The Karnataka Bank Limited

Letter of Offer October 28, 2016 For Eligible Shareholders only

Our Bank was incorporated on February 18, 1924 as The Karnataka Bank Limited under the Indian Companies Act, 1913. The certificate of commencement of business was obtained on May 23, 1924. Our Bank received a license to carry on the banking business in India under the Banking Regulation Act, 1949, from the Reserve Bank of India on April 4, 1966. Registered Office: P.B. No. 599, Mahaveera Circle, Kankanady Mangaluru 575 002, Karnataka Contact Person: Mr. Y.V. Balachandra, Company Secretary and Compliance Officer Telephone: +91 (824) 2228182-4; Facsimile: +91 (824) 2225588; Email: [email protected] Website: www.karnatakabank.com Corporate Identity Number: L85110KA1924PLC001128

FOR PRIVATE CIRCULATION TO THE ELIGIBLE SHAREHOLDERS OF THE KARNATAKA BANK LIMITED (OUR “BANK” OR THE “ISSUER”) ONLY ISSUE OF UP TO 9,42,35,441 EQUITY SHARES OF FACE VALUE ` 10 EACH (“RIGHTS EQUITY SHARES”) OF OUR BANK FOR CASH AT A PRICE OF ` 70 PER RIGHTS EQUITY SHARE (“ISSUE PRICE”) INCLUDING A PREMIUM OF ` 60 PER RIGHTS EQUITY SHARE AGGREGATING UP TO ` 659.65 CRORE ON A RIGHTS BASIS TO THE ELIGIBLE SHAREHOLDERS OF OUR BANK IN THE RATIO OF 1 (ONE) RIGHTS EQUITY SHARES FOR 2 (TWO) FULLY PAID-UP EQUITY SHARES HELD BY SUCH ELIGIBLE SHAREHOLDER ON THE RECORD DATE, THAT IS, OCTOBER 25, 2016 (“ISSUE”). THE ISSUE PRICE OF THE RIGHTS EQUITY SHARES IS SEVEN TIMES THE FACE VALUE OF THE EQUITY SHARES. FOR FURTHER DETAILS, PLEASE SEE “TERMS OF THE ISSUE” ON PAGE 92. THE ENTIRE ISSUE PRICE FOR THE RIGHTS EQUITY SHARES IS PAYABLE ON APPLICATION. GENERAL RISKS Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in the Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in the Issue. For taking an investment decision, investors must rely on their own examination of our Bank and the Issue including the risks involved. The Rights Equity Shares have not been recommended or approved by the Securities and Exchange Board of India (“SEBI”) nor does SEBI guarantee the accuracy or adequacy of this Letter of Offer. Investors are advised to refer to “Risk Factors” beginning on page 12 before making an investment in the Issue. ISSUER’S ABSOLUTE RESPONSIBILITY Our Bank, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all information with regard to our Bank and the Issue, which is material in the context of the Issue, that the information contained in this Letter of Offer is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Letter of Offer as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The existing Equity Shares of our Bank are listed on the BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”, and together with BSE, the “Stock Exchanges”). Our Bank has received “in-principle” approvals from BSE and NSE for listing the Rights Equity Shares to be allotted pursuant to the Issue through their respective letters, dated October 6, 2016 and October 10, 2016, respectively. For the purposes of the Issue, the Designated Stock Exchange is the BSE. LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

Edelweiss Financial Services Limited Integrated Enterprises (India) Limited 14th Floor, Edelweiss House No 30 Ramana Residency Off C.S.T. Road, Kalina 4th Cross, Sampige Road, Malleswaram Bengaluru 560 003 Mumbai 400 098 Telephone: + 91 (80) 23460815-818 Telephone: +91 (22) 4009 4400 Facsimile: + 91 (80) 23460819 Facsimile: +91 (22) 4086 3610 E-mail: [email protected] E-mail: [email protected] Investor Grievance E-mail: [email protected] Website: www.edelweissfin.com Website: www.integratedindia.in Contact Person: Mr. Viral Shah / Mr. Vaibhav Shah Contact Person: Mr. S. Vijayagopal/ Mr. E.T Balaji SEBI Registration No.: INM0000010650 SEBI Registration No: INR 000000544

ISSUE PROGRAMME LAST DATE FOR ISSUE OPENS ON REQUEST FOR SPLIT ISSUE CLOSES ON APPLICATION FORMS NOVEMBER 7, 2016 NOVEMBER 15, 2016 NOVEMBER 21, 2016

TABLE OF CONTENTS

SECTION I – GENERAL ...... 2 DEFINITIONS AND ABBREVIATIONS ...... 2 NOTICE TO OVERSEAS SHAREHOLDERS ...... 8 PRESENTATION OF FINANCIAL INFORMATION ...... 10 FORWARD LOOKING STATEMENTS ...... 11 SECTION II: RISK FACTORS ...... 12 SECTION III: INTRODUCTION ...... 36 THE ISSUE ...... 36 SUMMARY FINANCIAL INFORMATION ...... 37 GENERAL INFORMATION ...... 42 CAPITAL STRUCTURE ...... 46 OBJECTS OF THE ISSUE ...... 50 SECTION IV: STATEMENT OF SPECIAL TAX BENEFITS ...... 52 SECTION V: OUR MANAGEMENT ...... 55 SECTION VI: FINANCIAL INFORMATION ...... 60 FINANCIAL STATEMENTS ...... 60 MATERIAL DEVELOPMENTS ...... 61 ACCOUNTING RATIOS AND CAPITALISATION STATEMENT ...... 62 STOCK MARKET DATA FOR EQUITY SHARES OF OUR BANK ...... 64 SECTION VII: LEGAL AND OTHER INFORMATION ...... 67 OUTSTANDING LITIGATION AND DEFAULTS ...... 67 GOVERNMENT AND OTHER APPROVALS ...... 80 OTHER REGULATORY AND STATUTORY DISCLOSURES ...... 81 SECTION VIII: ISSUE INFORMATION ...... 92 TERMS OF THE ISSUE ...... 92 SECTION IX: OTHER INFORMATION ...... 126 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ...... 126 DECLARATION ...... 128

SECTION I – GENERAL

DEFINITIONS AND ABBREVIATIONS

Definitions

This Letter of Offer uses certain definitions and abbreviations, which unless the context indicates or implies otherwise, have the meanings as provided below. Reference to any legislation, act, regulation, guideline or policy will be deemed to include all amendments, modifications and replacements notified thereto, as of the date of this Letter of Offer.

Bank Related Terms

Term Description “Our Bank” / “the The Karnataka Bank Limited Issuer” / “We” / “Our” / “Us” “Articles of Articles of association of our Bank, as amended Association” / “Articles” “Audited Financial Statement of assets and liabilities of our Bank as of March 31, 2016 and 2015 and Statements” the statement of profit and loss account and the cash flow statements for the years ended March 31, 2016 and 2015, together with the accompanying schedules, annexures and notes, prepared in accordance with the Indian GAAP, Companies Act, including the accounting standards specified under section 133 of the Companies Act read with rule 7 of the Companies (Accounts) Rules, 2014 and provisions of section 29 of the Banking Regulation Act and circulars and guidelines issued by the RBI from time to time. “Board of Directors” / Board of directors of our Bank or a duly constituted committee thereof, as the context “Board” may refer to “Director(s)” Any or all the directors on our Board, as may be appointed from time to time “Equity Shares” Equity shares of our Bank having a face value of ` 10 each “Financial Statements” The Audited Financial Statements and Limited Review Financial Statements “Limited Review The unaudited financial statements of our Bank as at and for the quarter ended June Financial Statements” 30, 2016 “Memorandum Memorandum of association of our Bank, as amended of Association” / “Memorandum” “Registered Office” Registered office of our Bank situated at P.B. No. 599, Mahaveera Circle, Kankanady Mangaluru 575 002, Karnataka “Shareholders” Equity shareholders of our Bank, from time to time “Statutory Auditors” Joint Statutory Central Auditors of our Bank, namely, M/s. Kamath & Rau, Chartered Accountants and M/s. Abarna & Ananthan, Chartered Accountants

Issue Related Terms

Term Description “Abridged Letter of Abridged letter of offer to be sent to the Eligible Shareholders with respect to the Offer” / “ALOF” Issue in accordance with the provisions of the SEBI Regulations and the Companies Act “Allot” / “Allotment” / Allotment of Rights Equity Shares pursuant to the Issue “Allotted” “Allotment Date” Date on which the Allotment is made “Allottee(s)” Person(s) who are Allotted Rights Equity Shares pursuant to the Allotment “Applicant” Eligible Shareholder(s) and/or Renouncees who make an application for the Rights Equity Shares pursuant to the Issue in terms of this Letter of Offer, including an ASBA Applicant “Application Money” Aggregate amount payable in respect of the Rights Equity Shares applied for in the

Term Description Issue at the Issue Price “Application Application (whether physical or electronic) used by an ASBA Investor to make an Supported by Blocked application authorizing the SCSB to block the Application Money in an ASBA Amount” / “ASBA” Account maintained with the SCSB “ASBA Account” Account maintained with the SCSB and specified in the CAF or the plain paper application by the Applicant for blocking the amount mentioned in the CAF or the plain paper application “ASBA Applicant” / Eligible Shareholders proposing to subscribe to the Issue through ASBA process and “ASBA Investor” who:

1. are holding the Equity Shares of our Bank in dematerialized form as on the Record Date and have applied for their Rights Entitlements and / or additional Rights Equity Shares in dematerialized form; 2. have not renounced their Rights Entitlements in full or in part; 3. are not Renouncees; and 4. are applying through blocking of funds in a bank account maintained with the SCSBs.

QIBs, Non-Institutional Investors and Investors whose Application Money exceeds ` 2,00,000 can participate in the Issue only through the ASBA process “Banker to the Issue” The Karnataka Bank Limited, acting as the refund bank and escrow collection bank to the Issue “Composite The form used by an Investor to make an application for the Allotment of Rights Application Form” / Equity Shares in the Issue “CAF” “Consolidated In case of holding of Equity Shares in physical form, the certificate that would be Certificate” issued for the Rights Equity Shares Allotted to each folio “Controlling Branches” Such branches of the SCSBs which co-ordinate with the Lead Manager, the Registrar / “Controlling to the Issue and the Stock Exchanges, a list of which is available on Branches of the http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries SCSBs” “Designated Branches” Such branches of the SCSBs which shall collect the CAF or the plain paper application, as the case may be, used by the ASBA Investors and a list of which is available on http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries “Designated Stock BSE Exchange” “Eligible Holders of Equity Shares of our Bank as on the Record Date, that is, October 25, Shareholders” 2016. Please note, however, that investors eligible to participate in the Issue exclude certain overseas shareholders. For further details, please see “Notice to overseas Shareholders” on page 8. “Investor(s)” Eligible Shareholder(s) of our Bank on the Record Date, that is, October 25, 2016 and the Renouncee(s) “Issue” / “the Issue” Issue of up to 9,42,35,441 Equity Shares of face value ` 10 each of our Bank for cash at a price of ` 70 (including a premium of ` 60 per Rights Equity Share) aggregating up to ` 659.65 crore on a rights basis to the Eligible Shareholders of our Bank in the ratio of 1 Rights Equity Shares for 2 fully paid-up Equity Shares held by such Eligible Shareholder on the Record Date “Issue Closing Date” November 21, 2016 “Issue Opening Date” November 7, 2016 “Issue Price” ` 70 per Equity Share “Issue Proceeds” Gross proceeds of the Issue “Lead Manager” Edelweiss Financial Services Limited “Letter of Offer” This letter of offer dated October 28, 2016 filed with the Stock Exchanges and SEBI “Listing Agreement” Uniform listing agreements entered into under the Listing Regulations and the erstwhile equity listing agreements entered into between our Bank and the Stock

Term Description Exchanges, as the context may refer to “Non-ASBA Investor” Investors other than ASBA Investors who apply in the Issue otherwise than through the ASBA process “Non-Institutional Investor, including any company or body corporate, other than a Retail Individual Investors” Investor and a QIB “Qualified Institutional Qualified institutional buyers as defined under Regulation 2(1)(zd) of the SEBI Buyers” / “QIBs” Regulations “Record Date” Designated date for the purpose of determining the Shareholders eligible to apply for Rights Equity Shares in the Issue, that is, October 25, 2016. “Registrar to the Issue” Integrated Enterprises (India) Limited / “Registrar” “Renouncee(s)” Person(s) who has / have acquired Rights Entitlement from the Eligible Shareholders “Retail Individual Individual Investors who have applied for Rights Equity Shares and whose Investor” Application Money is not more than ` 200,000 (including HUFs applying through their karta) “Rights Entitlement” 1 Rights Equity Shares that an Eligible Shareholder is entitled to apply for in the Issue for every 2 fully paid-up Equity Shares held by such Eligible Shareholder on the Record Date “Rights Equity Shares” Equity Shares of our Bank to be Allotted pursuant to the Issue. “SAF(s)” Split application form(s) which is an application form used in case of renunciation in part by an Eligible Shareholder in favour of one or more Renouncee(s) “SCSB(s)” Self certified syndicate bank registered with SEBI, which acts as a banker to the Issue and which offers the facility of ASBA. A list of all SCSBs is available at http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries “Stock Exchanges” Stock exchanges where the Equity Shares are presently listed, being the BSE and the NSE “Working Days” All days other than second and fourth Saturdays of the month, Sundays or public holidays, on which commercial banks in Mumbai are open for business

Conventional and General Terms or Abbreviations

Term /Abbreviation Description / Full Form “`” / “Rs.” / “Rupees” / Indian Rupee “INR” “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 “AS” Accounting standards issued by The Institute of Chartered Accountants of India as notified under the Companies (Accounts) Rules, 2014, as amended Banking Regulation Banking Regulation Act, 1949, as amended. Act “BSE” BSE Limited “CDSL” Central Depository Services (India) Limited “Central Government” Central Government of India “CCI” Competition Commission of India “CIN” Corporate identity number “Companies Act” Companies Act, 1956 to the extent not repealed, and the Companies Act, 2013, as applicable “Companies Act, Companies Act, 1956, and the rules, regulations, modifications and clarifications 1956” made thereunder, as the context requires “Companies Act, Companies Act, 2013 and the rules, regulations, modifications and clarifications 2013” thereunder, to the extent notified “Depositories Act” Depositories Act, 1996 “Depository” A depository registered with SEBI under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996

Term /Abbreviation Description / Full Form “DIN” Director identification number “DP” / “Depository Depository participant as defined under the Depositories Act Participant” “DP ID” Depository participant identity “FDI” Foreign direct investment “FEMA” Foreign Exchange Management Act, 1999, read with rules and regulations thereunder “FEMA Regulations” Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 “FII” Foreign institutional investor as defined under Regulation 2(1)(g) of the SEBI FPI Regulations “Financial Year” / Period of 12 months ended March 31 of that particular year, unless otherwise stated “FY” / “Fiscal” “GAAP” Generally Accepted Accounting Principles “Government” Central Government and / or the State Government, as applicable “GST” Goods and service tax “HUF” Hindu undivided family “ICAI” Institute of Chartered Accountants of India “IFRS” International Financial Reporting Standards “ISIN” International Securities Identification Number allotted by the Depository “IND-AS” Indian accounting standards “India” Republic of India “Indian GAAP” Generally accepted accounting principles followed in India “IT Act” Income Tax Act, 1961 “Listing Regulations” Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended “MCA” Ministry of Corporate Affairs, Government of India “Mutual Fund” Mutual fund registered with SEBI under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 “NACH” National Automated Clearing House “NEFT” National Electronic Fund Transfer “Negotiable Negotiable Instruments Act, 1881 Instruments Act” “NR” Non-resident or person(s) resident outside India, as defined under the FEMA “NRE Account” Non-resident external account “NRI” A person resident outside India who is a citizen of India as defined under the Foreign Exchange Management (Deposit) Regulations, 2016 or is an ‘Overseas Citizen of India’ cardholder within the meaning of section 7(A) of the Citizenship Act, 1955. “NRO Account” Non-resident ordinary account established in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 “NSDL” National Securities Depository Limited “NSE” National Stock Exchange of India Limited “OCB” / “Overseas A company, partnership, society or other corporate body owned directly or indirectly Corporate Body” to the extent of at least 60% by NRIs including overseas trusts, in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly and which was in existence on October 3, 2003 and immediately before such date had taken benefits under the general permission granted to OCBs under FEMA “PAN” Permanent account number “PAT” Profit after tax “PBT” Profit before tax “RBI” Reserve Bank of India “RoC” Registrar of Companies, Karnataka “RTGS” Real time gross settlement “SCRR” Securities Contracts (Regulation) Rules, 1957 “SEBI” The Securities and Exchange Board of India “SEBI Act” The Securities and Exchange Board of India Act, 1992

Term /Abbreviation Description / Full Form “SEBI FPI The Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations” Regulations, 2014 “SEBI Regulations” The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 “Securities Act” United States Securities Act of 1933 “State Government” Government of a State of India “Takeover The Securities and Exchange Board of India (Substantial Acquisition of Shares and Regulations” Takeovers) Regulations, 2011

Industry Terms or Abbreviations

Term /Abbreviation Description / Full Form ATMs Automated Teller Machines ANBC Adjusted Net Bank Credit CAR Capital Adequacy Ratio CDR Corporate Debt Restructuring CRAR Capital to Risk Weighted Assets Ratio CRR Cash Reserve Ratio DBOD Department of Banking Operations and Development DRS Disaster Recovery Site DRT Debts Recovery Tribunal ECS Electronic Clearing Services GAAP Generally Accepted Accounting Principles HFT Held for trading HTM Held to Maturity IRDA Insurance Regulatory and Development Authority IT Income Tax KYC Know Your Customer Norms as stipulated by the Reserve Bank of India LIC Life Insurance Corporation of India FCNR (Account) Foreign Currency Non Resident (Account) FCNR (Banks) Foreign Currency Non Resident (Banks) NAV Net Asset Value NPA Non-Performing Asset NEFT National Electronic Fund Transfer MCLR Marginal Cost of Funds based Lending Rate MSME Micro Small and Medium Enterprises. Micro Enterprise shall mean where the investment in plant and machinery does not exceed ` 0.25 crore. Small Enterprise shall mean where the investment in plant and machinery is more than ` 0.25 crore but does not exceed ` 5 crore, and Medium Enterprise shall mean where the investment in plant and machinery is more than ` 5 crore but does not exceed ` 10 crore RIDF Rural Infrastructure Development Fund RTGS Real Time Gross Settlement SARFAESI Act Securitisation and Reconstruction of Financial Assets and Enforcement of Security 2002/Securitisation Act Interests Act, 2002, as amended SLR Statutory Liquidity Ratio 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 any statutory reserves, free reserves and capital reserves as reduced by equity investments in subsidiaries, intangible assets, and losses in the current period and those brought forward from the previous period Tier II Capital The undisclosed reserves and cumulative perpetual preference shares, revaluation reserves, general provisions and loss reserves, hybrid debt capital instruments, investment fluctuation reserves and subordinated debt.

The words and expressions used but not defined herein shall have the same meaning as assigned to such terms

under the SEBI Regulations, the Companies Act, the SEBI Act, Securities Contract (Regulation) Act, 1956 and the Depositories Act and the rules and regulations made thereunder.

Notwithstanding the foregoing, terms specifically defined in this Letter of Offer, shall have the meanings given to such terms in the sections where specifically defined.

NOTICE TO OVERSEAS SHAREHOLDERS

The distribution of this Letter of Offer, the Abridged Letter of Offer or CAF and Issue to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this Letter of Offer, the Abridged Letter of Offer or CAF may come are required to inform themselves about and observe such restrictions. Our Bank is making the Issue on a rights basis to the Eligible Shareholders and will dispatch this Letter of Offer / Abridged Letter of Offer and CAF only to Eligible Shareholders who have a registered address in India or who have provided an Indian address to our Bank.

No action has been or will be taken to permit the Issue in any jurisdiction where action would be required for that purpose. Accordingly, the Rights Entitlements or Rights Equity Shares may not be offered or sold, directly or indirectly, and this Letter of Offer, the Abridged Letter of Offer or any offering materials or advertisements in connection with the Issue may not be distributed, in whole or in part, in any jurisdiction, except in accordance with legal requirements applicable in such jurisdiction. Receipt of this Letter of Offer or the Abridged Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer and, in those circumstances, this Letter of Offer and the Abridged Letter of Offer must be treated as sent for information only and should not be acted upon for subscription to the Rights Equity Shares and should not be copied or redistributed. Accordingly, persons receiving a copy of this Letter of Offer or the Abridged Letter of Offer should not, in connection with the issue of the Rights Equity Shares or the Rights Entitlements, distribute or send this Letter of Offer or the Abridged Letter of Offer in or into any jurisdiction where to do so, would or might contravene local securities laws or regulations. If this Letter of Offer or the Abridged Letter of Offer is received by any person in any such jurisdiction, or by their agent or nominee, they must not seek to subscribe to the Rights Equity Shares or the Rights Entitlements referred to in this Letter of Offer and the Abridged Letter of Offer. Envelopes containing a CAF should not be dispatched from the jurisdiction where it would be illegal to make an offer and all the person subscribing for the Equity shares in the Issue must provide an Indian address

Any person who makes an application to acquire rights and the Equity shares offered in the Issue will be deemed to have declared, represented, warranted and agreed that he is authorized to acquire the rights and the Equity shares in compliance with all applicable laws and regulations prevailing in his jurisdiction.

Neither the delivery of the Letter of Offer nor any sale hereunder, shall under any circumstances create any implication that there has been no change in the Bank’s affairs from the date hereof or that the information contained herein is correct as at any time subsequent to the date of the Letter of Offer. The contents of the Letter of Offer should not be construed as legal, tax or investment advice. Prospective investors may be subject to adverse foreign, state or local tax or legal consequences as a result of the offer of Equity Shares. As a result, each investor should consult its own counsel, business advisor and tax advisor as to the legal, business, tax and related matters concerning the offer of Equity Shares. In addition, neither our Bank nor the Lead Manager is making any representation to any offeree or purchaser of the Equity Shares regarding the legality of an investment in the Equity Shares by such offeree or purchaser under any applicable laws or regulations.

NO OFFER IN THE UNITED STATES

The Rights Entitlements and the Rights Equity Shares have not been and will not be registered under the Securities Act, or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof (“United States” or “U.S.”), or to, or for the account or benefit of “U.S. persons” (as defined in Regulation S of the Securities Act), except in a transaction not subject to, or exempt from the registration requirements of the Securities Act. The offering to which this Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any Rights Equity Shares or Rights Entitlement for sale in the United States or as a solicitation therein of an offer to buy any of the Rights Equity Shares or Rights Entitlement. There is no intention to register any portion of the Issue or any of the securities described herein in the United States or to conduct a public offering of securities in the United States. Accordingly, this Letter of Offer / Abridged Letter of Offer and the enclosed CAF should not be forwarded to or transmitted in or into the United States at any time. In addition, until the expiry of 40 days after the commencement of the Issue, an offer or sale of Rights Entitlements or Rights Equity Shares within the United States by a dealer (whether or not it is participating in the Issue) may violate the registration requirement of the Securities Act.

Neither we nor any person acting on our behalf will accept a subscription or renunciation from any person, or the agent of any person, who appears to be, or who we or any person acting on our behalf has reason to believe is, either a U.S. Person or otherwise in the United States when the buy order is made. Envelopes containing a CAF should not be postmarked in the United States or otherwise dispatched from the United States or any other

jurisdiction where it would be illegal to make an offer, and all persons subscribing for the Rights Equity Shares Issue and wishing to hold such Equity Shares in registered form must provide an address for registration of these Equity Shares in India. We are making the Issue on a rights basis to Eligible Shareholders and the Letter of Offer / Abridged Letter of Offer and CAF will be dispatched only to Eligible Shareholders who have an Indian address. Any person who acquires Rights Entitlements and the Rights Equity Shares will be deemed to have declared, represented, warranted and agreed that, (i) it is not and that at the time of subscribing for such Rights Equity Shares or the Rights Entitlements, it will not be, in the United States, (ii) it is not a U.S. Person and does not have a registered address (and is not otherwise located) in the United States when the buy order is made, and (iii) it is authorised to acquire the Rights Entitlements and the Rights Equity Shares in compliance with all applicable laws and regulations.

We reserve the right to treat any CAF as invalid which: (i) does not include the certification set out in the CAF to the effect that the subscriber is not a U.S. Person and does not have a registered address (and is not otherwise located) in the United States and is authorized to acquire the Rights Equity Shares or Rights Entitlement in compliance with all applicable laws and regulations; (ii) appears to us or our agents to have been executed in or dispatched from the United States; (iii) appears to us or our agents to have been executed by a U.S. Person; (iv) where a registered Indian address is not provided; or (v) where we believe that CAF is incomplete or acceptance of such CAF may infringe applicable legal or regulatory requirements; and we shall not be bound to allot or issue any Rights Equity Shares or Rights Entitlement in respect of any such CAF.

Rights Entitlements may not be transferred or sold to any person in the United States.

PRESENTATION OF FINANCIAL INFORMATION

Certain Conventions

All references herein to ‘India’ are to the Republic of India and its territories and possessions and the ‘Government’ or ‘GoI’ or the ‘Central Government’ or the ‘State Government’ are to the Government of India, Central or State, as applicable. Unless otherwise specified or the context otherwise requires, all references in this Letter of Offer to the ‘US’ or ‘U.S.’ or the ‘United States’ are to the United States of America and its territories and possessions.

Unless the context otherwise requires, a reference to “Bank”/ “we” / “us” / “our” is a reference to The Karnataka Bank Limited.

In this Letter of Offer, references to the singular also refer to the plural and one gender also refers to any other gender, wherever applicable.

Financial Data

Unless stated otherwise, financial data in this Letter of Offer, with respect to our Bank, is derived from our Audited Financial Statements and our Limited Review Finacial Statements.

Our Fiscal year commences on April 1 of each calendar year and ends on March 31 of the following calendar year, so all references to a particular “Fiscal year” or “Fiscal” are to the 12 month period ended on March 31 of that year.

Our Audited Financial Statements, prepared in accordance with Indian GAAP, Companies Act, including the accounting standards specified under section 133 of the Companies Act read with rule 7 of the Companies (Accounts) Rules, 2014 and provisions of section 29 of the Banking Regulation Act and circulars and guidelines issued by the RBI from time to time. Further, our unaudited limited reviewed financial results for the quarter ended June 30, 2016 (“Limited Review Financial Statements”) that appear in this Letter of Offer have been prepared by our Bank in accordance with Indian GAAP and other applicable statutory and / or regulatory requirements, including the requirements of the Listing Regulations. For further details of such financial statements, please see “Financial Statements” on page 60.

Indian GAAP differs in certain significant respects from IFRS. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures based on the Indian GAAP financials presented in this Letter of Offer should accordingly be limited. We have not attempted to explain those differences or quantify their impact on the financial data included herein, and we urge you to consult your own advisors regarding such differences and their impact on our financial data. For details in connection with risks involving differences between Indian GAAP and other accounting principles and risks in relation to IFRS, please see “Risk Factors – Significant differences exist between GAAP as applied in India and other accounting principles with which investors may be more familiar.”, on page 35.

Certain figures contained in this Letter of Offer, including financial information, have been subject to rounding adjustments. All decimals have been rounded off to two decimal places. In certain instances, (i) the sum or percentage change of such numbers may not conform exactly to the total figure given; and (ii) the sum of the numbers in a column or row in certain tables may not conform exactly to the total figure given for that column or row. Unless otherwise specified, all financial numbers in parenthesis represent negative figures.

Currency of Presentation

All references to ‘INR’, ‘`’, ‘Indian Rupees’, ‘Rs.’ and ‘Rupees’ are to the legal currency of India.

In this Letter of Offer, our Bank has presented certain numerical information in “crore” unit. One crore represents 1,00,00,000.

FORWARD LOOKING STATEMENTS

Certain statements contained in this Letter of Offer that are not statements of historical fact constitute ‘forward- looking statements’. Investors can generally identify forward-looking statements by terminology such as ‘anticipate’, ‘believe’, ‘continue’, ‘can’, ‘could’, ‘intend’, ‘may’, ‘shall’ ‘should’, ‘will’, ‘would’, ‘future’, ‘forecast’, ‘guideline’ or other words or phrases of similar import. Similarly, statements that describe the strategies, objectives, plans or goals of our Bank are also forward-looking statements. However, these are not the exclusive means of identifying forward-looking statements. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies contain projections of results of operations or of financial condition or state other forward-looking information.

Forward-looking statements contained in this Letter of Offer (whether made by our Bank or any third party), are predictions and involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of our Bank to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections. All forward-looking statements are subject to risks, uncertainties and assumptions about our Bank that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our Bank’s expectations include, among others:

 volatility in interest rates and other market conditions;  our inability to manage non-performing assets  our inability to compete effectively;  ability to manage credit, market and operational risk;  laws, rules, regulations, guidelines and norms applicable to the banking industry, including priority sector lending requirements, capital adequacy and liquidity requirements  any inability to manage maturity and interest rate mismatches between our assets and liabilities;  adverse change in the economy of India; and  certain failures, including internal or external fraud, operational errors, system malfunctions, or cyber security incidents.

Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed in “Risk Factors” beginning on page 12. Whilst 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, Investors are cautioned not to place undue reliance on such forward-looking statements. In any event, these statements speak only as of the date of this Letter of Offer or the respective dates indicated in this Letter of Offer. Neither our Bank nor the Lead Manager nor any of their respective affiliates or advisors undertakes obligation to update or revise any of them, whether as a result of new information, future events or otherwise. If any of these risks and uncertainties materialise, or if any of our Bank’s underlying assumptions prove to be incorrect, the actual results of operations or financial condition of our Bank could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to our Bank are expressly qualified in their entirety by reference to these cautionary statements.

SECTION II: RISK FACTORS

An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information in this Letter of Offer, including the risks and uncertainties described below, before making an investment in our Rights Equity Shares. The financial and other implications of material impact of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However there are a few risk factors where the impact is not quantifiable and hence the same has not been disclosed in such risk factors.

The occurrence of any of the following events could have a material adverse effect on our business, results of operations, financial condition and prospects and cause the market price of our Equity Shares to fall significantly, and you may lose all or part of your investment. Additionally, our business operations could also be affected by additional factors that are not presently known to us or that we currently consider as immaterial to our operations. The following factors have been considered for determining the materiality:

1. Some events may not be material individually but may be found material collectively; 2. Some events may have material impact qualitatively instead of quantitatively; and 3. Some events may not be material at present but may have material impact in future.

INTERNAL RISK FACTORS AND RISK FACTORS RELATING TO OUR BUSINESS

1. We are involved in certain legal and other proceedings in India. If any of the pending cases is decided against us, it may have a material adverse effect on our businesses, reputation, financial condition and results of operations.

Our Bank is involved in various civil, criminal, 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 normal 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.

Material Litigation against our Bank:

Amount No. of Sl. No. Brief Description Involved Cases (` in crore) 1. Criminal proceedings 14 Not quantifiable 2. Direct tax matters 6 859.03 3. Indirect tax matters - - 4. Civil Cases 5 Not quantifiable

The criminal proceedings against our Bank inter alia include complaints in respect to wrongful credit of cheques, breach of trust, cheating and other related cases. We cannot assure you that the provisions we have made for litigation will be sufficient or that new litigations will not be brought against us in the future. If we fail to successfully defend these or other claims, or if our current provisions prove to be inadequate, our business, financial condition and results of operations could be adversely affected.

Material Litigation by our Bank:

Sl. No. Brief Description No. of Cases Amount Involved (` in Crore) 1. Criminal matters  Proceedings under section 138 of 20 1.22 the Negotiable Instruments Act  First Information Report (FIR) filed 181 79.74 by our Bank in fraud cases

2. Civil Proceedings 10 610.90

Our Bank intends to defend or appeal these proceedings and would be required to devote management and

financial resources in their defense or prosecution. It cannot be assured that any new litigation / counter suits will not be brought against our Bank in the future, in respect to such legal proceedings. If our Bank fails to successfully defend these or other claims, or if its current provisions prove to be inadequate, our business, financial condition and results of operations could be adversely affected.

For further details in this regard, please refer to the chapter titled “Legal and Other Information” beginning on page 67.

2. Our financial performance may be materially and adversely affected by fluctuating interest rates.

Our results of operations depend, to a great extent, on our net interest income. Net interest income comprised 69.73%, 70.55% and 67.66% of our total net income for the Fiscals 2015, 2016 and the quarter ended June 30, 2016, respectively, where total net income comprises the sum of our net interest income and other income. Out of our gross advances, fixed interest rate bearing assets constituted 6.65%, 7.26% and 6.77% for the Fiscals 2015, 2016 and the quarter ended June 30, 2016, respectively, and floating interest rate bearing assets constituted 93.35%, 92.74% and 93.23% for the Fiscals 2015, 2016 and the quarter ended June 30, 2016, respectively.

If the yield on our interest-earning assets does not increase at the same time or to the same extent as our cost of funds, or if our cost of funds does not decline at the same time or to the same extent as the decrease in the yield on our interest-earning assets, our net interest income and net interest margin would be adversely impacted. Any systemic decline in low-cost funding available to banks in the form of current and savings account deposits would adversely impact our net interest margin.

The implementation of RBI guidelines on the computation of lending rates based on the marginal cost of funds methodology with effect from April 1, 2016, has led to lower lending rates, and more frequent revisions in lending rates due to the prescribed monthly review of cost of funds. This has impacted the yield on our interest-earning assets, our net interest income and net interest margin. Interest rates are highly sensitive to factors beyond our control, including India's GDP growth, inflation, liquidity, the RBI’s monetary policies and domestic and international economic and political conditions and other factors. Our cost of funding is interest-rate sensitive and our ability to pass along any increase in interest rates depends on our borrowers' willingness to pay higher rates and the competitive landscape in which we operate. Volatility and changes in interest rates could affect the interest rates we charge on our interest-earning assets in a manner different from the interest rates we pay on our interest-bearing liabilities because of the different maturity periods applicable to our assets and liabilities. 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 net interest income.

Under the regulations of the RBI, we are required to maintain a minimum specified percentage in the form of SLR, currently 20.75%, of our net demand and time liabilities in Government or other approved securities or in cash. Yields on these investments are dependent to a large extent on interest rates. In a rising interest rate environment, especially if the increase is sudden or sharp, we could be adversely affected by the decline in the yield on our Government securities portfolio and other fixed income securities and may be required to further provide for depreciation in the Available for Sale (“AFS”) and Held For Trading (“HFT”) categories, which may adversely impact our business and financial performance of our Bank.

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 advances with us if they are able to switch to more competitively priced advances offered by other banks. In the event of falling interest rates, we may face more challenges in retaining our customers if we are unable to switch to more competitive rates as compared to other banks in the market. In addition, any volatility or increase in interest rates may also adversely affect the rate of growth of certain sectors of the Indian economy. All these factors may have a material adverse effect on our business and financial condition and results of operations.

3. Any increase in our portfolio of NPAs, RBI-mandated provisioning requirements or restructured advances could materially and adversely affect our business and future financial performance

For the Fiscal years 2015, 2016 and the quarter ended June 30, 2016, our gross non-performing assets (“Gross NPA”) represented 2.95%, 3.44% and 3.92% of our total gross advances respectively, and our NPAs (net of provisions) (“Net NPA”) represented 1.98%, 2.35% and 2.61% of net advances respectively. As at March 31, 2015 and 2016 and as at June 30, 2016, our provision coverage ratio was 50.54%, 48.39% and 48.89%,

respectively.

If there is any deterioration in the quality of our security or further ageing of the assets after being classified as non-performing, an increase in provisions will be required. This increase in provisions may adversely impact our financial performance. While we have already made provisions for non-performing assets (“NPA”) with respect to 31.42% and 33.52% of our Gross NPAs as at March 31, 2016 and as at June 30, 2016, respectively, we may need to make further provisions if there is dilution/deterioration in the security or downgrading of the account or recoveries with respect to such NPAs do not materialize in time or at all. Our NPAs can be attributed to several factors, including inconsistent industrial growth, the high level of debt in the financing of projects and capital structures of companies in India and the high interest rates in the Indian economy, which reduced the profitability of some of our borrowers.

In addition to the above, under the directed lending norms of RBI, we are required to extend 40.00% of our adjusted net bank credit to certain eligible sectors, which are categorised as ‘priority sectors’. We may experience an increase in NPAs in our lending to priority sectors, particularly with regard to loans that are granted to the agriculture and small and micro enterprises, where the borrowers are most vulnerable to economic difficulties.

Although we are increasing our efforts to improve recovery, we cannot assure you that we will be successful in our efforts or that the overall quality of our loan portfolio may not deteriorate in the future. If we are unable to successfully monitor and manage our portfolio, including during economic downturns, our asset quality and as a result, our financial condition and results of operation, could be materially and adversely affected.

Our total gross standard restructured advances were ` 1,799.77 crore, ` 1,546.69 crore and ` 1,497.70 crore as at March 31, 2015 and 2016 and as at June 30, 2016, respectively. We restructure assets based on borrower’s potential to restore its financial health; however, there can be no assurance that borrowers will be able to meet their obligations under restructured advances as per regulatory requirements and certain assets classified as restructured, may be classified as delinquent. Any resulting increase in delinquency levels may adversely impact our business, financial condition and results of operations; for example, in January 2014, the RBI issued a framework and in March, 2014, a corrective action plan for early identification and resolution of stressed assets. With effect from April 1, 2014, the guidelines introduced an asset classification category of “special mention accounts”, which comprises cases that are not yet restructured or classified as non- performing but which exhibit early signs of stress, as specified through various parameters. Banks in India are also required to share data with each other on certain categories of special mention accounts, set up joint lenders’ forums and formulate action plans for resolution of these accounts. Failure to do so may result in accelerated provisioning for such cases.

Our gross non-performing loans increased from ` 944.21 crore as at March 31, 2015 to ` 1,180.40 as of March 31, 2016 and to ` 1,389.36 crore as at June 30, 2016. Further, guidelines issued by the RBI relating to the identification and classification of NPAs may result in an increase in our loans classified as non- performing and provisioning requirements. Any review on asset quality by the regulator, during specific or general inspection, can result in additional classification of our loans as NPAs thus increasing our provisioning requirements and adversely impacting our profitability in the future.

If we are not able to adequately control or reduce the level of non-performing assets, or if the RBI continues to impose increasingly stringent requirements, the overall quality of our loan portfolio could deteriorate, which may have a material adverse effect on our business, financial condition and results of operations.

4. We are required to maintain cash reserve ratio (“CRR”) and statutory liquidity ratio (“SLR”). Any increase in these requirements could adversely affect our business, financial condition and results of operations.

As a result of the statutory reserve requirements stipulated by the RBI, we may be more exposed structurally to interest rate risk than banks in many other countries. Under RBI regulations, we are subject to a CRR requirement. The CRR is a bank’s balance held in a current account with the RBI calculated as a specified percentage of its net demand and time liabilities, excluding interbank deposits. The CRR currently applicable to banks in India is 4.00% and banks do not earn any interest on those reserves. In addition, under the Banking Regulation Act, all banks operating in India are required to maintain SLR. The SLR is a specified percentage of a bank’s net demand and time liabilities by way of liquid assets such as cash, gold or approved unencumbered securities. Approved unencumbered securities consist of unencumbered Government securities and other securities as may be approved from time to time by the RBI and would earn lower levels

of interest as compared to advances to customers or investments made in other securities. In the fourth bi- monthly monetary policy statement of the RBI for the Fiscal year 2016, the ceiling on securities eligible for SLR under the held to maturity (“HTM”) securities was aligned with the SLR and was accordingly brought down from 22% to 21.50% with effect from January 9, 2016. Further, it was decided that both the SLR and HTM ceiling would be brought down by 25 basis points every quarter until March 31, 2017. Currently, the RBI requires banks to maintain a SLR of 20.75%.

The RBI may increase the CRR and SLR requirements to significantly higher proportions as a monetary policy measure, as and when the same is warranted. Any increase in the CRR from the current levels could affect our ability to deploy our funds or make investments, which could in turn have a negative impact on our results of operations. If we are unable to meet the requirements of the RBI, the RBI may impose penal interest or prohibit us from receiving any further fresh deposits, which may have a material adverse effect on our business, financial condition and results of operations.

5. We are subject to capital adequacy norms and are required to maintain a CRAR at or above the minimum level required by the RBI for domestic banks. There is no guarantee that we will be able to access capital as and when it is needed for growth. If we fail to meet capital adequacy requirements, the RBI may take certain actions, including restricting our lending and investment activities, and the payment of dividends by us. These actions could materially and adversely affect our reputation and financial results.

We are required by the RBI to maintain a minimum capital adequacy ratio of 9.625% (including capital conservation buffer of 0.625%) in relation to our total risk-weighted assets.

In addition, the RBI issued Basel III Capital Regulations on May 2, 2012. The Basel III Capital Regulations require, among other things, higher levels of Tier I capital and common equity, capital conservation buffers, maintenance of a minimum prescribed leverage ratio on a quarterly basis and higher deductions from common equity and changes in the structure of non-equity instruments eligible for inclusion in Tier I capital. The Basel III Capital Regulations also set out elements of regulatory capital and the scope of the capital adequacy framework, including disclosure requirements of components of capital and risk coverage. The transitional arrangements for the implementation of Basel III capital regulations in India began on April 1, 2013 and the guidelines are required to be fully implemented by March 31, 2019. In accordance with the Basel III capital regulations, currently, we are required to maintain a minimum CET-I ratio of 5.5%, a capital conservation buffer (CCB) (comprised of common equity) of 0.625%, a minimum Tier I capital ratio of 7.00%, of our risk weighted assets (RWA).

As at June 30, 2016, our capital adequacy ratio under the Basel III Capital Regulations was 11.64%, with a Tier I capital adequacy ratio of 10.27%, a Tier II capital adequacy ratio of 1.37% and CET I capital adequacy ratio of 10.27%. As at March 31, 2016, our capital adequacy ratio under the Basel III Capital Regulations was 12.03%, with a Tier I capital adequacy ratio of 10.56%, a Tier II capital adequacy ratio of 1.47% and CET I capital adequacy ratio of 10.56% and as at March 31, 2015, under the Basel III regulations, our CRAR, Tier I and Tier II capital adequacy ratios were 12.41%, 10.52% and 1.89% respectively. Although we are currently in compliance with the applicable capital adequacy requirements, certain adverse developments could affect our ability to satisfy these requirements in the future, including deterioration in our asset quality, decline in the value of our investments and our inability to meet any regulatory requirements or changes.

We are exposed to the risk of the RBI increasing the applicable risk weight for different asset classes from time to time. In addition, with the approval of the RBI, banks in India may migrate to advanced approaches for calculating risk-based capital requirements in the medium term. If we fail to meet capital adequacy requirements, the RBI may take certain actions, including restricting our lending and investment activities, and the payment of dividends by us.

Further, continued compliance requirements with Basel III or other capital adequacy requirements imposed by the RBI may result in the incurrence of substantial compliance and monitoring costs. Moreover, if the Basel Committee releases additional or more stringent guidance on capital adequacy norms which are given the effect of law in India in the future, we may be forced to raise or maintain additional capital in a manner which could affect our business, financial condition and results of operations. There can be no assurance that we will be able to comply with such requirements or that any breach of applicable laws and regulations will not have a material adverse effect on our business, financial condition and results of operations.

6. The value of our collateral may decrease or we may experience delays in enforcing our collateral if

borrowers default on their obligations, which may result in failure to recover the expected value of collateral security exposing us to a potential loss. This can adversely affect our business and the financial performance of our Bank.

A substantial portion of our loans are secured by collateral, including real estate assets such as property, plant, equipment, inventory, receivables, current assets and pledges of financial assets such as marketable securities and corporate guarantees. The loans to corporate customers also include working capital credit facilities that are typically secured by a first lien on inventory, receivables and other current assets. In certain cases, we may have taken further security of a first or second lien on fixed assets and a pledge of financial assets like marketable securities, corporate guarantees and personal guarantees. As at June 30, 2016, 91.31% of our advances were secured by tangible assets/bank guarantees/government guarantees, including advances secured by fixed deposits and book debts and 8.69% of our advances were unsecured.

In the event of our borrowers defaulting on the repayment of the loans, we may not be able to realize the full value of the collateral due to various reasons, including a possible decline in the realisable value of the collateral, defective title, prolonged legal proceedings and fraudulent actions by borrowers.

In India, foreclosure on collateral generally requires filing a suit or an application in a court or tribunal. Although special tribunals have been set up for expeditious recovery of debts due to banks, any proceedings brought may be subject to delays and administrative requirements that may result in, or be accompanied by, a decrease in the value of the collateral. The SARFAESI Act, the Recovery of Debts Due to Banks and Financial Institutions Act 1993, as amended, and the RBI’s corporate debt restructuring mechanism have strengthened the ability of lenders to recover NPAs by granting them greater rights to enforce security and recover amounts owed from secured borrowers. However, there can be no assurance that this legislation will have a favorable impact on our efforts to recover NPAs as the full effect of such legislation is yet to be determined in practice.

Until recently, there were multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. Recognizing that reforms in the bankruptcy and insolvency regime are critical for improving the business environment and alleviating distressed credit markets, the Government of India introduced the Insolvency and Bankruptcy Code Bill in November 2015 aimed at making it easier to wind up a failing business and recover debts. While the Insolvency and Bankruptcy Code, 2016 (the "Code"), which came into effect on May 28, 2016 is a historical development for economic reforms in India, its effect is yet to be seen when the institutional infrastructure and implementing rules as envisaged under the Code are formed and enforced. Until the implementation of such infrastructure is completed, it may not be possible to determine the effects of the Code.

In addition, pursuant to RBI prudential guidelines on restructuring of advances by banks, we may not be allowed to initiate recovery proceedings against a corporate borrower where the borrower's aggregate total debt is ` 10 crore or more and 60.00% of the lenders by number and holding at least 75.00% or more of the borrower's debt by value decide to restructure their advances. In such a situation, we are restricted to a restructuring process only as approved by the majority lenders. If we own 25.00% or less of the debt of a borrower, we could be forced to agree to an extended restructuring of debt which may not be in our interests. As on June 30, 2016, there was one case of our Bank’s recovery issues under corporate debt restructuring aggregating to ` 42.59 crore constituting 2.38% of the total outstanding liability of the borrower (exposure to banking sector being ` 1,787.98 crore). In this case, since our Bank owns less than 25% of the debt, we are bound by the decision of other creditors.

There can be no assurance that we will be able to realize the full value of the collateral, as a result of, among other factors, delays in bankruptcy and foreclosure proceedings, the defects in the perfection of collateral and fraudulent transfers by borrowers. A failure to recover the expected value of collateral security could expose us to a potential loss. Such difficulties in realizing our collateral fully or at all, including if we are compelled to restructure our loans, may have a material adverse effect on our business, financial condition, results and cash flow.

7. Regulations in India require us to extend a minimum level of advances to certain sectors. These may subject us to higher delinquency rates. Our inability to comply with Indian priority sector lending requirements may require us to invest in funds with a lower return than we would otherwise obtain in the market.

The RBI mandates all banks that are operating in India to direct a certain portion of their lending to specified “Priority Sector” such as agriculture, MSMEs, housing and education, and has specified a target for domestic banks as a percentage of ANBC of corresponding previous year. RBI regulations specify that priority sector requirements should be met on the basis of the credit equivalent of off-balance sheet exposure rather than ANBC, if such off-balance sheet exposure by a bank is higher than its ANBC. The RBI specifies sub- allocation requirements, including a minimum 18% of the ANBC or equivalent credit amount of off-balance sheet exposure, whichever is higher, to the agriculture sector (8% to small and marginal farmers), 7.5% of the ANBC or equivalent credit amount of off-balance sheet exposure, whichever is higher, to micro enterprises and 10% of the ANBC or equivalent credit amount of off-balance sheet exposure, whichever is higher, to weaker sections. In the case of any shortfall by us in meeting lending requirements, we are required to place the difference between the required lending level and our actual priority sector lending in an account with the National Bank for Agriculture and Rural Development under the Rural Infrastructure Development Fund Scheme, or funds with other financial institutions specified by the RBI, from which we earn lower levels of interest as compared to loans made to the priority sector. Further, from April 1, 2016, banks in India are required to comply with priority sector lending requirements on a quarterly basis which can also result in lower levels of interest income and reduced profitability. Any requirements by the RBI that specify changes in priority sector lending may adversely affect our business, financial condition and results of operations.

As on March 31, 2016 and June 30, 2016, the total credit extended by us to priority sectors constituted 47.57% and 47.89%, respectively of our ANBC; and the credit extended to the agriculture sector constituted 17.19% and 16.85%, respectively of our ANBC. Though we have met the target in relation to aggregate lending required to be made to the priority sector for the year ended March 31, 2016, we have not been able to meet the sub targets that have been set with respect to separate sectors under it.

In the case of any shortfall by us in meeting agriculture sector lending requirements, we would subsequently be required to place the difference between the required lending level and our actual priority sector lending in an account with the National Bank for Agriculture and Rural Development under the Rural Infrastructure Development Fund Scheme, or with other financial institutions specified by the RBI, from which we would earn lower levels of interest compared to advances made to the priority sector. Further, the RBI is required to take into account any shortfall in meeting specific priority sector lending targets, at the time of granting any approvals sought by a bank, from time to time. Such circumstances could materially and adversely affect our business, financial condition and results of operations.

Any change in RBI regulations may require us to increase our lending to relatively higher risk segments, which may result in an increase in our NPAs under our direct lending portfolio. Any increase in our direct lending to certain sectors will result in an increase in our exposure to the payment risks inherent in such sectors, which could materially and adversely impact our business, financial condition and results of operations.

8. Our risk management policies and procedures may not adequately address unanticipated risks. Inability to develop and implement effective risk management policies may adversely affect our business, prospects, financial condition and results of operations.

We have devoted significant resources to developing our risk management policies and procedures and expect to continue to do so in the future. We have policies and procedures in place to measure, manage and control the various risks to which we are exposed, including a Risk Management Policy that articulates our approach to the identification, measurement, monitoring controlling and mitigation of various risks associated with our banking operations in addition to providing certain important guidelines for strict adherence. Our other important risk mitigants include our commercial general liability policy, standard fire and special perils policy, burglary policy, banker’s indemnity policy and directors and officer’s liability policy and, in compliance with the RBI’s guidelines on Basel II - Pillar 2 - Supervisory Review and Evaluation Process, Internal Capital Adequacy Assessment Process Policy. The Risk Management Committee of the Board and the Board reviews our risk management policies annually. Despite this, our policies and procedures to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risk are based upon the use of observed historical market behaviour. As a result, these methods may not accurately predict future risk exposures which could be significantly greater than indicated by the historical measures.

Management of operations, legal and regulatory risks requires, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies and procedures

may not be fully effective. As we seek to expand the scope of our operations, we also face the risk of inability to develop risk management policies and procedures that are appropriately designed for those new business areas. Inability to develop and implement effective risk management policies may adversely affect our business, prospects, financial condition and results of operations.

9. We have certain contingent liabilities which have not been provided for in our financial statements, which if they materialise, may adversely affect our financial condition.

As on March 31, 2016 and June 30, 2016, we had a contingent liabilities, which have not been provided for, amounting to ` 5,877.69 crore and ` 6,329.16 crore respectively, the details of which are given below: (in ` Crore) As on March 31, As on June 30, 2016 Contingent Liabilities 2016 Claims against the Bank not acknowledged as debts 32.78 33.36 Liability on account of outstanding Forward Exchange 3,024.80 3,424.54 Contacts including derivatives Guarantees given on behalf of constituents a) In India 2,246.49 2,228.95 b) Outside India - - Acceptances, Endorsements & other Obligations 510.34 575.20 Other items for which the bank is contingently liable 63.28 67.11 Total 5,877.69 6,329.16

Most of these liabilities have been incurred during the normal course of our business. In the event of there being a crystallization of any of the above liabilities, we may be required to honour the demands raised. This may materially and adversely impact our business, financial conditions, result of operations and prospects.

10. Our Joint Statutory Central Auditors have highlighted a matter of emphasis in relation to the audited financial statements of our Bank as at and for the Fiscal year ended March 31, 2016.

Our Joint Statutory Central Auditors’ report on the financial statements as at and for the year ended March 31, 2016 included an Emphasis of Matter paragraph, that does not require any corrective adjustment in the financial information, as follows:

“We draw attention to Note on the Financial Statements, regarding deferment of loss of ` 58.72 crore on sale of advances to Asset Reconstruction Companies. Our opinion is not qualified in respect of this matter.”

For the reference, below is the relevant extract from note of Schedule 18 to the financial statements:

“Details of Financial Assets sold to Securitisation/Reconstruction Company for Asset Reconstruction:

In terms of RBI Circular DBR.No.BP.BC.94/21.04.048/2014-15 dated 21st May 2015, in respect of assets sold to SC/ RCs, the shortfall arrived at by deducting the sale consideration and the provision held as on the date of the sale from the outstanding amount, is to be amortised over 2 years. Accordingly for the sales that were concluded during the current financial year, the Bank has charged to the Profit and Loss account an amount of `16.36 Crore during the year ended March 31, 2016 on proportionate basis (previous year ` 10.42 Crore ) and balance carried over as at March 31, 2016 is ` 58.72 Crore (Previous Year - NIL)”

Investors are urged to take a note of the matter of emphasis in the course of reviewing and evaluating our restated financial statements. For additional information, see the Joint Statutory Central Auditors' report on our Audited Financial Statements, including the notes thereto, included in this Letter of Offer.

11. There are operational risks associated with the banking industry, including the risk of fraud or other misconduct by employees etc., which when realised may have an adverse impact on our results.

