THE KARUR VYSYA BANK LIMITED the Bank Was Incorporated on June 22, 1916 Under the Companies Act, 1913 with the Registrar of Companies, Trichinopoly

DRAFT LETTER OF OFFER November 12, 2010 For the Equity Shareholders of the Bank Only

THE KARUR VYSYA BANK LIMITED The Bank was incorporated on June 22, 1916 under the Companies Act, 1913 with the Registrar of Companies, Trichinopoly. The Bank now comes under the jurisdiction the Registrar of Companies, Chennai. (For further details, please see “History and Other Corporate Matters” on page 55) Registered and Central Office: Post Box No. 21, Erode Road, Karur – 639 002, Tamil Nadu, India Tel: +91 4324 226520; +91 4324 225521-25; Fax: +91 4324 225700 Contact Person: Mr. R. Kannan, Company Secretary and Compliance Officer Email: [email protected]; Website: www.kvb.co.in FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY DRAFT LETTER OF OFFER

ISSUE OF 30,502,976 EQUITY SHARES WITH A FACE VALUE OF ` 10/- EACH ("RIGHTS EQUITY SHARES") FOR CASH AT A PRICE OF ` 150/- INCLUDING A PREMIUM OF ` 140/- AGGREGATING UPTO ` 457.54 CRORES TO THE EXISTING EQUITY SHAREHOLDERS OF THE KARUR VYSYA BANK LIMITED (“THE BANK” OR “THE ISSUER”) ON RIGHTS BASIS IN THE RATIO OF TWO (2) RIGHTS EQUITY SHARES FOR EVERY FIVE (5) EQUITY SHARES HELD ON THE RECORD DATE I.E. [•] ("RIGHTS ISSUE/ THE ISSUE"). THE ISSUE PRICE FOR THE EQUITY SHARES IS 15 TIMES OF THE FACE VALUE OF THE EQUITY SHARES. Payment Method* Amount Payable per equity share Applicable to all categories of shareholders (in `) Face Value Premium Total On Application 6 54 60 First call 2 43 45 Second and final call 2 43 45 Total 10 140 150 * Please see risk factor no. 22 in the chapter titled “Risk Factors” beginning on page 11 of this Draft Letter of Offer for risks associated with Payment Method. For details on the payment methods please see “Terms of the Issue” beginning on page 122 of this Draft Letter of Offer. GENERAL RISKS Investment in equity and equity related securities involve a degree of risk and Investors should not invest any funds in this Offer 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 this Offering. For taking an investment decision, Investors must rely on their own examination of the Issuer and the Offer including the risks involved. The securities being offered in the Issue have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to the chapter titled "Risk Factors" beginning on page 11 of this Draft Letter of Offer before making an investment in this Issue. ISSUER‟S ABSOLUTE RESPONSIBILITY The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Draft Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Draft 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 make this document 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 the Bank are listed on the National Stock Exchange of India Limited ("NSE") and are traded at the Bombay Stock Exchange Limited ("BSE") under the permitted category. Application will be made to NSE for permission to deal in and for an official quotation in respect of the equity shares of the Bank being offered in terms of this Draft Letter of Offer. The Bank has received „in- principle‟ approval from NSE for listing of the equity shares being offered pursuant to this Rights Issue vide their letter no. [●] dated [●]. For the purpose of this rights issue, the designated stock exchange is NSE. LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE

Karvy Investor Services Limited SKDC Consultants Limited “Karvy House”, 46, Avenue 4, Kanapathy Towers, 1391/A-1, Third Floor, Street No. 1, Banjara Hills, Hyderabad - 500 034 Sathy Road, Ganapathy, Coimbatore – 641 006 Tel: +91 40 2342 8774 / 2331 2454 Tel: +91 422 6549995 Fax: +91 40 2337 4714 Fax: +91 422 2539837 E-mail: [email protected] Email: [email protected] Website: www.karvy.com Website : www.skdc-consultants.com Chennai Office: Contact Person: Mr. Harihara Subramanian Contact Person: Mr. K. Jayakumar Mobile: +91 97909 06827 SEBI Registration Number: INR000000775 SEBI Registration No.: INM000008365 Investor Grievance Id: [email protected] ISSUE PROGRAMME LAST DATE FOR REQUEST FOR SPLIT ISSUE OPENS ON ISSUE CLOSES ON APPLICATION FORMS [●] [●] [●]

TABLE OF CONTENTS

SECTION I – GENERAL ...... 2 DEFINITIONS AND ABBREVATIONS ...... 2 PRESENTATION OF FINANCIAL INFORMATION ...... 9 FORWARD LOOKING STATEMENTS ...... 10 SECTION II - RISK FACTORS...... 11 SECTION III – INTRODUCTION ...... 25 THE ISSUE...... 25 SELECTED FINANCIAL STATEMENTS ...... 26 GENERAL INFORMATION ...... 31 OVERSEAS SHAREHOLDERS ...... 34 CAPITAL STRUCTURE ...... 35 OBJECTS OF THE ISSUE ...... 45 STATEMENT OF TAX BENEFITS ...... 47 SECTION IV - HISTORY AND CORPORATE STRUCTURE ...... 55 SECTION V – MANAGEMENT ...... 59 SECTION VI - FINANCIAL INFORMATION ...... 66 FINANCIAL STATEMENTS ...... 67 CERTAIN OTHER FINANCIAL INFORMATION ...... 103 MARKET PRICE INFORMATION ...... 104 SECTION VII - LEGAL AND OTHER INFORMATION ...... 107 GOVERNMENT AND OTHER APPROVALS ...... 112 MATERIAL DEVELOPMENTS ...... 113

OTHER REGULATORY AND STATUTORY DISCLOSURES ...... 114 SECTION VIII – OFFERING INFORMATION ...... 122 TERMS OF THE ISSUE ...... 122 SECTION IX – STATUTORY AND OTHER INFORMATION ...... 149 MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ...... 149 DECLARATION ...... Error! Bookmark not defined.

SECTION I – GENERAL

DEFINITIONS AND ABBREVATIONS

The following list of defined terms is intended for the convenience of the reader only and is not exhaustive.

Conventional and General Terms

Term Description

Board : The Board of Directors of the Bank

Companies Act : The Companies Act, 1956, as amended

Depository : A depository registered with SEBI under the SEBI (Depository and Participant) Regulations, 1996, as amended from time to time.

Depositories Act : The Depositories Act, 1996, as amended from time to time.

Financial Year/Fiscal : The period of 12 months beginning April 1 and ending March 31 of the next year, unless otherwise stated

ISIN : International Securities Identification Number allotted by a depository

IT Act : The Income Tax Act, 1961, as amended

Indian GAAP : The Generally Accepted Accounting Principles in India

US GAAP : The Generally Accepted Accounting Principles in United States of America

IFRS : International Financial Reporting Standards

Listing Agreement : The equity listing agreements signed between the Bank and the Stock Exchange

“ ` ” or “Rupees” and “Rs.” : The lawful currency of India

SEBI Act : The Securities and Exchange Board of India Act, 1992, as amended

SEBI Regulations/ ICDR Regulations : The Securities and Exchange Board of India(Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended

Takeover Code : The Securities and Exchange Board of India(Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended

Issue Related Terms

Term Description

Allottee(s) : The successful applicant(s) eligible for Allotment of Rights Equity Shares pursuant to the Issue

Term Description Allotment/Allotted : Unless the context otherwise requires, the allotment of Rights Equity Shares pursuant to the Issue to the Allottees

ASBA / Application Supported by : The application (whether physical or electronic) used by a Blocked Amount shareholder to make an application authorizing the SCSB to block the amount payable on application in their specified bank account

ASBA Investor : An applicant who; (a) holds the shares of the Bank in dematerialized form as on the record date and has applied for entitlements and / or additional shares in dematerialized form; (b) has not renounced his/her entitlements in full or in part; (c) is not a renouncee; (d) is applying through a bank account maintained with SCSBs.

Bankers to the Issue : The Karur Vysya Bank Limited

Business Day : Any day, other than Saturday or Sunday, on which commercial banks are open for business

Composite Application Form / CAF : The form used by an Investor to make an application for allotment of Rights Equity Shares pursuant to Issue

Call Notice(s) : Call notice(s) as shall be sent by the Bank to each of the Investors for making the payment towards the balance amount payable under Payment Method

Consolidated Certificate : In case of holding of Rights Equity Shares in physical form, the Bank would issue one certificate for the Rights Equity Shares allotted to one folio

Controlling Branches : Such branches of the SCSBs which coordinate applications under the Issue by the ASBA Investors with the Registrar to the Issue and the Stock Exchanges and a list of which is available at http:// www.sebi.gov.in

Designated Branches : Such branches of the SCSBs which shall collect CAF from ASBA investor and a list of which is available on http:// www.sebi.gov.in

Designated Stock Exchange / DSE : NSE

Eligible Equity Shareholder(s) : A holder(s) of Equity Shares as on the Record Date

Issue : The issue 30,502,976 of Rights Equity Shares of ` 10/- each for cash at a price of ` 150/- including a premium of ` 140/- per Rights Equity Share aggregating upto ` 457.54 crores to the Eligible Equity Shareholders on rights basis in the ratio of 2 Rights Equity Share(s) for every 5 Equity Share(s) held as on the Record Date, i.e. [●]

Issue Closing Date : [●]

Issue Opening Date : [●]

Issue Price : ` 150/- per Equity Share

Term Description Issue Proceeds : The monies received by the Bank pursuant to the Rights Equity Shares which are Allotted pursuant to the Issue

Investor(s) : The Equity Shareholders of the Bank on the Record Date i.e. [●], Renouncees and any other persons eligible to subscribe to the Issue

Lead Manager(s) : Karvy Investor Services Limited

Letter of Offer : The letter of offer dated November 12, 2010 filed with the Stock exchange after incorporating SEBI comments on the Draft Letter of Offer

Record Date : [●]

Registrar to the Issue : SKDC Consultants Limited

Renouncee(s) : Any person(s) who have / has acquired Rights Entitlements from Eligible Equity Shareholders

Rights Entitlement : The number of Rights Equity Shares that an Eligible Equity Shareholder is entitled to in proportion to his / her shareholding in the Bank as on the Record Date

Rights Equity Shares : The equity shares of face value ` 10 each of the Bank offered and to be issued and allotted pursuant to the Issue

SAF(s) : Split Application Form(s)

Self Certified Syndicate Bank or SCSB : The banks which are registered with SEBI under the SEBI (Bankers to an Issue) Regulations, 1994 and offers services of ASBA, including blocking of bank account and a list of which is available on http:// www.sebi.gov.in

Stock Exchange(s) : The NSE where the Equity Shares of the Bank are presently listed and traded, apart from the BSE where the equity shares of the Bank are traded under permitted category.

Bank and Industry Related Terms

Term Description

“The Bank” or “KVB” : The Karur Vysya Bank Limited, the Bank incorporated on June 22, 1916 under the Companies Act, 1913 with the Registrar of Companies, Trichinopoly, having its Registered and Central office at Post Box No. 21, Erode Road, Karur – 639 002, Tamil Nadu, India

Articles/Articles of Association/AoA : Articles of Association of the Bank

Auditor : Statutory Auditors of the Bank, namely, M/s R. K. Kumar & Co., Chartered Accountants, Chennai.

Bank Acquisition Act : Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as amended from time to time

Board / Board of Directors : The Board of Directors of the Bank or a committee thereof

Term Description

Chairman : The Chairman of the Bank

Company Secretary and Compliance : Mr. R. Kannan Officer

Director(s) : Any or all director(s) of the Bank, as the context may require

Equity Share(s) : The equity share(s) of the Bank having a face value of ` 10/-, inter alia including such equity shares of the Bank outstanding and fully-paid up, as on the Record Date, unless otherwise specified in the context thereof

Erstwhile Auditors : M/s J L Sengupta & Co., Chartered Accountants, being the erstwhile statutory auditors of the Bank for the period 27.07.2006 till 21.07.2010

Memorandum/ Memorandum of : Memorandum of Association of the Bank Association

Promoter(s) : Promoter(s) of the Bank i.e. Mr. Athi S Janarthanan, Mr. G Rajasekaran, Mr. M K Venkatesan and Mr. A K Praburaj

Promoter Group : The Promoter Group of the Bank as defined in the SEBI Regulations

Registered and Central Office : The Registered and Central office of the Bank located at P.O. Box 21, Erode Road, Karur – 639 002, Tamil Nadu, India

Repatriation : “Investment on repatriation basis” means an investment the sale proceeds of which are, net of taxes, eligible to be repatriated out of India, and the expression „Investment on non-repatriation basis‟, shall be construed accordingly.

GDP : Gross Domestic Product

CIBIL : Credit Information Bureau (India) Limited

The BR Act/ Banking Regulation Act : The Banking Regulation Act, 1949 and subsequent amendments thereto

Technical Terms and Abbreviations

Term Description

AFS : Available for Sale

AY : Assessment Year

AGM : Annual General Meeting

ALCO : Asset Liability Management Committee

AS : Accounting Standards, as issued by the ICAI

ATMs : Automated Teller Machines

BG : Bank Guarantee

Term Description Bps : Basis Points

BSE : Bombay Stock Exchange Limited

CAF : Composite Application Form

CAGR : Compounded Annual Growth Rate

CAIIB : Certified Associate of Indian Institute of Bankers

CAR : Capital Adequacy Ratio

CBS : Core Banking Solutions

CBLO : Collateralized Borrowing and Lending Obligation

CCBD : Cash Credit Book Debts

CDR : Corporate Debt Restructuring

CDSL : Central Depository Services (India) Limited

CFO : Chief Financial Officer

CISA : Certified Information Systems Auditor

CIT : Commissioner of Income tax

CRAR : Capital to Risk Weighted Assets Ratio

CRR : Cash Reserve Ratio

DEMAT : Dematerialised (Electronic / Depository as the context may be)

DIN : Director Identification Number

DP : Depository Participant

DRT : Debt Recovery Tribunal

ECS : Electronic Clearing Service

ECGC : Export Credit Guarantee Corporation

EGM : Extraordinary General Meeting

EPS : Earnings per share

FCNR (Account) : Foreign Currency Non-Resident (Account)

FCNR (Banks) : Foreign Currency Non-Resident (Banks)

FDI : Foreign Direct Investment

FEMA : Foreign Exchange Management Act, 1999, as amended and any circulars, notifications, rules and regulations issued pursuant to the provisions thereof

Term Description FERA : Foreign Exchange Regulation Act, 1973

FI : Financial Institution

FII(s) : Foreign Institutional Investors registered with SEBI under applicable laws

FIPB : Foreign Investment Promotion Board

FY : Financial Year ended

GoI / Government : Government of India

HFT : Held for Trading

HTM : Held to Maturity

HRD : Human Resource Department

HUF : Hindu Undivided Family

ICAI : Institute of Chartered Accountants of India

ISIN : International Securities Identification Number

IT : Income Tax Act, 1961

ITAT : Income Tax Appellate Tribunal

KYC : Know Your Customer Norms as stipulated by the Reserve Bank of India

LAF : Liquidity Adjustment Facility

MICR : Magnetic Ink Character Recognition

MIS : Management Information System

MoU : Memorandum of Understanding

N.A. : Not Applicable

NAV : Net asset value

NEFT : National Electronic Fund Transfer

NPA : Non-Performing Asset

NR : Non Resident

NRE Account : Non Resident External Account

NRI(s) : Non Resident Indians, as defined in the Foreign Exchange Management (Deposit) Regulations, 2000, as amended

NSDL : National Securities Depository Limited

NSE / Designated Stock Exchange : The National Stock Exchange of India Limited

Term Description OCB(s) : Overseas Corporate Body(ies)

OCC : Open Cash Credit

PAN / GIR No. : Income Tax Permanent Account Number / General Index Reference Number

PAT : Profit after Tax

PBIT : Profit before Interest and Tax

RBI : Reserve Bank of India

RoC : Registrar of Companies, Tamil Nadu, located at Chennai

RBS : Risk Based Supervision

RTGS : Real time gross settlement

SARFAESI Act 2002 / Securitisation : Securitisation and Reconstruction of Financial Assets and Act Enforcement of Security Interest Act, 2002

SEBI : Securities and Exchange Board of India

SGL : Statutory General Ledger

SLR : Statutory Liquidity Ratio

STT : Securities Transaction Tax

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.

TL-B : Term Loan – Building

WDV : Written down value

YTM : Yield to Maturity

PRESENTATION OF FINANCIAL INFORMATION

Unless stated otherwise, the financial information used in this Draft Letter of Offer is derived from the Bank‟s financial statements as of fiscal 2010 and Reviewed Financial Statements for the six months ended on September 30, 2010 as stated in the report of M/s. R.K. Kumar & Co, Chartered Accountants, Chennai prepared in accordance with Indian GAAP and the Companies Act and in accordance with the SEBI (ICDR) Regulations, included in this Draft Letter of Offer.

The fiscal year of the Bank commences on April 1 and ends on March 31 of the next year. Unless stated otherwise, references herein to a fiscal year are to the fiscal year ended March 31 of a particular year.

In this Draft Letter of Offer, any discrepancies in any table between the total and the sum of the amounts listed may be due to rounding off.

Unless otherwise stated, throughout this Draft Letter of Offer all figures have been expressed in “ ` ” or “Rupees” and “ Rs. ”.

FORWARD LOOKING STATEMENTS

Statements included in this Draft Letter of Offer which contain words or phrases such as “will”, “aim”, “will likely result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue” and similar expressions or variations of such expressions, that are “forward-looking statements”. Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with the Bank‟s expectations with respect to, but not limited to, the Bank‟s ability to successfully implement its strategy, its growth and expansion, technological changes, its exposure to market risks, credit risks, operational risks, general economic and political conditions in India which have an impact on its business activities or investments, the monetary and interest policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry.

For further discussion of factors that could cause the Bank‟s actual results to differ, see the section entitled “Risk Factors” beginning on page 11 of this Draft Letter of Offer. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. In accordance with SEBI Regulations, the Bank will ensure that investors are informed of material developments until such time as the grant of listing and trading permission by the Stock exchange for the equity shares being issued.

Neither the Bank nor the Lead Manager(s) nor any of their respective affiliates or advisors have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI / Stock exchange‟ requirements, the Bank and Lead Manager will ensure that Investors are informed of material developments until the time of the grant of listing and trading permission for the Rights Equity Shares by the Stock exchange.

SECTION II - RISK FACTORS

An investment in equity and equity related securities involves a high degree of risk. You should carefully consider all the information in this Draft Letter of Offer, including the risks and uncertainties described below, before making an investment. If any of the following risks actually occur, the business, financial condition, results of operations and prospects could suffer, the trading price of the Equity Shares and the Rights Equity Shares of the Bank could decline and you may lose all or part of your investment. You should also pay particular attention to the fact that the Bank is governed in India by a legal and regulatory environment which in some material respects may be different from that which prevails in other countries. The Bank’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the considerations described below and elsewhere in this Draft Letter of Offer. 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 certain risks where the impact is not quantifiable and hence the same has not been disclosed in such risk factors.

Materiality:

The risk factors have been determined on the basis of their materiality. The following factors have been considered for determining their materiality:

1. Some events may not be material individually but may be found material collectively.

2. Some events may have a material impact qualitatively instead of quantitatively.

3. Some events may not be material at present but may have material impact in the future.

INTERNAL RISK FACTORS

1. The Bank is involved in certain legal proceedings that, if determined against the Bank, could have a material adverse impact on the Bank. The aggregate amount involved is approximately ` 790.79 crores as on September 30, 2010.

The Bank is party to various legal proceedings including writ petition proceedings, suits, consumer matters, labour related proceedings, and taxation disputes etc. A summary of the litigations involving the Bank is as under:

Sl. No. of Amount Involved Brief Description No. Cases ( ` in crores) 1 Suits filed by the Bank against defaulting borrowers 339 190.80 2 Suits filed against the Bank by borrowers / customers 42 7.46 / others In civil and consumer forum cases 3 Proceedings filed by the Bank on disputed tax claims Income Tax 21 483.47 Service Tax 5 2.46 4 Proceedings filed against the Bank on disputed tax claims Income Tax 4 93.28 Service Tax 5 12.95 7 Labour cases filed by the Bank 14 0.37 8 Labour cases against the Bank 22 Not ascertainable 9 Criminal proceedings against the Bank NIL NIL

Note: Suits involving the Bank which are not acknowledged as debts are 34 in number amounting to Rs. 7.36 crores.

There are 452 legal proceedings in which the Bank is involved. The proceedings are pending at various forums and are at different stages of adjudication. The aggregate amounts involved in these legal proceedings are approximately ` 790.79 crores as on September 30, 2010. There are 25 disputes relating to income tax assessments in which the aggregate amount involved is approximately ` 576.75 crores. In the event that an unfavorable order(s) is / are passed, the same may have an adverse effect on the Bank‟s operations and financial condition.

For details, see “Outstanding Litigation and Other Defaults” on page 107 of this Draft Letter of Offer.

2. Contingent liabilities could adversely affect the financial condition and results of operations of the Bank. As on September 30, 2010 the contingent liability amounted to ` 6,596.21 crores

The contingent liabilities not provided for as on March 31, 2010 and September 30, 2010 are as follows: ( ` in crores) Amount Amount (As on March (As on Contingent Liability 31, 2010) September 30, 2010) I Claims against the Bank not acknowledged as debts 5.22 7.36 II Liability on account of outstanding a) Forward Exchange Contracts 3,384.66 3,807.22 b) Derivatives 200.00 50.00 III Guarantees given on behalf of Constituents in India 1,299.31 1,510.61 IV Acceptances, Endorsements and other Obligations 973.06 1,221.02 TOTAL 5,862.25 6,596.21

The contingent liabilities have arisen in the normal course of business of the Bank and are subject to the prudential norms as prescribed by RBI. In the event such contingent liabilities materialize, it may have an adverse effect on the Bank‟s financial performance.

3. The Bank has a regional concentration in Southern India and any adverse change in the economy of Tamil Nadu and other south-Indian states can impact its results of operations. Additionally, the Bank may not be successful in expanding its operations to other parts of India.

As of September 30, 2010, out of its 353 branches, 296 branches are located in southern India including 185 branches which are located in Tamil Nadu, constituting 52.40 % of its total branch network. The concentration in the southern region and specifically in Tamil Nadu exposes the Bank to any adverse geological, ecological, economic and / or political circumstances in that region as compared to other banks that have more diversified national presence. Any disruption, disturbance or sustained downturn in the economy of Tamil Nadu and other south-Indian states could adversely affect its business, financial condition and results of operations.

Additionally, while the Bank continues to expand its operations outside its traditional areas such as Tamil Nadu and other south-Indian states, it faces risks with its operations in geographic areas in which it does not possess the same level of familiarity with the economy, consumer base and commercial operations. In addition, its competitors in such areas may already have established operations in such areas and the Bank may find it difficult to attract customers in such new areas. It may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on its advances, deposits and results of operations.

4. If the Bank is not able to maintain or reduce the level of NPA, business and financial condition of the Bank may be adversely affected.

The gross and net NPAs of the Bank as at the end of fiscal 2009-10 were at 1.72% and 0.23 % as against 1.95% and 0.25 % respectively during the previous fiscal 2008-09. The gross and net NPA as on September 30, 2010 stands at 1.55% and 0.16% respectively. The Bank has taken steps to reduce the NPA level through a continuous recovery drive and improved risk management practices. But if the Bank is not able to control and reduce the NPAs, it could adversely affect the business and future financial performance.

5. The Bank is exposed to risks related to lending, which could adversely affect the Bank‟s financial results

Some or all of the Bank‟s customers or counterparties may be unable or unwilling to meet their respective contractual commitments in relation to lending, trading, hedging, settlement and other financial transactions. This may materially and adversely affect the Bank‟s operations and may require the Bank to engage in protracted litigation and recovery proceedings which may not adequately compensate the Bank for losses suffered by it.

6. Net interest income comprises a substantial portion of the Bank‟s total income and the Bank is vulnerable to interest rate risk. Interest income which to a great extent depend on the interest rate movements. Volatility in interest rates and other market conditions could adversely impact the business and financial results.

For the year ended March 31, 2010 and for the six month period ended September 30, 2010, the net interest income represented 28.18% and 30.23% of the total income of the Bank respectively. Volatility and changes in market interest rates could affect the interest the Bank earns on its assets differently from the interest it pays on its liabilities. The difference could result in an increase in interest expense relative to interest income leading to a reduction in its net interest income. Accordingly, volatility in interest rates could materially and adversely affect the business and financial performance of the Bank. An increase in interest rates may also adversely affect the rate of growth of important sectors of the Indian economy, such as the corporate, retail and agricultural sectors, which may adversely impact the business of the Bank.

Interest rates, CRR and SLR are sensitive to many factors beyond the control of the Bank, including the RBI's monetary policy, deregulation of the financial sector in India and domestic and international economic and political conditions. Presently, the CRR prescribed by the RBI stands at 6.00% and the repo/ reverse repo rate at which banks borrow/ lend money from / to the RBI under liquidity adjustment facility is at 6.25% / 5.25%. Under the RBI regulations, the Bank is required to maintain a minimum specified Statutory Liquidity Ratio, which is presently 25% of its net demand and time liabilities in cash and government or other approved securities. As at March 31, 2010, 29.29% of the Bank‟s demand and time liabilities were in cash, government and other approved securities as SLR. As at September 30, 2010, 27.95% of the Bank‟s demand and time liabilities were in cash, government and other approved securities as SLR.As at March 31, 2010, 86.11% of its total investments, were in government and other approved securities for SLR. As at September 30, 2010, 85.97% of its total investments, were in government and other approved securities for SLR. The Bank has also made investments in unrated bonds as part of its non-SLR portfolio. Returns on these investments are dependent to a large extent on interest rates.

In a rising interest rate environment, especially if the increase was sudden or sharp, the Bank could be materially and adversely affected by the decline in the market value of the government securities portfolio and other fixed income securities and may be required to further provide for depreciation in the “Available for Sale” and “Held for Trading” categories. As at March 31, 2010, there were no investments under the “Held for Trading” category, 29.22% was in the “Available for Sale” category and 70.78% in the “Held to Maturity” category. As at September 30, 2010, there were no investments under “Held for Trading” category, 23.04% was in the “Available for Sale” category and 76.96% in the “Held to Maturity” category. The Bank is required to mark to market securities in the “Available for Sale” and “Held for Trading” categories which are subject to market risk. In respect of securities under the Held to Maturity category, the Bank is not required to mark the same to market but are required to amortize the difference between acquisition cost and face value of the security over the residual maturity period of the security wherever the acquisition cost is greater than the face value.

7. The Bank may fail to maintain the minimum capital adequacy requirements stipulated by the RBI which could materially and adversely affect its reputation, results of operations and financial condition.

The Bank is required by the RBI to maintain a minimum capital adequacy ratio of 9.00% (under Basel II norms) in relation to its total risk-weighted assets. It must maintain this minimum capital adequacy level to support its growth.

The capital adequacy ratio of the Bank was 14.49% (Basel II) as of March 31, 2010. And as of September 30, 2010, the total CAR was 13.38% (under Basel II norms). The Bank is exposed to the risk of the RBI increasing the applicable risk weightage for different asset classes from time to time. Although it currently meets the

13 applicable capital adequacy requirements, certain adverse developments could affect its ability to continue to satisfy the capital adequacy requirements, including deterioration in its asset quality, decline in the values of its investments and changes in the minimum capital adequacy requirements. Furthermore, its ability to support and grow its business could be limited by a declining capital adequacy ratio if it is unable to access or have difficulty accessing the capital markets or have difficulty in obtaining capital in any other manner. The Bank cannot assure that it will be able to obtain additional capital on commercially reasonable terms in a timely manner, or raise capital at all. If it fails to meet capital adequacy requirements, the RBI may take certain actions, including restricting its lending and investment activities and the payment of dividends by the Bank. These actions could materially and adversely affect its reputation, results of operations and financial condition.

8. A reduction in the credit rating of the Bank could materially and adversely affect its business, financial condition and results of operations.

The Certificate of Deposit Programme of the Bank for INR 20 billion (`2,000 crores) are rated „P1+‟ by the credit rating agency CRISIL for INR 10 billion (`1,000 crores) and another INR 10 billion(`1,000 crores) by ICRA which has assigned the rating „A1+‟. Both the ratings indicate highest credit quality. A downgrade in credit rating may negatively affect the Bank‟s ability to obtain funds and increase the financing costs by increasing the interest rates of its outstanding debt or the interest rates at which the Bank is able to refinance existing debt or incur new debt, which may adversely affect its business, financial condition and results of operations.

9. The Bank has previously been penalized for not being in compliance with the RBI circulars and may face further penalties from the RBI and / other regulatory bodies that govern the Bank in case of non –compliance in future, which could materially and adversely affect its reputation and results of operations.

On account of the discrepancies detected during the examination of soiled notes received in a remittance made by one of the Bank‟s currency chest to RBI, a sum of ` 200/- was debited by RBI as penalty for non- compliance of operational guidelines. The Bank has put in place adequate measures for strict compliance of the guidelines.

10. The Bank is exposed to various industry sectors. Deterioration in the performance of any of the industry sectors where the Bank has significant exposure may adversely impact its business.

The credit exposure of the Bank to borrowers is dispersed across various sectors including, infrastructure, real estate, textile, iron and steel, petroleum, construction, cement, chemicals and chemical products, engineering and other industries. The funded exposure of the Bank in the infrastructure sector, which is the largest industry in which the Bank has funded exposure, as of March 31, 2010 was ` 2,296.72 crores which constituted 16.79 % of its total funded exposure. And as on September 30, 2010 the exposure in the infrastructure sector stood at 15.34%. Any significant deterioration in the performance of a particular sector, including due to regulatory action or policy announcements by Government or State government authorities, could adversely impact the ability of borrowers in that industry to service their debt obligations owed to the Bank.

In addition, the top five industries accounted for 38.86 % and 34.88% of the Bank‟s funded exposure as of March 31, 2010 and as of September 30, 2010 respectively. Based on funded exposures, the five largest industry exposures were to the (I) infrastructure, (ii) real estate, (iii) textile, (iv) iron and steel and (v) petroleum industries. The detail of the total funded exposures to these industries is given below. ( ` In crore) As on March 31, 2010 As on September 30, 2010 Industry Amount % to total funded Amount % to total funded Outstanding exposure Outstanding exposure Infrastructure 2,296.72 16.79% 2,342.14 15.34% Textile 1495.04 10.93% 1,529.62 10.02% Real Estate 983.72 7.19% 923.25 6.05% Iron and Steel 518.89 3.79% 527.42 3.45% Petroleum 19.79 0.14% 4.07 0.03% Total 5314.16 38.86% 5,326.50 34.88%

Market difficulties in these industries could increase the Bank‟s non-performing loans, which may materially and adversely affect its business, results of operations and financial condition.

The Bank is also exposed to infrastructure projects which are still under development and are open to risks arising out of delay in execution, failure of borrowers to execute projects on time, delay in getting approvals from necessary authorities and breach of contractual obligations by counterparties, all of which may adversely impact the projected cash flows. There can be no assurance that these projects will perform as anticipated. Risks arising out of a recession in the economy, a delay in project implementation or commissioning could lead to rise in delinquency rates and in turn, adversely impact the Bank‟s financial performance and results of operations.

11. There are operational risks associated with the Bank which, when realised, may have an adverse impact on the results of the Bank.

The Bank is exposed to many types of operational risks, including the risk of fraud or other misconduct by employees or outsiders, theft or robbery, unauthorised transactions by employees or operational errors, including clerical or recordkeeping errors or errors resulting from faulty computer or telecommunications systems.

Given the volume of transactions of the Bank, certain errors may be repeated or compounded before they are discovered and successfully rectified. The Bank cannot guarantee that such events will not occur in the future. Any such event could disrupt the reputation, operations, or otherwise have a material adverse effect on its business, financial condition or results of operation.

The Bank also faces the risk that the design of controls of the Bank and procedures prove inadequate, or may be circumvented, thereby causing delays in detection or errors in information. Although the Bank maintains a system of controls designed to keep operational risk at appropriate levels, there can be no assurance that the Bank will not suffer losses from operational risks in the future.

12. Loans written off by the Bank.

During the half year ended September 30, 2010 the Bank has written off loan accounts to the tune of ` 0.77 crores.

13. The Bank may experience delays in enforcing its collateral in the event of borrower defaults on their obligations to the Bank, which may result in an inability to recover the expected value of the collateral which could adversely impact its financial results.

The Bank takes collateral for a large proportion of its loans, including mortgages, pledges or hypothecation of inventories, receivables and other current assets, and, in some cases, charges on fixed assets and financial assets, such as marketable securities. As of March 31, 2010, 90.09% of its net advances were secured by tangible assets, such as properties, plant and machinery, inventory, receivables and other current assets. This stood at 90.51% of its net advances as on September 30, 2010.

Foreclosure of such securities may require court or tribunal intervention that may involve protracted proceedings, and the process of enforcing security interests against collateral can be difficult. As a result, it may be difficult and time consuming for the Bank to take control of or liquidate the collateral securing any non- performing loans. Any delays in enforcement could result in a decline in the value of the collateral securing its loans, which may decrease the amounts the Bank can recover on the underlying loans which could adversely impact its financial results. Such difficulties in realizing the collateral fully or at all, including if it is instead compelled to restructure the loans, could adversely affect the business and financial results of the Bank.

14. The risk management policies and procedures of the Bank may not adequately address unanticipated risks.

Inability to develop and implement effective risk management policies may adversely affect the business, financial condition and results of operations of the Bank.

The Bank has devoted significant resources to develop its risk management policies and procedures and expects to continue to do so in the future. Despite this, its policies and procedures to identify, monitor, manage and mitigate risks may not be fully effective. Some of its 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. As it seeks to expand

15 the scope of its operations, the Bank also faces the risk of inability to develop risk management policies and procedures that are properly designed for those new business areas. Implementation and monitoring may prove particularly challenging with respect to any businesses that it may initiate.

Inability to develop and implement effective risk management policies may adversely affect the business, financial condition and results of operations of the Bank.

15. If the Bank is unable to adapt to rapid technological changes, its business, future financial performance could suffer.

The future success and ability of the Bank to compete with other banks will depend, in part, on its 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 the Bank will successfully upgrade or implement new technologies effectively or adapt its transaction processing systems to customer requirements or emerging industry standards. If the 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, the financial performance of the Bank could be materially affected.

16. Significant security breaches in the computer systems and network infrastructure could adversely impact its business.

The Bank seeks to protect its computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems. Computer break-ins and power disruptions could affect the security of information stored in and transmitted through these computer systems and networks. The Bank has implemented the Internet banking platform and bank believes that these concerns will intensify with its increased use of technology and Internet-based resources. To address these issues and to minimise the risk of security breaches, bank employ security systems, including firewalls and intrusion detection systems, conduct periodic penetration testing for identification and assessment of potential vulnerabilities and use encryption technology for transmitting and storing critical data such as passwords. However, these systems may not guarantee prevention of frauds, break-ins, damage or failure. A significant failure in security measures could have an adverse effect on its business.

17. If the Bank is not able to renew or maintain its statutory and regulatory permits and approvals and licenses required to operate the business, it may have a material and adverse effect on the business, financial condition and results of operations.

The Bank requires certain statutory and regulatory permits and approvals and licenses to operate its business. It currently has all the approvals and licenses required for carrying on its operations. However, in the future, the Bank will be required to renew its permits and approvals and obtain new permits and approvals for its proposed operations, if any. While it believes that it will be able to renew or obtain such permits and approvals as and when required, there can be no assurance that the relevant authorities will issue any of such permits or approvals in the time-frame anticipated by it or at all. The failure to renew, maintain or obtain the required permits or approvals, including those set forth above, may result in the interruption of its operations or delay or prevent its expansion plans and may have a material and adverse effect on the business, financial condition and results of operations of the Bank.

18. Most of the Bank‟s business premises are on lease basis.

As on September 30, 2010, the Bank has 353 branches, out of which 325 are located on leased premises. In addition, it has 424 ATMs out of which 30 ATMs are located on the freehold properties of the Bank and the remaining 394 ATMs are on leased premises. Any failure to renew lease agreements for these premises on terms and conditions favourable to the Bank may require it to shift the concerned branch offices, regional offices or the ATMs to new premises. This might affect its business operations.

As of September 30, 2010, 16 lease agreements of the Bank had expired. The Bank is taking steps to renew the leases either on existing or on modified terms.

19. The Bank relies on the accuracy and completeness of information provided to it about its customers and counterparties which if not accurate and complete may have a negative impact on its financial condition.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, the Bank may rely on information furnished to it by or on behalf of customers and counterparties, including financial statements and other financial information. The Bank 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, the Bank 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 financial condition and results of operations of the Bank 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.

20. New product / services offered by the Bank may not be successful which may have a material adverse effect on its business, financial condition or results of operation.

The Bank introduces new products / services to explore new business opportunities. It cannot assure that all its new products / services will gain customer acceptance and this may result in the incurring of preoperative expenses and launch costs. Further, the inability to grow in new business areas could adversely affect the Bank‟s business and financial performance.

21. Inability to attract and retain talented and professional manpower.

Inability to attract and retain talented professionals or the resignation or loss of key management personnel may have an impact on the Bank‟s business and financial performance. The Bank‟s Human Resource Development (HRD) policy aims at bringing in new talent to meet the growing challenges in dynamic scenario in banking sector. Attempts have been made for lateral recruitment of skilled and professional candidates and imparting training to upgrade their skills. The attrition rate in the key management positions in the Bank is very low.

