State Bank of India

LETTER OF OFFER
Dated February 1, 2008

For Equity Shareholders of the Bank only
STATE BANK OF INDIA

(Constituted under State Bank of India Act, 1955)
Central Office: State Bank Bhavan, Madame Cama Road, Mumbai 400 021, Maharashtra, India
Tel. no. (91 22) 2202 2426 Fax no. (91 22) 2285 5348 Contact Person: Mr. Subrata Maiti, General Manager (Shares & Bonds)
E-mail: gm.snb@sbi.co.in; Website: www.statebankofindia.com
FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY
LETTER OF OFFER
ISSUE OF 105,259,776 EQUITY SHARES OF FACE VALUE RS. 10 EACH AT A PREMIUM OF RS. 1,580 PER EQUITY SHARE AGGREGATING TO AN
AMOUNT EQUIVALENT TO RS. 167,363.04 MILLION TO THE EQUITY SHAREHOLDERS ON A RIGHTS BASIS IN THE RATIO OF ONE EQUITY SHARE FOR
EVERY FIVE EQUITY SHARES HELD ON THE RECORD DATE i.e. FEBRUARY 4, 2008 (THE "ISSUE"). THE ISSUE PRICE FOR EQUITY SHARES IS 159 TIMES
OF THE FACE VALUE OF THE EQUITY SHARE.
THIS BEING A FAST TRACK ISSUE, THE BANK HAS FILED A LETTER OF OFFER WITH THE DESIGNATED STOCK EXCHANGE AND THE SECURITIES AND
EXCHANGE BOARD OF INDIA.
GENERAL RISKS
Investments in equity and equity related securities involve a high degree of risk and Investors should not invest any funds in this Issue unless they can afford to
take the risk of losing their investment. Investors are advised to read the Risk Factors carefully before taking an investment decision in relation to this Issue. For taking an
investment decision, Investors must rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommended or
approved by the Securities and Exchange Board of India (“SEBI”) nor does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to
“Risk Factors” on page [●] of this Letter of Offer before making an investment in this Issue.
ISSUER’S ABSOLUTE RESPONSIBILITY
The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all information with regard to the Issuer
and the Issue, which is material in the context of this Issue, that the information contained in this Letter of Offer is true and correct in all material respects and is not
misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other material facts, the omission of which makes
this Letter of Offer as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect.
LISTING
The existing Equity Shares of the Bank are listed on the Bombay Stock Exchange Limited (“BSE”), the National Stock Exchange of India Limited (“NSE”), the
Calcutta Stock Exchange Association Limited (“CSE”), the Madras Stock Exchange Limited (“MSE”), the Delhi Stock Exchange Association Limited (“DSE”) and the Stock
Exchange, Ahmedabad (“ASE”). The Bank has received “in-principle” approvals from the BSE and NSE for listing the Equity Shares arising from this Issue vide letters
dated January 31, 2008 and January 30, 2008, respectively. For the purposes of the Issue, the Designated Stock Exchange shall be the NSE. Global Depositary Receipts which
represent the underlying Equity Shares of the Bank are listed on the London Stock Exchange.
REGISTRAR TO THE
LEAD MANAGERS TO THE ISSUE ISSUE
Citigroup Global CLSA India Limited Deutsche Equities India DSP Merrill Lynch Kotak Mahindra Datamatics Financial
Markets India Private 8/F Dalamal House Private Limited Limited Capital Company Services Ltd.
Limited Nariman Point DB House, Mafatlal Center, Limited A 16 & 17, MIDC Part B
12th Floor, Bakhtawar, Mumbai 400 021 Hazarimal Somani Marg, 10th Floor, 3rd Floor, Bakhtawar, Crosslane, Andheri (East),
Nariman Point, Tel.: (91 22) 6650 5050 Fort, Mumbai 400001 Nariman Point, 229, Nariman Point, Mumbai 400 093
Mumbai 400 021 Fax.: (91 22) 2285 6524 Tel.: (91 22) 6658 4600 Mumbai 400 021 Mumbai 400 021 Tel.: (91 22) 6671 2151 -
Tel.: (91 22) 6631 9999 Email: Fax.: (91 22) 2200 6765 Tel.: (91 22) 6632 8000 Tel.: (91 22) 6634 1100 2156
Fax.: (91 22) 6631 9803 sbi.rights@clsa.com Email: Fax.: (91 22) 2204 8518 Fax.: (91 22) 2283 7517 Fax.: (91 22) 6671 2192
Email: Website: sbi.rights@list.db.com Email: Email: Email:
investors.cgmib@citi.com www.india.clsa.com Website: sbi_rights@ml.com sbi.rights@kotak.com sbirights@dfssl.com
Website: Contact Person: www.db.com/India Website: Website: Website:
www.citibank.co.in Mr. Sumit Jalan Contact Person: www.dspml.com www.kotak.com www.dfssl.com
Contact Person: SEBI Regn No: Mr. Vikram Gupta Contact Person: Contact Person: Contact Person:
Mr. Amulya Goyal INM000010619 SEBI Regn No: Mr. Pranav Mehta Mr. Chandrakant Bhole Mr. Dnyanesh Gharote
SEBI Regn No: INM000010833 SEBI Regn No: SEBI Regn No: SEBI Regn No:
INM000010718 INM000002236 INM000008704 INR000000874
ISSUE PROGRAMME
LAST DATE FOR REQUEST FOR

ISSUE OPENS ON SPLIT APPLICATION FORMS ISSUE CLOSES ON
February 18, 2008 March 3, 2008 March 18, 2008
TABLE OF CONTENTS
ABBREVIATIONS AND TECHNICAL TERMS............................................................................................. 1
RISK FACTORS .................................................................................................................................................. 7
THE ISSUE ......................................................................................................................................................... 26
SELECTED FINANCIAL AND OPERATING DATA .................................................................................. 27
GENERAL INFORMATION............................................................................................................................ 32
OVERSEAS SHAREHOLDERS ...................................................................................................................... 39
CAPITAL STRUCTURE................................................................................................................................... 42
OBJECTS OF THE ISSUE................................................................................................................................ 51
BASIS FOR ISSUE PRICE ............................................................................................................................... 53
INDUSTRY OVERVIEW.................................................................................................................................. 55
BUSINESS........................................................................................................................................................... 68
DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK MANAGEMENT

OF THE BANK .................................................................................................................................... 95
REGULATIONS AND POLICIES ................................................................................................................. 107
DIVIDENDS...................................................................................................................................................... 132
MANAGEMENT .............................................................................................................................................. 133
RELATED PARTY TRANSACTIONS.......................................................................................................... 154
DESCRIPTION OF CERTAIN DIFFERENCES BETWEEN INDIAN GAAP AND U.S. GAAP........... 155
AUDITORS’S REPORT (UNCONSOLIDATED) ........................................................................................ 160
AUDITOR’S REPORT (CONSOLIDATED) ................................................................................................ 164
FINANCIAL STATEMENTS ......................................................................................................................... 167
STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK........................................................ 238
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS.......................................................................................................... 240
MATERIAL DEVELOPMENTS.................................................................................................................... 270
DESCRIPTION OF CERTAIN INDEBTEDNESS....................................................................................... 273
OUTSTANDING LITIGATION AND DEFAULTS ..................................................................................... 274
GOVERNMENT APPROVALS ..................................................................................................................... 280

STATUTORY AND OTHER INFORMATION............................................................................................ 283
TERMS OF THE PRESENT ISSUE .............................................................................................................. 295
MAIN PROVISIONS OF THE STATE BANK OF INDIA ACT AND STATE BANK OF INDIA
REGULATIONS ................................................................................................................................ 313
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION..................................................... 327
DECLARATION .............................................................................................................................................. 328
ii
OVERSEAS SHAREHOLDERS
The distribution of this Letter of Offer and the issue of Equity Shares on a rights basis to persons in
certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions.
Persons into whose possession this Letter of Offer may come are required to inform themselves about and
observe such restrictions. The Bank is making this issue of Equity Shares on a rights basis to the shareholders of
the Bank and the Letter of Offer/Abridged Letter of Offer and CAF will be dispatched to those shareholders
who have an Indian address.
No action has been or will be taken to permit this Issue in any jurisdiction where action would be
required for that purpose, except that this Letter of Offer has been filed with the Stock Exchanges and with
SEBI. Accordingly, the Equity Shares delivered upon exercise of the Rights Entitlements may not be offered or
sold, directly or indirectly, and this Letter of Offer may not be distributed, in any jurisdiction outside of India.
Receipt of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to
make such an offer and, in those circumstances, this Letter of Offer must be treated as sent for information only
and should not be copied or redistributed. No person receiving a copy of this Letter of Offer in any territory
other than in India may treat this Letter of Offer as constituting an invitation or offer to him, nor should he in
any event use the CAF. The Bank will not accept any CAF where the address as indicated by the applicant is not
an Indian address. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection with
the issue of Equity Shares or the Rights Entitlements, distribute or send the same in or into the United States or
any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this
Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek
to subscribe to the Equity Shares or to exercise the Rights Entitlements referred to in this Letter of Offer.
Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create
any implication that there has been no change in the Bank’s affairs from the date hereof or that the information
contained herein is correct as at any time subsequent to this date.
European Economic Area Restrictions
In relation to each Member State of the European Economic Area which has implemented the
Prospectus Directive at any relevant time (each, a “Relevant Member State”) an offer of the Equity Shares to the
public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the
Equity Shares which has been approved by the competent authority in that Relevant Member State or, where
appropriate, approved in another Relevant Member State and notified to the competent authority in that
Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that
Relevant Member State of any Equity Shares may be made at any time under the following exemptions under
the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so
authorised or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last
financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of
more than €50,000,000, as shown in its last annual or consolidated accounts; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive.
provided that no such offer of Equity Shares shall result in a requirement for the publication by the Bank or any
Manager of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purpose of this provision, the expression an “offer of Equity Shares to the public” in relation to
any Equity Shares in any Relevant Member State means the communication in any form and by any means of
sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to
decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any
measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive”
means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
This European Economic Area selling restriction is in addition to any other selling restriction set out
below.
i
United Kingdom Restrictions
This document is only being distributed to and is only directed at (i) persons who are outside the
United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other
persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such
persons together being referred to as “relevant persons”). The Equity Shares are only available to, and any
invitation, offer or agreement to subscribe, purchase or otherwise acquire such Equity Shares will be engaged in
only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or
any of its contents.
Republic of Italy Restrictions
The Issue of the Equity Shares has not been registered pursuant to Italian securities legislation and,
accordingly, no Equity Shares may be offered, sold or delivered, nor may copies of this document or of any
other document relating to the Equity Shares be distributed in the Republic of Italy, except:
(i) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative
Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and the relevant
implementing CONSOB regulations, as amended from time to time, and in Article 2 of
Directive No. 2003/71/EC of 4 November 2003; or
(ii) in other circumstances which are exempted from the rules on public offerings pursuant to
Article 100 of the Financial Services Act and Article 33, first paragraph, of CONSOB
Regulation No. 11971 of 14 May 1999, as amended (Regulation No. 11971).
Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other
document relating to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:
(a) made by an investment firm, bank or financial intermediary permitted to conduct such
activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB
Regulation No. 16190 of 29 October 2007 (as amended from time to time) and Legislative
Decree No. 385 of 1 September 1993, as amended (the Banking Act); and
(b) in compliance with any other applicable laws and regulations or requirement imposed by
CONSOB or other Italian authority.
NO OFFER IN THE UNITED STATES
The Rights Entitlements and the Equity Shares of the Bank have not been and will not be registered
under the United States Securities Act of 1933, as amended (the “Securities Act”), or any U.S. state securities
laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the
territories or possessions thereof (the “United States” or “U.S.”) or to, or for the account or benefit of, “U.S.
Persons” (as defined in Regulation S under the Securities Act (“Regulation S”)), except in a transaction exempt
from the registration requirements of the Securities Act. The rights referred to in this Letter of Offer are being
offered in India, but not in the United States. The Issue to which this Letter of Offer relates is not, and under no
circumstances is to be construed as, an offering of any shares or rights for sale in the United States or as a
solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter of Offer and the
enclosed CAF should not be forwarded to or transmitted in or into the United States at any time.
Neither the Bank nor any person acting on behalf of the Bank will accept a subscription or renunciation
from any person, or the agent of any person, who appears to be, or who the Bank or any person acting on behalf
of the Bank has reason to believe is, in the United States and to whom an offer, if made, would result in
requiring registration of this Letter of Offer with the United States Securities and Exchange Commission.
Envelopes containing a CAF should not be postmarked in the United States or otherwise dispatched from the
United States, and all persons subscribing for Equity Shares and wishing to hold such shares in registered form
must provide an address for registration of the Equity Shares in India. The Bank is making this issue of Equity
Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer and
CAF shall be dispatched to those Shareholders who have an Indian address. Any person who acquires Rights
Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery
ii
of this Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights
Entitlements, it will not be, in the United States.
The Bank reserves the right to treat as invalid any CAF which: (i) appears to the Bank or its agents to
have been executed in or dispatched from the United States; (ii) does not include the relevant certification set
out in the CAF headed “Overseas Shareholders” to the effect that the person accepting and/or renouncing the
CAF does not have a registered address (and is not otherwise located) in the United States; or (iii) where the
Bank believes acceptance of such CAF may infringe applicable legal or regulatory requirements; and the Bank
shall not be bound to allot or issue any Equity Shares or Rights Entitlement in respect of any such CAF.
Rights may not be transferred or sold to any U.S. Person.
iii
PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA
The Bank maintains its financial books and records and prepares its financial statement in Rupees in
accordance with generally accepted accounting principles in the Republic of India (“Indian GAAP”) which
differ in certain important respects from generally accepted accounting principles in the United States (“U.S.
GAAP”). For a discussion of the principal differences between Indian GAAP and U.S. GAAP as they relate to
the Bank, see “Description of Certain Differences Between Indian GAAP and U.S. GAAP.” Industry and market
share data in this Letter of Offer are derived from data of the RBI or the DGCIS and calculated by the Bank
where applicable. Indian economic data in this Letter of Offer is derived from data of the RBI and the economic
surveys of the Government. Certain financial and statistical figures have been rounded to the nearest tenth of a
decimal place.
Unless stated otherwise, the financial information used in this Letter of Offer is derived from the
Bank’s consolidated audited financial statements as of March 31 for the years ended 2007, 2006, 2005, 2004
and 2003 and consolidated limited reviewed financial statements for the six-months ended on September 30,
2007 prepared in accordance with Indian GAAP and applicable regulations, included in this Letter of Offer.
In this Letter of Offer, any discrepancies in any table between the total and the sum of the amounts
listed may be due to rounding off.
Market and industry data used in this Letter of Offer, has been obtained from industry publications and
governmental sources. Industry publications generally state that the information contained in those publications
has been obtained from sources believed to be reliable and that their accuracy and completeness are not
guaranteed and their reliability cannot be assured. Although the Bank believes that market data used in this
Letter of Offer is reliable, it has not been independently verified.
iv
EXCHANGE RATES
The following table sets forth, for the periods indicated, information concerning the exchange rates
between Indian rupees and U.S. dollars based on the closing noon buying rate in New York City for cable
transfers of Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The
noon buying rate as on December 31, 2007 was Rs. 39.41 = U.S.$ 1.00. No representation is made that the rupee
amounts actually represent such American dollar amounts or could have been or could be converted into
American dollars at the rates indicated, any other rate or at all.
Rupee and American Dollars Exchange Rates

Year ended March 31, Period End Average High Low
2003 ................................................................................................ 47.53 48.43 49.07 47.53

2004 ................................................................................................ 43.40 45.96 47.46 43.40
2005 ................................................................................................ 43.62 44.86 46.45 43.27
2006 ................................................................................................ 44.48 44.17 46.26 43.05
2007 ................................................................................................ 43.10 45.12 46.83 42.78
Month Period End Average High Low
January 2007...................................................................................... 44.07 44.21 44.49 44.07

February 2007.................................................................................... 44.08 44.02 44.21 43.87
March 2007........................................................................................ 43.10 43.79 44.43 42.78
April 2007.......................................................................................... 41.04 42.02 43.05 40.56
May 2007........................................................................................... 40.36 40.57 41.04 40.14
June 2007........................................................................................... 40.58 40.59 40.90 40.27
July 2007 ........................................................................................... 40.18 40.27 40.42 40.12
August 2007....................................................................................... 40.63 40.68 41.15 40.25
September 2007 ................................................................................. 39.75 40.15 40.81 39.50
October 2007 ..................................................................................... 39.26 39.36 39.72 38.48
November 2007 ................................................................................. 39.52 39.33 39.68 39.11
December 2007.................................................................................. 39.41 39.38 39.55 39.29
Source: Bloomberg
v
FORWARD-LOOKING STATEMENTS
The Bank has included statements in this Letter of Offer which contain words or phrases such as “will”,
“would”, “aim”, “aimed”, “will likely result”, “is likely”, “are likely”, “believe”, “expect”, “expected to”, “will
continue”, “will achieve”, “anticipate”, “estimate”, “estimating”, “intend”, “plan”, “contemplate”, “seek to”,
“seeking to”, “trying to”, “target”, “propose to”, “future”, “objective”, “goal”, “project”, “should”, “can”,
“could”, “may”, “will pursue”, “our judgment” and similar expressions or variations of such expressions, that
are “forward-looking statements”. Actual results may differ materially from those suggested by the forward-
looking statements due to certain risks or uncertainties associated with the Bank’s expectations with respect to,
but not limited to, the actual growth in demand for banking and other financial products and services, its ability
to successfully implement its strategy, including its use of the Internet and other technology and its rural
expansion, its ability to integrate recent or future mergers or acquisitions into its operations, its ability to manage
the increased complexity of the risks the Bank faces following its rapid international growth, future levels of
impaired loans, its growth and expansion in domestic and overseas markets, the adequacy of its allowance for
credit and investment losses, technological changes, investment income, its ability to market new products, cash
flow projections, the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions the
Bank is or will become a party to, the future impact of new accounting standards, its ability to implement its
dividend policy, the impact of changes in banking regulations and other regulatory changes in India and other
jurisdictions on the Bank, including on the assets and liabilities of SBI, a former financial institution not subject
to Indian banking regulations, its ability to roll over its short-term funding sources and its exposure to credit,
market and liquidity risks. By their nature, certain of the market risk disclosures are only estimates and could be
materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on
net interest income and net income could materially differ from those that have been estimated.
In addition, other factors that could cause actual results to differ materially from those estimated by the
forward-looking statements contained in this Letter of Offer include, but are not limited to, the monetary and
interest rate policies of India and the other markets in which the Bank operates, natural calamities, general
economic, financial or political conditions, instability or uncertainty in India, southeast Asia, or any other
country which have a direct or indirect impact on its business activities or investments, caused by any factor
including terrorist attacks in India, the United States or elsewhere, anti-terrorist or other attacks by the United
States, a United States-led coalition or any other country, tensions between India and Pakistan related to the
Kashmir region, military armament or social unrest in any part of India, inflation, deflation, unanticipated
turbulence in interest rates, changes or volatility in the value of the rupee, instability in the sub prime credit
market and liquidity levels in the U.S., foreign exchange rates, equity prices or other market rates or prices, the
performance of the financial markets in general, changes in domestic and foreign laws, regulations and taxes,
changes in the competitive and pricing environment in India, and general or regional changes in asset valuations.
For a further discussion on the factors that could cause actual results to differ, see the discussion under “Risk
Factors” included elsewhere in this Letter of Offer. The forward-looking statements made in this Letter of Offer
speak only as of the date of this Letter of Offer. The Bank does not intend to publicly update or revise these
forward-looking statements to reflect events or circumstances after the date of this Letter of Offer, and the Bank
does not assume any responsibility to do so.
vi
ABBREVIATIONS AND TECHNICAL TERMS
All references in this document to “U.S. dollars”, “U.S.$” and “$” refer to United States dollars and to
“Rupees” and “Rs.” refer to Indian Rupees. In addition, references to “euro” and “€” refer to the currency
introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty
establishing the European Community, as amended. All references in this document to the “Government” and
“Central Government” refer to the Government of India.
Except as otherwise stated in this Letter of Offer, all translations from Indian Rs. to U.S. dollars are
based on the noon buying rate in the City of New York on December 31, 2007, for cable transfers in Indian Rs.
as certified for customs purposes by the Federal Reserve Bank of New York which was Rs. 39.41 per $1.00. No
representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S.
dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts
listed are due to rounding.
References to “crores” and “lakhs” are to the following:
One lakh .......................................... 100,000 (one hundred thousand)

One crore......................................... 10,000,000 (ten million)
Ten crores ....................................... 100,000,000 (one hundred million)
One hundred crores ......................... 1,000,000,000 (one thousand million or one billion)
Bank Related Terms
Act The State Bank of India Act, 1955

Auditors The Joint Statutory Auditors of the Bank namely:
1. M.M. Nissim & Co.

Chartered Accountants,
Barodawala Mansion, B-Wing, 3rd Floor,
81, Dr. Annie Besant Road
Worli, Mumbai 400 018.
2. Khandelwal Jain & Co
12-B Baldota Bhawan, 5th Floor,
117, Maharshi Karve Road, Opp. Churchgate
Mumbai 400 020
3. R.G.N. Price & Co.
Simpson Buildings,
861, Mount Road,
Chennai 600 002
4. S. K. Mittal & Co.
Mittal House, E-29,
South Extension Part II,
New Delhi 110 049.
5. Vinay Kumar & Co.
Chandra Shekar Azad Market Complex,
5 Sardar Patel Marg, Civil Lines,
Allahabad 2110 01 (UP)
6. D.P. Sen & Co.
Chartered Accountants
22, Ashutosh Chowdhury Avenue,
2nd Floor, Flat No. 22,
1
Kolkata 700 019
7. Laxminiwas & Jain
5-4-726, Station Road, Nampally,
Hyderabad 500 001
8. Chaturvedi & Co.
60, Bentinck Street,
Kolkata – 700 069
9. Jain Kapila Associates
3000, Bhagat Singh Street No. 2,
Paharganj,
New Delhi 110 055
10. Datta Singla & Co.
SCO-2935-36(1st floor), Sector 22 C,
Chandigarh 160 022
11. M. Choudhury & Co.
Kolkata – 700 069
12. G. M. Kapadia & Co.
36B Tamarind House, Tamarind Lane,
Fort, Mumbai 400 001
13. Vardhaman & Co.
Flat 1C Rear Block, Oakland Apartments
7 Malony Road,
T. Nagar, Chennai 600 017
the Bank The State Bank of India, constituted under the State Bank of India Act, 1955, having its
registered office at State Bank Bhavan, Madame Cama Road, Mumbai 400 021,
Maharashtra, India. Unless otherwise specified, references to “the Bank” are to State Bank
of India on an unconsolidated basis.
Central Board Central Board of Directors of the Bank
Capital or Share Issued share capital of the Bank
Capital
Equity Share(s) The equity share of the Bank having a face value of Rs. 10 unless otherwise specified in the
or Share(s) context thereof.
Equity A holder of the Equity Shares on the Record Date
Shareholder
the Group The State Bank of India and its consolidated Subsidiaries, Associate Banks and other jointly
controlled entities. References to specific data applicable to particular subsidiaries,
Associate Banks or other jointly controlled entities are made by reference to the name of that
particular entity.
General Terms and Abbreviations
Term Description
AGM Annual General Meeting
AS Indian Accounting Standard
AY Assessment Year
BSE The Bombay Stock Exchange Limited
CDSL Central Depository Services (India) Limited
Companies Act Companies Act, 1956
2
Term Description
Collecting Designated branches of State Bank of India for collection of CAF and Application Money
Branches
Depositories Act The Depositories Act, 1996, as amended
Depository A body corporate registered under the SEBI (Depositories and Participant) Regulations,
1996, as amended
DP Depository Participant
EGM Extraordinary General Meeting
EPS Earnings per share
ESPS Employees Share Purchase Scheme, 2008
FEMA Foreign Exchange Management Act, 1999
FCNR Account Foreign Currency Non Resident Account
FDI Foreign Direct Investment
FI Financial Institutions
FII(s) Foreign Institutional Investors as defined in and registered with SEBI under the SEBI
(Foreign Institutional Investors) Guidelines, 1996
fy / fiscal Financial Year ending March 31 or December 31, as the case may be
FVCI Foreign Venture Capital Investors, as defined in and registered with SEBI under the SEBI
(Foreign Venture Capital Investor) Regulations, 2000, as amended
GOI/ Government/ Government of India
Central
Government
GDP Gross Domestic Product
GDR Global Depository Receipt
HUF Hindu Undivided Family
IT Act The Income Tax Act, 1961 and amendments thereto
ITAT Income Tax Appellate Tribunal
MAT Minimum Alternate Tax
Mn Million
MoU Memorandum of Understanding
MoF Ministry of Finance, Government of India
NBFC Non-Banking Finance Company
NCD Non-Convertible Debenture
NIC National Industry Classification
NR Non-Resident
NRE Account Non-Resident External Account
NRI/Non-Resident A Person resident outside India, as defined under FEMA, and who is a citizen of India or
Indian a Person of Indian Origin and such term as defined under the Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident Outside India)
Regulations, 2000, as amended
NRO Account Non-Resident Ordinary Account
NSDL National Securities Depository Limited
NSE National Stock Exchange of India Limited
OCB Overseas Corporate Bodies. A company, partnership, society or other corporate body
owned directly or indirectly to the extent of at least 60% by NRIs, including overseas
trusts in which not less than 60% of beneficial interest is irrevocably held by NRIs
directly or indirectly as defined under Foreign Exchange Management (Deposit)
Regulations, 2000, as amended. OCBs are not permitted to invest in this Issue
PAT Profit After Tax
RBI Reserve Bank of India
RBI Act The Reserve Bank of India Act, 1934
SEBI Securities and Exchange Board of India
SEBI Act, 1992 The Securities and Exchange Board of India Act, 1992 and amendments thereto
SEBI Guidelines The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on
January 19, 2000 read with amendments issued subsequent to that date
SIA Secretariat of Industrial Assistance
Securities Act The United States Securities Act of 1933, as amended
Takeover Code The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as
amended
US GAAP Generally accepted accounting principles in the United States
3
Issue Related Terms and Abbreviations
Term Description
Banker to the State Bank of India
Issue
CAF Composite Application Form
Designated Stock NSE
Exchange
Fractional Entitlement of less than one Equity Share, arising as a result of shares held on the Record
Entitlement Date not being a multiple of five
Investor(s) Holder(s) of Equity Shares of the Bank as on the Record Date of February 4, 2008 and
Renouncees
Issue Issue of 105,259,776 Equity Shares of Rs. 10 each for cash at a premium of Rs. 1,580 per
share on rights basis to existing Equity Shareholders of the Bank in the ratio of one fully
paid up Equity Share for every five fully paid Equity Shares held on the Record Date being
February 4, 2008, for an amount aggregating Rs. 167,363.04 million
Issuer State Bank of India
Issue Closing March 18, 2008
Date
Issue Opening February 18, 2008
Date
Issue Price Rs. 1,590 per Equity Share
Lead Managers Citibank Global Capital Markets India Private Limited, CLSA India Limited, Deutsche
Equities India Private Limited, DSP Merrill Lynch Limited and Kotak Mahindra Capital
Company Limited
Letter of Offer Letter of Offer dated February 1, 2008 as filed with the Stock Exchanges
Record Date February 4, 2008
Registrar to the Datamatics Financial Services Limited
Issue or Registrar
Renouncees Persons who have acquired Rights Entitlements from Equity Shareholders as on the
Record Date
Rights The number of Equity Shares that a shareholder is entitled to in proportion to his/her
Entitlement shareholding in the Bank as on the Record Date excluding Fractional Entitlement
Stock The NSE, BSE, CSE, DSE, MSE and ASE where the Equity Shares of the Bank are
Exchange(s) presently listed
Subsidiaries a) DOMESTIC BANKING SUBSIDIARIES
1. State Bank of Bikaner & Jaipur
2. State Bank of Hyderabad
3. State Bank of Indore
4. State Bank of Mysore
5. State Bank of Patiala
6. State Bank of Saurashtra
7. State Bank of Travancore
8. SBI Commercial and International Bank Ltd.
b) FOREIGN BANKING SUBSIDIARIES
1. SBI International (Mauritius) Ltd.
2. State Bank of India (Canada)
3. State Bank of India (California)
4. Indian Ocean International Bank Ltd.
5. Commercial Bank of India LLC, Moscow (##)
6. PT Bank Indo Monex
c) DOMESTIC NON-BANKING SUBSIDIARIES
1. SBI Factors & Commercial Services Pvt. Ltd.
2. SBI Capital Markets Limited
3. SBI DFHI Limited
4. SBI Mutual Funds Trustee Company Pvt. Ltd
5. SBI CAP Securities Ltd.
4
6. SBI CAPS Ventures Ltd.
7. SBI CAP Trustees Co. Ltd.
8. SBI Cards & Payment Services Pvt. Ltd. (##)
9. SBI Funds Management Pvt. Ltd. (##)
10. SBI Life Insurance Company Ltd. (##)
d) FOREIGN NON-BANKING SUBSIDIARIES
1. SBICAP (UK) Ltd.
2. SBI Funds Management (International) Ltd. (##)
## These entities are jointly controlled.
Jointly Controlled 1. GE Capital Business Process Management Services Pvt. Ltd
Entities 2. C-Edge Technologies Ltd.
Associates a) Regional Rural Banks
1. Andhra Pradesh Grameena Vikas Bank
2. Arunachal Pradesh Rural Bank
3. Cauvery Kalpatharu Grameena Bank
4. Chhattisgarh Gramin Bank
5. Deccan Grameena Bank
6. Ellaquai Dehati Bank
7. Ka Bank Nongkyndong Ri Khasi Jaintia
8. Krishna Grameena Bank
9. Langpi Dehangi Rural Bank
10. Madhya Bharat Gramin Bank
11. Malwa Gramin Bank
12. Marwar Ganganagar Bikaner Gramin Bank
13. Mizoram Rural Bank
14. Nagaland Rural Bank
15. Parvatiya Gramin Bank
16. Purvanchal Kshetriya Gramin Bank
17. Samastipur Kshetriya Gramin Bank
18. Saurashtra Gramin Bank
19. Utkal Gramya Bank
20. Uttaranchal Gramin Bank
21. Vananchal Gramin Bank
22. Vidisha Bhopal Kshetriya Gramin Bank
b) Others
1. SBI Home Finance Limited
2. Clearing Corporation of India Ltd.
3. Nepal SBI Bank Ltd.
4. Bank of Bhutan
5. UTI Asset Management Company Pvt. Ltd.
Technical and Industry Terms and Abbreviations
Term Description
AIBEA All India Bank Employees’ Association
AIBOA All India Bank Officers’ Association
ALCO Asset and Liability Management Committee
ALM Asset Liability Management
ARC Asset Reconstruction Company
ATMs Automated Teller Machines
AY Assessment Year
Bank Acquisition Act Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as
amended
Banking Division Government of India, Ministry of Finance, Department of Economic Affairs
(Banking Division)
5
Term Description
BEFI Bank Employees Federation of India
BIFR Board for Industrial and Financial Reconstruction
BPLR Benchmark Prime Lending Rate
BR Act The Banking Regulation Act, 1949, as amended
CAGR Compounded Annual Growth Rate
CARE Credit Analysis & Research Limited
CBS Core Banking Solution
CDR Corporate Debt Restructuring
CISA Certified Information Systems Auditor
CPs Commercial Papers
CRAR Capital to Risk Weighted Assets Ratio
CRR Cash Reserve Ratio
CSO Central Statistical Organisation
DIN Director Identification Number
DRT Debt Recovery Tribunal(s)
ECS Electronic Clearing Services
EPS Earnings Per Share
FIPB Foreign Investment Promotion Board
GIR Number General Index Registry Number
IBA Indian Banks Association
IRDA Insurance Regulatory and Development Authority
IT Information Technology
KYC Norms Know Your Customer norms stipulated by the RBI
LC Letters of Credit
LFAR Long Form Audit Report
MICR Magnetic Ink Character Recognition
NAV Net Asset Value
NDS-OM Negotiated Dealing System-Order Matching
NEFT National Electronic Funds Transfer
NPAs Non-Performing Assets
OTS One Time Settlement
PAN Permanent Account Number
PAT Profit after Tax
PBT Profit before Tax
RTGS Real Time Gross Settlement
SARFAESI Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, as amended
SCB Scheduled Commercial Banks
SCRA The Securities Contract (Regulation) Act, 1956, as amended
SCRR The Securities Contract (Regulation) Rules, 1957, as amended
SICA The Sick Industrial Companies (Special Provisions) Act, 1995, as amended
SLR Statutory Liquidity Ratio
SME Small and Medium Enterprises
Spread The difference between the yield on the fortnightly average of interest earning assets
and the cost of the fortnightly average of interest bearing liabilities
SSI Small Scale Industries
Tier I capital The core capital of a bank, which provides the most permanent and readily available
support against unexpected losses. It comprises paid-up capital and reserves
consisting of any statutory reserves, free reserves and capital reserves as reduced by
equity investments in subsidiaries, intangible assets, and losses in the current period
and those brought forward from the previous periods
Tier II capital The undisclosed reserves and cumulative perpetual preference shares, revaluation
reserves (at a discount of 55.0%), general provisions and loss reserves (allowed up to
a maximum of 1.25% of risk weighted assets), hybrid debt capital instruments (which
combine certain features of both equity and debt securities), investment fluctuation
reserves and subordinated debts
6
RISK FACTORS
An investment in Equity Shares involves a high degree of risk. You should carefully consider all the
information in this Letter of Offer, including the risks and uncertainties described below, before making an
investment in the Bank’s Equity Shares. If any of the following risks, or other risks that are not currently known
or are now deemed immaterial, actually occur, the Bank’s business, results of operations and financial
condition could suffer, the price of the Bank’s Equity Shares could decline, and you may lose all or part of your
investment. The financial and other implications of material impact of risks concerned, wherever quantifiable,
have been disclosed in the risk factors mentioned below. However there are a few risk factors where the impact
is not quantifiable and hence the same has not been disclosed in such risk factors. The ordering of the risk
factors has been done to facilitate ease of reading and reference and does not in any manner indicate the
importance of one risk factor over other.
Investment in equity and equity related securities involve a degree of risk and investors should not invest
any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to
read the risk factors carefully before taking an investment decision in this offering. For taking an investment
decision, investors must rely on their own examination of the issuer and the offer including the risks involved.
The securities have not been recommended or approved by SEBI nor does SEBI guarantee the accuracy or
adequacy of this document.
The Bank, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of
Offer contains all information with regard to the Issuer and the Issue, which is material in the context of the
Issue, that the information contained in the offer document is true and correct in all material aspects and is not
misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that
there are no other material facts, the omission of which make this document as a whole or any of such
information or the expression of any such opinions or intentions misleading in any material respect.
Unless the context otherwise requires, references to the “Bank” are to State Bank of India on an
unconsolidated basis. References to the “Group” are to the State Bank of India and its consolidated
subsidiaries, Associate Banks (as defined herein) and other consolidated entities. References to specific data
applicable to particular subsidiaries, Associate Banks or other consolidated entities are made by reference to
the name of that particular entity. References to “fiscal year” are to the year ended March 31. Unless otherwise
stated, the financial information of the Bank used in this section is derived from the Bank’s unconsolidated and
consolidated financial statements under Indian GAAP, as regrouped.
Risks Relating to the Bank’s Business
The Bank’s business is particularly vulnerable to interest rate risk, and volatility in interest rates could
adversely affect its net interest margin, the value of its fixed income portfolio, its income from treasury
operations and its financial performance.
As a result of certain reserve requirements imposed by the RBI, the Bank may be more exposed to
interest rate risk than banks in many other countries. See “Regulations and Policies — Legal Reserve
Requirements.” These reserve requirements require the Bank to maintain a relatively large portfolio of fixed
income Government securities, and the Bank could be materially adversely impacted by a rise in interest rates,
especially if the rise were sudden or sharp. If such a rise in interest rates were to occur, the Bank’s net interest
margin could be adversely affected because the interest paid by the Bank could increase at a higher rate than the
interest received by the Bank. These requirements also have a negative impact on its net interest income and net
interest margin because the Bank earns interest on a portion of its assets at rates that are generally less
favourable than those typically received on its other interest-earning assets. If the yield on its interest-earning
assets does not increase at the same time or to the same extent as its cost of funds, or if its cost of funds does not
decline at the same time or to the same extent as the yield on its interest-earning assets, its net interest income
and net interest margin would be adversely impacted. During the last quarter of fiscal year 2007, the Indian
markets experienced volatility and sharp increases in interest rates and the Bank experienced an increase in its
funding costs, which adversely impacted its net interest income, net interest margin and financial performance
during the first quarter of fiscal year 2008.
The Bank is also exposed to interest rate risk through its treasury operations and one of its subsidiaries,
SBI DFHI Limited, which is a primary dealer in Government securities. A rise in interest rates or greater interest
rate volatility could adversely affect the Bank’s income from treasury operations or the value of its fixed income
securities trading portfolio. Sharp and sustained increases in the rates of interest charged on floating rate home
7
loans, which are a material proportion of its loan portfolio, would result in extension of loan maturities and
higher monthly instalments due from borrowers, which could result in higher rates of default in this portfolio.
See “Management’s Discussion and Analysis — Factors Affecting the Bank’s Results of Operations and
Financial Condition — Interest rates, allocation of funds and costs of funding.”
The Bank has a large portfolio of Government securities and its business is particularly vulnerable to
volatility in interest rates caused by deregulation of the financial sector in India.
As a result of Indian reserve requirements, the Bank is more structurally exposed to interest rate risk
than banks in many other countries. Under the regulation of the RBI, the Bank’s liabilities are subject to the
statutory liquidity ratio (“SLR”) requirement which requires that a minimum specified percentage, currently
25.0%, of a bank’s demand and time liabilities be invested in approved securities for the purpose of compliance
with SLR requirements. See “Regulations and Policies — RBI Regulations — Legal Reserve Requirements.”
Such securities represented 83.6% of the Bank’s investment portfolio as on September 30, 2007. Although
83.6% of the Bank’s investment portfolio consists of SLR securities, these SLR securities comprise 28.9% of
the Bank’s demand and term liabilities as on September 30, 2007. The Bank earns interest on such Government
securities at rates which are less favourable than those which it typically receives in respect of its retail and
corporate loan portfolio. While the SLR portfolio of the Bank has decreased in size during the fiscal year 2007
against a backdrop of robust growth of credit portfolio and redemption of securities, it continues to be in excess
of the regulatory requirements.
A substantial portion of the Bank’s income is derived from its Government operations, a slowdown in which
could adversely affect the Bank’s business.
For the six-months ended September 30, 2007, total Government business turnover was Rs. 5,913.5
billion and commission earned from Government transactions was Rs. 4.9 billion, or 15.3% of the Bank’s Other
Income. For the year ended March 31, 2007, the Bank handled approximately 52.3% of the Government’s
aggregate receipts and payments as well as 62.4% of state governments’ payments and receipts. In many
instances, the Bank acts as the sole agent for certain Government transactions. While the Bank has enjoyed a
strong working relationship with the Government in the past, there is no assurance that this relationship will
continue in the future. The Government is not obligated to choose the Bank to conduct any of its transactions. If
the Government does choose another bank to perform such tasks, the Bank’s business will be adversely affected.
If the Bank is not able to control or reduce the level of NPAs in its portfolio, its business will be adversely
affected.
The Bank’s net NPAs as on September 30, 2007, were Rs. 58.3 billion or 1.6% of its net advances. The
Bank’s NPAs can be attributed to several factors, including increased competition arising from economic
liberalisation in India, variable industrial growth, a sharp decline in commodity prices, the high level of debt in
the financing of projects and capital structures of companies in India, and the high interest rates in the Indian
economy during the period in which a large number of projects contracted their borrowings, which reduced
profitability for certain of the Bank’s borrowers. Although the Bank’s loan portfolio contains loans to a wide
variety of businesses, financial difficulties could increase the Bank’s level of NPAs and adversely affect its
business, future financial performance, shareholders’ funds and the price of the Equity Shares.
There is no assurance that there will not be a deterioration in provisions for loan losses as a percentage
of NPAs or otherwise, or that the percentage of NPAs that the Bank will be able to recover will be similar to the
Bank’s past experience in recovery of NPAs. Any deterioration in the Bank’s asset portfolio could have an
adverse impact on its business, future financial performance, shareholders’ funds and the price of the Equity
Shares.
Further deterioration of the Bank’s NPA portfolio and an inability to improve its provisioning coverage as a
percentage of gross NPA could adversely affect the price of the Equity Shares.
Although the Bank believes that its total provisions made in accordance with RBI guidelines will be
adequate to cover all known losses in its asset portfolio, there can be no assurance that there will not be a further
deterioration in the provisioning coverage as a percentage of gross NPAs or otherwise or that the percentage of
NPAs that the Bank will be able to recover will be similar to its past experience of recoveries of NPAs. Any
further deterioration in its non-performing asset portfolio could adversely affect its business, its future financial
performance and the trading price of the Equity Shares.
8
The Bank’s loan portfolio contains significant advances to the agricultural sector.
The Bank’s loan portfolio contains significant advances to the agricultural sector, amounting to Rs.
381.4 billion, or 15.9 %, of net bank credit as on September 30, 2007. The Government’s proposed agricultural
lending plans may contemplate state-owned banks, including the Bank, lending at below market rates in the
agricultural sector. RBI guidelines stipulate that the Bank’s agricultural advances be 18.0% of adjusted net bank
credit. In addition, the market may perceive the exposure of state-owned banks to the agricultural sector to
involve higher risks, whether or not the Government mandates lending. This may negatively affect the risk-
adjusted returns of state-owned banks and may adversely affect the Bank’s business, future financial
The Bank may experience delays in enforcing its collateral when borrowers default on their obligations to the
Bank, which may result in failure to recover the expected value of collateral security, exposing it to a
potential loss.
A substantial portion of the Bank’s loans to corporate customers are secured by real assets, including
property, plant and equipment. The Bank’s loans to corporate customers also include working capital credit
facilities that are typically secured by a first lien on inventory, receivables and other current assets. In some
cases, the Bank may have taken further security of a first or second lien on fixed assets and a pledge of financial
assets like marketable securities, corporate guarantees and personal guarantees. A substantial portion of the
Bank’s loans to retail customers is also secured by the assets financed, predominantly property and vehicles.
Although in general the Bank’s loans are over-collateralized, an economic downturn could result in a fall in
relevant collateral values for the Bank.
In India, foreclosure on collateral generally requires a written petition to an Indian court or tribunal. An
application, when made, may be subject to delays and administrative requirements that may result, or be
accompanied by, a decrease in the value of the collateral. In the event a corporate borrower makes a reference to
a specialised quasi-judicial authority called the Board for Industrial and Financial Reconstruction (“BIFR”),
foreclosure and enforceability of collateral is stayed. The Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (the “SARFAESI Act”), has strengthened the ability of lenders
to resolve NPAs by granting them greater rights as to enforcement of security and recovery of dues from
corporate borrowers. There can be no assurance that the legislation will have a favourable impact on the Bank’s
efforts to resolve NPAs. There can be no assurance that it will be able to realize the full value on its collateral,
as a result of, among other factors, delays in bankruptcy and foreclosure proceedings, defects in the perfection
of collateral and fraudulent transfers by borrowers. A failure to recover the expected value of collateral security
could expose the Bank to a potential loss. Any unexpected losses could adversely affect the Bank’s business, its
future financial performance, and the trading price of the Equity Shares.
The Indian banking industry is very competitive and the Bank’s growth strategy depends on its ability to
compete effectively.
The Bank faces competition from Indian and foreign commercial banks in all its products and services.
Over the last several years, several Indian banks have increased their focus on retail loans. The Bank will face
competition from Indian and foreign commercial banks and non-bank finance companies in its retail products
and services. In addition, since the Bank raises funds from market sources and individual depositors, it will face
increasing competition for such funds. Additionally, the Indian financial sector may experience further
consolidation, resulting in fewer banks and financial institutions. The Government has also announced measures
that would permit foreign banks to establish wholly-owned subsidiaries in India and invest up to 74.0% in
Indian private sector banks. The Government is also actively encouraging banks and other financial institutions
to significantly increase their lending to the agricultural sector, which will make this segment more competitive.
Due to competitive pressures, the Bank may be unable to successfully execute its growth strategy and offer
products and services at reasonable returns and this may adversely impact its business, future financial
performance and the trading price of the Equity Shares. See “Business — Competition.”
Further, the Bank faces intense competition in its international operations from the full range of
competitors in the financial services industry, including Indian and foreign banks and non-banking entities. With
the exception of certain countries, such as the Maldives, the Bank remains a small to mid-size operator in the
international markets and many of its competitors have much greater resources.
9
The Bank is subject to credit, market and liquidity risk which may have an adverse effect on its credit ratings
and its cost of funds.
To the extent any of the instruments and strategies the Bank uses to hedge or otherwise manage its
exposure to market or credit risk are not effective, the Bank may not be able to mitigate effectively its risk
exposures in particular to market environments or against particular types of risk. The Bank’s balance sheet
growth will be dependent upon economic conditions, as well as upon its determination to securitize, sell,
purchase or syndicate particular loans or loan portfolios. The Bank’s trading revenues and interest rate risk
exposure are dependent upon its ability to properly identify, and mark to market, changes in the value of
financial instruments caused by changes in market prices or rates. The Bank’s earnings are dependent upon the
effectiveness of its management of migrations in credit quality and risk concentrations, the accuracy of its
valuation models and its critical accounting estimates and the adequacy of its allowances for loan losses. To the
extent its assessments, assumptions or estimates prove inaccurate or not predictive of actual results, the Bank
could suffer higher than anticipated losses. The successful management of credit, market and operational risk is
an important consideration in managing its liquidity risk because it affects the evaluation of its credit ratings by
rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. See also
“— Any downgrading of India’s debt rating by an international rating agency could adversely affect its business
and the price of its Equity Shares.” The rating agencies can also decide to withdraw their ratings altogether,
which may have the same effect as a reduction in its ratings. Any reduction in the Bank’s ratings (or withdrawal
of ratings) may increase its borrowing costs, limit its access to capital markets and adversely affect its ability to
sell or market its products, engage in business transactions, particularly longer-term and derivatives transactions,
or retain their customers. This, in turn, could reduce its liquidity and negatively impact its operating results and
financial condition.
The Bank has high concentrations of loans to certain customers and to certain sectors and if a substantial
portion of these loans were to become non-performing, the quality of its loan portfolio could be adversely
affected.
As on September 30, 2007, the Bank’s total exposure to borrowers (fund-based and non-fund based,
including guarantees) was Rs. 5,003.5 billion (including principal outstanding, interest and 100.0% of the
nominal amount of non-fund based outstanding, excluding derivative products). The ten largest individual
borrowers in aggregate accounted for approximately 11.1% of the Bank’s total exposure and its ten largest
borrower groups in aggregate accounted for approximately 18.3% of its total exposure. The largest borrower as
on September 30, 2007 accounted for approximately 1.74% of the Bank’s total exposure and 16.3% of the
Bank’s total capital funds. The largest borrower group as on September 30, 2007, accounted for approximately
5.3% of the Bank’s total exposure and for 50.1% of the Bank’s total capital funds. Credit losses on these large
single borrower and group exposures could adversely affect the Bank’s financial performance and the trading
price of the Equity Shares.
The Bank has extended loans to several industrial sectors in India. The table below sets out the Bank’s
five largest industry exposures (fund-based, excluding retail) as on September 30, 2007.
Rank Industry Fund based

(Rs. in millions)
1 Services sector 532,560
2 Iron and Steel 146,307
3 Infrastructure 143,467
4 Cotton Textile 102,984
5 Engineering 101,737
Total 1,027,055
These exposures, totalling Rs. 1,027.1 billion, constituted 32.8% of the Bank’s domestic advances and
28.2 % of its total advances. The global and domestic trends in these industrial sectors may have a bearing on
the Bank’s financial position. Although the Bank’s portfolio contains loans to a wide variety of businesses,
financial difficulties in these industrial sectors could increase the level of non-performing assets (“NPAs”) and
restructured assets, and adversely affect the Bank’s business, its future financial performance, shareholders’
funds and the price of the Equity Shares.
10
The Bank faces greater credit risks than banks in developed countries.
The Bank’s principal business is providing financing to its clients, most of which are based in India.
The Bank’s loans to middle market companies can be expected to be more severely affected by adverse
developments in the Indian economy than loans to large corporations. The Bank is subject to the credit risk that
its borrowers may not pay in a timely fashion or may not pay at all. The credit risk of all its borrowers is higher
than in more developed countries due to the higher uncertainty in the Indian regulatory, political, economic and
industrial environment as well as difficulties that many of the Bank’s borrowers face in adapting to instability in
world markets and technological advances taking place across the world. Unlike developed countries, India does
not have a fully operational nationwide credit information bureau. This may affect the quality of information
available to the Bank about the credit history of its borrowers, especially individuals and small businesses. See
“Description of Assets and Liability Management and Risk Management of the Bank — Risk Management
Structure — Credit Risk Management.” Increased competition arising from economic liberalisation in India,
variable industrial growth, a sharp decline in commodity prices, the high level of debt in the financing of
projects and capital structures of companies in India, and the high interest rates in the Indian economy during
the period in which a large number of the projects were entered into, may have reduced the profitability of some
of the Bank’s borrowers.
A substantial portion of the Bank’s loans have a tenure exceeding one year, exposing the Bank to risks
associated with economic cycles.
As on September 28, 2007 (the last reporting Friday in September), loans with a contractual tenure
exceeding one year constituted 44.2% of the Bank’s domestic advances. The long tenure of these loans may
expose the Bank to risks arising out of economic cycles. In addition, some of these loans are project finance
loans. There can be no assurance that these projects will perform as anticipated or that such projects will be able
to generate cash flows to service commitments under the loans. The Bank is also exposed to infrastructure
projects which are still under development and are open to risks arising out of delay in execution, failure of
borrowers to execute projects on time, delay in getting approvals from necessary authorities, and breach of
contractual obligations by counterparties, all of which may adversely impact the projected cash flows. There can
be no assurance that these projects will perform as anticipated. Risks arising out of a recession in the economy
and a delay in project implementation or commissioning could lead to rise in delinquency rates and in turn,
adversely impact the Bank’s future financial performance and the trading price of the Equity Shares.
The Bank’s funding is primarily short-term and if depositors do not roll over deposited funds upon maturity
the Bank’s business could be adversely affected.
The maturity profile of the Bank’s assets and liabilities shows a negative gap in the short term. The
negative gap has arisen mainly because the Bank’s deposits and other liabilities are of shorter average maturity
than its loans and investments. Most of the Bank’s incremental funding requirements are met through short-term
funding sources, primarily in the form of deposits. However, a large portion of the Bank’s assets have medium
or long-term maturities, creating a potential for funding mismatches. The Bank’s customer deposits are both
demand deposits and time deposits, with approximately 24.8% (as on September 28, 2007) having maturities of
less than one year. If a substantial number of the Bank’s depositors do not roll over deposited funds upon
maturity, its liquidity position could be adversely affected. The failure to obtain rollover of customer deposits
upon maturity or to replace them with fresh deposits could have a material adverse effect on the Bank’s business,
future financial performance and the trading price of the Equity Shares.
The Bank is exposed to fluctuations in foreign exchange rates.
As a financial organisation with operations in various countries, the Bank is exposed to exchange rate
risk. The Bank complies with regulatory limits upon its unhedged foreign currency exposure by making foreign
currency loans on terms that are generally similar to its foreign currency borrowings and thereby transferring the
foreign exchange risk to the borrower or through active use of cross-currency swaps and forwards to generally
match the currencies of its assets and liabilities.
However, the Bank is exposed to fluctuations in foreign currency rates for its unhedged exposure.
Adverse movements in foreign exchange rates may also impact the Bank’s borrowers adversely, which may in
turn impact the quality of its exposure to these borrowers. Volatility in foreign exchange rates could adversely
affect the Bank’s business, future financial performance and the price of the Equity Shares.
11
The Bank’s risk management policies and procedures may leave the Bank exposed to unidentified or
unanticipated risks, which could negatively affect its business or result in losses.
The Bank’s hedging strategies and other risk management techniques may not be fully effective in
mitigating its risk exposure in all market environments or against all types of risk, including risks that are
unidentified or unanticipated. Some methods of managing risk are based upon observed historical market
behaviour. As a result, these methods may not predict future risk exposures, which could be greater than the
historical measures indicated. Other risk management methods depend upon an evaluation of information
regarding markets, clients or other matters. This information may not in all cases be accurate, complete, up to
date or properly evaluated. Management of operational, legal or regulatory risk requires, among other things,
policies and procedures to properly record and verify a large number of transactions and events. Although the
Bank has established these policies and procedures, they may not be fully effective. See also “Description of
Assets and Liability Management and Risk Management of the Bank — Risk Management Structure.”
There is operational risk associated with the Bank’s industry which, when realized, may have an adverse
impact on its business.
The Bank, like all financial institutions, is exposed to many types of operational risk, including the risk
of 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 its
business activities), or operational errors, including clerical or record keeping errors or errors resulting from
faulty computer or telecommunications systems. The Bank outsources some functions to other agencies. Given
its high volume of transactions, certain errors may be repeated or compounded before they are discovered and
successfully rectified. In addition, its dependence upon automated systems to record and process transactions
may further increase the risk that technical system flaws or employee tampering or manipulation of those
systems will result in losses that are difficult to detect. The Bank may also be subject to disruptions of its
operating systems, arising from events that are wholly or partially beyond its control (including, for example,
computer viruses or electrical or telecommunication outages), which may give rise to a deterioration in customer
service and to loss or liability to the Bank. The Bank is further exposed to the risk that external vendors may be
unable to fulfil their contractual obligations to the Bank (or will be subject to the same risk of fraud or
operational errors by their respective employees as the Bank is), and to the risk that its (or its vendors’) business
continuity and data security systems prove not to be sufficiently adequate. The Bank also faces the risk that the
design of its controls and procedures prove inadequate, or are circumvented, thereby causing delays in detection
or errors in information. Although the Bank maintains a system of controls designed to keep operational risk at
appropriate levels, like all banks, the Bank has suffered losses from operational risk and there can be no
assurance that the Bank will not suffer losses from operational risks in the future that may be material in amount,
and its reputation could be adversely affected by the occurrence of any such events involving its employees,
customers or third parties. For a discussion of how operational risk is managed, see “Description of Assets and
Liability Management of the Bank — Operational Risk.”
Significant security breaches could adversely impact the Bank’s business.
The Bank seeks to protect its computer systems and network infrastructure from physical break-ins as
well as security breaches and other disruptive problems caused by the Bank’s increased use of the internet.
Computer break-ins and power disruptions could affect the security of information stored in and transmitted
through these computer systems and network infrastructure. There are areas in the system that have not been
properly protected from security breaches and other attacks. The Bank employs security systems, including
firewalls and password encryption, designed to minimise the risk of security breaches. Although the Bank
intends to continue to implement security technology and establish operational procedures to prevent break-ins,
damage and failures, there can be no assurance that these security measures will be adequate or successful.
Failed security measures could have a material adverse effect on the Bank’s business, its future financial
performance and the trading price of the Equity Shares. The Bank’s business operations are based on a high
volume of transactions. Although the Bank takes adequate measures to safeguard against system related and
other fraud, there can be no assurance that it would be able to prevent fraud. The Bank’s reputation could be
adversely affected by significant fraud committed by employees, customers or outsiders.
System failures could adversely impact the Bank.
Given the increasing share of retail products and services and transaction banking services in the
Bank’s overall business, the importance of systems technology to the Bank’s business has increased
12
significantly. The Bank’s principal delivery channels include automated teller machines (“ATMs”), call centres
and the internet. See “Business — Delivery Channels.” Any failure in the Bank’s systems, particularly for retail
products and services and transaction banking, could significantly affect the Bank’s operations and the quality
of its customer service and could result in business and financial losses and adversely affect the trading price of
the Equity Shares. However, a disaster recovery and business continuity plan is in place to cater for system
failures in all channels.
Banking is a heavily regulated industry and material changes in the regulations which govern the Bank
could cause its business to suffer and the price of the Equity Shares to decline.
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 regulations, government policies and
accounting principles. The laws and regulations governing the banking sector could change in the future. Any
such changes may adversely affect the Bank’s business, future financial performance and the price of the Equity
Shares by, for example, requiring a restructuring of the Bank’s activities or increasing its operating costs. See
“Regulations and Policies.”
The lending norms of the RBI require that every scheduled commercial bank should extend 40.0% of
its net bank credit to certain eligible sectors, such as agriculture, small-scale industries and individual housing
finance up to Rs. 2 million (which are categorised as “priority sectors”). Economic difficulties are likely to
affect those borrowers in priority sectors more severely. As on September 30, 2007, the Bank’s lending to
priority sectors accounted for 39.5% of net bank credit, with 15.9% (lower than the requirement of 18.0%) of
net credit going to the agriculture sector. As with some other commercial banks in India, the Bank has generally
not met these guidelines. See “Industry Overview — RBI.”
Regulatory changes in India or other jurisdictions in which the Bank operates could adversely affect its
business.
The laws and regulations or the regulatory or enforcement environment in any of those jurisdictions in
which the Bank operates may change at any time and may have an adverse effect on the products or services the
Bank offers, the value of its assets or its business in general. In its mid-term review of the annual policy
statement for fiscal year 2005, the RBI increased the risk weight for the computation of capital adequacy from
50% to 75% in the case of housing loans and from 100% to 125% in the case of consumer credit (including
personal loans and credit cards) as a temporary counter-cyclical measure. In July 2005, the RBI increased the
risk weight for capital market exposure and exposure to commercial real estate from 100.0% to 125.0%. In
October 2005, in its mid-term review of the annual policy statement for fiscal year 2005, the RBI increased the
requirement of general provisioning for standard advances from 0.25% to 0.40% except direct advances to
agriculture and small and medium enterprise sectors. In February 2006, the RBI issued its final guidelines on
securitisation of standard assets under which the Bank is, in respect of transactions after February 1, 2006,
required to maintain higher capital for credit enhancement and also to amortise the profit on securitisation over
the life of the related loans. In April 2006, the RBI increased the requirement of general provisioning for certain
categories of advances from 0.40% to 1.00% and also increased the risk weight on exposures to commercial real
estate from 125.0% to 150.0%. In its mid-term review of the monetary policy statement announced in October
2006, the RBI increased the repo rate by 25 basis points from 7.0% to 7.25%. Subsequently, in the quarterly
review of the monetary policy statement on January 31, 2007, the repo rate was raised further to 7.5% and again
on March 31, 2007 to 7.75%. In March 2007, the RBI increased the CRR by 50 basis points to 6.5%. The CRR
was again increased to 7.5% in November 2007. Similar changes in the future could have an adverse impact on
its capital adequacy and profitability. Pursuant to the recent amendment to the Reserve Bank of India Act, no
interest is payable on cash reserve ratio balances, on which interest was hitherto paid by the RBI. Any change by
the RBI in the directed lending norms may result in its inability to meet the priority sector lending requirements
as well as require the Bank to increase its lending to relatively riskier segments and may result in an increase in
NPAs in the directed lending portfolio. See “Industry Overview — RBI.”
New accounting directives, such as those related to the Accounting Standard 15 ("AS-15") relating to
employee benefits, may adversely affect the Bank’s financial position.
New accounting directives or new interpretations of current directives may impose additional
requirements on the Bank. For example, a decision by the RBI and the Institute of Chartered Accountants of
India to implement AS-15 Revised is expected to negatively impact the Bank. AS-15 Revised requires actuarial
liability on account of pensions to be calculated on a projected unit method. As most of the Bank’s employees
13
are covered under the defined benefit scheme, such a requirement could significantly impact the calculation of
the Bank’s net worth, despite a lack of substantive change in the underlying financial position of the Bank. The
Bank is currently evaluating the most appropriate means of implementation, but has not yet made any increase
in provisions for fiscal year 2008. In addition, had the Bank applied AS-15, its unaudited unconsolidated and
consolidated financial results for the six-months ended September 30, 2007 and nine-months ended December
31, 2007, its financial results would likely have been different from what is shown in this Letter of Offer. Such
changes in accounting policies, among others, which may arise in the future, could have a material adverse
effect on the financial position of the Bank. See "Financial Statements – Note on the likely impact of
Accounting Standard 15 (Revised 2005)".
The Bank is required to maintain its capital adequacy ratio at the minimum level required by the RBI for
domestic banks. There can be no assurance that the Bank will be able to access capital as and when it needs
it for growth.
The RBI requires Indian banks to maintain a minimum Tier I capital adequacy ratio of 4.5% and a
minimum risk weighted capital adequacy ratio of 9.0%. The Bank’s Tier I and total capital adequacy ratio as of
September 30, 2007 was 7.78% and 12.85%, respectively. The Bank is exposed to the risk of the RBI increasing
the applicable risk weight for different asset classes from time to time. In April 2007, the RBI issued final
guidelines on implementation of the new capital adequacy framework pursuant to Basel II, which are effective
in fiscal year 2008 for the Bank and require maintenance of higher capital and an increase in minimum Tier I
ratio from 4.5% to 6.0%. See “Industry Overview — New Initiatives in the Banking Sector — Risk Management
and Basel-II.” Although the Bank’s current capitalisation levels are in line with these requirements, depending
on market conditions, the Bank may choose to raise additional capital from time to time. However, unless the
Bank is able to access the necessary amount of additional capital when required, any incremental capital
requirement may adversely impact the Bank’s ability to grow its business and may even require the Bank to
withdraw from or to curtail some of its current business operations. There can also be no assurance that the
Bank will be able to raise adequate additional capital in the future at all or on terms favourable to it.
As the Bank’s majority shareholder, the Government controls the Bank and may cause the Bank to take
actions which are not in the interests of the Bank or of the holders of the Equity Shares.
In accordance with the State Bank of India Act, 1955, (“the Act”), the Government, in consultation
with the RBI, has the power to appoint and/or nominate the Chairman, two Managing Directors and a majority
of the directors of the Central Board, which determines the outcome of the actions relating to the general
direction of the affairs of the Bank, including payment of dividends. See “Business — Relationship with the
Government and the Reserve Bank of India.” Furthermore, under the Act, the Government, after consultation
with the RBI and the Chairman of the Bank, may issue directives on matters of policy involving public interest
which may affect the conduct of the business affairs of the Bank. Further, under the Act, the Bank is required to
obtain approval from the Government for any increase in its authorised share capital. Further proposed
amendments to the Act may also enable the Bank to issue preference shares. There can be no assurance that the
Act will not be repealed or significantly amended in the future. In addition, there can be no assurance that the
RBI or the Government will not take action or implement policies that are adverse to investors in the Equity
Shares. Further, in terms of the Act no provision of law relating winding-up shall apply to the Bank and it may
be placed in liquidation only by an order of the Government and in such manner it may direct. See “Regulations
and Policies — The State Bank of India Act.”
The legal requirement that the Government maintain a majority shareholding interest in the Bank of at least
55% may limit the ability of the Bank to raise appropriate levels of capital financing.
The Act restricts the Government’s shareholding interests in the Bank from falling below 55.0%. This
requirement could result in restrictions in the equity capital raising efforts of the Bank as the Government may
not be able to fund any further investments that would allow it simultaneously to maintain its stake at a
minimum of 55.0% and seek funding from the capital markets. As the Indian economy grows, more businesses
and individuals will require capital financing. In order to meet and sustain increasing levels of growth in capital
demand, the Bank will need to accrete its capital base, whether through organic growth or (more likely) capital
market financing schemes. If the Bank is unable to grow its capital base in step with demand, its business,
financial prospects and profitability may be materially and adversely affected.
14
The Bank's financial results for the six months ended September 30, 2007 are unaudited.
Pursuant to SEBI Guidelines, the audited statements contained in an offer document for a rights issue
shall not be older than six months from the Issue Opening Date. While issuers must generally comply with this
requirement, the Bank has only provided financial statements with limited review carried out by its auditors for
the six months ended September 30, 2007. Further, the financial disclosures pertaining to the period ended
December 31, 2007 were in compliance with RBI requirements. but were less detailed than the disclosures
pertaining to the September 30, 2007 results. To the extent these reviewed financial statements are not audited,
investors will have less information than they generally would for a typical rights issue in India.
If the Bank does not effectively manage its foreign operations, these operations may incur losses or otherwise
adversely affect the Bank’s business and results of operations.
As of December 31, 2007, the Bank had a network of 84 overseas offices in 32 countries. Because the
Bank has such a large number of foreign subsidiaries, joint ventures and associates, it is subject to additional
risks related to complying with a wide variety of national and local laws, restrictions on the import and export of
certain intermediates, technologies and multiple and possibly overlapping tax structures. In addition, the Bank
may face competition from banks in other countries that may have more experience in operations in those
countries or in international operations generally. The Bank may also face difficulties integrating new facilities
in different countries into its existing operations, as well as integrating employees that the Bank hires in
different countries into its existing corporate culture. If the Bank does not effectively manage its foreign
operations, it may lose money in these countries, which could adversely affect the Bank’s business and results of
operations.
If the Bank’s international expansion is unsuccessful, it may not be able to meet its projected earnings and
growth targets.
The Bank is seeking to expand its operations internationally by leveraging on its domestic relationships
and technology competencies in financial services. The expansion in international business is expected to
require substantial capital in the initial period and is expected to include acquisitions of foreign businesses.
Acquisitions involve various risks that are difficult for the Bank to control and the Bank cannot be certain that
any acquired or new businesses will perform as anticipated. The Bank’s inability to grow or succeed in new
business areas may adversely affect its business, future financial performance and the price of the Equity Shares.
If the Bank is not able to integrate any future acquisitions, the Bank’s business could be disrupted.
The Bank may seek opportunities for growth through acquisitions or be required to undertake mergers
mandated by RBI. Any future acquisitions or mergers may involve a number of risks, including deterioration of
asset quality, diversion of its management’s attention required to integrate the acquired business and failure to
retain key acquired personnel and clients, leverage synergies, rationalise operations, or develop the skills
required for new businesses and markets, or unknown and known liabilities, some or all of which could have an
adverse effect on its business.
The proposed merger of the Associate Banks with the Bank may engender opposition against the Bank and
lead to business disruptions, such as labour strikes, and adversely affect the Bank’s operations.
The Bank is considering the consolidation of its Associate Banks with its business, but has faced and
may continue to face opposition by the employees of the Associate Banks to such consolidation. In September
2007, the State Sector Bank Employees Association (“SSBEA”), an umbrella organisation of six of the
Associate Banks, called for a strike to oppose the proposed merger. In addition, strikes in December 2007 and
January 2008 have caused branch closures at all seven Associates Bank’s. On January 25, 2008, the United
Forum of Bank Unions (“UFBU”) called for a strike opposing the proposed merger which led to a total closure
of all branches of the Bank and the Associate Banks. Further, the UFBU has threatened to impose an ongoing
strike for an indefinite length of time. Although neither strike materially impacted the Bank’s or the Associate
Banks’ operations, union and popular opposition to any merger of the Associate Banks into the Bank may harm
the Bank’s reputation and disrupt business operations and the delivery of banking services to customers.
If the Bank is unable to adapt to rapid technological changes, its business could suffer.
15
The Bank’s future success will depend in part on its ability to respond to technological advances and to
emerging banking industry standards and practices on a cost-effective and timely basis. The development and
implementation of such technology entails significant technical and business risks. There can be no assurance
that the Bank will successfully implement new technologies effectively or adapt its transaction processing
systems to meet customer requirements or emerging industry standards. If the Bank is unable, for technical,
legal, financial or other reasons, to adapt in a timely manner to changing market conditions, customer
requirements or technological changes, its business, the future financial performance of the Bank and the trading
price of the Equity Shares could be materially affected.
The Bank is moving towards more innovative information technology systems as it expands and may
experience early implementation technical difficulties.
The Bank has begun implementing new information technology systems to facilitate and complement
its growth. As additional IT platforms are introduced and become integral to the Bank’s product offering,
unforeseen technical difficulties may cause disruption in the Bank’s operations. These disruptions may affect
customer services, internal operations and data management. The Bank is also implementing a Business Process
Reengineering (“BPR”) initiative to replace its existing systems. Until the BPR system is adequately tested in
compliance with RBI norms and fully introduced into the Bank’s operations, the Bank may experience
temporary setbacks and delays in its streamlining processes. As the Bank’s risk management systems evolve and
as its operations become more reliant upon technology to manage and monitor its risk, any failure or disruption
could materially and adversely affect its operations and financial position.
The Bank depends on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or to enter into other transactions with customers and
counterparties, the Bank may rely on information furnished to the Bank by or on behalf of customers and
counterparties, including financial statements and other financial information. The Bank 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, the Bank may
assume that a customer’s audited financial statements conform to generally accepted accounting principles and
present fairly, in all material respects, the financial condition, results of operations and cash flows of the
customer. The Bank’s financial condition and results of operations could be negatively affected by relying on
financial statements that do not comply with generally accepted accounting principles or with other information
that is materially misleading.
The Bank may not be able to properly manage its number of employees, which would negatively impact its
business.
As of September 30, 2007, the total number of the Bank’s employees reduced to 179,188 employees
from 192,250 as of September 30, 2006. The Bank has implemented exit option schemes for officers and
clerical cadres, which ended on November 1, 2006 and April 1, 2007, respectively. See “Business —
Employees.” Taking into consideration approximately 25,000 normal retirements in the next three years, the
Bank’s staff strength will be further reduced and, it is expected, so will staff costs. There can be no assurances,
however, that the Bank will be able to continue the implementation of its plan to reduce its number of
employees successfully in the future to the targeted levels. If the Bank is not successful in reducing its staffing
costs this may have a material adverse effect on the future financial performance of the Bank.
Any inability to attract and retain talented professionals may negatively affect the Bank.
The Bank employs some officers on a contract basis for various purposes. The salaries offered are
market competitive. However, the number of officers on market competitive salaries is minimal. An inability to
attract and retain such talented professionals or the resignation or loss of key management personnel may have
an adverse impact on the Bank’s business, future financial performance and trading price of the Equity Shares.
The Bank’s remuneration scheme may not be as attractive as other banks with which it competes and may
hurt the Bank’s ability to attract and maintain a skilled and committed workforce.
The Bank’s employee remuneration scheme is guided by industry level negotiations between bank
management represented by the Indian Banks’ Association, and bank workers represented by their respective
associations. All negotiations are subject to final approval by the Government, which limits the Bank’s
16
flexibility in implementing performance linked pay. If the general banking industry increasingly moves toward
incentive-based pay schemes, the Bank may not be as competitive as other banks. This may increase the
possibility that the Bank’s skilled personnel may go elsewhere for more attractive employment packages. In
addition, the Bank may at some point be required to, or choose to, provide an ESOP (or other benefits and
compensation) to its employees which may increase the operational costs of the Bank. Added employment
pressures may result in diminished profitability, especially if rates of return do not experience a commensurate
rise.
The Bank’s employees are highly unionised and any union action may adversely affect the Bank’s business.
Approximately 98% of the Bank’s employees belong to a single union. While the Bank believes it has
a strong working relationship with that union, there can be no assurance that the Bank will continue to have such
a relationship in the future. If the employees’ union was to call for a work stoppage or other similar action, the
Bank may be forced to suspend all or part of its operations until the dispute is resolved. If such a work stoppage
was to occur, the Bank’s business would be adversely affected.
There is outstanding litigation against the Bank and its subsidiaries which may adversely affect the Bank’s
shareholders.
There is outstanding litigation against the Bank and its subsidiaries. It is a defendant in legal
proceedings incidental to its business and operations. These legal proceedings are pending at different levels of
adjudication before various courts and tribunals. Should any new developments arise, such as a change in Indian
law or rulings against the Bank by appellate courts or tribunals, the Bank may need to make provisions in its
financial statements, which could adversely impact its financial results. Furthermore, if significant claims are
determined against the Bank and it is required to pay all or a portion of the disputed amounts, there could be a
material adverse effect on the Bank’s business and profitability. The details of litigation which have been
disclosed in this Letter of Offer are set out below:
Litigation against the Bank
• There are five civil cases against the Bank before various courts and authorities for an amount aggregating
to Rs. 1,472.3 million.
• There are two consumer cases against the Bank before the National Consumer Disputes Redressal
Commission for an amount aggregating to Rs. 689.6 million.
Litigation against the Subsidiaries
• There is one criminal case against the State Bank of Patiala before the Judicial Magistrate, Patna.
• There is one civil recovery case against the State Bank of Hyderabad before the Debt Recovery Tribunal,
Kolkata for an amount of approximately Rs. 274 million.
• There are three tax appeals against the State Bank of Hyderabad before the Income Tax Appellate Tribunal,
Hyderabad for an amount aggregating approximately Rs. 3,726.5 million.
Litigation by the Bank
• The Bank has filed twenty civil recovery cases before various courts and authorities for an amount
aggregating to approximately Rs. 20,536 million.
Litigation by the Subsidiaries
• The State Bank of Hyderabad has filed two tax appeals before the Commissioner of Income Tax (Appeals)
for an amount aggregating to Rs. 4,679.3 million.
• The State Bank of Patiala has filed seven civil recovery cases before various courts and authorities for an
amount aggregating to approximately Rs. 3,668 million.
The Group has contingent liabilities aggregating to R.s. 10,731,207 million on a consolidated basis.
As on September 30, 2007, the Group had contingent liabilities of approximately Rs. 10,731,207
million on a consolidated basis. In the year ended March 31, 2007, the Group saw a significant rise in its
contingent liabilities on account of an increase in the number of derivative transactions for both customers as
17
well as its proprietary account. If the Group’s contingent liabilities crystallise, this may have an adverse effect
on the Group’s future financial performance and the trading price of the Equity Shares. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Off Balance Sheet Items.” Details
of the Group’s contingent liabilities as on September 30, 2007 are set out below:
(Rs. in million)
Contingent Liability Amount
Claims against the bank not acknowledged
asdebts 7,449
Liability for partly paid
investments 1,123
Liability on account of outstanding forward
exchange contracts 2,565,777
Guarantees given on behalf of constituents
(a) In India 558,898
(b) Outside India 1,780
Acceptances, endorsements, and other
obligations 771,230
Other items for which the bank is contingently
liable 6,824,950
Total 10,731,207
The Bank’s business growth, both in terms of its new businesses and financial services, may add complexities
to its current operations, which, if not managed properly, may result in operational volatility whether within
or across its branches and business units.
The Bank’s expansion into new businesses and financial services product offerings will require proper
oversight and management. The new businesses will need to be set up and run profitably and the formation of
new strategic business units will need to be streamlined into the Bank’s existing operations. These new
businesses and business units will be formed across India, as well as internationally. Integrating the operations,
not only domestically throughout India, but also throughout the international offices, will increase the need for
high level management. In addition, not only are the financial prospects of the new businesses uncertain, but
they may also shift the financial and managerial resources away from other areas of its operations. In such a
case, the Bank’s other operations may suffer and the Bank’s performance as a whole may also decline. If the
Bank is unable to manage this growth process properly, its business prospects, financial position and
profitability may be materially adversely affected.
Risks Relating to India
A slowdown in economic growth, increased volatility of commodity prices or a rise in interest rates in India
could adversely affect the Bank’s business.
Any slowdown in the Indian economy or increased volatility of global commodity prices, in particular
oil and steel prices, could adversely affect the Bank’s borrowers and contractual counterparties. Because of the
importance of its commercial banking operations for retail customers and the importance of its agricultural loan
portfolio to its business, any slowdown in the growth of the housing, automobile and agricultural sectors could
adversely impact the Bank’s business. Since 2004, interest rates in the Indian economy have increased
significantly. See “Management’s Discussion and Analysis — Factors Affecting the Bank’s Results of
Operations and Financial Condition — Interest rates, allocation of funds and costs of funding.” Slowdown in
the demand for loans from corporate customers, retail customers and customers in the agricultural sector, due to
higher interest rates, could adversely impact its business.
A significant increase in the price of crude oil could adversely affect the Indian economy and the Bank’s
business.
India imports approximately 70.0% of its requirements of crude oil, which comprised approximately
29.9% of total imports in fiscal year 2007; accordingly, a significant increase in the price of crude oil could
adversely affect the Indian economy. For example, the sharp increase in global crude oil prices during fiscal
year 2001 adversely affected the Indian economy in terms of increased volatility in interest and exchange rates,
as well as the overall state of liquidity in the banking system, leading to intervention by the RBI. Since 2004,
18
there has been a sharp increase in global crude oil prices due to both increased demand and pressure on
production and refinery capacity, and to political and military tensions in key oil-producing regions. The full
burden of the oil price increase has not been passed to Indian consumers and has been substantially absorbed by
the Government and Government-owned oil marketing companies. While global crude prices have risen again,
and been sustained at high levels, a further increase or volatility of oil prices and the pass-through of an increase
to Indian consumers could have a material adverse impact on the Indian economy and on the Indian banking and
financial system in particular, including through a rise in inflation and market interest rates and a higher trade
deficit.
A significant change in the Government’s economic liberalisation and deregulation policies could adversely
affect the Bank’s business and the price of the Equity Shares.
The Bank’s assets and customers are predominantly located in India. The Government has traditionally
exercised and continues to exercise a dominant influence over many aspects of the economy. The Government’s
economic policies have had and could continue to have a significant effect on public sector entities, including
the Bank, and on market conditions and prices of Indian securities, including securities issued by the Bank. See
“Business — Relationship with the Government and the Reserve Bank of India.”
The most recent parliamentary elections were completed in May 2004. A coalition government led by
the Congress Party has been formed with Dr. Manmohan Singh as the Prime Minister of India. Although there
has been no significant change in the Government’s policies since May 2004, any significant change in the
Government’s economic liberalisation and deregulation policies could adversely affect business and economic
conditions in India and could also adversely affect the Bank’s business, its future financial performance and the
trading price of the Equity Shares.
Financial instability in other countries, particularly emerging market countries and countries where the
Bank has established operations, could adversely affect the Bank’s business and the price of the Equity
Shares.
The Indian economy is influenced by economic and market conditions in other countries, particularly
emerging market countries in Asia. The Bank has also established operations in several other countries. A loss
of investor confidence in the financial systems of other emerging markets and countries where the Bank has
established operations or any worldwide financial instability may cause increased volatility in the Indian
financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector and its
business.
If regional hostilities, terrorist attacks or social unrest in some parts of the country increase, the Bank’s
business and the price of the Equity Shares could be adversely affected.
India has from time to time experienced social and civil unrest and hostilities both internally and with
neighbouring countries. Present relations between India and Pakistan continue to be fragile on the issues of
terrorism, armament and Kashmir. India had also experienced terrorist attacks in some parts of the country.
These hostilities and tensions could lead to political or economic instability in India and a possible adverse
effect on the Bank’s business, its future financial performance and the trading price of the Equity Shares.
Further, India has also experienced social unrest in some parts of the country. If such tensions spread and lead to
overall political and economic instability in India, it may adversely affect the Bank’s business, future financial
Natural calamities could adversely affect the Indian economy, the Bank’s business and the price of the
Equity Shares.
India has experienced natural calamities such as earthquakes, floods and drought in recent years. The
extent and severity of these natural disasters determine their impact on the Indian economy. For example, in
fiscal year 2003, many parts of India received significantly less than normal rainfall. As a result of the drought
conditions during fiscal year 2003, the agricultural sector recorded a negative growth of 7.0%. Also, the erratic
progress of the monsoon season in fiscal year 2005 adversely affected sowing operations for certain crops and
resulted in a decline in the growth rate of the agricultural sector from 10.0% in fiscal year 2004 to negligible
growth in fiscal year 2005. The agricultural sector grew by 6.0% in fiscal year 2006 and by 2.7% in fiscal year
2007. Further prolonged spells of below or above normal rainfall or other natural calamities could adversely
19
affect the Indian economy and the Bank’s business, especially in view of the Bank’s strategy of increasing its
exposure to rural India.
Financial difficulties and other problems in certain financial institutions in India could adversely affect the
Bank’s business and the price of the Equity Shares.
The Bank is exposed to the risks inherent with the Indian financial system. These risks are driven by
the financial difficulties faced by certain Indian financial institutions, whose commercial soundness may be
closely interrelated as a result of credit, trading, clearing or other relationships amongst them. This risk, which is
sometimes referred to as “systemic risk,” may adversely affect financial intermediaries, such as clearing
agencies, banks, securities firms and exchanges with whom the Bank interacts on a daily basis. Any such
difficulties or instability of the Indian financial system in general could create an adverse market perception
about Indian financial institutions and banks and adversely affect the Bank’s business and the trading price of
the Equity Shares. As the Indian financial system operates within an emerging market, the Bank faces risks of a
nature and extent not typically faced in more developed economies, including the risk of deposit runs
notwithstanding the existence of a national deposit insurance scheme. See “Industry Overview.”
The price of the Equity Shares may be adversely affected by the recent financial instability in the United
States resulting from sub prime mortgages.
The recent credit market instability in the United States resulting from concerns with increased defaults
of higher risk mortgages to lower income households, or the so-called sub prime mortgages, may adversely
affect the Bank’s loan and investment portfolios, although the Bank has no direct exposure to U.S. sub prime
loans. For example, some of the Bank’s investment securities may need to be marked to market at a significantly
lower price because a market for those securities is not sufficiently liquid or prices are not properly quoted.
Some of the Bank’s borrowers may be exposed to companies which are adversely affected by the instability
stemming from the collapse of sub prime mortgages. The availability of credit may become limited due to an
overall deterioration of the credit markets, increasing the risk that some of the Bank’s counterparties may default.
Moreover, the negative developments in U.S. credit markets may cause significant fluctuations in stock markets
globally and foreign currency exchange rates which in turn may affect the Bank’s financial results. If credit
market conditions continue to deteriorate, the Bank’s capital funding structure may need to be adjusted, and its
funding costs may increase.
Any downgrading of India’s debt rating by an international rating agency could adversely affect the Bank’s
business and its liquidity.
Because the Bank’s foreign currency ratings are pegged to India’s sovereign ceiling, any adverse
revision to India’s credit rating for international debt will have a corresponding effect on the Bank’s ratings.
Any adverse change in the Bank’s ratings may limit its access to capital markets and decrease its liquidity.
An outbreak of avian influenza or other contagious diseases may adversely affect the Indian economy and
the Bank’s business.
Since late 2003, a number of countries in Asia, including India, as well as countries in other parts of the
world, have had confirmed cases of the highly pathogenic H5N1 strain of avian influenza in birds. Certain
countries in Southeast Asia have reported cases of bird to human transmission of avian influenza resulting in
numerous human deaths. The World Health Organisation and other agencies have issued warnings on a potential
avian influenza pandemic if there is sustained human to human transmission. Future outbreaks of avian
influenza or a similar contagious disease could adversely affect the Indian economy and economic activity in the
region. As a result, any present or future outbreak of avian influenza or other contagious diseases could have a
material adverse effect on the Bank’s business.
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.
The Bank was constituted under the Act, as amended from time to time. Substantially all of the Bank’s
Directors and executive officers and some of the experts named herein 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 affect service of process upon the Bank, or such persons outside India, or to enforce judgments
obtained against such parties outside India.
20
Recognition and enforcement of foreign judgments are provided for by section 13 of the Code of Civil
Procedure, 1908 of India (the “Civil Code”). Section 13 provides that foreign judgments 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 recognise the law of India in cases to which such law is applicable; (iv) where the proceedings in
which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by
fraud; and (vi) where the judgment sustains a claim founded on a breach of any law then in force in India. Under
the Civil 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 the record
India is not a party to any international treaty in relation to the recognition or enforcement of foreign
judgments. Section 44A of the Civil 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 Code is applicable only to monetary decrees not being in the same nature of amounts payable
in respect of taxes, other charges of a like nature or in respect of a fine or other penalties.
The United States has not been declared by the Government to be a “reciprocating territory” for the
purposes of section 44A of the Civil Code. A judgment of a court of a country which is not a reciprocating
territory may be enforced only by a fresh suit upon the judgment 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. Execution of a judgment or repatriation outside of India of any amounts
received is subject to the approval of the RBI. 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.
Indian accounting principles and audit standards differ from those which prospective investors may be
familiar with in other countries.
As stated in the report of the Bank’s independent auditors included in this Letter of Offer, the Bank’s
financial statements are prepared in conformity with Indian GAAP, consistently applied during the periods
stated, except as provided in such report, and no attempt has been made to reconcile any of the information
given in this Letter of Offer to any other accounting principles or to base it on any other auditing standards.
Indian GAAP differs from standards in the United States. See “Description of Certain Differences between
Indian GAAP and U.S. GAAP.”
There may be less company information available in the Indian securities markets than securities markets in
developed countries.
There may be differences between the level of regulation and monitoring of the Indian securities
markets and the activities of investors, brokers and other participants and that of the markets in the United States
and other developed countries. The Securities and Exchange Board of India (“SEBI”) is responsible for
approving and improving disclosure and other regulatory standards for the Indian securities markets. SEBI has
issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may,
however, be less publicly available information about Indian companies than is regularly made available by
public companies in developed countries.
A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy
which could have an adverse impact on the Bank.
India’s foreign exchange reserves increased by U.S.$ 28.5 billion (25.2%) in fiscal year 2005, by U.S.$
10.1 billion (7.1%) in fiscal year 2006 and by U.S.$ 47.6 billion (31.4%) in fiscal year 2007. As on March 31,
2007, India’s foreign exchange reserves stood at U.S.$ 199.2 billion and U.S.$ 247.8 billion as on September 28,
2007. A sharp decline in these reserves could result in reduced liquidity and higher interest rates in the Indian
21
economy, which in turn, could adversely affect the Bank’s business, its future financial performance and the
trading price of the Equity Shares.
Trade deficits could adversely affect the Bank’s business and the price of the Equity Shares.
India’s trade relationships with other countries can influence Indian economic conditions. In fiscal year
2007, India experienced a trade deficit of Rs. 2,906.6 billion from Rs. 2,039.9 billion in fiscal year 2006, an
increase of 42.5%. If India’s trade deficit increases and becomes unmanageable, the Indian economy, and
therefore the Bank’s business, future financial performance and the trading price of the Equity Shares could be
adversely affected.
Risks Relating to the Equity Shares
You may not receive the Equity Shares and other instruments that you subscribe for in this Issue until 42
days after the date on which this Issue closes, which will subject you to market risk.
The Equity Shares you purchase in this Issue will not be credited to your demat account with
depository participants until approximately 42 days from the Issue Closing Date. You can start trading on such
Equity Shares only after receipt of listing and trading approvals in respect of these shares. Since the Equity
Shares are already listed on stock exchanges, you will be subject to market risk from the date you pay for the
Equity Shares to the date they are listed. Further, there can be no assurance that the Equity Shares allocated to
you will be credited to your demat account, or that trading in the Equity Shares will commence within the time
periods specified above.
There may not be an active or liquid market for the Equity Shares, which may cause the price of the Equity
Shares to fall and may limit your ability to sell the Equity Shares.
The price at which the Equity Shares will trade after this Issue will be determined by the marketplace
and may be influenced by many factors, including:
• the Bank’s financial results and the financial results of the joint ventures and subsidiaries the Bank
operates;
• the history of, and the prospects for, the Bank’s business and the sectors and industries in which it
competes;
• the valuation of publicly traded companies that are engaged in business activities similar to the Bank’s;
and
• significant developments in India’s economic liberalisation and deregulation policies.
In addition, the Indian stock market has from time to time experienced significant price and volume
fluctuations that have affected the market prices for the securities of Indian companies. As a result, investors in
the Equity Shares may experience a decrease in the value of the Equity Shares regardless of the Bank’s
operating performance or prospects.
Future issues or sales of the Bank’s shares may significantly affect the trading price of the Equity Shares.
A future issue of the Bank’s shares or the disposal of shares by any of the Bank’s major shareholders,
or the perception that such issues or sales may occur, may significantly affect the trading price of the Equity
Shares. Other than the obtaining of consent from shareholders, some of the Bank’s lenders prior to altering its
capital structure and any regulatory consent that may be required under applicable law, there are no restrictions
on the Bank’s ability to issue shares, and there can be no assurance that it will not issue shares. There are
restrictions on daily movements in the price of the shares, which may adversely affect a shareholder’s ability to
sell, or the price at which such shareholder can sell, shares at a particular point in time.
The Indian securities markets are more volatile than certain other securities markets.
22
The Indian securities markets are more volatile than the securities markets in certain countries which
are members of the OECD. The Indian stock exchanges have, in the past, experienced substantial fluctuations in
the prices of listed securities.
The Indian stock exchanges have experienced problems which, if such or similar problems were to
continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the
Equity Shares. These problems have included temporary exchange closures, broker defaults, settlement delays
and strikes by brokers. In addition, the governing bodies of the Indian 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, and stock exchanges and
other regulatory bodies, which in some cases may have had a negative effect on market sentiment. A closure of,
or trading stoppage on, either of the BSE and the NSE could adversely affect the trading price of the Equity
Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Equity Shares will
trade in the future.
Foreign investment in the Bank is subject to limits specified by the Government.
The permissible foreign investment (including GDRs, investment by FIIs and NRIs) as prescribed by the
RBI is 20% of the Bank’s total paid up capital. Currently, the Bank’s total foreign holdings are
19.8%. Accordingly, unless the current foreign investment limit applicable to the Bank is changed, the amount
of additional foreign investment in the Bank is limited. Once the aggregate foreign investment in the Bank
reaches 20% of the Bank’s total paid up capital, the RBI instructs non-resident investors and authorised dealers
not to further transact in the Equity Shares of the Bank without prior approval of the RBI. These restrictions
may adversely affect the liquidity and market price of the Bank’s Equity Shares to the extent international
investors are not permitted to purchase shares in normal secondary transactions.
Shareholders will experience additional dilution as a result of the Bank’s planned Employee Share Purchase
Scheme.
The Bank plans to offer certain of its employees the right to purchase additional shares of the Bank.
The Central Government has by its letter F.No.11/7/2007-BOA dated January 25, 2008, approved the allotment
of up to 8,617,500 Equity Shares to certain employees of the Bank under its planned employee share purchase
scheme (“ESPS”). The Central Board approved the ESPS at its meeting held on February 1, 2008 for the grant
Equity Shares as per the approval by the Central Government as described above. The issue of Equity Shares
pursuant to the Scheme will result in an immediate dilution of your shareholding and may have a negative effect
on the trading price of the Equity Shares.
Non-resident shareholders may not be allowed to apply for additional shares.
Existing eligible non-resident shareholders may apply for additional Equity Shares over and above the
shares they are entitled to under the Issue. However, the RBI limits the amount of foreign investment in the
Bank of up to 20% of the total paid up capital (presently at 19.8%). As a result, eligible non-resident
shareholders may not be allowed to participate in the additional subscription of Equity Shares if their
participation would cause the Bank’s foreign investment to go beyond the 20% limit prescribed by the RBI. For
further information on eligible non-resident participation, see “Terms of the Present Issue – Subscription by
Eligible Non-Residents.”
Shareholder voting rights may be restricted.
Section 11 of the Act does not allow any individual shareholder, other than the Government, to exercise
voting rights in excess of ten percent of the Bank’s issued capital. To the extent that Shareholders are unable to
exercise all their voting rights with respect to the shares they own, their proportional voting power would be
reduced.
You may be subject to Indian taxes arising out of capital gains.
Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian
company are generally taxable in India. Any gain realised on the sale of listed equity shares on a stock exchange
held for more than twelve (12) months will not be subject to capital gains tax in India if Securities Transaction
23
Tax (“STT”) has been paid on the transaction. STT will be levied on and collected by a domestic stock exchange
on which the equity shares are sold. Any gain realised on the sale of equity shares held for more than twelve (12)
months to an Indian resident, which are sold other than on a recognised stock exchange and on which no STT
has been paid, will be subject to long term capital gains tax in India. Further, any gain realised on the sale of
listed equity shares held for a period of twelve (12) months or less will be subject to short term capital gains tax
in India.
Significant differences exist between Indian GAAP and other accounting principles, such as US GAAP,
which may be material to investors’ assessments of the Bank’s financial condition.
The Bank has prepared its financial statements and the financial information contained in this Letter of
Offer in accordance with Indian GAAP. Indian GAAP requirements differ in certain respects from those of US
GAAP. The Bank has not presented a reconciliation of its financial statements to US GAAP in this Letter of
Offer. Furthermore, the Bank has not quantified or identified the impact of the differences between Indian
GAAP and US GAAP as applied to its financial statements. As there are differences between Indian GAAP and
US GAAP, there may be substantial differences in the Bank’s results of operations, cash flows and financial
position if it were to prepare financial statements in accordance with US GAAP instead of Indian GAAP. See
“Summary of Significant Differences Between Indian GAAP and US GAAP.” Prospective investors should
consult their own professional advisors for an understanding of the differences between Indian GAAP and US
GAAP and how they might affect the financial information contained in this Letter of Offer.
There is no guarantee that the Equity Shares will be listed on the BSE, the NSE and the other stock
exchanges in a timely manner or at all, and any trading closures at the BSE and the NSE may adversely
affect the trading price of the Equity Shares.
In accordance with Indian law and practice, permission for listing of the Equity Shares will not be
granted until after those Equity Shares have been issued and allotted. Approval will require all other relevant
documents authorizing the issuing of Equity Shares to be submitted. There could be a failure or a delay in listing
the Equity Shares on the BSE and the NSE. Any failure or delay in obtaining the approval would restrict your
ability to dispose of your Equity Shares.
The regulation and monitoring of Indian securities markets and the activities of investors, brokers and
other participants differ, in some cases significantly, from those in Europe and the U.S. The BSE and the NSE
have in the past experienced problems, including temporary exchange closures, broker defaults, settlements
delays and strikes by brokerage firm employees, which, if continuing or recurring, could affect the market price
and liquidity of the securities of Indian companies, including the Equity Shares, in both domestic and
international markets. A closure of, or trading stoppage on, either of the BSE and the NSE could adversely
affect the trading price of the Equity Shares. Historical trading prices, therefore, may not be indicative of the
prices at which the Equity Shares will trade in the future.
Notes to Risk Factors:
1. The RBI conducts regular inspections of banking companies under the provisions of the Banking
Regulation Act. The reports of the RBI are strictly confidential. The RBI does not permit disclosure of
its inspection report.
2. This Issue is of 105,259,776 Equity Shares for cash (excepting the Government’s portion representing
62,867,840 Equity Shares) at a premium of Rs. 1,580 per Equity Share on rights basis to the existing
Equity Shareholders of the Bank in the ratio of 1 fully paid up Equity Share for every 5 fully paid up
Equity Shares held on the Record Date of February 4, 2008 in terms of this Letter of Offer.
3. Net worth of the Bank on a stand alone basis as on March 31, 2007 is Rs. 313 billion. The Issue is of
an amount aggregating Rs. 167,363.04 million.
4. The book value per Equity Share of the Bank as on March 31, 2007 was Rs. 595 per Equity Share.
5. The Bank has entered into certain related party transactions as disclosed in the section titled “Related
Party Transactions” on page [z].
24
6. Before making an investment decision in respect of this Issue, you are advised to refer to the section
entitled “Basis for Issue Price” on page [z].
7. The Promoter of the Bank is the Government of India. The average cost of acquisition of Equity Shares
by the Promoter is Rs. 1,130.35 per Equity Share.
8. The Bank is proposing an employee share purchase scheme (the “ESPS”). The Central Government has,
by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS.
Pursuant to Government authorisation, the Central Board has, at its meeting held on February 1, 2008,
approved the ESPS. The Bank may issue a maximum of 8,617,500 Equity Shares to its Eligible
Employees (as defined therein). The ESPS shall remain open for a period commencing from March 28,
2008 to April 15, 2008. The issue price will be Rs. 1,590 per Equity Share. The terms and conditions of
the ESPS, will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme and
Employees Stock Purchase Scheme) Guidelines, 1999 and all the issuances of shares will be done in
compliance with the guidelines/regulations/circulars at that time.
9. Trading in the Equity Shares, through the stock exchanges, for all investors shall be in dematerialised
form only.
10. For transactions in Equity Shares by Directors of the Bank in the last six months, please refer to the
section entitled “Capital Structure” on page [z].
11. Other than as stated in this Letter of Offer, the Directors/Key Management personnel have no interest
other than reimbursement of expenses incurred or normal remuneration or benefits.
12. The Bank and the Lead Managers are obliged to keep this Letter of Offer updated and inform the public
of any material change/development.
13. The Lead Managers and the Bank shall make any clarification or any information relating to the Issue
available to the investors at large and no selective or additional information would be available for a
section of the investors in any manner whatsoever.
14. The Lead Managers and the Bank shall update this Letter of Offer and keep the shareholders/public
informed of any material changes till the listing and trading commencement and the Bank shall
continue to make all material disclosures as per the terms of the listing agreement.
25
THE ISSUE
Equity Shares proposed to be issued by the Bank 105,259,776 shares

Rights Entitlement One Equity Share for every five Equity Shares held as
on the Record Date.
Record Date February 4, 2008.
Issue Price per Equity Share Rs. 1,590 per Equity Share (including a premium of
Rs. 1,580 per Equity Share)
Equity Shares outstanding prior to the Issue 526,298,878
Equity Shares outstanding after the Issue and the 640,176,154
ESPS
Terms of the Issue For more information, see “Terms of the Present Issue”
on page [●]
Terms of Payment
The Issue price of the full number of Equity Shares being applied for, i.e. an amount of Rs. 1,590 per
share including the share premium of Rs. 1,580 per Equity Share being applied for, is to be paid at the time of
application.
Objects of the Issue:
• To improve the Bank’s capital adequacy ratio by augmenting Tier I capital;

• Ensure compliance with regulatory requirements; and
• Other general corporate purposes including meeting expenses related to the Issue.
For details on the Objects of the Issue, refer to “Objects of the Issue” on page [●].
26
SELECTED FINANCIAL AND OPERATING DATA
The Bank’s financial and other data for fiscal year 2005 through fiscal year 2007 and the six-months
ended September 30, 2006 and 2007 included in this Letter of Offer have been derived from its consolidated and
unconsolidated financial statements prepared in accordance with generally accepted accounting principles in
India, or Indian GAAP, guidelines issued by the RBI from time to time and practices generally prevailing in the
banking industry in India. These financial statements do not include the results of operations of its subsidiaries
and other consolidating entities.
The financial statements are prepared in accordance with Indian GAAP according to which the
financial statements contain figures for two years (current year and previous year) for the purpose of
comparison. The financial statements of the Bank for the years ended March 31, 2007, 2006 and 2005, as
presented hereunder have been reformatted to contain the figures for these years. As there has been a change in
accounting policies during fiscal year 2007, certain line items relating to fiscal year 2006 as extracted from the
2007 annual financial statements in respect of figures relating to the previous year have been regrouped to
reflect the change. The data relating to the year 2005 has been extracted from the 2006 annual financial
statements in respect of figures relating to the previous year and therefore certain line items relating to fiscal
year 2005 are not strictly comparable with those relating to fiscal year 2007 or the regrouped data for fiscal
year 2006 as appearing herein. See “Note on Reformatting and Regrouping” in the Financial Statements at the
conclusion of the Letter of Offer for further discussion.
Potential investors should read the following data together with the more detailed information
contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and related notes included elsewhere in this Letter of Offer. The following data is
qualified in its entirety by reference to all of that information.
Unconsolidated Data
Selected Income Statement Data
Six month period ended

Year ended March 31, September 30,
2005 2006 2007 2006 2007
(Rs. in millions)
INCOME
Interest earned
Interest/discount on advance/bills........................... 130,435 176,963 248,392 113,691 163,536
Income on investments ........................................... 160,277 139,775 114,930 50,753 54,613
Interest on balances with RBI and other inter-
bank funds ........................................................ 17,870 21,217 27,196 8,301 8,887
Others ...................................................................... 15,698 21,840 4,392 37 32
Other income
Commission, exchange and brokerage ................... 35,447 39,962 48,045 16,063 20,525
Profit/(loss) on sale of investments (Net) ............... 17,753 5,872 5,678 2,212 7,125
Profit/(loss) on revaluation of investments (Net) ...
- - (16,775) (6,728) (7,403)
Profit on sale of land, buildings and other assets
including leased assets (Net) ........................... (8) 19 121 - -
Profit on exchange transactions (Net)..................... 5,282 10,013 3,734 2,107 1,407
Income earned from dividends from
subsidiaries/companies and/or joint 3,932 3,172 5,970 3,617 1,723
27
2005 2006 2007 2006 2007
(Rs. in millions)
ventures in India and abroad............................
Income from financial leases .................................. 1,392 1,178 836 693 308
Miscellaneous income............................................. 7,401 14,137 10,084 7,295 8,120
Total income.................................................................. 395,479 434,148 452,603 198,041 258,873
EXPENDITURE
Interest expended
Interest on deposits.................................................. 171,865 181,322 190,836 90,072 125,470
Interest on RBI/inter-bank borrowings................... 4,087 13,215 21,415 7,433 14,412
Others ...................................................................... 8,882 9,367 22,117 4,554 7,543
Operating expenses
Payments to and provisions for employees ............ 69,073 81,230 79,326 38,790 40,216
Rent, taxes and lighting........................................... 7,231 7,964 8,965 4,079 4,474
Printing and stationery ............................................ 1,625 1,756 1,739 916 1,033
Depreciation ............................................................ 7,522 7,291 6,024 3,628 3,113
Directors’ fees, allowances and expenses............... 10 12 11 6 5
Auditors’ fees and expenses.................................... 543 636 623 347 595
Law charges ............................................................ 498 495 573 266 266
Postage, telegrams, telephones, etc......................... 744 1,022 1,182 422 812
Repairs and maintenance ........................................ 1,340 1,703 1,892 928 995
Insurance ................................................................. 2,400 3,408 3,553 1,811 2,024
Other expenditures .................................................. 9,756 11,734 14,348 5,607 7,168
Provisions and contingencies 66,858 68,926 54,586 19,351 20,375
Total expenditure 352,434 390,081 407,190 178,210 228,501
PROFIT
Net profit for the year.............................................. 43,045 44,067 45,413 19,831 30,372
Profit brought forward ............................................ 3 3 3 3 3
Transfer from general reserve................................. - - 29 - -
Total profit 43,048 44,070 45,445 19,834 30,375
APPROPRIATIONS
Transfer to statutory reserves.................................. 24,821 29,338 33,581 - -
Transfer to capital reserve, Investment
Fluctuation Reserves & Revenue and other
reserves 10,708 6,327 3,241 - -
Dividend .................................................................. 6,579 7,368 7,368 - -

Tax on dividend ...................................................... 937 1,034 1,252 - -
Balance carried over to balance sheet..................... 3 3 3 19,834 30,375
Total appropriations .................................................... 43,048 44,070 45,445 19,834 30,375
28
Per Equity Share Data
The following table sets forth the basic and diluted earnings per share of the Bank in accordance with
Indian GAAP. Basic earnings per share is computed by dividing net profit after tax by the weighted average
number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares outstanding
during the year.

