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

CITY UNION BANK LIMITED

Our Bank was incorporated on October 31, 1904 as a public limited company with the name of ‘The Kumbakonam Bank Limited’ under the provisions of the Companies Act, 1882. The name of our Bank was changed to ‘City Union Bank Limited’ pursuant to a resolution passed by the shareholders of our Bank at the extraordinary general meeting dated June 24, 1987 and we received a fresh certificate of incorporation consequent upon change of name dated November 2, 1987 from the Registrar of Companies, Chennai, Tamil Nadu (“RoC”). Our Bank’s corporate identification number is L65110TN1904PLC001287 and we are a scheduled commercial bank within the meaning of the Reserve Bank of India Act, 1934 (the “RBI Act”).

City Union Bank Limited (the “Issuer” or our “Bank”) is issuing up to [●] equity shares of face value of ` 1 each (the “Equity Shares” or “Shares”) at a price of ` [●] per Equity Share, including a premium of ` [●] per Equity Share, aggregating up to ` [●] million (the “Issue”).

ISSUE IN RELIANCE UPON CHAPTER VIII OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE “SEBI REGULATIONS”) AND SECTION 42 OF THE COMPANIES ACT, 2013 AND THE

RULES MADE THEREUNDER such such offer or sale is not permitted. The information in this

THIS ISSUE AND THE DISTRIBUTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IS BEING MADE TO QUALIFIED INSTITUTIONAL

where BUYERS AS DEFINED UNDER THE SEBI REGULATIONS (“QIBs”) IN RELIANCE UPON CHAPTER VIII OF THE SEBI REGULATIONS AND SECTION 42 OF THE COMPANIES ACT, 2013 AND THE RULES MADE THEREUNDER. THIS PRELIMINARY PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC, OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN OR OUTSIDE INDIA OTHER THAN TO QIBs.

The issue is meant only for QIBs on a private placement basis and is not an offer to the public or to any other class of investors.

Invitations, offers and sales of Equity Shares shall be made only pursuant to this Preliminary Placement Document, the Placement Document, the Application Form and the Confirmation of Allocation Note. For further information, see the section titled “Issue Procedure” on page 146. The distribution of this Preliminary Placement Document or the disclosure of its contents without the prior consent of our Bank to any person, other than QIBs, and persons retained by QIBs to advise them with respect to their purchase of the Equity Shares, is unauthorised and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and not to make copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document.

A copy of this Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4 (as defined hereinafter)) has been delivered to the Stock is being is being issued the for Bids sole of purpose being inviting the for offered QIBs from Equity Shares

Exchanges. A copy of the Placement Document (which will include disclosures prescribed under Form PAS-4) will also be delivered to the Stock Exchanges. Our Bank shall also make the requisite filings with the RoC and the Securities and Exchange Board of India (“SEBI”) within the stipulated period as required under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014.

This Preliminary Placement Document has not been reviewed by SEBI, the Reserve Bank of India (the “RBI”), the BSE Limited (the “BSE”), the National Stock Exchange of India Limited (the “NSE”), the Madras Exchange Limited (the “MSE”, and together with the BSE and the NSE, the “Stock Exchanges”), the RoC or any other regulatory or listing authority and is intended for use by QIBs only. The Equity Shares offered in the Issue have not been recommended or approved by SEBI, nor does SEBI guarantee the accuracy or adequacy of this Preliminary Placement Document. This Preliminary Placement Document has not been and will not be registered as a prospectus with any Registrar of Companies in India, and will not be circulated or distributed to the public in India or any other jurisdiction and will not constitute a public offer in India or any other jurisdiction. The placement of Equity Shares proposed to be made pursuant to this Preliminary Placement Document is meant solely for QIBs on a private placement basis and is not an offer to the public or to any other class of investors.

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

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

Our outstanding Equity Shares are listed on the Stock Exchanges. However, our Equity Shares have not been traded on the MSE since 1998. The closing price of the outstanding Equity Shares on the BSE and the NSE on July 11, 2014 was ` 74.25 and ` 74.15 per Equity Share, respectively. In-principle approvals under clause 24(a) of the Listing Agreement for listing of the Equity Shares have been received from the BSE on July 14, 2014, the NSE on July 14, 2014 and the MSE on July 14, 2014. Applications shall be made for the listing of the Equity Shares offered through this Preliminary Placement Document on the Stock Exchanges. The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Equity Shares to trading on the Stock Exchanges should not be taken as an indication of the merits of our Bank or the Equity Shares.

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

THIS PRELIMINARY PLACEMENT DOCUMENT HAS BEEN PREPARED BY OUR BANK SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH THE PROPOSED ISSUE OF THE EQUITY SHARES.

The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’), and may not be offered or sold within the United States (as defined in Regulation S (“Regulation S”) under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold only outside the United States in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdiction where those offers and sales occur. For further information, see the

lacement lacement Document is not an offer to sell securities, and is not soliciting an offer to buy securities in any jurisdiction sections titled “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on pages 156 and 161, respectively.

This Preliminary Placement Document is dated July 14, 2014.

SOLE GLOBAL COORDINATOR AND BOOK RUNNING LEAD MANAGER

EDELWEISS FINANCIAL SERVICES LIMITED

Placement Document does to not a offer public constitute Document any person the of purchase to Placement Shares Equity Bank our and BOOK RUNNING LEAD MANAGERS (IN ALPHABETICAL ORDER)

AMBIT CORPORATE AXIS CAPITAL ICICI SECURITIES KOTAK MAHINDRA SPARK CAPITAL ADVISORS

FINANCE PRIVATE LIMITED LIMITED CAPITAL COMPANY (INDIA) PRIVATE LIMITED

pursuant pursuant to this Issue. This Preliminary P changed. be may and complete not is Document Placement Preliminary This Preliminary This Preliminary LIMITED LIMITED

TABLE OF CONTENTS

NOTICE TO INVESTORS ...... 1 REPRESENTATIONS BY INVESTORS ...... 3 OFFSHORE DERIVATIVE INSTRUMENTS ...... 8 DISCLAIMER CLAUSE OF THE STOCK EXCHANGES ...... 9 PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... 10 INDUSTRY AND MARKET DATA ...... 11 FORWARD-LOOKING STATEMENTS ...... 12 ENFORCEMENT OF CIVIL LIABILITIES ...... 13 EXCHANGE RATES ...... 14 CERTAIN DEFINITIONS AND ABBREVIATIONS ...... 15 DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013 ...... 21 SUMMARY OF BUSINESS ...... 23 SUMMARY OF THE ISSUE ...... 28 SELECTED FINANCIAL INFORMATION OF OUR BANK ...... 30 RISK FACTORS ...... 32 USE OF PROCEEDS ...... 57 CAPITALISATION ...... 58 CAPITAL STRUCTURE ...... 59 MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE EQUITY SHARES ...... 61 DIVIDEND POLICY ...... 64 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 65 INDUSTRY OVERVIEW ...... 92 OUR BUSINESS ...... 103 SELECTED STATISTICAL INFORMATION ...... 115 REGULATION AND POLICIES ...... 125 BOARD OF DIRECTORS AND SENIOR MANAGEMENT ...... 133 PRINCIPAL SHAREHOLDERS ...... 143 ISSUE PROCEDURE ...... 146 PLACEMENT ...... 155 SELLING RESTRICTIONS ...... 156 PURCHASER REPRESENTATIONS AND TRANSFER RESTRICTIONS ...... 161 THE SECURITIES MARKET OF INDIA ...... 162 DESCRIPTION OF THE SHARES ...... 165 STATEMENT OF TAX BENEFITS ...... 168 LEGAL PROCEEDINGS ...... 176 OUR AUDITORS ...... 185 GENERAL INFORMATION ...... 186 FINANCIAL STATEMENTS ...... 187 DECLARATION ...... 188 NOTICE TO INVESTORS

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

No person is authorised to give any information or to make any representation not contained in this Preliminary Placement Document and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of our Bank or the SGCBRLM and the BRLMs. The delivery of this Preliminary Placement Document at any time does not imply that the information contained in it is correct as at any time subsequent to its date.

The Equity Shares have not been recommended by any securities commission or regulatory authority. As such, this Preliminary Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by our Bank and the SGCBRLM and the BRLMs which would permit an issue of the Equity Shares or distribution of this Preliminary Placement Document in any jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Preliminary Placement Document nor any other Issue-related materials in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction, except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Equity Shares are being offered and sold outside India only in accordance with the restrictions described in the section titled “Selling Restrictions” on page 156. All purchasers will be required to make the applicable representations set forth in the section titled “Purchaser Representations and Transfer Restrictions” on page 161.

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

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

In making an investment decision, investors must rely on their own examination of our Bank and the terms of this Issue, including the merits and risks involved. Investors should not construe the contents of this Preliminary Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel

1 and advisors as to business, investment, legal, tax, accounting and related matters concerning this Issue. In addition, neither our Bank nor any of the SGCBRLM and the BRLMs is making any representation to any investor, purchaser, offeree or subscriber of the Equity Shares in relation to this Issue regarding the legality of an investment in the Equity Shares in this Issue by such investor, subscriber, offeree or purchaser under applicable legal, investment or similar laws or regulations. Each such investor, subscriber, offeree or purchaser of the Equity Shares in this Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in our Bank under Indian law, including Chapter VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013 and is not prohibited by SEBI or any other statutory, regulatory or judicial authority in India or any other jurisdiction from buying, selling or dealing in securities including the Equity Shares. Each subscriber of the Equity Shares in the Issue also acknowledges that it has been afforded an opportunity to request from our Bank and review information relating to our Bank and the Equity Shares.

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

The information on our website, www.cityunionbank.com, or any website directly or indirectly linked to our website or on the websites of the SGCBRLM and the BRLMs, does not constitute or form part of this Preliminary Placement Document. Prospective investors should not rely on the information contained in, or available through such websites.

REPRESENTATIONS BY INVESTORS

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

you (i) are a QIB as defined under Regulation 2(1)(zd) of the SEBI Regulations and not excluded as an eligible investor in the Issue pursuant to Regulation 86(1)(b) of the SEBI Regulations, (ii) have a valid and existing registration under applicable laws and regulations of India, (iii) undertake to acquire, hold, manage or dispose of any Equity Shares that are Allotted to you in accordance with Chapter VIII of the SEBI Regulations, and (iv) undertake to comply with the SEBI Regulations, the Companies Act and all other applicable laws, including in respect of reporting requirements, if any;

if you are not a resident of India, but a QIB, you are an Eligible FPI including an FII (including a sub- account other than a sub-account which is a foreign corporate or a foreign individual) having a valid and existing certificate of registration with SEBI under the applicable laws in India or a multilateral or bilateral development financial institution or an FVCI, and have a valid and existing registration with SEBI under the applicable laws in India and are eligible to invest in India under applicable law, including FEMA 20, and any notifications, circulars or clarifications issued thereunder, and have not been prohibited by SEBI or any other regulatory authority, from buying, selling or dealing in securities;

you will make all necessary filings with appropriate regulatory authorities, including the RBI, as required pursuant to applicable laws;

you confirm that if you are Allotted Equity Shares pursuant to the Issue, you shall not, for a period of one year from the date of Allotment (hereinafter defined), sell the Equity Shares so acquired, except on the Stock Exchanges;

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

you are permitted to subscribe to the Equity Shares under the laws of all relevant jurisdictions, which are applicable to you and that you have fully observed such laws and have all necessary capacity and have obtained all necessary consents and authorities as may be required, to enable you to commit to this participation in the Issue and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorizations to agree to the terms set out or referred to in this Preliminary Placement Document) and complied with all the necessary formalities and that you will honour such obligations;

none of our Bank, the SGCBRLM and the BRLMs or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates is making any recommendations to you, or advising you regarding the suitability of any transactions you may enter into in connection with the Issue, and that your participation in the Issue is on the basis that you are not and will not be a client of the SGCBRLM and the BRLMs and that the SGCBRLM and the BRLMs have no duties or responsibilities to you for providing the protection afforded to their clients or customers or for providing advice in relation to the Issue and are in no way acting in a fiduciary capacity;

you have made, or are deemed to have made, as applicable, the representations, warranties, acknowledgements and undertakings set forth under the sections titled “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on pages 156 and 161, respectively;

you are aware and understand that the Equity Shares are being offered only to QIBs and are not being offered to the general public and the Allotment of the same shall be on a discretionary basis, at the

3 discretion of our Bank in consultation with the SGCBRLM and the BRLMs; you have been provided a serially numbered copy of the Preliminary Placement Document and have read this Preliminary Placement Document in its entirety, in particular the section titled “Risk Factors”, on page 32; that in making your investment decision, (i) you have relied on your own examination of our Bank and the terms of the Issue, including the merits and risks involved, (ii) you have made and will continue to make your own assessment of our Bank, the Equity Shares and the terms of the Issue, (iii) you have relied upon your own investigations and resources in deciding to invest in the Equity Shares, (iv) you have consulted your own independent advisors (including tax advisors) or otherwise have satisfied yourself concerning, without limitation, the effects of local laws and taxation matters, (v) you have relied solely on the information contained in this Preliminary Placement Document and no other disclosure or representation by our Bank or any other party and (vi) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of our Bank and the Equity Shares; neither the SGCBRLM and the BRLMs, nor their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates has provided you with any tax advice or otherwise made any representations regarding the tax consequences of the Equity Shares (including, but not limited to, the Issue and the use of the proceeds from the Equity Shares). You will obtain your own independent tax advice from a reputable service provider and will not rely on the SGCBRLM and the BRLMs or their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates when evaluating the tax consequences in relation to the Equity Shares (including, but not limited to, the Issue and the use of the proceeds from the Equity Shares). You waive and agree not to assert any claim against the SGCBRLM and the BRLMs or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates with respect to the tax aspects of the Equity Shares or as a result of any tax audits by tax authorities, wherever situated; you have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Equity Shares, and you and any accounts for which you are subscribing the Equity Shares (i) are each able to bear the economic risk of the investment in the Equity Shares, (ii) will not look to our Bank or the SGCBRLM and the BRLMs or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered, including losses arising out of non-performance by our Bank of any of its respective obligations or any breach of any representations and warranties by our Bank, whether to you or otherwise, (iii) are able to sustain a complete loss on the investment in the Equity Shares, (iv) have no need for liquidity with respect to the investment in the Equity Shares, and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Equity Shares; that where you are acquiring the Equity Shares for one or more managed accounts, you represent and warrant that you are authorized in writing by each such managed account to acquire the Equity Shares for each such managed account and to make (and you hereby make) the representations, warranties, acknowledgements and undertakings herein for and on behalf of each such managed account, reading the reference to “you” to include such accounts; you agree that in terms of Section 42(7) of the Companies Act, 2013, we shall file the list of QIBs (to whom this Preliminary Placement Document are circulated) along with other particulars with the RoC and SEBI within 30 days of circulation of the Preliminary Placement Document and other filings required under the Companies Act, 2013; you will have no right to withdraw your Bid after the Bid Closing Date; you are eligible to Bid and hold the Equity Shares so Allotted to you pursuant to this Issue, together with any Equity Shares held by you prior to the Issue. You further confirm that your holding, upon the issue of the Equity Shares, shall not exceed the level permissible as per any applicable law;

4 the Bid submitted by you would not eventually result in triggering a tender offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Code”); to the best of your knowledge and belief together with other QIBs in the Issue that belong to the same group or are under common control as you, the Allotment under this Issue to you shall not exceed 50.0% of the Issue. For the purposes of this representation: a. the expression ‘belongs to the same group’ shall be interpreted by applying the concept of ‘companies under the same group’ as provided in sub-section (11) of section 372 of the Companies Act, 1956; and b. ‘control’ shall have the same meaning as is assigned to it by clause (e) of sub-regulation 1 of regulation 2 of the Takeover Code; you are aware that the pre and post issue shareholding pattern of our Bank in the format prescribed in clause 35 of the Listing Agreements will be filed by our Bank with the Stock Exchanges, and that if you are Allotted more than 5.0% of the Equity Shares in this Issue, we shall be required to disclose your name and the number of Equity Shares Allotted to you to the Stock Exchanges and the Stock Exchanges will make the same available on their website and you consent to such disclosure being made by us; you are aware that if the Allotment of Equity Shares in the Issue results in you being one of the top ten shareholders of our Bank, we shall be required to disclose your name to the RoC within 15 days of Allotment, and you consent to such disclosure being made by us you acknowledge, represent and agree that your total interest in the paid-up share capital of our Bank, whether direct or indirect, beneficial or otherwise (any such interest, your “Holding”), when aggregated together with any existing Holding and/or Holding of any of your “associated enterprises” (as defined under section 92A of the IT Act), is less than 5.0% of the total paid-up share capital of our Bank, unless you are an existing shareholder who already holds 5.0% or more of the underlying paid up share capital of our Bank pursuant to the acknowledgment of the RBI, provided that your Holding does not, without the further acknowledgment of the RBI, exceed your existing Holding after Allotment; you are aware that after the completion of the allotment process, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, and that in the event that RBI does not grant the post facto approval in respect of Allotment of Equity Shares to you, you shall be required to comply with the instructions received from the RBI in this regard; you are aware that (i) applications for in-principle approval, in terms of clause 24(a) of the Listing Agreements, for listing and admission of the Equity Shares and for trading on the Stock Exchanges, were made and approval has been received from each of the Stock Exchanges, and (ii) the application for the final listing and trading approval will be made only after Allotment. There can be no assurance that the final approvals for listing of the Equity Shares will be obtained in time or at all. Our Bank shall not be responsible for any delay or non-receipt of such final approvals or any loss arising from such delay or non-receipt; you shall not undertake any trade in the Equity Shares credited to your beneficiary account opened with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares under this Issue are granted by the Stock Exchanges; you are aware and understand that the SGCBRLM and the BRLMs will have entered into a Placement Agreement with our Bank whereby the SGCBRLM and the BRLMs have, subject to the satisfaction of certain conditions set out therein, undertaken severally and not jointly to use their reasonable endeavours to seek to procure subscription for the Equity Shares on the terms and conditions set forth therein; the contents of this Preliminary Placement Document are exclusively the responsibility of our Bank and neither the SGCBRLM and the BRLMs nor any person acting on their behalf or any of their counsels, advisors, to the Issue has or shall have any liability for any information, representation or

5 statement contained in this Preliminary Placement Document or any information previously published by or on behalf of our Bank and will not be liable for your decision to participate in the Issue based on any information, representation or statement contained in this Preliminary Placement Document or otherwise. By accepting a participation in this Issue, you agree to the same and confirm that you have neither received nor relied on any other information, representation, warranty or statement made by or on behalf of the SGCBRLM and the BRLMs or our Bank or any other person and that neither the SGCBRLM, the BRLMs nor our Bank nor any other person including their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates will be liable for your decision to participate in the Issue based on any other information, representation, warranty or statement that you may have obtained or received; that the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Equity Shares is contained in this Preliminary Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Equity Shares and that you have neither received nor relied on any other information given or representations, warranties or statements made by the SGCBRLM and the BRLMs (including any view, statement, opinion or representation expressed in any research published or distributed by any of the SGCBRLM, the BRLMs or its affiliates or any view, statement, opinion or representation expressed by any staff (including research staff) of any of the SGCBRLM, the BRLMs or its respective affiliates) or our Bank or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates and neither the SGCBRLM, nor the BRLMs nor our Bank or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates will be liable for your decision to accept an invitation to participate in the Issue based on any other information, representation, warranty, statement or opinion; you agree to indemnify and hold our Bank, the SGCBRLM and the BRLMs or their affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements and undertakings in this section and the sections titled “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions”. You agree that the indemnity set forth in this paragraph shall survive the resale of the Equity Shares Allotted under this Issue by or on behalf of the managed accounts; you understand that neither the SGCBRLM nor the BRLMs nor their affiliates have any obligation to purchase or acquire all or any part of the Equity Shares purchased by you in the Issue or to support any losses, directly or indirectly sustained or incurred by you for any reason whatsoever in connection with the Issue, including non-performance by our Bank of any of our respective obligations or any breach of any representations or warranties by our Bank, whether to you or otherwise; any dispute arising in connection with the Issue will be governed and construed in accordance with the laws of the Republic of India, and the courts in Chennai, Tamil Nadu, India shall have the exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Preliminary Placement Document and the Placement Document; that you are a sophisticated investor who is seeking to purchase the Equity Shares for your own investment and not with a view to distribution. In particular, you acknowledge that (i) an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment, (ii) you have sufficient knowledge, sophistication and experience in financial and business matters so as to be capable of evaluating the merits and risk of the purchase of the Equity Shares, and (iii) you are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions and have such knowledge and experience in financial, business and investment matters that you are capable of evaluating the merits and risks of your investment in the Equity Shares; you confirm that either (i) you have not participated in or attended any investor meetings or presentations by our Bank or our agents with regard to our Bank or this Issue (“Bank Presentations”); or (ii) if you have participated in or attended any Bank Presentations, (a) you understand and acknowledge that the SGCBRLM and the BRLMs may not have the knowledge of the statements that our Bank or our agents may have made at such Bank Presentations and are therefore unable to determine whether the information provided to you at such Bank Presentation may have included any

6 material misstatements or omissions, and, accordingly you acknowledge that the SGCBRLM and the BRLMs have advised you not to rely in any way on any such information that was provided to you at such Bank Presentations, and (b) confirm that, to the best of your knowledge, you have not been provided any material information that was not publicly available; that each of the representations, warranties, acknowledgements and agreements set out above shall continue to be true and accurate at all times up to and including the Allotment of the Equity Shares in the Issue; and that our Bank, the SGCBRLM, the BRLMs, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and agreements which are given to the SGCBRLM and the BRLMs on their own behalf and on behalf of our Bank and are irrevocable.

OFFSHORE DERIVATIVE INSTRUMENTS

Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 22 of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, as amended (“SEBI FPI Regulations”) an FPIs (other than Category III foreign portfolio investors and unregulated broad based funds, which are classified as Category II FPI by virtue of their investment manager being appropriately regulated) may issue, subscribe or otherwise deal in offshore derivative instruments (as defined under the SEBI FPI Regulations as any instrument, by whatever name called, which is issued overseas by a FPI against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying, and all such offshore derivative instruments are referred to herein as “P-Notes”), for which they may receive compensation from the purchasers of such instruments. P-Notes may be issued only in favour of those entities which are regulated by any appropriate foreign regulatory authorities subject to compliance with ‘know your client’ requirements. An FPI shall also ensure no further issue or transfer is made of any offshore derivative instruments issued by or on behalf of it to any person other than a person regulated by an appropriate foreign regulatory authority. P-Notes have not been and are not being offered or sold pursuant to this Preliminary Placement Document. This Preliminary Placement Document does not contain any information concerning P-Notes, including, without limitation, any information regarding any risk factors relating thereto.

Any P-Notes that may be issued are not securities of our Bank and do not constitute any obligation of, claims on or interests in our Bank. Our Bank has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to any P-Notes. Any P-Notes that may be offered are issued by, and are the sole obligations of, third parties that are unrelated to us. Our Bank does not make any recommendation as to any investment in P-Notes and does not accept any responsibility whatsoever in connection with the P-Notes. Any P-Notes that may be issued are not securities of the SGCBRLM and the BRLMs and do not constitute any obligations or claims on the SGCBRLM and the BRLMs. Affiliates of the SGCBRLM and the BRLMs which are Eligible FPIs may purchase, to the extent permissible under law, the Equity Shares in the Issue, and may issue P-Notes in respect thereof.

Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosures as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes. Neither SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult with their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations.

DISCLAIMER CLAUSE OF THE STOCK EXCHANGES

As required, a copy of this Preliminary Placement Document has been submitted to the Stock Exchanges. The Stock Exchanges do not in any manner:

1. warrant, certify or endorse the correctness or completeness of any of the contents of this Preliminary Placement Document;

2. warrant that the Equity Shares will be listed or will continue to be listed on the Stock Exchanges; or

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

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this Preliminary Placement Document, unless the context otherwise indicates or implies, references to “you,” “offeree,” “purchaser,” “subscriber,” “recipient,” “investors” and “potential investor” are to the prospective investors in this Issue, references to, “our”, “us”, “we”, our “Bank”, the “Bank”, or the “Issuer” are to City Union Bank Limited.

In this Preliminary Placement Document, references to (a) “Rs.”, “Rupees”, “INR” or “`” are to the legal currency of the Republic of India; and (b) “U.S.$” and “U.S. Dollars” are to the legal currency of the United States.

All references herein to the “U.S.” or the “United States” are to the United States of America and its territories and possessions and all references to “India” are to the Republic of India and its territories and possessions. All references herein to the “Government of India” are to the Central Government of India and all references to the “Government” are to the Central Government of India or an Indian state government, as applicable. All the numbers in this document, other than in section titled “Financial Statements” on page 187 (where numbers have been presented in thousand or crores) have been presented in million or in whole numbers where the numbers have been too small to present in million, unless stated otherwise.

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

Our audited financial statements as of and for fiscals 2012, 2013 and 2014 have been included in this Preliminary Placement Document. The audit reports issued by M/s. Jagannathan & Sarbeswaran, Chartered Accountants on our audited financial statements as of and for fiscals 2012 and 2013 and the audit report issued by our current statutory auditors, M/s P. Chandrasekar, Chartered Accountants on our financial statements as of and for fiscal 2014 is included in this Preliminary Placement Document.

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

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

INDUSTRY AND MARKET DATA

Information regarding market position, growth rates and other industry data pertaining to the businesses of our Bank contained in this Preliminary Placement Document consists of estimates based on data reports compiled by government bodies, professional organizations and analysts, data from other external sources and knowledge of the markets in which our Bank competes. The statistical information included in this Preliminary Placement Document relating to the various sectors in which our Bank operates has been reproduced from various trade, industry and regulatory/government publications and websites, including that of the RBI.

This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey.

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

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Preliminary Placement Document that are not statements of historical fact constitute “forward-looking statements.” Investors can generally identify forward-looking statements by terminology such as “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “objective”, “plan”, “potential”, “project”, “pursue”, “shall”, “should”, “will”, “would”, or other words or phrases of similar import. All statements regarding our Bank’s expected financial condition and results of operations and business plans, including potential acquisitions, and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability, planned projects and other matters discussed in this Preliminary Placement Document that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our Bank’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections.

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

volatility in interest rates and other market conditions; failure to sustain or achieve growth of our deposit base, including our current and savings account deposit base; non-availability of funding and increase in funding costs; any regulatory actions, notices or proceedings; inability to expand operations to other part of India; any adverse performance by ‘priority sectors’; our inability to compete effectively; our inability to grow at a similar rate that we have experienced in the past, or at all and successfully execute our business and growth strategies; failure to maintain capital adequacy requirements; any increase in the CRR and the SLR and our ability to maintain stipulated CRR and SLR; increase in our NPA portfolio and our ability to manage the corresponding risks; changes in the regulatory environment, under which we operate, or our inability to comply with the regulations; fall in the value of our collateral or delays experienced in enforcing our collateral if borrowers default on their obligations; our inability to retain our current management team and attract and retain skilled personnel; and General economic conditions in southern India in particular.

Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited, to those discussed under the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry Overview”, “Our Business” and “Selected Statistical Information” on pages 32, 65, 92, 103 and 115, respectively.

The forward-looking statements contained in this Preliminary Placement Document are based on the beliefs of our management, as well as the assumptions made by and information currently available to the management. Although our Bank believes that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialize, or if any of our Bank’s underlying assumptions prove to be incorrect, our Bank’s actual results of operations, cash flows or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent written and oral forward-looking statements attributable to our Bank are expressly qualified in their entirety by reference to these cautionary statements.

ENFORCEMENT OF CIVIL LIABILITIES

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

India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments and execution of a foreign judgment is provided for under Sections 13 and 44A respectively, of the Code of Civil Procedure, 1908 (the “Civil Procedure Code”) on a statutory basis.

Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud, or (vi) where the judgment sustains a claim founded on a breach of any law in force in India.

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

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

Foreign judgments may be enforced by proceedings in execution in certain cases. Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court within the meaning of that section in any country or territory outside India which the Government has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalties and does not include arbitration awards. Furthermore, the execution of the foreign decree under Section 44A of the Civil Procedure Code is also subject to the exceptions under Section 13 of the Civil Procedure Code, as mentioned above.

Each of the United Kingdom, Singapore and Hong Kong has been declared by the Government of India to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code but the United States has not been so declared. A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy. Further, any judgment or award denominated in a foreign currency would be converted into Rupees on the date of such judgment or award and not on the date of payment. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered pursuant to the execution of such a judgement.

EXCHANGE RATES

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

The following table sets forth, for the periods indicated, information with respect to the exchange rate between the Rupee and the U.S. Dollar (in Rupees per U.S. Dollar) based on the reference rate released by the RBI. The exchange rate as at July 11, 2014 was ` 60.19 = U.S. Dollar 1.00. No representation is made that the Rupee amounts actually represent such U.S. dollar amounts or could have been or could be converted into U.S. Dollar at the rates indicated, any other rate, or at all.

Exchange Rate (` Per U.S. Dollar) Period End Average* High Low Financial year ended March 31, 2014 60.10 60.50 68.36 53.74 Financial year ended March 31, 2013 54.39 54.45 57.22 50.56 Financial year ended March 31, 2012 51.16 47.95 54.24 43.95 Months ended: June 2014 60.09 59.73 60.37 59.06 May 2014 59.03 59.31 60.23 58.43 April 2014 60.34 60.36 61.12 59.65 March 2014 60.10 61.01 61.90 60.10 February 2014 62.07 62.25 62.69 61.94 January 2014 62.48 62.08 62.99 61.35 Quarters ended: June 30, 2014 60.09 59.77 61.12 58.43 March 31, 2014 60.10 61.79 62.99 60.10 December 31, 2013 61.90 62.03 63.65 61.16 * Average of the official rate for each working day of the relevant period

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

CERTAIN DEFINITIONS AND ABBREVIATIONS

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

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

Terms Related to our Bank

Term Description Our “Bank”, the City Union Bank Limited, a public limited company incorporated under the Companies “Bank” or the “Issuer” Act, 1882 and a scheduled commercial bank within the meaning of the RBI Act, having its registered office at No.149, TSR Big Street, Kumbakonam 612 001, Tamil Nadu. “Articles” or “Articles of The articles of association of our Bank, as amended from time to time. Association” Audited Financial Statements Audited financial statements of our Bank audited by M/s. Jagannathan & Sarbeswaran, Chartered Accountants, as of and for fiscals 2012 and 2013 and audited by M/s. P. Chandrasekar, Chartered Accountants for fiscal 2014. Auditors The statutory auditors of our Bank, being M/s. P. Chandrasekar, Chartered Accountants. “Board of Directors” or Our board of directors or any duly constituted committee thereof. “Board” Chairman The chairman of our Board of Directors, Mr. S. Balasubramanian. Directors The directors of our Bank. Equity Shares or Shares Equity shares of our Bank of face value of ` 1 each. ESOS 2008 The employee stock option plan established by our Bank with effect from April 26, 2008.

Memorandum/ MoA/ The memorandum of association of our Bank, as amended from time to time. Memorandum of Association

Registered Office The registered office of our Bank, situated at No.149, TSR Big Street, Kumbakonam 612 001, Tamil Nadu. “Registrar of Companies” or Registrar of Companies, Tamil Nadu, Chennai. “RoC”

Issue Related Terms

Term Description “Allocated” or “Allocation” The allocation of Equity Shares, in consultation with the SGCBRLM and the BRLMs, following the determination of the Issue Price to QIBs on the basis of the Application Forms submitted by them in compliance with Chapter VIII of the SEBI Regulations. Allotees QIBs to whom Equity Shares are Allotted pursuant to the Issue. “Allotment” or “Allotted” Unless the context otherwise requires, the issue and allotment of Equity Shares pursuant to the Issue. Application Form The form (including any revisions thereof) pursuant to which a QIB shall submit a bid in the Issue. Bid An indication of interest by a QIB, including all revisions and modifications of interest, as provided in the Application Form, to subscribe for Equity Shares in the Issue. Bidding Period The period between the Bid Opening Date and Bid Closing Date, inclusive of both dates, during which Bidder can submit their Bids. Bidder Any prospective investor, a QIB, who makes a Bid pursuant to the terms of this Preliminary Placement Document and the Application Form. Bid Closing Date [●], which is the date on which our Bank (or the SGCBRLM and the BRLMs on behalf of our Bank) shall cease acceptance of the Application Forms. Bid Opening Date July 14, 2014, which is the date on which our Bank (or the SGCBRLM and the BRLMs on behalf of our Bank) shall commence acceptance of the Application Forms. “Book Running Lead The book running lead managers to the Issue, being Ambit Corporate Finance Private Managers” or “BRLMs” Limited, Axis Capital Limited, ICICI Securities Limited, Kotak Mahindra Capital Company Limited and Spark Capital Advisors (India) Private Limited. “CAN” or “Confirmation of Note or advice or intimation to QIBs confirming the Allocation of Equity Shares to such Allocation Note” QIBs after discovery of the Issue Price and requesting payment of the entire Issue Price for all the Equity Shares allocated to such QIBs. Cut-off Price The Issue Price of the Equity Shares to be issued pursuant to the Issue which shall be finalised by the Bank in consultation with the SGCBRLM and the BRLMs. Escrow Account The bank account opened by our Bank with the Escrow Agent, pursuant to the Escrow

Term Description Agreement, into which application money received towards subscription of the Equity Shares shall be deposited by the QIBs. Escrow Agreement Agreement dated July 14, 2014 amongst our Bank, the SGCBRLM, the BRLMs and the Escrow Agent in relation to the Issue. Escrow Agent City Union Bank Limited (Fort Branch, Mumbai), with which the Escrow Account has been opened. Floor Price The price of ` 75.05 per Equity Share which has been calculated in accordance with Regulation 85 of Chapter VIII of the SEBI Regulations. Issue The offer and issuance of up to [●] Equity Shares to QIBs, pursuant to Chapter VIII of the SEBI Regulations and the provisions of the Companies Act, 2013. Issue Price ` [●] per Equity Share, which shall be equal to or more than the Floor Price. Issue Size The issue of up to [●] Equity Shares aggregating up to ` [●] million. Listing Agreements The agreements entered into between our Bank and each Stock Exchange in relation to listing of the Equity Shares on such Stock Exchange. Pay-In Date The last date specified in the CAN for payment of subscription money by QIBs in relation to the Issue. Placement Agreement The placement agreement dated July 14, 2014 entered into between our Bank, SGCBRLM and the BRLMs. Placement Document The placement document to be issued in accordance with Chapter VIII of the SEBI Regulations and section 42 of the Companies Act, 2013. Preliminary Placement This preliminary placement document dated July 14, 2014 for the Issue issued in Document accordance with Chapter VIII of the SEBI Regulations and section 42 of the Companies Act, 2013. “QIBs” or “Qualified Qualified institutional buyers as defined in Regulation 2(1) (zd) of the SEBI Regulations. Institutional Buyers” QIP Qualified Institutions Placement under Chapter VIII of the SEBI Regulations. Relevant Date July 14, 2014, which is the date of the meeting of the Board, or any committee duly authorised by the Board, deciding to open the Issue “Sole Global Co-ordinator The sole global co-ordinator and book running lead manager to the Issue, being Edelweiss and Book Running Lead Financial Services Limited. Manager”/ “SGCBRLM”

Industry related terms

Term Description AFS Available for sale. ALCO Asset liability management committee. ALM Asset liability management. AML Anti money laundering. ATM Automatic teller machine. Base Rate Minimum lending rate set by our Bank in accordance with applicable laws and regulations. Basel II Revised framework on “International Convergence of Capital Measurement and Capital Standards” by RBI for International Settlements. Basel III A global regulatory framework for more resilient banks and banking systems (December 2010 (rev. June 2011)) published by the Bank for International Settlements. RBI issued guidelines on the implementation of Basel III capital regulations in India on May 2. 2012, which were revised as per notification issued by the RBI on March 27, 2014. BCA Banking correspondent agents. BCBS Basel Committee on Banking Supervision. BHC Bank Holding Company. BPLR Benchmark prime lending rate. CAD Current account deficit. CAR Capital adequacy ratio. CASA Current account saving account. CBLO Collateralised borrowing and lending obligations. CBS Core banking solutions. CCB Capital conservation buffer. CD Certificate of deposit. CDR Corporate debt restructuring. CP Commercial paper. CRAR Capital to risk asset ratio. CRM Credit risk mitigation. CRMC Credit risk management committee.

Term Description CRR Cash reserve ratio. CTS Cheque truncation system. DRI Differential rate of interest. ECS Electronic clearing services. EEFC Exchange earners' foreign currency. EFT Electronic funds transfer. FCNR Account Foreign currency non resident account. FCNR(B) Foreign currency non resident (banks). FHC Financial Holding Company. FSLRC Financial Sector Legislative Reforms Commission. HFT Held for trading. HTM Held to maturity. IBA Indian Banks Association. IRDM Integrated Risk Management Department of our Bank. IST Indian Standard Time. KYC Know your customer. LAF Liquidity adjustment facility. LC Letter of credit. LCR Liquidity coverage ratio. LFAR Long form audit report. MIS Management information system. MSF Marginal standing facility. MSME Micro, small and medium enterprises. NDTL Net demand and time liabilities. NEFT National electronic fund transfer. NGRTGS Next Generation Real time gross settlement. NOHFC Non-operative financial holding company. NPA Non performing advances. NPI Non performing investments. NRNR Non resident non repatriable. OTS One time settlement. PCR Provisioning coverage ratio. RAROC Risk adjusted return on capital. RBI Basel III Capital The Guidelines on Implementation of Basel III Capital Regulations in India issued by the Regulations RBI on May 2, 2012. RFC Account Resident foreign currency account. RIDF Rural Infrastructure Development Fund. RWA Risk weighted assets. RoNW Return on net worth. SCB Scheduled commercial bank. SLBC State Level Bankers’ Committee. SLR Statutory liquidity ratio. Tier II bonds Unsecured subordinated bonds issued for Tier II capital adequacy purposes. Tier I capital The core capital of a bank which provides the most permanent and readily available support against unexpected losses. It comprises paid up capital and reserves consisting of statutory reserves, free reserves and capital reserves representing surplus arising out of sale of assets, innovative capital instruments (like innovative perpetual debt instruments and perpetual non cumulative preference shares eligible for inclusion in Tier I Capital which comply with the specified regulatory requirements) as reduced by equity investments in subsidiaries, deferred tax assets, intangible assets, and losses in the current period and those brought forward from the previous period. Tier II capital The undisclosed free reserves, investment reserves, hybrid debt capital instruments (like perpetual cumulative preference shares, redeemable non cumulative preference shares, redeemable cumulative preference shares eligible for inclusion in Tier II Capital which comply with the specified regulatory requirements) & subordinated debt eligible for inclusion in Tier II Capital which comply with the specified regulatory requirements, revaluation reserves (at a discount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.2% of risk-weighted assets). VaR Value at risk.

Conventional and General Terms/ Abbreviations

Term Description

Term Description AAIFR Appellate Authority for Industrial and Financial Reconstruction. AGM Annual general meeting. AIF(s) Alternative investment funds, as defined and registered with SEBI under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. ANBC Adjusted net bank credit. AS Accounting Standards issued by the Institute of Chartered Accountants of India. Banker's Books Evidence Act Banker's Books Evidence Act, 1891. Banking Regulation Act Banking Regulation Act, 1949. BIFR Board of Industrial and Financial Reconstruction. BSE BSE Limited. CAIIB Certified Associate of the Indian Institute of Banking and Finance. CAGR Compounded annual growth rate. Category III Foreign Portfolio An FPI registered as a category III foreign portfolio investor under the SEBI FPI Investor Regulations. CDSL Central Depository Services (India) Limited. CEO Chief Executive Officer. CIN Corporate Identification Number. Civil Procedure Code, Civil The Code of Civil Procedure, 1908. Code Companies Act Companies Act, 1956 or the Companies Act, 2013, as applicable. Companies Act, 1956 Companies Act, 1956 and the rules made thereunder (without reference to the provisions thereof that have ceased to have effect upon notification of the Notified Sections). Companies Act, 2013 Companies Act, 2013 and the rules made thereunder, to the extent in force pursuant to notification of the Notified Sections. Delisting Regulations The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009. Depositories Act The Depositories Act, 1996. Depository A depository registered with SEBI under the Securities and Exchange Board of India (Depositories and Participant) Regulations, 1996. Depository Participant A depository participant as defined under the Depositories Act. DIPP The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, GoI. DTC The direct tax code. EBITDA Earnings before interest, tax, depreciation and amortisation. EGM Extra ordinary general meeting. Eligible FPIs FPIs that are eligible to participate in this Issue and do not include qualified foreign investors and Category III Foreign Portfolio Investors who are not allowed to participate in the Issue. EPS Earnings per share. FDI Foreign direct investment. FDI Policy Consolidated Foreign Direct Investment Policy notified under Circular No. 1 of 2014, effective from 17 April 2014, as amended from time to time. FEDAI Foreign Exchange Dealers Association of India. FEMA The Foreign Exchange Management Act, 1999 and the regulations issued thereunder. FEMA 20 The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. FERA Foreign Exchange Regulation Act, 1973. FII Foreign Institutional Investor as defined in the SEBI FPI Regulations. “financial year”, “fiscal” or Unless stated otherwise, financial year of our Bank ending on March 31 of a particular “FY” year. Form PAS-4 Form PAS-4 prescribed under the Companies (Prospectus and Allotment of Securities) Rules, 2014. FIPB Foreign Investment Promotion Board of the Ministry of Finance, Government of India. FPI Foreign portfolio investors as defined under the SEBI FPI Regulations and includes person who has been registered under the SEBI FPI Regulations. Any FII or qualified foreign investor who holds a valid certificate of registration is deemed to be a foreign portfolio investor till the expiry of the block of three years for which fees have been paid as per the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. FVCI Foreign venture capital investors (as defined and registered with SEBI under the (Foreign Venture Capital Investors) Regulations, 2000). GAAP Generally Accepted Accounting Principles. GDP Gross domestic product. Government Government of India or State Government, as applicable.

Term Description Government of India Central government of India. HUF Hindu undivided family. ICAI Institute of Chartered Accountants of India. IFRS International Financial Reporting Standards of the International Accounting Standards Board. IND-AS Indian accounting standards converged with IFRS, which has been proposed for implementation by the ICAI. Indian GAAP Generally Accepted Accounting Principles in India, as applicable to a bank. IT Information technology. IT Act The Income Tax Act, 1961. MAT Minimum alternate tax. MCA The Ministry of Corporate Affairs, Government of India. MFIs Micro finance institutions. MICR Magnetic ink character recognition. MoU Memorandum of understanding. Mutual Fund / MF A mutual fund registered with SEBI under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. NABARD National Bank for Agriculture and Rural Development. NBFC Non-banking financial company. Negotiable Instruments Act Negotiable Instruments Act, 1881. New Banks Licensing Guidelines for Licensing of New Banks in the Private Sector issued by RBI on February Guidelines 22, 2013. Notified Sections Sections of the Companies Act, 2013 that have been notified by the Government of India. MSE Madras Exchange Limited. NPCI National Payments Corporation if India. NRI Non resident Indian. NSDL National Securities Depository Limited. NSE The National Stock Exchange of India Limited. p.a. Per annum. PAN Permanent Account Number. PAT Profit after tax. PBT Profit before tax. PIO Persons of Indian origin. Portfolio Investment Scheme Portfolio investment scheme under the FEMA. PSU Public sector undertaking. RBI Reserve Bank of India. RBI Act or the Reserve Bank The Reserve Bank of India Act, 1934. of India Act Regulation S Regulation S under the Securities Act. “Rs.”, “Rupees”, “INR” or The legal currency of the Republic of India. “`” SARFAESI Act The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. SAT Securities Appellate Tribunal. SCRA Securities Contracts (Regulation) Act, 1956. SCRR Securities Contracts (Regulation) Rules, 1957. SEBI Securities and Exchange Board of India. SEBI Act The Securities and Exchange Board of India Act, 1992. SEBI FII Regulations The Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. SEBI Regulations The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. SENSEX The index of a basket of 30 constituent stocks traded on the BSE representing a sample of liquid securities of large and representative companies. State Government Government of a state of the Republic of India. Stock Exchanges The BSE, the NSE and the MSE. STT Securities Transaction Tax. Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations 2011. “U.S.$”, or “U.S. Dollars” The legal currency of the United States. “U.S.” or “United States” United States of America. U.S. GAAP Generally accepted accounting principles in the U.S. Securities Act The United States Securities Act of 1933, as amended.

Term Description VCF A venture capital fund (as defined and registered with SEBI under the erstwhile Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996). WPI Wholesale Price Index.

DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013

The table below sets out the disclosure requirements as provided in PAS-4 and the relevant pages in this Preliminary Placement Document where these disclosures, to the extent applicable, have been provided.

Sr. Disclosure Requirements Relevant Page of this No. Preliminary Placement Document 1. GENERAL INFORMATION a. Name, address, website and other contact details of the company indicating both registered 186, 190 office and corporate office. b. Date of incorporation of the company. 186 c. Business carried on by the company and its subsidiaries with the details of branches or 103-114 units, if any. d. Brief particulars of the management of the company. 133-142 e. Names, addresses, DIN and occupations of the directors. 133-135 f. Management’s perception of risk factors. 32-56 g. Details of default, if any, including therein the amount involved, duration of default and Nil, 176 present status, in repayment of: (i) Statutory dues; Nil, 176 (ii) Debentures and interest thereon; Nil, 176 (iii) Deposits and interest thereon; and Nil, 176 (iv) Loan from any bank or financial institution and interest thereon. Nil, 176 h. Names, designation, address and phone number, email ID of the nodal/ compliance officer 186 of the company, if any, for the private placement offer process. 2. PARTICULARS OF THE OFFER a. Date of passing of board resolution. 186 b. Date of passing of resolution in the general meeting, authorising the offer of securities. 186 c. Kinds of securities offered (i.e. whether share or debenture) and class of security. 28 d. Price at which the security is being offered including the premium, if any, along with 28 justification of the price. e. Name and address of the valuer who performed valuation of the security offered. Not Applicable f. Amount which the company intends to raise by way of securities. 57 g. Terms of raising of securities: (i) Duration, if applicable; Not Applicable (ii) Rate of dividend; 64 (iii) Rate of interest; Not Applicable (iv) Mode of payment; and Not Applicable (v) Repayment. Not Applicable h. Proposed time schedule for which the offer letter is valid. 15 i. Purposes and objects of the offer. 57 j. Contribution being made by the promoters or directors either as part of the offer or Nil, 57 separately in furtherance of such objects. k. Principle terms of assets charged as security, if applicable. Not Applicable 3. DISCLOSURES WITH REGARD TO INTEREST OF DIRECTORS, LITIGATION ETC a. Any financial or other material interest of the directors, promoters or key managerial 142 personnel in the offer and the effect of such interest in so far as it is different from the (To the extent interests of other persons. applicable) b. Details of any litigation or legal action pending or taken by any Ministry or Department of Not applicable the Government or a statutory authority against any promoter of the offeree company during the last three years immediately preceding the year of the circulation of the offer letter and any direction issued by such Ministry or Department or statutory authority upon conclusion of such litigation or legal action shall be disclosed. c. Remuneration of directors (during the current year and last three financial years). 137, 138 d. Related party transactions entered during the last three financial years immediately 142 preceding the year of circulation of offer letter including with regard to loans made or, guarantees given or securities provided. e. Summary of reservations or qualifications or adverse remarks of auditors in the last five 43 financial years immediately preceding the year of circulation of offer letter and of their impact on the financial statements and financial position of the company and the corrective steps taken and proposed to be taken by the company for each of the said reservations or qualifications or adverse remark. f. Details of any inquiry, inspections or investigations initiated or conducted under the 183

Sr. Disclosure Requirements Relevant Page of this No. Preliminary Placement Document Companies Act or any previous company law in the last three years immediately preceding (to the extent the year of circulation of offer letter in the case of company and all of its subsidiaries. Also applicable) if there were any prosecutions filed (whether pending or not) fines imposed, compounding of offences in the last three years immediately preceding the year of the offer letter and if so, section-wise details thereof for the company and all of its subsidiaries. g. Details of acts of material frauds committed against the company in the last three years, if 183 to 184 any, and if so, the action taken by the company. 4. FINANCIAL POSITION OF THE COMPANY a. The capital structure of the company in the following manner in a tabular form: (i)(a) The authorised, issued, subscribed and paid up capital (number of securities, description 59 and aggregate nominal value); (b) Size of the present offer; and 59 (c) Paid up capital: 59 (A) After the offer; and 59 (B) After conversion of convertible instruments (if applicable); Not Applicable (d) Share premium account (before and after the offer). 59 (ii) The details of the existing share capital of the issuer company in a tabular form, indicating 59 to 60 therein with regard to each allotment, the date of allotment, the number of shares allotted, the face value of the shares allotted, the price and the form of consideration. Provided that the issuer company shall also disclose the number and price at which each of Not Applicable the allotments were made in the last one year preceding the date of the offer letter separately indicating the allotments made for considerations other than cash and the details of the consideration in each case. b. Profits of the company, before and after making provision for tax, for the three financial F-1 to F-101 years immediately preceding the date of circulation of offer letter. c. Dividends declared by the company in respect of the said three financial years; interest 64, 116 coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid). d. A summary of the financial position of the company as in the three audited balance sheets 30 to 31 immediately preceding the date of circulation of offer letter. e. Audited Cash Flow Statement for the three years immediately preceding the date of 30-31 circulation of offer letter. f. Any change in accounting policies during the last three years and their effect on the profits 74 and the reserves of the company. 5. A DECLARATION BY THE DIRECTORS THAT 189 a. The company has complied with the provisions of the Act and the rules made thereunder. b. The compliance with the Act and the rules does not imply that payment of dividend or interest or repayment of debentures, if applicable, is guaranteed by the Central Government. c. The monies received under the offer shall be used only for the purposes and objects indicated in the Offer letter. I am authorised by the Board of Directors of the company vide resolution number ______dated ______to sign this form and declare that all the requirements of Companies Act, 2013 and the rules made thereunder in respect of the subject matter of this form and matters incidental thereto have been complied with. Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by the promoters subscribing to the Memorandum of Association and Articles of Association

It is further declared and verified that all the required attachments have been completely, correctly and legibly attached to this form.

Signed: Date: Place:

Attachments:- Copy of board resolution Copy of shareholders resolution Copy of _____ Optional attachments, if any

SUMMARY OF BUSINESS

Overview

We are one of the oldest private sector banks in India and have been in existence for 109 years. We offer a wide range of products and services to micro, small and medium enterprises (“MSME”), agriculture sector, and retail and corporate customers, through a variety of delivery channels. As of March 31, 2014 we had 425 branches and 950 ATMs across 15 states and two union territories with a predominant presence in south India. We were incorporated in 1904 and have since then grown both in terms of the size of our asset base and our physical network of branches and ATMs. As of March 31, 2014, we had 69 branches in metropolitan cities, 111 branches in urban areas, 165 branches in semi-urban areas and 80 branches in rural areas.

We have three main business lines:

Corporate and commercial banking, including MSME banking;

Retail banking; and

Treasury operations.

We offer various products and services, including term loans, short term loans, cash credit, working capital finance, export credit, bill discounting, letters of credit and guarantees, to our corporate and commercial banking customers, with specific focus on MSME customers, which are categorised as entities whose investment in plant and machinery (if engaged in manufacturing sector) ranges from ` 2.50 million to ` 100.00 million, and investment in equipment (if engaged in the services sector) ranges from ` 1.00 million to ` 50.00 million.

Our retail banking portfolio consists of savings, current, term deposit services, retail lending for gold, auto, education, agricultural loans and other personal loans, and other personal banking products.

Our treasury operations comprise liquidity management by seeking to maintain an optimum level of liquidity, while complying with the CRR and the SLR. We maintain the SLR through a portfolio of central Government, state Government and trustee securities that we actively manage to optimize yield and benefit from price movements. We are also involved in the trading of securities and foreign exchange within permissible limits and invest in bonds and debentures to further optimize yield.

We offer our customers a variety of technological products and services, including Real-Time Gross Settlement System (“RTGS”), National Electronic Fund Transfer (“NEFT”), debit cards, foreign exchange service, payment and remittance services, Internet banking, mobile banking, payment services for filing central taxes and utility bill payment services. We also distribute third party insurance products. In addition, we provide depository services and are a depository participant for NSDL.

Our Bank was incorporated on October 31, 1904 and opened its first branch at Mannargudi. Our Bank was included in the Second Schedule of Reserve Bank of India Act, 1934, on March 22, 1945. In 1957, our Bank took over the assets and liabilities of the ‘Common Wealth Bank Limited’ and in April 1965, ‘The City Forward Bank Limited’ and ‘The Union Bank Limited’ were amalgamated into our Bank under a scheme of amalgamation. Consequently, the name of our Bank was changed to ‘The Kumbakonam City Union Bank Limited’ and subsequently to City Union Bank Limited in November 1987. With the aim of enhancing our customer service, we started a Staff Training College on August 21, 1989 at Kumbakonam to provide training to our staff.

Our total assets have increased from ` 183,506.58 million as at March 31, 2012, to ` 249,938.26 million as at March 31, 2014 at a CAGR of 19.65% and our total advances have grown from ` 122,217.02 million as of March 31, 2012 to ` 162,236.22 million as of March 31, 2014 at a CAGR of 20.26%. Our total deposits increased from ` 163,407.56 million as of March 31, 2012 to ` 220,168.92 million as of March 31, 2014 at a CAGR of 19.46%. Our net profit increased from ` 2,802.52 million for the year ended March 31, 2012 to ` 3,470.74 million for the year ended March 31, 2014 at a CAGR of 17.30%. In addition, number of our branches has increased from 300 as of March 31, 2012 to 425 as of March 31, 2014, and the number of our ATMs has increased from 500 as on March 31, 2012 to 950 as of March 31, 2014.

Our Competitive Strengths

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

Unique business model focusing on the MSME segment

We have adopted a unique business model with focus on meeting the working capital loan requirements of the MSME customer. Our advances to MSME customers have grown from ` 32,413.19 million in fiscal 2012 to ` 48,899.61 million in fiscal 2014 which constituted 26.53% and 30.14% of our total advances for the same period. Working capital advances like overdraft, cash credits and demand loans typically have a high yield, and constituted 64.61% of our net advances as of March 31, 2014. Focus on the working capital loans with floating rates of interest enable us to maintain relatively high net interest margins (“NIMs”). Our NIM for fiscal 2014 was 3.50%.

Long history and long standing customer relationships

We were incorporated in October 31, 1904 at Kumbakonam and have been in existence for 109 years. Over the years, we have significantly grown our operations from being a regional bank to a banking institution that is customer centric, covering a wide spectrum across several states in India. We further seek to leverage our strong brand recall across India, especially in the south India.

With over 100 years of banking experience, we believe we have built strong relationships with many of our customers, which has been one of the key drivers of our growth. Our extensive network allows us to provide banking services to a wide variety of customers, including MSMEs, institutions, as well as commercial, agricultural, industrial and retail customers. Moreover, we offer a diverse range of retail and commercial products and services, including short-term and long-term deposits, secured and unsecured loans, internet banking, life insurance distribution and agricultural banking products which enable us to offer personalised services while providing personal and individual attention to each of our customers.

As a result of our extensive network and product offerings, we believe we are able to meet our customers’ diverse banking needs.

Modern and efficient IT infrastructure

We have an efficient IT infrastructure, which we believe will provide opportunities to achieve further cost efficiencies and to improve the quality and utility of our products. We have made significant investments to upgrade our existing IT infrastructure. In the fiscal 2014, we had invested approximately ` 980 million, to upgrade our IT systems and infrastructure including implementation of new Core Banking Solutions (“CBS”), shifting of data center and upgrade of servers and network components. As a part of our efforts to deliver the most convenient way of banking for our customers, facilities like opening of fixed deposit for individual customer through net banking, availing loan on these deposit, facility for pre closing of deposit and a host of other facilities have been made available through internet banking. We have introduced Kiosks in certain branches through which customers can, inter-alia, transfer funds within our various branches, make RTGS and NEFT payments, obtain mini statements and make requests for cheque book. We have also setup a center to provide 24/7 customer care services.

We have networked all of our branches and offices to facilitate CBS. We use CBS to centralize the processing of transactions. It allows our customers to operate their accounts from remote locations and use banking services from any of our service outlets, regardless of where our customers maintain their accounts. With the CBS platform, we have been able to implement a variety of IT-enabled services, such as “anywhere banking”, RTGS and NEFT.

We have installed information security systems to protect the data and also periodically test the disaster recovery run on a working day covering all offices and branches as part of our business continuity program in the event of technological problems or disasters.

Extensive distribution network with focused presence in south India

We offer our services and products through an extensive multi-channel distribution network which, as of March 31, 2014, covered 15 states and two union territories across India, with 425 branches and 950 ATMs (390 on- site and 560 off-site ATMs). Our network allows us to provide banking services to a wide variety of customers,

24 including large and medium to small corporations, institutions and state-owned enterprises, as well as commercial, agricultural, industrial and retail customers across states in which we operate.

We have a presence predominantly in south India. As of March 31, 2014, out of our 425 branches, 378 branches were located in south India, out of which 289 branches were located in the state of Tamil Nadu.

We believe that Tamil Nadu and other south Indian states have high concentration of micro, small and medium enterprises, and provide higher opportunity for business growth in our target segment. Additionally, we have a wide distribution of 245 branches in the semi urban and rural areas, which we believe provide us an edge in catering to our target customer base.

Strong growth and healthy fundamentals

Our interest income increased from ` 16,967.74 million for the financial year 2012 to ` 25,459.33 million for the financial year 2014, reflecting a CAGR of 27.85%. Interest on advances and discount on bills increased from ` 13,885.73 million for the financial year 2012 to ` 20,921.19 million for the financial year 2014 reflecting a CAGR of 29.41%. Income on investments increased from ` 3,035.63 million for the financial year 2012 to ` 4,380.34 million for the financial year 2014, reflecting a CAGR of 21.35%. Interest on balances with the RBI and other inter-bank funds was ` 46.37 million and ` 42.30 million and ` 157.80 million for the financial years 2012, 2013 and 2014, respectively.

Our net interest margin was 3.40%, 3.35% and 3.50% for the financial years 2012, 2013 and 2014, respectively.

Our total advances (net of provisions) have grown from ` 121,374.60 million to ` 152,460.57 million and ` 160,968.37 million as of March 31, 2012, 2013 and 2014, respectively, reflecting a CAGR of 20.26%.

Our total deposits have grown from ` 163,407.56 million to ` 203,047.55 million and ` 220,168.92 million as of March 31, 2012, 2013 and 2014, respectively, reflecting a CAGR of 19.46%.

Our Tier II Bonds have received a ‘CARE A’ + credit rating by CARE and a ‘IND A’ + rating from India Ratings. Further, our certificates of deposits programme has been rated “CRISIL A1+” by CRISIL.

High asset quality through robust risk management practices

We constantly endeavour to improve our asset quality by carefully targeting our customer base and implementing a comprehensive risk assessment process and diligent risk monitoring. We actively monitor our loan accounts and apply proactive remediation policies to cover non-performing assets (“NPAs”), which helps ensure that our borrowers maintain their commitments on their financing transactions over the years. This practice has resulted in manageable provisions and has arrested slippages. Our percentage of gross NPAs to total advances was 1.01%, 1.13% and 1.82% as of March 31, 2012, 2013 and 2014, respectively.

We are committed to efficiently managing and reducing our NPAs and have implemented measures to manage and reduce our NPA ratio. These measures include conducting recovery camps, enforcing legal remedies including under the provisions under of SARFAESI Act, and the Negotiable Instruments Act, 1881, entering into one-time settlements, sale of assets to Asset Reconstruction Company and other proactive follow-up measures.

We also manage risk by ensuring that our advances are adequately secured by way of charges. As of March 31, 2012, 2013 and 2014, 96.81% (i.e., ` 117,501.95 million), 98.06% (i.e., ` 149,495.69 million) and 97.92% (i.e., ` 157,612.45 million), respectively, of our net advances were secured by charges on tangible assets, mortgages on immovable property and stocks. In certain cases, we obtain security by way of pledge of shares, assignment of life insurance policies and ‘kisan vikas patras’.

We believe that prudent risk management policies, procedures and controls are critical for the long-term sustainable development of our business. We have implemented enhanced risk management procedures for all our credit exposures, including credit evaluation and credit rating methodology, credit scoring and risk pricing models and risk monitoring and control mechanisms. We have setup asset liability management committee (“ALCO”) for managing market risk, credit risk management committee (“CRMC”) for credit risk and operations risk management committee of executives (“ORMC”) for operations risk. Further to enhance overall

25 risk-adjusted margins, we have introduced risk management systems covering the entire credit process to enhance efficiency, improve controls and achieve better asset quality.

We continue to maintain high standards of asset quality through risk management and mitigation practices that are actively focused on evaluations of credit management policy, asset liability management policy, market and operational risk management policy and interest rate policy. In conjunction with these practices, we intend to optimize our capital needs as we grow our business.

Professional and experienced management

Our senior management team is led by Dr. N. Kamakodi, our Managing Director and CEO, who has extensive experience in the banking and financial industry and has been associated with our Bank for 11 years. For further information, see “Board of Directors and Senior Management” on page 133. We have been able to build a team of professionals with relevant experience, including banking, accounting, law, technology, rural economy and agriculture finance. We have been able to attract qualified persons, including MBAs, engineers, chartered accountants, cost accountants and agriculturists. As of March 31, 2014, our total employee strength was 4,215.