22. The Equity Shares will be partly paid until they are made fully paid up from the date of allotment.

The Rights Issue of equity shares is being made at a price of ` 150/- per share. All the shareholders will have to pay 40% of the issue price on application, 30% on First call and the balance 30% on the second and final call.. Investors in the rights offering will be required to pay the money due on first and second and final call, even if, at that time, the market price of the Equity Shares is less than the Issue Price. If the holder fails to pay the call money with any interest that may have accrued thereon after notice has been delivered by the Bank, then any shares in respect of which such notice has been given may, at any time thereafter before payment of the call money and interest and expenses due in respect thereof, be forfeited by resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and actually paid before the forfeiture.

23. Partly paid shares will be suspended from trading as per the rules and regulations of the Exchange prior to the Record Date fixed for the determination of the shareholders liable to pay the First and Final Call.

The Rights Issue of equity shares is being made at a price of ` 150/- per share. All the shareholders will have to pay 40% of the issue price on application, 30% on First call and the balance 30% on the second and final call. Till such time as the total amount of ` 150/- is paid, the equity shares shall be considered to be partly paid up. The partly paid up shares will be listed and traded under a separate ISIN granted by the Depositories. The Bank will fix a record date to determine the list of shareholders to whom the Call Money Notice (defined hereinafter) would be sent for the first and then for the second and final Call. The Bank shall give advance notice to the NSE as per its requirement while fixing up the record date for making a call, and the trading in the partly paid up shares would be suspended as per the rules and regulations of NSE. The process of corporate action for credit of fully paid shares to the demat account of the shareholder may take some time from the date of last date of payment of the amount payable on Call.

24. The Bank may not be able to assure of the deployment of funds as stated in objects as it is at the discretion of the Board of Directors and not subject to monitoring by any independent agency.

The requirement of funds for meeting the objects of the issue has not been appraised by any bank or financial institutions and is based on the management‟s internal estimates. The Bank is in no position to assure the deployment of the funds so collected for the objects of the issue stated in the DLOF.

EXTERNAL RISK FACTORS

25. The Indian and global banking industry is very competitive and if the Bank is unable to effectively respond to competitive pressures it may adversely affect its business and growth.

The Bank competes with several public and private sector Indian commercial banks as well as foreign commercial banks. Some of its competitors are large institutions, and may have much larger customer and deposit bases, larger branch networks and more capital than that of the Bank. Some of its competitors may be better positioned to take advantage of market opportunities than it. The Bank faces competition in some or all of its products and services from Indian and foreign commercial banks, NBFCs, mutual funds and other entities operating in the Indian financial sector. In particular, private banks in India may have operational advantages in implementing new technologies, rationalising branches and recruiting employees through incentive-based compensation. In terms of the Consolidated FDI Policy, 2010 (“FDI Policy”), foreign banks are permitted to operate in India through its branches or establish wholly-owned subsidiaries in India or invest up to 74% in the equity of Indian private sector banks, which is likely to further increase competition in the Indian banking industry. The foreign banks that have established branches in India have aggressively pursued market share.

Additionally, the RBI has recently indicated that it intends to issue new banking licenses in order to expand the banking sector which would lead to higher competition amongst the banks. Further, the GoI is also encouraging banks and other financial institutions to significantly increase their lending to the agriculture sector, which will make this segment more competitive.

Increased competitive pressure may have an adverse impact on the earnings of the Bank, its future financial performance and the market price of the Equity Shares. The Bank‟s future success will depend in large part on its ability to respond in an effective and timely manner and its ability to compete effectively.

26. Consolidation in the banking sector in India may adversely affect the Bank.

The GoI has expressed a preference for consolidation in the banking sector in India. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for merged entities. If there is liberalisation of the rules for foreign investment in private sector banks, this could result in consolidation in the banking sector. The Bank may face greater competition from larger banks as a result of such consolidation, which may adversely affect the Bank‟s future financial performance and the market price of the Equity Shares.

27. Banking is a heavily regulated industry and material changes in the regulations that govern it could adversely affect the business of the Bank.

Banks in India are subject to detailed supervision and regulation by the RBI. In addition, banks are subject generally to changes in Indian law, as well as to changes in regulation and GoI policies and accounting principles. Any change in the laws and regulations governing the banking sector could materially and adversely affect the banking sector as a whole, its business, its future financial performance, its shareholders‟ funds and the price of its Equity Shares, by requiring a restructuring of its activities and increasing costs.

The Bank can carry on business / activities as specified in the Act. There is no flexibility to pursue profitable avenues if they arise, in contrast with other companies, where shareholders can amend the Object Clause by a Special Resolution.

There are a number of restrictions under the Bank Acquisition Act, the Banking Regulation Act, the Nationalised Bank Scheme and various RBI notifications, press notes and circulars that affect the Bank‟s operating flexibility and affect or restrict the rights of investors. These restrictions are different from those normally applying to shareholders of companies incorporated under the Companies Act, and include the following:

a) Setting up of subsidiaries by a Bank b) Management of the Bank including appointment of Directors c) Borrowings and creation of floating charge thereby hampering leverage. Banks may have to resort to unsecured debt instruments for borrowings d) Expansion of business as branches need to be licensed e) Disclosures in the Profit and Loss Account and Balance Sheet f) Production of documents and availability of records for inspection by shareholders g) Reconstruction of banks through amalgamation etc. h) Voluntary winding up i) Ownership restrictions

The financial disclosures in the Draft Letter of Offer may not be available to investors after listing, on continuous basis.

Some of the rights / powers of shareholders available under the Companies Act are not available to the shareholders of Banks.

No banking company shall pay dividend on its shares until all its capitalised expenses (including preliminary, organisational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off.

Further, any change in the laws and regulations governing the banking sector in India may materially and adversely affect its business, financial condition and results of operations.

There are a number of restrictions under the Banking Regulation Act, which impede the operating flexibility and affect or restrict investors‟ rights. These include the following:

Section 12(2) of the Banking Regulation Act states that “no person holding shares in a banking company shall exercise voting rights on poll in excess of 10.00% of the total voting rights of all the shareholders of the banking company”. Section 15(1) of the Banking Regulation Act states that “no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organization expenses, share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off”. Section 17(1) of the Banking Regulation Act requires every banking company to create a reserve fund and to transfer out of the balance of the profit of each year as disclosed in the profit and loss account a sum equivalent to not less than 20.00% (the RBI circular dated September 23, 2000 has fixed this limit at 25.00%) of such profit before paying any dividend. Section 19 of the Banking Regulation Act restricts the forming of subsidiaries by banks, which may prevent the Bank from exploiting emerging business opportunities. Similarly, Section 23 of the Banking Regulation Act contains certain restrictions on banking companies regarding the opening of new places of business and transfers of existing places of business, which may hamper the operational flexibility. Section 25 of the Banking Regulation Act requires each banking company to maintain assets in India equivalent to not less than 75.00% of its demand and time liabilities in India, which in turn may restrict the Bank from building overseas asset portfolios and exploiting overseas business opportunities. The Bank is required to obtain approval of RBI for the appointment and remuneration of the part time chairman and other whole time directors. RBI has powers to remove managerial and other persons from office, and to appoint additional directors. The Bank is also required to obtain approval of the RBI for the creation of floating charges on the borrowings, thereby hampering leverage. The Banking Regulation Act also contains provisions regarding production of documents and availability of records for inspection. Subject to and on account of laws governing banking companies, the financial disclosures in the offer document may not be available to the investors on a continuous basis after listing A compromise or arrangement between the Bank and the creditors or any class of them or between the Bank and the shareholders or any modification in such arrangement or compromise will not be sanctioned by any High Court unless such compromise or arrangement or modification, as the case may be, is certified by RBI in writing as capable of being implemented and as not being detrimental to the interests of the depositors. The amalgamation with any other banking company will require the

sanction of RBI and shall be in accordance with the provisions of the Banking Regulation Act. The provisions for winding up of banking companies as specified in the Banking Regulation Act are at variance with the provisions of the Companies Act. Further, RBI can also apply for winding up of a banking company in certain circumstances and can also be appointed as the liquidator and the GoI could acquire the undertakings of banking companies in certain cases. The forms of business in which the Bank may engage are specified and regulated by the Banking Regulation Act. Pursuant to the provisions of section 8 of Banking Regulation Act, the Bank cannot directly or indirectly deal in the buying, selling or bartering of goods by itself or for others, except in connection with the realisation of security given to us or held by the Bank, or in connection with bills of exchange received for collection or negotiation, or in connection with the administration of estates as executor, trustee or otherwise, or in connection with any business specified under section 6(1)(o) of the Banking Regulation Act. Goods for this purpose means every kind of movable property, other than actionable claims, stocks, shares, money, bullion and all instruments referred to in section 6(1)(a) of Banking Regulation Act. Unlike a company incorporated under the Companies Act, which may amend the objects clause of its Memorandum of Association to commence a new business activity, banking companies may only carry on business activities permitted by Section 6 of the Banking Regulation Act or specifically permitted by the Reserve Bank of India. This may restrict the ability to pursue profitable business opportunities as they arise.

28. Changes to the prudential norms by the RBI requiring banks to maintain higher provisioning norms would adversely affect its profitability.

In the event of the RBI effecting any changes to the prudential norms requiring banks to maintain higher provisioning norms for non performing assets, such increase in provisioning requirement would adversely impact the profitability, business, financial condition or results of operations of the Bank.

29. Foreign investment in the Bank is subject to limits specified by the Government of India.

Under Indian laws, the aggregate permissible foreign investment (including foreign direct investment („„FDI‟‟) and investment by registered foreign institutional investors („„FIIs‟‟) and non-resident Indians („„NRIs‟‟) in a private sector bank, such as the Bank, is limited to an aggregate of 74% of the paid up capital. Further, the foreign exchange regulations stipulate that the aggregate foreign institutional investor‟s / FII‟s holding cannot exceed 24% of the total issued capital. However, with the approval of the Board of Directors and the shareholders by way of a special resolution, the aggregate FII holding in a company can be increased up to sectoral limits. Presently, the FII shareholding limit of its Bank is 24% (Board has approved for increase in the limit to 35% through its resolution on 07.09.2010, which is subject to Regulatory approval) of the paid up capital of the Bank. As of September 30, 2010, the level of aggregate foreign investment (including NRI investment) in the Bank was 23.728%.

30. Political instability and significant changes in the Government‟s policy on liberalisation of the Indian economy could impact the Bank‟s financial results and prospects.

India has been charting a course of economic liberalisation and the Bank‟s business could be significantly influenced by the economic policies of the Government. However, there can be no assurance that these liberalisation policies will continue in the future. The rate of economic liberalisation could change, and laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in the Bank‟s securities could change as well. Any significant change in liberalization and deregulation policies could adversely affect business and economic conditions in India generally and the Bank‟s business in particular. If the Government introduces significant changes, the competitive position of the Bank‟s borrowers may be adversely affected and this may impact the quality of the Bank‟s loan portfolio.

31. Recent global economic conditions have had, and continue to have, an adverse effect on the Indian financial markets and the Indian economy in general, which has had, and may continue to have, a material adverse effect on its business, financial condition and results of operations and the price of its Equity Shares.

Since August 2007, the global financial system experienced difficult credit and liquidity conditions and disruptions leading to less liquidity, greater volatility, general widening of spreads and, in some cases, lack of price transparency on inter-bank lending rates. These adverse trends accelerated sharply following the bankruptcy filing by Lehman Brothers in September 2008, leading to a global financial and economic crisis. In

20 the US (where this particular crisis originated), the government has been forced to bail out leading financial institutions and inject additional capital in other banks. Likewise, in several European countries, the governments have injected capital into banks and have guaranteed deposits or increased the level of deposit guarantees. Although the proximate cause of this particular financial crisis, which is deeper than other recent financial crises, was the US residential mortgage market, investors should be aware that there is a recent history of financial crises and boom-bust cycles in multiple markets in both the emerging and developed economies which leads to risks for all financial institutions, including the Bank. A loss of investor confidence in the financial systems of India or other markets and countries or any financial instability in India or any other market may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector, the Bank‟s business and its future financial performance. The recent financial crisis has had a limited direct impact on it and the Bank have not experienced the same degree of write-downs as banks that were exposed to, or invested in, the US residential mortgage market. The Bank remains subject, moreover, to the risks posed by the indirect impact of the global credit crisis on the economy, some of which cannot be anticipated and the vast majority of which are not in its control. The Bank also remains subject to counterparty risk to financial institutions that fail or are otherwise unable to meet their obligations to it.

32. A prolonged slowdown in economic growth or rise in interest rates in India could cause the business of the Bank to suffer.

The current slowdown in the Indian economy could adversely affect the Bank‟s business and its borrowers and contractual counterparties, especially if such a slowdown were to be continued and prolonged. The growth rate of India‟s Gross Domestic Product (“GDP”) which was 9.0% or higher in each of fiscal 2006, fiscal 2007 and fiscal 2008, moderated to 6.7% during fiscal 2009. The GDP growth in the first quarter of fiscal 2010 at 6.1% represented a recovery over the 5.8% growth recorded during the preceding two quarters in the second half of fiscal 2009. From 2005, interest rates in the Indian economy increased significantly following monetary measures to control rising inflation, and the Bank experienced a slowdown in disbursements of housing, automobile and other retail loans in fiscal 2007, fiscal 2008 and fiscal 2009. Even though the Reserve Bank of India has significantly reduced policy rates since October 2008, the course of market interest rates continues to be uncertain due to the increase in the fiscal deficit and the government borrowing program. Any increase in inflation in the future, due to increases in prices of commodities such as crude oil or otherwise, may result in a tightening of monetary policy. The uncertainty regarding liquidity and interest rates and any increase in interest rates or reduction in liquidity could adversely impact its business. The Indian economy in general and the agriculture sector in particular may be impacted by the level and timing of monsoon rainfall.

Further, in light of the increasing linkage of the Indian economy to other economies, the Indian economy is increasingly influenced by economic and market conditions in other countries. As a result, recession in the United States and other countries in the developed world and slowdown in economic growth in major emerging markets like China could have an adverse impact on economic growth in India. A slowdown in the rate of growth in the Indian economy could result in lower demand for credit and other financial products and services and higher defaults among corporate, retail and rural borrowers, which could adversely impact the Bank‟s business, its financial performance, its stockholders‟ equity, its ability to implement the strategy and the price of its Equity Shares.

The Bank‟s performance and the quality and growth of its assets are necessarily dependent on the health of the overall Indian economy. In addition, the Indian economy is in a state of transition. The share of the services sector in the economy is rising while that of the industrial, manufacturing and agricultural sectors is declining. It is difficult to gauge the impact of these fundamental economic changes on the business. Any slowdown in the Indian economy or future volatility in global commodity prices could materially and adversely affect its business, financial condition and results of operations.

33. Significant differences exist between Indian GAAP and other accounting principles, such as U.S. GAAP and IFRS, which may be material to investors‟ assessments of the financial condition of the Bank. Failure to successfully adopt IFRS could have a material adverse effect on its stock price.

The financial statements of the Bank, including the financial statements provided in this Draft Letter of Offer are prepared in accordance with Indian GAAP. The Bank has not attempted to quantify the impact of U.S. GAAP or IFRS on the financial data included in this Draft Letter of Offer, nor does it provide a reconciliation of its financial statements to those of U.S. GAAP or IFRS. Each of U.S. GAAP and IFRS differs in significant respects from Indian GAAP. Accordingly, the degree to which the Indian GAAP financial statements included

21 in this Draft Letter of Offer will provide meaningful information is entirely dependent on the reader‟s level of familiarity with Indian accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Draft Letter of Offer should accordingly be limited.

The Ministry of Corporate Affairs and the ICAI, the accounting body that regulates the accounting firms in India, have announced a road map for the adoption of, and convergence of Indian GAAP with the IFRS (the “converged accounting standards”) pursuant to which all scheduled commercial banks in India will be required to prepare their annual and interim financial statements under converged accounting standards beginning with fiscal period commencing April 1, 2013. Because there is significant lack of clarity on the adoption of and convergence with IFRS and there is not yet a recognized body of established practice on which to draw in forming judgments regarding its implementation and application, the Bank has not determined with any degree of certainty the impact that such adoption will have on its financial reporting. There can be no assurance that its financial condition, results of operations, cash flows or changes in shareholders' equity will not appear materially worse under converged accounting standards than under Indian GAAP. As the Bank is transitioning to converge accounting standards, it may encounter difficulties in the ongoing process of implementing and enhancing its MIS. Moreover, there is increasing competition for the small number of IFRS- experienced accounting personnel available as more Indian companies begin to prepare financial statements based on converged accounting standards. There can be no assurance that the adoption of converged accounting standards will not adversely affect the Bank‟s reported results of operations or financial condition and any failure to successfully adopt converged accounting standards by April 2013 could have a material adverse effect on its stock price.

34. A nation-wide credit bureau has become operational in India only recently and may not provide adequate information.

The credit risk of borrowers in India is higher than in more developed countries. A nation-wide credit bureau, CIBIL, has become operational in India in the year 2000. CIBIL‟s database is in the process of development which may affect the quality of information available about the credit history of its borrowers, especially individuals and small businesses. Until such time, it may be more susceptible to higher NPAs compared to banks in more developed economies.

35. Any volatility in the exchange rate and increased intervention by the Reserve Bank of India in the foreign exchange market may lead to a decline in India‟s foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact the Bank.

The direct adverse impact of the global financial crisis on India was felt in the form of reversal of capital inflows and decline in exports, leading to pressures on the balance of payments and a sharp depreciation of the Indian rupee compared to the US dollar. Any increased intervention by the Reserve Bank of India in the foreign exchange market to control the volatility of the exchange rate may result in a decline in India‟s foreign exchange reserves and reduced liquidity and higher interest rates in the Indian economy, which could adversely affect the business, financial condition and results of operations of the Bank.

36. Trade deficits could materially and adversely affect the Bank‟s business and the price of the Bank‟s Equity Shares.

India‟s trade relationships with other countries and its trade deficit, driven to a major extent by global crude oil prices, may adversely affect Indian economic conditions. If trade deficits increase or are no longer manageable because of the rise in global crude oil prices or otherwise, the Indian economy, and therefore the Bank‟s business, its financial performance, shareholders‟ funds and the price of its Equity Shares could be materially and adversely affected.

37. Natural calamities, climate change and health epidemics could adversely affect the Indian economy and could in turn adversely affect the Bank‟s business.

India has experienced natural calamities like earthquakes, floods and drought in the past few years. The extent and severity of these natural disasters determine their impact on the Indian economy. In particular, climatic and weather conditions, such as level and timing of monsoon rainfall, impact the agricultural sector which constitutes approximately 17% of India‟s GDP. For example, in fiscal 2003, many parts of India received significantly less than normal rainfall. As a result, the agricultural sector recorded a decline of 7.2%. While the growth rate of the agricultural sector was 10.0% in fiscal 2004, it was negligible in fiscal 2005 due to the erratic

22 progress of the monsoon which adversely affected sowing operations for certain crops. During the third quarter of fiscal 2009, the agricultural sector recorded a decline of 0.8%. Further, any prolonged spells of below or above normal rainfall or other natural calamities, or global or regional climate change, could adversely affect the Indian economy and its business, especially the rural portfolio.

Health epidemics could disrupt the Bank‟s business. From April 2009, there have been outbreaks of swine flu, caused by H1N1 virus, in certain regions of the world, including India. Any future outbreak of health epidemics may restrict the level of business activity in affected areas, which may in turn adversely affect its business.

38. Any downgrading of India‟s debt rating by an international rating agency could have a negative impact on the business.

Any adverse revisions to India‟s credit ratings for domestic and international debt by international rating agencies may adversely impact the Bank‟s ability to raise additional financing, and the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on its business and future financial performance, its ability to obtain financing for capital expenditures, and the price of its Equity Shares.

39. Share price of the Bank may fall below the historical price levels.

The share price data of the Bank incorporated herein pertains to Equity Shares prior to the Rights Issue. The price of Equity Shares of the Bank may potentially vary significantly following the Issue and may potentially fall to levels which are below the historical price levels of the Equity Shares.

40. The market value of an investment in the Equity Shares of the Bank may fluctuate due to the volatility of the Indian securities markets

The Indian Stock Exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. Such fluctuations and volatility could affect the market price and liquidity of the securities of Indian companies, including the Equity Shares. Moreover, there have been occasions when secondary market operations have been interrupted and/or affected due to temporary exchange closures, broker defaults, settlement delays and strikes by brokerage firm employees. In addition, the governing bodies of the Indian Stock Exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements.

41. There is no guarantee that the Rights Equity Shares will be listed on the Stock Exchange in a timely manner and any trading closures at the Stock Exchange may adversely affect the trading price of the Rights Equity Shares.

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

The Stock Exchange(s) have in the past experienced problems, including temporary exchange closures, broker defaults, settlements delays and strikes by brokerage firm employees, which, if continuing or recurring, could affect the market price and liquidity of the securities of Indian companies. The existing equity shares of the Bank are listed on The National Stock Exchange of India Ltd. (NSE) which is the Designated Stock Exchange and are also being traded on the BSE under the permitted category. A closure of, or trading stoppage on, either of the exchanges could adversely affect the trading price of the Right Equity Shares. Further, the Equity Shares will be listed on the NSE. The shares allotted shall be listed with the stock exchange within stipulated time period as per ICDR Regulations.

Prominent Notes:

i. The RBI conducts regular inspections of banking companies under the provisions of the Banking Regulation Act. The reports of the RBI are strictly confidential. The RBI does not permit disclosure of its inspection report.

ii. This Issue is of 30,502,976 Rights Equity Shares having a face value of `10/- each for cash at a premium of ` 140/- per Rights Equity Share on rights basis to the existing Equity Shareholders of the Bank in the ratio of 2 Rights Equity Share for every 5 Equity Share held on the Record Date i.e. [●] in terms of this Draft Letter of Offer. The Issue is for an amount aggregating to ` 457.54 crores.

iii. Net worth of the Bank as on March 31, 2010 and as on September 30, 2010 was ` 1,619.98 crores and ` 1,807.06 crores respectively.

iv. The book value per Equity Share as per the audited financial statement of the Bank as on March 31, 2010 and as on September 30, 2010 was ` 297.60 and ` 237.15 respectively.

v. The Bank has entered into certain related party transactions as disclosed in the section titled “Related Party Transaction” on page 81.

vi. None of the promoter(s) or the Directors, Promoters and promoter group of the Bank and their relatives have financed the purchase by any other person of securities of the Bank other than in the normal course of the business of the financing entity during the period of six months immediately preceding the date of filing this Draft Letter of Offer with SEBI.

vii. No loans and advances have been granted to its Directors viii. For transactions in Equity Shares by Directors of the Bank in the last six months, please refer to the section entitled “Capital Structure” on page 35.

ix. The Investors shall have an option to get the Rights Equity Shares in physical or dematerialized form.

x. Trading in equity shares for all investors shall be in dematerialised form only.

xi. Other than as stated in this Draft Letter of Offer under section titled “Management” on page 59, the Directors / Key Management Personnel have no interest other than to the extent of Equity Shares of the Bank held or reimbursement of expenses incurred or normal remuneration or benefits.

xii. The Lead Manager and the Bank shall make any information relating to the Issue available to the investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever. xiii. The Lead Manager and the Bank shall keep the shareholders/public informed of any material changes till the listing and trading commencement and the Bank shall continue to make all material disclosures as per the terms of the listing agreement. xiv. An investor may contact Lead Manager or Company Secretary and Compliance Officer of the Bank for any queries / complaints pertaining to the Issue.

SECTION III – INTRODUCTION

THE ISSUE

Pursuant to the resolution passed by the Board of Directors of the Bank under Section 81(1) of the Companies Act, 1956 at the meeting held on September 7, 2010, it has been decided to make the following offer to the Eligible Equity Shareholders of the Bank, with a right to renounce.

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 the chapter titled “Terms of the Issue” beginning on page 122 of this Draft Letter of Offer.

Rights Equity Shares being 30,502,976 Rights Equity Shares offered by the Bank Rights Entitlement for Rights 2 Rights Equity Shares for every 5 Equity Shares held on the Record Date Equity Shares Record Date [●] Face Value per Rights Equity ` 10/- Shares Issue Price per Rights Equity ` 150/- at a premium of ` 140/- per Rights Equity Share Share Equity Shares outstanding 76,257,442 Equity Shares prior to the Issue Equity Shares outstanding 106,760,418 Equity Shares after the Issue For more information, please refer to the section entitled “Terms of the Terms of the Issue Issue” beginning on page 122 of this Draft Letter of Offer.

Payment terms

Payment Method* Amount Payable per equity share Applicable to all categories of shareholders (in `) Face Value Premium Total On Application 6 54 60 First call 2 43 45 Second and final call 2 43 45 Total 10 140 150 * Please see risk factor no. 22 in the chapter titled “Risk Factors” beginning on page 11 of this Draft Letter of Offer for risks associated with Payment Method. For details on the payment methods please see “Terms of the Issue” beginning on page 122 of this Draft Letter of Offer.

Note: 1. All categories of Investors are eligible for this payment method. 2. While making an Application, the Investor shall make a payment of ` 60/- per Rights Equity Share. 3. Out of the amount of ` 60 /- paid on application, ` 6/- would be adjusted towards the face value of the Rights Equity Shares and ` 54/- shall be adjusted towards the share premium of the Rights Equity Shares. 4. The Bank reserves the right to adjust the amount received over and above the Application money towards the first call money and the balance, if any, will be refunded to the applicant. 5. First and Second and Final Call Notices shall be sent by the Bank for making the payment towards the balance amount due. 6. Rights Equity Shares in respect of which the balance amount payable remains unpaid may be forfeited, at any time after the due date for payment of the balance amount due.

For further information please refer to the chapter titled “Terms of the Issue” beginning on page 122 of this Draft Letter of Offer.

SUMMARY FINANCIAL STATEMENTS

The following tables set forth the summary of the financial information derived from the financial statement of the Bank as of Fiscal 2010, Fiscal 2009 and reviewed financial statements for the six months period ended on September 30, 2010. The financial statements have been prepared in accordance with Indian GAAP and the ICDR Regulations and are presented in the section titled “financial statements” beginning on page 67 of this Draft Letter of Offer. The summary financial information presented below should be read in conjunction with the financial statements, notes thereto beginning from page 67 of this Draft Letter of Offer.

BALANCE SHEET AS AT 31ST MARCH, 2010

( ` In Crore)

Particulars Schedule AS ON 31.03.2010 AS ON 31.03.2009 CAPITAL & LIABILITIES Capital 1 54.44 53.95 Reserves & Surplus 2 1,565.54 1,296.21 Deposits 3 19,271.85 15,101.39 Borrowings 4 475.88 23.04 Other Liabilities and Provisions 5 625.78 586.15 TOTAL 21,993.49 17,060.74

ASSETS Cash and Balances with Reserve Bank of India 6 1,198.49 963.82 Balances with Banks and Money at call and short notice 7 36.57 410.35 Investments 8 6,602.16 4,715.98 Advances 9 13,497.50 10,409.88 Fixed Assets 10 137.81 115.69 Other Assets 11 520.96 445.02 TOTAL 21,993.49 17,060.74

Contingent Liabilities 12 5,862.25 4,207.64 Bills for collection 763.72 789.51

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010

( ` In Crore) Year Ended Year Ended Particulars Schedule 31.03.2010 31.03.2009 I INCOME Interest earned 13 1,757.94 1,446.09 Other Income 14 246.98 265.21 TOTAL 2,004.92 1,711.30

II EXPENDITURE Interest expended 15 1,193.05 1,035.68 Operating expenses 16 348.65 257.60 Provisions and Contingencies 127.19 182.18 TOTAL 1,668.89 1,475.46

III PROFIT Net Profit for the year 336.03 235.84 Amount Transferred From Investment Reserve Nil 1.38 Amount Transferred From General Reserve 10.00 Nil Profit brought forward 1.45 1.11 TOTAL 347.48 238.33

IV APPROPRIATIONS Transfers to Statutory Reserve 101.00 71.00 Capital Reserve 5.20 41.13 Special Reserve U/s 36(1)(viii) of IT Act 30.00 Nil Revenue & Other Reserves 133.00 49.00 Proposed Dividend 65.32 64.74 Dividend Tax 11.10 11.00 345.63 236.88 BALANCE OF PROFIT 1.85 1.45 TOTAL 347.48 238.33

Significant Accounting Policies 17 Notes on Accounts 18

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010

( ` In Crore) Particulars AS AT 31.03.2010 AS AT 31.03.2009 Cash Flow From Operating Activities Net Profit As Per Profit And Loss Account 336.03 235.84 Adjustments For Depreciation 22.63 20.53 Provisions And Contingencies 127.19 182.17 Provision For Leave Encashment 1.42 2.01 Profit/Loss On Sale Of Investments (56.36) (93.58) Profit / Loss On Sale Of Assets (0.44) (0.26) Operating Profit Before Working Capital Changes 430.47 346.71 Increase/Decrease In Operating Assets Purchase And Sale Of Investments (1,837.47) (1,096.06) Funds Advances To Customers (3,112.10) (994.06) Other Operating Assets (32.74) 20.32 (4551.83) (1723.09) Increase/Decrease In Operating Liabilities Deposits From Customers 4,170.46 2,551.39 Borrowings From Banks 302.85 (305.30) Other Operating Liabilities 12.59 (106.27) Amount Paid To Pension & Gratuity Fund Nil Nil Cash Generated From Operations (65.93) 416.73 Direct Taxes Paid (113.65) (134.25) Net Cash Generated From Operations (179.58) 282.48 Cash Flow From Investing Activities Purchase Of Fixed Assets (45.11) (19.92) Sale Of Fixed Assets 0.80 0.53 Net Cash Generated From Investing Activities (44.31) (19.39) Cash Flow From Financing Activities Proceeds From Share Capital 0.48 0.01 Proceeds From Share Premium 9.72 0.06 Proceeds From Tier II Bond Issuance 150.00 - DIVIDEND PAID (Incl. Dividend Distribution Tax) (75.42) (75.56) Net Cash Flow From Financing Activities 84.79 (75.50) Cash Flow From Operating Activities (179.58) 282.48 Cash Flow From Investing Activities (44.31) (19.39) Cash Flow From Financing Activities 84.78 (75.49) Increase In Cash & Cash Equivalent (139.11) 187.59 Cash And Cash Equivalents As At 31.3.2009/31.3.2008 1,374.17 1,186.57 Cash And Cash Equivalents As At 31.03.2010/31.03.2009 1,235.06 1,374.17

BALANCE SHEET AS AT 30TH SEPTEMBER 2010

( ` In Crore) Particulars Schedule AS ON 30.09.2010 AS ON 30.09.2009 CAPITAL & LIABILITIES Capital 1 76.21 53.95 Reserves & Surplus 2 1,730.85 1,457.47 Deposits 3 21,249.74 16,529.29 Borrowings 4 509.99 388.25 Other Liabilities and Provisions 5 566.54 523.09 TOTAL 24,133.33 18,952.05

ASSETS Cash and Balances with Reserve Bank of India 6 1392.89 999.14 Balances with Banks and Money at call and short notice 7 62.45 83.14 Investments 8 6,942.73 5,467.66 Advances 9 15,035.15 11,789.99 Fixed Assets 10 156.55 117.84 Other Assets 11 543.56 494.28 TOTAL 24,133.33 18,952.05

Contingent Liabilities 12 6,596.21 4,273.63 Bills for collection 884.99 814.02

PROFIT AND LOSS ACCOUNT FOR THE HALF YEAR ENDED 30TH SEPTEMBER, 2010

( ` In Crore) Half-year Ended Half-year Ended Particulars Schedule 30.09.2010 30.09.2009 I INCOME Interest earned 13 1,010.46 840.87 Other Income 14 130.32 132.80 TOTAL 1,140.78 973.67

II EXPENDITURE Interest expended 15 665.65 591.33 Operating expenses 16 200.07 174.03 Provisions and Contingencies 87.98 47.05 TOTAL 953.70 812.41

III PROFIT Net Profit 187.08 161.25 Profit brought forward 1.85 1.45 TOTAL 188.93 162.70

BALANCE OF PROFIT TOTAL 188.93 162.70

GENERAL INFORMATION

Dear Eligible Equity Shareholder(s),

Pursuant to the resolution passed by the Board at its meeting held on September 7, 2010 under Section 81 of the Companies Act, the Bank has been authorized to make the following Rights Issue to its Eligible Equity Shareholders:

ISSUE OF 30,502,976 EQUITY SHARES WITH A FACE VALUE OF ` 10/- EACH ("RIGHTS EQUITY SHARES") FOR CASH AT A PRICE OF ` 150/- INCLUDING A PREMIUM OF ` 140/- AGGREGATING TO ` 457.54 CRORES TO THE EXISTING EQUITY SHAREHOLDERS OF THE KARUR VYSYA BANK LIMITED (“THE BANK” OR “THE ISSUER”) ON RIGHTS BASIS IN THE RATIO OF TWO RIGHTS EQUITY SHARES FOR EVERY FIVE EQUITY SHARES HELD ON THE RECORD DATE I.E. [●]

For further details please refer to “Terms of the Issue” beginning on page 122 of this Draft Letter of Offer.

Registered and Central Office of the Bank

The Karur Vysya Bank Limited Post Box No. 21, Erode Road, Karur – 639 002, Tamil Nadu, India Tel: +91 4324 226520; +91 4324 225521-25; Fax: +91 4324 225700 Email: [email protected]; Website: www.kvb.co.in Registration No.: 1295 Corporate Identification Number: L65110TN1916PLC001295

Address of the RoC

The Registrar of Companies, Tamil Nadu 5th Floor, Shastri Bhavan Complex, Haddows Road, Chennai- 600006

The Equity Shares of the Bank are listed on the NSE and are traded under the permitted category on the BSE.

Company Secretary and Compliance Officer

Mr. R. Kannan The Karur Vysya Bank Limited Post Box No. – 21, Erode Road, Karur – 639 002 Tel: +91 4324 227133 Fax: +91 4324 225700 Email: [email protected] Website: www.kvb.co.in

Investors may contact the Company Secretary and Compliance Officer for any pre-Issue / post-Issue related matter such as non-receipt of letters of allotment / share certificates / refund orders, etc.

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 Equity Shares applied for, Amount blocked, ASBA Account number and the Designated Branch of the SCSB where the CAF was submitted by the ASBA Investors.

Lead Manager to the Issue

Karvy Investor Services Limited “Karvy House”, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad - 500 034 Tel: +91 40 2342 8774 / 2331 2454 Fax: +91 40 2337 4714 E-mail: [email protected] Website: www.karvy.com Chennai Office - Contact person: Mr. Harihara Subramanian Mobile: +91 97909 06827 SEBI Registration No.: INM000008365

Bankers to the Issue

The Karur Vysya Bank Limited Coimbatore Main Branch, 577, Oppanakara Street, Coimbatore – 641 001 Tel: +91 422 2390648 Fax: +91 422 2390463 Contact Person: Mr. K Nagarajan Website: www.kvb.co.in E-mail: [email protected]

Self Certified Syndicate Bankers:

APPLICATIONS SUPPORTED BY BLOCKED AMOUNT: Eligible Equity Shareholders may apply through the ASBA process. ASBA can be availed by all the Eligible Equity Shareholders. The Eligible Equity Shareholders are required to fill the ASBA form and submit the same to their bank which in turn will block the amount in the account as per the authority contained in ASBA form and undertake other tasks as per the specified procedure. On allotment, amount will be unblocked and account will be debited only to the extent required to pay for allotment of shares. Hence, there will be no need of refunds etc. ASBA form can be submitted to several banks, the list of such banks are given in the ASBA form and is available on website of SEBI at www.sebi.gov.in.

For more details on the ASBA process, please refer to the details given in ASBA form and also please refer to the section “Terms of the Issue” beginning on page 122 of this Draft Letter of Offer.

The list of banks that have been notified by SEBI to act as SCSBs for the ASBA Process are available at the SEBI website (URL reference: http://www.sebi.gov.in). Details relating to designated branches of SCSBs collecting the ASBA forms are available at the above mentioned link.

Legal Advisor to the Issue

M/s Ramani and Shankar Advocates, 152, Kalidas Road, Ram Nagar Coimbatore – 641 009 Tel: +91 422 2231955, 2232179 Fax: +91 422 2323 3175 Contact Person: Mr. K N V Ramani E-mail: [email protected]

*Auditors of the Bank

R.K. Kumar & Co., Chartered Accountants II Floor, 101-106, Congress Building 573, Anna Salai, Chennai – 600 006 Tel: +91 44 24349866 / 67 Fax: +91 44 24349857 Contact Person: Mr. G. Naganathan Mob: +91 9444041570 E-mail: [email protected] ICAI Firm Registration No: 001595S

*The financial statements excluding Limited Review Report for six months ended on September 30, 2010, incorporated in this Draft Letter of Offer have been audited by M/s. J. L. Sengupta & Co., Chartered Accountants, Chennai erstwhile Statutory Auditors of the Bank. The shareholders of the Bank have appointed, M/s. R.K. Kumar & Co., Chartered Accountants, Chennai as new Statutory Auditors of the Bank in the last AGM held on July 21, 2010.