2005 2006 2007 2006 2007
(Rs. in millions, except per share data)
Basic and diluted

Weighted average no. of Equity Shares
outstanding ............................................................ 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878
Net profit ............................................................... 43,045 44,067 45,413 19,831 30,372
Basic and diluted earnings per share..................... 81.79 83.73 86.29 75.36* 115.42*
Nominal value per share........................................ 10.00 10.00 10.00 10.00 10.00
* Annualised
Balance Sheet Data
As on
As on March 31, September 30,
2005 2006 2007 2006 2007
(Rs. in millions)
CAPITAL AND LIABILITIES
Capital ..................................................... 5,263 5,263 5,263 5,263 5,263
Reserves and Surplus
Statutory reserves .............................. 140,871 170,209 203,790 170,209 203,790
Capital reserves ................................. 3,029 4,181 4,181 4,181 4,181
Share premium .................................. 35,106 35,106 35,106 35,106 35,106
Investment fluctuation reserve.......... 52,539 - - - -
Revenue and other reserves .............. 1,030 58,745 61,956 58,744 61,956
Foreign currency translation
reserve ............................................... 2,880 2,934 2,686 3,944 457
Balance of profit and loss account....
3 3 3 19,834 30,375
Deposits
Demand deposits ............................... 566,123 679,956 819,980 627,408 711,427
Savings bank deposits ....................... 949,072 1,127,239 1,291,365 1,244,589 1,392,656
Term deposits .................................... 2,155,281 1,993,265 2,243,866 2,133,093 2,766,460
Borrowings
Borrowings in India .......................... 12,421 66,424 58,197 41,170 62,511
Borrowings outside of India.............. 179,423 239,989 338,836 281,674 386,868
Other liabilities and provisions
Other Liabilities and Provisions 461,140 507,118 456,116 734,791 460,365
Subordinate Debts 34,648 49,858 144,307 105,308 229,976
Total capital and liabilities .................... 4,598,829 4,940,290 5,665,652 5,465,314 6,351,391
ASSETS
29
As on
As on March 31, September 30,
2005 2006 2007 2006 2007
(Rs. in millions)
Cash and balances with the RBI
Cash in hand (incl. foreign
currency and gold)............................. 14,362 20,802 25,301 28,930 23,760
Balance with RBI .............................. 153,742 195,725 265,463 287,490 438,258
Balances with banks & money at
call & short notice
In India .............................................. 155,394 86,836 75,000 90,504 66,211
Outside India ..................................... 69,723 142,237 153,923 142,562 61,759
Investments
In India .............................................. 1,924,564 1,572,862 1,433,363 1,405,830 1,746,489
Outside India ..................................... 46,415 52,480 58,126 59,065 55,109
Advances
Bills purchased and discounted......... 214,708 248,537 307,871 262,893 328,495
Cash credits, overdrafts and loans
repayable on demand......................... 739,152 958,568 1,254,762 968,664 1,307,254
Term loans......................................... 1,069,885 1,410,904 1,810,732 1,598,973 1,950,400
Fixed assets 26,977 27,529 28,189 26,701 31,815
Other assets 183,907 223,810 252,922 593,702 341,841
Total assets .............................................. 4,598,829 4,940,290 5,665,652 5,465,314 6,351,391
Consolidated Data
The consolidated operating results data for the fiscal years 2005, 2006, and 2007 and the six-months
ended September 30, 2006 and 2007 are presented in the table below.

2005 2006 2007 2006 2007
(Rs. in millions)
INCOME
Interest earned ................................................. 444,991 498,921 572,377 251,176 333,583
Other income.................................................... 100,366 111,740 111,391 45,152 69,485
Total income 545,357 610,661 683,768 296,328 403,068
EXPENDITURE
Interest expended ............................................. 248,918 281,029 339,827 150,167 222,306
Operating expenses .......................................... 144,436 176,013 200,018 89,628 108,813
Provisions and contingencies........................... 96,023 97,004 77,725 28,251 30,667
Total expenditure .................................................. 489,377 554,046 617,570 268,046 361,786
PROFIT
Net profit for the year....................................... 55,980 56,615 66,198 28,282 41,282
Less: Minority Interest ..................................... 1,341 1,316 2,555 1,307 1,158
Group profit...................................................... 54,639 55,299 63,643 26,975 40,124
Add: Brought forward profit attributable to
the group ....................................................... 2,341 134 3,864 3,864 1,190
Transfer from general reserve .......................... - - 29 N/A N/A
Total profit ............................................................. 56,980 55,433 67,536 N/A 41,314
APPROPRIATIONS
Transfer to statutory reserves............................ 29,250 34,537 40,063 N/A N/A
30
2005 2006 2007 2006 2007
(Rs. in millions)
Transfer to other reserves.................................. 20,080 8,631 17,663 N/A N/A
Dividend............................................................ 6,579 7,368 7,368 N/A N/A
Corporate tax on dividend................................. 937 1,033 1,252 N/A N/A
Balance carried over to balance sheet............... 134 3,864 1,190 N/A N/A
Total appropriations ............................................. 56,980 55,433 67,536 N/A N/A
Balance Sheet Data
As on March 31, As on September 30,

2005 2006 2007 2006 2007
(Rs. in millions,)
CAPITAL AND LIABILITIES
Capital ............................................................ 5,263 5,263 5,263 5,263 5,263
Reserves & surplus......................................... 320,255 366,804 420,094 394,389 457,724
Minority interest............................................. 13,041 14,303 16,899 15,517 18,418
Deposits.......................................................... 5,061,053 5,440,243 6,362,729 5,784,943 7,024,773
Borrowings..................................................... 229,295 369,749 486,618 399,951 568,595
Other liabilities & provisions......................... 656,869 773,556 860,141 1,013,148 993,706
Total capital and liabilities ................................. 6,285,776 6,969,918 8,151,744 7,613,211 9,068,479
ASSETS
Cash & balances with the RBI ....................... 256,158 311,288 450,661 415,321 656,516
Balances with banks & money at call &
short notice ................................................. 253,412 262,077 274,108 265,490 161,715
Investments .................................................... 2,619,620 2,279,311 2,165,210 2,119,268 2,554,373
Advances ........................................................ 2,869,866 3,744,762 4,872,860 4,101,620 5,197,454
Fixed assets .................................................... 35,736 39,563 39,994 39,917 44,826
Other assets .................................................... 250,984 332,917 348,911 671,595 453,595
Total assets ........................................................... 6,285,776 6,969,918 8,151,744 7,613,211 9,068,479
31
GENERAL INFORMATION
Dear Equity Shareholder(s),
The Government has, by its letter (no. F.No.11/16/2005-BOA) dated January 2, 2008, authorised the
increase in the issued capital of the Bank and pursuant to the resolutions passed by the Central Board of
Directors of the Bank at its meeting held on January 14, 2008, the following offer will be made to the Equity
Shareholders of the Bank, with a right to renounce:
ISSUE OF 105,259,776 EQUITY SHARES OF FACE VALUE RS. 10 EACH AT A PREMIUM

OF RS. 1,580 PER EQUITY SHARE AGGREGATING TO AN AMOUNT EQUIVALENT TO
RS. 167,363.04 MILLION TO THE EQUITY SHAREHOLDERS ON A RIGHTS BASIS IN THE
RATIO OF ONE EQUITY SHARE FOR EVERY FIVE EQUITY SHARES HELD ON THE RECORD
DATE i.e. FEBRUARY 4, 2008 ("ISSUE"). THE ISSUE PRICE FOR EQUITY SHARES IS 159 TIMES
OF THE FACE VALUE OF THE EQUITY SHARE.
Corporate Office of the Bank

State Bank of India
State Bank Bhavan, Madame Cama Road
Mumbai 400 021
Maharashtra, India
The Equity Shares of the Bank are listed on the BSE and NSE. The Bank’s Equity Shares are also
listed at Ahmedabad, Calcutta, Chennai and New Delhi. The GDRs issued by the Bank of New York in respect
of the Equity Shares are listed on the London Stock Exchange.
Central Board of Directors as of December 31, 2007.
Name Designation
Mr. O.P. Bhatt Chairman
Mr. T.S. Bhattacharya Managing Director
Mr. S. K. Bhattacharyya Managing Director
Mr. Suman Kumar Bery Director appointed under section 19(c) of the Act
Dr. Ashok Jhunjhunwala Director appointed under section 19(c) of the Act
Mr. Ananta C. Kalita Director appointed under section 19(ca) of the Act
Mr. Amar Pal Director appointed under section 19(cb) of the Act
Mr. Piyush Goyal Director appointed under section 19(d) of the Act
Dr. Deva Nand Balodhi Director appointed under section 19(d) of the Act
Prof. Mohd. Salahuddin Ansari Director appointed under section 19(d) of the Act
Mr. Vinod Rai Director appointed under section 19(e) of the Act
Ms. Shyamala Gopinath Director appointed under section 19(f) of the Act
32
For further details on the Bank’s Directors, see “Management” on page [●] of this Letter of Offer.
Compliance Officer
Mr. Subrata Maiti
General Manager (Shares & Bonds)
State Bank of India
State Bank Bhavan, Madame Cama Road
Mumbai 400 021
Maharashtra, India
Tel.: (91 22) 2288 3888
Fax: (91 22) 2285 5348
Email: gm.snb@sbi.co.in
Investors may contact the General Manager (Shares & Bonds) for any pre-Issue / post-Issue related
matters.
Bankers of the Bank
State Bank of India
Issue Management Team

Lead Managers to the Issue
Citigroup Global Markets India Private Limited

Bakhtawar, 12th Floor
229, Nariman Point,
Mumbai 400 021
Tel : (91 22) 6631 9999
Fax : (91 22) 6631 9803
Email: investors.cgmib@citi.com
Website: www.citibank.co.in
Contact Person: Amulya Goyal
CLSA India Limited

8th Floor, Dalamal House
Nariman Point
Mumbai 400 021
Tel: (91 22) 6650 5050
Fax: (91 22) 2285 6524
Email: sbi.rights@clsa.com
Website: www.india.clsa.com
Contact Person: Mr. Sumit Jalan
DSP Merrill Lynch Limited

Mafatlal Center, 10th Floor,
Nariman Point,
Mumbai 400 021
Tel: (91 22) 6632 8000
Fax: (91 22) 2204 8518
Email: sbi_rights@ml.com
Website: www.dspml.com
Contact Person: Mr. Pranav Mehta
33
Deutsche Equities India Private Limited
DB House, Hazarimal Somani Marg
Tel: (91 22) 6658 4600
Fax: (91 22) 2200 6765
Email: sbi.rights@list.db.com
Website: www.db.com/India
Contact Person: Mr. Vikram Gupta
Kotak Mahindra Capital Company Limited

3rd Floor, Bakhtawar
229 Nariman Point
Mumbai 400 021
Tel: (91 22) 6634 1100
Fax: (91 22) 2283 7517
Email: sbi.rights@kotak.com
Investor Grievance Email: kmccredressal@kotak.com
Website: www.kotak.com
Contact Person: Mr. Chandrakant Bhole
SBI Capital Markets Limited

202, Maker Tower 'E'
Cuffe Parade
Mumbai 400 005
Tel: (91 22 ) 2218 9166
Fax: ( 91 22) 2218 8332
Email: sbi.rightsissue@sbicaps.com
Website: www.sbicaps.com
Contact Person: Mr. Ajay Srivastava
34
The statement of inter se allocation of responsibilities for this Issue between is as follows:
No Activities Responsibility Coordinator

1. Capital structuring with the relative Citi, DSPML, DB, DSPML
components and formalities such as type of CLSA, Kotak
instrument, number of instruments to be
issued, etc.
2. Finalising ESPS Scheme alongwith the Bank Citi, DSPML, DB, DSPML
and other intermediaries and related activities. CLSA, Kotak
Drafting, design and distribution of the Letter

of Offer (LOF), Abridged LOF, CAF etc. and
memorandum containing salient features of the
Letter of Offer. The Lead Managers shall
Citi, DSPML, DB,
3. ensure compliance with the Guidelines for Citi
CLSA, Kotak
Disclosure and Investor Protection, Listing
Agreement and other stipulated requirements
and completion of prescribed formalities with
Stock Exchanges and SEBI.
Drafting and approval of all publicity material Citi, DSPML, DB, CLSA
4. including statutory advertisement, corporate CLSA, Kotak
advertisement, brochure, corporate films, etc.
5. Selection of various agencies connected with Citi, DSPML, DB,
the issue, namely CLSA, Kotak
- Registrars to the Issue; Kotak
- Printers; Citi
- Advertisement agencies; and CLSA
- Banker to Issue DB
6. Institutional marketing strategy Citi, DSPML, DB, CLSA
CLSA, Kotak, SBI
CAPS
7. Offer to GDR Holders as applicable Citi, DSPML, DB, DB
CLSA, Kotak
8. Retail/Non-institutional marketing strategy Citi, DSPML, DB, CLSA
which will cover, inter alia, preparation of CLSA, Kotak, SBI
investor presentation, publicity budget, CAPS
arrangements for selection of (i) ad-media, (ii)
centres of holding conferences of brokers,
investors etc.
9. Follow-up with Banker to the Issue to get Citi, DSPML, DB, Kotak
quick estimates of collection and advising the CLSA, Kotak
Bank about closure of the issue, based on the
correct figures. The post-issue activities will
involve essential follow-up steps, which
include finalisation of basis of allotment /
weeding out of multiple applications, listing of
instruments and dispatch of certificates and
refunds, with the various agencies connected
with the work such as Registrars to the Issue,
Bankers to the Issue, and bank handling refund
business. The Lead Managers shall be
responsible for ensuring that Registrars to the
Issue and Bankers to the Issue fulfill their
functions and enable it to discharge
responsibility through suitable agreements
with the Bank.
35
Indian Legal Advisors to the Bank
Amarchand & Mangaldas & Suresh A. Shroff & Co.
Peninsula Chambers
Peninsula Corporate Park
Ganpatrao Kadam Marg
Lower Parel
Mumbai 400 013
Tel: (91 22) 6660 4455
Fax: (91 22) 2496 3666
International Legal Advisors to the Bank

Allen & Overy
9th Floor, Three Exchange Square
Central
Hong Kong
Tel No: (852) 2974 7000
Fax No: (852) 2974 6999
Indian Legal Advisors to the Lead Managers

J. Sagar Associates
Vakils House, 1st Floor
18 Sprott Road, Ballard Estate
Mumbai 400 001
Tel No: (91 22) 6656 1533
Fax No: (91 22) 6656 1515
International Legal Advisors to the Lead Managers

Clifford Chance
29th Floor, Jardine House
One Connaught Place
Hong Kong
Tel No: (852) 2825 8888
Fax No: (852) 2825 8800
Auditors of the Bank

1. M.M. Nissim & Co.
Barodawala Mansion, B-Wing, 3rd Floor,
81, Dr. Annie Besant Road
Worli, Mumbai 400 018.
2. Khandelwal Jain & Co
12-B Baldota Bhawan, 5th Floor,
117, Maharshi Karve Road, Opp. Churchgate
Mumbai 400 020
3. R.G.N. Price & Co.
Simpson Buildings,
861, Mount Road,
Chennai 600 002
4. S.K. Mittal & Co.
Mittal House, E-29,
South Extension Part II,
New Delhi 110 049.
36
5. Vinay Kumar & Co.
Chandra Shekar Azad Market Complex,
5 Sardar Patel Marg, Civil Lines,
Allahabad 2110 01 (UP)
6. D.P. Sen & Co.
22, Ashutosh Chowdhury Avenue,
2nd Floor, Flat No. 22,
Kolkata 700 019
7. Laxminiwas & Jain
5-4-726, Station Road, Nampally,
Hyderabad 500 001
8. Chaturvedi & Co.
Kolkata – 700 069
9. Jain Kapila Associates
3000, Bhagat Singh Street No. 2,
Paharganj,
New Delhi 110 055
10. Datta Singla & Co.
SCO-2935-36 (1st floor), Sector 22 C,
Chandigarh 160 022
11. M. Choudhury & Co.
Kolkata – 700 069
12. G. M. Kapadia & Co.
36B Tamarind House, Tamarind Lane,
13. Vardhaman & Co.
Flat 1C Rear Block, Oakland Apartments,
7 Malony Road,
T. Nagar, Chennai 600 017
Registrar to the Issue
Datamatics Financial Services Limited

Plot No. A-16 & A-17, MIDC Area, Part B, Cross Lane,
Andheri (East)
Mumbai 400 093
Tel.: (91 22) 6671 2151- 2156
Fax: (91 22) 6671 2192
Contact Person: Mr. Dnyanesh Gharote
Note: Investors are advised to contact the Registrar to the Issue/Compliance Officer in case of any pre-
issue/post issue related problems such as non-receipt of Letter of Offer/abridged letter of offer/composite
application form/allotment advice/share certificate(s)/ refund orders.
Credit Rating
This being an issue of Equity Shares, no credit rating is required.
37
Monitoring Agency
No monitoring agency has been appointed for this Issue.
Minimum Subscription
If the Bank does not receive a minimum subscription of 90% of the Issue, the Bank shall refund the
entire subscription amount received within 42 days from the date of closure of the Issue. If there is a delay
beyond eight days after the date from which the Bank becomes liable to pay the amount (i.e. 42 days after
closure of the Issue), the Bank shall pay interest calculated at the rate of 15%.
Underwriting Arrangements
The Issue is not underwritten.
ISSUE OPENS ON - February 18, 2008
ISSUE CLOSES ON - March 18, 2008
38
OVERSEAS SHAREHOLDERS
Persons into whose possession this Letter of Offer may come are required to inform themselves about and
observe such restrictions. The Bank is making this issue of Equity Shares on a rights basis to the shareholders of
the Bank and the Letter of Offer/Abridged Letter of Offer and CAF will be dispatched to those shareholders
who have an Indian address.
No action has been or will be taken to permit this Issue in any jurisdiction where action would be
required for that purpose. Accordingly, the Equity Shares represented thereby may not be offered or sold,
directly or indirectly, and this Letter of Offer may not be distributed in any jurisdiction outside of India. Receipt
of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such
an offer and, in those circumstances, this Letter of Offer must be treated as having been sent for information
only and should not be copied or redistributed. No person receiving a copy of this Letter of Offer in any territory
other than in India may treat the same as constituting an invitation or offer to him, nor should he in any event
use the CAF. The Bank will not accept any CAF where the address as indicated by the applicant is not an Indian
address. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection with the issue of
Equity Shares or the Rights Entitlements, distribute or send the same in or into the United States or any other
jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter of Offer
is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to
the Equity Shares or the Rights Entitlements referred to in this Letter of Offer.
Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create
any implication that there has been no change in the Bank’s affairs from the date hereof or that the information
contained herein is correct as at any time subsequent to this date.
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive;
below.
39
implementing CONSOB regulations, as amended from time to time, and in Article 2 of Directive No.
2003/71/EC of 4 November 2003; or
(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article
100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971
of 14 May 1999, as amended (Regulation No. 11971).
(a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in
the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No.
16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1
September 1993, as amended (the “Banking Act”); and
(b) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB
or other Italian authority.
NO OFFER IN THE UNITED STATES
The Rights Entitlements and the Equity Shares of the Bank have not been and will not be registered
under the United States Securities Act of 1933, as amended (the “Securities Act”), or any U.S. state securities
laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the
territories or possessions thereof (the “United States” or “U.S.”) or to, or for the account or benefit of, “U.S.
Persons” (as defined in Regulation S under the Securities Act (“Regulation S”)), except in a transaction exempt
from the registration requirements of the Securities Act. The rights referred to in this Letter of Offer are being
solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter of Offer and the
enclosed CAF should not be forwarded to or transmitted in or into the United States at any time.
Neither the Bank nor any person acting on behalf of the Bank will accept a subscription or renunciation
from any person, or the agent of any person, who appears to be, or who the Bank or any person acting on behalf
of the Bank has reason to believe is, in the United States and to whom an offer, if made, would result in
requiring registration of this Letter of Offer with the United States Securities and Exchange Commission.
Envelopes containing a CAF should not be postmarked in the United States or otherwise dispatched from the
United States, and all persons subscribing for Equity Shares and wishing to hold such shares in registered form
must provide an address for registration of the Equity Shares in India. The Bank is making this issue of Equity
Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer and
CAF shall be dispatched to those Shareholders who have an Indian address. Any person who acquires Rights
Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery
40
of this Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights
Entitlements, it will not be, in the United States.
The Bank reserves the right to treat as invalid any CAF which: (i) appears to the Bank or its agents to
have been executed in or dispatched from the United States; (ii) does not include the relevant certification set
out in the CAF headed “Overseas Shareholders” to the effect that the person accepting and/or renouncing the
CAF does not have a registered address (and is not otherwise located) in the United States; or (iii) where the
Bank believes acceptance of such CAF may infringe applicable legal or regulatory requirements; and the Bank
shall not be bound to allot or issue any Equity Shares or Rights Entitlement in respect of any such CAF.
Rights may not be transferred or sold to any U.S. Person.
41
CAPITAL STRUCTURE
Value at
Issue
Face Price (in
value (in Rs.
Rs. million) million)
Authorised share capital
Equity Shares of Rs. 10 each......................................................................... 10,000.00 N.A.
Issued capital*#
Detailed
526,298,878 Equity Shares of Rs. 10 each.................................................... 5,262.99 below
Subscribed capital
Detailed
526,298,878 Equity Shares of Rs. 10 each.................................................... 5,262.99 below
Present Issue being offered to the Equity Shareholders through the Letter of Offer**
105,259,776 Equity Shares of Rs. 10 each at a premium of Rs. 1,580 per Equity
Share at a price of Rs. 1,590 each 1,052.60 167,363.04
Present Issue being offered to the employees of the Bank under the ESPS
8,617,500 Equity Shares of Rs. 10 each at a premium of Rs. 1,580 per Equity Share 86.18 13,701.83
at a price of Rs. 1,590 each
Paid up capital after the Issue and the ESPS**
After allotment of Equity Shares under the Issue and ESPS
Equity Shares of Rs. 10 each......................................................................... 6,401.76 N.A.
Share Premium Account
Existing share premium account ................................................................... 35,105.73 N.A.

Share premium account after the Issue ......................................................... 215,031.83 N.A.
* As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-
BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank from Rs. 526.30
crores to Rs. 650 crores. Further, in terms of the Government’s Letter (Letter No. F/ 11/ 7/ 2007- BOA)
dated December 3, 2007, the Government has intimated to the Bank that the cabinet has granted its
approval for investing approximately Rs. 10,000 crores in the Issue by issuing SLR marketable securities
towards the Government’s Rights Entitlement. Accordingly, in terms of Section 5(2) of the Act, this Issue,
with a right to renounce, has been authorised by the Central Board pursuant to the resolution passed at its
meetings held on January 14, 2008. This Letter of Offer has been approved by the Central Board at its
meeting held on February 1, 2008.
# Prior to the present Issue being offered to the Equity Shareholders, as on January 25, 2008, the Bank has
38,830,638 Equity Shares of Rs. 10 each which are evidenced by 19,415,319 GDRs.
42
** These figures assume a full subscription of the Issue and the ESPS.
Changes in the Bank’s Authorised Share Capital
Year Authorized Share Capital

July 1, 1955 Rs. 200,000,000
1985 Rs. 2,000,000,000
1990 Rs. 10,000,000,000
Notes to the Capital Structure
1. The build up of the Bank’s Equity Share Capital as of December 31, 2007 is set out below:
Date of No. of Equity Face Issue Nature of Reasons for Cumulative Cumulative
Allotment Shares value price Consideration Allotment Number of Subscribed
(Rs.) shares capital
(Rs in
million)
1955 562,500 100 100 Cash Incorporation 562,500 56.25
of the Bank
1985 4,437,500 100 160 Cash Increase in 5,000,000 500.00
the Issued
Capital of the
Bank – public
issue
1987 10,000,000 100 160 Cash Increase in 15,000,000 1,500.00
the Issued
Capital of the
Bank – public
issue
1991 5,000,000 100 160 Cash Increase in 20,000,000 2,000.00
the Issued
Capital of the
Bank –public
issue
1994 180,000,000 10 - - Stock Split 200,000,000 2,000.00
1994 141,850,000 10 100 Cash Public Issue 341,850,000 3,418.5
of Equity
Shares of
Rs 10 each
for cash at a
premium of
Rs 90 per
Equity Share
1994 131,978,726 10 60 Cash Rights Issue 473,828,726 4,738.30
of Equity
Shares of
Rs 10 each
for cash at a
premium of
Rs 50 per
equity share
in the ratio of
three new
Equity Shares
for every five
shares held
and also to
employees at
the Rights
Issue price.
1995 180,463 10 100 Cash Increase in 474,009,189 4,740.091
43
the Issued
Capital -
public
1996 683 10 100 Cash Increase in 474,009,872 4,740.098
the Issued
Capital
1996 52,290,000 10 U.S.$ Cash Issue of GDR 526,299,872 5,262.999
14.15 representing
two Equity
Shares @
U.S.$ 14.15
per GDR.
1996 (994) 10 - Rectification (Rectification 526,298,878 5,262.989
of 994 shares
(net) relating
to public
equity issue in
1994 resulted
in reduction
of share
capital by Rs
9,940 and
share
premium by
Rs. 55,700)
2. Shareholding pattern of the Bank as of January 28, 2008
Category Category of Number Total Number of Total pre-issue

code Shareholder of number shares held in shareholding as a
Share- of shares dematerialised percentage of total number
holders form of shares
As a As a
percentage percentage
of(A+B)1 of (A+B+C)
(A) Shareholding of
Promoter and
Promoter
Group2
1 Indian
(a) Individuals/
Hindu Undivided
Family 0 0 0 0.00 0.00
(b) Central
Government/
State
Government(s) 1 314,339,200 314,339,200 64.48 59.73
(c) Bodies Corporate 0 0 0 0.00 0.00
(d) Financial
Institutions/
Banks 0 0 0 0.00 0.00
(e) Any
Others(Specify) 0 0 0 0.00 0.00
Sub Total(A)(1) 1 314,339,200 314,339,200 64.48 59.73
2 Foreign
A Individuals (Non-
Residents
Individuals/
Foreign
Individuals) 0 0 0 0.00 0.00
44
B Bodies Corporate 0 0 0 0.00 0.00
C Institutions 0 0 0 0.00 0.00
D Any
d-i 0 0 0 0.00 0.00
d-ii 0 0 0 0.00 0.00
Sub Total(A)(2) 0 0 0 0.00 0.00
Total
Shareholding of
Promoter and
Promoter Group
(A)=
(A)(1)+(A)(2) 1 314,339,200 314,339,200 64.48 59.73
(B) Public
shareholding
1 Institutions
(a) Mutual Funds/
UTI 233 26,594,320 26,565,290 5.46 5.05
(b) Financial
Institutions /
Banks 103 8,903,411 8,889,921 1.83 1.69
(c) Central
Government/
State
Government(s) 1 101,632 0 0.02 0.02
(d) Venture Capital
Funds 0 0 0 0.00 0.00
(e) Insurance
Companies 13 25,358,442 25,357,192 5.20 4.82
(f) Foreign
Institutional
Investors 289 65,135,578 65,030,602 13.36 12.38
(g) Foreign Venture
Capital Investors 0 0 0 0.00 0.00
(h) Any Other
(specify) 0 0 0 0.00 0.00
(h-i) 0 0 0 0.00 0.00
(h-ii) 0 0 0 0.00 0.00
Sub-Total (B)(1) 639 126,093,383 125,843,005 25.87 23.96
B2 Non-institutions
(a) Bodies Corporate 3,985 14,344,210 14,222,390 2.94 2.73
(b) Individuals
Individuals -i.
Individual
shareholders
holding nominal
share capital up to
I Rs 1 lakh 544715 28,744,552 16,004,130 5.90 5.46
II ii. Individual
shareholders
holding nominal
share capital in
excess of Rs. 1
lakh. 55 2,794,333 2,780,646 0.57 0.53
45
(c) Any Other
(specify)
(c-i) Non-Residents 2,362 268,638 243,639 0.06 0.05
(c-ii) Trust 154 257,594 257,594 0.05 0.05
(c-iii) OCB 4 1,010 610 0.00 0.00
(c-iv) Foreign National 2 150 150 0.00 0.00
(c-v) Foreign Body
Corporates 0 0 0 0.00 0.00
(c-vi) Clearing Member. 701 625,170 625,170 0.13 0.12
Sub-Total (B)(2) 551,978 47,035,657 34,134,329 9.65 8.94
Total Public
Shareholding
(B)
(B)=
(B)(1)+(B)(2) 552,617 173,129,040 159,977,334 35.52 32.90
TOTAL (A)+(B) 552,618 487,468,240 474,316,534 92.62
(C) Shares held by
Custodians and
against which
Depository
Receipts have
been issued 1 38,830,638 38,830,638 7.97 7.38
GRAND
TOTAL
(A)+(B)+(C) 552,619 526,298,878 513,147,172 100.00
3. Post-issue Shareholding pattern of the Bank (assuming full subscription of Rights Issue and
ESPS)
Category Category of Number Total Number of Total post-issue

code Shareholder of number shares held in shareholding as a
Share- of shares dematerialised percentage of total number
holders form of shares
As a As a
percentage percentage
of(A+B)1 of (A+B+C)
(A) Shareholding of
Promoter and
Promoter
Group2
1 Indian
(a) Individuals/
Hindu Undivided
Family 0 0 0 0.00 0.00
(b) Central
Government/
State
Government(s) 1 377,207,040 377,207,040 63.55 58.92
(c) Bodies Corporate 0 0 0 0.00 0.00
(d) Financial
Institutions/
Banks 0 0 0 0.00 0.00
(e) Any
Sub Total(A)(1) 1 377,207,040 377,207,040 63.55 58.92
2 Foreign
46
A Individuals (Non-
Residents
Individuals/
Foreign
Individuals) 0 0 0 0.00 0.00
B Bodies Corporate
0 0 0 0.00 0.00
C Institutions
0 0 0 0.00 0.00
D Any Others
(Specify) 0 0 0 0.00 0.00
d-i 0 0 0 0.00 0.00
d-ii 0 0 0 0.00 0.00
Sub Total(A)(2)
0 0 0 0.00 0.00
Total
Shareholding of
Promoter and
Promoter Group
(A)=
(A)(1)+(A)(2) 1 377,207,040 377,207,040 63.55 58.92
(B) Public
shareholding
1 Institutions
(a) Mutual Funds/
UTI 252 31,913,185 31,878,349 5.38 4.99
(b) Financial
Institutions /
Banks 93 10,684,093 10,667,905 1.80 1.67
(c) Central
Government/
State
Government(s) 1 121,958 0 0.02 0.02
(d) Venture Capital
Funds 0 0 0 0.00 0.00
(e) Insurance
Companies 12 30,430,130 30,428,630 5.12 4.75
(f) Foreign
Institutional
Investors 276 78,162,694 78,036,722 13.17 12.21
(g) Foreign Venture
Capital Investors 0 0 0 0.00 0.00
(h) Any Other
(specify) 0 0 0 0.00 0.00
(h-i) 0 0 0 0.00 0.00
(h-ii) 0 0 0 0.00 0.00
Sub-Total (B)(1) 634 151,312,060 151,011,606 25.49 23.64
B2 Non-institutions
(a) Bodies Corporate 3,826 17,213,052 17,066,868 2.90 2.69
(b) Individuals
0 0
47
Individuals -i.
Individual
shareholders
holding nominal
share capital up to
I Rs 1 lakh 653,481 38,573,460 19,204,956 6.50 6.03
II ii. Individual
shareholders
holding nominal
share capital in
excess of Rs. 1
lakh. 65,616 7,890,700 3,336,775 1.33 1.23
(c) Any Other
(specify) 0 0
(c-i) Non-Residents
2,326 322,368 292,367 0.05 0.05
(c-ii) Trust 152 309,113 309,113 0.05 0.05
(c-iii) OCB 3 1,212 732 0.00 0.00
(c-iv) Foreign National 2 180 180 0.00 0.00
(c-v) Foreign Body
Corporates 0 0 0 0.00 0.00
(c-vi) Clearing Member 374 750,204 750,204 0.13 0.11
Sub-Total (B)(2)
725,780 65,060,289 40,961,195 10.96 10.16
Total Public
Shareholding
(B)
(B)=
(B)(1)+(B)(2) 726,414 216,372,349 191,972,801 36.45 33.80
TOTAL (A)+(B) 726,415 593,579,389 569,179,841 100.00 92.72
(C) Shares held by

Custodians and
against which
Depository
Receipts have
been issued 1 46,596,765 46,596,765 7.85 7.28
GRAND
TOTAL
(A)+(B)+(C) 726,416 640,176,154 615,776,606 100.00
4. Details of the shareholding of the Promoter subsequent to the ESPS
SR.NO. PARTICULARS Pre-Issue % Post-Issue %

A
1 President of India 314,339,200 59.73 377,207,040 58.92
5. Details of the transactions in Equity Shares by the directors during the last six months
There have been no transactions in the Equity Shares by the Directors of the Bank in the last six
months.
6. Top ten Shareholders of the Bank
48
a) Top ten Shareholders of the Bank as on January 28, 2008
% of pre-issue
SR.NO. PARTICULARS Total Shares capital
1 PRESIDENT OF INDIA 314,339,200 59.726
2 THE BANK OF NEW YORK AS DEPOSITORY TO GDRs 38,830,638 7.378
3 LIFE INSURANCE CORPORATION OF INDIA 19,894,211 3.780
4 CLSA (MAURITIUS) LIMITED 13,855,209 2.633
5 EUROPACIFIC GROWTH FUND 6,879,139 1.307
CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE
6 LIMITED 5,152,395 0.979
7 BMF - BANK BEES - INVESTMENT A/C 4,903,665 0.932
FIDELITY MANAGEMENT AND RESEARCH COMPANY
A/C FIDELITY INVESTMENT TRUST - FIDELITY
8 DIVERSIFIED INTERNATIONAL FUND 4,000,000 0.760
9 GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD 3,507,746 0.666
10 LIC OF INDIA MONEY PLUS 3,412,634 0.648
TOTAL 414,774,837 78.810
b) Top ten Shareholders of the Bank as on January18, 2008
% of pre-issue
SR.NO. PARTICULARS Total Shares capital
1 PRESIDENT OF INDIA 314,339,200 59.726
4 CLSA (MAURITIUS) LIMITED 13,869,240 2.635
7 CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE 5,062,214 0.962
8 FIDELITY MGNT AND RESEARCH CO A/C FIDELITY 4,000,000 0.760
10 LIC OF INDIA MONEY PLUS 3,362,634 0.639
TOTAL 414,501,528 78.758
c) Top ten Shareholders of the Bank as on January 28, 2006
SR.NO. PARTICULARS Shares %

1 RESERVE BANK OF INDIA 314,338,700 59.726
4 FIDELITY MGNT AND RESEARCH CO A/C FIDELITY 7,200,000 1.368
8 MERRILL LYNCH CAPITAL MARKETS ESPANA S A S V 3,312,674 0.629
9 GOVERNMENT OF SINGAPORE 3,300,872 0.627
FIDELITY INVESTMENT FUNDS - FIDELITY SPECIAL
10 SITUATIONS FUND 2,599,352 0.494
TOTAL 410,872,717 78.068
7. The Bank has not made any public offering of its Equity Shares in the two years immediately preceding
the date of filing of this Letter of Offer.
8. The total number of shareholders of the Bank as on January 28, 2008 was 552,619.
49
9. In accordance with clause 2.4.1 (iv) of the SEBI DIP Guidelines, the Bank is exempted from the eligibility
norms as stated in the Guidelines.
10. The Bank has not issued any Equity Shares or granted any options under any scheme of employee’s stock
option or employee’s stock purchase.
11. The Directors of the Bank or Lead Managers of the Issue have not entered into any buy-back, standby or
similar arrangements for any of the securities being issued through Letter of Offer.
12. The terms of issue to Equity Shareholders/Applicants have been presented under the section “Terms of the
Present Issue” on page [●] of this Letter of Offer.
13. At any given time, there shall be only one denomination of the Equity Shares of the Bank. The Equity
Shareholders of the Bank do not hold any warrant, option or convertible loan or debenture which would
entitle them to acquire further shares in the Bank.
14. Except as disclosed in this Letter of Offer, no further issue of capital by way of issue of bonus shares,
preferential allotment, rights issue or public issue or in any other manner which will affect the equity
capital of the Bank, shall be made during the period commencing from the filing of this Letter of Offer
with the Stock Exchanges and the date on which the Equity Shares under the Letter of Offer are listed or
application moneys are refunded on account of the failure of the Issue. Further, other than as disclosed in
this Letter of Offer, presently the Bank does not have any intention to alter the equity capital structure by
way of split/consolidation of the denomination of the shares on a preferential basis or issue of bonus or
rights or public issue of shares or any other securities within a period of six months from the date of
opening of the Issue. However, the Bank is proposing an employee share purchase scheme (the “ESPS”).
The Government has, by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue
of the ESPS. Pursuant to the Government authorisation, the Bank’s Central Board has, at its meeting held
on February 1, 2008 approved the ESPS. The Bank may issue a maximum of 8,617,500 Equity Shares to
its Eligible Employees (as defined therein). The ESPS shall remain open for a period commencing from
March 28, 2008 to April 15, 2008. The issue price is Rs. 1,590 per Equity Share. The terms and conditions
of the Scheme, will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme
and Employees Stock Purchase Scheme) Guidelines, 1999 and all the issuances of shares will be done in
compliance with the guidelines/regulations/circulars at that time.
15. The Issue will remain open for 30 days. However, the Central Board will have the right to extend the Issue
period as it may determine from time to time but not exceeding 60 days from the Issue Opening Date.
16. Pursuant to a letter dated December 3, 2007, the Government, the Bank’s Promoter, has agreed to
subscribe to Equity Shares aggregating to approximately Rs. 10,000 crores in the Issue.
50
OBJECTS OF THE ISSUE
The Bank intends to deploy the net proceeds from the Issue of Rs. 166,913.04 million after meeting
Issue expenses of approximately Rs. 450 million to augment its capital base in line with its growth strategy.
The provisions of the Act enable the Bank to undertake existing activities and permit the utilisation of
funds proposed herein.
The details of the proceeds of the Issue are summarised below:
Particulars Estimated Amount (In Rs. million)

Gross proceeds of the Issue 167,363.04
Issue related expenses* 450.00
Net Proceeds of the Issue 166,913.04
*Approximated
Utilisation of the Issue Proceeds
The Bank is subject to the capital adequacy requirements of the RBI, which, based on the guidelines of
the Basel Committee on Banking Regulations and Supervisory Practices, 1998, currently require the Bank to
maintain a minimum ratio of capital to risk adjusted assets and off-balance sheet items of 9.0%, at least half of
which must be Tier I capital. For further details please see “Regulations and Policies – Capital Adequacy
Requirements.” The Bank’s total capital adequacy ratio was 12.34% at March 31, 2007, including a Tier I
capital adequacy ratio of 8.01% and Tier II capital of 4.33% of risk-weighted assets. Additional capital is
required for future asset growth and compliance with regulatory requirements.
The objects of the Issue are to augment the Bank’s capital base to meet the capital requirements arising
out of growth in its assets, primarily the loan and investment portfolio due to the growth of the Indian economy,
compliance with regulatory requirements and for other general corporate purposes including meeting expenses
related to the Issue.
The details of capital vis-à-vis risk weighted assets for the previous five financial years is as follows:
Financial Year ended 2003 2004 2005 2006 2007 Six months
March 31 ended on
September 30,
2007
(Rs. in millions, except percentages)
Eligible Tier I Capital 135,264.10 139,022.80 163,088.40 251,772.90 304,682.20 340,896.90
(8.81%) (8.34%) (8.04%) (9.36%) (8.01%) (7.78%)
Eligible Tier II Capital 71,972.96 86,469.40 89,491.20 67,797.10 164,654.10 222,510.10
(4.69%) (5.19%) (4.41%) (2.52%) (4.33%) (5.08%)
Total Capital 207,237.06 225,492.20 252,579.60 319,570.00 469,336.30 563,407.00
Total Risk-Adjusted Assets 1,534,968.67 1,666,396.10 2,028,931.70 2,690,800.40 3,804,789.90 4,383,144.10
Capital Adequacy Ratio (%) 13.50% 13.53% 12.45% 11.88% 12.34% 12.85%
The Issue is expected to achieve the objective of augmenting the Tier I capital of Bank and further
strengthening its capital adequacy ratio. Basel II standards prescribed by the RBI will be effective from March
31, 2008. The Bank’s capital adequacy ratio, after providing for the funds out of the gross proceeds of the
present Issue aggregating to Rs. 167,363.04 million, is expected to be well above the Central Board mandate of
a capital adequacy ratio of 11% as well as RBI’s stipulated capital adequacy ratio of 9%.
The issue of 105,259,776 Equity Shares each at a premium of Rs. 1,580 per Equity Share for an
aggregate amount of Rs. 167,363.04 million, if fully subscribed, will augment the Tier I capital of the Bank and
result in its CAR increasing to more than 12%. Since the Government proposes to subscribe to its Rights
Entitlement through an issue of Government bonds, the issue proceeds equivalent to the Government's
subscription will be deployed in an investment of Government bonds.
A portion of the Issue proceeds will be used to meet Issue expenses estimated at Rs. 450 million (or
approximately 0.27% of the total Issue size) following are the estimated Issue expenses.
51
Particulars (Approximate Expenditure) % of net % of total
proceeds of expenses of the
Rs. in millions the Issue Issue
Fees to Intermediaries
Fees paid to the Lead Managers, legal advisors, and
auditors 66.4 0.04 14.76
Fees paid to the Registrar to the Issue 7.5 0.01 1.67
Statutory Fee 193.5 0.11 43.0
Advertising and marketing fees 60.0 0.04 13.33
Printing, Stationery and Despatch 51.8 0.03 11.51
Listing Fees 15.7 0.01 3.49
Others 55.1 0.03 12.24
Total 450.0 0.27 100.00
Interim Use of Proceeds
Pending utilisation of Issue proceeds, the management, in accordance with the policies established by
the Central Board, will have flexibility in deploying the proceeds received from the present Issue. During this
period, the Bank intends to temporarily invest the funds in interest or dividend bearing liquid instruments
including money market mutual funds and deposits with banks for the necessary duration. Such investments
would be in accordance with the investment policies approved by the Central Board from time to time.
Monitoring of Utilisation of Funds
As the Issue is being made with an objective to improve the capital adequacy ratio, to augment the
long-term resources for increasing the business, no appraisal of the same is required and therefore no monitoring
agency has been appointed.
No part of the Issue proceeds will be paid by the Bank as consideration to the Directors or the Bank’s
key management personnel except in the usual course of business.
52
BASIS FOR ISSUE PRICE
(Based on consolidated Group data)
The Issue Price for the Equity Shares has been determined by the Central Board of Directors. Investors
should also refer to the sections “Risk Factors” and “Auditor’s Report” to get a more informed view before
making any investment decision.
Qualitative factors
• The Bank is India’s largest bank, with 10,072 domestic offices and 84 international offices in 32
countries with more than 100 million accounts as of December 31, 2007.
• The Bank is also India’s largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2
billion as on September 30, 2007.
• The Bank is present, through its subsidiaries, in diverse segments of the Indian financial sector,
including asset management, factoring and commercial services, treasury operations, credit cards,
payment services and life insurance.
Quantitative Factors
1. Basic earning per equity share (EPS) of face value of Rs. 10
Year Basic EPS (Rs.) Weight
Fiscal 2005 ........................................................................ 103.82 1

Fiscal 2006 ........................................................................ 105.07 2
Fiscal 2007 ........................................................................ 120.93 3
Weighted Average ........................................................... 112.79
The EPS has been computed on the basis of Net Profit after Taxes and Provisions divided by the number
of shares outstanding.
The Bank reported a Basic EPS of Rs. 120.93 for the period ended March 31, 2007.
2. Price/Earning Ratio (P/E) in relation to the issue price of Rs. 1,590

a) Basic EPS as per the consolidated financial statements for year ended March 31, 2007 is Rs. 120.93.
P/E at the Issue Price

Particulars (no. of times)
Based on year ended March 31, 2007 Basic EPS of Rs. 120.93 ........................ 13.15
Based on weighted average Basic EPS of Rs. 112.79 ........................................ 14.10
b) Peer Group P/E
Industry P/E
Highest 22.3 (State Bank of India)
Lowest 6.1 (Allahabad Bank)
Industry Average 13.7
Source: Capital Markets Vol. XXII/24 dated January 28, 2008 to February 10, 2008. Sector: Banks –
Public Sector.
53
3. Return on Equity (RoE) as per regrouped Indian GAAP financials
Year RoE (%) Weight

Fiscal 2005 ............................................................................................. 18.22 1
Fiscal 2006 ............................................................................................. 15.85 2
Fiscal 2007 ............................................................................................. 15.96 3
Weighted Average ................................................................................ 16.30
Return on Equity (%) is calculated as Profit after tax (as regrouped) divided by Average Equity.
4. Minimum Return on Increased Net Worth Required to Maintain Pre-Issue EPS

The minimum return on increased net worth after issue of Equity Shares (at Rs. 1,590 per share) required
to maintain pre-Issue EPS is 12.89%.
5. Book Value
Book Value
(Rs. per share)
As on March 31, 2007.......................................................................... 808
After the Issue of Equity Shares (at Rs. 1,590 per share) .................... 939
Book Value is calculated as Net worth at the end of the period divided by the number of Equity Shares
outstanding at the end of the period.
6. Peer Group Comparisons (Industry Peers)

Equity Face Value
Capital per EPS RoNW BV
Name of the Bank (Rs. in Crs.) share (Rs.) (Rs. per share) P/E (%) (Rs.)
State Bank of India 526.30 10 83.8 22.3 15.4 594.7
Peer Group
Punjab National 315.30 10 47.2 12.3 16.0 321.6
Bank
Canara Bank 410.00 10 33.5 8.6 18.8 197.8
Bank of India 487.40 10 22.3 13.8 21.3 117.9
Bank of Baroda 367.00 10 26.8 13.1 12.5 235.7
Union Bank (I) 505.12 10 16.2 10.4 19.2 93.7
Note: Peer set has been determined on the basis of financial data of the Bank.
Source: Capital Markets Vol. XXII/23 dated January 24, 2008 to February 10, 2008. Sector: Banks –
Public Sector
The face value of the Equity Shares is Rs. 10 and the Issue Price is 159 times the face value.
The Issue Price of Rs. 1,590 per Equity Share has been determined by the Central Board of Directors, on
the basis of assessment of market demand for the Equity Shares and the same is considered justified by the Lead
Managers on the basis of the above factors.
54
INDUSTRY OVERVIEW
The information in this section is derived from a combination of various official and unofficial publicly
available materials and sources of information. It has not been independently verified by the Bank, the Lead
Managers or their respective legal or financial advisors, and no representation is made as to the accuracy of
this information, which may be inconsistent with information available or compiled from other sources.
Introduction
The RBI, the central banking and monetary authority of India, is the central regulatory and supervisory
authority for the Indian financial system. A variety of financial intermediaries in the public and private sectors
participate in India’s financial sector, including the following:
• commercial banks;
• long-term lending institutions;
• non-bank finance companies, including housing finance companies;
• other specialised financial institutions and state-level financial institutions;
• insurance companies; and
• mutual funds.
Until the early 1990s, the Indian financial system was strictly controlled. Interest rates were
administered, formal and informal parameters governed asset allocation and strict controls limited entry into and
expansion within the Indian financial sector. The Government’s economic reform program, which began in
1991, encompassed the financial sector. The first phase of the reform process began with the implementation of
the recommendations of the Committee on the Financial System, the Narasimham Committee I. The second
phase of the reform process began in 1999. See “— Banking Sector Reform — Committee on Banking Sector
Reform (Narasimham Committee II).”
RBI
The RBI, established in 1935, is the central banking and monetary authority in India. The RBI manages
the country’s money supply and foreign exchange and also serves as a bank for the Government and for the
country’s commercial banks. In addition to these traditional central banking roles, the RBI undertakes certain
developmental and promotional roles.
The RBI issues guidelines on exposure limits, income recognition, asset classification, provisioning for
non-performing and restructured assets, investment valuation and capital adequacy for commercial banks, long-
term lending institutions and non-bank finance companies. The RBI requires these institutions to furnish
information relating to their businesses to it on a regular basis. For further information regarding the RBI’s role
as the regulatory and supervisory authority of India’s financial system and its impact on the Bank, see
“Regulations and Policies.”
Commercial Banks
Commercial banks in India have traditionally focused only on meeting the short-term financial needs of
industry, trade and agriculture. As of September 30, 2007, there were 179 commercial banks (175 scheduled
commercial banks and 4 non-scheduled commercial banks) in India with a network of 72,117 branches holding
approximately Rs. 28,538.3 billion in deposits and Rs. 20,409.1 billion in loans . Scheduled commercial banks
are banks listed in the schedule to the Reserve Bank of India Act, 1934, and are further categorised as public
sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout
India, with approximately 65% of bank branches located in rural or semi-urban areas of the country. A large
number of these branches belong to public sector banks.
55
Public Sector Banks
Public sector banks make up the largest category in the Indian banking system. They include the SBI
and its seven associate banks, 19 nationalised banks (plus IDBI Bank) and 95 regional rural banks. Excluding
the regional rural banks, the remaining public sector banks have 50,228 branches, and accounted for 70.0% of
the outstanding gross bank credit and 70.6% of the aggregate deposits of the scheduled commercial banks of
September 30, 2007. The public sector banks’ large network of branches enables them to fund themselves out of
low cost deposits.
The Bank is the largest public sector bank in India. As of September 30, 2007, the Bank and its
associate banks had 14,150 branches. They accounted for 22.6% of the aggregate deposits and 22.9% of the
outstanding gross bank credit of all scheduled commercial banks.
Since 1976, regional rural banks have been jointly established by the Government, state governments
and sponsoring commercial banks with a view to developing the rural economy. Regional rural banks provide
credit to small farmers, artisans, small entrepreneurs and agricultural labourers. The National Bank for
Agriculture and Rural Development (“NABARD”) is responsible for regulating and supervising the functions of
the regional rural banks. In 1986, the Kelkar Committee made comprehensive recommendations covering both
the organisational and operational aspects of regional rural banks.
As of September 30, 2007, there were 95 regional rural banks with 14,455 branches, accounting for
3.0% of the aggregate deposits and 2.6% of the outstanding gross bank credit of scheduled commercial banks.
During the six-month period ended September 30, 2007, the number of regional rural banks was reduced from
96 to 95 through the amalgamation of two regional rural banks.
Private Sector Banks
After the first phase of bank nationalisation was completed in 1969, public sector banks made up the
largest portion of Indian banking. The focus on public sector banks was maintained throughout the 1970s and
1980s. Furthermore, 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 of the private sector into the banking system. This resulted in the
introduction of nine private sector banks. These banks are collectively known as the “new” private sector banks.
As of September 30, 2007, there were 24 private sector banks, of which eight were “new” private sector banks
and 16 were private sector banks existing prior to July 1993.
As on September 30, 2007, private sector banks accounted for approximately 20.3% of aggregate
deposits and 20.6% of outstanding gross bank credit of the scheduled commercial banks. Their network of 7,177
branches accounted for 10.0% of the total branch network of scheduled commercial banks in the country.
Foreign Banks
As of September 30, 2007, there were 29 foreign banks with 257 branches operating in India,
accounting for 6.1% of the aggregate deposits and 6.8% of the outstanding gross bank credit of scheduled
commercial banks at of September 30, 2007. 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. While
the primary activity of most foreign banks in India has traditionally been in the corporate sector, some of the
larger foreign banks have increasingly made consumer financing a larger part of their portfolios, offering an
array of products such as automobile finance, home loans, credit cards and household consumer finance. See
“ — Impact of Liberalisation on the Indian Financial Sector.”
Foreign banks operate in India through branches of the parent bank, though certain foreign banks also
have wholly-owned non-bank finance company subsidiaries or joint ventures for both corporate and retail
lending. In a circular dated July 6, 2004, the RBI stipulated that banks should not acquire any fresh stake in a
bank’s equity shares, if by such acquisition the investing bank’s holding would exceed 5% of the investee
bank’s equity capital. This also applies to holdings in Indian banks of foreign banks with a presence in India.
The RBI issued a notification (the “Roadmap for presence of foreign banks in India”) on February 28,
2005, announcing the following measures with respect to the presence of foreign banks:
56
• During the first phase (up to March 2009), foreign banks will be allowed to establish a presence by
setting up wholly-owned subsidiaries or by converting existing branches into wholly-owned
subsidiaries.
• In addition, during the first phase, foreign banks will be allowed to acquire a controlling stake in a
phased manner only in private sector banks that are identified by the RBI for restructuring.
• For new and existing foreign banks, it has been proposed 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 under-served areas.
• During the second phase (from April 2009 onwards), after a review of the first phase, foreign banks
will be allowed to acquire up to 74.0% in private sector banks in India. The current aggregate limit for
all investments in a private sector bank by foreign institutional investors is restricted to 24.0%, which
can be raised to 49.0%, subject to the approval of the bank’s board and shareholders, and the limit on
holdings by individual foreign institutional investors is 10.0%. The current aggregate limit for all
investments by non-resident Indians (“NRIs”) is 10.0%. This can be increased to 24.0%, subject to a
special resolution passed by the bank’s shareholders to that effect. However, in respect of individual
NRIs, the limit is 5.0%.
Cooperative Banks
Cooperative banks cater to the financing needs of agriculture, small-scale industry and self employed
businessmen in urban and semi-urban areas of India. The state land development banks and the primary land
development banks provide long-term credit for agriculture. In the light of liquidity and insolvency problems
experienced by some cooperative banks in fiscal year 2001, the RBI undertook several interim measures,
pending formal legislative changes, including measures related to lending against shares, borrowings in the call
market and term deposits placed with other urban cooperative banks. Presently the RBI is responsible for the
supervision and regulation of urban co-operative societies, and the NABARD is responsible for state
cooperative banks and district central cooperative banks.
The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 provides for the
regulation of all cooperative banks by the RBI. A task force appointed by the Government to examine the
reforms required in the cooperative banking system submitted its report in December 2004. It recommended
several structural, regulatory and operational reforms for cooperative banks, including the provision of financial
assistance by the Government in order to revitalise this sector. In the Union Budget for fiscal year 2006, the
Finance Minister accepted the recommendations of the task force in principle and proposed to call state
governments for consultation and begin to implement the recommendations in the States willing to do so.
In February 2005, the RBI issued guidelines on mergers and amalgamations in the urban cooperative
bank sector with a view to facilitating the emergence of strong entities resulting from the merger between two
banking entities and to providing an avenue for the non-disruptive exit of unviable banking entities. The RBI
may consider proposals for mergers or amalgamations in the following circumstances:
(i) the net worth of the acquired bank is positive and the acquirer bank commits to protect the deposits
of all the depositors of the acquired bank;
(ii) the net worth of the acquired bank is negative and the acquirer bank commits to protect the
deposits of all the depositors of the acquired bank; and
(iii) the net worth of the acquired bank is negative and the acquirer bank assures protection of the
deposits of all depositors of the acquired bank with financial support from the relevant state
government extended upfront as part of the merger process.
In all mergers or amalgamations, the financial parameters of the acquirer bank post merger should
conform to the prescribed minimum prudential and regulatory requirement for urban co-operative banks. The
realisable value of assets should be assessed through a process of due diligence. Relaxations in this regard were
announced in the Mid-term Review of October 2005, pursuant to which the acquirer bank was permitted to
amortise any loss taken over from the acquired bank over a period of five years, including the year of the merger.
57
Long-Term Lending Institutions
Long-term lending institutions such as IDFC Limited, IFCI Limited, ICICI Limited (prior to
amalgamation) and the Industrial Investment Bank of India were established to provide medium-term and long-
term financial assistance to various industries for setting up new projects and for the expansion and
modernisation of existing facilities. These institutions provide fund-based and non-fund-based assistance to
industry in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. Such long-
term lending institutions were expected to play a critical role in Indian industrial growth and accordingly had
access to concessional government funding. However, in recent years, the operating environment of the long-
term lending institutions has changed substantially. Although the initial role of these institutions was largely
limited to providing a channel for government funding to industry, the reform process required them to expand
the scope of their business activities. Their new activities include:
• fee-based activities such as investment banking and advisory services; and
• short-term lending activities, including corporate finance and issuing working capital loans.
Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, a
working group created in 1999 to harmonise the role and operations of long-term lending institutions and banks,
the RBI, in its mid-term review of monetary and credit policy for fiscal year 2000, announced that long-term
lending institutions would have the option of transforming themselves into banks subject to compliance with the
prudential norms applicable to banks. In April 2001, the RBI issued operational and regulatory guidelines
required to transform long-term lending institutions into universal banks. See “— Banking Sector Reforms —
Universal Banking Guidelines.” In April 2002, ICICI Limited merged with ICICI Bank Limited. The Industrial
Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted IDBI into a banking company to
be incorporated under the Companies Act, with exemptions from certain statutory and regulatory norms
otherwise applicable to banks, including an exemption for a period of five years from the SLR. IDBI Bank
Limited, a new private sector bank that was a subsidiary of the Industrial Development Bank of India, was
merged with IDBI in April 2005.
Non-Bank Finance Companies
There are over 12,968 non-bank finance companies in India, mostly in the private sector. All non-bank
finance companies are required to register with the RBI. The non-bank finance companies may be categorised
into entities which take public deposits and those which do not. The companies which accept public deposits are
subject to the strict supervision and capital adequacy requirements of the RBI. The scope and activities of non-
bank finance companies have grown significantly over the years. The primary activities of the non-bank finance
companies are consumer credit, including automobile finance, home finance and consumer durable products
finance, as well as wholesale finance products such as bill discounting for small and medium-sized companies,
and fee-based services such as investment banking and underwriting. In 2003, Kotak Mahindra Finance Limited,
a large non-bank finance company, was granted a banking license by the RBI and converted itself into Kotak
Mahindra Bank Ltd. Over the past few years, certain non-bank finance companies have defaulted on their
obligations to investors and depositors, and consequently actions (including bankruptcy proceedings) have been
initiated against them, many of which are currently pending. See also “— Reforms of the Non-Bank Finance
Companies.”
Housing Finance Companies
Housing finance companies form a distinct subgroup of non-bank finance companies. As a result of
various incentives given by the Government for investing in the housing sector in recent years, the scope of this
business has grown substantially. Until recently, Housing Development Finance Corporation Limited was the
premier institution providing housing finance in India. In recent years, several other players, including banks,
have entered the housing finance industry. The National Housing Bank and the Housing and Urban
Development Corporation Limited are the two government-controlled financial institutions created to improve
the availability of housing finance in India. The National Housing Bank Act provides for the securitisation of
housing loans, foreclosure of mortgages and establishment of the Mortgage Credit Guarantee Scheme. Housing
loans up to certain limits prescribed by the RBI and mortgage-backed securities qualify as priority sector
lending under the RBI’s directed lending rules. See also “Regulations and Policies — RBI Regulations —
Capital Adequacy Requirements” and “Regulations and Policies — RBI Regulations — Regulations relating to
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the Making of Loans” and “Regulations and Policies —RBI Regulations — Directed Lending — Priority Sector
Lending.”
Other Financial Institutions
Specialised Financial Institutions
In addition to the long-term leading institutions, there are various specialised financial institutions
which cater to the specific needs of different sectors. They include the National Bank for Agricultural and Rural
Development, the Export-Import Bank of India, the Small Industries Development Bank of India, Risk Capital
and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National
Housing Bank, Power Finance Corporation Limited, the Infrastructure Development Finance Corporation Ltd.
and India Infrastructure Financing Company Ltd.
State Financial Institutions
State financial corporations operate at the state level and form an integral part of the institutional
financing system. State financial corporations were set up to finance and promote small and medium-sized
enterprises. The state financial institutions are expected to achieve balanced regional socio-economic growth by
generating employment opportunities and widening the ownership base of industry. At the state level, there are
also state industrial development corporations, which provide finance primarily to medium-sized and large
enterprises.
Insurance Companies
Currently, there are 32 insurance companies in India, of which 16 are life insurance companies, 15 are
general insurance companies and one is a re-insurance company. Of the 16 life insurance companies, 15 are in
the private sector and one is in the public sector (Life Insurance Corporation of India). Of the 15 general
insurance companies, nine are in the private sector and six are in the public sector (four government-owned
general insurance companies, Export Credit Guarantee Corporation of India Limited and the Agriculture
Insurance Company of India). The sole reinsurance company, GIC, is in the public sector.
LIC, GIC and public sector general insurance companies also provide long-term financial assistance to
the industrial sector. Gross premiums underwritten of all general insurance companies increased by 22.4% in
fiscal year 2007 to Rs. 250.0 billion, compared to an increase of 16.5% in fiscal year 2006. First year premiums
underwritten in the life insurance sector recorded a growth of 100.6% to reach Rs. 754.1 billion in fiscal year
2007 compared to a 40.6% growth in fiscal year 2006.
The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In
December 1999, the Indian Parliament passed the Insurance Regulatory and Development Authority Act (the
“Act”), which opened the Indian insurance sector to foreign and private investors. The Act allows foreign equity
participation in new insurance companies of up to 26.0%. The new company should have a minimum paid-up
equity capital of Rs. 1.0 billion to carry out the business of life insurance or general insurance or Rs. 2.0 billion
to carry out exclusively the business of reinsurance.
In its monetary and credit policy for fiscal year 2001, the RBI issued guidelines governing the entry of
banks and financial institutions into the insurance business. The guidelines permit banks and financial
institutions to enter the business of insurance underwriting through joint ventures, provided that they meet
certain criteria relating to their net worth, capital adequacy ratio, profitability track record, level of impaired
loans and the performance of their existing subsidiary companies. The Government, while presenting its budget
for fiscal year 2005, proposed an increase in the limit on foreign equity participation in private sector insurance
companies from 26.0% to 49.0%. However, this would require an amendment to the Insurance Regulatory and
Development Authority Act, 1999 and has not yet been implemented.
Mutual Funds
At the end of fiscal year 2007, there were 755 mutual fund schemes in India with total assets under
management of Rs. 3,263.0 billion. From 1963 to 1987, the Unit Trust of India was the only mutual fund
operating in the country. It was set up in 1963 at the initiative of the Government and the RBI. From 1987
onwards, several other public sector mutual funds entered this sector and participation was finally opened up to
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the private sector in 1993. The industry is regulated by the Securities and Exchange Board of India (Mutual
Fund) Regulations, 1996. As of September 30, 2007, there were 18 private sector mutual funds with a 79.18%
market share in terms of total assets under management.
In 2001, the Unit Trust of India, with a high level of investment in equity securities, started to face
difficulties in meeting redemptions and assured return obligations due to a significant decline in the market
value of its securities portfolio. In response, the Government implemented a package of reform measures for the
Unit Trust of India, including guaranteeing redemptions and assured return obligations to the unit holders,
subject to restrictions on the maximum permissible redemption amount. As part of the reforms, the Unit Trust of
India was divided into two mutual funds structured in accordance with the regulations of SEBI, one comprising
assured return schemes and the other comprising net asset value based schemes.
Impact of Liberalisation on the Indian Financial Sector
Until 1991, the financial sector in India was heavily controlled. 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 achieving the Government’s various socio-economic objectives, including balanced industrial
growth and employment creation, especially in areas requiring development. Long-term lending institutions
were given access to long-term funds at subsidised rates through loans and equity from the Government and
from funds guaranteed by the Government and originating from commercial banks in India and foreign currency
resources originating from multilateral and bilateral agencies.
The focus of the commercial banks was primarily on mobilizing 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 have transformed the operating environment of the banks and long-term
lending institutions. In particular, the deregulation of interest rates, emergence of a liberalised domestic capital
market, entry of new private sector banks and broadening of long-term lending institutions’ product portfolios
have progressively intensified competition between banks and long-term lending institutions. The RBI has
permitted the transformation of long-term lending institutions into banks, subject to compliance with the
prudential norms applicable to banks.
Banking Sector Reform
Most large banks in India were nationalised in 1969 and were thereafter subject to a high degree of
control until reform began in 1991. In addition to controlling interest rates and entry into the banking sector,
regulations also channelled lending into priority sectors. Banks were required to fund the public sector through
the mandatory acquisition of low interest-bearing government securities or SLR bonds to fulfil statutory
liquidity requirements. As a result, bank profitability was low, impaired assets were comparatively high, capital
adequacy was diminished and operational flexibility was hindered.
Committee on the Financial System (Narasimham Committee I)
The Committee on the Financial System (the Narasimham Committee I) was set up in August 1991 to
recommend measures for reforming the financial sector. Many of the recommendations made by the committee,
which addressed organisational issues, accounting practices and operating procedures, were implemented by the
Government. The major recommendations that were implemented included the following:
• with fiscal stabilisation and the Government increasingly resorting to market borrowing to raise
resources, the SLR i.e. the proportion of a banks’ demand and time liabilities that was required to be
invested in government securities, was reduced from 38.5% in the pre-reform period to 25.0% in
October 1997;
• similarly, the CRR, i.e. the proportion of a bank’s net demand and time liabilities that was required to
be deposited with the RBI, was reduced from 15% in the pre-reform period to 4.5%. The CRR was
increased to 7.0%. Pursuant to the mid-term review of the Annual Monetary Policy, the CRR has been
increased by 50 basis points to 7.5%, effective as of November 10, 2007;
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• special tribunals were created to resolve bad debt problems;
• most of the restrictions on interest rates for deposits were removed, and commercial banks were
allowed to set their own level of interest rates for all deposits except savings bank deposits;
• substantial capital injection to several state-owned banks was approved in order to bring their capital
adequacy closer to internationally accepted standards. By the end of fiscal year 2002, aggregate
recapitalisation amounted to Rs. 217.5 billion, and the stronger public sector banks were given
permission to issue equity to further increase capital; and
• banks were granted the freedom to open or close branches.
Committee on Banking Sector Reform (Narasimham Committee II)
The Committee on Banking Sector Reform (the Narasimham Committee II) submitted its report in
April 1998. The major recommendations of the committee were in respect of capital adequacy requirements,
asset classification and provisioning, risk management and merger policies. The RBI accepted and began
implementing many of these recommendations in October 1998.
Recent Structural Reforms
Amendments to the Reserve Bank of India Act
In May 2006, the Indian Parliament approved amendments to the Reserve Bank of India Act, removing
the minimum cash reserve ratio requirement of 3.0%, and giving the RBI discretion to reduce the CRR to less
than 3.0%. Further, the amendments also created a legal and regulatory framework for derivative instruments.
Recent Amendments to Laws Governing Public Sector Banks
The Indian Parliament recently amended the laws governing India’s public sector banks, permitting
these banks to issue preference shares and make preferential allotments or private placements of equity. The
amendments also empower the RBI to prescribe ‘fit and proper’ criteria for directors of these banks, and permit
supercession of their boards and appointment of administrators in certain circumstances.
Proposed Amendments to the Banking Regulation Act
Legislation seeking to amend the Banking Regulation Act has been introduced in the Indian Parliament.
As presently drafted, the main amendments propose to:
• permit all banking companies to issue preference shares that will not carry any voting rights;
• make prior approval of the RBI mandatory for the acquisition of more than 5.0% of a banking
company’s paid-up capital or voting rights by any individual, firm or group;
• prohibit lending to relatives of directors and to non-subsidiary companies that are under the same
management as the banking company, joint ventures, associates or the holding company of the
banking company;
• remove the minimum SLR requirement of 25.0%, giving the RBI discretion to reduce the SLR to less
than 25.0%. See also “Regulations and Policies — RBI Regulations — Legal Reserve Requirements —
Statutory Liquidity Ratio”; and
• remove the limit of 10.0% on the maximum voting power exercisable by a shareholder in a banking
company.
In order to provide greater operational flexibility to the RBI, as the regulator and the authority vested
with the powers to conduct monetary policy through the requirement for banks to hold liquid instruments, the
Government promulgated an ordinance on January 23, 2007, enabling the RBI to specify the SLR without any
floor rate. The Ordinance facilitated the removal of the then existing SLR floor of 25.0%, while leaving the
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ceiling of 40.0% intact. On March 9, 2007 the Banking Regulation (Amendment) Bill, 2007 was submitted in
Parliament, seeking to replace the Ordinance and to amend Section 24 of the Banking Regulation Act, 1949 to
enable the RBI to specify the SLR without any floor rate. Changes were also proposed in Section 53 of the Act
to make it mandatory to present draft notification before both Houses of Parliament in cases of exemptions
being granted to institutions, banks or branches located in Special Economic Zones (“SEZs”). The Ordinance
has subsequently been repealed and replaced by the Banking Regulation (Amendment) Act, 2007, which
received the assent of the President on March 26, 2007, and is deemed to have come into force on January 23,
2007.
Legislative Framework for Recovery of Debts due to Banks
In fiscal year 2003, the Indian Parliament passed the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”). SARFAESI provides that a secured
creditor may, in respect of loans classified as non-performing in accordance with RBI guidelines, give notice in
writing to the borrower, requiring it to discharge its liabilities within 60 days, failing which the secured creditor
may take possession of the assets constituting the security for the loan, and exercise management rights in
relation thereto, including the right to sell or otherwise dispose of the assets. SARFAESI also provides for the
setting up of asset reconstruction companies regulated by the RBI to acquire assets from banks and financial
institutions. The RBI has issued guidelines for asset reconstruction companies in respect of their establishment,
registration and licensing by the RBI, and their operations. Asset Reconstruction Company (India) Limited, set
up by the Bank, ICICI Bank Limited, IDBI, SBT and certain other banks and institutions, has received
registration from the RBI.
Several petitions challenging the constitutional validity of SARFAESI were filed before the Indian
Supreme Court. In April 2004, the Supreme Court upheld the constitutionality of the Act, other than the
requirement that the borrower deposit 75% of the dues with the debt recovery tribunal as a precondition for
appeal by against the enforcement measures. The Government has subsequently made amendments to the Act,
which provide that a borrower may make an objection or representation to a secured creditor after a notice is
issued by the secured creditor to the borrower under the Act demanding payment of dues. The secured creditor
has to give reasons to the borrower for not accepting the objection or representation. The Act also introduces a
deposit requirement for borrowers if they wish to appeal the decision of the debt recovery tribunal. Further, the
Act permits a lender to take over the business of a borrower under certain circumstances (unlike the earlier
provisions under which only assets could be taken over).
Following recommendations of the Narasimham Committee, the Recovery of Debts due to Banks and
Financial Institutions Act, 1993 was enacted. This legislation provides for the establishment of a tribunal for
speedy resolution of litigation and recovery of debts owed to banks or financial institutions. However, if a
scheme of reconstruction is pending before the Board for Industrial and Financial Reconstruction, under the
Sick Industrial Companies (Special Provision) Act, 1985, no proceeding for recovery can be initiated or
continued before the tribunal. This protection from creditor action ceases if the secured creditor takes action
under SARFAESI. While presenting its budget for fiscal year 2002, the Government announced measures for
the setting up more debt recovery tribunals and the eventual repeal of the Sick Industrial Companies (Special
Provision) Act, 1985. Subsequently, the Sick Industrial Companies (Special Provisions) Repeal Act, 2004 was
introduced with a view to repealing the Sick Industrial Companies Act, 1985. To date, however, the said
legislation has not come into effect and the Sick Industrial Companies Act, 1985, has not been repealed.
Corporate Debt Restructuring Forum
To establish an institutional mechanism for the restructuring of corporate debt, the RBI has devised a
corporate debt restructuring system. The objective of this framework is to ensure a timely and transparent
mechanism for restructuring the corporate debts of potentially viable entities facing problems, outside the
purview of the Board of Industrial and Financial Rehabilitation, debt recovery tribunals and other legal
proceedings. In particular, this framework aims to preserve viable corporations that are affected by certain
internal and external factors and minimize any losses to the creditors and other stakeholders through an orderly
and coordinated restructuring program. The corporate debt restructuring system is a non-statutory mechanism
and a voluntary system based on debtor-creditor and inter-creditor agreements.
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Universal Banking Guidelines
Universal banking in the Indian context means the transformation of long-term lending institutions into
banks. Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, the
RBI, in its mid-term review of monetary and credit policy for fiscal year 2000, announced that long-term
lending institutions would have the option of transforming themselves into banks, subject to compliance with
certain prudential norms applicable to banks. If a long-term lending institution chose to exercise the option
available to it and formally decided to convert itself into a universal bank, it could formulate a plan for
conversion into a universal bank over a specified time frame. In April 2001, the RBI issued operational and
regulatory guidelines required to transform long-term leading institutions into universal banks.
Pension Reforms
Currently, there are three categories of pension scheme in India: pension schemes for government
employees, pension schemes for employees in the organised sector and voluntary pension schemes. In the case
of pension schemes for government employees, the Government pays its employees a defined periodic benefit
upon their retirement. The contribution towards the pension scheme is funded solely by the Government and not
matched by a contribution from employees. The Employees Provident Fund, established in 1952, is a mandatory
program for employees of certain establishments. It is a contributory program that provides for periodic
contributions of 10% to 12% of the basic salary by both the employer and the employees. The contribution is
invested in prescribed securities and the accumulated balance in the fund (including the accretion thereto) is
paid to the employee as a lump sum on retirement. In addition, there are voluntary pension schemes
administered by the Government (such as the Public Provident Fund to which contribution may be made up to a
maximum of Rs. 70,000 per annum) or offered by insurance companies, where the contribution may be made on
a voluntary basis. Such voluntary contributions are often driven by tax benefits offered under the schemes.
In 1998, the Government commissioned the Old Age Social and Income Security (“OASIS”) project
and nominated an expert committee to suggest changes to the existing policy framework. The committee
submitted its report in January 2000, recommending a system for private sector management of pension funds to
provide market-linked returns. It also recommended the establishment of a separate pension regulatory authority
to regulate the pension system. Subsequently, in the budget for fiscal year 2001, the Government announced that
a high level committee would be formulated to design a contribution-based pension scheme for new
Government recruits. The Government also requested the Insurance Regulatory and Development Authority to
draw up a roadmap for implementing the OASIS report. The Insurance Regulatory and Development Authority
submitted its report in October 2001. The report suggested that pension fund managers should constitute a
separate legal entity to conduct their pension business.
In August 2003, the Government announced that it would be mandatory for its new employees
(excluding defence personnel) to join a new defined contribution pension scheme where both the Government
and the employee would make monthly contributions of 10% of the employee’s salary. The Government also set
up the Pension Fund Development and Regulatory Authority to regulate the pension industry. The Government
also formed the interim Pension Fund Development and Regulatory Authority on October 11, 2003. In
December 2003, the Government announced that the new pension scheme would be applicable to all new
recruits to the public sector (excluding defence personnel) from January 1, 2004. Further, on December 30, 2004,
the Government promulgated an ordinance establishing a statutory regulatory body, the Pension Fund
Regulatory and Development Authority (“PFRDA”) to undertake promotional, developmental and regulatory
functions with respect to the pension sector. In March 2005, the Government tabled the Pension Fund and
Development Authority Bill in Parliament. The Union Budget for fiscal year 2006 recognised the opportunities
for foreign direct investment in the pension sector and it also announced that the Government would issue
guidelines for such investment.
The Bank is one of only three Indian entities (UTI AMC and LIC of India being the other two) selected
by the Pension Fund Regulatory and Development Authority (“PFRDA”) to sponsor pension fund managers.
The Bank intends to become involved in the pension fund business through a subsidiary fund manager.
Credit Policy Measures
The RBI issues an annual policy statement setting out its monetary policy stance and announcing
various regulatory measures. It issues a review of the annual policy statement on a quarterly basis.
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Annual Policy Statement of the RBI for Fiscal Year 2008
RBI announced its Annual Policy Statement for the year 2007-2008 on April 24, 2007 against a
backdrop of strong economic fundamentals, as evident from the higher growth of GDP and IIP, reasonable
liquidity, healthy foreign exchange reserves and stable exchange rates. The monetary policy focused on credit
quality and financial market conditions for maintaining macro-economic, and in particular financial, stability.
The salient features of the policy are as follows:
• it raised the aggregate ceiling on overseas investment by mutual funds to U.S.$ 4 billion from U.S.$ 3
billion;
• it reduced the interest rate ceiling on non-resident Rupee deposits by 50 basis points to LIBOR/SWAP
rates and reduced interest rate ceiling on non-resident dollar deposits by 50 basis points to LIBOR
minus 75 basis points;
• it allowed prepayment of external commercial borrowings (“ECBs”) of up to U.S.$ 400 million, as