We are vulnerable to many types of operational risks, including the risk of fraud or other misconduct by employees or outsiders, unauthorized transactions by employees or operational errors, including clerical or

recordkeeping errors or errors resulting from faulty computer or telecommunications systems. Though we carefully recruit all our employees, we have in the past been held liable for the fraudulent acts committed by our employees. Following are the details of fraud cases reported in the last two Fiscals and for the quarter ended June 30, 2016: (Amount ` in Crore) Quarter ended June 30, 2016 Fiscal 2016 Fiscal 2015 No of Cases Amount No. of cases Amount No. of cases Amount 6 2.90 21 91.98 27 22.13

On unearthing a fraud in gold loans recently, our Bank reported the fraud to the RBI on September 23, 2016 wherein one of the customers of our Bank got into close acquaintance with the branch heads and the concerned jewel appraiser and availed the gold loans by pledging spurious gold in the names of various individuals for his consumption. The total amount involved is ` 20.55 crore. We cannot guarantee you that such events will not recur in the future. Any such event could adversely affect our reputation, operations, or otherwise have a material adverse effect on our business, financial condition or results of operation. Given the high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. In addition, our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems, arising from events that are wholly or partially beyond its control (including, for example, computer viruses or electrical or telecommunication outages), which may lead to a deterioration in customer service and to loss or liability. We also face the risk that the design of our controls and procedures prove to be inadequate, or may be circumvented, thereby causing delays in detection of errors in information. Whilst we employ security systems, use encrypted password-based protections and firewalls and establish operational procedures to prevent break-ins, damages and failures, there can be no assurance that such measures are adequate to prevent fraud, security breaches or the invasion or breach of the network by intruders and theft of data. Failure to protect against fraud or breaches in security may adversely affect our operations and future financial performance. Our reputation could be adversely affected by significant fraud committed by our employees, agents, customers or third parties.

We maintain a disaster recovery center for our core banking applications at Mangaluru in the event that our main computer center at Bengaluru shuts down for any reason. The system in Mangaluru is configured to come into operation if the Bengaluru system is no longer operational. However, if for any reason, the switch over to the back-up system does not take place or if a calamity occurs in both Bengaluru and Mangaluru such that our business is compromised at both centers, our operations would be adversely affected.

12. We do not own our trademark and logo and our ability to use our trademark and logo may be impaired, which may materially and adversely affect our goodwill and business.

We have not registered our trademark and logo and our ability to use our 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. We also operate in a competitive environment where retention and recognition will be a significant element of our business strategy. Further, in the event we lose our right to use our trademark and our logo, our business could be adversely affected. Any legal proceedings which result in a finding that we have breached third parties’ intellectual property rights may require us to give financial compensation to such third parties and/or to make changes to our marketing strategies or to the brand names of our products, which could have a material adverse effect on our business, prospects, financial condition and results of operations. No legal proceedings have been initiated till date against our Bank with regard to breach of intellectual property rights of third parties. However, there cannot be any assurance that in future any such legal proceedings will not be initiated against our bank and such proceedings, if initiated, could require us to incur additional costs and may adversely impact our reputation, business, financial condition and results of operations.

13. Any non-compliance with mandatory AML and KYC policies could expose us to additional liability and harm our business and reputation.

In accordance with the requirements applicable to banks, we are mandated to comply with applicable anti- money laundering (“AML”) and know your client (“KYC”) regulations in India. These laws and regulations require us, among other things, to adopt and enforce AML and KYC policies and procedures. While we have

adopted policies and procedures aimed at collecting and maintaining all AML and KYC related information from our customers in order to detect and prevent the use of our banking networks for illegal money- laundering activities, there may be instances where we may be used by other parties in attempts to engage in money-laundering and other illegal or improper activities.

Although, we believe that we have adequate internal policies, processes and controls in place to prevent and detect AML activity and ensure KYC compliance, and have taken necessary corrective measures, there can be no assurance that we will be able to fully control instances of any potential or attempted violation by other parties and may accordingly be subject to regulatory actions including imposition of fines and other penalties by the relevant government agencies to whom we report. Our business and reputation could suffer if any such parties use or attempt to use us for money-laundering or illegal or improper purposes and such attempts are not detected or reported to the appropriate authorities in compliance with applicable regulatory requirements.

14. We are exposed to various industry sectors. Deterioration in the performance of any of the industry sectors where we have significant exposure may adversely impact our business.

Our credit exposure to borrowers is dispersed across various sectors including, cotton and jute, infrastructure, gems and jewellery, iron and steel, food and food products, chemicals and chemical products, construction and other industries. Our credit exposure in the ‘Textile’ industry is the largest wherein we have outstanding balance of ` 1,793.76 crore as on June 30, 2016, which constituted 25.20% of our our total industrial advances. Despite monitoring our level of exposure to sectors and borrowers, any significant deterioration in the performance of a particular sector driven by events not within our control, such as natural calamities, regulatory action or policy announcements by central or state government authorities, would adversely impact the ability of borrowers within that industry to service their debt obligations to us. As a result, we would experience increased delinquency risk which may have a material adverse effect on our business, financial condition, results and cash flow.

As on June 30, 2016, our Bank’s total industrial advances was ` 7,117.92 crore. Exposure to other industries which constitutes more than 10% of our Bank's total funded industrial advances are given below:

Outstanding Balance as on June Percentage of our total industrial Industry Name 30, 2016 advances (Amount in ` Crore) (%) Textiles* 1,793.76 25.20 Gems and Jewellery 494.65 6.95 * Including cotton/jute/textiles

15. We face income volatility from our fixed income operations. Any losses arising out of such volatility could adversely affect our business, financial condition and results of operations.

Income from our sale of investments comprised 6.72%, 3.38% and 7.75% of our total net income (which is comprised of net interest income plus other income) for the Fiscals 2015, 2016 and quarter ended June 30, 2016, respectively. These figures include entering into trades for our own account, which exposes us to the risk that we may lose money on these trades and on account of corporate and Government securities held by us in the regular course of business.

Our income from these treasury operations is subject to volatility due to, among other things, changes in interest rates and foreign currency exchange rates as well as other market fluctuations. For example, an increase in interest rates may have a negative impact on the value of certain investments such as Government securities and corporate bonds. There can be no assurance that we will not lose money in the course of our proprietary trading on our fixed income book held for trading and available for sale portfolio. Any such losses could adversely affect our business, financial condition and results of operations.

16. We have previously been penalized for not being in compliance with the RBI circulars and may face further penalties from the RBI and/or other regulatory bodies that govern us in cases of non-compliance in future.

In Fiscal 2016, we were subjected to a penalty of ` 6,300 towards certain discrepancies detected by the RBI while processing soiled notes remittances received from currency chest. Further, in Fiscal 2012, we were

subjected to penalty of ` 5,00,000 for contravention of the comprehensive guidelines on derivatives issued by the RBI for irregularities in the manner in which certain derivative transaction(s) were entered into and monitored by us. For further details, please see “Legal and Other Information – Show-Cause Notices issued by the RBI”. We cannot assure you that we will not be subject to such penalties in the future.

17. We have a concentration of deposits from certain depositors, which exposes us to liquidity risk, the crystallization of which could materially and adversely affect our business, financial condition, cash flows results of operations and prospects.

As on June 30, 2016 and March 31, 2016, our Bank's deposits were ` 51,501.25 crore and ` 50,488.21 crore respectively, compared with ` 46,008.61 crore on March 31, 2015. As on June 30, 2016 and March 31, 2016, our top ten depositors constituted 3.03% and 3.30% respectively, of our total deposits as compared to 3.57% as at March 31, 2015.

If any or a substantial number of our top ten depositors withdraw their deposits or do not roll over their time deposits upon maturity, we may be required to seek more expensive sources of funding, including paying higher interest rates in order to attract and/or retain further deposits, and we cannot assure you that we will be able to obtain additional funding on commercially reasonable terms as and when required. In such an event, our Bank's liquidity position, financial condition, cash flows, results of operations, and the price of the Equity Shares may be materially and adversely affected.

18. Expansion of our fee based earning is dependent on our arrangements with third parties including insurance companies. Termination of these arrangements may adversely impact our results of operations.

For the Fiscal 2016, our fee-based income i.e. ` 451.50 crore constituted 8.16% of our total income i.e. ` 5,535.07 crore. We intend to increase our fee-based income by expanding our third party product offerings and by increasing our fee-based services. We market and sell the life insurance products of PNB MetLife India Insurance Company Limited and general insurance products of Universal Sompo General Insurance Company Limited. We earn fees and commissions for the distribution and sale of these products. However, termination of these agencies or distribution agreements with such third party business associates or any weakening of our relationship with these third party associates may have an adverse impact on our fee based revenues and results of operations.

19. We could be adversely affected by the inability of our vendors to perform their contractual obligations. Failure to perform these obligations by our vendors may materially and adversely affect our business, financial condition and results of operations.

We are dependent on various vendors for certain non-core elements of our operations including implementing IT infrastructure and hardware, branch roll-outs, networking, managing our data center, and back-up support for disaster recovery. We have also outsourced certain activities, including the installation and management of our ATMs. Generally, we have agreements with only one service providers for each outsourced activity and such agreements are typically non-exclusive and short term. However, if such agreements are terminated or not renewed or replaced in a timely manner, this may result in a disruption of our operations. Failure to perform any of these functions by our vendors or service providers may materially and adversely affect our business, financial condition and results of operations.

20. The Government of India (“GoI”) has in the past and may in the future direct us to implement certain schemes that are aimed at serving the interest of farmers and/or a cross section of the public. Such schemes may not necessarily be aimed at maximizing our profits and may adversely affect our business, financial condition and results of operations.

RBI has taken certain measures towards universal financial inclusion. On August 28, 2014, the Government of India launched a scheme for comprehensive financial inclusion known as “Pradhan Mantri Jan Dhan Yojana” (PMJDY) with the objectives of providing universal access to banking facilities, providing basic banking accounts with overdraft facility and RuPay debit cards to all households, conducting financial literacy programmes, creation of credit guarantee fund, micro-insurance and unorganised sector pension schemes. The objectives are expected to be achieved in two phases over a period of four years up to August 2018. To strengthen the financial inclusion efforts and increase the penetration of insurance and pension coverage in the country, the Government of India has launched social security and insurance schemes, namely, Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha Bima Yojana and Atal Pension Yojana, in May

2015. We provide special schemes under which credit facilities and loans are extended to persons belonging to weaker sections, which is aimed at facilitating the GoI’s initiative to empower them. Such schemes and credit facilities provided to members of the weaker sections may not be as profitable as compared to lending in the non-priority sector.

Due to above reasons, our business and result of operations may get adversely affected.

21. Most of our branches are located on leased premises. We may not be able to renew the lease agreements for our branches upon favourable terms or at all which could have a material adverse affect on our business and results of operations.

As at June 30, 2016, we had 733 branches and 1,297 ATMs, of which except 21 branches and 11 ATMs, all our branches are housed on leased premises and are not owned by us. The general duration of the lease agreements is ten years. Additionally, as at June 30, 2016, 17 of our leases for our branches and other office premises had expired.

If we are unable to renew the relevant lease agreements, or if such agreements are renewed on unfavorable terms and conditions, we may be required to relocate operations. We may also face the risk of being evicted in the event that our landlords allege a breach on our part of any terms under these lease agreements. This may cause a disruption in our operations or result in increased costs, or both, which may materially and adversely affect our business, financial condition and results of operations.

22. Any downgrading in our credit rating could adversely affect our business, financial condition and results of operations.

The rating agency ICRA has rated our ` 600 crore Lower Tier II Subordinated debt instruments (“Debt Instruments”) as ‘A’. The rating agency CARE downgraded its ratings for the Debt Instruments from “A+” to ‘A’ on September 4, 2012. On October 3, 2016, CARE reaffirmed its rating as ‘A’ for ` 600 crore Lower Tier II Bonds. Further, ICRA has given “A1+” rating for certificate of deposits programme of ` 1,500 crore. Credit rating is considered as an assessment of our ability to honour our financial commitments and obligations as and when they become due. A downgrade in our credit rating may adversely affect our ability to obtain funds and may increase financing costs by increasing the interest rates of our outstanding debt or the interest rates at which we will be able to refinance existing debt or incur new debt, which will adversely affect our business, financial condition and results of operations.

23. Significant operational risks including security breaches, cyber-threats and failure in our computer systems, and calamities could materially and adversely impact our business.

We depend on our computer systems to process a large number of transactions on an accurate and timely basis, and to store all of our business and operating data. We seek to protect our computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems. These concerns could intensify with our increased use of technology, internet based resources and advanced internet banking and mobile banking platform. Computer break-ins and network disruptions could affect the availability of information stored in and transmitted through these computer systems and network infrastructure. Bank uses Core Banking System (CBS) to process customer transactions. Certain parts of the system may be vulnerable to security breaches and other attacks. Our Bank employs security systems including firewalls and password encryption, designed to minimise the risk of security breaches. Although our Bank intends to continue to implement security technology and establish operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures will be adequate or successful. A failure of security measures could have a material adverse effect on our Bank’s business, its future financial performance and the trading price of the Equity Shares. We may also be subject to disruptions of our operating systems, arising from events that are wholly or partially beyond our control (including, for example, computer viruses/malwares or electrical or telecommunication outages), which may give rise to deterioration in customer service and to loss or liability to us. If any of our systems do not operate properly or are disabled, we could suffer financial loss, a disruption of businesses, liability to clients, regulatory intervention or damage to reputation, which may materially and adversely affect our business, financial condition and results of operations.

Further, we offer internet banking, mobile banking and many other technology based products and services to our customers. We are therefore directly and indirectly exposed to various cyber-threats such as phishing

and trojans (targeting our customers, wherein fraudsters send unsolicited mails to our customers seeking account-sensitive information or to infect customer machines to search and attempt exfiltration of account- sensitive information), hacking (wherein attackers seek to hack into our website with the primary intention of causing reputational damage to us by disrupting services) and data theft (wherein cyber-criminals may attempt to intrude into our network with the intention of stealing our data or information). There is also the risk of our customers blaming us and terminating their accounts with us for a cyber-incident that might have occurred on their own system or with that of an unrelated third party. The RBI has, on June 2, 2016, issued a framework for cyber-security for banks, prescribing measures to be adopted by banks to address security risks including putting in place a cyber-security policy and requiring banks to report all unusual cyber-security incidents to the RBI. Our Bank strives to comply with the guidelines issued by RBI or any other regulatory body from time to time. Any cyber-security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and related financial liability.

24. Non Compliance with RBI’s risk-based supervision model and RBI inspection/observations may have a material adverse effect on our business, financial condition or results of operation

The RBI conducts periodic on-site/off-site inspections on all matters addressing our banking operations and relating to, among other things, our Bank’s portfolio, risk management systems, credit concentration risk, counterparty credit risk, internal controls, credit allocation and regulatory compliance. During the course of finalizing this inspection, the RBI inspection team shares its findings and recommendations with us and provides us an opportunity to provide clarifications, additional information and, where necessary, justification for a different position, if any, than that observed by the RBI. The RBI incorporates such findings in its final inspection report and, upon final determination by the RBI of the inspection results, we are required to take actions specified therein by the RBI to its satisfaction, including, without limitation, requiring us to make provisions, impose internal limits on lending to certain sectors and tighten controls and compliance measures and restricting our lending and investment activities. Any significant deficiencies identified by the RBI that we are unable to rectify to the RBI’s satisfaction could lead to sanctions and penalties imposed by the RBI, as well as expose us to increased risks. Starting Fiscal 2015, our Bank has been subjected to the risk-based supervision model which is being implemented by the RBI across the banking industry in a phased manner. While the Bank has fulfilled the requirements of risk-based supervision process in Fiscal 2015 and Fiscal 2016, we may be required to comply with additional requirements to improve various aspects of our operations. Any failure to meet regulatory requirements could materially and adversely affect our reputation, business, financial condition, cash flows, results of operations, pending applications or requests with the regulators and our ability to obtain the regulatory permits and approvals required to expand our business.

25. Our business and financial performance are dependent on increasing our area coverage through the branch network, any failure to do so, will affect our future growth, thereby having a material adverse impact on the business operations of our Bank

As on June 30, 2016, we had 733 branches across India. We intend to continue to increase and diversify our customer base and delivery channels. In recent years, we have significantly increased our branch network. Our number of branches has increased from 675 as at March 31, 2015 to 733 as at June 30, 2016. We intend to continue to add new branches, ATMs and e-lobbies. Such expansion will increase the size of our business and the scope and complexity of our operations, and will involve significant capital expenditure to establish such branches. We may not be able to effectively manage this growth or achieve the desired profitability in the expected timeframe, or at all, or meet the expected increase in our CASA percentage or improvement in other indicators of financial performance from the expansion. Our efficiency and productivity will depend on various internal and external factors, some of which are not under our control. This may affect our future growth, thereby having a material adverse impact on the business operations of our Bank.

26. A major part of our branch network is concentrated in southern India and thereby exposing us to regional risks.

As at June 30, 2016, out of our 733 branches, 574 branches are located in the southern states of India. 69.11% of our business (advances + deposits) is conducted in the southern states of India as at June 30, 2016. Our concentration in the southern states exposes us to any adverse geological, ecological, economic and/or political circumstances in that region as compared to other public and private sector banks that have diversified national presence. Any disruption, disturbance or breakdown in the economy of southern India could adversely affect the result of our business and operations.

27. We operate in a highly competitive environment and our ability to grow depends on our ability to compete effectively. The grant of new banking licenses to private sector entities may materially and adversely affect our business, financial condition and results of operations.

The Indian banking industry is highly competitive. We face strong competition in all our lines of business from much larger Indian and foreign commercial banks, non-banking financial companies, financial service firms and other entities operating in the Indian financial sector. We compete directly with large Government- controlled public sector banks, major private sector banks and foreign banks with branches in India. As at March 31, 2016, there were 93 scheduled commercial banks in India, including 27 public sector banks, 23 private sector banks (including us) and 43 foreign banks with branches in India

Public sector banks, which generally have a much larger customer and deposit base, larger branch networks and Government support for capital augmentation, pose strong competition to us. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for the merged entities. Further, a number of the private sector banks in India have a larger customer base and greater financial resources than us, giving them a substantial advantage by enabling economies of scale and improving organizational efficiencies.

The RBI has liberalized the licensing regime and intends to issue licenses on an on-going basis, subject to the qualification criteria. In April 2014, the RBI issued in-principle banking licenses to two entities, one being a non-banking finance company and the other was a microfinance institution. Both these entities began operations during Fiscal year 2016. On August 19, 2015 the RBI granted in-principle approval to 11 applicants to set up payment banks. In September 2015, the RBI granted in-principle licenses to 10 applicants for small finance banks, most of which are microfinance non-banking finance companies. The RBI has also released guidelines with respect to a continuous licensing policy for universal banks in August 2016.

We also compete with foreign banks with operations in India. These competitors include a number of large multinational banks and financial institutions as well as non-banking financial companies and housing finance companies. In November 2013, the RBI released a framework for the setting up of wholly-owned subsidiaries in India by foreign banks. The framework encourages foreign banks to establish a presence in India by granting rights similar to those received by Indian banks, subject to certain restrictions and safeguards. Under the current framework, wholly owned subsidiaries of foreign banks are allowed to raise Rupee resources through issue of non-equity capital instruments. Further, wholly owned subsidiaries of foreign banks may be allowed to open branches in Tier 1 to Tier 6 centres (except at a few locations considered sensitive on security considerations) without having the need for prior permission from the RBI in each case, subject to certain reporting requirements. These factors may result in a material adverse effect on our business, financial condition and results of operations.

28. Our insurance coverage could prove inadequate to satisfy potential claims. If we were to incur a serious uninsured loss or a loss that significantly exceed the limits of our insurance policies, it could have a material adverse effect on our business, cash flows, results of operations and financial condition.

We do not carry insurance to cover all of the risks associated with our business, either because insurance coverage is not available or prohibitively expensive. We have taken out insurance within a range of coverage consistent with industry practice in India to cover certain risks associated with our business. We cannot assure you that our current insurance policies will insure us fully against all risks and losses that may arise in the future. In addition, even if such losses are insured, we may be required to pay a significant deductible on any claim for recovery of such a loss, or the amount of the loss may exceed our coverage for the loss. In addition, our insurance policies are generally subject to annual renewal, and we cannot assure you that we will be able to renew these policies on similar or otherwise acceptable terms, if at all. If we were to incur a serious uninsured loss or a loss that significantly exceed the limits of our insurance policies, it could have a material adverse effect on our business, cash flows, results of operations and financial condition.

29. Negative publicity could damage our reputation and adversely impact our business and financial results.

Reputational risk, or the risk to our business, earnings and capital from negative publicity, is inherent in our business. The reputation of the financial services industry in general has been closely monitored as a result of the financial crisis and other matters affecting the financial services industry. Negative public opinion about the financial services industry generally or us specifically, could adversely affect our ability to attract and retain customers. Negative publicity can result from our actual or alleged conduct in any number of

activities, including lending practices, foreclosure practices, corporate governance, regulatory compliance, sharing or inadequate protection of customer information, and actions taken by government regulators and community organizations in response to that conduct. We distribute several third-party products, including life insurance, general insurance etc. We also work in partnership with third parties, including business correspondents in the financial inclusion businesses. We have no control over the actions of such third parties. Any failure on the part of such third parties, including any failure to comply with applicable regulatory norms, any regulatory action taken against such parties or any adverse publicity relating to such party could, in turn, result in negative publicity about us and adversely impact our brand and reputation.

30. We may face labour disruptions that could interfere with our operations. Any such disruption in future may have a material adverse effect on our business, financial condition or results of operation.

We are exposed to the risk of strikes and other industrial actions. As at June 30, 2016, we employed 7,775 employees. Majority of our employees are members of Karnataka Bank Employees Association and Karnataka Bank Officers Organization. In the current Fiscal, our employees who are members of either one of these two organizations participated in a nation-wide strike organized by the United Forum of Bank Unions (UFBU) on July 29, 2016 and a nation-wide strike organized by the All India Bank Employees Association and All India Bank Officers Association on September 2, 2016. In the last three Fiscals, our employees who are members of either of the organisations as above, participated in two and one nation-wide strikes in Fiscals 2016 and 2015, respectively. Apart from the national labor strikes which affected the entire unionized banking sector, we have not experienced disruptions in the past five years owing to work stoppages among our unionized employees.

Although we believe that we have good industrial relations with our employees and the unions, we cannot guarantee that our employees will not undertake or participate in strikes, work stoppage or other industrial action in the future. Any such employee unrest events could disrupt our operations, possibly for a significant period of time, result in increased wages and other benefits or otherwise have a material adverse effect on our business, financial condition, cash flows or results of operation.

31. We operate in a regulated industry and any changes in the regulations or enforcement initiatives may adversely affect our business, financial condition or results of operation.

The banking and financial sector in India is highly regulated and extensively supervised by authorities such as the RBI. Our business could be directly affected by any changes in laws, regulations and policies for banks. For example, in October 2011, the RBI deregulated interest rates on demand deposits and savings bank deposits, which resulted in certain banks increasing their interest rates, leading to increased competition in this area. Further, we may be compelled to increase lending to certain sectors or increase our reserves. We are also subject to regular financial inspection by the RBI. 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, and we may be subject to monetary fines and other penalties which may have an adverse effect on our business, financial condition and results of operations. The laws and regulations governing the banking sector in India, including those governing the products and services that we provide or propose to provide could change in the future. Such changes may also affect foreign investment limits in the banking industry or our ability to invest in certain businesses. Any such change may require us to modify our business, which may adversely affect our financial performance. The RBI guidelines and provisions of the Banking Regulation Act also restrict our ability to pay dividends. The RBI also requires banks to maintain certain CRR and SLR, and increases in such requirements could affect our ability to expand credit. Any requirements by the RBI that specify changes in risk weighting and capital adequacy may adversely affect our business, financial condition and results of operations. Further, any action by any regulator to curb fund inflows into India could negatively affect our business.

Further, the RBI is empowered to supersede any decision of the board of directors of a bank and appoint an administrator to manage the bank for a period of up to 12 months. The RBI may exercise such power where it is satisfied, in consultation with the Central Government that it is in the public interest to do so, to prevent the affairs of any bank from being conducted in a manner that is detrimental to the interest of the depositors, or for securing the proper management of any bank.

In November 2012, the RBI published guidelines in accordance with the Basel Committee on Banking Supervision's document on "Principles for Sound Liquidity Risk Management and Supervision". These guidelines prescribe certain ratios to measure liquidity risk and are designed to measure, among others, the

extent to which volatile money supports a bank's basic earning assets, the extent to which assets are funded through a stable deposit base, the degree of illiquidity embedded in the balance sheet, and the extent of available liquid assets. Banks are also required to adhere to certain prescribed limits to reduce the extent of concentration of their liabilities.

In June 2014, the RBI issued guidelines in relation to Liquidity Coverage Ratio ("LCR"), liquidity risk monitoring tools and LCR disclosure standards pursuant to the publication of the "Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools" in January 2013 and the "Liquidity Coverage Ratio Disclosure Standards" in January 2014 by the Basel Committee on Banking Supervision. The LCR is intended to ensure that banks maintain an adequate level of high quality liquid assets (“HQLAs”) to survive an acute stress scenario lasting for 30 days. Pursuant to the guidelines, banks are required to maintain an LCR of 60%, 70%, 80%, 90% and 100% with effect from January 1, 2015, January 1, 2016, January 1, 2017, January 1, 2018 and January 1, 2019 respectively. Such requirement to maintain HQLA may affect our profitability and any increase in the requirement will further adversely affected our profitability.

The RBI has issued draft guidelines on Net Stable Funding Ratio (“NSFR”) on May 28, 2015, which proposes to make NSFR applicable to banks in India from January 1, 2018. For compliance towards NSFR norms, we may have to borrow long term to fund long-term assets resulting in an increase in interest expense.

Compliance with regulations by the RBI including the new liquidity risk management guidelines may result in the incurrence of substantial compliance and monitoring costs and restrict our growth or the viability of certain businesses, and there can be no assurance that we will be able to comply with such requirements or that any breach of applicable laws and regulations will not adversely affect our reputation or our business, operations and financial conditions.

32. We may face maturity mismatch between assets and liabilities which may result in an adverse impact on our business and operations.

Most of our funding requirements are met through short-term and medium-term funding sources, primarily in the form of deposits. A portion of our assets have long-term maturities, creating a possibility for funding mismatches. In our experience, a substantial portion of our customer deposits have been rolled over on maturity and have been, over time, a stable source of funding. However, in the event that a substantial number of our depositors do not roll over deposits on maturity, our liquidity position and business could be adversely affected. If the depositors do not renew deposits or our Bank is unable to raise new deposits, our Bank may face a liquidity problem and may be required to pay higher interest rates to attract deposits, which may have an adverse impact on our Bank’s business and operations.

33. If we are unable to adapt to rapid technological changes, our business, future financial performance could suffer.

Our future success and ability to compete with other banks will depend, in part, on our ability to respond to technological advances and emerging banking industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that our Bank will successfully upgrade or implement new technologies effectively or adapt its transaction processing systems to customer requirements or emerging industry standards. If our Bank is unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market/technological conditions, customer requirements or technological changes, our business, the future financial performance of our Bank could be materially affected.

34. We rely on the accuracy and completeness of information provided to us about our customers and counterparties which if not accurate and complete may have a negative impact on our 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 upon certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. The difficulties associated with the inability to accurately assess the value of collateral and to enforce rights in respect of

collateral, along with the absence of such accurate statistical, corporate and financial information may decrease the accuracy of our assessments of credit risk, thereby increasing the likelihood of borrower default on our loan and decreasing likelihood that we would be able to enforce any security on respect of such loan. Our financial condition and results of operations could be negatively affected by relying on financial statements that do not comply with generally accepted accounting principles or other information that is materially misleading or by relying on information furnished to us by or on behalf of our customers and counterparties.

35. If we are not able to renew or maintain our statutory and regulatory permits and approvals and licenses required to operate our business, it may have a material and adverse effect on our business, financial condition and results of operations.

We require a number of regulatory approvals, licenses, registrations and permissions for operating our business, including those at a corporate level as well as at the level of each of our branches. Many of these approvals are required to be renewed from time to time. While we believe that we currently have or have applied for all material approvals required for our business, we may not have, or may not receive, all necessary approvals, or be able to obtain renewals of all our approvals within the time frames anticipated by us or may not obtain the same at all, which could adversely affect our business.

We have licenses from RBI for our banking and other operations, IRDAI corporate agent license and registration from SEBI to act as “banker to an issue” and “depository participant”. However, our operations are subject to continued review and the governing regulations may change. Failure to obtain, renew or maintain any required approvals, permits or licenses may result in the interruption of all or some of our operations and could materially and adversely affect our business and financial results. Further, failure to obtain approvals could constrain our ability to scale-up our business or to introduce new products and services.

36. New product/services offered by us may not be successful and we may not grow in any new business area which may have a material adverse effect on our business, financial condition or results of operation

We introduce new products/services to explore new business opportunities on a regular basis. We cannot assure you that all our new products/services will gain customer acceptance and this may result in our incurring pre-operative expenses and launch costs without any assurance that such products will be successful or may fail market penetration. Further, our inability to grow in any new business areas could adversely affect our business and financial performance.

37. Our ability to pay dividends in the future will depend upon our future earnings, financial condition, cash flows, capital expenditure, long-term target payout ratios, growth & investment opportunities, current capital ratios, current & prospective financial performance and other macro & micro-economic factors.

The details of dividend paid by our Bank in the last two Fiscals are as follows:

Financial Year Dividend Per Share (In `) 2015-16 5.00 2014-15 5.00

Our ability to pay dividends in the future will depend on our earnings, financial condition and capital requirements (as impacted by Basel III). Further, dividends distributed by us will attract dividend distribution tax and may be subject to other requirements prescribed by the RBI. Dividends that we have paid in the past may not be reflective of the dividends that we may be able to pay in the future.

38. We rely extensively on our information technology systems and the telecommunications network in India, which require significant investment and expenditure for regular maintenance, upgrades and improvements. Any failure in our information technology systems may materially and adversely affect our business, financial condition and results of operations.

Our information technology systems are a critical part of our business that help us manage, among other things, our risk management, deposit servicing and loan origination functions, as well as our increasing portfolio of products and services. We are heavily reliant on our technology systems in connection with financial controls, risk management and transaction processing. In addition, our delivery channels include ATMs, mobile banking, customer care centre and the internet. Our offline and online business channel

networks are dependent on a dense, comprehensive telecommunications network in India. While deregulation and liberalization of telecommunications laws have prompted the steady improvement in local and long- distance telephone services, telephone network coverage and accessibility is still intermittent in many parts of India. Failure by the Indian telecommunications industry to improve network coverage to meet the demands of the rapidly growing economy may affect our ability to expand our customer base, acquire new customers or service existing customers by limiting access to our services and products. This may materially and adversely affect our business, financial condition and results of operations.

We use our information systems and the internet to deliver services to, and perform transactions on behalf of, our customers and we may need to regularly upgrade our systems, including our software, back-up systems and disaster recovery operations, at substantial cost so that it remains competitive. Our hardware and software systems are also subject to damage or incapacitation by human error, natural disasters, power loss, sabotage, computer viruses and similar events or the loss of support services from third parties such as internet backbone providers. So far, we have not experienced widespread disruptions of service to our customers, but there can be no assurance that we will not encounter disruptions in the future due to substantially increased numbers of customers and transactions, or for other reasons. Any inability to maintain the reliability and efficiency of our systems could adversely affect our reputation, and our ability to attract and retain customers. In the event we experience system interruptions, errors or downtime (which could result from a variety of causes, including changes in customer use patterns, technological failure, changes to systems, linkages with third-party systems and power failures), we are unable to develop necessary technology or any other failure occurs in our systems, this may materially and adversely affect our business, financial condition and results of operations.

39. We rely on our correspondent banks in other countries to facilitate our foreign exchange operations. Any failure to maintain such relationships or enter new such relationships could impact our ability to grow our foreign exchange business.

We maintain Nostro accounts in foreign currencies with 14 correspondent foreign banks for facilitating our treasury, trade and remittance transactions. Such accounts facilitate inward and outward remittance, whereby our customers can remit funds to India in any of the currencies for which we have opened such accounts, by instructing their banks to remit the funds to our Nostro account maintained in that particular currency. In case we intend to cater to a different foreign location or currency, we may need to open such Nostro accounts with the correspondent banks in those locations. Opening and maintaining such accounts requires compliance with strict KYC norms and any failure to adhere to such norms may result in the correspondent bank closing these accounts. Further, a correspondent bank may discontinue any of the services that it offers in relation to such accounts, which may result in customer dissatisfaction. We cannot assure you that we will be able retain our existing correspondent banks or enter into similar arrangements with new correspondent banks on commercially reasonable terms or at all. In the event that we are unable to open new accounts or continue to maintain existing accounts with our correspondent banks for any reason whatsoever, we could be forced to scale back our treasury, trade and remittance business, which could adversely affect our business, cash flows, results of operations and financial condition.

40. Any inability to attract and retain talented professionals may materially and adversely impact our business.

Our performance and success depends largely on our ability to nurture and retain the continued service of our management team and skilled personnel. There is significant competition for management and other skilled personnel in the banking industry. We are dependent on our key personnel. Further, we do not have a key- man insurance policy to cover for loss of our skilled personnel. We are dependent on our key personnel for smooth operations of our business activities. Attracting and retaining talented professionals is a key element of our strategy and we believe it to be a significant source of competitive advantage.

Additionally, should the banking industry move towards incentive-based pay schemes, we may not be as competitive as other banks. This may increase the possibility of our skilled personnel moving to more attractive employment opportunities. There is no assurance that we will be able to continue our successful hiring of talented and key personnel in the future. The loss of key personnel or our inability to replace such personnel effectively may materially and adversely affect our ability to grow and operate our various business functions in an efficient manner.

41. Your holdings may be diluted by additional issuances of equity and any dilution may adversely affect the market price of our Equity Shares.

We are a banking company regulated by the RBI. The RBI has set out minimum capital adequacy standards for banks based on the guidelines of the Basel Committee on Banking Supervision. Under the “Master Circular - Prudential Guidelines on Capital Adequacy and Market Discipline - New Capital Adequacy Framework” dated July 1, 2015, a bank is required to maintain a minimum capital adequacy ratio of 9% on an on-going basis (other than capital conservation buffer and countercyclical capital buffer etc.) and eencouraged to maintain a Tier 1 CRAR of 7.00%. As per our audited financial statements for the financial year 2015-16, our total capital adequacy ratio under Based III was 12.03%. However, considering the future growth plans and increase in risk weighted assets, our Bank would require additional capital to meet the Basel III norms.

We may be required to finance our growth through additional equity offerings. Any future issuance of our equity shares could dilute the holdings of investors in our Bank and could adversely affect the market price of our Equity Shares.

EXTERNAL RISK FACTORS

1. Our risk profile is linked to the Indian economy and the banking and financial markets in India.

The credit risk we are exposed to may be higher than the credit risk of banks in some developed economies. The absence of reliable information, including audited financial statements, recognized debt rating reports and credit histories relating to our present and prospective corporate borrowers or other customers makes the assessment of credit risk, including the valuation of collateral, more difficult, especially for individuals and small businesses. In addition, the credit risk of our borrowers is higher than borrowers in more developed economies due to the evolving Indian regulatory, political, economic and industrial environment. The directed lending norms of the RBI require us to lend a certain proportion of our advances to "priority sectors", including agriculture and small enterprises, where our ability to control the portfolio quality is limited and where economic difficulties are likely to affect our borrowers more severely. Any shortfall may be required to be allocated to investments yielding sub-market returns.

In addition to credit risks, we also face additional risks in comparison to banks operating in developed economies. We pursue our activities in India, a developing economy with all of the risks that come with such an economy. Our activities in India are widespread and diverse and involve employees, contractors, counterparties and customers with widely varying levels of education, financial sophistication and wealth. Although we seek to implement policies and procedures to reduce and manage market place risks as well as risks within our own organization, some risks remain inherent in doing business in a large, developing country. We cannot eliminate these market place and operational risks, which may lead to legal or regulatory actions, negative publicity or other developments that could reduce our profitability. In the aftermath of the financial crisis, regulatory scrutiny of these risks is increasing.

2. Financial difficulty and other problems in certain long-term lending institutions and investment institutions in India could have a negative impact on our business.

We are exposed to the risks prevailing in the Indian financial system which, in turn, may be affected by financial difficulties and other problems faced by certain Indian financial institutions. As an emerging market economy, the Indian economy faces risks not typically faced in developing countries despite 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 financial institutions and banks in India. This, in turn, could adversely affect our business, financial condition and results of operations.

3. 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 us. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth.

Flows to foreign exchange reserves can be volatile, and past declines may have adversely affected the valuation of the Rupee. There can be no assurance that India's foreign exchange reserves will not decrease again in the future. Further decline in foreign exchange reserves, as well as other factors, could adversely affect the valuation of the Rupee and could result in reduced liquidity and higher interest rates that could

adversely affect our business, financial condition and results of operations.

The Bank is subject to risks relating to macroeconomic conditions in India. As reported by the RBI in its financial stability report dated June 28, 2016, risks to India’s banking sector have increased since December 2015, mainly on account of a further deterioration in asset quality and low profitability. While the credit and deposit growth of scheduled commercial banks (SCBs) slowed significantly during 2015-16, their overall capital to risk-weighted assets ratio (CRAR) level increased between September 2015 and March 2016. The risk-weighted assets (RWA) density declined during this period.

The RBI’s June 28, 2016 financial stability report noted that the business of scheduled commercial banks (“SCBs”) slowed significantly during 2015-16. The gross NPA ratio increased sharply, largely reflecting reclassification of restructured standard advances as non-performing. Consequently, the restructured standard advances ratio declined but with a marginal increase in the overall stressed advances ratio from 11.3 per cent in September 2015 to 11.5 per cent in March 2016.

The gross NPAs rose sharply to 7.6 per cent of gross advances in March 2016 from 5.1 per cent in September 2015, largely reflecting re-classification of restructured advances to NPAs following an asset quality review (AQR). Consequently, the overall stressed advances rose only marginally to 11.5 per cent from 11.3 per cent during the period, due to a reduction in restructured standard advances ratio from 6.2 per cent in September 2015 to 3.9 per cent in March 2016.

We have little or no control over any of these risks or trends and may be unable to anticipate changes in economic conditions. Adverse effects on the Indian banking system could impact our funding and adversely affect our business, financial condition and results of operations.

4. We may face greater credit risks than banks in more developed countries.

Our principal business is to provide financing to our customers. We are subject to the credit risk that our borrowers may not pay in a timely fashion or at all. Nevertheless, the credit risk of our borrowers may be higher than that in more developed countries due to the higher uncertainty in the Indian political, economic and industrial environment.

In addition, India's system for gathering and publishing statistical information relating to the Indian economy and the financial performance of companies is not as comprehensive as those of established market economies. Although India has a credit bureau industry, adequate information regarding loan servicing histories, particularly in respect of individuals and small businesses, is limited. As a result, our Bank's credit risk exposure is higher compared with banks operating in advanced markets. Since the Bank's lending operations to the aforesaid categories are limited to India, our Bank may be exposed to a greater potential for loss compared with banks with lending operations in more developed countries. Our Bank is subject to credit risk that the borrowers may not pay the Bank in a timely fashion or at all. The difficulties associated with the inability to accurately assess the value of collateral and to enforce rights in respect of collateral, along with the absence of such accurate statistical, corporate and financial information, may decrease the accuracy of our assessments of credit risk, thereby increasing the likelihood of borrower default on our loan and decreasing the likelihood that we would be able to enforce any security in respect of such a loan. The absence of reliable information, including audited financial statements, recognized debt rating reports and credit histories relating to our present and prospective corporate borrowers or other customers makes the assessment of credit risk, including the valuation of collateral, more difficult, especially for individuals and small businesses.

If our screening processes prove to be inadequate, we may experience an increase in impaired advances and may be required to increase our provision for defaulted advances. As a result, higher credit risk may expose us to greater potential losses, which may materially and adversely affect our business, prospects, financial condition and results of operations.

5. Acts of terrorism and other similar threats to security could adversely affect our business, cashflows, results of operations and financial condition.

Increased political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, conflicts in several regions in which we operate, strained relations arising from these conflicts and the related decline in customer confidence may hinder our ability to do business. Any acts of

terrorism or acts of similar nature in the future may disrupt our operations or those of our customers. These events have had, and may continue to have, an adverse impact on the global economy and customer confidence, which could, in turn, adversely affect our revenue, operating results and financial condition. The impact of these events on the volatility of global financial markets could increase the volatility of the market price of our securities and may limit the capital resources available to us and to our customers

6. You will not, without prior RBI approval, be able to acquire Equity Shares if such acquisition would result in an individual or group holding 5.00% or more of our share capital or voting rights; you may not be able to exercise voting rights in excess of 10.00% of the total voting rights.

The Banking Regulation Act, as amended on January 18, 2013, read with the Reserve Bank of India (Prior Approvals for Acquisition of shares or voting rights in Private Sector Banks) Directions, 2015, requires any person to seek prior approval of the RBI, to acquire or agree to acquire shares or voting rights of a bank, either directly or indirectly, beneficial or otherwise, by himself or acting in concert with other persons, 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 the aggregate shareholding of such persons to be 5.00% or more of the paid-up share capital of a bank or entitles him to exercise 5.00% or more of the voting rights in a bank.

The RBI, as per Master Direction – Ownership in Private Sector Banks, Directions, 2016 released on May 12, 2016, laid out shareholding and voting rights limits in Private Sector Banks. It restricts ownership limits of individuals and non-financial entities (other than the promoter and promoter group) at 10.00% of the paid- up capital. In the case of entities from the financial sector, other than regulated or diversified or listed, the limit is 15.00% of the paid-up capital.

Further, any acquisition of shareholding/voting rights of 5.00% or more of the paid-up capital of the bank or total voting rights of the bank shall be subject to obtaining prior approval from the Reserve Bank of India. Such approval may be granted by the RBI if it is satisfied that the applicant meets certain fitness and propriety tests. The RBI may require the proposed acquirer to seek further RBI approval for subsequent acquisitions. Further, the RBI may, by passing an order, restrict any person holding more than 5.00% of our total voting rights from exercising voting rights in excess of 5.00%, if such person is deemed to be not fit and proper by the RBI.

7. Natural disasters could have a negative impact on the Indian economy and damage our facilities.

Natural disasters such as floods, earthquakes or famines have in the past had a negative impact on the Indian economy. If any such event were to occur, our business could be affected due to the event itself or due to our inability to effectively manage the effects of the particular event. Potential effects include the damage to infrastructure and the loss of business continuity or business information. In the event that our facilities are affected by any of these factors, our operations may be significantly interrupted, which may materially and adversely affect our business, financial condition and results of operations.

8. Political instability or changes in the government in India or in the governments of the states where we operate could cause us significant adverse effects.

Our Bank is incorporated in India and currently derives all of its revenues from operations in India and all of our assets are located in India. Consequently, our performance, market price and liquidity of our Equity Shares may be affected by changes in control, government policies, taxation, social and ethnic instability, social/civil unrest and other political and economic developments affecting India. Our business is also impacted by regulations and conditions in the various states in India where we operate. The Government of India has traditionally exercised, and continues to exercise, a significant influence over many aspects of the economy. The current government has announced that its general intention is to continue India's current economic and financial sector liberalization and deregulation policies. However, there can be no assurance that such policies will be continued, and a significant change in the government's policies could affect business and economic conditions in India, and could also adversely affect our financial condition, cash flows and results of operations. Any political instability could affect specific laws and policies affecting foreign investment. A significant change in the government's policies, in particular, those relating to the banking sector in India, could adversely affect our business, cash flows, results of operations, financial condition, prospects and could cause the price of our Equity Shares to decline.

9. Any downgrading of India's debt rating by an international rating agency could have a negative impact on our business and the trading price of the Equity Shares.

India's sovereign debt rating could be downgraded due to various factors, including changes in tax or financial policy or a decrease in India's foreign exchange reserves. According to the RBI, India's total foreign exchange reserves were over U.S. $ 366.78 billion as on August 26, 2016. India's foreign exchange reserves have grown consistently in the past. (Source: Reserve Bank of India). However, any decline in foreign exchange reserves could adversely affect the valuation of the Indian Rupee and could result in reduced liquidity that could adversely affect our future financial performance and the market price of the Equity Shares and could result in a downgrade of India's debt ratings. Any adverse revisions to India's credit ratings for domestic and international debt by international rating agencies may adversely impact our business and limit our access to capital markets, increase the cost of funds, adversely impact our liquidity position, our shareholders’ funds and the price of our Equity Shares.

10. Public companies in India, including us, will be required to prepare financial statements under IND-AS. We have not determined with any degree of certainty the impact of such adoption on our financial reporting.

As stated in the reports of M/s Kamath & Rau and M/s Abarna & Ananthan, the Joint Statutory Central Auditors of our Bank, included in this Letter of Offer, our Audited Financial Statements and Limited Review Financial Statements, are prepared and presented in conformity with Indian GAAP. The Institute of Chartered Accountants of India has issued IND-AS (a revised set of accounting standards) which converges the Indian accounting standards with International Financial Reporting Standards. The Ministry of Corporate Affairs has confirmed the IND-AS for adoption.

The Ministry of Corporate Affairs notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. The Ministry of Corporate Affairs, in its press release dated January 18, 2016, issued a roadmap for implementation of IND-AS converged with IFRS for scheduled commercial banks, insurers, insurance companies and non-banking financial companies. This roadmap requires these institutions to prepare IND-AS based financial statements for the accounting periods beginning from April 1, 2018 onwards with comparatives for the periods ending March 31, 2018. The RBI, by its circular dated February 11, 2016, requires all scheduled commercial banks to comply with IND-AS for financial statements for the periods stated above. The RBI does not permit banks to adopt IND-AS earlier than the above timeline and the guidelines also state that the RBI shall issue necessary instruction, guidance, and clarification on the relevant aspects for implementation of the IND-AS as and when required.

While we have been discussing the possible impact of IND-AS on our financial reporting, the nature and extent of such impact is still uncertain. Further, the new accounting standards will change, among other things, our methodology for estimating allowances for expected loan losses and for classifying and valuing our investment portfolio and our revenue recognition policy. For estimation of expected loan losses, the new accounting standards may require us to calculate the present value of the expected future cash flows realizable from our advances, including the possible liquidation of collateral (discounted at the loan's effective interest rate). This may result in us recognizing allowances for expected loan losses in the future which may be higher or lower than under current Indian GAAP. There can be no assurance, therefore, that our financial condition, results of operations, cash flows or changes in shareholders' equity will not appear materially worse under IND-AS than under Indian GAAP. In our transition to IND-AS reporting, we may encounter difficulties in the ongoing process of implementing and enhancing our management information systems. Moreover, there is increasing competition for the small number of IFRS-experienced accounting personnel available as more Indian companies begin to prepare IND-AS financial statements. Further, there is no significant body of established practice on which to draw in forming judgments regarding the new system's implementation and application. There can be no assurance that our adoption of IND-AS will not adversely affect our reported results of operations or financial condition and any failure to successfully adopt IND-AS could adversely affect our business, financial condition and results of operations.

11. The market value of the Equity Shares may fluctuate due to the volatility of the Indian securities markets.

Indian securities markets may be more volatile than and not comparable to the securities markets in certain countries with more developed economies. Indian stock exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. Indian stock exchanges (including the BSE and the NSE) have experienced problems which, if such or similar problems were to continue or recur, could affect the market

price and liquidity of the securities of Indian companies, including the Equity Shares. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of Indian stock exchanges have, from time to time, imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Further, from time to time, disputes have occurred between listed companies, stock exchanges and other regulatory bodies, which in some cases may have a negative effect on market sentiment.

12. Our business and activities may be further regulated by the Competition Act and any adverse application or interpretation of the Competition Act could materially and adversely affect our business, financial condition and results of operations.

The Competition Act seeks to prevent business practices that have or are likely to have an appreciable adverse effect on competition in India and has established the Competition Commission of India (the “CCI”). Under the Competition Act, any arrangement, understanding or action, whether formal or informal, which has or is likely to have an appreciable adverse effect on competition is void and attracts substantial penalties. Further, the Competition Act prohibits the abuse of a dominant position by any enterprise. If it is proven that a breach of the Competition Act committed by a company took place with the consent or connivance or is attributable to any neglect on the part of, any director, manager, secretary or other officer of such company, that person shall be guilty of the breach themselves and may be punished as an individual. If we, or any of our employees, are penalized under the Competition Act, our business may be adversely affected. Further, the Competition Act also regulates combinations and requires approval of the CCI for effecting any acquisition of shares, voting rights, assets or control or mergers or amalgamations above the prescribed asset and turnover based thresholds.

It is difficult to predict the impact of the Competition Act on our growth and expansion strategies in the future. If we are affected, directly or indirectly, by the application or interpretation of any provision of the Competition Act or any enforcement proceedings initiated by the CCI or any adverse publicity that may be generated due to scrutiny or prosecution by the CCI, it may adversely affect our business, financial condition and results of operations.

13. Changing laws, rules and regulations and legal uncertainties, including adverse application of corporate and tax laws, may adversely affect our business, results of operations, financial condition and prospects.

The regulatory and policy environment in which we operate is evolving and subject to change. Such changes, including the instances mentioned below, may adversely affect our business, results of operations, financial condition and prospects, to the extent that we are unable to suitably respond to and comply with any such changes in applicable law and policy.

 The GoI proposed to revamp the implementation of direct taxes by way of the introduction of the Direct Tax Code.

 The GoI has proposed a comprehensive national goods and services tax (“GST”) regime that will combine taxes and levies by the central and state Governments into a unified rate structure. It is unclear from when such tax regime will be effective. The Indian Parliament, on September 8, 2016, vide a constitutional amendment, has inserted Article 246A into the Constitution of India to further enable the implementation of the GST, which has received assent from the President of India. While the GoI and other state governments have announced that all committed incentives will be protected following the implementation of the GST, given the limited availability of information in the public domain concerning the GST and the various governing rules, we are unable to provide any assurance as to this or any other aspect of the tax regime following implementation of the GST. The implementation of this rationalized tax structure may be affected by any disagreement between certain state governments, which may create uncertainty. Any such future increases or amendments may affect the overall tax efficiency of companies operating in India and may result in significant additional taxes becoming payable.

 Further, the GAAR are proposed to be made effective from April 1, 2017. In the absence of any precedents on the subject, the application of these provisions is uncertain. If the GAAR provisions are made applicable to our Bank, it may have an adverse tax impact on us.

We have not determined the impact of these proposed legislations on our business. Uncertainty in the applicability, interpretation or implementation of any amendment to, or change in, governing law, regulation or policy in the jurisdictions in which we operate, including by reason of an absence, or a limited body, of administrative or judicial precedent may be time consuming as well as costly for us to resolve and may impact the viability of our current business or restrict our ability to grow our business in the future

14. Investors may be subject to Indian taxes arising out of capital gains on the sale of the Rights Equity Shares.

Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian company are generally taxable in India. Any gain realised on the sale of listed equity shares on a stock exchange held for more than 12 months is exempted from capital gains tax in India if securities transaction tax (“STT”) has been paid on the transaction. STT will be levied on and collected by a domestic stock exchange on which the Shares are sold. Any gain realised on the sale of equity shares held for more than 12 months to an Indian resident, which are sold other than on a recognised stock exchange and on which no STT has been paid, will be subject to long-term capital gains tax in India. Further, any gain realised on the sale of listed equity shares held for a period of 12 months or less will be subject to short-term capital gains tax in India. For further details, please see “Statement of Special Tax Benefits” on page 52.

15. There is no guarantee that the Equity Shares issued pursuant to the Issue will be listed on the BSE and the NSE in a timely manner, or at all.

In accordance with Indian law and practice, permission for listing and trading of the Equity Shares issued pursuant to the Issue will not be granted until after the Equity Shares have been issued and allotted. Approval for listing and trading will require all relevant documents authorizing the issuing of Equity Shares to be submitted. There could be a failure or delay in listing the Equity Shares on the BSE and the NSE. Any failure or delay in obtaining the approval would restrict an investor's ability to dispose of the Equity Shares.

16. Investors will be subject to market risks until the Equity Shares credited to the investor’s demat account are listed and permitted to trade.

Investors can start trading the Equity Shares allotted to them only after they have been credited to an investor’s demat account, are listed and permitted to trade. Since our Equity Shares are currently traded on the BSE and the NSE, investors will be subject to market risk from the date they pay for the Equity Shares to the date when trading approval is granted for the same. Further, there can be no assurance that the Equity Shares allocated to an investor will be credited to the investor’s demat account or that trading in the Equity Shares will commence in a timely manner. The exchanges have in the past experienced problems, including temporary exchange closures, broken defaults, settlements delay and strikes by brokerage firm employees, which if continues, could affect the market price and liquidity of the securities of Indian companies.

17. Financial difficulties and other problems in certain financial institutions in India could adversely affect our business and the price of our Equity Shares.

As an Indian bank, we are exposed to the risks of the Indian financial system which may be affected by the financial difficulties faced by certain Indian financial institutions because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships. This risk, which is sometimes referred to as "systemic risk", may adversely affect financial intermediaries, such as clearing agencies, banks, securities firms and exchanges with whom we interact on a daily basis and who may default on their obligations due to bankruptcy, lack of liquidity, operational failure or other reasons. Any such difficulties or instability of the Indian financial system in general could create an adverse market perception about Indian financial institutions and banks and hence adversely affect our business. As the Indian financial system operates within an emerging market, it faces risks of a nature and extent not typically faced in more developed economies, including the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme.

18. Significant differences exist between GAAP as applied in India and other accounting principles with which investors may be more familiar.