Registrar to the Bank and the Issue

SKDC Consultants Limited Kanapathy Towers, 1391/A-1, Third Floor, Sathy Road, Ganapathy, Coimbatore – 641 006 Tel: +91 422 6549995 Fax: +91 422 2539837 Email: [email protected] Investor Grievance Id: [email protected] Contact Person: Mr. K. Jayakumar SEBI Registration Number: INR000000775

Monitoring Agency

Since the Issue size does not exceed ` 500 crores, the appointment of a monitoring agency as per Regulation 16 of the SEBI Regulations is not required. The Board of Directors of the Bank will monitor the use of the proceeds of this Issue.

Underwriting

This Issue is not being underwritten.

Credit Rating

As this is an issue of equity shares, credit rating is not required for this Issue. The Bank‟s Lower Tier II Bonds are rated by rating agencies ICRA as “LA+” (indicates adequate credit quality) vide its letter dated August 19, 2010.

Impersonation

As a matter of abundant caution, attention of the Investors is specifically drawn to the provisions of sub- section (1) of Section 68A of the Act which is reproduced below:

“Any person (a) who makes in a fictitious name an application to a Bank for acquiring, or subscribing for, any shares therein, or otherwise induces a Bank to allot, or register any transfer of shares therein to him, or (b) any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years”

Principal Terms of Loan and Assets charged as security as on September 30, 2010

As on September 30, 2010, the Bank has borrowings to the extent of ` 74.98 crores under CBLO secured against pledge of Government Securities.

OVERSEAS SHAREHOLDERS

The distribution of this Draft Letter of Offer and the Issue of the Rights Equity Shares of the Bank 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 Draft Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this Issue of Rights Equity Shares on a rights basis to its Rights Equity Shareholders and will dispatch the Letter of Offer and CAF to the Indian address of overseas shareholders. Equity Shareholders in foreign jurisdiction need to provide an Indian address, if not provided earlier, to receive this Draft Letter of Offer. The securities of the Bank are only listed in India.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that this Draft Letter of Offer has been filed with SEBI for observations.

Accordingly, the Rights Equity Shares may not be offered or sold, directly or indirectly, and this Draft Letter of Offer may not be distributed, in any jurisdiction, except in accordance with legal requirements applicable in such jurisdiction. Receipt of this Draft 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 Draft Letter of Offer must be treated as sent for information only and should not be copied or redistributed. Accordingly, persons receiving a copy of this Draft Letter of Offer should not, in connection with the issue of the Rights Equity Shares or with the Rights Entitlements, distribute or send this Draft Letter of Offer in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Draft Letter of Offer is received by any person in any such territory, 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 Draft Letter of Offer.

Neither the delivery of this Draft 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 this date.

CAPITAL STRUCTURE

The share capital of the Bank as on the date of filing of this Draft Letter of Offer with SEBI is set forth below:

Aggregate Nominal Aggregate Value at Particulars Value Issue Price ( ` in crores) ( ` in crores) Authorized Share Capital: 200,000,000 Equity Shares of `10/- each 200.00 Total 200.00 Issued Capital: 76,257,442 Equity Shares of `10/- each 76.26 Total 76.26 Subscribed and Paid up Capital: 76,209,811Equity Shares of `10/- each 76.21 Add: Shares kept in abeyance 47,631 Equity Shares of `10/- each 0.05 Total 76.26 Present Issue being Offered to the eligible Equity Shareholders through the Draft Letter of Offer 30,502,976 Equity Shares of ` 10/- each at a premium of 30.50 457.54 `140, i.e., at a price of `150 per share Paid-up Capital after the Issue 106,678,620 Equity Shares of ` 10/- each 106.68 Add: Shares kept in abeyance 81,798 Equity Shares of `10/- each* 0.08 Total 106.76 Security Premium Account Before the Issue 107.73 After the Issue 534.77

* The Abeyance shares consist of (i) 6724 equity shares kept in abeyance in the rights issue of shares during the year 2003 (ii) 6724 equity shares kept in abeyance in the bonus issue of shares during the year 2006 (iii) 20575 equity shares kept in abeyance in the rights issue of shares during the year 2006 (iv) 13608 equity shares kept in abeyance in the bonus issue of shares during the year 2010 (v) 34167 equity shares to be kept in abeyance in the proposed rights issue of shares 2010

Notes to Capital Structure

1. Outstanding Instruments

The Bank‟s Employees Stock Option Scheme, 2008

The shareholders of the Bank vide Special Resolution dated July 24, 2008 have provided their approval to create, offer, issue and allot at any time to or for the benefit of such person(s) who are in the permanent employment of the Bank, including Directors (Executive and Non-Executive) of the Bank, whether working in India or out of India, under the “KVB Employees Stock Option Scheme, 2008 or KVBESOS- 2008” such number of equity shares not exceeding 1,000,000 Stock Options (“Securities”) in the aggregate to eligible employees/ directors of the Bank, in one or more tranches, at such price and on such terms and conditions as may be fixed or determined by the Board in accordance with the Guidelines or other provisions of law as may be prevailing at that time and each such Stock Option shall be exercisable for one fully paid-up equity share.

The Bank has constituted a Compensation Committee for the purpose of administration of the KVBESOS 2008. In the fiscal 2009-10, the first tranche 470,250 stock options were vested on January 1, 2010 and the same were exercised by the eligible employees of the Bank. The exercised options were duly allotted on February 24, 2010.

The Bank granted second tranche of 529,750 stock options on February 24, 2010 to the eligible employees as determined by the Compensation Committee of the Board and these stock options shall vest after a period of one year. The vested options are exercisable over a period of one month from the date of vesting.

The key terms of the KVBESOS, 2008 are as follow,

There shall be minimum lock-in period of one year between the grant of options and vesting of options and the options shall 100% vest.

The exercise price has been decided by the Board on the date of grant of option. The exercise period will commence from the vesting date and shall expire at the end of 1 (one) month from the date of vesting.

Options granted out of second tranche 529,750 Exercise price `150/- per share/ option Options Exercised Nil Options forfeited/ lapsed Nil Money realized by exercise of options Not applicable Fully Diluted EPS (For Fiscal 2010 on a pre-Issue ` 60.55 basis) Lock-in In accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 * Fair Value of the options as per independent valuer is ` 228.28.

The Bank has complied with the provisions of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

Person-wise details of options granted to Directors and key managerial persons

Except as stated below, none of the key managerial persons or directors in the Bank has been granted stock options as on the date of the filing of the Draft Letter of Offer:

Sl. Name of the Director/ Key Managerial Designation No. of options granted No. Personnel 1 P T Kuppuswamy MD and CEO 1,100 2 T M Lakshmikanthan Executive Director 513 3 R Sukumar Chief General Manager 530 4 R Sakthivelu General Manager 513 5 A Ananda Nadarajan General Manager 530 6 K Venkateswara Rao General Manager 530 7 S Ramalingam Deputy General Manager 530 8 J Natarajan General Manager 530 9 A S Vasudevan Deputy General Manager 530 10 R Venkataramana Deputy General Manager 513 11 A R Ramachandran Deputy General Manager 530 12 T Sivaramaprasad Deputy General Manager 530 13 G S Anantha Kumar Deputy General Manager 530 14 S Balaji Deputy General Manager 530 15 V Srinivasan Deputy General Manager 530 16 M Balachandran Deputy General Manager 513

2. The Board of Directors in the meeting held on 07/09/2010 decided to issue bonus shares in the ratio of 2:5 on the record date 18/09/2010. The Bonus shares are listed on NSE vide their letter NSE/LIST/2010/147521-P dated 22/09/2010.

3. Shareholding Pattern

The Shareholding pattern as on September 30, 2010 as filed with the Stock Exchange is as under:

Total shareholding as a Shares Pledged or percentage of total otherwise Number of Total number of shares encumbered Category of Number of shares held in number As a Shareholder Shareholders dematerialized As a Number As a of shares percentage form percentage of percent of of(A+B)1 shares age (A+B+C) Shareholding of Promoter and Promoter Group Indian Individuals/ Hindu Undivided 93 2,688,772 1,818,773 3.53 3.53 508,888 18.93 Family Central Government/ State - NIL NIL NIL NIL NIL NIL Government(s)

Bodies Corporate - NIL NIL NIL NIL NIL NIL

Financial Institutions/ Banks - NIL NIL NIL NIL NIL NIL

Any Others(Specify) - NIL NIL NIL NIL NIL NIL

Sub Total(A)(1) 93 2,688,772 1,818,773 3.53 3.53 508,888 18.93

Foreign Individuals (Non-Residents - NIL NIL NIL NIL NIL NIL Individuals/ Foreign Individuals) Bodies Corporate - NIL NIL NIL NIL NIL NIL

Institutions - NIL NIL NIL NIL NIL NIL

Any Others(Specify) - NIL NIL NIL NIL NIL NIL

Sub Total(A)(2) - NIL NIL NIL NIL NIL NIL

Total Shareholding of 93 2,688,772 1,818,773 3.53 3.53 508,888 18.93 Promoter and Promoter Group (A)= (A)(1)+(A)(2)

Public shareholding Institutions Mutual Funds/ UTI 12 1,067,744 1,065,784 1.40 1.40 N.A N.A

Financial Institutions / Banks 3 273,526 273,526 0.36 0.36 N.A N.A

Central Government/ State - NIL NIL NIL NIL N.A N.A Government(s) Venture Capital Funds - NIL NIL NIL NIL N.A N.A

Insurance Companies 4 1,650,284 1,650,284 2.17 2.17 N.A N.A

Foreign Institutional Investors 59 16,602,587 16,599,927 21.79 21.79 N.A N.A

Foreign Venture Capital - NIL NIL NIL NIL N.A N.A Investors Any Other (specify) (Foreign 1 140 140 NIL NIL N.A N.A Financial Institution/Bank) Sub-Total (B)(1) 79 19,594,281 19,589,661 25.71 25.71 N.A N.A

Total shareholding as a Shares Pledged or percentage of total otherwise Number of Total number of shares encumbered Category of Number of shares held in number As a Shareholder Shareholders dematerialized As a Number As a of shares percentage form percentage of percent of of(A+B)1 shares age (A+B+C) Non-institutions Bodies Corporate 831 12,580,610 12,531,325 16.51 16.51 N.A N.A

Individuals

Individuals -i. Individual 53,019 20,599,381 15,394,442 27.03 27.03 N.A N.A shareholders holding nominal share capital up to ` 1 lakh ii. Individual shareholders 487 17,615,091 14,965,585 23.11 23.11 N.A N.A holding nominal share capital in excess of ` 1 lakh. Any Other (specify) Trusts 6 73,133 73,133 0.10 0.10 N.A N.A

Directors and Their Relatives 21 548,662 542,403 0.72 0.72 N.A N.A

Foreign Nationals 1 560 560 0.00 0.00 N.A N.A

Non Resident Indians 403 1,480,117 1,473,290 1.94 1.94 N.A N.A

Clearing Members 314 223,723 223,723 0.29 0.29 N.A N.A

Hindu Undivided Families 591 805,481 805,481 1.06 1.06 N.A N.A

Sub-Total (B)(2) 55,673 53,926,758 46,009,942 70.76 70.76 N.A N.A

Total Public Shareholding 55,752 73,521,039 65,599,603 96.47 96.47 N.A N.A. (B)= (B)(1)+(B)(2)

TOTAL (A)+(B) 55,845 76,209,811 67,418,376 100.00 100.00 508,888 0.67

Shares held by Custodians and - NIL NIL NIL NIL N.A N.A against which Depository Receipts have been issued

GRAND TOTAL (A)+(B)+(C) 55,845 76,209,811 67,418,376 100.00 100.00 508,888 0.67

4. Details of the shares held by the Promoter and Promoter Group as on September 30, 2010

Shares pledged or otherwise Total shares held encumbered As a % of Sr. No. Name of the shareholder As a % of grand grand total Number As a total Number (A)+(B)+(C) of of shares percentage (A) +(B) +( C ) sub-clause (I)(a ) 1 Athi S Janarthanan 515,362 0.68 56,000 10.87 0.07

2 G Rajasekaran 177,140 0.23 33,600 18.97 0.04

3 A J Suriyanarayana 161,050 0.21 28,000 17.39 0.04

4 V Padmalochani 158,095 0.21 22,400 14.17 0.03

5 R. Gopalakrishnan (Deceased) 158,015 0.21 - - -

6 M K Venkatesan 152,422 0.20 - - -

8 B K Jayamanohari 122,483 0.16 - - -

9 R. Nageswari 114,373 0.15 22,400 19.59 0.03

10 Rangamannar P S 104,343 0.14 - - -

11 M V Srinivasamoorthy 84,038 0.11 84,000 99.95 0.11

12 R Ramkumar 80,238 0.11 50,400 62.81 0.07

13 R Archana 71,045 0.09 22,400 31.53 0.03

14 Vjijaya A J 65,573 0.09 - - -

15 M K Srinivasan 63,353 0.08 44,539 70.30 0.06

16 Nirmala J 58,504 0.08 - - -

17 Vasantha S 45,046 0.06 - - -

18 E Srimathi 43,702 0.06 15,400 35.24 0.02

19 Anuradha C B 42,525 0.06 - - -

20 A K Praburaj 39,468 0.05 5,600 14.19 0.01

21 Ms Jeevarekha 39,034 0.05 17,080 43.76 0.02

22 Nirupama S 33,810 0.04 33,600 99.38 0.04

23 Usha M V 33,796 0.04 11,902 35.22 0.02

24 Sreemathi S 30,826 0.04 - - -

25 M Lakshmi 21,880 0.03 - - -

26 M G Sankaranarayanan (Deceased) 17,602 0.02 - - -

27 Anuradha A J 15,511 0.02 - - -

28 P S Ethirajan 14,400 0.02 - - -

29 K L Soundararajan 10,517 0.01 - - -

30 V Iswarrya 8,503 0.01 - - -

31 K S Srimathi 7,926 0.01 - - -

32 C V Badrinath 7,291 0.01 - - -

33 A V Kandaswamy 6,795 0.01 - - -

34 Sudha A S 6,543 0.01 - - -

35 A P Preetha 5,894 0.01 - - -

36 Kasthuri K 5,727 0.01 - - -

37 P Suriyakumari 5,005 0.01 - - -

38 R Perumal 5,005 0.01 - - -

39 Preeti Venkatesan 4,439 0.01 - - -

40 S R Venkatesan 4,200 0.01 - - -

41 Swathi V (Minor) 3,780 0.00 - - -

42 R Darshna Devi 2,139 0.00 - - -

43 Gopalarathnam R 1,402 0.00 - - -

45 Kamala Rajasekaran 1,339 0.00 - - -

46 A Shyamala 926 0.00 - - -

47 Giridharan M S 863 0.00 - - -

48 M L Sumathi 840 0.00 - - -

49 M S Jayaseela 705 0.00 - - -

50 M G Vivekanandan 499 0.00 - - -

51 A G Badrinath 462 0.00 - - -

52 Lakshminarasimhan M V 420 0.00 - - -

53 Sakthinivasan M S 147 0.00 - - -

54 Subash M G 96 0.00 - - -

55 Balakamala S 75 0.00 - - -

56 M V Prajeeth 46 0.00 - - -

57 A G Anantha Kumar 15 0.00 - - -

Total 2,688,772 3.53 508,888 18.93 0.67

5. 470,250 equity shares of the Bank issued pursuant to the Bank‟s Employee Stock Option Scheme – 2008 are held under lock in for the period of 3 (three) years from the date of allotment of such equity shares in lieu of exercising the options by the eligible employees.

6. The details of shareholders holding more than one percent of the share capital of the Issuer as of September 30, 2010 are as follows: a) Promoter and Promoter Group Nil b) Others

Sl. No. Name of the Shareholder No. of Shares Shares as % of total no. of shares 1 Mr. G. M. Rao and His Group Companies 3,772,957 4.95 2 Lotus Global Investments Ltd 3,711,829 4.87 3 Ares Diversified 3,696,716 4.85 4 Rakesh Jhunjhunwala Group 3,606,988 4.73 5 India Max Investment Fund Limited 3,454,740 4.53 6 Boyance Infrastructure Private Limited 2,692,991 3.53 7 M3 Investment Private Limited 1,485,982 1.95 8 Acacia Partners, Lp 1,238,403 1.62 9 Subramanian Subbiah 1,044,324 1.37 10 G B International Private Limited 937,720 1.23 Total 25,642,650 33.65

7. RELEVANT RBI PROVISIONS

Rights issues by private sector banks – Acknowledgement of transfer / allotment of shares i. In terms of RBI Circular DBOD.No.PSBS.BC.79/16.13.100 /2001-2002 dated March 20, 2002, listed as well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue. ii. While reviewing, the following issues have emerged with reference to percentage of holding at the time of rights issue:- a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would result in his / its holding going up as a percentage of total paid up capital of the Bank.

b) When some shareholders not picking up their entitlements, holdings of the other shareholders would go up in percentage even if they pick up their own entitlements.

The above matter has been examined from the point of view of applicability of RBI Circular DBOD. No. PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in private sector banks and DBOD. No. BP.BC.71/ 21.01.01/ 2004-05 dated February 28, 2005 on ownership and governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5% limit for a bank‟s investment in equity of another bank.

RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in the offer documents, including the following that:

i. Subscription to rights other than own entitlement will not be permitted if such subscription would result in breach of any statutory / regulatory ceilings

ii. Any acquisition of shares that will take the shareholding of any entity / group of entities to 5% or more of the paid up capital of the Bank would require acknowledgement of RBI in terms of the criteria laid down in the RBI guidelines contained in the Circular DBOD. No. PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004. Further, in terms of the guidelines on ownership and governance issued on February 28, 2005 any acquisition that will take the shareholding of any entity/ group, directly or indirectly, to 10% or more of the paid-up capital of the Bank will require the prior approval of RBI

iii. If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of non- subscription of rights by other shareholders, the shareholder concerned will not be able to acquire any further shares till his/ its shareholding is brought within the stipulated ceilings.

8. No further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public issue or in any other manner which will affect the equity capital of the Bank, shall be made during the period commencing from the filing of the Draft Letter of Offer with the SEBI to the date on which the Rights Equity Shares issued under the Draft Letter of Offer are listed or application moneys are refunded on account of the failure of the Issue.

9. Further, except for the allotment of Equity Shares pursuant to exercise of stock options vested pursuant to our Bank‟s Employee Stock Option Scheme, at present our Bank has no intention to alter the equity capital structure by way of split/consolidation of the denomination of the shares, or issue of shares on a preferential basis or issue of bonus or rights or pubic issue of shares or any other securities for a period of six months from the date of opening of the Issue.

10. The Issue being a Rights Issue, provisions of Promoters‟ contribution and lock-in are not applicable as per Regulation 34 (c) of SEBI (ICDR) Regulations.

11. The attention of the investors is drawn to section 12 (2) of the Banking Regulation Act 1949, as amended which states that: “No person holding shares in the banking company shall in respect of any shares held by him, exercise voting rights on poll in excess of 10% of the total voting rights of all the shareholders of the banking company.” Furthermore, in terms of RBI Circular DBOD.No.BC.79/ 16.13.100 /2001-2002 dated

March 20, 2002, listed as well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue.

12. The Equity Shares issued under this Issue shall be fully paid up within 12 (twelve) months from date of allotment.

13. The details of transactions on the stock exchange in the shares of the Bank by the promoters / directors of the Bank during the last six months is as given as follows;

Transactions by the Promoters*

Bought Sold Sl. Name No. of No. of Price (In No Date Price (In `) Date Shares Shares `) 06.05.2010 1000 514.00 1 G Rajasekaran 06.05.2010 500 519.00 2 G Mani 01.09.2010 155 725.00 3 R Ramkumar 20.05.2010 100 503.00 15.06.2010 100 533.00 20.05.2010 500 519.00 15.09.2010 1000 855.00 4 R Darshna Devi 20.05.2010 500 500.00 09.08.2010 298 541.00 5 E Srimathi 30.08.2010 300 723.00 13.09.2010 300 806.42 6 A K Praburaj 14.09.2010 850 830.24 15.09.2010 950 874.77 07.09.2010 50 825.00 13.09.2010 300 805.15 7 A V Kandasamy 14.09.2010 850 830.24 15.09.2010 950 874.97 03.09.2010 500 811.00 8 B K Jayamanohari 03.09.2010 200 810.90 07.05.2010 200 515.00 21.05.2010 200 520.00 09.07.2010 1000 550.00 9 C V Badrinath 16.07.2010 100 610.00 10.09.2010 1000 800.00 17.09.2010 500 820.00 06.05.2010 1000 509.00 10 M K Venkatesan 13.09.2010 500 782.00 11 M V Prajeeth 09.08.2010 33 600.00 07.05.2010 875 511.31 12 M K Srinivasan 09.07.2010 500 558.50 03.09.2010 500 703.36 Transmission from her deceased 13 M S Jayaseela 15.10.2010 17602 husband Shri M G Sankaranarayanan Transferred to his wife 16.08.2010 4000 Mrs S Nirupama M V 14 18.08.2010 3000 -do- Srinivasamoorthy 27.08.2010 5000 -do- 16.09.2010 500 -do- 27.09.2010 250 -do- 25.10.2010 5000 -do-

Transferred from 16.08.2010 4000 Shri M V 16.08.2010 3200 652.10 Srinivasamoorthy Transferred from 18.08.2010 3000 Shri M V 18.08.2010 3005 656.24 Srinivasamoorthy 18.08.2010 5 654.00 26.08.2010 5000 703.43 Transferred from 27.08.2010 5000 Shri M V 15.09.2010 6150 864.80 Srinivasamoorthy 31.08.2010 5024 703.10 17.09.2010 1500 579.40 Transferred from 15 S Nirupama 16.09.2010 500 Shri M V 23.09.2010 2500 552.00 Srinivasamoorthy Transferred from 27.09.2010 250 Shri M V 05.10.2010 1674 553.26 Srinivasamoorthy 06.10.2010 50 547.00 06.10.2010 1794 551.53 Transferred from 25.10.2010 5000 Shri M V 12.10.2010 3100 530.79 Srinivasamoorthy 14.10.2010 717 536.54 18.10.2010 2300 541.71 22.10.2010 1000 570.00 25.10.2010 2310 575.46

* The details of shares acquired by the Promoters mentioned above are for the preceding 6 months (May 01, 2010 – November 12, 2010) prior to the date of filing of this Draft Letter of Offer with SEBI. The details regarding the shares acquired by the Promoters for the 6 months period prior to May 01, 2010 will by updated in the Final Letter of Offer.

Transactions by the Directors and their relatives

Bought Sold Sl. Name No. of No. of Price No Date Price (In `) Date Shares Shares (In `) 07.07.2010 500 594.62 08.07.2010 500 596.00 Dr V G Mohan 1 08.07.2010 250 598.90 Prasad, Director 08.07.2010 750 598.95 08.07.2010 500 602.00 15.06.2010 500 545.22 05.07.2010 500 558.17 Ms Radha Prasad, 07.07.2010 500 594.75 2 W/o Dr V G 08.07.2010 500 596.02 Mohan Prasad 08.07.2010 500 598.99 08.07.2010 500 600.00 19.08.2010 200 677.97 M G S Ramesh Transfer within 3 26.08.2010 1778 Babu, Director the family 04.06.2010 500 477.40 10.08.2010 150 590.00 Transfer Ms Anuraadha 13.10.2010 250 535.32 26.08.2010 15206 within the Ramesh, 4 family W/o Shri M G S 21.09.2010 1000 549.66 Ramesh Babu 23.09.2010 1000 540.00 27.09.2010 500 565.00 01.10.2010 500 542.50

04.10.2010 250 551.00 13.10.2010 250 536.68 18.10.2010 250 543.00 Ms Sindhuja 5 Ramesh, Transfer within 26.08.2010 13428 D/o Shri M G S the family

Ramesh Babu Ms M S 16.08.2010 200 645.00 Subbulakshmi, 6 M/o Shri M G S 25.08.2010 220 670.00 Ramesh Babu G Sarangan, Transfer 7 F/o Dr. S 16.07.2010 5000 within the Krishnakumar family Ms S G Hemalatha, 8 W/o Shri S 08.07.2010 300 597.72 Ganapathi

Subramanian 13.08.2010 100 600.99 16.08.2010 100 597.98 V Santhanaraman, 9 07.10.2010 100 545.21 Director 07.10.2010 150 545.72 07.10.2010 50 545.51

14. The Bank / Promoters / Promoters Group / Directors / Lead Manager have not entered into Buy Back arrangements for purchase of securities issued by the Bank.

15. At any given time there shall be only one denomination for the shares of the Bank and the disclosures and accounting norms specified by SEBI from time to time will be complied with.

16. The Promoters and Promoter Group have confirmed that they intend to subscribe to the full extent of their Rights Entitlement in the Issue.

17. There is no intention by the Promoters to participate in the unsubscribed portion over and above their rights entitlement.

18. The Bank has not revalued its assets since its inception and hence issue of shares out of the revaluation reserve does not arise.

19. The Issue will remain open for 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.

OBJECTS OF THE ISSUE

The Bank is regulated by the RBI. The RBI guidelines require the Bank to maintain a minimum CAR of 9% (under Basel II norms) subject to a minimum Tier I CAR of 6%. As per the financial statements, as of March 31, 2010, the total CAR was 14.49% (under Basel II norms) including Tier-I CAR of 12.88% and Tier-II CAR of 1.61%. And as of September 30, 2010, the total CAR was 13.38%.

The objects of the Issue are to augment the capital base of the Bank to meet the capital requirements and growth in its assets, primarily its loan and investment portfolio, compliance with regulatory requirements including meeting the expenses of the Issue.

The main objects clause set out in the Memorandum of Association enables the Bank to undertake the existing activities and the activities for which funds are being raised by this Issue. Further, the Bank confirms that the activities carried out by it to the date have been in accordance with the objects clause of its Memorandum of Association.

Requirement and Sources of Funds

Particulars Amount ( ` in crores) Augment the capital base to meet the capital adequacy requirements arising out 455.66 of growth in the business Estimated Issue Expenses 1.88 Net Proceeds 457.54

The stated objects of the Issue are proposed to be financed entirely from the proceeds of the Issue. Therefore, excluding the amount to be raised through proposed Rights issue, there is no requirement of firm arrangements of finance. a) Augment the capital base to meet the capital adequacy requirements arising out of growth in the businesses of the Bank

As the Bank is engaged in the business of banking, it is seeking to strengthen its capital base to support the future growth in its assets and comply with the capital adequacy requirements applicable to the Bank. b) Estimated Issue Expenses

The total expenses of the Issue are estimated to be approximately ` 1.88 crores. The Issue related expenses include, among others, Issue management fees, Registrar fees, printing and distribution expenses, fees of the legal counsels, advertisement, listing fees to the Stock exchange etc. The break-up of total issue expenses is as under –

Particulars Expense Expense (% of the total Expense (% of the ( ` in crores) Issue size) Total expenses) Fees of Lead Manager(s) 0.22 0.05 11.70 Fees to the Registrar to the issue, Legal Advisor and 0.06 0.01 3.19 Auditor Advertising and Publicity 0.35 0.08 18.62 Expenses Printing, Postage and Stationery Expenses 1.00 0.22 53.19 Contingency, Stamp duty and 0.25 13.30 Statutory Fees 0.05 Total estimated Issue 1.88 0.41 100.00 expenses

Monitoring of Utilisation of Funds

The Board shall monitor the utilisation of the net proceeds of the Issue. The Bank will disclose the details of the utilisation of the net proceeds, including interim use, under a separate head in its financial statements specifying the purpose for which such proceeds have been utilized or otherwise disclosed as per the disclosure requirements of its listing agreement(s) with the Stock Exchange(s).

The Bank shall disclose to the Audit Committee, the uses and application of funds under the heads as specified above, on a quarterly basis as a part of the quarterly declaration of financial results. Further, on an annual basis, the Bank shall prepare a statement of funds utilized for purposes other than those stated in the Draft Letter of Offer, if any, and place it before the Audit Committee. Such disclosure shall be made only till such time that the full money raised through the Issue has not been fully spent. This statement shall be certified by the statutory auditors of the Bank. The Audit Committee shall make appropriate recommendations to the Board to take up steps in this matter.

Interest of Directors or Key Management Personnel in the Objects of the Issue

No part of the proceeds of the Issue will be paid by the Bank as consideration to its Directors or key management personnel except in the usual course of business.

STATEMENT OF TAX BENEFITS

27.10.2010

We hereby confirm that the information provided below states the possible direct tax benefits available to Karur Vysya Bank Limited (“The Bank”) and its shareholders under the current direct 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 tax law. Hence, the ability of the Bank or its shareholders to derive tax benefits is dependent upon fulfilling such conditions, which based on business imperatives, the Bank or its shareholders may or may not choose to fulfill.

The benefits discussed below are not exhaustive. We are informed that this statement is only intended to provide general information to the investors and hence is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of tax consequences and the changing tax provisions, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue.

Unless otherwise specified, sections referred to below are sections of the Income-tax Act, 1961 (“The Act”). The Income-tax rates referred here are the existing tax rates based on the rates prescribed in the Finance Act, 2010 for the Financial Year 2010-11. All the provisions set out below are subject to conditions specified in the respective sections.

The below mentioned contents are based on information, explanations and representations obtained from the Bank and on the basis of our understanding of the business activities and operations of the Bank and the interpretation of tax laws presently in force in India.

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

 The Bank or its shareholders will continue to obtain these benefits in future; or

 The conditions prescribed for availing the benefits, where applicable have been/ would be met.

I. INCOME-TAX ACT, 1961

A. TO THE BANK

(i) Special Tax Benefits:

1. As per the provisions of section 36(1)(iiia) the Act, the Bank is entitled to deduction in respect of prorata 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 1.6.2005 in respect of which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company/fund or public sector company or scheduled bank and which is notified by the Central Government in this behalf.

2. Under section 36(1)(vii), any bad debt or part thereof written off as irrecoverable in the accounts of the Bank is allowable as a deduction from the Bank‟s total income. However deduction is limited to the amount by which such bad debts or part thereof, exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the Act, and further subject to compliance with section 36(2)(v) of the Act which requires that such debt or part thereof should have been debited to the provision for bad and doubtful debts account.

3. Under section 36(1)(viia) of the Act, a deduction is allowable in respect of any provision made for bad and doubtful debts, by an amount not exceeding 7.5% of total income (computed before making any deduction under this section and Chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by rural branches of the Bank.

As per the third proviso to the section and subject to the conditions specified therein, the Bank at its option is allowed a further deduction for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government.

4. In terms of section 36(1) (viii) of the Act, the bank is allowed deduction at 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 computed in the manner specified under the section and carried to the Special Reserve account from time to time not exceeding twice the paid-up capital and general reserves. 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 of 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.

(ii) General Tax Benefits

1. As per provisions of Section 10(15)(i) of the Act, income by way of interest, premium on redemption or other payment on securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as notified by the Central Government in the Official Gazette is exempt from tax, subject to such conditions and limits as may be specified by Central Government in this behalf.

2. Under section 10(15)(vii) of the Act, interest on bonds issued by a local authority or by a State Pooled Finance Entity and specified by the Central Government by notification in the Official Gazette is exempt from tax. For the purpose of this section, “State Pooled Finance Entity” means such entity which is set up in accordance with the guidelines for the Pooled Finance Development Scheme notified by the Central Government in the Ministry of Urban Development.

3. Dividends earned by the Bank are exempt from tax in accordance with and subject to the provisions of section 10(34) read with section 115-O of the Act. However, as per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.

4. Income earned by the Bank from investment in units of a specified Mutual Fund is exempt from tax under section 10(35) of the Act. However, as per section 94(7) of the Act, losses arising from the sale/ redemption of units purchased within three months prior to the record date (for entitlement to receive income) and sold within nine months from the record date, will be disallowed to the extent such loss does not exceed the amount of income claimed exempt.

Further, as per section 94(8) of the Act, if an investor purchases units within three months prior to the record date for entitlement of bonus and is allotted bonus units without any payment on the basis of holding original units on the record date and such person sells/ redeems the original units within nine months of the record date, then the loss arising from sale/ redemption of the original units will be ignored for the purpose of computing income chargeable to tax and the amount of loss ignored shall be regarded as the cost of acquisition of the bonus units.

5. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to incomes which do not form part of the total income under the Act. Thus, any expenditure incurred to earn tax exempt income is not tax deductible expenditure.

6. Under the provisions of section 43(5) (d) of the Act, an eligible transaction in respect of trading in derivatives referred to in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956, carried out in a recognized stock exchange is not deemed to be a speculative transaction. An eligible transaction is defined to mean any transaction carried out electronically on screen-based systems through a stock broker or sub-broker or such other intermediary and which is supported by a time stamped contract note issued by such stock broker or sub-broker or such other intermediary to every client indicating in the contract note the unique client identity number and permanent account number.

7. In case of loss under the head “Profit and Gains from Business or Profession (Non Speculative)”, it can be set-off against other income and the excess loss after set-off can be carried forward for set-off against Business Income of the next eight Assessment Years in terms of provisions of section 70, 71 & 72 of the Act.

8. The unabsorbed depreciation, if any, can be adjusted against any other income and can be carried forward for set-off against the income of future years as per the provisions of section 32 of the Act.

9. From assessment year beginning 1st April, 2010, the amount of tax paid under Section 115JB of the Act by the Bank for any assessment year beginning on or after 1st April 2006 will be available as credit for ten years succeeding the Assessment Year in which MAT credit becomes allowable in accordance with the provisions of section 115JAA of the Act.

B. TO THE SHAREHOLDERS OF THE BANK

(i) Special Tax Benefits:

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

(ii) General Tax Benefits:

(i) RESIDENTS:

1. Dividends earned on shares of the Bank are exempt from tax in accordance with and subject to the provisions of section 10(34) read with section 115-O of the Act. However, as per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.

2. Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of Banks share is fully exempt from tax in accordance with the provision of section 10(38) of the Act where the sale is made on or after October 1, 2004 on a recognized stock exchange and transaction is chargeable to securities transaction tax.

3. Section 14A of the Act restricts claim for deduction of expenses incurred in relation to incomes which do not form part of the total income under the Act. Thus, any expenditure incurred to earn tax exempt income is not tax deductible expenditure.

4. Under section 36(1)(xv) of the Act, securities transaction tax paid by a shareholder in respect of taxable securities transactions entered into in the course of its business, would be allowed as a deduction if the income arising from such taxable securities transactions is included in the income computed under the head “profit and gains of business or profession”.

5. Under section 54EC of the Act, long term capital gain arising on sale of Bank`s share {other than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is invested in certain notified bonds within a period of six months from the date of such transfer (up to a maximum limit of Rs 50 lakhs) and held for a minimum period of three years.

6. Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale of Bank‟s share {other than sale referred to in section 10(38) of the Act is exempt from tax if the net consideration is invested to purchase a residential house property within a period of one year before or two years after the date of sale/ transfer or invested in the construction of a residential house property within a period of three years after the date of sale/transfer. If only a part of the net consideration is invested in the new asset then the exemption will be available proportionately. 000 7. Taxable long term capital gains would arise [if not exempt under section 10(38) or any other section of the Act] to a resident shareholder where the equity shares are held for a period of more than 12 months prior to the date of transfer of the shares. In accordance with and subject to the provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the following amounts would be deductible from the full value of consideration:

(a) Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index notified by the Central Government; and

(b) Expenditure incurred wholly and exclusively in connection with the transfer of shares

8. Under section 111A of the Act, Short term capital gains on the transfer of equity shares, where the shares are held for a period of not more than 12 months would be taxed at 15% (plus applicable surcharge and education cess), where the sale is made on or after October 1, 2004 on a recognized stock exchange and the transaction is chargeable to securities transaction tax. In all other cases, the short term capital gains would be taxed at the normal rates of tax (plus applicable surcharge and education cess). Cost indexation benefits would not be available in computing tax on short term capital gain.

9. Under section 112 of the Act, long-term capital gains are subject to tax at a rate of 20% (plus applicable surcharge and cess) after indexation, as provided in the second proviso to section 48 of the Act. However, in case of listed securities or units, the amount of such tax could be limited to 10% (plus applicable surcharge and cess), without indexation, at the option of the shareholder in cases where securities transaction tax is not levied.

10. From assessment year beginning 1st April, 2010, the amount of tax paid under section 115JB of the Act by the Corporate Assessee for any assessment year beginning on or after 1st April 2006 will be available as credit for ten years succeeding the Assessment Year in which MAT credit becomes allowable in accordance with the provisions of section 115JAA of the Act.

11. In accordance with the provisions of section 56(1)(vii) of the Act, If an individual or HUF receives any shares, without consideration, the aggregate fair market value of which exceeds ` 50,000, the whole of the fair market value of such shares will be considered as income in the hands of the recipient. Similarly, if an individual or HUF receives any shares for consideration which is less than the fair market value of the shares by an amount exceeding ` 50,000, the fair market value of such shares as exceeds the consideration will be considered as income in the hands of the recipient. However, the above ceilings of ` 50,000 shall not apply to any shares received from any relative (as given in Explanation to clause (vi) of sub-section (2) of Section 56 of the Act) or on the occasion of the marriage of the individual or under a will or by way of inheritance or in contemplation of death of the payer or donor, as the case may be or from any local authority as defined in the explanation to section 10(20) of the Act or from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 of the Act or from any trust or institution registered under section 12AA of the Act.