against the existing limit of U.S.$ 300 million, by authorised dealer banks without prior approval of
the Reserve Bank, however, this limit has subsequently been increased to U.S.$ 500 million;
• it reduced, as a temporary measure, the risk weight on residential housing loans to individuals of up to
Rs. 2.0 million to 50%;
• it permitted banks and primary dealers to begin transactions in single-entity credit default swaps; and
• it enhanced the overseas investment limit for domestic companies to 300% of their net worth and
listed companies’ limit for portfolio investment abroad to 35% of their net worth.
In September 2007, the RBI eased overseas investment and loan repayment norms for companies,
mutual funds and individuals seeking to stem the Rupee’s gains by encouraging capital outflows and signalling
another step toward fuller capital account convertibility.
First Quarter Review of Annual Monetary Policy in July 2007
The salient features of the first quarter review of the annual monetary policy are as set out below:
• the repo rate was retained at 7.75%: repo is an instrument for the RBI’s lending of funds by purchasing
government securities, with an agreement to resell securities on a mutually agreed future date at an
agreed price which includes interest for the funds lent;
• the reverse repo rate was retained at 6.0%: the reverse repo rate is an instrument for the RBI’s
borrowing of funds by selling government securities, with an agreement to repurchase the said
securities on a mutually agreed future date at an agreed price which includes interest for the funds
borrowed. Therefore, the reverse repo rate is the rate at which the RBI borrows from the banks;
• effective as of August 6, 2007, the ceiling of Rs. 30 billion on daily reverse repo under the liquidity
adjustment facility (“LAF”) was withdrawn, subject to re-imposition of such ceiling as deemed
appropriate by the RBI;
• the CRR was increased by 50 basis points to 7.0%, effective as of August 4, 2007, with an additional
increase to 7.5% effective as of November 10, 2007;
• the projection of real GDP growth in fiscal year 2008 of around 8.5%, as set out in the Annual Policy
Statement of April 2007, was retained.
Mid-term Review of Annual Monetary Policy in October 2007
The salient features of the mid-term review of the monetary policy are as set out below:
• the repo and reverse repo rates were kept unchanged at 7.75% and 6.0% respectively;
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• the bank rate was kept unchanged at 6.0%; and
• the CRR was increased by 50 basis points to 7.5%, effective as of November 10, 2007, and the
projection of real GDP growth of 8.5% was reiterated.
Reforms of the Non-Bank Finance Companies
The standards relating to income recognition, provisioning and capital adequacy were prescribed for
non-bank finance companies in June 1994. The registered non-bank finance companies were required to achieve
a minimum capital adequacy of 6% by fiscal year 1995 and 8% by fiscal year 1996 and to obtain a minimum
credit rating. To encourage companies to comply with the regulatory framework, in July 1996, the RBI
announced certain liberalisation measures under which registered non-bank finance companies, in compliance
with the prudential norms and credit rating requirements, were granted freedom from the ceiling on interest rates
on deposits and deposit amounts. Other measures introduced include a requirement that non-bank finance
companies maintain a certain percentage of liquid assets and create a reserve fund. The percentage of liquid
assets to be maintained by non-bank finance companies has been uniformly revised upwards. Since April 1999,
non-bank finance companies must maintain 15% of public deposits. The maximum rate of interest that non-bank
finance companies could pay on their public deposits was reduced from 12.5% per annum to 11% per annum
effective as of March 4, 2003. See “— Impact of Liberalisation on the Indian Financial Sector.”
Efforts have been made to integrate non-bank finance companies into the mainstream financial sector.
The first phase of integration covered registration and standards. The focus of supervision has now shifted to
non-bank finance companies accepting public deposits because companies accepting public deposits are
required to comply with directions relating to public deposits, prudential norms and liquid assets. A task force of
non-bank finance companies set up by the Government submitted its report on October 1998 and recommended
several steps to rationalize the regulation of non-bank finance companies. Accepting these recommendations,
the RBI issued new guidelines for non-bank finance companies as follows:
• a minimum net owned fund of Rs. 205 million is mandatory before existing non-bank finance
companies may accept public deposits;
• a minimum investment grade rating is compulsory for loan and investment companies accepting public
deposits, even if they have the ,minimum net owned funds;
• permission to accept public deposits must be linked to the level of capital to ratio assets ratio, with
different capital to risk assets ratio for non-bank finance companies with different ratings being
specified; and
• non-bank finance companies are advised to restrict their investments in real estate to 10% of their net
owned funds.
In its monetary and credit policy for fiscal year 2000, the RBI stipulated a minimum capital of Rs. 20
million for all new non-bank finance companies. In the Government’s budget for fiscal year 2002, the
procedures for foreign direct investment in non-bank finance companies were substantially liberalised. During
fiscal year 2003, the RBI introduced a number of measures to enhance the regulatory and supervisory standards
of non-bank finance companies in order to bring them in line with those pf commercial banks in select
operations over a period of time. Other regulatory measures adopted and subsequently revised in November
2004 included aligning interest rates in this sector with the rates prevalent in the rest of the economy, tightening
prudential norms and harmonising supervisory directions with the requirements of the Companies Act,
procedural changes in nomination facilities, issuance of a Know Your Customer policy and allowing a non-bank
finance companies to take up insurance agency business.
On December 12, 2006 the RBI issued guidelines on the financial regulation of systematically
important non-banking financial companies and bank’s relationships with them with a view to removing the
possibility for regulatory arbitrage leading to an uneven playing field and potential systematic risk.
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New Initiatives in the Banking Sector
Risk Management and Basel-II
With gradual deregulation, banks are now exposed to different types of risk. In view of the dynamic
nature of the financial market, banks face various market risks such as interest rare risks, liquidity risks, and
exchange risks. In respect of lending, they face credit risks, which include default risks and portfolio risks.
Banks also face risks such as operational risks.
In preparation for the adoption of the Basel-II accord, banks have already required by the RBI to take
active measures in terms of risk management systems, evaluate capital charges, including for operational risks
and bring about more transparency in financial reporting as part of market discipline. The RBI has also moved
towards adoption of the Risk Based Supervision of banks, under which the risk profile of the banks will decide
their supervisory cycles. A Bank with a higher risk rating will undergo more frequent supervisory reviews than
those with a lower risk rating. The RBI has also indicated that it will adopt a phased approach to the
implementation of the Basel-II accord. It was proposed to complete implementation of market risk systems
within two years from the year ended March 31, 2005 and the credit risk and operational risk systems with
effect from March 31, 2007.
Taking into account the state of preparedness of the banking system, the RBI, in its Mid-term Review
of Annual Policy for the Year 2006-07, decided to provide banks some more time to put in place appropriate
systems so as to ensure full compliance with Basel II. The RBI had earlier stipulated its commitment to the
adoption of Basel II by the banks and had indicated March 31, 2007 as the intended date for adoption by all.
Foreign banks operating in India and Indian banks having presence outside India are now required to
migrate to the Standardised Approach for credit risks and the Basic Indicator Approach for operational risks
under Basel II with effect from March 31, 2008. In order to be in alignment with these banks, all other
scheduled commercial banks are encouraged to migrate to these approaches under Basel II, but in any case by
no later than March 31, 2009. The Steering Committee of banks will continue to interact with banks and the
Reserve Bank, and guide the smooth implementation of Basel II.
RTGS Implementation in India
With the commencement of operations of the Real Time Gross Settlement (“RTGS”) system from
March 26, 2004, India crossed a major milestone in the development of systemically important payment systems
and complied with the core principles framed by the Bank for International Settlements. As of the end of
January 2007, there were 110 direct participants in the RTGS system and RTGS connectivity was available in
more than 26,000 bank branches spread across more than 3,000 places in the country. The salient features of the
RTGS are as follows:
• payments are settled transaction-by-transaction for high-value and retail payments;
• the settlement of funds is final and irrevocable;
• the settlement is done on a real-time basis and the funds settled can be further used immediately;
• it is a fully secure system which uses digital signatures and Public Key Infrastructure based inscription
for safe and secure message transmission;
• there is a provision for intra-day collateralised liquidity support for member banks to smooth the
temporary mismatch of fund flows; and
• RTGS provides for the transfer of funds relating to inter-bank settlements and also for customer-
related fund transfers.
On a typical day, RTGS handles about 14,000 transactions a day with an approximate value of Rs.
1,500 billion.
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Check Truncation
The pilot project for the Check Truncation System (“CTS”), which is aimed at enhancing efficiency in
the retail check clearing sector, is expected to be implemented on a pilot basis in the National Capital Region in
six different branches of selected banks by December 2007. The RBI proposes to extend this service to
additional metropolitan centres (Mumbai, Kolkata and Chennai) in a phased manner by including more banks
under the CTS. However, the encoded instruments will continue to exist alongside this service until the CTS is
fully implemented.
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BUSINESS
Overview
The Bank is India’s largest bank, with 10,072 domestic offices and 84 international offices in 32
countries with over 100 million accounts. The Bank is also India’s largest retail bank in terms of both assets and
liabilities, totalling Rs. 3,321.2 billion, and approximately 71 million accounts, as on September 30, 2007. As on
December 21, 2007 (being the last reporting Friday of December 2007) based on RBI data, the Bank’s estimated
market share of aggregate deposits of all scheduled commercial banks in India was 15.45% and the Bank
estimated market share of domestic advances was 15.53%. In addition , as on September 30, 2007 based on
trade data from the Directorate General of Commercial Intelligence and Statistics (“DGCIS”) , the Bank had an
estimated 31.9% market share of Indian merchandise foreign exchange transactions for foreign trade.
The Bank organises its client relationships, marketing and product development, as well as non-
customer facing activities, through business groups and strategic business units. The Bank’s primary strategic
business groups are the Corporate Banking Group, the National Banking Group and the Rural Business Group.
The Corporate Banking Group provides corporate banking services to many of India’s most significant
corporations and institutions, including state-owned enterprises. The National Banking Group and the Rural
Business Groups service the Bank’s remaining corporate customers, small scale industries, agriculture and
personal banking customers, including other state owned enterprises, throughout India. The National Banking
Group also provides financial services to the Government and the state governments, including tax collection
and payment services.
The range of products offered by the Bank includes fund-based products, non-fund-based products, fee
and commission-based products and services, deposits and foreign exchange and derivatives products. In the
retail market, the Bank’s products and services include retail lending and deposits, fee and commission-based
products and services, as well as alternative payment products.
The Bank is present, through its subsidiaries, in diverse segments of the Indian financial sector,
including asset management, factoring and commercial services, treasury operations, credit cards, payment
services and life insurance. See “Business — Non-Bank Subsidiaries and Joint Ventures” and “Insurance
Activities.”
The Bank is the largest constituent part of the Group by assets and net income, representing 70.0% of
consolidated Group assets as on September 30, 2007 and 75.7% of consolidated net profit for the six-month
period ended September 30, 2007. The Group includes the Bank, its Associate Banks, which operate in India,
and its subsidiaries and joint ventures, operating both within India and internationally. Associate Banks have a
domestic network of approximately 4,909 branches, with strong regional ties. The Bank also has subsidiaries
and joint ventures outside India, including in Europe, the United States, Canada, Mauritius, Nepal and Bhutan.
As on September 30, 2007, the Bank’s unconsolidated deposits, advances and total assets were Rs.
4,870.5 billion, Rs. 3,586.1 billion and Rs. 6,351.4 billion, respectively. For the six-month period ended
September 30, 2007, the Bank’s unconsolidated net profit amounted to Rs. 30.4 billion, an increase of Rs. 10.5
billion, or 53.2 %, from the six-month period ended September 30, 2006.
As on September 30, 2007, the Group’s consolidated deposits, advances and total assets were Rs.
September 30, 2007, the Group’s consolidated net profit amounted to Rs. 40.1 billion, an increase of Rs. 13.1
billion, or 48.8 %, from the six-month period ended September 30, 2006.
Recent Developments
Employee Share Purchase Scheme
The Bank is proposing an employee share purchase scheme (the “ESPS”). The Central Government has,
by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to
Government authorisation, the Central Board has, at its meeting held on February 1, 2008, approved the ESPS.
The Bank may issue a maximum of 8,617,500 Equity Shares to eligible employees of the Bank. The ESPS will
remain open for a period commencing from March 28, 2008 to April 15, 2008. The issue price will be Rs. 1,590
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per Equity Share. The terms and conditions of the ESPS, will be in accordance with the provisions of the SEBI
(Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and all the
issuances of shares will be done in compliance with the guidelines/regulations/circulars at that time. See, “Risk
Factors -- Shareholders will experience additional dilution as a result of the Bank’s planned Employee Share
Purchase Scheme.”
Government Pension Fund
The Bank is one of the only three entities (the other two being UTI AMC and Life Insurance
Corporation of India) selected by the Pension Fund Regulatory and Development Authority (“PFRDA”) for
sponsoring Pension Fund Managers (“PFM”) under the New Pension Scheme. The Bank has set up the SBI
Pension Funds Pvt Ltd., a wholly owned subsidiary to undertake activities relating to Points of Presence (“POP”)
and PFM.PFRDA had advised that 55% of the corpus will be allocated to the Bank in the first year. SBI Pension
Funds Pvt. Ltd will initially manage pension funds for the Government as well as the pension funds of those
state governments which have opted to join the Scheme. Once the PFRDA Bill is passed, the sector is expected
to open up for individuals to join the New Pension Scheme by voluntary contribution.
General Insurance
The Bank recently invited expressions of interest for its proposed entry into the non-life insurance
segment. The prospective joint venture partner is expected to bring non-life insurance experience from both
mature and emerging markets, relevant knowledge of product development, underwriting best practices, risk
management and other systems.
Venture Capital Fund
The Bank's capital markets subsidiary, SBI Capital Markets Ltd., has entered into a 50% joint venture
partnership with Japan's SBI Holdings, Inc. to launch a U.S.$ 100 million venture capital fund focusing on
knowledge based sectors within India. The India Knowledge Fund will target specific Indian sectors including
IT, Knowledge Process Outsourcing, Clinical Research Outsourcing, nanotechnology, online and mobile
businesses, environmental technology and alternative energy. The fund will invest primarily in unlisted, high
growth companies through initial investments ranging from U.S.$ 3 million to U.S.$ 10 million. The fund will
be co-managed by both SBI Capital Markets Ltd. and SBI Holdings, Inc.
Strengths and Strategy
The Bank’s key strengths are its:
• Relationship with the Government, state governments and state-owned enterprises;
• Market standing;
• Extensive branch network and portfolio of products and services, resulting in a large, diverse and
growing customer base;
• Strong financial position; and
• Experienced management team.
Relationship with the Government , state governments and state-owned enterprises
The Bank believes its strong relationships with both the Government and state governments is a key
factor driving its growth in terms of total assets and provides the Bank with a stable source of business. The
Bank acts as the RBI’s agent for certain banking businesses of the Government and state governments. The
Bank also handles payment functions of the Government through its branches, including salary and pension
payments and expenditure payments of various ministries. This relationship with the Government is
instrumental in attracting new customers.
In addition, the Bank handles a significant portion of the banking requirements for India’s public sector
enterprises (“PSEs”), including administering payments and loans to employees and offering life insurance and
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pension plans. As on March 31, 2007, 3.5% of the Bank’s loan portfolio consisted of food credit (including
loans to agencies of the Government and State governments for procurement and sale of food grain) and 8.1% of
the Bank’s loan portfolio consisted of loans to PSEs. The Bank believes that, as the Indian economy and
financial markets continue to grow, the demand for the Bank’s services from the Government, state
governments and PSEs will also increase.
The Bank is the only bank in India with a mandate from the Pension Fund Regulatory and
Development Authority (“PFRDA”) to hold the pension funds for the benefit of Government employees. As the
Government is moving from defined contribution plans to self contribution, the Bank expects its pension assets
to increase as the Government and additional employers in India offer new or larger defined contribution
retirement plans. See “Industry Overview — Pension Reforms” for a description of pension schemes in India.
Market standing
The origins of the State Bank of India date back to the establishment of the Bank of Calcutta (later
renamed the Bank of Bengal) in 1806, the first bank to be set up in British India to meet the needs of the
mercantile community. As a result of its historic position in India, the Bank has a leading market position in
several of its business segments, including deposits and advances, foreign exchange trading, loan funding
(education loans, home loans and auto-loans), credit cards and payment services. The Bank believes it is India’s
largest provider of education loans, third largest provider of automobile loans and third largest provider of home
loans.
The Bank is continuing to enhance its brand by making significant investments in the products and
services it offers to its customers in and outside of India. For example, the Bank has instituted a Business
Process Re-engineering Project (“BPR”) in order to transform itself into a world class financial institution by
proactively reaching out to acquire new customers, building stronger relationships with existing customers and
providing all customers with high quality service across multiple delivery channels in the shortest time possible.
Some BPR initiatives include the creation of product/customer-focused sales forces to aggressively promote the
Bank’s products so as to increase market penetration, strengthen low cost alternative channels to improve
customer service and redesign all key processes in important areas, such as retail, corporate and international
banking.
Extensive branch network and portfolio of products and services, resulting in a large, diverse and growing
customer base
The Bank is India’s largest bank, with 10,072 offices in India as of 31 December, 2007. It is also
India’s largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2 billion, and number of
accounts (approximately 71 million), as on September 30, 2007. The Bank also has the largest deposit and total
assets base in India, which amounted to Rs. 4,870.5 billion and Rs. 6,351.4 billion respectively, as on September
30, 2007. The Bank also has the largest automatic teller machine (“ATM”) network in India with 5,577 ATMs
as of December, 31, 2007. The Bank had issued 24.17 million debit cards as of December 31, 2007. In addition,
the Bank has launched a payment gateway system to increase the speed and decrease the costs of fund transfers
between customers.
The Bank’s extensive branch network allows it to provide banking services to a wide variety of
customers, including large corporations, institutions and state-owned enterprises, as well as commercial,
agricultural, industrial and retail customers throughout India. The assets of the Bank are diversified across
business segments, industries, and groups, which gives the Bank stability. Moreover, the Bank offers a full
range of banking products and services including short-term and long-term deposits, secured and unsecured
loans, internet banking, credit cards, life insurance, merchant banking, agricultural and micro-finance banking
products and project finance loans. As a result of its extensive network and product offerings, the Bank is able to
meet its customers’ diverse banking needs throughout India. In addition, the Bank’s comprehensive product and
service offerings provide the Bank with numerous opportunities for cross-selling. Finally, the Bank is increasing
its emphasis on a relationship management model in order to provide more tailored products and services,
especially for its key corporate and mid-corporate customers.
The Bank’s strategy is to enhance its position as the largest provider of banking and other financial
services in India, while remaining focused on its profitability. The Bank has commenced several initiatives to
achieve this strategy:
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• The Bank intends to increase its retail banking business by expanding its distribution network and
through the growth of its product and customer base. The Bank is pursuing strategic relationships with
corporate entities and government departments to provide financing products to their employees and
customers. For example, the Bank is seeking strategic relationships with vehicle manufacturers and
dealers to increase its car, two-wheeler and tractor loans, and with reputable builders and construction
agencies to increase its home loans base.
• The Bank has recently created a Corporate Strategy and New Business Group to focus on emerging
opportunities. These opportunities include new developments in India, the provision of non-banking
products and services, including the management of pension funds, the provision of general and non-
life insurance products and financial advisory and wealth management services. Such services are
increasingly sought after in India as a result of the lack of a national retirement savings plan.
• The Bank continues to be heavily involved in the agriculture sector through its extensive rural and
semi-urban branch network, specialised branches for agriculture and small-scale industries and new
innovative products. The Rural and Agri Business Group (subsequently renamed as Rural Business
Group) was created in November 2006 to further coordinate the Bank’s business in this sector.
• The Bank is committed to its ongoing effort of leveraging new technology to maximize efficiency in its
operations and expanding the modes of delivery of its services, enabling it to increase its penetration of
existing customer segments. To achieve this, the Bank plans to expand its existing ATM and internet
banking network as well as migrate all of its branches to the Core Banking Solution platform. The
Bank also plans to offer mobile banking services to individuals in rural and semi-urban areas of India.
Lastly, the Bank is continuing to invest in payment systems to make them more robust and efficient,
thereby improving customer service and enhancing its product offerings. See “– Information
Technology Systems and Infrastructure — IT-based products and development.”
• The Bank, under its proposed Private Equity and Venture Capital initiatives, is considering equity
investments in core sectors such as power, telecom, petroleum, oil, gas, roads, ports, airports and hotels.
• The Bank intends to grow its business through further overseas expansion, primarily to meet the
growing needs of Indian corporates operating overseas as well as non-resident Indians living abroad. In
addition, the Bank expects that its central treasury hubs in Hong Kong and London will expand their
foreign exchange and money-market activities to cover interest rate, foreign exchange, credit structures
and bond trading.
Strong financial position and effective risk management
The Bank has a strong cost-to-income ratio, which was 54.5% for the six-months ended September 30,
2007. In addition, the Bank’s capital position, as measured by its capital adequacy ratio (which is higher than
mandatory levels), allows the Bank to take advantage of significant growth opportunities in the market. The
Bank’s gross and net NPA were 2.9% and 1.6%, respectively, as of September 30, 2007 of its gross and net
advances, respectively. This low level of NPAs is due to the Bank’s rigorous risk management policies and
procedures.
Experienced management team
The Bank has an experienced management team led by Mr. O.P. Bhatt, Chairman of the Bank, who has
over 30 years’ experience in banking. The Bank’s executive committee members have on average more than 25
years’ banking and financial experience. The balance of the senior management team has strengths in key areas,
including retail, corporate and international banking. The management team’s extensive and diverse expertise
provides the Bank with a broad perspective from which it can make strategic management and operational
decisions. In addition, during the past 12 months, several new positions in departments such as Global Markets,
Rural Business and Corporate Strategy and New Businesses have been created. Under the guidance of the New
Businesses department, the Bank has recently undertaken or is planning to undertake the following initiatives
within the next two fiscal years: mobile banking, merchant acquiring business, custodial services and private
equity and venture capital.
Business Process Re-engineering
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The Bank has instituted a Business Process Re-engineering Project, BPR, in order to transform itself
into a world class financial institution by proactively reaching out to acquire new customers, building stronger
relationships with existing customers and providing all customers with the highest quality of service across
multiple delivery channels in the shortest time possible.
The Bank believes that the Core Banking Solution (which provides the capability of online real time
transaction processing across the Bank’s branches) and BPR will create a new sales and service platform across
its urban branch network, and improve the Bank’s key business performance indicators, such as increases in the
return-on-asset ratio, cost-to-income ratio and decrease in non-performing assets (“NPAs”).
The Bank believes that BPR will redefine the Bank’s operating architecture with an aim to enhance the
sales and service at its branches. The Bank plans to transfer the majority of the transactions from branches to
alternative service channels, namely ATMs, drop-boxes, internet banking, mobile banking and call centres. In
addition, all non-customer facing back office activities will be transferred from branches to Central Processing
Centres (“CPCs”). The Bank’s branches will also be redesigned to provide better service for customers.
The BPR initiatives include the establishment of:
• Grahak Mitras (customer greeting personnel) to help customers at the branch entry by providing basic
information;
• Relationship managers for Personal Banking, Small and Medium Enterprises;
• Home Loans Sales Team and Multi-Product Sales Team; and
• CPCs including Currency Administration Cell, Retail Assets CPCs, Small and Medium Enterprises
City Credit Center, Liability CPC, Trade Finance CPC, Stressed Assets Resolution Center, Centralised
Clearing Processing Center and Centralised Pension Processing Cell.
Relationship managers have been introduced for certain of the Bank’s customer segments. Relationship
mangers have been a feature of corporate banking for significant clients since May 2003, and have now been
introduced for mid-corporate banking customers. In addition, personalised services to mass affluent and medium
enterprise customers are being promoted through the appointment, as of December 31, 2007, of approximately
456 relationship managers for personal banking and 105 relationship managers for medium enterprises. As of
December 31, 2007 approximately 60 home loan sales teams have been created to engage in door-to-door sales
of home loans to targeted customers. Finally, approximately 214 multi-product sales teams have been created to
sell product to small business enterprises and ‘personal’ segment loans (other than housing loans).
The Bank expects that these initiatives will assist it in transforming its operating structure, providing
improved service, reducing operating costs, decreasing back office work at branches, boosting sales efforts and
leveraging the strength of the existing branch network.
Organisation of the Bank’s Business Groups
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Chairman
Global Rural Business Corporate National International Associates and

Markets Banking Banking Banking Subsidiaries
Corporate Personal
Rural Accounts Group Banking
Non-Farm
Government
Agriculture Project Finance & Foreign Offices
Leasing and Subsidiaries
Marketing and
Cross-Selling
Mid-Corporates
Group Associates Banks
and Subsidiaries
SME
SAMG
Global and
Domestic
Treasury
The Bank organizes its client relationships, marketing and product development, as well as internal,
non-customer facing activities, through business groups and strategic business units. Its business groups are the
Corporate Banking Group, National Banking Group, Rural Business Group, International Banking Group and
Global Markets Group (previously the Treasury and Markets Group). The Associates and Subsidiaries Group
manages the Bank’s investment in its Associate Banks and its other subsidiaries. The Marketing and Cross
Selling Group assists the business groups in cross-selling the products and services of the Bank’s subsidiaries
and joint ventures. The principal customer facing strategic business units and groups are the Corporate Accounts
and Mid-Corporates Groups of the Corporate Banking Group; the Personal Banking, Government, and SME
Groups of the National Banking Group; and the Rural Business Group. The Bank is currently in the process of
creating a Wholesale Banking Group. The Bank expects this group to provide a wide range of banking services
required by large organisations and institutions.
The Bank’s administrative services and management, including risk management, IT, inspection and
audit, legal and human resources functions, are common to all its business groups. Within the National Banking
Group and Rural Business Group, which together have the largest number of the Bank’s branches, these
common services are organized on the basis of administrative units, which are referred to within the Bank as
“circles,” “zones” and “branches.” Each circle serves as the geographic centre of approximately 600 to 800
branches and is sub-divided into four to five zones per circle. Each zone covers approximately 150 branches.
The risk management department has risk officers and risk raters located at each circle headquarters as
well as within the Mid-Corporate Group, Corporate Accounts Group, International Banking Group, in each case
reporting to Chief General Manager (Risk Management). The IT department provides support to all business
groups. A Deputy General Manager position (IT-Coordination) has been created at Corporate Center to
prioritise and coordinate IT related issues among the various business groups with the IT department, human
resources, and industrial relations.
Corporate Banking
corporations and institutions, including state-owned enterprises, and offers fund-based and non-fund-based
products, fee and commission-based products and services, deposits and foreign exchange and derivatives. The
Corporate Banking Group’s customers span the range from mid-corporate clients with annual turnover of
between Rs. 0.5 billion and Rs. 5.0 billion to the largest corporations in India. Each customer is assigned a
relationship manager, who serves as a single point of contact for all of the customer’s banking needs, from loan
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products and deposit accounts to international funding for cross-border transactions and interest rate and foreign
exchange hedging products. The relationship manager may also serve as the bridge to the Bank’s other product
groups, such as Personal Banking for the corporate’s management or employees or International Banking for
export finance services.
The Corporate Banking Group comprises four strategic business units — the Corporate Accounts
Group, Mid-Corporate Group, Stressed Assets Management Group and Project Finance and Leasing Group.
The Corporate Accounts and Mid-Corporate Groups service large Indian corporations and mid-
corporates, respectively. The Stressed Assets Management Group provides specialised internal support in
managing and recovering the Bank’s high value NPAs (Rs. 10 million and above), while the Project Finance and
Leasing Group appraises and provides specialist support to all high value projects (with project cost exceeding
Rs. 2 billion) in which the Bank is involved.
The focus of the Corporate Banking Group is to go beyond traditional lending products by:
• emphasising relationship managers to deepen customer relationships and promote cross selling of the
Group’s extensive range of products and services;
• exploring new growth areas like cash management;
• offering centralised payment solutions; and
• marketing derivatives products by taking advantage of the volatility in the currency markets and the
consequent need by corporates to hedge their balance sheet risks.
Corporate Accounts Group
The Corporate Accounts Group focuses on the Bank’s prime corporate customers across India.
Through its customer relationship management approach, where each client is assigned a dedicated accounts
management team, headed by a relationship manager to coordinate its banking relationship with the Bank, the
Corporate Accounts Group aims to leverage its strong corporate relationships and increase the Bank’s market
share in fund-based, non-fund-based and fee based products. Services are delivered through four branches
dedicated exclusively to Corporate Accounts Group customers in Delhi, Mumbai, Chennai and Kolkata. The
Bank also believes that separate marketing and customer service departments are necessary in order to
adequately meet the demands of this customer base.
Within the Corporate Accounts Group, the Institutional Accounts Unit focuses exclusively on
institutional accounts such as mutual funds, insurance companies, other institutions and government
departments, leveraging such relationships to maximize fee and commission income. The Bank believes that
banking services in the form of payment and collection solutions and liquidity management have become critical
requirements of such customers, who will continue to be a significant driver of both interest and fee and
commission-based income.
Products offered to Corporate Account Group customers include loan products, deposits, fee and
commission-based products and services, and a broad range of foreign exchange and treasury services, including
RBI-permitted derivatives, which are developed and provided by the International Banking and Treasury
Services Groups, respectively.
The Bank provides a corporate internet banking facility, with multi-level access and authorisation
controls required by corporate customers. The Corporate Account Group’s other delivery channels include the
Bank’s extensive branch network, credit cards, and electronic payments platforms. See”— Delivery Channels.”
The Corporate Accounts Group’s corporate loan portfolio primarily consists of working capital finance
and term loans for project and corporate finance. The Corporate Accounts Group offers its customers both fund
based and non-fund-based facilities. The most commonly used facilities are cash credits, working capital
demand loans, bill discounting, term loans, corporate loans and export credit. Interest rates on these facilities are
linked to the State Bank Advance Rate (the benchmark rate at which the Bank may lend to its prime borrowers)
or to other market related rates. Non fund based products such as letters of credit, bank guarantees, deferred
payment guarantees, remittance and collection services, online tax payment, cash management services, as well
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as end to end payment solutions are some of the sources of fee-based income. As on September 30, 2007, total
outstanding loans of the Corporate Accounts Group was Rs. 381.7 billion in respect of fund-based products and
Rs. 441.5 billion in respect of non-fund-based products.
The Bank handles bulk business for all Corporate Accounts Group customers across India by way of
dividend warrant payments for companies, as well as bulk electronic salary payments of large corporates, PSUs,
and government departments. These activities are all processed through the Bank’s own computerised network
and also through the electronic payment gateways of the RBI. Additionally, the Bank handles bulk draft
issuances for customers across the country. The Bank also acts as a refund bank for the Government tax
authorities and is the exclusive refund bank in respect of income taxes. These activities all contribute to the
Bank’s fee-based income.
Principal products and services that the Bank offers specifically, although not exclusively, to Corporate
Account Group customers are:
Loan Syndication
Through its subsidiary SBI Capital Markets Ltd., the Bank has developed significant syndication
capabilities, structuring and arranging the syndication of large financial transactions. The Bank seeks to leverage
these syndication capabilities to arrange project and corporate finance for its corporate customers and earn fee
income. By leveraging the experience of SBI Capital Markets and the extensive customer relationships of the
Bank, this strategic relationship has made a significant contribution to the Bank’s ability to cross-sell the
products and services of its various business groups and subsidiaries.
Corporate Cash Management
The Bank provides cash management services to corporate customers under the brand name SBI FAST,
which stands for “Funds Available in Shortest Time.” Customers can use approximately 359 collecting centres
throughout India, with pooling facilities at various branches, which are connected to the Bank’s central clearing
centre in Mumbai. This service aims to enhance liquidity, reduce costs and provide profit opportunities for the
Bank’s customers by allowing for better liquidity management. Through SBI FAST, funds are transferred
directly to the customer’s main account at any branch that has implemented the Core Banking Solution
(numbering 7,303 branches as of December 31, 2007), from various collection centres on the same day that they
are cleared at the collecting centres. SBI FAST also offers disbursement and payment services through a
separate platform to facilitate payments and collections across the country at customers’ payment centres and
plant locations.
Detailed management information system reports covering a variety of banking information are made
available on a daily basis to customers’ corporate head offices as well as to their local offices and
representatives at the centres through automatically generated email. The Bank customizes the management
information system reports to customers’ needs. Monthly reports are also sent to customers through
automatically generated email. Full reconciliation support, meaning the automatic reconciliation of payments
and receipts effected by the customer, is provided centrally from the Bank’s hub in Mumbai by a dedicated team.
The payment solutions offered by the Bank as a part of corporate cash management make it possible
for corporate customers to outsource their accounts payable to the Bank and have payments processed using
electronically-based as well as paper products. In addition to effecting payments to the 6,243 Bank branches
connected through the Core Banking Solution, electronic payments may be made by the Bank on behalf of its
customers to other banks’ branches across India. Currently, more than 620 District Headquarters in India and an
additional 40 business locations use this centralised cash management system, enabling quick, time-sensitive
bulk payments to any beneficiary in India on behalf of the Bank’s corporate customers.
Trade Finance
Trade finance services include the issuance and advising of domestic and foreign letters of credit, the
confirmation of export letters of credit, the issuance of guarantees on behalf of domestic customers in favour of
domestic and foreign beneficiaries, and on behalf of foreign correspondent banks to beneficiaries in India,
domestic and foreign bill discounting against letter of credit as well as non-letter of credit bills and similar
services.
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Trade finance services include a new IT-driven supply chain financing product being developed by the
National Banking Group. The Bank expects that supply chain financing will enable it to leverage its links with
existing Corporate Accounts Group customers, referred to by the Bank as “Industry Majors,” to offer financing
services to the small and medium size vendors and dealers to such Industry Majors, whether or not the vendors
are already customers of the Bank. The target vendors would typically be part of the SME or SSI customer base.
Supply chain financing is being marketed to corporates for use by their vendors. It is anticipated that this
activity will bring into the Bank a number of new vendors who serve the Mid-Corporate and SME segments.
See “— Small and Medium Sized Enterprises.”
Mid-Corporate Group
The Mid-Corporate Group focuses on mid-corporate customers, which are defined by the Bank as
entities with annual turnover between Rs. 0.5 billion and Rs. 5.0 billion. The objectives of the Mid-Corporate
Group are to:
• Focus the Bank’s attention on the banking requirements of mid-corporate clients;
• Improve turn around time for credit delivery;
• Provide customized solutions to meet the financial requirements of mid-corporate clients; and
• Develop teams well versed in credit, foreign exchange, derivatives and trade finance, as those products
are used by Mid-Corporate customers.
Mid-sized corporate customers have been and continue to be an integral part of India’s economic
development. The Bank believes that this market segment encompasses more than 10,000 entities, many of
whom are listed on a domestic stock exchange. High concentrations of these customers are located in 14
metropolitan centres, and are served by the Bank’s extensive branch network. In addition to the branch network,
the Bank services customers in these metropolitan centres by establishing sales hubs and centralised credit
processing facilities. The Bank has established 28 branches that are dedicated exclusively to Mid-Corporate
Group customers. Relationship managers provide a single point of contact for all mid-corporate customers. Mid-
corporate customers located outside the Mid-Corporate Group’s geographic coverage area are served through
the Bank’s branch network.
Relationship managers are assigned to all mid-corporate customers. These relationship managers are
expected to attract more banking business from high-end mid-corporate customers by building close
relationships with existing customers, as well as reaching out to potential customers, and familiarising
customers with the various banking products and services offered by the Bank’s specialised business units. An
example would be the cross-selling of retail banking services to the customer’s management or employees, or of
interest rate and currency hedging products that are offered by the Global Markets Group. A typical relationship
manager handles approximately 30 mid-corporate accounts depending on the manager’s location and is a
customer’s central contact at the Bank. A relationship manager may also be approached by the specialised
business units within the Bank for the purposes of cross-selling banking products or services to the relationship
manager’s customers.
A recent initiative is the formation in 2007 of the precious metals business unit within the Mid-
Corporate Group. The focus of this business unit is to meet the demand for precious metals financing by mid-
corporate customers. Demand for gold, in the form of wholesale and metal loans, has traditionally come from
the Bank’s mid-sized customers such as jewellery firms and traders. This unit also serves the retail sector’s
demand for portfolio diversification by offering precious metal products to that market through the Personal
Banking Group.
The Mid-Corporate Group offers the same banking services and products as the Corporate Accounts
Group, although generally with less customisation, as well as a range of trade finance products. Similar to the
Corporate Accounts Group, the Mid-Corporate Group offers supply chain financing to leverage the Bank’s
customer base by offering vendor and dealer financing to link the large corporate, mid-corporate and SME
customer segments served by the Bank. Unlike customers of the Corporate Accounts Group, customers of the
Mid-Corporate Group can be either the Industry Majors or the vendors or dealers.
Stressed Assets Management Group
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The Stressed Assets Management Group (“SAMG”) focuses on the resolution of NPAs of Rs. 10
million and above incurred in the Bank’s customer-facing business units. The Bank’s Credit Policy and
Procedures Committee formulates NPA policy, while the SAMG handles the NPAs in accordance with such
policies. The SAMG operates from 10 branches throughout India where dedicated teams of specialists evaluate
NPAs referred from other business units within the Bank (for example, the Corporate Accounts Group, which
will have booked the assets that may become NPAs). If the NPAs are found ineligible for restructuring, the
SAMG takes steps to recover the amounts due to the Bank either by compromising the claim or enforcing any
security interests the Bank may have or selling the NPA to other banks, financial institutions or other entities.
See “Description of Assets and Liability Management and Risk Management of the Bank — Credit Management
Policies and Procedure.” In addition, for small value NPAs, the SAMG may use outsourced recovery agents
and resolution agents to assist its efforts to resolve NPAs.
Project Finance and Leasing
The Project Finance and Leasing Group provide specialist project evaluation services to the Bank’s
customers. This unit has a particular focus on core infrastructure sectors of the Indian economy such as
telecommunications, oil and gas, roads, bridges, ports and urban infrastructure, although it has also expanded to
corporate sectors such as steel and concrete. The project finance team examines projects whose total cost is at
least Rs. 2 billion, with debt exposure in excess of 25.0% of the project cost. The Corporate Accounts Group,
the National Banking Group and the Mid-Corporate Group interface with the customer in proposing project
finance services, while appraisals, sanctioning and documentation of a project will generally be carried out by
the Project Finance and Leasing business units. Once the project risk has passed, control of the project reverts to
the originating Group. Leasing activities, which were started by the Bank in 1995, are progressively being
wound up and the Bank does not expect leasing to comprise a significant part of its activities in the future.
National Banking
The National Banking Group provides a range of retail banking products to individuals through the
Personal Banking unit, corporate banking products to the Bank’s corporate, mid-corporate and small enterprise
customers that are not serviced by the Corporate Banking Group, or the Mid Corporate Group and banking
services to the Government and state governments. Corporate banking products and services offered by the
National Banking Group are largely the same as those offered by the Corporate Banking Group. The National
Banking Group services customers located in urban and metro areas, while customers in rural and semi-urban
areas are serviced by the Rural Business Group (discussed below). Geographic areas are classified as urban,
metro, rural or semi-urban by the RBI based on population.
The National Banking Group comprises three customer-facing business units — Personal Banking,
SMEs and Government Banking Unit, spread out over 14 administrative circles with a network of 3,415 offices
as of December 31, 2007.
Personal Banking
The Bank is the largest retail bank in India having, as of September 30, 2007, approximately 71 million
retail accounts, 20.0% of which were located in metro and urban areas, and retail banking assets and liabilities
of Rs. 3,321.2 billion. The Bank has the largest branch and ATM network in India. As of December 31, 2007, it
had a total of 10,072 offices, of which 3,415 were in urban and metro areas (and therefore under the umbrella of
the National Banking Group) and 6,657 of which were in rural and semi-urban areas (servicing customers of the
Rural Business Group), with 7,303 of those branches integrated through the Core Banking Solution. The Bank’s
ATM network totalled 5,577 ATMs across India as of December 31, 2007, with 3,299 of those in urban and
metro areas, and 2,278 in rural and semi-urban areas. The Bank also has bilateral sharing arrangements with 13
other banks for the sharing of ATM networks, thereby giving the Bank’s customers access to over 16,500 ATMs
across India. Together with its Associate Banks, subsidiaries and joint ventures, in both the banking and non-
banking sectors, the Bank offers a broad range of products and services to its retail customers, including lending
products such as home finance loans, automobile finance loans, and personal loans, deposit products, such as
demand and time deposits and savings accounts, and credit cards. In addition, the Bank goes beyond traditional
banking services to provide access to fee and commission-based products such as life insurance and mutual
funds as well as providing services tailored to non-resident Indians (“NRIs”).
77
Specific customer segments include the high net worth and mass affluent, and salaried employees.
Nearly 650,000 customers qualify as high net worth or mass affluent on the basis of the value of their domestic
deposits with the Bank. Of that number, approximately 170,000 customers across India as of September 30,
2007 were eligible for the Bank’s recently initiated high net worth and mass affluent banking offering, “SBI-
Vishesh” scheme, a priority banking service offered in select branches throughout India. In addition, the Bank
has a strong customer base of salaried employees, with over two million salary accounts. The Bank is also
focusing on increasing the number of retail relationship managers to strengthen its franchise. Approximately
1,400 customer relationship executives handle distribution and servicing for high net worth individuals and mass
affluent customers, with another 1,000 expected to be hired by March 2008.
Products
The Bank’s retail lending products include home, auto and personal loans. According to RBI data, as of
March 31, 2007, the Bank had a 16.5% share of the home loan market, and a 16.8% share of the personal loans
market (which includes personal, auto and educational loans), in each case measured by amounts outstanding.
Home Loans
The Bank is one of the top three providers of home loans within India (CRISIL Research Retail
Finance — Housing Finance Update: May 2007). As of December 31, 2007, home loans constituted more than
52.0% of the personal banking loan portfolio of the Bank by total amounts outstanding. The Bank believes home
loans will continue to be a significant driver in the growth of its retail banking business, due to the expected
housing shortage in India coupled with the rising affluence of the Indian population. In addition to home loans
for the purpose of construction, purchase and repair of personal residences, the Bank is also introducing more
sophisticated products such as reverse mortgages and home equity loans. Recent initiatives include “SBI Tribal
Plus” (special housing financing product for persons residing in the hill or tribal areas, where land records are
not available), “SBI Freedom” (housing loan secured by liquid securities, without a mortgage of the property)
and “SBI Flexi” (housing loan with a portion at fixed rate and the remaining at floating rate).
Personal Loans
Personal loans are general purpose loans for individuals, the proceeds of which can be used at the
borrower’s discretion. The Bank offers a wide range of personal loan products targeting specific customer
segments or funding purposes. This category includes auto loans, which are loans for the purchase of new and
used cars, jeeps and utility vehicles, as well as for two-wheel vehicles such as scooters, motorcycles and mopeds.
Other personal loan products are the “Xpress Credit” (pre-approved personal loans for employees of the
Government (including State governments) and leading private sector enterprises), “SBI Loans to Pensioners”
(personal loans to pensioners of the Government (including State governments) and PSUs), loans against
financial securities (financing provided by way of overdrafts or demand loans, against the security of term
deposits, shares, debentures and mutual funds) and the “Rent Plus Scheme” (securitisations of future rent
receivables).
In India, the Bank is the largest provider of educational loans according to Indian Banks’ Association,
which comprised 5.03% of the personal banking loan portfolio of the Bank as of December 31, 2007.
Educational loans include such targeted products as “Nursing Plus” (loans to individuals for undertaking
graduate and post-graduate courses in nursing from recognised institutes).
Deposit products offered to Personal Banking customers include savings, checking, term deposits and
hybrid accounts that combine features of savings and term deposit accounts.
In addition to traditional lending and deposit products, the Bank offers technology based payment
products. The SBI Vishwa Yatra Foreign Travel Card is a prepaid card issued in association with VISA
International that can be used to withdraw cash from VISA-enabled ATMs and to purchase goods and services
from merchants and points of sales displaying the VISA logo. The card is available in U.S. dollars, sterling and
euro currencies. For domestic use, Rupee prepaid cards are issued in association with VISA International.
Periodic payments such as salary may be loaded onto the card at any Bank branch connected to the Core
Banking Solution, with the funds available to cardholders immediately. Funds can be withdrawn at VISA-
enabled ATMs and at VISA points of sale in India, Nepal and Bhutan.
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The Personal Banking unit is the largest user of the ATM distribution channel and credit cards.
Although credit cards are marketed primarily by the Personal Banking unit, they are operated by a subsidiary.
See “Distribution Channels — Credit Cards.”
Small and Medium Sized Enterprises
The SME Group focuses on servicing the specific credit needs of small and medium enterprises
(“SMEs”), defined by the Bank as entities with an annual turnover of up to Rs. 500 million. The Bank believes
that small and medium sized enterprises are a major driving force behind India’s recent economic success.
Accordingly, the Bank has dedicated specific resources to this customer segment. Because SMEs are large in
number but generally share similar needs, highly customized products are not necessary to serve these
customers. Relationship managers are provided to high-end SMEs, as these customers generally require more
specialised attention.
Products and services offered specifically to SME include dedicated branch tellers, stand-by lines of
credit, current accounts, time and other deposits, business to business payment solutions, multi-city checks, bank
guarantees, letters of credit, specially tailored internet banking as well as working capital and term loans.
Further, the Bank has taken initiatives, including advisory services and concessionary finance, in implementing
an Energy Efficiency Program for its SME clients. The Energy Efficiency Program offers a subsidised energy
study to energy-intensive SMEs, carried out by energy consultants employed by the Bank, and financing on
advantageous terms of the implementation of energy conservation measures.
The Bank has simplified the credit appraisal process and reduced credit delivery time through its “SME
Smart Score” scheme. This scheme is based on a scoring model system to simplify the approval process for
loans up to Rs. 5 million for manufacturing units and Rs. 2.5 million for trade and services. The Bank has also
developed industry, activity, and cluster specific scoring models. As part of its BPR initiative, the Bank has
begun to centralise credit processing for SMEs, enabling the Bank to offer greater uniformity in appraisals,
quicker processing and better risk management.
In addition to traditional lending products, the Bank seeks to extend its reach to the supply chain
partners of large corporations through supply chain financing, including the financing of selected vendors and
dealers of the Bank’s corporate clients. This IT-based product provides an important cross-selling opportunity,
linking customers of the Corporate Accounts Group, as the Industry Majors, and suppliers or vendors of various
sizes that comprise the customer base of the SME Group. See “— Corporate Accounts Group — Trade
Finance.”
Small Scale Industries and Small Business Finance
SMEs are further subdivided into Small Scale Industries (“SSI”) and Small Business Finance (“SBF”)
units. Since its inception, the Bank has played and continues to play an important role in the development of
SSIs and small businesses. SSI and SBF customers located in rural or semi-urban areas have access to the same
products and services through the Rural Business Group.
Small Scale Industries
SSI customers are businesses engaged in the manufacture, processing or preservation of goods and
whose investment in plant and machinery does not exceed Rs. 50 million. The Bank currently has 44 specialised
SSI branches located in areas where there is a greater potential for SSI activity. These branches provide focused
attention for SSIs through specially trained personnel whose sole responsibility is to look after SSI customers.
As part of its involvement in this sector, the Bank has prepared a charter for Small Scale Industries,
detailing schemes and standards for lending to this sector. The Bank also offers management consultancy
services to SSIs who plan to upgrade their technology capabilities. Through this project, the Bank has increased
penetration in, among others, industries relating to auto components, rice mills and other industries.
Small Business Finance
The Bank finances small business activities for a large number of its SME customers. SBF is
undertaken under four broad categories: retail traders, business enterprises, professionals and self-employed
persons and small road transport operators. For example, with respect to retail trade, the Bank extends loans to
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retail traders who act as a link between the manufacturers of goods or commodities and the consumer. The Bank
also offers working capital products as well as loans for the purchase, renovation and repair of equipment.
Government Banking
The Bank handles government transactions as an agent for the Government (including RBI) and
various state governments. For the year ended March 31, 2007, the Bank handled approximately 52.0% of
Government aggregate payments and receipts, and approximately 62.0% of state government payments and
receipts. The Bank acts as agent for the receipt and payment of government transactions. The Bank collects
government revenues by way of taxes such as central excise and service taxes through its branches. The Bank
also handles government payment functions through its branches, including pension payments and expenditures
payments of various ministries. Further, the Bank remits funds deposited by departments such as post &
telecommunications, railways, defence and other government departments.
The Bank earns commission income on the payment services it provides. Receipts and pension
payments made by the Bank are subject to a fixed fee per transaction, irrespective of the transaction amount;
fees for payments, other than pension payments, made by the Bank are calculated as a fixed percentage of the
payment amount.
Rural Business
The Bank services customers located in rural and semi-urban areas through the largest branch and
ATM network in India. The Rural Business Group was formed in November 2006 and focuses on developing
innovative and effective modes of delivering banking services to all customers located in the rural and semi-
urban areas of India, as defined by the RBI. As of December 31, 2007, approximately 66.0% of the Bank’s
branch network was in semi-urban and rural areas. Banking products and services provided to customers of the
Rural Business Group generally include all corporate and retail products and services that are provided by the
National Banking Group, and are provided to the same demographic customer groups as are served by the
National Banking Group. In addition, to a much smaller extent, the Rural Business Group provides sophisticated
corporate products and services to mid-corporate customers that are located outside the geographic areas served
by the Mid-Corporate Group of Corporate Banking.
The Rural Business Group is subdivided into two business units — Rural Banking (Non-farm) and
Agriculture.
Rural Banking (Non-farm)
The Bank believes that the rural areas of India are greatly underserved by the financial sector, and
therefore views rural banking as one of the key drivers of future growth.
The Bank serves its rural clients through an extensive network of 6,657 offices located in rural and
semi-urban areas as of December 31, 2007. Rural banking requires an innovative approach in respect of delivery
of services in remote areas, to a population with significant illiteracy rates, and a large number of small-value
transactions. To cater to customer needs, the Bank has set up branches focusing on products important to rural
customers such as savings and term deposits, small business financing, life insurance and remittance services, in
addition to the other corporate and retail products and services offered by the National Banking Group. These
branches service all customer segments that are present in their geographic coverage area, from personal
banking clients to mid-corporate clients (who, although serviced at a rural branch, will have their credit needs
assessed by the Mid-Corporate Group). Branches located in rural and semi-urban areas distribute the same
personal banking, SME, SSI and SBF products and services as those of the National Banking Group. Rural
housing and micro finance, previously handled at the national level, have been regrouped under the Rural
Banking (Non-farm) business unit.
The Bank is developing alternative delivery channels for banking services and products through
business facilitators and business correspondents. The Bank is currently pilot testing a business correspondent
relationship with India Post, whereby India Post will be able to take deposits and permit cash withdrawals
through smart cards. The Bank is testing these operations in seven states with an intention to expand into
additional states in the near future, including through other entities, such as non-governmental organisations and
micro finance institutions located in areas where the Bank does not yet have a physical presence. The Bank is
also in the process of rolling out services through business facilitators, which are persons appointed by the Bank,
80
such as insurance agents or non-governmental organisations, to market asset and liability products to customers
on a commission basis.
Rural banking offers a particular challenge due to the low margin transactions that typically occur at
rural branches. The Bank seeks to overcome this challenge through IT-based initiatives targeted specifically at
the rural customer. These initiatives include a user-friendly ATM network that now spans more than 485 rural
locations, a kiosk project that will allow for access to more remote areas as well as a Smart Card program that
allows rural customers to access basic banking services through business correspondents without meeting the
minimum deposit requirements for accounts with the Bank.
The Bank has moved beyond traditional banking to support grass-roots initiatives to encourage access
to finance for the poorest of the rural population. The Bank believes that micro finance, including financing to
Self Help Groups (“SHGs”), has significantly contributed to the credit growth in rural areas and the
improvement in the standard of living of the rural poor. The Bank has provided advances of Rs. 46.56 billion to
approximately 936,000 SHGs in India as of December 31, 2007. The Bank is a market leader in SHG lending in
India, and, in 2006, became the first commercial bank in India to be assigned the status of “Self Help
Promoting” institution by the National Bank for Agriculture and Rural Development.
The Bank believes that the clients it assists through micro finance initiatives will become loyal
customers in the future. The Bank’s micro finance initiatives are accomplished primarily through the use of
SHGs. The Bank believes that these groups, comprising approximately 15 to 20 families, each of which is
represented by one family member (who is generally a woman), serve as the basis for establishing group
dynamics and a culture of savings within the community. Traditional micro finance in India has been done
through the use of intermediary organisations. The Bank believes, however, that these organisations are
unnecessary, given the Bank’s own extensive branch network and its initiatives to broaden delivery channels for
banking services, such as the strategic alliance with India Post discussed above. By eliminating intermediaries,
the Bank expects to be able to cultivate relationships with the SHGs and ultimately assist in the development of
micro finance projects into micro enterprises. The SHG forms a savings unit, depositing the collective savings
with the Bank. The Bank in turn lends to the SHG an amount of up to four times the SHG’s savings, which the
SHG lends out to its members at its sole discretion. Micro finance loans extended by the Bank form part of the
Bank’s directed lending obligations. See “Regulations and Policies — RBI Regulations —Directed Lending.”
Agriculture
Since its inception, the Bank has played and continues to play an important role in the development of
Indian agriculture. The Bank had 424 agricultural development branches as of September 30, 2007. These are
specialised branches located throughout India used exclusively for the development of the agriculture sector and
its related industries.
The Bank’s agricultural development branches offer products such as crop financing, farm equipment
financing, and agricultural value chain financing and serve customers involved in a wide range of agricultural
activities such as crop production, horticulture, plantation crops, floriculture, farm mechanisation, land
development and reclamation, digging of wells, tube wells and irrigation projects, as well as activities linked to
agriculture such as storage, trading and processing. The Bank also finances activities such as dairy production,
fisheries, livestock management and silk worm farming. The Bank’s focus has been on cultivating direct
relationships with the farmers, thereby allowing them to offer more customized products to their clients.
Initiatives aimed at strengthening ties with the farming community include attending farmers’ meetings and
Farmer’s Club events as well as a village adoption program whereby each region, encompassing 40 to 45
branches, adopts a village in order to build banking relationships there as well as to support integrated
development of the village.
As in its other lending operations, the Bank uses a scoring model for credit assessment of borrowers
under several of its programs. Lending by individual branches under certain loan programs is linked to NPA
levels, so that NPA levels exceeding certain benchmarks will lead to a tightening of certain credit lines. In
addition, recovery agents are increasingly being used by the Bank to address debt collection, generally by
enforcing on the underlying collateral securing the loans.
Global Markets
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The Bank’s Global Markets Group (previously known as the Treasury and Markets Group) manages its
domestic liquidity and foreign currency exposure, engages in proprietary trading of currencies and offers foreign
exchange and risk hedging derivative products to its customers. The treasury also handles equity trading for the
Bank’s trading and banking books.
Through its treasury operations, the Bank manages its required regulatory reserves and investment
portfolio with a view to maximising efficiency and return on capital. The Bank also seeks to optimise profits
from its trading portfolio by taking advantage of market opportunities. The Bank’s trading and securities
portfolio includes its regulatory portfolio, as there is no restriction on active management of the regulatory
portfolio.
Under the RBI’s statutory liquidity ratio requirement for Indian banks, the Bank is required to maintain
25.0% of its net demand and time liabilities by way of approved securities, such as Government securities
(including state government securities). The Bank maintains its statutory liquidity requirement through a
portfolio of Government securities that it actively manages to optimise yield and benefit from price movements.
The RBI may prescribe the Cash Reserve Ratio (“CRR”) for scheduled commercial banks without any floor or
ceiling rate. The rate of CRR to be maintained by banks on their total demand and time liabilities is 7.0% as
from August 4, 2007, which has since been raised to 7.5% as of November 10, 2007. In view of section 3 of the
Reserve Bank of India (Amendment) Act, 2006 which came into force on April 1, 2007, the RBI does not pay
any interest on the CRR balances. See “Regulations and Policies — Legal Reserve Requirement.”
Due to these regulatory reserve requirements, a substantial portion of the Bank’s trading and securities
portfolio consists of Government securities. As on September 30, 2007, Government securities (excluding
securities purchased under agreements to resell) constituted 67.0% of the Bank’s total trading and available for
sale securities portfolio, while the remainder included corporate debt securities and equity securities. The Bank
had outstanding Government securities worth Rs. 1.6 billion in its trading portfolio as on September 30, 2007.
The Treasury Group engages in domestic and foreign exchange operations from its main office in
Mumbai. As part of its treasury activities, the Bank also maintains proprietary trading portfolios in domestic
debt and equity securities and in foreign currency assets. During the fiscal year 2007, the Bank recorded a total
turnover of Rs. 5,117 billion in its foreign exchange business for foreign trade, representing an estimated 27.0%
market share calculated based on DGCIS trade data.
The Bank undertakes foreign exchange sales and purchases on behalf of its customers through cover
operations, occasionally running a position backed by merchant transactions. The Bank also sells RBI permitted
hedging products to the Bank’s large and medium sized corporate customers through seven Regional Treasury
Marketing Units which work in close coordination with the relationship managers in the Mid-Corporate and
Corporate Accounts Groups.
The Bank offers all RBI permitted derivative structures to its clients including: foreign exchange
forward contracts, options, and currency and interest rate swaps. The Bank’s investment and market risk policies
are approved by the Central Board. The Bank has implemented treasury solutions software that facilitates online
trading, accounting, valuation and portfolio risk management. A real time gross settlement system (“RTGS”) for
inter-bank transfers has also been implemented under the direction of the RBI. However, under the delivery
versus payment mechanism, cash and Government securities are netted by the RBI through the Clearing
Corporation of India Ltd. See “Industry Overview — RTGS Implementation in India.”
International Banking
The Bank’s international banking products and services include corporate lending, loan syndications,
letters of credit and guarantees, short-term financing, project export finance, and collection of documentary
credits and remittances, as well as the raising of funds and other borrowings outside India. The International
Banking Group’s core activity is to provide these services to Indian corporates doing business outside of India,
and foreign companies with operations inside of India, as well as NRIs conducting business in foreign markets.
To a lesser extent, the International Banking Group also seeks to service corporate and individual customers
outside India through the Bank’s branches and subsidiaries. The International Banking Group’s customers span
the range from India’s largest corporates to individuals.
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As of December 31, 2007, the Bank had a network of 84 overseas offices in 32 countries covering all
major time zones. Among its other locations, it is present in New York, London, Frankfurt, Singapore, Hong
Kong and the Maldives. It maintains correspondent relationships with 530 leading banks in 124 countries.
As part of the centralisation of treasury activities of foreign offices, the Bank has set up central treasury
hubs in Hong Kong and London. These hubs are intended to aggregate market risks and achieve economies of
scale. Besides meeting the foreign exchange and money market needs of their linked branches and undertaking
proprietary trading in currencies, it is expected that the central treasury hubs will expand their activities to cover
interest rate, foreign exchange, credit structures and bond trading.
The Bank has a significant global presence and is participating in syndicated loans to large
international corporations both in the primary and secondary markets. The Bank’s foreign offices have had
success in managing documentary credits, and have also been active in providing loans to Indian joint ventures
or the wholly owned subsidiaries of Indian corporates which have acquired companies or set up new projects
outside India. The Bank’s foreign offices have also achieved significant growth in the area of trade finance as
the import and export trade of India has increased. The Bank periodically revises its investment policy for
foreign offices in line with international market practice and available products, emphasising investments in the
fixed income products of sovereign, banking and corporate issuers.
The Bank continues to be a leading arranger for syndicated corporate loans in foreign currencies for
corporate customers in India, generally clients of the Corporate Account Group and the Mid-Corporate Group.
In fiscal year 2007, the Bank participated in syndicated corporate loan transactions amounting to U.S.$ 5.9
billion and extended several bilateral corporate loans amounting to U.S.$ 218.0 million. As of December 31,
2007, the Bank handled 41 syndications representing a total of U.S.$ 22.6 billion. Of these, 30 syndications
worth a total of U.S.$ 20.1 billion were concluded and the remaining are in various stages of progress. In
addition, 13 bilateral deals, worth a total of U.S.$ 552.4 million, for external commercial borrowings by Indian
corporates were concluded. During the current fiscal year, the Bank syndicated loans for both project finance as
well as overseas acquisitions by Indian corporates.
In NRI services, the Bank provides management and technological expertise to two exchange
companies, or entities providing customer to customer money transfer services, in Qatar and Oman, and has also
entered into arrangements with eight other exchange companies in the Gulf region to facilitate NRI and other
customer remittances to India.
The Bank’s emphasis on technology is a critical part of the international banking platform. A core
banking software, specific to the Bank’s international branches and subsidiaries, has been installed at 33 foreign
branches, four subsidiaries and two joint ventures providing data transfer and limited transaction processing
connectivity with the Bank’s domestic IT network. Internet banking is provided to customers at all foreign
offices and “Instant Transfers” are available from 18 countries. The Bank has recently launched a web-based
remittance initiative targeted at the sizeable NRI population in the United States and the United Kingdom. This
product allows customers to transmit remittances online, even where the remitting party is not an SBI customer.
The Bank’s electronic export payment collection facility, Global Link Services (“GLS”), facilitates
export payments, other overseas collections and inward remittances. During the fiscal year 2007, on behalf of
domestic branches of the Bank, GLS collected proceeds of 148,000 export bills in U.S. dollars and euros, and
the proceeds of 277,463 checks in sterling, euro, and U.S. dollars totalling U.S.$ 13.3 billion in value terms. For
the period ended September 30, 2007, there were 76,633 export bill transactions and foreign currency checks
worth U.S.$ 8.5 billion.
Project Export Finance
The Bank is an active participant in the financing of project export activities by Indian corporates
involving the bidding for and execution of turnkey and civil construction contracts and export of engineering
goods on a deferred payment basis as well as service exports. The Bank can approve projects of up to U.S.$ 100
million (Rs. 4.0 billion), and acts as a sponsor for its customers in respect of projects exceeding U.S.$ 100
million (Rs. 4.0 billion), which need to be approved by a number of Indian government departments. The Bank
provides bond guarantees for projects during the bidding stage. Once projects are approved, the Bank provides
performance guarantees and other non-fund based products as well as construction funding if required by the
customer. In the six-month period ended September 30, 2007, the Bank supported 21 large projects and service
export proposals aggregating Rs. 67.1 billion involving 9 countries.
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Foreign Subsidiaries and Joint Ventures
The following table sets out details of the Bank’s international subsidiaries and joint ventures outside
India as of September 30, 2007.
Bank’s
Year of Shareholding Total Owned Net
Name Establishment (%) Assets Funds Profit
Foreign Subsidiaries
SBI (Canada)(1) ........................ 1982 100.00 20,928 2,704 81
SBI (California)(2) .................... 1982 100.00 17,233 1,419 89
SBI Intl. (Mauritius) Ltd(3) As JV — 1989
As a Sub. – 1999 98.00 16,154 991 64
Indian Ocean Intl. Bank Ltd. 1978 61.93 8,159 760 35
(4)
PT Bank Indo Monex(5) (8) 1970 76.00 2,162 678 5

Joint Ventures
Bank of Bhutan(6) ...................... 1968 20.00 17,141 1,260 199
Nepal SBI Bank Ltd.(7) ............ 1993 50.00 8,090 610 73
Commercial Bank of India 2003 60.00 1,924 974 33
LLC, Moscow(9)
_______________________
Notes:
(1) CAD = Rs. 39.8750 as on September 30, 2007.
(2) U.S.$ = Rs. 39.8450 as on September 30, 2007.
(3) MUR = Rs. 1.3175 as on September 30, 2007.
(4) Stake acquired by the Bank on April 19, 2005.
(5) Stake acquired by the Bank on December 14, 2006.
(6) BTN = Rs. 1.000 as on September 30, 2007; figures as of December 31, 2007
(7) NPR = Rs. 0.6206 as on September 30, 2007; figures as of July 16, 2007
(8) IDR = Rs. 0.004350 as on September 30, 2007.
(9) IDR = Rs. 0.004350 as on September 30, 2007.
Delivery Channels
The Bank is committed to bringing convenience and technology to its customers. In accordance with
this goal, the Bank’s delivery channels for its banking products and services include:
Branch Network
As of December 31, 2007 the Bank had an established network of 10,072 offices (excluding
administrative offices) across India, catering to the diversified banking needs of its customers. Of this, the
Corporate Banking Group had a network of 42 branches catering to high value corporate customers (which are
customers other than customers of the Rural Business Group, SMEs and retail accounts). The National Banking
Group along with the Rural Business Group had 14 administrative circles encompassing a network of 10,030
offices, four sub-offices (Bank offices in non-rural areas offering all standard services but operating only a
limited number of days or hours per week), 12 exchange bureaus, 131 satellite offices (Bank offices in rural
areas offering all standard services but operating only a limited number of days per week), and 341 extension
counters (offering deposit and liability products, and loans against deposits, operating during all working days)
to service customers as of December 31, 2007. Of the total branches, 110 were specialised branches catering to
high net worth customers and the mass affluent customer segment, as well as branches handling exclusively
home loans. Up to December 31, 2007 of fiscal year 2008, 555 new domestic offices were opened. There are
103 personal banking branches located in metropolitan and urban areas, which offered a wide range of services
to high net worth and mass affluent individuals.
ATM Services
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The Bank is rapidly expanding its ATM network which included 5,577 Bank ATMs in India, and was
the largest ATM network in the country, as of December 31, 2007. The Bank’s customers can conduct the
following transactions free of charge at any one of the Bank’s ATMs across the country: cash withdrawal,
balance enquiry, mini-statement, utility payments, mobile recharge, temple donations, fee payments and fund
transfer.
The Bank believes that ATMs are its most dynamic retail delivery channel today. The Bank had issued
24.17 million ATM cards as of December 31, 2007. All the Bank’s ATM cards also function as debit cards.
The Bank has created a single ATM network across all of its subsidiaries and associates, for a total of
8,079 ATMs across the Group, with a total of 33.35 million ATM cards issued by the Group. On average, the
Bank’s ATMs transact 1.67 million transactions daily involving approximately Rs. 3.3 billion worth of cash
withdrawals during the month of December 2007. For the Group, average transactions were 2.25 million
transactions per day, with cash withdrawals of Rs 4.4 billion per day during the month of December 2007.
The Bank’s ATM expansion drive was strengthened through a change in strategy, which included
improved marketing and customer education including:
• segment specific cards for customer groups such as high net worth individuals, farmers, and SMEs;
• enhanced visibility of ATM machines; and
• strategic positioning of ATMs, such as in railway stations, shopping malls and residential complexes.
The Bank has bilateral arrangements with 13 other banks, providing its cardholders with access to the
largest network in India, with over 18,500 ATMs in service as of December 31, 2007.
Value-added facilities such as payment of premiums on SBI Life Insurance Policies, SBI Credit Card
account payments, payment of fees for selected schools and colleges, mobile phone, bill payments and temple
donation are available through the Bank’s ATMs.
Credit Cards
The Bank operates its credit card business through its subsidiary, SBI Cards and Payment Services Pvt.
Ltd. (“SBICPSL”). SBICPSL believes its estimated market share to be 16.3% at March 31, 2007 in terms of
number of credit cards issued in India. Credit cards are marketed primarily by the National Banking and Rural
Business Groups.
Internet Banking
As of December 31, 2007, approximately 6,868 branches provided internet banking service and were
used by approximately 1.5 million customers in the retail segment and approximately 77,000 customers in the
corporate segment.
An internet banking service is available at the Bank’s website: www.onlinesbi.com. The Bank’s
internet banking solution is a comprehensive product for both retail and corporate use. Internet banking has
given the Bank a real-time transaction processing capability and has allowed the implementation of the Bank’s
business initiatives in many areas such as railway and air ticket booking, online tax payment, transfer of funds,
railway freight payment and utility bill payment. The Bank’s customers can check account balances, request
check books, bank drafts and banker’s cheques, issue standing instructions, trade stocks, invest and renew term
deposits, open new accounts, donate to religious organisations and pay income taxes online. Customers can
make inter-branch transfer of funds to their other accounts and also to third party accounts. Customers can also
book rail tickets, pay utility bills and insurance premiums, invest in mutual funds, pay credit card balances and
set up SMS alerts for transaction information.
The Bank also has dedicated internet banking for the corporate customers, including SMEs, that
include features specifically tailored to these clients, including control and authorisation features. Internet
banking for corporate customers includes online payment of customs tax and corporate income tax, online
payment of central railway freight, vendor finance, issuance of online bulk draft, and transfer of funds to
multiple vendors at different locations.
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Bill payment through the Bank’s e-payment systems, a part of internet banking, allows its customers to
pay their telephone, mobile phone, electricity, insurance and credit card bills, donations to charitable institutions
and college tuition electronically. Auto payment is also available for customers to set up payments such that the
bill amount is withdrawn from the customer’s account each month without any action taken by the customer.
The Bank’s Associate Banks use the same platform to make internet banking services available to their
customers.
Insurance Activities
SBI Life Insurance Company (“SBI Life”) was established in 2001 as a joint venture with Cardif SA
(“Cardif”) of France, which holds a 26.0% stake as of the date of this Letter of Offer. Cardif SA is a wholly
owned subsidiary of BNP Paribas. SBI Life distributes life insurance products through bank branches as its
primary distribution channel. This allows SBI Life to leverage the combined strengths of the Group’s extensive
branch network and Cardif’s expertise in bancassurance distribution. For the half year ended September 30,
2007, 42.6% of SBI Life’s premiums were sourced through bancassurance. As a secondary distribution channel,
SBI Life had 27,758 licensed advisors as of September 30, 2007, who sell life insurance through SBI Life
branches. For the half year ended September 30, 2007, 52.2% of SBI Life’s premiums were sourced through
these advisors. SBI Life also sells to corporate customers, which comprised 5.2% of SBI Life’s premiums
As of September 30, 2007, SBI Life has written more than 6.84 million life insurance policies and has
become one of the top private insurers in India in terms of number of lives covered.
SBI Life had premium income of Rs. 13.8 billion for the six-months ended September 30, 2007 and Rs.
29.3 billion for the year ended March 31, 2007. SBI Life has been rated ‘AAA’ by CRISIL (affiliate of Standard
and Poor’s) for financial strength. See “Regulations and Policies — Regulations Governing Insurance
Companies” for a discussion of regulations applicable to insurance operations in India.
Associate Banks and Subsidiaries in India
The Bank has three wholly-owned and four majority-owned Associate Banks and a banking subsidiary,
SBICI. The Bank also provides financial services through its non-bank subsidiaries, including merchant banking,
fund management, leasing and factoring services. In the Bank’s financial statements, investment in subsidiaries
and joint ventures (both in India and abroad) are valued at historical cost after netting of provisions, if any. The
Associate Banks Department of the Bank coordinates the Bank’s management of the Associate Banks and
subsidiaries.
Associate Banks
The Associate Banks were created by an Act of Parliament in 1959. Prior to the Bank’s investment,
they were independent regional banks.
The Associate Banks operate on the same IT system as the Bank, apply the same accounting policies
and are administered by senior level management appointed by the Bank. The Associate Banks have a total of
4,867 branches located in various regions in India as of September 30, 2007. Collectively, the Associate Banks
accounted for Rs. 2,589.8 billion in total assets as of September 30, 2007, representing 28.6% of the Group’s
total consolidated assets.
The Bank has recently announced its intent to merge with one of its Associate Banks, the State Bank of
Saurashtra. A scheme of merger has been submitted to the Government and the RBI and is subject to their
approval. If this merger occurs, the State Bank of Saurashtra will cease to exist as an entity, and the SBI brand
name is planned to replace existing State Bank of Saurashtra branding.
The Associate Banks generally offer the same products and services as the Bank offers, though they are
allowed the freedom to initiate their own product lines where they deem it necessary to meet the specific
demands of their clients. The Bank’s seven Associate Banks together had an estimated market share of 7.33% in
deposits and 7.68% in advances of all scheduled banks as of September 28, 2007, calculated based on RBI data.
The Bank agrees to a budget and a business plan with each Associate Bank annually. The Bank exercises
strategic control over each Associate Bank through the respective boards of directors.
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Although there are no inter-company loans, there are customary inter-bank drawing and deposit
arrangements and short-term inter-bank lending transactions between the Bank and the Associate Banks.
Although the Bank has participated in capital increases of certain of the Associate Banks in the past, it made no
additional investments in any of the Associate Banks during fiscal year 2007 or the six-month period ended
September 30, 2007.
The Associate Banks recorded a growth in business during the period ended September 30, 2007 with
deposits and advances growing by 20.1% and 27.3%, respectively, over the previous year. The Associate Banks
together reported net profit of Rs. 10.0 billion during the period ended September 30, 2007, which was an
increase of 16.9% from the period ended September 30, 2006. Gross NPAs as a percentage of gross advances
decreased from 2.4% as of September 30, 2006 to 1.9% as of the end of the period ended September 30, 2007.
Net NPAs as a percentage of net advances decreased from 0.9% as of September 30, 2006 to 0.8% as of the
period ended September 30, 2007. Net NPA is defined as gross NPA (which is the aggregate of all NPAs) less
provisions.
The following tables set out the Bank’s shareholding and certain performance highlights of the
Associate Banks as of September 30, 2007:
Bank’s Operating
Name of the Bank Ownership Deposits Advances Profit Net Profit
(%) (Rs. in millions)
State Bank of Bikaner and 75.07% 294,356 213,187 2737 1317
Jaipur ............................................
State Bank of Hyderabad .............. 100.00% 433,313 310,396 3,854 2356
State Bank of Indore ..................... 98.05% 215,297 162,054 1,938 1159
State Bank of Mysore ................... 92.33% 242,766 180,124 2,606 1640
State Bank of Patiala..................... 100.00% 438,279 312,703 3084 1720
State Bank of Saurashtra............... 100.00% 164,156 115,956 825 289
State Bank of Travancore ............. 75.00% 330,360 263,060 3,600 1,541
Total............................................. 2,118,527 1,557,480 18,644 10,022
Return on
Average
Name of the Bank Assets Net NPA CRAR1
State Bank of Bikaner and Jaipur ................................. 0.76% 1.22% 13.30%

State Bank of Hyderabad .............................................. 0.91% 0.30% 12.18%
State Bank of Indore ..................................................... 0.93% 1.08% 12.76%
State Bank of Mysore ................................................... 1.18% 0.34% 11.12%
State Bank of Patiala..................................................... 0.61% 0.98% 12.49%
State Bank of Saurashtra............................................... 0.30% 0.64% 12.10%
State Bank of Travancore ............................................. 0.79% 1.17% 12.87%
Average........................................................................ 0.82% 0.82% 12.44%
_______________________
Note:
(1) Capital to risk asset ratio, which indicates the ratio of capital employed to the risk weighted assets of the bank and is computed in
accordance with RBI guidelines.
SBICI
SBI Commercial & International Bank Ltd, (“SBICI”) is a wholly-owned banking subsidiary of the
Bank established in Mumbai on October 7, 1993. The Bank acquired SBICI in January 1994, purchasing all of
BCCI’s Indian operations following BCCI’s insolvency in England. SBICI is engaged in standard retail and
corporate banking operations with retail and corporate customer bases. As on September 30, 2007, the aggregate
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deposits and total advances of SBICI stood at Rs. 4.9 billion and Rs. 3.4 billion respectively. SBICI recorded an
operating and net profit of Rs. 43.6 million and Rs. 33.8 million, respectively, during the period ended
September 30, 2007. Return on assets stood at 1.04%, whereas net NPA and CRAR were 0.16% and 19.28%,
respectively.
Non-Bank Subsidiaries and Joint Ventures
In addition to the Associate Banks, the Bank also has a network of non-bank subsidiaries and joint
ventures engaged in businesses other than commercial banking. At September 30, 2007, such non-bank
subsidiaries and joint ventures accounted for Rs. 136.9 billion in total assets. In the Bank’s financial statements,
investments in subsidiaries and joint ventures (both in India and abroad) are valued at historical cost net of
provisions, if any.
Group’s Group’s Net

Non-Banking Subsidiaries Ownership Investment Assets Profit Business Line
SBI Factors and Commercial Services 69.88% 427 11,046 134 (Factoring
Pvt. Ltd ........................................................ services)
SBI DFHI Ltd .............................................. 65.95% 3406 18,409 489 (Primary
dealer trading
in securities,
trustee
services)
SBI Capital Markets Ltd.............................. 86.16% 500.0 5,065.7 829 (Finance
syndication;
debt and
equity capital
markets;
mergers and
acquisitions;
advisory;
infrastructure
project
advisory;
securitisation)
SBI CAP Securities Ltd............................... 86.16% 500 818 48 (Stock
brokering)
SBI CAP Ventures Ltd ................................ 86.16% 1 28 (0.1) (Venture
capital)
SBI CAP Trustee Co. Ltd. ........................... 86.16% .5 0.6 0.01
SBICAP (UK) Ltd ....................................... 86.16% 16 50 3.7 (Financial
services and
advisory)
SBI Mutual Fund Trustee Co Pvt Ltd.......... 100.00% 1.0 28 7.3
SBI Funds Management (International) 63.00% 0.4 6 2
Ltd. ..............................................................
_____________
Note:
(1) Shareholding amounts are the aggregate of the Bank’s direct and indirect shareholdings.
Bank’s
Non-Banking Joint Ventures Ownership Investment Assets Net Profit
SBI Life Insurance Company Ltd (Life insurance) ....... 74.00% 4,440 69,278 141
SBI Cards and Payment Services Pvt. Ltd (Credit 60.00% 1,500 31,490 (640)
cards) .............................................................................
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GE Capital Business Process Management Services
Pvt. Ltd .......................................................................... 40.00% 108 2,014 149
C-Edge Technologies Ltd .............................................. 49.00% 49 140 6
SBI Fund Mgmt. Pvt. Ltd (Asset management) ............ 63.00% 189 1,493 253
______________
Note:
(1) Shareholding amounts are the aggregate of the Bank’s direct and indirect shareholdings.
Regional Rural Banks
The Bank has sponsored, in accordance with applicable legislation, 16 Regional Rural Banks covering
over 104 districts in 16 states with a network of approximately 2,311 branches as of December 31, 2007.
Following changes to the regulatory framework governing Regional Rural Banks, these banks have been
transformed into commercial banks. The Bank retains certain sponsor responsibilities. These responsibilities
include approving annual business plans and quarterly monitoring of performance, managerial assistance
through secondment of high-level staff, inspection and audit, planning and budgeting, training and development,
prevention of frauds, and guidance and support through the Bank’s Global Markets Group. The Bank’s
shareholding in each Regional Rural Bank is limited to 35.0%; the Government holds 50.0% and each relevant
state government holds 15.0% of the shares of each Regional Rural Bank. Regional Rural Banks cater to the
banking needs of customers in rural and semi-urban areas and their operations are concentrated in one district or
a cluster of districts in each state. Their target customer group is agricultural, small business and retail, to whom
the Regional Rural Banks provide services such as deposit and time accounts, lending and financing. Following
Government consolidation of the sector, the number of Bank sponsored Regional Rural Banks decreased from
25 to 16 during the fiscal year 2007. The Group had sponsored an aggregate of 44 Regional Rural Banks, which
have been reduced to a total of 22 following consolidation.
Information Technology Systems and Infrastructure
The Bank’s IT infrastructure provides connectivity among the domestic and international network of
branches. The objective of the Bank’s IT policy is to achieve and maintain efficiency in internal operations and
to meet customer and market expectations.
IT Infrastructure
Core Banking Solution
The Bank is moving towards a fully centralised database with its Core Banking Solution, which
provides the capability of online real-time transaction processing across the Bank’s branches that are included
within this platform. The Bank believes that the Core Banking Solution will allow for efficient transaction
handling through centralised processing. Further, it believes that the Core Banking Solution will enable the
Bank to deliver multi-channel value-added services to customers, facilitate uniform product offerings and assist
in the introduction of innovative banking products. Since the first pilot branch went live in August 2003, the
Bank has added more than 12,000 branches (7,303 branches of the Bank and 5,012 branches of Associate Banks
as of December 31, 2007) to its Core Banking Solution. All of the Bank’s branches are expected to have
completed the implementation of the Core Banking Solution by March 2008. The Core Banking Solution
includes a centralised processing centre and a disaster recovery site which provides back-up information for the
entire project. This back-up is accomplished through a three way disaster recovery: primary data centre, near
recovery centre and disaster recovery site. The disaster recovery sites can host critical banking applications in
the event of a disaster at the primary site. Near recovery centres are located in proximity to primary data centres,
while disaster recovery sites are located some distance from the near recovery centres. The Core Banking
Solution is being implemented by Tata Consultancy Services.
Although the Bank and the Associate Banks use the same Core Banking Solution application, each of
them has retained separate databases.
SBI Connect
SBI Connect, a platform for the Bank’s connectivity which makes real-time transactions between
branches possible, is the foundation for the technology infrastructure within the Group. The Bank and the
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Associate Banks, each with distinct internet protocol addresses, depend on SBI Connect to support all their
business critical applications such as Core Banking Solution, trade finance software, ATMs, payment systems,
cash management software, corporate email and intranet portals. The platform, both as to software and hardware,
was designed by Tata Consultancy Services. As of December 31, 2007, more than 7,822 branches and offices of
the Bank, and 12,988 offices of the Group, were connected by SBI Connect.
Trade Finance Project
The Bank has purchased integrated trade finance solution software called “CS Exim Bills,” which has
been customized for the Bank’s operations. CS Exim Bills is a trade finance system designed to address the data
processing requirements of the Bank’s trade finance department. CSExim Bills automates the full range of trade
finance activities from document preparation, calculation of commissions and foreign exchange to accounting,
the generation of S.W.I.F.T. messages and report management. Single entry input captures all the necessary data
to process, record, and report on the entire transaction. As of September 30, 2007, this software had been
installed in 453 branches, including the Bank’s foreign branches. The software also has a facility for customer
access over the internet.
IT-based products and developments
In an effort to remain technologically competitive with its peers, the Bank has introduced the following
technology based products:
• Centralised payment services (e.g. dividend warrant payments, salary payments) through the Cash
Management Module (also provided in bulk via the usual manual mode).
• Centralised collection of bulk equated monthly instalments for the benefit of the Bank’s corporate
customers (through the e-debit facility of the cash management product).
• Vendor financing for those vendors who serve the Bank’s corporate clients. The Bank believes that
there is strong potential to increase this service among the Bank’s Mid-Corporate Group and SME
customer base.
• IT based solutions for corporates including on-line payment of taxes and direct payment of freight to
railways at the point of loading.
The Bank’s IT initiatives have played a significant role in transforming the Bank into a more
responsive organisation in a constantly evolving competitive landscape. The Bank also offers Internet Banking
to customers of more than 5,800 branches. These alternate delivery channels, coupled with a network of more
than 6,200 branches connected through the Core Banking Solution have increased the transaction processing
capacity and efficiency of the Bank and is expected to continue to contribute substantially to the Bank’s growth.
Competition
The Bank faces competition in all its principal areas of business. Private sector banks, foreign banks
and other public sector banks are the Bank’s main competitors, followed closely by finance companies, mutual
funds and investment banks. The regulations governing the Indian banking sector are expected to be liberalized
in 2009, which might expose Indian banks to more intense competition from foreign banks. The Bank seeks to
gain a competitive advantage by offering innovative products and services, maximising the functions of its
extensive branch network, in particular in rural and semi-urban areas, investing in technology and building on
relationships with the Bank’s key customers. See “Risk Factors — Risks Relating to the Bank’s Business — The
Indian banking industry is very competitive and the Bank’s growth strategy depends on its ability to compete
effectively.”
Corporate Banking
Corporate banking faces competition from foreign and private banks in such areas as pricing, rupee
loans, foreign currency loans, trade finance services and cash management services. The lower risk rating of
corporate clients as well as the higher income generating capacity due to the volume and diversity of their
business, attracts foreign and private banks to this sector. Foreign banks also have the advantage of their home
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country connections, with much larger resource raising abilities. However, the Bank believes its extensive low-
cost deposit base provides it with a competitive advantage in meeting customers’ borrowing expectations.
In addition, traditional corporate banking faces competition from the disintermediation of financial
products. Customers increasingly have multiple financing sources available to them beyond those generally
provided by traditional banks, which in turn is putting pressure on margins. The Corporate Accounts Group has
been able to counter this competition through strong customer relationships, as well as through efficient and
focused delivery of products and services. This has been most noticeable in the area of trade finance services,
including letters of credit. To further counter the downward pressure on margins, the Bank intends to focus on
developing new fee-based services, such as vendor financing, as well as wholesale banking services such as
payment and collections services.
With over 7,303 branches connected through the Core Banking Solution covering more than 94.68% of
the Bank’s business as of December 31, 2007, the Bank is able to process bulk direct debits, direct credits and
other centralised solutions, without having to utilise the services of any intermediate banks in the payment chain,
ensuring a high level of data privacy for corporate clients. In addition, this extensive network of branches
connected to the Core Banking Solution has increased the Bank’s transaction processing capacity and efficiency,
enabling customers to carry out their payments and collections across all of India, while centralizing their cash
management in Mumbai.
Retail Banking
In the retail banking sector, the Bank faces competition primarily from foreign and Indian commercial
banks and housing finance companies. Foreign banks typically focus on limited customer segments, such as
high net worth individuals and mass affluent, and geographic locations due to limitations of their smaller branch
networks relative to Indian commercial banks. Indian commercial banks generally have wider distribution
networks than foreign banks, but relatively weaker technology and marketing capability. The Bank seeks to
compete in this sector by offering a wide product portfolio through its extensive branch network and by
leveraging its client relationships in diverse market and geographic segments. In addition, in rural banking and
micro finance, the Bank believes it can build on the strength of its extensive geographic presence and reputation
to continue to expand in these areas.
The Bank has sought to capitalise on its extensive and diverse corporate relationships to gain individual
customer accounts through payroll management products. Furthermore, it intends to continue to pursue a multi-
channel distribution strategy using physical branches, ATMs, call centres and the internet to reach customers.
In recent years, investment in mutual funds has become an increasingly viable alternative to traditional
banking products, since they offer tax advantages and have the capacity to earn competitive returns. This has
resulted in competition for the deposit base of the Bank’s retail customers. The Bank has sought to address the
competitive pressure by offering a wider range of mutual fund products to its customers in addition to traditional
deposits.
International Banking
The Bank’s international strategy is focused on India-linked opportunities in the initial stages. In its
international operations, the Bank faces competition from other Indian banks with overseas operations, as well
as foreign banks with products and services targeted at non-resident Indians and Indian businesses and other
service providers like remittance services. The Bank intends to leverage its strong relationships with Indian
corporates in its international business. The Bank also intends to expand its banking operations to serve non-
resident Indians as well as local clients in its host countries.
Treasury Operations
The Bank is the market leader in India in treasury operations measured by the size of investment book,
the volume of foreign exchange transactions handled, and the size of money market operations. However, there
is intense competition in relation to simple treasury products, such as foreign exchange, spot and forward sales
and purchases. The Bank believes that, relying on its extensive branch network, long-standing customer
relationships, strong sales teams, and product innovation, it has been able to maintain its strong position within
India. The Bank believes it benefits from economies of scale in developing and offering foreign exchange and
money market products.
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Government Banking
The RBI, the Bank and other public sector banks conduct Government business in India. Other public
sector banks are the Bank’s principal competitor in handling Government and state government payments and
receipts. The Bank believes it has a competitive advantage in this activity due to its specially trained staff,
business processes tailored over the course of long relationships to the unique demands of the various
Government departments that the Bank deals with, and the depth of its funding base, which enables it to set
aside sufficient funds to meet the remittance requirements of the Government on a recurring basis.
Four new-generation private sector banks including AXIS Bank (formerly UTI Bank), IDBI Bank,
ICICI Bank and HDFC Bank have been authorised by the RBI for the revenue collection of Central Board of
Excise and Customs (CBEC) and Central Board of Direct Taxes (CBDT) of Department of Revenue, Ministry
of Finance, and the Government. The Bank expects to address this growing competition by emphasising its
extensive branch network, providing easy access for customers, its historical links with the Government, its
perception as a Government Bank due to its historical association with handling Government business and staff
that is trained and experienced in handling Government business.
Legal and Regulatory Proceedings
The Bank is involved in certain legal proceedings in the ordinary course of its business. However,
currently, the Bank is not a party to any proceedings, and is not aware of any current, pending or anticipated
proceedings by governmental authorities or third parties, which, if adversely determined, would have a material
adverse effect on the Bank’s financial condition or results of operations.
Insurance
The Bank maintains its own insurance policies and coverage that it deems to be appropriate. The
Bank’s standard insurance policies cover for losses of or damage to property including furniture, fixtures,
computer hardware, ATMs and vehicles. Cash-in-transit, cash, securities and precious metals and other
valuables are covered against theft. In addition, the Bank has also obtained a fidelity policy for employees and
directors’ and officers’ liability insurance to cover the Bank’s directors and other key management members.
The Bank carries insurance coverage commensurate with its level of operations and risk perception.
Employees
As of September 30, 2007, the Bank had 179,188 employees, of whom approximately 30.0% were
officers, approximately 44.0% were clerical and the remaining 26.0% were subordinate staff. The Bank’s
officers include professionals in business management, accountancy, engineering, law, computer science and
economics. The Bank’s management believes that it has a good relationship with its staff.
The Bank aims to develop a collaborative culture and ongoing consultative process at various levels of
administration within the Bank. The Bank has entered into numerous settlements and memoranda of
understanding with the “All India SBI Staff Federation,” which represents 98.0% of SBI’s employees. These
relate to matters such as promotion policies, staff empowerment and training, redeployment of staff and career
progression.
The All-India State Bank Officers’ Federation and the All-India SBI Staff Federation jointly went on
strike from April 3, 2006 to April 8, 2006 demanding a review of the Bank’s pension scheme to bring it in line
with industry standards. The strike ended after a settlement was reached on the issues raised by the respective
federations. During this period banking services were provided through various alternate delivery channels.
Emergency services were also extended through the Associate Banks’ network. Clerical employees from the
Associates Bank’s as well as officers from the State Bank of Mysore, jointly went on strike in December 2007
to protest the Bank’s proposed merger of two Associate bank’s with the Bank. See “Risk Factors- The proposed
merger of the Associate banks with the Bank’s may engender opposition against the Bank and lead to business
disruptions, such as labour strikes, and adversely affect the Bank’s operations.” As a result, of these strikes,
there was minimal impact on both the Bank’s operation and reputation.
Computerisation of branches and other IT initiatives have reduced employee workloads and allowed
the Bank to reduce its overall workforce during the past five to six years despite growing its business. However,
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the introduction of BPR initiatives and focused efforts for marketing has resulted in an increased demand for
new staff. The Bank has a human resources plan in place which will be reviewed once the Core Banking
Solution and BPR initiative roll out is complete, which is expected in 2008. Various initiatives such as retraining
operational staff are under way. Incentive schemes based on performance measurement have also been
introduced. The Bank introduced an exit option scheme for officers which ran from April 29, 2005 to October
31, 2006, and from September 1, 2006 to March 31, 2007 for non-officer staff.
The Bank believes that its employees are its most valuable asset. The Bank has implemented e-learning
at the State Bank Academy, Gurgaon, to provide online training and assessment. The performance management
system in the Bank has been upgraded to focus on competency based assessments and career progression
implications. The State Bank Staff College, State Bank Academy, State Bank Institute of Information and
Communication Management, State Bank Institute of Rural Development and 45 Staff Training Centres, all
owned and operated by the Bank, are located across India and are focused on creation and skills development
relevant to the future of banking.
The Bank faces intense competition for the recruitment and retention of its employees. Poaching of
qualified employees has been a concern for the Bank in the past and will likely continue to be in the future. In
order to deal with this issue, the Bank is recruiting staff for specialised functions. In addition, the Bank recruits
staff at universities across India. The Bank has also formulated an incentive scheme for operational employees
in an effort to retain talented employees. Further, adjustments to this scheme are undertaken on a regular basis to
align with market conditions. The Bank has also appointed a consultant to formulate a stock-option scheme.
Properties
The Bank’s principal network consists of 10,072 offices, 341 extension counters and 5,577 ATMs.
These facilities are located throughout India. In addition to the branches, extension counters and ATMs, the
Bank has commercial premises housing 14 administrative circles, 12 exchange bureaus and 131 satellite offices.
Of the Bank’s properties, approximately 800 are owned by the Bank. The Bank’s corporate office is located in
Mumbai. The Bank’s premises and other fixed assets are accounted for on a historical cost basis in accordance
with Indian GAAP. As such, the Bank believes the value of its properties, many of which have been in the
Bank’s possession for a long period, are being carried on its balance sheet at values significantly below their
current fair value.
Relationship with the Government and the Reserve Bank of India
The Bank has relationships with the Government and the RBI in several contexts as described below.
Government as Majority Shareholder
The RBI was the Bank’s majority shareholder with a shareholding of approximately 59.7%. On
February 28, 2007, the finance minister of India announced that the entire shareholding of the RBI would be
transferred to the Government. The Government purchased RBI’s entire shareholding in the Bank on June 29,
2007. The Act provides that the Government shall not hold less than 55.0% of the Bank’s outstanding shares. As
the Bank’s controlling shareholder, the Government has effective control over the affairs of the Bank.
Statutory Powers of the Government over SBI
Because the Bank was created by statute, it does not have articles of association. However, under the
Act, the Government has been given rights and powers typically given to shareholders under typical corporate
structures. For example, the Government has the power to increase or reduce the authorised number of shares of
the Bank. The Act also provides that no shareholder other than the Government shall be entitled to exercise
voting rights in respect of any shares held in excess of 10.0% of the Bank’s issued share capital. See
“Regulations and Policies — The State Bank of India Act.”
The Act and its related rules and regulations provide the Government and the RBI with certain
additional rights which may be used to influence the affairs of the Bank. The Act expressly provides that the
Bank shall be guided in matters of policy involving public interest by such direction as the Government may, in
consultation with the RBI and the Chairman of the Bank, provide. In addition, although the Bank’s affairs are
managed by the Central Board, the Central Board consists of members directly appointed by the Government in
consultation with the RBI as well as nominees from the Government and the RBI. The RBI also nominates a
93
director of the Central Board, under section 19(f) of the Act; the Chairman and the two Managing Directors are
directly appointed by the Government in consultation with the RBI. The Government has the power to terminate
any director’s service. See “Regulations and Policies — RBI Regulations.”
Government and the RBI as Regulator
The Government and the RBI regulate the banking sector. In particular, the RBI has authority to issue
instructions and notifications, which are typically broad in scope, thereby giving the RBI considerable latitude
over banks in general, including the Bank. Pursuant to such instructions and notifications, the RBI defines the
scope of the Bank’s activities and otherwise controls many factors affecting the Bank’s competitive position,
operations and financial condition. It also has the power to license new banks which may compete with the Bank.
See “Regulations and Policies — RBI Regulations.”
Government as Customer
The Act specifically provides that the Bank shall act as the agent of the RBI for certain banking
businesses of the Government and state governments. The Bank also transacts a significant portion of the
banking needs of public sector enterprises (“PSEs”). The Government, PSEs and the various state governments
transact business with the Bank on a regular basis. As on March 31, 2007, approximately 3.5% of the Bank’s
loan portfolio consisted of food credit (in the form of loans to agencies of the Government and state
governments for procurement and sale of food grains), and approximately 8.1% of the Bank’s loan portfolio was
to PSEs. It is the policy of the Bank not to enter into any transaction with PSEs unless the terms are no less
favourable than those which would have been obtained by the Bank in the normal course of business.
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DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK MANAGEMENT OF
THE BANK
The Bank is exposed to various risks that are an inherent part of any banking business, with the major
risks being credit risk, market risk, liquidity risk and operational risk. The Bank has various policies and
procedures in place to measure, manage and monitor these risks systematically across all its portfolios.
These policies are reviewed by the Central Board from time to time. The Central Board of Directors
also reviews the progress in the implementation of Risk Management Systems, Asset Liability Management,
Risk Based Supervision and a Risk Based Internal Audit at quarterly intervals.
Further, a Risk Management Committee of the Board (“RMCB”) oversees the policy and strategy for
integrated risk management relating to various risk exposures of the Bank including credit, market liquidity and
operational risks.
In addition, various independent Risk Committees, namely the Credit Risk Management Committee
(the “CRMC”), Asset Liability Management Committee (“ALCO”), Market Risk Management Committee
(“MRM”) and Operational Risk Management Committee (“ORMC”) are in place to address credit, liquidity,
interest rate and operational risk matters.
Board of Directors
Risk Management Credit Policy and

Committee Procedures Committee
Credit Risk Asset Liability Market Risk Operational Risk