Our financial statements are prepared in conformity with Indian GAAP as applicable to banks. GAAP as applied in India differs in certain significant respects from IFRS, U.S. GAAP and other accounting principles and accounting standards with which prospective investors may be familiar with in other countries. We do

not provide a reconciliation of our financial statements to IFRS or U.S. GAAP or a summary of principal differences between Indian GAAP, IFRS and U.S. GAAP relevant to our business. Furthermore, we have not quantified or identified the impact of the differences between Indian GAAP and IFRS or between Indian GAAP and U.S. GAAP as applied to our financial statements. As there are significant differences between GAAP as applied in India and IFRS and between GAAP as applied in India and U.S. GAAP, there may be substantial differences in our results of operations, cash flows and financial position if we were to prepare our financial statements in accordance with IFRS or U.S. GAAP instead of Indian GAAP. Prospective investors should review the accounting policies applied in the preparation of our financial statements, and consult their own professional advisors for an understanding of the differences between Indian GAAP and IFRS and between Indian GAAP and U.S. GAAP and how they might affect the financial information contained in this Letter of Offer.

PROMINENT NOTES

1. Issue of up to 9,42,35,441 Rights Equity Shares for cash at a price of ` 70 (including a premium of ` 60 per Rights Equity Share) aggregating up to ` 659.65 crore on a rights basis to Eligible Shareholders in the ratio of one Rights Equity Shares for every two fully paid-up Equity Share held on the Record Date.

2. As on March 31, 2016, the net worth of our Bank was ` 3,690.58 crore.

3. For details of our transactions with related parties during Fiscal 2016 as per AS 18, the nature of such transactions and the cumulative value of such transactions, please see “Financial Statements – Accounting Standard 18 – Related Party Disclosures” on page F-36.

4. No selective or additional information will be available for a section of investors in any manner whatsoever.

5. There has been no financing arrangement whereby the Directors and their relatives have financed the purchase by any other person of securities of our Bank other than in the normal course of business of the financing entity during the period of six months immediately preceding the date of filing of this Letter of Offer with the Designated Stock Exchange.

SECTION III: INTRODUCTION

THE ISSUE

The Issue has been authorized by way of a resolution passed by our Board on August 5, 2016 pursuant to Section 62 of the Companies Act. The following is a summary of the Issue.

This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information in “Terms of the Issue” on page 92.

Equity Shares Rights Equity Shares being offered Up to 9,42,35,441 Rights Equity Shares aggregating up to ` 659.65 by our Bank crore Rights Entitlement 1 Rights Equity Shares for every 2 fully paid-up Equity Shares held on the Record Date Record Date October 25, 2016 Face Value per Equity Share ` 10 each Issue Price ` 70 per Rights Equity Share Issue Size Up to ` 659.65 crore Equity Shares Issued and 18,84,91,709 Equity Shares outstanding prior to the Issue Equity Shares subscribed and 18,84,85,631 Equity Shares outstanding prior to the Issue Equity Shares paid up and 18,84,69,081 Equity Shares outstanding prior to the Issue Equity Shares Issued and Up to 28,27,27,150 Equity Shares outstanding after the Issue (assuming full subscription for and Allotment of the Rights Entitlement) Equity Shares Subscribed and Up to 28,27,21,072 Equity Shares outstanding after the Issue (assuming full subscription for and Allotment of the Rights Entitlement) Equity Shares paid-up and Up to 28,27,04,522 Equity Shares outstanding after the Issue (assuming full subscription for and Allotment of the Rights Entitlement) Security Codes ISIN: INE614B01018 BSE: 532652 NSE: KTKBANK Terms of the Issue For details please see “Terms of the Issue” on page 92. Use of Issue Proceeds For details please see “Objects of the Issue” on page 50.

Terms of Payment

Due Date Amount On the Issue application (i.e. along with the CAF) ` 70, which constitutes 100% of the Issue Price payable

SUMMARY FINANCIAL INFORMATION

The following tables set forth below indicates a summary financial information derived from our Audited Financial Statements and the Limited Review Financial Statements:

BALANCE SHEET (`` in Crore) As on As on March 31, 2016 March 31, 2015 CAPITAL AND LIABILITIES Capital 188.47 188.46 Reserves and Surplus 3,502.12 3,200.60 Deposits 50,488.21 46,008.61 Borrowings 1,051.48 1,037.76 Other Liabilities and Provisions 1,270.05 1,401.17 TOTAL 56,500.33 51,836.60 ASSETS

Cash and balances with Reserve Bank of India 2,645.62 2,488.45 Balances with Banks and Money at Call & Short 399.30 125.71 Notice Investments 16,256.65 14,031.67 Advances 33,902.45 31,679.99 Fixed Assets 306.64 291.85 Other Assets 2,989.67 3,218.93

TOTAL 56,500.33 51,836.60

Contingent Liabilities 5,877.70 8,315.69 Bills for Collection 1,507.99 4,103.53

PROFIT AND LOSS ACCOUNT (`` in Crore) Year ended Year ended March 31, 2016 March 31, 2015 I. INCOME Interest Earned 4,992.21 4,698.42 Other Income 542.86 506.99 Total 5,535.07 5,205.41 II. EXPENDITURE Interest Expended 3,689.34 3,529.57 Operating Expenses 991.20 902.47 Provisions and Contingencies 439.24 321.92 Total 5,119.78 4,753.96

III.PROFIT Net profit for the year 415.29 451.45

Profit brought forward 0.40 0.16

Total 415.69 451.61

IV. APPROPRIATIONS Transfer to Statutory Reserve 230.00 230.00 Transfer to Capital Reserve 8.85 3.15 Transfer to Revenue Reserve 41.00 58.00 Transfer to Special Reserve u/s 36 (i) (viii) of IT Act 25.84 26.07 Transfer to Investment Reserve Account -3.84 19.24 Transfer to Other Funds 0.40 0.80 Transfer to Proposed dividend 94.23 94.23 Transfer to Tax on proposed dividend 19.18 19.72 Balance carried over to Balance Sheet 0.03 0.40 Total 415.69 451.61

Number of Shares outstanding during the year 18,84,56,021 18,84,32,610 (weighted average) Earning per share (Rs per share of Rs10/- each) Basic (Rs.) 22.04 23.96 Diluted (Rs.) 22.03 23.95

CASH FLOW STATEMENT (`` in Crore) Year ended Year ended March 31, 2016 March 31, 2015 A CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax and extra ordinary items 528.89 559.69 Adjustments for : Depreciation on Fixed Assets including Lease 42.24 -14.17 Adjustment charges Provisions and Contingencies 326.53 213.97 Amortisation of premium on Held to Maturity 33.34 34.83 Investments

Operating profit before working capital changes 931.00 794.32 Adjustment for : i) Advances & Other Assets -1,855.28 -3,502.46 ii) Investments -2,258.64 -728.77 iii) Deposits, Borrowings & Other Liabilities 4,004.08 4,415.98 Cash generated from operations 821.16 979.07 Direct taxes paid 185.23 330.97 Net cash flow from operating activities (A) 635.93 648.10 B CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets -58.56 -81.20 Sale of fixed assets 0.65 0.70 Net cash used in investing activities (B) -57.91 -80.50 CASH FLOW FROM FINANCING C ACTIVITIES Proceeds from issue of share capital (net of 0.04 0.16 expenses) Proceeds from long term borrowings -34.41 -203.77 Dividend paid (Including Tax on Dividend) -112.88 -87.24 Net Cash generated from Financing Activities -147.25 -290.85 ( C ) Net increase in Cash & Cash equivalents 430.77 276.75 (A+B+C) Cash & cash equivalents as at (opening) 2,614.15 2,337.40 Cash & cash equivalents as at (closing) 3,044.92 2,614.15

BALANCE SHEET (`` in Crore) As on As on June 30, 2016 June 30, 2015 CAPITAL AND LIABILITIES Capital 188.47 188.46 Reserves and Surplus 3,623.67 3,309.95 Deposits 51,501.25 46,766.85 Borrowings 965.23 1,071.09 Other Liabilities and Provisions 1,259.91 1,411.62

TOTAL 57,538.53 52,747.97

ASSETS

Cash and balances with Reserve Bank of India 2,560.42 2,655.95 Balances with Banks and Money at Call & Short 436.07 114.10 Notice Investments 16,445.02 15,256.52 Advances 34,946.19 31,351.64 Fixed Assets 301.02 291.64 Other Assets 2,849.81 3078.12

TOTAL 57,538.53 52,747.97

Contingent Liabilities 6,329.16 8,609.31 Bills for collection 1,638.67 810.59

PROFIT AND LOSS ACCOUNT (`` in Crore) Quarter Quarter Year ended ended June ended June March 31, 30, 2016 30, 2015 2016 I. INCOME Interest Earned 1,260.60 1,229.04 4,992.21 Other Income 174.35 119.13 542.86 Total 1,434.95 1,348.17 5,535.07 II. EXPENDITURE Interest Expended 895.91 897.73 3,689.34 Operating Expenses 277.13 211.42 991.20 Provisions and Contingencies 140.37 129.68 439.24 Total 1,313.41 1,238.83 5,119.78 III.PROFIT Net profit for the year 121.54 109.34 415.29 Profit brought forward 0.03 0.40 0.40 Total 121.57 109.74 415.69 IV. APPROPRIATIONS Transfer to Statutory Reserve 0.00 0.00 230.00 Transfer to Capital Reserve 0.00 0.00 8.85 Transfer to Revenue Reserve 0.00 0.00 41.00 Transfer to Special Reserve u/s 36 (i) (viii) of IT Act 0.00 0.00 25.84 Transfer to Investment Reserve Account 0.00 0.00 -3.84 Transfer to Other Funds 0.00 0.00 0.40 Transfer to Proposed dividend 0.00 0.00 94.23 Transfer to Tax on proposed dividend 0.00 0.00 19.18 Balance carried over to Balance Sheet 121.57 109.74 0.03 Total 121.57 109.74 415.69

GENERAL INFORMATION

Registered Office of our Bank

The Karnataka Bank Limited P.B. No. 599, Mahaveera Circle, Kankanady Mangaluru 575 002 Telephone: +91 (824) 2228182/3/4 Fascimile: +91 (824) 2225588 Website: www.karnatakabank.com Email: [email protected] Company Identification Number: L85110KA1924PLC001128 Registration Number: 001128

Address of the RoC

Our Bank is registered with the RoC, which is situated at the following address:

The Registrar of Companies, Karnataka 'E' Wing, 2nd Floor Kendriya Sadana Koramangala, Bengaluru 560034 Telephone: +91 (80) 25633104/25537449 Fascimile: +91 (80) 25538531 Email: [email protected]

Company Secretary and Compliance Officer

Mr. Y V Balachandra Company Secretary and Compliance Officer P.B. No. 599, Mahaveera Circle, Kankanady, Mangaluru 575 002 Telephone: +91 (824) 2228182/3/4 Fascimile: +91 (824) 2225588 Website: www.karnatakabank.com E-mail: [email protected]

Joint Statutory Central Auditors of our Bank

M/s. Kamath & Rau, M/s. Abarna & Ananthan, Chartered Accountants, Chartered Accountants Karangalpady # 521, 3rd Main, 6th Block, 2nd Phase Mangaluru 575003 Banashankari, 3rd Stage, Telephone:+91(824) 244341/2443150 Bengaluru 560085 Fascimile: +91 (824) 4253525 Telephone: +91 (80)26426022/8880097322 Email: [email protected] Fascimile:+91 (80) 26727430 Contact Person: Mr. Srinivas Kamath Email: [email protected] Mr. Parineeth Rau Contact Person: Mr. C.S. Gopalakrishna Registration No. FRNo.001689S Mrs. Abarna Bhaskar Registration No. FRNo.000003S

Registrar to the Issue

Integrated Enterprises (India) Limited No 30 Ramana Residency 4th Cross, Sampige Road, Malleswaram, Bengaluru 560 003 Telephone: + 91 (80) 23460815-818 Facsimile: + 91 (80) 23460819

E-mail: [email protected] Investor Grievance E-mail: [email protected] Website: www.integratedindia.in Contact Person: Mr. S. Vijayagopal/ Mr. E.T Balaji SEBI Registration No: INR 000000544

Investors may contact the Registrar to the Issue or our Company Secretary and Compliance Officer for any pre- Issue/ post-Issue related matters such as non-receipt of letter of Allotment, credit of Rights Equity Shares or Refund Orders and such other matters. All grievances relating to the ASBA process may be addressed to the Registrar to the Issue, with a copy to the SCSB, giving full details such as name, address of the applicant, number of Rights Equity Shares applied for, amount blocked, ASBA Account number and the Designated Branch of the SCSB where the CAF, or the plain paper application, as the case may be, was submitted by the ASBA Investors.

Lead Manager to the Issue

Edelweiss Financial Services Limited 14th Floor, Edelweiss House Off C.S.T. Road, Kalina Mumbai 400 098 Telephone: +91 (22) 4009 4400 Facsimile: +91 (22) 4086 3610 E-mail: [email protected] Website: www.edelweissfin.com Contact Person: Mr. Viral Shah / Mr. Vaibhav Shah SEBI Registration No.: INM0000010650

Legal Advisor to the Issue as to Indian law

Khaitan & Co One Indiabulls Centre 13th Floor, 841 Senapati Bapat Marg Mumbai 400 013 Telephone: + 91 (22) 6636 5000 Facsimile: + 91 (22) 6636 5050

Bankers to the Issue

The Karnataka Bank Limited HO Complex Branch Mahaveera Circle, Kankanady, Mangaluru 575 002 Telephone: +91 (824) 2228182/3/4 Fascimile: +91 (824) 2225588 Website: www.karnatakabank.com Email: [email protected] Contact Person: Mr V Shankar Bhat

ASBA

For details on the ASBA process, refer to the details given in the CAF and please see “Terms of the Issue” beginning on page 92.

Experts

Our Bank has received written consents dated October 4, 2016 from M/s. Kamath & Rau, Chartered Accountants and M/s. Abarna & Ananthan, Chartered Accountants, the Joint Statutory Central Auditors of our Bank, respectively, to include their name as an “expert” under Section 2(38) of the Companies Act, 2013 in this Letter of Offer in relation to their: (i) Reformatted financial statements examination report dated September 29, 2016 on the Audited Financial Statements provided under “Financial Statements” beginning on page 60, and (ii) report dated September 29, 2016 on the Limited Review Financial Statements, provided under “Financial Statements” beginning on page 60, and (iii) the statement of special tax benefits statement dated September 29, 2016 provided

under “Statement of Special Tax Benefits” on page 52. Further this consent has not been withdrawn as of the date of this Letter of Offer.

Self-Certified Syndicate Banks

The list of banks that have been notified by SEBI to act as SCSBs under the Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994, for the ASBA process in accordance with the SEBI Regulations is provided on the website of SEBI athttp://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries and updated from time to time. Further, details relating to designated branches of SCSBs collecting the ASBA application forms are available at the above mentioned link.

Statement of responsibility of the Lead Manager

Edelweiss Financial Services Limited is the sole Lead Manager to the Issue. The details of responsibility for Edelweiss Financial Services Limited are follows:

S.No Activities 1 Capital structuring with relative components and formalities such as type of instruments, etc. 2 Drafting, design and distribution of the Letter of Offer, Abridged Letter of Offer, CAF, etc. 3 Assistance in selection of various agencies connected with the Issue, namely Registrar to the Issue, Banker to the Issue, printers and advertising agency. 4 Drafting and approval of all publicity material including statutory advertisements, corporate advertisements, brochures, corporate films, etc. 5 Liaising with the Stock Exchanges and SEBI, including for obtaining in-principle approval and completion of prescribed formalities with the Stock Exchanges and SEBI 6 Post-Issue activities, which shall involve essential follow-up steps including finalisation of basis of allotment, listing of instruments and dispatch of certificates or demat credit and refunds, with the various agencies connected with the post-Issue activities such as Registrar to the Issue and Banker to the Issue.

Issue Schedule

The subscription will open upon the commencement of the banking hours and will close upon the close of banking hours on the dates mentioned below.

Issue Opening Date: November 7, 2016 Last date for receiving requests for SAFs November 15, 2016 Issue Closing Date: November 21, 2016 Finalisation of basis of allotment with the Designated Stock Exchange (on December 1, 2016 or about) Date of Allotment (on or about) December 1, 2016 Initiation of Refund (on or about) December 1, 2016 Date of credit of Rights Equity Shares (on or about) December 6, 2016 Commencement of trading of Rights Equity Shares on the Stock December 7, 2016 Exchanges (on or about)

Investors are advised to ensure that the CAFs are submitted on or before the Issue Closing Date. Our Bank, the Lead Manager and / or the Registrar to the Issue will not be liable for any loss on account of non-submission of CAFs or on before the Issue Closing Date.

Debenture trustee

As the Issue is of Equity Shares, there is no requirement to appoint a debenture trustee for the Issue.

Monitoring Agency

Our bank is not required to appoint a monitoring agency to monitor the utlisation of the Net Proceeds as per Regulation 16 of the SEBI Regulations as its not applicable on the issue of specified securitie by the banks and public financial institutions.

Underwriting

The Issue is not underwritten and our Bank has not entered into any underwriting arrangement.

Minimum Subscription

If our Bank does not receive the minimum subscription of 90% of the Issue or the subscription level falls below 90%, after the Issue Closing Date on account of cheques being returned unpaid or withdrawal of applications, our Bank shall refund the entire subscription amount received within 15 days from the Issue Closing Date. In the event that there is a delay of making refunds beyond such period as prescribed by applicable laws, our Bank shall pay interest for the delayed period at rates prescribed under applicable laws.

Credit Rating

As the Issue is of Equity Shares, there is no requirement of credit rating for the Issue.

Appraising Entity

None of the purposes for which the Net Proceeds are proposed to be utilised have been financially appraised by any banks or financial institution or any other independent agency.

Principal Terms of Loans and Assets charged as security

For details of the principal terms of loans and assets charged as security, please see the chapter “Financial Statements” on page 60.

CAPITAL STRUCTURE

The share capital of our Bank as on the date of this Letter of Offer is as under:

(Rs. in Crore, except share data) Aggregate Aggregate value Particulars Value at Issue at Face Value Price Authorized share capital 50,00,00,000 Equity Shares of ` 10 each 500.00 Issued capital(1) 18,84,91,709 Equity Shares of ` 10 each 188.49 Subscribed Capital(2) 18,84,85,631 Equity Shares of ` 10 each 188.49 Paid up Capital(3) 18,84,69,081 Equity Shares of ` 10 each 188.47 Present Issue* being offered to the Equity Shareholders through the Letter of Offer Up to 9,42,35,441 Equity Shares of ` 10 each at a premium of ` 60, 94.24 659.65 i.e. at a price of ` 70 per Equity Share Paid up capital after the Issue(4) 28,27,04,522 Equity Shares of ` 10 each (assuming full subscription 282.70 for and Allotment of the Rights Entitlement) Share premium Account Before the Issue 723.08 After the Issue (assuming full subscription for and Allotment of the 1,288.49 Rights Entitlement) * The Issue has been authorized by a resolution of our Board passed at its meeting held on August 5, 2016, pursuant to Section 62 of the Companies Act, 2013. The Issue is in the ratio of one Equity Share of ` 10 each for every two Equity Shares held on the record date i.e. October 25, 2016.

(1) Issued Capital 1. The issued capital of 18,84,91,709 Equity Shares includes 22,628 Equity Shares comprising of: i. 150 Equity Shares kept in abeyance in the bonus issue of Equity Shares during the year 2002-03; ii. 150 Equity Shares kept in abeyance in the rights issue of Equity Shares during the year 2002-03; iii. 4,128 Equity Shares kept in abeyance in the rights issue of Equity Shares during the year 1995-96, which have since been lapsed; iv. 150 Equity Shares kept in abeyance in the rights issue of Equity Shares during the year 2002-03 rights issue, which have since been lapsed; v. 900 Equity Shares kept in abeyance in the rights issue of Equity Shares during the year 2004-05; vi. 600 Equity Shares kept in abeyance in the rights issue of Equity Shares during the year 2010-11; and vii. 16,550 Equity Shares forfeited on October 10, 1998.

(2) Subscribed Capital The subscribed capital of 18,84,85,631 Equity Shares includes 16,550 Equity Shares, which were allotted in the year 1995-96 pursuant to the public issue but forfeited on October 10, 1998 for non-payment of allotment money.

(3) Paid-up Capital The paid-up capital of 28,27,04,522 Equity Shares excludes 16,550 Equity Shares, which were allotted in the year 1995-96 pursuant to the public issue but forfeited on October 10, 1998 for non-payment of allotment money. Further, 1,94,728 Equity Shares kept in demat suspense account are also part of current paid-up capital of our Bank.

In addition to the paid up capital of 18,84,69,081 Equity Shares, 1,800 Equity Shares kept in abeyance on account of earlier issues are considered to arrive at the adjusted paid up capital of 18,84,70,881 Equity Shares which is considered for the purpose of the Issue. However, entitlements in respect of 1,94,728 Equity Shares kept in demat suspense account, will be kept in abeyance in addition to 1,800 Equity Shares of earlier issues kept in abeyance. Further, entitlements in respect of a total of 600 equity shares covered under the

order of ‘The Special Court (TORTS) Act, 1992’ vide letter bearing number 4178/CUS/BOM/MA- 410/02(711-B-1) dated December 21, 2012 and 4392/CUS/BOM/MA-410/02(711-B-1) dated January 03, 2013, would also be kept in abeyance.

(4) Paid up capital after the Issue The post Issue paid-up share capital is assumed to include rights entitlement for 1,800 Equity Shares kept in abeyance in earlier issues, 1,94,728 Equity Shares kept in demat suspense account and 300 shares being the entitlements in respect of a total of 600 Equity Shares covered under the above mentioned order of the Special Court.

Outstanding Instruments

Our Bank has no outstanding instruments as on the date of filing the Letter of Offer.

Promoters and Promoter Group related information

Our Bank has no identifiable promoters. Hence, no disclosure of details in relation to their holding, pledge of Equity Shares held, acquisition of Equity Shares by the promoter and promoter group in the last one year immediately prior to the date of filing of the Letter of Offer, intention and extent of participation in the issue and lock-in has been made.

Further, there is no shareholders agreement in place whereby any special right to appoint a director of our Bank has been given to any shareholder of our Bank.

Shareholding Pattern

Pursuant to Regulation 31 of the Listing Regulations, the holding of specified securities are divided into the following three categories:

(a) Promoter and Promoter Group; (b) Public; and (c) Non Promoter - Non Public.

Summary statement holding of Equity Shareholders as on September 30, 2016:

Shareholding Number of Voting Rights held in each as a % of class of securities (IX) No. of No. of Total nos. total no. of No of Voting Rights No. of fully Partly shares Nos. of shares held shares Category Category of paid up Equity paid-up underlying shareholders (VII) = (calculated as Total as a (I) shareholder (II) Shares held Equity Depository (III) (IV)+(V)+ per SCRR, % of (IV) Shares Receipts Class e.g. X Total (VI) 1957) (A+B+C) held (V) (VI) (VIII) As a % of (A+B+C2) (A) Promoter and ------Promoter Group (B) Public 1,21,881 18,84,69,081 - - 18,84,69,081 100 18,84,69,081 100 (C) Non Promoter------Non Public (C1) Shares ------underlying DRs (C2) Shares held by ------Employee Trusts (C3) Shares ------underlying ESOP’s Total 1,21,881 18,84,69,081 - - 18,84,69,081 100 18,84,69,081 100

Ex-rights price of the Equity Shares

The ex-rights price of the Equity Shares as per regulation 10(4)(b) of the Takeover Regulations is ` 114.23.

Shareholders holding more than 1% of Equity Share capital

Details of our Shareholders holding more than one per cent of the share capital of our Bank as on October 21, 2016 is as follows:

Sr. Number of Equity As a percentage of total Name of the Shareholder No. Shares number of Equity Shares 1. Life Insurance Corporation Of India P& GS 102,03,485 5.41 Funds 2. B Sumanthkumar Reddy 52,32,662 2.78 3. Goldman Sachs (Singapore) PTE 41,76,902 2.22 4. LSV Emerging Markets Equity Fund LP 26,25,600 1.39 5. Dimensional Emerging Markets Value Fund 21,71,417 1.15 6. Venkata Sesha Reddy Damegunta 20,94,500 1.11 7. Acadian Emerging Markets Small Cap Equity 20,67,687 1.10 Fund LLC 8. Government Pension Fund Global 19,81,333 1.05 TOTAL 3,05,53,586 16.21

OBJECTS OF THE ISSUE

Our Bank proposes to utilize the Net Proceeds from the Issue to augment its capital base to support our business expansion and meet out Bank’s future capital requirements.

The objects clause of our Memorandum of Association enable us to undertake our existing activities for which the funds are being raised by us in the Issue.

The details of the proceeds of the Issue are summarized below:

(` in crore) Particulars Amount Gross proceeds to be raised through the Issue 659.65 Less: Issue related expenses 5.26 Net proceeds of the Issue after deducting the Issue related expenses (“Net Proceeds”) 654.39

Requirement and sources of funds

We intend to utilize the entire Net Proceeds to augment our Bank’s Tier-I capital to meet our Bank’s future capital requirements to support our business expansion and to ensure compliance with Basel III and other RBI regulations.

Details of the Objects

To augment Tier I Capital:

As prescribed by the RBI, our Bank has adopted Basel III norms starting from April 1, 2013. The minimum capital adequacy ratio (“CRAR”) required to be maintained by our Bank for Fiscal 2016 is 9.625% (including capital conservation buffer (“CCB”)), with Tier 1 CRAR of 7.625% under Pillar 1 of Basel III regulations of the RBI. The capital requirement is progressively going up under the Basel III regulations prescribed by RBI. The minimum capital adequacy (including CCB) will increase from 9.625% as at March 31, 2016 to 11.50% by March 31, 2019; an increase of 0.625% every Fiscal on account of incremental CCB. In addition to the minimum capital prescribed under Pillar 1, under Pillar 2 of Basel III regulations, RBI requires banks to have an additional capital buffer for absorbing risks which are not covered under Pillar 1, such as liquidity risk, concentration risk, strategic risk, reputational risk etc. In our estimate, this additional requirement would push up the capital needs by around 1% over and above the minimum prescribed.

Basel III is being implemented by RBI from April 1, 2013, subject to a series of transitional arrangements to be phased in over a period of time and has to be fully implemented by March 31, 2019. The RBI has indicated that the capital requirements for the implementation of the Basel III Capital Regulations may be lower during the initial period and higher in later years. While our Bank has raised capital from time to time, with adoption of Basel III by our Bank and the ongoing implementation of BASEL III, the minimum capital requirements of our Bank will increase in a phased manner over the next few years. Accordingly, the objects of the Issue are to augment our Bank’s Tier-I capital base to meet our Bank’s future capital requirements which are expected to arise out of growth in our Bank’s assets, primarily our Bank’s loans/advances and investment portfolio and to ensure compliance with Basel III and other RBI regulations.

As on March 31, 2016, our Bank’s total CRAR and common equity tier-1 CRAR was at 12.03% and 10.56% respectively. However, considering the future growth plans and consequent increase in risk weighted assets, our Bank would require additional capital.

Accordingly, the objects of the Issue are to support our business expansion and augment our Bank’s Tier-I capital to meet our Bank’s future capital requirements and to conform to the provision of Section 12(1)(i) of the Banking Regulation Act i.e. to have subscribed capital of not less than one half of authorized capital and paid up capital of not less than one half of subscribed capital. Hence, our Bank is required to issue additional Equity Shares.

Means of finance

The stated Objects of the Issue are proposed to be financed entirely from the Net Proceeds of the Issue.

Accordingly, we confirm that there is no requirement for us to make firm arrangements of finance through

verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through the Issue.

Schedule of Implementation and Deployment of Funds

Our Bank proposes to deploy the Net Proceeds in the aforesaid object in the current Fiscal.

Appraisal of the Objects

The objects have not been appraised by any banks, financial institutions or agency and we have not raised any bridge loans against the Net Proceeds.

Issue Expenses

The Issue related expenses include, among others, fees to various advisors, printing and distribution expenses, advertisement expenses, and registrar and depository fees. The estimated Issue related expenses are as follows:

Expense Expense Expense Activity (% of total (% of Issue (in `crore)* expenses)* Size)* Fees of Lead Manager, legal advisor, registrar to the 1.81 34.47 0.27 Issue, other service providers and out of pocket expenses Expenses relating to advertising, printing, 1.32 25.11 0.20 distribution, marketing and stationery expenses Regulatory fees, listing fees, depository fees, 1.63 30.92 0.25 auditor fees Miscellaneous expenses 0.50 9.51 0.08 Total estimated Issue expenses 5.26 100.00 0.80 (*) Assuming full subscription and Allotment in the Issue.

Monitoring of Utilisation of Funds

As we are a bank, in accordance with Regulation 16 of the SEBI Regulations, there is no requirement for appointment of a monitoring agency. Our Bank is raising capital to meet future capital adequacy related requirements and not for any specified project(s).

Other confirmations

The Directors or key managerial personnel do not have any interest in the proposed utilization of Issue Proceeds.

The key industry regulations for the proposed objects of the Issue are not different from our existing business.

SECTION IV: STATEMENT OF SPECIAL TAX BENEFITS

The Board of Directors The Karnataka Bank Limited Post Box No. 599. Mahaveera Circle, Kankanady, Mangaluru 575 002

Dear Sirs,

Sub: Statement of possible Special Tax Benefits available in connection with proposed Rights Issue of Equity Shares (the “Rights Issue”) of The Karnataka Bank Limited (the “Bank”)

We report that the enclosed statement, prepared by ‘the Bank’ states the possible special tax benefits available to the Bank or its shareholders under the current tax laws presently 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 statute. Hence, the ability of Bank or its shareholders to derive these special tax benefits is dependent upon their fulfilling such conditions.

The possible special tax benefits discussed in the enclosed annexure are not exhaustive. This statement is only intended to provide general information to investors and is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the tax consequences and the changing tax laws, 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 Rights Issue particularly in view of the fact that certain recently enacted legislation may not have a direct legal precedent or may have a different interpretation on the benefits, which an investor can avail. Neither are we suggesting nor are we advising the investor to invest money based on this statement.

The benefits discussed in the Statement are only intended to provide the special tax benefits to the Bank and its shareholders in a general and summary manner and does not purport to be a complete analysis or listing of all the provisions or possible tax consequences of the subscription, purchase, ownership or disposal etc. of shares. The special tax benefits listed herein are only the possible benefits which may be available under the current tax laws presently in force in India. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions prescribed under the relevant tax laws, which based on business imperative it faces in the future, it may or may not choose to fulfil.

We do not express any opinion or provide any assurance as to whether:

(i) The Bank or its shareholders will continue to obtain these benefits in future; or (ii) The conditions prescribed for availing the benefits have been/would be met with.

The contents of the enclosed statement are based on the representations obtained from the Bank and on the basis of our understanding of the business activities and operations of the Bank.

This statement is intended solely for information and for inclusion in Letter of Offer and Abridged Letter Offer in relation to the Rights Issue and is not to be used, circulated or referred to for any other purpose without our prior written consent. Our views are based on the existing provisions of law referred to earlier and its interpretation, which are subject to change from time to time.

Yours sincerely

For Kamath & Rau ForAbarna&Ananthan Chartered Accountants Chartered Accountants Firm Registration No.: 001689S Firm Registration No.: 000003S

Parineeth Rau C.S. Gopalakrishna Partner Partner Membership No.: 222039 Membership No.: 014706

Place: Mangaluru Place: Mangaluru Date: September 29, 2016 Date: September 29 2016

STATEMENT OF POSSIBLE TAX BENEFITS AVAILABLE TO THE ISSUER BANK AND ITS SHAREHOLDERS

TO THE BANK

Special Tax Benefits

1. As per the provisions of section 36(1) (iiia) of the Income Tax Act, 1961 (the “Act”) the Bank is entitled to claim deduction in respect of pro rata amount of discount on a zero coupon bond, having regard to the period of life of such bond, calculated in the manner as may be prescribed by rules in this behalf. Zero coupon bond is defined under section 2(48) of the Act to mean a bond issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank on or after 1 June 2005 in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank and which is notified by the Central Government in this behalf.

2. In terms of Section 36(1) (viia) of the Act, the Bank is entitled to claim deduction in respect of any provision for bad and doubtful debts made by the bank of an amount not exceeding 7.5% of the total income (computed before making any deduction under this clause and Chapter VIA of the Act) and an amount not exceeding 10% of the aggregate average advances made by rural branches computed in the manner prescribed under Rule 6ABA.

3. Under section 36(1) (vii) of the Act, the amount of any bad debts, or part thereof, written off as irrecoverable in the accounts of the bank for the previous year is allowable as deduction. However, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account including provisions made towards rural advances made under section 36(1)(viia) of the Act. Further, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession and accordingly, chargeable to tax in accordance with Section 41(4) in the year in which it is recovered.

4. In terms of Section 36(1) (viii) of the Act, the bank is allowed deduction in respect of any special reserve created and maintained by the Bank for an amount not exceeding 20% of the profits derived from the business of long term finance for industrial or agricultural development or development of infrastructure facility in India or development of housing in India. Further, if the aggregate amount carried to the Special Reserve account from time to time exceeds twice the paid-up capital and general reserves, no deduction shall be allowed on the excess amount under the Section. The amount withdrawn from such a Special Reserve Account would be chargeable to income tax in the year of withdrawal, in accordance with the provisions for Section 41(4A) of the Act.

5. In terms of section 43D of the Act, interest on certain categories of bad and doubtful debts as specified in Rule 6EA of the Income-tax Rules, 1962, shall be chargeable to tax only in the year of receipt or credit to Profit and Loss Account, whichever is earlier.

6. Under Section 47(xv), no capital gain is chargeable on any transfer in a scheme of lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subjected to the guidelines issued by the Securities and Exchange Board of India or Reserve Bank of India, in this regard.

TO SHAREHOLDERS OF THE BANK

Special Tax Benefits:

There are no special tax benefits available to the shareholders of the Bank.

SECTION V: OUR MANAGEMENT

As per the Articles of Association of our Bank, our Bank must have a minimum of 3 and a maximum of 15 Directors. As on date of this Letter of Offer, we have one Whole-time Director and 6 Independent Directors.

Mr. Ananthakrishna retired as chairman of our Bank with effect from October 27, 2016. Our Bank vide letter dated October 21, 2016, has informed the RBI that our Bank will submit application seeking its approval for appointment of a part-time chairman under Section 10-B (1-A) of the Banking Regulation Act after completion of the Issue. Any meeting held in the interim will be presided over by any one of the Independent Directors. Subject to the foregoing, the constitution of our Board conforms to the requirements of sections 10A and 10B of the Banking Regulation Act, section 149 of the Companies Act and the corporate governance requirements under the SEBI Listing Regulations.

The following table sets forth details regarding the Board of Directors as on the date of this Letter of Offer:

Name, Designation, Date of Occupation, Term, Address Nationality Age Other Directorships Appointment and DIN Mr. P. Jayarama Bhat Indian 64 July 13, 2009 Nil Designation: Managing Director and Chief Executive Officer

Occupation: Service

Term: Up to July 13, 2018

Address: Chaitanya, Manjushree Layout, Kadri Temple New Road, Mangaluru 575 002

DIN: 00041500

Mr. Ashok Haranahally Indian 58 September Nil 14, 2012 Designation: Independent Director

Occupation: Practicing Advocate

Term: Up to March 31, 2019

Address: No.558, I Main Road III Block, RMV II Stage, Bengaluru 560 094

DIN: 05339634

Ms. Usha Ganesh Indian 68 July 31, 2013 Nil

Designation: Independent Director

Occupation: Retired IAS Officer

Term: Up to July 4, 2018

Address: No. 317, Ranka Court 18, Cambridge Road Cross,

Name, Designation, Date of Occupation, Term, Address Nationality Age Other Directorships Appointment and DIN Ulsoor Bengaluru 560 008

DIN: 00455890

Mr. Rammohan Rao Belle Indian 64 October 21, 2013 Nil

Designation: Independent Director

Occupation: Retired Banker.

Term: Up to March 31, 2019

Address: 1406, Santrupti 34th cross, 17th A Main 1st Stage, HBR Layout, 5th Block Bengaluru 560043

DIN: 02370794

Mr. B A Prabhakar Indian 63 September 6, ASREC (India) Limited 2014 JBF Industries Limited Designation: Independent L&T Housing Finance Director Limited Family Credit Limited Occupation: Retired Banker Canara HSBC Oriental Bank Of Commerce Life Term: Up to September 5, 2019 Insurance Company Limited

Address: Shreyas, 333/13, BEML Layout, V Stage Rajarajeshwari Nagar Bengaluru 560098

DIN: 02101808

Mr. U.R. Bhat Indian 64 February 19, Dalton Capital Advisors 2016 (India) Private Limited Designation: Independent Repro India Limited Director Edelweiss Asset Management Limited Occupation: Professional Subhkam Capital Ventures Private Limited Term: Up to February 18, 2021. Axis Asset Management Company Limited Address: 3A-203, Green Acres, IRIS Business Services Lokhandwala Limited Complex, Andheri (W), BlueStreet Capital Mumbai 400 053 Management Private Limited DIN: 00008425

Mr. Keshav Krishnarao Desai Indian 55 February 19, Nil 2016 Designation: Independent Director

Name, Designation, Date of Occupation, Term, Address Nationality Age Other Directorships Appointment and DIN

Occupation: Businessman

Term: Up to February 18, 2021.

Address: House No 59 Gajaraj Desai Park, Kusugal Road, Keshwapur, Hubli 580023

DIN: 07427621

Brief biography of our Directors

Mr. P. Jayarama Bhat, aged 64 years, is the Managing Director and Chief Executive Officer of our Bank. He holds a Master of Science degree in chemistry from University of Mysore and is a Certified Associate of The Indian Institute of Bankers. He joined our Bank as an officer in the year 1973. In the year 2005, he was promoted as chief general manager of our Bank. In the past, he has been on the board of Universal Sompo General Insurance Company Limited, a joint venture of our Bank since 2007. He is a member of the IBA Sectoral Committee-Private Sector Member Banks for the years 2015-16. He has been the Managing Director and Chief Executive Officer of our Bank since the year 2009.

Mr. Ashok Haranahally, aged 58 years, is an Independent Director of our Bank. He holds a Bachelor of Arts degree from Bangalore University and Bachelor of Law from University of Mysore. He was the Advocate General for state of Karnataka from 2009 to 2011. He has been on our Board since the year 2012.

Ms. Usha Ganesh, aged 68 years, is an Independent Director of our bank. She holds a Bachelor of Science (Botany and Zoology) degree from Bangalore University. She also holds a Masters of Science degree in Botany from Bangalore University and Masters in the Faculty of Economic and Social Studies from The University of Wales. She also holds a degree in Bachelor of Law from Bangalore University. She has undergone advanced training in “Managing Change in Organisaion” from Administrative Staff College of India, Hyderabad and International Training Service Limited, UK. She is a retired Indian Administrative Services (IAS) of Karnataka cadre, batch of 1973. As an IAS officer serving from July 1973 to July 2008 she acted as a Secretary, Additional Secretary and Joint Secretary of departments such as the Water Resources Department, Health and Family Welfare Department, Department of Culture and Irrigation Department. After retirement from the services, she was an Administrative Member of Karnataka Administrative Tribunal from August 2008 to July 2013. She has been on our Board since the year 2013.

Mr. Rammohan Rao Belle, aged 64 years, is an Independent Director of our Bank. He holds a Master of Science degree in Physics from the Indian Institute of Technology, Madras and Post Graduate Diploma in Management from Indian Institute of Management, Bangalore. He is also a Certified Associate of The Indian Institute of Bankers. He has worked with the State Bank of India in various positions including as a Chief General Manager. He was also deputed to SBI General Insurance Company Limited, Mumbai as the Managing Director and Chief Executive Officer. He retired from State Bank of India in the year 2012. He has been on our Board since the year 2013.

Mr B A Prabhakar, aged 63 years, is an Independent Director of our Bank. He holds a Bachelors of Commerce degree from the University of Mysore and is a chartered accountant registered with The Institute of Chartered Accountants of India (ICAI). He retired as chairman and managing director of Andhra Bank in August, 2013. He has been on our Board since the year 2014.

Mr. U.R. Bhat, aged 64 years, is an Independent Director of our Bank. He holds a Masters in Science degree in chemistry from Indian Institute of Technology, Kanpur and has attended courses on ‘Corporate Risk Management, Management of Financial Crises and Valuation’ at the Harvard Business School, Boston, USA. He also attended ‘Top Management Programme on Business Environment and Corporate Strategy’ from Indian Institute of Management, Ahmedabad. He is a Certified Associate of The Indian Institute of Bankers. He is a fellow of The

Institute of Bankers, London. He was the chief investment officer of Jardine Fleming in India, a company was subsequently merged with J.P. Morgan, India. He has been on our Board since the year 2016.

Mr. Keshav Krishnarao Desai, aged 55 years, is the Independent Director of our Bank. He holds a Bachelor of Engineering degree from Karnataka University. Presently, he is a managing partner of Desai & Company. He has been on our Board since February 19, 2016.

None of our Directors is or was a director of any listed company during the last five years preceding the date of this Letter of Offer, whose shares have been or were suspended from being traded on any Stock Exchanges.

None of our Directors is or was a director of any listed company which has been or was delisted from any stock exchange.

Relationships between Directors

None of our Directors are related to each other.

Arrangements and Understanding with Major Shareholders, Customers, Suppliers or others.

None of our Directors or members of our senior management have been appointed pursuant to any arrangement or understanding with our major shareholders, customers, suppliers or others.

Details of Service Contracts

There are no service contracts entered into with any of the Directors for provision of benefits or payments of any amount upon termination of employment.

Terms of appointment of Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer:

Pursuant to a resolution passed by our Board on March 27, 2015, as approved by the shareholders of our Bank in the AGM held on July 16, 2015, Mr. P. Jayarama Bhat was re-appointed as our Managing Director and Chief Executive Officer with effect from July 14, 2015 till July 13, 2018 (for a period of three years). The RBI, vide letter bearing number DBR. Appt. No.18976/08.40.001/2014-15 dated June 15, 2015, conveyed its approval for his re-appointment.

Remuneration of Directors

Whole-time Directors

As per the terms of appointment of Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer, his remuneration details are as follows:

Employees Salary contribution to Perquisites Other benefits provident fund Basic pay of ` ` 0.05 crore (12 %  Dearness allowance: 20 % of  Car for official purposes 0.44 crore of basic salary) basic salary  Telephone at residence, fax, And variable of  Housing rent allowance: ` internet, email and cell phone such sum as 0.07 crore (allowance @ 15 %  Entertainment allowance ` may be basic salary until independent 50,000 per annum recommended house is provided)  Medical benefits by the Board reimbursement upto ` 25,000 and approved per annum for self and family by the RBI for on declaration basis. each financial year.* *A variable pay of ` 0.07 crore for the Fiscal 2015 was paid during the Fiscal 2016 as permitted by the RBI vide its letter DBR.Appt.No.6624/08.40.001/ 2015-16 dated November 10, 2015.

Independent/ Non-Executive Directors

For the Fiscal 2016, the independent/non-executive Directors were paid an amount of ` 0.81 crore as sitting fees for attending each meeting of the Board and committee(s) thereof at the rate of ` 40,000 for attending meetings of the Board and ` 30,000 for attending meetings of audit committee, executive committee and integrated risk management committee meetings and ` 20,000 for attending the meetings of other committees of the Board.

SECTION VI: FINANCIAL INFORMATION

FINANCIAL STATEMENTS

Particulars Page no. Audited Financial Statements F-1 to F-46 Limited Review Financial Statements F-47 to F-62

60 F-1

THE KARNATAKA BANK LIMITED Regd & Head Office : Mangalore - 575 002

BALANCE SHEET (Rs in Crore) Schedule As on As on No. 31.03.2016 31.03.2015 Rs Rs CAPITAL AND LIABILITIES Capital 1 188.47 188.46 Reserves and Surplus 2 3502.12 3200.60 Deposits 3 50488.21 46008.61 Borrowings 4 1051.48 1037.76 Other Liabilities and Provisions 5 1270.05 1401.17

TOTAL 56500.33 51836.60

ASSETS Cash and balances with Reserve Bank of India 6 2645.62 2488.45 Balances with Banks and Money at Call and Short Notice 7 399.30 125.71 Investments 8 16256.65 14031.67 Advances 9 33902.45 31679.99 Fixed Assets 10 306.64 291.85 Other Assets 11 2989.67 3218.93

TOTAL 56500.33 51836.60

Contingent Liabilities 12 5877.70 8315.69 Bills for Collection 1507.99 4103.53

F-3 THE KARNATAKA BANK LIMITED Regd & Head Office : Mangalore - 575 002

PROFIT AND LOSS ACCOUNT (Rs in Crore)

Schedule No. Year ended 31.03.2016 Year ended 31.03.2015 Rs Rs I. INCOME Interest Earned 13 4992.21 4698.42 Other Income 14 542.86 506.99

Total 5535.07 5205.41

II. EXPENDITURE Interest Expended 15 3689.34 3529.57 Operating Expenses 16 991.20 902.47 Provisions and Contingencies 439.24 321.92

Total 5119.78 4753.96

III.PROFIT Net profit for the year 415.29 451.45

Profit brought forward 0.40 0.16

Total 415.69 451.61

IV. APPROPRIATIONS Transfer to Statutory Reserve 230.00 230.00 Transfer to Capital Reserve 8.85 3.15 Transfer to Revenue Reserve 41.00 58.00 Transfer to Special Reserve u/s 36 (i) (viii) of Income Tax Act 25.84 26.07 Transfer to Investment Reserve Account -3.84 19.24 Transfer to Other Funds 0.40 0.80 Transfer to Proposed dividend 94.23 94.23 Transfer to Tax on proposed dividend 19.18 19.72 Balance carried over to Balance Sheet 0.03 0.40

Total 415.69 451.61

Earning per share Basic Rs. 22.04 23.96 Diluted Rs 22.03 23.95

F-4 THE KARNATAKA BANK LIMITED Regd & Head Office : Mangalore - 575 002 CASH FLOW STATEMENT (Rs in Crores ) (Rs in Crores ) Year Ended March 31, 2016 Year Ended March 31, 2015

A CASH FLOW FROM OPERATING ACTIVITIES

Net Profit after Tax and Extra Ordinary Items 415.29 451.45 Add: Adjustments for : Provision for Tax 112.71 107.95 Loss on sale Fixed Assets 0.89 0.29 Depreciation on Fixed Assets including Lease Adjustment 42.24 -14.17 charges Provisions and Contingencies 326.53 213.97 Amortisation of premium on Held to Maturity Investments 33.34 515.71 34.83 342.87

Operating Profit Before Working Capital Changes 931.00 794.32

Adjustment for : i) (Increase)/Decrease in Advances & Other Assets -1855.28 -3502.46 ii) (Increase)/Decrease in Investments -2258.64 -728.77 iii) Increase/(Decrease) in Deposits,Borrowings & Other 4004.08 -109.84 4415.98 184.75 Liabilities

Cash Generated from Operations 821.16 979.07 Less: Direct taxes paid 185.23 330.97

Net Cash Flow from Operating Activities (A) 635.93 648.10

B CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets -58.56 -81.20 Sale of Fixed Assets 0.65 0.70

Net Cash used in Investing Activities (B) -57.91 -80.50

TOTAL (A+B) 578.02 567.60

C CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of share capital (net of expenses) 0.04 0.16 Proceeds from long term borrowings -34.41 -203.77 Dividend paid (Including Tax on Dividend) -112.88 -87.24

Net Cash Generated from Financing Activities ( C ) -147.25 -290.85

Net Increase in Cash & Cash Equivalents (A+B+C) 430.77 276.75

Cash & Cash Equivalents as at the beginning of the Quarter/Year 2614.15 2337.40 Cash & Cash Equivalents as at the end of the Quarter/Year 3044.92 2614.15 Note: 1. The Cash Flow Statement has been prepared under the Indirect Method and figures of the previous year have been re-grouped wherever necessary. 2. Cash and Cash Equivalents comprise of Cash on Hand, Balances with Reserve Bank of India, Balances with Banks and Money at Call and Short Notice. F-5 SCHEDULE - 1 CAPITAL

As on As on 31.03.2016 31.03.2015 Rs Rs

Authorised Capital 500.00 300.00

Issued Capital 188.48 188.47

Subscribed Capital 188.47 188.46

Paid-up Capital 188.46 188.45

Add : Forfeited Shares 0.01 0.01

Total 188.47 188.46

SCHEDULE -2 RESERVES AND SURPLUS

As on As on 31.03.2016 31.03.2015 Rs Rs I. Statutory Reserve Opening balance 1753.00 1523.00 Additions during the year 230.00 230.00 1983.00 1753.00 Deductions during the year 0.00 0.00

Total 1983.00 1753.00 II. Capital Reserve Opening balance 70.09 66.94 Additions during the year 8.86 3.15 78.95 70.09 Deductions during the year 0.00 0.00

Total 78.95 70.09

III. Share Premium Opening balance 722.86 722.43 Additions during the year 0.12 0.44 722.98 722.87 Deductions during the year 0.00 0.00 Total 722.98 722.87

F-6 IV. Revenue and other Reserves a) Revenue Reserve Opening balance 503.24 445.24 Additions during the year 41.00 58.00 544.24 503.24 Deductions during the year 0.00 0.00

Total 544.24 503.24

b) Special Reserve u/s 36(1)(viii) of Income Tax Act Opening balance 128.76 102.69 Additions during the year 25.84 26.07 154.59 128.76 Deletion during the year 0.00 0.00 Total 154.59 128.76

c) Employee Stock Option Outstanding Opening balance 3.01 3.31 Additions during the year 0.00 0.00 3.01 3.31 Deductions during the year 0.09 0.31 Total 2.92 3.00

d) Investment Reserve Account Opening balance 19.25 0.00 Additions during the year 0.00 19.24 19.25 19.24 Deductions during the year 3.84 0.00 Total 15.41 19.24

V. Balance in Profit and Loss Account 0.03 0.40 GRAND TOTAL ( I TO V ) 3502.12 3200.60

F-7 SCHEDULE -3 DEPOSITS

As on As on 31.03.2016 31.03.2015 Rs Rs A.I. Demand Deposits 1. From Banks 3.78 1.82 2. From others 3239.72 2869.58

3243.50 2871.40

II. Savings Bank Deposits 10017.21 8601.92

III. Term Deposits 1. From Banks 16.90 23.47 2. From others 37210.60 34511.82

37227.50 34535.29

Total : (I, II and III) 50488.21 46008.61

B.1. Deposits of branches in India 50488.21 46008.61

2. Deposits of branches outside India 0.00 0.00

Total (1+2) 50488.21 46008.61

F-8 SCHEDULE -4 BORROWINGS

As on As on 31.03.2016 31.03.2015 Rs Rs I. Borrowings in India 1. Reserve Bank of India 30.00 0.00

2. Other Banks 0.00 0.00

3. Other Institutions and Agencies 322.10 356.51

4. Subordinated Debts for Tier II Capital 600.00 600.00 Total 952.10 956.51

II. Borrowings outside India 99.38 81.25

Total : (I and II) 1051.48 1037.76

Secured borrowings included in I & II above 30.00 0.00

SCHEDULE - 5 OTHER LIABILITIES AND PROVISIONS

As on As on 31.03.2016 31.03.2015 Rs Rs I. Bills Payable 287.97 275.87 II. Inter Office adjustments(Net) 33.33 13.42 III. Interest accrued 87.04 104.45 IV. Deferred Tax Liability (Net) 9.04 8.39 V. Others (including Provisions) 852.67 999.04

Total 1270.05 1401.17

F-9 SCHEDULE - 6 CASH AND BALANCES WITH RBI

As on As on 31.03.2016 31.03.2015 Rs Rs I. Cash in hand 516.41 485.37 (including foreign currency notes)

II. Balances with Reserve Bank of India 1. In Current Account 2059.21 2003.08 2. In Other Accounts 70.00 0.00 Total 2129.21 2003.08

Total : (I and II) 2645.62 2488.45

SCHEDULE - 7 BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE (Rs in Crore) As on As on 31.03.2016 31.03.2015 Rs Rs I. IN INDIA i. Balances with Banks

a) In Current Accounts 62.96 61.99

b) In other deposit accounts 25.00 0.85

87.96 62.84 ii. Money at Call and Short Notice

a) With Banks 0.00 0.00

b) With other institutions 199.92 0.00 199.92 0.00

Total (i) & (ii) 287.88 62.84

II. OUTSIDE INDIA i. In Current Accounts 12.04 0.62

ii. In Other Deposit Accounts 99.38 62.25

iii. Money at Call and Short Notice 0.00 0.00

Total 111.42 62.87

Grand Total (I and II) 399.30 125.71

F-10 SCHEDULE - 8 INVESTMENTS (Rs in Crore) As on As on 31.03.2016 31.03.2015 Rs Rs I. Investments in India (Gross ) 16309.10 14061.35 Less: Provision / depreciation 52.45 29.68

Net Investments In India 16256.65 14031.67

Break-up : 1. Government Securities 11565.12 11452.07 2. Other Approved Securities 0.00 0.00 3. Shares 96.03 127.96 4. Debentures and Bonds 2038.71 1341.14 5. Subsidiaries and/or Joint Ventures 0.00 0.00 6. Others 2556.79 1110.50

Total 16256.65 14031.67

II. Investments outside India 0.00 0.00

Total (I+II) 16256.65 14031.67

F-11 SCHEDULE - 9 ADVANCES (Rs in Crore) As on As on 31.03.2016 31.03.2015 Rs Rs

A) 1. Bills Purchased and discounted 813.83 886.03 2. Cash Credits, Overdrafts and Loans repayable on demand 12806.61 12158.92 3. Term Loans 20282.01 18635.04

Total 33902.45 31679.99

B) 1. Secured by Tangible Assets (including book debts) 30698.44 28684.80 2. Secured by Bank/Government Guarantees 2112.00 1878.30 3. Unsecured 1092.01 1116.89

Total 33902.45 31679.99

C) I. Advances in India 1. Priority Sectors 14482.34 12587.30 2. Public Sectors 815.14 876.79 3. Banks 0.00 0.00 4. Others 18604.97 18215.90

Total 33902.45 31679.99

C) II. Advances outside India 1. Due from Banks 0.00 0.00 2. Due from others 0.00 0.00 a) Bills Purchased and Discounted 0.00 0.00 b) Syndicated Loans 0.00 0.00 c) Others 0.00 0.00

Total 0.00 0.00

GRAND TOTAL (C. I and C. II) 33902.45 31679.99 Note: The above advances are net of provisions.