(ii) NON-RESIDENT SHAREHOLDERS INCLUDING NON RESIDENT INDIANS (NRIs) AND FOREIGN INSTITUTIONAL INVESTORS (FIIs):

1. Dividends earned on shares of the Bank are exempt in accordance with and subject to the provisions of section 10(34) read with Section115-O of the Act. However, as per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.

2. Long term capital gain, as defined under section 2(29A) of the Act, arising on sale of Bank‟s share is fully exempt from tax in accordance with the provisions of section 10(38) of the Act, where the sale is made on or after October, 1 2004 on a recognized stock exchange and the transaction is chargeable to securities transaction tax.

5. Under section 54EC of the Act, long term capital gain arising on sale of Bank`s share {other than sale referred to in section 10(38) of the Act} is exempt from tax to the extent the same is invested in certain notified bonds within a period of six months from the date of such transfer (upto a maximum limit of Rs 50 lakhs) and held for a minimum period of three years.

6. Under section 54F of the Act, long term capital gain arising to an individual or a HUF on sale of the Bank‟s shares [other than the sale referred to in section 10(38) of the Act], is exempt from tax if the net consideration is invested to purchase a residential house property within a period of one year before or two years after the date of sale/ transfer or invested in the construction of a residential house property within a period of three years after the date of sale/transfer. If only a part of the net consideration is invested in the new asset then the exemption will be available proportionately.

7. Long term capital gains would arise [if not exempt under section 10(38) or any other section of the Act] to a non-resident shareholder where the equity shares are held for a period of more than 12 months prior to the date of transfer of the shares. In accordance with and subject to the provisions of section 48 of the Act, in order to arrive at the quantum of capital gains, the following amounts would be deductible from the full value of consideration:

(a) Cost of acquisition/ improvement of the shares as adjusted by the cost inflation index notified by the Central Government; and 00 (b) Expenditure incurred wholly and exclusively in connection with the transfer of the shares

Section 48 of the Act further provides that capital gains arising from the transfer of equity shares acquired by the non-resident in foreign currency, are to be computed by converting the cost of acquisition/ improvement, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of transfer of the capital asset into the same foreign currency as was initially utilized in the purchase of the shares and the capital gains so computed in such foreign currency shall be reconverted into Indian currency. Indexation will not be available in this case.

8. Under Section 111A of the Act, Short term capital gains on the transfer of equity shares, where the shares are held for a period of not more than 12 months would be taxed at 15% (plus applicable surcharge and education cess), where the sale is made on or after October 1, 2004 on a recognized stock exchange and the transaction is chargeable to securities transaction tax. In all other cases, the short term capital gains would be taxed at the normal rates of tax (plus applicable surcharge and education cess). Cost indexation benefits would not be available in computing tax on short term capital gain.

10. Option available to Non-resident Indian[s] (NRI) as per Chapter XII-A of the Act:

(i) Under section 115E of the Act, long term capital gains arising to a NRI on transfer of specified capital assets (including on the Bank`s equity share) are taxable at the rate of 10% (plus education cess) without indexation. Short-term capital gains are however, taxable at the normal rates of tax.

(ii) Under section 115F of the Act, long-term capital gains arising to a NRI from the transfer of shares of the Bank subscribed to in convertible foreign exchange shall be exempt from tax, if the net consideration is reinvested in specified asset or in any savings certificate as defined by section 10(4B) of the Act, within six months of the date of transfer. If only part of the net consideration is so reinvested, the exemption shall be proportionately reduced. The amount so exempted shall be chargeable to tax subsequently, if the specified assets are transferred or converted into money within three years from the date of their acquisition.

(iii) Under section 115G of the Act, a NRI is not required to file a return of income under section 139(1) of the Act, if his only income is from foreign exchange asset investments or long-term capital gains in respect of those assets or both, provided that tax has been deducted at source from such income as per the provisions of Chapter XVII-B of the Act.

(iv) As per the provisions of section 115-I of the Act, a NRI may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing his return of income for that assessment year under section 139 of the Act to the effect that the provisions of Chapter XII-A shall not apply to him for that assessment year and accordingly his total income for that assessment year will be computed and tax on such total income shall be charged in accordance with the other provisions of the Act.

11. As per section 115AD of the Act, long term capital gains arising on transfer of shares purchased by FIIs, are taxable at the rate of 10% (plus applicable surcharge and education cess) if such long term capital gains are not exempt under section 10(38) of the Act.

Short term capital gains earned by FIIs are taxable at the rate of 15% (plus applicable surcharge and education cess) if the transaction is chargeable to securities transaction tax [proviso to section 115AD(1)(ii)]. In all other cases the short term capital gains shall be taxed at 30% (plus applicable surcharge and education cess). Indexation benefits are not available. Further, the provisions of the first proviso of section 48 of the Act will not apply.

12. Under section 195 of the Act, dividends paid by the Bank in accordance with the provisions of Section 115-O of the act, are not subject to deduction of tax at source. 000 13. Under Section 196D of the Act, no deduction of tax at source shall be made in respect of capital gains arising on sale proceeds to FIIs on transfer of shares.

14. Under section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Double tax avoidance agreement (tax treaty) entered into between India and the country of physical domicile of the non-resident, if any, to the extent they are more beneficial to the non-resident. Thus, a non-resident (including NRIs) can opt to be governed by the provisions of the Act or the applicable tax treaty, whichever is more beneficial.

MUTUAL FUNDS:

1. Under section 10(23D) of the Act, exemption is available in respect of income (including capital gains arising on transfer of shares of the Bank) of a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or such other Mutual fund set up by a public sector bank or a public financial institution or authorized by the Reserve Bank of India and subject to the conditions as the Central Government may specify by notification.

II. WEALTH TAX ACT, 1957

Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth-tax Act, 1957. Accordingly, shares purchased in the issue are not liable to Wealth-tax in the hands of the shareholders.

Notes:

1. The above statement of possible tax benefits sets out the provisions of the direct tax law in a summary manner only and is not a complete analysis or list of all potential tax consequences of the purchase, ownership and disposal of shares.

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

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

4. No assurance is given that the Revenue authorities / Courts will concur with the view expressed herein. Our view is based on the existing provisions of law and its interpretation which is subject to change from time to time. We do not assume responsibility to update our view consequent to such changes.

5. Any liability relating to this assignment that may be judicially determined to have resulted primarily from bad faith or intentional misconduct on our part shall be limited to the extent of fees paid relating to this assignment. We will not be liable to any other person in respect of this statement.

for R.K. Kumar & Co., Chartered Accountants F.R.No.-001595S

REGULATIONS AND POLICIES

The main legislation governing commercial banks in India is the Banking Regulation Act, 1949. Other important laws include RBI Act, 1932, the Negotiable Instruments Act, 1881 and the Banker‟s Books Evidence Act, 1891. Additionally, RBI, from time to time, issues guidelines to be followed by the banks. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. Banking companies are also subject to the purview of the Companies Act and if such companies are listed on a stock exchange in India then various regulations of SEBI would additionally apply to such companies.

No new regulations are applicable for the proposed objects of the issue since the object is to augment the capital base of the Bank to meet its capital adequacy requirements arising out of growth in its business.

SECTION IV - HISTORY AND CORPORATE STRUCTURE

The idea of starting a bank at Karur was conceived by one Late Shri. G Chakrapani Chettiar and given shape to by the Late Shri. M A Venkatarama Chettiar, a leading merchant of Karur. He influenced many of the leading businessmen and convinced them on the benefits of starting a bank, which would be of help to needy poor, commercial people and middle class investors. He was ably supported in his endeavours by Shri. Athi Krishna Chettiar. In result, The Karur Vysya Bank Limited was incorporated on June 22, 1916 under the Indian Companies Act, 1913 and commenced its operations on July 1, 1916 in the aftermath of the first World War, with a view to revive agriculture, trade and industry in and around Karur. Since inception, KVB has been growing steadily. Its first branch was opened at Dindigul on January 17, 1927 until such time KVB was operating from its Head Office at Karur. Started with a paid-up capital of ` 0.01 crore on July 1, 1916, The Karur Vysya Bank has today grown into a premier institution that straddles across fifteen states and two Union Territories, with 353 branches. From such humble beginnings, the Net Owned Funds of The Karur Vysya Bank has reached ` 1,619.98 crores as on March 31, 2010 and ` 1,807.06 crores as on September 30, 2010.

The following banks merged with the KVB: a) Selvavridhi Bank Limited, Coimbatore in 1963 b) Salem Shri Kannika Parameshwari Bank Limited, Salem in 1964 c) Pathinengrama Arya Vysya Bank Limited, Kombai in 1964 d) Coimbatore Bhagyalakshmi Bank Limited, Coimbatore in 1965

The Net NPA of the Bank as on March 31, 2010 is now down to 0.23% from 0.25% for the year ended March 31, 2009. The gross and net NPA as on September 30, 2010 stands at 1.55% and 0.16% respectively. Total business has grown to over ` 32,000 crores, with deposits and advances at ` 19,271.85 crores and ` 13,675.00 crores respectively as on March 31, 2010. The Bank‟s deposits and advances were ` 21,249.74 crores and ` 15,268.80 crores respectively as on September 30, 2010. Capital adequacy is at 14.49% (under BASEL II norms) as against the RBI requirement of 9%.

As of September 30, 2010 the Bank has set up 353 branches, 424 ATMs, 8 satellite offices, 13 service centres and 24 administrative offices. The Bank has implemented core banking solutions across all its branches. The Bank has set up a Disaster Recovery Site (DRS) at Cyber Pearl, Hi-Tech City, Hyderabad. The Bank is ensuring less than 30 minutes old data backup of the Primary Data Centre Databases at this DRS using a Disaster Recovery Automation Solution.

MAIN OBJECTS

The objects for which the Bank has been established are:

1. To carry on the business of Banking in all its aspects, whether in India or elsewhere in the world;

2. To carry on all or any of the following business: a. The borrowing, raising or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveler‟s cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or other; the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities; b. Acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers; c. Contracting for public and private loans and negotiating and issuing the same;

d. the effecting, insuring, guaranteeing, underwriting, participating in managing and carrying out of any issue, public or Private, of State, Municipal or other loans or of shares, stock, debentures, or debenture stock of any company, Corporation of Association and the lending of money for the purpose of any such issue; e. carrying on and transacting every kind of guarantee and indemnity business; f. managing, selling and realizing any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims; g. acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security; h. undertaking and executing trusts; i. undertaking the administration of estates as executor, trustee or otherwise; j. establishing and supporting or aiding in the establishment and support of associations, institutions, funds, trusts and conveniences calculated to benefit employees or ex-employees of the company or the dependants or connections of such persons; granting pensions and allowances and making payments towards insurance; subscribing to or guaranteeing moneys for charitable or benevolent object for any exhibition or for any public, general or useful object, k. the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company; l. selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company. m. acquiring and undertaking the whole or any part of the business of any person, or company, when such business is of a nature enumerated or described in the sub-section; n. doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; o. to open, establish, maintain and operate currency chests and small coin depots on such terms and conditions as may be required by the Reserve Bank of India (established under the Reserve Bank of India Act, 1934) and enter into all administrative or other arrangements for under-taking such functions with the Reserve Bank of India. (Amended at the Annual General Meeting held on 03.09.1992). p. any other form of business which the Central Government may, by notification in the official Gazette specify as a form of business in which it is lawful for a banking company to engage.

3. And generally to do and perform all such other acts and things as may be incidental or conducive to the attainment of the above objects or any of them.

4. To do all or any of the above things as principals, agents, insurers, or otherwise and either alone or in conjunction with others.

MAJOR EVENTS

Year Major Events of The Bank 1916 Incorporation of the Bank 1927 First branch opened at Dindigul, Tamil Nadu 1952 KVB became a scheduled Bank 1963 Merger of Selvavridhi Bank Limited with the Bank Merger of Salem Shri Kannika Parameswari Bank Limited and 1964 Pathinengrama Arya Vysya Bank Limited, Kombai 1965 Merger of Coimbatore Bhagyalakshmi Bank Limited Licensed to deal in foreign currencies and to transact foreign exchange business; establishment 1980 of International Division for forex operations Obtained license to act as a Corporate agent for the purpose of procuring or soliciting life 2003 insurance business and general insurance business (since renewed the licenses in 2009 for a further period of 3 years) 2004 100% computerization of branches and offices 2005 Implemented CBS in all branches Won the prestigious CFBP Jamnalal Bajaj Award for Fair Business Practices. This award was 2008 given for the first time for banking industry. Banking Technology Excellence Award 2008 for the best use of IT for customer service in Semi 2009 Urban and Rural Areas given by the IDRBT. Received the Gold CIO award in more than `1000 crores category of the Enterprise Connect Awards ‟09 instituted by CIOL (Cyber Media India Online Ltd)

The Banker magazine, London has featured KVB among the Top 1000 old Banks and KVB is 2010 one of the 32 Indian Banks featured in the list.

Received Banking Technology Excellence Award instituted by IDRBT for under the category „Best IT Infrastructure Management‟ for the year 2009

Corporate Structure BOARD OF DIRECTORS

PART-TIME NON EXECUTIVE CHAIRMAN

Error! MANAGING DIRECTOR & CEO

EXECUTIVE DIRECTOR CHIEF GENERAL MANAGER GENERAL MANAGER IAD GENERAL MANAGER GENERAL MANAGER PDD HRD

DGM DGM DGM DGM-AFMD CMD CMC CM AGM IAD RPC AGM DGM PDD AGM TSD DGM ID AGM CMs ITD AGM HRD CM AGM AGM BIA AGM CMs – SHARES STC CMD Legal DC / DRS PDD CFPC CM CM CM IAD CM CM CM CM TAX CM CMs CPC - LOANS CM VIG SME ITD RMCD / ARC ATM CELL AFMD CELL HRD

OPERATIONAL UNITS

AGM DGM DGM DGM DGM DGM AGM GM AGM DGM VIJ-DO BAN-DO CHE-DO CBE-DO DEL-DO HYD-DO MDU-DO MUM-DO SAL-DO TRI-DO

Branches-36 Branches-42 Branches-28 Branches-46 Branches-40 Branches-21 Branches-37 Branches-33 Branches-29 Branches- 41 CCO - 2 CCO - 1 CCO - 1 CCO - 1 CCO - 2 CCO - 1 CCO - 1 CCO - 1 CCO - 1 CCO - 2 SO - 2 SO - 1 SO - 3 SO - 2

ACCOUNTS AND FUNDS MANAGEMENT AFMD DEPT. DC DATA CENTRE LEGAL LEGAL DEPT. ARC ACCOUNTS RECONCILIATION CELL DRS DISASTER RECOVERY SITE PDD PLANNING AND DEVELOPMENT DEPT. BUSINESS INTELLIGENCE AND ANALYTICAL BIA DO DIVISIONAL OFFICE RPC REGIONAL PROCESSING CENTRE. CELL CCO CENTRAL CLEARING OFFICE HRD HUMAN RESOURCES DEPT. RMCD RISK MANAGEMENT AND COMPLIANCE DEPT. CPC CENTRAL PROCESSING CENTRE FOR LOANS ITD INFORMATION TECH DEPT. SO SATELLITE OFFICE CMD CREDIT MANAGEMENT DEPT IAD INSPECTION & AUDIT DEPT. STC STAFF TRAINING COLLEGE CMC CREDIT MONITORING CELL ID INTERNATIONAL DIVISION VIG VIGILANCE CELL TSD TECHNOLOGY SERVICE DEPT. SME SMALL, MEDIUM ENTERPRISES CFPC CENTRAL FOREX PROCESSING CENTRE

SECTION V – MANAGEMENT

As per the Articles of Association of the Bank, the Bank must have a minimum of 7 and a maximum of 12 Directors. At present, the Bank has 10 Directors including the Managing Director and CEO, of which 7 Directors are independent. The Bank has complied with the listing agreements entered into with stock exchange in respect of Corporate Governance, particularly those relating to composition of Board of Directors, constitution of committees such as Audit Committee, Shareholder/ Investor Grievance Committee, etc.

BOARD OF DIRECTORS:

Name / Father‟s Name / Nationality Qualifications Experience Other Directorships Designation / Address 1. Mr. K P Kumar Indian BA, LLB 43 yrs Nil

S/o Mr. K R Krishnaiah Chetty

Non-Executive (Part - Time) Chairman (w.e.f. 24.09.2010)

#4, 5th Cross Sankarapuram, Bangalore - 560 004

Occupation : Professional

Age : 65

DIN : 37551

Date of Joining: December 29, 2003 as Director.

Date of Expiration of Office: September 23, 2013 2. Mr. P T Kuppuswamy Indian B.Com., ACA, ACS 44 yrs Nil

S/o P T Krishnaswami

MD and CEO

273, Vasavi Nagar LNS Post, Erode Road KARUR 639002

Occupation : Service

Age : 67

DIN : 32309

Date of Joining: June 1, 2002

Date of Expiration of Office: May 31, 2011

Name / Father‟s Name / Nationality Qualifications Experience Other Directorships Designation / Address 3. Dr V G Mohan Prasad Indian MD, D.M, FCCP, 28 yrs VGM Healthcare Pvt Ltd. M.I.A.S.L. S/o Mr. V R B Gopalaratnam Guptha

Director

A-6, Gandhi Nagar, Udumalpet - 642 154

Occupation: Professional and Agriculturist

Age : 52

DIN : 2802

Date of Joining: July 28, 2003

Date of Expiration of Office: July 27, 2011 4. Mr. M G S Ramesh Indian B.Sc. 20 yrs Nil Babu

S/o Mr. Munugur Sreramulu

Director

46, Vasavi Nagar, LNS Post, Erode Road, Karur 639002

Occupation : Industrialist

Age : 49

DIN : 725215

Date of Joining: August 25, 2006

Date of Expiration of Office: August 24, 2014 5. Dr S Krishna Kumar Indian BE, M.Tech., PhD 35 yrs Nil

S/o Mr. G Sarangan

Director

63/2 Millers Road, Benson Town, Bangalore 560046

Occupation : Professional

Age : 59

Name / Father‟s Name / Nationality Qualifications Experience Other Directorships Designation / Address DIN : 2353204

Date of Joining: September 27, 2008

Date of Expiration of Office: September 26, 2016 6. Mr. S Ganapathi Indian B, Com, F.C.A 40 yrs Nil Subramanian

S/o Mr..V Sundaresan

Director

"Prashanth Apartments", 2/8 Turn Bulls Road, Nandanam, Chennai 600 035

Occupation : Professional

Age : 66

DIN : 2738182

Date of Joining: August 26, 2009

Date of Expiration of Office: August 25, 2017 7. Mr. K Parameshwara Indian M.Com, CAIIB 35 yrs Nil Rao (Part I)

S/o Mr. K Seetharamayya

Director

Flat No. 411, Shivaprakruthi Apartments Talacavery Layout Amrutahalli, Bytarayanapura Bangalore 560 092

Occupation: Retired General Manager of Corporation Bank.

Age : 61

DIN : 2780484

Date of Joining: September 25, 2009

Date of Expiration of Office: September 24,

Name / Father‟s Name / Nationality Qualifications Experience Other Directorships Designation / Address 2017 8. Mr. V Santhanaraman Indian B.Com, CAIIB 40 yrs Nil

S/o Mr. Vaidyanathan

Director

New No 6 (Old No 14), I st Floor, Sridevi Colony, Near 7th Avenue, Ashok Nagar, Chennai 600 083

Occupation: Retired Executive Director of Bank of Baroda.

Age : 61

DIN : 212334

Date of Joining: March 13, 2010

Date of Expiration of Office: March 12, 2018 9. Mr. G. Rajasekaran Indian B.A. 32 yrs Nil

S/o Mr. R Gopalakrishnan

Director

No 1, Rajaji Street Karur 639001

Occupation : Business

Age : 59

DIN : 35582

Date of Joining: June 20, 2010

Date of Expiration of Office: June 19, 2018 10. Mr. A J Indian B.A. (Economics), 15 yrs Nil Suriyanarayana M.B.A.

S/o Mr. A S Janarthanan

Additional Director

No. 13, North Madavilagam, Karur 639001

Occupation: Business

Name / Father‟s Name / Nationality Qualifications Experience Other Directorships Designation / Address Age: 38

DIN: 2251823

Date of Joining: 27.10.2010

Date of Expiration of Office: Till the date of Next AGM/ 26.10.2018

Directors of the Bank, other than the Non-Executive (Part Time) Chairman and MD and CEO have 8 years term of office. However in terms of AOA of the Bank every year 1/3 of them are liable to retire by rotation.

Relationship between the Directors

None of the Directors of the Bank have any relation among themselves.

Arrangements with major shareholders, customers, suppliers or others

There is no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which of any Directors was appointed as a Director or member of senior management of the Company.

Compensation to Non-Executive Chairman

Reserve Bank of India, vide its letter DBOD No.4382/08.41.001/2010-11 dated September 16, 2010 and further clarified vide their letter DBOD. 6684/08.41.001/2010-11 dated 25.10.2010accorded its approval for the appointment of Mr. K.P. Kumar as Part-time Non-Executive Chairman for a period of 3 years w.e.f. September 24, 2010.

1. Honorarium `0.09 crores p.a. 2. Traveling and Halting Allowance As applicable to other Directors of the Bank as per RBI circular no. BC.54/08.95.004/98 dated June 10, 1998 3. Insurance Cover Upto `0.10 crores for journey by air / road / rail for official purposes 4. Telephone Provision of residential phone with mobile 5. Sitting fees As applicable to other Directors for attending Board and Committee meetings

Compensation to Managing Director and CEO

RBI vide their letters DBOD No.14663/08.41.001/2007-08 and DBOD No.21542/08.41.001/2008-09 dated April 17, 2008 and June 16, 2009 respectively, accorded its approval for the appointment of Mr. P T Kuppuswamy as Managing Director and Chief Executive Officer (MD and CEO) of the Bank for a period of 3 years with effect from June 1, 2008. The terms of appointment have been approved by the shareholders of the Bank at the annual general meeting held on July 24, 2008. The abstract of remuneration payable to the MD and CEO is given below.

Remuneration 1. Basic Salary ` 285,000/- p.m. (w.e.f. June 1, 2010) Entertainment Allowance Reimbursement : `20,000/- p.a. inclusive of entrance fee/subscription fee etc. of two clubs 2. Perquisites 3. Accommodation Standard rent of `660.05 is recovered towards quarters. 5. Use of bank‟s car (i) for official purpose Yes, with driver

(ii) Private purposes on Recovery of `250/- p.m. for journeys not exceeding 750 Kms. Above that, compensating the Bank with 60% of the rate fixed by RTA. suitable amount 4. Telephone No restriction on use of telephone/mobile/fax/e-mail for office use. 5. Subscription to News papers As may be required by the CEO / periodical 6. PF / Gratuity/Pension PF-12% of pay on contributory basis. Gratuity: One month‟s salary for each completed year of service. 7. Travelling and Halting (a) Single return fare by business/Executive class for travel on official Allowances purposes (b) Halting allowance (c) Boarding Charges and (d) Lodging Charges as may be decided by the Board of Directors from time to time. 8. Medical benefits (i) Medical Aid Reimbursement of medical expenses for self and dependent family upto `20,000/- p.a. on declaration basis. (ii) Hospitalisation Reimbursement of hospitalization charges to the extent of 100% for CEO / MD, and 75% in case of dependent family members. (iii) Insurance Upon the CEO/MD laying down his office, the Bank will pay or reimburse the full premiums payable/paid on the policy or policies issued under medical insurance plan with a sum assured to `0.10 crores 9. Leave Casual Leave: 12 days p.a. Ordinary Leave: 1 day for every 11 days of service Sick Leave: 30 days per each completed year of service. 10. Leave Fare Concession 1. Air Travel for self, family members and dependents. LFC for CEO/MD and his family once in a year to and fro to any place in India. 2. In case LFC could not be availed due to administrative contingencies, during a particular block, the facility to avail it could be carried over to the next block. Leave encashment as applicable to other executives of the bank. 11. Insurance cover Up to `0.10 crores for journey by Air/Rail/Road for official purposes. 12. Leave encashment Encashment of privilege leave at credit at the time of demitting the office.

Except as stated above, there are no other termination benefits available to the Managing Director and CEO or to any other Directors.

Further the Bank has not entered into any service contracts with any of its directors providing for benefits upon termination of employment.

Compensation of Directors

The Bank has not constituted a Remuneration Committee as the remuneration and other perquisites paid to the Part-time Chairman as also to the Managing Director and CEO is as approved by the Reserve Bank of India. All non-executive directors do not receive any remuneration except for the sitting fees as determined by the Board, for attending the meetings of the Board / Committee of Directors. The Bank presently pays sitting fees of `10,000 and `5,000 for every board and committee meeting respectively to the non-executive directors and part- time Chairman.

Interest of Directors

Except as stated in Related Party Transactions appearing in the “Financial Statements” beginning on page 67 of this Draft Letter of Offer, and to the extent of shareholding in the Bank, the Directors do not have any other interest in the business.

All the Directors may be deemed to be interested to the extent of fees, if any, payable to them for attending meetings of the Board or a Committee. The Managing Director and CEO will be interested to the extent of remuneration paid to him for services rendered by him. All the Directors may also be deemed to be interested to the extent of Equity Shares, if any, already held by them or their relatives in the Bank and also to the extent of any dividend payable to them and other distributions in respect of the said Equity Shares. The Directors may also be regarded as interested in their Rights Entitlements, if any, held by or that may be subscribed by and

64 allotted to the companies, firms and trust, in which they are interested as directors, members, partners and/or trustees.

Save and except as disclosed in this Draft Letter of Offer, the Bank has not entered into any contract, agreement or arrangement during the preceding two years from the date of this Draft Letter of Offer in which the Directors are interested directly or indirectly and no payments have been made to them in respect of these contracts, agreements or arrangements or are proposed to be made to them.

No stock options under ESOS have been granted to any of the Directors other than the Managing Director and Chief Executive Officer.

SECTION VI - FINANCIAL INFORMATION

Sl. No. Contents Page Number 1 Audited Financial Statements for the year ended March 31,2010 of the Bank with 67 the report issued by the Auditors 2 Reviewed Financial Statements for the six months ended September 30,2010 of 93 the Bank with the report issued by the Auditors 3 Certain Other Financial Information 103

FINANCIAL STATEMENTS

1. AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31,2010 OF THE BANK WITH THE REPORT ISSUED BY THE AUDITORS

AUDITORS‟ REPORT

1. We have audited the attached Balance sheet of The Karur Vysya Bank Limited, Karur as at 31st March, 2010 and also the annexed Profit and Loss Account of the Bank and the Cash Flow Statement for the year ended on that date in which are incorporated the returns of 8 Offices/Branches audited by us and 369 Offices/Branches (including Extension Counters/Satellite Branches) audited by Branch Auditors. These financial statements are the responsibilities of the Banks‟ Management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with Auditing Standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. The Balance sheet and the Profit and Loss account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 211 of the Companies Act, 1956.

4. The reports on the accounts of the Branches audited by Branch Auditors have been dealt with in preparing our report in the manner considered necessary by us.

5. We report that: (a) We have obtained all the information and explanations, which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory.

(b) The transactions of the Bank, which have come to our notice, have been within the powers of the Bank.

(c) In our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books and proper returns adequate for the purpose of our audit have been received from the branches of the Bank.

(d) The Balance Sheet and Profit and Loss Account of the Bank dealt with by this report are in agreement with the books of account and with the audited returns from the branches.

(e) On the basis of written representations received from the directors and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March 2010 from being appointed as a director in terms of clause (g) of Sub-section (1) of Section 274 of the Companies Act, 1956.

6. In our Opinion, the Profit and Loss Account and the Balance Sheet dealt with by this report are in compliance with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956, in so far as they apply to the Banks.

7. In our opinion and to the best of our information and according to the explanations given to us, the said accounts read together with the Significant Accounting policies and Notes thereon give the information required by the Companies Act, 1956, in the manner so required for banking companies, and on such basis, give a true and fair view: i. in the case of the said Balance Sheet, of the state of affairs of the Bank as at 31st March 2010; ii. in the case of the Profit and Loss Account, of the profit for the year ended on that date, and iii. in the case of the Cash Flow Statement, of the cash flow of the Bank for the year ended on that date.

For J.L.SENGUPTA & CO., Chartered Accountants

(S.R.ANANTHAKRISHNAN) Partner M.No.18073

Karur 20th May 2010

BALANCE SHEET AS AT 31ST MARCH, 2010 ( ` In Crore) Particulars Schedule AS ON 31.03.2010 AS ON 31.03.2009 CAPITAL & LIABILITIES Capital 1 54.44 53.95 Reserves & Surplus 2 1,565.54 1,296.21 Deposits 3 19,271.85 15,101.39 Borrowings 4 475.88 23.04 Other Liabilities and Provisions 5 625.78 586.15 TOTAL 21,993.49 17,060.74

Contingent Liabilities 12 5862.25 4,207.64 Bills for collection 763.72 789.51

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010 ( ` In Crore) Year Ended Year Ended Particulars Schedule 31.03.2010 31.03.2009 I INCOME Interest earned 13 1,757.94 1,446.09 Other Income 14 246.98 265.21 TOTAL 2,004.92 1,711.30

II EXPENDITURE Interest expended 15 1,193.05 1,035.68 Operating expenses 16 348.65 257.60 Provisions and Contingencies 127.19 182.18 TOTAL 1,668.89 1,475.46

Significant Accounting Policies 17 Notes on Accounts 18

SCHEDULES TO BALANCE SHEET AS AT MARCH 31, 2010

SCHEDULE 1 - CAPITAL ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 Authorised Capital 20,00,00,000 Equity Shares of ` 10 each 200.00 200.00

Issued Capital: 5,44,69,602 Equity Shares of `10/- each 54.47 54.00

Subscribed & Paid up Capital: 5,39,51,619/5,39,41,469 Equity Shares of `10/- each 53.95 53.94 Add: Allotment of shares kept in abeyance: 0.01 0.01 13,710/10,150 Equity shares of `10/- each Calls received NIL 0.00

Issue of 470250 equity shares issued to Employees of the Bank pursuant to the exercise of KVB ESOP 2008 - Tranche I 0.47 NIL

54.44 53.95

SCHEDULE 2 - RESERVES AND SURPLUS ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I Statutory Reserve Opening Balance 482.03 411.03 Addition during the year 101.00 71.00 583.03 482.03 II Capital Reserve Opening Balance 51.51 10.38 Addition during the year 5.20 41.13 56.72 51.51 III Share Premium Opening Balance 119.79 119.73 Addition during the year (Rights Issue) 0.06 0.06 Addition during the year ( ESOS) 9.66 Nil 129.51 119.79 Less: Issue of Bonus shares kept in abeyance 0.0025 Nil 129.50 119.79 IV General Reserve Opening Balance 641.43 592.43 Addition during the year 133.00 49.00 Deduction during the year 10.00 Nil 764.43 641.43 V Investment Reserve Opening Balance Nil 1.38 Addition during the year Nil Nil Deduction during the year Nil 1.38

VI Special Reserve U/s 36(1) (viii) of I.T. Act Opening Balance Nil Nil Addition during the year 30.00 Nil Deduction during the year Nil Nil 30.00 Nil VII Balance of Profit : 1.85 1.45 TOTAL 1,565.54 1,296.21

SCHEDULE 3 - DEPOSITS ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 A I. Demand Deposits i) From Banks 4.83 5.73 ii) From Others 2,045.70 1,491.04

2,050.53 1,496.77

II. Savings Bank Deposits 2,484.67 1,808.82

III. Term Deposits i) From Banks 328.77 510.23 ii) From Others 14,407.88 11,285.58

14,736.65 11,795.80

TOTAL OF I, II & III 19,271.85 15,101.39

B Deposits of Branches : i) In India 19,271.85 15,101.39 ii) Outside India Nil Nil

TOTAL 19,271.85 15,101.39

SCHEDULE 4 - BORROWINGS ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I Borrowings in India i) Reserve Bank of India Nil Nil ii) Other Banks 0.04 Nil iii) Other Institutions and Agencies 189.65 18.99 iii a) Tier II Bonds 150.00 Nil

339.69 18.99

II Borrowings outside India 136.20 4.05 TOTAL 475.88 23.04

Secured Borrowings included in I and II above 174.89 Nil

SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I Bills Payable 187.28 187.88 II Inter Office Adjustments (Net) NIL Nil III Interest Accrued 90.80 69.49 IV Deferred Tax 8.25 1.49 V Others (including provisions) 339.44 327.29 TOTAL 625.78 586.15

SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I Cash in Hand (Including Foreign Currency Notes) 167.70 172.23 II Balances with Reserve Bank of India in Current Account 1030.79 791.59 TOTAL 1,198.49 963.82

SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL & SHORT NOTICE ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I In India i) Balances with Banks : a) In Current Accounts 20.51 36.55 b) In Other Deposit Accounts 0.34 368.34 ii) Money at Call and Short Notice with Banks Nil Nil 20.85 404.89 II Outside India In Current Accounts 6.74 5.46 In Other Deposit Accounts 8.98 Nil TOTAL 36.57 410.35

SCHEDULE 8 – INVESTMENTS ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I Investments in India in i) Government Securities 5,682.44 3,815.48 ii) Other Approved Securities 4.33 13.59 iii) Shares 82.73 74.80 iv) Debentures and Bonds 259.22 239.50 v) Mutual Fund Units & Others 573.44 572.61 TOTAL 6,602.16 4,715.98

Gross Investments in India 6,649.44 4,755.61 Less : Provision for Investment Depreciation and impairment 47.28 39.63

Net Investments in India 6,602.16 4,715.98

II Investments outside India Nil Nil

SCHEDULE 9 - ADVANCES ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 A i) Bills purchased and discounted 951.25 808.51 ii) Cash Credits, Overdrafts and Loans repayable on Demand 8,184.49 6,060.41 iii) Term Loans 4,361.76 3,540.95 TOTAL 13,497.50 10,409.88

B i) Secured by tangible assets (incl. Book Debts) 12,159.35 9,303.27 ii) Covered by Bank / Government guarantees 283.59 362.30 iii) Unsecured 1,054.56 744.31 TOTAL 13,497.50 10,409.88

C I Advances in India i) Priority Sector 4,450.87 3,781.09 ii) Public Sector 2,297.48 1,207.74 iii) Banks Nil Nil iv) Others 6,749.16 5,421.05 TOTAL 13,497.50 10,409.88 C II Advances Outside India Nil Nil TOTAL 13,497.50 10,409.88

SCHEDULE 10 - FIXED ASSETS ( ` In Crore) Particulars AS ON 31.03.2010 AS ON 31.03.2009 I Premises : At cost as on 31st March of the preceding year 74.19 67.93 Addition during the year 10.45 6.26 84.64 74.19 Deduction during the year Nil Nil 84.64 74.19 Depreciation to date 22.68 20.50 61.96 53.69

II Building under construction 2.75 Nil

III Other Fixed Assets : (Including Furniture & Fixtures) At cost as on 31st March of the preceding year 204.56 183.99 Addition during the year 31.91 20.83 236.47 204.82 Deduction during the year 0.35 0.26

236.11 204.56 Depreciation to date 163.01 142.56 73.11 62.00 TOTAL 137.81 115.69

SCHEDULE 11 - OTHER ASSETS ( ` In Crore) AS ON AS ON Particulars 31.03.2010 31.03.2009 I Inter Office Adjustments (Net) 36.72 24.08 II Interest Accrued 129.81 114.61 III Tax paid in advance / Tax deducted at source 49.49 19.50 IV Stationery and Stamps 5.23 4.61 V Deferred Tax 9.65 9.07 VI Non Banking Assets acquired in satisfaction of claims Nil Nil VII Others 290.06 273.15 TOTAL 520.96 445.02

SCHEDULE 12 - CONTINGENT LIABILITIES ( ` In Crore) AS ON AS ON Particulars 31.03.2010 31.03.2009 I Claims against the Bank not acknowledged as debts 5.22 5.50 II Liability on account of outstanding a) Forward Exchange Contracts 3,384.66 2,188.26 b) Derivatives 200.00 200.00 III Guarantees given on behalf of Constituents in India 1,299.31 981.79 IV Acceptances, Endorsements and other Obligations 973.06 832.09 V Other items for which the Bank is contingently liable/Bills of exchange rediscounted with IDBI Nil Nil TOTAL 5,862.25 4,207.64

SCHEDULE 13 - INTEREST EARNED ( ` In Crore) Particulars Year Ended 31.03.2010 Year Ended 31.03.2009 I Interest / discount on advances/bills 1,338.11 1,140.33 II Income on Investments 396.27 276.41 III Interest on balances with Reserve Bank Of India and other inter-bank funds 5.42 14.39 IV Others 18.14 14.96 TOTAL 1,757.94 1,446.09

SCHEDULE 14 - OTHER INCOME ( ` In Crore) Particulars Year Ended 31.03.2010 Year Ended 31.03.2009 I Commission, Exchange and Brokerage 156.80 140.19 II Profit/Loss on sale of investments-Net 56.36 93.58 III Profit on sale of land, buildings and other assets 0.44 0.26 IV Profit on exchange transactions - Net 18.44 19.60 V Miscellaneous Income 14.93 11.57 TOTAL 246.98 265.21

SCHEDULE 15 - INTEREST EXPENDED ( ` In Crore) Particulars Year Ended 31.03.2010 Year Ended 31.03.2009

I Interest on Deposits 1,176.41 1,014.40 II Interest on Reserve Bank of India/ Inter-bank borrowings 8.17 15.71 III Others 8.46 5.57 TOTAL 1,193.05 1,035.68

SCHEDULE 16 - OPERATING EXPENSES ( ` In Crore) Particulars Year Ended 31.03.2010 Year Ended 31.03.2009 I Payments to and Provisions for employees 163.27 122.86 II Rent, Taxes and Lighting 29.32 23.16 III Printing and Stationery 3.81 3.35 IV Advertisement and Publicity 13.41 10.42 V Depreciation on Bank's Property 22.63 20.53 VI Directors' fees, allowances and expenses 0.47 0.70 VII Auditors' fees and expenses (includes for branch auditors) 0.75 0.75 VIII Law Charges 0.77 0.63 IX Postages, Telegrams, Telephones, etc. 13.23 11.57 X Repairs and maintenance 6.92 7.21 XI Insurance 15.96 13.36 XII Other Expenditure 78.11 43.05 TOTAL 348.65 257.60

SCHEDULE 17 - SIGNIFICANT ACCOUNTING POLICIES

1. GENERAL:

The accompanying financial statements are prepared on historical cost basis and on accrual basis of accounting, unless otherwise stated and in conformity with the requirements of relevant statutes, guidelines issued by Reserve Bank of India and practices prevailing in the banking industry in India.