Management Management Management Management
Risk Management Structure
The Bank operates an integrated, independent risk management system, which the management
believes is in line with international best practices, to address the risks faced in its banking activities including
liquidity, interest rate, market, credit and operational risks. As a financial institution engaged in lending, the
Bank is exposed to various kinds of risk, in particular, liquidity risk (the possibility of not having the necessary
funds to meet operational and debt servicing requirements), interest rate risk (the risk associated with
movements in interest rates), credit risk (the potential for loss due to the failure of a counterparty or borrower to
meet its financial obligations), market risk (the possibility that changes in interest rates, foreign exchange rates,
prices of debt securities and other financial contracts may have an adverse effect on the Bank’s financial
condition) and operation risk (including risk arising from inadequate or failed operational processes, people and
systems). The Risk Management Committee of the Central Board is in place to oversee the Bank’s policy and
strategy for integrated risk management of the various risks faced by the Bank. In addition, there are
independent Risk Committees including the CRMC, ALCO, MRM and ORMC in place to monitor the credit,
liquidity, interest rate and operational risk matters. Critical issues and developments in their respective areas are
referred to the Risk Management Committee. The risk philosophy of the Bank is guided by the twin objectives
of enhancement of shareholder value and optimum allocation of capital.
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The Bank’s exposure norms are in line with the norms laid down by the RBI for commercial banks and
financial institutions. As per these norms, exposure by way of direct assistance to any single borrower may not
exceed 15.0% (extendable to 20.0% in case of infrastructure projects) of the Bank’s capital funds (Tier I and
Tier II capital) although in exceptional circumstances and with the consent of the Central Board, the Bank could
consider increasing exposure to a borrower up to a maximum of a further 5.0% of the Bank’s capital funds,
subject to such borrower’s consent to appropriate disclosure in the Bank’s annual report. Exposure to any single
business group may not exceed 40.0% (extendable to 50.0% in case of infrastructure projects) of the Bank’s
capital funds.
The Bank believes it has the policies and procedures in place to manage its risks and anticipate future
risk based on RBI guidelines and what management believes are international best practices. The primary
responsibility for the management of risk rests with the Central Board which has approved the policies and
organisational structure for various risk management measures.
The Bank also has a Chief Credit and Risk Officer (“CCRO”) who is entrusted with further integrating
risk management across the Bank. The Credit Risk Management Department, the Market Risk Department and
the Operational Risk Management Department all report directly to the CCRO through the Chief General
Manager (Risk Management). These three departments act independently but coordinate with the business units
to implement risk management policies.
Credit Risk Management
The Bank is exposed to credit risk due to the possibility that a borrower or counter-party may fail to
meet its obligations in accordance with agreed terms, principally the failure to make required payments on loans
or other obligations due to the Bank. Credit risk management aims at building up sound asset quality and the
long-term profitability of the institution. It involves activities such as risk identification, risk measurement, risk
mitigation and risk-based pricing. The Bank manages its portfolio of loan assets with a view to limiting
concentrations in terms of risk quality, geography industry, maturity and large exposure aggregates by providing
a centralised focus to its credit portfolio and instituting a suitable mechanism for its management
Credit risk management uses credit audit and inspection systems to determine and manage risk
exposure levels across the Bank. This is an integral part of the Bank’s risk management system and helps
identify early warning signals of potential problems. The following exposure levels are currently prescribed by
the Bank:
Individuals as borrowers ........................ Maximum aggregate credit facilities (fund based and non-
fund based) of Rs. 200 million (other than against specified
securities for which there is no restriction).
Non-corporates (Partnerships, Maximum aggregate credit facilities (fund based and non-
Associations, etc.) ................................... fund based) of Rs. 800 million (other than against specified
securities for which there is no restriction). The above
ceiling will also be applicable to the aggregate of all
facilities sanctioned to partnership firms which have
identical partners.
Corporates .............................................. Maximum aggregate credit facilities in accordance with

prudential norms of the RBI on exposures.
The Bank’s current credit policy prescribes that the Bank’s aggregate term loans with residual maturity
of over three years should not in the aggregate exceed 35.0% of the total domestic advances of the Bank. The
Bank’s policy is to restrict fund-based exposure to a particular industry to a maximum of 15.0% of the Bank’s
total fund-based exposure. In addition, the Bank restricts term loan exposure to infrastructure projects to 10.0%
of the Bank’s total domestic advances.
The Bank’s exposure to certain “sensitive sectors,” including capital markets, real estate, and sensitive
commodities (as prescribed by the RBI) are as follows:
• Real estate: the Bank’s exposure shall not exceed 20.0% of the Bank’s total domestic advances.
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• Sensitive commodities: the Bank’s exposure shall not exceed 5.0% of the Bank’s net worth as of the
end of the Bank’s previous fiscal year.
• Capital markets: the Bank’s exposure shall not exceed 40.0% of its net worth as of the end of its
previous fiscal year, as applied to both fund-based and non-fund-based exposure to all forms of capital
market products.
The Bank’s major exposures to individual borrowers and borrower groups are consolidated and
disclosed to the Central Board at their regular meetings. The Risk Management Department conducts studies on
various industries to examine the quantitative and qualitative measures that should be considered in regard to the
handling of the Bank’s current exposure to various industries. These studies are also meant to provide
information to help the Bank determine the merits in taking on additional exposure to various industries.
The Bank has credit risk assessment models in place based on the activity of the borrower including
manufacturing, trade, non-banking financial corporations, banks and primary dealers. Although not currently
required by the RBI, the Bank’s risk assessment model for manufacturing entities complies with the AIRB
approach.
The Asset Liability Management Committee(‘ALCO”)
The Bank has an asset liability management policy which prescribes various prudential limits for
liquidity risk and interest rate risk management. ALCO has the job of managing liquidity and interest rate risk.
To this end, ALCO manages and controls the structure of assets, liabilities and interest rate sensitivity with a
view to maximising profits. It also ensures capital adequacy and sufficient liquidity. The Bank has made
significant efforts to improve its market risk management capabilities and fine-tune its management information
systems. These efforts have included the implementation of the risk management module of the Oracle financial
services application, an asset liability management software solution, for strengthening the risk management
process.
Liquidity Risk Management
Liquidity risk comprises the risk of not being able to raise necessary funds from the market to meet
operational and debt servicing requirements. An important objective of the Bank’s liquidity management is to
maintain an optimal asset to liability maturity portfolio that minimizes liquidity risk while maximizing profit.
The Bank ensures that pro-active steps are taken to meet all impending liquidity requirements. Borrowing is also
timed in consideration of overall market liquidity and not just requirements of funds. The Bank also maintains a
reasonable level of investment in liquid securities which can be liquidated at short notice.
The Bank monitors its liquidity position through a structural liquidity gap analysis carried out
fortnightly in accordance with RBI guidelines on asset liability management. The liquidity position is also
monitored every two weeks through a short-term dynamic liquidity analysis for the following three months
based on business projections and a review of the contingency funding plan at the end of each quarter. Finally,
certain liquidity ratios are examined as prescribed by the asset liability management policy to track the Bank’s
liquidity position as of a particular date.
The Bank has an extensive branch network and therefore holds deposits from a large number of retail
customers. These deposits provide a stable resource base. In addition, liquid assets in the form of cash, balances
with other banks and short-term securities help to meet the liquidity requirements of the Bank.
Interest Rate Risk Management
Since the Bank’s balance sheet consists predominantly of assets and liabilities denominated in Rupees,
movements in domestic interest rates constitute the main source of interest rate risk. The Bank’s portfolio of
traded and other debt securities and its loan portfolio is impacted by movements in interest rates. Exposure to
fluctuations in interest rates is measured primarily by way of a gap analysis, providing a static view of the
maturity and repricing characteristics of the Bank’s balance sheet positions. An interest rate gap report is
prepared by classifying all assets and liabilities into various time period categories according to contracted
maturities or anticipated repricing dates. The difference in the amount of assets and liabilities maturing or being
repriced in any given time period gives the Bank an indication of the extent of exposure to potential impact on
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repriced assets and liabilities. The interest rate gap report is prepared monthly as of the last reporting Friday of
each month, in accordance with RBI requirements. In addition, exposure to interest rates is measured through a
sensitivity analysis which examines the impact of interest rate movements on the Bank’s financial condition.
Market Risk Management
Market risk refers to potential losses arising from volatility in interest rates, foreign exchange rates,
equity prices and commodity prices. Market risk arises with respect to many types of financial instruments,
including securities, foreign exchange contracts, equity instruments and derivative instruments, as well as
balance sheet gaps. The objective of market risk management is to avoid excessive exposure of the Bank’s
earnings and equity to loss and to reduce the Bank’s exposure to the volatility inherent in financial instruments.
Risk measurement and monitoring entails the valuation and marking-to-market of market risk
exposures, updating rates and models used for valuations and preparing simulations showing effects of possible
changes in market conditions. Finally, the monitoring function extends to the examination and approval of the
Bank’s treasury group’s new products. Market risks related to treasury operations are regularly and
independently identified, measured, and monitored by the Market Risk Management Department.
The Bank currently deals in over-the counter (“OTC”) interest rate and currency derivatives. Interest
rate derivatives offered by the Bank are Rupee interest rate swaps, foreign currency interest rate swaps and
forward rate agreements. Currency derivatives offered by the Bank include currency swaps, Rupee dollar
options and cross-currency options. Derivatives are also used by the Bank both for trading as well as for hedging
balance sheet items.
Derivative transactions carry market risk, such as the probable loss the Bank may incur as a result of
adverse movements in interest rates/exchange rates and credit risk or the probable loss the Bank may incur if the
counterparties fail to meet their obligations. The Bank’s policy for derivatives is approved by the Central Board
and prescribes market risk parameters such as cut-loss triggers and open position limits as well as customer
eligibility criteria including credit rating and tenure of relationship, among others, for entering into derivative
transactions. Credit risk is controlled by entering into derivative transactions only with counterparties satisfying
the criteria prescribed in the Policy.
The Value at Risk (“VAR”) framework is applied on an asset class basis as well as on a diversified
portfolio level. VAR is monitored daily and limits are revised quarterly. The model is validated monthly by back
testing. The VAR is defined as the predicted worst-case loss at a specified confidence level over a certain period
of time.
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and
systems or from external events. Operational risk includes legal risk but excludes strategic and reputational risk
and it seeks to identify the cause of a loss. Operational risk has four principal causes: People, Process, Systems
and External factors. For a discussion on the Bank’s vulnerability to operational risk, see “Risk Factors — Risks
Relating to the Bank’s Business — There is operational risk associated with the banking industry which, when
realised, may have an adverse impact on the Bank’s business.”
The Operational Risk Management Policy of the Bank establishes a risk framework that guides the
Bank in the management of operational risk and allocation of capital for potential losses. This policy requires
that all functional areas, departments and business units of the Bank identify, assess, measure, mitigate, monitor,
control and report on their significant operational risks in a manner that is consistent across the Bank. This
policy applies to all business and functional areas within the Bank. The Bank’s Operational Risk Management
Policy is supplemented by operational systems, procedures and guidelines, which are periodically updated by
the Bank.
The objective of the Bank’s Operational Risk Management Policy is to improve controls and mitigate
risks, improve capital management, create awareness of operational risk throughout the Bank, assign risk
ownership, comply with regulations, improve the quality of products and services as well as mitigate the impact
and probability of loss.
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The following measures are being used by the bank to control and mitigate operational risks:
• Internal Controls and Systems
• Training
• Rewarded System
• Placement and Rotations of Staff
• Monitoring of Frauds
• Disciplinary Proceedings System
• Insurance
Operational Controls and Procedures in the Bank
The Bank has issued a “Book of Instructions,” which contain detailed procedural guidelines for
processing various banking transactions. Amendments and modifications to these guidelines are implemented
through circulars sent to all offices. Guidelines and instructions are also disseminated through Job Cards, E-
Circulars, and Training Programs.
The Bank has also issued necessary instructions throughout the Bank regarding the delegation of
financial powers, which details sanctioning powers of various levels of officials for different types of financial
transactions.
Approximately two-thirds of the Bank’s branches have been brought under the Core banking System
(“CBS”). The remaining branches are expected to be brought under the CBS in the near future.
The Bank’s Inspection and Management Audit (“I&MA”) Department has Zonal Inspection Offices
located throughout the country. Inspection officials periodically monitor adherence to controls and procedure
and report derivations to facilitate corrective action. Besides I&MA officials, each Circle is assigned an internal
audit team and concurrent auditors are assigned to all large branches. A statutory audit is conducted by external
auditors after the annual closing.
Operational Controls and Procedures in Centralised Processing Cells (“CPCs”)
In an effort to improve customer service at all centres, the bank conducts central transaction processing.
The CPCs process clearing checks, make inter-city check collections and engage in back office support for
account opening, standing instructions, non-resident Indian services and automatic renewal of deposits.
Operational Systems and Controls in Treasury
Treasury’s front office, back office and mid-office (Market Risk Management Department) are fully
segregated. While the front office and the independent back offices report to the Head of Treasury, the Market
Risk Management Department functions independently from Treasury and is under the control of the Chief Risk
Officer.
The Bank’s front office Treasury operations are integrated and comprise the Rupee desk, foreign
exchange desk and the derivatives desk. The front office is supported by Treasury Marketing Units located in
seven centres across the country. While the Rupee desk operations consists of fixed income securities, equities
and inter-bank money markets, the foreign exchange desk operations consists of inter-bank, merchant and
proprietary transactions. The derivatives operations include swaps, options and structured products. Dealers
enter into trades with counterparties after analyzing market conditions and taking views on price movements.
After completion of a deal, the deal then flows to the back office for validation, settlement and accounting.
The front office regularly discusses strategies on the basis of market forecasts, liquidity conditions and
publicly available information. Trading is conducted in strict accordance with trading policies, a dealing manual
and regulatory guidelines.
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The Treasury back office undertakes settlement of securities and funds based on guidelines stipulated
by the Manual of Operations. Procedures followed by the back offices to minimize operational risks in Treasury
include: validation of deals entered into by the front office, deal confirmations with counterparties, receipt and
checking of broker contract notes, monitoring of receipt and payments on due dates, monitoring of transfer and
receipt of securities into accounts where dematerialised securities are held (“demat accounts”) and reconciliation
of accounts.
The Market Risk Management Department (“MRMD”) uses various tools for monitoring market risk.
These tools include: exposure limits, counterparty limits, position limits, gap limits, broker transaction limits,
duration and VAR limits. The MRMD marks to market various positions and breaches, if any, are promptly
reported.
Operational Controls and Procedures in Retail Asset Operations
The Bank’s retail asset operations are spread out geographically across India and the Bank has Retail
Assets CPCs in most cities across India. These centres carry out disbursement of approved credit facilities,
accounting, reconciliation and repayment management activities of retail assets. All operational and other risks
are identified, mitigants designed and measures of performance specified to ensure adherence. Internal auditors
monitor adherence to controls and procedures and report deviations to facilitate corrective action.
Operational Controls and Procedures for Corporate Banking
The Bank’s Corporate Accounts Group (“CAG”) operates a central functioning office at Mumbai as
well as CAG branches at Chennai, Mumbai, Kolkata and New Delhi. These offices are jointly responsible for
operations relating to trade finance, cash management and other general banking operations
Operational Controls and Procedures for Rural Banking
All rural branches are fully computerised. Operational risks pertaining to rural and agricultural
branches are identified, assessed, monitored, controlled and mitigated by the respective controlling offices. Risk
and control self assessment exercises are conducted at branch level for the purpose of identifying and assessing
operational risks. The Bank’s rural asset operations are spread across India. Besides the respective controllers,
officials from the Bank’s Inspection & Audit Department and Circle Audit Departments also visit all rural
branches periodically to conduct a detailed audit for monitoring the adherence to controls and procedures as
well as report irregularities within the branches. A statutory audit is also conducted at branch level after the
annual closing.
Anti-Money Laundering Measures adopted by the Bank
The Bank has established a policy implementing know your customer (“KYC”) standards and anti-
money laundering (“AML”) Measures. Detailed procedural guidelines on KYC and AML Measures have been
issued to all branches and offices of the Bank, incorporating the following four key elements of the Policy:
• Customer Acceptance Policy
• Customer Identification Procedures
• Monitoring of Transactions
• Risk Management
The Bank has acquired an AML software solution that is currently in the process of being implemented.
This solution will enable automatic generation of various reports, assist branch officers with the identification of
customers and classification of customers by risk profile as well as monitoring and reporting of suspicious
transactions. KYC guidelines are covered as part of regular training program for various staff categories by the
Bank Training Institutes. A list of terrorist organisations, periodically updated by the United Nations, is
circulated to all branches of the Bank. The Bank is closely monitoring the implementation of the KYC
guidelines and AML procedures through a system of education and monitoring by utilizing various training
forums as well as an inspection and audit process.
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Country Risk and Bank Exposure
Prudent exposure risk management is ensured by setting up appropriate bank exposure limits in
accordance with the Bank’s approved model on a large number of foreign commercial banks. Different types of
prudential exposure limits are set up for 569 banks worldwide, covering 82 countries. Substantial counterparty
bank limits for handling letters of credit, bank guarantees, foreign exchange and money market activities are in
place. The Executive Committee of the Central Board (“ECCB”) has approved a country risk management
policy, in line with RBI guidelines, for setting up country exposure limits. Further, the overall global risk for the
Bank as a whole is monitored on a regular basis.
Credit Management Policies and Procedures
Credit Policy and Procedures Committee
The Credit Policy and Procedures Committee (“CPPC”) is headed by the Chairman of the Bank and
tasked with handling issues relating to credit policy and procedures and to analyze, manage and control credit
risk on a Bank-wide basis. The CPPC formulates clear policies on standards for presentation of credit proposals,
financial covenants, rating standards and benchmarks, delegations of credit approving powers, prudential limits
on large credit exposures, asset concentrations, standards for loan collateral, portfolio management, loan review
mechanisms, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning and regulatory
and legal compliance.
The Bank’s credit risk management process is articulated in its credit policy, which is approved by the
Central Board. The credit policy recognises the need for measures aimed at better risk management and
avoidance of concentration of credit risks. With this objective, limits have been prescribed for the Bank’s
exposure to any single borrower, group of borrowers or specific industries or sectors.
The credit policy embodies the Bank’s approach to sanctioning, managing and monitoring credit risk
and aims at making the systems and controls effective. It is guided by the best practices of commercial prudence,
high standards of ethical norms and the requirement of national priorities. It also aims at striking a measured
balance between underwriting assets of high quality and customer oriented selling.
Accordingly, the credit policy sets out guidelines on the following aspects, in accordance with RBI and
Government directives.
• Exposure levels for industries, sectors and credit facilities
• Credit appraisal standards
• Documentation standards
• Pricing policy
• Review, renewal and takeover of advances
• Credit monitoring and supervision
• Credit risk assessment
• NPA management
• Export credit
• Approach to lending to priority sectors and the services sector.
All revisions in policies and procedures are carried out with the approval of the CPPC and the Central
Board.
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Credit Approval and Monitoring
The Bank’s credit approval process involves multiple levels of loan approval authority, depending on
the loan amount and other factors such as the nature of the credit, the conditions of the transaction and whether
or not the loan is secured.
At each level of authority, loan applications are reviewed on the basis of the feasibility of the project
from a technical, financial and economic point of view, in addition to being evaluated according to the
probability of recovery. In conducting such a review the following factors are considered: the borrower’s profile,
management structure, past financial performance and credit ratings, the Bank’s exposure to the company,
industrial group and/or industry in light of prudential exposure norms, industry outlook and financial projections
for the borrower company and/or project. In the case of overseas financing, appraisals also include an
assessment of an overseas venture in terms of commercial risk, political risk and currency risk, an assessment of
the relevant international market, an analysis of the benefits from the overseas venture likely to accrue to the
Indian promoter, and compliance with regulatory guidelines. The Bank may also conduct a sensitivity analysis
which includes variables such as debt servicing ratios and internal rates of return.
The Bank has internal guidelines that limit the amounts of loans that can be authorised. Loan amounts
differ depending on the type of loan and certain other factors, such as type of borrower, rating of borrower or
type of facilities.
The Bank disburses funds to a borrower in strict compliance with the terms of the sanction, after all
necessary documentation has been executed. Specific approval must be sought from the original sanctioning
authority, or as delegated in accordance with the policy approved by the Executive Committee of the Central
Board (“ECCB”) or the Credit Policy and Procedures Committee (“CPPC”) before deviating from the terms of
the sanction, if any.
Examples of the types of procedures in place for various finance divisions include:
Corporate Finance Procedures
As part of the corporate loan approval procedures, the Bank carries out a detailed analysis of funding
requirements including normal capital expenditure, working capital requirement and status of liquidity. The
Bank’s corporate term loans are generally available for periods of three to eight years. The Bank’s corporate
term loans may carry fixed or floating rates, as befit the exact requirements of the client and the risk context.
The repayment mode is generally linked to the cash flow of the company. The Bank’s credit analysts gauge the
applicant’s particular funding requirements and evaluate the company’s creditworthiness, factoring in the cash
flows generated by it.
Retail Loan Procedures
The Bank’s retail loan customers are typically middle or high-income, salaried or self employed
individuals. The Bank’s retail credit product operations are sub-divided into various product lines. Each product
line is further sub-divided into separate sales, marketing and credit groups. The Bank has an established process
for giving and collecting retail credits. In most cases, the Bank requires a contribution from the borrower and the
loans are secured by the asset financed.
Working Capital Finance Procedures
The Bank carries out a detailed analysis of its borrowers’ working capital requirements. The Bank’s
dedicated credit team has a deep understanding of the intricacies of various industries and is experienced in
evaluating the business potential of companies. The credit team assesses the customer’s specific credit
requirements and customizes financial solutions to suit the customer’s risk profile and its working capital cycle.
Working capital finance limits are normally valid for one year and repayable on demand. Approved facilities
will lapse within three months of approval unless used within that time.
Project Finance and Leasing Procedures
The Bank has a strong framework for the appraisal and execution of project finance and leasing
proposals. The Bank believes that this framework allows for risk identification, allocation and mitigation, and
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helps minimize residual risk. The Bank has formed a dedicated Project Finance and Leasing SBU to assess
credit proposals and extend term loans for large industrial and infrastructure projects. Apart from this, project
term loans for medium sized projects and smaller clients are delivered through the Corporate Business Group
and the NBG. The loans are approved on the basis of in-house appraisal of the cost and viability of the venture
as well as the credit standing of promoters. Project finance is typically structured as long-term loans, with
repayment periods generally from five to ten years. Maturity periods and repayment modes are structured in line
with the specific aspects of each project and industry, factoring in a timeframe for the venture to generate a
stable revenue stream.
The Project Finance and Leasing SBU is dedicated to lease financing for procuring equipment for
projects or plants. The Bank enters into lease agreements as stand-alone contracts or as part of a structured
package. The Bank typically undertakes leasing contracts with a minimum ticket size of Rs. 50 million,
generally restricted to 50.0% of the total net worth of the lessee. Lease contracts are usually structured for tenure
of five to seven years. The Bank, however, has stopped encouraging new leases due to a change in tax law
resulting in unfavourable tax treatment with respect to such lease contracts.
Internal Controls
The Bank has built-in internal control systems with well-defined responsibilities at each level. The
Bank carries out various audit streams covering different facets of internal audit requirement including an
inspection and audit, and a management audit. In addition, a credit audit is conducted for units with large credit
limits and a concurrent audit is carried out at branches with large deposit, advances and other risk exposures. An
information systems audit is conducted at the centralised IT establishments. The information systems audit of
branches is handled by incorporating the necessary checklists and value statements in the audit report formats of
the branches. The Bank has 534 employees who perform its audit function.
Inspection & Audit
The inspection system plays an important and critical role in introducing international best practices in
the internal audit function which is regarded as a critical component of corporate governance. Inspection and
audit undertake a critical review of the entire working of audited units. Risk focused internal audit, an adjunct to
risk based supervision in accordance with RBI directives, has been introduced in the Bank’s audit system. All
domestic branches have been divided into three groups on the basis of business profile and risk exposure. Audit
of 314 branches under Group I is conducted by Central Audit Unit at the Inspection Audit Department, which is
headed by a General Manager who reports to the Chief General Manager. The responsibility of conducting audit
of branches under Group II and Group III rests with the General Managers of nine Zonal Inspection Offices
spread over the entire country. The inspection of branches is conducted periodically under guidance from the
Audit Committee of the Board (“ACB”) which is well within RBI norms.
As of September 30, 2007, 2,457 domestic branches have been inspected. During the period from April
1, 2007 to September 30, 2007, 216 BPR entities were audited.
Management Audit
With the introduction of risk focused internal audits, management audit has been reoriented to focus on
the effectiveness of risk management in the processes and the procedures followed by the Bank. The
management audit policy document is also being revised in the light of the Bank’s focus on risk management as
part of its transition to BASEL II norms.
Credit Audit
Credit audit aims to achieve continuous improvement in the quality of the commercial credit portfolio
of the Bank by critically examining individual commercial loans with exposures of Rs. 50 million and above.
The audit, which has been aligned with the risk focused internal audit, examines the probability of default,
identifies risks and suggests risk mitigation measures. The Bank uses the credit audit to analyze risk and to
initiate early remedial actions to improve the quality of the credit portfolio. During the six-month period ended
September 30, 2007, on-site credit audits were conducted at 80 branches while off-site credit audits covered 303
branches.
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Concurrent Audit System
Branches covered by the concurrent audit system are reviewed on a day-to-day basis in accordance
with RBI directives. As per RBI directives, 30-40% of the deposits and 60-70% of the advances are subjected to
a concurrent audit. A review of the coverage of the branches made on September 30, 2007 revealed that 363
branches in Group I & Group II categories and 109 “End State” model credit oriented BPR entities are identified
for coverage under the concurrent audit system. In addition, concurrent audit takes place in larger individual
branches where daily activity at the branch is monitored.
Information System Audit
Since April 2006, all branches are subject to an Information Systems audit to assess IT related risks. A
“Handbook on Self Audit of Information Systems” was introduced to facilitate the efficiency level of the Bank’s
IT systems. An information systems audit of centralised IT has also been carried out. In addition, as a
prerequisite to the adoption of the advanced measurement approach required by Basel II, a committee of senior
officers of the Bank has been formed to finalise the design, development and implementation of a loss database.
This Committee is in the process of deciding on various measures relating to the loss database, such as data to
be collected by the business units, materiality thresholds, and levels at which the procedures will initially be
implemented.
Audit of BPR Entities
Following implementation of various BPR initiatives and as certain branches attain full BPR
implementation, an audit process for ten BPR entities has been developed and introduced. Taking into account
the processes involved in each of the ten entities, exclusive audit report formats, with appropriate audit queries,
were introduced.
Basel II Framework
In accordance with the guidelines issued by the RBI, foreign banks operating in India and Indian banks
having operational presence outside India should adopt the Standardised Approach for credit risk and the Basic
Indicator Approach for operational risk when computing their capital requirements under the revised framework,
which will come into effect on March 31, 2008.
The Bank has conducted a self-assessment and has created a roadmap for migration to Basel II, which
is to be completed by March 31, 2008. In accordance with RBI guidelines, the Bank intends to migrate to Basel
II standards with the Standardised Approach for credit risk and Basic Indicator approach for operational risk in
accordance with Basel II by March 31, 2008. The Bank implemented the Standardised Duration Method for
Market Risk on March 31, 2006. Simultaneously, the Bank is updating and fine-tuning its systems and
procedures, technology capabilities, risk assessment and risk governance structure to meet the requirements of
the Advance Approaches as per Basel II.
Enforcement of Security Interests under the SARFAESI Act
To assist banks and financial institutions in recovering their unpaid advances and to ensure financial
discipline among borrowers, the Government enacted the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act (the “SARFAESI Act”) in December 2002. The SARFAESI Act
provides the legal framework for (i) the securitisation of financial assets by setting up a Securitisation Company
(“SC”) or Reconstruction Company (“RC”); (ii) the foreclosure of assets through a SC or RC; and (iii) the
foreclosure of NPA accounts. See “Regulations and Policies- RBI Regulations- Enforcement of Security
Interests Under the SARFAESI Act.”
As of September 30, 2007, the Bank issued notices under the SARFAESI Act to 45,420 borrowers with
an aggregate principal outstanding of Rs. 70.2 billion. Of the 45,420 borrowers on whom the Bank had served
notice, Rs. 7.6 billion has been recovered. The Bank has been applying all available methods for the recovery of
unpaid advances, including reporting the name of wilful defaulters to the RBI together with commencing the
necessary steps for recovery. The Bank has also initiated aggressive one-time settlement measures to recover
unpaid loans.
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Corporate Debt Restructuring Mechanism
In addition to the Government passing the SARFAESI Act, the RBI has established the Corporate Debt
Restructuring Mechanism ("CDRM"). See “Regulations and Policies -- Corporate Debt Restructuring
Mechanism.” The objectives of the CDRM are (i) to ensure a timely and transparent mechanism for
restructuring corporate debts of viable entities affected by certain internal and external factors and (ii) to
minimize losses to creditors and other stakeholders through an orderly and coordinated restructuring program.
The CDRM is a voluntary, non-statutory mechanism based on debtor-creditor and inter-creditor agreements and
operates outside the authority of the BIFR, debt recovery tribunals or legal proceedings.
The following table shows loan assets subjected to restructuring during the years ended March 31,
2005, 2006 and 2007 and as a percentage of the Bank’s total loans on those dates. No NPAs were sold in the
period from March 31, 2007 to September 30, 2007.
Year ended March 31,
2005 2006 2007
Rs. % Rs. % Rs. %
(Rs. in billions, except percentages)
Total loan assets which have been restructured 48.46 2.40% 14.27 0.56% 9.06 0.27%
Total sub-standard assets which have been 5.57 0.28% 4.42 0.17% 0.76 0.02%
restructured
Total Doubtful assets which have been 5.54 0.27% 5.65 0.22% 1.94 0.06%
restructured
Establishment of Asset Reconstruction Company
The SARFAESI Act provides the framework for setting up asset reconstruction companies in India.
Accordingly, the Bank, together with other major Indian banks, has jointly promoted the Asset Reconstruction
Company (India) Ltd. (“ARCIL”). ARCIL serves as the entity that acquires the NPAs of its parent banks at a
mutually acceptable price against the issue of security receipts. ARCIL seeks to recover outstanding debts
through restructuring, settlement or enforcement of security interests. ARCIL then uses amounts recovered to
redeem the security receipts issued to certain qualified institutional investors. As of September 30, 2007, the
Bank owns 19.95% of the share capital of ARCIL.
In July 2005, the RBI issued guidelines on the sale and purchase of NPAs amongst banks, financial
institutions and NBFCs. See “Regulations relating to Sale of Assets to Asset Reconstruction Companies.”
Pursuant to an amendment of these guidelines on October 4, 2007, the RBI has stipulated that banks should
calculate the net present value of the estimated cash flows associated with the realisable value of the available
securities net of the cost of realisation. As a result, the sale price of a NPA should generally not be lower than
the net present value arrived at in the manner described above.
Sale of Assets to Asset Reconstruction Companies, Banks, Financial Institutions and NBFCs
The Bank has sold NPAs to reconstruction companies, banks, financial institutions and NBFCs.
The following table sets out the sales of NPAs by the Bank to reconstruction companies as of
September 30, 2007:
No. of Total Outstanding Consideration

Fiscal Year NPAs sold Principal Amount Received
(Rs. in billions)
2005 114 8.2 1.5

2006 131 8.9 2.0
2007 90 0.8 0.3
Six-months ended September Not
30, 2007 Nil Not Applicable Applicable
Total 335 17.9 3.8
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The following table sets out the sales of NPAs by the Bank to banks, financial institutions or NBFCs as
of September 30, 2007; there were no NPAs sold in the fiscal year ended March 31, 2005:
No. of NPAs Consideration

Fiscal Year Total Outstanding
sold Principal Amount Received
(Rs. in billions)
2006 290 11.4 2.3
2007 20 0.5 0.1
Six-months ended
September 30, 2007 Nil Not Applicable Not Applicable
Total 310 11.9 2.4
Risk Management in Banking Subsidiaries
The Bank’s banking subsidiaries, which include the seven Associate Banks and SBICI Bank Limited,
have implemented Risk Management Policies which are in line with SBI’s policies to identify, assess, monitor,
control and mitigate risks coming under the broad categories of credit risk, liquidity risk, interest rate risk,
market risk and operational risk. A risk governance structure has also been put in place by all the banking
subsidiaries with one general manager designated as the chief risk officer at each subsidiary bank. As is the case
with the Bank, the banking subsidiaries have put in place risk management committees. Steps are being taken to
modify the risk management framework of the subsidiary banks to conform to Basel II guidelines. As of the date
of this Letter of Offer, all banking subsidiaries are in compliance with the minimum CRAR requirement
stipulated by the RBI.
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REGULATIONS AND POLICIES
The main legislation governing commercial banks in India is the Banking Regulation Act. The
provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking
Regulation Act, in derogation of the Companies Act, 1956 and any other law for the time being in force. Other
important laws include the Reserve Bank of India Act, the Negotiable Instruments Act and the Banker’s Books
Evidence Act. Additionally, the RBI periodically issues guidelines to be followed by the bank. Compliance with
all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. The Bank is
also governed by the provisions of the Act. See also “Industry Overview — Commercial Banks.”
The State Bank of India Act
While the main legislation governing commercial banks in India is the Banking Regulation Act, 1949
and some of these provisions are applicable to the Bank, the Bank is mainly governed by the provisions of the
Act. Certain provisions of the Banking Regulation Act apply in addition to the Act. Since the Bank is a statutory
corporation, the provisions of the Companies Act, 1956 are inapplicable.
The State Bank of India (Subsidiary Banks) Act was passed in 1959 to enable the Bank to take over
eight former State-associated banks as its subsidiaries. The Bank was constituted in order to extend the
availability of banking facilities, particularly in rural and semi-urban areas, as well as for diverse public
purposes. Under the Act, the Bank shall be guided by such directions in matters of policy involving public
interest as the Central Government may, in consultation with the Governor of the RBI and the Chairman of the
Bank, give it. The Bank is managed by a Central Board of Directors, which consists of the Chairman and
Managing Directors appointed by the Central Government under the Act, elected Directors of the Shareholders
and nominees from the RBI and Government, as well as other nominees put forward by the Central Government
from among persons having expert knowledge of cooperative institutions, rural economy and industry, banking,
and finance.
Under the Act, the Bank acts as an agent of the RBI. The accounts of the Bank are audited by external
statutory auditors appointed by the RBI. If the Government desires, it may appoint additional auditors to
examine and report on the Bank’s accounts. In accordance with the Act, the provisions of law relating to the
winding up of companies do not apply to the Bank and the Bank shall not be placed in liquidation except by
order of the Central Government.
On December 18, 2006, the State Bank of India (Amendment) Bill, 2006, a piece of legislation seeking
to amend the Act was introduced in the Indian Parliament, which has since referred it to the Parliamentary
Standing Committee on Finance. Furthermore, the Act was separately amended to incorporate the transfer of the
RBI shareholding in the Bank to the Central Government.
RBI Regulations
Commercial banks in India are required under Section 22 of the Banking Regulation Act to obtain a
license from the RBI to carry on banking business in India. Before granting the license, the RBI must be
satisfied that certain conditions are complied with, 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 the public interest will be served if such license is granted
to the bank. The RBI can cancel the license if the bank fails to meet the above conditions or if the bank ceases to
carry on banking operations in India.
The Bank, being licensed by the RBI, is regulated and supervised by the RBI. The RBI requires the
Bank to furnish statements, information and certain details relating to its business. It has issued guidelines for
commercial banks on the recognition of income, classification of assets, valuation of investments, maintenance
of capital adequacy and provisioning for non-performing and restructured assets. The RBI has set up a Board for
Financial Supervision, under the chairmanship of the Governor of the RBI. The auditors of the Bank are
appointed by the RBI. The RBI can direct a special audit in the interest of depositors or in the public interest.
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Regulations relating to the Opening of Branches
Section 23 of the Banking Regulation Act provides that a bank must obtain the prior approval of the
RBI to open new branches. Permission is granted based on factors such as the financial condition and history of
the bank, its management, adequacy of capital structure and earning prospects and the public interest. The RBI
may cancel a license for violations of the conditions under which it was granted. The RBI issued a new branch
authorisation policy in September 2005 under which the existing system of granting authorisation for each time
an individual branch is opened will be replaced by a system of aggregated approvals on an annual basis. The
RBI will discuss with individual banks their branch expansion strategies and plans over the medium term. The
term “branch” for this purpose has been defined to also include extension counters, offsite ATMs, administrative
offices and back offices where banking transactions are undertaken. No banking transactions are undertaken in
call centres; therefore, they cannot be categorised as branches. While processing authorisation requests, the RBI
will give importance to the nature and scope of banking services, particularly in under-served areas, actual credit
flow to priority sectors and efforts to promote financial inclusion, the need to induce enhanced competition in
the banking sector, the bank’s regulatory compliance, quality of corporate governance, risk management and
relationships with subsidiaries and affiliates.
Capital Adequacy Requirements
The Bank is subject to the capital adequacy requirements of the RBI. Based on the guidelines of the
Basel Committee on Banking Regulations and Supervisory Practices, this requires the Bank to maintain a
minimum ratio of capital to risk-adjusted assets and off-balance sheet items of 9.0%, at least half of which must
be Tier I capital.
The total capital of a bank is classified into Tier I and Tier II capital. Tier I capital, the core capital,
provides the most permanent and readily available support against unexpected losses. It comprises paid-up
capital and reserves consisting of any statutory reserves, free reserves and capital reserves, pursuant to the
Indian Income Tax Act, as reduced by equity investments in subsidiaries, intangible assets, gaps in provisioning,
and losses in the current period and brought forward from the previous period. In fiscal year 2003, the RBI
issued guidelines requiring a bank’s deferred tax asset to be treated as an intangible asset and deducted from its
Tier I capital. Tier II capital consists of undisclosed reserves, revaluation reserves (at a discount of 55.0%),
general provisions and loss reserves (allowed up to a maximum of 1.25% of risk-weighted assets), hybrid debt
capital instruments (which combine certain features of both equity and debt securities) and subordinated debt.
Any subordinated debt is subject to progressive discounts each year during the last five years of the tenure for
inclusion in Tier II capital and total subordinated debt considered as Tier II capital cannot exceed 50.0% of Tier
I capital. Total Tier II capital cannot exceed Tier I capital.
With a view to providing banks with additional options to raise capital funds, the RBI, by a circular
dated January 25, 2006, authorised the issue of instruments such as (i) Innovative Perpetual Debts Instruments
(“IPDIs”) as part of Tier I capital and (ii) Upper Tier II subordinated debt as part of Tier II capital.
As per these guidelines, IPDIs have a call option after not less than ten years from the date of issue, to
be exercised with the RBI’s prior approval, for inclusion as Tier I capital up to a maximum of 15.0% of total
unimpaired non-innovative Tier I capital. Upper Tier II instruments have a minimum maturity of 15 years and a
call option after not less than ten years from the date of issue, to be exercised with the RBI’s prior approval, for
inclusion as Tier II capital. On July 21, 2006, the RBI also issued guidelines permitting the issuance of Tier I
and Tier II debt instruments denominated in foreign currencies to the extent of and subject to the conditions
stipulated therein.
In fiscal year 2002, with a view to building up adequate reserves to guard against any unfavourable
interest rate movement due to unexpected developments, the RBI advised banks to build up an investment
fluctuation reserve of a minimum of 5.0% of the bank’s investment portfolio classified in the trading book
within a period of five years. This reserve must be computed with respect to investments held for trading and
available for sale categories. The investment fluctuation reserve was considered as Tier II capital. With the
introduction of a capital charge for securities included in the trading book, the RBI has since permitted banks to
transfer the entire investment fluctuation reserve to the category (also considered as Tier I capital).
Risk-adjusted assets and off-balance sheet items considered for determining the capital adequacy ratio
are the risk-weighted total of specified funded and non-funded exposures. Degrees of credit risk expressed as
percentage weighting have been assigned to various balance sheet asset items and for off-balance sheet items.
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The percentage risk-weight age is made with the appropriate credit conversion factor. The face value of each
item is multiplied by the relevant weight and/or conversion factor to produce risk-adjusted values of assets and
off-balance sheet items. Standby letters of credit or guarantees and documentary credits are treated as similar to
funded exposure and are subject to similar risk weight. All foreign exchange and gold open position limits of the
bank carry a 100.0% risk weight. Capital requirements have also been prescribed for open foreign currency
exposures and open positions in gold. In respect of banks and financial institutions, after March 31, 2001, a risk
weight of 2.5% to cover market risk must be assigned in respect of the entire investment portfolio over and
above the existing risk weights for credit risk in all categories of security. Further, in June 2004, the RBI issued
guidelines requiring banks to maintain a capital charge for market risk in respect of:
• securities included in the held for trading category (including derivatives) by March 31, 2005; and
• securities included in the available for sale category by March 31, 2006.
Currently, held-to-maturity securities are not marked to market and are carried at acquisition cost or at
an amortised cost if acquired at a premium over the face value. Securities classified as available for sale or held
for trading are valued at market or fair value as of the balance sheet date.
The aggregate risk-weighted assets are taken into account for determining the capital adequacy ratio.
Accordingly, the Bank has provided a capital charge for market risk on the securities included in the trading
book, as per the standardised duration method.
Banks were required to maintain a capital charge for market risk in respect of their trading book
exposure (including derivatives) by the end of fiscal year 2005 and in respect of securities included in the
available for sale category by the end of fiscal year 2006. In October 2005, the RBI specified that banks that
maintain capital for both credit and market risk for both the held for trading and available for sale categories at
the end of fiscal year 2006 would be permitted to treat the entire balance in the investment fluctuation reserve as
Tier I capital. With the introduction of a capital charge for market risk as of March 31, 2006, an additional risk
weight of 2.5% on the banking book has been removed across the board.
In April 2007, the RBI issued final guidelines for the implementation of the revised capital adequacy
framework of the Basel Committee (“Basel II framework”). These guidelines specify that foreign banks
operating in India and Indian banks having an operational presence outside India should migrate to the Basel II
framework by adopting the Standardised Approach for credit risk and the Basic Indicator Approach for
operational risk with effect from March 31, 2008. All other commercial banks (except local area banks and
regional rural banks) are encouraged to migrate to the Basel II framework no later than March 31, 2009 by
adopting one of these approaches, as appropriate these approaches. After adequate expertise has been developed,
both at the banks and at the supervisory level, some banks may be allowed to migrate to the Internal Ratings-
based approach after obtaining RBI approval. The guidelines also prescribe a 75.0% risk weight for retail credit
exposures, differential risk weights for other credit exposures linked to their credit rating, and a capital charge
for operational risk based on a factor of 15.0% of the sum of a bank’s previous three year average net interest
income and non-interest income (excluding extraordinary income). The RBI has, in January 2008, decided that
educational loans will no longer qualify as consumer credit and carry a risk weight of 100% under the Basel I
framework and 75% under the Basel II framework.
Issuance of Preference Shares as Part of Regulatory Capital
With a view to providing banks with a wider choice of instruments to raise Tier I and Tier II capital,
the RBI, through its circular dated October 29, 2007, permitted the issue of preference shares in Indian Rupees.
The said circular provides, inter alia, that preference shares shall be eligible for inclusion in Tier I or Tier II
capital as set out below:
Tier I capital:
• the outstanding amount of Tier I preference shares along with innovative Tier I instruments must not
exceed 40% of total Tier I capital;
• the shares shall be perpetual non-cumulative preference shares and shall be fully paid up, unsecured
and free of restrictive clauses;
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• the shares shall be issued without a put or step-up option; however, a call option is permitted provided
it is exercisable only after a period of ten years and with the prior approval of the RBI;
• no dividend may be declared if the Bank’s CRAR is below (or is caused by the payment to fall below)
the minimum stipulated CRAR or if the half yearly (for a half yearly dividend) or current year’s
balance sheet shows accumulated losses; and
• the dividend shall not be cumulative, for example a dividend missed in one year will not be paid in
future years, even if adequate profit is available and the level of CRAR conforms to the regulatory
minimum.
Tier II capital:
• the outstanding amount of these instruments, along with other components of Tier II capital, must not
exceed 100% of Tier 1 capital at any point in time;
• the shares may be perpetual cumulative preference shares, redeemable non-cumulative preference
shares or redeemable cumulative preference shares and shall be fully paid up, unsecured and free of
any restrictive clauses;
• the period of maturity for redeemable non-cumulative preference shares and redeemable cumulative
preference shares shall be at least 15 years;
• shares shall be issued without a put option; a call option, however, is permitted provided such option is
exercisable only after a period of ten years and with the prior approval of the RBI. A step-up option
may be exercised only once during the term of the instrument and must not exceed 100 basis points;
• the coupon rate payable should be a fixed or floating rate referenced to a market determined Rupee
interest benchmark rate and will not be payable if the Bank’s CRAR is below (or is caused by the
payment to fall below) 9% or if the Bank suffers a net loss; and
• redemption shall not be at the initiative of the holder and shall only be made with the prior approval of
the RBI, even at maturity.
The Redeemable Preference Shares (both cumulative and non-cumulative) shall be subjected to a
progressive discount for capital adequacy purposes over the last five years of their tenor, as they approach
maturity.
Loan Loss Provisions and Non-Performing Assets
In April 1992, the RBI issued formal guidelines, which are revised periodically, on income recognition,
asset classification, provisioning standards and the valuation of investments applicable to banks. These
guidelines are applied for the calculation of impaired assets under Indian GAAP.
The principal features of these RBI guidelines, which have been implemented with respect to the
Bank’s loans, debentures, lease assets, hire purchases and bills, are set forth below.
Non-Performing Assets
An asset, including a leased asset, becomes non-performing when it ceases to generate income for the
Bank. An NPA is an asset in respect of which either the principal or interest remains overdue for more than 90
days.
An NPA is a loan or an advance where:
• interest and/or the instalment of principal has remained overdue for a period of more than 90 days in
respect of a term loan;
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• the account has remained “out-of-order” (as defined below) in respect of an overdraft or cash credit for
more than 90 days;
• the bill has remained overdue for a period of more than 90 days in the case of purchased and
discounted bills;
• the interest and/or principal have remained overdue for two harvest seasons but for a period not
exceeding two half years in the case of an advance granted for agricultural purposes.
A loan granted for short duration crops will be treated as a non-performing asset, if the instalment of
principal or interest thereon remains overdue for two crop seasons. A loan granted for long duration crops will
be treated as a non-performing asset, if the instalment of principal or interest thereon remains overdue for one
crop season. (Crops with harvest seasons longer than one year are long duration crops, and crops, which are not
long duration crops are treated as short duration crops); and
• an amount to be received remains overdue for a period of 90 days in respect of other accounts.
Once an account has been classified as a non-performing asset, the unrealised interest and other income
already debited to the account is de-recognised and further interest is not recognised or credited to the income
account unless collected.
“Out-of-Order” Status
An account should be treated as “out-of-order” if the outstanding balance remains continuously in

excess of the sanctioned drawing limit. In circumstances where the outstanding balance in the principal
operating account is less than the sanctioned drawing limit, but (i) there are no credits for a continuous period of
90 days as of the date of the balance sheet of the Bank or (ii) the credits are not sufficient to cover the interest
debited during the same period, these accounts should be treated as “out-of-order.”
Asset Classification
NPAs are classified as described below:
• Sub-Standard Assets. Assets that are NPAs for a period not exceeding 12 months. In such cases, the
current net worth of the borrower/guarantor or the current market value of the security charged is not
enough to ensure recovery of dues to the bank in full. Such an asset has well-defined credit weaknesses
that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the bank
will sustain some loss, if deficiencies are not corrected.
• Doubtful Assets. Assets that are NPAs for more than 12 months. A loan classified as doubtful has all
the weaknesses inherent in assets that are classified as sub-standard, with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions
and values, highly improbable.
• Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors or
RBI inspection but the amount has not been written off fully.
There are separate guidelines for projects under implementation which are based on the achievement of
financial closure and the date of approval of the project financing.
The RBI also has separate guidelines for restructured loans. A fully secured standard asset can be
restructured by rescheduling principal repayments and/or the interest element, but must be separately disclosed
as a restructured asset. A rescheduling of the instalments of principal amount alone does not result in a standard
asset being classified as sub-standard provided the loan/credit facility is fully secured. A rescheduling of interest
shall not result in an asset being downgraded to sub-standard, provided that the amount of sacrifice, measured in
present value terms, is written off or provision is made to the extent of the sacrifice involved. Similar guidelines
apply to sub-standard assets. The sub-standard accounts which have been subjected to restructuring by whatever
modality, whether in respect of the principal instalment or interest amount, are eligible to be upgraded to the
standard category only after the specified period, i.e., a period of one year after the date when first payment of
interest or of principal, whichever is earlier, falls due, subject to satisfactory performance during the period.
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To put in place an institutional mechanism for the restructuring of corporate debt, the RBI has devised a
corporate debt restructuring system. See “Industry Overview — Recent Structural Reforms.”
Provisioning and Write-offs
Provisions are based on guidelines specific to the classification of the assets. The following guidelines
apply to the various asset classifications:
RBI guidelines on provisioning and write-offs are as follows:
• Standard Assets. The general provisioning requirement for “Standard Advances” is currently 0.4%,
with the exception of direct advances to agricultural and SME sectors where the general provisioning
required is 0.25%. The rate of provisioning for residential housing loans beyond Rs. 2,000,000 is 1.0%.
For specific sectors, such as personal loans (including credit card receivables), loans and advances
qualifying as capital market exposures, loans and advances to systemically important NBFCs, and
non-deposit taking and commercial real estate loans, the general provisioning requirement is 2.0%.
• Sub-standard Assets. A general provision of 10.0% of the total outstanding and an additional 10.0%
total outstanding on the “unsecured exposures” identified as “Substandard” (i.e. the total provisioning
on the unsecured exposures shall be 20.0%). For purposes of this classification, an unsecured exposure
is one where the realisable value of security is not more than 10.0%, ab initio, of the outstanding
exposure. Also “exposure” shall include both funded and non-funded exposure.
• Doubtful Assets. Provision at 100.0% of the extent to which the advance is not covered by the
realisable value of security. With regard to the secured portion, provision is to be made as set out
below:
Period for which advance remained in “Doubtful”

category Provisioning requirement (%)
Up to one year 20.0%
One to three years 30.0%
More than three years 100.0%
Banks are, however, permitted to phase the additional provisioning, required due to the reduction in the
transition period from “sub-standard” to “doubtful asset,” from 18 to 12 months over a four year period
commencing from the year ending March 31, 2005, with a minimum of 20.0% each year.
• Loss Assets. The entire asset shall be written off. However, if, for any reason whatsoever, the asset is
retained on the books, a 100.0% provision shall be made on the outstanding amount.
• Restructured Assets. A provision is made in present value terms equal to the level of sacrifice (of
interest) made.
Whilst the provisions indicated above are mandatory, a higher provision on a loan could be made if
considered necessary. For more information see “Industry Overview — Credit Policy Measures.”
Regulations relating to the Making of 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 bank lending to non-bank financial companies.
• Banks are free to determine their own lending rates but each bank must declare its benchmark prime
lending rate as approved by its board of directors. Each bank should also indicate the maximum spread
over the prime lending rate for all credit exposures other than retail loans. The interest charged by
banks on advances up to Rs. 200,000 to any one entity (other than most retail loans) must not exceed
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the benchmark prime lending rate. Banks are also given freedom to lend at a rate below the prime
lending rate in respect of creditworthy borrowers and exporters. Interest rates for certain categories of
advance are regulated by the RBI. Banks are also free to stipulate lending rates without reference to
their own benchmark prime lending rates in respect of certain specified categories of loan.
• In terms of section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances
against the security of its own shares, a banking company is prohibited from entering into any
commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in
which any of its directors is interested as partner, manager, employee or guarantor, or any company
(not being a subsidiary of the banking company or a company registered under section 25 of the
Companies Act, 1956, or a Government company) of which, or the subsidiary or the holding company
of which, any of the directors of the bank is a director, managing agent, manager, employee or
guarantor or in which, or the subsidiary or the holding company in which, he holds substantial interest,
or any individual in respect of whom any of its directors is a partner or guarantor. There are certain
exemptions in this regard as the explanation to the section provides that “loans or advances” shall not
include any transaction which the RBI may specify by general or special order as not being a loan or
advance for the purpose of such section. The Bank is in compliance with these requirements.
The RBI permitted banks to extend financial assistance, as a strategic investment, to Indian companies
for the acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas
companies, new or existing. Banks are not permitted to finance acquisitions by companies in India (except in the
case of companies engaged in implementing or operating infrastructure projects, subject to the conditions
specified).
There are guidelines on loans against equity shares in respect of the amount, margin requirement and
purpose.
Corporate Debt Restructuring Mechanism
In order to put in place as institutional mechanism for the restructuring of corporate debt, the RBI
devised a Corporate Debt Restructuring (“CDR”) System, guidelines pertaining to which were issued on August
23, 2001. Subsequently, detailed guidelines were issued of February 5, 2003. The objective of this framework is
to ensure a timely and transparent mechanism for the restructuring of corporate debts of viable entities facing
problems, but outside the purview of the Board for Industrial and Financial Reconstruction, debt recovery
tribunals and other legal proceedings. In particular, the framework aims to preserve viable corporates that are
affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders
through an orderly and coordinated restructuring program. The corporate debt restructuring system is a non-
statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements. Secured
creditors having a minimum 20.0% exposure in term loans or working capital may make a reference to the CDR
Forum. The system established by the RBI has a three-tier structure, led by the CDR Standing Forum, which is
the general body for all member institutions, out of which is carved out the CDR Core Group, a niche body of
select institutions that decides policy matters. Decisions on restructuring are taken by the CDR Empowered
Group, which has all the member banks and financial institutions as its members. A CDR Cell has been formed
to assist the CDR Forum in administrative matters and for analysis of the restructuring packages.
The total membership of the CDR Forum, as of March 31, 2007, was 58, consisting of 12 financial
institutions, one Trust, 28 public sector banks and 17 private sector banks.
The RBI has, by its circular dated November 10, 2005, amended the above guidelines on CDR.
The major amendments include:
• extending the scheme to entities with an outstanding exposure of Rs. 100 million or more;
• requiring the support of 60.0% of creditors by number in addition to the support of 75.0% of creditors
by value, with a view to making the decision-making more equitable;
• giving discretion to the Core Group in dealing with wilful defaulters in certain cases, other than cases
involving fraud or the diversion of funds with mala fide intentions;
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• linking the restoration of asset classification prevailing on the date of reference to the CDR Cell to
implementation of the CDR package within four months from the date of approval of the package;
• restricting the regulatory concession in asset classification and provisioning to the first restructuring,
where the package also has to meet norms relating to the turn-around period, minimum sacrifice and
injection of funds by promoters;
• converging in the methodology used by banks and financial institutions for the computation of
economic sacrifice;
• limiting RBI’s role to providing broad guidelines for the CDR mechanism;
• enhancing disclosures in the balance sheet to provide greater transparency;
• requiring the pro-rata sharing of additional finance requirements by both term lenders and working
capital lenders;
• allowing one-time settlement as a part of the CDR mechanism to make the exit option more flexible;
and
• requiring the valuation and regulatory treatment of non-SLR instruments acquired while funding
interest or in lieu of outstanding principal.
Furthermore, on September 8, 2005, a debt restructuring mechanism in line with the CDR mechanism
prevailing in the banking sector was introduced for units in the SME sector.
Enforcement of Security Interests under the SARFAESI Act
To assist banks and financial institutions in recovering their unpaid advances and to ensure financial
discipline among borrowers, the Government enacted the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act (“SARFAESI Act”) in December 2002. The SARFAESI Act provides
the legal framework for (i) the securitisation of financial assets by setting up a Securitisation Company (“SC”)
or Reconstruction Company (“RC”); (ii) the foreclosure of assets through an SC or RC; and (iii) the foreclosure
of NPA accounts.
Pursuant to the SARFAESI Act, a secured creditor may, in respect of loans classified as NPAs, give
notice in writing to the borrower, requiring it to discharge its liabilities within 60 days, failing which, and in the
absence of any satisfactory objections or representations made by the borrower, the secured creditor may take
the following measures to recover the amounts due:
• taking possession of the secured assets of the borrower including the right to transfer by way of lease,
assignment or sale in order to realise the secured assets;
• taking over the management of secured assets, including the right to transfer these assets by way of
lease, assignment or sale in order to realise the secured loans;
• appointing any person to manage the secured assets after taking possession; or
• advising any person who owes money, due to the acquisition of any of the secured assets from the
borrower, to pay the money directly to the banks and institutions.
If required, the secured creditors may request the Chief Metropolitan Magistrate or the District
Magistrate to take possession of part or whole of the secured assets and other related documents and forward the
assets and documents to the secured creditors. The sale proceeds would first be utilized to meet all the expenses
incurred in enforcement of the security interest and then for payment of amounts due to secured creditors. The
remaining amount would be paid to others in accordance with their rights and interests. In case the amounts due
are not fully recovered by the sale of secured assets, then the secured creditors may file an application to the
Debt Recovery Tribunal for the remaining amounts due. The secured creditors are also entitled to proceed
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against the guarantors and sell the pledged assets independent of their action for enforcement of the security
interest.
Pursuant to the SARFAESI Act, the borrower cannot make a reference to the BIFR after the transfer of
financial assets to an SC or a RC. Similarly, any pending reference before the BIFR shall be withdrawn if 75.0%
of the secured creditors (in terms of amount outstanding) have taken any action to recover their amounts due
under the SARFAESI Act.
On April 8, 2004 the Supreme Court pronounced a judgment upholding the constitutional validity of
the SARFAESI Act (with the exception of section 17(2)). The Government has since enacted the Enforcement
of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (the “Amended Act”).
The Amended Act includes:
• a new provision in the Amended Act making it mandatory for the secured creditor to consider any
representation or objection raised by the borrower (on whom notice had been served) and
communicate reasons for rejection of the representation or objection within one week from the date of
receipt of such representation or objection; and
• a new section 13(4)(b) empowering the secured creditor to take over management of the business of
such borrower, which is related to the security of the debt. Where a substantial part of the business of
the borrower is held as security for the debt, the secured creditor is also empowered to take over the
management, including the right to transfer by way of lease, assignment or sale in order to realise the
secured asset. However, the term “substantial part of the business” has not been defined;
• an amendment to the Debt Recovery Tribunal Act, 1993, whereby banks and financial institutions may
withdraw the recovery application filed by them at the Debt Recovery Tribunal (“DRT”) in the event
that they propose to initiate action under the SARFAESI Act; and
• two new provisions enabling the aggrieved borrower to make an application to the DRT against any
action taken under the SARFAESI Act. The application is required to be decided within 60 days.
Further, an appeal can be filed against the order of the DRT before the Debt Recovery Appellate
Tribunal (“DRAT”) after the borrower has deposited 50.0% of the amount of debt (such sum may be
reduced to 25.0% by the DRAT for reasons to be recorded in writing).
On November 29, 2006 the Supreme Court pronounced a judgment on whether withdrawal of an
application from the DRT is a condition precedent to having recourse under the SARFAESI Act as defined.
The following three points were discussed:
• whether the banks or financial institutions that have elected to seek a remedy under the Recovery of
Debts due to Banks and Financial Institutions Act, 1993 (“DRT Act”) can still invoke the SARFAESI
Act in order to realise the secured assets, without withdrawing or abandoning the original application
filed before the DRT pursuant to the DRT Act;
• whether recourse to take possession of the secured assets of the borrower pursuant to section 13(4) of
the SARFAESI Act encompasses the power to take actual possession of the immovable property; and
• whether an ad valorem court fee prescribed under rule 7 of the DRT (Procedure) Rules, 1993, is
payable on an application under section 17(1) of the SARFAESI Act in the absence of any rule framed
under the said Act.
The Supreme Court discussed various provisions of the DRT Act and the SARFAESI Act and observed
that the SARFAESI Act is treated as an additional remedy and is not inconsistent with the DRT Act. Therefore,
the withdrawal of an application pending before the DRT under the DRT Act is not a pre-condition for recourse
under the SARFAESI Act. It is for the banks or the financial institutions to exercise their discretion in
withdrawing cases from the DRT.
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Regulations relating to the Sale of Assets to Asset Reconstruction Companies
The RBI has issued guidelines to banks on the process to be followed for sales of financial assets to
asset reconstruction companies. These guidelines provide that a bank may sell financial assets to an asset
reconstruction company provided that the asset is an NPA. These assets are to be sold on a non-recourse basis
only. A bank may sell a standard asset only if the borrower has a consortium or multiple banking arrangements,
at least 75.0% by value of the total loans to the borrower are classified as non-performing and at least 75.0% by
value of the banks and financial institutions in the consortium or multiple banking arrangements agree to the
sale.
The banks selling financial assets should ensure that there is no known liability devolving on them and
that they do not assume any operational, legal or any other type of risk relating to the financial assets sold.
Further, 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. Whilst each bank is required to make its own
assessment of the value offered in the sale before accepting or rejecting an offer for the purchase of financial
assets by an asset reconstruction company, in consortium or multiple banking arrangements where more than
75.0% by value of the banks or financial institutions accept the offer, the remaining banks or financial
institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash, bond,
debentures or security receipts. Banks may invest in pass-through certificates issued by the asset reconstruction
company or trusts set up by it to acquire the financial assets.
In February 2006, the RBI issued guidelines for the securitisation of standard assets. The guidelines
provide that for a transaction to be treated as a securitisation, a two-stage process must be followed. In the first
stage, the pooling of assets and their transfer to a bankruptcy remote vehicle (“SPV”) should take place and in
the second stage, the repackaging of the security interests representing claims on incoming cash flows from the
pool of assets and their sale to third party investors should be effected. Further, to enable the transferred assets
to be removed from the balance sheet of the seller in a securitisation structure, the isolation of assets or the “true
sale” from the seller or originator to the SPV is an essential prerequisite. In addition, arm’s length relationship
must be maintained between the originator and seller, and the SPV.
The RBI also issued guidelines in July 2005 in relation to the sale or purchase of NPAs by banks,
financial institutions and NBFCs (excluding securitisation companies and reconstruction companies). These
guidelines set out the procedure for the purchase or sale of non-performing financial assets by banks, including
valuation and pricing aspects and prudential norms in the following areas: (a) asset classification, (b)
provisioning, (c) accounting of recoveries, (d) capital adequacy, (e) exposure and (f) disclosure requirements.
On October 4, 2007, RBI issued guidelines on the sale and purchase of NPAs, wherein it imposed on banks the
consideration that while selling NPAs, banks have to account for the net present value of the estimated cash
flows associated with the realisable value of the available securities, net of the cost of realisation. Further, the
sale price should generally not be lower than the net present value. The said principle should be applied to
compromise settlements entered into by the banks.
Certain regulatory norms relating to capital adequacy, valuation, profit and loss on the sale of assets,
income recognition and provisioning for originators and service providers (such as credit enhancers), liquidity
support providers, underwriters and investors, and also relating to the accounting treatment for securitisation
transactions and disclosure norms, have been prescribed. Apart from banks, these guidelines are also applicable
to financial institutions and Non-Banking Financial Companies (“NBFCs”).
Classification of SMEs
The Government passed the Micro, Small & Medium Enterprises Development Act, 2006 in June 2006
to promote lending to SMEs and to create uniformity in the way that banks classify SMEs. Entities are divided
into micro-, small- and medium-sized entities. Micro-sized entities comprise manufacturing companies with
investments in plant and machinery of up to Rs. 2.5 million or service companies with investments in equipment
of up to Rs. 1.0 million. Small-sized entities comprise manufacturing companies with investments in plant and
machinery of over Rs. 2.5 million but less than Rs. 50.0 million and service companies with investments in
equipment of over Rs. 1.0 million but less than Rs. 20.0 million. Medium-sized entities comprise manufacturing
companies with investments in plant and machinery of over Rs. 50.0 million but less than Rs. 100.0 million and
service companies with investments in equipment of over Rs. 20.0 million but less than Rs. 50.0 million.
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Directed Lending
Priority Sector Lending
The RBI requires commercial banks to lend a certain percentage of their net bank credit to specific
sectors (the priority sectors), such as agriculture, small-scale industry, small businesses and housing finance.
Total priority sector advances should be 40.0% of the adjusted net bank credit or the credit-equivalent amount of
off-balance sheet exposure, whichever is higher, with agricultural advances required to be 18.0% of the adjusted
net bank credit or credit-equivalent amount of off-balance sheet exposure, whichever is higher, and advances to
weaker sections required to be 10.0% of the adjusted net bank credit or credit-equivalent amount of off-balance
sheet exposure, whichever is higher, and 1.0% of the previous year’s total advances required to be lent under the
Differential Rate of Interest scheme. Any shortfall in the amount required to be lent to the priority sectors may
be required to be deposited with the National Bank for Agriculture and the Rural Development. These deposits
can be for a period of one year or five years.
Export Credit
The RBI also requires commercial banks to make loans to exporters at concessional rates of interest.
This enables exporters to have access to an internationally competitive financing option. Pursuant to existing
guidelines, export credit is not a part of the priority sector of domestic commercial banks. The Bank provides
export credit for pre-shipment and post-shipment requirements of exporter borrowers in Rupees and foreign
currencies.
Credit Exposure Limits
As a prudent measure aimed at better risk management and the 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 limits set by RBI are as follows:
• exposure ceiling for a single borrower is 15.0% of capital funds. The group exposure limit is 40.0% of
capital funds. In the case of financing for infrastructure projects, the single borrower exposure limit is
extendable by another 5.0%, i.e. up to 20.0% of capital funds, and the group exposure limit is
extendable by another 10.0%, i.e. up to 50.0% of capital funds. Banks may, in exceptional
circumstances and with the approval of their boards of directors, consider enhancement of the
exposure to a borrower up to a maximum of a further 5.0% of capital funds, subject to the borrower
consenting to the banks making appropriate disclosures in their annual reports;
• the capital fund is the total capital, as defined under capital adequacy standards (Tier I and Tier II
capital); and
• exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure
(including underwriting and other similar commitments). Non-fund based exposures are calculated at
100.0% of the limit or outstandings, whichever is higher. In addition, banks include forward contracts
in foreign exchange and other derivative products, such as currency swaps and options, at their
replacement cost value in determining individual or group borrower exposure.
As of fiscal year-end 2007, the Bank was in compliance with the credit exposure limits, taking into
account the following (except in one case for which the Bank has received permission to be in non-compliance):
• all types of funded and non-funded credit limits;
• facilities extended by way of equipment leasing, hire purchase finance and factoring services;
• advances against shares, debentures, bonds and units of mutual funds to stockbrokers and market
makers;
• bank loans to finance promoters’ contributions;
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• bridge loans against equity flows/issues;
• investments in shares, debentures, bonds and units of mutual funds; and
• the financing of initial public offerings.
Credit exposure is the aggregate of:
• all types of funded and non-funded credit limits;
• facilities extended by way of equipment leasing, hire purchase finance and factoring services;
• advances against shares, debentures, bonds and units of mutual funds to stockbrokers and market
makers;
• bank loans to finance promoters’ contributions;
• bridge loans against equity flows/issues; and
• the financing of initial public offerings.
Investment exposure comprises the following elements:
• investments in shares and debentures of companies acquired through direct subscription or

devolvement arising out of underwriting obligations or purchased from secondary markets or on the
conversion of debt into equity;
• investments in public sector undertaking bonds through direct subscription, or devolvement arising out
of underwriting obligations or purchased from secondary markets;
• investments in commercial paper issued by corporate bodies or public sector undertakings; and
• investments in debentures, bonds, security receipts, pass-through certificates issued by securitisation

or reconstruction companies (banks are allowed to exceed prudential exposure on account of such
investments on a case by case basis).
As of fiscal year-end 2007, the Bank is in compliance with the above.
To ensure that exposure is evenly spread, the RBI requires banks to fix internal limits of exposure to
specific sectors. These limits are subject to periodical review by the banks. The Bank has fixed a ceiling of
15.0% of the Bank’s total fund-based exposure to any one industry (other than retail loans) and monitors its
exposure accordingly.
Regulations relating to Investments and Capital Market Exposure Limits
The aggregate exposure of a bank to the capital markets in any year (both fund-based and non-fund-
based) should not exceed 40.0% of its net worth as of March 31 in the previous year. Within this overall ceiling,
the bank’s direct investment in shares, convertible bonds, debentures and units of equity-oriented mutual funds
and all exposures to Venture Capital Funds (“VCFs”) (both registered and unregistered) should not exceed
20.0% of its net worth.
Further, the aggregate exposure of a consolidated bank to capital markets in any year (both fund-based
and non-fund-based) should not exceed 40.0% of its consolidated net worth as of March 31 in the previous year.
Within this overall ceiling, the aggregate direct exposure by way of the consolidated bank’s investment in shares,
convertible bonds, debentures and units of equity oriented mutual funds and all exposures to VCFs (both
registered and unregistered) should not exceed 20.0% of its consolidated net worth.
The above-mentioned ceilings are the maximum permissible and the Bank’s Central Board of Directors
is free to adopt a lower ceiling for its bank, keeping in view its overall risk profile and corporate strategy.
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These guidelines for the rationalisation of norms relating to exposure to capital markets, issued on
December 15, 2006, came into effect on April 1, 2007.
In December 2007, the RBI advised banks to be judicious in extending finance to mutual funds and has
mandated that any loans extended to equity oriented mutual funds will form part of that bank’s capital market
exposure. However, a transition period of 6 months is provided to comply with the above obligations.
In April 1999, the RBI, in its monetary and credit policy, stated that investment by a bank in
subordinated debt instruments, representing Tier II capital issued by other banks and financial institutions,
should not exceed 10.0% of the investing bank’s capital, including Tier II capital and free reserves. Pursuant to
the RBI guidelines of July 2004, the said ceiling of 10.0% became applicable to the Bank’s investments in all
types of instruments, i.e. equity shares, preference shares eligible for capital status, subordinated debt
instruments, hybrid debt capital instruments and any other instrument considered to be in the nature of capital,
which are issued by other banks/FIs and are eligible for capital status for the invested bank/FI. Investments in
the instruments issued by other banks/FIs which are not deducted from the Tier I capital of the investing bank or
financial institution will attract 100.0% risk weight for credit risk for capital adequacy purposes. Further, banks
and financial institutions cannot acquire any fresh stake in a bank’s equity shares, if by such acquisition, the
investing bank’s or financial institution’s holding exceeds 5.0% of the investee bank’s equity capital.
Banks with investments in excess of the prescribed limits were required to apply to the RBI with a
roadmap for reduction of the exposure. In July 2005, the RBI increased the risk weight requirement for credit
risk on capital market exposures to 125.0% with immediate effect. In November 2003, the RBI issued guidelines
on investments by banks in non-Statutory Liquidity Ratio securities issued by companies, banks, financial
institutions, central and state-sponsored institutions and special purpose vehicles. These guidelines apply to
primary market subscriptions and secondary market purchases. Pursuant to these guidelines, banks are
prohibited from investing in non-Statutory Liquidity Ratio securities with an original maturity of less than one
year, other than commercial papers and certificates of deposits. Banks are also prohibited from investing in
unrated securities. A bank’s investment in unlisted non-Statutory Liquidity Ratio securities may not exceed
10.0% of its total investment in non-Statutory Liquidity Ratio securities as of the end of the preceding fiscal
year. However, investments in unlisted non-Statutory Liquidity Ratio securities such as security receipts issued
by securitisation or reconstruction companies registered with the RBI and asset-backed securities and mortgage-
backed securities with a minimum investment grade credit rating shall be permitted up to a limit of 20.0%.
These guidelines were effective as of April 1, 2004, with provision for compliance in a phased manner by
January 1, 2005. Pursuant to an RBI circular in August 2005, banks are allowed to invest their surplus funds in
non-Statutory Liquidity Ratio securities without obtaining prior approval from the RBI on a case-by-case basis,
subject to certain specified conditions.
Consolidated Supervision Guidelines
In fiscal year 2003, the RBI issued guidelines on consolidated accounting and consolidated supervision
in respect of banks. These guidelines became effective as of April 1, 2003. The principal features of these
guidelines are:
Consolidated Financial Statements (“CFSs”). Banks are required to prepare consolidated financial
statements intended for public disclosure. CFSs are prepared quarterly and annually. Quarterly CFSs are subject
to a limited review while annual CFSs are audited.
Consolidated Prudential Returns. Banks are required to submit to the RBI, at half yearly intervals,
consolidated prudential returns reporting their compliance excluding that of insurance subsidiaries, with various
prudential norms on a consolidated basis. Compliance on a consolidated basis is required in respect of the
following main prudential norms:
• single borrower exposure limit of 15.0% of capital funds (20.0% of capital funds provided that the
additional exposure of up to 5.0% is for the purpose of financing infrastructure projects);
• borrower group exposure limit of 40.0% of capital funds (50.0% of capital funds provided that the
additional exposure of up to 10.0% is for the purpose of financing infrastructure projects);
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• deduction from the Tier I capital of the bank of any shortfall in capital adequacy of a subsidiary for
which capital adequacy norms are specified; and
• consolidated capital market exposure limit of 2.0% of consolidated advances and 10.0% of
consolidated net worth.
The Bank is in compliance with these guidelines, except with regard to the single borrower exposure
limit of 15.0% of capital funds for which the Bank has received permission from its Central Board as well as
from the RBI to be in non-compliance. The State Bank Group is also in compliance with these guidelines.
Conglomerate Reporting and Supervision
Since June 2004, the Group has been designated as a financial conglomerate as its operations straddle
more than one financial market segment and it has a significant presence in one segment, i.e. banking. Under the
supervisory framework for financial conglomerates, the Bank is required to report to the regulator on the
following risk areas:
• large intra-group transactions carried out for any purpose;
• the build up of any disproportionate exposure (both fund-based and non-fund-based) of any group
entity to other group entities;
• any group level concentration of exposure to various financial market segments and counterparties
outside the group;
• direct indirect cross-holdings;
• shared directors and senior executives; and
• other significant aspects, such as intra-group advisory and service arrangements.
The Group has adopted appropriate internal controls and risk management systems to manage the
above risks by putting in place appropriate prudential limits and firewalls.
Banks’ Investment Classification and Valuation Norms
The salient features of the guidelines on the categorisation and valuation of banks’ investment portfolio
are given below:
• The entire investment portfolio is required to be classified under three categories: (a) held to maturity,
(b) held for trading and (c) available for sale. Banks should decide the category of investment at the
time of acquisition.
• Held to maturity investments compulsorily include (a) recapitalisation bonds received from the
Government, (b) investments in subsidiaries and joint ventures and (c) investments in bonds and
debentures deemed as advance. Held to maturity investments also include any other investment
identified for inclusion in this category, subject to the condition that such investments cannot exceed
25.0% of the total investment excluding recapitalisation bonds and debentures. In September 2004, the
RBI announced that it would set up an internal group to review the investment classification guidelines
with a view to aligning them with international practices and the current state of risk management
practices in India, taking into account the unique requirement, applicable to banks in India, to maintain
an SLR equal to 25.0% of a bank’s demand and time liabilities. In the meantime, the RBI has
permitted banks to exceed the limit of 25.0% of investments for the held to maturity category provided
that the excess comprises only SLR investments and that the aggregate of such investments in the held
to maturity category does not exceed 25.0% of the demand and time liabilities. During fiscal year 2005,
the RBI permitted banks to transfer additional securities to the held to maturity category as a one-off
measure, in addition to the transfer permitted under the earlier guidelines. The transfer had to be done
at the lower of acquisition cost, book value and market value on the date of transfer.
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• Profit on the sale of investments in the held to maturity category is appropriated to the capital reserve
account after being entered into the profit and loss account. Loss on any sale is recognised in the profit
and loss account.
• The market price of the security available from the stock exchange, the price of securities in subsidiary
general ledger transactions, the RBI price list or prices declared by the Primary Dealers Association of
India (“PDAI”) jointly with the Fixed Income Money Market and Derivatives Association of India
(“FIMMDA”) serves as the “market value” for investments in available for sale and held for trading
securities.
• Investments under the held for trading category should be sold within 90 days; in the event of an
inability to sell due to adverse factors, including tight liquidity, extreme volatility and a unidirectional
movement in the market, the unsold securities should be shifted to the available for sale category, at
acquisition cost/book value/market value on the date of transfer, whichever is the least.
• Profit or loss on the sale of investments in both held for trading and available for sale categories is
entered into the profit and loss account.
• The shifting of investments from or to the held to maturity category may be done with the approval of
the board of directors once a year, normally at the beginning of the accounting year: the shifting of
investments from the available for sale to the held for trading category may be done with the approval
of the board of directors, the Asset Liability Management Committee or the Investment Committee;
Held to maturity securities are not marked to market and are carried at acquisition cost or at an
amortised cost if acquired at a premium over the face value.
Available for sale and held for trading securities are given a market or fair value as of the balance sheet
date. Depreciation or appreciation for each basket within the available for sale and held for trading categories is
aggregated. Net appreciation in each basket, if any, that is not realised, is ignored, whilst net depreciation is
provided for.
Investments in security receipts or pass-through certificates issued by asset reconstruction companies or

trusts set up by asset reconstruction companies should be valued at the lower of the redemption value of the
security receipts or pass-through certificates and the net book value of the financial asset.
Restrictions on Investments in a Single Company
No bank may hold shares in any company exceeding 30.0% of the paid-up share capital of that
company or 30.0% of its own paid-up share capital and reserves, whichever is less. However, a bank may hold
shares in a subsidiary company in accordance with the provisions of the Banking Regulation Act.
Limit on Transactions through Individual Brokers
Guidelines issued by the RBI require banks to empanel brokers for transactions in securities. These
guidelines also require that a disproportionate part of the bank’s business should not be transacted only through
one broker or a few brokers. The RBI specifies that not more than 5.0% of the total transactions through
empanelled brokers can be transacted through a single broker. If for any reason this limit is breached, the RBI
has stipulated that the board of directors of the bank concerned should be informed of such occurrence, with
reasons therefore.
Short-Selling
The RBI does not permit short-selling of securities by banks, except short-selling by the banks to
undertake the outright sale of Central Government dated securities that they do not own, subject to the short
position being covered within a maximum period of five trading days, including the day of trade. In other words,
the short sale position initiated today (trade date, T+0) will have to be covered on or before close of T+4 days.
The Union Budget for fiscal year 2008 has announced delivery-based short-selling by institutions in order to
make capital markets transactions more efficient.
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Regulations relating to Deposits
The RBI has permitted banks to independently determine rates of interest offered on term deposits.
However, banks are not permitted to pay interest on current account deposits. Further, banks may only pay
interest of up to 3.5% per annum on savings deposits. In respect of savings and time deposits accepted from
employees, the Bank is permitted by the RBI to pay additional interest of 1.0% over the interest payable on
deposits from the public.
Domestic time deposits have a minimum maturity of seven days and a maximum maturity of ten years.
Time deposits from non-resident Indians denominated in a foreign currency have a minimum maturity of one
year and a maximum maturity of three years.
Since April 1998, the RBI has permitted banks the flexibility to offer varying rates of interest on
domestic deposits of the same maturity, subject to the following conditions:
• time deposits are of Rs. 1.5 million and above; and
• interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by
the bank and not pursuant to negotiation between the depositor and the bank.
Non-resident external deposit contracts effective as of close of business in India on April 24, 2007 for
one to three years should not exceed LIBOR/ swap rates of the last working day of the previous month for
corresponding U.S. dollar maturities. The interest rates as determined above shall also be applicable if the
maturity period exceeds three years.
Deposit Insurance
Demand and time deposits of up to Rs. 100,000 that are accepted by Indian banks are required to be
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 semi-annual basis. The cost of the insurance premium cannot be passed on to the
customer.
Regulations relating to Know Your Customer and Anti-Money Laundering
The RBI has issued several guidelines relating to the identification of depositors and has advised banks
to put in place systems and procedures to tackle financial fraud, identify money laundering and suspicious
activities, and monitor high value cash transactions. The RBI has also issued guidelines periodically, advising
banks to be vigilant whilst opening accounts for new customers so as to prevent misuse of the banking system
for the perpetration of fraud.
Revised guidelines were issued by the RBI in November 2004 following the recommendations made
by the Financial Action Task Force (“FATF”) and paper on Customer Due Diligence for banks by the Basel
Committee on Banking Supervision. Based on RBI guidelines, the Bank has put in place a Policy on “know
your customer — anti-money laundering measures” with the approval of the Central Board. The detailed
procedural guidelines in this regard have been circulated to all branches of the Bank. They include
comprehensive instructions on customer acceptance, customer identification, risk categorisation, monitoring of
transactions and risk management.
RBI has simplified the know your customer procedure for opening accounts for persons who intend to
keep balances not exceeding Rs. 50,000 in all their accounts taken together, where the total credit in all the
accounts taken together is not expected to exceed Rs. 200,000 in any year in order to ensure that the
implementation of the KYC guidelines do not result in the denial of banking services to those who are
financially or socially disadvantaged.
In addition to keeping customer information confidential, banks must ensure that only information
relevant to the perceived risk is collected and the same is not intrusive in nature. Apart from addressing this
concern, the RBI Guidelines set out in detail the framework to be adopted by banks as regards their customer
dealings. The concerns remain substantially the same and are directed towards the prevention of financial frauds
and money laundering transactions.
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In a bid to prevent money laundering activities, the Government enacted the Prevention of Money
Laundering Act, 2002 (the “PML Act”). The PML Act seeks to prevent money laundering and provides for the
confiscation of property derived from, or involved in, money laundering and for incidental matters connected
therewith. The Central Government has made public the rules under the PML Act on July 1, 2005, via Gazette
Notification. Under these rules, banking companies, financial institutions and intermediaries (together, the
“Institutions”) must maintain a comprehensive record of all their transactions, including the nature and value of
such transactions. Further, the rules require verification of the identities of all their clients and also require that
the Institutions maintain records of their respective clients. These details are to be provided to the appropriate
authority under the PML Act, which is empowered to order confiscation of property where it is of the opinion
that a crime as recognised under the PML Act, has been committed. In addition, the applicable exchange control
regulations prescribe reporting mechanisms for foreign exchange transactions and required authorised dealers to
report suspicious transactions that they identify to RBI.
Legal Reserve Requirements
Cash Reserve Ratio
A banking company such as the Bank is required to maintain a specified percentage of its demand and
time liabilities, excluding inter-bank deposits, by way of cash reserve with itself and by way of balance in
current account with the RBI. Pursuant to section 3 of the Reserve Bank of India (Amendment) Act 2006, the
amendment to sub-section (i) of section 42 of the Reserve Bank of India Act came into force with effect from
April 1, 2007. Accordingly, the statutory minimum and maximum CRR requirement of 3.0% and 15.0% of total
demand and time liabilities no longer exists from April 1, 2007. The RBI may prescribe the CRR for banks
without any floor or ceiling. At the date of this Letter of Offer, the CRR is 7.5% of total demand and time
liabilities.
The following liabilities are excluded from the calculation of the cash reserve ratio:
• inter-bank liabilities;
• credit balances in ACU (U.S. dollar) accounts;
• liabilities of offshore banking units; and
• liabilities on account of transactions in CBLO with the Clearing Corporation of India Ltd.
In view of section 3 of the Reserve Bank of India (Amendment) Act, 2006 with effect from April 1,
2007, the RBI will not pay any interest on the CRR balances maintained by banks for each fortnightly period,
beginning March 31, 2007
The CRR must be maintained on an average basis for a fortnightly period and should not be below
70.0% of the required CRR on any day of the fortnight.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a banking company such as the Bank is required to maintain a
specified percentage of its net demand and time liabilities in liquid assets such as cash, gold or approved
securities. The percentage of this liquidity ratio is periodically fixed by the RBI and can be a maximum of
40.0%. The Banking Regulation (Amendment) Act, 2007, which received the assent of the President on March
26, 2007 and was deemed to have come into force on January 23, 2007, has, inter alia, removed the floor rate of
25.0% for the SLR to be prescribed by the RBI. It has also empowered the RBI to determine SLR-eligible assets,
giving it more flexibility in its monetary management operations. At the date of this Letter of Offer, the RBI
requires banking companies to maintain a liquidity ratio of 25.0%. See also “Industry Overview — Recent
Structural Reforms — Proposed Amendments to the Banking Regulation Act.”
Regulations on Asset Liability Management
At the date of this Letter of Offer, the RBI’s regulations for asset liability management (“ALM”)
require banks to draw up asset-liability gap statements separately for Rupees and for four major foreign
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currencies. These gap statements are prepared by scheduling all assets and liabilities according to the stated and
anticipated re-pricing date or the maturity date. These statements for the domestic assets and liabilities have to
be submitted to the RBI periodically. The RBI has advised banks to actively monitor the difference in the
amount of assets and liabilities maturing or being re-priced in a particular period and place internal prudential
limits on the gaps in each time period, as a risk control mechanism. Additionally, the RBI has asked banks to
manage their asset-liability structure such that the negative liquidity gap in the periods of 1–14 and 15–28 days
does not exceed 20.0% of cash outflows in these same periods. This 20.0% limit on negative gaps was made
mandatory with effect from April 1, 2000. In respect of other time periods, RBI has directed banks to lay down
internal norms for negative liquidity gaps. On October 24, 2007, the RBI made certain amendments to the ALM
framework. These are set out below:
• Banks may split the first time period (referred to above) into three periods, i.e. next day, 2-7 days and
8-14 days;
• The net cumulative negative mismatches during the next day, 2-7 days, 8-14 days and 15-28 days
should not exceed 5%, 10%, 15% and 20%, respectively, of the cumulative cash outflows in the same
periods;
• Further, banks may undertake dynamic liquidity management and should prepare the Statement of
Structural Liquidity on a daily basis. However, the Statement of Structural Liquidity may be reported
to the RBI once a month, for example on the third Wednesday of every month.
These norms will have to be complied with from January 1, 2008. Further, from April 1, 2008,
supervisory reporting of the Structural Liquidity position will take place every fortnight.
Foreign Currency Dealership
The RBI has granted the Bank a full authorised dealers’ license to deal in foreign exchange through its
designated branches. Under this license, the Bank has been granted permission to
• engage in foreign exchange transactions in all currencies;
• open and maintain foreign currency accounts abroad;
• raise foreign currency and Rupee denominated deposits from non-resident Indians;
• grant foreign currency loans to onshore and offshore corporations;
• open documentary credits;
• grant import and export loans;
• handle the collection of bills and funds transfer services;
• issue guarantees; and
• enter into derivative transactions and risk management activities that are incidental to its normal
functions authorised under its organisational documents.
The Bank’s foreign exchange operations are subject to the guidelines specified under the Foreign
Exchange Management Act, 1999. As an authorised dealer, the Bank is required to enrol as a member of the
Foreign Exchange Dealers Association of India, which prescribes the rules relating to foreign exchange
activities in India.
Authorised dealers such as the Bank are required to determine their limits on open positions and
maturity gaps in accordance with the RBI’s guidelines and these limits are approved by the RBI. Further, the
Bank is permitted to hedge the foreign currency loan exposures of Indian corporations in the form of interest
rate swaps, currency swaps and forward rate agreements, subject to certain conditions.
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Statutes Governing 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.
In November 2003, the RBI issued guidelines which stated that no banks will be permitted to raise
external commercial borrowings or provide guarantees in favour of overseas lenders for external commercial
borrowings. The London Branch and Nassau Branch are not affected by these guidelines since Regulation
4(2)(ii) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000
provides that overseas branches of authorised dealers that are banks incorporated or constituted in India
(including the Bank) are permitted to borrow in a foreign currency in the normal course of their banking
business outside India.
Restrictions on External Commercial Borrowings
Under the RBI’s Circular on external commercial borrowings (“ECBs”) dated August 7, 2007,
companies requiring ECBs can utilise: (i) only up to U.S.$ 20 million of ECBs per financial year (per company)
for Rupee expenditure for permitted end-uses with the prior approval of the RBI, subject to the funds remaining
overseas until they are required to be expended in India or (ii) ECBs for foreign currency expenditure for
permitted end-uses without RBI approval, subject to the funds remaining overseas. The maximum amount of
ECBs that companies are permitted to raise is subject to a limit of U.S.$ 500 million per company per financial
year.
Further, pursuant to the RBI Circular dated September 26, 2007, the limit for prepayment of external
commercial borrowing (without prior approval of the Reserve Bank) has been increased from U.S.$ 400 million
to U.S.$ 500 million, subject to compliance with the applicable minimum average maturity period.
Restriction on Transfer of Shares
The Act lays down restrictions on the transfer of the Bank’s shares. The Government cannot transfer
any shares of the Bank if the transfer results in the Government’s overall shareholding falling below 55.0% of
the Bank’s issued capital. Also, under the Act, no shareholder other than the Government can exercise voting
rights in excess of 10.0% of the issued capital of the Bank (unless permitted by the Government after
consultation with the RBI).
Special Provisions of the Banking Regulation Act, 1949
Under sections 35A and 36 of the Banking Regulation Act (which apply to the Bank), the RBI is
empowered to advise generally and give directions to the Bank and prohibit the Bank from entering into any
transactions.
Under section 50 of the Banking Regulation Act (which also applies to the Bank), no person shall have
a right, whether in contract or otherwise, to any compensation for any loss incurred by reason of operation of
certain provisions of the Act, including sections 35A and 36.
Prohibited Business
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.
Reserve Fund
Any bank incorporated in India is required to create a reserve fund to which it must transfer not less
than 20.0% of the profits in each year before dividends. If there is an appropriation from this account, the bank
is required to report the same to the RBI within 21 days, explaining the circumstances leading to such
appropriation. The Government may, on the recommendation of the RBI, exempt a bank from requirements
relating to its reserve fund.
125
Restrictions on Payment of Dividends
As regards the guidelines issued by the RBI pertaining to the payment of dividends, banks have been
given general permission to declare dividends, subject to compliance with the following norms:
• Capital to Risk Asset Ratio (“CRAR”) of at least 9.0% for the preceding two completed years and the
accounting year for which the bank proposes to declare a dividend; and
• net NPA ratio of less than 7.0%.
In the event a bank does not meet the above CRAR norms, but has a CRAR of at least 9.0% for the
accounting year for which it proposes to declare a dividend, it would be eligible to declare a dividend provided
its net NPA ratio is less than 5.0%.
The bank should also satisfy the following conditions:
• the bank should comply with the provisions of sections 15 and 17 of the Banking Regulation Act, 1949;
• the bank should comply with the prevailing regulations/guidelines issued by the RBI in respect of
creating adequate provisions for the impairment of assets and staff retirement benefits, the transfer of
profits to statutory reserves etc;
• the dividend payout ratio should not exceed 40.0%;
• the proposed dividend should be payable out of the current year’s profit;
• the financial statements pertaining to the financial year for which the bank is declaring a dividend
should be free of any qualifications by the statutory auditors which have an adverse bearing on the
profit during that year; and
• the RBI should not have placed any explicit restrictions on the bank as regards the declaration of
dividends.
In the event that a bank fulfils the conditions stated above, it can declare dividends without the consent
of the RBI. If a bank does not comply with the conditions stated above but wishes to declare dividends or a
higher rate of dividend, no exemptions shall be available from the RBI.
Additionally, the Bank should comply with the requirements of the Act prior to declaring any dividend.
In terms of the Act, a dividend can only be declared after making provision for, inter alia, bad and doubtful
debts, depreciation in assets, the equalisation of dividends, and the contribution to staff and superannuation
funds. The rate of dividend shall be determined by the Central Board.
Banks may declare and pay interim dividends out of the relevant accounting period’s profit without the
prior approval of the RBI if they satisfy the minimum criteria above, and the cumulative interim dividend is
within the prudential cap on the dividend payout ratio (40.0%) computed for the relevant accounting period. The
declaration and payment of an interim dividend beyond this limit would require the prior approval of RBI.
Restriction on Share Capital and Voting Rights
Banks can issue only ordinary shares. The Banking Regulation Act specifies that, on a poll of
shareholders, no shareholder in a banking company can exercise voting rights in excess of 10.0% of the total
voting rights of all the shareholders of the banking company. Also, in accordance with the Act, no shareholder
other than the Government can exercise voting rights in excess of 10.0% of the issued capital of the Bank
(unless permitted by the Government after consultation with the RBI).
However, the Act (Amendment) Bill, 2006, proposes to permit the issuance of preference shares in
accordance with the guidelines framed by the RBI.
Regulatory Reporting and Examination Procedures
126
The RBI is empowered under the Banking Regulation Act to inspect banks. 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 aspects such as:
• assets, liabilities and off-balance sheet exposures;
• the risk weighting of these exposures, the capital base and the capital adequacy ratio;
• the unaudited operating results for each quarter;
• asset quality;
• the concentration of exposures;
• connected and related lending and the profile of ownership, control and management; and
• other prudential parameters.
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 Bank is subject to the on-site inspection by the RBI at intervals of at least one year. The
inspection report, along with the report on actions taken by the Bank, must be placed before the board of
directors. On approval by the board of directors, the Bank is required to submit the report on actions taken by it
to the RBI. The RBI also discusses the report with the management team, including the Chairman, the Managing
Director and other senior executives.
The RBI also conducts on-site supervision of selected branches of the Bank with respect to their
general operations and foreign exchange related transactions.
Appointment and Remuneration of the Chairman, Managing Director and Other Directors
The Chairman and Managing Director(s) of the Bank are appointed by the Central Government, in
consultation with the RBI. The salary and allowances of the Chairman and the Managing Director(s) shall be
determined by the Central Government. Four directors are to be elected by the shareholders and nine other
directors are nominated or appointed by the Central Government except one director who shall be nominated by
the RBI. The Directors shall be paid fees and allowances for attending the meetings and for attending to any
other work of the Bank.
Criteria for elected directors on boards of the Associated Banks
In November 2007, the RBI issued guidelines laying down the ‘fit and proper’ criteria for elected
directors on the boards of the Associate Banks. The salient features of these guidelines are set out below:
• the board of directors of the Associate Bank should constitute a nomination committee;
• the nomination committee should undertake due diligence to determine the fit and proper status of
existing elected directors and of persons to be elected as directors;
• before any person is appointed as director, the nomination committee must meet and decide upon his
candidature based inter alia on educational qualification, experience and field of expertise, track record
and integrity;
• the board of directors should ensure that the elected directors sign the deed covenants laid down; and
• elected directors must be a yearly basis provide a declaration that the information submitted by them
has not undergone any change, and in case there is any significant change in such information, the
nomination committee should re-examine the fit and proper status of such director.
Penalties
127
The RBI may impose penalties on banks and its employees in the case of any infringement of
regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the
amount involved in any contravention of the regulations. The penalty may also include imprisonment.
Assets to be Maintained in India
Each bank is required to ensure that its assets in India (including import-export bills drawn in India and
RBI-approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its
demand and time liabilities in India.
Subsidiaries and other Investments
The Bank requires the prior permission of the RBI to incorporate a subsidiary. The Bank is required to
maintain an arm’s length relationship with its subsidiaries. The Bank and its subsidiaries have to observe the
prudential norms stipulated by the RBI from time to time. Pursuant to such prudential norms, the Bank also
requires the prior approval of the RBI to participate in the equity of financial services ventures, including stock
exchanges and depositories, notwithstanding the fact that such investments may be within the ceiling prescribed
under section 19(2) of the Banking Regulation Act. See “— Restrictions on Investments in a Single Company”
above. Further investment by the Bank in a subsidiary, financial services company or financial institution cannot
exceed 10.0% of its paid-up capital and reserves and its aggregate investments in all such companies and
financial institutions put together cannot exceed 20.0% of its paid-up capital and reserves.
Restriction on Creation of Floating Charge
Prior approval of the RBI is required for creating a floating charge on the Bank’s undertaking or its
property. Currently, all the Bank’s borrowings, including bonds, are unsecured.
Maintenance of Records
The Bank is required to maintain books, records and registers. The Banking Regulation Act specifically
requires banks to maintain books and records in a particular manner. The provisions contained in the Act and
SBI General Regulations, the Banking Regulations Act, together with rules and regulations framed there under,
and the Banker’s Books Evidence Act govern the production of documents, preservation of records and
inspection by shareholders.
The KYC guidelines also provide for certain records to be maintained for a minimum period of five
years.
Issue of Bonus Shares
In the absence of any provision in the Act to re-capitalise the reserves, the Bank cannot issue bonus
shares.
Secrecy Obligations
The Bank’s obligations relating to maintaining secrecy arise out of section 44 of the Act and common
law principles governing the Bank’s relationship with its customers. The Bank cannot disclose any information
to third parties except under clearly defined circumstances. The following are the exceptions to this general rule:
• where disclosure is required to be made under any law;
• where there is an obligation to disclose to the public;
• where the Bank needs to disclose information in its interests; and
• where disclosure is made with the express or implied consent of the customer.
The Bank is required to comply with the above in furnishing any information to any parties. The Bank
is also required to disclose information if ordered to do so by a court. The RBI may, in the public interest,
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publish the information obtained from the Bank. Under the provisions of the Banker’s Books Evidence Act, a
copy of any entry in a bankers’ book, such as ledgers, day books, cash books and account books, certified by an
officer of the bank may be treated as prima facie evidence of a corresponding transaction in any legal
proceedings. The Right to Information Act, 2005 gives citizens the right to secure access to information under
the control of public authorities in order to promote transparency and accountability in the working of every
public authority. Banks, such as the Bank, which are ‘Public Authorities’ within the meaning of the Right to
Information Act, 2005 are required to provide any information called for by any citizen, except information
pertaining to commercial confidence, trade secrets or intellectual property, the disclosure of which would harm
the competitive position of a third party, or personal information, the disclosure of which has no relationship to
any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual, and,
on certain other grounds, similar information which would cause a breach of privilege of Parliament or the state
legislature or which would prejudicially affect the sovereignty and integrity of India, its security or relationship
with foreign states or which would lead to an incitement to commit an offence.
Regulations Governing Offshore Banking Units
The Government and the RBI have permitted banks to set up Offshore Banking Units in Special
Economic Zones, which are specially delineated duty free enclaves deemed to be foreign territory for the
purpose of trade operations, duties and tariffs. The key regulations applicable to Offshore Bank Units include,
but are not limited to, the following:
• No separate assigned capital is required. However, the parent bank is required to provide a minimum
of U.S.$ 10 million to its Offshore Banking Unit.
• Offshore Banking Units are exempt from cash reserve ratio requirements.
• The RBI may exempt a bank’s Offshore Banking Unit from SLR requirements on specific application
by the bank for a specified period.
• An Offshore Banking Unit may not enter into any foreign exchange transactions with a resident in
India, unless such a person is eligible to enter into or undertake such transactions under the Foreign
Exchange Management Act, 1999.
• All prudential norms applicable to overseas branches of Indian banks apply to Offshore Banking Units.
• Offshore Banking Units are required to adopt liquidity and interest rate risk management policies
prescribed by the RBI in respect of overseas branches of Indian banks as well as within the overall risk
management and asset and liability management framework of the banks subject to monitoring by the
bank’s board of directors at prescribed intervals.
• The sources for raising foreign currency funds must be external. Funds can also be raised from those
resident sources to the extent such residents are permitted under the existing exchange control
regulations to invest/maintain foreign currency accounts abroad. The deployment of funds is restricted
to lending to units located in the SEZ (including other SEZs) and SEZ developers. Foreign currency
requirements of corporates in the Domestic Tariff Area (“DTA”) can also be met by the Offshore
Banking Units. If funds are lent to corporates in the DTA, the ECB guidelines apply, subject to
Foreign Exchange Management regulations.
• Offshore Banking Units may operate and maintain balance sheets only in foreign currencies, except
for a special Rupee account out of the convertible fund to meet daily expenses.
• The loans and advances of Offshore Banking Units are not counted as net bank credit when computing
priority sector lending obligations.
• A bank cannot borrow from its Offshore Banking Units.
• Offshore Banking Units must follow the Know Your Customer guidelines and must be able to
establish the identities and addresses of the participants in a transaction, the legal capacity of the
participants and the identity of the beneficial owner of the funds.
129
The Bank’s Offshore Banking Units in India are located in Mumbai and Kochi.
Regulations and Guidelines of the Securities and Exchange Board of India
The Securities and Exchange Board of India was established to protect the interests of public investors
in securities and to promote the development of, and regulate, the Indian securities market. The Bank is subject
to the Securities and Exchange Board of India’s regulations as regards its capital issuances, as well as its
underwriting, custodial, depositary participant, investment banking, brokering and debenture trusteeship
activities. These regulations provide for its registration with the Securities and Exchange Board of India for each
of these activities, functions and responsibilities. The Bank has adhered to the regulations and guidelines issued
by SEBI for various activities.
Foreign Ownership Restriction
The existing permissible foreign investment limit in the Bank (for public sector banks) is 20.0%. As of
January 28, 2008, the total foreign holding of the Bank is 19.8%. The limit is inclusive of the global depository
receipt (“GDR”) holdings which stood at 7.8% as on September 30, 2007.
Guidelines for Merger and Amalgamation of Private Sector Banks
The RBI has issued guidelines for the merger and amalgamation of private sector banks. The guidelines
relate to: (i) an amalgamation of two banking companies and (ii) an amalgamation of an NBFC with a banking
company.
In the case of an amalgamation of two banking companies, section 44A of the Banking Regulation Act
requires that a draft scheme of amalgamation be approved by the shareholders of each banking company by
passing a resolution which requires a two-thirds majority. Additionally, the draft scheme must also be submitted
to the RBI for approval.
Where an NBFC is proposed to be amalgamated into a banking company, the banking company should
obtain the approval of the RBI before it is submitted to the relevant high court for approval. Similar provisions
apply in the rare case where a banking company is amalgamated into an NBFC.
In July 2004, the RBI issued a draft policy on ownership and governance in private sector banks. The
key provisions of the policy on the ownership of banks are:
• no single entity or group of related entities is permitted to directly or indirectly hold more than 10.0%
of the equity capital of a private sector bank and any higher level of acquisition would require the
RBI’s prior approval;
• banks with shareholders with holdings in excess of the prescribed limit have to indicate a plan for
compliance;
• in respect of corporate shareholders, the objective is to ensure that no entity or group of related entities
has a shareholding in excess of 10.0%. In the case of shareholders that are financial entities, the
objective is to ensure that it is in good standing, publicly listed and well regulated; and
• banks are responsible in any ongoing basis for the “fit and proper” criteria applicable to shareholders.
Special Status of Banks in India
The special status of banks is recognised under various statutes including the Sick Industrial
Companies Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the
Securitisation Act. As a bank, under various statutes the Bank is entitled to certain benefits, including the
following:
• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides for the
establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to
any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions.
130
Under this Act, the procedures for recoveries of debt have been simplified and time frames have been
fixed for the speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or
other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher
courts in India in certain circumstances.
• The Sick Industrial Companies Act, 1985, provides for the reference of sick industrial companies to the
Board for Industrial and Financial Reconstruction. Under the Act, other than the Board of Directors of
a company, a scheduled bank (where it has an interest in the sick industrial company owing to any
financial assistance or obligation rendered or undertaken by it) may refer the company to the BIFR.
The Sick Industrial Companies Act, 1985 has been repealed by the Sick Industrial Companies (Special
Provisions) Repeal Act, 2004, subject to which the provisions of Companies Act will apply in relation
to sick companies.
• The Securitisation Act focuses on improving the rights of banks, financial institutions and other
specified secured creditors, as well as asset reconstruction companies, by providing that such secured
creditors can take over management control of a borrower company upon default and/or sell assets
without the intervention of the courts, in accordance with the provisions of the Securitisation Act.
Regulations Governing Insurance Companies
Subsidiaries offering life insurance and non-life insurance are subject to the provisions of the Insurance
Act, 1938 and the various regulations prescribed by the Insurance Regulatory and Development Authority.
These regulations regulate and govern, among other things, registration as an insurance company, investment,
the licensing of insurance agents, advertising, the sale and distribution of insurance products and services, and
the protection of policyholders’ interests. In May 2002, the Indian Parliament approved the Insurance
(Amendment) Act 2002, which facilitates the appointment of corporate agents by insurance companies and
prohibits intermediaries and brokers from operating as surrogate insurance agents.
Income Tax Benefits
As a banking company, the Bank is entitled to certain tax benefits under the Indian Income Tax Act,
including the following:
• In respect of the provision made by it for bad and doubtful debts, the Bank is entitled to a tax
deduction equal to 7.5% of the Bank’s total business income, computed before making any deductions
prescribed under section 36(1)(viia) of the Income Tax Act, 1961, and of up to 10.0% of the aggregate
average advances made by its rural branches computed in the manner prescribed. The Bank has the
option of claiming a deduction of up to 5% in respect of the provision made by it for any assets
classified pursuant to the RBI’s guidelines as doubtful or loss assets.
• For income tax purposes, the Bank’s deposits and bonds are prescribed modes of investing and
depositing surplus money by charitable and religious trusts.
• The income of non-resident persons and persons not ordinarily resident in India, acquired as interest
on the Bank’s deposits in a foreign currency qualifying under section 10(15)(iv)(fa), is exempt from
tax.
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DIVIDENDS
The declaration and payment of dividends is recommended by the Bank’s Central Board of Directors
and approved by its shareholders. The Bank’s decision to declare a dividend depends on a number of factors
including but not limited to its profits, capital requirements and overall financial condition. The Central Board
may also pay interim dividends from time to time. All dividend payments are made in cash to the shareholders
of the Bank.
Past dividends declared by the Bank have been made pursuant to the guidelines issued by RBI from
time to time. RBI has issued a revised Dividend Policy through their circular DBOD No.
BC.88/21.02.067/2004-05 dated May 4, 2005. The Bank has declared dividends for the years 2006 and 2007 in
accordance with RBI’s revised policy. The Bank’s dividend policy is to declare dividends only at the
conclusion of the fiscal year.
The dividends declared by the Bank during the previous fiscal years ended March 31, 2003, 2004, 2005,
2006 and 2007 are presented in the table below.
March 31, March 31, March 31, March 31, March 31,
2003 2004 2005 2006 2007
Number of 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878
Shares
(Face value of
Rs. 10 each)
Dividend Rate 85% 110% 125% 140% 140%
(%)
Total divided 4,473.6 5,789.3 6,578.7 7,368.2 7,368.2
amount (Rs. in
million)
The amounts paid as dividends in the past are not necessarily indicative of the Bank’s dividend policy
or dividend amounts, if any, in the future.
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MANAGEMENT
The following chart illustrates the management structure of the Bank as of December 31, 2007.
CHAIRMAN
CHAIRMAN
DMD & Corp.Devpt.Officer MD & Chief Credit & Risk Officer

