSE and the BSE on July 14, 2010 were Rs. 179.95 and Rs. 180.10 per Equity Share, respectively. Applications shall be made for the listing and trading of the Equity Shares offered through this Preliminary Placement Document on the NSE, the BSE and the CoSE (collectively, the “Stock Exchanges”). The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Equity Shares to trading on the Stock Exchanges should not be taken as an indication of the merits of the business of the Bank or the Equity Shares.

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WE HAVE PREPARED THIS PRELIMINARY PLACEMENT DOCUMENT SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH THE PROPOSED ISSUE OF THE EQUITY SHARES DESCRIBED IN THIS PRELIMINARY PLACEMENT DOCUMENT.

A copy of this Preliminary Placement Document has been delivered to the Stock Exchanges. This Preliminary Placement Document has not been reviewed by the Securities and Exchange Board of India (the “SEBI”), the Reserve Bank of India (the “RBI”), the Stock Exchanges or any other regulatory or listing authority and is intended only for use by Qualified Institutional Buyers (“QIBs”), as defined in the ICDR Regulations (defined below). Copies of the Placement Document will be filed with the Stock Exchanges and delivered to the SEBI for record purposes.

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An investment in the Equity Shares involves significant risks. Please see “Risk Factors”. _____________________________

ISSUE IN RELIANCE UPON CHAPTER VIII OF THE ICDR REGULATIONS

THIS ISSUE AND THE DISTRIBUTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IS BEING DONE IN RELIANCE ON CHAPTER VIII OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE “ICDR REGULATIONS”). THIS PRELIMINARY PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC OR TO ANY OTHER PERSON OR CLASS OF INVESTORS OTHER THAN QIBs.

YOU ARE NOT AUTHORIZED TO AND MAY NOT (1) DELIVER THIS PRELIMINARY PLACEMENT DOCUMENT TO ANY OTHER PERSON; OR (2) REPRODUCE THIS PRELIMINARY PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER. ANY DISTRIBUTION OR REPRODUCTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF THE ICDR REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS.

Invitations, offers and sales of Equity Shares shall only be made pursuant to this Preliminary Placement Document together with the Application Form and Confirmation of Allocation Note. Please see “Issue Procedure”. The distribution of this Preliminary Placement Document or the disclosure of its contents without the prior consent of the Bank to any person, other than QIBs, as defined in the ICDR Regulations, and persons retained by QIBs to advise them with respect to their purchase of Equity Shares is unauthorized and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and make no copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document.

Investments in equity and equity related securities involve a degree of risk and prospective investors should not invest in the Issue unless they are prepared to take the risk of losing their investment. Each prospective investor is advised to carefully read “Risk Factors” and consult its advisors about the particular consequences to it of an investment in the Equity Shares.

The information on the website of the Bank or any website directly or indirectly linked to the website of the Bank does not form part of this Preliminary Placement Document and prospective investors should not rely on such information contained in, or available through, any such website.

This Preliminary Placement Document has not been and will not be registered as a prospectus with the Registrar of Companies, Kerala and Lakshwadeep will not be circulated or distributed to the public in India or any other jurisdiction, and will not constitute a public offer in India or any other jurisdiction.

The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and, may not be offered or sold within the United States (as defined in Regulation S under the Securities Act “Regulation S”), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold to QIBs outside the United States in offshore transactions in reliance on Regulations S. For further details, please see “Transfer Restrictions”.

This Preliminary Placement Document is dated July 15, 2010.

BOOK RUNNING LEAD MANAGERS

IDFC Capital Limited

JM Financial Consultants Private Limited

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TABLE OF CONTENTS

NOTICE TO INVESTORS ............................................................................................................................................ 1

PRESENTATION OF FINANCIAL AND OTHER INFORMATION .................................................................... 7

INDUSTRY AND MARKET DATA ............................................................................................................................ 7

FORWARD-LOOKING STATEMENTS .................................................................................................................... 8

ENFORCEMENT OF CIVIL LIABILITIES .............................................................................................................. 9

GLOSSARY OF TERMS ............................................................................................................................................. 10

SUMMARY OF BUSINESS ........................................................................................................................................ 14

SUMMARY OF THE ISSUE ....................................................................................................................................... 18

SUMMARY FINANCIAL INFORMATION ............................................................................................................ 20

RISK FACTORS ........................................................................................................................................................... 24

MARKET PRICE INFORMATION .......................................................................................................................... 41

USE OF PROCEEDS.................................................................................................................................................... 43

CAPITALISATION STATEMENT ........................................................................................................................... 44

DIVIDENDS .................................................................................................................................................................. 45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................................................................................................................................................. 46

SELECTED STATISTICAL INFORMATION ........................................................................................................ 63

INDUSTRY .................................................................................................................................................................... 71

BUSINESS ...................................................................................................................................................................... 81

SUPERVISION AND REGULATIONS ..................................................................................................................... 97

BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL ............................................................. 102

PRINCIPAL SHAREHOLDERS .............................................................................................................................. 111

ISSUE PROCEDURE ................................................................................................................................................. 114

PLACEMENT ............................................................................................................................................................. 122

DISTRIBUTION AND SOLICITATION RESTRICTIONS ................................................................................ 124

TRANSFER RESTRICTIONS .................................................................................................................................. 127

THE SECURITIES MARKET OF INDIA .............................................................................................................. 128

DESCRIPTION OF THE EQUITY SHARES ........................................................................................................ 131

TAXATION ................................................................................................................................................................. 134

LEGAL PROCEEDINGS .......................................................................................................................................... 140

INDEPENDENT ACCOUNTANTS ......................................................................................................................... 141

GENERAL INFORMATION .................................................................................................................................... 142

DECLARATION ......................................................................................................................................................... 143

FINANCIAL STATEMENTS ................................................................................................................................... 144

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NOTICE TO INVESTORS We have furnished and accept full responsibility for all of the information contained in this Preliminary Placement Document and confirm that to our best knowledge and belief, having made all reasonable enquiries, this Preliminary Placement Document contains all information with respect to us and the Equity Shares that is material in the context of the Issue. The statements contained in this Preliminary Placement Document relating to us and the Equity Shares are, in every material respect, true and accurate and not misleading. The opinions and intentions expressed in this Preliminary Placement Document with regard to us and the Equity Shares are honestly held, have been reached after considering all relevant circumstances, based on information presently available to us and on reasonable assumptions. There are no other facts in relation to us and the Equity Shares, the omission of which would, in the context of the Issue, make any statement in this Preliminary Placement Document misleading in any material respect. Further, all reasonable enquiries have been made by us to ascertain such facts and to verify the accuracy of all such information and statements. IDFC Capital Limited and JM Financial Consultants Private Limited (jointly the “Book Running Lead Managers”) have not separately verified the information contained in this Preliminary Placement Document (financial, legal or otherwise). Accordingly, neither the Book Running Lead Managers nor any of their shareholders, employees, counsel, officers, directors, representatives, agents or affiliates make any express or implied representation, warranty or undertaking, and no responsibility or liability is accepted by Book Running Lead Managers as to the accuracy or completeness of the information contained in this Preliminary Placement Document or any other information supplied in connection with the Equity Shares. Each person receiving this Preliminary Placement Document acknowledges that such person has not relied on either the Book Running Lead Managers or on any of their shareholders, employees, counsel, officers, directors, representatives, agents or affiliates in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of the Bank and the merits and risks involved in investing in the Equity Shares issued pursuant to this Issue. No person is authorized to give any information or to make any representation not contained in this Preliminary Placement Document and any information or representation not so contained must not be relied upon as having been authorized by or on our behalf or by or on behalf of the Book Running Lead Managers. The delivery of this Preliminary Placement Document at any time does not imply that the information contained in it is correct as on any time subsequent to its date. The Equity Shares issued pursuant to the Issue have not been approved, disapproved or recommended by any regulatory authority. No authority has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Preliminary Placement Document. The distribution of this Preliminary Placement Document and the offering of the Equity Shares may be restricted by law in certain countries or jurisdictions. As such, this Preliminary Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized, or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by the Book Running Lead Managers which would permit an offering of the Equity Shares or distribution of this Preliminary Placement Document in any country or jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Preliminary Placement Document nor any offering material in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. For further details please see “Distribution and Solicitation Restrictions”. In making an investment decision, investors must rely on their own examination of the Bank and the terms of the Issue, including the merits and risks involved. Investors should not construe the contents of this Preliminary Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, legal, tax, accounting and related matters concerning the Issue. In addition, neither the Bank nor the Book Running Lead Managers are making any representation to any offeree or purchaser of the Equity Shares regarding the legality of an investment in the Equity Shares by such offeree or purchaser under applicable laws or regulations. Each purchaser of the Equity Shares in the Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in the Bank under Indian law, including Chapter VIII of the ICDR Regulations, and is not prohibited by SEBI or any other statutory authority from buying,

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selling or dealing in securities. The information on the Bank’s website or the website of the Book Running Lead Managers does not constitute or form part of this Preliminary Placement Document. This Preliminary Placement Document contains summaries of certain terms of certain documents, which are qualified in their entirety by the terms and conditions of such documents. References herein to “you” or “your” is to the prospective investors in the Issue.

REPRESENTATIONS BY INVESTORS By subscribing to any Equity Shares in the Issue, you are deemed to have acknowledged and agreed with the Bank and the Book Running Lead Managers, as follows: • You are a “Qualified Institutional Buyer” as defined in Regulation 2(1)(zd) of the ICDR Regulations,

having a valid and existing registration under applicable laws and regulations of India, and undertake to acquire, hold, manage or dispose of any Equity Shares that are allocated to you in accordance with Chapter VIII of the ICDR Regulations;

• You are permitted to acquire the Equity Shares under the laws of all relevant jurisdictions which apply

to you and that you have fully observed such laws and obtained all such governmental and other consents in each case which may be required thereunder and complied with all necessary formalities;

• If you are Allotted (hereinafter defined) Equity Shares pursuant to the Issue, you shall not, for a period

of one year from the date of Allotment (hereinafter defined), sell the Equity Shares so acquired except on the floor of the Stock Exchanges;

• The Equity Shares have not been and will not be registered under the Companies Act, the ICDR

Regulations or under any other law in force in India. The Preliminary Placement Document has not been reviewed by SEBI, RBI, the Stock Exchanges or any other regulatory or listing authority and is intended only for use by QIBs. Further, the Preliminary Placement Document has not been verified or affirmed by SEBI or the Stock Exchanges and will not be filed or registered with the RoC (hereinafter defined). The Preliminary Placement Document has been filed with the Stock Exchanges and will be displayed on the websites of the Bank and the Stock Exchanges. The Placement Document will be delivered to SEBI for record purposes only;

• You are entitled to subscribe for and acquire the Equity Shares under the laws of all relevant jurisdictions and you have all necessary capacity and have obtained all necessary consents and authorizations to enable you to commit to participation in the Issue and to perform your obligations in relation thereto (including, in the case of any person on whose behalf you are acting, all necessary consents and authorizations to agree to the terms set out or referred to in the Preliminary Placement Document), and will honor such obligations;

• You confirm that either: (i) you have not participated in or attended any investor meetings or presentations by the Bank or its agents (“Company Presentations”) with regard to the Bank or the Issue; or (ii) if you have participated in or attended any Company Presentations: (a) you understand and acknowledge that the Book Running Lead Managers may not have knowledge of the statements that the Bank or its agents may have made at such Company Presentations and are therefore unable to determine whether the information provided to you at such Company Presentations may have included any material misstatements or omissions, and, accordingly you acknowledge that the Book Running Lead Managers have advised you not to rely in any way on any information that was provided to you at such Company Presentations, and (b) confirm that, to the best of your knowledge, you have not been provided any material information that was not publicly available.

• Neither, the Book Running Lead Managers nor any of their shareholders, directors, officers,

employees, counsel, representatives, agents or affiliates are making any recommendations to you or advising you regarding the suitability of any transactions you may enter into in connection with the Issue and your participation in the Issue is on the basis that you are not, and will not, up to the Allotment of the Equity Shares, be a client of the Book Running Lead Managers. The Book Running

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Lead Managers or any of their shareholders, directors, officers, employees, counsel, representatives, agents or affiliates do not have duties or responsibilities to you for providing the protection afforded to their clients or customers or for providing advice in relation to the Issue and are not in any way acting in any fiduciary capacity;

• Certain statements other than statements of historical fact included in the Preliminary Placement

Document, including those regarding the Bank’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Bank’s business), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Bank’s present and future business strategies and environment in which the Bank will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as on the date of the Preliminary Placement Document. The Bank assumes no responsibility to update any of the forward-looking statements contained in the Preliminary Placement Document;

• You understand that the Equity Shares are being offered only to QIBs and are not being offered to the

general public and the Allotment shall be on a discretionary basis;

• You have made, or been deemed to have made, as applicable, the representations set forth under “Transfer Restrictions”;

• You have been provided a serially numbered copy of each of the Preliminary Placement Document and

the Placement Document, and have read them in their entirety, including in particular, the “Risk Factors”;

• In making your investment decision, you have (i) relied on your own examination of the Bank and the

terms of the Issue, including the merits and risks involved, (ii) made your own assessment of the Bank, the Equity Shares and the terms of the Issue based on such information as is publicly available, (iii) consulted your own independent counsel and advisors or otherwise have satisfied yourself concerning, the effects of local laws, and (iv) relied on the information contained in the Preliminary Placement Document and no other disclosure or representation by the Bank;

• Neither of the Book Running Lead Managers nor any of its shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, have provided you with any tax advice or otherwise made any representations regarding the tax consequences of purchase, ownership and disposal of the Equity Shares (including the Issue and the use of proceeds from the Equity Shares). You will obtain your own independent tax advice from a reputable service provider and will not rely on the Book Running Lead Managers or any of their shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, when evaluating the tax consequences in relation to the Equity Shares (including, in relation to the Issue and the use of proceeds from the Equity Shares). You waive, and agree not to assert any claim against, either of the Book Running Lead Managers or any of their shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, with respect to the tax aspects of the Equity Shares or as a result of any tax audits by tax authorities, wherever situated;

• Where you are acquiring the Equity Shares for one or more managed accounts, you represent and

warrant that you are authorized in writing, by each such managed account to acquire the Equity Shares for each managed account and make the representations, warranties, acknowledgements and agreements herein for and on behalf of each such account, reading the reference to ‘you’ to include such accounts;

• You have no right to withdraw your Application after the Issue Closing Date (as defined herein);

• You are eligible to apply and hold Equity Shares so Allotted together with any Equity Shares held by

you prior to the Issue. You confirm that your aggregate holding after the Allotment of the Equity Shares shall not exceed the level permissible as per any applicable law or regulation;

• The Application made by you would not result in triggering a tender offer under the SEBI (Substantial

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Acquisition of Shares and Takeovers) Regulations, 1997, as amended (the “Takeover Code”);

• To the best of your knowledge and belief, your aggregate holding, together with other QIBs in the Issue that belong to the same group or are under common control as you, pursuant to the Allotment under the Issue shall not exceed 50% of the Issue. For the purposes of this representation:

a. The expression ‘belong to the same group’ shall derive meaning from the concept of

‘companies under the same group’ as provided in sub-section (11) of Section 372 of the Companies Act.

b. ‘Control’ shall have the same meaning as is assigned to it by Clause (c) of Regulation 2 of the

Takeover Code. • You shall not undertake any trade in the Equity Shares credited to your Depository Participant account

until such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges;

• You are aware that applications will be made for in-principle listing approval on the Stock Exchanges at the time of finalization of the Placement Document. Further, after Allotment the Bank will make applications for approvals for listing and admission of the Equity Shares to trading on the Stock Exchanges. There can be no assurance that such approvals will be obtained on time or at all;

• You are aware that if you, together with any other QIBs belonging to the same group or under common

control, are Allotted more than 5% of the Equity Shares in this Issue, the Bank shall be required to disclose the name of such Allottees and the number of Equity Shares Allotted to them on the website of the Stock Exchanges;

• The contents of this Preliminary Placement Document are exclusively the responsibility of the Bank and that neither the Book Running Lead Managers nor any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Preliminary Placement Document or any information previously published by or on behalf of the Bank and will not be liable for your decision to participate in the Issue based on any information, representation or statement contained in this Preliminary Placement Document or otherwise. By accepting participation in the Issue, you agree to the same and confirm that you have neither received nor relied on any other information, representation, warranty or statement made by, or on behalf of, the Book Running Lead Managers or the Bank or any other person and neither the Book Running Lead Managers nor the Bank nor any other person will be liable for your decision to participate in the Issue based on any other information, representation, warranty or statement that you may have obtained or received;

• The only information you are entitled to rely on, and on which you have relied in committing yourself

to acquire the Equity Shares is contained in this Preliminary Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Equity Shares, and you have neither received nor relied on any other information given or representations, warranties, statements or opinions made by any of the Book Running Lead Managers (including any view, statement, opinion or representation expressed in any research published or distributed by any of the Book Running Lead Managers or their affiliates or any view, statement, opinion or representation expressed by any staff (including research staff) of any of the Book Running Lead Managers or their affiliates) or the Bank and the Book Running Lead Managers, will not be liable for your decision to accept an invitation to participate in the Issue based on any other information, representation, warranty, statement or opinion;

• Neither of the Book Running Lead Managers has any obligation to purchase or acquire all or any part

of the Equity Shares purchased by you in the Issue or to support any losses directly or indirectly sustained or incurred by you for any reason whatsoever in connection with the Issue, including non-performance by the Bank of any of its obligations or any breach of any representations and warranties by the Bank, whether to you or otherwise;

• You are eligible to invest in India under applicable law, including the Foreign Exchange Management

(Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended, and

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any notifications, circulars or clarifications issued thereunder, and have not been prohibited by the SEBI or any other regulatory authority, from buying, selling or dealing in securities;

• You are purchasing the Equity Shares for your own investment and not with a view to distribution;

• You are purchasing the Equity Shares in an offshore transaction meeting the requirements of Rule 903

of Regulation S;

• You understand that the Equity Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and accordingly, may not be offered or sold within the United States, except in reliance on an exemption from the registration requirements of the Securities Act;

• You agree to indemnify and hold the Bank and the Book Running Lead Managers harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the foregoing representations, warranties, acknowledgements and undertakings made by you in this Preliminary Placement Document. You agree that the indemnity set forth in this paragraph shall survive the resale of the Equity Shares by, or on behalf of, the managed accounts;

• The Bank, the Book Running Lead Managers, its affiliates and others will rely on the truth and

accuracy of the foregoing representations, warranties, acknowledgements and undertakings, which is given to the Book Running Lead Managers on their own behalf and on behalf of the Bank, and are irrevocable; and

• Each of the representations, warranties, acknowledgements and agreements set out above shall continue to be true and accurate at all times up to and including the Allotment, listing and trading of the Equity Shares in the Issue.

OFFSHORE DERIVATIVE INSTRUMENTS

Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 15A(1) of the SEBI (Foreign Institutional Investors) Regulations, 1995, as amended, a Foreign Institutional Investor (“FII”) may issue or otherwise deal in offshore derivative instruments such as participatory notes, equity-linked notes or any other similar instruments against underlying securities, such as the Equity Shares in the Issue (all such offshore derivative instruments are referred to herein as ‘P-Notes’), for which they may receive compensation from the purchasers of such instruments, listed or proposed to be listed on any stock exchange in India only in favor of those entities which are regulated by any relevant regulatory authorities in the countries of their incorporation or establishment subject to compliance of ‘know your client’ requirements. An FII shall also ensure that no further issue or transfer of any instrument referred to above is made to any person other than a regulated entity. P-Notes have not been and are not being offered or sold pursuant to this Preliminary Placement Document. This Preliminary Placement Document does not contain any information concerning P-Notes or the issuer(s) of any P-notes, including any information regarding any risk factors relating thereto. Any P-Notes that may be issued are not securities of the Bank and do not constitute any obligation of, claims on or interests in the Bank. The Bank has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to the P-Notes. Any P-Notes that may be offered are issued by, and are the sole obligations of, third parties that are unrelated to the Bank. The Bank and the Book Running Lead Managers do not make any recommendation as to any investment in P-Notes and do not accept any responsibility whatsoever in connection with the P-Notes. Any P-Notes that may be issued are not securities of the Book Running Lead Managers and do not constitute any obligations of or claims on the Book Running Lead Managers. FII affiliates of the Book Running Lead Managers may purchase, to the extent permissible under law, Equity Shares in the Issue, and may issue P-Notes in respect thereof. Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosures as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes from the issuer(s) of such P-Notes. Neither the SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult their own

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financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations.

DISCLAIMER CLAUSE OF THE STOCK EXCHANGES As required, a copy of this Preliminary Placement Document has been submitted to each of the Stock Exchanges. The Stock Exchanges do not in any manner: 1. Warrant, certify or endorse the correctness or completeness of the contents of the Preliminary

Placement Document; 2. Warrant that the Equity Shares will be listed or will continue to be listed on the Stock Exchanges; or 3. Take any responsibility for the financial or other soundness of the Bank, its management or any scheme

or project of the Bank, and it should not; for any reason be deemed or construed to mean that the Preliminary Placement Document has been cleared or approved by the Stock Exchanges. Every person who desires to apply for or otherwise acquire any Equity Shares of the Bank may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever, by reason of any loss which may be suffered by such person consequent to or in connection with, such subscription/acquisition, whether by reason of anything stated or omitted to be stated herein, or for any other reason whatsoever.

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION In this Preliminary Placement Document, unless the context otherwise indicates or implies, references to ‘you,’ ‘offeree’, ‘purchaser,’ ‘subscriber,’ ‘recipient,’ ‘investors’ and ‘potential investor’ are to the prospective investors in the Issue, references to ‘Dhanalakshmi Bank’, the ‘Bank’, the ‘Company’, ‘our Company’, the ‘Issuer’, ‘we’, ‘our’ or ‘us’ are to The Dhanalakshmi Bank Limited. In this Preliminary Placement Document, references to ‘Rs.’, ‘Indian Rupees’ and ‘Rupees’ are to the legal currency of India, and references to ‘U.S.$’ and ‘U.S. dollars’ are to the legal currency of the United States of America. All references herein to “India” are to the Republic of India and its territories and possessions, and all references to the ‘U.S.’ or the ‘United States’ are to the United States of America and its territories and possessions. The reformatted financial statements of the Bank as at and for the years ended March 31, 2010, March 31, 2009 and March 31, 2008 included in this Preliminary Placement Document (the “Financial Statements”), have been prepared and audited in accordance with Indian GAAP as applicable to banks in India and the requirements under the Equity Listing Agreements with the Stock Exchanges. Indian GAAP differs in certain significant respects from International Financial Reporting Standards (“IFRS”) and U.S. GAAP. Accordingly, the degree to which the financial statements prepared in accordance with Indian GAAP included in this Preliminary Placement Document will provide meaningful information is entirely dependent on the reader’s level of familiarity with the respective accounting practices. The Bank has not provided a reconciliation of its financial statements to IFRS or U.S. GAAP financial statements. In this Preliminary Placement Document, certain monetary thresholds have been subject to rounding adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. The Financial Year of the Bank commences on April 1 of each calendar year and ends on March 31 of the succeeding calendar year, so all references to a particular ‘Financial Year’ or ‘Fiscal’ or ‘FY’ are to the twelve month period ended on March 31 of that year.

INDUSTRY AND MARKET DATA Information regarding market position, growth rates and other industry data pertaining to our businesses contained in this Preliminary Placement Document consists of estimates based on data reports compiled by government bodies, professional organizations and analysts, data from other external sources and our knowledge of the markets in which we compete. The statistical information included in this Preliminary Placement Document relating to the industry in which we operate has been reproduced from various trade, industry and government publications and websites. This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. Neither we nor the Book Running Lead Managers have independently verified this data and do not make any representation regarding the accuracy or completeness of such data. We take responsibility for accurately reproducing such information but, subject to the next sentence, accept no further responsibility in respect of such information and data. We confirm that such information and data have been accurately reproduced, and that as far as we are aware and are able to ascertain from information published by third parties, no facts have been omitted that would render the reproduced information inaccurate or misleading. In many cases, there is no readily available external information (whether from trade or industry associations, government bodies or other organizations) to validate market-related analysis and estimates, so we have relied on internally developed estimates. Similarly, while we believe our internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither we nor the Book Running Lead Managers can assure potential investors as to their accuracy. The extent to which the market and industry data contained in this Preliminary Placement Document is meaningful depends on the vendor’s familiarity with an understanding of the methodologies used in compiling such data.

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FORWARD-LOOKING STATEMENTS All statements contained in this Preliminary Placement Document that are not statements of historical fact constitute “forward-looking statements”. Investors can generally identify forward-looking statements by terminology such as “aim”, “anticipate”, “believe”, “continue”, “estimate”, “expect”, “intend”, “may”, “objective”, “plan”, “potential”, “project”, “pursue”, “shall”, “should”, “will”, “would”, or other words or phrases of similar import. Similarly, statements regarding our expected financial condition and results of operations, strategies, objectives, plans, goals and prospects are forward-looking statements. Forward-looking statements and any other projections contained in this Preliminary Placement Document (whether made by us or any third party) are predictions and involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or any other projections. Important factors that could cause actual results, performance or achievements to differ materially include, among others:

• volatility in interest rates or other market conditions; • our dependence on deposits to meet our funding requirements; • increases in our NPAs and our provisioning for NPAs; • our ability to grow our retail banking business and effectively manage our overall growth; • our dependence on, and ability to retain, our senior management team; • political, economic, regulatory and business conditions in India; • our concentrated exposure to the priority sectors and certain borrowers; • changes in banking regulations in India; • the non-availability of comprehensive statistical, corporate and financial information, including on

individual borrowers, in India; • delays or failures in foreclosing on collateral when borrowers default on their obligations; • changes in the tax law in India; • fluctuations in the exchange rates of the Rupee against the U.S. dollar, the euro, the British pound and

other currencies; and • increasing competition. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under the sections “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry” and “Our Business”. The forward-looking statements speak only as of the date of the Preliminary Placement Document and we assume no responsibility to update any of the forward-looking statements to reflect events or circumstances after the date of this Preliminary Placement Document.

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ENFORCEMENT OF CIVIL LIABILITIES The Bank is a limited liability company incorporated under the laws of India. Except as stated in “Board of Directors and Key Managerial Personnel” all of the Bank’s Directors and key managerial personnel named here are residents of India and all or a substantial portion of assets of the Bank and such persons are located in India. As a result, it may be difficult for investors outside India to affect service of process upon the Bank or such persons in India, or to enforce judgments obtained against such parties outside India. Recognition and enforcement of foreign judgments is provided for under Section 13 and Section 44A of the Code of Civil Procedure, 1908, as amended (the “Civil Procedure Code”), on a statutory basis. Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon, except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud, and (vi) where the judgment sustains a claim founded on a breach of any law in force in India. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Civil Procedure Code provides that a foreign judgment rendered by a superior court (within the meaning of that section) in any jurisdiction outside India which the Government of India (the “GoI”) has by notification declared to be a reciprocating territory, may be enforced in India by proceedings in execution as if the judgment had been rendered by a competent court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalties and does not include arbitration awards. Each of the United Kingdom, Singapore and Hong Kong has been declared by the GoI to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code, but the U.S. has not been so declared. A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy. Further, any judgment or award in a foreign currency would be converted into Rupees on the date of such judgment or award and not on the date of payment. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered, and any such amount may be subject to income tax in accordance with applicable laws.

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GLOSSARY OF TERMS

We have prepared this Preliminary Placement Document using certain definitions and abbreviations which you should consider while reading the information contained herein. The terms defined in this section shall have the meaning set forth herein, unless specified otherwise in the context thereof, and references to any statute or regulations or policies shall include amendments thereto, from time to time. Company Related Terms

Term Description “The Bank”, “our Company”, “the Company”, “we” or “us” or “our”

The Dhanalakshmi Bank Limited

Articles/ Articles of Association Articles of Association of the Bank Auditors Walker Chandiok & Co., Chartered Accountants, and Sharp & Tannan,

Chartered Accountants (appointed on July 15, 2010), the joint statutory auditors of the Bank

Board Board of Directors of the Bank Directors The directors of the Bank Equity Shares Equity Shares of the Bank of par value Rs. 10 each Memorandum / Memorandum of Association

Memorandum of Association of the Bank

Registered and Corporate Office The Registered Office of the Bank at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001

RoC Registrar of Companies, Kerala and Lakshadweep Issue Related Terms

Term Description Allocated /Allocation The allocation of Equity Shares following the determination of the Issue

Price to QIBs on the basis of Application Forms submitted by them, in consultation with the Book Running Lead Managers and in compliance with Chapter VIII of the ICDR Regulations

Allotment /Allotted The allotment and issue of Equity Shares pursuant to the Issue Allottees Persons to whom Equity Shares are issued pursuant to the Issue Application Form Form (including any revisions thereof) pursuant to which a QIB

subscribes for the Equity Shares Allocated to such QIB Application(s) An indication of a QIB’s interest, to subscribe for the Equity Shares

under the Issue Book Running Lead Managers IDFC Capital Limited and JM Financial Consultants Private Limited CAN/Confirmation of Allocation Note

Note, advice or intimation confirming the Allocation of Equity Shares to QIBs after determination of the Issue Price

Designated Date The date on which the Escrow Agent transfers the funds from the Escrow Account to our Company’s account

Escrow Agent The Dhanalakshmi Bank Limited, Fort Branch, Mumbai Escrow Cash Account Special bank account with the Escrow Agent, subject to the terms of the

Escrow Agreement, dated [•], 2010 by and among the Bank, the Book Running Lead Managers and the Escrow Agent

Floor Price The floor price of Rs. 181.27 for each Equity Share, calculated in accordance with Chapter VIII of the ICDR Regulations

Indian Stock Exchanges / Stock Exchanges

The NSE, the BSE and the CoSE

Issue The offer and issuance of the Equity Shares to QIBs, pursuant to Chapter VIII of the ICDR Regulations

Issue Closing Date [•], 2010 Issue Opening Date July 15, 2010 Issue Price A price per Equity Share of Rs. [•] Issue Size The aggregate size of the Issue, Rs. [•]

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Term Description Pay-in Date The last date specified in the CAN for payment of application monies by

the QIBs Placement Document The Placement Document to be issued in accordance with Chapter VIII of

the ICDR Regulations Preliminary Placement Document This preliminary placement document, dated [●], 2010, issued in

accordance with Chapter VIII of the ICDR Regulations QIB or Qualified Institutional Buyer

Qualified Institutional Buyer, as defined under Regulation 2(1)(zd) of the ICDR Regulations

QIP Qualified Institutions Placement under Chapter VIII of the ICDR Regulations

Conventional and General Terms/ Abbreviations

Term/Abbreviation Full Form AGM Annual General Meeting AS Accounting Standards issued by the ICAI BOLT BSE On-line Trading BPLR Benchmark prime lending rate BSE Bombay Stock Exchange Limited CDR Corporate Debt Restructuring CDSL Central Depository Services (India) Limited Civil Procedure Code Code of Civil Procedure, 1908 Companies Act Companies Act, 1956 CoSE Cochin Stock Exchange Limited Delisting Regulations SEBI (Delisting of Equity Shares) Regulations, 2009 Depositories Act Depositories Act, 1996 Depository A depository registered with the SEBI under the SEBI (Depositories and

Participants) Regulations, 1996 DP/Depository Participant Depository participant as defined under the Depositories Act, 1996 EPS Earnings Per Share, calculated as profit after tax for a fiscal year, divided

by the weighted average outstanding number of Equity Shares during that fiscal year

Equity Listing Agreement(s) The equity listing agreement(s) with each of the Stock Exchanges FDI Foreign Direct Investment FEMA Foreign Exchange Management Act, 1999 FEMA 20 The Foreign Exchange Management (Transfer or Issue of Security by a

Person Resident Outside India) Regulations, 2000FII Foreign Institutional Investor (as defined under the SEBI (Foreign

Institutional Investors) Regulations,1995), registered with the SEBI under applicable laws in India

Financial Year/Fiscal/FY Period of 12 months ended March 31 of that particular year GDP Gross domestic product GoI Government of India ICAI Institute of Chartered Accountants of India ICDR Regulations SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 IFRS International Financial Reporting Standards India Republic of India Indian GAAP Generally accepted accounting principles followed in India Insider Trading Regulations SEBI (Prohibition of Insider Trading) Regulations, 1992 IT Information Technology IT Act Income Tax Act, 1961 KYC Know your customer norms prescribed by RBI Lacs 0.10 million Million 1,000,000Mutual Fund Mutual fund registered with the SEBI under the SEBI (Mutual Funds)

Regulations, 1996

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Term/Abbreviation Full Form NBFC Non banking financial company NSDL National Securities Depository Limited NRI Non Resident Indians NSE The National Stock Exchange of India Limited p.a. Per annum PAN Permanent Account Number Placement Agreement Placement Agreement dated July 15, 2010, by and among the Bank and

the Book Running Lead Managers RBI Reserve Bank of India Regulation S Regulation S under the Securities Act Relevant Member State Each Member State of the European Economic Area Rs. or Rupees The lawful currency of India SCRA Securities Contracts (Regulation) Act, 1956 SCRR Securities Contracts (Regulation) Rules, 1957 SEBI Securities and Exchange Board of India SEBI Act SEBI Act, 1992 Securities Act U.S. Securities Act of 1933 STT Securities Transaction Tax Takeover Code SEBI (Substantial Acquisition of Shares and Takeover) Regulations,

1997 UAE United Arab Emirates US$ United States Dollar, the official currency of the United States of

America U.S. GAAP Generally accepted accounting principles followed in the U.S. U.S. or United States United States of America VAT Value Added Tax Technical and Industry Terms

Term/Abbreviation Full FormALCO Assets Liability Management Committee AMC Asset Management Company ANBC Adjusted Net Bank Credit ATM Automated Teller Machine Base Rate Minimum lending rate, as set by the Bank Basel I Banking capital framework published in 1988 by the Bank for

International Settlements Basel II International Convergence of Capital Measurement and Capital

Standards– A Revised Framework (Comprehensive Version: June 2006) published by the Bank for International Settlements

BCSBI Banking Codes and Standards Board of India CASA Current and Savings Account CBS Centralised Banking Solutions CDR Corporate Debt Restructuring CMS Cash Management Services CRAR Capital to Risk (Weighted) Assets Ratio CRR Cash Reserve Rate CRE Commercial Real Estate CRMC Credit Risk Management Committee CSP Customer Service Points DRT Debt Recovery Tribunals ESOP Employee Stock Option Scheme FCNR Foreign Currency Non-Resident Fidelity Fund Management FIL Fidelity Management Private Limited HDFC AMC HDFC Asset Management Company Limited

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Term/Abbreviation Full Form ICAAP Internal Capital Adequacy Assessment Process ICICI Prudential AMC ICICI Prudential Asset Management Company Limited IFBI Institute of Finance, Banking and Insurance IMF International Monetary Fund IPO Initial Public Offering IRDA Insurance Regulatory and Development Authority IRDA Act Insurance Regulatory and Development Authority Act of 1999 Kotak Mahindra AMC Kotak Mahindra Asset Management Company Limited LAF Liquidity Adjustment FacilityLIC Life Insurance Corporation MCX Multi Commodity Exchange of India MIS Management Information System MPLS Multi-Protocol Label Switching NABARD National Bank for Agriculture and Rural Development NBFCs Non-Banking Finance CompanyNEFT National Electronic Funds Transfer NGOs Non Governmental Organizations NPAs Non Performing Assets ORMC Operational Risk Management Committee PSU Public Sector RBI Act Reserve Bank of India Act, 1934RRBs Regional Rural banks RTGS Real Time Gross Settlement SARFAESI Act The Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interests Act, 2002, as amended. SBI State Bank of India SCBs Scheduled Commercial Banks SLR Statutory Liquidity Ratio SME Small Medium Enterprises SSIs Small Scale Industries Tier I Capital The core capital of a bank, which provides the most permanent and

readily available support against unexpected losses, comprising paid-up capital and reserves consisting of any statutory reserves, free reserves and capital reserves, as reduced by equity investments in subsidiaries, intangible assets and losses in the applicable period and those brought forward from the applicable prior period.

Tier II Bonds Unsecured, redeemable, non-convertible, subordinated bonds in the nature of promissory notes issued by the Bank to augment Tier II capital for capital adequacy purposes.

Tier II Capital Undisclosed reserves, revaluation reserves (at a discount of 55%), general provisions and loss reserves (allowed up to a maximum of 1.25% of risk weighted assets), hybrid debt capital instruments (which combine certain features of equity and debt securities), investment fluctuation reserves and subordinated debt.

UTI MF UTI Mutual Fund Limited VISA Visa Worldwide Private Limited

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SUMMARY OF BUSINESS

Overview We are a private sector bank with a pan-India presence through a network of six regional offices, three zonal offices, 271 branches and 380 ATMs covering 136 centres in 14 states. As at March 31, 2010, we had 4,080 employees serving over 1.4 million customers. Our total assets were Rs. 80,868.9 million as at March 31, 2010, compared with Rs. 56,428.2 million as at March 31, 2009 and Rs. 40,329.8 million as at March 31, 2008. Our net profit for Fiscal 2010 was Rs. 233.0 million, compared with Rs. 574.5 million and Rs. 284.6 million for Fiscal 2009 and Fiscal 2008, respectively. As at March 31, 2010, our total capital was Rs. 4,400.8 million and our CRAR was 12.99% as per Basel II (12.47% as per Basel I), with Tier 1 Capital at 8.80% as per Basel II (8.45% as per Basel I) and Tier II Capital at 4.19% as per Basel II (4.02% as per Basel I). We have organised our business into six verticals, four of which are in the area of asset management: the wholesale banking group; the trade & advances group; the micro finance & agriculture group; and the retail assets group. The wholesale banking group covers corporations with a net worth of Rs. 500 million and above. The trade & advances group covers all cases other than those coming under wholesale banking and cases in the non-individual category. The micro finance & agriculture group covers all activities falling in those segments. The retail assets group covers all advances to individuals. In addition, we have a branch banking group that covers retail liabilities and a non-interest income/fee-based services group that covers the distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking, demat and treasury operations. Our products and services include: savings accounts; current accounts; term deposits; credit cards; loans; depository services; locker facilities; foreign exchange services; payment services; online broking services; cash management services; non-fund based products; and corporate salary accounts. We also distribute Bajaj Allianz General Insurance Company Limited’s (“Bajaj Allianz”) life insurance and non-life insurance products and mutual funds of ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC AMC. In addition to our growing branch and ATM network, we provide our customers with internet banking services. We are planning to launch our mobile banking service by the end of July 2010 and telephone banking services before the end of Fiscal 2011. We have arrangements with major exchange houses in the Middle East (UAE Exchange Centre LLC and Al Ahalia Money Exchange Bureau) and foreign correspondent banks (Deutsche Bank Trust Company Americas, Wachovia Bank NA, Commerzbank AG, and National Westminister Bank PLC) to enhance our capability of providing international remittance services. Since Fiscal 2009, we have been focused on transforming the Bank from a regional bank with below industry average growth to a bank with a pan-India presence and above industry average growth. Since our current Managing Director and CEO, Amitabh Chaturvedi, joined us in October 2008 we have transformed and expanded our business by: • Hiring additional experienced top management and middle-level managers and significantly increasing

the number of other employees. The number of our employees increased from 1,375 as at September 30, 2008 to 4,080 (including 805 sales executives across branches) as at March 31, 2010 and the average age of our employees dropped from 48 to 34 years old. Nearly all of our new employees are not union members and our unionized workforce reduced from approximately 87% as at September 30, 2008 to approximately 33% of the total workforce as at March 31, 2010.

• Building a pan-India presence. Our consumer touch points increased from 279 (207 branches and 72 ATMs) as at September 30, 2008 to 671 touch points (271 branches and 380 ATMs) and we opened up branches in six states (Haryana, Punjab, Rajasthan, Uttar Pradesh, Madhya Pradesh and Goa) where we did not have a presence earlier. As a result of this expansion, deposits from outside Kerala increased from approximately 32% of our total deposits as at March 31, 2009 to approximately 47% of our total deposits as at March 31, 2010 and to advances from outside Kerala increased from approximately 56%

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of our total advances at March 31, 2009 to approximately 73% of our total advances as at March 31, 2010.

• Reorganising our business model from a geographical, branch-based approach to a segment-based vertical approach.

• De-risking our asset book through focusing on lending to the corporate segment in Fiscal 2010, which resulted in a number of new leading Indian corporations with AAA ratings establishing business relationships with us. As a result, the proportion of “A and above” rated borrowers increased from 36% as at March 31, 2009 to 48% as at March 31, 2010 and the percentage of gross NPAs to gross advances declined from 1.99% as at March 31, 2009 to 1.54% as at March 31, 2010. Previously we had focused on lending to SMEs.

• Augmenting our fee product portfolio, including entering into an agreement with Bajaj Allianz to distribute their life insurance and non-life insurance products, empanelment with ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC AMC to distribute their mutual fund products and entering into an agreement with Destimoney Securities Private Limited (“Destimoney”) to launch our online broking service.

• Increasing our investment in technology and utilising renowned IT corporations to deploy the best in class technology, including Oracle Financial GLS, Loanflo, Spine Payroll and Destimoney. We were already using a CBS on the “Flexcube” platform prior to October 2008. We have rolled it out to additional branches so that as at March 31, 2010 we had deployed CBS on the “Flexcube” platform at all our branches. We intend to complete the implementation of the latest version of Flexcube across all our branches by September 2010.

• launching a new brand identity, “DhanlaxmiBank”, in January 2010.

• launching our credit card business in March 2010.

• Re-launching our retail banking business with new as well as re-branded loan products and simplified loan documentation in July 2010.

In 2009, we were recognised as “India’s Fastest Growing Mid-size Bank” by Business Today and awarded “Best Bank in the Private Sector” by the State Forum of Bankers’ Clubs at their Banking Excellence Awards. Our Competitive Strengths We believe that the following strengths distinguish us in a competitive Indian banking industry: Our Board of Directors comprises eminent professionals and our strong, multi-skilled management team has extensive experience in the Indian banking and financial industry – Our Board of Directors comprises eminent professionals. Our senior management team, led by our Managing Director and CEO, Amitabh Chaturvedi, has extensive experience in the Indian banking and financial industry and nearly all of them have worked at other leading Indian banks and financial institutions. Please see “Board of Directors and Key Managerial Personnel”. Their collective experience, drive and vision has transformed the Bank from a regional bank with below industry average growth to a bank with a pan-India presence and above industry average growth. Asset quality – Our advances are concentrated in our wholesale banking business, which accounted for 64% of our advances portfolio as at March 31, 2010. This concentration, together with a correspondingly low exposure to retail assets, which accounted for 16% of our advances portfolio as at March 31, 2010, as well as our advanced and stringent risk management systems, has contributed to the high quality of our assets. As at March 31, 2010, our gross NPAs were Rs. 775.0 million (1.54% of gross advances) and net NPAs were Rs. 419.4 million (0.84% of net advances). Long history and long standing customer relationships – We were incorporated in 1927 and we have long standing relationships with many of our customers, including approximately 1,500 temple trusts in Southern India.

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We offer a wide array of banking and financial products – By offering a wide array of products, we provide a one-stop solution to the financial and banking needs of our customers, with a focus on cross-selling multiple products to them. Well-developed and strong IT infrastructure – We have a well developed and strong IT infrastructure, which we believe is indispensable to bring about accelerated growth across multiple business verticals. During Fiscal 2010, we undertook numerous initiatives to improve our IT infrastructure, including the extensive replacement of old and obsolete equipment with new generation IT hardware, we upgraded from a fixed leased line and ISDN combination network to a powerful “MPLS” network to ensure superior connectivity, we upgraded the servers in line with the latest technology to facilitate the handling of far higher data volumes, we upgraded the Flexcube software into a feature-rich offering, thereby enabling high-end MIS, automation and other facilities, and moved to an efficiently managed data centre of international standards in partnership with IBM. We also have arrangements with renowned IT corporations to deploy the best in class technology, including Oracle Financial GLS, Loanflo, Spine Payroll and Destimoney. Infrastructure and well-trained employee strength already in place to enable us to significantly expand our business – Since September 30, 2008 we have increased the number of our branches from 207 to 271, the number of ATMs from 72 to 380 and the number of states where we have a presence from eight to 14. The number of our employees also increased from 1,375 as at September 30, 2008 to 4,080 as at March 31, 2010. We also introduced new human resources policies, invested in workforce training and moved to a managed data centre model to free up employees at our branches to focus on customer acquisition and service. Primarily as a result of these initiatives, our total income increased from Rs. 4,877.7 million in Fiscal 2009 to Rs. 6,255.6 million in Fiscal 2010, an increase of 28.25%, and our total assets increased from Rs. 56,428.2 million in Fiscal 2009 to Rs. 80,868.9 million in Fiscal 2010, an increase of 43.31%. Despite these impressive increases, we believe that our current infrastructure, including our well-developed and robust information technology systems, and our well-trained employees have the capacity to handle at least two and half times the volume of business we did in Fiscal 2010. Our Strategy Our goal is to be among the top five private sector banks in India in terms of asset quality, balance sheet size, number of branches and profitability. Our key strategies to achieve this goal are set out below: Continue to expand our branch and ATM network and increase our CASA deposits – Although we have significantly expanded the number of our branches and ATMs since September 2008, we plan to continue to do so in order to increase our customer base and our pan-India presence and attract additional low and non-interest bearing current and savings account deposits. Our new branches helped us to increase our CASA deposits by 28.48% as at March 31, 2010 compared with March 31, 2009. We plan to open four new branches this Fiscal year to bring the total to 275 branches by the end of Fiscal 2011 and to add a significant number of new branches in Fiscal 2012. Through our agreement with AGS Infotech Private Limited (“AGS Infotech”), we can expand our ATM network with no capital expenditure on our behalf. We are planning to add approximately 600 more ATMs this fiscal year to bring our total number of ATMs to approximately 1,000 by the end of Fiscal 2011. Significantly increase our retail and SME loan books – During Fiscal 2010 we made a conscious decision to de-risk our loan book by increasing loan flow to large corporations while we put in place the necessary infrastructure, policies and procedures and hired and trained additional employees to enable us to prudentially grow our retail and SME loan books. As a result, our wholesale banking group loan book represented 64% of our total loan book as at March 31, 2010. In July 2010 we re-launched our retail banking business with re-branded as well as new loan products and simplified loan documentation. We intend to significantly increase our retail loan book, which was 16% of our total loan book as at March 31, 2010. Our SME loan book represented 15% of our total loan book as at March 31, 2010. We had traditionally focused on the SME segment and we plan to use our expertise in this area as well as our larger footprint and new products focused on SMEs to significantly expand our SME loan book. Leverage our multi-channel distribution network in order to increase the contribution of fee income – As part of our efforts to increase fee income, we entered into an agreement with Bajaj Allianz to distribute its life and general insurance policies and we received the licence for the same in September 2009. We are laying

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considerable emphasis on our retail and corporate businesses for increasing our income from our CMS business by extending speedy cheque collection facilities to our customers and entering into agreements with other banks. We are a depository participant of NSDL and carry out demat processing operations through our branches in compliance with SEBI/NSDL guidelines and deploying sophisticated technology. In 2010 we entered into agreements with ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC MF to distribute their mutual fund products and we have deployed mutual fund product specialists to drive growth in this area. In January 2010, we launched our online broking service by entering into an arrangement with Destimoney. We provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account with Destimoney providing a trading platform to execute capital market transactions. We will extend this service across our branches in the current year and we plan to enter into new areas such as IPOs, mutual fund investments and trading opportunities in the futures and options segment through this online trading platform. In Fiscal 2010, the BSE entered into an agreement with us empanelling us as a clearing and settlement bank. Through this arrangement, we provide a seamless interface to all BSE customers to enable safe and easy transactions on a day-to-day basis. During Fiscal 2010, we laid special emphasis on our foreign exchange business with a focus on corporate, mid-market and retail segments and we plan to continue to do so. Our sharpened focus on foreign exchange business resulted in us adding new clients across all segments (including co-operative banks) and our volumes increased almost two-fold, from Rs. 84,833.4 million in Fiscal 2009 to Rs. 145,065.7 million in Fiscal 2010. We also started participating actively in the inter-bank market and became a market-maker quoting two-way prices. We are in the process of deploying the latest technology and processes to bring about service differentiation, which is vital for accelerating growth in this business. We believe our increased focus on lending to SME and retail customers will lead to increased loan processing fees. We plan to begin selling gold bullion at our branches in the second half of Fiscal 2011. Leverage technology to provide innovative solutions and superior service – We will continue to develop technology-based solutions in conjunction with robust processes and controls through centralised operations, which not only provide a superior service to our customers but also minimise our operational costs and risks. Maintain asset quality through a continued focus on risk management – We intend on maintaining high standards of asset quality through risk management and mitigation practices that are actively focused on evaluations of credit, market and operational risk. In conjunction with these practices, we intend to optimise our capital needs as we grow our business. Develop the “DhanlaxmiBank” brand – In January 2010 we launched our new “DhanlaxmiBank” brand and since then all of our branches and offsite branding colours were changed to improve brand visibility. We intend to build our brand further through various activities such as advertising across print, television and the Internet, organising, attending and sponsoring seminars and continuing to improve the level of service that we offer to our customers. To engage and retain employees – We will continue to seek to attract and retain qualified, talented and experienced management and operations personnel sourced from other banks and financial institutions. Keeping in view our objective to share the fruits of our success with our employees and to provide them an opportunity to participate in our growth, in Fiscal 2010 the Board approved the introduction of an Employee Stock Option Scheme, subject to a ceiling of 6% of total Equity Shares. For details, please see “Board of Directors and Key Managerial Personnel – Employee Stock Option Scheme”. In order to create the best-in-class work environment, we have adopted what we believe to be the best practices of the industry and undertaken a series of initiatives such as the introduction of performance management systems, balanced score card, comprehensive Mediclaim insurance cover to all employees, an extension of the retirement age of officers from 58 years old to 60 years old and centralised salary payroll and attendance management.

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SUMMARY OF THE ISSUE This summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information appearing elsewhere in this Preliminary Placement Document, including “Risk Factors”, “Use of Proceeds”, “Placement”, “Issue Procedure” and “Description of the Equity Shares”. The following is a general summary of the terms of the Issue: Issuer The Dhanalakshmi Bank Limited Issue size

Rs. [•] million comprising up to [•] Equity Shares of the Bank of par value Rs. 10 each, at a premium of Rs. [•] each

Issue Price Rs. [•] per Equity Share Eligible Investors QIBs, as defined in Regulation 2(1)(zd) of the ICDR Regulations. Please see

“Issue Procedure - Qualified Institutional Buyers” Equity Shares issued and outstanding immediately prior to the Issue*

64,115,600 Equity Shares

Equity Shares issued and outstanding immediately after the Issue*

[●] Equity Shares

Listing The Bank has received in-principle approvals from each of the Stock Exchanges under Clause 24 (a) of the Equity Listing Agreements for the listing of the Equity Shares on the Stock Exchanges.

Lock-up The Bank has agreed with the Book Running Lead Managers not to: (a) issue, offer, lend, sell, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares, global depositary receipts or any securities convertible into or exercisable or exchangeable for Equity Shares whether any such transaction is to be settled by delivery of Equity Shares, global depositary receipts or such other securities, in cash or otherwise; (b) enter into any swap or other agreement that transfers, directly or indirectly, in whole or in part, any of the economic consequences of ownership of Equity Shares, global depositary receipts or such other securities, whether any such transaction is to be settled by delivery of Equity Shares, global depositary receipts or such other securities, in cash or otherwise; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of Equity Shares, global depositary receipts or such other securities, in cash or otherwise, for a period from the date of the Placement Agreement up to 180 days after the Closing Date without the prior written consent of the Book Running Lead Managers, provided that the restrictions contained in the preceding sentence shall not apply to (i) the Equity Shares to be issued pursuant to the Issue, (ii) Equity Shares or other securities issued or to be issued upon the exercise of an option under any employee stock option plans or schemes of the Bank existing on the date hereof and as described in the Placement Documents, and (iii) subject to receipt of prior written consent of the Book Running Lead Managers, which shall not be unreasonably delayed or withheld, Equity Shares or other securities to be issued pursuant to any scheme of amalgamation or arrangement or otherwise in connection with any merger or acquisition of securities, businesses, property or other assets, joint ventures or other strategic corporate transaction.

Transferability Restrictions

Equity Shares being Allotted pursuant to the Issue shall not be sold for a period of one year from the date of Allotment, except on the Stock Exchanges, please see “Transfer Restrictions”

Use of Proceeds Net proceeds of the Issue (after deduction of fees, commissions and expenses) are expected to total approximately Rs. [•].please see “Use of Proceeds”

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Risk Factors Please see “Risk Factors” for a discussion of factors you should consider before deciding whether to buy Equity Shares of the Bank

Closing Allotment of the Equity Shares offered pursuant to the Issue is expected to be made on or about [•], 2010 (the “Closing Date”)

Ranking Equity Shares being issued shall be subject to the provisions of the Bank’s Memorandum and Articles of Association and shall rank pari passu in all respects with the existing Equity Shares, including rights in respect of dividends. The shareholders will be entitled to participate in dividends and other corporate benefits, if any, declared by the Bank after the Closing Date, in compliance with the Companies Act, Equity Listing Agreements and other applicable laws and regulations. Shareholders may attend and vote in shareholders’ meetings on the basis of one vote for every Equity Share held. Please see “Description of the Equity Shares”

Security Codes for the Equity Shares

ISIN : INE680A01011 BSE Code : 532180 NSE Code : DHANBANK CoSE Code : ---

*Pursuant to a resolution passed at the shareholders meeting held on July 31, 2009, we have adopted an employee stock option plan with up to 6% of the issued Equity Shares of the Bank available for issuance to our permanent employees and directors. As of date of this Preliminary Placement Document, the Bank has granted 3,979,225 options under this employee stock option scheme.