F-12 SCHEDULE - 10 FIXED ASSETS (Rs in Crore) As on As on 31.03.2016 31.03.2015 Rs Rs I. Premises At cost as on 31st March of the preceding year 137.07 131.66

Additions during the year 5.00 5.41

142.07 137.07 Deductions during the year 0.00 0.00

142.07 137.07 Depreciation to-date 17.76 16.14

Total 124.31 120.93

II. Other Fixed Assets (including Furniture and Fixtures)

At cost as on 31st March of the preceding year 358.11 287.26

Additions during the year 53.56 75.79

411.67 363.05 Deductions during the year 4.96 4.94

406.71 358.11 Depreciation to date 224.38 187.19

Total 182.33 170.92

Total (I+II) 306.64 291.85

F-13 SCHEDULE -11 OTHER ASSETS (Rs in Crore) As on As on 31.03.2016 31.03.2015 Rs Rs

I. Interest accrued 264.54 277.38

II. Tax paid in advance/tax deducted at source(net of provisions) 889.63 801.32

III. Stationery and Stamps 3.54 6.80

IV. Non-Banking Assets acquired in satisfaction of claims 2.19 1.86

V. Deferred Tax Asset (Net) 0.00 0.00

V. Others 1829.77 2131.57

Total 2989.67 3218.93

SCHEDULE - 12 CONTINGENT LIABILITIES (Rs in Crore) (Rs in Crore) As on As on 31.03.2016 31.03.2015 Rs Rs

I. Claims against the Bank not acknowledged as debts 32.78 33.55

II Liability for Partly paid investments 0.00 0.00

III. Liability on account of outstanding Forward Exchange Contracts including derivatives 3024.80 5575.89

IV. Guarantees given on behalf of constituents a) In India 2246.50 2172.56 b) Outside India 0.00 0.00

V. Acceptances, Endorsements and other Obligations 510.34 483.08

VI. Other items for which the bank is contingently liable 63.28 50.61

Total 5877.70 8315.69

F-14 SCHEDULE - 13 INTEREST EARNED

Year ended Year ended 31.03.2016 31.03.2015 Rs Rs

I. Interest/discount on advances/bills 3700.48 3505.56

II. Income on Investments 1189.90 1184.63

III. Interest on balances with R.B.I / other Inter-Bank funds 2.60 1.98

IV. Others 99.23 6.25

Total 4992.21 4698.42

SCHEDULE - 14 OTHER INCOME (Rs in Crore)

Year ended Year ended 31.03.2016 31.03.2015 Rs Rs

I. Commission, Exchange and Brokerage 237.94 224.03

II. Profit on sale of Investments (net) 62.44 112.71

III. Profit on Revaluation of Investments (net) 0.00 0.00

IV. Profit/(Loss) on sale of Land, Buildings and Other Assets (net) -0.89 -0.29

V. Profit on Exchange Transactions(net) 29.81 35.62

VI. Income earned by way of dividends etc., from Subsidiaries/ Companies and /or Joint Ventures abroad/ in India 0.00 0.00

VII. Miscellaneous income 213.56 134.92

Total 542.86 506.99

F-15 SCHEDULE - 15 INTEREST EXPENDED

Year ended Year ended 31.03.2016 31.03.2015 Rs Rs

1. Interest on deposits 3588.02 3408.27

2. Interest on Reserve Bank of India/Inter-Bank Borrowings 20.05 27.36

3. Others 81.27 93.94

Total 3689.34 3529.57

SCHEDULE - 16 OPERATING EXPENSES

Year ended Year ended 31.03.2016 31.03.2015 Rs Rs

I. Payments to and provisions for employees 443.02 524.66

II. Rent, Taxes and Lighting 106.98 90.70

III. Printing and Stationery 12.61 7.34

IV. Advertisement and Publicity 8.05 7.91

V. Depreciation on Bank's property 42.23 -14.17

VI. Directors' fees, allowances and expenses 1.13 0.96

VII. Auditors' fees and expenses (including branch audit fees ) 2.75 2.18

VIII. Law charges 2.42 2.48

IX. Postage, telegrams, telephones etc. 16.99 12.93

X. Repairs and maintenance 24.36 22.46

XI. Insurance 52.36 48.16

XII. Other expenditure 278.30 196.86

Total 991.20 902.47

F-16 SCHEDULE-17

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES ADOPTED IN PREPARING FINANCIAL STATEMENTS

GENERAL

The Karnataka Bank Limited incorporated at Mangaluru in India is a publicly held Banking Company governed by the Banking Regulation Act, 1949 and is engaged in providing a wide range of banking & financial services involving retail ,corporate banking and para-banking activities in addition to treasury and foreign exchange business.

BASIS OF PREPARATION:

The accompanying Financial Statements have been prepared following the going concern concept, on historical cost basis and confirm to the Generally Accepted Accounting Principles, (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under the Companies (Accounting Standards) Rules, 2006 to the extent applicable and current practices prevailing in the banking industry in India.

The preparation of the financial statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities including contingent liabilities as of the date of the financial statements and the reported income and expenses during the reported period. The Management believes that the estimates and assumptions used in the preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. The differences, if any between estimates and actual will be dealt appropriately in future periods.

SIGNIFICANT ACCOUNTING POLICIES

1. REVENUE RECOGNITION:

Income is accounted for on accrual basis except in respect of income from Non Performing Assets, commission, exchange, Funded Interest Term Loan (FITL) and rent on safe deposit lockers, which are all accounted on cash basis. Recoveries made in Non-performing advances are appropriated as under: a) In case of Term Loan/DPN the recoveries are appropriated towards the principal, interest and charges in order of demand. b) In case of Overdraft accounts the recoveries are first appropriated towards excess allowed in overdraft account if any, followed by expired sanctioned TOD and then towards interest. c) In case of One Time settlement (OTS) accounts the recoveries are first adjusted to principal balance

2. INVESTMENTS:

Investments are classified under the heads “Held to Maturity”, “Available for Sale” and “Held for Trading” categories and are valued in accordance with the RBI guidelines. The value, net of depreciation is shown in the Balance Sheet.

The excess of acquisition cost over the face value of securities under “Held to Maturity” category is amortised over the remaining period to maturity.

F-17 Transfers of scrip, if any, from one category to another, are done at the lowest of the acquisition cost / book value/ market value on the date of transfer and the depreciation, if any, on such transfers is fully provided for.

Provisions for non-performing investments are made as per RBI guidelines.

3. DERIVATIVE CONTRACTS

Derivative contracts are designated as hedging or trading and accounted in accordance with Reserve Bank of India’s guidelines.

Derivatives deals for trading are marked to market and net depreciation is recognised while net appreciation is ignored

Derivatives used for hedging are marked to market in cases where the underlying assets/ liabilities are marked to market and Income /expenditure is accounted on accrual basis.

4. ADVANCES:

a) Advances are classified into (a) Standard; (b) Sub-Standard; (c) Doubtful; and (d) Loss assets, in accordance with the RBI Guidelines and are stated net of provisions made towards Non- performing advances and unrealised interest. Provisions are made in accordance with the prudential norms prescribed by Reserve Bank of India.

b) In case of financial assets sold to Securitisation/reconstruction Company, if the sale is at a price below the net book value (NBV), the shortfall is debited to the Profit and Loss account. If the sale is for the price higher than the net book value, excess provision held is not reversed but held till redemption of the security receipt, wherever applicable, except wherein Reserve Bank of India has specifically permitted amortisation of the loss on sale of advances over the subsequent periods.

5. FIXED ASSETS:

Premises and other fixed assets have been shown at cost as reduced by depreciation written off to date. Land and buildings are capitalized based on conveyance/letters of allotment/physical possession of the property.

Software is capitalised along with computer hardware and included under Other Fixed Assets.

6. DEPRECIATION:

Depreciation on fixed assets is provided following Straight Line Method (SLM) as per the useful life specified under Schedule II of the Companies Act, 2013, except in respect of computers (including software) where depreciation is provided at a flat rate of 33.33 % as per RBI guidelines.

Where during any financial year, addition has been made to any Asset or where any Asset has been sold, discarded, demolished or destroyed, the Depreciation on such Asset is

F-18 calculated on Prorata basis from the date of such Addition or as the case maybe, upto the date on which such Asset has been sold, discarded, demolished or destroyed.

Premium paid on lease hold properties is charged off over the lease period.

Depreciation of leased assets is calculated so as to spread the depreciable amount over the primary lease period.

Carrying amount of assets is reviewed at each balance sheet date for indication of impairment, if any, and is recognised wherever the carrying amount of an asset exceeds its recoverable value.

7. FOREIGN CURRENCY TRANSACTIONS:

Monetary Assets and Liabilities, Forward Exchange Contracts, Guarantees, Letters of Credit, Acceptances, Endorsements and other obligations are evaluated at the closing spot rates/Forward rates for the residual maturity of the contract, as published by FEDAI and in accordance with the Accounting Standard 11.

Income and expenditure items are translated at the exchange rates ruling on the respective dates of the transaction.

The gain or loss on evaluation of outstanding monetary assets/liabilities and Foreign Exchange Contracts are taken to Profit and Loss Account.

8. EMPLOYEE BENEFITS:

Contribution made by the Bank to the Provident Fund and Contributory Pension Scheme are charged to the Profit and Loss Account.

Contribution to the recognised Gratuity Fund, Pension Fund and encashable leave are determined and recognised in the accounts based on actuarial valuation as at the Balance Sheet date and net actuarial gains/losses are recognised as per the Accounting Standard 15.

Provisions for short term employee benefits are accounted for on an estimated basis.

9. EMPLOYEE STOCK OPTION:

The Bank uses Intrinsic Value method to account for compensation cost of stock options granted to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying shares exceeds the exercise price of the options.

10. SEGMENT REPORTING:

The Bank recognises the Business Segment as the Primary Reporting Segment and Geographical Segment as the Secondary Reporting Segment, in accordance with the RBI guidelines and in compliance with the Accounting Standard 17.

Business Segment is classified into (a) Treasury, (b) Corporate and Wholesale Banking, (c) Retail Banking and (d) Other Banking Operations.

F-19 Geographical Segment consists only of the Domestic Segment since the Bank does not have any foreign branches.

11. SHARE ISSUE EXPENSES:

Share issue expenses are adjusted in share premium account.

12. EARNINGS PER SHARE:

Earnings per share are calculated by dividing the net profit or loss for the year attributable to the equity share holders by the weighted average number of equity shares outstanding during the year.

Diluted Earnings per equity share are computed by using the weighted average number of equity shares and dilutive potential equity shares outstanding as at the year end.

13. TAXATION:

Tax expenses comprise current and deferred taxes. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act,1961 and are made after due consideration of the judicial pronouncement and legal opinions.

Deferred income taxes reflect the impact of current year timing differences, between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are not recognised unless there is a virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

14. PROVISIONS AND CONTINGENT LIABILITIES:

A provision is recognised when there is an obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation as at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. In case 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 under Contingent Liabilities.

15. NET PROFIT

The net profit disclosed in the Profit & Loss Account is after making provisions for (i) Taxes, (ii) Non Performing Assets, (iii) Standard Advances, (iv) Restructured advances, and (v) Depreciation on Investments and other necessary and applicable provisions.

F-20 SCHEDULE – 18

NOTES ON ACCOUNTS FORMING PART OF THE BALANCE SHEET AS ON 31st MARCH 2016, THE PROFIT AND LOSS ACCOUNT AND THE CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2016.

1. Disclosures as per RBI requirement: 1.1 Capital:

Sl Particulars Current Year Previous Year Basel III Basel III a Common Equity Tier 1 capital ratio (%) 10.56 10.52 b Tier 1 capital ratio (%) 10.56 10.52 c Tier 2 capital ratio (%) 1.47 1.89 d Total Capital ratio (CRAR) (%) 12.03 12.41 e Amount of equity capital raised (Rs in Crore) Nil Nil f Amount of additional Tier 1 capital raised, of which Nil Nil -PNCPS Nil Nil -PDI Nil Nil g Amount of Tier 2 capital raised , of which Nil Nil - Debt capital instruments Nil Nil - Preference share capital instruments Nil Nil - Perpetual cumulative preference shares(PCPS) Nil Nil -Redeemable non cumulative preference shares (RNCPS) Nil Nil -Redeemable cumulative preference shares( RCPS) Nil Nil

1.2 Investments (Rs. in Crore) Sl. Particulars Current Previous Year Year 1 Value of Investments A Gross Value of Investments a In India 16309.10 14061.35* bOutsideIndia NilNil B Provisions/ Depreciation a In India 52.45 29.68 bOutsideIndia NilNil C Net Value of Investments a In India 16256.65 14031.67* bOutsideIndia NilNil 2 Movement of provisions held towards depreciation on investments a Opening balance 29.68 97.01 b Add: Provisions made during the year 35.63 0.00 c Less: Write-off /write back of excess provisions during the 12.86 67.33 year d Closing balance 52.45 29.68

F-21 *Pursuant to RBI Circular DBR.BP.BC.NO.31/21.04.018/2015-16 dated 16th July 2015, Bank has classified deposits placed with NABARD/SIDBI/NHB for meeting shortfall in priority Sector lending targets, under ‘Other Assets’ which were hitherto included under ‘Investments’.

1.2.1 Repo Transactions (in face value terms) (Rs in Crore) Sl Particulars Outstanding during the Year No Min Max Daily Outstanding Average As on 31.03.2016 1 Securities sold under Repo a Government securities 15.00 150.00 18.92 30.00 b Corporate Debt securities Nil Nil Nil Nil 2 Securities purchased under reverse Repo a Government securities 0.10 600.00 42.64 70.00 b Corporate Debt securities Nil Nil Nil Nil

1.2.2 Non-SLR Investment Portfolio 1.2.2. i. Issuer composition of Non-SLR investments: (Rs. in Crore) Sl. Issuer Amount Extent of Extent of Extent of Extent of ‘un- No. Private ‘below ‘un-rated’ listed’ placements investment securities securities grade’ securities (1) (2) (3) (4) (5) (6) (7) 1 PSUs 1199.88 884.35 Nil Nil Nil 2 Financial Institutions 656.40 80.00 Nil Nil Nil 3 Banks 2044.47 21.99 Nil Nil Nil 4 Private Corporate 537.56 161.62 9.80 Nil 2.00 5 Subsidiaries / Joint Nil Nil Nil Nil Nil ventures 6 Others 305.67 295.17 Nil Nil Nil 7 Less: Provision 52.45 /depreciation TOTAL 4691.53

F-22 Amounts reported under columns (4) to (7) above are not mutually exclusive

1.2.2.ii. Non-performing Non-SLR Investments

(Rs.in Crore) Particulars Current Previous Year Year Opening Balance 12.86 14.11 Additions during the year since 1st April *160.68 6.64 Reductions during the above period 12.85 7.89 Closing Balance 160.69 12.86 Total Provisions Held- NPI # 33.45 12.86

*Includes Non-performing UDAY Bonds aggregating to Rs 149.69 Crore. #Includes Provision on Non-performing UDAY Bonds aggregating to Rs 22.45 Crore.

In accordance with UDAY (Ujwal Discom Assurance Yojna) scheme for operational and financial turnaround of Power Distribution Companies (DISCOMS) during 2015-16, the Bank has subscribed to Non-SLR SDL Bonds of Government of Rajasthan(GOR) amounting to Rs 380.59 Crore, GOR Guaranteed DISCOM Bonds of Rs.149.69 Crores (segment not envisaged to be converted into SDL during 2016-17) and GOR guaranteed DISCOM Bonds of Rs 149.69 Crores (segment envisaged to be converted into SDL during 2016-17) against settlement of Rajasthan DISCOM Debts of Rs 679.97 Crores. In compliance to the RBI Letter No. DBR.BP.No.11657/21.04.132/2015-16 dated 17th March 2016, Bank has made the provision as under- a) Rs 22.45 Crores in respect of segment not envisaged to be converted into SDL in FY 2016-17 @ 15% on Rs 149.69 Crore. b) No provision has been made for the segment of Rs 149.69 Crores envisaged to be converted into SDL during 2016-17

1.2.2. iii. Sale and transfers to/from HTM Category

During the year, the bank has not sold and transferred any securities to/from HTM Category exceeding 5% of the book value of investments held in HTM category in the beginning of the year.

1.3 Derivatives

1.3.1 Forward Rate Agreement/ Interest Rate Swap: Nil

1.3.2 Exchange Traded Interest Rate Derivatives: Nil

1.3.3 Disclosure on risk exposure in Derivatives (i) Qualitative Disclosure:

Operations in the Treasury are segregated into three functional areas, namely Front office, Mid-office and Back- office, equipped with necessary infrastructure and trained officers, whose responsibilities are well defined.

The Integrated Treasury policy of the Bank clearly lays down the types of financial derivative instruments, scope of usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for trading in approved instruments.

The Mid Office is handled by Risk Management Department. Daily report is generated by Risk Management department for appraisal of the risk profile to the senior management for Asset and Liability management.

The Bank’s policy lays down that the transactions with the corporate clients are to be undertaken only after the inherent credit exposures are quantified and approved in terms of the approval process laid down in the Derivative Policy for customer appropriateness and suitability and necessary documents like ISDA agreements etc. are duly executed. The Bank adopts Current Exposure Method for monitoring the credit exposures. Besides, the Bank may also use financial derivative transactions for hedging it’s on or off Balance Sheet exposures.

F-23 The Integrated Treasury Policy of the Bank spells out the approval process for hedging the exposures. The hedge transactions are monitored on a regular basis and the notional profits or losses are calculated on MTM basis.

The hedged/non hedged transactions are recorded separately. The hedged transactions are accounted for on accrual basis.

In case of Option contracts, guidelines issued by FEDAI from time to time for recognition of income, premium and discount are being followed.

While sanctioning the limits, the competent authority may stipulate condition of obtaining collaterals/margin as deemed appropriate. The derivative limits are reviewed periodically along with other credit limits.

(ii) Quantitative Disclosure: (Rs in Crore)

Sl.No Particulars Currency Interest Rate Derivatives Derivatives 1 Derivatives (Notional Principal Amount) a Hedging Nil Nil b Trading Nil Nil 2. Marked to Market Positions Assets(+) Nil Nil Liabilities(-) Nil Nil 3. Credit Exposure Nil Nil 4. Likely impact of 1% change in interest Rates (100*PV01) a On hedging derivatives Nil Nil b On trading derivatives Nil Nil 5. Maximum and Minimum of 100*PV01 observed during the year aOnhedging Nil Nil bOntrading Nil Nil

Note: Bank has not entered into any derivative instruments other than Forex Forward Contracts maturing within 13 months, for trading/hedging purposes either in foreign exchange or domestic treasury operations. Bank does not have any open position in the derivative instruments in trading book as on March 31, 2016.

1.4 Asset Quality 1.4.1 Non-Performing Assets (Rs. in Crore) Sl No Current Year Previous Year 1 Gross NPA to Gross Advances (%) 3.44 2.95 2 Net NPA to Net Advances (%) 2.35 1.98 3 Movement of NPAs (Gross) a) Opening Balance 944.21 835.94 b) Additions during the year* 1125.07 929.83 c) Reductions during the year* 888.88 821.56 d) Closing balance 1180.40 944.21 4 Movement Of Net NPAs a) Opening Balance 623.55 538.04 b) Additions during the year 631.07 557.81 c) Reductions during the year 459.15 472.30

F-24 Sl No Current Year Previous Year d) Closing balance 795.47 623.55 5 Movement of provisions for NPAs a) Opening Balance 315.35 271.53 b) Provision made during the year 267.18 223.07 c) Write off/write back of excess provision 211.69 179.25 d) Closing balance 370.84 315.35

* Includes inter quarter additions/deletions to the extent of Rs 199.32 Crore (Previous year Rs. 339.83 crores)

F-25 1.4.2. Details of Loan assets subject to Restructuring: (Rs. in Crore)

Sl No Type of Restructuring Under CDR Mechanism Under SME Debt Restructuring Others Total Asset Classification-> STD SS DS LS Total STD SS DS LS Total STD SS DS LS Total STD SS DS LS Total 1 Restructured Accounts No. of as on April 1 of the FY borrowers 10 0 0 1 11 5 0 1 0 6 544 4 190 18 756 559 4 191 19 773 (opening figures) Amount outstanding 327.54 0 0 2.48 330.02 14.45 0 7 0 21.45 1457.78 135.09 79.23 0.28 1672.38 1799.77 135.09 86.23 2.76 2023.85 Provision thereon 49.66 0 0 2.48 52.14 0.77 0 1.82 0 2.59 142.23 20.27 43.63 0.28 206.41 192.66 20.27 45.45 2.76 261.14 2 Fresh Restructuring No. of During the Year borrowers 0 0 0 0 0 1 0 0 0 1 15 0 2 0 17 16 0 2 0 18 Amount outstanding 41.95 0 0 4.42 46.37 8.61 0 0 0 8.61 544.81 0 70.65 0 615.46 595.37 0 70.65 4.42 670.44 Provision thereon * 25.84 0 0.00 5.46 31.30 1.61 0 0 0 1.61 38.12 0 41.08 0 79.20 65.57 0 41.08 5.46 112.11 3 Upgradations to No. of restructured standard borrowers 0 0 0 0 0 0 0 0 0 0 10 -1 -9 0 0 10 -1 -9 0 0 category during the FY Amount outstanding 0 0 0 0 0.00 0 0 0 0 0.00 66.15 -61.73 -4.42 0 0.00 66.15 -61.73 -4.42 0.00 0.00 Provision thereon 0 0 0 0 0.00 0 0 0 0 0.00 11.49 -9.26 -2.23 0 0.00 11.49 -9.26 -2.23 0.00 0.00 4 Restructured standard No. of advances which cease borrowers 0 0 -1 -1 -15 -15 -16 -16 to attract higher Amount provisioning and / or outstanding additional risk weight 0 0 -0.03 -0.03 -12.81 -12.81 -12.84 -12.84 at the end of the FY Provision and hence need not be thereon shown as restructured standard advances at the beginning of the next FY 0 0 0 0 -0.60 -0.60 -0.60 -0.60 5 Down-gradations of No. of restructured accounts borrowers -3 0 1 2 0 0 0 0 0 0 -51 12 39 0 0 -54 12 40 2 0 during the FY Amount outstanding -50.08 0 36.36 13.72 0.00 0.00 0.00 0.00 0 0.00 -104.79 15.54 89.25 0.00 0.00 -154.87 15.54 125.61 13.72 0.00 Provision thereon -8.84 0 8.04 0.80 0.00 0 0 1.43 0 1.43 -12.04 2.91 9.13 0.00 0.00 -20.88 2.91 18.60 0.80 1.43 6 Write-offs of No. of restructured accounts borrowers 0 0 0 -1 -1 0 0 0 0 0 -42 -2 -37 -18 -99 -42 -2 -37 -19 -100 during the FY Amount outstanding -28.90 0 -6.48 -3.60 -38.98 -2.02 0 0 0 -2.02 -715.97 -73.61 -42.71 -0.28 -832.57 -746.89 -73.61 -49.19 -3.88 -873.57 F-26

Sl No Type of Restructuring Under CDR Mechanism Under SME Debt Restructuring Others Total Asset Classification-> STD SS DS LS Total STD SS DS LS Total STD SS DS LS Total STD SS DS LS Total Provision thereon * -8.50 0 5.60 8.28 5.38 -0.05 0 0 0 -0.05 -67.36 -10.92 -18.72 -0.28 -97.28 -75.91 -10.92 -13.12 8.00 -91.95 7 Restructured Accounts No. of as on March 31 of FY borrowers 70 1 2 10 50 10 6 461 13 185 0 659 473 13 187 2 675 (Closing figure) Amount outstanding 290.51 0 29.88 17.02 337.41 21.01 0 7.00 0.00 28.01 1235.17 15.29 192.00 0.00 1442.46 1546.69 15.29 228.88 17.02 1807.88 Provision thereon 58.16 0 13.64 17.02 88.82 2.33 0 3.25 0 5.58 111.84 3.00 72.89 0.00 187.73 172.33 3.00 89.78 17.02 282.13

 Provision including incremental provision

Note: 1. The figures under Sr. No.2 include addition to existing restructured accounts 2. Write-offs of restructured accounts during the year include reduction of Rs. 802.27 Crore from existing restructured accounts bywayof closure/recovery. 3. Provision includes total provision held on Restructured accounts.

F-27 1.4.3 Details of Financial Assets sold to Securitisation/Reconstruction Company for Asset Reconstruction: (Rs. in Crore) Sl. Particulars Current Previous No Year Year 1 No. of Accounts 52 41 2 Aggregate Value (net of Provisions) of accounts sold to SC/RC 202.77 180.01 3 Aggregate consideration 127.69 169.59 4 Additional consideration realised in respect of accounts transferred in Nil Nil earlier years 5 Aggregate Gain / (Loss) over net book value (75.08) (10.42)

In terms of RBI Circular DBR.No.BP.BC.94/21.04.048/2014-15 dated 21st May 2015, in respect of assets sold to SC/ RCs , the shortfall arrived at by deducting the sale consideration and the provision held as on the date of the sale from the outstanding amount, is to be amortised over 2 years. Accordingly for the sales that were concluded during the current financial year, the Bank has charged to the Profit and Loss account an amount of Rs 16.36 Crore during the year ended March 31, 2016 on proportionate basis (previous year Rs 10.42 Crore ) and balance carried over as at March 31, 2016 is Rs.58.72 Crores (Previous Year- NIL)

Details of Security Receipts from Securitisation/ Reconstruction Companies:

(In Rs. Crore)

Backed by NPAs sold by other Backed by NPAs sold by banks/ financial institutions/ non- Total the bank as underlying banking financial companies as Particulars underlying

Previous Current Previous Current Previous Year Current Year Year Year Year Year

Book value of investments in security 185.42 290.60 2.24 1.71 187.66 292.31 receipts

1.4.4 Details of Non-performing Financial assets purchased from other banks /Sold to Other Banks: NIL

1.4.5 Provisions on Standard Assets: (Rs in Crore) Item Current Year Previous Year Provisions towards Standard Assets 219.90 214.89

F-28 1.5 Business Ratios

Sl No Particulars Current Year Previous Year 1 Interest Income to working funds 9.18% 9.47% 2 Non-interest income to working funds 1.00% 1.02% 3 Operating profits to working funds 1.57% 1.56%

4 Return on Assets 0.76% 0.91% 5 Business (Deposits Plus Advances) per employee 10.83 10.52 (Rs. In crore) 6 Profit per employee (Rs. In crore ) 0.05 0.06

1.6 Asset Liability Management: Maturity Pattern of certain items of assets and liabilities: (Rs. in Crore) Particulars Deposits Advances Investments Borrowings Foreign Foreign Currency Currency Assets Liabilities 1 day 617.45 803.99 13.36 47.90 164.63 42.54 2 to 7 days 768.81 237.24 365.41 0.00 503.35 501.32 8 to 14 days 528.18 387.80 469.86 0.00 57.30 20.62 15-28 Days 636.15 270.60 74.60 53.00 86.90 71.19 29 Days to 3 3374.76 2512.19 1405.82 46.38 738.73 697.76 Months Over 3 Months 4222.31 2364.13 355.92 17.90 330.33 213.82 and up to 6 Months Over 6 Months 5215.87 3621.97 517.38 35.81 299.44 355.77 and up to 12 Months Over 1 Year and 23681.91 14771.35 1798.92 511.13 3.98 174.21 upto3years Over 3 Years and 1990.93 3389.68 1721.37 89.36 0.00 82.42 upto5Years Over 5 Years 9451.84 5543.50 9534.01 250.00 0.00 22.64 Total 50488.21 33902.45 16256.65 1051.48 2184.66 2182.29

F-29 1.7 Exposures 1.7.1 Exposure to Real Estate Sector: (Rs. in Crore) Sl No Particulars Current Previous Year Year 1 Direct exposure Residential Mortgages:– a Lending fully secured by mortgages on residential property that is or 4271.91 3737.58 will be occupied by the borrower or that is rented

Of which, individual housing loans eligible for inclusion in priority sector advances 1806.91 1776.15 b Commercial Real Estates:– Lending (including Non-Fund Based Limits) secured by mortgages on commercial real estate (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi- 2059.94 2153.66 tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.,) c Investments in Mortgage Backed Securities (MBS) and other securitised exposures:– Residential Nil Nil Commercial Real Estate Nil Nil 2 Indirect Exposure Fund based and non fund based exposures on National Housing Bank 28.89 7.35 (NHB) and Housing Finance Companies (HFCs) Total Exposure to Real Estate Sector 6360.74 5898.59

1.7.2 Exposure to Capital Market (Rs in Crore) Sl. No Category Current Previous Year Year 1 Direct investments in equity shares, convertible bonds, convertible 96.54 126.65 debentures and units of equity oriented mutual funds the corpus of which is not exclusively invested in corporate debts

2 Advances against shares/bonds/debentures or other securities or on Nil Nil clean basis to individuals for investment in shares (including IPOs/ESOPS), convertible bonds and convertible debentures and units of equity oriented mutual funds.

3 Advances for any other purposes where shares or convertible bonds Nil Nil or convertible debentures or units of equity oriented mutual funds are taken as primary security

F-30 Sl. No Category Current Previous Year Year 4 Advances for any other purposes to the extent secured by the Nil Nil 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’. 5 Secured and unsecured advances to stockbrokers and guarantees 34.50 37.77 issued on behalf of stockbrokers and market makers 6 Loans sanctioned to corporate against the security of shares Nil Nil /bonds/debentures or others securities or on clean basis for meeting promoters contribution to the equity of new companies in anticipation of raising resources. 7 Bridge loans to companies against expected equity flows/issues Nil Nil 8 Underwriting commitments taken up by the banks in respect of Nil Nil primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds 9 Financing to Stockbrokers for margin trading Nil Nil 10 All exposures to Venture capital funds (both registered and Nil Nil unregistered) Total capital market exposure 131.04 164.42

1.7.3 Risk category-wise Country Exposure: (Rs in Crore) Risk Category Exposure (net) as at Provision held as at Exposure (net) as at Provision held 31.03.2016 31.03.2016 31.03.2015 as at 31.03.2015

Insignificant 97.63 Nil 104.96 Nil Low 139.61 Nil 121.82 Nil Moderate 7.69 Nil 6.45 Nil High 2.37 Nil 0.00 Nil Very High 0.00 Nil 0.00 Nil Restricted 0.62 Nil 6.84 Nil Off-Credit 0.00 Nil 0.00 Nil TOTAL 247.92 Nil 240.07 Nil

The net funded exposure of the bank in respect of foreign exchange transactions with each country is within 1% of the total assets of the Bank and hence no country risk provision is required as per extant RBI guidelines. Bank has used 7 categories of classifications followed by ECGC for the purpose of classification and making provision for country risk exposures.

1.7.4 Details of Single Borrower Limit(SBL)/ Group Borrower Limits (GBL) exceeded by the Bank:

During the year ended 31st March 2016, the Bank has not exceeded the Individual /Group borrowers’ prudential exposure limits fixed by RBI.

1.7.5 Unsecured Advances:

The Bank has not granted any finance against intangible securities such as charge over the rights, licences, authorisations, etc.

1.8. Penalties imposed by RBI:

No penalty has been imposed by Reserve Bank of India during the year (Previous year Rs. Nil)

F-31 2. Accounting Standards: In compliance with the guidelines issued by the Reserve Bank of India regarding disclosure requirements of the various Accounting Standards, following information is disclosed:

2.1 Accounting Standard 5 – Net Profit or Loss for the period, Prior period items and changes in accounting policies

There are no material prior period items.

For the preparations of these Financial Results, the bank has followed the same accounting policies and generally accepted practices adopted for the preparation of Audited Financial Statements for the year ended March 31, 2015

2.2 Accounting Standard 9 – Revenue Recognition Revenue is recognized as per accounting policy No. 1 of Schedule 17 to the financial statements. Certain items of income are recognized on cash basis and such income are not material.

2.3 Accounting Standard 15 – Employee Benefits:

2.3.1 Various Benefits made available to the Employees are:- a) Pension: The Bank has a defined benefit plan under Pension Trust to cover employees who have joined employment up to 31st March 2010 and who have opted for Pension Scheme under the Pension & Group Schemes unit of LIC of India, provided they have completed 20 years of service. The benefits under this plan are based on last drawn salary and the tenure of employment. The Liability for the pension is determined and provided on the basis of actuarial valuation and is covered by purchase of annuity from LIC. The employees who have joined employment after 31stMarch 2010 are covered under contributory pension scheme. b) Gratuity: In accordance with the applicable Indian Laws, the Bank provides for defined gratuity benefit retirement plan (‘the Gratuity Plan’) covering eligible employees. This plan provides for a lump sum payment to the eligible employees on retirement, death, incapacitation or termination of employment of amounts that are based on the last drawn salary and tenure of employment. Liabilities with regard to the gratuity plan are determined by actuarial valuation and contributed to the gratuity fund trust. Trustees administer the contribution made to the trust and invest in specific designated securities as mandated by law, which generally comprise of Central and State Government Bonds and debt instruments of Government owned corporations.

c) Leave Encashment (PL):TheBank permits encashment of leave accumulated byemployees.The liability for encashment of such leave is determined and provided on the basis of actuarial valuation. d) Provident Fund: The Bank pays fixed contribution to Provident Fund at predetermined rates to a separate trust, which invests the funds in permitted securities. The contribution to the Fund is recognised as expense and is charged to the Profit and Loss account. The obligation of the Bank is limited to such contributions. As on 31st March 2016, there was no liability due and outstanding to the Fund by the Bank.

e) Other employee Benefits: Other than the employee benefits listed above, the Bank also gives certain other benefits to the employees, which include Medical aid, reimbursement of hospitalization expenses to the employees / their family members and compensated absence such as sick leave and casual leave etc. f) The summarised position of Post-employment benefits and employee’s long term benefits are recognized in the financial statements as required in accordance with Accounting Standard – 15 and are as under:

F-32 Principal actuarial assumption at the Balance Sheet Date (expressed as weighted average)

SL NO Particulars Pension Gratuity (Funded) (Funded) 1 Method of Valuation Projected unit credit 2 Discount rate 8.08 7.96 3 Salary escalation rate 5.00 5.00 4 Rate escalation in Basic Pay 5.00 5.00 5 Attrition rate No assumption made 6 Rate of escalation in pension 5.00 -- 7 Expected rate of return on plan 8.08 7.96 assets 8 Mortality LIC(94-96) table of mortality rates

Changes in the present value of obligations (PVO) - Reconciliation of Opening and closing Balances (Rs in Crore) SL Particulars Pension Gratuity No (Funded) (Funded)

1 Present Value of defined benefit obligation as at 1st 707.53 159.37 April 2015 2 Interest Cost 56.46 12.87 3 Current Service Cost 23.05 6.80 4 Benefits Paid (73.27) (12.90) 5 Actuarial Loss/(Gain) on Obligations (1.86) 1.08 6 Present Value of defined benefit obligation as at 31st 711.91 167.22 March 2016

Changes in Fair value of Plan Assets- Reconciliation of Opening and Closing Balances (Rs in Crore) SL Particulars Pension Gratuity NO (Funded) (Funded)

1 Fair Value of Plan Assets at the beginning of the year 707.54 159.37 2 Expected return on Plan Assets 57.17 12.69 3 Bank’s Contribution related to Current year 17.05 7.09 4 Benefits Paid (73.27) (12.90) 5 Actuarial Gain/(Loss ) on plan assets 3.43 0.97 6 Fair Value of Plan Asset at the end of the year 711.91 167.22

F-33 Actual Return on Plan Assets (Rs in Crore) SL Particulars Pension Gratuity NO (Funded) (Funded)

1 Expected return on Plan Assets 57.17 12.69 2 Actuarial Gain/(Loss) on plan Assets 3.43 0.97 3 Actual Return on Plan Assets 60.60 13.66

Actuarial Gain/Loss Recognized (Rs in Crore) NO Particulars Pension Gratuity (Funded) (Funded)

1 Actuarial Gain/(Loss) for the period- Obligations 1.86 (1.08) 2 Actuarial gain/(Loss) for the period- Plan Assets 3.43 0.97 3 Total (Gain)/Loss for the period- Plan Assets (2-1) (5.29) 0.11 4 Actuarial (Gain)/Loss recognized in the year (5.29) 0.11

5 Unrecognized actuarial (Gain)/Loss at the end of the year 0.00 0.00

Amounts recognized in Balance Sheet and Related Analysis (Rs in Crore) SL Particulars Pension Gratuity NO (Funded) (Funded)

1 Present value of the obligations 711.91 167.22 2 Fair Value of Plan Assets 711.91 167.22 3 Differences ( Assets-obligations) 0.00 0.00

Expenses recognised in the Statement of Profit and Loss Account (Rs in Crore)

SL Particulars Pension Gratuity NO (Funded) (Funded)

1 Current Service Cost 23.05 6.80 2 Interest Cost 56.46 12.87 3 Expected Return on Plan Assets (57.17) (12.69) 4 Net actuarial (Gain)/Loss recognized in the year (5.29) 0.11 5 Expenses recognised in the Statement of Profit and Loss 17.05 7.09 Account

Movements in the Liability recognised in the Balance Sheet (Rs in Crore) SL Particulars Pension Gratuity NO (Funded) (Funded) 1 Opening Net Liability 707.53 159.37 2 Expenses as above 77.65 19.67 3 Benefits Paid 73.27 11.82 4 Closing Net Liability 711.91 167.22

F-34 Amount for the Current Period (Rs in Crore) SL Particulars Pension Gratuity NO (Funded) (Funded)

1 Present value obligations 711.91 167.22 2 Plan Assets 711.91 167.22 3 Surplus/(Deficit) 0.00 0.00 4 Experience adjustments on plan liabilities- (loss)/gain (1.86) 1.08 5 Experience adjustments on plan assets- (loss)/gain 3.43 0.97

Major Categories of plan assets (As a percentage of total plan assets)

SL Particulars Pension Gratuity No Trust Trust

1 Government of India Securities 0.00 9.04 2 State Government Securities 0.00 0.72 3 High Quality Corporate Bonds 0.00 5.54 4 Equity Shares of Listed Companies 0.00 0.00 5Property 0.000.00 6 Funds managed by insurer 99.99 80.15 7 Mutual Funds 0.00 0.06 8 Bank Deposits- Current Accounts 0.01 0.69 9Others 0.003.80 10 Total 100.00 100.00

Estimated contribution for the next Year (Rs in Crore) SL Particulars Pension Gratuity NO (Funded) (Funded)

1 Enterprises Best estimate of expenditure to be incurred 93.00 9.00 during the next year (inclusive of proportionate amortisation)

2.3.2. Employee Stock Options (ESOP)

The shareholders of the Bank had approved on 15.07.2006 grant of equity shares under Employee Stock Option Scheme of the Bank framed in compliance with SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999.

Under the scheme, the Bank had granted stock options to the eligible employees on various dates in the past, each option entitling for one share at an exercise price of Rs 50 per share (adjusted to Rs 46.20 per share post rights issue 2011).The options granted to employees had vested in a graded manner and these may be exercised by the employees within a specified period. Options vested but not exercised before the specified exercise period would lapse.

F-35 The Bank follows the intrinsic value method to account for its stock-based employee compensation plans. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock over the exercise price as determined under the option plan. The fair market price is the closing price on the stock exchange where there is highest trading volume on the working day immediately preceding the date of grant. Compensation cost has been absorbed.

2.4 Accounting Standard 17 – Segment Reporting:

For the purpose of segment reporting in terms of AS 17 of ICAI and as prescribed in RBI guidelines, the business of the Bank has been classified into 4 segments i.e.(a) Treasury operations (b) Corporate / Wholesale Banking (c) Retail Banking and (d) Other Banking Operations. Since the Bank does not have any overseas branch, reporting under geographic segment does not arise. Segment assets have been identified and segment liabilities have been allocated on the basis of segment assets.

Business Segments: (Rs. in Crore) OTHER CORPORATE/WH BUSINESS RETAIL BANKING TREASURY OLESALE TOTAL SEGMENTS BANKING OPERATIO BANKING NS Mar'16 Mar'15 Mar'16 Mar'15 Mar'1 Mar'15 Mar'1 Mar'1 Mar'1 Mar'1 Particulars 6 6 5 6 5 Revenue 1299.25 1242.11 1745.57 1728.21 2242.83 2028.88 247.42 206.21 5535.07 5205.41

Result 67.94 185.26 169.00 145.26 349.20 271.57 -15.90 -56.86 570.24 545.23 Unallocated expenses 42.24 35.94 Profit before tax 528.00 509.29 Income taxes 112.71 90.91 Extraordinary/Ex ceptional Profit / Loss 0.00 -33.07 Net Profit 415.29 451.45 Other Information Segment Assets 19683.15 17000.88 16051.11 15926.02 17994.36 15832.58 1575.45 1985.50 55304.07 50744.98 Unallocated Assets 1196.26 1091.62 Total Assets 56500.33 51836.60 Segment Liabilities 18298.40 15797.59 15104.00 14998.87 16825.80 14787.32 1462.21 1842.33 51690.42 47426.11 Unallocated liabilities 1119.33 1021.43 Total Liabilities 52809.75 48447.54

2.5 Accounting Standard 18 – Related Party Disclosures:

There is no related party transaction other than remuneration paid to key management personnel, Sri P Jayarama Bhat, Managing Director and Chief Executive Officer, aggregating to Rs. 0.73 Crore (Previous Year Rs.0.56 Crore).

F-36 2.6 Accounting Standard 20 - Earnings per Share:

Basic and diluted earnings per equity share computed in accordance with AS 20 – Earnings per Share are as under:

Particulars Current Year Previous Year Earnings per share- Basic (Rs). 22.04 23.96 Earnings per share- Diluted (Rs) 22.03 23.95 Net Profit for the year attributable to Equity shares 415.29 451.45 (Rs. in crore) Weighted Average number of Equity Shares –Basic 188456021 188432610 Weighted Average number of Equity Shares - Diluted 188478710 188528829 Nominal value per equity share (Rs) 10.00 10.00

Allotment of 1800 Equity shares (Previous Year 1800 Equity shares ) is kept in abeyance due to restraint orders received and matter is sub-judice. The same has not been considered for EPS calculation, as the shares are not allotted.

2.7 Accounting Standard 22 – Accounting for taxes on Income:

The Bank has accounted for taxes on income in compliance with Accounting Standard 22. The major components of Deferred Tax Assets and Liabilities recognised are as under:- (Rs. in Crore)

Sl Particulars Current Year Previous Year No A Deferred Tax Liabilities 1 Depreciation on fixed assets 24.13 22.59 2 Depreciation on investments 19.76 34.49 3 Accrued Interest on Investments 91.49 95.89 4 Special Reserve u/s 36(1)(viii) of Income Tax 53.50 44.56 Act 5 Deferred Revenue Expenditure 20.32 0.00 Total 209.20 197.53 B Deferred Tax Assets 1 PL/LFC Encashment 25.18 25.89 2 Provision for wage revision 0.00 28.30 3 Provision made for NPA in excess of deduction 128.34 109.13 allowed u/s 36(1)(viia) of Income Tax Act 4 Provision for Fair Value Loss 23.37 18.69 5 Others 23.27 7.13 Total 200.16 189.14 Net deferred tax liabilities 9.04 8.39 (A) – (B)

2.8 Accounting Standard 28 – Impairment of Assets:

An assessment is made at each Balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for. As on March 31, 2016, there is no indication of impairment in connection with any asset.

2.9 Accounting Standard 29 – Provision, Contingent liabilities and Contingent assets:

F-37 Movement in Provision for Contingencies:(Rs.inCrore)

Particulars Opening as on Provision Provisions Closing as on 31- 01-04-2015 made during reversed/ 03-2016 the year adjusted Provision for 13.76 5.19 0.32 18.63 Contingencies

3. Additional Disclosures: 3.1 Details of Provisions and Contingencies made during the year: (Rs. in Crore) Sl No Particulars Current Year Previous Year 1 Provisions for Depreciation on Investment 13.16 (59.44) 2 Provisions towards NPA 267.18 223.07 3 Provisions towards Standard Assets (including NPV 18.55 48.15 of Restructured Standard advances) 4 Provision made for Non-performing UDAY Bonds 22.45 0.00 5 Provisions made towards taxes 112.71 107.95 6 Other Provisions & contingencies-for frauds, claims 5.19 2.20 against the bank not acknowledged as debts and other intangibles. Total 439.24 321.93

3.2 Floating /Countercyclical Provisions: (Rs. in Crore) Particulars Current Year Previous Year Opening Balance NIL 6.91 Provision made during the year NIL NIL Utilised During the Year NIL 6.91 Closing balance NIL NIL

During the previous year ended March 31,2015 Pursuant to Master Circular on Prudential Norms on Income Recognition and Provisioning pertaining to Advances issued by the RBI, the Bank had utilised a sum of Rs 6.91 crores from Counter Cyclical buffer for meeting shortfall on sale of NPAs to Asset Reconstruction Companies.

3.3 Drawdown from Reserves:

The Bank has drawn a sum of Rs 3.84 Crore (Previous year NIL) from the Investment Reserve to meet the depreciation requirement on Investment as per extant RBI Guidelines.

3.4 Complaints/unimplemented Awards of Banking Ombudsman:

3.4.1 Customer Complaints:

Sl Particulars Current Previous No Year Year (a) No. of complaints pending at the beginning of the year 68 35 (b) No. of complaints received during the year 13959 6796 (c) No. of complaints redressed during the year 13777 6763 (d) No. of complaints pending at the end of year 250 68

Out of the above, the ATM complaints attributable to Acquiring bank are detailed here below-

F-38 Sl Particulars Current Previous No Year Year (a) No. of complaints pending at the beginning of the year 41 18 (b) No. of complaints received during the year 6239 4383 (c) No. of complaints redressed during the year 6085 4360 (d) No. of complaints pending at the end of year 195 41

3.4.2 Awards passed by the Banking Ombudsman:

Sl Particulars Current Previous No Year Year (a) No. of unimplemented awards at the beginning of the year Nil Nil (b) No. of awards passed by the Banking Ombudsman during the year Nil Nil (c) No. of awards implemented during the year Nil Nil (d) No. of unimplemented awards at the end of the year Nil Nil

3.5 Disclosure of Letters of Comfort (LOC) The Bank issues Letters of Comfort on behalf of its various constituents against the credit limits sanctioned to them. In the opinion of the Management, no significant financial impact and/or cumulative financial obligations have devolved during the year in respect of the LOCs issued by the Bank and remaining outstanding as of 31st March 2016.

Details of LOCs issued by the Bank is as follows: (Rs in Crore) 1 Letters of comfort issued during the year 984.75 2 Letters of comfort matured/cancelled during the year 898.59 3 Letters of comfort outstanding at the end of the year 397.08

3.6 Provision Coverage Ratio (PCR): The Bank’s provision coverage ratio as of March 31, 2016 is 48.39% (previous year 50.54%)

3.7 Bank assurance Business: (Rs in Crore) Sl No Nature of Income Current Previous Year Year 1 For selling Life Insurance Policies 25.76 22.15 2 For selling Non-Life Insurance Policies 5.26 4.42 Total 31.02 26.57

3.8 Concentration of Deposits, Advances, Exposures and NPAs:

3.8.1 Concentration of Deposits:

Sl No Particulars Current Previous Year Year 1 Total deposits of 20 largest depositors ( Rs in Crore) 2325.38 2119.02

F-39 2 % age of deposits of 20 largest depositors to total deposits 4.61 4.61

3.8.2 Concentration of Advances:

Sl No Particulars Current Previous Year Year 1 Total advances of 20 largest borrowers ( Rs in Crore) 3950.66 4106.48

2 % age of advances of 20 largest borrowers to total advances (credit 9.40 9.92 exposures including derivatives)

3.8.3 Concentration of Exposures:

Sl No Particulars Current Previous Year Year 1 Total exposures of 20 largest borrowers/Customers ( Rs in 4744.80 4452.11 Crore)

2 Percentage of Exposures to 20 largest borrowers / 10.04 10.12 customers to Total Exposure of the bank on borrowers / customers

3.8.4 Concentration of NPAs; (Rs. in Crore) Sl No Particulars Current Year Previous Year 1 Total fund based Exposure of Top Four 300.94 242.99 NPA accounts

3.9 Sector-Wise Advances:

(Rs in crore) Sl. Current year Previous year Percenta Percentage ge of of Gross Gross NPAs to NPAs to Total Total Outstandin Advances Outstandi Advance gTotal Gross in that ng Total Gross sinthat No. Sector Advances NPAs sector Advances NPAs sector APrioritySector 1Agriculture 4547.53 103.41 2.27 4273.15 83.54 1.95 and allied activities 2 Advances to 3743.68 83.03 2.22 3038.58 86.66 2.85 industries sector eligible as priority sector lending a Textiles 1107.33 11.98 1.08 738.15 11.53 1.56 b Others 2636.35 71.05 2.70 2300.43 75.13 3.27 3 Services 4210.80 118.56 2.82 3320.04 111.49 3.36

F-40 (Rs in crore) Sl. Current year Previous year Percenta Percentage ge of of Gross Gross NPAs to NPAs to Total Total Outstandin Advances Outstandi Advance gTotal Gross in that ng Total Gross sinthat No. Sector Advances NPAs sector Advances NPAs sector a Professional 1190.66 29.20 2.45 928.34 22.54 2.43 and self employed bTradeand 2466.00 69.03 2.80 1916.89 70.23 3.66 Business cSmallroad 425.68 19.37 4.55 361.46 18.27 5.05 and water transport operators d Others 128.46 0.96 0.75 113.35 0.45 0.40 4 Personal and 2100.49 26.96 1.28 2066.82 25.65 1.24 Other Loans a Housing Loan 1810.62 18.50 1.02 1757.17 20.63 1.17 b Others 289.87 8.46 2.92 309.65 5.02 1.62 Sub-total (A) 14602.50 331.96 2.27 12698.59 307.34 2.42 BNonPriority Sector 1Agriculture 26.58 0.00 0.00 0.00 0.00 0.00 and allied activities 2 Industry 3478.95 219.45 6.31 3992.43 235.81 5.91 a Automobiles 396.04 0.00 0.00 433.92 0 0.00 b Textiles 720.99 80.22 11.13 755.31 29.90 3.96 c Iron & Steel 541.03 59.53 11.00 618.09 65.25 10.56 d Others 1820.89 79.70 4.38 2185.11 140.66 6.44 3 Services 2674.72 131.35 4.91 2409.75 108.88 4.52 a Professional 884.33 92.88 10.50 1324.30 74.39 5.62 and self employed b Other Service 1790.39 38.47 2.15 1085.45 34.49 3.18 activity 4 Personal 5357.50 95.09 1.77 4459.65 89.22 2.00 loans a Housing 3964.06 34.61 0.87 3458.38 67.50 1.95 bOther 1393.44 60.48 4.34 1001.27 21.72 2.17 Personal Loan 5OtherNon- 8133.03 402.55 4.95 8434.91 202.96 2.41 Priority Loan a Commercial Real estate 432.50 6.71 1.55 1541.59 34.98 2.27 b Infrastructure Loan 1615.57 185.79 11.50 2056.62 37.95 1.85 c Others 6084.96 210.05 3.45 5923.62 130.03 2.20 Sub-total (B) 19670.78 848.44 4.31 19296.74 636.87 3.30 Total (A+B) 34273.28 1180.40 3.44 31995.33 944.21 2.95

F-41 3.10 Movement of NPA: (Rs. in Crore) Particulars Current Year Previous Year Gross NPAs as on April 1( Opening balance) 944.21 835.94 Additions( Fresh NPAs) during the year* 1125.07 929.83 Sub-total (A) 2069.28 1765.77 Less: (i) Up-gradations 240.96 282.63 (ii) Recoveries (excluding recoveries made from upgraded 342.80 320.07 accounts) (iii) Technical/Prudential write offs 110.10 53.47 (iv) Write offs other than those under (iii) above 195.02 165.39 Sub-Total (B) 888.88 821.56 Gross NPAs as on 31 March ( closing Balance) 1180.40 944.21 [(A)–(B)] * Includes inter quarter additions/deletions to the extent of Rs 199.32 crores (Previous Year Rs. 339.83 crores)

Movements in Technical Write Off: (Rs. in Crore) Particulars Current Year Previous Year Opening balance of Technical/prudential write-off accounts as at 316.51 314.05 April 1 Add: Technical/prudential write-offs during the year 110.11 53.47

Sub-total (A) 426.62 367.52 Less: Recoveries / Actual Write offs from previously 65.77 51.01 technical/prudential written –off accounts during the year (B) Closing balance as at March 31 ( A-B) 360.85 316.51

3.11 Overseas Assets, NPA and Revenue: Nil

3.12 Off- Balance Sheet SPVs sponsored (which are required to be consolidated as per accounting norms): Nil

3.13 Disclosure of Remunerations:

a) Qualitative disclosure:

Remuneration Committee

The Nomination & Remuneration Committee (N&RC) consists of only Independent Directors, two of them being the members of Integrated Risk Management Committee of the Board (IRMC) also.