DMD & Corp.Devpt.Officer MD & Chief Credit & Risk Officer
DMD &Chief Fin.Officer DMD (Info. Technology )

DMD &Chief Fin.Officer DMD (Info. Technology )
DMD (Corporate Strategy &

DMD (Corporate Strategy & DMD (Insp & Mgmt Audit)
New Businesses) DMD (Insp & Mgmt Audit)
New Businesses)
Chief Economic Advisor #
Chief Economic Advisor #
GM (Corporate
GM (Corporate Chief Vigilance Officer
Communication & Change) Chief Vigilance Officer
Communication & Change)
DMD & GE DMD & GE DMD & GE

DMD & GE DMD & GE MD & GE DMD & GE DMD & GE DMD & GE
(Global (Rural MD & GE DMD & GE DMD & GE (Associates
(Global (Rural (Comm.Bkg) (National Bkg) (Intl.Bkg) (Associates
Markets) & Agri. Bus) (Comm.Bkg) (National Bkg) (Intl.Bkg) & Subsidiaries)
Markets) & Agri. Bus) & Subsidiaries)
DMD (On special

Personal Bkg
DMD & GE (MC) duty) Whole Sale Bus.Unit
Banking)
Corporate Govt. Bus.
Foreign Offices
Rural Business Accts..Group Unit
Group Project Finance and Subsidiaries
Stressed Asset & Leasing SME Bus.
Mgmt. Group Unit
Local Head CGM Associates Banks

Modules and Subsidiaries
Global and Offices (Circles) SBSU
Domestic Treasury
Reg.Bus.Office Banking
Marketing - Operations
Branches Cross Selling # Position now vacant.
Central Board of Directors
The Central Board of Directors of the Bank is appointed in accordance with Section 19 of the Act. The
Central Board is headed by the Chairman of the Bank. Two Managing Directors are also members of the Central
Board. As of January 30, 2008, in addition to the three whole-time Directors, i.e., the Chairman and two
Managing Directors, there were nine other Directors, on the Central Board, including eminent members of
academia, finance and accounting professions. These included representatives of shareholders and staff of the
Bank, nominees of the Government and the RBI, as well as other directors nominated under Section 19 of the
Act. Brief particulars of the Bank’s Directors are set out below:
Sr. Name, Designation, Address, Nationality Age Other Directorships

No. Occupation and Term
1. Mr. O.P. Bhatt Indian 56 1. SBI Funds Management (Private) Limited

Chairman
2. SBI Factors & Commercial Services
Appointed under Sec 19(a) of
Private Limited
the Act
3. State Bank of Indore
Address: No. 5, Dunedin
J.M. Mehta Road 4. State Bank of Saurashtra
Mumbai - 400 006 5. State Bank of Patiala
133
6. State Bank of Bikaner & Jaipur

Occupation: Banking
7. State Bank of Hyderabad
Term: July 1, 2006 to
8. State Bank of Mysore
March 31, 2011
9. State Bank of Travancore
Date of Birth: March 7, 1951
10. State Bank of India (California)
DIN No. 00548091 11. SBI Life Insurance Company Limited
12. SBI Capital Markets Limited
13. SBICAPS Ventures Limited
14. SBI Discount & Finance House of India
Limited (SBIDFHI)
15. SBI Cards & Payment Services Private
Limited
16. General Insurance Corporation of India
17. Export-Import Bank of India
18. GE Capital Business Process
Management Services Private Limited,
Member
19. Member of the Governing Board and
Chairman of the Finance Committee &
Campus Committee – National Institute of
Bank Management
20. Member of the Governing Board &
Chairman of the Finance Committee and
Committee of Administrators of IBPS
Employees Provident Fund – Institute of
Banking Personnel Selection
21. Confederation of Indian Industry –
National Council
22. Federation of Indian Chamber of
Commerce & Industry – Chairman of the
Banking & Financial Institutions
23. Khadi & Village Industries Commission
24. National Co-operative Development
Corporation - Member
25. High Level Committee on Financial
Sector Reforms
26. Governing Board of Indian Council for
Research on International Economic
Relations
27. Board of Governors of XLRI, Jamshedpur
28. Institute for Development and Research in
Banking Technology
134
2. Mr. T.S. Bhattacharya Indian 59 1. SBI Capital Markets Limited

Managing Director
2. State Bank of India (Canada)
Appointed under Sec 19(b) of
the Act 3. Infrastructure Leasing & Financial
Services Limited (IL & FS)
Address: M-1, Kinellan
Towers 4. PT Bank Indomonex (PBIM), Indonesia
100 A, Napean Sea Road
Mumbai 400 006
Occupation: Banking
Term: February 28, 2005 to

January 31, 2008
Date of Birth: January 24,

1948
DIN No. 00157305

3. Mr. S.K. Bhattacharyya Indian 57 Nil
Managing Director
Appointed under Sec 19(b) of
the Act
Address: M-2, Kinellan

Towers
100 A, Napean Sea Road
Mumbai - 400 006
Occupation: Banking
Term: October 8, 2007 to

October 31, 2010
Date of Birth: October 31,

1950
DIN No. 01924770

4. Mr. Suman Kumar Bery Indian 58 Director General, NCAER
Non-Executive Director,
elected under Section 19(c) of
the Act
Address: N-42, Panchshila

Park, New Delhi - 110 017
Occupation: Economist
Term: with effect from

September 15, 2005; three
years and eligible for re-
election for a further three
years, maximum six years
continuously
Date of Birth: July 18, 1949
135
DIN No. 01943092
5. Dr. Ashok Jhunjhunwala Indian 54 1. Polaris Software Lab Limited

2. Tejas Networks Private Limited
elected under Section 19(c) of
the Act 3. Sasken Communications Technologies
Limited
4. Midas Communication Technologies
Address: Professor, Telecom Private Limited
& Networks (TeNeT) Group
Department of Electrical 5. Bharat Electronics Limited
Engineering 6. National Research Development
Corporation Limited
IIT Madras 7. Vishal Bharath Comnet (Sec.25
Chennai - 600 036 Company)
Occupation: Academician 8. National Internet Exchange of India
Limited. (Sec.25 Company) – Member –
Term: with effect from Governing Council
September 15, 2005; three 9. Institute for Development & Research in
years and eligible for re-
Banking Technology (IDRBT)
election for a further three
years, maximum six years 10 3i Infotech Limited
continuously
11. Tata Teleservices (Maharashtra) Limited
Date of Birth: June 22, 1953 12. Member of the Scientific Advisory to the
Prime Minister (SAC-PM)
DIN No. 00417944
13. Member of the Army Information
Technology Advisory Board, Army
Headquarters, New Delhi
14. Member of the Executive Council of
Jawaharlal Nehru University
15. Member of the Governing Council of the
Institute of Financial Management and
Research, Chennai
16. Member of the Board, I-Tech
(International Training and Education
Centre on HIV), Chennai
6. Mr. Ananta C. Kalita Indian 59 Nil

Employee Representative
Director, appointed under
Section 19(ca) of the Act
Address: Head Assistant, State

Bank of India Zonal Office
Bhangagarh
Guwahati 781 - 005
Occupation: SBI Employee,
Term: with effect from July
136
15, 2003; three years or until a
successor is appointed and
eligible for re-appointment;
maximum tenure of six years
continuously
Date of Birth: June 1, 1948
DIN No. 00609564

7. Mr. Amar Pal Indian 59 Nil
Employee Representative
Director, appointed under
Section 19(cb) of the Act
Address: Deputy Manager,

Official Languages
Department, State Bank of
India, Local Head Office,
Chandigarh.
President, All India State
Bank of India Officers’
Federation
House No.354
Sector 37-A
Chandigarh – 160 037
Occupation: SBI Employee
Term: August 19, 2005 to

March 31, 2008
Date of Birth: April 1, 1948
DIN No. 01944128

8. Mr. Piyush Goyal Indian 43 1. Flashnet Infosolutions (I) Limited
Non-Executive Director, 2. Thane Belapur Industries Association
nominated under Section Infrastructure Development Centre
19(d) of the Act
3. S.V. Shah Construction Services Private
Limited
Address: 28, Sonmarg, 14th
Floor 4. Flash Agro Farms Private Limited
Napean Sea Road, Opposite
J.B. Petit Hall 5. Intercon Advisers Private Limited
Mumbai - 400 006 6. Managing Committee, Indian Merchants
Chamber
Occupation: Chartered
Accountant/Industrialist

January 23, 2004; three years
or until a successor is
nominated and eligible for re-
nomination, maximum tenure
six years continuously
137
DIN No. 00024431
9. Dr. Deva Nand Balodhi Indian 61 Nil

nominated under Section
19(d) of the Act
Address: 669, Military Road,

1st Floor, Anand Parbat
New Delhi - 110 005
Occupation: Working
Journalist

July 9, 2007; three years and
eligible for re-nomination,
maximum tenure six years
continuously
DIN No. 01946041

10. Prof. Mohd. Salahuddin Indian 61 Nil
Ansari
nominated under Section
19(d) of the Act
Address: Principal-in-charge
Madhupur College
Madhupur (District Deoghar)
Jharkhand – 815 353
Occupation: Professor of
Commerce
Term: with effect from July 9,

2007 for three years and
eligible for re-nomination ,
maximum tenure six years
138
continuously
DIN No. To be applied for.
11. Mr. Arun Ramanathan Indian 58 1. Infrastructure Development Finance

GOI Nominee Director, Company Ltd. (IDFC)
appointed under Section 19(e)
2. India Infrastructure Finance Company
of the Act
Limited (IIFCL)
Address: Secretary (Financial 3. Infrastructure Development Bank of India
Services) Department of Ltd.
Financial Services, Ministry
of Finance, 4. Life Insurance Corporation of India
Government of India 5. ICICI Bank.
Parliament Street
New Delhi - 110 001
Occupation: Member of the

Indian Administrative
Services

January 18, 2008 until further
orders
Date of Birth: April 25, 1949
DIN No. (to be applied for)

12. Ms. Shyamala Gopinath Indian 58 1. RBI Central Board - Director
RBI Nominee Director,
2. National Housing Bank - Director
appointed under Section 19(f)
of the Act 3. Export Import Bank of India - Director
Address: Deputy Governor

RBI, Central Office
Mint Road
Mumbai 400 001
Occupation: Central Banker

September 28, 2004 until
further orders
DIN No. To be applied for.
The Central Board meets regularly in accordance with the requirements of the Bank, with a minimum
of six meetings per year. The Central Board meetings were held nine times during fiscal year 2007 and seven
times during the nine-month period ended December 31, 2007.
Brief Biographies of the Directors
139
Mr. O.P. Bhatt (Chairman)
Mr. Bhatt assumed charge as Chairman of the Bank in July 2006. Under his leadership, the Bank has
undertaken technological upgrades. Mr. Bhatt has held several critical positions in retail, corporate and
international banking, including Managing Director of State Bank of Travancore, Chief General Manager of the
Bank’s North-East Circle and the Bank’s Representative in Washington D.C. Mr. Bhatt joined the Bank as a
direct recruit officer in 1972.
Mr. T. S. Bhattacharya (Managing Director)
Mr. Bhattacharya joined the Bank as a direct recruit officer in 1969. Prior to the present assignment as
Managing Director and Group Executive (Corporate Banking), he was the Managing Director of State Bank of
Indore. Mr. Bhattacharya has also headed the retail banking, marketing and product development and
international merchant banking and international correspondent banking departments of the Bank. Mr.
Bhattacharya retires on January 31, 2008.
Mr. S. K. Bhattacharyya (Managing Director)
Mr. Bhattacharyya joined the Bank as a direct recruit officer in 1972. Prior to his present assignment as
Managing Director and Chief Credit and Risk Officer of the Bank, he was the Managing Director of the State
Bank of Bikaner and Jaipur. He has also served as Chief General Manager of the Bank’s Hyderabad Circle and
as Managing Director of SBI International (Mauritius) Limited.
Mr. Suman Kumar Bery
Mr. Suman Kumar Bery is a director elected by the shareholders under section 19(c) of the Act with
effect from September 15, 2005, for three years and, if re-elected, for a further period of three years. Mr. Bery is
a reputed economist and is currently the Director General (CEO) of National Council of Applied Economic
Research (NCAER), New Delhi, having earlier worked with the World Bank and also as Advisor with the RBI.
Dr. Ashok Jhunjhunwala
Dr. Ashok Jhunjhunwala is a Director elected by the shareholders under section 19(c) of the Act, with
effect from September 15, 2005, for three years and if re-elected, for a further period of three years. Mr.
Jhunjhunwala is a Professor of the Department of Electrical Engineering and leads the Telecommunications and
Computer Network Group (TeNeT) at IIT, Madras that is working closely with the industry in the development
of a number of telecom and computer network systems.
Mr. Ananta C. Kalita
Mr. Ananta Chandra Kalita is a Director nominated under section 19(ca) of the Act, representing the
workmen staff, with effect from July 15, 2003, for a period of three years or until he ceases to be a workman
employee of the Bank or until further orders, whichever is earlier. Mr. Kalita shall not hold office continuously
for a period exceeding six years. Mr. Kalita is the Head Assistant, State Bank of India, Zonal Office, Guwahati.
Mr. Amar Pal
Mr. Amar Pal is a Director nominated by the Central Government under section 19(cb) of the Act,
representing the non-workmen staff, with effect from August 19, 2005 until March 31, 2008, which is the date
on which he will attain the age of superannuation, or until he ceases to be an officer of the Bank, whichever is
earlier. Mr. Pal is the Deputy Manager at the Chandigarh Local Head Office of the Bank.
Mr. Piyush Goyal
Mr. Piyush Goyal is a Director nominated by the Central Government under section 19(d) of the Act,
with effect from January 23, 2004, for three years or until the appointment of his successor, whichever is later
(maximum six years). Mr. Goyal is a Chartered Accountant and was previously a Director on the Board of the
Bank of Baroda. Mr. Goyal is also the Chairman & Managing Director of Flashnet Infosolutions (I) Limited.
Dr. Deva Nand Balodhi
140
Dr. Balodhi is a Director nominated by the Central Government under section 19(d) of the Act, with
effect from July 9, 2007, for three years or until the appointment of his successor, whichever is later (maximum
six years). He is a working journalist and his areas of interest include rural economy and agriculture. Mr.
Balodhi was previously a Media Advisor to the Chief Minister, Uttarakhand.
Prof. Mohd. Salahuddin Ansari
Professor Ansari is a Director nominated by the Central Government under section 19(d) of the Act,
with effect from July 9, 2007, for three years or until the appointment of his successor, whichever is later
(maximum six years). Professor Ansari is active in academia and is presently the Principal-in-charge at
Madhupur College, Jharkhand. Professor Ansari has previously held the position of Dean of the Faculty of
Commerce at S.K.M University. Professor Ansari has also been a member of Parliament.
Mr. Arun Ramanathan
Mr. Arun Ramanathan is a Director nominated under section 19(e) of the Act (nominated by the
Government) with effect from January 18, 2008. Mr. Ramanathan is Secretary (Financial Services) for the
Government's Ministry of Finance.
Ms. Shyamala Gopinath
Ms. Shyamala Gopinath is a Director nominated under section 19(f) of the Act (nominated by the RBI),
with effect from September 28, 2004. Ms. Gopinath is the Deputy Governor of the RBI.
Central Management Committee
The Central Management Committee (“CENMAC”) comprises of the Chairman, the Managing
Directors and all Deputy Managing Directors of the Bank. It is headed by the Chairman and is the highest non-
Central Board level policy-making body of the Bank. The CENMAC also deliberates and facilitates the day-to-
day affairs of the Bank. The Bank has a system in place to delegate powers to the various tiers of management.
The Bank believes the Central Board has established a positive functioning relationship with the senior
management of the Bank.
Person Designation
Mr. T.S. Bhattacharya Managing Director & Group Executive (Corporate
Banking)
Mr. S.K. Bhattacharyya Managing Director & Chief Credit & Risk Officer
Mr. Abhijit Datta Deputy Managing Director & Group Executive
(Mid Corporate)
Mr.K. Sitaramam Deputy Managing Director & Group Executive
(National Banking)
Mrs. Bharati Rao Deputy Managing Director & Corporate
Development Officer.
Mr. Deepak Chawla Deputy Managing Director (Corporate Strategy &
New Businesses)
Mr. Anup Banerji Deputy Managing Director & Group Executive
(Rural Business)
Mr. Ashok Mukand Deputy Managing Director & Chief Financial
Officer
Mr. H. G. Contractor Deputy Managing Director & Group Executive
(Wholesale Banking)
Corporate Governance
The Central Board has established the following committees (a) to ensure compliance with the Act and
corporate governance requirements and (b) for operational reasons.
(1) Executive Committee;
141
(2) Audit Committee;
(3) Shareholders’ and Investors’ Grievance Committee;
(4) Risk Management Committee of the Board;
(5) Special Committee of Directors for Monitoring Large Value Frauds;
(6) Customer Service Committee;
(7) Technology Committee; and
(8) Committee of the Board on Rural Sector Business.
Executive Committee of the Central Board
The Executive Committee of the Central Board (“ECCB”) constituted in accordance with the
requirements of section 30 of the Act, comprises the Chairman, the Managing Directors, the Director nominated
under section 19(f) of the Act, and all or any of the other Directors who are normally residents or may, for the
time being, be present at any place within India where ECCB meetings are held. The ECCB meets once every
week.
In accordance with the Act, the ECCB exercises powers delegated by the Central Board and its
functions are subject to the conditions imposed by the Central Board. Further, Regulations 46 and 47 of the
State Bank of India General Regulations, 1955, provide that, subject to the general or special directions of the
Central Board, ECCB may deal with any matter within the competence of the Central Board.
Audit Committee
The Audit Committee (“ACB”) functions under RBI guidelines and complies with the provisions of
Clause 49 of the Listing Agreement to the extent that they do not violate the directives and guidelines issued by
RBI. The ACB was last re-constituted with effect from January 14, 2008. The composition and functions of the
ACB are set out below:
Composition of the ACB
In accordance with RBI guidelines, the ACB has six members, including two full time Directors, two
official Directors (nominees of the Government and the RBI), and three non-official, non-executive Directors,
one of whom is a Chartered Accountant. Meetings of the ACB are chaired by a non-executive Director.
The members of the ACB are:
1. Mr. Piyush Goyal — Director, Chairman (ACB);
2. Mr. S. K. Bery — Director — Member;
3. Dr. Ashok Jhunjhunwala — Director — Member
4. Mr. Arun Ramanathan — GOI Nominee — Member (Ex officio);
5. Ms. Shyamala Gopinath, RBI Nominee — Member (Ex officio);
6. Mr. T.S. Bhattacharya, Managing Director and GE (CB) — Member (Ex officio).
7. Mr. S.K. Bhattacharyya, Managing Director and Chief Credit and Risk Officer — Member (Ex officio).
Functions of the ACB
(a) The ACB provides directions to, and oversees the operation of, the total audit function of the Bank i.e.,
the organisation, realisation and quality control of the internal audit and inspection within the Bank and
follow-up on the statutory and external audit of the Bank and inspection by the RBI.
(b) The ACB reviews the internal inspection and audit functions of the Bank, including the system, its
quality and its effectiveness in terms of follow-up. It reviews the inspection reports of specialised and
extra-large branches and branches with unsatisfactory ratings. It also focuses on the follow-up of:
142
• inter-branch adjustment accounts;
• unreconciled and long outstanding entries in inter-bank accounts and nostro or vostro accounts;
• arrears in the balancing of books at various branches;
• acts of fraud; and
• all other major areas of housekeeping.
(c) The ACB obtains and reviews half-yearly reports of the Compliance Department of the Bank.
(d) The ACB follows up on all the issues raised in the long form audit reports of the statutory auditors. It
also interacts with the external auditors before the finalisation of the annual/semi-annual financial
accounts and reports.
For the year ended March 31, 2007 and the nine months ended December 31, 2007, ten and six
meetings of the ACB, respectively, were held to review various matters connected with internal control, systems
and procedures and other aspects as required in terms of RBI guidelines.
Shareholders’/Investors’ Grievance Committee
Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Shareholder’/Investors’
Grievance Committee (“SIGCB”) of the Board was formed on January 30, 2001, to review shareholders’ and
investors’ complaints regarding transfer of shares, non-receipt of balance sheet, non-receipt of interest on
bonds/declared dividends, etc. The Committee was last reconstituted with effect from September 1, 2007.
Composition of SIGCB
1. Mr Suman Kumar Bery, Shareholder Director, Chairman;
2. Dr. D. N. Balodhi, Director, Member;
3. Managing Director and GE (CB), Member; and
4. Managing Director and Chief Credit and Risk Officer, Member.
The SIGCB held four meetings during the year ended March 31, 2007 and three meetings in the nine-
month period ended December 31, 2007, and reviewed complaints received. During the year ended March 31,
2007 and the nine-month period ended December 31, 2007, 3,699 and 4,802 complaints, respectively, were
received and resolved within the stipulated period excepting those pending in courts and cases where duplicate
shares have to be issued with the approval of the ECCB.
Risk Management Committee of the Board
The Risk Management Committee of the Board (“RMCB”) was constituted with the approval of the
Central Board on March 23, 2004, to oversee the policy and strategy for integrated risk management relating to
credit risk, market risk and operational risk. The Committee was last reconstituted with effect from September 1,
2007.
Composition of the Committee
The Committee has four members:
Managing Director and Chief Credit and Risk Officer, Chairman of Committee;
Managing Director and GE (CB); and
Two non-executive directors — Mr. Suman Kumar Bery and Dr. Ashok Jhunjhunwala.
143
Meetings
The RMCB meets a minimum of four times per year, once in each quarter. The RMCB met four times
during the year ended March 31, 2007 and has met three times in the nine months ended December 31, 2007.
Special Committee of Directors for Monitoring of Large Value Frauds (Rs. 10 million and above)
At its meeting held on March 29, 2004, the ECCB approved the constitution of the Special Committee
of Directors for monitoring of large value frauds (Rs. 10 million and above). The major functions of the
Committee are to monitor and review all cases of fraud of Rs. 10 million and above, with a view to identifying
systemic lacunae, and reasons for delay in detection and reporting; to monitor progress of CBI and police
investigation, recovery position; to ensure that any staff accountability exercise is completed quickly; to review
the efficacy of remedial action taken to prevent recurrence of fraud; and to put in place suitable preventive
measures. The Committee was last reconstituted with effect from September 1, 2007, with the following
members. As of December 31, 2007, the Bank did not detect any fraud which had any significant impact on its
operating results.
1. Managing Director and Chief Credit and Risk Officer, Chairman;
2. Managing Director and Group Executive (CB);
(Both the present MDs became members of the Committee from November 14, 2007)
3. Two Directors from the Audit Committee of the Central Board — Mr. Piyush Goyal and Mr. Suman K.
Bery; and
4. Two other Directors from the Central Board of the Bank — Dr. D. N. Balodhi and Prof. Md.
Salahuddin Ansari.
The Committee met five times during the year ended March 31, 2007 and twice during the nine months
ended December 31, 2007.
Customer Service Committee of the Board
The Customer Service Committee of the Board was constituted on August 26, 2004, to bring about
ongoing improvements in the quality of customer service provided by the Bank. The Committee was last
reconstituted with effect from September 1, 2007.
1. Managing Director and Group Executive (CB), Chairman of the Committee;
2. Managing Director and Chief Credit and Risk Officer;
(Both Managing Directors became members of the Committee from November 14, 2007)
3. Dr. Ashok Jhunjhunwala (Non-Executive Director); and
4. Prof. Md. Salahuddin Ansari (Non-Executive Director).
Three meetings of the Committee were held during the year ended March 31, 2007 and two meetings
were held in the nine months ended December 31, 2007.
Technology Committee of the Board
144
The Technology Committee of the Board was constituted on August 26, 2004, to track the progress of
the Bank’s IT initiatives. It was reconstituted with effect from September 1, 2007, with the following Directors:
1. Dr. Ashok Jhunjhunwala, Chairman;
2. Mr Piyush Goyal (alternate Chairman);
3. Managing Director and Group Executive (CB); and
4. Managing Director and Chief Credit and Risk Officer.
The Committee met nine times during the year ended March 31, 2007 and four times during the nine
months ended December 31, 2007.
Committee of the Board on Rural Sector Business
The Committee of the Board on Rural Sector Business was constituted on October 27, 2005, as part of
the Bank’s special focus on the agricultural sector and was reconstituted with effect from, September 1, 2007,
with the following Directors:
1. Dr. D.N. Balodhi, Chairman; and
2. Prof. Md. Salahuddin Ansari.
(Both Managing Directors were also inducted into the Committee from November 14, 2007)
The Committee met twice during the year ended March 31, 2007 and twice during the nine-months
ended December 31, 2007.
Shareholdings of Directors on the Central Board
Except as set out below, no Director holds any Equity Share of the Bank.
Name Number of Equity Shares (pre- Number of Equity Shares

Issue) (post-Issue)*
Mr. O.P Bhatt 250 300
Mr. T.S. Bhattacharya 53 63
Mr. S.K. Bhattacharyya 119 142
Mr. Suman Kumar Bery 500 600
Dr. Ashok Jhunjhunwala 500 600
Mr. A.C. Kalita 50 60
Mr. Amar Pal 69 82
* The number of Equity Shares for the column entitled Number of Equity Shares (post-Issue) has been calculated assuming full
subscription to rights in this Issue and any fractional entitlements have been ignored.
Compensation for Executives and the Central Board
The salary structure for the Chairman and Managing Directors of the Bank is fixed by the Government.
Dearness allowance is to be paid as equivalent to Group A officials of the Government. The salary and
allowances of Deputy Managing Directors are paid according to the Bank’s Officers’ Service Rules.
With respect to compensation for members of the Central Board, sitting fees are paid as decided by the
Government. As of December 31, 2007, fees payable for Central Board meetings are Rs. 5,000 per meeting and
for other Central Board-level Committees fees are Rs. 2,500 per meeting. The following tables set forth all
compensation paid by the Bank to the directors for the fiscal year ended March 31, 2007.
Terms of Appointment of the Bank’s Chairman is as follows:
Mr. O.P. Bhatt, Chairman
145
Mr. O.P. Bhatt was appointed as a whole-time Director of the Bank with effect from April 26, 2006. He
was later appointed Chairman with effect from July 1, 2006.
A. Remuneration:
Mr. O.P. Bhatt will receive a gross salary of Rs. 0.659 million for the fiscal year 2007-08.
B. Perquisites:
In addition to the salary, Mr. O.P. Bhatt is entitled to certain perquisites.
Terms of appointment of the Bank’s Managing Directors are as follows:
1. Mr. T.S. Bhattacharya, Managing Director

Mr. T.S. Bhattacharya was appointed as a whole-time Director of the Bank with effect from February 28,
2005. Mr. Bhattacharya retires on January 31, 2008.
A. Remuneration:
Mr. T.S. Bhattacharya will receive a salary of Rs. 0.694 million for the fiscal year 2007-08.
B. Perquisites:
In addition to the salary, Mr. T.S. Bhattacharya is entitled to certain perquisites.
2. Mr. S.K. Bhattacharyya, Managing Director
Mr. S.K. Bhattacharyya was appointed as a whole-time Director of the Bank with effect from October 8,
2007.
A. Remuneration:
Mr. S.K. Bhattacharyya will receive a salary of Rs. 0.633 million for the fiscal year 2007-08.
B. Perquisites:
In addition to the salary, Mr. S.K. Bhattacharyya is entitled to certain perquisites.
Changes in the Central Board of Directors during the last three years
Name Section under Date of Appointment Date of Cessation Reason

the Act
2004-05 19 (b) April 1, 2004 ------ Appointed as whole-time

Mr. Ashok K. Kini Director by the GOI
Mr. Chandan 19 (b) December 17, February 1, 2005 Superannuated on January
Bhattacharya 2003 31, 2005
Mr. T.S. Bhattacharya 19 (b) February 28, ------ Appointed as whole-time
2005 Director by the GOI
Mr. Ajay G. Piramal 19 (c) September 1, July 15, 2004 Resigned
2001
Dr. I.G. Patel 19 (c) September 1, July 21, 2004 Resigned
2001
Dr. I.G Patel 19 (c) September 1, ------ Independent Director elected
2004 by shareholders
Mr. Ajay G. Piramal 19 (c) September 1, ------ Independent Director elected
2004 by shareholders
Mr. K.S. Parikh 19 (d) July 17, 2001 July 23, 2004 Resigned
Mr. N.S. Sisodia 19 (e) July 11, 2003 February 1, 2005 Superannuated on January
31, 2005
Mr A.V. Sardesai 19 (f) December 27, September 28, RBI nominated Ms.
2003 2004 Shyamala Gopinath
146
Name Section under Date of Appointment Date of Cessation Reason
the Act
Ms. Shyamala 19 (f) September 28, ------ Nominated by RBI vice Mr.
Gopinath 2004 A.V. Sardesai
2005-06
Mr. K. Ashok Kini 19 (b) April 1, 2004 January 1, 2006 Laid down office on attaining
superannuation on December
31, 2005
Dr. I.G. Patel 19 (c) September 1, July 17, 2005 On account of his sad demise
2004
Mr. Suman Kumar 19 (c) September 10, August 10, 2005 Resigned
Bery 2002
Prof. M.S. 19 (c) August 31, 2005 ------- Independent Director elected
Swaminathan unopposed due to vacancy
caused by Dr. I.G. Patel’s
demise
Mr. P.R. Khanna 19 (c) September 10, September 9, 2005 Completion of term
2002
Mr. Suman Kumar 19 (c) September 15, ------- Independent Director elected
Bery 2005 by shareholders
Dr. Ashok 19 (c) September 15, ------- Independent Director elected
Jhunjhunwala 2005 by shareholders
Mr. Shantha Raju 19 (cb) Originally- May May 20, 2005 Completion of his term on
20, 1999 May 19, 2005
Extension- May
20, 2002
Mr. Amar Pal 19 (cb) August 19, 2005 ------- Non-Workmen Employee
Representative nominated by
the GOI
Mr. Ashok Jha 19 (e) July 14, 2005 ------ GOI nominee Director
2006-07
Mr. A.K. Purwar 19 (a) November 13, June 1, 2006 Laid down office on attaining
2002 superannuation on May 31,
2006
Mr. O.P. Bhatt 19 (a) July 1, 2006 ----- Appointed as Chairman by
the GOI
Mr. O.P. Bhatt 19 (b) April 26, 2006 * Appointed as Appointed as Managing
Chairman with Director (whole-time
effect from July 1, Director) by the GOI
2006
Mr. Yogesh Agarwal 19 (b) October 10, 2006 ------- Appointed as Managing
Director (whole-time
Director) by the GOI
Mr. Ashok Jha 19 (e) July 14, 2005 October 30, 2006 Elevated to post of Finance
Secretary and Mr. Vinod Rai
nominated on the Central
Board in his place
Mr. Vinod Rai 19 (e) October 31, 2006 ------- Secretary (Financial
Sector) — GOI nominee,
vice Mr. Ashok Jha
2007-08 (until
January 20, 2008)
Mr. Yogesh Agarwal 19 (b) October 10, 2006 July 1, 2007 Consequent upon his
appointment as Chairman of
IDBI Ltd.
Mr. S.K. 19 (b) October 8, 2007 ---- Appointed as Managing
Bhattacharyya Director (whole-time
147
Director) by the GOI
Prof. M.S. 19 (c) August 31, 2005 Resignation w.e.f. Prof. Swaminathan resigned
Swaminathan April 11, 2007 from Bank’s Central Board
accepted by consequent upon his
Central Board on nomination to the Rajya
May 12, 2007 Sabha
Mr. Ajay G. Piramal 19(c) September 1, August 31, 2007 On completion of his tenure
2004
Dr. Deva Nand 19 (d) July 9, 2007 ---- Independent Director
Balodhi nominated by the GOI
Prof. Md. Salahuddin 19 (d) July 9, 2007 ---- Independent Director
Ansari nominated by the GOI
Mr. Arun Singh 19 (d) July 25, 2003 July 30, 2007 Consequent upon nomination
of new Director by the GOI
Mr. Rajiv Pandey 19 (d) January 23, 2004 July 30, 2007 Consequent upon nomination
of new Director by the GOI
Mr. Vinod Rai 19 (e) October 31, 2006 Resignation w.e.f. Appointed as CAG and
January 06, 2008, resigned wef January 6 2008
accepted by
Central Board on
January 24, 2008
Mr. Arun 19 (e) January 18, 2008 --- Secretary (Financial
Ramanathan Services) — GOI nominee,
vice Mr. Vinod Rai
Key Managerial Personnel

The details of the Bank’s key managerial personnel as on January 20, 2008 are as follows:
Total
Years of
Experience Gross
(including Date of Salary per
Previous relevant month
joining
Name Age Designation Education Position experience) the Bank (Rs.)
56 Chairman M.A. Managing 35 Years July 1, 55,290.00
Mr O.P. Bhatt
Director 1972
Mr T.S. 59 Managing M.Sc. Managing 38 Years September 53,915.25

Bhattacharya Director Director (SB 8, 1969
Indore)
Mr S.K. 57 Managing B.A.(Hons) Managing 35 Years July 1, 51,165.75

Bhattacharyya Director Director 0972
(SBBJ)
Mr Abhijit Datta 58 Deputy M.A.(Eco) Deputy 35 Years July 4, 55,038.45

Managing Managing 1972
Director & Director and
Group Corporate
Executive Development
(Mid Officer
Corporate)
Mr K. 58 Deputy M.A. Managing 36 Years February 54,901.50

Sitaramam Managing Director 1, 1971
Director & (SBT)
Group
Executive
148
(National
Banking)
Mrs Bharati Rao 59 Deputy M.A. Deputy 35 Years August 7, 54,838.50

Managing (Eco) Managing 1972
Director & Director and
Corporate Chief Credit
Development and Risk
Officer Officer
Mr Deepak 59 Deputy M.A. (Eco) Managing 35 Years July 1, 54,438.60

Chawla Managing Director and 1972
Director CEO, SBI
(Corporate Funds
Strategy & Management
New Pvt Ltd
Businesses)
Mr Anup Banerji 57 Deputy M.A. Chief 34 Years October 54,038.70

Managing (History) General 31, 1973
Director & Manager
Group
Executive
(Rural
Business)
Mr Ashok 58 Deputy B.Sc. Chief 37 Years December 52,572.40

Mukand Managing General 14, 1970
Director Manager
&Chief
Financial
Officer
Mr H.G. 53 Deputy B.A. Chief 33 Years August 52,572.40

Contractor Managing General 14, 1974
Director & Manager
Group
Executive
(Wholesale
Banking)
All the above-mentioned key managerial personnel are permanent employees of the Bank.
Interest of Directors and Key Managerial Personnel
The Non-Executive Directors of the Bank may be deemed to be interested to the extent of fees, payable
to them for attending meetings of the Central Board or a Committee. The Chairman and Managing Directors
may be deemed to be interested to the extent of remuneration paid to them for services rendered by them as
whole-time directors appointed by the Government. All the directors may also be deemed to be interested to the
extent of Equity Shares, if any, already held by them or their dependants and relatives in the Bank, or that may
be subscribed for and allotted to them, out of the present Issue in terms of the Letter of Offer and also to the
extent of any dividend payable to them and other distributions in respect of the said Equity Shares. The
Directors may also be regarded as interested in the Equity Shares, if any, held by or that may be subscribed by
and allotted to the companies, firms or trusts, in which they are interested as directors, members, partners and/or
trustees.
The key managerial personnel of the Bank do not have any interest in the Bank other than to the extent
of the remuneration or benefits to which they are entitled as per their terms of appointment and reimbursement
149
of expenses incurred by them during the ordinary course of business and to the extent of the Equity Shares held
by them or their dependants in the Bank, if any.
Loans toDirectors and key managerial personnel from the Bank as on December 31, 2007.
Except as described below, none of the Bank’s Directors and key management personnel have availed
themselves of personal loans.
House Building Loan Employee Temporary Advance Soft Furnishing loan Total
Amount Amount Amount Amount
Outstanding Interest Outstanding Interest Outstanding Interest Outstanding
Name (Rs. In million) Rate (Rs. Rate (Rs. In million) Rate (Rs. In million)
Mr O.P.Bhatt 0.160 Up to Nil N/A Nil N/A 0.160

0.110 –
5%
Above
0.110 –
10%
Mr S.K. Individual: 0.309 10% Nil N/A Nil N/A 0.309

Bhattacharyya Commercial: 0.359 13.5% 0.359
Mr 0.556 Up to 1.1 Nil N/A Nil 0.556

N/A
K.Sitaramam
lac : 5%
Above 1.1
lac: 11%
Mrs Bharati (i) 0.392 Up to 1.1 Nil N/A Nil 0.392

N/A
Rao lac: 5%
Above 1.1
lac to 5
lac: 10%
(ii) Addl. Housing 0.138

Loan:
12%
0.138
Mr Deepak Nil N/A 0.004 Nil Nil 0.004
N/A
Chawla (Festival Advance)
Mr Anup 0.592 Up to 1.1 Overdraft –0.440 11.0% Nil 1.052

N/A
Banerji lac : 5%
Festival Advance –
Above 1.1
0.020 Nil
lac : 11%
150
House Building Loan Employee Temporary Advance Soft Furnishing loan Total
Amount Amount Amount Amount
Outstanding Interest Outstanding Interest Outstanding Interest Outstanding
Name (Rs. In million) Rate (Rs. Rate (Rs. In million) Rate (Rs. In million)
Mr Ashok 0.047 (Int. amount Nil N/A Nil 0.047

N/A
Mukand on H/L,principal
already repaid)
Except as disclosed below, the Bank has not entered into any contract, agreement or arrangement
during the preceding two years from the date of this Letter of Offer in which the Directors are interested
indirectly and no payments have been made to them in respect of these contracts, agreements or arrangements or
are proposed to be made to them. Except as stated otherwise in this Letter of Offer, the Bank’s Directors and its
key managerial personnel have not taken any loan from the Bank.
Loans to Relatives of Director:
1. Shri Amar Pal (Other than those specifically exempted by RBI i.e. Housing Loan, Car Loan to an
employee of the bank, and loans against specified securities)
Sr. No. Date of Name of Relationship Nature of Amount Rate of

Sanction Borrower with Director Loan Interest
1. March 31, M/s Ductile Auto Brother EPC 7.50 million 10%
2007 Engg. P. Ltd 5 million
EBP
2. March 23, M/s Fitex Brother EPC 60 million 9.75% under
2007 Industries Ltd. EBP 55 million Gold Card
Changes in the Bank’s Key Managerial Personnel during the last three years
2004-05
Name Designation Date of Date of Reasons

joining Leaving
Ms Ritu Anand DMD &CEA 01.10.2004 Appointed as Chief
Economic Advisor
on contract basis
Shri R.K.Sinha DMD (I&MA) 31.10.2004 Retired
Shri S.Santhanakrishnan DMD & CDO 30.11.2004 Retired
Shri Ashwini Kumar Sharma DMD & CFO 06.12.2004 Posted as DMD
Shri Abhijit Datta DMD &CDO 9.12.2004 Posted as DMD
Shri P.K. Mitra DMD (I&MA) 20.12.2004 Posted as DMD
Shri Yogesh Agarwal DMD & CFO 27.12.2004 Appointed as MD of
State Bank of
Patiala
Shri C. Bhattacharya Managing Director & 31.01.2005 Retired
Group Executive (CB)
Shri T.S. Bhattacharya Managing Director & 28.02.2005 Appointed as MD
Group Executive (CB)
Shri B.D. Sumitra DMD & GE (IB) 28.02.2005 Retired
2005-06
151
joining Leaving
Shri K. Ashok Kini Managing Director &GE 31.12.2005 Retired
(NB)
Shri A.G. Kalmankar DMD &GE (IB) 28.02.2006 Retired
Shri R.N. Ramanathan DMD (IT) 28.02.2006 Retired
2006-07

joining leaving
Ms Bharati Rao DMD & GE (IB) 05.04.2006 Posted as DMD
Shri V.K. Gupta DMD & CCO 07.04.2006 Posted as DMD
Shri P.P. Pattanayak DMD (IT) 27.04.2006 Posted as DMD (IT)
Shri O.P. Bhatt Managing Director & GE 26.04.2006 30.06.2006 Appointed as MD
(NB)
Shri A.K. Purwar Chairman 31.05.2006 Retired
Shri P.P. Pattanayak DMD (IT) 27.06.2006 Posted as MD, SBM
Shri O.P. Bhatt Chairman 01.07.2006 Appointed as
Chairman
Shri V.K. Gupta DMD & CCO 11.07.2006 Deputed as MD,
SBIDFHI Ltd.
Shri Y. Vijayanand DMD & GE (A&S) 01.08.2006 Posted as DMD &
GE (A & S)
Shri Deepak Chawla DMD (Corporate Strategy 25.09.2006 Posted as DMD
& New Business)
Shri Anup Banerji DMD & GE (Rural 25.09.2006 Posted as DMD
Business)
Shri Yogesh Agarwal Managing Director & GE 10.10.2006 Appointed as MD
(NB)
Shri Arun Shandilya DMD &CFO 17.10.2006 Posted as DMD &
CFO.
Shri M.M. Lateef DMD ( Global Markets) 01.11.2006 Posted as DMD &
GE (Global
Markets)
Shri S.K. Hariharan DMD & GE (IB) 31.03.2007 Retired
2007-08

joining leaving
Shri Yogesh Agarwal MD &GE(NB) 30.06.2007 Appointed as CMD,
IDBI Bank
Shri K.Sitaramam DMD &GE (NB) 02.07.2007 Posted as DMD & GE
(NB)
Shri S.K. Bhattacharyya MD & CC & RO 08.10.2007 Appointed as Managing
Director
Shri Y. Vijayanand DMD & GE (A&S) 31.08.2007 Retired
Shri M.M. Lateef DMD (Global Markets) 31.08.2007 Retired
Ms Ritu Anand DMD & CEA 30.09.2007 Completion of contract
Shri H.G. Contractor DMD & GE (Wholesale 25.10.2007 Posted as DMD
Banking)
Shri Arun Shandilya DMD & CFO 21.01.2008 Appointed as MD,
SBBJ
Shri Ashok Mukand DMD & CFO 26.11.2007 Posted as DMD
Shri Ashwini Kumar Sharma DMD (IT) 30.11.2007 Retired
Shri P.K.Mitra DMD (I & MA) 31.12.2007 Retired
152
Note: The date of appointment is the date when the relevant person became a key managerial person
Employees Stock Purchase Scheme
The Bank is proposing an employee share purchase scheme (“ESPS”). The Government has, by its
letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to the
Government authorisation, the Bank's Central Board has, at its meeting held on February 1, 2008, approved the
ESPS. The Bank may issue a maximum of 86,17,500 Equity Shares to its Eligible Employees (as defined
therein).
The primary objectives of the scheme are:
a. to provide an incentive to Eligible Employees, to stimulate their efforts towards the continued
success of the Bank, and to contribute to the growth and profitability of the Bank;
b. to provide a means to attract, reward and retain talent at the Bank;
c. to reward Eligible Employees for their continued support and contribution towards the Bank’s
growth; and
d. to encourage equity ownership by Eligible Employees by providing them with the means to
acquire a proprietary interest in the Bank.
The ESPS shall remain open for a period commencing from March 28, 2008 to April 15, 2008. The
issue price is Rs. 1,590 per Equity Share which is equivalent to the price of the Equity Shares issued through
this Issue. The terms and conditions of the ESPS will be in accordance with the provisions of the SEBI
(Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and the issuances
of shares will be done in compliance with the relevant guidelines/regulations/circulars. The ESPS shall be
administered by the Administration Committee (as defined therein) which will include the two Deputy
Managing Directors, as members. The Administration Committee has been authorised to determine inter alia
details of the offer of, and the payment for, the Equity Shares to be issued under the ESPS. The Administration
Committee will frame suitable policies and systems to ensure that there is no violation of the SEBI (Insider
Trading) Regulations, 1992, the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and the SEBI
(Prohibition of Fraudulent and Unfair Trading Practice relating to the Securities Market) Regulations, 1995.
The allotment of Equity Shares issued pursuant to the ESPS will occur subsequent to this Issue.
153
RELATED PARTY TRANSACTIONS
For a detailed description of the Bank’s related party transactions, see “Auditor’s Report” on page [●]
of this Letter of Offer.
154
DESCRIPTION OF CERTAIN DIFFERENCES BETWEEN INDIAN GAAP AND U.S. GAAP
The Financial Statements have been prepared in accordance with the accounting policies followed by
the Bank which conform to Generally Accepted Accounting Principles in India and RBI Guidelines as
applicable to the Bank. The following are significant differences between Indian GAAP and U.S. GAAP limited
to those sign differences that are appropriate to the Bank’s financial statements. However, they should not be
construed as being exhaustive, and no attempt has been made to identify possible future differences between
Indian GAAP and U.S. GAAP as a result of prescribed changes in accounting standards nor to identify future
differences that may affect the Bank’s financial statements as a result of transactions or events that may occur
in the future. In certain respects, the Financial Statements reflect adjustments made in accordance with
applicable statutory requirements and regulatory guidelines and accounting practices in India, which change
from time to time and may have been applied prospectively. As a result, the periods covered by the Financial
Statements and the Bank’s results on a period-by-period basis may not be directly comparable.
Indian GAAP U.S. GAAP

Historical cost convention Historical cost convention
Uses historical cost, but assets maybe written down to Uses historical cost, but assets maybe written down to
reflect an impairment loss, if required. Property, plant and reflect an impairment loss, if required. No revaluations
equipment may be re-valued to fair value. No are allowed except for securities and derivatives, which
comprehensive guidance available for derivatives. are required to be fair valued under specified
circumstances.
Correction of errors Correction of errors
Restatement is not required. The effect of correction is The correction of material errors usually results in the
included in the current year income statement as a prior restatement of relevant prior periods.
period item. The nature and amount of prior period item
should be disclosed separately in the statement of profit
and loss in such a manner that its impact on current year
profits or losses can be perceived.
Changes in accounting policies Changes in accounting policies
The cumulative effect of the change is recognised and Effective from fiscal years beginning after 15 December
disclosed in the income statement in the period in which 2005, changes in accounting policy are accounted for
the change is made except as specified in certain retrospectively. Comparative information is restated, and
standards (transitional provisions) where the change the amount of the adjustment relating to prior periods is
during the transition period resulting from adoption of the adjusted against the opening balance of retained earnings
standard has to be adjusted against opening retained of the earliest year presented. An exemption applies when
earnings and the impact needs to be disclosed. Any it is impracticable to change comparative information.
Change in an accounting policy which has a material Transition provisions are generally specified in new
effect should be disclosed. standards and may be different.
Preparation of consolidated financial statements Preparation of consolidated financial statements
All listed entities as per listing requirements or entities Presentation of consolidated financial statements is
that are in the process of getting their securities listed are mandatory for all enterprises for all periods presented.
required to present consolidated financial statements in
their presentation of annual financial statements.
Consolidated financial statements are however not
mandatory for interim period financial statements.
Business Combinations Business Combinations
Restricts the use of pooling of interest method to Business combinations are accounted for using the
circumstances which meet the criteria listed for an purchase method only (except as discussed below).
amalgamation in the nature of a merger. In all other cases, Several differences can arise in terms of date of
the purchase method is used. combination, calculation of share value to use for
155
purchase price, especially if the Indian GAAP method is
‘amalgamation’ or pooling. For combination of entities
under common control, the accounting is done on
historical cost basis in a manner similar to a pooling of
interests for all periods presented.
Goodwill Goodwill
Goodwill is computed as the excess of the purchase price Goodwill is computed as the excess of the purchase price
over the carrying value of the net assets acquired. over the fair value of the net assets acquired.
Negative Goodwill arising on consolidation (i.e., the Negative Goodwill arising on consolidation (i.e., the
excess of the fair value of net assets acquired over the excess of the fair value of net assets acquired over the
aggregate purchase consideration) aggregate purchase consideration)
Negative goodwill arising on consolidation is computed Negative goodwill after reassessment is allocated to
based on the book value of assets (not the fair value) of reduce proportionately the fair value assigned to non
assets taken over or acquired and is credited to the capital monetary assets. Any negative goodwill remaining is
reserve account, which is a component of shareholders’ recognised as an extraordinary gain.
funds.
Intangible Assets Intangible Assets
Intangible assets are capitalized if specific criteria are met When allocating purchase price of a business
and are amortized over their useful life, generally not combination, companies need to identify and allocate
exceeding 10 years. The recoverable amount of an such purchase price to intangible assets, based on specific
intangible asset that is not ready for use or is being criteria. Intangibles that have an indefinite useful life are
amortized over a period exceeding 10 years should be required to be tested, at least annually, for impairment.
reviewed at least at each financial year end even if there Intangible assets that have finite useful life are required to
is no indication that the asset is impaired. be amortized over their estimated useful lives.
Segment Information Segment Information
Specific requirements govern the format and content of a A Public Company is required to report information about
reportable segment and the basis of identification of a its products and services, the geographical areas in which
reportable segment. Both business and geographical it operates and its major customers. Reportable segments
segments are identified and either of the two is classified are required to be identified based on specified criteria.
as primary segment (with the other one being classified as Segments are identified based on operating segments and
the secondary segment). Segments are identified based on the way the chief operating decision maker evaluates
risks and returns and the internal reporting structure. financial information for purposes of allocating resources
While reporting Segmental information, accounting and assessing performance. Internal financial reporting
policies used for preparing the financial statements of the policies apply (even if accounting policies differ from
enterprise must be used. group accounting policy.)
Property, plant and equipment Property, plant and equipment
Use of historical cost or revalued amounts is permitted. Upward revaluation is not permitted. Downward
Revaluation of an entire class of assets or of a selection of valuations are required when future undiscounted cash
assets is required to be carried out on a systematic basis. flows are less than the carrying value of the asset.
Banks provide depreciation over the asset’s useful life The depreciable amount of an item of property, plant and
subject to rates of depreciation prescribed by the equipment is allocated on a systematic basis over its
Regulator (RBI) in respect of computers. Depreciation on useful life, reflecting the pattern in which the entity
revaluation portion can be recouped out of revaluation consumes the asset’s benefits. Upward revaluation is not
reserve. permitted.
Unrealised gains/losses on investments Unrealised gains/losses on investments
All investments are categorised into “Held to Maturity”, Investments are categorised into ‘Held to Maturity’,
“Available for Sale” and “Held for Trading”. “Held to ‘Available for Sale’ or ‘Trading’ based on management’s
156
Maturity” securities are carried at their acquisition cost or intent and ability. While ‘Trading’ and ‘Available For
at amortised cost if acquired at a premium over the face Sale’ securities are valued at fair value, ‘Held to
value. “Available for Sale” and “Held for Trading” Maturity’ securities are valued at cost, adjusted for
securities are valued periodically as per RBI guidelines. amortisation of premiums and accretion of discount. The
Net depreciation, if any, within each category of unrealised gains and loses on ‘Trading’ securities are
investments is recognised in the profit and loss account. taken to the income statement, while those of ‘Available
The net appreciation if any, under each classification is for Sale’ securities are reported as a separate component
ignored. of stockholders equity, net of applicable taxes, until
realised.
Amortisation of premium/discount on the purchase of Amortisation of premium/discount on the purchase of

investments investments
No amortisation of premium/discount is allowed on Premium/discount is amortised on all categories of

investments except for the premium on investments investments.
categorised as Held to Maturity.
Allowances for credit losses Allowances for credit losses
All credit exposures are classified as per RBI guidelines, Loans are tested for impairment and placed on a non-
into performing and non-performing assets (NPAs). accrual basis (i.e., interest income is not accrued) when
Further, non-performing assets are classified into based on current information and events, management
substandard, doubtful and loss assets for provisioning estimates that the collection of outstanding interest and
based on the criteria stipulated by the RBI. Provisions are principal amounts are doubtful. The impairment of a loan
made in accordance with RBI guidelines. For restructured is measured based on the present value of the loan’s
assets, a provision is made in accordance with the effective interest rate, or at the observable market price of
guidelines issued by the RBI, which require that a the loan, or at the fair value of the collateral if the loan is
provision equal to the present value of the interest collateral dependent. The impairment is recognised if the
sacrifice be made at the time of restructuring. In addition measured value is less than the recorded investment in the
to the specific provisioning made on NPAs the Bank impaired loan.
maintains general provisions to cover potential credit
losses of standard assets in accordance with RBI
guidelines.
Loan origination fees/costs Loan origination fees/costs
Loan origination fees are recognised upfront on their Non-refundable loan origination fees (net of direct loan
becoming due. Loan origination costs are taken to the origination costs) are deferred and recognised as an
profit and loss account in the year in which adjustment to yield over the life of the loan. The
accrued/incurred. adjustment is made using the interest method based on the
contractual terms of the loan.
Derivatives Derivatives
Derivative transactions comprise swaps and options. All derivatives are required to be recognised as assets or
Swaps and options are disclosed as off-balance sheet liabilities on the balance sheet and measured at fair value
exposures. The swaps/options are bifurcated as trading or with changes in fair value being recognised in earnings.
hedge transaction. Trading swaps/options are revalued at Fair values are based on quoted market prices, or absent
the balance sheet date with the resulting unrealised quoted market prices, based on valuation techniques
gain/loss being recognised in the profit and loss account which may take into account available current market and
and is included in other assets or other liabilities. contractual prices of similar instruments as well a time
value underlying the positions.
Hedged swaps/options are accounted for on an accrual If a derivative is a hedge, depending on the nature of the
basis. hedge, the effective portion of the hedge’s change in fair
value is either offset against the change in fair value of
the hedged asset, liability or firm commitment through
income or held in equity until the hedge item is
recognised in income. The ineffective portion of a hedge
is immediately recognised in income.
157
Revenue Recognition Revenue Recognition
Revenue is recognised on accrual basis when there is no Revenue involving the sales of services is recognised
uncertainty of its ultimate collection. Realised gains on when certain criteria’s have been met, including whether
investments under HTM category are recognised in the persuasive evidence of an arrangement exists, delivery
profit and loss account and subsequently appropriated to has occurred or services have been rendered, the sales
capital reserve account in accordance with RBI price is fixed or determinable and, collectability is
guidelines. reasonably assured.
Employee Benefits Employee Benefits
AS 15 (Revised) (mandatory with effect from accounting Obligation for defined benefit plans must be measured
period commencing on or after December 7, 2006) using projected unit credit method.
requires the use of projected unit credit method to
determine benefit obligation. Additional liability arising
upon the first application of the Standard may be either
adjusted against opening reserve or in the alternative
(with effect from October 17, 2007), may be charged as
an expense over a 5 year period.
All actuarial gains and losses have to be recognised

immediately in profit and loss account.
If at the beginning of the year, the actuarial gains or
losses exceed 10% of the greater of the projected benefit
obligation or the market-related value of plan assets, then
such amount is not recognized immediately, but
amortized over the average remaining service period of
active
employees expected to receive benefits under the plan.
The discount rate to be used is determined with reference
to market yields of government securities. The discount rate to be used is determined with reference
to market yields of high quality corporate bonds.
An enterprise should recognise past service cost as an
expense on a straight-line basis over the average period Past service costs are amortized over the service period or
until the benefits become vested. To the extent that the life expectancy of workers.
benefits are already vested immediately following the
introduction of, or changes to, a defined benefit plan, an
enterprise should recognise past service cost immediately.
Taxation Taxation
Income tax comprises the current tax (i.e., amount of tax Income taxes are accounted for as per the provisions of
for the period determined in accordance with the Income SFAS No. 109, Accounting for Income Taxes. SFAS No.
Tax Act, 1961 and the rules framed there under) and the 109 requires recognition of deferred tax assets and
deferred tax charge or credit reflecting the tax effects of liabilities for the expected future tax consequences of
timing differences between accounting income and events that have been included in the consolidated
taxable income for the period. financial statements or tax returns.
The deferred tax charge or credit and the corresponding Under this method, deferred tax assets and liabilities are
deferred tax liabilities or assets are recognised using the determined based on the difference between the financial
tax rates that have been enacted or substantially enacted reporting and tax basis of assets and liabilities, using
by the balance sheet date. Deferred tax assets are enacted tax rates expected to apply to taxable income in
recognised only to the extent there is reasonable certainty the years that the temporary differences are expected to
that the assets can be realised in future. However, where be recovered or settled. The effect on deferred tax assets
there is unabsorbed depreciation or carried forward loss and liabilities of a change in tax rates is recognised in the
under taxation laws, deferred tax assets are recognised statement of income in the period of enactment. Deferred
only if there is virtual certainty of realisation of such tax assets are recognised subject to a valuation allowance
assets. Deferred tax assets are reviewed as of each based upon management’s judgment as to whether
158
balance sheet date and written down or written up to realisation is considered more likely than not that the
reflect the amount that is reasonably/virtually certain to asset will be realised.
be realised.
Employee Stock Option Plan Employee Stock Option Plan
As per the guidance note on Accounting for Employee As per FASB 123R -Accounting for Share Based
Share based payments, effective for all share based grants Payments, employee stock based compensation plans
made after April 1, 2005, employee share based plans are have to be accounted for using the fair value method.
classified into equity settled, cash settled and employee
share based payments plans with alternatives. Any plan
falling into the above categories can be accounted for
adopting fair value method or intrinsic value method as of
the grant date. An enterprise using the intrinsic value
method is required to make fair value disclosures. Listed
entities are also to observe the specific guidance by
market regulator (SEBI).
159
AUDITOR’S REPORT (UNCONSOLIDATED)
The Board of Directors

State Bank of India
Central Office,
State Bank Bhavan,
Madam Cama Road,
Nariman Point,
Mumbai 400 021
Dear Sirs,
1. We have been engaged to examine and report on the financial information of the State Bank of India (the
“Bank”) annexed to this report as approved by the Board of Directors of the Bank, which has been prepared
in terms of the requirements of Paragraph B, Part II of Schedule II to the Companies Act, 1956, (the “Act”)
and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 as
amended to date (“SEBI Guidelines”) issued by Securities and Exchange Board of India Act 1992, to the
extent they are not inconsistent with the Banking Regulation Act, 1949 (the Banking Regulation Act). The
financial information is proposed to be included in the offer document of the Bank in connection with its
proposed rights issue of Equity Shares.
2. The financial information has been prepared by the Bank’s Management from the Bank’s audited financial
statements for the years ended March 31, 2003, 2004, 2005, 2006 and 2007, which were prepared in
accordance with the provisions of the Banking Regulations Act. The preparation and presentation of this
financial information is the responsibility of the Bank’s management.
3. The financial statements of the Bank for the year ended on March 31, 2007 were audited by us, and the
unaudited profit and loss statement of the Bank for the six months’ period ended on September 30, 2007
were subjected to limited review and reported upon by us in accordance with Auditing and Assurance
Standard (AAS) 33 “Engagement to Review Financial Statement” issued by the Institute of Chartered
Accountants of India (ICAI). The audit for the other financial years was conducted by the auditors, as
mentioned herein below, and accordingly reliance has been placed on the financial statements audited by
them for the said years:
Year ended Names of the Auditors

March 31,
2003 B. M. Chatrath & Co.; Vyas & Vyas; S Viswanathan; S P Chopra & Co., G S
Mathur & Co.; R Devendra Kumar & Associates; Venugopal & Chenoy;
Salarpuria Jajodia & Co.; O P Totla & Co.; K S Aiyar & Co.; B D Bansal & Co.;
Nundi & Associates; K P Rao & Co.; Phillipos & Co.
2004 B. M. Chatrath & Co.; Vyas & Vyas; S Viswanathan; S P Chopra & Co., G S
Mathur & Co.; R Devendra Kumar & Associates; Venugopal & Chenoy;
Chaturvedi & Co.; O P Totla & Co.; K S Aiyar & Co.; B D Bansal & Co.; Sarma
& Co.; K P Rao & Co.; Phillipos & Co.
2005 B. M. Chatrath & Co.; Khandelwal Jain & Co.; S Viswanathan; G S Mathur &
Co., Vinay Kumar & Co.; M M Nissim & Co.; Venugopal & Chenoy; Chaturvedi
& Co.; O P Totla & Co.; Patro & Co.; Kanwalia & Co.; Sarma & Co.; K P Rao &
Co.; Phillipos & Co.
2006 B. M. Chatrath & Co.; Khandelwal Jain & Co.; RGN Price & Co.; G S Mathur &
Co., Vinay Kumar & Co.; M M Nissim & Co.; Laxminiwas & Jain; Chaturvedi &
Co.; S K Mittal & Co.; Kanwalia & Co.; M Choudhury & Co.; K P Rao & Co.;
Vardhman & Co.
The aforesaid audited financial statements include figures of the branches, which were audited by branch
auditors who were appointed as per the Guidelines of the Reserve Bank of India (RBI). The financial
statement for the half year ended September 30, 2007 includes figures of the branches reviewed by
concurrent auditors and certified by the branch managers as per the Guidelines of RBI. The unaudited
Balance Sheet of the Bank as on September 30, 2007 and unaudited Cash Flow Statement of the Bank for
the six months’ period ended on September 30, 2007 were subjected to limited review and reported upon by
160
M/s Chaturvedi & Co., one of the auditors of the Bank, in accordance with AAS 33 “Engagement to
Review Financial Statement” issued by the ICAI and we have relied on such financial statements.
4. The financial information for the above periods was examined to the extent practicable, for the purpose of
audit of financial information in accordance with the AAS issued by the ICAI. Those Standards require that
we plan and perform our audit to obtain reasonable assurance, whether the financial information under
examination is free of material misstatement. We have reported on the above statement on the basis of
information and explanations provided by the management, books and records produced to us and such
other tests and procedures, which in our opinion, were necessary for our reporting. These procedures
included comparison of the attached financial information of the Bank with the respective audited/reviewed
financial statements.
5. In accordance with the terms of our engagement with the Bank, we have also examined the following other
financial information set out in the following annexures prepared by the management and approved by the
Board of Directors for the purpose of inclusion in the Letter of Offer:
a) Statement of Cash Flows for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and
half year ended on September 30, 2007 set out in the Annexure 5.
b) Statement of Major Changes in the activities of the Bank during the financial years ended March 31,
2003, 2004, 2005, 2006, 2007 and half year ended on September 30, 2007 set out in the Annexure 6.
c) Statement of Dividend paid by the Bank for the financial years ended March 31, 2003, 2004, 2005,
2006 and 2007 set out in the Annexure 7.
d) Statement of Other Income for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and
half year ended on September 30, 2007 set out in the Annexure 8.
e) Statement of Loans and Borrowings as at September 30 2007 and material terms and conditions
including interest rates and repayment terms set out in the Annexure 9.
f) Statement of Accounting Ratios for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007
and half year ended on September 30, 2007 set out in the Annexure 10.
g) Capitalisation statement as at September 30, 2007 set out in Annexure 11.
h) Statement of Tax Shelter for the financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 set
out in the Annexure 12.
6. We report that:
i. Effects of changes in accounting policies made during the period from April 1, 2002 to September 30,
2007 for complying with the Mandatory Accounting Standard, have not been given in the attached
financial information for the periods prior to such changes in the accounting policies.
ii. RBI has issued/amended various guidelines from time to time on Income Recognition, Asset
Classification, Provisioning in respect of Standard Assets/Non Performing Advances/Other Assets,
Creation and Utilisation of floating provisions, Classification of Investments and valuation thereof,
Treatment of depreciation on investments, Treatment of amortisation of premium on investments and
amortisation of expenditure incurred on Voluntary Retirement Scheme. The Bank has carried out
necessary amendments in its accounting policies in the relevant years to be in conformity with the said
RBI guidelines. The effects of such changes have not been given in the attached financial information
in the period prior to which these changes came into effect.
iii. Effects of material amounts relating to adjustments for the previous years have not been given in the
attached financial information to the periods to which they relate.
iv. Attention is drawn to note A.6.a of Notes to the summarised financial information set out in Annexure 4
to this report regarding non compliance of Accounting Standard 15 “Employee Benefits” (revised
2005) for the reasons stated therein, the impact of which has not been ascertained by the management.
161
As informed by the management of the Bank, it is not practicable for the management to recast/make
adjustments in the financial information to reflect such changes referred to above. The impact of the above
on the financial information for the period covered by this report is not ascertainable.
7. Subject to our comments in Para 6 above, we report that, in our opinion, the attached summarised financial
information (comprising of Statement of Assets and Liabilities in Annexure 1 and Statement of Profit and
Loss Account in Annexure 2) along with the principal accounting policies (Annexure 3), notes to the
summarised financial information (Annexure 4) and other financial information as set out in Annexure 5 to
Annexure 12 respectively to this report, have been prepared in accordance with Para B, Part II of Schedule
II of the Act and SEBI Guidelines. The summarised financial information has been prepared after making
such regroupings as were, in our opinion, considered appropriate. As a result of these regroupings, the
amount reported in the summarised financial information may not necessarily be the same as those
appearing in the audited/reviewed financial statements for the relevant years/period.
8. This report is intended solely for use of the management and for inclusion in the offer document in
connection with the proposed rights’ issue of Equity Shares of the Bank. Our report should not be used,
referred to or distributed for any other purpose without our prior written consent.
9. This report should neither in any way be construed as a re-issuance or redrafting of any of the previous
Audit/Review Reports issued by us or by other firms of Chartered Accountants nor construed as a new
opinion on any financial statements referred to herein.
For M. M. Nissim & Co. For Khandelwal Jain & Co. For R G N Price & Co.
Chartered Accountants Chartered Accountants Chartered Accountants
Sanjay Khemani Pankaj Jain P M VEERAMANI

Partner: M. No. 44577 Partner: M. No. 48850 Partner: M. No. 23933
For S. K. Mittal & Co. For Vinay Kumar & Co. For D. P. Sen & Co.
S. K. Chopra V. K. Agrawal P. L. Sarkar

For Laxminiwas & Jain For Chaturvedi & Co. For Jain Kapila Associates
B. Ramesh Kumar S. C. Chaturvedi D. K. Kapila

For Datta Singla & Co. For M Choudhury & Co. For G. M. Kapadia & Co.
Rajiv Datta D. Choudhury Rajen Ashar

162
For Vardhaman & Co.
V. Baskaran
Partner: M. No. 12202
163
AUDITOR’S REPORT (CONSOLIDATED)
The Board of Directors

State Bank of India
Central Office,
State Bank Bhavan,
Madam Cama Road,
Nariman Point,
Mumbai 400 021
Dear Sirs,
1. We have been engaged to examine and report on the financial information of the State Bank of India
(the “Bank”) and its subsidiaries, associates and joint ventures (the “Group”) annexed to this report as
approved by the Board of Directors of the Bank, which has been prepared in terms of the requirements
of Paragraph B, Part II of Schedule II to the Companies Act, 1956, (the “Act”) and the Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 as amended to date
(“SEBI Guidelines”) issued by Securities and Exchange Board of India Act 1992, to the extent they are
not inconsistent with the Banking Regulation Act, 1949 (the Banking Regulation Act). The financial
information is proposed to be included in the offer document of the Bank in connection with its
proposed rights issue of Equity Shares.
2. The financial information has been prepared by the Bank’s Management from the Group’s audited
financial statements for the years ended March 31, 2003, 2004, 2005, 2006 and 2007, which were
prepared in accordance with the provisions of the Banking Regulations Act. The preparation and
presentation of this financial information is the responsibility of the Bank’s management.
3. The financial statements of the Group for the year ended March 31, 2007 were audited by us, and the
un-audited profit and loss statement of the Group for the six months’ period ended 30th September
2007 were subjected to limited review and reported upon by us in accordance with Auditing and
Assurance Standard (AAS) 33 “Engagement to Review Financial Statement” issued by the Institute of
Chartered Accountants of India (ICAI). The financial statements for the other financial years included
in this report were audited by M/s B. M. Chatrath & Co. and accordingly we have relied on the
financial statements audited by them for those years. The unaudited Balance Sheet of the Group as on
September 30, 2007 and unaudited Cash Flow Statement of the Group for the six months’ period ended
on September 30, 2007 were subjected to limited review and reported upon by M/s Chaturvedi & Co.,
one of the auditors of the Bank, in accordance with AAS 33 “Engagement to Review Financial
Statement” issued by the ICAI and we have relied on such financial statements.
The aforesaid audited financial statements include figures of the Bank which have been audited by Joint
Auditors of the Bank (including us for the year ended March 31, 2005, 2006 and 2007) and audited
financial statements of Bank’s subsidiaries, associates and joint ventures audited by their respective
statutory auditors for the respective years as per the Provisions of Act/Guidelines of Reserve Bank of India
(RBI). The aforesaid reviewed un-audited Profit and Loss statement include reviewed results of the Bank
reviewed by Joint Auditors of the Bank including us, 7 subsidiaries reviewed by their respective auditors,
un-reviewed results of 14 subsidiaries, 7 Joint Ventures, 24 associates and estimated results of 4 Associates
based on their annual results for the year ended March 31, 2007.
4. The financial information for the above periods was examined to the extent practicable, for the purpose
of audit of financial information in accordance with the AAS issued by the ICAI. Those Standards
require that we plan and perform our audit to obtain reasonable assurance, whether the financial
information under examination is free of material misstatement. We have reported on the above
statement on the basis of information and explanations provided by the management, books and records
produced to us and such other tests and procedures, which in our opinion, were necessary for our
reporting. These procedures included comparison of the attached financial information of the Bank
with the respective audited/reviewed financial statements.
164
5. In accordance with the terms of our engagement with the Bank, we have also examined the following
other financial information set out in the following annexures prepared by the management and
approved by the Board of Directors for the purpose of inclusion in the Letter of Offer:
i. Statement of Cash Flows for the financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 set
out in the Annexure C-5.
ii. Statement of Accounting Ratios for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007
and half year ended on September 30, 2007 set out in the Annexure C-6.
6. We report that:
i. Effects of changes in accounting policies made during the period from April 1, 2002 to September 30,
2007 for complying with the Mandatory Accounting Standard, have not been given in the attached
financial information for the periods prior to such changes in the accounting policies.
ii. RBI has issued/amended various guidelines from time to time on Income Recognition, Asset
Classification, Provisioning in respect of Standard Assets/Non Performing Advances/Other Assets,
Creation and Utilisation of floating provisions, Classification of Investments and valuation thereof,
Treatment of depreciation on investments, Treatment of amortisation of premium on investments and
amortisation of expenditure incurred on Voluntary Retirement Scheme. The Group has carried out
necessary amendments in its accounting policies in the relevant years to be in conformity with the said
RBI guidelines. The effects of such changes have not been given in the attached financial information
in the period prior to which these changes came into effect.
iii. Effects of material amounts relating to adjustments for the previous years have not been given in the
attached financial information to the periods to which they relate.
iv. Attention is drawn to note A.6.a of Notes to the summarised financial information set out in Annexure
C-4 to this report regarding non compliance of Accounting Standard 15 “Employee Benefits” (revised
2005) for the reasons stated therein, the impact of which has not been ascertained by the management.
v. The Group has, during the year ended March 31, 2007, recognised diminution in the value of
investments in Regional Rural Banks to the extent of its capital contribution, which hitherto was being
recognised by the Group without restricting to its capital contribution. The effect of the same on the
profits of earlier years has not been recomputed to reflect this change in the accounting policy.
As informed by the management of the Bank, it is not practicable for the management to recast/make
adjustments in the financial information to reflect such changes referred to above. The impact of the above
on the financial information for the period covered by this report is not ascertainable.
7. Subject to our comments in Para 6 above, we report that, in our opinion, the attached summarised
financial information (comprising of Statement of Assets and Liabilities in Annexure C-1 and
Statement of Profit and Loss Account in Annexure C-2) along with the principal accounting policies
(Annexure C-3), notes to the summarised financial information (Annexure C-4) and other financial
information as set out in Annexure C-5 and Annexure C-6 respectively to this report, have been
prepared in accordance with Para B, Part II of Schedule II of the Act and SEBI Guidelines. The
summarised financial information has been prepared after making such regroupings as were, in our
opinion, considered appropriate. As a result of these regroupings, the amount reported in the
summarised financial information may not necessarily be the same as those appearing in the
audited/reviewed financial statements for the relevant years/period.
8. This report is intended solely for use of the management and for inclusion in the offer document in
connection with the proposed rights issue of Equity Shares of the Bank. Our report should not be used,
referred to or distributed for any other purpose without our prior written consent.
9. This report should neither in any way be construed as a re-issuance or redrafting of any of the previous
Audit/Review Reports issued by us or by other firms of Chartered Accountants nor construed as a new
opinion on any financial statements referred to herein.
For M. M. Nissim & Co.
165
Sanjay Khemani
Partner: M. No. 44577
166
FINANCIAL STATEMENTS
NOTE ON REFORMATTING AND REGROUPING
The Bank's financial statements are prepared in accordance with generally accepted accounting
principles in India according to which the financial statements contain figures for two years (current year and
previous year) for the purpose of comparison. The financial statements of the Bank for the years ended March
31, 2003, 2004, 2005, 2006 and 2007 as presented hereunder have been reformatted to contain the figures for
these years.
Because there were changes in the accounting policies during fiscal year 2007, which led to the
regrouping of some fiscal year 2006 financial data, the figures for fiscal year 2006 as extracted from the 2007
annual financial statements relating to the previous year have been regrouped. Further, as there has been a
change in the accounting policies during the half year ended September 30, 2007, which led to regrouping of
some of the data relating to half year ended September 30, 2006, the figures from the income statement for the
half year ended September 30, 2006 are extracted from the 2007 half yearly income statements relating to the
previous year.
Therefore, the data relating to fiscal year 2005 and fiscal year 2006 is not strictly comparable with
those relating to fiscal year 2007 as appearing herein.
The Bank had previously followed a policy of amortising premium in respect of securities in the “Held
to Maturity” ("HTM") category by making an adjustment to the “provision and contingencies” line item in the
Bank's profit and loss account. In accordance with an RBI directive dated April 20, 2007, during fiscal year
2007 the Bank changed the previous policy relating to amortisation of premium in respect of securities held in
the HTM category and charged the amortisation amount as well as marked to market losses on transfer of
securities from Available for Sale ("AFS") category to the HTM category by adjusting the Profit/(Loss) on
revaluation of investments (net) line item. Based on a clarification issued by RBI on July 11, 2007, the Bank is
now required to reflect the amortization of premium in respect of securities held in HTM category by making an
adjustment to the "Interest on Investments" line item in the Bank's profit and loss account. Accordingly, the
Bank has regrouped the amortisation of premium in respect of securities held in HTM category for the period
ended September 30, 2007 to conform with the current guidelines. Other than for the period ended September 30,
2006, the Bank has not made this change with respect to any other financial periods. This change in accounting
policy does not have any impact on the Bank's net profit.
Advances: Provisions for restructured standard assets have been retained as provisions during fiscal
year 2007, instead of netting them off against Advances, as was the case during fiscal year 2006. Also claims
received from Deposit Insurance and Credit Guarantee Corporation and Export Credit Guarantee Corporation
have been netted off against Advances during fiscal year 2007 instead off retaining them as a liability item, as
was the case during fiscal year 2006.
Other liabilities and provisions: The figures in “Other Liabilities and Provisions” have undergone
changes to correspond with the changes under “Advances”. Accordingly, Balance Sheet figures for fiscal year
2006 have also been regrouped.
The Bank's profit and loss account has been changed so as to correlate with the corresponding items in
“Assets” and “Liabilities” in the Balance Sheet for fiscal year 2007. Therefore, the Bank's profit and loss
account has also been regrouped for fiscal year 2006.
The Bank's cash flow statement for fiscal year 2006 has been regrouped to correspond with the revised
presentation of its balance sheet for the same period.
167
NOTE ON THE LIKELY IMPACT OF ACCOUNTING STANDARD 15 (REVISED 2005)
The Bank’s accounting policy on Retirement Benefits complies with the provisions of Accounting
Standard 15 “Accounting for Retirement Benefits in the Financial Statements of Employers” ("AS-15"). AS-15
has been revised and replaced with Accounting Standard 15 “Employee Benefits” (Revised 2005) ("AS-15
Revised"), which will be applicable to the Bank beginning in fiscal year 2008.
Under the previous AS-15, the Bank has made provisions for retirement benefits (gratuity,
superannuation benefits (pension) and leave encashment benefit) on the basis of an annual acturial valuation
done on an aggregate basis. Under AS-15 Revised, however, the amount of employee benefits is determined on
the "Projected Unit Credit" method, which is a method prescribed under the International Accounting Standard
19, and the provisioning for such amount is mandatory. While the impact of AS-15 Revised has not been
quantified, it is estimated that the amount of provision that needs to be set aside by Indian banks under the new
standard would, in general, be higher than such provision determined under the previous standard.
As a result of implementation of AS15-Revised, the actuarial liability of the employees’ benefits is

likely to be increased. AS-15 Revised provides banks with the following two options for making a provision in
its books of accounts:
1. Charge off the entire differential of increased liability (as adjusted by any tax related expense) by debit
to opening reserve and surplus as on April 1, 2007.
2. Charge off 20% of the differential increased liability each year for a period of 5 years by way of a debit
to the profit and loss account in each of the five years.
Any increased funding liability in 2008 will likely decrease in future fiscal years.
The Bank's compliance with AS-15 Revised must take effect from April 1, 2007. AS-15 Revised has
not yet been applied to the Bank's unaudited unconsolidated and consolidated financial results for the six-
months ended September 30, 2007 and nine-months ended December 31, 2007. Had the Bank applied AS-15
Revised, the Bank's financial results for these periods would have differed from what is shown in this Letter of
Offer.
The Bank has not increased its provision for employee benefits for fiscal year 2008 as a result of the
expected increase stemming from implementation of AS-15 Revised. The Bank is currently undergoing an
actuarial valuation exercise to determine which option would be most appropriate. The Bank expects to
complete the actuarial valuation exercise in time to be compliant with the revised standard by March 31, 2008.
168
ANNEXURE 1
SUMMARISED STATEMENT OF ASSETS & LIABILITIES (UNCONSOLIDATED)
(Rs. in Millions)
30-Sep-07
31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 Unaudited
As on Audited Audited Audited Audited Audited Reviewed
A ASSETS
1 CASH AND BALANCES WITH
RESERVE BANK OF INDIA
i Cash in hand (including foreign
currency notes and gold) 11,362.04 12,849.81 14,361.60 20,802.31 25,301.19 23,760.02
ii Balances with Reserve Bank of
India in Current Account 116,022.64 177,563.04 153,741.70 195,724.73 265,463.06 438,257.99
Total 127,384.68 190,412.85 168,103.30 216,527.04 290,764.25 462,018.01
2 BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE
I In India 277,726.49 165,006.66 155,394.57 86,836.35 74,999.73 66,210.81
ii Outside India 46,699.07 80,246.67 69,723.12 142,236.61 153,922.91 61,759.37
Total 324,425.56 245,253.33 225,117.69 229,072.96 228,922.64 127,970.18
3 INVESTMENTS
i Investments in India 1,678,856.08 1,816,843.62 1,924,563.94 1,572,862.05 1,433,363.22 1,746,489.06
ii Investments outside India 44,622.99 39,921.21 46,415.16 52,480.36 58,125.61 55,109.03
Total 1,723,479.07 1,856,764.83 1,970,979.1 1,625,342.41 1,491,488.83 1,801,598.09
4 ADVANCES
i Bills purchased and discounted 124,049.39 148,585.53 214,707.78 248,537.49 307,871.01 328,495.39
ii Cash Credits, overdrafts and loans
repayable on demand 691,167.98 693,285.18 739,152.10 958,567.73 1,254,761.73 1,307,253.87
iii Term Loans 562,367.22 737,464.66 1,069,884.67 1,410,904.14 1,810,732.19 1,950,399.88
Total 1,377,584.59 1,579,335.37 2,023,744.55 2,618,009.36 3,373,364.93 3,586,149.14
5 FIXED ASSETS 23,885.48 26,451.15 26,976.92 27,529.34 28,188.67 31,814.83
6 OTHER ASSETS 182,005.60 179,935.28 183,907.11 223,808.43 252,923.06 341,841.04
TOTAL (A) 3,758,764.98 4,078,152.81 4,598,828.67 4,940,289.54 5,665,652.38 6,351,391.29
B LIABILITIES
1 DEPOSITS
I Demand Deposits
i From Banks 68,261.24 68,999.30 73,279.86 70,135.06 109,748.10 67,280.02
ii From Others 379,462.63 433,909.01 492,843.35 609,821.44 710,231.64 644,146.98
II Savings Bank Deposits 657,827.11 795,958.82 949,071.58 1,127,239.21 1,291,364.96 1,392,656.46
III Term Deposits
i From Banks 55,529.67 63,025.97 63,726.60 51,830.94 46,134.86 45,766.49
ii From Others 1,800,152.18 1,824,293.62 2,091,553.87 1,941,433.90 2,197,731.33 2,720,694.01
Total 2,961,232.83 3,186,186.72 3,670,475.26 3,800,460.55 4,355,210.89 4,870,543.96
2 BORROWINGS
i Borrowings in India 15,718.40 13,653.21 12,420.61 66,423.82 58,197.73 62,510.94
ii Borrowings outside India 77,317.79 120,660.13 179,422.53 239,988.63 338,835.62 386,867.94
Total 93,036.19 134,313.34 191,843.14 306,412.45 397,033.35 449,378.88
3 OTHER LIABILITIES &
PROVISIONS
i Other Liabilities & Provisions 497,838.88 520,707.97 461,140.46 507,117.58 456,115.67 460,364.50
ii Subordinate Debts 34,623.25 34,631.99 34,648.45 49,858.10 144,306.90 229,975.58
Sub Total 532,462.13 555,339.96 495,788.91 556,975.68 600,422.57 690,340.08
TOTAL (B) 3,586,731.15 3,875,840.02 4,358,107.31 4,663,848.68 5,352,666.81 6,010,262.92
C NET ASSETS (C=A-B) 172,033.83 202,312.79 240,721.36 276,440.86 312,985.57 341,128.37
Represented By
D SHARE CAPITAL 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99
169
30-Sep-07
E RESERVES & SURPLUS
I Statutory Reserves 106,794.41 116,050.50 140,871.49 170,209.24 203,790.37 203,790.37
II Capital Reserves 1,125.46 1,148.31 3,028.85 4,181.05 4,181.44 4,181.44
III Share Premium 35,105.73 35,105.73 35,105.73 35,105.73 35,105.73 35,105.73
IV Investment Fluctuation Reserve 22,711.54 43,711.54 52,538.94 - - -
V Foreign Currency Translation
Reserve - - 2,879.64 2,934.00 2,686.04 456.55
VI Revenue and Other Reserves 1,030.33 1,030.33 1,030.33 58,744.46 61,955.61 61,955.61
VII Balance in Profit and Loss Account 3.37 3.39 3.39 3.39 3.39 30,375.68*
TOTAL (E) 166,770.84 197,049.80 235,458.37 271,177.87 307,722.58 335,865.38
F TOTAL (D+E) 172,033.83 202,312.79 240,721.36 276,440.86 312,985.57 341,128.37
CONTINGENT LIABILITIES
I Claims against the bank not

acknowledged as debts 4,506.51 7,637.23 8,321.23 17,048.17 38,089.88 5,738.66
II Liability for partly paid investments 440.50 671.75 551.13 28.00 28.00 1,119.78
III Liability on account of outstanding
forward exchange contracts 523,257.59 587,203.83 917,047.09 1,343,502.87 1,972,853.05 1,886,439.50
IV Guaranteed given on behalf of
constituents 150,195.10 162,069.61 190,755.22 268,869.80 376,211.98 462,585.95
V Acceptances, endorsements and
other obligations 158,676.36 211,191.95 280,167.87 370,254.83 470,506.43 652,216.40
VI Other items for which the banks is
contingently liable 223,982.90 150,147.92 197,130.48 289,110.11 208,210.83 6,802,807.42
Total 1,061,058.96 1,118,922.29 1,593,973.02 2,288,813.78 3,065,900.17 9,810,907.71
Bills for collection 75,712.85 101,938.09 167,773.09 205,929.54 233,675.11 221,340.88
* Without appropriation to Statutory reserves, revenue and other reserves.
170
ANNEXURE 2
SUMMARISED STATEMENT OF PROFIT AND LOSS ACCOUNT (UNCONSOLIDATED)
(Rs in millions)
30-Sep-07
31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07
For the Financial Year/Half Year Unaudited
Ended Audited Audited Audited Audited Audited Reviewed
A INCOME
1 Interest Earned
1.1 Interest/Discount on Advances Bills 112,290.92 112,671.77 130,435.07 176,962.96 248,391.77 163,535.89
1.2 Income on Investments 152,576.37 157,155.15 160,276.66 139,775.28 114,929.92 54,612.97
1.3 Interest on Balances with RBI and
other Inter Bank Funds 32,736.75 24,993.91 17,870.43 21,217.30 27,196.03 8,886.66
1.4 Others 13,266.15 9,784.09 15,697.86 21,840.15 4,392.53 *32.09
Total 310,870.19 304,604.92 324,280.02 359,795.69 394,910.25 227,067.61
2 Other Income
2.1 Commission, exchange and
brokerage 29,773.46 31,207.21 35,446.74 39,961.99 48,045.03 20,525.37
2.2 Profit / (Loss) on sale of
investments (Net) 16,945.94 30,734.54 17,753.00 5,871.71 5,677.81 7,124.73
2.3 Profit / (Loss) on revaluation of
investments (Net) (50.64) (2.05) - - (16,775.14) (7,402.88)
2.4 Profit / (Loss) on sale of land,
buildings and other assets (Net)
including leased assets (2.71) (4.42) (8.26) 19.39 121.27 -
2.5 Profit on exchange transactions
(Net) 4,635.71 5,030.39 5,281.96 10,012.66 3,733.99 1,407.58
2.6 Income by way of dividends from
subsidiaries/companies and or joint
ventures abroad or in India 1,372.21 1,613.12 3,932.35 3,171.83 5,969.68 1,723.19
2.7 Income from Financial Leases 2,206.95 1,724.74 1,392.25 1,177.91 836.34 307.75
2.8 Miscellaneous income 2,521.70 5,821.08 7,401.00 14,136.53 10,083.50 8,119.65
Total 57,402.62 76,124.61 71,199.04 74,352.02 57,692.48 31,805.39
Total Income 368,272.81 380,729.53 395,479.06 434,147.71 452,602.73 258,873.00
B EXPENDITURE
1 Interest Expended
1.1 Interest on deposits 201,741.88 181,229.01 171,864.90 181,321.85 190,835.80 125,469.99
1.2 Interest on Reserve Bank of India/
Inter-bank borrowings 1,953.89 1,609.56 4,086.85 13,215.58 21,415.55 14,411.83
1.3 Others 7,398.84 9,903.19 8,882.01 9,367.04 22,116.86 *7,543.00
Total 211,094.61 192,741.76 184,833.76 203,904.47 234,368.21 147,424.82
2 Operating Expenses
2.1 Payments to and provisions for
employees 56,887.16 64,476.93 69,073.48 81,230.44 79,325.81 40,215.93
2.2 Rent, taxes and lighting 5,647.42 6,417.67 7,231.19 7,963.51 8,965.01 4,474.06
2.3 Printing & Stationery 1,221.74 1,461.33 1,625.07 1,756.39 1,738.73 1,032.60
2.4 Depreciation 4,936.90 6,983.45 7,522.11 7,291.32 6,023.92 3,113.37
2.5 Directors’ fees, allowances and
expenses 6.35 7.36 9.94 12.33 10.78 4.80
2.6 Auditors’ fees and expenses
(including branch auditors’ fees and
expenses) 408.26 465.22 542.47 635.60 622.83 595.31
2.7 Law charges 437.15 486.60 497.74 494.86 573.60 266.56
2.8 Postages, Telegrams, Telephones,
etc. 568.20 815.49 744.27 1,022.48 1,181.69 811.92
2.9 Repairs and maintenance 689.18 976.75 1,339.48 1,702.71 1,891.50 994.71
2.1 Insurance
0 1,514.44 1,688.68 2,399.59 3,407.64 3,552.86 2,024.19
2.11 Other Expenditure 7,107.43 8,673.69 9,756.38 11,733.69 14,348.44 7,167.94
Total 79,424.23 92,453.17 100,741.72 117,250.97 118,235.17 60,701.39
171
30-Sep-07
Total Expenditure 290,518.84 285,194.93 285,575.48 321,155.44 352,603.38 208,126.21
Profit Before Provisions and taxation &
extraordinary items 77,753.97 95,534.60 109,903.58 112,992.27 99,999.35 50,746.79
Less: Extraordinary Items - - - - - -
Profit Before Provisions and taxation 77,753.97 95,534.60 109,903.58 112,992.27 99,999.35 50,746.79
3 Provision & Contingencies:
3.1 Provision for Income Tax (Current
tax) 21,488.80 15,660.57 24,472.21 16,827.08 29,793.14 17,262.30
3.2 Provision for Income Tax (Deferred
tax) 132.60 (2,762.80) (2,306.20) 3,578.94 (198.33) 151.40
3.3 Provision for Fringe Benefit Tax - - - 4,580.00 885.00 510.00
3.4 Provision for other taxes 3.60 (454.16) 4.80 8.80 4.90 -
3.5 Provision for NPAs 25,924.30 36,935.31 12,040.00 1,478.01 14,295.03 4,898.40
3.6 Provision for Standard Assets 2,046.70 491.17 1,150.00 4,051.72 5,891.90 979.80
3.7 Provision for Depreciation on
investments 4,195.60 4,854.77 23,383.64 38,984.97 3,792.20 (3,760.30)
3.8 Provision for Other Assets/
Contingencies (7,087.63) 3,999.74 8,113.95 (583.96) 122.44 332.90
Total 46,703.97 58,724.60 66,858.4 68,925.56 54,586.28 20,374.50
Net Profit for the year 31,050.00 36,810.00 43,045.18 44,066.71 45,413.07 30,372.29
Add/ Less Adjustments - - - - - -
Adjusted Net Profit for the year 31,050.00 36,810.00 43,045.18 44,066.71 45,413.07 30,372.29
Add: Balance of Profit Brought
forward from previous year 3.37 3.37 3.39 3.39 3.39 3.39
Add: Transfer from General
Reserve - - - - 28.86 -
Profit Available for
Appropriation 31,053.37 36,813.37 43,048.57 44,070.10 45,445.32 30,375.68
APPROPRIATIONS
Transfer to Statutory Reserves 9,978.49 9,256.09 24,821.00 29,337.74 33,581.13 -
Transfer to Capital Reserves ,
Investment Fluctuation Reserve and
Revenue and Other Reserves 16,024.74 21,022.85 10,707.94 6,327.40 3,240.40 0.00
Dividend 4,473.59 5,789.29 6,578.74 7,368.18 7,368.18 -
Corporate Tax on Dividend 573.18 741.75 937.50 1,033.39 1,252.22 -
Balance carried to Balance Sheet 3.37 3.39 3.39 3.39 3.39 30,375.68
31,053.37 36,813.37 43,048.57 44,070.10 45,445.32 30,375.68
Break up of Non-Recurring Items Included above:

Income:
Profit on sale of investments - 6,937.00 1,464.00 - - -
Interest on Income tax refund - - 7,452.80 16,384.60 - -
Write back of Depreciation - - - - 174.70 -
Write back of provisions - - - 1,280.00 - -
Write back of provisions towards
securities transactions 8,340.20 - - - - -
Exchange gain on India Millennium
Deposits - - - 5,315.40 - -
Miscellaneous Income –
Unreconciled net credit on inter-
branch accounts - - - 3,166.00 - -
Sub-total (A) 8,340.20 6,937.00 8,916.80 26,146.00 174.70 -
Expenses:
Voluntary Retirement Scheme 3,545.10 3,545.10 3,545.20 722.40 4,783.00 -
Reduction in Provision for
depreciation on investments - - (29,853.40) (868.60) - -
172
30-Sep-07
Payments to and provisions for
employees - - - 3,128.70 - -
Interest on Income Tax - - - - 2,647.60 -
Interest on India Millennium
Deposits - - - (5,635.20) - -
Sub-total (B) 3,545.10 3,545.10 (26,308.20) (2,652.70) 7,430.60 -
Total (A-B) 4,795.10 3,391.90 35,225.00 28,798.70 (7,255.90) -
Tax impact thereon 5,674.38 1,216.84 12,889.71 9,650.56 (1,551.15) -
Net impact on profit (879.28) 2,175.06 22,335.29 19,148.14 (5,704.75) -
* Interest on Swaps netted off.
173
ANNEXURE 3
Principal Accounting Policies for the year ended March 31, 2007
The principal accounting policies of the Bank have been described in brief in the following paragraphs.
The material accounting policies which were followed in the financial years ended on March 31, 2003, 2004,
2005 and 2006 and which have changed in subsequent years have been stated in italics at the appropriate
places.
1. Basis of Preparation
1.1. The accompanying financial statements have been prepared under the historical cost convention. They
conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory
provisions, regulatory/RBI guidelines, accounting standards/ guidance notes issued by the Institute of
Chartered Accountants of India (ICAI), and the practices prevalent in the banking industry in India. In
respect of foreign offices, statutory provisions and practices prevailing in respective countries are
complied with.
1.2. The preparation of financial statements requires the management to make estimates and assumptions
considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the
date of the financial statements and the reported income and expenditure during the reporting period.
Management believes that the estimates used in the preparation of the financial statements are prudent
and reasonable. Future results could differ from these estimates.
2. Advances and Provisions thereon
2.1. Advances are shown net of provisions and unrealised interest on Non-Performing Assets (NPAs).
2.2. A general provision is required to be made on Standard Assets on the global portfolio. The provision
rates for the different categories of Standard Assets are summarised below:
a. Direct advances to agricultural and

SME Sectors 0.25%
b. Residential housing loans beyond

Rs. 20 lakhs 1.00%
c. Personal Loans 2.00%

Loans and advances qualifying as
capital market exposures, Commercial
real estate loans, and Loans and advances
to systemically important NBFCs - Non
Deposit Taking
d. All other loans and advances not

included in (a), (b) and (c) 0.40%
Earlier Policy: During the years 2002-03,2003-04,2004-05, the general provision on standard assets
on the global portfolio was 0.25%. In the year 2005-06, the general provision on standard assets on
the global portfolio was 0.40% except on the advances to small and medium enterprises and direct
agriculture which was at 0.25%.
2.3. Indian Offices
2.3.1. All advances are classified under four categories, viz. (a) Standard Assets, (b) Sub-standard
Assets, (c) Doubtful Assets and (d) Loss Assets.
174
2.3.2. Provisions are made on outstanding non-performing advances (net of interest not realised) as
under :
• Substandard Assets : 10%
From the year ended 2004-05 : 20% (In case of ab initio unsecured
exposures (where realisable value of
security is not more than 10%)
• Doubtful Assets
a) Unsecured portion at 100% after netting retainable/realisable amount of

guarantee cover provided by Export Credit Guarantee Corporation/ Credit
Guarantee Trust for Small Industries, wherever applicable.
b) Secured portion
Period for which the advance has been
considered as doubtful
Up to one year 20%
One to three years 30%
More than three years 100%
• Loss assets 100%
Earlier Policy:
a) In the case of doubtful assets for more than three years as on March 31, 2004, the
percentage of provision on secured portion in the earlier years were 50% in 2002-03
& 2003-04, 60% in 2004-05 and 75% in 2005-06.
b) In the case of advances guaranteed by the state governments the accounting policy
for classification of account and making provisions were as under in the earlier
years:
i) In the year 2005-06, advances guaranteed by State Governments are

classified as ‘sub-standard’ or ‘doubtful’ or ‘loss’, as the case may be, if the
amount due to the bank remains overdue for more than 90 days and attracts
appropriate provisioning as applicable to other advances.
ii) In the year 2004-05, advances guaranteed by State Governments were

classified as “sub-standard”, “doubtful” or “loss”, as the case may be, if
the amount due to the bank remains overdue for more than 180 days and
attracted appropriate provisioning as applicable to other advances.
iii) In the years 2003-04 and 2002-03, advances where State Government
guarantee remain default for more than two quarters as on March 31, 2000
after it is invoked at provision was made at 30% of the secured portion and
100% of the unsecured portion.
c) In the year 2002-03, the advances were considered as non-performing if they remain
overdue or out of order for more than 180 days as against 90 days at present.
• “Financial Assets” sold are recognised as follows:
i) In case the sale is at a price lower than the Net Book Value (NBV), the
difference is charged to the Profit & Loss Account.
ii) In case the sale is at a price higher than the NBV, the surplus provision is
not reversed and is utilised to meet the shortfall on sale of other such non-
performing financial assets.
175
2.3.3. Unrealised Interest recognised in the previous year on advances which have become non-
performing during the current year is provided for.
2.3.4. In case of restructuring/rescheduling of advances, the difference between the present value of
the future interest as per the original agreement and the present value of the future interest as
per the revised agreement is provided for at the time of restructuring/rescheduling.
2.4. Foreign Offices
2.4.1. Advances are classified under four categories in line with those of Indian Offices.
2.4.2. Provisions in respect of non-performing advances are made as per the local law or as per the
norms of RBI, whichever is higher.
3. Investments
3.1. Investments are classified into three categories, viz. ‘Held for Trading’, ‘Available for Sale’ and ‘Held
to Maturity’.
Under each of these categories, investments are further classified under the following six groups :
i) Government Securities
ii) Other Approved Securities
iii) Shares
iv) Debentures and Bonds
v) Investments in Subsidiaries/Joint Ventures and
vi) Other Investments
3.1.1. Investments that are acquired by the Bank with the intention to trade by taking advantage of
short term price/interest rate movement are classified under “Held for Trading”. These
investments are held under this category for 90 days from the date of acquisition.
3.1.2. Investments which are intended to be held up to maturity are classified as ‘Held to Maturity’.
3.1.3. Investments which are not classified in either of the above categories are classified as
‘Available for Sale’.
3.2. Valuation
3.2.1. In determining the acquisition cost of an investment:
(a) Brokerage/commission received on subscriptions is deducted from the cost of

securities.
(b) Brokerage, commission and stamp duty paid in connection with acquisition of
securities are treated as revenue expenses.
(c) Interest accrued unto the date of acquisition of securities i.e. broken-period interest,
is excluded from the acquisition cost and recognised as interest expense. Broken-
period interest received on sale of securities is recognised as interest income.
(d) Cost is determined on the weighted average cost method.
(e) The transfer of a security (from one category to another) is accounted for at the lower
of acquisition cost/book value/market value on the date of transfer and the
176
depreciation, if any, on such transfer is charged to Profit and Loss Account - “Profit
on Revaluation of Investments” as a deduction.
Earlier Policy: In the year 2002-03, the weighted average cost was determined at the end of
year after considering transactions during the year:
3.2.2. Individual scripts classified under ‘Held for Trading’ category are valued at lower of book
value or market value. Securities are valued scrip-wise and depreciation/appreciation is
aggregated for each classification. Net depreciation in each classification, if any, is provided
for while net appreciation is ignored. The book value of the scripts continue to remain
unchanged.
3.3.3. Investments under ‘Held to Maturity’ (HTM) category are carried at acquisition cost.
Wherever the book value is higher than the face value/redemption value, the premium on
acquisition or on transfer from another category is amortised over the remaining period to
maturity of the security using Constant Yield Method (CYM). Amortisation loss is charged to
Profit and Loss Account - “Profit on Revaluation of Investments” as a deduction. The book
value of the security is reduced to the extent of the amount amortised.
Earlier Policy: In the years 2002-03 & 2003-04, the premium amount was amortised
equally over the remaining period of maturity.
3.3.4. Investments under ‘Available for Sale’ category are valued at cost or market value, whichever
is lower. Where market quotations are not available, market value for this purpose is arrived at
on the basis of realisable market price computed as per the guidelines of the Fixed Income
Money Market and Derivatives Association of India (FIMMDA) / Primary Dealers
Association of India (PDAI) / RBI. Securities are valued scrip-wise and
depreciation/appreciation is aggregated for each classification. Net depreciation in each
classification, if any, is provided for while net appreciation is ignored. The book value of the
scripts continues to remain unchanged.
Earlier Policy: In the years 2002-03 & 2003-04, depreciation was recognised scrip-wise
and appreciation ignored.
3.2.5. Treasury Bills and Commercial Papers are valued at cost.
3.2.6. Investments in subsidiaries and joint ventures (both in India and abroad) are valued at
historical cost after netting off provisions, if any.
3.2.7. Non-Performing Investments are recognised as per RBI guidelines and provision is made as
per RBI norms applicable to Non-Performing Advances.
3.2.8. Investments in Regional Rural Banks (“RRBs”) are valued at carrying cost (i.e. book value)
Earlier Policy: In the years 2002-03, 2003-04 and 2004-05 investments in Regional Rural
Banks are accounted for after netting off the provisions held on account of losses incurred by
RRBs up to the previous accounting period restricted to amount of the Bank’s investment up to
that period.
3.3. The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of
Repo and Reverse Repo transactions other than transactions under the Liquidity Adjustment facility
(LAF) with the RBI. Accordingly, the securities sold/purchased under Repo/Reverse Repo are treated
as outright sales/ purchases and accounted for in the Repo/Reverse Repo Accounts and the entries are
reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as
the case may be. Balance in Repo/Reverse Repo Account is adjusted against the balance in the
Investment Account.
Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and
reversed on maturity of the transaction. Interest expended/earned thereon is accounted for as
expenditure/revenue.
177
4. Derivatives
4.1 The Bank presently deals in Interest Rate Derivatives viz. Rupee Interest Rate Swaps, Cross Currency
Interest Rate Swaps and Forward Rate Agreements, and Currency Derivatives viz. Options and
Currency Forwards. The Bank also deals in a mix of these generic instruments, under the portfolio of
Structured Products.
4.2. Based on RBI guidelines, Derivatives are valued as follows:
a) Derivatives used for trading are marked to market and net appreciation/ depreciation is
recognised in the Profit and Loss Account.
b) Derivatives used for hedging are:
i) Marked to market in cases where the underlying Assets/Liabilities are marked to

market. The resultant gain/loss is recognised in the Profit and Loss Account.
ii) Accounted on accrual basis in cases where the underlying Assets/Liabilities are not
marked to market.
The net outstanding marked to market position of each type of derivative is shown either under Asset
or Liability, as the case may be.
5. Fixed Assets and Depreciation
5.1. Premises and other fixed assets are accounted on historical cost basis.
5.2. Depreciation is provided on the written down value method at the rates prescribed under the Income
Tax Rules, 1962, which are considered appropriate by the management. In respect of computers,
depreciation is provided on straight line method at 33.33% per annum, as per RBI guidelines.
Computer software not forming an integral part of hardware is depreciated fully in the year of purchase.
5.3. Assets costing up to Rs. 1,000 are charged off to the Profit and Loss Account.
5.4. In respect of fixed assets held at Foreign Offices, depreciation is provided as per the laws/norms of the
respective countries.
5.5. In respect of leasehold premises, the lease amount is amortised over the period of lease.
6. Assets given on Lease
6.1. In respect of assets given on lease by the Bank on or before March 31, 2001, the value of the assets
given on lease and the amounts paid as advance for assets to be given on lease are disclosed as “Leased
Assets” and “Capital Work-in-progress (Leased Assets)” respectively under fixed assets. Depreciation
is provided on straight line method as per the Companies Act, 1956, and the difference between the
annual lease charge (capital recovery) and the depreciation is taken to Lease Equalisation Account as
per the guidelines issued by the ICAI.
6.2. Assets given on lease by the Bank on or after April 1, 2001 are accounted as per Accounting Standard
19 (Leases) issued by the ICAI. Such assets are included under “Other Assets”.
7. Impairment of Assets
7.1. Impairment losses (if any), are recognised in accordance with Accounting Standard-28 issued by the
ICAI and charged off to Profit and Loss Account.
178
8. Foreign Currency Transactions
8.1. In conformity with Accounting Standard 11 (The effects of changes in foreign exchange rates) of the
ICAI, Foreign Branches of the Bank and Offshore Banking Units (“OBUs”) have been classified as
Non-integral Operations and Representative Offices classified as Integral Operations.
8.2. a) Foreign currency transactions are recorded on initial recognition in the reporting currency by
applying to the foreign currency amount the exchange rate between the reporting currency and
the foreign currency on the date of transaction.
b) Foreign currency monetary items are reported using the FEDAI closing spot rates.
c) Exchange differences arising on the settlement of monetary items at rates different from those
at which they were initially recorded are recognised as income or as expense in the period in
which they arise.
Earlier Policy: In the Year 2002-03 and 2003-04
1. Items of income and expenditure in respect of foreign offices and assets and liabilities in
foreign currencies are converted at the rate of exchange prevailing at the close of the year as
per RBI guidelines.
2. Interest received and paid as well as accruals on Balance Sheet date in different currencies on
Cross Currency Interest Rate Swaps are converted into Indian Rupees and routed through the
interest account.
3. Interest Rate Swaps (“IRSs”) and Forward Rate Agreements (“FRAs”) have been used as
hedging instruments. The notional principals of these instruments are recorded as off Balance
Sheet items. Interest income and expense on IRSs and FRAs are accounted for on accrual
basis.
8.3. Non-integral Operations
a) All monetary/non-monetary assets and liabilities as well as contingent liabilities are translated
at the closing rate notified by FEDAI.
b) Income and expenditure are translated using the quarterly average rate notified by FEDAI at
the end of the respective quarter.
c) All resulting exchange differences are accumulated in a separate “Foreign Currency

Translation Reserve” account till the disposal of the net investment.
8.4. Integral Operations
a) All income and expenditure of integral operations are recorded at the rates prevalent on the
date of transaction.
b) All foreign currency monetary items are reported using the FEDAI closing spot rates.
8.5. Forward Exchange Contracts
In accordance with the guidelines of FEDAI and the provisions of AS -11, net outstanding forward
exchange contracts in each currency are revalued at the Balance Sheet date at the corresponding
forward rates for the residual maturity of the contracts. The difference between the revalued amount
and the contracted amount is recognised as profit or loss, as the case may be.
9. Revenue Recognition
9.1. Income and expenditure are accounted on accrual basis. In case of Foreign Offices, income is
recognised as per the local laws of the country in which the respective foreign office is located.
179
9.2. The following items of income are recognised on realisation basis:
(a) Commission (other than commission on deferred payment guarantees and government
transactions), exchange and brokerage.
(b) Dividend on investments.
(c) Income on Rupee Derivatives designated as “Trading”.
(d) Interest on application money on investments and overdue interest on investments.
9.3. The following items of income are recognised on realisation basis, owing to significant uncertainty in
collection thereof:
(a) Income on non-performing advances, overdue bills and non-performing leased assets.
(b) Interest on non-performing investments.
9.4. Income (other than interest) on investments in “Held to Maturity” (HTM) category acquired at a
discount to the face value, is recognised as follows :
a) On Interest bearing securities, it is recognised only at the time of sale / redemption.
b) On zero-coupon securities, it is accounted for over the balance tenor of the security on a
constant yield basis.
Profit on sale of investments in this category is first credited to the Profit and Loss Account and
thereafter appropriated to the “Capital Reserve Account”. Loss on sale is recognised in the Profit and
Loss Account.
10. Retirement Benefits
10.1. Contributions payable to the Bank’s Provident Fund Trust in terms of its Provident Fund Scheme are
charged to Profit and Loss account on accrual basis.
10.2. Liability for gratuity, pension and leave encashment (which are defined benefits) is determined on the
basis of actuarial valuations carried out at the year end and the incremental liability is provided for by
charging to the Profit and Loss Account.
11. Provision for Taxation
Provision for tax comprises current tax for the period determined in accordance with the relevant laws,
fringe benefit tax and deferred tax charge or credit reflecting the tax effects of timing differences
between accounting income and taxable income for the period, in conformity with Accounting
Standard 22 (Accounting for taxes on income) of the Institute of Chartered Accountants of India. The
deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised
using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred
tax assets are not recognised unless there is virtual certainty that sufficient future taxable income will
be available against which such deferred tax assets will be realised.
180
ANNEXURE 4
Material Notes to Summarised Unconsolidated Financial Information and Accounting Standard

Disclosures
(A) Material Notes to Summarised Financial Information
1. Year Ended on March 31, 2003
a. The expenses on encashment of leave of employees were hitherto accounted for on cash basis.
However, in order to comply with the Accounting Standard 15 issued by the Institute of Chartered
Accountants of India and guidelines issued by the RBI, during the current year, the liability towards
encashment of leave is accounted for on the basis of actuarial valuation. Accordingly, an amount of Rs.
382 million representing current’s year liability has been charged to Profit and Loss Account and an
amount of Rs. 6,213 million representing the accrued liability to March 31, 2002 has been debited to
the Revenue Reserve.
b. During the year an amount of Rs. 3545 million has been charged to revenue on account of Voluntary
Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred
revenue expenditure. Unamortised amount of Rs. 7,090 million is to be amortised over a further period
of two years in accordance with RBI guidelines.
c. In terms of decision of the Government, Ministry of Finance and Court orders, an amount of Rs. 8,340
million has been received during the year on account of certain securities transactions. A provision of
8,214 million was made in the accounts in earlier years towards these transactions. Accordingly, the
provision held towards “other Assets” has been written back and the balance amount has been credited
to the respective revenue accounts.
a. During the year an amount of Rs. 3,545 million has been charged to revenue on account of Voluntary
revenue expenditure. Unamortised amount of Rs. 3,545 million is to be amortised next year in
b. Profit or loss on sale of investments has been accounted for transaction wise on the settlement date,
based on actual sales value and weighted average cost of purchases, whereas in the previous years, it
was accounted for at the year end, based on the weighted average price for the whole year for both
purchases and sales. As a result of this change, profit for the year is higher by Rs. 6,937 million.
a. During the year final instalment of Rs. 3,545 million has been charged to revenue on account of
Voluntary Retirement Scheme (“VRS”) implemented during the year 2000-01, which was treated as
deferred revenue expenditure.
b. The Bank’s Investments in ‘Available for Sale’ (“AFS”) and ‘Held For Trading’ (“HFT”) categories
were being valued scrip-wise and depreciation if any, was provided script wise while ignoring
appreciation. From the current financial year investment in AFS and HFT categories have been valued
in conformity with RBI guidelines after netting-off classification-wise depreciation and appreciation,
computed scrip wise and providing for net depreciation in each classification while ignoring net
appreciation. Consequent upon the change, net additional provision requirement is lower and profit
before tax is higher by Rs. 29,853 million
c. During the year, the Bank divested 37% of its stake in its fully owned subsidiary SBI Funds
Management Pvt. Ltd resulting in a profit of Rs. 1,464 million.
d. During the year the Bank shifted SLR securities amounting to Rs. 269,782 million from ‘Available for
Sale’ (AFS) to ‘Held to Maturity’ (HTM) category under specific RBI guidelines and made a provision
of Rs. 17,062 million in the accounts.
181
e. During the year, the Accounting Standard 11 – Effects of change in Foreign Exchange Rate (2003-
Revised) has come into effect. The net profit of the Bank for the year is arrived at in conformity with
the provisions of the said Accounting Standard. Consequent upon this, net exchange difference arising
on translation of monetary items of non integral operations amounting to Rs. 2,880 million shown
under Other Liabilities & Provisions in earlier years has been transferred to Foreign Currency
Translation Reserve.
a. Investments in Regional Rural Banks (“RRBs”) were hitherto accounted for after netting off provisions
towards losses incurred by RRBs in proportion to and not exceeding the Bank’s investment. From the
current financial year, these investments have been valued at cost, which is in line with the RBI
guidelines. Consequently, the profit for the year is higher by Rs. 869 million.
b. Interest Earned-Others includes an amount of Rs. 16,385 million, being interest on refund of Income
Tax.
c. Other Income includes an amount of Rs. 5,315 million being Exchange Gain on India Millennium
Deposits (“IMDs”) redemption. Consequently, profit (net of tax) for the year is higher by Rs. 3,526
million.
d. An amount of Rs. 5,635 million paid to RBI for maintenance of value (MOV) by debit to Interest
Expended Account in the years 2001 and 2002 was received back during the year on redemption of
IMDs and credited to Interest Expended account. Consequently, profit (net of tax) for the year is higher
by Rs. 3,738 million.
e. Payments to and provisions for employees, under Operating Expenses includes an amount of Rs. 3129
million, being arrears of salary paid for the previous financial years.
f. As a one time measure, in terms of RBI Guidelines, unreconciled net credit balances in the inter-branch
accounts unto March 31, 1999 aggregating to Rs. 3166 million has been credited to Profit and Loss
account under the head Miscellaneous Income. Consequently, profit (net of tax) for the year is higher
a. The Bank had hitherto been following a policy of amortisation of premium in respect of securities held
in the “Held to Maturity” (HTM) category by an adjustment to the account head “Provision and
Contingencies”. From the current financial year and in accordance with RBI directive dated April 20,
2007, the Bank has charged the amortisation amount as well as marked to market losses on transfer of
securities from “Available for Sale” (AFS) to HTM category by an adjustment to the account head
Other Income: “ Profit on Revaluation of Investments” as a deduction. As a result of this change in
accounting policy, the book value of the securities is reduced by Rs. 6,3571 million being the
amortisation and marked to market losses on inter-category transfer of Rs. 16,775 million for the
current year and Rs. 46,796 million for the previous year. However, there is no impact on the Net Profit
for the year.
b. Prior Period Items:
Items (Rs. in millions)

Depreciation written back (175)
Operating expenses 164
Interest expended 2648
Other income 24
The Bank accounts for the interest on income tax refund on determination of interest by taxation
authorities. Such interest is credited to profit and loss account on such determination. Any subsequent
withdrawal of interest is being charged to profit and loss account. However, during earlier years,
Interest of Rs. 2,648 million withdrawn by taxation authorities, was debited to the “Tax paid in
182
advance”. This has been rectified during the year to fall in line with the rationale of opinion expressed
by Expert Advisory Committee of the Institute of Chartered Accountants of India in similar instance.
c. Exit Option
The Bank had implemented an Exit Option Scheme for its eligible employees. The ex-gratia payments
under exit option aggregating to Rs. 4,783 million has been charged to the Profit & Loss account
during the year.
6. Half Year Ended on September 30, 2007
a. Accounting Standard 15 “Employee Benefits” (revised 2005) is effective for accounting periods
commencing on or after December 12, 2006. As per this Standard, the difference (as adjusted by any
related tax expense) between the transitional liability and the liability that would have been recognised
at the same date, as per pre revised Accounting Standard (AS) 15, ‘Accounting for Retirement Benefits
in the Financial Statements of Employers’, should be adjusted immediately against opening balance of
revenue reserves and surplus. The Institute of Chartered Accountants of India has made a limited
revision to this provision, which has been notified on October 17, 2007. This revision provides the
Bank with another option to charge additional liability arising upon the first application of the standard
as an expense over a period up to five years. The Bank is currently examining both the alternatives. The
impact of the Accounting Standard 15 “Employee Benefits” (revised 2005) has not been ascertained for
transitional provision and current period(s). In the interregnum, the Bank has made adequate provisions
as per pre-revised Accounting Standard 15, ‘Accounting for Retirement Benefits in the Financial
Statements of Employers’.
b. During the quarter ended September 30, 2007, the Central Board of State Bank of India (SBI) and the
Board of State Bank of Saurashtra (SBS) have accorded approval for merger of SBS with SBI. The
matter has further been referred to RBI and the Government for approval. As the merger process has
not yet been crystallised, there is no impact on the Bank’s results.
c. During the half-year ended September 30, 2007, the entire share holding of RBI in State Bank of India
aggregating 314,339,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred
to the Central Government.
d. During the half-year ended September 30, 2007, the Bank has shifted SLR investments having
aggregate Face Value of Rs. 90,816 million from ‘Available for Sale’ (AFS) category to ‘Held to
Maturity’ (HTM) category, resulting in a net revaluation loss of Rs. 2,977 million.
e. In terms of RBI circular dated 20th April 2007, the Bank had accounted for amortisation of premium in
respect of securities included in the ‘Held to Maturity’ (HTM) category as an adjustment against ‘Other
Income’. Based on the clarification issued by RBI on 11th July 2007, Banks are required to reflect the
amortisation of premium held in HTM category by an adjustment to the ‘Interest Earned’. Accordingly,
the Bank has carried out the reclassification of the same for the period ended 30th September 2007. This
change in accounting procedure does not have any impact on the net profit for the period(s) under
review.
(B) Accounting Standard Disclosures
1. Segment Reporting
i) Segment identification
Primary Segment i) Banking Operations : Other than treasury operations
ii) Treasury Operations - Domestic rupee treasury
Secondary Segment i) Domestic Operations - Branches/Offices having operations in India
ii) Foreign Operations - Branches/Offices having operations outside India
and offshore banking units having operations in India
ii) Pricing of Inter-segmental transfers
183
The Banking Operations segment is the primary resource mobilising unit. The Treasury Operations
segment is a recipient of funds from Banking Operations. From April 1, 2006, the bank has changed
the segmental pricing methodology for more meaningful presentation of segment results and
accordingly market related funds transfer pricing (MRFTP) has been introduced under which a separate
unit called Funding Centre has been created. The Funding Centre notionally buys funds that the
business units raise in the form of deposits or borrowings and notionally sell funds to business units
engaged in creating assets. The financial effect on the segmental result due to change in accounting
policy is not reasonably determined. However, this change does not have any impact on the financials
of the bank.
iii) Allocation of Expenses
Expenses incurred at Corporate Centre establishments directly attributable either to Banking

Operations or to Treasury Operations segment, are allocated accordingly. Expenses not directly
attributable are allocated on the basis of the ratio of number of employees in each segment/ratio of
directly attributable expenses.
iv) Segment Results
Part A: Primary Segments

(Rs. in millions)
March 31, March 31, March 31, March 31, March 31, September
Year /Half Year ending 2003 2004 2005 2006 2007 30, 2007
REVENUE
Banking Operations 312,510 313,353 324,036 352,659 444,722 257,582
Treasury Operations 214,259 219,894 201,118 174,368 114,642 55,822
Elimination 159,868 154,131 141,329 114,747 107,399 54,531
Total 366,901 379,116 383,825 412,280 451,965 258,873
RESULTS
Banking Operations 26,393 18,357 54,046 60,423 87,061 53,077
Treasury Operations 28,804 38,156 10,610 -19,913 1,177 3,250
Elimination 0 0 0 0 0 0
Total 55,197 56,513 64,656 40,510 88,238 56,327
Unallocated (2,522) (7,259) 560 19,187 (12,340) (8,032)
Income/(Expenses) Net
Operating Profit 52,675 49,254 65,216 59,697 75,898 48,295
Income Taxes 21,625 12,444 22,171 24,995 30,485 17,924
Extraordinary Profit/Loss 0 0 0 9,365 0 0
Net Profit 31,050 36,810 43,045 44,067 45,413 30,372
OTHER INFORMATION
Segment Assets
Banking 3,466,243 3,713,661 4,270,570 2,197,148 4,289,119 4,289,119
Treasury 1,923,718 2,037,452 2,169,566 3,822,113 2,063,733 2,063,733
Elimination 1,819,492 1,713,630 1,881,150 1,104,803 712,593 712,593
Total 3,570,469 4,037,483 4,558,986 4,914,458 5,640,259 5,640,259
Unallocated Assets 188,296 40,670 39,843 25,831 25,393 25,393
Total Assets 3,758,765 4,078,153 4,598,829 4,940,289 5,665,652 * 5,665,652
Segment Liabilities
184
Banking 3,310,621 3,530,955 4,047,301 2,165,993 4,010,133 4,010,133
Treasury 1,893,560 2,017,848 2,152,113 3,576,827 2,029,733 2,029,733
Elimination 1,617,450 1,672,963 1,841,307 1,087,092 867,388 867,388
Total 3,586,731 3,875,840 4,358,107 4,655,728 5,172,478 5,172,478
Unallocated Liabilities 0 0 0 8,121 180,189 180,189
Total Liabilities 3,586,731 3,875,840 4,358,107 4,663,849 5,352,667 * 5,352,667
* Segment Assets and Liabilities are as on March 31, 2007.
185
Part B: Secondary Segments
(Rs in millions)
March 31, March 31, March 31, March 31, March 31, September 30,
Year ending 2003 2004 2005 2006 2007 2007
Revenue
Domestic Operations 354,843 368,611 369,877 385,396 413,873 239,903
Foreign Operations 12,058 10,505 13,948 26,884 38,092 18,970
Total 366,901 379,116 383,825 412,280 451,965 258,873
Assets
Domestic Operations 3,533,623 3,840,337 4,292,821 4,504,826 5,138,122 5,138,122
Foreign Operations 225,142 237,816 306,008 435,463 527,530 527,530
Total 3,758,765 4,078,153 4,598,829 4,940,289 5,665,652 5,665,652*
* Segment Assets and Liabilities are as on March 31, 2007.
2. Related Party Disclosures
As identified by the management and relied upon by the auditors.
2.1 Related Parties:
2.1.1 Joint ventures:
1. C Edge Technologies Ltd

2. GE Capital Business Process Management Services Private Limited.
2.1.2 Associates:

3. Chhatisgarh Gramin Bank
12. Marwar Ganganagar Bikaner Bank
18. Saurashtra Grameena Bank
23. SBI Home Finance Limited.
24. Clearing Corporation of India Ltd
26. Bank of Bhutan
186
2.1.3 Key Management Personnel of the Bank:
Shri O.P. Bhatt, Managing Director from 26.04.2006 to 30.06.06 and from 01.07.2006 onwards as
Chairman)
Shri A.K. Purwar, Chairman (upto 31.05.2006)
Shri T. S. Bhattacharya, Managing Director
Shri Yogesh Agrawal, Managing Director (from 10.10.2006 to 30.06.2007)
2.1.4 Related Parties with whom transactions were entered:
No disclosure is required in respect of related parties which are “state controlled enterprises” as per
paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions in
the nature of banker-customer relationship are not required to be disclosed in respect of Key
Management Personnel. Other particulars are:
1. C Edge Technologies Ltd. (from 28.03.2006)

2. GE Capital Business Process Management Services Pvt. Ltd.
3. SBI Home Finance Ltd.
4. Bank of Bhutan
6. Shri O.P.Bhatt (from 26.04.2006)
7. Shri A.K. Purwar (from 13.11.2002 to 31.05.2006)
8. Shri T. S. Bhattacharya, (from 28.02.2005)
9. Shri Yogesh Agrawal (from 10.10.2006 to 30.06.2007)
10. Shri Ashok Kini (from 01.04.2004 to 31.12.2005)
11. Shri C. Bhattacharya (from 17.12.2003 to 31.01.2005)
12. Shri A.K. Batra (from 28.02.2002 to 07.07.2003)
13. Shri P.N. Venkatachalam (from 28.02.2002 to 31.03.2004)
14. Shri Janki Ballabh (up to 31.10.2002)
15. Shri Y. Radhakrishnan (up to 30.06.2002)
16. Shri S. Govindarajan (up to 31.07.2002)
17. Credit Information Bureau of India Ltd (up to 31.03.2005)
18. Asset Reconstruction Company (India) Ltd (up to 31.03.2004)
187
Transactions/Balances
(Rs in millions)
Item / Related Party 2003 2004 2005 2006 2007
1. Borrowings
i) Associates 48 - - -
2. Deposits
i) Associates 844 1,457 17,703 5,242 2,954
ii) Key management Personnel * - - 1 - -
3. Advances
i) Associates 3,360 105 265 - -
4. Investments
i) Associates 465 2,062 400 334 198
5. Non funded commitments

i) Associates - - - 5,601 -
6. Interest Paid
i) Associates 22 1 282 72 66
7. Interest Received
i) Associates 337 26 109 - -
8. Rendering of services
i) Associates 7 5 36 - -
9. Receiving of services of services

i) Associates 31 162 - - 17
10. Management Contracts

i) Key management Personnel @ 1 1 1 2 7
11. Income from Dividends

i) Associates - - - - 5
* Transactions which are not in the nature of banker-customer relationship.
188
3. Leases:
(Rs. in millions)
Year ending 2003 2004 2005 2006 2007
Total gross investment in the leases 1,647 1,647 1,647 1,647 1,647
Present value of minimum lease

payments receivable
Less than 1 year 263 313 313 176 89
1 to 5 years 619 447 289 205 151
5 years and above 85 40 - - -
Total 967 800 602 381 240
Present value of unearned finance
income 219 159 103 68 50
4. Earnings per Share:
The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 –
“Earnings per Share”. “Basic earnings” per share is computed by dividing net profit after tax by the weighted
average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares
outstanding during the year.
Year ending / half March 31, March 31, March 31, March 31, March 31, September
year ending 2003 2004 2005 2006 2007 30, 2007
Net Profit * 31,050 36,810 43,045 44,067 45,413 30,372
Weighted average 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878
number of shares
Earnings Per Share Rs. 59.00 Rs. 69.94 Rs 81.79 Rs. 83.73 Rs. 86.29 Rs. 115.42**
(Basic & diluted)
* (Rs. in millions)
** Annualised
5. Accounting for taxes on Income:
The break-up of deferred tax assets and liabilities into major items is given below:
(Rs. in millions)
year ending 2003 2004 2005 2006 2007 30, 2007
A. Deferred Tax
Assets (DTA)
i) Provision for Non
Performing Assets 2,756 3,588 2,440 1,122 - -
ii) Ex Gratia Paid
under Exit Option - - - 195 1,434 1,261
iii) Provision for wage
revision - 1,435 4,208 - - -
iii) Others - - - 1,178 975 985
Total 2,756 5,023 6,648 2,495 2,409 2,246
B . Deferred Tax
189
year ending 2003 2004 2005 2006 2007 30, 2007
Liabilities (DTL)
i) Depreciation on
Fixed Assets 110 209 146 1317 1033 66
ii) Interest on
Securities - - 6213
iii) VRS expenses 664 324 - - - -
iv) Depreciation of
Leased Assets 2,294 2,039 1,745 - - 958
v) Others - - - - 6,213 -
Total 3,068 2,572 1,891 1,317 7,246 7,237
C. Net DTA/
(DTL)(A-B) (312) 2,451 4,757 1,178 (4,837) (4,991)
6. Investments in jointly controlled entities:
Investments include the following amount representing Bank’s interest in the following jointly controlled
entities.
Year ending / half year March March March March March September 30,
ending 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 2007
GE Capital Country of INDIA
Business Residence
Process Holding 40% 40% 40% 40% 40% 40%
Management
Services (P) Investment 108 108 108 108 108 108
Ltd Rs. (in
millions)
C-Edge Country of INDIA
Technologies Residence
Ltd Holding - - - 49% 49% 49%
Investment - - - 0.2 49 49
Rs. (in
millions)
As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Bank’s
interests in jointly controlled entities are disclosed below:
A: Assets & Liabilities

(Rs. in millions)
March March March March March September

CAPITAL & LIABILITIES 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
Capital & Reserves 1,511 2,830 4,422 338 521 582
Deposits - - 71 - -
Borrowings 3,266 3,970 5,633 1 2 3
Other Liabilities & Provisions 1,037 2,655 6,822 136 206 287
Total 5,814 9,455 16,948 475 729 872

ASSETS 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 31, 2007
190
CAPITAL & LIABILITIES 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
Cash & Balances with RBI 40 110 162 - - -
Balances with Banks & Money
at call 272 1,037 604 72 37 25
Investments 1,413 2,853 8,479 - 25 25
Advances 3,688 4,911 6,619 - - -
Fixed Assets 112 152 159 96 197 199
Other Assets 289 392 925 307 470 623
Total 5,814 9,455 16,948 475 729 872
Contingent Liabilities 43 13 3 - -
Capital commitments 23 13 29 - -
B. Income and Expenditure

(Rs. in millions)

Income and Expenditure 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
I. Income
Interest earned 1,053 1,346 1650 3 - 28
Other Income 806 1,338 5,918 481 659 305
Total 1,859 2,684 7,568 484 659 333
II. Expenditure
Interest expended 197 173 223 - - -
Operating expenses 1,330 1,909 6,546 339 382 235
Provisions & contingencies 277 387 619 52 101 25
Total 1,804 2,469 7,388 391 483 260
III. Profit 55 215 180 93 176 73
7. Provisions, Contingent Liabilities & Contingent Assets
a) Break up of Provisions
(Rs. in millions)
Year ending / half year March March March March March September
ending 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
a) Provision for Current Income
Tax 21,489 15,661 24,472 16,827 29,793 17,262
b) Provision for Deferred Tax 133 (2,763) (2,306) 3,579 (198) 151
c) Provision for Income Tax
Fringe Benefit Tax - - - 4,580 885 510
d) Provision for other Taxes 4 (454) 5 9 5 -
e) Provision for NPA 25,924 36,935 12,040 1,478 14,295 4,898
f) Provision on Standard Assets 2,047 491 1,150 4,052 5,892 980
g) Provision for depreciation on
investment 4,195 4,855 23,384 38,985 3,792 (3,760)
h) Provision for Other Assets/
Contingencies (7,088) 4,000 8,114 (584) 122 333
Total 46,704 58,725 66,859 68,926 54,586 20,374
(Figures in brackets indicate credit)
191
b) Floating Provisions:
(Rs. in millions)
Year ending / half year ending March 31, 2006 March 31, 2007 September 30, 2007
a) Opening Balance 8,400 NIL NIL
b) Addition during the year NIL NIL NIL
c) Draw down during the year 8,400 NIL NIL
d) Closing balance NIL NIL NIL
c) Description of Contingent Liabilities and Contingent Assets
Sr. No. Items Brief Description

1 Claims against the The Bank is a party to various proceedings in the normal course of business.
Bank not The Bank does not expect the outcome of these proceedings to have a
acknowledged as material adverse effect on the Bank’s financial conditions, results of
debts operations or cash flows.
2 Liability on account The Bank enters into forward exchange contracts, currency options, forward
of exchange rate agreements, currency swaps and interest rate swaps with inter-bank
contracts participants on its own account and for customers. Forward exchange
contracts are commitments to buy or sell foreign currency at a future date at
the contracted rate. Currency swaps are commitments to exchange cash flows
by way of interest/principal in one currency against another, based on
predetermined rates. Interest rate swaps are commitments to exchange fixed
and floating interest rate cash flows. The notional amounts that are recorded
as contingent liabilities, are typically amounts used as a benchmark for the
calculation of the interest component of the contracts.
3 Guarantees given on As a part of its commercial banking activities, the Bank issues documentary
behalf of credits and guarantees on behalf of its customers. Documentary credits
constituents, enhance the credit standing of the customers of the Bank. Guarantees
acceptances, generally represent irrevocable assurances that the Bank will make payment
endorsements and in the event of the customer failing to fulfil its financial or performance
other obligations. obligations.
4 Other items for The Bank is a party to various Bank taxation matters in respect of which
which the Bank is appeals are pending. These are being contested by the Bank and not provided
contingently liable for. Further, the Bank has made commitments to subscribe to shares in the
normal course of business.
d. The contingent liabilities mentioned above are dependent upon the outcome of court/arbitration/out of
court settlements, disposal of appeals, the amount being called up, terms of contractual obligations,
devolvement and rising demand by concerned parties, as the case may be.
8. The disclosure requirements in respect of related party transactions, lease accounting and interest in
jointly controlled entities have not been compiled for the half year ended on September 30, 2007.
192
ANNEXURE 5
SUMMARY STATEMENT OF CASH FLOW (UNCONSOLIDATED)

(Rs. in millions)
For the Year ended/ Half Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07
Cash flow from Operating Activities (185,721.06) 2,548.36 (27,807.35) 56,023.07 (17,760.70) 27,100.05
Cash flow from Investing Activities (3,316.77) (10,503.08) (4,987.98) (7,394.34) (2,845.58) (6,704.01)
Cash flow from Financing Activities (7,066.56) (8,421.75) (9,692.55) 3,695.93 94,941.13 52,134.74
Cash flows on account of exchange fluctuation (1,387.03) 232.41 42.69 54.36 (247.96) (2,229.49)
Net change in cash and cash equivalents (197,491.42) (16,144.06) (42,445.19) 52,379.02 74,086.89 70,301.29
Cash and cash equivalents – Opening 649,301.66 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90
Cash and cash equivalents – Closing 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90 589,988.19
Cash flow from Operating Activities

Net Profit before taxes 52,675.08 49,712.77 65,215.99 69,061.53 76,250.79 48,301.02
ADJUSTMENTS FOR:
Depreciation charge 4,936.89 6,983.45 7,522.11 7,291.32 6,023.92 3,113.37
(Profit)/Loss on sale of fixed assets 2.71 6.27 18.30 (19.39) (121.27) 0.32
Provision for NPAs 25,924.24 37,027.51 12,040.00 1,478.01 14,295.03 4,898.46
Provision for Standard Assets 2,046.76 491.17 1,150.00 4,051.72 5,891.90 979.80
Provision for Leave Encashment 382.00 1,112.20 1,100.70 781.90 850.00 425.00
Depreciation on Investments:
Depreciation/Revaluation of Investments / Loss
on revaluation of Investments 4,195.57 4,874.95 23,383.64 34,560.74 14,889.52 (3,848.89)
Provision for Subs/JVs/RRBs (34.20) (20.19) - (1,447.48) (84.94) (130.80)
Provision on Other Assets and Other Provisions (7,053.48) 3,448.38 8,113.95 (583.96) (230.56) 38.63
Deferred Revenue Expenditure w/o during the
year 3,545.13 3,545.14 3,545.14 - - -
Dividend from subsidiaries (investing activity) (1,372.21) (1,613.12) (3,932.35) (3,171.83) (5,969.68) (1,723.19)
Interest paid on bonds (financing activity) 3,956.87 3,956.87 3,956.87 4,011.14 8,474.29 7,532.48
LESS: Direct Taxes (18,345.19) (25,899.37) (18,016.45) (5,251.61) (42,821.25) (17,153.97)
Sub-Total 70,860.17 83,626.03 104,097.90 110,762.09 77,447.75 42,432.23
Other adjustments:
Increase/(Decrease) in Deposits 255,631.39 224,953.89 484,288.55 129,985.29 554,750.34 515,333.06
Increase/(Decrease) in Borrowings (203.25) 41,277.14 57,529.80 114,569.31 90,620.91 52,345.53
(Increase)/Decrease in Investments (275,644.48) (135,091.19) (137,051.84) 362,060.75 74,506.79 (304,573.02)
(Increase)/Decrease in Advances (195,397.53) (238,769.57) (456,449.18) (595,742.82) (769,650.61) (217,682.65)
Increase/(Decrease) in Other Liabilities &
Provisions (10,261.64) 16,247.92 (71,223.26) (5,254.01) (33,371.51) 29,022.53
(Increase)/Decrease in Other Assets (30,705.72) 10,304.14 (8,999.32) (60,357.54) (12,064.37) (89,777.63)
Net Cash provided by Operating activities (185,721.06) 2,548.36 (27,807.35) 56,023.07 (17,760.70) 27,100.05
Cash flow from Investing Activities

(Increase)/Decrease in Investments in Joint
Ventures/Associates (16.17) (2,560.82) (854.15) (2,741.81) (2,253.28) (1,687.35)
Income earned on investments in Joint
Ventures/Associates 1,372.21 1,613.12 3,932.35 3,171.83 5,969.68 1,723.19
(Increase)/Decrease in Fixed Assets (4,672.81) (9,555.38) (8,066.18) (7,824.36) (6,561.98) (6,739.85)
Net Cash provided by Investing Activities (3,316.77) (10,503.08) (4,987.98) (7,394.34) (2,845.58) (6,704.01)
Cash flow from Financing Activities

Net proceeds/ (repayment) of bonds (including
subordinated debts) 46.64 8.73 16.46 15,223.30 111,817.00 68,287.63
Interest paid on Bonds (3,956.87) (3,956.87) (3,956.87) (4,011.14) (8,474.29) (7,532.48)
Dividend paid (3,156.33) (4,473.61) (5,752.14) (7,516.23) (8,401.58) (8,620.41)
Net Cash provided by Financing Activities (7,066.56) (8,421.75) (9,692.55) 3,695.93 94,941.13 52,134.74
193
Cash flows on account of Exchange
Fluctuation:
Reserves of foreign subsidiaries/foreign offices (1,387.03) 232.41 42.69 54.36 (247.96) (2,229.49)
Net cash flows on account of Exchange
Fluctuation (1,387.03) 232.41 42.69 54.36 (247.96) (2,229.49)
Cash and Cash equivalents - Opening:

Cash in hand (including FC notes & gold) 10,525.83 11,362.04 12,849.81 14,361.60 20,802.31 25,301.19
Balances with Reserve Bank of India 208,199.51 116,022.64 177,563.04 153,741.70 195,724.73 265,463.06
Balances with Banks & MACSN 430,576.32 324,425.56 245,253.33 225,117.69 229,072.97 228,922.65
Total 649,301.66 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90
Cash and Cash equivalents - Closing:

Total 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90 589,988.19
194
ANNEXURE 6
Major changes in the business activities of the Bank
The Bank is in the business of Corporate and Retail Banking, Treasury Operations and other
miscellaneous banking business. There has not been any change in the business activities of Bank which has had
any material effect on the statement of profit/loss for the five years, including discontinuance of lines of
business, loss of agencies or markets and similar factors.
195
ANNEXURE 7
Statement of Dividends Declared by the Bank
(Rs. in millions)
For the year ending 2003 2004 2005 2006 2007
Number of Equity Shares 52,62,98,878 52,62,98,878 52,62,98,878 52,62,98,878 52,62,98,878
Dividend (Rs) 4,474 5,789 6,579 7,368 7,368
Tax on Dividend (Rs) 573 742 938 1,033 1,252
Dividend Rate (%) 85 110 125 140 140
Note
1. The bank has not declared any dividend for the half year ended September 30, 2007.
196
ANNEXURE 8
Summary Statement of Other Income (Unconsolidated)
(Rs. in millions)
For the Financial

Year /Period March March March March March September 30,
Ended March 31 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 2007
Other Income
1 Commission, 29,773 31,207 35,447 39,962 48,045 20,525
exchange and
brokerage
2 Profit/ Loss on sale 16,946 30,735 17,753 *5,872 *5,678 7,125
of investments
(Net)
3 Profit/ Loss on * (51) *(2) - - (7,403)
revaluation of (16,775)
investments (Net)
4 Profit on Exchange *4,636 *5,030 *5,282 10,013 *3,734 *1,408
Transactions (Net)
Notes :
a) All items of “Other Income” are of recurring nature
b) Those items identified with * are less than 20% of the profit before tax , however for comparison
purposes, they have been disclosed.
197
ANNEXURE 9
Statement of Borrowings as on September 30, 2007
(Rs. in millions)
Outstanding Date of Repayment

S. No. Particulars amount Rate of Interest Duration Borrowings Terms
Domestic Borrowings
1 Term Borrowings 50 Fixed 8.50% 364 Days 1/9/2007 Bullet
2 CBLO* 32,999 Fixed 0-1% 1-3 days 28/9/2007 Bullet
3 Borrowing from Other Institutions/ Agencies
a Refinance SIDBI 6,500 Fixed 6.5% p.a Monthly
Instalment of Rs
50.00 crores on 1st
of Every Month
b Refinance NHB 5,000 Fixed 6.5% p.a 3 Years 23/12/2005 Bullet
c Refinance NABARD 17,917 Fixed Various Various Terms and Date Half Yearly due
from 4.25 on 31st January
to 14% and July till
31.07.2019
d Others 45
Total Domestic
Borrowings (A) 62,511
Overseas Borrowings
1 Bond Issues (Excluding Hybrid 62,636 Fixed 3.50% to 5 Years Various Bullet
Tier-I Bonds) 4.75% dates from
8.12.04 to
15.02.07
Floating LIBOR+38bps to LIBOR+73.5bps
2 Foreign Currency Loans 47,217 Floating LIBOR+1 364 days Various Bullet principal
2bps to to 5 years dates from repayment, interest
LIBOR+3 2.6.05 to at half yearly
9bps 28.9.07 intervals
3 Money Market Borrowings 277,015 Various rates Term Various Bullet
Ranging dates
from 1
day to 1
year
Total (Overseas
Borrowings) (B) 386,868
Tier I Capital
Overseas 16,282 Coupon 6.439% after Perpetual Feb-07 Perpetual with call
swap LIBOR +120 BPS non call option to the
on semi annual basis 10.25 Issuer after 10.25
years years
9,159 Coupon 7.14% after Perpetual Jun-07 Perpetual with call
swap LIBOR +137 BPS non call option to the
on semi annual basis 10 years Issuer after 10
1 Day years 1 day
Total Tier I Capital (C) 25,441
Subordinate Debts
1 Domestic 204,246 Fixed 7.45% to 87 Various dates from 1.1.2001 to
11.90% months to 17.9.2007
p.a. 180
months
Overseas 289 Fixed 6.50% 8 Years 12.04.2000
Total Subordinate Debts (D) 204,535
Grand Total (A+B+C +D) 679,355
* Secured Borrowings.
198
ANNEXURE 10
Summary Statement of Accounting Ratios
Sr 31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar- 30-Sep-

No. Particulars 03 04 05 06 07 2007*
1 Basic and Diluted 59.00 69.94 81.79 83.73 86.29 115.42
Earning Per Share
2 Return on Avg Net Worth 19.15% 19.67% 19.43% 17.04% 15.41% 18.57%
(%)
3 Net Asset Value per 326.87 384.41 457.39 525.25 594.69 648.16
Share
Other Ratios
4 Interest Income As a 9.10% 7.99% 7.70% 7.19% 7.34% 7.25%
percentage to working
Funds (%)
5 Non Interest Income as a 1.68% 1.99% 1.69% 1.48% 1.07% 1.02%
Funds (%)
6 Operating Profit as 2.27% 2.50% 2.61% 2.27% 1.86% 1.62%
Funds (%)
7 Return on Assets (%) 0.86% 0.94% 0.99% 0.89% 0.84% 0.97%
8 Net NPAs to Net 4.50% 3.48% 2.65% 1.88% 1.56% 1.63%
Advances (%)
9 Capital to Risk -weighted 13.50% 13.53% 12.45% 11.88% 12.34% 12.85%
Assets Ratio- Overall (%)
Assets Ratio-Tier I (%)
Assets Ratio-Tier II (%)
12 Operating Expenses / 2.33% 2.43% 2.39% 2.36% 2.20% 1.94%
Average Working Funds
(%)
13 Business (Deposits plus 19,077.00 21,056.00 24,308.00 29,923.00 35,700.0 46,563.65
Advances) per employee 0
(Rs. in thousands)
14 Profit per employee (Rs. 147.83 176.61 207.50 216.76 236.81 339.00
in thousands)
* Ratios have been calculated on an annualised basis
199
ANNEXURE 11
Capitalisation Statement as of September 30, 2007
(Rs. in millions)
Pre Issue as of
Particulars September 30, 2007 Post Issue
Loan Funds
Long Term 344,861 344,861
Short Term 334,494 334,494
Total Debt 679,355 679,355
Shareholders’ Fund
Share Capital 5,263 6,316
Share Premium 35,106 201,416
Reserve and Surplus 300,760 300,760
Total Equity 341,129 508,492
Long Term Debt/Equity Ratio 1.01 0.68
1. Loan Funds include Subordinate Debt and perpetual bonds
200
ANNEXURE 12
STATEMENT OF TAX SHELTERS (UNCONSOLIDATED)

(Rs. in millions)
S. No. For the Financial Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07
Profit Before Tax 52,671.40 49,707.77 65,211.19 64,472.73 75,360.89
Tax Rate 36.75% 35.88% 36.59% 33.66% 33.66%
Tax at actual Rate (A) 19,356.74 17,832.66 23,862.40 21,701.52 25,366.48
Permanent Difference
1 Income Exempt from Tax (1,659.97) (1,747.74) (4,791.80) (1,886.40) (1,827.73)
2 Interest on Income Tax - - (650.30) - 2,699.85
3 Others 49.90 29.96 273.49 (0.04) 22.33
4 Taxes including wealth tax and fringe 3.64 (454.16) 4.80 4,588.80 889.90
benefit tax
(1,606.43) (2,171.94) (5,163.81) 2,702.36 1,784.35
Timing Difference
1 Voluntary Retirement Scheme 901.90 901.90 902.00 577.90 3,782.00
2 Provision for employees benefits 3,682.00 1,112.20 2,000.70 781.90 850.00
3 Provision for doubtful debts (16,335.93) (10,374.80) (5,324.00) (4,473.52) 5,891.90
4 Provision for other assets and 27.26 (62.39) 450.28 (1,292.70) (233.23)
contingencies
5 Provision for Investments (34.20) (20.19) 514.78 (1,447.48) (84.94)
6 Payment of Wage Arrears - 4,000.00 7,500.00 (11,500.00) -
7 Depreciation on Fixed assets 181.35 560.61 914.40 1,255.40 872.70
(11,577.62) (3,882.67) 6,958.16 (16,098.50) 11,078.43
(13,184.05) (6,054.61) 1,794.35 (13,396.14) 12,862.78
Tax Saving Thereon (B) (4,845.14) (2,172.09) 656.60 (4,509.14) 4,329.61
Tax liability on current year’s profit 14,511.60 15,660.57 24,519.00 17,192.38 29,696.09
Tax Adjustments relating to earlier years 6,977.20 - (46.79) (365.30) 450.05
Tax liability 21,488.80 15,660.57 24,472.21 16,827.08 30,146.14
201
ANNEXURE C-1
SUMMARISED STATEMENT OF ASSETS AND LIABILITIES (CONSOLIDATED)
(Rs. in millions)
30-Sep-07
A Assets
1 CASH AND BALANCES WITH RESERVE BANK OF INDIA
I Cash in hand (including foreign

currency notes and gold) 14,305.71 16,475.12 17,956.54 25,194.41 31,472.50 29,757.89
II Balances with Reserve Bank of India 177,194.90 247,292.93 238,201.72 286,093.45 419,188.51 626,758.56
Total 191,500.61 263,768.05 256,158.26 311,287.86 450,661.01 656,516.45
2 BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE
I In India 283,591.57 161,880.85 178,717.63 120,803.27 98,900.98 89,307.64
II Outside India 57,919.71 89,989.10 74,694.52 141,274.07 175,206.64 72,407.08
Total 341,511.28 251,869.95 253,412.15 262,077.34 274,107.62 161,714.72
3 INVESTMENTS
I Investments in India in 2,213,882.82 2,448,922.50 2,571,080.57 2,220,408.92 2,098,485.65 2,489,199.62
II Investments outside India in 46,227.60 41,256.36 48,539.47 58,901.56 66,724.84 65,173.15
Total 2,260,110.42 2,490,178.86 2,619,620.04 2,279,310.48 2,165,210.49 2,554,372.77
4 ADVANCES
I Bills purchased and discounted 178,802.17 214,146.66 282,943.78 328,321.31 392,073.83 407,016.18
II Cash Credits, overdrafts and loans

repayable on demand 978,110.47 1,006,716.71 1,092,272.20 1,404,644.37 1,817,496.03 1,899,228.05
III Term Loans 749,977.58 1,005,860.99 1,494,649.55 2,011,796.72 2,663,289.79 2,891,209.47
Total 1,906,890.22 2,226,724.36 2,869,865.53 3,744,762.40 4,872,859.65 5,197,453.70
5 Fixed Assets 31,285.66 35,306.59 35,735.73 39,563.14 39,993.75 44,826.49
6 Other Assets 246,262.01 241,996.21 250,984.00 332,917.01 348,911.59 453,594.66
Total (A) 4,977,560.20 5,509,844.02 6,285,775.71 6,969,918.23 8,151,744.11 9,068,478.79
B LIABILITIES
1 DEPOSITS
I Demand Deposits
i From Banks 78,634.53 80,771.77 84,613.14 80,657.61 124,082.45 75,526.48
ii From Others 483,873.77 546,838.76 617,881.41 764,777.24 866,085.47 843,800.34
II Savings Bank Deposits 879,944.56 1,069,039.39 1,264,363.36 1,504,538.88 1,726,084.57 1,847,647.14
III Term Deposits
i From Banks 68,162.64 73,012.96 72,195.21 54,528.76 53,870.74 59,539.31
ii From Others 2,408,134.23 2,563,213.97 3,021,999.67 3,035,740.16 3,592,605.54 4,198,259.56
Total 3,918,749.73 4,332,876.85 5,061,052.79 5,440,242.65 6,362,728.77 7,024,772.83
202
30-Sep-07
2 BORROWINGS
I Borrowings in India 32,094.18 20,654.86 26,532.28 94,995.89 123,042.73 140,630.38
II Borrowings outside India 90,258.38 153,086.22 202,762.47 274,753.10 363,575.58 427,964.95
Total 122,352.56 173,741.08 229,294.75 369,748.99 486,618.31 568,595.33
3 OTHER LIABILITIES &

PROVISIONS
I Other Liabilities & Provisions 658,288.32 677,760.34 605,971.12 682,848.07 657,904.74 689,632.73
II Subordinate Debts 44,361.06 40,985.14 50,898.41 90,708.12 202,236.44 304,072.83
Sub Total 702,649.38 718,745.48 656,869.53 773,556.19 860,141.18 993,705.56
Total (B) 4,743,751.67 5,225,363.41 5,947,217.07 6,583,547.83 7,709,488.26 8,587,073.72
C NET ASSETS (C=A-B) 233,808.53 284,480.61 338,558.64 386,370.40 442,255.85 481,405.07
Represented By
D 1 Share Capital 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99
E 2 Reserve & Surplus
I Statutory Reserves 128,813.71 143,306.06 172,555.65 207,026.02 247,088.86 247,088.86
II Capital Reserves # 3,304.95 3,644.99 6,345.19 7,777.24 7,949.50 7,949.50
III Share Premium 38,839.69 35,105.73 35,105.73 35,105.73 35,105.73 35,105.73
IV Investment Fluctuation Reserve 32,874.31 62,128.81 71,277.02 5.90 - -
V Foreign Currency Translation Reserve - - 3,320.62 3,566.18 3,178.41 709.43
VI Revenue and Other Reserves 13,574.15 22,574.86 31,516.62 109,459.25 125,580.84 125,580.84
VII Balance in Profit and Loss Account 2,502.69 2,340.72 134.16 3,863.76 1,190.17 41,289.38*
Total 219,909.50 269,101.17 320,254.99 366,804.08 420,093.51 457,723.74
# includes capital reserve on

consolidation 1,695.13 1,774.25 1,774.25 1,732.90 1,732.90 -
G MINORITY INTEREST 8,636.04 10,116.45 13,040.66 14,303.33 16,899.35 18,418.34
Total 233,808.53 284,480.61 338,558.64 386,370.40 442,255.85 481,405.07
H CONTINGENT LIABILITIES
I Claims against the bank not

acknowledged as debts 9,765.57 9,554.42 10,027.67 18,902.29 40,541.96 7,449.22
II Liability for partly paid investments 443.69 674.94 554.31 373.18 1,138.66 1,122.97
III Liability on account of outstanding

forward exchange contracts 781,647.91 901,934.08 1,212,093.19 1,835,987.20 2,587,355.44 2,565,777.37
IV Guaranteed given on behalf of

constituents: 179,605.66 194,246.77 233,851.48 325,492.48 467,463.46 560,677.61
(a) India 119,496.07 139,577.26 176,155.62 262,342.98 321,439.44 558,898.26
(b) Outside India 60,109.59 54,669.51 57,695.86 63,149.50 146,024.02 1,779.35
V Acceptances, endorsements and other

obligations 201,172.57 262,625.63 352,708.13 449,547.53 586,129.09 771,229.94
VI Other items for which the bank is

contingently liable 232,624.35 160,650.42 208,226.05 300,465.48 231,778.92 6,824,949.59
203
30-Sep-07
Total 1,405,259.75 1,529,686.26 2,017,460.83 2,930,768.16 3,914,407.53 10,731,206.70
Bills for collection 113,023.01 163,009.47 316,895.37 247,807.52 283,375.37 N/A
* Without appropriation to Statutory Reserves, Revenue and other reserves
204
ANNEXURE C-2
SUMMARISED STATEMENT OF PROFIT & LOSS ACCOUNT (CONSOLIDATED)
(Rs. in millions)
A For the Financial Year/Half Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07
Audited Audited Audited Audited Audited Unaudited
Reviewed
INCOME
1 INTEREST EARNED
1.1 Interest / discount on advances/ bills 161,584.48 164,542.52 191,806.30 258,992.72 368,328.11 242,471.05
1.2 Income on Investments 199,751.72 211,088.07 215,336.49 193,136.21 168,261.14 80,516.67
1.3 Interest on balances with Reserve

Bank of India and other inter-bank
funds 34,459.09 27,313.45 20,212.98 24,402.76 31,229.38 10,176.13
1.4 Others 14,397.92 10,616.61 17,634.82 22,389.48 4,558.94 419.15@
TOTAL 410,193.21 413,560.65 444,990.59 498,921.17 572,377.57 333,583.00
2 OTHER INCOME
2.1 Commission, exchange and

brokerage 39,719.35 42,222.75 47,954.77 53,380.75 66,622.92 29,574.86
2.2 Profit/ (Loss) on sale of investments

(Net) 28,270.30 49,479.58 24,708.39 11,477.72 9,711.10 10,648.47
2.3 Profit/ (Loss) on revaluation of

investments (Net) (189.76) 27.91 (6.23) 227.90 (23,031.53) (1,751.96)
2.4 Profit/(Loss) on sale of land,

buildings and other assets and Leased
Assets (Net) (5.23) 6.19 (9.67) 4.74 125.32 127.74
2.5 Profit on exchange transactions (Net) 6,431.08 6,938.24 7,176.26 12,181.07 5,855.85 2,235.81
2.6 Dividends from Associates/Joint

ventures in India/ abroad 350.36 526.36 23.70 250.42 67.38 221.07
2.7 Income from Financial Leasing 2,676.97 2,163.62 1,893.70 1,393.82 1,057.60 364.44
2.8 Credit Card membership/ service fees 533.68 644.32 1,326.64 1,746.03 3,579.08 2,133.58
2.9 Life Insurance Premium 15.47 365.32 5,992.99 10,730.93 29,234.39 13,765.05
2.10 Share of earnings from associates 58.66 717.10 579.67 (130.93) 1,888.55 491.30
2.11 Miscellaneous income 4,317.06 8,189.58 10,726.21 20,477.12 16,280.05 11,674.62
TOTAL 82,177.94 111,280.97 100,366.43 111,739.57 111,390.71 69,484.98
TOTAL INCOME 492,371.15 524,841.62 545,357.02 610,660.74 683,768.28 403,067.98
B EXPENDITURE
1 INTEREST EXPENDED
1.1 Interest on deposits 261,138.92 240,629.83 233,249.48 253,662.50 287,866.98 194,011.87
1.2 Interest on Reserve Bank of India/

Inter-bank borrowings 2,341.66 2,671.38 5,335.09 14,957.77 22,289.86 15,931.64
1.3 Others 9,014.61 11,419.20 10,333.80 12,408.71 29,670.65 12,362.43@
TOTAL 272,495.19 254,720.41 248,918.37 281,028.98 339,827.49 222,305.94
205
Reviewed
2 OPERATING EXPENSES
2.1 Payments to and provisions for

employees 69,638.72 83,777.69 86,329.45 107,637.97 105,974.61 55,305.32
2.2 Rent, taxes and lighting 7,706.29 8,693.15 9,952.60 11,169.05 12,676.72 6,374.55
2.3 Printing & Stationery 1,691.77 2,030.74 2,305.39 2,398.20 2,293.13 1,275.00
2.4 Depreciation 6,623.87 9,532.16 10,695.93 11,334.02 9,500.7 4,808.12
2.5 Directors’ fees, allowances and

expenses 22.07 25.84 32.69 38.38 40.80 9.83
2.6 Auditors’ fees and expenses

(including branch auditors’ fees and
expenses) 614.70 864.65 860.83 996.64 1,039.25 821.67
2.7 Law charges 636.90 770.65 982.75 672.50 759.76 336.79
2.6 Postages, Telegrams, Telephones, etc. 944.98 1,202.49 1,330.84 1,700.19 2,007.08 1,179.05
2.7 Repairs and maintenance 939.14 1,254.70 1,700.62 2,142.12 2,397.28 1,261.54
2.8 Insurance 1,948.10 2,238.82 3,385.17 4,651.19 5,137.32 2,868.58
2.9 Amortisation of deferred revenue

expenditure 5,143.31 4,281.08 5,053.86 179.03 132.80 0.03
2.10 Operating Expenses relating to Credit

Card Operations 467.17 69.78 997.95 1,386.52 2,054.56 -
2.11 Operating Expenses relating to Life

Insurance - - 4,914.24 11,707.77 28,434.27 18,361.48
2.12 Other Expenditure 10,337.27 9,700.16 15,893.20 19,999.45 27,569.54 16,210.74
TOTAL 106,714.29 124,441.91 144,435.52 176,013.03 200,017.82 108,812.70
TOTAL EXPENDITURE 379,209.48 379,162.32 393,353.89 457,042.01 539,845.31 331,118.64
Gross Profit Before Provisions (including for

income tax & extraordinary Items) 113,161.67 145,679.30 152,003.13 153,618.73 143,922.97 71,949.34
Less: Extraordinary Items - - - - - -
Gross Profit Before Provisions (including for

income tax) 113,161.67 145,679.30 152,003.13 153,618.73 143,922.97 71,949.34
3 Provisions & Contingencies:
3.1 Provision for Income Tax (Current

tax) 30,665.25 28,865.93 27,941.91 21,016.76 41,112.95 23,762.62
3.2 Provision for Income Tax (Deferred

tax) (386.17) (4,291.25) (1,585.42) 5,070.90 (775.60) (1,039.86)
3.3 Provision for Fringe Benefit Tax - - - 6,195.96 1247.60 727.61
3.4 Provision for other taxes (18.50) 7.61 (38.71) 12.07 (14.53) 8.77
3.5 Provision for NPAs 36,698.30 53,384.88 14,033.75 4,140.64 17,758.92 9,170.94
3.6 Provision for Standard Assets 2,592.60 1,319.87 (741.29) 5,854.43 9,454.23 1,639.75
3.7 Provision for depreciation on

investments 6,031.92 4,355.47 4,4941.14 5,5395.51 8,294.86 (3,811.90)
206
Reviewed
3.8 Provision on other assets/

Contingencies (7,919.94) 21.40 589.13 586.96 57.40 29.93
3.9 Other Provisions 2,189.22 4,421.73 10,882.94 (1,269.30) 589.16 179.54
Total 69,852.68 88,085.64 96,023.45 97,003.93 77,724.99 30,667.40
Net Profit for the year 43,308.99 57,593.66 55,979.68 56,614.80 66,197.98 41,281.94
Less: Minority Interests 1,318.84 2,282.65 1,340.43 1,315.60 2,554.25 1,158.19
Group Profit 41,990.15 55,311.01 54,639.25 55,299.20 63,643.73 40,123.75
Add: Brought forward Profit

attributable to the group 341.47 692.27 2,340.72 134.16 3,863.76 1,190.17
Transfer from General Reserve - - - - 28.86 -
TOTAL 42,331.62 56,003.28 56,979.97 55,433.36 67,536.35 41,313.92
APPROPRIATIONS:
Transfer to Statutory Reserves 14,832.08 14,518.81 29,249.59 34,537.00 40,062.84 -
Transfer to Other Reserves 19,800.00 32,612.71 20,079.98 8,631.03 17,662.94 24.54
Dividend 4,473.59 5,789.29 6,578.74 7,368.18 7,368.18 -
Corporate Tax on Dividend 723.26 741.75 937.50 1,033.39 1,252.22 -
Balance carried to Balance Sheet 2,502.69 2,340.72 134.16 3,863.76 1,190.17 41,289.38
Total 42,331.62 56,003.28 56,979.97 55,433.36 67,536.35 41,313.92
Break up of Non-Recurring Items Included above:
Income:
Profit on sale of investments - 6,937.00 1,464.00 - - -
Interest on Income tax refund - - 7,452.80 17,018.10 - -
Write back of Depreciation - - - - 174.70 -
Write back of provisions - - - 1,280.00 - -
Write back of provisions towards

securities transactions 8,340.20 - - - - -
Exchange gain on India Millennium

Deposits - - - 5,315.40 - -
Miscellaneous Income –
Unreconciled net credit on inter-
branch accounts - - - 5,169.70 - -
Diminution in the value of

Investments written back - - - - 1,582.30 -
Sub-total (A) 8,340.20 6,937.00 8,916.80 28,783.20 1,757.00 -
Expenses:
Voluntary Retirement Scheme 5,081.90 5,099.30 5,053.90 722.40 4,783.00 -
Reduction in Provision for

depreciation on investments - - (29,853.40) (868.60) - -
207
Reviewed
Payments to and provisions for

employees - - - 4,084.80 - -
Interest on Income Tax - - - - 2,647.60 -
Interest on India Millennium

Deposits - - - (5,635.20) - -
Sub-total (B) 5,081.90 5,099.30 (24,799.50) (1,696.60) 7,430.60 -
Total (A-B) 3,258.30 1,837.70 33,716.30 30,479.80 (5,673.60) -
Tax impact thereon 5,109.60 659.27 12,337.64 10,216.42 (1,018.55) -
Net impact on profit (1,851.30) 1,178.43 21,378.66 20,263.38 (4,655.05) -
@ Interest on Swaps netted off.
208
ANNEXURE C-3
Principal Accounting Policies for the Consolidated Financial Information for the year ended March 31,
2007
The principal accounting policies of the Group have been described in brief in the following
paragraphs. The material accounting policies which were followed in the financial year ended on March 31,
2003, 2004, 2005 and 2006 and which has changed in subsequent years have been stated in italics at the
appropriate places.
1. Basis of Consolidation
Consolidated financial statements of the Group (comprising subsidiaries, Joint Ventures and
Associates) have been prepared on the basis of :
a) Audited accounts of State Bank of India (Parent).
b) Line by line aggregation of each item of asset/liability/income/expense of the subsidiaries with

the respective item of the Parent, and after eliminating all material intra-group balances /
transactions, unrealised profit/loss, and making necessary adjustments wherever required for
non-uniform accounting policies as per AS 21 of The Institute of Chartered Accountants of
India (ICAI).
c) Consolidation of Joint Ventures – full consolidation in respect of joint ventures which are also
subsidiaries and ‘Proportionate Consolidation’ in respect of other Joint Ventures – as per AS
27 of ICAI.
d) Accounting for investment in ‘Associates’ under the ‘Equity Method’ as per AS 23 of ICAI.
e) Financial Statements of the Subsidiaries / Joint Ventures drawn up to the same reporting date
as that of the Parent.
Earlier Policy: During the financial years ended on March 31, 2003 and March 31, 2004, joint
ventures were consolidated on proportionate consolidation method as per the then prevailing
provisions of Accounting Standard 27.
1. The difference between cost to the group of its investment in the subsidiary entities and the
group’s portion of the equity of the subsidiaries is recognised in the financial statements as
goodwill / capital reserve.
2. Minority interest in the net assets of the consolidated subsidiaries consists of :
a) The amount of equity attributable to the minority at the date on which investment in a
subsidiary is made.
b) The minority share of movements in revenue reserves/loss (equity) since the date the
parent-subsidiary relationship came into existence.
2. Basis of Preparation
The accompanying financial statements have been prepared under the historical cost convention. They
conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory
provisions, Regulatory/RBI guidelines, Accounting Standards/guidance notes issued by the ICAI. In
respect of foreign offices, statutory provisions and practices prevailing in respective countries are
complied with.
3. Advances and Provisions thereon
3.1 Advances are shown net of provisions and unrealised interest on Non-Performing Assets (NPAs).
209
3.2 A general provision is required to be made on Standard Assets on the global portfolio. The provision
rates for the difference categories of Standard Assets are summarised below:
a. Direct advances to agricultural and SME Sectors 0.25%
b. Residential housing loans beyond Rs. 20 lakhs 1.00%
c. Personal Loans, Loans and advances qualifying as capital 2.00%

market exposures, Commercial real estate loans, and Loans
and advances to Systemically important NBFCs –
Non Deposit Taking
d. All other loans and advances not included in (a), (b) & (c) 0.40%
Earlier Policy: During the years 2002-03, 2003-04 and 2004-05, the general provision on standard
assets on the global portfolio was 0.25%. In the year 2005-06, the general provision on standard assets
on the global portfolio was 0.40% except on the advances to small and medium enterprises and direct
agriculture which was at 0.25%.
3.3 Indian Offices
3.3.1 All advances are classified under categories, viz. (a) Standard Assets, (b) Sub-standard Assets,
(c) Doubtful Assets and (d) Loss Assets.
3.3.2 Provisions are made on outstanding non-performing advances (net of interest not realised) as
below:
• Sub Standard Assets : 10%

From the year ended 2004-05 : 20% (In case of ab initio unsecured
exposures (where realisable value of
security is not more than 10 %)
• Doubtful Assets
a) Unsecured portion at 100 percent after netting retainable/realisable amount

of guarantee cover provided by Export Credit Guarantee Corporation /
Credit Guarantee Trust for Small Industries, wherever applicable.
b) Secured portion
Period for which the advance has been considered as doubtful
PERCENTAGE
Up to one year 20%
One to three years 30%
More than three years 100%
• Loss Assets 100%
Earlier Policy:
a) In the case of doubtful assets for more than three years as on March 31, 2004, the
percentage of provision on secured portion in the earlier years were 50% in 2002-03
and 2003-04, 60% in 2004-05 and 75% in 2005-06.
210
b) In the case of advances guaranteed by the state governments the accounting policy
for classification of account and making provisions were as below in the earlier
years:
i. In the financial year ended March 31, 2005, advances guaranteed by State
Governments were classified as “sub-standard”, “doubtful” or “loss”, as
the case may be, if the amount due to the bank remains overdue for more
than 180 days and attracted appropriate provisioning as applicable to other
advances.
ii. In the financial years ended March 31, 2004 and March 31, 2003, advances
where State Government guarantee remained default for more than two
quarters ended as of March 31, 2000 after it is invoked at provision was
made at 30% of the secured portion and 100% of the unsecured portion.
iii. In the years 2003-04 and 2002-03, advances where State Government
guarantee remain default for more than two quarters as on March 31, 2000
after it is invoked at provision was made at 30% of the secured portion and
100% of the unsecured portion.
c) In the year 2002-03, the advances were considered as non-performing if they remain
overdue or out of order for more than 180 days as against 90 days at present.
• Financial Assets sold are recognised as follows:
i) In case the sale is at a price lower than the Net Book Value (NBV), the
difference is charged to the Profit and Loss Account.
ii) In case the sale is at a price higher than the NBV, the surplus provision is
not reversed and is utilised to meet the shortfall on sale of other such non-
performing financial assets.
3.3.3 Unrealised Interest recognised in the previous year on advances which have become non-
performing during the current year is provided for.
3.3.4 In case of restructuring / rescheduling of advances, the difference between the present value of
the future interest as per the original agreement and the present value of the future interest as
per the revised agreement is provided for at the time of restructuring / rescheduling.
3.4 Foreign Offices
3.4.1 Advances are classified under four categories in line with those of India Offices.
3.4.2 Provisions in respect of non-performing advances are made as per the local law or as per the
norms of RBI, whichever is higher.
4. Investments
4.1 Investments are classified into 3 categories, viz. ‘Held for Trading’, ‘Available for Sale’ and ‘Held to
Maturity’. Under each of these categories, investments are further classified under the following six
groups:
1. Government Securities;
2. Other Approved Securities;
3. Shares;
4. Debentures and Bonds;
5. Investments in Subsidiaries/Joint Ventures/Associates; and
6. Other Investments.
211
4.1.1 Investments that are acquired by the Group with the intention to trade by taking advantage of
short term price / interest rate movement are classified under ‘Held for Trading’. These
investments are held under this category up to 90 days from the date of acquisition.
4.1.2 Investments which are intended to be held up to maturity are classified as ‘Held to Maturity’.
4.1.3 Investments which are not classified in either of the above categories are classified as
‘Available for Sale’.
4.2 Valuation
4.2.1 In determining the acquisition cost of an investment:
a) Brokerage/commission received on subscriptions is deducted from the cost of

securities.
b) Brokerage, commission and stamp duty paid in connection with acquisition of

securities are treated as revenue expenses.
c) Interest accrued up to the date of acquisition of securities i.e. broken-period interest,

is excluded from the acquisition cost and recognised as interest expense. Broken-
period interest received on sale of securities is recognised as interest income.
d) Cost is determined on the weighted average cost method.
e) The transfer of the security (from one category to another) is accounted for at the
least of acquisition cost / book value / market value on the date of transfer and the
depreciation, if any, on such transfer is charged to Profit and Loss Account – “Profit
on Revaluation of Investments” as a deduction.
Earlier Policy : In the year 2002-03, the weighted average cost was determined at the end of
year after considering transactions during the year.
4.2.2 Individual scrips classified under ‘Held for Trading’ category are valued at lower of book
value or market value. Securities are valued scrip-wise and depreciation / appreciation is
aggregated for each classification. Net depreciation in each classification, if any, is provided
for while net appreciation is ignored. The book value of the scrips continues to remain
unchanged.
4.2.3 Investments under ‘Held to Maturity’ (HTM) category are carried at acquisition cost.
Wherever the book value is higher than the face value/redemption value, the premium on
acquisition or on transfer from another category is amortised over the remaining period to
maturity of the security using Constant Yield Method (CYM). Amortisation loss is charged to
Profit & Loss Account – “Profit on Revaluation of Investments” as a deduction. The book
value of the security is reduced to the extent of the amount amortised.
Earlier Policy: In the financial years ended March 31, 2003 & March 31, 2004, the premium
amount was amortised equally over the remaining period of maturity.
4.2.4 Investments under ‘Available for Sale’ category are valued at cost or market value, whichever
is lower. Where market quotations are not available, market value for this purpose is arrived at
on the basis of realisable market price computed as per the guidelines of the Fixed Income
Money Market and Derivatives Association of India (FIMMDA) / Primary Dealers
Association of India (PDAI) / RBI. Securities are valued scrip-wise and
depreciation/appreciation is aggregated for each classification. Net depreciation in each
classification, if any, is provided for while net appreciation is ignored. The book value of the
scrips continues to remain unchanged.
Earlier Policy: In the years 2002-03 and 2003-04, depreciation was recognised scrip-wise
and appreciation ignored.
212
4.2.5 Treasury Bills and Commercial Papers are valued at cost.
4.2.6 Non-Performing Investments are recognised as per RBI guidelines and provision is made as
per RBI norms applicable to Non-Performing Advances.
4.2.7 Investments in Regional Rural Banks (RRBs) are valued at carrying cost (i.e. book value).
Earlier Policy: During the financial year ended March 31, 2007, the group has recognised
diminution in the value of investments in RRBs to the extent of its capital contribution which
hitherto was being recognised by the group without restricting to its capital contribution.
4.2.8 The Group has adopted the Uniform Accounting Procedure prescribed by the RBI for
accounting of Repo and Reverse Repo transactions other than transactions under the Liquidity
Adjustment facility (LAF) with the RBI. Accordingly, the securities sold/purchased under
Repo/Reverse Repo are treated as outright sales/purchases and accounted for in the
Repo/Reverse Repo Accounts and the entries are reversed on the date of maturity. Costs and
revenues are accounted as interest expenditure/income, as the case may be. Balance in
Repo/Reverse Repo Account is adjusted against the balance in the Investment Account.
Securities purchased/sold under LAF with RBI are debited/credited to Investment Account
and reversed on maturity of the transactions. Interest expended/earned thereon is accounted
for as expenditure/revenue.
5. Derivatives
5.1 The Group presently deals in Interest Rate Derivatives viz. Rupee Interest Rate Swaps, Cross Currency
Interest Rate Swaps and Forward Rate Agreements, and Currency Derivatives viz. Options and
Currency Forwards. The Group also deals in a mix of these generic instruments, under the portfolio of
Structured Products.
5.2 Based on RBI guidelines, Derivatives are valued as follows:
a) Derivatives used for trading are marked to market and net appreciation/depreciation is
recognised in the Profit and Loss Account.
b) Derivatives used for hedging are :
i) Marked to market in cases where the underlying Assets/Liabilities are marked to

market. The resultant gain/loss is recognised in the Profit & Loss Account.
ii) Accounted on accrual basis in cases where the underlying Assets/Liabilities are not
marked to market.
The net outstanding marked to market position of each type of derivative is shown either under Asset
or Liability, as the case may be.
6. Fixed Assets and Depreciation
6.1 Premises and other fixed assets are accounted on historical cost basis.
6.2 Depreciation is provided on the written down value method at the rates prescribed under the Income
Tax Rules, 1962, which are considered appropriate by the management. In respect of computers,
depreciation is provided on straight line method at 33.33% per annum, as per RBI guidelines.
Computer software not forming an integral part of hardware is depreciated fully in the year of purchase.
6.3 Assets costing up to Rs. 1,000 are charged off to the Profit and Loss Account.
6.4 In respect of fixed assets held at Foreign Offices, depreciation is provided as per the laws/norms of the
respective countries.
213
6.5 In respect of leasehold premises, the lease amount is amortised over the period of lease.
7. Assets given on Lease
7.1 In respect of assets given on lease by the Group on or before March 31, 2001, the value of the assets
given on lease and the amounts paid as advance for assets to be given on lease are disclosed as “Leased
Assets” and “Capital Work-in-progress (Leased Assets)” respectively under fixed assets. Depreciation
is provided on straight line method as per the Companies Act, 1956 and the difference between the
annual lease charge (capital recovery) and the depreciation is taken to Lease Equalisation Account as
per the guidelines issued by the ICAI.
7.2 Assets given on lease by the Group on or after April 1, 2001 are accounted as per Accounting Standard
19 (Leases) issued by the ICAI. Such assets are included under “Other Assets”.
7.3 Provisions on non-performing leased assets are made on the basis of RBI guidelines applicable to
advances.
8. Impairment of Assets
8.1 Impairment losses (if any), are recognised in accordance with Accounting Standard 28 issued by the
ICAI and charged off to Profit and Loss Account.
9. Foreign Currency Transactions
9.1 In conformity with Accounting Standard 11 (The effects of changes in foreign exchange rates) of the
ICAI, Foreign Branches of the Group and Offshore Banking Units (“OBUs”) have been classified as
Non-integral Operations and Representative Offices classified as Integral Operations.
9.2 a) Foreign currency transactions are recorded on initial recognition in the reporting currency by
applying to the foreign currency amount the exchange rate between the reporting currency and
the foreign currency on the date of transaction.
b) Foreign currency monetary items are reported using the FEDAI closing spot rates.
c) Exchange differences arising on the settlement of monetary items at rates different from those
at which they were initially recorded are recognised as income or as expense in the period in
which they arise.
9.3 Non-integral Operations
a) All monetary/non-monetary assets and liabilities as well as contingent liabilities are translated
at the closing rate notified by FEDAI.
b) Income and expenditure are translated using the quarterly average rate notified by FEDAI at
the end of the respective quarter.
c) All resulting exchange differences are accumulated in a separate “Foreign Currency