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SUMMARY FINANCIAL INFORMATION

REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE REPORTING YEARS

Rupees in Millions

As at As at As at 31-Mar-10 31-Mar-09 31-Mar-08

Capital 641.2 641.2 320.6 Reserves and Surplus 3,759.6 3,603.6 1,401.8Deposits 70,984.8 49,688.1 36,084.2Borrowings 1,205.5 0.0 40.0 Other Liabilities and Provisions 4,277.8 2,495.3 2,483.3 Total 80,868.9 56,428.2 40,329.9 ASSETS Cash and Balance with RBI 6,129.0 3,949.9 3,540.7Balance with Banks and Money at call and short notice 1,374.3 2,910.7 3,383.7 Investments 20,277.9 15,673.6 10,750.6 Advances 50,062.6 31,960.6 21,020.3 Fixed Assets 794.7 462.1 470.8 Other assets 2,230.4 1,471.3 1,163.8Total 80,868.9 56,428.2 40,329.9 Contingent Liabilities 5,575.2 2,495.3 2,755.9 Bills for collection 552.4 537.0 873.6

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REFORMATTED STATEMENT OF PROFITS AND LOSSES FOR THE LAST THREE REPORTING YEARS

Rupees in Millions

Year Ended Year Ended Year Ended 31-Mar-10 31-Mar-09 31-Mar-08

Income Interest earned 5,345.7 4,084.1 3,124.8 Other Income 909.8 793.6 420.3 Total 6,255.5 4,877.7 3,545.1 Expenditure Interest expended 3,940.2 2,868.0 2,135.0 Operating expenses 1,928.6 1,130.7 965.2 Provision and contingencies 153.7 304.5 160.3 Total 6,022.5 4,303.2 3,260.5 Net Profit/(Loss) for the year 233.0 574.5 284.6 Profit/(Loss) brought forward 0.1 0.1 0.1 Transfer from Dividend Payable Account including Dividend Tax

0.0 37.5 37.0

Total 233.1 612.1 321.7 Appropriations Transfer to Statutory Reserve 69.9 172.4 85.4 Transfer to Capital Reserve 64.9 37.9 0.0 Transfer to Special Reserve U/s.36(1)(viii) of Income Tax Act 15.9 14.3 11.2 Transfer to Other Reserves 7.3 312.4 150.0 Proposed Dividend 64.1 64.1 64.1 Dividend Tax 10.9 10.9 10.9 Balance carried to Balance Sheet 0.1 0.1 0.1 Total 233.1 612.1 321.7Earnings Per Share (in Rupees) 3.6 9.2 8.4

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REFORMATTED CASH FLOW STATEMENT FOR THE LAST THREE REPORTING YEARS

Rupees in Millions Year

endedYear ended

Year ended

31.03.2010 31.03.2009 31.03.2008 A CASH FLOW FROM OPERATING ACTIVITIES (5.5) (1,909.6) 927.5 B CASH FLOW FROM INVESTING ACTIVITIES (437.6) (71.5) (53.7) C CASH FLOW FROM FINANCING ACTIVITIES 1,085.8 1,917.3 - TOTAL 642.7 (63.8) 873.8 D BALANCES AT THE BEGINNING OF THE YEAR Cash and balances with RBI 3,949.9 3,540.7 2,507.2 Balances with Bank and Money at Call and Short Notice 2,910.7 3,383.7 3,543.4 E BALANCES AT THE END OF THE YEAR Cash and balances with RBI 6,129.0 3,949.9 3,540.7 Balances with Bank and Money at Call and Short Notice 1,374.3 2,910.7 3,383.7 F TOTAL CASH FLOW DURING THE YEAR (A+B+C) or

(E-D) 642.7 (63.8) 873.8

A CASH FLOW FROM OPERATING ACTIVITIES I+II Interest received during the year from Advances and Investments 5,345.7 4,084.1 3,124.8 Other Income 909.9 793.5 420.3 LESS Interest paid during the year on Deposits and Borrowings 3,940.2 2,867.9 2,135.1 Operating expenses including Provisions and Contingencies 2,082.3 1,435.2 1,125.4 ADD Adjustments for Depreciation and non cash Charges 103.0 75.5 80.6 I CASH PROFIT GENERATED FROM OPERATIONS 336.1 650.0 365.2 (prior to changes in operating Assets and Liabilities) II CASH FLOW FROM OPERATING ASSETS

&LIABILITIES

Deposits 21,296.7 13,603.9 5,204.6 Borrowings 1,205.5 (40.0) (9.9) Other Operating Liabilities 621.5 47.2 369.0 Decrease/(Increase ) in Assets Advances (18,102.0) (10,940.2) (2,649.8) Investments (4,604.3) (4,923.0) (2,098.6) Other Operating Assets (759.0) (307.5) (253.0) TOTAL II (341.6) (2,559.6) 562.3 A NET CASH FLOW FROM OPERATING

ACTIVITIES(I+II) (5.5) (1,909.6) 927.5

CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (543.7) (76.6) (54.0) Sale of Fixed Assets 106.1 5.1 0.3 B NET CASH FLOW FROM INVESTING ACTIVITIES (437.6) (71.5) (53.7)

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Year ended

Year ended

Year ended

31.03.2010 31.03.2009 31.03.2008 C CASH FLOW FROM FINANCING ACTIVITIES Share Capital - Rights Issue - 320.6 - Share Premium - 1,596.7 - Subordinated Debt (Tier Bonds) raised 1,500.0 - - Redemption of Tier II Bonds (350.0) - - Dividend written back - 37.5 - Dividend Paid (64.2) (37.5) - NET CASH FLOW FROM FINANCING ACTIVITIES 1,085.8 1,917.3 -

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RISK FACTORS Investing in the Equity Shares offered in this Issue involves a high degree of risk. Before investing in our Equity Shares, you should carefully consider all the information in this Preliminary Placement Document, including the risks and uncertainties described below and in the sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, as well as the “Financial Statements” and related notes beginning on pages 46, 81 and 144, respectively of this Preliminary Placement Document. If any of the following risks, or other risks that are not currently known or are now deemed immaterial, actually occur, our business and financial results could be materially and adversely affected, the trading price of the Equity Shares could decline significantly and you may lose all or part of your investment. Internal Risk Factors Our business is vulnerable to interest rate risk. Net interest income constituted 27.9%, 24.9% and 22.5% of our income for Fiscal 2008, Fiscal 2009 and Fiscal 2010. Interest rates are highly sensitive to many external factors beyond our control, including growth rates in the economy, inflation, money supply, the RBI's monetary policies, deregulation of the financial sector in India and domestic and international economic and political conditions. An increase in interest rates applicable to our liabilities, without a corresponding increase in interest rates applicable to our assets, will result in a decline in our net interest income. Furthermore, in the event of rising interest rates, our borrowers may not be willing to pay correspondingly higher interest rates on their borrowings and may choose to repay their loans with us if they are able to switch to more competitively priced loans offered by other banks. In addition, increases in interest rates would adversely affect the rate of growth of the Indian economy, which could decrease the demand for loans and other products that we offer and adversely affect the ability of borrowers to service their debt. In the event of falling interest rates, we may face more challenges in retaining our customers if we are unable to offer competitive rates as compared to other banks in the market. Any inability on our part to retain customers as a result of changing interest rates may adversely affect our business, result of operations and financial condition. We could be subject to volatility in income from our treasury operations. Approximately 26.4%, 25.4%, and 20.9%, of our total income in Fiscal 2008, Fiscal 2009 and Fiscal 2010, respectively, was derived from our treasury operations. Our treasury operations are vulnerable to changes in interest rates, exchange rates, equity prices and other factors. In particular, if interest rates rise, we may not be able to realise the same level of income from treasury operations as we have in the past. Any decrease in our income from our treasury operations could adversely affect our result of operations if we cannot offset the same by increasing returns on our loan assets. If we fail to meet capital adequacy requirements, the RBI may take certain actions, including restricting our lending and investment activities and our ability to pay dividends. We are required by the RBI to maintain a minimum capital adequacy ratio of 9% in relation to our total risk-weighted assets, of which 6% is Tier 1 Capital. We must maintain this minimum capital adequacy level to support our growth. Our capital adequacy ratio decreased to 12.99% as per Base1 II, of which 8.80% was Tier 1 Capital, as at March 31, 2010 from 14.44% as per Basel II as at March 31, 2009 due to the rapid expansion in our asset base. Even though we currently meet or exceed the applicable capital adequacy requirements, certain adverse developments could affect our ability to continue to satisfy such capital adequacy requirements, including deterioration in our asset quality, declines in the values of our investments and changes in the minimum capital adequacy requirements. Furthermore, our ability to support and grow our business could be limited by a declining capital adequacy ratio if we are unable to access or have difficulty accessing the capital markets or have difficulty obtaining capital in any other manner. We cannot assure you that we will be able to obtain additional capital on commercially reasonable terms in a timely manner, or at all. If we fail to meet capital adequacy requirements, the RBI may take certain actions, including restricting our lending and investment activities and our ability to pay dividends. These actions could materially and adversely affect our business, results of operations and financial condition. If we are unable to control or reduce the level of NPAs in our portfolio, it could adversely affect our business, results of operations and financial condition. In addition, our provisioning for NPAs will have to increase significantly in order for us to comply with the RBI’s directive that total provisions for NPAs be not less than

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70% of gross NPAs by the end of September 2010, which will have a material adverse effect on our results of operations. Our net NPAs were Rs. 185.6 million, Rs. 282.4 million and Rs. 419.4 million as at March 31, 2008, March 31, 2009 and March 31, 2010, respectively, while our gross NPAs were Rs. 632.1 million, Rs. 644.3 million and Rs. 775.0 million, respectively, as at the same respective dates. Our net NPA ratio was 0.88%, 0.88% and 0.84% as at March 31, 2008, March 31, 2009 and March 31, 2010, respectively, while our gross NPA ratio was 2.95%, 1.99% and 1.54% as at the same respective dates. Our ability to contain or reduce the level of our gross and net NPA ratios may be affected by a number of factors beyond our control, such as increased competition, depressed economic conditions, including material changes in specific industries to which we are exposed, decreases in agricultural production, decline in commodity prices, adverse fluctuations in interest and exchange rates or adverse changes in Indian policies, laws or regulations. Any increase in NPAs will reduce the net interest-earning asset base and increase provisioning requirements, thereby adversely affecting our results of operations and financial condition. In addition, in December 2009, the RBI directed that banks should augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70% of gross NPAs by the end of September 2010. As at March 31, 2010, our total provision for NPAs was Rs. 346.9 million, which was 44.76% of our gross NPAs. Therefore, in order to comply with the RBI’s directive, we will have to increase our provisions for NPAs significantly before the end of September 2010, which will have a material adverse effect on our results of operations for the second quarter of Fiscal 2011 and Fiscal 2011. We face maturity and interest rate mismatches between our assets and liabilities. Our depositors may not roll over term deposits on maturity and we may be otherwise unable to attract a sufficient number of new term deposits on desirable terms. We meet our funding requirements through short-term and long-term deposits from retail and large corporate depositors as well as wholesale interbank deposits. However, a significant portion of our assets (such as loans) have maturities with longer terms than our liabilities (such as deposits). As at March 31, 2010, we had a negative liquidity gap extending over one year and up to three years of Rs. 7,719.6 million. However, we have a positive liquidity gap over three years and up to five years of Rs. 2,624.4 million (in each case inclusive of swaps). If a substantial number of our depositors do not roll over their funds upon maturity, our liquidity position could be adversely affected. We may be required to pay higher interest rates in order to attract and/or retain other deposits. Even if we pay higher interest rates, we may be unable to attract a sufficient number of new deposits. If we are required to pay higher interest rates or are unable to attract a sufficient number of new deposits, our business, results of operations and financial condition could be adversely affected. We are required to maintain certain minimum cash reserve and statutory liquidity ratios and increases in these requirements could materially and adversely affect our business, results of operations and financial condition. As a result of certain statutory reserve requirements stipulated by the RBI, we may be more exposed structurally to interest rate risk than banks in other countries. RBI regulations regarding the cash reserve ratio require us to keep 6% of our net demands and time liabilities in a current account with the RBI. The RBI increased this ratio from 5.75% in April 2010 and it may further increase the cash reserve ratio requirement to a significantly higher proportion than at present as a monetary policy measure. We do not earn interest on any portion of our cash reserve. In addition, under RBI regulations regarding the statutory liquidity ratio, 25% of our demand and time liabilities must be invested in Government securities, state government securities and other approved securities, which earn lower levels of interest as compared to advances to customers or investments made in other securities. The RBI increased this percentage from 24% in October 2009. Increases in cash reserve ratio and statutory liquidity ratio requirements would reduce the amount of cash that we could use to lend and otherwise deploy in our business, which could materially and adversely affect our business, results of operations and financial condition.

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We are highly dependent on our senior management to manage our operations and meet business challenges. If we were to lose one or more of our key personnel and were unable to replace them with persons of comparable skill and expertise promptly or at all, our business, results of operations and financial condition could be adversely affected. Our future success is highly dependent on our senior management to maintain our strategic direction, manage our current operations and meet future business challenges. In particular, the expertise, experience and services of Mr Amitabh Chaturvedi, our Managing Director and Chief Executive Officer, and other members of our senior management team who are executing our growth strategy have been integral to our business. However, we do not maintain key man insurance for any of our senior managers or key personnel. Further, our employment agreements with these personnel do not obligate them to work for us for any specified period and do not contain non-compete or non-solicitation clauses in the event of termination of employment. If we were to lose one or more of our key persons, we may not be able to replace them with persons of comparable skill and expertise promptly or at all, which could have a material adverse effect on our business, results of operations and financial condition. If we are not successful in growing our retail business at the rate we anticipate following the March 2010 launch of our credit card business and the July 2010 roll out of our re-branded and expanded line of retail products or if the increase in our portfolio of retail loan assets causes the level of our NPAs to increase, our business, results of operations and financial condition could be materially and adversely affected. In March 2010, we launched our credit card business. In July 2010, we rolled out our re-branded and expanded line of retail products, which included the introduction of construction financing, loans for new and used construction equipment and vehicle dealer funding. Prior to the July 2010 roll out, we had not significantly focused on our retail business. The aim of the July 2010 roll out is to significantly increase our portfolio of retail loan assets. As at March 31, 2010, our retail loans constituted 16% of our total loan book. Our plan to increase retail assets includes increasing our lending to the self-employed, which may result in increased lending to customers that do not already have an established credit history and may thereby require us to invest substantial resources to manage inherent risks. Even if we succeed in growing our retail business, such an increase in our portfolio of retail loan assets may cause the level of our NPAs to increase. Retail loans may carry a higher risk for delinquency, particularly if there is an increase in unemployment, prolonged recessionary conditions or a sharp rise in interest rates. If the level of our NPAs were to increase as a result of the growth of our retail business, our business, results of operations and financial condition could be materially and adversely affected. We are exposed to liquidity risks as a consequence of the adverse conditions in the global financial markets. Since the second half of 2007, the global credit and equity markets have experienced substantial dislocations, liquidity disruptions and market corrections. In particular, sub-prime mortgage loans in the U.S. have experienced increased rates of delinquency, foreclosure and loss. In September and October 2008, liquidity and credit concerns and volatility in the global credit and financial markets increased significantly with the bankruptcy or acquisitions of, and government assistance extended to, several major U.S. and European financial institutions. These and other related events have had a significant impact on the global credit and financial markets as a whole, including reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the United States and global credit and financial markets. In particular, liquidity in India was adversely affected in late 2008, leading to a significant increase in the cost of funds for the banking sector during this period. Further deterioration in the financial markets may cause recessionary conditions to prevail in many economies, which may lead to significant declines in employment, household wealth, consumer demand and lending and as a result, may adversely affect economic growth globally, including India. In response to such developments, legislators and financial regulators in the U.S. and other jurisdictions, including India, have implemented a number of policy measures designed to add stability to the financial markets. For information on development in India, please see “Industry” and “Supervision and Regulations” in this Preliminary Placement Document. However, the overall impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilising effects. Furthermore, pre-emptive actions taken by the RBI in response to the market conditions in the second half of Fiscal 2009, especially the provision of liquidity support and a reduction in policy rates, may not continue in the future and there can be no assurance that we will be able to access the financial markets for fundraising if we need to do so. In the event that the current difficult conditions in the global credit markets continue or if there is any significant financial disruption, such conditions could have an adverse effect on our business, results of

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operations and financial condition. If we are unable to effectively manage our growth, it could adversely affect our business, results of operations and financial condition. In Fiscal 2010, we significantly expanded our business and our infrastructure, with deposits increasing from Rs. 49,688.1 million as at March 31, 2009 to Rs. 70,984.8 million as at March 31, 2010, advances increasing from Rs. 31,960.6 million as at March 31, 2009 to Rs. 50,062.6 million as at March 31, 2010 and the number of our branches increasing from 207 as at March 31, 2009 (inclusive of 26 extension counters) to 270 as at March 31, 2010. Our ability to sustain growth depends primarily upon our ability to manage key issues such as selecting and retaining skilled personnel, maintaining an effective technology platform that can be continually upgraded, developing a knowledge base to face emerging challenges, and ensuring a high standard of customer service. Sustained growth also puts pressure on our ability to effectively manage and control historical and emerging risks. If we are unable to effectively manage any of these issues, it would adversely affect our business, results of operations and financial condition. We have substantial exposure to certain borrowers and our business, results of operations and financial condition could be materially and adversely affected by difficulties experienced by these borrowers. As at March 31, 2010, our 20 largest customer exposures totalled Rs. 15,532.9 million, representing approximately 30.72% of our total exposure to our customers. None of our 20 largest customer exposures were classified as non-performing as at March 31, 2010. If any of our 20 largest customer exposures were to become non-performing, the quality of our portfolio, and our business, results of operations and financial condition could be adversely affected. Regulations in India requiring us to extend a minimum level of loans to the priority sector, which includes agriculture, small-scale industries and housing finance, could subject us to higher delinquency rates, which would adversely impact our results of operations and financial condition. In addition, if we do not meet the minimum level of lending to the agriculture sector, it could have an adverse effect on our results of operations. The RBI directed lending norms require that every bank should extend an aggregate of 40% of its net bank credit to certain eligible priority sectors, such as agriculture, small-scale industries and housing finance, as at the last reporting Friday of each fiscal year, of which at least 18% of our adjusted net bank credit must be extended to the agricultural sector. As at the last reporting Friday of Fiscal 2010, priority sector advances aggregated Rs. 14,092.8 million and represented 43.61% of our adjusted net bank credit. As at the last reporting Friday of Fiscal 2010, lending to the agriculture sector constituted 23.68% of our adjusted net bank credit. In the case of any shortfall in our required lending to the agriculture sector, we would be required to place the difference between the required lending level and our actual agriculture sector lending in an account with the National Bank for Agriculture and Rural Development under the Rural Infrastructure Development Fund Scheme, from which we would earn interest at lower rates as compared to loans made to the agriculture sector. There is little scope for expanding our agricultural loan portfolio through corporate borrowers due to the limited involvement of corporate entities in agricultural activities in India. As a result, we are required to target individual farmers. There is inadequate historical data of delinquent loans to farmers, which increases the risk of such exposures. Any failure by these third parties to perform their obligations may adversely impact our agricultural asset portfolio and lead to an increase in delinquency rates that may adversely impact our results of operations and financial condition. Any significant difficulty in a particular priority sector, driven by events not within our control, such as regulatory action or policy announcements by government authorities or natural disasters, would adversely impact the ability of borrowers in that sector to service their debt obligations to us, which could have a material adverse effect on our results of operations and financial condition. A substantial portion of our loans have a tenor exceeding one year exposing us to risks associated with economic cycles. As at March 31, 2010, loans with a tenor exceeding one year (based on the RBI’s asset-liability management guidelines) constituted 67.83% of our total loans. The long tenor of these loans may expose us to risks arising

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out of economic cycles. Risks arising out of a recession could lead to rise in delinquency rates and in turn, adversely impact our future financial performance and our market price of the Equity Shares. An increase in restructured assets may adversely affect our results of operations and financial condition. Our gross restructured assets as a proportion of gross customer assets was 0.70% as at March 31, 2010. We restructure assets based upon a borrower’s potential to restore its financial health. However, certain assets classified as restructured may subsequently be reclassified as delinquent or non-performing in the event a borrower fails to restore its financial visibility and honour its loan servicing commitments to us. There can be no assurance that the debt restructuring criteria approved by us will be adequate or successful and that borrowers will be able to meet their obligations under restructured loans. Any resulting increase in delinquency levels may adversely impact our results of operation and financial condition. Our results of operations and financial condition could be materially and adversely affected by contingent liabilities. The following table provides our contingent liabilities as at March 31, 2010 and March 31, 2009:

(Rupees in millions) Particulars As at March 31,

2010 As at March 31,

2009 Claims against the bank not acknowledged as debts 26.8 16.9 Liabilities on account of outstanding forward exchange contracts 3,151.0 877.1 Guarantees given on behalf of constituents in India 1,282.6 969.8 Acceptance endorsements and other obligations 382.1 405.4 Other items for which the Bank is contingently liable (disputed income tax liability)

732.8 226.1

Total Contingent Liabilities 5,575.3 2,495.3 If any of these contingent liabilities materialize, fully or partially, our results of operations and financial condition could be materially and adversely affected. We have a regional concentration in southern India, particularly Kerala. A sustained downturn in these economies may adversely affect our business, results of operations and financial condition. We have a regional concentration in southern India, particularly in Kerala. Although our concentration in South India is falling, with the percentage of branches in South India decreasing from 94% as at March 31, 2009 to 80% as at March 31, 2010, our advances in South India decreasing from 81% of our total advances as at March 31, 2009 to 57% as at March 31, 2010 and our deposits from South India decreasing from 91% as at March 31, 2009 to 75% as at March 31, 2010, our concentration in South India exposes us more acutely to any adverse economic and/or political circumstances in the southern region of India as compared to other public and private sector banks that have a more diversified national presence. If there is a sustained downturn in the economies of South India, particularly in Kerala, our business, results of operations and financial condition may be adversely affected. Our business and financial performance are dependent on increasing our area coverage through our branch network. Any failure to do so will affect our growth. We have 271 branches across India. Scheduled Commercial Banks in India are required to obtain RBI approval before opening a branch office in Tier 1 and Tier 2 centres (centres with population of 50,000 and above as per 2001 census), except in the case of North Eastern States and Sikkim where the general permission would cover semi-urban and urban centres also. We have obtained RBI permission to open four additional branches, which we expect to open in the second quarter of Fiscal 2011. While we do not plan to open additional branches in Fiscal 2011, we are planning to open a significant number of new branches in Fiscal 2012. Any hindrance in obtaining approval from the RBI for opening new branch offices in Tier 1 and Tier 2 centres in the future could delay or prevent us from opening new branches. This would affect our growth, thereby having a material adverse impact on our business.

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If customers or counter parties fail to meet their contracted obligations to us, it could adversely affect our results of operations and financial condition. Some or all of our customers or counterparts may be unable or unwilling to meet their respective contractual commitments in relation to lending, trading, hedging, settlement and other financial transactions. This may materially and adversely affect our operations and may require us to engage in protracted litigation and recovery proceedings, which may not adequately compensate us for losses suffered by us. Such occurrences could adversely affect our results of operations and financial condition. We depend on the accuracy and completeness of information about customers and counterparties. In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our results of operations and financial condition could be adversely affected by relying on financial statements that do not comply with generally accepted accounting principles or contain information that is materially misleading. Our risk management policies and procedures may not adequately address unidentified or unanticipated risks, which may adversely affect our business, results of operations and financial condition. We have devoted significant resources to develop our risk management policies and procedures and plan to continue to do so in the future. However, our policies and procedures to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risk are based upon the use of observed historical market behaviour. As a result, these methods may not accurately predict future risk exposures that could be significantly greater than indicated by the historical measures. Management of operational, legal and regulatory risks require, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies and procedures may not be fully effective. As we seek to expand the scope of our operations, we also face the risk that we will be unable to develop risk management policies and procedures that are properly designed for those new business areas or to manage the risks associated with the growth of our existing businesses. Implementation and monitoring may prove particularly challenging with respect to businesses that we plan on developing, such as our retail business. Inability to develop and implement effective risk management policies may adversely affect our business, results of operations and financial condition. Our success will also depend, in part, on our ability to respond to new technological advances and emerging banking, capital markets, and other financial services industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that we will successfully implement new technologies or adapt our transaction processing systems to customer requirements or improving market standards. Significant security breaches could adversely affect our business and results of operations. We seek to protect our security systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems caused by our use of the internet. Computer break-ins and power disruptions could affect the security of information stored in and transmitted through these computer systems and network infrastructure. We employ security systems, including firewalls and password encryption, designed to minimize the risk of security breaches. Although we intend to continue to implement security measures, technology and establish operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures will be successful. Our business operations have a high volume of transactions and although we believe we take adequate measures to safeguard against system-related and other failures, there can be no assurance that we will be able to prevent fraud or theft of data. Our reputation could adversely be affected by significant fraud or theft of confidential information committed by employees, customers or other third parties. A significant failure in security measures could have a material adverse effect on our business and results of operations.

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We are vulnerable to failures of our information technology systems. Our information technology systems are a critical part of our business and help us manage, among other things, our risk management, deposit servicing and loan origination functions. Even though we have a disaster recovery system, any technical failures associated with our information technology systems or network infrastructure, including those caused by power failures and breaches in security caused by computer viruses and other unauthorized tampering, may cause interruptions or delays in our ability to provide services to our customers on a timely basis or at all, and may also result in costs for information retrieval and verification. Corruption of certain information could also lead to errors when we provide services to our customers. In addition, we may be subject to liability as the result of any theft or misuse of personal information stored on our systems. Our banking business entails operational risks, including fraud. We are exposed to operational risk that could arise from any inadequacy or failure of our internal processes or systems or from fraud. We are susceptible to fraud or misconduct by employees or outsiders, unauthorized transactions by employees and operational errors, including clerical or record keeping errors. Given our high volume of transactions, errors may be repeated or compounded before they are discovered and rectified. In addition, certain banking processes are carried out manually, which may increase the risk that human error, tampering or manipulation will result in losses that may be difficult to detect. Employee misconduct could also involve the improper use or disclosure of confidential information, which could result in regulatory sanctions. It is not always possible to deter employee misconduct and the precautions taken and systems put in place to prevent and detect such activities may not be effective in all instances. As a result of any of these occurrences, we may suffer monetary losses which may not be covered by our insurance coverage and may thereby adversely affect our results of operations and financial condition. Such a result may also adversely affect our reputation. Our measures to prevent money laundering may not be completely effective, which could adversely affect our reputation and in turn have an adverse impact on our business and results of operations. Our implementation of anti-money laundering measures required by the RBI, including KYC policies and the adoption of anti-money laundering and compliance procedures in all our branches, may not be effective. There can be no assurance that attempts to launder money using us as a vehicle will not be made. If we were associated with money laundering, our reputation may be adversely affected, which in turn could have an adverse impact on our business and results of operations. The value of the collateral held by us may be overstated and may decline in the future, which would adversely affect our results of operations and financial condition. There can be no assurance that our loans are collateralized at adequate levels. The collateral may be over-valued and not accurately reflect its liquidation value, which is the maximum amount that we are likely to recover from a sale of collateral less the expenses on such sale. In addition, some of the valuations in respect of collateral held by us may be out of date or may not accurately reflect the value thereof. In certain instances where there are no purchasers for a particular type of collateral, it may be worthless. Consequently, the protection afforded by collateral held by us may be overstated. Any decline in the value of the collateral securing our loans, including with respect to any future collateral taken by us, would mean that its provisioning may be inadequate and require an increase in our provisions. Any increase our provisions would adversely affect our capital adequacy ratio, results of operations and financial condition and may require us to raise additional capital. We may be unable to foreclose on, or experience delays in enforcing, collateral when borrowers default on their obligations, which could adversely affect our business, result of operations and financial condition. We may be unable to foreclose on collateral when borrowers default on their obligations to us, which may result in failure to recover the expected value of such collateral security. A substantial portion of our loans to retail and corporate customers is secured by tangible collateral, predominantly property and equipment financed by us. A portion of our loans to corporate customers is secured by assets, including property, plant and equipment. Our loans to corporate customers also include working capital credit facilities that are typically secured by a first lien or charge on inventory, receivables and other current assets. In some cases, we may have taken further security of a first or second lien or charge on fixed assets, a pledge of financial assets (such as marketable securities), corporate guarantees and personal guarantees. As at March 31, 2010, the ratio of secured to unsecured funded lending by us was approximately 77:23.

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Even though there has been recent legislation strengthening the rights of creditors, which may lead to faster realization of collateral in the event of default, there can be no assurance that such legislation will have a favourable impact on our efforts to reduce our levels of NPAs and we may not be able to realize the full value of our collateral, due to, among other things, delays in foreclosure proceedings, defects in the perfection of collateral, fraudulent transfers by borrowers and decreases in the values of collateral. In addition, the RBI's guidelines on corporate debt restructuring specify that for debt amounts of Rs. 100 million or more, 60% of the creditors by number and 75% of creditors by value can decide to restructure the debt and that such a decision would be binding on the remaining creditors. If we own 25% or less of the debt of a borrower, we could be forced to agree to an extended restructuring of debt, which may not be in our interest. Such difficulties in realizing our collateral fully or at all, including if we are instead compelled to restructure our loans, could adversely affect our business, results of operations and financial condition. We lease most of our business premises. We have 271 branches, six regional offices and three zonal offices, of which 265 branches, all the regional offices and two zonal offices are located on leases premises. In addition, 373 out of 380 ATMs are located on leased premises. Any failure to renew these lease agreements on terms and conditions favourable to us may require us to shift the concerned branch offices, regional offices, zonal offices or the ATMs to new premises, which could adversely affect our business and result in increased costs. We face strong competition from banks and financial institutions that are much larger than we are, and the effects of such competition could materially and adversely affect our business, results of operations and financial condition. The Indian banking industry is highly competitive. We face strong competition in all lines of our business, and many of our competitors are much larger than we are. Such competitors may have more experience in the banking sector than we do. We compete directly with large government controlled public sector banks, which generally have much larger customer and deposit bases, larger branch networks and more capital than we do. On the same bases, many of the major private sector banks in India are also much larger than we are. We also compete with foreign banks with operations in India, including some of the largest multinational banks and financial institutions in the world, and, for certain products, non-banking financial institutions. The Government of India announced in 2004 that it will permit foreign banks to establish wholly-owned subsidiaries in India and has raised the limit on foreign direct investments in private sector banks to 74%. Such measures may increase competition from such foreign banks. Such competitors could have a substantial advantage over us in achieving economies of scale, such as in purchasing technology and other capabilities, improving organizational efficiencies, marketing, promotion and pricing. Due to such intense competition, we may be unable to successfully execute our growth strategy and offer competitive products and services that generate reasonable returns, reduce our currently high operating costs and retain our competitive advantages, which could negatively impact our profit margins and in turn materially and adversely affect our business, results of operations and financial condition. Consolidation in the banking sector in India may adversely affect our business, results of operations and financial condition. The Government has expressed a preference for consolidation in the banking sector in India. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for merged entities. If there is liberalisation of the rules for foreign investment in private sector banks, this could result in consolidation in the banking sector. We may face greater competition from larger banks as a result of such consolidation, which may adversely affect our business, results of operations and financial condition. We may continue to incur substantial expenditure as a result of recent significant increases in hiring to support our growth strategy and if we are unable to manage our employee levels effectively, our results of operations could be adversely affected. The number of our employees increased from 1,402 as at March 31, 2009 to 4,080 as at March 31, 2010 due to increased hiring to support our growth strategy. In Fiscals 2009 and 2010 our payments to and provisions for

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employees were Rs. 625.62 million and Rs. 1,090.80 million, respectively. Our planned growth will require us to continue to significantly increase headcount at various levels and invest in training. Such activities and investments in our employees will require-substantial management effort and attention. If we are unable to manage our employee levels effectively, our operating expenses could increase disproportionately, which could adversely affect our results of operations. We are exposed to fluctuations in foreign exchange rates, which could adversely affect our results of operations We are exposed to fluctuation in foreign currency rates on our limited unhedged exposure, which may directly affect non-interest income. Such fluctuations could also affect our treasury revenue adversely. Movements in foreign exchange rates may also adversely affect our borrowers and this may, in turn, affect the quality of our exposure to these borrowers. Any such developments could adversely affect our results of operations. We may not be able to renew, maintain or obtain necessary statutory and regulatory permits and approvals required to operate our business or new business lines, which could materially and adversely affect our business and results of operations. We have a licence from each of the RBI, IRDA and SEBI for all of our banking and other operations. The RBI may revoke such licence if we fail to comply with any of the terms of conditions relating to such licence or place restrictions on our operations as a result of such non-compliance. Generally, failure to obtain, renew or maintain any required approvals, permits or licences, including the RBI licence, may result in the interruption of all or some of our operations or impede our ability to commence new business lines, which could materially and adversely affect our business and results of operations. The RBI has indicated that we are less than fully compliant with certain RBI requirements. During the course of periodic reviews, the RBI indicated that we are less than fully compliant with certain RBI requirements; although we believe that such non-compliance is with respect to matters that are not material, there can be no assurance that our business will not be affected in future by any RBI actions, including by the loss of a licence, or that the RBI or any other regulator will issue any approvals in the time-frame required by us for our operations or at all. Any downgrade of our debt ratings or increase in interest rates on our outstanding debt and any refinancing thereof would increase our financing costs. Our debt is currently rated investment-grade by ICRA Limited and Credit Analysis and Research Limited (“CARE”) with our Lower Tier II Bonds rated LA- and A- by each of them, respectively, and our certificate of deposit is rated PR1+ by CARE. Any downgrade in our credit ratings may increase interest rates on our outstanding debt or any refinancing thereof which would increase our financing costs, and adversely affect our ability to raise new capital on a competitive basis, which may adversely affect our business, results of operation, and financial condition. We are in the process of putting into effect a change in our name to “Dhanlaxmi Bank Limited”, which is currently subject to approval by the RoC. We have received a show cause notice from the RoC with respect to change of our logo in this regard. The Bank, at its meeting held on December 14, 2009, adopted the current logo “DhanlaxmiBank” with a pictorial representation of Goddess Dhanalakshmi. The Bank received a show cause notice in this regard from the RoC on January 14, 2010 for violation of Section 21 and 23 of the Companies Act, which is punishable with fine which may extend to Rs. 5,000 as well as a further fine of Rs. 5,000 for everyday during which the contravention continues. In response, the Board and the Bank’s shareholders’ at meetings held on March 6, 2010 and July 15, 2010, respectively, approved the change of name of the Bank to ‘Dhanlaxmi Bank Limited’. Additionally, RBI has granted its no-objection to the change of name by letter dated April 28, 2010. However, the change of name remains subject to the approval of the RoC, upon which the RoC will issue a new certificate of incorporation reflecting the change of name. The change of name shall be effectuated only pursuant to receipt of this new certificate of incorporation reflecting the new name, pursuant to which we can commence its usage. Till we receive the RoC approval and begin usage of the new name, the lack of an established brand for the new name, even though phonetically similar to our existing name, may cause a disruption in sales, cause confusion

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and so adversely affect our profitability.

We do not own the trademark and logo and our ability to use the trademark and logo may be impaired.

The trademark and logo is pending registration and our ability to use the trademark and logo may be impaired. We are in a business where customer trust is critical and if the customers no longer identify us, it may affect our financial condition and result of operations. Further, in the event we lose our right to use the trademark and our logo, our business could be adversely affected. Any legal proceedings which result in a finding that we have breached third parties’ intellectual property rights may require us to give financial compensation to such third parties and/or to make changes to our marketing strategies or to the brand names of our products, which could have a material adverse effect on our business, prospects, financial condition and results of operations. We are involved in certain legal proceedings. Our Bank is involved in various civil, consumer and tax related litigations which are at different stages of adjudications before various forums. We are involved in litigations for a variety of reasons, which generally arise in the usual course of business, when we seek to recover our dues from borrowers who default in payment of the loans or when customers seek claims against us during the process of recovery of our dues or for other service related issues. If any of the cases pending is decided against us or our officers, it may have a material adverse effect on our businesses, reputation, financial condition and results of operations. For further information, please see “Legal Proceedings”. Changes in Indian banking regulations could materially affect our business, results of operations and the market value of our Equity Shares. The banking and financial sector in India is highly regulated and extensively supervised, including by the RBI. Our business could be directly affected by any changes in laws, regulations and policies for banks, including if we are compelled to increase lending to certain sectors and increase our reserves. Any such changes may require us to modify our business. In addition, any action by any regulator to curb cash inflows into India could negatively affect our business and results of operations. Moreover, RBI guidelines and provisions of the Banking Regulation Act, 1949 restrict our ability to pay dividends. Increased restrictions on our ability to pay dividends could adversely impact the market value of our Equity Shares. Our business may also be adversely affected by changes in other laws, governmental policies, enforcement decisions, income tax laws, foreign investment rules and accounting principles. For further details, please see “Supervision and Regulations” in this Preliminary Placement Document. We may face labour disruptions that may interfere with our operations. We are exposed to the risk of strikes and other industrial action. The number of our employees who are in trade unions has decreased from approximately 87% as at September 30, 2008 to approximately 33% as at March 31, 2010. While we have not had any employee strikes in the past five years and while we believe our relationship with our employees to be good, we cannot give any assurance that our employees will not participate in strikes, work stoppages and other industrial action in the future. Any such event may have a material adverse effect on our business, result of operations and financial condition. Risk Factors Related to Investments in Indian Companies The Indian economy has sustained varying levels of inflation in the recent past India recently experienced very high levels of inflation, with inflation peaking at 12.91% in August 2008. According to India’s Ministry of Finance Department of Economic Affairs’ Monthly Economic Report March

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2010, year-on-year inflation in terms of the wholesale price index for March 2010 was 9.90% while year-on-year inflation in terms of the wholesale price index for March 2009 was 1.20%. However, the year-on-year inflation rate for March 2010 was virtually unchanged from the year-on-year inflation rate of 9.89% in February 2010. In the event of a high rate of inflation, our costs, such as salaries, wages or any other of our expenses may increase. Accordingly, high rates of inflation in India could increase our costs, which could have an adverse effect on our results of operations. Political, economic and social developments in India could adversely affect our business. The Indian government has traditionally exercised and continues to exercise a significant influence over many aspects of the economy. Our business, and the market price and liquidity of our Equity Shares, may be affected by changes in the Indian government’s policies, including taxation. Social, political, economic or other developments in or affecting India, acts of war and acts of terrorism could also adversely affect our business. Since 1991, successive governments have pursued policies of economic liberalization and financial sector reforms. However, there can be no assurance that such policies will be continued and any significant change in the Indian government’s policies in the future could affect business and economic conditions in India in general and could also affect our business and industry in particular. In addition, any political instability in India or geopolitical stability affecting India will adversely affect the Indian economy and the Indian securities markets in general, which could also affect the trading price of our Equity Shares. Any revisions to India’s credit ratings for domestic and international debt by international rating agencies may adversely affect our business, results of operations and financial condition. In addition, any adverse revisions to India's credit ratings for domestic and international debt by international Rating agencies may adversely impact our ability to raise additional financing and the interest rates and other commercial terms at which such financing is available. This could have an adverse effect on our business, future growth and results of operations. A slowdown in economic growth in India may adversely affect our business and results of operations. Our financial performance is significantly dependent on the overall health of the Indian economy. All of our income for Fiscal 2010, Fiscal 2009 and Fiscal 2008 was from India. As a result, a slowdown in the Indian economy could adversely affect our business. Our ability to raise foreign capital may be constrained by Indian law. The limitations on foreign debt may have an adverse effect on our business growth, financial condition and results of operations. As an Indian company, we are subject to exchange controls that regulate borrowing in foreign currencies, which could constrain our ability to obtain financings on competitive terms and refinance existing indebtedness. In addition, we cannot assure you that the required approvals will be granted to us without onerous conditions, or at all. The limitations on foreign debt may have an adverse effect on our business growth, financial condition and results of operations. We face greater credit risks than banks in developed economies. Our principal activity is providing financing to borrowers, all of whom are based in India. The credit risk of our borrowers, including small and middle market companies, is higher than in typical developed economies due to the higher uncertainty in our regulatory, political and economic environment. In addition, India's system for gathering and publishing statistical information relating to the Indian economy, generally or for specific economic sectors within it, or corporate or financial information relating to companies or other economic enterprises is not as comprehensive as those of several countries with developed economies. The absence of such reliable and comprehensive statistical, corporate and financial information, including audited financial statements and recognized debt rating reports, relating to our present and prospective corporate borrowers or other customers makes the assessment of credit risk, including the valuation of collateral, more difficult. A nationwide credit bureau has become operational in India only recently, and it may be some time before comprehensive credit information as to the credit history of our borrowers, especially individuals and small businesses, is available to us. The difficulties associated with the inability to accurately assess the value of

35

collateral and to enforce rights in respect of collateral, along with the absence of such accurate statistical, corporate and financial information, may decrease the accuracy of our assessments of credit risk, thereby increasing the likelihood of a borrower’s default on our loan and decreasing the likelihood that we would be able to enforce any security in respect of such a loan or that the relevant collateral will have a value commensurate to such a loan. Such difficulties in assessing credit risks associated with our day-to-day lending operations and risks associated with the business environment in India may lead to an increase in the level of our non-performing and restructured assets, which could materially and adversely affect our business, results of operations and financial condition. Terrorist attacks, civil unrest and other acts of violence could adversely affect the financial markets, result in a loss of customer confidence and adversely affect our business, results of operations, financial condition and cash flows. Certain events that are beyond our control, including terrorist attacks and other acts of violence or war, which may adversely affect worldwide financial markets and potentially lead to economic recession, could have an adverse effect on our business, results of operations and financial condition. Additionally, any of these events could lower confidence in India’s economy. South Asia has, from time to time, experienced instances of civil unrest and political tensions and hostilities among neighbouring countries. Political tensions could create a perception that there is a risk of disruption of operations, which could have an adverse effect on the market for our services. A significant change in economic liberalization and deregulation policies in India could adversely affect our business. All of our assets and customers are located in India. The Government of India has traditionally exercised and continues to exercise a dominant influence over many aspects of the economy. Its economic policies have had, and could continue to have, a significant effect on the banking and financial sector, including on us, and on market conditions, and prices of Indian securities, including securities issued by us. Any significant shift in the Government's economic liberalization policies could adversely affect business and economic conditions in India and could also adversely affect our business and financial results. Natural disasters and other disruptions could adversely affect the Indian economy and could cause our business and operations to suffer. Our operations, including our branch network, may be damaged or disrupted as a result of natural disasters such as earthquakes, floods, heavy rainfall, epidemics, tsunamis and cyclones and other events such as protests, riots and labour unrest. Such events may lead to the disruption of information systems and telecommunication services for sustained periods. They also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our provision of services could adversely affect our reputation, our relationships with our customers, our senior management team's ability to administer and supervise our business or it may cause us to incur substantial additional expenditure to repair or replace damaged equipment or rebuild parts of our branch network. We may also be liable to our customers for disruption in services resulting from such damage or destruction. Our bank indemnity insurance coverage for such liability may not be sufficient. Any of the above factors may adversely affect our business and results of operations. Investors in our Equity Shares may not be able to enforce a judgment of a foreign court against us, our directors or our executive officers. The Bank is incorporated as a public limited company under the laws of India. Its assets are all located in India. Most of its Directors and executive officers are residents of India only and virtually all of their assets are located in India. As a result, you may be unable to: • effect service of process in jurisdictions outside India upon us or any of these other persons or entities;

or

• enforce in Indian courts, judgments obtained in courts outside India against us or against any of these

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other persons or entities.

India has reciprocal recognition and enforcement of judgments in civil and commercial matters with only a limited number of jurisdictions. In order to be enforceable, a judgment from a jurisdiction with reciprocity must meet certain requirements of the Indian Code of Civil Procedure, 1908 (the “Civil Code”). Judgments or decrees from jurisdictions which do not have reciprocal recognition with India cannot be enforced in India without filing a new suit upon the judgment. A final judgment for the payment of money rendered by any court in a non-reciprocating territory for civil liability, whether or not predicated solely upon the general laws of the non-reciprocating territory would not be enforceable in India. Even if an investor obtained a judgment in such a jurisdiction against us, our officers or Directors, it will be required to institute a new proceeding in India and obtain a decree from an Indian court. If, and to the extent that, an Indian court were of the opinion that fairness and good faith so required, it would, under current practice, give binding effect to the final judgment that had been rendered the non-reciprocating territory, unless such a judgment contravenes principles of public policy in India. It is unlikely that an Indian court would award damages on the same basis or to the same extent as was awarded in a final judgment rendered by a court in another jurisdiction if the Indian court believed that the amount of damages awarded was excessive or inconsistent with Indian practice. In addition, any person seeking to enforce a foreign judgment in India is required to obtain prior approval of the RBI to repatriate any amount recovered. For more information, please see “Enforcement of Civil Liabilities” in this Preliminary Placement Document. Trade deficits could have a negative effect on our business, results of operations, financial condition and the trading price of the Equity Shares. India’s trade relationships with other countries can influence Indian economic conditions. In Fiscal 2009, India’s merchandise trade deficit was US$119.1 billion compared to US$88.5 billion in Fiscal 2008. This large merchandise trade deficit neutralises the surpluses in India’s current account. If India’s trade deficits increase or become unmanageable, the Indian economy, and in turn our business, results of operations, financial condition and the trading price of the Equity Shares may be adversely affected. Financial instability in other countries, particularly countries with emerging markets, could disrupt Indian markets and the Bank's business and cause volatility in our Equity Share prices. The Indian financial markets and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Although economic conditions are different in each country, investors' reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy. This in turn could negatively impact the movement of exchange rates and interest rates in India. Accordingly, any significant financial disruption could have an adverse effect on the Bank's business, future financial performance and our Equity Share price. We cannot guarantee the accuracy of facts and other statistics with respect to India, the Indian economy, and the Indian banking industry contained in this Preliminary Placement Document. Facts and other statistics in this Preliminary Placement Document relating to India, the Indian economy and the Indian banking industry have been derived from various government publications and obtained in communications with various Indian government agencies that we believe to be reliable. However, we cannot guarantee the quality or reliability of such source of materials. While our directors have taken reasonable care in the reproduction of the information, they have not been prepared or independently verified by us, BRLMs or any of our or their respective affiliates or advisers and, therefore, we make no representation as to the accuracy of such facts and statistics, which may not be consistent with other information compiled within or outside India. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, the statistics herein may be inaccurate or may not be comparable to statistics produced for other economies and should not be unduly relied upon. Further, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case elsewhere. In all cases, investors should give consideration as to how much weight or importance they should attach to or place on such facts or statistics.

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Financial difficulty and other problems at long-term lending institutions and investment institutions in India could have a negative impact on our business, results of operations and financial condition. We are exposed to the risks of the Indian financial system that in turn may be affected by financial difficulties and other problems faced by Indian financial institutions. As an emerging market economy, the Indian financial system faces risks of a nature and to an extent not typically faced in developed countries, including the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme. Certain Indian financial institutions have experienced difficulties during recent years. Some cooperative banks have also faced serious financial and liquidity crises. The problems faced by individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system generally could create adverse market perception about Indian financial institutions and banks. This in turn could adversely affect our business, results of operations and financial condition. A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could have an adverse impact on the Bank. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth. India’s foreign exchange reserves increased by US$36.9 billion (48.4%) in Fiscal 2004, by US$28.5 billion (25.2%) in Fiscal 2005, by US$10.1 billion (7.1%) in Fiscal 2006, by US$47.6 billion in Fiscal 2007 to US$199.2 billion and by US$110.0 billion during Fiscal 2008 to US$309.2 billion. However, during Fiscal 2009, foreign exchange reserves decreased sharply by US$56.8 billion. A further decline in these reserves could result in reduced liquidity and higher interest rates in the Indian economy. On the other hand, high levels of foreign fund inflows could add excess liquidity into the system, leading to policy interventions, which will also slow economic growth. Either way, an increase in interest rates in the economy following a decline in foreign exchange reserves could adversely affect our business, results of operations and financial condition. Significant differences exist between Indian GAAP and other accounting principles, such as IFRS, which may be material to investors’ assessment of our financial condition. Our failure to successfully adopt IFRS effective April 2014 could have a material adverse effect on the price of our Equity Shares. Our financial statements, including the financial statements provided in this Preliminary Placement Document are prepared in accordance with Indian GAAP, which differs in certain respects from IFRS. As a result, our consolidated financial statements and reported earnings could be different from those, which would be reported under IFRS. Such differences may be material. We have not attempted to quantify the impact of IFRS on the financial data included in this Preliminary Placement Document, nor do we provide a reconciliation of our financial statements to those of IFRS. Each of IFRS differs in significant respects from Indian GAAP. In addition, this Preliminary Placement Document does not include any information in relation to the differences between Indian GAAP and IFRS. Accordingly, the degree to which the Indian GAAP financial statements included in this Preliminary Placement Document will provide meaningful information is entirely dependent on the reader’s level of familiarity with Indian accounting practices. Had the financial statements and other financial information been prepared in accordance with IFRS, the results of operations and financial position may have been materially different. Because differences exist between Indian GAAP and IFRS, the financial information in respect of the Bank contained in this Preliminary Placement Document may not be an effective means to compare us with other companies that prepare their financial information in accordance with IFRS. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Preliminary Placement Document should accordingly be limited. In making an investment decision, investors must rely upon their own examination of the Bank, the terms of the Issue and the financial information relating to the Bank. Potential investors should consult their own professional advisors for an understanding of these differences between Indian GAAP and IFRS, and how such differences might affect the financial information contained herein. The Institute of Chartered Accountants of India, the regulatory body for all accounting firms in India, has announced a road map for the adoption of, and convergence with, IFRS, pursuant to which all public companies in India, including ours, will be required to prepare their annual and interim financial statements under IFRS beginning with the Fiscal commencing April 1, 2011 or April 1, 2014, as the case may be, depending on the net worth of the Bank. We expect to have to prepare annual and interim financial statements under IFRS beginning with the Fiscal commencing April 1, 2014. Because there is significant lack of clarity on the adoption of and

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convergence with IFRS and there is not yet a significant body of established practice on which to draw in respect of forming judgments regarding the implementation and application of IFRS, we have not determined with any degree of certainty the impact that such adoption will have on our financial reporting. There can be no assurance that our financial condition, results of operations, cash flows or changes in shareholder’s equity will not appear materially worse under IFRS than under Indian GAAP. As we transition to IFRS reporting, we may encounter difficulties in the ongoing process of implementing and enhancing our management information systems and internal controls. Moreover, there is increasing competition for the small number of IFRS-experienced accounting personnel available as more Indian companies begin to prepare IFRS financial statements. There can be no assurance that our adoption of IFRS will not adversely affect our reported results of operations or financial condition and any failure to successfully adopt IFRS by April 2014 could have a material adverse effect on the price of our Equity Shares. Risk Factors related to the Equity Shares Restrictions on ownership in private sector banks by the RBI could discourage or prevent a change of control or other business combination involving us. The RBI has issued guidelines restricting ownership in private sector banks in India to not more than 10% of the paid-up share capital, directly or indirectly, for any entity or group of related entities. The guidelines state that no entity or group of related entities will be permitted to own or control, directly or indirectly, more than 10% of the paid up capital of a private sector bank without RBI approval. The implementation of such a restriction will discourage or prevent a change in control, merger, consolidation, takeover or other business combination involving us that might be beneficial to our shareholders. Further, RBI approval is required before we can register the transfer of 5% or more of our Equity Shares (paid up capital) to an individual or group. You will not be able to acquire or transfer Equity Shares if such acquisition or transfer would result in an individual or group holding 5% or more of our share capital without prior written acknowledgement by the RBI. Pursuant to the Guidelines for Acknowledgement of Shares in Private Banks dated February 3, 2004 (the “Acknowledgement Guidelines”), any acquisition or transfer of shares in a private sector bank, directly or indirectly, beneficial or otherwise, that will take the aggregate holding of an individual or a group to 5% or more of the paid-up capital of the private bank requires the prior written acknowledgement of the RBI. Shareholders in a private bank require the prior permission of the RBI in order to acquire shares. The term “holding” refers to both direct and indirect holdings, beneficial or otherwise and is computed with reference to the holding of the applicant, relatives (where the applicant is a natural person) and associated enterprises. “Relative” has the meaning under Section 6 of the Companies Act, and “associated enterprises” has the meaning under Section 92A of the IT Act. In considering whether the RBI will grant an acknowledgement to any application for an acquisition or transfer resulting in a holding of 5% or more of the paid-up capital of a private bank, the RBI examines whether the proposed acquirer and all entities connected with the acquirer meet certain fitness and propriety tests. The RBI will apply additional criteria if the acquisition or transfer will take the aggregate shareholding of the applicant or proposed acquirer to 10% or more or 30% or more of the paid-up capital of the private bank. The RBI may require the applicant or proposed acquirer to seek further RBI approval for subsequent acquisitions at any higher threshold specified by the RBI. Holders of Equity Shares could be restricted in their ability to exercise pre-emptive rights under Indian law and could thereby suffer future dilution of their ownership position. Under the Companies Act, any company incorporated in India must offer its holders of equity shares pre-emptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless the pre-emptive rights have been waived by the adoption of a special resolution by holders of three-fourths of the shares voted on such resolution, unless the Bank has obtained Government approval to issue without such rights. However, if the law of the jurisdiction that you are in does not permit the exercise of such pre-emptive rights without us filing an offering document or registration statement with the applicable authority in such jurisdiction, you will be unable to exercise such pre-emptive rights unless we make such a filing. We may elect not to file a registration statement in relation to pre-emptive rights otherwise available by Indian law to you. To the extent that you are unable to exercise pre-emptive rights granted in respect of the Equity Shares, your proportional interests in us would be reduced.

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There may be less information available about entities listed on Indian stock exchanges than entities listed on stock markets in other countries. The Equity Shares will be publicly listed on the Stock Exchanges and will not be listed on any stock exchange in any other country other than India. While the SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters, there may be less publicly available information about Indian entities than is regularly made available by public entities in many other countries. As a result, you may have access to less information about our business, result of operations and financial condition, and those of our competitors listed on Indian stock exchanges, on an ongoing basis, than entities subject to the reporting requirements of other countries. Conditions in Indian stock exchanges may affect the price or liquidity of our Equity Shares. Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities and other problems that have affected the market price and liquidity of the securities of Indian entities. These problems have included temporary closure of the Stock Exchanges to manage extreme market volatility, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time restricted securities from trading, limited price movements and imposed margin requirements. If similar problems occur in the future, the market price and liquidity of our Equity Shares could be adversely affected. For more information on the securities market in India, please see “Indian Securities Market” in this Preliminary Placement Document. Currency exchange rate fluctuations may affect the value of the Equity Shares. The exchange rate between the Rupee and other foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. If you purchase Rupees to purchase our Equity Shares, fluctuations in the exchange rate between the Rupee and the foreign currency with which you purchased the Rupees may affect the value of your investment in our Equity Shares, including, specifically, such foreign currency equivalent of: • the Rupee trading price of our Equity Shares in India;

• the proceeds that you would receive upon the sale in India of any of our Equity Shares; and

• cash dividends, if any, on our Equity Shares, which will be paid only in Rupees.

Future issuances or sales of the Equity Shares could significantly affect the trading price of the Equity Shares. The future issuance of Equity Shares by us, including pursuant to our ESOP Scheme, or the disposal of Equity Shares by any of our major shareholders or the perception that such issuance or sales may occur may significantly affect the trading price of the Equity Shares. Except for the restrictions described in “Placement”, “Description of the Shares” and “Supervision and Regulations”, there is no restriction on our ability to issue Equity Shares or the ability of any of our shareholders to dispose of, pledge or otherwise encumber their Equity Shares, and there can be no assurance that we will not issue Equity Shares or that our shareholders will not dispose of, pledge or otherwise encumber their Equity Shares. An investor will not be able to sell any of our Equity Shares purchased in the Issue other than on a recognized Indian stock exchange for a period of one year from the date of issue of such Equity Shares. Pursuant to the ICDR Regulations, for a period of one year from the date of the issue of our Equity Shares in the Issue, investors purchasing our Equity Shares in the Issue may only sell their shares on the NSE, the BSE and the CoSE and may not enter into any off-market trading in respect of their Equity Shares. We cannot assure that these restrictions will not have an impact on the market price of any Equity Shares purchased by you. Investors may be subject to Indian taxes arising out of capital gains on the sale of our Equity Shares. Capital gains arising from the sale of our Equity Shares are generally taxable in India. Any gain realized on the

40

sale of our Equity Shares on a stock exchange held for more than 12 months will not be subject to capital gains tax in India if the securities transaction tax, or STT, has been paid on the transaction. The STT will be levied on and collected by an Indian stock exchange on which our Equity Shares are sold. Any gain realized on the sale of our Equity Shares held for more than 12 months to an Indian resident, which are sold other than on a recognized stock exchange and as a result of which no STT has been paid, will be subject to capital gains tax in India. Further, any gain realized on the sale of our Equity Shares held for a period of 12 months or less will be subject to capital gains tax in India. Capital gains arising from the sale of our Equity Shares will be exempt from taxation in India in cases where an exemption is provided under a treaty between India and the country of which the seller is a resident. Generally, Indian tax treaties do not limit India's ability to impose tax on capital gains. As a result, residents of other countries may be liable for tax in India as well as in their own jurisdictions on gains arising from a sale of Equity Shares. For more information, please see “Taxation” in this Preliminary Placement Document. Your ability to sell your Equity Shares to a resident of India may be subject to delays if RBI approval is required. Under current Indian regulations and practice, RBI approval is required for the sale of Equity Shares by a non-resident to a resident of India, unless the sale is made on a stock exchange in India through a stock broker or a merchant banker registered with SEBI at the market price. RBI approval may not be obtained on terms favourable to a non-resident investor, in a timely manner or at all. Because of possible delays in obtaining requisite approvals, investors in the Equity Shares may be prevented from realizing gains during periods of price increases or limiting losses during periods of price declines. A third party could be prevented from acquiring control over us because of anti-takeover provisions under Indian law. Indian takeover regulations contain certain provisions that may delay, deter or prevent a future takeover or change in control. These provisions may discourage a third party from attempting to take control of the Bank, even if a change in control would result in the purchase of our Equity Shares at a premium to the market price or would otherwise be beneficial to the investor. Please see “The Securities Market of India”. For further information on issue procedure, please see “Issue Procedure”. After this Issue, our Equity Shares may experience price and volume fluctuations. The Issue Price will be determined by us in consultation with the Lead Managers, based on the Bids received in compliance with Chapter VIII of the ICDR Regulations, and it may not necessarily be indicative of the market price of the Equity Shares after this Issue is complete. You may be unable to resell your Equity Shares at or above the Issue Price and, as a result, you may lose all or part of your investment. The price of the Equity Shares may fluctuate after this Issue as a result of several factors, including volatility in the Indian and global securities markets, the results of our operations, the performance of our competitors, developments, adverse media reports on us or the banking industry, changes in the estimates of our performance or recommendations by financial analysts, significant developments in India’s economic liberalization and deregulation policies, and significant development in India’s fiscal regulations. There is no guarantee that the Equity Shares will be listed on the BSE, NSE and the CoSE in a timely manner or at all. In accordance with Indian law and practice, permission for listing of the Equity Shares will not be granted until after those Equity Shares have been issued and allotted. Approval will require all other relevant documents authorizing the issuing of Equity Shares to be submitted. There could be a failure or delay in listing the Equity Shares on the BSE, CoSE and/or the NSE. Any failure or delay in obtaining the approval would restrict your ability to dispose off your Equity Shares.

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MARKET PRICE INFORMATION Source: www.nseindia.com and www.bseindia.com, the websites of NSE and BSE respectively The Equity Shares of the Bank have been listed on the NSE, the BSE and the CoSE since 1996. The tables below set forth, for the periods indicated the high, low and average closing prices and the trading volumes on the NSE and the BSE for the Bank’s Equity Shares. The Equity Shares of the Bank are not actively traded on the CoSE. As on the date of this Preliminary Placement Document, 64,115,600 Equity Shares are issued and fully paid up. A. The following tables set forth the reported high, low and average of the closing prices of the Equity

Shares of the Bank on the NSE and the BSE traded on the days such high and low prices were recorded for the fiscal years 2010, 2009 and 2008.

NSE Year

ending March

31

High (Rs.)

Date of High

No. of Equity Shares

traded on date of

high

Total Volume

of Equity Shares traded on date of high (Rs. in lacs)

Low (Rs.)

Date of Low

No. of Equity Shares traded on date of low

Total Volume

of Equity Shares traded on date of low (Rs. in lacs)

*Average price for the year

(Rs.)

2010 174.50 October 1, 2009

28,118,117 4935.74 51.55 April 1, 2009

16,306 8.32 123.43

2009 95.45 May 5, 2008

116,589 109.13 39.25 November 28, 2008

11,522 4.54 62.29

2008 156.35 January 18,

2008

130,330 203.95 55.30 April 3, 2007

9,156 5.05 74.83

* Average of the daily closing prices

BSE

Year ending March

31

High (Rs.)