2. FOREIGN EXCHANGE TRANSACTIONS:

2.1 Monetary assets and liabilities have been translated at the exchange rates announced by FEDAI at the close of the year.

2.2 Income and Expenditure items have been translated at the exchange rates prevailing on the date of transactions.

2.3 Profit or loss on pending forward exchange contracts is accounted for by way of revaluation at the appropriate forward rates prevailing at the close of the year as advised by FEDAI.

2.4 Foreign Currency guarantees, acceptances, endorsements and other obligations are stated at the exchange rates prevailing on the date of transactions.

3. INVESTMENTS:

3.1. Investments are categorized into three categories – (i) Held to Maturity, (ii) Held for Trading and (iii) Available for sale, with sub- classification under each category viz., (i) Government

Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures & Bonds, (v) Subsidiary and Joint Ventures and (vi) Others – Units of Mutual Funds, Certificate of Deposits etc., in accordance with the guidelines issued by Reserve Bank of India.

3.2. The category under which the investments would be classified is decided at the time of acquisition.

3.3. Shifting of securities among the categories are accounted at the least of the acquisition cost / book value / market price prevailing on the date of shifting and depreciation, if any, on such shifting is fully provided for.

3.4. Investments classified under HTM category are carried at acquisition cost except in cases where the acquisition cost is higher than the face value, in which case the premium is amortized over the remaining period to maturity.

3.5. Investments classified under HFT and AFS categories are marked to market at regular intervals as per the quotations put out by FIMMDA from time to time and net depreciation within each sub- classification is recognized and provided for, while net appreciation is ignored.

3.6. The Bank follows the method of calculating and accounting of profit on sale of investments under weighted average cost method.

4. DERIVATIVES:

Interest rate swaps pertaining to trading position and which are outstanding as on Balance Sheet date are marked to market and net appreciation is ignored and net depreciation is recognized in the Profit & Loss Account. Foreign Currency Options and Swaps are accounted in accordance with the guidelines issued by FEDAI.

5. ADVANCES:

Advances are classified as Performing and Non-performing Assets and Provisions therefor are made as per the prudential norms prescribed by Reserve Bank of India. Advances shown in the Balance Sheet are net of provisions.

6. FIXED ASSETS:

6.1. Premises and other fixed assets are accounted for at historical cost as reduced by depreciation written off.

6.2. Depreciation has been provided on diminishing balance method at the rates specified in the schedule XIV of the Companies Act, 1956 except on Computers. On Computers, including software, depreciation has been provided on straight-line method @ 33.33% as advised by the Reserve Bank of India.

7. DEFERRED TAX ACCOUNTING

Deferred Tax Assets are recognized in the books of accounts to the extent of their future reversibility. Deferred Tax Liabilities are recognized fully in the year of accrual.

8. REVENUE/EXPENDITURE RECOGNITION:

8.1 Interest income on all advances other than non-performing assets is recognized on accrual basis. In respect of non-performing assets, the interest income is recognized on cash basis.

8.2 Commission (including commission received on insurance business), exchange, brokerage and locker rent are accounted on cash basis.

8.3 Expenditure is generally accounted on accrual basis.

9. EMPLOYEE BENEFITS:

Provision for Gratuity, Pension and other defined employee benefits are made on accrual basis as per Actuarial valuation done at the year-end and short term benefits are accounted for as and when the liability becomes due in accordance with the guidelines contained in Accounting Standard 15 (Revised 2005) issued by ICAI.

Options granted under Employee Stock Option Scheme (ESOS) are accounted for in accordance with the policies contained in Schedule 1 to clause 13.1 of the SEBI guidelines 1999 (updated in August 2008).

10. NET PROFIT:

The net profit disclosed in the Profit and Loss Account is after providing for:

1. Provision for Taxes, 2. Provision for Standard Assets and Non Performing Assets, 3. Provision for Depreciation on investments, and 4. Other usual and necessary provisions

SCHEDULE 18 - NOTES FORMING PART OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT

1. INTER-BRANCH TRANSACTIONS:

Inter branch/Office accounts reconciliation has been completed upto 31.03.2010 and all the Inter branch entries have been reconciled upto 31.03.2010.

2. BALANCING OF BOOKS:

The books of accounts have been balanced and tallied in all branches of the Bank up to 31st March 2010. The reconciliation of accounts with other Banks has been completed up to 31st March 2010.

3. INVESTMENTS:

In line with the extant guidelines of Reserve Bank of India, the Bank has shifted certain securities from HTM category to AFS category and NIL depreciation has been provided.

4. COMPLIANCE WITH ACCOUNTING STANDARDS:

4.1 Net Profit or loss for the period, Prior Period Items and Changes in Accounting Policies (AS-5):

There are no material prior period income and expenditure included in the Profit & Loss account, which requires a disclosure as per AS-5.

4.2 Revenue Recognition: (AS-9):

Income / Expenditure items recognized on cash basis were either not material or did not require disclosure under AS-9 (Revenue Recognition).

4.3 Employee Benefits: (AS-15):

The Bank is following Accounting Standard 15 (Revised 2005) „Employee Benefits‟ as under:

(i) In respect of Contributory Plan, viz., Provident Fund, the Bank pays fixed contribution at pre- determined rates to a separate Trust, which invests in permitted securities. The obligation of the Bank is limited to such fixed contribution. (ii) In respect of Defined Benefit Plans, viz., Gratuity and Pension, provision has been made based on actuarial valuation as per the guidelines.

(iii) In respect of other employee benefits such as Leave encashment and Medical leave, provisioning requirement has been ascertained as per actuarial valuation.

The disclosure requirements as per the Accounting Standards are given below:

Expenses recognized in Profit and Loss Account ( ` In Crore) Particulars Gratuity Pension Current Service Cost 2.31 3.18 Interest cost on benefit obligation 2.51 2.68 Expected return on plan assets (2.82) (3.66) Net actuarial gain / (loss) recognised in the year (0.61) 7.50 Expenses recognised in the Profit and Loss Account 1.39 9.70

Changes in the present value of the defined benefit obligation ( ` In Crore) Particulars Gratuity Pension Present value of obligation as at 1.4.2009 35.01 39.78 Interest cost 2.51 2.68 Current Service Cost 2.31 3.18 Benefits paid (3.03) (8.10) Net actuarial gain / (loss) on obligation ( 0.68) 6.54 Present value of the defined benefit obligation as at 31.3.2010 36.12 44.08

Change in the fair value of plan assets ( ` In Crore) Particulars Gratuity Pension Fair value of plan assets as at 1.4.2009 35.01 39.78 Expected Return on plan assets 2.82 3.66 Contribution by employer 1.40 9.71 Benefit Paid (3.03) (8.11) Actuarial gain / (loss) (0.06) (0.95) Fair value of plan assets as at 31.3.2010 36.14 44.09

Wage Arrears:

In terms of settlement of wage revision, the Bank has made an estimated provision of `32 crore of which `18 crore has been provided during the year and `14 crore has been paid as adhoc payment ( `6.07 crore for 2009- 10, `5.69 crore for 2008-09 & `2.34 crore for 2007-08). The impact on retirement benefits on above has not been considered by the Bank.

Employees Stock Option Scheme:

During the year, the Bank has allotted 470,250 shares of `10/- each at a premium of `60/-each to the employees under Employees Stock Option Scheme. These shares have been listed on the National Stock Exchange.

4.4 Segment Reporting:(AS-17)

Part A: Business segments ( ` In Crore) Sl. Year Ended 31.03.2010 Year Ended 31.03.2009 Particulars No. (Audited) (Audited) (a) Segment Revenue 1. Treasury Operations 476.73 404.51 2. Corporate/Wholesale Banking Operations 682.16 548.75 3. Retail Banking Operations 841.10 754.65 4. Other Banking Operations 4.93 3.39 Total 2004.92 1711.30

(b) Segment Results 1. Treasury Operations 125.57 117.77 2. Corporate/Wholesale Banking Operations 165.33 131.97 3. Retail Banking Operations 256.74 254.52 4. Other Banking Operations 4.53 3.14 Total 552.17 507.40

(c) Unallocated Income/Expenses 88.95 89.38 (d) Operating Profit 463.22 418.02 (e) Income Taxes 89.84 95.10 (f) Other Provisions 37.35 87.08 (g) Net Profit 336.03 235.84 (h) Other Information (i) Segment Assets 1. Treasury Operations 6638.73 5126.33 2. Corporate/Wholesale Banking Operations 6940.38 4995.65 3. Retail Banking Operations 6734.62 5414.23 4. Other Banking Operations 0.00 0.00 5. Unallocated Assets * 1679.76 1524.53 Total 21993.49 17060.74 (j) Segment Liabilities 1. Treasury Operations 804.66 533.26 2. Corporate/Wholesale Banking Operations 9614.05 7002.23 3. Retail Banking Operations 9329.02 7588.94 4. Other Banking Operations 0.00 0.00 5. Unallocated Liabilities 625.78 586.15 Capital Employed i) Treasury Operations 484.37 407.38 ii) Corporate/Wholesale Banking Operations 506.46 396.88 iii) Retail Banking Operations 491.34 430.21 iv) Other Banking Operations 0.00 0.00 v) Unallocated Liabilities 137.81 115.69 Total 21993.49 17060.74 * Cash, bank balances and RBI balances have been included

Part B: Geographic segments

There is only one segment i.e., Domestic Segment. Notes: (i) As a prudent policy, the Bank holds provision for NPAs and standard assets over and above the minimum required under the RBI norms. (ii) As per the Reserve Bank of India guidelines on enhancement of disclosures relating to Segment Reporting under AS-17, the reportable segments have been divided into Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations. (iii) Cash in hand, Balance with RBI and other inter-bank funds are included in Un-allocated assets.

4.5 Related Party Transactions (AS-18):

Amount Key Management Personnel Designation Item (in ` ) Shri. A. S. Janarthanan Chairman Remuneration 6,00,000/- Shri. P.T. Kuppuswamy M.D. & C.E.O. Remuneration 39,99,367/-

4.6 Earning per Share (AS-20):

Sl. No. Particulars 2009-10 2008-09 1 Basic EPS ( `) 62.23 43.71 2 Diluted EPS ( `) N.A N.A

Computation of Basic EPS

Sl. No. Particulars 2009-10 2008-09 A Net Profit ( ` in Crore) 336.03 235.84 B Weighted number of shares 53,999,798 53,951,619 C Basic EPS (A/B) ( `) 62.23 43.71 D Nominal Value per share ( `) 10.00 10.00

4.7 ACCOUNTING FOR TAXES ON INCOME (AS-22):

4.7.1 Appeals are pending with Income Tax Appellate Tribunal and Commissioner of Income Tax (Appeals) for various years. No provision is considered necessary for the disputed income tax on the basis of favourable decisions.

4.7.2 The Bank has complied with Accounting Standard 22 “Accounting for Taxes on Income” issued by the Institute of Chartered Accountants of India.

The components of Deferred Tax for the year are as follows:

Deferred Tax Liabilities ( ` In Crore) Sl. As on As on Particulars No. 31.03.2010 31.03.2009 1 Depreciation on Fixed Asset 0.00 0.13 2 Interest accrued but not due 8.25 1.36 TOTAL 8.25 1.49

Deferred Tax Assets ( ` In Crore) Sl. As on As on Particulars No. 31.03.2010 31.03.2009 1 Depreciation on Fixed Asset 0.10 0.00 2 Provision for leave encashment 9.55 9.07 TOTAL 9.65 9.07

Amount of Provisions made for Income tax during the year ( ` In Crore) Current Year Previous Year Particulars 2009-10 2008-2009 Provision for Income Tax 83.66 96.21

4.8. INTANGIBLE ASSETS (AS-26):

Depreciation on software is calculated on straight-line method at 33.33% in compliance with Accounting Standard 26.

5. Disclosures required by Reserve Bank of India:

5.1 Capital Adequacy:

2009-10 2008-09 Items Basel II Basel I Basel II Basel I i) CRAR (%) 14.49% 12.48% 14.92% 13.08% ii) CRAR - Tier I capital (%) 12.88% 11.10% 14.40% 12.63% iii) CRAR - Tier II Capital (%) 1.61% 1.38% 0.52% 0.45% iv) Amount of subordinated debt raised as Tier-II capital 150 Cr. 150 Cr. NIL NIL

The bank has raised following Tier II instruments to augment capital requirements:

Raised during the Reckoned for the purpose of CRAR computation Nature Amount year (as per RBI guidelines) Lower Tier 2009-10 `150 crore `150 crore II

5.2 Investments: ( ` In Crore) Items 2009-10 2008-09 (1) Value of Investments (i) Gross Value of Investments (a) In India 6649.44 4755.61 (b) Outside India, Nil Nil (ii) Provisions for Depreciation @ (a) In India 47.28 39.63 (b) Outside India, Nil Nil (iii) Net Value of Investments (a) In India 6602.16 4715.98 (b) Outside India. Nil Nil (2) Movement of provisions held towards depreciation on investments. (i) Opening balance (ii) Add: Provisions made during the year 34.09 3.80 (iii) Less: Write-off/ write-back of excess provisions during 7.65 68.15 the year NIL 37.86 (iv) Closing balance 41.74 34.09 @ Includes Provision for Non Performing Investments amounting to `5.54 crore for 2009-10 and 2008-09.

5.3 Repo Transactions: ( ` In Crore) Minimum Maximum Daily Average As on outstanding during outstanding during outstanding during March 31, the year the year the year 2010 Securities sold NIL NIL NIL NIL under repos Securities purchased under 25 275 9.12 NIL reverse repos

5.4 Non-SLR Investment Portfolio:

5.4.1 Issuer composition of Non SLR investments as on March 31, 2010: ( ` In Crore) Extent of Extent of below Extent of Extent of No. Issuer Amount Private investment unrated unlisted placement grade securities securities securities 1 2 3 4 5 6 7 1 PSUs 152.93 149.20 - 0.00 54.50 2 FIIs 19.52 19.52 - - - 3 Banks 98.15 55.50 - 0.00 0.00 4 Private Corporates 76.88 36.56 - 1.56 1.56 5 Subsidiaries / Joint Ventures 0.00 - - - 6 Others 576.38 - - 0.00 0.00 7 Less: Provision held towards depreciation 8.47 xxx xxx xxx xxx and non performing investments Total 915.39 260.78 - 1.56 56.06

5.4.2. Non performing Non-SLR investments: ( ` In Crore) Amount as on Amount as on Particulars 31-03-2010 31-03-2009 Opening balance 5.54 5.54 Additions during the year since 1st April NIL NIL Reductions during the above period NIL NIL Closing balance 5.54 5.54 Total provisions held 5.54 5.54

5.5 Forward Rate Agreement / Interest Rate Swap: ( ` In Crore) Items 2009-10 2008-09 1. The notional principal of swap agreements 200.00 200.00 2. Losses which would be incurred if counterparties failed to fulfill 2.42 4.34 their obligations under the agreements 3. Collateral required by the Bank upon entering into swaps NIL NIL 4. Concentration of credit risk arising from the swaps Banks & PDs Banks & PDs 5. The fair value of the swap book -0.16 -0.46

5.6 Exchange Traded Interest Rate Derivatives: ( ` In Crore) Sr. No. Particulars Amount Notional principal amount of exchange traded interest rate derivatives (i) NIL undertaken during the year Notional principal amount of exchange traded interest rate derivatives (ii) NIL outstanding as on 31st March 2009 Notional principal amount of exchange traded interest rate derivatives (iii) NIL outstanding and not "highly effective" Mark-to-market value of exchange traded interest rate derivatives outstanding (iv) NIL and not "highly effective"

5.7 Disclosures on risk exposure in derivatives:

5.7.1 Qualitative Disclosure:

Structure, Organisation, Scope, Nature of risk management in derivatives:

The organization structure consists of Treasury Department which is segregated into three functional areas i.e., front office, mid office and back office.

Rupee derivative deals are executed for hedging or for trading. The risk in the derivatives portfolio is monitored by assessing the mark to market (MTM) position of the portfolio on a daily basis and the impact on account of probable market movements. The overall portfolio is operated within the risk limit fixed by the Bank.

Forex derivative deals are offered to clients on back-to-back basis. The outstanding deals are marked to market on monthly basis. The MTM values are informed to the clients every month after getting it from the counterparty banks.

The Board reviews the risk profile of the outstanding portfolio at regular intervals.

Accounting:

Accounting Policies as per RBI guidelines have been adopted. The hedge swaps are accounted for like a hedge of the asset or liability. The income / expense on hedge swaps are accounted on accrual basis except where swaps transactions whose underlying is subjected to mark to market. Such hedge swaps are marked to market on a monthly basis and the gain / losses are recorded as an adjustment to the designated asset / liability. The Non hedge swaps are marked to market every month and the MTM losses in the basket are accounted in the books while MTM profits are ignored.

Collateral Security:

As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks / PDs etc. For deals with Corporate Clients, appropriate collateral security / margin etc. are stipulated whenever considered necessary.

Credit Risk Mitigation:

Most of the deals have been contracted with Banks / Major PDs / highly rated clients and no default risk is anticipated on the deals with them.

Dealing in derivatives is centralized in the treasury of the Bank. Derivative transactions are entered into by the treasury front office. Treasury middle office conducts an independent check of the transactions entered into by the front office and also undertakes activities such as confirmation, settlement, accounting, risk monitoring and reporting and ensures compliance with various internal and regulatory guidelines.

The market making and the proprietary trading activities in derivatives are governed by the derivatives policy of the Bank, which lays down the position limits, stop loss limits as well as other risk limits. As far as forex derivatives are concerned, they are undertaken on back-to-back basis only.

Risk monitoring on derivatives portfolio is done on a daily basis. The Bank measures and monitors risk using PVBP (Price Value of a Basis Point) approach. Risk reporting on derivatives forms an integral part of the management information system and the marked to market position and the PVBP of the derivatives portfolio is reported on a daily basis to the top management.

Risk monitoring on forex derivatives is done on a monthly basis after getting the monthly MTM values from the counterparty banks. It is reported to the top management and related clients on monthly basis.

5.7.2 Quantitative Disclosures: ( ` In Crore) Sl. Currency Interest rate Particulars No Derivatives derivatives (i) Derivatives (Notional Principal Amount)* 3384.66 200.00 a) For hedging NIL NIL b) For trading 3384.66 200.00 (ii) Marked to Market Positions [1] NIL -0.16 a) Asset (+) +3384.66 NIL b) Liability (-) -3384.66 -0.16 (iii) Credit Exposure [2] 67.69 2.42 (iv) Likely impact of one percentage change in interest rate NIL 0.04 (100*PV01) a) on hedging derivatives NIL NIL b) on trading derivatives NIL 0.04 (v) Maximum and Minimum of 100*PV01 observed during the year a) on hedging NIL NIL b) on trading NIL Max & Min. `0.04 Cr. * Forward Contract – `3384.66 crore

5.8. (a) Non-Performing Asset: ( ` In Crore) Items 2009-10 2008-09 (i) Net NPAs to Net Advances (%) 0.23% 0.25% (ii) Movement of NPAs (Gross) (a) Opening balance 205.86 194.26 (b) Additions during the year 120.94 82.11 (c) Reductions during the year 91.46 70.51 (d) Closing balance 235.34 205.86 (iii) Movement of Net NPAs (a) Opening balance 25.82 17.29 (b) Additions during the year 5.13 8.53 (c) Reductions during the year 0.00 0.00 (d) Closing balance 30.95 25.82 (iv) Movement of provisions for NPAs

(a) Opening balance 153.02 147.31 (b) Provisions made during the year 24.48 5.71 (c) (i) Amt transferred to floating Provisions NIL NIL (ii) Provisions reversed & used for Standard NIL NIL assets/Misc provisions 177.50 153.02 (d) Closing balance NPA Coverage Ratio is 86.85% (Previous year 86.93%)

5.8 (b) Movement of Floating Provision

Particulars 2009-10 2008-09 Floating Provision at the beginning of the year 18.69 21.84 Floating Provision made during the year NIL NIL Amount of provision withdrawn during the year NIL 3.15 Floating Provision at the end of the year 18.69 18.69

5.9. Details of Loan Assets subjected to Restructuring during the year: ( ` In Crore) Item 2009-10 2008-09 (i) Total amount of loan assets subjected to restructuring, rescheduling, renegotiation; 215.29 293.39 - - of which under CDR 12.45 NIL (ii) The amount of Standard assets subjected to restructuring, rescheduling, renegotiation; 215.29 293.39 - - of which under CDR 12.45 NIL (iii) The amount of Sub-Standard assets subjected to restructuring, rescheduling, NIL NIL renegotiation; - - of which under CDR NIL NIL (iv) The amount of Doubtful assets subjected to restructuring, rescheduling, renegotiation; NIL NIL - of which under CDR NIL NIL

Particulars of Accounts Restructured as on 31.03.2010: ( ` In Crore) CDR SME Debt Others Mechanism Restructuring No. of borrowers 4 62 75 Standard Amount Outstanding 72.13 27.75 462.66 Advances Sacrifice (diminution in the 8.84 0.25 0.12 Restructured fair value) No. of Borrowers Sub standard Amount outstanding advances NIL Sacrifice (diminution in the restructured fair value) No. of Borrowers Doubtful advances Amount outstanding NIL restructured Sacrifice (diminution in the fair value) No. of Borrowers 4 62 75 Amount outstanding 72.13 27.75 462.66 TOTAL Sacrifice (diminution in the 8.84 0.25 0.12 fair value)

5.10. Details of financial assets sold to Securitisation / Reconstruction Company for Asset Reconstruction:

( ` In Crore) Item 2009-10 2008-09 (i) No. of accounts NIL NIL (ii) Aggregate value (net of provisions) of accounts sold to SC/RC NIL NIL (iii) Aggregate consideration NIL NIL (iv) Additional consideration realized in respect of accounts transferred NIL NIL in earlier years (v) Aggregate gain over net book value. NIL NIL

5.10 (a) Details of Non-performing assets purchased/sold - NIL

5.11 Provisions on Standard Asset: ( ` In Crore) Item As on 31st Mar 2010 As on 31st Mar 2009 Provisions towards Standard Assets 51.37 48.07

5.12 Business Ratio:

Items 2009-10 2008-09 1. Interest Income as a percentage to Working Funds 9.18% 9.16% 2. Non-interest income as a percentage to Working Funds 1.29% 1.69% 3. Operating Profit as a percentage to Working Funds 2.42% 2.65% 4. Return on Assets 1.76% 1.49% 5. Business (Deposits plus advances) per employee ( ` in crore) 7.89 6.38 6. Profit per employee ( ` in crore) 0.08 0.06

5.13 Maturity pattern of certain items of assets and liabilities: ( ` In Crore) Over 3 Over 6 Over 1 Over 3 15 to 29 days months 1 2 to 7 8 to 14 months year & years & Over 5 Total Particulars 28 to 3 & up to day days days & up to up to 3 up to 5 years days months 6 1 year years years months Deposits 275.37 284.84 226.57 570.14 2448.45 1590.54 3748.99 6956.08 1295.25 1875.62 19271.85

Advances 404.10 46.87 105.34 247.36 979.94 682.58 2990.51 5328.98 1530.86 1358.46 13675.00

Investments 836.94 74.23 0.00 55.65 36.02 2.84 26.17 810.80 511.13 4295.66 6649.44

Borrowings 1.54 174.89 0.00 0.00 135.80 0.90 2.00 7.18 3.58 150.00 475.89

Foreign Currency -- -- 1.08 10.37 21.30 11.09 6.78 ------50.62 assets Foreign Currency -- -- 61.83 0.37 136.49 4.02 19.69 6.52 0.75 -- 229.67 liabilities

The above data has been compiled on the basis of the guidelines of RBI and certain assumptions made by management and have been relied upon by auditors.

5.14 Lending to Sensitive Sector

5.14.1. Exposure to Real Estate Sector: ( ` In Crore) Category 2009-10 2008-09 a) Direct exposure (i) Residential Mortgages – Lendings fully secured by mortgages on residential property that is or 343.85 288.31 will be occupied by the borrower or that is rented;

(ii) Commercial Real Estate – Lendings secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family 478.08 443.95 residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits;

(iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures – NIL NIL a. Residential, NIL NIL b. Commercial Real Estate. b) Indirect Exposure Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs). 161.79 292.27

5.14.2. Exposure to Capital Market: ( ` In Crore) Items 2009-10 2008-09 (i) Investments made in equity shares, 83.44 93.43 (ii) Investments in bonds/ convertible debentures NIL NIL

(iii) Investments in units of equity–oriented mutual funds 11.10 18.29

(iv) Advances against shares to individuals for investment in equity shares 2.24 0.91 (including IPOs/ESOPS), bonds and debentures, units of equity oriented mutual funds. (v) Secured and unsecured advances to stockbrokers and guarantees issued on 174.04 163.82 behalf of stockbrokers and market makers Total Exposure to Capital Market (i+ii+iii+iv+v) 270.82 276.45

Of (v) above, the total finance extended to stockbrokers for margin trading. NIL NIL

5.15. Risk Category wise Country Exposure: ( ` In Crore) Risk Exposure (net) as at Provision held as at Exposure (net) as at Provision held as at Category March 31, 2010 March 31, 2010 March 31, 2009 March 31, 2009 Insignificant 223.75 NIL 248.00 NIL Low 143.60 NIL 58.25 NIL Moderate 12.57 NIL 7.54 NIL High 0.19 NIL 4.33 NIL Very High 0.07 NIL 12.74 NIL Restricted NIL NIL NIL NIL Off-credit NIL NIL NIL NIL Total 380.18 NIL 330.86 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 provision is required in terms of RBI guidelines.

5.16. Agricultural Debt Waiver and Debt Relief Scheme 2008:

The bank has implemented the above scheme announced by the GOI.

A) Under debt waiver to small and marginal farmer‟s bank has submitted a final claim of `34.74 crores duly certified by Statutory Auditors out of which `22.57 crores received from the Government of India and present Balance outstanding is `12.17 crores.

B) As regards to Debt Relief Scheme, the Bank has so far settled an amount of `2.39 crores to farmers as per the RBI guidelines. As the scheme is extended up to 30/06/2010, final claim will be made thereafter by the Bank. These accounts are classified as Standard Advances.

5.16 (a) Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL) exceeded by the Bank.

( ` In Crore) Sl. No. Name of the Borrower Exposure ceiling Limit sanctioned Position as on 31/03/2010 01 Alok Industries Limited 207.00 231.02 190.22

5.17. Provisions and Contingencies: ( ` In Crore) Break-up of „Provision and Contingencies‟ shown under the head 2009-10 2008-09 Expenditure in Profit & Loss Account Provision for Bad & Doubtful Debts 17.50 5.28 Provision for Standard Assets 3.30 3.93 Provision for Restructured Advances 9.21 9.97 Provision for Income Tax 89.84 * 95.10 (Including FBT and Deferred tax) Provision for Wealth Tax NIL NIL Provision for Depreciation on Investments 7.65 68.15 Provision for Derivatives -0.31 -0.25 127.19 182.18 Total * Provision for Income Tax is made after considering current year‟s liability and previous years‟ reversals.

5.18 (a) Customer Complaints

No. of complaints pending at the beginning of the year NIL No. of complaints received during the year 64 No. of complaints redressed during the year 63 No. of complaints pending at the end of the year 01

5.18 (b) Awards passed by Banking Ombudsman

No. of unimplemented awards at the beginning of the year 1 No. of awards passed by banking ombudsman during the year 2 No. of awards implemented during the year 2 No. of awards dismissed on appeal by RBI 1 No. of unimplemented awards at the end of the year 0

5.19. Disclosure of Penalties imposed by RBI:

No penalty was imposed by the Reserve Bank of India during the year.

5.20. Increase in Paid-up share capital and Share Premium:

The increase in Paid-up share capital and Share Premium is due to exercise of Employee Stock Option Scheme (ESOS) during the year ended 31st March 2010.

5.21. Creation of Special Reserve U/s 36 (1) (viii) of I.T. Act:

As per Section 36 (1)(viii) of the Income Tax Act, 1961, the Bank has created a Special Reserve of `20.00 crore for the year 2009-10 and `10.00 crore transferred from General Reserve for the year 2008-09, being the eligible amount of deduction available under the said provision.

5.22 Drawdown from General Reserve:

An amount of `10 crore has been transferred to profit & Loss account as “below the line” item in the Profit & Loss Appropriation account after determining the profit for the year to create Special Reserve U/s 36 (1) (viii) of I.T. Act for the year 2008-09.

5.23 Impact on Change in Methodology of accounting and valuation of investments:

The bank has changed the methodology of accounting & valuation of investments during the year 2009-10 from FIFO method to Weighted Average Method. The impact on above in the profit and loss account is a net gain of `2.91 crore.

5.24 Disclosure of Letters of Comfort (LoCs) issued by banks: NIL

Miscellaneous Disclosures required by Reserve Bank of India

6.1.1 Concentration of Deposits: ( ` In Crore) As on 31.03.2010 Total Deposits of twenty largest depositors 2133.53 Percentage of Deposits of twenty largest depositors to Total Deposits of the Bank 11.07%

6.1.2 Concentration of Advances ( ` In Crore) As on 31.03.2010 Total Advances to Twenty Largest Borrowers 3584.25 Percentage of Advances to twenty Largest Borrowers to Total Advances of the Bank. 26.21%

6.1.3 Concentration of Exposures ( ` In Crore) As on 31.03.2010 3604.85 Total Exposures to Twenty Larges Borrowers / customers Percentage of Exposures to twenty largest borrowers/customers to Total Exposure of 22.11% the Bank on borrowers/customers

6.1.4 Concentration of NPAs ( ` In Crore) As on 31.03.2010 Total Exposure to top four NPA Accounts 77.54

6.2 Sector-wise NPAs

Sl. Sector Percentage of NPAs to Total No. Advances in that sector 1. Agriculture & allied activities 0.44 2. Industry (Micro, small, medium and large) 1.80 3. Services 0.89 4. Personal Loans 1.49

6.3 Movement of NPAs ( ` In crore) Particulars Amount Gross NPAs* as on 1st April 2009 205.86 Additions during the year 120.94 Sub-total (A) 326.80 Less : - (i) Upgradations 16.55 (ii) Recoveries (excluding recoveries made from upgraded accounts) 41.12 (iii) write-offs 33.79 Sub-total (B) 91.46 Gross NPAs as on 31st March 2010 235.34

6.4 Overseas Assets, NPAs and Revenue : NIL

6.5 Off-balance sheet SPVs sponsored (which are required to be consolidated as per accounting norms): NIL

6.6 Bancassurance Business:

The Bank has received an amount of `4.93 crore towards Fee/remuneration in respect of the bancassurance business undertaken during 01.04.2009 to 31.03.2010 (expenses reimbursement is not taken into consideration).

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010

( ` In Crore)

Particulars AS AT 31.03.2010 AS AT 31.03.2009 Cash Flow From Operating Activities Net Profit As Per Profit And Loss Account 336.03 235.84 Adjustments For Depreciation 22.63 20.53 Provisions And Contingencies 127.19 182.17 Provision For Leave Encashment 1.42 2.01 Profit/Loss On Sale Of Investments (56.36) (93.58) Profit / Loss On Sale Of Assets (0.44) (0.26) Operating Profit Before Working Capital Changes 430.47 346.71 Increase/Decrease In Operating Assets Purchase And Sale Of Investments (1,837.47) (1,096.06) Funds Advances To Customers (3,112.10) (994.06) Other Operating Assets (32.74) 20.32 (4551.83) (1723.09) Increase/Decrease In Operating Liabilities Deposits From Customers 4,170.46 2,551.39 Borrowings From Banks 302.85 (305.30) Other Operating Liabilities 12.59 (106.27) Amount Paid To Pension & Gratuity Fund Nil Nil Cash Generated From Operations (65.93) 416.73 Direct Taxes Paid (113.65) (134.25) Net Cash Generated From Operations (179.58) 282.48 Cash Flow From Investing Activities Purchase Of Fixed Assets (45.11) (19.92) Sale Of Fixed Assets 0.80 0.53 Net Cash Generated From Investing Activities (44.31) (19.39) Cash Flow From Financing Activities Proceeds From Share Capital 0.48 0.01 Proceeds From Share Premium 9.72 0.06 Proceeds From Tier II Bond Issuance 150.00 - DIVIDEND PAID (Incl. Dividend Distribution Tax) (75.42) (75.56) Net Cash Flow From Financing Activities 84.79 (75.50) Cash Flow From Operating Activities (179.58) 282.48 Cash Flow From Investing Activities (44.31) (19.39) Cash Flow From Financing Activities 84.78 (75.49) Increase In Cash & Cash Equivalent (139.11) 187.59 Cash And Cash Equivalents As At 31.3.2009/31.3.2008 1,374.17 1,186.57 Cash And Cash Equivalents As At 31.03.2010/31.03.2009 1,235.06 1,374.17

2. REVIEWED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30,2010 OF THE BANK WITH THE REPORT ISSUED BY THE AUDITORS

LIMITED REVIEW REPORT The Board of Directors The Karur Vysya Bank Limited Karur

We have reviewed the accompanying Statement of unaudited financial results of The Karur Vysya Bank

Limited for the quarter and half year ended September 30, 2010 except for the disclosures regarding „Public Shareholding‟ and „Promoter and Promoter Group Shareholding‟ which have been traced from the disclosures made by the management and have not been audited by us. This statement is the responsibility of the Bank's Management and has been approved by the Board of Directors. Our responsibility is to issue a report on these financial statements based on our review.

We conducted our review in accordance with the Standard on Review Engagement (SRE) 2400, Engagements to Review Financial Statements issued by the Institute of Chartered Accountants of India. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the financial statements are free of material misstatements. A review is limited primarily to enquiries of Bank Personnel and Analytical Procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and accordingly, we do not express an audit opinion.

For the purpose of our review, we have relied on the review reports of the Concurrent Auditors of the Bank of 60 Branches These Review Reports cover 60.54% of Advances portfolio of the Bank. Apart from these review reports, in the conduct of our review, we have also relied upon various returns received from the Branches of the Bank.