Our Business Strategy

We are committed to being a technology-driven and customer-centric bank. Our long term strategy is to emerge as one of the preferred banks in India, with core competence in relationship banking, garnering core deposits, and creating high yielding quality assets through focused marketing, qualitative appraisal and effective monitoring. We are dedicated to providing quality service to our customers and maintaining high standards in corporate responsibility. Our key business strategies include the following:

Increase our number of branches and market share

We seek to leverage our strong brand recall, especially in southern India, and to expand our presence across other geographies in India. We intend to increase our branch network and infrastructure across India, with specific focus on south India and cross-sell our products at competitive costs to gain a larger market share in terms of advances and deposits. While setting up new branches, we plan to penetrate deeper in our current geographies and follow a calibrated approach for expanding into new geographies.

Working toward this goal, we plan to open new branches during the fiscal 2015, to increase our branch network. We will continue to focus on improving our technology to support our network of branches. We also plan to increase our total number of ATMs to provide easy accessibility to our customers.

Continue to focus on the MSME sector

Over the years we have focussed on growing our business in the MSME segment. Our advances to MSME customers have grown from ` 32,413.19 million in fiscal 2012 to ` 48,899.61 million in fiscal 2014 which constituted 26.53% and 30.14% of our total advances for the same period. We plan to further enhance our presence in the MSME segment and focus on giving loans and other services to MSMEs to facilitate their establishment, expansion and modernization of businesses. We further intend to increase our advances to MSMEs by expanding and improving our distribution network and infrastructure, expanding and strengthening our relationships with MSMEs, and by further developing our existing product offerings, processes and distribution channels to cater to the requirement of our MSME customers.

Increase fee-based revenue and income

Traditionally our fee income comprises of commission, exchange and brokerage which includes fees from opening and negotiating letters of credit, financial and performance guarantees and income from cross-selling of insurance products. We intend to increase our high margin fee-based income by increasing the fee-based services we provide and expanding our third party product offerings. We intend to increase this revenue stream by promoting certain of our products and services including the issuance of letters of credit and guarantees and our depository services. Further, as we further increase our business in the MSME segment, we plan to leverage our position to grow our fee income generated from the MSME segment. We also distribute life insurance products. We intend to grow our income from fee based services by offering new products and services and by cross-selling our offerings to our customers.

Optimize deposit base

We seek to increase our current account saving account (“CASA”) deposits in order to reduce cost of funds and improve our core capital. In order to attract retail customers and increase our CASA deposits, we intend to promote our bank through marketing campaigns and the introduction of new products. We also incentivize our employees to market CASA products. We believe that the implementation of Internet and mobile banking systems and ongoing opening of new branches and installation of new ATMs will enable us to increase our customer base, thereby increasing CASA deposits.

Continuously update our information technology systems and increase efficiency

We believe that technology has driven products and services in the banking industry, and we have devoted substantial resources to achieve seamless integration of our people, processes, data and applications. Information technology is a strategic tool for our business operations to gain a competitive advantage. All of our technology initiatives are aimed at enhancing value, offering customer convenience and improving service levels, while optimizing costs.

We believe that our initiatives to implement new technology and automation have resulted in improved overall productivity and efficiency in our organization, including with respect to our employees. Our total advances and total deposits per employee has increased from ` 84.69 million to ` 90.62 million from fiscal 2012 to 2014. We believe these improvements are due, in part, to our technology initiatives. We intend to continue to implement new technology as it becomes available and continuously upgrade the skills of our employees through training. We expect to continue our policy of making investments in technology and as such enhance our productivity per employee, while providing customer-centric solutions to our customers.

Sustain focus on improving loan and investment portfolio quality

We believe that conservative credit risk management policies and controls are critical for long-term, sustainable growth in our business. Our goal is to continually improve our credit risk management procedures, credit evaluation, rating methodology, monitoring and control mechanisms to maintain the quality of our loan and investment portfolios.

SUMMARY OF THE ISSUE

The following is a general summary of the terms of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information appearing elsewhere in this Preliminary Placement Document, including under the sections titled “Use of Proceeds”, “Issue Procedure” and “Description of the Shares” on pages 57, 146 and 165, respectively.

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

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

In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allocated to other QIBs. Face Value ` 1 per Equity Share. Issue Price ` [●] per Equity Share. Floor Price The floor price for the Issue calculated on the basis of Regulation 85 of Chapter VIII of the SEBI Regulations is ` 75.05 per Equity Share. Eligible Investors QIBs as defined in Regulation 2(1)(zd) of the SEBI Regulations and not excluded pursuant to Regulation 86 of the SEBI Regulations, to whom the Preliminary Placement Document and the Application Form is circulated and who are eligible to bid and participate in the Issue. The list of QIBs to whom the Preliminary Placement Document and Application Form is delivered shall be determined by the SGCBRLM and the BRLMs in consultation with our Bank, at their sole discretion. Equity Shares issued and 542,740,263 Equity Shares. outstanding immediately prior to the Issue Equity Shares issued and [●] Equity Shares. outstanding immediately after the Issue Listing Our Bank has received in principle approvals dated July 14, 2014 from the NSE, the BSE and the MSE, under Clause 24(a) of the Listing Agreements for listing of the Equity Shares issued pursuant to the Issue.

Our Bank shall apply to the Stock Exchanges for the in-principle and final listing and trading approvals, for listing and admission of Equity Shares and for trading on the Stock Exchanges, after the Allotment and after the credit of Equity Shares to the beneficiary account with the Depository Participant, respectively. Lock-up Our Bank has agreed that it will not for a period commencing the date hereof and ending 180 days from the date of Allotment, without the prior written consent of the SGCBRLM and BRLMs, directly or indirectly (a) offer, sell or announce the intention to sell, pledge, issue, contract to issue, grant any option, right or warrant for the issuance and allotment, or otherwise dispose of or transfer, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to, any Equity Shares or securities convertible into or exchangeable or exercisable for Equity Shares (including any warrants or other rights to subscribe for any Equity Shares), or (b) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the economic consequences associated with the ownership of any of the Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares (regardless of whether any of the transactions described in clause (a) or (b) is to be settled by the delivery of Equity Shares or such other securities, in cash or otherwise), or (c) deposit Equity Shares with any other depositary in connection with a depositary receipt facility, or (d) enter into any transaction (including a transaction involving derivatives) having an economic effect similar to that of a issue, offer, sale or deposit of the Equity Shares in any depository receipt facility; or (e) publicly announce any intention to enter into any transaction falling within (a) to (d) above or enter into any transaction falling within (a) to (d) above.

Provided, however, that the foregoing restrictions do not apply to (i) the issuance of any Equity Shares issued pursuant to the Issue; and (ii) issuance of Equity Shares pursuant to the ESOS 2008. Transferability Restriction The Equity Shares being Allotted pursuant to this Issue shall not be sold for a period

of one year from the date of Allotment, except on the Stock Exchanges. For further transfer restrictions, see the section titled “Purchaser Representations and Transfer Restrictions” on page 161. Use of Proceeds The net proceeds of the Issue, after deduction of fees, commissions and expenses in relation to the Issue, would be approximately ` [●] million. See the section titled “Use of Proceeds” on page 57. Risk Factors See the section titled “Risk Factors” on page 32 for a discussion of factors that you should consider before participating in this Issue. Closing Date The Allotment is expected to be made on or about [●] (the “Closing Date”). Ranking The Equity Shares being issued pursuant to the Issue shall be subject to the provisions of the Memorandum and Articles of Association and shall rank pari passu in all respects with the existing Equity Shares including rights in respect of dividends. The holders of such Equity Shares (who hold Equity Shares as on the record date) will be entitled to participate in dividends and other corporate benefits, if any, declared by our Bank after the Closing Date, in compliance with the Companies Act, the Listing Agreements and other applicable laws and regulations. The holders of such Equity Shares may attend and vote in shareholders’ meetings in accordance with the provisions of the Companies Act. See the section titled “Description of the Shares” on page 165. Approvals The Issue has been approved by our Board on July 29, 2013.

The Issue has been approved by our shareholders in the AGM dated August 30, 2013.

The RBI, pursuant to its letter dated June 27, 2014, has granted in principle approval in respect of the Issue. Security Codes for the Equity ISIN INE491A01021 Shares BSE Code 532210 NSE Code CUB MSE Code CITYUNION

SELECTED FINANCIAL INFORMATION OF OUR BANK

The selected financial information of our Bank as at and for the years ended March 31, 2014, March 31, 2013 and March 31, 2012 set forth below have been extracted by the Bank’s management from the Audited Financial Statements as at and for the years ended March 31, 2014, March 31, 2013 and March 31, 2012, respectively, converted from thousands into millions and shown to the nearest million of Indian Rupees. The selected financial information should be read in conjunction with the sections titled “Financial Statements” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on pages 187 and 65, respectively. The numbers presented herein have not been presented or classified on a consistent basis, and are presented as they were produced in the respective years.

Summary Income Statement Information

(` in millions) Year ended March 31, 2012 2013 2014 Interest earned 16,967.74 21,887.50 25,459.33 Other income 2,071.34 2,736.37 3,011.99 Total 19,039.08 24,623.87 28,471.32 Expenditure Interest expended 11,970.23 15,647.40 17,865.44 Operating expenses 2,798.32 3,742.00 4,796.15 Provision and contingencies 1,468.01 2,014.30 2,339.00 Total 16,236.56 21,403.70 25,000.58 Profit 2,802.52 3,220.17 3,470.74 Add: Profit brought forward from previous year 55.61 66.02 68.71 Amount available for appropriation 2,858.13 3,286.19 3,539.45 Appropriations Transfer to (a) Statutory Reserve 710.00 820.00 880.00 (b) Capital Reserve 0.01 19.03 5.73 (c) General Reserve 1,400.00 1,420.00 1,650.00 (d) Investment Reserve Account 7.30 3.38 - (e) Special Reserve Under IT Act, 1961 200.00 400.00 300.00 (f) Interim Dividend payable - 474.45 - (g) Interim Dividend Tax Payable - 80.63 - (h) Dividend (proposed) 408.21 - 542.74 (i) Corporate dividend tax 66.60 - 92.24 Balance transferred to balance sheet 66.02 68.71 68.74 Total 2,858.13 3,286.19 3,539.45 Earnings per share (Rupees) Basic 5.79 6.65 6.69 Diluted 5.74 6.59 6.64

Summary Balance Sheet Information

(` in millions) Year ended 31st March, 2012 2013 2014 Capital and liabilities Share Capital 408.21 474.45 542.74 Reserves and surplus 12,022.76 15,932.24 19,706.58 Deposits 163,407.56 203,047.55 220,168.92 Borrowings 3,487.03 4,767.39 3,049.84 Other liabilities and provisions 4,181.02 5,549.19 6,470.18 Total 183,506.58 229,770.82 249,938.26 Assets Cash and balances with the Reserve Bank of India 8,146.66 10,163.36 10,401.13 Balances with banks and money at call and short notice 3,214.43 7,541.50 11,395.03 Investments 45,861.92 52,668.03 59,535.57 Advances 121,374.60 152,460.57 160,968.37 Fixed assets 977.34 1,412.79 1,829.52 Other assets 3,931.62 5,524.56 5,808.64

Total 183,506.58 229,770.82 249,938.26 Contingent liabilities 97,016.96 60,434.10 51,131.34 Bills for Collection 3,688.53 1,657.98 2,142.84

Summary Cash Flow Information

Year ended 31st March, 2012 2013 2014 (` in millions) Cash Flow From Operating Activities Net Profit as per P&L account 2,802.52 3,220.17 3,470.74 Adjustments for Depreciation 135.55 246.81 377.17 Provisions & Contingencies - Tax 630.00 810.00 665.00 Provisions & Contingencies - Others 838.01 1,204.30 1,674.00 Profit on sale of Investments (77.72) (170.52) (228.28) Profit on sale of Assets (1.51) (2.67) (3.88) Foreign exchange fluctuations (152.22) (183.81) (326.74) Operating Profit before working capital changes 4,174.63 5,124.28 5,628.02 Adjustments for Funds advanced to Customers (29,442.30) (32,109.67) (10,101.80) Other Operating Assets (858.47) (120.67) (665.86) Deposits from Customers 34,264.71 39,639.99 17,121.37 Borrowings from Banks 1,625.48 1,280.36 (1,717.55) Other operating liabilities (1,517.11) 257.85 (261.07) Purchase and sale of investments (Net) (9,696.06) (6,638.43) (6,648.88) Cash generated from Operations (1,449.13) 7,433.71 3,354.23 Taxation - Income Tax and FBT 735.34 (1253.30) 769.75 Net cash flow from Operating activities - A (713.79) 6,180.41 4,123.97 Cash flow from Investing Activities Purchase of Fixed Assets (443.76) (714.96) (945.73) Sale of Fixed Assets 17.71 35.37 155.71 Net cash used in Investing Activities - B (426.05) (679.59) (790.02) Cash flow from Financing Activities Proceeds from issue of Share Capital 3.18 66.23 68.29 Proceeds from share premium 33.85 1,244.39 1,241.09 Dividend Paid (340.66) (401.18) (471.41) Tax on distributed profits (58.62) (66.50) (80.63) Net cash flow from Financing Activities - C (362.25) 842.94 757.35 Net increase in Cash and Cash equivalents A+B+C (1,502.10) 6,343.77 4,091.30 Cash and cash equivalents at the beginning of the year 12,863.19 11,361.09 17,704.86 Cash and cash equivalents at the end of the year 11,361.09 17,704.86 21,796.16

RISK FACTORS

An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information contained in this Preliminary Placement Document, including the risks and uncertainties described below, before making an investment decision. If any of the following risks or any of the other risks and uncertainties discussed in this Preliminary Placement Document actually occur, our business, financial condition and results of operations could suffer, the price of our Equity Shares could decline, and you may lose all or part of your investment. These risks and uncertainties are not the only risks that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also have an adverse effect on our business, results of operations and financial condition.

The financial and other related implications of risks concerned, wherever quantifiable, have been disclosed in the risk factors below. However, there are risk factors the potential effect of which are not quantifiable and therefore no quantification has been provided with respect to such risk factors. In making an investment decision, prospective investors must rely on their own examination of our Bank and the terms of the Issue, including the merits and risks involved.

This Preliminary Placement Document also contains forward-looking statements that involve risks and uncertainties. Our results could differ materially from such forward-looking statements as a result of certain factors including the considerations described below and elsewhere in this Preliminary Placement Document.

Unless otherwise stated, our financial information used in this section is derived from our audited financial statements.

Risk relating to our Business

Our results of operations largely depend on our net interest income. Volatility in interest rates and other market conditions could adversely impact our business and results of operations.

Our results of operations largely depend on our net interest income. Net interest income constituted 70.70% (i.e., ` 4,997.51 million), 69.52% (i.e., ` 6,240.10 million) and 71.60% (i.e., ` 7,593.89 million) of our total income for fiscal 2012, 2013 and 2014, respectively.

As of March 31, 2012, 2013 and 2014, of our interest-earning assets, 68.83% (` 116,193.64 million), 70.01% (i.e., ` 145,988.71 million) and 68.84% (i.e., ` 154,561.94 million) have floating interest rates, while all of our interest-bearing liabilities have fixed interest rates. Any decrease in the interest rates applicable to our assets, without a corresponding decrease in the interest rates applicable to our liabilities, will result in a decline in our net interest income and may consequently reduce our net interest margin (“NIM”).

In the event of falling interest rates, our borrowers may not be willing to continue to pay correspondingly higher interest rates on their borrowings and may choose to repay their loans if they are able to switch to more competitively priced loans offered by other banks. Although in the past, we have been successful in passing on the increase in the interest rates linked to our interest bearing-liabilities to our borrowers, we cannot assure you that we will continue to pass such increase in our costs to our borrowers.

Any inability to retain customers as a result of changing interest rates may adversely impact our earnings in future periods.

We face maturity mismatches between our assets and liabilities. If we fail to sustain or achieve growth of our deposit base, including our current and savings account deposit base, our business may be adversely affected.

We meet our funding requirements through short-term (i.e. maturity up to one year) and long-term (i.e., maturity for more than one year) deposits from retail depositors and mid-to-large corporate depositors. Banks usually face an asset-liability mismatch where, typically, the deposits are short-term and advances are long-term.

As of March 31, 2014, we have an asset liability mismatch. The bucket-wise negative mismatches are as under:

Maturity period Mismatch to outflow (in %)(a)(b) Mismatch to outflow (` in millions) 15 days to 28 days 22% (1,673.33)

Maturity period Mismatch to outflow (in %)(a)(b) Mismatch to outflow (` in millions) 29 days to three months 4% (863.23) One year to three years 46% (74,077.16) (a) percentages are represented in negative. (b) time bucket wise mismatch to outflow has been arrived at based on (expected cash inflows – expected cash outflows) x 100 the formula: Expected cash outflows

The assumptions used by our Bank for the purpose of calculating the asset liability mismatch are as follows:

For current deposits, savings deposits, bills payable and overdraft facilities, based on the behavioural study carried out by the Bank on the data for the past 3 years, the items are classified into core portion and volatile portion. For the purpose of calculating the asset liability mismatch, the core portion is included in 1 year to 3 year bucket and the volatile portion is classified into 1 day bucket, 2 day to 7 day bucket and 8 days to 14 day bucket, etc.

For term deposits, based on the data pertaining to portion of matured deposits renewed in the past, Bank determines a certain portion which is likely to be rolled over and is included in the bucket of 1 year to 3 years for the purpose of calculating the asset liability mismatch and the balance portion is appropriated in shorter duration buckets.

For unavailed overdraft and cash credit facilities, our Bank based on its past experience provides for a certain portion of the unavailed facility in the asset liability mismatch in various shorter duration buckets as potential drawals of unutilized limits.

For letter of credit and bank guarantee, our Bank based on its past experience provides for an amount of possible devolvement in a few time buckets for the purpose of calculating asset liability mismatch.

Further, such asset liability mismatch results in liquidity risk, i.e. risk originating due to the potential inability of a bank to generate cash. The liquidity risk in a bank arises on account of unanticipated withdrawals of deposits, non-renewal of deposits and delay in anticipated repayment of advances.

We have implemented an asset liability management committee (“ALCO”) to address the abovementioned risks. The ALCO regularly reviews the asset liability mismatch and takes appropriate steps to ensure that we are not exposed to liquidity risk either, in the short or long-term.

However, if the abovementioned risks materialise, we may face liquidity problem, resulting in an asset liability mismatch. As a result, we may be required to pay higher rates to attract deposits, which may have an adverse impact on our business and results of operations.

Any failure on our part to minimize the asset liability mismatch resulting in higher liquidity risk may adversely affect our business, financial condition and results of operations.

Non-availability of funding and increase in funding costs could adversely affect our business and our financial condition. In case our depositors do not roll over term deposits or if we fail to increase our term deposits, our liquidity position may be adversely affected and we may be required to pay higher cost to attract and/or retain further deposits.

Currently our primary source of funding is deposits which include demand deposits, savings deposits and term deposits, long-term Tier II debt and inter-bank borrowings. As of March 31, 2012, 2013 and 2014, 91.12% (i.e., ` 179,325.56 million), 90.56% (i.e., ` 224,221.63 million) and 90.43% (i.e., ` 243,468.08 million), respectively, of our primary funding consisted of deposits.

The cost of funds is sensitive to interest rate fluctuations. The pricing on our issuances of debt will also be negatively impacted by any downgrade or potential downgrade in our credit ratings. In addition, attracting customer deposits in the Indian market is competitive. The rates that we must pay to attract deposits are determined by numerous factors such as the prevailing interest rate structure, competitive landscape, Indian monetary policy and inflation.

Our depositors may not roll over term deposits on maturity, which may force us to pay higher interest rates in order to attract and/or retain further deposits. If we fail to sustain or achieve the growth rate of our deposit base, including our current and savings account deposit base, our business, liquidity position and financial condition may be adversely affected.

We have regional concentration in southern India, especially Tamil Nadu. Any adverse change in the economic condition of Tamil Nadu and other states in southern India can impact our results of operations. Additionally, we may not be successful in expanding our operations to other parts of India.

As of March 31, 2014, out of our 425 branches, 378 branches were located in southern India (including 289 branches which were located in Tamil Nadu) constituting 88.94% of our total branch network. Our branches located in southern India received deposits of ` 194,666.28 million as of March 31, 2014, including ` 160,790.71 million received by branches located in Tamil Nadu, constituting 88.42% and 73.03%, respectively, of our total deposits as of March 31, 2014.

Our concentration in the southern India, and specifically in Tamil Nadu, exposes us to any adverse economic or political circumstances in that region as compared to other public and private sector banks that have more diversified national presence. Any disruption, disturbance or sustained downturn in the economy of Tamil Nadu and other states in southern India could adversely affect our business, financial condition and results of operations.

Additionally, while we continue to expand our operations outside of our traditional areas such as Tamil Nadu and other states in southern India, we face risks with our operations in geographic areas in which we do not possess the same level of familiarity with the economic condition, consumer base and commercial operations. In addition, our competitors may already have established operations in areas outside southern India and we may find it difficult to attract customers in such new areas. We may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on our business, financial condition and results of operations.

We have received notices from the SEBI in the past. Any regulatory action resulting from such notices can adversely affect our business, financial condition and results of operation.

We have received notices from SEBI in the past alleging violations of Merchant Banking Regulations and the erstwhile Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 dated March 24, 1998 and March 12, 2004, respectively. Though we have filed our replies dated April 16, 1998 and April 15, 2004 in respect of these notices to SEBI, we have not received any further communication from SEBI in this regard. For further details, see section titled “Legal Proceedings” on page 176.

We cannot assure you that SEBI will not take any action under these notices. In the event of any regulatory action by SEBI, including imposition of penalty, our business, financial condition and results of operation may be adversely affected.

We are required to lend a minimum percentage of our adjusted net bank credit to certain ‘priority sectors’. A substantial portion of our NPAs are attributable to such ‘priority sectors’. Any adverse performance by such ‘priority sectors’ or any change in the RBI’s regulations relating to priority sector lending could have a material adverse impact on our financial condition and results of operations.

In accordance with current RBI guidelines, all banks in India, including us, are subject to directed lending regulations. We are required to lend a minimum of 40% of our adjusted net bank credit to ‘priority sectors’. Our priority sectors advances include loans to agricultural, micro and small enterprises, education and housing sectors. Out of the advances we are required to lend under the ‘priority sector’, at least 18% of our adjusted net bank credit must be lent to the agricultural sector and at least 10% of adjusted net bank credit to weaker sections. Further, 1% of previous year’s adjusted net bank credit is required to be lent under the ‘Differential Rate of Interest Scheme’.

As of March 31, 2012, 2013 and 2014, our lending to ‘priority sectors’ constituted 47.09% (i.e., ` 43,977.89 million), 46.93% (i.e., ` 57,401.68 million), and 46.72% (i.e., ` 74,098.43 million), respectively, of our adjusted net bank credit, including 17.35% (i.e., `16,204.06 million), 19.61% (i.e., ` 23,978.41 million) and 19.56% (i.e., ` 31,025.53 million), respectively to the agricultural sector. Further, as of March 31, 2012, 2013 and 2014, of

34 our total NPAs, 1.01% (i.e., ` 1,235.41 million), 1.13% (i.e., ` 1,731.02 million) and 1.81% (i.e., ` 2,930.64 million), respectively, out of which 1.91% (i.e., ` 310.80 million), 1.41% (i.e., ` 339.00 million) and 1.20% (i.e., ` 371.88 million), respectively, constituted our total advances to the agricultural sector, for the said period.

Any adverse performance by the priority sectors could significantly increase our NPAs, which may materially and adversely affect our business, results of operations and financial condition. Further, any change in the RBI’s guidelines may require us to increase our lending to the priority sector, which may result in an increase in NPAs. For example RBI has pursuant to circulars dated November 25, 2013 and May 15, 2014, inter-alia, revised the targets and classification of loans to MSE sector.

Further, we have experienced instances of shortfalls in our directed lending to priority sectors in the past. Any shortfall in the amount required to be provided to the relevant sectors must be deposited with Government- sponsored Indian development banks such as the National Bank for Agriculture and Rural Development (“NABARD”). These deposits typically carry interest rates lower than market rates. We cannot assure you that we will be able to meet the lending targets towards priority sectors. In case we are unable to meet such targets, we may have to deposit the shortfall with any one of such agencies, resulting in reduced interest income on such advances.

The Indian banking industry is very competitive and our success will depend on our ability to compete effectively.

We face competition from public and private sector Indian commercial banks and foreign commercial banks in all our products and services. Some of such banks are large institutions and may have much larger customer and deposit bases, larger branch networks and wider capital base. Further, few banks have recently experienced higher growth, achieved better profitability and increased their market shares relative to us. Further, we also face competition in some or all of our products and services from NBFCs, mutual funds and other entities operating in the financial sector.

Liberalisation of the Indian financial sector could also lead to a greater presence or new entries of Indian and foreign banks offering a wider range of products and services, which could adversely affect our competitive environment. RBI has recently issued the Guidelines on Licensing of New Banks in the Private Sector and has thus far granted its ‘in-principle’ approval to two applicants for setting up new banks under these guidelines.

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

In order to respond to the competitive environment in our industry, we constantly look for opportunities to venture into areas ancillary to banking business. Currently, we provide services such as money transfer services, cross-selling of insurance products and sale of point of sale terminals pursuant to tie-ups with various independent third parties. While providing such services, we are required to enter into contractual arrangement with such third parties. Salient terms and conditions of such contractual arrangement, inter-alia, include providing indemnity to the other party, which can be invoked in cases such as breach of any condition, representation or warranty given by either party. Typically such indemnity clause operates in favour of us as well as the other party, however, in certain cases the obligation to indemnify is solely on us. In case we are required to indemnify the other party or are unable to collect under the indemnity we are owed, our business and financial condition may be adversely affected.

In addition, the moderation of growth in the Indian banking sector is leading to greater competition for business opportunities. We may face attrition and difficulties in hiring at senior management and other levels due to competition from existing Indian and foreign banks, as well as new banks entering the market.

Our future success will depend in large part on our ability to respond in an effective and timely manner and our ability to compete effectively. Increased competitive pressure may have an adverse impact on our business, financial condition and results of operations.

We may be unable to sustain the growth rate of our retail banking business, which could adversely impact our growth prospects.

As a part of our retail growth strategy, we have been expanding our presence through increase in our branch network to increase our current accounts and saving accounts deposits. Further, we have achieved significant growth in our retail advances and retail deposits in recent years. Our advances under retail banking business as of March 31, 2012, 2013 and 2014 were ` 75,346.00 million, ` 101,448.77 million and ` 109,950.97 million, respectively with a CAGR of 23.94%. Further, our deposits under retail banking business as of March 31, 2012, 2013 and 2014 were ` 7,1798.37 million, ` 96,407.05 million and ` 103,827.96 million, respectively with a CAGR of 22.36%. The number of our branches has grown from 300 as on March 31, 2012 to 425 as on March 31, 2014.

We intend to continue our focus on increasing our CASA by offering new products and services and by cross- selling to our customers through marketing. While we anticipate continued demand in the retail banking business, growth of our retail portfolio is subject to various factors including geographic location of our proposed branches, availability of funding in such locations, competitiveness at such locations and approvals from RBI for opening certain branches. We cannot assure you that we will be able to grow at the rate we have experienced in the past, which could materially and adversely affect our business and future results of operations.

There is no assurance that our growth will continue at a similar rate that we have experienced in the recent past, or at all. Our failure to successfully execute our business and growth strategies and to manage such growth effectively may adversely affect our business growth and financial condition.

In the recent past, we have witnessed rapid growth in both our business and our branch network. For example, our deposits have increased from ` 163,407.56 million as of March 31, 2012 to ` 203,047.55 million as of March 31, 2013 to ` 220,168.92 million as of March 31, 2014 and our advances have increased from ` 122,217.02 million as of March 31, 2012 to ` 153,428.77 million as of March 31, 2013 to ` 162,236.22 million as of March 31, 2014. The number of our branches has grown from 300 as on March 31, 2012 to 425 branches as on March 31, 2014.

While we continue to develop and implement a number of growth initiatives, such as expansion of our branch network, to become more competitive, there can be no assurance that we will be able to successfully implement our business strategies in a timely manner or at all.

Our ability to sustain growth depends primarily upon our ability to manage key issues such as selecting and retaining skilled manpower, establishing additional branches, achieving cost efficiencies, maintaining a technology platform that can be continually upgraded, developing profitable products and services to cater to the needs of our existing and potential customers, improving our risk management systems to monitor our newer business, developing a knowledge base to face emerging challenges and ensuring a high standard of customer service.

While we have experienced significant growth in the past which has contributed to our financial performance, there can be no assurance that we will continue to grow at similar rate or at all. Our ability to sustain and manage growth is also affected by macroeconomic factors affecting India, such as GDP growth, changes in implementation of macroeconomic policies, changes in demand for loans and changes in interest rates. We may not be able to successfully maintain growth rates due to unfavourable changes in any one or more of the aforementioned factors. Our inability to effectively manage any of these issues may adversely affect our business growth and, as a result, adversely impact our business, prospects, financial condition and results of operations.

If we are unable to obtain, renew or maintain our statutory and regulatory permits and approvals required to operate our business, it may have a material and adverse effect on our business, financial condition and results of operations.

We require certain statutory and regulatory permits and approvals to operate our business.

As a part of our growth strategy, we plan opening new branches on a yearly basis. However, in the event we fail satisfy requisite eligibility criteria prescribed by RBI for opening branches in Tier 1 centres, our growth may be adversely affected.

We have not obtained licenses under the relevant state legislations governing the registration of shops and establishments for our branches where specific exemption has not been granted to the scheduled commercial banks. In this regard, we have filed an application dated October 9, 2002, to the Labour Department, Government of Tamil Nadu, for exemption from the applicability of the Shops & Establishments Act, 1947 in Tamil Nadu. Further, we have also submitted a letter dated June 18, 2012 to the RBI for taking up this matter with the Government of Tamil Nadu.

We cannot assure you that we will be able to obtain the exemption from the relevant state legislations governing the registration of shops and establishments in a timely manner or at all. In the event the authority does not grant an exemption to us, we will be required to obtain registration for our branches where such registration is required. Applying for such registration and complying with the necessary filing requirements will add further administrative cost on us, which may adversely affect our financial condition and results of operation.

Further, the competent authority under the relevant state legislations governing the registration of shops and establishments may find us in violation of such legislation and impose statutory penalty (including imprisonment) for not obtaining the registration for our branches situated in the states where specific exemption has not been granted and where we have not obtained such registration. In the event we are found to have violated the relevant state legislations and penalty is imposed on us, our results of operations may be adversely affected.

Further, under certain of our contractual arrangements we are required to hold all necessary and applicable approvals and licenses from authorities such as RBI and IRDA. In the event that such approvals and licenses lapse or are revoked by the granting authorities, we may not be able to provide such services which could have an adverse effect on our business and financial condition.

Failure by us to renew, maintain or obtain the required permits or approvals, including those set forth above, may result in the interruption of our operations or delay or prevent our expansion plans and may have a material and adverse effect on our business, financial condition and results of operations.

There have been instances of delayed filings under Insider Trading Regulations by us in the past. Any regulatory action in relation to such delayed filings may adversely affect our business, financial condition and results of operation.

Under Regulation 13(6) of the Insider Trading Regulations, we are required to disclose certain information to the Stock Exchanges within two working days of receipt of such information from the Directors, officers and shareholders of our Bank. During Fiscal 2011, there have been certain instances of delayed filings by us under Regulation 13(6) with the delay ranging from one working day to four working days.

Though we have not received any notice for such delay from any regulatory agency, we cannot assure you that no regulatory action will be taken against us in the future, including imposition of any penalty, in relation to such delayed filings. In the event any regulatory action is taken against us, including imposition of any penalty, our business, financial condition and results of operations may be adversely affected.

We may fail to maintain the minimum capital adequacy requirements stipulated by the RBI which could materially and adversely affect our results of operations and financial condition.

We are subject to regulations relating to capital adequacy of banks, which determines the minimum amount of capital we must hold as a percentage of the risk-weighted assets on our portfolio, or capital-to-risk asset ratio (“CRAR”). Although we have been maintaining a CRAR under the Basel II standards, which was 15.11% as of March 31, 2014 as compared to the regulatory minimum requirement of 9.00%, there can be no assurance that we will be able to maintain our CRAR within the regulatory requirements. Further, any adverse developments could affect our ability to continue to satisfy the capital adequacy requirements, including deterioration in our asset quality, decline in the values of our investments or applicable risk weight for different asset classes.

The RBI has issued the guidelines on Basel III capital regulations on May 2, 2012, pursuant to the Monetary Policy Statement 2012-13. These guidelines have become effective from April 1, 2013 in a phased manner. The Basel III capital ratios will be fully implemented as on March 31, 2019. With the implementation of the Basel III guidelines, we may be required to improve the quality, quantity and transparency of Tier I capital, which will now have to be predominantly equity shares. We may be required to apply regulatory deductions against core capital as opposed to Tier I and Tier II capital and a minimum capital ratio may be set, among other suggested changes. In addition, these changes may result in the incurrence of substantial compliance and monitoring costs. Furthermore, with the implementation of Basel III guidelines, our ability to support and grow our business could be limited by a declining capital adequacy ratio, if we are unable to access or face difficulty in accessing the capital or have difficulty in obtaining capital in any other manner. We have established a system of assessing our capital needs and risks associated with our business, through internal capital adequacy assessment process (“ICAAP”) with the objective of augmenting our capital.

If we fail to meet capital adequacy requirements, the RBI may take certain actions, including restricting our lending and investment activities and the payment of dividends by us. These actions could materially and adversely affect our reputation, results of operations and financial condition.

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

As a result of the statutory reserve requirements stipulated by the RBI, we may be more exposed structurally to interest rate risk than banks in other countries. Under the RBI’s regulations, we are subject to a CRR requirement under which we are currently required to keep 4.00% of our net demand and time liabilities in current account with the RBI. We do not earn interest on cash reserves maintained with the RBI. The RBI may further increase the CRR requirement as a monetary policy measure and has done so on numerous occasions. Increases in the CRR requirement could materially and adversely affect our business, results of operations and financial condition.

In addition, under the RBI’s regulations, our liabilities are subject to a SLR requirement, according to which 22.50% of our net demand and time liabilities need to be invested in Government securities, state government securities and other securities approved by the RBI from time to time. In our experience, these securities generally carry fixed coupons. When the interest rate rises, the value of these fixed coupon securities depreciates. We cannot assure you that investment in such securities will provide returns better than other market instruments. Further, any increase in the CRR and the SLR requirements, would reduce the amount of cash available for lending, which may materially and adversely affect our business, financial condition and results of operations.

Foreign investment in the Equity Shares, and acquisitions or transfers of our Equity Shares resulting in an aggregate holding of 5% or more are subject to limits specified by the RBI. Further, we are required to seek post facto approval from RBI for the Issue. In relation to our foreign investment, we are required to comply with the various provisions of the Foreign Exchange management Act, 1999 (“FEMA”).

Under Indian laws, the aggregate permissible foreign investment, including FDI and investment by FIIs and NRIs in a private sector bank is limited to an aggregate of 49% of the paid up capital under the automatic route. Further, the aggregate FII’s and NRIs’ holding, cannot exceed 24% and 10%, respectively, of the paid up capital. However, with the approval of the board of directors and the shareholders by way of a special resolution, the aggregate FII and NRI holding in a bank can be increased up to 49% and 24%, respectively.

Pursuant to recent amendments to the Banking Regualtion Act, any acquisition or transfer of shares in a private bank which will take the aggregate holding of an individual or a group to five per cent or more of the paid-up capital of a bank requires the prior approval of the RBI. Further as advised by RBI, we had amended our Articles of Association to the effect that acquisition of shares by a person/group which would take his/its holding to five per cent or more of our total issued capital (or such other percentage as may be prescribed by the RBI from time to time) should be with the prior approval of the RBI.

38 furnish complete details of the Issue, including details of the investors, to the RBI to seek their post facto approval. We cannot assure you that the RBI will not impose any adverse condition upon us while providing their approval.

Our foreign shareholding is restricted to 40% of our paid up capital, with the aggregate shareholding of NRIs not exceeding 24% and individual shareholding not exceeding 5%, of our paid up capital, pursuant to Board’s resolution dated April 28, 2012 and resolution passed by our shareholders through postal ballot declared on June 11, 2012. Pursuant to Boards resolution dated July 29, 2013 and resolution passed by our shareholders on August 30, 2013 the investment by FIIs in our Bank has been restricted to 35% of our total paid up capital, with individual FII shareholding not exceeding 5%. As of June 30, 2014, our aggregate foreign shareholding (including FII and NRI shareholding) was 35.29% of our paid up capital of which shareholding by NRIs was 3.06% of our paid up capital.

The aforementioned regulatory framework and restriction contained in our Articles of Association could adversely affect the liquidity, free transferability of the Equity Shares and in turn have an adverse affect on the price of the Equity Shares.

Some of our corporate records relating to allotments of our equity shares in the past are not traceable.

We are unable to trace copies of certain corporate records and filings in relation to equity shares issued and allotted by our Bank in the past, and in particular, on allotments of equity shares of our Bank from its incorporation on October 31, 1904 till August 31, 1982. We have placed reliance on other documents, including our Annual Reports and audited financial statements for corroborating the share capital history of our Bank for such period. We have not been able to obtain copies of such relevant documents, including from the relevant Registrar of Companies in India.

We are involved in certain material legal proceedings which if determined against us, could affect our business and financial condition.

We are party to several legal proceedings. These legal proceedings are in the nature of civil cases and tax cases pending at different levels of adjudication before various courts and tribunals.

We have also received notices from SEBI in the past alleging violations of Merchant Banking Regulations and the erstwhile Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 dated March 24, 1998 and March 12, 2004, respectively. Though we have filed our replies dated April 16, 1998 and April 15, 2004 in respect of these notices to SEBI, we have not received any further communication from SEBI in this regard. For further details, see section titled “Legal Proceedings” on page 176.

Further, we have received a show cause notice dated August 4, 2011 from the Service Tax Commissioner, Trichy, raising a demand of ` 636.00 million. We have neither made any provision towards this claim of ` 636.00 million nor treated it as contingent liability in our financial statements. Our Bank has filed a reply to the show cause notice on September 13, 2012. For further details regarding material legal proceedings, please see section titled “Legal Proceedings” on page 176.

No assurances can be given as to whether these proceedings will be settled in our favour or against us. If a claim is determined against us and we are required to pay all or a portion of the disputed amount, it could have an adverse effect on our results of operations and cash flows.

Volatility in the market price of gold may adversely affect our financial condition, cash flows and results of operations. In addition, we may not able to realize the full value of our pledged gold, which exposes us to potential loss.

Our loan portfolio contains significant advances that are secured by household, used, gold jewellery. As of March 31, 2014, our gold loans represented 18.42% of the total loans outstanding. An economic downturn or sharp downward movement in the price of gold could result in a decline in pledged gold values. Further, a sustained decrease in the market price of gold could also cause a decrease in new gold loans in our loan portfolio and, as a result, our interest income and cash flows. In addition, customers may not repay their loans and the gold jewellery securing the loans may have decreased significantly in value, resulting in losses which we may not be able to support. We use a technology-based risk management system and follow strict internal

39 risk management guidelines on portfolio monitoring, which include periodic assessment of loan to security value on the basis of conservative market price levels, limits on the amount of margin, ageing analysis and pre- determined margin call thresholds. However, if the price of gold decreases significantly, our financial condition, cash flows and results of operations may be adversely affected.

Further, in the case of a default, we typically sell the pledged gold through publicly announced auctions. We cannot assure you that we will be able to sell such pledged gold at prices sufficient to cover the amounts under default. Moreover, there may be delays associated with the auction process. Any failure to recover the expected value of pledged gold could expose us to a potential loss. Any such losses could adversely affect our financial condition, cash flows and results of operations.

Banking is a heavily regulated industry and material changes in the regulations which govern us could cause our business to suffer and may adversely impact the price of the Equity Shares.

Banks in India are subject to detailed supervision and regulation by the RBI. In addition, banks are generally subject to changes in Indian law, as well as to changes in regulation and government policies and accounting principles. Since 2005, the RBI has made several changes in regulations applicable to banking companies, including:

risk-weights on certain categories of loans for computation of capital adequacy; general provisioning requirements for various categories of assets; capital requirements and accounting norms for securitisation; policy interest rates, cash reserve ratio, cessation of payment of interest on cash reserve balances; limits on investments in financial sector enterprises and venture capital funds; and directed lending requirements.

The Banking Regulation Act imposes a number of restrictions, which affect our operating flexibility and investors’ rights, including:

restrictions on payment of dividend; No shareholder of our Bank can exercise voting rights on poll in excess of 10% of the total voting rights of all of our shareholders. We are subject to restrictions relating to incorporation of subsidiaries, which may prevent us from exploiting emerging business opportunities in areas other than banking. We may not open new places of business and transfer our existing places of business, which may hamper our operational flexibility. Further, RBI has issued detailed guidelines on investment in subsidiaries and other companies, including:

- equity investment by a bank in a non-financial service company would be subject to a limit of 10% of the company’s paid-up capital or 10% of the bank’s paid-up capital and reserves, whichever is less; - equity investments in any non-financial services company held by a bank; its subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and bank managed mutual funds should in aggregate, not exceed 20% of the investee company’s paid-up capital. - a bank’s equity investments in subsidiaries and other entities that are engaged in financial service activities together with equity investments in entities engaged in non financial service activities shall not exceed 20% of the bank’s paid-up share capital and reserves.

Our ability to build overseas asset portfolios and exploit business opportunities overseas is limited by the requirement to maintain assets in India of at least 75% of our demand and time liabilities in India. Our ability to produce documents and records for inspection is regulated. The RBI is empowered to direct and generally advise us and may prohibit us from entering into certain transactions and agreements. We are required to obtain prior approval of RBI before we appoint our Chairman, Managing Director and CEO and any other full-time Directors and fix their remuneration. The RBI has powers to remove managerial and other persons from office, and to appoint additional directors. We are also required to obtain approval of the RBI for the creation of floating charges for our borrowings, thereby hampering leverage.

Any changes in the regulatory environment, under which we operate, or our inability to comply with the regulations, could adversely affect our business, reputation, results of operations and financial condition.

We have instances of negative operating cash flows in the past. If we continue to experience negative cash flows in the future, our business, financial condition and results of operations could be adversely affected.

Our net cash flow from operating activities has reduced from ` 2,367.23 million for fiscal 2011 to ` (713.79) million for fiscal 2012. The reduction in cash flow from operating activities is primarily due to net increase in purchase of securities and shares amounting to ` 9,696.06 million and due to net increase in advances of ` 29,442.30 million.

In the event we continue to experience negative cash flow in the future, we may not be able to generate sufficient amount of cash to finance our future growth of assets, which could have a material adverse effect on our business, financial condition and results of operations.

For further details, please refer to section titled ‘Financial Statements’ on page 187.

Any increase in our portfolio of Non-Performing Assets (“NPAs”) will have a material adverse effect on our financial condition and results of operations.

As of March 31, 2012, 2013 and 2014, our gross NPAs were ` 1,235.41 million, ` 1,731.02 million and ` 2,930.64 million, representing 1.01%, 1.13% and 1.81% of our gross advances, respectively.

For borrowings exceeding ` 1.00 million, we categorise our borrowers into three categories, namely, high risk borrowers, moderate risk borrowers and low risk borrowers. As of March 31, 2014, 27.93% (i.e., ` 45,317.21 million) of our gross advances were to borrowers whom we did not rate as the loans availed by them are less than ` 1.00 million. For the remaining 72.07% (i.e., ` 116,919.01 million) of our gross advances, 51.34% (i.e., ` 83,299.03 million) were towards low risk category, 16.88% (i.e., ` 27,382.94 million) were towards moderate risk category and 3.84% (i.e., 6,237.04 million) were towards high risk category, as of March 31, 2014.

Borrowers in the high risk category could be especially vulnerable if economic conditions worsen or economic growth is slow, which could adversely affect our business, results of operations and financial conditions. Although our loan portfolio contains loans to a wide variety of businesses, adverse market conditions in these sectors could increase our level of NPAs. As of March 31, 2014, concentration of NPAs, as a percentage of our gross NPAs, was `1,782.37 million constituting 60.82% in iron and steel sector, ` 371.88 million constituting 12.69% in the agricultural sector and ` 105.63 million constituting 3.60% in the education sector.

Our ability to continue to reduce or contain the level of our NPAs may be affected by a number of factors that are beyond our control including, a sharp and sustained rise in interest rates, unemployment, slowdown in the Indian economy, movements in global commodity markets and exchange rates, global competition, adverse changes in government policies, laws or regulations and performance of various industry sectors including the ‘priority sectors’. In addition, the expansion of our business may also cause the level of our NPAs to increase. Although we constantly endeavour to improve our collections, we cannot assure you that we will be successful in our efforts or that the overall quality of our loan portfolio may not deteriorate in the future. If we are not able to control and reduce our NPAs, it could adversely affect our business, financial condition and results of operations.

Our logo is not registered and we may be unable to effectively prohibit other persons from using our logo, which may adversely affect our goodwill and business. Further, any breach by us of third party intellectual property rights could divert management attention and require us to pay financial compensation to such third parties.

The trademarks used by us including our logo , are not registered. Unauthorized parties may attempt to use our logo and our other trademarks and applicable laws may not adequately protect our proprietary rights. Monitoring unauthorized use of our trademarks is difficult and costly, and we cannot be certain that the steps will be effective to prevent passing off and other unauthorized use of our trademark resulting in dilution of our goodwill. We may have to resort to litigation to enforce our proprietary rights, which could result in substantial costs and diversion of management attention and resources.

Further, we may become subject to claims by third parties if we use slogans, names, designs, software or other such subjects in breach of any intellectual property rights registered by such third parties. Any legal proceedings pursuant to such claims, or settlements thereunder, may divert management attention and require us to pay financial compensation to such third parties, as well as compel us to change our marketing strategies or brand names of our products and services.

Any failure to enforce our proprietary rights could require us to make changes to our trademarks and our logo, which could have an adverse effect on our business, goodwill, financial condition and results of operations. Further, any legal proceedings pursuant to claims, or settlements thereunder, may require us to pay financial compensation thereby adversely affecting our goodwill and business.

If our risk management policies and procedures do not adequately address unidentified or unanticipated risks, our business could be adversely affected.

We have devoted significant resources to develop our risk management policies and procedures and aim to continue to do so in the future. We have set up a credit risk management committee (CRMC) for credit risk, operations risk management committee (ORMC) for operations risk and ALCO for market and liquidity risk. We have also set up a risk management committee of executives (RMCE) to implement and review our risk management activities. These committees meet at regular intervals to discuss the various risks and identify and implement risk mitigation. These committees have senior management executives as members, with experience relevant to the respective functional areas. The Board has constituted a risk management committee (RMC) consisting of Directors who oversee and guide the various risk management committees referred above. We have implemented the “International Convergence of Capital Measurement and Capital Standards” or the Basel II, as applicable to banks in India. We have also complied with RBI guidelines on Basel III capital regulations with effect from April 1, 2013, by computing the capital funds and risk weighted assets as per RBI circular dated May 2, 2012.

Despite this, our policies and procedures to identify, monitor and manage risks may not be fully effective. Some of our risk management systems are not automated and are subject to human error. Some of our methods of managing risk are based upon the use of observed historical market behavior. As a result, these methods may not accurately predict future risk exposures which could be significantly greater than indicated by historical measures.

Management of operations, legal and regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies and procedures may not be fully effective. As we seek to expand the scope of our operations, we also face the risk of being unable to develop risk management policies and procedures that are properly designed for new business areas or to manage the risks associated with the growth of our existing businesses. Implementation and monitoring may prove particularly challenging with respect to businesses that we plan on developing. Inability to develop and implement effective risk management policies may adversely affect our business, prospects, financial condition and results of operations.

We are exposed to possible losses arising out of derivative transactions which could have a material adverse effect on our business, financial condition and results of operations.

We undertake foreign exchange forward contracts for our customers and hedge them with other banks. We are also engaged in dealing with other banks on account of proprietary trading.

Set forth below are our outstanding foreign exchange contracts for the fiscals 2012, 2013 and 2014: (` in million) Fiscal 2012 Fiscal 2013 Fiscal 2014 On behalf of clients 2,922.30 1,673.66 1,979.73 Proprietary capacity 79,909.58 43,290.81 34,635.10 Total 82,831.88 44,964.47 36,614.83

Our derivative transactions are subject to regular monitoring by our risk assessment committee to ensure compliance with limits prescribed by RBI. However, we cannot assure you that we will be able to anticipate the movement in foreign exchange or at all. Failure to anticipate the foreign exchange movement could cause us to incur losses in such derivatives or forward contracts, thereby adversely affecting our business and financial condition.

Our success depends, in large part, upon our management team and skilled personnel and our ability to attract and retain such persons. In the event we are not able to attract talented employees, or are unable to motivate and retain our existing employees, the future of our business and operations may be affected.

As of March 31, 2014, we had 4,215 employees.

Since banking business is service oriented, our performance and success depends largely on our ability to nurture and retain the continued service of our management team and skilled personnel. We also face a continuing challenge to recruit a sufficient number of suitably skilled personnel, particularly as we continue to grow. There is significant competition for management and other skilled personnel in the banking industry.

In the event we are not be able to attract talented employees, or are unable to motivate and retain our existing employees, the future of our business and operations may be affected. Further, any employee unrest in the future could adversely affect our business and operations.

We are subject to annual financial inspection (“AFI”) by RBI. Non-compliance with RBI observations could adversely affect our business, financial condition or results of operations.

We are subject to an AFI by RBI under the Banking Regulation Act. In the past certain observations were made by RBI during the AFI regarding our business and operations in its AFI reports. In these reports, the RBI has identified certain deficiencies in the operations of our Bank in, inter-alia, the following areas:

credit appraisal processes; system identification of NPAs; system generation of MIS reports; priority sector lending; and KYC requirements.

Inspection by the RBI is a regular exercise and is carried out periodically by the RBI for all banks and financial institutions.

While we attempt to be in compliance with all regulatory provisions applicable to us, in the event we are not able to comply with the observations made by the RBI, we may be subject to penalties by the RBI. Imposition of any penalty by RBI may have a material adverse effect on our reputation, financial condition and results of operations.

Our statutory auditors have issued a matter of emphasis in their audit report on our financial statements for the financial year ended March 31, 2014.

Our Auditors have included a matter of emphasis in their audit report on the financial statements for Fiscal 2014, which reads as follows:

“ Emphasis of Matter

7. Without qualifying our opinion, we draw attention to:

(a) Note 9 of the financial statements, which describes the accounting treatments of the expenditure on creation of Deferred Tax Liability of Rs. 30.25 crore on Special Reserve under section 36(1)(vii) of the Income Tax Act, 1961 as at 31st March 2013, pursuant to RBI’s circular No. DBOD No. BO.BC.77/21.04.018/2013-14 dated 20th December 2013.”

For further details, see the section titled “Financial Statements” on page 187.

We are subject to various operational and other risks associated with the financial industry which, if materialised, may have an adverse impact on our business.

The proper functioning of our financial control, risk management, accounting or other data collection and processing systems, together with the communication networks connecting our various branches and offices is

43 critical to our operations and ability to compete effectively. We are exposed to many types of operational risk, including:

fraud or other misconduct by employees or outsiders; unauthorised transactions by employees and third parties (including violation of regulations for prevention of corrupt practices and other regulations governing our business activities); unauthorised use of debit cards at ATMs; misreporting or non-reporting with respect to statutory, legal or regulatory reporting and disclosure obligations; any breach of network security; and operational errors, including clerical or record keeping errors or errors resulting from faulty computer or telecommunications systems.

In the past we have experienced fraud committed by our employees and customers ranging from misuse of discretionary powers to misappropriation of funds. Though we have been able to recover the amounts involved in a majority of such cases, we cannot assure you that such cases will not happen or we will be able to recover such amount in the future. Further, we cannot assure you that any such incident will not have an adverse effect on our reputation. For details of material frauds committed by our employees and customers, please see section titled “Legal Proceedings” on page 176.

In addition, we may also be exposed to other different types of risk during our operations, including but not limited to credit risk, counterparty risk, market risk, liquidity risk and operational risk.

Further, we outsource certain functions such as, money transfer, counter payments collection and tax collection, to other agencies and are exposed to the risk that external vendors or service providers may be unable to fulfill their contractual obligations to us (or will be subject to the same risk of fraud or operational errors by their respective employees) and to the risk that its (or its vendors’) business continuity and data security systems prove to be inadequate. Although we maintain a system of controls designed to keep operational risk at appropriate levels, there can be no assurance that we will not suffer losses from operational risks in the future which can have an adverse affect on our business, results of operations, financial condition and the price of the Equity Shares.

Due to the limited information regarding loan servicing histories of customers in India, we may be at a higher risk compared to banks with lending operations in more developed countries. We depend on the accuracy and completeness of information furnished by the customers and counterparties and any misrepresentation, errors or incompleteness of such information could cause our business to suffer.

Unlike several more developed economies, a nationwide credit bureau has become operational in India only recently, and therefore, adequate information regarding loan servicing histories, particularly in respect of individuals and small businesses, is limited. As a result, our credit risk exposure is higher compared to banks operating in more developed markets. Because our lending operations are primarily limited to India, we may be exposed to a greater potential for loss compared to banks with lending operations in more developed countries. For example, in case of traders and farmers where inadequate loan servicing histories are available, we have extended 20.27% (i.e., ` 24,778.81 million), 18.29% (i.e., ` 2,8068.74 million) and 17.88% (i.e., ` 2,9004.49 million) of our total advances to traders and 2.68% (i.e., ` 3,273.52 million), 6.11% (i.e., ` 9,373.61 million) and 7.80% (i.e., ` 12,655.72 million) of our total advances to farmers as of March 31, 2012, 2013 and 2014, respectively. Inadequate loan servicing histories for such borrowers increase the risk on such exposure and may lead to an increase in our NPAs which may adversely affect our business, results of operations and financial condition.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of our customers and counterparties, including financial statements and other financial information. We may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operation and cash flows of the customer.

The difficulties associated with the inability to accurately assess the value of collateral and to enforce rights in respect of collateral, along with the absence of such accurate statistical, corporate and financial information,

44 may decrease the accuracy of our assessments of credit risk, thereby increasing the likelihood of borrower default on our loan and decreasing the likelihood that we would be able to enforce any security in respect of such a loan or that the relevant collateral will have a value commensurate to such a loan. Moreover, the availability of accurate and comprehensive credit information on retail customers and small businesses in India is more limited than for larger corporate customers, which reduces our ability to accurately assess the credit risk associated with such lending.

Difficulties in assessing credit risks associated with our day-to-day lending operations may lead to an increase in the level of our non-performing and restructured assets, which could materially and adversely affect our business, financial condition and results of operations.

We may be unable to foreclose on collateral or there may be decreases in the value of collateral which, if a borrower defaults, may result in failure to recover the expected value of the collateral, exposing us to a potential loss.

As of March 31, 2012, 2013and 2014, 96.81% (i.e., ` 117,501.95 million), 98.06% (i.e., ` 149,495.69 million) and 97.92% (i.e., ` 157,612.45 million), respectively, of our net advances were secured by charges on tangible assets, mortgages on immovable property and stocks. In certain cases, we obtain security by way of pledge of shares, assignment of life insurance policies and ‘kisan vikas patras’. Any decrease in the value of collateral at the time of recovery will have an adverse impact on the quantum of recovery.

In India, foreclosure on collateral generally requires a written petition to a court or tribunal. Although special tribunals have been set up for expeditious recovery of debts due to banks, any proceedings brought may be subject to delays and administrative requirements that may result, or be accompanied by, a decrease in the value of the collateral. The SARFAESI Act and the Debt Recovery Tribunal Act, 1993 have strengthened the ability of lenders to recover NPAs by granting them greater rights to enforce security and recover amounts owed from secured borrowers. However, there can be no assurance that this legislation will have a favourable impact on our efforts to recover NPAs as the full effect of such legislation is yet to be determined in practice. Any failure to recover the expected value of the collateral would expose us to a potential loss.

In addition, the RBI’s guidelines on corporate debt restructuring specify that for debt amounts of ` 100 million and above, 60% of the creditors by number and 75% of creditors by value can decide to restructure the debt and that such a decision would be binding on the remaining creditors. If we own 25% or less of the debt of a borrower, we could be forced to agree to an extended restructuring of debt which may not act in our interests.

As a result of the foregoing factors, realisation of the full value of collateral may become difficult, which could have an adverse effect on our business and financial condition.

A portion of our advances are unsecured. In case we are unable to recover such advances in a timely manner or at all, it may adversely affect our business, financial condition and results of operations.

As of March 31, 2012, 2013 and 2014, 3.19% (i.e., ` 3,872.65 million), 1.94% (i.e., ` 2,964.88 million) and 2.08% (i.e., ` 3,355.92 million), respectively, of our net advances were unsecured.

While we have been selective in our lending policies and strive to satisfy ourselves with the credit worthiness and repayment capacities of our customers, there can be no assurance that we will be able to recover the interest and the principal advanced by us in a timely manner or at all. Any failure to recover the unsecured advances given to our customers would expose us to a potential loss which could adversely affect our business, financial condition and results of operations.

Certain of our branches are located on premises that have been taken on lease. Further, some of the agreements we enter into for the said leases are inadequately stamped and not registered. The termination of any of these leases or our inability to exercise our rights under the lease agreements may cause disruption in our operations.

As of March 31, 2014, out of a total of our 425 branches, 414 branches were located at premises taken on a lease basis. Such leases are typically for a period of five to ten years. Although we have renewed majority of our leases in the past, our business, financial condition, and operating results could be adversely affected if we are unable to negotiate favorable lease and renewal terms for our existing branches. In case of non-renewal of leases for our existing branches, we will be forced to procure alternative space for our existing branches. Although we

45 procure space that satisfies the safety, operational and financial criteria for our branches, we cannot assure you that we will be able to identify such space at commercially reasonable terms or at all. Failure to identify such space can adversely affect our financial condition and results of operation.

Further, any breach of the terms and conditions of these lease agreements, could result in the termination of the lease agreements and force us to establish operations at another location, which may disrupt our operations temporarily.

Additionally, some of our lease agreements may not be adequately stamped and some of our immoveable properties for our offices, which are taken on lease, may have one or more irregularities of title such as inadequate stamping and/ or non registration of lease agreements and non execution of such lease agreements. Any such irregularity may result in our inability to enforce our rights under such lease agreements which may disrupt our operations and adversely affect our business, financial condition and result of operations.

As of March 31, 2014, our contingent liabilities amounted to ` 51,131.34 million. If any of our contingent liabilities materialise our liquidity, business, prospects, financial conditions and results of operations could be adversely affected.

The contingent liabilities as of March31, 2014 are as follows:

Contingent Liabilities Amount (in ` million.)

Claims against us not acknowledged as debts 29.79 Liability on account of outstanding Forward Exchange Contracts 36,614.83 Guarantees given on behalf of constituents -in India 9,685.36 -outside India 87.79 Acceptances, endorsements and other obligations 4,709.33 Other items for which the Bank is contingently liable 4.24 Total 51,131.34

The contingent liabilities have arisen in the normal course of our business and are subject to the prudential norms as prescribed by RBI. If any of the contingent liabilities specified above materialises, our liquidity, business prospects, financial conditions and results of operations could be adversely affected.

Our ability to pay dividends in the future will depend upon our future earnings, financial condition, cash flows, working capital requirements, capital expenditures and restrictive covenants in our financing arrangements. Further, there are regulatory restrictions on payment of dividend under the RBI guidelines.

Our future ability to pay dividends will depend on our earnings, financial condition and capital requirements. Dividends distributed by us will attract dividend distribution tax at rates applicable from time to time. We cannot assure you that we will generate sufficient income to cover our operating expenses and pay dividends to our shareholders. Our ability to pay dividends could also be restricted under certain financing arrangements that we may enter into in the future.

Further, we cannot pay any dividend on the Equity Shares until all our capitalised expenses have been completely written off. Payment of dividend is further governed by the RBI guidelines, which imposes certain additional requirements.

If we were to raise Tier II capital in the future, the payment of any dividends would be after payment of interest on such capital. In addition, dividends that we have paid in the past may not be reflective of the dividends that we may pay in a future period. The amount of our future dividend payments, if any, will depend upon our future earnings, financial condition, cash flows, working capital requirements, terms and conditions of our indebtedness, capital expenditures and regulation. There can be no assurance that we will be able to pay dividends.

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

We have taken out insurance within a range of coverage consistent with industry practice in India to cover certain risks associated with our business, including money and securities in safe or transit, goods held in trust/ commission, coins/ currency and buildings. We cannot assure you that our current insurance policies will insure us fully against all risks and losses that may arise in the future. In addition, even if such losses are insured, we may be required to pay a significant deductible on any claim for recovery of such a loss, or the amount of the loss may exceed our coverage for the loss. In addition, our insurance policies are subject to annual review, and we cannot assure you that we will be able to renew these policies on similar or otherwise acceptable terms, if at all. If we were to incur a serious uninsured loss or a loss that significantly exceed the limits of our insurance policies, it could have a material adverse effect on our business and financial condition.

Our ability to open branches in Tier 1 centres is subject to fulfillment of certain eligibility criteria prescribed by RBI. In case we are unable to fulfill such eligibility criteria and as a result are unable to open new branches in Tier 1 centres, we may be unable to grow our deposit base which may in turn adversely affect our business prospects.