Date of High

No. of Equity Shares traded on date of high

Total Volume

of Equity Shares

traded on date of

high (Rs. in lacs)

Low (Rs.)

Date of Low


Total Volume


*Average price for the year (Rs.)*

2010 174.40 October 1, 2009

813,375 1,422.41 51.60 April 1, 2009

9,553 4.85 123.40

2009 96.80 May 5, 2008

251,246 237.44 39.05 December 2, 2008

8,384 3.23 62.32

2008 155.50 January 18,

2008

551,423 860.49 54.75 April 3, 2007

8,392 4.66 74.79

* Average of the daily closing prices B. The following tables set forth the reported high and low closing prices of our Equity Shares recorded

on the NSE and the BSE and the number of Equity Shares traded on the days such high and low prices were recorded and the volume of Equity Shares traded in each month during the last six months.

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NSE Month High

(Rs.) Date of High


Total Volume

of Equity Shares traded on date of high (Rs. in lacs)

Low (Rs.)

Date of Low


Total Volume


Average price for the month (Rs.)*

Total volume of Equity Shares traded in the

month In

number (Rs. in lacs)

June, 2010

189.60

June 30, 2010

856,463 1,611.78

151.95

June 1, 2010

683,672

1,036.15

166.92 17,099,166

29,220.2

May, 2010

152.05

May 31, 2010

437,411 665.43 142.10

May 7, 2010

133,913

190.77 147.17 5,872,637 8711.93

April, 2010

152.95

April 30, 2010

603,716 932.81 134.00

April 1, 2010

103,556

139.24 141.30 8,047,172 11,723.37

March, 2010

144.75

March 4, 2010

287,546 417.00 130.45

March 29, 2010

221,406

293.87 136.31 3,641,087 5,024.02

February, 2010

144.30

February 1,

2010

395,666 555.52 124.75

February 25, 2010

97,112 121.59 131.84 4,310,642 5,810.35

January, 2010

150.10

January 4, 2010

1,083,499

1,639.11

133.25

January 28, 2010

224,209

303.59 143.17 5,561,648 8,075.31

* Average of the daily closing prices

BSE Month High

(Rs.) Date of High


Total Volume

of Equity Shares traded on date of high (Rs. in

million)

Low (Rs.)

Date of Low


Total Volume

of Equity Shares traded on date of low (Rs. in

million)

Average price

for the month (Rs.)*

Total volume of Equity Shares traded

in the month In

number (Rs. in lacs)

June, 2010

189.45 June 30, 2010

411,311 773.54 151.70 June 1, 2010

470,765 712.82 166.95 8,759,532 14,914.65

May, 2010

152.35 May 31, 2010

258,274 393.39 142.50 May 7, 2010

47,449 67.78 146.99 1,797,029 2,672.63

April, 2010

152.60 April 30, 2010

199,107 307.16 133.95 April 1, 2010

21,676 29.12 144.20 3,098,945 4,511.95

March, 2010

144.55 March 4, 2010

137,225 199.05 130.50 March 29, 2010

70,116 93.26 136.10 4,531,313 6,317.535

February, 2010

144.50 February 1, 2010

149,147 212.54 124.30 February 25, 2010

437,663 603.37 131.78 1,600,988 2,157.97

January, 2010

149.80 January 4, 2010

211,171 318.75 132.35 January 28, 2010

68,526 92.47 143.08 1,700,484 2,448.51

* Average of the daily closing prices The closing prices of our Equity Shares on the NSE and the BSE on May 12, 2010 the trading day immediately following the day on which the resolution of the Board to approve the Issue was passed, were Rs. 143.85 and Rs. 143.20 per Equity Share, respectively.

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USE OF PROCEEDS The total proceeds of the Issue will be Rs. [●] million. After deducting fees and expenses of approximately Rs. [●] million, the net proceeds of the Issue will be approximately Rs. [●] million. The Bank will apply the net proceeds to enhance its capital adequacy ratio and for general corporate purposes, in accordance with applicable law.

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CAPITALISATION STATEMENT

The following table sets forth our capitalisation as at March 31, 2010 on an: • actual basis as set forth in the audited financial statements prepared in accordance with Indian GAAP

as applicable to Indian banks; and

• as adjusted basis to give effect to the Issue.

You should read this table together with “Summary Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” and the related notes thereto included elsewhere in this Preliminary Placement Document.

As at March 31, 2010 Actual As Adjusted

(Rupees in millions) Indebtedness: Refinance RBI 20.0 [●] Refinance NABARD 585.9 [●] Call money Borrowings 599.0 [●] Total indebtedness 1,204.9 [●] Shareholders’ funds: Share capital 641.2 [●] Securities premium 2,050.3 [●] Other Reserves and surplus 1,709.3 [●] Total funds (excluding loan funds) 4,400.8 [●] Total capitalisation 5,605.7 [●]

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DIVIDENDS The declaration and payment of dividends by the Bank is governed by the applicable provisions of the Companies Act and the Articles of Association. For further information, please see "Description of Equity Shares". The following table details the dividend paid by the Bank on the Equity Shares for Fiscal 2010, 2009 and 2008:

(In Rs. million, except per share data) Particulars Fiscal 2010 Fiscal 2009 Fiscal 2008

Face value of Equity Shares (Rs. per share) 10.00 10.00 10.00 Interim Dividend on Equity Shares - - - Final Dividend of Equity Shares 64.1 64.1 37.5Total Dividend on Equity Shares 64.1 64.1 37.5Dividend Rate (percentage) 10.0* 10.0 5.0 Dividend Distribution Tax 10.90 10.90 5.45 * Subject to RBI Approval The amounts paid as dividends in the past are not necessarily indicative of the dividend policy of the Bank or dividend amounts, if any, in the future. The form, frequency and amount of future dividends will depend on the Bank’s revenues, cash flows, financial condition (including capital position) and other factors and shall be at the discretion of our Board and subject to the approval of the Bank’s shareholders. The Equity Shares to be issued in connection with this Issue shall qualify for any dividend, including interim dividend, if any, that is declared in respect of the financial year in which they have been Allotted. Also see, “Taxation” and “Risk Factors”.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with the financial statements included elsewhere in this Preliminary Placement Document, along with the section “Selected Statistical Information”, which presents important statistical information about our business. Our actual results and the timing of selected events could differ materially from those anticipated in forward-looking statements contained in this discussion as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Preliminary Placement Document. See the section “Forward Looking Statements”. The following discussion is based on our financial statements, which have been prepared in accordance with Indian GAAP and RBI guidelines. Indian GAAP differs in certain significant respects from U.S. GAAP and IFRS. Our fiscal year ends on March 31 of each year, so all references to a particular “Fiscal” are to the 12-month period ended March 31 of that fiscal year. Overview We are a private sector bank with a pan-India presence through a network of six regional offices, three zonal offices, 271 branches and 380 ATMs covering 136 centres in 14 states. As at March 31, 2010, we had 4,080 employees serving over 1.4 million customers. We have organised our business into six verticals, four of which are in the area of asset management: the wholesale banking group; the trade & advances group; the micro finance & agriculture group; and the retail assets group. The wholesale banking group covers corporations with a net worth of Rs. 500 million and above. The trade & advances group covers all cases other than those coming under wholesale banking and cases in the non-individual category. The micro finance & agriculture group covers all activities falling in those segments. The retail assets group covers all advances to individuals. In addition, we have a branch banking group that covers retail liabilities and a non-interest income/fee-based services group that covers the distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking, demat and treasury operations. Our products and services include: savings accounts; current accounts; term deposits; credit cards; loans; depository services; locker facilities; foreign exchange services; payment services; online broking services; cash management services; non-fund based products; and corporate salary accounts. We also distribute Bajaj Allianz General Insurance Company Limited’s (“Bajaj Allianz”) life insurance and non-life insurance products and mutual funds of ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC AMC. In addition to our growing branch and ATM network, we provide our customers with internet banking services. We are planning to launch our mobile banking service by the end of July 2010 and telephone banking services before the end of Fiscal 2011. We have arrangements with major exchange houses in the Middle East (UAE Exchange Centre LLC and Al Ahalia Money Exchange Bureau) and foreign correspondent banks (Deutsche Bank Trust Company Americas, Wachovia Bank NA, Commerzbank AG, and National Westminister Bank PLC) to enhance our capability of providing international remittance services. Revenue Our revenue, which is referred to herein and in our financial statements as income, consists of interest earned and other income. Interest earned includes interest on advances, income on investments and interest on balances with the RBI and other inter-bank funds. Income on investments consists of interest from securities and our other investments. We also earn interest income from deposits that we keep with other banks. Our investment portfolio consists primarily of central government and state government securities. We meet SLR requirements through investments in these and other approved securities. We also hold equity shares, debentures and bonds issued by public sector undertakings and government-controlled companies, commercial paper and mutual fund units.

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Our other income consists of fees, commission, foreign exchange and brokerage income, net profit on the sale of investments and net profit/loss on the sale of land, buildings and other assets, net profit/loss on exchange transactions, income earned from insurance and miscellaneous income (which includes recovery from written-off accounts and incidental charges such as account keeping fees and sundry charges). Expenditures Our expenditures consist of interest expended, operating expenses and provisions and contingencies. Our interest expended consists of interest on deposits, interest on borrowing from RBI and interbank for call money and term money and other interest. Other interest consists of interest on subordinated debt. Operating expenses consist principally of payments to and provisions for employees, lease rentals and related expenses such as electricity charges paid on premises, depreciation on fixed assets, insurance, postage and telecommunications and other expenses, printing and stationery, and repairs and maintenance. Our provisions and contingencies consist principally of provisions for non-performing assets, standard assets and income tax and other taxes. Factors Affecting our Financial Results A number of general factors affected our financial performance during each of Fiscal 2008, Fiscal 2009 and Fiscal 2010. These factors may affect our financial performance in the future. Set forth below are explanations for some of the major factors that affect our results of operations. The Macroeconomic Environment The global credit markets have experienced significant dislocations and liquidity disruptions since the second half of 2007, which have originated from the liquidity disruptions in the United States and the European Union credit and sub-prime mortgage markets. These and other related events, such as collapse of a number of financial institutions, have had and continue to have a significant adverse impact on the availability of credit and the confidence of the financial markets, globally. The deterioration in the financial markets has heralded a recession in many countries, which has led to significant declines in employment, household wealth, consumer demand and lending and, as a result, has adversely affected economic growth. Further, the enhanced perception of liquidity and solvency risks led to an almost total reluctance on the part of banks and financial institutions to expose themselves to the money and credit markets. Despite the slowdown in the global economic environment in Fiscal 2008, the Indian economy grew at a rate of nearly 9%. However, with the collapse of Lehman Brothers in September 2008 and the ensuing events globally, the Indian economy witnessed a slowdown as growth rate dropped to 6.7% in Fiscal 2009. The Indian GDP growth rate improved in Fiscal 2010 to 7.4%. (Source: Centre for Monitoring Indian Economy) The Indian economy also witnessed shortages of liquidity which led to an increase in the interest rates for loans provided by banks and financial institutions. The slowdown in India has not been led by the financial sector but affected by mainly the following: • The sharp slowdown in global import demand resulted in an export slowdown;

• A contraction in the availability of global finance, particularly export finance, and an increase in the costs of foreign currency funds; and

• A slowdown in investment plans of many corporations as a consequence of demand slowdown.

Availability of cost-effective funding sources The ratio of our current and savings account deposits to total deposits, expressed as a percentage (or CASA percentage), for Fiscal 2008, Fiscal 2009 and Fiscal 2010 were 29.2%, 24.3% and 21.9%, respectively. Our ability to meet demand for new loans will depend on our ability to broad base our deposit profile and our continued access to term deposits from the retail, corporate and inter-bank market. Our debt service costs and cost of funds depend on many external factors, including developments in the Indian credit markets and, in particular, interest rate movements and the existence of adequate liquidity in the inter-bank markets. Internal

48

factors that will impact our cost of funds include changes in our credit ratings, available credit limits and our ability to mobilize low-cost deposits. Impact of interest rate volatility Our results of operations depend to a great extent on our net interest income. Net interest income represents the excess of interest earned from interest-bearing assets (performing loans and investments) over the interest paid on customer deposits and borrowings. Changes in interest rates affect the rates we charge on our interest-earning assets and that we pay on our interest-bearing liabilities. Since the maturities of our loans and investments tend to be more long-term than our deposits, such interest rates may change differently and decrease our net interest income. For further information, please see “Risk Factors – Our business is vulnerable to interest rate risk” and “Selected Statistical Information – Asset Liability Gap” The following table sets forth the bank rate, the reverse repo rate and the repo rate as at the dates set forth in the table.

Bank Rate Reverse Repo Rate Repo Rate As at March 31, 2007 6.00% 6.00% 7.75% As at March 31, 2008 6.00% 6.00% 7.75%As at March 31, 2009 6.00% 3.50% 5.00%As at March 31, 2010 6.00% 3.50% 5.00% With effect from April 20, 2010 6.00% 3.75% 5.25% With effect from July 2, 2010 6.00% 4.00% 5.50% Source: Reserve Bank of India Ability to achieve operating efficiencies We use several methods to achieve operating efficiencies, such as centralizing our processing (including with respect to retail branch processing, cheque clearing, depository, trade finance, taxation-related activities and procurement), rationalizing infrastructure and technology expenditure, tracking and improving cost efficiency, streamlining documentation and workflow through technology and right-skilling our workforce through optimal recruitment and training. On the other hand, our operating costs continue to rise owing to our growth strategy as we widen our branch network and hire more employees. Our ability to sustain our growth strategy and increase the yield on our investments will depend on our ability to achieve operating efficiencies. Ability to manage NPAs and risk as well as our provisioning for NPAs As at March 31, 2008, March 31, 2009 and March 31, 2010, our net NPAs were Rs. 185.6 million, Rs. 282.4 million and Rs. 419.4 million, respectively, and our gross NPAs were Rs. 632.1 million, Rs. 644.3 million and Rs. 775.0 million, respectively. As at March 31, 2008, March 31, 2009 and March 31, 2010, our net NPA ratio was 0.88%, 0.88% and 0.84%, respectively, while our gross NPA ratio was 2.95%, 1.99% and 1.54%, respectively. Our ability to continue to reduce or contain the level of our gross and net NPA ratios depend on a number of factors beyond our control, such as increased competition, depressed economic conditions, including with respect to specific industries to which we are exposed, decreases in agricultural production, decline in commodity prices, adverse fluctuations in interest and exchange rates or adverse changes in Indian policies, laws or regulations and also on our ability to manage our risk. In December 2009, the RBI directed that banks should augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70% of gross NPAs by the end of September 2010. As at March 31, 2010, our total provision for NPAs was Rs. 346.9 million, which was 44.76% of our gross NPAs. Therefore, in order to comply with the RBI’s directive, we will have to increase our provisions for NPAs significantly before the end of September 2010, which will have a material adverse effect on our results of operations for the second quarter of Fiscal 2011 and Fiscal 2011 and it may continue to have a material adverse effect on our results of operations in periods thereafter.

49

Government policies and regulations in relation to the Indian banking system Our operations are regulated by the RBI. The Government, through the RBI, is actively involved in the management of the Indian economy and in implementing their social policies. Accordingly, we are subject to: • Changes in the two kinds of statutory reserve requirements: Cash Reserve Ratio (“CRR”) and

Statutory Liquidity Ratio (“SLR”). Under these requirements, all banks are required to maintain a certain stipulated proportion of their net demand and time liabilities (“NDTL”) in the form of cash, gold, balances with RBI, current account balances with other banks and unencumbered Government and/or other approved securities. The basic objective of the CRR and the SLR requirements is to ensure that banks hold sufficient liquid resources to meet any unexpected contingencies.

• Requirements to lend to certain priority sectors;

• Requirements discouraging lending in certain specified sectors, such as real estate, commodities and capital markets.

• The RBI’s prudential norms in respect of income recognition, asset classification and provisioning. Any changes in the regulatory framework regarding provisioning for NPAs could adversely affect our profitability and consequently our net worth.

For further details, please see “Supervision and Regulations”. The last two years witnessed increased intervention by government and regulatory authorities in India, both at the monetary policy level (through decreases in interest rates and liquidity injections into the financial system) as well as at the Fiscal policy level. In response to inflationary pressures in the first half of Fiscal 2009, the RBI adopted a tight monetary policy stance. From April 2008 to August 2008, the RBI increased the repo rate by 125 basis points and the cash reserve ratio by 150 basis points. From September 2008, to alleviate credit constraints arising from global events affecting the banking sector such as the bankruptcy filing of Lehman Brothers, the RBI adopted an aggressive monetary easing stance. From October 2008 to April 2009 the RBI decreased the key short-term rates, i.e., the repo rate by 425 basis points, the reverse repo rate by 275 basis points and the CRR by 400 basis points to 4.25%, 3.75% and 5.00%, respectively. The RBI also enhanced export credit refinance, special refinance for scheduled commercial banks (non-regional rural banks) and refinance facilities for Small Industries Development Bank of India, National Housing Bank and EXIM Bank. Additionally, risk weights on banks’ exposures to all unrated claims on corporations, claims secured by commercial real estate and claims on non-deposit taking systemically important companies were reduced to 100% from 150%. The provisioning requirements for all types of standard assets were reduced to a uniform level of 0.40%, (except for direct advances to agriculture and SME sectors which continue to attract provisioning of 0.25%, as earlier). The RBI has since published a series of policies enabling banks to restructure stressed loans, subject to certain conditions. Please see “Supervision and Regulations – Corporate debt restructuring mechanism” for a more detailed discussion. With the easing of liquidity pressures in response to the above measures and to manage a potential excess of liquidity, with effect from October 2009 the RBI increased the statutory liquidity ratio for scheduled commercial banks from 24.00% to 25.00% of their net demand and time liabilities. Also, since April 1, 2010, RBI has increased the repo rate and reverse repo rate twice, first by 25 bps each on April 20, 2010 and subsequently from July 2, 2010 by an additional 25 bps each, with the repo rate and reverse repo rate now at 5.50% and 4.00% respectively. Critical Accounting Policies Our financial statements are prepared in accordance with Indian GAAP, and by following the going concern concept on a historical cost convention and conforming to the statutory provisions and practices within the banking industry in India. The presentation of financial statements in conformity with Indian GAAP requires estimates and assumptions to be made that affect the reported amounts of assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the years ended on the date of the financial statements. Differences between the actual results and estimates are recognized in the year in which the results are known or have materialized. Our significant accounting policies are more fully described under the notes to our financial statements in the section “Financial Statements”. The following are our critical accounting policies, in accordance with RBI guidelines:

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Revenue recognition • Items of income and expenditure are accounted for on an accrual basis, except as stated hereunder:

• Interest on loans and advances is recognized on an accrual basis other than on those stipulated in RBI’s prudential norms on income recognition, asset classification and provisioning relating to NPAs where the income is recognized on realization.

• In respect of accounts covered under one time settlement, the recoveries are adjusted against book balance and the net balance is written off.

• Income accounted for in the preceding year and remaining unrealized is de-recognized in respect of advances classified as NPA during the year. Interest on NPA is transferred to interest suspense account and recognized in Profit and Loss Account when realised.

• Rent on safe deposit lockers, dividends, depository participant business etc. are accounted for on cash basis. Discount on bills are recognized upfront except where the tenor exceeds one year.

• Interest on income tax refunds is accounted in the year in which the same is determined.

• In respect of sale of assets under securitization the Bank has followed RBI guidelines as under:

o Sale price received shall be duly accounted for and shall be apportioned to each asset on the basis of respective valuations given to the asset.

o If the sale price is below Net Book Value (i.e. Outstanding book balance less interest suspense and provisions held) {Net NPA}, then shortfall should be debited to profit and loss account.

o If sale value is higher than the Net NPA balance, then excess provisions shall not be reversed but should be utilized to meet the shortfall/loss on account of sale of other non performing Assets.

o The cash consideration received in respect of written off accounts shall be taken to Profit and Account and the value of Security Receipts shall be shown under investment and the corresponding provision shall be held.

Investments Investments in Government, other approved securities, shares, debentures, bonds and other securities are categorized into (a) Held to Maturity (b) Held for Trading and (c) Available for Sale in terms of RBI guidelines.

In determining acquisition cost of an investment:

• Brokerage, commission, etc. paid at the time of acquisition, are charged to revenue.

• Broken period interest on debt instruments is treated as a revenue item.

• Cost of investments is based on the following basis:

o Held to Maturity - Individual cost;

o Held for Trading - Weighted Average; and

o Available for Sale - Weighted Average.

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Valuation of Investments:

Particulars Valuation Norms Central Government Securities

Prices published by PDAI/FIMMDA

State Government Securities At YTM published by PDA/FIMMDA Other Approved Securities YTM published by PDA/FIMMDA duly adjusted as per RBI guidelines Bonds, Debentures and Preference Shares

As per rates/methodologies prescribed by FIMMDA

Equity Shares Valued at book value as per the latest Balance Sheet. Where Balance Sheets are not available, at Re 1 per Company

Units of Mutual Fund Re-purchase price/NAV declared by the Mutual Fund as at the close of the year

Other securities As per guidelines prescribed by RBI The premium (acquisition cost over the face value), if any, is amortised over the remaining period of maturity in respect of securities held under Held to Maturity category based on “Constant Yield Method”. Profit on redemption/sale of securities in Held to Maturity category is transferred to Capital Reserve.

The shifting of securities from one category to another is done with the approval of the Board as per RBI guidelines. The shifting is effected at acquisition cost/book/market value on the date of transfer, whichever is the least and the depreciation if any at the time of shifting is fully provided for.

Repo and Reverse Repo Transactions In a repo transaction, the Bank borrows monies against pledge of securities. The book value of the securities pledged is credited to the investment account. Borrowing costs on repo transactions are accounted for as interest expense. In respect of repo transactions outstanding at the balance sheet date, the difference between the sale price and book value, if the former is lower than the latter, is provided as a loss in the income statement.

In a reverse repo transaction, the Bank lends monies against incoming pledge of securities. The securities purchased are debited to the investment account at the market price on the date of the transaction. Revenues thereon are accounted as interest income.

In respect of repo transactions under LAF with RBI, monies borrowed from RBI are credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LAF, monies paid to RBI are debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income.

Derivatives The Bank uses forward exchange contracts to hedge against its foreign currency exposures relating to the underlying transaction and firm commitments. The Bank has not entered into any derivative instruments for trading or speculative purposes either in foreign exchange or domestic treasury operations. Advances Advances are classified as performing and non-performing based on the Reserve Bank of India guidelines and further into Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of bills rediscounted, specific provisions, floating provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation.

Specific loan loss provisions in respect of non-performing advances (NPAs) are made based on management’s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed in the RBI guidelines.

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The Bank maintains general provision for standard assets at levels stipulated by RBI from time to time. Provision for standard assets is included under Other Liabilities. Provisions made in excess of these regulatory levels or provisions which are not made with respect to specific non-performing assets or assets which are restructured/securitised are categorised as floating provisions.

The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance/securities, which would generally include, among others, alteration of repayment period/repayable amount/the amount of instalments/rate of interest (due to reasons other than competitive reasons). Restructured accounts are reported as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made.

Fixed assets and all revaluations Fixed assets, except those revalued, are stated at cost less accumulated depreciation. Cost includes purchase and all expenditure like site preparation, installation costs, professional fees and other expenses incurred on the asset before it is ready to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the futures benefit/functioning capability from/of such assets.

Depreciation is charged over the estimated useful life of the fixed asset on a written down value basis, except on computers. The rates of depreciation are given below:

• Owned Premises at 5.00% per annum.

• Office equipment at 18.10% per annum.

• Motor cars at 25.89% per annum.

• Electrical items at 13.91% per annum.

• Items (excluding staff assets) costing less than Rs. 5,000 are fully depreciated in the year of purchase.

• All other assets are depreciated as per the rates specified in Schedule XIV of the Companies Act, 1956.

• Computers including software and system development expenditure at 33.33% per annum on a straight line basis.

Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of three to five years.

For assets purchased and sold during the year, depreciation is provided on pro rata basis. Changes in Accounting Policies There have been no material changes in our accounting policies during Fiscal 2008, Fiscal 2009 and Fiscal 2010 other than commission from our insurance business was accounted for on an accrual basis during Fiscal 2010 where previously it was accounted for on a cash basis. If we had accounted for commission from our insurance business on a cash basis for Fiscal 2010 our net profit would have been lower by Rs. 8.4 million. Summary of Our Financial Results The following sets forth a summary of our financial results containing significant items of our income and expenditure based on our audited financial results: Statement of Profits and Losses

Year ended March 31, 2008 2009 2010

(Rupees in millions) Income

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(Rupees in millions) Interest earned 3,124.8 4,084.1 5,345.7 Other income 420.3 793.6 909.8 Total income 3,545.1 4,877.7 6,255.5 Expenditure Interest expended 2,135.0 2,868.0 3,940.2 Operating expenses 965.2 1,130.7 1,928.6 Provisions and contingencies 160.3 304.5 153.8Total expenditure 3,260.5 4,303.2 6,022.5 Net profit 284.6 574.5 233.0 Year ended March 31, 2010 compared to the Year ended March 31, 2009 Significant Developments in Fiscal 2010 During Fiscal 2010 we opened 63 branches and 2 processing centres. In line with our growth strategy, our work force increased from 1,402 as at March 31, 2009 to 4,080 as at March 31, 2010. The expansion in our branch network and the increase in our employees in Fiscal 2010 resulted in a general increase in our business as well as our operating expenses. Summary of Performance

Year ended March 31, 2009 2010 % change (Rupees in millions)

Net interest income 1,216.1 1,405.5 15.57% Other income 793.6 909.9 14.65% Operating (non interest) expenses 1,130.7 1,928.6 70.57% Provisions and contingencies 304.5 153.8 (49.51)%Net profit 574.5 233.0 (59.44)% Net Interest Income Our net interest income increased by 15.55% from Rs. 1,216.1 million in Fiscal 2009 to Rs. 1,405.5 million in Fiscal 2010. The following table sets forth the components of our net interest income:


Total interest income 4,084.1 5,345.7 30.89% Total interest expense 2,868.0 3,940.2 37.38% Net interest income 1,216.1 1,405.5 15.55% Interest Earned


Interest/discount on advances/bills 2,920.9 4,193.9 43.59% Income on investments 790.3 1,078.5 36.47% Income on balances with RBI and other inter-bank funds 372.9 53.2 (85.73)% Others - 20.1 - Total 4,084.1 5,345.7 30.89% Our interest income increased by 30.89% from Rs. 4,084.1 million in Fiscal 2009 to Rs. 5,345.7 million in Fiscal 2010.

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Our interest/discount on advances/bills increased by 43.59% from Rs. 2,920.9 million in Fiscal 2009 to Rs. 4,193.9 million in Fiscal 2010. This increase was due to an increase in advances, which increased by 56.63% from Rs. 31,960.6 million as at March 31, 2009 to Rs. 50,062.6 million as at March 31, 2010. Our income on investments increased by 36.47% from Rs. 790.3 million in Fiscal 2009 to Rs. 1,078.5 million in Fiscal 2010. This increase was due to an increase in investments, which increased by 29.37% from Rs. 15,673.6 million as at March 31, 2009 to Rs. 20,277.9 million as at March 31, 2010. The increase in investments was due to increase in Government securities (including approved securities), which increased by 33.60% from Rs. 13,879.4 million as at March 31, 2009 to Rs. 18,544.0 million as at March 31, 2010. Our income on balances with RBI and other inter-bank funds decreased by 85.73% from Rs. 372.9 million in Fiscal 2009 to Rs. 53.1 million in Fiscal 2010. This decrease was primarily due to a reduction in interbank deposit placement, which decreased by 70.38% from Rs. 2,595.0 million as at March 31, 2009 to Rs. 768.5 million as at March 31, 2010. Interest Expense


Interest on deposits 2,794.8 3,702.3 32.48%Interest on RBI and inter-bank borrowings 6.4 108.2 1,590.63%Others 66.8 129.7 94.16% Total interest expended 2,868.0 3,940.2 37.39% Our total interest expended increased by 37.39% from Rs. 2,868.0 million in Fiscal 2010 to Rs. 3,940.2 million in Fiscal 2010. This increase was due to an increase in our total deposits and borrowings from Rs. 49,688.1 million as at March 31, 2009 to Rs. 72,190.3 million as at March 31, 2010 reflecting increased deposits and borrowings to fund the growth of our business. Interest on deposits increased by 32.48% from Rs. 2,794.8 million in Fiscal 2009 to Rs. 3,702.3 million in Fiscal 2010. This increase was due to an increase in deposits, which increased from Rs. 49,688.1 million as at March 31, 2009 to Rs. 70,984.8 million as at March 31, 2010 to meet the funding requirements of the growth in our assets. This increase was partially offset by a decrease in cost of deposits. Interest on balances with the RBI and other inter-bank funds increased by 1,590.63% from Rs 6.4 million in Fiscal 2009 to Rs. 108.2 million in Fiscal 2010 primarily due to refinance taken from SIDBI and increase in call borrowings. Our other interest expense increased by 94.16% from Rs. 66.8 million in Fiscal 2009 to Rs. 129.7 million in Fiscal 2010. This increase was primarily due to the issue of tier II subordinated debt of Rs. 1,500 million in September, 2009, which was partially offset by the redemption of Rs. 350.0 million of tier II subordinated debt in June, 2009. Other Income Our other income increased by 14.65% from Rs. 793.6 million in Fiscal 2009 to Rs. 909.9 million in Fiscal 2010. The components of our other income are: Commissions, exchange and brokerage Income from commissions, exchange and brokerage fees decreased by 30.60% from Rs. 101.3 million in Fiscal 2009 to Rs. 70.3 million in Fiscal 2010. Profit on sales of investments Profit on sales of investments increased by 141.38% from Rs. 73.7 million in Fiscal 2009 to Rs. 177.9 million in Fiscal 2010 as a result of favourable market conditions for certain investments that we held.

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Profit on sale of land, buildings and other assets Profit on the sale of land, buildings and other assets increased by 294.44% from Rs. 1.8 million in Fiscal 2009 to Rs. 7.1 million in Fiscal 2010. Profit on exchange transactions Profit on exchange transactions (net) decreased by 38.36% from Rs. 37.8 million in Fiscal 2009 to Rs. 23.3 million in Fiscal 2010. Income from insurance Income from insurance decreased by 22.34% from Rs. 73.4 million in Fiscal 2009 to Rs. 57.0 million in Fiscal 2010. This decrease was primarily due to change in business mix and increase in proportion of lower income yielding policies in total distribution sales. Miscellaneous income Miscellaneous income increased by 13.57% from Rs. 505.6 million in Fiscal 2009 to Rs. 574.2 million in Fiscal 2010. This increase was primarily due to an increase in the commitment fee received from Bajaj Allianz, which was Rs. 230.0 million in Fiscal 2009 and Rs. 270.0 million in Fiscal 2010. Operating Expenses Our operating expenses increased by 70.57% from Rs. 1,130.7 million in Fiscal 2009 to Rs. 1,928.6 million in Fiscal 2010 mainly due to an increase in payments to and provisions for employees by 74.36% from Rs. 625.6 million in Fiscal 2009 to Rs. 1,090.8 million in Fiscal 2010. This increase was primarily due to an increase of the number of employees from 1,402 as at March 31, 2009 to 4,080 as at March 31, 2010. In addition, our operating expenses also increased due to the opening of 63 branches including two processing centres during Fiscal 2010, which resulted in a 55.3% increase in rent taxes and lighting from Rs. 139.1 million in Fiscal 2009 to Rs. 216.0 million in Fiscal 2010. As a consequence of opening the additional branches, the depreciation on our property increased by 36.42% from Rs. 75.5 million in Fiscal 2009 to Rs. 103.0 million in Fiscal 2010. Provisions and Contingencies The components of our provisions and contingencies are indicated below:

Year ended March 31,2009 2010

(Rupees in millions) Provision for Non Performing Assets (Advances) 18.7 22.2Floating Provision for NPA (Advances) 20.00 - Provision for Standard Assets 5.2 74.2 Provision for Restructured Advances 6.5 4.1 Provisions for Securitisation 49.5 - Bad Debts Written Off 3.2 7.9Provision for Depreciation on Investments (Net) (9.4) 6.7Provision for NPA (Investments) (11.3) (5.8) Provision for Income Tax / Wealth Tax / FBT 226.2 51.2 Deferred Tax Asset (4.1) (6.8) Total 304.5 153.8 Provisions and contingencies decreased by 49.49% from Rs. 304.5 million in Fiscal 2009 to Rs. 153.8 million in Fiscal 2010. This decrease was primarily due to a decrease in provisions for taxes which decreased from Rs. 226.2 million in Fiscal 2009 to Rs. 51.2 million in Fiscal 2010 on account of decreased profits and the fact that we did not have a provision for securitization in Fiscal 2010 whereas we had a Rs. 49.5 million provision for securitization in Fiscal 2009 relating to sale of NPAs. These decreases were partially offset by an increase in our provision for standard assets, from Rs. 5.2 million in Fiscal 2009 to Rs. 74.2 million in Fiscal 2010, which was

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due to a 56.64% increase in advances as at March 31, 2010 compared to March 31, 2009. Our ratio of net NPAs to total advances decreased from 0.88% in Fiscal 2009 to 0.84% in Fiscal 2010. Net Profit As a result of the foregoing factors, our net profit decreased by 59.43% from Rs. 574.5 million in Fiscal 2009 to Rs. 233.0 million in Fiscal 2010. Year ended March 31, 2009 compared to the Year ended March 31, 2008 Summary of Performance


Net interest income 989.8 1,216.1 22.89% Other income 420.3 793.6 88.82% Operating (non interest) expenses 965.2 1,130.7 17.15% Provisions and contingencies 160.3 304.5 89.96% Net profit 284.6 574.5 101.86% Net Interest Income Our net interest income increased by 22.89% from Rs. 989.7 million in Fiscal 2008 to Rs. 1,216.2 million in Fiscal 2009. The following table sets forth the components of our net interest income:

Year ended March 31, 2008 2009 % change(Rupees in millions)

Total interest income 3,124.8 4,084.1 30.70% Total interest expense 2,135.0 2,868.0 34.33% Net interest income 989.8 1,216.1 22.86% Interest earned


Interest/discount on advances/bills 2,196.1 2,920.9 33.00%Income on investments 660.9 790.3 19.58%Income on balances with RBI and other inter-bank funds 261.6 372.9 42.55% Others 6.3 - Total 3,124.9 4,084.1 30.70% Our interest income increased by 30.70% from Rs. 3,124.8 million in Fiscal 2008 to Rs. 4,084.1 in Fiscal 2009. Interest/discount on advances/bills increased by 33.00% from Rs. 2,196.1 million in Fiscal 2008 to Rs. 2,920.9 million in Fiscal 2009. This increase was due to increase in loans, which increased by 52.05% from Rs. 21,020.3 million as at March 31, 2008 to Rs. 31,960.6 million as at March 31, 2009. Our income on investments increased by 19.58% from Rs. 660.9 million in Fiscal 2008 to Rs. 790.3 million in Fiscal 2009 primarily due to 45.79% increase in investments, from Rs. 10,750.6 million as at March 31, 2008 to Rs. 15,673.6 million as at March 31, 2009. Our income on balances with RBI and other inter-bank funds increased by 42.55% from Rs. 261.6 million in Fiscal 2008 to Rs. 372.9 million in Fiscal 2009 primarily due to an increase in inter-bank deposit placements.

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Interest expense


Interest on deposits 2,048.8 2,794.8 36.41% Interest on RBI and inter-bank borrowings 19.2 6.4 (66.67)% Others 67.0 66.8 (0.30)% Total interest expended 2,135.0 2,868.0 34.33% Our total interest expended increased by 34.33% from Rs. 2,135.0 million in Fiscal 2008 to Rs. 2,868.0 million in Fiscal 2009. Interest on deposits increased by 36.41% from Rs. 2,048.8 million in Fiscal 2008 to Rs. 2,794.8 million in Fiscal 2009, reflecting a 37.70% increase in deposits from Rs. 36,084.2 million as at March 31, 2008 to Rs. 49,688.1 million as at March 31, 2009. Interest on balances with the RBI and other inter-bank funds decreased by 66.67% from Rs. 19.2 million in Fiscal 2008 to Rs. 6.4 million in Fiscal 2009. Other Income Our other income increased by 88.82% from Rs. 420.3 million in Fiscal 2008 to Rs. 793.6 million in Fiscal 2009 mainly on account of an increase in net profit on the sale of investments and derivatives and in fee income (commission, exchange and brokerage fees). Commissions, exchange and brokerage Income from commissions, exchange and brokerage fees decreased by 16.28% from Rs. 121.0 million in Fiscal 2008 to Rs. 101.3 million in Fiscal 2009. Profit on sales of investments Profit on sales of investments (net)/derivatives increased 426.43% from Rs. 14.0 million in Fiscal 2008 to Rs. 73.7 million in Fiscal 2009 due to favourable market conditions for certain investments that we held. Profit on sale of land, buildings and other assets Profit on the sale of land, buildings and other assets increased from Rs. 0.04 million in Fiscal 2008 to Rs. 1.8 million in Fiscal 2009. Profit on exchange transactions Profit on exchange transactions (net) decreased by 4.79% from Rs. 39.7 million in Fiscal 2008 to Rs. 37.8 million in Fiscal 2009. Income from Insurance Income from insurance decreased by 29.56% from Rs. 104.2 million in Fiscal 2008 to Rs. 73.4 million in Fiscal 2009. This decrease was primarily due to a decline in the equity markets in India, with the BSE SENSEX falling from 15,644.4 as at March 31, 2008 to 9,708.5 as at March 31, 2009, and the consequent fall in demand for market linked insurance products. Miscellaneous income Miscellaneous income increased by 257.57% from Rs. 141.4 million in Fiscal 2008 to Rs. 505.6 million in Fiscal 2009. This increase was primarily due to receipt of the first Rs. 230.0 million in Fiscal 2009 commitment fee from M/s Bajaj Allianz towards life and general insurance.

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Operating Expenses Our operating expenses increased by 17.15% from Rs. 965.2 million in Fiscal 2008 to Rs. 1,130.7 million in Fiscal 2009. This increase was mainly due to a 32.07% increase in payments to and provisions for employees from Rs. 473.6 million in Fiscal 2008 to Rs. 625.6 million in Fiscal 2009, which was primarily due to an increase in overall salary level and recruitment of senior executives in Treasury, IT, HR, Wholesale banking etc. Our operating expenses also increased 15.53% due to an increase in rent taxes and lighting expenses from Rs. 120.4 million in Fiscal 2008 to Rs. 139.1 million in Fiscal 2009 as a result of our growth strategy and an increase in business volumes. Depreciation on our property decreased by 6.33% from Rs. 80.6 million in Fiscal 2008 to Rs. 75.5 million in Fiscal 2009. Provisions and Contingencies The components of our provisions and contingencies are as indicated below:

Year ended March 31,2008 2009 (Rupees in millions)

Provision for Non Performing Assets (including write off) 18.3 21.9Floating Provision for NPA (Advances) 0.00 20.0Provision for Standard Assets 18.6 5.2 Provision for diminution in value of Restructured Accounts 0.0 6.5 Provision for Securitization 0.0 49.5 Provisions for Depreciation on Investments 2.2 (9.4) Provision for Non Performing Investments 19.0 (11.3)Provision for Income Tax / Wealth Tax / FBT 104.6 226.2Deferred Tax Asset / Liability (2.4) (4.1) Total 160.3 304.5 Our total provisions and contingencies increased by 89.94% from Rs. 160.3 million in Fiscal 2008 to Rs. 304.5 million in Fiscal 2009. This increase was primarily due to a 116.19% increase in our provision in taxation from Rs. 104.6 million in Fiscal 2008 to 226.2 million in Fiscal 2009 due to an increase in profits and the fact that we had a provision for securitization of Rs. 49.5 million in Fiscal 2009 relating to the purchase of our assets by Pridhvi Asset Reconstruction Company whereas we had no such provision in Fiscal 2008. These increases were partially offset by the fact that we wrote back Rs. 11.3 million of our provision for non-performing investments in Fiscal 2009 whereas in Fiscal 2008 we had a provision for non performing investments of Rs. 19.0 million and that we wrote back Rs. 9.4 million of our provision for depreciation on investments in Fiscal 2009 whereas in Fiscal 2008 we had provision for depreciation on investments of Rs. 2.2 million. Our ratio of net NPAs to total advances was 0.88% in Fiscal 2008 and Fiscal 2009. Net Profit As a result of the foregoing factors, our net profit increased by 101.86%, from Rs. 284.6 million in Fiscal 2008 to Rs. 574.5 million in Fiscal 2009. Liquidity and Capital Resources Cash Flows


(Rupees in Millions) Cash flow from operating (used in) activities 927.5 (1,909.6) (5.5) Cash flow from investing (used in) activities (53.7) (71.5) (437.6) Cash flow from (used in) financing activities - 1,917.3 1,085.8

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(Rupees in Millions) Total cash flow during the year 873.8 (63.8) 642.7 We need cash primarily to finance new borrowers and meet working capital requirements. We fund these requirements through a variety of sources, including deposits, cash from interest income, short-term borrowings and long-term borrowings such as debentures, refinancing from financial institutions and banks and securitization transactions. Greater deployment of funds to provide loans generally results in decreasing our cash flow. Operating Activities Our net cash flow from operating activities reflects interest received during the period from advances and investments and other income and non-cash charges such as depreciation and provisions (mainly for non-performing and standard assets) made during the period, as well as adjustments for cash charges. In addition, our net cash from operating activities reflects changes in operating assets and liabilities, including investments, advances, deposits and borrowings, as well as other assets and liabilities.

Our net cash received from operating activities was Rs. 927.5 million in Fiscal 2008 while our net cash used in operating activities was Rs. 1,909.6 million in Fiscal 2009 and Rs. 5.5 million in Fiscal 2010.

Investing Activities Our net cash used in investing activities reflects the purchase and sale of fixed assets. Net cash used in investing activities was Rs. 53.7 million, Rs. 71.5 million and Rs. 437.6 million in Fiscal 2008, Fiscal 2009 and Fiscal 2010, respectively. Financing Activities Our net cash from financing activities reflects proceeds of the issuance of Equity Shares, proceeds or redemptions of our Tier II bonds and dividends paid and written back. Net cash from financing activities amounted to nil, Rs. 1,917.3 million and Rs. 1,085.8 million in Fiscal 2008, Fiscal 2009 and Fiscal 2010, respectively. In Fiscal 2009 we received Rs. 1,987.6 million from the net proceeds of the issuance of 32,060,000 Equity Shares in a rights issue, we wrote back Rs. 37.5 million in dividends and paid Rs. 37.5 million in dividends. In Fiscal 2010 we raised Rs. 1,500 million from the issuance of Tier II bonds in the international market through a private placement, we paid Rs. 350.0 million in the redemptions of other Tier II bonds and we paid Rs. 64.2 million in dividends. Liquidity We regularly monitor our funding levels to ensure we are able to satisfy the requirements of our loan disbursements and those that would arise upon maturity of our liabilities. We maintain diverse sources of funding and liquid assets to facilitate flexibility in meeting our liquidity requirements. Liquidity is provided principally by deposits and borrowings from banks, financial institutions and retained earnings. Surplus funds, if any, are invested in accordance with our investment policy. In addition, we monitor and manage our asset-liability gap with respect to our maturing assets and liabilities. As at March 31 2010, our assets maturing within 28 days exceeded our liabilities maturing within the same period by Rs. 4,339.1 million. Our liabilities maturing in between 29 days and one year exceeded our assets maturing during the same period by Rs 11,251.0 million, and our liabilities maturing in over one year to three years exceeded our assets maturing in the same period by Rs. 7,719.6 million. Our assets maturing between three and five years exceeded our liabilities maturing during the same period by Rs. 2,624.4 million. Our assets maturing over five years also exceeded our liabilities maturing within the same period by Rs. 12,007.2 million. For further information, please see “Selected Statistical Information”.

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Credit Ratings Our debt is currently rated investment-grade by ICRA Limited and Credit Analysis and Research (CARE) Limited (“CARE”) with our Lower Tier II Bonds rated LA-and A- by each of them, respectively, and our certificate of deposit is rated PR 1+ by CARE.

Assets The following table sets forth the principal components of our assets as at March 31, 2008, 2009 and 2010:

As at March 31, 2008 2009 2010

(Rupees in Millions) Cash and balances with the Reserve Bank of India 3,540.7 3,949.9 6,129.0Balances with banks and money at call and short notice 3,383.7 2,910.7 1,374.3 Investments 10,750.6 15,673.6 20,277.9 Advances 21,020.3 31,960.6 50,062.6 Fixed assets 470.8 462.1 794.7 Other assets 1,163.8 1,471.3 2,230.4Total assets 40,329.9 56,428.2 80,868.9 Our total assets increased by 39.92% from Rs. 40,329.9 million in Fiscal 2008 to Rs. 56,428.2 million in Fiscal 2009 and further increased by 43.31% to Rs. 80,868.9 million in Fiscal 2010. The most significant element of this change was the increase in advances as a result of an increase in our business activities described above. Our investments primarily include investments in Government securities as required by the RBI and surplus funds held in short-term liquid investments. Our net investments increased to Rs. 20,277.9 million in Fiscal 2010. The increase in investments in Fiscal 2010 was primarily due to increase in balance sheet size, necessitating additional investments. Our advances increased by 52.05% from Rs. 21,020.3 million in Fiscal 2008 to Rs. 31,960.6 million in Fiscal 2009 and further increased by 56.64% to Rs. 50,062.6 million in Fiscal 2010. This increase was primarily due to an increase in our business activities described above. Other assets, which include interest accrued, tax paid in advance/tax deducted at source (net of provisions), stationery stamps and others, increased by 26.42% from Rs. 1,163.8 million in Fiscal 2008 to Rs. 1,471.3 million in Fiscal 2009 and further increased by 51.59% to Rs. 2,230.4 in Fiscal 2010. These increases were principally due to a higher volume of business. Liabilities and Shareholders’ Funds The following table sets forth the principal components of our liabilities and shareholders’ funds as at March 31, 2008, 2009 and 2010:

As at March 31, 2008 2009 2010

(Rupees in millions) Capital 320.6 641.2 641.2Reserves and Surplus 1,401.8 3,603.6 3,759.6 Total Shareholders’ funds 1,722.4 4,244.8 4400.8 Deposits 36,084.2 49,688.1 70,984.8 Borrowings 40.0 - 1,205.5 Other Liabilities and Provisions 2,483.3 2,495.3 4,277.8 Total Liabilities and Shareholders’ funds 40,329.9 56,428.2 80,868.9 Our total liabilities increased by 39.92% from Rs. 40,329.9 million as at March 31, 2008 to Rs. 56,428.2 million as at March 31, 2009 and further increased by 43.31% to Rs. 80,868.9 million as at March 31, 2010.

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Our capital increased from Rs. 320.6 million as at March 31, 2008 to Rs. 641.2 million as at March 31, 2009 and remained the same as at March 31, 2010. The increase in capital as at March 31, 2009 was due to our rights issue of 32,060,000 Equity Shares in Fiscal 2009. Our reserves and surplus increased from Rs. 1,401.8 million as at March 31, 2008 to Rs. 3,603.6 million as at March 31, 2009 and increased to Rs. 3,759.6 million as at March 31, 2010. The increase as at March 31, 2009 was primarily due to the addition of Rs. 1,667.0 million to the share premium account due to our issuance of 32,060,000 Equity Shares at a premium of Rs. 52 per share in a rights issue. Deposits increased by 37.70% from Rs. 36,084.2 million as at March 31, 2008 to Rs. 49,688.1 million as at March 31, 2009. Our deposits have further increased by 42.86% from Rs. 49,688.1 million as at March 31, 2009 to Rs. 70,984.8 million as at March 31, 2010. This growth in deposits as at March 31, 2010 was due to an increase in demand deposits by 22.28%, savings bank deposits by 32.30%, term deposits from banks and others by 47.48%.

Our borrowings decreased from Rs. 40.0 million as at March 31, 2008 to nil as at March 31, 2009 and increased to Rs. 1,205.5 million as at March 31, 2010 as a result of borrowings from other institutions and agencies.

Other liabilities and provisions increased by 43.31% from Rs. 56,428.2 million as at March 31, 2009 to Rs. 80,868.9 million as at March 31, 2010. This increase was largely attributable to increase in business volumes.

Off-Balance Sheet Items Contingent liabilities The following table sets forth the principal components of our liabilities as at March 31, 2008, 2009 and 2010:

As at March 31, 2008 2009 2010

(Rupees in Millions) Contingent Liabilities Claims against the Bank not acknowledged as debts 24.5 16.9 26.7 Liability on account of outstanding forward exchange contracts 1,116.1 877.1 3,151.0 Guarantees given on behalf of constituents in India 1,138.6 969.8 1,282.6 Acceptances, endorsements and other obligations 145.8 405.4 382.1 Other items for which the Bank is contingently liable (Disputed Income Tax Liability)

330.9 226.1 732.8

Total 2,755.9 2,495.3 5,575.2 Our total contingent liabilities decreased by 9.46% from Rs. 2,755.9 million as at March 31, 2008 to Rs. 2,495.3 million as at March 31, 2009 and increased by 123.43% to Rs. 5,575.2 million as at March 31, 2010. The increase as at March 31, 2010 was primarily due to liability on account of forward exchange contracts increasing from Rs. 877.1 million as at March 31, 2009 to Rs. 3,151.0 as at March 31, 2010. This increase was due to rise in business volumes.

Our foreign exchange contracts arise out of spot and forward foreign exchange transactions with corporate and non-corporate customers and inter-bank counter parties. We earn profit on inter-bank and customer transactions by way of a spread between the purchase rate and the sale rate. Income from foreign exchange transactions is recorded as income from exchange transaction, income from derivatives transactions in the hedging book is recorded as interest income and income from the proprietary book is recorded as trading income. In addition, disputed income tax liability increased from Rs. 226.1 million as at March 31, 2009 to Rs. 732.8 million as at March 31, 2010. The disputed liability pertains to certain income tax claims principally relating to bad debts written off, disallowance of the proportionate expenditure incurred for earning tax free income, disallowance of deduction claimed in respect of rural debts and amortisation cost of government securities. Contractual Obligations The following table summarises certain outstanding obligations as at March 31, 2010:

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Total Less than 1

year 1-5

years After 5 years

(Rupees in Millions) Borrowings 1,205.5 779.5 426.1 - Unsecured Redeemable Bonds (Subordinated Debt for Tier II Capital)

1,970.0 200.0 370.0 1,500.0

Total 3,176.0 979.5 796.1 1,500.0 Capital Adequacy We are subject to the capital adequacy requirements of the RBI. We are required to maintain a minimum capital adequacy ratio of 9% (of which Tier 1 Capital is 6%) prescribed by RBI guidelines based on total capital to risk weighted assets. For a description of the RBI’s capital adequacy guidelines, please see “Supervision and Regulations”. Our capital adequacy ratios as at March 31, 2008 (as per Basel I) and March 31, 2009 and March 31, 2010 (as per Basel II) were as follows:

As at March 31, 2008 2009 2010

Capital to risk assets ratios (“CRAR”) Capital adequacy ratio (“CRAR”) (%) 9.21 15.38 12.99 CRAR – Tier I capital (%) 6.56 13.75 8.80 Capital Expenditure Our capital expenditures consists principally of branch network expansion as well as investments in technology and communication infrastructure. We have incurred aggregate capital expenditures of Rs. 58.5 million, Rs. 76.5 million, Rs. 355.6 million in Fiscal 2008, Fiscal 2009 and Fiscal 2010, respectively. Qualitative Disclosure about Risks and Risk Management Risk is associated with all of our businesses. Risks are broadly classified in three major categories, namely, credit risk, operational risk and market risk. We have developed our risk management systems to ensure that there is always an appropriate balance between risk and return and we have implemented comprehensive policies and procedures to identify, measure, monitor and control risk throughout the organisation. Our risk management strategy is based on understanding the various types of risk, assessment of the risk and continuous monitoring of the risk. For details about the types of risks and our risk management policies and structures, please see “Business-Risk Management” and “Note 38 – Basel II (Pillar III) Disclosures” in the notes to our financial statements for the year ended March 31, 2010 beginning on pages 94 and 190, respectively of this Preliminary Placement Document. Recent Developments after March 31, 2010 In the opinion of our board of directors, there have not arisen, since March 31, 2010 which is the date of the last financial statements included in this Preliminary Placement Document, any circumstances that materially and adversely affect the profitability or the value of our assets or our ability to pay our liabilities within the next 12 months.