Objectives of Compensation Policy Compensation Policy aims to attract and retain the right candidates in the Bank. The policy is designed to support key business strategies and create a strong, performance-orientated environment besides providing reasonable remuneration commensurate with the growth of the Bank. It also ensures effective governance of compensation, alignment of compensation with prudent risk taking, effective supervisory oversight and stakeholder engagement. The Policy also aims at facilitating effective succession planning in the Bank.

The N&RC works in close coordination with the Integrated Risk Management Committee to ensure effective alignment of remuneration and risks.

F-42 Risk adjustments in remuneration

A wide variety of measures of credit, market and liquidity risks are used by bank in implementation of risk adjustment. The risk adjustment methods have both quantitative and judgmental elements. Compensation outcomes are symmetric with risk outcomes and compensation payouts are sensitive to the time horizon of the risk.

Performance linked variable compensation, deferral and forms

The performance-based remuneration motivates and rewards high performers who strengthen long-term customer relations, and generate income and shareholder value. The bank’s compensation policy stipulates that while designing the compensation package to WTD/CEO, it is ensured that there is a proper balance between fixed pay and variable pay. While fixing the Variable Pay, performance parameters under financial and non-financial areas of operations shall be assessed.

The variable pay shall not exceed 70% of the fixed pay in a year. The deterioration in the financial performance of the bank should generally lead to a contraction in the total amount of variable remuneration to be paid.

Further, where the variable pay constitutes a substantial portion of the fixed pay (i.e. 50% or more of the fixed pay), an appropriate portion of the variable pay, say 40% to 60% must be deferred for over a period. The Board/Nomination & Remuneration Committee may grant stock options under the Employees Stock Options Plan/Scheme as per Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, subject to the approval of Reserve Bank of India under Section 35B of the Banking Regulation Act, 1949. Such Stock Options will be excluded from the components of variable pay. In case variable pay payable is 50% or more, deferral arrangements of variable pay shall be applied. The deferral period should not be less than three years. Compensation payable under deferral arrangements should vest on a pro-rata basis at such rates as may be decided by the Board/RC. In the event of negative contributions of the Bank and/or the relevant line of business in any year, the deferred compensation is subject to malus/claw back arrangements. The variable pay could be in cash, or stock linked instruments or mix of both.

b) Quantitative disclosures

Particulars Current Year Previous Year

(i) Number of meetings held by the Two Three Remuneration Committee during the Sitting fees of Rs 20000/- to Sitting fees of financial year and remuneration paid to each non-whole time Rs.15000/- to each its members. Director members per non-whole time meeting attended. Director members per meeting attended. (ii) Number of employees having received One One a variable remuneration award during the financial year. Number and total amount of sign-on Nil Nil awards made during the financial year. Details of guaranteed bonus, if any, Nil Nil paid as joining / sign on bonus. Details of severance pay, in addition to Nil Nil accrued benefits, if any. (iii) Total amount of outstanding deferred Nil Nil remuneration, split into cash, shares and share-linked instruments and other forms. Total amount of deferred remuneration Nil Nil paid out in the financial year.

F-43 Particulars Current Year Previous Year

(iv) Breakdown of amount of remuneration Fixed : Rs.0.60 crore Fixed :Rs. 0.53 crore awards for the financial year to show Variable: Rs 0.0742 Crore Variable: NIL fixed and variable, deferred and non- for the year 2014-15 was deferred. paid during the current year (v) Total amount of outstanding deferred Nil Nil remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments. Total amount of reductions during the Nil Nil financial year due to ex- post explicit adjustments. Total amount of reductions during the Nil Nil financial year due to ex- post implicit adjustments.

3.14 Disclosure relating to Securitization:

The Bank has not sponsored any SPV’s for securitisation transactions

3.15 Credit Default Swap:

The Bank has not entered into any credit default swap.

3.16 Intra-Group Exposures:

The Bank does not have any Intra-group Companies under its management.

3.17 Transfers to Depositor Education and Awareness Fund (DEAF):

(Amounts in Rs. crore) Particulars Current year Previous year Opening balance of amounts transferred to DEAF 50.61 NIL

Add : Amounts transferred to DEAF during the year 12.67 50.61 Less : Amounts reimbursed by DEAF towards claims NIL NIL Closing balance of amounts transferred to DEAF 63.28 50.61

3.18 Un-hedged Foreign Currency Exposure: The Bank has put in place a policy on Hedging of Foreign Currency Exposure which is a part of the Loan Policy which stipulates the guidelines on managing the risk arising out of the un-hedged foreign currency exposure in line with the extant RBI Guidelines. Further, the Bank has made a provision of Rs 13.20 crore (Previous year Rs 12.81 Crore) and has provided capital for the un-hedged foreign currency exposure of borrowal entities of Rs 3.49 crore (previous year Rs 5.75 Crore) in line with the extant RBI Guidelines.

3.19 Frauds: The total number of frauds reported during the year is 21, amounting to Rs 91.98 Crore, is fully provided for in the current year.

F-44 3.20 Liquidity Coverage Ratio

March 2015 (Rs. In Crore) March 2016 (Average of 3 Data (Average of 12 Data Points) points) Total Total Total Average Average Total Average Unweighted Weighted Unweighted Weighted SL.NO Item Value Value Value Value

High Quality Liquid Assets 1 Total High Quality Liquid Assets (HQLA) 5652.4 5652.4 5526.72 5526.72 Cash Outflows 2 Retail Deposits and Deposits from small business customers 36868.12 3262.42 35021.83 3090.2 (i) Stable Deposits 8487.82 424.39 8239.57 411.98 (ii) Less Stable Deposits 28380.3 2838.03 26782.26 2678.22 3 Unsecured Whole Funding, of which: 6315.46 2681.4 5652.56 1809.38 (i) Operational Deposits (all counterparties) 6315.46 2681.4 5652.56 1809.38 (ii) Non-operational Deposits(all counterparties) (iii) Unsecured debt 4 Secured wholesale funding 2.5 0.00 0.00 0.00 5 Additional requirements, of which 4937 1461.18 4511.86 1218.41 (i) Outflows related to derivative exposures and other collateral requirements 0.07 0.07 0.00 0.00 (ii) Outflows related to loss of funding on debt products 0.00 0.00 0.00 0.00 (iii) Credit and liquidity facilities 4936.93 1461.11 4511.86 1218.41 6 Other contractual funding obligations 253.92 253.92 231.79 231.79 7 Other contingent funding obligations 2833.99 131.43 2866.77 143.34 8 TOTAL CASH OUTFLOWS 51210.99 7790.35 48284.81 6493.13 Cash Inflows 9 Secured lending (e.g. reverse repos) 5.83 0.00 0.00 0.00 10 Inflows from fully performing exposures 1080.54 540.27 1091.56 545.78 11 Other cash inflows 1118.82 1118.82 865.71 865.71 12 TOTAL CASH INFLOWS 2205.19 1659.09 1957.27 1411.49 13 TOTAL HQLA 5652.4 5652.4 5526.72 5526.72 14 TOTAL NET CASH OUTFLOWS 49005.8 6131.26 46327.54 5081.64 15 LIQUIDITY COVERAGE RATIO (%) 92.19 108.76 Note: The LCR as on 31.03.2016 is 95.06%. However, 12 months average for the Financial Year 2015-16 works out to 92.19%.

F-45 Qualitative Disclosures on LCR: Bank is computing LCR on a monthly basis in line with the RBI circular dated June 9 , 2014 on “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio(LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards”. The computation is also in line with the amendments made as per the RBI circular dated February 2, 2016. These guidelines ensure that banks maintain sufficient amount of High Quality Liquidity Assets (HQLAs) to survive 30 days stress scenario so that banks can take corrective measures within such period. These HQLAs have to be 100% of the net cash outflows w.e.f January 1, 2019. To provide sufficient transition period, the guidelines require maintaining minimum 60% w.e.f January 1, 2015 and step up of 10% every year to reach 100% by January 1, 2019. Necessary system has been put in place to compute LCR and bank’s strategy would be to maintain LCR well above the regulatory minimum levels ahead of the stipulated timelines. The main driver of LCR is adequate HQLAs and Bank is maintaining LCR well above the minimum stipulated level of 70% in view of SLR investments in excess of statutory requirement and 10% of NDTL in the form of borrowing limit available through Marginal Standing Facility (MSF) and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR).The Bank has a diversified liability mix comprising of healthy Retail Deposits with its pan India presence and the dependency on wholesale funding is insignificant. Bank’s Asset Liability Management Committee (ALCO) is empowered to monitor and form suitable strategies to maintain stipulated levels of LCR by channelizing funds to target good quality asset and liability profile to meet Bank’s profitability as well as liquidity requirements. Funding strategies are formulated by the Treasury and Accounts Department (TAD) in accordance with ALCO guidance. The objective of the funding strategy is to achieve an optimal funding mix which is consistent with prudent liquidity, diversity of sources and servicing costs. Accordingly, TAD estimates daily liquidity requirement. With the help of structural liquidity statement prepared by bank, TAD evaluates current and future liquidity requirement and takes necessary action.

3.21 Strategic Debt Restructuring (SDR): During the year, the Bank has been allotted 248264 no. of shares with a face value of Rs.2 /- at the rate of Rs.11.89 per share amounting to a book value of Rs 0.30 Crores.

3.22 Operating Expenses stated in Schedule 16 to the Profit and Loss Account includes Rs 4.90 Crores spent toward Corporate Social responsibility (CSR) Activities.

4 Reconciliation of Branch Adjustments and Balancing of Subsidiary Ledgers.

a) Balancing of Subsidiary Ledgers is completed in all branches/offices.

b) Reconciliation of branch adjustments/Inter Bank accounts has been completed up to 31st March 2016 and steps are being taken to give effect to consequential adjustments of pending items. 5 Investments: The percentage of SLR investments under “Held to Maturity” category as on 31st March 2016 was 21.05% (Previous Year 22.33%) of the Net Demand and Time Liabilities of the bank, which is within the permissible limit as per RBI guidelines.

6. A sum of Rs 791.82 crore (Previous year Rs 605.62 crores) is outstanding on account of demands raised by the Income Tax Department in earlier years which have been paid under protest. No provision is considered necessary in respect of these demands, as the Bank has been advised that there are good chances of success in appeals/ considering favourable judicial pronouncements and/or appellate orders on identical issues for earlier assessment years.

7. In accordance with the RBI Circular DBR. No. BPBC.2/21.06.201/2015-16 dated 1st July 2015 on ‘Basel III Capital Regulations’ and RBI Circular DBR.NO.BP.BC 80/21.06.201/2014-15 dated March 31, 2015 on ‘Prudential Guidelines on Capital Adequacy and Liquidity Standards Amendments’, Banks are required to make Pillar III disclosures including Leverage Ratio and Liquidity Coverage Ratio under Basel III Framework. The Bank has made these disclosures which are available on its web site at the following link http://ktkbank.com/ktk/BaselDisclosures.jsp#. These disclosures have not been audited by the Statutory Central Auditors.

8. Previous year’s figures have been regrouped/rearranged/given in brackets wherever necessary and feasible to conform to the current year classifications.

F-46 F-47

THE KARNATAKA BANK LIMITED Regd & Head Office : Mangalore - 575 002

BALANCE SHEET (Rs in Crore) Schedule As on As on No. 30.06.2016 30.06.2015 Rs Rs CAPITAL AND LIABILITIES Capital 1 188.47 188.46 Reserves and Surplus 2 3623.67 3309.95 Deposits 3 51501.25 46766.85 Borrowings 4 965.23 1071.09 Other Liabilities and Provisions 5 1259.91 1411.62

TOTAL 57538.53 52747.97

ASSETS Cash and balances with Reserve Bank of India 6 2560.42 2655.95 Balances with Banks and Money at Call and Short Notice 7 436.07 114.10 Investments 8 16445.02 15256.52 Advances 9 34946.19 31351.64 Fixed Assets 10 301.02 291.64 Other Assets 11 2849.81 3078.12

TOTAL 57538.53 52747.97

Contingent Liabilities 12 6329.16 8609.31 Bills for Collection 1638.67 810.59

F-49 THE KARNATAKA BANK LIMITED Regd & Head Office : Mangalore - 575 002

PROFIT AND LOSS ACCOUNT

Quarter ended Quarter ended Schedule No. 30.06.2016 30.06.2015 Rs Rs I. INCOME Interest Earned 13 1260.60 1229.04 Other Income 14 174.35 119.13

Total 1434.95 1348.17

II. EXPENDITURE Interest Expended 15 895.91 897.73 Operating Expenses 16 277.13 211.42 Provisions and Contingencies 140.37 129.68

Total 1313.41 1238.83

III.PROFIT Net profit for the year 121.54 109.34

Profit brought forward 0.03 0.40

Total 121.57 109.74

IV. APPROPRIATIONS Transfer to Statutory Reserve - - Transfer to Capital Reserve - - Transfer to Revenue Reserve - - Transfer to Special Reserve u/s 36 (i) (viii) of Income Tax Act - - Transfer to Investment Reserve Account - - Transfer to Other Funds - - Transfer to Proposed dividend - - Transfer to Tax on proposed dividend - - Balance carried over to Balance Sheet 121.57 109.74

Total 121.57 109.74

Earning per share Basic Rs. 25.80 23.20 Diluted Rs 25.80 23.20

F-50 THE KARNATAKA BANK LIMITED Regd & Head Office : Mangalore - 575 002 CASH FLOW STATEMENT Quarter Ended Quarter Ended June 30, 2016 June 30, 2015 Rs Rs Rs Rs A CASH FLOW FROM OPERATING ACTIVITIES

Net Profit after Tax and Extra Ordinary Items 121.54 109.34 Add: Adjustments for : Provision for Tax 4.07 13.83 Loss on sale Fixed Assets -0.02 0.21 Depreciation on Fixed Assets including Lease Adjustment 11.15 9.95 charges Provisions and Contingencies 136.30 115.85 Amortisation of premium on Held to Maturity Investments 7.25 158.75 9.05 148.89

Operating Profit Before Working Capital Changes 280.29 258.23

Adjustment for : i) (Increase)/Decrease in Advances & Other Assets -1184.23 437.46 ii) (Increase)/Decrease in Investments -186.49 -1245.91 iii) Increase/(Decrease) in Deposits,Borrowings & Other 1096.12 -274.60 757.75 -50.70 Liabilities

Cash Generated from Operations 5.69 207.53 Less: Direct taxes paid 30.73 41.70

Net Cash Flow from Operating Activities (A) -25.04 165.83

B CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed Assets -5.70 -10.09 Sale of Fixed Assets 0.19 0.14

Net Cash used in Investing Activities (B) -5.51 -9.95

TOTAL (A+B) -30.55 155.88

C CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of share capital (net of expenses) 0.01 0.01 Proceeds from long term borrowings -17.90 0.00 Dividend paid (Including Tax on Dividend) 0.00 0.00

Net Cash Generated from Financing Activities ( C ) -17.89 0.01

Net Increase in Cash & Cash Equivalents (A+B+C) -48.44 155.90

Cash & Cash Equivalents as at the beginning of the Quarter/Year 3044.92 2614.15 Cash & Cash Equivalents as at the end of the Quarter/Year 2996.48 2770.05 Note: 1. The Cash Flow Statement has been prepared under the Indirect Method and figures of the previous year have been re-grouped wherever necessary. 2. Cash and Cash Equivalents comprise of Cash on Hand, Balances with Reserve Bank of India, Balances with Banks and Money at Call and Short Notice.

F-51 SCHEDULE - 1 CAPITAL

(Rs in Crore)

As on As on 30.06.2016 30.06.2015 Rs Rs

Authorised Capital 500.00 300.00

Issued Capital 188.48 188.47

Subscribed Capital 188.48 188.46

Paid-up Capital 188.46 188.45

Add : Forfeited Shares 0.01 0.01

Total 188.47 188.46

SCHEDULE -2 RESERVES AND SURPLUS

(Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. Statutory Reserve Opening balance 1983.00 1753.00 Additions during the year 0.00 0.00 1983.00 1753.00 Deductions during the year 0.00 0.00

Total 1983.00 1753.00 II. Capital Reserve Opening balance 78.95 70.09 Additions during the year 0.00 0.00 78.95 70.09 Deductions during the year 0.00 0.00

Total 78.95 70.09

III. Share Premium Opening balance 722.98 722.86 Additions during the year 0.03 0.03 723.01 722.89 Deductions during the year 0 0.00 Total 723.01 722.89

F-52 IV. Revenue and other Reserves a) Revenue Reserve Opening balance 544.24 503.24 Additions during the year 0.00 0.00 544.24 503.24 Deductions during the year 0.00 0.00

Total 544.24 503.24

b) Special Reserve u/s 36(1)(viii) of Income Tax Act Opening balance 154.59 128.76 Additions during the year 0.00 0.00 154.59 128.76 Deletion during the year 0.00 0.00 Total 154.59 128.76

c) Employee Stock Option Outstanding Opening balance 2.92 3.01 Additions during the year 0.00 0.00 2.92 3.01 Deductions during the year 0.02 0.03 Total 2.90 2.98

d) Investment Reserve Account Opening balance 15.41 19.25 Additions during the year 0.00 0.00 15.41 19.25 Deductions during the year 0.00 0.00 Total 15.41 19.25

V. Balance in Profit and Loss Account 121.57 109.74 GRAND TOTAL ( I TO V ) 3623.67 3309.95

F-53 SCHEDULE -3 DEPOSITS

(Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs A.I. Demand Deposits 1. From Banks 2.43 3.02 2. From others 3254.12 2973.36

3256.55 2976.38

II. Savings Bank Deposits 10247.71 8716.72

III. Term Deposits 1. From Banks 17.13 17.58 2. From others 37979.86 35056.17

37996.99 35073.75

Total : (I, II and III) 51501.25 46766.85

B.1. Deposits of branches in India 51501.25 46766.85

2. Deposits of branches outside India 0.00 0.00

Total (1+2) 51501.25 46766.85

F-54 SCHEDULE -4 BORROWINGS

(Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. Borrowings in India 1. Reserve Bank of India 0.00 0.00

2. Other Banks 0.00 0.00

3. Other Institutions and Agencies 304.27 356.53

4. Subordinated Debts for Tier II Capital 600.00 600.00 Total 904.27 956.53

II. Borrowings outside India 60.96 114.56

Total : (I and II) 965.23 1071.09

Secured borrowings included in I & II above - -

SCHEDULE - 5 OTHER LIABILITIES AND PROVISIONS

(Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. Bills Payable 233.05 207.26 II. Inter Office adjustments(Net) 0.00 0.00 III. Interest accrued 90.74 102.03

IV. Deferred Tax Liability (Net) 0.00 22.23 V. Others (including Provisions) 936.12 1080.10

Total 1259.91 1411.62

F-55 SCHEDULE - 6 CASH AND BALANCES WITH RBI

(Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. Cash in hand 544.20 501.40 (including foreign currency notes)

II. Balances with Reserve Bank of India 1. In Current Account 2016.22 2154.55 2. In Other Accounts 0.00 0.00 Total 2016.22 2154.55

Total : (I and II) 2560.42 2655.95

SCHEDULE - 7 BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE (Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. IN INDIA i. Balances with Banks

a) In Current Accounts 61.12 72.16

b) In other deposit accounts 25.00 10.00

86.12 82.16 ii. Money at Call and Short Notice

a) With Banks 0.00 0.00

b) With other institutions 349.95 0.00 349.95 0.00

Total (i) & (ii) 436.07 82.16

II. OUTSIDE INDIA i. In Current Accounts 0.00 31.94

ii. In Other Deposit Accounts 0.00 0.00

iii. Money at Call and Short Notice 0.00 0.00

Total 0.00 31.94

Grand Total (I and II) 436.07 114.10

F-56 SCHEDULE - 8 INVESTMENTS (Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. Investments in India (Gross ) 16488.34 15298.20 Less: Provision / depreciation 43.32 41.68

Net Investments In India 16445.02 15256.52

Break-up : 1. Government Securities 11409.35 11518.72 2. Other Approved Securities 0.00 0.00 3. Shares 93.80 133.28 4. Debentures and Bonds 1717.30 1394.76 5. Subsidiaries and/or Joint Ventures 0.00 0.00 6. Others 3224.57 2209.76

Total 16445.02 15256.52

II. Investments outside India 0.00 0.00

Total (I+II) 16445.02 15256.52

F-57 SCHEDULE - 9 ADVANCES (Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs

A) 1. Bills Purchased and discounted 796.68 825.70 2. Cash Credits, Overdrafts and Loans repayable on demand 13317.26 11218.76 3. Term Loans 20832.25 19307.18

Total 34946.19 31351.64

B) 1. Secured by Tangible Assets (including book debts) 31910.89 29111.15 2. Secured by Bank/Government Guarantees 2038.68 1281.95 3. Unsecured 996.62 958.54

Total 34946.19 31351.64

C) I. Advances in India 1. Priority Sectors 14559.93 12405.71 2. Public Sectors 765.69 875.70 3. Banks 0.00 0.00 4. Others 19620.57 18070.23

Total 34946.19 31351.64

C) II. Advances outside India 1. Due from Banks 0.00 0.00 2. Due from others 0.00 0.00 a) Bills Purchased and Discounted 0.00 0.00 b) Syndicated Loans 0.00 0.00 c) Others 0.00 0.00

Total 0.00 0.00

GRAND TOTAL (C. I and C. II) 34946.19 31351.64 Note: The above advances are net of provisions.

F-58 SCHEDULE - 10 FIXED ASSETS (Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs I. Premises At cost as on 31st March of the preceding year 142.07 137.07

Additions during the year 0.02 1.31

142.09 138.38 Deductions during the year 0.00 0.00

142.09 138.38 Depreciation to-date 18.17 16.53

Total 123.92 121.85

II. Other Fixed Assets (including Furniture and Fixtures)

At cost as on 31st March of the preceding year 406.71 358.11

Additions during the year 5.68 8.77

412.39 366.88 Deductions during the year 1.69 1.17

410.70 365.71 Depreciation to date 233.60 195.92

Total 177.10 169.79

Total (I+II) 301.02 291.64

F-59 SCHEDULE -11 OTHER ASSETS (Rs in Crore) As on As on 30.06.2016 30.06.2015 Rs Rs

I. Interest accrued 278.85 289.06

II. Tax paid in advance/tax deducted at source(net of provisions) 885.86 842.60

III. Stationery and Stamps 3.81 7.61

IV. Non-Banking Assets acquired in satisfaction of claims 24.53 1.86

V. Deferred Tax Asset (Net) 21.15 0.00

V. Others 1635.00 1936.99

Total 2849.81 3078.12

SCHEDULE - 12 CONTINGENT LIABILITIES

As on As on 30.06.2016 30.06.2015 Rs Rs

I. Claims against the Bank not acknowledged as debts 33.36 32.29

II Liability for Partly paid investments 0.00 0.00

III. Liability on account of outstanding Forward Exchange Contracts including derivatives 3424.54 5109.18

IV. Guarantees given on behalf of constituents a) In India 2228.95 2785.46 b) Outside India 0.00 0.00

V. Acceptances, Endorsements and other Obligations 575.20 628.89

VI. Other items for which the bank is contingently liable 67.11 53.49

Total 6329.16 8609.31

F-60 SCHEDULE - 13 INTEREST EARNED (Rs in Crore)

Quarter ended Quarter ended 30.06.2016 30.06.2015 Rs Rs

I. Interest/discount on advances/bills 927.37 927.53

II. Income on Investments 312.93 277.51

III. Interest on balances with R.B.I / other Inter-Bank funds 1.23 0.44

IV. Others 19.07 23.56

Total 1260.60 1229.04

SCHEDULE - 14 OTHER INCOME

Quarter ended Quarter ended 30.06.2016 30.06.2015 Rs Rs

I. Commission, Exchange and Brokerage 61.33 49.97

II. Profit on sale of Investments (net) 41.80 10.51

III. Profit on Revaluation of Investments (net) 0.00 0.00

IV. Profit/(Loss) on sale of Land, Buildings and Other Assets (net) 0.02 -0.21

V. Profit on Exchange Transactions(net) 5.84 7.84

VI. Income earned by way of dividends etc., from Subsidiaries/ Companies and /or Joint Ventures abroad/ in India 0.00 0.00

VII. Miscellaneous income 65.36 51.02

Total 174.35 119.13

F-61 SCHEDULE - 15 INTEREST EXPENDED (Rs in Crore)

Quarter ended Quarter ended 30.06.2016 30.06.2015 Rs Rs

1. Interest on deposits 873.88 872.46

2. Interest on Reserve Bank of India/Inter-Bank Borrowings 4.67 8.89

3. Others 17.36 16.38

Total 895.91 897.73

SCHEDULE - 16 OPERATING EXPENSES (Rs in Crore)

Quarter ended Quarter ended 30.06.2016 30.06.2015 Rs Rs

I. Payments to and provisions for employees 128.02 100.26

II. Rent, Taxes and Lighting 27.12 21.40

III. Printing and Stationery 2.70 1.68

IV. Advertisement and Publicity 0.97 1.57

V. Depreciation on Bank's property 11.15 9.95

VI. Directors' fees, allowances and expenses 0.38 0.24

VII. Auditors' fees and expenses (including branch audit fees ) 0.75 0.64

VIII. Law charges 0.65 0.53

IX. Postage, telegrams, telephones etc. 4.38 4.08

X. Repairs and maintenance 7.25 5.60

XI. Insurance 15.51 14.13

XII. Other expenditure 78.25 51.34

Total 277.13 211.42

F-62

MATERIAL DEVELOPMENTS

In accordance with circular no. F.2/5/SE/76 dated February 5, 1977 issued by the Ministry of Finance, Government of India, as amended by Ministry of Finance, Government of India through its circular dated March 8, 1977 and in accordance with sub-item (B) of item X of Part E of the SEBI Regulations, the information required to be disclosed for the period between the last date of the balance sheet and the profit and loss account provided to the shareholders (i.e. for the year ended March 31, 2016) and up to the end of the last but one month preceding the date of this Letter of Offer (i.e. August 31, 2016), is provided below:

1. Working results of our Bank for the period from April 1, 2016 to August 31, 2016: (`. in crore) Particulars Amount Interest income 2,113.26 Other Income 290.16 Total Income 2,403.42 Estimated Profit Before Depreciation, Taxation & Provisions 118.28 Provision Depreciation 18.65 Provision Taxation -66.90 Estimated Net Profit after Tax 166.53

Material Changes and Commitments

In the opinion of the Directors, except as disclosed in this Letter of Offer, no material development occurred from April 1, 2016, which requires adjustment in Financial Statement of the Bank or which are likely to affect the financial position and performance of our Bank.

ACCOUNTING RATIOS AND CAPITALISATION STATEMENT

The following tables presents certain accounting and other ratios derived from our Audited Financial Statements and Limited Review Financial Statements included in the section titled “Financial Information” beginning on page 60. This tables below should be read in conjunction with the sections titled “Financial Information” and “Risk Factors” appearing on pages 60 and 12, respectively.

The following accounting ratios are based on audited financial statements for the year ended March 31, 2016 and March 31, 2015 of our Bank:

Year ended Year ended Particulars March 31, 2016 March 31, 2015 Earnings Per Share (a) Basic Earnings Per Share (`) 22.04 23.96 (b) Diluted Earnings Per Share (`) 22.03 23.95

Return on Net Worth % 11.25 13.32

Net Asset Value per share (Rs.) 195.83 179.86

The following accounting ratios are based on the unaudited financial statements of our Bank as at and for the quarter ended June 30, 2016 and June 30, 2015:

As at June 30, Particulars As at June 30, 2016 2015 Earnings Per Share (a) Basic Earnings Per Share (`) 6.45 * 5.80 * A. Diluted Earnings Per Share (`) 6.45 * 5.80 *

Return on Net Worth % 3.19 * 3.13 *

Net Asset Value per share (Rs.) 202.28 185.64 * Not annualized

The ratios have been computed (excluding any extraordinary items or revaluation reserves) as under:

Basic and diluted earnings per share: Net profit / (loss) after tax attributable to equity shareholders divided by total weighted average number of equity shares outstanding at the end of the period

Return on Net worth %: Net profit/ (loss) after tax attributable to equity shareholders divided by Net worth at the end of the year/period.

Net assets value per equity share (Rs.): Net worth at the end of the year/period divided by Total number of weighted average equity share outstanding at the end of the year/ period.

Net Worth = As detailed below: (` in crore) Particulars March 31, 2016 March 31, 2015 June 30, 2016 June 30, 2015 Paid Up Share Capital 188.47 188.46 188.47 188.46 Statutory Reserve 1,983.00 1,753.00 1,983.00 1,753.00 Capital Reserve 78.95 70.09 78.95 70.09 Share Premium 722.98 722.86 723.01 722.89 Revenue Reserve 544.24 503.24 544.24 503.24 Special Reserve 154.59 128.76 154.59 128.76 Employee Stock Option Outstanding 2.91 3.00 2.90 2.98 Investment Reserve Account 15.41 19.25 15.41 19.25 Balance in Profit & Loss Account 0.03 0.40 121.57 109.74 Total 3,690.58 3,389.06 3,812.14 3,498.41

The following tables present the capitalisation statement as per the Audited Financial Statements of our Bank as at March 31, 2016:

(` in Crores) Pre Issue as at March Particulars Post Issue** 31, 2016 Indebtedness Short term$ -Secured Borrowings 30.00 30.00 -Unsecured Borrowings 99.38 99.38 Long term -Secured Borrowings 0.00 0.00 -Unsecured Borrowings 850.49 850.49 Current maturity of Long term borrowings -Secured Borrowings 0.00 0.00 -Unsecured Borrowings 71.61 71.61 Total Indebtedness (A) 1,051.48 1,051.48 Share Holder's Funds Share Capital 188.47 282.69 Reserves & Surplus* 2,779.14 2,779.14 Securities Premium 722.98 1,288.49 Total Share Holder's Funds (B) 3,690.59 4,350.29

Total Capitalisation (A+B) 4,742.07 5,401.77

Long Term Borrowings / Total Shareholder's Funds 23.04% 19.55% Total Borrowings / Total Shareholder's Funds 28.49% 24.17% *Reserves & Surplus excluding Revaluation Reserves and Securities premium $ Short term debts and current maturities of long term borrowings are debts maturing within next one year from the date as per above table. ** Assuming full subscription in the Issue.

STOCK MARKET DATA FOR EQUITY SHARES OF OUR BANK

Our Bank’s Equity Shares have been listed on the BSE and the NSE with effect from July 25, 2005 and May 10, 2000, respectively. As our Bank’s Equity Shares are actively traded on the BSE and NSE, stock market data has been given separately for BSE and NSE only.

The monthly high and low price and the volume of shares of our Bank traded at the BSE and NSE during the past six months are stated below:

BSE

Volume Turnover Volume Turnover Average on date on date on Date on date price High Date of Low Date of Month of High of High of low of Low for the (Rs.) High (Rs.) Low (No. of (Rs. in (No. of (Rs. in month* Shares) lacs) Shares) lacs) (Rs.) September, 162.10 September 6,15,547 981.52 140.95 September 1,99,400 290.18 153.40 2016 7, 2016 30, 2016 August, 160.20 August 9,77,403 1531.08 137.65 August 8, 3,50,077 492.18 147.53 2016 22, 2016 2016 July, 2016 158.80 July 15, 3,68,044 575.47 141.10 July 1, 1,57,489 224.66 149.84 2016 2016 June, 2016 142.45 June 30, 3,36,907 476.29 123.70 June 2, 2,37,900 298.95 134.63 2016 2016 May, 2016 129.35 May 27, 2,39,050 304.47 106.30 May 5, 50,783 54.54 117.19 2016 2016 April, 115.40 April 27, 1,58,356 180.61 98.50 April 5, 1,45,101 147.56 107.54 2016 2016 2016 (Source: www.bseindia.com)

*Average of daily closing prices

NSE

Turnover Turnover Avera Volume Volume on date on date ge on date on Date of High Date of of High Low of Low price Month of High Date of Low low (Rs.) High (Rs. in (Rs.) (Rs. in for the (No. of (No. of lacs) lacs) month Shares) Shares) * (Rs.) Septe 162.2 September 66,49,63 10598.23 139.2 September 18,53,924 2692.96 153.38 mber, 5 7, 2016 5 30, 2016 2016 August 160.2 August 22, 94,88,05 14,875.94 137.55 August 8, 33,48,182 4,711.32 147.57 , 2016 5 2016 6 2016 July, 159.0 July 15, 37,72,99 5,897.64 141.00 July 1, 2016 14,12,040 2,016.10 149.87 2016 0 2016 8 June, 142.4 June 30, 25,63,74 3,619.22 123.60 June 2, 2016 14,37,991 1,808.23 134.60 2016 5 2016 1 May, 129.2 May 27, 20,30,92 2584.00 106.10 May 5, 2016 8,55,599 918.21 117.23 2016 0 2016 4 April, 115.3 April 27, 14,63,16 1,667.44 98.60 April 5, 13,40,899 1,360.81 / 107.60 2016 0 2016 7 2016/ April / 1,544.51 6, 2016 15,20,463 (Source: www.nseindia.com)

*Average of daily closing prices

The high and low closing prices recorded on the BSE and NSE for the preceding three years are stated below.

BSE

Volume Turnover Volume Turnover Average on date on date on Date on date price Fiscal High Date of Low Date of of High of High of low of Low for the Year (Rs.) High (Rs.) Low (No. of (Rs. in (No. of (Rs. in year* Shares) lacs) Shares) lacs) (Rs.) 2016 158.00 July 7, 3,28,312 511.95 84.85 February 1,54,797 133.92 122.27 2015 29, 2016 2015 157.20 December 6,80,443 1,055.59 108.70 October 2,00,410 223.05 132.12 3, 2014 8, 2014 2014 162.9 May 13, 12,38,413 1,972.54 69.10 August 10,15,173 715.63 109.13 2013 6, 2013 (Source: www.bseindia.com)

Average of daily closing prices

NSE

Volume Turnover Volume Turnover Average on date on date on Date on date price Fiscal High Date of Low Date of of High of High of low of Low for the Year (Rs.) High (Rs.) Low (No. of (Rs. in (No. of (Rs. in year* Shares) lacs) Shares) lacs) (Rs.) 2016 158.15 July 7, 35,68,586 5,568.84 84.8 February 13,57,875 1,174.55 122.30 2015 29, 2016 2015 157.15 December 51,11,140 7,932.74 108.65 October 21,61,006 2,403.25 132.11 3, 2014 8, 2014 2014 163.00 May 13, 67,08,770 10,688.57 69.10 August 45,57,479 3,216.09 109.12 2013 6, 2013 (Source: www.nseindia.com)

Average of daily closing prices

The closing price of our Equity Shares as on August 8, 2016 (the trading day immediately following the day on which the Board resolution was passed approving the Issue) was ` 141.1on the BSE and ` 141.05 on the NSE.

Week end prices of Equity Shares of our Bank for the last four weeks on BSE and NSE along with the highest and lowest price are as below:

BSE NSE Week Closing Highest Date of Lowest Date of Closing Highest Date of Lowest Date of ended on Price Price High Price Low Price Price High Price Low October 21, 157.80 158.65 October 147.4 October 157.80 158.35 October 147.45 October 2016 21, 2016 17, 2016 21, 2016 17, 2016

October 14, 149.60 152.00 October 141.45 October 149.50 152.25 October 141.40 October 2016 10, 2016 13, 2016 10, 2016 13, 2016

October 7, 151.15 154.30 October 147.20 October 151.30 154.45 October 146.50 October 2016 6, 2016 3, 2016 6, 2016 3, 2016

September 147.10 156.00 Septemb 140.95 Septembe 146.95 156.15 Septemb 139.20 Septemb 30, 2016 er 26, r 30, er 26, er 30, 2016 2016 2016 2016

(Note: High/Low prices based on closing quotations of BSE & NSE (Source: www.bseindia.com and www.nseindia.com)

The closing market price of our Equity Shares as on October 27, 2016, the trading day immediately prior to the date of the Letter of Offer was 120.30 on BSE and 120.45 on NSE.

SECTION VII: LEGAL AND OTHER INFORMATION

OUTSTANDING LITIGATION AND DEFAULTS

Except as disclosed below, there are no outstanding litigations, statutory or legal proceedings, criminal prosecutions or civil proceedings, taxation liabilities and liabilities arising from economic offences and show cause notices or legal notices pending against our Bank that if resulting in an adverse outcome, would materially and adversely affect the operations or the financial position of our Bank.

Further, except as disclosed below, there are no cases involving issues of moral turpitude or pending criminal liability on part of our Bank and there are no commissions of material violations of statutory regulations by our Bank or proceedings of economic offences against our Bank in the immediate preceding ten years.

For the outstanding litigation to be disclosed by our Bank in this Letter of Offer, other than cases involving issues of moral turpitude on part of our Bank, pending criminal liability against our Bank, commissions of violations of statutory regulations by our Bank or proceedings of economic offences against our Bank, the materiality threshold taken has been determined as per Clause XII sub-clause C in Part E of Schedule VIII of the SEBI Regulations. The relevant provision requires only those outstanding litigations to be disclosed that may not have an impact on the future revenues where the aggregate amount involved in such individual litigations exceed one per cent of the net worth of our Bank as per last completed financial year and where the decision in one case is likely to affect the decision in similar cases, even though the amount involved in the single case individually may not exceed such threshold. For outstanding litigations which may have an impact on future revenues of our Bank, the disclosures of such litigation are required when the amount involved in the individual litigation is likely to exceed one per cent of the total revenue of our Bank as per the last completed financial year and where the decision in one case is likely to affect the decision in similar cases even though the amount involved in the individual case may not exceed the threshold, if similar cases collectively exceed the threshold.

In addition to the above, any legal proceeding in which the amount involved is equal to or more than `36.00 crore (the lower of one per cent of net worth (` 36.90 crore) and one per cent of total revenue of our Bank (` 55.35 crore)), as per the Audited Financial Statements of our Bank for the Financial Year ended March 31, 2016, has been disclosed in this Letter of Offer. For details in relation to contingent liabilities not been provided for in the Audited Financial Statements of our Bank, see section titled “Financial Information” at page 60.

Summary of total litigations against our Bank:

I. Litigation involving our Bank

A. Outstanding proceedings initiated against our Bank

(i) Criminal Proceedings

1. Mr. Aswarthnarayan (“Complainant”) filed a complaint bearing number 621 /2005 dated February 15, 2005 against our Bank and its officers (“Accused”) under sections 119 379, 409, 416, 420, 465, 511 of the IPC read with section 200 of the CrPC before the Judicial Magistrate First Class, Hindupur (“Complaint”) alleging that the Accused had negligently accepted a cheque with a forged signature and caused monetary loss of ` 3.5 lacs to the Complainant. The matter is currently pending.

2. Mr P.D. Devendranath (“Complainant”) filed a complaint bearing number 7474/2009 dated June 5, 2007 against Mr. Vikram Rajwade, Mr. Krishna Bhat, the branch manager (collectively “Accused”) under sections 420 and 34 of the IPC before the Additional Chief Metropolitan Magistrate, Bangalore (“Complaint”) alleging that an employee and the manager of our Bank had perpetrated fraud and misappropriated his deposits in the Bangalore (Malleshawaram) branch of our Bank. The matter is currently pending.

3. Our Bank’s employees were cited as accused in four chargesheets filed through four separate complaints:

(a) Mr. Kemparamayya, additional education officer Malleshwaram (“Complainant”) filed a complaint bearing number 47966/2010 against Mrs. Uma former head mistress of vani kannada higher primary school, Laggere (“Accused 1”) for the offences punishable under sections 465, 468, 471, 409, 420, 201 read with sections 34 and 37 of IPC. Accused 1 allegedly fabricated certain documents/duplicate bills so as to get cheques obtained from government/ treasury and encashed the same through personal accounts maintained with our Bank. In the chargesheet filed in the matter, our Bank’s employees of sriramapuram branch, Bengaluru were cited as accused on the ground that our Bank’s employees did not credit the amount in school’s bank account but credited the amount claimed through bogus cheques to the account of Accused 1 and helped Accused 1 to misuse the funds of the Government. Our Bank’s employees filed a discharge application dated March 7, 2014 before the Additional Chief Metropolitan Magistrate Court, Bengaluru. The discharge application is pending for orders.

(b) Mr. Somashekhar-BEO Malleshwaram (“Complainant”) filed a complaint bearing complaint number 50605/2010 against Mrs. Uma former head mistress of Vani Kannada Higher Primary School, Laggere (“Accused 1”) for the offences punishable under sections 465, 468, 471, 409, 420 read with sections 34 and 37 of IPC. Accused 1 allegedly fabricated certain documents/duplicate bills so as to get cheques obtained from government/ treasury and encashed the same through personal accounts maintained with our Bank. In the chargesheet filed in the matter, our Bank’s employees at Sriramapuram Branch, Bangalore were cited as accused on the ground that our Bank’s employees did not credit the amount in related school’s bank account but credited the amount claimed through bogus cheques to the account of Accused 1 and helped Accused 1 to misuse the funds of the Government. Our Bank’s employees filed a discharge application dated May 27, 2011 before Additional Chief Metropolitan Magistrate Court, Bengaluru. The discharge application was dismissed on August 22, 2016. The matter is pending.

(c) M/s Vijayalakshmi Education Society (“Complainant”) filed a complaint bearing complaint number 13956/2010 dated September 22, 2001 against Mrs. Uma former head mistress of vani kannada higher primary school, Laggere (“Accused 1”), for the offences punishable under sections 465, 468, 471, 409, 419, 420, 201 read with section 34 of IPC. Accused 1 allegedly fabricated certain documents/duplicate bills so as to get cheques obtained from government/ treasury and encashed the same through personal accounts maintained with our Bank. A chargesheet dated November 26, 2009 was filed and our Bank’s employees were cited as witnesses in the chargesheet. An additional report under section 173(8) of the CrPC dated May 13, 2011 was filed against our Bank’s employees and they were made as accused on the ground that our Bank’s employees did not credit the amount in the school’s bank account but credited the amount claimed through bogus cheques to the account of Accused 1 and aided Accused 1 to misuse the funds of the Government. An application was filed to quash the additional chargesheet in criminal petition bearing number 4961/11 before the High Court of Karnataka (“High Court”). The matter is pending.

(d) Ms. T Selvy of M/s Jyothi Kannada and Tamil Higher Primary School, Bangalore (“Complainant”) filed a complaint bearing number 28510/09 against Mrs. Uma former head mistress of vani kannada higher primary school, Laggere (“Accused 1”) dated October 21, 2001 under sections 465, 468, 471, 406, 420 read with sections 34 and 37 of IPC. Accused 1 allegedly fabricated certain documents/duplicate bills so as to get cheques obtained from government/treasury and encashed the cheques through personal accounts maintained with our Bank. A chargesheet dated November 26, 2009 was filed which cited our Bank’s employees as witnesses. An additional chargesheet dated May 16, 2011 was filed under section 173(8) of the CrPC against our Bank’s employees where they were cited as accused on the ground that our Bank’s employees did not credit the amount in related school’s bank account but credited the amount

claimed through bogus cheques to the account of Accused 1 and helped Accused 1 to misuse the funds of the Government. An application was filed to quash the additional chargesheet in a criminal petition numbered 4960/11 before the High Court of Karnataka (“High Court”). The matter is pending.

4. Mr S.K.Basavaraj (“Complainant”) filed a complaint bearing number 1174/2010 dated July 11, 2006 against our Bank and other parties (“Accused”) under sections 420, 422 read with section 34 of the IPC before the First Additional Senior Civil Judge and J.M.F.C-1, Davangere (“Complaint”) alleging that the Complainant deposited two cheques of ` 12,800 and ` 20,000 dated November 3, 2005 and November 8, 2005 respectively (“Cheques”), drawn on Krishna Grahmina Bank, Bidar (“KGB Bank”) with UTI Bank which sent the same to our Bank for collection of the said amounts from KGB Bank. UTI Bank returned the Cheques to the Complainant along with the endorsement issued by our Bank stating that the Cheques were outdated. Further, it was alleged by the Complainant that he presented the Cheques within six months from the date of issue and the same were not outdated. The matter is currently pending.

5. Mr. Kailashnath Agarwal (“Complainant”) filed a complaint dated December 12, 2012 against our Bank under sections 420, 49, 467, 471 read with section 34 IPC before Raipur Police Station (“Complaint”) alleging that the branch head of our Bank (“Accused 1”) along with Mr. Monu Gupta (“Accused 2”), a co-obligant with the Complainant for a Bank overdraft account, as well Mr. Shiv Kumar Gupta (“Accused 3”), have forged the Complainant’s signature to increase the bank overdraft account against the security of the house of the Complainant causing him a loss of ` 70,37,564.88. Further, the Complainant alleged that the Accused 2 convinced him to take a loan on the security of his house for boosting his business on the basis of his familiarity with the Accused 1. The matter is currently pending.

6. Mr. Veerabhadrappa (“Complainant”) filed a complaint dated April 20, 2013 against Mr Raveendra, Manager of our Bank, Lingasugur branch (“Accused 1”), Mr Jayaram Bhat, Chief Executive Officer (“Accused 2”), Mr S.H. Rudrayya, DGM of head office (“Accused 3”), Mr Shrinivas Deshpande, Chief Manager public relations, head office (“Accused 4”), Mr Manappa Vajjal, candidate of JDS party (“Accused 5”) under section 188 of the IPC before Judicial Magistrate First Class, Lingasugur (“Complaint”) alleging that the Accused 5 was invited as a chief guest to inaugurate the opening of our Bank’s Lingasagur branch. The Complainant has alleged that the election model code of conduct for assembly elections was in force and was violated by virtue of the presence of Accused 5 at the inauguration ceremony. A chargesheet dated August 12, 2013 was filed against Accused 1 and Mr. Manappa. Accused 2 was cited as witness in the said chargesheet.The matter is currently pending.

7. Ms. Mangalagouri (“Complainant”) filed a complaint bearing number 151/2009 dated July 6, 2009 against Mr. Raghavendra Singh (“Accused 1”), authorized dealer of M/s. Sanjay Tractors and Mr. K.P. Ratnakar Kini (“Accused 2”), manager at Hosadurga branch of our Bank under sections 409, 417, 420 of the IPC before the Court of Civil Judge (Junior Division) & Judicial Magistrate First Class, (“Complaint”) alleging that Accused 1 and Accused 2 colluded to fraudulently sell her an inferior quality tractor. Accused 1 promised to sell the Complainant a tractor under a NABARD scheme at a subsidized rate. Accused 2 promised to help the Complainant avail a subsidy of ` 60,000 from our Bank. It was alleged in the Complaint that Accused 1 and Accused 2 forcefully took an advance amount of ` 1,40,000 from the Complainant through her brother-in-law and did not deposit the same in her bank account. Further, it is alleged by the Complainant that our Bank’s policy for such loan disbursement requires our Bank to conduct an enquiry into the company. However, it is alleged by the Complainant that our Bank did not do the same before disbursing the amount to the Accused 1. A further amount of ` 4,50,000 was disbursed by Accused 2

towards Accused 1 without proper enquiry into whether the full and complete sale of the tractor had taken place. The matter is currently pending.

8. Mr. Shivaji Pandurang Sawanth (“Complainant”) filed an FIR bearing number Cr. No 151/2014, against the branch managers of our Bank namely Mr. Pradip Dattatray Deshpande, Mr. Rau Lalu Pawar and recovery officer Mr. Ramkrishna Bhat (collective “Accused”) under sections 420, 468, 469, 470 read with section 34 of the IPC before the Satara Police Station (“Complaint”). It was alleged in the Complaint that false and fabricated documents were created and misusing of cheque No. 109126 which was given for security and granted a false loan and committed a fraud of `10,25,000 in the name of M/s. Sakshi Agency. The Accused filed a petition before the Bombay High Court to quash proceedings in the matter. The Accused claimed that the Complainant had availed an agricultural loan which he could not repay. The Complainant tried to get his loan exempted under a scheme of the Maharashtra Government forgiving agricultural loans due to drought before the Consumer Court. However, the Consumer Court rejected the petitions numbered 59/2013 and 149/2013 of the Complainant. It is alleged by the Accused that the Complainant filed the FIR against the Accused in malice to harass the officers of the Bank since his petition at the Consumer Court was rejected. The matter is currently pending.

9. Mr. V Manjunatha (“Complainant”) filed a complaint bearing number 10615/2014 dated July 11, 2014 under sections 406, 420, 417, 426 read with section 34 of the IPC (“Complaint”) against Mr. Lionel G Briggs, our Bank’s manager (“Accused 1”) and M. Shivabalaswamy (“Accused 2”). It was alleged by the Complainant that Accused 2 had taken a mortgage loan of ` 0.25 crore which was to be repaid in one year as per the terms and conditions of the loan agreement. The Accused 2 issued two cheques; one for ` 0.15 crore dated February 17, 2014 and ` 0.10 crore dated February 28, 2014 to the Complainant towards repayment of the mortgage loan. The Complainant alleged that he presented the cheques on February 28, 2014 for realization. The Complainant enquired about the status of the cheques with our Bank’s manager on March 5, 2014 and was told to visit our Bank after two days. On appearing before the Bank, the Complainant was informed that the cheques were dishonored since the funds were insufficient. The Accused 1 failed to return the cheques to the Complainant but issued scanned copies of the cheque and cheque return memos with seal and signature to the Complainant. On repeated requests of our Complainant, Accused 1 showed the Complainant CCTV footage which showed that the Accused 1 had returned the cheques and the cheque return memos to Accused 2. Accused 1 claimed that the reason he returned the cheques to the Accused 2 was because the Complainant had written the phone number of Accused 2 behind the cheque and on calling the same number Accused 2 had misrepresented himself as the Complainant. The Complainant alleged that he had not written any number behind the cheque. The Complainant alleged that the branch of our Bank has returned the dishonored cheque to the drawer of the cheque in collusion with the drawer instead of returning the original cheque to drawee. The matter is currently pending.

10. Mr. Eramasappa (“Complainant”) filed a complaint bearing number 87/2014 dated October 20, 2014, against Mr. Srinivas Rao, M.D of Spanz Iron Factory (“Accused 1”), our Bank (“Accused 2”) and Chief Security, Bellary (“Accused 3”) under section 304 read with section 34 of the IPC before Ramapura Police Station (“Complaint”) alleging that the Complainant’s son allegedly died by an electric shock on touching the iron fence of an abandoned factory. The factory was in possession of our Bank for four months prior to the incident due to the factory’s bank account becoming a non-performing asset. It is alleged by the Complainant that a cable that used to supply electricity to the main gate of the factory when it was functional was connected to the iron fence which when touched by the Complainant’s son caused his death. The matter is currently pending.

11. Ms. Manjula (“Complainant”) filed a complaint bearing number 2310/13 dated April 15, 2013, against Mr K. Venugopal Raju and Mr Srinivasa, our Bank manager (collectively

“Accused”) under section 177, 193, 196, 203, 209, 420, 465, 468 and 471 read with section 34 of the of the IPC before the Judicial Magistrate, First Class, Bhadravathi (“Complaint”) alleging that she was falsely accused of the offence of dishonor of cheque by virtue of a fraud committed by the Accused. Further, it was alleged that the Accused had inserted the account number of the Complainant on a cheque bearing another account number. The matter is currently pending.

12. Mr. A.L Sathyanarayan Guptha (“Complainant”) filed the complaint bearing number 23727/15 dated October 18, 2013 against our Bank before 4th Additional Chief Metropolitan Magistrate Court, Nrupatunga Road, Bengaluru City alleging that our Bank (“Accused”) issued a cheque book in his name to unknown persons based on forged signatures. The said persons withdrew an amount of ` 39,81,800 using the cheques issued by the Accused. Further, the Complainant alleged that the Accused and its officials who had knowledge about his saving bank account details were involved in this act and had not acted with prudence while allowing withdrawal of high value cheques from his account. The matter is currently pending.

13. Mr. Ravi. R Kurki (“Complainant”) filed a complaint bearing number PCR 240/2015 under section 420, 423, 465, 504 and 149 of the IPC (“Complaint”) before the Judicial Magistrate First Class, Davangere, against our Bank and others (“Accused”). The Complainant along with his father, lived in a house which was the joint property of the Complainant’s father and his brother. The Accused, availed a loan from our Bank by submitting a general power of attorney on behalf of the Complainant’s father. Further, it is alleged by the Complainant that they did not sign the general power of attorney and did not have any knowledge of such a mortgage on their property. It is alleged by the Complainant that our bank had not diligently perused the documents submitted by the Accused. Further, it is alleged that the manager in collusion with the Accused created forged documents to allow such a mortgage to be given due to which the Complainant has suffered a loss of ` 68,72,634. The matter is currently pending.

14. Ms. Geeta N (“Complainant”) filed an FIR dated May 8, 2016 against Mr Jayaramu, Mr Yathish, Kumara, Ms. Manjula and staff of our Kuvempungar branch (collectively “Accused”) under section 306 read with section 34 of the IPC before the Judicial Magistrate First Class-III, Mysuru (“Complaint”) alleging that the Accused colluded amongst each other to avail a loan of ` 40 lacs from our Bank on the security of the Complainant’s house. The Complainant alleges that this was without her knowledge. Further, it is alleged by the Complainant that the Accused tortured her husband, mentally and physically, which caused her husband’s death. The matter is currently pending. ii) Tax matters

a. Direct tax matters

1. The Assessing Officer (“AO”), vide his order dated December 24, 2008, assessed the income of our Bank for the financial year ended March 31, 2006, under section 143(3) of the Income Tax Act, 1961 (“IT Act”). The AO disallowed expenses related to exempted income (` 0.42 crore), broken period interest on government securities (` 12.08 crore), bad debts written off under section 36(1)(vii) (` 34 crore), rebate claimed under section 88E (` 0.55 crore) and depreciation claimed in respect of investment (` 86.85 crore) (“AO Order”). Aggrieved by the AO Order, our Bank filed appeal against the AO Order before the Commissioner of Income Tax, Mangaluru (“CIT(A)”),on January 23, 2009. The CIT(A), vide an order dated January 25, 2010 deleted all the disallowances made by the AO (“CIT(A) Order”). The Income Tax Department (“Department”) preferred an appeal dated March 26, 2010 against the CIT(A) Order before the Income Tax Appellate Tribunal, Bengaluru (“ITAT”). The ITAT, vide an order dated February 25, 2011 dismissed the appeal made by the Department (“ITAT Order”). Aggrieved by the ITAT Order, the department appealed to the High Court

of Karnataka vide Income Tax Appeal No. 228 of 2011 dated July 13, 2011 to frame the issues of law involved in the matter. The amount involved in the matter is ` 46.51 crore. The matter is currently pending.