The opening of new branches and shifting of existing branches of banks is governed by the provisions of the Banking Regulation Act. Domestic scheduled commercial banks are permitted to open branches in Tier 2 to Tier 6 centres, without permission from Reserve Bank of India, subject to reporting requirements to RBI. Further, in terms of RBI circulars dated September 19, 2013 and October 21, 2013, domestic scheduled commercial banks are permitted to open branches in Tier 1 centres without permission of RBI, subject to the following conditions being satisfied:

(a) At least 25% of the total number of branches opened during a financial year (excluding entitlement for branches in Tier 1 centres given by way of incentive), must be opened in unbanked rural (Tier 5 and Tier 6) centres, i.e., centres which do not have a brick and mortar structure of any scheduled commercial bank for customer based banking transactions; and

(b) The total number of branches opened in Tier 1 centres during the financial year (excluding entitlement for branches in Tier 1 centres given by way of incentive) cannot exceed the total number of branches opened in Tier 2 to Tier 6 centres and all centres in the North Eastern States and Sikkim.

As of March 31, 2014, we had 180 branches in Tier 1 centres and 245 branches in Tier 2 to Tier 6 centres.

Our ability to raise fresh deposits and grow our deposit base from Tier 1 centres depends in part on our ability to expand our network of branches. There can be no assurance that we will be able to satisfy the eligibility criteria for branch expansion to achieve the desired growth in our deposit base as a result of which our business prospects could be adversely affected.

Part of our investment portfolio is exposed to risks relating to mark-to-market valuation.

As of March 31, 2014 our investment portfolio comprising of securities under the available for sale category and held for trading category constitutes ` 4,602.44 million. In the event of a rise in interest rates or adverse market conditions, our investment portfolio comprising of securities under the aforesaid categories will be exposed to the adverse impact of the mark-to-market valuation. Any rise in interest rates or adverse market condition leading to a fall in the market value of such investments may adversely affect our profitability and financial condition.

We have concentrations of loans to and deposits from certain customers, which exposes us to risk of credit losses and premature withdrawal of deposits from these customers that could materially and adversely affect our business, results of operations and financial condition.

Our advances (funded and non-funded) to the twenty largest borrowers, accounted for approximately 15.15% (i.e., ` 18,512.90 million), 12.67% (i.e., 1,9440.50 million) and 10.25% (i.e., ` 1,6623.20 million) of our total advances as of March 31, 2012, 2013 and 2014, respectively. We cannot assure you that there will not be any delay in payments of interest and/or principal from these borrowers.

Further, our deposits from the twenty largest depositors, accounted for approximately 12.96% (i.e., ` 211,825.21 million), 14.50% (i.e., ` 29,439.12 million) and 12.38% (i.e., ` 27,262.61 million) of our total deposits as of March 31, 2012, 2013 and 2014, respectively. We cannot assure you that there will not be any premature withdrawal or non-renewal of deposits from these depositors.

In the event any of the above risk materialises, our business, results of operations and financial conditions may be adversely affected.

Deterioration in the performance of any of the industry sectors where we have significant exposure may adversely impact our business, results of operations and financial condition.

Our total exposure to borrowers is dispersed across various industry sectors, the most significant of which are agriculture, iron and steel and cotton, which represented 15.39% (i.e., ` 31,566.82 million), 6.57% (i.e., ` 13,485.52 million) and 5.90% (i.e., ` 12,093.78), respectively, of our outstanding fund and non-fund based exposures as of March 31, 2014. As of March 31, 2014, of our total NPAs, 12.69% (i.e., ` 371.88 million), 60.82% (i.e., ` 1,782.37 million) and 0.53% (i.e., ` 15.46 million) were towards agriculture, iron and steel sector and cotton, respectively.

Further, it has been our policy to diversify the exposure over different industry sectors. We have fixed exposure norms (sectoral cap) for major industry sectors. For example, our internal policies set out limit of our credit exposure to any particular industry depending upon the nature of that industry.

Any significant deterioration in the performance of the industry sector we lend to (including ‘priority sectors’), driven by events not within our control, such as regulatory action or policy announcements by Government or State government authorities, would adversely impact the ability of borrowers in that industry sector to service their debt obligations.

We cannot assure you that we will be able to diversify our exposure over different industry sectors in the future. Failure to maintain diverse exposure resulting in industry sector concentration may adversely impact our business, financial condition and results of operation, in case of any significant deterioration in performance of such industry sector.

Weaknesses, disruption or failures in IT systems could adversely impact our business.

Our principal delivery channels include our branches and ATMs, particularly those utilized for our retail products and services and transaction banking. The increasing size of our operations, which use automated control and recording systems for record keeping, exposes us to the risk of errors in control and record keeping. Given our high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our dependence upon automated IT systems to record and process transactions may further increase the risk that technical system flaws will result in losses that are difficult to detect. As a result, we face the risk that the design of our controls and procedures may prove inadequate thereby causing delays in detection or errors in information.

Further, our other delivery channels include online, net-banking and mobile banking services. These services are subject to various risks such as network connectivity failure, information security issues and browser compatibility issues. To address these risks, we continue to put risk mitigation measures like installing server fault tolerant system and load balancing devices, standard algorithms and multifactor authentication for online transactions and ongoing testing of internet browsers. However, if our risk mitigating measures are proved to be inadequate, it may adversely affect our customer service and render our security systems ineffective. Failure to maintain adequate risk mitigating measures may result in loss of our customer base, thereby adversely affecting our financial condition and results of operation.

We may also be subject to disruptions of our IT systems, arising from events that are wholly or partially beyond our control (including, for example, computer viruses, hacking, cyber attacks or similar disruptive problems or electrical or telecommunication outages), which may give rise to deterioration in customer service and to loss or liability to us. A partial or complete failure of any of our primary systems or communication networks could still materially and adversely affect our decision-making process, risk management or internal controls as well as timely response to market conditions.

We may seek growth opportunities through acquisitions or be required to undertake mergers on the recommendation of the RBI, which exposes us to integration and other acquisition risks.

We may seek growth opportunities through acquisitions or be required to undertake mergers recommended by the RBI. In the past, RBI has ordered mergers of weak banks with other banks primarily in the interest of depositors of the weak banks.

Any future acquisition or merger is subject to risks and uncertainties, some of which are beyond our control, including:

difficulties in operating the integrated information technology system, electronic banking system, risk management and other systems; challenges in harmonising the two or more corporate cultures; difficulties in maintaining asset quality; difficulties in leveraging synergies and rationalising operations; difficulties in retaining and attracting customers and employees; difficulties in developing new skills required for new business and markets; and diversion of management’s attention required to integrate the two businesses following the acquisition or merger, one or more of which could have an adverse effect on our business.

In addition to the above risks, we cannot assure you that such merger will be in our interest or will positively impact our growth and performance. Any negative impact of a merger can adversely affect our business, results of operation, financial condition and the price our Equity Shares.

We cannot assure you that RBI will not recommend to us to undertake mergers in the future, which may have an adverse affect on our business and financial condition.

We are exposed to fluctuation in foreign exchange rates.

As a bank, we are exposed to exchange rate risk. We comply with regulatory limits on our unhedged foreign currency exposure. However, we are exposed to fluctuation in foreign currency rates for our unhedged exposure. Adverse movements in foreign exchange rates may also impact our borrowers negatively which may in turn impact the quality of our exposure towards these borrowers. Volatility in foreign exchange rates could adversely affect our business, financial conditions and results of operation.

Statistical, industry and financial data in this Preliminary Placement Document may be incomplete or unreliable.

We have not independently verified data obtained from industry publications and other sources referred to in this Preliminary Placement Document and therefore, while we believe them to be true, we cannot assure you that they are complete or reliable. Such data may also be produced on different bases from those used in the industry publications we have referenced. Therefore, discussions of matters relating to India, its economy and the industries in which we currently operate are subject to the caveat that the statistical and other data upon which such discussions are based may be incomplete or unreliable. See the section “Industry Overview” on page 92.

Risks relating to Equity Shares and the Issue

The Equity Shares Allotted pursuant to the Issue will be listed on the NSE, the BSE and the MSE and you will not be able to sell immediately on the NSE, the BSE and the MSE any of the Equity Shares Allotted.

Except as disclosed in the section titled “Market Price Information and other information concerning the Equity Shares” on page 61, our Equity Shares are currently listed and traded on the NSE, the BSE and the MSE and the Equity Shares offered pursuant to the Issue will be listed and traded on NSE, the BSE and the MSE. Listing and trading of Equity Shares to be Allotted are subject to the receipt of final approval from the Stock Exchanges. We cannot assure that the Equity Shares will be credited to investors’ demat accounts, or that trading in the Equity Shares will commence, within the time periods specified in this Preliminary Placement Document. Any failure or delay in listing the Equity Shares on NSE, the BSE and the MSE would restrict investors’ ability to dispose of their Equity Shares.

Future issuances or sale of the Equity Shares could significantly affect the price of the Equity Shares.

The future issuance of Equity Shares by us, including through a preferential allotment to certain investors or pursuant to ESOS 2008, or the disposal of Equity Shares by any of our major shareholders, or the perception that such issuance or sales may occur may significantly affect the price of the Equity Shares. In the event of issue of additional Equity Shares in any of the modes stated above or otherwise, existing shareholders, including investors participating in the Issue, may experience dilution and the price of the Equity Shares may decline. Further, any sale of a significant number of the Equity Shares can adversely impact the price of the Equity Shares and as a result, the value of your investment may decline.

There can be no assurance that we will not issue Equity Shares or that our shareholders will not dispose of the Equity Shares.

For further information with respect to our shareholders and their shareholding, see the section titled “Principal Shareholders” on page 143.

The market value of an investor’s investment may fluctuate due to the volatility of the Indian securities markets.

The Indian securities markets are smaller and may be more volatile than the securities markets in other more developed jurisdictions. The Stock Exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. The stock exchanges in India, in line with global developments, have witnessed substantial volatility in the recent past. In addition, the governing bodies of the Stock Exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time, disputes have occurred between listed companies, the Stock Exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment.

Any trading closures at the Stock Exchanges may adversely affect the price of the Equity Shares.

The Stock Exchanges have in the past experienced problems, including temporary exchange closures, broker defaults, settlement 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, including the Equity Shares. A closure of, or trading stoppage on the Stock Exchanges could adversely affect the price of the Equity Shares.

There are restrictions on daily movements in the price of the Equity Shares, which may adversely affect a shareholder's ability to sell, or the price at which it can sell Equity Shares at a particular point in time.

We are subject to a daily “circuit breaker” imposed by Stock Exchanges, which does not allow transactions beyond specified increases or decreases in the price of the Equity Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by the SEBI on Indian stock exchanges. The maximum movement allowed in the price of the Equity Shares before the circuit breaker is triggered is determined by the Stock Exchanges based on the historical volatility in the price and trading volume of the Equity Shares. The Stock Exchanges will inform us of the triggering point of the circuit breaker in effect from time to time, but may change it without our knowledge. This circuit breaker will limit the upward and downward movements in the price of the Equity Shares. As a result of this circuit breaker, no assurance may be given regarding your ability to sell your Equity Shares or the price at which you may be able to sell your Equity Shares at any particular time.

An investor will not be able to sell any of the Equity Shares subscribed in this Issue other than across a recognised Indian stock exchange for a period of 12 months from the date of the issue of the Equity Shares.

Pursuant to the SEBI Regulations, for a period of 12 months from the date of the issue of the Equity Shares in this Issue, QIBs subscribing to the Equity Shares may only sell their Equity Shares on the Stock Exchanges and may not enter into any off-market trading in respect of these Equity Shares. We cannot be certain that these restrictions will not have an impact on the price of the Equity Shares. Further, allotments made to FVCIs, VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements. This may affect the liquidity of the Equity Shares purchased by investors and it is uncertain whether these restrictions will adversely impact the market price of the Equity Shares purchased by investors.

You will not, without prior RBI approval, be able to acquire Equity Shares if such acquisition would result in

50 an individual or group holding 5.00% or more of our share capital or voting rights; you may not be able to exercise voting rights in excess of 10.00% of the total voting rights; and we are required to seek post facto approval from the RBI.

The Banking Regulation Act, as amended on January 18, 2013, requires any person to seek prior approval of the RBI, to acquire or agree to acquire shares or voting rights of a bank, either directly or indirectly, by himself or acting in concert with other persons, wherein such acquisition (taken together with shares or voting rights held by him or his relative or associate enterprise or persons acting in concert with him) results in the aggregate shareholding of such persons to be 5% or more of the paid-up share capital of a bank or entitles him to exercise 5% or more of the voting rights in a bank. Such approval may be granted by the RBI if it is satisfied that the applicant meets certain fitness and propriety tests. The RBI may require the proposed acquirer to seek further RBI approval for subsequent acquisitions. Further, the RBI may, by passing an order, restrict any person holding more than 5% of the total voting rights of the bank from exercising voting rights in excess of 5%, if such person is deemed to be not fit and proper by the RBI. In addition, pursuant to the Banking Regulation Act, no shareholder in a bank can exercise voting rights on poll, in excess of 10% of the total voting rights of all the shareholders of the bank. This limit may be increased to 26% by the RBI in a phased manner.

As specified by the RBI in its letter dated June 27, 2014 and as required in terms of the RBI circular dated 20 April 2010, upon completion of the Issue, we are required to obtain a post facto approval from the RBI. The requirement to obtain post facto approval from RBI is irrespective of the Issue resulting in an entity/group holding 5% or more of the paid-up capital of the Bank. Upon completion of the Issue, we would be required to furnish complete details of the Issue, including details of the investors, to the RBI to seek their post facto approval. We cannot assure you that the RBI will not impose any adverse condition upon us while providing their approval.

Applicants to the Issue are not allowed to withdraw their Bids after the Bid Closing Date.

In terms of the SEBI Regulations, applicants in the Issue are not allowed to withdraw their Bids after the Bid Closing Date. The Allotment of Equity Shares in this Issue and the credit of such Equity Shares to the applicant’s demat account with depository participant could take approximately seven days and up to 10 days from the Bid Closing Date. However, there is no assurance that material adverse changes in the international or national monetary, financial, political or economic conditions or other events in the nature of force majeure, material adverse changes in our business, results of operation or financial condition, or other events affecting the applicant’s decision to invest in the Equity Shares, would not arise between the Bid Closing Date and the date of Allotment. Occurrence of any such events after the Bid Closing Date could also impact the market price of the Equity Shares. The applicants shall not have the right to withdraw their Bids in the event of any such occurrence. We may complete the Allotment of the Equity Shares even if such events may limit the applicants’ ability to sell the Equity Shares after the Issue or cause the trading price of the Equity Shares to decline.

Risks relating to India

The growth of the Indian banking industry may not be sustainable.

The Indian banking industry has experienced substantial growth, consistent with the economic development of India. We expect the banking industry in India to expand as a result of continued growth in the Indian economy and increase in household income, among other factors. However, since the second half of 2008, global markets have experienced tremendous volatility as a result of the turmoil originating from the United States sub-prime mortgage crisis, which has brought about a global economic downturn, and concerns over sovereign debt, particularly in Europe, which have impeded a global recovery. Following the global financial crisis, the Indian economy witnessed growth of 6.5% for the financial year 2012. Though the baseline projection of GDP growth for the financial year 2013 was projected at 7.3% it has been revised downward to 5.8% due to subdued outlook for economic activity. (Source: RBI Monetary Policy Statement 2012-13 and RBI, Second Quarter Review of Monetary Policy 2012-13) Although India’s industrial output has picked up marginally, increased global risks and domestic risks accentuated by halted investment demand, moderation in consumption spending and continuing erosion in export competitiveness, the RBI anticipates a further slowdown in Fiscal 2013. (Sources: RBI, Second Quarter Review of Monetary Policy 2012-13). It is uncertain whether the Indian economy and the banking industry can return to previous levels of growth. Consequently, we cannot assure you that the growth and development of the Indian banking industry will be sustainable. If the rate of growth of the Indian banking industry slows down, our business, financial condition and results of operations may be materially and adversely affected.

Our business is substantially affected by prevailing economic conditions in India.

We are incorporated in India, and the majority of our assets and employees are located in India. As a result, we are highly dependent on prevailing economic conditions in India and our results of operations are significantly affected by factors influencing the Indian economy. Factors that may adversely affect the Indian economy, and hence our results of operations, may include:

any increase in Indian interest rates or inflation; any scarcity of credit or other financing in India, resulting in an adverse impact on economic conditions in India; prevailing income conditions among Indian consumers and Indian corporations; volatility in, and actual or perceived trends in trading activity on the Stock Exchanges; changes in India’s tax, trade, fiscal or monetary policies; political instability, terrorism or military conflict in India or in countries in the region or globally, including in India’s various neighbouring countries; prevailing regional or global economic conditions, including in India’s principal export markets; and other significant regulatory or economic developments in or affecting India or its entertainment industry.

Any slowdown or perceived slowdown in the Indian economy, or in specific sectors of the Indian economy, could adversely impact our business and financial condition and the price of the Equity Shares.

Inflation in India could have an adverse impact on our business.

In recent months, consumer and wholesale prices in India have exhibited marked inflationary trends, with particular increases in the prices of food, metals and crude oil. According to the RBI Handbook of Statistics on the Indian Economy, inflation measured by the Indian WPI increased from 1.6% as of 31 March 2009 to 10.4% as of 31 March 2010 and decreased to 9.7% as of 31 March 2011 and to 7.7% as of 31 March 2012. WPI inflation accelerated to a 14-month high of 7.5% in November 2013, compared to 7.0% in October 2013 and 7.2% in November 2012, and had since then fallen to a low of 4.7% in February 2014. The rise in WPI for November 2013 was spread across all categories of goods, mainly driven by elevated food prices (19.9%) and primary articles prices (15.9%), whereas disinflationary trends in the period between November 2013 and February 2014 were led by a lowering of food prices as the pace of decline in vegetable prices at the wholesale market gained momentum. As a result of increased inflation, the RBI increased policy rates five times in fiscal 2012, but reversed its policy stance beginning April 2012, gradually reducing the bank rate to 8.25% with effect from May 3, 2013. However, the RBI increased again the bank rate to 10.25% effective July 15, 2013 to stop the decline in the Rupee’s value. Currently, the repo rate is at 8.00% as revised on 28 January 2014. Any increased volatility or rate of inflation of global commodity prices, particularly oil and steel prices, could adversely affect our borrowers and contractual counterparties. Although the RBI has enacted certain policy measures designed to curb inflation, these policies may not be successful. Any slowdown in the growth of the manufacturing services or agricultural sectors could adversely impact our business, financial condition and results of operations.

Natural disasters and other disruptions could adversely affect the Indian economy and could cause our business and operations to suffer and the price of our Equity Shares to decrease.

Our operations, including our branch network, may be damaged or disrupted as a result of natural disasters such as earthquakes, floods, heavy rainfall, epidemics, tsunamis and cyclones and other events such as protests, riots and labour unrest. Such events may lead to the disruption of information systems and telecommunication services for sustained periods. They also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our provision of services could adversely affect our reputation, our relationships with our customers, our senior management’s ability to administer and supervise our business or it may cause us to incur substantial additional expenditure to repair or replace damaged equipment or rebuild parts of our branch network. We may also be liable to our customers for disruption in services resulting from such damage or destruction. Our insurance coverage for such liability may not be sufficient. Any of the above factors may adversely affect our business and financial results, the quality of our customer service and the price of our Equity Shares.

A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could have an adverse impact on us. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth.

India’s foreign exchange reserves have generally increased from 2009 to stand at U.S.$ 294.4 billion as of March 31, 2012, but decreased 0.6% to U.S.$ 292.6 billion as of March 31, 2013, according to the RBI. As of June 27, 2014, India’s foreign exchange reserves were U.S.$ 315.78 billion. Flows to foreign exchange reserves can be volatile, and past declines may have adversely affected the valuation of the Rupee. There can be no assurance that India’s foreign exchange reserves will not decrease again in the future. Further decline in foreign exchange reserves, as well as other factors, could adversely affect the valuation of the Rupee and could result in reduced liquidity and higher interest rates that could adversely affect our business, financial condition and results of operations.

Investors in the Equity Shares may not be able to enforce a judgment of a foreign court against the Bank, its directors or executive officers.

Our Bank is a limited liability company incorporated under the laws of India. Substantially all of our Bank’s Directors and executive officers and key managerial personnel are residents of India and a substantial portion of the assets of the Bank and such persons are located in India. As a result, it may not be possible for investors to effect service of process upon our Bank or such persons outside India, or to enforce judgments obtained against such parties in courts outside of India.

Recognition and enforcement of foreign judgments are provided for under Section 13 and Section 44A of the Civil Procedure Code on a statutory basis. Section 13 of the Civil Procedure Code provides that foreign judgments shall be conclusive as to any matter thereby directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except: (a) where it has not been pronounced by a court of competent jurisdiction; (b) where it has not been given on the merits of the case; (c) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable; (d) where the proceedings in which the judgment was obtained are opposed to natural justice; (e) where it has been obtained by fraud; and (f) where it sustains a claim founded on a breach of any law in force in India.

Under the Civil Procedure Code, a court in India shall presume, upon the production of any document purporting to be a certified copy of a foreign judgment, that such judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court, within the meaning of that Section, in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty and does not include arbitration awards.

The United Kingdom, Singapore and Hong Kong, amongst others have been declared by the Government of India to be “reciprocating territories” for the purposes of Section 44A of the Civil Procedure Code. A judgment of a court of a country which is not a reciprocating territory may be enforced only by a fresh suit resulting in a judgment or order and not by proceedings in execution. Such a suit has to be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. A judgment of a superior court of a country which is a reciprocating territory may be enforced by proceedings in execution, and a judgment not of a superior court, by a fresh suit resulting in a judgment or order. The latter suit has to be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Execution of a judgment or repatriation outside India of any amounts received is subject to the approval of the RBI, wherever required. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action were to be brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if that court was of the view that the amount of damages awarded was excessive or inconsistent with public policy, and is uncertain whether an Indian court would enforce foreign judgments that would contravene or violate Indian law.

Continuing high prices of crude oil could adversely affect the Indian economy, which could adversely affect our business.

India imports a substantial portion of its crude oil requirement. While oil prices have declined from their peak levels, any sharp increases or volatility in oil prices and the pass-through of such increases to Indian consumers could have a material negative impact on the Indian economy and the Indian banking and financial system in particular, including through a rise in inflation and market interest rates and a higher trade deficit. Continued high oil prices or further increases in oil prices could affect the Indian economy and the Indian banking and financial system. This could adversely affect our liquidity and business, including our ability to grow, the quality of our assets, our financial condition and the price of the Equity Shares.

The Companies Act, 2013 has effected significant changes to the existing Indian company law framework, which may subject us to higher compliance requirements and increase our compliance costs.

A majority of the provisions and rules under the Companies Act, 2013 have recently been notified and have come into effect from the date of their respective notifications, resulting in the corresponding provisions of the Companies Act, 1956 ceasing to have effect. The Companies Act, 2013 has brought into effect significant changes to the Indian company law framework, such as in the provisions related to issue of capital, disclosures, corporate governance norms, audit matters, and related party transactions. Further, the Companies Act, 2013 has also introduced additional requirements which do not have corresponding equivalents under the Companies Act, 1956, including the introduction of a provision allowing the initiation of class action suits in India against companies by shareholders or depositors, a restriction on investment by an Indian company through more than two layers of subsidiary investment companies (subject to certain permitted exceptions), and prohibitions on advances to directors. We are also required to spend 2.0% of our average net profits during three immediately preceding financial years on corporate social responsibility activities. Further, the Companies Act, 2013 imposes greater monetary and other liability on our Bank, Directors and officers in default, for any non-compliance. To ensure compliance with the requirements of the Companies Act, 2013, we may need to allocate additional resources, which may increase our regulatory compliance costs and divert management attention.

We may face challenges in anticipating the changes required by, interpreting and complying with such provisions due to limited jurisprudence on them. In the event, our interpretation of such provisions of the Companies Act, 2013 differs from, or contradicts with, any judicial pronouncements or clarifications issued by the Government in the future, we may face regulatory actions or we may be required to undertake remedial steps. Additionally, some of the provisions of the Companies Act, 2013 overlap with other existing laws and regulations (such as the corporate governance norms and insider trading regulations). We may face difficulties in complying with any such overlapping requirements. Further, we cannot currently determine the impact of provisions of the Companies Act, 2013 which are yet to come in force. Any increase in our compliance requirements or in our compliance costs may have an adverse effect on our business and results of operations.

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

The Competition Act seeks to prevent business practices that have or are likely to have an appreciable adverse effect on competition in India and has established the CCI. Under the Competition Act, any arrangement, understanding or action, whether formal or informal, which has or is likely to have an appreciable adverse effect on competition is void and attracts substantial penalties. Any agreement among competitors which, directly or indirectly determines purchase or sale prices; directly or indirectly results in bid rigging or collusive bidding, limits or controls the production, supply or distribution of goods and services; or shares the market or source of production or providing of services by way of allocation of geographical area or type of goods or services or number of customers in the relevant market or in any other similar way, is presumed to have an appreciable adverse effect on competition and shall be void. Further, the Competition Act prohibits the abuse of a dominant position by any enterprise. If it is proven that a breach of the Competition Act committed by a company took place with the consent or connivance or is attributable to any neglect on the part of, any director, manager, secretary or other officer of such company, that person shall be guilty of the breach themselves and may be punished as an individual. If we, or any of our employees, are penalised under the Competition Act, our business may be adversely affected. On March 4, 2011, the Government notified and brought into force new provisions under the Competition Act in relation to combined entities (the “Combination Regulation Provisions”), which came into effect from June 1, 2011. The Combination Regulation Provisions require that any acquisition of shares, voting rights, assets or control or mergers or amalgamations, which cross the prescribed asset and turnover based thresholds, must be notified to and pre-approved by the CCI. In addition, on May 11, 2011, the CCI issued the final Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (which were further amended on March 28, 2014).

These regulations, as amended, set out the mechanism for the implementation of the Combination Regulation Provisions under the Competition Act.

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

A significant change in the Government’s economic liberalization and deregulation policies could disrupt our business.

We are incorporated in India and derive our revenues in India with substantially all of our assets located in India. Most of our customers are also located in India. The Government has traditionally exercised and continues to exercise a dominant influence over many aspects of the economy. Its economic policies have had and could continue to have a significant effect on public sector entities. Our business and the market price and liquidity of our Equity Shares may be affected by interest rates, changes in Government policy, taxation, social and civil unrest and political, economic or other developments in or affecting India. Since 1991, successive governments have pursued policies of economic and financial sector liberalisation and deregulation. The current Government, which came to power in May 2009, has announced policies and taken initiatives that support the economic liberalisation program pursued by previous governments, including a recent approval for FDI in multi-brand retail investment, power exchanges and air transport services and increase in investment limits in the broadcasting sector. The policies of the new Government may change the rate of economic liberalisation, specific laws and policies affecting banks and financial institutions, foreign investment and other matters affecting investment in the Equity Shares. While the Government is expected to continue the liberalisation of India’s economic and financial sectors and deregulation policies, we cannot assure you that such policies will be continued. A significant change in the Government’s policies in the future, in particular, those relating to the financial services industry in India, could affect business and economic conditions in India, and could also adversely affect our financial condition and results of operation.

Financial instability in other countries could disrupt our business and cause the price of our Equity Shares to decrease.

The Indian market and the Indian economy are, to a certain extent, influenced by economic and market conditions in other countries, particularly market conditions in the United States and Europe. Although, financial turmoil elsewhere in the world in past years has had limited impact on the Indian economy, 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 us. Although economic conditions are different in each country, investors’ reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of India or other markets may cause volatility in the Indian financial markets and indirectly, in the Indian economy in general. This could negatively impact the Indian economy, including the movement of exchange rates, interest rates and flow of funds in India. Any significant financial disruption could have an adverse effect on our business, future financial condition and the price of our Equity Shares. Although the recent financial crisis has had a limited direct impact on us, we remain subject 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 our control. We also remain subject to counterparty risk to financial institutions that fail or are otherwise unable to meet their obligations to us.

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

Our credit risk may be higher than the credit risk of banks in some developed economies. A nationwide credit bureau has been operational in India only since 2001. This may affect the quality of information available to us about the credit history of our borrowers, especially individuals and small businesses. In addition, the credit risk of our borrowers, particularly small and middle market companies, is higher than borrowers in more developed economies due to the evolving Indian regulatory, political, economic and industrial environment. The directed lending norms of the RBI require us to lend a certain proportion of our advances to “priority sectors”, including agriculture and small enterprises, where our ability to control the portfolio quality is limited and where economic difficulties are likely to affect our borrowers more severely. Any shortfall may be required to be allocated to investments yielding sub-market returns.

Also, several of our corporate borrowers in the past suffered from low profitability because of increased competition from economic liberalisation, a sharp decline in commodity prices, a high debt burden and high interest rates in the Indian economy at the time of their financing, and other factors. The economic growth of India has deteriorated in the last financial year. An economic slowdown and a general decline in business activity in India could result in lower demand for credit and other financial products and services. Moreover, this could impose further stress on these borrowers’ financial soundness and profitability and thus expose us to increased credit risk and may lead to an increase in the level of our NPAs, which could in turn adversely affect our business, including our ability to grow, the quality of our assets, the financial condition and the results of operations.

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

Companies operating in India are subject to a variety of central and state government taxes and surcharges.

Tax and other levies imposed by the central and state governments in India that affect our tax liability include central and state taxes and other levies, income tax, value added tax, turnover tax, service tax, stamp duty, tax on dividends and other special taxes and surcharges which are introduced on a temporary or permanent basis from time to time. Moreover, the central and state tax scheme in India is extensive and subject to change from time to time. The central or state government may in the future increase the corporate income tax it imposes. Any such future increases or amendments may affect the overall tax efficiency of companies operating in India and may result in significant additional taxes becoming payable. Additional tax exposure could adversely affect our business and results of operation.

USE OF PROCEEDS

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

Purpose of Issue

Subject to compliance with applicable laws and regulations, our Bank intends to use the net proceeds received from the Issue to augment its capital base to meet the capital adequacy requirements arising out of growth in our business and to leverage on available business opportunities.

Our Bank does not have an identifiable promoter. Further, none of our Directors are making any contribution either as part of the Issue or separately in furtherance of the objects of the Issue.

CAPITALISATION

Our Bank’s authorized share capital is ` 1,000 million divided into 1,000 million Equity Shares. As on the date of this Preliminary Placement Document, our Bank’s issued, subscribed and paid up capital is ` 542.74 million divided into 542,740,263 fully paid up Equity Shares.

The following table sets forth our Bank’s capitalization (including indebtedness) as at March 31, 2014 on the basis of our audited financial statements as at and for the year ended March 31, 2014, prepared in accordance with Indian GAAP and as adjusted to give effect to the receipt of the gross proceeds of the Issue and the application thereof. This table should be read in conjunction with the sections titled “Management Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” on pages 65 and 187, respectively.

(` in millions) As at March 31, 2014 As adjusted for the Issue* Loan Funds Deposits 220,168.92 [●] Borrowings 3,049.84 [●] Other liabilities & provisions 6,470.18 [●] Total debt 229,688.94 [●] Shareholder funds [●] Share capital 542.74 [●] Reserves & surpluses 19,706.58 [●] Total equity 20,249.32 [●] *To be updated upon closure of the Issue

There has been no material change in the total capitalization of our Bank since March 31, 2014. For further details, see the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Development” and “Legal Proceedings” on pages 66 and 176, respectively.

CAPITAL STRUCTURE

The Equity Share capital of our Bank as at the date of this Preliminary Placement Document is set forth below:

(In ` million, except share data) Aggregate value at face value A AUTHORISED SHARE CAPITAL 1,000 million Equity Shares 1,000.00

B ISSUED, SUBSCRIBED AND PAID-UP CAPITAL BEFORE THE ISSUE 542,740,263 Equity Shares(1) 542.74

C PRESENT ISSUE IN TERMS OF THIS PRELIMINARY PLACEMENT DOCUMENT [●] Equity Shares aggregating to ` [●](2) [●]

D PAID-UP CAPITAL AFTER THE ISSUE [●] Equity Shares [●]

E SECURITIES PREMIUM ACCOUNT Before the Issue 4,519.04 After the Issue [●]

(1) As of June 30, 2014, a total of 34,763,285 employee stock options are outstanding and vested with the employees of our Bank which are convertible into 34,763,285 Equity Shares at exercise prices of ` 11.60 per Equity Share for Series 1 of ESOS 2008, ` 29.60 per Equity Share for Series 2 of ESOS 2008 and ` 41.60 per Equity Share for Series 3 of 2008. (2) The Issue has been authorised by the Board of Directors on July 29, 2013 and the shareholders pursuant to their resolution dated August 30, 2013. The RBI, pursuant to its letter dated June 27, 2014, has granted in principle approval in respect of the Issue.

Equity Share Capital History of our Bank

The history of the Equity Share capital of our Bank is provided in the following table.

Date of allotment Number of Face value Premium per Issue price Consideration equity shares (in `) equity share per equity allotted (in `) share (in `) Between October 31, From October 31, 1904 till August 31, 1982 our Bank issued and allotted 20,000 equity shares of 1904 till August 31, face value of ` 50 each. Corporate records and filings in relation to such allotments are not 1982 traceable by our Bank. See the section titled “Risk Factors – Some of our corporate records relating to allotments of our equity shares in the past are not traceable” on page 39. 20,000 equity shares of face value of ` 50 of our Bank were sub-divided into 100,000 equity shares of face value of ` 10 of our Bank pursuant to the resolution of our shareholders at an EGM held on September 27, 1985. October 1, 1986 100,000 10 - 10 Cash October 1, 1987 300,000 10 - 10 Cash March 31, 1990 500,000 10 - 10 Cash March 31, 1992 500,000 10 - 10 Cash March 30, 1993 3,000,000* 10 5 15 Cash February 29, 1996 900,000 10 10 20 Cash August 23, 1997 2,250,000 10 10 20 Others – allotment 4,350,000 10 15 25 upon conversion of convertible debentures September 26, 1997 (1,006) * - - - - October 20, 1997 1,006 10 15 25 Cash March 31, 1998 6,000,000 10 - - Others – bonus issue July 22, 1998 6,000,000 10 25 35 Cash March 29, 2007 1,200,000 10 159 169 Cash 25,200,000 equity shares of face value of ` 10 of our Bank were sub-divided into 252,000,000 Equity Shares pursuant to the resolution of our shareholders at an AGM held on July 25, 2007. October 8, 2007 18,000,000 1 15.91 16.91 Cash 50,000,000 1 18 19 Cash December 29, 2009 80,000,000 1 5 6 Cash July 31, 2010 1,716,111 1 10.60 11.60 Cash

Date of allotment Number of Face value Premium per Issue price Consideration equity shares (in `) equity share per equity allotted (in `) share (in `) October 27, 2010 1,866,470 1 10.60 11.60 Cash January 30, 2011 382,685 1 10.60 11.60 Cash March 22, 2011 1,065,737 1 10.60 11.60 Cash June 24, 2011 1,683,646 1 10.60 11.60 Cash November 5, 2011 640,746 1 10.60 11.60 Cash March 21, 2012 851,254 1 10.60 11.60 Cash 6,000 1 31 32 Cash August 3, 2012 1,711,337 1 10.60 11.60 Cash 27,900 1 31 32 Cash January 11, 2013 128,987,972 1 19 20 Cash January 25, 2014 3,770,366 1 10.60 11.60 Cash 30,039 1 28.60 29.60 Cash Total 542,740,263 * Certain shareholders who were allotted equity shares of our Bank in its rights issue in 1993 failed to remit call monies payable in respect of these shares, following which 1,006 equity shares issued pursuant to this rights issue were forfeited a resolution of the Board dated September 26, 1997 with authority to re-issue such shares in the manner most beneficial to our Bank.

While all of the outstanding Equity Shares are fully paid up, 180 Equity Shares that had been issued as partly paid up during our Bank's rights issue in 2012 and for which call monies were received subsequently, have not been credited to their holders due to the beneficiary accounts of such holders being inactive.

MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE EQUITY SHARES

As on the date of this Preliminary Placement Document, our Bank’s issued, subscribed and paid up capital totals ` 542.74 million divided into 542,740,263 fully paid up Equity Shares. The Equity Shares are listed on the BSE, NSE and MSE. The closing price of the Equity Shares on the BSE as of July 11, 2014 was ` 74.25 and on the NSE as of July 11, 2014 was ` 74.15. Since, our Equity Shares have not been traded on the MSE since 1998, no market price information relating to the same has been disclosed.

All our outstanding Equity Shares are listed and admitted for trading on the Stock Exchanges except for 1,062 Equity Shares that had been issued as partly paid up during our Bank’s rights issue in 2012 (“Non-traded Shares”) for which call monies have been subsequently received. The Non-traded Shares have not received trading approval from the Stock Exchanges. Out of the Non-traded Shares, 882 Equity Shares have been credited as fully paid-up to the beneficiary account of the holders and subsequently our Bank has applied for trading approval from the Stock Exchanges in respect of these shares, which approval is currently pending. The balance 180 Non-traded Shares have not received trading approval from the Stock Exchanges in light of the fact that they have not yet been credited to the beneficiary accounts of their holders on account of their beneficiary accounts being inactive.

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

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

BSE

Period High Date of No. of Total Low Date No. of Total Average Equity Shares Traded (`) High Equity Volume (`) of Equity Volume Price for in the Periods Shares of Low Shares of the Volume Value (` * Traded Equity Traded Equity Period in on Date Shares on Date Shares (`.) millions) of High Traded of Low Traded on Date on Date of High of Low (` in (` in millions) millions) FY14 57.85 May 29, 44,914 2.58 38.05 Sep 49,744 1.91 49.69 16,031,637 799.64 2013 04, 2013 FY13 63.40 Feb 04, 131,642 8.34 45.40 May 25,586 1.17 53.79 33,680,406 1,867.43 2013 16, 2012 FY12 50.00 Jul 14, 344,810 17.18 39.75 Dec 44,389 1.81 44.99 24,198,122 1,120.72 2011 19, 2011 ____ (Source: www.bseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been used * Average of the daily closing prices.

NSE

Period High Date No. of Total Low Date of No. of Total Average Equity Shares traded in (`) of Equity Volume (`) Low Equity Volume Price for the Periods High Shares of Shares of the Volume Value (` Traded Equity Traded Equity Period in * on Date Shares on Date Shares (`.) millions) of High Traded of Low Traded on Date on Date of High of Low (` in (` in millions) millions) FY14 57.95 May 299,710 17.18 38.00 Sep 04, 286,378 10.99 49.69 82,097,610 4,058.46 29, 2013 2013 FY13 63.40 Feb 1,602,386 101.20 45.35 May 185,044 8.42 53.79 117,459,924 6,560.60 04, 16, 2013 2012 FY12 50.00 Jul 22, 808,496 40.22 39.75 Dec 19, 465,475 19.02 45.02 93,978,985 4,308.90 2011 2011 ____ (Source: www.nseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been used. * Average of the daily closing prices

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

BSE

Months High (`) Date of No. of Total Low (`) Date of No. of Total Average Equity Shares traded High Equity Volume of Low Equity Volume of Price in the Month Shares Equity Shares Equity for the Volume Value (` Traded Shares Traded Shares Month* in on Date of Traded on on Date of Traded on (`.) millions) High Date of Low Date of High (` in Low (` in millions) millions) January 51.45 Jan 71,616 3.68 48.75 Jan 34,702 1.69 50.27 941,362 47.50 2014 01, 30, 2014 2014 February 49.05 Feb 116,733 5.73 45.8 Feb 16,150 0.74 47.59 565,578 27.13 2014 06, 25, 2014 2014 March 53.80 Mar 46,637 2.50 46.25 Mar 41,990 1.95 50.18 1,621,184 81.36 2014 31, 03, 2014 2014 April 2014 58.65 Apr 262,874 15.50 51.05 Apr 24,465 1.26 55.64 1,684,104 94.44 30, 07, 2014 2014 May 2014 73.20 May 132,586 9.77 58.05 May 46,604 2.71 66.16 27,861,309 1,773.09 23. 05, 2014 2014 June 2014 75.75 Jun 120,044 9.09 69.3 Jun 73,190 5.09 72.75 28,351,457 2,102.24 24, 03, 2014 2014 _____ (Source: www.bseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been considered * Average of the daily closing prices.

NSE

Months High (`) Date of No. of Total Low (`) Date of No. of Total Average Equity Shares traded in High Equity Volume Low Equity Volume Price the Month

Shares of Equity Shares of Equity for the Volume Value (` Traded on Shares Traded on Shares Month* in Date of Traded Date of Traded (`.) millions) High on Date Low on Date of High of Low (` (` in in millions) millions) January 51.40 Jan 01, 321,599 16.55 48.7 Jan 30, 198,255 9.68 50.32 6,738,857 340.17 2014 2014 2014 February 49.15 Feb 06, 594,911 29.24 45.85 Feb 24, 174,236 8.02 47.61 3,755,806 179.80 2014 2014 2014 March 2014 53.85 Mar 31, 451,054 24.23 46.15 Mar 03, 124,054 5.74 50.17 10,989,027 553.26 2014 2014 April 2014 58.55 Apr 30, 846,848 49.79 51.05 Apr 07, 392,959 20.35 55.61 12,452,497 694.99 2014 2014 May 2014 73.05 May 23, 735,848 54.27 58.1 May 05, 182,345 10.62 66.12 24,358,604 1,615.81 2014 2014 June 2014 75.70 Jun 24, 1,039,134 78.81 69.25 Jun 03, 436,628 30.31 72.70 18,064,853 1,322.39 2014 2014 ____ (Source: www.nseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been considered * Average of the daily closing prices.

3. Market Price on the first working day following the Board meeting approving the Issue, i.e. on July 30, 2013:

BSE

Date Open High Low Close Traded Volume (No. Total Value of Equity of Equity Shares) Shares traded (` in millions) July 30, 2013 48.00 49.20 47.00 47.25 192,430 9.20 _____ (Source: www.bseindia.com)

NSE

Date Open High Low Close Traded Volume (No. Total Value of Equity of Equity Shares) Shares traded (` in millions) July 30, 2013 49.25 49.25 47.00 47.30 1,013,425 48.59 ____ (Source: www.nseindia.com)

DIVIDEND POLICY

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

The details of the dividends declared by our Bank in respect of the financial years ended March 31, 2014, 2013 and 2012 are set out below: (` in millions, except percentages) Particulars Financial Year Ended Financial Year Ended Financial Year Ended March 31, 2014 March 31, 2013 March 31, 2012 Issued and paid up share capital 542.74 474.45 408.2 Rate of dividend (%) 100 100 100 Amount of dividend* 542.74 474.45 408.20 * Excludes the dividend distribution tax paid by our Bank.

For a summary of certain Indian tax consequences of dividend distributions to shareholders, see the section titled “Statement of Tax Benefits” on page 168.

Future dividends will depend on our Bank’s revenue, cashflows, financial condition (including capital position) and other factors. For a description of regulation of dividends, see the section titled “Regulations and Policies – Declaration of dividend by banks” on page 131.

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

The following discussion and analysis of our financial condition and results of operations is based on our audited financial statements as of and for the years ended March 31, 2012, March 31, 2013 and March 31, 2014, including the schedules and notes thereto and the reports thereon, which appear in the section titled “Financial Statements” on page 187. This discussion should be read together with the sections titled “Selected Financial Information of our Bank” on page 30, “Selected Statistical Information” on page 115 and “Financial Statements” on page 187.

This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Our actual results and the timing of selected events could differ materially from those anticipated in forward-looking statements contained in this discussion as a result of various factors, including those set forth under the section “Risk Factors” on page 32, the section “Forward Looking Statements” on page 12 and elsewhere in this Preliminary Placement Document.

The following discussion relates to us on a standalone basis (we do not have any subsidiaries) and is based on our financial statements which have been prepared in accordance with Indian GAAP and the Banking Regulation Act, 1949. Indian GAAP differs in certain significant respects from U.S. GAAP and IFRS.

Our fiscal year ends on March 31 of each year, so all references to a particular “fiscal” are to the 12-month period ended March 31 of that fiscal year.

Overview

We have three main business lines:

Corporate and commercial banking, including MSME banking;

Retail banking; and

Treasury operations.

65 utility bill payment services. We also distribute third party insurance products. In addition, we provide depository services and are a depository participant for NSDL.

Recent Developments

We have recently been subject to acts of fraud committed by our officers and customers, involving misappropriation of funds by the by way of improper and unauthorized withdrawals and irregularities in foreign exchange transactions relating to bill discounting, amounting to ` 59.87 million and ` 4.54 million, respectively.

These cases have been reported to the RBI. Complaint with respect to the bill discounting fraud has been filed with the police and we are contemplating filing a police compliant with respect to the matter involving misappropriation of funds and continuous offsite monitoring has been strengthened.

Significant Factors Affecting our Results of Operations

Our results of operations and financial condition are affected by a number of factors. The following factors are of particular importance.

The Macroeconomic Environment

Our financial position and results of operations have in the past been, and will continue to be, significantly affected by the macroeconomic environment in India.

India’s real GDP has grown at an average rate of over 7.2% per annum for fiscals 2008 -2013 with increased domestic consumption, infrastructure spend and capital expenditure by corporations. However, India's GDP growth rate has been low in the last year and the country has been affected by high inflation rates, high current account deficit and a volatile rupee movement. As per the RBI's Survey of Professional Forecasters on Macroeconomic and Monetary developments for the third quarter review 2013-2014, the forecast of India's real GDP growth rate remains healthy at 5.6% for fiscal 2015.

In mid-2013, concerns in relation to the tapering of the U.S. Federal Reserve’s quantitative easing program in the United States led to increased volatility particularly in the stock and currency markets in emerging economies. The US Federal Reserve has now laid to rest the uncertainty on timing of the exit and tapering in its bond purchase programme, which began from January 2014. However, financial market volatility will be conditioned by the pace of tapering going forward. The delay in tapering allowed India to bring about adjustment in the current account deficit (CAD) and build buffers by replenishing its foreign exchange reserves. However, RBI believes that macro-economic adjustment is far from complete, with persistence of high inflation amidst growth slowdown. Fall in domestic savings and high fiscal deficit are other major concerns for India.

Inflation

During fiscal year 2014, there was a moderation in inflation in India, primarily due to a correction of the prices of fuel and manufactured products. WPI inflation was recorded at 5.9% for fiscal year 2014, compared to 7.4% for fiscal year 2013, the lowest level for the last four years. While the decline in WPI inflation was substantial, the degree of moderation was lower for CPI inflation. CPI inflation was 9.5% in fiscal year 2014, as compared to 10.2% in fiscal year 2013.

Although WPI inflation decreased, consumer inflation remained high, prompting the RBI to maintain a tightening bias. During fiscal year 2014, the RBI raised the policy rate three times, an overall rise of 7.25% to 8.00%. Simultaneously, as per the recommendations of the Urjit Patel Committee Report, the RBI focused on CPI inflation as a nominal anchor for policy formulation going forward and targeted 8% CPI inflation by January 2015 and 6% by January 2016.

High rates of inflation in the Indian economy have impacted, and could continue to impact, the results of our operations, by leading to a lower demand for loans, which will in turn discourage diversification of our loan portfolio. There may be relief at Government level in the form of policy-led initiatives to address supply-side constraint in areas such as mining and manufacturing. In terms of agri-prices, growth in Minimum Support Prices (which act as a floor for agricultural prices) and rural wages (linked to the Government’s rural spending and indexation) started showing signs of moderation in fiscal year 2014. This trend is likely to continue with the formation of a stable government, which would enable the Government to adopt policies in relation to spending and fiscal consolidation.

In September 2013, the RBI relaxed the overseas limit on foreign currency borrowings for banks from 50% of unimpaired Tier I capital to 100% of such capital. Additionally, banks were allowed to swap such borrowings with the RBI at a concessional rate of 100 basis points below prevailing market swap rates. This relaxation was available to banks for a limited period until November 2013.

Availability of cost-effective funding sources

The ratio of our current and savings account (“CASA”) deposits to total deposits, expressed as a percentage (or CASA percentage), for fiscal 2012, 2013 and 2014 were 18.91%, 16.77% and 17.79%, respectively. Our ability to meet demand for new loans will depend on our ability to broad base our deposit profile and our continued access to term deposits from the retail, corporate and inter-bank market. Our debt service costs and cost of funds depend on many external factors, including developments in the Indian credit markets and, in particular, interest rate movements and the existence of adequate liquidity in the inter-bank markets. Internal factors that will impact our cost of funds include changes in our credit ratings, available credit limits and our ability to mobilize low-cost deposits.

Capital Requirements

Effective from April 1, 2013, the capital adequacy ratios prescribed by the RBI Basel III Capital Regulations are being implemented in phases. Under the RBI Basel III Capital Regulations, banks are required to improve the quantity, quality and transparency of Tier I capital and meet heightened liquidity requirements. By March 2019, when the Basel III norms are fully implemented, the minimum total capital adequacy ratio with CCB is required to be 11.5% of risk weighted assets. The below table summarises the capital requirements under RBI Basel III Capital Regulations for banks in India:

Regulatory Capital As % of Risk Weighted Assets (i) Minimum Common Equity Tier I Ratio 5.50% (ii) Capital Conservation Buffer (comprised of Common Equity) 2.50% (iii) Minimum Common Equity Tier I Ratio plus Capital Conservation Buffer 8.00% [(i)+(ii)] (iv) Additional Tier I capital 1.50% (v) Minimum Tier I capital adequacy ratio [(i) +(iv)] 7.00% (vi) Tier II capital 2.00% (vii) Minimum Total Capital Ratio (MTC) [(v)+(vi)] 9.00% (viii) Minimum Total Capital Ratio plus Capital Conservation Buffer [(vii)+(ii)] 11.50%

On 7 November 2012, the RBI also issued detailed guidelines on liquidity risk management in accordance with the BCBS Principles for Sound Liquidity Risk Management and Supervision, which were immediately effective.

These guidelines include enhanced guidance on liquidity risk governance, measurement, monitoring and reporting to the RBI on liquidity positions by banks.

Interest rates and Cost of Funding

Interest rates

Our results of operations depend to a great extent on our net interest income. Net interest income represents the excess of interest earned from interest-bearing assets (performing loans and investments) over the interest paid on customer deposits and borrowings. Changes in interest rates affect the rates we charge on our interest-earning assets and that we pay on our interest-bearing liabilities.

Indian banks generally follow the direction of interest rates set by the RBI and adjust both their deposit rates and lending rates upwards or downwards accordingly. Decreases in the RBI policy rates would signal the Indian banks to re-examine their lending rates. If the interest rates that we pay to our depositors and lenders rise faster, relative to the interest rate we charge our borrowers, our net interest income may decrease. For further information, please see “Risk Factors - Our results of operations largely depend on our net interest income. Volatility in interest rates and other market conditions could adversely impact our business and results of operations.” and “Selected Statistical Information” on pages 32 and 115, respectively.

Cost of Funding

Recent macroeconomic conditions have restricted the ability of banks and financial institutions to raise funding amidst tight liquidity conditions, resulting in a renewed emphasis on customer deposits as a source of funding. This has resulted in a high level of competition for deposits, leading to pricing pressures.

Our primary interest-bearing liability is our deposit base. Our ability to offer lower interest rates for our domestic customers’ deposit accounts depends significantly on our ability to provide such customers with convenient banking services that make up for lower returns on deposits. To continue to source low-cost funding through deposits, we must, among other things, focus on increasing our branch network, increase brand recall, continuing to develop innovative products to serve niche customers, enact marketing strategies that support these products, continue to develop our information technology systems to offer modern banking services and develop products and services to distinguish ourselves in an increasingly competitive industry. However, the increasing sophistication of our customers, competition for funding, increasing interest rates and changes to the RBI’s liquidity and reserve requirements may increase the rates that we pay on our deposits and in turn affect our profitability.

Ability to manage operating expenses and achieve operating efficiencies

Our operating expenses have increased significantly in the recent past. During fiscal 2012, 2013 and 2014, our operating expenses were ` 2,798.32 million, ` 3742.00 million, and ` 4796.15 million respectively. The primary components of our operating expenses during such period were: (i) payments to and provisions for employees; (ii) rent, taxes and lighting; (iii) depreciation of our property; (iv) postage, telegram, telephone; (v) advertisement and publicity; (vi) repairs and maintenance and other expenses. The increase in operating expenses was primarily due to increase in the number of branches from 300 to 425 as of March 31, 2012 and March 31, 2014, respectively, requiring additional man power, expenses relating to renting of the premises, networking charges and other fixed asset cost. Further, the total number of employees increased from 3,347 as of March 31, 2012 to 4,215 as of March 31, 2014, increasing the employee cost from `1,223.10 million to `1,856.21 million for the same period.

We believe our ability to manage our operating expenses and improve operating efficiencies is a significant factor in our ability to increase profitability.

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

The RBI requires us to classify and, depending on the duration of non-payment, make a provision for loans that become non-performing assets (“NPAs”), which are further sub-classified as ‘sub-standard’, ‘doubtful’ and ‘loss’ assets. As at March 31, 2012, March 31, 2013 and March 31, 2014 our gross NPAs were ` 1,235.41 million, ` 1,731.02 million and ` 2,930.64 million, respectively and our net NPAs were ` 540.41 million, ` 963.97 million, ` 1,972.92 million, respectively. Our net NPAs were 0.44%, 0.63% and 1.23% of our Bank’s net

68 advances as of March 31, 2012, March 31, 2013 and March 31, 2014, respectively, while our gross NPA ratio was 1.01%, 1.13% and 1.81%, as of March 31, 2012, March 31, 2013 and March 31, 2014 respectively.

Our ability to continue to reduce or contain the level of our gross and net NPA ratios depend on a number of factors beyond our control, such as depressed economic conditions, including with respect to specific industries to which we are exposed, decreases in agricultural production, decline in commodity prices, adverse fluctuations in interest and exchange rates or adverse changes in Indian policies, laws or regulations and also on our ability to manage our risk.

Provisioning

Our profits are affected by the amounts we provision against advances and the related recovery and litigation costs. In December 2009, the RBI directed domestic banks to augment their provisioning cushions with specific provisions to decrease NPAs and floating provisions, and to ensure that their total PCR, including floating provisions, was not less than 70.00% by September 30, 2010. In April 2011, the RBI relaxed this requirement and stated that banks should maintain a minimum PCR of 70.00% with reference to the gross NPA position as of September 30, 2010 and that the surplus of the provision under the applicable prudential norms should be segregated into an account called the “countercyclical buffer”, which could be used by the banks for making specific provisions for NPAs with the prior approval of the RBI during any system-wide downturn.

In March 2012, the RBI introduced a discussion paper on dynamic provisioning, which aims to smooth the impact of incurred losses on the profit and loss account through the cycle and not to provide a general provisioning ‘cushion’ for expected losses. The current level of provisions on standard assets is 0.40% of standard assets (subject to certain exceptions). Final guidelines on dynamic provisioning were expected to be issued by the RBI in the second half of 2013. As on date of this Preliminary Placement Document, no such guidelines have been issued by the RBI.

Pursuant to the revised ‘Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions’ issued by the RBI on May 31, 2013, the provision has been increased to 5.00% in respect of new restructured standard accounts (flow) with effect from June 1, 2013 and in a phased manner for the stock of restructured standard accounts as of 31 March 2013 as follows:

(a) 3.50% with effect from 31 March 2014 (spread over the four quarters of 2013-2014); (b) 4.25% with effect from 31 March 2015 (spread over the four quarters of 2014-2015); and (c) 5.00% with effect from 31 March 2016 (spread over the four quarters of 2015-2016).

For further information, see the sections “Regulation and Policies” on page 125.

In the event that we are required to maintain higher provisioning, including by reason of RBI effecting any changes requiring banks to maintain higher provisioning norms for NPAs, such increase in provisioning requirement would adversely impact the results of our operations.

Regulations affecting banking industry

We operate in a highly regulated industry and have to adhere to various regulations. Our operations are regulated by the RBI. The Government, through the RBI, is actively involved in the management of the Indian economy and in implementing their social policies. Accordingly, we are subject to:

Changes in the two kinds of statutory reserve requirements: Cash Reserve Ratio (“CRR”) and Statutory Liquidity Ratio (“SLR”). Under these requirements, all banks are required to maintain a certain stipulated proportion of their net demand and time liabilities (“NDTL”) in the form of cash, gold, balances with RBI, current account balances with other banks and unencumbered Government and/or other approved securities. The basic objective of the CRR and the SLR requirements is to ensure that banks hold sufficient liquid resources to meet any unexpected contingencies. Requirements to lend to certain priority sectors. Requirements discouraging lending in certain specified sectors, such as real estate, commodities and capital markets. RBI's prudential norms in respect of income recognition, asset classification and provisioning. Any changes in the regulatory framework regarding provisioning for NPAs could adversely affect our

profitability and consequently our net worth.

The RBI also prescribes required levels of lending to “priority sectors” such as agriculture, which may expose us to higher levels of risk than we may otherwise face.

The Government’s monetary policy is heavily influenced by the condition of the Indian economy, and changes in the monetary policy affect the interest rates of our advances and deposits. The RBI responds to fluctuating levels of economic growth, liquidity concerns and inflationary pressures in the economy by adjusting the monetary policy.

A monetary policy designed to combat inflation typically results in an increase in RBI lending rates. Further, in addition to having gradually established more stringent capital adequacy requirements, the RBI has also instituted several prudential measures to moderate credit growth including increase in risk weights for capital adequacy computation and general provisioning for various asset classes. For further information, see the section “Regulation and Policies” on page 125.

Over time the RBI has increased the CRR for Indian banks. However, in fiscal year 2013, the RBI conducted open market operations and cut the CRR to counter the prolonged strain on liquidity in India. From March 2012 to May 2013, the RBI decreased the CRR and the SLR, the amount that commercial banks in India are required to maintain in the form of gold or Government approved securities before providing credit, by 150 basis points and 100 basis points to 4.00% and 23.00%, respectively, in order to provide more liquidity in the market. Further, RBI reduced the SLR to 22.50% on April 16, 2014 in their annual review of monitory policy. However, the RBI continues to suspend interest payments on CRR balances. Any increases in the CRR from the current levels could affect our ability to deploy our funds or make investments, which could in turn have a negative impact on our results of operations.

The Banking Regulation Act was amended in January 2013 to strengthen the regulatory powers of the RBI and to further develop the banking sector in India. Pursuant to the amendment, private sector banks are permitted to issue perpetual, redeemable and non-redeemable preference shares in addition to ordinary equity shares. Further, the Banking Regulation Act requires any person to seek the prior approval of the RBI to acquire or agree to acquire, shares or voting rights of a bank, either directly or indirectly, by himself or with persons acting in concert, wherein such acquisition (taken together with the shares or voting rights held by him or his relative or associate enterprise or person acting in concert with him) results in aggregate shareholding of such person to be 5.00% or more of paid-up capital of a bank or entitles such person to exercise 5.00% or more of the voting rights in a bank. Further, the RBI may, by passing an order, restrict any person holding more than 5.00% of the total voting rights of a bank from exercising voting rights in excess of 5.00%, if such person is deemed to be not fit and proper by the RBI.

In addition to the above, the recent amendments also confer power on the RBI (in consultation with the Government) to supersede the board of directors of a banking company for a period not exceeding a total period of 12 months, in the public interest or for preventing the affairs of the bank from being conducted in a manner detrimental to the interest of the depositors of any banking company or for securing the proper management of any banking company. For further information, see the section “Regulation and Policies” on page 125. Any changes in the regulatory environment, under which we operate, or our inability to comply with the regulations, could adversely affect our business, results of operations and financial condition.

New banking licences

The RBI released draft guidelines in August 2011 for the issuance of new banking licences to private sector entities, including non-banking financial companies. On 5 January 2013, the President of India gave his assent to the Banking Laws (Amendment) Act, 2012, which provides a foundation for the RBI to grant licences to private sector entities to set up banks. For further information, see the section “Regulation and Policies” on page 125.

The New Banks Licensing Guidelines were issued by the RBI in February 2013 specifying that select entities or groups in the private sector, entities in the public sector and non-banking financial companies with a successful track record of at least 10 years would be eligible to promote banks. The new banks can be set up only through a non-operative financial holding company registered with the RBI and the initial minimum capital requirement for the applicants is ` 5.0 billion, with foreign shareholding not exceeding 49.0% for the first five years.

On April 2, 2014, the RBI granted “in-principle” approval to two applicants to set up banks under the New Banks Licensing Guidelines. The “in-principle” approval is valid for a period of 18 months and the applicants will not be permitted to engage in banking business until a regular licence is issued after satisfaction of the conditions stipulated by the RBI. Going forward, the RBI intends to issue licences on an on-going basis under the liberalised licensing regime, subject to the RBI’s qualification criteria.

Critical Accounting Policies

1. General

The financial statements are prepared on historical cost convention and on accrual basis of accounting, unless otherwise stated, by following going concern assumption and conform to the statutory provisions, regulatory guidelines, Accounting Standards, Guidance Notes issued by Institute of Chartered Accountants of India (ICAI) and practices prevailing in the banking industry in India.

2. Revenue Recognition

Income and Expenditure are accounted on accrual basis, except the following;

a. Interest on non-performed advances and non-performing investments is recognized as per norms laid down by Reserve Bank of India. b. Interest on overdue bills, commission, exchange, brokerage and rent on lockers are accounted on realization. c. Dividend is accounted when the right to receive the same is established.

In case of suit filed accounts, related legal and the expenses incurred are charged to Profit and Loss Account and on recovery the same are accounted as income.

The financial statements have been prepared on historical cost convention and on accrual basis of accounting, except where stated otherwise and conform to the statutory provisions and practices prevailing within the banking industry in India.