Translation Reserve” account till the disposal of the net investment.
9.4 Integral Operations
a) All income and expenditure of integral operations are recorded at the rates prevalent on the
date of transaction.
b) All foreign currency monetary items are reported using the FEDAI closing rates.
Earlier Policy: In the years 2002-03 and 2003-04, items of income and expenditure as well as assets
and liabilities in foreign currencies in respect of foreign offices, foreign subsidiaries and foreign Joint
Ventures, and assets and liabilities in foreign currencies held in the books of domestic offices were
214
converted at the rate of exchange prevailing at the close of the year as per RBI guidelines. Items of
income and expenditure in foreign currencies at domestic offices were converted at the exchange rate
prevailing on the date of transactions.
9.5 Forward Exchange Contracts
In accordance with the guidelines of the FEDAI and the provisions of AS – 11, net outstanding forward
exchange contracts in each currency are revalued at the Balance Sheet date at the corresponding
forward rates for the residual maturity of the contracts. The difference between the revalued amount
and the contracted amount is recognised as profit or loss, as the case may be.
10. Revenue Recognition
10.1 Income and Expenditure are accounted on accrual basis. In case of foreign offices, income is
recognised as per the local laws of the country in which the respective foreign office is located
10.2 The following items of income are recognised on realisation basis:
a) Commission (other than commission on deferred payment guarantees and government

transaction), exchange and brokerage.
b) Dividend on investments.
c) Income on Rupee Derivatives designated as “Trading”.
d) Interest on application money on investments and overdue interest on investments.
10.3 The following items of income are recognised on realisation basis, owing to significant uncertainty in
collection thereof:
a) Income on non-performing advances, Overdue bills and leased assets.
b) Interest on non-performing investments.
10.4 Income (other than interest) on investments in “Held to Maturity” (HTM) category acquired at a
discount to the face value, is recognised as follows:
10.4.1 a) On Interest bearing securities, it is recognised only at the time of sale.
b) On zero-coupon securities, it is accounted for over the balance tenor of the security
on a constant yield basis.
10.4.2 Profit on sale of investments in this category is first credited to the Profit and Loss Account
and thereafter appropriated to the “Capital Reserve Account”. Loss on sale is recognised in the
Profit and Loss Account.
10.5 Non-banking entities
10.5.1 Merchant Banking :
a) Issue management and advisory fees are recognised as per the terms of agreement
with the client.
b) Fees for private placement are recognised on completion of assignment.
c) Underwriting commission relating to public issues is accounted for on finalisation of

allotment of the public issue. Brokerage income relating to public issues/mutual
fund/other securities is accounted for based on mobilisation and intimation received
from clients/intermediaries.
215
d) Brokerage income in relation to stock broking activity is recognised on settlement
date of the transaction.
10.5.2 Asset Management:
Management fee is recognised at specific rates agreed with the relevant scheme applied on the
average daily net assets of each scheme (including inter-scheme investments, where applicable,
and investments made by the company in the respective scheme).
10.5.3 Credit Card Operations:
a) Joining membership fee and first annual fee has been recognised over a period of one
year as this more closely reflects the period to which the fee relates to.
b) Visa interchange income is recognised on accrual basis.
c) All other service fees are recorded at the time of recording the respective transaction.
10.5.4 Factoring:
Factoring service charges are accounted on accrual basis except in the case of non-performing
assets, where income is accounted on realisation.
10.5.4 Life Insurance:
a) Life insurance premium (net of service tax) is recognised as income when due from
policyholders. Uncollected premium from lapsed policies is not recognised as income
until such policies are revived. In respect of linked business, premium income is
recognised when the associated units are allotted.
b) Premium ceded on reinsurance is accounted in accordance with the terms of the

treaty or in-principle arrangement with the reinsurer.
c) Life insurance claims by death are accounted when intimated. Intimations up to the
end of the year are considered for accounting of such claims. Claims by maturity are
accounted on the policy maturity date. Annuity benefits are accounted when due.
Surrenders are accounted as and when notified. Claims cost consist of the policy
benefit amounts and claims settlement costs, where applicable. Amounts recoverable
from re-insurers are accounted for in the same period as the related claims and are
reduced from claims.
d) The estimation of liability against life policies is determined by the Appointed

Actuary pursuant to an annual review of the life insurance business of the company.
10.6 Foreign Offices/Foreign Subsidiaries
Income is recognised as per the local laws of the countries.
11. Retirement Benefits
11.1 Contributions payable to Bank’s Provident Fund Trust in terms of its Provident Fund Scheme are
charged to Profit and Loss account on accrual basis.
11.2 Liability for gratuity, pension and leave encashment (which are defined benefits) is determined on the
basis of actuarial valuations carried out at the year end and incremental liability is provided for by
charging to the Profit and Loss Account.
12. Provision for Taxation
216
Provision for tax comprises of current tax for the period determined in accordance with the relevant
laws, fringe benefit tax and deferred tax charge or credit reflecting the tax effect of timing differences
between accounting income and taxable income for the period, in conformity with Accounting
Standard 22 (Accounting for Taxes on Income) of the Institute of Chartered Accountants of India. The
deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised
using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred
tax assets are not recognised unless there is virtual certainty that sufficient future taxable income will
be available against which such deferred tax assets will be realised.
217
ANNEXURE C-4
Material Notes to Summarised Consolidated Financial Information and Accounting Standard Disclosures
(A) Material Notes to Summarised Consolidated Financial Information
1. List of Subsidiaries/Joint Ventures/Associates considered for preparation of consolidated

financial statements:
The Subsidiaries, Joint Ventures and Associates (which along with State Bank of India, the parent,
constitute the Group), considered in the preparation of the consolidated financial statements, are:
A) Subsidiaries
Year wise Group’s Stake (%)

Country of As of As of As of As of As of As of
S. Name of the Incorpor- March March March March March September
No Subsidiary ation 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
1) State Bank of
Bikaner & Jaipur India 75.07 75.07 75.07 75.07 75.07 75.07
2) State Bank of
Hyderabad India 100.00 100.00 100.00 100.00 100.00 100.00
3) State Bank of
Indore India 98.05 98.05 98.05 98.05 98.05 98.05
4) State Bank of
Mysore India 92.33 92.33 92.33 92.33 92.33 92.33
5) State Bank of
Patiala India 100.00 100.00 100.00 100.00 100.00 100.00
6) State Bank of
Saurashtra India 100.00 100.00 100.00 100.00 100.00 100.00
7) State Bank of
Travancore India 75.01 75.01 75.01 75.01 75.01 75.01
8) SBI Commercial
& International
Bank Ltd India 100.00 100.00 100.00 100.00 100.00 100.00
9) SBI Capital
Markets Ltd India 86.16 86.16 86.16 86.16 86.16 86.16
10) SBICAP
Securities Ltd India - - - 86.16 86.16 86.16
11) SBICAP Trustee
Company Ltd India - - - 86.16 86.16 86.16
12) SBICAPS
Ventures Ltd India - - - 86.16 86.16 86.16
13) SBI DFHI Ltd India 58.83 66.00 65.95 65.95 65.95 65.95
14) SBI Factors &
Commercial
Services Pvt Ltd India 69.88 69.88 69.88 69.88 69.88 69.88
15) SBI Mutual Fund
Trustee Company
Pvt Ltd India - - 100.00 100.00 100.00 100.00
16) State Bank of
India (Canada) Canada 100.00 100.00 100.00 100.00 100.00 100.00
17) State Bank of
India (California) USA 100.00 100.00 100.00 100.00 100.00 100.00
218
Country of As of As of As of As of As of As of
S. Name of the Incorpor- March March March March March September
No Subsidiary ation 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
18) SBI International
(Mauritius) Ltd Mauritius 98.00 98.00 98.00 98.00 98.00 98.00
19) Indian Ocean
International
Bank Ltd Mauritius - - - 51.00 56.84 61.93
20) PT Bank
Indomonex Indonesia - - - - 76.00 76.00
21) SBICAP (UK)
Ltd U.K. - - - 86.16 86.16 86.16
22) SBI Fund
Management Pvt
Ltd India 100.00 100.00 - - - -
B) Joint Ventures

Country As of As of As of As of As of As of
Name of the of Incor- March March March March March September
S.No Joint Venture poration 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
1) C Edge
Technologies Pvt
Ltd India - - - 49.00 49.00 49.00
2) GE Capital
Business Process
Management
Services Pvt Ltd India 40.00 40.00 40.00 40.00 40.00 40.00
3) SBI Cards and
Payment Services
Pvt Ltd India 60.00 60.00 60.00 60.00 60.00 60.00
4) SBI Fund
Management Pvt
Ltd India - - 63.00 63.00 63.00 63.00
5) SBI Life
Insurance
Company Ltd India 74.00 74.00 74.00 74.00 74.00 74.00
6) Commercial Bank
of India LLC Russia - 60.00 60.00 60.00 60.00 60.00
7) SBI Funds
Management
(International)
Private Ltd Mauritius - - - - 63.00 63.00
219
C) Associates

S.No Associate poration 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
1) Andhra Pradesh
Grameena Vikas
Bank India - - - 35.00 35.00 35.00
2) Arunachal
Pradesh Rural
Bank India 35.00 35.00 35.00 35.00 35.00 35.00
3) Chhatisgarh
Gramin Bank India - - - - 35.00 35.00
4) Ellaquai Dehati
Bank India 35.00 35.00 35.00 35.00 35.00 35.00
5) Ka Bank
Nongkyndong Ri
Khasi Jaintia India 35.00 35.00 35.00 35.00 35.00 35.00
6) Krishna
Grameena Bank India 35.00 35.00 35.00 35.00 35.00 35.00
7) Langpi Dehangi
Rural Bank India 35.00 35.00 35.00 35.00 35.00 35.00
8) Madhya Bharat
9) Mizoram Rural
Bank India 35.00 35.00 35.00 35.00 35.00 35.00
10) Nagaland Rural
Bank India 35.00 35.00 35.00 35.00 35.00 35.00
11) Parvatiya Gramin
Bank
India 35.00 35.00 35.00 35.00 35.00 35.00
12) Purvanchal
Kshetriya Gramin
Bank India - - - 35.00 35.00 35.00
13) Samastipur
Kshetriya Gramin
Bank India 35.00 35.00 35.00 35.00 35.00 35.00
14) Utkal Gramya
Bank India - - - - 35.00 35.00
15) Uttaranchal
16) Vananchal
17) Marwar
Ganganagar
Bikaner Gramin
Bank India - - - - 26.27 26.27
18) Vidisha Bhopal
Kshetriya Gramin
Bank India 34.32 34.32 34.32 34.32 34.32 34.32
220
S.No Associate poration 31, 2003 31, 2004 31, 2005 31, 2006 31, 2007 30, 2007
19) Deccan Grameena
Bank India - - - 35.00 35.00 35.00
20) Cauvery
Kalpatharu
Grameena Bank India - - - - 32.32 32.32
21) Malwa Gramin
Bank India 35.00 35.00 35.00 35.00 35.00 35.00
22) Saurashtra
Grameena Bank India - - - 35.00 35.00 35.00
23) Clearing
Corporation of
India Ltd India 26.82 28.97 28.97 28.97 28.97 28.97
24) SBI Home
Finance Ltd India 25.05 25.05 25.05 25.05 25.05 25.05
25) UTI Asset
Management
Company Pvt Ltd India 25.00 25.00 25.00 25.00 25.00 25.00
26) Bank of Bhutan Bhutan 20.00 20.00 20.00 20.00 20.00 20.00
27) Nepal SBI Bank
Ltd Nepal 50.00 50.00 50.00 50.00 50.00 50.00
221
a) The expenses on encashment of leave of employees were hitherto accounted for on cash basis.
However, in order to comply with the Accounting Standard 15 issued by the Institute of Chartered
Accountants of India and guidelines issued by RBI, during the current year, the liability towards
encashment of leave is accounted for on the basis of actuarial valuation. Accordingly, an amount of Rs.
1,113 million representing current’s year liability has been charged to Profit and Loss Account and an
amount of Rs. 8,157 million representing the accrued liability up to March 31, 2002 has been debited to
the Revenue Reserve.
b) During the year an amount of Rs. 5,082 million has been charged to revenue on account of Voluntary
revenue expenditure. Unamortised amount of Rs. 10,085 million is to be amortised over a further
period of two years in accordance with RBI guidelines.
c) Two of the subsidiaries – SBI Cards and Payment Services Pvt. Ltd. and SBI Life Insurance Co. Ltd. –
being joint ventures, were consolidated on proportionate basis as per Accounting Standard 27 instead
of being consolidated as subsidiaries as was done in 2001-02.
d) GE Capital Business Process Management Services Pvt. Ltd. and Credit Information Bureau of India
Ltd were included for consolidation on proportionate basis as per Accounting Standard 27. In 2001-02,
the Bank’s investment in these entities was accounted for at cost.
e) Two of the bank’s subsidiaries – SBI Securities Ltd. and SBI Servicos Limitada – are in the process of
being liquidated. While figures of these Companies have not been taken for the purpose of
consolidation, the Bank’s investment in these subsidiaries have been shown as receivable under the
head “Other assets – Others” in Schedule 11. Another subsidiary – SBI Finance Inc. – has also been
liquidated during the year.
f) Two of the associates – Bank of Bhutan (December 31) and Nepal SBI Bank Ltd (Hindu Calendar Year)
follow accounting years different from that of the parent.
a) During the year an amount of Rs. 5,099 million has been charged to revenue on account of Voluntary
revenue expenditure. Unamortised amount of Rs. 5,054 million is to be amortised next year in
b) SBI Gilts Ltd was merged with Discount & Finance House of India Ltd in terms of the order of the
Mumbai High Court dated February 26, 2004. The effective date of merger was April 1, 2003. For the
purpose of preparing the statement, the figures of the merged entity have been considered.
c) Commercial Bank of India LLC, a joint venture with Canara Bank, incorporated in Russia as a joint
stock company on November 5, 2003, commenced operation effective from December 4, 2003.
d) SBI Servicos Limitada, a subsidiary incorporated in Brazil, was in the process of being liquidated.
While figures of these Companies were not taken for the purpose of consolidation, the bank’s
investment in this subsidiary have been shown as receivable under the head “Other Investment” in
Schedule 8.
e) SBI Securities Ltd, a subsidiary which was under voluntary liquidation, was liquidated. The group’s
equity investment of Rs. 456 million has been fully realised.
a) During the year final instalment of Rs. 5,054 million has been charged to revenue on account of
Voluntary Retirement Scheme (VRS) implemented during the year 2000-01, which was treated as
deferred revenue expenditure.
222
b) State Bank of India divested 37% of its stake in its fully owned subsidiary SBI Funds Management Pvt
Ltd to Société Générale Asset Management, France. However, the interest in the assets, liabilities,
income and expenses of the entity was consolidated as per procedure for consolidation of investments
in subsidiaries set out in Accounting Standard 21.
c) The stake of SBI in Asset Reconstruction Company came down to 19.95% (24.50% up to October 15,
2004). Consequently, in the 2004-05, the entity was not treated as an Associate of the State Bank
Group.
d) A new Subsidiary, SBI Mutual Fund Trustee Company Pvt. Ltd, promoted by State Bank of India, took
over the trusteeship function of the SBI mutual fund from December 29, 2004 and the assets, liabilities;
income and expense of the entity were consolidated as per procedure for consolidation of investments
in subsidiaries, as set out in Accounting Standard 21.
e) The investments in ‘ Available for Sale (AFS) and ‘Held For Trading’ (HFT) categories were being
valued scrip-wise and depreciation if any, was provided scrip wise while ignoring appreciation. From
the current financial year investment in ‘Available for Sale’(AFS) and ‘Held For Trading’ (HFT)
categories have been valued in conformity with RBI guidelines after netting-off classification-wise
depreciation and appreciation, computed scrip-wise and providing for net depreciation in each
classification while ignoring net appreciation.
f) During the year, loss on redemption of securities in AFS category has been recognised after adjusting
the underlying specific provisions held against these securities as against accounting of the same on
gross basis in “Income from Investments” in earlier years. However there is no impact on the net profit
for financial year 2004-05.
g) During the year, the Accounting Standard 11 – Effects of change in Foreign Exchange Rate (2003-
Revised) has come into effect. The net profit of the Bank for the year is arrived at in conformity with
the provisions of the said Accounting Standard. Consequent upon this, net exchange difference arising
on translation of monetary items of non integral operations amounting to Rs. 3,321 million shown
under Other Liabilities & Provisions in earlier years has been transferred to Foreign Currency
Translation Reserve.
a) State Bank of India acquired 51% stake in Indian Ocean International Bank Ltd at a cost of U.S.$ 7.35
million (Rs. 322 million) w.e.f. April 20, 2005. As such the assets, liabilities, income and expenses of
IOIB were consolidated from April 20, 2005. A sum of Rs. 8 million was recognised as goodwill in the
consolidated financial statements.
b) SBI Capital Market Ltd, a subsidiary of State Bank of India, promoted four wholly owned subsidiaries
viz. SBICAP Securities Ltd, SBICAPS Ventures Ltd, SBICAP Trustee Company Ltd and SBICAP
(UK) Ltd. The consolidated financials of SBI Capital Markets Ltd were used in the preparation of
consolidated financial statements of State Bank of India.
c) State Bank of India promoted a new company as a joint venture – C Edge Technologies Ltd - with Tata
Consultancy Ltd. The company commenced operations w.e.f. March 28, 2006.
d) INMB Bank Ltd ceased to be a subsidiary w.e.f. January 1, 2006 pursuant to its merger with Sterling
Bank Plc in compliance with Nigerian Regulatory requirements. As per the merger scheme, State Bank
of India’s stake in Sterling Bank Plc is 9.24%. As per Accounting Standard 21, a sum of Rs. 63 million
was charged off as loss on disposal of subsidiary. Income (Rupee equivalent 231 million) / Expenses
(Rupee equivalent 278 million) of INMB Bank Ltd up to December 31, 2005 were consolidated.
e) State Bank of India brought down its equity stake in Credit Information Bureau of India Ltd from 40%
as of March 31, 2005 to 10% in stages starting from May 17, 2005. As Credit Information Bureau of
India Ltd ceased to be a joint venture it has not been consolidated for the year 2005-06. A sum of Rs.
91 million was recognised as profit on disposal of subsidiary/joint venture.
223
f) During the year the Bank has paid Rs. 3,092 million to the Government, being its share (25%) of the
consideration for purchase of UTI Asset Management Company Pvt. Ltd. As per Accounting Standard
23, this amount has been identified as goodwill and included in the carrying amount of investment.
g) As of March 31, 2005, the group had 44 RRBs as associates, which as of March 31, 2006 came down
to 34 due to amalgamation of 14 RRBs details of which are as follows.
Name of the Date of

Name of the amalgamated RRB Name of the new RRB sponsor bank merger
1. Basti Gramin Bank Purvanchal Kshetriya State Bank of 12.09.05
2. Gorakhpur Kshetriya Gramin Bank Gramin Bank India
3. Kakathiya Grameena Bank Andhra Pradesh State Bank of 31.03.06
4. Manjira Grameena Bank Grameena Vikas Bank India
5. Nagarjuna Grameena Bank
6. Sangameshwara Grameena Bank
7. Sri Vishaka Grameena Bank
8. Golconda Grameena Bank Deccan Grameena State Bank of 24.03.06
9. Sri Rama Grameena Bank Bank Hyderabad
10. Sri Saraswathi Grameena Bank
11. Sri Sathavahana Grameena Bank
12. Jamnagar Rajkot Gramin Bank Saurashtra Gramin State Bank of 02.01.06
13. Junagarh Amreli Gramin Bank Bank Saurashtra
14. Surendranagar Bhavnagar Gramin Bank
h) As a one time measure, in terms of RBI Guidelines, unreconciled net credit balances in the inter-branch
accounts up to March 31, 1999 aggregating to Rs. 3,166 million has been credited to Profit and Loss
account under the head Miscellaneous Income. Consequently, profit (net of tax) for the year is higher
by Rs. 2100 million.
i) Interest Earned-Others includes an amount of Rs. 17,018 million, being interest on refund of Income
Tax.
j) Other Income includes an amount of Rs. 5,315 million being Exchange Gain on India Millennium
Deposits (“IMDs”) redemption. Consequently, profit (net of tax) for the year is higher by Rs. 3526
million.
k) An amount of Rs. 5,635 million paid to RBI for maintenance of value (MOV) by debit to Interest
Expended Account in the years 2001 and 2002 was received back during the year on redemption of
IMDs and credited to Interest Expended account. Consequently, profit (net of tax) for the year is higher
l) Payments to and provisions for employees, under Operating Expenses includes an amount of Rs. 4,085
million, being arrears of salary paid for the previous financial years.
m) In terms of RBI letter No.DBS.CO.SMC.No. 8804/22.09.001/2005-06 dated December 19, 2005, the
unreconciled net credit balances (net value of debit and credit entries) in Inter Branch Account up to
March 31, 1999 aggregating Rs5,170 million has been credited to Profit and Loss Account.
a) State Bank of India has acquired 76% stake in PT Bank Indomonex, a commercial bank incorporated
and operating in Indonesia, at a cost of U.S.$ 5.00 million (Rs. 223 million) w.e.f. December 14, 2006.
As such the assets, liabilities, income and expenses of this bank have been consolidated from
December 14, 2006. A sum of Rs. 131 million has been recognised as goodwill in the consolidated
financial statements.
224
b) SBI Funds Management (Pvt) Ltd, a company in which SBI holds 63% stake, has promoted a new
wholly owned subsidiary – SBI Funds Management (International) Private Limited. The new
subsidiary, incorporated on January 17, 2006, has commenced operations on April 1, 2006.
c) The parent and its constituent banks had hitherto been following a policy of amortisation of premium in
respect of securities held in the ‘Held to Maturity’ (HTM) category by an adjustment to the account
head ‘Provision and Contingencies’. From the current financial year and in accordance with RBI
directive dated April 20, 2007, the Group has charged the amortisation amount as well as mark to
market losses on transfer of securities from ‘Available for Sale’ (AFS) to HTM category by an
adjustment to the account head Other Income “Profit on revaluation of Investments” as a deduction. As
a result of this change in accounting policy, the Operating Profit for the year stands reduced by Rs.
23,031 million for the current year. However, there is no impact on the Net Profit for the year.
d) During the year, the group has recognised diminution in the value of investments in RRBs to the extent
of its capital contribution which hitherto was being recognised by the group without restricting to its
capital contribution. This has resulted in the increase in the profit of the group for the year by Rs. 1,582
million.
e) As of March 31, 2006, the group had 34 Regional Rural Banks (RRBs) as associates, which as of
March 31, 2007 has come down to 22 due to amalgamation of 19 RRBs into seven new RRBs, details
of which are as follows.
Name of the
Name of the new sponsor Date of
Name of the amalgamated RRB RRB bank merger
1. Bastar Kshetriya Gramin Bank Chhatisgarh State Bank 30.06.2006
2. Bilaspur Raipur Kshetriya Gramin Bank Gramin Bank of India
3. Raigarh Kshetriya Gramin Bank
4. Bundelkhand Kshetriya Gramin Bank Madhya Bharat State Bank 30.06.2006
5. Damoh Sagar Panna Kshetriya Gramin Bank Gramin Bank of India
6. Shivpuri Guna Kshetriya Gramin Bank
7. Bolangir Anchalika Gramya Bank Utkal Gramya State Bank 31.07.2006
8. Kalahandi Anchalika Gramya Bank Bank of India
9. Koraput Panchbati Gramya Bank
10. Palamau Kshetriya Gramin Bank Vananchal State Bank 30.06.2006
11. Santhal Parganas Gramin Bank Gramin Bank of India
12. Alaknanda Gramin Bank Uttaranchal State Bank 30.06.2006
13. Ganga Yamuna Gramin Bank Gramin Bank of India
14. Pithoragarh Kshetriya Gramin Bank
15. Bikaner Kshetriya Gramin Bank Marwar State Bank 12.06.2006

16. Marwar Gramin Bank Ganganagar of Bikaner &
17. Sriganganagar Kshetriya Gramin Bank Bikaner Bank Jaipur
18. Cauvery Grameena Bank Cauvery State Bank 24.05.2006
19. Kalpatharu Grameena Bank Kalpatharu of Mysore
Grameena Bank
Since the assets/liabilities of the merged RRBs have been taken over by the new entities at their
respective book values, there is no goodwill/capital reserve on account of these mergers.
6. Half Year Ended on September 30, 2007
a. Accounting Standard 15 “Employee Benefits” (revised 2005) is effective for accounting periods
commencing on or after 07.12.2006. As per this Standard, the difference (as adjusted by any related tax
expense) between the transitional liability and the liability that would have been recognised at the same
date, as per pre revised Accounting Standard (AS) 15, ‘Accounting for Retirement Benefits in the
Financial Statements of Employers’, should be adjusted immediately against opening balance of
225
revenue reserves and surplus. The Institute of Chartered Accountants of India has made a limited
revision to this provision, which has been notified on October 17, 2007. This revision provides the
Bank with another option to charge additional liability arising upon the first application of the standard
as an expense over a period up to five years. The Bank is currently examining both the alternatives. The
impact of the Accounting Standard 15 “Employee Benefits” (revised 2005) has not been ascertained for
transitional provision and current period(s). In the interregnum, the Bank has made adequate provisions
as per pre-revised Accounting Standard 15, ‘Accounting for Retirement Benefits in the Financial
Statements of Employers’.
b. During the quarter ended September 30, 2007, the Central Board of the Bank and the Board of State
Bank of Saurashtra (“SBS”) have accorded approval for merger of SBS with SBI. The matter has
further been referred to RBI and the Government for approval. As the merger process has not yet been
crystallised, there is no impact on the Bank’s results.
c. During the half-year ended September 30, 2007, the entire share holding of RBI in State Bank of India
aggregating 31,43,39,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been
transferred to the Central Government.
d. During the half-year ended September 30, 2007, the Bank has shifted SLR investments having
aggregate Face Value of Rs. 90,816 million from ‘Available for Sale’ (AFS) category to ‘Held to
Maturity’ (HTM) category, resulting in a net revaluation loss of Rs. 2,977 million.
e. In terms of RBI circular dated April 20, 2007, the Bank had accounted for amortisation of premium in
respect of securities included in the ‘Held to Maturity’ (HTM) category as an adjustment against ‘Other
Income’. Based on the clarification issued by RBI on July 11, 2007, Banks are required to reflect the
amortisation of premium held in HTM category by an adjustment to the ‘Interest Earned’. Accordingly,
the Bank has carried out the reclassification of the same for the period ended September 30, 2007. This
change in accounting procedure does not have any impact on the net profit for the period(s) under
review.
226
(B) Accounting Standard Disclosures
1. Segment Reporting
i) Segment identification
PRIMARY Treasury Operations

(Business Segment) Banking Operations
Non-Banking Operations
SECONDARY Domestic Operations
(Geographical Segment) Foreign Operations
ii) Accounting Policy
The accounting policies adopted for segment reporting are in line with the accounting policies adopted
in the parent’s financial statements with the following additional features.
iii) Pricing of Inter-segmental transfers
During the year, the parent and its constituent banks have changed the segmental pricing methodology
for presenting more meaningful segmental results. The Group has hitherto been following the pricing
of inter-segment transactions between the Non Banking Operations segment and other segments are
market led. In respect of transactions between treasury and banking segments, compensation for the use
of funds is reckoned based on interest and other costs incurred by the lending segment. The financial
effect of change on the segment results cannot be reasonably determined. However, this change does
not have any impact on the financials of the Group.
iv) Allocation of Revenue and Expenses
Revenue and expenses have been identified to segments based on their relationship to the operating
activities of the segment. Revenue and expenses, which relate to the enterprise as a whole and are not
allocable to segments on a reasonable basis, have been included under “Unallocated Expenses” net of
unallocated corporate revenue.
v) Segmental Results
Part A: Primary Segment

(Rs. in millions)
For the Year Ended 2003 2004 2005 2006 2007
1. REVENUE
i) Banking Operations 396,671 408,804 432,896 481,932 615,514
ii) Treasury Operations 271,835 289,963 265,000 233,631 153,293
iii) Non Banking Operations 5,635 8,380 12,756 21,872 46,116
iv) Elimination 183,229 183,962 177,093 148,747 132,090
v) Total (i+ii+iii-iv) 490,912 523,185 533,559 588,688 682,833
2. RESULTS
i) Banking Operations 39,640 23,896 72,995 77,648 119,411
ii) Treasury Operations 41,636 65,240 8,660 -18,429 1,264
iii) Non Banking Operations 1,384 4,159 992 1,528 5,607
iv) Elimination -- -- -- -- --
v) Total (i+ii+iii-iv) 82,660 93,295 82,647 60,747 126,282
3. Unallocated Income/(Expenses) Net 8,820 11,578 349 -18,799 18,513
4. Operating Profit(2-3) 73,840 81,717 82,298 79,546 107,769
5. Income Taxes 30,531 24,123 26,318 32,296 41,571
227
6. Extraordinary Profit/Loss -- -- -- 9,365 --
7. Net Profit (4-5+6) 43,309 57,594 55,980 56,615 66,198
OTHER INFORMATION
8. Segment Assets
i) Banking Operations 4,042,040 4,417,534 5,171,650 5,058,176 5,856,492
ii) Treasury Operations 2,499,023 2,713,238 2,889,582 2,895,586 2,853,433
iv) Elimination 1,819,493 1,713,629 1,881,150 1,104,803 712,593
v) Total (i+ii+iii-iv) 4,776,692 5,456,852 6,229,444 6,926,610 8,108,824
9. Unallocated Assets 200,868 52,992 56,332 43,308 42,920
10. Total Assets (8+9) 4,977,560 5,509,844 6,285,776 6,969,918 8,151,744
11. Segment Liabilities
i) Banking Operations 4,454,654 4,632,956 5,165,863 5,065,929 5,997,920
ii) Treasury Operations 2,016,313 2,234,744 2,578,610 2,594,858 2,241,805
iv) Elimination 1,797,378 1,672,962 1,841,307 1,159,870 869,711
v) Total (i+ii+iii-iv) 4,728,136 5,217,301 5,933,000 6,557,882 7,457,854
12. Unallocated Liabilities 24,255 18,179 27,258 39,969 268,534
13. Total Liabilities (11+12) 4,752,391 5,235,480 5,960,258 6,597,851 7,726,388
Part B: Secondary Segments-

(Rs. in millions)
1. Revenue
i) Domestic Operations 478,854 511,553 518,063 559,348 641,289
ii) Foreign Operations 12,058 11,632 15,496 29,340 41,544
iii) Total (i+ii) 490,912 523,185 533,559 588,688 682,833
2. Assets
i) Domestic Operations 4,752,418 5,249,127 5,949,709 6,494,272 7,569,088
ii) Foreign Operations 225,142 260,717 336,067 475,646 582,656
iii) Total (i+ii) 4,977,560 5,509,844 6,285,776 6,969,918 8,151,744
2. Related Party Disclosures
As identified by the management and relied upon by the auditors.
2.1 Related Parties:
2.1.1 Joint Ventures:-
1. C Edge Technologies Ltd

2. GE Capital Business Process Management Services Private Limited.
2.1.2 Associates:-

3. Chhatisgarh Gramin Bank
228
12. Marwar Ganganagar Bikaner Bank
18. Saurashtra Grameena Bank
23. SBI Home Finance Limited.
24. Clearing Corporation of India Ltd
26. Bank of Bhutan
2.1.3 Key Management Personnel of the Bank:-
1. Shri O.P. Bhatt (Managing Director from 26.04.2006 to 30.06.06 and from
01.07.2006 onwards as Chairman)
2. Shri A.K. Purwar, Chairman (up to 31.05.2006)
3. Shri T. S. Bhattacharya, Managing Director
4. Shri Yogesh Agrawal, Managing Director (from 10.10.2006 to 30.06.2007)
2.1.4 Related Parties with whom transactions were entered :
No disclosure is required in respect of related parties which are “state controlled enterprises”
as per paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18,
transactions in the nature of banker-customer relationship are not required to be disclosed in
respect of Key Management Personnel. Other particulars are:
1. C Edge Technologies Ltd. (from 28.03.2006)

2. GE Capital Business Process Management Services Pvt. Ltd.
3. SBI Home Finance Ltd.
4. Bank of Bhutan
6. Shri O.P.Bhatt (from 26.04.2006)
7. Shri A.K. Purwar (from 13.11.2002 to 31.05.2006)
8. Shri T. S. Bhattacharya (from 28.02.2005)
9. Shri Yogesh Agrawal (from 10.10.2006 to 30.06.2007)
10. Shri Ashok Kini (from 01.04.2004 to 31.12.2005)
11. Shri C. Bhattacharya (from 17.12.2003 to 31.01.2005)
12. Shri A.K. Batra (from 28.02.2002 to 07.07.2003)
13. Shri P.N. Venkatachalam (from 28.02.2002 to 31.03.2004)
14. Shri Janki Ballabh (up to 31.10.2002)
15. Shri Y. Radhakrishnan (up to 30.06.2002)
16. Shri S. Govindarajan (up to 31.07.2002)
17. Credit Information Bureau of India Ltd (up to 31.03.2005)
18. Asset Reconstruction Company (India) Ltd (up to 31.03.2004)
229
Transactions / Balances:
(Rs. in millions)
Item/Related party 2003 2004 2005 2006 2007
1. Borrowings
Associates 48 - - - -
2. Deposits
Associates 848 1,457 17,703 5,253 2,954
3. Placement of Deposit
Associates - - 117 - -
4. Advances
Associates 3360 105 266 - -
5. Investments
Associates 465 2703 400 345 198
6. Non funded commitments

Associates - - - 5601 -
7. Interest Paid
Associates 22 1 282 72 66
8. Interest Received
Associates 337 26 112 - 2
9. Rendering of services
Associates 7 5 45 - -
10. Receiving of services of services

Associates 481 162 - 856 17
11. Management Contracts

i) Associates - - - - 7
ii) Key management Personnel * 1 1 1 2 2
Items 1 to 6 are as of March 31 and items 7 to 11 are total for the financial year.
* Transactions which are not in the nature of banker-customer relationship.
The above disclosures are as identified by the management and relied upon by the Auditors.
230
3. Leases:
Assets given on Financial Leases on or after April 1, 2001. The details of financial leases are given below.
(Rs. in millions)
Total gross investment in the leases 1,647 1,647 1,647 1,647 1,647
Present value of minimum lease
payments receivable Less than 1 year 263 313 313 176 89
1 to 5 years 619 447 289 205 150
5 years and above 85 40 - - -
Total 967 800 602 381 239
Present value of unearned finance
income 219 159 103 68 50
4. Earnings per Share:
The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 –
“Earnings per Share”. “Basic earnings” per share is computed by dividing net profit after tax by the weighted
average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares
outstanding during the year.
For the Year/Half Year March 31, March 31, March 31, March 31, March 31, September
Ended 2003 2004 2005 2006 2007 30, 2007
a. Net Profit (Group) (Rs.
in million) 41,990 55,311 54,639 55,299 63,644 40,124
b. Weighted average 526,298,87 526,298,87 526,298,87 526,298,87 526,298,87 526,298,87
number of shares 8 8 8 8 8 8
c. Earnings Per Share
(Basic and diluted
Annualised) Rs. 79.78 Rs. 105.09 Rs. 103.82 Rs. 105.07 Rs. 120.93 Rs. 152.48
5. Accounting for taxes on Income:

(Rs. in millions)
A. Deferred Tax Assets
i) Provision for Non Performing
Assets 5,223 7,350 6,231 4,286 4,152
ii) Ex Gratia Paid under Exit Option - - - 195 1,478
iii) Provision for wage revision - 1,435 4742 - -
iii) Others 907 815 1,570 2,804 5,427
Total 6,130 9,600 12,543 7,285 11,057
B. Deferred Tax Liabilities

i) Depreciation on Fixed Assets 397 402 308 1459 1,167
ii) Interest on Securities 6,214
iii) Depreciation on Investments 685 464 1,777 2093 5,263
iv) Interest Accrued on Investments 511 72 - - -
v) VRS expenses 794 357 - - -
vi) Provisions relating to securities
transactions 704 1267 667 - -
vii) Depreciation of Leased Assets 2,294 2,039 1,745 - -
231
iv) Others 38 8 1 752 794
Total 5,423 4,609 4,498 4,304 13,438
C. Net DTA/(DTL)(A-B) 707 4991 8045 2981 (2381)
6. Investments in jointly controlled entities:
As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Bank’s
interests in jointly controlled entities are disclosed as under:
A: Assets & Liabilities

(Rs. in millions)
Capital and Liabilities 2003 2004 2005 2006 2007
Capital & Reserves 1,511 2,830 4,422 338 509

Deposits 71
Borrowings 3,266 3,971 5,633 1 2
Other Liabilities & Provisions 1,037 2,654 6,822 136 206
Total 5,814 9,455 16,948 475 717
Assets 2003 2004 2005 2006 2007
Cash & Balances with RBI 40 110 162 0 0

Balances with Banks & Money at
call 272 1,037 604 72 37
Investments 1,413 2,853 8,479 0 24
Advances 3,688 4,911 6,619
Fixed Assets 112 152 159 96 186
Other Assets 289 392 925 307 470
Total 5,814 9,455 16,948 475 717
Contingent Liabilities 43 13 3 Nil Nil

Capital commitments 23 13 29 Nil Nil
232
B: Income and Expenditure
(Rs. in millions)
Income and Expenditure March 31, 2005 March 31, 2006 March 31, 2007
I. Income
Interest earned 1650 3 -
Other income 5918 481 659
Total 7568 484 659
II. Expenditure
Interest expended 222 - -
Operating expenses 6,546 339 415
Provisions & contingencies 619 53 101
Total 7,387 392 516
III Profit 181 92 143
7. Provisions, Contingent Liabilities & Contingent Assets
a) Break up of provisions:
(Rs. in millions)
March 31, March 31, March 31, March 31, March 31, September
For the Year Ended 2003 2004 2005 2006 2007 30, 2007
a) Provision for Income Tax
(Current Tax) 30,665 28,866 27,942 21,017 41,113 23,763
b) Provision for Income Tax
(deferred Tax) (386) (4,291) (1,585) 5,071 (775) (1,040)
c) Fringe Benefit Tax - - - 6,196 1,248 728
d) Provision for other Taxes (18) 8 (39) 12 (15) 9
e) Amount of provisions
made against NPA
(including Write back) 36,698 53,385 14,034 4,141 17,759 9,171
f) General Provision on
Standard Assets in the global
loan portfolio 2,593 1,320 (741) 5,854 9,454 1,640
g) Provision for investments
in India 6,032 4,432 44,345 56,213 8,345 (3,911)
h) Provision for investments
outside India - (77) 81 105 35 100
i) Provision for RRBs - - 515 (923) (85) -
j) Provision on other assets/
Contingencies (7,920) 21 589 587 57 30
k) Others (net of write back) 2,189 4,422 10,883 (1,269) 589 180
Total 69,853 88,086 96,024 97,004 77,725 30,670
(Figures in brackets indicate credit)
b) Floating provisions:
(Rs. in millions)
For the Year Ended March 31, 2006 March 31, 2007
a) Opening Balance 11652 7530
b) Addition during the year 5076 631
c) Draw down during the year 9198 3000
d) Closing balance 7530 5161
233
c) Description of contingent liabilities and contingent assets:
Sr. No Items Brief Description

1 Claims against the Group The parent and its constituents are parties to various proceedings in the
not acknowledged as debts normal course of business. It does not expect the outcome of these
proceedings to have a material adverse effect on the Group’s financial
conditions, results of operations or cash flows.
2 Liability on account of The Group enters into foreign exchange contracts, currency options,
outstanding forward forward rate agreements, currency swaps and interest rate swaps with
exchange contracts inter-bank participants on its own account and for customers. Forward
exchange contracts are commitments to buy or sell foreign currency at a
future date at the contracted rate. Currency swaps are commitments to
exchange cash flows by way of interest/principal in one currency against
another, based on predetermined rates. Interest rate swaps are
commitments to exchange fixed and floating interest rate cash flows.
The notional amounts that are recorded as contingent liabilities, are
typically amounts used as a benchmark for the calculation of the interest
component of the contracts.
3 Guarantees given on As a part of its commercial banking activities, the Group issues
behalf of constituents, documentary credits and guarantees on behalf of its customers.
acceptances, endorsements Documentary credits enhance the credit standing of the customers of the
and other obligations Group. Guarantees generally represent irrevocable assurances that the
Bank will make payment in the event of the customer failing to fulfil its
financial or performance obligations.
4 Other items for which the The Group is a party to various taxation matters in respect of which
Group is contingently appeals are pending. These are being contested by the Group and not
liable provided for. Further the Group has made commitments to subscribe to
shares in the normal course of business.
d) The contingent liabilities mentioned above are dependent upon the outcome of court/arbitration/out of
court settlements, disposal of appeals, and the amount being called up, terms of contractual obligations,
devolvement and raising of demand by concerned parties, as the case may be.
8. The disclosure requirements in respect of segment information, related party disclosures, lease
accounting, accounting for taxes on income and interest in jointly controlled entities have not been
compiled for the half year ended on September 30, 2007.
234
ANNEXURE C-5
SUMMARY STATEMENT OF CASH FLOW (CONSOLIDATED)
(Rs in millions)
Cash flow from Operating Activities (187,463.61) 5,366.73 6,697.77 55,432.14 50,815.63 43,650.71
Cash flow from Investing Activities (5,787.19) (13,312.91) (11,628.55) (18,256.88) (9,653.67) (8,841.16)
Cash flow from Financing Activities (10,399.13) (10,225.27) (4,346.87) 26,372.23 110,629.26 61,060.09
Cash flows on account of exchange (715.23) 797.56 3,210.06 247.30 (387.79) (2,407.11)
fluctuation
Net change in cash and cash equivalents (204,365.16) (17,373.89) (6,067.59) 63,794.79 151,403.43 93,462.53
Cash and cash equivalents - Opening 737,377.05 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63
Cash and cash equivalents - Closing 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63 818,231.16
Cash flow from Operating Activities

Net Profit before taxes 76,913.08 83,682.11 80,957.04 87,594.89 105,567.17 63,581.19
ADJUSTMENTS FOR:
Depreciation charge 6,658.29 9,489.64 10,695.92 11,334.02 9,500.70 4,808.12
(Profit)/Loss on sale of fixed assets 0.00 (6.19) (9.67) 4.75 (125.32) 0.00
Provision for NPAs 36,608.33 53,471.40 14,033.75 4,140.64 17,758.92 9,172.65
Provision for Standard Assets 2,592.59 1,319.87 (741.29) 5,854.43 9,454.23 1,639.74
Provision for Subs/JVs/RRBs (34.20) (20.19) 0.00 (922.49) (84.94) (130.78)
Depreciation/Revaluation of Investments / 4,972.76 5,562.64 44,941.14 44,612.38 21,700.22 (3,681.12)
Loss on revaluation of Investments
Provision on Other Assets (7,919.94) 192.71 589.13 586.96 (295.60) (12.07)
Other Provisions 2,189.22 4,271.11 10,882.94 (1,269.30) 589.16 221.54
DRE written off during the year 5,181.86 4,284.54 5,053.86 179.03 132.80 0.00
Interest paid on bonds (financing activity) 4,890.64 4,683.23 4,979.12 5,921.23 12,221.49 9,755.13
Dividend/Earnings from Associates (1,372.21) 0.00 0.00 (57.34) (1,955.93) (491.30)
LESS: Direct Taxes (31,185.63) (40,826.19) (26,688.86) (17,298.37) (54,339.54) (24,497.28)
Other adjustments (2,132.36) (3,116.22) 28.71 0.00 0.00 0.00
Sub - Total 97,362.43 122,988.46 144,721.79 140,680.83 120,123.36 60,365.82
Increase/(Decrease) in Deposits 404,525.85 413,615.10 706,719.47 379,189.87 922,486.12 662,044.09
Increase/(Decrease) in Borrowings 6,656.22 51,388.53 55,556.03 140,454.24 116,869.32 81,977.03
(Increase)/Decrease in Investments (392,760.88) (239,491.54) (174,591.20) 299,610.61 94,288.31 (385,481.16)
(Increase)/Decrease in Advances (280,858.42) (373,441.97) (657,174.93) (877,443.47) (1,145,856.18) (333,766.70)
Increase/(Decrease) in Other Liabilities & (540.32) 9,979.93 (54,846.99) 70,636.37 (53,679.64) 63,182.55
Provisions
(Increase)/Decrease in Other Assets (21,848.49) 20,328.22 (13,686.40) (97,696.31) (3,415.66) (104,670.92)
Net Cash provided by Operating (187,463.61) 5,366.73 6,697.77 55,432.14 50,815.63 43,650.71
activities
Cash flow from Investing Activities

(Increase)/Decrease in Investments in (182.52) 236.20 0.00 (2,990.93) (1,803.60) 308.40
Joint Ventures/Associates
Income earned on such investments 1,371.37 0.00 0.00 (99.77) 1,955.93 491.30
(Increase)/Decrease in Fixed Assets (6,976.04) (13,549.11) (11,628.55) (15,166.18) (9,806.00) (9,640.86)
Net Cash provided by Investing (5,787.19) (13,312.91) (11,628.55) (18,256.88) (9,653.67) (8,841.16)
Activities
235
Cash flow from Financing Activities
Minority Interest 69.50 0.00 0.00 0.00 0.00 0.00
Net proceeds/ (repayment) of bonds (815.54) (345.19) 7,163.29 39,809.70 131,252.32 79,435.63
(including subordinated debts)
Interest paid on Bonds (4,890.65) (4,683.23) (4,979.12) (5,921.23) (12,221.49) (9,755.13)
Dividend paid (4,762.44) (5,196.85) (6,531.04) (7,516.24) (8,401.57) (8,620.41)
Net Cash provided by Financing (10,399.13) (10,225.27) (4,346.87) 26,372.23 110,629.26 61,060.09
Activities
Cash flows on account of Exchange

Fluctuation:
Reserves of foreign subsidiaries/foreign (715.23) 797.56 3,210.06 247.30 (387.79) (2,407.11)
offices
Net cash flows on account of Exchange (715.23) 797.56 3,210.06 247.30 (387.79) (2,407.11)
Fluctuation
Cash and Cash equivalents - Opening:

Total 737,377.05 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63
Cash and Cash equivalents - Closing:

Total 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63 818,231.16
236
ANNEXURE C-6
SUMMARY STATEMENT OF ACCOUNTING RATIOS (CONSOLIDATED)
For the year

Ending/Half Year 31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar- 30-Sep-
Sr No. ending 03 04 05 06 07 07 *
1 Basic Earning Per Share 79.78 105.09 103.82 105.07 120.93 152.48
2 Return on Average Net
Worth (%) 20.02% 22.14% 18.22% 15.85% 15.96% 18.07%
3 Net Asset Value per
Share 427.84 521.31 618.5 706.95 808.2 879.7
* Ratios have been calculated on an annualised basis
237
STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK
As the Bank’s shares are actively traded on the BSE and NSE, the Bank’s stock market data have been
given separately for each of these Stock Exchanges.
The high and low closing prices recorded on the BSE and NSE for the preceding three years and the
number of Equity Shares traded on the days the high and low prices were recorded are stated below:
BSE
Year ended High Date of High Volume on Low Date of Low Volume on Average
March 31 (Rs.) date of high (Rs.) date of low price for
(no. of shares) (no. of shares) the year
(Rs.)
2005 .................... 742.50 March 10, 2005 2,413,606 408.90 June 23, 2004 4,497,898 542.57
2006 .................... 987.20 March 27, 2006 829,777 84.80 April 29, 2005 1,504,178 811.67
2007 .................... 1,360.20 December 1, 2006 570,209 689.50 July 19, 2006 616,699 997.31
The average price has been computed based on the daily closing price of Equity Shares.
NSE
Average
Volume on Volume on price for
Year ended High date of high Low date of low the year
March 31 (Rs.) Date of High (no. of shares) (Rs.) Date of Low (no. of shares) (Rs.)
2005 .................... 742.10 March 10, 2005 4,445,800 408.70 June 23, 2004 8,785,496 542.60
2006 .................... 987.80 March 27, 2006 1,601,136 584.85 April 29, 2005 2,755,033 811.80
2007 .................... 1,621.00 December 1, 2006 1,612,467 690.50 June 19, 2006 953,135 997.58
The high and low prices and volume of Equity Shares traded on the respective dates during the last six
months are as follows:
BSE
Average
price for
Volume on Volume on the
Month, High date of high Low date of low month
Year (Rs.) Date of High (no. of shares) (Rs.) Date of Low (no. of shares) (Rs.)
July, 2007 1,624.50 July 31, 2007 1,744,850 1,500.05 July 27, 2007 955,457 1,567.34
August, 1,705.95 August 8, 2007 473,284 1,415.05 August 23, 2007 846,614 1,571.81
2007
September, 1,950.70 September 28, 2007 748,727 1,594.45 September 5, 2007 546,578 1,713.90
2007
238
Average
price for
Month, High date of high Low date of low month
October, 2,117.85 October 29, 2007 970,131 1,667.60 October 19, 2007 637,197 1,897.03
2007
November, 2,346.15 November 14, 2007 446,666 2,070.85 November 1, 2007 1,051,347 2,248.58
2007
December, 2,445.85 December 11, 2007 247,361 2,258.30 December 19,2007 271,787 2,368.46
2007
NSE
Average
price for
High date of high Low date of low month
Month, Year (Rs.) Date of High (no. of shares) (Rs.) Date of Low (no. of shares) (Rs.)
July, 2007 ....... 1,623.85 July 31, 2007 3,673,699 1,498.75 July 27, 2007 2,150,967 1,567.70
August, 2007... 1,706.85 August 8, 1,106,862 1,414.75 August 23, 2007 2,113,602 1,571.66
2007
September, 1,945.85 September 2,672,350 1,594.25 September 5, 2007 1,265,135 1,713.67
2007 ................ 28, 2007
October, 2,116.70 October 2,207,285 1,667.10 October 19, 2007 1,774,173 1,896.68
2007 ................ 29, 2007
November, 2,353.85 November 1,368,083 2,075.35 November 1, 2007 2,143,188 2,249.98

2007 ................ 14, 2007
December, 2,447.75 December 11, 681,531 2,256.55 December 647,234 2,366.13

2007 ................ 2007 19,2007
The closing market price was Rs. 2,371.00 on the BSE and Rs. 2,371.15 on the NSE on December 31,
2007.
The market price was Rs. 2,414.35 on BSE on January 15, 2008, the trading day immediately following
the day on which the Central Board meeting was held to finalize the offer price for the Issue.
The market price was Rs. 2,423.45 on NSE on January 15, 2008, the trading day immediately
following the day on which the Central Board meeting was held to finalise the offer price for the Issue.
239
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of the Bank’s financial condition and results of
operations together with the Bank’s audited unconsolidated financial statements. The following discussion is
based on the Bank’s unconsolidated financial statements and accompanying notes, which have been prepared in
accordance with Indian GAAP, with the exception of the Bank’s recognition of employee benefits under
Accounting Standard 15. This discussion should be read together with “Selected Financial and Operating
Data” and the financial statements in accordance with prevailing practices within the banking industry in India
and Indian GAAP, which differs in some respects from U.S. GAAP. See “Summary of Certain Differences in
Accounting Policies under Indian GAAP and U.S. GAAP.”
This Management’s Discussion and Analysis of Financial Condition and Results of Operations also
includes a discussion of the Group’s financial performance which should be read together with the Group’s
audited consolidated financial statements and accompanying notes, which have been prepared in accordance
with Indian GAAP and are also included elsewhere in this Letter of Offer.
There were certain changes in the Bank’s and the Group’s principal accounting policies in 2007 and
as a result, certain line items relating to the both the Bank’s and the Group’s audited financial statements for
the year ended March 31, 2006 have been regrouped to reflect these changes. The Bank’s and the Group’s
audited financial statements for the year ended March 31, 2005, however, were not regrouped to reflect the
changes in accounting policies and investors should therefore understand that certain line items contained in
the annual financial statements for 2005 are not strictly comparable to its financial statements for the years
ended March 31, 2006 and 2007. For further information regarding changes in the Group’s accounting policies,
investors should see “Note on Reformatting and Regrouping” in the financial Statements contained in the
audited consolidated financial statements for the year ended March 31, 2007.
Overview
The Bank is India’s largest bank, with 10,072 domestic branches and 84 international offices in 32
countries with over 100 million accounts. The Bank is also India’s largest retail bank in terms of both assets and
liabilities, totalling Rs. 3,321.2 billion, and approximately 71 million accounts, as on September 30, 2007. As on
December 21, 2007 (being the last reporting Friday of December 2007), based on RBI data, the Bank’s
estimated market share of aggregate deposits of all scheduled commercial banks in India was 15.45% and the
Bank’s estimated market share of domestic advances was 15.53%. In addition, as on September 30,2007, based
on trade data from the Directorate General of Commercial Intelligence and Statistics (“DGCIS”) the Bank had
an estimated 31.9% market share of Indian merchandise foreign exchange transactions for foreign trade.
The Bank organizes its client relationships, marketing and product development, as well as non-
customer facing activities, through business groups and strategic business units. The Bank’s primary strategic
business groups are the Corporate Banking Group, the National Banking Group and the Rural Business Group.
corporations and institutions, including state-owned enterprises. The National Banking Group and the Rural
Business Groups service the Bank’s remaining corporate customers, small scale industries, agriculture and
personal banking customers, including other state-owned enterprises, throughout India. The National Banking
Group also provides financial services to the Government and the state governments, including tax collection
and payment services.
The range of products offered by the Bank include fund-based products, non-fund-based products, fee
and commission-based products and services, deposits and foreign exchange and derivatives products. In the
retail market, the Bank’s products and services include retail lending and deposits, fee and commission-based
products and services, as well as alternative payment products.
The Bank is present, through its subsidiaries and joint ventures, in diverse segments of the Indian
financial sector, including asset management, factoring and commercial services, treasury operations, credit
cards, payment services and life insurance. See “Business — Non-Bank Subsidiaries and Joint Ventures” and
“Insurance Activities.”
The Bank is the largest constituent part of the Group by assets and net income, representing 70.0% of
consolidated Group assets as on September 30, 2007 and 75.7% of consolidated net profit for the six-month
240
period ended September 30, 2007. The Group includes the Bank, its Associate Banks, which operate in India,
and its subsidiaries and joint ventures, operating both within India and internationally. Associate Banks have a
domestic network of approximately 4,867 branches, with strong regional ties. The Bank also has subsidiaries
and joint ventures outside India, including in Europe, the United States, Canada, Mauritius, Nepal and Bhutan.
As on September 30, 2007, the Bank’s unconsolidated deposits, advances and total assets were Rs.
September 30, 2007, the Bank’s unconsolidated net profit amounted to Rs. 30.4 billion, an increase of Rs. 10.5
billion, or 53.2%, from the six-month period ended September 30, 2006.
As on September 30, 2007, the Group’s consolidated deposits, advances and total assets were Rs.
September 30, 2007, the Group’s consolidated net profit amounted to Rs. 40.1 billion, an increase of Rs. 13.1
billion, or 48.8%, from the six-month period ended September 30, 2006.
Factors Affecting the Bank’s Results of Operations and Financial Condition
The Bank’s loan portfolio, financial condition and results of operations have been, and are expected to
be, influenced by economic conditions in India, expected growth in retail credit in India and certain global
developments, particularly in commodity prices relating to the business activities of the Bank’s corporate
customers. To facilitate the understanding of the discussion of the Bank’s results of operations that follows, you
should consider the introductory discussion of these macroeconomic factors.
Growth of the Indian economy
As a bank with the vast majority of its operations in India, the Bank’s financial position and results of
operations have been and will continue to be significantly affected by general economic and political conditions
in India. See “Risk Factors — Risks Relating to India — A slowdown in economic growth, increased volatility of
commodity prices or rise in interest rates in India could cause the Bank’s business to suffer.” India had a GDP
growth of 7.5% in fiscal year 2005, 9.0% in fiscal year 2006 and 9.4% in fiscal year 2007. The continued
momentum in growth has been primarily due to the resurgence of the industrial sector and sustained growth of
the services sector. The agricultural sector, which did not grow in fiscal year 2005, registered 6.0% growth in
fiscal year 2006 and 2.7% growth in fiscal year 2007. The industrial sector grew by 8.4% in fiscal year
2005,8.0% in fiscal year 2006 and 11.0% in fiscal year 2007. Industrial growth during this period was supported
primarily by sustained growth in manufacturing activities. The services sector grew by 10.0% in fiscal year
2005, 10.3% in fiscal year 2006 and 11.0% in fiscal year 2007. During the first half of fiscal year 2008, India’s
GDP grew by 9.1%, agricultural growth was at 3.7%, while industry and services sectors grew by 9.5 % and
10.5% respectively.
This economic growth has contributed to increased demand for loans, by Indian corporations and
SMEs as well as increased demand for consumer products generally and consumer banking services. Due to the
increasing demand for loans, lending volume by Indian banks grew by approximately 27% over the last year.
During fiscal year 2007, there was an increase in inflationary trends in India, primarily due to the
increase in prices of primary articles as well as the increase in oil prices over the last several years. See also
“Risk Factors — Risks Relating to India — A significant increase in the price of crude oil could adversely affect
the Indian economy, which could adversely affect the Bank’s business.” The annual average rate of inflation
measured by the Wholesale Price Index was 5.4% during fiscal year 2007 compared to 4.4% during the previous
year. Inflationary pressures eased in the first quarter of fiscal year 2008. The average annual rate of inflation
reduced to 3.3% during fiscal year 2008 (through September 29, 2007) from 5.4% during the corresponding
period in the previous year. The RBI’s stated policy objective is to contain inflation in the range of 4.0% to
4.5% over the medium term. Disruptions in the growth of the Indian economy could have a direct impact on the
Bank’s consumer and corporate banking services and could lead to an increase in NPAs.
During fiscal year 2007, the Rupee appreciated by 2.3% against the U.S. dollar. The Rupee depreciated
against the pound sterling, euro and against the Japanese yen. The Rupee appreciated by 7.7% against the U.S.
dollar during fiscal year 2008 (through September 30, 2007), moving from Rs. 43.10 per U.S.$ 1.00 as of the
end of fiscal year 2007 to Rs. 39.75 per U.S.$ 1.00 on September 30, 2007. Foreign exchange reserves were
approximately U.S.$ 247.8 billion as on September 28, 2007.
241
The impact of these and other factors and the overall growth in industry, agriculture and services
during fiscal year 2007 has affected the banking sector and is expected to affect the level of credit disbursed by
the Bank. In addition, these factors are expected to affect the overall growth prospects of the Bank, including its
ability to expand its deposit base, the quality of its assets, the value of its investment portfolio and its ability to
implement its strategy.
Government monetary policy is also heavily influenced by the condition of the Indian economy.
Changes in monetary policy will affect the interest rates of the Bank’s loans and deposits. As described above,
the recent growth in the Indian economy has contributed to a rise in interest rates as the Government has
instituted a tighter monetary policy to combat inflation. Changes in this policy could result in lower interest
rates on the Bank’s asset products, which could reduce its margins and thus its net interest income. In addition,
high rates of inflation in the Indian economy could also impact the Bank’s ability to sustain profitable net
interest margins because it could lower the demand for loans, discourage diversification of the Bank’s loan
portfolio or require the Bank to increase the costs of its deposits.
Health of the Indian banking sector
As the largest bank in India, the performance of the Indian banking sector is a critical factor to the
Bank’s financial success. According to RBI data, total deposits of all scheduled commercial banks increased by
13% in fiscal year 2005, 18.1% in fiscal year 2006 and 23.7% in fiscal year 2007. Bank credit of scheduled
commercial banks grew by 30.9% in fiscal year 2005, 30.8% in fiscal year 2006 and 28.0% in fiscal year 2007.
The increase in credit growth for fiscal year 2007 was driven by the continued growth in both retail credit and
credit to industry. Credit to industry accounted for 35.3% of the total expansion in non-food credit for fiscal year
2007. During the first half of fiscal year 2008, deposits of scheduled commercial banks increased by 23.9% on a
year-on-year basis while bank credit grew by 21.9% on a year-on-year basis. As of September 28, 2007, there
has been a 9.8% growth in deposits while bank credit has grown by 5.0%. The positive trends in each of the data
points discussed above are reflected in the Bank’s strong financial performance over the past three years.
Until fiscal year 2005, there was a downward movement in interest rates, barring intra-year periods
when interest rates were higher temporarily due to extraneous circumstances. This movement was principally
due to RBI’s policy of assuring adequate liquidity in the banking system and generally lowering the rate at
which it would lend to Indian banks to ensure that borrowers had access to funding at competitive rates. Banks
generally followed the direction of interest rates set by the RBI and adjusted both their deposit rates and lending
rates downwards until fiscal year 2005. The inflationary trends since fiscal year 2005 resulted in a change in the
monetary policy stance. In response to inflationary pressures in the economy, the RBI has, over time, increased
the cash reserve ratio (“CRR”) as follows:
Effective Date Rate

October 2, 2004 ............................ 5.00%
December 23, 2006....................... 5.25%
January 06, 2007 5.50%
February 17, 2007......................... 5.75%
March 3, 2007............................... 6.00%
April 14, 2007............................... 6.25%
April 28, 2007............................... 6.50%
August 4, 2007.............................. 7.00%
Source: RBI Statistics
The RBI increased the reverse repo rate (which is the annualised interest earned by the lender in a
repurchase transaction between a bank and the RBI) six times by 25 basis points, each time resulting in the
reverse repo rate increasing from 4.5% to 6.0% between October 2004 and July 2006. Between January 2006
and April 2007, the RBI also increased the repo rate six times by 25 basis points, each time to the current rate of
7.75% (see chart below). As a result of these increases, banks, including the Bank, have also raised their deposit
and lending rates. The Bank’s large and diverse customer base has allowed it to capitalise on these higher rates
resulting in increased interest income. See “Risk Factors — Risks Relating to India — A slowdown in economic
growth, increased volatility of commodity prices or rise in interest rates in India could cause the Bank’s
business to suffer.”
242
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. See also
“Industry Overview — Credit Policy Measures.”
Interest rates, allocation of funds and costs of funding
Interest earned has historically been the most significant component of the Bank’s revenue. In the year
ended March 31, 2007 and the six-months ended September 30, 2007, interest earned represented 68.8% and
71.5%, respectively, of the Bank’s unconsolidated operating income. Interest earned is determined by the
amount of interest-earning assets, the difference between the rate of interest earned on interest-earning assets
and the rate of interest paid on interest-bearing liabilities and the proportion of interest-earning assets financed
by a non-interest bearing liabilities and equity. The Bank’s net interest earned is affected by a number of factors
including the general level of interest rates, its ability to allocate its funds to assets that provide high interest
rates and its cost funding.
Interest rates
The majority of the Bank’s corporate and commercial loans are priced at a floating rate based on the
Bank’s prime lending rate. This rate is primarily determined by the RBI’s lending rate. The RBI lending rate has
risen steadily since 2004, partly to reduce the money supply and partly to reduce liquidity at Indian banks. The
table below shows the average monthly RBI bid (reverse repo rates) and ask (repo rates) as on the dates
indicated:
The following table sets forth the bank rate and the reverse repo rate for the last six fiscal years.
Bank Rate Reverse Repo Rate Repo Rate

As of year ended March 31, (percentages)
2003 ................................................... 6.25% 5.00% 7.00%
2004 ................................................... 6.00% 4.50% 6.00%
2005 ................................................... 6.00% 4.75% 6.00%
2006 ................................................... 6.00% 5.50% 6.50%
2007 ................................................... 6.00% 6.00% 7.75%
2008 (through September 30, 2007) .. 6.00% 6.00% 7.75%
Source: RBI: Handbook of Statistics on Indian Economy, 2006, Annual Report 2005-2006 and Weekly Statistical Supplements and Annual
Policy Statement 2007-08, First Quarter review of Policy Statement 2007-08.
Increases in the RBI lending rate allow the Bank to receive higher rates of return on its loans. Any
subsequent reductions in the RBI lending rate would reduce the Bank’s prime lending rate and could reduce net
interest income despite supporting loan growth and NPA reduction. Conversely, increases in the RBI lending
rate could affect the ability of potential borrowers to take out loans despite partly mitigating higher deposit costs.
See “Risk Factors — Risks Relating to the Bank’s Business — The Bank’s business is particularly vulnerable to
interest rate risk and volatility in interest rates could adversely affect its net interest margin, the value of its
fixed income portfolio, its income from treasury operations and its financial performance.”
Since interest rates in the banking system have continually increased over the last two years and the
Bank’s liabilities, which are much higher than its loan assets, have been re-priced, the Bank’s net interest
income has been adversely effected. During the last quarter of fiscal year 2007, the Indian financial markets
experienced volatility and sharp increases in interest rates and the Bank experienced a sharp increase in its
funding costs, which adversely impacted its net interest margin. The Bank expects that this trend will continue
until the yield on its interest earning assets increases to a level which will offset its increase in funding costs.
Further, it cannot be assured that the Bank will be able to pass through increases in funding costs to its
customers. Any failure to pass higher funding costs to its customers will adversely impact the Bank’s net
interest margin.
Allocation of funds
The Bank’s ability to take advantage of increases in RBI lending rates depends largely on its loan
volume. Recent growth in the Indian economy has led to increased demand for funding across many sectors of
243
the economy. This growth has contributed to the Bank’s ability to reallocate its funds from Government
securities to loans, which offer the Bank higher returns. However, asset mix also has an effect on profitability as
the Bank’s loans bear different interest rates reflecting different credit ratings. For example, net interest income
increases to the extent that the Bank increases the proportion of consumer loans, which generally bear a higher
interest rate than other loans, but decreases to the extent that the Bank increases the proportion of international
loans, which generally bear a lower interest rate than domestic loans. If the volume of the Bank’s loans
decreases due to a general slowdown in the economy, increased competition or other factors, the Bank’s net
interest income will decrease as well. In addition, the Bank may not be able to reallocate its funds to more
profitable assets in the event that interest rates decrease.
Cost of funding
The Bank is able to increase its net interest income to the extent that it does not increase the cost of its
interest-bearing liabilities to the same extent, or at the same time, as its interest-bearing assets. The Bank’s
primary interest-bearing liability is its deposit base. The Bank’s ability to offer low interest rates for customers’
deposit accounts depends significantly on its ability to provide customers with convenient banking services that
compensate for the lower returns on deposits. As on September 30, 2007, the average deposit amount of the
Bank’s customers was approximately Rs. 50,000 per customer. Depositors with low balances tend to choose
their banks based upon proximity and convenience rather than deposit rates. To continue to source low-cost
funding through deposits, the Bank must, among other things, continue to develop its information technology
systems to offer modern banking services and develop products and services to distinguish itself in an
increasingly competitive industry. See “Risk Factors — Risks Relating to the Bank’s Business — If the Bank is
unable to adapt to rapid technological changes, its business could suffer.” However, increasing sophistication of
customers, competition for funding, increasing interest rates and changes to the RBI’s liquidity and reserve
requirements may increase the rates the Bank pays on its deposits. In addition to a higher proportion of higher
cost deposits forming part of the Bank’s funding, in order to meet the growing needs of its Retail and Corporate
Banking groups and to further enhance its capital adequacy ratios, the Bank has and may continue to issue
subordinated debt which increases the Bank’s cost of funding.
Provisioning policies
The Bank’s profit is adversely affected by the amount of provisions against loans. While the Bank has
been able to reduce its portfolio of NPAs, total provisions have continued to increase due to increases in
volumes of loans and changes in regulatory and internal provisioning policies. See “Risk Factors — Further
deterioration of the Bank’s NPA portfolio and an inability to improve its provisioning coverage as a percentage
of gross NPA could adversely affect the price of the Equity Shares.”
Non-interest expenses
The level of the Bank’s non-interest expenses impacts its profitability. Staff costs comprise a
significant proportion of the Bank’s administrative costs and wage inflation. In addition, the Bank is continuing
its business process re-engineering, which involves retraining and reallocating staff, as well as acquiring new IT
systems. See “Business — Business Process Re-engineering.” As a result, the Bank expects that the business
process re-engineering will also increase administrative costs in the short term.
Corporate tax rates applicable to the Bank
Corporate tax rates applicable to the Bank impact the Bank’s profitability. The effective corporate tax
rate to the Bank has come down from 41.03% in the financial year 1996-97 to 39.25% in the financial year
2006-07. The tax rate for the current financial year is 33.99%. Any increase in tax rates could have a material
adverse effect on the Bank’s financial results.
Government policies and regulations in relation to the Indian banking system
The Indian banking industry is regulated by the RBI and operates within a framework that provides
guidelines on capital adequacy, corporate governance, management, anti-money laundering and provisioning for
NPAs. The RBI can alter any of these policies at any time and can introduce new regulations to control any
particular line of business. The banking system in India is expected to adopt a capital adequacy framework in
line with the Basel II framework in March 2008. See “Industry Overview — New Initiatives in the Banking
Sector — Risk Management and Basel-II.” This will cause an increase in capital requirements, which will in turn
have an impact on the Bank’s results of operations. In addition to more stringent capital adequacy requirements,
244
the RBI has increased the CRR for Indian banks. Despite these increases, the RBI has decided to suspend
interest payments on CRR balances. Any further increases in the CRR could have a negative impact on the
Bank’s results from operations. Any other changes in the regulatory environment as pertaining to the Indian
banking industry could have a material impact on the Bank’s operations and financial condition. See “Risk
Factors — Risks Relating to the Bank’s Business — Banking is a heavily regulated industry and material
changes in the regulations which govern the Bank could cause its business to suffer and the price of the Equity
Shares to decline.”
Unconsolidated Results for the Six-Months Ended September 30, 2007 Compared to the Six-Months
Ended September 30, 2006
Interest Earned
Interest earned increased by 31.4% to Rs. 227.1 billion in the six-months ended September 30, 2007
from Rs. 172.8 billion in the six-months ended September 30, 2006. This increase was primarily the result of a
43.8% increase in the interest earned on advances and bills to Rs. 163.5 billion in the six-months ended
September 30, 2007 from Rs. 113.7 billion in the six-months ended September 30, 2006. This increase was
primarily caused by an increase in the prime lending rate (“PLR”) of the Bank during the period by 175 basis
points as well as increases in the rates charged by the Bank above the PLR on renewal of loans and new loans.
The increase in interest earned was also the result of a 26.7% increase in the Bank’s loan volume which was
driven by continued growth in the Indian economy as well as increased marketing efforts by the Bank.
The increase in interest earned was partially aided by a 7.6% increase in income earned on investments
to Rs. 54.6 billion in the six-months ended September 30, 2007 from Rs. 50.8 billion in the six-months ended
September 30, 2006. This was due to an increase in the investments held by the Bank during the period
Other Income
Other income increased by 25.9% to Rs. 31.8 billion in the six-months ended September 30, 2007 from
Rs. 25.3 billion in the six-months ended September 30, 2006. The increase was primarily attributable to a 27.8%
increase in commission, exchange and brokerage income to Rs. 20.5 billion in the six-months ended Sept 30,
2007 from Rs. 16.1 billion in the six-months ended September 30, 2006 as a result of an increase in the volume
of transactions with the Government. The higher income was due to a one time profit of Rs. 2.19 billion on
account of divestment of promoters’ stake by the Bank in the NSE. The remaining increase in profit was largely
from the Bank’s own account trading. The Bank also saw an increase of 222.7% in the profit on sale of
investment to Rs. 7.1 billion in the six-months ended September 30, 2007 from Rs. 2.2 billion in the six-months
ended September 30, 2006 mainly due to higher income from equity trading. The increase was partially offset
by a decrease of 52.4% in dividends from subsidiaries and joint ventures to Rs. 1.7 billion in the six-months
ended September 30, 2007 from Rs. 3.6 billion in the six-months ended September 30, 2006. This decrease was
due to several of the Bank’s subsidiaries and joint ventures paying an interim dividend to the Bank in the fourth
quarter of the year ended March 31, 2007, a change from the typical first quarter payment. In addition, leasing
income decreased by 55.6% to Rs. 308.0 million in the six-months ended September 30, 2007 from Rs. 693.0
million in the six-months ended September 30, 2006 as a result of the Bank’s decision to continue to wind down
its leasing portfolio. This was partially offset by an increase of 10% in loss on revaluation of investment to Rs.
7.4 billion in the six-months ended September 30, 2007 from Rs. 6.7 billion in the six-months ended September
30, 2006 .
Interest Expended
Interest expended increased 44.5% to Rs. 147.4 billion in the six-months ended September 30, 2007
from Rs. 102.1 billion in the six-months ended September 30, 2006. This was primarily due to an increase in
interest expended in respect of interest on RBI and inter-bank borrowings of 93.9% to Rs. 14.4 billion in the six-
months ended September 30, 2007 from Rs. 7.4 billion in the six-months ended September 30, 2006. This
increase was the result of the Bank’s greater borrowing needs as well as increased interest rates. This Bank also
saw a 65.6% increase in other interest expended to Rs. 7.5 billion in the six-months ended September 30, 2007
from Rs. 4.5 billion in the six-months ended September 30, 2006 caused by an increase in interest paid on the
Bank’s Tier II capital bonds issued by the Bank. Interest expended on deposits increased 39.3% to Rs. 125.5
billion in the six-months ended September 30, 2007 from Rs. 90.0 billion in the six-months ended September 30,
2006. This increase in interest expended on deposits was due to a 29.7% increase in fixed deposits, most of
which were interest-bearing deposits, as well as increased interest rates over the period. Total deposits increased
245
by Rs. 865.5 billion in the six-months ended September 30, 2007, while the cost of deposits (domestic)
increased to 5.48% in the six-months ended September 30, 2007 from 4.51% in the six-month period ended
September 30, 2006.
As a result of the higher cost of funds due to increased interest rates and the additional CRR
requirement, the Bank’s net interest margin decreased to 2.84% in the six-months ended September 30, 2007 as
compared to 3.02% in the six-months ended September 30, 2006. Investors should note that, for the purpose of
public disclosure, the net interest margin figure calculated here is based on weekly averages of interest earning
assets as per Indian market convention.
Operating Expenses
Operating expenses saw a modest increase of 6.9% to Rs. 60.7 billion in the six-months ended
primarily attributable to a 13.7% increase in other operating expenditures to Rs. 20.5 billion in the six-months
ended September 30, 2007 from Rs. 18.0 billion in the six-months ended September 30, 2006. Other
expenditures increased as a result of an increase in mandatory deposit insurance related to an increase in
deposits. Rent, taxes and lighting increased by 9.8% to Rs. 4.5 billion in the six-months ended September 30,
2007 from Rs. 4.1 billion in the six-months ended September 30, 2006. This increase reflects the overall growth
of the Bank’s branch and office facilities over the period. The Bank also experienced a 3.7% increase in
payments and provisions for employees to Rs. 40.2 billion in the six-months ended September 30, 2007 from Rs.
38.8 billion in the six-months ended September 30, 2006. This increase was the result of employees taking
advantage of the Bank’s “Exit Option,” which is a voluntary early retirement scheme introduced by the Bank.
This increase was the result of employees taking advantages of the Bank’s ‘Exit Option’ which was a voluntary
early retirement scheme introduced by the Bank during the fiscal year ended March 31, 2007 and which was
extended to all the non-officer bank employees during the period from September 1, 2006 to March 31, 2007.
As of March 31, 2007 approximately 8,000 employees had opted for voluntary early retirement scheme.
Provisions and Contingencies (excluding provisions for tax)
The Bank classifies its loans in accordance with RBI guidelines. Provisions and contingencies
(excluding provisions for tax) decreased 57.2% to Rs. 2.5 billion in the six-months ended September 30, 2007
from Rs. 5.7 billion in the six-months ended September 30, 2006. This decrease in provisions and contingencies
(excluding provisions for tax) was primarily attributable to moderation of the Government securities yield in the
one to five year range, where the bank holds a high concentration. This resulted in a decrease of provisions for
depreciation on investments of 375.4% or a write back of Rs. 3.8 billion from provisions for depreciation on
investments as against provision of Rs. 1.4 billion in September 2006. The decrease was partially offset by a
significant increase in NPA provisions in the six-months ended September 30, 2007 to Rs. 4.9 billion from Rs.
2.8 billion in the six-months ended September 30, 2006. This increase was the result of gross NPAs increasing
to Rs. 106.3 billion in the six-months ended September 30, 2007 from Rs. 97.4 billion in September 30, 2006 as
a result of an increase in the Bank’s loan portfolio as well as an increasing interest rate environment.
In May 2006, the general provisioning requirement for personal loans, loans and advances qualifying as
capital market exposure, residential housing loans in an amount exceeding Rs. 2.0 million and commercial real
estate loans was increased by the RBI to 1.0% from 0.4%. In January 2007, the general provisioning
requirement for personal loans, credit card receivables, loans and advances qualifying as capital market
exposure, commercial real estate and advances to non-deposit taking systemically important non-banking
financial companies (“NBFCs”) was increased to 2.0%. All additional liability on account of higher general
provisioning rates on existing loans was fully provided in the year ended March 31, 2007. The general provision
for higher rates is now required to be provided only on incremental loans made in the six-months ended
September 30, 2007. As a result, the general provision on standard assets decreased by 37.4% to Rs. 979.8
million in the six-months ended September 30, 2007 from Rs. 1,564.9 million in the six-months ended
September 30, 2006.
Tax Expense
Total taxation expenses increased by 31.5% to Rs. 17.9 billion in the six-months ended September 30,
2007 as compared to Rs. 13.6 billion in the six-months ended September 30, 2006.
246
Current income tax expenses increased by 48.41% to Rs. 17.3 billion in the year ended September 30, 2007 as
compared to Rs. 11.6 billion in the six-months ended September 30, 2006 primarily because of the Bank’s
provisions for expenditure items where income tax levels are uncertain, leading to an effective tax rate of
36.24% which was 225 basis points higher than the statutory tax rate of 33.99%.
Net Profit
As a result of the above, net profit increased by 53.2% to Rs. 30.4 billion in the six-months ended
September 30, 2007 from Rs. 19.8 billion in the six-months ended September 30, 2006.
Financial Condition
Total assets amounted to Rs. 6,351.4 billion as on September 30, 2007 compared to Rs. 5,465.3 billion
as on September 30, 2006, an increase of 16.2%. Cash and balances with RBI increased 46.0% to Rs. 462.0
billion as on September 30, 2007 from Rs. 316.4 billion as on September 30, 2006. The primary reason for this
increase was a 2.0% statutory increase in CRR held by RBI to 7.0% as on September 30, 2007 from 5.0% as on
September 30, 2006. Balances with banks and money at call and short notice decreased to Rs. 128.0 billion as
on September 30, 2007 from Rs. 233.1 billion as on September 30, 2006. Advances for term loans increased
22.0% to Rs. 1,950.4 billion as on September 30, 2007 from Rs. 1,599 billion as on September 30, 2006. This
increase was in line with the Bank’s overall increase in business and was supported by continued growth in
deposits. The increase in total assets was partially the result of a 22.8% increase in government securities held to
Rs. 1,438.6 billion as on September 30, 2007 from Rs. 1,171.4 billion as on September 30, 2006.
The table below sets out the principal components of the Bank’s assets as on the dates indicated.
As on September 30,
2006 2007 % change
Cash and balances with the RBI 316,420 462,018 46.0%
Balance with banks and money at call and short 233,066 127,970 (45.1%)
notice
Total Cash and cash equivalents 549,486 589,988 7.4%
Government securities 1,171,381 1,438,627 22.8%
Other investments 293,514 362,971 23.7%
Total investments 1,464,895 1,801,598 23.0%
Term loans 1,598,973 1,950,400 22.0%
Other advances 1,231,557 1,635,749 32.8%
Total advances 2,830,530 3,586,149 26.7%
Fixed assets 26,701 31,815 19.2%
Other assets 593,702 341,841 (42.4%)
Total assets 5,465,314 6,351,391 16.2%
Total liabilities and shareholders’ funds amounted to Rs. 6,351.4 billion as on September 30, 2007
compared to Rs. 5,465.3 billion as on September 30, 2006, an increase of 16.2%. Capital remained unchanged
over the period, while reserves and surplus increased 15.0% to Rs. 335.9 billion as on September 30, 2007 from
Rs. 292.0 billion as on September 30, 2006. The increase in reserves was primarily attributable to the retention
of Rs. 47.3 billion out of the Rs. 56.0 billion, or 84.6%, of net profit earned in the period. Deposits increased
21.6% to Rs. 4,870.5 billion as on September 30, 2007 from Rs. 4,005.1 billion as on September 30, 2006 as a
result of a 13.4% increase in demand deposits over the period caused by the overall growth in the Indian
economy, new marketing efforts and new product initiatives. Borrowings increased 39.2% to Rs. 449.4 billion
as on September 30, 2007 from Rs. 322.8 billion as on September 30, 2006. The increase in the Bank’s
borrowings is primarily attributable to the Bank’s domestic and international capital fundraising activities.
247
The table below sets out the principal components of the Bank’s shareholders’ funds and liabilities as
on the dates indicated.
As on September 30,
2006 2007 % change
Capital ................................................................................................. 5,263 5,263 0.0%
Reserves and surplus ........................................................................... 292,018 335,865 14.7%
Total shareholders’ funds ................................................................. 297,281 341,128 14.7%
Deposits ............................................................................................... 4,005,090 4,870,544 21.6%
Borrowings .......................................................................................... 322,844 449,379 39.2%
Other liabilities and provisions ............................................................ 840,099 690,340 (17.8%)
Total liabilities and shareholders’ funds ......................................... 5,465,314 6,351,391 16.2%
Unconsolidated Results for the Year Ended March 31, 2006 Compared to the Year Ended March 31, 2007
Interest Earned
Interest earned increased by 9.8% to Rs. 394.9 billion in the year ended March 31, 2007 from Rs. 359.8
billion in the year ended March 31, 2006. This increase was primarily the result of a 28.9% increase in the
Bank’s loan volume which was driven by the buoyant economic conditions in India as well as increased
marketing efforts. The increase in interest earned was also the result of a 40.4% increase in the interest earned
on advances and bills to Rs. 248.4 billion in the year ended March 31, 2007 from Rs. 177 billion in the year
ended March 31, 2006. This increase was primarily the result of a 200 basis point increase in the prime lending
rate charged by the Bank.
The increase in interest earned was partially offset by the 17.8% decrease in income earned on
investments to Rs. 114.9 billion in the year ended March 31, 2007 from Rs. 139.8 billion in the year ended
March 31, 2006 which was due to (a) higher CRR requirements, (b) replacement of higher coupon bonds by
lower coupon bonds (primarily Government securities) to reduce the average duration of the investment
portfolio and (c) reduction of the Bank’s investment portfolio held in the assets-held-for-sale category. Also,
offsetting the increase in interest earned, there was an 79.9% decrease in other interest earned to Rs. 4.4 billion
in the year ended March 31, 2007 from Rs. 21.8 billion in the year ended March 31, 2006. This decrease in other
interest earned during the year ended March 31, 2007, reflects a one-off receipt of interest recorded on an
income tax refund during the year ended March 31, 2006.
Other Income
Other income decreased by 22.4% to Rs. 57.7 billion in the year ended March 31, 2007 from Rs. 74.4
billion in the year ended March 31, 2006. This decrease was primarily attributable to the loss on revaluation of
investments of Rs. 16.8 billion in the year ended March 31, 2007 compared to no such loss in the year ended
March 31, 2006 which was related to an accounting change in the Bank’s amortisation policy for held to
maturity investments. In addition, the Bank saw a 62.7% decrease in the profit on exchange transactions to Rs.
3.7 billion in the year ended March 31, 2007 from Rs. 10.0 billion in the year ended March 31, 2006 which was
caused by a one-time gain in the year ended March 31, 2006 related to the redemption of Indian Millennium
Deposits which was not recorded in 2007. This decrease was partially offset by a 20.2% increase in exchange
and brokerage commission to Rs. 48.0 billion in the year ended March 31, 2007 from Rs. 40 billion in the year
ended March 31, 2006, as well as a 88.2% increase in income earned from dividends from subsidiaries and joint
ventures to Rs. 6.0 billion in the year ended March 31, 2007 from Rs. 3.2 billion in the year ended March 31,
2006. This gain was the result of generally improved performances across all of the Bank’s subsidiaries and
joint ventures
Interest Expended
Interest expended increased 14.9% to Rs. 234.4 billion in the year ended March 31, 2007 from Rs.
203.9 billion in the year ended March 31, 2006. This increase in interest expended was primarily due to a
136.1% increase in other interest expended to Rs. 22.1 billion in the year ended March 31, 2007 from Rs. 9.4
billion in the year ended March 31, 2006 caused by interest paid on Tier I and Tier II capital bonds. Interest
248
expended in respect of interest on RBI and inter-bank borrowings also saw a 62.1% increase to Rs. 21.4 billion
in the year ended March 31, 2007 from Rs. 13.2 billion in the year ended March 31, 2006. This increase was the
result of greater borrowing needs as well as increased interest rates. Interest expended on deposits increased
5.2% to Rs. 190.8 billion in the year ended March 31, 2007 from Rs. 181.3 billion in the year ended March 31,
2006. This increase in interest expended on deposits was due to 14.6% increase in deposits, partially offset by an
expansion of lower cost current and savings account deposits, as well as interest rate revisions over the period.
Total deposits increased to Rs. 4,355.2 billion in the year ended March 31, 2007 from Rs. 3,800.5 billion in the
year ended March 31, 2006.
As a result of growth in the lower cost current and savings account deposits, the Bank’s net interest
margin decreased to 3.3% in the year ended March 31, 2007, as compared to 3.4% in the year ended March
31,2006. Investors should note that for the purpose of public disclosure, the net interest margin figure calculated
here is based on weekly averages of interest earning assets as per Indian market convention.
Operating Expenses
Operating expenses saw a modest increase of 0.8% to Rs. 118.2 billion in the year ended March 31,
2007 from Rs. 117.3 billion in the year ended March 31, 2006. This increase was primarily attributable to a
22.3% increase in other expenditures to Rs. 14.3 billion in the year ended March 31, 2007 from Rs. 11.7 billion
in the year ended March 31, 2006. Other expenditures increased as a result of an increase in mandatory deposit
insurance reflecting continued growth in the number of deposits. Rent, taxes and lighting increased 12.6% to Rs.
9.0 billion in the year ended March 31, 2007 from Rs. 8.0 billion in the year ended March 31, 2006. This
increase reflects the overall growth of the Bank’s branch and office facilities over the period. These increases
were partially offset by a 12.6% decrease in directors’ fees, allowances and expenses to Rs. 11.0 million in the
year ended March 31, 2007 from Rs. 12.0 million in the year ended March 31, 2006. The Bank also experienced
a 2.3% decrease in payments and provisions for employees to Rs. 79.3 billion in the year ended March 31, 2007
from Rs. 81.2 billion in the year ended March 31, 2006 which was a result of lower contributions made to the
pension and gratuity funds for employees based on an actuarial valuation.
The Bank classifies its loans in accordance with RBI guidelines. Provisions and contingencies
(excluding provisions for tax) decreased 45.1% to Rs. 24.1 billion in the year ended March 31, 2007 from Rs.
43.9 billion in the year ended March 31, 2006. This decrease in provisions and contingencies (excluding
provisions for tax) was primarily attributable to a RBI-mandated accounting change whereby amortisation and
redemption on held to maturity investments must now be accounted for as an operating expense instead of as an
adjustment in the “Provision and Contingencies” account. This change resulted in a decrease in Provisions for
Depreciation on Investments of 90.3% or Rs. 35.2 billion. The decrease was partially offset by a significant
increase in NPA provisions in the year ended March 31, 2007 to Rs. 14.3 billion from Rs. 1.5 billion in the
previous year. The lower provisioning in the year ended March 31, 2006 was the result of the write back of a
provision in respect of a significant NPA account that became a standard asset during the period.
Under the RBI guidelines issued in September 2005, banks were required to make general provision at
0.4% on standard loans (excluding loans to the agricultural sector and to small and medium enterprises). In May
2006, the general provisioning requirement for personal loans, loans and advances qualifying as capital market
exposure, residential housing loans beyond Rs. 2.0 million and commercial real estate was further increased to
1.0% from 0.4%. In January 2007, the general provisioning requirement for personal loans, credit card
receivables, loans and advances qualifying as capital market exposure, commercial real estate and advances to
non-deposit taking systemically important non-banking financial companies (“NBFCs”) was increased to 2.0%.
As a result, a general provision on standard assets increased by 45.4% to Rs. 5.9 billion in the year ended March
31, 2007 from Rs. 4.1 billion in the year ended March 31, 2006.
Tax Expense
Total taxation expenses increased by 22% to Rs. 30.5 billion in the year ended March 31, 2007 from Rs.
25.0 billion in the year ended March 31, 2006.
Current income tax increased by 77.1% to Rs. 29.8 billion in the year ended March 31, 2007 as
compared to Rs. 16.8 billion in the year ended March 31, 2006, primarily due to a disallowance of expenditure
incurred on ex gratia payments to employees who exercised the Exit Option in the year ended March 31, 2007,
249
leading to an effective tax rate of 39.62% which was 596 basis points higher than the statutory tax rate of
33.66%.
Net Profit
As a result of the above, net profit increased by 3.1% to Rs. 45.4 billion in the year ended March 31,
2007 from Rs. 44.1 billion in the year ended March 31, 2006.
Financial Condition
Total assets amounted to Rs. 5,665.7 billion as on March 31, 2007 compared to Rs. 4,940.3 billion as
on March 31, 2006, an increase of 14.7%. Cash and balances with RBI increased 34.3% to Rs. 290.8 billion as
on March 31, 2007 from Rs. 216.5 billion as on March 31, 2006. The primary reason for this increase was a
1.0% RBI-mandated increase in the CRR held by the RBI from 5.0% as on March 31, 2006 to 6.0% as on March
31, 2007. Balances with banks and money at call and short notice saw a slight decrease to Rs. 228.9 billion as on
March 31, 2007 from Rs. 229.1 billion as on March 31, 2006. Advances for term loans increased 28.3% to Rs.
1,810.7 billion as on March 31, 2007 from Rs. 1,410.9 billion as on March 31, 2006 which was in line with the
Bank’s overall increase in business and was supported by continued growth in deposits. These increases were
partially offset by a 12.6 % decrease in government securities held to Rs. 1,182.7 billion as on March 31, 2007
from Rs. 1,352.9 billion as on March 31, 2006.
As on March 31,
2006 2007 % change
Cash and balances with the RBI ............................ 216,527 290,764 34.3%
notice .....................................................................
Total Cash and cash equivalents ........................ 445,600 519,686 16.6%
Government securities ........................................... 1,352,913 1,182,709 (12.6%)
Other investments .................................................. 272,429 308,780 13.3%
Total investments................................................. 1,625,342 1,491,489 (8.2%)
Term loans ............................................................. 1,410,904 1,810,732 28.3%
Other advances ...................................................... 1,207,105 1,562,633 29.5%
Total advances ..................................................... 2,618,009 3,373,365 28.9%
Fixed assets............................................................ 27,530 28,189 2.4%
Other assets............................................................ 223,809 252,923 13.0%
Total assets ........................................................... 4,940,290 5,665,652 14.7%
Total liabilities and shareholders’ funds amounted to Rs. 5,665.7 billion as on March 31, 2007
compared to Rs. 4,940.3 billion as on March 31, 2006, an increase of 14.7%. Capital remained unchanged over
the period, while reserves and surplus increased 13.5% to Rs. 307.7 billion as on March 31, 2007 from Rs. 271.2
billion as on March 31, 2006. The increase in reserves was primarily as attributable to the retention of Rs. 36.8
billion out of the Rs. 45.4 billion, or 81%, of net income earned in the period. This retention was the result of the
Bank’s low dividend payout ratio of 19%. Deposits increased 14.6% to Rs. 4,355.2 billion as on March 31, 2007
from Rs. 3,800.5 billion as on March 31, 2006 as a result of a 20.6% increase in demand deposits over the
period caused by the overall growth in the Indian economy, new marketing efforts and new product initiatives.
Borrowings increased 29.6% to Rs. 397.0 billion as on March 31, 2007 from Rs. 306.4 billion as on March 31,
2006. The increase in the Bank’s borrowings is primarily attributable to the Bank’s domestic and international
capital fundraising activities.
250
As on March 31,
2006 2007 % change
Capital .......................................................................................... 5,263 5,263 0.0%
Reserves and surplus .................................................................... 271,178 307,722 13.5%
Total shareholders’ funds .......................................................... 276,441 312,985 13.2%
Deposits ........................................................................................ 3,800,461 4,355,211 14.6%
Borrowings ................................................................................... 306,412 397,033 29.6%
Other liabilities and provisions ..................................................... 556,976 600,423 7.8%
Total liabilities and shareholders’ funds .................................. 4,940,290 5,665,652 14.7%
Unconsolidated Results for the Year Ended March 31, 2005 Compared to the Year Ended March 31, 2006
In accordance with RBI directions, as well as recommendations of its statutory auditors, the Bank
made certain changes to its accounting policies in the year ended March 31, 2007. The figures contained in this
Letter of Offer relating to the year ended March 31, 2006 have been regrouped to reflect these changes. The
figures relating to the year ended March 31, 2005, however, have not been regrouped. Because of this, investors
should be aware that the line items relating to Other Income as well as Provisions and Contingencies from the
years ended March 31, 2006 and 2007 are not strictly comparable to those items in the year ended March 31,
2005. For a more detailed discussion of these changes, see “— Changes in Accounting Policies.”
Interest Earned
Interest earned increased by 11% to Rs. 359.8 billion in the year ended March 31, 2006 from Rs. 324.3
billion in the year ended March 31, 2005. This increase was primarily the result of a 35.7% increase in the
interest earned on advances and bills to Rs. 177 billion in the year ended March 31, 2006 from Rs. 130.4 billion
in the year ended March 31, 2005 which was primarily the result of increased disbursements of cash credits,
overdrafts, loans repayable on demand and term loans reflecting the continued growth of the Bank’s business. In
addition, the Bank saw a 39.1% increase in other interest earned to Rs. 21.8 billion in the year ended March 31,
2006 from Rs. 15.7 billion in the year ended March 31, 2005 reflecting a one-off interest received on an income
tax refund of Rs. 16.4 billion recognised in 2006 against Rs. 7.5 billion recognised in 2005. These increases
were partially offset by the 12.8% decrease in income earned on investments to Rs. 139.8 billion in the year
ended March 31, 2006 from Rs. 160.3 billion in the year ended March 31, 2005. The decrease in income earned
on investments in the year ended March 31, 2006 was related to the replacement of high coupon investments
with lower coupon investments (primarily Government securities) with the intention to reduce the average
duration of the investment portfolio.
Other Income
Other income increased to Rs. 74.4 billion in the year ended March 31, 2006 from Rs. 71.2 billion in
the year ended March 31, 2005. The Bank saw an increase in profit on exchange transactions to Rs. 10.0 billion
in the year ended March 31, 2006 from Rs. 5.3 billion in the year ended March 31, 2005 which was mainly the
result of a one-time gain related to the redemption of Indian Millennium Deposits. Miscellaneous income also
saw a substantial increase of Rs. 6.7 billion to Rs. 14.1 billion in the year ended March 31, 2006 from Rs. 7.4
billion in the year ended March 31, 2005. Contributing factors to this increase were a higher recovery amount
from written-off loan accounts as well as a one-time recognition of non-reconciled net-credit entries held on the
Bank’s inter-office accounts up to March 31, 1999. The Bank saw a decrease in profits on sale of investments to
Rs. 5.9 billion in the year ended March 31, 2006 from Rs. 17.8 billion in the year ended March 31, 2005.
Increasing yields on investments in the year ended March 31, 2006 contributed to the decrease in the profit on
sale of such investments.
Interest Expended
Interest expended increased by 10.3% to Rs. 203.9 billion in the year ended March 31, 2006 from Rs.
184.8 billion in the year ended March 31, 2005. This increase in interest expended was primarily due to a 5.5%
251
increase in interest on deposits to Rs. 181.3 billion in the year ended March 31, 2006 from Rs. 171.9 billion in
the year ended March 31, 2005 as a result of the 3.5% increase in deposits over the same period. Interest
expended in respect of interest on RBI and interbank borrowings also saw a 223.3% increase to Rs. 13.2 billion
in the year ended March 31, 2006 from Rs. 4.1 billion in the year ended March 31, 2005. This increase was
related to interest paid on domestic borrowings and Medium Term Note Programme used to increase the Bank’s
international resources. Other interest expended increased 5.5% to Rs. 9.4 billion in the year ended March 31,
2006 from Rs. 8.9 billion in the year ended March 31, 2005 primarily as a result of interest paid on Tier I and
Tier II capital bonds. Total deposits increased to Rs. 3,800.5 billion in the year ended March 31, 2006 from Rs.
3,670.5 billion in the year ended March 31, 2005, while the cost of deposits (domestic) decreased to 4.7% from
5.1% over the same period.
Net interest margin for the year ended March 31, 2006 remains constant at 3.4% as compared to March
31, 2005 as increases in average interest earning assets were offset by an increase in the cost of borrowings and
a decrease in the yield on investments. Investors should note that, for the purpose of public disclosure the net
interest margin figure calculated here is based on weekly averages of interest earning assets as per Indian market
convention.
Operating Expenses
Operating expenses saw an increase of 16.4% to Rs. 117.3 billion in the year ended March 31, 2006
from Rs. 100.7 billion in the year ended March 31, 2005. This increase was primarily attributable to a 17.6%
increase in payments and provisions for employees to Rs. 81.2 billion in the year ended March 31, 2006 from Rs.
69.1 billion in the year ended March 31, 2005. This increase reflects a payment of wage revision arrears and an
increased contribution to superannuation benefits. Directors’ fees, allowances and expenses also increased 24%
to Rs. 12.3 million in the year ended March 31, 2006 from Rs. 9.9 million in the year ended March 31, 2005.
Provisions and contingencies (excluding provisions for tax) increased to Rs. 43.9 billion in the year
ended March 31, 2006 from Rs. 44.7 billion in the year ended March 31, 2005. The Bank saw higher general
provisions for standard assets, higher investment depreciation, provision for fringe benefit tax as well as a lower
provision for loan loss. Starting in the third quarter of 2005, the RBI increased the requirement of general
provisioning on standard loans (excluding loans to the agricultural sector and small and medium enterprises) to
0.40% compared to 0.25% applicable until September 30, 2005. In accordance with these guidelines, the Bank
made general provisions of Rs. 4.1 billion in the year ended March 31, 2006.
Tax Expense
Total taxation expense increased by 12.7% to Rs. 25.0 billion in the year ended March 31, 2006 from
Rs. 22.2 billion in the year ended March 31, 2005.
Current income tax expense decreased 31.2% to Rs. 16.8 billion in the year ended March 31, 2006 as
compared to Rs. 24.5 billion in the year ended March 31, 2005 primarily due to provisions made towards wage
in arrears form earlier years. These provisions were allowed as a deduction from taxable income during the year
ended March 31, 2006, leading to an effective tax rate of 27.63% which was 603 basis points lower than the
statutory tax rate of 33.66%.
Net Profit
As a result of the above, net profit after tax increased by 2.4% to Rs. 44.1 billion in the year ended
March 31, 2006 from Rs. 43.0 billion in the year ended March 31, 2005.
Financial Condition
on March 31, 2005, an increase of 7.4%. Cash and balances with the RBI increased 28.8% to Rs. 216.5 billion
as on March 31, 2006 from Rs. 168.1 billion as on March 31, 2005, primarily due to higher CRR balances as a
result of an increase in deposits. Balances with banks and money at call and short notice saw a modest increase
of 1.8% to Rs. 229.1 billion as on March 31, 2006 from Rs. 225.1 billion as on March 31, 2005. Advances for
term loans increased 31.9% to Rs. 1,410.9 billion as on March 31, 2006 from Rs. 1,069.9 billion as on March 31,
252
2005. This increase in term loans was consistent with growth in the Bank’s overall loan portfolio. These
increases were partially offset by a 21.3% decrease in Government securities to Rs. 1,352.9 billion as on March
31, 2006 from Rs. 1,719.4 billion as on March 31, 2005 as a result of the Bank’s strategy during the period to
liquidate investments in Government securities to fund loan growth as well as to meet the redemption
requirements of Indian Millennium Deposits.
As on March 31,
2005 2006 % change
Cash and balances with the RBI .............................. 168,103 216,527 28.8%
Balance with banks and money at call and short 225,118 229,073 1.8%
notice .......................................................................
Total Cash and cash equivalents .......................... 393,221 445,600 13.3%
Government securities ............................................. 1,719,435 1,352,913 (21.3%)
Other investments .................................................... 251,544 272,429 8.3%
Total investments................................................... 1,970,979 1,625,342 (17.5%)
Term loans ............................................................... 1,069,885 1,410,904 31.9%
Other advances ........................................................ 953,860 1,207,105 26.5%
Total advances ....................................................... 2,023,745 2,618,009 29.4%
Fixed assets.............................................................. 26,977 27,530 2.0%
Other assets.............................................................. 183,907 223,809 21.7%
Total assets ............................................................. 4,598,829 4,940,290 7.4%
billion as on March 31, 2005. The increase in reserves was primarily attributable to the retention of Rs. 35.7
billion, or 80.9%, of net income earned in the period. Deposits increased 3.5% to Rs. 3,800.5 billion as on
March 31, 2006 from Rs. 3,670.5 billion as on March 31, 2005 as a result of a 20.1% increase in demand
deposits partially offset by the repayment of Indian Millennium Deposits during the year ended March 31, 2006.
Borrowings increased 59.7% to Rs. 306.4 billion as on March 31, 2006 from Rs. 191.8 billion as on March 31,
2005. The increase in the Bank’s borrowings is primarily attributable to the Bank’s efforts to increase its capital
adequacy through offshore borrowings by way of drawdown from its Medium Term Note Programme as well as
borrowings within India. Other liabilities and provisions increased 12.3% to Rs. 557 billion as on March 31,
2006 from Rs. 495.8 billion as on March 31, 2005. The increase was primarily a result of a 152.4% increase in
bills payable as well as a 50.0% increase in other liabilities, including provisions.
As on March 31,
2005 2006 % change
Capital .............................................................................................. 5,263 5,263 0.0%
Reserves and surplus ........................................................................ 235,458 271,178 15.2%
Total shareholders’ funds .............................................................. 240,721 276,441 14.8%
Deposits ............................................................................................ 3,670,476 3,800,461 3.5%
Borrowings ....................................................................................... 191,843 306,412 59.7%
Other liabilities and provisions ......................................................... 495,789 556,976 12.3%
Total liabilities and shareholders’ funds ...................................... 4,598,829 4,940,290 7.4%
253
Liquidity
The following table sets forth the Bank’s unconsolidated statement of cash flows for the years ended
March 31, 2005, 2006 and 2007 and the six-month periods ended September 30, 2006 and 2007:
Year ended March 31, Six-months ended September 30,