2. The Assessing Officer (“AO”), vide his order dated February 9, 2012, assessed the income of our Bank for the financial year ended March 31, 2010 under section 143(3) of the Income Tax Act, 1961 (“IT Act”) as ` 123.81 crore and tax liability of our Bank as ` 42.08 crore by applying the provisions of section 115JB which provided for payment of Minimum Alternative Tax (MAT). The AO ruled that expenses related to exempted income (` 2.13 crore), broken period interest on investment (` 17.74 crore), bad debts written off under section 36(1)(vii) (` 41.85 crore), disallowance under section 40a(ia) (` 12 crore), depreciation on investment (` 96.12 crore) (“AO Order”). Aggrieved by the AO Order, our Bank filed an appeal dated March 6, 2012 before the Commissioner of Income Tax (Appeals) (“CIT(A)”) contesting that the provisions of section 115JB are not applicable to our Bank as our Bank prepares its financial statement as per Banking Regulation Act, 1949 and hence it is not required to abide by the provision of Part II & III of Schedule VI of the Companies Act for the preparation of Profit and Loss Account and also that all disallowances made by the AO should be deleted based on precedent of the court. The CIT(A), vide an order date May 29, 2012, rejected our appeal to the extent that it ruled that the AO was justified in rejecting our Bank’s claim that section 115JB is not applicable to our Bank. However, the CIT(A) deleted disallowances made by the AO pertaining to the broken period interest on investment, bad debts written off under section 36(1)(vii) and depreciation on investment (“CIT(A) Order”). Aggrieved by the CIT(A) Order, our Bank and the Department filed appeals dated October 11, 2012 and October 19, 2012, before the Income Tax Appellate Tribunal. The amount involved in the matter is ` 89.59 crore. The matter is currently pending.

3. The Assessing Officer (“AO”), vide an order dated February 19, 2013, assessed the income of our Bank for the financial year ended March 31, 2011 under section 143(3) of the Income Tax Act, 1961 (“IT Act”). The AO assessed our Bank’s income by applying the provisions of section 115JB of the IT Act which provided for payment of Minimum Alternative Tax (MAT). It also added expenses related to exempted income (` 2.66 crore), broken period interest on investment (` 3.80 crore), provision for bad and doubtful debts under section 36(1)(viia) (` 58.53 Crore), disallowance under section 40a(ia) (` 12.70 crore), depreciation on investment (` 32.69 crore) (“AO Order”). Aggrieved by the AO Order, our Bank filed an appeal dated March 18, 2013 before the Commissioner of Income Tax (Appeals) (“CIT(A)”) arguing that the provisions of section 115JB of the IT Act are not applicable to the Bank as the Bank prepares its financial statement as per Banking Regulation Act, 1949 and hence it is not required to abide by the provision of Part II & III of Schedule VI of the Companies Act for the preparation of Profit and Loss Account. The CIT(A), vide an order dated July 18, 2013 rejected our Bank’s appeal and ruled that the AO was justified in rejecting our Bank’s claim that section 115JB is not exercisable (“CIT(A) Order”). Our Bank has filed an appeal dated September 17, 2013 against the CIT(A) Order. The amount involved in the matter is ` 68.72 crore. The matter is currently pending.

4. The Assessing Officer (“AO”), vide an order dated December 23, 2013, assessed the income of our Bank for the year ended March 31, 2012 under section 143(3) Income Tax Act, 1961 (“IT Act”). The AO, passed an order disallowing expenses related to exempted income under various provisions of the IT Act. It added expenses under section 14A(2) (` 14.96 crore), provision for bad and doubtful debts under section 36(1)(viia) (` 70.75 Crore), disallowance under section 40a(ia) (` 17.01 Crore), investment depreciation (` 107.57 crore), disallowance under section 37 (` 0.20 crore) to the taxable income and levied an interest under section 234D (` 1.80 crore) (“Order”). Aggrieved by the AO Order, our Bank filed an appeal dated January 23, 2014 before the Commissioner of Income Tax Appeals. The amount involved in the matter is ` 87.53 crore. The matter is currently pending.

5. The Assessing Officer (“AO”), vide an order dated January 9, 2015 assessed the income of our Bank for the financial year ended March 31, 2013 under section 143(3) of the Income Tax Act, 1961 as ` 568.16 crore and the tax payable at ` 184.34 crore. The AO added expenses related to the exempted income under section 14A(2) (` 49.99 crore), bad debts written off under section 36(1)(vii) (` 192.03 crore), provision for bad and doubtful debts under section 36(1)(viia) (` 140.59 crore), disallowance under section 36(1)(viii) (` 16.89 crore), disallowance under section 40a(ia) (` 17.28 crore) and disallowance under section 57 (` 371.36 crore) to the taxable income (“Order”). Aggrieved by the AO Order, our Bank has filed an appeal dated February 11, 2015 before the Commissioner of Income Tax (Appeals) against the Order of the AO. The amount involved in the matter is ` 302.02 crore. The matter is currently pending.

6. The Assessing Officer (“AO”), vide an order dated March 1, 2016 assessed the income of our Bank for the financial year ended March 31, 2014 under section 143(3) of the Income Tax Act, 1961 (“IT Act”) as ` 745.14 crore. The case was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS). The AO disallowed expenses related to exempted income under section 14A (` 51.45 crore), bad debts written off under section 37(1)(vii) (` 145.16 crore), depreciation on investment portfolio (` 436.82 crore), provision for bad and doubtful debts under section 36(1)(viia) (` 88.15 crore) (“Order”). Our Bank has a filed appeal dated March 29, 2016 against the Order of the AO. The amount involved in the matter is ` 264.66 crore. The matter is currently pending.

b. Indirect tax matters

Nil iii) Civil Cases

1. The All India Bank Officers Organization (“AIBO”) filed a complaint before the Judicial Magistrate-II First Class, Mysore for the implementation of an award dated October 7, 2013 passed by the Central Government Industrial Tribunal, New Delhi (CGIT) under section 19 of the Industrial Disputes Act, 1947 (“Award”). As per the Award, our Bank, as a member of the Indian Bank’s Association, was required to pay back-wages, incentives, remuneration, conveyance and gratuity to the pigmy deposit collectors i.e. members of the AIBO. AIBO filed a writ petition before the Madras High Court alleging that our Bank had failed to comply with the Award. The Petitioner invoked the writ jurisdiction under Article 226 of the Constitution of India for directing our Bank and other scheduled Banks to pay their employees 6.5% of basic pay for Officers and 6.4% of basic pay for Staff in the form of an allowance each month. The matter is currently pending.

2. The Resigned Bank Employee’s Welfare Association (“Petitioners”) filed a petition before the High Court of Delhi for issuance of a Writ of Mandamus to direct our Bank and other scheduled Banks to permit the Petitioners to exercise the option of pension pursuant to a settlements dated October 29, 1993 and November 3, 1993 with workmen unions and officer’s unions. The Petitioner is a registered Society of the ex-employees of the 19 nationalized Banks and a few private sector Banks who were in continuous qualifying service from 15 to 38 years and resigned from the services due to reasons beyond their control such as illness, family problems and prolonged illness of spouses etc. Pursuant to a Memorandum of Settlement (“MOS”) with the workmen unions and a Memorandum of Understanding (“MOU”) with the Officer’s unions a Pension Scheme namely the Pension Regulations, 1993 (“Pension Regulations”) was created by virtue of the Clause 12 of the MOS and the MOU. As per Regulation 10 of the Pension Regulations dated March 17, 1954 resignation of an employee from service does not disentitle such employee from receiving superannuation benefits post resignation due to forfeiture of their past service. However, via circular of the Indian Bank’s Association these terms were modified and ignored the Regulation 10 of the Pension Regulations in the form of Regulation 22 of the

Bank Employee’s Pension Regulations, 1995. Further, there was a settlement dated April 27, 2010 wherein employees who had completed service from 20 years to 38 years of service and had voluntarily resigned are denied pension merely because they had resigned if they had resigned after September 1995 and thus were denied the equal opportunity to obtain one more option of pension benefits. The Petitioner had approached the Delhi High Court seeking relief. The matter is currently pending.

3. The Karnataka Bank Employees’ Association (“Petitioners”), a registered trade union, filed writ petitions bearing numbers 10926-927, dated March 15, 2011, under Articles 226 and 227 of the Constitution of India against our Bank and others (“Writ Petitions”). It was alleged in the Writ Petition that during the employment of Mr. N.S. Chakkera erstwhile general manager of our Bank, the Petitioners raised various issues against him. It is alleged by the Petitioners that post his retirement, Mr. N.S. Chakkera, filed numerous frivolous writ petitions against the Petitioners through his wife Mrs. Jayashree Chakkera. The Petitioners alleged that the writ petition bearing number 5654/09 seeking writ of certiorari quashing the communication dated January 16, 2009 (“RBI Circular”) issued by the RBI and the writ of mandamus against the Petitioners and its office bearers for the act of alleged illegal collection of donations from customers against the Circular (“Bank Circular”) of our Bank dated February 7, 2009 was also a frivolous petition. During the pendency of the writ petition, an investigating officer was appointed by our Bank to investigate the allegations made by Mrs. Jayshree Chakkera against the Petitioners. The investigating officer, vide a report dated September 9, 2009, noted that the act of collecting donations was not an act of corruption under the IPC and Prevention of Corruption Act and that there was no increase in non-performing assets by virtue of the donations collected from the clients and that there was no reason for initiating any prosecution against the Petitioners and that no departmental enquiry for misconduct should be initiated against the Petitioners (“Report”). On the basis of the Report, our Bank issued a letter dated November 11, 2009 (“Letter”) to the Petitioner advising the Petitioner to not to collect donations from clients of the Bank. Aggrieved by the Report, the Bank Circular, the Letter the Petitioner filed the writ petitions. The matter is currently pending.

4. The All India Bank Deposit Collectors Workmen (“Petitioners”) filed a Special Leave Petition bearing CC No. 24004-24/2016 dated May 3, 2016 under Article 142 and Article 136 of the Constitution of India, against our Bank. Syndicate Bank introduced a scheme known as pigmy deposit collection scheme which was later on adopted by all nationalized/private and subsidiary banks of State Bank of India. Pigmy deposit collectors would visit the homes/offices of the customers to collect cash and deposit the same in their bank accounts maintained with the respective banks. The pigmy deposit collectors organized themselves through a union and raised an industrial dispute with regard to benefits accruing to them as commission agents of the banks, which was referred to the Industrial Tribunal, Hyderabad. The Industrial Tribunal, vide an order dated December 22, 1988 gave relief to deposit collectors below the age of 45 years by allowing them to be absorbed as clerks and cashiers at par with regular clerical employees of the bank (“Industrial Award”). Aggrieved by the Industrial Award, the Syndicate Bank appealed to the High Court of Andhra Pradesh in writ petition bearing number 9783 of 1989. The High Court of Andhra Pradesh, vide its order dated March 28, 1997 denied the deposit collectors absorption but granted the deposit collectors benefits of fall back wages, incentive remuneration, conveyance allowance and gratuity (“High Court Order”). Aggrieved by the High Court Order, the Indian Bank’s Association approached the Supreme Court which held that the Deposit Collectors will be treated as “workmen” under the Industrial Disputes Act, 1947 and not as regular employees of the Bank (“Supreme Court Order”). The Petitioners raised a demand for revision of back wages determined by the Industrial Award. The central government made a reference to the Industrial Tribunal (“Tribunal”) on August 6, 2003 when the conciliation proceedings failed which raised the question of whether the deposit collectors were employees. The Indian Bank Associations raised an objection to the reference of the central government on the plea that deposit

collectors were not its employees. The All India Bank Deposit Workmen Union sought to implead the Banks which was allowed by the Tribunal on July 19, 2005. The Tribunal, vide its award dated October 7, 2013 which was further modified on June 2, 2014 granted an award of fall back wages to the deposit collectors (“Tribunal Order”). Aggrieved by the Tribunal Order, the Petitioners filed an appeal to the single bench of the Delhi High Court, vide a writ petition (C) No. 7571 of 2014 & CM No. 17864 of 2014. The single judge of the Delhi High Court, vide its order dated April 20, 2015 set aside the award of the Tribunal concerning payment of gratuity to the daily deposit collectors. Our Bank along with other Banks preferred a letters patents appeal numbered 429/2015 with the division bench of the High Court which, vide its order dated October 5, 2015 which affirmed the award of the Central Government Industrial Tribunal, Delhi (“Tribunal”) dated October 7, 2013 but modified the order of the Tribunal to make it prospective and not retrospective in operation from July, 19, 2005 as passed by the Tribunal in its award set aside the retrospective application of the Tribunal award. Aggrieved, the Petitioner, filed a Special Leave Petition before the Supreme Court against a common final judgment passed by the Division Bench of the High Court of Delhi. The matter is currently pending.

5. The All India Bank Deposit Collectors Workmen Union Mysore and All India Bank Deposit Collectors Federation (collectively “Petitioners”) filed a writ petition bearing number 25013/2015 dated June 15, 2015 before the High Court of Karnataka against our Bank as part of the Indian Bank Associations to issue a writ of certiorari or any other writ for quashing the 10th bipartite memorandum of settlement on wage revision dated May 25, 2015 between the managements of 43 banks including our Bank as represented by the Indian Bank Employees Association, National Confederation of Bank Employees, Bank Employees Federation of India and National Organization of Bank Workers & Indian National Bank Employees Federation. The Central Government Industrial Tribunal, New Delhi (“CGIT”), vide an order dated October 7, 2013, had passed an award for fall back of wages, incentive remuneration besides conveyance allowances and also for gratuity (“Award”). As per the Award, the Petitioners were entitled to receive fall back wages of ` 8,000 per month besides conveyance allowance of ` 750 per month. As per the Award, on a collection of ` 0.03 crore up to ` 0.05 crore, all deposit collectors, irrespective of their areas of operation, will earn incentive remuneration of 3%. The Award also stated that on a collection of over and above ` 0.05 crore, a deposit collector would get incentive remuneration of 2%. Further, stated that in case of failure of a deposit collector to meet the minimum standard of collection for two quarters of a year, such deposit collectors’ contract of service would be terminated by the bank without notice. The Petitioners were also entitled to ` 4000 per annum as gratuity as per the Award. The CGIT also ruled that the Award would have retrospective effect from July 19, 2005. The Award was modified by the CGIT on June 2, 2014 to allow collectors operating in area A, B and C to collect ` 0.03 crore, ` 0.04 crore and ` 0.05 crore per month respectively. On breach of the Award, the Petitioners filed a complaint dated September 1, 2014 under section 29 of the Industrial Disputes Act, 1947 before the Chief Labour Commissioner (“Commissioner”). Since, the banks did not take action as directed by the Commissioner, the Petitioners further filed a private complaint bearing number 2760 of 2014 dated September 30, 2014 against the Indian Bank Associations before the Additional Judicial Magistrate First Class Court, Mysore for committing breach of the Award. Instead of implementing the Award, the banks after discussion with their workmen union (other than the Petitioner’s union) and officer’s association entered into a 10th Bipartite Memorandum of Settlement on May 25, 2015 which would be a financial burden of ` 4,725 crore per year (“Memorandum”).Aggrieved by the Memorandum the Petitioner filed a writ petition to quash it. The matter is currently pending. iv) Show-Cause Notices issued by the RBI

1. The RBI vide an order dated December 1, 2015, imposed a penalty of ` 6, 300 on our Bank towards discrepancies detected while processing the soiled note remittances received from

our currency chest/s in our Currency Verification and Processing System (CVPS) (“Order”). As per the Order, our Bank violated para 3(a) of the Master Circular DCM (CC) No. G-5/03.39.01/2014-15 dated July 1, 2014.

2. The RBI carried out an annual financial inspection of our Bank with reference to our position as on September 30, 2009 and also carried out a scrutiny of our derivative transactions and noticed irregularities on the basis of which the RBI issued a show-cause notice dated May 26, 2010 to our Bank (“SCN”). Our Bank, vide letter dated June 2, 2010, replied to the SCN. The RBI, vide letter dated November 9, 2010 (received by our Bank on November 15, 2010), responded to our Bank’s reply, whereby our Bank was called upon to show-cause why a penalty of ` 0.05 crore for each contravention of the comprehensive guidelines on derivatives issued by the RBI (“Directions”) should not be imposed on us for irregularities in the manner in which certain derivative transaction(s) were entered into and monitored by us (“Notice”). During the annual financial inspection and scrutiny of derivative transactions by the RBI, it was observed that:

(i) Our Bank failed to carry out due diligence regarding user appropriateness and suitability of products before offering derivative products to users which was in violation of the Directions;

(ii) Our Bank failed in documenting the process of determining the pricing and periodical evaluations and merely relied on Calyon Bank for pricing and valuation of products and did not have any system to measure, monitor, control and manage the risks in derivative transactions which was in violation of the Directions; and

(iii) Our Bank appears to have failed to comply with the requirements regarding restructuring of derivative products in as much as restructuring deals were not cash settled.

Our Bank responded to the Notice on November 26, 2010 (“Reply”) praying that the proposal to impose penalty may be dropped and requested for a personal hearing in the matter. Our Bank stated in the Reply that it offered the derivative transactions to its customers of high repute only on their specific request and with back to back cover from counterparty Bank (i.e. Caylon Bank). Further, our Bank stated that it has put in place various systems and procedures for managing and monitoring the derivative portfolio and conducts stress testing of both the default risk and the Mark-to-Market (“MTM”) at periodic intervals. Further, it was stated in the Reply that our Bank has the expertise to predict the likely future market scenarios, which was sufficient to measure the risk in underlying transactions. Further, it was also clarified that our Bank has not restructured deals after the issue of circular by RBI on restructuring of derivative contracts in October 2008. Cancellation of deals was made by paying the termination price quoted by the counter party Bank.

Our Bank was granted a personal hearing for the subject matter of Notice on December 15, 2010 wherein our Bank has clarified their above stand to the RBI. The RBI, taking into account our written submissions dated November 26, 2010 and the oral submissions on December 15, 2010, via a speaking order dated September 9, 2011, upheld its penalty of ` 0.05 crore.

B. Outstanding proceedings initiated by our Bank

(i) Criminal Matters

1. There are 20 proceedings filed by our Bank under section 138 of the Negotiable Instruments Act, 1881, relating to dishonor of cheques received from our customers in various courts. The aggregate of claim amounts filed by our Bank is approximately ` 1.22 crore.

2. There are 181 First Information Reports (FIR) filed by our Bank relating to instances of frauds committed by our borrowers against our Bank. The aggregate of amount involved in these matters is ` 79.74 crore.

(ii) Civil Proceedings

1. Roofit Industries Limited (“RIL”), a public limited company engaged in manufacture of AC sheets, pipes and other building materials, availed credit from a consortium of Banks (“Consortium”). The Consortium consisted of our Bank with eleven other Banks. On account of losses incurred by RIL, it closed down the unit for which the working capital loan was availed. On default of payment by RIL, the Consortium filed an application before the Debt Recovery Tribunal (“DRT”), Mumbai on February 6, 2004 for recovery of dues. Consequently, RIL made a reference under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (“Act”) based on its audited balance sheet as on June 30, 2002 which was rejected by the Board for Industrial and Financial Reconstruction (“BIFR”) vide order dated September 17, 2003. RIL filed an appeal under section 25 of the Act with appeal numbered 387/2003 to the Appellate Authority for Industrial and Financial Reconstruction (“AAFIR”). The AAIFR, vide its order dated February 13, 2006 remanded the case to the BIFR. The BIFR, vide its order dated February 16, 2010, bearing case number 473/2002 held that held that based on special investigative audit conducted the company’s net worth is positive as on June 30, 2002 (“BIFR Order”). Aggrieved by the BIFR Order, RIL filed an appeal bearing numbers 125/10 and 10/11 before the AAFIR. The AAFIR, vide an order dated January 19, 2016, allowed proceedings at DRT to continue on the condition that no decree would be executed or coercive proceedings would be undertaken by the banks for recovery of dues in pursuance of proceedings before DRT without prior permission of the BIFR or AAIFR. The amount involved in the matter is 44.83 crore. The matter is currently pending.

2. M/s. Shree Ganesh Jewelry House (I) Limited (“Defendant”), a company engaged in the manufacturing of hand crafted gold jewellery for the purpose of exporting the gold items to overseas buyers availed credit facilities from our Bank towards working capital finances for its business by way of renewal of post shipment credit limit of ` 100 crore and removal of credit line for forward contract limit of ` 2.00 crore. In the personal capacities, two directors of the Defendant (“Guarantors”) guaranteed the entire money advanced by our Bank along with interest and indebtedness and liabilities incurred by the Defendant. Our Bank along with a consortium of banks on May 25, 2013 renewed the credit facilities of the Defendants, with an overall limit of ` 3,724 crore and our Bank’s share was `102 crore and entered into a joint deed of hypothecation with the Defendants. The Defendant and the Guarantors failed to pay the dues payable by them. Our Bank issued a demand notice dated August 19, 2015 to the Defendants demanding payment of ` 82.95 crore. Our Bank filed an application dated April 13, 2016 before the Debts Recovery Tribunal-I, Kolkata for recovery of dues. The matter is currently pending.

3. Our Bank issued a demand notice dated July 16, 2012 under section 13(2) read with section 13(3) of the SARFAESI Act against M/s Nav Bharat International Ltd and others (collectively “Debtors”) for non-payment of ` 75.75 crore with monthly compounded interest and cost incurred, in relation to credit facilities sanctioned by our Bank to the Debtors, failing which our Bank would proceed against the security property. The matter is currently pending.

4. A demand notice dated January 18, 2012 was issued under section 13(2) of the SARFAESI Act to M/s. Zoom Developers Pvt. Ltd. (“Debtors”) by the United Bank of India for demand of repayment of various credit limits issued by a consortium banking agreement that our Bank was a party to. The total dues payable by the Debtors

to our Bank amounted to ` 67.27 crore as on September 12, 2011. The matter is currently pending.

5. Our Bank issued a demand notice dated June 13, 2016 under section 13(2) read with section 13(3) of the SARFAESI Act to M/s Sri Krishna Shelters Pvt Ltd, Mr Raghavendra. K.A and Mrs Srilakshmi .T.S (collectively “Debtors”) for non-payment of ` 86.08 crore with interest, in relation to credit facilities sanctioned by our Bank to the Debtors, failing which our Bank would proceed against the security property. The matter is currently pending.

6. Our Bank issued a demand notice dated March 19, 2016 under section 13(2) read with section 13(3) of the SARFAESI Act to M/s Ginni Gold Pvt Ltd, Mrs Jyoti Goel, Mrs Ginni Devi, Mrs Reena Goel, Mr Jai Singh Goel, Mr Praveen Goel, Mr Rajendra Kumar Ratwal, Mrs Durga Ratwal, M/s Bhavya Gold Pvt Ltd and M/s S K G Door Pvt Ltd (collectively “Debtors”) for non-payment of ` 51.37 crore with interest, in relation to credit facilities sanctioned by our Bank through Union Bank of India, to the Debtors, failing which our Bank would proceed against the security property. The matter is currently pending.

7. Our Bank issued a demand notice dated June 1, 2016 under section 13(2) read with section 13(3) of the SARFAESI Act against M/s Rathi Super Steel Limited (“Debtors”) for non-payment of ` 43.82 crore with monthly compounded interest and cost incurred, in relation to credit facilities sanctioned by our Bank through Dena Bank consortium to the Debtors, failing which our Bank would proceed against the security property. The matter is currently pending.

8. Our Bank filed an application dated January 15, 2016 before the Debt Recovery Tribunal-II, Delhi under section 19 of the Debts Due to Banks and Financial Institutions Act, 1993 through Punjab National Bank for the consortium of banks against M/s. Hanung Toys & Textiles Limited and others (“Defendant”). The amount owed to our Bank was ` 41.34 crore. The Defendant was availing loan facilities from our Bank and other banks from the year 1999. However, since the year 2002 the Defendant was borrowing from a consortium of 16 other Banks. The matter is currently pending.

9. Our Bank issued a demand notice dated August 20, 2016 under section 13(2) read with section 13(3) of the SARFAESI Act against M/s Sunar Jewels Pvt Ltd, Mr Praveen Kumar Goel, Mrs Jyoti Goel, Mr Jai Singh Goel, Mrs Ginni Devi, Mr Pradeep Kumar Goel, Mr Ashok Kumar Goel and M/s Bhavya Gold Pvt Ltd (collectively “Debtors”) for non-payment of ` 48.37 crore with interest, in relation to credit facilities sanctioned by our Bank to the Debtors, failing which our Bank would proceed against the security property. Thereafter, our Bank filed an original application bearing number 596/2016 before the Debts Recovery Tribunal-III, New Delhi. The matter is currently pending.

10. Our Bank, through a consortium of banks led by Bank of India issued a demand notice dated September 29, 2016 under section 13(2) read with section 13(3) of the SARFAESI Act against M/s. Shrenuj & Company Limited (“Debtor”) for non- payment of ` 69.12 crore along with interest with effect from September 1, 2016 and cost charges and expenses, in relation to credit facilities sanctioned by our Bank to the Debtor, failing which our Bank would proceed against the security property. The matter is currently pending.

C. Other Material Litigations

1. There are three cases involving transfer of shares where our Bank has been made a party and has been asked not to transfer shares involved in such disputes.

GOVERNMENT AND OTHER APPROVALS

We have received the necessary consents, licenses, permissions and approvals from the Government of India and various governmental agencies required for our present business and to undertake the Issue and no further material approvals are required for carrying on our present activities. In addition, as on the date of this Letter of Offer, there are no pending regulatory and government approvals and no pending material renewals of licenses or approvals in relation to the current business activities undertaken by us or in relation to the Issue.

Approvals for the Issue:

1. Board resolutions dated August 5, 2016 approving the Issue.

2. In-principle approval from BSE dated October 6, 2016.

3. In-principle approval from NSE dated October 10, 2016.

4. Letter bearing reference number FED.CO.FID.NO. 2970/10.21.382/2016-17 dated September 19, 2016, received from the RBI, approving the renunciation of rights entitlement by and to persons resident outside India.

OTHER REGULATORY AND STATUTORY DISCLOSURES

Authority for the Issue

The Issue has been authorised by a resolution of our Board passed at its meeting held on August 5, 2016 pursuant to Section 62 of the Companies Act, 2013. The Issue Price of ` 70 for the Rights Equity Shares has been determined by the Board and the Rights Entitlement is one (1) Rights Equity Shares for every two (2) fully paid- up Equity Shares held on the Record Date. The Issue Price has been arrived at in consultation with the Lead Manager. Our Bank has received approvals from the BSE and the NSE under Regulation 28 of the Listing Regulations for listing of the Rights Equity Shares to be allotted in the Issue pursuant to their letters, dated October 6, 2016 and October 10, 2016, respectively.

Prohibition by RBI, SEBI or other governmental authorities

Neither our Bank, nor its Directors or companies with which our Bank’s Directors are associated with as directors or promoters, have been prohibited from accessing or operating in the capital markets or restrained from buying, selling or dealing in securities under any order or direction passed by SEBI or any other regulatory or governmental authority.

Further, neither our Bank nor the Directors have been declared as willful defaulters in terms of the SEBI Regulations. Accordingly, no disclosures have been made pursuant to the requirements of Regulation 4(6) read with Part G of Schedule VIII of the SEBI Regulations.

Other than pursuant to their directorship in our Bank, none of our Directors are associated with the securities market in any manner, including securities market related business, except as follows:

Mr. U.R Bhat

1 Name of the entity : Edelweiss Asset Management Limited (“EAML”)

2. Registration Number : Edelweiss Mutual Fund (“EML”) is registered with SEBI with registration number MF/057/08/02. EAML does not have a separate SEBI registration number. However SEBI, vide its letter dated May 2, 2008, granted its approval to EAML to act as an asset management company to the EML.

3. If Registration has expired, reasons for non-renewal : NA

4. Details of any enquiry/investigation conducted by : Nil SEBI at any time

5. Penalty imposed by SEBI (Penalty includes : There are no penalties imposed by SEBI. deficiency/warning letter, adjudication proceedings, However, EAML/EML are in receipt of suspension/cancellation / prohibitory orders) certain administrative instructions/warnings from SEBI

6. Outstanding fees payable to SEBI by the entity, if any : Nil

1 Name of the entity : Axis Asset Management Company Limited

2. Registration Number : Registration number for PMS business: INP000003534

Registration number for mutual fund business: MF/061/09/02

3. If Registration has expired, reasons for non-renewal : NA

4. Details of any enquiry/investigation conducted by : NA SEBI at any time

5. Penalty imposed by SEBI (Penalty includes : Nil deficiency/warning letter, adjudication proceedings, suspension/cancellation / prohibitory orders)

6. Outstanding fees payable to SEBI by the entity, if any : Nil

Further SEBI has not initiated action against any entity with which the Directors are associated.

Eligibility for the Issue

The Equity Shares of our Bank are presently listed on the BSE and NSE. It is eligible to offer Rights Equity Shares pursuant to the Issue in terms of Chapter IV of the SEBI Regulations.

Compliance with Regulation 4(2) of the SEBI Regulations

Our Bank is in compliance with the conditions specified in Regulation 4(2), to the extent applicable. Further, in relation to compliance with Regulation 4(2)(d) of the SEBI Regulations, our Bank undertakes to make an application to the Stock Exchanges for listing of the Rights Equity Shares to be issued pursuant to the Issue. Our Bank has chosen BSE as the Designated Stock Exchange for the Issue.

Compliance with Regulation 10 of the SEBI Regulations

Our Bank satisfies the following conditions specified in Regulation 10 and accordingly, our Bank is eligible to make the Issue by way of a ‘fast track issue’:

1. the Equity Shares have been listed on BSE and NSE, each being a recognised stock exchange having nationwide trading terminals, for a period of at least three years immediately preceding the date of this Letter of Offer;

2. the average market capitalisation of the public shareholding of our Bank is at least ` 250 crore;

3. the annualised trading turnover of the Equity Shares during the six calendar months immediately preceding the month of date of this Letter of Offer has been at least 2% of the weighted average number of Equity Shares listed during such six months’ period;

4. our Bank has redressed at least 95% of the complaints received from the investors till the end of the quarter immediately preceding the month of the date of this Letter of Offer;

5. our Bank has been in compliance with the Listing Agreement and/or the provisions of the Listing Regulations, as applicable, for a period of at least three years immediately preceding the date of this Letter of Offer;

6. the impact of auditor qualifications, if any, on the audited accounts of our Bank in respect of Fiscal 2016 and Fiscal 2015 does not exceed 5% of the net profit after tax for Fiscal 2016 and Fiscal 2015 respectively;

7. no show-cause notices have been issued or prosecution proceedings initiated by the SEBI or pending against our Bank or whole time directors as of the date of this Letter of Offer;

8. none of our Bank or our Directors have settled alleged violation of securities laws through the consent or settlement mechanism with SEBI in the three years immediately preceding the date of this Letter of Offer;

9. our bank has no identifiable promoter or promoter group and hence requirement of shareholding of the promoter group to be held in dematerialised form as on the date of the Letter of Offer is not applicable;

10. our bank has no identifiable promoter or promoter group and hence requirement of the promoter and members of the promoter group mandatorily subscribing to their rights entitlement and not renouncing their rights is not applicable;

11. the Equity Shares have not been suspended from trading as a disciplinary measure during the last three years immediately preceding the date of this Letter of Offer;

12. the annualised delivery based trading turnover of the Equity Shares during the six calendar months immediately preceding the month of date of this Letter of Offer has been at least 10% of the weighted average number of Equity Shares listed during such six months’ period; and

13. there is no conflict of interest between the Lead Manager and our Bank or our group companies or associates in accordance with applicable regulations.

Compliance with Part E of Schedule VIII of the SEBI Regulations

Our Bank is in compliance with the provisions specified in Clause (1) of Part E of Schedule VIII of the SEBI Regulations as explained below:

1. Our Bank has been filing periodic reports, statements and information with the Stock Exchanges in compliance with the listing agreement and/or the provisions of the Listing, as applicable, for the last three years immediately preceding the date of filing of this Letter of Offer with the Designated Stock Exchange.

2. The reports, statements and information referred to in sub-clause (a) above are available on the websites of BSE and NSE or on a common e-filing platform specified by SEBI.

3. Our Bank has an investor grievance-handling mechanism which includes meeting of the Shareholders / Investors’ Grievance Committee at frequent intervals, appropriate delegation of power by our Board as regards share transfer and clearly laid down systems and procedures for timely and satisfactory redressal of investor grievances.

As our Bank satisfies the conditions specified in Clause (1) of Part E of Schedule VIII of SEBI Regulations, disclosures in this Letter of Offer have been made in terms of Clause (5) of Part E of Schedule VIII of the SEBI Regulations.

DISCLAIMER CLAUSE OF SEBI

IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THIS LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED OR CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE LETTER OF OFFER. THE LEAD MANAGER, EDELWEISS FINANCIAL SERVICES LIMITED HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE.

IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE LETTER OF OFFER, THE LEAD MANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE ISSUER DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE, THE LEAD MANAGER, EDELWEISS FINANCIAL SERVICES LIMITED HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED OCTOBER 28, 2016 WHICH READS AS FOLLOWS:

(1) WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH COLLABORATORS, ETC. AND OTHER MATERIAL IN CONNECTION WITH THE FINALIZATION OF THE LETTER OF OFFER PERTAINING TO THE ISSUE;

(2) ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE BANK, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, AND INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS AND OTHER PAPERS FURNISHED BY THE BANK, WE CONFIRM THAT:

(a) THE LETTER OF OFFER FILED WITH SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE;

(b) ALL THE LEGAL REQUIREMENTS RELATING TO THE ISSUE AS ALSO THE REGULATIONS GUIDELINES, INSTRUCTIONS, ETC. FRAMED/ISSUED BY SEBI, THE CENTRAL GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; AND

(c) THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE AND SUCH DISCLOSURES ARE IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT, 1956, THE COMPANIES ACT, 2013, SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 AND OTHER APPLICABLE LEGAL REQUIREMENTS.

(3) WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE LETTER OF OFFER ARE REGISTERED WITH SEBI AND THAT TILL DATE SUCH REGISTRATION IS VALID;

(4) WE HAVE SATISFIED OURSELVES ABOUT THE CAPABILITY OF THE UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS – NOT APPLICABLE. THE ISSUE IS NOT UNDERWRITTEN.

(5) WE CERTIFY THAT WRITTEN CONSENT FROM THE PROMOTERS HAS BEEN OBTAINED FOR INCLUSION OF THEIR SPECIFIED SECURITIES AS PART OF PROMOTER’S CONTRIBUTION SUBJECT TO LOCK-IN AND THE SPECIFIED SECURITIES PROPOSED TO FORM PART OF PROMOTER’S CONTRIBUTION SUBJECT TO LOCK-IN SHALL NOT BE DISPOSED / SOLD / TRANSFERRED BY THE PROMOTER DURING THE PERIOD STARTING FROM THE DATE OF FILING THE LETTER OF OFFER WITH SEBI TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE LETTER OF OFFER – NOT APPLICABLE.

(6) WE CERTIFY THAT REGULATION 33 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 WHICH RELATES TO SPECIFIED SECURITIES INELIGIBLE FOR COMPUTATION OF PROMOTERS’ CONTRIBUTION, HAS BEEN DULY COMPLIED WITH AND APPROPRIATE DISCLOSURES AS TO COMPLIANCE WITH THE SAID REGULATION HAVE BEEN MADE IN THE LETTER OF OFFER – NOT APPLICABLE.

(7) WE UNDERTAKE THAT SUB-REGULATION (4) OF REGULATION 32 AND CLAUSE (C) AND (D) OF SUB-REGULATION (2) OF REGULATION 8 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 SHALL BE COMPLIED WITH. WE CONFIRM THAT ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS’ CONTRIBUTION SHALL BE RECEIVED AT LEAST ONE DAY BEFORE THE OPENING OF THE ISSUE. WE UNDERTAKE THAT THE AUDITOR’S CERTIFICATE TO THIS EFFECT

SHALL BE DULY SUBMITTED TO SEBI. WE FURTHER CONFIRM THAT ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT PROMOTERS’ CONTRIBUTION SHALL BE KEPT IN AN ESCROW ACCOUNT WITH A SCHEDULED COMMERCIAL BANK AND SHALL BE RELEASED TO THE BANK ALONG WITH THE PROCEEDS OF THE ISSUE – NOT APPLICABLE.

(8) WE CERTIFY THAT THE PROPOSED ACTIVITIES OF THE BANK FOR WHICH THE FUNDS ARE BEING RAISED IN THE PRESENT ISSUE FALL WITHIN THE ‘MAIN OBJECTS’ LISTED IN THE OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION OR OTHER CHARTER OF THE BANK AND THAT THE ACTIVITIES WHICH HAVE BEEN CARRIED OUT UNTIL NOW ARE VALID IN TERMS OF THE OBJECT CLAUSE OF ITS MEMORANDUM OF ASSOCIATION;

(9) WE CONFIRM THAT NECESSARY ARRANGEMENTS HAVE BEEN MADE TO ENSURE THAT THE MONEYS RECEIVED PURSUANT TO THE ISSUE ARE KEPT IN A SEPARATE BANK ACCOUNT AS PER THE PROVISIONS OF SUB-SECTION (3) OF SECTION 40 OF THE COMPANIES ACT, 2013 AND THAT SUCH MONEYS SHALL BE RELEASED BY THE SAID BANK ONLY AFTER PERMISSION IS OBTAINED FROM ALL THE STOCK EXCHANGES MENTIONED IN THE LETTER OF OFFER. WE FURTHER CONFIRM THAT THE AGREEMENT ENTERED INTO BETWEEN THE BANKER TO THE ISSUE AND THE BANK SPECIFICALLY CONTAINS THIS CONDITION – NOT APPLICABLE. THIS BEING A RIGHTS ISSUE, SECTION 40(3) OF THE COMPANIES ACT 2013 IS NOT APPLICABLE. FURTHER, TRANSFER OF MONIES RECEIVED PURSUANT TO THE ISSUE SHALL BE RELEASED TO THE BANK AFTER FINALISATION OF THE BASIS OF ALLOTMENT IN COMPLIANCE WITH REGULATION 56 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009.

(10) WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE LETTER OF OFFER THAT THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE EQUITY SHARES IN DEMAT OR PHYSICAL MODE - COMPLIED WITH

(11) WE CERTIFY THAT ALL THE APPLICABLE DISCLOSURES MANDATED IN THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 HAVE BEEN MADE IN ADDITION TO DISCLOSURES WHICH, IN OUR VIEW, ARE FAIR AND ADEQUATE TO ENABLE THE INVESTOR TO MAKE A WELL INFORMED DECISION - COMPLIED WITH

(12) WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THE LETTER OF OFFER:

(a) AN UNDERTAKING FROM THE BANK THAT AT ANY GIVEN TIME, THERE SHALL BE ONLY ONE DENOMINATION FOR THE EQUITY SHARES OF THE BANK; AND

(b) AN UNDERTAKING FROM THE BANK THAT IT SHALL COMPLY WITH SUCH DISCLOSURE AND ACCOUNTING NORMS SPECIFIED BY SEBI FROM TIME TO TIME.

(13) WE UNDERTAKE TO COMPLY WITH THE REGULATIONS PERTAINING TO ADVERTISEMENT IN TERMS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 WHILE MAKING THE ISSUE – NOTED FOR COMPLIANCE

(14) WE ENCLOSE A NOTE EXPLAINING HOW THE PROCESS OF DUE DILIGENCE HAS BEEN EXERCISED BY US IN VIEW OF THE NATURE OF CURRENT BUSINESS BACKGROUND OF THE ISSUER, SITUATION AT WHICH THE PROPOSED BUSINESS STANDS, THE RISK FACTORS, PROMOTERS’ EXPERIENCE, ETC. - COMPLIED WITH TO THE EXTENT APPLICABLE

(15) WE ENCLOSE A CHECKLIST CONFIRMING REGULATION-WISE COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 CONTAINING DETAILS SUCH AS THE REGULATION NUMBER, ITS TEXT, THE STATUS OF COMPLIANCE, PAGE NUMBER OF THE LETTER OF OFFER WHERE THE REGULATION HAS BEEN COMPLIED WITH AND OUR COMMENTS, IF ANY - COMPLIED WITH

(16) WE ENCLOSE STATEMENT ON ‘PRICE INFORMATION OF PAST ISSUES HANDLED BY THE MERCHANT BANKERS (WHO ARE RESPONSIBLE FOR PRICING THIS ISSUE)’, AS PER FORMAT SPECIFIED BY SEBI – NOT APPLICABLE FOR A RIGHTS ISSUE

(17) WE CERTIFY THAT PROFITS FROM RELATED PARTY TRANSACTIONS HAVE ARISEN FROM LEGITIMATE BUSINESS TRANSACTIONS – COMPLIED WITH TO THE EXTENT OF RELATED PARTY TRANSACTIONS REPORTED, IN ACCORDANCE WITH ACCOUNTING STANDARD 18, IN THE AUDITED FINANCIAL STATEMENTS OF THE BANK INCLUDED IN THIS LETTER OF OFFER

(18) WE CERTIFY THAT THE ENTITY IS ELIGIBLE UNDER 106Y (1) (A) OR (B) (AS THE CASE MAY BE) TO LIST ON THE INSTITUTIONAL TRADING PLATFORM, UNDER CHAPTER XC OF THESE REGULATIONS (IF APPLICABLE) - NOT APPLICABLE

(19) WE CONFIRM THAT NONE OF THE INTERMEDIARIES NAMED IN THE LETTER OF OFFER HAVE BEEN DEBARRED FROM FUNCTIONING BY ANY REGULATORY AUTHORITY - COMPLIED WITH AND NOTED FOR COMPLIANCE.

(20) WE CONFIRM THAT THE BANK IS ELIGIBLE TO MAKE FAST TRACK ISSUE IN TERMS OF REGULATION 10 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009. THE FULFILMENT OF THE ELIGIBILITY CRITERIA AS SPECIFIED IN THAT REGULATION, BY THE BANK, HAS ALSO BEEN DISCLOSED IN THE LETTER OF OFFER - COMPLIED WITH

(21) WE CONFIRM THAT ALL THE MATERIAL DISCLOSURES IN RESPECT OF THE BANK HAVE BEEN MADE IN THE LETTER OF OFFER AND CERTIFY THAT ANY MATERIAL DEVELOPMENT IN THE BANK OR RELATING TO THE ISSUE, UP TO THE COMMENCEMENT OF LISTING AND TRADING OF THE SPECIFIED EQUITY SHARES OFFERED THROUGH THIS ISSUE SHALL BE INFORMED THROUGH PUBLIC NOTICES / ADVERTISEMENTS IN ALL THOSE NEWSPAPERS IN WHICH THE PRE-ISSUE ADVERTISEMENT AND ADVERTISEMENT FOR OPENING OR CLOSURE OF THE ISSUE HAVE BEEN GIVEN – COMPLIED WITH AND NOTED FOR COMPLIANCE

(22) WE CONFIRM THAT THE ABRIDGED LETTER OF OFFER PREPARED IN CONNECTION WITH THE ISSUE CONTAINS ALL THE DISCLOSURES AS SPECIFIED IN THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 - COMPLIED WITH

(23) WE CONFIRM THAT AGREEMENTS HAVE BEEN ENTERED INTO WITH THE DEPOSITORIES FOR DEMATERIALISATION OF THE EQUITY SHARES OF THE BANK - COMPLIED WITH

(24) WE CERTIFY THAT AS PER THE REQUIREMENTS OF FIRST PROVISO TO SUB- REGULATION (4) OF REGULATION 32 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, THE CASH FLOW STATEMENT HAS BEEN PREPARED AND DISCLOSED IN THE LETTER OF OFFER – NOT APPLICABLE

THE FILING OF THE LETTER OF OFFER DOES NOT, HOWEVER, ABSOLVE OUR BANK FROM ANY LIABILITIES UNDER SECTION 34 OR SECTION 36 OF THE COMPANIES ACT, 2013 OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCE AS MAY BE

REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE RIGHT TO TAKE UP, AT ANY POINT OF TIME, WITH THE LEAD MANAGER ANY IRREGULARITIES OR LAPSES IN THE LETTER OF OFFER.

Disclaimer clauses from our Bank and the Lead Manager

Our Bank and the Lead Manager accept no responsibility for statements made otherwise than in this Letter of Offer or in any advertisement or other material issued by our Bank or by any other persons at the instance of our Bank and anyone placing reliance on any other source of information would be doing so at his own risk.

Investors who invest in the Issue will be deemed to have represented to our Bank, the Lead Manager and their respective directors, officers, agents, affiliates and representatives that they are eligible under all applicable laws, rules, regulations, guidelines and approvals to acquire Rights Equity Shares, and are relying on independent advice / evaluation as to their ability and quantum of investment in the Issue.

CAUTION

Our Bank and the Lead Manager shall make all information available to the Eligible Shareholders and no selective or additional information would be available for a section of the Eligible Shareholders in any manner whatsoever including at presentations, in research or sales reports etc. after filing of this Letter of Offer.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this Letter of Offer. You must not rely on any unauthorized information or representations. This Letter of Offer is an offer to sell only the Rights Equity Shares and rights to purchase the Rights Equity Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this Letter of Offer is current only as of its date.

Disclaimer with respect to jurisdiction

This Letter of Offer has been prepared under the provisions of Indian laws and the applicable rules and regulations thereunder. Any disputes arising out of the Issue will be subject to the jurisdiction of the appropriate court(s) in Mangaluru, India only.

Designated Stock Exchange

The Designated Stock Exchange for the purpose of the Issue will be BSE.

Disclaimer Clause of BSE

As required, a copy of the Letter of Offer was submitted to the BSE. The disclaimer clause as intimated by the BSE to us is as under:

“BSE Limited (“the Exchange”) has given, vide its letter dated October 6, 2016, permission to this Company to use the Exchange’s name in this Letter of Offer as one of the stock exchanges on which the Company’s securities are proposed to be listed. The Exchange has scrutinized this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. The Exchange does not in any manner:

(i). warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer; or

(ii). warrant that this Company’s securities will be listed or will continue to be listed on the Exchange; or

(iii). take any responsibility for the financial or other soundness of this Company, its promoters, its management or any scheme or project of this Company; and it should not for any reason be deemed to be construed that this Letter of Offer has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange 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.”

Disclaimer Clause of NSE

As required, a copy of the Letter of Offer was submitted to the NSE. The disclaimer clause as intimated by the NSE to us is as under:

“As required, a copy of this letter of offer has been submitted to National Stock Exchange of India Limited (hereinafter referred to as NSE). NSE has given vide its letter Ref. No. NSE/LIST/89763 dated October 10, 2016 permission to the Issuer to use the Exchange’s name in this letter of offer as one of the stock exchanges on which this Issuer’s securities are proposed to be listed. The Exchange has scrutinised this letter of offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be deemed or construed that the letter of offer has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this letter of offer; nor does it warrant that this Issuer’s securities will be listed or will continue to be listed on the Exchange; nor does it take any responsibility for the financial or other soundness of this Issuer, its Promoter, its management or any scheme or project of this Issuer.

Every person who desires to apply for or otherwise acquire any securities of this Issuer may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange 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 any other reason whatsoever.”

Disclaimer Clause of the RBI

A license authorising our Bank to carry on banking business has been obtained from the RBI in terms of Section 22 of the Banking Regulation Act. It must be distinctly understood, however, that in issuing the license the RBI does not undertake any responsibility for the financial soundness of our Bank.

Selling Restrictions

The distribution of this Letter of Offer and the issue of Rights Equity Shares on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. Our Bank is making the Issue on a rights basis to the Eligible Shareholders of our Bank and will dispatch this Letter of Offer/ Abridged Letter of Offer and CAF only to Eligible Shareholders who have provided an Indian address. No action has been or will be taken to permit the Issue in any jurisdiction, or the possession, circulation, or distribution of this Letter of Offer or any other material relating to our Bank, the Rights Equity Shares or Rights Entitlement in any jurisdiction, where action would be required for that purpose, except that this Letter of Offer has been filed with SEBI.

Accordingly, the Rights Equity Shares and Rights Entitlement may not be offered or sold, directly or indirectly, and none of this Letter of Offer or any offering materials or advertisements in connection with the Rights Equity Shares or Rights Entitlement may be distributed or published in any jurisdiction, except in accordance with legal requirements applicable in such jurisdiction. Receipt of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer.

This Letter of Offer and its accompanying documents are being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, in whole or in part, to any other person or published, in whole or in part, for any purpose.

If this Letter of Offer is received by any person in any jurisdiction where to do so would or might contravene local securities laws or regulation, or by their agent or nominee, they must not seek to subscribe to the Rights Equity Shares or the Rights Entitlement referred to in this Letter of Offer. Investors are advised to consult their legal counsel prior to applying for the Rights Entitlement and Rights Equity Shares or accepting any provisional allotment of Rights Equity Shares, or making any offer, sale, resale, pledge or other transfer of the Rights Equity Shares or Rights Entitlement.

Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create any

implication that there has been no change in our Bank’s affairs from the date hereof or the date of such information or that the information contained herein is correct as of any time subsequent to this date or the date of such information.

IMPORTANT INFORMATION FOR INVESTORS – ELIGIBILITY AND TRANSFER RESTRICTIONS

As described more fully under the caption “Notice to Overseas Shareholders” there are certain restrictions regarding the Rights Entitlements and Rights Equity Shares that affect certain Eligible Shareholders.

The Rights Entitlements and Rights Equity Shares have not been and will not be registered under the Securities Act, or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred within the United States (as defined in Regulation S) or to, or for the account or benefit of, “U.S. persons” (as defined in Regulation S) except in a transaction not subject to, or exempt from, the registration requirements of the Securities Act.

The Rights Entitlements and Rights Equity Shares are being offered and sold only to persons who are outside the United States (as defined in Regulation S) and are not “U.S. persons” (as defined in Regulation S), nor persons acquiring for the account or benefit of “U.S. persons” (as defined in Regulation S), in offshore transactions in reliance on Regulation S and the applicable laws of the jurisdiction where those offers and sales occur. All persons who acquire the Rights Entitlements or Rights Equity Shares are deemed to have made the representations included elsewhere in this Letter of Offer. In addition, until the expiry of 40 days after the commencement of the Issue, an offer or sale of Rights Entitlement or Rights Equity Shares within the United States by a dealer (whether or not it is participating in the Issue) may violate the registration requirements of the Securities Act.

Rights Equity Shares and Rights Entitlements Offered and Sold in the Issue

Each investor acquiring the Rights Entitlements or Rights Equity Shares, by its acceptance of this Letter of Offer and of the Rights Entitlements or Rights Equity Shares, will be deemed to have acknowledged, represented to and agreed with us and the Lead Manager that it has received a copy of this Letter of Offer and such other information as it deems necessary to make an informed investment decision and that:

(1) the investor is authorised to consummate the purchase of the Rights Entitlements or Rights Equity Shares in compliance with all applicable laws and regulations;

(2) the Rights Entitlements and Rights Equity Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and, accordingly, may not be offered, sold, pledged or otherwise transferred in or into the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act;

(3) the investor is purchasing the Rights Entitlements or Rights Equity Shares in an “offshore transaction” within the meaning of Regulation S;

(4) the investor and the person, if any, for whose account or benefit the purchaser is acquiring the Rights Entitlements or Rights Equity Shares, was located outside the United States (as defined in Regulation S) at each time (i) the offer was made to it and (ii) when the buy order for such Rights Entitlements or Rights Equity Shares was originated;

(5) the investor is not subscribing for the Rights Entitlements or Rights Equity Shares with a view to the offer, sale, allotment, exercise, resale, renouncement, pledge, transfer, delivery, directly or indirectly, of any such Rights Entitlements or Rights Equity Shares into the United States (as defined in Regulation S); and

(6) the investor agrees that neither the investor, nor any of its affiliates, nor any person acting on behalf of the investor or any of its affiliates, has been offered the Rights Entitlements of Rights Equity Shares by means of any “directed selling efforts” as defined in Regulation S.

Filing

This Letter of Offer is being filed with the Designated Stock Exchange as per the provisions of the SEBI Regulations. Further, in terms of Regulation 6(4) of the SEBI Regulations, our Bank will simultaneously while filing this Letter of Offer with the Designated Stock Exchange, file a copy of this Letter of Offer with SEBI.

Issue Expenses

Investor Grievances and Redressal System

Our Bank has adequate arrangements for the redressal of investor complaints in compliance with the corporate governance requirements under the Listing Regulations.

Our Bank has a Stakeholders’ Relationship Committee which currently comprises of Mr. Ashok Haranahally, Mr. Rammohan Rao Belle and Mr. Keshav K Desai. The broad terms of reference include redressal of investors’ complaints pertaining to share / debenture transfers, non-receipt of annual reports, interest / dividend payments, issue of duplicate certificates etc. We have been registered with the SEBI Complaints Redress System (SCORES) as required by the SEBI Circular no. CIR/ OIAE/ 2/ 2011 dated June 3, 2011. Consequently, investor grievances are tracked online by our Bank.

The Investor complaints received by our Bank are disposed off within 15 days from the date of receipt of the complaint.

Status of outstanding investor complaints in relation to our Bank

As on the date of this Letter of Offer, there were no outstanding investor complaints.

