Dhanlaxmi Bank Limited

Preliminary Placement Document Not for Circulation Serial Number: [ ●] Strictly Confidential

DHANLAXMI BANK LIMITED

(A public company incorporated in the Republic of India with limited liability under the Companies Act, 1913 with corporate identification number L6519KL1927PLC000307 and a scheduled commercial bank within the meaning of the Reserve Bank of India Act, 1934 (the “RBI Act ”).

Dhanlaxmi Bank Limited (the “Issuer ” or the “ Bank ”) is issuing up to [●] equity shares of face value of ` 10 each (the “ Equity Shares ”) at a price of ` [] per Equity e sole purpose of inviting Bids from Share, including a premium of ` [●] per Equity Share, aggregating up to ` [●] million (the “ Issue ”). iting an offer to buy securities in any ISSUE IN RELIANCE UPON CHAPTER VIII OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE “SEBI REGULATIONS”)

THIS ISSUE AND THE DISTRIBUTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IS IN RELIANCE UPON CHAPTER VIII OF THE SEBI REGULATIONS. THIS PRELIMINARY PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT

anged. CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC, OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN OR OUTSIDE INDIA OTHER THAN TO QUALIFIED INSTITUTIONAL BUYERS (“QIBs”), AS DEFINED IN THE SEBI REGULATIONS.

Invitations, offers and sales of Equity Shares shall be made only pursuant to this Preliminary Placement Document, the Application Form and the Confirmation of Allocation Note. For further information, see the section titled “Issue Procedure” on page 151 . The distribution of this Preliminary Placement Document or the disclosure of its contents without the prior consent of our Bank to any person, other than QIBs, and persons retained by QIBs to advise them with respect to their purchase of the Equity Shares, is unauthorised and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and not to make copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document.

mplete and may be ch be and may mplete 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 BSE Limited (the “BSE”), the National Stock Exchange of India Limited (the “NSE”), the Cochin Stock Exchange Limited (the “CSE”, and together with the BSE and the NSE, the “Stock Exchanges”) or any other regulatory or listing authority and is intended for use by QIBs only. This Preliminary Placement Document has not been and will not be registered as a prospectus with the Registrar of Companies in India, and will not be circulated or distributed to the public

s not an offer to sell securities, and is not solic in India or any other jurisdiction and will not constitute a public offer in India or any other jurisdiction. The placement of Equity Shares proposed to be made quity quity Shares of our Bank and is being issued for th pursuant to this Preliminary Placement Document is meant solely for QIBs on a private placement basis and is not an offer to the public or to any other class of investors.

Investments in equity shares involve a degree of risk, and prospective investors should not invest in this Issue unless they are prepared to take the risk of losing all or part of their investment. Prospective investors are advised to read the section titled “Risk Factors” on page 32 carefully before taking an investment decision related to this Issue. Each prospective investor is advised to consult its advisors about the consequences of its investment in the Equity Shares being issued pursuant to this Preliminary Placement Document.

The information on our website or any website directly or indirectly linked to our website does not form part of this Preliminary Placement Document and prospective investors should not rely on such information contained in, or available through, such websites for their investment in this Issue.

Our outstanding Equity Shares are listed on the BSE, the NSE and the CSE. However, our Equity Shares have not been traded on the CSE since 2002. Applications shall be made for the listing of the Equity Shares offered through this Preliminary Placement Document on 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 our Bank or the Equity Shares.

YOU ARE NOT AUTHORIZED TO AND MAY NOT (1) DELIVER THIS PRELIMINARY PLACEMENT DOCUMENT TO ANY OTHER PERSON; OR (2)

on in this Preliminary Placement Document is co not is Document Placement thison in Preliminary 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 SEBI REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS.

A copy of this Preliminary Placement Document has been delivered to each of the Stock Exchanges. A copy of the Placement Document will be filed with each of the Stock tute a public offer to any person to purchase the E Exchanges. o this Issue. This Preliminary Placement Document i THIS PRELIMINARY PLACEMENT DOCUMENT HAS BEEN PREPARED BY OUR BANK SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH THE PROPOSED ISSUE OF THE EQUITY SHARES DESCRIBED IN THIS PRELIMINARY PLACEMENT DOCUMENT.

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 (the “Regulation S ”) under the Securities Act), 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 only outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdiction where those offers and sales occur. For further information, see “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on page 161 and 165, respectively.

This Preliminary Placement Document is dated December 20, 2013

BOOK RUNNING LEAD MANAGER

such offer or sale is not permitted. The informati permitted. Thenot sale oris offer such

where Elara Capital (India) Private Limited Indiabulls Finance Centre Tower 3, 21st Floor Parel, Mumbai 400 013 This Preliminary Placement Document does not consti jurisdiction QIBs for the Equity Shares being offered pursuant t Telephone: +91 22 30328599 Facsimile: +91 22 30328589 TABLE OF CONTENTS

NOTICE TO INVESTORS...... 1 REPRESENTATIONS BY INVESTORS ...... 3 OFFSHORE DERIVATIVE INSTRUMENTS...... 8 DISCLAIMER CLAUSE OF THE STOCK EXCHANGES ...... 9 PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... 10 INDUSTRY AND MARKET DATA...... 12 FORWARD-LOOKING STATEMENTS ...... 13 ENFORCEMENT OF CIVIL LIABILITIES ...... 15 EXCHANGE RATES...... 16 CERTAIN DEFINITIONS AND ABBREVIATIONS...... 17 SUMMARY OF BUSINESS ...... 22 SUMMARY OF THE ISSUE ...... 27 SELECTED FINANCIAL INFORMATION OF OUR BANK ...... 29 RISK FACTORS ...... 32 USE OF PROCEEDS ...... 54 CAPITALISATION ...... 55 MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE EQUITY SHARES ...... 56 DIVIDEND POLICY ...... 59 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 60 INDUSTRY OVERVIEW...... 88 OUR BUSINESS...... 102 SELECTED STATISTICAL INFORMATION...... 121 REGULATION AND POLICIES ...... 132 BOARD OF DIRECTORS AND SENIOR MANAGEMENT...... 139 PRINCIPAL SHAREHOLDERS...... 148 ISSUE PROCEDURE ...... 151 PLACEMENT...... 159 SELLING RESTRICTIONS ...... 161 PURCHASER REPRESENTATIONS AND TRANSFER RESTRICTIONS ...... 165 THE SECURITIES MARKET OF INDIA ...... 166 DESCRIPTION OF THE SHARES...... 169 STATEMENT OF TAX BENEFITS...... 173 LEGAL PROCEEDINGS...... 181 OUR AUDITORS ...... 183 GENERAL INFORMATION...... 184 FINANCIAL STATEMENTS ...... 185 DECLARATION ...... 275 NOTICE TO INVESTORS

Our Bank has furnished and accepts full responsibility for the information contained in this Preliminary Placement Document and to the best of our knowledge and belief, having made all reasonable enquiries, we confirm that this Preliminary Placement Document contains all information with respect to our Bank and the Equity Shares, which is material in the context of this Issue. The statements contained in this Preliminary Placement Document relating to our Bank and the Equity Shares are, in all material respects, true and accurate and not misleading, the opinions and intentions expressed in this Preliminary Placement Document with regard to our Bank and the Equity Shares are honestly held, have been reached after considering all relevant circumstances, are based on information presently available to us and are based on reasonable assumptions. There are no other facts in relation to our Bank 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. The Book Running Lead Manager has not separately verified all the information contained in this Preliminary Placement Document (financial, legal or otherwise). Accordingly, neither the Book Running Lead Manager nor any of its respective members, 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 the Book Running Lead Manager, as to the accuracy or completeness of the information contained in this Preliminary Placement Document or any other information supplied in connection with the issue of Equity Shares or their distribution. Each person receiving this Preliminary Placement Document acknowledges that such person has neither relied on the Book Running Lead Manager nor on any person affiliated with the Book Running Lead Manager in connection with its investigation of the accuracy of such information or representation, or its investment decision, and each such person must rely on its own examination of our Bank and the merits and risks involved in investing in the Equity Shares issued pursuant to the Issue.

No person is authorised 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 authorised by or on behalf of our Bank or the Book Running Lead Manager. The delivery of this Preliminary Placement Document at any time does not imply that the information contained in it is correct as at any time subsequent to its date.

The Equity Shares have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission, any state securities commission in the United States or the securities commission of any non-U.S. jurisdiction or any other U.S. or non-U.S. regulatory authority. None of these authorities has passed on or endorsed the merits of this Issue or the accuracy or adequacy of this Preliminary Placement Document. Any representation to the contrary is a criminal offence in the United States and may be a criminal offence in other jurisdictions.

The Equity Shares have not been recommended by any foreign federal or state securities commission or regulatory authority. 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 authorised or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by our Bank and the Book Running Lead Manager which would permit an issue of the Equity Shares or distribution of this Preliminary Placement Document in any 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 other Issue-related materials 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 Equity Shares are transferable only in accordance with the restrictions described in the section titled “Selling Restrictions” on page 161. All purchasers will be required to make the applicable representations set forth in the section titled “Purchaser Represenations and Transfer Restrictions” on page 165.

The information contained in this Preliminary Placement Document has been provided by our Bank and other sources identified herein. Distribution of this Preliminary Placement Document to any person other than the investor specified by the Book Running Lead Manager or their representatives, and those persons, if any, retained to advise such investor with respect thereto, is unauthorised, and any disclosure of its contents, without prior written consent of our Bank, is prohibited. Any reproduction or distribution of this Preliminary Placement Document, in whole or in part, and any disclosure of its contents to any other person is prohibited.

The distribution of this Preliminary Placement Document and the issue of the Equity Shares in certain jurisdictions may be restricted by law.

In making an investment decision, investors must rely on their own examination of our Bank and the terms of this 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, investment, legal, tax, accounting and related matters concerning this Issue. In addition, neither our Bank nor the Book Running Lead Manager is making any representation to any investor, purchaser, offeree or subscriber of the Equity Shares in relation to this Issue regarding the legality of an investment in the Equity Shares in this Issue by such investor, subscriber or purchaser under applicable legal, investment or similar laws or regulations. Each such investor, subscriber, offeree or purchaser of the Equity Shares in this Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in our Bank under Indian law, including Chapter VIII of the SEBI Regulations and is not prohibited by SEBI or any other statutory, regulatory or judicial authority in India or any other jurisdiction from buying, selling or dealing in securities.

This Preliminary Placement Document contains summaries of certain terms of certain documents, which summaries are qualified in their entirety by the terms and conditions of such documents.

The information on our website, www.dhanbank.com, or on the website of the Book Running Lead Manager, does not constitute or form part of this Preliminary Placement Document. Prospective investors should not rely on the information contained in, or available through such websites.

REPRESENTATIONS BY INVESTORS

All references to “you” or “your” in this section are to the prospective investors in the Issue. By Bidding for and subscribing to any of the Equity Shares under the Issue, you are deemed to have represented, warranted, acknowledged and agreed to our Bank and the Book Running Lead Manager, as follows:

• you (i) are a QIB as defined under Regulation 2(1)(zd) of the SEBI Regulations, (ii) have a valid and existing registration under applicable laws of India, (iii) undertake to acquire, hold, manage or dispose of any Equity Shares that are Allotted to you for the purposes of your business in accordance with Chapter VIII of the SEBI Regulations, and (iv) undertake to comply with the SEBI Regulations and all other applicable laws, including in respect of reporting requirements, if any;

• you confirm that if you are Allotted 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 Stock Exchanges;

• you are aware that the Equity Shares have not been and will not be registered under the Companies Act, the SEBI Regulations or under any other law in force in India. This Preliminary Placement Document has not been reviewed by the SEBI, the RBI, the Stock Exchanges or any other regulatory or listing authority and is intended only for use by QIBs. Further, this Preliminary Placement Document has not been verified or affirmed by the SEBI or the Stock Exchanges and will not be filed or registered with the Registrar of Companies. This Preliminary Placement Document has been filed with the Stock Exchanges and has been displayed on the websites of our Bank and the Stock Exchanges;

• you are permitted to subscribe to the Equity Shares under the laws of all relevant jurisdictions which are applicable to you and that you have fully observed such laws and have all necessary capacity and have obtained all necessary consents and authorities as may be required, to enable you to commit to this participation in the Issue and to perform your obligations in relation thereto (including, without limitation, 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 this Preliminary Placement Document) and complied with all the necessary formalities and that you will honour such obligations;

• none of our Bank, Book Running Lead Manager or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates is making any recommendations to you, or advising you regarding the suitability of any transactions they may enter into in connection with the Issue, and that your participation in the Issue is on the basis that you are not and will not be a client of the Book Running Lead Manager and that the Book Running Lead Manager has no 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 in no way acting in a fiduciary capacity;

• all statements other than statements of historical fact included in this Preliminary Placement Document, including, without limitation, those regarding our Bank’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to our 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, performances or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our Bank’s present and future business strategies and environment in which our Bank will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as at the date of this Preliminary Placement Document. Our Bank or any of our shareholders, Directors, officers, employees, counsels, advisors, representatives, agents or affiliates assumes no responsibility to update any of the forward-looking statements contained in this Preliminary Placement Document;

• you are aware and understand that the Equity Shares are being offered only to QIBs and are not being offered to the general public and the Allotment of the same shall be on a discretionary basis, at the discretion of our Bank in consultation with the Book Running Lead Manager;

• you have made, or been deemed to have made, as applicable, the representations, warranties, acknowledgements and undertakings as set forth under the section titled “Purchaser Representations and Transfer Restrictions” on page 165;

• you have been provided a serially numbered copy of the Preliminary Placement Document and have read this Preliminary Placement Document in its entirety, in particular the section titled “Risk Factors”, on page 32;

• that in making your investment decision, (i) you have relied on your own examination of our Bank and the terms of the Issue, including the merits and risks involved, (ii) you have made and will continue to make your own assessment of our Bank, the Equity Shares and the terms of the Issue based on such information as is publicly available, (iii) you have relied upon your own investigations and resources in deciding to invest in the Equity Shares, (iv) you have consulted your own independent advisors (including tax advisors) or otherwise have satisfied yourself concerning, without limitation, the effects of local laws and taxation matters, (v) you have relied solely on the information contained in this Preliminary Placement Document and no other disclosure or representation by our Bank or any other party and (vi) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of our Bank and the Equity Shares;

• neither the Book Running Lead Manager nor its affiliates has provided you with any tax advice or otherwise made any representations regarding the tax consequences of the Equity Shares (including, but not limited to, the Issue and the use of the 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 Manager when evaluating the tax consequences in relation to the Equity Shares (including, but not limited to, the Issue and the use of the proceeds from the Equity Shares). You waive and agree not to assert any claim against our Book Running Lead Manager or any of its shareholders, directors, officers, employees, counsels, advisors, 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;

• you have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Equity Shares, and you and any accounts for which you are subscribing the Equity Shares (i) are each able to bear the economic risk of the investment in the Equity Shares, (ii) will not look to our Bank or the Book Running Lead Manager or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered, (iii) are able to sustain a complete loss on the investment in the Equity Shares, (iv) have no need for liquidity with respect to the investment in the Equity Shares, and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Equity Shares;

• that 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 such managed account and to make (and you hereby make) the representations, warranties, acknowledgements and undertakings herein for and on behalf of each such managed account, reading the reference to “you” to include such accounts;

• in relation to our Bank, you have no rights under a shareholders’ agreement or voting agreement, no veto rights or right to appoint any nominee director on our Board other than the rights acquired, if any, in the capacity of a lender not holding any Equity Shares;

• you will have no right to withdraw your Bid after the Bid Closing Date;

• you are eligible to Bid and hold the Equity Shares so Allotted to you pursuant to this Issue, together with any Equity Shares held by you prior to the Issue. You further confirm that your holding, upon the issue of the Equity Shares, shall not exceed the level permissible as per any applicable law;

• the Bid submitted by you would not eventually result in triggering a tender offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “ Takeover Code ”);

• to the best of your knowledge and belief together with other QIBs in the Issue that belong to the same group or are under common control as you, the Allotment under this Issue to you shall not exceed 50.0% of the Issue. For the purposes of this representation:

a. the expression ‘belongs to the same group’ shall be interpreted by applying the concept of ‘companies under the same group’ as provided in sub-section (11) of section 372 of the Companies Act; and

b. ‘control’ shall have the same meaning as is assigned to it by clause (e) of sub-regulation 1 of regulation 2 of the Takeover Code;

• you are aware that if you are Allotted more than 5.0% of the Equity Shares in this Issue, we shall be required to disclose your name, the number of Equity Shares Allotted to you, the pre and post issue shareholding pattern of our Bank in the format prescribed in clause 35 of the Listing Agreements to the Stock Exchanges and the Stock Exchanges will make the same available on their website and you consent to such disclosure being made by us;

• you acknowledge, represent and agree that your total interest in the paid-up share capital of our Bank, whether direct or indirect, beneficial or otherwise (any such interest, your “ Holding ”), when aggregated together with any existing Holding and/or Holding of any of your “associated enterprises” (as defined under section 92A of the IT Act), does not exceed 5.0% of the total paid-up share capital of our Bank, unless you are an existing shareholder who already holds 5.0% or more of the underlying paid up share capital of our Bank pursuant to the acknowledgment of the RBI, provided that your Holding does not, without the further acknowledgment of the RBI, exceed your existing Holding after Allotment;

• you are aware that after the completion of the allotment process, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, and that in the event that RBI does not grant the post facto approval in respect of Allotment of Equity Shares to you, you shall be required to comply with the instructions received from the RBI in this regard;

• you are aware that pursuant to the Allotment of the Equity Shares in the Issue, applications shall be made by our Bank to the Stock Exchanges for listing approvals and that the applications for obtaining the final listing and trading approvals will be made to the Stock Exchanges only after the credit of the Equity Shares to the beneficiary account with the Depository Participant, and that there can be no assurance that such approvals will be obtained on time or at all;

• you shall not undertake any trade in the Equity Shares credited to your beneficiary account with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares under this Issue are granted by the Stock Exchanges;

• you are aware and understand that the Book Running Lead Manager will have entered into a Placement Agreement with our Bank whereby the Book Running Lead Manager has, subject to the satisfaction of certain conditions set out therein, undertaken severally and not jointly to use their reasonable endeavours to seek to procure subscription for the Equity Shares on the terms and conditions set forth therein;

• the contents of this Preliminary Placement Document are exclusively the responsibility of our Bank and neither the Book Running Lead Manager nor any person acting on its behalf or any of the counsels, advisors, to the Issue 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 our 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 a participation in this 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 Manager or our Bank or any other person and that neither the Book Running Lead Manager nor our Bank nor any other person including their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates 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;

• that 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 that you have neither received nor relied on any other information given or representations, warranties or statements made by the Book Running Lead Manager (including any view, statement, opinion or representation expressed in any research published or distributed by the Book Running Lead Manager or its affiliates or any view, statement, opinion or representation expressed by any staff (including research staff) of the Book Running Lead Manager or its respective affiliates) or our Bank or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates and neither the Book Running Lead Manager nor our Bank or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates will be liable for your decision to accept an invitation to participate in the Issue based on any other information, representation, warranty, statement or opinion;

• you agree to indemnify and hold our Bank and the Book Running Lead Manager or its affiliates 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 representations, warranties, acknowledgements and undertakings in this section. You agree that the indemnity set forth in this paragraph shall survive the resale of the Equity Shares Allotted under this Issue by or on behalf of the managed accounts;

• you understand that neither the Book Running Lead Manager nor its affiliates have 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 our Bank of any of our respective obligations or any breach of any representations or warranties by our Bank, whether to you or otherwise;

• that you are eligible to invest in India under applicable law, including the Foreign Exchange Management (Transfer or Issue of Security by Person Resident Outside India) Regulations, 2000, as amended from time to time, and have not been prohibited by the SEBI or any other regulatory authority, statutory authority or otherwise, from buying, selling or dealing in securities;

• any dispute arising in connection with the Issue will be governed and construed in accordance with the laws of the Republic of India, and the courts in Mumbai, Maharashtra, India shall have the exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Preliminary Placement Document;

• that you are a sophisticated investor who is seeking to purchase the Equity Shares for your own investment and not with a view to distribution. In particular, you acknowledge that (i) an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment, (ii) you have sufficient knowledge, sophistication and experience in financial and business matters so as to be capable of evaluating the merits and risk of the purchase of the Equity Shares, and (iii) you are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions and have such knowledge and experience in financial, business and investment matters that you are capable of evaluating the merits and risks of your investment in the Equity Shares;

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

• you are, at the time the Equity Shares are purchased pursuant to Regulation S, located outside of the United States (within the meaning of Regulation S) and you not an affiliate of our Bank, or a person

acting on behalf of such an affiliate;

• you are purchasing the Equity Shares in an offshore transaction complying with the requirements of Rule 903 or 904 of Regulation S of the Securities Act;

• you understand that the Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States (as defined in Regulation S under the Securities Act), 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;

• that 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 of the Equity Shares in the Issue;

• that our Bank, the Book Running Lead Manager, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and agreements which are given to the Book Running Lead Manager on their own behalf and on behalf of our Bank and are irrevocable;

• all statements other than statements of historical fact included in this Preliminary Placement Document, including without limitation, those regarding our Banks’s financial position, business strategy, plans and objectives of management for future operations (including development plans) 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 through such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the present and future business strategies and the environment in which our Bank would operate in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Preliminary Placement Document. Our Bank assumes no responsibility to update any of the forward-looking statements contained in this Preliminary Placement Document;

OFFSHORE DERIVATIVE INSTRUMENTS

Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 15A(1) of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, as amended (“ FII Regulations ”) an 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 (all such offshore derivative instruments are referred to herein as “ P-Notes ”) listed or proposed to be listed on any stock exchange in India only in favour of those entities which are regulated by foreign regulatory authorities in the countries of their incorporation or establishment subject to compliance with “know your client” requirements. An FII shall also ensure no further issue or transfer is made of any offshore derivative instruments issued by or on behalf of it to any person other than a person regulated by an appropriate foreign regulatory authority. 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, including, without limitation, any information regarding any risk factors relating thereto. In terms of the FII Regulations, with effect from May 22, 2008, no sub-account of an FII is permitted to, directly or indirectly, issue P-Notes.

Any P-Notes that may be issued are not securities of our Bank and do not constitute any obligation of, claims on or interests in our Bank. Our 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 any P-Notes. Any P-Notes that may be offered are issued by, and are the sole obligations of, third parties that are unrelated to us. Our Bank does not make any recommendation as to any investment in P-Notes and does 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 Manager and do not constitute any obligations or claims on the Book Running Lead Manager. FII affiliates of the Book Running Lead Manager 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. Neither SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult with their own 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 the Stock Exchanges. The Stock Exchanges do not in any manner:

1. warrant, certify or endorse the correctness or completeness of any 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 our Bank, our management or any scheme or project of our 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 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.

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 this Issue, references to, “our”, “us”, “we”, our “Bank”, the “Bank”, or the “Issuer” are to Dhanlaxmi Bank Limited.

In this Preliminary Placement Document, references to (a) “Rs.”, “Rupees”, “INR” or “`” are to the legal currency of the Republic of India; (b) “U.S.$” and “U.S. Dollars” are to the legal currency of the United States; (c) “EURO” are to the single currency of the participating member states in the Third Stage of the European Economic and Monetary Union of the Treaty establishing the European Community, as amended from time to time; and (d) “GBP” are to the legal currency of the United Kingdom.

All references herein to the “U.S.” or the “United States” are to the United States of America and its territories and possessions and all references to “India” are to the Republic of India and its territories and possessions. All references herein to the “Government of India” are to the Central Government of India and all references to the “Government” are to Government of India or an Indian state government as applicable. All the numbers in this document, other than in sections titled “Selected Financial Information of our Bank” and “Financial Statements” on pages 29 and 185, respectively, have been presented in million or in whole numbers where the numbers have been too small to present in million, unless stated otherwise.

Our Bank publishes its financial statements in Rupees. Our Bank's financial statements are prepared in accordance with Indian GAAP and the Companies Act. Unless otherwise indicated, all financial data in this Preliminary Placement Document are derived from our financial statements prepared in accordance with Indian GAAP. Indian GAAP differs in certain significant respects from International Financial Reporting Standards (“IFRS”). Our Bank does not provide a reconciliation of its financial statements to IFRS financial statements. We have not attempted to explain those differences or quantify their impact on the financial information included herein. The degree to which the financial statements 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. We urge you to consult your own advisors regarding such differences and their impact on our financial information.

Our reformatted financial statements as of and for fiscal 2011, 2012 and 2013 included in this Preliminary Placement Document (the “Reformatted Financial Statements”) are extracted from our audited financial statements for these periods. The examination report issued by our current statutory auditors, M/s Sagar & Associates, Chartered Accountants on the Reformatted Financial Statements is also included in this Preliminary Placement Document. M/s Sagar & Associates, Chartered Accountants have audited the financial statements as of and for fiscal 2013, however, they have not audited the financial statements as of and for fiscal 2011, and 2012. M/s Sagar & Associates, Chartered Accountants have issued an examination report on the financial statements, for which they have relied upon the audit conducted by the previous auditors, Walker Chandiok & Co, Chartered Accountants and Sharp & Tannan, Chartered Accountants (who have jointly audited the financial statements as of and for fiscal 2011 and 2012).

M/s Sagar & Associates have also performed a limited review in accordance with the procedures specified by the ICAI for review of interim financial information in the Standard on Review Engagements 2410 (Review of Interim Financial Information Performed by the Independent Auditor of the Company ("SRE 2410")), of the unaudited financial statements of our Bank as at and for the six months period ended September 30, 2013 and September 30, 2012. The unaudited financial statements as at and for the six months ended September 30, 2012 and 2013 are hereinafter referred to collectively as the (" Unaudited Interim Financial Statements ").

The Reformatted Financial Statements together with the Unaudited Interim Financial Statements are collectively referred to as “the Financial Statements” . The presentation of the Unaudited Interim Financial Statements may not be comparable to the presentation of the Reformatted Financial Statements included in this Preliminary Placement Document.

Unless otherwise stated, references in this Preliminary Placement Document to a particular year are to the calendar year ended on December 31 and to a particular “financial year”, “Fiscal” or “FY” are to the financial year of our Bank ending on March 31 of a particular year.

Any discrepancies in the tables included herein between the amounts listed and the totals thereof are due to rounding off.

INDUSTRY AND MARKET DATA

Information regarding market position, growth rates and other industry data pertaining to the businesses of our Bank 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 knowledge of the markets in which our Bank competes. The statistical information included in this Preliminary Placement Document relating to the various sectors in which our Bank operates has been reproduced from various trade, industry and regulatory/government publications and websites, including that of the RBI.

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 our Bank nor the Book Running Lead Manager has independently verified this data and neither our Bank nor the Book Running Lead Manager makes any representation regarding the accuracy or completeness of such data. Similarly, while we believe that our internal estimates are reasonable, such estimates have not been verified by any independent sources, and neither our Bank nor the Book Running Lead Manager can assure potential investors as to their accuracy.

FORWARD-LOOKING STATEMENTS

Certain 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”, “could”, “estimate”, “expect”, “intend”, “may”, “objective”, “plan”, “potential”, “project”, “pursue”, “shall”, “should”, “will”, “would”, or other words or phrases of similar import. All statements regarding our Bank’s expected financial condition and results of operations and business plans, including potential acquisitions, and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability, planned projects and other matters discussed in this Preliminary Placement Document that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our Bank’s 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 other projections.

Important factors that could cause actual results, performance or achievements to differ materially include, among others:

• volatility in interest rates and other market conditions;

• our exposure to the priority lending sectors;

• certain failures, including internal or external fraud, operational errors, systems malfunctions, or cyber security incidents;

• volatility in the market price of gold;

• decrease in the value of our collateral or delays in enforcing our collateral upon default by borrowers on their obligations to us;

• our inability to control the level of NPAs in our portfolio effectively;

• material changes in the regulations and policies governing the banking industry by the RBI or other regulatory authorities;

• our inability to comply with the capital adequacy standards of the advanced Basel II Accord or the proposed Basel III Accord;

• adverse change in the economy of India;

• competition in the banking industry;

• any other factors beyond our control;

• changes in tax laws in India;

• any inability to manage maturity and interest rate mismatches between our assets and liabilities; and

• our dependence on, and ability to retain, our senior management team.

Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited, to those discussed under the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry Overview”, “Business” and “Selected Statistical Information” on pages 32, 60, 88, 102 and 121, respectively.

The forward-looking statements contained in this Preliminary Placement Document are based on the beliefs of our management, as well as the assumptions made by and information currently available to the management. Although our Bank believes that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct. Given these uncertainties,

13 investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialize, or if any of our Bank’s underlying assumptions prove to be incorrect, our Bank’s actual results of operations, cash flows or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent written and oral forward-looking statements attributable to our Bank are expressly qualified in their entirety by reference to these cautionary statements.

ENFORCEMENT OF CIVIL LIABILITIES

We are a limited liability company incorporated under the laws of India. All our Directors and key managerial personnel are residents of India. A substantial portion of our assets are located in India. As a result, it may be difficult for the investors to affect service of process upon our Bank or such persons outside India or to enforce judgments obtained against such parties outside India.

India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments and execution of a foreign judgment is provided for under Sections 13 and 44A respectively, of the Code of Civil Procedure, 1908 (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, or (vi) where the judgment sustains a claim founded on a breach of any law in force in India.

Under Section 14 of the Civil Procedure Code, a court in India shall, upon the production of any document purporting to be a certified copy of a foreign judgment, presume that the judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on record; but such presumption may be displaced by proving want of jurisdiction.

A foreign judgment which is conclusive under Section 13 of the Civil Procedure Code can be enforced in India (i) by instituting execution proceedings; or (ii) by instituting a suit on such judgment.

Foreign judgments may be enforced by proceedings in execution in certain cases. Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court within the meaning of that section in any country or territory outside India which the Government has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant 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. Furthermore, the execution of the foreign decree under Section 44A of the Civil Procedure Code is also subject to the exceptions under Section 13 of the Civil Procedure Code, as mentioned above.

Each of the United Kingdom, Singapore and Hong Kong has been declared by the Government of India to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code but the United States 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 filed 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 denominated 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 pursuant to the execution of such a judgement.

EXCHANGE RATES

Fluctuations in the exchange rate between the Rupee and the U.S. Dollar will affect the U.S. Dollar equivalent of the Rupee price of the Equity Shares on the Stock Exchanges. These fluctuations will also affect the conversion into U.S. Dollars of any cash dividends paid in Rupees on the Equity Shares. The exchange rate between the Rupee and the U.S. Dollar has been volatile over the past year.

The following table sets forth, for the periods indicated, information with respect to the exchange rate between the Rupee and the U.S. Dollar (in Rupees per U.S. Dollar) based on the reference rate released by the RBI. The exchange rate as at December 10, 2013 was ` 61.21 = U.S. Dollar 1.00. No representation is made that the Rupee amounts actually represent such U.S. dollar amounts or could have been or could be converted into U.S. Dollar at the rates indicated, any other rate, or at all.

Exchange Rate ( ` Per U.S. Dollar) Period End Average High Low Financial year ended March 31, 2013 54.3 54.4 57.2 50.5 Financial year ended March 31, 2012 51.1 47.9 54.2 43.9 Financial year ended March 31, 2011 44.6 45.5 47.5 44.0 Months ended: April 2013 54.2 54.3 54.8 53.9 May 2013 56.5 55.0 56.5 53.7 June 2013 59.7 58.4 60.5 56.4 July 2013 61.1 59.7 61.1 58.9 August 2013 66.5 63.2 68.3 60.7 September 2013 62.7 63.7 67.0 61.7 October 2013 61.4 61.6 62.3 61.1 Novemeber 2013 62.3 62.6 63.6 61.7 Upto 10 December 2013 61.2 61.8 62.3 61.2

No representation is made that the Rupee amounts actually represent such U.S. Dollar amounts or could have been or could be converted into U.S. Dollars at the rates indicated, or at all.

CERTAIN DEFINITIONS AND ABBREVIATIONS

Our Bank has prepared this Preliminary Placement Document using certain definitions and abbreviations which you should consider when reading the information contained herein.

Capitalised terms used in this Preliminary Placement Document shall have the meaning set forth below, unless specified otherwise or the context indicates or requires otherwise, and references to any statute or regulations or policies shall include amendments thereto, from time to time.

Terms Related to our Bank

Term Description Our “Bank”, the Dhanlaxmi Bank Limited, a public limited company incorporated under the Companies “Bank” or the “Issuer” Act, 1913 and a scheduled commercial bank within the meaning of the RBI Act, having its registered office at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001. “Articles” or “Articles of The articles of association of our Bank. Association” “Board of Directors” or Our board of directors or any duly constituted committee thereof. “Board” Chairman The part-time chairman of our Board, Mr. T. Y. Prabhu. Directors Directors of our Bank. Equity Shares or Shares Equity shares of our Bank of face value of ` 10 each. ESOS 2009 ‘Employees Stock Option Scheme 2009’ as adopted by our members in the AGM dated July 31, 2009. ESOS 2013 Employee Stock Option Scheme, 2013 as adopted by our members in the AGM dated August 27, 2013 Financial Statements Our Reformatted Financial Statements and Unaudited Interim Financial Statements. Managing Director and CEO Our managing director and chief executive officer, Mr. P. G. Jayakumar. Memorandum/ MoA/ The memorandum of association of our Bank. Memorandum of Association Reformatted Financial Our reformatted financial statements as of and for fiscal 2011, 2012 and 2013 included in Statements this Preliminary Placement Document, extracted from our audited financial statements for these periods. Registered Office The registered office of our Bank located at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001. “Registrar of Companies” or Registrar of Companies, Kerala & Lakshadweep. “RoC” Current Statutory Auditors The current statutory auditors of our Bank, M/s Sagar & Associates, Chartered Accountants with registration no. 003510S, with their offices at H. No 6-3-244/5, Sarada Devi Street, Prem Nagar, Hyderabad, Andhra Pradesh-500 004. Unaudited Interim Financial The unaudited financial statements as at and for the six months ended September 30, 2012 Statements and September 30, 2013.

Issue Related Terms

Term Description “Allocated” or “Allocation” The allocation of Equity Shares, in consultation with the Book Running Lead Manager, following the determination of the Issue Price to QIBs on the basis of the Application Forms submitted by them in compliance with Chapter VIII of the SEBI Regulations. Allotees Persons to whom Equity Shares are Allotted pursuant to the Issue. “Allotment” or “Allotted” Unless the context otherwise requires, the issue and allotment of Equity Shares pursuant to the Issue. Application Form The form pursuant to which a QIB shall submit a bid in the Issue. Bid An indication of interest by a QIB, including all revisions and modifications of interest, as provided in the Application Form, to subscribe for Equity Shares in the Issue. Bidding Period The period between the Bid Opening Date and Bid Closing Date, inclusive of both dates, during which QIBs can submit their Bids. Bid Closing Date [], which is the date on which our Bank (or the Book Running Lead Manager on behalf of our Bank) shall cease acceptance of the Application Forms. Bid Opening Date December 20, 2013, which is the date on which our Bank (or the Book Running Lead Manager on behalf of our Bank) shall commence acceptance of the Application Forms. “Book Running Lead Book Running Lead Manager to the Issue, being Elara Capital (India) Private Limited. Manager” or “BRLM”

Term Description “CAN” or “Confirmation of Note or advice or intimation to not more than 49 QIBs confirming the Allocation of Equity Allocation Note” Shares to such QIBs after discovery of the Issue Price and to pay the entire Issue Price for all the Equity Shares allocated to such QIBs. Discounted Floor Price The Floor Price less discount of not more than 5%, if any, offered by our Bank in accordance with SEBI Regulations.

In case no discount is offered by our Bank, the Discounted Floor Price shall be the Floor Price.

The Issue Price shall not be less than the Discounted Floor Price. Escrow Account The bank account opened by our Bank with the Escrow Agent into which application money received towards subscription of the Equity Shares shall be deposited by the QIBs. Escrow Agreement Agreement dated December 19, 2013 amongst the Bank, the Book Running Lead Manager and the Escrow Agent in relation to the Issue. Escrow Agent South Indian Bank, with which the Escrow Account has been opened. Floor Price The price of ` 40.09 per Equity Share which has been calculated in accordance with Chapter VIII of the SEBI Regulations. Issue The offer and issuance of up to [] Equity Shares to QIBs, pursuant to Chapter VIII of the SEBI Regulations. Issue Price ` [ ] per Equity Share, which shall be equal to or more than the Discounted Floor Price. Issue Size The issue of up to [] Equity Shares aggregating up to ` [ ] million. Listing Agreements The agreements entered into between our Bank and each Stock Exchange in relation to listing of the Equity Shares on such Stock Exchange. Pay-In Date The last date specified in the CAN for payment of subscription money in relation to the Issue. Placement Agreement The placement agreement dated December 19, 2013 entered into between our Bank and the BRLM. Placement Document The placement document to be issued in accordance with Chapter VIII of the SEBI Regulations. Preliminary Placement This preliminary placement document for the Issue issued in accordance with Chapter VIII Document of the SEBI Regulations. “QIBs” or “Qualified Qualified institutional buyers as defined in Regulation 2(1) (zd) of the SEBI Regulations. Institutional Buyers” QIP Qualified Institutions Placement under Chapter VIII of the SEBI Regulations. Sanctions Any sanctions administered or enforced by the U.S. Department of Treasury's Office of Foreign Assets Control, the United Nations Security Council, the European Union, Her Majesty's Treasury, or other relevant sanctions authority.

Industry related terms

Term Description AFS Available for sale. ALCO Asset liability management committee. ALM Asset liability management. AML Anti money laundering. ATM Automatic teller machine. AUM Assets under management. Base Rate Minimum lending rate set by our Bank in accordance with applicable laws and regulations. BPLR Benchmark prime lending rate. CAR Capital adequacy ratio. CASA Current account saving account. CBLO Collateralised borrowing and lending obligations. CBS Core banking solutions. CD Certificate of deposit. CDMAOSC Committee to decide and monitor augmentation of share capital. CDR Corporate debt restructuring. CP Commercial paper. CRAR Capital to risk asset ratio. CRM Credit risk mitigation. CRMC Credit risk management committee. CRR Cash reserve ratio. CTS Cheque truncation system. DRI Differential rate of interest.

Term Description ECS Electronic clearing services. EEFC Exchange earners' foreign currency. EFT Electronic funds transfer. FCNR Account Foreign currency non resident account. FCNR(B) Foreign currency non resident (banks). HFT Held for trading. HTM Held to maturity. IBA Indian Banks Association. IRDM Integrated Risk Management Department of our Bank. IST Indian Standard Time. KYC Know your customer. LAF Liquidity adjustment facility. LC Letter of credit. LFAR Long form audit report. MSE Micro and small enterprises. MSF Marginal standing facility. MSME Micro, small and medium enterprises. NDTL Net demand and time liabilities. NEFT National electronic fund transfer. NG RTGS Next Generation Real time gross settlement. NPA Non performing advances. NPI Non performing investments. NRNR Non resident non repatriable. OTS One time settlement. PCR Provisioning coverage ratio. RAROC Risk adjusted return on capital. RFC Account Resident foreign currency account. RoNW Return on net worth. SLBC State Level Bankers’ Committee. SLR Statutory liquidity ratio. Tier II bonds Unsecured subordinated bonds issued for Tier II capital adequacy purposes. Tier I capital The core capital of a bank which provides the most permanent and readily available support against unexpected losses. It comprises paid up capital and reserves consisting of statutory reserves, free reserves and capital reserves representing surplus arising out of sale of assets, innovative capital instruments (like innovative perpetual debt instruments and perpetual non cumulative preference shares eligible for inclusion in Tier I Capital which comply with the specified regulatory requirements) as reduced by equity investments in subsidiaries, deferred tax assets, intangible assets, and losses in the current period and those brought forward from the previous period. Tier II capital The undisclosed free reserves, investment reserves, hybrid debt capital instruments (like perpetual cumulative preference shares, redeemable non cumulative preference shares, redeemable cumulative preference shares eligible for inclusion in Tier II Capital which comply with the specified regulatory requirements) & subordinated debt eligible for inclusion in Tier II Capital which comply with the specified regulatory requirements, revaluation reserves (at a discount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.2% of risk-weighted assets). VaR Value at risk.

Conventional and General Terms/ Abbreviations

Term Description AAIFR Appellate Authority for Industrial and Financial Reconstruction. AGM Annual general meeting. AIF(s) Alternative investment funds, as defined and registered with SEBI under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. AMFI Association of Mutual Funds in India. AS Accounting Standards issued by the Institute of Chartered Accountants of India. Banker's Books Evidence Act Banker's Books Evidence Act, 1891. Banking Regulation Act Banking Regulation Act, 1949. BIFR Board of Industrial and Financial Reconstruction. BSE BSE Limited. CAIIB Certified Associate of the Indian Institute of Banking and Finance. CAGR Compounded annual growth rate.

Term Description CDSL Central Depository Services (India) Limited. Civil Procedure Code, Civil The Code of Civil Procedure, 1908. Code Companies Act The Companies Act, 1956. CSE Cochin Stock Exchange Limited. Delisting Regulations The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009. Depositories Act The Depositories Act, 1996. Depository A depository registered with SEBI under the Securities and Exchange Board of India (Depositories and Participant) Regulations, 1996. Depository Participant A depository participant as defined under the Depositories Act. DIPP The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, GoI. DTC The direct tax code. EBITDA Earnings before interest, tax, depreciation and amortisation. EGM Extra ordinary general meeting. EPS Earnings per share. FDI Foreign direct investment. FEDAI Foreign Exchange Dealers Association of India. FEMA The Foreign Exchange Management Act, 1999 and the regulations issued thereunder. FERA Foreign Exchange Regulation Act, 1973. FII Foreign Institutional Investor (as defined under the FII Regulations) registered with SEBI. FII Regulations The Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. “financial year”, “fiscal” or Unless stated otherwise, financial year of our Bank ending on March 31 of a particular “FY” year. FVCI Foreign venture capital investors (as defined and registered with SEBI under the (Foreign Venture Capital Investors) Regulations, 2000). GAAP Generally Accepted Accounting Principles. GDP Gross domestic product. Government Government of India or State Government, as applicable. Government of India Central government of India. HUF Hindu undivided family. ICAI Institute of Chartered Accountants of India. IFRS International Financial Reporting Standards of the International Accounting Standards Board. IND-AS Indian Accounting Standards. Indian GAAP Generally Accepted Accounting Principles in India, as applicable to a bank. IT Information technology. Listing Agreements The listing agreements entered into by our Bank with the Stock Exchanges. IT Act The Income Tax Act, 1961. MAT Minimum alternate tax. MFIs Micro finance institutions. MICR Magnetic ink character recognition. MoU Memorandum of understanding. Mutual Fund / MF A mutual fund registered with SEBI under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. NABARD National Bank for Agriculture and Rural Development. NBFC Non-banking financial company. Negotiable Instruments Act Negotiable Instruments Act, 1881. NPCI National Payments Corporation if India. NRI Non resident Indian. NSDL National Securities Depository Limited. NSE The National Stock Exchange of India Limited. p.a. Per annum. PAN Permanent Account Number. PAT Profit after tax. PBT Profit before tax. PIO Persons of Indian origin. Portfolio Investment Scheme Portfolio investment scheme under the FEMA. PSU Public sector undertaking. RBI Reserve Bank of India. RBI Act or the Reserve Bank The Reserve Bank of India Act, 1934.

Term Description of India Act Regulation S Regulation S under the Securities Act. “Rs.”, “Rupees”, “INR” or The legal currency of the Republic of India. “`” SARFAESI Act The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. SAT Securities Appellate Tribunal. SCRA Securities Contracts (Regulation) Act, 1956. SCRR Securities Contracts (Regulation) Rules, 1957. SEBI Securities and Exchange Board of India. SEBI Act The Securities and Exchange Board of India Act, 1992. SEBI Regulations The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. SENSEX The index of a basket of 30 constituent stocks traded on the BSE representing a sample of liquid securities of large and representative companies. State Government Government of a state of the Republic of India. Stock Exchanges The BSE, the NSE and the CSE. STT Securities Transaction Tax. Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations 2011. “U.S.$”, or “U.S. Dollars” The legal currency of the United States. “U.S.” or “United States” United States of America. U.S. GAAP Generally accepted accounting principles in the U.S. Securities Act The United States Securities Act of 1933, as amended. VCF A venture capital fund (as defined and registered with SEBI under the erstwhile Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996).

SUMMARY OF BUSINESS

Overview

We are a private sector bank with a pan-India presence through a network of 676 customer outlets which includes 280 branches and 396 ATMs across 13 states and two union territories, as of September 30, 2013. We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of September 30, 2013.

We offer a comprehensive range of products and services including savings accounts, current accounts, term deposits, corporate salary accounts, international debit cards and credit cards, gift cards, corporate and retail loans, depository services, locker facilities, mobile and internet banking services, bill payment services, e-IT return filing services, foreign exchange services, export and import services, payment and remittance services, repatriation schemes, online broking services and cash management services.

We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively as their corporate agents. We also distribute the mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Asset Management Company Limited, FIL Fund Management Private Limited and UTI Asset Management Company Limited.

We have organized our business model around our branch network wherein we focus on the following four segments: (i) retail banking; (ii) corporate banking group; (iii) small and medium enterprises ("SMEs") banking; and (iv)micro finance and agriculture lending. The retail banking group covers all loans and advances to individuals including NRIs. The corporate banking group covers corporations with a net worth of ` 500 million and above. The SMEs banking covers all loans and advances to the SMEs and emerging corporations (entities having a net worth below ` 500 million). The micro finance and agriculture lending covers all loans and advances to micro-finance institutions, non-governmental organisations ("NGOs") and certain self-help groups. Our retail banking group covers retail liabilities and a non-interest income and fee-based services that cover distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking and demat operations. In addition, our treasury operations comprise liquidity management by seeking to maintain an optimum level of liquidity, while complying with the cash reserve ratio (“CRR”) and the statutory liquidity ratio (“SLR”). We maintain the SLR through a portfolio of government and corporate debt securities that we actively manage to optimize yield and benefit from price movements. We are also involved in investing in sovereign debt instruments, commercial papers, mutual funds, certificates of deposits and floating rate instruments in order to manage short-term surplus liquidity.

We have remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services. We also provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account with Destimoney Securities Private Limited ("DSPL") providing a complete trading platform.

We have received a BS EN ISO 9001-2008 quality certification for management of banking operations at our corporate office located at Thrissur. We have been awarded the Best Bank in the private sector banks category by the State Forum of Banker's Club in 2008-2009. In 2011, we have been awarded the "Best mid-sized Bank" in terms of growth by Business Today-KPMG's Best Bank's Survey. We have also been awarded for excellence in IT by the Computer Society of India in 2011 and the EDGE Award for IT Transformation by the International Week Edge Award in 2011. We have also received the Asian Banker Technology Award 2012 international award for Best Branch Automation.

Basel II (2.7% as per Basel I) while as at September 30, 2013, our total capital was ` 8161.0.0 million as per Basel III ( ` 9,247.1 million as per Based II) and our CRAR was 10.5% as per Basel III (11.9% as per Basel II), with Tier 1 Capital at 9.2% as per Basel III (9.3% as per Basel II) and Tier II Capital at 1.3% as per Basel III (2.6% as per Basel II).

Our Competitive Strengths

We believe that the following strengths distinguish us in a competitive Indian banking industry:

Wide distribution network across India and diverse customer base

We offer a diverse range of retail and commercial products and services across retail banking, corporate banking, microfinance and agricultural lending and small and medium enterprises group, including short-term and long-term deposits, secured and unsecured loans, internet banking, credit cards, mutual fund distribution and life and general insurance distribution. Our nationwide network allows us to provide banking services to a wide variety of customers, including large and medium to small corporations, institutions and state-owned enterprises, as well as commercial, agricultural, industrial and retail customers throughout India. We are focused on further improving access of our customers to our wide range of products and services.

As of September 30, 2013, our operations cover 13 states and two union territories across India, with approximately 676 customer outlets which includes 280 branches and 396 ATMs (175 on-site and 221 off-site ATMs). We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of September 30, 2013.

Long history and long standing customer relationships

We were incorporated in November 1927 at Thrissur, Kerala and have been in existence for around 86 years. Over the years, the Bank has significantly grown its operations from being a regional bank to a banking institution covering a wide spectrum across several states in India. We further seek to leverage our strong brand recall across India, especially in the Southern India.

With over 86 years of banking experience, we believe we have built strong and long standing relationships with many of our customers, which has been one of the key drivers of our growth, including numerous temple trusts, churches and non-governmental organisations ("NGOs") in Southern India. For instance, we are among the principal bankers to certain prominent religious bodies such as Sabarimala (Travancore Devaswom Board) for over three decades. We have also been among the principal bankers for large government and other institutions including, for example, Kochi Metro Rail Ltd, Kerala Headload Workers Welfare Board, Amrita Vishwa Vidyapeetham, Amrita School of Medicine and Roads and Bridges Development Corporation of Kerala Limited. Continue to strengthen our risk management policies and procedures

We believe that prudent risk management policies, procedures and controls are critical for the long-term sustainable development of our business. We have implemented enhanced risk management procedures for all our credit exposures, including credit evaluation and credit rating methodology, credit scoring and risk pricing models and risk monitoring and control mechanisms. Our risk management committee, inter alia, 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. For further information on our risk management committee, see - "Risk Management Framework" on page 118. Further to enhance overall risk-adjusted margins, we have introduced risk management systems covering the entire credit process to enhance efficiency, improve controls and achieve better asset quality. We have also introduced advanced technology, robust controls and processes, and analytical tools for credit evaluation. In addition, we maintain a centralized credit evaluation process across all consumer and commercial banking products in order to improve the quality of new loans and the recovery of our non-performing loans.

We continue to maintain high standards of asset quality through risk management and mitigation practices that are actively focused on evaluations of credit management policy, asset liability management policy, market and operational risk management policy and interest rate policy. In conjunction with these practices, we intend to optimize our capital needs as we grow our business. For further information on the various risk management policies of the Bank, see - "Risk Management Framework" on page 118.

Modern and efficient IT infrastructure for both internal systems and customer services

We have an efficient IT infrastructure, which we believe will provide opportunities to extract further cost efficiencies and to improve the quality and utility of our products. We have made significant investments to upgrade our existing IT infrastructure. In fiscal 2012 and 2013, we had invested approximately ` 80.7million and ` 86.6 million, respectively, in order to upgrade our IT systems and infrastructure. We have networked all of our branches and offices to facilitate core banking solutions ("CBS"). It allows our customers to operate their accounts from remote locations and use banking services from any of our service points, regardless of where our customers maintain their accounts. With the CBS platform, we currently offer all the technology enabled products such as internet banking, online bill payments, mobile banking, telephone banking, debit cards and credit cards. We have also successfully implemented the Next Generation Real Time Gross Settlement ("NG RTGS") and the National Electronic Funds Transfer ("NEFT") payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. All of our branches are NG RTGS and NEFT enabled to facilitate large value payments and settlements online in real time, on a transaction- by-transaction basis. We have increased our delivery channels through internet banking, mobile banking and ATMs.

We have also implemented an automated NPA management software system, which monitors asset classification and provisioning based on current RBI rules. The software empowers us to arrive at potential NPAs and tentative provisioning at any point in time, which increases our ability to effectively monitor standard assets and take action in a timely manner to avoid slippage of asset quality. Additionally, we have established a master data mart that enables us to understand the customers across relationships and help track the progress. We have installed information security systems to protect the data and also periodically test the disaster recovery run on a working day covering all offices and branches as part of our business continuity program in the event of technological problems or disasters.

Professional and experienced management

Our senior management team led by Mr. P.G. Jayakumar, our Managing Director and CEO, has extensive experience in the banking and financial industry and has been associated with our Bank for more than a decade. For further information, see “Board of Directors and Senior Management” on page 139. We have been able to build a team of professionals with relevant experience, including credit evaluation, risk management, treasury, technology and marketing. We have been able to attract qualified persons, including MBAs, engineers, chartered accountants, cost accountants and agriculturists. As of September 30, 2013, our total employee strength was 2,504.

Our Business Strategy

Continue to strengthen our branch centric business model focused around our wide branch network across India

In the first quarter of fiscal 2013, we have transformed our vertical business model to a decentralized (branch- centric) business model in order to improve the efficiency of the bank and have a better focus and strengthen relationship with our customers. Pursuant to the branch-centric business model, the decision making process and the product innovations are taken place at the branch level which we believe will enable us to enhance our services at the consumer level and expand our reach across India. However, we will continue with a centralised account opening system to better service the customers across India. Further to improve our operational efficiency, we have undertaken various initiatives to create an efficient and scalable operating platform. We have significantly expanded our branch network in the recent past and intend to expand our customer base through our existing network thereby optimizing the branch efficiency.

Increase CASA deposits and improve interest margins

We seek to increase our current account and savings accounts ("CASA") deposits and reduce bulk deposits in order to reduce cost of funds. In order to increase our CASA and retail deposits, we intend to promote our bank and introduce new products through marketing efforts at our branches. In addition, we also regularly review and continuously monitor our CASA growth. We believe that our CBS and alternate channels such as internet and mobile banking systems, will enable us to increase our customer base, thereby increasing CASA deposits and reducing the costs of such deposits.

We focus on a number of areas where there is potential for significant improvement in our financial strength, including improving our net interest margin, further strengthening the quality and profile of our loan portfolio and broadening our revenue base by developing our fee-based products and services. We continue to focus on reducing certain of our low-yield corporate loans in order to further improve our net interest margins. For instance, our improving yields have resulted in improving our net interest margins to 2.4 % in the six months ended September 30, 2013 compared to 2.2 % in the six months ended September 30, 2012.

Continuous efforts to reduce our operational costs

In order to reduce our operational costs, we are currently in the process of realigning our employee costs as we have significantly reduced our employee strength from 2,774 as of September 30, 2012 to 2,504 as of September 30, 2013. We are also in the process of further rationalizing our existing distribution network by relocation from high cost premises and surrendering excess office premises while maintaining our points of presence across India. We have also reduced costs to a considerable extent by discontinuing the outsourcing of certain activities relating to our day-to-day business and operations or renegotiating the existing terms of arrangement with our vendors and further rationalizing our total advertisement and publicity costs and are attempting to reduce costs by consolidating our operations at central office building which is currently being constructed.

Leveraging core competencies in our target business segments.

As a result of increased focus on our retail segments along with our increased exposure to gold loans, our our gold loan portfolio has increased to ` 14,771.2 million in the six months ended September 30, 2013 compared to ` 10,398 in the six months ended September 30, 2012. We further intend to leverage our extensive experience and further improve our growth and operations in various segments. We believe that this will diversify our loan portfolio and also result in an improvement in our yields and returns. Our corporate, SME, retail and agricultural and microfinance loan books represented 19%, 11.6%, 51.4% and 18.0% of our total loan book as at September 30, 2013, respectively, as compared to 23.8%, 16.6%, 43.0% and 16.7%, respectively, of our total loan book as at September 30, 2012.

We continue to focus on products and segments within each of these target markets where growth and revenue are relatively high. We intend to continue this trend by pricing our products to reflect the risk profile of borrowers and to remain competitive. In each area, we seek to deepen our customer knowledge and understanding, to better tailor our products and services and to improve the use of our branch network in order to grow our customer base and maximize customer retention

Increase fee-based revenue and income through a range of various product offerings

We intend to focus on increasing our fee-based income by expanding our non-fund based business, sale of gold coins/bullions and third-party product offerings including mutual fund products and insurance products. We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as well as mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Asset Management Company Limited, FIL Fund Management Private Limited and UTI Asset Management Company Limited.

In addition, we have introduced certain forex products. We also continue to focus on cross-selling fee based services. We typically provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account through DSPL. We are currently in the process of renewing our agreement with DSPL. For further information relating to our investment in DSPL, see "Risk Factors - We may not be able to achieve desired returns from our investments, which may adversely affect our business, financial condition and results of operations" on page 36.

Continue to focus on increasing NRI deposit base

We are focused on increasing our non-resident Indian ("NRI") deposit base by providing access to easy and speedy remittance facilities. All of our branches offer specialized services to NRI customers. We closely monitor the growth of our NRI business. As of September 30, 2013, we had inward remittance arrangements with various exchange houses and one bank. As at September 30, 2013, our total NRI deposit was ` 1,2619.1 million compared to ` 10,286.9 million, as at March 31, 2013.

To focus on leveraging technology for improved customer service and business growth

Technology has driven products and services in the banking industry and we have devoted substantial resources to achieve seamless integration of our people, processes, data and applications. Information technology is a strategic tool for our business operations to gain a competitive advantage and to improve overall productivity and efficiency in the organization, including effective management of NPAs. All of our technology initiatives are aimed at enhancing value, offering customer convenience, improving service levels and providing a secure platform while optimizing costs. We expect to continue with our policy of making investments in technology to achieve a significant competitive advantage. Also, we will focus on increasing our customer feedback points and enhancing the value-added services feature of our ATMs, as well as expanding our application systems with other consumer service providers to broaden the scope of our payment services. We also intend to implement a customer relationship management initiative and continue to improve our internet banking suite and ensure effective use of our data mining tools.

SUMMARY OF THE ISSUE

The following is a general summary of the terms of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information appearing elsewhere in this Preliminary Placement Document, including under the sections titled “Issue Procedure” and “Description of the Shares” on pages 151 and 169, respectively .

Issuer Dhanlaxmi Bank Limited. Issue Size Up to [] Equity Shares aggregating up to ` [] million.

A minimum of 10.0% of the Issue Size, or at least [] Equity Shares, shall be available for Allocation to Mutual Funds only, and the balance [] Equity Shares shall be available for Allocation to all QIBs, including Mutual Funds.

In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allocated to other QIBs. Face Value ` 10 per Equity Share. Issue Price ` [] per Equity Share. Floor Price The floor price for the Issue calculated on the basis of Chapter VIII of the SEBI Regulations is ` 40.09 per Equity Share. Discounted Floor Price The Floor Price less discount of [ ] % i.e. ` [ ] per Equity Share.

In case no discount is offered by our Bank, the Discounted Floor Price shall be the Floor Price.

The Issue Price shall not be less than the Discounted Floor Price. Eligible Investors QIBs as defined in Regulation 2(1)(zd) of the SEBI Regulations to whom the Preliminary Placement Document and the Application Form is circulated and who are eligible to bid and participate in the Issue. The list of QIBs to whom the Preliminary Placement Document and Application Form is delivered shall be determined by the Book Running Lead Manager in consultation with our Bank, at their sole discretion. Equity Shares issued and [] Equity Shares. outstanding immediately prior to the Issue Equity Shares issued and [] Equity Shares. outstanding immediately after the Issue Listing Our Bank has received in principle approvals dated December 19, 2013 from the NSE and the BSE, under Clause 24(a) of the Listing Agreements. CSE through its letter dated December 19, 2013 informed us that they have opted for voluntary exit in accordance SEBI guidelines. Since CSE’s application for voluntary exit is currently pending with SEBI, their application for renewal of recognition is not processed by SEBI. As a result, CSE is unable to process our listing application. Our Bank shall apply to the Stock Exchanges for the listing approvals and the final listing and trading approvals, after the Allotment and after the credit of Equity Shares to the beneficiary account with the Depository Participant, respectively. Lock-up See the sub-section titled “Placement-Lock-up” on page 159 for a description of restrictions on our Bank in relation to Equity Shares. Transferability Restriction The Equity Shares being Allotted pursuant to this Issue shall not be sold for a period of one year from the date of Allotment, except on the Stock Exchanges. For further transfer restrictions, see the section titled “Purchaser Representations and Transfer Restrictions” on page 165. Use of Proceeds The net proceeds of the Issue, after deduction of fees, commissions and expenses in relation to the Issue, would be approximately ` [] million. See the section titled “Use of Proceeds” on page 54. Risk Factors See the section titled “Risk Factors” on page 32 for a discussion of factors that you should consider before participating in this Issue. Closing Date The Allotment is expected to be made on or about [] (the “ Closing Date ”). Ranking The Equity Shares being issued pursuant to the Issue shall be subject to the provisions of the Memorandum and Articles of Association and shall rank pari passu in all respects with the existing Equity Shares including rights in respect of dividends after the closing. The holders of such Equity Shares will be entitled to participate in dividends and other corporate benefits, if any, declared by our Bank after the Closing Date, in compliance with the Companies Act. The holders of such Equity Shares may attend and vote in shareholders’ meetings in accordance with the provisions of the

Companies Act. See the section titled “Description of the Shares” on page 169. Security Codes for the Equity ISIN INE680A01011 Shares BSE Code 532180 NSE Code DHANBANK CSE Code -

SELECTED FINANCIAL INFORMATION OF OUR BANK

The following selected financial information which is extracted from our Reformatted Financial Statements , should be read in conjunction with the sections titled “Financial Statements” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on pages 185 and 60, respectively.

REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE REPORTING YEARS (Rs in Millions) As at As at As at March March Schedule March 31,2013 31,2012 31, 2011 CAPITAL AND LIABILITIES

Capital 1 851.4 851.4 851.4

Share Application Money Pending Allotment 354.0 - -

Reserves and Surplus 2 6,454.6 6,431.1 7,595.0

Deposits 3 112,021.3 118,044.1 125,296.3

Borrowings 4 15,920.9 17,215.1 6,261.1

Other Liabilities and Provisions 5 2,592.7 4,223.2 2,677.7 TOTAL 138,194.9 146,764.9 142,681.5 ASSETS

Cash and Balances with Reserve Bank of India 6 5,098.0 8,679.5 8,028.0 Balances with Banks and Money at call and short notice 7 2,523.3 581.2 1,323.6

Investments 8 46,844.9 43,601.6 36,396.8

Advances 9 77,770.6 87,580.5 90,651.5

Fixed Assets 10 1,357.6 1,486.9 1,343.6

Other Assets 11 4,600.5 4,835.2 4,938.0 TOTAL 138,194.9 146,764.9 142,681.5

Contingent Liabilities 12 10,809.5 33,615.6 32,508.5

Bills for collection 2,244.2 3,633.8 1,806.5 Significant Accounting Policies 17 Notes to the Financial Statements 18

The schedules referred to above form an integral part of the Financial Statements

REFORMATTED STATEMENT OF PROFITS AND LOSSES FOR THE LAST THREE REPORTING YEARS (Rs in Millions) Year Year Year ended ended ended March 31, March March Schedule 2013 31,2012 31, 2011 INCOME

Interest Earned 13 13,080.0 13,936.5 9,064.2

Other Income 14 1,143.0 1,436.4 1,467.7

Total 14,223.0 15,372.9 10,531.9 EXPENSE

Interest expended 15 10,315.8 11,461.3 6,412.9

Operating Expenses 16 3,393.2 4,889.6 3,444.7

Provisions and Contingencies 487.8 178.3 413.7

Total 14,196.8 16,529.2 10,271.3

Net Profit/(Loss) for the year 26.2 (1,156.3) 260.6 Profit brought forward (1201.9) 0.1 0.1 Transfer from Dividend Payable Account including Dividend Tax - 37.5 Total (1,175.7) (1,156.2) 298.2 Appropriations Transfer to Statutory Reserve - - 78.2 Transfer to Capital Reserve 13.1 45.7 2.3 Transfer to Special Reserve U/s.36(1)(viii) of Income Tax Act - - 18.6 Transfer to Other Reserve - - 149.2 Proposed Dividend - - 42.6 Dividend Tax - - 7.2 Balance Carried forward to Balance Sheet (1,188.8) (1,201.9) 0.1 Total (1,175.7) (1,156.2) 298.2 Earnings Per Share (in Rupees) Basic EPS 0.31 (13.6) 3.3 Diluted EPS 0.31 (13.6) 3.3 Significant Accounting Policies 17 Notes to the Financial Statements 18

The schedules referred to above form an integral part of the Financial Statements

REFORMATTED CASH FLOW STATEMENT FOR THE LAST THREE REPORTING YEARS

(Rs in Millions) Year ended Year ended Year ended Particulars March 31, 2013 March 31,2012 March 31, 2011 Cash Flow from Operating Activities Net Profit before Income Tax 26.6 (1,167.3) 396.8 Adjustments for: Depreciation on fixed assets 309.6 294.7 155.9 Depreciation on Investments 35.1 71.2 64.4 Amortisation of premia on investments 76.7 75.7 62.8 Loan Loss provisions including write offs 729.8 86.2 63.3 Provision against standard assets (63.9) 4.2 146.1 Provision for wealth tax 0.3 0.5 0.4 Provision for Deferred Tax Asset (259.1) - - Provision for NPA(Investments) 0.0 (4.1) - Provisions for restructured assets 28.9 3.7 3.4 Provision for fraud 4.6 - - Provision for OIS MTM Loss 2.4 - - (Profit) on sale of fixed assets 0.0 (10.5) (5.2) 864.4 521.6 491.1

Adjustments for: (Increase) in Investments (3,355.0) (7,347.6) (16,246.0) (Increase)/Decrease in Advances 9,080.1 2,976.9 (40,652.2) Increase/(Decrease) in Borrowings (2,371.2) 10,854.0 3,010.5 Increase/(Decrease) in Deposits (6,022.8) (7,252.2) 54,311.5 (Increase)/Decrease in Other Assets 493.5 188.9 (2,672.9) Increase in Other Liabilities and Provisions (1,602.5) 1,595.1 245.3 (3,777.9) 1,015.1 (2,003.8) Direct Taxes paid( net of refunds) (0.5) (75.0) (171.0) Net cash flows from operating activities (2,887.5) 294.4 (1,286.9) Cash flows from investing activities Purchase of fixed assets (241.9) (457.6) (718.9) Proceeds from sale of fixed assets 51.6 27.2 17.1 Net cash flows used in investing activities (190.3) (430.3) (701.8)

Cash flows from financing activities Proceeds from issue of equity shares 354.0 0.0 210.2 Proceeds from issue of Upper and Lower Tier II capital instruments net of repayment 1,077.0 100.0 75.0 Proceeds from Share premium(net of share issue expenses) - (4.9) 3,589.3 Dividend provided last year paid during the year including dividend tax - (50.1) (37.5) Net cash generated from financing activities 1,431.0 45.0 3,837.0

Net increase in cash and cash equivalents (1,646.7) (91.0) 1,848.3 Cash and cash equivalents as at April 1st 9,260.6 9,351.6 7,503.3 Cash and cash equivalents as at March 31st 7,613.9 9,260.6 9,351.6

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 "Our Business" as well as the "Financial Statements" and related notes prepared in accordance with the Indian GAAP, beginning on pages 60, 102 and 185, respectively. Unless otherwise stated, the financial information of our Bank used in this section is derived from our audited financial statements as of and for the fiscal 2011, 2012 and 2013 and our limited reviewed unaudited financial information, comprising of our balance sheet, profit and loss account and cash flow, for the six months ended September 30, 2012 and 2013, respectively.

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.

BUSINESS AND INDUSTRY RELATED RISK FACTORS

1. We were not profitable in the quarter ending September 30, 2013 and fiscal 2012 and may incur losses in the future which will have an adverse effect on our reputation and financial condition.

We experienced a net loss of ` 18.5 million in quarter ending September 30, 2013, primarily due to higher provisions towards investment depreciation and NPAs. Further, we experienced a net loss of ` 1,156.3 million in fiscal 2012, primarily due to an increase in our operating expenses from ` 3,444.7 million in fiscal 2011 to ` 4,889.6 million in fiscal 2012 and in the interest on deposits from ` 5,842.4 million in fiscal 2011 to ` 10,155.9 million in fiscal 2012. The increase in our operating expenses was primarily due to our significant growth in operations between fiscal 2009 to fiscal 2011 while the increase in the interest on deposits was primarily due to increase in deposit volumes and the general increase in the interest rates. We have implemented a plan to streamline our operations and improve the management of our growth. For further information, see "We are required to comply with a turnaround plan submitted to the RBI and if any of our plans do not succeed, it could impede our future growth and adversely affect our business, results of operations and financial condition" on page 34. Our future profitability is dependent upon many factors, including our ability to implement our growth management plan, interest rate fluctuations and economic conditions in India. We cannot assure you that we will be able to maintain our profitability or that we will not incur operating losses in the future.

2. If we fail to meet capital adequacy requirements in the future, the RBI may take certain actions including restricting our lending and investment activities and our ability to pay dividends.

On May 2, 2012, the RBI published guidelines on the Basel III standards (i.e. Based III reforms on capital regulations) with a requisite phased in implementation period commencing April 1, 2013 and full implementation required by March 31, 2018. As per Basel III standards, the revised minimum capital adequacy ratio required to be maintained by a bank is 9% (from April 1, 2013) to be enhanced to 11.5% (by March 31, 2018) of which 6% (from April 1, 2013) should be Tier 1 Capital to be enhanced to 7% (by March 31, 2018). Currently, we are required by the RBI to maintain a minimum capital adequacy ratio of 9% in relation to our total risk- weighted assets, or capital to risk-weighted asset ratio ("CRAR"), of which 6% should be Tier 1 Capital.

Further, Basel III standards have enhanced the eligibility criteria for inclusion of debt capital instrument as Tier 2 Capital, for example, the minimum maturity period of the debt instruments has been increased from five year to 10 years. Additionally, such debt capital instruments are required to be written off or converted into common equity at the option of RBI, upon occurrence of trigger event. Since the Tier 2 Capital already issued by us may not fulfill the criteria laid down under Based III standards, such Tier 2 Capital may become ineligible (subject to certain conditions) under Based III standards, requiring us to raise further funds in order to comply with the Basel III standards. As on September 30, 2013 our Tier 1 Capital is 9.3% (as per Basel II) which is 9.2% (as per Basel III).

Among other changes like increasing in monitoring and compliance costs, we will also be required to disclose capital ratios computed under both the Basel II and Basel III standards starting from September 2013. See "Regulations and Policies" on page 132.

Our capital adequacy ratio increased to 11.9 % as per Basel II, of which 9.3% was Tier 1 Capital, as at September 30, 2013 from 11.1% as per Basel II as at March 31, 2013. Further, our capital adequacy ratio as on September 30, 2013 as per Basel III is 10.5% of which 9.2% was Tier 1 Capital and 1.3% was Tier 2 Capital. 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. We cannot assure you that we will be able to maintain the required capital-to-risk asset ratio. 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, cash flows and financial condition.

3. Our business is vulnerable to interest rate risk. Any such volatility or increase in the interest rates may adversely impact our business and financial results.

Net interest income constituted 25.2%, 16.1%, 19.4% and 21.2% of our income for fiscal 2011, fiscal 2012, fiscal 2013 and for the six months ended September 30, 2013, respectively. 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.

4. 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.

Our net NPAs were ` 274.7 million, ` 580.0 million, ` 2,610.2 million and ` 2,912.4 million as at March 31, 2011, March 31, 2012, March 31, 2013 and September 30, 2013, respectively, while our gross NPAs were ` 670.9 million, `1,042.7 million, ` 3,802.7 million and ` 4,268.0 million, as at the same respective dates. Our net NPA ratio was 0.3%, 0.7%, 3.4% and 3.7% as at March 31, 2011, March 31, 2012, March 31, 2013 and September 30, 2013, respectively, while our gross NPA ratio was 0.7%, 1.2%, 4.8% and 5.3% as at the same respective dates. Further, our ratio of net NPAs to net advances increased from 2.5% in the six months ended September 30, 2012 to 3.7% in six months ended September 30, 2013 primarily due to the slippage of borrowal accounts on account of the slowdown faced by our borrowers engaged in the sectors relating to infrastructure, software and auto loan which in turn had an adverse impact on their ability to repay the loans on a timely basis or at all.

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 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, the RBI requires banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions from time to time. As at September 30, 2013,

our total provision for NPAs was ` 1,347.5 million, which was 32.1% of our gross NPAs. We cannot assure you that we will be able to comply with such RBI requirement, the failure of which may have an adverse impact on our business, financial condition and results of operations.

5. We could be subject to volatility in income from our treasury operations that could adversely impact our results of operations, cash flows and our business.

Approximately, 21.1%, 22.0%, 26.5% and 27.3%, of our total income in fiscal 2011, fiscal 2012, fiscal 2013 and for the six months ended September 30, 2013, 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 realize 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.

6. We are required to comply with a turnaround plan submitted to the RBI and if any of our plans do not succeed, it could impede our future growth and adversely affect our business, results of operations and financial condition

During fiscal 2009, we initiated a rapid growth plan to expand our business operations. However, during this period of rapid growth, we experienced a decrease in net profit from ` 233.0 million in fiscal 2010 to a net loss of ` 1,156.3 million in fiscal 2012, largely due to a disproportionate growth in our operating expenses and our inability to manage our aggressive expansion plans effectively. To address this decrease in net profit, the increase in operating expenses and the impact of our growth plans, we had submitted a strategic turnaround plan to the RBI to better manage our expansion and focus on key operating areas in order to reduce cost inefficiencies and improve our financial performance. Our strategic turnaround plan implemented since the beginning of fiscal 2013 has focused on rationalisation of our employee base and decreasing our employee costs, reducing property and office expenditures, reducing excess office premises and space and relocating certain high cost premises to lower cost locations. Further, we have recently renamed our turnaround plan as sustainable growth plan. For further information, see "Business - Our Business Strategy" on page 104. We believe our ability to manage our operating expenses and improve operating efficiencies is a significant factor in our ability to increase profitability. Pursuant to the implementation of our strategic turnaround plan, we have reduced our losses since fiscal 2012. In fiscal 2013 we generated net profit of ` 26.2 million compared to a net loss of ` 1,156.3 million in fiscal 2012 and our operating expenses have decreased in fiscal 2013 to ` 3,393.2 million from ` 4, 889.6 million in fiscal 2012.

While we continue to implement these measures and the effect of these cost and operational efficiency measures have impacted our financial results in fiscal 2013 and six months ended September 30, 2013 the overall longterm impact on our financial results may not be fully ascertainable at this stage. In addition, we also submit reports to the RBI on the progress of our plan's implementation on a regular basis. We may also incur significant costs and the attention of our management may be diverted in order to implement the plan in a timely manner. If we are unable to successfully implement the plan, we may be subject to further restrictive conditions set by the RBI which would adversely affect our business, results of operations and financial condition.

7. 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 wholesale depositors. However, a significant portion of our assets (such as loans) have maturities with longer terms than our liabilities (such as deposits). As at September 30, 2013, we had a negative liquidity gap extending over one year and up to three years of ` 24,946.5 million (in each case inclusive of swaps). However, we have a positive liquidity gap over three years and up to five years of ` 3,730.5 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, including our competitors in the banking industry, are required to pay higher interest rates or are unable to attract a sufficient number of new deposits, the business, results of operations and financial condition could be adversely affected.

8. We may not be fully compliant with certain RBI and Stock Exchange requirements.

During the course of periodic reviews, the RBI indicated that we are not fully compliant with certain RBI requirements. We have also been inconsistent in our periodic filings with the Stock Exchanges, including replies to notices received from them and certain filings are neither traceable nor available on record. Although we believe that such non-compliance is with respect to matters that do not materially affect our business operations, there can be no assurance that our business operations will not be adversely affected in the future by any action initiated by the RBI or the Stock Exchanges, including any action prescribed under section 35(4), section 35A and section 47(b) of the Banking Regulation Act, 1949 or otherwise. There can be no assurance that the RBI or any other regulator will issue any approvals in the time-frame required by us for our operations or at all. These may be considered as a failure to comply with the rules and regulations of the respective Stock Exchanges, requirements of the listing agreement and the listing conditions by the regulator and may, inter alia, render us liable to fines, shifting of the scrip to “Z” category wherein trades shall take place in 'trade for trade basis and suspension of trading in accordance with the SEBI circular dated September 30, 2013. We may also be liable to penalties, including levy of fine of up to ` 10 million for each such failure, under the Securities Contracts (Regulation) Act, 1956, which may adversely affect our business and operation.

9. We are involved in certain legal proceedings, including criminal matters.

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.

Currently, there is one criminal proceeding outstanding against us, represented by our Managing Director and CEO, and two senior executives, for an alleged act of criminal breach of trust and the offence of cheating in relation to a service provider agreement that we entered into with the complainant. While we have been granted a stay in the matter by the High Court of Andhra Pradesh, we cannot assure you that the matter will be decided in our favour. In the event, any of the cases pending is decided against us and/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” on page 181.

10. 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.

Although we have recently expanded to other regions of India, in particular, western and northern India, we have a regional concentration in southern India, particularly in Kerala. Further, 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.

11. Our results of operations and financial condition could be materially and adversely affected by the materialization of our contingent liabilities.

The following table provides our contingent liabilities as at September 30, 2013 and March 31, 2013:

As at March 31, As at September 30, 2011 2012 2013 2013 (` in millions) Contingent Liabilities Claims against the Bank not acknowledged as 24.6 39.4 40.5 44.9 debts Liability on account of outstanding forward 27,832.8 20,149.8 4,390.8 6,105.1 exchange contracts Guarantees given on behalf of constituents in 3,356.9 5,384.2 3,491.2 2,240.8 India Acceptances, endorsements and other obligations 585.9 1,182.3 1,027.1 346.6 Liability on account of interest rate swaps - 6,500.0 1,500.0 500.0 Other items for which the Bank is contingently 708.3 359.9 359.9 352.6 liable (Disputed Income Tax Liability) Total 32,508.5 33,615.6 10,809.5 9,590.0

If any of these contingent liabilities materialize, fully or partially, our results of operations and financial condition could be materially and adversely affected.

12. 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 4% of our net demands and time liabilities in a current account with the RBI. While the RBI has decreased this ratio since April 2010, however, we cannot assure you that RBI would not increase the cash reserve ratio requirement to a significantly higher proportion than at present as a monetary policy measure. The scheduled commercial banks, including us, do not earn interest on any portion of our cash reserve.

In addition, under RBI regulations regarding the statutory liquidity ratio, 23% 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. Any future increase in the statutory liquidity ratio requirements would reduce the amount of cash that we (including the other scheduled commercial banks) could use to lend and otherwise deploy in our business, which could materially and adversely affect our business, results of operations and financial condition.

13. Any slowdown in the performance of our 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.

As at September 30, 2013, our retail loans constituted 51% of our total loan book. Our plan to increase retail assets could 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. 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.

14. We may not be able to achieve desired returns from our investments, which may adversely affect our business, financial condition and results of operations.

We believe our strategic investment in certain entities will further augment our growth, broaden our product portfolio and provide investment-savvy customers cost-effective financial solutions. However, there can be no assurance that the investments we have made will be profitable in nature. The value of our investments depends on the success and continued viability of the businesses in which we have invested. Further, there can be no assurance that we will be able to fully realize gains from such investments or ascertain any risks involved.

For instance, regarding our investment in Destimoney Securities Pvt. Ltd. (" DSPL "), we have been directed by the RBI to disassociate ourselves and consider full divestment of our equity stake. Imposition of similar conditions by regulatory authorities on our investments may result in failure to obtain projected returns on our investments and in certain situations may also result in us losing our investments in whole or in part. While NSE in the past has directed that no further change in our shareholding in DSPL shall be affected without their prior approval, we have received approval from NSE in relation to removal of our name from dominant promoter group. However, our disinvestments may be subject to various approvals from regulatory authorities and compliance with investment agreement dated March 31, 2011 entered with DSPL and others, which may further restrict our ability to divest our investments.

We also may be unable to realize any value in a company we have invested in if we are unable to sell our equity interest in such investee company due to various internal or external factors. Write-offs or write-downs in respect of our investments may adversely affect our financial performance and the price of our Equity Shares. In addition, the ability of these investee companies to make dividend payments is subject to applicable laws and regulations in India relating to payment of dividends.

15. We have failed to comply with certain provisions of FEMA, as amended, and the regulations framed thereunder. In the event, RBI imposes a monetary penalty, confiscates our shares or repatriates our foreign exchange, our business, financial condition and results of operations would be materially and adversely affected.

FEMA requires an Indian company to submit a report to the RBI describing the consideration and other details of any shares purchased by a nonresident, within 30 days of receiving the consideration for such shares. FEMA also requires Indian companies to allot shares to nonresident purchasers within 180 days of receiving the consideration for such shares and, within 30 days of an allotment of shares, to file a report with the RBI notifying the RBI of the allotment and also to submit an annual report describing any foreign investment received by the company in the preceding financial year. On certain occasions, we failed to timely allot shares and have not submitted the above mentioned reports to the RBI. We believe the maximum penalty that can be imposed against us for each violation is three times the amount of each noncompliance or ` 0.2 million, depending whether or not the amount of the noncompliance is quantifiable. The RBI may also impose an additional penalty of ` 5,000 for each day that each of our violations continue. In addition to monetary penalties RBI has the authority to confiscate any shares issued by us in violation of FEMA and order our foreign exchange holdings, if any, to be repatriated to India or be retained outside India. We are not aware of similar circumstances that have resulted in the maximum monetary penalties or non-monetary penalties being imposed by the RBI, however, we cannot assure you that the RBI will not impose a penalty, and, to the extent they do, the amount of any penalty that will be imposed. Further, we cannot assure you that the RBI will not confiscate our shares or repatriate our foreign exchange. Were the RBI to impose a monetary penalty, confiscate our shares or repatriate our foreign exchange, our business, financial condition and results of operations would be materially and adversely affected.

16. There have been in the past certain media reports that contained unsubstantiated allegations regarding our business operations and financial reporting procedures. Such unsubstantiated media reports, even if determined to be without merit, could adversely affect our reputation and share price .

There have been in the past, particularly relating to fiscal 2012, certain media reports that contained unsubstantiated allegations regarding our business operations and financial reporting procedures. Any such unsubstantiated media reports in the future, even if determined to be without merit, could generate negative publicity and damage our reputation. Furthermore, the occurrence of any such allegations in the future may also have a negative impact on our business, financial results, share price and results of operations.

17. We are exposed to liquidity risks as a consequence of the adverse conditions in the global financial markets.

The recent global financial crisis and economic downturn have adversely affected economies and businesses around the world, including those in India. For example, several European countries experienced sovereign debt crises in 2011, which caused governments such as Greece, Portugal and Spain to enact severe austerity measures. 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 global credit and financial markets. In particular, liquidity in India has been adversely affected since 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., Europe 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 Overview” and “Regulations and Policies” on page 88 and on page 132, respectively. 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 stabilizing effects. Furthermore, recent pre-emptive actions taken by the RBI in response to the market conditions, 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 operations and financial condition.

18. 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. For instance, certain concerns were raised in the past by the RBI regarding our failure to adhere to the KYC policies while opening the accounts for certain of our customers and that we had accepted deposits from certain ineligible entities which made us vulnerable to money laundering issues. Further, very recently RBI has imposed a fine of ` 20 million on us for violation of RBI’s instructions, among other things, on KYC and anti money laundering requirements. If there is any further instance of noncompliance of KYC or anti-money laundering norms, our reputation may be adversely affected, which in turn could have an adverse impact on our business and results of operations.

19. 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 in India 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, etc., as at the last reporting day 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 day of fiscal 2013, priority sector advances aggregated ` 25,726.5 million and represented 29.1% of our adjusted net bank credit. As at the last reporting day of fiscal 2013, lending to the agriculture sector constituted 15.9% of our adjusted net bank credit.

In the case of any shortfall in our required lending to the agriculture sector or the total priority sector, we would be required to place up to a maximum of the difference between the required lending level and our actual agriculture sector or the total priority sector lending in specified funds like Rural Infrastructure Development Fund and NABARD and such other funds as specified by RBI, from

which we typically earn interest at lower rates as compared to loans made to the agriculture sector/other priority sector. For instance, we were unable to meet the priority sector lending requirements as prescribed by the RBI during fiscal 2013 and in the six months ended September 30, 2013. Since we were not able to achieve our priority sector targets, we are required to make compulsory investments in the Rural Infrastructure Development Fund ("RIDF") established with the NABARD or funds with certain other financial institutions. As of September 30, 2013, we have made a total investment of ` 1,127.9 million in NABARD, Small Industries Development Bank of India ("SIDBI"), RIDF and National Housing Bank ("NHB") schemes. Any change in RBI's regulations may require us to increase our lending to relatively riskier segments, which may result in an increase in NPAs in the directed lending portfolio. 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.

20. 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 by Credit Analysis and Research Limited ("CARE"), Brickwork Ratings and India Ratings and Research (from Fitch Group). On February 28, 2013, CARE has rated our Lower Tier II Bonds aggregating to ` 4,100 million as 'CARE BBB' and Upper Tier II Bonds aggregating to ` 2,000 million as 'CARE BBB-' while the certificate of deposits amounting to ` 15,000 million has been rated as 'CARE A2'. Additionally, India Ratings & Research from the Fitch Group has affirmed our long term issuer rating at ‘IND BBB-’ and our subordinated debt amounting to ` 170 million at 'IND BBB-' and have removed both the ratings from Rating Watch Negative on April 29, 2013. Further, Brickwork Ratings has rated our Lower Tier II bonds of ` 2,000 million as ‘BWR BBB+’ rating and have downgraded the outlook for the rating from ‘stable’ to ‘negative’ on September 4, 2013. 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.

21. 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. In accordance with the current RBI guidelines, all banks in India, including us, are subject to directed lending regulations. We are also subject to an annual financial inspection by the RBI. In the past, the RBI has made certain observations during such inspection concerning our business and operations, including accounting policies of the bank, solvency and capital adequacy requirements, asset quality, compliance with statutory and regulatory norms, credit administration, NPA analysis, quality of non-SLR portfolio, corporate governance, earnings appraisal, information technology systems, treasury funds and liquidity management, risk assessment and acquisition of retail portfolios. Further, RBI through its monitorable action plan for our Bank has suggested among other things, (a) raising of additional capital of ` 3,000 million, (b) reducing the gross NPA and net NPA below 2.25% and 1.5%, respectively, (c) achieve mandatory prirotiy sector advances, (d) reduce the cost-income ratio to below 60% and (e) improve the CASA deposit to 25%, to be achieved by March 31, 2014. In the event that we are unable to meet or adhere to the guidance or requirements of the RBI, the RBI may impose strict enforcement of its observations on us, which may have an adverse effect on our business, financial condition, cash flows and results of operations.

Further, 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. For instance, pursuant to a letter dated March 13, 2012, RBI has, inter alia, withdrawn the general

permission granted to us for setting up branches or administrative offices in Tier II and Tier VI cities. Therefore, we are now required to obtain prior permission of RBI for opening any new offices or branches, which may impede our ability to expand our operations. 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. 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 “Regulations and Policies” on page 132.

22. 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. Further, we have also provided for back-up power supply for critical security system and network infrastructure. 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. For instance, the RBI had raised certain concerns relating to our IT systems including certain software deficiencies, increased manual intervention in our NPA identification systems and failure to securely maintain and update the passwords for our vault operations on a regular basis. Further, RBI has observed that we have not strengthened our core banking solutions and have not taken steps to achieve full compliance in respect of all the domains of information technology systems. Although, we have adequately addressed and taken measures to rectify these concerns raised by the RBI, we cannot assure that we will not face any such threats in the future. 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.

23. Our banking business entails operational risks, including employee misconduct and fraud which could affect our goodwill and reputation.

We are exposed to operational risk that could arise from any inadequacy or failure of our internal processes or systems or from fraud. For example, 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. As of September 30, 2013, there were 65 fraud cases involving an amount of ` 4,054.7 million. Further, recently three of our customers (through their relatives and affiliates) in collusion with our officers have availed certain gold loans from us against spurious gold ornaments. For further details please see “Management Discussion and Analysis of Financial Statements – Recent Developments after September 30, 2013” at page 86.

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.

24. The value of the collateral held by us 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 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 the past, we have not been able to realize the value of the collateral despite having been granted a decree in our favour from a court of competent jurisdiction, on account of failure to find appropriate buyers. Any such instances, or a 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.

25. We are highly dependent on our senior management and our personnel to meet our business challenges. If we were to lose one or more of our key personnel or were unable to attract or retain talented professionals, 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. Nevertheless, 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. We also do not maintain key man insurance for any of our senior managers or key personnel. 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.

26. A substantial portion of our loans have a tenor exceeding one year exposing us to risks associated with economic cycles.

As at September 30, 2013, loans with a tenor exceeding one year (based on the RBI's asset-liability management guidelines) constituted 51.9% of our total loans. The long tenor of these loans may expose us to risks arising 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.

27. 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 1.2% as at September 30, 2013. 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.

28. 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 are required to maintain various licenses issued by the RBI, IRDA and SEBI for our banking and other operations. Our registration with SEBI as a banker to an issue was has expired on November 30, 2012, and we have applied for the renewal of such registration, which is currently under process. We cannot assure you that SEBI will grant us a renewal certificate and any inability on our part may result in loss of business which may adversely affect our business and financial condition. Further, a license we have obtained from RBI or IRDA may be revoked if we fail to comply with any of the terms or conditions relating to such license, or restrictions may be placed on our operations. Any such failure to obtain, renew or maintain any required approvals, permits or licenses, may result in the interruption of all or some of our operations, which could materially and adversely affect our business and results of operations.

29. Our current independent auditor, M/s Sagar & Associates, have not audited certain financials which have been included in the Preliminary Placement Document. Further, our current independent

auditor have also qualified their limited review report for the six/three months ended September 30, 2013.

Our auditors are typically appointed on an annual basis through an annual general meeting from a panel of auditors that are recommended by our senior management, as approved by the RBI. As a result of this annual selection process, our former statutory auditors, Walker Chandiok & Co, Chartered Accountants ("WCC") and Sharp & Tannan, Chartered Accountants, have jointly audited our financial statements as of and for fiscal 2011 and 2012. RBI has appointed our new statutory auditors, M/s Sagar & Associates to act as our independent auditor. Our current auditors, M/s Sagar & Associates have not audited the financial statements for fiscal 2011 and 2012 which have been included in this Preliminary Placement Document. However, M/s Sagar & Associates have issued an examination report on the financial statements for fiscal 2011 and 2012, for which they have entirely relied upon the audit conducted by the previous auditors. Further, M/s Sagar & Associates have audited the financial statements for fiscal 2013 and conducted a limited review of our financial statements as of and for the six months ended September 30, 2013 and 2012.

Further, our auditors have qualified their limited review report dated November 9, 2013. Based on the RBI’s annual financial inspection report, an additional provisioning of ` 555.7 million for divergence in NPA provisions needs to be created by our Bank. If the provision were to be made, the profit of the Bank would have decreased by ` 555.7 million and the provisions and contingencies would have increased by ` 555.7 million for the three months ended September 30, 2013. For further information, please see “Financial Statements - Limited Review Report on Interim Financial Information” on page 253.

30. 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.

31. We depend on the accuracy and completeness of information about customers and counterparties and any wrong or misleading information could have an adverse impact on our results of operations and financial condition.

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. 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.

32. We are vulnerable to failures of our information technology systems and any such failure could adversely impact our business operations.

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.

33. 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. 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 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 a challenge 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 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.

34. The microfinance business poses unique risks. Our customer base in our microfinance business could have a higher risk of default compared to our other borrowers and any such failure to repay the loans could negatively impact our business, financial condition and results of operations.

Typically, microfinance customers are individuals living in rural India with limited sources of income, savings and credit histories. These individuals may not be able to provide us with any collateral or security for their borrowings. In addition, we have extended and may extend loan repayment moratoriums of approximately two to three weeks to microfinance customers who have been victims of flood conditions or other natural disasters. While we do extend such moratoriums on a case by case basis, emergency conditions due to natural disasters could adversely affect the ability of our members to make loan payments on time and in turn negatively impact our results of operations. Moreover, we typically seek non-traditional guarantees for microfinance loans, which may generally include informal individual and group guarantees rather than tangible assets. As a result, the microfinance business products, particularly loans, may create a higher degree of risk than loans secured with physical collateral. As a result, the customer base in the microfinance business could have a higher risk of default than borrowers with greater financial resources or with more established credit histories. Due to the circumstances of the microfinance customers, we may experience increased levels of non- performing loans and related provisions and write-offs that could negatively impact our business, financial condition and results of operations.

35. We intend to increase our gold loan business, which may bring risks that are generally not associated with other forms of lending in India. In addition, any change in the RBI policy or the volatility of gold prices could adversely affect our gold loan business.

We plan to grow our loan business to customers who provide gold jewellery as collateral. Although we view this as an opportunity to diversify and stabilize our deposit base, the extension of gold loans could also introduce us to different risks not associated with our other business segments. For example, an economic downturn or sudden downward movement in the market price of gold could result in a decline in the value of gold collateral.

We may also incur losses in the event that a customer defaults on loan payments and although we typically sell the pledged gold of customers who default on such loans, we cannot assure you that we will be able to fully cover the loan amounts in default.

Further, we may also incur losses in the event of fraud perpetrated by our customers in collusion with our officers, resulting in depositing spurious gold ornaments. For instance, recently three of customers (through their relatives and affiliates) have in collusion with our officers availed certain gold loans

from us against spurious gold ornaments. For further details please see “Management Discussion and Analysis of Financial Statements – Recent Developments after September 30, 2013” at page 86.

As a result of the above factors, our business, financial condition and results of operation could be adversely affected by our gold loan business.

36. 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 September 30, 2013, the ratio of secured to unsecured funded lending by us was approximately 0.9:0.1.

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.

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.

37. We lease most of our business premises and any failure to renew such leases or their renewal on terms unfavorable to us may affect our business operations.

As of September 30, 2013, our operations cover 13 states and two union territories across India, with approximately 676 customer outlets which include 280 branches and 396 ATMs. Although, we own our Registered Office premises at Thrissur, Kerala, majority of our branches and other properties we operate from are located on leased premises. In addition, some of our lease agreements with respect to our immovable properties may not be duly registered or may be inadequately stamped. Unless such documents are adequately stamped or duly registered, such documents may be rendered as inadmissible as evidence in a court in India or attract penalty as prescribed under applicable law, which may result in a material and adverse effect on the continuance of our operations and business, and we may not be able to enforce these agreements.

Further, the lease agreement dated April 1, 2007 with Mata Amritanandamayi Math for one of our branches has expired. Also, the branch office has been shifted to a different area within Mata Amritanandamayi Math. We are in the process of finalising and executing a lease agreement with them. Upon finalisation of the lease agreement, we shall intimate the change to RBI, which is currently pending. In case the agreement for such premises is not finalised, or is not finalised on terms and conditions that are favorable to us, it could adversely affect our business and result in increased costs.

38. 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 September 30, 2013, our exposure to our ten largest customers across all our business segments, in aggregate, was ` 8,544.8 million, representing approximately 10.6% of our total exposure to our customers. None of our ten largest customer exposures were classified as non-performing as at September 30, 2013. If any of our ten 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.

Further, for one of our top ten customers, we have written off an amount of ` 2.5 million on account of irreconciliable audit differences in relation to certain operations undertaken by our Bank at Sabrimala. Our Bank has written off the amount keeping in view our business relationship with our client. We can not assure you that in order to maintain relationship with our ten largest customers, such instances will not occur in future. Failure to recover any outstanding amount or writing-off of such amounts could adversely affect our business and financial condition.

39. 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 relatively much larger and may have more experience in certain verticals of the banking industry. We compete directly with large 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. In 2004, the GoI permitted foreign banks to establish subsidiaries in India and the FDI limit as on date for the private sector banks is 49% (under the automatic route) and 74% (under the approval route). 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.

Moreover, the Government has indicated its willingness to consider giving new banking licenses to private sector companies (including the industrial houses and the non-banking financial companies) which would increase competition in the banking industry. In February, 2013, the RBI has issued certain guidelines relating to the issuance of new bank licences and invited applications. Grant of additional banking license will create further competition for us. 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 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.

40. We may in the future enter into certain strategic tie-ups and partnerships, exposing us to certain regulatory and operating risks.

We intend to continue to pursue suitable tie-ups and strategic partnership opportunities in India, in particular to enhance and diversify our fee based operations and revenue in the future. We may not be able to identify suitable tie-ups or strategic partners or we may not complete transactions on terms commercially acceptable to us, or at all. We cannot assure you that we will be able to successfully form such tie-ups and partnerships or realize the anticipated benefits of such tie-ups and partnerships. Further, such partnerships may be subject to regulatory approvals, which may not be received in a timely manner, or at all. In addition, we cannot assure you that the expected strategic benefits or synergies of any future tie-ups/partnerships will be realized. Such initiatives may place significant strains on our management, financial and other resources and any unforeseen costs or losses could adversely affect our business, profitability and financial condition.

41. 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 liberalization 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 pose increased competition to our business thereby affecting our results of operations and financial condition.

42. 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.

43. Our success depends on our ability to successfully introduce new products and services.

We continue to introduce new banking products and services to our customers to address the needs of our customers. Further, we may not accurately anticipate our customers' needs and preferences, which are likely to change over time. The success of our new products and services also depends on certain criteria beyond our control, such as general economic conditions. Any failure to successfully develop or launch new products or services could damage our ability to compete effectively and divert management time and financial resources from other areas that could have been more successful. Any such failure could also result in a loss in our investment in time and funds, which could have a material adverse impact on our business, reputation, and financial condition.

44. 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. In addition, any unauthorized use of our logo by third parties could also adversely affect our reputation, which could in turn adversely affect our business, financial condition, cash flows and results of operations.

45. We may face labour disruptions that may interfere with our operations.

We are exposed to the risk of strikes and other industrial action. A majority of our employees are members of different trade unions. While we have had certain employee strikes in the past five years, such strikes and temporary disruptions in our operations have not had a materially adverse impact on our business and financial condition 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.

46. We cannot assure you that we will be able to pay dividends in the future.

Dividends that we have paid in the past may not be reflective of the dividends that we may pay in the future. Our ability to paying dividends in the future will depend on a variety of factors, including our earnings, financial condition, capital requirements, capital expenditures and payment of dues to the bondholders. We cannot assure you that we will be able to generate sufficient income to cover our operating expenses and pay dividends to our shareholders. Our ability to pay dividends could also be restricted subject to covenants in future financing arrangements.

EXTERNAL RISK FACTORS

Risk Factors Related to Investments in Indian Companies

47. 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.

48. The Indian economy has sustained varying levels of inflation in the recent past

According to India's Ministry of Finance Department of Economic Affairs' Monthly Economic Report October 2013, the inflation in terms of the wholesale price index for October 2013 was 7% as compared to 6.5% in September 2013 and 7.5% in the corresponding month last year. In addition, the average inflation rate in terms of the wholesale price index for last 12 months (from November 2012 to October 2013) was 6.3 % as compared to 7.8% during the corresponding period in 2012- 2013. While the inflation rate has decreased slightly in 2013 compared to 2012, inflation levels in India present a challenge to economic growth according to the World Economic Outlook published by the International Monetary Fund in 2012. In the event that rates of inflation continue to be high or further increase, our costs, such as salaries, wages or any other of our expenses may also increase. Accordingly, high rates of inflation in India could increase our costs which could have an adverse effect on our results of operations.

49. 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.

50. 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.

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. In the spring of 2012, both Fitch and Standard and Poor's downgraded the credit outlook of India's sovereign credit debt to "negative" (BBB) from "stable". While Fitch has revised India’s sovereign credit debt to “stable” (BBB-) from “negative”, we cannot assure you that a downgrading shall not take place. Any downgrade by a statistical rating organization of India's credit ratings could negatively impact our ability to obtain further financing, which, in turn, could have an adverse effect on our business, future growth and results of operations.

51. 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 2011, fiscal 2012, fiscal 2013 and in the six months ended September 30, 2013 was from India. As a result, a slowdown in the Indian economy could adversely affect our business.

52. 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.

53. 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.

54. 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.

55. 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, regional hostilities 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. Further, our insurance coverage for such liability may not be sufficient. Any of the above factors may adversely affect our business and results of operations.

56. 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 other persons or entities; or

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

of these 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, on page 15.

57. 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.

58. 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, the BRLM 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.

59. 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 year on year from Fiscal 2009 until Fiscal 2011. However, in Fiscal 2012, India's foreign exchange reserves decreased to US$ 296.6 billion and to US$ 286.2

billion in November 2013. (Source : www.rbi.org.in) 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.

60. 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 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. We will be expected to prepare annual and interim financial statements under IFRS upon issue of relevant instructions from competent authorities. Because there is significant lack of clarity on the adoption of and 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

61. 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 ESOS 2009 and ESOS 2013 or any such similar schemes, 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 “Regulations and Policies” on page 159, 169 and 132, respectively, 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.

62. We are required to apply for a post facto approval from the RBI, upon completion of the Issue.

As specified by RBI in its letter dated, December 10, 2013 and as required in terms of the RBI circular dated April 20, 2010, upon completion of the Issue, we are required to obtain a post facto approval from the RBI. The requirement to obtain post facto approval from RBI is irrespective of the Issue resulting in an entity/group holding 5% or more of the paid-up capital of our Bank. Upon completion of the Issue, we would be required to furnish complete details of the Issue, including details of the investors, to RBI for seeking their post facto approval. We cannot assure you that the RBI may not impose any adverse condition upon us, while providing their approval.

63. 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. The price of the Equity Shares after this Issue may fluctuate 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 about 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. You may be unable to resell your Equity Shares at or above the Issue Price due to share price volatility and, as a result, you may lose all or part of your investment.

64. 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 the acquisition of 5% or more of our Equity Shares (paid up capital) by an individual or group.

65. 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. Further, the RBI may, by passing an order, restrict any person holding more than 5% of the total voting rights of a bank from exercising voting rights in excess of 5%, if such person is deemed to be not fit and proper by the RBI. Recently, the RBI has observed that the nomination committee has accepted the fitness of a shareholder (holding voting rights in excess of 5%), without the nomination committee calling for details in relation to a first information report filed against such shareholder. In the event of any directive by the RBI to comply with RBI guidelines will materially alter the ownership of the Bank. Such sale of Equity Shares could adversely affect the market price of the Equity Shares.

66. 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 preemptive rights unless we make such a filing. We may elect not to file a registration statement in relation to preemptive rights otherwise available by Indian law to you. To the extent that you are unable to exercise preemptive rights granted in respect of the Equity Shares, your proportional interests in us would be reduced.

67. 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.

68. 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 “The Securities Market of India” on page 166.

69. 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.

70. 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 and the BSE 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.

71. 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 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 "Statement of Tax Benefits" on page 173.

72. 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” on page 166 .

For further information on issue procedure, please see "Issue Procedure" on page 151 .

USE OF PROCEEDS

The total gross proceeds of the Issue will be ` [] million. After deducting the estimated Issue expenses of approximately ` [] million, the net proceeds of the Issue will be approximately ` [] million.

Purpose of Issue

Subject to compliance with applicable laws and regulations, our Bank intends to use the net proceeds received from the Issue to augment our capital base to meet our capital adequacy and for general corporate purposes.

CAPITALISATION

Our Bank’s authorized share capital is ` 2,000 million divided into 200 million Equity Shares. As on the date of this Preliminary Placement Document, our Bank’s issued, subscribed and paid up capital is ` 1,083.59 million divided into 108,359,619 fully paid up Equity Shares.

The following table sets forth our Bank’s capitalization (including indebtedness) as at September 30, 2013 on the basis of our unaudited interim financial statements for the six months ended September 30, 2013, prepared in accordance with Indian GAAP and as adjusted to give effect to the receipt of the gross proceeds of the Issue and the application thereof. This table should be read in conjunction with the sections titled “Management Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” on pages 60 and 185, respectively.

(` in millions) As at September 30, 2013* As adjusted for the Issue Shareholders’ funds Equity share capital (a)(b) 1,060.6(c) [] Share application money pending allotment - Reserve and surplus 7,315.3 [] Total shareholders’ funds 8,375.9 [] Indebtedness Deposits 119,066.5 [] Borrowings 7,774.6 [] Other liabilities and provisions 2,186.8 [] Total indebtedness 129,027.9 [] Total 137,403.8 [●] *Derived from the Unaudited Interim Financial Statements. (a) The equity share capital of the Bank excludes 768,320 outstanding employee stock options issued to the eligible employees, as on September 30, 2013 with an exercise price of ` 118.4 per option under ESOS 2009. (b) The Bank has not issued any employee stock options under ESOS 2013. (c) The Bank has allotted 2,300,000 Equity Shares on September 28, 2013 which has not been included since the Equity Shares were pending credit the dematerialized accounts of the allottees.

There has been no material change in the total capitalization of our Bank since September 30, 2013, except for decrease in deposit to ` 113,140.5 million and borrowing to ` 9,902.5 million as at November 30, 2013. For further details, see the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Development” and “Legal Proceedings” on pages 86 and 181, respectively.

Further, our Bank has introduced Employee Stock Option Scheme, 2013 pursuant to the board resolution dated July 17, 2013 and shareholders resolution dated August 27, 2013 (“ ESOS 2013 ”). As per ESOS 2013, holders of employee stock options under ESOS 2009 may either (i) surrender within 30 days from the date on which ESOS 2013 comes into force such options and accept equal number of options under ESOS 2013, which shall vest in them immediately, or (ii) exercise the options granted under ESOS 2009 within the respective exercise period as provided in ESOS 2009 but at such exercise price as provided under ESOS 2013.

MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE EQUITY SHARES

As on the date of this Preliminary Placement Document, our Bank’s issued, subscribed and paid up capital totals ` 1,083.6 million divided into 108,359,619 fully paid up Equity Shares. The Equity Shares are listed on the BSE, NSE and CSE. The closing price of the Equity Shares on the BSE as of December 19, 2013 was ` 39.20 and on the NSE as of December 19, 2013 was ` 39.30. Since, our Equity Shares have not been traded on the CSE since 2002, no market price information relating to the same has been disclosed.

The tables set forth below provide certain stock market data for the BSE and the NSE and is for the periods that indicate the high and low closing prices of the Equity Shares and also the volume of trading activity.

1. The high, low and average market prices of the Equity Shares during the preceding three calendar year periods:

BSE

Period High Date of No. of Total Low Date No. of Total Average Equity Shares (`) High Equity Volume (`) of Equity Volume Price Traded in the Periods Shares of Low Shares of for the Volume Value Traded Equity Traded Equity Period * (` in on Date Shares on Shares (`.) millions) of High Traded Date of Traded on Date Low on Date of High of Low (` in (` in millions) millions) 29- 04-Apr- Aug- 2013 75.4 12 1,374,626 102.1 43.8 12 67,453 2.9 57.6 75,949,181 4,830 30- 9-Apr- Aug- 2012 79.2 12 2,332,921 177.4 42.5 12 70,477 3.1 58.4 82,562,672 5,278 29- 25-Apr- Dec- 2011 135.9 11 293,062 39.1 42.4 11 186,659 8.4 95.1 55,060,966 4,483 ____ (Source: www.bseindia.com ) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been used * Average of the daily closing prices.

NSE

Period High Date No. of Total Low Date No. of Total Average Equity Shares traded (`) of Equity Volume (`) of Low Equity Volume Price in the Periods High Shares of Shares of for the Volume Value ( ` Traded Equity Traded Equity Period in on Date Shares on Date Shares *(`.) millions) of High Traded of Low Traded on Date on Date of High of Low (` in (` in millions) millions) 04- 29- Apr- Aug- 2013 75.7 12 4,346,526 321.8 43.7 12 231,357 10.2 57.6 242,230,190 15,408.9 30- 9-Apr- Aug- 2012 79.2 12 8,660,927 658.9 42.7 12 291,133 12.8 58.3 291,073,084 18,588 25- Apr- 29- 95.1 2011 135.9 11 919,657 122.9 41.9 Dec-11 1,701,889 76.5 191,801,130 15,543

____ (Source: www.nseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been used. * Average of the daily closing prices

2. Monthly high and low prices of the Equity Shares for the six months preceding the date of filing of the Preliminary Placement Document:

BSE

Months High Date No. of Total Low Date No. of Total Average Equity Shares (`) of Equity Volume of (`) of Low Equity Volume of Price traded in the Month High Shares Equity Shares Equity for the Volume Value ( ` Traded Shares Traded Shares Month* in on Date Traded on on Date Traded on (`.) millions) of High Date of of Low Date of High ( ` in Low ( ` in millions) millions) 02- 12- April 2013 49.4 Apr- 185,574 9.1 44.0 Apr- 73,984 3.2 46.0 2,216,413 103.6 13 13 11- 31- May 2013 46.8 May- 16,161 0.7 40.3 May- 58,430 2.3 44.6 2,919,581 132.9 13 13 04- 24- June 2013 40.2 Jun- 227,033 9.1 30.2 Jun- 115,424 3.6 35.6 2,559,932 92.3 13 13 02- 31- July 2013 36.6 Jul- 170,954 6.3 27.2 Jul- 138,702 3.7 33.3 2,607,236 88.1 13 13 16- 02- August 31.1 Aug- 324,004 9.7 24.6 Aug- 102,378 2.5 28.4 2,907,445 84.0 2013 13 13 20- 03- September 41.6 Sep- 300,563 12.4 30.0 Sep- 99,343 3.0 36.9 2,907,745 107.3 2013 13 13 14- 01- October 46.7 Oct- 955,160 44.6 41.0 Oct- 68,976 2.8 43.1 2,606,098 117.5 2013 13 13 05- 27- November 45.3 Nov- 165,183 7.5 38.4 Nov- 33,807 1.3 41.6 1,711,467 73.9 2013 13 13 Upto 02- 17- December 42.05 Dec- 283,464 12.0 38.8 Dec- 36,988 1.45 40.6 801,644 33.2 19, 2013 13 13 _____ (Source: www.bseindia.com ) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been considered * Average of the daily closing prices.

NSE

Months High ( `) Date of No. of Total Low ( `) Date of No. of Total Average Equity Shares traded in High Equity Volume Low Equity Volume of Price for the Month Shares of Equity Shares Equity the Volume Value ( ` Traded on Shares Traded on Shares Month* in Date of Traded Date of Traded on (`.) millions) High on Date of Low Date of High ( ` in Low ( ` in millions) millions) 13 13 May 2013 46.7 11- 53,020 2.4 40.2 31-May- 319,812 130.3 44.6 11,981,858 544.4 May-13 13 June 2013 40.1 04-Jun- 767,569 30.8 30.3 24-Jun- 505,258 156.8 35.6 9,277,699 334.5 13 13 July 2013 36.7 02-Jul- 793,615 29.5 27.1 31-Jul- 542,603 146.4 33.2 10,556,461 358.0 13 13 August 30.7 19- 875,846 27.0 24.6 02-Aug- 516,665 130.4 28.3 12,014,499 344.2 2013 Aug-13 13 September 41.8 20-Sep- 1,058,379 43.7 30.0 03-Sep- 427,012 129.2 36.9 11,108,347 409.5 2013 13 13 October 46.8 14-Oct- 3,529,558 165.3 41.0 01-Oct- 343,699 140.4 43.1 9,362,693 422.5 2013 13 13 November 45.5 05- 611,729 28.0 38.4 27-Nov- 106,836 41.3 41.6 6,918,602 299.3 2013 Nov-13 13 Upto 02- 17-Dec- December 42.20 802,380 34.2 38.8 132,857 52.0 40.5 3,274,908 135.5 Dec-13 13 19, 2013 ____ (Source: www.nseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been considered * Average of the daily closing prices.

3. Market Price on the first working day following the Board meeting approving the Issue, i.e. on []:

BSE

Date Open High Low Close Traded Volume Total Value of Equity (No. of Equity Shares traded Shares) (` in millions) December [ ], 2013 [] [] [] [] [] [] _____ (Source: www.bseindia.com)

NSE

Date Open High Low Close Traded Volume Total Value of Equity (No. of Equity Shares traded Shares) (` in millions) December [ ], 2013 [] [] [] [] [] [] ____ (Source: www.nseindia.com )

DIVIDEND POLICY

Our Bank generally declares and pays dividends in the fiscal year following the year to which they relate.

The details of the dividends declared by our Bank in respect of the financial years ended March 31, 2013, 2012 and 2011 are set out below: (` in millions, except percentages) Particulars Financial Year Ended Financial Year Ended Financial Year Ended March 31, 2013 March 31, 2012 March 31, 2011 Issued and paid up share capital 851.4 851.4 851.4 Rate of dividend (%) Nil Nil 5 Amount of dividend * Nil Nil 42.6 * Excludes the dividend distribution tax paid by the Bank.

For a summary of certain Indian tax consequences of dividend distributions to shareholders, see the section titled “Statement of Tax Benefits” on page 173.

Future dividends will depend on our Bank’s revenue, cashflows, financial condition (including capital position) and other factors. For a description of regulation of dividends, see the section titled “Regulations and Policies – Restrictions on Payment of Dividend” on page 138.

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 " on page 121 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 ” on page 32 and elsewhere in this Preliminary Placement Document. See the section "Forward Looking Statements " on page 13. Unless otherwise stated, the financial information of our Bank used in this section is derived from our audited financial statements as of and for the fiscal 2011, 2012 and 2013 and our limited reviewed unaudited financial information, comprising of our profit and loss account, for the six months ended September 30, 2012 and 2013, respectively. The following discussion is based on our financial statements, which have been prepared in accordance with Indian GAAP and the Banking Regulation Act, 1949. 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

60 customers comprising a savings bank account, a demat account and a trading account with Destimoney Securities Private Limited ("DSPL") providing a complete trading platform.

Our total assets were ` 142,681.5 million as at March 31, 2011, ` 146,764.9 million as at March 31, 2012 and ` 138,194.9 million as at March 31, 2013. Further, our total assets were ` 137,403.8 million as at September 30, 2013. Our profit/(loss) after tax for fiscal 2011, 2012 and 2013 was ` 260.6 million, ` (1,156.3) million and ` 26.2 million, respectively. Our profit for the six months ended September 30, 2013 was ` 17.3 million. As at March 31, 2013, our total capital was ` 9,045.0 million and our CRAR was 11.1 %, as per Basel II (9.9% as per Basel I), with Tier 1 Capital at 8.1% as per Basel II (7.2% as per Basel I) and Tier II Capital at 3.0% as per Basel II (2.7% as per Basel I) while as at September 30, 2013, our total capital was ` 161.0 million as per Basel III ( ` 9,247.1 million as per Based II) and our CRAR was 10.5% as per Basel III (11.9 % as per Basel II), with Tier 1 Capital at 9.2% as per Basel III (9.3% as per Basel II) and Tier II Capital at 1.3% as per Basel III (2.6% as per Basel II).

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 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.

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 the distribution of life and general insurance products and miscellaneous income (which includes recovery from written- off accounts, processing fees, service and incidental charges such as account keeping fees and sundry charges).

Expenditure

Our expenditure consists 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, advertisement and publicity, director’s fees, auditor’s fees and repairs and maintenance. Our provisions and contingencies consist principally of provisions for non-performing assets, standard assets, investments and income tax and other taxes.

Factors Affecting our Financial Results

A number of general factors affected our financial performance during each of fiscal 2011, fiscal 2012 and fiscal 2013 and the six months ended September 30, 2013. These factors may affect our financial performance in the future as well. Set forth below are explanations for some of the major factors that affect our results of operations.

The Macroeconomic Environment

The recent global financial crisis and economic downturn have adversely affected economies and businesses around the world, including those in India. 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, the Indian economy was one of the fastest growing economies since the global economic crisis in 2008, with a growth rate of 6.5% in fiscal 2012. India's GDP is projected to grow at a rate of 5.9% in 2013 and 6.4% in 2014. (Source: International Monetary Fund, World economic Outlook, January 2013) . However, the Indian economy has also witnessed shortages of liquidity which led to an increase in the interest rates for loans provided by banks and financial institutions. Moreover, India has experienced high levels of inflation during recent years. While the inflation rate has decreased slightly in 2012 compared to 2011, inflation levels in India present a challenge to economic growth according to the World Economic Outlook published by the International Monetary Fund in 2012. In the event that rates of inflation continue to be high or further increase, our costs, such as salaries, wages or any other of our expenses may also increase. Accordingly, high rates of inflation in India could increase our costs which could have an adverse effect on our results of operations.

Availability of cost-effective funding sources

The ratio of our current and savings account ("CASA") deposits to total deposits, expressed as a percentage (or CASA percentage), for fiscal 2011, fiscal 2012, fiscal 2013 and the six months ended September 30, 2013 were 22.9%, 19.3%, 22.5% and 21.1%, 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 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" on pages 53 and 126, respectively.

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, 2011 6.0% 5.7% 6.7% As at March 31, 2012 9.0% 7.5% 8.5% As at March 29, 2013 8.5% 6.5% 7.5% As on December 5, 2013 8.7% 7.7% 6.7% (Source: Reserve Bank of India) *Bank rate refers to the general rate applicable to the banks and does not refer to our Bank rates.

Ability to manage operating expenses and achieve operating efficiencies

Our operating expenses have fluctuated significantly in the recent past. During fiscal 2011, 2012, 2013 and the six months ended September 30, 2013, our operating expenses were ` 3,444.7 million, ` 4,889.6 million, ` 3,393.2 million and ` 1,562.3 million, respectively. The primary components of our operating expenses during fiscal 2011, 2012, 2013 and the six months ended September 30, 2013 and September 30, 2012 were: (i) payments to and provisions for employees; (ii) rent, taxes and lighting; (iii) depreciation of our property; (iv) postage, telegram, telephone; and (v) advertisement and publicity and other office expenses like ATM expenses,

62 travelling expenses. We experienced an increase in most of these expenses in fiscal 2011 and 2012 primarily resulting from our expanded business operations during these fiscal years. Our employee headcount increased significantly in that period and our employee compensation expenses, particularly costs relating to attracting and retaining senior executives, also increased significantly.

Our strategic turnaround plan implemented since the beginning of fiscal 2013 has focused on rationalisation of our employee base and decreasing our employee costs, reducing property and office expenditure, reducing excess office premises and space and relocating certain high cost premises to lower cost locations. While we continue to implement these measures and the effect of thesecost and operational efficiency measures have impacted our financial results in fiscal 2013 and six months ended September 30, 2013, the overall long term impact on our financial results may not be fully ascertainable at this stage. We believe our ability to manage our operating expenses and improve operating efficiencies is a significant factor in our ability to increase profitability.

Successful implementation of our strategic plan

Since the beginning of fiscal 2013, we have commenced a strategic plan under which we are refocusing our business operations to increase profitability based on our operational strengths. Specifically, we are prioritizing our businesses relating to the retail banking, SME and microfinance and agricultural lending sectors. We have also entered into the gold business since June 2011. Our success in building customer relationships in these sectors, refocusing our businesses and introducing relevant new products will be significant factors in our results of operations and financial condition.

Ability to manage NPAs and risk as well as our provisioning for NPAs

As at March 31, 2011, March 31, 2012, March 31, 2013 and September 30, 2013 our net NPAs were ` 274.7 million, ` 580.0 million, ` 2,610.2 million and ` 2,912.3 million, respectively, and our gross NPAs were ` 670.9 million, ` 1,042.7 million, ` 3,802.7 million and ` 4,268.0 million, respectively. As at March 31, 2011, March 31, 2012, March 31, 2013 and September 30, 2013 our net NPA ratio was 0.3%, 0.7%, 3.4% and 3.7%, respectively, while our gross NPA ratio was 0.7%, 1.2%, 4.8% and 5.3% , 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 addition, the RBI requires banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions. As at September 30, 2013, our total provision for NPAs was ` 1,347.5 million, which along with Export Credit Guarantee Corporation's (ECGC) collection was 32.1% of our gross NPAs. The effort to maintain continued compliance with the RBI requirements, or failure to do so, may have a material adverse effect on our results of operations in periods thereafter.

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 "Regulations and Policies" on page 132.

In the recent past the banking industry has 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. The base rate system replaced the benchmark prime lending rate (BPLR) system in July 2010. It has contributed in improving the pricing of loans, enhancing transparency in lending rates and improving the assessment of the transmission of monetary policy. This, combined with no interest rates being levied on export credit in foreign currency from May 5, 2012 onwards has resulted in complete deregulation of interest rates on lending by commercial banks. Since the inception of the base rate system, liquidity in the financial system has remained in deficit mode. Repo rates strongly influence the determination of base rate by banks and a change in repo rate is clearly reflected as a corresponding change in the base rate. As the economy was migrating from surplus mode to deficit mode during July to December 2010, the pace of responsive change in bank rate with respect to repo rate was slow. The base rate increased, on an average by 58 basis points following the increase in repo rate by 75 basis points during this period. Thereafter, the momentum increased and continued till March 2011 which was followed by a moderation in growth during the second half of 2011-2012. The RBI reduced its repo rate by 50 basis points in April 2012, 24 banks accounting for around 63% of the aggregate credit reduced their base rates by an average 23 basis points until July 2012. In the period from April to November 2011, there was an increase in the repo rate mainly due to the prevailing inflationary pressure and anticipated inflation trajectory. According to the Third Quarter Review of Monetary Policy, dated Jan 23, 2013, a further reduction by 25 basis points has been contemplated in the future. However, the inflationary pressure posed to be a persistent concern throughout 2011-2012. (Source: RBI Annual Report 2012 ) Further, the Reserve Bank cut the repo rate by another 25 bps to 7.25 per cent in early May 2013 in continuation of its growth-supportive monetary policy stance. However, the Federal Reserve Chairman’s comments subsequent on May 22, indicating likely tapering of quantitative easing (QE) altered global financial conditions in a significant way. ( Source: RBI Annual Report 2013 )

The table below sets forth certain information relating to the changes in our base rate as well as the BPLR for the periods indicated below:

Effective Date Benchmark Prime Lending Rate Base Rate April 9, 2007 15.0% - June 26, 2008 15.5% - August 8, 2008 16.0% - July 1, 2010 16.0% 7.0% October 9, 2010 16.5% 7.5% January 1, 2011 17.2% 8.2% March 10, 2011 17.2% 8.7% April 7, 2011 18.2% 9.2% May 21, 2011 19.0% 10.0% July 7, 2011 19.2% 10.2% August 1, 2011 20.2% 10.7% September 19, 2011 20.7% 11.0% November 2, 2011 21.0% 11.2% September 9, 2013 21.0% 11.5%

Critical Accounting Policies

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 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 incompliance of the current practices prevailing within the banking industry in India. The preparation of financial statements requires the management to make estimates and assumptions considered in 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. We believe that the estimates used in the preparation

64 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.

Revenue Recognition

• Items of income and expenditure are accounted for on accrual basis, except as stated hereunder: - Interest / Discount on loans & advances / Bills is recognized on 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. - Rent on safe deposit lockers, dividends, depository participant business etc. are accounted for on cash basis. • Loan processing fee on retail assets is accounted for upfront when it becomes due. Loan processing fees for buyout/other loans would be recognized over the period of tenor of the loan on constant yield basis. Service charges to be paid on buyout loans would be recognized as and when due. • Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee. • Interest on income tax refunds is accounted in the year in which the same is received / adjusted by the income tax department. • The Bank imports bullion on consignment basis and sells it to customers. The profit or loss on sale of bullion is arrived after deducting direct and indirect costs. • 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 recognised in Profit and Loss Account when realized. • 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. 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 short fall / loss on account of sale of other non-performing assets. o At the end of each reporting year, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts are limited to the actuarial realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting year end. The cash consideration received in respect of accounts written off shall be credited to Profit and Loss Account and the value of Security Receipts shall be classified under investments and the corresponding provision shall be retained. • All income other than the transactions specified above are accounted on proportionate basis over the period of the contract

Investments

Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation as mentioned below: a) Classification

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. b) Basis of Classification

Investments that are held principally for resale within 90 days from the date of purchase are classified under “Held for Trading” category.

Investments which the Bank intends to hold till maturity are classified as HTM securities.

Investments which are not classified in the above categories are classified under “Available for Sale” category. c) Acquisition Cost

In determining acquisition cost of an investment:

- Held to Maturity – Weighted Average - Held for Trading – Weighted Average - Available for sale – Weighted Average d) Valuation of Investments is done as under

• Held to Maturity: ‘Held to Maturity’ securities are carried at their acquisition cost or at amortised cost, if acquired at a premium over the face value. Any premium over the face value of fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on a constant yield basis. • ‘Available for Sale’ and ‘Held for Trading’ securities are valued periodically as per RBI guidelines.

The quoted investments are valued based on the trades/quotes on the recognized stock exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association ("FIMMDA"), periodically.

The market/fair value of unquoted Government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the ‘Available for Sale’ and ‘Held for Trading’ categories is as per the rates published by FIMMDA. The valuation of other unquoted fixed income securities wherever linked to the Yield- to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for Government securities published by FIMMDA.

Unquoted equity shares are valued as per the RBI guidelines which is presently at the break-up value, if the latest balance sheet is available, or at `1, per company.

Securities are valued scrip-wise and depreciation/appreciation is aggregated for each category. Net appreciation in each category, if any, being unrealised, is ignored, while net depreciation is provided for.

Investment valuation norms for various categories is as given in table below:

Particulars Valuation Norms Central Government Securities Prices published by Primary Dealers Association of India ("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 Quoted: Valued as per currently traded quotes on the stock exchange. Unquoted : Valued at book value as per the latest Balance Sheet. Where Balance Sheets are not available, at ` 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

Non-performing investments are identified and depreciation/provision is made thereon based on the RBI guidelines. The depreciation / provision is not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit or Loss Account until received. e) Sale of Investments

Profit on sale of investments in the ‘Held to Maturity’ category is credited to the profit and loss account and is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit on sale of investments in ‘Available for Sale’ and ‘Held for Trading’ categories is credited to profit and loss account.

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 Liquidity Adjustment Facility ("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.

Advances

Advances are classified as performing and non-performing based on the RBI 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 / securitized are categorized 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.

67 classified as ‘Other assets’ which will amortise during the life of the advances on constant yield basis. In other cases, these are accounted at the deal value.

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 5.0% per annum. • office equipment at 18.1% per annum • motor cars at 25.8% per annum • electrical items at 13.9% • items (excluding staff assets) costing less than ` 5,000 are fully depreciated in the year of purchase. • computer hardware expenditure at 33.3% per annum on straight line basis. • computer software and system development expenditure at 20.0% per annum on straight line basis. • all other assets are depreciated as per the rates specified in Schedule XIV of the Companies Act, 1956.

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 five year.

For assets purchased and sold during the year, depreciation is provided on pro rata basis by the Bank.

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.

Transactions Involving Foreign Exchange

• Monetary assets and liabilities are translated at the exchange rates prevailing at the close of the year as advised by Foreign Exchange Dealers Association of India ("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/ amortized over the period of the transactions.

Employee Benefit Schemes

The defined employee benefit schemes are as under:

• Provident Fund

The contribution as required by the statute is made to the Staff PF Trust of the Bank is debited to the Profit and Loss Account. The obligation of the Bank is limited to such contribution.

• Gratuity

a separate staff trust. The liability for the same is recognized on the basis of actuarial valuation and certificate issued by independent actuary.

• Pension

The Bank has a defined benefit pension plan. The plan includes those employees who had joined under IBA pattern of the Bank upto and including 31st March, 2012 and had opted for the pension scheme. The scheme is managed by a separate trust and the liability for the same is recognized on the basis of actuarial valuation and certificate issued by independent actuary.