3. Foreign Exchange Transactions

a. Assets and Liabilities denominated in Foreign Currencies are translated at the rates notified by FEDAI at the close of the year. Profit or Loss accruing from such transactions is recognised in the Profit and Loss Account. b. Income and Expenditure items have been translated at the exchange rates ruling on the date of the transactions. c. The Bank does not have a branch in any Foreign Country. d. Outstanding Forward Exchange contracts are revalued at the exchange rates notified by FEDAI and the resultant net gain or loss is recognised in the Profit and Loss Account. e. Foreign Currency Guarantees, Acceptances, Endorsements and other obligations are reported at the exchange rates prevailing on the date of the Balance Sheet.

4. Investments

4.1 As per RBI guidelines, the investments of the bank are classified into the following categories at the time of acquisition:

Held to Maturity Available for Sale Held for Trading

They are further sub classified and shown in Balance Sheet under the following six categories:

i) Government Securities ii) Other Approved Securities iii) Shares iv) Debentures and Bonds v) Subsidiaries /Joint Ventures and vi) Others

a) Securities classified under "Held to Maturity" category are valued at acquisition cost. Where the acquisition cost is higher than the face value, such excess of acquisition cost over the face value is amortised over the remaining period to maturity.

b) Securities held in "Available for Sale" Category are valued scrip wise as under:

i) Government of India Securities are valued at market price as per quotation put out by Primary Dealers' Association of India/ Fixed Income Money Market and Derivatives Association of India & Bloomberg.

ii) State Government loans, Trustee Securities, Securities guaranteed by Central/State Governments and PSU Bonds are valued on appropriate Yield to Maturity (YTM) basis as per Primary Dealers' Association of India/ Fixed Income Money Market and Derivatives Association of India guidelines.

iii) Treasury Bills/ Certificate of Deposits/ Commercial Papers are valued at carrying cost.

iv) Equity Shares are valued at market rate if quoted, otherwise at Break up Value as per the latest Balance Sheet, if available, or Re.1/- per Company.

v) Preference shares are valued at market price if quoted or at appropriate YTM basis as per Primary Dealers' Association of India/ Fixed Income Money Market and Derivatives Association of India guidelines.

vi) Debentures / Bonds are valued at market price, if quoted, otherwise on an appropriate YTM basis.

vii) Mutual Funds are valued at market price, if quoted, or at NAV or Market Price/ Repurchase Price.

viii) Security Receipts are valued at NAV as declared by Securitisation companies.

c) Individual scrips under "Held for Trading" category are valued at Market Price. 4.2 Individual scrips in Available for Sale / Held for Trading are valued scrip wise aggregated category wise and net depreciation, if any, for each category is charged to Profit & Loss Account, while net appreciation, if any, is ignored.

4.3 Shifting of securities from one category to another category is carried out lower of acquisition cost/ book value/ market value on the date of transfer. The depreciation, if any on such transfer is fully provided for.

4.4 Profit/Loss on sale of Investments in any category is taken to the Profit & Loss Account. However, in case of sale of investment in "Held to Maturity" category, the profit is first credited to Profit and Loss Account and thereafter an amount equivalent to profit, net of statutory reserve and taxes, is appropriated to the Capital Reserve Account.

4.5 Commission, brokerage, broken period interest etc. on securities incurred on acquisition is debited to Profit and Loss account. Commission, incentives, brokerage received on subscription is deducted from the Cost of the securities.

4.6 The Investments shown in the Balance Sheet are net of Depreciation, if any.

4.7 The Non Performing Investments are identified and provided for as per RBI guidelines.

5. Advances

5.1 Advances have been classified as per the Asset Classification norms laid down by the Reserve Bank of India. The required provisioning for Standard Assets and for Non Performing Assets have been made as per the Regulatory Norms.

5.2 Advances shown in the Balance Sheet are net of provisions and interest reserve on NPA accounts, technical write — offs, ECGC/DICGC claims received and provisions for Restructured accounts.

5.3 Partial recoveries in Nbn Performing Assets are apportioned fist towards charges and interest, thereafter towards principal with the exception of non performing advances involving compromise settlements in which case the recoveries are first adjusted towards principal.

6. Fixed Assets

6.1 Premises and other Fixed Assets are accounted at acquisition cost less depreciation.

6.2 Depreciation has been provided on the composite value for premises acquired with land and building, where cost of the land is not separately identifiable.

6.3 Depreciation in respect of fixed assets is charged on the written down value of the assets from the date of purchase on pro-rata basis at the rates specified under Schedule XIV of the Companies Act, 1956, except in the case of computers and operating software which are depreciated @ 33.33 % on straight line method as per RBI guidelines.

7. Staff Benefits

7.1 Provision towards leave encashment is accounted on actuarial basis in accordance with the guidelines contained in Accounting Standard 15 (revised 2005) issued by ICAI.

7.2 Liability for Gratuity to staff is contributed to the Group Gratuity Life Assurance Scheme of the Life Insurance Corporation of India.

7.3 Payments to defined contribution schemes such as Provident Fund and Employees Pension Fund Superannuation Scheme of Life Insurance Corporation of India are charged as expenses as they fall due. 8. Employees Stock Option Scheme

The Employee Stock Option Scheme provides for grant of equity stock options to employees that vest in a graded manner. The Bank follows the intrinsic value method to account for its employee compensation costs arising from grant of such options. The excess of fair market price over the exercise price shall be accounted as employee compensation cost in the year of vesting. The fair market price is the latest closing price of the shares on the stock exchanges in which shares of the Bank are largely traded immediately prior to the date of meeting of the compensation committee in which the options are granted.

9. Earning Per Share

Basic earning per share is calculated by dividing the net profit of the year by the weighted average number of equity shares.

Diluted earning per share is computed using the weighted average number of equity shares and dilutive potential equity shares.

10. Impairment of Assets

An assessment is made at each balance sheet date whether there is any indication that an asset is impaired. If any such indication exists, an estimate of the recoverable amount is made and impairment loss, if any, is provided for.

11. Provisions, Contingent liabilities and contingent assets

11.1 In conformity with AS.29 "Provisions, Contingent Liabilities and Contingent Assets" issued by the Institute of Chartered Accountants of India, the Bank recognizes provision only when:

a) It has a present obligation as a result of a past event.

b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and

c) When a reliable estimate of the amount of the obligation can be made.

11.2 No provision is recognized for:

i. Any possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the bank; or

ii. Any present obligation that arises from past events but is not recognized because

a. It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or b. A reliable estimate of the amount of obligation cannot be made.

Such obligations are recorded as Contingent Liabilities. These are assessed at regular intervals and only that Part of the obligation for which an outflow of resources embodying economic benefits is probable, is provided for, except in the extremely rare circumstances where no reliable estimate can be made.

11.3 Contingent assets are not recognized in the financial statements.

12. Income Tax Income Tax comprises current tax and deferred tax for the year. The deferred tax assets/liability is recognised in accordance with Accounting Standard-22 issued by the Institute of Chartered Accountants of India.

13. Net Profit

The Net Profit disclosed in the Profit and Loss Account is after considering:

13.1 Provision for taxes on income in accordance with statutory requirements.

13.2 Provision for bad and doubtful advances and investments.

13.3 Contingent Provision for Standard Assets.

13.4 Other usual and necessary provisions.

Changes in Accounting Policies

There have been no material changes in our accounting policies during fiscal 2012, 2013 and 2014.

Components of Income and Expenditure

Income

Our income consists of interest earned and other income.

Interest earned

Interest earned consists of interest on advances and discounts on advances and bills, interest on investments and balances with RBI and other inter-bank funds and other interest income. See “—Critical Accounting Policies— Income Recognition”. Income from investments consists of interest on securities and other investments. Our securities portfolio consists primarily of Government securities and treasury bills. We meet our SLR requirements through these investments. We also hold debentures and bonds issued by public sector undertakings and other corporations, commercial paper, equity shares, mutual fund units, NABARD RIDF and security receipts.

Other income

Our other income consists principally of income derived from non-interest sources, including income from commission, exchange and brokerage which includes fees from opening and negotiating letters of credit, financial and performance guarantees, locker rent, income from cross-selling of insurance products as well as profit on the sale of investments (net), profit on exchange transactions, profit on sale of land, buildings and other assets and miscellaneous income. Miscellaneous income consists primarily of income from loan processing charges, service charges, collection from written off accounts, income from ATM operations, sale of gold coin and others.

Expenditure

Interest expended

Our interest expended consists of interest on deposits, interest on borrowing from the RBI and inter-bank borrowings and other interest. Other interest consists of interest on subordinated debt, call money borrowings and CBLO borrowing.

Both our interest income and expenditure are affected by fluctuations in interest rates as well as the volume of activity. Our interest expenditure is also affected to the extent we fund our activities with low-interest or non- interest deposits, and the extent to which we rely on borrowings.

Operating expenses

Our operating expenses consist principally of payments to and provisions for employees, rent, taxes, lighting, printing and stationery, advertisement and publicity, depreciation on our property, directors’ fees, allowances and expenses, auditors fee and expenses, legal charges, postage, telegrams, telephone, repairs and maintenance, insurance and other expenditure. Other expenditure consists primarily of development expenses, loan recovery charges, security and house keeping charges, travel expenses and ATM machine charges.

Provisions and contingencies

Our provisions and contingencies consist of provision for taxation, provision for investments, provision for non- performing assets (including write-offs net of recoveries), provision for standard advances, provision for restructured assets, provision for other losses such as fraud and other provisions.

Summary of Our Financial Results

The following sets forth a summary of our financial statements containing significant items of our income and expenditure based on our audited financial statements for fiscal 2012, 2013 and 2014:

Statement of Profits and Losses

Year ended March 31, 2012 2013 2014 (in ` million) Income Interest earned 16,967.74 21,887.50 25,459.33 Other income 2,071.34 2,736.37 3,011.99 Total income 19,039.08 24,623.87 28,471.32 Expenses Interest expended 11,970.23 15,647.40 17,865.44 Operating expenses 2,798.32 3,742.00 4,796.15 Total expenditure (excluding 14,768.55 19,389.39 22,661.58 provisions and contingencies) Operating profit before 4,270.53 5,234.47 5,809.74 provisions and contingencies Provisions (other than tax) and 838.01 1,204.30 1,674.00 contingencies Tax expenses 630.00 810.00 665.00

Year ended March 31, 2012 2013 2014 (in ` million) Net profit/(loss) 2,802.52 3,220.17 3,470.74

Statement of Appropriations:

Year ended March 31, 2012 2013 2014 (in ` million) Net Profit / (loss) for the year 2,802.52 3,220.17 3,470.74 Profit brought forward 55.61 66.02 68.71 Total 2,858.13 3,286.19 3,539.45

Appropriations – Transfer to Statutory Reserve 710.00 820.00 880.00 Capital Reserve 0.01 19.03 5.73 General Reserve 1,400.00 1,420.00 1,650.00 Investment Reserve Account 7.30 3.38 0.00 Special Reserve (IT) Account 200.00 400.00 300.00 Interim Dividend payable 0.00 474.44 0.00 Interim Dividend tax payable 0.00 80.63 0.00 Dividend payable 408.21 0.00 542.74 Dividend Tax 66.59 0.00 92.24 Balance carry forward 66.02 68.71 68.74 Total 2,858.13 3,286.19 3,539.45

Fiscal 2014 compared to fiscal 2013

Summary of Performance

Year ended March 31, 2013 2014 % change (` in millions) Net interest income 6,240.10 7,593.90 21.70 Other income 2,736.37 3,011.99 10.07 Operating expenses 3,742.00 4,796.15 28.17 Provisions (other than tax) and contingencies 1,204.30 1,674.00 39.00 Provisions for tax 810.00 665.00 (17.90) Net profit 3,220.17 3,470.74 7.78

Net Interest Income

Our net interest income increased by 21.70% from ` 6,240.10 million in fiscal 2013 to ` 7,593.90 million in fiscal 2014. The following table sets forth the components of our net interest income in fiscal 2013 and 2014:

Year ended March 31, 2013 2014 % change (` in millions) Total interest income 21,887.50 25,459.33 16.32 Total interest expense 15,647.40 17,865.43 14.18 Net interest income 6,240.10 7,593.90 21.70

Interest income

The following table sets forth a breakdown of our interest income for fiscal 2013 and 2014:

Year ended March 31, 2013 2014 % change (` in millions) Interest/discount on advances/bills 18,122.27 20,921.19 15.44 Income on investments 3,722.93 4,380.34 17.66

Interest on balances with RBI and other inter-bank funds 42.30 157.80 237.05 Total interest income 21,887.50 25,459.33 16.32

Our total interest income increased by 16.32% from ` 21,887.50 million in fiscal 2013 to ` 25,459.33 million in fiscal 2014.

Our interest/discount on advances/bills increased by 15.44% from ` 18,122.27 million fiscal 2013 to ` 20,921.19 million in fiscal 2014. This increase was primarily due to increase in average advances which increased from `134,342.42 million in fiscal 2013 to `155,766.03 million in fiscal 2014.

Our income on investments increased by 17.66% from ` 3,722.93 million in fiscal 2013 to ` 4,380.34 million in fiscal 2014. This increase was primarily due to increase in average investments by `8,017.35 million and yield on investments which increased from 7.19% in fiscal 2013 to 7.33% in fiscal 2014.

Our income on balances with RBI and other inter-bank funds increased by 237.05% from ` 42.30 million in fiscal 2013 to ` 157.80 million in the fiscal 2014. This increase was primarily due to average market lending by way of call money, collateral borrowing and lending obligation (CBLO) and reverse repo increasing from `73.15 million in fiscal 2013 to `893.96 million in fiscal 2014.

Interest Expense

Year ended March 31, 2013 2014 % change (` in millions) Interest on deposits 15,045.18 17,340.06 15.25 Interest on RBI and inter-bank borrowings 249.06 128.77 (48.30) Others 353.16 396.61 12.30 Total interest expended 15,647.40 17,865.44 14.18

Our total interest expense increased by 14.18% from ` 15,647.40 million in fiscal 2013 to ` 17,865.44 million in fiscal 2014.

Interest on deposits increased by 15.25% from ` 15,045.18 million in fiscal 2013 to ` 17,340.06 million in fiscal 2014. This increase was primarily due to increase in average deposits which increased from `178,223.65 million in fiscal 2013 to `207,214.80 million in fiscal 2014.

Interest on balances with the RBI and other inter-bank borrowings decreased by 48.30% from ` 249.06 million in fiscal 2013 to ` 128.77 million in fiscal 2014. This decrease was primarily due to decrease in borrowings by way of call money, CBLO and repo which decreased from `574,150.50 million in fiscal 2013 to `208,142.00 million in fiscal 2014. Our other interest expense increased by 12.30% from ` 353.16 million in fiscal 2013 to ` 396.61 million in fiscal 2014. This increase was primarily due to increase in average NABARD refinance from `301.36 million to `1,669,83 million.

Other Income

Year ended March 31, 2013 2014 % change (` in millions) Commission, exchange and brokerage 413.51 400.81 (3.07) Profit/loss on sales of investments (Net) 170.52 228.28 33.87 Profit on sale of land, buildings and other assets 2.67 3.87 44.94 Profit on exchange transactions (Net) 183.81 326.74 77.76 Miscellaneous income 1,965.86 2,052.29 4.40 Total other income 2,736.37 3,011.99 10.07

Our other income increased by 10.07% from ` 2,736.37 million in fiscal 2013 to ` 3,011.99 million in fiscal 2014.

Commission, exchange and brokerage

Income from commission, exchange and brokerage fees decreased by 3.07% from ` 413.51 million in fiscal 2013 to ` 400.81 million in fiscal 2014, primarily due to decrease in commission on bank guarantees and letters of credit which decreased from `266.37 million in fiscal 2013 to `237.95 million in fiscal 2014.

Profit/loss on sales of investments (Net)

Profit on sales of investments increased by 33.87% from ` 170.52 million in fiscal 2013 to ` 228.28 million in fiscal 2014, on account of increase in turnover of Government securities from `43,570.00 million in fiscal 2013 to `50,280.00 million in fiscal 2014.

Profit on sale of land, buildings and other assets

Profit on sale of land, buildings and other assets increased by 44.94% from ` 2.67 million in fiscal 2013 to ` 3.87 million in fiscal 2014 primarily due to sale of fixed assets.

Profit on exchange transactions (Net)

Profit on exchange transactions (net) increased by 77.76% from ` 183.81 million in fiscal 2013 to ` 326.74 million in fiscal 2014 due deployment of funds in the integrated treasury operations in the forex market].

Miscellaneous income

Miscellaneous income increased by 4.40% from ` 1,965.86 million in fiscal 2013 to ` 2,052.29 million in fiscal 2014 due to increase in service charges which increased by 19.63% from `252.99 million in fiscal 2013 to `302.65 million in fiscal 2014 and income from ATM operations which increased by 46.71% from `312.36 million in fiscal 2013 to `458.26 million in fiscal 2014.

Operating Expenses

Our operating expenses increased by 28.17% from ` 3,742.00 million in fiscal 2013 to ` 4,796.15 million in fiscal 2014. The increase in operating expense was due to an increase in employee costs (payments to and provisions for employees) to support branch expansion, which increased by 23.03% from ` 1,508.74 million to ` 1,856.21 million. Employee costs accounted for 40.32% of our operating expenses in fiscal 2013 as compared to 38.70% in fiscal 2014. Repairs and maintenance cost accounted for 6.11% of our operating expenses in fiscal 2013 as compared to 8.59% in fiscal 2014. Other significant reasons for increases in operating expenses were an increase rent, taxes and lighting which accounted for 15.06% in fiscal 2013 as compared to 14.92% in fiscal 2014 and increase in depreciation on Bank’s property, which accounted for 6.60% in fiscal 2013 as compared to 7.86% in fiscal 2014. The increase in other expenditure from ` 601.07 million to ` 731.99 million, is primarily due to expenses on ATM operations which accounted for 4.89% and 4.45% of the operating expenses in fiscal 2013 and 2014, respectively.

Provisions (other than tax) and Contingencies

Provisions (other than tax) and contingencies increased by 39.00% from ` 1,204.30 million in fiscal 2013 to ` 1,674.00 million in fiscal 2014. This increase was primarily due to increase in provision for bad and doubtful debts from `970.00 million in fiscal 2013 to `1,485.00 million in fiscal 2014 and increase in provision for restructured accounts from `53.70 million in fiscal 2013 to `109.00 million in fiscal 2014.

Our ratio of net NPAs to net advances increased from 0.63% in fiscal 2013 to 1.23% in fiscal 2014 primarily due to increase in addition of NPA accounts (net of recovery) from ` 495.60 million in fiscal 2013 to ` 1,199.60 million in fiscal 2014.

Provision for tax

Provisions for tax decreased by 17.90% from ` 810.00 million in fiscal 2013 to ` 665.00 million in fiscal 2014. This decrease was primarily due to entitlement of MAT credit availed and increase of allowance expenses as per Income Tax Act, 1963.

Net Profit/Loss

As a result of the foregoing factors, our net profit increased by 7.88% from of ` 3,220.17 million in fiscal 2013 to ` 3470.74 million in fiscal 2014.

Fiscal 2013 compared to fiscal 2012

Summary of Performance

Year ended March 31, 2012 2013 % change (` in millions) Net interest income 4,997.51 6,240.10 24.86 Other income 2,071.34 2,736.37 32.11 Operating expenses 2,798.32 3,742.00 33.72 Provisions (other than tax) and contingencies 838.01 1,204.30 43.71 Provision for tax 630.00 810.00 28.57 Net Profit/ (Loss) 2,802.52 3,220.17 14.90

Net Interest Income

Our net interest income increased by 24.86% from ` 4,997.51 million in fiscal 2012 to ` 6,240.10 million in fiscal 2013. The following table sets forth the components of our net interest income:

Year ended March 31, 2012 2013 % change (` in millions) Total interest income 16,967.74 21,887.50 28.99 Total interest expense 11,970.23 15,647.40 30.72 Net interest income 4,997.51 6,240.10 24.86

Interest Income

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

Year ended March 31, 2012 2013 % change (` in millions) Interest/discount on advances/bills 13,885.73 18,122.27 30.51 Income on investments 3,035.63 3,722.93 22.64 Income on balances with RBI and other inter-bank funds 46.37 42.30 (8.78) Others 0.00 0.00 0.00 Total interest income 16,967.74 21,887.50 28.99

Our total interest income increased by 28.99% from ` 16,967.74 million in fiscal 2012 to ` 21,887.50 million in fiscal 2013.

Our interest/discount on advances/bills increased by 30.51% from ` 13,885.73 million in fiscal 2012 to ` 18,122.27 million in fiscal 2013. This increase was primarily due to increase in average advances by 31.20% from `102,393.14 million in fiscal 2012 to `134,342.42 million in fiscal 2013.

Our income on investments increased by 22.64% from ` 3,035.63 million in fiscal 2012 to ` 3,722.93 million in fiscal 2013. This increase was primarily due to increase in average investments by 17.71% from `43,971.53 million in fiscal 2012 to `51,757.99 million in fiscal 2013 and increase in yield on investments from 6.90% in fiscal 2012 to 7.19% in fiscal 2013.

Our income on balances with RBI and other inter-bank funds decreased by 8.78% from ` 46.37 million in fiscal 2012 to ` 42.30 million in fiscal 2013. This decrease was primarily due to decrease in the interest earned on bank deposits placed with banks from `29.27 million in fiscal 2012 to `15.08 million in fiscal 2013.

Interest Expense

Year ended March 31, 2012 2013 % change (` in millions) Interest on deposits 11,664.62 15,045.18 28.98 Interest on RBI and inter-bank borrowings 176.70 249.06 40.95 Others 128.91 353.16 173.96 Total interest expended 11,970.23 15,647.40 30.72

Our total interest expense increased by 30.72% from ` 11,970.23 million in fiscal 2012 to ` 15,647.40 million in fiscal 2013.

Interest on deposits increased by 28.98% from ` 11,664.62 million in fiscal 2012 to ` 15,045.18 million in fiscal 2013. This increase was primarily due to increase in average deposits by 23.98% from `143,756.53 million in fiscal 2012 to `178,223.65 million in fiscal 2013 and increase in average cost of deposit from 8.11% in fiscal 2012 to 8.44% in fiscal 2013.

Interest on balances with the RBI and other inter-bank funds increased by 40.95% from ` 176.70 million in fiscal 2012 to ` 249.06 million in fiscal 2013 primarily due to increase in borrowings by way of call money, CBLO and repo `133,485.00 million from `440,665.50 million in fiscal 2012 to `574,150.50 million in fiscal 2013.

Our other interest expense increased by 173.96% from ` 128.91 million in fiscal 2012 to ` 353.16 million in fiscal 2013. This increase was primarily due to increase in average SIDBI refinance by from `903.85 million in fiscal 2012 to `2461.54 million in fiscal 2013 and increase in average RBI refinance by from `198.00 million in fiscal 2012 to `496.00 million in fiscal 2013.

Other Income

Year ended March 31, 2012 2013 % change (` in millions) Commission, exchange and brokerage 344.89 413.51 19.90 Profit/loss on sales of investments (Net) 77.72 170.52 119.40 Profit on sale of land, buildings and other assets 1.50 2.67 78.00 Profit on exchange transactions (Net) 152.22 183.81 20.75 Miscellaneous income 1,495.01 1,965.86 31.49 Total other income 2,071.34 2,736.37 32.11

Our other income increased by 32.11% from ` 2,071.34 million in fiscal 2012 to ` 2,736.37 million in fiscal 2013.

Commission, exchange and brokerage

Income from commission, exchange and brokerage increased by 19.90% from ` 344.89 million in fiscal 2012 to ` 413.51 million in fiscal 2013 on account of increase in commission on bank guarantees and letters of credit from `237.64 million in fiscal 2012 to `266.37 million in fiscal 2013.

Profit/loss on sales of investments (Net)

Profit on sales of investments, increased by 119.40% from ` 77.72 million in fiscal 2012 compared to ` 170.52 million in fiscal 2013, primarily due to increase in turnover of Government securities from `33,640.00 million in fiscal 2012 to `43,570.00 million in fiscal 2013.

Profit on sale of land, buildings and other assets

Profit on sale of land, buildings and other assets increased by 78.00% from ` 1.50 million in fiscal 2012 to ` 2.67 million in fiscal 2013 primarily due to sale of fixed assets.

Profit on exchange transactions (Net)

Profit on exchange transactions (net) increased by 20.75% from ` 152.22 million in fiscal 2012 to ` 183.81 million in fiscal 2013 due to taking advantages of fluctuations in the exchange rates.

Miscellaneous income

Miscellaneous income increased by 31.49% from ` 1,495.01 million in fiscal 2012 compared to ` 1,965.86 million in fiscal 2013 which was attributable to increase in collection of amount in written-off accounts which increased from `391.69 million in fiscal 2012 to `589.58 million in fiscal 2013, and increase in loan processing charges from `441.14 million in fiscal 2012 to `554.58 million in fiscal 2013.

Operating Expenses

Our operating expenses increased by 33.72% from ` 2,798.32 million in fiscal 2012 to ` 3,742.00 million in fiscal 2013. The increase in operating expense was due to an increase in employee costs (payments to and provisions for employees) to support branch expansion, which increased by 23.35% from ` 1,223.10 million to ` 1,5087.74 million. Employee costs accounted for 43.71% of our operating expenses in fiscal 2012 as compared to 40.32% in fiscal 2013.

Other significant reasons for increases in operating expenses were an increase in rent, taxes and lighting which accounted for 14.07% in fiscal 2012 as compared to 15.06% in fiscal 2013, of the operating expenses and increase in depreciation on Bank’s property, which accounted for 4.84% in fiscal 2012 as compared to 6.60% in fiscal 2013, of the operating expenses. The increase in other expenditure from ` 404.53 million to ` 601.07 million, is primarily due to increase in ATM operations which accounted for 4.08% in fiscal 2012 as compared to 4.89% in fiscal 2013, of the operating expenses.

Provisions (other than tax) and Contingencies

Provisions and contingencies (other than tax) increased by 43.71% from ` 838.01 million in fiscal 2012 to ` 1,204.30 million in fiscal 2013. This increase was primarily due to increase in provision for bad and doubtful debts from `570.00 million in fiscal 2012 to `970.00 million in fiscal 2013 and increase in provision for standard assets from `125.60 million in fiscal 2012 to `142.00 million in fiscal 2013.

Our ratio of net NPAs to net advances increased from 0.44% in fiscal 2012 to 0.63% in fiscal 2013 due to increase in NPA accounts (net of recovery) by from `110.60 million in fiscal 2012 to `495.60 million in fiscal 2013.

Provision for tax

Provisions and contingencies increased by 28.57% from ` 630.00 million in fiscal 2012 to ` 810.00 million in fiscal 2013. This increase was primarily due to increase in gross profit of the Bank by 22.57% from 4,270.53 million in fiscal 2012 to 5,234.47 million in fiscal 2013 and also due to reduction in allowance expenses as per Income Tax Act, 1963.

Net Profit/Loss

As a result of the foregoing factors, our net profit increased by 14.90% from ` 2,802.52 million in fiscal 2012 to ` 3,220.17 million in fiscal 2013.

Discussion on Assets and Liabilities

Assets

The following table sets forth the principal components of our assets as at March 31, 2012, 2013 and 2014:

As at March 31, 2012 2013 2014 (` in millions) Cash and balances with the RBI 8,146.66 10,163.36 10,401.13 Balances with banks and money at call and short 3,214.43 7,541.50 11,395.03 notice

Investments 45,861.92 52,668.03 59,535.57 Advances 121,374.60 152,460.57 160,968.37 Fixed assets 977.34 1,412.79 1,829.52 Other assets 3,931.62 5,524.56 5,808.64 Total assets 183,506.58 229,770.82 249,938.26

Our total assets increased by 25.21% from ` 183,506.58 million as at March 31, 2012 and ` 22,9770.82 million as at March 31, 2013, primarily due to increase in advances from `121,374.60 million in fiscal 2012 to `152,460.57 in fiscal 2013, increase in investments from `45,861.92 million in fiscal 2012 to `52,668.03 million in fiscal 2013 and increase in balance with banks and money at call and short notice from ` 3,214.43 million in fiscal 2012 to ` 7,541.50 million in fiscal 2013. Our total assets increased by 8.78% from ` 229,770.82 million as at March 31, 2013 to ` 249,938.26 million as at March 31, 2014 primarily due to increase in balance with banks and money at call and short notice, from `7,541.50 million in fiscal 2013 to `11,395.03 million in fiscal 2014, increase in advances from ` 152,460.57 million in fiscal 2013 to ` 160,968.37 million in fiscal 2014 and increase in investments from ` 52,668.03 million in fiscal 2013 to ` 59,535.57 million in fiscal 2014.

Our investments primarily include investments in Government securities as required by the RBI, other approved securities, shares, debentures and bonds. Our investments increased by 14.84% from ` 45,861.92 million as at March 31, 2012 to ` 52,668.03 million as at March 31, 2013 and further increased by 13.04% year o--year to ` 59,535.57 million as at March 31, 2014, primarily due to increase in investments made in Government securities.

Our advances primarily include (i) bills purchased and discounted, (ii) cash credits, overdrafts and loans repayable on demand and (iii) term loans. Our advances increased by 25.61% from ` 121,374.60 million as at March 31, 2012 to ` 152,460.57 million as at March 31, 2013 primarily due to a increase in advances to agriculture sector which increased from ` 16,204 million to ` 23,978 million and loans given to MSME sector which increased from ` 32,413 million to ` 39,606 million during that period. Our advances increased by 5.58% from ` 152,460.57 million as at March 31, 2013 to ` 160,968.37 million as at March 31, 2014 primarily due to increase in advances to agriculture sector which increased from ` 23,978 million to ` 31,025 million and loans given to MSME sector which increased from ` 39,606 million to ` 48,899 million during that period.

Our balances with banks and money at call and short notice primarily include balance in current account with banks, term deposits with banks and call/term money lending. Our balances with banks and money at call and short notice increased by 134.61% from ` 3,214.43 million as at March 31, 2012 to ` 7,541.50 million as at March 31, 2013 primarily due to increase in balance in current account with banks in India by 182.45% from ` 2,336.01 million in fiscal 2012 to ` 4,262.08 million in fiscal 2013. Our balances with banks and money at call and short notice increased by 51.10% from ` 7,541.50 million as at March 31, 2013 to ` 11,395.03 million as at March 31, 2014 primarily due to increase in deposits made with banks outside India by 833.30% from ` 542.85 million in fiscal 2013 to ` 4,523.58 million in fiscal 2014.

Liabilities and Shareholders' Funds

The following table sets forth a breakdown of our liabilities and shareholders' funds as at March 31, 2012, 2013 and 2014:

As at March 31, 2012 2013 2014 (` in millions) Shareholders’ Funds Share capital 408.21 474.45 542.74 Reserves and Surplus 12,022.76 15,932.24 19,706.58 Liabilities Deposits 163,407.56 203,047.55 220,168.92 Borrowings 3,487.03 4,767.39 3,049.84 Other Liabilities and Provisions 4,181.02 5,549.19 6,470.18 Total liabilities and shareholders’ funds 183,506.58 229,770.82 249,938.26

Our total liabilities and shareholders' funds increased by 25.21% from ` 183,506.58 million as at March 31, 2012 to ` 229,770.82 million as at March 31, 2013. Our total liabilities and shareholders' funds increased by 8.78% from ` 229,770.82 million as at March 31, 2013 to ` 249,938.26 million as at March 31, 2014. Our

82 borrowings and cash and bank balances may significantly fluctuate from time to time depending on the need to strategically reduce high cost deposits and/or increase in investments, particularly increase in the investments in Government securities.

Components of Liabilities and Shareholder's Funds

Our share capital increased from ` 408.21 million as at March 31, 2012 to ` 474.45 million as on March 31, 2013 and to ` 542.74 million as at March 31, 2014 due to the issue of equity shares on account of ESOS 2008 and rights issue.

Our reserves and surplus increased by 32.52% from ` 12,022.76 million as at March 31, 2012 to ` 15,932.24 million as at March 31, 2013 and by 23.69% from ` 15,932.24 million as at March 31, 2013 to ` 19,706.58 million as at March 31, 2014 due to plough back of profit and increase in share premium due to issue of equity shares on account of ESOS 2008 and rights issue.

Our deposits increased by 24.26% from ` 163,407.56 million as at March 31, 2012 to ` 203,047.55 million as at March 31, 2013 primarily due to increase in term/fixed deposits from ` 133,691.61 million in fiscal 2012 to ` 169,001.47 million in fiscal 2013. Our deposits increased by 8.43% from ` 203,047.55 million as at March 31, 2013 to ` 220,168.92 million as at March 31, 2014 primarily due to increase in term/fixed deposits from ` 169,001.47 million in fiscal 2013 to ` 180,995.47 million in fiscal 2014.

Our borrowings increased by 36.72% from ` 3,487.03 million as at March 31, 2012 to ` 4,767.39 million as at March 31, 2013 primarily due to increase in refinance from NABARD and SIDBI, which increased from ` 2,786.65 million in fiscal 2012 to ` 3,824.16 million in fiscal 2013. Our borrowing decreased by 36.03% from ` 4,767.39 million as at March 31, 2013 to ` 3,049.84 million as at March 31, 2014 primarily due to decrease in refinance from NABARD and SIDBI from ` 3,824.16 million in fiscal 2013 to ` 1,449.56 million in fiscal 2014.

Other liabilities and provisions increased by 32.72% from `4,181.02 million as at March 31, 2012 to ` 5,549.19 million as at March 31, 2013 primarily due to increase in provision for tax from ` 608.50 million in fiscal 2012 to ` 1,410.13 million in fiscal 2013. Other liabilities and provisions increased by 16.60% from ` 5,549.19 million as at March 31, 2013 to ` 6,470.18 million as at March 31, 2014 primarily due to increase in deferred tax liability from ` 227.98 million in fiscal 2013 to ` 705.92 million in fiscal 2014.

The table below sets forth further details regarding our borrowings as at March 31, 2012, 2013 and 2014:

As at March 31, 2012 2013 2014 (` in millions) Borrowings in India RBI 3,000.00 Nil 1,200.00 Other banks 0.38 0.38 0.28 Other institutions and agencies 2,786.65 3,824.16 1,449.56 Subordinated debt 400.00 400.00 400.00 Borrowings Outside India Nil 542.85 Nil Total 3,487.03 4,767.39 3,049.84

Liquidity and Capital Resources

Cash Flows

Year ended March 31, 2012 2013 2014 (` in millions) Net cash flows from /(used in) operating activities (713.79) 6,180.10 4,123.97 Net cash flows used /(used in) in investing activities (426.05) (679.59) (790.02) Net Cash flow from /(used in) financing activities (362.25) 842.94 757.35 Total cash flow during the year (1,502.10) 6,343.77 4,091.30

We need resources primarily to finance borrowers and meet working capital requirements. We fund these requirements through a variety of sources, including deposits, profits and borrowings such as debentures, refinancing from financial institutions and banks and securitization transactions.

Operating Activities

Our net cash flow from operating activities reflects interest received during the period from advances and investments and other income and non-cash charges such as depreciation and provisions (mainly for non- performing and standard assets) made during the period, as well as adjustments for cash charges. In addition, our net cash from operating activities reflects changes in operating assets and liabilities, including investments, advances, deposits and borrowings, as well as other assets and liabilities.

In fiscal 2014, our net cash generated from operating activities was ` 4,123.97 million, which was primarily a result of deposits from customers amounting to ` 17,121.37 million and deployment of funds by way of advances to customers amounting to ` 10,101.80 million.

In fiscal 2013, our net cash generated from operating activities was ` 6,180.10 million, which was primarily a result of deposit from customers amounting to `39,639.99 million and deployment of funds by way of advances to customers amounting to `32,109.67 million.

In fiscal 2012, our net cash used in operating activities was ` 713.79 million, primarily resulting from deposit from customers amounting to ` 3,4264.71 million, deployment of funds by way of advances to customers amounting to `29,442.30 million and investment in SLR and non-SLR securities amounting to `9,696.06 million.

Investing Activities

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

In fiscal 2014, our net cash invested in investing activities was ` 790.02 million, which was used for purchase of fixed assets amounting to ` 945.73 million.

In fiscal 2013, our net cash invested in investing activities was ` 679.59 million, which was primarily used for purchase of fixed assets amounting to ` 714.96 million.

In fiscal 2012, our net cash used in investing activities was ` 426.05 million, which was used for purchase of fixed assets amounting to ` 443.76 million.

Financing Activities

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

In fiscal 2014, our net cash generated from financing activity was ` 757.35 million, which was primarily from issue of equity shares on account of ESOS 2008 and rights issue, and increase in share premium amounting to ` 1,309.38 million.

In fiscal 2013, our net cash generated from financing activities was `842.94 million, which was primarily from issue of equity shares on account of ESOS 2008 and rights issue, and increase in share premium amounting to ` 1,310.62 million.

In fiscal 2012, our net cash used in financing activities was ` 362.25 million, which was primarily due to issue of equity shares on account of ESOS 2008, and increase in share premium amounting to ` 37.03 million.

Liquidity

We regularly monitor our funding levels to ensure we are able to satisfy the requirements of our loan disbursements and those that would arise upon maturity of our liabilities. We maintain diverse sources of funding and liquid assets to facilitate flexibility in meeting our liquidity requirements. Liquidity is provided principally by deposits and borrowings from banks, financial institutions and retained earnings.

Surplus funds, if any, are invested in accordance with our investment policy.

In addition, we monitor and manage our asset-liability gap with respect to our maturing assets and liabilities. As at March 31, 2014, our assets maturing within 28 days exceeded our liabilities maturing within the same period by ` 9,919.50 million. Our liabilities maturing between 29 days and one year exceeded our assets maturing during the same period by ` 42,376.50 million and our liabilities maturing in over one year to three years exceeded our assets maturing in the same period by ` 74,077.20 million. Our assets maturing between three and five years exceeded our liabilities maturing during the same period by ` 2,054.30 million. Our assets maturing over five years also exceeded our liabilities maturing within the same period by ` 13,643.20 million. For further information, please see “Selected Statistical Information” on page 115.

Credit Ratings

Off-Balance Sheet Items

Contingent liabilities

The following table sets forth the principal components of our contingent liabilities as at March 31, 2012, 2013 and 2014:

As at March 31, 2012 2013 2014 (` in millions) Contingent Liabilities Claims against the Bank not acknowledged as debts 13.61 22.87 29.79 Liability for partly paid investments Nil Nil Nil Liability on account of outstanding forward exchange contracts 82,831.88 44,964.47 36,614.83 Guarantees given on behalf of constituents - In India 7,977.18 9,369.71 9,685.35 - Outside India 94.25 40.54 87.79 Acceptances, endorsements and other obligations 6,100.04 6,005.92 4,709.34 Other items for which the Bank is contingently liable Nil 30.59 4.24 Total 97,016.96 60,434.10 51,131.34

Our contingent liabilities decreased by 60.53% from ` 97,016.96 million as at March 31, 2012 to ` 60,434.10 million as at March 31, 2013 primarily due to decrease in liability on account of outstanding forward exchange contracts from ` 82,831.88 million in fiscal 2012 to ` 44,964.47 million in fiscal 2013.

Our contingent liabilities decreased by 15.39% from ` 60,434.10 million as at March 31, 2013 to ` 51,131.34 million as at March 31, 2014. The decrease was primarily due to decrease in liability on account of outstanding forward exchange contracts from ` 44,964.47 million in fiscal 2013 to ` 36,614.83 million in fiscal 2014.

Description of Key Components of Contingent Liabilities:

Claims against the Bank not acknowledged as debts consists of cases filed against the Bank, including by our customers.

Partly paid investments consist of any balance amount that has to be paid by the Bank to the investee company in connection with existing investment.

Our foreign exchange contracts arise out of spot and forward foreign exchange transactions with corporate and non-corporate customers and inter-bank counter parties. We earn profit on inter-bank and customer transactions due to the spread between the purchase rate and the sale rate. We record income from foreign exchange transactions as income from exchange transaction, income from derivatives transactions in the hedging book as interest income and income from the proprietary book as trading income.

Guarantees given on behalf of constituents in India consist of guarantees given by the Bank on behalf of its resident customers in favour of any individual or entity in India. Guarantees given on behalf of constituents outside India consist of guarantees given by the bank, though foreign corresponding banks, in favour of any individual or entity outside India.

Acceptances, endorsements and other obligations primarily consist of letters of credit given by the Bank to a third party on behalf of its customers.

Capital Adequacy

The following table sets out our capital adequacy ratios as of March 31, 2012, 2013 and 2014, calculated according to RBI guidelines.

As of 31 March(1)(2) 2012 2013 2014 (in ` million, except percentages) Common Equity Tier I 12,222.00 16,001.10 19,646.26 Additional Tier I Capital Nil Nil Nil Tier I capital 12,222.00 16,001.10 19,646.26 Tier II capital 916.40 858.80 788.80 Total Capital 13,138.40 16,859.90 20,435.06 Credit Risk – RWA 94,621.82 108,725.98 122,252.90 Market Risk – RWA 2,603.99 2,615.82 2,037.08 Operational Risk – RWA 7,313.91 9,241.85 11,881.91 Total risk weighted assets 104.539.72 120,583.66 136,171.88 Common Equity Capital Adequacy Ratio (%) 11.69% 13.27% 14.43% Capital Adequacy Ratio – Tier I capital (%) 11.69% 13.27% 14.43% Capital Adequacy Ratio –Tier II capital (%) 0.88% 0.71% 0.58% Total Capital Adequacy Ratio (%) 12.57% 13.98% 15.01% Notes:

1. Tier I and Tier II capital, risk weighted assets and capital adequacy ratios for the years ended March 31, 2012 and March 31, 2013 have been calculated according to RBI guidelines (New Capital Adequacy Framework) dated July 2, 2012, generally referred to as Basel II) and capital adequacy ratios for the year ended March 31, 2014 have been calculated according to RBI guidelines (Basel III Capital Regulations dated July 1, 2013) and therefore are not directly comparable.

Tier I capital consists of equity capital, statutory reserves, other disclosed free reserves, capital reserves and innovative perpetual debt instruments eligible for inclusion in Tier I capital. The Tier II capital consists of general provision and loss reserves and subordinate debt instruments eligible for inclusion in Tier II capital.

We moved to RBI Basel III Capital Regulations as implemented by RBI from 1 April 2013. RBI requires us to maintain a minimum CRAR of 9.00%. Indian banks have to comply with the regulatory limits and requirements as prescribed under RBI Basel III Capital Regulations, on an on-going basis, with full implementation of such regulations by March 31, 2019. For a description of the RBI’s capital adequacy guidelines, see the section “Regulations and Policies” on page 125. As of March 31, 2014, our capital adequacy ratio under the RBI Basel III Capital Regulations was 15.01%, with a Tier I capital adequacy ratio of 14.43%, a Tier II capital adequacy ratio of 0.58% and a CET I capital adequacy ratio of 14.43%.

As of March 31, 2013, under the Basel II guidelines, our CRAR was 13.98%, out of which Tier I and Tier II capital adequacy ratios were 13.27% and 0.71%, respectively and as of March 31, 2012, under the Basel II guidelines, our CRAR was 12.57% out of which Tier I and Tier II capital adequacy ratios 11.69% and 0.88%, respectively.

Going forward, we intend to finance our liquidity and capital resource needs primarily through earnings, borrowings (including Tier I and Tier II borrowings), and from the proceeds of this Issue. In addition, in the future we may issue additional equity securities.

Our current sources of funding (other than equity capital) are term deposits and demand deposits from our retail and corporate customers and borrowings (which include our Tier II subordinated debt). The cost of funds obtained is sensitive to interest rate fluctuations, which expose us to the risk of increasing interest rates will that reduce our margins, if we are unable to pass on the increased rates to our customers. The pricing on our

86 issuances of debt will also be negatively impacted by any downgrade or potential downgrade in our credit ratings. As of March 31, 2014, the rating by CARE for our Tier II bonds was CARE A+. In addition, attracting customer deposits in the Indian market is competitive. The rates that we must pay to attract deposits will be determined by numerous factors like interest rates, Indian monetary policy, inflation and demand.

We issue certificates of deposit to mutual funds and other investors for tenors up to three months.

Qualitative Disclosure about Risks and Risk Management

Risk is associated with all of our businesses. Risks are broadly classified into three major categories, namely, credit risk, operational risk and market risk. We have developed our risk management systems to ensure that there is an appropriate balance between risk and return and we have implemented comprehensive policies and procedures to identify, measure, monitor and control risk throughout our organisation. Our risk management strategy is based on understanding the various types of risk, assessment of the risk and continuous monitoring of the risk. For further details about the types of risks we manage and our risk management policies and structures see the section “—Risk Management”.

Risk Management

We believe that our long-term financial security and success is built on a robust risk management system. As a financial intermediary, we are exposed to risks that are associated with lending, investment and trading activities and the environment within which we operate. The goal of our risk management function is to ensure that we understand, measure, monitor and report the various risks that arise and to ensure that we adhere strictly to the policies and procedures that have been established to address those risks.

Our Board has overall responsibility for risk management. The Board has delegated its functions and responsibilities relating to our risk management policy, direction and supervision thereof to our RMC, an independent sub-committee of the Board. Our risk management architecture is overseen by the RMC, which endeavours to put in place specific policies, frameworks and systems to effectively manage various risks. These policies and procedures are constantly reviewed and updated.

In addition, our Audit Committee, a sub-committee of the Board, provides direction to, and monitors the quality of, the internal audit function. The Audit Committee also monitors the risk management and control environment, including the adequacy of internal controls.

A dedicated risk management department, headed by a senior level executive, handles daily risk management including risk assessment, measurement, control and reporting.

Credit risk

Our credit risk management system is governed by the Board approved credit policy which primarily defines prudential exposure limits, target business segments, credit assessment and approval/denial systems, margin and collateral management systems, credit documentation processes, credit pricing, credit administration and monitoring systems and non-performing assets management policy. Various risk management measures that have been put in place, include:

approval of all corporate credit exposures through either the multilevel approving system including an executive level credit appraisal committee or the Board level the Credit Committee. While exercising their financial powers, these designated committees/functionaries are required to exercise the highest level of due diligence and ensure adherence to our credit policy and other regulatory guidelines; the appraisal process which encompasses a detailed risk assessment and ratings of each of our obligors using our rating models. These models have been developed internally and cover all our corporate, SME, service and individual segments, beyond a threshold limit. Customers are rated based on their financial performance, industry characteristics, business positioning, project risks, and other non- financial parameters such as the quality of their management and their accounting methods; close coordination between the risk management department and other business segments to undertake the periodic review of individual borrower relationships, identify early warning signals and assess the overall health of borrowers; and proactive measures to ensure that delinquencies are maintained at a minimum level through robust post-sanction monitoring processes. There is a dedicated team which works towards ensuring

compliance with the sanctioned terms and conditions through an internal tracking system. In addition, the independent “Credit Monitoring Department” monitors our entire credit portfolio across all segments, carries out detailed sectoral studies, identifies portfolio trends, monitors early warning signals and generates portfolio level data that covers various credit quality indicators such as our sectoral exposure, credit concentration, ratings distribution and migration.

The Risk Management Department is responsible for Basel III compliance, ICAAP, bank wide stress testing across various material risks and for ensuring that we maintain sufficient capital against these risks. We believe these teams help in further strengthening our overall risk architecture. Our legal department helps in the assessment and management of material legal risks. The department has developed a comprehensive set of standard documents for various types of credit products.

Counterparty risk

We have in place appropriate guidelines to monitor counterparty risk covering all counterparty exposures on banks, corproate and financial institutions arising out of movement in market variables. Credit exposures to issuers are monitored under the prudential norms for exposure to a single borrower as per either our Credit Policy or Investment Policy, as applicable. Rating of counterparty banks, corporate and NBFCs and sanctioning of limits are done based upon suitable rating models laid down by us. We have also put in place the Derivative Policy to evaluate counterparty risk arising out of all customer derivatives contracts. We use the current exposure method for monitoring treasury exposure against sanctioned limits.

Market risk

Market risk is the exposure to loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates and equity prices. In addition, we are exposed to other elements of market risk, such as liquidity or funding risk and price risk on trading portfolios.

Our market risk management is governed by a comprehensive market risk policy, ALM policy which includes liquidity policy, investment policy, hedging policy, stress testing policy and derivative policy to ensure that risks underwritten across business activities are within our stipulated risk appetite and also to aggregate similar risks. These policies have been benchmarked with industry best practices and RBI regulations. We have an integrated and straight-through processing state-of-the-art treasury system for enabling better risk management.

We measure liquidity, currency and interest rate risks through various metrics, including liquidity gap analysis, dynamic cash flow analysis, liquidity ratios, EaR, duration of equity and sensitivity analysis using internal risk models. We regularly conduct stress testing to monitor our vulnerability towards unfavourable shocks.

We monitor and control our risk, using various internal and regulatory risk limits for our trading book and banking book which are set according to a number of criteria including economic scenarios, business strategy, management experience, peer analysis and our risk appetite. Our risk reporting mechanism comprises disclosures and reporting to the various management committees including our Investment committee and ALCO.

Liquidity risk

Liquidity risk is the risk that we will be unable to meet our financial commitment to a customer or market in any location, in any currency at any given point in time. We face liquidity risk on account of the mismatch in the maturity of our assets and liabilities. Liquidity risk also includes both the risk of our inability to raise incremental funds or unexpected increases in the cost of those funds and the risk of being unable to liquidate an asset in a timely manner at a reasonable price. The goal of liquidity risk management is to effectively manage the liquidity risk.

Managing liquidity risk involves estimating liquidity needs and providing for them in the most cost-effective way possible. We identify, quantify and actively monitor our liquidity positions and primary sources of liquidity risk, at both the transactional and portfolio levels in a timely manner. We have a regular information flow and an active dialogue process between our funding and lending divisions to enable optimal liquidity management. We also seek to control existing and anticipated liquidity risk exposures.

The ALCO is a strategic decision making body constituted by the Board, responsible for balance sheet planning from a risk return perspective including the strategic management of interest rates and liquidity risks. ALCO forms a liquidity view of the Bank with the help of economic analysis provided by our in-house economic research team. The ALCO studies the structural liquidity and interest rate sensitivity reports in detail and makes decisions on the cost and yield keeping in mind the business strategies and business cycle.

Our ALCO also formulates funding strategies to achieve an optimal funding mix which is consistent with prudent liquidity management, diversity of sources, and servicing costs by keeping itself abreast of important market developments, trends and regulatory initiatives. ALCO plays a pivotal role in planning strategic liquidity for the long-term and managing tactical liquidity for day-to-day liquidity by actively accessing alternative funding from the certificate of deposit, call money, CBLO and term money markets.

Interest rate risk

Our core business is deposit taking and lending. These activities expose us to interest rate risk. Since our balance sheet consists predominantly of Rupee assets and liabilities, movements in Indian interest rates constitute the main source of interest rate risk. The short and intermediate impact of changes in interest rates is on our net interest income. In the longer term, changes in interest rates impact cash flows on assets, liabilities and off-balance sheet items, creating a risk to our net worth as a result of re-pricing “mismatches” and other interest rate sensitive positions.

We measure exposure to fluctuations in interest rates primarily by way of gap analysis, providing a static view of the maturity and re-pricing characteristics of balance sheet positions. We prepare an interest rate gap report by classifying all assets and liabilities into various time period categories according to contracted maturities or anticipated re-pricing dates. The difference in the amount of assets and liabilities maturing or being re-priced in any time period category would then give us an indication of the extent of exposure to the risk of potential changes in the margins on new or re-priced assets and liabilities. We measure interest rate risk from the perspective of earnings as well as economic value approach. We use stress tests to provide our management with a view of the potential impact of large market movements and also to allow us to estimate the size of potential losses due to stress events which are unlikely but potentially significant.

We submit interest rate risk reports to the RBI on a monthly basis. Our interest rate risk is also monitored by the RMC which approves our interest rate risk limits.

To manage our interest rate risk, we use the duration of the Government securities portfolio as well as our corporate bond portfolio as key variables. We increase or decrease the duration of the Government securities portfolio and our corporate bond portfolio to manage our interest rate risk exposure. In addition, we also use interest rate derivatives to manage the asset and liability positions.

Exchange rate risk

Exchange rate risk is the risk that we may suffer losses as a result of adverse exchange rate movements during a period in which we have an open position in an individual foreign currency. To evaluate the extent of our exchange rate risk, a liquidity gap report for each currency is prepared. Gaps or mismatch of maturities can arise either because of proprietary trading positions or due to a customer transaction resulting in a long or a short position for us.

We engage in trading activities in the foreign currency markets that expose us to exchange rate risks. In addition, our foreign exchange business exposes us to foreign currency interest rate risks that arise from maturity mismatches of foreign currency positions, and settlement risk, which is the risk of default by counterparties. We mitigate these foreign exchange risks by setting counterparty limits and subjecting the overall foreign currency positions to an overnight open exchange position limit that has been approved by the RBI. We also offer foreign currency advances and deposits and foreign currency hedge instruments such as forwards to customers, and currency options to customers and we actively hedge exchange risks arising out of these customer positions.

Derivative instruments risk

We engage in limited trading of derivative instruments on our own account and generally enter into interest rate and currency derivative transactions primarily for the purpose of hedging interest rate and foreign exchange

89 mismatches. We provide limited derivative services to select customers and other Indian and international financial institutions, including foreign currency forward transactions, foreign currency and foreign exchange related products. Our derivative transactions are subject to counter-party risk to the extent that particular obligors are unable to make payment on contracts when due. Derivative transactions are done after evaluating the appropriateness of the transaction for the counterparty in compliance with guidelines provided in our derivative policy. Also, exposure for these customers is monitored on a continuous basis against the limits sanctioned for our treasury business.

Equity price risk

We assume equity price risk with respect to equities held in our portfolio. Fluctuations in the market can affect the value of equity shares resulting in a negative effect on our positions. We have put in place a limit control structure for overall equity positions, exposure limits on capital markets and individual scrip limits.

Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. In general, some major sources of operational risk are process reliability, IT security, outsourcing operations, dependence on key suppliers, fraud, error, regulatory compliance, and recruiting, training and maintaining staff. Operational risk also includes exposure to lawsuits related to employment matters.

We have a Board approved Operational Risk Management Policy, which is implemented under the supervision of the head of Operational Risk Management, who is also the head of the Operational Risk Management Committee. The Operational Risk Management Committee meets periodically to review all operational risk events and control strategies. To understand our operational risk exposure, we identify, assess and document the operational risks inherent in all our material products, activities and process events. We have put in place a structure of well-defined policies, processes and procedures that are designed to mitigate material operational risks. These policies, processes and procedures are based on best practices in the Indian financial industry and are aimed at enhancing operational efficiency without compromising on controls. In addition, to ensure compliance with the Basel III capital accord, we have adopted the “basic indicator approach” for measurement of operational risk.

Some of the other initiatives that we have undertaken to address operational risks include:

creating standard operating procedures with defined processes, such as the “maker-checker” concept, for handling paper based transactions and updating those procedures on a central depository on our intranet; establishing protocols to have all suspected fraud and suspicious activity, including regulatory and legal notices, immediately brought to the attention of our Chief Vigilance Officer who is responsible for conducting a thorough investigation of all fraud cases which is then reviewed by a committee of senior management to identify any systemic changes that are necessary; reducing risks related to employment policies and laws by implementing periodic performance evaluations; creating checklists and standard legal document forms to aid employees in properly completing all customer documentation; assessing and monitoring external service providers through a comprehensive outsourcing policy; tracking the movement of records through storage and retrieval; designing a comprehensive Business Continuity Plan which has been tested using regularly conducted drills; and capturing, classifying and analysing all loss events and reporting them (including near miss cases) to Board on a bi-annual basis.

Legal risk

Legal risk is the uncertainty of the enforceability of the obligations of our customers and counterparties, including the foreclosure on collateral. Changes in law and regulation could adversely affect us. Legal risk is higher in new areas of business where the law is often untested by the courts. We seek to minimise legal risk by using appropriate legal documentation, employing procedures designed to ensure that transactions are properly authorised and consulting internal and external legal advisors, where necessary.

INDUSTRY OVERVIEW

The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the Government and its various ministries, the RBI and the Indian Banks’ Association, and has not been prepared or independently verified by us or any of the SGCBRLM and the BRLMs. Wherever we have relied on figures published by the RBI, unless stated otherwise, we have relied on the RBI Annual Report 2012-13, Report on Trend and Progress of Banking in India 2012-13 and the accompanying Explanatory Notes available at http://www.rbi.org.in. Industry sources and publications referred to by us state that the information contained therein has been obtained from sources generally believed to be reliable, but their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured, and accordingly, investment decisions should not be based on such information. Statements in this section that are not statements of historical fact constitute “forward-looking statements”. Such forward-looking statements are subject to various risks, assumptions and uncertainties and certain factors could cause actual results or outcomes to differ materially.

Indian Economy

The Indian economy is one of the largest economies in the world with a GDP at current prices of an estimated ` 82.80 trillion for fiscal year 2012. (Source: Annual Report 2011-2012, Ministry of Statistics and Programme Implementation available at http://mospi.nic.in as of 10 January 2013.) It is one of the fastest growing major economies in the world, although growth decelerated in 2012-2013 to a 10-year low of 5.0%, having averaged 8.8% during 2005-06 to 2010-11 due to structural constraints and weak external demand. (Source: RBI Annual Report 2012-13.) In recent years, India has become a popular destination for FDI, owing to its well-developed private corporate sector, large consumer market potential, large pool of well-educated and English speaking work force and well established legal systems. Overall, India attracted FDI of approximately U.S.$33 billion in fiscal year 2012 and U.S.$27 billion in fiscal year 2013 as compared to an average of U.S.$16.70 billion from fiscal year 2001 through fiscal year 2010. (Source: RBI Annual Report 2012-13.) In 2012, China and India sustained real GDP growth rates of 7.65% and 4.74%, respectively, which are among the highest of any economy in the world.

Indian Banking Industry

Until the 1980s, the Indian financial system was strictly controlled. Interest rates were administered by the Government. Formal and informal parameters governed asset allocation and strict controls limited entry into and expansion within the financial sector. Bank profitability was low, NPAs were comparatively high, capital adequacy was diminished and operational flexibility was hindered. The Government’s economic reform program, which began in 1991, encompassed the financial sector. The first phase of the reform process began with implementation of the recommendations of the Committee on the Financial System, namely the Narasimham Committee I. Following that, reports were submitted in 1997 and 1998 by other committees, such as the second Committee on Banking Sector Reform, namely, the Narasimham Committee II, and the Tarapore Committee on Capital Account Convertibility. This, in turn, led to the second phase of reforms relating to capital adequacy requirements, asset classification and provisioning, risk management and merger policies. The deregulation of interest rates, the emergence of a liberalised domestic capital market and the entry of new private sector banks have progressively intensified the competition among banks.

Banks in India may be categorised as scheduled banks and non-scheduled banks, where the former are banks which are included in the second schedule to the RBI Act 1934, as amended. These banks comprise scheduled commercial banks and scheduled cooperative banks. Scheduled commercial banks may further be classified as the SBI and its associates, nationalised banks, private sector banks, foreign banks and regional rural banks. (In RBI reports, regional rural banks are usually excluded in tables providing details of individual banks and their summary tables at bank group level). The focus of commercial banks in India has largely been on meeting the short-term financing needs of industry, trade and agriculture sectors. As of fiscal year 2013, there were 155 commercial banks in the country, of which 151 were scheduled commercial banks. As of fiscal year 2013, commercial banks had a nationwide network of 109,811 offices with 62.04% of the offices in rural and semi- urban areas. (Source: RBI, “Statistics Relating to Commercial Banks at a glance” available at http://www.rbi.org.in/ as of 21 November 2013.) As of fiscal year 2013, scheduled commercial banks, not including regional rural banks, had approximately ` 74.3 trillion of deposits and approximately ` 58.8 trillion of loans and advances. Aggregate deposits for all scheduled commercial banks had registered an annual growth rate of 15.1% while the loans and advances for all scheduled commercial banks had increased by 15.9%.

(Source: RBI Report on Trend and Progress of Banking in India 2012-13.) The average population coverage per office number decreased from 12,800 as of fiscal year 2012 to 11,700 as of fiscal year 2013. (Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2013.) The credit deposit ratio for all scheduled commercial banks stood at 79.1.(Source: Report on Trend and Progress of Banking in India 2012- 13.)

Constituents of the Indian Banking Industry

The Reserve Bank of India

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

acts as the central bank and the monetary authority;

issues currency;

manages debt for the central and certain state governments that have entered into agreement with it;

regulates and supervises NBFCs;

manages the country’s foreign exchange reserves;

manages the capital account of the balance of payments;

regulates and supervises payment settlement systems;

operates a grievance redressal scheme for bank customers through the banking ombudsmen and formulates policies for fair treatment of banking customers; and

develops initiatives such as financial inclusion and strengthening of the credit delivery mechanisms to priority sectors and weaker sections, including agricultural entities, small and micro-enterprises and for affordable housing and education.

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

Public sector banks

Public sector banks are scheduled commercial banks with a significant Government shareholding and constitute the largest category in the Indian banking system. These include the SBI and its six associate banks, 20 nationalised banks and 64 regional rural banks. As of fiscal year 2013, public sector banks had 72,661 branches. SBI and its associates had 20,181 branches and nationalised banks had 52,480 branches. Public sector banks in India had total deposits of approximately ` 57,473 billion and loans and advances of approximately ` 44,756 billion. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.) SBI and its associates accounted for approximately 22.3% of the total deposits and approximately 22.5% of the loans and advances and nationalised banks accounted for approximately 51.8% of the total deposits and approximately 50.2% of the loans and advances of the scheduled commercial banks. The public sector banks, in total, accounted for approximately 74.1% of the deposits and approximately 72.7% of the advances of the scheduled commercial banks. These figures do not include regional rural banks. (Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2013.) Regional rural banks were established from 1976 to 1987 by the central Government, state governments and sponsoring commercial banks jointly, with a view to develop the rural economy. Regional rural banks provide credit to small farmers, artisans, small entrepreneurs and agricultural labourers. The NABARD is responsible for regulating and supervising the functions of the regional rural banks.