Investor Grievances arising out of the Issue

Our Bank’s investor grievances arising out of the Issue will be handled by Integrated Enterprises (India) Limited, the Registrar to the Issue. The Registrar will have a separate team of personnel handling only post-Issue correspondence.

The agreement between our Bank and the Registrar will provide for retention of records with the Registrar for a period of at least three years from the last date of dispatch of Allotment Advice/ demat credit/ refund order to enable the Registrar to redress grievances of Investors.

All grievances relating to the Issue may be addressed to the Registrar or the SCSB in case of ASBA Applicants giving full details such as folio number / demat account number, name and address, contact telephone / cell numbers, email id of the first Applicant, number of Rights Equity Shares applied for, CAF serial number, amount paid on application and the name of the bank and the branch where the application was deposited, along with a photocopy of the acknowledgement slip. In case of renunciation, the same details of the Renouncee should be furnished.

The average time taken by the Registrar for attending to routine grievances will be 7 to 10 days from the date of receipt of complaints. In case of non-routine grievances where verification at other agencies is involved, it would be the endeavour of the Registrar to attend to them as expeditiously as possible. Our Bank undertakes to resolve the investor grievances in a time bound manner.

Registrar to the Issue

Integrated Enterprises (India) Limited No 30 Ramana Residency, 4th Cross, Sampige Road, Malleswaram, Bengaluru 560 003 Telephone: + 91 (80) 23460815-818 Facsimile: + 91 (80) 23460819 E-mail: [email protected] Investor Grievance E-mail: [email protected] Website: www.integratedindia.in Contact Person: Mr. S. Vijayagopal/ Mr. E.T Balaji SEBI Registration No: INR 000000544

Investors may contact the Company Secretary and Compliance Officer at the below mentioned address and/ or Registrar to the Issue at the above mentioned address in case of any pre-Issue/ post -Issue related problems such as non receipt of allotment advice/share certificates/ demat credit/refund orders etc.

SECTION VIII: ISSUE INFORMATION

TERMS OF THE ISSUE

The Rights Equity are subject to the terms and conditions contained in the Letter of Offer, the Abridged Letter of Offer, the Composite Application Form, the Split Application Form, the Memorandum of Association and Articles of Association of our Bank, and the provisions of the Companies Act, FEMA, the guidelines and regulations issued by SEBI, the guidelines and regulations issued by the RBI, the guidelines, notifications and regulations for the issue of capital and for listing of securities issued by the Government of India and other statutory and regulatory authorities from time to time, approvals, if any, from the RBI or other regulatory authorities, the Listing Regulations and terms and conditions as stipulated in the allotment advice or security certificate.

Please note that, in terms of SEBI circular CIR/CFD/DIL/1/2011 dated April 29, 2011, all QIB Applicants, Non- Institutional Investors and other Applicants whose application amount exceeds ` 2,00,000, complying with the eligibility conditions of SEBI circular SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009, can participate in the Issue only through the ASBA process. The Investors who are not (i) QIBs, (ii) Non-Institutional Investors or (iii) Investors whose application amount is more than ` 2,00,000, can participate in the Issue either through the ASBA process or the non ASBA process. Renouncees are not eligible ASBA investors and must only apply for the Rights Equity Shares through the non ASBA process irrespective of the application value. ASBA Investors should note that the ASBA process involves application procedures that may be different from the procedure applicable to non ASBA process. ASBA Investors should carefully read the provisions applicable to such applications before making their application through the ASBA process. Please see “Terms of the Issue – Procedure for Application” on page 96.

Please note that subject to SCSBs complying with the requirements of SEBI circular No. CIR/CFD/DIL/13/2012 dated September 25, 2012 within the periods stipulated therein, ASBA applications may be submitted at all branches of the SCSBs.

Further, in terms of the SEBI circular CIR/CFD/DIL/1/2013 dated January 2, 2013, it is clarified that for making applications by banks on own account using ASBA facility, SCSBs should have a separate account in own name with any other SEBI registered SCSB(s). Such account shall be used solely for the purpose of making application in public issues / rights issues and clear demarcated funds should be available in such account for applications under ASBA process. SCSBs applying in the Issue using the ASBA facility shall be responsible for ensuring that they have a separate account in their own name with any other SCSB having clear demarcated funds for applying in the Issue and that such separate account shall be used as the ASBA Account for the application, for ensuring compliance with the applicable regulations.

All rights/obligations of the Eligible Shareholders in relation to application and refunds pertaining to the Issue shall apply to the Renouncee(s) as well.

Authority for the Issue

The Issue to our Eligible Shareholders with a right to renounce is being made pursuant to a resolution passed by Board of Directors on August 5, 2016, pursuant to Section 62 of the Companies Act.

Basis for the Issue

The Rights Equity Shares are being offered for subscription for cash to the Eligible Shareholders whose names appear as beneficial owners as per the list to be furnished by the Depositories in respect of the Equity Shares held in the electronic form and on the register of members of our Bank in respect of the Equity Shares held in physical form at the close of business hours on the Record Date, that is, October 25, 2016, fixed in consultation with the Designated Stock Exchange.

PRINCIPAL TERMS OF THE ISSUE

Face Value

Each Rights Equity Share will have the face value of ` 10.

Issue Price

Each Rights Equity Share is being offered at a price of ` 70 (including a premium of ` 60 per Rights Equity Share).

Rights Entitlement

As your name appears as a beneficial owner in respect of the Equity Shares held in the electronic form or appears in the register of members as an Eligible Shareholder of our Bank in respect of the Equity Shares held in physical form as on the Record Date, that is, October 25, 2016, you are entitled to the number of Rights Equity Shares as set out in Part A of the CAFs.

The distribution of the Letter of Offer / Abridged Letter of Offer and the issue of Equity Shares on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Our Bank is making the issue of Equity Shares on a rights basis to the Eligible Shareholders and the Letter of Offer/Abridged Letter of Offer and the CAFs will be dispatched only to those Eligible Shareholders who have a registered address in India. Any person who acquires Rights Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery of the Letter of Offer/Abridged Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights Entitlements, it will not be in the United States and in any other restricted jurisdiction.

Rights Entitlement Ratio

The Rights Equity Shares are being offered on a rights basis to Eligible Shareholders in the ratio of one Rights Equity Share for every two fully paid-up Equity Shares held on the Record Date.

Terms of Payment

Full amount of ` 70 per Rights Equity Share is payable on application.

Where an applicant has applied for additional Equity Shares and is allotted lesser number of Equity Shares than applied for, the excess Application Money paid shall be refunded. The monies would be refunded within 15 days from the Issue Closing Date. In the event that there is a delay of making refunds beyond such period as prescribed by applicable laws, our Bank shall pay interest for the delayed period at rates prescribed under applicable laws.

Fractional Entitlements

The Rights Equity Shares are being offered on a rights basis to Eligible Shareholders in the ratio of one Rights Equity Share for every two fully paid-up Equity Shares held as on the Record Date. For Rights Equity Shares being offered in the Issue, if the shareholding of any of the Eligible Shareholders is less than two fully paid-up Equity Shares or not in the multiple of two fully paid-up Equity Shares, the fractional entitlement of such Eligible Shareholders shall be ignored in the computation of the Rights Entitlement. However, Eligible Shareholders whose fractional entitlements are being ignored as above would be given preferential consideration for the Allotment of one additional Rights Equity Share each if they apply for additional Rights Equity Shares over and above their Rights Entitlement, if any.

Those Eligible Shareholders holding less than two fully paid-up Equity Shares, that is, holding one fully paid-up Equity Shares and therefore entitled to ‘zero’ Rights Equity Shares under the Issue shall be dispatched a CAF with ‘zero’ entitlement. Such Eligible Shareholders are entitled to apply for additional Rights Equity Shares and would be given preference in the Allotment of one additional Rights Equity Share if, such Eligible Shareholders have applied for the additional Rights Equity Shares. However, they cannot renounce the same in favour of third parties. CAFs with zero entitlement will be non-negotiable/non-renounceable.

Ranking

The Rights Equity Shares being issued shall be subject to the provisions of the Memorandum of Association and the Articles of Association. The Rights Equity Shares allotted in the Issue shall rank pari passu with the existing Equity Shares in all respects including dividends.

Mode of payment of dividend

In the event of declaration of dividend, our Bank shall pay dividend to the Eligible Shareholders as per the provisions of the Banking Regulation Act, Companies Act, provisions of the Articles of Association and guidelines issued by the RBI from time to time.

Listing and trading of Equity Shares proposed to be issued

Our existing Equity Shares are currently traded on BSE (Scrip code: 532652) and NSE (Scrip code: KTKBANK) under the ISIN INE614B01018. The fully paid-up Rights Equity Shares proposed to be issued pursuant to the Issue shall, in terms of SEBI Circular No. CIR/MRD/DP/21/2012 dated August 2, 2012, be Allotted under a temporary ISIN shall be frozen till the time final listing and trading approval is granted by the Stock Exchange. Upon receipt of such listing and trading approval, the Rights Equity Shares proposed to be issued pursuant to the Issue shall be debited from such temporary ISIN and credited in the existing ISIN and thereafter be available for trading.

The listing and trading of the Rights Equity Shares shall be based on the current regulatory framework applicable thereto. Accordingly, any change in the regulatory regime would affect the listing and trading schedule. Upon Allotment, the Rights Equity Shares shall be traded on Stock Exchanges in the demat segment only.

The Rights Equity Shares allotted pursuant to this Issue will be listed as soon as practicable and all steps for completion of the necessary formalities for listing and commencement of trading of the Rights Equity Shares shall be taken within seven Working Days of finalization of Basis of Allotment. Our Bank has received in-principle approval from BSE by way of a letter, bearing reference no. DCS/PREF/AM/IP-RT/1347/2016-17 dated October 6, 2016 and from NSE by way of a letter, bearing reference no. NSE/LIST/89763 dated October 10, 2016.

Our Bank will apply to BSE and NSE for final approval for the listing and trading of the Rights Equity Shares. No assurance can be given regarding the active or sustained trading in the Rights Equity Shares or the price at which the Rights Equity Shares will trade after the listing thereof.

If permissions to list, deal in and for an official quotation of the Rights Equity Shares are not granted by BSE and/or NSE, the Bank will forthwith repay, without interest, all moneys received from the Applicants in pursuance of the Letter of Offer. If such money is not repaid beyond eight days after the Bank becomes liable to repay it, that is, the date of refusal of an application for such a permission from a Stock Exchange, or on expiry of 15 days from the Issue Closing Date in case no permission is granted, whichever is earlier, then the Bank and every Director who is an officer in default shall, on and from such expiry of eight days, be liable to repay the money, with interest as applicable.

Rights of the Equity Shareholder

Subject to applicable laws, Equity Shareholders shall have the following rights:

1. Right to receive dividend, if declared;

2. Right to attend general meetings and exercise voting powers, unless prohibited by law;

3. Right to vote on a poll either in person or by proxy;

4. Right to receive offers for rights equity shares and be allotted bonus shares, if announced;

5. Right to receive surplus on liquidation;

6. Right of free transferability of shares; and

7. Such other rights, as may be available to a shareholder of a listed public company under the Companies Act and the Memorandum and Articles of Association.

General Terms of the Issue

Market Lot

The Equity Shares of our Bank are tradable only in dematerialized form. The market lot for Rights Equity Shares in dematerialised mode is one (1) Equity Share. In case an Eligible Shareholder holds Rights Equity Shares in physical form, our Bank would issue to the Allottees one certificate for the Rights Equity Shares allotted to each folio (“Consolidated Certificate”). Such Consolidated Certificates may be split into smaller denominations at the request of the respective shareholder.

Joint Holders

Where two or more persons are registered as the holders of any Equity Shares, they shall be deemed to hold the same as joint holders with the benefit of survivorship subject to the provisions contained in the Articles of Association.

Nomination

Nomination facility is available in respect of the Rights Equity Shares in accordance with the provisions of the Section 72 of the Companies Act. An applicant can nominate any person by filling the relevant details in the CAF in the space provided for this purpose. In case of Eligible Shareholders who are individuals, a sole Eligible Shareholder or the first named Eligible Shareholder, along with other joint Eligible Shareholder(s), if any, may nominate any person(s) who, in the event of the death of the sole Eligible Shareholder or all the joint Eligible Shareholders, as the case may be, shall become entitled to the Rights Equity Shares offered in the Issue. A person, being a nominee, becoming entitled to the Equity Shares by reason of death of the original Eligible Shareholder(s), shall be entitled to the same advantages to which he would be entitled if he or she were the registered holder of Equity Shares. Where the nominee is a minor, the Eligible Shareholder(s) may also make a nomination to appoint, in the prescribed manner, any person to become entitled to the Rights Equity Shares, in the event of death of the said Eligible Shareholder, during the minority of the nominee. A nomination shall stand rescinded upon the sale of the Rights Equity Shares by the person nominating. A transferee will be entitled to make a fresh nomination in the manner prescribed. Where the Rights Equity Shares are held by more than one person jointly, the nominee shall become entitled to all the rights in the Rights Equity Shares only in the event of death of all the joint holders. Fresh nominations can be made only in the prescribed form available on request at the Registered Office of our Bank or such other person at such addresses as may be notified by our Bank. The Investor can make the nomination by filling in the relevant portion of the CAF. In terms of Section 72 of the Companies Act or any other rules that may be prescribed under the Companies Act any person who becomes a nominee shall upon the production of such evidence as may be required by the Board, elect either:

1. to register himself or herself as the holder of the Equity Shares; or

2. to make such transfer of the Equity Shares, as the deceased holder could have made.

If the person being a nominee, so becoming entitles, elects to be registered as holders of the Rights Equity Shares himself or herself, he or she shall deliver to our Bank a notice in writing signed by him/her stating that he/she so elects and such notice shall be accompanied with the death certificate of the deceased holder.

Further, the Board may at any time give notice requiring any nominee to choose either to be registered himself or herself or to transfer the Rights Equity Shares, and if the notice is not complied with within a period of 90 days, the Board may thereafter withhold payment of all dividends, bonuses or other moneys payable in respect of the Rights Equity Shares, until the requirements of the notice have been complied with.

Only one nomination would be applicable for one folio. Hence, in case the Eligible Equity Shareholder(s) or the Investor(s), as the case may be, have already registered the nomination with our Bank, no further nomination needs to be made for Rights Equity Shares that may be allotted in this Issue under the same folio.

In case the Allotment of Rights Equity Shares is in dematerialised form, there is no need to make a separate nomination for the Rights Equity Shares to be allotted in this Issue. Nominations registered with respective DP of the applicant would prevail. Any applicant desirous of changing the existing nomination is requested to inform its respective DP.

Arrangements for Disposal of Odd Lots

Our Equity Shares are traded in dematerialised form only and therefore the marketable lot is one Equity Share and hence, no arrangements for disposal of odd lots are required.

Notices

All notices to the Eligible Shareholder(s) required to be given by our Bank shall be published in one English language national daily newspaper with wide circulation, one Hindi national daily newspaper with wide circulation and one Kannada language daily newspaper with wide circulation and/or, will be sent by post to the registered address of the Eligible Shareholders in India or the Indian address provided by the Equity Shareholders from time to time.

Procedure for Application

The CAF for the Rights Equity Shares would be printed for all Eligible Shareholders. In case the original CAF is not received by the Eligible Shareholder or is misplaced by the Eligible Shareholder, the Eligible Shareholder may request the Registrar to the Issue, for issue of a duplicate CAF, by furnishing the registered folio number, DP ID, Client ID and their full name and address. In case the signature of the Eligible Shareholder(s) does not match with the specimen registered with our Bank or the DP, the application is liable to be rejected.

Please note that neither our Bank nor the Registrar to the Issue shall be responsible for delay in the receipt of the CAF/duplicate CAF attributable to postal delays or if the CAF/duplicate CAF are misplaced in the transit. Eligible Shareholders should note that those who are making the application in such duplicate CAF should not utilize the original CAF for any purpose, including renunciation, even if the original CAF is received or found subsequently. If any Eligible Shareholders violates any of these requirements, they shall face the risk of rejection of both applications

Please note that in accordance with the provisions of the SEBI circular no. CIR/CFD/DIL/1/2011 dated April 29, 2011 QIB Applicants, Non-Institutional Investors and other Applicants whose application amount exceeds ` 2,00,000 complying with the eligibility conditions prescribed under the SEBI circular no. SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 must mandatorily participate in the Issue only through the ASBA process. The Investors who are not (i) QIBs, (ii) Non-Institutional Investors or (iii) Investors whose application amount is more than ` 2,00,000, can participate in the Issue either through the ASBA process or the non ASBA process

Please also note that by virtue of the circular No. 14 dated September 16, 2003 issued by the RBI, erstwhile Overseas Corporate Bodies (“OCBs”) have been derecognized as an eligible class of Investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Any Eligible Shareholder being an erstwhile OCB is required to obtain prior approval from RBI for applying to the Issue.

CAF

The Registrar will dispatch the CAF to all Eligible Shareholders as per their Rights Entitlement on the Record Date. Those Eligible Shareholders who must apply or who wish to apply through the ASBA process and have complied with the parameters mentioned above will have to select the relevant mechanism in Part A of the CAF and provide necessary details.

Application in electronic mode will only be available with SCSBs. The Eligible Shareholder shall submit the CAF to the SCSB for authorising such SCSB to block an amount equivalent to the amount payable on the Application in the said bank account maintained with the same SCSB.

Please note that no more than five Applications (including CAF and plain paper) can be submitted per bank account in the Issue. ASBA Investors are also advised to ensure that the CAF is correctly filled up, stating therein the bank account number maintained with the SCSB in which an amount equivalent to the amount payable on Application as stated in the CAF will be blocked by the SCSB.

The CAF consists of four parts:

Part A: Form for accepting the Equity Shares offered as a part of the Issue, in full or in part, and for applying for additional Equity Shares;

Part B: Form for renunciation of Equity Shares;

Part C: Form for application of Equity Shares by Renouncee(s);

Part D: Form for request for Split Application Forms.

Option available to the Eligible Shareholders

The CAFs will clearly indicate the number of Rights Equity Shares that the Eligible Shareholder is entitled to.

The Eligible Shareholder can:

1. Apply for his Rights Entitlement of Equity Shares in full;

2. Apply for his Rights Entitlement of Equity Shares in part;

3. Apply for his Rights Entitlement of Equity Shares in part and renounce the other part of the Rights Equity Shares;

4. Apply for his Rights Entitlement in full and apply for additional Rights Equity Shares;

5. Renounce his Rights Entitlement in full.

Acceptance of the Issue

You may accept the offer to participate and apply for the Rights Equity Shares offered, either in full or in part, by filling Part A of the CAF and submit the same along with the Application Money payable to the Banker to the Issue or any of the collection centers as mentioned on the reverse of the CAF before close of the banking hours on or before the Issue Closing Date or such extended time as may be specified by the Board of Directors in this regard. Investors at centres not covered by the collection branches of the Banker to the Issue can send their CAFs together with the cheque payable at par or a demand draft payable at Bengaluru to the Registrar to the Issue by registered post so as to reach the Registrar to the Issue prior to the Issue Closing Date. Please note that neither our Bank nor the Lead Manager nor the Registrar to the Issue shall be responsible for delay in the receipt of the CAF attributable to postal delays or if the CAF is misplaced in the transit. Applications sent to anyone other than the Registrar to the Issue are liable to be rejected. For further details on the mode of payment, please see “Terms of the Issue – Mode of Payment for Resident Investors” and “Terms of the Issue – Mode of Payment for Non-Resident Investors” on page 103.

Additional Rights Equity Shares

You are eligible to apply for additional Rights Equity Shares over and above your Rights Entitlement, provided that you are eligible to apply under applicable law and have applied for all the Rights Equity Shares offered to you without renouncing them in whole or in part in favour of any other person(s). Applications for additional Rights Equity Shares shall be considered and Allotment shall be made at the sole discretion of the Board, subject to sectoral caps and prescribed limits as per applicable laws and in consultation if necessary with the Designated Stock Exchange and in the manner prescribed under “Terms of the Issue – Basis of Allotment” on page 113.

If you desire to apply for additional Rights Equity Shares, please indicate your requirement in the place provided for additional Rights Equity Shares in Part A of the CAF. Renouncee(s) applying for all the Rights Equity Shares renounced in their favour may also apply for additional Rights Equity Shares by indicating the details of additional Rights Equity Shares applied in place provided for additional Rights Equity Shares in Part C of CAF. In terms of Regulation 6 of Notification No. FEMA 20 12000-RB dated May 3, 2000, as amended from time to time, only the existing Non-Resident shareholders may subscribe for additional equity shares over and above the equity shares offered on rights basis by our Bank.

Where the number of additional Rights Equity Shares applied for exceeds the number of Rights Equity Shares available for Allotment, the Allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange.

Renunciation

The Issue includes a right exercisable by you to renounce the Rights Equity Shares offered to you either in full or in part in favour of any other person or persons. Your attention is drawn to the fact that our Bank shall not Allot and/or register the Rights Equity Shares in favour of the following Renouncees: (i) more than three persons (including joint holders); (ii) partnership firm(s) or their nominee(s); (iii) minors (except applications by minors having valid demat accounts as per the demographic details provided by the Depositories); (iv) HUF (however, you may renounce your Rights Entitlements to the Karta of an HUF aciting in his capacity of Karta); or (v) any trust or society (unless the same is registered under the Societies Registration Act, 1860, as amended or the Indian Trust Act, 1882, as amended or any other applicable law relating to societies or trusts and is authorized under its constitutions or bye-laws to hold equity shares, as the case may be). Additionally, the Eligible Shareholders may not renounce in favour of “U.S. Persons” (as defined in Regulation S) or persons or entities which would otherwise be prohibited from being offered or subscribing for Rights Equity Shares or Rights Entitlement under applicable securities laws.

The RBI has, pursuant to a letter dated September 19, 2016, conveyed its no-objection for the renunciation of Rights Entitlement by, and to, persons resident in India and persons resident outside India in the Issue, subject to our Bank ensuring that the total FDI limit does not exceed 49% of the paid up capital post renunciation of Rights Entitlement and also ensuring the following conditions:

1. The renunciation by non-resident to resident is on the floor of the stock exchange;

2. The renunciation by non-resident to non-resident is on the floor of the stock exchange. However, the Issue Price to non resident should not be less than that at which offer is made to resident shareholder. If the non- resident transferees include FIIs, the individual as well as overall limit should be complied with;

3. Our Bank may comply with all the documentation and reporting requirements;

4. If any transaction involves an erstwhile OCB, the Bank should approach RBI with full details for prior approval; and

5. The NRI shareholders holding non-repatriable shares may renounce the Rights Entitlement in favour of Residents or other NRls only.

In terms of Regulation 6 of Notification No. FEMA 20 12000-RB dated 3rd May 2000, as amended from time to time, only the existing Non-Resident shareholders may subscribe for additional equity shares over and above the equity shares offered on rights basis by our Bank.

Renunciations by OCBs

By virtue of the circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate Bodies (“OCBs”) have been derecognized as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly, the existing Equity Shareholders who do not wish to subscribe to the Equity Shares being offered but wish to renounce the same in favour of Renouncee shall not renounce the same (whether for consideration or otherwise) in favour of OCB(s).

The RBI has however clarified in its circular, A.P. (DIR Series) circular No. 44, dated December 8, 2003 that OCBs which are incorporated and are not under the adverse notice of the RBI are permitted to undertake fresh investments as incorporated non-resident entities in terms of Regulation 5(1) of RBI Notification No.20/ 2000- RB dated May 3, 2000 under FDI Scheme with the prior approval of Government if the investment is through Government Route and with the prior approval of RBI if the investment is through Automatic Route on case by case basis. Shareholders renouncing their rights in favour of OCBs may do so provided such Renouncee obtains a prior approval from the RBI. On submission of such approval to us at our Registered Office, the OCB shall receive the Abridged Letter of Offer and the CAF.

Part ‘A’ of the CAF must not be used by any person(s) other than those in whose favour the Issue has been made. If used, this will render the application invalid. Submission of the CAF to the Banker to the Issue at its collecting branches specified on the reverse of the CAF with the form of renunciation (Part ‘B’ of the CAF) duly filled in shall be the conclusive evidence for our Bank of the fact of renouncement to the person(s) applying for Equity

Shares in Part ‘C’ of the CAF for the purpose of Allotment of such Rights Equity Shares. The Renouncees applying for all the Rights Equity Shares renounced in their favour may also apply for additional Rights Equity Shares. Renouncee(s) will have no right to further renounce any Rights Equity Shares in favour of any other person. In terms of Regulation 6 of Notification No. FEMA 20 12000-RB dated May 3, 2000, as amended from time to time, only the existing Non-Resident shareholders may subscribe for additional equity shares over and above the equity shares offered on rights basis by our Bank.

The right of renunciation is subject to the express condition that our Board shall be entitled in its absolute discretion to reject the application from the Renouncees without assigning any reason thereof.

Procedure for renunciation

To renounce all the Rights Equity Shares offered to an Eligible Shareholder in favour of one Renouncee

If you wish to renounce your Rights Entitlement indicated in Part ‘A’, in whole, please complete Part ‘B’ of the CAF. In case of joint holding, all joint holders must sign Part ‘B’ of the CAF. The person in whose favour renunciation has been made should complete and sign Part ‘C’ of the CAF. In case of joint Renouncees, all joint Renouncees must sign Part ‘C’ of the CAF.

To renounce in part/or renounce the whole to more than one person(s)

If you wish to either (i) accept this offer in part and renounce the balance, or (ii) renounce your entire Rights Entitlement in favour of two or more Renouncees, the CAF must be first split into requisite number of forms. Please indicate your requirement of SAFs in the space provided for this purpose in Part ‘D’ of the CAF and return the entire CAF to the Registrar to the Issue so as to reach them latest by the close of business hours on the last date of receiving requests for SAFs as provided herein. On receipt of the required number of SAFs from the Registrar, the procedure as mentioned in paragraph above shall have to be followed.

In case the signature of the Eligible Shareholder(s), who has renounced the Rights Equity Shares, does not match with the specimen registered with our Bank / Depositories, the application is liable to be rejected.

Renouncee(s)

The person(s) in whose favour the Rights Equity Shares are renounced should fill in and sign Part ‘C’ of the CAF and submit the entire CAF to the Banker to the Issue or any of the collection branches as mentioned on the reverse of the CAFs on or before the Issue Closing Date along with the Application Money in full.

Change and/or introduction of additional holders

If you wish to apply for Rights Equity Shares jointly with any other person(s), not more than three persons (including you), who is/are not already a joint holder with you, it shall amount to renunciation and the procedure as stated above for renunciation shall have to be followed. Even a change in the sequence of the name of joint holders shall amount to renunciation and the procedure, as stated above shall have to be followed.

Instructions for Options

The summary of options available to the Eligible Shareholder is presented below. You may exercise any of the following options with regard to the Rights Equity Shares offered, using the CAF:

Sr. Option Available Action Required No. 1. Accept whole or part of your Rights Entitlement Fill in and sign Part A (All joint holders must sign without renouncing the balance. in the same sequence) 2. Accept your Rights Entitlement in full and apply Fill in and sign Part A including Block III relating for additional Rights Equity Shares. to the acceptance of Rights Entitlement and Block IV relating to additional Rights Equity Shares (All joint holders must sign in the same sequence) 3. Accept a part of your Rights Entitlement and Fill in and sign Part D (all joint holders must sign renounce the balance to one or more Renouncee(s) in the same sequence) requesting for SAFs. Send the CAF to the Registrar so as to reach them on or

Sr. Option Available Action Required No. OR before the last date for receiving requests for SAFs. Splitting will be permitted only once. Renounce your Rights Entitlement to all the Rights Equity Shares offered to you to more than On receipt of the SAF take action as indicated one Renouncee below.

For the Rights Equity Shares you wish to accept, if any, fill in and sign Part A.

For the Rights Equity Shares you wish to renounce, fill in and sign Part B indicating the number of Rights Equity Shares renounced and hand it over to the Renouncees.

Each Renouncee should fill in and sign Part C for the Rights Equity Shares accepted by them. 4. Renounce your Rights Entitlement in full to one Fill in and sign Part B (all joint holders must sign person (Joint Renouncees are considered as one). in the same sequence) indicating the number of Rights Equity Shares renounced and hand it over to the Renouncee. The Renouncee must fill in and sign Part C (all joint Renouncees must sign) 5. Introduce a joint holder or change the sequence of This will be treated as renunciation. Fill in and joint holders sign Part B and the Renouncee must fill in and sign Part C.

Please note that:

1. Options (3), (4) and (5) will not be available for Equity Shareholders applying through ASBA process.

2. Part ‘A’ of the CAF must not be used by any person(s) other than the Eligible Shareholder to whom the Letter of Offer has been addressed. If used, this will render the application invalid.

3. Request for each SAF should be made for a minimum of one Rights Equity Share or, in each case, in multiples thereof and one SAF for the balance corresponding Rights Equity Shares, if any.

4. Request by the Investor for the SAFs should reach the Registrar to the Issue on or before November 15, 2016.

5. Only the Eligible Shareholder to whom the Letter of Offer has been addressed shall be entitled to renounce and to apply for SAFs. Forms once split cannot be split further.

6. SAFs will be sent to the Eligible Shareholders by post at the Applicant’s risk.

7. Eligible Shareholders may not renounce in favour of persons or entities who would otherwise be prohibited from being offered or subscribing for Rights Equity Shares or Rights Entitlement under applicable securities laws.

8. Submission of the CAF to the Banker to the Issue at its collecting branches specified on the reverse of the CAF with the form of renunciation (Part ‘B’ of the CAF) duly filled in shall be conclusive evidence for us of the person(s) applying for Equity Shares in Part ‘C’ of the CAF to receive Allotment of such Equity Shares.

9. While applying for or renouncing their Rights Entitlement, all joint Eligible Shareholders must sign the CAF and in the same order and as per specimen signatures recorded with our Bank / Depositories.

10. Non-Resident Eligible Shareholders: Application(s) received from Non-Resident/NRIs, or persons of Indian origin residing abroad for Allotment of Rights Equity Shares allotted as a part of the Issue shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA in the matter of refund of application money, Allotment of Rights Equity Shares, subsequent issue and Allotment of Rights Equity Shares, export of Share Certificates, etc. In case a Non-Resident or NRI Eligible Shareholder has specific

100

approval from the RBI, in connection with his shareholding, he should enclose a copy of such approval with the CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected.

11. Applicants must write their CAF number at the back of the cheque / demand draft.

12. The RBI has mandated that CTS 2010 compliant cheques can only be presented in clearing hence the CAFs accompanied by non-CTS cheques could get rejected.

Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the Eligible Shareholder, the Registrar to the Issue will issue a duplicate CAF on the request of the Eligible Shareholder who should furnish the registered folio number/ DP and Client ID number and his/ her full name and Indian address to the Registrar to the Issue. Please note that the request for duplicate CAF should reach the Registrar to the Issue within seven days prior to the Issue Closing Date. Please note that those who are making the application in the duplicate form should not utilize the original CAF for any purpose including renunciation, even if it is received/ found subsequently. If the Investor violates such requirements, he/she shall face the risk of rejection of either original CAF or both the applications. Our Bank or the Registrar to the Issue or the Lead Manager will not be responsible for postal delays or loss of duplicate CAF in transit, if any.

Application on Plain Paper (Non-ASBA)

An Eligible Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF may make an application to subscribe to the Issue on plain paper, along with an account payee cheque drawn on a bank payable at par, pay order/demand draft, net of bank and postal charges and the Investor should send the same by registered post directly to the Registrar to the Issue. Please see “Terms of the Issue – Modes of Payment” on page 103. Applications on plain paper will not be accepted from any address outside India.

The envelope should be super scribed “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE" and should be postmarked in India. The application on plain paper, duly signed by the investor including joint holders, in the same order and as per specimen recorded with our Bank /Depositories, must reach the office of the Registrar to the Issue before the Issue Closing Date and should contain the following particulars:

1. Name of our Bank, being The Karnataka Bank Limited;

2. Name and address of the Eligible Shareholder including joint holders;

3. Registered Folio Number/ DP and Client ID No.;

4. Number of Equity Shares held as on Record Date;

5. Share certificate numbers and distinctive numbers of Equity Shares, if held in physical form;

6. Allotment option preferred - physical or demat form, if held in physical form;

7. Number of Rights Equity Shares entitled to;

8. Number of Rights Equity Shares applied for;

9. Number of additional Rights Equity Shares applied for, if any;

10. Total number of Equity Shares applied for;

11. Total amount paid at the rate of ` 70 per Rights Equity Share;

12. Particulars of cheque/ demand draft;

13. Savings/ current account number and name and address of the bank where the Eligible Shareholder will be depositing the refund order. In case of Equity Shares held in dematerialized form, the Registrar shall obtain the bank account details from the information available with the Depositories;

101

14. Except for applications on behalf of the Central or State Government, the residents of Sikkim and the officials appointed by the courts, PAN of the Eligible Shareholder and for each Eligible Shareholder in case of joint names, irrespective of the total value of the Rights Equity Shares applied for pursuant to the Issue;

15. If the payment is made by a draft purchased from NRE/FCNR/NRO account, as the case may be, an account debit certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/FCNR/NRO account;

16. Signature of the Applicant (in case of joint holders, to appear in the same sequence and order as they appear in the records of our Bank /Depositories); and

17. Additionally, all such Applicants are deemed to have accepted the following:

“I/ We understand that neither the Rights Entitlement nor the Rights Equity Shares have been, and will be, registered under the United States Securities Act of 1933 (“Securities Act”) or any United States state securities laws, and may not be offered, sold, resold or otherwise transferred within the United States or to the territories or possessions thereof (“United States”) or to, or for the account or benefit of a “U.S. Person” as defined in Regulation S under the US Securities Act (“Regulation S”). I/ we understand the Rights Equity Shares referred to in this application are being offered in India but not in the United States. I/ we understand the offering to which this application relates is not, and under no circumstances is to be construed as, an offering of any Rights Equity Shares or Rights Entitlement for sale in the United States, or as a solicitation therein of an offer to buy any of the Rights Equity Shares or Rights Entitlement in the United States. Accordingly, I/ we understand this application should not be forwarded to or transmitted in or to the United States at any time. I/ we understand that neither the Bank, nor the Registrar, the Lead Manager or any other person acting on behalf of the Bank will accept subscriptions from any person, or the agent of any person, who appears to be, or who the Bank, the Registrar, the Lead Manager or any other person acting on behalf of the Bank have reason to believe is ineligible to participate in the Issue under the securities laws of their jurisdiction.

I/ We will not offer, sell or otherwise transfer any of the Rights Equity Shares which may be acquired by me/us in any jurisdiction or under any circumstances in which such offer or sale is not authorized or to any person to whom it is unlawful to make such offer, sale or invitation except under circumstances that will result in compliance with any applicable laws or regulations. I/We satisfy, and each account for which I/we am/are acting satisfies, all suitability standards for Investors in investments of the type subscribed for herein imposed by the jurisdiction of my/our residence.

I/ We understand and agree that the Rights Entitlement and Rights Equity Shares may not be reoffered, resold, pledged or otherwise transferred except in an offshore transaction in compliance with Regulation S, or otherwise pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

I/ We acknowledge that the Bank, the Lead Manager, their respective affiliates and others will rely upon the truth and accuracy of the foregoing representations and agreements.”

Please note that those who are making the application otherwise than on original CAF shall not be entitled to renounce their rights and should not utilize the original CAF for any purpose including renunciation even if it is received subsequently. If the Eligible Shareholder violates such requirements, he/ she shall face the risk of rejection of both the applications. Our Bank shall refund such application amount to the Eligible Shareholder without any interest thereon. In cases where multiple CAFs are submitted, including cases where an investor submits CAFs along with a plain paper application, such applications shall be liable to be rejected.

Investors are requested to strictly adhere to these instructions. Failure to do so could result in an application being rejected, with our Bank and the Directors not having any liability to the Investor. The plain paper application format will be available on the website of the Registrar to the Issue at www.integratedindia.in.

Last date for Application

The last date for submission of the duly filled in CAF or the plain paper application is November 21, 2016. The Board or any committee thereof may extend the said date for such period as it may determine from time to time, subject to the Issue Period not exceeding 30 days from the Issue Opening Date (inclusive of the Issue Opening

102

Date).

If the CAF or the plain paper application, as the case may be, together with the amount payable is not received by the Banker to the Issue/ Registrar to the Issue on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board/ Committee of Directors, the invitation to offer contained in the Letter of Offer shall be deemed to have been declined and the Board/ Committee of Directors shall be at liberty to dispose off the Equity Shares hereby offered, as provided under “Terms of the Issue – Basis of Allotment” on page 113.

Modes of Payment

Investors are advised to use CTS cheques or use ASBA facility to make payment. Investors are cautioned that CAFs accompanied by non-CTS cheques are liable to be rejected.

Mode of payment for Resident Investors

1. All cheques / demand drafts accompanying the CAF should be drawn in favour of “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – R” crossed ‘A/c Payee only’ and should be submitted along with the CAF to the Banker to the Issue or to the Registrar to the Issue on or before the Issue Closing Date;

2. Investors residing at places other than places where the bank collection centres have been opened by our Bank for collecting applications, are requested to send their CAFs together with an account payee cheque drawn on a bank payable at par, demand draft for the full application amount, net of bank and postal charges drawn in favour of “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – R”, crossed ‘A/c Payee only’ and payable at par, directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue Closing Date. The envelope should be superscribed “THE KARNATAKA BANK LIMITED – RIGHTS ISSUE”. Our Bank or the Registrar to the Issue will not be responsible for postal delays or loss of applications in transit, if any.

Mode of payment for Non-Resident Investors

As regards the application by Non-Resident Investor, the following conditions shall apply:

1. Individual Non-Resident Indian Applicants who are permitted to subscribe for Rights Equity Shares by applicable local securities laws can obtain application forms from the following address:

Integrated Enterprises (India) Limited No 30 Ramana Residency 4th Cross, Sampige Road, Malleswaram, Bengaluru 560 003 Telephone: + 91 (80) 23460815-818 Facsimile: + 91 (80) 23460819 E-mail: [email protected] Investor Grievance E-mail: [email protected] Website: www.integratedindia.in Contact Person: Mr. S. Vijayagopal/ Mr. E.T Balaji SEBI Registration No: INR 000000544

Note: The Letter of Offer/ Abridged Letter of Offer and CAFs to NRIs shall be sent only to their Indian address, if provided.

2. Applications will not be accepted from Non-Resident Indian in any jurisdiction where the offer or sale of the Rights Entitlements and Rights Equity Shares may be restricted by applicable securities laws.

3. All non-resident investors should draw the cheques/ demand drafts for the full application amount, net of bank and postal charges and which should be submitted along with the CAF to the Banker to the Issue/ collection centres or to the Registrar to the Issue.

4. Non-Resident Investors applying from places other than places where the bank collection centres have been opened by our Bank for collecting applications, are requested to send their CAFs together with demand draft for the full application amount, net of bank and postal charges drawn in favour of “THE

103

KARNATAKA BANK LIMITED - RIGHTS ISSUE - R”, crossed ‘A/c Payee only’ payable at par, in case of non-resident shareholder applying on non-repatriable basis and in favour of “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – NR”, crossed ‘A/c Payee only’ payable at par, in case of non- resident shareholder applying on repatriable basis, directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue Closing Date. The envelope should be superscribed “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE”. Our Bank or the Registrar to the Issue will not be responsible for postal delays or loss of applications in transit, if any.

5. Payment by Non-Residents must be made by demand draft, pay order/cheque or funds remitted from abroad in any of the following ways:

Application with repatriation benefits

1. By Indian Rupee drafts purchased from abroad or funds remitted from abroad (submitted along with Foreign Inward Remittance Certificate); or

2. By cheque/draft drawn on an NRE or FCNR Account maintained with banks authorised to deal in foreign currency in India, along with documentary evidence in support of remittance; or

3. By Rupee draft purchased by debit to NRE/FCNR Account maintained elsewhere in India and payable at par;

4. FIIs/ FPIs registered with SEBI must utilise funds from special non-resident rupee account;

5. Non-Resident Investors with repatriation benefits should draw the cheques/ demand drafts in favour of “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – NR”, crossed ‘A/c Payee only’ for the full application amount, net of bank and postal charges and which should be submitted along with the CAF to the Banker to the Issue/collection centres or to the Registrar to the Issue;

6. Applicants should note that where payment is made through drafts purchased from NRE/ FCNR/ NRO account as the case may be, an account debit certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/FCNR/ NRO account should be enclosed with the CAF. In the absence of such an account debit certificate, the application shall be considered incomplete and is liable to be rejected.

Application without repatriation benefits

1. As far as Non-Residents holding Equity Shares on non-repatriation basis are concerned, in addition to the modes specified above, payment may also be made by way of cheque drawn on NRO Account or Non-Resident External Account (NRE) or FCNR Account maintained in India or Rupee Draft purchased out of NRO Account maintained elsewhere in India but payable at Bengaluru. In such cases, the Allotment of Equity Shares will be on non-repatriation basis.

2. Non-Resident Investors without repatriation benefits should draw the cheques/demand drafts, net of bank and postal charges, in favour of “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – R”, crossed ‘A/c Payee only’ for the full application amount and which should be submitted along with the CAF to the Banker to the Issue/collection centres or to the Registrar to the Issue;

3. Applicants should note that where payment is made through drafts purchased from NRE/ FCNR/ NRO accounts, as the case may be, an account debit certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/ FCNR/ NRO account should be enclosed with the CAF. In the absence of such an account debit certificate, the application shall be considered incomplete and is liable to be rejected.

4. An Eligible Shareholder whose status has changed from resident to non-resident should open a new demat account reflecting the changed status. Any application from a demat account which does not reflect the accurate status of the Applicant is liable to be rejected at the sole discretion of our Bank and the Lead Manager.

Notes:

104

 In case where repatriation benefit is available, interest, dividend, sales proceeds derived from the investment in Rights Equity Shares can be remitted outside India, subject to tax, as applicable according to the Income Tax Act.

 In case Rights Equity Shares are allotted on a non-repatriation basis, the dividend and sale proceeds of the Rights Equity Shares cannot be remitted outside India.

 The CAF duly completed together with the amount payable on application must be deposited with the Banker to the Issue indicated on the reverse of the CAFs before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.

 In case of an application received from Non-Residents, Allotment, refunds and other distribution, if any, will be made in accordance with the guidelines/ rules prescribed by the RBI as applicable at the time of making such Allotment, remittance and subject to necessary approvals.

Application by ASBA Investors

Process

This section is for the information of the ASBA Investors proposing to subscribe to the Issue through the ASBA process. Our Bank and the Lead Manager are not liable for any amendments or modifications or changes in applicable laws or regulations, which may occur after the date of the Letter of Offer. Investors who are eligible to apply under the ASBA Process are advised to make their independent investigations and to ensure that the CAF is correctly filled up.

The Lead Manager, our Bank, its Directors, its employees, affiliates, associates and their respective directors and officers and the Registrar to the Issue shall not take any responsibility for acts, mistakes, errors, omissions and commissions etc. in relation to applications accepted by SCSBs, Applications uploaded by SCSBs, applications accepted but not uploaded by SCSBs or applications accepted and uploaded without blocking funds in the ASBA Accounts. It shall be presumed that for applications uploaded by SCSBs, the amount payable on application has been blocked in the relevant ASBA Account.

Please note that, in terms of SEBI circular CIR/CFD/DIL/1/2011 dated April 29, 2011, all QIB Applicants, Non-Institutional Investors and other Applicants whose application amount exceeds ` 2,00,000, complying with the eligibility conditions of SEBI circular SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009, can participate in the Issue only through the ASBA process. The Investors who are not (i) QIBs, (ii) Non-Institutional Investors or (iii) Investors whose application amount is more than ` 2,00,000, can participate in the Issue either through the ASBA process or the non ASBA process. Renouncees are not eligible ASBA investors and must only apply for the Rights Equity Shares through the non ASBA process. ASBA Investors should note that the ASBA process involves application procedures that may be different from the procedure applicable to non ASBA process. ASBA Investors should carefully read the provisions applicable to such applications before making their application through the ASBA process. Please see “Terms of the Issue – Procedure for Application” on page 96.

Further, in terms of the SEBI circular CIR/CFD/DIL/1/2013 dated January 2, 2013, it is clarified that for making applications by banks on own account using ASBA facility, SCSBs should have a separate account in own name with any other SEBI registered SCSB(s). Such account shall be used solely for the purpose of making application in public/rights issues and clear demarcated funds should be available in such account for ASBA applications. SCSBs applying in the Issue using the ASBA facility shall be responsible for ensuring that they have a separate account in their own name with any other SCSB having clear demarcated funds for applying in the Issue and that such separate account shall be used as the ASBA Account for the application, in accordance with the applicable regulations.

Self Certified Syndicate Banks

The list of banks which have been notified by SEBI to act as SCSBs for the ASBA Process is provided on http://www.sebi.gov.in/sebiweb/home/list/5/33/0/0/Recognised-Intermediaries. For details on Designated Branches of SCSBs collecting the CAF, please refer the above mentioned SEBI link.

105

Eligible Shareholders who are eligible to apply under the ASBA Process

The option of applying for Rights Equity Shares in the Issue through the ASBA Process is only available to the Eligible Shareholders of our Bank on the Record Date and who:

 hold the Equity Shares in dematerialised form as on the Record Date and have applied towards his/her Rights Entitlements or additional Rights Equity Shares in the Issue in dematerialised form;

 have not renounced his/her Rights Entitlements in full or in part;

 are not a Renouncee;

 are applying through a bank account maintained with SCSBs; and

 are eligible under applicable securities laws to subscribe for the Rights Entitlement and the Rights Equity Shares in the Issue.

CAF

The Registrar will dispatch the CAF to all Eligible Shareholders as per their Rights Entitlement on the Record Date. Those Investors who wish to apply through the ASBA payment mechanism will have to select for this mechanism in Part A of the CAF and provide necessary details.

Investors desiring to use the ASBA Process are required to submit their applications by selecting the ASBA Option in Part A of the CAF only. Application in electronic mode will only be available with such SCSBs who provide such facility. The Investors shall submit the CAF to the Designated Branch of the SCSB for authorising such SCSB to block an amount equivalent to the amount payable on the application in the said ASBA Account.

More than one ASBA Investor may apply using the same ASBA Account, provided that the SCSBs will not accept a total of more than five CAFs with respect to any single ASBA Account.

Acceptance of the Issue under the ASBA process

ASBA Investors may accept the Issue and apply for the Rights Equity Shares either in full or in part, by filling Part A of the respective CAF sent by the Registrar, selecting the ASBA process option in Part A of the CAF and submit the same to the Designated Branch of the SCSB before the close of the banking hours on or before the Issue Closing Date or such extended time as may be specified by the Board of Directors of our Bank in this regard.

Renunciation under the ASBA Process

ASBA Investors can neither be Renouncees, nor can renounce their Rights Entitlement.

Mode of payment under the ASBA process

The Investor applying under the ASBA Process agrees to block the entire amount payable on application with the submission of the CAF, by authorizing the SCSB to block an amount, equivalent to the amount payable on application, in an ASBA Account.

After verifying that sufficient funds are available in the ASBA Account details of which are provided in the CAF, the SCSB shall block an amount equivalent to the amount payable on application mentioned in the CAF until it receives instructions from the Registrar. Upon receipt of intimation from the Registrar, the SCSBs shall transfer such amount as per the Registrar’s instruction from the ASBA Account. This amount will be transferred in terms of the SEBI Regulations, into the separate bank account maintained by our Bank for the purpose of the Issue. The balance amount remaining after the finalisation of the Basis of Allotment shall be unblocked by the SCSBs on the basis of the instructions issued in this regard by the Registrar and the Lead Manager to the respective SCSB.

The Investor applying under the ASBA Process would be required to give instructions to the respective SCSBs to block the entire amount payable on their application at the time of the submission of the CAF.

106

The SCSB may reject the application at the time of acceptance of CAF if the ASBA Account, details of which have been provided by the Investor in the CAF, does not have sufficient funds equivalent to the amount payable on application mentioned in the CAF. Subsequent to the acceptance of the application by the SCSB, our Bank would have a right to reject the application only on technical grounds.

Please note that in accordance with the provisions of SEBI circular CIR/CFD/DIL/1/2011 dated April 29, 2011 all QIBs and Non-Institutional Investors complying with eligibility conditions prescribed under the SEBI circular SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009 must mandatorily invest through the ASBA process.

A Retail Individual Investor applying for a value of up to ` 2,00,000, can participate in the Issue either through the ASBA process or non-ASBA process.

Options available to the Eligible Shareholders applying under the ASBA Process

The summary of options available to the Investors is presented below. You may exercise any of the following options with regard to the Equity Shares, using the respective CAFs received from Registrar:

Option Available Action Required 1. Accept whole or part of your Rights Entitlement Fill in and sign Part A of the CAF (All joint holders without renouncing the balance. must sign in the same sequence) 2. Accept your Rights Entitlement in full and apply Fill in and sign Part A of the CAF including Block III for additional Rights Equity Shares. relating to the acceptance of entitlement and Block IV relating to additional Rights Equity Shares (All joint holders must sign in the same sequence)

The Investors applying under the ASBA Process will need to select the ASBA option process in the CAF and provide required necessary details. However, in cases where this option is not selected, but the CAF is tendered to the Designated Branch of the SCSBs with the relevant details required under the ASBA process option and the SCSBs block the requisite amount, then that CAFs would be treated as if the Investor has selected to apply through the ASBA process option.

Additional Equity Shares

An Eligible Shareholder is eligible to apply for additional Rights Equity Shares over and above their Rights Entitlement, provided that the Eligible Shareholder is eligible to apply for the Equity Shares under applicable law and has applied for all the Equity Shares offered (as the case may be). Where the number of additional Equity Shares applied for exceeds the number available for Allotment, the Allotment would be made as per the Basis of Allotment in consultation with the Designated Stock Exchange and in the manner prescribed under “Terms of the Issue – Basis of Allotment” on page 113. If you desire to apply for additional Equity Shares, please indicate your requirement in the place provided for additional Equity Shares in Part A of the CAF. The Renouncee applying for all the Equity Shares renounced in their favour may also apply for additional Equity Shares.

Application on Plain Paper under the ASBA process

An Eligible Shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF and who is applying under the ASBA Process may make an application to subscribe to the Issue on plain paper. Eligible Shareholders shall submit the plain paper application to the Designated Branch of the SCSB for authorising such SCSB to block an amount equivalent to the amount payable on the application in the said bank account maintained with the same SCSB. Applications on plain paper will not be accepted from any address outside India.

The envelope should be super scribed “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE” and should be postmarked in India. The application on plain paper, duly signed by the Eligible Shareholders including joint holders, in the same order and as per the specimen recorded with our Bank /Depositories, must reach the office of the Designated Branch of the SCSB before the Issue Closing Date and should contain the following particulars:

1. Name of Issuer, being The Karnataka Bank Limited;

2. Name and address of the Eligible Shareholder including joint holders;

107

3. Registered Folio Number/ DP and Client ID No.;

4. Number of Equity Shares held as on Record Date;

5. Number of Rights Equity Shares entitled to;

6. Number of Rights Equity Shares applied for;

7. Number of additional Rights Equity Shares applied for, if any;

8. Total number of Rights Equity Shares applied for;

9. Total amount paid at the rate of ` 70 per Rights Equity Share;

10. Details of the ASBA Account such as the account number, name, address and branch of the relevant SCSB;

11. In case of Non-Resident Investors, details of the NRE/FCNR/NRO account such as the account number, name, address and branch of the SCSB with which the account is maintained;

12. Except for applications on behalf of the Central or State Government, residents of Sikkim and the officials appointed by the courts, PAN of the Eligible Shareholder and for each Eligible Shareholder in case of joint names, irrespective of the total value of the Rights Equity Shares applied for pursuant to the Issue;

13. Signature of the Eligible Shareholders to appear in the same sequence and order as they appear in our records; and

14. Additionally, all such Applicants are deemed to have accepted the following:

“I/We understand that neither the Rights Entitlement nor the Rights Equity Shares have been, and will be, registered under the United States Securities Act of 1933 (“Securities Act”) or any United States state securities laws, and may not be offered, sold, resold or otherwise transferred within the United States or to the territories or possessions thereof (“United States”) or to or for the account or benefit of a ‘U.S. Person’ as defined in Regulation S under the US Securities Act (“Regulation S”). I/ we understand the Rights Equity Shares referred to in this application are being offered in India but not in the United States. I/ we understand the offering to which this application relates is not, and under no circumstances is to be construed as, an offering of any Rights Equity Shares or Rights Entitlement for sale in the United States, or as a solicitation therein of an offer to buy any of the said Rights Equity Shares or Rights Entitlement in the United States. Accordingly, I/ we understand this application should not be forwarded to or transmitted in or to the United States at any time. I/ we understand that neither the Bank, nor the Registrar, the Lead Manager or any other person acting on behalf of the Bank will accept subscriptions from any person, or the agent of any person, who appears to be, or who, the Bank, the Registrar, the Lead Manager or any other person acting on behalf of the Bank have reason to believe is ineligible to participate in the Issue under the securities laws of their jurisdiction.

I/ We acknowledge that the Bank, the Lead Manager, their respective affiliates and others will rely upon

108

the truth and accuracy of the foregoing representations and agreements.”

In cases where multiple CAFs are submitted, including cases where an investor submits CAFs along with a plain paper application, such applications shall be liable to be rejected.

Option to receive Equity Shares in Dematerialized Form

ELIGIBLE SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS MAY PLEASE NOTE THAT THE RIGHTS EQUITY SHARES UNDER THE ASBA PROCESS CAN BE ALLOTTED ONLY IN DEMATERIALIZED FORM AND TO THE SAME DEPOSITORY ACCOUNT IN WHICH THE EQUITY SHARES ARE HELD BY SUCH ASBA APPLICANT ON THE RECORD DATE.