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.

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 recognized 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.

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 recognizes 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 recognized in the financial statements since this may result in the recognition of income that may never be realized.

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.

Changes in Accounting Policies

There have been no material changes in our accounting policies during fiscal 2011, fiscal 2012, fiscal 2013 and the six months ended September 30, 2013 other than that stated below:

• Until fiscal 2011, the Bank consistently recognised the discount on bills upfront, at the time of disbursement, where the tenure of the bills did not exceed one year. As per the directives of the RBI, the former accounting policy on bill discounting was changed and from January 1, 2012 the discount on bills was to be recognised over the tenure of the instrument. In the event, the Bank had continued to follow the former accounting policy, income for fiscal 2012 would have increased by ` 20.5 million while the loss for this period would have decreased to ` 1,135.8 million.

Summary of Our Financial Results

The following sets forth a summary of our financial statements containing significant items of our income and expenditure based on our audited financial statements for fiscal 2011, 2012 and 2013 and limited review of unaudited financial information for the six months ended September 30, 2012 and September 30, 2013:

Statement of Profits and Losses

Year ended March 31, Six months Six months ended ended September 30, September 30, 2011 2012 2013 2012 2013 (` in millions) Income Interest earned 9,064.2 13,936.5 13,080.0 6,577.2 6,504.8 Other income 1,467.7 1,436.4 1,143.0 432.2 393.6 Total income 10,531.9 15,372.9 14,223.0 7,009.4 6,898.4 Expenditure Interest expended 6,412.9 11,461.3 10,315.8 5,249.0 5,045.7 Operating expenses 3,444.7 4,889.6 3,393.2 1,743.7 1,562.3 Provisions and 413.7 178.3 487.8 321.0 273.1 contingencies Total expenditure 10,271.3 16,529.2 14,196.8 7,313.7 6,881.1 Net profit 260.6 (1,156.3) 26.2 (304.3) 17.3

Six months ended September 30, 2013 compared to the six months ended September 30, 2012

Summary of Performance

Six Months ended September 30, 2012 2013 % change (` in millions) Net interest income 1,328.2 1,459.1 9.9 Other income 432.2 393.6 (8.9) Operating (non interest) expenses 1,743.7 1,562.3 (10.4) Provisions and contingencies 321.0 273.1 (14.9) Net profit (304.3) 17.3 (105.7)

Net Interest Income

Our net interest income increased by 9.9% from ` 1,328.2 million in six months ended September 30, 2012 to ` 1,459.1 million in six months ended September 30, 2013. The following table sets forth the components of our net interest income:

Six Months ended September 30, 2012 2013 % change (` in millions) Total interest income 6,577.2 6,504.8 (1.1) Total interest expense 5,249.0 5,045.7 (3.9) Net interest income 1,328.2 1,459.1 9.9

Interest income

The following table sets forth a breakdown of our interest income for six months ended September 30, 2012 and 2013:

Six Months ended September 30, 2012 2013 % change (` in millions) Interest/discount on advances/bills 4,995.2 4,740.0 (5.1) Income on investments 1,561.1 1,666.0 6.7 Interest on balances with RBI and other inter-bank funds 20.9 98.8 372.7 Others 0.0 0.0 0.0 Total interest income 6,577.2 6,504.8 (1.1)

Our total interest income marginally decreased by 1.1% from ` 6,577.2 million in the six months ended September 30, 2012 compared to ` 6,504.8 million in the six months ended September 30, 2013.

Our interest/discount on advances/bills decreased by 5.1% from ` 4,995.2 million in the six months ended September 30, 2012 compared to ` 4,740.0 million in the six months ended September 30, 2013. This decrease was primarily due to decrease in average advances from ` 79,144.6 million to ` 75,789.1 million and on account of reversal of interest on few advances.

Our income on investments increased by 6.7% from ` 1,561.1 million in the six months ended September 30, 2012 compared to ` 1,666.0 million in the six months ended September 30, 2013. This increase was primarily due to increase in investment from ` 38,311.0 million to ` 43,607.2 million due to better fund deployment opportunities.

Our income on balances with RBI and other inter-bank funds increased by 372.7% from ` 20.9 million in the six months ended September 30, 2012 compared to ` 98.8 million in the six months ended September 30, 2013. This increase was primarily due to the increase in inter-bank deposits which increased significantly from ` 1,036.8 million as of September 30, 2012 to ` 1,675.3 million as of September 30, 2013.

Interest Expense

Six Months ended September 30, 2012 2013 % change (` in millions) Interest on deposits 4,605.6 4,533.6 (1.6) Interest on RBI and inter-bank borrowings 235.8 192.6 (18.3) Others 407.6 319.5 (21.6) Total interest expended 5,249.0 5,045.7 (3.9)

Our total interest expense decreased by 3.9% from ` 5,249.0 million in the six months ended September 30, 2012 compared to ` 5,045.7 million in the six months ended September 30, 2013. This decrease was primarily due to the Bank’s policy to liquidate high interest bearing liabilities.

Interest on deposits decreased by 1.6% from ` 4,605.6 million in the six months ended September 30, 2012 compared to ` 4,533.6 million in the six months ended September 30, 2013. This decrease was due to our efforts to liquidate high interest bearing liabilities.

Interest on balances with the RBI and other inter-bank funds decreased by 18.3% from ` 235.8 million in the six months ended September 30, 2012 compared to ` 192.6 million in the six months ended September 30, 2013. This decrease was primarily due to a reduction in average money market borrowings by 46.3% from ` 371.3 million as of September 30, 2012 to ` 199.4 million as of September 30, 2013. Decrease in interest on balances was also attributable to increase in deposits by ` 9,312.5 million and availability of funds amounting to ` 1,052.6 million on account of capital infusion.

Our other interest expense decreased by 21.6% from ` 407.6 million in the six months ended September 30, 2012 compared to ` 319.5 million in the six months ended September 30, 2013. This decrease was primarily due to the decrease in refinance from financial institutions which decreased by 36.6% from ` 3,802.6 million as of September 30, 2012 to ` 2,410.0 million as of September 30, 2013.

Other Income

Six Months ended September 30 , 2012 2013 % change (` in millions) Commission, exchange and brokerage 42.8 36.7 (14.3) Profit on sales of investments (Net) 45.6 119.3 161.6 Profit on sale of land, buildings and other assets (Net) 0.1 1.0 900.0 Profit on exchange transactions (Net) 28.1 (8.2) (129.2) Income from insurance 90.3 4.3 (95.2) Miscellaneous income 225.3 240.5 6.7 Total other income 432.2 393.6 (8.9)

Our other income decreased by 8.9% from ` 432.2 million in the six months ended September 30, 2012 compared to ` 393.6 million in the six months ended September 30, 2013.

Commission, exchange and brokerage

Income from commission, exchange and brokerage fees decreased by 14.3% from ` 42.8 million in the six months ended September 30, 2012 compared to ` 36.7 million in the six months ended September 30, 2013, primarily due to decrease in issuance of bank guarantee from ` 4,221.6 million to ` 2,240.8 million during the same period.

Profit on sales of investments(Net)

Profit on sales of investments increased by 161.6% from ` 45.6 million in the six months ended September 30, 2012 compared to ` 119.3 million in the six months ended September 30, 2013, on account of improved market conditions for Government securities market.

Profit on sale of land, buildings and other assets (Net)

Profit on the sale of land, buildings and other assets increased by 900.0% from ` 0.1 million in the six months ended September 30, 2012 compared to ` 1.0 million in the six months ended September 30, 2013 primarily due to sale of non-banking assets.

Profit on exchange transactions (Net)

Profit on exchange transactions (net) decreased by 129.2% from ` 28.1 million in the six months ended September 30, 2012 compared to a loss of ` 8.2 million in the six months ended September 30, 2013 primarily due to depreciation of the value of Indian currency in the forex market. In addition, high volatility in the forex market required us to reduce our forex business.

Income from insurance

Income from insurance decreased by 95.2% from ` 90.3 million in the six months ended September 30, 2012 compared to ` 4.3 million in the six months ended September 30, 2013 due to delay in renewal of agency agreement with one of our key clients.

Miscellaneous income

Miscellaneous income marginally increased by 6.7% from ` 225.3 million in the six months ended September 30, 2012 compared to ` 240.5 million in the six months ended September 30, 2013.

Operating Expenses

Our operating expenses decreased by 10.4% from ` 1,743.7 million in the six months ended September 30, 2012 compared to ` 1,562.3 million in the six months ended September 30, 2013. This decrease was primarily due to a decrease in the employee cost by 12.8% from ` 1,014.9 million in the six months ended September 30, 2012 compared to ` 885.4 million in the six months ended September 30, 2013, resulting from a reduction in the number of employees from 2,774 as at September 30, 2012 to 2,504 employees as at September 30, 2013.

Provisions and Contingencies

The components of our provisions and contingencies are indicated below:

Six Months ended September % change 30 , 2012 2013 (` in millions) Provision for NPAs (Advances) including bad debts written off 384.9 162.4 (57.8) Provision for Standard Assets (48.8) 4.4 109.0 Provision for Restructured Advances (11.8) (26.3) (122.9) Provision for Fraud 0.0 3.2 0.0 Provision for OIS MTM Loss 0.0 1.0 0.0 Provision for Depreciation on Investments (Net) (3.3) 128.0 3978.8 Provision for NPA (Investments) 0.0 0.0 0.0 Provision for Income Tax / Wealth Tax / FBT 0.0 0.0 0.0 Deferred tax credit 0.0 0.4 - Total 321.0 273.1 (14.9)

Provisions and contingencies decreased by 14.9% from ` 321.0 million in the six months ended September 30, 2012 compared to ` 273.1 million in six months ended September 30, 2013. This decrease was primarily due to decrease in provision for NPAs including bad debts written off due to reduction in new slippages on account of better monitoring which was partially offset by increase in provision for depreciation on investments due to adverse conditions in government securities market.

Our ratio of net NPAs to net advances increased from 2.5% in the six months ended September 30, 2012 to 3.7% in six months ended September 30, 2013 primarily due to the slippage of borrowal accounts on account of the slowdown faced by our borrowers engaged in the sectors relating to infrastructure, software, plastic industry and other non-industrial segments.

Net Profit/Loss

As a result of the foregoing factors, we had a net profit of ` 17.3 million in the six months ended September 30, 2013, compared to a net loss of ` 304.3 million in the six months ended September 30, 2012.

Year ended March 31, 2013 compared to the Year ended March 31, 2012

Summary of Performance

Year ended March 31, 2012 2013 % change (` in millions) Net interest income 2,475.2 2,764.2 11.7 Other income 1,436.4 1,143.0 (20.4) Operating (non interest) expenses 4,889.6 3,393.2 (30.6) Provisions and contingencies 178.3 487.8 173.6 Net Profit/ (Loss) (1,156.3) 26.2 (102.3)

Net Interest Income

Our net interest income increased by 11.7% from ` 2,475.2 million in fiscal 2012 to ` 2,764.2 million in fiscal 2013. The following table sets forth the components of our net interest income:

Year ended March 31, 2012 2013 % change (` in millions) Total interest income 13,936.5 13,080.0 (6.1) Total interest expense 11,461.3 10,315.8 (10.0) Net interest income 2,475.2 2,764.2 11.7

Interest Income

The following table sets forth a breakdown of our interest income in fiscal 2012 and 2013:

Year ended March 31, 2012 2013 % change (` in millions) Interest/discount on advances/bills 10,753.9 9,715.1 (9.7) Income on investments 3,135.8 3,251.0 3.7 Income on balances with RBI and other inter-bank funds 43.6 77.2 77.1 Others 3.2 36.7 1046.9 Total interest income 13,936.5 13,080.0 (6.1)

Our total interest income decreased by 6.1% from ` 13,936.5 million in fiscal 2012 to ` 13,080.0 million in fiscal 2013. The decrease in interest income was primarily due to decrease in interest/discount on advances/bills on account of reduction in advances as a part of the strategy to exit low yielding high value advances.

Our interest/discount on advances/bills decreased by 9.7% from ` 10,753.9 million in fiscal 2012 to ` 9,715.1 million in fiscal 2013. This decrease was primarily due to decrease in advances by 11.2% from ` 87,580.5 million as at March 31, 2012 to ` 77,770.6 million as at March 31, 2013.

Our income on investments marginally increased by 3.7% from ` 3,135.8 million in fiscal 2012 to ` 3,251.0 million in fiscal 2013.

Our income on balances with RBI and other inter-bank funds increased by 77.1% from ` 43.6 million in fiscal 2012 to ` 77.2 million in fiscal 2013. This increase was primarily due to increase in average interbank deposit placed with other banks by 370.4% from ` 170.5 million in fiscal 2012 to ` 802.1 million in fiscal 2013.

We also recorded income of ` 36.7 million as other interest income on account of income tax refund received in fiscal 2013.

Interest Expense

Year ended March 31, 2012 2013 % change (` in millions) Interest on deposits 10,155.9 9,161.4 (9.8) Interest on RBI and inter-bank borrowings 851.2 419.9 (50.7) Others 454.2 734.5 61.7 Total interest expended 11,461.3 10,315.8 (10.0)

Our total interest expense decreased by 10.0% from ` 11,461.3 million in fiscal 2012 to ` 10,315.8 million in fiscal 2013. This decrease was primarily due to decrease in our total deposits and borrowings from ` 135,259.2 million in fiscal 2012 to ` 127,942.2 million in fiscal 2013, as a part of our Bank’s policy to liquidate high interest bearing liabilities.

Interest on deposits decreased by 9.8% from ` 10,155.9 million in fiscal 2012 to ` 9,161.4 million in fiscal 2013. This decrease was primarily due to decrease in total deposits by 5.1% from ` 118,044.1 million in fiscal 2012 to ` 112,021.3 million in fiscal 2013 and also due to our efforts to liquidate high interest bearing liabilities.

Interest on balances with the RBI and other inter-bank funds decreased by 50.7% from ` 851.2 million in fiscal 2012 to ` 419.9 million in fiscal 2013 primarily due to decrease in the average money market borrowings by 98.6% from ` 2,721.7 million in fiscal 2012 to ` 38.5 million in fiscal 2013 and borrowings from RBI against government securities by 34.0% from ` 3,773.2 million in fiscal 2012 to ` 2,465.6 million in fiscal 2013.

Our other interest expense increased by 61.7% from ` 454.2 million in fiscal 2012 to ` 734.5 million in fiscal 2013. This increase was primarily due to the interest paid on Lower Tier II Bonds of ` 1,077.0 million issued during the year.

Other Income

Year ended March 31, 2012 2013 % change (` in millions) Commission, exchange and brokerage 85.0 88.4 4.0 Profit on sales of investments (Net) 88.7 247.9 179.5 Profit on sale of land, buildings and other assets (Net) 10.5 4.0 (61.9) Profit on exchange transactions (Net) 118.8 79.8 (32.8) Income from insurance 82.9 44.3 (46.6) Miscellaneous income 1,050.5 678.6 (35.4) Total other income 1,436.4 1,143.0 (20.4)

Our other income decreased by 20.4% from ` 1,436.4 million in fiscal 2012 to ` 1,143.0 million in fiscal 2013.

Commission, exchange and brokerage

Income from commission, exchange and brokerage fees marginally increased by 4.0% from ` 85.0 million in fiscal 2012 to ` 88.4 million in fiscal 2013 on account of normal growth in business.

Profit on sales of investments (Net)

Profit on sales of investments, primarily relating to sale of government securities and equity investment, increased by 179.5% from ` 88.7 million in fiscal 2012 compared to ` 247.9 million in fiscal 2013, primarily due to optimum utilization of favourable market conditions due to fall in the yield on government securities.

Profit on sale of land, buildings and other assets (Net)

Profit on the sale of land, buildings and other assets decreased by 61.9% from ` 10.5 million in fiscal 2012 to ` 4.0 million in fiscal 2013, primarily due to decrease in sale of land, buildings and other assets.

Profit on exchange transactions (Net)

Profit on exchange transactions (net) decreased by 32.8% from ` 118.8 million in fiscal 2012 to 79.8 million in fiscal 2013 primarily due to decrease in clients resulting in a decrease in trading volumes. In addition, adverse forex market conditions required us to reduce our forex business.

Income from insurance

Income from insurance decreased by 46.6% from ` 82.9 million in fiscal 2012 to ` 44.3 million in fiscal 2013 primarily due to renewal of agency agreement with one of our key clients.

Miscellaneous income

Miscellaneous income decreased by 35.4% from ` 1,050.5 million in fiscal 2012 to ` 678.6 million in fiscal 2013 primarily due to reduction in processing fees by 79.4% on account of decrease in volume of advances. Miscellaneous income primarily includes loan processing fees and service charges on deposits and advance accounts.

Operating Expenses

Our operating expenses decreased by 30.6% from ` 4,889.6 million in fiscal 2012 to ` 3,393.2 million in fiscal 2013. This decrease was partly due to decrease in payments to and provisions for employees by 31.8% from ` 2,739.6 million in fiscal 2012 compared to ` 1,867.6 million in fiscal 2013, which resulted from a decrease in the number of employees from 3,468 in fiscal 2012 to 2,601 employees in fiscal 2013. In addition, our operating expenses also decreased due to decrease in advertisement and publicity expenditure from ` 108.3 million in fiscal 2012 to ` 5.1 million in fiscal 2013 and other expenditure on account of reduction in ATM expenses pursuant to revised terms with the vendor.

Provisions and Contingencies

The components of our provisions and contingencies are indicated below:

Year ended March 31, 2012 2013 % change (` in millions) Provision for NPAs (Advances) including bad debts written off and 86.2 739.5 757.9 write back Provision for Standard Assets 4.2 (63.9) (1621.4) Provision for Restructured Advances 3.7 28.9 681.1 Provision for Depreciation on Investments (Net) 75.6 35.1 (53.6) Provision for NPA (Investments) (4.1) - 100.0 Provision for Fraud 1.1 4.6 318.2 Provision for OIS MTM loss - 2.4 - Provision for Income Tax / Wealth Tax / FBT 0.5 0.3 (40.0) Deferred Tax Assets 11.1 (259.1) (2434.2) Total 178.3 487.8 173.6

Provisions and contingencies increased by 173.6% from ` 178.3 million in fiscal 2012 to ` 487.8 million in fiscal 2013. This increase was primarily due to increase in NPA which was marginally offset by reversal in provision for (i) standard assets due to reduction in advances and (ii) deferred tax.

Our ratio of net NPAs to net advances increased from 0.7% in fiscal 2012 to 3.4% in fiscal 2013 as the net advances portfolio drastically shrunk from ` 87,580.5 million in March 2012 to ` 77,770.6 million in March 2013.

Net Profit

As a result of the foregoing factors, in fiscal 2013 we had a net profit of ` 26.2 million compared to a net loss of ` 1,156.3 million in fiscal 2012.

Year ended March 31, 2012 compared to the Year ended March 31, 2011

Summary of Performance

Year ended March 31, 2011 2012 % change (` in millions) Net interest income 2,651.3 2,475.2 (6.6) Other income 1,467.7 1,436.4 (2.1) Operating (non interest) expenses 3,444.7 4,889.6 41.9 Provisions and contingencies 413.7 178.3 (56.9) Net profit 260.6 (1,156.3) (543.7)

Net Interest Income

Our net interest income decreased by 6.6% from ` 2,651.3 million in fiscal 2011 to ` 2,475.2 million in fiscal 2012. The following table sets forth the components of our net interest income:

Year ended March 31, 2011 2012 % change (` in millions) Total interest income 9,064.2 13,936.5 53.8 Total interest expense 6,412.9 11,461.3 78.7 Net interest income 2,651.3 2,475.2 (6.6)

Interest Income

The following table sets forth a breakdown of our interest income in fiscal 2011 and 2012:

Year ended March 31, 2011 2012 % change (` in millions) Interest/discount on advances/bills 6,991.0 10,753.9 53.8 Income on investments 2,017.3 3,135.8 55.4 Income on balances with RBI and other inter-bank funds 55.9 43.6 (22.0) Others - 3.2 - Total interest income 9,064.2 13,936.5 53.8

Our total interest income increased by 53.8% from ` 9,064.2 million in fiscal 2011 to ` 13,936.5 million in fiscal 2012. The increase in interest income was primarily due to an increase in interest/discount on advances/bills and an increase in income on investments.

Our interest/discount on advances/bills increased by 53.8% from ` 6,991.0 million in fiscal 2011 to ` 10,753.9 million in fiscal 2012. This increase was primarily due to an increase in cash credits, overdrafts and loans repayable on demand, which increased by 34.7% from ` 11,203.7 million as at March 31, 2011 to ` 15,088.8 million as at March 31, 2012 as well as an increase in term loans, which increased by 3.3% from ` 67,921.0 million as at March 31, 2011 to ` 70,139.8 million as at March 31, 2012.

Our income on investments increased by 55.4% from ` 2,017.3 million in fiscal 2011 to ` 3,135.8 million in fiscal 2012. This increase was primarily due to an increase in investments, which increased by 19.8% from ` 36,396.8 million as at March 31, 2011 to ` 43,601.6 million as at March 31, 2012. The increase in investments was primarily due to increase in the purchase of Government securities (including approved securities), which increased by 25.9% from ` 33,081.1 million as at March 31, 2011 to ` 41,636.7 million as at March 31, 2012.

Our income on balances with RBI and other inter-bank funds decreased by 22.0% from ` 55.9 million in fiscal 2011 to ` 43.6 million in fiscal 2012. This decrease was primarily due to a reduction in interbank deposit placement, which decreased by 95.5% from ` 822.5 million as at March 31, 2011 to ` 37.1 million as at March 31, 2012 on account of the investment of the inter-bank funds into certain high-yielding Government securities and providing advances to our customers.

We also recorded income of ` 3.2 million as other income in fiscal 2012.

Interest Expense

Year ended March 31, 2011 2012 % change (` in millions) Interest on deposits 5,842.4 10,155.9 73.8 Interest on RBI and inter-bank borrowings 327.4 851.2 160.0 Others 243.1 454.2 86.8 Total interest expended 6,412.9 11,461.3 78.7

Our total interest expense increased by 78.7% from ` 6,412.9 million in fiscal 2011 to ` 11,461.3 million in fiscal 2012. This increase was primarily due to an increase in our borrowings including collateralized borrowing and lending obligation ("CBLO") borrowings, refinancing from financial institutions and subordinated debt to fund the growth of our business.

Interest on deposits increased by 73.8% from ` 5,842.4 million in fiscal 2011 to ` 10,155.9 million in fiscal 2012. This increase was primarily due to increase in deposit volumes and the general increase in the interest rates.

Interest on balances with the RBI and other inter-bank funds increased by 160.0% from ` 327.4 million in fiscal 2011 to ` 851.2 million in fiscal 2012 primarily due to additional foreign currency borrowings amounting to ` 2,539.2 million during fiscal 2012 as well as an increase in call borrowings.

Our other interest expense increased by 86.8% from ` 243.1 million in fiscal 2011 to ` 454.2 million in fiscal 2012. This increase was primarily due to the issue of tier II subordinated debt of ` 100 million during the year as well as an increase in refinancing availed from RBI and financial institutions such as NABARD and NHB.

Other Income

Year ended March 31, 2011 2012 % change (` in millions) Commission, exchange and brokerage 87.2 85.0 (2.5%) Profit on sales of investments (Net) 96.8 88.7 (8.4%) Profit on sale of land, buildings and other assets (Net) 5.2 10.5 101.9% Profit on exchange transactions (Net) 56.6 118.8 109.9% Income from insurance 66.1 82.9 25.4% Miscellaneous income 1,155.8 1,050.5 (9.1%) Total other income 1,467.7 1,436.4 (2.1%)

Our other income decreased by 2.1% from ` 1,467.7 million in fiscal 2011 to ` 1,436.4 million in fiscal 2012.

Commission, exchange and brokerage

Income from commission, exchange and brokerage fees decreased by 2.5% from ` 87.2 million in fiscal 2011 to ` 85.0 million in fiscal 2012.

Profit on sales of investments (Net)

Profit on sales of investments, primarily relating to sale of Government securities, decreased by 8.4% from ` 96.8 million in fiscal 2011 compared to ` 88.7 million in fiscal 2012, primarily due to the unfavourable debt markets. The debt market yields were increasing during this period on account of the increase in the repo rates by the RBI. The repo rates were increased from 6.7% during March 2011 to 8.5% during March 2012 which consequently had an adverse impact on the performance of the debt market segment thereby affecting our profits.

Profit on sale of land, buildings and other assets (Net)

Profit on the sale of land, buildings and other assets increased by 101.9% from ` 5.2 million in fiscal 2011 compared to ` 10.5 million in fiscal 2012, primarily due to an increase in the sales of land, buildings and other assets during this period.

Profit on exchange transactions (Net)

Profit on exchange transactions (net) increased by 109.9% from ` 56.6 million in fiscal 2011 to ` 118.8 million in fiscal 2012 primarily due to increased volume and the favourable exchange rate scenarios.

Income from insurance

Income from insurance increased by 25.4% from ` 66.1 million in fiscal 2011 to ` 82.9 million in fiscal 2012 primarily due to increased deployment of resources in the insurance business.

Miscellaneous income

Miscellaneous income was ` 1,050.5 million in fiscal 2012 compared to ` 1,155.8 million in fiscal 2011. Miscellaneous income primarily includes commitment fees received from distributing life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as well as processing fees and service charges on deposit accounts.

Operating Expenses

Our operating expenses increased by 41.9% from ` 3,444.7 million in fiscal 2011 to ` 4,889.6 million in fiscal 2012. This increase was partly due to an increase in payments to and provisions for employees by 36.0% from ` 2,014.6 million in fiscal 2011 to ` 2,739.6 million in fiscal 2012. The number of employees decreased from

3,665 in fiscal 2011 to 3,468 employees in fiscal 2012. In addition, our operating expenses also increased due an increase in the depreciation on our property by 89.0% from ` 155.9 million in fiscal 2011 to ` 294.7 million in fiscal 2012. This increase in the depreciation on our property was on account of the capitalization of certain assets during the end of fiscal 2012. The outsourcing policy followed by the Bank also contributed to the increased cost.

Provisions and Contingencies

The components of our provisions and contingencies are indicated below:

Year ended March 31, 2011 2012 % change (` in millions) Provision for NPAs (Advances) – including bad debts written off 63.3 86.2 36.2 Provision for Standard Assets 146.1 4.2 (97.1) Provision for Fraud - 1.1 - Provision for Restructured Advances 3.4 3.7 8.8 Provision for Depreciation on Investments (Net) 64.3 75.6 17.6 Provision for NPA (Investments) - (4.1) - Provision for Income Tax / Wealth Tax / FBT 166.2 0.5 (99.7) Deferred Tax Assets (29.6) 11.1 (137.5) Total 413.7 178.3 (56.9)

Provisions and contingencies decreased by 56.9% from ` 413.7 million in fiscal 2011 to ` 178.3 million in fiscal 2012. This decrease was primarily due to (i) a decrease in provisions for taxes on account of loss accounted and (ii) a decrease in provisions for standard assets on account of decrease in advances

Our ratio of net NPAs to net advances increased from 0.3% in fiscal 2011 to 0.7% in fiscal 2012 as the net advances portfolio drastically shrunk from ` 90,651.5 million in March 2011 to ` 87,580.5 million in March 2012.

Net Profit

As a result of the foregoing factors, in fiscal 2012 we had a net loss of ` 1,156.3 million compared to a net profit of ` 260.6 million in fiscal 2011.

Liquidity and Capital Resources

Cash Flows

Six months Six months Year ended March 31, ended ended September 30, September 30, 2011 2012 2013 2012 2013 (` in millions) Net cash flows/(used in)from operating (1,286.9) 294.4 (2,887.4) (1,829.8) 1,270.6 activities Net cash flows from/(used in) (701.8) (430.3) (190.3) (109.7) (175.8) investing activities Net Cash flow from /(used in) 3,837.0 45.0 1,431.0 1,017.0 598.6 financing activities Total cash flow during the year 1,848.3 (91.0) (1,646.7) (922.5) 1,693.4

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.

In the six months ended September 30, 2013, our net cash generated from operating activities was ` 1,270.6 million, primarily from (i) sale of securities to capitalize the decreasing yield on investments amounting to ` 3,073.1 million, (ii) increase in deposits amounting to ` 7,045.2 million and (iii) decrease in borrowings amounting to ` 8,046.4 million.

In fiscal 2013, our net cash used in operating activities was ` 2,887.4 million, which was primarily due to (i) decrease in deposits and borrowings by ` 6,022.8 million and ` 2,371.2 million respectively; and (ii) increase in investments ` 3,355.0 million. This increase was partially offset by decrease in advance to the tune of ` 9,080.1 million.

In fiscal 2012, our net cash generated from operating activities was ` 294.4 million, which was primarily due an increase in borrowings of due to additional borrowings in the form of foreign currency borrowings and refinance from financial institutions. This increase was partially offset by the purchase of additional securities and the repayment of deposits.

In fiscal 2011, our net cash used in operating activities was ` 1,286.9 million, primarily resulting from acceptance of deposits to facilitate the growth of the business as well as additional borrowings, which was partly used in the purchase of securities.

Investing Activities

Our net cash used in investing activities reflects the purchase or sale of fixed assets.

In the six months ended September 30, 2013, our net cash invested in investing activities was ` 175.8 million.

In fiscal 2013, our net cash invested in investing activities was ` 190.3 million, which was used for the purchase of fixed assets.

In fiscal 2012, our net cash invested in investing activities was ` 430.3 million, which was primarily due to ` 457.6 million used for the purchase of fixed assets which resulted in a net cash outflow at the end of the year.

In fiscal 2011, our net cash used in investing activities was ` 701.8 million, which was primarily due to ` 718.9 million used for the purchase of fixed assets.

Financing Activities

Our net cash from financing activities reflects proceeds of the issuance of equity shares, proceeds from issue of subordinated debt and dividends proposed and written back.

In the six months ended September 30, 2013, our net cash generated from financing activities was ` 598.6 million. We have raised `698.6 million from issue of Equity Shares resulting in increase in share capital by ` 150.2 million and increase in securities premium by ` 548.4 million. This was partially offset by repayment of Tier II Bonds to the tune of ` 100 million.

In fiscal 2013, our net cash generated from financing activities was ` 1,431.0 million, which was primarily from receipt of share application money amounting to ` 354.0 million and issue of Tier II Bonds amounting to ` 1,077.0 million.

In fiscal 2012, our net cash generated from financing activities was `45.0 million, which was primarily due to a net inflow of ` 100 million from an issue of upper and lower Tier II capital instruments net of repayment, partially offset by ` 50.1 million for the payment for dividends (net) declared in fiscal 2011 but paid out in fiscal 2012.

In fiscal 2011, our net cash generated from financing activities was ` 3,837.0 million, which was primarily due to a net inflow of ` 3,589.3 million from securities premium net of partial adjustment towards share issue expenses and ` 210.2 million from net proceeds from the issue of equity shares.

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 September 30, 2013, our assets maturing within 28 days exceeded our liabilities maturing within the same period by ` 15,420.7 million. Our liabilities maturing between 29 days and one year exceeded our assets maturing during the same period by ` 13,176.5 million and our liabilities maturing in over one year to three years exceeded our assets maturing in the same period by ` 24,946.5 million. Our assets maturing between three and five years exceeded our liabilities maturing during the same period by ` 3,730.0 million. Our assets maturing over five years also exceeded our liabilities maturing within the same period by ` 18,972.1 million. For further information, please see "Selected Statistical Information" on page 121.

Credit Ratings

Discussion on Assets and Liabilities

Assets

The following table sets forth the principal components of our assets as at March 31, 2011, 2012, 2013 and September 30, 2013:

As at March 31, As at September 30 , 2011 2012 2013 2013 (` in millions) Cash and balances with the RBI 8,028.0 8,679.5 5,098.0 6,143.4 Balances with banks and money at call and 1,323.6 581.2 2,523.3 3,171.4 short notice Investments 36,396.8 43,601.6 46,844.9 43,607.2 Net Advances 90,651.5 87,580.5 77,770.6 78,952.0 Fixed assets 1,343.6 1,486.9 1,357.6 1,367.9 Other assets 4,938.0 4,835.2 4,600.5 4,161.9 Total assets 142,681.5 146,764.9 138,194.9 137,403.8

Our total assets remained relatively constant between fiscal 2011 and fiscal 2012, with ` 142,681.5 million as at March 31, 2011 and ` 146,764.9 million as at March 31, 2012. Our total assets decreased marginally by 5.8% from `146,764.9 million as at March 31, 2012 to ` 138,194.9 million as at March 31, 2013 primarily due to the decrease in advances as a result of repayment of low yielding bought out loan portfolio. Our total assets decreased marginally by 0.5% from ` 138,194.9 million as at March 31, 2013 to ` 137,403.8 million as at September 30, 2013, primarily due to decrease in investment portfolio which was partially offset by increase in advances and deposits maintained with RBI.

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 by 19.8% from ` 36,396.8 million as at March 31, 2011 to ` 43,601.6 million as at March 31, 2012 and further increased by 7.4% to ` 46,844.9 million as at March 31, 2013, primarily due to an increase in government securities. Our investments decreased by 6.9% from ` 46,844.9 million as at March 31, 2013 to ` 43,607.2 million as at September 30, 2013, primarily due to return on investment from sale of government securities.

Our advances primarily include (i) bills purchased and discounted, (ii) cash credits, overdrafts and loans repayable on demand and (iii) term loans. Our net advances decreased by 3.4% from ` 90,651.5 million as at March 31, 2011 to ` 87,580.5 million as at March 31, 2012 primarily due to a decrease in bills purchased and discounted, partially offset by an increase in cash credits, overdrafts and loans repayable on demand and term loans. Our net advances decreased by 11.2% from `87,580.5 million as at March 31, 2012 to ` 77,770.6 million as at March 31, 2013 primarily due to repayment of low yielding bought out loan portfolio . Our net advances increased by 1.5% from ` 77,770.6 million as at March 31, 2013 to ` 78,952.0 million as at September 30, 2013 primarily due to a increase in cash credits, overdrafts and loans repayable on demand from ` 16,317.3 million as of March 31, 2013 to ` 20,444.6 million as of September 30, 2013.

Other assets, which include interest accrued, tax paid in advance/tax deducted at source (net of provisions), inter office adjustments, deferred tax assets, stationery and stamps and others, decreased by 2.1% from ` 4,938.0 million as at March 31, 2011 to ` 4,835.2 million as at March 31, 2012. Other assets decreased by 4.9% from ` 4,835.2 million as at March 31, 2012 to ` 4,600.5 million as at March 31, 2013. Other assets decreased by 9.5% from ` 4,600.5 million as at March 31, 2013 to ` 4,161.9 million as at September 30, 2013 primarily due to receipt of income tax refund of ` 211.7 million.

Liabilities and Shareholders' Funds

The following table sets forth a breakdown of our liabilities and shareholders' funds as at March 31, 2011, 2012, 2013 and September 30, 2013:

As at March 31, As at September 30 , 2011 2012 2013 2013 (` in millions) Shareholders' Funds Capital (issued, subscribed and paid-up) 851.4 851.4 851.4 1,060.6 Share application money pending allotment - - 354.0 - Reserves and Surplus 7,595.0 6,431.1 6,454.6 7,315.3 Liabilities Deposits 125,296.3 118,044.1 112,021.3 119,066.5 Borrowings 6,261.1 17,215.1 15,920.9 7,774.6 Other Liabilities and Provisions 2,677.7 4,223.2 2,592.7 2,186.8 Total Liabilities and Shareholders' funds 142,681.5 146,764.9 138,194.9 137,403.8

Our total liabilities and shareholders' funds increased by 2.9% from ` 142,681.5 million as at March 31, 2011 to ` 146,764.9 million as at March 31, 2012, primarily due to an increase in borrowings. Our total liabilities and shareholders' funds decreased by 5.8% from ` 146,764.9 million as at March 31, 2012 to ` 138,194.9 million as at March 31, 2013, primarily due to decrease in deposits on account of repayment of Inter Bank Deposits and Certificate of deposits consequent to Bank’s decision to shed high cost and bulk deposits. Our borrowings and cash and bank balances may significantly fluctuate from time to time depending on the need to strategically reduce high cost deposits and/or increase in investments, particularly increase in the investments in Government securities. Our total liabilities and shareholders' funds decreased marginally by 0.6% from ` 138,194.9 million as at March 31, 2013 to ` 137,403.8 million as at September 30, 2013, primarily due to decrease in borrowings and high cost deposits.

Components of Liabilities and Shareholder's Funds

Our capital remained constant at ` 851.4 million as at March 31, 2011, March 31, 2012 and March 31, 2013. Our capital increased from ` 851.4 million as at March 31, 2013 to ` 1,060.6 million as at September 30, 2013 primarily due to the issue of equity shares

Our reserves and surplus decreased by 15.3% from ` 7,595.0 million as at March 31, 2011 to ` 6,431.1 million as at March 31, 2012 primarily due to the loss of ` 1156.3 million sustained by the Bank during 2012. Our reserves and surplus increased marginally by 0.4% from ` 6,431.1 million as at March 31, 2012 to ` 6,454.6 million as at March 31, 2013 due to the profit made by Bank during the fiscal 2013. Our reserves and surplus increased by 13.3% from ` 6,454.6 million as at March 31, 2013 to ` 7,315.3 million as at September 30, 2013 primarily due to increase in securities premium from the issue of equity shares.

Our deposits decreased by 5.8% from ` 125,296.3 million as at March 31, 2011 to ` 118,044.1 million as at March 31, 2012 primarily due to a decrease in demand deposits from banks and others. Our deposits decreased by 5.1% from ` 118,044.1 million as at March 31, 2012 to ` 112,021.3 million as at March 31, 2013 primarily due to repayment of Inter Bank Deposits and Certificate of deposits consequent to Bank’s decision to shed high cost and bulk deposits. Our deposits increased by 6.3% from ` 112,021.3 million as at March 31, 2013 to ` 119,066.5 million as at September 30, 2013 primarily due to increase in customer deposits.

Our borrowings increased by 175.0% from ` 6,261.1 million as at March 31, 2011 to ` 17,215.1 million as at March 31, 2012 primarily due to an increase in borrowings from (i) RBI, (ii) refinance from other non-bank institutions and agencies in India and (iii) borrowings outside India. Our borrowing decreased by 7.5% from ` 17,215.1 million as at March 31, 2012 to ` 15,920.9 million as at March 31, 2013 primarily due to decrease in refinance from other non-bank institutions and agencies. Our borrowings decreased by 51.2% from ` 15,920.9 million as at March 31, 2013 to ` 7,774.6 million as at September 30, 2013 primarily due to decrease in Repo borrowing.

Other liabilities and provisions increased by 57.7% from `2,677.7 million as at March 31, 2011 to ` 4,223.2 million as at March 31, 2012 primarily due to an increase in interest accrued resulting from an increase in borrowings as well as the provision for expenses as a result of growth in operations. Other liabilities and provisions decreased by 38.6% from ` 4,223.2 million as at March 31, 2012 to ` 2,592.7 million as at March 31, 2013 primarily due to decrease in interest accrued resulting from an decrease in deposits and borrowings. Other liabilities and provisions decreased by 15.7% from ` 2,592.7 million as at March 31, 2013 to ` 2,186.8 million as at September 30, 2013 primarily due to funding of provision created as at March 31, 2013 for pension and gratuity being transferred to the respective trusts and reduction in bills payable.

The table below sets forth further details regarding our borrowings as at March 31, 2011, 2012, 2013 and September 30, 2013:

As at March 31, As at September 30, 2011 2012 2013 2013 (` in millions) Borrowings in India RBI 3,790.0 7,979.8 7,829.5 888.1 Other Institutions and Agencies 426.1 4,551.1 3,105.1 2,410.0 Debt issuances Upper Tier II Bonds 275.0 275.0 275.0 275.0 Lower Tier II Bonds 1,770.0 1,870.0 2,947.0 2,847.0 Borrowings Outside India - 2,539.2 1,764.3 1,354.5 Total 6261.1 17,215.1 15,920.9 7,774.6

Loan Portfolio

As of March 31, 2013, March 31, 2012 and March 31, 2011, our gross loan portfolio was ` 78,963.1 million, ` 88,040.8 million and ` 91,042.5 million, respectively. As of September 30, 2013 and September 30, 2012, our gross loan portfolio was ` 80,304.1 million and ` 76,252.3 million, respectively. As of each date, almost all our gross loans were to borrowers in India and were denominated in Indian Rupees.

The following table sets forth our loan concentration classified by our business segments as of the dates indicated:

As of March 31, As of As of Business segments 2011 2012 2013 September September 30, 2012 30, 2013 (in ` millions) Corporate Banking 34,020.1 19,894.4 19,483.4 18,112.0 15,278.5 SME Banking 12,832.9 13,112.2 13,324.6 12,663.6 9,311.4 Retail Banking* 35,954.4 45,641.4 31,452.1 32,761.1 41,294.8 Micro Finance and Agricultural Lending 8,235.1 9,392.8 14,703.0 12,715.6 14,419.4 Total Gross Loans 91,042.5 88,040.8 78,963.1 76,252.3 80,304.1 *Retail banking includes the buy-out amounts relating to the purchase of retail assets from certain third-party financiers.

From fiscal 2011 to fiscal 2012, we focused on our loan portfolio with customers in the corporate banking segment. However, as part of our strategic plan commencing in fiscal 2013, we are in the process of focusing more on our customers in the retail banking, SME banking and micro finance and agricultural lending sectors.

The following table sets forth, as of September 30, 2013, the interest rate sensitivity and maturity of our gross loans:

Interest Rate Classification of Loans by Maturity 1 year or 1-5 years After 5 Total less years (in ` millions) Variable rates 39,620.0 9,467.2 8,551.0 57,638.2 Fixed rates 11,366.9 9,686.9 1,612.0 22,665.9 Total Gross Loans 50,986.9 19,154.1 10,163.0 80,304.1

For further information regarding our loan portfolio, see "Our Business" and "Selected Statistical Information" on page 102 and 121, respectively.

Off-Balance Sheet Items

Contingent liabilities

The following table sets forth the principal components of our contingent liabilities as at March 31, 2011, 2012, 2013 and September 30, 2013:

As at March 31, As at September 30, 2011 2012 2013 2013 (` in millions) Contingent Liabilities Claims against the Bank not acknowledged as debts 24.6 39.4 40.5 44.9 Liability on account of outstanding forward exchange contracts 27,832.8 20,149.8 4,390.8 6,105.1 Guarantees given on behalf of constituents in India 3,356.9 5,384.2 3,491.2 2,240.8 Acceptances, endorsements and other obligations 585.9 1,182.3 1,027.1 346.6 Liability on account of interest rate swaps - 6,500.0 1,500.0 500.0 Other items for which the Bank is contingently liable (Disputed Income Tax Liability) 708.3 359.9 359.9 352.6 Total 32,508.5 33,615.6 10,809.5 9,590.0

Our contingent liabilities increased from ` 32,508.5 million as at March 31, 2011 to ` 33,615.6 million as at March 31, 2012 primarily due to interest rate swaps resulting from forward exchange contracts entered into by the Bank and an increase in guarantees given on behalf of constituents in India. This increase was partially offset by a 27.6% decrease in our outstanding forward exchange contracts, as the volatility in the market brought down our clientele base.

Our contingent liabilities decreased by 67.8% from ` 33,615.6 million as at March 31, 2012 to ` 10,809.5 million as at March 31, 2013. The decrease was primarily due to decrease in forward exchange contracts, interest rate swaps and guarantees given on behalf of constituents in India. Our contingent liabilities decreased by 11.3% from ` 10,809.5 million as at March 31, 2013 to ` 9,590.0 million as at September 30, 2013. The decrease was primarily due to decrease in interest rate swaps and guarantees given on behalf of constituents in India.

Description of Key Components of Contingent Liabilities:

Claims against the Bank not acknowledged as debts consists of legal claims made against the bank.

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 due to the spread between the purchase rate and the sale rate. We record income from foreign exchange transactions as income from exchange transaction, income from derivatives transactions in the hedging book as interest income and income from the proprietary book as trading income

Guarantees given on behalf of constituents in India consist of guarantees issued by the Bank in foreign currency as well as local currency.

Acceptances, endorsements and other obligations primarily consists of letters of credit issued by the Bank in foreign currency as well as local currency.

We have undertaken interest rate swaps of ` 1,500 million as at March 31, 2013 compared to the interest rate swaps of ` 500 million as at September 30, 2013.

Our disputed liability represents certain income tax claims principally relating 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.

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 which we continue to maintain and improve through equity capital infusion. Basel III standards are being implemented in India with effect from April 01, 2013 in a phased manner. In addition to the existing CRAR under Basel II standards, banks are also required to compute CRAR under Basel III standards from June 30, 2013. We are required to maintain a minimum capital adequacy ratio of 9% (of which Tier 1 Capital is 6.50%) by March 31, 2014 under Basel III standards. For a description of the RBI's capital adequacy guidelines, please see "Regulations and Policies" on page 132. Our capital adequacy ratios as at March 31, 2011, 2012, 2013 and September 30, 2013 were as follows:

As at March 31, As at September 30, 2011 2012 2013 2013 (in ` millions) Basel I Basel II Basel I Basel II Basel I Basel II Basel II Basel III Capital to Risk- weighted Assets Ratio ("CRAR") (%) 10.8 11.8 8.8 9.5 9.9 11.1 11.9 10.5 CRAR - Tier I capital (%) 8.6 9.4 6.9 7.4 7.2 8.1 9.3 9.2 CRAR - Tier II capital (%) 2.2 2.4 1.9 2.1 2. 7 3.0 2.6 1.3 As at March 31, As at September 30, 2011 2012 2013 2013 (in ` millions) Tier I capital ( ` in 8,076.0 6,472.2 6,581.5 7,275.4 millions) Tier II capital ( ` in 2,055.4 1,804.4 2,463.5 1,971.7 millions)

Total Tier I and Tier II 10,131.4 8,276.6 9,045.0 9,247.1 capital ( ` in millions) Amount of 1,583.0 1,329.0 2,052.0 1,557.0 Subordinated debt raised as Tier II capital (` in millions) Risk Weighted Assets 85,860.1 87,186.8 81,800.6 78,017.7

Capital Expenditure

Our capital expenditures consists principally of branch network expansion as well as investments in technology and communication infrastructure. Our capital expenditures for the years ended March 31, 2011, 2012, 2013 and the six months ended September 30, 2013 were ` 320.1 million, ` 191.0 million ` 67.5 million and ` 40.6 million, 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 optimize 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, policies and processes to assess risk and continuous monitoring of risk. For details about the types of risks and our risk management policies and structures, please see "Business - Risk Management Framework" on page 118.

Recent Developments after September 30, 2013

We have recently been subject to acts of fraud committed by three of our customers along with their relative and affiliates in connivance with our officers, at our Connaught Place and Karol Bagh Branches, New Delhi, aggregating to a total amount of ` 218.7 million, and ` 108.6 million and ` 3.5 million (as per two separate police complaints in November, 2013) which were granted between March, 2013 and October 2013 in relation to gold loan facilities availed by them. These customers pledged fake/spurious gold ornaments or ornaments where gold content was less than 10% of their gross weight.

The officers of our Bank are suspected to have assisted in perpetrating the acts of fraud by these customers in availing the gold loan facility from our Bank. While none of the officers have admitted to committing these acts of fraud, some of the officers have been transferred while others have been suspended. However, one of the gold loan valuers has confessed being party to the inflated valuation of the gold ornaments, where part of the appraisal charges were paid to the officers of our Bank.

Currently, we have not been able to recover any amount from these customers. We have informed the Fraud Monitoring Cell of the RBI of these incidents pursuant to our letters dated December 4, 2013 and December 12, 2013.

We have also filed a complaint with the police authorities in New Delhi for registration of a first information report.

We are also continuing our internal reappraisal process of gold ornaments and are conducting internal investigation of the incidents. Although we are in contact with these customers, we cannot assure you that we will be able to recover or obtain security for the balance amount of the gold loans provided to these customers. As of September 30, 2013, the loss arising from such acts of fraud, computed in accordance with the guidelines issued by the RBI, was ` 285.6 million. Such amount does not take into consideration any additional security that may be procured from the customers or any reimbursements that we may receive as a result of our existing insurance policy. We have taken certain steps to strengthen our internal controls and processes to discourage and detect incidents of fraud. We intend to undertake more stringent branch audits and inspections as well as stagger the transfers of branch heads and managers.

Except for the above and as stated in this Preliminary Placement Document, to our knowledge no circumstances have arisen since the date of the last financial statements as disclosed in this Preliminary Placement Document which materially and adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.

INDUSTRY OVERVIEW

The information in this section has been extracted from various industry related and regulatory websites and publicly available documents including officially prepared materials by the certain ministries of the Government of India ("GoI") including the Reserve Bank of India ("RBI"). Wherever we have relied on figures published by the RBI, unless stated otherwise, we have relied on the RBI Annual Report 2012-2013, Report on Trend and Progress of Banking in India 2012-2013and the accompanying explanatory notes, RBI's Annual Report and it’s publications on Profile of Banks, Commercial Banking Reports, RBI’s Macroeconomic and Monetary Developments Second Quarter Review 2012-2013 and certain RBI bulletins. Further, we have also relied on International Monetary Fund, World Economic Outlook Report of January and April 2013, Insurance Regulatory and Development Authority, Annual Report 2011-2012. The data may have been re-classified by us for the purpose of presentation. Neither we nor any other person connected with the Issue has independently verified the information provided in this section. Further, industry sources and publications, referred to in this section, generally state that the information contained therein has been obtained from sources generally believed to be reliable but their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured, and, accordingly, investment decisions should not be based on such information.

The Global Economy

Financial conditions in the global banking system improved following monetary easing measures by central banks in advanced economies. Banks in the United States of America are in an advanced stage of repairing their balance sheets. Concerns, however, remain for European banks’ asset quality. While the fundamentals of banking sectors in emerging economies were relatively robust, deceleration in growth may pose challenges. (Source: Report on Trend and Progress of Banking in India by the RBI, 2012-13 “TPBI Report 2013” ).

World output growth is forecast to reach 3¼ percent in 2013 and 4 percent in 2014. In advanced economies, activity is expected to gradually accelerate, starting in the second half of 2013. Private demand appears increasingly robust in the United States of America but still very sluggish in the euro area. In emerging market and developing economies, activity has already picked up steam. (Source: International Monetary Fund," World Economic Outlook, April 2013") An analysis of the performance of the top- 100 global banks shows that the share of emerging economies in global banking continued to rise, with one bank from China (Industrial and Commercial Bank of China) registering the top rank in global banking ratings. ( Source : “TPBI Report 2013” ).

The Indian Economy

The Indian economy was one of the fastest growing economies since the global economic crisis in 2008, with a growth rate of 6.5% in fiscal 2012. India's GDP is projected to grow at a rate of 5.9% in 2013 and 6.4% in 2014. (Source: International Monetary Fund, World economic Outlook, January 2013) .

Global Banking Industry

Globally, banks continued their efforts for repairing their balance sheets and improving their capital ratios, albeit at an uneven pace across countries. The funding costs of the global banking system in the second half of 2012 and so far in 2013 have witnessed improvements on the back of significant quantitative easing measures by central banks in advanced economies. Financial conditions, which worsened in the second quarter of 2012-13 on account of the bank crisis in Spain and political instability in Greece, subsequently improved following quantitative easing measures undertaken by advanced central banks. The United State’s Federal Reserve undertook the “open-ended” quantitative easing programme, while the European Central Bank (ECB) started outright monetary transaction (OMT) programme. However, a prolonged period of low interest rates and exit from the central bank asset purchase programme may have negative spillover effects, increasing financial stability risks. Although, on the other hand early completion of balance sheet repair by banks and implementation of regulatory reforms will strengthen the stability of the banking system in the medium term. (Source : TPBI Report 2013 ).

Indian Banking Industry

Until the 1980s, the Indian financial system was strictly controlled. Interest rates were administered by the GoI. Formal and informal parameters governed asset allocation, and strict controls limited entry into and expansion

88 within the financial sector. Bank profitability was low, non-performing assets ("NPAs") were comparatively high, capital adequacy was diminished, and operational flexibility was hindered. The GoI'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, primarily, 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 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 liberalized domestic capital market, and the entry of new private sector banks have progressively intensified the competition among banks.

Banks in India may be categorized as scheduled banks and non-scheduled banks, where the former are banks which are included in the second schedule to the Reserve Bank of India Act, 1934 (the "RBI Act"). These banks comprise scheduled commercial banks and scheduled co-operative banks. The scheduled commercial banks listed in the second schedule to the RBI Act, may further be classified as public sector banks, private sector banks, foreign banks and regional rural banks. (Source: Commercial Banking at a glance, RBI Quarterly Report dated December 11, 2012, (“Commercial Banking Report, 2012”)

The focus of commercial banks in India has largely been on meeting the financing needs of industry, trade and agriculture in India. As of June 2013 there were a total of 154 scheduled commercial banks with a network of around 106,398 reporting offices across India. In the fiscal year ended March 31, 2012, the aggregate deposits for all scheduled commercial banks was 17.9 % which declined to 13.5% as of June 30, 2013 while the gross bank credit for all scheduled commercial banks was 21.9 % which declined to 13.2% as of June 30, 2013. (Source: Commercial Banking at a glance, RBI Quarterly Report dated October 14, 2013, (“Commercial Banking Report, 2013”)

Constituents of Indian Banking Industry

The Reserve Bank of India

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 non-banking financial companies ("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.

Public Sector Banks

Public sector banks are scheduled commercial banks with significant GoI shareholding and constitute the largest category in the Indian banking system. In the year 2012- 2013, this category included the State Bank of India (“SBI”) and its six associate banks and 20 nationalised banks. As at March 31, 2013, the public sector banks had approximately 75,779 offices. (Source: RBI report on the Statistics relating to banks in India, 2012-2013)) 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 March 31, 2013, the SBI and its associate banks had around 21,301 branches across India, and employed 293,965 employees. (Source: Profile of Banks 2012-2013)

As of June 2013, nationalized banks, SBI and its associates, and private sector banks accounted for 52.3 per cent, 22.3 per cent of aggregate deposits, respectively, and for 50.2 per cent, 22.6 per cent of gross bank credit, respectively. The credit-deposit (C-D) ratio of all Scheduled Commercial Banks (SCBs) stood at 76.5 per cent. (Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: June 2013, RBI Publication)

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”. During 2012, there were 20 private sector banks, of which seven were New Private Sector Banks. In addition, 13 private sector banks existing prior to July 1993 were still operating in the period 2011-2012. These were collectively known as the “Old Private Sector Banks”. (Source: Profile of Banks in India- RBI ).

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 on March 31, 2013, the private sector banks (including the New Private Sector Banks and Old Private Sector Banks) had a network of 16,001 offices across India. (Source: RBI report on the Statistics relating to banks in India, 2012-2013)) . As of June 28, 2013, the private sector banks accounted for approximately 18.4% of the deposits and 19.5 per cent of gross bank credit. (Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks: June 2013 , RBI Publication)

Foreign Banks

As at March 31, 2013, there were a total of 43 foreign banks with 334 branches operating in India. (Source: Profile of Banks in India, 2012-2013 - RBI). 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. The objective of foreign banks’ participation in India was primarily to increase competition, promote efficiency of the local banking system and also adapting their sophisticated financial services and products with respect to domestic banks. Foreign banks operate in India through branches of the parent bank. But, encouraging qualifying foreign banks to move to wholly owned subsidiary structures, where they will enjoy near national treatment, will be a policy that will be consciously encouraged. (Source: Report on Trend and Progress of Banking in India by the RBI, 2012-2013 )

Co-operative Banks

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, National Bank for Agricultural and Rural Development, state co-operative banks and district central co-operative banks. The financial health and soundness of co-operative banks which comprise of Urban Co-operative Banks (UCBs) and rural co-operatives showed a varied performance in terms of key indicators such as profitability and non-

90 performing assets (NPAs). There was a moderation in the net profits of UCBs partly emanating from the impact of the slowdown in economic activity. Their asset quality, however, recorded steady improvement broadly mirroring strengthened prudential norms and regulations. With regard to rural co-operatives, while the overall performance of State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) exhibited some improvement in net profits and asset quality in 2011-12, primary agricultural credit societies reported losses. The long-term rural co-operatives, such as State and Primary Co-operative Agriculture and Rural Development Banks, continued to show weak financial performance. (Source: TPBI Report, 2013)

Non-Bank Finance Companies (NBFCs)

Non-Banking Financial Institutions (NBFIs) are a heterogeneous group of institutions that cater to a wide range of financial requirements and can broadly be grouped as financial institutions (FIs), non-banking financial companies (NBFCs) and primary dealers (PDs) As at June 30, 2012, there were approximately 12,385 NBFCs in India registered with the RBI, but the number fell down to 12, 225 on 2013 (Source: TPBI Report, 2013) Based on their liability structure, all NBFCs may be categorized into entities which take public deposits and those which do not. The primary activities of the NBFCs 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, and fee-based services such as investment banking and underwriting. The RBI has implemented a set of directions to regulate the activities of the NBFCs. The directions are aimed at controlling the deposit acceptance activities of the NBFCs. The NBFCs that accept public deposits are subject to strict supervision and the capital adequacy requirements of the RBI. The non-banking financial sector as a whole witnessed a significant expansion in its balance sheet; though there was consolidation as some companies exited and migrated to other business models. The net profits of FIs and NBFCs also increased during 2012-13. The overall asset quality of a large part of the NBFI sector deteriorated during the year, partly reflecting a slowdown in the overall economy. With regard to capital adequacy, the entire NBFI sector was comfortably placed. The net profit of standalone PDs showed a significant increase. Regulatory interventions for the sector were guided by concerns relating to financial stability as also for promoting healthy growth of the sector. Besides issuing public notices, the Reserve Bank has been carrying out outreach and sensitisation programmes, cautioning the general public not to fall prey to fictitious offers by individuals, unincorporated bodies and companies promising unsustainable returns. (Source: TPBI Report, 2013)

Long Term Lending Institutions

The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernization of existing facilities. These institutions provide fund-based and non-fund-based assistance to industry in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. The long-term lending institutions were expected to play a critical role in Indian industrial growth and, accordingly, had access to concessional GoI funding. However, in recent years, the operating environment of the long-term lending institutions has changed substantially. Although the initial role of these institutions was largely limited to providing a channel for GoI funding to industry, the reform process required them to expand the scope of their business activities. Their new activities included:

• fee-based activities such as investment banking and advisory services; and • short-term lending activity including issuing corporate finance and working capital loans

Other Financial Institutions

Housing Finance Companies

Housing finance companies form a distinct sub-group of the NBFCs. As a result of various incentives given by the GoI for investing in the housing sector in recent years, the scope of this business has grown substantially. The National Housing Bank Act, 1987 provides for refinancing and securitisation of housing loans, foreclosure of mortgages and establishment of the mortgage credit guarantee scheme.

Further, The National Housing Bank (Amendment) Bill, 2012 was introduced in the Lok Sabha on April 30, 2012. It seeks to amend the National Housing Bank (NHB) Act, 1987. The Bill provides for transfer of shareholding of the Reserve Bank in NHB to the Central Government to avoid conflict of ownership and regulatory role. It confers power on the Central Government to increase the authorised capital of NHB. To ensure uniform control over non-banking financial companies including housing finance companies, powers

91 related to registration and regulation over housing finance companies are proposed to be transferred to the Reserve Bank. NHB will concentrate on supervision and financing of such institutions. (Source: TPBI Report, 2013)

Insurance

As at September 30, 2012, there were a total of 52 insurance companies in India, of which 24 were life insurance companies, 27 were non-life insurance companies and one was a reinsurance company Of the 24 life insurance companies, 23 were in the private sector while one company was in the public sector, as of September 30, 2012. In fiscal 2012, the premiums income for life insurance companies was ` 2.87 trillion. In fiscal 2012, gross direct premium by general insurance companies was ` 528.76 billion. (Source: Insurance Regulatory and Development Authority, Annual Report 2011-2012).

Mutual Funds

Securities and Exchange Board of India (Mutual Fund) Regulations, 1993 was the first regulation governing all mutual funds except the Unit Trust of India. The industry is now regulated by the more comprehensive Securities and Exchange Board of India (Mutual Fund) Regulations, 1996, which replaced the previous regulations. Both these regulations have been issued by Securities and Exchange Board of India.

In the quarter ending June 2013, 64 New Schemes were launched in and a sum of `8,068 crore was mobilized - `7,669 crore under Income Schemes and `399 crore under Equity Schemes (Source: Newsletter of the Association of Mutual Fund in India, Volume XIII Issue 1, April-June 2013 ). From 1963 to 1987, the Unit Trust of India was the only mutual fund operating in the country. It was set up in 1963 together by the GoI and the RBI. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds were established by the public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993.

Specialized Financial Institution

In addition to the long-term lending institutions, there are various specialized financial institutions which cater to the specific needs of different sectors by offering technical and financial assistance. They include the National Bank for Agricultural and Rural Development, Export Import Bank of India, Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited and the Infrastructure Development Finance Corporation Limited.

State-Level Financial Institutions

State-level financial institutions broadly consist of state financial corporations and state industrial development corporations. State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. State financial corporations are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium and large-sized industrial projects.

Key Banking Industry Trends in India

Domestic structural factors combined with an adverse external economic environment led to tepid economic growth during 2012-13 and 2013-14 so far. The monetary policy stance during 2012-13 sought to balance the evolving growth-inflation dynamics through calibrated easing. During 2013-14, the Reserve Bank eased monetary policy further in early May, but undertook exceptional liquidity tightening measures since July to address macro-financial risks arising from exchange rate volatility. Since September 2013, even as Reserve Bank began a calibrated withdrawal of exceptional liquidity tightening measures on signs of improvement in the external environment, taking cognizance of the mounting inflationary pressures, the repo rate was increased by 25 basis points each on September 20, 2013 and in the Second Quarter Review of October 29, 2013. Though the Indian banking industry weathered the recent global financial crisis largely unscathed, weakening asset quality has emerged as a major concern. The global financial crisis has brought into sharp focus, the need for reorienting prudential policies to have a macro dimension. In this evolving global and domestic environment,

92 the Reserve Bank has been constantly reviewing and fine-tuning its regulatory and supervisory policies to ensure a sound, resilient, robust and inclusive banking system that is capable of taking on various challenges effectively. Macro stress tests indicate that if the current macroeconomic conditions persist, the credit quality of commercial banks could deteriorate further. However, overall the comfortable capital base still lends resilience to the Indian banking sector. (Source: TPBI Report, 2013)

Quantitative Easing Measures(QE)

The year 2012-13 was marked by slowing growth, lingering inflation, large fiscal and current account gaps and deteriorating asset quality. Thus, monetary policy was faced with a Hobson’s choice. Though growth began decelerating in the first half year of 2011-12, inflation stayed near double digits, prompting Reserve Bank to keep monetary policy in tightening mode. With signs that inflation was moderating in line with projections and with demand-side pressures starting to ebb, the Reserve Bank prepared grounds for a policy-easing cycle by imparting more liquidity through aggressive CRR, SLR and Repo Rate cuts. Also, a liquidity injection of `1.5 trillion was infused through Open Market Operations. The Reserve Bank cut the repo rate by another 25 bps to 7.25 per cent in early May 2013 in continuation of its growth-supportive monetary policy stance. However, the Federal Reserve Chairman’s comments subsequent on May 22, indicating likely tapering of quantitative easing (QE) altered global financial conditions in a significant way. Financial market pressures exacerbated after further indications from the Fed that it could completely wind down QE by the middle of 2014 precipitating sudden stop and a reversal of portfolio investment flows. With continued capital outflows, mounted concerns over the financing of the CAD during 2013-14. Amid these strains, the Indian rupee depreciated by 7.5 per cent against the US dollar during May 22–July 15 and large volatility was observed in the foreign exchange market.