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SELECTED STATISTICAL INFORMATION The following unaudited information should be read together with our financial statements included in this Placement Document and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. All amounts presented in this section have been prepared in accordance with Indian GAAP. Footnotes appear at the end of each related section of tables. Return on Equity and Assets The following table presents selected financial ratios for the periods indicated:

Year ended March 31,2008(2) 2009(2) 2010(3)

(Rupees in Millions, except percentages)

Average total assets 37,452.4 47,480.5 67,052.2Average shareholders’ equity 1,615.3 2,810.7 4,396.9 ROE (Net profit to average shareholders’ equity) (1) (%) 17.62% 20.44% 5.30% ROA (Net profit to average total assets) (1) (%) 0.76% 1.21% 0.35% Average shareholders’ equity as a percentage of average total assets (1) (%)

4.31% 5.92% 6.56%

______________________________ (1) Ratios are annualized. (2) Calculated on a fortnightly basis. (3) Calculated on a daily basis. Investment Portfolio The following table sets forth, as at the dates indicated, information related to our investments:

As at March 31, 2008 As at March 31, 2009 As at March 31, 2010Held To Maturity

Available For Sale

Held For

Trading

Held To Maturity

Available For Sale

Held For

Trading

Held To Maturity

Available For Sale

Held For

Trading

(Rupees in Millions) Government securities

8,700.8 537.2 0.0 4,625.6 9,250.2 0.0 15,728.4 2,765.5 50.0

Shares 0.0 15.9 0.0 0.0 23.4 0.0 0.0 6.2 0.0 Debentures and bonds

0.0 158.8 0.0 0.0 285.0 0.0 0.0 330.0 0.0

Subsidiaries and joint ventures

0.0 0.0 0.0 5.0 0.0 0.0 0.0 0.0 0.0

Others, including deposits under Rural Infrastructure Development Scheme with NABARD, security receipts and pass through certificates

1,337.9 0.0 0.0 1,391.5 97.9 0.0 1,315.9 81.9 0.0

Total 10,038.7 711.9 0.0 6,017.1 9,656.5 0.0 17,044.4 3,183.649 50.0 Total Deposits The following table sets forth, for the dates indicated, our outstanding deposits and the percentage composition by each category of deposits:

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As at March 31, 2008 2009 2010 Amount % of Total Amount % of Total Amount % of Total

CASA 10,549.2 29.24 12,076.3 24.30 15,515.4 21.86 Term deposits 25,535.0 70.76 37,611.8 75.70 55,469.4 78.14 Total 36,084.2 100.00 49,688.1 100.00 70,984.8 100.00 Subordinated Debt We obtain funds from the issuance of unsecured non-convertible subordinated debt securities, which qualify as Tier II capital under RBI guidelines for assessing capital adequacy. As at March 31, 2009 and March 31, 2010, our outstanding subordinated debt aggregated Rs. 820.0 million and Rs. 1,970.0 million, respectively. The following table sets forth information with respect to subordinated debt issued by us, as at March 31, 2010:

Rupees in Millions Date of Allotment Rate of Interest Date of Redemption Amount

March 31, 2005 8.15% August 31, 2010 200.0March 30, 2006 9.00% June 30, 2013 100.0September 29, 2006 9.70% December 29, 2013 170.0 September 30, 2009 10.30% April 30, 2015 1,500.0

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Asset Liability Gap

The following table sets forth our asset-liability gap position as at March 31, 2010:

OUT FLOWS Next Day

2 days to 7 days

8 days to 14 days

15 days to 28 days

29 days and up to 3 months

Over 3 months & up to 6 months

Over 6 months & up to 1 year

Over 1 year & up to 3 years

Over 3 years & up to 5

years

Over 5 years

Total

(Rupees in Millions) Capital - - - - - - - - - 641.2 641.2 Reserves & Surplus

- - - - - - - - - 3,759.6 3,759.6

Deposits 581.4 1,933.3 1,555.7 1,996.8 6,248.7 13,227.9 10,210.6 28,259.7 4,088.3 1,727.1 69,829.8 Borrowings - 275.0 - 149.6 400.0 108.6 600.0 320.4 265.6 - 2,119.2 Other Liabilities 385.8 1,573.9 1,517.3 33.6 48.3 252.5 433.1 1,950.2 338.0 1,538.8 8,071.6 A. TOTAL OUTFLOWS

967.2 3,782.2 3,073.0 2,180.1 6,697.1 13,589.0 11,243.7 30,500.3 4,692.2 7,666.6 84,421.4

IN FLOWS Next Day

2 days to 7 days

8 days to 14 days

15 days to 28 days

29 days and up to 3 months

Over 3 months & up to 6 months

Over 6 months & up to 1 year

Over 1 year & up to 3 years

Over 3 years & up to 5

years

Over 5 years

Total

Cash 1,181.1 - - - - - - - - - 1,181.1 Balances with RBI

826.7 124.5 121.1 40.3 125.1 323.3 212.5 2,350.9 129.1 694.4 4,947.9

Balances with other Banks

536.7 - 10.0 80.5 440.8 82.9 104.3 - - - 1,255.2

Investments 145.2 145.2 394.9 714.0 411.8 733.0 182.0 41.2 2,113.4 15,478.3 20,359.1Advances 1,067.5 1,287.2 1,419.7 2,554.4 6,540.2 5,163.5 5,959.4 18,841.4 5,071.4 2,706.4 50,613.6 Fixed Assets - - - - - - - - - 794.7 794.7 Other Assets 281.2 1,635.2 1,540.2 236.0 - - - 1,577.2 - - 5,269.8 B. TOTAL INFLOWS

4,038.4 3,192.2 3,485.8 3,625.2 7,517.9 6,302.7 6,458.1 22,810.6 7,316.6 19,673.8 84,421.4

C - GAP (B-A) 3,071.3 (590.1) 412.8 1,445.1 820.8 (7,286.3) (4,785.6) (7,719.6) 2,624.4 12,007.2 -

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Loan Portfolio As at March 31, 2009 and March 31, 2010, our gross loan portfolio was Rs. 32,453.0 million and Rs. 50,564.9 million, respectively. As at each date, all our gross loans are to borrowers in India and are denominated in Indian Rupees. The following table sets forth, for the periods indicated, our net loan portfolio classified by product groups:

Classification of Loans and Advances As at March 31, 2008 2009 2010

(Rupees in Millions) Cash credits, overdrafts and loans repayable on demand 10,280.5 14,518.7 17,770.9 Term loans 9,107.1 15,766.3 31,194.6 Bills purchased and discounted 1,632.8 1,675.5 1,097.1 Total 21,020.3 31,960.6 50,062.6

The following table sets forth, at the dates indicated, our gross loans & advances outstanding categorized by activity:

Rupees in Millions, except percentages Customers As at March 31,

2008 2009 2010 Loans % of

TotalLoans % of

TotalLoans

% of Total

Infrastructure 1,831.6 8.47 5,330.1 16.49 11,279.6 22.29 NBFCs 188.2 0.87 3,634.7 11.25 8,307.2 16.41 Engineering 610.9 2.82 459.2 1.42 1,663.5 3.29 Cement - - - - 1,400.0 2.77 Textiles 518.4 2.40 1,538.8 4.76 1,387.6 2.74Chemicals 524.3 2.42 607.5 1.88 1,364.4 2.70Paper & Paper products 50.5 0.23 27.6 0.09 1,322.8 2.61 Gems & Jewellery 524.3 2.42 1,354.2 4.19 1,081.3 2.14 Coal Products - - - - 640.2 1.26 Rubber Products 614.8 2.84 684.0 2.12 559.1 1.10 Computer Software 51.8 0.24 17.6 0.05 619.3 1.22 Metal Products 302.9 1.40 12.3 0.04 250.0 0.49 Construction 470.6 2.17 388.7 1.20 207.8 0.41 Automobiles 55.5 0.26 42.4 0.13 200.0 0.40 Wood Products - - 41.8 0.13 64.4 0.13 Medical & Optical instruments - - 45.8 0.14 58.0 0.11 Mining & Non metallic mineral products

6.2 0.03 29.3 0.09 531.0 1.05

Sugar, tea & food processing 228.3 1.06 224.6 0.69 298.5 0.59 Others 15,659.0 72.37 18,014.4 55.51 19,330.3 38.23 Total loans outstanding 21,637.3

32,453.0

50,564.9

As at March 31, 2010, the aggregate borrowings of our twenty largest borrowers amounted to Rs. 14,635.6 million, representing approximately 239.44% of our total capital funds, which comprises Tier I and Tier II capital. Please see “Risk Factors – We have substantial exposure to certain borrowers and our business, results of operations and financial condition could be materially and adversely affected by difficulties experienced by these borrowers”. Priority Sector Lending As stipulated by the RBI, commercial banks in India are required to lend 40% of their net bank credit to specified sectors known as “priority sectors”, subject to certain exemptions permitted by RBI from time to time. Priority sector advances include loans to agriculture, small-scale industry and services and loans to weaker

67

section, housing and education finance up to certain ceilings, lending for specific infrastructure projects and also investments in instruments issued by notified institutions. We are required to comply with the priority sector lending requirements as at the last reporting Friday of March in each fiscal year. Any shortfall in the amount required to be lent to the agricultural sector may be required to be deposited with government sponsored Indian developmental banks such as the NABARD. These deposits have a maturity of up to seven years and carry interest rates lower than market rates. A breakdown of our priority sector lending position as at the last reporting Friday over the last three years is as follows:

March 2008 March 2009 March 2010Amount % of total

ANBC Amount % of total

ANBC Amount % of total

ANBC (Rupees in Millions, except percentages)

Agriculture advances 4,681.0 24.63 4,582.0 21.35 7,582.0 23.46 Small scale industry and services and others

5,070.0 26.64

5,823.0 27.13 6,511.0 20.15

Total 9,751.0 51.30 10,405.0 48.49 14,092.0 43.61 Non-Performing Assets As at March 31, 2010, gross NPAs as a proportion of gross loans were 1.54% and net NPAs as a proportion of net loans were 0.84%. We had, as at March 31, 2010, effected a provision cover of 45% of our gross NPAs. The following table sets forth, for the periods indicated, information about our NPA portfolio:

As at or for the year ended March 312008 2009 2010

(Rupees in Millions, except percentages) Opening balance at the beginning of the period 962.9 632.1 644.3 Additions during the period 158.5 374.5 521.6 Less: Reductions during the period on account of recovery and write-offs

489.3 362.3 390.9

Gross NPAs at the close of the period 632.1 644.3 775.0 Net NPAs at the close of the period 185.6 282.4 419.4 Gross loans 21,637.0 32,453.0 50,564.0 Net loans 21,020.3 31,960.6 50,062.6 Gross NPAs/Gross loans (%) 2.95 1.99 1.54 Net NPAs/Net Loans (%) 0.88 0.88 0.84Total provisions as a percentage of gross NPAs (%) 69.61 55.18 44.76 Recognition of Non-Performing Assets As a commercial bank operating in India, we recognize NPAs strictly in accordance with the RBI’s guidelines. The guidelines require Indian banks to classify their NPAs into three categories, as described below, based on the period for which the asset has remained non-performing and the estimated realization of amounts due in relation to such asset. Further, the NPA classification is at the borrower level, rather than at the facility level, and, accordingly, if one of the loans granted to a borrower becomes non-performing, such borrower is classified as non-performing and all loans due from him are so classified. Substandard Assets An asset becomes non-performing if interest and/or instalment of principal in relation thereto remain overdue for more than 90 days (an exception to this rule is that loans to agricultural borrowers are classified as non-performing only if the loan remains overdue for more than two harvest seasons). With effect from March 31, 2005, in accordance with RBI guidelines, a substandard asset is an asset that has remained non-performing for a period of up to 12 months.

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Doubtful Assets With effect from March 31, 2005, in accordance with RBI guidelines, a doubtful asset is an asset that has remained non-performing for a period exceeding one year. Further, with effect from March 31, 2005, doubtful assets are to be classified further into Doubtful-I, Doubtful-II and Doubtful-III, depending on the period such assets have been classified as doubtful, in the following manner: (a) If the asset has remained in the doubtful category for a period of up to one year, it is classified as a

Doubtful-I asset; (b) If the asset has remained in the doubtful category for a period of more than one year but less than three

years, it is classified as a Doubtful-II asset; and (c) If the asset has remained in the doubtful category for a period of more than three years, it is classified

as a Doubtful-III asset. Loss Assets In accordance with the RBI guidelines, a loss asset is an asset that is considered irrecoverable with little or no salvage value. In cases of serious credit impairment, an asset is required to be immediately classified as doubtful or as a loss asset, as appropriate. Further, erosion in the value of the security provided may also be considered significant when the realizable value of the security is less than 50% of the value as assessed by us or as accepted by the RBI at the time of the last inspection of the security, as the case may be. In such a case, the assets secured by such impaired security may immediately be classified as doubtful. If the realizable value of the security, as assessed by our appraisers or by the RBI, is less than 10% of the amount outstanding from the borrower providing such security, the value of the security is ignored and the asset is immediately classified as a loss, which is either written off or fully provided for. The following table sets forth our NPA position as at the dates specified:

As at March 31, 2008 2009 2010

(Rupees in Millions, except percentages) Sub-standard loans:

Amount As a percentage of total NPAs

123.9

19.6

233.0 36.2

355.7 45.9

Doubtful loans: Amount As a percentage of total NPAs

389.0

61.5

317.0 49.2

285.7 36.9

Loss loans: Amount As a percentage of total NPAs

119.2 18.86

94.3 14.6

133.6 17.2

Gross NPAs 632.1 644.3 775.0 Non Accrual Policy When an asset is classified as non-performing, interest accrual thereon is stopped and the unrealized interest is reversed by a debit to our profit and loss account. In accordance with RBI guidelines, interest realized on NPAs may be credited as income, provided that the interest does not relate to additional credit facilities sanctioned to the borrower. The RBI has also stipulated that in the absence of a clear agreement between us and the borrower for the purpose of appropriating recoveries in NPAs (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. In the case of NPAs where recoveries are effected, our policy is to appropriate the same against interest. If any of a borrower’s loans are classified as an NPA, all loans to such borrower are classified as NPAs. For more information on the recognition and provisioning of NPAs, please see “Management’s Discussion and

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Analysis of Financial Condition and Results of Operations – Critical Accounting Policies – Advances”. Policy for making Provisions for Non-Performing Assets The RBI policy on provisioning for NPAs is described below. Substandard assets 10% of the amount outstanding Doubtful assets Doubtful-I — 100% of the unsecured portion and 20% of the secured

portion Doubtful-II — 100% of the unsecured portion and 30% of the secured portion Doubtful-III — 100% of the unsecured portion and 100% of the secured portion

Loss assets 100% to be provided or written-off. We follow the policy on NPA provisioning prescribed by the RBI. Provisions on standard loans In accordance with the RBI guidelines, the general provision on standard assets has been made at 0.40% of the outstanding amount on a portfolio basis except in the case of direct advances to agriculture and SME sectors, where the provision has been made at 0.25% of the outstanding amount. Analysis of Non-Performing Loans by Industry Sector

As at March 31, 2009 2010

(in Rs. millions, except percentages) Gross Loans

NPA

% of Gross NPA to Gross Advance

Gross Loans

NPA

% of Gross NPA to Gross Advance

Agriculture 4,582.6 36.0 0.79 7,581.8 41.2 0.54 SSI 2,581.0 57.8 2.24 3,641.7 65.4 1.80 Other Priority Sector

3,242.1 202.0 6.23 2,869.3 256.1 8.93

Total Priority Sector

10,405.7

295.8

2.84

14,092.8

362.7

2.57

Total Non-Priority Sector

22,047.3

348.5

1.58

36,472.1

412.3

1.13

Grand Total 32,453.0

644.3

1.99 50,564.9

775.0

1.54

Restructuring of Debt In case of restructured or rescheduled accounts we make provisions for the sacrifice against erosion diminution in fair value of restructured loans, in accordance with the general framework of restructuring of advances issued by the RBI pursuant to its circular dated August 27, 2008 and subsequently modified pursuant to its circular dated April 9, 2009. The erosion in fair value of advances is computed as difference between the fair values of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to our BPLR as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. The fair value of the loan after restructuring is computed as the present value of cash flows representing the

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interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to our BPLR as at the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. The restructured accounts have been treated as standard where restructuring has been implemented during the year.

Particulars As on March 31, 2009 As on March 30, 2010No. Rs. No. Rs.

(in Rs. millions, except percentages) Restructured Loans (Gross) 55 342.1 43 356.2 Gross Advances 32,453.0 50,564.9 % Restructured Loans 1.05% 0.70% Provisions for NPAs The following table sets forth, for the periods indicated, movements in our provisions against NPAs:

Particulars For the year ended March 31,2008 2009 2010

(in Rs. millions) NPA Provisions: Total NPA provisions at the beginning of the period 322.4 185.6 282.4 Additions during the period 136.8 247.7 458.3 Reductions during the period on account of recovery and write-offs 273.6 150.9* 321.3 Total NPA provisions at the end of the period 185.6 282.4 419.4 *Includes floating provision of Rs. 20.0 million

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INDUSTRY The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the Government of India and its various ministries, the RBI and the Indian Banks’ Association, and has not been prepared or independently verified by us or any of the Book Running Lead Managers. Wherever we have relied on figures published by the RBI, unless stated otherwise, we have relied on the RBI Annual Report 2008-09, Report on Trend and Progress of Banking in India 2008-09 and the accompanying Explanatory Notes, the RBI’s Annual Policy Statements 2009-2010, the First and Second Quarter Review of the RBI’s Annual Policy Statement for 2009-2010, Second Quarter Review of Monetary Policy 2009-10, the RBI’s Platinum Jubilee Celebrations, Governor’s Address to Staff, April 1, 2009, and Macroeconomic and Monetary Developments in 2009-10.

I. Indian Economy

The Indian economy is one of the largest economies in the world with a GDP at current prices in Fiscal 2010 estimated at Rs. 44.64 trillion (approximately US$1 trillion) (Source: Ministry of Statistics and Programme Implementation). It is one of the fastest growing major economies in the world, with a real GDP growth rate of 5.7% for 2009 and 9.4% for 2010 as estimated by the IMF. The following table shows India’s economic growth in comparison to other developing countries, as well as the IMF’s projections for economic growth in 2011:

Growth /Real GDP* 2001-2010(Average)

2006 2007 2008 2009 2010E 2011E

World 3.5 5.1 5.2 3.0 (0.6) 4.2 4.3 Advanced Economies 1.7 3.0 2.7 0.5 (3.2) 2.3 2.4 China 10.2 11.6 13.0 9.6 9.1 10.0 9.9 India 7.3 9.8 9.3 6.4 5.7 9.4 8.4 Russia 4.8 7.7 8.1 5.6 (7.9) 4.0 3.3 Mexico 1.7 5.1 3.3 1.5 (6.5) 4.2 4.5 Brazil 3.6 4.0 5.7 5.1 (0.2) 5.5 4.1

* Annual percentage change in GDP at constant prices

Source: International Monetary Fund, World Economic Outlook, July 2010 update

Per capita GDP at factor cost (at constant prices) in India has grown from around Rs. 13,669 for the year 1991 at the time of liberalisation to Rs. 33,751 for the year 2008 (Source: International Monetary Fund, World Economic Outlook Database). This increase in per capita income has created increasing wealth and positively affected disposable incomes. This has had a significant investment multiplier effect on the economy leading to increasing consumerism and wealth creation and thus, positively impacting savings.

In recent years, India has become a popular destination for FDI, owing to its well-developed private corporate sector, large consumer market potential, large pool of well-educated and English-speaking work force, and well established legal systems. The European Attractiveness Survey, conducted by Ernst and Young, places India as the fourth most attractive FDI destination in 2010, and second most attractive in the next three years. During Fiscal 2010, India attracted FDI equity inflows of approximately US$26 billion. (India Brand Equity Foundation, May 2010)

II. Indian Banking Industry

Until the 1980s, the Indian financial system was strictly controlled. Interest rates were administered by the Government. Formal and informal parameters governed asset allocation, and strict controls limited entry into and expansion within the financial sector. Bank profitability was low, NPAs were comparatively high, capital adequacy was diminished, and operational flexibility was hindered. The Government’s economic reform programme, which began in 1991, encompassed the financial sector. The first phase of the reform process began with the implementation of the recommendations of the Committee on the Financial System, namely the Narasimham Committee I. Following that, reports were submitted in 1998 by other committees, such as the second Committee on Banking Sector Reform, i.e., the Narasimham Committee II, and the Tarapore Committee on Capital Account

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Convertibility. This in turn led to the second phase of reforms relating to capital adequacy requirements, asset classification and provisioning, risk management and merger policies. The deregulation of interest rates, the emergence of a liberalised domestic capital market, and the entry of new private sector banks have progressively intensified the competition among banks.

Banks in India may be categorised as scheduled banks and non-scheduled banks, where the former are banks which are included in the second schedule to the RBI Act. These banks comprise scheduled commercial banks and scheduled co-operative banks. Scheduled commercial banks may further be classified as public sector banks, private sector banks, foreign banks and regional rural banks. (In the RBI reports, regional rural banks are usually excluded in bank-wise tables and their summary tables at bank group level).

The focus of commercial banks in India has largely been on meeting the financing needs of industry, trade and agriculture. As at June 30, 2009, there were 171 scheduled commercial banks in the country with a network of 79,933 branches serving approximately Rs. 39.65 trillion in deposit accounts and Rs. 27.88 trillion in loan accounts. Scheduled commercial banks are banks listed in the second schedule to the RBI Act and are further categorised as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a pan India presence with 63.57% of bank branches located in rural or semi-urban areas of the country. As on March 31, 2009, aggregate deposits for all scheduled commercial banks registered an annual growth rate of 21.9% while the gross bank credit for all scheduled commercial banks increased by 19.3%. The population covered by each branch has come down from 16,000 in March 2008 to 15,000 in March 2009. The credit deposit ratio for all scheduled commercial banks as at March 31, 2009 stood at 72.6%.

III. Constituents of the Indian Banking Industry

IV. The Reserve Bank of India (RBI)

The RBI is the central bank as well as the regulatory and supervisory authority for the Indian banking sector. Besides regulating and supervising the banking system, RBI performs the following important functions:

• acts as the central bank and the monetary authority;

• issuer of currency;

• debt manager for the central and state governments;

• regulator and supervisor for NBFCs;

• manages the country’s foreign exchange reserves;

• manages the capital account of the balance of payments;

• designs and operates payment systems;

• operates grievance redressal scheme for bank customers through the Banking Ombudsmen and formulates policies for fair treatment of banking customers; and

• promotes development initiatives like financial inclusion and the strengthening of the credit delivery mechanisms for agriculture, and small and micro-enterprises, especially in rural areas.

The RBI issues guidelines on various issues relating to the financial reporting of entities under its supervision. These guidelines regulate exposure standards, income recognition practices, asset classification, provisioning for non-performing and restructured assets, investment valuation and capital adequacy. All the institutions under the purview of the RBI are required to furnish information relating to their businesses on a regular basis.

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V. Public Sector Banks

Public sector banks are scheduled commercial banks with significant Government of India shareholding and constitute the largest category in the Indian banking system. These include the State Bank of India (“SBI”) and its six associate banks, 19 nationalised banks and 86 regional rural banks. Excluding the regional rural banks, the remaining public sector banks have 55,664 branches, and account for 73.8% of the outstanding gross bank credit and 73.9% of the aggregate deposits of the scheduled commercial banks as at June 30, 2009. The public sector banks’ large network of branches enables them to fund themselves through access to low cost deposits. The SBI is the largest public sector bank in India. As at June 30, 2009, the SBI and its associate banks had 16,242 branches. They accounted for 24.2% of aggregate deposits and 23.45% of outstanding gross bank credit of all scheduled commercial banks.

Regional rural banks were established from 1976 to 1987 with shareholding from the Central Government, State Governments and sponsoring commercial banks to develop the rural economy. Regional rural banks provide credit to small farmers, artisans, small entrepreneurs and agricultural labourers. The NABARD is responsible for regulating and supervising the functions of the regional rural banks. As at June 30, 2009 there were 86 regional rural banks with 15,096 branches, accounting for 2.9% of aggregate deposits and 2.4% of outstanding gross bank credit of scheduled commercial banks.

VI. Private Sector Banks

After bank nationalisation was completed in 1969 and 1980, the majority of Indian banks were public sector banks. Some of the existing private sector banks, which showed signs of an eventual default, were merged with state-owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry by the private sector into the banking system. This resulted in the emergence of nine private sector banks. These banks are collectively known as the “New Private Sector Banks”. As at June 30, 2009, there were 22 private sector banks, of which seven were New Private Sector Banks. In addition, 15 private sector banks existing prior to July 1993 were still operating as at June 30, 2009. These are collectively known as the “Old Private Sector Banks”. We are classified as an Old Private Sector Bank.

New private sector banks have seen significant growth in both assets and infrastructure during the last decade. The entry of new private sector banks has increased the industry competitiveness, enhanced customer service orientation, product innovation and technological advancement.

As at June 30, 2009, private sector banks accounted for approximately 17.5% of aggregate deposits and 18% of outstanding gross bank credit of the scheduled commercial banks. Private sector banks had a network of 8,894 branches, accounting for 11.1% of the total branch network of scheduled commercial banks in the country.

VII. Foreign Banks

As at June 30, 2009, there were 31 foreign banks with 279 branches operating in India. Foreign banks accounted for 5.6% of aggregate deposits and 5.7% of gross bank credit of scheduled commercial banks as at June 30, 2009.

As part of the liberalisation process, the RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. Foreign banks operate in India through branches of the parent bank. While the primary activity of most foreign banks in India has traditionally been in the corporate segment, some of the larger foreign banks have increasingly made consumer financing a larger part of their portfolios offering an array of products such as automobile finance, home loans, credit cards and household consumer finance.

VIII. Co-operative Banks

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Co-operative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban, semi-urban and rural areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004, which came into effect from September 24, 2004, specifies that all multi-state co-operative banks are under the supervision and regulation of the RBI. Accordingly, the RBI is currently responsible for the supervision and regulation of urban co-operative societies, NABARD, state co-operative banks and district central co-operative banks.

IX. Non-Bank Finance Companies

As at June 30, 2009 there were 12,740 non-bank finance companies in India and out of these 336 were permitted to accept/hold public deposit, mostly in the private sector. All non-bank finance companies are required to register with the RBI. The non-bank finance companies may be categorised into entities which take public deposits and those which do not. The companies which accept public deposits are subject to the strict supervision and capital adequacy requirements of the RBI. The scope and activities of non-bank finance companies have grown significantly over the years. The primary activities of the non-bank finance companies are consumer credit, including automobile finance, home finance and consumer durable products finance, wholesale finance products such as bill discounting for small and medium-sized companies, leasing and hire-purchase, asset financing, and fee-based services such as investment banking and underwriting.

X. Housing Finance Companies

Housing finance companies form a distinct subgroup of the non-bank finance companies. As a result of various incentives given by the Government for investing in the housing sector in recent years, the scope of this business has grown substantially. The National Housing Bank Act provides for the securitisation of housing loans, foreclosure of mortgages and establishment of the Mortgage Credit Guarantee Scheme. Housing loans up to certain limits prescribed by the RBI as well as mortgage-backed securities qualify as priority sector lending under the RBI’s directed lending rules.

XI. Insurance Companies

As on December 15, 2009, there were 45 insurance companies registered with the Insurance Regulatory and Development Authority (“IRDA”), which regulates the insurance sector in India. Of those companies, 23 are life insurance companies, 21 are general insurers and one is a re-insurance company. The total number of life insurers registered with the IRDA is 23, while the total number of general insurers registered with the IRDA is 22. Of the life insurance companies, 21 are in the private sector. Of the general insurance companies, 15 are in the private sector. The sole reinsurance company is in the public sector. First year premiums underwritten in the life insurance sector recorded a decline of 6.3% to reach Rs. 871.1 billion (US$17.1 million) in Fiscal 2009. Gross premiums underwritten of all general insurance companies increased by 10.1% in Fiscal 2009 to Rs. 327.1 billion (US$6.4 million).

The Insurance Regulatory and Development Authority Act of 1999 (“IRDA Act”), which amended the Insurance Act of 1938, opened up the Indian insurance sector for foreign and private participation by permitting foreign equity participation in new insurance companies of up to 26% for life insurers and 74% for general insurers. In its monetary and credit policy for Fiscal 2001, the RBI issued guidelines governing the entry of banks and financial institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of insurance underwriting through joint ventures provided they meet certain criteria relating to their net worth, capital adequacy ratio, profitability track record, level of impaired loans and the performance of their existing subsidiary companies. Subsequently, the RBI capped the ownership of banks in insurance companies to 26%, while banks owning more than 26% of insurance companies at that time were grandfathered. New companies are required to have a minimum paid-up equity capital of Rs. 1.0 billion (US$19.7 million) to carry out the business of life insurance or general insurance, or Rs. 2.0 billion (US$39.3 million) to carry out exclusively the business of reinsurance.

XII. Mutual Funds

SEBI issued the Securities and Exchange Board of India (Mutual Fund) Regulations, 1993, under

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which all mutual funds barring the Unit Trust of India were to be registered and governed. The industry is now regulated by the more comprehensive Securities and Exchange Board of India (Mutual Fund) Regulations, 1996, which replaced the Securities and Exchange Board of India (Mutual Fund) Regulations of 1993.

In the recent past, steps have been taken to improve governance practices in the industry, which have helped the growth of the mutual funds industry. As at December 31, 2009, there were 38 private sector mutual funds with total assets under management of Rs. 7,944.9 billion. The following table illustrates assets under management by mutual funds:

(Rupees in million) Particulars March 31,

2005 March 31,

2006 March 31,

2007 March 31,

2008 March 31,

2009 December 31, 2009

Income/debt oriented schemes

1,062,492.2 1,249,127.7 2,276,177.4 3,406,412.0 3,779,448.1 5,766,501.4

Growth/equity oriented schemes

384,838.4 994,562.9 1,223,786.6 1,776840.7 1,010,307.7 1,950,341.5

Balanced schemes

48,669.5 74,934.1 90,044.9 166,550.5 101,972.0 174,679.5

Exchange Traded Fund

- - - 35,280.0 14,809.8 24,100.8

Fund of funds investing overseas

- - - - 26,316.8 29,237.1

Total 1,496,004.1 2,318,624.7 3,590,008.8 5,385,081.8 4,932,854.5 7,944,860.4 (Source: SEBI website)

XIII. Key Banking Industry Trends in India

According to RBI, the Indian banking system has been regarded as being in relatively good health. In RBI’s view, balance sheets of the banks currently appear healthy and little affected by the unsettled conditions in financial markets during the crisis of 2008. The asset quality and soundness parameters of the Indian banking sector are believed to have improved significantly in the recent period. The global financial downturn of 2008 that led to a crisis of confidence in the global markets has not had a major impact on the Indian banking system to date. An assessment of the soundness of commercial banks found that the banking sector has withstood the shocks of the global downturn well and none of the key financial parameters in September 2008 – namely capital ratio, asset quality, earning and profitability – pointed to any discernable vulnerability. (Report on Trend and Progress of Banking in India 2008-09)

XIV. Consumer Credit

The consumer credit market in India has undergone a significant transformation over the last decade and experienced rapid growth due to consumer credit becoming cheaper, more widely available and increasingly a more acceptable avenue of funding for consumers. The market has changed dramatically due to the following factors:

• increased focus by banks and financial institutions on consumer credit resulting in a market shift towards regulated players from unregulated moneylenders/financiers;

• increasing desire by customers to acquire assets such as cars, goods and houses on credit;

• fast emerging middle class and growing number of households in our target segment;

• improved terms of credit;

• legislative changes that offer greater protection to lenders against fraud and potential default

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increasing the incentive to lend; and

• growth in assignment and securitisation arrangements for consumer loans has enabled non-deposit based entities to access wholesale funding and compete in the market, based on the ability to originate, underwrite and service consumer loans.

XV. Commercial Banking Trends

Credit

Credit to the commercial sector has shown revival in the last quarter of Fiscal 2010. A quarter-wise analysis by RBI reveals that incremental credit extended by SCBs in absolute terms in the fourth quarter of Fiscal 2010 was the highest in the last two years. Reflecting the revival in flow of credit from the SCBs, the non-food credit growth was 16.9% by March 31, 2010 as against the Reserve Bank’s indicative trajectory of growth of 16%. In Fiscal 2010 up to October 2009, deceleration in non-food credit had continued and reached a low of 10.3% at that time. (Macroeconomic and Monetary Developments in 2009-10)

As the economic recovery is increasingly becoming more broad-based, with industrial output exhibiting particularly strong acceleration in recent months, there is a significant revival in credit demand since end-November 2009 and the incremental credit deposit ratio has also risen steadily in the second half of 2009-10. Due to the revival in credit demand for the banking system as a whole, the credit extended by private banks at end-March 2010 showed some improvement over last year. The loan portfolio of foreign banks, however, contracted.

Disaggregated data on sectoral deployment of gross bank credit show improvement in credit growth to all major sectors such as agriculture, industry, services and personal loans from November 2009 onwards. Industry absorbed 52.6% of incremental non-food credit in February 2010 as compared with 55.8% in the corresponding month of the previous year. This expansion was led by infrastructure and basic metals and metal products. The share of incremental non-food credit to services sector was 22.6% in February 2010. Within services sector, credit growth for transport operators, computer software, tourism, hotels and restaurants and trade accelerated in February 2010. Within personal loans, while education loan and housing loan continued to grow over 30% and 8%, respectively, the contraction in credit to some sub-sectors such as consumer durables and advances against shares, bonds, etc., moderated.

Deployment of Gross Bank Credit by Major Sectors (Amount in Rupees crore)

Sector Outstanding as on

February 26, 2010

Variation (year-on-year) February 27, 2009 February 26, 2010 Absolute Per

cent Absolute Per

cent Non-food Gross Bank Credit (1 to 4)

28,89,737 4,09,191 19.6 3,97,052 15.9

1. Agriculture and Allied Activities

3,70,407 52,126 21.2 72,654 24.4

2. Industry (Small, Medium and Large)

12,48,507 2,28,286 28.1 2,08,686 20.1

of which: Small Enterprises 3,60,859 50,932 20.8 65,033 22.0 3. Personal Loans 5,81,357 34,218 6.6 25,965 4.7

Housing 2,97,203 16,431 6.4 22,880 8.3 Advances Against Fixed

Deposits 46,529 2,927 6.8 750 1.6

Credit Card Outstanding 20,737 2,122 7.92 -8,189 -28.3 Education 36,522 7,033 33.8 8,690 31.2 Consumer Durables 8,102 -2,399 -22.6 -109 -1.3

4. Services 6,89,466 94,561 18.7 89,747 15.0 Transport Operators 46,165 5,616 17.0 7,527 19.5

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Sector Outstanding as on

February 26, 2010

Variation (year-on-year) February 27, 2009 February 26, 2010 Absolute Per

cent Absolute Per

cent Professional Services 12,599 1,686 22.4 3,399 36.9 Trade 1,65,046 17,379 14.4 26,859 19.4 Real Estate Loans 91,607 33,617 58.8 842 0.9Non-Banking Financial

Companies 1,13,834 24,469 37.0 23,313 25.8

Note : Data are provisional and relate to select banks. Data also include the effects of mergers of Bharat Overseas Bank with Indian Overseas Bank, American Express Bank with Standard Chartered Bank and State Bank of Saurashtra with State Bank of India. Source: Macroeconomic and Monetary Developments in 2009-10

Interest Rates

In the second quarter of 2010, the spreads on corporate bonds over the Government of India bond yield declined to the pre-global crisis level, indicating that the pressure on corporate borrowings has moderated. The monetary transmission, which was a concern when the policy rates were reduced by the Reserve Bank, has improved, although with some lags. In response to ample market liquidity and the lower policy interest rate environment, Indian banks softened their deposit rates for various maturities between March and December 2009.

The deposit rates, however, moved up in February-March 2010 by 25-50 basis points, reflecting not only the competition for attracting deposits with the pick-up in demand for credit but also a change in the interest rate environment resulting from higher policy rates and hardening yield on Government bonds. The transmission of lower cost of funds for banks was visible on the interest rates for private credit as the BPLR declined. The sub-BPLR lending of banks (excluding export credit and small loans) decreased to 65.8% in December 2009 from 66.9% in March 2009. The introduction of the Base Rate is likely to impart greater transparency to fixation of lending rates by banks and may also improve the assessment of the monetary policy transmission.

Asset Quality

The gross NPAs of the banking sector increased during Fiscal 2009. Though banks recovered and wrote off a higher amount of NPAs during the Fiscal 2009 (Rs. 388,280 million) compared to Fiscal 2008 (Rs. 282,830 million), they also added Rs. 523,820 million NPAs during Fiscal 2009 resulting an increase in the Gross NPAs during Fiscal 2009.

Net NPAs to Net Advances of Scheduled Commercial Banks

XVI. (Number of Banks)

Year/Net NPAs to Net Advances Ratio Public Sector Banks Private Sector Banks ForeignBanks SBI Group Others Old New

2005-06 Up to 2% 7 15 11 6 26 Above 2% and up to 5% 1 5 7 2 0 Above 5% and up to 10% 0 0 2 0 0 Above 10% 0 0 0 0 3 2006-07 Up to 2% 8 18 14 7 27 Above 2% and up to 5% 0 2 2 1 1 Above 5% and up to 10% 0 0 0 0 0 Above 10% 0 0 1 0 1 2007-08 Up to 2% 7 19 15 7 25 Above 2% and up to 5% 1 1 0 1 2

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Year/Net NPAs to Net Advances Ratio Public Sector Banks Private Sector Banks ForeignBanks SBI Group Others Old New

Above 5% and up to 10% 0 0 0 0 0 Above 10% 0 0 0 0 1 2008-09 Up to 2% 7 20 14 4 24 Above 2% and up to 5% 0 0 1 3 5 Above 5% and up to 10% 0 0 0 0 1 Above 10% 0 0 0 0 1

Source: RBI Annual Report 2008-09

Income and profitability

Total income of scheduled commercial banks increased from 8.62% of assets in Fiscal 2008 to 9.05% in Fiscal 2009 due to an increase in both non-interest income and interest income. Net interest income was up 24% while the non-interest income of scheduled commercial banks increased by more than 25% during the year. As a result, during Fiscal 2009, profits before provisions and taxes (as percentage of total assets) were higher at 2.16% against 1.94% during Fiscal 2008. Returns on assets (profit as percentage of total assets) at 1.02% during Fiscal 2009 were slightly higher than those during Fiscal 2008 (0.99%). As many as 55 banks (out of 79 banks) recorded an increase in return on assets during Fiscal 2009.

XVII. Debt Recovery Regulations in India

Debt Recovery Tribunals (“DRT”)

DRTs have been established for the recovery of debts in accordance with the Banks and Financial Institutions Act, 1993 for expeditious adjudication and recovery of debts that are owed to banks and financial institutions. The amendments made in 2000 and 2003 to the Act and the Rules framed in accordance with it have further strengthened the functioning of the DRTs. Out of 81,173 cases involving Rs. 1,305,080 million filed with the DRTs by the banks, 49,033 cases involving Rs. 655,850 million were adjudicated by 31 March 2009. The amount recovered through the adjudicated cases was Rs. 248,890 million.

SARFAESI Act

The SARFAESI Act passed in Parliament in 2002 gives powers of “seize and desist” to banks. Banks can give a notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan and exercise management rights in relation thereto. The SARFAESI Act also provides for the establishment of asset reconstruction companies regulated by the RBI to acquire assets from banks and financial institutions. The constitutionality of the SARFAESI Act was challenged in Mardia Chemicals Limited v. Union of India, AIR 2004 SC 2371. The Supreme Court upheld the validity of the SARFAESI Act, except Section 17(2), which it struck down on the ground that the requirement of making a deposit of 75% of the amount claimed at the time of making a petition or an appeal to the DRT in order to challenge the measures taken by the creditor was unreasonable. Out of 341,756 notices issued involving Rs. 681,270 million, recovery was done in 210,541 instances involving 193,960 million while compromise proposals were worked out in 79,277 instances involving Rs. 112,490 million by March 31, 2009. In addition to the SARFAESI Act, several states also have revenue recovery acts and lok adalats (People’s Courts).

XVIII. Corporate Debt Restructuring (“CDR”)

The RBI devised the CDR system to serve as an institutional mechanism for the restructuring of corporate debt. The CDR system is a voluntary, non-statutory mechanism based on debtor-creditor and inter-creditor agreements. Any lender with a minimum 20% exposure in term loans or working capital in a concerned corporate entity may access the CDR forum.

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XIX. Recent Developments

April 2009

• The RBI released the ‘Guidelines for prepaid payment instruments in India’. All persons currently operating or proposing to operate such payment systems are required to comply with the guidelines.

• The RBI announced that payment of interest on savings bank accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010.

June 2009

• RBI permitted scheduled commercial banks to install offsite ATMs at centres/places identified by them, without the need for permission from the RBI in each case.

July 2009

• The RBI permitted cash withdrawals at point of sale terminals. To start with, this facility will be available for all debit cards issued in India, up to Rs. 1,000 per day. Banks offering this facility shall on approval by their respective Boards obtain a one time permission of the RBI.

August 2009

• The RBI decided to introduce Interest Rate Futures on a notional coupon bearing 10-year Government of India security.

September 2009

• The RBI permitted banks to issue subordinated debt as Tier II capital with call and step-up options subject to ensuring the terms and conditions, as laid down in the circular, are strictly adhered to.

• The RBI released the final guidelines on Classification of Exposures as Commercial Real Estate (“CRE”) Exposures.

October 2009

• The RBI restored the SLR to 25.0% from 24% earlier - given prevailing excess liquidity conditions. However, the repo and reverse repo rates remained unchanged at 4.75% and 3.25%, respectively.

• The RBI raised the export credit refinance facility limit to 50% of eligible outstanding export credit in November 2008. It restored the same to the pre-crisis level of 15%. Further, the following refinance facilities withdrawn by the RBI: (i) special refinance facility for scheduled commercial banks; and (ii) special term repo facility for scheduled commercial banks for funding to Mutual Funds, NBFCs, and housing finance companies.

• The RBI agreed to the Indian Bank Association’s suggestions of: (i) extending the access of ATMs of other banks to only customers having savings bank accounts; (ii) pegging a cap of Rs. 10,000 per withdrawal at ATMs of other banks; and (iii) permitting only five free transactions per month at ATMs of other banks. These instructions came into effect from October 15, 2009.

November 2009

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• The RBI increased the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from 0.40% to 1%.

• The RBI maintained the required CRR at 5.0%. However, it required liabilities of scheduled banks arising from collateralised borrowing and lending obligation transactions to be subject to maintenance of CRR effective November 21, 2009.

December 2009

• The RBI directed that banks should augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70%, by the end of September 2010.

• The RBI permitted domestic scheduled commercial banks (other than RRBs) to open branches in Tier 3 to Tier 6 centres and in rural, semi-urban and urban centres in North Eastern States and Sikkim without having the need to obtain permission from Reserve Bank of India in each case, subject to reporting.

January 2010

• The RBI increased the CRR from 5% to 5.75% in two stages.

March 2010

• The RBI increased the policy rates ahead of its April 2010 monetary policy meeting. The rates were increased as the economy had recovered stronger than expected and inflation had surged. The repo rate and the reverse repo rate increased by 25 bps each to 5% and 3.5%, respectively

April 2010

• The RBI increased the reverse repo rate to 3.75%, the repo rate to 5.25% and the CRR to 6%.

• The RBI asked all banks to move to the Base Rate by July 1, 2010.

June 2010

• The liquidity situation tightened in June because of payments for 3-G and BWA spectrum licences and tax outflows. The RBI allowed banks additional liquidity support under its LAF to the extent of up to 0.5% of their net demand and time liabilities. The RBI also introduced a second daily LAF facility.

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BUSINESS Overview We are a private sector bank with a pan-India presence through a network of six regional offices, three zonal offices, 271 branches and 380 ATMs covering 136 centres in 14 states. As at March 31, 2010, we had 4,080 employees serving over 1.4 million customers. Our total assets were Rs. 80,868.9 million as at March 31, 2010, compared with Rs. 56,428.2 million as at March 31, 2009 and Rs. 40,329.8 million as at March 31, 2008. Our net profit for Fiscal 2010 was Rs. 233.0 million, compared with Rs. 574.5 million and Rs. 284.6 million for Fiscal 2009 and Fiscal 2008, respectively. As at March 31, 2010, our total capital was Rs. 4,400.8 million and our CRAR was 12.99% as per Basel II (12.47% as per Basel I), with Tier 1 Capital at 8.80% as per Basel II (8.45% as per Basel I) and Tier II Capital at 4.19% as per Basel II (4.02% as per Basel I). We have organised our business into six verticals, four of which are in the area of asset management: the wholesale banking group; the trade & advances group; the micro finance & agriculture group; and the retail assets group. The wholesale banking group covers corporations with a net worth of Rs. 500 million and above. The trade & advances group covers all cases other than those coming under wholesale banking and cases in the non-individual category. The micro finance & agriculture group covers all activities falling in those segments. The retail assets group covers all advances to individuals. In addition, we have a branch banking group that covers retail liabilities and a non-interest income/fee-based services group that covers the distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking, demat and treasury operations. Our products and services include: savings accounts; current accounts; term deposits; credit cards; loans; depository services; locker facilities; foreign exchange services; payment services; online broking services; cash management services; non-fund based products; and corporate salary accounts. We also distribute Bajaj Allianz General Insurance Company Limited’s (“Bajaj Allianz”) life insurance and non-life insurance products and mutual funds of ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC AMC. In addition to our growing branch and ATM network, we provide our customers with internet banking services. We are planning to launch our mobile banking service by the end of July 2010 and telephone banking services before the end of Fiscal 2011. We have arrangements with major exchange houses in the Middle East (UAE Exchange Centre LLC and Al Ahalia Money Exchange Bureau) and foreign correspondent banks (Deutsche Bank Trust Company Americas, Wachovia Bank NA, Commerzbank AG, and National Westminister Bank PLC) to enhance our capability of providing international remittance services. Since Fiscal 2009, we have been focused on transforming the Bank from a regional bank with below industry average growth to a bank with a pan-India presence and above industry average growth. Since our current Managing Director and CEO, Amitabh Chaturvedi, joined us in October 2008 we have transformed and expanded our business by: • Hiring additional experienced top management and middle-level managers and significantly increasing

the number of other employees. The number of our employees increased from 1,375 as at September 30, 2008 to 4,080 (including 805 sales executives across branches) as at March 31, 2010 and the average age of our employees dropped from 48 to 34 years old. Nearly all of our new employees are not union members and our unionized workforce reduced from approximately 87% as at September 30, 2008 to less than 33% of the total workforce as at March 31, 2010.

• Building a pan-India presence. Our consumer touch points increased from 279 (207 branches and 72 ATMs) as at September 30, 2008 to 671 touch points (271 branches and 380 ATMs) and we opened up branches in six states (Haryana, Punjab, Rajasthan, Uttar Pradesh, Madhya Pradesh and Goa) where we did not have a presence earlier. As a result of this expansion, deposits from outside Kerala increased from approximately 32% of our total deposits as at March 31, 2009 to approximately 47% of our total deposits as at March 31, 2010 and to advances from outside Kerala increased from approximately 56%

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of our total advances at March 31, 2009 to approximately 73% of our total advances as at March 31, 2010.

• Reorganising our business model from a geographical, branch-based approach to a segment-based vertical approach.

• De-risking our asset book through focusing on lending to the corporate segment in Fiscal 2010, which resulted in a number of new leading Indian corporations with AAA ratings establishing business relationships with us. As a result, the proportion of “A and above” rated borrowers increased from 36% as at March 31, 2009 to 48% as at March 31, 2010 and the percentage of gross NPAs to gross advances declined from 1.99% as at March 31, 2009 to 1.54% as at March 31, 2010. Previously we had focused on lending to SMEs.

• Augmenting our fee product portfolio, including entering into an agreement with Bajaj Allianz to distribute their life insurance and non-life insurance products, empanelment with ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC AMC to distribute their mutual fund products and entering into an agreement with Destimoney Securities Private Limited (“Destimoney”) to launch our online broking service.

• Increasing our investment in technology and utilising renowned IT corporations to deploy the best in class technology, including Oracle Financial GLS, Loanflo, Spine Payroll and Destimoney. We were already using a CBS on the “Flexcube” platform prior to October 2008. We have rolled it out to additional branches so that as at March 31, 2010 we had deployed CBS on the “Flexcube” platform at all our branches. We intend to complete the implementation of the latest version of Flexcube across all our branches by September 2010.

• launching a new brand identity, “DhanlaxmiBank”, in January 2010.

• launching our credit card business in March 2010.

• Re-launching our retail banking business with new as well as re-branded loan products and simplified loan documentation in July 2010.

In 2009, we were recognised as “India’s Fastest Growing Mid-size Bank” by Business Today and awarded “Best Bank in the Private Sector” by the State Forum of Bankers’ Clubs at their Banking Excellence Awards. Our Competitive Strengths We believe that the following strengths distinguish us in a competitive Indian banking industry: Our Board of Directors comprises eminent professionals and our strong, multi-skilled management team has extensive experience in the Indian banking and financial industry – Our Board of Directors comprises eminent professionals. Our senior management team, led by our Managing Director and CEO, Amitabh Chaturvedi, has extensive experience in the Indian banking and financial industry and nearly all of them have worked at other leading Indian banks and financial institutions. Please see “Board of Directors and Key Managerial Personnel”. Their collective experience, drive and vision has transformed the Bank from a regional bank with below industry average growth to a bank with a pan-India presence and above industry average growth. Asset quality – Our advances are concentrated in our wholesale banking business, which accounted for 64% of our advances portfolio as at March 31, 2010. This concentration, together with a correspondingly low exposure to retail assets, which accounted for 16% of our advances portfolio as at March 31, 2010, as well as our advanced and stringent risk management systems, has contributed to the high quality of our assets. As at March 31, 2010, our gross NPAs were Rs. 775.0 million (1.54% of gross advances) and net NPAs were Rs. 419.4 million (0.84% of net advances). Long history and long standing customer relationships – We were incorporated in 1927 and we have long standing relationships with many of our customers, including approximately 1,500 temple trusts in Southern India.

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We offer a wide array of banking and financial products – By offering a wide array of products, we provide a one-stop solution to the financial and banking needs of our customers, with a focus on cross-selling multiple products to them. Well-developed and strong IT infrastructure – We have a well developed and strong IT infrastructure, which we believe is indispensable to bring about accelerated growth across multiple business verticals. During Fiscal 2010, we undertook numerous initiatives to improve our IT infrastructure, including the extensive replacement of old and obsolete equipment with new generation IT hardware, we upgraded from a fixed leased line and ISDN combination network to a powerful “MPLS” network to ensure superior connectivity, we upgraded the servers in line with the latest technology to facilitate the handling of far higher data volumes, we upgraded the Flexcube software into a feature-rich offering, thereby enabling high-end MIS, automation and other facilities, and moved to an efficiently managed data centre of international standards in partnership with IBM. We also have arrangements with renowned IT corporations to deploy the best in class technology, including Oracle Financial GLS, Loanflo, Spine Payroll and Destimoney. Infrastructure and well-trained employee strength already in place to enable us to significantly expand our business – Since September 30, 2008 we have increased the number of our branches from 207 to 271, the number of ATMs from 72 to 380 and the number of states where we have a presence from eight to 14. The number of our employees also increased from 1,375 as at September 30, 2008 to 4,080 as at March 31, 2010. We also introduced new human resources policies, invested in workforce training and moved to a managed data centre model to free up employees at our branches to focus on customer acquisition and service. Primarily as a result of these initiatives, our total income increased from Rs. 4,877.7 million in Fiscal 2009 to Rs. 6,255.6 million in Fiscal 2010, an increase of 28.25%, and our total assets increased from Rs. 56,428.2 million in Fiscal 2009 to Rs. 80,868.9 million in Fiscal 2010, an increase of 43.31%. Despite these impressive increases, we believe that our current infrastructure, including our well-developed and robust information technology systems, and our well-trained employees have the capacity to handle at least two and half times the volume of business we did in Fiscal 2010. Our Strategy Our goal is to be among the top five private sector banks in India in terms of asset quality, balance sheet size, number of branches and profitability. Our key strategies to achieve this goal are set out below: Continue to expand our branch and ATM network and increase our CASA deposits – Although we have significantly expanded the number of our branches and ATMs since September 2008, we plan to continue to do so in order to increase our customer base and our pan-India presence and attract additional low and non-interest bearing current and savings account deposits. Our new branches helped us to increase our CASA deposits by 28.48% as at March 31, 2010 compared with March 31, 2009. We plan to open four new branches this Fiscal year to bring the total to 275 branches by the end of Fiscal 2011 and to add a significant number of new branches in Fiscal 2012. Through our agreement with AGS Infotech Private Limited (“AGS Infotech”), we can expand our ATM network with no capital expenditure on our behalf. We are planning to add approximately 600 more ATMs this fiscal year to bring our total number of ATMs to approximately 1,000 by the end of Fiscal 2011. Significantly increase our retail and SME loan books – During Fiscal 2010 we made a conscious decision to de-risk our loan book by increasing loan flow to large corporations while we put in place the necessary infrastructure, policies and procedures and hired and trained additional employees to enable us to prudentially grow our retail and SME loan books. As a result, our wholesale banking group loan book represented 64% of our total loan book as at March 31, 2010. In July 2010 we re-launched our retail banking business with re-branded as well as new loan products and simplified loan documentation. We intend to significantly increase our retail loan book, which was 16% of our total loan book as at March 31, 2010. Our SME loan book represented 15% of our total loan book as at March 31, 2010. We had traditionally focused on the SME segment and we plan to use our expertise in this area as well as our larger footprint and new products focused on SMEs to significantly expand our SME loan book. Leverage our multi-channel distribution network in order to increase the contribution of fee income – As part of our efforts to increase fee income, we entered into an agreement with Bajaj Allianz to distribute its life and general insurance policies and we received the licence for the same in September 2009. We are laying

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considerable emphasis on our retail and corporate businesses for increasing our income from our CMS business by extending speedy cheque collection facilities to our customers and entering into agreements with other banks. We are a depository participant of NSDL and carry out demat processing operations through our branches in compliance with SEBI/NSDL guidelines and deploying sophisticated technology. In 2010 we entered into agreements with ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC MF to distribute their mutual fund products and we have deployed mutual fund product specialists to drive growth in this area. In January 2010, we launched our online broking service by entering into an arrangement with Destimoney. We provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account with Destimoney providing a trading platform to execute capital market transactions. We will extend this service across our branches in the current year and we plan to enter into new areas such as IPOs, mutual fund investments and trading opportunities in the futures and options segment through this online trading platform. In Fiscal 2010, the BSE entered into an agreement with us empanelling us as a clearing and settlement bank. Through this arrangement, we provide a seamless interface to all BSE customers to enable safe and easy transactions on a day-to-day basis. During Fiscal 2010, we laid special emphasis on our foreign exchange business with a focus on corporate, mid-market and retail segments and we plan to continue to do so. Our sharpened focus on foreign exchange business resulted in us adding new clients across all segments (including co-operative banks) and our volumes increased almost two-fold, from Rs. 84,833.4 million in Fiscal 2009 to Rs. 145,065.7 million in Fiscal 2010. We also started participating actively in the inter-bank market and became a market-maker quoting two-way prices. We are in the process of deploying the latest technology and processes to bring about service differentiation, which is vital for accelerating growth in this business. We believe our increased focus on lending to SME and retail customers will lead to increased loan processing fees. We plan to begin selling gold bullion at our branches in the second half of Fiscal 2011. Leverage technology to provide innovative solutions and superior service – We will continue to develop technology-based solutions in conjunction with robust processes and controls through centralised operations, which not only provide a superior service to our customers but also minimise our operational costs and risks. Maintain asset quality through a continued focus on risk management – We intend on maintaining high standards of asset quality through risk management and mitigation practices that are actively focused on evaluations of credit, market and operational risk. In conjunction with these practices, we intend to optimise our capital needs as we grow our business. Develop the “DhanlaxmiBank” brand – In January 2010 we launched our new “DhanlaxmiBank” brand and since then all of our branches and offsite branding colours were changed to improve brand visibility. We intend to build our brand further through various activities such as advertising across print, television and the Internet, organising, attending and sponsoring seminars and continuing to improve the level of service that we offer to our customers. To engage and retain employees – We will continue to seek to attract and retain qualified, talented and experienced management and operations personnel sourced from other banks and financial institutions. Keeping in view our objective to share the fruits of our success with our employees and to provide them an opportunity to participate in our growth, in Fiscal 2010 the Board approved the introduction of an Employee Stock Option Scheme, subject to a ceiling of 6% of total Equity Shares. For details, please see “Board of Directors and Key Managerial Personnel – Employee Stock Option Scheme”. In order to create the best-in-class work environment, we have adopted what we believe to be the best practices of the industry and undertaken a series of initiatives such as the introduction of performance management systems, balanced score card, comprehensive Mediclaim insurance cover to all employees, an extension of the retirement age of officers from 58 years old to 60 years old and centralised salary payroll and attendance management. History We were incorporated in 1927 in Thrissur, Kerala, India and we opened our first branch outside Kerala in 1975. In 1996, we raised Rs. 240 million in our initial public offering and listed our Equity Shares on the NSE, BSE and the CoSE. In 2002, we raised Rs. 270 million in a rights issue of our Equity Shares. As RBI guidelines provide that no private sector bank will be awarded new branch licences if the largest

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shareholder holds more than 10% of the equity in a bank, in 2007, Mr. Raja Mohan Rao, who then held 36.7% of our Equity Shares, sold down his shareholding to 9.7% of the Bank. In March 2008, Mr. Gyanendra Nath Bajpai, a former Chairman of LIC and SEBI, became Chairman of the Board. This marked the start of the appointment of a reconstituted Board of Directors made up of eminent professionals. In May 2008, we raised Rs. 1,987.6 million from the sale of 32,057,880 Equity Shares in a rights issue. This increased the net worth of the Bank to above the minimum of Rs. 3,000 million prescribed by the RBI and paved the way for the Bank to get licences from the RBI to open new branches and regional offices. The shareholders of the Bank have at their meeting dated July 15, 2010 approved a change of name from “The Dhanalakshmi Bank Limited” to “Dhanlaxmi Bank Limited” and the name change will be effected on receipt of the Fresh Certificate of Incorporation consequent to change in name is received from the RoC. OUR PRODUCTS AND SERVICES Corporate Loans and Funded Advances We offer a range of loans and funded advanced products to assist our corporate customers in meeting their financial needs. Term Loans Our term loans primarily finance the creation and improvement of assets, including project finance. These loans are typically secured by the project assets and personal property financed, as well as by other assets of the borrower wherever required. Repayment is made in instalments over the loan period. Cash Credit and Other Working Capital Facilities We offer revolving credit facilities secured by working capital assets, such as inventory and receivables. We may take additional security in the form of liens on fixed assets, including mortgages of immovable property, pledges or hypothecation of marketable securities and personal guarantees. We also provide overdrafts, working capital demand loans, working capital term loans and bill discounting facilities to our corporate and commercial borrowers. Import/Export Assistance We provide import/export finance, including: packing credit; import loans; and purchase and discount of foreign bills. We also offer loan facilities in foreign currencies to our domestic customers. Foreign currency denominated loans in India are granted out of the Bank’s FCNR (B) funds, in terms of RBI guidelines. Import Finance We provide various types of credit facilities and other services to importers. The various facilities provided include collecting import bills, establishing import letters of credit, arranging short-term foreign currency loans through our correspondent banks and issuing guarantees on behalf of importers. The table below provides details of our loans and funded advances by product type as at March 31, 2008, 2009 and 2010.

As at March 31, 2008 2009 2010

(Rupees in millions) Term loans 9,107.1 15,766.3 31,194.6 Cash credit and other working capital facilities (1) 10,280.5 14,518.7 17,770.9 Bills purchased/discounted 1,632.8 1,675.5 1,097.1 Net Advances 21,020.3 31,960.6 50,062.6 (1) Includes import finance

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Corporate Non-Funded Advances We offer a range of non-funded advance products to assist our corporate customers in meeting their financial needs. Letter of Credit We provide letter of credit facilities, with our fee varying with the term of the facility as well as amount drawn. Letter of credit facilities are often partially or fully secured by assets, including cash deposits, documents of title to goods, stocks and receivables. These facilities are generally provided as part of a package of working capital financing products or term loans. Guarantees We issue guarantees on behalf of our customers to guarantee their financial and performance obligations. These are generally secured by counter guarantees and/or a fixed or floating charge on the assets of the borrower, including cash deposits. The table below provides details of our non-funded advances by product type as at March 31, 2008, 2009 and 2010.

As at March 31, 2008 2009 2010

(Rupees in millions) Letters of credits 1,138.6 969.8 1,282.6 Guarantees 145.8 405.4 382.1 Total Non-Fund Advances 1,284.4 1,375.2 1,664.7 Retail Loans In July 2010, we re-launched our retail banking business with re-branded loan products as well as new loan products and simplified loan documentation. Our new loan products include construction financing, loans for construction equipment (new and used) and vehicle dealer funding. We intend to significantly increase our retail loan book, which was 16% of our total loan book as at March 31, 2010. Our wide range of retail asset products includes the following: Personal Loans Our personal loans enable our customers to address their diverse financial needs. We offer loans to finance the purchase of home appliances, computers, audio/video systems and other home equipment. Mortgages Our mortgage products include: loans for the purchase of property for residential purposes; loans for the purchase of property for commercial usage; loans against residential property; loans against commercial property; lease rental discounting; and construction financing. Vehicle Financing Our vehicle financing products include: new car loans; used car loans; new commercial vehicle loans; used commercial vehicle loans; new construction equipment loans; used construction equipment loans; and dealer funding. Agriculture Business Our agriculture business financing products include: farm loans; warehouse receipt funding; and agriculture gold loans (loan against liquid collateral).