General instructions for Investors applying under the ASBA Process

1. Please read the instructions printed on the respective CAF carefully.

2. Application should be made on the printed CAF only and should be completed in all respects. The CAF found incomplete with regard to any of the particulars required to be given therein, and/or which are not completed in conformity with the terms of the Letter of Offer or Abridged Letter of Offer are liable to be rejected. The CAF must be filled in English. No correction of name, folio/DP client id etc., should be made in the printed CAF sent.

3. The CAF/ plain paper application in the ASBA Process should be submitted at a Designated Branch of the SCSB and whose bank account details are provided in the CAF and not to the Banker to the Issue (assuming that such Banker to the Issue is not an SCSB), to our Bank or Registrar or Lead Manager to the Issue.

4. All Applicants, and in the case of application in joint names, each of the joint Applicants, should mention his/her PAN allotted under the Income Tax Act, irrespective of the amount of the application. Except for applications on behalf of the Central or State Government, the residents of Sikkim and the officials appointed by the courts, CAFs without PAN will be considered incomplete and are liable to be rejected. With effect from August 16, 2010, the demat accounts for Investors for which PAN details have not been verified shall be "suspended for credit" and no Allotment and credit of Equity Shares pursuant to the Issue shall be made into the accounts of such Investors.

5. All payments will be made by blocking the amount in the ASBA Account. Cash payment or payment by cheque/demand draft/pay order is not acceptable. In case payment is affected in contravention of this, the application may be deemed invalid and the application money will be refunded and no interest will be paid thereon.

6. Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule to the Constitution of India. Signatures other than in English or Hindi and thumb impression must be attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The Investors must sign the CAF as per the specimen signature recorded with our Bank/Depositories.

7. In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with our Bank / Depositories. In case of joint Applicants, reference, if any, will be made in the first Applicant’s name and all communication will be addressed to the first Applicant.

8. All communication in connection with application for the Equity Shares, including any change in address of the Investors should be addressed to the Registrar to the Issue prior to the date of Allotment in the Issue quoting the name of the first/sole Applicant, folio numbers and CAF number.

9. Only the person or persons to whom the Rights Equity Shares have been offered and not Renouncee(s) shall be eligible to participate under the ASBA process.

10. Only persons outside the restricted jurisdictions and who are eligible to subscribe for Rights Entitlement and Rights Equity Shares under applicable securities laws are eligible to participate.

109

11. Only the Eligible Shareholders holding shares in demat are eligible to participate through ASBA process.

12. Eligible Shareholders who have renounced their entitlement in part/ full are not entitled to apply using ASBA process.

13. Please note that, in terms of SEBI circular CIR/CFD/DIL/1/2011 dated April 29, 2011, all QIB Applicants, Non-Institutional Investors and other Applicants whose application amount exceeds ` 2,00,000, complying with the eligibility conditions of SEBI circular SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009, can participate in the Issue only through the ASBA process. The Investors who are not (i) QIBs, (ii) Non-Institutional Investors or (iii) Investors whose application amount is more than ` 2,00,000, can participate in the Issue either through the ASBA process or the non ASBA process. Renouncees are not eligible ASBA investors and must only apply for the Rights Equity Shares through the non ASBA process. ASBA Investors should note that the ASBA process involves application procedures that may be different from the procedure applicable to non ASBA process. ASBA Investors should carefully read the provisions applicable to such applications before making their application through the ASBA process. Please see “Terms of the Issue – Procedure for Application” on page 96.

14. Please note that subject to SCSBs complying with the requirements of SEBI circular No. CIR/CFD/DIL/13/2012 dated September 25, 2012 within the periods stipulated therein, ASBA Applications may be submitted at all branches of the SCSBs.

15. Further, in terms of the SEBI circular CIR/CFD/DIL/1/2013 dated January 2, 2013, it is clarified that for making applications by banks on own account using ASBA facility, SCSBs should have a separate account in their own name with any other SEBI registered SCSB(s). Such account shall be used solely for the purpose of making application in public/ rights issues and clear demarcated funds should be available in such account for ASBA applications. SCSBs applying in the Issue using the ASBA facility shall be responsible for ensuring that they have a separate account in their own name with any other SCSB having clear demarcated funds for applying in the Issue and that such separate account shall be used as the ASBA Account for the application, in accordance with the applicable regulations.

16. In case of non – receipt of CAF, application can be made on plain paper mentioning all necessary details as mentioned under “Terms of the Issue – Application on Plain Paper under the ASBA process” on pages 107.

Do’s:

1. Ensure compliance with the eligibility conditions prescribed under the SEBI circular no. SEBI/CFD/DIL/ASBA/1/2009/30/12 dated December 30, 2009.

2. Ensure that the ASBA Process option is selected in Part A of the CAF and necessary details are filled in. In case of non-receipt of the CAF, the application can be made on plain paper with all necessary details as required under the paragraph “Terms of the Issue – Application on Plain Paper under the ASBA process” on page 107.

3. Ensure that the details about your Depository Participant and beneficiary account are correct and the beneficiary account is activated as Equity Shares will be allotted in the dematerialized form only.

4. Ensure that the CAFs are submitted with the Designated Branch of the SCSBs and details of the correct bank account have been provided in the CAF.

5. Ensure that there are sufficient funds (equal to {number of Rights Equity Shares applied for} X {Issue Price of Rights Equity Shares, as the case may be}) available in the ASBA Account mentioned in the CAF before submitting the CAF to the respective Designated Branch of the SCSB.

6. Ensure that you have authorised the SCSB for blocking funds equivalent to the total amount payable on application mentioned in the CAF, in the ASBA Account, of which details are provided in the CAF and have signed the same. 7. Ensure that you receive an acknowledgement from the Designated Branch of the SCSB for your submission of the CAF in physical form.

110

8. Except for CAFs submitted on behalf of the Central or State Government, residents of Sikkim and the officials appointed by the courts, each Applicant should mention their PAN allotted under the Income Tax Act.

9. Ensure that the name(s) given in the CAF is exactly the same as the name(s) in which the beneficiary account is held with the Depository Participant. In case the CAF is submitted in joint names, ensure that the beneficiary account is also held in same joint names and such names are in the same sequence in which they appear in the CAF.

10. Ensure that the Demographic Details are updated, true and correct, in all respects.

11. Ensure that the account holder in whose bank account the funds are to be blocked has signed authorising such funds to be blocked.

Don’ts:

1. Do not apply if you are not eligible to participate in the Issue under the securities laws applicable to your jurisdiction.

2. Do not apply on duplicate CAF after you have submitted a CAF to a Designated Branch of the SCSB.

3. Do not pay the amount payable on application in cash, by money order, pay order or by postal order.

4. Do not send your physical CAFs to the Lead Manager to Issue / Registrar / Banker to the Issue (assuming that such Banker to the Issue is not an SCSB) / to a branch of the SCSB which is not a Designated Branch of the SCSB / Bank (assuming that such branch is not the Designated Branch); instead submit the same to a Designated Branch of the SCSB only.

5. Do not submit the GIR number instead of the PAN as the application is liable to be rejected on this ground.

6. Do not apply if the ASBA Account has been used for five Applicants.

7. Do not apply through the ASBA Process if you are not an ASBA Investor.

8. Do not instruct the SCSBs to release the funds blocked under the ASBA Process.

Grounds for Technical Rejection under the ASBA Process

In addition to the grounds listed under “Grounds for Technical Rejection for Non-ASBA Investors” on page 120, applications under the ASBA Process are liable to be rejected on the following grounds:

1. Application on a SAF.

2. Application for Allotment of Rights Entitlements or additional Rights Equity Shares which are in physical form.

3. DP ID and Client ID mentioned in CAF not matching with the DP ID and Client ID records available with the Registrar.

4. Sending an ASBA application on plain paper to the Registrar to the Issue.

5. Sending CAF to Lead Manager / Registrar / Banker to the Issue (assuming that such Banker to the Issue is not an SCSB) / to a branch of an SCSB which is not a Designated Branch of the SCSB / the Bank.

6. Renouncee applying under the ASBA Process.

7. Submission of more than five CAFs per ASBA Account.

111

8. Insufficient funds are available with the SCSB for blocking the amount.

9. Funds in the ASBA Account whose details are mentioned in the CAF having been frozen pursuant to regulatory orders.

10. Account holder not signing the CAF or declaration mentioned therein.

11. CAFs that do not include the certification set out in the CAF to the effect that the subscriber is not a “U.S. person” as defined in Regulation S and does not have a registered address (and is not otherwise located) in the United States (as defined in Regulation S) or any restricted jurisdiction and is authorized to acquire the rights and the securities in compliance with all applicable laws and regulations.

12. CAFs which have evidence of being executed in/dispatched from any restricted jurisdiction or executed by or for the account or benefit of a “U.S. person” (as defined in Regulation S).

13. QIBs, Non-Institutional Investors and other Eligible Shareholders applying for Rights Equity Shares in the Issue for value of more than ` 2,00,000 who hold Equity Shares in dematerialised form and is not a renouncer or a Renouncee not applying through the ASBA process.

14. The application by an Eligible Shareholder whose cumulative value of Rights Equity Shares applied for is more than ` 2,00,000 but has applied separately through split CAFs of less than ` 2,00,000 and has not done so through the ASBA process.

15. Multiple CAFs, including cases where an Investor submits CAFs along with a plain paper application.

16. Submitting the GIR instead of the PAN.

17. An Eligible Shareholder, who is not complying with any or all of the conditions for being an ASBA Investor, applies under the ASBA process.

18. Applications by persons not competent to contract under the Indian Contract Act, 1872, as amended, except applications by minors having valid demat accounts as per the demographic details provided by the Depositories.

19. Failure to mention an Indian address in the Application. Application with foreign address shall be liable to be rejected.

20. If an Investor is (a) debarred by SEBI and/or (b) if SEBI has revoked the order or has provided any interim relief then failure to attach a copy of such SEBI order allowing the Investor to subscribe to their Rights Entitlement.

21. Failure to provide a copy of the requisite RBI approval in relation to renunciation by non-resident ASBA Applicants.

22. Applications by Eligible Shareholders ineligible to make applications through the ASBA process, made through the ASBA process.

Depository account and bank details for Investors applying under the ASBA Process

IT IS MANDATORY FOR ALL THE INVESTORS APPLYING UNDER THE ASBA PROCESS TO RECEIVE THEIR RIGHTS EQUITY SHARES IN DEMATERIALISED FORM AND TO THE SAME DEPOSITORY ACCOUNT IN WHICH THE EQUITY SHARES ARE HELD BY THE INVESTOR AS ON THE RECORD DATE. ALL INVESTORS APPLYING UNDER THE ASBA PROCESS SHOULD MENTION THEIR DEPOSITORY PARTICIPANT'S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE CAF. INVESTORS APPLYING UNDER THE ASBA PROCESS MUST ENSURE THAT THE NAME GIVEN IN THE CAF IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THE CAF IS SUBMITTED IN JOINT NAMES, IT SHOULD BE ENSURED THAT THE DEPOSITORY ACCOUNT IS ALSO HELD IN THE SAME JOINT NAMES AND ARE IN THE SAME SEQUENCE IN WHICH THEY APPEAR IN THE CAF/PLAIN PAPER APPLICATIONS, AS THE

112

CASE MAY BE.

Investors applying under the ASBA Process should note that on the basis of name of these Investors, Depository Participant's name and identification number and beneficiary account number provided by them in the CAF/plain paper applications, as the case may be, the Registrar to the Issue will obtain from the Depository, demographic details of these Investors such as address, bank account details for printing on refund orders and occupation (Demographic Details). Hence, Investors applying under the ASBA Process should carefully fill in their Depository Account details in the CAF.

These Demographic Details would be used for all correspondence with such Investors including mailing of the letters intimating unblocking of bank account of the respective Investor. The Demographic Details given by the Investors in the CAF would not be used for any other purposes by the Registrar to the Issue. Hence, Investors are advised to update their Demographic Details as provided to their Depository Participants.

By signing the CAFs, the Investors applying under the ASBA Process would be deemed to have authorised the Depositories to provide, upon request, to the Registrar to the Issue, the required Demographic Details as available on its records.

Letters intimating Allotment and unblocking or refund (if any) would be mailed at the address of the Investor applying under the ASBA Process as per the Demographic Details received from the Depositories. The Registrar to the Issue will give instructions to the SCSBs for unblocking funds in the ASBA Account to the extent Rights Equity Shares are not allotted to such Investor. Investors applying under the ASBA Process may note that delivery of letters intimating unblocking of the funds may get delayed if the same once sent to the address obtained from the Depositories are returned undelivered. In such an event, the address and other details given by the Investor in the CAF would be used only to ensure dispatch of letters intimating unblocking of the ASBA Accounts.

Note that any such delay shall be at the sole risk of the Investors applying under the ASBA Process and none of our Bank, the SCSBs or the Lead Manager shall be liable to compensate the Investor applying under the ASBA Process for any losses caused due to any such delay or liable to pay any interest for such delay.

In case no corresponding record is available with the Depositories that matches three parameters, (a) names of the Investors (including the order of names of joint holders), (b) the DP ID, and (c) the beneficiary account number, then such applications are liable to be rejected.

Underwriting

The Issue shall not be underwritten.

Issue Schedule

Issue Opening Date: November 7, 2016 Last date for receiving requests for SAFs: November 15, 2016 Issue Closing Date: November 21, 2016

The Board may however decide to extend the Issue period as it may determine from time to time but not exceeding 30 days from the Issue Opening Date (inclusive of the Issue Opening Date).

Basis of Allotment

Subject to the provisions contained in the Letter of Offer, the Abridged Letter of Offer, CAF, the Articles of Association of our Bank and the approval of the Designated Stock Exchange, the Board will proceed to allot the Rights Equity Shares in the following order of priority:

1. Full Allotment to those Eligible Shareholders who have applied for their Rights Entitlement either in full or in part and also to the Renouncee(s) who has/ have applied for Rights Equity Shares renounced in their favour, in full or in part.

113

2. Investors whose fractional entitlements are being ignored and Eligible Shareholders with Zero entitlement would be given preference in Allotment of one additional Rights Equity Share each if they apply for additional Rights Equity Share. Allotment under this head shall be considered if there are any unsubscribed Rights Equity Shares after Allotment under (1) above. If number of Rights Equity Shares required for Allotment under this head is more than the number of Rights Equity Shares available after Allotment under (1) above, the Allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange and will not be a preferential allotment.

3. Allotment to the Eligible Shareholders who having applied for all the Rights Equity Shares offered to them as part of the Issue, have also applied for additional Rights Equity Shares. The Allotment of such additional Rights Equity Shares will be made as far as possible on an equitable basis having due regard to their Rights Entitlement, provided there are any unsubscribed Rights Equity Shares after making full Allotment in (1) and (2) above. The Allotment of such Rights Equity Shares will be at the sole discretion of the Board in consultation with the Designated Stock Exchange, as a part of the Issue and will not be a preferential allotment.

4. Allotment to Renouncees who having applied for all the Rights Equity Shares renounced in their favour, have applied for additional Equity Shares provided there is surplus available after making full Allotment under (1), (2) and (3) above. The Allotment of such Rights Equity Shares will be at the sole discretion of the Board in consultation with the Designated Stock Exchange, as a part of the Issue and will not be a preferential allotment.

5. Allotment to any other person that the Board of Directors as it may deem fit provided there is surplus available after making Allotment under (1), (2), (3) and (4) above, and the decision of the Board in this regard shall be final and binding.

After taking into account Allotment to be made under (1) to (4) above, if there is any unsubscribed portion, the same shall be deemed to be ‘unsubscribed’.

Section 12B of the Banking Regulation Act requires that no person shall acquire or agree to acquire or hold five per cent or more of the paid-up share capital of a banking company, without prior approval of the Reserve Bank of India. Further, the Reserve Bank of India (Prior approval for acquisition of shares or voting rights in private sector banks) Directions, dated November 19, 2015 requires that every person who intends to make an acquisition / make an agreement for acquisition which will / is likely to take the aggregate holding of such person together with shares / voting rights / held by him, his relatives, associate enterprises and persons acting in concert with him, to 5 per cent or more of the paid-up share capital of the concerned bank or entitles him to exercise 5 per cent or more of the total voting rights of the concerned bank, shall seek prior approval of the Reserve Bank. Hence, in the absence of such RBI approval, an Eligible Shareholder or Renouncee will only be allotted Rights Equity Shares so that their post issue shareholding does not exceed five percent of the paid-up capital of our Bank.

Upon approval of the Basis of Allotment by the Designated Stock Exchange, the Registrar to the Issue shall send to the Controlling Branches, a list of the ASBA Investors who have been allocated Equity Shares in the Issue, along with:

1. The amount to be transferred from the ASBA Account to the separate bank account opened by our Bank for the Issue, for each successful ASBA Investors;

2. The date by which the funds referred to above, shall be transferred to the aforesaid bank account; and

3. The details of rejected ASBA applications, if any, to enable the SCSBs to unblock the respective ASBA Accounts.

Allotment Advices / Refund Orders

Our Bank will issue and dispatch Allotment advice/ Share Certificates/ demat credit and/or letters of regret along with refund order or credit the allotted Rights Equity Shares to the respective beneficiary accounts, if any, within a period of 15 days from the Issue Closing Date. In case of failure to do so, our Bank shall pay interest at such rate and within such time as specified under applicable law.

Investors residing at centers where clearing houses are managed by the RBI will get refunds through National

114

Automated Clearing House (“NACH”) except where Investors have not provided the details required to send electronic refunds.

In case of those Investors who have opted to receive their Rights Entitlement in dematerialized form using electronic credit under the depository system, advice regarding their credit of the Rights Equity Shares shall be given separately. Investors to whom refunds are made through electronic transfer of funds will be sent a letter through ordinary post intimating them about the mode of credit of refund within 15 days of the Issue Closing Date.

In case of those Investors who have opted to receive their Rights Entitlement in physical form and our Bank issues letter of allotment, the corresponding Rights Equity Share certificates will be kept ready within two months from the date of Allotment thereof under Section 56 of the Companies Act or other applicable provisions, if any. Investors are requested to preserve such letters of allotment, which would be exchanged later for the Rights Equity Share certificates.

The letter of allotment/ refund order would be sent by registered post/ speed post to the sole/ first Investor's registered address in India or the Indian address provided by the Eligible Shareholders from time to time. Such refund orders would be payable at par at all places where the applications were originally accepted. The same would be marked 'Account Payee only' and would be drawn in favour of the sole/ first Investor. Adequate funds would be made available to the Registrar to the Issue for this purpose.

In the case of Non-Resident Shareholders or Investors who remit their application money from funds held in NRE/FCNR Accounts, refunds and/or payment of interest or dividend and other disbursements, if any, shall be credited to such accounts, the details of which should be furnished in the CAF. Subject to the applicable laws and other approvals, in case of Non-Resident Shareholders or Investors who remit their application money through Indian Rupee demand drafts purchased from abroad, refund and/or payment of dividend or interest and any other disbursement, shall be credited to such accounts and will be made after deducting bank and postal charges or commission in US Dollars, at the rate of exchange prevailing at such time. Our Bank will not be responsible for any loss on account of exchange rate fluctuations for conversion of the Indian Rupee amount into US Dollars. The Share Certificate(s) will be sent by registered post / speed post to the address in India of the Non Resident Shareholders or Investors.

The Letter of Offer/ Abridged Letter of Offer and the CAF shall be dispatched to only such Non-resident Shareholders who have a registered address in India or have provided an Indian address.

Payment of Refund

Mode of making refunds

The payment of refund, if any, including in the event of oversubscription, would be done through any of the following modes:

1. NACH – National Automated Clearing House is a consolidated system of electronic clearing service. Payment of refund would be done through NACH for Applicants having an account at one of the centres specified by the RBI, where such facility has been made available. This would be subject to availability of complete bank account details including MICR code wherever applicable from the depository. The payment of refund through NACH is mandatory for Applicants having a bank account at any of the centres where NACH facility has been made available by the RBI (subject to availability of all information for crediting the refund through NACH including the MICR code as appearing on a cheque leaf, from the depositories), except where applicant is otherwise disclosed as eligible to get refunds through NEFT or Direct Credit or RTGS.

2. National Electronic Fund Transfer (“NEFT”) - Payment of refund shall be undertaken through NEFT wherever the Investors' bank has been assigned the Indian Financial System Code (IFSC), which can be linked to a MICR, allotted to that particular bank branch. IFSC Code will be obtained from the website of RBI as on a date immediately prior to the date of payment of refund, duly mapped with MICR numbers. Wherever the Investors have registered their nine digit MICR number and their bank account number with the Registrar to our Bank or with the Depository Participant while opening and operating the demat account, the same will be duly mapped with the IFSC Code of that particular bank branch and the payment of refund will be made to the Investors through this method.

115

3. Direct Credit - Investors having bank accounts with the Banker to the Issue shall be eligible to receive refunds through direct credit. Charges, if any, levied by the relevant bank(s) for the same would be borne by our Bank.

4. RTGS - If the refund amount exceeds ` 2,00,000, the Investors have the option to receive refund through RTGS. Such eligible Investors who indicate their preference to receive refund through RTGS are required to provide the IFSC code in the CAF. In the event the same is not provided, refund shall be made through NACH or any other eligible mode. Charges, if any, levied by the refund bank(s) for the same would be borne by our Bank. Charges, if any, levied by the Investor's bank receiving the credit would be borne by the Investor.

5. For all other Investors the refund orders will be despatched through Speed Post/ Registered Post. Such refunds will be made by cheques, pay orders or demand drafts drawn in favour of the sole/first Investor and payable at par.

6. Credit of refunds to Investors in any other electronic manner, permissible under the banking laws, which are in force, and is permitted by SEBI from time to time.

Refund payment to Non- residents

Where applications are accompanied by Indian rupee drafts purchased abroad, refunds will be made in the Indian rupees based on the U.S. Dollars equivalent which ought to be refunded. Indian rupees will be converted into U.S. Dollars at the rate of exchange, which is prevailing on the date of refund. The exchange rate risk on such refunds shall be borne by the concerned Applicant and our Bank shall not bear any part of the risk.

Where the applications made are accompanied by NRE/FCNR/NRO cheques, refunds will be credited to NRE/FCNR/NRO accounts respectively, on which such cheques were drawn and details of which were provided in the CAF.

Printing of Bank Particulars on Refund Orders

As a matter of precaution against possible fraudulent encashment of refund orders due to loss or misplacement, the particulars of the Investor's bank account are mandatorily required to be given for printing on the refund orders. Bank account particulars, where available, will be printed on the refund orders/refund warrants which can then be deposited only in the account specified. Our Bank will in no way be responsible if any loss occurs through these instruments falling into improper hands either through forgery or fraud.

Allotment advice / Share Certificates/ Demat Credit

Allotment advice/ Share Certificates/ demat credit or letters of regret will be dispatched to the registered address of the first named Investor or respective beneficiary accounts will be credited within the timeline prescribed under applicable law. In case our Bank issues Allotment advice, the respective Share Certificates will be dispatched within one month from the date of the Allotment. Allottees are requested to preserve such allotment advice (if any) to be exchanged later for Share Certificates.

Option to receive Rights Equity Shares in Dematerialized Form

Investors shall be allotted the Rights Equity Shares in dematerialized (electronic) form at the option of the Investor. Our Bank has signed a tripartite agreement with NSDL on October 16, 2000 which enables the Investors to hold and trade in Equity Shares in a dematerialized form, instead of holding the Equity Shares in the form of physical certificates. Our Bank has also signed a tripartite agreement with CDSL on October 14, 2000 which enables the Investors to hold and trade in Equity Shares in a dematerialized form, instead of holding the Equity Shares in the form of physical certificates.

In the Issue, the Allottees who have opted for Rights Equity Shares in dematerialized form will receive their Rights Equity Shares in the form of an electronic credit to their beneficiary account as given in the CAF, after verification with a Depository Participant. Investor will have to give the relevant particulars for this purpose in the appropriate place in the CAF. Allotment advice, refund order (if any) would be sent directly to the Investor by the Registrar to the Issue but the Investor’s depository participant will provide to him the confirmation of the credit of such

116

Rights Equity Shares to the Investor’s depository account. CAFs, which do not accurately contain this information, will be given the Rights Equity Shares in physical form. No separate CAFs for Rights Equity Shares in physical and/or dematerialized form should be made. If such CAFs are made, the CAFs for physical Rights Equity Shares will be treated as multiple CAFs and is liable to be rejected. In case of partial Allotment, Allotment will be done in demat option for the Rights Equity Shares sought in demat and balance, if any, will be allotted in physical Rights Equity Shares. Eligible Shareholders of our Bank holding Equity Shares in physical form may opt to receive Rights Equity Shares in the Issue in dematerialized form.

INVESTORS MAY PLEASE NOTE THAT THE EQUITY SHARES OF OUR BANK CAN BE TRADED ON THE STOCK EXCHANGE ONLY IN DEMATERIALIZED FORM.

The procedure for availing the facility for Allotment of Rights Equity Shares in the Issue in the electronic form is as under:

1. Open a beneficiary account with any Depository Participant (care should be taken that the beneficiary account should carry the name of the holder in the same manner as is registered in the records of our Bank. In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in the same order as registered in the records of our Bank). In case of Investors having various folios in our Bank with different joint holders, the Investors will have to open separate accounts for such holdings. Those Investors who have already opened such beneficiary account(s) need not adhere to this step.

2. For Eligible Shareholders already holding Equity Shares of our Bank in dematerialized form as on the Record Date, the beneficial account number shall be printed on the CAF. For those who open accounts later or those who change their accounts and wish to receive their Rights Equity Shares pursuant to the Issue by way of credit to such account, the necessary details of their beneficiary account should be filled in the space provided in the CAF. It may be noted that the Allotment of Rights Equity Shares arising out of the Issue may be made in dematerialized form even if the original Equity Shares are not dematerialized. Nonetheless, it should be ensured that the depository account is in the name(s) of the Investors and the names are in the same order as in the records of our Bank / Depositories.

3. The responsibility for correctness of information (including Investor's age and other details) filled in the CAF vis-a-vis such information with the Investor's Depository Participant, would rest with the Investor. Investors should ensure that the names of the Investors and the order in which they appear in CAF should be the same as registered with the Investor's Depository Participant.

4. If incomplete / incorrect beneficiary account details are given in the CAF, the Investor will get Rights Equity Shares in physical form.

5. The Rights Equity Shares allotted to Applicants opting for issue in dematerialized form, would be directly credited to the beneficiary account as given in the CAF after verification. Allotment advice, refund order (if any) would be sent directly to the Applicant by the Registrar to the Issue but the Applicant’s Depository Participant will provide to him the confirmation of the credit of such Rights Equity Shares to the Applicant’s depository account.

6. Renouncees will also have to provide the necessary details about their beneficiary account for Allotment of Rights Equity Shares in the Issue. In case these details are incomplete or incorrect, the application is liable to be rejected.

7. Non-transferable allotment advice/refund orders will be directly sent to the Investors by the Registrar.

8. Dividend or other benefits with respect to the Equity Shares held in dematerialized form would be paid to those Equity Shareholders whose names appear in the list of beneficial owners given by the Depository Participant to our Bank as on the date of the book closure.

General instructions for non-ASBA Investors

1. Please read the instructions printed on the CAF carefully.

117

2. Applicants that are not QIBs or are not Non - Institutional Investor or those whose application money does not exceed ` 2,00,000 may participate in the Issue either through ASBA or the non-ASBA process. Eligible Shareholders who have renounced their entitlement (in full or in part), Renouncees and Applicants holding Equity Shares in physical form and/or subscribing in the Issue for Allotment in physical form may participate in the Issue only through the non ASBA process.

3. Application should be made on the printed CAF, provided by our Bank except as mentioned under “Terms of the Issue – Application on Plain Paper (non - ASBA)” and “Terms of the Issue – Application on Plain Paper under the ASBA process”on page 101 and 107, respectively and should be completed in all respects. The CAF found incomplete with regard to any of the particulars required to be given therein, and/ or which are not completed in conformity with the terms of this Letter of Offer are liable to be rejected and the money paid, if any, in respect thereof will be refunded without interest and after deduction of bank commission and other charges, if any. The CAF must be filled in English and the names of all the Investors, details of occupation, address, father's / husband's name must be filled in block letters.

4. The CAF together with the cheque/demand draft should be sent to the Banker to the Issue or to the Registrar to the Issue and not to our Bank or Lead Manager to the Issue. Investors residing at places other than cities where the branches of the Banker to the Issue have been authorised by our Bank for collecting applications, will have to make payment by Demand Draft of an amount net of bank and postal charges and send their CAFs to the Registrar to the Issue by registered post. If any portion of the CAF is/are detached or separated, such application is liable to be rejected.

Applications where separate cheques/demand drafts are not attached for amounts to be paid for Rights Equity Shares are liable to be rejected. Applications accompanied by cash, postal order or stockinvest are liable to be rejected.

5. Except for applications on behalf of the Central and State Government, the residents of Sikkim and the officials appointed by the courts, all Investors, and in the case of application in joint names, each of the joint Investors, should mention his/her PAN allotted under the Income Tax Act , irrespective of the amount of the application. CAFs without PAN will be considered incomplete and are liable to be rejected.

6. Investors, holding Equity Shares in physical form, are advised that it is mandatory to provide information as to their savings/current account number, the nine digit MICR number and the name of the bank with whom such account is held in the CAF to enable the Registrar to the Issue to print the said details in the refund orders, if any, after the names of the payees. Application not containing such details is liable to be rejected.

7. All payment should be made by cheque/demand draft only. Cash payment is not acceptable. In case payment is effected in contravention of this, the application may be deemed invalid and the application money will be refunded and no interest will be paid thereon.

8. Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule to the Constitution of India. Signatures other than in English or Hindi and thumb impression must be attested by a Notary Public or a Special Executive Magistrate under his/ her official seal. The Investors must sign the CAF or the plain paper application as per the specimen signature recorded with our Bank.

9. In case of an application under power of attorney or by a body corporate or by a society, a certified true copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the relevant investment under the Issue and to sign the application and a copy of the Memorandum and Articles of Association and / or bye laws of such body corporate or society must be lodged with the Registrar to the Issue giving reference of the serial number of the CAF. In case the above referred documents are already registered with our Bank, the same need not be a furnished again. In case these papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing Date, then the application is liable to be rejected. In no case should these papers be attached to the application submitted to the Banker to the Issue.

10. In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with our Bank /Depositories. Further, in case of joint Investors who are Renouncees, the number of Investors should not exceed three. In case of joint Investors,

118

reference, if any, will be made in the first Investor’s name and all communication will be addressed to the first Investor.

11. Application(s) received from NRs/NRIs, or persons of Indian origin residing abroad for Allotment of Rights Equity Shares shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FEMA, including regulations relating to FPIs, in the matter of refund of application money, Allotment of Rights Equity Shares, subsequent issue and Allotment of Rights Equity Shares, interest, export of Share Certificates, etc. In case an NR or NRI Investor has specific approval from the RBI, in connection with his shareholding, he should enclose a copy of such approval with the CAF. Additionally, applications will not be accepted from NRs/NRIs in the United States (as defined in Regulation S), or in any jurisdiction where the offer or sale of the Rights Entitlements and Rights Equity Shares may be restricted by applicable securities laws.

12. All communication in connection with application for the Rights Equity Shares, including any change in address of the Investors should be addressed to the Registrar to the Issue prior to the date of Allotment in the Issue quoting the name of the first/sole Investor, folio numbers and CAF number. Please note that any intimation for change of address of Investors, after the date of Allotment, should be sent to the Registrar and Transfer Agents of our Bank, in the case of Equity Shares held in physical form and to the respective Depository Participant, in case of Equity Shares held in dematerialized form.

13. SAFs cannot be re-split.

14. Only the person or persons to whom Rights Equity Shares have been offered and not Renouncee(s) shall be entitled to obtain SAFs.

15. Investors must write their CAF number at the back of the cheque /demand draft.

16. Only one mode of payment per application should be used. The payment must be by cheque / demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a sub member of the Bankers Clearing House located at the centre indicated on the reverse of the CAF where the application is to be submitted.

17. A separate cheque / draft must accompany each CAF. Outstation cheques / demand drafts or post-dated cheques and postal / money orders will not be accepted and applications accompanied by such cheques / demand drafts / money orders or postal orders will be liable to be rejected. The Registrar will not accept payment against application if made in cash.

18. No receipt will be issued for application money received. The Banker to the Issue / Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

19. The distribution of the Letter of Offer and issue of Rights Equity Shares and Rights Entitlements to persons in certain jurisdictions outside India may be restricted by legal requirements in those jurisdictions. Persons in such jurisdictions are instructed to disregard the Letter of Offer and not to attempt to subscribe for Rights Equity Shares.

20. Investors are requested to ensure that the number of Equity Shares applied for by them do not exceed the prescribed limits under the applicable law.

Do’s for non-ASBA Investors

1. Check if you are eligible to apply, that is, you are an Eligible Shareholder on the Record Date.

2. Read all the instructions carefully and ensure that the cheque/ draft option is selected in Part A of the CAF and necessary details are filled in.

3. In the event you hold Equity Shares in dematerialised form, ensure that the details about your Depository Participant and beneficiary account are correct and the beneficiary account is activated as the Rights Equity Shares will be allotted in the dematerialized form only.

119

4. Ensure that your Indian address is available to our Bank and the Registrar and Transfer Agent, in case you hold Equity Shares in physical form or the Depository Participant, in case you hold Equity Shares in dematerialised form.

5. Ensure that the value of the cheque/ draft submitted by you is equal to the (number of Equity Shares applied for) X (Issue Price of Equity Shares, as the case may be) before submission of the CAF.

6. Ensure that you receive an acknowledgement from the collection branch of the Banker to the Issue for your submission of the CAF in physical form.

7. Ensure that you mention your PAN allotted under the Income Tax Act with the CAF, except for Applications on behalf of the Central and State Governments, residents of the state of Sikkim and officials appointed by the courts.

8. Ensure that the name(s) given in the CAF is exactly the same as the name(s) in which the beneficiary account is held with the Depository Participant. In case the CAF is submitted in joint names, ensure that the beneficiary account is also held in same joint names and such names are in the same sequence in which they appear in the CAF.

9. Ensure that the demographic details are updated, true and correct, in all respects.

Don’ts for non-ASBA Investors

1. Do not apply if you are not eligible to participate in the Issue under the securities laws applicable to your jurisdiction.

2. Do not apply on duplicate CAF after you have submitted a CAF to a collection branch of the Banker to the Issue.

3. Do not pay the amount payable on application in cash, by money order or by postal order.

4. Do not submit the GIR number instead of the PAN as the application is liable to be rejected on this ground.

5. Do not submit Application accompanied with stockinvest.

Grounds for Technical Rejections for non-ASBA Investors

Investors are advised to note that applications are liable to be rejected on technical grounds, including the following:

1. Amount paid does not tally with the Application Money payable.

2. Bank account details (for refund) are not given and the same are not available with the DP (in the case of dematerialized holdings) or the Registrar and Transfer Agent (in the case of physical holdings).

3. Age of Investor(s) not given (in case of Renouncees).

4. Except for CAFs on behalf of the Central or State Government, the residents of Sikkim and the officials appointed by the courts, PAN not given for application of any value.

5. In case of CAF under power of attorney or by limited companies, corporate, trust, relevant documents are not submitted.

6. If the signature of the Investor does not match with the one given on the CAF and for renounce(s) if the signature does not match with the records available with their depositories.

7. CAFs are not submitted by the Investors within the time prescribed as per the CAF and this Letter of Offer.

120

8. CAFs not duly signed by the sole/joint Investors.

9. CAFs/ SAFs by erstwhile OCBs not accompanied by a copy of an RBI approval to apply in the Issue.

10. CAFs accompanied by stockinvest/ outstation cheques/ post-dated cheques/ money order/ postal order/ outstation demand drafts.

11. In case no corresponding record is available with the Depositories that match three parameters, namely, names of the Investors (including the order of names of joint holders), DP ID and Client ID.

12. CAFs that do not include the certifications set out in the CAF to the effect that the subscriber is not a “U.S. person” (as defined in Regulation S) and does not have a registered address (and is not otherwise located) in the United States (as defined in Regulation S) or any restricted jurisdictions and is authorized to acquire the Rights Entitlements and Rights Equity Shares in compliance with all applicable laws and regulations.

13. CAFs which have evidence of being executed in/dispatched from restricted jurisdictions.

14. CAFs by ineligible Non-Residents (including on account of restriction or prohibition under applicable local laws) and where a registered address in India has not been provided.

15. CAFs where our Bank believes that CAF is incomplete or acceptance of such CAF may infringe applicable legal or regulatory requirements.

16. In case the GIR number is submitted instead of the PAN.

17. Applications by Renouncees who are persons not competent to contract under the Indian Contract Act, 1872, except applications by minors having valid demat accounts as per the demographic details provided by the Depositories.

18. Multiple CAFs, including cases where an Investor submits CAFs along with a plain paper application.

19. Applications from QIBs, Non-Institutional Investors or Investors applying in the Issue for Equity Shares for an amount exceeding ` 2,00,000, not through ASBA process.

20. Failure to mention an Indian address in the Application. Application with foreign address shall be liable to be rejected.

21. If an Investor is debarred by SEBI and if SEBI has revoked the order or has provided any interim relief then failure to attach a copy of such SEBI order allowing the Investor to subscribe to their Rights Entitlement.

22. Non – ASBA applications made by QIBs and Non – Institutional Investors.

23. Failure to provide a copy of the requisite RBI approval in relation to renunciation by non-resident non- ASBA Applicants.

Please read this Letter of Offer and the instructions contained therein and in the CAF carefully before filling in the CAF. The instructions contained in the CAF are an integral part of this Letter of Offer and must be carefully followed. The CAF is liable to be rejected for any non-compliance of the provisions contained in this Letter of Offer or the CAF.

Investment by FPIs, FIIs and QFIs

SEBI recently notified the SEBI FPI Regulations pursuant to which FIIs, its sub-accounts and QFIs categories of investors were merged to form a new category called ‘Foreign Portfolio Investors’. Prior to the notification of the SEBI FPI Regulations, portfolio investments by FIIs and sub-accounts were governed by SEBI under the FII Regulations and portfolio investments by QFIs were governed by various circulars issued by SEBI from time to time (QFI Circulars). Pursuant to the notification of the SEBI FPI Regulations, the FII Regulations were repealed and the QFI Circulars were rescinded.

121

In terms of the SEBI FPI Regulations, the issue of Equity Shares to a single FPI or an Investor group (which means the same set of ultimate beneficial owner(s) investing through multiple entities) is not permitted to exceed 10% of our Bank’s post-Issue Equity Share Capital. Further, in terms of the FEMA Regulations, the total holding by each FPI shall be below 10% of the total paid-up Equity Share Capital of our Bank and the total holdings of all FPIs put together shall not exceed 24% of the paid up Equity Share Capital of our Bank. The aggregate limit of 24% may be increased up to the sectoral cap by way of a resolution passed by the Board of Directors followed by a special resolution passed by the Equity Shareholders of our Bank. Pursuant to a resolution of our shareholders passed at the AGM held on July 6, 2006, the aggregate limit of investments by FIIs in our Bank is 49% of the paid up equity share capital of our Bank, provided that the shareholding of a single FII does not exceed the limit prescribed by RBI in this regard from time to time.

FPIs are permitted to participate in the Issue subject to compliance with conditions and restrictions which may be specified by the Government from time to time.

An FII who holds a valid certificate of registration from SEBI shall be deemed to be an FPI until the expiry of the block of three years for which fees have been paid as per the SEBI FII Regulations. An FII or a sub-account (other than a sub-account which is a foreign corporate or a foreign individual) may participate in the Issue, until expiry of its registration as an FII or sub-account or until it obtains a certificate of registration as an FPI, whichever is earlier. If the registration of an FII or sub-account has expired or is about to expire, such FII or sub-account may, subject to payment of conversion fees as applicable under the SEBI FPI Regulations, participate in the Issue. An FII or sub-account shall not be eligible to invest as an FII after registering as an FPI under the SEBI FPI Regulations.

In terms of the FEMA Regulations, for calculating the aggregate holding of FPIs in a company, holding of all registered FPIs as well as holding of FIIs (being deemed FPIs) shall be included.

Further, in terms of the SEBI (FPI) Regulations, a QFI may continue to buy, sell or otherwise deal in securities, subject to the provisions of the SEBI (FPI) Regulations, until January 6, 2015 (or such other date as may be specified by SEBI) or until the QFI obtains a certificate of registration as FPI, whichever is earlier.

The existing individual and aggregate investment limits for Eligible QFIs in an Indian company are 5% and 10% of the paid-up capital of an Indian company, respectively. In terms of the FEMA Regulations, a QFI shall not be eligible to invest as a QFI upon obtaining registration as an FPI. However, all investments made by a QFI in accordance with the regulations, prior to registration as an FPI shall continue to be valid and taken into account for computation of the aggregate limit.

Investment by NRIs

Investments by NRIs are governed by the Portfolio Investment Scheme under Regulation 5(3)(i) of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended. Applications will not be accepted from NRIs in restricted jurisdictions.

NRI Applicants may please note that only such Applications as are accompanied by payment in free foreign exchange shall be considered for Allotment under the reserved category. The NRI Applicants who intend to make payment through NRO accounts shall use the Application Form meant for resident Indians and shall not use the Application Forms meant for reserved category.

Please note that pursuant to the applicability of the directions issued by SEBI vide its circular bearing number CIR/ CFD/ DIL/1/2011 dated April 29, 2011, all Applicants who are QIBs, Non- Institutional Investors or are applying in the Issue for Equity Shares for an amount exceeding ` 2,00,000 shall mandatorily make use of ASBA facility.

Procedure for Applications by Mutual Funds

A separate application can be made in respect of each scheme of an Indian mutual fund registered with SEBI and such applications shall not be treated as multiple applications. The applications made by asset management companies or custodians of a mutual fund should clearly indicate the name of the concerned scheme for which the application is being made.

122

Please note that pursuant to the applicability of the directions issued by SEBI vide its circular bearing number CIR/ CFD/ DIL/ 1/ 2011 dated April 29, 2011, all Applicants who are QIBs, Non- Institutional Investors or are applying in the Issue for Equity Shares for an amount exceeding ` 2,00,000 shall mandatorily make use of ASBA facility.

Procedure for Applications by AIFs, FVCIs and VCFs

The SEBI (Venture Capital Funds) Regulations, 1996, as amended (SEBI VCF Regulations) and the SEBI (Foreign Venture Capital Investor) Regulations, 2000, as amended (SEBI FVCI Regulations) prescribe, amongst other things, the investment restrictions on VCFs and FVCIs registered with SEBI. Further, the SEBI (Alternative Investments Funds) Regulations, 2012 (SEBI AIF Regulations) prescribe, amongst other things, the investment restrictions on AIFs.

As per the SEBI VCF Regulations and SEBI FVCI Regulations, VCFs and FVCIs are not permitted to invest in listed companies pursuant to rights issues. Accordingly, applications by VCFs or FVCIs will not be accepted in the Issue.

Venture capital funds registered as category I AIFs, as defined in the SEBI AIF Regulations, are not permitted to invest in listed companies pursuant to rights issues. Accordingly, applications by venture capital funds registered as category I AIFs, as defined in the SEBI AIF Regulations, will not be accepted in the Issue. Other categories of AIFs are permitted to apply in the Issue subject to compliance with the SEBI AIF Regulations.

Such AIFs having bank accounts with SCSBs that are providing ASBA in cities / centres where such AIFs are located are mandatorily required to make use of the ASBA facility. Otherwise, applications of such AIFs are liable for rejection.

Impersonation

Attention of the Applicants is specifically drawn to the provisions of sub-section (1) of Section 38 of the Companies Act, 2013 which is reproduced below:

“Any person who:

(a) makes or abets making of an application in a fictitious name to a company for acquiring, or subscribing for, its securities; or

(b) makes or abets making of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities; or

(c) otherwise induces directly or indirectly a company to allot, or register any transfer of, securities to him, or to any other person in a fictitious name, shall be liable for action under section 447”.

Section 447 of the Companies Act provides for punishment for fraud which inter alia states punishment of imprisonment for a term which shall not be less than six months but which may extend to ten years and shall be liable to a fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.

Dematerialized dealing

Our Bank has entered into agreements dated October 16, 2000 and October 14, 2000 with NSDL and CDSL, respectively, and its Equity Shares bear the ISIN INE614B01018.

Payment by stockinvest

In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003- 04 dated November 5, 2003, the stockinvest Scheme has been withdrawn. Hence, payment through stockinvest would not be accepted in the Issue.

Disposal of application and application money

123

No acknowledgment will be issued for the application moneys received by our Bank. However, the Banker to the Issue / Registrar to the Issue/ Depositary Participants/ stock brokers/ Designated Branch of the SCSBs receiving the CAF will acknowledge its receipt by stamping and returning the acknowledgment slip at the bottom of each CAF.

The Board reserves its full, unqualified and absolute right to accept or reject any application, in whole or in part, and in either case without assigning any reason thereto.

In case an application is rejected in full, the whole of the application money received will be refunded. Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money due on Rights Equity Shares allotted, will be refunded to the Investor within the timelines prescribed under applicable law. In case of failure to do so, our Bank shall pay interest at such rate and within such time as specified under applicable law For further instructions, please read the CAF carefully.

Utilisation of Issue Proceeds

The Board of Directors declares that:

1. All monies received out of the Issue shall be transferred to a separate bank account;

2. Details of all monies utilized out of the Issue shall be disclosed, and continue to be disclosed till the time any part of the Issue Proceeds remains unutilised, under an appropriate separate head in the balance sheet of our Bank indicating the purpose for which such monies have been utilised; and

3. Details of all unutilized monies out of the Issue, if any, shall be disclosed under an appropriate separate head in the balance sheet of our Bank indicating the form in which such unutilized monies have been invested.

Undertakings by our Bank

Our Bank undertakes the following:

1. The complaints received in respect of the Issue shall be attended to by our Bank expeditiously and satisfactorily.

2. All steps for completion of the necessary formalities for listing and commencement of trading at the Stock Exchange where the Rights Equity Shares are to be listed will be taken within seven Working Days of finalization of Basis of Allotment.

3. The funds required for making refunds to unsuccessful Applicants as per the mode(s) disclosed shall be made available to the Registrar to the Issue by our Bank.

4. Where refunds are made through electronic transfer of funds, a suitable communication shall be sent to the Investor within 15 days of the Issue Closing Date, giving details of the banks where refunds shall be credited along with amount and expected date of electronic credit of refund.

5. The certificates of the securities/ refund orders to the non-resident Indians shall be dispatched within the specified time.

6. No further issue of securities affecting our Bank’s Equity Share Capital shall be made till the securities issued/ offered through this Letter of Offer are listed or till the application money are refunded on account of non-listing, under-subscription etc.

7. Our Bank accepts full responsibility for the accuracy of information given in this Letter of Offer and confirms that to the best of its knowledge and belief, there are no other facts the omission of which makes any statement made in this Letter of Offer misleading and further confirms that it has made all reasonable enquiries to ascertain such facts.

124

8. Adequate arrangements shall be made to collect all ASBA applications and to consider then similar to non-ASBA applications while finalising the Basis of Allotment.

9. At any given time there shall be only one denomination for the Equity Shares of our Bank.

10. Our Bank shall comply with such disclosure and accounting norms specified by SEBI from time to time.

11. All information shall be made available by the Lead Manager and the Issuer to the Investors at large and no selective or additional information would be available for a section of the Investors in any manner whatsoever including at road shows, presentations, in research or sales reports etc.

12. Our Bank shall utilize the funds collected in the Issue only after finalisation of the Basis of Allotment.

Minimum Subscription

If our Bank does not receive the minimum subscription of 90% of the Issue, our Bank shall refund the entire subscription amount within the prescribed time. In the event that there is a delay of making refunds beyond such period as prescribed by applicable laws, our Bank shall pay interest for the delayed period at rates prescribed under applicable laws.

Important

1. Please read this Letter of Offer carefully before taking any action. The instructions contained in the CAF are an integral part of the conditions of the Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected. It is to be specifically noted that the Issue of Rights Equity Shares is subject to the risk factors mentioned in the section titled “Risk Factors” on page 12.

2. All enquiries in connection with this Letter of Offer or CAF and requests for SAFs must be addressed quoting the Registered Folio Number/ DP and Client ID number, the CAF number and the name of the first Eligible Shareholder as mentioned on the CAF and superscribed “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – R” or “THE KARNATAKA BANK LIMITED - RIGHTS ISSUE – NR”, as applicable, on the envelope and postmarked in India to the Registrar to the Issue at the following address:

The Issue will remain open for a minimum 15 days. However, the Board will have the right to extend the Issue period as it may determine from time to time but not exceeding 30 days from the Issue Opening Date (inclusive of the Issue Opening Date).

125

SECTION IX: OTHER INFORMATION

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The following contracts (not being contracts entered into in the ordinary course of business carried on by our Bank) which are or may be deemed material have been entered or are to be entered into by our Bank. Copies of the these contracts and also the documents for inspection referred to hereunder, may be inspected at the Registered Office between 10 a.m. and 5 p.m. on all working days from the date of this Letter of Offer until the Issue Closing Date.

B. Material Contracts for the Issue

1. Issue Agreement dated October 5, 2016 entered into between our Bank and the Lead Manager.

2. Registrar Agreement dated September 26, 2016 entered into between our Bank and the Registrar to the Issue.

3. Banker to the Issue Agreement dated October 5, 2016 entered into amongst our Bank, Edelweiss Financial Services Limited, Banker to the Issue and the Registrar to the Issue.

C. Material Documents

1. Copy of the Letter of offer of the rights issue (being the last rights issue) dated February 18, 2011.

2. Memorandum of Association and Articles of Association of our Bank, as amended.

3. Certificate of incorporation dated February 18, 1924 and certificate of commencement of business dated May 23, 1924.

4. License bearing reference number Bang.5 dated April 4, 1966 issued by the RBI to carry on the banking business in India under the Banking Regulation Act.

5. Resolution of our Board dated August 5, 2016 pursuant to Section 62 of the Companies Act in relation to the Issue.

6. Letter bearing reference number FED.CO.FID.NO. 2970/10.21.382/2016-17 dated September 19, 2016, received from the RBI, approving the renunciation of rights entitlement by and to persons resident outside India.

7. Consents of our Directors, Company Secretary and Compliance Officer, Joint Statutory Central Auditors, Lead Manager, Banker to the Issue, Legal Advisor to the Issue and the Registrar to the Issue for inclusion of their names in this Letter of Offer to act in their respective capacities.

8. Letter issued by the RBI bearing number DBR. Appt. No. 18976/08.40.001/2014-15 dated June 15, 2015 approving appointment of Mr P. Jayarama Bhat, Managing Director and our Chief Executive Officer.

9. Letter bearing reference number HO/SEC/390/2016-17 dated October 21, 2016, sent by our Bank to the RBI informing the RBI that our Bank will submit application seeking its approval for appointment of a part-time chairman under Section 10-B (1-A) of the Banking Regulation Act after completion of the Issue.

10. Consents of M/s. Kamath & Rau, Chartered Accountants and M/s. Abarna & Ananthan, Chartered Accountants dated October 4, 2016 and October 4, 2016 respectively, to be named as an “expert” under Sections 2(38), in relation to their (i) reformatted audit report dated September 29, 2016 on the audited financial statements of our Bank for Fiscal 2016, (ii) Limited Review Financial Statements dated September 29, 2016 for the quarter ended June 30, 2016; and (iii) the Statement of Special Tax Benefits dated September 29, 2016.

126

11. The reformatted financial statements examination report dated September 29, 2016 on the Audited Financial Statements; and (ii) report dated September 29, 2016 on the Limited Review Financial Statements.

12. Statement of special tax benefits certificate dated September 29, 2016 from the Joint Statutory Central Auditors.

13. Annual Reports of our Bank for Fiscal 2016, 2015, 2014, 2013 and 2012.

14. In-principle listing approval dated October 6, 2016 and October 10, 2016 received from the BSE and the NSE, respectively.

15. Due diligence certificate dated October 28, 2016 addressed to SEBI from the Lead Manager.

16. Tripartite Agreement between NSDL, our Bank and the Registrar and the Alpha Systems Private Limited* for the Bank dated October 16, 2000.

17. Tripartite Agreement between CDSL, our Bank and the Alpha Systems Private Limited* for the Bank dated October 14, 2000.

*Pursuant to the scheme of merger Alpha Systems Private Limited has merged with Integrated Enterprises (India) Limited.

Any of the contracts or documents mentioned in this Letter of Offer may be amended or modified at any time if so required in the interest of our Bank or if required by the other parties, without reference to the Eligible Shareholders, subject to compliance with applicable law.

127

DECLARATION

We hereby certify that no statement made in this Letter of Offer contravenes any of the provisions of the Companies Act, the SEBI Act or the rules made thereunder or regulations issued thereunder, as the case may be. All the legal requirements connected with the Issue as also the regulations, guidelines, instructions, etc., issued by SEBI, Government of India and any other competent authority in this behalf, have been duly complied with. We further certify that all disclosures made in this Letter of Offer are true and correct.

SIGNED BY THE DIRECTORS OF OUR BANK

Name Signature Mr. P. Jayarama Bhat Managing Director and Chief Executive Officer

Mr. Ashok Haranahally Independent Director

Ms. Usha Ganesh Independent Director

Mr. Rammohan Rao Belle Independent Director

Mr. B.A. Prabhakar Independent Director

Mr. U.R. Bhat Independent Director

Mr. Keshav Krishnarao Desai Independent Director

SIGNED BY GENERAL MANAGER AND CHIEF FINANCIAL OFFICER

(Mr. Chandrashekar Rao B.)

Date:

Place:

128