In response, on July 15, 2013, the Reserve Bank announced a package of liquidity tightening measures to contain volatility in the foreign exchange market. It also announced additional measures on July 23, 2013 and on August 8, 2013. The measures included increasing the marginal standing facility (MSF) rate and the bank rate by 200 bps to 10.2 per cent, announcing an auction of `120 billion in open market sales of government securities, capping LAF borrowing access for each individual bank at 0.5 per of its NDTL and increasing the minimum daily maintenance of CRR from 70 per cent to 99 per cent of the daily average requirement on a fortnightly basis. Further, on review of the earlier measures, the Reserve Bank on August 8, 2013 announced auction of Government of India Cash Management Bills (CMBs). Accordingly, `220 billion of CMBs were auctioned in the following week. Even though there was appreciation in the Indian rupee by 1.3% as soon as RBI indicated its intention to roll back the liquidity tightening measures in a calibrated manner as stability is restored to the foreign exchange market, so that the monetary policy could revert to supporting growth with continued vigil on inﬂation. Post-policy review, the rupee came under fresh pressure and it depreciated by 3.0 per cent within two days till end-July 2013. (Source: RBI Annual Report 2013 )

Consumer Credit

The consumer credit market in India has undergone a significant transformation over the last decade. This is because consumer credit has become cheaper and funding avenues are more widely available and increasingly acceptable 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 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.

Commercial Banking Trends

Credit

The year 2012-13 was marked by a slowdown in the growth of credit to all productive sectors, viz., agriculture, industry and services The slowdown was the sharpest for agriculture and allied activities. There was a slowdown in the growth of credit to the infrastructural sector within industry. The slowdown in credit to NBFCs – accounting for about one-fifth of the total credit to the services sector – was an important reason behind an overall slowdown in the growth of services sector credit. By contrast, retail loans was the only segment, which maintained its growth in 2012-13. (Source: TPBI Report, 2013).

Sectoral Deployment of Gross Bank Credit (Amount in ` billion) Sr Sector Outstanding as on Percentage Variation No. March March 2011-12 2012-13 2012 2013 1 Agriculture and Allied Activities 5,484 5,899 14.1 7.6 2 Industry, of which 19,374 22,302 20.7 15.1 2.1 Infrastructure 6,300 7,297 20.8 15.8 2.2 Micro and Small Industries 2,363 2,843 12.4 20.3 3 Services, of which 10,166 11,486 14.5 13.0 3.1 Trade 2,245 2,760 21.3 22.9 3.2 Commercial Real Estate 1,126 1,261 15.7 12.0 3.3 Tourism, Hotels & Restaurants 323 354 16.7 9.9 3.4 Computer Software 143 169 3.0 18.4 3.5 Non-Banking Financial Companies (NBFCs) 2,278 2,570 24.0 12.8 4 Personal Loans, of which 7,873 9,009 13.4 14.4 4.1 Credit Card Outstanding 204 249 12.9 21.9 4.2 Education 498 550 16.6 10.4 4.3 Housing (Including Priority Sector Housing) 4,013 4,600 12.6 14.6 4.4 Advances against Fixed Deposits (Including FCNR(B), 569 611 15.4 7.3 NRNR Deposits etc.) 5 Non-food Credit (1 to 4) 42,897 48,696 17.0 13.5 6 Gross Bank Credit 43,714 49,642 17.1 13.6

Note: Percentage variation could be slightly different as absolute numbers have been rounded off to `billion. Source: Sectoral and Industrial Deployment of Bank Credit Return (Monthly). (Source: TPBI Report, 2013)

Base Rate System and Inflation

The base rate system replaced the benchmark prime lending rate (BPLR) system in July 2010. It has contributed in improving the pricing of loans, enhancing transparency in lending rates and improving the assessment of the transmission of monetary policy. This combined with no interest rates being levied on export credit in foreign currency from May 5, 2012 onwards has resulted in complete deregulation of interest rates on lending by commercial banks. Since the inception of the base rate system, liquidity in the financial system has remained in deficit mode. Repo rates strongly influence the determination of base rate by banks and a change in repo rate is clearly reflected as a corresponding change in the base rate. As the economy was migrating from surplus mode to deficit mode during July to December 2010, the pace of responsive change in bank rate with respect to repo rate was slow. Base rate increased, on an average by 58 basis points following the increase in repo rate by 75 basis points during the period. Thereafter, the momentum increased and continued till March 2011 which was followed by a moderation in growth during the second half of 2011-2012. The RBI reduced its repo rate by 50 basis points in April 2012, 24 banks accounting for around 63% of the aggregate credit reduced their base rates by an average 23 basis points until July 2012. In the period from April to November 2011, there was an increase in the repo rate mainly due to the prevailing inflationary pressure and anticipated inflation trajectory. According to the Third Quarter Review of Monetary Policy, dated Jan 23, 2013, a further reduction by 25 basis points has been contemplated in the future. However, the inflationary pressure posed to be a persistent concern throughout 2011-2012. (Source: RBI Annual Report 2012 )

The table below sets forth certain information relating to the extent of increase in both deposit rate and base rate and time taken by the public and private sector banks for the periods indicated below:

Period Change Change in Change in Average Average No. of Share (Month over in Repo Cash Deposit change in Number of Banks of Month Rate Reserve Rate Base Rate days taken changed credit (bps) Ratio (CRR) (bps) (bps) to change the of bank (bps) in Base Base that Rate Rate changed their base Rate July-December 2010 75 (-)* 25-325 58 141 41 93.1 December 2010-March 2011 50 (-)* 25-450 73 96 47 96.5 March-May 2011 50 (-)* 10-275 55 85 38 89.0 May-October 2011 125 (-)* 05-425 95 129 46 94.5 October 2011- March 2012 (-)* -125 05-500 29 93 13 9.7 March -July 2012 -50 (-)* (-25)- (-400) -23 247 24 62.6 (-)* : Indicates no change . (Source: RBI Annual Report, 2012)

Capital to Risk Weighted Assets Ratio ("CRAR")

The capital to risk-weighted assets ratio (CRAR) remained above the stipulated 9 per cent norm both at the system and bank group levels in 2012-13 but showed a declining trend. The core CRAR (Tier I) under Basel II too showed a moderate decline. The decline in capital positions at the aggregate level, however, was on account of deterioration in the capital positions of public sector banks. (Source: TPBI Report, 2013)

Capital to Risk-Weighted Assets Ratio under Basel I and II – Bank Group-wise (As at end-March) Figures in Percentage

Basel I Basel II Item/ Bank Group 2012 2013 2012 2013 1 2 3 4 5 Public sector banks 11.9 11.3 13.2 12.4 Nationalised banks* 11.8 11.4 13.0 12.5 SBI Group 12.00 11.1 13.7 12.7 Private sector banks 14.5 15.1 16.21 16.9 Old private sector banks 12.4 12.3 14.1 13.8 New private sector banks 14.9 15.7 16.7 17.5 Foreign banks 17.3 18.8 16.8 17.9 Scheduled commercial banks 12.9 12.77 14.2 13.9

Note: *: Includes IDBI Bank Ltd. Source: Based on off-site returns. (Source: TPBI Report, 2013)

Income and Profitability

In 2012-13, interest earnings were adversely affected with credit growth slowing down. This was also a period when interest rates, which had hardened during earlier years, started softening. Interest expended also grew at a slower pace during the year but its growth was higher than that of interest earned, thereby putting a downward pressure on the growth in both operating and net profits of banks. Return on assets (RoA), the most commonly used indicator of profitability, showed a further reduction by about 5 basis points in 2012-13. This reduction was discernible in the case of public sector banks in general, and nationalised banks in particular. (Source: TPBI Report, 2013)

Trend in Income and Expenditure of Scheduled Commercial Banks

The following table sets forth certain information relating to the income and expenditure of the scheduled commercial banks for the periods indicated below:

Trends in Income and Expenditure of Scheduled Commercial Banks (Amount in ` billion)

Item 2011-12 2012-13 Amount Percentage Amount Percentage Variation Variation 1. Income 7,416 29.8 8,614 16.2 a) Interest Income 6,553 33.4 7,636 16.5 b) Other Income 863 8.1 978 13.3 2. Expenditure 6,600 31.8 7,702 16.7 a) Interest Expended 4,304 44.0 5,138 19.4 b) Operating Expenses 1,376 11.7 1,566 13.8 of which : Wage Bill 780 7.3 873 11.9 c) Provisions and 920 16.8 998 8.5 Contingencies 3. Operating Profit 1,737 16.5 1,910 10.0 4. Net Profit 817 16.1 912 11.6 5. Net Interest Income (NII) (1a-2a) 2,249 16.9 2,498 11.1 Net Interest Margin (NII as percentage of average assets) 2.9 2.8 (Source: TPBI Report, 2013)

Asset Quality

Besides sluggish demand, a major factor that led to the low credit growth of the banking sector over the past year is the deterioration in its asset quality. Asset quality indicators of the banking sector, which had suffered signiﬁcantly during 2011-12, have worsened further in 2012-13. Although data indicate worsening asset quality across bank groups during 2012-13, it continued to be led by public sector banks (PSBs), which account for the major portion of bank advances . Taking cognizance of the decelerating growth, the Reserve Bank lowered policy interest rates and the SLR by 100 bps each, and the CRR by 75 bps in 2012-13.

It also undertook durable liquidity injections through outright purchases of G-secs as part of open market operations (OMOs). Beginning in late May, following comments by the US Fed, apprehensions of likely tapering of QE in the US triggered outﬂows of investment from EMDEs. Faced with exchange rate volatility, the Reserve Bank instituted measures to stabilise the currency market. These measures included: (i) a hike in the Marginal Standing Facility rate/Bank Rate; (ii) restriction on banks’ access to funds under LAF repo; (iii) OMO sales; (iv) maintenance of minimum daily CRR balances by SCBs at 99 per cent of the requirement; (v) capping of Primary Dealers’ (PD) access to LAF at 100 per cent of their individual net owned funds; (vi) restrictions on gold imports; and (vii) auctions of cash management bills (refer to Chapter III). These measures were taken with

96 a view to providing a window of opportunity to put in place policies to bring the CAD down to sustainable levels. (Source: RBI Annual Report, 2013)

Bank-Group wise NPAs Ratio

Although the NPA ratio in the priority sector was consistently higher than the NPA ratio in the non-priority sector, deterioration in asset quality in 2012-13 was primarily on account of the non-priority sector. The following table sets forth certain information relating to the NPAs of the scheduled commercial banks for the periods indicated below:

Sector-wise NPAs of Domestic Banks* (Amount in ` billion)

Bank group Priority Of which Non-priority Total NPAs sector Agriculture Micro and Others sector Small Enterprises Amt. Per Amt. Per Amt. Per Amt. Per Amt. Per Amt. Per cent cent cent cent cent cent Public sector banks 2012 562 50.0 227 20.2 174 15.5 161 14.3 563 50.0 1,125 100.0 2013 669 42.9 280 18.0 284 18.2 105 6.7 890 57.1 1,559 100.0 Nationalised banks** 2012 323 48.4 129 19.3 134 20.0 60 9.1 345 51.6 668 100.0 2013 405 42.2 156 16.3 178 18.6 70 7.3 554 57.8 959 100.0 SBI Group 2012 239 52.3 98 21.4 41 9.0 100 22.0 218 47.7 457 100.0 2013 264 44.1 124 20.7 106 17.6 35 5.8 335 55.9 599 100.0 Private sector banks 2012 51 27.9 22 11.8 17 9.4 12 6.7 132 72.1 183 100.0 2013 52 26.0 22 10.9 20 9.9 11 5.3 148 74.0 200 100.0 Old private sector banks 2012 18 42.9 6 13.4 7 16.8 5 12.8 24 57.1 42 100.0 2013 19 36.8 6 12.2 7 13.9 6 10.7 33 63.2 52 100.0 New private sector banks 2012 33 23.4 16 11.3 10 7.2 7 4.9 108 76.6 141 100.0 2013 33 22.2 15 10.4 12 8.5 5 3.3 115 77.8 148 100.0 All SCBs 2012 613 46.9 249 19.0 191 14.7 173 13.2 695 53.1 1,308 100.0 2013 721 41.0 302 17.2 304 17.3 116 6.5 1,038 59.0 1,759 100.0

Notes: 1. * : Excluding foreign banks. 2. Amt. – Amount; Per cent – Per cent of total NPAs. 3. **- Includes IDBI Bank Ltd. 4. Constituent items may not add up to the total due to rounding off. Source: Based on off-site returns (domestic). (Source: TPBI Report, 2013)

Banking Regulations and Reforms in India

Recent Amendment to the Banking Regulations

Banking Laws (Amendment) Act, 2012

The Banking Laws (Amendment) Act, 2012 (the "Banking Act"), been passed by both the houses of parliament in December 2012, and has come into force from January 17, 2013. The Banking Act has strengthened the regulatory powers of RBI by enabling it to issue new bank licenses resulting in opening of new banks and branches across the country. Further, it has enable the nationalized banks to raise capital by issue of preference shares or rights issue or issue of bonus shares and also enable them to increase or decrease the authorized capital with approval of the GoI and the RBI without being limited by the ceiling of a maximum of ` 30 billion as prescribed under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Under the new regulatory regime, RBI has been given more control over the banking companies- it now has the right to collect information and inspect associate enterprise of banking companies, right to supersede the board of directors of banking company and appointment of administrator till alternate arrangements are made. Prior approval of RBI would be required for acquisition of 5% or more shares or voting rights in a banking company.

For further information relating to the banking regulations, see "Regulations and Policies" on page 132.

Debt Recovery Regulations in India

Recovery of Debts due to Banks and Financial Institutions Act ("RDBF Act"):

The RDBF Act was passed pursuant to the recommendations of Narsimham Committee in 1993. It establishes the Debt Recovery Tribunals (the "DRTs") for the purpose of providing expeditious adjudication to the banks with reference to debts owed to them. The RDBF Act was amended in 2000 and again in 2003 to further strengthen the functioning of the DRTs.

Securitization and Reconstruction of Financial Institutions Act ("SARFESI 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 a period of 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. In addition to the SARFAESI Act, several states also have revenue recovery acts and lok adalats (People’s Courts).

Enforcement of Security Interest and Recovery of Debts Law (Amendment) Bill, 2011 ("ESIRDL Bill"):

The ESIRDL Bill was approved by the Parliament in 2012 and has come into force from January 15, 2013. The ESIRDL Bill seeks to amend the SARFAESI Act and RDBF Act in order to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions and to enable banks and financial firms to effectively deal with the increasing NPAs. The proposed amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of the banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of NPAs. If implemented, it would enable banks, inter alia, to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, without fearing for recovery, thus bringing about equity. Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information.

Banking Sector Reforms

Strengthening Banking Soundness through Basel III Capital Regulations

In order to effectively deal with the issues faced during the recent global financial crisis, the Basel Committee has introduced comprehensive reforms and guidelines through the Basel III framework to address both firm- specific and broader systemic risk. Basel III Capital regulations essentially enhance the regulatory framework introduced by Basel II at the level of individual banks and aims to limit the systemic risks. The measures relate to enhancing the quality and quantity of capital, liquidity risk management, valuation practices dealing with procyclicality issues and dealing with systemically important banks. It also covers resolution mechanism, compensation practices, stress testing, disclosures to enhance transparency and reducing systemic risk in derivative markets by moving over the counter derivatives to central clearing and settlement mechanisms.

The Basel III Capital Regulations were proposed to come into effect on January 1, 2013 and the implementation was expected to be carried out in a phased manner with the Basel III capital ratios to be fully implemented by the end of March 2018. However, the effective date of the implementation of Basel III Capital Regulations has currently been deferred until April 2013. (Source: RBI Press Release relating to Basel III Capital Regulations dated December 28, 2012).

In view of the shift in the start date of Basel III implementation, all instructions applicable as on January 1, 2013, except those relating to Credit Valuation Adjustment (CVA) risk capital charge for OTC derivatives, would become effective from April 1, 2013 with banks disclosing Basel III capital ratios from the quarter ending June 30, 2013. As the introduction of mandatory forex forward guaranteed settlement through a central counterparty has been deferred pending resolution of certain issues such as exposure norms, etc., the CVA risk capital charges (as indicated in Annex 2 of the Guidelines on Basel III Capital Regulations) would become effective as on January 1, 2014. The other transitional arrangements would remain unchanged and Basel III will be fully implemented as on March 31, 2018. (Source: RBI Guidelines on Implementation of Basel III Capital Regulations in India –Clarification, 28 th March 2013s). Further, in July 2013 Prudential Guidelines on Capital Adequacy and Market Discipline - New Capital Adequacy Framework (NCAF) were further issued by the RBI may, however, be referred to during the Basel III transition period for regulatory adjustments / deductions up to March 31, 2017. ( Source: RBI Master Circular DBOD.No.BP.BC.9/21.06.001/2013-14 dated July 1, 2013)

The main features of Basel III Capital Regulations are briefly set forth below:

Under the Basel III Capital Regulations, total capital of a bank in India must be at least 9% of risk weighted assets ("RWAs") (the Basel II requirement is a minimum 8% of RWAs). Tier I capital must be at least 7% of RWAs (6% as specified by the Basel Committee on Banking Supervision ("BCBS")); and common equity Tier I capital must be at least 5.5% of RWAs (4.5% as specified by BCBS). Due to the transitional arrangements, the capital requirements of banks may be lower during the initial periods and higher during later years. Therefore, banks have been advised to do their capital planning accordingly.

In addition to the minimum requirements as indicated above, a capital conservation buffer ("CCB") in the form of common equity of 2.5% of RWAs is required to be maintained by banks. Under the Basel III Capital Regulations, total capital with CCB has been fixed at 10.5% (8% CRAR + 2.5% CCB).

Under the Basel III Capital Regulations, a simple, transparent, non-risk based leverage ratio has been introduced. The BCBS will test a minimum Tier I leverage ratio of 3% during the parallel run period from January 1, 2013 to January 1, 2017. The RBI has prescribed that during this parallel run period, banks should strive to maintain their existing leverage ratios but in no case should a bank’s leverage ratio fall below 4.5%. Banks whose leverage is below 4.5% have been advised to achieve this target as early as possible. This leverage ratio requirement will be finalized taking into account the final proposals of the BCBS.

Dynamic Provisioning Guidelines

Currently, the banks generally make two types of provisions, primarily, relating to the general provisions on standard assets and specific provisions on the NPAs. Since the level of NPAs varies through the economic cycle, the resultant level of specific provisions also acts cyclically. Consequently, the lower provisioning during upturns, and higher provisions during downturns have procyclical effect on the real economy. To address procyclicality of capital and provisioning, efforts at international level are being made to introduce countercyclical capital and provisioning buffers. The RBI accordingly has prepared a discussion paper on the countercyclical (dynamic) provisioning framework that was published on March 30, 2012. (Source: RBI Annual Report 2012)

The primary objective of the dynamic provisioning framework is to smoothen the impact of incurred losses on the profit and loss account through the cycle. In the proposed framework, banks will be accumulating provisioning buffer during the period when the economy is growing and banks’ credit losses are lower than the long run average. The accumulated buffer would be utilised during the slow growth/negative growth phase when the banks’ credit losses increase. Final guidelines on dynamic provisioning will be released shortly. (Source: TPBI Report, 2013)

Risk Based Supervision by the RBI

With a view to improve the quality of RBI's supervisory processes/techniques and benchmarking them with the international best practices, RBI had set up a high level steering committee (the "Steering Committee") in

August 2011. The Steering Committee in its report dated June 11, 2012 has recommended to transform the existing supervisory approach of examining the past performance of the banks through a transaction-testing based framework to identify risk drivers and accordingly predict the elements of risks in the banks’ accounts. Currently, a phased approach for transition to risk based supervision is being adopted by the banks. In line with the Steering Committee’s recommendations, the banks have been advised to assess their risk management policies, practices and related processes against the prerequisites of the risk based supervision framework. (Source: Monetary Policy for 2012-13 (Second Quarter Review) by the RBI, dated November 12, 2012)

Financial Sector Legislative Reforms Commission (FSLRC)

The Financial Sector Legislative Reforms Commission (FSLRC) was set up by the Government of India to make the laws governing the financial sector compatible with a growing, globalised and modernising economy; and to reflect the lessons of the global financial crisis. The Commission has proposed changes in the landscape of financial sector. The proposals cover consumer protection, dedicated and unified resolution authority, inter- regulatory coordination, development function and providing independence to the regulators/ central bank with accountability. The Commission has envisaged a regulatory framework where governance standards for regulated entities will not depend on the form of organisation of the financial firm, such as, co-operatives, private Indian firms, foreign firms and public sector firms. The banking system needs to be prepared for some of these recommendations, when accepted and implemented. (Source: TPBI Report, 2013)

Introduction of Bank Holding Company/Financial Holding Company Structure in India

In June 2012, the RBI constituted a working group to, inter alia, examine the introduction of different holding company structures for banks and other financial entities prevalent globally in the financial sector (Source: Report of the working group on introduction of financial holding company structure in India by the RBI, dated May 23, 2011 ). The financial holding companies ("FHCs") own or control one or more banks or NBFCs. Currently, banks in India are organised under a bank-subsidiary model in which the bank is the parent of all the subsidiaries of the group. In its report, the working group has recommended that FHCs model should be pursued as a preferred model for the financial sector in India and that the RBI should be designated as the regulator for such FHCs. The recommendations have currently not been implemented. There are, however, numerous challenges in implementing the FHCs model in India. The implementation of this model would require a new legislative framework, providing the right incentives to the existing financial corporations through appropriate tax treatment and resolution of strategic and public policy issues in the case of public sector banks. ( Source: Reflections on Regulatory Challenges and Dilemmas, RBI bulletin dated September 13, 2011).

Other Initiatives in the Banking Industry in India

Payment/Settlement Systems and Technology

The Reserve Bank undertook policy initiatives as outlined in the Payment System Vision Document 2012-15. The focus of these was towards migrating payment transactions from cash/paper modes to electronic modes and also increasing the accessibility of payment systems to people who are presently excluded.

Mobile Banking: The RBI issued its first set of guidelines relating to mobile banking in October 2008. The guidelines defined mobile banking as undertaking banking transactions using mobile phones by bank customers that would involve credit and debits to their accounts. The bank-led model for mobile banking has come to occupy an important place in banking in India. As at June 30, 2012, 69 banks were granted approval to provide mobile banking facility, of which 49 have started operations. ( Source: TPBI Report, 2012) . The transaction limit for mobile banking previously imposed has now been removed by RBI. The banks are now free to fix their own per transaction limit based on their risk perception with the approval of their respective boards.

Real Time Gross Settlement System ("RTGS"): In order to recover operational costs and efficiency in the system, the RBI has introduced service charges in the RTGS system on October 1, 2011. These charges are applicable under three different heads, namely, monthly membership fee, transaction fee and time varying tariff. Of these, the banks can pass on only the time varying tariff to their customers. ( Source: RBI Annual Report, 2012 ) The Real Time Gross Settlement System (RTGS) processed transactions to a settlement value of around `8 trillion on March 28, 2013, which is the highest value settled through RTGS on a business day. To ensure interruption-free operations under all circumstances, disaster recovery drills for RTGS systems are conducted on a quarterly basis. ( Source: RBI Annual Report, 2013 )

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The National Electronic Funds Transfer: The National Electronic Funds Transfer (NEFT) handled a record volume of 47 million transactions valued at around `3,602 billion in the month of March 2013. With the addition of 13,980 branches during the year, the number of bank branches participating in NEFT has grown to 100,429. There are around 650 sub-member banks participating in NEFT. With the addition of 18,257 branches during the year, the coverage of the National Electronic Clearing Service (NECS) has been increased to75,659 locations as at the end of July 2013. The Regional Electronic Clearing Service (RECS)system introduced in various Reserve Bank centres has seen expansion in branch coverage during the year.

Pre-Payment Instruments ("PPIs":) PPIs are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. As at June 30, 2012, around 40 banks (including the Department of Posts, GoI) and 21 non-bank entities were granted approval and authorisation under the Payment and Settlement System Act, 2007 to issue PPIs in India. Three types of PPIs are typically issued primarily, the paper voucher, cards and m-wallets, of which, the paper vouchers are the most popular in terms of numbers and value. RBI is working towards replacing such paper based PPIs with electronic modes. ( Source: TPBI Report, 2012)

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OUR BUSINESS

Overview

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Our Competitive Strengths

We believe that the following strengths distinguish us in a competitive Indian banking industry:

Wide distribution network across India and diverse customer base

Long history and long standing customer relationships

Continue to strengthen our risk management policies and procedures

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Modern and efficient IT infrastructure for both internal systems and customer services

We have an efficient IT infrastructure, which we believe will provide opportunities to extract further cost efficiencies and to improve the quality and utility of our products. We have made significant investments to upgrade our existing IT infrastructure. In fiscal 2012 and 2013, we had invested approximately ` 80.7 million and ` 86.6 million, respectively, in order to upgrade our IT systems and infrastructure. We have networked all of our branches and offices to facilitate core banking solutions ("CBS"). It allows our customers to operate their accounts from remote locations and use banking services from any of our service points, regardless of where our customers maintain their accounts. With the CBS platform, we currently offer all the technology enabled products such as internet banking, online bill payments, mobile banking, telephone banking, debit cards and credit cards. We have also successfully implemented the Next Generation Real Time Gross Settlement ("NG RTGS") and the National Electronic Funds Transfer ("NEFT") payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. All of our branches are NG RTGS and NEFT enabled to facilitate large value payments and settlements online in real time, on a transaction- by-transaction basis. We have increased our delivery channels through internet banking, mobile banking and ATMs.

Professional and experienced management

Our Business Strategy

Continue to strengthen our branch centric business model focused around our wide branch network across India

Increase CASA deposits and improve interest margins

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Continuous efforts to reduce our operational costs

Leveraging core competencies in our target business segments.

Increase fee-based revenue and income through a range of various product offerings

Continue to focus on increasing NRI deposit base

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To focus on leveraging technology for improved customer service and business growth

History

We were incorporated in November 1927 in Thrissur, Kerala, India and we opened our first branch outside Kerala in 1975. In 1977, we were designated as a 'Scheduled Commercial Bank' by RBI. In 1996, we have listed our Equity Shares on the NSE, BSE and the CSE.

Our Products and Services

The products and services that we offer to our individual or corporate customers can be divided into five categories, primarily: (i) deposit products; (ii) corporate products; (iii) retail products; (iv) technology related products; and (v) other services.

Deposits Products Corporate Products Retail Products Technology Related Other Services Products Current Account Cash Credit Agriculture/Kissan Retail and Corporate Forex Services Vahana Loan/Kissan Card Banking Savings Account Overdraft Home Loan/ Loan against Bill Payment Cash Management Property Services

Term Deposit Term Loans/Real Estate Gold Loan Mobile Banking Depository Services Loans Corporate Salary Corporate loans Vehicle Loan e-IT Return Filing Locker Services

Non-Resident Project Finance Live Stock Loan Online Trading Draft Drawing External Account Non-Resident Bill Advance and Personal/Educational SMS/Email alerts Remittances- Next Ordinary Account Packing Credit Advance Loan Generation Real Time Gross Settlement (NG RTGS)/National Electronic Funds Transfer (NEFT)

Foreign Currency Foreign Currency Loan Loan against insurance Forex Card Import Export Non-Repatriable policy/Deposit/Overdraft Related Fixed Deposit against shares Account 3-in-one account Invoice/Dealer Micro Credit Loan/Self Money Transfer (Saving Account, Financing Help Group Loans Demat Account Lease Rental Medical Equipment loan and Trading Discounting Account) Office Equipment Loan International Debit Cards/Credit Cards/Gift Cards

Deposit Products

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Our deposit products target different customer segments among consumers and corporate customers. We also receive term deposits from other banks. 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 account. The amounts deposited in the current accounts are non-interest bearing. We typically offer a wide range of products under the current account facility including the regular current account, premium current account and suvidha current account.

Savings account. The amounts deposited in the savings accounts accrue interest at a rate as determined by the Bank. We typically offer a wide range of products under the savings account facility including the regular savings account, Dhanam + and Dhanam ++ savings account including the Dhanam Basic Savings Bank Account.

Term Deposits. 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.

Corporate salary . This account allows for easy management of any corporation's payroll while providing the employees with a convenient salary account. The employees' salaries can be paid with a single cheque while availing certain features that benefit both the corporate and the employees.

Non-Residential ("NRE") account. NRE account facility allows the NRIs to open a savings, current or a term deposit account for operation in Indian rupees. The amount deposited in the NRE account is tax free and is typically used by the NRIs to repatriate their funds outside India.

Non-Resident Ordinary ("NRO") account . NRO account facility allows the NRIs to open a savings, current, term deposit or a cumulative account and deposit their local income or any funds generated in India into such accounts. The NRO account can also be jointly held by the NRIs and the resident Indians as well.

Recurring Term Deposit. This account allows for the investment of a small initial amount with recurring additions on a monthly basis for a predetermined fixed period of time. Interest accrued is added to the balance on a quarterly basis, which is then added to the invested amount. The principal and the cumulative interest is paid on maturity of the deposit.

Foreign Currency Non-Repatriable Fixed Deposit ("FCNR FD") account. The foreign currency non- repatriable deposits are accepted in five currencies, namely US dollars, Pounds, Euros, Australian dollars and Canadian dollars. These fixed deposits are typically accepted for maturities ranging from one year to five years.

3-in-1 account (Saving Account, Demat Account and Trading Account). 3 in one account provides an integrated platform for trading to the customers bringing together three different accounts, primarily, savings account, Demat and trading account. The customer can avail of all the facilities by opening a single account with the Bank. This facility also provides for an efficient and paperless medium for transactions in securities. The following table provides certain information relating to our total deposits as at March 31, 2011, 2012, 2013 and as at September 30, 2013:

Particulars As at March 31, 2011 As at March 31, 2012 As at March 31, 2013 As at Sept ember 30, 2013 (` in millions) A Current Deposits 15,311.9 8,642.6 9,472.9 B Savings Deposits 13,380.2 14,197.5 15,687.2 C CASA (A + B) 28,692.1 22,840.1 25,160.1 D CASA (%) to Total Deposits 22.9% 19.3% 22.5% E Term Deposits 96,604.2 95,204.0 86,861.2

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F Total Deposits (C + E) 125,296.3 118,044.1 112,021.3 G NRI Deposits (NR CASA + NR Term Deposits) 5,214.6 7,456.0 10,286.9

The regional distribution of our deposits as at March 31, 2011, 2012 and 2013 and as at September 30, 2013 is set out in the table below:

Region States and As at March 31, As at March 31, As at March 31, As at September Union 2011 2012 2013 30, 2013 Territories (` in millions) Southern India Kerala, Tamil 82,343.7 75,646.9 83,129.6 92,662.9 Nadu, Karnataka, Andhra Pradesh, Northern India New Delhi, 15,454.7 23,470.5 16,618.3 17,119.5 Punjab, Chandigarh, Haryana, Madhya Pradesh Uttar Pradesh, Rajasthan; Western India Maharashtra, 23,096.4 15,244.2 10,128.0 6,759.4 Gujarat, Goa Eastern India West Bengal 4,401.5 3,682.5 2145.4 2524.7 Total 125,296.3 118,044.1 112,021.3 119,066.5

Corporate Products

We offer a range of loans and funded advanced products to assist our corporate customers in meeting their financial needs.

Cash credit . The cash credit facilities are the most common form of working capital financing in India. 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 working capital demand loans, working capital term loans and bill discounting facilities to our corporate and commercial borrowers .

Overdrafts . We give to our customers the flexibility to withdraw an amount of money which exceeds the total amount of money existing in their account as short term temporary overdraft. The overdraft facility is typically available only for current accounts of customers who have a satisfactory track record.

Term Loans/Real Estate 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 installments over the loan period.

Corporate Loans . We provide financial assistance to our corporate or commercial customers for setting up new business and/or expanding their existing businesses.

Project Finance . Project finance is typically provided for acquiring land and building, plant and machinery, and equipment. We also provide finance to address the growth and investment requirements of our customers, including the funding of developmental initiatives or technology procurement

Bill Advance and Packing Credit Advance . We provide packing credit advance, which is a short term loan provided to exporters prior to the shipment of their goods. This loan typically enables the exporter to purchase raw material, package good and transport such goods to required destination. In addition, we also provide bill advance which is a post shipment financing tool.

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Foreign Currency Loans . We 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.

Invoice /Dealer Financing . We enable our customers to draw a part of their unpaid invoice from our bank. For this purpose, the invoice itself is used as security. We also provide short term, unsecured financial assistance to dealers of large corporate to meet their cash flow needs ensuring smooth functioning of their respective businesses.

Lease Rental Discounting . We provide lease rental discounting on the basis of the rental income received by our customers from their commercial or residential property. The maximum loan amount is provided against the rental income received by the borrowers. We offer flexible repayment options for a period of seven years. We also provide for special schemes whereby one can benefit from an extended lease period which would be considered for rental income.

Office Equipment Loan . We provide capital expenditure loans to businesses including loans for machineries and for purchase of fixed assets so as to enable them to invest in advanced equipment required for their businesses.

The table below provides details of our corporate loans and funded advances by product type as at March 31, 2011, 2012, 2013 and for the six months ended September 30, 2013:

As at March 31, As of Classification of Loans and Advances 2011 2012 2013 September 30, 2013 (in `. millions) Bills purchased and discounted 11,526.8 2,351.9 1,354.4 1,131.8 Cash credits, overdrafts and loans repayable on 11,203.7 15,088.8 16,317.3 20,444.6 demand Term loans 67,921.0 70,139.8 60,098.9 57,375.6 Total Net Loans and Advances 90,651.5 87,580.5 77,770.6 78,952.0

Retail Loan Products

In fiscal 2011, we re-launched our retail banking business with re-branded loan products as well as new loan products and simplified loan documentation. We intend to significantly increase our retail loan book, which was 40% and 51% of our total loan book as at March 31, 2013 and in the six months ended September 30, 2013, respectively. Our wide range of retail asset products includes the following:

Agricultural/Kissan Vahana Loan and Kissan Card . We provide agriculture assistance to the farmers, which includes investments in agricultural technology, farm loans; warehouse receipt funding; and agriculture gold loans (loan against liquid collateral) and other related expenses. Such loans are typically secured by the gold ornaments owned by the borrowers. We also offer products such as the Kissan Vahana loan and the Kissan card. Kissan Vahana, is a specially structured two-wheeler loan for farmers with significant benefits for their agricultural operations. Kissan card directly addresses a farmer’s short-term and contingent credit needs. It facilitates adequate and timely credit for a farmer’s comprehensive credit requirements under a single window.

Home Loan/Loan Against Property . We provide financing options to our customers to enable them to purchase, construct, repair and renovate their homes and apartments. We provide flexible repayment options ranging from one year to 20 years at attractive interest rates. The loan against property includes: 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. The repayment tenure in this cases ranges in between one year and 20 years.

Gold Loan . In gold loan transactions, we provide loans to borrowers against gold and gold jewellery collaterals.

Vehicle Loan . Our vehicle financing products include: new car loans and pre-owned vehicle loans and dealer funding. Further, our commercial vehicle loans products also include: new commercial vehicle loans; used commercial vehicle loans; new construction equipment loans; used construction equipment loans and dealer funding.

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Live Stock Loans . We provide live stock loans to facilitate purchase, raring or feeding of cattle. This particular product can be modified to suit an individual customer's specific needs.

Personal Loans/ Educational 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. Our education loan products include all the education fees, accommodation and travel expense, insurance premiums and computers.

Loan against Insurance Policy/Deposit/Overdraft against shares . The loans against shares/securities help the borrowers to leverage their equity investments without disposing off such investments. In addition, we also provide loans against gold which help the customers by addressing their funding needs.

Micro-credit scheme for micro financial institutions and self-help groups . These schemes provide financial assistance at lower rates to the individuals below the poverty line in rural, semi urban and urban areas for enabling them to raise their income levels and improve their living standards. We believe it enables the underprivileged sections of the society by improving their access to formal credit system. Loans provided through these schemes can be used for consumption, production and/or to undertake any income-generating activities.

Medical Equipment Loans . We provide financing for purchasing modern medical equipment's to cater to the diverse needs of our customers in this sector.

International Credit Card/Debit Card/Gift Cards. We offer our customers platinum and gold credit cards and international debit cards under the VISA banner. The 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 bank on purchase, priority pass and concierge services. Our credit cards are targeted at premium customers. The International debit cards offer the holder an easy access to their deposits on a 24/7 basis with which they can shop, dine and travel conveniently. In addition, we also provide for gift cards which are available in all denominations and can be used by our customer at over 450,000 VISA merchant outlets across the country.

Technology Products

Retail and Corporate Internet Banking . We offer the entire range of retail and corporate products and services to our customers via the internet. Our retail and corporate internet banking products includes current and savings account information, e-statements, deposits, loans, credit cards, fund transfers options such as NEFT and NG RTGS, bill payments and setting up standing instructions.

Bill Payment. The bill payment services offers a convenient and secure way to view and pay electricity, telephone, insurance and other bills and book railway tickets via the internet banking. Our customer can also visit merchants' website and pay their bills by using our payment gateway option. We have currently integrated two major payment gateways and are in the processes of integrating seven additional payment gateways.

Mobile Banking. With the mobile banking channel, the customers can conduct financial and non-financial transactions securely, including making fund transfers through the interbank mobile payments service and/or checking account information. The customer can also view details of their loans and term deposits as well.

InstaPay. Instapay is a convenient and secure way for customers to pay their bills online through net banking or by using debit cards. 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. e-Income Tax Return Filing. The e-IT return filing service allows the customers to file their income tax returns and directly make income tax payments. This service is completely secure and confidential as it is by the government e-return intermediary.

SMS Banking. We also provide SMS banking service through which our customers can access or receive their account information instantly.

Online Trading. We provide online trading services that offer an online platform for our customers to buy and sell securities on the stock exchanges in India, including the BSE and the NSE.

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SMS/Email Alerts . We provide for real time notification of certain transactions including debit card, financial and non-financial transactions, via the short messaging services ("SMS") and email. An email or the SMS alerts are sent once a bill is received wherein the customers pay such bills via the bill payment feature of our bank. Our customers can also choose to receive email or SMS alerts where a transaction is made via the credit card or debit card called the push service.

E-statement : This is a green initiative of the Bank by which all customers with a valid e-mail ID would receive a monthly statement comprising of details of transactions of all the relationship in a one single statement. Other than this monthly statement, customers can opt for daily, daily cumulative and weekly statement in various forms depending on their requirement.

Forex Card . The forex card, which is a pre-paid traveler's card, allows the customers to withdraw foreign exchange from the VISA ATMs abroad and shop at several VISA merchant outlets.

Other Services

Forex Services . We provide the following forex services to our corporate and commercial customers:

(i) ready purchases and sales of foreign exchange against Indian rupees for all approved transactions;

(ii) forward purchases and sales of foreign currency against Indian rupees or other permitted currencies to cover exchange risk on contracted, committed imports and exports of goods and services

(iii) forward contracts to cover risks on foreign currency loans including external commercial borrowings; and

(iv) purchase and collection of foreign currency instruments.

We also trade in foreign exchange with counter party banks in India and abroad.

Cash Management Services. We provide cash management services to our 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.

Depository Services. As a depository participant of National Securities Depository Services Ltd (“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.

Locker Services. 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 Remittance Services .

Draft drawing . We offer rupee drawing arrangements with a large number of exchange houses in the Middle East. Currently, we have approximately 174 authorized branches to receive and pay the drafts issued by the exchange houses at par.

Remittances (Next Generation Real Time Gross Settlement (NG RTGS)/ National Electronics Finds Transfer (NEFT) . We have successfully implemented the NG RTGS and the NEFT payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. 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 remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services.

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Import and Export Related . We provide various types of credit facilities and other services to importers and exporters. We offer a comprehensive range of import services which includes: (i) import letters of credit; (ii) import collection bill services; (iii) advance payment towards imports; (iv) arranging for buyers and suppliers credit; and (v) bank guarantees. We also offer a wide range of export services which includes: (i) packing credit; (ii) export bill negotiation; (iii) export bill purchase and discounting; (iv) export bill collection services; (v) bank guarantees; (vi) export letter of credit advising and (vii) stand by letters of credit.

Fee-based Income services

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, 2011, 2012, 2013 and for the six months ended September 30, 2013:

As at March 31, As at September 30, 2013 2011 2012 2013 (` in millions) Letter of Credit 585.9 1,182.3 1216.1 601.6 Guarantees 3,356.9 5,384.2 3,280.4 2,240.8 Total Non-Fund Advances 3,942.8 6,566.5 4,496.5 2,842.4

Financial Planning

We offer financial planning services to our retail customers. We do not charge for this service 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 and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as their corporate agents.

Mutual Funds

We also distribute the mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Asset Management Company Limited, FIL Fund Management Private Limited and UTI Asset Management Company Limited.

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Online Broking

We launched our online broking service by entering into an arrangement with DSPL in January 2010. We provide a 3-in-1 savings account, demat account and trading account to the customer and DSPL provides a complete trading platform. We are currently in the process of renewing our agreement with DSPL.

Specialized Services to NRI Customers

Recognizing 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. As at September 30, 2013, our total NRI deposit was ` 12,619.1million compared to ` 10,286.9 million, as at March 31, 2013. We have remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services. In addition to the remittance and rupee drawing arrangements, we have also entered into money transfer service agreements with M/s UAE Exchange & Financial Services Ltd for MoneyGram and Xpressmoney, Wall Street Financial Limited for Instant Cash and Weizmann Forex Limited for Western Union Money Transfer to facilitate inward remittance under the money transfer services scheme. These money transfer service schemes help NRIs remit money from locations abroad to India.

Our Business Segments

We have organized our business into four segments: (i) retail banking; (ii) corporate banking; (iii) SMEs banking; and (iv) micro finance and agriculture lending.

The composition of our asset book by these business segments as at March 31, 2013 and as at September 30, 2013 is set forth in the table below:

Business Segments As at March 31, Percentage of As at September Percentage of 2013 Total Advances 30, 2013 Total Advances (` millions) (%) (` millions) (%) Corporate Banking 19,483.4 24.7 15,278.5 19.0 SME Banking 13,324.6 16.9 9,311.4 11.6 Retail Banking* 31,452.1 39.8 41,294.8 51.4 Micro Finance and 14,703.0 Agricultural Lending 18.6 14,419.4 18.0 Total Gross Loans 78,963.1 100.0 80,304.1 100.0 *Retail banking includes the buy-out amounts relating to the purchase of the retail assets from certain third-party financiers.

Retail Banking

The retail banking covers all loans and advances to individuals including NRIs. In addition, the retail banking also covers retail liabilities and a non-interest income/fee-based services including distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking, demat and treasury operations. For retail banking customers, we offer trade services centered 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 Banking

The corporate banking covers corporations with a net worth of ` 500 million and above.

Small and Medium Enterprises Banking

The SME banking provides fund based and non-fund based services to customers and their affiliates in the SME sector and emerging corporations (entities having a net worth below ` 500 million).

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Micro Finance and Agriculture Lending

The micro finance and agriculture lending covers all activities falling in those segments. It caters to micro finance institutions, self-help groups and several non-governmental organizations, including group/non- individual lending. It also caters to individuals in these sectors.

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 while complying with the CRR and the SLR and we continue to focus on our treasury operations. 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. In addition based on our Board approved policy, we have put in place intra-day limits, overnight limits and monthly gap limits in each currency with stop loss along with the total exposure limits and our exposures have always been well below the minimum approved exposure limits. Further, we do not have large foreign currency exposures to any clients. Even while sanctioning smaller foreign currency limits, if the customer does not have a natural hedge, we ensure that the customer books forward contract while releasing/disbursing the limits. We believe that any movement of exchange rates will have a minimum impact on our profitability and asset quality on account of the appropriate policies in place.

As at March 31, 2013 and as at September 30, 2013, the total value of our gross investments was approximately ` 47,048.8 million, and ` 43,934.2 million, respectively, and the total value of our net investments was approximately ` 46,844.9 million and ` 43,607.2 million, respectively. The average yield on our gross investments was 7.9 % and 7.7 % for fiscal 2013 and for the six months ended September 30, 2013 respectively.

We have complied with the requirements to maintain the SLR and CRR ratios as per the RBI guidelines. As of September 30, 2013, our SLR ratio was 33.0 % As at March 31, 2013, government securities constituted 89.3 % of our gross investments, compared with 93.9 % as at March 31, 2012 and 94.7 % as at March 31, 2011. Further, as at September 30, 2013, the government securities constituted 90.0 % of our gross investments. The CRR has to be maintained on an average basis for the fortnight and should not be below 95% of the required cash reserve ratio on any day of the fortnight. As of September 27, 2013 (Reporting Friday), our cash reserve ratio maintained was 4.2% against the requirement of 4.0%, as per the RBI guidelines.

For further information, please see “Selected Statistical Information - Investment Portfolio" at page 125.

Our treasury department also undertakes trading in fixed income securities and foreign exchange.

In addition to proprietary trading and liquidity management, our treasury department currently book forex forward contracts for a period of 12 months for our customers and intend to continue providing this service even in the future.

Distribution Network

We have a distribution network comprising branches, ATMs, mobile and 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, 2011, 2012, 2013 and September 30, 2013 is set out in the table below:

As at March 31, As at March 31, As at March 31, As at September 30, 2011 2012 2013 2013 Branches 275 280 280 280 ATMs 459 400 396 396 Total Customer Outlets 734 680 676 676

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Branches:

As of September 30, 2013, our operations cover 13 states and two union territories across India with approximately 280 branches and 396 ATMs. We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of September 30, 2013.

All of our branches are fully networked and connected to a central database in Bangalore on a real-time basis with a disaster recovery facility in Thrissur. All branches are licensed by the RBI to lend and to accept deposits.

Non-branch delivery channels:

ATMs: As at September 30, 2013, we had 396 ATMs, which includes 175 on-site and 221 off-site ATMs. Our ATMs are part of the Visa, Cashtree and Cashnet shared payment networks which enable our Visa cardholders to access numerous ATMs of member banks.

Internet banking: We offer internet banking services to our retail and corporate customers.

Mobile banking service: With the mobile banking service, our customers can access their bank accounts on their mobile phones and conduct financial and non-financial transactions.

Customer Service

We are focused on providing the highest quality service to our customers. Our Customer Service Committee 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 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 have also recently reorganized our business from a vertical model to a branch centric business model to improve the efficiency of the bank and have a better focus and strengthen relationship with our customers across our nationwide network. We also offer doorstep banking facilities to our customers

Contact centre : We have entered into an agreement with Aegis Limited ("Aegis") for providing call centre and other related services to our customers subject to the payment of certain fees and charges. Aegis has agreed to provide 24/7 call centre and telesourcing services in various languages from their Bangalore and Pune centres. This telephone contact centre acts as our customer facilitation centre and also 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.

Back Office Operations

A key component of our business model includes centralization of all our 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 Centralized Solutions at Thrissur to handle:

• opening of all CASA and loan accounts; • centralized issue of combi packs (cheque book and debit card); • centralized processing of service requests, internet banking operations (retail and corporate); • monitoring and processing of NG RTGS and NEFT transactions; • reconciliation of ATM, debit card, NEFT, NG RTGS and other electronic transactions; • processing of forex and credit cards; • centralized doorstep banking; and • centralized demat and trading operations.

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A variety of other functions were also centralized at regional 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 adjusted net bank credit ("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 or credit equivalent amount of off-balance sheet exposure, whichever is higher, to the agricultural sector, 10% of ANBC to economically weaker sections of the community.

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 ("NABARD") and the National Housing Bank ("NHB"). These deposits have a maturity ranging up to seven years and carry interest rates lower than market rates.

Priority sector advances decreased from ` 28,103.4 million as at the end of March 2012 to ` 25,726.5 million as at the end of March 2013, a decrease of 8.5%. During the period the priority sector advances was 29.07% of the adjusted net bank credit ("ANBC") against the RBI's mandated benchmark of 40%. The priority sector advances was ` 25,023.7 million as at September 30, 2013 which is 31.4 % of ANBC, against the RBI's mandated benchmark of 40%. Since we were unable to meet the priority sector lending requirements as prescribed by the RBI during fiscal 2013 and in the six months ended September 30, 2013, we are required to make compulsory investments in the Rural Infrastructure Development Fund ("RIDF") established with the NABARD or funds with certain other financial institutions. As of September 30, 2013, we have made a total investment of ` 1,127.9 million in NABARD, Small Industries Development Bank of India ("SIDBI"), RIDF and National Housing Bank ("NHB") schemes.

Weaker section advances as at March 31, 2013 was ` 11348.9 million compared with ` 7,628.0 million as at March 31, 2012 whereas the weaker section advances was ` 11260.7 million as at September 30, 2013. Weaker section advances were 8.4%, 12.8% and 14.1% of the ANBC as at March 31, 2012, March, 2013 and September 30, 2013, respectively, against the RBI benchmark of 10.0%.

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.

We provide export credit for pre-shipment and post-shipment requirements of exporter customers in Indian rupees and foreign currencies. As at September 30, 2013, our exposure by way of export credit was ` 1,361.4 million.

For further information, please see “Selected Statistical Information - Priority Sector Lending.”

Financial Inclusion and Micro Credit

As part of our overall efforts towards financial inclusion, we have opened certain customer service points ("CSPs"), known as the business correspondent location that has a representative from the Bank to guide and educate customers on various banking services. These CSPs are 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 facilitates the use of biometric cards for day-to-day operations. Other banking services, such as insurance and loan products, can also be offered from the CSP location. The CSPs are being offered marketing, technology and training support required to deliver the above services. We also intend to enter into tie-ups with certain NGOs for expanding our overall inclusion activities. As on September 30, 2013 our Bank has 19 CSPs.

The number of 'no-frill' savings bank accounts opened by the Bank as part of our financial inclusion endeavors increased from 109,711 as at March 31, 2011, to 201,056 as at September 30, 2013. The balance under this head as at September 30, 2013, was ` 268.2 million i.e. ` 1,334.0 per account.

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We also continued our thrust on micro credit as an instrument of inclusive banking. We also enhanced our product suite under this portfolio by investing in structured products such as pass-through and portfolio buy- outs. However, due to lack of fresh buyout opportunities, the outstanding loans under this head decreased from ` 2,655.1 million as at March 31, 2011 to ` 2,467 million as at March 31, 2013, a decrease of 7.1%, while the outstanding loans were ` 2,818 million as at September 30, 2013.

Credit Policy and Process

Credit Policy : To manage the credit risk, a comprehensive credit policy has been put in place and the main objectives of our credit policy as approved by the Board of Directors are as follows: to maintain the quality of our loan assets, to ensure reasonable return on assets, to maintain an acceptable risk profile, to achieve proper sectoral and geographical risk profile and also to ensure compliance with all the regulatory norms in respect of exposure caps, pricing, income recognition and asset classification guidelines and targeted credits.

Credit Process: Our credit process primarily includes the following stages: credit sourcing, credit appraisal and assessment, credit sanction and credit monitoring and administration. Considering the need to improve credit quality, reduce the turnaround time and follow the industry best practices, specific functional groups have been formed to deliver the process in a timely and structured manner. The branch managers/branch operation managers typically initiate the credit sourcing under the select segments while the credit officers under the credit sanction group are responsible for the credit appraisal. Specific authorities at the branch, zonal and corporate levels are responsible for the sanctioning the credit proposals. The post-sanction process is under the purview of the credit officer/branch operation manager located at the branch who would also be responsible for security creation and asset management.

• Credit sourcing. We typically ensure that our credit growth is aligned with the specific sectors and products while maintaining a balanced sectoral and geographic distribution of assets. In line with our corporate policy, we target the clients in the following segments: (a) large corporates, (ii) small and medium enterprises, (iii) agriculture and micro credit, and (iv) retail assets. The credit sourcing is done by the respective branch managers/branch operation managers who typically report to the respective regional/zonal heads.

• Credit Appraisal and Assessment. The credit appraisal process involves the following stages: (i) collection of detailed data, (ii) assessment of the requirements; (iii) financial analysis; (iv) verification of credentials; (v) security; (vi) rating of the applicant and the proposal; (vii) risk analysis and mitigation; (viii) compliance with the exposure norms, know-your-customer and anti-money laundering guidelines and other regulatory requirements. In order to reduce the turnaround time required during the appraisal and sanctioning stages, we have implemented certain softwares which are also used at the credit monitoring stage once the loan has been sanctioned to the borrowers. Pursuant to our working capital assessment methods, we aim at providing need based finance in accordance with the prudential guidelines and the exposure norms as prescribed by the RBI.

• Credit Rating . We have adopted a system of rating individual assets taking into consideration financial, managerial and industrial factors. The rating exercise is carried out based on the audited financials of the previous years. In case of new business activities and green field ventures, rating would be based on the projected numbers. We typically take exposure only on the assets which are of an acceptable rating. The ratings are reviewed on a yearly basis based on the audited financials by the integrated risk management group.

• Credit Sanction. Post the appraisal process, every credit proposal is submitted to the appropriate internal authorities for sanction. The credit sanctioning process involves considering and evaluating the financial analysis, credit rating of the applicant and the proposal, risk assessment and mitigation, compliance status, exposure norms, industry prospectus, overall relationship value, security, pricing and covenants proposed in the financing/loan agreements. In line with the market standards and to ensure that the credit approval and decision making process is speedy, credit sanction powers have been delegated to certain authorities at the bank subject to periodical revisions. While the individual approval powers have been delegated to the branch head (jointly with the branch operations manager) and regional credit committee, the zonal credit committee and the corporate credit committee have been constituted at the regional and corporate office levels to consider the credit proposals. Further, we have also adopted a separate Board approved scheme of delegated powers for the credit approval of retail asset products and micro-credit. Any material changes in the terms and conditions relating to the

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security, margins, cover period, capital infusion, issuance of no-objection certificates for mergers and extension of time for creation of securities beyond a period of six months in respect of the committee of directors ("COD")/Board approved sanctions, are required to be approved by the COD/Board.

• Credit Supervision, Monitoring and Administration. The credit officers/branch operations manager at the commercial branch take care of the post sanction credit process relating to complete and accurate documentation, security creation, account management, monitoring of the assets, quality of asset portfolio, reporting of irregularities, compliance with the policy prescriptions and redressal of customer grievances and ensuring adherence to terms of sanction. This process enables us to closely monitor the performance of the accounts and take remedial action in time, if required.

Anti-Money Laundering ("AML")

All the transactions are monitored in accordance with the standard guidelines prescribed for the banking industry. We typically file reports such as cash transaction reports, suspicious transaction reports, non-profit organization's transaction, and counterfeit currency report on a regular basis to the Financial Intelligence Unit of the GoI. We are also in the process of further strengthening the AML control in accordance with the guidelines of the Indian Banks Association.

Risk Management Framework

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 have been evolved in tune with our business requirements and best practices and address requirements relating to credit, market and operational risks.

Our Board of Directors have 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. The risk management committee, inter alia, 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, and 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.

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Inspection and Audit Our inspection and audit function is independent, reporting directly to the managing director and the chief executive officer of the Bank. 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 inspection department, which complies with the RBI requirements on risk-based supervision, also conducts audits of various corporate office functions. During fiscal 2013, risk-based internal audits of all branches which were due as per the frequency defined based on the risk levels and our integrated treasury were completed.

The department also controls and reviews concurrent audit of branches undertaken by internal and/or external auditors. As at September 30, 2013, the business volume covered by the concurrent audit was approximately 62.2% of our business.

Vigilance

Our vigilance function is independent, reporting directly to the managing director and the chief executive officer of the Bank. Our vigilance team takes care of all the investigations relating to frauds and other serious irregularities and also ensures the submission of various returns/reports to the RBI on a regular basis and the audit committee of the Board. We have entered into a tie-up with NSDL for authentican and verification of PAN provided by our customer. Serious filters have been imposed on availing remittance facility in cash by our customers. Further, regular trainings are conduted on importance and compliances in relation to KYC and AML requirements to front end employees of our Bank.

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 public sector banks, other 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 NRI market for remittances and deposits. 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 general 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 corporates 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 public sector banks, private sector banks and foreign banks in the foreign exchange and money markets businesses.

Information Technology

We have a modern IT infrastructure, which we believe will provide opportunities to extract further cost efficiencies and to improve the quality and utility of our products. We have networked all of our branches and

119 offices to facilitate core banking solutions ("CBS"). We have upgraded CBS to the latest version with Oracle 11g. It allows our customers to operate their accounts from remote locations and use banking services from any of our service points, regardless of where our customers maintain their accounts. With the CBS platform, we currently offer all the technology enabled products such as internet banking, online bill payments, mobile banking, telephone banking, debit cards and credit cards. We have also successfully implemented the Next Generation Real Time Gross Settlement ("NG RTGS") and the National Electronic Funds Transfer ("NEFT") payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. All of our branches are NG RTGS and NEFT enabled to facilitate large value payments and settlements online in real time, on a transaction-by-transaction basis. We have increased our delivery channels through Internet banking, mobile banking and ATMs.

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. Further, we do not have any employee group insurance policy.

Intellectual Property Rights

In January 2010, we launched our new “Dhanlaxmi Bank” brand and since then all of our branches and offsite branding colours have been changed to improve brand visibility across India. Currently, our trademark and logo are pending registration.

Human Resources

We moved from a vertical based business model to a branch centric business model in order to accelerate growth, improve profitability and enhance service quality. This decision has led to restructuring of the organization pursuant to which manpower rationalization measures were put in place and are still continuing. As of September 30, 2013, our total employee strength was 2,504. A majority of our employees are members of different trade unions.

We have employee stock option schemes for our employees which are linked to their grade, term of service with the Bank and their performance. In addition, we have also recently introduced a comprehensive performance management system that measures the individual performance levels of our employees.

Further, we also offer concessional loans to our employees subject to certain limits, and certain employee benefit schemes including the provident fund, gratuity and pension plans. Since training is an integral part of our organization, our learning and development division regularly provides training to all our employees pursuant to the recent move to the branch centric model.

Properties

We own our Registered Office premises at Thrissur, Kerala. Majority of our branches and other properties we operate from are located on leased premises.

Further, we also own an area of 56.7 cents situated at Thrissur and are constructing our new office building.

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SELECTED STATISTICAL INFORMATION

The following unaudited information should be read together with our reformatted financial statements included in this Preliminary 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. Certain information included in this section has been derived from the periodic returns filed with the RBI which are based on our books of account and underlying records.

Average Balance Sheet

The table below presents the average balances for interest-earning assets and interest-bearing liabilities together with the related interest income and expense amounts, resulting in the presentation of the average yields and cost for each period. The average yield on average interest-earning assets is the ratio of interest income to average interest-earning assets. The average cost on average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. The average balances of loans include NPAs and are net of allowances for credit losses. We have not recalculated tax exempt income on a tax equivalent basis.

Year ended March 31, 2011 2012 2013 Average Interest Average Average Interest Average Average Interest Average Balance (1) Income/ Yield/ Balance (1) Income/ Yield/ Balance (1) Income/ Yield/ Expense Cost Expense Cost Expense Cost (%) (%) (%) (in ` millions, except percentages) Interest-earning assets: Advances 68,549.2 6,991.0 10.2 94,247.9 10,753.9 11.4 76,825.4 9,715.1 12.6 Investments 30010.6 2,017.3 6.7 42,276.6 3,135.8 7.4 41,588.6 3,251.0 7.8 Balances with RBI/Other Inter Bank funds 819.1 55.9 6.8 166.1 28.3 17.1 1,230.7 64.6 5.2 Others (2) ------Total interest- earning assets 99,378.9 9,064.2 9.1 136,690.6 13,918.0 10.2 119,644.7 13,030.7 10.9 Non- interest earning assets 2,179.9 - - 1,626.4 - - 1,642.9 - - Fixed assets 1,033.3 - - 1,423.4 - - 1,314.8 - - Other assets (3) 9,295.9 - - 19,220.8 18.5 0.1 9,508.9 49.3 0.5 Total assets 111,888.0 9,064.2 - 158,961.2 13,936.5 - 132,111.3 13,080.0 - (1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts. In the case of Balances with RBI/Other Inter Bank funds, the daily average balance of the assets have been considered. (2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest.

As at September 30, 2012 2013 Average Interest Income/ Average Average Interest Average Balance (1) Expense Yield/ Cost Balance (1) Income/ Yield/ Cost (%) Expense (%) (in ` millions, except percentages) Interest-earning assets: Advances 78,562.9 4,995.2 12.7 77,485.6 4,740.0 12.2 Investments 39,909.8 1,561.1 7.8 42,670.2 1,666.0 7.8 Balance with 798.3 14.8 3.7 2,715.5 93.4 6.9

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As at September 30, 2012 2013 Average Interest Income/ Average Average Interest Average Balance (1) Expense Yield/ Cost Balance (1) Income/ Yield/ Cost (%) Expense (%) (in ` millions, except percentages) RBI/Other Inter Bank funds Others (2) - - Total interest- earning assets 119,271.0 6,571.1 11.0 122,871.3 6,499.4 10.6 Non-interest earning assets 1,536.9 - - 1571.6 - - Fixed assets 1,453.8 - - 1,363.5 - - Other assets (3) 9,320.2 6.2 0.1 8,801.7 5.3 0.1 Total assets 131,581.9 6,577.3 - 134,608.1 6,504.7 - (1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts. In the case of Balances with RBI/Other Inter Bank funds, the daily average balance of the assets have been considered. (2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest.

Year ended March 31, 2011 2012 2013 Average Interest Average Average Interest Average Average Interest Average Balance (1) Income/ Yield/ Balance (1) Income/ Yield/ Balance (1) Income/ Yield/ Expense Cost Expense Cost Expense Cost (%) (%) (%) (in ` millions, except percentages) Interest-bearing liabilities: Deposits 93,244.1 5,842.4 6.3 126,626.2 10,155.9 8.0 108,961.1 9,161.4 8.4 Borrowings (4) 6,000.4 570.5 9.5 17,850.1 1,305.4 7.3 11,196.3 1,154.4 10.3 Others ------Total 99,244.5 6,412.9 6.5 144,476.3 11,461.3 7.9 120,157.4 10,315.8 8.6 interest- bearing liabilities Other 5,325.8 - - 6,030.0 - - 4648.0 - - liabilities (5) Capital and 7,317.7 - - 8,454.9 - - 7,305.9 - - reserves Total non- - - 14,484.9 - - 11,953.9 - - interest bearing 12,643.5 liabilities and capital Total capital - - 158,961.2 - - 132,111.3 - - and liabilities 111,888.0 (1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts. (2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest. (4) Includes subordinate debt in nature of Tier II bonds and Upper Tier II bonds issued. (5) Excludes subordinate debt in nature of Tier II bonds and Upper Tier II bonds.