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Credit Cards With a view to providing a bouquet of products to our customers, in March 2010, we launched our platinum and gold credit cards under the VISA banner. These credit cards provide holders with a 45-day interest-free credit period, irrespective of the date of purchase, which we believe distinguishes them from most of our competition. The other facilities include cash back on purchases, priority pass and concierge services. Our credit cards are targeted at premium customers. Depository Services As a depository participant of NSDL, we provide all depository-related services, including converting physical shares into electronic form, creating physical share certificates from electronic holdings, broker trading, pledging shares against any loan, account management, and all corporate depository actions. As at June 30, 2010, the Bank had 873 depository accounts. Safe Deposit Lockers Our safe deposit lockers provide 24-hour protection for our customer’s precious possessions. With convenient locker operation timings, customers can deposit and retrieve their valuables in complete privacy. Foreign Exchange Services Retail Customers For retail banking customers, we offer trade services centred around international trade. We provide foreign currency services at all B-category branches, and allow customers to deposit foreign currency cheques, demand drafts and traveller’s cheques into all savings or current accounts held at the Bank. We also issue foreign currency demand drafts to facilitate overseas transactions and assist with remittances with international transactions. Corporate Customers For corporate banking customers, we provide purchases and sales of foreign currency against rupee for same day outward foreign currency payments. We also provide forward purchases and sales of foreign currency to cover exchange risk on imports and exports, as well as provide forward contracts to cover risk on foreign currency loans. Payment Services InstaPay The Bank’s “Instapay” is a convenient and secure way for customers to pay their bills online. With this facility, customers can make payments for utility bills such as telephone, mobile, electricity, and insurance premiums online instantly without having to register for it. Payment Gateway Our Payment Gateway is an online service for retail banking customers that allows them to pay bills and make payments for online purchases or services. This service can be accessed from any internet connection. International Remittance Services We help remittances and the movement of funds between India and abroad for transactions permitted by RBI/FEMA guidelines. The “Dhanam Express” service transfers funds remitted from abroad to any customer of any bank in India. Our customers will receive a credit on-line, and customers of other banks will have funds transmitted on a real time basis. We have arrangements with major exchange houses in the Middle East (UAE Exchange Centre llc and Al Ahalia Money Exchange Bureau) and foreign correspondent banks (Deutsche Bank Trust Company Americas, Wachovia Bank NA, Commerzbank AG, and National Westminister Bank plc) to enhance our capability of providing international remittance services.

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Cash Management Services We provide cash management services for corporate customers through speedy collection of cheques, demand drafts and pay orders from various locations. Our service encompasses integrated collection, payments, liquidity and receivables management in order to efficiently manage cash flow to reduce risk, minimize costs and maximize profit. Investment Banking Debt Capital Markets We have a small debt capital markets team that works on providing debt solutions to customers in the form of bond or debenture issuances or loan syndications. We also handle securitisation activity by structuring, arranging and distributing asset-backed financing of various asset classes and future flow transactions for customers. We started our debt capital markets investment banking business in Fiscal 2010. Equity Capital Markets In the first quarter of Fiscal 2011, we recruited a small team to kick start our equity capital markets investment banking business. We are able to provide deal structuring and execution on corporate transactions, including mergers and acquisitions, IPOs, secondary offerings and share buybacks. We are also able to originate/structure and execute public and private equity, equity-linked and derivative financing and solutions. Financial Planning We offer financial planning services to our retail customers. We do not charge for this services and we earn commission from the sale of third party life and non-life insurance products and mutual fund products, details of which are given below. Insurance We distribute life insurance and non-life insurance products underwritten by Bajaj Allianz, such as motor insurance, home insurance and health insurance, on an agency basis. Bajaj Allianz’s health insurance policies include “Dhanam Suraksha”, which is a health insurance family floater plan available exclusively to our customers. We entered into our agreement with Bajaj Allianz in March 2009 but only received regulatory approval to sell their products in September 2009. We received a Rs. 500.0 million commitment fee from Bajaj Allianz for entering into the agreement with them, Rs. 230.0 million of which we received in Fiscal 2009 and Rs. 270.0 million of which we received in Fiscal 2010. We also receive a commission for each life insurance and non-life insurance product sold. Prior to selling Bajaj Allianz’s life insurance and non-life insurance products, we offered the products of other companies. Mutual Funds We distribute the mutual fund products of ICICI Prudential AMC, Kotak Mahindra AMC, UTI MF, Fidelity Fund Management and HDFC AMC on an agency basis. We entered into agreements with these five mutual fund providers in 2010. Prior to 2010, we distributed the mutual fund products of Principal PNB, although only to a very limited extent. We receive a commission fee for each mutual fund sold. Online Broking In January 2010, we launched our online broking service by entering into an arrangement with Destimoney. We provide a 3-in-1 savings account, demat account and trading account to the customer and Destimoney provides a trading platform to execute capital market transactions. We will extend this service across our branches in the current year and we plan to enter into new areas such as IPOs, mutual fund investments and trading opportunities in the futures and options segment through this online trading platform. Specialised Services to NRI Customers

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Recognising the growing involvement of the Indian Diaspora in the growth of the Indian economy, we have focused on widening our NRI base through special measures. The number of ‘new to bank’ NRI accounts increased by approximately 11,000 during Fiscal 2010, taking our base from approximately 22,000 accounts as at March 31, 2009, to approximately 33,000 accounts as at March 31, 2010. Outstanding NRI balances also increased during Fiscal 2010, from Rs. 2,982.8 million as at March 31, 2009, to Rs. 3,498.1 million as at March 31, 2010. We further expanded our geographic reach by entering into an arrangement with exchange house Majan Exchange LLC, Sultanate of Oman, which will allow for fast remittance under a rupee-drawing arrangement. We also entered into rupee-drawing arrangements with three other exchange houses during Fiscal 2010. We further operationalised the Remit World tie-up for online remittances from the USA to India by entering into an arrangement with Bank of New York Mellon. As part of our overall endeavours to widen the NRI base, we have assigned seven NRI relationship managers to three exchange houses in the UAE. In addition to the rupee drawing arrangements, we also have arrangements with several enterprises, such as MoneyGram and Wall Street Finance Ltd, to enable Money Transfer Services from 168 of our branches. These Money Transfer Service schemes help NRIs remit money from locations abroad to India. Deposit Products Our deposit products target different customer segments among consumers and corporate customers. We also receive term deposits from other banks and our deposits are broadly classified into current (also known as demand) deposits, savings deposits and term (also known as time) deposits, the details of which are as follows: • Current deposits are non-interest bearing;

• Savings deposits are deposits that accrue interest at a fixed rate set by the RBI and upon which cheques can be drawn; and

• Term deposits are deposits on which interest is paid, either on maturity or at stipulated intervals depending upon the deposit scheme under which the money is placed. Term deposits include:

• fixed deposits on which a fixed rate of interest is paid at fixed, regular intervals;

• re-investment deposits, under which the interest is compounded quarterly and paid on maturity, along with the principal amount of the deposit; and

• recurring deposits, under which a fixed amount is deposited at regular intervals for a fixed term and the repayment of principal and interest is made at the end of the term.

For details of our total deposits as well as the breakdown by demand and savings (CASA) deposits and term deposits as at March 31, 2008, 2009 and 2010, please see “Selected Statistical Information – Total Deposits.” The regional distribution of our deposits as at March 31, 2009 and 2010 is set out in the table below: (Rupees in millions)

Region As at March 31, 2009 As at March 31, 2010 Southern India 45,385.6 52,974.3 Northern India 332.7 6,025.6 Western India 3,815.5 11,030.0 Eastern India 155.0 954.9 Total 49,688.8 70,984.8 Our Business Units We have organised our business into six verticals, four of which are in the area of asset management: Wholesale Banking Group; Trade & Advances Group; Micro Finance & Agriculture Group; and Retail Assets Group.

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Wholesale Banking Group The Wholesale Banking Group covers corporations with a net worth of Rs. 500 million and above. Our Wholesale Banking Group was formed in April 2009, when Mr. Rajeev Deoras, the head of the Wholesale Banking Group, joined us. The Wholesale Banking Group comprises of five subgroups: • Corporate Banking Group: the initial strategy of our Corporate Banking Group was aimed at achieving

high-volume, low-risk business by lending to large corporations with high creditworthiness in geographically diverse locations in India. Our Corporate Banking Group has offices in Mumbai, Delhi, Ahmedabad, Hyderabad, Bangalore, Kerala and Chennai.

• Government and PSU Banking Group: this group services government entities and is focused on increasing the deposit and advances base from government entities.

• Investment Banking Group: this group works in close association with the Corporate Banking Group on debt capital markets transactions, including mandates for commercial paper and non convertible debentures and also has the ability to provide equity capital markets services such as deal structuring and execution on corporate transactions, including mergers and acquisitions, IPOs, secondary offerings and share buybacks. This group is also able to originate/structure and execute public and private equity, equity-linked and derivative financing and solutions.

• Trade Finance and Cash Management Group: this group provides trade solutions tailor made for a client’s business and offers buyers and suppliers credit, guarantees, letters of credit, pre- and post-shipment financing and cash management services.

• Capital and Commodity Markets Group: this group targets clients working in the stock broking industry. The group in a short span of time was able to empanel us as one of the clearing and settlement banks for BSE and Multi Commodity Exchange of India Limited (MCX), with the empanelment for other exchanges in the advanced stages.

Trade & Advances Group The Trade & Advances Group is responsible for acquisition and relationship management of all customers and their affiliates in the small and medium enterprise segment and emerging corporate (entities having a net worth below Rs. 500 million). Micro Finance & Agriculture Group The Micro Finance & Agriculture Group covers all activities falling in those segments. It caters to micro finance institutions, self help groups and NGOs for group/non-individual lending. It also caters to individuals in these sectors. Retail Assets Group The Retail Assets Group covers all advances to individuals. We reorganised our asset business into these four verticals in Fiscal 2010 and the composition of our asset book by these business units as at March 31, 2010 is set forth in the table below: As at March 31, 2010

(Rupees in millions) % of Total Advances

Wholesale Banking 32,040.06 64% Trade & Advances (SMEs) 7,509.39 15% Micro Finance & Agriculture 2,503.13 5% Retail Assets 8,010.04 16% Total Advances 50,062.59 100%

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In addition, we have a branch banking group that covers retail liabilities and a non-interest income/fee-based services group that covers the distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking, demat and treasury operations. Treasury Operations Our Treasury Department manages our funding position and maintains our regulatory reserve requirements. Our Treasury Department invests in sovereign and corporate debt instruments. The primary components of our investment portfolio are government securities and corporate debt securities. Our Treasury Department also invests in commercial paper, mutual funds, certificates of deposits and floating rate instruments as part of its function to manage short-term surplus liquidity. As at March 31, 2010, the total value of our gross investments was approximately Rs. 20,359.1 million and the total value of our net investments was approximately Rs. 20,278.0 million. The average yield on our gross investments was 6.82% for Fiscal 2010. Under RBI guidelines, we are required to maintain 25% of our net demand and time liabilities in Government and other approved securities and 6% of our net demand and time liabilities in a deposit account with the RBI. As at March 31, 2010, Government securities constituted 91.08% of our gross investments, compared with 88.10% as at March 31, 2009 and 85.93% as at March 31, 2008. For further information, please see “Selected Statistical Information – Investment Portfolio.” Our Treasury Department also undertakes trading in fixed income securities and foreign exchange. In addition to proprietary trading and liquidity management, our Treasury Department offers corporate customers derivative instruments such as forward contracts and interest rate swaps. We are planning to offer our corporate customers currency swaps, foreign currency options, forward rate agreements and structured foreign exchange products. Distribution Network We have a distribution network comprising branches, ATMs, Internet banking channels and a telephone contact centre, which provide access to, and markets, our retail banking products and services. The composition of our distribution network as at March 31, 2008, 2009 and 2010 and June 30, 2010 is set out in the table below:

As at March 31, As at June 30, 2008 2009 2010 2010

Branches 207 207 270 271ATMs 72 72 280 380

Branches: As at June 30, 2010, we had 271 branches, all of which are fully networked and connected to a central database in Bangalore on a real-time basis with a back-up facility in Bangalore. All branches are licensed by the RBI to lend and to accept deposits. We have received licences for, and plan to open, four new branches in the second quarter of Fiscal 2011. The distribution of our branches across India by region as at March 31, 2008, 2009 and 2010 and June 30, 2010 is set out in the following table: :


Southern India 194 194 217 217Northern India 3 3 19 19Western India 9 9 29 30

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Eastern India 1 1 5 5Total branches 207 207 270 271

Non-branch delivery channels: ATMs: As at June 30, 2010, we had 380 ATMs, 232 of which were off-site ATMs, with the rest located within our branches. Our ATMs are part of the Visa, Cashtree, Cashnet and National Finance Switch shared payment networks. In addition, Visa cardholders who have accounts with other banks can access their accounts using our ATM network. We have established our ATMs on a pay per transaction basis, which reduces our capital expenditure requirements. Our agreement with AGS Infotech provides for a network of 380 ATMs to be installed by December 2010 in both on-site and off-site locations, 292 of which are already in place. These ATMs were installed by AGS Infotech and are managed by them at no cost to us in exchange for a per transaction fee. AGS Infotech reimburses us for the rental costs of all off-site locations where ATMs are installed. The agreement further allows for expansion of the provided services at mutually agreeable commercial terms. Additionally, through our agreement with Euronet Services India Private Limited, we currently have an additional 88 ATMs operating in off-site locations. We are planning to add approximately 600 more ATMs this fiscal year to bring our total number of ATMs to approximately 1,000 by the end of Fiscal 2011. Internet banking: We offer most retail banking services via Internet access to our customers. We have also initiated internet banking facilities for our corporate clients. By March 2011, we intend to offer the entire gamut of retail as well as corporate banking services to our customers via the Internet. Contact centre: Our telephone contact centre in Thrissur provides a distribution channel for our deposits, loans and wealth management products and services across India, which we intend to also use as a marketing channel to cross-sell our products and services. In addition, we are planning to launch our mobile banking service by the end of July 2010 and telephone banking services before the end of Fiscal 2011. Customer Service We are focused on providing the highest quality service to our customers. A customer service committee of the Board, comprised of six Directors, periodically monitors the implementation of customer service measures. Similar committees have been formed at the corporate, zonal and branch levels to monitor service quality and bring about ongoing improvements in the customer service area. We are also a member of the Banking Codes and Standards Board of India (BCSBI) and are actively implementing the code of commitment to customers as well as the code for micro and small enterprises formulated by the BCSBI. The implementation of these customer service measures at branch offices is reviewed each time an executive visits a branch office. We received 174 customer complaints in Fiscal 2010, 162 of which had been successfully resolved and 12 of which remained pending as at March 31, 2010. We have also begun to implement customer relationship management, which encompasses various processes relating to customer service. In Fiscal 2010, we extended doorstep banking facilities to retail customers and we are in the process of extending it to corporations. Back Office Operations A key component of the revised business model we adopted during Fiscal 2010 was the centralisation of all back office operations. This component was implemented to allow the branches to focus on customer-facing activities such as customer acquisition, sales and customer service. The result of these efforts was accelerated growth and improved profitability. We have made considerable progress in the implementation of this component, including setting up the Dhanam Centralised Solutions at Thrissur to handle:

• opening of all deposit/loan accounts and NRI accounts;

• centralised issue of combi packs (cheque book and debit card);

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• centralised processing of service requests, internet banking operations (retail and corporate), RTGS and NEFT;

• NOSTRO reconciliation, foreign currency non-resident (FCNR) deposits and foreign exchange cheque collection;

• centralised doorstep banking; and

• centralised demat and trading operations.

A variety of other functions were also centralised at processing centres, including fixed deposits processing (new and renewals), Electronic Clearing Services, clearing (inward and outward), and outstation cheques for collection and corporate salary processing. Priority Sector Lending and Export Credit The RBI requires all Indian banks to allocate a minimum of 40% of their ANBC as at March 31 of the applicable prior year to the “priority sector”, which includes the agricultural sector, economically weaker sections of the community, small scale industries (“SSIs”), professionals and self-employed individuals. The RBI also specifies sub-allocation requirements, including a minimum of 18% of ANBC to the agricultural sector, 10% of ANBC to economically weaker sections of the community and a minimum of 1% of the applicable prior year’s total advances to the Differential Interest Rate Scheme, under which Indian banks are required to provide financial assistance at concessional rates of interest to selected low income groups. If our lending falls below the RBI’s directed lending requirements, we are required to fulfil our obligations to the RBI by investing in securities specified by the RBI and/or in deposits under RBI-specified deposit schemes of the National Bank for Agriculture and Rural Development and the National Housing Bank. These deposits have a maturity ranging up to seven years and carry interest rates lower than market rates. During the last three Fiscal years, we met our priority sector lending RBI requirements and did not make any new investments in these schemes. Priority sector advances increased from Rs. 11,405.7 million as at the end of March 2009 to Rs. 14,092.8 million as at the end of March 2010, an increase of 35.43%. As at the end of March 2010, priority sector advances were 43.61% of ANBC, well above the RBI benchmark of 40%. We also surpassed the RBI norm of 18% of ANBC in respect of agricultural credit, which stood at 23.46% of ANBC as at the end of March 2010. Weaker section advances as at March 31, 2010 were Rs. 4,771.4 million compared with Rs. 2,054.0 million as at March 31, 2009. Weaker section advances were 14.76% of ANBC as at March 31, 2010, against the RBI benchmark of 10%. The RBI also requires all banks to lend to exporters at concessional rates of interest to enable them to have access to an internationally competitive financing option. RBI guidelines require that export credit constitute 12% of any bank’s ANBC. Currently, there are no penalties for not meeting this export credit requirement. We provide export credit for pre-shipment and post-shipment requirements of exporter customers in Rupees and foreign currencies. As at March 31, 2010, our exposure by way of export credit was Rs. 331.3 million. For further information, please see “Selected Statistical Information – Priority Sector Lending.” Financial Inclusion and Micro Credit As part of the overall efforts towards financial inclusion, we are in the process of opening around 50 CSP in Kerala and reaching out to over 50,000 ‘no-frill’ accounts customers through these service points. Each CSP, known as the business correspondent location, will have a representative from the Bank to guide and educate customers on various banking services. These CSPs will be responsible for sourcing ‘no-frills’ accounts, which can be opened and operated with zero balance, and service the deposit and withdrawal requirements of the customer after opening of these accounts. The Bank will facilitate the use of biometric cards for day-to-day operations. Other banking services, such as insurance and loan products, will also be offered from the CSP location. The CSPs are being offered marketing, technology and training support required to deliver the above

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services. The Bank has tied up with NGOs including the Nair Service Society, Sree Narayana Dharma Paripalana Yogam, and Kudumbasree, for deepening its overall inclusion activities. The number of ‘no-frill’ savings bank accounts opened by the Bank as part of our financial inclusion endeavours increased from 83,046 as at March 31, 2009, to 100,010 as at March 31, 2010. The balance under this head as at March 31, 2010, was Rs. 234.6 million, which works out to Rs. 2,345 per account. We also continued our thrust on micro credit as an instrument of inclusive banking. The outstanding loans under this head increased from Rs. 1,244.0 million as at March 31, 2009 to Rs. 2,706.2 million as at March 31, 2010, an increase of 117.54%. We also enhanced our product suite under this portfolio in Fiscal 2010 by investing in structured products such as pass-throughs and portfolio buy-outs. Risk Management As a financial intermediary, we are exposed to risks that are peculiar to our lending, investment and trading activities and the environment within which we operate. The goal of our risk management is to ensure that we identify, assess, measure, manage, control and report credit, market and operational risks and that we adhere strictly to the policies and procedures that have been established to address those risks. We have adopted an integrated approach for the management of risks. The risk management policies - asset liability policy, stress testing policy, operational risk management policy, credit policy, credit monitoring policy and integrated risk management policy – were evolved in tune with our business requirements and best practices and address requirements relating to credit, market and operational risks. Our Board of Directors has overall responsibility for risk management. The Board of Directors has delegated its functions and responsibilities relating to risk management policy, direction and supervision thereof to our Risk Management Committee, an independent sub-committee of the Board. Among other things, the Risk Management Committee monitors our overall risk profile, reviews our risk models, approves risk management framework and policies, oversees the credit approval process and periodically reviews investment and credit portfolios. Our Risk Management Committee of Executives deals with issues relating to integration and aggregation of risks and provides a consistent framework and understanding at the implementing level for all our business units and functions. Our asset liability management functions are governed and reviewed by the Asset Liability Management Committee (ALCO), which is responsible for managing liquidity, interest rate and earnings risks. We are Basel II compliant and assess our capital adequacy as per the RBI’s guidelines. We have put in place an Internal Capital Adequacy Assessment Process (ICAAP) policy to integrate capital planning with budgetary planning. Our Credit Risk Management Committee (CRMC) is responsible for monitoring our adherence to prudential limits, recommends to the Board of Directors policies on rating standards and benchmarks and monitors our credit risk. Our Operational Risk Management Committee (ORMC) oversees the implementation of operational risk management policy, which is designed to ensure that all our operational risks are identified and monitored in a structured manner. To mitigate operational risks arising from fraud, we have put in place a fraud risk management policy that lays down the steps to be adopted for preventive vigilance. Our Integrated Risk Management Group handles daily risk management including risk assessment, measurement, control and reporting. In addition, our Audit Committee, a sub-committee of the Board, provides direction to, and monitors the quality of, the internal audit function and also monitors the risk management and control environment, including the adequacy of internal controls. For detailed qualitative and quantitative disclosures on our risk management, please see “Note 38 – Basel II (Pillar III) Disclosures” in the notes to our financial statements for the year ended March 31, 2010 beginning on page 190 of this Preliminary Placement Document.

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Inspection and Vigilance Our inspection and vigilance function is independent and centrally controlled, reporting directly to the Audit Committee of our Board of Directors. It conducts an internal audit of all our branches at a frequency linked to the risk rating assigned to each branch by the department. Each of these branches is also given a rating based on the audit findings. Our risk-based internal auditing system, which complies with RBI requirements on risk-based supervision, also conducts audits of various corporate office functions. During Fiscal 2010, risk-based internal audits of all our branches and our integrated treasury were completed. The department also controls and reviews a concurrent audit of branches undertaken by external auditors. As at March 31, 2010, the business volume covered by the concurrent audit was approximately 80% of our business. Compliance Our compliance department is independent and centrally controlled. It is headed by our Chief Compliance Officer who reports to our Chief Executive Officer. Our Chief Compliance Officer has the right to report serious compliance matters directly to our Board of Directors. The department monitors compliance with various laws, regulations and guidelines, rules of self regulatory bodies and industry associations and our internal policies. We aim to embrace best practices and follow a higher standard of compliance than that required by law. Competition We face strong competition in all our principal lines of business. Our primary competitors are government-controlled public sector banks, major private sector banks, foreign banks with operations in India and, for certain products, non-banking financial institutions. In retail banking, our principal competitors are public sector banks, other private sector banks, foreign banks and, for retail loan products, non-banking financial companies. Some foreign banks have a significant share of the non-resident Indian market for remittances and deposits and also compete for non-branch-based products such as car loans. We also have significant competition from new private sector banks, foreign banks and certain public sector banks in offering credit cards. Mutual funds are another source of competition. Mutual funds offer tax advantages and have the capacity to earn competitive returns and have increasingly become a viable alternative to bank deposits. In mutual fund sales and other investment related products, our principal competitors are brokerage houses, foreign banks and private sector banks. We compete with banks, brokers, corporate agents and financial consultants and advisors with respect to sales of life and non-life insurance products. Our principal competitors in corporate and commercial banking are public sector banks, private sector banks and foreign banks. Large public sector banks have traditionally been market leaders in this segment. Foreign banks have focused primarily on serving the needs of multinational companies and larger Indian companies with cross-border financing requirements, including trade, transactional and foreign exchange services. Large public sector banks typically have extensive branch networks and large local currency funding capabilities. In our treasury advisory services for corporate customers, we compete principally with foreign banks, private sector banks and public sector banks in the foreign exchange and money markets businesses. Information Technology We have a well developed and robust IT infrastructure, which we believe is indispensable to bring about accelerated growth across multiple business verticals. We use a CBS on the “Flexcube” platform and as at March 31, 2010 we had deployed CBS on the “Flexcube” platform at all our branches. We intend to complete the implementation of the latest version of Flexcube across all our branches by September 2010. During Fiscal 2010 we undertook numerous initiatives to improve our IT infrastructure, including the extensive replacement of old and obsolete equipment with new generation IT hardware, we upgraded from a fixed leased line and ISDN combination network to a powerful “MPLS” network to ensure superior connectivity, we upgraded the servers in line with the latest technology to facilitate the handling of far higher data volumes, we

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upgraded the Flexcube software into a feature-rich offering, thereby enabling high-end MIS, automation and other facilities, and moved to an efficiently managed data centre of international standards, located in Bengaluru, Karnataka, in partnership with IBM. We also have arrangements with renowned IT corporations to deploy the best in class technology, including Oracle Financial GLS, Loanflo, Spine Payroll and Destimoney. Insurance We maintain insurance policies with respect to our registered and corporate offices, premises, furniture and fixtures and banker’s indemnity applicable to all branches in India. We do not have insurance for business interruption as it is not industry practice. Intellectual Property Rights We have made an application before the Trademark Registry, India to register our trade mark, including our logo and the style of our name, under Class 36 in respect of insurance, financial affairs, monetary affairs, banking services, all such services in the nature of exchange brokers and/or clearing services and real estate affairs, which is currently pending. Our trade mark is not currently registered. Human Resources Since our current Managing Director and CEO, Amitabh Chaturvedi, joined us in October 2008 we have hired additional experienced top management and middle-level managers and significantly increasing the number of other employees. The number of our employees increased from 1,375 as at September 30, 2008 to 4,080 as at March 31, 2010 (comprising 2,525 officers, 665 clerks, 805 sales executives at our branches and 85 subordinate staff) and the average age of our employees dropped from 48 to 34 years old. Nearly all of our new employees are not union members and our unionized workforce reduced from approximately 87% as at September 30, 2008 to less than 33% of the total workforce as at March 31, 2010. Nearly all our employees are located in India. We consider our relations with our employees to be good. We use incentives in structuring compensation packages and have established a performance-based bonus scheme under which permanent employees have a variable pay component in their compensation. Keeping in view our objective to share the fruits of our success with employees and to provide them an opportunity to participate in our growth, in Fiscal 2010 the Board approved the introduction of an ESOP, subject to a ceiling of 6% of our total paid up Equity capital. The Bank granted stock options to existing employees based on their past association with the Bank/service rendered to the Bank. For new employees, ESOPs were granted to a select few as part of their joining compensation. Going forward, the scheme will be linked to performance. For details, please see “Board of Directors and Key Managerial Personnel – Employee Stock Option Scheme.” In order to create the best-in-class work environment, our goal is to adopt the best practices of the industry. To this end, we use performance management systems, balanced score card, provide comprehensive mediclaim insurance cover to all employees and have centralised salary payroll and attendance management. We have our own Staff Training College in Thrissur, Kerala, where we train newly recruited staff and provide orientation programmes for staff internally promoted as clerks and junior officers. We also select junior officers to attend training at the Institute of Finance, Banking and Insurance. Properties We own our Head Office premises at Thrissur, Kerala. We also own the Zonal Offices at Kerala, six branches, our Data Centre at Bangalore and three residential apartments. Apart from these properties, all branches and other properties used by us are leased by us.

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SUPERVISION AND REGULATIONS The following description is a summary of certain laws and regulations in India, which are applicable to the Bank. The information detailed in this chapter has been obtained from publications available in the public domain. The regulations set out below may not be exhaustive, and are only intended to provide general information to the investors and are neither designed nor intended to be a substitute for professional legal advice. Banking Regulations Banking Regulation Act, 1949 (“Banking Regulation Act”) Commercial banks in India are required to obtain a license from the RBI to carry on banking business in India. Subject to compliance of certain conditions such license is granted to the bank. The RBI has the power to cancel the license if the bank fails to meet the qualifications or if the bank ceases to carry on banking operations in India. Additionally, the RBI has issued various reporting and record keeping requirements for such commercial banks. The appointment of the auditors of the banks is subject to the approval of the RBI. The RBI can direct a special audit in the interest of the depositors or in the public interest. It also sets out the provisions in relation to the loan granting activities of a banking company. The RBI has issued guidelines that the ceilings for granting loans to an individual borrower and a group are 15.00% and 40.00% respectively of banks capital funds under normal circumstances. Relaxations are permitted for exceptional circumstances and infrastructure sector. The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities. Banks can issue only ordinary shares and no shareholder in a bank can exercise voting rights on poll in excess of 10.00% of total voting rights of all the shareholders of the bank. Banks are also required to obtain licenses from the RBI to open or transfer its branches. In September 2005, the RBI issued a new branch authorisation policy, pursuant to which the process of opening of individual branches on a case by case basis was replaced by a system of aggregated approvals on an annual basis. Permission of the RBI is not required for installation of on-site ATMs and in June 2009 the RBI has permitted installation of off-site ATMs at centres identified by banks, without the need for permission from the RBI in each case. Further, it requires the banks to create a reserve fund to which it must transfer not less than 25.00% of the profits of each year before dividends. If there is an appropriation from this account, the bank is required to report the same to the RBI within 21 days, explaining the circumstances leading to such appropriation. The RBI may impose penalties on banks and its employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment. The banks are also required to disclose the penalty in their annual report. Capital adequacy requirements The RBI has set out the minimum capital adequacy standards for banks based on the guidelines of the Basel Committee on Banking Regulations and Supervisory Practices. Under the said guidelines, a bank is required to maintain a minimum total CRAR of 9.00% and Tier 1 CRAR of 6.00%. In January 2006, the RBI issued guidelines permitting banks to issue perpetual debt with a call option after not less than 10 years, to be exercised with its prior approval, for inclusion in Tier I Capital up to a maximum of 15.00% of total Tier I Capital as on March 31, of the previous financial year. The RBI also permitted banks to issue debt instruments with a minimum maturity of 15 years and a call option after not less than 10 years, to be exercised with its prior approval, for inclusion in Tier II capital. In July 2006, the RBI issued guidelines permitting the issuance of Tier I and Tier II debt instruments denominated in foreign currencies. In October 2007, the RBI issued guidelines for issuance of certain type of preference shares as part of the regulatory capital. To further ensure compliance with the guidelines of Basel II, the RBI has set out compliance periods for banks to transition into the Internal Ratings Based (“IRB”) and Advanced Measurement Approach (“AMA”) methods of risk assessment. Under the RBI’s guidelines, banks can submit their revised methodologies by April 1, 2012, with the RBI set to approve these no later than March 31, 2014.

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Prudential norms on income recognition, asset classification and provisioning pertaining to advances (“Prudential Norms”) The RBI, pursuant to its master circular on Prudential Norms issued in July 2009, has classified NPAs as (i) sub-standard assets; (ii) doubtful assets; and (iii) loss assets. These guidelines specifies provisioning requirements specific to the classification of the assets. In July 2005, the RBI issued guidelines on sales and purchases of NPAs between banks, financial institutions and NBFCs. These guidelines require that the board of directors of a bank must establish a policy for purchases and sales of NPAs. An asset must have been classified as non-performing for at least two years by the seller bank to be eligible for sale. In the second quarter review of monetary policy dated October 29, 2009, the RBI has advised banks to maintain provisioning coverage ratio of at least 70.00% by end of September 2010. The RBI has also issued a separate set of prudential guidelines on restructuring of advances by banks. These guidelines relates to the norms/conditions, which must be fulfilled in order to maintain the category of the restructured account as a ‘standard asset’. The earlier guidelines issued by the RBI on restructuring of advances specified that “standard” advances should be re-classified as a “sub-standard” immediately on restructuring. Post August, 2008 the RBI has issued a series of circulars on special regulatory treatment on restructuring of advances by banks. The RBI has specified that during the pendency of the application for restructuring of the advance, the usual asset classification norms continue to apply. However, as an incentive for quick implementation of the package, if the approved package is implemented by the bank as per the specified time schedule (within 120 days from the date of approval under the CDR mechanism or within 90 days from the date of receipt of application by the bank in cases other than those restructured under the CDR mechanism), the asset classification status may be restored to the position which existed when the reference was made to the CDR cell in respect of cases covered under the CDR mechanism or when the restructuring application was received by the bank in non-CDR cases. This special regulatory treatment is not applicable to consumer and personal advances, advances classified as capital market exposures, advances classified as commercial real estate exposures. Corporate debt restructuring mechanism (“CDR System”) The institutional mechanism for restructuring has been set up through establishment of the CDR System in 2002. It is a joint forum of all banks and financial institutions and operates as a non-judicial body. The CDR System operates on the principle of super-majority amongst the participating banks and financial institutions for a particular advance. We have signed the inter-se agreement (amongst the banks and financial institutions) and are accordingly a member of the CDR System. The Prudential Norms as mentioned above equally apply to the accounts restructured under CDR System. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) The SARFAESI Act provides for sale of financial assets by banks and financial institutions to asset reconstruction companies. On July 1, 2009, the RBI issued a master circular on the process to be followed for sales of financial assets to asset reconstruction companies. The banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or pass through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. Priority sector lending The RBI master circular dated July 1, 2009 sets out the broad policy in relation to priority sector lending. In accordance with this master circular, the priority sector for all scheduled banks include (i) agriculture; (ii) small enterprise; (iii) retail trade; (iv) micro credit; (v) education loans; and (vi) housing loans. Under the RBI guidelines, the priority sector lending targets are linked to adjusted net bank credit (net bank credit plus investments made by banks in non-statutory liquidity bonds included in the held to maturity category and not taking into account the recapitalisation bonds floated by the Government) or credit equivalent amount of off-balance sheet exposure, whichever is higher, as on March 31 of the previous year. Commercial banks are required to lend a certain percentage of their adjusted net bank credit to specific sectors (the priority sectors),

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such as agriculture, micro and small enterprises, retail trade and housing finance. Exposure norms

As a prudent measure aimed at better risk management and avoidance of concentration of credit risk, the RBI has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). The RBI has prescribed exposure ceiling for a single borrower as 15.00% of capital funds and group exposure limit as 40.00% of capital funds. Banks may, in exceptional circumstances, with the approval of their board of directors, consider enhancement of the exposure to a borrower up to further 5.00% of capital funds, subject to the borrower (single or group) consenting to the banks making appropriate disclosures in their annual reports. The total exposure to a single NBFC has been limited to 10.00% of the bank’s capital funds while exposure to non-banking asset finance company has been restricted to 15.00% of the bank’s capital funds. The limit may be increased to 15.00% and 20.00%, respectively, provided that the excess exposure is on account of funds lent by the non-banking finance company to infrastructure sectors.

The aggregate exposure of a bank to the capital markets in all forms (both fund based and non-fund based) should not exceed 40.00% of its net worth, as on March 31 of the previous year. Within this overall ceiling, the bank’s direct investment in shares, convertible bonds, convertible debentures, units of equity-oriented mutual funds and all exposures to venture capital funds (both registered and unregistered) should not exceed 20.00% of its net worth. Short-selling of Government securities Banks and primary dealers are allowed to undertake short sale of Government dated securities, subject to the short position being covered within a maximum period of five trading days, including the day of trade. In other words, the short sale position initiated today (trade, T+0) will have to be covered on or before close of T+4 days. Further, such short positions shall be covered only by outright purchase of an equivalent amount of the same security. Regulations relating to interest rates on Rupee deposits held in domestic, ordinary non-resident (NRO) and non-resident (external) (NRE) Accounts The RBI has permitted banks to independently determine rates of interest offered on term deposits. However, banks are not permitted to pay interest on current account deposits. Further, banks may only pay interest of 3.50% per annum on savings deposits. In respect of savings and time deposits accepted from employees and senior citizens, the Bank is permitted by the RBI to pay an additional interest not exceeding 1.00% over the interest payable on deposits from the public. Deposit insurance Demand and time deposits of up to Rs. 100,000 accepted by Indian banks (other than primary co-operative societies) have to be mandatorily insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a half yearly basis. The cost of the insurance premium cannot be passed on to the customer. Regulations relating to Know Your Customer and anti-money laundering The RBI issued a master circular on July 1, 2009 prescribing the guidelines for KYC and anti-money laundering procedures. Banks are required to have a customer acceptance policy laying down explicit criteria for acceptance of customers and defining risk parameters. The guidelines provide that banks should undertake customer identification procedures while establishing a banking relationship or carrying out a financial transaction or when the bank has a doubt about the authenticity or the adequacy of the previously obtained customer identification data. Regulations relating to maintenance of statutory reserves

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A bank is required to maintain CRR, a specified percentage of its net demand and time liabilities, excluding interbank deposits, by way of a balance in a current account with the RBI. The CRR is 5.00% effective from January 17, 2009. The RBI does not pay any interest on CRR balances. The CRR has to be maintained on an average basis for a fortnightly period and should not be below 70.00% of the required CRR on any day of the fortnight. In addition to the CRR, a bank is required to maintain SLR, a specified percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities. The percentage of this liquidity ratio is fixed by the RBI from time to time, pursuant to Section 24 of the Banking Regulation Act. At present, the RBI requires banks to maintain SLR of 25.00%, with effect from October 28, 2009. Regulations relating to authorised dealers for foreign exchange and cross-border business transactions The foreign exchange and cross border transactions undertaken by banks are subject to the provisions of the FEMA. All branches should monitor all non-resident accounts to prevent money laundering. The RBI master circular on External Commercial Borrowings and Trade Credit, dated July 1, 2009, states that no financial intermediary, including banks, will be permitted to raise external commercial borrowings or provide guarantees in favour of overseas lenders for external commercial borrowings. The RBI master circular on risk management and interbank dealings, dated July 1, 2009, states that all categories of overseas foreign currency borrowings of banks, including existing external commercial borrowings and loans or overdrafts from their head office, overseas branches and correspondents and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 50.00% of their unimpaired Tier I capital or U.S$ 10.00 million (or its equivalent), whichever is higher. Overseas borrowings for the purpose of financing export credit, capital funds raised/augmented by the issue of innovative perpetual debt instruments and debt capital instruments in foreign currency, subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital and any other overseas borrowings with the specific approval of the RBI would continue to be outside the limit of 50.00%. Declaration of dividend by banks In May 2005, the RBI issued guidelines and prescribed certain conditions as qualifications for declaring dividends. Banks that are eligible to declare dividends provided that the dividend payout ratio (calculated as a percentage of dividend payable in a year to net profit during the year) must not exceed 40.00%. Further, the financial statements pertaining to the financial year for which the bank is declaring a dividend should be free of any qualification by the statutory auditors, which might have an adverse effect on the profit during that year. In case there are any such qualifications, the net profit should be suitably adjusted while computing the dividend payout ratio. Secrecy obligations A bank’s obligations relating to maintaining secrecy arise out of Section 13 of the Bank Nationalisation Act (for public sector banks specifically) and common law principles governing its relationship with its customers. Subject to certain exceptions, a bank cannot disclose any information to third parties. Further, the RBI may, in the public interest, publish the information obtained from the bank. Foreign ownership restrictions The total foreign ownership in a private sector bank cannot exceed 74.00% of the paid-up capital subject to guidelines for setting up branches or subsidiaries of foreign banks issued by the RBI. Shares held by foreign institutional investors within this limit of 74.00% cannot exceed 49.00% of the paid-up capital. The RBI’s acknowledgement is required for the acquisition or transfer of a bank’s shares, which will take the aggregate holding (both direct and indirect, beneficial or otherwise) of an individual or a group to equivalent of 5.00% or more of its total paid up capital. The RBI may grant acknowledgement for acquisition or transfer of shares that takes the acquirer’s shareholding to 10.00% or more and up to 30.00% of a private sector bank’s paid-up capital subject to consideration of various additional factors. Before granting acknowledgement for acquisition or transfer of shares that takes the acquirer’s shareholding to 30.00% or more of a private sector bank’s paid-up capital, the RBI may consider additional factors, including

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but not limited to whether or not the acquisition is in the public interest as well as shareholder agreements and their impact on the control and management of the bank’s operations. Investments in Indian companies can be made both by non-resident as well as resident Indian entities. Any investment by a non-resident entity in an Indian company is considered direct foreign investment. Investment by resident Indian entities could comprise both of resident and non-resident investment. An Indian company would be considered to have indirect foreign investment if the Indian investing company has foreign investment in it. Indirect cascading investment through multi-layered structure will also be taken into account. The Ministry of Commerce and Industry, Department of Industrial Policy and Promotion has vide Press Note No. 2 (2009 Series) dated February 13, 2009, issued guidelines for calculation of total direct and indirect foreign investment in Indian companies. Guidelines for merger and amalgamation of private sector banks The RBI issued guidelines in May 2005 on mergers and amalgamation of private sector banks. The guidelines relate to: (i) an amalgamation of two banking companies; and (ii) an amalgamation of a NBFC with a banking company. In the case of an amalgamation of two banking companies, the draft scheme of amalgamation must be approved by the board and majority of the shareholders of each of the banking companies. Additionally, such approved draft scheme must also be submitted to the RBI for sanction.

Where a NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the approval of the board and the RBI before it is submitted to the relevant high court for approval. Special status of banks in India The special status of banks is recognised under various statutes including the SICA, Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the SARFAESI Act. As a bank, we are entitled to certain benefits under the provisions of these legislations. Income tax benefits We are entitled to certain tax benefits under the Indian Income-tax Act including the following: • Our dividend income earned from domestic is exempt from income tax. However the Bank may

depending on the circumstances be subject to disallowance under Section 14A of the IT Act towards interest and certain administrative expenses.

• We are entitled to a tax deduction on the provisioning towards bad and doubtful debts equal to 7.50% of the our total business income, computed before making any deductions prescribed under Section 36(1)(viia) of the IT Act and to the extent of 10.00% of the aggregate average advances made by our rural branches computed in the manner prescribed. However no deduction will be allowed for the amount of bad debt written off under Section 36(2) of the IT Act unless that amount is debited to the provision made under Section 36(1)(viia) of the IT Act in that previous year.

Corporate governance

We adhere to certain corporate governance requirements as prescribed by clause 49 of its listing agreements with the Stock Exchanges, including, ensuring the minimum number of independent directors on the Board, and composition of various committees such as audit committee and remuneration committee. We also adhere to recommendations of Dr. Ganguly Committee, including inter alia the eligibility criteria and “fit and proper” norms for nomination of directors, criteria for commonality of directors of banks and composition of Board. The Banking Ombudsman Scheme, 2006 (“Banking Ombudsman Scheme”)

The Banking Ombudsman Scheme provides the extent and scope of the authority and functions of the banking ombudsman for redressal of grievances against deficiency in banking services, concerning loans and advances and other specified matters. In February 3, 2009, the said scheme was amended to provide for revised procedures for redressal of grievances by a complainant under the scheme.

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BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL Board of Directors Under our Articles of Association, we cannot have less than three directors or more than 11 Directors. We currently have eight Directors on our Board. The present composition of the Board and its proceedings are in accordance with the Companies Act and the norms of the code of corporate governance as applicable to listed companies in India under the Equity Listing Agreements.

Name, Fathers Name, Designation, DIN and

Tenure

Address Age (years)

Other directorships

Ghyanendra Nath Bajpai S/o Bans Gopal Bajpai Designation: Chairman (Non-Executive) DIN: 00946138 Term: Two years from May 7, 2010

131, Shaan Apartment, KD Marg, Prabhadevi, Mumbai – 400 028

68 1. Future Generali India Life Insurance Company Limited

2. Future Generali India Insurance Company Limited

3. Emaar MGF Land Limited 4. Future Capital Holdings

Limited 5. Mandhana Industries

Limited 6. Future Ventures India

Limited 7. Dalmia Cement (Bharat)

Limited 8. Kingfisher Airlines

Limited 9. New Horizons India

Limited 10. PNB Housing Finance

Limited 11. Nitesh Estates Limited 12. Usha Martin Limited 13. Intuit Consulting Private

Limited 14. Invent Asset Securitisation

& Reconstruction Company Private Limited

15. Infomerics Valuation & Rating Private Limited

16. Apnapaisa Private Limited 17. IDE India 18. Invent ARC Private

Limited

Amitabh Chaturvedi S/o Jitendra Dutt Chaturvedi Designation: Managing Director and Chief Executive Officer DIN: 00057441 Term: Three years from October 13, 2008

1201, Raheja Empress, Opp. Sidhivinayak Temple, Prabhadevi, Mumbai – 400 025

42 Nil

Vidyadhara Rao Chalasani Flat No. 405, V V Vintage 65 1. UNUM Film Creations

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Tenure

Address Age (years)

Other directorships

S/o Sathyanarayana Designation: (Non Executive) Director DIN: 01243912 Term: Three years from February 16, 2010

Residency, 6-3, 1093, Raj Bhavan Road, Somajiguda, Hydrabad – 500 082

Private Limited

K. Srikanth Reddy S/o K V Ramakrishna Reddy Designation: (Non Executive) Director DIN: 01433626 Term: Liable to retire by rotation

443A/ 56, Road No. 86, Jubliee Hills, Hyderabad – 500 033

57 OMCON Realtors & Developers Private Limited

Shailesh V Haribhakti S/o Vishnu B Haribhakti Designation: (Non Executive) Director DIN: 00007347 Term: Liable to retire by rotation

Flat No. 228, ‘B’ Wing, Kalpataru Habitat, Dr. S S Rao Road, Parel, Mumbai – 400 012

54 1. Pantaloon Retail (India) Limited

2. Everest Kanto Cylinder Limited

3. Mahindra Lifespace Developers Limited

4. Blue Star Limited 5. Hexaware Technologies

Limited 6. Hercules Hoists Limited 7. Ackruti City Limited 8. ACC Limited 9. Ambuja Cements Limited 10. Future Capital Holdings

Limited 11. J K Paper Ltd 12. Fortune Financial Services

(India) Limited 13. Raymond Limited 14. Future Capital Financial

Services Limited 15. BDO Consulting Private

Limited 16. Advantage Moti India

Private Limited 17. Quadrum Solutions Private

Limited 18. J M Financial Asset

Reconstruction Co. Private Limited

19. Milestone Ecofirst Advisory Services (India) Private Limited

20. Planet People & Profit Consulting Private Limited

S. Santhanakrishnan G 5, Block II, Prime Terrace, 150, 65 1. ICICI Home Finance

104


Tenure

Address Age (years)

Other directorships

S/o T. R. Subramanian Designation: (Non Executive) Director DIN: 00005069 Term: Liable to retire by rotation

L.B. Road, Tiruvanmiyur, Chennai – 600 041

Company Limited 2. Easy Access Financial

Services Limited 3. Reliance Capital Trustee

Company Limited 4. Sundaram-Clayton Limited 5. TVS Credit Services

Limited

Ghanshyam Dass S/o Sansar Chand Designation: (Non Executive) Director DIN: 01807011 Term: Liable to retire by rotation

31 A, Sobha Emerald, Sobha Suburbia, Behind Jakkur Flying Club, Jakkur, Bangalore – 560 064

57 1. Jain Irrigation Systems Limited

2. Bio Pure Limited 3. PHI Holdings Inc. USA

Sateesh Kumar Andra S/o A. Krishna Murthy Designation: (Non Executive) Director DIN: 01592796 Term: Liable to retire by rotation

Villa No. 111, Hillridge Villas, Gachibowli, ISB Road, Hyderabad – 500 032

41 1. Metromela Internet Services Private Limited

2. Ginger Soft Media Private Limited

3. Metrikus India Private Limited

4. Catura Systems Private Limited

All our Directors are Indian residents, except Vidyadhara Rao Chalasani and Sateesh Kumar Andra. None of our Directors are related to each other. Brief Profiles Ghyanendra Nath Bajpai, is the Chairman (Non-Executive) of the Bank. He became a director of the Bank in September 2007. He assumed the charge as a part-time chairman on May 7, 2008 and was re-appointed on the same post on May 7, 2008 for a period of two years. He completed his Master of Commerce degree from the University of Agra and his Bachelor of Laws degree from the University of Indore. He has had a distinguished career in the Indian financial sector and was the chairman of the SEBI during the period of September, 2000 to February, 2002, and the Corporate Governance Task Force of International Organisation of Securities Commission during the period October, 2003 to February, 2005 and the Chairperson of the Insurance Institute of India during September, 2000 to September, 2002. He has also been a member of the Board of Directors of General Insurance Corporation of India, ICICI Bank, Unit Trust of India, Axis Bank and Indian Railway Finance Corporation. He is on the board of advisors of the Indian Army Group Insurance Fund and the National Insurance Academy (University). He has served on the governing board of the Indian Institute of Management, Lucknow. He has delivered lectures at the London School of Economics, Harvard University and the Massachusetts Institute of Technology and has addressed the Organisation of Economics Cooperation and Development (OECD) and IMF. Amitabh Chaturvedi, is the Managing Director and Chief Executive Officer of the Bank. He was appointed to the board on October 10, 2008 and assumed office on October 13, 2008 for a period of three years. He has over 20 years of experience in financial service industries, mainly banking, asset management, investment banking, life insurance, general insurance, and broking and distribution. Before joining the Bank, he was working with Reliance Capital Limited as a group president. He worked with ICICI Bank for five years on various roles including general manager – head for retail channel and liabilities. He was also a head of Lloyd Finance

105

Limited. Vidyadhara Rao Chalasani, is the Non Executive Director of the Bank. He was appointed on the Board of the Bank on February 16, 2005 and was re-appointed on February 16, 2010. He has over three decades experience in financial services. During 1987-2000, he was the chief investment strategist of Wachovia Securities. He has presented reports on US Economy and the globalisation process. K Srikanth Reddy, is the Non Executive Director of the Bank. He was appointed on October 29, 2007. He represents Agriculture and Rural Economy pursuant to Section 10A of the Banking Regulation Act 1949. He has been a member of the Indian Civil Services for over 16 years and worked in many government departments including Ministries of Planning and Programme Implementation, Food Processing Industries, Defense, Communications, Welfare and Tourism and Civil Aviation. Shailesh Haribhakti, is the Non Executive Director of the Bank. He was appointed on April 30, 2008. He is a Chartered Accountant. He is the only Indian member on the standards advisory council of the International Accounting Standards Board. He was the chairman of the Financial Planning Standards Board, India. He is a committee member of the Future and Options segment of National Stock Exchange of India and is a member of the SEBI Committee on Disclosure and Accounting Standards. He is a member of the managing committees of ASSOCHAM and IMC, and is the chairman of the Combating Global Warming Committees of IMC. He has been awarded “The Best Non Executive Independent Director Award - 2007” by the Asian Centre for Corporate Governance & IMC in January 2008. S. Santhanakrishnan, is the Non Executive Director of the Bank. He was appointed on July 30, 2008. He retired as deputy managing director of State Bank of India where he served for 36 years. He was also the executive chairman of Credit Information Bureau Limited. Ghanshyam Dass, is the Non Executive Director of the Bank. He was appointed on July 31, 2009. He was the Managing Director of NASDAQ QMX for Asia Pacific until February, 2009. He was also the chief executive officer of British Bank of Middle East in India and Majan International Bank in the Sultanate of Oman. He is presently holding the position of a senior advisor of KPMG and an advisor at Intel Capital. Sateesh Kumar Andra, is the Non Executive Director of the Bank. He was appointed on July 31, 2009. He was a promoter and chief executive officer of EUCLID Software. Presently, he is engaged as venture partner with Draper Frisher Jurvetson, India. He is also actively involved with TIE-ISB Connect, an annual event for promoting and guiding entrepreneurs to set up business in India. Borrowing Powers of our Directors Pursuant to a resolution passed by the shareholders of the Bank on September 28, 1994, and in accordance with the provisions of the Companies Act, the Board is authorized to borrow sums of money upon such terms and conditions and for such purposes as the Board may think fit, provided the aggregate indebtedness of the Bank (i.e., monies to be borrowed, together with the monies already borrowed) may not exceed, at any given time, a sum of Rs. 1,000 million. Interests of our Directors All our Directors, including our independent Directors, may be deemed to be interested to the extent of fees, if any, payable to them for attending meetings of the Board or a committee thereof, as well as to the extent of other remuneration and reimbursement of expenses payable to them. The Directors, including independent Directors, may also be regarded as interested to the extent that they hold Equity Shares and to the extent of any dividend payable on such Equity Shares. Except as otherwise stated in “Financial Statements”, the Bank has not entered into any contract, agreements or arrangements during the two years preceding the date of this Preliminary Placement Document, in which the Directors are interested directly or indirectly and no payments have been made to them in respect of such contracts, agreements or arrangements. Please see “Financial Statements”.

106

Shareholding of Directors The following table sets forth the shareholding of the Directors in the Bank as on June 30, 2010:

Name Number of Equity Shares Percentage (%)Ghyanendra Nath Bajpai 25,000 0.04 Amitabh Chaturvedi Nil 0.00 Vidyadhara Rao Chalasani 200 0.00 K. Srikanth Reddy 15,000 0.02 Shailesh V Haribhakti 50,200 0.08S Santhanakrishnan 700 0.00 Ghanshyam Dass 5,000 0.01 Sateesh Kumar Andra 400 0.00 Total 96,500 0.15 Compensation of our Director(s) The sitting fee payable to our non-executive Directors for attending every meeting of the Board of Directors is Rs. 20,000, and the fee payable to our non-executive Directors for attending meetings of committees of the Board of Directors is Rs. 10,000. Remuneration of the Directors The following table sets forth all compensation paid by us to the Executive Directors for Fiscal 2010:

(Rupees in million)

Name Salary Contribution to Provident Fund Others TotalAmitabh Chaturvedi 3.60 - - 3.60 Corporate Governance The Bank is in compliance with the applicable corporate governance requirements, including under the Equity Listing Agreements and the ICDR Regulations. The corporate governance framework is based on an effective independent Board, separation of the Board’s supervisory role from the executive management team and constitution of committees of the Board, as required under law. Committees of the Board of Directors The details of the committees of the Board of Directors are as follows: A. Audit Committee

The Audit Committee consists of the following directors:

Name Designation S Santhanakrishnan Independent Director Vidyadhara Rao Chalasani Independent Director Shailesh V. Haribhakti Independent Director Sateesh Kumar Andra Independent Director K. Srikanth Reddy Independent Director

In addition to the scope mentioned in the Clause 49 of the Listing Agreement, the role of the Committee includes the following: a. Providing direction as also overseeing the operations of the total audit function in the Bank. b. Reviewing the Risk Based Internal Audit (“RBIA”) / audit function – the system, its quality

and effectiveness in terms of follow up

107

c. Reviewing the RBIA of all branches and final review of branches having high, medium and

above risk level with ‘increasing’ trend. d. Focusing on the follow-up of:

• Reconciliation of inter-branch adjustment accounts • Long outstanding entries in inter-bank accounts and nostro accounts • Arrears in balancing of books at various branches • Frauds and • Other key areas of housekeeping

e. Reviewing half yearly reports from the Compliance Officers appointed in the Bank. f. Following up all the issues brought out in the Long Form Audit Report (LFAR) and

interacting with the Statutory Auditors before finalisation of the annual financial accounts and reports.

g. Following up on all the issues / concerns raised in the inspection reports of Reserve Bank of

India. h. Reviewing with the Management, the quarterly and annual financial statements. i. Review of revenue audit j. Review of concurrent audit if depository department. k. Review of dishonored cheques of Rs. 1 crore and cheques issued by broker entities. l. Review of forex transactions. m. Review of concurrent audit of integrated treasury. n. Business rating of all branches. o. Review of concurrent audit if HO expenses. p. Review of RBIA q. Minutes of audit committee of executives meetings held. r. Review of inspection reports on zonal offices. Details of meetings held in the last three years

Year No. Of meetings 2009-2010 8 2008-2009 6 2007-2008 8

B. Shareholders’/ Investors’ Grievance Committee

The Shareholders Grievance Redressal Committee consists of the following directors:

Name Detail Amitabh Chaturvedi Managing Director and CEO K. Srikanth Reddy Independent DirectorS. Santhanakrishnan Independent Director Vidyadhara Rao Chalasani Independent Director

108

Name Detail Ghanshyam Dass Independent Director

The Shareholders’ Grievance Redressal Committee looks into redressal of investors’ complaints like transfer of shares, non – receipt of Annual Reports, non-receipt of dividend warrants and other related matters. The Committee also approves share transfers/ transmission/ split/ consolidation/ name deletion/ name transportation/ dematerialization/ rematerialisation. The Committee periodically reviews reports from the Registrar and Share Transfer Agents to monitor grievances redressal.

C. Remuneration Committee

The Board has constituted the Remuneration Committee to determine the modalities of providing appropriate incentives to employees including stock options (i) to foster employee commitment and feeling of ownership (ii) to retain employees or skill groups among them (iii) attract talented professionals (iv) to instill a sense of belonging to the bank, among employees. Remuneration and other perquisites paid to the part time Chairman and Managing Director & CEO are as approved by the Reserve Bank of India. Non-Executive Directors are being paid sitting fees of each meeting attended by them. During the year, no remuneration, except sitting fees and re-imbursement of actual travel and out-of-pocket expenses was paid.