Based on our review conducted as above, nothing has come to our attention that causes us to believe that the accompanying statement of Unaudited Financial Results prepared in accordance with the applicable Accounting Standards and other recognized accounting practices and policies has not disclosed the information required to be disclosed in terms of Clause 41 of the Listing Agreement including the manner in which it is to be disclosed or that it contains any material misstatement or that it has not been prepared in accordance with the relevant prudential norms issued by the Reserve Bank of India in respect of Income Recognition, Asset Classification, Provisioning and other related matters. For R K Kumar & Co., Chartered Accountants Firm Registration No.001595S

G.Naganathan Partner Membership No.022456

Place: Karur Date: October 27, 2010

BALANCE SHEET AS ON 30TH SEPTEMBER, 2010

Contingent Liabilities 12 6,596.21 4,273.63 Bills for collection 884.99 814.02

PROFIT AND LOSS ACCOUNT FOR THE HALF YEAR ENDED 30TH SEPTEMBER, 2010

( ` In Crore) Particulars Schedule Year Ended 30.09.2010 Year Ended 30.09.2009 I INCOME Interest earned 13 1,010.46 840.87 Other Income 14 130.32 132.80 TOTAL 1,140.78 973.67

II EXPENDITURE Interest expended 15 665.65 591.33 Operating expenses 16 200.07 174.03 Provisions and Contingencies 87.98 47.05 TOTAL 953.70 812.41

III PROFIT Net Profit 187.08 161.25 Profit brought forward 1.85 1.45 TOTAL 188.93 162.70

BALANCE OF PROFIT TOTAL 188.93 162.70

SCHEDULES TO BALANCE SHEET AS AT SEPTEMBER 30, 2010

SCHEDULE 1 - CAPITAL ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

Authorised Capital 20,00,00,000 Equity Shares of ` 10 each 200.00 200.00

Issued Capital: 7,62,57,442/5,39,99,352 Equity Shares of `10/- each 76.25 53.99

Subscribed & Paid up Capital: 5,44,35,579/5,39,52,929 Equity Shares of `10/- each 54.44 53.95 Add: Allotment of 2,17,74,232 Equity Shares of ` 10/- each as Bonus Shares 21.77 0.00 Called-up and Paid-up capital 76.21 53.95

SCHEDULE 2 – RESERVES AND SURPLUS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

I Statutory Reserve Opening Balance 583.03 482.03 Addition during the year - - 583.03 482.03 II Capital Reserve Opening Balance 56.72 51.51 Addition during the year - - 56.72 51.51 III Share Premium Opening Balance 129.50 119.79 Less: Amount transferred to Paid-up capital towards issue of Fully paid 2,17,74,232 bonus shares 21.77 Nil 107.73 119.79 IV Revenue and other Reserves Opening Balance 764.43 641.43 Addition during the year - - Deduction during the year - - 764.43 641.43

VI Special Reserve U/s 36(1) (viii) of I.T. Act Opening Balance 30.00 Nil Addition during the year Nil Nil Deduction during the year Nil Nil 30.00 Nil VII Balance of Profit : 188.94 162.70 TOTAL 1,730.85 1,457.47

SCHEDULE 3 - DEPOSITS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

A I. Demand Deposits i) From Banks 3.39 5.19 ii) From Others 2,378.68 1,795.77

2,382.07 1,800.96

II. Savings Bank Deposits 2,998.96 2,059.65

III. Term Deposits i) From Banks 366.51 790.77 ii) From Others 15,502.19 11,877.91

15,868.70 12,668.68

TOTAL OF I, II & III 21,249.74 16529.29

B Deposits of Branches : i) In India 21,249.74 16529.29 ii) Outside India Nil Nil

TOTAL 21,249.74 16529.29

SCHEDULE 4 - BORROWINGS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009 i) Reserve Bank of India 75.00 Nil ii) Other Banks 1.43 1.27 iii) Other Institutions and Agencies 237.74 366.80

314.17 368.07

II Borrowings outside India 195.82 20.17 TOTAL 509.99 388.25

Secured Borrowings included in I and II above 74.98 199.96

SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

I Bills Payable 196.99 219.35 II Inter Office Adjustments (Net) NIL Nil III Interest Accrued 113.95 89.08 IV Deferred Tax Nil Nil V Others (including provisions) 255.60 214.65

TOTAL 566.54 523.09

SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

I Cash in Hand (Including Foreign Currency Notes) 199.98 209.79 II Balances with Reserve Bank of India in Current Account 1,192.91 789.35

TOTAL 1,392.89 999.14

SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL & SHORT NOTICE ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

I In India i) Balances with Banks : a) In Current Accounts 25.76 25.38 b) In Other Deposit Accounts 0.33 4.34 ii) Money at Call and Short Notice with Banks Nil Nil 26.09 29.72 II Outside India In Current Accounts 36.35 53.42 In Other Deposit Accounts Nil Nil 36.35 53.42 TOTAL 62.45 83.14

SCHEDULE 8 - INVESTMENTS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009 I Investments in India in i) Government Securities 5,969.28 4,662.97 ii) Other Approved Securities 0.99 11.60 iii) Shares 57.15 61.54 iv) Debentures and Bonds 312.75 514.00 v) Mutual Fund Units & Others 602.56 217.55 TOTAL 6,942.73 5,467.66

Gross Investments in India 6,982.44 5,486.46 Less : Provision for Investment Depreciation and impairment 39.71 18.80

Net Investments in India 6,942.73 5,467.66

II Investments outside India Nil Nil

SCHEDULE 9 - ADVANCES ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

A i) Bills purchased and discounted 979.36 850.63 ii) Cash Credits, Overdrafts and Loans repayable on Demand 9,025.14 7,287.01 iii) Term Loans 5,030.65 3,652.35 TOTAL 15,035.15 11,789.99

B i) Secured by tangible assets (incl. Book Debts) 13,607.76 10,452.90 ii) Covered by Bank / Government guarantees 400.18 228.60 iii) Unsecured 1,027.21 1,108.49 TOTAL 15,035.15 11,789.99

C I Advances in India i) Priority Sector 5,993.09 4,220.62 ii) Public Sector 2,283.20 1,843.59 iii) Banks Nil Nil iv) Others 6,758.85 5,725.78 TOTAL 15,035.15 11,789.99 C II Advances Outside India Nil Nil

TOTAL 15,035.15 11,789.99

SCHEDULE 10 – FIXED ASSETS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009 I Premises : At cost as on 31st March of the preceding year 61.96 53.69 Addition during the year 7.74 0.93 69.70 54.62 Deduction during the year 0.05 Nil 69.65 54.62 Depreciation to date 1.18 Nil 68.47 54.62

II Building under construction 4.64 Nil

III Other Fixed Assets : (Including Furniture & Fixtures) At cost as on 31st March of the preceding year 73.11 62.00 Addition during the year 23.09 12.03 96.20 74.03 Deduction during the year 0.14 0.09

96.06 73.94 Depreciation to date 12.62 10.72 83.44 63.22 TOTAL 156.55 117.84

SCHEDULE 11 – OTHER ASSETS ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

I Inter Office Adjustments (Net) 30.81 50.34 II Interest Accrued 130.06 114.68 III Tax paid in advance / Tax deducted at source 48.09 26.97 IV Stationery and Stamps 6.06 5.10 V Deferred Tax 7.92 7.58 VI Non Banking Assets acquired in satisfaction of claims Nil Nil VII Others 320.61 289.61

TOTAL 543.56 494.28

100

SCHEDULE 12 – CONTINGENT LIABILITIES ( ` In Crore) Particulars AS ON 30.09.2010 AS ON 30.09.2009

I Claims against the Bank not acknowledged as debts 7.36 5.16 II Liability on account of outstanding a) Forward Exchange Contracts 3,807.22 2,013.24 b) Derivatives 50.00 200.00 III Guarantees given on behalf of Constituents in India 1,510.61 1,222.44 IV Acceptances, Endorsements and other Obligations 1,221.02 832.78 V Other items for which the Bank is contingently liable/Bills of exchange rediscounted with IDBI Nil Nil

TOTAL 6,596.21 4,273.63

SCHEDULE 13 – INTEREST EARNED ( ` In Crore) Particulars Year Ended 30.09.2010 Year Ended 30.09.2009

I Interest / discount on advances/bills 759.01 651.86 II Income on Investments 251.29 175.38 III Interest on balances with Reserve Bank Of India and other inter-bank funds 0.05 5.29 IV Others 0.11 8.34

TOTAL 1,010.46 840.87

SCHEDULE 14 – OTHER INCOME ( ` In Crore) Particulars Year Ended 30.09.2010 Year Ended 30.09.2009

I Commission, Exchange and Brokerage 90.29 77.61 II Profit/Loss on sale of investments-Net 23.31 39.75 III Profit on sale of land, buildings and other assets 0.49 0.04 IV Profit on exchange transactions - Net 8.02 8.57 V Miscellaneous Income 8.21 6.83

TOTAL 130.32 132.80

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SCHEDULE 15 – INTEREST EXPENDED ( ` In Crore) Particulars Year Ended 30.09.2010 Year Ended 30.09.2009

I Interest on Deposits 648.09 586.90 II Interest on Reserve Bank of India/ Inter-bank borrowings 9.06 0.68 III Others 8.50 3.75

TOTAL 665.65 591.33

SCHEDULE 16 – OPERATING EXPENSES ( ` In Crore) Particulars Year Ended 30.09.2010 Year Ended 30.09.2009

I Payments to and Provisions for employees 108.46 73.75 II Rent, Taxes and Lighting 17.09 14.63 III Printing and Stationery 2.35 1.50 IV Advertisement and Publicity 5.52 3.44 V Depreciation on Bank's Property 13.83 10.72 VI Directors' fees, allowances and expenses 0.26 0.20 VII Auditors' fees and expenses (includes for branch auditors) 0.83 0.58 VIII Law Charges 0.36 0.34 IX Postages, Telegrams, Telephones, etc. 7.93 6.34 X Repairs and maintenance 4.73 3.44 XI Insurance 9.35 7.65 XII Other Expenditure 29.36 51.44

TOTAL 200.07 174.03

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CERTAIN OTHER FINANCIAL INFORMATION

Working Results of the Bank for the period between April 1, 2010 and October 31, 2010

Particulars ` In Crore Interest Income 1194.97 Other Income 154.37 Income before Depreciation and Taxation 321.60 Provision for Depreciation 26.06 Provision for Taxation 73.96 Estimated Net Profit 221.57

Material changes and commitments, if any affecting financial position of the Bank

Except as disclosed in the section entitled “Material Developments” beginning on page 113 of this Draft Letter of Offer there are no Material changes and commitments, if any affecting financial position of the Bank.

Week-end prices for the last four weeks; current market price; and highest and lowest prices of Equity Shares of the Bank during the period with the relative dates

As disclosed in the section entitled “Market Price Information” beginning on page 104 of this Draft Letter of Offer

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MARKET PRICE INFORMATION

The Bank‟s equity shares are listed and actively traded on the NSE. As the Bank‟s Equity Shares are actively traded on the NSE, stock market data has been given separately for NSE. a. The high and low prices of the Equity Shares of the Bank during the last three years were recorded, as stated below:

High Low Year Date of High Date of Low ( `) ( `)

2007 December 14 445.00 March 15 230.10 2008 January 9 550.00 November 20 195.55 2009 October 21 410.00 March 09 184.00 (Source: www.nseindia.com)

b. The high and low closing prices recorded on the NSE for the last six months recorded is as stated below:

High Low Month Date of High Date of Low ( `) ( `) May 2010 20th 524.90 27th 470.70 June 2010 15th 547.60 7th 491.50 July 2010 13th 648.85 1st 519.00 August 2010 31st 768.45 11th 570.00 September 2010 15th 894.00 23rd 505.15 October 2010 25th 584.40 20th 518.05 (Source: www.nseindia.com)

104 c. Weekend price of the Equity Shares of the Bank on the NSE, for the last 4 weeks and the highest and lowest during the same period with relative dates is as stated below:

Weekend High Low Week End Date of High Date of Low Price ( `) ( `) October 20, October 22, 2010 569.35 October 22, 2010 574.60 518.05 2010 October 29, October 29, 2010 533.10 October 25, 2010 584.40 529.50 2010 November 05, November 03, November 01, 549.15 553.00 528.00 2010 2010 2010 November 12, November 08, November 12, 526.90 550.00 525.20 2010 2010 2010 (Source: www.nseindia.com)

The closing price of the Equity Shares of the Bank on NSE as on November 15, 2010 was ` 520.90.

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ACCOUNTING RATIOS AND CAPITALIZATION STATEMENT

The following table presents certain accounting and other ratios in accordance to AS-20 as issued by ICAI derived from Bank‟s audited financial statements as at March 31, 2010, included in the section titled “Financial Information” beginning on page 66 of this Draft Letter of Offer.

Particulars March 31, 2010 March 31, 2009 Weighted average number of equity shares outstanding during the period 5.40 5.39 for basic EPS (in crores) Weighted average number of equity shares outstanding during the period 5.40 5.39 for diluted EPS (in crores) Basic EPS ( ` per Share) 62.23 43.71 Diluted EPS ( ` per Share) 62.23 43.71 Return on Networth (%) 20.74 17.47 NAV per Share ( ` per Share) 299.99 250.25

The above ratios have been computed as below:

Basic EPS: Net profit attributable to Equity Shareholders (excluding extraordinary items, if any) / Number of Equity Shares outstanding at the end of the year

Diluted EPS: Net profit attributable to Equity Shareholders (excluding extraordinary items, if any) / Number of diluted Equity Shares outstanding at the end of the year

Return on Networth: Net profit attributable to Equity Shareholders (excluding extraordinary items, if any) / Net Worth at the end of the year (excluding revaluation reserves)

NAV per Share: Net worth at the end of the year (excluding revaluation reserves) / Number of Equity Shares outstanding at the end of the year

( ` in Crore) Pre-Issue as on As adjusted for the Capitalization Statement March 31, 2010 Issue Loan Funds Short Term Loans* 325.88 325.88 Long Term Loans** 150.00 150.00 Shareholders Fund Share Capital*** 54.44 106.76 Reserves 1,565.54 1,992.58 Total Shareholders Fund 1,619.98 2,099.34 Long Term Debt/Equity 0.09 0.07 * - Short Term Debts represent Debts maturing with in one year from the date of above statement and interest accrued on Debts.

** - Long Term Debts represent Sub-ordinate Debt, Perpetual Debt and other Debts payable after one year.

*** - Increase in Share Capital to Rs. 106.76 from Rs. 54.44 also includes the Bonus Issue in the ratio of 2:5 and the subsequent proposed Rights Issue in the ratio of 2:5

The Issue price of ` 150/- has been arrived at in consultation between the Bank and the Lead Manager.

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SECTION VII - LEGAL AND OTHER INFORMATION

Except as detailed herein below, there are no:

A. pending legal proceedings before any judicial, quasi-judicial or arbitral tribunals, which, if they result in an adverse outcome, would materially and adversely affect the operations or the financial position of the Bank.

B. legal proceedings that are pending or which have arisen in the immediately preceding ten years involving: i. Issues of moral turpitude or criminal liability on the part of the issuer ii. Material violations of statutory regulations by the issuer iii. Economic offences where proceedings have been initiated against the issuer.

Further, no disciplinary actions have been taken by the SEBI/ stock exchange against the Bank or its Directors and there are no defaults, non-payments or overdue of statutory dues, institutional/bank dues and dues payable to holders of debentures, bonds and arrears of cumulative preference shares that would have a material adverse effect on its business.

Sl. No. of Amount Involved Brief Description No. Cases ( ` in crores) 1 Suits filed by the Bank against defaulting borrowers 339 190.80 2 Suits filed against our Bank by 42 7.46 borrowers/customers/others In civil and consumer forum cases 3 Proceedings filed by the Bank on disputed tax claims Income Tax 21 483.47 Service Tax 5 2.46 4 Proceedings filed against the Bank on disputed tax claims Income Tax 4 93.28 Service Tax 5 12.95 7 Labour cases filed by the Bank 14 0.37 8 Labour cases against the Bank 22 No financial implications 9 Criminal proceedings against the Bank NIL NIL Total 452 790.79 Note: Suits involving the Bank which are not acknowledged as debts are 34 in number amounting to ` 7.36 crores.

A. Pending matters which, if they result in adverse outcome, would materially and adversely affect the operations or the financial position of the Bank

i. Outstanding proceedings initiated by the Bank

Sl. No. Case No. Defendant / Amount Brief Particulars Status Opponent / ( ` In Crore) Respondent 1 O.A.443/03 Brilliant 32.00 Borrower, an exporter in sea Subsequent to dated Exports group – food products for more than filing of suit, a 17.12.2003, Ernakulam two decades suffered a set total sum of ` DRT, back on account of various 2.80 crores was Ernakulam trade embargo and restrictions recovered by sale from importing countries. The of secured assets. sales realization was badly The Bank is affected leading to the account pursuing the suit being classified as NPA for further during 2001 and suit was filed recovery of the before DRT for recovery of remaining dues.

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Sl. No. Case No. Defendant / Amount Brief Particulars Status Opponent / ( ` In Crore) Respondent dues. ECGC claim was settled for ` 3.36 crores as against our claim of ` 8.91 crores 2 O.A 169/03 Hamsaveni 27.80 Borrower who was enjoying Subsequent to dated Spinners various credit limits from the filing of suit for 06.06.2003, Private Ltd - Bank for more than 3 decades recovery of the DRT, Coimbatore suffered set back due to dues, the Coimbatore various reasons such as power borrower cuts, increase in cost of raw approached the material, lower realization of Bank for an out sale proceeds, competition of Court from rival units etc. The settlement. So accounts were classified as far a sum of ` NPA on 30.06.2001 and suit 18.38 crores is was filed before DRT. recovered, the account is expected to be closed shortly.

3 O.A 441/03 M M Nagalinga 23.47 Borrower is a manufacturer A total sum of ` dt Nadar Co – and trader in Edible Oils. Due 3.23 crores was 12.12.2003, Kollam to huge fluctuation in prices of recovered DRT, imported raw materials, the subsequent to Ernakulam unit suffered heavy business filing of suit by loss. Account was classified as sale of some of NPA during 2000. Suit filed the secured before DRT, recovery is being assets. pursued.

ii. Cases filed before the Supreme Court of India

Sl. No. Case No. Brief Particulars

1 SLP(CIVIL) No 33646/2009 The Income Tax Department has filed a Special Leave Petition in the Supreme Court of India against the order of the High Court of Judicature at Madras in respect of our Bank's returns for the Assessment year 1992-93.The issue pertains to taxability of interest on securities which are not due on the last day of the financial year. The matter is admitted and pending for hearing.

2 SLP(CIVIL) No 6290/2009 The Income Tax Dept has filed a Special Leave Petition in the Supreme Court of India against the order of the High Court of Judicature at Madras in respect of our Bank's returns for the Assessment year 1997-98.The issue pertains to the issue of taxability of Interest from Securities, Debentures, Bonds etc. The matter is admitted and pending for hearing.

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Note

1. In respect of interest receivable on Government securities which are not due as on the last day of the Financial year, the CBDT had accepted the judgment of High Court of Madras in the case of TC No;2144 of 2008 order dated 13/07/2009 and given relief for all the pending years. At the time hearing we will bring this to the notice of Supreme Court.

2. In a single order the High Court of Madras had decided about the applicability of interest tax from Securities, Debentures, Bonds etc for 5 Assessment years. Special leave petitions filed for 4 Assessment years were already dismissed by the Supreme court. We will bring this to the notice of the Supreme court at the time of hearing.

iii. Cases filed before the High Court of Judicature at Madras

Sl. No. Case No. Brief Particulars Disputed Amount ( ` In Crore) 1 ITA No 293,294,295 of The Income Tax Department has preferred Not Quantifiable 2010 an appeal before the High Court of Madras for the Assessment years 1996-97, 1997- 98 and 1998-99. The common issues pertaining to all the three years are (1) Interest paid on purchase of securities (2) Depreciation/ Diminution in value of assets (3) Disallowance on proportionate expenditure related to income from tax free bonds and dividends.

iv. Disputed Claims

a. Appeals filed by the Bank before the CIT (Appeals)

Assessment Year ITA No Amount Involved ( ` In Crore) 2001-02 393/09-10 45.06 2003-04 121/06-07 and 395/09-10 129.93 2004-05 664/06-07 &396/09-10 79.84 2006-07 379/08-09 79.08 2007-08 397/09-10 86.59

b. Tax claims pending before Income Tax Appellate Tribunal (ITAT)

Sl. No. Case No. Brief Particulars Disputed Amount ( ` In Crore) 1 MP 289/2009 The Bank has filed a miscellaneous 16.28 petition seeking relief for deduction claimed towards purchase interest or broken period interest on securities purchased by the Bank for A.Y. 1998-99. All other issues were adjudicated in favour of the Bank and for this left out issue the miscellaneous petition is filed. Amount involved is ` 16.28 crores. Tax on this portion has already been paid.

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2 ITA No 899/2010 The Income Tax Department has filed an 16.13 appeal before the ITAT against the order of the Commissioner of Income Tax (Appeals) with respect to the Assessment year 2001-02. The issue pertains to reliefs allowed for depreciation on leased assets, bad debts written off, cash excess and Jewel auction surplus amount. 3 ITA No 900/2010 The Income Tax Department has filed an 20.20 appeal before the ITAT against the order of the CIT (Appeals) with respect to the Assessment year 2002-03. The issue pertains to reliefs allowed for depreciation on leased assets, bad debts written off, cash excess, Jewel auction surplus amount, brokerage paid and unclaimed balances reported in the Annual report. 4 ITA No 901/2010 The Income Tax Department has filed an 40.20 appeal before the ITAT against the order of the CIT (Appeals) with respect to the Assessment year 2005-06. The issue pertains to reliefs allowed for depreciation on investments, bad debts written off and unclaimed balances reported in the Annual report. 5 ITA No 897and 898 of The Income Tax Department has filed an 16.75 2010 appeal before the ITAT against the order of the CIT (Appeals) with respect to the Assessment years 1999-00 and 2000-01. The issue pertains to reliefs allowed for depreciation on leased assets, bad debts written off, Purchase interest on securities.

B. Matters which are pending or which have arisen in the immediately preceding ten years involving

i. Issues of moral turpitude or criminal liability on the part of the Bank– None ii. Material violation of statutory regulations by the Bank – None iii. Economic offences, where proceedings have been initiated against the Bank – None

C. Securities Related Cases

Nil

D. Contingent liabilities

The contingent liabilities not provided for as on September 30, 2010 are as follows: ( ` in Crore) Amount Amount (As on March (As on Contingent Liability 31, 2010) September 30, 2010) I Claims against the Bank not acknowledged as debts 5.22 7.36 II Liability on account of outstanding a) Forward Exchange Contracts 3,384.66 3,807.22 b) Derivatives 200.00 50.00 III Guarantees given on behalf of Constituents in India 1,299.31 1,510.61 IV Acceptances, Endorsements and other Obligations 973.06 1,221.02 TOTAL 5,862.25 6,596.21

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111

GOVERNMENT AND OTHER APPROVALS

On the basis of the existing approvals, the Bank may undertake this Issue and the Bank's current business activities and no further approvals from any government authority/RBI are required to continue these activities. Further, there are no new lines of activity/projects. It must be distinctly understood that, in granting these licences, the Government and/or the RBI does not take any responsibility for the Bank's financial soundness or for the correctness of any of the statements made or opinions expressed in this behalf.

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MATERIAL DEVELOPMENTS

The Reserve Bank in the monetary policy announcement of January 2010 announced the first phase of exit from the expansionary monetary policy by terminating some sector-specific facilities and restoring the SLR of scheduled commercial banks to a pre-crisis level in the Second Quarter Review of October 2009. Against the backdrop of the global and domestic macroeconomic conditions, outlooks and risks, RBI‟s policy stance was shaped by three important considerations: (i) First, a consolidating recovery should encourage to clearly and explicitly shift stance from „managing the crisis‟ to „managing the recovery‟, and to carry forward the process of exit further; (ii) Second, even though the inflationary pressures in the domestic economy predominantly stem from the supply side, the consolidating recovery increases the risks of these pressures spilling over into a wider inflationary process; and (iii) Third, strong anti –inflationary measures may undermine the recovery which is yet to fully take hold.

The following monetary measures were announced by RBI in January 2010

The CRR of scheduled banks was increased by 75 basis points in two stages from 5.0 per cent to 5.75 per cent of their net demand and time liabilities (NDTL). The policy rates, both the repo rate and the reverse repo rate were retained at their current levels.

In the Monetary Policy 2010-2011 (Source: www.rbi.org.in) announced on April 20, 2010, the RBI has announced the following policy measures:

To increase the CRR of scheduled banks by 25 basis points from 5.75 per cent to 6.0 per cent of their net demand and time liabilities. To retain the rate of interest charged on loans and advances extended to commercial banks and other financial intermediaries (“Bank Rate”) at 6.0%. To increase the repo rate under the LAF by 25 basis points from 5.0 per cent to 5.25 per cent. To increase the reverse repo rate under the LAF by 25 basis points from 3.5 per cent to 3.75 per cent.

Furthermore, in the Monetary Policy 2010-11 (Source: www.rbi.org.in) announced on July 27, 2010, the RBI has announced the following policy measures:

To increase the repo rate under the LAF by 25 basis points from 5.5 per cent to 5.75 per cent. To increase the reverse repo rate under the LAF by 50 basis points from 4.00 per cent to 4.50 per cent.

In addition, in the Mid-Quarter Monetary Policy Review - September 2010 (Source: www.rbi.org.in) announced on September 16, 2010, the RBI has announced the following policy measures:

To increase the repo rate under the LAF by 25 basis points from 5.75 per cent to 6.0 per cent. To increase the reverse repo rate under the LAF by 50 basis points from 4.5 per cent to 5.0 per cent.

Again, in the Second-Quarter Monetary Policy Review (Source: www.rbi.org.in) announced on November 02, 2010, the RBI has announced the following policy measures:

To increase the repo rate under the LAF by 25 basis points from 6.00 per cent to 6.25 per cent. To increase the reverse repo rate under the LAF by 25 basis points from 5.00 per cent to 5.25 per cent.

In the opinion of the Directors of the Bank, there has not arisen any circumstances since the date of the last financial statements as disclosed in the Draft Letter of Offer which will materially and adversely affect or is likely to affect the trading or profitability of the Bank, or the value of its assets, or its ability to pay its liabilities within the next twelve months.

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OTHER REGULATORY AND STATUTORY DISCLOSURES

Authority for the Issue

Pursuant to the resolution passed by the Board of Directors of the Bank at its meeting held on September 07, 2010, it has been decided to make the offer to the Eligible Equity Shareholders of the Bank in the ratio of 2 (Two) equity share of ` 10/- each for every 5 (Five) equity shares of ` 10/- each held on the Record Date [●] at a premium of ` 140/- per share.

Prohibition by SEBI

The Bank, its Promoters, Promoter group, person(s) in control of the Promoter, Directors, companies with which the Bank‟s Directors are associated with as Directors or Promoters, have not 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.

Further, the Bank, its Promoters, relatives (as per Companies Act, 1956) of Promoters, Bank‟s Directors have not been declared as willful defaulters by RBI or any other governmental authority and there have been no violations of security laws committed by them in the past or no such proceedings are pending against them for violation of securities laws.

Securities Related Business

There are no entities related to the Bank or its Directors where the Bank or its Directors are associated as promoter / director / partner / proprietor with such entities that is/was associated with securities related business and registered with SEBI.

Eligibility for the Issue

The Bank is an existing company registered under the Companies Act and its Equity Shares are listed on the NSE. The Bank is eligible to make this rights issue in terms of Chapter II and Chapter IV of the ICDR Regulations.

Compliance with Part E of Schedule VIII of the ICDR Regulations

The Bank is in compliance with the provisions specified in Clause 1 of Part E of Schedule VIII of the SEBI Regulations.

(a) The Bank has been filing periodic reports, statements and information in compliance with the listing agreement for the last three years.

(b) The reports, statements and information referred to in sub-clause (a) above are available on the website of NSE;

(c) The Bank has an investor grievance-handling mechanism which includes meeting of the Shareholders Grievance Committee at frequent intervals, appropriate delegation of power by the board of directors of the Bank as regards share transfer and clearly laid down systems and procedures for timely and satisfactory redressal of investor grievances.

The Bank confirms that the provisions of Part E of Schedule VIII of the ICDR Regulations have been complied with. As the Bank satisfies the conditions specified in clause (1) of part E of SEBI (ICDR), disclosures in the DLOF have been made in terms of clause (5) of Part E.

DISCLAIMER CLAUSE OF SEBI

AS REQUIRED, A COPY OF THIS DRAFT LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THIS DRAFT 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

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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 DRAFT LETTER OF OFFER. THE LEAD MANAGER, KARVY INVESTOR SERVICES LIMITED HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE DRAFT LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH THE SEBI (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 DRAFT LETTER OF OFFER, THE LEAD MANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE BANK DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGER, KARVY INVESTOR SERVICES LIMITED HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED NOVEMBER 12, 2010 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 FINALISATION OF THE DRAFT LETTER OF OFFER PERTAINING TO THE SAID ISSUE;

2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE ISSUER, 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 ISSUER, WE CONFIRM THAT: (a) THE DRAFT 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 DRAFT 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 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 DRAFT 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

5. WE CERTIFY THAT WRITTEN CONSENT FROM PROMOTERS HAS BEEN OBTAINED FOR INCLUSION OF THEIR SPECIFIED SECURITIES AS PART OF PROMOTERS‟ CONTRIBUTION SUBJECT TO LOCK-IN AND THE SPECIFIED SECURITIES PROPOSED TO FORM PART OF PROMOTERS‟ CONTRIBUTION SUBJECT TO LOCK-IN SHALL NOT BE DISPOSED / SOLD / TRANSFERRED BY THE PROMOTERS DURING THE PERIOD STARTING FROM THE DATE OF FILING THE DRAFT LETTER OF OFFER WITH SEBI TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE LETTER OF OFFER. – NOT APPLICABLE

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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 DRAFT 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 AUDITORS‟ 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 ISSUER ALONG WITH THE PROCEEDS OF THE PUBLIC ISSUE. – NOT APPLICABLE

8. WE CERTIFY THAT THE PROPOSED ACTIVITIES OF THE ISSUER 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 ISSUER 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 73 OF THE COMPANIES ACT, 1956 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 BANKERS TO THE ISSUE AND THE ISSUER SPECIFICALLY CONTAINS THIS CONDITION. – IN ACCORDANCE WITH CLAUSE 56 THE ISSUER SHALL UTILISE FUNDS COLLECTED IN RIGHTS ISSUE AFTER FINALISATION OF BASIS OF ALLOTMENT IN ACCORDANCE WITH ICDR REGULATION AND APPLICABLE LAWS;

10. WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE DRAFT LETTER OF OFFER THAT THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE SHARES IN DEMAT OR PHYSICAL MODE;

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 THE VIEW, ARE FAIR AND ADEQUATE TO ENABLE THE INVESTOR TO MAKE A WELL INFORMED DECISION.

12. WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THE DRAFT LETTER OF OFFER: (a) AN UNDERTAKING FROM THE ISSUER THAT AT ANY GIVEN TIME, THERE SHALL BE ONLY ONE DENOMINATION FOR THE EQUITY SHARES OF THE ISSUER; AND (b) AN UNDERTAKING FROM THE ISSUER 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

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MAKING THE ISSUE.

14. WE ENCLOSE A NOTE EXPLAINING HOW THE PROCESS OF DUE DILIGENCE HAS BEEN EXERCISED BY THE BANK IN VIEW OF THE NATURE OF CURRENT BUSINESS BACKGROUND OR THE ISSUER, SITUATION AT WHICH THE PROPOSED BUSINESS STANDS, THE RISK FACTORS, PROMOTERS EXPERIENCE, ETC.

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 DRAFT LETTER OF OFFER WHERE THE REGULATION HAS BEEN COMPLIED WITH AND THE COMMENTS, IF ANY.

THE FILING OF THIS DRAFT LETTER OF OFFER DOES NOT, HOWEVER, ABSOLVE THE BANK FROM ANY LIABILITIES UNDER SECTION 63 OR SECTION 68 OF THE COMPANIES ACT OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY OR OTHER CLEARANCES 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 THIS DRAFT LETTER OF OFFER.

Disclaimer from the Bank and Lead Manager

The Bank and the Lead Manager accept no responsibility for statements made otherwise than in this Draft Letter of Offer or in any advertisements or any other material issued by the Bank or by any other persons at the instance of the Bank and anyone placing reliance on any other source of information would be doing so at his own risk.

The Lead Manager and the Bank shall make all information available to the Eligible Equity Shareholders and no selective or additional information would be available for a section of the Eligible Equity Shareholders in any manner whatsoever including at presentations, in research or sales reports etc., after filing of the Draft Letter of Offer with SEBI.

Investors who invest in the issue will be deemed to have been represented by the Bank and 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 equity shares of the Bank, and are relying on independent advice / evaluation as to their ability and quantum of investment in this issue

Disclaimer in respect to Jurisdiction

This Draft Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the appropriate court(s) in Karur, State of TamilNadu, India only.

Designated Stock Exchange

The Designated Stock Exchange for the purpose of the Issue will be the National Stock Exchange of India Ltd (NSE).

Disclaimer Clause of the NSE

As required, a copy of the Draft Letter of Offer has been submitted to the NSE. The Disclaimer Clause as intimated by NSE to the Bank, post scrutiny of this Draft Letter of Offer, shall be included in the Letter of Offer prior to the Stock Exchange filing.

Disclaimer Clause of the RBI

A license authorizing the Bank to carry on banking business has been obtained from the Reserve Bank of India in terms of Section 22 of the Banking Regulation Act, 1949. It must be distinctly understood, however, that in

117 issuing the license the Reserve Bank of India does not undertake any responsibility for the financial soundness of the Bank or for the correctness of any of the statements made or opinion expressed in this connection.

Filing

The Draft Letter of Offer has been filed with SEBI, Plot No. C4-A, „G‟ Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400 051. All the legal requirements applicable till the date of filing the Draft Letter of Offer with the Stock exchange shall be complied with.

Selling Restrictions

Persons into whose possession the Draft Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this Issue of Rights Equity Shares to the Eligible Equity Shareholders of the Bank and will dispatch the Draft Letter of Offer / Abridged Letter of Offer and CAFs to the Eligible Equity Shareholders who have provided an Indian address.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that the Draft Letter of Offer has been filed with SEBI for observations. Accordingly, the Rights Equity Shares represented thereby may not be offered or sold, directly or indirectly, and the Draft Letter of Offer may not be distributed in any jurisdiction, except in accordance with the legal requirements applicable in such jurisdiction.

Receipt of the Draft Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer and, under those circumstances, the Draft Letter of Offer must be treated as sent for information only and should not be copied or redistributed. Accordingly, persons receiving a copy of the Draft Letter of Offer should not, in connection with the Issue of the Rights Equity Shares or the Rights Entitlement, distribute or send the same in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If the Draft Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Rights Equity Shares or the Rights Entitlements referred to in the Draft Letter of Offer.

Neither the delivery of this Draft 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 of any time subsequent to this date.

Impersonation

Attention of the Investors / Applicants is specifically drawn to the provisions of subsection (1) of Section 68A of the Companies Act, 1956 which is reproduced below:

“Any person who makes in a fictitious name an application to a Bank for acquiring, or subscribing for, any shares therein, or otherwise induces a Bank to allot, or register any transfer of shares therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years.”

Listing

The existing equity shares of the Bank are listed on the NSE which is the Designated Stock Exchange and are also being traded on the BSE under the permitted category. Applications will be made to the NSE for permission to deal in and for an official quotation in respect of the equity shares of the Bank being offered in terms of this Draft Letter of Offer. The Bank has received „In-Principle‟ approval from NSE for listing of the equity shares being offered pursuant to this Rights Issue vide their letter no. [●], dated [●].

If the permission to deal in and for an official quotation of the Rights Equity Shares is not granted by the Stock Exchange mentioned above, the Bank shall forthwith repay, without interest, all monies received from Investors in pursuance of the Draft Letter of Offer. If such money is not paid within 8 days after the Bank becomes liable to repay it, then the Bank and every Director of the Bank who is an officer in default shall, on and from expiry of 8 (eight) days, be jointly and severally liable to repay the money with interest as prescribed under the Section 73 of the Companies Act.

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Consents

Consents in writing of the Auditors, Bankers to the Issue, Company Secretary and Compliance Officer, Directors, Lead Manager, Legal Advisor and Registrar to the Issue to act in their respective capacities have been obtained and filed with Stock exchange, along with a copy of the Draft Letter of Offer and such consents have not been withdrawn up to the time of delivery of the Draft Letter of Offer for registration with the Stock exchange.

The Auditors of the Bank, M/s. R.K. Kumar & Co, Chennai have given their written consent for the inclusion of their Report in the form and content as appearing in this Draft Letter of Offer and such consents and reports have not been withdrawn up to the time of delivery of this Draft Letter of Offer for registration with the Stock exchange.

To the best of the knowledge there are no other consents required for making this Issue. However, should the need arise, the necessary consents shall be obtained by the Bank.

Expert Opinion, If Any

Except for the Auditor’s Report and the Statement of Tax Benefits on page 67 and page 47 respectively of this Draft Letter of Offer, no expert opinion has been obtained by the Bank in relation to this Draft Letter of Offer.

Fees payable to the Lead Manager to the Issue

The fee payable to the Lead Manger to the Issue is set out in the Engagement Letter dated October 11, 2010 signed between the Bank and the Lead Manager.

Fees payable to the Registrars to the Issue

The fee payable to the Registrars to the Issue is as set out in the relevant documents, copies of which is available for inspection at the Registered Office of the Bank.

Expenses of the Issue

The break-up of total issue expenses is as under –

Particulars Expense Expense (% of the Issue Expense (% of the ( ` in crores) Size) Total Expenses) Fees of Lead Manager(s) 0.22 0.05 11.70 Fees to the Registrar to the issue, Legal Advisor and 0.06 0.01 3.19 Auditor Advertising and Publicity Expenses 0.35 0.08 18.62 Printing, Postage and 1.00 0.22 53.19 Stationery Expenses Contingency, Stamp duty and 0.25 0.05 13.30 Statutory Fees Total estimated Issue 1.88 0.41 100.00 expenses * - Amounts will be finalized at the time of filing of Letter of Offer and determination of Issue Price and other details.

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Minimum Subscription

If the Bank does not receive the minimum subscription of 90% of the Issue, the entire subscription amount shall be refunded to the Investors within fifteen (15) days from the date of closure of the Issue. If there is a delay in the refund of subscription amount by more than eight (8) days after the Bank becomes liable to pay the subscription amount (i.e. fifteen (15) days after closure of the issue), the Bank will pay interest for the delayed period, at rates prescribed under sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956.

Issue Schedule

Issue Opening Date [●] Last date for receiving requests for split forms [●] Issue Closing Date [●]

The issue will remain open for 15 days. The Board may however decide to extend the Issue period as it may determine from time to time but not exceeding thirty (30) days from the Issue Opening Date.

Investor Grievances and Redressal System

The Bank has adequate arrangements for redressal of Investor complaints as well as a well-arranged correspondence system developed for letters of routine nature. The share transfer and dematerialization for the Bank is being handled by its Registrar and Share Transfer Agent, SKDC Consultants Limited. Letters are filed category wise after being attended to. The Redressal norm for response time for all correspondence including shareholders complaints is within 15 days.