Deposits 109,321.0 4,605.6 8.4 111,294.6 4,533.6 8.1 Borrowings (4) 10,521.4 643.4 12.2 10,274.2 512.0 10.0

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As at September 30, 2012 2013 Average Interest Average Average Interest Average Balance (1) Income/ Yield/ Cost Balance (1) Income/ Yield/ Cost (6) Expense (%) Expense (%) (in ` millions, except percentages) Others ------Total interest-bearing liabilities 119,842.4 5,249.0 8.8 121,568.8 5,045.6 8.3 Other liabilities (5) 4,410.0 - - 4,843.3 - - Capital and reserves 7,329.4 - - 8,196.0 - - Total non-interest bearing liabilities and capital 11,739.5 - - 13,039.3 - - Total capital and liabilities 131,581.9 - - 134,608.1 - - (1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts. (2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest. (4) Includes subordinate debt in nature of Tier II bonds and Upper Tier II bonds issued. (5) Excludes subordinate debt in nature of Tier II bonds and Upper Tier II bonds. (6) Average Yield / Cost % for the six months ended September 30, 2013 have been expressed in an annualized manner. Annualization has been done by multiplying the numerator by a factor of 2.

Financial Indicators

Year ended March 31, Six months 2011 2012 2013 ended September 30, 2013(13) (in ` millions, except percentages) Average interest-earning assets (1) 99,378.9 136,690.6 119,644.7 122,871.3 Average interest-bearing liabilities (2) 99,244.5 144,476.3 120,157.4 121,568.8 Average total assets (3) 111,888.0 158,961.2 132,111.3 134,608.1 Average shareholders' equity (4) 6,301.4 7,698.5 7,308.0 7,856.1 Average interest-earning assets as a percentage of average total assets (%) 88.8 86.0 90.6 91.3 Average interest-bearing liabilities as a percentage of average total assets (%) 88.7 90.9 91.0 90.3 Average interest-earning assets as a percentage of average interest-bearing liabilities (%) 100.1 94.6 99.6 101.1 Yield on interest earning assets (%) (5) 9.1 10.2 10.9 10.6 Cost of Funds (%) (6) 6.5 7.9 8.6 8.3 Spread (%) (7) 2.7 2.3 2.3 2.3 Net Interest Margin (%) (8) 2.4 1.6 2.1 2.2 Return on Assets (%) (9) 0.2 (0.7) 0.02 0.03 Return on Equity (%) (10) 4.1 (15.0) 0.4 0.4 Cost to Income Ratio (%) (11) 83.6 125.0 86.8 84.3 Revenue per Employee (12) 2.9 4.4 5.5 2.8 (1) Average Interest-earning Assets is the simple average of the monthly balances of interest earning assets, extracted from the monthly returns in Form X filed with the RBI. (2) Average Interest-bearing Liabilities is the simple average of the monthly balances of interest bearing liabilities, extracted from the monthly returns in Form X filed with the RBI. (3) Average Total Assets is the simple average of the monthly balances of total assets, extracted from the monthly returns in Form X filed with the RBI. (4) Average Shareholders' Equity is the simple average of the balances of Shareholders' Equity at the beginning and at the end of the period. Shareholders' Equity consists of Share Capital, ESOS outstanding, Reserves and Surplus excluding Revaluation Reserves. (5) Yield is the ratio of interest income to Average Interest-earning Assets. (6) Cost of Funds is the ratio of interest expense to Average Interest-bearing Liabilities. (7) Spread is the difference between Yield and Cost of Funds. (8) Net Interest Margin is the ratio of Net Interest Income to the Average Total Assets. Net Interest Income is the excess of interest income over interest expense. (9) Return on assets is the ratio of Net Profit to Average Total Assets. (10) Return on Equity is the ratio of Net Profit to Average Shareholders' Equity. (11) Cost to Income Ratio is the ratio of Operating Expenditure to Total Revenue. Operating Expenditure does not include Interest Expenditure or Provisions and Contingencies. Total Revenue is the sum of Net Interest Income and Other Income. (12) Revenue per Employee is computed by dividing Total Revenue by the average number of employees as at the end of the period. (13) Yield, Cost of Funds, net Interest Margin, Return on Assets and Return on Equity for the six months ended September 30, 2013 have been expressed in an annualized manner. Annualization has been done by multiplying the numerator by a factor of 2.

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Core Fee/Other Income

Fiscal year ended March 31, Six months ended 2011 2012 2013 September 30, 2013 (` in millions) Commissions, exchange and brokerage 87.2 85.0 88.4 36.7 Profit on sales of investments (Net) 96.8 88.7 247.9 119.3 Profit on sale of land, buildings and other assets (Net) 5.2 10.5 4.0 1.0 Profit on exchange transactions (Net) 56.6 118.8 79.8 (8.2) Income from insurance 66.1 82.9 44.3 4.3 Miscellaneous income 1,155.8 1,050.5 678.6 240.5 Total Fee/Other income 1,467.7 1,436.4 1,143.0 393.6

Deposits

As of March 31, As of September 2011 2012 2013 30, 2013 Amount % Amount % Amount % Amount % (` in millions, except percentages) Current Accounts (CA) 15,311.9 12.2 8,642.6 7.3 9,472.9 8.5 9,107.5 7.6 Savings Accounts (SA) 13,380.2 10.7 14,197.5 12.0 15,687.2 14.0 15,994.0 13.5 CASA 28,692.1 22.9 22,840.1 19.3 25,160.1 22.5 25,101.5 21.1 Term deposits 96,604.2 77.1 95,204.0 80.7 86,861.2 77.5 93,965.0 78.9 Total Deposits 125,296.3 100.0 118,044.1 100.0 112,021.3 100 119,066.5 100

Borrowings

The following table sets forth, for the periods indicated, information related to our short-term borrowings and long- term borrowings, which comprised primarily of refinancing from financial institutions and banks and subordinated debt.

Years ended March 31, Six months ended 2011 2012 2013 September 30, 2013 (` in millions, except percentages) Period end balance 6,261.1 17,215.1 15920.9 7774.5 Average balance during the period (1) 6,000.3 17,850.1 11,196.3 10,274.2 Interest expense 570.5 1,305.4 1,154.4 512.0 Average interest rate during the period (2) (%) 9.5% 7.3% 10.3% 10.0% (1) Average is the simple average of the monthly balances of borrowings, extracted from the monthly returns in Form X filed with the RBI. In respect of the six months ended September 30, 2013, as the month end balances for certain borrowings as per Form X was "NIL"; daily balances were taken to calculate the average balances. (2) Represents the ratio of interest expense on borrowings to the average balances of borrowings. (3) Average interest rate was annualised for the six months ended September 30, 2013.

Lower Tier II Debt/Subordinated

We obtain funds from the issuance of unsecured non-convertible subordinated debt securities, which qualify as lower Tier II capital under RBI guidelines for assessing capital adequacy. As of March 31, 2013 and September 30, 2013, our outstanding subordinated debt aggregated ` 3,222.0 million and ` 3,122.0 million, respectively.

The following table sets forth information with respect to subordinated debt issued by us, as of September 30, 2013:

Series Date of Allotment Rate of Interest Date of Redemption Amount (in ` millions) Series 7 30.09.2006 9.7% 29.12.2013 170.0 Series 8 30.09.2009 10.3% 30.04.2015 1500.0 Series 9 20.01.2012 11.0% 20.07.2018 100.0 Series 10A 29.05.2012 11.9% 29.04.2018 545.0 Series 10B 29.05.2012 11.9% 29.05.2019 142.0 Series 11A 03.08.2012 11.9% 03.05.2018 293.0 Series 11B 03.08.2012 11.9% 03.08.2019 37.0

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Series Date of Allotment Rate of Interest Date of Redemption Amount (in ` millions) Series 13B 10.12.2012 11.9% 10.12.2019 50.0 Series 14A 24.01.2013 11.9% 24.10.2018 10.0 Total 2,847.0

Upper Tier II instruments outstanding as of September 30, 2013

Series Date of Allotment Rate of Interest Date of Redemption Amount (in `. millions) Series 1 28.07.2010 10.0% 30.07.2025 275.0

Investment Portfolio

The following tables set forth, as of the dates indicated, information related to our investments:

As of March 31, 2011 2012 2013 Held to Availab Held for Held to Availabl Held Held to Availabl Held Particulars Maturit le for Trading Maturit e for for Maturit e for for y Sale y Sale Tradin y Sale Tradin g g (` in millions) Government 23,262.1 8,529.9 1,306.9 28,135.6 12,756.5 0.0 24,029.8 19,568.0 0.0 securities Other 0.0 1.2 0.0 0.0 0.2 0.0 0.0 0.1 0.0 approved securities Shares 0.0 33.0 0.0 0.0 151.3 0.0 0.0 146.3 0.0

Debentures 0.0 622.1 1,465.6 0.0 802.7 0.0 0.0 1,032.7 0.0 and bonds Subsidiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.00 0.0 and joint ventures Others 1,220.7 47.7 0.0 935.0 984.2 0.0 1,903.5 368.3 0.0 including deposits under Rural Infrastructur e Developmen t Scheme with NABARD, security receipts and pass through certificates Total 24,482.8 9,233.9 2,772.5 29,070.6 14,694.9 0.0 25,933.3 21,115.4 0.0

Particulars As of September 30, 2013 Held to Maturity Available for Sale Held for Trading (` in millions) Government securities 27,804.8 11,042.6 490.0 Other approved securities 0.0 0.1 0.0 Shares 0.0 146.3 7.4 Debentures and bonds 0.0 782.4 0.0 Subsidiaries and joint ventures 0.0 0.0 0.0 Others including deposits under Rural Infrastructure Development Scheme with NABARD, security receipts and pass through certificates 2,828.4 832.0 0.0 Total 30,633.3 12,803.4 497.4

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Asset Liability Gap

The following table sets forth our asset-liability gap position with respect to INR assets and liability as of September 30, 2013 prepared in line with the RBI guidelines on asset liability management:

OUT Next 2 days 8 days 15 29 days Over 3 Over 6 Over 1 Over 3 Over 5 Total FLOWS Day to 7 to 14 days to and up months months year & years & years days days 28 to 3 & up to & up to up to 3 up to 5 days months 6 1 year years years months (` in millions) Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,060.6 1,060.6 Reserves & Surplus 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 7,315.3 7,315.3 Deposits 119,066. 1,005.3 2,824.9 2,535.9 1937.2 18,400.4 8052.3 16,111.7 57,530.8 8,718.0 1,950.0 5 Borrowin gs 741.9 0.0 0.0 430.0 643.0 1013.3 973.8 2,336.7 1,121.9 514.0 7,774.5 Other Liabilities * 1,179.1 2,847.2 3,309.0 1.5 12.2 10.8 49.3 1,931.2 90.8 30.8 9,461.8 A. Total 10,870. 144,678. Outflows 2926.3 5672.0 5,844.9 2,368.7 19, 055.7 9,076.4 17,134.8 61,798.7 9,930.7 6 7

IN Next 2 days 8 days 15 days 29 days Over 3 Over 6 Over 1 Over 3 Over Total FLOWS Day to 7 to 14 to 28 and up months months year & years & 5 days days days to 3 & up to & up to up to 3 up to 5 years months 6 1 year years years months (` in millions) Cash 1,479.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,479.4 Balances 213.9 153.6 162.2 21.3 211.2 154.3 240.2 3,028.6 324.6 154.2 4,664.0 with RBI Balances 1,811.9 0.0 1,000.0 0.0 671.0 4.3 0.0 0.0 0.0 0.0 3,487.2 with other Banks Investmen 9,839.9 974.2 407.6 1,279.4 159.5 36.6 608.7 2,411.8 6,158.4 21,458 43,334.4 ts .2 Advances 620.3 2,118.3 2,319.7 1,768.8 7,718.4 7,962.3 14,323.9 29,308.2 7,177.8 6,573. 79,891.5 9 Fixed 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1,367. 1,367.9 Assets 9 Other 575.6 3,453.9 4,032.6 0.0 0.0 0.0 0.0 2,103.6 0.0 288.6 10,454.3 Assets* B. Total 14,541. 6,699.9 7,922.1 3,069.5 8,760.1 8,157.5 15,172.8 36,852.2 13,660.8 29,842 1,44,678. Inflows 1 .8 7 C - GAP 11,614. 1,027.9 2,077.2 700.8 - -918.9 -1,962.0 - 3,730.1 18,972 0.0 (B - A) 7 10,295.6 24,946.5 .2

*Other liabilities and Other Assets does not include interest accrued.

Loan Portfolio

As of March 31, 2013 and September 30, 2013, our gross loan portfolio was ` 78,963.1 million and ` 80,304.1 million, respectively. As of each date, almost all our gross loans are to borrowers in India and are denominated in Indian Rupees. For description and further information on our loan products, see section titled "Our Business" on page 102.

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The following table sets forth, as of the dates indicated, our net portfolio classified by product groups:

Classification of Loans and Advances As at March 31, As of September 2011 2012 2013 30, 2013 (in `millions) Bills purchased and discounted 11,526.8 2,351.9 1,354.4 1,131.8 Cash credits, overdrafts and loans repayable on demand 11,203.7 15,088.8 16,317.4 20,444.6 Term loans 67,921.0 70,139.8 60,098.9 57,375.6 Total Net Loans and Advances 90,651.5 87,580.5 77,770.6 78,952.0

The following table sets forth, as of the dates indicated, our gross outstanding loans and advances categorized by activity:

Classification of As at March 31, As of September Loans and Advances 2011 2012 2013 30, 2013 Loans % Loans % Loans % Loans % (in ` millions excluding percentages) Infrastructure 12,403.6 13.6 7,504.5 8.5 6872.9 8.7 7384.8 9.2 NBFCs 5,186.7 5.7 4,107.3 4.7 4277.8 5.4 5234.1 6.5 Engineering 1,823.0 2.0 698.0 0.8 1919.3 2.4 2028.6 2.5 Cement 1,022.7 1.1 440.3 0.5 247.6 0.3 194.2 0.2 Textiles 1,797.1 2.0 1,975.7 2.3 1820.3 2.3 1997.9 2.4 Chemicals 1,543.6 1.7 1,443.0 1.6 1061.6 1.3 1692.4 2.1 Paper & Paper products 1,380.2 1.5 126.5 0.1 115.2 0.1 107.3 0.1 Gems & Jewellery 2,244.5 2.5 2,306.7 2.6 3598.6 4.5 4538.1 5.6 Rubber Products 1,010.4 1.1 434.3 0.5 326.6 0.4 341.5 0.4 Metal Products 226.7 0.2 2,951.7 3.4 1605.4 2.0 1050.8 1.3 Automobiles 863.1 1.0 469.9 0.5 1052.4 1.3 1624.9 2.0 Wood Products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Mining & Non- metallic mineral products 21.8 0.0 0.0 0.0 124.8 0.1 0.0 0.0 Sugar, tea & food processing 148.1 0.2 529.9 0.6 1600.2 2.0 1982.0 2.4 Others 61,371.0 67.4 65,053.0 73.9 54340.4 68.8 52127.5 64.9 Total Outstanding Gross loans (1) 91,042.5 100.0 88,040.8 100.0 78963.1 100.0 80304.1 100

(1) Gross loans is the total loan outstanding as of a date without reducing the provisions made for non-performance assets.

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 installment 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 table below sets forth our NPA position as of the dates specified:

As of March 31, As of September 2011 2012 2013 30, 2013 (` in millions, except percentages) Sub-standard loans: Amount 187.8 535.9 3159.3 2979.7 As a percentage of total NPAs 28.0 51.4 83.0 69.8 Doubtful loans: Amount 324.9 358.5 454.8 999.6 As a percentage of total NPAs 48.4 34.4 11.9 23.4 Loss loans: Amount 158.2 148.3 188.4 288.5 As a percentage of total NPAs 23.6 14.2 4.9 6.7 Gross NPAs 670.9 1,042.7 3802.7 4267.9

As of March 31, As of September Category of Advance - Business segments 2011 2012 2013 30, 2013 (` in millions) Gross Advances 91,042.5 88,040.8 78,963.1 80,304.1 Retail Banking 400.7 826.3 1,008.8 767.1 Corporate Banking 0.0 0.0 2,160.9 2,102.5 SME Banking 136.4 76.3 512.9 1,271.3 Micro Finance and Agricultural Lending 133.8 140.1 120.1 127.0 Gross NPAs 670.9 1,042.7 3,802.7 4,267.9 Net NPAs 274.7 580.0 2,610.2 2,912.3

As of September 30, 2013, gross NPA as a proportion of gross loans were 5.3% and net NPA as a proportion of net loans were 3.6%. We had, as of September 30, 2013, effected a provision cover of 32.1% of our gross NPAs.

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Analysis of Non-Performing Loans by Industry Sector

As of March 31, As of September 30, 2013 2012 2013 Gross Gross % of Gross Gross % of Gross Gross % of Loans/ NPA Gross Loans/ NPA Gross Loans/ NPA Gross Advances NPA to Advances NPA to Advances NPA to Gross Gross Gross Loans/ Loans/ Loans/ Advances Advances Advances (` in millions, except percentages) Agriculture 9,081.3 61.1 0.7 14041.3 54.9 0.3 14760.4 63.1 0.4 Small scale industries 16,054.0 28.5 0.2 10013.7 605.6 6.0 8067.6 684.4 8.4 Other Priority Sector 2,968.1 277.1 9.3 1,671.5 190.6 11.4 2,195.6 222.5 10.1 Total Priority Sector 28,103.4 366.7 1.3 25,726.5 851.2 3.3 25,023.7 970.1 3.8 Total Non- Priority Sector 59,937.4 676.0 1.1 53,080.2 2,951.4 5.5 55,276.5 3297.8 5.9 NPAs Among Public Sector 0.00 0.0 0.00 156.4 0.0 0.0 3.8 0.0 0.0 Grand Total 88,040.8 1,042.7 1.2 78963.1 3802.7 4.8 80304.1 4267.9 5.3

Provision for Non-Performing Assets

The following table sets forth, for the periods indicated, movements in our provisions against NPAs:

Particulars For the year ended March 31, For the six 2011 2012 2013 months ended September 30, 2013 (` in millions) NPA Provisions: Total NPA provisions at the beginning of the year/period 346.9 391 460.0 1,190.1 Additions during the year/period 159.1 233.0 1,003.3 305.9 Reductions during the period on account of recovery and write- 115.0 164.0 273.2 148.5 offs Total NPA provisions at the end of the year/period 391.0 460.0 1,190.1 1,347.5

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. 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 unserviced interest, then to principal. If any of a borrower's loans are classified as an NPA, all loans to such borrower are classified as NPAs.

Policy for making Provisions for Non-Performing Assets

The RBI policy on provisioning for NPAs is described below:

Substandard assets 15% for the secured advance & 25% for unsecured of the gross amount outstanding Doubtful assets Doubtful-I — 100% of the unsecured portion and 25% of the secured portion Doubtful-II — 100% of the unsecured portion and 40% of the secured portion

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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 of NPA provisioning prescribed by the RBI.

The tables below set out our cost of credit as of the dates specified.

As at March 31, As of September 2011 2012 2013 30, 2013 (` in millions, except percentages) A. Bad debts written off and provisions for NPA - corporate loan book - - 359.7 342.2 B. Bad debts written off, diminution in value/loss on sale of repossessed vehicles and provisions for NPA - retail loan book 178.2 268.5 574.9 747.2 Total credit costs (A + B) 178.2 268.5 934.6 1089.4 Credit costs (basis points on advances) (%) 0.3% 0.3% 1.18% 1.36% Net NPAs 274.7 580.0 2610.2 2912.3 Provisioning Coverage Ratio (%) 60.5% 45.6% 31.8% 32.1%

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.

NPA Strategy

The Bank extensively utilizes the provisions of the SARFESI Act to enforce our interest in securities charged to us in case of defaulting borrowers as well as takes appropriate portfolio intervention such as reporting to CIBIL and RBI as wilful defaulter, initiating legal actions, engaging Recovery Agencies for timely recovery of impaired assets and sale of non-performing loans to specialised asset reconstruction companies. NPA accounts are being settled through Revenue Recovery Camps / Lok Adalat conducted jointly by the Bank along with certain government and judicial authorities in selected areas. The Bank has a comprehensive policy on One Time Settlements (“ OTS ”) and special liberalized OTS schemes are announced by the Bank from time to time giving considerable concessions to the defaulted borrowers. We have also restructured loans to customers who have faced cash flow problems causing delay or default in servicing their loan obligations.

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 or Base Rate 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 interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to our BPLR or Base Rate as at the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

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The restructured accounts have been treated as standard (unless the account was an NPA at the time of restructuring or slipped into NPA subsequently).

As on March 31, 2013 As on September 30, 2013 Particulars No. Amount No. Amount (` in millions, except percentages) Restructured Loans (Net) 10,503 2,269.3 20 857.0 Total Gross Advances 78,963.1 80,304.1 % Restructured Loans (net) to Total Advances 2.9% 1.1%

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 "Regulations and Policies". Our capital adequacy ratios as at March 31, 2011, 2012 and 2013 and September 30, 2012 and 2013 were as follows:

As at September, 30 As at March 31, (As per Basel II and Basel III (As per Based II standards) standards) 2011 2012 2013 2012 2013 (in millions) II III Tier I Capital 8,076.0 6,472.3 6,581.5 6,168.0 7,275.4 7,198.8 Tier II Capital 2,055.4 1,804.4 2,463.5 2,452.6 1,971.7 962.2 Total Capital Funds 10,131.4 8,276.6 9,045.0 8,620.6 9,247.1 8,161.0 Risk Weighted Assets under Credit Risk 80,110.1 80,339.1 68,713.7 70,732.9 67,116.6 67,116.5 Risk Weighted Assets under Operational Risk 3,129.1 4,632.8 5,685.1 5,685.1 6,605.5 6,605.5 Risk Weighted Assets under Market Risk 2,621.0 2,264.9 7,401.8 2,652.5 4,295.7 4,335.6 Total Risk Weighted Assets 85,860.2 87,236.8 81,800.6 79,070.5 78,017.7 78,057.6 CRAR (%) 11.8 9.5 11.1 10.9 11.9 10.5 Tier I Capital to Risk Weighted Assets (%) 9.4 7.4 8.1 7.8 9.3 9.2 Tier II Capital to Risk Weighted Assets (%) 2.4 2.1 3.0 3.1 2.6 1.3 CRAR (%) (If Net Profit is considered) 11.8 9.5 11.1 10.9 11.9 10.5 Tier I Capital to Risk Weighted Assets (%) 9.4 7.4 8.1 7.8 9.3 9.2 Tier II Capital to Risk Weighted Assets (%) 2.4 2.1 3.0 3.1 2.6 1.3

The following table sets forth the growth in Risk Weighted Assets pertaining to Credit Risk and Credit Exposure for the periods indicated below:

As of March 31, 2012 over As of March 31, 2013 over As of September 30, 2013 that of March 31, 2011 that of March 31, 2012 over that of March 31, 2013 Growth in Risk Weighted Assets – Credit 0.3% -14.5% -2.3% Growth in Exposure* 1.0% -10.4% 2.8% *Exposure as per RBI guidelines.

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REGULATION AND POLICIES

Our Bank is a scheduled commercial bank within the meaning of RBI Act. The following is an overview of the certain sector specific Indian laws and regulations which are relevant to our Bank’s business. Taxation statutes such as the IT Act, labour laws such as Contract Labour (Regulation and Abolition) Act, 1970 and other miscellaneous regulations and statutes such as the Trade Marks Act, 1999, apply to us as they do to any other Indian company.

The description of laws and regulations set out below are not exhaustive, and are only intended to provide general information to QIBs and is neither designed nor intended to be a substitute for professional legal advice. The statements below are based on the current provisions of Indian law, and the judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions.

The main legislation governing commercial banks in India is the Banking Regulation Act. Other important laws include the Reserve Bank of India Act, the Negotiable Instruments Act and the Banker's Books Evidence Act. Additionally, the RBI, from time to time, issues guidelines to be followed by banks. Banking companies are also subject to the purview of the Companies Act, to the extent applicable, and if such companies are listed on a stock exchange in India then various regulations of the SEBI would additionally apply to such companies, including the Listing Agreements.

Banking Regulations

Banking Regulation Act, 1949

Commercial banks in India are required to obtain a license from the RBI to carry on banking business in India. Such license is granted to the bank subject to compliance of certain conditions including (i) that the bank has the ability to pay its present and future depositors in full as their claims accrue; (ii) that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the bank has adequate capital and earnings prospects; and (iv) that public interest will be served if 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 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. No shareholder in a bank can exercise voting rights on poll in excess of 10% of total voting rights of all the shareholders of the bank. However, the RBI may increase this ceiling to 26% in a phased manner.

Further, the Banking Regulation Act, as amended, requires any person to seek prior approval of the RBI, to acquire or agree to acquire, shares or voting rights of a bank, by himself or with persons acting in concert, wherein such acquisition (taken together with shares or voting rights held by him or his relative or associate enterprise or persons acting in concert with him) results in aggregate shareholding of such person to be 5% or more of paid up capital of a bank or entitles him to exercise 5% or more of the voting rights in a bank.

Further, the RBI requires the banks to create a reserve fund to which it must transfer not less than 20% 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.

Recent amendments also permit the RBI to establish a “Depositor Education and Awareness Fund”, which will take over the deposit accounts which have not been claimed or operated for a period of 10 years or more.

The recent amendments also confer power on the RBI (in consultation with the central government) to supersede the board of directors of a banking company for a period not exceeding a total period of 12 months, in public interest or for preventing the affairs of the bank from being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company.

The RBI may impose penalties on banks and its employees in case of infringement of regulations under the

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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.

Restrictions on Investments in a Single Company

A bank may hold shares in a subsidiary company in accordance with the provisions of the Banking Regulation Act. Further the “Investments in subsidiaries and other companies – Guidelines”, issued by the RBI on December 12, 2011 lay down the framework for banks’ investments in companies which are not subsidiaries.

Regulatory Reporting and Examination Procedures

The RBI is empowered under the Banking Regulation Act to inspect a bank. The RBI monitors prudential parameters at quarterly intervals. To this end and to enable off-site monitoring and surveillance by the RBI, banks are required to report to the RBI on various aspects. The RBI also conducts periodical on-site inspections on matters relating to the bank's portfolio, risk management systems, internal controls, credit allocation and regulatory compliance, at intervals ranging from one to three years. The RBI also conducts on-site supervision of selected branches with respect to their general operations and foreign exchange related transactions.

Maintenance of Records

The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to the Bank as in the case of any company. The “KYC / AML Guidelines” framed by the RBI also provide for certain records to be maintained for a minimum period of ten years from the cessation of relationship with the client.

Regulations Relating to the Opening of Branches

As per the “Master Circular on Branch Authorization” dated July 1, 2013 banks are required to obtain licenses from the RBI to open or shift its branches in tier 1 cities. However, prior approval from RBI is not required to shift a branch to any location within the city, town or village. From August 2005, the process of giving authorization to individual branches 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. Further since June 2009 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, new private sector banks are required to ensure that at least 25% of their total branches are in semi-urban and rural centres on an ongoing basis.

Capital adequacy requirements

As per the RBI “Master Circular on Prudential Norms on Capital Adequacy- Basel I framework”, the Bank is required to maintain a minimum CRAR of 9%.

The total capital of a banking company is classified into Tier I capital and Tier II capital. Tier I capital, the core capital, provides the most permanent and readily available support against unexpected losses. It comprises paid up capital, reserves consisting of any statutory reserves and innovative perpetual debt instruments issued in compliance with extant regulations issued by the RBI for inclusion in Tier I capital. Tier II capital includes provision for standard assets, revaluation reserves, hybrid debt capital instruments (which combine certain features of both equity and debt securities and are able to support losses on an ongoing basis without triggering liquidation), and subordinated debt. Deductions permitted from Tier I capital are (a) Intangible assets and losses in the current period and those brought forward from previous periods and (b) deferred tax asset. Further the investments of a bank in the equity as well as non-equity capital instruments issued by a subsidiary, which are reckoned towards its regulatory capital as per norms prescribed by the respective regulator, should be deducted at 50 per cent each, from Tier I and Tier II capital of the parent bank.

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% 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

133 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 and Advanced Measurement Approach methods of risk assessment. Under the RBI’s guidelines, banks were to submit their revised methodologies by April 1, 2012, with the RBI set to approve these no later than March 31, 2014. The Basel III standards have been implemented from April 1, 2013 in India in phases and it will be fully implemented as on March 31, 2018.

Prudential norms on income recognition, asset classification and provisioning pertaining to advances (“Prudential Norms”)

The RBI, pursuant to its “Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances” (“ Prudential Norms ”) issued on July 1, 2013, has classified NPAs as (i) sub-standard assets; (ii) doubtful assets; and (iii) loss assets. These guidelines specify 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 October 2007, the RBI issued guidelines regarding valuation of NPAs being put up for sale. Further, the RBI pursuant to the circular on Prudential Norms has decided that banks should maintain provisioning coverage ratio, including floating provisions, of at least 70%.

The RBI has also issued a separate set of prudential guidelines on restructuring of advances by banks in relation 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 corporate debt restructuring (“ 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 and 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 2001. 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. The Bank has signed the inter-se agreement (amongst the banks and financial institutions) and is accordingly a member of the CDR system. The Prudential Norms as mentioned above equally apply to the accounts restructured under the 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. The Prudential Norms issued by the RBI describe 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 PTCs issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.

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Pursuant to the amendment of the SARFAESI Act in January 2013, means for recovery of assets available to banks and financial institutions have been strengthened. Further, banks and financial institutions have been empowered to accept immovable property in full or partial satisfaction of the bank’s claim against the defaulting borrower in times when they cannot find a buyer for the securities. The amendment also enables banks and financial institutions to enter into settlement or compromise with the borrower and empowers Debt Recovery Tribunals to pass an order acknowledging any such settlement or compromise.

Priority sector lending

The RBI circular on Priority Sector Lending- Targets and Classification dated July 1, 2013 sets out the broad policy in relation to priority sector lending. In accordance with this circular, the priority sectors for all scheduled banks include (i) agriculture; (ii) micro and small enterprises (“ MSE ”); (iii) education; and (iv)housing. While export credit is no longer a separate category under this circular, export credit for eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories. 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 HTM 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.

Export credit

As per the Master Circular on Export Credit issued on July 1, 2013, banks can offer export credit at interest rates at or above the Base Rate. Pre-shipment and post-shipment export credit can be provided in both Indian Rupees and foreign currencies. Banks are required to reach a level of outstanding export credit equivalent of 12% of each bank's adjusted net bank credit.

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% of capital funds and group exposure limit as 40% of capital funds. Relaxations are permitted in exceptional circumstances and lending to infrastructure sector. The total exposure to a single NBFC has been limited to 10% of the bank’s capital funds while exposure to non-banking asset finance company has been restricted to 15% of the bank’s capital funds. The limit may be increased to 15% and 20%, respectively, provided that the excess exposure is on account of funds lent by the NBFC to the infrastructure sector.

The aggregate exposure of a bank to the capital markets in all forms (both fund based and non-fund based) should not exceed 40% of its net worth, on both standalone and consolidated basis as on March 31 of the previous year.

Short-selling of Government securities

As per the “Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks” dated July 1, 2013, 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 three months, including the day of trade. Further, such short positions shall be covered only by outright purchase of an equivalent amount of the same security.

Regulations relating to Making Loans

The provisions of the Banking Regulation Act govern the making of loans by banks in India. The RBI issues directions covering the loan activities of banks. Some of the major guidelines of the RBI, which are now in effect, are as follows:

• The RBI has prescribed norms for banks lending to non-bank financial companies and the financing of public sector disinvestment.

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• RBI introduced the “Base Rate” in place of the BPLR with effect from July 1, 2010. For loans sanctioned up to June 30, 2010, BPLR would be applicable. However, for those loans sanctioned up to June 30, 2010 which come up for renewal from July 1, 2010 onwards, Base Rate would be applicable.

• Section 21A of the Banking Regulation Act provides that the rate of interest charged by a bank shall not be reopened by any court on the ground that the rate of interest charged by a bank is excessive. The Banking Regulation Act provides for protection to banks for interest rates charged by them.

Regulations relating to interest rates on Rupee deposits held in domestic, Ordinary Non-Resident (“NRO”) and Non-Resident (External) (“NRE”) accounts

As per the master circular on “Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts”, dated July 1, 2013, the RBI has permitted banks to independently determine their interest rates on savings and term deposits (minimum period of 7 days) under domestic/NRO accounts. Banks are also free to determine interest rates for savings deposits and term deposits of maturity of one year and above under NRE deposit accounts. However, interest rates offered by banks on NRO and NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

Regulations relating to Know Your Customer (“KYC”) and anti-money laundering

The RBI issued a master circular on July 1, 2013 prescribing the guidelines for KYC and anti-money laundering procedures. With effect from April 1, 2012, banks are not permitted to make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument. Further, banks are required to frame their KYC policies incorporating (i) customer acceptance policy, (ii) customer identification procedures (including the allotment of unique customer identification code for existing customers by end-May 2013), (iii) monitoring of transactions and (iv) risk management.

Regulations relating to maintenance of statutory reserves

A bank is required to maintain, on a daily basis, CRR, which is a specified percentage of its NDTL, excluding interbank deposits, by way of a balance in a current account with the RBI. At present the required CRR is 4%. 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% of the required CRR on any day of the fortnight. The RBI may impose penal interest at the rate of 3% above the bank rate on the amount by which the reserve falls short of the CRR required to be maintained on a particular day and if the shortfall continues further the penal interest charged shall be increased to a rate of 5% above the bank rate in respect of each subsequent day during which the default continues.

In addition to the CRR, a bank is required to maintain SLR, a specified percentage of its NDTL 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 23%. Further, in December 2011, the RBI has permitted banks to avail funds from the RBI on an overnight basis, under the Marginal Standing Facility, against their excess SLR holdings. Additionally, they can also avail themselves of funds, on an overnight basis below the stipulated SLR, up to 1% of their respective NDTL outstanding at the end of the second preceding fortnight.

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 Foreign Exchange Management Act. All branches should monitor all non-resident accounts to prevent money laundering. The RBI master circular on External Commercial Borrowings and Trade Credits, dated July 1, 2013, 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, 2013, 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% of their unimpaired Tier I capital or U.S$ 10 million (or its equivalent), whichever is higher. Overseas borrowings for the purpose of financing export credit,

136 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%.

Secrecy obligations

A bank’s obligations relating to maintaining secrecy arise out of Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (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.

Ownership restrictions

In terms of the Consolidated FDI Policy effective from April 5, 2013 (the “FDI Policy”) and the RBI Master Circular on Foreign Investment in India, effective from July 1, 2013, the total foreign ownership in a private sector bank cannot exceed 74% (49% under the automatic route and beyond 49% and up to 74% under the approval route) 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% cannot exceed 49% of the paid-up capital of the bank. 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% or more of its total paid up capital. Further, the Banking Regulation Act, as amended, requires any person to seek prior approval of the RBI, to acquire or agree to acquire, shares or voting rights of a bank, by himself or with persons acting in concert, wherein such acquisition (taken together with shares or voting rights held by him or his relative or associate enterprise or persons acting in concert with him) results in aggregate shareholding of such person to be 5% or more of paid up capital of a bank or entitles him to exercise 5% or more of the voting rights in a bank. The RBI may grant acknowledgement for acquisition or transfer of shares that takes the acquirer’s shareholding to 10% or more and up to 30% of a private sector bank’s paid-up capital subject to consideration of various additional factors.

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, the Bank is entitled to certain benefits under the provisions of these legislations.

The Banking Ombudsman Scheme, 2006

The Banking Ombudsman Scheme, 2006 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. On February 3, 2009, the said scheme was amended to provide for revised procedures for redressal of grievances by a complainant under the scheme.

Regulations governing International Operations

The Bank’s international operations are governed by regulations in the countries in which the Bank has a presence.

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Consolidated Supervision Guidelines

In financial year 2003, the RBI issued guidelines for consolidated accounting and consolidated supervision for banks. These guidelines became effective on August 1, 2003. The principal features of these guidelines are:

• Consolidated financial statements: Banks are required to annually prepare consolidated financial statements intended for public disclosure • Consolidated prudential returns: Banks are required to submit to the RBI, at periodic intervals, consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries

Restrictions on payment of dividends

The guidelines on payment of dividends by banks issued by the RBI in 2004 shifted focus from the “quantum of dividend” to “dividend payout ratio”. These guidelines have since been revised in 2005 and the banks have been given general permission to declare dividends subject to compliance with certain norms.

Classification and Reporting of Fraud Cases

The RBI issued a master circular on July 1, 2013 on the classification and reporting of fraud cases. The fraud cases have been classified into misappropriation and criminal breach of trust, fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property, unauthorised credit facilities extended for reward or for illegal gratification, negligence and cash shortages, cheating and forgery, irregularities in foreign exchange transactions and any other type of fraud not coming under the specific heads as above. According to the RBI circular dated January 4, 2013, information relating to frauds for the quarters ending June, September and December may be placed before the Audit Committee of the Board of Directors during the month following the quarter to which it pertains, irrespective of whether or not these are required to be placed before the Board/Management Committee in terms of the Calendar of Reviews prescribed by RBI. Banks are also required to conduct an annual review of the frauds and place a note before the Board of Directors/Local Advisory Board for information. The reviews for the year-ended March may be put up to the Board before the end of the next quarter i.e. for the quarter ended June 30th and such reviews need not be sent to RBI. These may be preserved for verification by the Reserve Bank’s inspecting officers.

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BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

The composition of our Board is governed by the provisions of the Companies Act, applicable provisions of the Companies Act, 2013, the Banking Regulation Act, the Listing Agreements and our Articles of Association.

Our Articles of Association provide that the number of Directors shall not be less than three or more than 11, unless otherwise determined by our members in a general meeting. Our Board currently comprises of eight Directors comprising of one executive Director and six non executive independent Directors and one nominee director appointed by the RBI as additional director.

The Banking Regulation Act requires that at least 51.0% of our Directors shall have specialized knowledge or practical experience in one or more prescribed areas. Also, these directors must not have substantial interest in, or be connected with, whether as an employee, manager or managing agent, of any company (not being a company registered under Section 25 of the Companies Act) or firm which carries on any trade, commerce or industry which is not a small scale industrial concern, or be proprietors of any trading, commercial or industrial concern which is not a small scale industrial concern. As on the date of this Preliminary Placement Document, the Bank has complied with the conditions specified in the Banking Regulation Act including in relation to the prescribed special knowledge or practical experience required by the Directors.

Our Articles of Association provide that at every Annual General Meeting of our Bank, one-third of the Directors for the time being or if their number is not three or multiples of three, then the number nearest to one- third shall retire from office. Two-thirds of the total number of Directors shall be persons whose period of office is liable to determination by the retirement of Directors by rotation and shall be appointed by the Bank in a general meeting. The remaining one-third of the Directors shall be appointed by the Board and shall not be liable to retirement by rotation nor taken into consideration in determining the retirement of Directors by rotation. The Directors so appointed by the Board shall be persons who possess one or more of the qualifications specified in the Banking Regulation Act. The Chairman any other whole time Director and Managing Director shall not retire by rotation and shall be within the one-third to be appointed by the Board. The Directors to retire are those who have been the longest in the office since their last appointment. A retiring Director is eligible for re-appointment. However under the Banking Regulation Act, none of our Directors, other than the Chairman, the Managing Director and CEO or any other whole time director can hold office continuously for a period exceeding eight years.

Our Board of Directors may appoint any person as an additional director, but such a director shall hold office only up to the date of the next AGM, and he shall be eligible for appointment as a director at that meeting in accordance with the provisions of the Companies Act. The quorum for meetings of the Board of Directors is one-third of the total number of Directors (any fraction contained in that one-third being rounded off as one) or two Directors, whichever is higher.

The following table sets forth details regarding the Board of Directors as at the date of this Preliminary Placement Document:

Name Designation Mr. T.Y Prabhu Chairman, non executive, independent Director Mr. P.G Jayakumar Managing Director and CEO, executive Director Mr. K. Srikanth Reddy Non executive, independent Director Mr. K. Vijayaraghavan Non executive, independent Director Mr. P. Mohanan Non executive, independent Director Mr. Chella K Srinivasan Non executive, independent Director Mr. K. Jayakumar Non executive, independent Director Mr. Raja Selvaraj Nominee Director* * Appointed by RBI under section 36AB of the Banking Regulation Act.

Brief Biographies of the Directors

Mr. T.Y Prabhu aged 62 years, is the part time Chairman of our Board. Mr. Prabhu holds a bachelor’s degree in commerce from Mysore University, a bachelor’s degree in law from Bangalore University and is a certified associate of the Indian Institute of Banking and Finance (erstwhile Indian Institute of Bankers). Mr. Prabhu has previously held the post of chairman and managing director at the Oriental Bank of Commerce and served as

139 executive director of Union Bank of India. He has also been associated with Canara Bank as the zonal head of Canara Bank’s New Delhi office. Mr. Prabhu has over 40 years of experience working with public sector banks. Mr. Prabhu was also appointed by the RBI as a member of the advisory group on FEMA and regulations relating to services like remittance. Mr. Prabhu was appointed as the part time Chairman with effect from November 7, 2012.

Mr. P.G Jayakumar , aged 61 years, is our Managing Director and CEO. Mr. Jayakumar holds a bachelor’s degree in science from Kerala University and is a certified associate of the Indian Institute of Banking and Finance. Mr. Jayakumar took charge as the Managing Director and CEO our Bank, with effect from May 18, 2012. He has 35 years of experience with our Bank, working with the regional and zonal offices before joining the corporate office as general manager in 2006.

Mr. K. Srikanth Reddy , aged 60 years, is a non executive independent Director on the Board of our Bank. Mr. Reddy holds a bachelor’s degree in commerce from Sri Venkateswara University, a master’s degree in business administration from Andhra University and has participated in the Long Defense Management Course at the College of Defence Management . He has previously worked with the Ministry of Planning and Programme Implementation, Ministry of Food Processing Industries, Ministry of Defence, Ministry of Communications, Ministry of Welfare, Ministry of Welfare and Tourism and the Ministry of Civil Aviation. Mr. Reddy was also a member of the Indian Civil Services for over 16 years. Mr. Reddy has been on the Board of our Bank since October 29, 2007.

Mr. K. Vijayaraghavan , aged 68 years, is a non executive independent Director on the Board of our Bank. Mr. Vijayaraghavan holds a bachelor’s degree in economics and a master’s degree in economics from Kerala University and is a certified associate of the Indian Institute of Banking and Finance. He has previously worked with the RBI and retired in 2003 as chief general manager. Mr. Vijayaraghavan has served as the RBI’s nominee director on the board of The Catholic Syrian Bank Limited, the South Indian Bank Limited, the Nedungadi Bank Limited, State Bank of Travancore, South Malabar Gramin Bank, State Bank of Patiala, Himachal Pradesh Financial Corporation and Syndicate Bank. He has also worked as a lecturer in SD College, Alleppy, Kerala. Mr. Vijayaraghavan has been on the Board of our Bank since October 31, 2012.

Mr. P. Mohanan , aged 65 years, is a non executive independent Director on the Board of our Bank. Mr. Mohanan holds a bachelor’s degree in law and a master’s degree in arts from Kerala University . He has participated in management programs at the Indian Institute of Management, Ahmedabad, the Indian School of Business, Hyderabad and undergone training in microfinance at Bank Rakia, Indonesia. He has previously worked with Canara Bank and retired as general manager, in charge of Canara Bank’s operations in the state of Kerala. While at Canara Bank, he was part of the core team involved in Canara Bank’s initial public offer. He has also contributed in the formulation of the Bank’s corporate governance policy. Mr. Mohanan has 35 years of experience in the field of banking. Mr. Mohanan has been on the Board of our Bank since October 31, 2012.

Mr. Chella K Srinivasan , aged 52 years, is a non executive independent Director on the Board of our Bank. Mr. Chella K Srinivasan holds a bachelor’s degree in commerce from the University of Madras and is also a qualified FCA from Institute of Chartered Accountants of India. He is the national executive vice president of the Indo-American Chamber of Commerce and has also been a member of the vision committee of the Institute of Chartered Accountants of India. Mr. Srinivasan has 29 years of experience in the field of accounting, auditing and corporate tax . Mr. Srinivasan has been on the Board of our Bank since May 17, 2013.

Mr. K. Jayakumar aged 61 years, is a non executive independent Director of the Bank. Mr. K. Jayakumar holds masters’ degree in arts and science from Nagpur University and University of Bath, UK, respectively . He has previously served as secretary to the Government of Kerala in sectors like agriculture and tourism and retired as the chief secretary to the Government of Kerala. He has also been a director of NABARD and the chief commissioner for Travancore Devaswom board. Presently he is the vice chancellor of the Malayalam University. Mr. Jayakumar has been on the Board of our Bank since May 17, 2013.

Mr. Raja Selvaraj , aged 56 years, is a non executive independent Director on the Board of our Bank. Mr. Raja Selvaraj holds a masters degree in arts from University of Madras and is also a certified associate of Indian Institute of Bankers. He has previously worked with Indian Overseas Bank. Mr. Selvaraj has 29 years of experience in the field of banking and is currently working with RBI as General Manager . Mr. Selvaraj has been appointed by RBI on the Board of our Bank since November 1, 2013.

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Borrowing Powers of our Board of Directors

Pursuant to a resolution passed by our members in the AGM dated September 28, 1994, in terms of Section 293(1) (d) of the Companies Act, the Board of Directors of our Bank is authorized to borrow monies as and when required in excess of the limitations placed or intended to be placed pursuant to Section 293 (1) (d) of the Companies Act, such that the aggregate borrowings of our Bank shall not at any time exceed `1,000 million.

Interest of Directors of our Bank

Our Managing Director and CEO may be deemed to be interested to the extent of remuneration paid by our Bank, as well as to the extent of reimbursement of expenses payable to him. Our non executive Directors may be deemed to be interested to the extent of fees, payable to them for attending meetings of the Board or a committee thereof as well as to the extent of other reimbursement of expenses payable to them.

Our Directors, including independent Directors, may also be regarded as interested in the Equity Shares or options under the ESOS 2009, if any, held by them and also to the extent of any dividend payable to them and other distributions in respect of the Equity Shares. The Directors, including independent Directors, may also be regarded as interested in the Equity Shares held by or that may be subscribed by and allotted to the companies, firms and trust, in which they are interested as directors, members, partners or trustees. For details of the Equity Shares and options held by our Directors, please refer to the sub-sections titled “Shareholding of the Directors and Key Managerial Personnel” and “Employees Stock Option Scheme” on page 146.

Our Directors may be deemed to be interested in the contracts, agreements/ arrangements entered into or to be entered into by our Bank with any company in which they hold directorships or any partnership firm in which they are partners. Except as otherwise stated in this Preliminary Placement Document and statutory registers maintained by our Bank in this regard, we have not entered into any contract, agreements, arrangements during the preceding two years from the date of this Preliminary Placement Document in which our Directors are interested directly or indirectly and no payments have been made to them in respect of these contracts, agreements, arrangements which are proposed to be made with them.

Terms of Employment and Remuneration of our Chairman and Managing Director and CEO

Pursuant to a resolution passed by our Board on November 3, 2012 and approval of the RBI dated November 2, 2012, Mr. T. Y. Prabhu has been appointed as our part time Chairman for a period of three years with effect from November 7, 2012 up to November 6, 2015. The terms and conditions of the appointment of Mr. Prabhu, as approved by our Board of Directors and members, include:

(a) Coverage of telephone charges for official purposes;

(b) Free conveyance for official purposes and conveyance for private purposes on payment of ` 250 per month by the Chairman to the Bank.

Mr. Prabhu is eligible for sitting fees for attending the meetings of our Board and Board committees.

Pursuant to a resolution passed by our Board on May 17, 2013 and the approval of the RBI dated May 14, 2013, Mr. P. G. Jayakumar has been appointed as our Managing Director and CEO for a period of one year from May 18, 2013.

The current terms and conditions of the remuneration payable to Mr. Jayakumar, with effect from May 18, 2013, include:

(a) salary of ` 3.6 million per annum;

(b) Bank may approach RBI for a separate approval at the time of paying variable pay;

(d) free use of the telephone and Bank’s car for official use;

(e) full reimbursement of medical expenses for Mr. Jayakumar and his family;

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(f) provident fund and gratuity as included in the salary; and

(g) travelling allowance paid by the Bank.

Mr. Jayakumar is not eligible for any sitting fees for attending the meetings of our Board and Board committees.

Remuneration of our Non Executive Directors

In fiscal 2013, our non executive Directors, were paid a sitting fee of ` 20,000 for each meeting of our Board and ` 10,000 for each meeting of a committee of the Board.

The following table sets forth the sitting fees paid by our Bank to our existing directors for fiscal 2013: (` in millions) Name Sitting Fees Mr. P.G Jayakumar -* Mr. T.Y Prabhu 0.3 Mr. K. Srikanth Reddy 0.4 Mr. K. Vijayaraghavan 0.3 Mr. P. Mohanan 0.4 Mr. Chella K Srinivasan 0.2 Mr. K. Jayakumar 0.1 * In fiscal 2013, Mr. P.G. Jayakumar was paid a remuneration of ` 3.1 million.

Corporate Governance

Our Bank is in compliance with the provisions in respect of corporate governance as stipulated in the Listing Agreements with the Stock Exchanges, including in respect of appointment of independent directors on the Board and the constitution of the audit committee, human resources development committee, remuneration committee and shareholders’ grievances redressal committee.

A brief description of the audit committee, human resources development committee, remuneration committee and the shareholders’ grievances redressal committee is set forth below:

Audit Committee

The members of the audit committee of our Board are: i) Mr. K. Vijayaraghavan (chairman) ii) Mr. Chella Srinivasan iii) Mr. P. Mohanan iv) Mr. Raja Selvaraj

The terms of reference of the audit committee include:

a) oversight of our Bank's financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible;

b) recommending to our Board, the appointment, reappointment or, if required, the replacement or removal of the statutory auditor together with the fixation of audit fees and approval of payment for any other services rendered by the statutory auditors;

c) reviewing, with the management, the annual financial statements before submission to our Board with special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements;

d) reviewing the adequacy of the audit and internal control systems, including related policies, procedures, techniques and other regulatory requirements;

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e) reviewing, as far as the situation necessitates, all other reports including risk based internal audit reports, which are presently being put up before the committee; and

f) any other terms of reference as may be included from time to time in terms of Clause 49 of the Listing Agreements.

Human Resources Development Committee

The members of the human resources development committee of our Board are: i) Mr. T.Y Prabhu ii) Mr. P.G. Jayakumar iii) Mr. K. Srikanth Reddy iv) Mr. P. Mohanan

The terms of reference of the human resources development committee include overseeing the overall manpower planning of our Bank and conducting interviews for lateral recruitments and internal promotions.

Remuneration Committee

The members of the remuneration committee of our Board are: i) Mr. T.Y Prabhu ii) Mr. K. Srikanth Reddy iii) Mr. P. Mohanan iv) Mr. K. Jayakumar

The terms of reference of the remuneration committee is to oversee the framing, review and implementation of compensation policy of our Bank on behalf of our Board, to determine our Bank’s policy on specific remuneration packages for executive directors and determining the modalities of providing appropriate incentives to employees, including through stock options.

Shareholders’ Grievances Redressal Committee

The members of the shareholders’ grievances redressal committee of our Board are:

(i) Mr. T Y Prabhu

(ii) Mr. P.G Jayakumar

(iii) Mr. K. Srikanth Reddy

(iv) Mr. K.Vijayaraghavan

The shareholders’ grievances redressal committee has been constituted to review the redressal of complaints of shareholders/investors. The committee looks into the redressal of complaints from shareholders and investors in relation to matters such as transfer of shares, non-receipt of annual reports, and non receipt of dividend warrants and other related matters. The committee reviews reports from the registrar and share transfer agents to monitor grievances redressal and also reviews the reconciliation of share capital audit report and half yearly secretarial audit reports.

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Other Committees

In addition to the above mentioned committees, and to ensure better corporate practices, our Board has also constituted the following committees: a) Fraud monitoring committee; b) Customer service committee; c) Risk management committee; d) Nomination committee; e) Management committee; f) Information technology committee; g) Committee of Directors (proposals); h) NPA monitoring committee; i) Equity issuance committee.

Organisation Structure of Our Bank

Key Managerial Personnel of Our Bank

The following table sets forth the details of the key managerial personnel of our Bank:

Name of the Key Managerial Personnel Designation Mr. P.S. Ravikumar Chief Credit & Compliance Officer Mr. Ravindran K.Warrier Secretary to the Board, and Company Secretary Mr. P. Manikandan Head – Business Development, Planning and Head – Human Resources Mr. K .S Krishnan Chief Financial Officer Mr. Srinivasaraghavan Head – Treasury Mr. Chandrasekara Reddy P Head - Inspection and Vigilance Mr. L Chandran Head- Integrated Risk Management

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Biographies of our Key Managerial Personnel

Mr. P.S. Ravikumar , aged 59 years, is the chief credit and compliance officer of our Bank. He holds a master’s degree in commerce from the University of Kerala. Mr. Ravikumar joined our Bank in 1978 and has 35 years of experience in the banking sector. He has also headed functions of inspection and vigilance, operations, human resource development and in branch banking function of the Bank as zonal head.

Mr. Ravindran K.Warrier, aged 59 years, is the company secretary of our Bank and secretary to the Board. He holds a bachelor’s degree in science from the University of Calicut and is a fellow member of the ICSI. Mr. Warrier joined our Bank in 1993. Prior to joining our Bank, he was company secretary and head of finance in subsidiaries of Kerala State Electronics Development Limited. Mr. Warrier has 20 years of experience in the banking sector. Mr. Warrier was involved in the management of the IPO, rights issues and QIP of the Bank. He also held position of head of planning and was involved in setting up the insurance business and depository of the Bank.

Mr. P. Manikandan , aged 54 years, is the head of business development, planning and human resources at our Bank. He holds a master’s degree in commerce from the University of Calicut, bachelor’s degree in law from the University of Kerala and is a certified associate of the Indian Institute of Banking and Finance. He has also completed a post graduate diploma in computer application from Aptech Computer Education. Mr. Manikandan joined our Bank in 2003. Prior to joining our Bank, he has worked with Canara Bank, CanBank Mutual Fund and CanFin Homes Limited. Mr. Manikandan has 34 years of experience in the banking sector. He has eight years of experience in planning, operations, human resource development, inspection, vigilance, third party products, premises and cash management system departments of the Bank.

Mr. K.S. Krishnan , aged 61 years, is the chief financial officer at our Bank. He holds a bachelor’s degree in commerce from the University of Calicut. He is a qualified company secretary and chartered accountant. Mr. K.S. Krishnan joined our Bank in 2013. Prior to joining our Bank, he was working with South Indian Bank Limited as their chief financial officer and company secretary . Mr. K.S. Krishnan has more than 35 years of experience in the banking sector. He has experience in finance and accounts, secretarial functions, audit and inspection, risk management, regulatory compliance function and taxation function.

Mr. Srinivasaraghavan , aged 50 years, is the head of treasury at our Bank. He holds bachelor’s degree in commerce from the University of Kerala and is a certified associate of the Indian Institute of Banking and Finance. He is also an associate of the Institute of Cost and Works Accountant of India. Mr. Srinivasaraghavan joined our Bank in 2012. Prior to joining our Bank, he has worked with Bharatiya Samruddhi Finance Limited as their chief financial officer, IDBI Gilts Limited, IDBI Capital Market Service Limited and the State Bank of Travancore. He has 27 years of experience in the banking sector. He has experience in balance sheet management, risk management, interest rate forecasting, corporate planning and general banking.

Mr. Chandrasekhara Reddy P, aged 58 years, is the head of inspection and vigilance at our Bank. He holds a masters degree in business administration from Andhra University and a bachelor’s degree in science from the University of Madras. He is also a certified associate of the Indian Institute of Banking and Finance. Mr. Reddy joined our Bank in 2008. Prior to joining our Bank, he was working with Andhra Bank. Mr. Reddy has 34 years of experience in the banking sector. He has previously acted as zonal head of south and has experience in business development, credit administration, recovery and human resource activity.

Mr. L Chandran , aged 49 years, is the head of integrated risk management at our Bank. He holds master’s degree in science from the University of Calicut, master’s degree in business administration from the Indira Gandhi National Open University and he is also a certified associate of the Indian Institute of Banking and Finance. He joined our Bank in 1997. Prior to joining our Bank, he was working with MATSYAFED, Kerala, Ind Bank Housing Limited. He has 22 years of experience in the banking and financial sector. He has worked in branch, zonal office, credit department (SME and corporate underwriting) and as executive assistant to MD and CEO. Mr. Chandran was involved in formulation of credit policy, credit appraisal formats and credit rating models of the Bank. He has worked in government sector and public sector financial institution for seven years and has worked in the Bank for 16 years in different capacities and in various geographical locations.

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Shareholding of the Directors and Key Managerial Personnel

As of September 30, 2013, except as stated below, none of the Directors and key managerial personnel of our Bank hold any Equity Shares in our Bank:

Sr. Name Designation No. of Equity Shares No. 1. Mr. T.Y Prabhu Chairman 200 2. Mr. K. Srikanth Reddy Non executive, independent Director 20,000 3. Mr. K. Vijayaraghavan Non executive, independent Director 400 4. Mr. P. Mohanan Non executive, independent Director 200* 5. Mr. Chella K Srinivasan Non executive, independent Director 200 6. Mr. K Jayakumar Non executive, independent Director 200 7. Mr. P.S. Ravikumar Key managerial personnel 1,721 8. Mr. Ravindran K.Warrier Key managerial personnel 200 9. Mr. P. Manikandan Key managerial personnel 1,050 10. Mr. K.S Krishnan Key managerial personnel 150 11. Mr. L Chandran Key managerial personnel 100 Total 24,421 * held jointly with Mrs. Padmaja.S

Employees Stock Option Scheme

Pursuant to the approval of our members by way of special resolution dated July 31, 2009 our Bank had constituted the ‘Employees Stock Option Scheme 2009’ (“ ESOS 2009 ”).

As of September 30, 2013, a total of 768,320 options are outstanding and vested with the employees of our Bank, with each option convertible into one Equity Share. These 768,320 options are convertible into Equity Shares at an exercise price of ` 118.3 per Equity Share. The exercise price for the outstanding options has been calculated, based on the closing price on the Stock Exchange where there is highest trading volume on the immediately preceding date of the grant, i.e. the closing price of NSE as of August 5, 2009.

The details of the outstanding options granted to our Directors and our key managerial personnel under ESOS 2009, as on September 30, 2013, are as below:

Name of the Directors / Key Managerial Personnel Number of Options Outstanding Mr. P.G Jayakumar Nil Mr. P.S Ravikumar 17,500 Mr. Ravindran K. Warrier 10,000 Mr. P. Manikandan 2,400 Mr. K.S Krishnan Nil Mr. Srinivasaraghavan Nil Mr. Chandrasekara Reddy P 840 Mr. L. Chandran 2,100

Due to weak response to the ESOS 2009, the Bank has introduced Employee Stock Option Scheme, 2013 (“ ESOS 2013 ”) which was approved by the Board on July 17, 2013. It was approved by the shareholders during the Annual General Meeting held on August 27, 2013. The Bank is initiating steps to obtain regulatory approval from the Stock Exchanges in order to implement the ESOS 2013. ESOS 2013 shall be effective within 15 days of receipt of approval from the Stock Exchanges. The ESOS 2013 provided for grant of options convertible into Equity Shares to permanent employees of our Bank including Directors who are in the whole time employment of the Bank, who qualify as per the selection criteria adopted by the remuneration committee of our Board. In terms of the ESOS 2013, the total number of Equity Shares that may result upon the grant of options, shall not exceed six percent of the total number of Equity Shares issued by the Bank, from time to time, on the date of grant of the options under the ESOS 2013. The ESOS 2013 is administered by the remuneration committee of our Board. As on the date of PPD, no options are outstanding under ESOS 2013. Further, the options under ESOS 2013 shall be converted into Equity Shares at an exercise price to be determined by the remuneration committee of the Board.

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As per ESOS 2013, holders of employee stock options under ESOS 2009 may either (i) surrender within 30 days from the date on which ESOS 2013 comes into force such options and accept equal number of options under ESOS 2013, which shall vest in them immediately, or (ii) exercise the options granted under ESOS 2009 within the respective exercise period as provided in ESOS 2009 but at such exercise price as provided under ESOS 2013.

Interests of Key Managerial Personnel

The key managerial personnel of our Bank do not have any interest in our Bank other than (a) their shareholding in our Bank; (b) the options under the ESOS 2009 held by them; (c) their remuneration and benefits to which they are entitled to as per their terms of appointment; and (d) reimbursement of expenses incurred by them during the ordinary course of business.

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PRINCIPAL SHAREHOLDERS

Our Bank was incorporated on November 14, 1927 under the Companies Act, 1913 and is a scheduled commercial bank within the meaning of RBI Act. The CIN of our Bank is L65191KL1927PLC000307. Our Bank does not have any identifiable promoters.

As of September 30, 2013, our Bank had 106,059,619 fully paid up Equity Shares, which excludes 2,300,000 Equity Shares allotted by the Bank on September 28, 2013 since these Equity Shares were pending credit to the dematerialized accounts of the allottees. The Equity Shares are listed on the Stock Exchanges and traded on the BSE and NSE.

Equity Shareholding Pattern

The shareholding pattern of our Bank as of September 30, 2013 is as follows:

Sr. Category of Number of Total number of Number of shares Total shareholding Shares pledged No. shareholder shareholders shares held in de as a percentage of or otherwise materialized form total number of encumbered shares % of % of Number % No. shares shares of of (A+B) (A+B+C) shares shares (A) Shareholding of Promoter and Promoter Group (1) Indian (a) Individuals/ Hindu NIL NIL NIL NIL NIL NIL NIL undivided family (b) Central NIL NIL NIL NIL NIL NIL NIL Government/ State Governments (c) Bodies corporate NIL NIL NIL NIL NIL NIL NIL (d) Financial NIL NIL NIL NIL NIL NIL NIL institutions/ Banks Sub-Total (A)(1) NIL NIL NIL NIL NIL NIL NIL (2) Foreign (a) Individuals (non- NIL NIL NIL NIL NIL NIL NIL resident individuals/ Foreign individuals) (b) Bodies corporate NIL NIL NIL NIL NIL NIL NIL (c) Institutions NIL NIL NIL NIL NIL NIL NIL Sub-Total (A)(2) NIL NIL NIL NIL NIL NIL NIL Total NIL NIL NIL NIL NIL NIL NIL Shareholding of Promoter and Promoter Group (A)= (A)(1)+(A)(2) (B) Public shareholding (1) Institutions (a) Mutual funds/ UTI 4 202,921 202,221 0.19 0.19 - - (b) Financial 7 1,287,501 1,287,501 1.21 1.21 - - institutions/ Banks (c) Central 0 0 0 0.0 0.0 - - Government/ State Governments (d) Venture capital 0 0 0 0.0 0.0 - - funds (e) Insurance 2 442,277 442,277 0.42 0.42 - -

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Sr. Category of Number of Total number of Number of shares Total shareholding Shares pledged No. shareholder shareholders shares held in de as a percentage of or otherwise materialized form total number of encumbered shares % of % of Number % No. shares shares of of (A+B) (A+B+C) shares shares companies (f) Foreign 16 27,084,735 27,084,735 25.54 25.54 - - institutional investors (g) Foreign venture capital investors 0 0 0 0.0 0.0 - - (h) Qualified Foreign Investor 0 0 0 0.0 0.0 - - (i) Any Other 0 0 0 0.0 0.0 - - Sub-Total (B)(1) 29 29,017,434 29,016,734 27.36 27.36 - - (2) Non-institutions (a) Bodies corporate 1,031 14,782,058 14,707,250 13.94 13.94 - - (b) (i) Individual shareholders holding nominal share capital up to ` 0.1 million 80,703 26,228,471 22,540,325 24.73 24.73 - - (ii) Individual shareholders holding nominal share capital in excess of ` 0.1 million 291 22,220,271 22,082,408 20.95 20.95 - - (c) Qualified Foreign Investor 0 0 0 0.0 0.0 - - (D) Any others Trusts 4 6,830 6,800 0.01 0.01 - - Clearing members 147 329,419 329,419 0.31 0.31 - - NRIs 1,432 13,475,136 13,397,752 12.71 12.71 - - Sub-Total(B)(2) 83,608 77,042,185 73,063,954 72.64 72.64 - - Total Public Shareholding (B)= (B)(1)+(B)(2) 83,637 106,059,619 102,080,688 100.00 100.00 - - TOTAL(A)+(B) 83,637 106,059,619 102,080,688 100.00 100.00 - - (C) Shares held by custodians and aga inst which depository receipts have been issued ------(1) Promoter and Promoter Group ------(2) Public ------GRAND TOTAL (A)+(B)+(C) 83,637 106,059,619 102,080,688 100.00 100.00 - -

As our Bank does not have any identifiable promoters, the shareholding of the promoters and promoter group in our Bank as of September 30, 2013 is NIL.