Private sector banks

After bank nationalisation was completed in 1969 and 1980, the majority of Indian banks were public sector

93 banks. Some of the existing private sector banks, which showed signs of an eventual default, were merged with state-owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry by the private sector into the banking system. This resulted in the emergence of private sector banks, collectively known as the “New Private Sector Banks”. There were seven New Private Sector Banks operating as of fiscal year 2013. In addition, 13 private sector banks existing prior to July 1993 were operating as of fiscal year 2013. These are collectively known as the “Old Private Sector Banks”. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.)

As of fiscal year 2013, private sector banks accounted for approximately 18.3% of the deposits and approximately 19.8% of the advances of the scheduled commercial banks. These figures do not include regional rural banks. (Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2013.)

The Union Finance Minister made an announcement in his budget speech for 2010-11 that there was a need to extend the geographic coverage of banks and improve access to banking services and the RBI considered whether to begin granting additional banking licences to private sector players.

Following the budget announcement, the New Banks Licensing Guidelines were issued by the RBI in February 2013 specifying that select entities or groups in the private sector, entities in the public sector and non-banking financial companies with a successful track record of at least 10 years would be eligible to promote banks. Further, the RBI has published certain criteria for ascertaining whether a bank is ‘fit and proper’ for the grant of a licence. The new banks can be set up only through a non-operative financial holding company registered with the RBI and the initial minimum paid up equity voting capital requirement for the applicants is ` 5.0 billion, with foreign shareholding not exceeding 49.0% for the first five years. The applicants were required to submit applications for these licences to RBI by 1 July 2013 and 25 applications were reviewed by the RBI. These applications were screened by the RBI before being forwarded to the RBI’s HLAC for further scrutiny, which submitted its recommendations to the RBI on 25 February 2014.

On 2 April 2014, the RBI granted “in-principle” approval to two applicants to set up banks under the New Banks Licensing Guidelines. The “in-principle” approval is valid for a period of 18 months and the applicants will not be permitted to engage in banking business until a regular licence is issued after satisfaction of the conditions stipulated by the RBI. In the future, the RBI intends to issue licences on an on-going basis, subject to the RBI’s qualification criteria.

Foreign banks

As of fiscal year 2013, there were 43 foreign banks with 331 offices operating in India. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.) Foreign banks accounted for approximately 4.6% of deposits and approximately 4.9% of aggregate advances of scheduled commercial banks (not including regional rural banks). (Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2013.)

As part of the liberalisation process, the RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. Foreign banks operate in India through branches of the parent bank. The primary activity of most foreign banks in India has been in the corporate segment. However, in recent years, some of the larger foreign banks have started to put a greater emphasis on consumer financing based on the growth opportunities in India.

In 2009, as part of the liberalisation process that accompanied the second phase of the reform process that began in 2005, the RBI began permitting foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. The primary activity of most foreign banks in India has been in the corporate segment. However, some of the larger foreign banks have made retail banking a significant part of their portfolios. Most foreign banks operate in India through branches of the parent bank. Certain foreign banks also have wholly owned non-banking financial company subsidiaries or joint ventures for both corporate and retail lending. In 2004, the RBI stipulated that banks, including foreign banks operating in India, should not acquire any fresh stake in another bank’s equity shares if by such acquisition, the investing bank’s holding would exceed 5.0% of the investee bank’s equity capital. In February 2005 the RBI issued a “Roadmap for Presence of Foreign Banks in India”, announcing the following measures to be implemented in two phases:

During the first phase (from March 2005 through to March 2009), foreign banks were allowed to establish a presence by setting up wholly owned subsidiaries or by converting existing branches into

wholly-owned subsidiaries. Also during the first phase, foreign banks were allowed to acquire a controlling stake in private sector banks identified by the RBI for restructuring. This was only to be done in a phased manner. For new and existing foreign banks, proposals were made to go beyond the existing World Trade Organisation commitment of allowing increases of 12 branches per year. A more liberal policy will be followed for areas with a small number of banks. During the second phase (from April 2009 onwards) and after a review of the first phase, foreign banks would be allowed to acquire up to 74.0% in private sector banks in India.

In April 2009, in light of deteriorating global financial markets, the RBI postponed the second phase until greater clarity emerged as to recovery and reform of the global regulatory and supervisory architecture. In January 2011, the RBI released a draft discussion paper on the mode of presence of foreign banks in India. The paper indicates a preference for a wholly-owned subsidiary model of presence over a branch model. Other recommendations of the discussion paper include requiring systemically important foreign banks to convert their Indian operations into wholly-owned subsidiaries, a less restrictive branch expansion policy and ability to raise Rupee debt through issuance of non-equity capital instruments for such converted subsidiaries, lower priority sector targets as compared to domestic banks and unified regulation for both Indian and foreign banks with respect to investments in subsidiaries and associates.

In July 2012, the RBI revised priority sector lending norms and mandated foreign banks with 20 branches or more in India to meet priority lending norms as prescribed for domestic banks. In November 2013, the RBI issued a scheme for setting up wholly-owned subsidiaries by foreign banks in India. The scheme envisages that foreign banks that commenced business in India after August 2010, or do so in the future, would be permitted to do so only through wholly-owned subsidiaries if certain specified criteria apply to them.

These criteria include incorporation in a jurisdiction which gives legal preference to home country depositor claims in case of a winding up proceeding, among others.

Further, a foreign bank that has set up operations in India through the branch mode after August 2010 will be required to convert its operations into a subsidiary if it is considered to be systemically important. A bank would be considered to be systemically important if the assets on its Indian balance sheet (including credit equivalent of off-balance sheet items) equals 0.25% of the total assets (inclusive of credit equivalents of off-balance sheet items) for all scheduled commercial banks in India as of 31 March of the preceding year. Establishment of a subsidiary would require approval of the home country regulator/supervisor and the RBI which would be subject to various factors including economic and political relations with the country of incorporation of the parent bank and reciprocity with the home country of the parent bank. The regulatory framework for a subsidiary of a foreign bank would be substantially similar to that applicable to domestic banks, including with respect to priority sector lending and branch expansion. Wholly-owned subsidiaries of foreign banks may, after further review, be permitted to enter into merger and acquisition transactions with Indian private sector banks, subject to adherence to the foreign ownership limit of 74.00% that is currently applicable to Indian private sector banks.

Cooperative banks

Cooperative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban, semi-urban and rural areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004, which came into effect from 24 September 2004, specifies that all multi-state cooperative banks are under the supervision and regulation of the RBI. Accordingly, the RBI is currently responsible for the supervision and regulation of urban cooperative societies, NABARD, state cooperative banks and district central cooperative banks. The wide network of co-operative banks, both rural and urban, supplements the commercial banking network for deepening financial intermediation by bringing a large number of depositors/borrowers under the formal banking network.

Key Banking Industry Trends in India

Global growth continued to remain sluggish in fiscal year 2013. Adverse international economic developments combined with the loss of growth momentum in the domestic economy posed challenges to the banking sector in India during fiscal year 2013. There was a rise in asset impairment coupled with a dip in profitability. Macro stress tests indicate that if the current macroeconomic conditions persist, the credit quality of commercial banks

95 could deteriorate further. However, overall, the comfortable capital base still lends resilience to the Indian banking sector. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.)

Consumer credit

The consumer credit market in India has undergone a significant transformation over the last decade and has experienced rapid growth due to consumer credit becoming cheaper, more widely available and increasingly a more acceptable avenue of funding for consumers. The market has changed dramatically due to the following factors: increased focus by banks and financial institutions on consumer credit, resulting in a market shift towards regulated players from unregulated moneylenders/financiers;

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

fast emerging middle class and growing number of households in a bank’s target segment;

improved terms of credit;

legislative changes that offer greater protection to lenders against fraud and potential default, increasing the incentive to lend; and

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

Commercial Banking Trends

Credit

As of fiscal year 2013, the credit-deposit ratio for scheduled commercial banks was 79.1 as compared to 78.6 as of fiscal year 2012. The aggregate deposits increased by 15.10% while loans and advances increased by 15.90% in fiscal year 2013.

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

Sr Non-food gross credit - sectoral Outstanding as of Percentage variation no. deployment Sector Fiscal year Fiscal year Fiscal year Fiscal year 2012 2013 2012 2013 (in ` billion) 1 Agriculture and allied activities 5,484 5,899 14.1 7.6 2 Industry, of which 19,374 22,302 20.7 15.1 Infrastructure 6,300 7,297 20.8 15.8 Micro and small industries 2,363 2,843 12.4 20.3 3 Services 10,166 11,486 14.5 13.0 Trade 2,245 2,760 21.3 22.9 Commercial real estate 1,126 1,261 15.7 12.0 Tourism, hotels and restaurants 323 354 16.7 9.9 Computer software 143 169 3.0 18.4 NBFCs 2,278 2,570 24.0 12.8 4 Personal loans 7,873 9,009 13.4 14.4 Credit card outstanding 204 249 12.9 21.9 Education 498 550 16.6 10.4 Housing (including priority sector housing) 4,013 4,600 12.6 14.6

Sr Non-food gross credit - sectoral Outstanding as of Percentage variation no. deployment Sector Fiscal year Fiscal year Fiscal year Fiscal year 2012 2013 2012 2013 (in ` billion) Advances against fixed deposits (including 569 611 15.4 7.3 foreign currency non-resident (B), non- resident non-repatriable deposits etc.) 5 Total non-food gross bank credit 42,897 48,696 17.0 13.5 6 Total gross bank credit 43,714 49,642 17.1 13.6

Notes:

1. Percentage variation could be slightly different, as absolute numbers have been rounded off to ` billion. 2. Components may not add up due to rounding off numbers of ` billion.

(Source: Sectoral and Industrial Deployment of Bank Credit Return (Monthly), RBI Report on Trend and Progress of Banking in India 2012-13.)

There was a rise in the growth of priority sector credit in fiscal year 2013 as compared to a drop in overall credit growth during the year. The growth in priority sector credit, however, remained lower than the growth in overall credit.

In fiscal year 2013, credit to priority sectors by public and private sector banks was 36.3% and 37.5% of adjusted net bank credit or credit equivalent of off-balance sheet exposure, whichever is higher, respectively, indicating a shortfall against the overall target of 40.0%.

In the past, growth in credit to sensitive sectors, namely, real estate, capital market and commodities, generally followed a pattern similar to the growth in overall credit. However, in fiscal year 2013, growth in credit to sensitive sectors almost doubled primarily on account of credit to real estate. This expansion needs to be seen in light of the steep rise in housing prices in all Tier I cities and several Tier II cities in fiscal year 2013. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.)

Interest rates and inflation

During fiscal year 2013, the RBI focused on addressing the sharp slowdown in growth while not jeopardising the objective of reigning in inflation. The RBI reduced the repo rate by 50 basis points in April 2012 and, in response to this and earlier monetary policy tightening, a moderation in inflation was witnessed in the second half of fiscal year 2013. Headline WPI inflation averaged 7.0% in the second half of the fiscal year 2013 as against 7.7% in the first half. By March 2013, WPI inflation on a point to point basis moderated to 5.7%.

As a result of the softening of WPI inflation in the second half of fiscal year 2013, the RBI reduced the repo rate by 25 basis points in January 2013 and again in March 2013, leading to a cumulative 100 basis points easing in fiscal year 2013. The repo rate was further reduced by 25 basis points in May 2013 to 7.25% to address the accentuated risks to growth while noting that upside risks to inflation were still significant.

After easing in the first quarter of fiscal year 2014, WPI inflation started rising. Retail inflation as measured by CPIs also continued to remain elevated. Considering the imperative need to curb the mounting inflationary pressures and anchor inflation expectations and thereby strengthen the foundations of growth, the repo rate was increased by 25 basis points each in September 2013 and October 2013 to 7.75%. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.)

According to the most recently available data, WPI inflation accelerated to a 14-month high of 7.5% in November 2013, compared to 7.0% in October 2013 and 7.2% in November 2012, and had since then fallen to a low of 6.01% in May 2014. The rise in WPI for November 2013 was spread across all categories of goods, mainly driven by elevated food prices (19.9%) and primary articles prices (15.9%), whereas disinflationary trends in the period between November 2013 and May 2014 were led by a lowering of food prices as the pace of decline in vegetable prices at the wholesale market gained momentum.

In response to increased inflation, in fiscal years 2011 and 2012, the RBI increased its policy rates 13 times, enacting gradual increases in the repo rate from 5.00% on 31 March 2010 to a peak of 8.50% with effect from 25 October 2011. However, the RBI cut the repo rate to 8.00% effective 17 April 2012 and to 7.75% effective 29 January 2013. RBI again decreased the repo rate to 7.50% on 19 March 2013 and then to 7.25% effective 3 May 2013. However, RBI reversed the trend on 20 September 2013 by raising the repo rate to 7.50% in response to the high inflation. RBI further increased the repo rate to 7.75% and 8.00% on 29 October 2013 and 28 January 2014, respectively, and has maintained it at those levels since. The reverse repo rate has been pegged at 1.0% below the repo rate since March 2011 and thus has followed a similar trend since that time. The RBI reduced the MSF by 125 basis points in three tranches from 10.25% to 9.00%, the last tranche being effective from 28 January 2014. During fiscal year 2011, the RBI increased the CRR from 5.75% to 6.00%, but in fiscal year 2012, it lowered the CRR to 4.75% and on 29 January 2013, to 4.00% with effect from 9 February 2013. (Source: RBI Notifications available at http://www.rbi.org.in.)

The base rate system, which replaced the benchmark prime lending rate system introduced in 2003, became effective from July 2010 and has contributed to improvement in the pricing of loans, enhanced transparency in lending rates and has improved the assessment of the transmission of monetary policy. This, combined with freeing of interest rates on export credit in foreign currency, effective 5 May 2012, has resulted in complete deregulation of interest rates on lending by commercial banks. As proposed in the RBI Second Quarter Review of Monetary Policy 2010-11 and pursuant to Guidelines on Deregulation of Savings Bank Deposit Interest Rate, the RBI decided to deregulate the savings bank deposit interest rate, effective 25 October 2011, subject to the following two conditions:

first, each bank will have to offer a uniform interest rate on savings bank deposits up to ` 100,000, irrespective of the amount in the account within this limit; and

second, for savings bank balances over ` 100,000, a bank may provide differential rates of interest, if it so chooses. However, there should not be any differentiation on interest rates between similar deposit amounts accepted on the same date at any of a bank’s branches.

Asset quality

The gross NPA ratio at the aggregate level stood at 3.6% as of 31 March 2013 up from 3.1% as of 31 March 2012. There were also signs of a deepening deterioration within NPAs with an increase in the proportion of “doubtful” loan assets. The increased shift of loan assets towards the “doubtful” category was most prominent for the nationalised banks.

There was a steep rise in the growth of restructured debt under the CDR mechanism in fiscal year 2013. The CDR mechanism covers only multiple banking accounts and syndication/consortium accounts where all banking institutions together have an outstanding exposure of ` 100 million and above. In fiscal year 2013, there was a growth of about 37% in the total number of cases approved for restructuring under this mechanism and the debt thus restructured posted a growth of 52%, marking a sharp increase over its corresponding growth in 2011-12 of 35.7%. The growth in the number of cases and amount of debt receded marginally in the first quarter of 2013-14 to 48.6%. Although the NPA ratio in the priority sector was consistently higher than the NPA ratio in the non-priority sector, deterioration in asset quality in fiscal year 2013 was primarily on account of the non-priority sector. Industry, which accounts for a little less than half the total credit of domestic banks, has shown a steady deterioration in asset quality, particularly in fiscal year 2013. The NPA ratio for the infrastructural sector, which accounted for about one-third of the total industrial credit, showed a rising trend during this period. By contrast, there was a falling trend in the NPA ratio for the retail sector. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.)

Bank group-wise NPA ratios

Bank group Fiscal year Gross NPAs Net NPAs to net Restructured to gross advances advances standard advance to gross advances Public sector banks 2012 3.17 1.47 5.74 2013 3.84 2.02 7.21 Foreign banks 2012 2.68 0.61 0.10

Bank group Fiscal year Gross NPAs Net NPAs to net Restructured to gross advances advances standard advance to gross advances 2013 2.97 1.00 0.16 New private sector 2012 2.18 0.44 1.06 banks 2013 1.91 0.44 1.20 Old private sector 2012 1.80 0.59 3.54 banks 2013 1.91 0.74 4.00 (Source: RBI Annual Report 2012-13.)

Income and profitability

In fiscal year 2013, interest earnings were adversely affected with credit growth slowing down. This was also a period when interest rates, which had hardened during earlier years, started softening. Interest expended also grew at a slower pace during the year but its growth was higher than that of interest earned, thereby putting a downward pressure on the growth in both operating and net profits of banks. (Source: RBI Report on Trend and Progress of Banking in India 2012-13.)

Impact of Liberalisation on the Indian Financial Sector

Until 1991, the financial sector in India was heavily controlled and commercial banks and long-term lending institutions, the two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable environment, with little or no competition. Long-term lending institutions were focused on the achievement of the Government’s various socio-economic objectives, including balanced industrial growth and employment creation, especially in areas requiring development. Long-term lending institutions were extended access to long-term funds at subsidised rates through loans and equity from the Government and from funds guaranteed by the Government originating from commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies.

The focus of the commercial banks was primarily to mobilise household savings through demand and time deposits and to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition, the commercial banks provided a range of banking services to individuals and business entities. However, since 1991, there have been comprehensive changes in the Indian financial system. Various financial sector reforms, implemented since 1991, have transformed the operating environment of banks and long-term lending institutions. In particular, the deregulation of interest rates, the emergence of a liberalised domestic capital market, and the entry of new private sector banks, along with the transformation of long-term lending institutions into banks, have progressively intensified the competition among banks.

Impact of Global Financial Crisis on India

The bankruptcy of Lehman Brothers in September 2008 led to a rapid deterioration of the global macroeconomic environment and a sharp moderation in global economic activity. In India, this impact was felt mainly through its trade and capital channels. As a result, there was a sharp reduction in domestic liquidity between September and October 2008. The decline in global commodity prices led to a moderation in inflation and facilitated substantial reductions in key policy rates and reserve requirements. The RBI reduced repo and reverse repo rates and the SLR and CRR requirements to ease the liquidity situation, especially for non-banking financial companies and mutual fund companies.

As reported by the RBI in its financial stability report for December 2011, the Indian banking sector is subject to economic forces that are affecting the health of the sector as a whole. The growing linkages and integration of the Indian economy and its financial system with the global economy are causing the banking system to face headwinds from uncertainty related to government finances and the banking sector in the Eurozone area and the United States. The RBI in its financial stability report for December 2012 has re-iterated that global risks remain elevated due to delays in resolution of issues like the Eurozone debt crisis. The uncertainty of the global economic environment is expected to continue as economic growth slows across many regions in the world. The RBI’s financial stability report for 2011 noted that Indian banks have negligible exposures to the most affected European countries and that direct effects from uncertainty related to the Eurozone debt crisis are expected to remain muted. However, funding constraints in international financial markets could impact both the availability and cost of foreign funding for banks and corporates. Further, India’s economic growth has been affected through the trade and finance channels. Domestic demand and domestic corporate growth have recently begun to slow, while Indian interest rates have risen and inflationary pressures have increased. According to the RBI’s

99 financial stability report for 2012, the evolving global risks such as the fall in global growth and sovereign risk/contagion and a host of Indian domestic factors like the increasing fiscal deficit, deterioration in the growth outlook and bank asset quality are the major risks to the banking sector though the resilience of the banking system to credit, interest rate, equity and foreign exchange shocks remain satisfactory.

The Federal Reserve Bank of United States started tapering its buying of treasuries in early 2014. This resulted in exchange rate volatility of various emerging market currencies, including the Rupee. In response, the RBI began tightening rates and liquidity in July 2013, which resulted in a spike in short and long term yields of corporate bonds and government securities. The RBI has since normalised liquidity and interest rates.

Recent Developments in the Indian Banking Industry

April 2014

The RBI granted “in-principle” approval to 2 out of 25 applicants to set up banks under the Guidelines on Licensing of New Banks in the Private Sector issued on 22 February 2013. The RBI stated that its approach was conservative and that, going forward it intended to give licences more regularly, including to some entities whose application for a licence had been unsuccessful in this round.

The RBI issued a circular for simplification of KYC related procedures for opening bank accounts by FPIs. The RBI has advised that those FPIs who have been duly registered in accordance with SEBI guidelines and have undergone the required KYC due diligence / verification prescribed by SEBI through a custodian / intermediary regulated by SEBI, banks may rely on the KYC verification done by the third party (i.e. the custodian / SEBI regulated intermediary), subject to conditions laid down in the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

The RBI issued a circular whereby it laid down that banks, including overseas branches or subsidiaries of Indian banks, shall not issue standby letters of credit, guarantees, letter of comforts on behalf of overseas joint ventures, wholly owned subsidiaries or wholly owned step-down subsidiaries of Indian companies for the purpose of raising loans or advances of any kind from other entities except in connection with the ordinary course of overseas business. Further, while extending fund or non-fund based credit facilities to aforementioned entities in connection with their business, either through branches in India or through branches or subsidiaries abroad, banks should ensure effective monitoring of the end use of such facilities and its conformity with the business needs of such entities.

May 2014

The RBI issued a circular whereby it has decided to include the outstanding deposits placed by SCBs under the RIDF and certain other funds established with NABARD under priority sector classification. The change was made on account of SCBs shortfall in lending to the priority sector as part of indirect agriculture under the priority sector classifications. Accordingly, the outstanding deposits as of 31 March of the current year under RIDF, the Warehouse Infrastructure Fund, the Short Term Co- operative Rural Credit Refinance Fund and the Short Term RRB Fund with NABARD will be treated as part of indirect agriculture and will count towards overall priority sector target achievement. The outstanding deposits under the above funds with NABARD as on the preceding 31 March will form part of ANBC.

Future Developments in the Banking Sector and Expected Domestic Reforms

Implementation of the Basel III capital regulations

In December 2010, the BCBS issued a comprehensive reform package of capital regulations, Basel III. The objective of the reform package is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, thus reducing the risk of spill over from the financial sector to the real economy. The RBI issued the RBI Basel III Capital Regulations and the guidelines became operational from 1 April 2013 (Source RBI Press Release dated 28 December 2012 available at http://www.rbi.org.in as of 15 February 2013.). However, the reform package and guidelines will be implemented in a phased manner. On 31 December 2013, the RBI further extended the implementation of credit valuation adjustment risk to 1 April 2014; and, on

100

27 March 2014, extended the deadline for full implementation of Basel III requirements to 31 March 2019. (Source: RBI Circular DBOD.No.BP.BC.81/21.06.201/2013-14 dated 31 December 2013 and RBI Circular DBOD.No.BP.BC.102/21.06.201/2013-14 dated 27 March 2013)

Under Basel III, total capital of a bank in India must be at least 9.00% of RWAs (8.00% as specified by the BCBS), Tier I capital must be at least 7.00% of RWAs (6.00% as specified by the BCBS) and Common Equity Tier I capital must be at least 5.50% of RWAs (4.50% as specified by BCBS). Due to the transitional arrangements, the capital requirements of banks may be lower during the initial periods and higher during later years. Therefore, banks have been advised to do their capital planning accordingly. In addition to the minimum requirements as indicated above, a CCB, in the form of common equity of 2.50% of RWAs, is required to be maintained by banks. Under the RBI Basel III Guidelines, total capital with CCB has been fixed at 11.50% of RWAs.

Further, under Basel III, a simple, transparent, non-risk based leverage ratio has been introduced. The BCBS will test a minimum Tier I leverage ratio of 3.00% during a parallel run period from 1 January 2013 to 1 January 2017. The RBI has prescribed that during this parallel run period, banks should strive to maintain their existing leverage ratios, but in no case should a bank’s leverage ratio fall below 4.50%. Banks whose leverage is below 4.50% have been advised to achieve this target as early as possible. This leverage ratio requirement is yet to be finalised and will be finalised taking into account the final proposals of the BCBS. (Source: RBI Annual Report 2011-2012.)

Further, Additional Tier I non-equity capital instruments under Basel III are expected to provide additional features such as full coupon discretion, and principal loss absorption when the common equity ratio of a bank falls below 6.125% of its risk-weighted assets. In the case of Tier II non-equity capital instruments, the distinction between Upper Tier II and Lower Tier II instruments under Basel II is removed and a single class of Tier II instrument eligibility criteria has been prescribed. Additionally, under Basel III loss absorption features have been included in the event of occurrence of the ‘Point of Non-Viability’ trigger. The RBI has also fixed the base at the nominal amount of capital instruments outstanding on 1 January 2013, and their recognition will be capped at 90.00% from 1 April 2013, with the cap reducing by 10.00% points in each subsequent year

Dynamic provisioning guidelines

At present, banks generally make two types of provisions; general provisions on standard assets and specific provisions on NPAs. Since the level of NPAs varies through the economic cycle, the resultant level of specific provisions also behaves cyclically. Consequently, lower provisions during upturns and higher provisions during downturns have a pro-cyclical effect on the real economy.

To address the pro-cyclicality of capital and provisioning, efforts at an international level are being made to introduce countercyclical capital and provisioning buffers. The RBI has prepared a discussion paper on a countercyclical (dynamic) provisioning (“DP”) framework.

The DP framework is based on the concept of expected loss, or “EL”, which is the average level of losses a bank can reasonably expect to experience, and is considered the cost of doing business. It is generally covered by provisioning and pricing. The objective of DP is to soften the impact of incurred losses on the results of operations through the economic cycle, and not to provide a general provisioning cushion for EL. More specifically, the DP created during a year will be the difference between the long run average EL of the portfolio for one year and the incremental specific provisions made during the year. The parameters of the model suggested in the discussion paper are calibrated based on data of Indian banks. Banks that have the capability to calibrate their own parameters may, with the prior approval of the RBI, introduce a DP framework using the theoretical model indicated by the RBI. Other banks will have to use the standardised calibration provided by the RBI. (Source: RBI Annual Report 2011-2012 and Discussion Paper on Introduction of Dynamic Loan Loss Provisioning Framework for Banks in India dated 30 March 2012.)

FSLRC

The FSLRC was constituted on 24 March 2011 to redraft and harmonise legislation related to the financial sector. (Source: RBI Report on Trend and Progress of Banking in India 2011-12.)

In its approach paper released on 1 October 2012, the FSLRC has proposed a two-agency regulatory model; the RBI as the monetary authority, banking regulator and payment systems regulator, and a single regulator for the

101 rest of the financial sector. This approach paper is currently in draft form. (Source: FSLRC, Ministry of Finance, Approach Paper and Press Release available at http://www.fslrc.org.in as of 10 January 2013.)

BHC or FHC

In June 2010, the RBI set up a working group to examine the different holding company structures prevalent internationally in the financial sector and to examine the feasibility of introducing an FHC structure in India. FHCs are companies that own or control one or more banks or NBFCs. Currently, banks in India are organised under a bank-subsidiary model, or “BSM”, in which the bank is the parent of all the subsidiaries of the group. In May 2011, the RBI released the working group’s recommendations that included, among others, that the FHC model should be pursued as a preferred model for the financial sector in India and that the RBI should be designated as the regulator for FHCs. The recommendations have currently not been implemented. (Source: RBI Report of the Working Group on Introduction of Financial Holding Company Structure in India and Press Release available at http://www.rbi.org.in as of 10 January 2013.)

Future Outlook and Key Trends

Going forward, banks will need to move towards the mandated higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk. This implies that Indian banks will need to improve efficiency even as their costs of doing business increase. They will need to refine their risk management skills for enterprise-wide risk management. In addition, banks need to have in place a fair and differentiated risk pricing of products and services, since capital comes at a cost. This involves costing, a quantitative assessment of revenue streams from each product and service and an efficient transfer-pricing mechanism that would determine capital allocation.

During fiscal year 2013, NPAs have risen. The slippage ratio of the banking system, which showed a declining trend during fiscal years 2005-2008, further increased during fiscal years 2009-2014. Banks need to not only utilise effectively the various measures put in place by the RBI and the Government for the resolution and recovery of bad loans, but also strengthen their due diligence, credit appraisal and post sanction loan monitoring systems to minimise and mitigate the problem of increasing NPAs.

Going ahead, banks need to tap into untapped business opportunities for resources to increase growth, such as targeting small customers. The challenge before banks is to make the best use of technology and innovation to bring down intermediation costs while protecting their bottom lines. The recent regulatory initiatives such as the deregulation of savings bank deposit interest rates and opening up Government business to more banks, imminent steps, such as licensing of new banks and subsidiarisation of the foreign bank branches, on the one hand, and the changing profile and simultaneously rising aspirations and expectations of customers on the other, should make the industry more competitive and increasingly, a buyers’ market. As the Indian banking sector is propelled forward, banks have to strive to remain relevant in the changing economic environment by reworking their business strategy, designing products with the customer in mind and focusing on improving the efficiency of their services. The challenge for Indian banks is to reduce costs and pass on the benefits to both depositors and lenders. (Source: RBI Report on Trend and Progress of Banking in India 2011-12.)

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OUR BUSINESS

Overview

We have three main business lines:

Corporate and commercial banking, including MSME banking;

Retail banking; and

Treasury operations.

Our Competitive Strengths

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

Unique business model focusing on the MSME segment

Long history and long standing customer relationships

As a result of our extensive network and product offerings, we believe we are able to meet our customers’ diverse banking needs.

Modern and efficient IT infrastructure

Extensive distribution network with focused presence in south India

104 including large and medium to small corporations, institutions and state-owned enterprises, as well as commercial, agricultural, industrial and retail customers across states in which we operate.

Strong growth and healthy fundamentals

Our net interest margin was 3.40%, 3.35% and 3.50% for the financial years 2012, 2013 and 2014, respectively.

Our total deposits have grown from ` 163,407.56 million to ` 203,047.55 million and ` 220,168.92 million as of March 31, 2012, 2013 and 2014, respectively, reflecting a CAGR of 19.46%.

High asset quality through robust risk management practices

We constantly endeavour on improving our asset quality by carefully targeting our customer base and implementing a comprehensive risk assessment process and diligent risk monitoring. We actively monitor our loan accounts and apply proactive remediation policies to cover non-performing assets (“NPAs”), which helps ensure that our borrowers maintain their commitments on their financing transactions over the years. This practice has resulted in manageable provisions and has arrested slippages. Our percentage of gross NPAs to total advances was 1.01%, 1.13% and 1.82% as of March 31, 2012, 2013 and 2014, respectively.

105 risk-adjusted margins, we have introduced risk management systems covering the entire credit process to enhance efficiency, improve controls and achieve better asset quality.

Professional and experienced management

Our Business Strategy

Increase our number of branches and market share

Continue to focus on the MSME sector

Increase fee-based revenue and income

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Optimize deposit base

Continuously update our information technology systems and increase efficiency

Sustain focus on improving loan and investment portfolio quality

Products and Services

We offer a variety of products and services to corporate and commercial customers, including MSMEs, and as well as retail and agricultural customers.

Our income is derived from interest income and commission and brokerage. The following describes the breakdown of interest income and non-interest income for the periods indicated:

(` in millions, except percentages) For the Financial Year 2012 2013 2014 % of Amount % of Total Amount % of Total Amount Total

Interest income 16,967.74 89.12 21,887.50 88.89 25,459.33 89.42 Non-interest income 2,071.34 10.88 2,736.37 11.11 3011.99 10.58 Total 19,039.08 100.00 24,623.87 100.00 28,471.32 100.00

We provide a full range of financial products and services to our customers. We provide housing, automobile, consumer, education, over draft against pledge of gold ornaments, mercantile credit for small and medium traders and other personal loans and deposit services, such as demand, savings and fixed deposits. Further, we provide term loans, short-term loans, securities loan, bill financing, and other working capital financing to our customers. We also provide products such as remittance services, debit cards, mobile banking, internet banking services, locker facility, utility bill payment and tax filing services. We also distribute third party insurance products.

The following is a description of our principal products that we offer to our customers:

Loans against deposits. The loan provided to deposit holders against their deposit for immediate family or business expenses. Up to 80% to 90% of the balance in the deposit can be availed of as loan. The

107 interest rate varies depending on the interest rate of the deposits. The typical repayment period for this type of loan is linked to the maturity date of the deposit.

Vehicle finance (CUB Yoha Vahana and CUB Easy Ride). These schemes provide financing for four and two wheeler vehicles. The vehicle purchased is the primary security. Four wheeler loans are extended for a period of up to 60 months, whereas the two wheeler loans are extended for a period of up to 36 months.

Education loans (CUB-Vidyavani). This scheme enables certain students who have secured admissions to pursue professional courses in India and abroad. The loan amount covers expenses such as payment of college, school or hostel fees and purchase of books. The repayment period for this type of loan is typically up to 10 years for loans up to ` 0.75 million and 15 years for loans above ` 0.75 million.

Housing finance (CUB Swyam Graha). This scheme provides term loans to individuals for the purchase, construction, repair and renovation of homes and apartments. We offer repayment options ranging from 10 to 15 years. The rate of interest on housing loans depends on the repayment period and interest option (fixed or floating) exercised by the borrower. Equitable mortgage of house site together with the construction to be made thereon, is typically taken as security for this loan.

Personal loans (CUB Sulabh). Personal loans are granted to individuals including employees of central and state Governments, schools, colleges among others. The maximum loan amount under this scheme is ` 25,000, for personal purposes, including medical, travel and other bonafide expenses. A repayment period of up to 36 months is permitted.

Consumer loans (CUB Consumer Loan). Consumer loans are intended to meet personal and family finance requirements, including expenses related to the purchase of household articles, white goods, electronics, computer equipment and peripherals. The maximum loan amount under this scheme is `50,000. A repayment period of up to 36 months is permitted.

Jewel Loans. We extend loans against the pledge of gold ornaments for personal and agricultural purposes, as per the limits specified by RBI. This loan typically carries a repayment period of up to 12 months. The maximum amount per borrower under this scheme is ` 0.30 million, ` 0.35 million and ` 0.40 million for rural areas, semi-urban areas and urban areas, respectively, which may be revised from time to time.

Overdraft against jewel (CUB – SONA). Under this scheme we provide over draft facilities to individuals, once the jewellery, taken as security, is duly appraised by our/appointed appraiser. The overdraft facility offered ranges from a minimum of `50,000 to a maximum of `0.5 million and is renewed on a year-on-year basis.

Term Loans. Our term loans consist primarily of financing for fixed assets, including construction of factory, building and acquisition of machinery. These loans are extended in rupee as well as in foreign currency and repayment is subject to the cash flows generated from the projects for which the loans are taken. These loans are generally secured by tangible assets, movable assets or immovable property, as well as by other assets of the borrower, depending on the situation. Repayments in suitable instalments are fixed, so as to recover the amount within a reasonable time within the economic life of the asset. We also provide rupee denominated short-term loans with a maturity of up to one year for temporary cash flow needs and other purposes.

Cash Credit. Cash credit facilities are the most common form of working capital financing in India. These loans are granted in the form of overdrafts on the security of stock in trade, process or raw materials and are extended on pledge or hypothecation of security. The limits are based on drawing power which is arrived at after deduction of margin fixed by the Bank over the stocks. Facilities are typically provided for a period of one year, at floating rates with monthly rests and can be renewed on a year-on-year basis.

Clean loans. Clean loans are unsecured loans provided to for a maximum period of three years after taking into consideration various factors such as, credit worthiness of the borrower, reputation, capacity

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of the borrower to repay the loan in the stipulated time, third party guarantee for the borrower and earning capacity of the borrower.

Bill purchase and discounting. We provide bill purchase and discounting facilities to customers. Genuine trade bills and instruments are purchased or discounted. These are self-liquidating type of facilities, as the repayment is by way of proceeds of the instrument or through letters of credit issued by other banks.

Foreign Currency Loans. We provide foreign currency denominated loans to corporate customers mainly engaged in import of capital and non-capital goods, with LIBOR-linked interest rates for working capital and other requirements.

Export Credits. We provide export finance in foreign currency to customers for working capital requirements. This facility is offered against firm orders and letter of credit from overseas buyers. The RBI provides export credit refinancing for an eligible portion of total outstanding export finance at the bank rate prevailing from time to time. We also earn fees and commissions from other fee-based products and services offered to our export and import customers.

Additionally, we provide facilities such as bill discounting, term loans and demand loans under our CUB Easy Business scheme for working capital and acquisition of fixed assets. Further, under our CUB Bazaar scheme, we offer unsecured loans with amounts ranging from `5,000 to `50,000 to small vendors having daily income, with repayment period of up to 10 months.

Advances

The following table presents our sector-wise outstanding advances and proportion of these advances to our outstanding total advances, as of the dates indicated:

As of March 31, (` in millions, except percentages) 2012 2013 2014 Advances % of Total Advances % of Total Advances % of Total Agriculture 16,204.06 13.26 23,978.41 15.63 31,025.53 19.12 Micro & Small Enterprises 23,313.63 19.08 28,069.87 18.30 37,078.20 22.85 Medium Enterprises 9,099.56 7.45 11,536.32 7.52 11,821.41 7.29 Large Enterprises 19,534.25 15.98 21,074.38 13.73 18,037.89 11.12 Commercial Real Estate 6,384.02 5.22 7,783.20 5.07 8,802.97 5.43 Total outstanding advances 122,217.02 100.00 153,428.77 100.00 162,236.22 100.00

Agriculture

We meet the agricultural investment needs of farmers through our agri-financial schemes for crop production, land development, plantation development, horticulture, minor irrigation, hi-tech agriculture, watershed development and allied activities such as animal husbandry, dairy and fisheries. We offer direct finance to farmers for production and investment in equipment, as well as for indirect finance, among others.

Our agricultural credit growth rate grew by 35%, 48% and 29% during the financial years 2012, 2013 and 2014, respectively. Our gross non-performing agricultural loan assets constituted 1.92%, 1.41% and 1.20% of gross agricultural credit as of March 31, 2012, 2013, and 2014, respectively.

The following table illustrates the position of our agricultural portfolio, further classified on the basis of type of financing.

As of March 31, 2012 2013 2014 Particulars Number of Amount % of Number of Amount % of Number Amount % of A/c Outstanding Total A/c Outstanding Total of A/c Outstanding Total (` in o/s (` in o/s (` in o/s millions) Agri. millions) Agri. millions) Agri. loans loans loans

Direct 218,878.00 13,505.13 83.34 338,882.00 21,767.70 90.78 389,807.00 23,885.09 76.99 Financing

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Indirect 1,546.00 2,689.93 16.66 2,050.00 2,210.71 9.22 2,110.00 7,140.44 23.01 Financing Total 220,424.00 16,204.06 100.00 340,932.00 23,978.41 100.00 391,917.00 31,025.53 100.00 Agriculture Portfolio

Micro, Small and Medium Enterprises

We provide financing to micro, small and medium enterprises (“MSMEs”) in the manufacturing and services sectors. In the manufacturing sector, we classify medium enterprises as those engaged in the manufacture, production, processing or preservation of goods and whose investment in plant and machinery does not exceed ` 100.00 million, small enterprises as those engaged in the manufacture, production, processing or preservation of goods and whose investment in plant and machinery does not exceed ` 50.00 million, and micro enterprises as those engaged in the manufacture, production, processing or preservation of goods and whose investment in plant and machinery does not exceed ` 2.50 million, irrespective of the location of the unit.

In the services sector, we classify medium enterprises as those engaged in providing or rendering of services and whose investment in equipment does not exceed ` 50.00 million, small enterprises as those engaged in providing or rendering of services and whose investment in equipment does not exceed ` 20.00 million, and micro enterprises as those engaged in providing or rendering services and whose investment in equipment does not exceed ` 1.00 million. Medium, small and micro service enterprises include small road and water transport operators, small businesses, professional and self-employed persons, and all other service enterprises.

Large enterprises

We provide various facilities to our large enterprises customers, including term loan facilities, working capital assistance, which includes funded and non-fund based credit facilities.

Deposits

Our retail deposit products include a diverse range of savings and current accounts to suit our various customer segments; including insurance linked savings bank account and ‘young India savings account’. The following describes the types of retail deposit products that we offer:

Savings Accounts. Demand deposits for retail customers that accrue interest at a fixed rate and offer withdrawal facilities through cheque books and debit cards.

Current Accounts. Non-interest bearing demand deposits.

Insurance linked savings bank accounts (CUB Excel). CUB Excel is a savings bank account with a life insurance cover. This account can be opened by any person in the age group of 18 – 54 years and the accountholder must maintain a minimum quarterly average balance of ` 50,000 for a period of one year. The premium payable depends on the age of the accountholder.

Young India savings account (CUB Young India). CUB Young India is saving bank account for students in the age group of 18 to 25 years.

Juniors India account (CUB Juniors India). Juniors India account is a savings bank account for children below the age of 18 years.

NRE accounts. NRE Rupee account can be opened with funds remitted to India through overseas bank as current, savings or term deposit. Local payments can be freely made from NRE accounts, which is a repatriable account and where transfer from other NRE accounts or FCNR(B) account is also permitted.

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NRO accounts. NRO Rupee account can be opened and maintained in the form of current, savings, recurring or fixed deposit accounts. Rate of interest applicable to these accounts and guidelines for opening, operating and maintenance of such accounts are in accordance with directives and instructions issued by the RBI from time to time. While the principal of NRO deposits is non-repatriable, current income and interest earning is repatriable.

Monthly savings deposit scheme. A traditionally popular scheme for the fixed income groups with monthly deposits.

CUB Apoorva scheme. A reoccurring deposit scheme linked with insurance coverage.

We also take corporate deposits from large public sector corporations, Government organizations, other banks and private sector companies.

The following table sets forth the break-up of deposits, as of the dates indicated:

As of March 31,

(` in millions) 2012 2013 2014 Balance % of Balance % of Balance % of Particulars Outstanding Total Outstanding Total Outstanding Total

Demand deposits 12,031.40 7.37 13,353.43 6.58 14,419.93 6.55 Savings deposits 17,684.55 10.82 20,692.65 10.19 24,753.52 11.24 Term deposits 133,691.61 81.81 169,001.47 83.23 180,995.47 82.21 Total deposits 163,407.56 100.00 203,047.55 100.00 220,168.92 100.00

Priority sector lending

We have played a proactive role in extending financial support and financing the sectors identified as “Priority Sectors” by the Government and the RBI to promote the development of the Indian economy. Our Priority Sector advances include loans to certain sectors targeted as requiring special assistance such as education, food and agriculture-based processing sectors, and loans to the housing sector. The Government and the RBI have identified the Priority Sectors and provided lending guidelines.

The table below sets out our outstanding Priority Sector advances (as defined by the Government and the RBI) as of the dates indicated.

(` in millions, except percentages) As of March 31, 2012 2013 2014 Agriculture 16,204.06 23,978.41 31,025.53 Micro and Small Enterprises 23,313.63 28,069.87 37,078.20 Other Priority Sectors 4,460.20 5,353.40 5,994.70 Total Priority Sector Advances 43,977.89 57,401.68 74,098.43 Total Priority Sector Advances (net) as a percentage of Adjusted 47.09% 46.93% 46.72% Net Bank Credit (%)

Delivery channels

We distribute our products and services through various access points ranging from traditional bank branches to ATMs and the internet and mobiles. Investment in alternate distribution channels is part of our effort to migrate customers to lower cost electronic delivery channels. Our channel migration effort is aimed at reducing cost while enhancing customer satisfaction levels by providing customers access to their accounts at all times.

Traditional branch network

We had 425 branches, covering 15 states and two union territories, as of March 31, 2014.

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During the financial years 2012, 2013 and 2014, we opened 54, 75 and 50 new branches, respectively. Our network of branches is spread across both metropolitan and rural locations. As of March 31, 2014, we had 69 branches in metropolitan cities, 111 branches in urban areas, 165 branches in semi-urban areas and 80 branches in rural areas. The following table shows our geographical distribution as of the dates referenced.

Geographical distribution As of As of As of March 31, 2012 March 31, 2013 March 31, 2014 No. of Branches No. of Branches No. of Branches

Eastern (1) 4 4 4 Western (2) 24 24 27 Northern (3) 9 14 16 Southern (4) 263 333 378 Total 300 375 425

(1) Comprises the states of West Bengal, Chattisgarh and Odisha. (2) Comprises the states of Maharashtra, Gujarat and Rajasthan. (3) Comprises the states/ and union territory of New Delhi, Uttar Pradesh, Madhya Pradesh, Chandigarh, Punjab and Haryana. (4) Comprises the states/union territory of Tamil Nadu, Andhra Pradesh, Karnataka, Kerala and Pondicherry.

We recognize the importance of ATMs and continue to rapidly add ATMs to our network. As of March 31, 2014 we had 950 ATMs (390 on-site and 560 off-site). During the financial years 2012, 2013, 2014, we added 269, 288 and 162 ATMs, respectively, to our network.

Internet banking

We launched internet banking in August 2008 which lets our customers conduct banking operations from the comfort of home or office at any time, any day and from anywhere in the world. Some features include fund transfer within the Bank, fund transfer to other banks, bill payment, online shopping, online payment for services, tours and travel and donations. This facility is powered by the latest technologies to ensure maximum safety and ease. These services are offered to both retail and corporate customers.

Mobile banking

We offer mobile banking service on Android application, WAP, J2ME application and SMS pull to our customers for the convenience of operating the bank accounts through their mobile phones. Through this facility, our customers can (i) make enquiries, including, account balance, deposit balance, mini statement, cheque status, loan services, (ii) execute transaction between customers’ multiple accounts, other accounts with our Bank and to other bank accounts through NEFT, (iii) request for cheque books, stop payment, account statement and revocation of cheque, and (iv) change MPIN, application password, and add, view, delete beneficiary account details.

Depository services

As a compliment to our securities trading service, we offer depository services. We are a depository participant for NSDL. Through this facility, our customers can dematerialize and hold their equity securities and mutual funds in electronic form.

ASBA services

ASBA or ‘Application Supported by Blocked Amount’ facility can be used by investors to apply in public or rights issues by using their existing bank accounts. Investor submits the ASBA form with the designated branch of banks acting as SCSBs, and give instructions to the bank to block the amount equivalent of the application amount in their account. The amount blocked is debited only after the application is successful, or unblocked in case the application is rejected or the issue fails or is withdrawn.

We have received approvals from SEBI and NSE to act as an SCSB and provide ASBA facility for our customers applying in public and rights issues.

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Treasury operations

Our treasury operations comprise liquidity management by seeking to maintain an optimum level of liquidity, while complying with the CRR and SLR. We maintain the SLR through a portfolio of Government securities that we actively manage to optimise the yield and benefit from price movements. Our treasury also assists our investment management committee in making informed decisions regarding investments in SLR or non-SLR securities. Our Board approves our investment and ALM policies.

The following table sets forth, as of the dates indicated, the allocation of our investment portfolio (Gross).

As of March 31, Securities 2012 2013 2014 Amount (` in Amount Amount millions) % (` in millions) % (` in millions) % SLR Govt. securities 38,529.73 83.88 45,645.33 86.65 53,189.70 89.32 Other approved securities 2.50 0.00 0.00 0.00 0.00 0.00 Sub. Total 38,532.23 83.88 45,645.33 86.65 53,189.70 89.32 Non-SLR Bonds and Debentures 302.97 0.66 303.94 0.58 444.22 0.75 Shares 333.77 0.73 374.52 0.71 305.51 0.51 Commercial paper, 0.00 0.00 0.00 0.00 0.00 0.00 Mutual funds and Others 6,767.45 14.73 6,354.54 12.06 5,613.34 9.43 Sub Total 7,404.19 16.12 7,033.00 13.35 6,363.07 10.68 Total (Domestic) 45,936.42 100.00 52,678.33 100.00 59,552.77 100.00 Total 45,936.42 100.00 52,678.33 100.00 59,552.77 100.00

Distribution of third party insurance products

We have obtained a license from Insurance Regulatory Authority of India to act as corporate agent for selling insurance products and to provide value added services to the public at large.

Technology

We believe that in order to sustain corporate success, we must embrace a customer-oriented strategic business model. In line with this model, we have networked all of our branches and offices to facilitate core banking solutions, which centralises the processing of transactions and allows our customers to operate their accounts from remote locations and use banking services from any of our service outlets, regardless of where that customer maintains his or her account.

We have established a new data center in Ambattur, Chennai and a disaster recovery center in Whitefield, Bangalore as part of a business continuity plan in the event of technological problems or disasters.

The following facilities and systems are also available in our banking network:

 the RTGS facility is available in all of our branches;

 the NEFT facility is available in all of our branches; and

 The NECS/ECS/NACH is available in all branches.

 the SWIFT facility is available in our international banking division at Chennai.

We continue to upgrade our technological capabilities to increase efficiency, reduce costs and to expand our service portfolio and increase convenience for our customers.

Competition

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We face strong competition in all our principal lines of business. Our primary competitors are public sector banks, other private sector banks, regional rural banks, foreign banks with operations in India and, for certain products, non-banking financial institutions and mutual funds. A significant portion of our total business is located in the state of Tamil Nadu. Our main competitors in the state of Tamil Nadu are large public sector and private sector banks.

In retail and commercial banking, our principal competitors are public sector banks, other private sector banks, foreign banks and non-banking financial companies. Mutual funds are another source of competition. Mutual funds offer tax advantages and have the capacity to earn competitive returns and have increasingly become a viable alternative to bank deposits. We compete with banks, brokers, corporate agents and financial consultants and advisors with respect to sales of insurance products.

Insurance

We maintain an insurance policy with respect to our registered and corporate offices and all branches, which covers inter alia, risk to premises, transit risk, forgery or alteration, dishonesty, risks to hypothecated goods and electronic and computer crime. We also maintain a standard fire and special perils policy for all our premises and a burglary insurance policy which covers, inter alia, buildings with semi permanent fittings and contents thereof, such as furniture and fittings, office equipment and hypothecated goods for all of our branches, offices and staff quarters.

Intellectual Property

We have not registered our logo as a trademark. For details please see section titled “Risk Factors – Our logo is not registered and we may be unable to effectively prohibit other persons from using our logo, which may adversely affect our goodwill and business. Further, any breach by us of third party intellectual property rights could divert management attention and require us to pay financial compensation to such third parties.” on page 41.

Employees

As of March 31, 2014, we had 4,215 employees. The following is a table showing the total number of employees as of the dates indicated below:

Category March 31, 2012 March 31, 2013 March 31, 2014

Officers 1,053 1,221 1,421 Other Employees 2,294 2,564 2,794 Total 3,347 3,785 4,215

Our compensation remuneration committee at the board level formulates and implements performance-linked incentive schemes to the entire work force in order to further motivate them to achieve our corporate goals. To motivate our employees further, we introduced an Employees' Stock Option Scheme during the financial year 2009.

Additionally, we have also instituted certain employee benefit schemes, including, pension, bonus, gratuity, housing loans to staff at concessional rates, medical reimbursement, leave fare concession and group insurance cover.

We have also set up a comprehensive training college at Kumbakonam for training our staff, giving emphasis to need-based programs in general banking, credit management, foreign exchange and IT.

Property

We own our registered office situated at No.149, TSR Big Street, Kumbakonam – 612 001, Tamil Nadu and corporate office building situated at No. 24B, Gandhi Nagar, Kumbakonam – 612 001, Tamil Nadu. Out of our 425 branches, 11 branches are located on premises that we own and the remaining 414 branches are at premises taken on lease. As of March 31, 2014 we had 950 ATMs (390 on-site and 560 off-site). All our 560 off-site ATMs are located on premises which we lease.

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SELECTED STATISTICAL INFORMATION

The following audited information should be read together with our financial statements included in this Preliminary Placement Document and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. All amounts presented in this section have been prepared in accordance with Indian GAAP. Footnotes appear at the end of each related section of tables. Certain information included in this section has been derived from the periodic returns filed with the RBI which are based on our books of account and underlying records.

Average Balance Sheet

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

Year ended March 31, 2012 2013 2014 Average Interest Average Average Interest Average Average Interest Average Balance(1) Income/ Yield/ Balance(1) Income/ Yield/ Balance(1) Income/ Yield/ Expense Cost (%) Expense Cost Expense Cost (%) (%) (in ` millions, except percentages) Interest-earning assets: Advances 102,393.00 13,885.70 13.56 134,342.00 18,122.30 13.49 155,766.03 20,921.23 13.43 Investments 43,972.00 3,035.60 6.90 51,758.00 3,722.90 7.19 59,775.34 4,380.30 7.33 Balances with 912.25 46.40 5.09 666.84 42.30 6.34 2,563.69 157.80 6.16 RBI/Other Inter Bank funds Total interest- 147,277.25 16,967.70 11.52 186,766.84 21,887.50 11.72 21,8105.06 25,459.33 11.67 earning assets Non-interest 16,800.94 17,536.96 23,210.78 earning assets Total assets(2) 164,078.19 204,303.80 241,315.84

Year ended March 31, 2012 2013 2014 Average Interest Average Average Interest Average Average Interest Average Balance(1) Income/ Yield/ Balance(1) Income/ Yield/ Balance(1) Income/ Yield/ Expense Cost (%) Expense Cost (%) Expense Cost (%) (in ` millions, except percentages) Interest-bearing liabilities: Deposits 143,756.00 11,664.62 8.11 178,224.00 15045.18 8.44 207,214.80 17,340.06 8.37 Borrowings / 3,542.47 305.61 8.63 6,283.08 602.22 9.58 5,626.82 525.38 9.34 Refinance Total interest- 147,298.47 11,970.23 8.13 184,507.08 15647.40 8.48 212,841.62 17,865.44 8.39 bearing liabilities Non-interest 16,779.73 19,796.72 28,474.23 bearing liabilities and capital Total 164,078.19 204,303.80 241,315.84 Liabilities(3)

(1) Average Balance is computed based on the fortnightly / daily average wherever applicable (2) Total assets average is computed based on the monthly ‘form X’ return filed with the RBI. (3) Total Liabilities is computed based on the monthly ‘form X’ return filed with the RBI.

Financial Indicators

Year ended March 31, 2012 2013 2014 (in ` millions, except percentages) Average interest-earning assets(1) 147,277.25 186,766.84 218,105.06 Average interest-bearing liabilities(2) 147,298.47 184,507.08 212,841.62

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Year ended March 31, 2012 2013 2014 (in ` millions, except percentages) Average total assets(3) 164,078.19 204,303.80 241,315.84 Average shareholders' equity(4) 11,248.60 14,372.32 18,188.75 Average interest-earning assets as a percentage of average total assets 89.76 91.42 90.38 (%) Average interest-bearing liabilities as a percentage of average total 89.77 90.31 88.20 assets (%) Average interest-earning assets as a percentage of average interest- 100.00 101.00 102.00 bearing liabilities (%) Yield on Funds (%)(5) 10.34 10.71 10.55 Cost of Funds (%)(6) 7.30 7.66 7.40 Spread (%)(7) 3.04 3.05 3.15 Net Interest Margin (%) 3.40 3.35 3.50 Return on Assets (%) 1.71 1.58 1.44 Return on Equity (%) 24.91 22.41 19.08 Cost to Income Ratio (%)(8) 39.59 41.69 45.22 Revenue per Employee(9) 0.84 0.85 0.82 (1) Average Balance is computed based on the fortnightly / daily average wherever applicable (2) Average Balance is computed based on the fortnightly / daily average wherever applicable. (3) Average Total Assets is computed based on the monthly ‘form X’ return filed with RBI. (4) Average Shareholders' Equity is the simple average of the balances of Shareholders' Equity at the beginning and at the end of the period after deduction of intangible assets. (5) Yield on funds is the ratio of interest income to Average Total Assets. (6) Cost of Funds is the ratio of interest expense to Average Total Liabilities. (7) Spread is the difference between Yield and Cost of Funds. (8) Cost to Income Ratio is the ratio of Operating Expenditure to Total Revenue. Operating Expenditure does not include Interest Expenditure or Provisions and Contingencies. Total Revenue is the sum of Net Interest Income and Other Income. (9) Revenue per Employee is computed by dividing Total Revenue by the average number of employees as at the end of the period.

Interest Coverage Ratio

The following table sets forth information with respect to our interest coverage ratio for the years ended March 31, 2012, March 31, 2013 and March 31 2014. However, this ratio is typically used to measure the debt servicing ability of a corporate and is not relevant to a banking company.

Years ended 31 March 2012 2013 2014 (in ` millions, except percentages) (i) Net profit 2,802.52 3,220.17 3,470.74 (ii) Depreciation on the Bank's property 135.55 246.81 377.17 (iii) Interest expended 11,970.23 15,647.4 17,865.44 (iv) Total [(i) + (ii) + (iii)] 14,908.30 19,114.38 21,713.35 Interest coverage ratio [(iv)÷(iii)] 124.54% 122.16% 121.54%

Core Fee/Other Income

Fiscal year ended March 31, 2012 2013 2014 (` in millions) Commissions, exchange and brokerage 312.35 363.84 361.06 Profit on sales of investments (Net) 77.72 170.51 228.28 Profit on sale of land, buildings and other assets (Net) 1.50 2.67 3.88 Profit on exchange transactions (Net) 152.22 183.81 326.74 Income from insurance 32.54 49.67 39.75 Miscellaneous income 1,495.01 1,965.87 2,052.28 Total Fee/Other income 2,071.34 2,736.37 3,011.99

Deposits

As of March 31, 2012 2013 2014 Amount % Amount % Amount % (` in millions, except percentages) Current Accounts (CA) 12,031.40 7.36 13,353.42 6.58 14,419.93 6.55 Savings Accounts (SA) 17,684.55 10.82 20,692.65 10.19 24,753.52 11.24 CASA 29,715.95 18.19 34,046.07 16.77 39,173.45 17.79 Term deposits 133,691.61 81.81 169,001.48 83.23 180,995.47 82.21

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Total Deposits 163,407.56 100.00 203,047.55 100.00 220,168.92 100.00

Borrowings

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

Years ended March 31, 2012 2013 2014 (` in millions, except percentages) Period end balance 3,487.03 4,767.39 3,049.84 Average balance during the period(1) 3,542.47 6,283.08 5,626.82 Interest expense 305.61 602.22 525.38 (2) Average interest rate during the period (%) 8.63% 9.58% 9.34% (1) Average Balance is computed based on the fortnightly / daily average wherever applicable (2) Represents the ratio of interest expense on borrowings to the average balances of borrowings.

Lower Tier II Debt/Subordinated

We obtain funds from the issuance of unsecured non-convertible subordinated debt securities, which qualify as lower Tier II capital under RBI guidelines for assessing capital adequacy. As of March 31, 2014 our outstanding subordinated debt aggregated ` 400.00 million.