The Shareholders / Investors Grievances Committee consists of 5 directors comprising of Mr. K P KUMAR as Chairman of the Committee, Mr. P T Kuppuswamy, Dr. V G Mohan Prasad, Mr V Santhanaraman and Mr A J Suriyanarayana as members of the said committee. All investor grievances received by the Bank have been handled by the Registrar and Share Transfer agent in consultation with the Company Secretary and Compliance Officer.

The contact details of the Registrar and Share Transfer agent are as follows

Status of Complaints

1. Total number of shareholders‟ complaints outstanding as of September 30, 2010: Nil 2. Total number of complaints received during the period from October 1, 2009 till September 30, 2010: 132 3. Status of the complaints : Out of the 132 complaints received by the Bank from October 2009 to September 2010, all complaints have been resolved 4. Average time taken for redressing an investor complaint : 7 days

Investor Grievances arising out of this Issue

The investor grievances arising out of the Issue will be handled by Mr. R. Kannan, Company Secretary and Compliance Officer, and SKDC Consultants Limited, the Registrars to the Issue. The Registrar to the Issue will have a separate team of personnel handling only the post-Issue correspondence.

The agreement between the Bank and the Registrar to the Issue will provide for retention of records with the Registrars for a period of at least one year from the last date of dispatch of letter of allotment/ share certificates / warrant/ refund order to enable the Registrars to redress grievances of Investors.

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All grievances relating to the Issue may be addressed to the Registrar to the Issue giving full details such as folio no., name and address, contact telephone / cell numbers, email id of the first Investors, number and type of shares applied for, application form 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 details of the Renouncees should be furnished.

The average time taken by the Registrar to the Issue for redressal of routine grievances will be seven days from the date of receipt. In case of non-routine grievances where verification at other agencies is involved, it would be the endeavour of the Registrar to the Issue to attend to them as expeditiously as possible. The Bank undertakes to resolve the Investor grievances in a time bound manner.

Investors may contact the Company Secretary and Compliance Officer / Registrar to the Issue in case of any pre-Issue/ post -Issue related problems such as non-receipt of letters of allotment/share certificates/demat credit/refund orders etc. There contact details are as follows:

Mr. R. Kannan Company Secretary and Compliance Officer The Karur Vysya Bank Limited Erode Road, Karur – 639 002 Tamil Nadu, India Tel: +91 4324 227133 Fax: +91 4324 225700 Email: [email protected] Website: www.kvb.co.in

The contact particulars of the Registrar to the Issue are as under:

SKDC Consultants Limited Kanapathy Towers, 1391/A-1, Third Floor, Sathy Road, Ganapathy, Coimbatore – 641 006 Tel: +91 422 6549995 Fax: +91 422 2539837 Email: [email protected] Investor Grievance Id: [email protected] Website: www.skdc-consultants.com Contact Person: Mr. K. Jayakumar

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SECTION VIII – OFFERING INFORMATION

TERMS OF THE ISSUE

The Rights Equity Shares, now being issued, are subject to the terms and conditions contained in the Draft Letter of Offer, Letter of Offer, Abridged Letter of Offer, the enclosed CAF, the Memorandum and Articles of Association of the Bank, approvals, if any, from the RBI , the provisions of The Company‟s Act, 1956, regulations issued by SEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued by Government of India and/or other statutory authorities and bodies from time to time, terms and conditions as stipulated in the allotment advice or letter of allotment or security certificate and rules as may be applicable and introduced from time to time.

Authority for the Issue

This Rights Issue is being made to the Eligible Equity Shareholders of the Bank pursuant to the resolution passed by the Board of Directors on September 7, 2010 in the ratio of two (2) equity share of ` 10/- each at a premium of ` 140/- per share for every five (5) equity shares of ` 10/- each held on the Record Date of [●].

Ranking of Equity Shares

The new equity shares allotted pursuant to this Rights Issue shall rank pari passu with existing equity shares of the Bank in all respects except that the new equity shares will carry the right to receive dividends, at the rates declared by the bank, from 1st April of the financial year in which the said new equity shares are issued and allotted and also subsequent financial years in proportion to the Capital paid up on the said shares. The voting rights in a call, whether present in person or by representative or by proxy shall be in proportion to the paid-up value of the Rights Equity Shares held, and no voting rights shall be exercisable in respect of moneys paid in advance until the moneys have become payable.

Mode of Payment of Dividend

The Bank pays dividend to the Equity Shareholders as per the provisions of the Companies Act, 1956.

Basis for the Issue

The Rights Equity Shares are being offered for subscription for cash to the Eligible Equity 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 electronic form and on the Register of Members of the Bank in respect of the Equity Shares held in physical form at the close of business hours on the Record Date i.e. [●], fixed in consultation with the Designated Stock Exchange.

The Equity Shares are being offered for subscription in the ratio of two [2] Rights Shares for every five [5] Equity Shares held by the Equity Shareholders.

Offer to Non-Resident Equity Shareholders/Applicants

Applications received from NRIs for allotment of Rights Equity Shares shall be, inter alia, subject to the conditions imposed from time to time by the RBI under the Foreign Exchange Management Act, 1999 (FEMA) in the matter of refund of application moneys, allotment of Rights Equity Shares, issue of letter of allotment/share certificates, payment of interest, dividends, etc. The Rights Equity Shares purchased by NRIs shall be subject to the same conditions including restrictions in regard to the reparability as are applicable to the original shares against which Rights Equity Shares are issued.

By virtue of 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. The circular stipulates that an OCB shall not be eligible to purchase equity or preference shares or convertible debentures offered on right basis by an Indian company, and no Indian company shall offer equity or preference shares or convertible debentures on right basis to an OCB. Accordingly, OCBs shall not be eligible to subscribe to the Equity Shares. The RBI has however clarified in its circular, A.P. (DIR Series) Circular No. 44,

122 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. Thus, OCBs desiring to participate in this Issue must obtain prior approval from the RBI. On providing such approval to the Bank at its registered office, the OCB shall receive this Draft Letter of Offer and the CAF.

Applications received from the NRIs for the allotment of Rights Equity Shares shall, among other things, be subject to conditions as may be imposed, from time to time, by the RBI, in the matter of refund of application moneys, allotment of Rights Equity Shares, issue of letters of allotment/ certificates/ payment of dividends etc.

Rights Entitlement

As your name appears as beneficial owner as per the list furnished by depositories in respect of the Equity Shares held in electronic form or appears in the Register of Members of the Bank in respect of the Equity Shares held in physical form on the Record Date i.e. [●], you are entitled to the number of Rights Equity Shares shown in Block I of Part A of the enclosed CAF.

The Eligible Equity Shareholders are entitled to two [2] Rights Shares for every five [5] Equity Shares held by them on the Record Date.

Principal Terms of the Rights Equity Shares

Face value

Each Rights Equity Share shall have a face value of ` 10/-.

Issue Price

Each Rights Equity Share is being offered at a price of ` 150 /- (including a premium of ` 140 /- per Rights Equity Share).

Payment Terms

Amount payable per Payment Method* Rights Equity Share ( `) Applicable to all categories of Investors Face Value Premium Total On Application 6 54 60

First Call 2 43 45

Second and Final Call 2 43 45

Total 10 140 150 * The Investors shall be required to make the second payment towards the First Call and the balance payment towards the Second and Final Call by the due date which shall be separately notified by the Bank.

Note: 1. All categories of Investors are eligible for this payment method. 2. While making an Application, the Investor shall make a payment of `60 /- per Rights Equity Share. 3. Out of the amount of ` 60/- paid on application, ` 6.00/- would be adjusted towards the face value of the Rights Equity Shares and ` 54/- shall be adjusted towards the share premium of the Rights Equity Shares. 4. The Bank reserves the right to adjust the amount received over and above the Application money towards the first call money and the balance, if any, will be refunded to the applicant. 5. First Call, Second and Final Call Notices shall be sent by the Bank for making the payment towards the balance amount due. 6. Rights Equity Shares in respect of which the balance amount payable remains unpaid may be forfeited, at any time after the due date for payment of the balance amount due.

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Procedure for First, Second and Final Call

The listing and trading of the partly paid-up and fully paid-up Rights Equity Shares shall be based on the current regulatory framework applicable thereto. Accordingly, any change in the regulatory regime would accordingly affect the schedule.

First Call

The Bank would convene a meeting of the Board to pass the required resolution for making the First Call and suitable intimation would be given by the Bank to the Stock Exchange. Further, advertisements for the same will be published in one (1) English national daily with wide circulation, one (1) Hindi national daily with wide circulation and one (1) Tamil daily newspaper. The First Call shall be deemed to have been made at the time when the resolution authorizing such First Call was passed at the meeting of the Board. The First Call may be revoked or postponed at the discretion of the Board. The Board may, from time to time at its discretion, extend the time fixed for the payment of the First Call.

Second and Final Call

The Bank would convene a meeting of the Board to pass the required resolution for making the Second and Final Call and suitable intimation would be given by the Bank to the Stock Exchange. Further, advertisements for the same will be published in one (1) English national daily with wide circulation, one (1) Hindi national daily with wide circulation and one (1) Tamil daily newspaper. The Second and Final Call shall be deemed to have been made at the time when the resolution authorizing such Second and Final Call was passed at the meeting of the Board. The Second and Final Call may be revoked or postponed at the discretion of the Board. The Board may, from time to time at its discretion, extend the time fixed for the payment of the Second and Final Call.

Record Date for First, Second and Final Call and suspension of trading

The Bank would fix a record date giving at least fifteen (15) days prior notice to the Stock exchange for the purpose of determining the list of Allottees to whom the notice for call money would be sent. Once the record date has been fixed, trading in the partly paid Rights Equity Shares for which First, Second and Final Calls have been made would be suspended for the period as may be applicable under the rules and regulations prior to such record date that has been fixed for the First and Final Call.

Separate ISIN on Application, First, Second and Final Call

In addition to the present ISIN for the existing fully paid up Equity Shares, the Bank would obtain separate ISIN Nos. for its partly paid-up Rights Equity Shares. The partly paid-up Equity Shares offered under the Issue will be traded under a separate ISIN from the date of listing of these Equity Shares. The ISIN representing partly paid up Equity Shares will be terminated on payment of the second and final call. Such shares on which final call has been duly paid would be converted into fully paid up Equity Shares and merged with the existing ISIN for fully paid up Equity Shares.

Listing of partly paid-up Rights Equity Shares

The partly paid-up Rights Equity Shares would be listed on the NSE which is the Designated Stock Exchange. For an applicable period, under the rules and regulations, prior to the record date for the First as well as for the Second and Final Call, the trading of the then existing partly paid-up Rights Equity Shares would be terminated upon payment of First Call, the partly paid shares would be upgraded to the investors demat account to the next category of partly paid shares.. The process of corporate action for credit of fully paid shares to the demat account of the shareholder may take some time from the date of last date of payment of the amount payable on Call.

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Payment period for manner of Calls

As per Regulation 13 (2) of Table A, Schedule I of the Companies Act, 1956, AOA, shareholders would be given not less than fourteen (14) days time for the payment of the call money. The Bank has stipulated a period of 15 days time to the shareholders for making payment towards the call money.

If any members fails to pay any call due from him/her on the day appointed for payment thereof, or any such extension thereof as aforesaid, he/she shall be liable to pay interest on the same from the day appointed for payment thereof to the day of actual payment at such rate as shall from time to time be fixed by the Board, but nothing in this Article shall render it obligatory for the Board to demand or recover any interest from any such member. Any sums, which by the terms of issue of a share becomes payable on allotment or any fixed date, whether on account of nominal value of the share or by way of premium shall for the purpose of these Article be deemed to be a call duly made and payable on the date on which by the terms of issue the same becomes payable and in case of non-payment all the relevant provisions of these Articles as to payment of interest and expenses, forfeiture or otherwise, shall apply mutatis mutandis as if such sum had become payable by virtue of a call duly made and notified.

Entitlement Ratio

The Equity Shares are being offered on Rights basis to the existing Equity Shareholders in the ratio of two (2) Equity Shares of ` 10/- each for every five (5) Equity Shares of ` 10/- being offered at `150/- each held as on the Record Date. The entitlement of Rights shall be based upon the post Bonus Share Capital of the Bank.

Fractional Entitlements

For Rights Equity Shares being offered under this Issue, if the shareholding of any of the Eligible Equity Shareholders is less than 3 Equity Shares or not in the multiple of 5 as on the Record Date, the fractional entitlement of such Eligible Equity Shareholders shall be ignored. Eligible Equity Shareholders whose fractional entitlements are being ignored would be given preference in allotment of one additional share each if they apply for additional shares.

An illustration stating the Rights Entitlement for number of Equity Shares is set out below:

Number of Equity Shares Rights Entitlement 1-2 0 5 2 13 5 16 6

Those Eligible Equity Shareholders holding less than 3 Equity Shares and therefore entitled to zero Rights Equity Shares under this Issue shall be dispatched a CAF with zero entitlement. Such Eligible Equity Shareholders are entitled to apply for additional Rights Equity Shares and they would be given preference in allotment for one (1) additional Rights Equity Share if they apply for the same. However, they cannot renounce the same in favour of third parties. A CAF with zero entitlement will be non-negotiable / non-renounceable.

Rights of the Equity Shareholders

Right to receive dividend, if declared; Right to attend general meetings and exercise voting powers, unless prohibited by law; Right to vote on a poll in person or by proxy; Right to receive offers for rights shares and be allotted bonus shares, if announced; Right to receive surplus on liquidation; Right to free transferability of shares; and Such other rights as may be available to a shareholder of a bank constituted under the Companies Act and Memorandum and Articles of Association.

For a detailed description of the main provisions of the Articles of Association dealing with voting rights, dividends, forfeiture, lien, transfer and transmission, and / or consolidating / splitting may be referred to.

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Arrangements for Disposal of Odd Lots

The Bank's shares will be traded in dematerialized form only and therefore the marketable lot is 1 (ONE) share. Therefore, there is no possibility of any odd lots.

Restriction on transfer of Equity Shares

As per RBI Circular No. DBOD. PSBS.BC.64/16.13.100/2003-04 dated February 3, 2004 any acquisition of shares by a person or group which would take his or its holding to a level of 5 percent or more of the total paid up capital of the Bank (or such percentage as may be prescribed by the RBI from time to time) should be with the prior approval of RBI.

General terms of the Issue

Market Lot

The Equity Shares of the Bank are tradable only in dematerialized form. The market lot for Equity Shares held in demat mode is one (1) Equity Share. In case of physical certificates, the Bank would issue one (1) consolidated certificate for the Equity Shares allotted to one folio ("Consolidated Certificate"). In respect of Consolidated Certificates, the Bank will, upon receipt of a request from the Equity Shareholder, split such Consolidated Certificates into smaller denomination. No fee would be charged by the Bank for splitting the Consolidated Certificate.

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.

Nomination

As per section 109A of The Companies Act, 1956, every Sole Eligible Equity Shareholder or First Eligible Equity Shareholder, along with other joint Equity Shareholders [being individual(s)], if any, may nominate any person(s) who, in the event of the death of the sole holder or all the joint-holders, as the case may be, shall become entitled to the Equity Shares. A person, being a nominee, becoming entitled to the Rights Equity Shares by reason of the death of the original Eligible Equity Shareholder(s), shall be entitled to the same advantages to which he would be entitled if he were the registered holder of the Equity Shares.

Where the nominee is a minor, the Eligible Equity Shareholder(s) may also make a nomination to appoint, in the prescribed manner, any person to become entitled to the Rights Equity Share(s), in the event of death of the said Eligible Equity Shareholder(s), during the minority of the nominee. A nomination shall stand rescinded upon the sale of the Equity Shares by the person nominating. A transferee will be entitled to make a fresh nomination in the manner prescribed.

When the Equity Share is held by two or more persons, the nominee shall become entitled to receive the amount only on the demise of all the holders.

Fresh nominations can be made only in the prescribed form as available on request at the Registered Office of the Bank or such other person at such addresses as may be notified by the Bank. The applicant can make the nomination by filling in the relevant portion of the CAF.

Only one nomination would be applicable for one folio. Hence, in case the Shareholder(s) has already registered the nomination with the Bank, no further nomination need to be made for Equity Shares to be allotted in this Issue under the same folio.

In case the allotment of Equity Shares is in de-materialised form, there is no need to make a separate nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective DP of the applicant would prevail. If the applicant wishes to change the nomination, he/she is requested to inform their respective DP.

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Notices

All notices to the Eligible Equity Shareholders required to be given by the Bank shall be published in one English national daily with wide circulation, one Hindi national daily with wide circulation and one Tamil daily newspaper with wide circulation and / or, will be sent by ordinary post / registered post / speed post to the registered holders of the Equity Shares from time to time.

Listing and trading of the Rights Equity Shares proposed to be issued

The Bank‟s existing Equity Shares are currently listed on the NSE which is the Designated Stock Exchange under the ISIN INE036D01010. The fully paid up Rights Equity Shares proposed to be issued shall be listed on the NSE and admitted for trading on the NSE under the existing ISIN for fully paid up Equity Shares of the Bank.

In addition to the present ISIN for the existing fully paid up Equity Shares, the Bank would obtain separate ISIN Nos. for it‟s partly paid up Equity Shares. The partly paid up Equity Shares offered under the Issue will be traded under a separate ISIN from the date of listing of these Equity Shares and for the period as may be applicable under the rules and regulations prior to the record date for the First, Second and Final Call. The ISIN representing partly paid up Equity Shares will be terminated after the Record Date for the Second and Final call. Such shares on which final call has been duly paid would be converted into fully paid-up Equity Shares and merged with the existing ISIN for fully paid up Equity Shares. The Rights Equity Shares in respect of which the balance amount payable remains unpaid may be forfeited, at any time after the due date for payment of the balance amount due.

The Rights Equity Shares allotted pursuant to this Issue will be listed as soon as practicable but in no case later than 7 working days from the date of finalization of basis of allotment. The Bank has made an application for “in-principle” approval for listing of the Rights Equity Shares in accordance with clause 24(a) of the Listing Agreement to the NSE through letter dated [●] respectively and has received such approval from the NSE through letter no. [●], dated [●], 2010.

The distribution of the Draft 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.

RELEVANT RBI PROVISIONS

Rights issues by private sector banks – Acknowledgement of transfer / allotment of shares

1) In terms of RBI Circular DBOD.No.PSBS.BC.79/16.13.100 /2001-2002 dated March 20, 2002, listed as well as unlisted private sector banks are not required to obtain approval of RBI for Rights Issue.

2) While reviewing the following issues have emerged with reference to percentage of holding at the time of rights issue:- a) When some shareholders (individuals/ entities / groups) pick up unsubscribed shares which would result in his / its holding going up as a percentage of total paid up capital of the bank. b) When Some shareholders not picking up their entitlements, holdings of the other shareholders would go up in percentage even if they pick up their own entitlements.

The above matter has been examined from the point of view of applicability of RBI Circular DBOD. NO.PSBS.BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004 on acknowledgement of transfer/ allotment of shares in private sector banks and DBOD. NO. BP.BC.71/ 21.01.01/ 2004-05 dated February 28, 2005 on ownership and governance and also the regulatory limits such as the cap for the aggregate FDI/FII/NRI holdings and the 5% limit for a bank‟s investment in equity of another bank.

The RBI has advised banks going for rights issue to make complete disclosure of the regulatory requirements in the offer documents, including the following that:

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i. Subscription to rights other than own entitlement will not be permitted if such subscription would result in breach of any statutory / regulatory ceilings ii. Any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or more of the paid up capital of the Bank would require acknowledgement of RBI in terms of the criteria laid down in the RBI guidelines contained in the Circular DBOD. NO.PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004. Further, in terms of the guidelines on ownership and governance issued on February 28, 2005 any acquisition that will take the shareholding of any entity/ group, directly or indirectly, to 10% or more of the paid-up capital of the Bank will require the prior approval of RBI iii. If the holding of any shareholder breaches any statutory / regulatory ceilings as a result of non- subscription of rights by other shareholders, the shareholder concerned will not be able to acquire any further shares till his/ its shareholding is brought within the stipulated ceilings.

In case the permission to deal in and for an official quotation of the Equity Shares is not granted by the Stock exchange, the Bank shall forthwith repay without interest, all monies received from the applicants in pursuance of the Letter of Offer and if such money is not repaid within eight days after the day from which the Bank is liable to repay it, i.e. fifteen days after closure of the Issue, the Bank shall pay interest as prescribed under Section 73 (2) / 73 (2A) of the Companies Act 1956.

The above is subject to the terms mentioned under the section titled “Basis of Allotment” on page 139 of this Draft Letter of Offer.

Utilisation of Issue Proceeds

The funds received from this Rights Issue will be kept in a separate bank account and the Bank shall utilize the funds collected in this Rights Issue only after the basis of allotment is finalized.

Undertakings by the Bank

The Bank undertakes the following;

1. That the complaints received in respect of the Issue shall be attended to expeditiously and satisfactorily.

2. That steps for completion of the necessary formalities for listing and commencement of trading at all Stock Exchanges where the securities are to be listed will be taken within seven (7) working days of finalization of basis of allotment.

3. That the funds required for making dispatch of refunds to unsuccessful applicants as per the mode(s) disclosed shall be made available to the Registrar to the issue.

4. That where refunds are made through electronic transfer of funds, a suitable communication shall be sent to the applicant within fifteen (15) days of closure of the issue, as the case may be, giving details of the bank where refunds shall be credited along with amount and expected date of electronic credit of refund.

5. That the certificates of the securities/ refund orders to the non-resident Indians shall be dispatched within the specified time.

6. That no further issue of securities affecting equity capital of the Bank shall be made till the securities issued/offered through the Draft Letter of Offer Issue are listed or till the application money are refunded on account of non-listing, under-subscription etc.

7. That adequate arrangements shall be made to collect all ASBA applications and to consider them similar to non-ASBA application while finalizing the basis of allotment.

The Bank accepts full responsibility for the accuracy of information given in this Draft Letter of Offer and confirms that to best of its knowledge and belief, there are no other facts the omission of which makes any statement made in this Draft Letter of Offer misleading and further confirms that it has made all reasonable enquiries to ascertain such facts.

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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.

Procedure for Application

The CAF for the Rights Equity Shares would be printed in black ink for all the Eligible Equity Shareholders. In case the original CAF is not received by the Investor or is misplaced by the Investor, the Investor may request the Registrar to the Issue, for issue of a duplicate CAF, by furnishing the registered folio number, DP ID Number, Client ID Number and their full name and address.

The CAF consists of four parts: Part A: Form for accepting the Rights Equity Shares and for applying for additional Rights Equity Shares; Part B: Form for renunciation; Part C: Form for application for renunciation; Part D: Form for request for split Application forms.

Application by Mutual Funds

In case of a mutual fund, a separate application can be made in respect of each scheme of the mutual fund registered with SEBI and such application in respect of more than one scheme of the mutual fund will not be treated as multiple applications provided that the applications clearly indicate the scheme concerned for which the application has been made.

All the applications made by AMCs or custodians of a mutual fund shall clearly indicate the name of the concerned scheme for which the application is being made.

Acceptance of the Issue

You may accept the Issue and apply for the Rights Equity Shares offered, either in full or in part, by filling Part A of the enclosed CAF and submit the same along with the application money payable to the Bankers to the Issue or any of the collection branches as mentioned on the reverse of the CAF 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 the Bank in this regard. Investors at centers not covered by the branches of collecting banks can send their CAF together with the cheque drawn at par on a local bank at Coimbatore / demand draft payable at Coimbatore to the Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the Issue are liable to be rejected.

Options available to the Eligible Equity Shareholders

The CAF will clearly indicate the number of Rights Equity Shares that the Eligible Equity Shareholder is entitled to. If the Eligible Equity Shareholder applies for an investment in Rights Equity Shares, then he can:

A. Apply for his Rights Entitlement in full; B. Apply for his Rights Entitlement in part (without renouncing the other part); C. Apply for his Rights Entitlement in full and apply for additional Equity Shares; D. Renounce his entire Rights Entitlement; or E. Apply for his Rights Entitlement in part and renounce the other part.

Options A and B: Acceptance of the Rights Entitlement

The Equity Shareholders may accept their Rights Entitlement and apply for the Equity Shares offered, either (i) in full or (ii) in part, without renouncing the other part, by completing Part A of the CAF. For details in relation to submission of the CAF and mode of payment please refer to the sub-section titled “Submission of Application and Modes of Payment for the Issue” under this section titled “Terms of the Issue” on page 122 of this Draft Letter of Offer.

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Option C: Acceptance of the Rights Entitlement and Application for Additional Equity Shares

The Equity Shareholders are eligible to apply for additional Equity Shares, over and above their Rights Entitlements, provided that such Equity Shareholders have applied for all the Equity Shares without renouncing some or all of them in favor of any other person(s).

The application for the additional Equity Shares shall be considered and allotment shall be made at the sole discretion of the Board of Directors, in consultation, if necessary, with the Designated Stock Exchange. Where the number of Equity Shares applied for exceeds the number of Equity Shares available for allotment, the allotment of additional Equity Shares shall be made on a fair and equitable basis with reference to the number of Equity Shares held by the applicant on the Record Date. For details of the manner in which applications for additional Equity Shares with shall be considered and allotment completed, please refer to the sub-section titled “Basis of Allotment” under this section titled “Terms of the Issue” on page 122 of this Draft Letter of Offer.

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.

Options D and E: Renunciation of the Rights Entitlement

As an Equity Shareholder, you have the right to renounce your entitlement to the Equity Shares, in full or in part, in favor of one or more persons. Your attention is drawn to the fact that our Bank shall not allot and/or register any Equity Shares, in favor of:

• More than three persons, including joint holders; • Partnership firms or their nominees; • Minors; • Hindu Undivided Families (HUFs); or • Trusts or societies (unless registered under the Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or any other law applicable to trusts and societies and is authorised under its constitution or byelaws to hold equity shares of a company).

The person(s) in whose favor any Equity Shares are renounced should complete and sign Part C of the CAF and submit the CAF to the Bankers to the Issue on or prior to the Issue Closing Date along with the Application Money. Renouncees need not be existing Equity Shareholders of our Bank. Renouncees who have subscribed for all the Equity Shares renounced in their favor may also apply for additional Equity Shares. A Renouncee cannot further renounce.

However, the right of renunciation is subject to the express condition that the Board of Directors shall be entitled, in its absolute discretion, to reject the request from the renouncees for the allotment of Equity Shares without assigning any reason therefore.

Renunciation by and/or in favor of Non Residents

Any renunciation (i) from a resident Indian Equity Shareholder to a Non Resident, or (ii) from a Non Resident Equity Shareholder to a resident Indian, or (iii) from a Non Resident Equity Shareholder to a Non Resident, in light of RBI Master circular on Foreign Investment in India dated July 01, 2010;RBI Notification No. FEMA 20/2000-RB dates May 03, 2000 and RBI circular No. 38 dated December 03, 2003 would not require approval from RBI.

Procedure of renunciation

To renounce all the Rights Equity Shares offered to an Eligible Equity Shareholder in favour of one Renouncee

If you wish to renounce the offer 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 this part of the CAF.

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To renounce in part/or renounce the whole to more than one person(s)

If you wish to either accept this offer in part and renounce the balance or renounce the entire offer under this Issue in favour of two or more Renouncees, the CAF must be first split into the requisite number of forms.

Please indicate your requirement of split forms 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 split forms, which is [●]. On receipt of the required number of split forms from the Registrar, the procedure as mentioned in the paragraph above shall have to be followed.

In case the signature of the Eligible Equity Shareholder(s), who has renounced the Rights Equity Shares, does not agree with the specimen registered with the Bank, 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 Bankers to the Issue on or before the Issue Closing Date along with the application money in full. The Renouncee cannot further renounce.

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, 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. However, this right of renunciation is subject to the express condition that the Board shall be entitled in its absolute discretion to reject the request for allotment from the Renouncee(s) without assigning any reason thereof.

Instructions for options

Please note that:

Part „A‟ of the CAF must not be used by any person(s) other than the Eligible Equity Shareholders to whom the Letter of Offer has been addressed. If used, this will render the application invalid. A request for split forms should be made for a minimum of 3 Rights Equity Shares or, in multiples thereof and one split form for the balance Rights Equity Shares, if any. A request by the Investor for the split Application form should reach the Registrars to the Issue on or before [●]. Only the Eligible Equity Shareholders to whom the Letter of Offer has been addressed shall be entitled to renounce and to apply for split application forms. Forms once split cannot be split further. Split form(s) will be sent to the Investor(s) by post at the Investors‟ risk.

Additional Rights Equity Shares

You are eligible to apply for additional Rights Equity Shares over and above the number of Rights Equity Shares you are entitled to, provided that you have applied for all the Rights Equity Shares offered 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, in consultation, if necessary, with the Designated Stock Exchange and in the manner prescribed in the paragraph titled “Basis of Allotment” beginning on page 139 of this Draft Letter of Offer.

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. The Renouncee applying for all the Rights Equity Shares renounced in their favour may also apply for additional Rights Equity Shares.

Where the number of additional Rights Equity Shares applied for exceeds the number available for allotment, the allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange.

You may exercise any of the following options with regard to the Rights Equity Shares offered, using the enclosed CAF:

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Sr. No. Options Available Action Required 1. Accept the whole or part of your Rights Fill in and sign Part A (All joint holders must sign). Entitlement without renouncing the balance. 2. Accept your Rights Entitlement in full and Fill in and sign Part A including Block III relating apply 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). 3. 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 indicating the number of Rights Equity Shares one). renounced and hand it over to the Renouncee. The Renouncee must fill in and sign Part C (All joint Renouncees must sign). 4. 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 requesting for Split Application Forms. Send the Renouncee(s). CAF to the Registrar to the Issue so as to reach them on or before the last date for receiving OR requests for Split Application Forms. Splitting will be permitted only once. Renounce your Rights Entitlement to all the Rights Equity Shares offered to you to more On receipt of the Split Application Form take than one Renouncee. action as indicated 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 Renouncee. Each of the Renouncees should fill in and sign Part C for the Equity Shares accepted by them. 5. Introduce a joint holder or change the sequence This will be treated as a renunciation. Fill in and of joint holders sign Part B and the Renouncee must fill in and sign Part C.

Investors must provide information in the CAF as to their savings bank / current account number and the name of the bank with whom such account is held, to enable the Registrar to print the said details in the refund orders after the names of the payee(s). Failure to comply with this may lead to rejection of the application. Bank account details furnished by the Depositories will be printed on the refund warrant in case of Equity Shares held in electronic form.

Investors must write their CAF Number at the back of the cheque / demand draft.

Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the Investor, the Registrar to the Issue will issue a duplicate CAF on the request of the Investor who should furnish the registered folio number / DP and Client ID number and his / her full name and address to the Registrar to the Issue. Please note that the request for a duplicate CAF should reach the Registrar to the Issue within 7 (seven) days from the Issue Opening Date. Please note that those who are making the application in the duplicate CAF should not utilize the original CAF for any purpose including renunciation, even if it is received / found subsequently. If the Investor violates any of these requirements, he / she shall face the risk of rejection of both the CAFs.

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Application on Plain Paper

An Eligible Equity 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 a demand draft/ account payee cheque drawn on a local Bank at Coimbatore / Draft payable at Coimbatore and send the same directly to the Registrars to the issue.

The envelope should be superscribed „Karur Vysya Bank Limited – Rights Issue‟ and should be postmarked in India. The application on plain paper, duly signed by the Investors including joint holders, in the same order as per specimen recorded with the Bank, must reach the office of the Registrar to the Issue before the Issue Closing Date and should contain the following particulars:

Name of the Issuer, being The Karur Vysya Bank Limited; Name and address of the Eligible Equity Shareholder including joint holders; Registered Folio Number / DP and Client ID no.; Number of Equity Shares held as on Record Date; Number of Rights Equity Shares entitled; Number of Rights Equity Shares applied for; Number of additional Rights Equity Shares applied for, if any; Total number of Rights Equity Shares applied for; Total amount paid at the rate of ` 60 /- per Rights Equity Share on application.; Separate cheques / DDs are to be attached for amounts to be paid for Rights Equity Shares; Particulars of cheque / demand draft / Savings / Current Account Number and name and address of the bank where the Eligible Equity Shareholder will be depositing the refund order; PAN of the Investor, and for each Investor in case of joint names, irrespective of the total value of the Rights Equity Shares applied for pursuant to the Issue; Signature of the Rights Equity Shareholders to appear in the same sequence and order as they appear in the records of the Bank.

Please note that those who are making an application otherwise than on an 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 Investor violates any of these requirements, he / she shall face the risk of rejection of both the applications. Separate cheque / DDs are to be attached for amounts to be paid for Rights Equity Shares. The Bank shall refund such application amount to the Investor without any interest thereon.

PROCEDURE FOR APPLICATION THROUGH THE APPLICATIONS SUPPORTED BY BLOCKED AMOUNT (“ASBA”) PROCESS

SEBI, by its circular dated August 20, 2009, introduced in rights issue - application supported by blocked amount wherein the application money remains in the ASBA Account until allotment. Mode of payment through ASBA in Rights Issue became effective on August 20, 2009. Since this is a new mode of payment in Rights Issues, set forth below is the procedure for applying under the ASBA procedure, for the benefit of the shareholders.

This section is only to facilitate better understanding of aspects of the procedure which is specific to ASBA Investors. ASBA Investors should nonetheless read this document in entirety. Shareholders who are eligible to apply under the ASBA Process are advised to make their independent investigations and ensure that the number of Equity Shares applied for by such Shareholder do not exceed the applicable limits under laws or regulations

The 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 this Draft Letter of Offer. Equity Shareholders who are eligible to apply under the ASBA Process are advised to make their independent investigations and ensure that the number of Equity Shares applied for by such Equity Shareholders does not exceed the applicable limits under laws or regulations. The lists of banks that have been notified by SEBI to act as SCSB for the ASBA Process are provided on http://www.sebi.gov.in/pmd/scsb.pdf. For details on designated branches of SCSBs collecting the CAF, please refer the above mentioned link.

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ASBA Process

An ASBA Investor can submit his application through CAF/plain paper, either in physical or electronic mode, to the SCSB with whom the bank account of the ASBA Investor or bank account utilised by the ASBA Investor is maintained. The SCSB shall block an amount equal to the application amount in the ASBA Account specified in the CAF, physical or electronic, on the basis of an authorisation to this effect given by the account holder at the time of submitting the CAF. The application data shall thereafter be uploaded by the SCSB in the web enabled interface of the Stock Exchanges as prescribed under circular issued by SEBI - SEBI/CFD/DIL/DIP/38/2009/08/20 dated August 20, 2009 or in such manner as may be decided in consultation with the Stock Exchanges. The amount payable on application shall remain blocked in the ASBA Account until finalisation of the Basis of Allotment and consequent transfer of the amount against the allocated Equity Shares to the separate account opened by the Bank for Rights Issue or until failure of the Issue or until rejection of the ASBA application, as the case may be. Once the basis of Allotment is finalized, the Registrar to the Issue shall send an appropriate request to the Controlling Branch for unblocking the relevant ASBA Accounts and for transferring the amount allocable to the successful ASBA Investors to the separate account opened by the Bank for Rights Issue. In case of withdrawal/failure of the Issue, the blocked amount shall be unblocked on receipt of such information from the Registrar to the Issue.

The Lead Manager, the Bank, its directors, 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.

Equity Shareholders who are eligible to apply under the ASBA Process:

The option of applying for Equity Shares in the Issue through the ASBA Process is only available to Equity Shareholders of the Bank on the Record Date and who: i. Are holding Equity Shares in dematerialized form and have applied towards their rights entitlements or additional shares in the Issue in dematerialized form; ii. Have not renounced their entitlements in full or in part; iii. Have not split the CAF; iv. Are not Renouncees; and v. Who apply through a bank account with one of the SCSBs.

CAF

The Registrar will dispatch the CAF to all Equity Shareholders as per their entitlement on the Record Date for the Issue. Equity Shareholders 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 SCSB who provides such facility. The Equity Shareholder shall submit the CAF/plain paper application 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. The Equity Shareholder shall submit the CAF to the SCSB for authorizing such SCSB to block an amount equivalent to the amount payable on the application in the said bank account maintained with the same SCSB.

Equity Shareholders applying under the ASBA Process 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 them.

Application on Plain Paper

An Equity Shareholder who has neither received the original CAF nor is in a position to obtain a duplicate CAF and wanting to apply under ASBA process may make an application to subscribe for the Issue on plain paper. The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with the Bank, must be submitted at a designated branch of a SCSB on or before the Issue Closing Date and should contain the following particulars:

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Name of the Issuer, being The Karur Vysya Bank Limited; Name and address of the Eligible Equity Shareholder including joint holders; Registered Folio Number / DP and Client ID no.; Number of Equity Shares held as on Record Date; Number of Rights Equity Shares entitled; Number of Rights Equity Shares applied for; Number of additional Rights Equity Shares applied for, if any; Total number of Rights Equity Shares applied for; Total amount paid at the rate of ` 60 /- per Rights Equity Share on application ; Separate cheques / DDs are to be attached for amounts to be paid for Rights Equity Shares; Particulars of cheque / demand draft / Savings / Current Account Number and name and address of the bank where the Eligible Equity Shareholder will be depositing the refund order; PAN of the Investor, and for each Investor in case of joint names, irrespective of the total value of the Rights Equity Shares applied for pursuant to the Issue; Signature of the Rights Equity Shareholders to appear in the same sequence and order as they appear in the records of the Bank.