List of shareholders holding more than one per cent of the paid up capital of our Bank as of September 30, 2013:

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Name Number of Equity Percentage of total Shares Equity Shares (%) P. Raja Mohan Rao 6,412,000 6.05 B Ravindran Pillai 4,200,000 3.96 Yusuffali Musaliam Veettil Abdul Kader 3,791,284 3.56 Shital Raghu Kataria 3,155,780 2.98 Credit Suisee (Singapore) Limited 3,137,280 2.96 Lotus Global Investments Ltd 2,933,044 2.77 India Max Investment Fund Limited 2,929,000 2.76 Elara India Opportunities Fund Limited 2,629,220 2.48 National Westminster Bank PLC as Trustee of the Jupiter India Fund 2,570,000 2.42 College Retirement Equities Fund - Stock account 2,540,892 2.40 Hypnos Fund Limited 2,531,262 2.39 Dilipkumar Lakhi 2,477,740 2.34 Wellington Management Company, LLP A/c Bay Pond Mb 2,174,322 2.05 HDFC Standard Life Insurance Company Limited 2,150,500 2.03 Bharti AXA Life Insurance Company Ltd 2,035,294 1.92 Jupiter South Asia Investment Company Limited A/c Jupiter South Asia Investment Company Limited - South Asia Access Fund 1,930,000 1.82 Girdharilal V Lakhi 1,754,744 1.65 Mohanachandran Nair B 1,701,000 1.60 College Retirement Equities Fund - Global Equitiesaccount 1,530,483 1.44 Wellington Management Company, Llp A/C Bay Pond BMD MB 1,452,973 1.37 Infomerics Valuation And Rating Private Limited 1,354,000 1.28 Vipin Malik 1,176,365 1.11 ING Vysya Life Insurance Company Limited - Pool Ac 1,075,000 1.01 Total 57,642,183 54.35

List of shareholders holding more than five per cent of the paid up capital (along with ‘persons acting concert’) of our Bank as of September 30, 2013:

Name Number of Equity Shares Percentage of total Equity Shares (%) P Raja Mohan Rao 6,412,000 6.05 Total 6,412,000 6.05

List of Equity Shares locked in as on the date of this Preliminary Placement Document:

Name Number of Equity Shares Percentage of total Equity Shares (%) B Ravindran Pillai 5,250,000 4.84 Mohanachandran Nair B 2,951,000 2.72 Total 8,201,000 7.56

As on the date of this Preliminary Placement Document, except for the options granted under the ESOS 2009, there are no outstanding convertible securities, including warrants, which would entitle any person any option to receive Equity Shares.

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ISSUE PROCEDURE

Below is a summary intended to present a general outline of the procedure relating to the bidding, application payment, Allocation and Allotment for the Issue. 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 our Bank or the Book Running Lead Manager. The prospective investors are also advised to inform themselves of any restrictions or limitations that may be applicable to them; see the section titled “Purchaser Representations and Transfer Restrictions” on page 165.

The Issue is being made to QIBs in reliance upon Chapter VIII of the SEBI Regulations. The Issue has been approved by our members in the EGM dated February 15, 2013 and has been approved by our Board on October 31, 2012 and October 30, 2013. The RBI, pursuant to its letter dated December 10, 2013, has granted in principle approval in respect of the Issue. Our Bank shall apply for a post facto approval from the RBI in relation to the Issue, as has been specified by RBI in its letter dated December 10, 2013, upon completion of the Allotment process.

Our Bank has received the in principle approvals dated December 19, 2013 from the NSE and the BSE, under Clause 24(a) of the Listing Agreements. CSE through its letter dated December 19, 2013 informed us that they have opted for voluntary exit in accordance SEBI guidelines. Since CSE’s application for voluntary exit is currently pending with SEBI, their application for renewal of recognition is not processed by SEBI. As a result, CSE is unable to process our listing application .Our Bank has also filed a copy of the Preliminary Placement Document with the Stock Exchanges.

After the Allotment of Equity Shares, our Bank shall make applications to the Stock Exchanges for the listing approvals. Subsequently, after the credit of Equity Shares to the beneficiary accounts with the Depository Participant, our Bank shall make applications to the Stock Exchanges for the final listing and trading approvals.

Issue Procedure

1. Our Bank and the Book Running Lead Manager shall identify the QIBs and circulate serially numbered copies of this Preliminary 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 Manager in consultation with our Bank. Unless a serially numbered Preliminary Placement Document along with the Application Form is addressed to a particular QIB, no invitation shall be deemed to have been made to any other QIB to make an offer to subscribe to Equity Shares pursuant to the Issue . 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 their Bids through the Application Form, including any revisions thereof, during the Bidding Period to the Book Running Lead Manager.

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

a. Full official name of the QIB to whom Equity Shares are to be Allotted;

b. Number of Equity Shares Bid for;

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

d. The details of the beneficiary account with the Depository Participant to which the Equity Shares should be credited; and

e. A representation that it is outside the United States acquiring the Equity Shares in an offshore transaction under Regulation S and it has agreed to certain other representations set forth in the Application Form.

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Note : Each sub-account of an FII will be considered as an individual QIB and separate Application Forms would be required from each such sub-account for submitting Application Form(s). FIIs or sub accounts of FIIs, are required to indicate the SEBI registration number in the Application Form. It may be noted that a sub-account which is a foreign corporate or a foreign individual is not a “QIB” in terms of SEBI Regulations. Applications by various schemes or funds of a mutual fund will be treated as one application from the Mutual Fund.

5. Once a duly filled Application Form is submitted by a QIB, such Application Form constitutes an offer which cannot be withdrawn after the Bid Closing Date. The Bid Closing Date shall be notified to the Stock Exchanges and upon such notification the QIBs shall be deemed to have been given notice of such date.

6. Upon the receipt of the duly completed Application Forms, our Bank shall in consultation with the Book Running Lead Manager determine (i) the Issue Price, (ii) the number of Equity Shares to be Allocated; and (iii) the QIBs to whom the same shall be Allocated. Upon such determination, the Book Running Lead Manager will send CANs to the QIBs who have been Allocated the Equity Shares, together with a serially numbered Placement Document either in electronic form or through physical delivery. The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the QIBs to subscribe to the Equity Shares Allocated to such QIB and to pay the application money (being the product of the Issue Price and 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.

7. Pursuant to receiving a CAN, each QIB shall be required to pay the application money for the Equity Shares indicated in the CAN at the Issue Price, through electronic transfer to the Escrow Account by the Pay-In Date;

8. Upon receipt of the application monies from the QIBs, our Bank shall Allot the Equity Shares as per the details provided in the CANs to such QIBs. Our Bank shall not Allot Equity Shares to more than 49 QIBs. Our Bank shall intimate the Stock Exchanges the details of the Allotment.

9. After our Board passes the resolution for Allotment and prior to crediting the Equity Shares into the beneficiary accounts of the QIBs, our Bank shall apply to the Stock Exchanges for listing approvals. After receipt of the listing approvals from the Stock Exchanges, our Bank shall credit the Equity Shares into the beneficiary accounts of the respective QIBs. Our Bank shall then apply for the final listing and trading approvals from the Stock Exchanges.

10. The Equity Shares that have been credited to the beneficiary 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. The final listing and trading approvals granted by the Stock Exchanges are also ordinarily available on the websites of the Stock Exchanges, and our Bank may communicate the receipt of the final listing and trading approvals to the QIBs who have been Allotted Equity Shares. Our Bank and the Book Running Lead Manager shall not be responsible for any delay or non receipt of the communication of the final listing and trading approvals from the Stock Exchanges or any loss arising from such delay or non-receipt. QIBs are advised to apprise themselves of the status of the receipt of such approvals from the Stock Exchanges or our Bank.

12. Further, as specified by RBI in its letter dated December 10, 2013, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, upon completion of the Allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI in this regard.

Qualified Institutional Buyers

Only QIBs, as defined in Regulation 2(1)(zd) of the SEBI Regulations are eligible to invest in the Equity Shares pursuant to the Issue. Currently, QIB means:

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• a mutual fund, a VCF, an AIF and an FVCI;

• a FII and a sub-account (other than a sub-account which is a foreign corporate or foreign individual) registered with SEBI;

• a public financial institution as defined in section 4A of the Companies Act;

• a scheduled commercial bank;

• a multilateral and bilateral development financial institution;

• a state industrial development corporation;

• an insurance company registered with Insurance Regulatory and Development Authority;

• a provident fund with minimum corpus of ` 250 million;

• a pension fund with minimum corpus of ` 250 million;

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

• insurance funds set up and managed by army, navy or air force of the Union of India; and

• insurance funds set up and managed by the Department of Posts, India.

THE ISSUE IS BEING MADE TO NON RESIDENT QIBS IN TERMS OF SCHEDULE 1 OF THE FOREIGN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF SECURITY BY PERSON RESIDENT OUTSIDE INDIA) REGULATIONS, 2000, AS AMENDED. YOU ARE ADVISED THAT PAYMENT OF APPLICATION MONEY SHOULD BE COMPULSORILY MADE THROUGH THE FOREIGN CURRENCY NON RESIDENT (“FCNR”) ACCOUNT AND NOT THROUGH THE SPECIAL NON-RESIDENT RUPEE (“SNRR”) ACCOUNT.

FIIs are permitted to participate in the Issue 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 10.0% of the post Issue paid up capital of our Bank. In respect of an FII investing in the Equity Shares on behalf of its sub-accounts, the investment on behalf of each sub-account shall not exceed 10.0% of the total paid up capital of our Bank or 5.0% of the total paid up capital of our Bank in case such sub-account is a foreign corporate or an individual. Under the extant foreign direct investment policy, the total shareholding of all FIIs in a private sector bank, such as ours, is subject to a cap of 24.0%, of the total paid up capital, which can be increased up to 49.0% with the passing of a resolution by its board of directors and a special resolution by the shareholders in a general meeting which should be intimated to the RBI. Pursuant to the approval of the shareholders of our Bank in the AGM dated September 27, 2008 and the approval of the Board in its meeting dated September 27, 2008, and as permitted by the RBI pursuant to its letter dated November 26, 2009, FIIs and NRIs can hold upto 49.0% and 24.0%, respectively, of the paid up capital of our Bank.

In this regard, please note that as of December 31, 2012, our aggregate FII and NRI shareholding was 31.76% of our paid up capital. The RBI, typically, monitors the level of FII/NRI shareholding in Indian companies on a daily basis and once the aggregate foreign investment of a company reaches a cut-off point, which is 2.0% below the overall limit, the RBI cautions non-resident investors and authorized dealers not to further transact in equity shares on the stock exchanges, without prior approval of the RBI. Further, upon aggregate foreign shareholding in Indian companies reaching the ceiling, the RBI prohibits further purchase of equity shares by non- resident investors on the stock exchanges. For details of shareholding of our Bank, including shareholding of FIIs and NRIs, see the section titled “Principal Shareholders” on page 148.

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Also, the acknowledgement of RBI is required for the acquisition or transfer of the shares of our Bank, which will take the aggregate holding (direct and indirect, beneficial or otherwise) of an individual or a group to equivalent of five per cent or more of our Bank’s total paid up capital.

Allotments made to FVCIs, VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements.

Our Bank, the Book Running Lead Manager and any of their respective shareholders, directors, partners, officers, employees, counsel, advisors, representatives, agents or affiliates are not liable for any amendments or modifications or changes to applicable laws or regulations, which may occur after the date of this Preliminary 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 laws or regulations or as specified in this Preliminary Placement Document. Further, QIBs are required to satisfy themselves that any requisite compliance pursuant to this Allotment such as public disclosures under applicable laws is complied with. QIBs are advised to consult their advisers in this regard. Further, QIBs are required to satisfy themselves that their Bids would not eventually result in triggering an open offer under the Takeover Code. The QIB shall be solely responsible for compliance with the provisions of the Takeover Code, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and other applicable laws, rules, regulations, guidelines, notifications and circulars.

A minimum of 10.0% of the Equity Shares offered in this Issue shall be available for Allocation to Mutual Funds. In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allotted to other QIBs.

Note: Affiliates or associates of the Book Running Lead Manager 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 Manager in either electronic form or by physical delivery for the purpose of making a Bid (including revision of Bid) in terms of this Preliminary Placement Document and the Placement Document.

By making a Bid (including the revision thereof) for Equity Shares through the Application Form, the QIB will be deemed to have made the following representations and warranties and the representations, warranties, acknowledgements and undertakings made under the sections titled “Notice to Investors”, “Representations by Investors” and “Purchaser Representations and Transfer Restrictions” on pages 1, 3 and 165, including:

1. the QIB confirms that it is a QIB in terms of Regulation 2(1)(zd)of the SEBI Regulations and is eligible to participate in this Issue;

2. the QIB has no right to withdraw its Bid after the Bid Closing Date;

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

4. the QIB confirms that the QIB is eligible to Bid and hold Equity Shares so Allotted and together with any Equity Shares held by the QIB prior to the Issue. The QIB further confirms that the holding of the QIB, does not and shall not, exceed the level permissible as per any applicable regulations applicable to the QIB;

5. the QIB confirms that their application would not eventually result in triggering a tender offer under the Takeover Code;

6. the QIB confirms that to the best of its knowledge and belief, together with other QIBs in the Issue that belong to the same group or are under common control, the Allotment to the QIB shall not exceed

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50.0% of the Issue Size. For the purposes of this statement:

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; and

b. “Control” shall have the same meaning as is assigned to it by clause 1(e) of Regulation 2 of the Takeover Code.

7. the QIB represents that it is outside the United States and is acquiring the Equity Shares in an offshore transaction under Regulation S and it has agreed to certain other representations set forth in the Application Form;

8. the QIBs shall not undertake any trade in the Equity Shares credited to its beneficiary accounts with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges;

9. the QIBs acknowledge, represent and agree that their total Holding in the paid-up share capital of our Bank, when aggregated together with any existing Holding and/or Holding of any of their “associated enterprises” (as defined under Section 92A of the IT Act), does not exceed 5.0% of the total paid-up share capital of our Bank, unless they are an existing shareholder already holding 5.0% or more of the underlying paid up share capital of our Bank pursuant to the acknowledgment of the RBI, provided that their Holding does not, without the further acknowledgment of the RBI, exceed the existing Holding after Allotment; and

10. the QIBs understand that as specified by RBI in its letter dated December 10, 2013 and as required in terms of the RBI circular dated April 20, 2010, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, upon completion of the allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI, in this regard.

QIBs WOULD NEED TO PROVIDE THEIR BENEFICIARY 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 BENEFICIARY 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 the Application Form by a QIB 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 our Bank in favour of the QIB.

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 Manager either through electronic form or through physical delivery at the following address:

Name Elara Capital (India) Private Limited Address Indiabulls Finance Centre, Tower 3, 21st Floor, Parel, Mumbai 400 013 Contact Person Nikhil Panjwani Email [email protected] Phone +91 22 3032 8583

The Book Running Lead Manager shall not be required to provide any written acknowledgement of the same.

Pricing and Allocation

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Build up of the book

The QIBs shall submit their Bids (including any revision thereof) through the Application Forms, within the Bidding Period to the Book Running Lead Manager.

Price discovery and allocation

Our Bank, in consultation with the Book Running Lead Manager, shall determine the Issue Price, which shall be at or above the Discounted Floor Price.

Method of Allocation

Our Bank shall determine the Allocation in consultation with the Book Running Lead Manager on a discretionary basis and in compliance with Chapter VIII of the SEBI Regulations.

All the 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 10.0% of the Issue Size shall be undertaken subject to valid Bids being received at or above the Issue Price.

THE DECISION OF OUR BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGER IN RESPECT OF ALLOCATION SHALL BE BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF THE EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGER AND QIBS MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER OUR BANK NOR THE BOOK RUNNING LEAD MANAGER 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 Manager as per the details provided in the respective CAN.

Number of Allottees

The minimum number of Allottees in the Issue shall not be less than:

(a) two, where the Issue Size is less than or equal to ` 2,500 million; or

(b) five, where the Issue Size is greater than ` 2,500 million.

Provided that no single Allottee shall be Allotted more than 50.0% of the Issue Size.

The QIBs belonging to the same group or those who are under same control shall be deemed to be a single Allottee for the purposes of the Issue. For details of what constitutes “same group” or “common control” please see the sub- section titled “Application Process – Application Form” on page 154.

The maximum number of Allottees of Equity Shares shall not be greater than 49. Further the Equity Shares will be Allotted within 12 months from the date of the shareholders resolution approving the Issue.

CAN

Based on the Application Forms received, our Bank and the Book Running Lead Manager, in their sole and absolute discretion, shall decide the list of QIBs to whom the serially numbered CANs shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the application money payable for Allotment of such Equity Shares by the Pay-In Date in their respective names shall be notified to such QIBs. Additionally, a CAN will include details of the bank account(s) for the electronic transfer of funds, address where the application money needs to be sent, Pay-In Date as well as the probable designated date (“ Designated Date ”), being the date of credit of the Equity Shares to the QIB’s account, as applicable to the respective QIBs.

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The 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 to 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 Manager 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.

By submitting the Application Form, the QIB would have deemed to have made the representations and warranties as specified in the section “Notice to Investors” and further that such QIB shall not undertake any trade on the Equity Shares credited to its Depository Participant account pursuant to the Issue until such time as the final listing and trading approval is issued by BSE and NSE.

Bank Account for Payment of Application Money

Our Bank has opened a special bank account in the name of Dhanlaxmi Bank Ltd (QIP Issue December 2013) Current Escrow A/c. The QIB 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 CAN.

If the payment is not made favouring the Escrow 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, our Bank and the Book Running Lead Manager have the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at their sole and absolute discretion, subject to the 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 Escrow Account as per the payment instructions provided in the CAN.

QIBs can make payment of the application money only through electronic transfer of funds.

Designated Date and Allotment of Equity Shares

1. The Equity Shares will not be Allotted unless the QIBs pay the application money for the Equity Shares allocated to them calculated at the Issue Price, to the Escrow Account as stated above.

2. In accordance with the SEBI 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.

3. Our Bank, at its sole discretion, reserves the right to cancel the Issue at any time up to Allotment without assigning any reasons whatsoever.

4. Following the Allotment of the Equity Shares pursuant to the Issue, our Bank shall apply to the Stock Exchanges for listing approvals and post receipt of the listing approvals from the Stock Exchanges, our Bank shall credit the Equity Shares into the beneficiary accounts of the QIBs.

5. Following the credit of Equity Shares into the QIBs’ beneficiary accounts, our Bank will apply for the final listing and trading approvals from the Stock Exchanges.

6. In the unlikely event of any delay, in the Allotment or credit of Equity Shares, or receipt of the listing approvals, the final listing and trading approvals of the Stock Exchanges, the post facto approval from the RBI in relation to the Issue or the cancellation of the Issue, no interest or penalty would be payable by our Bank.

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7. The monies lying to the credit of the Escrow Account shall not be released until the final listing and trading approvals of the Stock Exchanges for the listing and trading of the Equity Shares issued pursuant to this Issue are received by our Bank.

8. After finalization of the Issue Price, our Bank shall update the Preliminary Placement Document with the Issue details and file the same with the Stock Exchanges as the Placement Document. Pursuant to a circular dated March 5, 2010 issued by the SEBI, Stock Exchanges are required to make available on their websites the details of those Allottees in Issue who have been allotted more than 5.0% of the Equity Shares offered in the Issue, viz, the names of the Allottees, and number of Equity Shares Allotted to each of them, pre and post Issue shareholding pattern of our Bank in the format specified in clause 35 of the Listing Agreements along with the Placement Document.

9. Further, as specified by RBI in its letter dated December 10, 2013 and as required in terms of the RBI circular dated April 20, 2010, our Bank shall also apply for a post facto approval from the RBI in respect of this Issue, upon completion of the Allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI in this regard.

Other Instructions

Permanent Account Number or PAN

Each QIB should mention its PAN allotted under the IT Act. The copy of the PAN card or PAN allotment letter is required to be submitted with the Application Form. Application Forms 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

Our Bank, in consultation with the Book Running Lead Manager, may reject Bids, in part or in full, without assigning any reasons whatsoever. The decision of our Bank and the Book Running Lead Manager in relation to the rejection of Bids shall be final and binding.

Equity Shares in dematerialized form with NSDL or CDSL

The Allotment of the Equity Shares in this 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 Bid.

2. The Equity Shares Allotted 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 BSE and the NSE have electronic connectivity with CDSL 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. Our 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 the part of the QIBs.

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PLACEMENT

The Book Running Lead Manager has entered into a placement agreement dated December 19, 2013 with our Bank (the “ Placement Agreement ”), pursuant to which the Book Running Lead Manager has agreed to place, on a reasonable effort basis, the Equity Shares to QIBs pursuant to the Issue under Chapter VIII of the SEBI Regulations. The Placement Agreement contains customary representations and warranties, as well as indemnities from our Bank and is subject to termination in accordance with the terms contained therein.

The Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States (as defined in Regulation S under the Securities Act), 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 only outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdiction where those offers and sales occur.

Applications shall be made to list the Equity Shares issued pursuant to the Issue and admit them to trading on the Stock Exchanges. No assurance can be given as to the liquidity or sustainability of the trading market for such 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.

This Preliminary Placement Document has not been, and will not be, registered as a prospectus with the Registrar of Companies, 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.

In connection with the Issue, the Book Running Lead Manager (or its respective affiliates) may, for their own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares 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 Manager 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 Manager may purchase Equity Shares and be allocated Equity Shares for proprietary purposes and not with a view to distribution or in connection with the issuance of P-Notes. See the sections titled “Off-shore Derivative Instruments” and “Representations to Investors” on pages 8 and 3, respectively.

Lock-up

The Bank undertakes that it will not for a period commencing the date hereof and ending 180 days from the date of Allotment, without the prior written consent of the BRLM, directly or indirectly: a) purchase, offer, issue, lend, sell, grant any option or contract to purchase, purchase any option or contract to offer, issue, lend, sell, grant any option, right or warrant to purchase, any Equity Shares or any securities convertible into or exercisable for Equity Shares (including, without limitation, securities convertible into or exercisable or exchangeable for Equity Shares which may be deemed to be beneficially owned by the undersigned) or file any registration statement under the U.S. Securities Act, with respect to any of the foregoing, or b) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the economic consequences associated with the ownership of any of the Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares (regardless of whether any of the transactions described in clause (a) or (b) is to be settled by the delivery of Equity Shares or such other securities, in cash or otherwise), or c) deposit Equity Shares with any other depositary in connection with a depositary receipt facility, or d) enter into any transaction (including a transaction involving derivatives) having an economic effect similar to that of a sale or deposit of the Equity Shares in any depository receipt facility; or e) publicly announce any intention to enter into any transaction falling within (a) to (d) above or enter into any transaction falling within (a) to (d) above.

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Provided, however, that the foregoing restrictions do not apply to (i) the issuance of any Equity Shares issued pursuant to the Issue; and (ii) issuance of Equity Shares pursuant to the ESOS 2009.

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SELLING RESTRICTIONS

The distribution of this Preliminary Placement Document and the offer, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions . Persons who come into possession of this Preliminary Placement Document are advised to take legal advice with regard to any restrictions that 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 authorized or permitted.

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 other than India, or the possession, circulation or distribution of this Red Herring Prospectus or any other material relating to the Company 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 Red Herring Prospectus 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 laws, including the SEBI Regulations. Each subscriber of the Equity Shares in the Issue will be required to make, or will be deemed to have made, as applicable, the acknowledgments and agreements as described in the sections titled “ Notice to Investors ” and “ Purchaser Representations and Transfer Restrictions ”.

European Economic Area

In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive (each, a “ Relevant Member State ”), 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 (defined below) and the 2010 Amending Directive (defined below), 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:

(a) to persons or entities that are “qualified investors” as defined in the Prospectus Directive or, if that Relevant Member State has implemented the 2010 Amending Directive, as defined in the 2010 Amending Directive;

(b) to (i) fewer than 100 natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive); or (ii) if that Relevant Member State has implemented the 2010 Amending Directive, fewer than 150 natural or legal persons (other than “qualified investors” as defined in the 2010 Amending Directive), in each case subject to obtaining the prior consent of the Book Running Lead Manager; and

(c) in any circumstances falling within Article 3(2) of the Prospectus Directive as amended (to the extent implemented in that Relevant Member State) by Article 1(3) of the 2010 Amending Directive, provided that no such offering of Equity Shares shall result in a requirement for the publication by the Company or the Book Running Manager of a prospectus pursuant to Article 3 of the Prospectus Directive as amended (to the extent implemented in that Relevant Member State) by Article 1(3) of the 2010 Amending 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, the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State and the expression “2010 Amending Directive” means Directive 2010/73/EU and includes any relevant implementing measure in each Member State.

Neither the Company nor the Book Running Lead Manager has authorised, nor do they authorise, the making of any offer of Equity Shares through any financial intermediary on their behalf, other than offers made by the Company or the Book Running Lead Manager.

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Hong Kong

The Red Herring Prospectus has not been reviewed or approved by any regulatory authority in Hong Kong. In particular, this Red Herring Prospectus has not been, and will not be, registered as a “prospectus” in Hong Kong under the Companies Ordinance (Cap 32) (“CO ”) nor has it been authorized by the Securities and Futures Commission (“ SFC ”) in Hong Kong pursuant to the Securities and Futures Ordinance (Cap 571) (“ SFO ”). Recipients are advised to exercise caution in relation to the Offer. If recipients are in any doubt about any of the contents of this Red Herring Prospectus, they should obtain independent professional advice.

The Red Herring Prospectus does not constitute an offer or invitation to the public in Hong Kong to acquire any Equity Shares nor an advertisement of the Equity Shares in Hong Kong. The Red Herring Prospectus must not be issued, circulated or distributed in Hong Kong other than:

• to “professional investors” within the meaning of the SFO and any rules made under that ordinance (“ Professional Investors ”); or

• in other circumstances which do not result in this Red Herring Prospectus being a prospectus as defined in the CO nor constitute an offer to the public which requires authorization by the SFC under the SFO.

Unless permitted by the securities laws of Hong Kong, no person may issue or have in its possession for issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Equity Shares, which is directed at, or the content of which is likely to be accessed or read by, the public of Hong Kong other than with respect to the Equity Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to Professional Investors.

Any offer of the Equity Shares will be personal to the person to whom relevant offer documents are delivered, and a subscription for the Equity Shares will only be accepted from such person. No person who has received a copy of this Red Herring Prospectus may issue, circulate or distribute this Red Herring Prospectus in Hong Kong or make or give a copy of this Red Herring Prospectus to any other person. No person allotted Equity Shares may sell, or offer to sell, such Shares to the public in Hong Kong within six months following the date of issue of such Equity Shares.

Singapore

The Red Herring Prospectus has not been and will not be registered as a prospectus with the Monetary Authority of Singapore (“ MAS ”) under the Securities and Futures Act (Chapter 289) of Singapore (“ SFA ”). Accordingly, the Equity Shares may not be offered or sold, or made the subject of an invitation for subscription or purchase nor may this Red Herring Prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the Equity Shares be circulated or distributed, whether directly or indirectly, in Singapore other than (i) to an “institutional investor” within the meaning of Section 274 of the SFA and in accordance with the conditions of an exemption invoked under Section 274, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) other pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Equity Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) 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 (b) a trust (where the trustee is not an accredited investor) whose sole purpose 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 (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Equity Shares pursuant to an offer made under Section 275 except: (1) to an institutional investor under Section 274 of the SFA 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 terms that such shares, debentures and units of shares and debentures of that corporation or such rights or 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

162 cash or by exchange of securities or other assets, and further for a corporation, in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or (3) where the transfer is by operation of law.

United Arab Emirates (excluding the Dubai International Financial Centre)

The Equity Shares have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (“ U.A.E. ”) other than in compliance with the laws of the U.A.E. Prospective investors in the Dubai International Financial Centre should have regard to the specific notice to prospective investors in the Dubai International Financial Centre set out below. The information contained in this Red Herring Prospectus does not constitute a public offer of securities in the U.A.E. in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 of the U.A.E., as amended) or otherwise and is not intended to be a public offer. The Company and the Equity Shares have not been approved or licensed by or registered with the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or any other relevant licensing authorities or governmental agencies in the U.A.E. This Red Herring Prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or the Dubai Financial Services Authority. This Red Herring Prospectus is being issued to a limited number of selected institutional and sophisticated investors, is not for general circulation in the U.A.E. and may not be provided to any person other than the original recipient or reproduced or used for any other purpose. If you do not understand the contents of this Red Herring Prospectus, you should consult an authorised financial adviser. This Red Herring Prospectus is provided for the benefit of the recipient only, and should not be delivered to, or relied on by, any other person.

Dubai International Financial Centre

This Red Herring Prospectus relates to an exempt offer (an “ Exempt Offer ”) in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (the “ DFSA ”). This Red Herring Prospectus is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this Red Herring Prospectus nor taken steps to verify the information set out in it, and has no responsibility for it. The Equity Shares to which this Red Herring Prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Equity Shares offered in the Issue should conduct their own due diligence on the Equity Shares. If you do not understand the contents of this Red Herring Prospectus, you should consult an authorised financial adviser. For the avoidance of doubt, the Equity Shares are not interests in a ‘‘fund’’ or a ‘‘collective investment scheme’’ within the meaning of either the Collective Investment Law (DIFC Law No. 2 of 2010) or the Collective Investment Rules Module of the Dubai Financial Services Authority Rulebook.

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

The Equity Shares offered in the Issue cannot be promoted in the United Kingdom to the general public. The contents of this Red Herring Prospectus have not been approved by an authorised person within the meaning of Financial Services and Markets Act 2000, as amended (the “ FSMA ”). The Book Running Lead Manager (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 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 Company; 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.

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United States of America

The Equity Shares offered in the Issue have not been and will not be registered under the U.S. Securities Act or any state securities laws in the United States and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in accordance with any applicable state securities laws. The Equity Shares are not being offered or sold in the United States in the Issue. The Equity Shares are being offered and sold in the Issue only outside the United States in accordance with Regulation S. To help ensure that the offer and sale of the Equity Shares in the Issue was made in compliance with Regulation S, each purchaser of Equity Shares in the Issue will be deemed to have made the representations and warranties set forth in the section titled “ Purchaser Representations and Transfer Restrictions ”.

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PURCHASER REPRESENTATIONS AND TRANSFER RESTRICTIONS

The Equity Shares Allotted in the Issue are not permitted to be sold for a period of one year from the date of Allotment, except on the Stock Exchanges. Due to the following restrictions, investors are advised to consult legal counsel prior to making any resale, pledge or transfer of the Equity Shares, except if the resale of the Equity Shares is by way of a regular sale on the Stock Exchanges.

United States of America

Each purchaser of the Equity Shares, by accepting delivery of this Red Herring Prospectus, will be deemed to:

• Represent and warrant to the Company, the Book Running Lead Manager and their respective affiliates that the offer and sale of the Equity Shares to it is in compliance with all applicable laws and regulations.

• Represent and warrant to the Company, the Book Running Lead Manager and their respective affiliates that it was outside the United States (within the meaning of Regulation S) at the time the offer of the Equity Shares was made to it and it was outside the United States (within the meaning of Regulation S) when its buy order for the Equity Shares was originated.

• Represent and warrant to the Company, the Book Running Lead Manager and their respective affiliates that it did not purchase the Equity Shares as a result of any directed selling efforts (as defined in Regulation S).

• Acknowledge that the 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 and warrant to the Company, the Book Running Lead Manager and their respective affiliates that it will not offer, sell, pledge or otherwise transfer the 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.

• Represent and warrant to the Company, the Book Running Lead Manager and their respective affiliates that if it acquired any of the Equity Shares as fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account.

• Acknowledge that the Company, the Book Running Lead Manager and their respective affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and warranties and warrant to the Company and the Book Running Lead Manager that if any such acknowledgements, representations or warranties deemed to have been made by virtue of its purchase of the Equity Shares are no longer accurate, it will promptly notify the Company and the Book Running Lead Manager.

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

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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 our Bank or the Book Running Lead Manager or any of their respective affiliates or advisors.

The Indian securities market

India has a long history of organised securities trading. In 1875, the first stock exchange was established in Mumbai.

Stock exchange regulations

Indian stock exchanges are regulated primarily by SEBI, as well as by the Government of India acting through the Ministry of Finance, Stock Exchange Division, under the SCRA and the SCRR. The SCRA and the SCRR along with the rules, by-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 business of Indian securities markets, including stock exchanges and intermediaries in the capital market, to promote and monitor self-regulatory organisations, to prohibit fraudulent and unfair trade practices and insider trading and to regulate substantial acquisitions of shares and takeover of companies, buy-backs of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, credit rating agencies and other capital market participants.

Listing of securities

The listing of securities on a recognised Indian stock exchange is regulated by applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act and various regulations and guidelines issued by the SEBI and the listing agreements of the respective stock exchanges. The governing body of each stock exchange is empowered to suspend trading of or dealing in a listed security for non-compliance or breach of a company’s obligations under such listing agreement or for any other reason, subject to the company receiving prior notice of the intent of the exchange. SEBI also has the power to amend such equity listing agreements and the bye-laws of the stock exchanges in India, to overrule a stock exchange’s governing body and withdraw recognition of a recognised stock exchange.

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, when triggered, brings 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 NIFTY of the NSE, whichever is breached earlier. In addition to the market-wide index- based circuit breakers, there are currently in place varying individual scrip-wide price bands.

Additionally, SEBI has notified the Securities and Exchange Board of India (Delisting of Shares) Regulations, 2009 altering the regime regarding the voluntary and compulsory delisting of shares of Indian companies from the Indian stock exchanges.

Minimum public shareholding

Pursuant to an amendment of the SCRR in June 2010, all listed companies (except public sector undertakings) are required to maintain a minimum public shareholding of 25% and have been given a period of three years from date of their listing to comply with such requirement.

Stock exchanges in India

There are currently 21 recognised 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

166 exchanges in terms of the number of listed companies, market capitalization, and trading activity. ( Source: SEBI website )

BSE

Established in 1875, the BSE 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 SCRA. It has evolved over the years into its present status as the premier stock exchange of India.

As of December 3, 2013 there were 5,285 listed companies trading on the BSE. In November, 2013 the average daily equity turnover on the BSE was ` 20,384 million. The estimated market capitalization of stocks trading on the BSE was ` 67,241.1 billion as on December 3, 2013. ( Source : www.bseindia.com)

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 and operations in the derivatives segment in June 2000.

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. The average daily turnover for November, 2013 was ` 108,890 million. As of November, 2013 the NSE had 1,679 companies listed and the estimated market capitalisation for the capital market segment stood at approximately ` 66,448.4 billion. The NSE has a wide network in major metropolitan cities and has a screen based trading and a central monitoring system. ( Source: www.nseindia.com )

Internet-based securities trading and services

SEBI approved internet trading in January 2000. 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 by SEBI. 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” and the “derivatives” segments of the NSE.

Trading hours

Trading on both the NSE and the BSE occurs from Monday to Friday, between 9:15 a.m. and 3:30 p.m. The BSE and the NSE are closed on public holidays. The recognised stock exchanges have been permitted to set their own trading hours (in the cash and derivatives segments) subject to the condition that (i) the trading hours are between 9:00 a.m. and 5:00 p.m.; and (ii) the stock exchange has in place a risk management system and infrastructure commensurate with the trading hours.

Trading procedure

In order to facilitate smooth transactions, in 1995, the BSE replaced its open outcry system with the BSE Online Trading facility. 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 smoothing settlement cycles and improving efficiency in back-office work.

The NSE has introduced a fully automated trading system called the “National Exchange for Automated Trading”, or NEAT, which operates on a strict price/time priority besides enabling efficient trade. NEAT has provided depth in the market by enabling a large number of members all over India to trade simultaneously, narrowing the spreads.

Takeover Code

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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 takeovers, being the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Code ”). Since the Company is an Indian listed company, the provisions of the Takeover Code apply to the Company. The Takeover Code came into effect on 22 October 2011 and replaced the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the “ Takeover Code 1997 ”).

The key changes from the Takeover Code 1997 under the Takeover Code include:

• the trigger for making a public offer upon acquisition of shares or voting rights has been increased from 15% to 25%;

• every public offer has to be made for at least 26% of all the shares held by other shareholders;

• creeping acquisition of up to 5% is permitted up to a limit of 75% of the shares or voting rights of a company;

• acquisition of control in a target company triggers the requirement to make a public offer regardless of the level of shareholding and the acquisition of shares; and

• if the indirect acquisition of a target company is a predominant part of the business or entity being acquired, it would be treated as a direct acquisition.

Insider Trading Regulations

The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, as amended (the “Insider Trading Regulations ”) prohibit and penalise 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. The Insider Trading Regulations also provide disclosure obligations for shareholders holding more than a pre-defined percentage, and directors and officers, with respect to their shareholding in the company, and the changes therein. The definition of “insider” includes any person who has received or has had access to unpublished price sensitive information in relation to securities of the company or any person reasonably expected to have access to unpublished price sensitive information and who is or was or is deemed to have been connected with the company.

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, the SEBI framed the Securities and Exchange Board of India (Depositories and Participant) Regulations, 1996, as amended, which among other things provide regulations in relation to 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 depositary system has significantly improved the operation of the Indian securities markets.

Derivatives (Futures and Options)

Trading in derivatives is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended in February 2000 and derivatives contracts were included within the term “securities”, as defined by the SCRA. Trading in derivatives in India takes place either on separate and independent derivatives exchanges or on a separate segment of an existing stock exchange. The derivatives exchange or derivatives segment of a stock exchange functions as a self-regulatory organisation under the supervision of the SEBI. Derivatives products were introduced in phases in India, starting with futures contracts in June 2000 and index options, stock options and stock futures in June 2000, July 2001 and November 2001, respectively.

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DESCRIPTION OF THE SHARES

Set forth below is certain information relating to the share capital of our Bank, including a brief summary of some of the provisions of the Memorandum and Articles of Association, the Companies Act, the Banking Regulation Act and certain related legislation of India, all as currently in effect.

General

Our Bank’s authorized share capital is ` 2,000 million divided into 200,000,000 Equity Shares. Our Bank’s issued, subscribed and paid up capital totals ` 851.4 million divided into 85,136,319 fully paid up Equity Shares.

Dividend

Under the Companies Act, unless the board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions specified in the Companies Act, no dividend can be declared or paid by a company for any financial year except out of the profits of the company determined in accordance with the provisions of the Companies Act or out of the undistributed profits or reserves of prior fiscal years or out of both, calculated in accordance with the provisions of the Companies Act. Under our Articles of Association, our shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by our Board. Under the listing agreements with the Stock Exchanges, listed companies are required to declare and disclose their dividends only on a per share basis. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid up value of their shares as of the record date for which such dividend is payable. In addition, the Board may declare and pay interim dividends.

Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders. No shareholder is entitled to a dividend while unpaid calls on any of such shareholder’s shares are outstanding. Dividends must be paid within 30 days from the date of the declaration and any dividend that remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. Any money that remains unpaid or unclaimed for seven years from the date of such transfer must be transferred by us to the Investor Education and Protection Fund established by the Government and any claim with respect thereto will lapse thereafter.

In addition, RBI has also prescribed certain norms in relation to dividends to be paid by Banks. For details of the norms prescribed by RBI for payment of dividend by banks, see the section titled “Dividend Policy” on page 59.

Capitalization of Reserves

The Articles of Association permit a resolution of the shareholders in a general meeting, upon the recommendation of the Board, to resolve in certain circumstances, that certain amounts standing to the credit of certain reserves or otherwise available for distribution, may be applied, inter alia , towards paying up any amounts unpaid on any shares held by such members. A share premium account and a capital redemption reserve fund, may only be applied in the paying up of unissued shares to be issued to members of the Bank as fully paid bonus shares. Bonus shares must be issued pro rata to the amount of capital paid up with respect to existing shares. Any issue of bonus shares by a listed company would be subject to the SEBI Regulations.

Pre-emptive Rights and Alteration of Share Capital

Subject to the provisions of the Companies Act, we can increase our share capital by issuing new shares. In terms of the Companies Act, such new shares must be offered to existing shareholders registered on the record date in proportion to the amount paid up on those shares on that date. The offer should be made by notice specifying the number of shares offered and the date (being not less than fifteen days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After such date, the Board may dispose of the shares offered in respect of which no acceptance has been received in such manner as they think most beneficial to us. The offer is deemed to include a right exercisable by the person concerned to renounce the shares in favour of any other person, provided that the person in whose favour such shares have been renounced is approved by the Board in their absolute discretion.

However, under the provisions of the Companies Act, new shares may be offered to any persons, whether or not

169 those persons include existing shareholders, if a special resolution to that effect is passed by the shareholders of the company in a general meeting. The issue of the Equity Shares pursuant to this Issue has been approved by a special resolution of our shareholders and such shareholders have waived their pre-emptive rights with respect to such Equity Shares.

The Articles of Association provide that we may consolidate or sub-divide our share capital, or cancel shares which have not been taken up by any person. We can also alter our share capital by way of a reduction of capital, in accordance with the Companies Act.

General Meetings of Shareholders

We must hold our annual general meeting each year within fifteen months of the previous annual general meeting and within six months after the end of each accounting year. The Registrar of Companies may extend this period in special circumstances at our request. The Board may convene an extraordinary general meeting of shareholders when necessary and shall convene such a meeting at the request of a shareholder or shareholders holding in the aggregate not less than 10.0% of our issued paid up capital. Written notices convening a meeting setting out the date and place of the meeting and its agenda must be given to members at least 21 days prior to the date of the proposed meeting and where any special business is to be transacted at the meeting, an explanatory statement must be annexed to the notice as required under the Companies Act. A general meeting may be called after giving shorter notice if consent is received from all shareholders in the case of an annual general meeting and from shareholders holding not less than 95.0% of our paid up capital in the case of any other general meeting.

Any listed public company intending to pass a resolution relating to matters such as, but not limited to, an amendment in the objects clause of its memorandum of association, a buy-back of shares under the Companies Act and the giving of loans or extending a guarantee in excess of limits prescribed under the Companies Act (and guidelines issued thereunder) is required to pass the resolution by means of a postal ballot instead of transacting the business in the general meeting of the company.

Voting Rights

At a general meeting upon a show of hands, every member holding shares, entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy are in the same proportion to such shareholder’s share of our paid up equity capital.

Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require that the votes cast in favour of the resolution must be at least three times the votes cast against the resolution. The Companies Act provides that to amend the articles of association of a company, a special resolution is required to be passed in a general meeting. A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association. The instrument appointing a proxy is required to be lodged with us at least 48 hours before the time of the meeting. 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 such death, insanity, revocation or transfer of the share shall have been received by our Bank at its office before the commencement of the meeting.

Section 12 of the Banking Regulation Act prohibits any person holding shares in a bank from exercising voting rights in excess of 10.0% of the total voting rights of all shareholders of any bank, irrespective of the number of shares held by such person.

We are obliged to maintain a register of shareholders at our Registered Office or at some other place in the same city. We recognize as shareholders only those persons whose names appear on the register of shareholders and cannot recognize any person holding any share or part of it upon any express, implied or constructive trust, except as permitted by law. In the case of shares held in physical form, transfers of shares are registered on the register of shareholders upon lodgment of the share transfer form duly complete in all respects accompanied by a share certificate or, if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, the name of the depository is

170 entered into our records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares held by a depository.

For the purpose of determining the shareholders for the payment of dividends, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time at such times as the Board may deem expedient in accordance with the provisions of the Companies Act.

Under the Companies Act, we are also required to maintain a register of debenture holders.

Annual Report and Financial Results

The annual report must be presented at the annual general meeting. The report includes financial information, a corporate governance section and management’s discussion and analysis and is sent to the company’s shareholders. Under the Companies Act, we must file our balance sheet and profit and loss account with the Registrar of Companies within six months from the close of the accounting year or within thirty days from the date of the annual general meeting, whichever is earlier. As required under the Listing Agreements, copies are required to be simultaneously sent to the Stock Exchanges. We must also publish our financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a daily newspaper published in the language of the region of the Registered Office (i.e ., Malayalam).

Transfer of Shares

Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with applicable SEBI regulations. These regulations provide the regime for the functioning of the depositories and their 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 shares are freely transferable, subject only to the provisions of the Companies Act under which, if a transfer of shares contravenes any provisions of the SEBI Act or the regulations made thereunder or the SICA, or any other law, the Company Law Board may, on an application made by the company, a depository incorporated in India, an investor, SEBI or a participant, direct any depository or company to rectify the register or records. If a company without sufficient cause refuses to register a transfer of shares within two months from the date of which the instrument of transfer or intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board seeking to register the transfer. The Company Law Board may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares before completing its investigation of the alleged contravention. Under the Companies (Second Amendment) Act, 2002, the Company Law Board is proposed to be replaced with the National Company Law Tribunal with effect from a date yet to be notified. Further, SICA may be repealed and the Board of Industrial and Financial Reconstruction, as constituted under the SICA may be replaced with the National Company Law Tribunal, set up under the Companies Act.

Pursuant to the Listing Agreements, in the event that a transfer of shares is not effected within one month or where we have failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, we are required to compensate the aggrieved party for the opportunity loss caused by the delay.

A transfer may also be by transmission. Subject to the provisions of our Articles, any person becoming entitled to shares in consequence of the death, lunacy, bankruptcy or insolvency of any member or by any lawful means other than by a transfer in accordance with these presents, may, with the consent of the board, upon producing such evidence that such person sustains the character in respect of which he proposes to act under the Articles, or his title, as the Board thinks sufficient, be registered as a member in respect of such shares, or may, subject to the regulations as to transfer contained in the Articles, transfer such shares.

Any transfer of Equity Shares, which would take the holding of a person or a group to more than 5.0% of our issued capital shall be not permitted without the prior approval of the RBI.

Liquidation Rights

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Subject to the rights of creditors and employees in the event of our winding up, the holders of the Equity Shares are entitled to be repaid the amounts of capital paid up or credited as paid up on such shares. All surplus assets after payments due to employees and other creditors belong to the holders of the Equity Shares in proportion to the amount paid up or credited as paid up on such shares respectively, at the commencement of the winding up.

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STATEMENT OF TAX BENEFITS

To,

The Board of Directors , The Dhanlaxmi Bank Limited PB No.9, Dhanlaxmi Buildings , Naickanal, Thrissur-680001 India Statement of Tax Benefits

Dear Sirs,

December 03, 2013

We enclose the statement of Tax Benefits for the proposed rights issue by Dhanlaxmi Bank Limited.

We hereby confirm that the information provided therein states the general direct tax benefits available to Dhanlaxmi Bank Limited ("The Bank") and its shareholders under the current direct tax laws in force in India. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions prescribed under the relevant provisions of the tax law. Hence, the ability of the Bank or its shareholders to derive tax benefits is dependent upon fulfilling such conditions, which based on business imperatives, the Bank or its shareholders may or may not choose to fulfill.

The benefits discussed in the enclosed Statement are not exhaustive. We are informed that this statement is only intended to provide general information to the investors and hence is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of tax consequences and the changing tax provisions, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue.

Unless otherwise specified, sections referred to below are sections of the Income-tax Act. 1961 ("The Act").The Income-tax rates referred here are the existing tax rates based on the rates prescribed in the Finance Act, 2013 for the Financial Year 2013-14. All the provisions set out below are subject to conditions specified in the respective sections.

The contents of the enclosed Statement are based on information, explanations and representations obtained from the Bank and on the basis of our understanding of the business activities and operations of the Bank and the interpretation of tax laws presently in force in India.

The above statement of possible direct tax benefits set 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.

Sagar & Associates Chartered Accountants

(B. Srinivasa Rao) Partner Firm Registration No.:003510S Membership No: 202352

Place: Thirssur Dated: December 3, 2013

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STATEMENT OF TAX BENEFITS

Statement of Income-tax Benefits available to Dhanlaxmi Bank Ltd. (“the Bank”) and its Shareholders

TO THE BANK

Specific Tax Benefits to a Bank

1. Under Section 36(1)(viia) of the Act in respect of any provision made for bad and doubtful debts, a Scheduled Bank is entitled to a deduction not exceeding:

a. 7.5% of the total income (computed before making any deductions under this clause and Chapter VIA) and

b. 10% of the aggregate average advances made by the rural branches of the Bank computed in the prescribed manner.

Also the Bank shall, at its option, be allowed a further deduction in excess of the limit specified above, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government provided such income has been disclosed in its return of income under the head “Profits and gains of business or profession”.

2. In addition to the deduction available under Section 36(1)(viia) of the Act, the Bank is entitled to claim a deduction under Section 36(1)(vii) of the Act for the amount of bad debts written off as irrecoverable in the accounts. The deduction shall be limited to the amount by which such debt or part thereof, which exceeds the credit balance in the provision for bad and doubtful debts account made under Section 36(1)(viia) of the Act and subject to the compliance of provisions of Section 36(2)(v) of the Act. The amount subsequently recovered would be chargeable to income-tax in the year of recovery in accordance with the provisions of section 41(4) of the Income-tax Act.

3. Under section 36(1)(viii) of the Act, the Bank is entitled to claim deduction for amount transferred to special reserve account subject to maximum of 20% of profit derived from providing long term finance in India for industrial or agriculture development or development of infrastructure facility in India or development of housing in India.

However, where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and of general reserves of the bank, no allowance under this section shall be made in respect of such excess.

4. Under the provisions of Section 43D of the Act, interest income on certain categories of bad or doubtful debts as specified in Rule 6EA of the Income Tax Rule, 1962 having regard to the guidelines issued by Reserve Bank of India in relation to such debts shall be chargeable to tax, only in the year in which it is actually received or the year in which it is credited to the Profit and Loss Account by the Scheduled Bank, whichever is earlier.

General Tax Benefits

1. Under Section 10(15)(i) of the Act, income by way of interest, premium on redemption or other payment on securities, bonds, etc. issued by the Government and deposits notified by the Government is exempt from tax, subject to such conditions and limits as may be specified by Government in this behalf.

2. Under Section 10 (33) of the Act, any income arising from the transfer of a capital asset, being a unit of the Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) is exempt.

3. In accordance with section 10(34) of the Act, any dividend income as referred to in section 115-O of the Act which is declared, distributed or paid by any domestic company is exempt from tax in the hands of the Bank.

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4. In accordance with section 10(35) of the Act, the following income shall be exempt in the hands of the Bank:

a) Income received in respect of the units of a Mutual Fund specified under section 10(23D) the Act; or

b) Income received in respect of units from the Administrator of the specified undertaking; or

c) Income received in respect of units from the specified company;

Provided that this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case maybe.

5. In accordance with section 10(35A) the Act, any income by way of distributed income referred to in section 115TA received from “ a securitization trust” by any person being an investor of the said trust is exempt in the bonds of Bank.

6. By virtue of section 10(36) of the Act, any long term capital gain arising to the Bank from the transfer of a long term capital asset being an eligible equity share (as defined) in a company purchased on or after 1st day of March 2003 and before 1st day of March 2004 and held for a period of 12 months or more would not be liable to tax in the hands of the Banks.

7. In accordance with section 10(38) of the Act, long-term capital gains arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund is exempt in the hands of the Bank provided such transaction is chargeable to securities transaction tax under that chapter. Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profit and the income tax payable under section 115JB.

8. Under section 32 of the Act, the Bank is entitled to claim depreciation on tangible and intangible assets owned by it and used for the purpose of its business.

9. In accordance with and subject to the provisions of section 35 of the Act, the Bank would be entitled to deduction in respect of expenditure laid out or expended on scientific research related to the business not being in the nature of capital expenditure. Further the Bank also would be entitled to a weighted deduction in respect of any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university or college or company or other institution to be used for scientific research subject to the conditions specified therein or in certain cases to be used for research in social science or statistical research.

10. Any payment of securities transaction tax in respect of taxable securities transactions which are taxable under the head “profits and gains of business or profession” shall be allowed as deduction under section 36 (1) (xv) of the Act against such income.

11. In accordance with section 47(viaa) of the Act, any transfer of a capital asset by a banking company to the banking institution, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government would not be liable to capital gains under section 45 of the Act.

12. Under the provisions of Section 54EC of the Act and subject to conditions specified therein, the Bank is eligible to claim exemption from the tax arising on long-term capital gains, on investment of capital gains on or after 01.04.2007 in certain specified assets not exceeding Rupees fifty lakhs per year, within six months from the date of transfer of capital asset. If only a portion of the capital gains is invested, then the exemption is proportionately available. If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the specified asset is transferred or converted into money.

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For this purpose, long term specified asset means, any Bond redeemable after three years but issued on or after 01.4.2007, by the National Highways Authority of India or by the Rural Electrification Corporation Limited.

13. In terms of the provisions of section 111A of the Act, short-term capital gains arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented mutual fund is chargeable to tax at the rate of 15% in the hands of the Bank, provided the transaction is chargeable to securities transaction tax under that chapter.

14. The benefit of exemption from tax under Section 10(38) of the Act on long term capital gains, or, concessional rate of tax under Section 111-A on short-term capital gains will not be available, where no securities transactions tax is applicable. In such cases, under the provisions of Section 112 of the Act, taxable long-term capital gains, if any, on sale of listed securities or units would be charged to tax at the concessional rate of 20% (plus applicable surcharge and education cess), after considering indexation benefits, or at 10% (plus applicable surcharge and education cess) without indexation benefits in accordance with and subject to the provision of Section 48 of the Act. Under Section 48 of the Act, the long-term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/improvement. This is for securities held as investments and not as trading assets.

The short term capital gains not eligible for the concessional rate under Section 111-A of the Act, are chargeable to tax as per the relevant tax rate applicable to the bank of 30% plus applicable surcharge and education cess.

TO THE RESIDENT SHAREHOLDERS OF THE BANK

The following are the benefits as per the current tax laws to shareholders in the Bank. However, in view of the individual nature of the tax consequences, prospective investors are advised to consult his/her/their own tax advisor with respect to the specific tax consequences of his/her/their purchasing shares in the Issue:

1. Under section 10 (32) of the Act, any income of minor children clubbed with the total income of the parent under section 64 (1A) of the Act, will be exempt from tax to the extent of Rs. 1500 per minor child.

2. In accordance with section 10(34) of the Act, any dividend income as referred to in section 115-O of the Act which is declared, distributed or paid by any domestic company on or after April 1, 2003 is exempt from tax in the hands of the shareholders.

3. In accordance with section 10(38) of the Act, long-term capital gains arising from the transfer of a long-term capital asset, being the equity share of the BANK is exempt from tax provided the transaction is chargeable to securities transaction tax under that chapter. However, minimum alternate tax (MAT) of 18.5% (plus applicable surcharge and education cess) on book profits (which would include such long term capital gains) is payable by the shareholder company under Section 115JB of the Act, if 18.5% of book profit computed as per provision of Section 115JB of the Act is higher than the total income tax payable as per normal provision of the Act.

4. In terms of the provisions of section 111A of the Act, short-term capital gains arising from the transfer of a short-term capital asset, being the equity share of the BANK is chargeable to tax at the rate of 15% in the hands of the shareholder, provided such transaction is chargeable to securities transaction tax under that chapter. Provided that in the case of an individual or Hindu Undivided Family, being a resident, where the total income as reduced by such short term capital gain is below the maximum amount which is not chargeable to income tax, then, such short term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of short term capital gains shall be computed at the rate of 15%.

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tax at the concessional rate of 20% (plus applicable surcharge and education cess), after considering indexation benefits, or at 10% (plus applicable surcharge and education cess) without indexation benefits in accordance with and subject to the provision of Section 48 of the Act. Under Section 48 of the Act, the long-term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/improvement.

The short term capital gains not eligible for the concessional rate under Section 111-A of the Act, are chargeable to tax as per the relevant rate applicable to the shareholder plus applicable surcharge and education cess.

6. Renunciation of rights should be considered as taxable transfer with Nil cost of acquisition. The short- term capital gains arising on such renunciation should be taxable at normal rate of tax applicable to the shareholder plus applicable surcharge and education cess.

7. Any payment of securities transaction tax in respect of taxable securities transactions which are taxable under the head “profits and gains of business or profession” shall be allowed as deduction under section 36 (1) (xv) of the Act against such income.

8. Under Section 54EC of the Act, exemption from capital gain tax is available in respect of long term capital gains arising on transfer of the Bonds/securities of the Bank if the assessee at any time within a period of six months from the date of such transfer, invests the whole of the capital gains in specified assets subject to maximum of Rupees fifty lakhs per year made on or after 01.04.2007. If only a portion of capital gains is so invested, then the exemption is proportionately available.

If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the specified asset is transferred or converted into money.

For this purpose the term assessee would include various types of persons like Individual, Hindu undivided Family, Association of Persons, Body of Individuals, Firm, Company etc.

For the meaning of the term “specified asset” kindly refer Para no. 11 above.

9. As per the provisions of Section 54F of the Act, long term capital gains arising in the hands of an individual or HUF on transfer of shares of the Bank shall be exempt if the net consideration is invested in purchase of residential house within a period of one year before or two years from the date of transfer or constructs a residential house within a period of three years from the date of transfer. The exemption is available proportionately if only a portion of the net consideration is invested as above. The exemption is subject to other conditions specified in that Section.

If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the residential house is transferred.

Benefits to Non-Resident Shareholders including NRI’s, OCB’s & FII

1. In accordance with section 10(34) of the Act, any dividend income as referred to in section 115-O of the Act which is declared, distributed or paid by any domestic company on or after April 1, 2003 is exempt from tax in the hands of the shareholders.

2. In accordance with section 10(38) of the Act, long-term capital gains arising from the transfer of a long-term capital asset, being an equity share in a company is exempt from tax provided the transaction is chargeable to securities transaction tax.

3. In terms of the provisions of section 111A of the Act, short-term capital gains arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund is

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chargeable to tax at the rate of 15% in the hands of the shareholder, provided such transaction is chargeable to securities transaction tax.

4. In accordance with and subject to the provisions of Section 48 of the Act, in order to compute capital gains, the following amounts would be deductible from the full value of consideration:

(i) Cost of acquisition/improvement of the shares as adjusted by the Cost Inflation Index notified by the Central Government; and

(ii) Expenditure incurred wholly and exclusively in connection with the transfer of the shares. As per the provisions of the first proviso to Section 48 of the Act, capital gains arising from the transfer of equity shares acquired by non-residents in foreign currency are to be computed by converting the cost of acquisition/improvement, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing into the same foreign currency as was initially utilized in the purchase of equity shares and the capital gains so computed in such foreign currency shall then be reconverted into Indian currency. Cost indexation benefits will not be available in such case.

Further, the aforesaid manner of computation of capital gains shall be applicable in respect of every reinvestment thereafter in and sale of, shares in, or debentures of an Indian company.

5. The benefit of exemption from tax under Section 10(38) of the Act on long term capital gains, or, concessional rate of tax under Section 111- A on short-term capital gains will not be available, where no securities transactions tax is applicable. In such cases, under the provisions of Section 112 of the Act, taxable long-term capital gains, if any, on sale of listed securities would be charged to tax at the concessional rate of 20% (plus applicable surcharge and education cess) and the taxable long-term capital gains, if any, on sale of unlisted securities would be charged to tax at the rate of 10% on the capital gains in respect of such assets without indexation benefits in accordance with and subject to the provision of Section 48 of the Act.

8. Under Section 54EC of the Act, exemption from capital gain tax is available in respect of long term capital gains arising on transfer of shares of the Bank if the assessee at any time within a period of six months from the date of such transfer, invests the whole of the capital gains in specified assets subject to maximum of Rupees fifty lakhs per year made on or after 01.04.2007. If only a portion of capital gains is so invested, then the exemption is proportionately available.

For the meaning of the term “specified asset” kindly refer Para no. 11 under the Section “General Tax Benefits.”

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exemption is available proportionately if only a portion of the net consideration is invested as above. The exemption is subject to other conditions specified in that Section.

10. Capital gains arising to Non Resident Indians (NRIs) on sale of shares on which securities transaction tax is not paid, is governed by Chapter XII-A of the Act, subject to fulfilling the conditions stipulated therein.

(i) In accordance with and subject to the provisions of Section 115D read with Section 115E of the Income-tax Act, long-term capital gains arising on transfer of specified capital assets (including bank’s Equity Shares) acquired out of convertible foreign exchange, are taxable at the rate of 10% (plus applicable surcharge and cess). Cost indexation benefits will not be available in such case.

(ii) In accordance with and subject to the provisions of Section 115F of the Act, long-term capital gains arising on sale of shares acquired by a NRI shareholder out of convertible foreign exchange shall be exempt from income tax entirely/proportionately, if the entire/part of the net consideration is invested for a period of three years in any savings certificates specified under Section 10(4B) or specified assets as defined in Section 115C(f) of the Act, within six months from the date of transferring the shares. The amount so exempted will be chargeable to tax under the head „Capital Gains ‟ if these new assets are transferred or converted (otherwise than by way of transfer) into money within three years from the date of its acquisition in accordance with the provisions of Section 115F(2) of the Income-tax Act.

(iii) As per Section 115G of the Act, a NRI would not be required to file a return of income under Section 139(1) of the Act, where the total income consists only of investment income and/or long-term capital gains and tax deductible at source has been deducted from such income as per provisions of Chapter XVIIB of the Act.

(iv) As per the provision of Section 115I of Act, a NRI may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing his return of income for that assessment year under Section 139 of the Income-tax Act, declaring therein that the provisions of Chapter XII-A shall not apply to him for that assessment year and accordingly his total income for that assessment year will be computed in accordance with the provisions of the Act.

11. A capital gain arising to FIIs on sale of shares on which securities transaction tax is not paid is governed by Section 115AD of the Act. As per Section 115AD of the Income-tax Act, such long-term capital gains arising on transfer of shares purchased by FIIs are taxable at the rate of 10% (plus applicable surcharge, education cess and secondary and higher education cess). Short-term capital gains are however, taxable at the rate of 30% (plus applicable surcharge, education cess and secondary and higher education cess). Provided that the amount of income tax calculated on the income by way of short term capital gains referred to in section 111A shall be at the rate of 15%. Cost indexation benefits will not be available. Further, the provisions of the first proviso of Section 48 of the Act as stated above will not apply.

12. In accordance with and subject to the provisions of Section 115AD read with Section 196D(2) of the Act, no deduction of tax at source is applicable in respect of capital gains arising from the transfer of the equity shares payable to FIIs.