The following table sets forth information with respect to subordinated debt issued by us, as of March 31, 2014:

Series Date of Allotment Rate of Interest Date of Redemption Amount (in ` millions) Series - I 31.03.2006 8.90% 30.04.2016 300.00 Series - II 30.03.2007 10.00% 30.04.2017 100.00 Total 400.00

Investment Portfolio

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

As of March 31, 2012 2013 2014 Particulars Held to Available Held for Held to Available Held for Held to Available Held for Maturity for Sale Trading Maturity for Sale Trading Maturity for Sale Trading (` in millions) Government 33,058.38 5,423.07 48.28 41,652.42 3,992.91 0.00 49,312.29 3,877.41 0.00 securities Other approved 2.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 securities Shares 0.00 324.83 8.94 0.00 367.31 7.21 0.00 301.44 4.07 Debentures and 89.04 219.93 0.00 88.50 215.44 0.00 43.49 400.73 0.00 bonds Subsidiaries 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 and joint ventures Others 6,694.78 72.67 0.00 6,302.26 52.28 0.00 5,594.55 18.79 0.00 including deposits under Rural Infrastructure Development Scheme with NABARD, security receipts and pass through certificates Total 39,844.70 6,034.50 57.22 48,043.18 4627.94 7.21 54,950.33 4,598.37 4.07

Asset Liability Gap

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The following table sets forth our asset-liability gap position with respect to rupee assets and liability as of march 31, 2014 prepared in line with the RBI guidelines on asset liability management:

1 Day 2 to 7 8 to 14 15 to 28 29 days Over 3 Over 6 Over 1 yr Over 3 Over 5 Total days days Days to 3 mon & mon & & upto 3 yrs & years months upto 6 upto 1 yrs upto 5 mon yr years

OUTFLOWS

1. Capital 542.74 542.74

2. Reserves and Surplus 19,706.58 19,706.58 10,912.3 16,867.0 158,285.9 219,193.8 3. Deposits 333.01 2,411.05 5,184.06 5,332.37 7 8,474.85 1 6 10,502.75 890.39 3

(i) Current Deposits 208.07 504.70 1009.39 0.00 0.00 0.00 0.00 12642.90 0.00 0.00 14,365.06

(ii) Savings Bank Deposits 61.88 185.65 3217.96 0.00 0.00 0.00 0.00 21288.03 0.00 0.00 24,753.52

(iii) Certificate of Deposits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 16867.0 124355.0 180,075.2 (iv) Term Deposits 63.05 1720.71 956.70 5332.37 10912.37 8474.85 1 3 10,502.75 890.39 4

4. Borrowings 0.28 0.00 0.00 0.00 0.00 1338.60 138.60 654.40 917.90 0.00 3,049.78

(i) Call and Short Notice 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

(ii) From Banks (Term) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

(iii) Refinances 0.00 0.00 0.00 0.00 0.00 1338.60 138.60 554.40 617.90 0.00 2,649.50 (iv) OD nostro & Fcy Borrowing,subordinated debt 0.28 0.00 0.00 0.00 0.00 0.00 0.00 100.00 300.00 0.00 400.28 5. Other Liabilities & Provisions 124.62 317.14 300.25 388.69 692.51 603.43 419.31 2915.33 29.35 677.00 6,467.63

(i) Bills Payable 72.79 200.17 0.00 0.00 0.00 0.00 0.00 1546.79 0.00 0.00 1,819.76

(ii) Inter-office Adjustment 0.04 0.07 0.07 0.0000 0.0000 0.00 0.00 0.00 0.00 0.00 0.18

(iii) Provisions 0.00 0.00 0.00 0.00 145.52 53.28 419.31 366.03 0.00 677.00 1,661.15

(iv) Others (incl. Int payable) 51.80 116.89 300.18 388.69 546.98 550.15 0.00 1002.50 29.35 0.00 2,986.54

6. Line of Credit committed to 0.00 494.06 741.09 1,235.15 2470.30 0.00 0.00 0.00 0.00 0.00 4,940.60

(i) Institutions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (ii) Customers(Loans Unavailed) 0.00 494.06 741.09 1235.15 2470.30 0.00 0.00 0.00 0.00 0.00 4,940.60

7.Unavailed portion of Cash credit/Overdraft/Demand Loan component of Working Capital 0.00 0.00 0.00 755.06 604.04 151.01 0.00 0.00 0.00 0.00 1,510.11

8. Letters of credit/guarantees 0.00 0.00 583.64 0.00 0.00 0.00 0.00 0.00 0.00 0.00 583.64 2600.0 9. Repos 0 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2,600.00

10. Bills rediscounted (DUPN) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11. Swaps (Buy/Sell) mat forwards 0.00 1475.16 21.44 30.78 8,172.64 5,159.47 6,383.22 33.70 68.36 0.00 21,344.77

12. Interest Payable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

13. Event Cash Flow 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3,057.9 22,851.8 15,727.3 23,808.1 161,889.3 279,939.6 A. TOTAL OUTFLOWS 1 4,697.42 6,830.48 7,742.05 7 7 5 8 11,518.35 21,816.71 8 B. CUMULATIVE 3,057.9 14,585.8 22,327.8 45,179.7 60,907.0 84,715.2 246,604.6 258,122.9 279,939.6 OUTFLOWS 1 7,755.33 1 6 2 9 4 2 7 8 0.00

INFLOWS 1281.8 1. Cash 3 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,281.83

2. Balances with RBI 124.40 0.00 0.00 470.19 1753.09 1800.51 2297.55 2505.43 256.58 37.76 9,245.51 6,035.2 3. Balance with other Banks 5 280.06 51.70 250.00 39.96 10.00 0.00 1.00 0.00 0.00 6,667.96 3938.5 (i) Current Account 6 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 3,939.56

(ii) Money at call and Short Notice, Term Deposits and other 2096.6 placements 9 280.06 51.70 250.00 39.96 10.00 0.00 0.00 0.00 0.00 2,728.40

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1 Day 2 to 7 8 to 14 15 to 28 29 days Over 3 Over 6 Over 1 yr Over 3 Over 5 Total days days Days to 3 mon & mon & & upto 3 yrs & years months upto 6 upto 1 yrs upto 5 mon yr years

4. Investments (including those under Repos but excluding 10360.9 13215.9 Reverse Repos) NET 0.00 134.91 0.00 2703.61 10089.33 6 0 14474.43 1,761.90 9259.59 62,000.64 12,290.3 39,208.2 157,200.4 5. Advances(Performing) 372.04 2,156.34 1 1,731.39 2,402.10 3,308.28 6 63,552.11 9,914.21 22,265.37 0

(i) Bills Purchased and Discounted(including bills under DUPN) 0.00 1047.45 282.55 1005.50 494.36 0.00 0.00 0.00 0.00 0.00 2,829.86

(ii) Cash Credits, Overdrafts and 11204.8 36210.2 103,269.7 Loans repayable on demand 330.14 1087.42 6 207.46 1293.25 1281.02 0 51655.44 0.00 0.00 9

(iii)Term Loans 41.91 21.47 802.90 518.43 614.49 2027.26 2998.06 11896.67 9,914.21 22265.37 51,100.76

6. NPAs 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1,748.88 224.02 1,972.90 7. Fixed Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1829.52 1,829.52

8. Other Assets 334.21 232.50 37.14 90.19 125.93 1,163.89 841.40 912.49 0.00 1,825.39 5,563.13

(i) Inter-office Adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

(ii) Leased Assets 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (iii) others (incl Int receivable) 334.21 232.50 37.14 90.19 125.93 1163.89 841.40 912.49 0.00 1825.39 5,563.13

9. Reverse Repos 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10. Swaps (Sell/Buy) mat forwards 1.40 557.21 13.79 26.55 4,062.48 4,529.19 5,880.98 128.71 69.74 0.00 15,270.05

11. Bills rediscounted (DUPN) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

12. Interest receivable 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

13. Committed Lines of Credit 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14. Export Refinance from RBI 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 15. Others (specify) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (i) Letters of Credits/Guarantees 0.00 0.00 0.00 583.64 0.00 0.00 0.00 0.00 0.00 0.00 583.64 (ii) Unavailed OD/CC for repayment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1510.11 0.00 0.00 1,510.11 iii) Unavailed Loan for repayment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 4940.60 0.00 0.00 4,940.60 (iv) Event Cash Flow 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8,149.1 12,392.9 18,472.8 21,172.8 61,444.0 268,066.3 C. TOTAL INFLOWS 3 3,361.01 4 5,855.57 8 3 8 88,024.89 13,751.31 35,441.65 0 5,091.2 (1,336.4 (1,886.4 (4,378.9 37,635.9 (73864.50 (11,873.3 D. MISMATCH (C-A) 2 0) 5,562.46 7) 8) 5,445.46 3 ) 2,232.96 13,624.94 8)

E. D as % TO A 166% (28)% 81% (24)% (19)% 35% 158% (46)% 19% 62% (4)%

Cap fixed by ALCO (-ve) 5% 30% 30% 30% 40% 50% 50% 50% 50% 50% F. CUMULATIVE 5,091.2 4,6133.2 (27,731.2 (25,498.3 (11,873.3 MISMATCH 2 3,754.82 9,317.28 7,430.81 3,051.82 8,497.29 2 8) 2) 8)

G. Cum Mismatch as % to Cumulative outflows 166% 48% 64% 33% 7% 14% 54% (11)% (10)% (4%)

Cap fixed by ALCO 5% 10% 15% 20% 30% 40% 40% 30% 20% 15%

Loan Portfolio

As of March 31, 2014 our net advances was ` 160,968.37 million. As of March 31, 2014, all our loans are to borrowers in India and are denominated in Indian Rupees. For description and further information on our loan products, see section titled "Our Business" on page 103.

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

Classification of Loans and Advances As at March 31, 2012 2013 2014 (in `millions) Bills purchased and discounted 3,215.37 2,943.70 3,624.38 Cash credits, overdrafts and loans repayable on demand 75,271.70 99,705.72 104,008.69

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Classification of Loans and Advances As at March 31, 2012 2013 2014 (in `millions) Term loans 42,887.53 49,811.15 53,335.30 Total Net Loans and Advances 121,374.60 152,460.57 160,968.37

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

Classification of Loans and Advances As at March 31, 2012 2013 2014 Loans % Loans % Loans % (in ` millions excluding percentages) Infrastructure 2,312.03 1.89 1,744.51 1.14 1,401.70 0.86 NBFCs 1,732.10 1.42 1,803.50 1.18 1,658.44 1.02 Engineering 1,164.70 0.95 1,959.34 1.28 2,338.16 1.44 Cement 10.03 0.01 98.68 0.06 127.11 0.08 Textiles 10,920.00 8.93 12,189.67 7.94 13,499.57 8.33 Chemicals 1,907.00 1.56 1,878.97 1.22 1,643.97 1.01 Paper & Paper products 2,893.69 2.37 3,421.31 2.23 3895.21 2.40 Gems & Jewellery 124.83 0.11 183.81 0.12 229.53 0.14 Rubber Products 176.71 0.14 882.08 0.57 1,308.41 0.81 Metal Products 1,541.90 1.26 2,017.12 1.31 2,172.32 1.34 Automobiles 860.69 0.70 498.09 0.32 519.65 0.32 Wood Products 0.00 0.00 212.62 0.14 310.12 0.19 Mining & Non-metallic mineral products 74.00 0.06 288.13 0.19 242.22 0.15 Sugar, tea & food processing 1,387.30 1.14 2,301.91 1.50 2,584.43 1.59 Others 97,112.04 79.46 123,949.03 80.80 130,305.39 80.32 Total Outstanding Gross loans(1) 122,217.02 100.00 153,428.77 100.00 162,236.22 100.00 (1) Gross loan is the total loan outstanding as of a date without reducing the provisions made for non-performing assets.

Recognition of Non-Performing Assets

As a commercial bank operating in India, we recognize NPAs strictly in accordance with the RBI's guidelines. The guidelines require Indian banks to classify their NPAs into three categories, as described below, based on the period for which the asset has remained non-performing and the estimated realization of amounts due in relation to such asset. Further, the NPA classification is at the borrower level, rather than at the facility level, and, accordingly, if one of the loans granted to a borrower becomes non-performing, such borrower is classified as non-performing and all loans due from him are so classified.

Substandard Assets

An asset becomes non-performing if interest and/or installment of principal in relation thereto remain overdue for more than 90 days (an exception to this rule is that loans to agricultural borrowers are classified as non- performing only if the loan remains overdue for more than two harvest seasons). With effect from March 31, 2005, in accordance with RBI guidelines, a substandard asset is an asset that has remained non-performing for a period of up to 12 months.

Doubtful Assets

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

120 c. If the asset has remained in the doubtful category for a period of more than three years, it is classified as a Doubtful-III asset.

Loss Assets

In accordance with the RBI guidelines, a loss asset is an asset that is considered irrecoverable with little or no salvage value.

In cases of serious credit impairment, an asset is required to be immediately classified as doubtful or as a loss asset, as appropriate. Further, erosion in the value of the security provided may also be considered significant when the realizable value of the security is less than 50% of the value as assessed by us or as accepted by the RBI at the time of the last inspection of the security, as the case may be. In such a case, the assets secured by such impaired security may immediately be classified as doubtful. If the realizable value of the security, as assessed by our appraisers or by the RBI, is less than 10% of the amount outstanding from the borrower providing such security, the value of the security is ignored and the asset is immediately classified as a loss, which is either written off or fully provided for.

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

As of March 31, 2012 2013 2014 (` in millions, except percentages) Sub-standard loans: Amount 673.81 1190.11 2411.46 As a percentage of total NPAs 54.54% 68.75% 82.28% Doubtful loans: Amount 523.22 470.02 424.46 As a percentage of total NPAs 42.35% 27.15% 14.48% Loss loans: Amount 38.38 70.89 94.72 As a percentage of total NPAs 3.11% 4.10% 3.24% Gross NPAs 1,235.41 1,731.02 2,930.64

As of March 31, Category of Advance - Business segments 2012 2013 2014 (` in millions) Gross Advances 122,217.02 153,428.77 162,236.22 Retail Banking 76,188.41 102,416.93 111,218.82 Corporate Banking 46,028.61 51,011.84 51,017.40 Gross NPAs 1,235.41 1,731.02 2,930.64 Net NPAs 540.41 963.97 1,972.92

As of March 31, 2014, gross NPA as a proportion of gross loans were 1.81% and net NPA as a proportion of net loans were 1.23%. We had, as of March 31, 2014, effected a provision cover of 61.74% of our gross NPAs.

Analysis of Non-Performing Loans by Industry Sector

As of March 31, 2012 2013 2014 Gross Gross % of Gross Gross % of Gross Gross % of Loans/ NPA Gross Loans/ NPA Gross Loans/ NPA Gross Advances NPA to Advances NPA to Advances NPA to Gross Gross Gross Loans/ Loans/ Loans/ Advances Advances Advances (` in millions, except percentages) Agriculture 16,204.06 310.78 1.92% 23,978.40 339.00 1.41% 31,025.53 371.88 1.20% Small scale 23,313.63 152.01 0.65% 28,069.90 203.46 0.72% 37,078.20 259.61 0.70% industries Other Priority 4,460.20 166.12 3.72% 5,353.40 464.84 8.69% 5,994.70 313.79 5.24% Sector Total Priority 43,977.89 628.91 1.43% 57,401.70 1,007.30 1.76% 74,098.43 945.28 1.32% Sector Total Non- 78,239.13 606.50 0.78% 96,027.07 723.72 0.75% 88,137.79 1,985.36 2.25% Priority Sector NPAs Among Nil Nil Nil Nil Nil Nil Nil Nil Nil Public Sector

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Grand Total 122,217.02 1235.41 1.01% 153,428.77 1,731.02 1.13% 162,236.22 2,930.64 1.81%

Provision for Non-Performing Assets

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

Particulars For the year ended March 31, 2012 2013 2014 (` in millions) NPA Provisions: Total NPA provisions at the beginning of the year/period 440.48 491.10 481.10 Additions during the year/period 570.00 970.00 1,485.00 Reductions during the period on account of recovery and write-offs 519.38 980.00 1,291.40 Total NPA provisions at the end of the year/period 491.10 481.10 674.70

Non-Accrual Policy

When an asset is classified as non-performing, interest accrual thereon is stopped and the unrealized interest is reversed by a debit to our profit and loss account. The RBI has also stipulated that in the absence of a clear agreement between us and the borrower for the purpose of appropriating recoveries in NPAs (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. In the case of NPAs where recoveries are effected, our policy is to appropriate the same against unserviced interest, then to principal. If any of a borrower's loans are classified as an NPA, all loans to such borrower are classified as NPAs.

Policy for making Provisions for Non-Performing Assets

The RBI policy on provisioning for NPAs is described below:

Substandard assets 15% for the secured advance & 25% for unsecured of the gross amount outstanding Doubtful assets Doubtful-I — 100% of the unsecured portion and 25% of the secured portion Doubtful-II — 100% of the unsecured portion and 40% of the secured portion Doubtful-III — 100% of the unsecured portion and 100% of the secured portion Loss assets 100% to be provided or written-off.

We follow the policy of NPA provisioning prescribed by the RBI.

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

As at March 31, 2012 2013 2014 (` in millions, except percentages) A. Bad debts written off and provisions for NPA - corporate loan book Nil Nil Nil B. Bad debts written off, diminution in value/loss on sale of repossessed vehicles and 23.79 31.25 102.63 provisions for NPA - retail loan book Total credit costs (A + B) 23.79 31.25 102.63 Credit costs (basis points on advances) (%) 0.002 0.02 0.06 Net NPAs 540.41 963.97 1972.92 Provisioning Coverage Ratio (%) 76.81 70.56 61.74

Provisions on standard loans

In accordance with the RBI guidelines, the general provision on standard assets has been made at 0.40% of the outstanding amount on a portfolio basis except in the case of the following: a) direct advances to agriculture and SME sectors – 0.25% b) restructured standard assets – 5.00% c) commercial real estate – 1.00% d) commercial real estate (residential housing) – 0.75%

NPA Strategy

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

Restructuring of Debt

In case of restructured or rescheduled accounts we make provisions for the sacrifice against erosion/ diminution in fair value of restructured loans, in accordance with the general framework of restructuring of advances issued by the RBI pursuant to its circular dated August 27, 2008 and subsequently modified pursuant to its circular dated April 9, 2009.

The erosion in fair value of advances is computed as difference between the fair values of the loan before and after restructuring.

The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to our BPLR or Base Rate as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to our BPLR or Base Rate as at the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring.

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

As on March 31, 2014 Particulars No. Amount (` in millions, except percentages) Restructured Standard Advances (less than 2 years) as per RBI disclosure norms 16 2,753.70 Total Gross Advances - 162,236.22 % Restructured Loans (net) to Total Advances - 1.70

Capital Adequacy

We are subject to the capital adequacy requirements of the RBI. We are required to maintain a minimum capital adequacy ratio of 9% (of which Tier 1 Capital is 6%) prescribed by RBI guidelines based on total capital to risk weighted assets. For a description of the RBI's capital adequacy guidelines, please see "Regulations and Policies". Our capital adequacy ratios as at March 31, 2011, 2013 and 2014 were as follows:

As at March 31, (As per Based III As at March 31, (As per Based II standards) standards) 2012 2013 2014 (in millions) Tier I Capital 12,222.00 16,001.10 19,646.26 Tier II Capital 916.40 858.80 788.80 Total Capital Funds 13,138.40 16,859.90 20,435.06 Risk Weighted Assets under Credit Risk 94,621.82 108,725.98 122,252.90 Risk Weighted Assets under Operational Risk 7,313.91 9,241.85 11,881.90 Risk Weighted Assets under Market Risk 2,603.99 2,615.82 2,037.08 Total Risk Weighted Assets 104,539.72 120,583.70 136,171.88 CRAR (%) 12.57% 13.98% 15.01% Tier I Capital to Risk Weighted Assets (%) 11.69% 13.27% 14.43% Tier II Capital to Risk Weighted Assets (%) 0.88% 0.71% 0.58% CRAR (%) (If Net Profit is considered) 12.57% 13.98% 15.01%

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Tier I Capital to Risk Weighted Assets (%) 11.84% 13.27% 14.43% Tier II Capital to Risk Weighted Assets (%) 0.91% 0.71% 0.58%

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

As of March 31, 2013 over that of As of March 31, 2014 over that of March 31, 2012 March 31, 2013 Growth in Risk Weighted Assets – Credit 14.91% 12.44% Growth in Exposure* 23.47% 8.12% *Exposure as per RBI guidelines.

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REGULATION AND POLICIES

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

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

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

Banking Regulation Act, 1949

Commercial banks in India are required to obtain a license from the RBI to carry on banking business in India. Such license is granted to the bank subject to compliance of certain conditions including (i) that the bank has the ability to pay its present and future depositors in full as their claims accrue; (ii) that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the bank has adequate capital and earnings prospects; and (iv) that public interest will be served if such license is granted to the bank. The RBI has the power to cancel the license if the bank fails to meet the qualifications or if the bank ceases to carry on banking operations in India. Additionally, the RBI has issued various reporting and record keeping requirements for such commercial banks. The appointment of the auditors of the banks is subject to the approval of the RBI. The RBI can direct a special audit in the interest of the depositors or in the public interest. It also sets out the provisions in relation to the loan granting activities of a banking company. The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities. No shareholder in a bank can exercise voting rights on poll in excess of 10% of total voting rights of all the shareholders of the bank. However, the RBI may increase this ceiling to 26% in a phased manner. Pursuant to amendments to the Banking Regulation Act in January 2013, private sector banks are permitted to issue perpetual, redeemable and non- redeemable preference shares in addition to ordinary equity shares.

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

Further, the RBI requires the banks to create a reserve fund to which it must transfer not less than 20% of the profits of each year before dividends. If there is an appropriation from this account, the bank is required to report the same to the RBI within 21 days, explaining the circumstances leading to such appropriation.

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

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

The RBI may impose penalties on banks and its employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any

125 contravention of the regulations. The penalty may also include imprisonment. The banks are also required to disclose the penalty in their annual report.

Regulatory reporting and examination procedures

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

Maintenance of records

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

Regulations relating to the opening of branches

As per the “Master Circular on Branch Authorization” dated July 1, 2014 banks may open branches in Tier 1 to Tier 6 centres without permission from RBI. However, prior approval from RBI is not required to shift a branch to any location within the city, town or village. Permission of the RBI is not required for installation of on-site ATMs. Further since June 2009 RBI has permitted installation of off-site ATMs at centres identified by banks, without the need for permission from the RBI in each case. Further, private sector banks are required to ensure that at least 25% of their total branches are in unbanked rural centers.

Capital adequacy requirements

The RBI has set out the minimum capital adequacy standards for banks based on the guidelines of the Basel Committee on Banking Supervision. Under the Master Circular on Prudential Guidelines on Capital Adequacy and Market Discipline - New Capital Adequacy Framework dated July 1, 2014, a bank is required to maintain a minimum total CRAR of 9.00% and Tier 1 CRAR of 6.00%.

In January 2006, the RBI issued guidelines permitting banks to issue perpetual debt with a call option after not less than 10 years, to be exercised with its prior approval, for inclusion in Tier I Capital up to a maximum of 15.00% of total Tier I Capital as on 31 March of the previous financial year. The RBI also permitted banks to issue debt instruments with a minimum maturity of 15 years and a call option after not less than 10 years, to be exercised with its prior approval, for inclusion in Tier II capital. In July 2006, the RBI issued guidelines permitting the issuance of Tier I and Tier II debt instruments denominated in foreign currencies. In October 2007, the RBI issued guidelines for issuance of certain type of preference shares as part of the regulatory capital.

To further ensure compliance with the guidelines of Basel II, the RBI has set out compliance periods for banks to transition into the Internal Ratings Based and Advanced Measurement Approach methods of risk assessment. Under the RBI’s guidelines, banks were to submit their revised methodologies by April 1, 2012 and RBI was to approve these no later than March 31, 2014.

The RBI Basel III guidelines were introduced in May 2012 and become effective from April 1, 2013 in a phased manner. In March 2013, the RBI deferred the implementation of credit valuation adjustment risk capital charges to January 1, 2014 due to certain issues related to introduction of mandatory forex forward guaranteed settlement through a central counterparty. On December 31, 2013, RBI further extended the abovementioned implementation timeline to April 1, 2014. Basel III capital regulations will be fully implemented by March 31, 2019.

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Liquidity coverage ratio

The Basel III framework on ‘Liquidity Standards’ includes ‘Liquidity Coverage Ratio’, ‘Net Stable Funding Ratio’ and liquidity risk monitoring tools. The RBI had issued guidelines on Liquidity Risk Management and Basel III framework on ‘Liquidity Standards’ in November 2012. These included enhanced guidance on liquidity risk governance, and measurement, monitoring and reporting to the RBI on liquidity positions. The Basel III liquidity standards were subject to an observation period/revision by the ‘Basel Committee’ with a view to addressing any unintended consequences that the standards may have for financial markets, credit extension and economic growth. The RBI indicated in the guidelines on liquidity risk management issued in November 2012 that the guidelines on Basel III liquidity standards will be issued once the ‘Basel Committee’ finalises the relevant framework. The ‘Basel Committee’ that issued ‘Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools’ in January 2013 is in the process of finalising the NSFR and disclosure requirements. The LCR is proposed to be implemented from January 1, 2015 and the NSFR from January 1, 2018. The RBI will issue the final guidelines on Basel III liquidity standards and liquidity risk monitoring tools, taking into account the revisions by the ‘Basel Committee’.

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

The RBI, pursuant to its “Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances” (“Prudential Norms”) issued on July 1, 2014, has classified NPAs as (i) sub-standard assets; (ii) doubtful assets; and (iii) loss assets. These guidelines specify provisioning requirements specific to the classification of the assets.

In July 2005, the RBI issued guidelines on sales and purchases of NPAs between banks, financial institutions and NBFCs. These guidelines require that the board of directors of a bank must establish a policy for purchases and sales of NPAs. An asset must have been classified as non-performing for at least two years by the seller bank to be eligible for sale. In October 2007, the RBI issued guidelines regarding valuation of NPAs being put up for sale. Further, the RBI pursuant to the circular on Prudential Norms has decided that banks should maintain provisioning coverage ratio, including floating provisions, of at least 70%.

The RBI issued revised ‘Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions’ on May 30, 2013. Pursuant to the revised guidelines the provision has been increased to 5.00% in respect of new restructured standard accounts (flow) with effect from June 1, 2013 and in a phased manner for the stock of restructured standard accounts as of March 31, 2013 as follows: (a) 3.50% with effect from March 31, 2014 (spread over the four quarters of 2013-2014);

(b) 4.25% with effect from March 31, 2015 (spread over the four quarters of 2014-2015); and

Corporate debt restructuring mechanism (“CDR system”)

The institutional mechanism for restructuring has been set up through establishment of the CDR system in 2001. It is a joint forum of all banks and financial institutions and operates as a non-judicial body. The CDR system operates on the principle of super-majority amongst the participating banks and financial institutions for a particular advance. The Bank has signed the inter-se agreement (amongst the banks and financial institutions) and is accordingly a member of the CDR system. The Prudential Norms as mentioned above equally apply to the accounts restructured under the CDR system.

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”)

The SARFAESI Act provides for sale of financial assets by banks and financial institutions to asset reconstruction companies. The Prudential Norms issued by the RBI describe the process to be followed for sales of financial assets to asset reconstruction companies. The banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or PTCs issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.

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

Priority sector lending

The RBI circular on Priority Sector Lending- Targets and Classification dated July 1, 2013 along with RBI circulars dated July 24, 2013, August 14, 2013, November 25, 2013, January 31, 2014 and March 12, 2014 sets out the broad policy in relation to priority sector lending. In accordance with this circular, the priority sectors for all scheduled banks include (i) agriculture; (ii) micro and small enterprises (“MSE”); (iii) education; and (iv)housing. While export credit is no longer a separate category under this circular, export credit for eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories. Under the RBI guidelines, the priority sector lending targets are linked to adjusted net bank credit (net bank credit plus investments made by banks in non-statutory liquidity bonds included in the Held To Maturity category and not taking into account the recapitalisation bonds floated by the Government) or credit equivalent amount of off-balance sheet exposure, whichever is higher, as on March 31 of the previous year. Currently, the total priority sector lending target for domestic banks is 40.00% of ANBC or credit equivalent amount of off- balance sheet exposure, whichever is higher.

Exposure norms

As a prudent measure aimed at better risk management and avoidance of concentration of credit risk, the RBI has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). The RBI has prescribed exposure ceiling for a single borrower as 15% of capital funds and group exposure limit as 40% of capital funds. Relaxations are permitted in exceptional circumstances and lending to infrastructure sector. The total exposure to a single NBFC has been limited to 10% of the bank’s capital funds while exposure to non-banking asset finance company has been restricted to 15% of the bank’s capital funds. The limit may be increased to 15% and 20%, respectively, provided that the excess exposure is on account of funds lent by the NBFC to the infrastructure sector.

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

Short-selling of Government securities

As per the “Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks” dated July 1, 2014, banks and primary dealers are allowed to undertake short sale of Government dated securities, subject to the short position being covered within a maximum period of three months, including the day of trade. Further, such short positions shall be covered only by outright purchase of an equivalent amount of the same security or through a long position in the ‘when issued market’ or allotment in primary auction.

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

As per the master circular on “Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts”, dated July 1, 2014, the RBI has permitted banks to independently determine their interest rates on savings and term deposits (minimum period of 7 days) under domestic/NRO accounts. Banks are also free to determine interest rates for savings deposits and term deposits of maturity of one year and above under NRE deposit accounts. However, interest rates offered by banks on NRO and NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

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Deposit insurance

Demand and time deposits of up to ` 100,000 accepted by Indian banks (other than primary co-operative societies) have to be mandatorily insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a half yearly basis. The cost of the insurance premium cannot be passed on to the customer.

Prevention of Money Laundering Act, 2002 (“PMLA”)

In order to prevent money laundering activities, the Government enacted the PMLA which seeks to prevent money laundering and to provide for confiscation of property derived from, or involved in money laundering, and for incidental matters connected therewith. Section 12 of the PMLA casts certain obligations on, inter alia, banking companies in regard to preservation and reporting of customer account information. The RBI has advised all banks to go through the provisions of the PMLA and the rules notified thereunder and to take all steps considered necessary to ensure compliance with the requirements of Section 12 of the PMLA.

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

The RBI issued a master circular on July 1, 2014 prescribing the guidelines for KYC and anti-money laundering procedures. With effect from April 1, 2012, banks are not permitted to make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument. Further, banks are required to frame their KYC policies incorporating (i) customer acceptance policy, (ii) customer identification procedures, (iii) monitoring of transactions and (iv) risk management.

Regulations relating to maintenance of statutory reserves

A bank is required to maintain, on a daily basis, CRR, which is a specified percentage of its NDTL, excluding interbank deposits, by way of a balance in a current account with the RBI. At present the required CRR is 4%. The RBI does not pay any interest on CRR balances. The CRR has to be maintained on an average basis for a fortnightly period and should not be below 70% of the required CRR on any day of the fortnight. The RBI may impose penal interest at the rate of 3% above the bank rate on the amount by which the reserve falls short of the CRR required to be maintained on a particular day and if the shortfall continues further the penal interest charged shall be increased to a rate of 5% above the bank rate in respect of each subsequent day during which the default continues.

In addition to the CRR, a bank is required to maintain SLR, a specified percentage of its NDTL by way of liquid assets like cash, gold or approved unencumbered securities. The percentage of this liquidity ratio is fixed by the RBI from time to time, pursuant to Section 24 of the Banking Regulation Act. At present, the RBI requires banks to maintain SLR of 22.50%. Further, in December 2011, the RBI has permitted banks to avail funds from the RBI on an overnight basis, under the Marginal Standing Facility, against their excess SLR holdings. Additionally, they can also avail themselves of funds, on an overnight basis below the stipulated SLR, up to 1% of their respective NDTL outstanding at the end of the second preceding fortnight.

Regulations relating to authorised dealers for foreign exchange and cross-border business transactions

The foreign exchange and cross border transactions undertaken by banks are subject to the provisions of the Foreign Exchange Management Act. All branches should monitor all non-resident accounts to prevent money laundering. The RBI master circular on External Commercial Borrowings and Trade Credits, dated July 1, 2014, states that no financial intermediary, including banks, will be permitted to raise external commercial borrowings or provide guarantees in favour of overseas lenders for external commercial borrowings.

The RBI master circular on risk management and interbank dealings, dated July 1, 2014, states that all categories of overseas foreign currency borrowings of banks, including existing external commercial borrowings and loans or overdrafts from their head office, overseas branches and correspondents and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100% of their unimpaired Tier I capital or U.S$ 10 million (or its equivalent), whichever is higher. Overseas borrowings for the purpose of financing export credit, subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital, capital funds raised/augmented by the issue of innovative perpetual debt instruments and any other overseas borrowings

129 with the specific approval of the RBI would continue to be outside the limit of 100%.

Secrecy obligations

A bank’s obligations relating to maintaining secrecy arise out of Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (for public sector banks specifically) and common law principles governing its relationship with its customers. Subject to certain exceptions, a bank cannot disclose any information to third parties. Further, the RBI may, in the public interest, publish the information obtained from the bank.

Ownership restrictions

The total foreign ownership in a private sector bank cannot exceed 74.00% (49.00% under the automatic route and above 49.00% and up to 74.00% under the approval route) of the paid-up capital subject to guidelines for setting up branches or subsidiaries of foreign banks issued by the RBI. Shares held by FIIs / FPIs / qualified foreign investors/NRIs within this limit of 74.00% cannot exceed 24.00% of the paid-up capital of the bank unless approved by the board of directors and shareholders of the bank. However, FIIs / FPIs / qualified foreign investors/NRIs cannot hold more than 49.00% of the paid-up capital of the bank.

The Banking Regulation Act, as amended, requires any person to seek prior approval of the RBI, to acquire or agree to acquire, shares or voting rights of a bank, directly or indirectly, by himself or with persons acting in concert, wherein such acquisition (taken together with shares or voting rights held by him or his relative or associate enterprise or persons acting in concert with him) results in an aggregate shareholding of such person to be 5.00% or more of paid-up capital of a bank, or entitles him to exercise 5.00% or more of the voting rights in a bank. Further, the RBI may, by passing an order, restrict any person holding more than 5.00% of the total voting rights of a bank from exercising voting rights in excess of 5.00%, if such person is deemed to be not fit and proper by the RBI.

Investments in Indian companies can be made both by non-resident and resident Indian entities. While investment by a non-resident entity in an Indian company is considered a foreign investment, investment by resident Indian entities could also comprise a non-resident investment. If the Indian investing company is ‘owned’ or ‘controlled’ by non-resident entities, investments made by such an investing company into an Indian company may also be considered as a foreign investment.

Guidelines for merger and amalgamation of private sector banks

The RBI issued guidelines in May 2005 on mergers and amalgamation of private sector banks. The guidelines relate to: (i) an amalgamation of two banking companies; and (ii) an amalgamation of a NBFC with a banking company. In the case of an amalgamation of two banking companies, the draft scheme of amalgamation must be approved by the board and majority of the shareholders of each of the banking companies. Additionally, such approved draft scheme must also be submitted to the RBI for sanction.

Where a NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the approval of the board and the RBI before it is submitted to the relevant high court for approval.

Guidelines for licensing of new banks in the private sector

The RBI issued Guidelines for Licensing of New Banks in the Private Sector on February 22, 2013. In terms of these guidelines, eligible promoters may promote new banks through a wholly-owned Non-Operative Financial Holding Company (“NOFHC”). The guidelines lay down the criteria for an eligible promoter including the fit and proper criteria to be fulfilled by eligible promoters. The guidelines also prescribe in detail, the corporate structure of the NOFHC, voting equity capital requirement and shareholding of the NOFHC, the regulations that will be applicable to the new banks, restrictions on foreign shareholding in the bank, corporate governance norms to be adhered to by the NOHFC, prudential norms applicable to the NOFHC, exposure norms applicable to the NOFHC and the bank and other financial entities held by the NOFHC apart from the bank, business plan of the bank and various other conditions applicable to banks. The guidelines also prescribe the procedure for application for new banking licences and the procedure for RBI decisions in this regard.

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Guidelines on management of intra-group transactions and exposures

The RBI issued the Guidelines on Management of Intra-Group Transactions and Exposures on February 11, 2014. Pursuant to the said guidelines, RBI has prescribed quantitative limits on financial intra-group transactions and exposures and prudential measures for the non-financial intra-group transactions and exposures. The objective of these guidelines is to ensure that banks engage in intra-group transactions and exposures in safe and sound manner in order to contain concentration and contagion risks arising out of such transactions. These guidelines will become effective from October 1, 2014.

Capital and provisioning requirements for exposures to entities with unhedged foreign currency exposure

RBI issued a circular relating to Capital and Provisioning Requirements for Exposures to entities with Unhedged Foreign Currency Exposure on January 15, 2014. Pursuant to these guidelines, RBI has introduced incremental provisioning and capital requirements for bank exposures to entities with unhedged foreign currency exposures. The circular also lays down the method of calculating the incremental provisioning and capital requirements. The banks will be required to calculate the incremental provisioning and capital requirements at least on a quarterly basis. This framework became fully effective from April 1, 2014.

Framework for revitalising distressed assets in the economy

RBI issued the Framework for Revitalising Distressed Assets in the Economy on January 30, 2014 which lays down the corrective action plan that will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. The salient features of this framework include, inter alia, (i) early formation of a lenders’ committee with timelines to agree to a plan for resolution, (ii) incentives for lenders to agree collectively and quickly to a plan - better regulatory treatment of stressed assets if a resolution plan is underway, accelerated provisioning if no agreement can be reached, and (iii) independent evaluation of large value restructurings mandated, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors. This framework became fully effective from April 1, 2014.

In this regard, the RBI issued Guidelines on a JLF and a CAP detailing guidelines on formation of the JLF and adoption of the CAP for operationalising the aforementioned framework.

The Banking Ombudsman Scheme, 2006

The Banking Ombudsman Scheme, 2006 provides the extent and scope of the authority and functions of the Banking Ombudsman for redressal of grievances against deficiency in banking services, concerning loans and advances and other specified matters. On February 3, 2009, the said scheme was amended to provide for revised procedures for redressal of grievances by a complainant under the scheme.

Declaration of dividend by banks

The payment of dividends by banks is subject to restrictions under the Banking Regulation Act. Section 15(1) of the Banking Regulation Act states that no banking company may pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisation expenses, share-selling commissions, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. In addition, Section 17(1) of the Banking Regulation Act requires every banking company to create a reserve fund and, out of the balance of the profit of each year as disclosed in the profit and loss account, transfer a sum equivalent to not less than 20.00% of such profit to the reserve fund before declaring any dividend.

Further, in May 2005, the RBI issued guidelines on Declaration of Dividends by Banks, which prescribed certain conditions for declaration of dividends by banks.

Regulations governing International Operations

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

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Consolidated Supervision Guidelines

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

Consolidated financial statements: Banks are required to annually prepare consolidated financial statements intended for public disclosure. Consolidated prudential returns: Banks are required to submit to the RBI, at periodic intervals, consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries.

Restrictions on payment of dividends

The guidelines on payment of dividends by banks issued by the RBI in 2004 shifted focus from the “quantum of dividend” to “dividend payout ratio”. These guidelines have since been revised in 2005 and the banks have been given general permission to declare dividends subject to compliance with certain norms.

Regulations relating to making loans

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

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

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

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

Classification and Reporting of Fraud Cases

The RBI issued a master circular on July 1, 2014 on the classification and reporting of fraud cases. The fraud cases have been classified into misappropriation and criminal breach of trust, fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property, unauthorised credit facilities extended for reward or for illegal gratification, negligence and cash shortages, cheating and forgery, irregularities in foreign exchange transactions and any other type of fraud not coming under the specific heads as above. Information relating to frauds for the quarters ending June, September and December may be placed before the audit committee of the board of directors during the month following the quarter to which it pertains, irrespective of whether or not these are required to be placed before the board/management committee in terms of the calendar of reviews prescribed by RBI. Banks are also required to conduct an annual review of the frauds and place a note before the board of directors for information. The reviews for the year-ended March may be put up to the Board before the end of the next quarter i.e. for the quarter ended June 30th and such reviews need not be sent to RBI. These may be preserved for verification by the Reserve Bank’s inspecting officers.

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BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Board of Directors

The composition of our Board is governed by the provisions of the Companies Act, the Banking Regulation Act, the Listing Agreements and our Articles of Association.

Our Articles of Association provide that the number of Directors shall not be less than nine and not more than fifteen. Our Board currently comprises of ten Directors comprising of one executive Director, two non- executive non independent Director and seven non executive independent Directors.

The Banking Regulation Act requires that at least 51% of our Directors shall have specialized knowledge or practical experience in one or more prescribed areas i.e. accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, small-scale industry or any other matter other field as approved by the RBI. Also, these directors must not have substantial interest in, or be connected with, whether as an employee, manager or managing agent, of any company (not being a company registered under Section 25 of the Companies Act, 1956) or firm which carries on any trade, commerce or industry which is not a small scale industrial concern, or be proprietors of any trading, commercial or industrial concern which is not a small scale industrial concern. As on the date of this Preliminary Placement Document, the Bank has complied with the conditions specified in the Banking Regulation Act including in relation to the prescribed special knowledge or practical experience required by the Directors.

Further, under the Banking Regulation Act, the appointment of whole-time directors requires the approval of the RBI. The RBI has also prescribed “fit and proper” criteria to be considered when appointing directors of banks, with the bank’s directors being required to make declarations confirming their on-going compliance with such criteria.

Our Articles of Association provide that at every AGM of our Bank, one-third of the Directors for the time being shall retire by rotation. A retiring Director is eligible for re-appointment. However under the Banking Regulation Act, none of our Directors, other than the Chairman, the Managing Director and CEO or any other whole time director can hold office continuously for a period exceeding eight years. Under our Articles of Association, our Directors are required to hold paid-up Equity Shares of paid up value not less than ` 1,000 as qualification shares, subject to the provisions of the Banking Regulation Act.

The following table sets forth details regarding the Board of Directors as at the date of this Preliminary Placement Document:

Name, Address, Occupation, DIN, Term and Nationality Age Designation S Balasubramanian 68 Non-executive, non-independent Director and part-time Chairman. Address: No.28, Pachayappa Street, Kumbakonam, Tamil Nadu.

Occupation: Banker

DIN: 01719374

Term: Until May 3, 2016

Nationality: Indian Dr. N. Kamakodi 39 Managing Director and CEO

Address: Plot No.20, Gandhi Nagar, Sri Nagar Colony, Kumbakonam, Tamil Nadu.

Occupation: Banker

DIN: 02039618

Term: Until April 30, 2017

Nationality: Indian N. Kantha Kumar 68 Non-executive independent Director

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Name, Address, Occupation, DIN, Term and Nationality Age Designation Address: Ashadeep, Cherupilly Road, Off Azad Road, Kaloor, Kochi, Kerala

Occupation: Banker

DIN: 00890532

Term: Liable to retire by rotation.

Nationality: Indian R G Chandramogan 65 Non-executive independent Director

Address: 14, Sunrise Avenue, Akkarai, Sholinganallur, Chennai, Tamil Nadu.

Occupation: Industrialist

DIN: 00012389

Term: Liable to retire by rotation.

Nationality: Indian T K Ramkumar 58 Non-executive independent Director

Address: 12B, Vedantha Desikar Swamy St, (Pelathope) Mylapore, Chennai, Tamil Nadu.

Occupation: Legal Professional

DIN: 02688194

Term: Liable to retire by rotation.

Nationality: Indian C R Muralidharan 66 Non-executive independent Director

Address: 29A, Kamala Street, Nehru Nagar, Chrompet, Chennai, Tamil Nadu.

Occupation: Banker

DIN: 02443277

Term: Liable to retire by rotation.

Nationality: Indian (Retired) Justice S R Singharavelu 66 Non-executive independent Director

Address: 55, Banadurai North Street, Kumbakonam, Tamil Nadu.

Occupation: Agriculturalist

DIN: 03022233

Term: Liable to retire by rotation.

Nationality: Indian Dr. V Kamakoti 45 Non-executive independent Director

Address: Old No. 19, New No.8, “SRIVATSA” First Cross St, CIT Colony, Mylapore, Chennai, Tamil Nadu.

Occupation: Service

DIN: 03537382

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Name, Address, Occupation, DIN, Term and Nationality Age Designation Term: Liable to retire by rotation.

Nationality: Indian S Mahalingam 66 Non-executive independent Director

Address: No.6, Subbaraya Iyer Avenue, Abhiramapuram, Chennai, Tamil Nadu.

Occupation: Service

DIN: 00121727

Term: Liable to retire by rotation.

Nationality: Indian R. Mohan* 59 Non-executive non independent Director Address: No.1 C/18 Moongikollai Street, Sriram Colony Kumbakonam – 612 001

Occupation: Retired Banker

DIN: 06902614

Term: Liable to retire by rotation.

Nationality: Indian *Mr. R. Mohan has been co-opted on the Board by resolution of the Board dated June 28, 2014 and his appointment is currently pending approval by the RBI and the shareholders of our Bank.

Brief Biographies of the Directors

Mr. S Balasubramanian, aged 68 years, is the non-executive, non-independent Director and part-time Chairman of our Bank. Mr. Balasubramanian has a master of science degree in mathematics from University of Madras, a post graduate diploma in financial management from Annamalai University and is also a certified associate of the Indian Institute of Bankers. Mr. Balasubramanian has 41 years of experience in the banking industry. Prior to being appointed as the non-executive, non-independent Director and Chairman our Bank, Mr. Balasubramanian has overseen various departments during the course of his association with our Bank including, inspection, planning and development, human resources, accounts and risk management. Mr. Balasubramanian has been associated with our Bank since 1971. Mr. Balasubramanian has been appointed to our Board under the majority sector of banking.

Dr. N Kamakodi, aged 39 years, is the Managing Director and CEO of our Bank. Dr. Kamakodi has a bachelor of technology degree in chemical engineering from Bharathidasan University, a master of business administration degree from the Chinese University of Hong Kong, a doctorate of philosophy in e-banking from Sastra University and is also a certified associate of the Indian Institute of Bankers. Dr. Kamakodi has been associated with our Bank since 2003. He is currently in charge of the overall operations of our Bank.

Mr. N Kantha Kumar, aged 68 years, is a non-executive independent Director of our Bank. Mr. Kantha Kumar has a bachelor of commerce degree and a bachelor of laws degree from the University of Kerala and is also a certified associate of the Indian Institute of Bankers. Mr. Kantha Kumar has around 39 years of experience in the banking industry and has held various positions in the banking sector including executive director, Canara Bank and chairman and managing director, Syndicate Bank. He has been associated with our Bank since 2006. Mr. Kantha Kumar has been appointed to our Board under the majority sector of rural economy, agriculture finance and banking.

Mr. R G Chandramogan, aged 65 years, is a non-executive independent Director of our Bank. Mr. Chandramogan is the chairman and managing director of Hatsun Agro Product Limited and is also a member in the Screening Cum Implementation Group – Secondary Agriculture and the Working Group on Animal Husbandry & Dairying, both constituted by the Planning Commission, GoI. Further, Mr. Chandramogan currently serves the National Council on Agriculture as a member appointed by the Confederation of Indian

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Industry. Mr. Chandramogan has been associated with our Bank since 1998. Mr. Chandramogan has been appointed to our Board under the minority sector of agriculture and rural economy.

Mr. T K Ramkumar, aged 58 years, is a non-executive independent Director of our Bank. Mr. Ramkumar has bachelor of commerce degree and bachelor of law degree from the University of Madras. Mr. Ramkumar is a practicing advocate registered with the Bar Council of Tamil Nadu and has about 33 years of experience in the practice of banking, company and intellectual property rights laws. He has been associated with our Bank since 2009. Mr. Ramkumar has been appointed to our Board under the majority sector of law.

Mr. C R Muralidharan, aged 66 years, is a non-executive independent Director of our Bank. Prior to joining our Bank, Mr. Muralidharan has worked for the RBI, retiring as the Chief General Manager and was also a whole time member of the IRDA. Mr. Muralidharan has over 21 years of experience in the field of banking regulation and supervision and five years in the development and regulation of insurance sector. He has been associated with our Bank since 2011. Mr. Muralidharan has been appointed to our Board under the majority sector of banking.

Retired Justice S R Singharavelu, aged 66 years, is a non-executive independent Director of our Bank. Justice Singharavelu has a bachelor of science degree in mathematics and a bachelor of laws degree from the University of Madras and is also registered with the Bar Council of Tamil Nadu. Prior to joining our Bank, Justice Singharavelu has served as a member of the judiciary at the High Court of Madras and the High Court of Odisha. Justice Singharavelu has been associated with our Bank since 2010. Justice Singharavelu has been appointed to our Board under the majority sector of agriculture and rural economy.

Dr. V Kamakoti, aged 45 years, is a non-executive independent Director of our Bank. Dr. Kamakoti holds a master of science degree and a doctorate of philosophy in computer science and engineering from the Indian Institute of Technology, Madras. Dr. Kamakoti currently holds the post of professor in the Department of Computer Science and Engineering, Indian Institute of Technology, Madras. He has more than 16 years of experience in computer systems development and specializes in the area of secure systems engineering. Dr. Kamakoti has been associated with our Bank since 2011. Dr. Kamakoti has been appointed to our Board under the majority sector of technology.

Mr. S Mahalingam, aged 66 years, is a non-executive independent Director of our Bank. Mr. Mahalingam holds a bachelor of commerce degree from University of Bombay and is an associate member of ICAI. Prior to joining our Bank, he worked as a consultant at the Tata Consultancy Services and was also instrumental in marketing their services internationally and setting-up their software development centers. Previously, he held the post of chairman, Southern Region of Confederation of Indian Industry, fellow and president, Computer Society of India and president, Institute of Management Consultant of India. Mr. S Mahalingam has been associated with our Bank since 2013. Mr. S Mahalingam has been appointed to our Board under the majority sectors of accountancy, finance and technology.

Mr. R Mohan, aged 59 years, is a non-executive non independent Director of our Bank. Mr. Mohan holds a bachelor of science degree from the University of Madras and a master of business administration from Indira Gandhi National Open University and is a certified associate of the Indian Institute of Bankers. Prior to joining the Board, he worked as Chief General Manager of our Bank and retired from the services of our Bank on May 31, 2014. Mr. R. Mohan has been appointed to our Board under the majority sector of banking, agriculture and small scale industry.

Relationship with other Directors

None of the Directors are related to each other.

Interest of Directors of our Bank

Our Managing Director and CEO may be deemed to be interested to the extent of remuneration paid by our Bank, as well as to the extent of reimbursement of expenses payable to him. Our non executive Directors may be deemed to be interested to the extent of fees, payable to them for attending meetings of the Board or a committee thereof as well as to the extent of other reimbursement of expenses payable to them.

Our Directors, including independent Directors, may also be regarded as interested in the Equity Shares or options under the ESOS 2008, if any, held by them and also to the extent of any dividend payable to them and

136 other distributions in respect of the Equity Shares. The Directors, including independent Directors, may also be regarded as interested in the Equity Shares held by or that may be subscribed by and allotted to the companies, firms and trust, in which they are interested as directors, members, partners or trustees. For details of the Equity Shares and options held by our Directors, please refer to the sub-sections titled “Shareholding of the Directors and Key Managerial Personnel” and “Employees Stock Option Scheme” on page 141.

Our Directors may be deemed to be interested in the contracts, agreements/ arrangements entered into or to be entered into by our Bank with any company in which they hold directorships or any partnership firm in which they are partners. Except as otherwise stated in this Preliminary Placement Document and statutory registers maintained by our Bank in this regard, we have not entered into any contract, agreements, arrangements during the preceding two years from the date of this Preliminary Placement Document in which our Directors are interested directly or indirectly and no payments have been made to them in respect of these contracts, agreements, arrangements which are proposed to be made with them.

Terms of Employment and Remuneration of our Chairman and Managing Director and CEO

The details of remuneration of Dr. N.Kamakodi, Managing Director and CEO of our Bank, with effect from May 1, 2014 are as under:

Particulars Remuneration* Salary ` 4.8 million per annum. House rent allowance Provision for free furnished accommodation at Chennai for family. No claim for residential accommodation available at Kumbakunom. Entertainment allowance At actual inclusive of entrance fees/subscription to clubs and restricted to two clubs/professional institutions. Subscription to newspapers, journals, etc. Newspaper and magazines as may be required Other allowance –stock option Subject to RBI approval. Provident fund 10% of basic pay. Pension As applicable to other officers of our Bank. Medical aid including hospitalisation At actuals for self and dependant family members. Superannuation medical benefits Reimbursement of hospitalisation and other medical expenses or payment of full premium under suitable medical insurance plan for self and dependent family members. Leave As per Bank’s policy. Leave fare concession Once in a year, in India or outside, for self and family, including incidentals. Gratuity As per Bank’s policy. Travelling and halting allowance At actual i.e. single fare each way by train by highest class or by air (executive class) plus any further incidental expenses incurred in travelling to and from meetings/business.

Halting allowance

a) Lodging –at actual b) Boarding charges –at actual. Conveyance Use of Bank’s car with driver for official purposes. Insurance cover Cover of up to ` 5 million for journeys by air, rail or raod on official purposes. Communication Provision of telephone, mobile and internet facility. * Remuneration of Mr. Kamakodi has been approved by the resolution of the Board dated April 21, 2014 and by the RBI by its letter dated April 7, 2014.

The following table sets forth the compensation paid by our Bank, excluding perquisites as approved by RBI, to Mr. Kamakodi for the current fiscal (to the extent applicable) and fiscals 2014, 2013 and 2012.

(` in millions) Managing Director Total remuneration (including salary and other benefits) Fiscal 2015 (to the Fiscal 2014 Fiscal 2013 Fiscal 2012 extent applicable) Dr. N. Kamakodi 1.01 2.49 2.49 2.28

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Remuneration of our Non Executive Directors

Our non executive Directors are paid remuneration consisting of sitting fees determined by the Board. Our Bank pays sitting fee of ` 50,000 for each meeting of our Board and ` 10,000 for each meeting of a committee of the Board.

The following table sets forth the sitting fees paid by our Bank to our existing non-executive Directors for the current fiscal 2015 (to the extent applicable), fiscals 2014, 2013 and 2012: (` in millions) Name of Director Total remuneration Fiscal 2015 (to the Fiscal 2014 Fiscal 2013 Fiscal 2012 extent applicable) S Balasubramanian* 0.30 1.20 1.20 1.31 Mr. N. Kantha Kumar 0.25 0.58 0.53 0.45 Mr. R G Chandramogan 0.24 0.30 0.33 0.31 Mr. T K Ramkumar 0.24 0.63 0.43 0.30 Mr. C R Muralidharan 0.23 0.54 0.45 0.36 (Retired) Justice S R Singharavelu 0.24 0.46 0.46 0.38 Dr. V Kamakoti 0.21 0.48 0.43 0.27 Mr. S Mahalingam 0.19 0.20 nil nil Mr. R Mohan nil nil nil nil *Mr. Balasubramanian was appointed as non-executive part time Chairman of our Bank, as approved by RBI vide letter dated May 5, 2014, from May 6, 2014 till May 3, 2016. Mr. Balasubramanian is to be paid a remuneration of ` 100,000 per month and is also entitled to use of an office car with driver, residential phone, mobile and internet facility, travelling and halting allowances and insurance cover of up to ` 5,000,000 for official travel. He is presently not entitled to receive sitting fees.

Corporate Governance

Our Bank is in compliance with the provisions in respect of corporate governance as stipulated in the Listing Agreements with the Stock Exchanges, including in respect of appointment of independent directors on the Board and the constitution of the audit committee, remuneration committee and shareholders’ grievances redressal committee. Our Bank is currently in the process of complying with other corporate governance requirements under the Companies Act, 2013. Our Bank will also be required to comply with new corporate governance requirements under clause 49 of the Listing Agreement with effect from 1 October 2014.

Committees of the Board of Directors

The Board of Directors has constituted the following committees, which have been constituted and function in accordance with the relevant provisions of the Companies Act, directions from RBI, Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Listing Agreement: (i) Audit Committee; (ii) Credit Committee; (iii) Review of Irregular Advances Committee; (iv) Risk Management Committee; (v) Customer Service Committee; (vi) Nomination Committee; (vii) Compensation Committee; (viii) Shareholders’ Grievance Committee; (ix) Premises Committee; (x) Information Technology Strategy Committee; (xi) Special Committee of the Board for Review and Monitoring Large Value Frauds; (xii) Committee on Corporate Social Responsibility; and (xiii) QIP Management Committee.

The following table sets forth the members of the aforesaid committees as of the date of this Preliminary Placement Document:

Committee Members Audit Committee Mr. S Balasubramanian, Mr. C R Muralidharan, Mr. T K Ramkumar, Mr. S Mahalingam Credit Committee Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. N. Kantha Kumar, Mr. R G Chandramogan, (Retired) Justice S R Singharavelu Review of Irregular Advances Committee Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. N. Kantha Kumar, Mr. T K Ramkumar, (Retired) Justice S R Singharavelu Risk Management Committee Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. N. Kantha Kumar, Dr. V Kamakoti, Mr. C R Muralidharan Customer Service Committee Mr. S Balasubramanian, Dr. N. Kamakodi, (Retired) Justice S R Singharavelu, Dr. V Kamakoti, Mr. T K Ramkumar Nomination Committee Mr. S Balasubramanian, Mr. R G Chandramogan and (Retired) Justice S R Singharavelu

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Committee Members Compensation Committee Mr. S Balasubramanian, Mr. N. Kantha Kumar, Mr. S Mahalingam, Mr. R G Chandramogan Shareholders’ Grievance Committee Dr. V Kamakoti, Mr. T K Ramkumar, (Retired) Justice S R Singharavelu, Mr. S Mahalingam Premises Committee Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. T K Ramkumar, Mr. R G Chandramogan Information Technology Strategy Committee Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. N. Kantha Kumar, Mr. C R Muralidharan, Dr. V Kamakoti, Mr. T K Ramkumar, Mr. S Mahalingam Special Committee of the Board for Review Mr. S Balasubramanian,Dr. N. Kamakodi, Mr. C R Muralidharan, and Monitoring Large Value Frauds (Retired) Justice S R Singharavelu, Mr. T K Ramkumar Committee on Corporate Social Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. R G Chandramogan, Dr. V Responsibility Kamakoti, Mr. T K Ramkumar QIP Management Committee Mr. S Balasubramanian, Dr. N. Kamakodi, Mr. S Mahalingam, Mr. T K Ramkumar, Mr. C R Muralidharan

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Organisation Structure of our Bank

COMPLIANCE MD & CEO

S G M S G M S G M Forex/Treasury INSPECTION HR & BD RMD AGM HR & PL

DGM GM Credit VIGILANCE SYSTEM Dept. DGM DGM Forex A/cs AGM LRD LBA ADV ADV AGM AGMs DGM DGM DGM DGM AGM AGM AGM Forex A/Cs AGM AGM 8 NOS.

DOM FX IMPO EXPO TREA TREA RT RT

SGM Senior General Manager LBA Large borrowal accounts BD Business Development ADV Advances RMD Risk Management DOMTREA Domestic treasury P&D RECOV HRM BUS BDC RDMs STF Department ERY PLAN COLL AGM Assistant General Manager FX Forex PL Planning EXP RT Export DGM Deputy General Manager PF Planning & Development GM DGM DGM AGM AGM A/Cs Accounts BDC Business Development Centre P&D Rec HRM BP Priority LRD Loan Review Department RDM Regional Development Manager STF Coll Staff College AGM AGM AGM AGM P&D P&D Rec HRM

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Key Managerial Personnel of Our Bank

The following table sets forth the details of our Key Managerial Personnel:

Name of the Key Managerial Personnel Designation Dr. N. Kamakodi Managing Director and CEO Mr. S Sundar Chief Financial Officer and Senior General Manager Mr. V Ramesh Company Secretary and Deputy General Manager

Biographies of our Key Managerial Personnel

Mr. S Sundar, aged 59 years, is the chief financial officer and senior general manager of our Bank. He has been associated with our Bank since 2003, and is responsible for financial operations of our Bank. He is a permanent employee of our Bank. He holds a degree in commerce from the University of Madras and is an associate member of ICAI and an associate member of Indian Institute of Bankers. He has about 35 years of experience in the banking sector.

Mr. V Ramesh, aged 51 years, is the company secretary and deputy general manager of our Bank. He has been associated with our Bank since 1986, and is responsible for secretarial compliance of our Bank. He is a permanent employee of our Bank. He holds a masters degree in science from Annamalai University and is an associate member of Institute of Company Secretaries of India. He has about 29 years of experience in the banking sector.

For details of the biographies of Mr.Kamakodi, the Managing Director and CEO, please refer to the section titled “Brief Biographies of the Directors” at page 135.

Interest of Key Managerial Personnel

Our Key Managerial Personnel do not have any interest in the Bank other than to the extent of the remuneration or benefits to which they are entitled to as per their terms of appointment and reimbursement of expenses incurred by them and banking relations undertaken by them in the ordinary course of business and to the extent of the Equity Shares held by them or their dependants in the Bank, if any.

Further, our Bank has granted loans to Mr. Kamakodi and Mr. V.Ramesh for ` 4.00 million and ` 3.00 million, respectively. The rate of interest payable on the loans is 5% simple interest up to ` 0.30 million, 8% simple interest for ` 0.30 million and up to ` 1.00 million and 9% simple interest for amounts above ` 1.00 million.

Shareholding of the Directors and Key Managerial Personnel

As of June 30, 2014, except as stated below, none of the Directors and Key Managerial Personnel of our Bank hold any Equity Shares in our Bank:

Sr. Name Designation No. of Equity Shares No. 1. Mr. S. Balasubramanian Non Executive Part Time Chairman 1,065,424 2. Dr. N. Kamakodi Managing Director & CEO 1,446,876 3. Mr. N. Kantha Kumar Director 3,862 4. Mr. R G Chandramogan Director 20,267 5. Mr. T K Ramkumar Director 135,794 6. Mr. C R Muralidharan Director 1,287 7. (Retired) Justice S R Singharavelu Director 8,619 8. Dr. V Kamakoti Director 1,250 9. Mr. S Mahalingam Director 6,250 10. Mr. R. Mohan Director 57,500 11. Mr. S. Sundar Chief Financial Officer and Senior General 93,649 Manager 12. Mr. V. Ramesh Company Secretary and Deputy General Manager 115,501 Total 2,956,279

Employees Stock Option Scheme

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Pursuant to the approval of our members by way of special resolution dated April 26, 2008 our Bank had constituted the ESOS 2008.

As of June 30, 2014, a total of 34,763,285 employee stock options are outstanding and vested with the employees of our Bank, with each option convertible into 34,763,285 Equity Share. These 34,763,285 options are convertible into Equity Shares at exercise prices of ` 11.60 per Equity Share for Series 1 of ESOS 2008, ` 29.60 per Equity Share for Series 2 of ESOS 2008 and ` 41.60 per Equity Share for Series 3 of ESOS 2008.

The details of the outstanding options granted to our Directors and our Key Managerial Personnel under ESOS 2008, as on June 30, 2014, are as below:

Name of the Directors / Key Managerial Personnel Number of Options Outstanding Dr. N. Kamakodi 168,750 Mr. R. Mohan 67,500 Mr. S. Sundar 123,750 Mr. V. Ramesh 27,000

Policy on disclosures and internal procedure for prevention of insider trading

Regulation 12(1) of the SEBI Insider Trading Regulations applies to our Bank and its employees and requires our Bank to implement a code of internal procedures and conduct for the prevention of insider trading. Our Bank has implemented a code of conduct for prevention of insider trading in accordance with the SEBI Insider Trading Regulations.

Other confirmations

Except as otherwise stated in this Preliminary Placement Document, none of the Directors or any Key Managerial Personnel have any financial or other material interest in the Issue.

Related Party Transactions

For details in relation to the related party transactions entered by our Bank during the last three fiscals, as per the requirements under Accounting Standard 18 issued by the Institute of Chartered Accountants in India read with circular dated March 29, 2003 issued by the RBI on ‘Guidance on Compliance with the Accounting Standards by Banks’, see the section titled “Financial Statements” on page 187.

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PRINCIPAL SHAREHOLDERS

Our Bank was incorporated on October 31, 1904 under the provisions of the Companies Act, 1882 and is a scheduled commercial bank within the meaning of the RBI Act. The CIN of our Bank is L65110TN1904PLC001287. Our Bank does not have any identifiable promoters.