Name Designation Ghyanendra Nath Bajpai ChairmanAmitabh Chaturvedi Managing Director and CEO K Srikanth Reddy Independent Director Shailesh V. Haribhakti Independent Director Sateesh Kumar Andra Independent Director

D. Other Committees:

In addition, the Board constitutes, from time to time, such other committees, as may be required, for efficient functioning and smooth operations of the Bank. Key Managerial Personnel Apart from our whole-time Directors, the following are our key managerial employees:

Name Designation Age (in

years) Date of Joining

P.G. Jayakumar Chief Credit Officer 58 May 16, 1977 Bipin Kabra Chief Financial Officer 42 January 17, 2009 Rajeev Deoras Head- Commercial

Banking and Markets Group

50 April 2, 2009

Manish Kumar Chief People Officer 40 April 2, 2009 Muralidharan Rajamani Head-Information

Technology and Operation Group

49 April 3, 2010

Ravindran K. Warrier Company Secretary and Secretary to the board

56 September 3, 1993

P.S. Ravikumar Head-Inspection and Vigilance

56 August 4, 1978

Shareholding of Key Managerial Personnel The following table sets forth the shareholding of the Bank’s key managerial personnel in the Bank, as on June 30, 2010:

109

Name of KMP Number of Equity Shares Muralidharan Rajamani 100Ravindran K. Warrier 200P.S. Ravikumar 1,821

Except as stated above none of our key managerial personnel hold any Equity Shares in the Bank. Interest of Key Managerial Personnel Except as stated in “Financial Statements – Related Party Transactions”, and to the extent of their shareholding (and holding of stock options, as may be applicable) in the Bank, and remuneration or benefits to which they are entitled as per the terms of their appointment and reimbursement of expenses incurred by them in the ordinary course of business, the Bank’s key managerial personnel do not have any other interest in the Bank. Payment or Benefit to Officers of the Bank No officer or other employee of the Bank is entitled to any benefit upon termination of his employment in the Bank, other than statutory benefits. Employee Stock Option Schemes Dhanalakshmi Bank Limited ESOP Scheme provides for the grant of equity shares of the Bank to its eligible employees and Directors in the whole time employment of the Bank / Managing Director. The Scheme provides that employees are granted an option to acquire equity shares of the Bank that vests in a graded manner. On August 6, 2009, the Bank granted 3,979,225 options to employees under two different plans at a uniform option price of Rs. 118.35. Options granted to the employees under the first plan (‘Existing Employees’) shall vest at the rate of 30%, 30% and 40% on each successive anniversary of the grant date. Options granted to the employees under the second plan (‘Joining Employees’) shall vest after completion of 12 months from the date of grant. Further, all the option granted to ‘Joining Employees’ under the scheme shall be subject to a lock in period of twenty four months from date of vesting of options under this scheme.

Organization chart The Bank’s management organization structure is set forth below:

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* - Position is vacant at present

MD & CEO

Chief Credit Officer

Chief People Officer

Chief Financial Officer

Head - Inspection &

Vigilance

Head - Integrated Risk Management

Head - IT & Operations

Group

Company Secretary & Secretary to

Board

Head - Commercial Banking and Markets

Group

Head - Policy & Research

Head - Branch

Banking

Head - Alternate Channels

Head - Planning & Development

Head - Legal

Head - CSG

Head - CMOG

Head - Retail Credit

& Policy

Head - CMRG

Head - Micro & Agri

BOARD OF DIRECTORS

Head -Treasury

Head - IMG

Head Finance & Accounts

Head - Admin

Head - Retail Assets & Credit

Cards

Head - CBG *

Head - GBG*

Head - TAG

Head - CTFSG *

Head - CCMG *

Head - FIG

Head - VMG

Head -CBSG

Head – ITAAG *

Head -SPCTG

Head - BOG

Head - CPC

Head - RPC

Head – CM&ISO *

Head -CMS

Head -BOP *

Head –TBO

Head - MF &

Broking

Head - Insurance & Gold

Head - PFG *

Head - IFIG *

Head - IBG *

Head - BSG

Head – TF&F

Head – ROPs*

Head – Credit Card Ops

Head - RACCO

Head -

ISG

Head - Marketing & Corporate

Communication

Head - IR

Head – COPs*

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PRINCIPAL SHAREHOLDERS

Shareholding Pattern The following table sets forth the Bank’s shareholding pattern as at June 30, 2010.

Category of Shareholder

Number of Shareholders

Total Number of Shares

Number of Shares held in Dematerialized

Form

Total Shareholding as a

% of total Number of Shares

Shares pledged or otherwise

encumbered

As a % of

(A+B)

As a % of

(A+B+C)

Number of

shares

As a % of Total No. of Shares

(A) Shareholding of Promoter and Promoter Group

(1) Indian - - - - - - - (2) Foreign - - - - - - -

(B) Public Shareholding

(1) Institutions Mutual

Funds / UTI 12 1724955 1724255 2.69 2.69 - -

Financial Institutions / Banks

3 163617 163617 0.26 0.26 - -

Insurance Companies

1 260986 260986 0.41 0.41 - -

Foreign Institutional Investors

28 18924547 18924547 29.52 29.52 - -

Sub Total 44 21074105 21073405 32.87 32.87 - - (2) Non-

Institutions

Bodies Corporate

847 11756046 11675073 18.34 18.34 - -

Individuals - -Individual

shareholders holding nominal share capital up to Rs. 1 lakh

40816 12849586 8615290 20.04 20.04 - -

Individual shareholders holding nominal share capital in excess of Rs. 1 lakh

145 14124991 13923278 22.03 22.03 - -

Any Others (Specify)

859 3,800,435 3,697,887 5.93 5.93 - -

Clearing Members

289 717314 717314 1.12 1.12 - -

Non Resident Indians

824 3593528 3497476 5.60 5.60 - -

Trusts 1 30 - - - - - Sub Total 42922 43041495 38428431 67.13 67.13 - -

Total Public 42966 64115600 59501836 100.00 100.00 - -

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Category of Shareholder

Number of Shareholders

Total Number of Shares

Number of Shares held in Dematerialized

Form

Total Shareholding as a

% of total Number of Shares

Shares pledged or otherwise

encumbered

As a % of

(A+B)

As a % of

(A+B+C)

Number of

shares

As a % of Total No. of Shares

shareholding (B) Total (A)+(B) 42966 64115600 59501836 100.00 100.00 - - (C) Shares held by Custodians and against which Depository Receipts have been issued

- - - - - - -

Total (A)+(B)+(C) 42966 64115600 59501836 100.00 100.00 - - The following table sets forth the shareholding of the “Promoter and Promoter Group” as at June 30, 2010. Sl. No.

Name of the Shareholder

Total Shares held Shares pledged or otherwise encumberedNumber As a % of

grand total(A)+(B)+(C)

Number % of Total shares held

As a % of grand total(A)+(B)+(C)

1 - - - - - - Total Nil - - - - The following table sets forth the shareholding of those shareholders, other than those belonging to the “Promoters and Promoter Group”, holding more than 1% of the Bank’s paid-up capital as at June 30, 2010. Sr. No Name of the shareholder Number of

shares Shares as a percentage of total number of shares

{i.e., Grand Total (A)+(B)+ (C) indicated in Statement at para (I)(a) above}

1. P Raja Mohan Rao 6208066 9.68 2. Passage To India Master

Fund Limited 3007998 4.69

3. Lotus Global Investments Ltd 2973044 4.64 4. Rhodes Diversified 2791262 4.35 5. Elara India Opportunities

Fund Limited 2629220 4.10

6. Shital Raghu Kataria 1945504 3.03 7. Somerset Emerging

Opportunities Fund 1829000 2.85

8. Bessemer India Capital Partners II SA

1497854 2.34

9. Infomerics Valuation and Rating Private Limited

1360000 2.12

10. Sameer Malik 1210276 1.89 11. India Max Investment Fund

Limited 1200000 1.87

12. Vipin Malik 1168413 1.82 13. Swiss Finance Corporation

(Mauritius) Limited 1013954 1.58

14. Laxmi Mankekar 987168 1.54 15. Reliance Capital Trustee Co.

Ltd A/C Reliance Banking Fund

733998 1.14

113

Sr. No Name of the shareholder Number of shares

Shares as a percentage of total number of shares {i.e., Grand Total (A)+(B)+ (C) indicated in

Statement at para (I)(a) above} 16. JM Financial Ventures

Limited 721391 1.13

TOTAL 31277148 48.78

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ISSUE PROCEDURE The following is a summary intended to present a general outline of the procedure relating to the application payment, Allocation and Allotment of the Equity Shares. The procedure followed in the Issue may differ from the one mentioned below and the investors are assumed to have apprised themselves of the same from the Bank or the Book Running Lead Managers. The investors are advised to inform themselves of any restrictions or limitations that may be applicable to them. Also please see “Distribution and Solicitation Restrictions” and “Transfer Restrictions”. Qualified Institutions Placements The Issue is being made to QIBs in reliance upon Chapter VIII of the ICDR Regulations through the mechanism of a QIP. Under Chapter VIII of the ICDR Regulations, an issuer, which is a listed company in India may issue equity shares to QIBs, provided that: • the shareholders of the issuer have adopted a special resolution approving such QIP. Such special

resolution must specify (a) that the allotment of equity shares is proposed to be made pursuant to the QIP and (b) the relevant date;

• equity shares of the same class of such issuer, which are proposed to be allotted through the QIP, are

listed on a stock exchange in India that has nation-wide trading terminals for a period of at least one year as on the date of issuance of notice to its shareholders for convening the meeting to adopt the above-mentioned special resolution; and

• such issuer complies with the minimum public shareholding requirements set out in the relevant listing

agreements with the stock exchanges referred to above. Additionally, there is a minimum pricing requirement under the ICDR Regulations. The issue price of the equity shares issued under a QIP shall not be less than the average of the weekly high and low of the closing prices of the related equity shares of such issuer quoted on the stock exchange during the two weeks preceding the relevant date. The ‘relevant date’ referred to above means the date of the meeting in which the board or the committee of directors duly authorized by the board of such issuer decided to open the proposed issue and ‘stock exchange’ means any of the recognized stock exchanges in which the equity shares of the issuer of the same class are listed and on which the highest trading volume in such equity shares has been recorded during the two weeks immediately preceding the relevant date. This Issue was authorized and approved by our Board of Directors on May 11, 2010 and approved by our shareholders in their meeting held on July 15, 2010. The Bank has received in-principle approvals from each of the Stock Exchanges under Clause 24 (a) of the Equity Listing Agreements for the listing of the Equity Shares on the Stock Exchanges on July 15, 2010. The Bank has also filed a copy of the Preliminary Placement Document with the Stock Exchanges. Issue Procedure 1. The Bank and Book Running Lead Managers shall circulate serially numbered copies of the Placement

Document and the Application Form, either in electronic form or physical form, to not more than 49 QIBs.

2. The list of QIBs to whom the Application Form is delivered shall be determined by the Book Running

Lead Managers in consultation with the Bank. Unless a serially numbered Preliminary Placement Document along with the Application Form is addressed to a particular QIB, no invitation to subscribe shall be deemed to have been made to such QIB. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such person.

3. QIBs may submit an Application Form, including any revisions thereof, during the Issue Period to the

Book Running Lead Managers.

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4. QIBs will be required to indicate the following in the Application Form:

a. Name of the QIB to whom Equity Shares are to be Allotted; b. Number of Equity Shares applied for;

c. Price at which they are agreeable to subscribe for the Equity Shares; and

d. The details of the depository account(s) to which the Equity Shares should be credited. Note: Each sub-account of an FII, other than a sub-account which is a foreign corporate or foreign individual, will be considered as an individual QIB and separate Application Forms would be required from each such sub-account. FIIs or sub-accounts of FIIs, are required to indicate the SEBI FII/sub-account registration no. in the Application Form.

5. Once a duly filled Application Form is submitted by a QIB, such Application Form constitutes an irrevocable offer and cannot be withdrawn after the Issue Closing Date.

6. The Closing Date shall be notified to the Stock Exchanges and the QIBs shall be deemed to have been given notice of such date after the receipt of the Application Form.

7. Upon the receipt of the Application Forms, the Bank shall determine the Issue Price and the number of Equity Shares to be issued in consultation with the Book Running Lead Managers. On determination of the Issue Price and the QIBs to whom Allocation shall be made, the Book Running Lead Managers will send the CAN to the QIBs who have been Allocated Equity Shares. The dispatch of the CAN shall be deemed a valid, binding and irrevocable contract for the QIBs to pay the entire Issue Price for all the Equity Shares Allocated to such QIB. The CAN shall contain details such as the number of Equity Shares Allocated to the QIB and payment instructions, including the details of the amounts payable by the QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective QIB.

Pursuant to receiving a CAN, each QIB shall be required to make the payment of the entire application monies for the Equity Shares indicated in the CAN at the Issue Price through electronic transfer to the designated bank account of the Bank by the Pay- In Date as specified in the CAN sent to the respective QIBs.

Upon receipt of the application monies from the QIBs, the Bank shall Allot Equity Shares as per the details in the CAN to the QIBs. The Bank shall not Allot Equity Shares to more than 49 QIBs. The Bank will intimate to the Stock Exchanges the details of the Allotment and apply for approvals for listing on the Stock Exchanges prior to crediting the Equity Shares into the Depository Participant accounts of the QIBs.

8. After receipt of the listing approvals from the Stock Exchanges, the Bank shall credit the Equity Shares into the Depository Participant accounts of the respective QIBs.

9. The Bank shall then apply for the trading permissions from the Stock Exchanges.

10. The Equity Shares that have been credited to the Depository Participant accounts of the QIBs shall be eligible for trading on the Stock Exchanges only upon the receipt of final listing and trading approvals from the Stock Exchanges.

11. Upon receipt of final listing and trading approvals from the Stock Exchanges, the Bank shall inform the QIBs who have received an Allotment of the receipt of such approval. The Bank shall not be responsible for any delay or non-receipt of the communication of the final listing and trading permissions from the Stock Exchanges or any loss arising from such delay or non-receipt. Final listing and trading approvals granted by the Stock Exchanges are also placed on their respective websites. QIBs are advised to apprise themselves of the status of the receipt of the permissions from the Stock Exchanges or the Bank.

116

Qualified Institutional Buyers Only QIBs as defined in Regulation 2(1)(zd) of the ICDR Regulations are eligible to invest. These include:

• Public financial institutions, as defined in section 4A of the Companies Act;

• SCBs;

• Mutual funds, venture capital funds and foreign venture capital investors registered with the SEBI;

• Foreign institutional investors and sub-accounts registered with the SEBI, other than a sub-account

which is a foreign corporate or foreign individual;

• Multilateral and bilateral development financial institutions;

• State industrial development corporations;

• Insurance companies registered with the IRDA;

• Provident Funds with minimum corpus of Rs. 25,000 lacs;

• Pension Funds with minimum corpus of Rs. 25,000 lacs; and

• National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the GoI published in the Gazette of India.

• Insurance funds set up and managed by army, navy or air force of the Union of India. FIIs are permitted to participate through the portfolio investment scheme in the Issue. FIIs are permitted to participate in the QIP subject to compliance with all applicable laws and such that the shareholding of the FIIs does not exceed specified limits as prescribed under applicable laws in this regard. The issue of Equity Shares to a single FII should not exceed 10% of the issued capital of the Bank immediately after the Issue. In respect of a FII investing in the Equity Shares on behalf of its sub-accounts, other than a sub-account which is a foreign corporate or foreign individual, the investment on behalf of each sub-account shall not exceed 10% of the total issued capital of the Bank. No Allotment shall be made pursuant to the Issue, either directly or indirectly, to any QIB being a Promoter or any person related to the Promoter(s). QIBs which have all or any of the following rights shall be deemed to be persons related to Promoter(s):

a) Rights under a shareholders’ agreement or voting agreement entered into with the Promoters or

persons related to the Promoters;

b) Veto rights; or

c) Right to appoint any nominee director on the Board. The Bank and the Book Running Lead Managers are not liable for any amendment or modification or change to applicable laws or regulations, which may occur after the date of the Placement Document. QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. QIBs are advised to ensure that any single application from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable law or regulation or as specified in this Preliminary Placement Document. Further, QIBs are required to satisfy themselves that their Application Forms would not result in triggering a tender offer under the Takeover Code. A minimum of 10% of the Equity Shares in the Issue shall be Allotted to Mutual Funds. If no Mutual Fund is agreeable to take up the minimum portion as specified above, such minimum portion or part

117

thereof may be Allotted to other QIBs. Note: Affiliates or associates of the Book Running Lead Managers who are QIBs may participate in the Issue in compliance with applicable laws. Application Process Application Form QIBs shall only use the serially numbered Application Forms supplied by the Book Running Lead Managers in either electronic form or by physical delivery for the purpose of making an Application in terms of the Placement Document. By making an Application for Equity Shares through an Application Form, a QIB will be deemed to have made the following representations and warranties and the representations, warranties and agreements made under “Notice to Investors- Representations by Investors”, “Distribution and Solicitation Restrictions” and “Transfer Restrictions”: 1. It is a QIB in terms of Regulation 2(1)(zd) of the ICDR Regulations, has a valid and existing

registration under the applicable laws of India and is eligible to participate in the Issue;

2. It has no right to withdraw its Application after the Issue Closing Date;

3. If Equity Shares are Allotted through the Issue, it shall not, for a period of one year from Allotment, sell such Equity Shares otherwise than on the Stock Exchanges;

4. The aggregate number of the Equity Shares so Allotted, together with any Equity Shares held by the

QIB prior to the Issue, does not and shall not, exceed the level permissible as per any regulations applicable to the QIB;

5. The Application would not result in triggering a tender offer under the Takeover Code; 6. To the best of its knowledge, the Allotment to the QIB shall not exceed 50% of the Issue Size. For the

purposes of this statement (including other QIBs in the Issue that belong to the same group or are under common control of such QIB): a. The expression ‘belongs to the same group’ shall derive meaning from the concept of

‘companies under the same group’ as provided in sub-section (11) of Section 372 of the Companies Act;

b. ‘Control’ shall have the same meaning as is assigned to it by Clause I of Regulation 2 of the

Takeover Code. 7. It shall not undertake any trades in the Equity Shares credited to its Depository Participant account until

such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges.

QIBS WOULD NEED TO PROVIDE THEIR DEPOSITORY ACCOUNT DETAILS, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. QIBS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. Demographic details such as address and bank account will be obtained from the Depositories as per the Depository Participant account details given above. The submission of an Application Form by the QIBs shall be deemed a valid, binding and irrevocable offer for the QIB to pay the entire Issue Price for its share of Allotment (as indicated by the CAN), and becomes a binding contract on the QIB, upon issuance of the CAN by the Bank in favour of the QIB.

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Submission of Application Form All Application Forms must be duly completed with information (including the name of the QIB, the price and the number of Equity Shares applied for). The Application Form shall be submitted to the Book Running Lead Managers either through electronic form or through physical delivery at either of the following addresses:

IDFC Capital Limited Naman Chambers

C-32, G-Block, Bandra-Kurla Complex Bandra (East), Mumbai 400 051, India

Contact Person: Hiren Raipancholia Email: [email protected]

Phone: (91-22) 6622 2600

JM Financial Consultants Private Limited 141, Maker Chamber III,

Nariman Point Mumbai 400 021, India

Contact Person: Roselyn Pereira Email: [email protected]

Phone: (91-22) 6630 3030 The Book Running Lead Managers shall not be required to provide any written acknowledgement of the same. Pricing and Allocation Build up of the book The QIBs shall submit their Applications within the Issue Period to the Book Running Lead Managers. Price discovery and allocation The Bank, in consultation with the Book Running Lead Managers, shall determine the Issue Price for the Equity Shares, which shall be at or above the Floor Price. After finalization of the Issue Price, the Bank shall update the Preliminary Placement Document with the Issue details and file the same with the Stock Exchanges as the Placement Document. Method of Allocation The Bank shall determine the Allocation in consultation with the Book Running Lead Managers on a discretionary basis and in compliance with Chapter VIII of the ICDR Regulations. Application Forms received from the QIBs at or above the Issue Price shall be grouped together to determine the total demand. The Allocation to all such QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10% of the Issue Size shall be undertaken subject to valid Application being received at or above the Issue Price. THE DECISION OF THE BANK AND THE BOOK RUNNING LEAD MANAGERS IN RESPECT OF ALLOCATION SHALL BE BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF THE BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS AND QIBS MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER THE BANK NOR THE BOOK RUNNING LEAD MANAGERS IS OBLIGED TO ASSIGN ANY REASONS FOR SUCH NON-ALLOCATION. All Application Forms duly completed along with payment and a copy of the PAN card or PAN allotment letter shall be submitted to the Book Running Lead Managers as per the details provided in the respective CANs.

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Number of Allottees Regulation 87 of the ICDR Regulations provides that, the minimum number of allottees in a QIP shall not be less than two, if the Issue Size is less than or equal to Rs. 25,000 lacs, or five, if the Issue Size is greater than Rs. 25,000 lacs.

No single Allottee shall be Allotted more than 50% of the aggregate amount of the Issue Size. QIBs belonging to the same group or those who are under common control shall be deemed to be a single Allottee for the purpose of this clause. For details of what constitutes ‘same group’ or ‘common control’ please see “Application Process—Application Form”. The maximum number of Allottees of Equity Shares shall not be greater than 49 Allottees. Further, the Equity Shares shall be Allotted within 12 months from the date of the shareholders resolution approving the Issue. CAN Based on the Application Forms received, the Bank and the Book Running Lead Managers, in their sole and absolute discretion, decide the list of QIBs to whom the serially numbered CAN shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the amounts payable by them by the Pay-in-Date for Allotment of such Equity Shares in their respective names shall be notified to such QIBs. Additionally, the CAN will include details of the bank account(s) for transfer of funds if done electronically, address where the application money needs to be sent, Pay-In Date, as well as the probable designated date, being the date of credit of the Equity Shares to the QIB’s account, as applicable to the respective QIBs (the “Designated Date”). The eligible QIBs would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.

The dispatch of the serially numbered Placement Document and the CAN by the QIB shall be deemed a valid, binding and irrevocable contract for the QIB to furnish all details that may be required by the Book Running Lead Managers and to pay the entire Issue Price for all the Equity Shares Allocated to such QIB. QIBs are advised to instruct their Depository Participant to accept the Equity Shares that may be Allocated/Allotted to them pursuant to the Issue. Company Account for Payment of Application Money The Bank has opened a special bank account with The Dhanalakshmi Bank Limited, acting as the Escrow Agent (the “Escrow Cash Account”) in terms of the arrangement between the Bank, the Book Running Lead Managers. The QIBs will be required to deposit the entire amount payable for the Equity Shares allocated to it by the Pay-In Date as mentioned in the respective CANs. If the payment is not made favoring the Escrow Cash Account within the time stipulated in the CAN, the Application Form and the CAN of the QIB are liable to be cancelled. In case of cancellations or default by the QIBs, the Bank, in consultation with the Book Running Lead Managers, has the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at its sole and absolute discretion, subject to compliance with the requirement of ensuring that the Application Forms are sent to not more than 49 QIBs. Payment Instructions The payment of application money shall be made by the QIBs in the name of ‘Dhanlaxmi Bank Ltd. -QIP Escrow Account’ as per the payment instructions provided in the CAN. QIBs may make payment only through electronic fund transfer. Designated Date and Allotment of Equity Shares

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1. The Equity Shares will not be Allotted unless the QIBs pay the Issue Price to the Escrow Cash Account as stated above.

2. Subject to the satisfaction of the terms and conditions of the Placement Agreement, the Bank will ensure that the Allotment of the issue shares (as such term is defined in the Placement Agreement) is completed by the Designated Date provided in the CAN for the QIBs who have paid the aggregate subscription amounts as provided in the CANs.

3. In accordance with the ICDR Regulations, Equity Shares will be issued and Allotment shall be made

only in the dematerialized form to the Allottees. Allottees will have the option to re-materialize the Equity Shares, if they so desire, as per the provisions of the Companies Act and the Depositories Act.

4. The Bank reserves the right to cancel the Issue at any time up to Allotment without assigning any

reasons whatsoever. 5. Post Allotment and credit of Equity Shares into the QIBs Depository Participant account, the Bank will

apply for final listing and admission of the Equity Shares to trading on the Stock Exchanges. 6. In the event of any delay in the Allotment or credit of Equity Shares, or receipt of trading or listing

approvals or cancellation of the Issue, no interest or penalty would be payable by the Bank or the Book Running Lead Managers.

7. The Escrow Agent shall not release the monies lying to the credit of the Escrow Cash Account to the

Bank, until such time as the Bank delivers to the Escrow Agent documentation regarding the approvals of the Stock Exchanges for the listing of the Equity Shares on the Stock Exchanges.

Submission to the SEBI The Bank shall submit the Placement Document to the SEBI within 30 days of the date of Allotment for record purposes. Other Instructions Permanent Account Number or PAN Each QIB should mention its PAN allotted under the I.T. Act. The copy of the PAN card or PAN allotment letter is required to be submitted with the Application Form. Applications without this information will be considered incomplete and are liable to be rejected. It is to be specifically noted that applicants should not submit the GIR number instead of the PAN as the Application Form is liable to be rejected on this ground. Right to Reject Applications The Bank, in consultation with the Book Running Lead Managers, may reject Applications, in part or in full, without assigning any reasons whatsoever. The decision of the Bank and the Book Running Lead Managers in relation to the rejection of Applications shall be final and binding. Equity Shares in dematerialized form with NSDL or CDSL The Allotment of the Equity Shares in the Issue shall be only in dematerialized form (i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through the electronic mode). 1. A QIB applying for Equity Shares must have at least one beneficiary account with a Depository

Participant of either NSDL or CDSL prior to making the Application. 2. Allotment to a successful QIB will be credited in electronic form directly to the beneficiary account

(with the Depository Participant) of the QIB. 3. Equity Shares in electronic form can be traded only on the stock exchanges having electronic

connectivity with NSDL and CDSL. The Stock Exchanges have electronic connectivity with CDSL

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and NSDL. 4. The trading of the Equity Shares would be in dematerialized form only for all QIBs in the demat

segment of the respective Stock Exchanges. 5. The Bank will not be responsible or liable for the delay in the credit of Equity Shares due to errors in

the Application Form or otherwise on part of the QIBs.

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PLACEMENT No assurance can be given as to the liquidity or sustainability of the trading market for the Equity Shares, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which holders of the Equity Shares will be able to sell their Equity Shares. Placement Agreement On July 15, 2010, the Book Running Lead Managers entered into a Placement Agreement with the Bank, pursuant to which the Book Running Lead Managers have agreed to use their best efforts to procure QIBs to subscribe to such number of the Equity Shares as may be agreed among the Bank and the Book Running Lead Managers, pursuant to Chapter VIII of the ICDR Regulations, outside the U.S., in reliance on Regulation S under the Securities Act. The Placement Agreement contains customary representations and warranties, as well as indemnities from the Bank and is subject to certain conditions and termination provisions in accordance with the terms contained therein. In connection with the Issue, the Book Running Lead Managers (or their respective affiliates) may, for their own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares issued pursuant to this Issue at the same time as the offer and sale of the Equity Shares, or in secondary market transactions. As a result of such transactions, the Book Running Lead Managers may hold long or short positions in such Equity Shares. These transactions may comprise a substantial portion of the Issue and no specific disclosure will be made of such positions. Affiliates of the Book Running Lead Managers may purchase Equity Shares and be allocated Equity Shares for proprietary purposes and not with a view to distribution. FII affiliates of the Book Running Lead Managers may purchase, to the extent permissible under law, Equity Shares in the Issue, and may issue P-Notes in respect thereof. Please see “Offshore Derivative Instruments”. Applications shall be made to list the Equity Shares issued pursuant to the Issue and admit them to trading on the Stock Exchanges. This Preliminary Placement Document has not been, and will not be, registered as a prospectus with the RoC and, no Equity Shares will be offered in India or overseas to the public or any members of the public in India or any other class of investors, other than QIBs. The Book Running Lead Managers and other affiliates have performed investment banking and advisory services for the Bank from time to time for which they have received customary fees and expenses. The Book Running Lead Managers and other affiliates may, from time to time, engage in transactions with and perform services for the Bank in the ordinary course of their business for which they may receive customary compensation. Lock-up The Bank has agreed with the Book Running Lead Managers not to: (a) issue, offer, lend, sell, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares, global depositary receipts or any securities convertible into or exercisable or exchangeable for Equity Shares whether any such transaction is to be settled by delivery of Equity Shares, global depositary receipts or such other securities, in cash or otherwise; (b) enter into any swap or other agreement that transfers, directly or indirectly, in whole or in part, any of the economic consequences of ownership of Equity Shares, global depositary receipts or such other securities, whether any such transaction is to be settled by delivery of Equity Shares, global depositary receipts or such other securities, in cash or otherwise; or (c) publicly announce any intention to enter into any transaction described in (a) or (b) above, whether any such transaction described in (a) or (b) above is to be settled by delivery of Equity Shares, global depositary receipts or such other securities, in cash or otherwise, for a period from the date of the Placement Agreement up to 180 days after the Closing Date without the prior written consent of the Book Running Lead Managers, provided that the restrictions contained in the preceding sentence shall not apply to (i) the Issue Shares issued pursuant to the Issue, (ii) Equity Shares or other securities issued or to be issued upon the exercise of an option under any employee stock option plans or schemes of the Bank existing on the date hereof and as described in the Placement Documents, and (iii) subject

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to receipt of prior written consent of the Book Running Lead Managers, which shall not be unreasonably delayed or withheld, Equity Shares or other securities to be issued pursuant to any scheme of amalgamation or arrangement or otherwise in connection with any merger or acquisition of securities, businesses, property or other assets, joint ventures or other strategic corporate transaction.

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DISTRIBUTION AND SOLICITATION RESTRICTIONS The distribution of this Preliminary Placement Document or any offering material and the offering, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this Preliminary Placement Document or any offering material are advised to consult with their own legal advisors as to what restrictions may be applicable to them and to observe such restrictions. This Preliminary Placement Document may not be used for the purpose of an offer or sale in any circumstances in which such offer or sale is not authorised.

General

No action has been taken or will be taken that would permit a public offering of the Equity Shares to occur in any jurisdiction or the possession, circulation or distribution of this Preliminary Placement Document or any other material relating to the Bank or the Equity Shares in any jurisdiction where action for such purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Preliminary Placement Document nor any offering materials or advertisements in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Issue will be made in compliance with the applicable ICDR Regulations. Each purchaser of the Equity Shares in the Issue will be deemed to have made acknowledgments and agreements as described in the sections “Transfer Restrictions” and “Representations by Investors”.

European Economic Area

In relation to the Relevant Member States, with effect from and including the date on which the Prospectus Directive is or was implemented in that Relevant Member State (the “Relevant Implementation Date”), the Equity Shares may not be offered or sold to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that the Equity Shares, with effect from and including the Relevant Implementation Date, may be offered to the public in that Relevant Member State at any time:

• to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

• to any legal entity which has two or more of: (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, in the case of (2) and (3) as shown in its last annual or consolidated accounts;

• to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Book Running Lead Managers; or

• in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offering of Equity Shares shall result in a requirement for the publication by the Bank or the Book Running Lead Managers of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

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United Kingdom (in addition to European Economic Area restrictions, above)

The Equity Shares cannot be promoted in the United Kingdom to the general public. The contents of this Preliminary Placement Document have not been approved by an authorised person within the meaning of FSMA. Each of the Book Running Lead Managers (a) may only communicate or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000, as amended (the “FSMA”), to persons who (i) are investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion Order”), or (ii) fall within any of the categories of persons described in article 49(2)(a) to (d) of the Financial Promotion Order or otherwise in circumstances in which section 21(1) of the FSMA does not apply to the Bank; and (b) has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Equity Shares in, from or otherwise involving the United Kingdom. Any invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) in connection with, or relating to, the sale or purchase of any Equity Shares, may only be communicated or caused to be communicated in circumstances in which Section 21(1) of the FSMA does not apply. It is the responsibility of all persons under whose control or into whose possession this document comes to inform themselves about and to ensure observance of all applicable provisions of FSMA in respect of anything done in relation to an investment in Equity Shares in, from or otherwise involving, the United Kingdom.

Hong Kong

No Equity Shares have been offered or sold, and no Equity Shares may be offered or sold, in Hong Kong, by means of any document, other than to “professional investors” as defined in the Securities and Futures Ordinance, Chapter. 571 of the laws of Hong Kong (“Securities and Futures Ordinance”) and any rules made under that Ordinance; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance, Chapter. 32 of the laws of Hong Kong (“Companies Ordinance”) or which do not constitute an offer to the public within the meaning of the Companies Ordinance. No document, invitation or advertisement relating to the Equity Shares has been issued or may be issued, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted under the securities laws of Hong Kong) other than with respect to Equity Shares which are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance. This Preliminary Placement Document and the Equity Shares have not been and will not be registered with the Securities and Futures Commission of Hong Kong and/or the Stock Exchange of Hong Kong. There are no public markets or platforms in Hong Kong for the purchase or disposal of the Equity Shares. If you are in doubt as to the contents of this Preliminary Placement Document, you must immediately seek legal and investment advice from your solicitor, accountant and/or professional advisors.

Singapore

This Preliminary Placement Document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Preliminary Placement Document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Equity Shares may not be circulated or distributed, nor may the Equity Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor pursuant to Section 274 of the Securities and Future Act (Chapter 289) of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Unless otherwise permitted under the SFA, where the Equity Shares are acquired by a person pursuant to Section 274 or 275 of the SFA, such Equity Shares shall not be transferable for six months after that person has acquired the Equity Shares, except (i) to another person who is an institutional investor or a relevant person, or (ii) pursuant to Section 275(1A) of the SFA.

Unless otherwise permitted under the SFA, where the Equity Shares are subscribed or purchased pursuant to Section 275 of the SFA by a relevant person who is:

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• a corporation which is not an accredited investor (as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

• a trust (where the trustee is not an accredited investor) the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the Equity Shares pursuant to an offer made under Section 275 of the SFA except: (i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on the terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, in accordance with the conditions, specified in Section 275 of the SFA as applicable; (ii) where no consideration is given for the transfer; or (iii) by operation of law.

United States

The Equity Shares have not been and will not be registered under the Securities Act or any state securities laws in the United States and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold outside the United States in offshore transactions in reliance on Regulations S under the Securities Act.

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TRANSFER RESTRICTIONS Because of the following restrictions, investors are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of the Equity Shares offered hereby.

Purchasers of the Equity Shares are not permitted to sell the Equity Shares for a period of one year from the date of Allotment except through the Stock Exchanges.

Subject to the above:

Each purchaser of the Equity Shares, by accepting delivery of this Preliminary Placement Document, will be deemed to have represented, agreed and acknowledged that: • It is authorized to consummate the purchase of the Equity Shares in compliance with all applicable laws

and regulations. • It acknowledges and agrees (or if it is a broker-dealer acting as an agent on behalf of a customer, its

customer has confirmed to it that such customer acknowledges and agrees) that such Equity Shares have not been and will not be registered under the U.S. Securities Act or any state securities laws in the United States.

• It certifies that either (A) it is, or at the time the Equity Shares are purchased will be, the beneficial

owner of the Equity Shares and is located outside the United States (within the meaning of Regulation S) or (B) it is a broker-dealer acting as an agent on behalf of its customer and its customer has confirmed to it that (i) such customer is, or at the time the Equity Shares are purchased will be, the beneficial owner of the Equity Shares, and (ii) such customer is located outside the United States (within the meaning of Regulation S).

• It agrees that it will not offer, sell, pledge or otherwise transfer such Equity Shares except in an offshore

transaction complying with Rule 903 or Rule 904 of Regulation S or pursuant to any other available exemption from registration under the U.S. Securities Act and in accordance with all applicable securities laws of the States of the United States and any other jurisdiction, including India.

• It acknowledges that we, the Book Running Lead Managers and their affiliates, and others will rely

upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of such acknowledgements, representations or agreements deemed to have been made by virtue of its purchase of the Equity Shares are no longer accurate, it will promptly notify us.

Any resale or other transfer, or attempted resale or other transfer, of Equity Shares made other than in compliance with the above-stated restrictions will not be recognized by us.

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THE SECURITIES MARKET OF INDIA The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the SEBI, the BSE and the NSE, and has not been prepared or independently verified by the Bank or the Book Running Lead Managers or any of their respective affiliates or advisors. India has a long history of organized securities trading. In 1875, the first stock exchange was established in Mumbai. Indian Stock Exchanges Indian stock exchanges are regulated primarily by the SEBI, as well as by the Government acting through the Ministry of Finance, Stock Exchange Division, under the SCRA and SCRR. Various rules, bye-laws and regulations of the respective stock exchanges regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner in which contracts are entered into, settled and enforced between members. SEBI is empowered to regulate the Indian securities markets, including stock exchanges and other intermediaries, promote and monitor self-regulatory organizations and prohibit fraudulent and unfair trade practices. Regulations concerning minimum disclosure requirements by public companies, rules and regulations concerning investor protection, insider trading, substantial acquisitions of shares and takeovers of companies, buybacks of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, credit rating agencies and other capital market participants have been notified by the relevant regulatory authority. There are currently 19 recognized stock exchanges in India. Most of the stock exchanges have their own governing board for self regulation. The BSE and the NSE together hold a dominant position among the stock exchanges in terms of the number of listed companies, market capitalization and trading activity. With effect from April 1, 2003, the stock exchanges in India operate on a trading day plus two, or T+2, rolling settlement system. At the end of the T+2 period, obligations are settled with buyers of securities paying for and receiving securities, while sellers transfer and receive payment for securities. For example, trades executed on a Monday would typically be settled on a Wednesday. In order to contain the risk arising out of the transactions entered into by the members of various stock exchanges either on their own account or on behalf of their clients, the stock exchanges have designed risk management procedures, which include compulsory prescribed margins on the individual broker members, based on their outstanding exposure in the market, as well as stock-specific margins from the members. Listing The listing of securities on a recognised Indian stock exchange is regulated by the applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act and various guidelines and regulations issued by SEBI and the listing agreements of the respective stock exchanges. The governing body of each recognised stock exchange is empowered to suspend or withdraw admission to dealings in a listed security for breach of or non compliance with any conditions under such listing agreement or for any other reason, subject to the issuer receiving prior written notice of the intent of the exchange and upon granting of a hearing in the matter. The Securities Appellate Tribunal, after giving the stock exchange an opportunity of being heard, has the power to vary or set aside the decision of stock exchange in this regard. SEBI also has the power to amend such listing agreements and the bye-laws of the stock exchanges in India. SEBI has notified the SEBI (Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations”) in relation to the voluntary and compulsory delisting of securities from the stock exchanges. In addition, certain amendments to the SCRR have also been notified in relation to delisting. Pursuant to a recent amendment of the SCRR, all listed companies are required to maintain a minimum public shareholding of 25% and have been given a period of three years to comply with such requirement. We are in compliance with the minimum public shareholding requirement.

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Index-Based Market-Wide Circuit Breaker System In order to restrict abnormal price volatility in any particular stock, the SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain level of price volatility. The index-based market-wide circuit breaker system (equity and equity derivatives) applies at three stages of the index movement, at 10%, 15% and 20%. These circuit breakers, when triggered, bring about a co-ordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the SENSEX of the BSE or the S&P CNX NIFTY of the NSE, whichever is breached earlier. In addition to the market-wide index-based circuit breakers, there are currently in place individual scrip-wise price bands of 20% movements either up or down. However, no price bands are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available. The stock exchanges in India can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be paid by the stockbrokers. BSE Established in 1875, it is the oldest stock exchange in India. In 1956, it became the first stock exchange in India to obtain permanent recognition from the Government under the SCRA. It has evolved over the years into its present status as one of the premier stock exchange of India. As of June 2010, the BSE had 1,088 members, comprising 180 individual members, 885 Indian companies and 23 FIIs. Only a member of the BSE has the right to trade in the stocks listed on the BSE. As of June 2010, there were 4,986 listed companies trading on the BSE (excluding permitted companies) and the estimated market capitalisation of stocks trading on the BSE was Rs. 63,923.78 billion. In June 2010, the average daily turnover on the BSE was Rs. 42.04 billion. As of June 2010, the BSE had 15,559 trader work stations spread over 304 cities. NSE The NSE was established by financial institutions and banks to serve as a national exchange and to provide nationwide on-line satellite-linked screen-based trading facilities with electronic clearing and settlement for securities including government securities, debentures, public sector bonds and units. It has evolved over the years into its present status as one of the premier stock exchange of India. The NSE was recognised as a stock exchange under the SCRA in April 1993 and commenced operations in the wholesale debt market segment in June 1994. As of May 2010, the average daily traded value of the capital market segment was Rs. 129.37 million. The NSE launched the NSE 50 index, now known as S&P CNX NIFTY, on April 22, 1996 and the Mid-cap Index on January 1, 1996. As of May 2010, the market capitalisation of the NSE was approximately Rs. 59,325.78 billion. NSE has a wide network in major metropolitan cities, screen based trading and a central monitoring system. Internet-based Securities Trading and Services Internet trading takes place through order routing systems, which route client orders to exchange trading systems for execution. Stockbrokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated under applicable law. The NSE became the first exchange to grant approval to its members for providing internet-based trading services. Internet trading is possible on both the “equities” as well as the “derivatives” segments of the NSE. Trading Hours Trading on both the BSE and the NSE occurs from Monday through Friday, from 9.00 a.m. to 3.30 p.m. The BSE and the NSE are closed on public holidays. The recognised stock exchanges have been permitted to set

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their own trading hours (in cash and derivatives segments) subject to the condition that (i) the trading hours are between 9 a.m. and 5 p.m.; and (ii) the stock exchange has in place risk management system and infrastructure commensurate to the trading hours. Trading Procedure In order to facilitate smooth transactions, the BSE replaced its open outcry system with BOLT facility in 1995. This totally automated screen based trading in securities was put into practice nation-wide. This has enhanced transparency in dealings and has assisted considerably in smoothening settlement cycles and improving efficiency in back-office work. NSE also provides on-line trading facilities. Takeover Code Disclosure and mandatory bid obligations for listed Indian companies under Indian law are governed by the specific regulations in relation to substantial acquisition of shares and takeover. Since the Bank is an Indian listed company, the provisions of the Takeover Code apply to the Bank. Insider Trading Regulations Specific regulations have been notified by SEBI to prohibit and penalize insider trading in India. An insider is, inter alia, prohibited from dealing in the securities of a listed company when in possession of unpublished price sensitive information. Depositories The Depositories Act provides a legal framework for the establishment of depositories to record ownership details and effect transfers in book-entry form. Further, SEBI framed regulations in relation to, inter alia, the formation and registration of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, companies and beneficial owners. The depository system has significantly improved the operation of the Indian securities markets.

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DESCRIPTION OF THE EQUITY SHARES Set forth below is certain information relating to our share capital, including a brief summary of some of the provisions of our Memorandum and Articles of Association, the Companies Act and certain related legislation of India, all as currently in effect. General The authorized share capital of the Bank is Rs 1,000 million, divided into 100 million Equity Shares of face value of Rs. 10 each and our issued subscribed and paid up capital as at March 31, 2010 was Rs. 641.156 million divided into 64,156,000 Equity Shares (excluding any outstanding stock options). Dividends Under the Companies Act, an Indian company pays dividend upon a recommendation by its board of directors and subject to approval by a majority of the members, who have the right to decrease but not to increase the amount of the dividend recommended by the board of directors. However, the board of directors is not obligated to recommend a dividend. Subject to the provisions of the Companies Act, 1956 and Banking Regulation Act, 1949, the Board may also carry forward any profits which it may think prudent not to divide or otherwise appropriate. The decision of the board of directors and shareholders of the Bank may depend on a number of factors, including but not limited to the Bank’s profits, capital requirements and overall financial condition. No unpaid or unclaimed dividend shall be forfeited unless the claim thereto becomes barred by law. The Bank shall comply with the provisions of section 205A read with section 205C of the Companies Act in respect of unpaid or unclaimed dividend. The Board may, from time to time, pay to the shareholders interim dividends as appear to it to be justified by the profits of the Bank. The Board may deduct from any dividends payable to any member all sums of money, if any, presently payable by him to the bank on account of calls or otherwise in relation to the shares of the Bank. Notice of any dividend shall be declared to all the persons entitled to share therein in the manner provided in the Companies Act, 1956. No dividend shall bear any interest against the Bank and any amount paid up in advance of calls on any share may carry interest but shall not in respect confer a right to dividend or to participate in profits. Subject to applicable provisions of the Foreign Exchange Management Act, 1999 and the rules and regulations issued thereunder, as amended, all dividends and other distributions declared and payable on the Securities may be paid by the Bank to the holder thereof in Indian Rupees and may be converted into foreign currency and freely transferred out of the Republic of India without the necessity of obtaining any governmental or regulatory authorisation or approval in the Republic of India or any political subdivision or taxing authority thereof. Capitalization of Profits The Bank may capitalize any part of the amount standing to the credit of any of the Bank’s reserve accounts, or to the credit of the profit and loss account; or otherwise available for distribution; and such fund can be applied in paying up any amounts for the time being in force being unpaid or any shares held by such members respectively or for paying in full, unissued shares or debentures of the Bank to be allotted and distributed, credited as fully paid up, to and amongst such members in the proportions. A share premium account and a capital reserve fund may also be applied in paying up of unissued shares to be issued to members of the Bank as fully paid bonus shares. Alteration of Share Capital The Articles of the Bank provide that the Bank may in general meeting, by an ordinary resolution, increase the authorized capital of the Bank by creation of new shares. The increase will be of the amount and will be divided into shares of amount as provided in the resolution. Subject to the provisions of Companies Act, any shares of the original or increased capital shall be issued upon such terms and conditions and with such rights and privileges, as resolved in the General Meeting, and if no direction is given, as the Board may determine and in particular such shares may be issued with preferential or

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qualified right to dividends and in the distribution of assets of the Bank, and with a right of voting at General Meetings of the Bank in conformity with Section 87 and 88 of Companies Act, 1956 and Banking Regulation Act, wherever applicable. General Meetings of Shareholders In accordance with Section 166(1) and Sections 166(2) and 210 of the Companies Act, 1956, a company must hold its annual general meeting each year within 15 months of the previous annual general meeting or within six months after the end of each accounting year, whichever is earlier, unless extended by the Registrar of Companies at the request of the company for any special reason. Our Articles provide that annual general meetings shall be held not later than six months from the close of financial year of the Bank or within such extended time subject to provisions of Companies Act, 1956. The Board may whenever it thinks fit, call an extraordinary general meeting. Our Articles provide that the quorum for a general meeting of the shareholders of our bank shall be ten members present in person. Written notices convening a meeting setting out the date, place and agenda of the meeting must be given to members at least 21 days prior to the date of the proposed meeting in accordance with Section 171 of the Companies Act. A general meeting may be called after giving shorter notice if consent is received from all shareholders at an annual general meeting, or from shareholders holding not less than 95% of the paid-up capital of the company, at any other general meeting. Voting Rights Every member present in person and entitled to vote shall have one vote on a show of hands and on a poll, the voting rights shall be as specified in section 87 of the Companies Act and the provision of the Banking Regulation Act, 1949 as in force, subject to any rights or restrictions for the time being attached to any class or classes of shares. The instrument appointing a proxy is required to be lodged with the company at least 48 hours before the time of the meeting, or in case of poll, not less than 24 hours before the time appointed for taking of the poll. A vote given in accordance with the terms of an instrument appointing a proxy shall be valid notwithstanding the prior death or insanity of the principal, or revocation of the instrument, or transfer of the share in respect of which the vote is given, provided no intimation in writing of the death, insanity, revocation or transfer of the share shall have been received by the company at the office before the vote is given. Further no member shall be entitled to exercise any voting right personally or by proxy at any meeting of the Bank in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid. Register of Members The Register and Index of Beneficial Owners maintained by a depository under the Depositories Act, 1996, shall be deemed to be the Register and Index of members and security holders for the purpose of these articles. Annual Report and Financial Results The annual report must be laid before the annual general meeting of the shareholders of a company. This includes financial information about the company such as the audited financial statements as of the date of closing of the financial year, directors’ report, management’s discussion and analysis and a corporate governance section, and is sent to the shareholders of the company. Transfer of shares Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with the regulations laid down by SEBI. These regulations provide the regime for the functioning of the depositories and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depository are exempt from stamp duty. The Bank has entered into an agreement for such depository services with the NSDL and the CDSL.

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Our articles provide that the transfer of shares which results in acquisition of shares by a person/ group which would take his holding to a level of 5% or more of the total issued capital of the Bank (or such other percentage as may be prescribed by the Reserve Bank of India from time to time) shall be with the prior approval of the Reserve Bank of India. Liquidation Rights The Articles of Association of the Bank provide that on winding up, the liquidator may, with the sanction of a special resolution of the Bank and any other sanction required by the Companies Act, 1956 and the Banking Regulation Act, divide among the members the whole or any parts of the assets of the Bank. The liquidator may set such value as he may deem fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may also with the like sanction, vest the whole or any part of such assets, trustees upon such trusts for the benefit of the contributories as the liquidators, with like sanction shall think fit, so that no member shall be compelled to accept any shares of other securities whereupon there is any liability.

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TAXATION The information provided below sets out the possible tax benefits available to the shareholders in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares, under the current tax laws presently in force in India. It is not exhaustive or comprehensive and is not intended to be a substitute for professional advice. Investors are advised to consult their own tax consultant with respect to the tax implications of an investment in the Equity Shares particularly in view of the fact that certain recently enacted legislation may not have a direct legal precedent or may have a different interpretation on the benefits, which an investor can avail. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE INDIAN TAX IMPLICATIONS AND CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF EQUITY SHARES IN YOUR PARTICULAR SITUATION. Levy of Income Tax As per the provisions of the Income Tax Act, 1961 (“IT Act”) taxation of a person is dependant on its tax residential status. The Indian tax year runs from April 1 to March 31. In general, in the case of a person who is "resident'' in India in a tax year, its global income is subject to tax in India. In the case of a person who is "non-resident'' in India, only the income that is received or deemed to be received or that accrues or is deemed to accrue or arise to such person in India is subject to tax in India. In the instant case, the income from the Equity Shares of the Bank would be considered to accrue or arise in India, and would be taxable in the hands of all persons irrespective of residential status. However, relief may be available under applicable Double Taxation Avoidance Agreement (“DTAA”) to certain non-residents. A company is “resident” in India if it is formed and registered in accordance with the Indian Companies Act or if the control and management of its affairs is situated wholly in India in a tax year. A “firm” or “association of persons” is resident in India except where the control and management of its affairs is situated wholly outside India. As per the taxation laws in force, the tax benefits / consequences, as applicable, to the Qualified Institutional Buyers (not being individuals or HUFs) investing in the Equity Shares of The Dhanalakshmi Bank Limited (henceforth referred to as the “Bank”) are summarized below: STATEMENT OF POSSIBLE DIRECT TAX BENEFITS AVAILABLE TO DHANALAKSHMI BANK’S SHAREHOLDERS 1. BENEFITS AVAILABLE TO RESIDENT SHAREHOLDERS 1.1 Dividends exempt under Section 10(34) of the IT Act

Under Section 10(34) of the IT Act, income by way of “dividends” received on the Equity Shares of the Bank is exempt from income tax in the hands of shareholders. However, the Bank will be liable to pay Dividend Distribution Tax (‘‘DDT”) at 16.60875 per cent (tax rate of 15 per cent plus surcharge of 7.5 per cent and education cess of 3 per cent) on the total amount distributed as dividends. As a result, no taxability arises in the hands of the shareholders in respect of dividends received from the Bank. No deduction is permitted in respect of expenditure incurred by any person in relation to income which is not chargeable to tax. The expenditure relatable to “exempt income” need to be determined in accordance with the provisions specified in Section 14A of the IT Act read with Rule 8D of the Income Tax Rules, 1962 (“Rules”).

1.2 Computation of capital gains 1.2.1 Capital assets may be categorized into short term capital assets and long term capital assets, based on

the period of holding. Equity Shares held in the Bank will be considered as long term capital assets if they are held for a period exceeding 12 months. Consequently, capital gains arising on sale of such assets held for more than 12 months are considered as "long term capital gains". Capital gains arising

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on sale of said assets held for 12 months or less are considered as "short term capital gains". 1.2.2 Section 48 of the IT Act, which prescribes the mode of computation of capital gains, provides for

deduction of cost of acquisition / improvement and expenses incurred wholly and exclusively in connection with the transfer of a capital asset from the sale consideration to arrive at the amount of capital gains. However, second proviso to Section 48 of the IT Act permits substitution of cost of acquisition / improvement with the indexed cost of acquisition / improvement, thereby adjusting the cost of acquisition / improvement by a cost inflation index, as prescribed.

1.2.3 Under Section 10(38) of the IT Act, long term capital gains arising to a shareholder on transfer of

Equity Shares in the Bank are exempt from tax, where the sale transaction has been entered into on a recognized stock exchange of India and Securities Transaction Tax (“STT”) has been paid on the same. However, in case of shareholder being a company, profits on transfer of above referred long term capital asset shall not be reduced in computing the “book profits” for the purposes of computation of Minimum Alternate Tax (“MAT”) under Section 115 JB of the IT Act.

1.2.4 Under Section 112 of the IT Act, long term capital gains, other than those exempt under Section 10(38)

of the IT Act arising on transfer of listed Equity Shares in the Bank, would be subject to tax at a rate of 20 per cent (plus applicable surcharge and education cess) after indexation or 10 per cent (plus applicable surcharge and education cess) without indexation, whichever is lower.

1.2.5 Under Section 54EC of the IT Act and subject to the conditions specified therein, long-term capital

gains arising on the transfer of Equity Shares of the Bank would be exempt from tax if such capital gains is invested within 6 months after the date of such transfer in specified assets, being bonds issued by:

a) National Highway Authority of India constituted under Section 3 of The National Highway

Authority of India Act, 1988;

b) Rural Electrification Corporation Limited, the company formed and registered under the Companies Act, 1956.

The investment made in such bonds during any financial year cannot exceed Rs.5,000,000.

If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within 3 years from the date of its acquisition, the amount so exempted shall be chargeable to tax during the year of such transfer or conversion. Since long term capital gains arising under Section 10(38) of the IT Act are not taxable, there is no requirement for making investment under Section 54EC of the IT Act in such cases.

1.2.6 Under Section 111A of the IT Act, short-term capital gains arising on transfer of Equity Share in the

Bank would be taxable at 15 per cent (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognized stock exchange in India and STT has been paid on the same. Short-term capital gains arising from transfer of Equity Shares in the Bank, other than those covered by Section 111A of the IT Act, would be subject to tax under the normal provisions of the IT Act.

1.2.7 Please note that the characterization of the gains/losses, arising from sale of shares, as capital gains or

business income would depend on the nature of holding in the hands of the shareholder and various factors connected with the facts of the same.

2. BENEFITS AVAILABLE TO NON-RESIDENTS (OTHER THAN FII) 2.1 Dividends exempt under Section 10(34) of the IT Act

Under Section 10(34) of the IT Act, income by way of “dividends” received on the Equity Shares of

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the Bank is exempt from income tax in the hands of shareholders. However, the Bank will be liable to pay DDT at 16.60875 per cent (tax rate of 15 per cent plus surcharge of 7.5 per cent and education cess of 3 per cent) on the total amount distributed as dividends. As a result, no taxability arises in the hands of the shareholders in respect of dividends received from the Bank. No deduction is permitted in respect of expenditure incurred by any person in relation to income which is not chargeable to tax. The expenditure relatable to “exempt income” need to be determined in accordance with the provisions specified in Section 14A of the IT Act read with Rule 8D of the Rules.

2.2 Computation of capital gains 2.2.1 Capital assets may be categorized into short term capital assets and long term capital assets, based on

the period of holding. Equity Shares held in the Bank will be considered as long term capital assets if they are held for a period exceeding 12 months. Consequently, capital gains arising on sale of such assets held for more than 12 months are considered as "long term capital gains". Capital gains arising on sale of said assets held for 12 months or less are considered as "short term capital gains".

2.2.2 Under Section 10(38) of the IT Act, long term capital gains arising to a shareholder on transfer of

Equity Shares in the Bank are exempt from tax, where the sale transaction has been entered into on a recognized stock exchange of India and STT has been paid on the same. However, in case of shareholder being a company, profits on transfer of above referred long term capital asset shall not be reduced in computing the “book profits” for the purposes of computation of MAT under Section 115 JB of the IT Act.

2.2.3 Under the first proviso to Section 48 of the IT Act, in computing the capital gains arising from transfer

of Equity Shares of the Bank acquired in convertible foreign exchange, protection is provided to a non resident shareholder from fluctuations in the value of rupee in terms of foreign currency in which the original investment was made. Cost indexation benefits will not be available in such a case. The capital gains/ loss in such a case is computed by converting the cost of acquisition, sales consideration and expenditure incurred wholly and exclusively in connection with such transfer into the same foreign currency which was utilized in the purchase of the Equity Shares.

2.2.4 Under Section 112 of the IT Act, long term capital gains, other than those exempt under Section 10(38)

of the IT Act arising on transfer of listed Equity Shares in the Bank, would be subject to tax at a rate of 20 per cent (plus applicable surcharge and education cess) after indexation or 10 per cent (plus applicable surcharge and education cess) without indexation, whichever is lower. However, there are divergent views given by the Indian judicial authorities in this regard.


gains arising on the transfer of Equity Shares of the Bank would be exempt from tax if such capital gains is invested within 6 months after the date of such transfer in specified assets, being bonds issued by (to the extent permitted under prevalent laws):






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2.2.6 Under Section 111A of the IT Act, short-term capital gains arising on transfer of Equity Share in the Bank would be taxable at 15 per cent (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognized stock exchange in India and STT has been paid on the same. Short-term capital gains arising from transfer of Equity Shares in the Bank, other than those covered by Section 111A of the IT Act, would be subject to tax under the normal provisions of the IT Act

2.2.7 As per Section 90(2) of the IT Act, provisions of the DTAA between India and the country of residence

of the non-resident would prevail over the provisions of the IT Act, to the extent they are more beneficial to the non-resident.