13. In the case of all non-resident shareholders, the above tax rates are subject to the benefits, if any, available under the double taxation avoidance agreements signed by India with the country of which the non-resident shareholder may be a tax resident, subject to fulfillment of conditions prescribed there under.

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BENEFITS AVAILABLE TO MUTUAL FUNDS which are shareholders of the Bank

As per the provisions of Section 10(23D) of the Act, any income of a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or Regulations made there under, mutual funds set up by the Public Sector Banks or Public Financial Institutions and Mutual Funds authorized by the Reserve Bank of India and subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf, would be exempt from income-tax.

WEALTH TAX Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth Tax Act, 1957 and accordingly, the bank’s equity are not liable to Wealth-tax in the hands of the shareholders.

Notes: All the above benefits are as per the current tax law and will be available only to the sole/first names holder in case the shares are held by joint holders. The above benefits have not been analyzed from the perspective of Direct Tax Code Bill 2010 which is proposed to be implemented from 1 April 2013.

In view of the individual nature of tax consequences, each investor is advised to consult their own tax advisor with respect to specific tax consequences of his/her participation in the scheme.

LIMITATIONS

Our views expressed herein are based on the facts and assumptions indicated above. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes.

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LEGAL PROCEEDINGS

Except as described below, our Bank is not involved in any material legal proceedings, no proceedings are threatened, and no notices have being issued by any regulatory or governmental authority, which may have, a material adverse effect on the business, properties, financial condition or operations of our Bank. 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.

Debt Recovery Cases

1. The Bank has filed a recovery suit bearing OA No 135 of 2012 dated March 15, 2012 against M/s Sevashram and others before the Debt Recovery Tribunal, Ernakulam in relation to recovery of certain loan facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 17,128,520 with future interest at the rate of 16% per annum, penal interest and other costs.

2. The Bank has filed a recovery suit bearing OA No 1226 of 2011 dated December 13, 2011 against M/s ITN Telemedia Private Limited and others before the Debt Recovery Tribunal-III, Mumbai in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 11,163,970 with further interest at the rate of 24% per annum from the filing of the O.A.

3. The Bank has filed a recovery suit bearing OA No 66 of 2011 dated November 22, 2010 against M/s Chetana (a registered non-governmental organisation) and Vijayalakshmi Ramanna before the Debt Recovery Tribunal, Bangalore in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 11,663,468 with future interest at 13.5% interest per annum, penal interest and other cost and expenses.

4. The Bank filed a recovery suit bearing no. OA No 418 of 2012 dated July 8, 2012 against M/s Telecanor Global Limited and others before the Debt Recovery Tribunal, Hyderabad in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The Debt Recovery Tribunal has passed an order dated July 23, 2013 entitling the Bank for a recovery certificate for an amount of ` 27,485,710 and ` 34,165,507 along with further interest at the rate of 15.2% and 13.2% per annum, respectively, till the date of realisation. The Bank is currently in the process of recovering the outstanding amount and has served notice of demand to the defendents through the Office of Recovery Officer, Debts Recovery Tribunal, Hyderabad.

5. The Bank has filed a recovery suit bearing OA No 115 of 2012 dated March 6, 2012 against K.T Jaffar and others before the Debt Recovery Tribunal, Ernakulam in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 27,702,680 with interest at 23% per annum and penal interest.

6. The Bank has filed a recovery suit bearing O.A No. 179/2013 dated June 14, 2013 against M/s. Blue Bugget Jewels Private Limited and others before the Debt Recovery Tribunal- II, Mumbai in relation to recovery of certain credit facilities provided by the Bank, on account of default in payment of the loan. The amount to be recovered is ` 45,831,826.9 with further interest.

7. The Bank has filed a recovery suit through the consortium leader State Bank of India bearing OA No. 254/13 on June 6, 2013 against Duplex Industries Limited before the Debt Recovery Tribunal, Pune in relation to recovery of certain credit facilities provided by the Bank, on account of default in payment of the loan. The amount to be recovered by the Bank is ` 568,966,273.6 with further interest.

8. The Bank has filed a recovery suit bearing OA No. 613/2013 before the Debt Recovery Tribunal, Bangalore dated May 10, 2013 against M/s. Parcopn Mettalickks and Mr. V. M Mohammed Ansar in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 22,297,050.6 with further interests. Simultaneously, the Bank issued notice under section 13(2) of the SARFAESI Act dated January 30, 2012 and proceeded to attach the secured asset. The defendants filed a writ petition before the High Court of Kerala, Ernakulam dated November 19, 2013 seeking a stay on the attachment of the secured asset. The

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High Court pursuant to order dated November 22, 2013 has granted the stay till disposal of certain applications filed before Debt Recovery Tribunal, Bangalore latest by January 31, 2014.

9. The Bank has filed a recovery suit bearing OA No. 99/2013 before the Debt Recovery Tribunal, Mumbai dated July 31, 2013 against M/s Micro Technologies India Limited and others in relation to recovery of certain credit facilities provided by the Bank, on account of default in payment of the loan. The amount to be recovered is ` 109,678,180.6 with further interests.

Criminal Cases

A criminal complaint bearing S.R. No 5393/12 dated November 17, 2012 was filed by the complainant, Jayam Nagesh, Proprietor of M/s SRS Associates, before the Chief Additional Metropolitan Magistrate at Hyderabad alleging that the complainant was abused and threatened by the accused, upon being approached for the payment of the outstanding amount. As per the criminal complaint the Bank had entered into service provider agreement with the complainant and in terms of the agreement, the accused were liable to pay an amount of ` 429,245 to the complainant.

The complaint was referred by the Chief Additional Metropolitan Magistrate for lodging a first information report at Malakpet Police Station. As a result, FIR No.382/2012 under sections 406, 420, 506 read with 34 of the Indian Penal Code, 1860 and Section 156(3) of the Code of Criminal Procedure, 1973 has been filed against the Bank represented by our Managing Director and CEO , and two senior executives.

Consequently, the Bank has filed a criminal petition bearing number 8388 of 2012 under Section 482 of the Cr.P.C before the High Court of Andhra Pradesh. The High Court has pursuant to an order dated January 30, 2013, stayed the proceedings before the Chief Additional Metropolitan Magistrate.

Fraud Cases

As on December 12, 2013, there are 68 outstanding fraud cases against its employees, customers and other entities. These fraud cases are in the nature of misappropriation, criminal breach of trust, forgery and cheating against the Bank. The amount involved in these cases is ` 738.1 million.

In relation to the above, our Bank has recently filed a police complaints dated November 29, 2013 and November 28, 2013 against Mr. Vijay Manchanda his relatives and affiliates, Mr. Somnath Bobal and his relatives and affiliates, Mr. Harjeet Singh, employees of our Bank and others in relation to gold loans availed by them against spurious gold ornaments. For further details, please see “Management Discussion and Analysis of Financial Statements – Recent Developments after September 30, 2013” at page 86.

Tax Cases

We are involved in a number of disputes pending with the Income Tax Department with respect to income tax assessments for the assessment years from 1995-1996 to 2010-2011. As on December 19, 2013, the aggregate income tax liability in dispute is ` 352.6 million.

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OUR AUDITORS

M/s Walker, Chandiok & Co. and M/s Sharp & Tannan, Chartered Accountants, the previous joint statutory auditors of our Bank, have audited the financial statements of our Bank as of and for fiscal 2011 and 2012. Our current statutory auditor, M/s Sagar & Associates, Chartered Accountants have audited the financial statements of our Bank as of and for fiscal 2013 and have issued an examination report on these financial statements, which have been included in this Preliminary Placement Document, for which they have relied upon the audit conducted by the previous auditors for fiscal 2011 and 2012. M/s Sagar & Associates, Chartered Accountants were appointed as our Bank’s statutory auditors for the financial year 2013 by virtue of a resolution passed by the shareholders of our Bank in the AGM dated September 27, 2012 and the approval of the RBI dated September 17, 2012. M/s Sagar & Associates, Chartered Accountants were re-appointed as our Bank’s statutory auditors for the financial year 2014 by virtue of a resolution passed by the shareholders of our Bank in the AGM dated August 27, 2013 and the approval of the RBI dated July 8, 2013.

M/s Sagar & Associates have also conducted a limited review of our unaudited financial statements of our Bank as of and for the six months ended September 30, 2013, and September 30, 2012. The limited review report issued by M/s Sagar & Associates in respect of such financial statements has been included in the Preliminary Placement Document.

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GENERAL INFORMATION

1. Our Bank was incorporated on November 14, 1927 under the Companies Act, 1913 and is a scheduled commercial bank within the meaning of RBI Act. The CIN of our Bank is L65191KL1927PLC000307.

2. The Registered Office of our Bank is located at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001, Kerala, India.

3. The Issue has been approved by the members of our Bank pursuant to a resolution passed on February 15, 2013 and approved by our Board pursuant to its resolutions passed on October 31, 2012 and October 30, 2013.

4. We have received in principle approvals dated December 19, 2013, from the NSE and the BSE to list the Equity Shares to be issued pursuant to the Issue under Clause 24(a) of the Listing Agreements. CSE through its letter dated December 19, 2013 informed us that they have opted for voluntary exit in accordance SEBI guidelines. Since CSE’s application for voluntary exit is currently pending with SEBI, their application for renewal of recognition is not processed by SEBI. As a result, CSE is unable to process our listing application.

5. Our Bank has obtained necessary consents, approvals and authorization required for the Issue, including in principle approval from the RBI dated December 10, 2013. Our Bank shall apply for a post facto approval from the RBI in respect of the Issue, as has been specified by RBI in its letter dated December 10, 2013, upon completion of the allotment process.

6. Copies of the Memorandum and Articles of Association will be available for inspection between 10.00 A.M. and 1.00 P.M. on any weekday (except Saturdays and public holidays) at the Registered Office.

7. Except as disclosed in this Preliminary Placement Document, there has been no material change in our Bank’s financial position since March 31, 2013, the date of last published audited financial statements of our Bank.

8. The Bank is in compliance with the minimum public shareholding requirements as required under the terms of the Listing Agreements and as per Rule 19A of the SCRR.

9. The Floor Price is ` 40.09 per Equity Share and the Discounted Floor Price is ` [] per Equity Share, as calculated in accordance with Chapter VIII of SEBI Regulations.

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FINANCIAL STATEMENTS

Serial Particulars Page No. 1 Examination Report on the reformatted financial statements as at and for each 186 of the years ended March 31, 2013, March 31, 2012 and March 31, 2011 2 Limited Review Report on Interim Financial Information 253

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FINANCIAL STATEMENTS Examination Report on the Reformatted Financial Statements of Dhanlaxmi Bank Limited as at and for each of the years ended March 31, 2013, March 31, 2012 and March 31, 2011

To The Board of Directors Dhanlaxmi Bank Limited Dhanlaxmi Buildings Naickanal, Thrissur - 680 001 Kerala

Dear Sirs,

1. We have examined the Reformatted Financial Statements (the “Reformatted Statements”) of Dhanlaxmi 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 “ICDR 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, 2013, March 31, 2012 and March 31, 2011 (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, 2013 were audited by us and for the year ended March 31, 2012 & 2011 have been jointly audited and audit opinions to the Share holders of the Bank issued by the following Audit firms.

Sno Period Name of the Auditors Audit opinion dated 1 March 31,2011 M/S. Walker,Chandiok & Co and M/S. April 23, 2011 Sharp & Tannan 2 March 31,2012 M/S. Walker,Chandiok & Co and M/S. May 30, 2012 Sharp & Tannan

These Audited Financial Statements were prepared in accordance with Indian GAAP and as per Banking Regulation Act,1949

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. No qualification were noted in the audit report issued by us for the financial year ended March 31,2013 and by the previous auditors on the audit of financial statements of the Bank for the years ended March 31, 2012 and March 31, 2011.

6. We have no responsibility to update our report for events and circumstances occurring after the date of the report.

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7. 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.

8. 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 Sagar and Associates Chartered Accountants Firm Registration No. 003510S

(B.Srinivasa Rao) Partner Member Ship No: 202352 Place: Thrissur Date: 19 December, 2013.

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DHANLAXMI BANK LIMITED REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE REPORTING YEARS (Rs in Millions) As at As at As at March March Schedule March 31,2013 31,2012 31, 2011 CAPITAL AND LIABILITIES

Capital 1 851.4 851.4 851.4

Share Application Money Pending Allotment 354.0 - -

Reserves and Surplus 2 6,454.6 6,431.1 7,595.0

Deposits 3 112,021.3 118,044.1 125,296.3

Borrowings 4 15,920.9 17,215.1 6,261.1

Other Liabilities and Provisions 5 2,592.7 4,223.2 2,677.7 TOTAL 138,194.9 146,764.9 142,681.5 ASSETS

Cash and Balances with Reserve Bank of India 6 5,098.0 8,679.5 8,028.0 Balances with Banks and Money at call and short notice 7 2,523.3 581.2 1,323.6

Investments 8 46,844.9 43,601.6 36,396.8

Advances 9 77,770.6 87,580.5 90,651.5

Fixed Assets 10 1,357.6 1,486.9 1,343.6

Other Assets 11 4,600.5 4,835.2 4,938.0 TOTAL 138,194.9 146,764.9 142,681.5

Contingent Liabilities 12 10,809.5 33,615.6 32,508.5

Bills for collection 2,244.2 3,633.8 1,806.5 Significant Accounting Policies 17 Notes to the Financial Statements 18

The schedules referred to above form an integral part of the Financial Statements

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DHANLAXMI BANK LIMITED REFORMATTED STATEMENT OF PROFITS AND LOSSES FOR THE LAST THREE REPORTING YEARS (Rs in Millions) Year Year Year ended ended ended March 31, March March Schedule 2013 31,2012 31, 2011 INCOME

Interest Earned 13 13,080.0 13,936.5 9,064.2

Other Income 14 1,143.0 1,436.4 1,467.7

Total 14,223.0 15,372.9 10,531.9 EXPENSE

Interest expended 15 10,315.8 11,461.3 6,412.9

Operating Expenses 16 3,393.2 4,889.6 3,444.7

Provisions and Contingencies 487.8 178.3 413.7

Total 14,196.8 16,529.2 10,271.3

The schedules referred to above form an integral part of the Financial Statements

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REFORMATTED CASH FLOW STATEMENT FOR THE LAST THREE REPORTING YEARS

Net increase in cash and cash equivalents (1,646.7) (91.0) 1,848.3 Cash and cash equivalents as at April 1st 9,260.6 9,351.6 7,503.3 Cash and cash equivalents as at March 31st 7,613.9 9,260.6 9,351.6

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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 Marc h 31,2013 March 31,2012 March 31,2011 SCHEDULE 1 - CAPITAL

Authorised Capital 20,00,00,000 Equity Shares of Rs.10 each 2,000.0 2,000.0 - 10,00,00,000 Equity Shares of Rs 10 each - - 1,000.0

Issued, Subscribed and Paid up Capital 851,36,319 Equity shares of Rs 10 each 851.4 851.4 851.4

Subscribed and Paid up Capital 851,36,319 Equity shares of Rs 10 each 851.4 851.4 851.4 Total 851.4 851.4 851.4

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(Rupees in Millions) As at As at As at March 3 1,2013 March 31,2012 March 31,2011 SCHEDULE 2 - RESERVES AND SURPLUS I. STATUTORY RESERVE Opening Balance 772.6 772.6 694.4 Add: Transfer from Profit and Loss Account - - 78.2 772.6 772.6 772.6 II. REVENUE AND OTHER RESERVES Opening Balance 826.2 826.2 677.3 Add : Transfer from Profit and Loss account - - 149.2 Adjustments during the year - - (0.3) 826.2 826.2 826.2 III. BALANCE IN PROFIT AND LOSS ACCOUNT (1,188.8) (1,201.9) 0.1 IV. SECURITIES PREMIUM ACCOUNT Opening Balance 5,634.7 5,639.6 2,050.3 Additions during the year (net of share issue expenses) - (4.9) 3,589.3 5,634.7 5,634.7 5,639.6 V. CAPITAL RESERVES Opening Balance 339.6 296.7 296.3 Add : Transfer from Profit and Loss Account 13.1 45.7 2.3

Less: Due to Depreciation of Revalued Premises (2.7) (2.8) (1.9) 350.0 339.6 296.7 VI. SPECIAL RESERVE U/s.36(1)(viii) OF INCOME TAX ACT, 1961 Opening Balance 59.9 59.9 41.3 Add: Transfer from Profit and Loss account - - 18.6 59.9 59.9 59.9 Total 6,454.6 6,431.1 7,595.0

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(Rupees in millions) As at As at As at March 31,2013 March 31,2012 March 31,2011 SCHEDULE-3-DEPOSITS

A. I. Demand Deposits (i) From Banks 85.6 342.4 1.1 (ii) From Others 9,387.3 8,300.2 15,310.8 9,472.9 8,642.6 15,311.9 II. Savings Bank Deposits 15,687.2 14,197.5 13,380.2 III. Term Deposits (i) From Banks 6,997.1 15,464.1 9,602.7 (ii) From Others 79,864.1 79,739.9 87,001.5 86,861.2 95,204.0 96,604.2 Total 112,021.3 118,044.1 125,296.3

B. I. Deposits of Branches in India 112,021.3 118,044.1 125,296.3 II. Deposits of Branches outside India - - - Total 112,021.3 118,044.1 125,296.3

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(Rupees in millions) As at As at As at March 31,2013 March 31,2012 March 31,2011 SCHEDULE 4 - BORROWINGS

I. Borrowings in India (i) Reserve Bank of India 7,829.5 7,979.8 3,790.0 (ii) Other Banks - - - (iii) Other Institutions and Agencies 3,105.1 4,551.1 426.1 10,934.6 12,530.9 4,216.1 II. Tier II bonds in India Upper Tier II bonds 275.0 275.0 275.0 Lower Tier II bonds 2,947.0 1,870.0 1,770.0 3,222.0 2,145.0 2,045.0 III. Borrowings Outside India # 1,764.3 2,539.2 - 1,764.3 2,539.2 - # Book credit balances in foreign currency mirror accounts Total 15,920.9 17,215.1 6,261.1

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(Rupees in millions) As at As at As at March March 31,2013 March 31,2012 31,2011 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. Bills Payable 458.7 480.1 562.7 II. Interest accrued 687.2 2,172.9 1,478.1 III. Unsecured Redeemable Bonds# - - - IV. Others (including Provisions) 1,446.8 1,570.2 636.9 Total 2,592.7 4,223.2 2,677.7

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(Rupees in millions) As at As at As at March March 31,2013 March 31,2012 31,2011 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. Cash on Hand (including foreign currency notes) 1,801.4 1,575.0 1,486.8 II. Balances with Reserve Bank of India (a) In current accounts 3,296.6 7,104.5 6,541.2 (b) In other accounts - - - 3,296.6 7104.5 6541.2 Total 5,098.0 8,679.5 8,028.0

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(Rupees in Millions) As at As at As at March 31,2013 March 31,2012 March 31,2011 SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India (i) Balances with Banks : (a). In current accounts 559.1 544.1 307.8 (b). In other deposit accounts 1,964.2 37.1 822.5 2,523.3 581.2 1130.3 (ii) Money at Call & Short Notice (a). With banks - - - (b). With other institutions ------2523.3 581.2 1,130.3 II. Outside India (a). In current account - - 193.3 (b). In other deposit accounts - - - - - 193.3 Total 2,523.3 581.2 1,323.6

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(Rupees in Millions) As at As at As at March 31,2013 March 31,2012 March 31,2011 SCHEDULE 8 - INVESTMENTS A. Investments in India in (i) Government Securities 43,554.1 41,636.7 33,081.1 (ii) Approved securities 0.0 0.2 1.2 (iii) Shares 33.1 58.0 19.6 (iv) Debentures and Bonds 1,032.7 802.7 608.7 (v) Subsidiaries/Joint Ventures - - - (vi) Others 2,225.0 1,104.0 2,686.2 Total 46,844.9 43,601.6 36,396.8

B. Investments outside India - - - 46,844.9 43,601.6 36,396.8 (i) Gross Value of Investments (a) In India 47,048.8 43,765.5 36,489.1 (b) Outside India - - - 47,048.8 43,765.5 36,489.1 (ii) Provision for Depreciation (a) In India 203.9 163.9 92.3 (b) Outside India - - - 203.9 163.9 92.3 (iii) Net Value of Investments (a) In India 46,844.9 43,601.6 36,396.8 (b) Outside India - Total 46,844.9 43,601.6 36,396.8

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(Rupees in Millions) As at As at As at March March 31,2013 March 31,2012 31,2011 SCHEDULE 9 - ADVANCES

A (i) Bills Purchased and discounted 1,354.4 2,351.9 11,526.8 (ii) Cash Credits, Overdrafts and Loans repayable on Demand 16,317.3 15,088.8 11,203.7 (iii) Term Loans 60,098.9 70,139.8 67,921.0 Total 77,770.6 87,580.5 90,651.5

B (i) Secured by Tangible assets 69,926.4 76,124.1 79,519.1 (ii) Covered by Bank/Govt Guarantee 248.5 2,335.3 365.6 (iii) Unsecured 7,595.7 9,121.1 10,766.8 Total 77,770.6 87,580.5 90,651.5

C . I. ADVANCES IN INDIA (i) Priority sectors 22,499.2 28,103.4 25,652.4 (ii) Public Sector 364.0 174.5 2,108.7 (iii) Banks 33.0 0.4 - (iv) Others 54,874.4 59,302.2 62,890.4 Total 77,770.6 87,580.5 90,651.5 II ADVANCES OUTSIDE INDIA - - - Total 77,770.6 87,580.5 90,651.5

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(Rupees in Millions) As at As at As at March March 31,2013 March 31,2012 31,2011 SCHEDULE 10 - FIXED ASSETS A. Premises At cost as per last Balance sheet 349.2 352.4 349.2 Additions during the year due to revaluation of Premises - - - Additions/Adjustments during the year 18.5 2.7 3.6 Deductions during the year ( 30.8 ) (5.8) (0.4) Depreciation to date ( 94.6) (94.8) (86.5) Net Block 242.3 254.5 265.9

B. Other Fixed Assets (includes Furniture and Fixture and Computers) At cost as per last Balance sheet 2,157.5 1,739.9 999.5 Additions/Adjustments during the year 212.2 455.5 810.1 Deductions during the year ( 52.4) (38.0) (69.7) Depreciation to date (1,306.2) (1,017.9) (755.8) 1,011.1 1,139.5 984.1 Capital Work In progress 104.2 92.9 93.6 Net Block 1,357.6 1,486.9 1,343.6

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(Rupees in Millions) As at As at As at March March 31,2013 March 31,2012 31,2011 SCHEDULE 11 - OTHER ASSETS I. Interest Accrued 1,650.8 1,548.5 945.6 II. Inter Office Adjustments (Net) 5.3 10.2 101.6 III. Tax paid in advance and Tax Deducted at Source (net of provisions) 742.7 755.6 477.7 IV. Deferred Tax Asset 400.5 132.2 143.3 V. Stationery and stamps 9.2 5.8 1.2 VI. Non Banking Assets acquired in satisfaction of claims 0.5 0.5 0.5 VII. Others 1,791.5 2,382.4 3,268.1 Total 4,600.5 4,835.2 4,938.0

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(Rupees in Millions) As at As at As at March March 31,2013 March 31,2012 31,2011 SCHEDULE 12 - CONTINGENT LIABILITIES I. Claims against the bank not acknowledged as debts 40.5 39.4 24.6 II. Liabilities on account of outstanding forward exchange contracts 4,390.8 20,149.8 27,832.8 III. Guarantees given on behalf of constituents in India 3,491.2 5,384.2 3,356.9 IV. Acceptance endorsements and other obligations 1,027.1 1,182.3 585.9 V. Liability on account of interest rate swaps 1,500.0 6,500.0 - VI. Other items for which Bank is contingently liable # 359.9 359.9 708.3 #(Disputed Income Tax Liability) Total 10,809.5 33,615.6 32,508.5

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(Rupees in Millions) Year ended Year ended Year ended March 31, March 31, March 31, 2013 2012 2011 SCHEDULE 13 - I N T E R E S T E A R N E D I. Interest/Discount on Advances/bills 9,715.1 10,753.9 6991.0 II. Income on Investments 3,251.0 3,135.8 2,017.3 III. Interest on balance with RBI/other inter Bank funds 77.2 43.6 55.9 IV. Others 36.7 3.2 - Total 13,080.0 13,936.5 9,064.2

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(Rupees in Millions) Year ended Year ended Year ended March 31, March 31, March 31, 2013 2012 2011 SCHEDULE 14 - O T H E R I N C O M E I. Commission, Exchange and Brokerage 88.4 85.0 87.2 II. Profit/(Loss) on sale of Investments (Net) 247.9 88.7 96.8 III. Profit on sale of land, building and other Assets (Net) 4.0 10.5 5.2 IV. Profit on exchange transactions (Net) 79.8 118.8 56.6 V. Income from Insurance 44.3 82.9 66.1 VI. Miscellaneous Income 678.6 1,050.5 1,155.8 Total 1,143.0 1,436.4 1,467.7

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(Rupees in Millions) Year ended Year ended Year ended March 31, March 31, March 31, 2013 2012 2011 SCHEDULE 15 - INTEREST EXPENDED I. Interest on Deposits 9,161.4 10,155.9 5,842.4 II. Interest on RBI/Inter Bank Borrowing 419.9 851.2 327.4 III. Others 734.5 454.2 243.1 Total 10,315.8 11,461.3 6,412.9

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Year ended Year ended Year ended March 31, March 31, March 31, 2013 2012 2011 SCHEDULE 16 - OPERATING EXPENSES I. Payments to and Provisions for Employees 1,867.6 2,739.6 2,014.6 II. Rent, Taxes and Lighting 450.7 402.1 459.2 III. Printing and Stationery 23.0 63.0 51.4 IV. Advertisement and Publicity 5.1 108.3 60.6 V. Depreciation to Banks property 309.6 294.7 155.9 VI. Directors Fee, Allowance and Expense 2.1 2.3 2.9 VII. Auditors Fee and Expense (including Branch Auditors) 10.4 9.5 5.8 VIII. Law charges 7.9 6.4 3.0 IX. Postages, Telegrams, Telephones etc 103.9 156.9 122.3 X. Repairs and Maintenance 31.7 33.3 20.9 XI. Insurance 114.1 146.3 79.1 XII. Other Expenditure 467.1 927.2 469.0 Total 3,393.2 4,889.6 3,444.7

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SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES AND NOTE FORMING PART OF THE REFORMATTED FINANCIAL STATEMENTS FOR THE LAST THREE REPORTING YEARS

BACK GROUND

Dhanlaxmi Bank Limited was incorporated in November 1927 at Thrissur, in Kerala by a group of ambitious entrepreneurs. Dhanlaxmi bank is a publicly held banking company engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. Dhanlaxmi bank is a banking company governed by The Banking Regulation Act, 1949. It became a scheduled commercial bank since 1977.

BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements requires the management to make estimates and assumptions considered in 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.

PRINCIPAL ACCOUNTING POLICIES

1. REVENUE RECOGNITION • Items of income and expenditure are accounted for on accrual basis, except as stated hereunder: o Interest / Discount on loans & advances / Bills is recognized on 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.

o Rent on safe deposit lockers, dividends, depository participant business etc. are accounted for on cash basis. • Loan processing fee on retail assets is accounted for upfront when it becomes due. Loan processing fees for buyout/other loans would be recognized over the period of tenor of the loan on constant yield basis. Service charges to be paid on buyout loans would be recognized as and when due. • Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee. • Interest on income tax refunds is accounted in the year in which the same is received / adjusted by the income tax department. • The Bank imports Bullion on consignment basis and sells it to the customers. The Profit & Loss on sale is arrived after reducing all the direct and indirect costs. • 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 recognised in Profit and Loss Account when realized. • 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.

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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. 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 short fall / loss on account of sale of other non-performing Assets. o At the end of each reporting year, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts are limited to the actuarial realization of the financial assets assigned to the instruments in the concerned scheme, the bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting year end. The cash consideration received in respect of accounts written off shall be credited to Profit and Loss Account and the value of Security Receipts shall be classified under investments and the corresponding provision shall be retained. • All income other than the transactions specified above are accounted on proportionate basis over the period of the contract.

2. Investments

Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation as mentioned below: a) Classification

Investments that are held principally for resale within 90 days from the date of purchase are classified under “Held for Trading” category.

Investments which the Bank intends to hold till maturity are classified as HTM securities.

Investments which are not classified in the above categories are classified under “Available for Sale” category. c) Acquisition Cost

In determining acquisition cost of an investment:

• Brokerage, Commission, etc. paid at the time of acquisition, are charged to revenue at the time of settlement. • Broken period interest (the amount of interest from the previous interest payment date till the date of purchase/sale of instruments) on debt instruments is treated as a revenue item. • Cost of investments is based on the following basis: o Held to Maturity – Weighted Average o Held for Trading – Weighted Average o Available for sale – Weighted Average d) Valuation of Investments is done as under

• Held to Maturity: ‘Held to Maturity’ securities are carried at their acquisition cost or at amortized cost, if acquired at a premium over the face value. Any premium over the face value of fixed rate and floating rate securities acquired is amortized over the remaining period to maturity on a constant yield basis. • ‘Available for Sale’ and ‘Held for Trading’ securities are valued periodically as per RBI guidelines. Quoted investments are valued based on the trades/quotes on the recognized stock

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exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association (FIMMDA), periodically.

The market/fair value of unquoted government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the ‘Available for Sale’ and ‘Held for Trading’ categories is as per the rates published by FIMMDA. The valuation of other unquoted fixed income securities wherever linked to the Yield- to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for government securities published by FIMMDA.

Unquoted equity shares are valued as per the RBI guidelines which are presently at the break-up value, if the latest balance sheet is available, or at `1, per company.

Investment valuation norms for various categories is as given in table below:

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 Quoted : Valued as per currently traded quotes on the stock exchange. Unquoted : 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

Non-performing investments are identified and depreciation/provision is made thereon based on the RBI guidelines. The depreciation / provision is not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit or Loss Account until received. e) Sale of Investments

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.

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In respect of repo transactions under Liquidity Adjustment Facility (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.

3. 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 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.

The Bank buys loans through the direct assignment route. In respect of direct assignment, where the purchase consideration is higher than the principal amount of the portfolio, the resultant additional upfront amount is classified as ‘Other assets’ which will amortize during the life of the advances on constant yield basis. In other cases, these are accounted at the deal value .

4. FIXED ASSETS AND DEPRECIATION

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:

Particulars Rate of Depreciation Owned Premises 5.00% per annum Office Equipment 18.10% per annum Motor Cars 25.89% per annum Electrical Items 13.91% Items (Excluding staff assets) costing less than Fully depreciated in the year of purchase Rs.5000/- Computer Hardware expenditure 33.33% per annum on Straight Line Basis Computer software and system development 20.00% per annum on Straight Line Basis expenditure All other assets As per the rates specified in schedule XIV of the Companies Act,1956

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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 5 year.

For assets purchased and sold during the year, depreciation is provided on pro rata basis by the Bank.

5. IMPAIRMENT OF ASSETS

6. 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/ amortized over the period of the transactions.

7. EMPLOYEE STOCK OPTION SCHEME (“ESOS”)

Dhanlaxmi Bank Limited Employees Stock Option Scheme, 2009 (“ESOS 2009”) 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. Compensation cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. The fair market price is the latest closing price, immediately prior to the date of the Board of Directors meeting in which the options are granted, on the stock exchange on which the shares of the Bank are listed. In this regard the Bank has complied with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) guidelines, 1999.

8. EMPLOYEE BENEFIT

The defined employee benefit schemes are as under:-

• Provident Fund

The contribution as required by the statute is made to the Staff PF 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 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 and certificate issued by independent actuary.

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• 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 and certificate issued by independent actuary.

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

11. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Contingent Assets, if any, are not recognized in the financial statements since this may result in the recognition of income that may never be realized.

12. EARNINGS PER SHARE

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 17, Segment Reporting issued by ICAI.

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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. Unallocated segment includes all other operations not covered under Treasury, Wholesale Banking and Retail banking segments.

Secondary Segments: Geographical segments

Since the Bank is having domestic operations only, no reporting does arise under this segment.

SCHEDULE 18 - NOTES APPENDED TO AND FORMING PART OF THE REFORMATTED FINANCIAL STATEMENTS FOR LAST THREE REPORTING YEARS

1. Capital commitments Rs. 95.1 million (Previous Year 2012: Rs 71.9 million; 2011 Rs. 24..9 millions).

2. a) Provisions & Contingencies Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Provision for depreciation on Investments 35.1 75.6 64.3 Provision for Standard Assets (63.9) 4.2 146.1 Provision for fraud 4.6 1.1 - Provision for OIS MTM Loss 2.4 - - Provision for NPA (including Bad Debts written off 739.5 86.2 63.3 & write back) Provision for Non Performing Investments - (4.1) - Provision for Income Tax, Wealth Tax, FBT 0.3 0.5 166.2 etc. Deferred Tax Asset/Liability (259.1) 11.1 (29.6) Provision for diminution in value of Restructured 28.9 3.7 3.4 Accounts Total 487.8 178.2 413.7

b) Floating Provisions Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 (a) Opening balance in the floating provisions 20.0 20.0 20.0 account (b) Additional provisions made - - - during the accounting year (c) Amount of draw down made during the - - - accounting year (d) Closing balance 20.0 20.0 20.0

3. CAPITAL ADEQUACY Rupees in Millions Sl Items 31.03.2013 31.03.2012 31.03.2011 No Basel Basel I Basel II Basel I Basel II Basel I II (i) CRAR (%) 9.89 11.06 8.79 9.49 10.81 11.80 CRAR-Tier I Capital 9.41 (ii) 7.20 8.05 6.88 7.42 8.62 (%) (iii) CRAR-Tier II Capital 2.69 3.01 1.91 2.07 2.19 2.39

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(%) Percentage of the shareholding of the (iv) ------Government of India in nationalized Banks Amount of Subordinated debt (v) raised 1077.0 1077.0 100.0 100.0 275.0 275.0 as Tier-II capital (Rs in millions) Amount raised by issue -- (vi) ------of IPDI Amount raised by issue -- (vii) of Upper Tier II ------instruments

4. INVESTMENTS Rupees in Millions ITEMS 31.03.2013 31.03.2012 31.03.2011 (1) Value of Investments (i) Gross Value of Investments (a) In India 47,048.8 43,765.5 36,489.1 (b) Outside India, - - - (ii) Provisions for Depreciation on

Investments (a) In India 203.9 163.90 92.3 (b) Outside India, - - - (iii) Net Value of Investments (a) In India 46,844.9 43,601.6 36,396.8 (b) Outside India, - - - (2) Movement of provisions held

towards depreciation on investments. (i) Opening balance 163.9 92.3 81.1 (ii) Add: Provisions made during the year 75.1 71.6 11.2 (iii) Less: (Write-off/write-back of excess 35.1 - - provisions during the year) (iv) Closing Balance 203.9 163.9 92.3

5. REPO TRANSACTIONS Rupees in Millions Minimum outstanding during Maximum outstanding Daily Average As on As on As on Particulars the during the year ended Outstanding during the March March March year ended March 31 year ended 31, 31, 31, March 31 March 31 2013 2012 2011

2013 2012 2011 2013 2012 2011 2013 2012 2011 Securities sold under repos (i)Government Securities 250.0 200.0 150.0 9,250.0 17,200.0 7,150.0 2,461.1 9,031.2 3,080.0 7500.0 7,250.0 3,750.0 (ii)Corporate Debt Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Securities Securities purchased under reverse repos

(i)Government Securities 300.0 500.0 - 1,750.0 4,250.0 - 18.2 1,936.4 - 1750.0 - (ii)Corporate Debt Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Securities

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6. NON-SLR INVESTMENT PORTFOLIO

a) Issuer wise composition of Non SLR investments

31.03.2013 Rupees in Millions S. Issuer Amount Extent Extent of Extent of Extent of No of ‘Below ‘Unrated’ ‘Unlisted’ Private Investment Securities Securities Grade’ Placement Securities (i) Public Sector Units 91.4 91.4 - - - (ii) Financial - - - - - Institutions (iii Banks - - - - - (iv) Private Corporate 1080.6 200.0 13.4 13.1 1087.6 (v) Subsidiaries/ Joint - - - - - Ventures (vi) Others(Security and 368.3 368.3 - - - PTC) (vii) Provision held (160.0) (153.3) - (13.4) (13.1) towards Depreciation and NPI Total 1387.3 1387.1 200.0 0.0 0.0

The above composition of Non-SLR Investments excludes RIDF/RHF/MSME deposits of `1,903.5 million and LAF lending of `1,750.0 million.

31.03.2012 Rupees in Millions S. Issuer Amount Extent Extent of Extent of Extent of No of ‘Below ‘Unrated’ ‘Unlisted’ Private Investment Securities Securities Grade’ Placement Securities (i) Public Sector Units 91.4 91.4 - - - (ii) Financial - - - - - Institutions (iii Banks 20.0 20.0 20.0 (iv) Private Corporate 842.6 835.6 200.0 13.4 13.1 (v) Subsidiaries/ Joint - - - - - Ventures (vi) Others 2,34.6 2,34.6 - - - (vii) Provision held - - - - - towards depreciation Total 1,188.6 1,181.6 220.0 13.4 13.1

31.03.2011 Rupees in Millions S. Issuer Amount Extent Extent of Extent of Extent of No of ‘Below ‘Unrated’ ‘Unlisted’ Private Investment Securities Securities Grade’ Placement Securities (i) Public Sector Units 91.4 91.4 - - - (ii) Financial - - - - - Institutions (iii Banks 1,505.5 1,505.5 0.2 - - (iv) Private Corporate 571.4 538.5 135.9 135.9 13.1 (v) Subsidiaries/ Joint - - - - - Ventures

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(vi) Others - - - - - (vii) Provision held - - - - - towards depreciation Total 2,168.3 2,135.4 136.1 135.9 13.1

b) Non Performing Non-SLR Investments Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Opening balance 70.4 74.4 74.4 Additions during the year - - - Reductions during the year 0.9 4.0 - Closing balance 69.5 70.4 74.4 Total provisions held 69.5 70.4 74.4

Sale and Transfers to / from HTM Category During the F Y 2012-13, the value of sales and transfers of securities (excluding one time transfer as permitted by RBI) to / from HTM category does not exceed 5% of the book value of investments held in HTM category at the beginning of the year. The details of HTM category is mentioned hereunder:

Details of HTM Category during the F Y 2012-13

Particulars of period, value Sales in Regular Market attracting 5% Profit Booked Date of sale & Security Details Cap

FV(Rs Sale Rs. In B.V Amount Sub Total for Quarter Value Name in Cr) Cr(FV*Price) Rs in in Rs. Ps the Quarter Amt Date of of Cr in Rs Ps sale security

8.13% 100.00 100.80 99.49 1.31 1.31 Jan 13 11/01/2013 GOI 21-09- 2022

100.00 100.80 99.49 1.31 1.31 Total

Sale in terms of % to 3.55 31/03/2013 Position

HTM Position as on 31/03/2012 2011-12

Total 2,813.56

5% of 31/03/2012 Position 140.68

7. DERIVATIVES

Forward Rate Agreement/ Interest Rate Swap Rupees in Millions

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Particulars March 31, March 31, March 31, 2013 2012 2011 i) The notional principal of swap agreements 1500.0 6500.0 -- ii) Losses which would be incurred if counterparties failed to 6.7 25.7 -- fulfill their obligations under the agreements iii) Collateral required by the bank upon entering into swaps ------iv) Concentration of credit risk arising from the swaps 6.7 18.9 -- v) Fair Value of swap book 1497.6 6,497.7 --

Exchange Traded Interest Rate Derivatives Rupees in Millions Sr.No. Particulars March 31, March 31, March 31, 2013 2012 2011 (i) Notional principal amount of exchange traded ------interest rate derivatives undertaken during the year (instrument-wise) (ii) Notional principal amount of exchange traded ------interest rate derivatives outstanding (Instrument- wise)

(iii) Notional principal amount of exchange traded ------interest rate derivatives outstanding and not "highly effective" (Instrument- wise) (iv) Mark-to-market value of exchange traded interest ------rate derivatives outstanding and not "highly effective" (Instrument- wise)

Disclosures on risk exposure in derivatives

Qualitative Disclosure

Bank discusses its risk management policies pertaining to derivatives with particular reference to the extent to which derivatives are used, the associated risks and business purposes served. The discussion includes:

(a) the structure and organization for management of risk in derivatives trading ; (b) the scope and nature of risk measurement, risk reporting and risk monitoring systems; (c) policies for hedging and/ or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants; and (d) accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation.

Quantitative Disclosures Rupees in Millions Interest rate Sr. Currency Particular derivatives No Derivatives

(i) Derivatives (Notional Principal Amount) - - a) For hedging - - b) For trading - 1,500.0 (ii) Marked to Market Positions [1] - 1,497.6 a) Asset (+) - -

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b) Liability (-) - - (iii) Credit Exposure [2] - 6.7 (iv) Likely impact of one percentage change in interest rate - - (100*PV01)

a) on hedging derivatives - 1308.2 b) on trading derivatives

(v) Maximum and Minimum of 100*PV01 observed during the - - year

a) on hedging - -

b) on trading - Maximum - 0.3 Minimum - 0.1

8. 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 during the FY 2010. The balance amount of Rs.12.2 Million has been shown as receivables and clubbed under the head “Advances” during 2010.The amount of Rs.12.2Million was received from RBI during 2010-11 and hence receivable from RBI in this regard as at March 31,2011 is Nil.

The position with reference to Agricultural Debt Relief Scheme is as under:

Claim pertaining to Debt Relief arising till December 31,2009 was Rs.1.5 Million which has shown as Receivable from Government of India under Agricultural Debt Relief Scheme 2008 received from RBI during 2010-11. Additional claim amount of Rs.0.22Million pertaining to the extended period of the Debt Relief Scheme from January 1, 2010 to June 30, 2010 is due from Government of India under Agricultural Debt Relief Scheme 2008(clubbed under head advances)was also received from RBI during 2011-12 and receivable from RBI in this regard is ` NIL.

ii) Non-Performing Asset

Rupees in Millions Items 31.03.2013 31.03.2012 31.03.2011 (i) Net NPAs to Net Advances (%) 3.36 0.66 0.30 (ii) Movement of NPAs (Gross) (a) Opening balance 1042.7 670.9 775.0 (b) Additions during the year 5047.8 918.2 411.3 (c) Reductions during the year 2287.8 546.4 515.4 (d) Closing balance 3802.7 1,042.7 670.9 (iii) Movement of Net NPAs (a) Opening balance 580.0 274.7 419.4 (b) Additions during the year 4267.3 702.8 370.8 (c) Reductions during the year 2008.5 382.6 519.0 (d) ECGC Collection - 2.8 3.5 (e) Floating Provision 228.6 17.7 - (f) Closing balance 2610.2 580.0 274.7 (iv) Movement of provisions for NPAs (excluding provisions on standard assets) (a) Opening balance 460.3 391.0 346.9 (b) Provisions made during the year 1003.0 233.1 159.1 (c) Write-off/ write-back of excess 273.2 163.8 115.0

218 provisions (d) Closing balance 1190.1 460.3 391.0

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i. Details of Loan Assets subjected to Restructuring as on March 31, 2013 (Rs in million)

S Type of Restructuring Under CDR Mechanism Under SME Debt Restructuring Mechanism Others Total l N o Asset Classification Standa Sub- D Loss Total Standard Sub- Do Loss Tot Standar Sub- Doubt Loss Total Standar Sub- Dou Loss Total Details rd Stand ou Standa ubt al d Standa ful d Standa btful ard bt rd ful rd rd fu l 1 Restructured No. of 3 0 0 0 3 5 0 1 0 6 10490 1 1 2 10494 1,0498 1 2 2 10,503 Accounts as on Borrowers April 1 of the Amount 115.5 0 0 0 115.5 159.0 0 4.2 0 163 1483.2 546.6 66.9 13.0 2109.5 1,757.7 546.6 71.2 12.9 2,388.4 FY(opening Outstandin .2 figs) g Provision 3.5 0 0 0 3.5 1.7 0 1.1 0 2.8 41.2 79.2 27.7 11.1 159.2 46.4 79.2 28.8 11.1 165.5 thereon Fresh No. of 0 0 0 0 0 1 0 1 0 2 10490 1 0 0 10491 1,0491 1 1 0 10,493 2 Restructuring Borrowers during the year Amount 0 0 0 0 0 0.9 0 4.2 0 5.1 1483.2 546.6 0 0 2029.7 1,484.1 546.6 4.2 0.0 2,034.9 Outstandin g Provision 0 0 0 0 0 0.1 0 1.1 0 1.2 41.2 79.2 0 0 120.4 41.3 79.2 1.1 0 121.6 thereon 3 Upgradations No. of 0 0 0 0 0 1 0 0 0 1 0 0 0 0 0 1 0 0 0 1 to restructured Borrowers standard Amount 0 0 0 0 0 17.2 0 0 0 17. 0 0 0 0 0 17.2 0 0 0 17.2 category during Outstandin 2 the FY g Provision 0 0 0 0 0 0.3 0 0 0 0.3 0 0 0 0 0 0.3 0 0 0 0.3 thereon 4 Restructured No. of 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 standard Borrowers advances Amount 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 which cease to Outstandin attract higher g provisioning Provision 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 and/ or thereon additional risk weight at the end of the FY and hence need not be shown as restructured standard

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advances at the beginning of the next FY Downgradation No. of 0 0 0 0 0 0 1 0 0 1 0 0 0 0 0 0 1 0 0 1 5 s of Borrowers restructured Amount 0 0 0 0 0 0 0 0 546 0 0 0 0 0 0 546.6 0 0 546.6 accounts Outstandin 546.6 .6 during the FY g Provision 0 0 0 0 0 0 79.2 0 0 79. 0 0 0 0 0 0 79.2 0 0 79.2 thereon 2

6 Write-offs of No. of 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 restructured Borrowers accounts Amount 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 during the FY Outstandin g Provision 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 thereon 7 Restructured No. of 3 0 0 0 3 5 0 1 0 6 10490 1 1 2 10494 10498 1 2 2 1 ,0503 accounts as on Borrowers March 31 of Amount 115.5 0 0 0 115.5 159.0 0 4.2 0 163 1483.2 546.6 66.9 13.0 2112.5 1,757.7 546.6 71.2 12.9 2,388.4 the FY (closing Outstandin .2 figures*) g Provision 3.5 0 0 0 3.5 1.7 0 1.1 0 2.8 41.2 79.2 27.7 11.1 159.2 46.4 79.2 28.8 11.1 165.5 thereon

221 ii. Details of Loan Assets subjected to Restructuring for the year ended 31.3.2012

Rupees in Millions (except for no. of borrowers) Particulars CDR SME Debt Others Mechanism Restructuring Standard Number of 3 1 Nil advances Borrowers Amount 129.8 0.5 Nil outstanding Sacrifice 0.3 0.1 Nil (Diminution in the fair value) Sub standard Number of Nil Nil Nil advances Borrowers restructured Amount Nil Nil Nil outstanding Sacrifice Nil (Diminution in Nil Nil the fair value) Doubtful Number of Nil Nil Nil advances Borrowers restructured Amount Nil Nil Nil outstanding Sacrifice Nil (Diminution in Nil Nil the fair value) Total Number of 3 1 Nil Borrowers Amount 129.8 0.5 Nil outstanding Sacrifice 0.3 0.1 Nil (Diminution in the fair value)

Sacrifice for 1.04.2011 to 31.03.2012 to be provided : Rs. 0.3 Millions iii. Details of Loan Assets subjected to Restructuring for the year ended 31.3.2011

Rupees in Millions (except for no. of borrowers) Particulars CDR SME Debt Others Mechanism Restructuring Standard Number of 1 Nil 1 advances Borrowers Amount 48.6 Nil 1.1 outstanding Sacrifice 3.4 Nil 0.6 (Diminution in the fair value) Sub standard Number of Nil Nil Nil advances Borrowers restructured Amount Nil Nil Nil outstanding Sacrifice (Diminution in Nil Nil Nil the fair value) Doubtful Number of Nil Nil Nil advances Borrowers restructured Amount Nil Nil Nil outstanding Sacrifice Nil (Diminution in Nil Nil the fair value)

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Total Number of 1 1 Nil Borrowers Amount 48.6 1.1 Nil outstanding Sacrifice (Diminution in 3.4 Nil 0.6 the fair value)

Sacrifice for 1.04.2010 to 31.03.2011 to be provided : Rs. 3.5 Millions

iii) Details of financial assets sold to Securitisation / Reconstruction Company:

Rupees in Millions (except no. of accounts) Sl. Item 31.03.2013 31.03.2012 31.03.2011 No. (i) Number of accounts - - - (ii) Aggregate value (net of provisions) of - - - accounts sold to SC/RC (iii) Aggregate consideration - - - (iv) Additional consideration realized in - - - respect of accounts transferred in earlier years (v) Aggregate gain/loss over net book value. - - -

iv) Details of non-performing financial assets purchased/sold:

A. Details of non-performing financial assets purchased : Rupees in Millions Particulars March 31, 2013 March 31, 2012 March 31, 2011

1. (a) No. of accounts purchased during the year - - -

(b) Aggregate outstanding - - -

2. (a) Of these, number of accounts restructured - - - during the year (b) Aggregate outstanding - - -

B. Details of non-performing financial assets sold: Rupeess in Millions Particulars March 31, 2013 March 31, 2012 March 31, 2011

1. No. of accounts sold - - -

2. Aggregate outstanding - - -

3. Aggregate consideration received - - -

v) Provisions on Standard Assets Rupeess in Millions Item 31.03.2013 31.03.2012 31.03.2011 Provisions towards Standard Assets 277.6 341.5 337.3

vi) Unsecured advances against intangible assets:

As at March 31, 2011,2012 and 2013, the amount of unsecured advances against intangible assets was Rs. Nil and the estimated value of the intangible collaterals was Rs. Nil.

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9. BUSINESS RATIO

Sr. March 31,2013 March 31, 2012 March 31, 2011 Items No. (i) Interest Income as a percentage to Working 9.90 8.78 8.09 Funds (%) (ii) Non-interest income as a percentage to 0.87 0.90 1.31 Working Funds (%) (iii) Operating Profit as a percentage to Working 0.39 (0.62) 0.60 Funds (%) (iv) Retur n on Assets 0.02 (0.73) 0.23 (%) (v) Business (Deposits plus advances) per 73.0 59.3 58.9 employee – Rs in millions (vi) Profit/(Loss) per employee - Rupees in 0.01 (0.3) 0.07 Million

Provision Coverage Ratio (PCR)

The PCR (ratio of provisioning of Gross non-performing assets)

Particulars March 31,2013 March 31, 2012 March 31, 2011 Provision Coverage Ratio 31.78% 45.59% 60.51%

10. ASSET LIABILITY MANAGEMENT

Maturity Pattern of certain items of assets and liabilities

Position as at 31 st March, 2011

Rupees in Millions

Due within Advances Investments Foreign currency Deposits Borrowings Assets Liabilities Day 1 771.0 - 642.3 970.7 434.6 - 2 to 7 Days 1,031.4 - 470.6 14.4 4,411.9 3,750.0 8 to 14 days 1,179.6 - 27.0 15.6 3,779.3 - 15 to 28 days 2,036.6 2,322.6 131.0 82.8 8,094.4 - 29 days upto 3 months 7,410.8 1,963.1 3,002.1 2,797.6 27,785.6 29.0 Over 3 months and upto 6 months 8,550.9 2,515.3 2,676.5 2,750.1 14,437.0 80.0 Over 6 months and upto 1 year 19,013.2 1,176.2 7,300.3 7,435.8 23,880.5 91.0 Over 1 year and upto 3 years 27,081.4 786.5 - 110.3 40,965.5 483.0 Over 3 years and upto 5 years 13,936.4 1,940.4 - 58.6 1,260.1 1,553.1 Over 5 years 9,640.2 257,85.0 - 9.7 247.4 275.0 Total 90,651.5 36,489.1 14,249.8 14,245.6 125,296.3 6,261.1

Position as at March 31, 2012 Rupees in Millions

Due within Advances Investments Foreign currency Deposits Borrowings Assets Liabilities Day 1 2,425.3 - 895.3 310.6 917.4 181.9 2 to 7 Days 2,701.8 3,322.5 589.6 972.0 5,219.3 7,849.7 8 to 14 days 1,133.7 1,363.7 83.8 54.0 41,63.4 -

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15 to 28 days 1,570.2 2,937.1 38.3 23.6 49,81.8 - 29 days upto 3 months 7,595.3 5,683.8 6,614.0 6,418.2 17,673.6 1,483.5 Over 3 months and upto 6 months 6,892.5 - 3,125.4 3,185.1 23,155.7 1,363.0 Over 6 months and upto 1 year 10,472.2 187.0 1,705.0 1,885.2 26,762.3 1,092.5 Over 1 year and upto 3 years 32,671.4 1,535.4 - 54.5 32,016.6 2,578.0 Over 3 years and upto 5 years 8,387.5 5,985.1 - 39.7 2,887.3 2,291.5 Over 5 years 13,730.6 22,750.9 6.4 - 266.7 375.0 Total 87580.5 43765.5 13,057.8 12,942.9 118,044.1 17,215.1

Position as at March 31, 2013 Rupees in Millions

Due within Advances Investments Foreign currency Deposits Borrowings Assets Liabilities Day 1 792.3 - 1,398.3 1,272.3 916.5 181.9 2 to 7 Days 1,372.9 2,451.6 696.8 890.9 2,468.4 7,500.0 8 to 14 days 1,321.1 1,291.2 81.6 18.5 2,893.6 - 15 to 28 days 846.0 726.3 6.9 0.7 2,421.5 - 29 days upto 3 months 6,610.7 2,269.9 1,086.4 1,071.2 13,426.5 678.6 Over 3 months and upto 6 months 7,847.3 398.2 751.4 558.6 13,182.8 1,485.6 Over 6 months and upto 1 year 12,538.7 174.1 792.9 720.7 29,302.9 1,408.0 Over 1 year and upto 3 years 28,828.6 2,373.3 - 114.0 43,409.7 2,828.3 Over 3 years and upto 5 years 8,120.9 6,773.4 - 10.6 3,751.7 386.5 Over 5 years 9,492.1 30,590.8 - 4.0 247.7 1,452.0 Total 77,770.6 47,048.8 4,814.3 4,661.5 112,021.3 15,920.9

11. LENDING TO SENSITIVE SECTOR

i) Exposure to Real Estate Sector Rupees in Millions Category March 31, March 31, March 31, 2013 2012 2011 a) Direct exposure (i) Residential Mortgages – Lending fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented; (A) 2,593.4 3,732.9 5,161.7 Of which individual housing loans up to ` 2 million for FY 13, 885.6 6,51.6 1,153.7 `1.5 million for FY 12 and FY 11 (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 2,734.6 4,512.5 3,967.4 acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits; (B)

(iii) Investments in Mortgage Backed Securities (MBS) and other securitized exposures –

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a. Residential, - - - b. Commercial Real Estate. - - - (iv) Other Direct Exposure (C) 6,863.7 10,369.8 - b) Indirect Exposure Fund based and non-fund based exposures on National Housing - - 1,729.9 Bank (NHB) and Housing Finance Companies (HFCs). (D)

Total Exposure to Real Estate Sector (A+B+C+D) 1,2191.7 18,615.2 10,859.0

ii) Exposure to Capital Market Rupees in Millions March 31, March 31, March 31, Particulars 2013 2012 2011 (i) direct investment in equity shares, convertible bonds, 132.9 137.9 142.0 convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt; (ii) advances against shares/bonds/debentures or other securities 2.7 14.0 9.2 or on clean basis to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds; (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 318.8 476.4 515.0 guarantees issued on behalf of stockbrokers and market makers; (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 ceilings (both direct and indirect) Total Exposure to Capital Market 454.4 628.3 666.2

12. RISK CATEGORY WISE COUNTRY EXPOSURE Rupees in Millions Risk Exposure Provision Exposure Provision Exposure Provision Category (net) as at held as at (net) as at held as at (net) as at held as at

Risk 31.03.2013 31.03.2013 31.03.2012 31.03.2012 31.03.2011 31.03.2011 Category Insignificant 217.6 - 168.6 - 375.8 -

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Low 0.4 - 0.8 - 1.3 - Moderate ------High ------Very High ------Restricted ------Off-credit ------Total 218.0 - 169.4 - 377.1 -

As the Bank’s exposure for the year in respect of risk Category-wise Country Exposure ( foreign Exchange Transactions) is less than 1% of total assets of the Bank, no provision is considered necessary.

13. DETAILS OF SINGLE BORROWER LIMIT, GROUP BORROWER LIMIT EXCEEDED BY THE BANK

The details of Single Borrower Limit exceeded by bank Rupees in Millions Sr.No Name of the borrower Year Year 2012 Year 2011 2013 Exposure Actual Nil Permissible Exposure Nil 1 Parekh Aluminex 1370.0 1420.0 2 Core Education & Technologies Ltd. 1370.0 1450.0

14. PROVISIONS Rupees in Millions Particulars March 2013 March 2012 March 2011 Income Tax - - 165.8 Wealth Tax 0.3 0.5 0.4 Fringe Benefit Tax - - - Deferred Tax (259.1) 11.1 (29.6)

15. No penalty has been imposed by RBI during FY2010-11 ,FY 2011-12 and FY 2012-2013

16. Disclosure for Customer Complaints/Unimplemented Awards of Banking Ombudsman Customer complaints :

Particulars 2012-2013 2011-2012 2010-2011 a. No of Complaints pending at the beginning of 28 21 12 the year b. No of complaints received during the year 8,686 696 286 c. No of complaints redressed during the year 8,697 707 277 d. No of Complaints pending at the end of the 17 10 21 year

Unimplemented awards of Banking Ombudsman

Particulars 2012-2013 2011-2012 2010-2011 a. No of unimplemented awards pending at the - - - beginning of the year b. No of Awards passed by the Banking 1 1 - Ombudsman during the year c. No of awards implemented during the year 1 1 - d. No of unimplemented awards during the year - - -

17. DISCLOSURE OF LETTER OF COMFORTS (LOCs) ISSUED BY THE BANK The Bank has not issued any Letter of Comfort during the years 2010-2011,2011-2012 and 2012-2013

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18. (I) CONCENTRATION OF DEPOSITS, ADVANCES, EXPOSURES AND NPAs

a) Concentration of Deposits Rupeess in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Total Deposits of twenty largest depositors 23262.8 26416.5 24185.2 Percentage of Deposits of twenty largest depositors to 22.41% 25.70% 19.30% Total Deposits of the Bank

b) Concentration of Advances Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Total Advances to twenty largest borrowers 13,988.9 14602.4 13942.6 Percentage of Advances to twenty largest borrowers 17.72% 16.53% 15.29% to Total Advances of the bank

c) Concentration of Exposures Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Total Exposure to twenty largest 16,284.7 18537.8 16770.0 borrowers/customers Percentage of Exposures to twenty largest Borrowers 20.62% 14.13% 13.25% / customers to Total Exposure of the bank on borrowers /customers

d) Concentration of NPAs Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Total Exposure to Top four NPA Accounts 1,648.3 208.2 115.0

II. SECTOR-WISE NPAs

Sector Percentage of NPAs to Total Advances in that Sector as on 31.03.2013 31.03.2012 31.03.2011 Agriculture & Allied activities 0.40% 1.15% 0.98% Industry (Micro and small, Medium and Large) 10.08% 1.23% 0.76% Services 5.99% 0.60% 0.59% Personal Loans 3.87% 2.41% 2.23%

III. MOVEMENT OF NPAs Rupees in Millions Particulars 2012-13 2011-2012 2010-2011 Opening Balance 1,042.7 670.9 775.0 Additions (Fresh NPAs) during the year 5,047.8 918.2 411.3 Sub-total (A) 6,090.5 1589.1 1186.3 Less:- (i) Up gradations 730.8 174.2 154.3 (ii) Recoveries (excluding recoveries made from 1,546.2 355.5 342.0 upgraded accounts) (iii) Write-offs 10.8 16.7 19.1 Sub-total (B) 2,287.8 546.4 515.4 Closing Balance(A-B) 3,802.7 1042.7 670.9

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I. OVERSEAS ASSETS, NPA AND REVENUE Rupees in Millions Particulars 31.03.2013 31.03.2012 31.03.2011 Total Assets ------Total NPAs ------Total Revenue ------

II. Off-balance Sheet SPVS Sponsored (which are required to be consolidated as per accounting norms) Rupees in Millions Name of the SPV sponsored Domestic Overseas 31.03.2013 31.03.2012 31.03.2011 31.03.2013 31.03.2012 31.03.2011 -- --

19. ESOP SCHEME

On May 11,2010, 20000 options were issued at an exercise price of Rs.144.70 to new joinees in addition to 3979225 options granted on August 6, 2009 to employees under two different plans at a uniform option price of Rs. 118.35. Out of the above, 20149 shares were exercised during 2010-11 and 570 shares are exercised in 2011-12 and none of the employees exercised the options during the year 2012-13.All the options granted to the employees under the first plan (‘Existing Employees’) and second plan (Joining employees) were fully vested as on 31.03.2013.

Based on the information provided by the client, the details of the Employees Stock Option Plan -2009 as at March 31, 2013 are as follows

Sr. Particulars Employee Stock No Option Plan - 2009 1 Details of Approval Remuneration Committee resolution dated August 6,2009 2 Implemented through Directly by the Bank 3 Total number of shares 40,42,470 4 Price per option Rs.118.35 5 Granted 39,99,225 6 Vested 39,99,225 7 Exercised 20,719 8 Cancelled Options 3,106,336 9 Vested and unexercised 872,170 10 Total number of options in force 872,170 11 Money realized ` 24,52,094 12 Senior Options Options Options Options Balance Managerial Granted Vested Lapsed Exercised Personnel ------

13 Exercise Period will commence from the date of vesting of option and will end on 10 years from the date of grant of options or 10 years from the date of vesting of option, whichever is later.

Note: a) The compensation Committee has granted a total of 39,99,225 options convertible into 39,99,225 Equity shares which represent 6.24% of the paid up share capital of the Bank. The fair market value one day before the date of grant is Rs. 118.35 which is also the exercise price of the option. b) The bank accounts for ‘Employee Share Based Payments’ using the fair value method.