Acceptance of the Issue

You may accept the Issue and apply for the Equity Shares offered, either in full or in part, by filling Part A of the CAF sent by the Registrar, selecting the ASBA process option in Part A of the CAF and submit the same to the SCSB before the close of the banking hours of KVB on or before the Issue Closing Date or such extended time as may be specified by the Board of Directors of the Bank in this regard.

Mode of payment

The Shareholder applying under the ASBA Process agrees to block the entire amount payable on application (including for additional Equity Shares, if any) with the submission of the CAF, by authorizing the SCSB to block an amount, equivalent to the amount payable on application, in a bank account maintained with the SCSB. After verifying that sufficient funds are available in the bank account 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 Registrar‟s instruction allocable to the Shareholders applying under the ASBA Process from bank account with the SCSB mentioned by the Shareholder in the CAF. This amount will be transferred in terms of the SEBI ICDR Regulations into the separate bank account maintained by the Bank as per the provisions of section 73(3) of the Companies Act, 1956. The balance amount remaining after the finalisation of the basis of allotment shall be either unblocked by the SCSBs by the Registrar on the basis of the instructions issued in this regard by the Registrar to the Issue and the Lead Manager to the respective SCSB.

The Shareholders applying under the ASBA Process would be required to block the entire amount payable on their application at the time of the submission of the CAF.

The SCSB may reject the application at the time of acceptance of CAF if the bank account with the SCSB details of which have been provided by the Shareholder 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, the Bank would have a right to reject the application only on technical grounds.

Options available to the Shareholder applying under the ASBA Process

The summary of options available to the Shareholders is presented below. You may exercise any of the following options with regard to the Equity Shares offered, using the CAF received from Registrar:

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Sr. No. Option Available Action Required 1. Accept whole or part of your entitlement Fill in and sign Part A of the CAF (All joint holders must without renouncing the balance. sign) 2. Accept your entitlement in full and apply Fill in and sign Part A of the CAF including Block III for additional Equity Shares relating to the acceptance of entitlement and Block IV relating to additional Equity Shares (All joint holders must sign)

The Shareholder applying under the ASBA Process will need to select the ASBA option process in the CAF and provide required details as mentioned therein. However, in cases where this option is not selected, but the CAF is tendered to the SCSB with the relevant details required under the ASBA process option and SCSB blocks the requisite amount, then that CAF would be treated as if the Shareholder has selected to apply through the ASBA process option.

Additional Equity Shares

The Equity Shareholder is eligible to apply for additional Equity Shares over and above the number of Equity Shares that he is entitled too, provided that he have applied for all the shares offered without renouncing them in whole or in part in favour of any other person(s). Applications for additional shares shall be considered and allotment shall be made at the sole discretion of the Board, in consultation with the Designated Stock Exchange and in the manner prescribed under “Basis of Allotment” on page 139 of this Draft Letter of Offer.

If you desire to apply for additional shares, please indicate your requirement in the place provided for additional Securities in Part A of the CAF.

Renunciation under the ASBA Process

Renouncees cannot participate in the ASBA Process.

Last date of Application

The last date for submission of the duly filled in CAF is [●]. The Issue will be kept open for a minimum of 15 (fifteen) days and the Board or any committee thereof will have the right to extend the said date for such period as it may determine from time to time but not exceeding 30 (thirty) days from the Issue Opening Date i.e. [●]. If the CAF together with the amount payable is not received by the SCSB on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board of Directors, the offer contained in this Draft Letter of Offer shall be deemed to have been declined and the Board of Directors shall be at liberty to dispose off the Equity Shares hereby offered, as provided under “Basis of Allotment” on page 139 of this Draft Letter of Offer.

Option to receive Securities in Dematerialized Form

SHAREHOLDERS UNDER THE ASBA PROCESS MAY PLEASE NOTE THAT THE EQUITY SHARES OF THE BANK UNDER THE ASBA PROCESS CAN ONLY BE ALLOTTED IN DEMATERIALIZED FORM AND TO THE SAME DEPOSITORY ACCOUNT IN WHICH THE EQUITY SHARES ARE BEING HELD ON RECORD DATE.

Issuance of Intimation Letters

Upon approval of the basis of Allotment by the Designated Stock Exchange, the Registrar to the Issue shall send the Controlling Branches, a list of the ASBA Investors who have been allocated Equity Shares in the Issue, along with:

The number of Equity Shares to be allotted against each successful ASBA; The amount to be transferred from the ASBA Account to the separate account opened by the Bank for Rights Issue, for each successful ASBA;

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The date by which the funds referred to in paragraph above, shall be transferred to separate account opened by the Bank for Rights Issue; and The details of rejected ASBAs, if any, along with reasons for rejection to enable SCSBs to unblock the respective ASBA Accounts.

General instructions for Shareholders applying under the ASBA Process

(a) Please read the instructions printed on the CAF carefully. (b) Application should be made on the printed CAF / plain paper 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 Draft Letter of Offer are liable to be rejected. The CAF / plain paper application must be filled in English. (c) 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 Bankers to the Issue/Collecting Banks (assuming that such Collecting Bank is not a SCSB), to the Bank or Registrar or Lead Manager to the Issue. (d) All applicants, and in the case of application in joint names, each of the joint applicants, should mention his/her PAN number allotted under the Income-Tax Act, 1961, irrespective of the amount of the application. CAFs / plain paper application without PAN will be considered incomplete and are liable to be rejected. (e) All payments will be made by blocking the amount in the bank account maintained with the SCSB. Cash payment 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. (f) Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule to the Constitution of India. Thumb impression and Signatures other than in English or Hindi must be attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The Equity Shareholders must sign the CAF /plain paper application as per the specimen signature recorded with the Bank / Depositories. (g) In case of joint holders, all joint holders must sign the relevant part of the CAF / plain paper application in the same order and as per the specimen signature(s) recorded with the Bank. 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. (h) All communication in connection with application for the Securities, including any change in address of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment in this Issue quoting the name of the first / sole applicant Shareholder, folio numbers and CAF number. (i) Only the person or persons to whom Securities have been offered and not renouncee(s) shall be eligible to participate under the ASBA process.

Do‟s:

(a) 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 “Application on plain paper” appearing under the procedure for application under ASBA. (b) Ensure that you submit your application in physical mode only. Electronic mode is only available with certain SCSBs and not all SCSBs and you should ensure that your SCSB offers such facility to you. (c) 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. (d) Ensure that the CAF / plain paper application is submitted at the SCSBs whose details of bank account have been provided in the CAF / plain paper application. (e) Ensure that you have mentioned the correct bank account number in the CAF / plain paper application. (f) Ensure that there are sufficient funds (equal to {number of Equity Shares applied for} X {Issue Price per Equity Shares as the case may be}] available in the bank account maintained with the SCSB mentioned in the CAF /plain paper application before submitting the CAF to the respective Designated Branch of the SCSB. (g) Ensure that you have authorised the SCSB for blocking funds equivalent to the total amount payable on application mentioned in the CAF / plain paper application, in the bank account maintained with the respective SCSB, of which details are provided in the CAF / plain paper application and have signed

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the same. (h) Ensure that you receive an acknowledgement from the SCSB for your submission of the CAF / plain paper application in physical form. (i) Each applicant should mention their Permanent Account Number (“PAN”) allotted under the Income Tax Act. (j) Ensure that the name(s) given in the CAF / plain paper application 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 / plain paper application. (k) Ensure that the Demographic Details are updated, true and correct, in all respects.

Don‟ts:

(a) Do not apply on duplicate CAF after you have submitted a CAF / plain paper application to a Designated Branch of the SCSB. (b) Do not pay the amount payable on application in cash, money order or by postal order. (c) Do not send your physical CAFs / plain paper application to the Lead Manager to Issue / Registrar / Collecting Banks (assuming that such Collecting Bank is not a SCSB) / to a branch of the SCSB which is not a Designated Branch of the SCSB / Company; instead submit the same to a Designated Branch of the SCSB only. (d) Do not submit the GIR number instead of the PAN as the application is liable to be rejected on this ground. (e) Do not instruct their respective banks to release the funds blocked under the ASBA Process.

Grounds for Technical Rejection for ASBA Process:

In addition to the grounds listed under “Grounds for Technical Rejection” beginning on page 144 of this Draft Letter of Offer, applications under ASBA Process may be rejected on following additional grounds:

(a) Application for entitlements or additional shares in physical form. (b) DP ID and Client ID mentioned in CAF / plain paper application not matching with the DP ID and Client ID records available with the Registrar. (c) Sending CAF / plain paper application to the Lead Manager / Issuer / Registrar / Collecting Bank (assuming that such Collecting Bank is not a SCSB) / to a branch of a SCSB which is not a Designated Branch of the SCSB / Company. (d) Renouncee applying under the ASBA Process. (e) Insufficient funds are available with the SCSB for blocking the amount. (f) Funds in the bank account with the SCSB whose details are mentioned in the CAF / plain paper application having been frozen pursuant to regulatory orders. (g) Account holder not signing the CAF / plain paper application or declaration mentioned therein. (h) Application on split form.

Depository account and bank details for Shareholders applying under the ASBA Process

IT IS MANDATORY FOR ALL THE SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS TO RECEIVE THEIR EQUITY SHARES IN DEMATERIALISED FORM. ALL SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS SHOULD MENTION THEIR DEPOSITORY PARTICIPANT‟S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE CAF / PLAIN PAPER APPLICATION. SHAREHOLDERS APPLYING UNDER THE ASBA PROCESS MUST ENSURE THAT THE NAME GIVEN IN THE CAF / PLAIN PAPER APPLICATION IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THE CAF / PLAIN PAPER APPLICATION 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 APPLICATION.

Shareholders applying under the ASBA Process should note that on the basis of name of these Shareholders, Depository Participant‟s name and identification number and beneficiary account number provided by them in the CAF / plain paper application, the Registrar to the Issue will obtain from the Depository demographic details of these Shareholders such as address, bank account details for printing

138 on refund orders / advice and occupation (“Demographic Details”). Hence, Shareholders applying under the ASBA Process should carefully fill in their Depository Account details in the CAF / plain paper application.

These Demographic Details would be used for all correspondence with such Shareholders including mailing of the letters intimating unblock of bank account of the respective Shareholder. The Demographic Details given by Shareholders in the CAF / plain paper application would not be used for any other purposes by the Registrar. Hence, Shareholders are advised to update their Demographic Details as provided to their Depository Participants. By signing the CAF / plain paper application, the Shareholders 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 Shareholder applying under the ASBA Process as per the Demographic Details received from the Depositories. Refunds, if any, will be made directly to the bank account in the SCSB and which details are provided in the CAF and not the bank account linked to the DP ID. Shareholders applying under the ASBA Process may note that delivery of letters intimating unblocking of bank account 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 Shareholder in the CAF / plain paper application would be used only to ensure dispatch of letters intimating unblocking of bank account.

Note that any such delay shall be at the sole risk of the Shareholders applying under the ASBA Process and none of the SCSBs, Company or the Lead Manager shall be liable to compensate the Shareholder applying under the ASBA Process for any losses caused to such Shareholder 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 match three parameters, namely, names of the Shareholders (including the order of names of joint holders), the DP ID and the beneficiary account number, then such applications are liable to be rejected.

Disposal of Investor Grievances

All grievances relating to the ASBA 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 Equity Shares applied for, Amount blocked on application, account number of the ASBA Bank Account and the Designated Branch or the collection centre of the SCSB where the CAF / plain paper application was submitted by the ASBA Investors.

Last date of Application

The last date for submission of the duly filled in CAF is [●]. The Issue will be kept open for 15 days and the Board will have the right to extend the said date for such period as it may determine from time to time but not exceeding 30 days from the Issue Opening Date.

If the CAF together with the amount payable is not received by the Bankers to the Issue / Registrar to the Issue on or before the closure of banking hours on the aforesaid last date or such date as may be extended by the Board, the offer contained in the Letter of Offer shall be deemed to have been declined and the Board shall be at liberty to dispose off the Rights Equity Shares hereby offered, as provided in the paragraph titled “Basis of Allotment” on page 139 of this Draft Letter of Offer.

INVESTORS MAY PLEASE NOTE THAT THE RIGHTS EQUITY SHARES CAN BE TRADED ON THE STOCK EXCHANGES ONLY IN DEMATERIALIZED FORM.

Basis of Allotment

Subject to the provisions contained in the Letter of Offer, the Articles of Association of the 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:

139 a) Full allotment to those Rights Equity 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. b) For the Rights Equity Shares being offered under this Issue, if the shareholding of any of the Eligible Equity Shareholders is less than 3 Equity Shares or is not in the multiple of 5 the fractional entitlement of such Eligible Equity Shareholders shall be ignored. Eligible Equity Shareholders whose fractional entitlements are being ignored would be given preference in allotment of one additional Rights Equity Share each if they apply for additional Rights Equity Shares. Allotment under this head shall be considered if there are any unsubscribed Rights Equity Shares after allotment under (a) above. If the number of Rights Equity Shares required for allotment under this head are more than the number of Rights Equity Shares available after allotment under (a) above, the allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange. c) Allotment to the Eligible Equity Shareholders who having applied for all the Rights Equity Shares offered to them as part of the Issue and 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 the number of Equity Shares held by them on the Record Date, provided there is an under-subscribed portion after making full allotment in (a) and (b) above. The allotment of such additional 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 not preferential allotment. d) Allotment to Renouncees who having applied for all the Rights Equity Shares renounced in their favour, have applied for additional Rights Equity Shares provided there is surplus available after making full allotment under (a), (b) and (c) above. The allotment of such Rights Equity Shares will be on a proportionate basis at the sole discretion of the Board in consultation with the Designated Stock Exchange, i.e., NSE as a part of the Issue and not preferential allotment. e) Allotment to any other person as the Board may in its absolute discretion deem fit provided there is surplus available after making full allotment under (a), (b), (c) and (d) above.

After taking into account allotment to be made under (a) and (b) above, if there is any unsubscribed portion, the same shall be deemed to be „unsubscribed‟ for the purpose of regulation 3(1)(b) of the Takeover Code which would be available for allocation under (c), (d) and (e) above.

After considering the above Allotment, any additional Rights Equity Shares shall be disposed off by the Board, in such manner as they think most beneficial to the Bank and the decision of the Board in this regard shall be final and binding. In the event of oversubscription, Allotment will be made within the overall size of the Issue.

The Bank expects to complete the allotment of Equity Shares within a period of 15 days from the date of closure of the Issue in accordance with the listing agreement with the NSE. In case of delay in allotment the Bank shall, as stipulated under Section 73(2A) of the Act, be required to pay interest on the same at a rate of 15 per cent p.a.

Allotment / Refund

The Bank will issue and dispatch letter of allotment / share certificates / demat credit and / or letters of regret along with refund orders or credit the allotted Rights Equity Shares to the respective beneficiary accounts, if any, within a period of fifteen (15) days from the Issue Closing Date. If such money is not repaid within eight days from the day the Bank becomes liable to pay it, the Bank shall pay that money with interest as stipulated under Section 73 of the Companies Act.

Investors residing in the 68 cities specified by SEBI pursuant to its circular dated February 1, 2008, will get refunds through ECS (Electronic Clearing Service) only except where Investors are otherwise disclosed as applicable / eligible to get refunds through direct credit and RTGS provided the MICR details are recorded with the Depositories or the Bank.

In case of those Investors who have opted to receive the Rights Equity Shares in dematerialized form using electronic credit under the depository system, an 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

140 through certificate of posting intimating them about the mode of credit of refund within a period of fifteen (15) days from the Issue Closing Date.

In case of those Investors who have opted to receive the Rights Equity Shares in physical form, the Bank will issue the corresponding share certificates under Section 113 of the Companies Act or other applicable provisions, if any.

Any refund order exceeding ` 1,500 would be sent by registered post / speed post to the sole / first Investor‟s registered address. Refund orders up to the value of ` 1,500 would be sent under certificate of posting. 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.

Payment of Refund

Mode of making refunds

The payment of refund, if any, would be done through various modes in the following order of preference:

1. ECS (Electronic Clearing Service) – Payment of refund would be done through ECS for Investors having an account at any centre where such facility has been made available. This mode of payment of refunds would be subject to availability of complete bank account details including the MICR code as appearing on a cheque leaf, from the Depositories. The payment of refunds is mandatory for Investors having a bank account at the centers where ECS facility has been made available by the RBI (subject to availability of all information for crediting the refund through ECS), except where the Investor, being eligible, opts to receive refund through NEFT, direct credit or RTGS.

2. NEFT (National Electronic Fund Transfer) – 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 Magnetic Ink Character Recognition (MICR), if any, available 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 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. The Bank in consultation with the Lead Manager may decide to use NEFT as a mode of making refunds. The process flow in respect of refunds by way of NEFT is at an evolving stage and hence use of NEFT is subject to operational feasibility, cost and process efficiency. In the event that NEFT is not operationally feasible, the payment of refunds would be made through any one of the other modes as discussed herein.

3. Direct Credit – Investors having bank accounts with the Bankers 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 the Bank.

4. RTGS (Real Time Gross Settlement) – Investors having a bank account at any of the centres where such facility has been made available and whose refund amount exceeds ` 1 lakh, 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 ECS. Charges, if any, levied by the Refund Bank(s) for the same would be borne by the Bank. Charges, if any, levied by the Investors‟ bank receiving the credit would be borne by the Investor.

5. For all other Investors, including those who have not updated their bank particulars with the MICR code, the refund orders will be dispatched under certificate of posting for value up to ` 1,500 and through speed post / registered post for refund orders of above ` 1,500. Such refunds will be made by cheques, pay orders or demand drafts drawn in favour of the sole / first Investor and payable at par.

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

141 orders. Bank account particulars will be printed on the refund orders/refund warrants which can then be deposited only in the account specified. The 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 will be dispatched to the registered address of the first named Investor or respective beneficiary accounts will be credited within 15 (fifteen) days, from the Issue Closing Date.

Option to receive the Rights Equity Shares in Dematerialized Form

The Investors have an option to get the Rights Equity Shares in physical or demat form.

The Bank has signed a tripartite agreement dated February 21, 2001 with NSDL and the Registrar to the Bank and a tripartite agreement dated February 21, 2001 with CDSL and the Registrar to the Bank, which enables the Equity Shareholders to hold and trade in Equity Shares in a dematerialised form, instead of holding the Equity Shares in the form of physical certificates.

In this Issue, the allottees who have opted for the Rights Equity Shares in dematerialised form will receive the Rights Equity Shares in the form of an electronic credit to their beneficiary account with a Depository Participant. The CAF shall contain a space for indicating the number of Rights Equity Shares applied for in demat and physical from or both. Investors will have to give the relevant particulars for this purpose appropriately in the CAF. Applications, which do not accurately contain this information, will be given the Rights Equity Shares in physical form. No separate applications for Rights Equity Shares in physical and / or dematerialized form should be made. If such applications are made, the application for physical Rights Equity Shares will be liable to be rejected.

The Rights Equity Shares will be listed on the NSE, which is the Designated Stock Exchange.

The procedure for availing of the facility for allotment of the Rights Equity Shares in this Issue in the electronic form is as under:

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 exhibited in the records of the Bank. In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in the same order as with the Bank). In case of Investors having various folios in the 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.

For the Eligible Equity Shareholders already holding Equity Shares of the 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 this 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 this Issue may be made in dematerialized form even if the original Equity Shares of the Bank are not dematerialized. Nonetheless, it should be ensured that the Depository Account is in the name(s) of the Equity Shareholders and the names are in the same order as in the records of the Bank.

Responsibility for correctness of information (including Investor‟s age and other details) filled in the CAF vis-à-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 the CAF should be the same as registered with the Investor‟s Depository Participant.

Equity Share allotted to an Applicant in the electronic account form will be credited directly to the Applicant‟s respective beneficiary account(s) with depository participant.

Applicants should ensure that the names of the Applicants and the order in which they appear in the CAF should be the same as registered with the Applicant‟s depository participant.

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Non-transferable allotment advice/refund orders will be directly sent to the Applicant by the Registrar to this Issue.

If incomplete / incorrect beneficiary account details are given in the CAF the Investor will get the Rights Equity Shares in physical form.

The Rights Equity Shares pursuant to this Issue allotted to Investors opting for 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 Investor by the Registrar to the Issue but the Investor‟s depository participant will provide to him the confirmation of the credit of such Securities to the Investor‟s depository account.

Renouncees will also have to provide the necessary details about their beneficiary account for allotment of Rights Equity Shares in this Issue. In case these details are incomplete or incorrect, the application is liable to be rejected.

It may be noted that Equity Shares in electronic form can be traded only on the Stock Exchanges having electronic connectivity with NSDL or CDSL.

Dividend or other benefits with respect to the Equity Shares held in dematerialised form would be paid to those Equity Shareholders whose names appear in the list of beneficial owners given by the Depository Participant to the Bank as on the date of the book closure.

General instructions for Investors a) Please read the instructions printed on the enclosed CAF carefully. b) Applications should be made on the printed CAF, provided by the Bank 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 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. c) The CAF together with the cheque / demand draft should be sent to the Bankers to the Issue / Collecting Banks or to the Registrar to the Issue and not to the Bank or the Lead Manager to the Issue. Investors residing at places other than cities where the branches of the Bankers to the Issue have been authorised by the Bank for collecting applications, will have to make payment by Demand Draft payable at Coimbatore, of an amount net of bank and postal charges and send their application forms 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. d) Applications for any value made by the Investor, or in the case of joint names, each of the joint Investors, should mention his / her Permanent Account Number allotted under the Income-Tax Act, 1961, irrespective of the amount of the application. CAF without PAN will be considered incomplete and are liable to be rejected. e) Investors are advised that it is mandatory to provide information as to their savings / current account 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. Applications not containing such details are liable to be rejected. For Eligible Equity Shareholders holding Equity Shares in dematerialised form, such bank details will be drawn from the demographic details of the Eligible Equity Shareholder in the records of the Depository. f) All payments should be made by cheque / DD only. Cash payment 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. g) 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

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by a Notary Public or a Special Executive Magistrate under his/her official seal. The Eligible Equity Shareholders must sign the CAF as per the specimen signature recorded with the Bank or the Depositories. h) 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 this 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 to the serial number of the CAF and folio numbers / DP ID and Client ID Number. In case the above referred documents are already registered with the Bank, the same need not be 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 Bankers to the Issue. i) 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 the Bank. Further, in case of joint Investors who are Renouncees, the number of Investors should not exceed three. In case of joint applicants, reference, if any, will be made in the first Investor‟s name and all communication will be addressed to the first Investor. j) Application(s) received from Non-Resident / 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 in the matter of refund of application money, allotment of equity shares, subsequent issue and allotment of equity shares, interest, export of share certificates, etc. In case a Non - Resident or NRI Equity Shareholder has specific approval from the RBI, in connection with his shareholding, he should enclose a copy of such approval with the CAF. k) All communications in connection with applications for the Rights Equity Shares, including any change in addresses of the Eligible Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment in this Issue quoting the name of the first / sole Investor, folio numbers and CAF number. Please note that any intimation for change of address of the Eligible Equity Shareholders, after the date of allotment, should be sent to the Registrar to the Issue, 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. l) Split forms cannot be re-split. m) Only the person or persons to whom the Rights Equity Shares have been offered and not Renouncee(s) shall be entitled to obtain split forms. n) Investors must write their CAF number at the back of the cheque / demand draft. o) 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. p) A separate cheque / demand draft must accompany each CAF. Outstation cheques / demand drafts or postdated cheques and postal / money orders will not be accepted and applications accompanied by such cheques / demand drafts / money orders or postal orders will be rejected. The Registrar will not accept payment against application if made in cash. (For payment against application in cash please refer point (f) above) q) No receipt will be issued for application money received. The Bankers to the Issue / Collecting Bank / Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

Grounds for Technical Rejections

Investors are advised to note that applications are liable to be rejected on technical grounds, including the following:

Amount paid does not tally with the amount payable for;

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Bank account details (for refund) are not given and the same are not available with the DP (in the case of dematerialised holdings) or the Registrar (in the case of physical holdings); Age of first Investor not given while completing Part C of the CAFs; PAN not mentioned for application of any value; In case of application under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted; If the signature of the existing shareholder on the CAF does not match with the records available with the Bank and/or the Depositories and in case of application by Renouncees, if the signature of the Renouncers do not match with the records available with their Depositories; If the Investor desires to have Rights Equity Shares in electronic form, but the CAF does not have the Investor‟s depository account details; Application forms are not submitted by the Investors within the time prescribed as per the application form and the Letter of Offer; Applications not duly signed by the sole / joint Investors; Applications by OCBs unless accompanied by specific approval from RBI permitting the OCBs to participate in the Issue; Applications accompanied by Stockinvest; In case no corresponding record is available with the Depositories that matches three parameters, namely, names of the Investors (including the order of names of joint holders), the Depositary Participant‟s identity (DP ID) and the beneficiary‟s identity; Applications that do not include the certification set out in the CAFs to the effect that the subscriber is not a US person, and does not have a registered address (and is not otherwise located) in the United States and is authorized to acquire the rights and the Securities in compliance with all applicable laws and regulations; Applications which have evidence of being dispatched from the US; Applications 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; Applications where the Bank believes that the CAF is incomplete or acceptance of such CAFs may infringe applicable legal or regulatory requirements; Multiple applications Applications by Renouncees who are persons not competent to contract under the Indian Contract Act, 1872, including minors; and Duplicate Applications, including cases where an Investor submits CAFs along with a plain paper application.

Mode of payment for Resident Eligible Equity Shareholders / Investors

All cheques / demand drafts accompanying the CAFs should be crossed „A/c Payee only‟ and drawn in favour of „Karur Vysya Bank Limited-Rights Issue‟.

Investors residing at places other than places where the bank collection centres have been opened by the Bank for collecting applications, are requested to send their applications together with Demand Draft for the full application amount, net of bank and postal charges crossed „A/c Payee only‟ and drawn in favour of „Karur Vysya Bank Limited-Rights Issue‟ payable at Coimbatore directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue Closing Date. The 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 Eligible Equity Shareholders / Investors

The Bank is making this Issue of Rights Equity Shares on a rights basis to the Eligible Equity Shareholders of the Bank and will dispatch the Letter of Offer / Abridged Letter of Offer and the CAF to the Eligible Equity Shareholders who have provided an Indian address. Further, please refer to the paragraphs titled „Availability of duplicate CAF‟ and „Application on Plain Paper‟.

As regards the application by non-resident Eligible Equity Shareholders / Investors, the following conditions shall apply:

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Application with repatriation benefits

Payment by NRIs / FIIs / foreign investors must be made by demand draft / cheque payable at Coimbatore or funds remitted from abroad in any of the following ways:

By Indian Rupee drafts purchased from abroad and payable at Coimbatore or funds remitted from abroad (submitted along with Foreign Inward Remittance Certificate); or

By cheque / demand draft on a Non-Resident External Account (NRE) or FCNR Account maintained elsewhere in India and payable in Coimbatore; or

By Rupee draft purchased by debit to NRE / FCNR Account maintained elsewhere in India and payable in Coimbatore; or

FIIs registered with SEBI must remit funds from special non-resident rupee deposit account.

All cheques / demand drafts submitted by non-residents applying on repatriable basis should be drawn in favour of „Karur Vysya Bank Limited-Rights Issue - NR‟ payable at Coimbatore and crossed „A/c Payee only‟ for the amount payable.

A separate cheque or bank draft must accompany each application form. Investors may note that where payment is made by drafts purchased from NRE / FCNR 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 account should be enclosed with the CAF. In the absence of the above the application shall be considered incomplete and is liable to be rejected.

In the case of non-residents who remit their application money from funds held in FCNR / NRE Accounts, refunds and other disbursements, if any shall be credited to such account details of which should be furnished in the appropriate columns in the CAF. In the case of NRIs who remit their application money through Indian Rupee Drafts from abroad, refunds and other disbursements, if any will be made in US Dollars at the rate of exchange prevailing at such time subject to the permission of RBI. The Bank will not be liable for any loss on account of exchange rate fluctuation for converting the Rupee amount into US Dollars or for collection charges charged by the Investor‟s Bankers.

Application without repatriation benefits

As far as non-residents holding shares on non-repatriation basis is concerned, in addition to the modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary) Account maintained in Coimbatore or Rupee Draft purchased out of NRO Account maintained elsewhere in India but payable at Coimbatore. In such cases, the allotment of Rights Equity Shares will be on non-repatriation basis.

All cheques / demand drafts submitted by non-residents applying on non-repatriation basis should be drawn in favour of „Karur Vysya Bank Limited-Rights Issue‟ payable at Coimbatore and must be crossed „A/c Payee only‟ for the amount payable. The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.

If the payment is made by a draft purchased from an NRO account, an Account Debit Certificate from the bank issuing the draft, confirming that the draft has been issued by debiting the NRO account, should be enclosed with the CAF. In the absence of the above, the application shall be considered incomplete and is liable to be rejected.

New demat accounts shall be opened for Eligible Equity Shareholders who have had a change in status from resident Indian to NRI.

Note:

In cases 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 Income Tax Act, 1961.

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In case Rights Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the Equity Shares cannot be remitted outside India.

The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF 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 RBI as applicable at the time of making such allotment, remittance and subject to necessary approvals.

The Bank is not responsible for any postal delay / loss in transit on this account and applications received through mail after closure of the Issue are liable to be rejected. Applications through mail should not be sent in any other manner except as mentioned above. The CAF along with the application money must not be sent to the Bank or the Lead Manager or the Registrar except stated otherwise. The Investors are requested to strictly adhere to these instructions.

Renouncees who are NRIs / FIIs / Non Residents should submit their respective applications either by hand delivery or by registered post with acknowledgement due to the Registrar to the Issue only at the below mentioned address along-with the cheque / demand draft payable at Coimbatore so that the same are received on or before the closure of the Issue.

Investment by FIIs

In accordance with the current regulations, the following restrictions are applicable for investment by FIIs.

The issue of Rights Equity Shares under this Issue to a single FII should not exceed 10% of the post-Issue paid up capital of the Company. In respect of an FII investing in the Rights Equity Shares on behalf of its sub- accounts, the investment on behalf of each sub-account shall not exceed 10% of the total paid-up capital of the Company or 5% of the total issued capital in case such sub-account is a foreign corporate or an individual. In accordance with foreign investment limits applicable to the Company, the total FII investment cannot exceed 24% of the total paid-up capital of the Company. With the approval of the board and the shareholders by way of a special resolution, the aggregate FII holding can go up to 100%. As of date, the FII investment in the Company is limited to 24% of the total paid-up capital of the Company.

Investment by NRIs

Investments by NRIs are governed by the Portfolio Investment Scheme under Regulations 5 and 6 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.

Restriction on Share Capital and Voting Rights

Banks can issue only ordinary shares. The Banking Regulation Act specifies that no shareholder in a banking company can exercise voting rights on poll in excess of 10% of total voting rights of all the shareholders of the banking company.

Any acquisition of shares that will take the shareholding of any entity/ group of entities to 5% or more of the paid up capital of the Bank would require acknowledgement of RBI in terms of the criteria laid down in the RBI guidelines contained in the Circular DBOD. NO. PSBS. BC. 64/ 16.13.100/ 2003-04 dated February 3, 2004. Further, in terms of the guidelines on ownership and governance issued on February 28, 2005 any acquisition that will take the shareholding of any entity/ group, directly or indirectly, to 10% or more of the paid-up capital of the bank will require the prior approval of RBI.

Restriction on foreign ownership of Banks

The Government of India regulates foreign ownership in private sector banks. Under guidelines issued by the Government, total foreign ownership in a private sector Bank from all sources (FDI, FII, NRI) cannot exceed 74 per cent of the paid-up capital. The limit of 74 per cent will be reckoned by taking the direct and indirect

147 holding. In other words, at all times, at least 26 per cent of the paid up capital of the private sector bank will have to be held by residents. Presently, the FII shareholding limit of Bank is 24% of the paid up capital of the Bank.

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 this Issue.

Disposal of application and application money

No acknowledgment will be issued for the application moneys received by the Bank. However, the Bankers to the Issue / Registrar to the Issue 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 the Rights Equity Shares allotted, will be refunded to the Investor within 15 days from the close of the Issue.

Minimum Subscription

For further instructions, please read the CAF carefully.

Important

Please read this Draft Letter of Offer carefully before taking any action. The instructions contained in the accompanying CAF are an integral part of the conditions of this Draft Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected.

All enquiries in connection with this Draft Letter of Offer or accompanying CAF and requests for Split Application Forms must be addressed (quoting the Registered Folio Number/ DP and Client ID number, the CAF number and the name of the first Equity Shareholder as mentioned on the CAF and super scribed „Karur Vysya Bank Limited - Rights Issue‟ on the envelope) to the Registrar to the Issue at the following address:

S K D C Consultants Limited Kanapathy Towers, 1391/A, Third Floor, Sathy Road, Ganapathy, Coimbatore – 641 006 India Tel: +91 422 6549995, 2539835-36 Fax: +91 422 2539837 Email: [email protected] Investor Grievance Id: [email protected] Website: www.skdc-consultants.com Contact Person: Mr. K Jayakumar

The Issue will remain open for at least 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.

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SECTION IX – STATUTORY AND OTHER INFORMATION

Option to subscribe

Other than the present Issue, and except as disclosed in the section “Terms of the Issue” on page 122 of this Draft Letter of Offer, the Bank has not given any person any option to subscribe to the Equity Shares of the Bank.

The Investors shall have an option either to receive the security certificates or to hold the securities in dematerialized form with a depository.

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The contracts referred to below (not being contracts entered into in the ordinary course of business carried on by the Bank or entered into more than two years prior to the date of this Draft Letter of Offer) which are or may be deemed material have been entered into by the Bank or are to be entered into by the Bank. Copies of these contracts, together with the copies of the documents referred to below, may be inspected at the Registered and Central Office of the Bank situated at Post Box No. 21, Erode Road, Karur – 639 002, Tamil Nadu, India from 10.00 A.M. to 3.00 P.M. on any working days, from the date of this Draft Letter of Offer until the Issue Closing Date.

A. Material Contracts

1. Engagement Letter dated October 11, 2010 between the Bank and Karvy Investor Services Limited for appointment as the Lead Manager to the Issue. 2. Memorandum of Understanding between the Bank and the Lead Manager to the Issue dated November 11, 2010. 3. Memorandum of Understanding between the Bank and the Registrar to the Issue dated October 22, 2010.

B. Material Documents

1. The Memorandum and Articles of Association of the Bank. 2. Copy of Board Resolution dated September 7, 2010, approving this Rights Issue. 3. Letter of Offer of the Rights Issue (being the last Rights Issue) dated December 19, 2006. 4. RBI letter no. DBOD No.4382/08.41.001/2010-11 dated September 16, 2010 granting approval for appointment of Mr. K P Kumar as Part-time Non Executive Chairman of the Bank. 5. RBI letter No. DBOD No.21542/08.41.001/2008-09 dated June 16, 2009 granting approval for the appointment of Mr. P T Kuppuswamy as Managing Director and Chief Executive Officer of the Bank. 6. Board Resolution dated July 21, 2010 approving the terms of appointment of Mr. K P Kumar as Part-time Non Executive Chairman of the Bank. 7. Shareholders Resolution dated July 27, 2009 for approving the terms of appointment of Mr. P T Kuppuswamy as Managing Director and Chief Executive Officer of the Bank. 8. Consents of the Directors, Company Secretary and Compliance Officer, Lead Manager to the Issue, Legal Advisor to the Issue, Statutory Auditors, Registrars to the Issue and Bankers to the Issue to include their names in the Letter of Offer to act in their respective capacities. 9. Annual Report of the Bank for the last five (5) financial years. 10. Report of the Auditors dated May 20, 2010 in relation to the Financial Statements of the Bank for the March 31, 2010. 11. Report of the Auditors dated October 27, 2010 in relation to the Limited Review of Financial Statements of the Bank for the six month period ended September 30, 2010. 12. Statement of Tax Benefits dated October 23, 2010, issued by R.K. Kumar & Co., Chartered Accountants. 13. RBI has included the Bank in the second schedule to the RBI Act 1934 vide Notification No. DBO.19/Incl.C.302/52 dated May 8, 1952. 14. RBI has granted a license to carry on banking business vide License No. Mad/18 dated 20 December 1958. 15. Copy of the resolution passed at the Annual General Meeting held on 21.07.2010 appointing M/s. R.K. Kumar & Co., Chartered Accountants as Statutory Auditors for fiscal 2010-2011.

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16. In-principle listing approval obtained from NSE dated [●]. 17. Due Diligence Certificate dated November 12, 2010 from Karvy Investor Services Limited. 18. Tripartite Agreement between the National Securities Depository Ltd., the Bank and SKDC Consultants Limited, dated February 21, 2001. 19. Tripartite Agreement between the Central Depository Services (India) Ltd., the Bank and SKDC Consultants Limited, dated February 21, 2001. 20. Letter No. [●] dated [●] issued by the Securities and Exchange Board of India for the Issue containing observations on the Draft Letter of Offer.

Any of the contracts or documents mentioned in this Draft Letter of Offer may be amended or modified at any time without reference to the shareholders in the interest of the Bank or if required by other parties subject to compliance of the applicable laws.

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