2.2.8 Please note that the characterization of the gains/losses, arising from sale of equity shares, as capital

gains or business income would depend on the nature of holding in the hands of the shareholder and various factors connected with the facts of the same.

3. BENEFITS AVAILABLE TO FOREIGN INSTITUTIONAL INVESTORS (FIIs) 3.1 Dividends exempt under Section 10(34) of the IT Act

Under Section 10(34) of the IT Act, income by way of “dividends” received on the Equity Shares of the Bank is exempt from income tax in the hands of shareholders. However, the Bank will be liable to pay DDT at 16.60875 per cent (tax rate of 15 per cent plus surcharge of 7.5 per cent and education cess of 3 per cent) on the total amount distributed as dividends. As a result, no taxability arises in the hands of the shareholders in respect of dividends received from the Bank. No deduction is permitted in respect of expenditure incurred by any person in relation to income which is not chargeable to tax. The expenditure relatable to “exempt income” need to be determined in accordance with the provisions specified in Section 14A of the IT Act read with Rule 8D of the Rules.

3.2 Taxability of capital gains 3.2.1 Under Section 10(38) of the IT Act, long term capital gains arising to a shareholder on transfer of

Equity Shares in the Bank are exempt from tax, where the sale transaction has been entered into on a recognized stock exchange of India and STT has been paid on the same. However, in case of companies, long term capital gain so earned may be required to be taken into account in computing the book profit for the purpose of computation of MAT under Section 115JB of the IT Act.


gains arising on the transfer of Equity Shares of the Bank would be exempt from tax if such capital gains is invested within 6 months after the date of such transfer in specified assets, being bonds issued by (to the extent permitted under prevalent laws):






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3.2.3 Under Section 115AD(1)(ii) of the IT Act short term capital gains on transfer of Equity Shares shall be

chargeable at 30 per cent or 15 per cent (where such transaction of sale is entered on a recognized stock exchange in India and STT has been paid on the same), as the case may be. The above rates are to be increased by applicable surcharge and education cess.

Under Section 115AD(1)(iii) of the IT Act, long term capital gains arising from the transfer of Equity Shares (in cases not covered under Section 10(38) of the IT Act) of a Bank shall be taxable at 10 per cent (plus applicable surcharge and education cess). It is to be noted that the benefits of indexation and foreign currency fluctuations are not available to FIIs.

However, where the equity shares form a part of stock-in-trade, any income realised in the disposition of such Equity Shares may be treated as business profits, taxable in accordance with the DTAA between India and the country of tax residence of the FII. The nature of the Equity Shares held by the FII is usually determined on the basis of the substantial nature of the transactions, the manner of maintaining books of account, the magnitude of purchases, sales and the ratio between purchases and sales and the holding etc. If the income realised from the disposition of Equity Shares is chargeable to tax in India as business income, FIIs could claim deduction with respect to STT paid on purchase/sale of Equity Shares while computing taxable income. Business profits may be subject to tax at the rate of 30 per cent / 40 per cent (depending on the type of FII) plus applicable surcharge and education cess.

3.2.4 As per Section 90(2) of the IT Act, provisions of the DTAA between India and the country of residence

of the FII would prevail over the provisions of the IT Act to the extent they are more beneficial to the FII. Where FII treat the income realized from disposition of Equity Shares as business profits and it does not have permanent establishment in India, such income of FII may not be subject to tax in India.

3.3 Tax Deduction At Source

Generally, in case of non residents, tax, (including surcharge and education cess) on the capital gains, if any, is withheld at the source by the buyer in accordance with the relevant provisions of the IT Act. However, no deduction of tax is required to be made from any income by way of capital gains arising from the transfer of securities (referred to in Section 115AD of the IT Act) payable to FIIs.

4. BENEFITS AVAILABLE TO MUTUAL FUNDS

As per the provisions of Section 10(23D) of the IT Act, Mutual Funds registered under the Securities and Exchange Board of India or Mutual Funds set up by Public Sector Banks or Public Financial Institutions or authorized by the Reserve Bank of India and subject to the conditions specified therein, would be eligible for exemption from income tax on their income.

5. SECURITIES TRANSACTION TAX (‘STT’)

All transactions entered into on a recognised stock exchange in India will be subject to STT levied on the transaction value at applicable rates. In case of purchase / sale of Equity Shares is settled by way of actual delivery or transfer of the Equity Shares, STT will be levied at 0.125 per cent on both the buyer and seller of the Equity Shares. For sale of Equity Shares settled otherwise than by way actual delivery or transfer of the Equity Share, STT will be levied at 0.025 per cent on the seller of the Equity Share. The STT can be claimed as deduction while computing taxable business income as per the provisions of the IT Act, provided the gains on the transactions are offered to tax as business income and not as capital gains.

6. CAPITAL LOSS

In general terms, loss arising from transfer of a capital asset in India can only be set off against capital gains. Long term capital loss arising on sale of Equity Shares not subjected to STT during a year is allowed to be set-off only against long term capital gains. A short term capital loss can be set off against capital gains whether short term or long term. To the extent that the loss is not absorbed in the year of transfer, it may be carried forward for a period of 8 years immediately succeeding the year for which the loss was first determined and may be set off against the capital gains assessable for such

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subsequent Assessment Years. In order to set off a capital loss as above, the investor (resident/ non resident) is required to file appropriate and timely returns in India.

7. DTAA BENEFITS

An investor has an option to be governed by the provisions of the IT Act or the provisions of DTAA that India has entered into with the country of residence of the investor, whichever is more beneficial.

8. BENEFITS AVAILABLE UNDER THE WEALTH-TAX ACT, 1957

Assets as defined under Section 2(ea) of the Wealth tax Act, 1957 does not include shares in companies and hence, shares are not liable to wealth tax.

9. BENEFITS AVAILABLE UNDER THE GIFT-TAX ACT, 1958

Gift tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of shares will not attract gift tax.

Notes: • The above Statement of Possible Direct Tax Benefits sets out the provisions of law in a summary

manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares;

• The above Statement of Possible Direct Tax Benefits sets out the possible tax benefits available to the Bank and its shareholders under the current tax laws (i.e. IT Act as amended by the Finance Act 2010) presently in force in India. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions prescribed under the relevant tax laws;

• This statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the tax consequences, the changing tax laws, each investor is advised to consult his or her/ its own tax consultant with respect to the specific tax implications arising out of their participation in the issue;

• In respect of non-residents, the tax rates and the consequent taxation mentioned above shall be further subject to any benefits available under the DTAA, if any, between India and the country in which the non-resident has fiscal domicile; and

• The stated benefits will be available only to the sole/first named holder in case the shares are held by joint shareholders.

140

LEGAL PROCEEDINGS Except as described below, we are not involved in any legal proceedings, and no proceedings are threatened, which may have, or have had, a material adverse effect on our business, properties, financial condition or operations. We believe that the number of proceedings in which we are involved in is not unusual for a company of its size in the context of doing business in India. 1. We are involved in a number of disputes pending with the Income Tax Department with respect to

income tax assessments for the assessment years 1995-1996, 1996-1997, 1997-1998, 1998-1999, 1999-2000, 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006, 2006-2007 and 2007-2008. The aggregate income tax liability in dispute is Rs. 732.80 million.

2. Brihanmumbai Mahanagar Palika, issued a notice dated March 13, 2009, to the Bank for a demand of

Rs. 14.51 million in relation to the repair cess. The amount is claimed for a period starting from April 1, 2000 to March 31, 2008. The Bank has protested this demand by its reply filed dated March 19, 2010 and has made a payment of Rs. 0.5 million against the claim (in protest).

3. The Bank of India has filed an application (O.A. No. 269) before Debts Recovery Tribunal -1, Chennai,

against Mr. Abraham, proprietor of Premier Marine Products and the Bank. The matter is regarding forgery of three demand drafts which were issued by the Bank of India. It was alleged that the Bank ignored the directions of the Reserve Bank of India and the obligations to satisfy the know your customer norms and failed to fulfill the conditions to be followed by the collecting bankers while opening the account as well as collecting cheques or drafts, which has caused loss to the Bank of India. The Bank of India has sought for issue of a recovery certificate against Mr. Abraham and the Bank, and claimed a sum of Rs. 3.44 million with the further interest at the rate of 18% per annum. The Bank filed its reply on April 26, 2009 and an argument note on June 25, 2009 before the Recovery Tribunal -1, Chennai. The Recovery Tribunal -1, Chennai, has by its order dated December 15, 2009, directed the Bank to transfer Rs.0.73 million lying in the saving bank account of Mr. Abraham Solomon to the Bank of India. The matter is currently pending before the Debts Recovery Tribunal -1, Chennai.

In addition to the above, there are 54 pending litigation against the Bank and the aggregate amount involved is approximately Rs. 8.8 million.

141

INDEPENDENT ACCOUNTANTS The Bank’s financial statements as on and for each of the years ended March 31, 2010, included in this Preliminary Placement Document, have been audited by Walker, Chandiok & Co., Chartered Accountants and Shah Gupta & Co., Chartered Accountants, for the years ended 2009 and 2008 included in this Preliminary Placement Document, have been audited by P.B. Vijayaraghavan & Co., Chartered Accountants. Please see “Financial Statements”. The Board of Directors and the shareholders of the Bank have appointed Sharp & Tannan, Chartered Accountants, as its joint statutory auditors on July 15, 2010.

142

GENERAL INFORMATION 1. The Bank was incorporated in Thrissur in 1927 as a limited company under the Indian Companies Act,

1913 with an authorized capital of Rs. 20,000. It became a scheduled commercial bank in 1977. The registered office of the Bank is Dhanalakshmi Building, Naickanal, Thrissur – 680001, Kerala.

2. The authorized share capital of the Bank is Rs.1,000 million, divided into 100,000,000 Equity Shares of Rs. 10 each and the issued, subscribed and paid up Equity Share capital before the Issue is Rs. 641.156 million divided into 64,115,600 Equity Shares.

3. The Issue of the Equity Shares was authorised by the Board of Directors of the Bank on May 11, 2010 and approved by the shareholders of the Bank at the AGM held on July 15, 2010. The terms of the offering and the Issue of the Securities were approved by resolutions of the Committee of Directors passed on July 15, 2010.

4. The Bank has received in-principle approvals dated July 15, 2010, under Clause 24(a) of the Equity

Listing Agreements to list the Equity Shares on NSE, BSE and CoSE. 5. Copies of the Memorandum and Articles of Association of the Bank will be available for inspection

during usual business hours on any weekday between 10.00 A.M. to 1.00 P.M. (except public holidays) at the Registered Office.

6. The Bank has obtained all consents, approvals and authorisations in India required in connection with

the Issue.

7. Except as disclosed in the Preliminary Placement Document, there has been no material adverse change in the financial position or prospects of the Bank since March 31, 2010, the date of the latest audited financial statements, prepared in accordance with Indian GAAP as applicable to banks, included herein.

8. Except as disclosed in this Preliminary Placement Document, the Bank is not involved in any litigation or arbitration proceedings or any regulatory investigations relating to claims or amounts which are material in the context of the Issue nor, so far as the Bank is aware, is any such litigation or arbitration pending or threatened.

9. The Bank’s financial statements as on and for each of the years ended March 31, 2010, included in this Preliminary Placement Document, have been audited by Walker, Chandiok & Co., Chartered Accountants and Shah Gupta & Co., Chartered Accountants, for the years ended 2009 and 2008 included in this Preliminary Placement Document, have been audited by P.B. Vijayaraghavan & Co., Chartered Accountants. Please see “Financial Statements”. The Board of Directors and the shareholders of the Bank have appointed Sharp & Tannan, Chartered Accountants, as its joint statutory auditors on July 15, 2010.

10. The Bank confirms that it is in compliance with the minimum public shareholding requirements as required under the terms of the Listing Agreements with the Stock Exchanges.

11. The Floor Price for the Issue is Rs. 181.27 per Equity Share, calculated in accordance with the provisions of Chapter VIII of the ICDR Regulations, as certified by Walker, Chandiok & Co., Chartered Accountants, Statutory Auditors of the Bank.

143

DECLARATION The Bank certifies that all relevant provisions of Chapter VIII read with Schedule XVIII of the ICDR Regulations have been complied with. The Bank further certifies that all the statements in this Preliminary Placement Document are true and correct. Signed by: Mr. Amitabh Chaturvedi Managing Director and CEO Date: July 15, 2010 Place: Thrissur

144

FINANCIAL STATEMENTS

Examination Report on the Reformatted Financial Statements of

The Dhanalakshmi Bank Limited as at and for each of the years ended March 31, 2010, March 31, 2009 and March 31, 2008

To The Board of Directors The Dhanalakshmi Bank Limited Dhanalakshmi Buildings Naickanal, Thrissur - 680 001 Kerala Dear Sirs, 1. We have examined the Reformatted Financial Statements (the “Reformatted Statements”) of The

Dhanalakshmi Bank Limited (the “Bank”) annexed to this report for the purposes of inclusion in the Preliminary Placement Document and the Placement Document prepared by the Bank in connection with the Qualified Institutions Placement (“QIP”) of its Equity Shares in accordance with the provisions of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (the “IDCR Regulations”), as amended from time to time. The preparation of such Reformatted Statements is the responsibility of the Bank’s management. Our responsibility is to report on such statements based on our procedures.

2. We have examined the Reformatted Statements, prepared by the Bank, based on the Audited Financial

Statements (as defined under paragraph 3 below) and approved by the Board of Directors, in accordance with the requirements of:

a. The ICDR Regulations; and

b. The (Revised) Guidance Note on Reports in Company Prospectuses issued by the Institute of

Chartered Accountants of India.

3. We report that the figures disclosed in the Reformatted Statements have been extracted by the Bank’s management from the audited financial statements of the Bank for each of the years ended March 31, 2010, March 31, 2009 and March 31, 2008 (the “Audited Financial Statements”) approved by the Board of Directors and Shareholders and converted from thousands and lakhs, as the case may be, and shown in millions and rounded to the nearest one decimal point. The financial statements for the year ended March 31, 2010 have been jointly audited by us and M/S. Shah Gupta & Co, Chartered Accountants and in respect of which an audit opinion dated May 11, 2010 has been jointly issued. The financial statements for the years ended March 31, 2009 and March 31, 2008 have been audited by M/S. P. B. Vijayaraghavan & Co, Chartered Accountants (“Previous Auditors”) and in respect of which the audit opinions dated April 29, 2009 and June 6, 2008, respectively, have been issued to the Shareholders of the Bank.

4. In the presentation of the Reformatted Statements based on Audited Financial Statements, no

adjustments have been made for any events occurring subsequent to the dates of the audit reports specified therein.

5. The audit reports issued by the Previous Auditors on the audit of financial statements of the Bank for

the years ended March 31, 2008 and March 31, 2009, were qualified as follows: In case of audit for the year ended March 31, 2008: “Subject to No.1of Schedule No.17 – Notes on Accounts regarding reconciliation/adjustment of outstanding entries in Inter-Branch/Office transactions in progress, the effect of which could not be ascertained give the information required…………………”.

145

In case of audit for the year ended March 31, 2008: “Subject to No. 3of Schedule No.17 – Notes on Accounts regarding reconciliation/adjustment of outstanding entries in Inter-Branch/Office transactions in progress, the effect of which could not be ascertained give the information required…………………”. The Inter-Branch/Inter-Office transactions have been substantially reconciled and provided for, where necessary, during the financial year ended March 31, 2010 and this has resulted into removal of the relevant qualification as referred above.

6. As stated in our audit report dated May 11, 2010 for the year ended March 31, 2010, which is referred under paragraph 3 above, we (M/s. Walker, Chandiok & Co) and M/s. Shah Gupta & Co, jointly conducted the audit of the Bank’s financial statements as at and for the year ended March 31, 2010, in accordance with the auditing standards generally accepted in India to enable us to issue an opinion on such Financial Statements. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

7. Our audit for the year ended March 31, 2010, referred to under paragraph 3 above was carried out for

providing a true and fair view on the Financial Statements of the Bank as at and for the year ended March 31, 2010, taken as a whole.

8. We have not audited any financial statements of the Bank as of any date or for any period subsequent

to March 31, 2010. Accordingly, we express no opinion on the financial position, results of operations or cash flows of the Bank as of any date or for any period subsequent to March 31, 2010.

9. We have no responsibility to update our report for events and circumstances occurring after the date of

the report. 10. This report should not in any way be construed as a re-issuance or redating the previous audit report,

issued by us or by the Previous Auditors nor should this be construed as a new opinion on any of the financial statements referred to under paragraphs above.

11. This report is intended solely for your information and for inclusion in the Preliminary Placement

Document and the Placement Document prepared in connection with the proposed QIP by the Bank and is not to be used, referred to or distributed for any other purpose, without our prior written consent.

For Walker, Chandiok & Co Chartered Accountants Firm Registration No: 001076N per Khushroo B. Panthaky Partner Membership No.: F-42423 Place: Mumbai Date: July 15, 2010

146

THE DHANALAKSHMI BANK LIMITED REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE

REPORTING YEARS

Rupees in Millions Schedule

No.As at

31.3.2010As at

31.3.2009 As at

31.3.2008Capital 1 641.2 641.2 320.6 Reserves and Surplus 2 3,759.6 3,603.6 1,401.8 Deposits 3 70,984.8 49,688.1 36,084.2Borrowings 4 1,205.5 0.0 40.0Other Liabilities and Provisions 5 4,277.8 2,495.3 2,483.3 Total 80,868.9 56,428.2 40,329.9 ASSETS Cash and Balance with Reserve Bank of India 6 6,129.0 3,949.9 3,540.7Balance with Banks and Money at call and short notice 7 1,374.3 2,910.7 3,383.7Investments 8 20,277.9 15,673.6 10,750.6 Advances 9 50,062.6 31,960.6 21,020.3 Fixed Assets 10 794.7 462.1 470.8 Other assets 11 2,230.4 1,471.3 1,163.8 Total 80,868.9 56,428.2 40,329.9 Contingent Liabilities 12 5,575.2 2,495.3 2,755.9 Bills for collection 552.4 537.0 873.6

147

THE DHANALAKSHMI BANK LIMITED REFORMATTED STATEMENT OF PROFITS AND LOSSES FOR THE LAST THREE REPORTING

YEARS

Rupees in Millions Schedule

No. Year

Ended 31.03.2010

Year Ended

31.3.2009

Year Ended

31.3.2008Income Interest earned 13 5,345.7 4,084.1 3,124.8 Other Income 14 909.8 793.6 420.3 Total 6,255.5 4,877.7 3,545.1 Expenditure Interest expended 15 3,940.2 2,868.0 2,135.0 Operating expenses 16 1,928.6 1,130.7 965.2 Provision and contingencies 153.8 304.5 160.3 Total 6,022.5 4,303.2 3,260.5 Net Profit/(Loss) for the year 233.0 574.5 284.6 Profit/(Loss) brought forward 0.1 0.1 0.1 Transfer from Dividend Payable Account including Dividend Tax

0.0 37.5 37.0

Total 233.1 612.1 321.7 Appropriations Transfer to Statutory Reserve 69.9 172.4 85.4 Transfer to Capital Reserve 64.9 37.9 0.0 Transfer to Special Reserve U/s.36(1)(viii) of Income Tax Act

15.9 14.3 11.2

Transfer to Other Reserves 7.3 312.4 150.0 Proposed Dividend 64.1 64.1 64.1 Dividend Tax 10.9 10.9 10.9 Balance carried to Balance Sheet 0.1 0.1 0.1 Total 233.1 612.1 321.7 Earnings Per Share (in Rupees) 3.6 9.2 8.4

148

REFORMATTED CASH FLOW STATEMENT FOR THE LAST THREE REPORTING YEARS Rupees in Millions

Year ended

Year ended

Year ended

31.03.2010 31.03.2009 31.03.2008 A CASH FLOW FROM OPERATING ACTIVITIES (5.5) (1,909.6) 927.5 B CASH FLOW FROM INVESTING ACTIVITIES (437.6) (71.5) (53.7) C CASH FLOW FROM FINANCING ACTIVITIES 1,085.8 1,917.3 - TOTAL 642.7 (63.8) 873.8 D BALANCES AT THE BEGINNING OF THE YEAR Cash and balances with Reserve Bank of India 3,949.9 3,540.7 2,507.2 Balances with Bank and Money at Call and Short Notice 2,910.7 3,383.7 3,543.4 E BALANCES AT THE END OF THE YEAR Cash and balances with Reserve Bank of India 6,129.0 3,949.9 3,540.7 Balances with Bank and Money at Call and Short Notice 1,374.3 2,910.7 3,383.7 F TOTAL CASH FLOW DURING THE YEAR (A+B+C) or

(E-D) 642.7 (63.8) 873.8

A CASH FLOW FROM OPERATING ACTIVITIES I+II Interest received during the year from Advances and

Investments 5,345.7 4,084.1 3,124.8

Other Income 909.9 793.5 420.3 LESS Interest paid during the year on Deposits and Borrowings 3,940.2 2,867.9 2,135.1 Operating expenses including Provisions and Contingencies 2,082.3 1,435.2 1,125.4 ADD Adjustments for Depreciation and non cash Charges 103.0 75.5 80.6 I CASH PROFIT GENERATED FROM OPERATIONS 336.1 650.0 365.2 (prior to changes in operating Assets and Liabilities) II CASH FLOW FROM OPERATING ASSETS

&LIABILITIES

Deposits 21,296.7 13,603.9 5,204.6 Borrowings 1,205.5 (40.0) (9.9) Other Operating Liabilities 621.5 47.2 369.0 Decrease/(Increase ) in Assets Advances (18,102.0) (10,940.2) (2,649.8) Investments (4,604.3) (4,923.0) (2,098.6) Other Operating Assets (759.0) (307.5) (253.0) TOTAL II (341.6) (2,559.6) 562.3 A NET CASH FLOW FROM OPERATING

ACTIVITIES(I+II) (5.5) (1,909.6) 927.5

CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (543.7) (76.6) (54.0) Sale of Fixed Assets 106.1 5.1 0.3 B NET CASH FLOW FROM INVESTING ACTIVITIES (437.6) (71.5) (53.7) C CASH FLOW FROM FINANCING ACTIVITIES Share Capital - Rights Issue - 320.6 - Share Premium - 1,596.7 - Subordinated Debt(Tier Bonds) raised 1,500.0 - - Redemption of Tier II Bonds (350.0) - - Dividend written back - 37.5 - Dividend Paid (64.2) (37.5) - NET CASH FLOW FROM FINANCING ACTIVITIES 1,085.8 1,917.3 -

149

SCHEDULES FORMING PART OF THE REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE REPORTING YEARS

Rupees in Millions

As at As at As at 31.3.2010 31.3.2009 31.3.2008

SCHEDULE 1 - CAPITAL Authorised Capital 10,00,00,000 Equity Shares of Rs.10 each 1,000.0 1,000.0 1,000.0 Issued Capital 67374500 Equity Shares of Rs 10 each 673.7 673.7 0.0 35316700 Equity Shares of Rs 10 each 0.0 0.0 353.2 Subscribed Capital 64115600 Equity Shares of Rs.10 each 641.2 641.2 0.0 32057800 Equity Shares of Rs.10 each 0.0 0.0 320.6 Called up Capital 64115600 Equity Shares of Rs.10 each 641.2 641.2 0.0 32057800 Equity Shares of Rs.10 each 0.0 0.0 320.6 Paid up Capital 64115600 Equity Shares of Rs.10 each 641.2 641.2 0.0 32057800 Equity Shares of Rs.10 each 0.0 0.0 320.6 Total 641.2 641.2 320.6

150

Rupees in Millions As at

31.3.2010 As at

31.3.2009 As at

31.3.2008 SCHEDULE 2 - RESERVES AND SURPLUS STATUTORY RESERVES Opening Balance 624.5 452.1 366.8 Additions during the year 69.9 172.4 85.4 Sub total 694.4 624.5 452.2 CAPITAL RESERVES Opening Balance 233.4 197.6 195.6 Additions/Adjustments 0.0 0.0 4.2 Transfer from Profit and Loss Account 64.9 37.9 0.0 Deductions due to Depreciation of Revalued Premises -2.0 -2.1 -2.3 Sub total 296.3 233.4 197.5 SHARE PREMIUM Opening Balance 2,050.3 383.3 383.3 Additions during the year 0.0 1,667.0 0.0 Sub total 2,050.3 2,050.3 383.3 REVENUE AND OTHER RESERVES Opening Balance 669.9 357.5 207.5 Additions : Transfer from Profit and Loss account 7.3 312.4 150.0 Additions: Deferred Tax Asset 0.0 0.0 0.0 Sub total 677.2 669.9 357.5 SPECIAL RESERVE Under Section.36(1)(viii) OF INCOME TAX ACT

Opening Balance 25.4 11.2 0.0 Additions: Transfer from Profit and Loss account 15.9 14.2 11.2 Less: Transfer to Profit and Loss Account 0.0 0.0 0.0 Sub total 41.3 25.4 11.2 BALANCE IN PROFIT AND LOSS ACCOUNT 0.1 0.1 0.1 3,759.6 3,603.6 1,401.8

151

Rupees in Millions As at As at As at 31.3.2010 31.3.2009 31.3.2008

SCHEDULE 3 - DEPOSITS DEMAND DEPOSITS From Banks 0.2 0.1 0.4From Others 5,634.5 4,607.7 4,120.5 SAVINGS BANK DEPOSITS 9,880.7 7,468.5 6,428.3 TERM DEPOSITS From Banks 1,155.0 935.0 1,327.6 From others 54,314.4 36,676.8 24,207.4 Total 70,984.8 49,688.1 36,084.2 Deposits of Branches in India 70,984.8 49,688.1 36,084.2 Total 70,984.8 49,688.1 36,084.2 Deposits of Branches outside India 0.0 0.0 0.0 Total 70,984.8 49,688.1 36,084.2

152


SCHEDULE 4 - BORROWINGS BORROWINGS IN INDIA Reserve Bank of India 20.0 0.0 40.0Other banks 0.0 0.0 0.0 Other institutions and Agencies 1,185.5 0.0 0.0 BORROWINGS OUTSIDE INDIA # 0.0 0.0 0.0 Total 1,205.5 0.0 40.0 # Book credit balances in foreign currency mirror accounts

153


SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS

Bills Payable 690.3 523.8 460.8 Interest accrued 901.6 728.7 531.3 Unsecured Redeemable Bonds 1,970.0 820.0 820.0 (Subordinated Debt for Tier II Capital) Rights Issue - Application Money 0.0 0.0 70.3 Others (including Provisions) 715.9 422.8 600.9 Total 4,277.8 2,495.3 2,483.3

154


SCHEDULE 6 - CASH AND BALANCE WITH Reserve Bank of India

Cash on Hand (including foreign currency notes) 1,181.1 788.7 528.3 Balances with Reserve Bank of India in Current Account 4,947.9 3,161.2 3,012.4 Total 6,129.0 3,949.9 3,540.7

155


SCHEDULE 7 - BALANCE WITH BANKS AND MONEY AT CALL AND SHORT NOTICE

In India i Balances with Banks in Current accounts 486.7 272.1 215.1 in other Deposit accounts 768.5 2,595.0 3,020.5 ii Money at Call and Short Notice with Banks with Other Institutions 0.0 0.0 0.0 Sub total 1,255.2 2,867.1 3,235.6 Outside India in current account 119.1 43.6 62.1 in other deposit accounts 0.0 0.0 86.0 Sub total 119.1 43.6 148.1 Total 1,374.3 2,910.7 3,383.7

156


SCHEDULE 8 INVESTMENTS Investments in India In Government Securities 16,794.1 13,875.8 9,229.9 In Approved securities 1,749.9 3.6 8.1Shares 6.2 19.8 15.9 Debentures and Bonds 330.0 285.0 158.8 Subsidiaries/Joint Ventures 0.0 0.0 0.0 Others 1,397.7 1,489.4 1,337.9 Total 20,277.9 15,673.6 10,750.6 Investments in India ( Gross) 20,359.1 15,753.9 10825.9 Less Depreciation and Provisions 81.2 80.3 75.3 Total 20,277.9 15,673.6 10,750.6 Investments outside India 0.0 0.0 0.0 Total 20,277.9 15,673.6 10,750.6

157


SCHEDULE 9 ADVANCES A i) Bills Purchased and discounted 1,097.1 1,675.6 1,632.7 ii) Cash Credits, Overdrafts and Loans repayable on Demand

17,770.9 14,518.7 10,280.5

iii) Term Loans 31,194.6 15,766.3 9,107.1 Total 50,062.6 31,960.6 21,020.3 B i) Secured by Tangible assets 38,580.6 27,081.0 19,076.9 ii) Covered by Bank/Government Guarantee 97.3 492.1 57.9 iii) Unsecured 11,384.7 4,387.5 1,885.5 Total 50,062.6 31,960.6 21,020.3 C I ADVANCES IN INDIA i) Priority sectors 12,553.6 10,502.4 9,087.7 ii) Public Sector 3,107.6 1,575.5 343.1 iii) Banks 4.1 0.0 24.9 iv) Others 34,397.3 19,882.7 11,564.6 Total 50,062.6 31,960.6 21,020.3 II ADVANCES OUTSIDE INDIA 0.0 0.0 0.0 Total 50,062.6 31,960.6 21,020.3

158


SCHEDULE 10 - FIXED ASSETS Premises At cost as per last Balance sheet 342.8 342.8 338.6 Additions during the year due to revaluation of Premises 0.00 0.00 0.00Additions/Adjustments during the year 6.4 0.0 4.2 Deductions during the year Deductions during the year being transfer from:

31.03.2010 31.3.2009 31.3.2008 Revaluation Reserve 10.3 8.3 6.2 Depreciation to date 67.7 61.0 49.9 78.0 69.3 56.1 Total 271.2 273.5 286.7 Other Fixed Assets (includes Furniture and Fixture and Computers) At cost as per last Balance sheet 756.5 685.1 631.2 Additions during the year 349.2 76.5 54.3 Deductions during the year 106.2 5.1 0.4 Depreciation to date 664.2 567.9 501.0 Total 335.3 188.6 184.1 Capital Work In progress 188.2 0.0 0.0 Total 794.7 462.1 470.8

159


SCHEDULE 11 OTHER ASSETS Interest Accrued 664.9 586.7 558.7 Inter Office Adjustments (Net) 337.3 100.8 119.8Tax paid in advance and Tax Deducted at Source 427.8 250.8 211.6 Deferred Tax Asset 48.7 41.9 37.8 Stationery and stamps 0.6 1.4 1.1 Non Banking Assets acquired in satisfaction of claims 1.7 1.1 1.2 Others 749.4 488.6 233.6 Total 2,230.4 1,471.3 1,163.8

160


SCHEDULE 12 - CONTINGENT LIABILITIES Claims against the bank not acknowledged as debts 26.7 16.9 24.5 Liabilities on account of outstanding forward exchange contracts 3,151.0 877.1 1,116.1Guarantees given on behalf of constituents in India 1,282.6 969.8 1,138.6 Acceptance endorsements and other obligations 382.1 405.4 145.8 Other items for which Bank is contingently liable 732.8 226.1 330.9

(Disputed Income Tax Liability) Total 5,575.2 2,495.3 2,755.9

161

Rupees in Millions For the

year ended

For the year

ended

For the year

ended 31.3.2010 31.3.2009 31.3.2008

SCHEDULE 13 - INTEREST EARNED Interest/Discount on Advances/bills 4,193.9 2,920.9 2,196.0 Income on Investments 1,078.5 790.3 660.9 Interest on balance with Reserve Bank of India /other inter Bank funds 53.2 372.9 261.6 Others 20.1 0.0 6.3 Total 5,345.7 4,084.1 3,124.8

162


year ended

For the year

ended

For the year

ended 31.3.2010 31.3.2009 31.3.2008

SCHEDULE 14 - OTHER INCOME Commission, Exchange and Brokerage 70.3 101.3 121.0 Profit/(Loss) on sale of Investments (Net) 177.9 73.7 14.0 Profit on sale of land, building and other Assets (Net) 7.1 1.8 0.0 Profit on exchange transactions (Net) 23.3 37.8 39.7 Income from Insurance 57.0 73.4 104.2 Miscellaneous Income 574.2 505.6 141.4Total 909.8 793.6 420.3

163


year ended

For the year

ended

For the year

ended 31.3.2010 31.3.2009 31.3.2008

SCHEDULE 15 - INTERESTEXPENDED Interest on Deposits 3,702.3 2,794.8 2,048.8 Interest on RBI/Inter Bank Borrowing 108.2 6.4 19.2 Others 129.7 66.8 67.0 Total 3,940.2 2,868.0 2,135.0

164


year ended

For the year

ended

For the year

ended 31.3.2010 31.3.2009 31.3.2008

SCHEDULE 16 – OPERATING EXPENSES Payments to and Provisions to Employees 1,090.8 625.6 473.6 Rent, Taxes and Lighting 216.0 139.1 120.4 Printing and Stationery 30.7 15.3 12.2 Advertisement and Publicity 5.9 7.0 3.3 Depreciation to Banks property 103.0 75.5 80.6 Directors Fee, Allowance and Expense 3.1 2.5 1.8Auditors Fee and Expense (including Branch Auditors) 5.9 5.3 3.5 Law charges 1.5 5.8 4.6 Postages,Telegrams,Telephones 50.7 26.1 26.2 Repairs and Maintenance 20.0 15.3 15.0 Insurance 51.9 37.4 30.8 Rights Issue Expenses 0.0 0.0 40.2Other Expenditure 349.1 175.8 153.0 Total 1,928.6 1,130.7 965.2

165

SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE REFORMATTED FINANCIAL STATEMENTS FOR THE LAST THREE REPORTING YEARS BACK GROUND The Dhanalakshmi Bank Limited was incorporated in November 1927 at Thrissur, in Kerala by a group of ambitious entrepreneurs. Dhanalakshmi Bank is a banking company governed by The Banking Regulation Act 1949. It became a scheduled commercial bank since 1977. PRINCIPAL ACCOUNTING POLICIES

1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and in compliance with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act 1949, circulars and guidelines issued by the Reserve Bank of India (‘RBI’) from time to time, Accounting Standards (‘AS’) issued by the Institute of Chartered Accountants of India (‘ICAI’) and notified by the Companies Accounting Standard Rules, 2006 to the extent applicable and in compliance of the current practices prevailing within the banking industry in India. The preparation of financial statements requires the management to make estimates and assumptions considering the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expense for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may differ from these estimates. Any revision in the accounting estimates is recognized prospectively in the current and future period.

2. REVENUE RECOGNITION

• Items of income and expenditure are accounted for on accrual basis, except as stated hereunder:

Interest on loans and advances is recognized on accrual basis other than on those stipulated in RBI’s prudential norms on income recognition, asset classification and provisioning relating to Non Performing Advances (“NPAs”) , where the income is recognized on realization.

• In respect of accounts covered under one time settlement, the recoveries are adjusted against

book balance and the net balance is written off. • Income accounted for in the preceding year and remaining unrealized is de-recognised in

respect of advances classified as NPAs during the year. Interest on NPAs is transferred to interest suspense account and recognised in Profit and Loss Account when realised

• Rent on safe deposit lockers, dividends, depository participant business etc are accounted for

on cash basis. Discount on bills are recognized upfront except where the tenor exceeds one year.

• Interest on income tax refunds is accounted in the year in which the same is determined. • In respect of sale of Assets under securitization the Bank has followed RBI guidelines as

under:

o Sale price received shall be duly accounted for and shall be apportioned to each asset on the basis of respective valuations given to the asset.

o If the sale price is below Net Book Value (i.e. Outstanding book balance less interest suspense and provisions held) {Net NPA}, then short fall should be debited to profit and loss account.

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o If sale value is higher than the Net NPA balance, then excess provisions shall not be

reversed but should be utilized to meet the shortfall/loss on account of sale of other non performing Assets.

o The cash consideration received in respect of written off accounts shall be taken to Profit and Loss Account and the value of Security Receipts shall be shown under investment and the corresponding provision shall be held.

3. INVESTMENTS

Investments in Government, other approved securities, shares, debentures, bonds and other securities are categorized into (a) Held to Maturity (b) Held for Trading and (c) Available for Sale in terms of RBI guidelines.

In determining acquisition cost of an investment: • Brokerage, Commission, etc. paid at the time of acquisition, are charged to revenue. • Broken period interest on debt instruments is treated as a revenue item. • Cost of investments is based on the following basis:-

o Held to Maturity – Individual cost o Held for Trading- Weighted Average o Available for sale –Weighted Average

Valuation of Investments is done as under:

Particulars Valuation Norms

Central Government Securities

Prices published by PDAI/ FIMMDA

State Government Securities

At YTM published by PDAI/FIMMDA

Other Approved Securities YTM published by PDAI/FIMMDA duly adjusted as per RBI guidelines

Bonds, Debentures and Preference Shares

As per rates / methodologies prescribed by FIMMDA.

Equity Shares Valued at book value as per the latest Balance Sheet. Where Balance Sheets are not available, at Re 1 per Company.

Units of Mutual Fund Re-purchase price / NAV declared by the Mutual Fund as at the close of the year.

Other securities As per guidelines prescribed by RBI

The premium (acquisition cost over the face value), if any, is amortised over the remaining period of maturity in respect of securities held under Held to Maturity category based on "Constant Yield Method". Profit on redemption / sale of securities in Held to Maturity category is transferred to Capital Reserve. The shifting of securities from one category to another is done with the approval of the Board as per RBI guidelines. The shifting is effected at acquisition cost/book /market value on the date of transfer, whichever is the least and the depreciation if any at the time of shifting is fully provided for.

Repo and Reverse Repo Transactions: In a repo transaction, the bank borrows monies against pledge of securities. The book value of the securities pledged is credited to the investment account. Borrowing costs on repo transactions are accounted for as interest expense. In respect of repo transactions outstanding at the balance sheet date, the difference between the sale price and book value, if the former is lower than the latter, is provided as a loss in the income statement.

167

In a reverse repo transaction, the bank lends monies against incoming pledge of securities. The securities purchased are debited to the investment account at the market price on the date of the transaction. Revenues thereon are accounted as interest income. In respect of repo transactions under LAF with RBI, monies borrowed from RBI are credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LAF, monies paid to RBI are debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income.

4. ADVANCES Advances are classified as performing and non-performing based on the Reserve Bank of India guidelines and further into Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of bills rediscounted, specific provisions, floating provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation. Specific loan loss provisions in respect of Non-Performing Advances (NPAs) are made based on management’s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed in the RBI guidelines. The Bank maintains general provision for standard assets at levels stipulated by RBI from time to time. Provision for standard assets is included under Other Liabilities. Provisions made in excess of these regulatory levels or provisions which are not made with respect to specific non-performing assets or assets which are restructured / securitised are categorised as floating provisions. The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance/securities, which would generally include, among others, alteration of repayment period/repayable amount/the amount of installments/rate of interest (due to reasons other than competitive reasons). Restructured accounts are reported as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made.

5. FIXED ASSETS AND DEPRECIATION Fixed assets, except those revalued, are stated at cost less accumulated depreciation. Cost includes cost of purchase and all expenditure like site preparation, installation costs, professional fees and other expenses incurred on the asset before it is ready to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the futures benefit/functioning capability from/of such assets. Depreciation is charged over the estimated useful life of the fixed asset on a written down value basis except on computers. The rates of depreciation are given below: • Owned Premises at 5.00% per annum.

• Office equipment at 18.10% per annum

• Motor cars at 25.89% per annum

• Electrical items at 13.91%

• Items (excluding staff assets) costing less than Rs. 5,000 are fully depreciated in the year of

purchase.

• All other assets are depreciated as per the rates specified in Schedule XIV of the Companies Act, 1956.

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• Computers including software and system development expenditure at 33.33% per annum on Straight Line Basis.

Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 3 to 5 year. For assets purchased and sold during the year, depreciation is provided on pro rata basis by the Bank.

6. IMPAIRMENT OF ASSETS

The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment of loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount.

7. TRANSACTIONS INVOLVING FOREIGN EXCHANGE

• Monetary assets and liabilities are translated at the exchange rates prevailing at the close of the year as advised by FEDAI and the resulting net gain/loss is recognized in the revenue account.

• Profit or loss on outstanding forward foreign currency contracts are accounted for at the

exchange rates prevailing at the close of the year as per FEDAI/ RBI guidelines. • Income and expenditure items are accounted at the exchange rates ruling on the date of

transaction. • Contingent liabilities in respect of outstanding forward foreign currency exchange contracts,

guarantees and letters of credit are stated at the exchange rates prevailing at the close of the year.

• Premium /discount on hedge swaps are recognized as interest income/expenses and are recognized/ amortised over the period of the transactions.

8. EMPLOYEE BENEFITS

• Employee Stock Option Scheme (“ESOS”)

The Dhanalakshmi Bank Limited Employees Stock Option Scheme 2009 (“ESOP Scheme“) provides for the grant of equity shares of the Bank to its eligible employees and Directors in the whole time employment of the Bank / Managing Director. The Scheme provides that employees are granted an option to acquire equity shares of the Bank that vests in a graded manner. The options may be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee’s compensation plans. In this regard the Bank has complied with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) guidelines, 1999.

The defined employee benefit schemes are as under:-

• Provident Fund

The contribution as required by the statute is made to the Staff Provident Fund Trust of the Bank is debited to the Profit and Loss Account. The obligation of the Bank is limited to such contribution.

• Gratuity

The Bank has a defined benefit gratuity plan for Officers and Workmen. Every Officer / workman who has rendered continuous services of five years or more is eligible for Gratuity

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on superannuation, resignation, termination, disablement or on death. The scheme is funded by the bank and is managed by a separate staff trust. The liability for the same is recognized on the basis of actuarial valuation.

• Pension

The bank has a defined benefit pension Plan. The plan applies to those employees of the bank who were on the Bank payroll as on September 29, 1995, having opted for the pension scheme and to all workmen joining, thereafter. The scheme is managed by a simple separate trust and the liability for the same is recognized on the basis of actuarial valuation.

9. LEASE ACCOUNTING

Lease payments for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term in accordance with the AS - 19, Leases.

10. INCOME TAX

Income tax expense comprises current tax provision, the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.

11. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

In accordance with AS - 29, Provisions, Contingent Liabilities and Contingent Assets, issued by the Institute of Chartered Accountants of India, the Bank recognises provisions when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made. Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements. Contingent Assets, if any, are not recognised in the financial statements since this may result in the recognition of income that may never be realized.

12. EARNINGS PER SHARE

The Bank reports basic and diluted earnings per equity share in accordance with AS - 20, Earnings per Share, issued by the Institute of Chartered Accountants of India. Basic earnings per equity share have been computed by dividing net profit for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.

170

13. SEGMENT REPORTING

The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard

Primary Segments: Business segments.

a. Treasury Operations: Includes the entire investment portfolio of the bank. b. Corporate / Wholesale Banking : Includes all advances to trusts, partnership firms, companies

and statutory bodies which are not included under “Retail Banking” c. Retail Banking: The exposure upto Rs. 50.0 million to individual, HUF, Partnership firm,

Trust, Private Ltd. Companies, public ltd. Companies, Co-operative societies etc. or to a small business is covered under retail banking. Small business is one where average of last three years annual turnover (actual for existing & projected for new entities) is less than Rs.500 million.

d. Other banking business operations: Includes all other Banking operations not covered under

Treasury, Wholesale Banking and Retail banking Segments. Other banking business is the residual category.

Secondary Segments: Geographical segments Since the Bank is having domestic operations only, no reporting does arise under this segment.

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SCHEDULE 18 - NOTES APPENDED TO AND FORMING PART OF THE REFORMATTED FINANCIAL STATEMENTS FOR LAST THREE REPORTING YEARS

1. Capital commitments Rs. 77.4 million (2009: Nil; 2008: Nil). 2. RECONCILATION

For the year ended March 31, 2009 and March 31, 2008, Reconciliation was in progress in respect of:

a. Pending items in inter-branch transactions, inter-offices account, drafts payable and draft paid without advice, accounts with other banks including foreign banks, clearing accounts and other items.

b. Some accounts, which have not been tallied with the subsidiary ledgers in a few branches. 3. Commission from insurance business is accounted on accrual basis which hitherto was accounted on

cash basis. Had the Bank accounted commission on cash basis, profit (net of tax) for the year ended March 31, 2010 would have been lower by Rs. 8.4 million.

4. (a) PROVISIONS AND CONTINGENCIES DEBITED TO PROFIT AND LOSS

ACCOUNT Rupees in Millions

Particulars 31.03.2010 31.03.2009 31.03.2008 Provision for depreciation on Investments 6.7 (9.4) 2.2 Provision towards Standard Assets 74.2 5.2 18.6 Provision towards NPA (including write off) 30.1 21.9 18.3 Provision towards Non Performing Investments (5.8) (11.3) 19.0 Provision towards Security Receipts - 49.5 - Provision towards Income Tax, Wealth Tax, FBT etc.

51.2 226.2 104.6

Deferred Tax Asset/Liability (6.8) (4.1) (2.4) Provision for diminution in value of Restructured Accounts

4.2 6.5 -

Floating Provision for NPA (Advances) - 20.0 - Total 153.8 304.5 160.3

(b) Floating Provisions

Rupees in Millions Particulars 31.03.2010 31.03.2009 31.03.2008

(a) Opening balance in the floating provisions account

20.0 - -

(b) The quantum of floating provisions made During the accounting year

- 20.0 -

(c) Amount of draw down made during the accounting year

- - -

(d) Closing balance in the floating provisions account

20.0 20.0 -

5. RIGHTS ISSUE

In May 2008, the bank allotted 32,057,800 equity shares of Rs.10 each for cash at a premium of Rs.52 per equity share aggregating to Rs.1987.6 million on right basis to the existing equity shareholders of the bank in the ratio of one equity share for every equity share held. Accordingly, an amount of Rs.320.6 million and Rs.1667.0 million were transferred to Share Capital account and Share Premium account respectively.

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ADDITIONAL DISCLOSURES IN TERMS OF THE RESERVE BANK OF INDIA GUIDELINES 6. CAPITAL ADEQUACY

Sr. No.

Items 31.03.2010 31.03.2009 31.03.2008 Basel I Basel II Basel I Basel II Basel I

(i) CRAR (%) 12.47 12.99 14.44 15.38 9.21 (ii) CRAR-Tier I Capital (%) 8.45 8.80 12.90 13.75 6.56 (iii) CRAR-Tier II Capital (%) 4.02 4.19 1.54 1.63 2.65 (iv) Amount of Subordinated debt raised

as Tier-II capital (Rs in millions) 1,970.0 1,970.0 820.0 820.0 820.0

7. INVESTMENTS

Rupees in Millions ITEMS 31.03.2010 31.03.2009 31.03.2008

(1) Value of Investments (i) Gross Value of Investments

(a) In India 20,359.1 15,753.9 10825.9 (b) Outside India, Nil Nil Nil

(ii) Provisions for Depreciation (a) In India 81.2 80.3 75.3 (b) Outside India, Nil Nil Nil

(iii) Net Value of Investments (a) In India 20,277.9 15,673.6 10,750.6 (b) Outside India, Nil Nil Nil

(2) Movement of provisions held towards depreciation on investments.

(i) Opening balance 80.3 75.4 54.1 (ii) Add: Provisions made during the year 6.7 59.2 33.1 (iii) Less: (Write-off/write-back of excess provisions during the year)

5.9 54.3 11.7

(iv) Closing Balance 81.2 80.3 75.3 8. REPO TRANSACTIONS

Rupees in Millions Particulars Minimum

outstanding during the

year ended

Maximum outstanding during the

year ended

Daily Average outstanding during

the year ended

As on March

31, 2010

As on March

31, 2009

As on March

31, 2008

2010 2009 2008 2010 2009 2008 2010 2009 2008

Securities sold under repos

262.5 157.5 262.5 262.5 315.0 472.5 487.5 5.1 11.8 262.5 - -

Securities purchased under reverse repos

262.5 52.5 10.5 1,050.0 2,782.5 1,312.5 250.0 249.9 107.8 NIL 1,250.0 -

9. NON-SLR INVESTMENT PORTFOLIO

a. Issuer composition of Non SLR investments

2010 Rupees in Millions

S. No

Issuer Amount Extent of Private

Placement

Extent of ‘Below

Investment Grade’

Securities

Extent of ‘Unrated’ Securities

Extent of ‘Unlisted’Securities

(i) Public Sector Units - - - - -

173

S. No


Placement

Extent of ‘Below

Investment Grade’

Securities



(ii) Financial Institutions 100.0 100.0 - - -(iii Banks 100.0 80.0 60.0 - - (iv) Private Corporate 351.9 171.9 - 13.4 13.1 (v) Subsidiaries/ Joint Ventures - - - - - (vi) Others 131.3 - - - (vii) Provision held towards

depreciation - - - - -

Total 683.2 351.9 60.0 13.4 13.1

2009 Rupees in Millions

S. No


Placement

Extent of ‘Below

Investment Grade’

Securities



(i) PSUs 4.0 4.0 4.0 4.0 4.0(ii) FIs 173.3 173.3 0.0 13.3 13.3 (iii Banks 125.0 125.0 70.0 10.0 10.0 (iv) Private Corporate 131.1 21.9 - 13.4 13.1 (v) Subsidiaries/ Joint Ventures - - - - - (vi) Others 49.5 49.5 - 49.5 - (vii) Provision held towards

depreciation * (80.3) (66.9) (4.0) (66.9) (13.1)

Total 402.6 306.8 70.0 23.3 27.3 * Including provision for Non performing investments / Security Receipts

2008

Rupees in Millions S. No


Placement

Extent of ‘Below

Investment Grade’

Securities



(i) PSUs 4.0 4.0 4.0 4.0 4.0 (ii) FIs 59.0 59.0 32.5 26.5 59.0 (iii Banks 135.0 135.0 115.0 20.0 20.0 (iv) Private Corporate 33.3 21.9 -- 13.5 19.1 (v) Subsidiaries/ Joint Ventures -- -- -- -- -- (vi) Others -- -- -- -- -- (vii) Provision held towards

depreciation *(56.5) -- -- -- --

Total 174.8 219.9 151.5 64.0 102.1 * Including provision for Non performing investments

b. Non Performing Non-SLR Investments


Opening balance 80.3 41.7 39.6 Additions during the year - 65.1 4.0 Reductions during the year 5.9 26.5 1.9 Closing balance 74.4 80.3 41.7 Total provisions held 74.4 80.3 41.7

10. DERIVATIVES

The bank uses forward exchange contract to hedge against its foreign currency exposures relating to the

174

underlying transaction and firm commitments. The bank has not entered into any derivative instruments for trading /speculative purposes either in Foreign Exchange or domestic treasury operations.

11. For the year ended March 31, 2009 - A amount of Rs. 13.9 million has been provided on an

estimated basis for Interest on Matured Term Deposits from the date of maturity up to 31.03.2009, pursuant to the revised guidelines issued by the Reserve Bank of India. (31.3.2008 Nil).

12. For the year ended March 31, 2009 - An estimated provision of Rs.57.1 million has been made for

the year towards wage revision pending outcome of ongoing negotiation at industry level. (31.3.2008: Nil)

13. For the year ended March 31, 2009 - Payment to and provision for employees include:

a) Incremental liability at the year end towards pension fund as actuarially determined amounting to Rs. Nil (31.3.2008: Rs. 2196.0 million).

b) Incremental liability at the year end towards gratuity, as actuarially determined amounting to

Rs. 2658.7 million (31.3.2008: Rs. 152.3 million). c) Incremental liability at the year end towards leave encashment as actuarially determined

amounting to Rs. 2391.6 million (31.3.2008: Rs. 1248.2 million). d) A sum of Rs.1527.9 million representing one fifth of the transitional liability as determined by

the actuarial valuation in accordance with the accounting policy.

14. For the year ended March 31, 2008 - Consequent to non-approval by RBI, the amount of Rs.36.5 million proposed and appropriated (including dividend tax) for declaration of dividend for the financial year 2006-07 has been credited back to profit and loss appropriation account for the year ended 31.3.2008:.

15. ASSET QUALITY

i) In terms of Agricultural Debt Waiver and Debt Relief Scheme 2008, framed by the Government of India, the bank has received Rs.31.3 Million from RBI on account of loans to small and marginal farmers out of the amount eligible for debt waiver of Rs.43.5 Million. The balance amount of Rs.12.2 Million has been shown as receivables and clubbed under the head “Advances”.

The position with reference to Agricultural Debt Relief Scheme is as under: Claim pertaining to Debt Relief arising till December 31,2009 is Rs.1.6 Million which is shown as Receivable from Government of India under Agricultural Debt Relief Scheme 2008(which is clubbed under the head “advances").Government of India has subsequently extended the scheme upto June 30, 2010.

ii) Non-Performing Asset

Rupees in Millions Items 31.03.2010 31.03.2009 31.03.2008

(i) Net NPAs to Net Advances (%) 0.84 0.88 0.88 (ii) Movement of NPAs (Gross) (a) Opening balance 644.3 632.1 962.9 (b) Additions during the year 521.6 374.5 158.5 (c) Reductions during the year 390.9 362.3 489.3 (d) Closing balance 775.0 644.3 632.1 (iii) Movement of Net NPAs (a) Opening balance 282.4 185.6 322.4

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Items 31.03.2010 31.03.2009 31.03.2008 (b) Additions during the year 460.6 274.1 136.8 (c) Reductions during the year 321.3 150.9 273.6 (d) ECGC Collection (2.3) (6.4) - (e) Floating Provision - (20.0) - (f) Closing balance 419.4 282.4 185.6 (iv) Movement of provisions for NPAs (excluding provisions on standard assets) (a) Opening balance 355.5 440.0 633.9 (b) Provisions made during the year 128.5 *120.5 111.4 (c) Write-off/ write-back of excess provisions

137.1 205.0 305.3

(d) Closing balance 346.9 355.5 440.0 *Includes floating provision of Rs.20.0 Million

Total amount recovered from SC/ST borrowers is Rs. 1.30 million (Rs.3.47 million)

iii) (a) Details of Loan Assets subjected to Restructuring for the year ended 31.3.2010

Rupees in Millions (except for no. of borrowers) Particulars CDR

MechanismSME Debt

Restructuring Others

Standard advances restructured

Number of Borrowers

Nil Nil 43

Amount outstanding

356.2

Sacrifice (Diminution in the fair value)

10.6*

Sub standard advances restructured

Number of Borrowers

Nil Nil Nil

Amount outstanding


Doubtful advances restructured

Number of Borrowers

Nil Nil Nil

Amount outstanding


Total Number of Borrowers

Nil Nil 43

Amount outstanding

356.2


10.6

*Sacrifice upto 31.03.2009 provided :Rs.6.5 Million Sacrifice for 1.04.2009 to 31.03.2010 to be provided :Rs.4.1 Million Total Rs.10.6 Million

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(b) Details of Loan Assets subjected to Restructuring for the year ended 31.3.2009 and 31.3.2008

Rupees in Millions Item 31.03.2009 31.03.2008

(i) Total amount of loan assets subjected to restructuring, rescheduling, renegotiation;

of which under CDR

(ii) The amount of Standard assets subjected to restructuring, rescheduling, renegotiation;

of which under CDR

(iii) The amount of Sub-Standard assets subjected to restructuring, rescheduling, renegotiation;

of which under CDR

(iv) The amount of Doubtful assets subjected to restructuring, rescheduling, renegotiation;

- of which under CDR

Note: [ (i) = (ii)+(iii)+(iv) ]

342.1

--

342.1

--

--

--

--

--

132.3

--

90.4

--

--

--

41.9

--

(c.) Additional disclosures regarding restructured accounts for year ended 31.3.2009

Rupees in millions Sl. No.

Disclosures Number Amount

1 Application received up to 31st March, 2009 in respect accounts which were standard as on September 1, 2008

75 434.8

2 Of (1), proposals approved and implemented on March 31, 2009 for special regulatory treatment and classified as standard assets as on the date of the balance sheet.

60 # 342.1

3 Of (1), proposals approved and implemented on March 31, 2009 but could not be classified as standard category.

-- --

4 Of (1), proposals under process / Implementation which were standard as on March 31, 2009.

15 92.7

5 Of (1), proposals under process / implementation which turned NPA as on 31.3.2009 but are expected to be classified as standard assets on full implementation of the package.

-- --

# For which Rs.6.5 million provided for diminution in value as per RBI guidelines and included in Provisions and Contingencies

iv) Details of financial assets sold to Securitisation / Reconstruction Company:

Rupees in Million (except no. of accounts) Sl. No. Item 31.03.2010 31.03.2009 31.03.2008 (i) Number of accounts - 24 - (ii) Aggregate value (net of provisions) of

accounts sold to SC/RC - - -

(iii) Aggregate consideration - 55.0 - (iv) Additional consideration realized in

respect of accounts transferred in earlier - - -

177

Sl. No. Item 31.03.2010 31.03.2009 31.03.2008 years

(v) Aggregate gain/loss over net book value. - 55.0 -

v) Provisions on Standard Assets Rupees in Millions

Item 31.03.2010 31.03.2009 31.03.2008 Provisions towards Standard Assets 191.2 117.1 111.8

16. BUSINESS RATIO

Sr. No.