The movement of stock options during the year ended March 31, 2013 is summarized below;

Particulars No of options Outstanding at the beginning of the year 2,418,615

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Granted during the year - Forfeited during the year 1,546,445 Exercised during the year Nil Expired during the year - Outstanding at the end of the year 872,170 Exercisable at the end of the year 872,170

20. EMPLOYEE BENEFITS (AS -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 Million PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Current Service Cost 51.1 55.3 47.0 Interest cost on benefit 88.7 73.8 36.0 obligation Expected return on plan assets (90.5) (97.7) (47.0) Net actuarial gain/(loss) 37.2 82.6 100.9 recognized in the year Past service cost PSL – - 126.2 31.6 Amortisation Expenses recognized in the 86.5 240.2 168.4 Profit and Loss Account

B. The amount recognized in the Balance Sheet Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Present Value of obligation at 1,101.5 1060.5 967.7 the end of the year (i) Fair value of plan assets at the 1043.6 1000.1 804.7 end of the year (ii) Difference (ii)-(i) (57.9) (60.4) (163.0) Unrecognized Past service - - 126.2 liability Net asset/ (liability) recognized (57.9) (60.4) (36.8) in the Balance Sheet

C. Changes in the present value of the defined benefit obligations:

Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Present value of obligation at 1060.5 967.7 534.7 the beginning of the Year Interest cost 88.7 73.7 36.0 Current Service Cost 51.1 55.3 47.0 Benefits paid (31.7) (26.9) (51.1) Net actuarial gain/(loss) on 45.6 56.4 65.6 obligation Past Service cost - - 353.2 Settlements (112.7) (65.7) (17.7) Present value of the defined 1,101.5 1060.5 967.7 benefit obligation at the end of the year

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D. Change in the fair value of plan assets: Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Fair value of plan assets at the 1000.1 804.7 514.5 beginning of the year Expected return on plan assets 90.4 97.7 47.0 Contributions by employer 89.0 163.1 116.5 Benefit paid (31.7) (27.0) (51.1) Settlements (112.7) (65.7) 17.7 Actuarial gain/(loss) 8.4 (26.1) (35.2) PF Transfer - - 195.4

Fair Value of plan assets at the 1043.6 1000.1 804.7 end of the year Total actuarial gain/ (loss) to be (37.2) (82.6) (100.8) recognized immediately

E. Details of the Plan Asset

The details of the plan assets (at cost) are as follows: Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Central Government securities 233.1 241.8 235.7 State Government securities 316.2 219.2 134.8 Investment in Public Sector 68.9 178.9 191.4 Undertakings Investment in Private Sector 200.0 192.5 122.5 Undertakings Others 201.6 142.2 96.2 Total 1019.8 974.6 780.6

F. Actuarial Assumptions

Principal assumptions used for actuarial valuation are: Rupees in Millions 31.03.2013 31.03.2012 31.03.2011 Method used Project Unit Project Unit Project Unit Credit Credit Credit Method Method Method Discount rate 8.2 8.5 8.50% 5% 0% Expected rate of return 9.0 9.0 9.00% on assets 0% 0% Future salary increase 4.5 4.5 4.50% 0% 0%

II. GRATUITY

A. Expenses recognized in Profit and Loss Account Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Current Service Cost 24.6 24.0 21.9 Interest cost on benefit 30.0 28.0 24.2 obligation Expected return on plan assets (10.1) (22.8) (19.3) Net actuarial gain/(loss) 22.4 14.5 (7.8) recognized in the Year

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Past Service cost PSL – - 78.1 19.5 Amortisation Expenses recognized in the 66.9 121.8 38.5 Profit and Loss Account

B. The amount recognized in the Balance Sheet Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Present Value of obligation at 340.6 328.1 305.6 end of the year (i) Fair value of plan assets at end 273.7 294.4 220.0 of the year (ii) Difference (ii)-(i) (66.9) (33.7) (85.5) Unrecognized Past service - - 78.1 liability Net asset/(liability)recognized (66.9) (33.7) (7.5) in the Balance Sheet

C. Changes in the present value of the defined benefit obligations:

Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Present value of obligation at

beginning 202.5 328.1 305.6 of the year Interest cost 30.0 28.0 24.2 Current Service Cost 24.6 24.0 21.9 Benefits paid (58.6) (44.0) (32.0) Net actuarial gain/(loss) on 16.5 14.5 (8.6) obligation Past service cost - - 97.6 Settlements - - - Present value of the defined benefit obligation at the end of 340.6 328.1 305.6 the year

D. Change in the fair value of plan assets: Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Fair value of plan assets at the 294.3 220.0 233.5 beginning of the year Expected return on plan assets 10.1 22.8 19.3 Contributions by employer 33.7 95.5 - Benefit paid (58.6) (44.0) (32.0) Settlements - - - Actuarial gain/(loss) (5.9) - (0.7) PF Transfer - - - Fair value of plan assets at end 273.6 294.4 220.0 of the year Total Actuarial Gain /(loss) to (22.4) (14.5) - be recognized immediately

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E. Details of the Plan Asset

The details of the plan assets (at cost) are as follows: Rupees in Millions PARTICULARS 31.03.2013 31.03.2012 31.03.2011 Central Government securities - - 47.2 State Government securities 66.8 28.0 84.2 Investment in Public Sector - 6.0 47.2 Undertakings Investment in Private Sector 26.1 75.2 25.0 Undertakings Others 178.0 180.4 7.6 Total 270.9 289.6 211.2

F. Actuarial Assumptions

Principal assumptions used for actuarial valuation are:

Rupees in Millions 31.03.13 31.03.12 31.03.11 Project Unit Project Unit Project Unit Method used Credit Credit Credit Method Method Method Discount rate 8.25% 8.50% 8.50% Expected rate of return 9.00% 9.00% 9.00% on assets Future salary increase 4.50% 4.50% 4.50%

III. LEAVE

A. Expenses recognized in Profit and Loss Account Rupees in Millions PARTICULARS 31.03.13 31.03.12 31.03.11 Current Service Cost 25.7 16.5 12.2 Interest cost on benefit 18.8 17.3 14.7 obligation Expected return on plan assets - - - Net actuarial gain/(loss) 15.1 32.6 0.3 recognized in the year Post service cost PSL - - - - Amortization Expenses recognized in the 59.6 66.4 27.2 Profit and Loss Account

B. Amount recognized in the Balance Sheet Rupees in Millions PARTICULARS 31.03.13 31.03.12 31.03.11 Present Value of obligation at end of the 215.1 195.5 166.5 year (i) Fair value of plan assets at end of the year - - - (ii) Difference (ii)-(i) (215.1) (195.5) (166.5) Unrecognized past service - -- -- liability Net asset/( liability) recognized (215.1) (195.5) (166.5)

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in the Balance Sheet

C. Changes in the present value of the defined benefit obligations: Rupees in Millions PARTICULARS 31.03.13 31.03.12 31.03.11 Present value of obligation at 195.5 166.5 167.9 beginning of the year Interest cost 18.8 17.3 14.7 Current Service Cost 25.7 16.5 12.2 Benefits paid (40.0) (37.4) (28.6) Net actuarial gain/(loss) on 15.1 32.6 0.3 obligation Past Service Cost - -- -- Settlements - - Present value of the defined 215.1 195.5 166.5 benefit obligation at end of the year

D. Change in the fair value of plan assets: Rupees in Millions PARTICULARS 31.03.13 31.03.12 31.03.11 Fair value of plan assets at beginning of - - - the year Expected return on plan assets - - - Contributions by employer 39.9 37.4 28.6 Benefit paid (39.9) (37.4) (28.6) Settlements - - - Actuarial gain/(loss) - - - PF transfer - - - Fair value of plan assets at end - - - of the year Total Actuarial Gain/(Loss) to (15.0) (32.6) (0.3) be recognized immediately

E. Details of the Plan Asset

The details of the plan assets (at cost) as are as follows:

Rupees in Millions PARTICULARS 31.03.13 31.03.12 31.03.11 Central Government securities - - - State Government securities - - - Investment in Public Sector - - - Undertakings Investment in Private Sector - - - Undertakings Others - - - Total - - -

F. Actuarial Assumptions

Principal assumptions used for actuarial valuation are:

31.03.2013 31.03.2012 31.03.2011 Method used Project Project Project Unit

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Unit Unit Credit Credit Credit Method Method Method Discount rate 8.25% 8.50% 8.50% Expected rate of return on - - - assets Future salary increase 4.50% 4.50% 4.50%

ADDITIONAL NOTES

Consequent on the reopening of the pension option and enhancement of the gratuity limit following the amendments to payment of Gratuity Act 1972, RBI has allowed amortization of the additional expenses over a period of five years beginning with the financial year ending March 2011 subject to a minimum of 1/5th of the total amount involved every year. Out of the total liability of Rs 255.4 million arising on account of above mentioned amendments, Rs 51.1 million has been charged to the Profit and Loss Account in the year 10-11 and the balance unrecognized portion was to be amortized with in next four years.

Rs 51.1 million has been charged to the Profit and Loss Account in the year 11-12 and the balance unrecognized portion was to be amortized with in next three years.

Rs 51.1 million has been charged to the Profit and Loss Account in the year 12-13 and the balance unrecognized portion is to be amortized with in next two years.

21. 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. Treasury Operations a) Corporate / Wholesale Banking b) Retail banking c) Other banking business operations

II. Secondary Segments: Geographical segments.

Since the Bank is having domestic operations only, no reporting does arise under this segment.

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SEGMENT RESULTS Rupees in Millions Treasury Retail Banking Corporate / Other Banking Unallocated Total Wholesale Banking Operations Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar Mar- Mar- Mar Mar- Mar- Mar- Mar- Mar- 13 12 11 13 12 11 13 12 11 -13 121 11 -13 12 11 13 12 11 Revenue 3775. 3387. 2226. 6237. 7246. 4430. 4170. 4726. 3870. - - - 40.6 13.7 5.3 14223. 15372. 10531 4 0 5 0 3 1 0 0 0 0 9 .9 Results 149.8 (144.8 153.4 226.0 (409.4 357.3 122.3 (324.8 258.2 - - - 15.9 - - 514.0 (879.0) 768.9 ) ) ) Unallocated ------99.0 94.6 Expenses Operating Profit ------514.0 (978.0) 674.3 Total provisions ------746.9 166.8 277.1 Tax Expenses ------(259.1) 11.5 136.6 Extra ordinary ------items Profit After Tax ------26.2 (1156.3 260.6 ) Other Information ------Segment Assets 5001 51617 43775 52008 56787 52090 35020 37465 4619 ------137042 145870 14206 3.4 .8 .5 .3 .4 .8 .3 .6 3.8 .0 .8 0.1 Unallocated ------1152.9 894.1 621.4 Assets Total Assets ------138194 146764 14268 .9 .9 1.5 Segment 5419 51069 41481 45621 53269 49159 30719 35144 4359 ------130534 139482 13423 Liabilities 3.3 .2 .1 .7 .0 .6 .9 .3 4.4 .9 .5 5.1 Unallocated ------7660.0 7282.4 8446. Liabilities 4 Total Liabilities ------138194 146764 14268 .9 .9 1.5

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22. PARTICULARS OF RELATED PARTY TRANSACTIONS (AS-18)

31.03.2013 31.03.2012 31.03.2011 a) Key Management Sri.P.G 1 Sri. Amitabh 1 Sri. Amitabh personnel Jayakumar Chaturvedi Chaturvedi MD & CEO Managing Managing Director Director and Chief and Chief Executive Executive Rs 24,22,414 Officer (MD and Officer (MD and CEO) CEO) b) Nature of transaction: Remuneration (including perquisites) Rs 38,42,254 Rs 53,71,000 (Resigned w.e.f Feb 06, 2012)

23. LEASES (AS-19)

The details of maturity profile of future operating lease payments are given below Rupees in Millions Period 31.03.2013 31.03.2012 31.03.2011 Not later than one year • Rented Premises 312.0 328.0 300.0 • IT equipments 12.2 40.9 40.9 Later than one year and not later than five years

• Rented Premises 1420.8 1401.6 1296.0

• IT equipments 6.1 -- 40.9 Later than five years

• Rented Premises 288.0 400.0 500.0

• IT equipments ------Total 2039.1 2170.5 2177.8 Tot al minimum lease payments recognized in the Profit and Loss Account for the year • Rented Premises 292.2 273.8 339.7

• IT equipments 12.2 40.9 40.9

24. EARNINGS PER SHARE (Accounting Standard- 20)

31.03.2013 31.03.2012 31.03.2011 Net Profit/( Loss) after tax (Rs in millions) 26.2 (1156.3) 260.6

Weight average no. of equity shares for Basic EPS 85,136,319 85,136,268 78,737,719

Weight average no. of equity shares for Diluted EPS 85,136,319 83,309,976 79,222,004

Earnings per share (Basic) ` 0.31 ` (13.58) `3.31 Earnings per share(Diluted) ` 0.31 ` (13.58) ` 3.29

237 25. 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 31.03.2013 31.03.2012 31.03.2011 31.03.2013 31.03.2012 31.03.2011 Depreciation - on -- -- 9.1 42.0 28.0 - Assets Leave - 6.4 63.4 56.6 -- -- Encashment - Amortization of Held to 24.9 - - - - - Maturity Securities Provision for Standard - 110.8 114.6 6.5 -- -- Assets Carry forward 384.9 - - - - - Loss Total 416.2 174.2 171.2 15.6 42.0 28.0 Net balance 400.6 132.2 143.2

26. BANCASSURANCE BUSINESS Rupees in Millions

Sr. Nature of Income 2012-13 2011-12 2010-11 No. 1 For selling life insurance policies

36.7 76.0 58.5 2 For selling non life insurance policies 7.6 6.9 7.7 3 For selling mutual fund products

4.4 33.5 18.1 4 Others - - - Total 48.7 116.4 84.3

27. Draw Down of Reserves

The bank has not undertaken any draw down of reserves during the year 2011-12 except expenses incurred towards increasing of Authorized share capital, which have been adjusted against the share premium account.

The Bank has not undertaken any draw down of reserves during the year ended 31 st March 13.

28. Impact of change in Accounting Policy

Till the previous year, income from bills discounting was recognized upfront except where the tenure exceeds one year. However, during the year 2011-12, the Bank has changed its method of recognizing income, wherein the income is apportioned to the profit and loss account on a daily basis to the extent it relates to the year and the balance amount in subsequent periods. Had the Bank had followed the earlier accounting policy, income for the year would have been higher by Rs 20.5 millions and the Loss for the year would have been lower by the like amount.

29. OTHER ASSETS (SCHEDULE NO 11) AND OTHER LIABILITIES ( SCHEDULE NO.5 )

As on 31.03.2013, the reconciliation of entries on other assets and liabilities are in progress. The impact is any on the accounts are not ascertainable now and the work is in progress. The management is of the

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opinion that the overall impact, if any, on the accounts may not be significant and is not ascertainable at this stage

30. Previous year figures are regrouped/rearranged wherever necessary to conform to current year’s classification. .

BASEL II (PILLAR III) DISCLOSURES

TABLE DF 1 –SCOPE OF APPLICATION

Qualitative Disclosures a. Dhanalaxmi Bank has no subsidiaries. b. Not applicable since the Bank does not have any subsidiaries

Quantitative Disclosures c & d Since the Bank does not have any subsidiaries, there are no quantitative disclosures

TABLE DF2 – CAPITAL STRUCTURE

Qualitative Disclosures: a. Summary

Tier I capital of the bank includes Equity Share Capital Reserves & Surpluses comprising of Statutory Reserves, Capital reserves, Share Premium and Balance in P &L Account.

Tier II Capital includes Revaluation Reserve, Special Reserves, Standard Asset Provisions and Tier II Bonds.

Quantitative Disclosures: Rupees in Millions Items 31.03.2013 31.03.2012 31.03.2011 ( a ) The amount of Tier I capital, with separate disclosure of : Paid-up share capital 851.4 851.4 851.4 Reserves 7788.8 6,206.7 7,367.9 Innovative Instruments - -- -- Other capital instruments - -- -- Sub-total 8640.2 7,058.1 8,219.3 Less amounts deducte d from Tier I capital, including goodwill and investments. 2058.6 585.8 143.3 Total Tier I capital 6581.6 6,472.2 8,076.0 (b) The total amount of Tier II capital (net of deductions from Tier II capital) 2463.5 1,804.4 2,055.4 (c) Debt capital instruments eligible for inclusion in Upper Tier II capital • Total amount outstanding 275.0 275.0 275.0 • Of which amount raised during the current year - -- 275.0

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• Amount eligible to be reckoned as capital funds 275.0 275.0 275.0 (d) Subordinated debt eligible for inclusion in Lower Tier II capital. Total amount outstanding 2847.0 1,870.0 1,770.0 Of which amount raised during the period 1077.0 100.0 -- Amount eligible to be reckoned as capital funds. 1777.0 1,054.0 1,308.0 (e) Other deductions from capital, if any - -- -- (f) Total eligible capital- Tier I + Tier II (a+b-e) 9045.1 8,276.7 10,131.4

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 deliberate 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 Basel II 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.

Quantitative Disclosures: Rupees in Millions Items 31.03.2013 31.03.2012 31.03.2011 (a) Capital requirements for credit risk • Portfolios subject to standardized approach 6,184.2 7226.0 7,209.9 • Securitisation exposures ------(b) Capital requirements for market risk Standardized duration approach • Interest rate risk 626.8 163.0 227.5 • Foreign exchange risk(including gold) 32.5 32.6 6.8 • Equity position risk 6.9 8.3 1.6 (c) Capital requirements for operational risk • Basic Indicator Approach 511.7 417.0 281.6 (d) Total and Tier I CRAR for the Bank • Total CRAR (%) 11.06 9.49 11.80 • Tier I CRAR(%) 8.05 7.42 9.41 (e) Total and Tier I CRAR for the consolidated Group • Total CRAR(%) NA NA NA • Tier I CRAR (%) NA NA NA (f) Total and Tier I CRAR for the Significant subsidiary which are not under consolidated group • Total CRAR(%) NA NA NA • Tier I CRAR (%) NA 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 which is furnished below:

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1. Non-performing Assets

An asset, including a leased asset, becomes non –performing when it ceases to generate income for the bank. A non-performing asset (NPA) is a loan or an advance where; a. interests and/or installment of principal remain overdue for a period of more than 90 days in respect of a Term loan, b. the account remains ‘out of order’ as indicated in the paragraph 2 below, in respect of an overdraft/ cash credit (OD/CC), c. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, d. the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops, e. the installment of principal or interest thereon remains overdue for one crop seasons for long duration crops, An account is classified as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.

2. ‘Out of Order’ status

An account is treated as ‘Out of Order’ if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts are treated as ‘ Out of Order’

3. ‘Overdue’

Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank. Strategies and Processes for Credit Risk Management Credit Risk Management Committee (CRMC) headed by MD & CEO is the top level functional committee for Credit risk. The committee considers and takes decisions necessary to manage and control credit risk within overall quantitative prudential limit set up by Board. The committee is entrusted with the job of approval of policies on standards for presentation of credit proposal, fine- tuning required in various rating models based on feedbacks or change in market scenario, approval of any other action necessary to comply with requirements set forth in Credit Risk Management Policy/ RBI guidelines or otherwise required for managing credit risk.

The Bank’s strategies to manage the credit risks in its lending operations are as under: a) The Bank has a Comprehensive Board Approved Credit Risk Management Policy which is reviewed and revised annually. In addition to the above, various strategies with regard to Credit risk management is covered under Banks Credit Policy, Credit Monitoring Policy and Recovery Policy which are periodically reviewed by the Board. b) Defined segment exposures delineated into Retail, SME and Corporates; c) Industry wise exposure caps on aggregate lending by Bank d) Individual borrower wise caps on lending as well as borrower group wise lending caps linked as a percentage to the Bank’s capital funds in line with RBI guidelines. e) Credit rating of borrowers and allowing credit exposures only to defined thresholds of risk levels f) A well defined approach to sourcing and preliminary due diligence while sourcing fresh credit accounts g) A clear and well defined delegation of authority within the Bank in regard to decision making linking exposure, rating and transaction risks. h) Regular review of all credit structures and caps, continuously strengthening credit processes, and monitoring oversight which are regularly reviewed and duly approved by the Board of the Bank.

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i) Credit Risk management Cell is validating the rating assigned to all individual credit exposures of `2.5million and above. j) Bank has an ever improving procedures and structures with respect to Credit Approval Process, Credit Rating, Prudential Limits, Documentation, Credit Monitoring and Review Mechanism. k) 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. l) The Credit Officers take care of the security creation and account management. m) Credit Policy & Monitoring Group takes care of the monitoring of the loan assets. n) Bank has started quarterly industry study which would provide necessary information to increase/hold/decrease exposure under various industries.

Structure and Organization of the Risk Management function in the Bank

GOVERNANCE STRUCTURE OF RISK MANAGEMENT IN THE BANK

Board of Directors

Risk Management Committee (Supervisory Committee of directors) Risk Management Committee (of executives)

Credit risk management Asset Liability management Operational Risk Management committee (CRMC) Committee(ALCO) Committee (ORMC) (CRMC) (ALCO)

Integrated Risk Management Group (The organization arm at corporate office)

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.Major initiatives of IRMG are- Risk rating system is drawn up in a structured manner incorporating the parameters from the five main risk areas 1)Financial risk, 2) Industry/Market risk, 3) Business Risk, 4) Management Risk, and 5) Facility risk Risk rating system is made applicable for loan accounts with total limits of Rs.0.2 millions and above. Different rating models are used for different types of exposures, for eg; Traders, SME, NBFC, Corporate, small loans, retails loans etc. IRMG validates the ratings of all exposures of Rs.2.5 millions and above. An independent analysis is carried out of the various risks attached to the credit proposals including industry analysis.

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Carries out rating migration analysis of the credit exposures of Rs.50 million & above on a quarterly basis. Rating Migration analysis covering all exposures of Rs.2.5 million and above is being conducted on an annual basis. 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 functionaries with powers delegated for credit sanction and administration: Branch Head and Branch Operations Manager jointly Regional Credit Committee Zonal Credit Committee Corporate Credit Committee at Corporate Office level Committee of Directors Management Committee at Board Level. Board of Directors

Head Integrated Risk Management Group is a member of the CCC. The bank has implemented a software solution to get system support for calculation of Risk Weighted Assets for CRAR computation.

Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants

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. In order to ensure that documents are properly executed, the function has been brought under the purview of Credit Officers. The Credit Officers at branches ensure documentation, ground level follow up, collection of feedback, closer monitoring of accounts, quality of asset portfolios, statistical analyses, reporting of irregularities, providing guidelines, compliance with policy prescriptions and adherence to terms of sanction.

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. 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.

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 31.03.2013 31.03.2012 31.03.2011 TOTAL TOTAL TOTAL credit 31.03.2013 31.03.2012 31.03.2011 exposure Fund Based Loans and 79540.0 88,683.8 91,545.0 95022.9 1,03,891.2 106,849.7 advances Cash, RBI and 7621.3 9,260.6 9,351.6 - - - banks

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Others(Fixed 7861.6 5,946.8 5,953.1 - - - Assets and other Assets) Non Fund LC, BG etc 4713.5 5,865.7 3,942.8 7251.6 8,277.3 5,754.9 Based Forward 144.5 985.2 556.7 - - - Contracts/Interest Rate SWAPS* Others 2393.6 1,426.4 99.6 - - - Investments - 25779.8 29,070.6 24,482.8 25779.8 29,070.6 24,482.8 (Banking Book only) Total of - 128054.3 141,239.1 135,931.6 128054.3 1,41,239.1 137,087.4 Credit Risk exposure

*Credit Equivalent Amount

(b) Geographic distribution of exposures: Rupees in Millions Exposures 31.03.2013 31.03.2012 31.03.2011 Fund Non TOTAL Fund Non TOTAL Fund Non TOTAL based Fund based Fund based Fund Based Based Based Domestic 120,802.7 7,251.6 128,054.3 132,961.8 8,277.3 141,239.1 131,332.5 5,754.9 137,087.4 operations Overseas Bank has no overseas operations operations

(c) Industry type distribution of exposures: Rupees in Millions Sl Industry Fund Based Outstanding NFB Outstanding No 31.03.13 31.03.12 31.03.11 31.03.13 31.03.12 31.03.2011 1 Mining and 124.8 -- 21.8 - -- -- Quarrying 2 Food Processing 1583.2 508.3 125.2 71.4 36.6 -- 3 Sugar 17.0 21.6 22.9 - -- -- 4 Edible oils and 10.4 56.2 30.7 - -- -- vanaspati 5 Textiles 1820.3 1,975.7 1,797.1 880.3 650.8 16.6 6 Paper & paper 115.3 126.5 1,380.2 5.5 0.2 -- products 7 Chemicals and 1061.6 1,443.0 1,543.6 451.8 469.5 124.9 chemical products 7.1 Of which,,Fertilizer - -- 960.0 - -- -- 7.2 Of which, Drugs & 669.9 875.9 139.7 449.8 451.5 - pharmaceuticals 7.3 Of which, Others 391.7 567.1 443.9 2.0 18.0 -- 8 Rubber, plastic & 326.6 434.3 1,010.4 15.3 2.7 -- their products 9 Cement and cement 247.6 440.3 1,022.7 12.0 2.0 -- Products 10 Metal & metal 1605.5 2,951.7 226.7 112.2 11.9 -- products 11 All engineering 1919.3 698.0 1,823.0 199.5 214.9 9.2 12 Automobiles 1052.3 469.9 8,63.1 84.8 44.0 13 Gems & Jewellery 3598.5 2,306.7 2,244.5 613.9 1243.5 139.0 14 Construction 3394.1 208.2 - 146.4 12.0 -- 15 Infrastructure 6872.8 7,296.3 12,403.6 1110.0 869.4 152.7 15.1 Of which, Power 2623.1 2,958.6 5,409.2 36.5 46.4 --

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15.2 Of which 957.3 749.9 1,550.0 - -- -- ,Telecommunications 15.3 Of which, Roads & 961.6 -- 620.6 - -- -- ports 15.4 Of which, Other 2330.8 3,587.8 4,823. 1073.5 -- -- infrastructure 8 16 NBFC 4277.8 4107.3 5186. 3.0 300.6 -- 7 17 Trading 1103.1 1171.9 12808 158.9 59.5 -- .9 18 Other industries 6156.3 8,119.0 2,493.5 720.8 425.8 -- Total 35286.6 32334.9 45004.6 4585.8 4343.4 442.4 19 Residuary other advances (to balance with Total advances) 43676.6 55,973.6 46211.6 158.2 1870.3 3493.3 Grand Total 78963.1 88,308.5 91,216.2 4744.0 6,213.7 3,935.7

(d) Residual maturity breakdown of assets: Rupees in Millions Maturity Advances Advances Advances Investments Investments Investments Foreign Foreign Foreign Pattern 31.03.2013 31.03.2012 31.03.2011 31.03.2013 31.03.2012 31.03.2011 Currency Currency Currency Assets 31.03.2013 31.03.2012 31.03.2011 Day 1 792.3 2,425.3 771.0 0 - - 1,398.3 895.3 642.3 2 to 7 1,372.9 2,701.8 1,031.4 2,451.6 3,322.5 - 696.8 589.6 470.6 Days 8 to 14 1,321.1 1,133.7 1,179.6 1,291.2 1,363.7 - 81.6 83.8 27.0 days 15 to 28 846.0 1,570.2 2,036.6 726.3 2,937.1 2,322.6 6.9 38.3 131.0 days 29 days 6,610.7 7,595.3 7,410.8 2,269.9 5,683.8 1,963.1 1,086.4 6,614.0 3,002.1 up to 3 months Over 3 7,847.3 6,892.5 8,550.9 398.2 - 2,515.3 751.4 3,125.4 2,676.5 months and up to 6 months Over 6 12,538.7 10,472.2 19,013.2 174.1 187.0 1,176.2 792.9 1,705.0 7,300.3 months and up to 1 year Over 1 28,828.6 32,671.4 27,081.4 2373.3 1,535.4 786.5 - - - year and up to 3 years Over 3 8,120.9 8,387.5 13936.4 6,773.4 5,985.1 1940.4 - - - years and up to 5 years Over 5 9,492.1 13,730.6 9640.2 30,590.8 22,750.9 25785.0 - 6.5 - years

Total 7,7770.6 87,580.5 90,651.5 47,048.8 43,765.5 36,489.1 4,814.3 13,057.9 14,249.8

(e) Non-performing assets: Rupees in Millions Amount No Items 31.03.2013 31.03.2012 31.03.2011 1 Gross NPAs 3802.7 1042.7 670.9 1.1 Substandard 3159.4 535.9 187.8 1.2 Doubtful 1 205.6 179.0 137.8

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1.3 Doubtful 2 178.7 100.4 73.5 1.4 Doubtful 3 70.5 79.1 113.6 1.5 Loss 188.5 148.3 158.2 2 Net NPAs 2610.2 580.0 274.7 3 NPA Ratios 3.1 Gross NPAs to Gross Advances (%) 4.82 1.18 0.74 3.2 Net NPA s to Net Advances (%) 3.36 0.66 0.30 4 Movement of NPAs (gross) 4.1 Opening balance 1042.7 670.9 775.0 4.2 Additions 5047.8 918.2 411.3 4.3 Reductions 2287.8 546.4 515.4 4.4 Closing balance 3802.7 1042.7 670.9 5 Movement of provisions for NPAs 5.1 Opening balance 460.3 391.0 346.9 5.2 Provisions made during the year 1003.0 233.1 159.1 5.3 Write-off - 163.8 -- 5.4 Write back of excess provisions 273.2 -- 115.0 5.5 Closing balance 1190.1 460.3 391.0 6 Amount of non-performing 69.5 70.4 74.4 investments 7 Amount of provisions held for non 69.5 70.4 74.4 – performing investments 8 Movement of provision held for NPI’s 8.1 Opening balance 70.4 74.4 74.4 8.2 Provisions made during the period - -- -- 8.3 Write-off/ Write back of excess (0.9) (4.0) -- provisions 8.4 Closing balance 69.5 70.4 74.4

Table DF 5- Disclosures for portfolios subject to the standardized approach

Qualitative disclosures:

(a) For Portfolios under the standardized approach

1 Names of Bank has approved all the external credit rating agencies accredited by RBI for credit rating the purpose of credit risk rating of domestic borrowal accounts, i.e., CRISIL, agencies used CARE, FITCH, ICRA and International Credit rating agencies, i.e, Standard and poor, Moody’s , FITCH 2 Changes if No change any, since prior period disclosure in the identified rating agencies and reasons for the same. 3 Types of All the above identified Rating Agency rating are used for various types exposure for of exposures as follows : which (i) For Exposure with a contractual maturity of less than or equal to one year each agency (except Cash Credit, Overdraft and other Revolving Credits) , Short-Term is used 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.

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(iii) For Overseas exposures, irrespective of the contractual maturity, Long Term Rating given by IRAs will be applicable. (iv)Rating by the agencies is used for both fund based and non-fund based exposures (v) Rating assigned to one particular entity within a corporate group cannot be used to risk weight other entities within the same group. 4 Description Long –term Issue Specific (our own exposures or other issuance of debt by the of the process same borrower-constituent/counter-party) Ratings or Issuer(borrower- used to constituent/counter-party) Ratings can be applied to other unrated exposures of transfer the same borrower-constituent/counterparty in the following cases : public issue (i) If the Issue Specific Rating or Issuer Rating maps to Risk Weight equal to or rating on to higher than the unrated exposures, any other unrated exposure on the same comparable counter-party will be assigned the same Risk Weight, if the exposure ranks pari assets in the passu or junior to the rated exposure in all aspects banking book. (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 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 outstanding (rated & unrated) in major risk buckets- under standardized approach after factoring risk mitigants (i.e., collaterals): Rupees in Millions 31.03.2013 31.03.2012 31.03.2011 Non Non Non Particulars Fund Fund Fund Fund Total Fund Total Fund Total based based based based based based Below 100% risk 71050.5 1487.9 72538.4 75844.7 1907.3 77752.0 67153.6 1740.8 68894.4 weight 100% risk weight 37190.0 4053.8 41243.8 43735.1 5884.5 49619.6 51922.0 3658.2 55580.2 More than 100% 12562.3 14.1 12576.4 13382.1 485.5 13867.6 12256.8 355.9 12612.7 risk weight Total Exposure 120802.8 5555.8 126358.6 132961.9 8277.3 141239.1 131332.4 5754.9 137087.3 Deducted Below 12788.1 169.4 12957.5 8239.2 161.0 8400.2 7073.7 -- 7073.7 (Risk 100% mitigants) RW 100% 1246.5 234.7 1481.2 1146.8 413.6 1560.5 1797.3 -- 1797.3 RW More 4493.7 6.8 4500.5 4856.7 199.8 5056.5 8003.9 -- 8003.9 than 100% RW Net Exposure 102274.5 5144.9 107419.4 118719.2 7502.8 126221.9 114457.5 5754.9 120212.4

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

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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.

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 net worth, 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 Bank and primary dealers with a low risk weight than the counter-party Other entities rated AA (-) and above. The Guarantees has to be issued by entities with a lower risk weight than the counter party

Information about risk concentrations of collaterals concentration within the mitigation taken:

Outstanding Covered by Risk Financial Risk Risk Concentration % Mitigants (Rupees in Millions) Mitigants 31.03.2013 31.03.2012 31.03.2011 31.03.2013 31.03.2012 31.03.2011 Gold 13992.1 10848.8 13748.9 73.88 72.24 81.48 Cash & Bank 4931.0 4143.2 3085.2 26.04 27.59 18.28 Deposits KVP/IVP/NSC 13.3 21.3 34.5 0.07 0.14 0.20 LIC Policy 2.8 3.7 6.4 0.01 0.02 0.04 Total 18939.2 15017.0 16875.0 100.00 100.00 100.00

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 standardized approach, 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 Standardized Approach, the total Exposure that is covered by:

Rupees in Millions 2013 2012 2011 (i)Eligible Financial Collateral 18939.2 15,017.0 16,875.0 (ii) Other eligible Collateral (after Hair - - - Cuts)

DF TABLE 7- SECURITISATION – STANDARDIZED APPROACH:

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Qualitative Disclosures:

Bank has not securitized any of its standard assets till date

DF TABLE 8 - MARKET RISK IN TRADING BOOK- STANDARDIZED MODIFIED DURATION APPROACH:

Qualitative Disclosures: a) General : -

Strategies and processes The overall objective of market risk management is to maximize shareholder value by improving the bank’s competitive advantage and reducing loss from all types of market risk loss events. For effective management of market risk, bank has put in place a well established framework with the Integrated Treasury Policy and Asset Liability Management Policy. The Asset Liability Management Committee is responsible for establishing market risk management and Asset liability management in the Bank. ALCO is a decision making unit responsible for balance sheet planning from risk-return perspective including the strategic management of interest rate and liquidity risks. ALCO ensures adherence to the limits set by RBI as well as the Board.

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: 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 Statement which is prepared on a daily basis. The Bank also reviews various liquidity ratios on a fortnight basis in order to control the liquidity position. Interest Rate risk is analyzed from earnings perspective using Traditional Gap Analysis on a fortnightly basis and economic value perspective using Duration Gap Analysis on a monthly basis. Stress tests are conducted at quarterly intervals to assess the impact of various contingencies on the bank’s earnings and the capital position.

The Bank uses Standardized Duration approach for computation of market risk capital charge on the investment portfolio held under HFT and AFS, Gold and Forex Open positions. The market risk capital charge is calculated on a daily basis and reported to ALCO. 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.

Quantitative Disclosures: Rupees in Millions Amount of capital Amount of capital Amount of capital Particulars requirement requirement requirement 31.03.2013 31.03.2012 31.03.2011 Interest rate risk 626.8 163.0 227.5 Equity position 6.9 8.3 1.6 risk Foreign exchange 32.5 32.6 6.8 risk

TABLE DF 09-OPERATIONAL RISK:

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Qualitative disclosures:

(a) General

Strategies and processes: - The Bank’s strategy is to ensure that the Operational risks which are inherent in Process, People and System and the residual risks are well managed by the implementation of effective Risk management techniques. Keeping this in view, the Bank has been following risk management measures which address the risks before and after implementation of a process, product and system. All new products, processes and systems which are cleared by the Product & Process Approval Committee (PPAC) are risk vetted by the Operational Risk Management (ORM) cell, before implementation. The ORM cell has completed Risk & Control Self Assessment (RCSA) at Thrust Branches and other core functions highlighting the potential risks that can happen during the course of operations and to assess whether the controls are adequate to manage/ mitigate these risks. Risk Based Internal Audit is in place in all the Branches. The bank has a RCSA document approved by the Risk Management Committee of the Board (RMCB), in place.

The framework for Operational Risk Management is well-defined in the Operational Risk Management (ORM) Policy which is reviewed and revised annually. The ORM Committee at the executive level, which meets at regular intervals oversees bank-wide implementation of Board approved policies and process in this regard. 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 Bank has adopted Operational Loss Data Reporting Format from the Loss Data Methodology Document for collection of Loss Data, which will enable the Bank to eventually ease the transition to Advanced Measurement Approach for Capital Calculation. The ORM cell has a well-built internal Loss data collection system in place. 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).

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. If any controls are found to be ineffective during the course of Risk & Control Self Assessment, corrective measures are adopted in due course. A monitoring system is also in place for tracking the corrective actions plan periodically. Bank is using insurance for mitigating operational risk. The various Board approved policies viz., Operational Risk Management Policy, Outsourcing Policy, Compliance Policy, Internal 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. The ORM Cell is now focusing on the qualitative and quantitative requirements (RCSA, KRI identification, Business line mapping etc.) prescribed by the regulator are being adopted by the Bank to move on to the Advanced Approaches 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 the measurement of the interest rate risk under two perspectives – Earnings perspective and Economic Value Perspective.

Under Earnings perspective, bank uses the Traditional gap analysis method to calculate the Earnings at Risk (EAR), which is the quantity by which net income might change in the event of an adverse change in interest rate. EAR is calculated on a fortnightly basis.

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Under Economic value perspective, bank uses Duration Gap Analysis to assess the impact of interest rate risk. The Duration gap analysis monitors the impact of changes in the interest rates on the Market Value of Equity (MVE). It is calculated on a monthly basis.

The framework for managing interest rate risk (EVE) under Pillar II of Basel II is put in place through ICAAP Policy document.

Scope and nature of risk reporting/ measurement systems

Interest rate risk under duration gap analysis is evaluated on a monthly 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 and with the proper pricing of advances and deposits.

Brief description of the approach used for computation of interest rate risk :

The interest rate risk (EVE) is computed through Duration Gap Analysis. The step-by-step approach for computing modified duration gap is as follows: i) Identify variables such as principal amount, maturity date/re-pricing date, coupon rate, yield, frequency and basis of interest calculation for each item/category of Rate Sensitive Asset/Rate Sensitive Liability (RSA/RSL). ii) Plot each item/category of RSA/RSL under the various time buckets. For this purpose, the absolute notional amount of rate sensitive off-balance sheet items in each time bucket are included in RSA if positive or included in RSL if negative. iii) The mid-point of each time bucket is taken as a proxy for the maturity of all assets and liabilities in that time bucket. iv) Determine the coupon and the yield curve for arriving at the yields based on current market yields or current replacement cost for computation of Modified Duration (MD) of RSAs and RSLs. v) Calculate the MD in each time band of each item/category of RSA/RSL using the maturity date, yield, coupon rate, frequency, yield and basis for interest calculation. vi) Calculate the MD of each item/category of RSA/RSL as weighted average MD of each time band for that item. vii) Calculate the weighted average MD of all RSA (MDA) and RSL (MDL) to arrive at Modified Duration Gap (MDG).

Quantitative Disclosures

The impact on earnings and economic value of equity for notional interest rate shocks

Earnings at Risk Rupees in Millions Change in interest Change in EaR rate 2013 2012 2011 + 25 bps 46.6 25.0 19.9 + 50 bps 93.2 50.0 39.8 + 75 bps 139.8 75.1 59.7

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+ 100 bps 186.4 100.1 79.6

The Bank is computing market value of equity based on Duration Gap Analysis.

For a 200 bps rate shock, the drop in equity value 7.52% as on 31.03.2013 For a 200 bps rate shock, the drop in equity value 7.66% as on 31.03.2012 For a 200 bps rate shock, the drop in equity value 18.27% as on 31.03.2011

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 : Rupees in Millions 31.03.2013 31.03.2012 31.03.2011 Basel I norms 8227.3 8,471.1 8,435.7 Basel II norms 7362.1 7,846.9 7,727.4

Capital (Tier I and Tier II) maintained by the Bank, which is above the Basel II prudential floor limit.

Rupees in Millions 31.03.2013 9,045.0 31.03.2012 8,276.6 31.03.2011 10,131.5

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Limited Review Report on Interim Financial Information The Board of Directors, Dhanlaxmi Bank Limited

Introduction

1. We have reviewed the attached statement of unaudited assets and liabilities of Dhanlaxmi Bank Limited (‘the Bank’) as at September 30, 2013 and 2012 and the related unaudited statement of profit and loss and cash flow statement for the six months period ended September 30, 2013 and September 30, 2012 (together referred to as “the Statements”), prepared by the Bank’s management and signed by us for identification and annexed to this report for the purpose of inclusion in the Preliminary Placement Document and the Placement Document, respectively, by the Company in connection with its proposed Qualified Institutional Placement of equity shares (“QIP”). The Statements have been prepared in accordance with applicable accounting standards and other recoginsed accounting practices and policies.

Scope of Review

2. We conducted a limited review in accordance with the Standard on Review Engagement (SRE) 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Institute of Chartered Accountants of India. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the Statement is free of material misstatement or omission of any material information. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provide less assurance than an audit. We have not performed an audit and accordingly, we do not express an audit opinion.

3. The following audit qualification were noted in the limited review report dated:09 th November 2013, on the audit of Interim financial statements of the Bank for the half year ended September 30, 2013.

“Based on information provided to us by the management, Reserve Bank of India(RBI) Annual Financial inspection(AFI) as on 31 March 2013, under section 35 of the Banking Regulation act, 1949 is completed. AFI has suggested an additional provision of Rs.55.57 Crores, for divergence in NPA provisions of Rs.42.24 Crores and Rs.13.33 Crores for balances in nominal accounts of previous years. Had this provision been made in the accounts, profit would have decreased by Rs.55.57 Crores and Provision and contingencies would have increased by Rs.55.57 Crores respectively for the three months period ended 30 th September, 2013”.

Conclusion

4. Based on our review conducted as above, nothing has come to our attention that causes us to believe that the accompanying Statements of unaudited financial information have not been prepared in accordance with applicable accounting standards and other recoginsed accounting practices and policies subject to the exception of the matter stated in paragraph 3.

Restriction of use

5. This report is intended solely for the use of the Company for filing with Securities and Exchange Board of India, BSE Limited, National Stock Exchange of India Limited and Cochin Stock Exchange Limited and for inclusion in the Preliminary Placement Document in connection with the proposed QIP by the Bank under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (as amended) and should not be used, referred to or distributed for any other purpose without our prior written consent.

For Sagar & Associates Chartered Accountants

(B.Srinivasa Rao) Partner

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Firm registration number: 003510S Membership No.: 202352

Place: Thrissur Date: 19 December, 2013

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Dhanlaxmi Bank Limited Balance sheet as on September 30, 2013 & 2012 ( For Six Months )

(Rupees in millions) As at As at Schedule 30.09.2013 30.09.2012

CAPITAL AND LIABILITIES Capital 1 1,060.6 851.4 Reserves and Surplus 2 7,315.3 6,126.8 Deposits 3 119,066.5 109,754.0 Borrowings 4 7,774.6 8,240.9 Other Liabilities and Provisions 5 2,186.8 4,678.7 TOTAL 137,403.8 129,651.8

ASSETS Cash and Balances with Reserve Bank of India 6 6,143.4 6,947.2 Balances with Banks and Money at call and short notice 7 3,171.4 1,390.9 Investments 8 43,607.2 38,311.0 Advances 9 78,952.0 75,411.6 Fixed Assets 10 1,367.9 1,441.9 Other Assets 11 4,161.9 6,149.2 TOTAL 137,403.8 129,651.8 Contingent Liabilities 12 9,590.0 13,547.3 Bills for collection 2,612.1 3,744.9

Dhanlaxmi Bank Limited Profit & Loss Account for the period ended September 30, 2013 & 2012

(Rupees in Millions) As at As at Schedule Sep-13 Sep-12 INCOME Interest Earned 13 6,504.8 6,577.2 Other Income 14 393.6 432.2 Total 6,898.4 7,009.4 EXPENSE Interest expended 15 5,045.7 5,249.0 Operating Expenses 16 1,562.3 1,743.7 Provisions and Contingencies 273.1 321.0 Total 6,881.1 7,313.7 Net Profit for the year 17.3 (304.3) Profit brought forward (1,188.8) (1,201.9) Total (1,171.5) (1,506.2)

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Dhanlaxmi Bank Limited Cash Flow Statement for the period ended September, 2013 & 2012

(Rupees in Millions) Particulars As at As at Sep-13 Sep-12

Cash flow from operating activities Net profit after income tax 17.3 (304.3) Adjustments for : Depreciation on fixed assets 165.5 154.7 Depreciation on investments 128.0 (3.3) Amortisation of premia on investments 36.5 37.8 Loan Loss provisions including write off 162.4 384.9 Provision against standard assets 4.4 (48.8) Provision for wealth tax 0.0 0.0 Provision for Deferred tax Asset 0.0 0.0 Provision for NPA (Investments) 0.0 0.0 Provision for restructured assets (26.3) (11.8) Provision for fraud 3.2 0.0 Provision for OIS MTM loss 1.0 0.0 (Profit) on sale of fixed assets 0.0 0.1

Adjustments for : (Increase)/Decrease in Investments 3073.1 5,256.1 (Increase)/Decrease in Advances (1343.7) 11,784.1 Increase / (Decrease) in Borrowings (8046.4) (9991.2) (Decrease) /Increase in Deposits 7045.2 (8290.1) (Increase) / Decrease in Other assets 438.2 (1314.1) Increase/(Decrease) in Other liabilities and provisions (388.2) 516.1

Direct taxes paid (net of refunds) 0.0 0.0 Net cash flow from operating activities 1270.6 (1829.8)

Cash flows from investing activities Purchase of fixed assets (179.1) (111.8) Proceeds from sale of fixed assets 3.3 2.1 Net cash used in investing activities (175.8) (109.7)

Cash flows from financing activities Proceeds from issue of equity shares 150.2 0.0 Proceeds from issue of Upper and Lower Tier II capital instruments net of repayment (100.0) 1017.0 Proceeds from Share Premium (net of share issue expenses) 548.4 0.0 Dividend provided last year paid during the year including dividend tax 0.0 0.0 Net cash generated from financing activities 598.6 1017.0 Net increase in cash and cash equivalents 1693.4 (922.5) Cash and cash equivalents as at April 1 st 7621.3 9260.6 Cash and cash equivalents as at Sep 30 th 9314.8 8338.1

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SCHEDULES TO THE FINANCIAL STATEMENTS (Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 1 - CAPITAL

Authorised Capital 20,00,00,000 Equity Shares of Rs.10 each 2,000.0 2,000.0

Subscribed, Called up and Paid up Capital - - 10,60,59,619 Equity Shares of Rs.10 each 1,060.6 8,51,36,319 Equity Shares of Rs.10 each 851.4 Total 1,060.6 851.4

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 2 - RESERVES AND SURPLUS

I.STATUTORY RESERVES Opening Balance 772.6 772.6 Additions: Transfer from Profit and Loss Account Total 772.6 772.6

II.REVENUE AND OTHER RESERVES Opening Balance 826.2 826.2 Additions : Transfer from Profit and Loss Account - - Adjustments during the year Total 826.2 826.2

III. BALANCE IN PROFIT AND LOSS ACCOUNT (1,171.5) (1506.2)

IV.SECURITIES PREMIUM ACCOUNT Opening Balance 5,634.7 5,634.7 Additions during the year (net of share issue expenses) 843.3 - Total 6478.0 5,634.7

V.CAPITAL RESERVES Opening Balance 350.1 339.6 Additions: Transfer from Profit and Loss Account - - Deductions due to Depreciation of Revalued Premises - - Total 350.1 339.6

VI.SPECIAL RESERVE U/s.36(1)(viii) OF INCOME TAX ACT Opening Balance 59.9 59.9 Additions: Transfer from Profit and Loss account - - Total 59.9 59.9

Total 7315.3 6,126.8

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 3 - DEPOSITS A I. Demand Deposits (i). From Banks 36.7 123.5 (ii). From Others 9,070.8 8,716.3 Total 9,107.5 8,839.8

II . Savings Bank Deposits 15,994.0 15,230.2

III. Term Deposits (i). From Banks 8,334.6 8,717.9 (ii). From Others 85,630.4 76,966.1 Total 93,965.0 85,684.0

Total 119,066.5 109,754.0

B I. Deposits of Branches in India 119,066.5 109,754.0 II. Deposits of Branches outside India - - Total 119,066.5 109,754.0

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 4 - BORROWINGS I. Borrowings in India (i). Reserve Bank of India 888.1 222.8 (ii). Other Banks - - (iii). Other Institutions and Agencies 2,410.0 3,802.6 Total 3,298.1 4,025.4 Tier II Bonds in India Upper Tier II Bonds 275.0 275.0 Lower Tier II Bonds 2847.0 2,887.0 Total 3122.0 3,162.0

II. Borrowings Outside India # 1354.5 1,053.5 Total 1,354.5 1,053.5 Total 7774.6 8,240.9 # Book credit balances in foreign currency mirror accounts

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. Bills Payable 371.9 459.5 II. Interest accrued 635.6 2,057.6 III. Others (including Provisions) 1,179.3 2,161.6 Total 2186.8 4678.7

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. Cash on Hand (including foreign currency notes) 1,479.4 1,921.4 II. Balances with Reserve Bank of India - - (a). In current accounts 4,664.0 5,025.8 (b). In other accounts - - Sub Total 4,664.0 5,025.8

Total 6,143.4 6,947.2

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India (i) Balances with Banks : (a). In current accounts 870.6 334.9 (b). In other deposit accounts 1,675.3 1,036.8 Total 2,545.9 1,371.7 (ii) Money at Call and Short Notice (a). With banks 400.0 - (b). With other institutions - - - - Total 2,945.9 1,371.7 II. Outside India (a). In current account - - (b). In other deposit accounts 225.5 19.2 Total 225.5 19.2 Total 3,171.4 1,390.9

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 8 - INVESTMENTS A. Investments in India in (i). Government Securities 39,170.5 36,282.2 (ii). Approved securities - - (iii). Shares 40.6 42.7 (iv). Debentures and Bonds 782.4 1,032.7 (v). Subsidiaries/Joint Ventures - - (vi). Others 3,613.7 953.4 Total 43,607.2 38,311.0 B. Investments outside India - - Total 43,607.2 38,311.0

(i) Gross Value of Investments (a) In India 43,934.2 38,476.5 (b) Outside India - - 43,934.2 38,476.5 (ii) Provision for Depreciation (a) In India 327.0 165.5 (b) Outside India - - 327.0 165.5 (iii) Net Value of Investments (a) In India 43,607.2 38,311.0 (b) Outside India - - Total 43,607.2 38,311.0

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 9 - ADVANCES

A (i) Bills Purchased and discounted 1,131.8 1239.6 (ii) Cash Credits, Overdrafts and Loans repayable on Demand 20,444.6 15,297.3 (iii) Term Loans 57,375.6 58,874.7 Total 78,952.0 75,411.6

B (i) Secured by Tangible assets 70,988.7 65,547.7 (ii) Covered by Bank/Govt Guarantee 252.2 2,013.5 (iii) Unsecured 7,711.1 7850.4 Total 78,952.0 75,411.6

C. I..ADVANCES IN INDIA (i) Priority sectors 22841.0 24,198.5 (ii) Public Sector 369.6 145.7 (iii) Banks 33.5 0.5 (iv) Others 55,707.9 51,066.9 Total 78,952.0 75,411.6 II ADVANCES OUTSIDE INDIA - - Total 78,952.0 75,411.6

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(Rs in Millions)

As at As at 30.09.2013 30.09.2012 SCHEDULE 10 - FIXED ASSETS A. Premises At cost as per last Balance sheet 336.9 349.2 Additions during the year due to revaluation of Premises - - Additions/Adjustments during the year - - Deductions during the year - - Depreciation to date 98.2 98.7 Net Block 238.7 250.5

B. Other Fixed Assets (includes Furniture and Fixture and Computers) At cost as per last Balance sheet 2317.3 2,157.5 Additions/Adjustments during the year 179.1 111.8 Deductions during the year 2.4 2.0 Depreciation to date 1502.6 1177.2

Capital Work In progress 137.6 101.3 Net Block 1367.9 1,441.9

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 11 - OTHER ASSETS I. Interest Accrued 1,743.5 1,300.2 II. Inter Office Adjustments (Net) 4.0 0.2 III. Tax paid in advance and Tax Deducted at Source (net of provisions) 594.9 759.6 IV. Deferred Tax Asset 390.9 132.2 V. Stationery and stamps 11.8 6.9 VI. Non Banking Assets acquired in satisfaction of claims 0.1 0.5 VII. Others 1,416.7 3,949.6 Total 4161.9 6149.2

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(Rs in Millions) As at As at 30.09.2013 30.09.2012 SCHEDULE 12 - CONTINGENT LIABILITIES I. Claims against the bank not acknowledged as debts 44.9 39.4 II. Liabilities on account of outstanding forward exchange contracts 6,105.1 6868.0 III. Guarantees given on behalf of constituents in India 2,240.8 4221.6 IV. Acceptance endorsements and other obligations 346.6 558.4 V. Liability on account of interest rate swaps 500.0 1500.0 VI. Other items for which Bank is contingently liable # 352.6 359.9 #(Disputed Income Tax Liability) Total 9,590.0 13,547.3

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(Rs in Millions) Year ended Year ended 30.09.2013 30.09.2012 SCHEDULE 13 - I N T E R E S T E A R N E D

I. I. Interest/Discount on Advances/bills 4,740.0 4,995.2

II. II. Income on Investments 1,666.0 1,561.1

III. III. Interest on balance with RBI/other inter Bank funds 98.8 20.9

IV. IV. Others 0.0 0.0 Total 6,504.8 6,577.2

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(Rs in Millions) Year ended Year ended 30.09.2013 30.09.2012 SCHEDULE 14 - O T H E R I N C O M E I. Commission, Exchange and Brokerage 36.7 42.8 II. Profit/(Loss) on sale of Investments (Net) 119.3 45.6 III. Profit on sale of land, building and other Assets (Net) 1.0 0.1 IV. Profit on exchange transactions (Net) (8.2) 28.1 V. Income from Insurance 4.3 90.3 VI. Miscellaneous Income 240.5 225.3 Total 393.6 432.2

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(Rs in Millions) Year ended Year ended 30.09.2013 30.09.2012 SCHEDULE 15 - I N T E R E S T E X P E N D E D

I. Interest on Deposits 4,533.6 4,605.6

II. Interest on RBI/Inter Bank Borrowing 192.6 235.8

III. Others 319.5 407.6

Total 5,045.7 5,249.0

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Year ended Year ended 30.09.2013 30.09.2012 SCHEDULE 16 - O P E R A T I N G E X P E N S E S I. Payments to and Provisions for Employees 885.4 1014.9 II. Rent, Taxes and Lighting 176.1 207.6 III. Printing and Stationery 8.5 7.8 IV. Advertisement and Publicity 2.7 2.5 V. Depreciation to Banks property 165.5 154.7 VI. Directors Fee, Allowance and Expense 1.3 1.7 VII. Auditors Fee and Expense (including Branch Auditors) 0.7 0.2 VIII. Law charges 5.7 5.0 IX. Postage,Telegram,Telephone etc 34.2 76.0 X. Repairs and Maintenance 10.2 11.1 XI. Insurance 49.7 60.1 XII. Other Expenditure 222.3 202.1 Total 1562.3 1743.7

Notes to September 2012

1. The above unaudited financial results have been taken on record by the Audit Committee of the Board and approved by the Board of Directors at its meeting held on November 14, 2012. The same has been subjected to limited review by the Statutory Central Auditors of the Bank.

2. The working results for the six months ended September 30, 2012 have been arrived at after making provision for income tax, if any, and other usual and necessary provisions. Provisions for Non- Performing Assets, Standard Assets, Non-Performing Investments and Depreciation on Investments are made as per the guidelines issued by the Reserve Bank of India.

3. The unamortized transitional liability consequent to the reopening of the pension option and enhancement of the gratuity limit, following the amendments to the Payment of Gratuity Act, 1972 was Rs 153.1 million as on March 31, 2012. Out of the above, the amount charged to the Profit and Loss Account for the half year ended 30 th September 2012 is Rs 31.6 million ( Rs 16.6 million for the quarter ended 30.09.2012) and the balance in the unamortised amount carried forward is Rs 121.5 million which will be written off within a period of 3 years on a proportionate basis as per RBI guidelines.

4. The strategic investment made in Destimoney Securities Private Limited, a securities trading company, in February 2011, for Rs. 122.4 million has been written down to its fair value of Rs. 32.4 million based on the last audited financials of the company as on March 31, 2012.

5. To the extent applicable to the interim financials reporting, the Bank has consistently followed the same accounting policies and generally accepted practices adopted for the preparation of audited financial statements for the year ended 31 st March 2012.

6. Details of investor complaints for the six months ended September 30, 2012: Beginning - Nil; Received - 1; Disposed off - 1; Closing - Nil.

7. The figures for the previous periods/year have been regrouped wherever necessary.

Notes to September 2013

1. There has been no change in the accounting policies followed during the quarter/ half year ended 30 th September 2013 as compared to those followed in the preceding financial year ended 31 st March 2013.

2. The above unaudited financial results have been taken on record by the Audit Committee of the Board and approved by the Board of Directors at its meeting held on November 09, 2013. The same has been subjected to limited review by the Statutory Central Auditors of the Bank.

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3. The working results for the three months/ six months ended September 30, 2013 have been arrived at after making provision for income tax, if any, and other usual and necessary provisions. Provisions for Non-Performing Assets, Standard Assets, Non-Performing Investments and Depreciation on Investments are made as per the guidelines issued by the Reserve Bank of India. Further, the directions in Annual Financial Inspection (AFI) report 2013 regarding provision requirements relating to earlier years amounting to Rs.555.7 million is subject to compliance by the Bank.

4. The unamortized transitional liability consequent to the reopening of the pension option and enhancement of the gratuity limit, following the amendments to the Payment of Gratuity Act, 1972 was Rs 102.1 million as on March 31, 2013. Out of the above, the amount charged to the Profit and Loss Account for the half year ended 30 th September 2013 is Rs 25.5 million ( Rs 12.8 million for the quarter ended 30.09.2013) and the balance amount of Rs 76.6 million yet to be written off is carried forwarded to be amortized in future as permitted by RBI.

5. The strategic investment made in Destimoney Securities Private Limited, a securities trading company, in February 2011, for Rs. 122.5 million has been written down to its fair value of Rs. 31.9 million based on the last audited financials of the company as on March 31, 2012.

6. In terms of RBI circular DBOD. No. BP.BC.88/21.06.201/2012-13 dated 28.03.2013, Banks have been advised to disclose capital under Basel III Capital Regulations from the quarter ended 30 th June 2013. Accordingly, corresponding details for previous period/ year are not applicable.

7. In accordance with RBI circular DBOD No BO.BC.2/21.06.201/2013-14 dated 1 st July 2013, banks are required to make half yearly Pillar 3 disclosures under Basel III Capital Regulations with effect from 30 th September, 2013.The Bank has made these disclosures which are available in its website at the following link: http://www.dhanbank.com/investor_relations/inv_basel.aspx. These disclosures have not been subjected to limited review by the statutory auditors of the Bank.

8. In terms of RBI circular DBOD.BP.BC.No.41/21.04.141/2013-14 dated August 23, 2013 on “Investment portfolio of banks –Classification, Valuation and Provisioning”, the Bank has opted to amortise the depreciation on the Available for Sale (AFS) and Held for Trading (HFT) portfolios on each of the valuation dates in the current financial year in equal installments during the financial year 2013-14. Accordingly, of the total depreciation of Rs 861.5 million as at September 30 2013, the Bank has recognized Rs 123.1 million in the profit and loss account of the current quarter.

9. Details of investor complaints for the six months ended September 30, 2013: Beginning - Nil; Received - 2; Disposed off - 2; Closing - Nil.

10. The figures for the previous periods/year have been regrouped wherever necessary.

UNAUDITED SEGMENT-WISE REVENUE, RESULTS AND CAPITAL EMPLOYED

Part A: Business Segments

(Rs. in Millions) For the half year For the quarter ended Year ended ended Particulars June 30, Sep 30, Sep 30, Sep 30, 2013 Sep 30, 2012 March 31, 2013 2013 2013 2012 (Reviewed) (Reviewed) (Reviewed) (Reviewed) (Reviewed) (Audited) 1. Segment Revenue (a) Treasury 911.0 972.4 791.3 1883.4 1655.6 3775.4 (b) Retail Banking 1294.1 1433.4 1638.5 2727.5 3355.7 6237.0 (c) Corporate/Wholesale 1309.2 977.3 928.8 2286.5 1998.1 4170.0 Banking (d) Other Banking ------Operations (e) Unallocated 0.9 0.1 - 1.0 0 40.6

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Total 3515.2 3383.2 3358.6 6898.4 7009.4 14223.0 Less: Inter-Segment ------Revenue Income from 3515.2 3383.2 3358.6 6898.4 7009.4 14223.0 Operations 2. Segment Results (Profit (+)/Loss (-) before tax and after interest from each segment) (a) Treasury (23.0) 86.7 (194.8) 63.7 (239.6) 149.8 (b) Retail Banking 110.7 14.7 200.5 125.4 208.3 226.0 (c) Corporate/Wholesale 94.5 7.1 101.8 101.6 72.2 122.3 Banking (d) Other Banking ------Operations (e) Unallocated 0.1 (0.4) (1.2) (0.3) (24.2) 15.9 Total 182.3 108.1 106.3 290.4 16.7 514.0 Less : (i) Interest ------(ii) Other Unallocable 200.8 71.9 292.5 272.7 321.0 746.9

Expenditure net-off (iii) ------Unallocable income Profit (+)/Loss(-) (18.5) 36.2 (186.2) 17.7 (304.3) (232.9) before tax 3. Capital

Employed (a) Treasury 2234.9 3410.7 3738.5 2234.9 3738.5 (4179.8) (b) Retail Banking 2795.9 2371.6 1452.0 2795.9 1452.0 6386.5 (c) Corporate/Wholesale 2347.4 1621.6 888.4 2347.4 888.4 4300.4 Banking (d) Other Banking ------Operations (e) Unallocated 997.7 990.5 899.3 997.7 899.3 1152.9 Total 8375.9 8394.4 6978.2 8375.9 6978.2 7660.0

Business Segments have been identified and reported taking into account, the target customer profile, the nature of products and services, the differing risks and returns, the organization structure, the internal business reporting system and the guidelines prescribed by Reserve Bank of India.

Part B: Geographical segment

The Bank has only the domestic geographic segment. (Rs in Millions)

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DECLARATION

Our Bank certifies that all relevant provisions of Chapter VIII read with Schedule XVIII of the SEBI Regulations have been complied with. Our Bank further certifies that all the statements in this Preliminary Placement Document are true and correct.

Signed by:

Mr. P. G. Jayakumar Managing Director and CEO Date: December 20, 2013 Place: Thrissur, Kerala

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Dhanlaxmi Bank Limited Dhanalakshmi Buildings Naickanal, Thrissur – 680 001 Kerala, India. Tel: +91 0487 6617000 Fax: +91 0487 6617222

BOOK RUNNING LEAD MANAGER

Elara Capital (India) Private Limited Indiabulls Finance Centre Tower 3, 21st Floor Parel, Mumbai 400 013 India

LEGAL COUNSEL TO THE BANK AND BOOK RUNNING LEAD MANAGER AS TO INDIAN LAW

Luthra & Luthra Law Offices 20th Floor, Tower 2 Indiabulls Finance Centre Elphinstone Mills compound, Senapati Bapat Marg Lower Parel, Mumbai 400 013 India

INTERNATIONAL LEGAL COUNSEL TO THE BANK WITH RESPECT TO INTERNATIONAL SELLING AND TRANSFER RESTRICTIONS

Duane Morris & Selvam LLP 16 Collyer Quay, Floor17 Singapore 049318

STATUTORY AUDITORS

M/s Sagar & Associates, Chartered Accountants H. No 6-3-244/5, Sarada Devi Street, Prem Nagar Hyderabad, Andhra Pradesh-500 004 Firm Registration Number: 003510S

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