As of June 30, 2014, our Bank had 542,740,263 fully paid up Equity Shares. Except as disclosed in the section titled “Market Price Information and other Information Concerning the Equity Shares” on page 61, the Equity Shares are listed and traded on the BSE and NSE.

Equity Shareholding Pattern

The shareholding pattern of our Bank as of June 30, 2014 is as follows:

Sr. Category of Number of Total number of Number of shares Total shareholding as a Shares pledged No. shareholder shareholders shares held in percentage of total or otherwise dematerialized form number of shares encumbered % of shares % of Number % No. (A+B) shares of of (A+B+C) shares shares (A) Shareholding of Promoter and Promoter Group (1) Indian (a) Individuals/ Hindu 0 0 0 0 0 0 0.00 undivided family (b) Central 0 0 0 0 0 0 0.00 Government/ State Governments (c) Bodies corporate 0 0 0 0 0 0 0.00 (d) Financial 0 0 0 0 0 0 0.00 institutions/ Banks Sub-Total (A)(1) 0 0 0 0 0 0 0.00 (2) Foreign (a) Individuals (non- 0 0 0 0 0 0 0.00 resident individuals/ Foreign individuals) (b) Bodies corporate 0 0 0 0 0 0 0.00 (c) Institutions 0 0 0 0 0 0 0.00 (d) Qualified Foreign 0 0 0 0 0 0 0.00 Investors (e) Others 0 0 0 0 0 0 0.00 Sub-Total (A)(2) 0 0 0 0 0 0 0.00 Total 0 0 0 0 0 0 0.00 Shareholding of Promoter and Promoter Group (A)= (A)(1)+(A)(2) (B) Public shareholding (1) Institutions (a) Mutual funds/ UTI 49 26,526,570 26,526,570 4.89 4.89 - - (b) Financial 7 544,193 539,193 0.10 0.10 - - institutions/ Banks (c) Central 0 0 0 0 0 - - Government/ State Governments (d) Venture capital 0 0 0 0 0 - -

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Sr. Category of Number of Total number of Number of shares Total shareholding as a Shares pledged No. shareholder shareholders shares held in percentage of total or otherwise dematerialized form number of shares encumbered % of shares % of Number % No. (A+B) shares of of (A+B+C) shares shares funds (e) Insurance 4 26,078,111 26,078,111 4.80 4.80 - - companies (f) Foreign 71 174,922,222 174,922,222 32.23 32.23 - - institutional investors (g) Foreign venture 0 0 0 0 0 - - capital investors (h) Qualified Foreign 0 0 0 0 0 - - Investor (i) Any Other 0 0 0 0 0 - - Sub-Total (B)(1) 131 228,071,096 228,066,096 42.02 42.02 - - (2) Non-institutions (a) Bodies corporate 981 42,626,028 40,004,015 7.85 7.85 - - (b) (i) Individual shareholders holding nominal share capital up to ` 0.1 million 80,883 160,169,654 123,585,742 29.51 29.51 - - (ii) Individual shareholders holding nominal share capital in excess of ` 0.1 million 255 94,698,259 86,904,277 17.45 17.45 - - (c) Qualified Foreign 0 0 0 0 0 - - Investor (D) Any others Trusts 9 97,292 33,616 0.02 0.02 - - Clearing members 166 485,134 485,134 0.09 0.09 - - NRIs 953 16,592,800 16,592,800 3.06 3.06 - - Foreign Bodies 0 0 0 0 0 - - Sub-Total(B)(2) 83,247 314,669,167 267,605,584 57.98 57.98 - - Total Public Shareholding 83,378 (B)= (B)(1)+(B)(2) 542,740,263 495,671,680 100.00 100.00 - - TOTAL(A)+(B) 83,378 542,740,263 495,671,680 100.00 100.00 - - (C) Shares held by custodians and against which depository receipts have been issued (1) Promoter and 0 0 0 0 0 - - Promoter Group (2) Public 0 0 0 0 0 - - GRAND TOTAL (A)+(B)+(C) 83,378 542,740,263 495,671,680 - 100.00 0 0.00

As our Bank does not have any identifiable promoters, the shareholding of the promoters and promoter group in our Bank as of June 30, 2014 is NIL.

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List of shareholders holding more than one per cent of the paid up capital of our Bank as of June 30, 2014:

Name Number of Equity Percentage of total Shares Equity Shares (%) GKFF Ventures 23,493,712 4.33 Lavender Investments Limited 22,676,244 4.18 Life Insurance Corporation of India 21,664,085 3.99 Equinox Partners LP 16,584,334 3.06 Vilasini Vaidyanathan 12,500,000 2.30 Wasatch Core Growth Fund 10,926,782 2.01 Acacia Partners, LP 10,783,077 1.99 Emblem FII 9,454,927 1.74 Regal Investment and Trading Company Private Limited 8,765,529 1.62 Meenakshi V 8,000,000 1.47 Amansa Capital Pte Limited A/C Amansa Holdings Pri'vate Limited 6,148,767 1.13 Sriram V 6,000,000 1.11 Somerset Emerging Markets Small Cap Fund Llc 5,904,997 1.09 Total 162,902,454 30.01

There are no shareholders holding more than five per cent of the paid up capital (along with ‘persons acting concert’) of our Bank as of June 30, 2014.

There are no Equity Shares locked in as on the date of this Preliminary Placement Document.

As on the date of this Preliminary Placement Document, except for the options granted under the ESOS 2008, there are no outstanding convertible securities, including warrants, which would entitle any person any option to receive Equity Shares.

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ISSUE PROCEDURE

Below is a summary intended to present a general outline of the procedure relating to the bidding, application payment, Allocation and Allotment for the Issue. The procedure followed in the Issue may differ from the one mentioned below and the investors are assumed to have apprised themselves of the same from our Bank or SGCBRLM or the BRLMs. The prospective investors are also advised to inform themselves of any restrictions or limitations that may be applicable to them; see the section titled “Purchaser Representations and Transfer Restrictions” on page 161.

The Issue is being made to QIBs in reliance upon Chapter VIII of the SEBI Regulations and section 42 of the Companies Act, 2013. The Issue has been approved by our members in the AGM dated August 30, 2013 and has been approved by our Board on July 29, 2013. The RBI, pursuant to its letter dated June 27, 2014, has granted in principle approval in respect of the Issue. Our Bank shall apply for a post facto approval from the RBI in relation to the Issue, as has been specified by RBI in its letter dated June 27, 2014, upon completion of the Allotment process.

Our Bank has received the in principle approvals dated July 14, 2014 from the NSE and the BSE and MSE, under Clause 24(a) of the Listing Agreements. Our Bank has also filed a copy of the Preliminary Placement Document with the Stock Exchanges.

After the Allotment of Equity Shares, our Bank shall make applications to the Stock Exchanges for the listing approvals. Subsequently, after the credit of Equity Shares to the beneficiary accounts with the Depository Participant, our Bank shall make applications to the Stock Exchanges for the final listing and trading approvals.

Our Bank shall also make the requisite filings with the RoC and SEBI within the stipulated period as required under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Issue Procedure

1. Our Bank, the SGCBRLM and the BRLMs shall identify the QIBs and circulate serially numbered copies of this Preliminary Placement Document and the Application Form, either in electronic form or physical form to QIBs. In terms of section 42(7) of the Companies Act, 2013, our Bank shall maintain complete records of the QIBs to whom the Preliminary Placement Document and the serially numbered Application Form have been dispatched.

2. Unless a serially numbered Preliminary Placement Document along with the Application Form is addressed to a particular QIB, no invitation shall be deemed to have been made to any other QIB to make an offer to subscribe to Equity Shares pursuant to the Issue. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such person.

3. Bidders shall submit Bids for, and the Bank shall issue and Allot to each Allottee, at least such number of Equity Shares in the Issue which would aggregate to ` 20,000 calculated at the face value of the Equity Shares.

4. QIBs may submit their Bids through the Application Form, including any revisions thereof, during the Bidding Period to the SGCBRLM and the BRLMs.

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

a. Full official name of the QIB to whom Equity Shares are to be Allotted;

b. Number of Equity Shares Bid for;

c. Price at which they are agreeable to subscribe for the Equity Shares; provided that QIBs may also indicate that they are agreeable to submit a Bid at a “Cut-off Price”; which shall be any price as may be determined by the Bank in consultation with the SGCBRLM and the BRLMs at or above the Floor Price as approved in accordance with SEBI Regulations;

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d. The details of the beneficiary account with the Depository Participant to which the Equity Shares should be credited; and

e. A representation that it was outside the United States at the time the offer of the Equity Shares was made to it and is currently outside the United States, and it has agreed to certain other representations set forth in the Application Form.

Note: Each sub-account of an FII other than a sub-account which is a foreign corporate or a foreign individual will be considered as an individual QIB and separate Application Forms would be required from each such sub-account for submitting Bids.

6. Once a duly filled Application Form is submitted by a QIB, such Application Form constitutes an offer which cannot be withdrawn after the Bid Closing Date. The Bid Closing Date shall be notified to the Stock Exchanges and upon such notification the QIBs shall be deemed to have been given notice of such date.

Bids made by asset management companies or custodians of Mutual Funds shall specifically state the names of the concerned schemes for which the Bids are made. In case of a Mutual Fund, a separate Bid can be made in respect of each scheme of the Mutual Fund registered with SEBI.

7. Upon the receipt of the duly completed Application Forms, our Bank shall in consultation with the SGCBRLM and the BRLMs determine (i) the Issue Price, (ii) the number of Equity Shares to be Allocated; and (iii) the QIBs to whom the same shall be Allocated. Upon such determination, the SGCBRLM and the BRLMs will send serially numbered CANs to the QIBs who have been Allocated the Equity Shares, together with a serially numbered Placement Document either in electronic form or through physical delivery. The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the QIBs to subscribe to the Equity Shares Allocated to such QIB and to pay the application money (being the product of the Issue Price and Equity Shares Allocated to such QIB). The CAN shall contain details such as the number of Equity Shares Allocated to the QIB and payment instructions including the details of the amounts payable by the QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective QIB. Please note that the Allocation will be at the absolute discretion of the Bank and will be based on the recommendation of the SGCBRLM and the BRLMs.

8. Pursuant to receiving a CAN, each QIB shall be required to pay the application money for the Equity Shares indicated in the CAN at the Issue Price, through electronic transfer to the Escrow Account by the Pay-In Date. No payment shall be made by QIBs in cash. Please note that any payment of application money for the Equity Shares shall be made from the bank accounts of the relevant QIBs applying for the Equity Shares and the Bank shall keep a record of the bank account from where such payment for subscriptions have been received. Monies payable on Equity Shares to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application. Pending Allotment, all monies received for subscription of the Equity Shares shall be kept by the Bank in a separate bank account with a scheduled bank and shall be utilised only for the purposes permitted under the Companies Act, 2013;

9. Upon receipt of the application monies from the QIBs, our Bank shall Allot the Equity Shares as per the details provided in the CANs to such QIBs. Our Bank shall intimate the Stock Exchanges the details of the Allotment.

10. After our Board passes the resolution for Allotment and prior to crediting the Equity Shares into the beneficiary accounts of the successful Bidders, our Bank shall apply to the Stock Exchanges for listing approvals. After receipt of the listing approvals from the Stock Exchanges, our Bank shall credit the Equity Shares into the beneficiary accounts of the respective QIBs. Our Bank shall then apply for the final trading approvals from the Stock Exchanges.

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

12. The final listing and trading approvals granted by the Stock Exchanges are also ordinarily available on

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the websites of the Stock Exchanges, and our Bank may communicate the receipt of the final listing and trading approvals to the QIBs who have been Allotted Equity Shares. Our Bank, the SGCBRLM and the BRLMs shall not be responsible for any delay or non receipt of the communication of the final listing and trading approvals from the Stock Exchanges or any loss arising from such delay or non- receipt. QIBs are advised to apprise themselves of the status of the receipt of such approvals from the Stock Exchanges or our Bank.

13. Further, as specified by RBI in its letter dated June 27, 2014, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, upon completion of the Allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI in this regard.

Qualified Institutional Buyers

Only QIBs, as defined in Regulation 2(1)(zd) of the SEBI Regulations and not otherwise excluded pursuant to Regulation 86(1)(b) of the SEBI Regulations are eligible to invest in the Equity Shares pursuant to the Issue. Currently, QIB means:

public financial institutions as defined in section 2(72) of the Companies Act, 2013;

scheduled commercial banks;

Mutual Funds;

Eligible FPIs;

multilateral and bilateral development financial institutions;

VCFs registered with SEBI;

FVCIs registered with SEBI;

AIFs registered with SEBI

state industrial development corporations;

insurance companies registered with Insurance Regulatory and Development Authority;

provident funds with minimum corpus of ` 250.00 million;

pension funds with minimum corpus of ` 250.00 million;

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

insurance funds set up and managed by army, navy or air force of the Union of India; and

insurance funds set up and managed by the Department of Posts, India.

FIIS (OTHER THAN A SUB-ACCOUNT WHICH IS A FOREIGN CORPORATE OR A FOREIGN INDIVIDUAL) AND ELIGIBLE FPIS SHALL PARTICIPATE IN THIS ISSUE UNDER SCHEDULE 2 AND SCHEDULE 2A OF FEMA 20, RESPECTIVELY. FIIS AND ELIGIBLE FPIS ARE PERMITTED TO PARTICIPATE IN THE ISSUE SUBJECT TO COMPLIANCE WITH ALL APPLICABLE LAWS AND SUCH THAT THE SHAREHOLDING OF THE FPIS AND FIIS DOES NOT EXCEED SPECIFIED LIMITS AS PRESCRIBED UNDER APPLICABLE LAWS IN THIS REGARD. OTHER ELIGIBLE NON-RESIDENT QIBS SHALL PARTICIPATE IN THE ISSUE UNDER SCHEDULE 1 OF THE FEMA 20 AND SHALL MAKE THE PAYMENT OF APPLICATION MONEY THROUGH THE FOREIGN CURRENCY NON RESIDENT (FCNR) ACCOUNT AND NOT THROUGH THE SPECIAL NON-RESIDENT RUPEE (SNRR) ACCOUNT.

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Eligible FPIs are permitted to participate in the Issue subject to compliance with conditions and restrictions which may be specified by the Government from time to time.

An FII who holds a valid certificate of registration from SEBI shall be deemed to be an FPI until the expiry of the block of three years for which fees have been paid as per the SEBI FII Regulations. Subject to trailing condition, an FII or sub-account of an FII may participate in the Issue, until the expiry of its registration as a FII or sub-account, or until it obtains a certificate of registration as FPI, whichever is earlier. If the registration of the FII or sub-account has expired or is about to expire, such FII or sub-account may, subject to payment of conversion fees under the SEBI FPI Regulations, participate in the Issue. An FII or sub-account shall not be eligible to invest as an FII after registering as an FPI under the SEBI FPI Regulations.

In terms of the SEBI FPI Regulations, the issue of Equity Shares to a single FPI or an investor group (which means the same set of ultimate beneficial owner(s) investing through multiple entities) is not permitted to be 10.00% or above of our post-Issue Equity Share capital. Further, in terms of the FEMA 20, the total holding by each FPI shall be below 10.00% of our total paid-up Equity Share capital and the total holdings of all FPIs put together shall not exceed 24.00% of our paid-up Equity Share capital. The aggregate limit of 24.00% may be increased up to the sectoral cap (and 49.00% in case of private sector bank) by way of a resolution passed by the Board of Directors followed by a special resolution passed by the shareholders of the Bank, which should be intimated to the RBI. Our foreign shareholding is restricted to 40% of our paid up capital, with the aggregate shareholding of NRIs not exceeding 24% and individual shareholding not exceeding 5%, of our paid up capital, pursuant to Board’s resolution dated April 28, 2012 and resolution passed by our shareholders through postal ballot declared on June 11, 2012.

In this regard, please note that as of June 30, 2014, our aggregate FII (which are deemed FPIs) and NRI shareholding was 35.29% of our paid up capital. The RBI, typically, monitors the level of FII/NRI shareholding in Indian companies on a daily basis and once the aggregate foreign investment of a company reaches a cut-off point, which is 2.0% below the overall limit, the RBI cautions non-resident investors and authorized dealers not to further transact in equity shares on the stock exchanges, without prior approval of the RBI. Further, upon aggregate foreign shareholding in Indian companies reaching the ceiling, the RBI prohibits further purchase of equity shares by non- resident investors on the stock exchanges. For details of shareholding of our Bank, including shareholding of FIIs and NRIs, see the section titled “Principal Shareholders” on page 143.

Also, the approval of RBI is required for the acquisition or transfer of the shares of our Bank, which will take the aggregate holding (direct and indirect, beneficial or otherwise) of an individual or a group to equivalent of five per cent or more of our Bank’s total paid up capital.

Allotments made to FVCIs, VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements.

Our Bank, the SGCBRLM and the BRLMs and any of their respective shareholders, directors, partners, officers, employees, counsel, advisors, representatives, agents or affiliates are not liable for any amendments or modifications or changes to applicable laws or regulations, which may occur after the date of this Preliminary Placement Document. QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. QIBs are advised to ensure that any single application from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable laws or regulations or as specified in this Preliminary Placement Document. Further, QIBs are required to satisfy themselves that any requisite compliance pursuant to this Allotment such as public disclosures under applicable laws is complied with. QIBs are advised to consult their advisers in this regard. Further, QIBs are required to satisfy themselves that their Bids would not eventually result in triggering an open offer under the Takeover Code. The QIB shall be solely responsible for compliance with the provisions of the Takeover Code, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and other applicable laws, rules, regulations, guidelines, notifications and circulars.

A minimum of 10.0% of the Equity Shares offered in this Issue shall be available for Allocation to Mutual Funds. In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allotted to other QIBs.

Note: Affiliates or associates of the SGCBRLM and the BRLMs who are QIBs may participate in the Issue in compliance with applicable laws.

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Application Process

Application Form

QIBs shall only use the serially numbered Application Forms supplied by the SGCBRLM and the BRLMs in either electronic form or by physical delivery for the purpose of making a Bid (including revision of Bid) in terms of this Preliminary Placement Document and the Placement Document.

By making a Bid (including the revision thereof) for Equity Shares through the Application Form, the QIB will be deemed to have made the representations, warranties, acknowledgements and undertakings under the sections titled “Notice to Investors”, “Representations by Investors”, “Selling Restrictions” and “Purchaser Representations and Transfer Restrictions” on pages 1, 3, 156 and 161, respectively, including:

1. the QIB confirms that it is a QIB in terms of Regulation 2(1)(zd)of the SEBI Regulations, and is not excluded under Regulation 86 of the SEBI Regulations and is eligible to participate in this Issue;

2. the QIB has no right to withdraw its Bid after the Bid Closing Date;

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

4. the QIB confirms that the QIB is eligible to Bid and hold Equity Shares so Allotted and together with any Equity Shares held by the QIB prior to the Issue. The QIB further confirms that the holding of the QIB, does not and shall not, exceed the level permissible as per any applicable regulations applicable to the QIB;

5. the QIB confirms that their application would not eventually result in triggering a tender offer under the Takeover Code;

6. the QIB confirms that to the best of its knowledge and belief, together with other QIBs in the Issue that belong to the same group or are under common control, the Allotment to the QIB shall not exceed 50.0% of the Issue Size. For the purposes of this statement:

a. the expression “belongs to the same group” shall derive meaning from the concept of “companies under the same group” as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and

b. “Control” shall have the same meaning as is assigned to it by clause 1(e) of Regulation 2 of the Takeover Code.

7. the QIB represents that it was outside the United States at the time the offer of the Equity Shares was made to it and is currently outside the United States;

8. the QIBs shall not undertake any trade in the Equity Shares credited to its beneficiary accounts with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges;

9. the QIBs acknowledge, represent and agree that their total Holding in the paid-up share capital of our Bank, when aggregated together with any existing Holding and/or Holding of any of their “associated enterprises” (as defined under Section 92A of the IT Act), is less than 5.0% of the total paid-up share capital of our Bank, unless they are an existing shareholder already holding 5.0% or more of the underlying paid up share capital of our Bank pursuant to the acknowledgment of the RBI, provided that their Holding does not, without the further acknowledgment of the RBI, exceed the existing Holding after Allotment; and

10. the QIBs understand that as specified by RBI in its letter dated June 27, 2014 and as required in terms of the RBI circular dated April 20, 2010, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, upon completion of the allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply

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with the instructions received from the RBI, in this regard.

QIBs WOULD NEED TO PROVIDE THEIR BENEFICIARY ACCOUNT DETAILS, PERMANANT ACCOUNT NUMBER, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. QIBS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE BENEFICIARY ACCOUNT IS HELD. FOR THIS PURPOSE, ELIGIBLE SUB ACCOUNTS OF AN FII WOULD BE CONSIDERED AS AN INDEPENDENT QIB.

Demographic details such as address and bank account will be obtained from the Depositories as per the Depository Participant account details given above.

The submission of the Application Form by a QIB shall be deemed a valid, binding and irrevocable offer for the QIB to pay the entire Issue Price for its share of Allotment (as indicated by the CAN) and becomes a binding contract on the QIB, upon issuance of the CAN by our Bank in favour of the QIB.

Submission of Application Form

All Application Forms must be duly completed with information including the name of the QIB, the price and the number of Equity Shares applied for. The Application Form shall be submitted to the SGCBRLM and the BRLMs either through electronic form or through physical delivery at the following address:

Name of the Sole Address Contact Person Email Phone (Telephone and Global Fax) Coordinator and the Book Running Lead Manager Edelweiss 14th Floor, Edelweiss House, Dipti Samant/ [email protected] Tel: +91 22 40863535 Financial Services Off CST Road, Kalina, Viral Shah Fax: +91 22 40863610 Limited Mumbai – 400098

Name of Book Address Contact Person Email Phone (Telephone and Running Lead Fax) Manager Ambit Corporate Ambit House, 449 Senapati Sameer Parker [email protected] Tel: +91 22 3043 3152 Finance Private Bapat Marg, Lower Parel, Fax: +91 22 3043 3100 Limited Mumbai - 400 013. Axis Capital 1st Floor, Axis House G. Venkatesh [email protected] Tel: +91 22 4325 4587 Limited C-2 Wadia Fax: +91 22 4325 5599 International Centre P.B. Marg, Worli Mumbai - 400 025 ICICI Securities ICICI Centre, H.T. Payal Kulkarni [email protected] Tel: +91 22 2288 2460 Limited Parekh Marg Fax: +91 22 2282 6580 Churchgate Mumbai - 400 020 Kotak Mahindra 27 BKC, 1st Floor, Plot No. Karl Sahukar [email protected] Tel: +91 22 4336 0000 Capital Company C-27, “G” Block, Bandra Fax: +91 22 6713 2447 Limited Kurla Complex, Bandra (East), Mumbai - 400051 Spark Capital Reflections, New No.2 Meera [email protected] Tel: +91 44 4344 0000 Advisors (India) Leith Castle Center Street Venkatramanan Fax: +91 44 4344 0080/90 Private Limited Santhome High Road Chennai – 600 028

The SGCBRLM and the BRLMs shall not be required to provide any written acknowledgement of the same.

Pricing and Allocation

Build up of the book

The QIBs shall submit their Bids (including any revision thereof) through the Application Forms, within the Bidding Period to the SGCBRLM and the BRLMs.

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Price discovery and allocation

Our Bank, in consultation with the SGCBRLM and the BRLMs, shall determine the Issue Price, which shall be at or above the Floor Price.

After finalisation of the Issue Price, our Bank shall update this Preliminary Placement Document with the Issue details and file the same with the Stock Exchanges as the Placement Document.

Method of Allocation

Our Bank shall determine the Allocation in consultation with the SGCBRLM and the BRLMs on a discretionary basis and in compliance with Chapter VIII of the SEBI Regulations.

All the Application Forms received from the QIBs at or above the Issue Price shall be grouped together to determine the total demand. The Allocation to all such QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10.0% of the Issue Size shall be undertaken subject to valid Bids being received at or above the Issue Price.

THE DECISION OF OUR BANK IN CONSULTATION WITH THE SGCBRLM AND THE BRLMS IN RESPECT OF ALLOCATION SHALL BE BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF THE EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR BANK IN CONSULTATION WITH THE SGCBRLM AND THE BRLMS AND QIBS MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER OUR BANK NOR ANY OF THE SGCBRLM AND THE BRLMS IS OBLIGED TO ASSIGN ANY REASONS FOR SUCH NON-ALLOCATION.

All Application Forms duly completed along with payment and a copy of the PAN card or PAN allotment letter shall be submitted to the SGCBRLM and the BRLMs as per the details provided in the respective CAN.

Number of Allottees

The minimum number of Allottees in the Issue shall not be less than:

(a) two, where the Issue Size is less than or equal to ` 2,500 million; or

(b) five, where the Issue Size is greater than ` 2,500 million.

Provided that no single Allottee shall be Allotted more than 50.0% of the Issue Size.

The QIBs belonging to the same group or those who are under same control shall be deemed to be a single Allottee for the purposes of the Issue. For details of what constitutes “same group” or “common control” please see the sub- section titled “Application Process – Application Form” on page 150.

The Equity Shares will be Allotted within 12 months from the date of the shareholders resolution approving the Issue.

CAN

Based on the Application Forms received, our Bank in consultation with the SGCBRLM and the BRLMs, shall decide the list of QIBs to whom the serially numbered CANs shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the application money payable for Allotment of such Equity Shares by the Pay-In Date in their respective names shall be notified to such QIBs. Additionally, a CAN will include details of the bank account(s) for the electronic transfer of funds, address where the application money needs to be sent, Pay-In Date as well as the probable designated date (“Designated Date”), being the date of credit of the Equity Shares to the QIB’s account, as applicable to the respective QIBs.

The QIBs would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.

The dispatch of the serially numbered Placement Document and the CAN to the QIB shall be deemed a valid,

152 binding and irrevocable contract for the QIB to furnish all details that may be required by the SGCBRLM and the BRLMs and to pay the entire Issue Price for all the Equity Shares Allocated to such QIB.

QIBs ARE ADVISED TO INSTRUCT THEIR DEPOSITORY PARTICIPANT TO ACCEPT THE EQUITY SHARES THAT MAY BE ALLOCATED / ALLOTTED TO THEM PURSUANT TO THE ISSUE.

By submitting the Application Form, the QIB would have deemed to have made the representations and warranties as specified in the section titled “Notice to Investors” on page 1 and further that such QIB shall not undertake any trade on the Equity Shares credited to its Depository Participant account pursuant to the Issue until such time as the final listing and trading approval is issued by BSE and NSE.

Bank Account for Payment of Application Money

Our Bank has opened a special bank account in the name of “CUB – QIP Escrow Account”. The QIB will be required to deposit the entire amount payable for the Equity Shares allocated to it by the Pay-In Date as mentioned in the respective CAN.

If the payment is not made favouring the Escrow Account within the time stipulated in the CAN, the Application Form and the CAN of the QIB are liable to be cancelled.

In case of cancellations or default by the QIBs, our Bank, the SGCBRLM and the BRLMs have the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at their sole and absolute discretion.

Payment Instructions

The payment of application money shall be made by the QIBs in the name of Escrow Account as per the payment instructions provided in the CAN.

QIBs can make payment of the application money only through electronic transfer of funds.

Designated Date and Allotment of Equity Shares

1. The Equity Shares will not be Allotted unless the QIBs pay the application money for the Equity Shares allocated to them calculated at the Issue Price, to the Escrow Account as stated above.

2. In accordance with the SEBI Regulations, Equity Shares will be issued and Allotment shall be made only in the dematerialized form to the Allottees. Allottees will have the option to re-materialize the Equity Shares, if they so desire, as per the provisions of the Companies Act and the Depositories Act.

3. Our Bank, at its sole discretion, reserves the right to cancel the Issue at any time up to Allotment without assigning any reasons whatsoever.

4. Following the Allotment of the Equity Shares pursuant to the Issue, our Bank shall apply to the Stock Exchanges for listing approvals and post receipt of the listing approvals from the Stock Exchanges, our Bank shall credit the Equity Shares into the beneficiary accounts of the QIBs.

5. Following the credit of Equity Shares into the QIBs’ beneficiary accounts, our Bank will apply for the final listing and trading approvals from the Stock Exchanges.

6. In the unlikely event of any delay, in the Allotment or credit of Equity Shares, or receipt of the listing approvals, the final listing and trading approvals of the Stock Exchanges, the post facto approval from the RBI in relation to the Issue or the cancellation of the Issue, no interest or penalty would be payable by our Bank.

7. The monies lying to the credit of the Escrow Account shall not be released until the final listing and trading approvals of the Stock Exchanges for the listing and trading of the Equity Shares issued pursuant to this Issue are received by our Bank.

8. After finalization of the Issue Price, our Bank shall update the Preliminary Placement Document with

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the Issue details and file the same with the Stock Exchanges as the Placement Document. Pursuant to a circular dated March 5, 2010 issued by the SEBI, Stock Exchanges are required to make available on their websites the details of those Allottees in Issue who have been allotted more than 5.0% of the Equity Shares offered in the Issue, viz, the names of the Allottees, and number of Equity Shares Allotted to each of them, pre and post Issue shareholding pattern of our Bank in the format specified in clause 35 of the Listing Agreements along with the Placement Document.

9. Further, as specified by RBI in its letter dated June 27, 2014 and as required in terms of the RBI circular dated April 20, 2010, our Bank shall also apply for a post facto approval from the RBI in respect of this Issue, upon completion of the Allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI in this regard.

10. In the event that we are unable to issue and Allot the Equity Shares offered in the Issue or if the Issue is cancelled within 60 days from the date of receipt of application monies, our Bank shall repay the application monies within 15 days from the expiry of 60 days, failing which our Bank shall repay that monies with interest at the rate of 12% per annum from expiry of the sixtieth day. The application monies to be refunded by us shall be refunded to the same bank account from which application monies was remitted by the QIBs.

Other Instructions

Permanent Account Number or PAN

Each QIB should mention its PAN allotted under the IT Act. Application Forms without this information will be considered incomplete and are liable to be rejected. It is to be specifically noted that applicants should not submit the GIR number instead of the PAN as the Application Form is liable to be rejected on this ground.

Right to Reject Applications

Our Bank, in consultation with the SGCBRLM and the BRLMs, may reject Bids, in part or in full, without assigning any reasons whatsoever. The decision of our Bank and the SGCBRLM and the BRLMs in relation to the rejection of Bids shall be final and binding.

Equity Shares in dematerialized form with NSDL or CDSL

The Allotment of the Equity Shares in this Issue shall be only in dematerialized form (i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through the electronic mode).

1. A QIB applying for Equity Shares must have at least one beneficiary account with a Depository Participant of either NSDL or CDSL prior to making the Bid.

2. The Equity Shares Allotted to a successful QIB will be credited in electronic form directly to the beneficiary account (with the Depository Participant) of the QIB.

3. Equity Shares in electronic form can be traded only on the stock exchanges having electronic connectivity with NSDL and CDSL. The BSE and the NSE have electronic connectivity with CDSL and NSDL.

4. The trading of the Equity Shares would be in dematerialized form only for all QIBs in the demat segment of the respective Stock Exchanges.

5. Our Bank will not be responsible or liable for the delay in the credit of Equity Shares due to errors in the Application Form or otherwise on the part of the QIBs.

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PLACEMENT

The SGCBRLM and the BRLMs have entered into the Placement Agreement, pursuant to which the SGCBRLM and the BRLMs have agreed to place, on a reasonable effort basis, the Equity Shares to QIBs pursuant to the Issue. The Placement Agreement contains customary representations and warranties, as well as indemnities from our Bank and is subject to termination in accordance with the terms contained therein.

The Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States (as defined in Regulation S under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold only outside the United States in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdictions where those offers and sales occur.

Applications shall be made to list the Equity Shares issued pursuant to the Issue and admit them to trading on the Stock Exchanges. No assurance can be given as to the liquidity or sustainability of the trading market for such Equity Shares, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which holders of the Equity Shares will be able to sell their Equity Shares.

This Preliminary Placement Document has not been, and will not be, registered as a prospectus with the RoC, and no Equity Shares will be offered in India or overseas to the public or any members of the public in India or any other class of investors, other than QIBs.

In connection with the Issue, the SGCBRLM and the BRLMs (or their respective affiliates) may, for their own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares at the same time as the offer and sale of the Equity Shares, or in secondary market transactions. As a result of such transactions, the SGCBRLM and the BRLMs may hold long or short positions in such Equity Shares. These transactions may comprise a substantial portion of the Issue, and no specific disclosure will be made of such positions. Affiliates of the SGCBRLM and the BRLMs may purchase Equity Shares and be allocated Equity Shares for proprietary purposes and not with a view to distribution or in connection with the issuance of P-Notes. See the sections titled “Offshore Derivative Instruments” and “Representations by Investors” on pages 8 and 3, respectively.

Lock-up

The Bank undertakes that it will not for a period commencing the date hereof and ending 180 days from the date of Allotment, without the prior written consent of the BRLMs, directly or indirectly: a) offer, sell or announce the intention to sell, pledge, issue, contract to issue, grant any option, right or warrant for the issuance and allotment, or otherwise dispose of or transfer, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to, any Equity Shares or securities convertible into or exchangeable or exercisable for Equity Shares (including any warrants or other rights to subscribe for any Equity Shares), or b) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the economic consequences associated with the ownership of any of the Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares (regardless of whether any of the transactions described in clause (a) or (b) is to be settled by the delivery of Equity Shares or such other securities, in cash or otherwise), or c) deposit Equity Shares with any other depositary in connection with a depositary receipt facility, or d) enter into any transaction (including a transaction involving derivatives) having an economic effect similar to that of a issue, offer, sale or deposit of the Equity Shares in any depository receipt facility; or e) publicly announce any intention to enter into any transaction falling within (a) to (d) above or enter into any transaction falling within (a) to (d) above.

Provided, however, that the foregoing restrictions do not apply to (i) the issuance of any Equity Shares issued pursuant to the Issue; and (ii) issuance of Equity Shares pursuant to the ESOS 2008.

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SELLING RESTRICTIONS

The distribution of this Preliminary Placement Document and the offer, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions. Persons who come into possession of this Preliminary Placement Document are advised to take legal advice with regard to any restrictions that may be applicable to them and to observe such restrictions. This Preliminary Placement Document may not be used for the purpose of an offer or sale in any circumstances in which such offer or sale is not authorized or permitted.

General

No action has been taken or will be taken that would permit a public offering of the Equity Shares to occur in any jurisdiction other than India, or the possession, circulation or distribution of this Preliminary Placement Document or any other material relating to our Bank or the Equity Shares in any jurisdiction where action for such purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Preliminary Placement Document nor any offering materials or advertisements in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Issue will be made in compliance with the applicable laws, including the SEBI Regulations. Each subscriber of the Equity Shares in the Issue will be required to make, or will be deemed to have made, as applicable, the representations, warranties, acknowledgments and agreements as described in the sections titled “Notice to Investors”, “Representations by Investors”, and “Purchaser Representations and Transfer Restrictions” on page 1, 3and 161, respectively.

Bahrain

The Issue is a private placement in Bahrain. Therefore, it is not subject to the regulations of the Central Bank of Bahrain that apply to public offerings of securities, and the extensive disclosure requirements and other protections that these regulations contain. This Preliminary Placement Document is therefore intended only for accredited investors. The financial instruments offered by way of private placement may only be offered in minimum subscriptions of $100,000 (or equivalent in other currencies). The Central Bank of Bahrain assumes no responsibility for the accuracy and completeness of the statements and information contained in this Preliminary Placement Document and expressly disclaims any liability whatsoever for any loss howsoever arising from reliance upon the whole or any part of the contents of this Preliminary Placement Document. To the best of our Bank’s board of directors’ and management’s knowledge and belief, who have taken all reasonable care to ensure that such is the case, the information contained in this Preliminary Placement Document is in accordance with the facts and does not omit anything likely to affect the reliability of such information.

European Economic Area

In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive (each, a “Relevant Member State”), with effect from and including the date on which the Prospectus Directive is or was implemented in that Relevant Member State (the “Relevant Implementation Date”), the Equity Shares may not be offered or sold to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive (defined below) and the 2010 Amending Directive (defined below), except that the Equity Shares, with effect from and including the Relevant Implementation Date, may be offered to the public in that Relevant Member State at any time:

(a) to persons or entities that are “qualified investors” as defined in the Prospectus Directive or, if that Relevant Member State has implemented the 2010 Amending Directive, as defined in the 2010 Amending Directive;

(b) to (i) fewer than 100 natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive); or (ii) if that Relevant Member State has implemented the 2010 Amending Directive, fewer than 150 natural or legal persons (other than “qualified investors” as defined in the 2010 Amending Directive), in each case subject to obtaining the prior consent of the SGCBRLM and the BRLMs; and

(c) in any circumstances falling within Article 3(2) of the Prospectus Directive as amended (to the extent implemented in that Relevant Member State) by Article 1(3) of the 2010 Amending Directive, provided that no such offering of Equity Shares shall result in a requirement for the publication by our Bank or the Book Running

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Managers of a prospectus pursuant to Article 3 of the Prospectus Directive as amended (to the extent implemented in that Relevant Member State) by Article 1(3) of the 2010 Amending Directive.

For the purposes of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State and the expression “2010 Amending Directive” means Directive 2010/73/EU and includes any relevant implementing measure in each Member State.

Neither our Bank nor the SGCBRLM nor the BRLMs has authorised, nor do they authorise, the making of any offer of Equity Shares through any financial intermediary on their behalf, other than offers made by our Bank or the SGCBRLM and the BRLMs.

Hong Kong

The Preliminary Placement Document has not been reviewed or approved by any regulatory authority in Hong Kong. In particular, this Preliminary Placement Document has not been, and will not be, registered as a “prospectus” in Hong Kong under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“CO”) nor has it been authorized by the Securities and Futures Commission (“SFC”) in Hong Kong pursuant to the Securities and Futures Ordinance (Cap 571) (“SFO”). Recipients are advised to exercise caution in relation to the Offer. If recipients are in any doubt about any of the contents of this Preliminary Placement Document, they should obtain independent professional advice.

The Preliminary Placement Document does not constitute an offer or invitation to the public in Hong Kong to acquire any Equity Shares nor an advertisement of the Equity Shares in Hong Kong. The Preliminary Placement Document must not be issued, circulated or distributed in Hong Kong other than:

to “professional investors” within the meaning of the SFO and any rules made under that ordinance (“Professional Investors”); or

in other circumstances which do not result in this Preliminary Placement Document being a prospectus as defined in the CO nor constitute an offer to the public which requires authorization by the SFC under the SFO.

Unless permitted by the securities laws of Hong Kong, no person may issue or have in its possession for issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Equity Shares, which is directed at, or the content of which is likely to be accessed or read by, the public of Hong Kong other than with respect to the Equity Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to Professional Investors.

Any offer of the Equity Shares will be personal to the person to whom relevant offer documents are delivered, and a subscription for the Equity Shares will only be accepted from such person. No person who has received a copy of this Preliminary Placement Document may issue, circulate or distribute this Preliminary Placement Document in Hong Kong or make or give a copy of this Preliminary Placement Document to any other person. No person allotted Equity Shares may sell, or offer to sell, such Shares to the public in Hong Kong within six months following the date of issue of such Equity Shares.

Kuwait

The Issue has not been approved by the Kuwait Central Bank or the Kuwait Ministry of Commerce and Industry, nor has our Bank received authorisation or licensing from the Kuwait Central Bank or the Kuwait Ministry of Commerce and Industry to market or sell the Equity Interests within Kuwait. Therefore, no services relating to the offering, including the receipt of applications and/or the allotment of Equity Shares may be rendered within Kuwait by our Bank or persons representing our Bank.

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Oman

This Preliminary Placement Document and the Equity Shares offered under it are issued and governed by the laws of India.

No offer or marketing of the Equity Shares has been or will be made by our Bank from within the Sultanate of Oman and no subscription for Equity Shares may or will be effected or undertaken within the Sultanate of Oman. Our Bank does not have a presence or representation in the Sultanate of Oman and any purchase of the Equity Shares will be deemed to be made in and under the laws of India.

By receiving this Preliminary Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that this Preliminary Placement Document has not been registered or approved by the Central Bank of Oman, the Oman Ministry of Commerce and Industry, the Oman Capital Market Authority or any other authority in the Sultanate of Oman, and neither our Bank nor the SGCBRLM nor the BRLMs are authorized or licensed by the Central Bank of Oman, the Oman Ministry of Commerce and Industry, the Oman Capital Market Authority or any other authority in the Sultanate of Oman, to market or sell the Equity Shares within the Sultanate of Oman.

The Equity Shares offered under this Preliminary Placement Document have not and will not be listed on any stock exchange in the Sultanate of Oman.

Qatar

This Preliminary Placement Document does not, and is not intended to, constitute an invitation or an offer of securities in the State of Qatar (including the Qatar Financial Centre) and accordingly should not be construed as such. The Equity Shares have not been, and shall not be, offered, sold or delivered at any time, directly or indirectly, in the State of Qatar. Any offering of the Equity Shares shall not constitute a public offer of securities in the State of Qatar.

By receiving this Preliminary Placement Document, the person or entity to whom it has been provided to understands, acknowledges and agrees that: (a) neither this Preliminary Placement Document nor the Equity Shares have been registered, considered, authorised or approved by the Qatar Central Bank, the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or any other authority or agency in the State of Qatar; (b) neither our Bank nor the SGCBRLM nor the BRLMs are authorised or licensed by the Qatar Central Bank, the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority, or any other authority or agency in the State of Qatar, to market or sell the Equity Shares within the State of Qatar; (c) this Preliminary Placement Document may not be provided to any person other than the original recipient and is not for general circulation in the State of Qatar; and (d) no agreement relating to the sale of the Equity Shares shall be consummated within the State of Qatar.

No marketing of the Equity Shares has been or will be made from within the State of Qatar and no subscription to the Equity Shares may or will be consummated within the State of Qatar. Any applications to invest in the Equity Shares shall be received from outside of Qatar. This Preliminary Placement Document shall not form the basis of, or be relied on in connection with, any contract in Qatar. Neither our Bank nor the SGCBRLMs nor the BRLMs are, by distributing this Preliminary Placement Document, advising individuals resident in the State of Qatar as to the appropriateness of investing in or purchasing or selling securities or other financial products. Nothing contained in this Preliminary Placement Document is intended to constitute investment, legal, tax, accounting or other professional advice in, or in respect of, the State of Qatar.

Saudi Arabia

This Preliminary Placement Document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority in the Kingdom of Saudi Arabia.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this Preliminary Placement Document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this Preliminary Placement Document. Prospective purchasers of the Equity Shares offered hereby should conduct their own due diligence on the accuracy of the information relating

158 to the Equity Shares. If you do not understand the contents of this Preliminary Placement Document you should consult an authorised financial adviser.

Singapore

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

Where the Equity Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Equity Shares pursuant to an offer made under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights or interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for a corporation, in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is or will be given for the transfer; or (3) where the transfer is by operation of law.

United Arab Emirates (excluding the Dubai International Financial Centre)

The Equity Shares have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (“U.A.E.”) other than in compliance with the laws of the U.A.E. Prospective investors in the Dubai International Financial Centre should have regard to the specific notice to prospective investors in the Dubai International Financial Centre set out below. The information contained in this Preliminary Placement Document does not constitute a public offer of securities in the U.A.E. in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 of the U.A.E., as amended) or otherwise and is not intended to be a public offer. Our Bank and the Equity Shares have not been approved or licensed by or registered with the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or any other relevant licensing authorities or governmental agencies in the U.A.E. This Preliminary Placement Document has not been approved by or filed with the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or the Dubai Financial Services Authority. This Preliminary Placement Document is being issued to a limited number of selected institutional and sophisticated investors, is not for general circulation in the U.A.E. and may not be provided to any person other than the original recipient or reproduced or used for any other purpose. If you do not understand the contents of this Preliminary Placement Document, you should consult an authorised financial adviser. This Preliminary Placement Document is provided for the benefit of the recipient only, and should not be delivered to, or relied on by, any other person.

Dubai International Financial Centre

This Preliminary Placement Document relates to an exempt offer (an “Exempt Offer”) in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (the “DFSA”). This Preliminary Placement Document is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this Preliminary Placement Document nor taken steps to verify the information set out in it, and has no responsibility for it. The Equity Shares to which this Preliminary Placement Document relates may be illiquid and/or subject to restrictions on their resale.

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Prospective purchasers of the Equity Shares offered in the Issue should conduct their own due diligence on the Equity Shares. If you do not understand the contents of this Preliminary Placement Document, you should consult an authorised financial adviser. For the avoidance of doubt, the Equity Shares are not interests in a ‘‘fund’’ or a ‘‘collective investment scheme’’ within the meaning of either the Collective Investment Law (DIFC Law No. 2 of 2010) or the Collective Investment Rules Module of the Dubai Financial Services Authority Rulebook.

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

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

United States of America

The Equity Shares offered in the Issue have not been and will not be registered under the Securities Act or any state securities laws in the United States and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in accordance with any applicable state securities laws. The Equity Shares are not being offered or sold in the United States in the Issue. The Equity Shares are being offered and sold in the Issue only outside the United States in accordance with Regulation S. To help ensure that the offer and sale of the Equity Shares in the Issue was made in compliance with Regulation S, each purchaser of Equity Shares in the Issue will be deemed to have made the representations, warranties, acknowledgements and undertakings set forth in the section titled “Purchaser Representations and Transfer Restrictions” on page 161.

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PURCHASER REPRESENTATIONS AND TRANSFER RESTRICTIONS

The Equity Shares Allotted in the Issue are not permitted to be sold for a period of one year from the date of Allotment, except on the Stock Exchanges. Due to the following restrictions, investors are advised to consult legal counsel prior to making any resale, pledge or transfer of the Equity Shares, except if the resale of the Equity Shares is by way of a regular sale on the Stock Exchanges.

United States of America

Each purchaser of the Equity Shares, by accepting delivery of this Preliminary Placement Document, will be deemed to:

Represent and warrant to our Bank, the SGCBRLM and the BRLMs and their respective affiliates that the offer and sale of the Equity Shares to it is in compliance with all applicable laws and regulations.

Represent and warrant to our Bank, the SGCBRLM and the BRLMs and their respective affiliates that it was outside the United States (within the meaning of Regulation S) at the time the offer of the Equity Shares was made to it and it was outside the United States (within the meaning of Regulation S) when its buy order for the Equity Shares was originated.

Represent and warrant to our Bank, the SGCBRLM and the BRLMs and their respective affiliates that it did not purchase the Equity Shares as a result of any directed selling efforts (as defined in Regulation S).

Acknowledge that the Equity Shares have not been and will not be registered under the Securities Act or any state securities laws in the United States and warrant to our Bank, the SGCBRLM and the BRLMs and their respective affiliates that it will not offer, sell, pledge or otherwise transfer the Equity Shares except in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S or pursuant to any other available exemption from registration under the Securities Act and in accordance with all applicable securities laws of the States of the United States and any other jurisdiction, including India.

Represent and warrant to our Bank, the SGCBRLM and the BRLMs and their respective affiliates that if it acquired any of the Equity Shares as fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account.

Acknowledge that our Bank, the SGCBRLM and the BRLMs and their respective affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and warranties and warrant to our Bank and the SGCBRLM and the BRLMs that if any such acknowledgements, representations or warranties deemed to have been made by virtue of its purchase of the Equity Shares are no longer accurate, it will promptly notify our Bank and the SGCBRLM and the BRLMs.

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

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THE SECURITIES MARKET OF INDIA

The information in this section has been extracted from documents available on the website of SEBI and the Stock Exchanges and has not been prepared or independently verified by the Bank or the SGCBRLM or the BRLMs or any of their respective affiliates or advisors.

The Indian securities market

India has a long history of organised securities trading. In 1875, the first stock exchange was established in Mumbai.

Stock exchanges regulation

Indian stock exchanges are regulated primarily by SEBI, as well as by the Government acting through the Ministry of Finance, Capital Markets Division, under the SCRA and the SCRR. On June 20, 2012, SEBI, in exercise of its powers under the SCRA and the SEBI Act, notified the SCR (SECC) Rules, which regulate inter alia the recognition, ownership and internal governance of stock exchanges and clearing corporations in India together with providing for minimum capitalisation requirements for stock exchanges. The SCRA, the SCRR and the SCR (SECC) Rules along with various rules, bye-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner, in which contracts are entered into, settled and enforced between members.

The SEBI is empowered to regulate the Indian securities markets, including stock exchanges and intermediaries in the capital markets, promote and monitor self-regulatory organisations and prohibit fraudulent and unfair trade practices. Regulations concerning minimum disclosure requirements by public companies, rules and regulations concerning investor protection, insider trading, substantial acquisitions of shares and takeover of companies, buy-backs of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, credit rating agencies and other capital market participants have been notified by the relevant regulatory authority.

Listing and delisting of securities

The BSE and the NSE together hold a dominant position among the stock exchanges in terms of the number of listed companies, market capitalisation and trading activity. The listing of securities on a recognised Indian stock exchange is regulated by the applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act and various guidelines and regulations issued by the SEBI and the listing agreements of the respective stock exchanges. The governing body of each recognised stock exchange is empowered to suspend trading of or withdraw admission to dealings in a listed security for breach of or non compliance with any conditions or breach of company’s obligations under such listing agreement or for any reason, subject to the issuer receiving prior written notice of the intent of the exchange and upon granting of a hearing in the matter. SEBI also has the power to amend such equity listing agreements and bye-laws of the stock exchanges in India, to overrule a stock exchange’s governing body and withdraw recognition of a recognised stock exchange.

SEBI has notified the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 in relation to the voluntary and compulsory delisting of equity shares from the stock exchanges. In addition, certain amendments to the SCRR have also been notified in relation to delisting.

Minimum level of public shareholding

Pursuant to an amendment of the SCRR in June 2010, all listed companies (except public sector undertakings) are required to maintain a minimum public shareholding of 25% and have been given a period of three years from date of their listing to comply with such requirement.

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Index-based market-wide circuit breaker system

In order to restrict abnormal price volatility in any particular stock, the SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain level of price volatility. The index- based market-wide circuit breaker system (equity and equity derivatives) applies at three stages of the index movement, at 10.00%, 15.00% and 20.00%. These circuit breakers, when triggered, bring about a co-ordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the SENSEX of the BSE or the CNX NIFTY of the NSE, whichever is breached earlier.

In addition to the market-wide index-based circuit breakers, there are currently in place individual scrip-wise price bands of 20.00% movements either up or down. However, no price bands are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available.

The stock exchanges in India can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be paid by the stockbrokers.

BSE

The BSE is one of the stock exchanges in India on which our Equity Shares are listed. Established in 1875, it is the first stock exchange in India to have obtained permanent recognition in 1956 from the Government of India under the SCRA and has evolved over the years into its present status as one of the largest stock exchange in India.

NSE

Our Equity Shares are also listed in India on the NSE. The NSE was established by financial institutions and banks to provide nationwide on-line satellite-linked, screen-based trading facilities to market makers, to provide electronic clearing and settlement for securities including government securities, debentures, public sector bonds and units. Deliveries for trades executed “on-market” are exchanged through the National Securities Clearing Corporation Limited. After recognition as a stock exchange under the SCRA in April 1993, the NSE commenced operations in the wholesale debt market segment in June 1994 and operations in the derivatives segment in June 2000.

Internet-based securities trading and services

Internet trading takes place through order routing systems, which route client orders to exchange trading systems for execution. Stockbrokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated by SEBI. The NSE became the first exchange to grant approval to its members for providing internet-based trading services. Internet trading is possible on both the “equities” as well as the “derivatives” segments of the NSE.

Trading hours

Trading on both the NSE and the BSE occurs from Monday to Friday, between 9:15 a.m. and 3:30 p.m. IST (excluding the 15 minutes pre-open session from 9:00 a.m. to 9:15 a.m. that has been introduced recently). The BSE and the NSE are closed on public holidays. The recognised stock exchanges have been permitted to set their own trading hours (in the cash and derivatives segments) subject to the condition that (i) the trading hours are between 9.00 a.m. and 5.00 p.m.; and (ii) the stock exchange has in place a risk management system and infrastructure commensurate to the trading hours.

Trading Procedure

In order to facilitate smooth transactions, the BSE replaced its open outcry system with BSE On-line Trading facility in 1995. This totally automated screen based trading in securities was put into practice nation-wide. This has enhanced transparency in dealings and has assisted considerably in smoothening settlement cycles and improving efficiency in back-office work.

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NSE has introduced a fully automated trading system called NEAT, which operates on strict time/price priority besides enabling efficient trade. NEAT has provided depth in the market by enabling large number of members all over India to trade simultaneously, narrowing the spreads.

Takeover Regulations

Disclosure and mandatory bid obligations for listed Indian companies are governed by the Takeover Regulations which provide specific regulations in relation to substantial acquisition of shares and takeover. Once the equity shares of a company are listed on a stock exchange in India, the provisions of the Takeover Regulations will apply to any acquisition of the company’s shares/voting rights/control. The Takeover Regulations prescribe certain thresholds or trigger points in the shareholding a person or entity has in the listed Indian company, which give rise to certain obligations on part of the acquirer. Acquisitions up to a certain threshold prescribed under the Takeover Regulations mandate specific disclosure requirements, while acquisitions crossing particular thresholds may result in the acquirer having to make an open offer of the shares of the target company. The Takeover Regulations also provide for the possibility of indirect acquisitions, imposing specific obligations on the acquirer in case of such indirect acquisition.

Insider Trading Regulations

The SEBI Insider Trading Regulations have been notified to prohibit and penalise insider trading in India. An insider is, among other things, prohibited from dealing in the securities of a listed company when in possession of unpublished price sensitive information.

The SEBI Insider Trading Regulations also provide disclosure obligations for shareholders holding more than a pre-defined percentage, and directors and officers, with respect to their shareholding in the company, and the changes therein. The definition of “insider” includes any person who has received or has had access to unpublished price sensitive information in relation to securities of a company or any person reasonably expected to have access to unpublished price sensitive information in relation to securities of a company and who is or was connected with the company or is deemed to have been connected with the company.

Depositories

The Depositories Act provides a legal framework for the establishment of depositories to record ownership details and effect transfer in book-entry form. Further, SEBI framed regulations in relation to the registration of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, companies and beneficial owners. The depository system has significantly improved the operation of the Indian securities markets.

Derivatives (Futures and Options)

Trading in derivatives is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended in February 2000 and derivatives contracts were included within the term “securities”, as defined by the SCRA. Trading in derivatives in India takes place either on separate and independent derivatives exchanges or on a separate segment of an existing stock exchange. The derivatives exchange or derivatives segment of a stock exchange functions as a self-regulatory organisation under the supervision of the SEBI.

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DESCRIPTION OF THE SHARES

Set forth below is certain information relating to the share capital of our Bank, including a brief summary of some of the provisions of the Memorandum and Articles of Association, the Companies Act, the Banking Regulation Act and certain related legislation of India, all as currently in effect. Prospective investors are urged to read the Memorandum and Articles of Association carefully, and consult with their advisers, as the Memorandum and Articles of Association and applicable Indian law, and not this summary, govern the rights attached to the Equity Shares.

General

Our Bank’s authorized share capital is ` 1,000 million divided into 1,000,000,000 Equity Shares. As of June 30, 2014, our Bank’s issued, subscribed and paid up capital totals ` 542.74 million divided into 542,740,263 fully paid up Equity Shares.

Dividend

Under Indian law, a company pays dividends upon a recommendation by its board of directors and approval by a majority of the shareholders at the AGM held each fiscal year. Under the Companies Act, unless the board of directors of a company recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions laid down by Section 123 of the Companies Act, 2013, no dividend can be declared or paid by a company for any fiscal year except out of the profits of the company for that year, calculated in accordance with the provisions of the Companies Act or out of the profits of the company for any previous fiscal year(s) arrived at as laid down by the Companies Act. Under our Articles of Association, our shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by our Board. The Directors shall also maintain a reserve fund and shall transfer into it, a sum not less than 20% of the profits of each year or any other sum as determined under the Banking Regulation Act. Under the listing agreements with the Stock Exchanges, listed companies are required to declare and disclose their dividends only on a per share basis.

Capitalization of Reserves

In addition to permitting dividends to be paid as described above, the Companies Act permits the board of directors, if so approved by the shareholders in a general meeting, to distribute an amount transferred in the free reserves, the securities premium account or the capital redemption reserve account to its shareholders, in the form of fully paid up bonus equity shares, which are similar to stock dividend. These bonus equity shares must be distributed to shareholders in proportion to the number of equity shares owned by them as recommended by the board of directors. No issue of bonus shares may be made by capitalising reserves created by revaluation of assets. Further, any issue of bonus shares would be subject to SEBI Regulations.

The Articles of Association permit upon the resolution of the Board, to resolve in certain circumstances, certain amounts standing to the credit of certain reserves or to the profit and loss account or otherwise available for distribution amongst the member, towards inter alia paying up any amounts unpaid on any shares held by such members. A share premium account may only be applied in the paying up of unissued shares to be issued to members of the Bank as fully paid bonus shares. Any issue of bonus shares by a listed company would be subject to the SEBI Regulations.

Pre-emptive Rights and Alteration of Share Capital

Subject to the provisions of the Companies Act, we can increase our share capital by issuing new shares. According to Section 62 of the Companies Act, 2013 such new shares shall be offered to existing shareholders in proportion to the amount paid up on those shares at that date. The offer shall be made by notice specifying the number of shares offered and the date (being not less than 15 days and not exceeding 30 days from the date of the offer) within which the offer, if not accepted, will be deemed to have been declined. After such date, the Board may dispose of the shares offered in respect of which no acceptance has been received in such manner as they think most beneficial to us. The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to him in favour of any other person subject to the provisions of FEMA 20, if applicable.

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Under the provisions of Section 62(1)(c) of the Companies Act, 2013, new shares may be offered to any persons whether or not those persons include existing shareholders, either for cash of for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to condition prescribed under the Companies (Share Capital and Debentures) Rules, 2014, if a special resolution to that effect is passed by the Bank’s shareholders in a general meeting.

The Articles of Association provide that we may consolidate or sub-divide our share capital, or cancel shares which have not been taken up by any person.

General Meetings of Shareholders

We must hold our annual general meeting each year within fifteen months of the previous annual general meeting. The Registrar of Companies may extend this period for not more than three months, in special circumstances at our request. The Board may convene an extraordinary general meeting of shareholders when necessary and shall convene such a meeting at the request of a shareholder or shareholders holding in the aggregate not less than 10.0% of our issued paid up capital. Written notices convening a meeting setting out the date and place of the meeting and its agenda must be given to members at least 21 clear days prior to the date of the proposed meeting and where any special business is to be transacted at the meeting, an explanatory statement must be annexed to the notice as required under the Companies Act. A general meeting may be called after giving shorter notice if consent is received from all shareholders in the case of an annual general meeting and from shareholders holding not less than 95.0% of our paid up capital in the case of any other general meeting. The quorum requirements applicable to shareholder meetings under the Companies Act have to be physically complied with.

Any listed public company intending to pass a resolution relating to matters such as, but not limited to, amendment in the objects clause of the memorandum, the issuing of shares with different voting or dividend rights, a variation of the rights attached to a class of shares or debentures or other securities, buy-back of shares, giving loans or extending guarantees in excess of limits prescribed is required to pass the resolution by means of a postal ballot instead of transacting the business in the general meeting of the company.

Voting Rights

At a general meeting upon a show of hands, every member holding shares, entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy are in the same proportion to such shareholder’s share of our paid up equity capital, subject to the limits prescribed under the Banking Regulations Act.

Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require that the votes cast in favour of the resolution must be at least three times the votes cast against the resolution. A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association. The instrument appointing a proxy is required to be lodged with us at least 48 hours before the time of the meeting. A proxy may not vote except on a poll and does not have the right to speak at meetings.

Section 12 of the Banking Regulation Act prohibits any person holding shares in a bank from exercising voting rights in excess of 10.0% of the total voting rights of all shareholders of any bank, irrespective of the number of shares held by such person.

We are obliged to maintain a register of shareholders at our Registered Office. We recognize as shareholders only those persons whose names appear on the register of shareholders and cannot recognize any person holding any share or part of it upon any express, implied or constructive trust, except as permitted by law. In the case of shares held in physical form, transfers of shares are registered on the register of shareholders upon lodgment of the share transfer form duly complete in all respects accompanied by a share certificate or, if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, the name of the depository is entered into our records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares held by a depository.

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Transfer of Shares

Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with applicable SEBI regulations. These regulations provide the regime for the functioning of the depositories and their participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depository are exempt from stamp duty. We have entered into an agreement for such depository services with the National Securities Depository Limited and the Central Depository Services India Limited. SEBI requires that our shares for trading and settlement purposes be in book-entry form for all investors, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange. We shall keep a book in which every transfer or transmission of shares will be entered.

Pursuant to the Listing Agreements, in the event that a transfer of shares is not effected within one month or where we have failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, we are required to compensate the aggrieved party for the opportunity loss caused by the delay. Any transfer of Equity Shares, which would take the holding of a person or a group to more than 5.0% of our issued capital shall be not permitted without the prior approval of the RBI.

Liquidation Rights

Subject to the rights of creditors and employees in the event of our winding up, the holders of the Equity Shares are entitled to be repaid the amounts of capital paid up or credited as paid up on such shares. All surplus assets after payments due to employees and other creditors belong to the holders of the Equity Shares in proportion to the amount paid up or credited as paid up on such shares respectively, at the commencement of the winding up.