Items 31.03.2010 31.03.2009 31.03.2008

(i) Interest Income as a percentage to Working Funds (%)

7.97 8.60 8.52

(ii) Non-interest income as a percentage to Working Funds (%)

1.36 1.67 0.97

(iii) Operating Profit as a percentage to Working Funds (%)

0.58 1.85 1.19

(iv) Return on Assets (%)

0.35 1.21 0.76

(v) Business (Deposits plus advances) per employee – Rs in Millions

36.9 58.6 40.9

(vi) Profit per employee - Rs in Millions - 0.4 0.2

17. ASSET LIABILITY MANAGEMENT

Maturity Pattern of certain items of assets and liabilities:

a) Position as at 2010 Rupees in Millions

Due within Advances Invest- ments

(Gross)

Foreign currency Deposits Borrowings Assets Liabilities

Day 1 953.7 - 2.4 64.5 651.6 - 2 to 7 Days 605.7 - 990.9 1.8 2,314.8 499.8 8 to 14 days 630.2 249.7 - 1.3 1,922.0 20.0 15 to 28 days 953.8 713.9 - 6.2 2,593.0 99.8 29 days upto 3 months

3,562.5 411.8 220.2 95.2 8,541.9 -

Over 3 months and upto 6 months

3,590.9 732.9 46.7 86.0 16,960.6 -

Over 6 months and upto 1 year

5,804.2 182.0 12.0 224.7 14,578.0 -

Over 1 year and upto 3 years

15,787.7 41.2 - 43.2 22,187.8 320.3

Over 3 years and upto 5 years

11,181.6 2,113.2 - 66.5 999.4 265.6

Over 5 years 6,992.3 15,914.4 - - 235.7 - Total 50,062.6 20,359.1 1,272.2 589.4 70,984.8 1,205.5

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b) Position as at 2009 Rupees in Millions


(Gross)


Day 1 1,291.2 17.3 136.0 58.6 702.9 -- 2 to 7 Days 602.2 1,744.5 159.0 0.0 1,610.9 -- 8 to 14 days 631.0 0.0 52.9 31.0 3,612.8 -- 15 to 28 days 260.5 3,392.0 30.4 04.8 2,051.6 -- 29 days upto 3 months

2,631.1 3,187.4 63.9 56.8 4,542.6 --


1,461.6 901.4 2.9 74.3 8,724.7 --


2,900.1 1,352.4 0 165.0 10,452.3 --


13,384.6 161.8 0 61.1 16,996.7 --


2,903.6 346.3 0 04.6 800.2 --

Over 5 years 5,894.7 4,570.4 0 0 193.4 -- Total 31,960.6 15,673.5 445.1 456.2 49,688.1 --

c) Position as at 2008 Rupees in Millions


(Gross)


Day 1 626.3 -- 160.7 37.8 235.3 -- 2 to 7 Days 526.4 64.6 100.3 -- 1,412.7 40.0 8 to 14 days 460.1 -- 34.7 17.3 1,418.7 -- 15 to 28 days 730.1 241.3 51.3 10.8 2,725.9 -- 29 days upto 3 months

1,665.2 1,730.2 210.9 47.2 3,355.0 --


994.5 1,110.1 6.8 75.0 4,352.9 --


2,070.2 738.0 1.2 186.0 5,933.9 --


7,206.2 238.9 -- 64.3 15,392.7 --


3,295.4 1,130.9 0.8 06.7 1,062.2 --

Over 5 years 3,445.9 5,496.6 -- -- 194.9 -- Total 21,020.3 10,750.6 566.7 445.1 36,084.2 40.0

18. ENDING TO SENSITIVE SECTOR

i) Exposure to Real Estate Sector Rupees in Millions

31.03.2010 31.03.2009 31.03.2008 a) Direct exposure (i) Residential Mortgages – Lendings fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented;

1,666.8 1,947.4 1,671.1

(of which individual housing loans up to Rs. 1.5 million) 1,588.2 1,064.0 1,208.7

179

31.03.2010 31.03.2009 31.03.2008 (ii) Commercial Real Estate – Lendings secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits;

1,101.4 1,422.5 1,725.8

(iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures –

a. Residential, - - - b. Commercial Real Estate. - - - b) Indirect Exposure Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs).

1,840.3 - -

ii) Exposure to Capital Market


(i) direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt;

33.0 46.5 59.8

(ii) advances against shares/bonds/ debentures or other securities or on clean basis to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds;

3.7 5.5 4.0

(iii) advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;

- -

(iv) advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/units of equity oriented mutual funds `does not fully cover the advances;

- -

(v) secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;

6.0 38.3 121.8

(vi) loans sanctioned to corporates against the security of shares / bonds/debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources;

- -

(vii) bridge loans to companies against expected equity flows/issues;

- -

(viii) underwriting commitments taken up by the banks in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds;

- -

(ix) financing to stockbrokers for margin trading; - - (x) all exposures to Venture Capital Funds (both registered and unregistered) will be deemed to be on par with equity and hence will be reckoned for compliance with the capital market exposure

- -

180

Particulars 31.03.2010 31.03.2009 31.03.2008 ceilings (both direct and indirect) Total Exposure to Capital Market 42.7 90.3 185.6

.

19. RISK CATEGORY WISE COUNTRY EXPOSURE Rupees in Millions

Risk Category

Exposure (net) as at

Provision held as at





31.03.2010 31.03.2010 31.03.2009 31.03.2009 31.03.2008 31.03.2008 Insignificant 191.2 Nil 385.8 Nil 148.0 Nil Low - Nil - Nil - Nil Moderate - Nil - Nil - Nil High - Nil - Nil - Nil Very High - Nil - Nil - Nil Restricted - Nil - Nil - Nil Off-credit - Nil - Nil - Nil Total 191.2 Nil 385.8 Nil 148.0 Nil

20. DETAILS OF SINGLE BORROWER LIMIT, GROUP BORROWER LIMIT EXCEEDED BY

THE BANK a) Position as at March 31, 2010

The bank has not exceeded single borrower limit or group borrower limit during the year ended 31 March 2010.

b) Position as at March 31, 2009

Rupees in Millions Sr No

Name of the Borrower Limit Sanctioned Balance Outstanding (As on 31.03.2009)

1 Leadage Alloys India Ltd 781.5 0.0 2 Appollo Tyres Ltd. 800.0 581.3 3 Malayalam communication 438.9 388.8 4 Amrutha Enterprises (Pvt) Ltd 340.0 257.7 5 Kalyan Silks 405.5 304.5 6 Malabar Institute of Medical

Sciences 435.9 366.6

7 Bhima & Brothers 535.5 531.7

c) Position as at March 31, 2008 Rupees in Millions

Sr No

Name of the Borrower Limit Sanctioned Balance Outstanding (As on 31.03.2008)

1 Malayalam communication 314.8 310.5* 2 Amrutha Enterprises (Pvt)

Ltd. 326.8 228.4

3 Kalyan Silks 389.5 370.4 4 Leadage Alloys India Ltd. 390.0 291.5 5 Appollo Tyres Ltd. 390.0 390.96 Malabar Institute of Medical

Sciences 397.3 284.9

7 Bhima & Brothers 335.5 343.3 * Balance excluding deposit coverage

181

21. AMOUNT OF PROVISIONS MADE FOR TAX DURING THE YEAR Rupees in Millions

Particulars 31.03.2010 31.03.2009 31.03.2008 Income Tax 50.8 222.1 101.4 Wealth Tax 0.4 0.4 0.4 Fringe Benefit Tax - 3.7 2.8 Deferred Tax (6.8) (4.2) (2.4)

22. PENALTY

No penalty has been imposed during the year 2009-10, 2008-09 and 2007-08 by RBI

23. DISCLOSURE FOR CUSTOMER COMPLAINTS/UNIMPLEMENTED AWARDS OF BANKING OMBUDSMAN Customer complaints

Particulars 31.03.2010 (a) Number of complaints pending at the beginning of the year 5 (b) Number of complaints received during the year 169 (c) Number of complaints redressed during the year 162 (d) Number of complaints pending at the end of the year 12

Unimplemented awards of Banking Ombudsmen

Particulars 31.03.2010

(a) Number of unimplemented awards at the beginning of the year Nil (b) Number of Awards passed by the Banking Ombudsmen during the year

Nil

(c) Number of Awards implemented during the year Nil (d) Number of unimplemented Awards during the year Nil

24. DISCLOSURE OF LETTER OF COMFORTS (LOCs) ISSUED BY THE BANK

The Bank has not issued any Letter of Comfort during the years ended March 31, 2010, March 31, 2009 and March 31, 2008.

25. ADDITIONAL DISCLOSURES MANDATED BY THE RESERVE BANK OF INDIA FOR

THE YEAR ENDED MARCH 31, 2010

(I) CONCENTRATION OF DEPOSITS, ADVANCES AND NPAS

a) Concentration of Deposits Rupees in Millions

Particulars Amount Total Deposits of twenty largest depositors 20,290.0 Percentage of Deposits of twenty largest depositors to Total Deposits of the Bank

28.58%

b) Concentration of Advances

Rupees in Millions Particulars Amount

Total Advances to twenty largest borrowers 14,635.6 Percentage of Advances to twenty largest borrowers to Total Advances of the bank

28.93%

c) Concentration of Exposures

182


Total Exposure to twenty largest borrowers/customers 15,532.9 Percentage of Exposures to twenty largest Borrowers / customers to Total Exposure of the bank on borrowers /customers

30.72%

d) Concentration of NPAs Rupees in Millions

Particulars Amount Total Exposure to top four NPA accounts

113.9

(II) SECTOR-WISE NPAs

Rupees in Millions Sector Percentage of NPAs to

Total Advances in that Sector Agriculture & Allied activities 0.6 Industry (Micro and small, Medium and Large) 0.9 Services 15.5 Personal Loans 14.9

(III) MOVEMENT OF NPAs


Gross NPAs* as on April 1, 2009 644.3 Additions (Fresh NPAs) during the year 521.6 Sub-total (A) 1,165.9 Less:- (i) Up gradations 77.2 (ii) Recoveries (excluding recoveries made from upgraded accounts) 274.9 (iii) Write-offs 38.8 Sub-total (B) 390.9 Gross NPAs as on March 31, 2010 (A-B) 775.0

(IV) OVERSEAS ASSETS, NPA AND REVENUE


Total Assets Nil Total NPAs Nil Total Revenue Nil

(V) Off-balance Sheet special purpose vehicles sponsored (which are required to be

consolidated as per accounting norms) Rupees in Millions

Name of the SPV sponsored Domestic Overseas

Nil Nil

26. ESOP SCHEME

On 6 August, 2009, the Bank granted 3,979,225 options to employees under two different plans at a uniform option price of Rs. 118.35. Options granted to the employees under the first plan (‘Existing Employees’) shall vest at the rate of 30%, 30% and 40% on each successive anniversary of the grant date. Options granted to the employees under the second plan (‘Joining Employees’) shall vest after completion of 12 months from the date of grant. Further, all the option granted to ‘Joining Employees’ under the scheme shall be subject to a lock in period of twenty four months from date of vesting of options under this scheme.

183

As the closing quoted market price of share one day prior to the date of grant is same as the exercise price, intrinsic value of the options is NIL; accordingly no stock based compensation arose on these grants.

27. EMPLOYEE BENEFITS (ACCOUNTING STANDARD -15)

The summarized position of various defined benefits recognized in the Profit and Loss Account and balance sheet along with the funded status are as under:

I. PENSION

A. Expenses recognized in Profit and Loss Account

Rupees in Millions PARTICULARS 31.03.10 31.03.09 31.03.08

Current Service Cost 22.6 24.9 14.8 Interest cost on benefit obligation 38.7 27.9 30.0 Expected return on plan assets (42.3) (28.2) (28.5) Net actuarial (gain)/loss recognized in the year (42.5) 56.2 72.2 Expenses recognized in the Profit and Loss Account

(23.5) 80.8 88.5

B. The amount recognized in the Balance Sheet


Present Value of obligation at end of the year (i) 534.7 544.7 451.9 Fair value of plan assets at end of the year (ii) 514.5 488.2 375.5 Difference (ii)-(i) (20.2) (56.5) (76.4) Net liability recognized in the Balance Sheet (20.2) (56.5) (76.4)

C. Changes in the present value of the defined benefit obligations:


Present value of obligation at beginning of the year

544.8 451.8 375.5

Interest cost 38.7 27.7 30.0 Current Service Cost 22.6 24.9 14.8 Benefits paid (7.0) (35.7) (27.3) Settlements (22.9) - - Net actuarial (gain)/loss on obligation (41.5) 76.0 58.9Present value of the defined benefit obligation at end of the year

534.7 544.7 451.9

D. Change in the fair value of plan assets:


Fair value of plan assets at beginning of the year 488.2 375.4 356.6 Expected return on plan assets 42.4 28.0 28.5 Contributions by employer 12.6 100.8 31.0Benefit paid (7.0) (35.9) (27.3)Settlements (22.8) - - Actuarial gain/(loss) 1.1 19.9 (13.3) Fair value of plan assets at end of the year 514.5 488.2 375.5

E. Details of the Plan Asset

The details of the plan assets (at cost) are as follows:

Rupees in Millions

184

PARTICULARS 31.03.10 31.03.09 31.03.08 Central Government securities 114.4 117.0 93.0 State Government securities 97.5 66.6 68.5 Investment in Public Sector Undertakings 196.4 252.4 173.4 Investment in Private Sector Undertakings

62.5 32.5 32.6

Others 25.1 24.1 10.2Total 495.9 492.6 377.7

F. Actuarial Assumptions

Principal assumptions used for actuarial valuation are:

Method used 31.03.10 31.03.09 31.03.08

Project Unit Credit

Method

Project Unit Credit

Method

Project Unit Credit Method

Discount rate 7.50% 6.00% 8.50% Expected rate of return on assets

8.90% 7.50% 8.00%

Future salary increase 4.50% 4.50% 4.50%

II. GRATUITY

A. Expenses recognized in Profit and Loss Account Rupees in Millions

PARTICULARS 31.03.10 31.03.09 31.03.08 Current Service Cost 14.5 12.5 9.9Interest cost on benefit obligation 17.7 12.5 15.2Expected return on plan assets - (12.8) (13.7) Net actuarial (gain)/loss recognized in the year

(55.5) 25.8 -

Expenses recognized in the Profit and Loss Account

23.3 38.0 11.4



Present Value of obligation at end of the year (i)

202.5 238.1 202.7

Fair value of plan assets at end of the year (ii)

233.5 200.0 191.2

Difference (ii)-(i) 31.0 (38.1) (11.5) Net asset/(liability)recognized in the Balance Sheet

31.0 (38.1) (11.5)




237.9 202.7 184.20

Interest cost 17.8 12.5 15.2Current Service Cost 14.5 12.5 9.9Benefits paid (11.5) (14.7) (11.5) Settlements - - - Net actuarial (gain)/loss on obligation (56.2) 24.9 4.9 Present value of the defined benefit obligation at end of the year

202.5 237.9 202.7

185

D. Change in the fair value of plan assets: Rupees in Millions

PARTICULARS 31.03.10 31.03.09 31.03.08 Fair value of plan assets at beginning of the year

200.0 191.3 170.9

Expected return on plan assets 19.1 12.8 13.7 Contributions by employer 26.7 11.5 13.2 Benefit paid (11.6) (14.8) (11.5) Settlements - - - Actuarial gain/(loss) (0.7) (0.8) 4.9 Fair value of plan assets at end of the year 233.5 200.0 191.2


The details of the plan assets (at cost) are as follows:


Central Government securities 48.0 48.2 44.0 State Government securities 69.1 46.2 46.0 Investment in Public Sector Undertakings 87.2 77.1 72.1 Investment in Private Sector Undertakings

15.0 14.9 14.9

Others 5.9 14.1 4.4 Total 225.2 200.5 181.4



Method used 31.03.10 31.03.09 31.03.08

Project Unit Credit

Method

Project Unit Credit

Method


Discount rate 7.50% 6.00% 8.50% Expected rate of return on assets

8.90% 7.50% 8.00%

Future salary increase 4.50% 4.50% 4.50%

III. LEAVE A. Expenses recognized in Profit and Loss Account


Current Service Cost 24.1 18.3 - Interest cost on benefit obligation 13.4 9.6 -Expected return on plan assets - - -Net actuarial (gain)/loss recognized in the year

(7.2) 8.5 -

Expenses recognized in the Profit and Loss Account

30.3 36.4 -



186

PARTICULARS 31.03.10 31.03.09 31.03.08 Present Value of obligation at end of the year (i)

167.9 150.4 -

Fair value of plan assets at end of the year (ii)

- - -

Difference (ii)-(i) (167.9) (150.4) - Net liability recognized in the Balance Sheet

(167.9) (150.4) -




150.4 127.9 -

Interest cost 13.4 9.6 - Current Service Cost 24.1 18.3 -Benefits paid (12.9) (13.9) -Settlements - - Net actuarial (gain)/loss on obligation (7.3) 8.5 - Present value of the defined benefit obligation at end of the year

167.9 150.4 -

D. Change in the fair value of plan assets:


Fair value of plan assets at beginning of the year

- - -

Expected return on plan assets - - - Contributions by employer - - - Benefit paid - - -Settlements -Actuarial gain/(loss) - - - Fair value of plan assets at end of the year - - -


The details of the plan assets (at cost) as are as follows:


Central Government securities - - - State Government securities - - - Investment in Public Sector Undertakings - - - Investment in Private Sector Undertakings

- - -

Others - - - Total - - -



Rupees in Million Method used 31.03.10 31.03.09 31.03.08

Project Unit Credit

Method

Project Unit Credit

Method


Discount rate 7.50% 7.50% - Expected rate of return - - -

187

Method used 31.03.10 31.03.09 31.03.08 Project Unit

Credit Method

Project Unit Credit

Method


on assets Future salary increase 4.50% 4.50% -

28. ADDITIONAL NOTES FOR THE YEAR ENDED MARCH 31, 2008

a) The Bank hitherto has been measuring the liability for employee retirement benefits as per the

erstwhile AS – 15 (1995), ‘Accounting for retirement Benefits’. The Bank has adopted the AS – 15 (Revised) ‘Employee Benefits’, from April 1, 2007. Consequently there is an additional Transitional Liability of Rs.76.4 million upto 31.03.2007 towards employee benefits (Pension – Rs.66.5 million, Gratuity – Rs.9.9 million and Leave Encashment – nil).

b) The above transitional liability is on account of the change in the method of valuation prescribed by AS - 15 (Revised) as per the Projected Unit Credit Method applied now as against the aggregate method used in the past.

c) The transitional liability up to March 31, 2007 of Rs. 76.4 million on account of employee benefits is amortised over a period of five years starting from 31 March 2008. A sum of Rs.15.3 million representing one fifth of the transitional liability has been charged to profit and loss account of the year ended March 31, 2008. The balance unrecognized liability of Rs.61.1million has been carried forward to be charged off in the next four years. The liability for the year 2007-2008 has been fully considered.

188

29. SEGMENT REPORTING (AS-17) The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17. I. Primary Segments: Business segments.

a) Treasury Operations b) Corporate / Wholesale Banking c) Retail banking d) Other banking business operations

II. Secondary Segments: Geographical segments.

Since the Bank is having domestic operations only, no reporting does arise under this segment.

SEGMENT RESULTS

Rupees in Millions Treasury Retail Banking Corporate / Other Banking Total

Wholesale Banking Operations Mar-10 Mar-09 Mar-08 Mar-10 Mar-09 Mar-08 Mar-10 Mar-09 Mar-

08 Mar-10 Mar-09 Mar-

08 Mar-10 Mar-09 Mar-08

Revenue 1,348.1 1,193.0 936.5 1,406.6 1,638.8 1,630.3 3,473.7 1,972.5 867.9 - 73.4 104.2 6,255.5 4,877.7 3,545.1 Results 168.2 253.3 190.8 162.5 359.0 381.6 271.4 432.1 203.1 - 73.4 104.2 602.1 1,117.8 879.7 Unallocated Expenses

215.4 238.8 434.7 Operating Profit 386.7 879.0 445.0 Total provisions 109.4 82.4 55.7 Tax Expenses 44.4 222.1 102.2 Extra ordinary items - - -Profit After Tax 233.0 574.5 284.6 Other Information Segment Assets 22,608.6 15,524.5 11,875.9 16,091.4 18,218.5 18,096.0 41,419.0 21,928.0 9,633.1 - - - 80,119.0 55,671.0 39,605.0 Unallocated Assets

749.9 757.2 724.9

Total Assets 80,868.9 56,428.2 40,329.8 Segment Liabilities 21,166.8 15,261.2 11,445.7 15,473.3 16,383.2 16,877.8 39,828.0 19,719.1 8,984.6 - - - 76,468.1 51,363.5 37,308.1 Unallocated Liabilities

4,400.8 5,064.7 3,021.8

Total Liabilities 80,868.9 56,428.2 40,329.9

189

30. PARTICULARS OF RELATED PARTY TRANSACTIONS (AS-18)

Rupees in Millions 31.03.2010 31.03.2009 31.03.2008

a) Key Management personnel b) Nature of transaction: Remuneration (including perquisites) Sri. P.S.Prasad Sri. Amitabh Chaturvedi Sri. A.D.Navaneethan Sri. P G Jayakumar Sri Bipin Kabra

1 Sri. Amitabh Chaturvedi Managing Director and Chief Executive Officer (MD and CEO)

3.6

1. Sri. P.S.Prasad* Managing Director and Chief Executive Officer (MD and CEO) 2.Sri.Amitabh Chaturvedi Managing Director and Chief Executive Officer (MD and CEO) (from 13.10.2008) 3. Sri. P G Jayakumar (General Manager) 4. Sri. Bipin Kabra (Chief Financial Officer) (from 17.01.2009)

0.8 1.8

0.8 0.2

1. Sri.A.D.Navaneethan ^ Part time Chairman 2. Sri.P.S.Prasad MD & CEO 3. Sri. P G Jayakumar (General Manager)

2.1

0.6 0.6

* Upto August 14, 2008 ^ Upto March 29, 2008

31. LEASE ACCOUNTING (Accounting Standard -19) The details of maturity profile of future operating lease payments are given below

Rupees in Millions Period 31.03.2010 31.03.2009

Not later than one year • Rented Premises • IT equipments

178.4 40.7

79.5 -

Later than one year and not later than five years • Rented Premises • IT equipments

534.2 81.4

92.6 -

Later than five years • Rented Premises • IT equipments

529.6 -

166.3 -

Total 1,364.3 338.4 Total minimum lease payments recognized in the Profit and Loss Account for the year

• Rented Premises • IT equipments

143.0 -

90.1 -

190

32. EARNINGS PER SHARE (Accounting Standard- 20)

Particulars 31.03.2010 31.03.2009 31.03.2008 Net Profit after tax available for equity share holders (Rs in millions) Weight average no. of equity shares for Basic EPS Weight average no. of equity shares for Diluted EPS Earnings per share (Basic) Earning per share(Diluted)

233.1

64,115,600 64,279,373

Rs. 3.64 Rs. 3.63

574.5

64,115,600 -

Rs.9.16 -

284.6

32,057,800 -

Rs.8.46 -

33. ACCOUNTING FOR TAXES ON INCOME (Accounting Standard- 22)

The major components of Deferred Tax are as follows:

Rupees in Millions Particulars Deferred tax asset Deferred tax liability

31.03.2010 31.03.2009 31.03.2008 31.03.2010 31.03.2009 31.03.2008 Depreciation on Assets

- - - 1.1 1.6 8.1

Leave Encashment

49.8 43.5 43.5 - - -

VRS Expenditure - - 2.4 - - - Total 49.8 43.5 45.9 1.1 1.6 8.1 Net balance 48.7 41.9 37.8 - - -

34. BANCASSURANCE BUSINESS

Rupees in Millions Sr. No. Nature of Income 31.03.2010

1 For selling life insurance policies 6.02 For selling non life insurance policies 1.1 3 For selling mutual fund products 9.3 4 Others 270.0 Total 286.4

Note: The Bancassurance business was commenced during the year ended March 31, 2010 and hence there was no income for the years ended March 31, 2009 and March 31, 2008.

35. Miscellaneous income for the year ended March 31, 2010 in schedule 14 includes Rs. 270.0 million

being Commitment Fee received from M/s. Bajaj Allianz towards Life and General Insurance with whom the Bank has entered into agency agreement for life and general insurance.(2008-09: 230.0 million; 2007-08: Nil)

36. The declaration of dividend is subject to RBI approval for the years ended March 31, 2010, March 31,

2009 and March 31, 2008. 37. Previous Years figures are regrouped / rearranged wherever necessary to conform to current year’s

classification.

38. BASEL II (PILLAR III) DISCLOSURES

TABLE DF 1 –SCOPE OF APPLICATION Qualitative Disclosures: a. The Dhanalakshmi Bank Limited has no subsidiaries. b. Not applicable since the Bank does not have any subsidiaries

191

Quantitative Disclosures: c. & d Since the Bank does not have any subsidiaries, there are no quantitative disclosures. TABLE DF 2- CAPITAL STRUCTURE Qualitative disclosures:

a. Summary

Tier I capital of the Bank includes Equity Share Capital (64,115,600 equity shares of Rs.10 each fully paid up), Reserves& Surpluses comprising of Statutory Reserves, Capital Reserves, Share Premium and balance in PROFIT AND LOSS account Tier II Capital includes Revaluation Reserve, Special Reserves, Standard Asset Provisions and Tier II Bonds. During the year, the Bank has issued Unsecured Redeemable Subordinated Non-Convertible Lower Tier-II Bonds in the nature of Promissory Notes (“Bonds”) amounting to Rs. 1,500 million with a tenor of 5 years 9 months.

Quantitative Disclosures:

Rupees in Millions Items 31.03.2010 31.03.2009

( a ) The amount of Tier I capital, with separate disclosure of : Paid-up share capital 641.2 641.2 Reserves 3,549.1 3,406.9 Innovative Instruments - 0 Other capital instruments - 0 Sub-total 4,190.3 4,048.1 Less amounts deducted from Tier I capital, including goodwill and investments.

48.7 41.9

Total Tier I capital 4,141.6 4,006.2 (b) The total amount of Tier 2 capital (net of deductions from Tier 2 capital)

1,970.6 475.5

(c ) Debt capital instruments eligible for inclusion in Upper Tier 2 capital � Total amount outstanding 0 0 � Of which amount raised during the current year 0 0 � Amount eligible to be reckoned as capital funds 0 0 (d ) Subordinated debt eligible for inclusion in Lower Tier 2 capital. Total amount outstanding 1,970.0 820.0 Of which amount raised during the current year. 1,500.0 0 Amount eligible to be reckoned as capital funds. 1,662.0 256.0 (e) Other deductions from capital, if any 0 (f) Total eligible capital- Tier I + Tier 2 (a+b-e) 6,112.2 4,481.7

TABLE DF 3 –CAPITAL ADEQUACY Qualitative disclosures: The Bank has put in place a robust Risk Management Architecture with due focus not only on Capital optimization, but also on Profit Maximisation. The Bank has put in place the “Internal Capital Adequacy Assessment Process” Policy. Capital requirement for current business levels and framework for assessing capital requirement for future business levels has been made. Capital need and capital optimization are monitored periodically by the Committee of Top Executives. The Top Executives deliberates on various options available for capital augmentation in tune with business growth. The Bank has worked out CRAR based on both Basel I and Basel II guidelines. The Bank maintains CRAR of more than 9% and Tier I CRAR of more than 6%. Besides, the Bank complies with the prudential floor for maintenance of capital as per the Revised Framework.

192


Rupees in Millions Items 31.03.2010 31.03.2009

(a) Capital requirements for credit risk � Portfolios subject to standardized approach 3,943.9

2,351.6 � Securitisation exposures -- -- (b) Capital requirements for market risk Standardized duration approach � Interest rate risk 50.6 43.8 � Foreign exchange risk(including gold) 6.8 6.8 � Equity position risk 1.1 1.3 (c) Capital requirements for operational risk � Basic Indicator Approach 232.2

219.0

(d) Total and Tier I CRAR for the Bank � Total CRAR (%) 12.99 15.38 �� Tier I CRAR(%) 8.80

13.75

(e) Total and Tier I CRAR for the consolidated Group � Total CRAR(%) NA NA � Tier I CRAR (%)] NA NA(f) Total and Tier I CRAR for the Significant subsidiary which are not under consolidated group

� Total CRAR(%) NA NA � Tier I CRAR (%) NA NA

TABLE DF 4 –CREDIT RISK: GENERAL DISCLOSURES Qualitative disclosures: (a) General : -

Definitions of past due and impaired (for accounting purposes) The Bank has adopted the definition of the past due and impaired (for accounting purposes) as defined by the Regulator for income recognition and asset classification norms. As per the prudential norms applied for income recognition, asset classification and provisioning, the bank considers following categories of loans and advances as non- performing assets, wherein: • Interests and/or instalment of principal remain overdue for a period of more than 90

days in respect of a Term loan

• The account remains ‘out of order’ in respect of an overdraft/ cash credit (OD/CC)

• The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.

• In case of agricultural advances, interest and /or instalment of principal remains overdue for 2 crop seasons(in respect of short duration crops) & 1 crop season(in respect of long duration crops)

• Any amount receivable that remains overdue for a period of more than 90 days in respect of other accounts.

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• Interest charged during any quarter is not serviced fully within 90 days from the end

of the quarter. Strategies and Processes for Credit Risk Management The Bank has put in place a comprehensive Credit Policy which is reviewed and revised periodically. The Credit Risk Management Policy forms part of the Credit Policy. The main objectives of the Credit Policy are: - • Maintain quality of loan assets.

• Ensure reasonable return on the assets.

• Ensure an acceptable risk profile.

• Achieve proper sectoral/geographical distribution of assets

• Compliance with regulatory norms in respect of exposure caps, pricing, IRAC

guidelines, targeted credit etc The Bank has defined segment wise exposure limits, industry wise exposure caps, individual and group borrower wise exposure caps. The operational processes and systems of the Bank relating to credit are built on sound credit risk management principles and are subjected to periodical review. In order to improve the quality of appraisals and to ensure accelerated response to customers, particularly in respect of high value credits, relationships and appraisal functions are segregated between the concerned branch and the core credit groups at zonal / central offices. Bank has revised many of its existing systems, procedures and structures with respect to Credit Approval Process, Credit Rating, Prudential Limits, Documentation, Credit Monitoring and Review Mechanism. Bank has a Credit Monitoring Policy and a Recovery Policy, which are reviewed from time to time. Bank has system in place for identification of credit weaknesses well in advance. A Loan Review Mechanism for constantly evaluating the quality of loan book, by way of review of sanctions made, renewal process, submission of monitoring reports, credit related MIS, is in place. The Bank has a Credit Mid Office Group which would take care of the security creation and account management and a Credit Monitoring & Review Department which would take care of the monitoring of the assets. Structure and Organization of the Risk Management function in the Bank The Bank has a Credit Risk Management Committee in place with representation from Risk, Credit Sanction & Monitoring, Business Heads, Policy & Research and the Committee is headed by the Managing Director& CEO of the Bank. CRMC discusses on adherence to prudential limits set, recommends to Board, policies on rating standards and benchmarks and monitors credit risk on a bank wide basis.

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GOVERNANCE STRUCTURE OF INTEGRATED RISK MANAGEMENT GROUP IN THE BANK

Risk Management Committee(Supervisory Committee of directors)

Board of Directors

Risk Management Committee(of executives)

Operational Risk Management Committee (ORMC)

Asset Liability management Committee(ALCO)

Integrated Risk Management Group(The organisation arm at corporate office)

Credit risk management committee(CRMC)

RISK MANAGEMENT IN THE BANK

Scope and Nature of Risk Reporting and/or Measurement Systems The Bank has developed a comprehensive risk rating system that serves as a single point indicator of diverse risk factors of counterparty and for taking credit decisions in a consistent manner. Risk Rating system is made applicable for loan accounts with total limits of Rs.0.2 million and above. Bank uses different rating models for different types of exposures. The Integrated Risk Management Group of the Bank validates the ratings of all exposures of Rs.2.5 million and above. The Group carries out an independent analysis of the various risks attached to the credit proposals including industry analysis. Bank also conducts migration analysis of the credit portfolio. Bank evaluates the asset quality by tracking the delinquencies and migration of borrower from one rating scale to another in various industry, business segment etc. Credit facilities are sanctioned at various levels in accordance with the delegation approved by the Board. The Bank has in place the following hierarchical sanctioning powers delegated for credit sanction and administration:

Branch Heads Zonal Credit Head Zonal Office Credit Committee (ZCC) Central Office Credit Committee (CCC) Management Committee of Directors (MC/ Board)

Representatives from Integrated Risk Management Group forms part of the core team of various ZCCs and the CCC. The bank has implemented a fully automated software solution to get system support for calculation of Risk Weighted Assets for CRAR computation and generate various credit related reports for review of exposure and monitoring, and conducting analysis of credit portfolio from various angles. Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants

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The Bank has put in place a Board approved policy on Credit Risk Mitigation techniques and collateral management, covering the credit risk mitigation techniques used by the Bank for both risk management and capital computation purposes. Apart from the Basel defined collateral, the Bank ensures securities by way of inventories, Book Debts, plant & machineries, Land& Buildings and other moveable/immovable assets/properties. The Bank also accepts personal/corporate guarantee as an additional comfort for credit risk mitigation. The securities are subjected to proper valuation as prescribed in the Credit Policy of the Bank. Bank has laid down detailed guidelines on documentation to ensure legal certainty of Bank’s charge on collaterals. The Bank has an exclusive set up for Credit monitoring functions in order to have greater thrust on post sanction monitoring of loans and strengthen administering the various tools available under the Bank’s policies on loan review mechanism. For effective loan review, the Bank has the following in place: -

On site monitoring tools like Inspection of assets/ books/stock of the borrower, stock audit, operations in the account, payment of statutory dues etc.

Credit Audit system to identify, analyse instances of non-compliance and rectification

Recording of loan sanctioned by each sanctioning authority by the next higher authority.

Off site monitoring tools like Financial Follow Up Reports, verification of various statutory returns, Audit Reports etc.

Credit monitoring functions is divided into pre-disbursement, during disbursement and post disbursement.

Quantitative disclosures:

(a) Total Gross credit exposures: (After accounting offsets in accordance with applicable

accounting regime and without taking into account the effects of credit risk mitigation techniques e.g. Collateral and netting)

Rupees in Millions

Overall credit

exposure

31.03.2010 31.03.2009 TOTAL 31.03.2010

TOTAL 31.03.2009

Fund Based Loans and advances

50,838.4 32,452.9 53,590.0 33,865.5

Others(Fixed Assets and other Assets)

2,751.6 1,412.6

Non Fund Based

Letter of Credit, Bank Guarantee

1,664.7 1,250.1 1,829.5

1,359.5

Forward Contracts

63.0 17.5

Others 101.8 91.9 Investments (Banking Book only)

-- 17,044.4 6,066.6 17,044.4 6,066.6

Total of Credit Risk exposure

-- -- 72,463.9 41,291.6

(b) Geographic distribution of exposures:

Rupees in Millions Exposures 31.03.2010 31.03.2009

Fund based

Non Fund Based

TOTAL Fund Based

Non-fund based

TOTAL

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Exposures 31.03.2010 31.03.2009 Fund based

Non Fund Based

TOTAL Fund Based

Non-fund based

TOTAL

Domestic operations

70,634.4 1,829.5 72,463.9 39,932.1 1,359.5 41,291.6

Overseas operations

Bank has no overseas operations

(c) Industry type distribution of exposures:

Rupees in Millions Sl no Industry Fund Based Outstanding NFB Outstanding

31.03.10 31.03.09 31.03.08 31.3.10 31.03.09 31.03.08 2.1 Mining and Quarrying 27.0 -- 6.2 -- -- -- 2.2 Food Processing 265.9 187.2 192.3 -- 1.9 1.9 2.2.1 Sugar 21.6 21.4 21.9 -- -- -- 2.2.2 Edible oils and vanaspati 10.7 15.5 14.1 -- -- -- 2.2.3 Tea -- -- -- -- -- -- 2.2.4 Others -- -- -- -- -- -- 2.3 Beverage & Tobacco -- -- -- -- -- -- 2.4.1 Textiles -- -- -- -- -- -- 2.4.2 Cotton Textiles 1,387.6 1,538.8 581.4 6.1 8.4 24.7 2.4.3 Jute Textiles -- -- -- -- -- -- 2.5

Leather & Leather products

-- -- -- -- -- --

2.6

Wood and Wood Products

-- -- -- -- -- --

2.7 Paper & paper products 1,322.8 23.4 50.5 -- -- 5.5 2.8 Petroleum, coal products

and nuclear fuels -- -- -- -- -- --

2.9 Chemicals and chemical products

1,364.4 607.5 520.2 104.4 4.8 123.3

2.9.1 Fertilizer 440.0 -- -- -- 0.4 0.42.9.2 Drugs &

pharmaceuticals 760.8 112.9 95.5 -- -- --

2.9.3 Petro chemicals -- -- 9.1 -- -- -- 2.9.4 Others -- -- -- -- -- -- 2.10 Rubber, plastic & their

products 559.1 684.0 614.8 -- -- --

2.11 Glass and glassware -- -- -- -- -- -- 2.12 Cement and cement

products 1,400.0 -- - -- -- --

2.13 Basic metal & metal products

-- -- -- -- -- --

2.13.1 Iron and steel -- -- - -- -- -- 2.13.2 Other metal and metal

products 250.0 12.3 302.9 -- -- 63.3

2.14 All engineering 1,663.5 459.2 610.9 7.7 18.3 18.32.14.1 Electronics -- -- -- -- -- -- 2.14.2 Others -- -- -- -- -- -- 2.15 Vehicles, vehicle parts

and transport equipments 200.0 -- -- -- -- --

2.16 Gems & Jewellery 1,081.3 1,354.2 524.3 65.0 85.0 -- 2.17 Construction 207.8 388.7 470.6 -- 95.1 22.4 2.18 Infrastructure 11,279.6 5,330.1 1,831.6 142.6 107.0 95.0 2.18.1 Power 3,548.9 1,456.4 812.8 -- -- -- 2.18.2 Telecommunications 1,550.0 -- -- -- -- -- 2.18.3 Roads & ports 712.5 47.8 53.4 -- -- -- 2.18.4 Other infrastructure -- -- -- -- -- -- 2.19 Other Industries ( Total

of small, medium and large scale)

42,580.8

27,692.8 256.7 1,503.7 1,038.7 19.7

Total 70,634.3 39,932.2 6969.2 1,829.5 1,359.6 374.5

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(d) Residual maturity breakdown of assets:

Rupees in Millions Maturity Pattern

Advances 31.03.2010

Advances 31.03.2009

Investments 31.03.2010

Investments 31.03.2009

Foreign Currency 31.03.2010

Foreign Currency 31.03.2009 Assets

Day 1 953.7 1,291.2 - 17.3 2.4 136.0 2 to 7 Days

605.7 602.2 - 1,744.5 990.9 159.0

8 to 14 days

630.2 631.0 249.7 - - 52.9

15 to 28 days

953.8 260.5 713.9 3,392.0 - 30.4

29 days up to 3 months

3,562.5 2,631.1 411.8 3,187.4 220.2 63.9

Over 3 months and up to 6 months

3,590.9 1,461.6 732.9 901.4 46.7 2.9

Over 6 months and up to 1 year

5,804.2 2,900.1 182.0 1,352.4 12.0 -

Over 1 year and up to 3 years

15,787.7 13,384.6 41.2 161.8 - -

Over 3 years and up to 5 years

11,181.6 2,903.6 2,113.2 346.3 - -

Over 5 years

6,992.4 5,894.7 15,833.2 4,570.5 - -

Total 50,062.6 31,960.6 20,277.9 15,673.6 1,272.2 445.1

(e) Non-performing assets: Rupees in Millions

No Items Amount 31.03.2010 31.03.2009 31.03.2008

1 Gross NPAs 775.0 644.3 632.1 1.1 Substandard 355.7 233.0 123.9 1.2 Doubtful 1 101.4 49.3 64.5 1.3 Doubtful 2 81.0 105.3 85.5 1.4 Doubtful 3 103.3 162.4 239.0 1.5 Loss 133.6 94.3 119.2 2 Net NPAs 775.0 282.4 185.6 3 NPA Ratios 3.1 Gross NPAs to Gross Advances (%) 1.54 1.99 2.95 3.2 Net NPA s to Net Advances (%) 0.84 0.88 0.88 4 Movement of NPAs (gross) 4.1 Opening balance 644.3 632.1 962.9 4.2 Additions 521.6 374.5 158.5 4.3 Reductions 390.9 362.3 489.3 4.4 Closing balance 775.0 644.3 632.1 5 Movement of provisions for NPAs 5.1 Opening balance 355.5 440.0 633.95.2 Provisions made during the year 128.5 *120.5 111.4 5.3 Write-off 30.8 122.2 305.3 5.4 Write back of excess provisions 106.3 82.8 5.5 Closing balance 346.9 355.5 440.0

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No Items Amount 31.03.2010 31.03.2009 31.03.2008

6 Amount of non-performing investments 74.45 80.25 42.09 7 Amount of provisions held for non –

performing investments 74.45 80.25 42.09

8 Movement of provisions for depreciation on investments 8.1 Opening balance 80.3 75.4 54.18.2 Provisions made during the period - 59.2 33.1 8.3 Write-off/ Write back of excess provisions 5.8 54.3 11.8 8.4 Closing balance 74.5 80.3 75.4

* Includes floating provision of Rs.20.0 million

Table DF 5- Disclosures for portfolios subject to the standardized approach Qualitative disclosures: (a) For Portfolios under the standardized approach

1 Names of

credit rating agencies used

Domestic Rating Agencies: CRISIL, CARE, FITCH, ICRA. International Credit rating agencies: Standard and poor, Moody’s, FITCH

2 Changes if any, since prior period disclosure in the identified rating agencies and reasons for the same.

No change

3 Types of exposure for which each agency is used

All the above identified Rating Agency rating are used for various types of exposures as follows : (i) For Exposure with a contractual maturity of less than or equal to one year (except Cash Credit, Overdraft and other Revolving Credits), Short -Term Rating given by ECAIs will be applicable (ii) For Domestic Cash Credit, Overdrafts and other Revolving Credits (irrespective of the period ) and / or Term Loan exposures of over one year, Long Term Rating will be applicable. (iii) For Overseas exposures, irrespective of the contractual maturity, Long Term Rating given by IRAs will be applicable. (iv) Rating assigned to one particular entity within a corporate group cannot be used to risk weight other entities within the same group.

4 Description of the process used to transfer public issue rating on to comparable assets in the banking book.

Long –term Issue Specific (our own exposures or other issuance of debt by the same borrower-constituent/counter-party) Ratings or Issuer(borrower-constituent/counter-party) Ratings can be applied to other unrated exposures of the same borrower-constituent/counterparty in the following cases : (i) If the Issue Specific Rating or Issuer Rating maps to Risk Weight equal to or higher than the unrated exposures, any other unrated exposure on the same counter-party will be assigned the same Risk Weight, if the exposure ranks pari passu or junior to the rated exposure in all aspects (ii) In cases where the borrower-constituent/counter-party has issued a debt (which is not a borrowing from our Bank), the rating given to that debt may be applied to Bank’s unrated exposures if the Bank’s exposure

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ranks pari-passu or senior to the specific rated debt in all respects and the maturity of unrated Bank’s exposure is not later than Maturity of rated debt.

Quantitative disclosures

Amount of bank’s outstandings (rated & unrated) in major risk buckets- under standardized approach after factoring risk mitigants (i.e., collaterals):

Rupees in Millions Particulars 31.03.2010 31.03.2009

Fund based

Non fund based

Total Fund based

Non fund based

Total

Below 100% risk weight 40,724.5 408.9 41,133.4 21,883.7 297.2 22,180.9100% risk weight 27,593.7 1,420.6 29,014.3 16,983.2 1,019.8 18,003.0More than 100% risk weight 2,316.2 - 2,316.2 1,065.2 42.5 1,107.7Total Exposure 70,634.4 1,829.5 72,463.9 39,932.1 1,359.5 41,291.6 Deducted (Risk mitigants)

Below 100% RW

2,523.1 - 2,523.1 1,733.7 - 1,733.7

100% RW 42.6 - 42.6 1,254.6 - 1,254.6More than 100% RW

932.5 - 932.5 890.0 - 890.00

Net Exposure 67,136.1 1,829.5 68,965.7 36053.8 1,359.5 37,413.3 TABLE DF 6 –CREDIT RISK MITIGATION- STANDARDIZED APPROACH QUALITATIVE DISCLOSURE: (a) General

Policies and processes for collateral valuation and management: The Bank has put in place a Board approved policy on Credit Risk Mitigation techniques and collateral management, covering the credit risk mitigation techniques used by the Bank for both risk management and capital computation purposes.

A description of the main types of collateral taken by the Bank Collateral used by the Bank as risk mitigants for capital computation under Standardized Approach comprise eligible financial collaterals namely: -

Cash and fixed deposits of the counterparty with the Bank.

Gold: value arrived at after notionally converting these to 99.99% purity.

Securities issued by Central and State Governments.

Kisan Vikas Patra and National Savings Certificates.

Life Insurance Policies restricted to their surrender value.

Debt securities rated by an approved Rating Agency.

Unrated debt securities issued by banks, listed in Stock Exchange.

Units of Mutual Funds.

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Bank has no practice of on balance sheet netting for credit risk mitigation. The main types of guarantor counterparty and their creditworthiness Bank accepts guarantees of individuals or corporates of adequate networth, as an additional comfort for mitigation of credit risk which can be translated into a direct claim on the guarantor and are unconditional and irrevocable.

Main types of guarantor counterparty as per RBI guidelines are: -

Sovereigns (Central/ State Governments)

Sovereign entities like ECGC, CGTSI

Other entities rated AA (-) and above. The Guarantees has to be issued by entities

with a lower risk weight than the counterparty.

Information about risk concentrations of collaterals concentration within the mitigation taken:

Rupees in Millions Financial Risk

Mitigants

Outstanding Covered by Risk Mitigants

Risk Concentration %

31.03.2010 31.03.2009 31.03.2010 31.03.2009 Gold 5,262.8 4,827.4 54.35 60.43 Cash & Bank Deposits 4,376.2 3,101.7 45.20 38.83 KVP/IVP/NSC 37.8 50.1 0.39 0.63 LIC Policy 5.7 9.0 0.06 0.11 Total 9,682.5 7,988.2 100.0 100.0

Majority of the financial collaterals held by the Bank are by way of Gold, own deposits, Life Insurance Policies and other approved securities. Bank does not envisage market liquidity risk in respect of financial collaterals.

Concentration on account of collateral is also relevant in the case of land& building. However, as land & building is not recognized as eligible collateral under Basel II, its value is not reduced from the amount of exposure in the process of computation of capital charge. It is used only in the case of housing loan to individuals and non performing assets to determine the appropriate risk weight. As such, there is no concentration risk on account of nature of collaterals. Quantitative Disclosures: For the disclosed Credit Risk portfolio under the Standardised Approach, the total Exposure that is covered by : (i) Eligible Financial Collateral : Rs. 9,682.5 Million (ii) Other eligible Collateral (after Hair Cuts) : Rs. Nil

DF TABLE 7- SECURITISATION – STANDARDIZED APPROACH:

Qualitative Disclosures:

Bank has not securitized any of its standard assets till date. However the Bank has sold Non

performing assets, either written off or otherwise. The Bank has outstanding investment of Rs.8.18 crores in 10 % IFMR Trust A2 series Pass Through Certificates of M/s Equita Micro Finance India Pvt. Ltd. The same is rated by CRISIL. The PTCs is subjected to market risk capital charge and is primarily made with an earnings perspective.

Bank will not assume any credit, operational or legal risk post sale of NPAs. The effect of sale of the financial asset will be that the asset is taken off from the books of the Bank and after the sale there is no known liability devolving on the bank.

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Sale will not be backed by any commitment or credit support in the nature of credit

enhancement or liquidity support.

Sale will not be made contingent upon realization by the purchaser and the Bank will not be responsible for the shortfall.

Quantitative disclosure

d) Details of portfolio of assets sold to M/s Pridhvi Asset Reconstruction and Securitisation

Company Ltd which has been fully written off in the books of account are as under.

Rupees in Millions (except for number of accounts) Type Number of accounts Balance written off

31.03.2010 31.03.2009 31.03.2010 31.03.2009 NBFC

NIL

1.1

NIL

153.1 Textile 0.1 20.7 Cement 0.1 30.0 IT 0.1 30.8 Steel 0.1 109.6 Other industries 0.3 31.1 Personal group consumer durable loans

0.4 25.9

Trade accounts 0.2 7.5 Total 2.4 408.7

DF TABLE 8 - MARKET RISK IN TRADING BOOK- STANDARDIZED MODIFIED DURATION APPROACH:

Qualitative Disclosures: (a) General : -

Strategies and processes Market Risk management functions of the Bank are guided by various policies like Integrated Treasury Policy and Asset Liability Management Policy. Bank has an independent Mid-Office for market risk management functions like monitoring of adherence to set limits, independent valuation and reporting of activities. Mid- Office reports to Head of Integrated Risk Management Group. The Asset Liability Committee is responsible for establishing market risk management and asset liability management in the Bank, procedures thereof, monitoring adherence to prudential limits, interest rate risk management etc. The overall objective of market risk management is to create shareholder value by improving the bank’s competitive advantage and reducing loss from all types of market risk loss events. Scope and nature of risk reporting/ measurement systems The Bank has put in place regulatory/ internal limits for various products and business activities relating to trading book. Various exposure limits for market risk management such as overnight limit, VaR limit, Daylight limit, Aggregate Gap limit, Investment limits etc. are in place. The reporting system ensures timelines, reasonable accuracy with automation, highlight portfolio risk concentrations and include written analysis. The reporting formats and frequency are periodically reviewed to ensure that they suffice for risk monitoring, measuring and mitigation requirements of the Bank. Bank also subjects non-slr investments to credit rating. Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants:

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Board approved policies viz., Integrated Treasury Policy and Asset Liability Management Policy provides the framework for risk assessment, identification, measurement and mitigation, risk limits & triggers, risk monitoring and reporting. Liquidity risk of the Bank is assessed through Statement of Structural Liquidity on static basis and statement of Short term Dynamic Liquidity on dynamic basis. Structural Liquidity position is assessed on daily basis and dynamic liquidity position is assessed on a fortnightly basis. Interest Rate risk is analysed from earning perspective using Traditional Gap Analysis on a fortnightly basis and economic value perspective using Duration Gap Analysis on a quarterly basis. Stress tests are conducted at quarterly intervals to assess the impact of various contingencies on the capital of the Bank. The portfolio covered by Standardized Duration approach for computation of market risk capital charge are investment portfolio held under HFT and AFS, Gold and Forex Open positions.


Rupees in Millions Particulars Amount of capital requirement

31.03.2010 Amount of capital requirement

31.03.2009 Interest rate risk 50.6 43.9 Equity position risk

1.1 1.3

Foreign exchange risk

6.8 6.5

TABLE DF 09-OPERATIONAL RISK: Qualitative disclosures: (a) General

Strategies and processes: -Bank has put in place a framework for Operational Risk Management with a well-defined Operational Risk Management (ORM) Policy. The ORM Committee at the executive level oversees bank-wide implementation of Board approved policies and process in this regard. The Committee meets at least once in a quarter. All new products and processes of the Bank are risk vetted from the view point of operational risk, before implementation. The Bank is conducting Risk Control Self Assessment (RCSA) in critical business as well as Centralised activities. Risk Based Internal Audit is in place in all the Branches. The Bank has put in place important policies like Information System Security, Know Your Customer & Anti Money Laundering, Fraud Risk Management, Business Continuity and Disaster Recovery Management. Scope and nature of risk reporting/ measurement systems: - The risk reporting consists of operational risk loss incidents/ events occurred in branches/ offices relating to people, process, technology and external events. The bank has implemented a software solution which is a modular Operational risk management solution which satisfies end-to-end operational risk management requirements (quantitative and qualitative). The Loss Data Methodology document which describes the approach for collection of Loss Data was adopted, which will enable the Bank to eventually ease the transition to Advanced Measurement Approach. Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Internal control mechanism is in place to control and minimize the operational risks. Bank is using insurance for mitigating operational risk. The various Board approved policies viz., Operational Risk Management Policy, Outsourcing Policy, Compliance Policy, Internal

203

Inspection & Audit Policy, Internet Banking Security Policy; Information Systems Security Policy and Business continuity Plans addresses issues pertaining to Operational Risk Management. Operational Risk capital assessment:

The Bank has adopted Basic Indicator Approach for calculating capital charge for Operational Risk, as stipulated by the Reserve Bank of India. Bank has initiated steps to move on to the Advances Measurement Approach in due course.

TABLE DF 10- Interest rate risk in the Banking Book (IRRBB):

Qualitative Disclosures:

Strategies and processes

The Bank has put in place a comprehensive market risk management framework to address market risks. The Asset Liability Management Policy prescribes various methodologies like Earnings at Risk to assess the impact of interest rate change on the Net Interest Income of the Bank and Duration Gap Analysis to assess the impact of interest rate risk in the Banking Book. The framework for managing interest rate risk in the Banking Book under Pillar II of Basel II is put in place by the ICAAP Policy. The Bank calculates the impact on the Market Value of Equity by Duration Gap Analysis quarterly.

Scope and nature of risk reporting/ measurement systems

Interest rate risk in the Banking Book is measured and Modified Duration of Equity is evaluated on a quarterly basis. The likely drop in Market Value of Equity for a 200 bps change in interest rates is computed. Earnings at Risk based on Traditional Gap Analysis are calculated on a fortnightly basis and adherence to tolerance limits set in this regard is monitored and reported to ALCO. Stress tests are conducted to assess the impact of interest rate risk under different stress scenarios on earnings of the Bank. Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants

Bank has operationalised mitigating/hedging measures prescribed by Integrated Treasury Policy, ALM Policy and Stress Testing Policy. The strategy adopted by ALCO for mitigating the risk is by clearly articulating the acceptable levels of exposure to specific risk types (interest rate, liquidity etc). The process for mitigating the risk is initiated by altering the mix of asset and liability composition, change in interest rates etc. Brief description of the approach used for computation of interest rate risk and nature of IRRBB

The interest rate risk in Banking Book is computed through Duration Gap Analysis. The various assumptions used are as follows: -

Items such as capital, reserves & surplus, bills payable, inter-office adjustment, provisions are treated as non rate sensitive.

Similarly items such as cash, current account, fixed assets are considered to be non rate sensitive.

The midpoint of each time bucket is considered as the proxy for the maturity of all assets and liabilities in that time bucket.

The Bank uses market yields and coupons for various instruments and they are mapped to the same set of products for respective maturities.

The frequency of coupon payment is assumed to be annual.

204

The basis for interest calculation for each time bucket is assumed to be ‘actual / actual’

The Bank has also carried out studies to adopt Economic Value Approach for its additional

capital calculation under Pillar II. Under this approach, the Bank’s interest rate risk is indicated by comparing the weighted average duration of assets (DA) with the weighted average duration of liabilities (DL) to arrive at the duration of the gap (equity). As with GAP analysis, the sign and magnitude of DGAP provides the impact of interest rate changes on the Economic Value of Equity (EVE).

Modified Durations of each category of assets and liabilities are computed for all the time buckets using the maturity date, coupon, yield, frequency and basis for interest calculation.

Quantitative Disclosures

The impact on earnings and economic value of equity for notional interest rate shocks as on 31.03.2009.

Earnings at Risk

Rupees in Millions

Change in interest rate Change in EaR + 25 bps 20.2 + 50 bps 40.4 + 75 bps 60.5 + 100 bps 80.7

The Bank is computing market value of equity based on Duration Gap Analysis.

For a 200 bps rate shock, the drop in equity value as on 31.03.2010 19.27%

Prudential floor limit for minimum capital requirements: The guidelines for implementation of the New capital adequacy framework issued by RBI, stipulates higher of the following amounts as minimum capital required to be maintained by the bank. (a) Minimum capital as per Basel II norms for Credit, Market and Operational risks. (b) Minimum capital as per Basel I norms for Credit and market risks

The minimum capital required to be maintained by the Bank as on 31.03.2010 as per Basel I norms is Rs. 4,410.6 Million and as per Basel II norms is Rs. 4,234.6 Million. Capital (Tier I and Tier II) maintained by the Bank as on 31.03.2010 is Rs. 6,112.2 Million, which is above the prudential floor limit.

THE DHANALAKSHMI BANK LIMITED

Registered and Corporate Office Dhanalakshmi Building

Naickanal Thrissur – 680 001

Kerala

BOOK RUNNING LEAD MANAGERS

IDFC Capital Limited

Naman Chambers C-32, G-Block, Bandra-Kurla Complex

Bandra (East) Mumbai 400 051

JM Financial Consultants Private Limited

141, Maker Chamber III Nariman Point

Mumbai 400 021

______________________________________________________________________________________ DOMESTIC LEGAL ADVISORS TO THE ISSUE

Amarchand & Mangaldas & Suresh A. Shroff & Co.

Peninsula Chambers, Peninsula Corporate Park Ganpatrao Kadam Marg, Lower Parel

Mumbai 400 013

INTERNATIONAL LEGAL ADVISOR TO BOOK RUNNING LEAD MANAGERS

Dorsey and Whitney, LLP 50 South Sixth Street

Suite 1500 Minneapolis, Minnesota 55402-1498

USA

AUDITORS TO THE BANK

Walker Chandiok & Co. 6th Floor, Engineering Centre, 9 Matthew Road, Opera House,

Mumbai 400 004

Sharp & Tannan Ravindra Annexe

194, Churchgate Reclamation, Dinshaw Vachha Road,

Mumbai 400 020