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STATEMENT OF TAX BENEFITS

To,

The Board of Directors City Union Bank Limited No.149, TSR Big Street Kumbakonam 612 001 Tamil Nadu

Sub: Proposed qualified institutions placement (“Issue”) of equity shares of face value of Re. 1 each (“Equity Shares”) of City Union Bank Limited (the “Bank”) under Chapter VIII of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (“SEBI ICDR Regulations”) and the Section 42 of the Companies Act, 2013.

Dear Sirs,

We hereby certify that the enclosed annexure details all material tax benefits/consequences as relevant and applicable under the provisions of Indian laws, including the Income Tax Act, 1961, as amended, other direct and indirect tax laws presently in force in India, to qualified institutional buyers (“QIBs”) investing in the Equity Shares of the Bank pursuant to the Issue.

Several of these tax benefits/consequences are dependent on the Bank or the QIBs fulfilling the conditions prescribed under the relevant tax laws. Hence, the ability of the Bank or the QIBs to derive tax benefits is dependent upon fulfillment of such conditions, which based on business imperatives the Bank faces in the future, the Bank may or may not choose to fulfill.

The enclosed annexure is only intended to provide general information to the QIBs and is neither designed nor intended to be a substitute for professional tax advice. A potential investor is advised to consult their own tax consultant with respect to the tax implications of an investment in the Equity Shares particularly in view of the fact that certain recently enacted legislation may not have a direct legal precedent or may have a different interpretation on the benefits, which an investor can avail.

The enclosed annexure is intended solely for your information and for inclusion in the preliminary placement document and the placement document in connection with the proposed Issue and is not to be used, referred to or distributed for any other purpose without our prior written consent.

For M/S.P.CHANDRASEKAR Chartered Accountants

LAKSHMY.C Membership No.: 28508 Firm Registration No.:00580S Date: 03/07/2014 Partner

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STATEMENT OF TAX BENEFITS AVAILABLE TO THE SHAREHOLDERS OF CITY UNION BANK LIMITED, UNDER THE INCOME TAX ACT, 1961, AS AMENDED BY FINANCE ACT, 2013, AND OTHER DIRECT TAX LAWS.

1. This statement sets out below the possible tax benefits available to our shareholders under the Income Tax Act, 1961 as amended by the Finance Act,2013 (referred to as IT Act) presently in force in India, subject to the fulfillment of the relevant conditions

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

3. In respect of non-residents, the tax rates and the consequent taxation, mentioned in this section shall be further subject to any benefits available under the Double Taxation Avoidance Agreement, if any, between India and the country in which the non-resident has fiscal domicile; and

4. The under-mentioned tax benefits will be available only to the sole/first-named holder in case the Equity Shares are held by joint shareholders.

I. Resident Shareholders

Dividend Distribution Tax:

1. Dividend distribution tax currently at the rate of 16.995% (including applicable surcharge and education cess) on the total amount distributed or declared or paid as dividend is to be paid. Under Section 10(34) of the IT Act, income by way of dividends referred to in Section 115-O of IT Act received on shares is exempt from income tax in the hands of shareholders. Section 14A of the IT Act restricts claims for deduction of expenses incurred in relation to exempt income. Thus, any expense incurred to earn the dividend income is not allowable expenditure. 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.

Securities Transaction Tax:

2. Under Section 10(38) of the IT Act, Long Term Capital Gains arising to a shareholder on transfer of equity shares would be exempt from tax where the sale transaction has been entered into on a recognised stock exchange of India and is chargeable to Securities Transaction Tax

3. In terms of Section 36(xv) of the Act, the Securities Transaction Tax paid by the shareholder in respect of the taxable securities transactions entered into in the course of his business of transactions/trading in shares would be eligible for deduction from the amount of income chargeable under the head “Profit and gains of business or profession”. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains of such amount paid on account of Securities Transaction Tax

Capital Gains Tax:

4. Section 48 of the IT Act, provides for deduction of cost of acquisition/improvement and expenses incurred wholly and exclusively in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. In respect of Long Term Capital Gains, i.e. gains from shares held for a period exceeding twelve months, from transfer of shares of an Indian company, the second proviso to Section 48 of the IT Act, permits substitution of cost of acquisition/improvement with the indexed cost of acquisition/improvement, which adjusts the cost of acquisition/improvement by a cost inflation index, as prescribed from time to time.

5. Under Section 112 of the IT Act and other relevant provisions of the IT Act, Long Term Capital Gains, (other than those exempt under Section 10(38) of the IT Act) arising on transfer of shares would be subject to tax at the rate of 20.00% (plus applicable surcharge and education cess) after indexation. The amount of such tax shall, however, be limited to 10.00% (plus applicable surcharge and education cess) without indexation, at the option of the shareholder in case the shares are listed.

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6. Under Section 54EC of the IT Act and subject to the conditions and to the extent specified therein, Long Term Capital Gain (other than those exempt under Section 10(38) of the IT Act) arising on the transfer of our shares would be exempt from tax if such capital gain is invested within 6 months after the date of such transfer in the bonds (long term specified assets) issued by:

(a) National Highway Authority of India constituted under Section 3 of The National Highway Authority of India Act, 1988;

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

The investment in the long term specified assets is eligible for such deduction to the extent of ` 5 million during any financial year.

If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years from the date of its acquisition, the amount so exempted shall be chargeable to tax during the year of such transfer or conversion. For this purpose, if any loans or advance is taken as against such specified securities, than such person shall be deemed to have converted such specified securities into money. The cost of the long term specified assets, which has been considered under this Section for calculating capital gain, shall not be allowed as a deduction from the income-tax under Section 80C and section 88 of the IT Act for any assessment year beginning on or after 1 April 2006.

7. As per Section 111A of the IT Act, Short Term Capital Gains , i.e., gains from shares held for a period not exceeding twelve months) arising on transfer of our equity share would be taxable at a rate of 15% (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognised stock exchange in India and is liable to Securities Transaction Tax. Short Term Capital Gains arising from transfer of our shares, other than those covered by Section 111A of the IT Act, would be subject to tax as calculated under the normal provisions of the IT Act.

8. As per Section 74 of the IT Act, Short Term Capital Loss computed for the given year is allowed to be set off against Short Term as well as Long Term Gains computed for the said year. The balance loss, which is not set off, is allowed to be carried forward for subsequent eight assessment years for being set off against subsequent years’ Short Term as well as Long Term Gains. However, the long term capital loss computed for a given year is allowed to be set off only against the Long Term Capital Gains. The balance loss, which is not set off, is allowed to be carried forward for subsequent eight assessment years for being set off against subsequent years’ Long Term Capital Gains.

II. Non resident shareholders other than Foreign Institutional Investor (“FII”s), and Foreign Venture Capital Investors (“FVCI”)

Dividend Distribution Tax:

Capital Gains Tax:

170 provided from fluctuations in the value of rupee in terms of foreign currency in which the original investment was made. However Indexation of Cost benefits will not be available in such cases. The capital gains/loss in such a case is computed by converting the cost of acquisition, sales consideration and expenditure incurred wholly and exclusively in connection with such transfer into the same foreign currency which was utilised in the purchase of the shares.

4. Under Section 10(38) of the IT Act, Long Term Capital Gains arising to a shareholder, being a non-resident, on sale of equity shares would be exempt from tax where the sale transaction has been entered into on a recognised stock exchange of India and is chargeable to Securites Transaction Tax.

5. Under Section 112 of the IT Act and other relevant provisions of the IT Act, Long Term Capital Gains, (other than those exempt under Section 10(38) of the IT Act) arising on transfer of shares would be subject to tax at a rate of 20% (plus applicable surcharge and education cess) after indexation. The amount of such tax should however be limited to 10.00% (plus applicable surcharge and education cess) without indexation, at the option of the shareholder, in such cases where the shares are listed.

6. Under Section 54EC of the IT Act and subject to the conditions and to the extent specified therein, Long Term Capital Gains (other than those exempt under Section 10(38) of the IT Act) arising on the transfer of our shares would be exempt from tax if such capital gain is invested within 6 months after the date of such transfer in the bonds (long term specified assets) issued by: (i) National Highway Authority of India constituted under Section 3 of the National Highway Authority of India Act, 1988;

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

The investment in the long term specified assets is eligible for such deduction to the extent of ` 5 million during any financial year. If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years from the date of its acquisition, the amount so exempted shall be chargeable to tax during the year such transfer or conversion. For this purpose, if any loans or advance is taken as against such specified securities, than such person shall be deemed to have converted such specified securities into money. The cost of the long term specified assets, which has been considered under this Section for calculating capital gain, shall not be allowed as a deduction from the income-tax under Section 80C and section 88 of the IT Act for any assessment year beginning on or after 1 April 2006.

7. Under Section 111A of the IT Act and other relevant provisions of the IT Act, Short Term Capital Gains(shares are held for a period not exceeding 12 months) arising on transfer of equity share would be taxable at a rate of 15% (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognised stock exchange in India and is chargeable to SECURITIES TRANSACTION TAX. STCG arising from transfer of our shares, other than those covered by Section 111A of the IT Act, would be subject to tax as calculated under the normal provisions of the IT Act.

8. As per Section 74 of the IT Act, Short Term Capital Loss computed for the given year is allowed to be set off against Short Term as well as Long Term Gains computed for the said year. The balance loss, which is not set off, is allowed to be carried forward for subsequent eight assessment years for being set off against subsequent years’ Short Term as well as Long Term Gains. However, the Long Term capital Loss computed for a given year is allowed to be set off only against the Long Term Capital Gains. The balance loss, which is not set off, is allowed to be carried forward for subsequent eight assessment years for being set off against subsequent years’ Long Term Capital Gains.

9. Where shares have been subscribed in convertible foreign exchange, Non Resident Indians, i.e. an individual being a citizen of India or person of Indian origin who is not a resident, (“NRI”) have the option of being governed by the provisions of Chapter XII-A of the IT Act, which inter alia entitles them to the following benefits:

(i) Under section 115E of the IT Act, where the total income of a NRI includes any income from investments or income from capital gain of an asset other than a specified asset such income shall be taxable at 20 % (plus applicable surcharge and education cess). Also, where share of the company are subscribed to in convertible

171 foreign exchange by a NRI the Long Term Capital Gains arising to the NRI shall be taxable at the rate of 10 % (plus applicable surcharge and education cess). The benefit of indexation of cost would not be available.

(ii) Under Section 115F of the IT Act, Long Term Capital Gains (in cases not covered under Section 10(38) of the IT Act) arising to an NRI from the transfer of our shares subscribed to in convertible foreign exchange shall be exempt from Income tax, if the net consideration is reinvested in specified assets or in any savings certificates referred to in Section 10(4B), 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 IT Act, it shall not be necessary for an NRI to furnish his return of income under Section 139(1) of the IT Act if his income chargeable under the Act consists of only investment income or Long Term Capital Gains or both; arising out of assets acquired, purchased or subscribed in convertible foreign exchange and tax deductible at source has been deducted there from as per the provisions of Chapter XVII-B of the IT Act.

(iv) In accordance with the provisions of Section 115H of the Act, where an NRI become assessable as a resident in India, he/she may furnish a declaration in writing to the assessing officer along with his/her return of income for that year under Section 139 of the IT Act to the effect that the provisions of Chapter XII-A of the IT Act shall continue to apply to them in relation to such investment income derived from the specified assets (which do not include shares in an Indian company) for that year and subsequent assessment years until such assets are converted into money.

(v) As per provisions of Section 115-I of the IT Act, an NRI may elect not to be governed by provisions of Chapter XII-A and compute his total income as per other provisions of the IT Act.

10. In terms of Section 36(xv) of the IT Act, the Securities Transaction Tax paid by the shareholder in respect of the taxable securities transactions entered into in the course of his business of transactions/trading in shares would be eligible for deduction from the amount of income chargeable under the head “Profit and gains of business or profession” arising from taxable securities transactions. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains, such amount paid on account of Securities Transaction Tax.

11. In respect of non-residents, the tax rates and consequent taxation mentioned above will be further subject to any benefits available under the Double Taxation Avoidance Agreement (the “DTAA”) between India and the country of residence of the non-resident/NRI. As per Section 90(2) of the IT Act, provisions of the DTAA would prevail over the provisions of the IT Act to the extent they are more beneficial to the non-resident/NRI.

III. Non-resident shareholders – FIIs

1. We are required to pay a dividend distribution tax currently at the rate of 16.995% (including applicable surcharge and education cess) on the total amount distributed or declared or paid as dividend. Under Section 10(34) of the IT Act, income by way of dividends referred to in Section 115-O received on our shares is exempt from income tax in the hands of shareholders. However it is pertinent to note that Section 14A of the IT Act restricts claims for deduction of expenses incurred in relation to exempt income. Thus, any expense incurred to earn the dividend income is not allowable expenditure. 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. The characterisation of gains/losses, arising from sale of shares, as Capital Gains or Business Income would depend on the nature of holding in the hands of the shareholder and various other factors.

3. Under the first proviso to Section 48 of the IT Act, in case of a non resident shareholder, in computing the capital gains arising from transfer of shares of the company acquired in convertible foreign exchange (as per exchange control regulations), protection is provided from fluctuations in the value of rupee in terms of foreign currency in which the original investment was made. Cost indexation benefits will not be available in such a case. The capital gains/loss in such a case is computed by converting the cost of acquisition, sales consideration and expenditure incurred wholly and exclusively in connection with such transfer into the same foreign currency which was utilised in the purchase of the shares.

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4. Under Section 10(38) of the IT Act, Long Term Capital Gains arising to a shareholder on transfer of equity shares would be exempt from tax where the sale transaction has been entered into on a recognised stock exchange of India and is liable to Securities Transaction Tax.

5. Under Section 54EC of the IT Act and subject to the conditions and to the extent specified therein, Long Term Capital Gains (other than those exempt under Section 10(38) of the IT Act) arising on the transfer of our shares would be exempt from tax if such capital gain is invested within six months after the date of such transfer in the bonds (long term specified assets) issued by:

(i) National Highway Authority of India constituted under Section 3 of the National Highway Authority of India Act, 1988;

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

6. Under Section 115AD (1)(ii) of the IT Act STCG arising to an FII on transfer of shares shall be chargeable at a rate of 30%. Where such transactions are not subjected to Securities Transaction Tax, and at the rate of 15% if such transaction of sale is entered on a recognised stock exchange in India and is chargeable to Securities Transaction Tax. The above rates are to be increased by applicable surcharge and education cess.

Under Section 115AD (1)(iii) of the IT Act income by way of Long Term Capital Gains arising from the transfer of shares (in cases not covered under Section 10(38) of the IT Act) held in the company will be taxable at the rate of 10.00% (plus applicable surcharge and education cess). The benefits of indexation of cost and foreign currency fluctuations are not available to FIIs.

7. As per section 90(2) of the IT Act, the provisions of the IT Act would prevail over the provisions of the DTAA entered between India and the country of fiscal 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. However, the non resident investor will have to furnish a certificate of his being a resident in a country outside India, to get the benefit of the applicable DTAA and such other document as may be prescribed as per the provision of section 90(4) of IT Act.

Effective from 1 April 2013, the benefit of the DTAA will not be available to a non resident investor if the Tax department declares that any arrangement to be an impermissible arrangement.

8. In terms of Section 36(xv) of the IT Act, the Securities Transaction Tax paid by the shareholder in respect of the taxable securities transactions entered into in the course of his business of transactions/trading in shares would be eligible for deduction from the amount of income chargeable under the head “Profit and gains of business or profession” arising from taxable securities transactions. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains, such amount paid on account of Securities Transaction Tax.

10. As per Section 196D of IT Act, no tax is to be deducted from any income, by way of Capital Gains arising to an FII from the transfer of securities referred to in section 115AD of the IT Act.

IV. VENTURE CAPITAL COMPANIES/FUNDS

Under Section 10(23FB) of the IT Act, any income of Venture Capital Company registered with SEBI or Venture capital Fund registered under the provision of the Registration Act, 1908 (set up to raise funds for investment in venture capital undertaking notified in this behalf), would be exempt from income tax, subject to

173 conditions specified therein. As per Section 115U of the IT Act, any income derived by a person from his investment in Venture Capital Company/Venture Capital Fund would be taxable in the hands of the person making an investment in the same manner as if it were the income received by such person had the investments been made directly in the venture capital undertaking.

V. MUTUAL FUNDS

Under Section 10(23D) of the IT Act, any income of mutual funds registered under SEBI or mutual funds set up by public sector banks or public financial institutions or authorised by the RBI and subject to the conditions specified therein, is exempt from tax subject to such conditions as the Central Government may by notification in the Official Gazette, specify in this behalf.

VI. Provident Fund and Pension Fund

Under section 10(25) of the Act, any income received by trustees on behalf of a recognised provident fund and a recognised superannuation fund is exempt from tax.

VII. MULTI-LATERAL AND BILATERAL DEVELOPMENT FINANCIAL INSTITUTIONS:

Multilateral and bilateral development financial institutions (namely World Bank, IBRD,IFC etc..) may be exempt from taxation in India on the capital gains arising on the sale of shares of the bank depending on the applicable Statute and Acts passed in India. In case they are not specifically exempt from tax then the provisions as applicable for capital gains to a non-resident FII as they should be registered as FII should apply to these institutions.

VIII. WEALTH TAX ACT, 1957

Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth Tax Act, 1957 and accordingly, the bank’s equity are not liable to Wealth-tax in the hands of the shareholders.

IX. GIFT TAX ACT, 1958

Gift tax is not leviable in respect of any gift made on or after 1 October 1998. Therefore any gift of share of a company will not attract gift tax.

X. TAX DEDUCTION AT SOURCE

Income tax is NOT deductible at source from income by way of capital gains arising to a resident shareholder under the present provisions of the IT Act. However, as per the provisions of Section 195 of the IT Act, any income by way of capital gains payable to non residents (other than Long Term Capital Gains exempt u/s 10(38)) may be subject to withholding of tax at the rate under the domestic tax laws or under the tax laws or under the DTAA, whichever is beneficial to the assessee unless a lower withholding tax certificate is obtained from the tax authorities. Non resident investor may have to furnish a certificate of his being a resident in a country outside India, to get the benefit of the applicable DTAA and such other document as may be prescribed as per the provision of section 90(4) of IT Act. The withholding tax rates are subject to the recipients of income obtaining and furnishing a permanent account number (PAN) to the payer, in the absence of which the applicable withholding tax rate would be the higher of the applicable rates or 20%, under section 206AA of the Act.

Notes: All the above benefits are as per the current tax law and will be available only to the sole/first names holder incase the shares are held by joint holders.

In view of the individual nature of tax consequences, each investor is advised to consult their own tax advisor with respect to specific tax consequences of his/her participation in the scheme.

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

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LIMITATIONS

Our views expressed herein are based on the facts and assumptions indicated above. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes.

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LEGAL PROCEEDINGS

Except as described below, our Bank is not involved in any material legal proceedings, no proceedings are threatened, and no notices have being issued by any regulatory or governmental authority, which may have, a material adverse effect on the business, properties, financial condition or operations of our Bank. Our Bank has no outstanding defaults in relation to statutory dues payable, dues payable to holders of any debentures and interest thereon, and in respect of deposits and interest thereon, defaults in repayment of loans from any bank or financial institution.

We have, from time to time, been involved in litigation proceedings that are incidental to our banking operations and involve suits filed by and against us by various parties. These include, inter alia, recovery proceedings initiated by us in respect of advances made pending before civil courts or the debt recovery tribunals, as the case may be; criminal cases filed by us in cases of dishonor of cheques or fraud cases; claims against our Bank in relation to loss of cheques deposited for collection, wrongful dishonor of cheques and taxation related proceedings.

In view of our Bank, all outstanding civil, labour, consumer and tax related litigation and disputes of value of ` 50 million and above are material to our Bank. Given below is the description of all material litigation.

Cases filed against our Bank

Criminal cases

There are no criminal cases pending against our Bank.

Notices received from SEBI

1. Our Bank had received a notice (No. PMD/MBD/AK/1462/98) dated March 24, 1998 from SEBI to show cause as to why the merchant banking license of our Bank should not be suspended for the remaining period of registration for violation of the Merchant Banking Rules and Merchant Banking Regulations in respect of alleged non fulfillment of underwriting or devolvement obligations in the public issue by BSM Knit Fab India Limited. The notice was issued pursuant to an order of SEBI dated May 21, 1997 directing that an enquiry be conducted on our Bank and the subsequent report of the enquiry officer dated March 18, 1998 recommending suspension of our Bank’s registration to act as a merchant banker for a period of six months. Our Bank by a letter dated April 16, 1998 replied to the show cause notice and also sought a personal hearing to make submissions. Our Bank has not received any further communication from SEBI in this regard.

2. Our Bank has received a letter dated March 12, 2004 from SEBI seeking information in relation to compliance with the provisions of the erstwhile Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Our Bank sent a reply dated April 15, 2004 providing the information. Thereafter, our Bank received a notice (CFD/DCR/RC/TO/23040/04) dated November 16, 2004 from SEBI alleging violation of Regulations 6 and 8(3) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The notice provided for an option to our Bank to settle the charges through consent upon payment of ` 1,00,000. Our Bank by a letter dated December 15, 2004 agreed to pay ` 1,00,000 as payment towards consent for the alleged violations. However, our Bank has not received any further communication from SEBI in this regard.

Income tax matters

Assessment year 1998-1999

1. Our Bank received an assessment order dated February 26, 2001 whereby the assessing officer disallowed certain deductions claimed by our Bank, including, inter alia, on interest paid on purchase of securities, provisioning for bad debt, proportionate expenses on interest earned on tax free bonds, proportionate expenses on dividends, payment to SEBI, expenses of public issue and excess depreciation aggregating to ` 7.50 million. The assessing officer has further issued a notice of demand dated March 2, 2001 for ` 16.40 million as tax payable. Our Bank filed an appeal (being appeal number ITA 44/01-02) before the Commissioner of Income Tax (Appeals) (“CIT (A)”), Trichy challenging the order dated February 26, 2001 which was partly allowed by the CIT (A), Trichy on December 20, 2013. The CIT(A), Trichy vide

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the order dated December 20, 2013 directed the assessing officer to recalculate the amount of depreciation claimed. The income tax department filed an appeal (being appeal no. 960 of 2014) against the order dated December 20, 2013. The matter is currently pending.

2. The assessment of the return of income filed by our Bank for the assessment year 1998-1999 was reopened through a notice dated February 27, 2002. Thereafter the assessing officer issued a notice of demand dated February 27, 2002 for ` 24.80 million as tax payable. The assessing officer through an order dated March 26, 2003 disallowed certain deductions claimed by our Bank, including, inter alia, on writing off non rural debts. Our Bank filed an appeal (being appeal number 158/2003-04) before the CIT (A), Trichy, which through an order dated March 31, 2011 allowed the appeal in relation to, inter alia, deletion of additions of broken period interest, amount of bad debts and loss on the sale of securities and confirmed the appeal in relation to certain other grounds. Thereafter, our Bank and the income tax department filed separate appeals (being appeal numbers I.T.A No. 1087/Mds/2011and I.T.A. No. 1115/Mds/2011, respectively) before the Income Tax Appellate Tribunal, Chennai (“ITAT Chennai”), which was disposed off through a common order dated November 22, 2011 with a direction to the CIT (A), Trichy to deal with each issue afresh. The CIT (A), Trichy passed an order on December 20, 2013 allowing the appeal of our Bank on the ground that the matter could not be re-opened as it was beyond the period of limitation prescribed under the IT Act and directing the assessing officer to verify whether the notice for re-assessment was issued within the prescribed time fame. Our Bank filed an appeal (being appeal number 846 of 2014) before the ITAT Chennai against the order dated December 20, 2013.

The assessing officer passed an order on February 10, 2014 upholding the validity of the notice issued for re-assessment. Our Bank filed an appeal (being appeal number 340 of 2014) before the CIT (A), Trichy. The matters are currently pending.

Assessment year 1999-2000

Our Bank received an assessment order dated March 26, 2002 whereby the assessing officer disallowed certain deductions claimed by our Bank, including, inter alia, on writing off non rural bad debts, depreciation on investments, deductions of provisioning made for bad and doubtful debts in computing taxable income under section 36(1)(viia) of IT Act and broken period interest aggregating to ` 146.70 million. Thereafter, the assessing officer issued a notice of demand dated March 26, 2002 for ` 71.80 million as tax payable. Our Bank has filed an appeal, being appeal number ITA 109/02-03, before the CIT (A), Trichy on April 19, 2002 which was allowed by the CIT (A), Trichy on December 20, 2013. The income tax department is filed an appeal (being appeal no. 961 of 2014) against the order dated December 20, 2013. The matter is currently pending.

Assessment year 2000-2001

1. Our Bank filed return of income for the assessment year 2000-2001 on November 30, 2000. The assessing officer through an order dated March 26, 2003 disallowed certain deductions claimed by our Bank, including, inter alia, on deductions for non rural bad debts written off and provision for bad debts and salaries aggregating to ` 55.40 million. The assessing officer issued a notice dated March 26, 2003 raising a demand for a sum of ` 30 million as tax payable. Our Bank filed an appeal, being appeal number 159/03-04 to CIT (A), Trichy which was allowed by the CIT(A), Trichy on December 20, 2013 on all grounds. The Income Tax department filed an appeal (being appeal no. 962 of 2014) against the order dated December 20, 2013. The matter is currently pending.

2. During pendency of above proceedings as mentioned in point 1 above, the assessing officer through a notice dated March 9, 2006 reopened the assessment of the return of income in relation to assessment year 2000-2001 on account of non furnishing of particulars of advances leading to excess deduction. The assessing officer passed an order dated December 29, 2006 disallowing certain deductions claimed by our Bank, including, inter alia, on excess depreciation allowed in original assessment, broken period interest, deduction of provisioning made for bad and doubtful debts in computing taxable income under section 36(1)(viia) of IT Act and profit on recoupment of loss allowed as deduction under computation of taxable income under section 36(1)(viia) of the IT Act for earlier years aggregating to ` 117.90 million. Thereafter, the assessing officer issued a notice of demand dated December 29, 2006 for ` 70.70 million as tax payable. Our Bank filed an appeal, being appeal number 558/2006-07, on January 29, 2007 before the CIT (A), Trichy challenging the order of the assessing officer dated December 29, 2006, which was allowed through an order dated March 31, 2011 in relation to, inter alia, deletion of additions of broken period interest,

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amount of bad debts and assessment of stale draft and branch suspense account and disallowed the appeal in relation to certain other grounds. Our Bank filed a further appeal to ITAT Chennai dated June 6, 2011, being appeal number I.T.A No. 1088/Mds/2011. The ITAT Chennai through an order dated November 22, 2011, has sent the matter back to the CIT (A), Trichy for consideration of all issues afresh. The CIT (A), Trichy through an order dated December 20, 2013 allowed the appeal of our Bank on the ground that the matter could not be re-opened as it was beyond the period of limitation prescribed under the IT Act and directing the assessing officer to verify whether the notice for re-assessment was issued within the prescribed time fame. Our Bank filed an appeal before the ITAT Chennai (being appeal number 847 of 2014) on March 31, 2014 against the order dated December 20, 2013.

The assessing officer passed an order on February 10, 2014 upholding the validity of the notice issued for re-assessment. Our Bank filed an appeal (being appeal number 341 of 2014) before the CIT (A), Trichy. The matters are currently pending.

Assessment year 2001-2002

1. Our Bank received an assessment order dated November 20, 2003 for the assessment year 2001-2002, disputing deductions aggregating to ` 86.40 million. Our Bank filed an appeal, being appeal number ITA 323/03-04 before the CIT (A), Trichy, disputing the liability of ` 35.60 million imposed on our Bank in relation to including, inter alia, writing off of non rural bad debts, provision for depreciation on investments, rural deductions, interest accrued on securities, amortization charges and depreciation on building. The CIT (A), Trichy passed an order dated December 20, 2013 partly allowing the appeal of our Bank and directing the assessing officer to assess the interest on government securities on ‘due receipt’ basis. The income tax department filed an appeal (being appeal no. 963 of 2014) before the ITAT, Chennai against the order dated December 20, 2013. The matter is currently pending.

2. Our Bank has also filed an appeal for the assessment year 2001-2002, being appeal number 559/06-07 to the CIT (A), Trichy challenging the reopening of already completed assessment order under section 148 of the IT Act. The CIT (A), Trichy, through an order dated March 24, 2009 dismissed the appeal filed by our Bank, against which a further appeal, being appeal number 377/Mds/2010 was filed before the ITAT Chennai. The ITAT Chennai through an order dated June 6, 2011, remanded the matter back to the CIT(A), Trichy for deciding the appeal afresh. The CIT(A), Trichy passed an order on December 20, 2013 allowing the appeal of our Bank on the ground that the matter could not be re-opened as it was beyond the period of limitation prescribed under the IT Act and directing the assessing officer to verify the time frame within which the notice for re-assessment was issued. Our Bank filed an appeal before the ITAT Chennai (being appeal number 848 of 2014) against the order dated December 20, 2013.

The assessing officer passed an order on February 10, 2014 upholding the validity of the notice issued for re-assessment. Our Bank filed an appeal (being appeal number 342 of 2014) before the CIT (A), Trichy. The matters are currently pending.

3. The Additional Commissioner of Income Tax, Kumbakunom passed an assessment order on December 29, 2006 for assessment year 2001-02 against our Bank in respect of addition of amounts aggregating to ` 4.92 million, kept in a suspense account for more than three years towards payment of stale draft, as income of our Bank. The total demand made pursuant to the assessment order was ` 2.25 million. Against the order dated December 29, 2006, our Bank filed an appeal before the CIT (A), Trichy which pursuant to an order dated March 24, 2009 confirmed the addition of the said amount while calculating the income of our Bank for the relevant assessment year. Our Bank filed an appeal against the order dated March 24, 2009 before the ITAT, Chennai which was allowed pursuant to order dated November 13, 2009. The income tax department filed an appeal (522 of 2010) before the High Court of Chennai against the order dated November 13, 2009. The matter is currently pending.

Assessment year 2003-2004

1. Our Bank received an assessment order dated March 31, 2006 for the assessment year 2003-2004, disputing deductions aggregating to ` 499 million. Our Bank filed an appeal, being appeal number 116/2006-07, before the CIT (A), Trichy, which through an order dated March 22, 2007, allowed deductions claimed by the Bank and remanded the matter to the assessing officer for verification of claim. Thereafter, the assessing officer passed an order dated February 1, 2008 disallowing certain deductions claimed by our Bank, including, inter alia, in respect of provisioning of rural debts and write off of non rural debts for an

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aggregate amount of ` 39.30 million. Subsequently, the assessing officer issued a notice of demand dated February 1, 2008 reducing the refund payable to our Bank to ` 47.40 million. Our Bank has filed an appeal, being appeal number ITA 427/07-08, before the CIT (A), Trichy disputing additional tax liability of ` 14.40 million. The CIT(A), Trichy vide order dated December 20, 2013 allowed the appeal filed by our Bank on all grounds. No further correspondence has been received from the income tax department in this regard.

Pursuant to the order passed by the CIT (A), Trichy dated March 22, 2007 and mentioned at point 1 above, both our Bank and the income tax department filed appeals, being appeal numbers 1485/2007 and 1507/Mds/07, respectively, before the ITAT Chennai challenging the order of the CIT (A), Trichy. The ITAT Chennai through an order dated October 30, 2009 partly allowing the appeal filed by our Bank and dismissed the appeal filed by the income tax department. Thereafter, the income tax department has filed another appeal, being appeal number T.C. (A) No.961/2010, before the Madras High Court disputing the allowance of claim of our Bank to the tune of ` 211.60 million. Our Bank has filed an appeal being appeal number 1100/2010 before the Madras High Court against the order dated October 30, 2009 in relation disallowance of amortization expenses claimed by our Bank. The matter is currently pending.

2. Our Bank filed an appeal for the assessment year 2003-2004, being appeal number 272/2009-10 to the CIT (A), Trichy challenging the reopening of already completed assessment order under section 148 of the IT Act. The assessing officer issued a notice of demand dated December 29, 2009 for ` 3.61 million as tax payable. The CIT (A), Trichy, through an order dated December 20, 2013 dismissed the appeal filed by our Bank, against which a further appeal, being appeal number 850 of 2014 was filed before the ITAT Chennai. The ITAT Chennai through an order dated June 6, 2011, remanded the matter back to the CIT(A), Trichy for deciding the appeal afresh. The CIT(A), Trichy passed an order on December 20, 2013 allowing the appeal of our Bank on the ground that the matter could not be re-opened as it was beyond the period of limitation prescribed under the IT Act and directing the assessing officer to verify the time frame within which the notice for re-assessment was issued. Our Bank filed an appeal before the ITAT Chennai (being appeal number 850 of 2014) against the order dated December 20, 2013.

The assessing officer passed an order on February 10, 2014 upholding the validity of the notice issued for re-assessment. Our Bank filed an appeal (being appeal number 344 of 2011) before the CIT (A), Trichy. The matters are currently pending.

Assessment year 2008-2009

1. Our Bank received an assessment order dated December 31, 2010 for the assessment year 2008-2009, whereby the assessing officer disallowed certain deductions claimed by our Bank, including, inter alia, in respect of interest on the securities, bad debts and provisioning for bad debts, broken period interest, amortization expenses, loss on shifting of securities and interest on NPAs for an aggregate amount of ` 578.50 million. Thereafter, the assessing officer issued a notice of demand dated December 31, 2010 for ` 307.60 million as tax payable. Our Bank has filed an appeal, being appeal number ITA NO.322/2010-11, before the CIT (A), Trichy which was partly allowed pursuant to an order dated February 27, 2014. The income tax department filed an appeal (being appeal number 1801 of 2014) before the ITAT, Chennai against the order dated February 27, 2014. The matter is currently pending.

2. Our Bank filed an appeal for the assessment year 2008-2009, being appeal number 93/2012-13 to the CIT (A), Trichy challenging the reopening of already completed assessment order under section 148 of the IT Act. The assessing officer issued a notice of demand dated July 4, 2012 for ` 9.82 million as tax payable. The CIT (A), Trichy, through an order dated February 27, 2014 partly allowed the appeal filed by our Bank The income tax apartment has filed an appeal (being appeal number 1802 of 2014) before the ITAT, Chennai against the order dated February 27, 2014. The matter is currently pending.

3. The Commissioner of Income Tax-II, Trichy passed an order dated March 22, 2013 directing the assessing officer to review the assessment order passed in respect of assessment year 2008-09 on the grounds that the order was erroneous in respect of calculation of depreciation of securities. Pursuant to the order dated March 22, 2013, the assessing officer passed an order on March 27, 2014 upholding the previous assessment. Our Bank filed an appeal before the ITAT, Chennai for against the order dated March 22, 2013 on the grounds that the Commissioner of Income Tax-II, Trichy does not have the necessary authority to order review of an assessment order. The matter is currently pending.

Assessment year 2009-2010

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Our Bank received an assessment order dated December 29, 2011 for the assessment year 2009-2010, whereby the assessing officer disallowed certain deductions claimed by our Bank, including, inter alia, in respect of interest on the securities, bad debts, broken period interest, amortization expenses, ex-gratia amounts and loss on shifting of securities for an aggregate amount of ` 665.80 million. Thereafter, the assessing officer issued a notice of demand dated December 29, 2011 for ` 286.40 million as tax payable. Our Bank has filed an appeal, being appeal number ITA NO.250/2011-12, before the CIT (A), Trichy, challenging the assessment order dated December 29, 2011. The CIT(A), Trichy passed an order dated February 27, 2014 allowing the appeal on all grounds. The income tax department filed an appeal (being appeal number 1803 of 2014) before the ITAT, Chennai against the order dated February 27, 2014. The matter is currently pending.

Assessment year 2010-2011

Our Bank received an assessment order dated March 28, 2013 for the assessment year 2010-2011, whereby the assessing officer disallowed certain deductions claimed by our Bank, including, inter alia, in respect of interest on the securities and bad debts for an aggregate amount of ` 374.40 million. Thereafter, the assessing officer issued a notice of demand dated March 28, 2013 for ` 132.26 million as tax payable. Our Bank has filed an appeal, being appeal number 164/2013, before the CIT (A), Trichy, challenging the assessment order dated March 28, 2013 which was allowed on all grounds vide the order of the CIT (A) dated February 27, 2014. The income tax department filed an appeal (being appeal number 1804 of 2014) before the ITAT, Chennai against the order dated February 27, 2014. The matter is currently pending.

Assessment year 2011-2012

Our Bank received an assessment order dated March 14, 2014 for the assessment year 2011-2012, whereby the assessing officer disallowed certain deductions claimed by our Bank, including, inter alia, in respect of interest on the securities, bad debts, profit on sale of investments, and loss on shifting of securities for an aggregate amount of ` 781.47 million. Thereafter, the assessing officer issued a notice of demand dated March 14, 2014 for ` 284.70 million as tax payable. Our Bank has filed an appeal, being appeal number 85/2014, before the CIT (A), Trichy. The matter is currently pending.

Dispute in relation to deduction of bad debts relating to rural and non-rural advances

The income tax department has filed two special leave petitions before the Supreme Court of India being SLP (Civil) No. 24001/2007 and SLP (Civil) No. 1116/2007 and against the order of the Madras High Court dated February 26, 2007 in relation to assessment years 1991-92 and 1992-93 regarding disallowance of deduction of bad debts relating to rural and non-rural advances, taxability of interest on the securities and the diminution in the value of investments. SLP (Civil) No. 24001/2007 is currently pending before the Supreme Court of India and SLP (Civil) No. 1116/2007 is currently pending admission.

Disputes in relation to reopening of assessments

In addition to the pending disputes in relation to reopening of assessment years described above, our Bank has filed certain appeals currently pending before the CIT (A), Trichy in respect of assessment years 1988- 89, 1990-91, 1991-92, 1992-93, 1993-94, 1995-96, 1996-97 and 1997-98 being appeal numbers ITA 42/01- 02, ITA 43/2001-02, ITA 111/02-03, ITA 110/02-03, ITA 37/2000-2001, ITA 155/03-04, ITA 156/03-04, ITA and 157/03-04 respectively. The appeals have been filed in respect of, inter alia, issues of jurisdiction of the assessing officer in issuing notices, and limitation of time for reopening of assessments under section 148 of the IT Act. The CIT (A) through eight orders dated March 31, 2011 allowed the appeals in relation to including inter alia, deletion of additions of broken period interest, amount of bad debts and loss on the sale of securities and disallowed the appeal in relation to certain other grounds. Our Bank filed further appeals in respect of assessment years 1988-89, 1990-91, 1991-92, 1992-93, 1993-94, 1995-96, 1996-97 and 1997-98 being appeal numbers ITA. No. 1079/Mds/2011, 1080/Mds/2011, 1081/Mds/2011, 1082/Mds/2011, 1083/Mds/2011, 1084/Mds/2011, 1085/Mds/2011 1086/Mds/2011 and 1087/Mds/2011 before the ITAT Chennai. The ITAT Chennai through a common order dated November 22, 2011 disposed off the appeals with a direction to the CIT (A), Trichy to consider each issue afresh. The CIT (A), Trichy through eight orders dated December 20, 2013 allowed the appeal of our Bank on the grounds that the matters could not be re-opened as it was beyond the period of limitation prescribed under the IT Act and directing the assessing officer to verify the time frame within which the notice for re-assessment was

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issued. Our Bank filed eight appeals before the ITAT Chennai (being appeal number 838 of 2014, 839 of 2014, 840 of 2014, 841 of 2014, 842 of 2014, 843 of 2014, 844 of 2014 and 845 of 2014) against the order dated December 20, 2013.

The assessing officer through eight orders dated February 10, 2014 upheld the validity of the notices issued for re-assessment. Our Bank filed appeals (being appeal number 332 of 2014, 333 of 2014, 334 of 2014, 335 of 2014, 336 of 2014, 337 of 2014, 338 of 2014 and 339 of 2014) before the CIT (A), Trichy. The matter is currently pending.

Further, the ITAT Chennai, through an order dated June 6, 2011, has remanded four appeals filed by our Bank in relation to assessment years 2002-03and 2004-05 being appeal numbers 911/Mds/2010 & 913/Mds/2010 respectively, to CIT (A), Trichy for consideration of each issue afresh. The appeals in these assessment years also pertain to the issue of reopening of assessment of our Bank’s income tax returns under section 148 of the IT Act. The CIT(A), Trichy passed two orders on December 20, 2013 allowing the appeal of our Bank on the ground that the matter could not be re-opened as it was beyond the period of limitation prescribed under the IT Act and directing the assessing officer to verify the time frame within which the notice for re-assessment was issued. Our Bank filed two appeal (849 of 2014 and 851 of 2014) before the ITAT Chennai (being appeal number 848 of 2014) against the order dated December 20, 2013.

The assessing officer passed two orders on February 10, 2014 upholding the validity of the notice issued for re-assessment. Our Bank filed two appeals (being appeal number 343 of 2014 and 345 of 2014) before the CIT (A), Trichy. The matter is currently pending.

The total disputed tax liability in these appeals is ` 92.40 million.

Service tax matters

1. Pursuant to an audit conducted on our Bank by CERA in October 2009, a letter dated November 25, 2009 from the Superintendent of Central Excise, Kumbakonam Range disputing the amount of service tax paid by our Bank for the period from April 2008 till March 2009 and contending short levy of service tax on foreign exchange transactions, non levy of service tax on foreign exchange income through inter-bank transactions and incorrect utilization of CENVAT credit. Our Bank has filed a reply dated April 4, 2010. Pursuant to the audit and our reply dated April 4, 2010, certain show cause notices were issued to our Bank in relation to the allegations raised in the letter dated November 25, 2009 (including notices for periods outside the audited period). The description of the material show cause notices are as follows:

2. Show cause notice dated April 19, 2011 from the Office of Commissioner of Central Excise and Service Tax (“Service Tax Commissioner”), Trichy proposing to raise a demand for ` 204.10 million together with interest and penalty thereon for failure to pay service tax on the interest generated on hypothecation loans provided by our Bank from April 2006 till March 2011. Our Bank has filed a reply on June 18, 2011. We have not received any further communication from the Service Tax Commissioner, Trichy in this regard.

3. Show cause notices dated October 14, 2010, December 13, 2010 and October 17, 2011 from the Service Tax Commissioner, Trichy proposing to raise a demand of ` 28.70 million, ` 126.40 million and ` 79.80 million respectively together with interest and penalty thereon on payment of service tax on the amount of foreign exchange purchase and income earned in foreign currency on account of inter-banking transactions classified as profit on exchange transactions from different periods including, April 2005 to July 2009, May 16, 2008 to March 31, 2010 and April 1, 2010 to March 31, 2011. Our Bank has filed replies to the show cause notices on December 20, 2010 and March 21, 2012. We have not received any further communication from the Service Tax Commissioner, Trichy in this regard.

4. Show cause notice dated August 4, 2011 from the Service Tax Commissioner, Trichy proposing to raise a demand of ` 636 million together with interest and penalty thereon on the ground of failure to maintain separate registers for taxable and exempted services leading to incorrect availing of CENVAT credit for the period from April 2008 to March 2011. Our Bank has filed a reply to the show cause notice dated August 4, 2011 on September 13, 2012. We have not received any further communication from the Service Tax Commissioner, Trichy in relation to the delay in filing our reply.

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5. Show cause notice dated October 12, 2012 from the Service Tax Commissioner, Trichy proposing to raise a demand of ` 95.30 million together with interest and penalty thereon for failure to include taxable value and interest finance charges recovered from hypothecation and hire purchase of vehicles, machinery and other equipments for the period from April 2011 to March 2012. Our Bank has filed a reply to the show cause notice dated October 12, 2012 on November 12, 2012. We have not received any further communication from the Service Tax Commissioner, Trichy in this regard.

6. Show cause notice dated April 12, 2013 from the Service Tax Commissioner, Trichy proposing to raise a demand of ` 81.87 million together with interest and penalty by treating CENVAT credit obtained by our Bank as inadmissible on the basis that the documents on the basis of which CENVAT credit was availed for the period October 2007 and June 2012 were not valid documents under the Cenvat Credit Rules, 2004. Our Bank has filed a reply to the show cause notice on December 17, 2013. We have not received any further communication from the Commissioner of Central Excise and Service Tax, Trichy in this regard.

7. Show cause notice dated February 25, 2014 from the Service Tax Commissioner, Trichy proposing to raise a demand of ` 58.41 million together with interest and penalty for alleged non payment of service tax on financial leasing services provided by our Bank for the period April 2012 to March 2013. Our Bank has filed a reply to the show cause notice on July 7, 2014. We have not received any further communication from the Commissioner of Central Excise and Service Tax, Trichy in this regard.

Cases filed by our Bank

Civil cases

1. Our Bank has filed a civil suit being O.A. No. 302/2004 before the Debt Recovery Tribunal at Chennai – I against Arunachalam Sugar Mills Limited (“Arunachalam”) and certain others, claiming, inter alia, for recovery, from all the defendants, of a sum of ` 73.36 million together with interest of 14% and 2% penal interest (per annum compound interest with quarterly rest) from the date of application till the date of realization. Our Bank had advanced a sum of ` 80.50 million towards certain credit facilities availed by Arunachalam, which Arunachalam failed to repay. Our Bank has also filed an interim application being I.A. No. 12/2011 for attachment of certain immovable properties of Arunachalam as security for the claimed amount. The tribunal has issued an order dated October 11, 2011 to attach the property of Arunachalam pending disposal of the dispute. Certain other creditors of Arunachalam filed a petition, being C.P. 229/2004 before the High Court of Judicature at Madras (“Madras High Court”) for liquidation of the assets of Arunachalam, including land, buildings and plant and machinery. Our Bank has also been impleaded in this matter as a secured creditor of Arunachalam. The Madras High Court, through an order dated July 22, 2005 appointed an official liquidator to manage the assets of Arunachalam till disposal of the petition. By a further order dated August 9, 2011, the Madras High Court directed the official liquidator to bring the assets of Arunachalam for sale. The proceedings before the Debt Recovery Tribunal at Chennai and the Madras High Court are currently pending.

2. Our Bank has filed a civil suit being O.A. No. 101/2011 before the Debt Recovery Tribunal, Ernakulum against Medical Mission Trust and the trustees of Medical Mission Trust for recovery of ` 76.91 million as dues outstanding from the defendants. Our Bank had advanced a sum of ` 75.30 million towards certain credit facilities availed by the defendants, which the defendants failed to repay. Our Bank has also filed an interim applications being I.A. No. 637/2011, 638/2011 and 639/2011 for, inter alia, attachment of certain immovable property of the defendants as security for the claimed amount. The suit and applications filed by our Bank are currently pending before the Debt Recovery Tribunal, Ernakulum. The defendants have submitted a proposal to our Bank for one time settlement vide letter dated July 1, 2012. Pursuant to the settlement proposal, a total of ` 95.30 million was to be paid as full and final settlement by November 15, 2012 and payment of ` 41.10 million has been received till date. Upon receipt of the balance payment, the terms of the settlement will be submitted before the Debt Recovery Tribunal for approval.

3. Our Bank filed a civil suit being O.A. No. 11 of 2014 before the Debt Recovery Tribunal-II, Chennai against C.T. Ramanathan Infrastructure Private Limited and others for recovery of ` 334.40 million along with interest as dues outstanding from the defendants. Our Bank had sanctioned credit limits amounting to ` 470 million to the defendant during October 2010, part of which the defendant failed to repay. Our Bank has also filed an interim applications being I.A. No. 22 of 2014 seeking for the defendants to deposit the amount payable by them with the Debt Recovery Tribunal. The matter is currently pending.

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4. Our Bank filed a civil suit being O.A. No. 5342/2013 before the Debt Recovery Tribunal-III, Mumbai against Micro Secure Solutions Limited and others for recovery of ` 107.67 million along with interest as dues outstanding from the defendants. Our Bank had sanctioned a short term loan amounting to ` 90 million to the defendant during the year 2012, which the defendant failed to repay. Our Bank has also filed a criminal case being no. 5341 of 2013 before the Judicial Magistrate , First Class, Vashi under section 138 of the NI Act in relation to dishonor of cheques for an amount of ` 93.07 million. The matters are currently pending.

5. Our Bank filed a civil suit being O.A. No. 5341/2013 before the Debt Recovery Tribunal-III, Mumbai against Micro Technologies (India) Limited and others for recovery of ` 105.63 million along with interest as dues outstanding from the defendants. Our Bank had sanctioned a short term loan amounting to ` 90 million to the defendant during the year 2012, which the defendant failed to repay. Our Bank has also filed a criminal case being no. 5342 of 2013 before the Judicial Magistrate , First Class, Vashi under section 138 of the NI Act in relation to dishonor of cheques for an amount of ` 91.80 million The matter is currently pending.

6. Our Bank filed a civil suit being O.A.No. 28 of 2013 before the Debt Recovery Tribunal, Bangalore against Nivas Exports and others for recovery of ` 215.71 million along with interest as dues outstanding from the defendants. Our Bank had sanctioned various facilities amounting to ` 150 million to the defendant from 2007-2009. The matter is currently pending.

7. Our Bank filed a civil suit being O.A. No. 1 of 2013 before the Debt Recovery Tribunal, Madurai against Nivas Fabs and others and others for recovery of ` 67.61 million along with interest as dues outstanding from the defendants. Our Bank had sanctioned credit limits amounting to ` 55 million to the defendant during the year 2011, which the defendant failed to repay. The Debt Recovery Tribunal passed an interim order on January 17, 2013 restraining the defendants from alienating certain immoveable property till the disposal of the petitions.

Regulatory actions taken against our Bank in the last three years

Except as disclosed below, there have been no inquiries, inspections or investigations initiated or conducted or prosecutions filed, disposed off or fine imposed or compounding application filed under the Companies Act, 1956 or Companies Act or any previous company law in relation to the Company in the last three years:

Our Bank received a show cause notice (01287/5 INV/ROC/CHENNAI/2014) from the RoC in relation to violation of provisions of the Investors Education and Protection Fund (Uploading of Information regarding Unpaid and Unclaimed Companies) Rules, 2012 regarding furnishing information in relation to unclaimed dividend/matured debentures/deposits of our Bank. Our Bank replied to the show cause notice on July 4, 2014 stating the corrective actions taken to rectify the violation. Our Bank has not received any further communication from the RoC in this regard.

Material frauds committed against the Company in the last three years

The Bank has a Special Committee of the Board for Review and Monitoring Large Value Frauds which monitors and reviews all frauds against the Bank involving an amount of `10.00 million or more. The terms of reference of Special Committee of the Board for Review and Monitoring Large Value Frauds also include identifying systemic lacunae, if any, that facilitate perpetration of the fraud and put in place measures to prevent the same, identifying reasons for delay in detection of frauds, reporting such frauds to the RBI and the top management of our Bank and putting in place preventive measures to curb frauds.

In the last three years, the acts of material frauds, i.e. the act of frauds involving an amount of ` 10.00 million or more, against the Bank are as follows:

S. Details of Fraud Amount Involved Actions taken by our Bank No. (in ` million) 1. Misappropriation of funds by the erstwhile 59.87 The case has been reported to the RBI. manager of the Ongole branch of our Bank by Complaint with the police authorities is manipulating the books of accounts and making being contemplated, continuous offsite improper/unauthorized withdrawals. monitoring has been strengthened and the manager has been suspended. Further our Bank has proposed to conduct snap audits

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S. Details of Fraud Amount Involved Actions taken by our Bank No. (in ` million) at select branches on a regular basis. 2. Medical Mission Trust and Clemency Hospitals 89.17 The case has been reported to the RBI. Kerala Private Limited defaulted in the repayment Legal proceedings have been initiated to of loans sanctioned by our Bank. The loans were recover the funds. Pursuant to a police also not being utilized for the activities for which compliant, chargesheet has been issued in they were sanctioned. the matter. System to monitor end use of funds strengthened. For further details of the legal proceedings initiated, please see sub-section titled “Cases filed by our Bank” on page 182. 3. Manipulation of the books of accounts of our 15.80 Our Bank has initiated steps for recovery Bank by a staff member by creating loans against of funds, the case has been reported to the deposits and creating fictitious jewel loans. RBI and is under investigation by the police authorities, other staff members are being investigated and vigilance mechanism strengthened to scrutinize multiple gold loans. 4. Illegal removal of the stocks pledged as security 41.95 The case has been reported to the RBI and by the directors of Arunachalam Sugar Mills has been reported to the police authorities. Limited. Further, systems to monitor end use of funds have been strengthened. For further details of the legal proceedings initiated, please see sub-section titled “Cases filed by our Bank” on page 182.

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OUR AUDITORS

M/s Jagannathan & Sarabeswaran, Chartered Accountants, the previous statutory auditors of our Bank, have audited the financial statements of our Bank as of and for fiscal 2012 and 2013. Our current statutory auditor, M/s P. Chandrasekar, Chartered Accountants have audited the financial statements of our Bank as of and for fiscal 2014. The audit reports issued by M/s. Jagannathan & Sarbeswaran, Chartered Accountants on our audited financial statements as of and for fiscals 2012 and 2013 and the audit report issued by our current statutory auditors, M/s P. Chandrasekar, Chartered Accountants on our financial statements as of and for fiscal 2014 is included in this Preliminary Placement Document. M/s P. Chandrasekar, Chartered Accountants, were appointed as our Bank’s statutory auditors for the financial year 2014 by virtue of a resolution passed by the shareholders of our Bank in the AGM dated August 30, 2013 and the approval of the RBI dated July 5, 2013.

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GENERAL INFORMATION

1. Our Bank was incorporated on October 31, 1904 as a public limited company with the name of ‘The Kumbakonam Bank Limited’ under the provisions of the Companies Act, 1882. In 1957, our Bank took over the assets and liabilities of the ‘Common Wealth Bank Limited’ and in April 1965, ‘The City Forward Bank Limited’ and ‘The Union Bank Limited’ were amalgamated into our Bank under a scheme of amalgamation. Pursuant to a resolution passed by the shareholders of our Bank at the extraordinary general meeting dated January 27, 1965, the name of our Bank was changed to ‘The Kumbakonam City Union Bank Limited’. Subsequently, the name of our Bank was changed to ‘City Union Bank Limited’ pursuant to a resolution passed by the shareholders of our Bank at the extraordinary general meeting dated June 24, 1987 and we received a fresh certificate of incorporation consequent upon change of name dated November 2, 1987 from the RoC. The CIN of our Bank is L65110TN1904PLC001287.

2. The Registered Office of our Bank is located at No.149, TSR Big Street, Kumbakonam, Tamil Nadu – 612 001, India.

3. The corporate office of our Bank is located at No. 24B, Gandhi Nagar, Kumbakonam – 612 001.

4. Our Company Secretary and Compliance Officer is Mr. V Ramesh. His contact details are as follows:

City Union Bank Limited No. 24B, Gandhi Nagar Kumbakonam – 612 001 Telephone: +91 435 2402322,2401622 Email: [email protected]

5. The Issue has been approved by the members of our Bank pursuant to a resolution passed on August 30, 2013 and approved by our Board pursuant to its resolution passed on July 29, 2013.

6. We have received in principle approvals dated July 14, 2014 from the Stock Exchanges.

7. Our Bank has obtained necessary consents, approvals and authorization required for the Issue, including in principle approval from the RBI dated June 27, 2014. Our Bank shall apply for a post facto approval from the RBI in respect of the Issue, as has been specified by RBI in its letter dated June 27, 2014 in terms of the RBI circular dated April 20, 2010, upon completion of the Allotment process.

8. Copies of the Memorandum and Articles of Association will be available for inspection between 10.00 A.M. and 1.00 P.M. on any weekday (except Saturdays and public holidays) at the Registered Office.

9. Except as disclosed in this Preliminary Placement Document, there has been no material change in our Bank’s financial position since March 31, 2014, the date of last published audited financial statements of our Bank.

10. The Bank is in compliance with the minimum public shareholding requirements as required under the terms of the Listing Agreements and as per Rule 19A of the SCRR.

11. The Floor Price is ` 75.05 per Equity Share as calculated in accordance with Regulation 85 of Chapter VIII of SEBI Regulations.

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FINANCIAL STATEMENTS

S. No. Particulars Page Number 1. Auditor’s Report and audited financial statements of and for fiscal 2014 F-1 2. Auditor’s Report and audited financial statements of and for fiscal 2013 F-39 3. Auditor’s Report and audited financial statements of and for fiscal 2012 F-72

187 F - 1 F - 2 F - 3 F - 4 F - 5 F - 6 F - 7 F - 8 F - 9 F - 10 F - 11 F - 12 F - 13 F - 14 F - 15 F - 16 F - 17 F - 18 F - 19 F - 20 F - 21 F - 22 F - 23 F - 24 F - 25 F - 26 F - 27 F - 28 F - 29 F - 30 F - 31 F - 32 F - 33 F - 34 F - 35 F - 36 F - 37 F - 38 F - 39 F - 40 F - 41 F - 42 F - 43 F - 44 F - 45 F - 46 F - 47 F - 48 F - 49 F - 50 F - 51 F - 52 F - 53 F - 54 F - 55 F - 56 F - 57 F - 58 F - 59 F - 60 F - 61 F - 62 F - 63 F - 64 F - 65                                                         →                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F - 66 F - 67 F - 68 F - 69 F - 70 F - 71 F - 72 F - 73 F - 74 F - 75 F - 76 F - 77 F - 78 F - 79 F - 80 F - 81 F - 82 F - 83 F - 84 F - 85 F - 86 F - 87 F - 88 F - 89 F - 90 F - 91 F - 92 F - 93 F - 94 F - 95 F - 96 F - 97 F - 98 F - 99 F - 100 F - 101 DECLARATION

The Bank certifies that all relevant provisions of Chapter VIII and Schedule XVIII of the SEBI Regulations have been complied with and no statement made in this Preliminary Placement Document is contrary to the provisions of Chapter VIII and Schedule XVIII of the SEBI Regulations and that all approvals and permissions required to carry on the Bank’s business have been obtained, are currently valid and have been complied with. The Bank further certifies that all the statements in this Preliminary Placement Document are true and correct.

Signed by:

Dr. N. Kamakodi Managing Director & CEO City Union Bank Limited

Date: July 14, 2014 Place: Chennai

188 DECLARATION

We, the Board of Directors of the Bank certify that:

(i) the Bank has complied with the provisions of the Companies Act, 2013 and the rules made thereunder;

(ii) the compliance with the Companies Act, 2013 and the rules does not imply that payment of dividend or interest or repayment of debentures, if applicable, is guaranteed by the Central Government;

(iii) the monies received under the offer shall be used only for the purposes and objects indicated in this Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4);

Signed by:

______Director

I am authorized by the QIP Management Committee, a committee of the Board of Directors of the Bank, vide resolution number 2 dated July 14, 2014 to sign this form and declare that all the requirements of Companies Act, 2013 and the rules made thereunder in respect of the subject matter of this form and matters incidental thereto have been complied with. Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by the promoter subscribing to the Memorandum of Association and the Articles of Association.

It is further declared and verified that all the required attachments have been completely, correctly and legibly attached to this form.

Signed: ______

Date: July 14, 2014

Place: Chennai

189

REGISTERED OFFICE OF THE BANK

City Union Bank Limited No.149, TSR Big Street Kumbakonam 612 001, Tamil Nadu Tel: + 91 435 2402322 / 2401622 Fax: +91 435 2431746

SOLE GLOBAL COORDINATOR AND BOOK RUNNING LEAD MANAGER

Edelweiss Financial Services Limited 14th Floor, Edelweiss House, Off CST Road, Kalina, Mumbai – 400098 Tel: +91 22 4086 3535 Fax: +91 22 4086 3610

BOOK RUNNING LEAD MANAGERS (IN ALPHABETICAL ORDER)

Ambit Corporate Finance Private Axis Capital Limited ICICI Securities Limited Limited Ambit House, 449 Senapati Bapat 1st Floor, Axis House H.T. Parekh Marg, Churchgate Marg, Lower Parel, Mumbai 400 C-2, Wadia International Centre, P.B. Mumbai 400 020, India 013 India Marg, Worli Tel: +91 22 2288 2460 Tel: +91 22 3982 1819 Mumbai 400 025, India Fax: +91 22 2282 6580 Fax: +91 22 3982 3020 Tel: +91 22 4325 2525 Fax: +91 22 4325 3000

Kotak Mahindra Capital Company Limited Spark Capital Advisors (India) Private Limited

1st Floor, 27 BKC, Plot No. 27 Reflections’ New No.2 G Block Bandra Kurla Complex, Bandra (East) Leith Castle Center Street Mumbai 400 051 Santhome High Road Tel: +91 22 4336 0000 Chennai – 600 028, India Fax: +91 22 6713 2447 Tel: +91 +91 44 4344 0000 Fax: +91 44 4344 0080

LEGAL COUNSEL TO THE BANK, THE SOLE GLOBAL COORDINATOR AND BOOK RUNNING LEAD MANAGER AND THE BOOK RUNNING LEAD MANAGERS AS TO INDIAN LAW

Luthra & Luthra Law Offices

20th Floor, Tower 2 103 & 9th Floor Indiabulls Finance Centre Ashoka Estate Elphinstone Mills compound, Senapati Bapat Marg Barakhamba Road Lower Parel, Mumbai 400 013 India New Delhi 110 001 India

INTERNATIONAL LEGAL COUNSEL TO THE BANK WITH RESPECT TO INTERNATIONAL SELLING AND TRANSFER RESTRICTIONS

Duane Morris & Selvam LLP 16 Collyer Quay, #17-00 Singapore – 049 318

STATUTORY AUDITORS

M/s P. Chandrasekar, Chartered Accountants

S-512, 514 Manipal Center, #47, Dikenson Raod, Bangalore – 560042 Tel: + 91 80 2558 5443 Fax: +91 80 2559 7494

190