2005 2006 2007 2006 2007
(Rs. in millions)
Net cash (used in)/from operating activities .............. (27,807) 56,023 (17,761) 59,120 27,100
Net cash (used in)/from investing activities .............. (4,988) (7,394) (2,846) (137) (6,704)
Net cash (used in)/from financing activities .............. (9,693) 3,696 94,941 43,893 52,134
Net increase (decrease) in cash & equivalents (42,488) 52,325 74,334 102,876 72,530
Cash & equivalents, beginning of period................... 435,666 393,221 445,600 445,600 519,687
Effect of foreign exchange rate changes 43 54 (247) 1,010 (2,229)
Cash & equivalents, end of period 393,221 445,600 519,687 549,486 589,988
Cash Flows from Operating Activities
The Bank recorded a net cash inflow from operating activities of Rs. 27.1 billion in the six-months
ended September 30, 2007. The primary reasons for the net cash inflow during the period was an inflow of
deposits of Rs. 515.3 billion as well as a Rs. 52.3 billion increase in borrowings. The net cash inflow during the
period was partially offset by a Rs. 304.6 billion increase in investments as well as a Rs. 217.7 billion increase
in loans.
The Bank recorded a net cash inflow from operating activities of Rs. 59.1 billion in the six-months
ended September 30, 2006. The primary reasons for the net cash inflow during the period was an increase in
deposits of Rs. 204.6 billion and a Rs. 16.4 billion increase in borrowing. In addition, the Bank saw a Rs. 108.7
billion decrease in investments as a result of the Bank winding down its investment portfolio. The net cash
inflow during the period was partially offset by a Rs. 215.3 billion increase in advances.
The Bank recorded a net cash outflow from operating activities of Rs. 17.8 billion in the year ended
March 31, 2007. The primary reason for the net cash outflow was an increase in advances of Rs. 769.7 billion
that was partially offset by a Rs. 74.5 billion decrease in investments as well as a Rs. 90.6 billion increase in
borrowings. The net cash outflow during the period was also partially offset by an increase in deposits of Rs.
554.8 billion, reflecting the Bank’s strategy of attracting new depositors to fund future advances.
The Bank recorded a net cash inflow from operating activities of Rs. 56.0 billion in the year ended
March 31, 2006. The primary reasons for this increase in cash flow were a Rs. 362.1 billion decrease in
investments, a Rs. 114.5 billion increase in borrowings and a Rs. 130.0 billion increase in deposits. Cash from
operations was primarily used to fund the Bank’s expanding loan portfolio resulting in an outflow of Rs. 595.7
billion for advances.
The Bank recorded a net cash outflow from operating activities of Rs. 27.8 billion in the year ended
March 31, 2005. Cash was used during the period primarily to fund new loans, causing an increase in advances
of Rs. 456.4 billion. A significant source of cash for the period came from a Rs. 484.3 billion increase in
deposits.
Cash Flows from Investing Activities
The Bank recorded a net cash outflow from investing activities of Rs. 6.7 billion in the six-months
ended September 30, 2007. The cash was used primarily to purchase Rs. 6.7 billion worth of fixed assets
relating to upgrading the interiors of the Bank’s branches as well as purchases of computers and other IT related
equipment and services. The Bank also recorded an outflow of Rs. 1.7 billion relating to investment in its joint
ventures and subsidiaries. The net cash outflow during the period was partially offset by income received from
joint ventures and subsidiaries of Rs. 1.7 billion.
The Bank recorded a net cash outflow from investing activities of Rs. 0.1 billion in the six-months
ended September 30, 2006. The cash was used primarily to purchase fixed assets of Rs. 2.8 billion as well as Rs.
254
0.9 billion to fund the Bank’s joint ventures and subsidiaries. The net cash outflow during the period was
partially offset by Rs. 3.6 billion received from the Bank’s joint ventures and subsidiaries.
The Bank recorded a net cash outflow from investing activities of Rs. 2.8 billion in the year ended
March 31, 2007. The cash was used primarily to fund investments in fixed assets of Rs. 6.6 billion as well as
investments in joint ventures and subsidiaries, which saw an increase of Rs. 2.3 billion. The cash outflow from
these activities was partially offset by an increase in income earned by joint ventures and subsidiaries of Rs. 6
billion.
The Bank recorded a net cash outflow from investing activities of Rs. 7.4 billion in the year ended
March 31, 2006. This outflow was primarily attributable to an increase of Rs. 7.8 billion in fixed assets as well
as a Rs. 2.7 billion increase in investments in subsidiaries and joint ventures. The primary source of cash inflow
from investing activities was income earned on investments in subsidiaries and joint ventures of Rs. 3.2 billion.
The Bank recorded a net cash outflow from investing activities of Rs. 5 billion in the year ended March
31, 2005. The cash was primarily used to fund a Rs. 8.1 billion increase in fixed assets.
Cash Flows from Financing Activities
Net cash inflow from financing activities was Rs. 52.1 billion in the six-months ended September 30,
2007. The cash inflow was primarily attributable to Rs. 68.3 billion raised through the issuance of Tier II capital
bonds by the Bank. This inflow was partially offset by Rs. 8.6 billion in dividend paid by the Bank to its
shareholders (including related taxes) as well as Rs. 7.5 billion in interest payments on bonds.
Net cash inflow from financing activities was Rs. 43.9 billion in the six-months ended September 30,
2006. The cash inflow was primarily attributable to the issuance of domestic bonds equalling Rs. 55.4 billion.
This inflow was partially offset by Rs. 8.4 billion in dividends paid by the Bank to its shareholders (including
related taxes) as well as Rs. 3.1 billion in interest payments on bonds.
Net cash inflow on financing activities was Rs. 94.9 billion in the year ended March 31, 2007. The
inflow was primarily attributable to Rs. 94.4 billion worth of subordinated debt raised domestically by the Bank
during the year. In addition, the Bank issued Rs. 17.4 billion worth of Hybrid Tier I notes through its Medium
Term Note Program. This inflow was partially offset by Rs. 8.5 billion in interest paid on bonds during the year
as well as Rs. 8.4 billion in dividends paid by the Bank to its shareholders (including related taxes).
inflow was primarily due to the issue of Rs. 32.8 billion of subordinated debt raised domestically, though this
was partially offset by the redemption of subordinated debt in the amount of Rs. 17.6 billion, Rs. 4.0 billion in
interest paid on bonds as well as Rs. 7.5 billion in dividends paid by the Bank to its shareholders (including
related taxes).
Net cash outflow on financing activities was Rs. 9.7 billion in the year ended March 31, 2005. The
outflow was primarily attributable to Rs. 5.8 billion for dividends paid and Rs. 3.9 billion for interest paid on
bonds.
Off Balance Sheet Items
The table below sets forth, for the periods indicated, the principal components of the Bank’s
unconsolidated contingent liabilities.

2005 2006 2007 2006 2007
(Rs. in billions)
Contingent liabilities
Claims against the Bank not
acknowledged as debts............................ 8.3 17.0 38.1 -1 5.7
investments ............................................. 0.6 0.03 0.03 -1 1.1
Liability on account of outstanding
forward exchange contracts..................... 917.0 1,343.5 1,972.9 1,388.2 1,886.5
Guarantees given on behalf of 190.8 268.9 376.2 346.7 462.6
255
2005 2006 2007 2006 2007
(Rs. in billions)
customers ................................................
Acceptances, endorsements &
other obligations ..................................... 280.2 370.3 470.5 519.9 652.2
Other items for which the Bank is
contingently liable .................................. 197.1 289.1 208.2 631.31 6,802.8
Total ......................................................... 1,594.0 2,288.8 3,065.9 2,886.1 9,810.9
Note:
(1) For September 30, 2006, the aggregate amount of claims against the Bank not acknowledged as debts, liability for
partly paid investments and other items for which the Bank is contingently liable are shown as an aggregate
amount.
Contingent liabilities increased by Rs. 6,924.8 billion to Rs. 9,810.9 billion as on September 30, 2007
from Rs. 2,886.1 billion as on September 30, 2006, primarily due to an increase in other items for which the
Bank is contingently liable as a result of a significant increase in the number of derivative transactions for
customers as well as its proprietary account. Contingent liabilities increased by 34.0% or Rs. 777.1 billion to Rs.
3,065.9 billion as on March 31, 2007 from Rs. 2,288.8 billion as on March 31, 2006, primarily due to a 46.8%
increase in liability on account of outstanding forward exchange contracts as well as a 27.1% increase in
acceptances, endorsements and other obligations. The 43.6% increase in contingent liabilities to Rs. 2,288.8
billion as on March 31, 2006 from Rs. 1,594.0 billion as on March 31, 2005 was primarily due to a 46.5%
increase liability on account of outstanding forward exchange contracts as well as a 41% increase in guarantees
given on behalf of customers. See “Business — Global Markets.”
Capital Resources
The following table sets forth the Bank’s unconsolidated risk-based capital, risk-weighted assets and
risk-based capital adequacy ratios computed in accordance with the applicable RBI guidelines and as reported to
the RBI.
As of March 31, As of September 30,

2005 2006 2007 2006 2007
Tier I capital ............................................................ 163.1 251.8 304.7 273.0 340.9
Tier II capital ........................................................... 89.5 67.8 164.7 121.4 222.5
Total qualifying capital ......................................... 252.6 319.6 469.4 394.4 563.4
Total credit risk-weighted assets ............................. 2,016.2 2,461.0 3,608.1 2,901.6 4,119.2
Total market risk-weighted assets ........................... 12.7 229.8 196.7 221.1 263.9
Total risk-weighted assets and contingents ......... 2,028.9 2,690.8 3,804.8 3,122.7 4,383.1
Capital adequacy ratios:

Tier I capital adequacy ratio .................................... 8.04% 9.36% 8.01% 8.74% 7.78%
Tier II capital adequacy ratio................................... 4.41% 2.52% 4.33% 3.89% 5.07%
Total capital adequacy ratio ................................. 12.45% 11.88% 12.34% 12.63% 12.85%
Minimum Tier I ratio required by RBI 4.50% 4.50% 4.50% 4.50% 4.50%
Minimum capital adequacy ratios required by RBI . 9.00% 9.00% 9.00% 9.00% 9.00%
The Bank’s total capital adequacy as of September 30, 2007 was 12.85%, including Tier-I capital
adequacy of 7.78% and Tier-II capital adequacy of 5.07%. In accordance with RBI guidelines, the risk-weighted
assets as of September 30, 2007 include home loans to individuals at a risk weightage of 50.0 to 75.0%, other
consumer loans and capital market exposure at a risk weightage of 125.0%. Commercial real estate exposure
and investments in venture capital funds have been considered at a risk weightage of 150.0%. The risk-weighted
assets as of March 31, 2007 and September 30, 2007 also include the impact of capital requirement for market
risk on the held for trading and available for sale portfolio of investments.
256
The RBI issued guidelines in October 2005 permitting banks that have maintained capital of at least
9.0% of the risk-weighted assets for credit risk and market risk for held for trading and available for sale
categories of investments to transfer the balance in the investment fluctuation reserve to statutory reserve,
general reserve or balance of profit and loss account. Pursuant to the above, the entire balance in investment
fluctuation reserve as of the year ended March 31, 2006, of Rs. 52.5 billion, was transferred to revenue and
other reserves and considered as part of the Bank’s Tier I capital.
Capital Expenditures
The Bank’s capital expenditures primarily include expenditures for computer software and hardware,
purchases of real estate properties for branches and offices and leasehold improvements. The following table
sets forth significant capital expenditures for various fixed assets for the periods indicated:
For the six month

For the year ended period ended
March 31 September 30
2005 2006 2007 2007
(Rs. in millions)
Computer hardware and software 3,498.3 4,465.1 1,611.2 1,917.6
Furniture and fixtures 1,800.0 1,860.0 1,630.0 N/A
Construction projects 980.0 1,500.0 2,130.0 N/A
Site preparation work for full computerisation, ATMs, etc. 610.0 340.0 290.0 N/A
Note:
N/A = Not Available
Guarantees
As a part of the Bank’s project financing and commercial banking activities, it has issued financial and
performance guarantees to enhance the credit standing of its customers. Financial guarantees are obligations to
pay a third party beneficiary where a customer fails to make payment towards a specified financial obligation.
Performance guarantees are obligations to pay a third party beneficiary where a customer fails to perform a non-
financial contractual obligation. The guarantees are generally for a period not exceeding ten years. The credit
risks associated with these products, as well as the operating risks, are similar to those relating to other types of
financial instruments. The Bank has collateral available to reimburse potential losses on the guarantees. Cash
collateral available to reimburse losses realised under guarantees amounted to Rs. 46.6 billion as of September
30, 2007, Rs. 38.9 billion as of September 30, 2006, Rs. 52.9 billion as of March 31, 2007 and Rs. 36.1 as of
March 31, 2006. Other property or security may also be available as collateral to cover losses under guarantees.
Consolidated Financial Statement Discussion
The discussion set out below is based on the Group’s unaudited consolidated financial statements for
the six-months ended September 30, 2006 and 2007 as well as the audited consolidated financial statements for
the years ended March 31, 2005, 2006 and 2007. The consolidated financial statements for the year ended
March 31, 2007 contain 21 subsidiaries, seven joint ventures and 27 associates, the financial statements for the
year ended March 31, 2006 contain 21 subsidiaries, six joint ventures and 39 associates, and the financial
statements for the year ended March 31, 2005 contain 16 subsidiaries, six joint ventures and 49 associates.
Because the entities consolidated in the financial statements are not uniform over these three periods, the figures
appearing against various items for these years are not strictly comparable.
Consolidated Results for the Six-Months Ended September 30, 2006 Compared to the Six-Months Ended
September 30, 2007
Interest Earned
Interest earned increased by 32.8% to Rs. 333.6 billion in the six-months ended September 30, 2007
from Rs. 251.2 billion in the six-months ended September 30, 2006. This increase was primarily the result of a
45.2% increase in the interest earned on advances and bills to Rs. 242.5 billion in the six-months ended
September 30, 2007 from Rs. 167 billion in the six-months ended September 30, 2006. This increase was
257
attributable to an increase in the Group’s PLR during the period by 175 basis points as well as increases in the
rates charged by the Group above the PLR on renewal of loans and new loans. The increase in interest earned
was also the result of a 26.7% increase in the Group’s loan volume which was driven by continued growth in the
Indian economy as well as increased marketing efforts.
The increase in interest earned was also aided by a 8.6% increase in income earned on investments to
Rs. 80.5 billion in the six-months ended September 30, 2007 from Rs. 74.1 billion in the six-months ended
September 30, 2006 which was due to higher level of investments held by the Group during the period.
Other Income
Other income increased by 53.9% to Rs. 69.5 billion in the six-months ended September 30, 2007 from
Rs. 45.2 billion in the six-months ended September 30, 2006. This increase was partially attributable to a growth
of 79.0% in life insurance premiums earned amounting to Rs. 13.8 billion in the six-months ended September 30,
2007 as compared to Rs. 7.7 billion in the six-months ended September 30, 2006.
Interest Expended
Interest expended increased by 48.0% to Rs. 222.3 billion in the six-months ended September 30, 2007
from Rs. 150.2 billion in the six-months ended September 30, 2006. This increase in interest expended was
primarily due to a 43.9% increase in interest paid on deposits amounting to Rs. 194.0 billion in the six-months
ended September 30, 2007 from Rs. 134.8 billion in the six-months ended September 30, 2006. The increase on
interest paid on deposits was caused by a 103 basis point increase on the cost of deposits as well as a 21.4%
increase in the volume of deposits (primarily interest-bearing deposits) to Rs. 7,024.7 billion in the six-months
ended September 30, 2007 from Rs. 5,785 billion in the six-months ended September 30, 2006. Interest
expended in respect of interest on RBI and inter-bank borrowings also saw a 173.3% increase to Rs. 23.5 billion
in the six-months ended September 30, 2007 from Rs. 8.6 billion in the six-months ended September 30, 2006.
This increase was the result of greater borrowing needs as well as increased interest rates.
As a result of the higher cost of funds due to increased interest rates and additional CRR requirements,
the Group’s net interest margin decreased to 2.67% in the six-months ended September 30, 2007 as compared to
2.99% in the six-months ended September 30, 2006.
Operating Expenses
Operating expenses saw a modest increase of 21.4% to Rs. 108.8 billion in the six-months ended
primarily attributable to a 44.5% increase in other expenditures to Rs. 53.5 billion in the six-months ended
September 30, 2007 from Rs. 37.0 billion in the six-months ended September 30, 2006. Other expenditures
increased as a result of a 148.6% increase in changes in insurance policies liabilities to Rs. 18.4 billion in the
six-months ended September 30, 2007 from Rs. 7.4 billion in the six-months ended September 30, 2006. This
increase reflects the continued growth of the life insurance business. The Group also experienced a 5.1%
increase in payments and provisions for employees to Rs. 55.3 billion in the six-months ended September 30,
2007 from Rs. 52.6 billion in the six-months ended September 30, 2006 which was (i) a result of employees
taking advantages of the Bank’s Exit Option which was a voluntary early retirement scheme introduced by the
Bank during the year ended March 31, 2007, which was extended to all the non-officer Bank employees during
the period from September 1, 2006 to March 31, 2007, and (ii) an increase in the Bank and its associate Banks
compensation level based on rising price levels in India.
The Group classifies its loans in accordance with RBI guidelines. Provisions and contingencies
(excluding provisions for tax) decreased 25.2% to Rs. 7.2 billion in the six-months ended September 30, 2007
from Rs. 9.6 billion in the six-months ended September 30, 2006. This decrease in provisions and contingencies
(excluding provisions for tax) was primarily due to a moderation of the Government securities yield in the one
to five year range, where the Bank holds a high concentration. This change resulted in a decrease in provisions
for depreciation on investments of 261.6% or Rs. 6.2 billion. The decrease was partially offset by a significant
increase of 87% in NPA provisions in the six-months ended September 30, 2007 to Rs. 9.2 billion from Rs. 4.9
billion in the previous year.
258
Tax Expense
Total taxation expense increased by 26% to Rs. 23.5 billion in the six-months ended September 30,
2007 from Rs. 18.6 billion in the six-months ended September 30, 2006.
Current income tax increased by 39.2% to Rs. 23.8 billion in the six-months ended September 30, 2007
as compared to 17.1 billion in the six-months ended September 30, 2006, primarily due to the Bank’s provisions
for expenditure items where income tax levels are uncertain, reflecting an effective tax rate of 36.53% which
was 254 basis points higher than the statutory tax rate of 33.99%.
Net Profit
As a result of the above, net profit increased by 48.7% to Rs. 40.1 billion in the six-months ended
September 30, 2007 from Rs. 27.0 billion in the six-months ended September 30, 2006.
Financial Condition
Total assets amounted to Rs. 9,068.4 billion as on September 30, 2007 as compared to Rs. 7,613.2
billion as on September 30, 2006, an increase of 19.1%. Cash and balances with RBI increased 58.1% to Rs.
656.5 billion as on September 30, 2007 from Rs. 415.3 billion as on September 30, 2006. The primary reason
for this increase was higher CRR balances held by the RBI due to an increase in deposits of 21.4% as on
September 30, 2007 as well as a 200 basis point increase in the CRR to 7.0% in the six-months ended
September 30, 2007 from 5.0% in the six-months ended September 30, 2006. Balances with banks and money at
call and short notice decreased to Rs. 161.7 billion as on September 30, 2007 from Rs. 265.5 billion as on
September 30, 2006. Advances for term loans increased 28.0% to Rs. 2,891.2 billion as on September 30, 2007
from Rs. 2,258.6 billion as on September 30, 2006 which was in line with the Group’s overall increase in
business and was supported by continued growth in deposits. Investment in Government securities also
increased 18.3% to Rs. 2,089.8 billion as on September 30, 2007 from Rs. 1765.9 billion as on September 30,
2006.
The table below sets out the principal components of the Group’s assets as on the dates indicated.
As on September 30,
2006 2007 % change
Cash and balances with the RBI .......................... 415,321 656,516 58.1%
notice ...................................................................
Total Cash and cash equivalents ...................... 680,811 818,231 20.2%
Government securities ......................................... 1,765,974 2,089,801 18.3%
Other investments ................................................ 353,294 464,572 31.5%
Total investments............................................... 2,119,268 2,554,373 20.5%
Term loans ........................................................... 2,258,552 2,891,209 28.0%
Other advances .................................................... 1,843,068 2,306,245 25.1%
Total advances ................................................... 4,101,620 5,197,454 26.7%
Fixed assets.......................................................... 39,917 44,826 12.3%
Other assets.......................................................... 671,595 453,595 (32.5%)
Total assets ......................................................... 7,613,211 9,068,479 19.1%
Total liabilities and shareholders’ funds amounted to Rs. 9,068.5 billion as on September 30, 2007 as
compared to Rs. 7,613.2 billion as on September 30, 2006, an increase of 19.1%. Capital remained unchanged
over the period, while reserves and surplus increased 16.1% to Rs. 457.7 billion as on September 30, 2007 from
Rs. 394.4 billion as on September 30, 2006. The increase in reserves was primarily attributable to the retention
of Rs. 66.3 billion out of the Rs. 76.8 billion, or 86.4%, of net income earned in the period. Borrowings
increased 42.2% to Rs. 568.6 billion as on September 30, 2007 from Rs. 400.0 billion as on September 30, 2006.
The increase in the Group’s borrowings was primarily attributable to the Group’s domestic and international
capital markets fundraising activities.
259
The table below sets out the principal components of the Group’s shareholders’ funds and liabilities as
As on September 30,
2006 2007 % change
Capital .......................................................................................... 5,263 5,263 0.0%
Minority interest 15,517 18,418 18.7%
Deposits ........................................................................................ 5,784,943 7,024,773 21.4%
Borrowings ................................................................................... 399,951 568,595 42.2%
Other liabilities and provisions ..................................................... 1,013,148 993,706 (1.9%)
Consolidated Results for the Year Ended March 31, 2006 Compared to the Year Ended March 31, 2007
Interest Earned
Interest earned increased by 14.7% to Rs. 572.4 billion in the year ended March 31, 2007 from Rs.
498.9 billion in the year ended March 31, 2006. This increase was primarily the result of a 42.2% increase in the
interest earned on advances and bills to Rs. 368.3 billion in the year ended March 31, 2007 from Rs. 259 billion
in the year ended March 31, 2006. This increase was primarily the result of a 200 basis point increase in the
prime lending rate. This increase was partially offset by the 12.9% decrease in income earned on investments to
Rs. 168.3 billion in the year ended March 31, 2007 from Rs. 193.1 billion in the year ended March 31, 2006,
which was the result of a decreasing yield on investments due to higher CRR requirements as well as a portion
of the Group’s higher yielding bonds reaching maturity. Also offsetting the increase in interest earned was a
79.6% decrease in other interest earned to Rs. 4.6 billion in the year ended March 31, 2007 from Rs. 22.4 billion
in the year ended March 31, 2006. This decrease in other interest earned was primarily caused by interest on
income tax refund of Rs. 17 billion realised in 2006.
Other Income
Other income remained relatively unchanged at Rs. 111.4 billion in the year ended March 31, 2007
from Rs. 111.7 billion in the year ended March 31, 2006. This slight decrease was primarily attributable to the
loss on revaluation of investments of Rs. 23.0 billion in the year ended March 31, 2007 compared to a profit of
Rs. 0.2 billion in the year ended March 31, 2006. The loss on revaluation of investments in the year ended
March 31, 2007 was related to an RBI-mandated accounting change in the Group’s amortisation policy for held
to maturity investments. In addition, the Group saw a 51.9% decrease in the profit on exchange transactions to
Rs. 5.9 billion in the year ended March 31, 2007 from Rs. 12.1 billion in the year ended March 31, 2006. This
decrease was partially offset by a 24.8% increase in exchange and brokerage commission to Rs. 66.6 billion in
the year ended March 31, 2007 from Rs. 53.4 billion in the year ended March 31, 2006, as well as a 172.4%
increase in life insurance premiums to Rs. 29.2 billion in the year ended March 31, 2007 from Rs. 10.7 billion in
the year ended March 31, 2006. The increase in life insurance premiums was principally the result of the
Group’s strategy to grow its life insurance business.
Interest Expended
281.0 billion in the year ended March 31, 2006. This increase in interest expended was primarily due to a 13.5%
increase in interest on deposit to Rs. 287.9 billion in the year ended March 31, 2007 from Rs. 253.7 billion in
the year ended March 31, 2006 as a result of an increase in the Group’s overall deposits partially offset by an
expansion of lower cost current and savings account deposits as well as interest rate reversions over the period.
Interest expended in respect of interest on RBI and inter-bank borrowings also saw a 49.0% increase to Rs. 22.3
billion in the year ended March 31, 2007 from Rs. 15 billion in the year ended March 31, 2006 as a result of the
Group’s greater borrowing needs. Other interest expended also increased 139.1% to Rs. 29.7 billion in the year
260
ended March 31, 2007 from Rs. 12.4 billion in the year ended March 31, 2006. The increase in other interest
expended was primarily due to interest paid on Tier I and Tier II capital bonds.
Operating Expenses
increase in expenses relating to the life insurance business to Rs. 28.4 billion in the year ended March 31, 2007
from Rs. 11.7 billion in the year ended March 31, 2006. This increase was the result of expenses related to
strong growth in the life insurance business. Indian accounting standards require that customer acquisition
expenses be recognised in the year the policy was sold. Other expenditures also increased 37.9% to Rs. 27.6
billion in the year ended March 31, 2007 from Rs. 20 billion in the year ended March 31, 2006 . Rent, taxes and
lighting saw an increase of 13.5% to Rs. 12.7 billion in the year ended March 31, 2007 from Rs. 11.2 billion in
the year ended March 31, 2006. This increase reflects the overall growth of the Group’s branch and office
facilities over the period. Payments and provisions for employees also decreased 1.5% to Rs. 106 billion in the
year ended March 31, 2007 from Rs. 107.6 billion in the year ended March 31, 2006. The principal cause for
this decrease was more than 8,000 employees opting for the voluntary Exit Option introduced by the Bank for
its employees.
Provisions and contingencies (excluding provisions for tax) decreased 44.1% to Rs. 36.2 billion in the
year ended March 31, 2007 from Rs. 64.7 billion in the year ended March 31, 2006. This decrease in provisions
and contingencies (excluding provisions for tax) was primarily attributable to an RBI-mandated change in
accounting policies whereby amortisation and redemption on held to maturity investments must now be
accounted for as an operating expense instead of as an adjustment to the Provision and Contingencies account.
This accounting change resulted in a decrease in provisions for depreciation on investments of 85.0%, or Rs.
47.1 billion. This decrease was partially offset by an increase in NPA provisions in the year ended March 31,
2007 to Rs. 17.8 billion from Rs. 4.1 billion in the year ended March 31, 2006. The lower amount of NPA
provisions during the year ended March 31, 2006 was on account of the write back or provisions, which was not
available in the year ended March 31, 2007
Tax Expense
Total taxation expense increased by 28.7% to Rs. 41.6 billion in the year ended March 31, 2007 as
compared to Rs. 32.3 billion in the year ended March 31, 2006.
Current income tax increased by 95.6% to Rs. 41.1 billion in the year ended March 31, 2007 as
compared to Rs. 21.0 billion in the year ended March 31, 2006, primarily due to the Bank’s provisions for
expenditure items where income tax levels are uncertain, reflecting an effective tax rate of 38.31% which was
465 basis points higher the statutory tax rate of 33.66%.
Net Profit
As a result of the above, net profit after tax increased by 15.1% to Rs. 63.6 billion in the year ended
March 31, 2007 from Rs. 55.3 billion in the year ended March 31, 2006.
Financial Condition
Total Group assets amounted to Rs. 8,151.8 billion as on March 31, 2007 compared to Rs. 6,969.9
billion as on March 31, 2006, an increase of 17.0%. Cash and balances with the RBI increased 44.8% to Rs.
450.7 billion as on March 31, 2007 from Rs. 311.3 billion as on March 31, 2006. The primary reason for this
increase was a 1.5% statutory increase in CRR held by the RBI from 5.0% in the year ended March 31, 2006 to
6.5% in the year ended March 31, 2007. Balances with banks and money at call and short notice saw a slight
increase to Rs. 274.1 billion as on March 31, 2007 from Rs. 262.1 billion as on March 31, 2006. Advances for
term loans increased 32.4% to Rs. 2,663.3 billion as on March 31, 2007 from Rs. 2,011.8 billion as on March 31,
2006. This increase was in line with the Group’s overall increase in business and was supported by a strong
growth in deposits. These increases were partially offset by an 8.1% decrease in government securities to Rs.
1,802.4 billion as on March 31, 2007 from Rs. 1,961.4 billion as on March 31, 2006.
261
As on March 31,
2006 2007 % change
Cash and balances with the RBI ................................................ 311,288 450,661 44.8%
Balance with banks and money at call and short notice 262,077 274,108 4.6%
Total Cash and cash equivalents ............................................ 573,365 724,769 26.4%
Government securities ............................................................... 1,961,420 1,802,448 (8.1%)
Other investments ...................................................................... 317,891 362,762 14.1%
Total investments..................................................................... 2,279,311 2,165,210 (5.0%)
Term loans ................................................................................. 2,011,797 2,663,290 32.4%
Other advances .......................................................................... 1,732,965 2,209,570 27.5%
Total advances ......................................................................... 3,744,762 4,872,860 30.1%
Fixed assets................................................................................ 39,563 39,994 1.1%
Other assets................................................................................ 332,917 348,911 4.8%
Total assets ............................................................................... 6,969,918 8,151,744 17.0%
billion out of the Rs. 63.6 billion, or 84.3%, of net income earned in the period. The minority interest increased
18.2% to Rs. 16.9 billion as on March 31, 2007 from Rs. 14.3 billion as on March 31, 2006. Deposits increased
17.0% to Rs. 6,362.7 billion as on March 31, 2007 from Rs. 5,440.2 billion as on March 31, 2006 as a result of a
17.1% increase in demand deposits over the period caused by the Group’s marketing efforts aimed at increasing
non-interest bearing accounts. Borrowings increased 31.6% to Rs. 486.6 billion as on March 31, 2007 from Rs.
369.7 billion as on March 31, 2006. The increase in the Group’s borrowings was primarily attributable to the
Group’s domestic and international capital markets fundraising activities. Other liabilities and provisions
increased 11.2% to Rs. 860.1 billion as on March 31, 2007 from Rs. 773.6 billion as on March 31, 2006, as a
result of an overall increase in the Group’s business.
As on March 31,
2006 2007 % change
Capital .......................................................................................... 5,263 5,263 0.0%
Deposits ........................................................................................ 5,440,243 6,362,729 17.0%
Borrowings ................................................................................... 369,749 486,618 31.6%
Other liabilities and provisions ..................................................... 773,556 860,141 11.2%
Consolidated Results for the Year Ended March 31, 2005 Compared to the Year Ended March 31, 2006
In accordance with RBI guidelines, as well as recommendations of its statutory auditors, the Group
made certain changes to its accounting policies in the year ended March 31, 2007. The figures contained in this
Letter of Offer relating to the year ended March 31, 2006 have been regrouped to reflect these changes. The
figures relating to the year ended March 31, 2005, however, have not been regrouped. Because of this, investors
should be aware that the line items relating to Advances, Investments, Other Liabilities and Provisions, Other
Income as well as Provisions and Contingencies from the years ended March 31, 2006 and 2007 are not strictly
262
comparable to those items in the year ended March 31, 2005. For a more detailed discussion of these changes,
see “— Changes in Accounting Policies.”
Interest Earned
Interest earned increased by 12.1% to Rs. 498.9 billion in the year ended March 31, 2006 from Rs.
445.0 billion in the year ended March 31, 2005. This increase was primarily the result of a 35.0% increase in the
interest earned on advances and bills to Rs. 259 billion in the year ended March 31, 2006 from Rs. 191.8 billion
in the year ended March 31, 2005 which was primarily the result of credit growth. In addition, the Group saw a
20.7% increase from interest earned on balances with the RBI and other inter-bank funds to Rs. 24.4 billion in
the year ended March 31, 2006 from Rs. 20.2 billion in the year ended March 31, 2005 caused by a greater
amount of interest received on higher CRR balances. These increases were partially offset by the 10.3%
decrease in income earned on investments to Rs. 193.1 billion in the year ended March 31, 2006 from Rs. 215.3
billion in the year ended March 31, 2005. The decrease in income earned on investments in the year ended
March 31, 2006 was related to a fall in the Group’s overall investment portfolio as a result of the maturing of
higher yielding investments.
Other Income
Other income increased to Rs. 111.7 billion in the year ended March 31, 2006 from Rs. 100.4 billion in
the year ended March 31, 2005. This increase was partially due to an increase in profit on exchange transactions
to Rs. 12.2 billion in the year ended March 31, 2006 from Rs. 7.2 billion in the year ended March 31, 2005
which was a result of the redemption of Indian Millennium Deposits. In addition, income from life insurance
premiums increased to Rs. 10.7 billion in the year ended March 31, 2006 from Rs. 6 billion in the year ended
March 31, 2005. The increase in life insurance premiums was commensurate with the overall growth of the life
insurance business. Miscellaneous income also increased to Rs. 20.5 billion in the year ended March 31, 2006
from Rs. 10.7 billion in the year ended March 31, 2005. Contributing factors to this increase were a higher
recovery amount from written-off loan accounts as well as a one-time recognition of non-reconciled net-credit
entries held on the Bank’s inter-office accounts up to March 31,1999. These increases were partially offset by a
Rs. 13.2 billion decrease in profits on the sale of investments to Rs. 11.5 billion in the year ended March 31,
2006 from Rs. 24.7 billion in the year ended March 31, 2005. Increasing yields on investments in the year ended
March 31, 2006 resulted in a decrease in the profit on the sale of such investments.
Interest Expended
248.9 billion in the year ended March 31, 2005. This increase in interest expended was primarily due to an 8.8%
increase in interest on deposits to Rs. 253.7 billion in the year ended March 31, 2006 from Rs. 233.2 billion in
the year ended March 31, 2005 as a result of the strong growth of the Group’s deposits over the period. Interest
expended in respect of interest on RBI and inter-bank borrowings also saw a 180.4% increase to Rs. 15 billion
in the year ended March 31, 2006 from Rs. 5.3 billion in the year ended March 31, 2005. This increase was
related to interest paid on domestic and Medium Term Note Programme borrowing used to increase the Group’s
capital adequacy. Other interest expended increased 20.1% to Rs. 12.4 billion in the year ended March 31, 2006
from Rs. 10.3 billion in the year ended March 31, 2005, primarily as a result of interest paid on Tier I and Tier II
capital bonds.
Operating Expenses
increase in rent, taxes and lighting to Rs. 11.2 billion in the year ended March 31, 2006 from Rs. 10 billion in
the year ended March 31, 2005. This increase is commensurate with the Group’s overall increase in business
during the period. Operating expenses relating to credit card operations and the life insurance business recorded
a sharp increase of 121.5% to Rs. 13.1 billion in the year ended March 31, 2006 from Rs. 5.9 billion in the year
ended March 31, 2005. This increase is in line with the level of these operations. Payments and provisions for
employees also increased 24.7% to Rs. 107.6 billion in the year ended March 31, 2006 from Rs. 86.3 billion in
the year ended March 31, 2005. This increase is mainly due to a payment of wage revision arrears and an
increased contribution to superannuation benefits.
263
Provisions and contingencies (excluding provisions for tax) decreased to Rs. 64.7 billion in the year
ended March 31, 2006 from Rs. 69.7 billion in the year ended March 31, 2005. This modest decrease in
provisions and contingencies was partially attributable to a decrease in provision for NPAs (including write-
backs) and non-creation of an ad-hoc provision for wage revision as a settlement regarding wage revision was
reached during the year ended March 31, 2006.
Tax Expense
Total taxation expense increased by 22.7% to Rs. 32.3 billion in the year ended March 31, 2006 as
compared to Rs. 26.3 billion in the year ended March 31, 2005.
Current income tax decreased by 24.8% to Rs. 21.0 billion in the year ended March 31, 2006 as
compared to Rs. 27.9 billion in the year March 31, 2005, primarily due to the provisions made towards wages in
arrears in earlier years, where they were allowed as a deduction from taxable income during the year ended
March 31, 2006. This resulted in an effective tax rate of 27.07% which was 659 basis points lower than the
statutory tax rate of 33.66%.
Net Profit
As a result of the above, net profit after tax increased 1.2% to Rs. 55.3 billion in the year ended March
31, 2006 from Rs. 54.6 billion in the year ended March 31, 2005.
Financial Condition
on March 31, 2005, an increase of 10.9%. Cash and balances with RBI increased 21.5% to Rs. 311.3 billion as
on March 31, 2006 from Rs. 256.2 billion as on March 31, 2005, primarily due to higher CRR balances as a
result of an increase in deposits. Balance with banks and money at call and short notice saw a modest increase of
3.4% to Rs. 262.1 billion as on March 31, 2006 from Rs. 253.4 billion as on March 31, 2005. Advances for term
loans increased 34.6% to Rs. 2,011.8 billion as on March 31, 2006 from Rs. 1,494.6 billion as on March 31,
2005. This increase in term loans was consistent with the Group’s overall loan growth. These increases were
partially offset by a 15.8% decrease in government securities to Rs. 1,961.4 billion as on March 31, 2006 from
Rs. 2,330.5 billion as on March 31, 2005 as a result of the winding-down of the investment book to fund loan
growth as well as the redemption of India Millennium Deposits.
As on March 31,
2005 2006 % change
Cash and balances with the RBI ................................................ 256,158 311,288 21.5%
Balance with banks and money at call and short notice ............ 253,412 262,077 3.4%
Total Cash and cash equivalents ............................................ 509,570 573,365 12.5%
Government securities ............................................................... 2,330,503 1,961,420 (15.8%)
Other investments ...................................................................... 289,117 317,891 10.0%
Total investments..................................................................... 2,619,620 2,279,311 (13.0%)
Term loans ................................................................................. 1,494,650 2,011,797 34.6%
Other advances .......................................................................... 1,375,216 1,732,965 26.0%
Total advances ......................................................................... 2,869,866 3,744,762 30.5%
Fixed assets................................................................................ 35,736 39,563 10.7%
Other assets................................................................................ 250,984 332,917 32.6%
Total assets ............................................................................... 6,285,776 6,969,918 10.9%
264
billion out of the Rs. 55.3 billion, or 83.7%, of net income earned in the period. Deposits increased 7.5% to Rs.
5,440.2 billion as on March 31, 2006 from Rs. 5,061.1 billion as on March 31, 2005 as a result of a 20.3%
increase in demand deposits over the period partially offset by the repayment of Indian Millennium Deposits
during the year ended March 31, 2006. Borrowings increased 61.3% to Rs. 369.8 billion as on March 31, 2006
from Rs. 229.3 billion as on March 31, 2005, primarily as a result of the Group’s domestic and international
capital fundraising activities. Other liabilities and provisions increased 17.8% to Rs. 773.5 billion as on March
31, 2006 from Rs. 656.9 billion as on March 31, 2005. The increase was primarily a result of an 81.3% increase
in bills payable.
As on March 31,
2005 2006 % change
Capital .............................................................................................. 5,263 5,263 0.0%
Reserves and surplus ........................................................................ 320,255 366,804 14.5%
Total shareholders’ funds .............................................................. 325,518 372,067 14.3%
Deposits ............................................................................................ 5,061,053 5,440,243 7.5%
Borrowings ....................................................................................... 229,295 369,749 61.3%
Other liabilities and provisions ......................................................... 656,869 773,556 17.8%
Total liabilities and shareholders’ funds ...................................... 6,285,776 6,969,918 10.9%
Liquidity
The following table sets forth the Group’s consolidated statement of cash flows for the years ended
March 31, 2005, 2006 and 2007 and the six-month periods ended September 30, 2006 and 2007:
Year ended March 31, Six-months ended September 30,

2005 2006 2007 2006 2007)
(Rs. in millions)
Net cash (used in)/from operating activities ................... 6,698 55,432 50,816 62,283 43,650
Net cash (used in)/from investing activities ................... (11,629) (18,256) (9,654) (5,792) (8,841)
Net cash (used in)/from financing activities ................... (4,347) 26,372 110,629 49,851 61,060
Exchange Fluctuation Cash Flow ................................... 3,210 247 (387) 1,104 (2,407)
Cash & equivalents, beginning of period........................ 515,638 509,570 573,365 573,365 724,769
Cash & equivalents, end of period 509,570 573,365 724,769 680,811 818,231
Cash Flows from Operating Activities
The Group recorded a net cash inflow from operating activities of Rs. 43.7 billion in the six-months
ended September 30, 2007. The primary reasons for the increase in cash flow for the period was a Rs. 662.0
billion increase in deposits, Rs. 139.0 billion of which was attributable to the Associate Banks, as well as a Rs.
82 billion increase in borrowings, Rs. 28.9 billion of which was on account of the Associate Banks. These
increases in cash flow were partially offset by a Rs. 333.8 billion increase in advances, Rs. 103.5 billion of
which was attributable to the Associate Banks, as well as a Rs. 385.5 billion increase in investments, Rs. 54.4
billion, of which was attributable to the Associate Banks.
The Group recorded a net cash inflow from operating activities of Rs. 62.3 billion in the six-months
ended September 30, 2006. The primary reasons for the increase in cash flow for the period was a Rs. 344.7
billion increase in deposits, Rs. 140.2 billion of which was attributable to the Associate Banks, a Rs. 30.2 billion
increase in borrowings, Rs. 7.2 billion of which was attributable to the Associate Banks, as well as a Rs. 157.6
billion cash inflow from the liquidation of investments relating to the sale of Government securities. These
increases in cash flow were partially offset by a Rs. 361.7 billion increase in advances, Rs. 122.6 billion of
which was attributable to the Associate Banks.
265
The Group recorded a net cash inflow from operating activities of Rs. 50.8 billion in the year ended
March 31, 2007. The primary reasons for the increase in cash flow for the period was an increase in deposits to
Rs. 922.5 billion as well as a Rs. 94.3 billion decrease in investments. The increase in deposits was a result of an
increase in deposits at the Bank, as well as the Associate Banks, driven by higher interest rates provided by
those banks. These increases in cash flow were partially offset by an increase in advances to Rs. 1,145.9 billion
which is commensurate with the Group’s strategy of increasing and diversifying its loan portfolio.
March 31, 2006. The primary reasons for this increase in cash flow were a Rs. 379.1 billion increase in deposits
and a Rs. 299.6 billion decrease in investments. Cash used in operations was primarily to fund the Group’s
expanding loan portfolio resulting in an outflow of Rs. 877.4 billion for advances.
March 31, 2005. Cash was used during the period primarily to fund new loans, causing an increase in advances
of Rs. 657.2 billion. A significant source of cash for the period came from a Rs. 706.7 billion increase in
deposits.
Cash Flows from Investing Activities
The Group recorded a net cash outflow from investing activities of Rs. 8.8 billion in the six-months
ended September 30, 2007. The primary reason for the cash outflow for the period was an increase in fixed
assets of Rs. 9.6 billion. The increase in cash outflow was partially offset by income earned on investments in
joint ventures and subsidiaries of Rs. 0.5 billion.
The Group recorded a net cash outflow from investing activities of Rs. 5.8 billion in the six-months
ended September 30, 2006. The primary reason for the increase in cash outflow for the period was a Rs. 5.8
billion increase in fixed assets.
The Group recorded a net cash outflow from investing activities of Rs. 9.7 billion in the year ended
March 31, 2007. The cash was used primarily to fund an increase of fixed assets by Rs. 9.8 billion. The Group
also increased its investment in joint ventures and associates by Rs. 1.8 billion. These figures were partially
offset by an increase in income earned from the joint ventures and associates of Rs. 2 billion.
March 31, 2006. This outflow was primarily attributable to an increase of Rs. 15.1 billion in fixed assets. The
Group also saw a Rs. 3 billion increase in cash used to invest in joint ventures and associates.
March 31, 2005. The cash was primarily used to fund a Rs. 11.6 billion increase in fixed assets.
Cash Flows from Financing Activities
The Group recorded a net cash inflow from financing activities of Rs. 61.1 billion in the six-months
ended September 30, 2007. The primary reason for the increase in cash flow for the period was the issuance of
domestic capital bonds in the amount of Rs. 79.4 billion. These increases in cash flow were partially offset by
Rs. 9.8 billion in interest payments on capital bonds as well as a Rs. 8.6 billion dividend paid by the Group to its
shareholders.
The Group recorded a net cash inflow from financing activities of Rs. 49.9 billion in the six-months
ended September 30, 2006. The primary reason for the increase in cash flow for the period was the issuance of
domestic capital bonds in the amount of Rs. 62.4 billion. These increases in cash flow were partially offset by a
dividend of Rs. 8.4 billion paid by the Group to its shareholders as well as Rs. 4.2 billion in interest payments on
capital bonds.
inflow was primarily due to the issuance of Rs. 134.1 billion worth of capital bonds. This was partially offset by
repayment of capital bonds up to an amount of Rs. 2.8 billion and interest payments on capital bonds in the
amount of Rs. 12.2 billion as well as a Rs. 8.4 billion dividend paid by the Group to its shareholders.
266
Net cash inflow on financing activities was Rs. 26.4 billion in the year ended March 31, 2006. The cash
inflow for the period was a result of a Rs. 59.2 billion issuance of domestic subordinated debt. This was partially
offset by the repayment of existing subordinated debt in the amount of Rs. 19.4 billion as well as a Rs. 7.5
billion dividend paid by the Group to its shareholders.
Net cash outflow on financing activities was Rs. 4.3 billion in the year ended March 31, 2005. The
outflow was primarily attributable to Rs. 6.5 billion for dividends paid by the Group to its shareholders and Rs.
5.0 billion in interest payments on capital bonds.
Off Balance Sheet Items
The table below sets forth, for the periods indicated, the principal components of the Group’s
consolidated contingent liabilities.

2005 2006 2007 2006 2007
(Rs. in billions)
Contingent liabilities
Claims against Group not
acknowledged as debts........................... 10.0 18.9 40.5 1.8 7.4
investments ............................................ 0.6 0.4 1.1 0.01 1.1
Liability on account of outstanding
forward exchange contracts.................... 1,212.1 1,836.0 2,587.4 1,879.4 2,565.8
Guarantees given on behalf of
customers ............................................... 233.9 325.5 467.5 418.0 560.7
Acceptances, endorsements &
other obligations .................................... 352.7 449.5 586.1 619.7 771.3
Other items for which Group is
contingently liable ................................. 208.2 300.5 231.8 646.8 6,824.9
Total ........................................................ 2,017.5 2,930.8 3,914.4 3,565.7 10,731.2
Contingent liabilities increased by 201.0% or Rs. 7,165.5 billion to Rs. 10,731.2 billion at September
30, 2007 from Rs. 3,565.7 billion at September 30, 2006, primarily due to a 955.2% increase in other items for
which the Group is contingently liable as a result of a significant increase in the number of derivative
transactions for customers as well as for its proprietary account. Contingent liabilities increased by 33.6%, or Rs
983.6 billion, to Rs 3,914.4 billion in the year ended March 31, 2007 from Rs. 2,930.8 billion in the year ended
March 31, 2006, primarily due to a 40.9% increase in liability on account of outstanding forward exchange
contracts and 43.6% increase in guarantees given on behalf of constituents. The 45.3% increase in contingent
liabilities to Rs. 2,930.8 billion at year ended March 31, 2006 from Rs. 2,017.5 billion at the year ended March
31, 2005 was primarily due to a 51.5% increase in liability on account of outstanding forward exchange
contracts as well as a 39.2% increase in guarantees given on behalf of constituents.
Capital Resources
The following table sets forth the Group’s consolidated risk-based capital, risk-weighted assets and
risk-based capital adequacy ratios computed in accordance with the applicable RBI guidelines and as reported to
the RBI.
As of March 31, As of September 30,

2005 2006 2007 2006 2007
Tier I capital ............................................................... 261.7 372.0 435.1 372.1 489.5
Tier II capital .............................................................. 113.1 117.0 232.6 172.4 299.8
Total qualifying capital ............................................ 374.8 489.0 667.7 544.5 789.4
Total risk-weighted assets and contingents ............ 2,867.8 3,896.5 5,402.0 4,476.0 6,149.0
267
Capital adequacy ratios:
Tier I capital adequacy ratio ....................................... 9.13% 9.55% 8.05% 8.31% 7.96%
Tier II capital adequacy ratio...................................... 3.94% 3.00% 4.31% 3.85% 4.88%
Total capital adequacy ratio .................................... 13.07% 12.55% 12.36% 12.16% 12.84%
Minimum Tier I ratio required by RBI 4.50% 4.50% 4.50% 4.50% 4.50%
Minimum capital adequacy ratios required by RBI .... 9.00% 9.00% 9.00% 9.00% 9.00%
The Group’s total capital adequacy at September 30, 2007 was 12.84%, including Tier I capital
adequacy of 7.96% and Tier II capital adequacy of 4.88%. In accordance with the RBI guidelines, the risk-
weighted assets at September 30, 2007 include home loans to individuals at a risk weightage of 50.0 to 75.0%,
other consumer loans and capital market exposure at a risk weightage of 125.0%. Commercial real estate
exposure and investments in venture capital funds have been considered at a risk weightage of 150.0%. The
risk-weighted assets at March 31, 2007 and September 30, 2007 also include the impact of capital requirement
for market risk on the held for trading and available for sale portfolio.
Critical Accounting Policies
The Bank and the Group’s Associate Banks operate in a highly regulated industry. The RBI mandates
nearly all accounting policies for Indian banks. Because of this, management believes that it does not have the
scope to materially affect the Bank’s or the Group’s results of operations through estimates or judgments in the
application of its policies. A discussion of the Bank’s and the Group’s principal accounting policies can be
found in Schedule 17 of their respective audited financial statements.
Changes in Accounting Policies
In 2007, the Group made certain changes to its principal accounting policies as per the direction of the
RBI as well as recommendations from its statutory auditors. As a result, the Group’s annual financial statements
for the year ended March 31, 2006 have been regrouped to reflect these changes. The year ended March 31,
2005, however, was not regrouped to reflect the changes in accounting policies and investors should note that
the Group’s 2005 annual financial statements are not strictly comparable to the years ended March 31, 2006 and
2007. For further information regarding changes in the Group’s accounting policies, investors should see “Note
on Reformatting and Regrouping” contained in the audited consolidated financial statements for the year ended
March 31, 2007.
Investments
The Group had previously followed a policy of amortizing the premium for securities deemed “held to
maturity” as an adjustment to the “Provision and Contingencies” account. The Group has since changed this
policy by charging the amortisation amount as well as marked to market losses on transfer of securities from the
“available for sale” to “held to maturity” category as a deduction to the “Profit on Revaluation of Investments”
under the “Other Income” account. While this adjustment may cause particular line items to not be strictly
comparable, there is no impact on net profit for the year.
Advances
The provision for restructured standard asset has been retained as a provision during the year ended
March 31, 2007. This is a change from the previous policy of netting the provision off against “advances.” In
addition, claims received under the Deposit Insurance and Credit Guarantee Corporation and Export Credit
Guarantee Corporation have been netted off against “advances” during the year ended March 31, 2007. This is a
change from the previous policy of retaining these items as a liability. As a result of these policy changes, the
provision for “advances” has been regrouped for the year ended March 31, 2006.
Other Liabilities and Provisions
The figures contained in “Other Liabilities and Provisions” have been altered to reflect the
corresponding changes in the way the Group now accounts for its advances. In addition, the “Profit and Loss”
account has been aligned per the corresponding items in “assets” and “liabilities” in the balance sheet for the
268
year ended March 31, 2007. Because of these changes, the balance sheet as well as the cash flow statement
figures for the year ended March 31, 2006 were regrouped.
269
MATERIAL DEVELOPMENTS
State Bank of India filed its limited review financial results for the nine months ended December 31,
2007 with the Stock Exchanges in accordance with Clause 41 of the Listing Agreement:
UNAUDITED FINANCIAL RESULTS FOR THE PERIOD ENDED DECEMBER 31, 2007
(Rs.in crores)
Particulars State Bank of India State Bank of India (Consolidated)
Quarter ended 9-month period ended Year ended Quarter ended 9-month period ended Year ended
31.12.2007 31.12.2006 31.12.2007 31.12.2006 31.03.2007 31.12.2007 31.12.2006 31.12.2007 31.12.2006 31.03.2007
(Reviewed) (Reviewed) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Reviewed) (Reviewed) (Audited)
1. Interest Earned (a) + (b) + (c) + (d) 12666.81 9446.36 35373.58 26724.60 38454.23 18434.51 13731.71 51792.81 38849.26 55575.35
(a) Interest/discount on advances / bills 9271.05 6413.55 25624.64 17782.61 24839.18 13611.15 9445.46 37858.26 26141.03 36832.81
(b) Income on Investments 3271.11 2329.24 8732.40 7404.52 10456.19 4648.15 3495.18 12699.82 10902.27 15163.71
(c) Interest on balances with Reserve Bank of India 92.61 628.74 981.28 1458.91 2719.61 154.04 700.13 1171.65 1709.89 3122.94
and other inter bank funds
(d) Others 32.04 74.83 35.26 78.56 439.25 21.17 90.94 63.08 96.07 455.89
2. Other Income 2697.19 1822.02 5877.73 4347.88 6806.05 5946.48 3313.42 12894.98 7828.63 12801.48
3. TOTAL INCOME (1+2) 15364.00 11268.38 41251.31 31072.48 45260.28 24380.99 17045.13 64687.79 46677.89 68376.83
4. Interest Expended 8410.45 6007.20 23152.94 16213.11 23436.82 12535.31 8718.92 34765.91 23735.60 33982.75
5. Operating Expenses (i) + (ii) 3293.81 2911.48 9363.95 8591.52 11823.52 6919.83 4855.57 17801.11 13818.41 20001.78
(i) Employee cost 2194.68 2029.71 6216.27 5908.71 7932.58 2963.40 2734.35 8493.93 7994.55 10597.46
(ii) Other Operating Expenses 1099.13 881.77 3147.68 2682.81 3890.94 3956.43 2121.22 9307.18 5823.86 9404.32
6. TOTAL EXPENDITURE (4) + (5) 11704.26 8918.68 32516.89 24804.63 35260.34 19455.14 13574.49 52567.02 37554.01 53984.53
(excluding Provisions and Contingencies)
7. OPERATING PROFIT (3 - 6) 3659.74 2349.70 8734.42 6267.85 9999.94 4925.85 3470.64 12120.77 9123.88 14392.30
(before Provisions and Contingencies)
8. Provisions (other than tax) and Contingencies (net of 804.43 661.43 1049.51 1233.87 2409.64 1131.66 964.54 1852.64 1922.71 3580.16
write-back)
- of which provisions for Non-performing assets 444.12 698.26 933.96 698.26 1429.50 678.00 519.81 1595.26 1005.43 1775.89
9. Exceptional Items 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10. Profit from Ordinary Activities before tax (7-8-9) 2855.31 1688.27 7684.91 5033.98 7590.30 3794.19 2506.10 10268.13 7201.17 10812.14
11. Tax expenses 1046.67 623.21 2839.04 1985.86 3048.99 1351.88 931.53 3697.62 2798.45 4192.34
12. Net Profit from Ordinary Activities after tax (10-11) 1808.64 1065.06 4845.87 3048.12 4541.31 2442.31 1574.57 6570.51 4402.72 6619.80
13. Extraordinary items (net of tax expense) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
14. Net Profit for the period (12-13) 1808.64 1065.06 4845.87 3048.12 4541.31 2442.31 1574.57 6570.51 4402.72 6619.80
Net Profit after Minority Interest 2383.66 1524.42 6396.04 4221.87 6364.37
15. Paid-up equity share capital 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526.30
(Face Value of Rs. 10 per share)
16. Reserves excluding Revaluation Reserves 30772.26 27117.79 30772.26 27117.79 30772.26 41691.86 36680.41 41691.86 36680.41 41691.86
(as per balance sheet of previous accounting year)
17. Analytical Ratios
(i) Percentage of shares held by Government of India 59.73% nil 59.73% nil nil nil nil nil nil nil
(ii) Capital Adequacy Ratio 12.28% 11.86% 12.28% 11.86% 12.34% 12.36%
(iii) Earnings Per Share (EPS) (in Rs.)
(a) Basic and diluted EPS before 34.37 20.24 92.07 57.92 86.29 45.29 28.96 121.53 80.22 120.93
Extraordinary items (net of tax expense) (not (not (not (not (not (not (not (not
annualised) annualised) annualised) annualised) annualised) annualised) annualised) annualised)
(b) Basic and diluted EPS after 34.37 20.24 92.07 57.92 86.29 45.29 28.96 121.53 80.22 120.93
Extraordinary items (not (not (not (not (not (not (not (not
annualised) annualised) annualised) annualised) annualised) annualised) annualised) annualised)
(iv) NPA Ratios
(a) Amount of gross non-performing assets 10641.46 9902.85 10,641.46 9902.85 9998.22
(b) Amount of net non-performing assets 5610.01 4487.16 5,610.01 4487.16 5257.72
(c) % of gross NPAs 2.69% 3.15% 2.69% 3.15% 2.92%
(d) % of net NPAs 1.44% 1.45% 1.44% 1.45% 1.56%
(v) Return on Assets (Annualised) 1.06% 0.79% 1.00% 0.78% 0.84%
18. Public Shareholding
- No. of shares 211959678 211959678 211959678 211959678 211959678
- Percentage of Shareholding 40.27% 40.27% 40.27% 40.27% 40.27%
Unaudited Segment-wise Revenue, Results and Capital Employed
(Rs.in crores)
Particulars Quarter ended 9-month period ended Year ended
31.12.2007 31.12.2006 31.12.2007 31.12.2006 31.03.2007
(Reviewed) (Reviewed) (Reviewed) (Reviewed) (Audited)
1. Segment Revenue (income)
(a) Banking Operations 14345.12 11285.12 40103.34 31082.13 44536.00
(b) Treasury Operations 3965.42 2700.12 9547.58 7920.21 11464.20
Total 18310.54 13985.24 49650.92 39002.34 56000.20
Less : Inter Segment Revenue 2946.54 2716.86 8399.61 7929.86 10739.92
Net Income from Operations 15364.00 11268.38 41251.31 31072.48 45260.28
2. Segment Results (Profit before tax)
(b) Treasury Operations 775.04 -220.68 1100.07 -438.68 117.73
Total 3359.79 1542.21 8992.57 4736.06 8824.28
Add / (Less) : Unallocated -504.48 146.06 -1307.66 297.92 -1233.98
Profit before Tax 2855.31 1688.27 7684.91 5033.98 7590.30
Less : Income Tax (including FBT) 1046.67 623.21 2839.04 1985.86 3048.99
Net Profit 1808.64 1065.06 4845.87 3048.12 4541.31
2. Capital Employed (Segment Assets - Segment
Liabilities)
(b) Treasury Operations 3399.94 3115.49 3399.94 3115.49 3399.94
Total 31298.56 27644.09 31298.56 27644.09 31298.56
(Segment Assets and Liabilities are as on March 31 of the previous year )
1. The working results for the period ended December 31, 2007 have been arrived at after considering
provisions for NPAs, Bonus, Gratuity, Pension, Leave Encashment, Investment Depreciation, Income Tax (after
270
adjustment for deferred tax), Wealth Tax, Fringe Benefit Tax (FBT) and other contingencies on an estimated
basis.
2. Accounting Standard 15 “Employee Benefits” (revised 2005) is effective for accounting periods
commencing on or after December 7, 2006. As per this Standard, the difference (as adjusted by any related tax
expense) between the transitional liability and the liability that would have been recognised at the same date, as
per-revised Accounting Standard 15, ‘Accounting for Retirement Benefits in the Financial Statements of
Employers’, should be adjusted immediately against opening balance of revenue reserves and surplus. The
Institute of Chartered Accountants of India has made a limited revision to this provision, which was notified on
October 17, 2007. This revision provides the Bank with another option to charge additional liability arising upon
the first application of the standard as an expense over a period up to five years. The Bank is currently
examining both the alternatives. The impact of the Accounting Standard 15 “Employee Benefits” (revised 2005)
has not been ascertained for transitional provision and current period(s). In the interregnum, the Bank has made
adequate provisions as per pre-revised Accounting Standard 15, ‘ Accounting for Retirement Benefits in the
Financial Statements of Employers’.
3. During the period ended December 31, 2007, the Bank has made following investments in its foreign /
domestic subsidiaries for the purpose of funding business growth:
Increased stake in Indian Ocean International Bank Ltd. (IOIB) Mauritius, from 56.84% to 62.28%.
Infused additional Capital of i) Rs. 121.90 crores in State Bank of India (Canada); ii) Rs. 39.84 crores in State
Bank of India (California); iii) Rs. 59.77 crores in State Bank of India International (Mauritius) Ltd.; iv) Rs.
74.00 crores in SBI Life Insurance Co. Ltd.; v) Rs. 120.00 crores in SBI Cards & Payment Services P. Ltd.
4. During the period ended December 31, 2007, the Central Board of the Bank and the Board of State
Bank of Saurashtra (SBS) have accorded approval for merger of the SBS with the SBI. The matter has further
been referred to RBI and the Government for approval. Necessary approval is awaited. As the merger process
has not yet been crystallised, there is no impact on the Bank’s quarterly results as on December 31, 2007.
5. In terms of the RBI circular dated April 20, 2007, the Bank had accounted for amortisation of premium
in respect of securities included in the ‘Held to Maturity’ (HTM) category as an adjustment against ‘Other
Income’. Based on the clarification issued by RBI on July 11, 2007, Banks are required to reflect the
amortisation of premium held in the HTM category by an adjustment to the ‘Interest Earned’. Accordingly, the
Bank has carried out the reclassification of the same for the period ended December 31, 2007. This change in
accounting procedure does not have any impact on the net profit for the period(s) under review.
6. During the period ended December 31, 2007, the Bank has raised US $ 225 million (Rs. 915.86 crores)
as Hybrid Tier I Capital in the form of Perpetual Non Call 2017 Bonds.
7. During the period ended December 31, 2007, the entire share holding of RBI in State Bank of India
aggregating 314,339,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred to the
Central Government.
8. During the period ended December 31, 2007, the Bank has shifted SLR investments having aggregate
Face Value of Rs. 9081.57 crores (corresponding previous period — Rs. 9400 crores) from ‘Available for Sale’
(AFS) to ‘Held for Maturity (HTM) category, resulting in a net revaluation loss of Rs. 297.67 crores
(corresponding previous period — Rs. 225.73 crores).
9. The qualification made by the Statutory Central Auditors in their review report on the financial results
of the quarter ended 30th June 2007 and the resolution thereof : Non compliance with AS 15 (revised 2005), the
impact of which has not been ascertained: The management’s response is detailed in Note 2 above.
271
10. The Bank has decided to issue Equity Shares on a rights basis to the existing shareholders for
augmentation of Capital.
11. Number of Investors’ Complaints received and disposed of during the quarter ended December 31,
2007: (i) Pending at the beginning of the quarter: 76; (ii) Received during the quarter: 1004; (iii) Disposed of
during the quarter: 1016; (iv) Unresolved at the end of the quarter: 64.
12. Previous period figures have been regrouped / reclassified, wherever necessary, to conform to current
period classification.
The above results have been approved by the Central Board of the Bank on January 24, 2008 and were
subjected to Review by the Auditors.
Mumbai S. K. BHATTACHARYYA T. S. BHATTACHARYA O. P. BHATT

Date: Managing Director and Chief Managing Director & Group CHAIRMAN
24.01.2008 Credit & Risk Officer Executive (Corporate Banking)
Recent Transactions
State Bank of India has informed the Stock Exchanges that: "State Bank of India intends to purchase
shareholding of Export-Import Bank of India ("EXIM"), IFC, Washington ("IFC") and FIM Bank, Malta ("FIM")
in Global Trade Finance Ltd. ("GTFL"), aggregating to 91% of the total shareholding of GTFL, at an aggregate
price of Rs. 520.55 crores Approval from RBI for the purchase of these shares is awaited. As per RBI
guidelines, a prior Public Notice of 30 days is required to be given by the sellers and buyer(s) before effecting
the sale or transfer of the ownership of shares or transfer of control. Accordingly, a public notice is being issued
jointly by Export-Import Bank of India ("EXIM"), IFC, Washington ("IFC"), FIM Bank, Malta ("FIM") and SBI
regarding the sale/purchase of shares subject to necessary permissions, consents and/or approval".
State Bank of India has entered into a business co-operation agreement with Mizuho Financial Group,
Japan. Mizuho is Japan's third-largest bank and has a presence in India with two offices in Mumbai and New
Delhi. The agreement aims to harness the expertise of both SBI and MCB in the areas of loan syndications, trade
finance, off-shore fund raising, derivative products and infrastructure co-financing.
Recent stock market data
Week end prices of Equity Shares of the Bank for the last four weeks on the BSE and NSE are as below:
Week Ended on Closing Rate BSE (Rs.) Closing Rate NSE (Rs.)
January 25, 2008 2,407.40 2,405.00
2,368.30
January 18, 2008 2,362.40
January 11, 2008 2,434.80 2,437.30
January 4, 2008 2,388.80 2,390.80
272
DESCRIPTION OF CERTAIN INDEBTEDNESS
Statement of Borrowings as on September 30, 2007

(Rs. in millions)
Outstanding Date of
S.No. Particulars amount Rate of Interest Duration Borrowings Repayment Terms
Domestic Borrowings
1 Term Borrowings 50 Fixed 8.50% 364 Days September 1, Bullet
2007
2 CBLO (secured borrowing) 32,999 Fixed 0-1% 1-3 days September Bullet
28, 2007
3 Borrowing from Other Institutions/ Agencies
a 6,500 Fixed 6.5% p.a Monthly Instalment

Refinancing by Small Industries of Rs 50.00 crores on
Development Bank of India 1st of Every Month
b Refinancing by National Housing 5,000 Fixed 6.5% p.a 3 Years December Bullet
Bank 23, 2005
c 17,917 Fixed Various Various Terms and Date Half Yearly due on
Refinancing by National Bank for from 4.25 to January 31 and July
Agriculture and Rural Development 14% till July 31, 2019
d Others 45
Total Domestic Borrowings (A) 62,511
Overseas Borrowings
1 Bond Issues (Excluding Hybrid 62,636 Fixed 3.50% to 5 Years Various Bullet
Tier-I Bonds) 4.75% dates from
December 8,
2004 to
February 15,
2007
Floating LIBOR+38bps to LIBOR+73.5bps
2 Foreign Currency Loans 47,217 Floating LIBOR+12 364 days Various Bullet principal
bps to to 5 years dates from repayment, interest at
LIBOR+39 June 2, 2005 half yearly intervals
bps to September
28, 2007
3 Money Market Borrowings 277,015 Various rates Term Various Bullet
Ranging dates
from 1
day to 1
year
Total (Overseas Borrowings) (B) 386,868
Tier I Capital
Overseas 16,282 Coupon 6.439% after swap Perpetual February Perpetual with call
LIBOR +120 BPS on semi non call 2007 option to the Issuer
annual basis 10.25 after 10.25 years
years
9,159 Coupon 7.14% after swap Perpetual June 2007 Perpetual with call
LIBOR +137 BPS on semi non call option to the Issuer
annual basis 10 years 1 after 10 years 1 day
Day
Total Tier I Capital ( C) 25,441
Subordinate Debts
1 Domestic 204,246 Fixed 7.45% to 87 months Various dates from January 1, 2001 to
11.90% p.a. to 180 September 17, 2007
months
Overseas 289 Fixed 6.50% 8 Years April 12,
2000
Total Subordinate Debts (D) 204,535
Grand Total (A+B+C +D) 679,355
273
OUTSTANDING LITIGATION AND DEFAULTS
Details of litigation or proceedings, defaults, non-payment or past due statutory dues, proceedings
initiated for any economic or civil offences and disciplinary action taken by SEBI or stock exchanges, disclosed
have been restricted to those involving a claim of Rs. 250 million or more, against the Bank and by the Bank.
Further, the disclosure has been restricted to litigation relating to the Bank's material subsidiaries, i.e,
subsidiaries which contribute in excess of 10% of the Bank’s consolidated net assets or net income as of March
31, 2007. The above mentioned monetary threshold has been applied to the material subsidiaries as well.
Criminal litigation, though, pertaining to the Bank and the material subsidiaries have not been subjected to the
abovementioned threshold limits. Further, there has not been a consolidation of the litigation or proceedings
pending, below the above mentioned monetary threshold, against or by the Bank or its Subsidiaries.
Consequently, there is outstanding litigation (in the nature of suits, criminal or civil prosecutions, labour
proceedings or tax disputes) against the Bank, its Directors and its Subsidiaries, which have not been disclosed
by the Bank.
Except as described below, there are no outstanding litigation, suits or criminal or civil prosecutions,
proceedings or tax liabilities against the Bank, its Directors, its Subsidiaries and there are no defaults, non
payment of statutory dues, over dues to banks/ financial institutions, defaults against banks/ financial
institutions, defaults in dues payable to holders of any debentures, bonds or fixed deposits, issued by the Bank
(including past cases where penalties may or may not have been awarded) which would materially affect the
business of the Bank.
Cases filed against the Bank
Civil Cases
State Bank of India
1. Shin Etsu Chemical Company (SECC) has filed this civil suit (No. 2886/2005) against the Bank in the
Bombay High Court. The Bank had issued a letter of credit in favour of Birla Ericsson Opticals Limited.
The present suit has been filed by SECC, which is a beneficiary of the letter of credit, claiming damages
from the Bank and alleging that the Bank did not extend the period of the letter of credit. The Bank has
contended that it did not extend the letter of credit in accordance with Article 41 of Uniform Customs and
Practice for Documentary Credits 500 and therefore the Bank would not be liable to pay any damages. The
suit is yet to be listed for hearing. The financial impact on the Bank is to the extent of Rs. 255.9 million.
2. Shin Etsu Chemical Company (SECC) has filed this civil suit (No. 2887/2005) against the Bank in the
Bombay High Court. The Bank had issued a letter of credit in favour of Vindhya Telelinks Limited. The
present suit has been filed by SECC, which is a beneficiary of the letter of credit, claiming damages from
the Bank and alleging that the Bank did not extend the period of the letter of credit. The Bank has
contended that it did not extend the letter of credit in accordance with Article 41 of Uniform Customs and
Practice for Documentary Credits 500 and therefore the Bank would not be liable to pay any damages. The
suit is yet to be listed for hearing. The financial impact on the Bank is Rs. 255.9 million.
3. Vikas Co-operative Bank has filed this civil suit (No. 83/2003) against the Bank before the Civil Court,
Surat. The present suit has been filed by Vikas Co-operative Bank claiming damages for its suspension
from the clearing house, pursuant to the RBI’s order under section 35A of the Banking Regulation Act,
1949. The Bank has contended that the action was taken in pursuance of the Reserve Bank’s directions. The
suit is presently pending for framing of issues. The financial impact on the Bank is to the extent of Rs. 350
million.
4. M/s Godhoke & Sons has filed this suit (No 598/1998) against the Bank in the Bombay High Court. The
suit was filed against the Bank alleging that wrong interest rates, erroneous methods of applying interest etc.
were adopted by the Bank. The Bank in turn filed an application in the Bombay High Court for stay of the
abovementioned suit, which was granted. The matter is pending. The financial impact is to the extent of Rs.
337.5 million.
5. The Telecom Authority has filed this suit (No. RFA (OS) 108/1997) against M/s HFCL BEZEQ Limited
and the Bank in the Delhi High Court. The Bank issued four bid bond guarantees aggregating Rs. 273
274
million in favour of the President of India (the beneficiary) acting through the Telecom Authority at the
request of the First International Bank of Israel (FIBI) which had provided the counter guarantee. The
beneficiary invoked the guarantees and the Bank in turn claimed the invocation amount from FIBI.
Although FIBI acknowledged the claim no payment was made on account of an injunction order issued by
the Delhi High Court. The applicant, namely M/s HFCL BEZEQ Limited, moved the Delhi High Court for
an order against the beneficiary and obtained an order in its favour. Aggrieved by the said order the
beneficiary has filed an appeal before the Delhi High Court which stands dismissed. However, the
beneficiary has moved an application for condonation of delay and restoration of the appeal, which is
pending and the next date of hearing is April 4, 2008.
State Bank of Hyderabad
1. The Bank of India has filed this civil suit (O.A. 237/2001) against the State Bank of Hyderabad before the
Debt Recovery Tribunal, Kolkata. M/s Gloand (Far East) Pte Limited (drawer) has drawn seven bills on
Kothari Global Limited (drawee) which were accepted. The drawee sought extension of time for making
payment by sending instructions through the Bank for payment which also indicated co-acceptance of the
bills by the Bank. Action on the part of the Bank staff was in connivance with the drawee of the bill which
is tantamount to fraud for which a complaint has been lodged by the Bank with the CBI. The claim of the
drawee was subsequently rejected by the Bank. The Bank of India has filed the present suit claiming
recovery of the bill amount along with interest. The drawee of the bill has been referred to BIFR under the
Sick Industrial Companies Act and the proceedings of this suit have been kept in abeyance. The suit is
pending. The financial impact is to the extent of Rs. 274 million which has been provided for.
Criminal Cases
State Bank of Patiala
1. Mr Madan Gopal has filed this criminal complaint (No. 348/2000) against the Managing Director of the
State Bank of Patiala and DCM Limited before the Judicial Magistrate, Patna. The complainant filed the
present complaint for non-payment of 90 non convertible debentures amounting to Rs. 1000 each in respect
of DCM Limited for which the State Bank of Patiala was acting as a debenture trustee. DCM Limited has
paid the complainant the whole amount along with interest. The complainant has made an application to
withdraw the complaint but the same has not been permitted by the court.
Tax Cases
1. The Income Tax Department has filed this appeal (No. 1175/H/05) against the State Bank of Hyderabad
before the Income Tax Appellate Tribunal, Hyderabad. The appeal has been filed for the assessment year
2002-2003 with regard to broken period interest and loss on revaluation of nostro accounts. The appeal is
pending before the Appellate Tribunal. The financial impact is to the extent of Rs. 1217.2 million.
2003-2004 with regard to income on cash basis, broken period interest, expenditure on exempted income,
etc. The appeal is pending before the Appellate Tribunal. The financial impact is to the extent of Rs. 363.9
million.
2004-2005 with regard to income on cash basis, broken period interest, expenditure on exempted income,
etc. The appeal is pending before the Appellate Tribunal. The financial impact is to the extent of Rs.
2,145.4 million.
Consumer Cases
1. Mr. Mukesh Kumar has filed two consumer cases (Nos. 12/2005 and 23/2005) against the Bank before the
National Consumer Disputes Redressal Commission. The cases have been filed for claiming damages from
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the Bank alleging deficiency of service on the Bank’s behalf on payments relating to the FCNR deposits
held by the complainant jointly with another person. The matter has been posted for hearing in February
2008. The financial impact on the Bank is to the extent of Rs. 689.6 million.
Cases filed by the Bank
Civil Recovery Cases
1. The Bank has filed this case (No. O.A. 412/2001) against Tunga Bhadra Industries Limited in the Andhra
Pradesh High Court. The case was filed by the Bank for recovery of its dues. The case has been decreed by
the court in favour of the Bank for Rs. 1,080 million. The court appointed the Official Liquidator, Andhra
Pradesh High Court who took possession of the Defendant’s properties of which some portions were
auctioned and an amount of Rs. 170 million was recovered. The Defendant has filed an appeal against the
decree passed in favour of the Bank. The appeal is pending.
2. The Bank has filed this case (No. O.A. 186/2004) against the Mining & Allied Machinery Corporation
Limited before the Debt Recovery Tribunal, Kolkata. The present case has been filed by the Bank for
recovery of its dues. The matter is pending at the hearing stage. The financial impact is to the extent of Rs.
4,837 million.
3. The Bank has filed this case (No. R.P. 273/2006) against Alpine Industries Limited before the Debt
Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The case has
been decreed in favour of the Bank and a Recovery Certificate dated February 2, 2006 has also been issued.
The Defendant has made an application before the BIFR under the Sick Industrial Companies Act, 1985
and the same is pending. The financial impact is to the extent of Rs. 2,010 million.
4. The Bank has filed this case (No. 599/2001) against Lloyds Steel Industries Limited before the Debt
Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The Defendant
has made an application before the BIFR under the Sick Industrial Companies Act, 1985 and the same is
pending. The financial impact is to the extent of Rs. 1,801.9 million.
5. The Bank has filed this case (No. 194/2003) against SPIC Petrochemicals Limited before the Debt
Recovery Tribunal, Chennai. The case has been filed by the Bank for recovery of its dues. The matter is
pending at the hearing stage. The financial impact is to the extent of Rs. 1,516 million.
6. The Bank has filed this case (No. 152/2000) against Ahmedabad Manufacturing and Calico Printing
Company Limited before the Debt Recovery Tribunal, Ahmedabad. The case has been filed by the Bank for
recovery of its dues. The case has been decreed in favour of the Bank and a Recovery Certificate dated July
2003 has also been issued. The Defendant is under liquidation. The financial impact is to the extent of Rs.
2,740.9 million.
7. The Bank has filed this case (No. 23/1995) against Weston Electronics Limited before the Debt Recovery
Tribunal, Delhi. The case has been filed by the Bank for recovery of its dues. The case has been decreed in
favour of the Bank and the same is under execution. The financial impact is to the extent of Rs. 521.8
million.
8. The Bank has filed this case (No. 419/1998) against Altos India Limited before the Debt Recovery Tribunal,
Delhi. The case has been filed by the Bank for recovery of its dues. The matter is pending at the evidence
stage. The financial impact is to the extent of Rs. 428.3 million.
9. The Bank has filed this case (No. 240/2004) against Swati Diamonds Limited before the Debt Recovery
Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The case has been decreed
in favour of the Bank and the same is under execution. The financial impact is to the extent of Rs. 352.6
million.
10. The Bank has filed two cases (Nos. 215/2000 and 451/2000) against Western India Shipyard Limited before
the Debt Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The
case has been decreed in favour of the Bank. The total financial impact of both cases is to the extent of Rs.
350.8 million.
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11. The Bank has filed this case (No. 239/2004) against Jewel Tech (I) Limited before the Debt Recovery
Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The Defendant has made
an application before the BIFR under the Sick Industrial Companies Act, 1985 and the same is pending.
The financial impact is to the extent of Rs. 341.4 million.
12. The Bank has filed this case (No. 175/2001) against K.L. Choksi before the Debt Recovery Tribunal,
Ahmedabad. The case has been filed by the Bank for recovery of its dues. The matter is pending before the
Debt Recovery Tribunal. The financial impact is to the extent of Rs. 335 million.
13. The Bank has filed this case (No. 99/2004) against Uni Credito Italiano before the Debt Recovery Tribunal,
Mumbai. ONGC entered into a contract with a consortium called Saipem S.P.A./ Snamprogettin S.P.A for
construction of a system of undersea pipelines. The consortium was required to furnish a bank guarantee in
favour of ONGC for any claim of liquidated damages. A bank guarantee in favour of ONGC was given by
the Bank against a counter guarantee from Uni Credito Italiano. ONGC invoked the bank guarantee which
was honoured by the Bank. The Bank has filed this case against Uni Credito Italiano as they failed to
honour the counter guarantee given in favour of the Bank. The matter is pending at the argument stage
before the Debt Recovery Tribunal. The financial impact is to the extent of Rs. 331.2 million.
14. The Bank has filed this case (No. 369/2003) against Roofit Industries Limited before the Debt Recovery
Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The matter is pending at
the hearing stage. The financial impact is to the extent of Rs. 296.9 million.
15. The Bank has filed this case (No. 135/2001) against Shri Ishar Alloys Limited before the Debt Recovery
Tribunal, Bhopal. The case has been filed by the Bank for recovery of its dues. The case has been decreed
in favour of the Bank. The total financial impact of the case is to the extent of Rs. 456.2 million.
16. The Bank has filed this case (No. O.A. 166/2001) against Petrofils Co-operative Limited before the Debt
Recovery Tribunal, Ahmedabad. The case has been filed by the Bank for recovery of its dues. The matter
has been decided in favour of all secured lenders including the Bank. The final order of the Debt Recovery
Tribunal has been received. The financial impact is to the extent of Rs. 418 million.
17. The Bank has filed this case (No. 209/2001) against M/s Raj Solvex Limited before the Debt Recovery
Tribunal, Delhi. The case has been filed by the Bank for recovery of its dues. The Defendant is under
reference to the BIFR under the Sick Industrial Companies Act, 1985. The Defendant subsequently has
made a request to the Bank for settlement of its dues through a one time settlement which was approved.
The Defendant has paid 50% of the amount i.e. Rs. 27.5 million and has applied for an extension of time to
pay the balance amount which is being considered by the Bank. The financial impact of the case is to the
extent of Rs. 342.5 million.
18. The Bank has filed this suit (No. 1199/1999) against Shri Kane and Others (Borrowers) in the Civil Court,
Pune. The Borrowers had been sanctioned a working capital and term loan for construction of a poultry
shed and to meet daily expenses of the poultry. The activity never took place on account of numerous
deficiencies and ultimately the account became a non performing asset. The Bank has filed this suit against
the Borrowers. The Borrowers have filed a counter claim in the Civil Court, Pune. The case is yet to come
up for hearing. The financial impact of the case is to the extent of Rs. 760.8 million.
19. The Bank has filed this case (No. 47/2002) against M/s Uptron Limited before the Debt Recovery Tribunal
for recovery of its dues. The Defendant subsequently made an application before the BIFR under the Sick
Industrial Companies Act and the same is pending. The case is listed for hearing on January 31, 2008. The
Defendant’s case is also pending before the BIFR/AAIFR which had allowed the Bank to proceed against
the Defendant before the Debt Recovery Tribunal against which the Defendant preferred an appeal to the
Delhi High Court. The Delhi High Court allowed the appeal. The Bank preferred an appeal against the stay
granted by the Delhi High Court and the judgment is reserved. The financial impact is to the extent of Rs.
1614.7 million.
20. The Bank along with the Bank of India and Indian Bank (Plaintiffs) has filed this case (No. 617/1999)
against Greatwin International Pte. Limited (GWIPL) and its directors, i.e. Mr. N. Kothari and Mrs. Sayar
Kothari, before the Singapore Court. The case has been filed against the Defendants for failure to honour
their liability under the letters of credit issued by the Plaintiffs. The case was decreed in favour of the
Plaintiffs by the Singapore Court. Subsequently, the Defendants shifted their base to Ontario, Canada. The
277
Plaintiffs have moved the Ontario Court, Canada seeking a summary judgment for enforcement of the
Singapore Court judgment. The case is pending before the Ontario Court. The Defendants have proposed a
one time settlement of U.S.$ 4.75 million. The Bank’s share is U.S.$ 2.077 million. The amount is yet to be
paid.
Tax Cases
1. The State Bank of Hyderabad has filed this appeal (No. 0363/2005-06) against the Income Tax Department
before the Commissioner of Income Tax (Appeals). The present appeal has been filed by the State Bank of
Hyderabad for the assessment year 1994-95 regarding quantification of amount pertaining to interest
computed on accrual basis by the Bank. The matter is pending before the Commissioner of Income Tax
(Appeals). The financial impact is to the extent of Rs. 317.9 million.
2. The State Bank of Hyderabad has filed this appeal (No. 0020/2007-08) against the Income Tax Department
before the Commissioner of Income Tax (Appeals). The present appeal has been filed by the State Bank of
Hyderabad for the assessment year 2005-06. A regular assessment was made by the Income Tax
Department under Section 143(3) of the Income Tax Act, 1961 against which an appeal was filed by the
Bank. The hearing has been completed and a decision in the matter is awaited. The financial impact is to the
extent of Rs. 4,361.4 million.
Civil Recovery Cases
State Bank of Patiala
1. The State Bank of Patiala has filed this case (No. 258/2002) against M/s Uptron India Limited before the
Debt Recovery Tribunal, Lucknow. The case has been filed by the State Bank of Patiala for recovery of its
dues. The Defendant has made an application to the Delhi High Court for stay of proceedings before the
Debt Recovery Tribunal. The next date of hearing for determining the application for stay of the
proceedings has been fixed for January 31, 2008. The financial impact is to the extent of Rs. 434.7 million.
2. The State Bank of Patiala has filed two cases (Nos. 36/1999 and 114/1998) against Parasrampuria
Synthetics Limited before the Debt Recovery Tribunal. These cases have been filed by the State Bank of
Patiala for recovery of its dues. The matters are pending. The financial impact is to the extent of Rs. 307
million.
3. The State Bank of Patiala has filed this case (No. 305/1997) against M/s M.S. Shoes East Limited before
the Debt Recovery Tribunal. The case has been filed by the State Bank of Patiala for recovery of its dues.
The Defendant approached the State Bank of Patiala for a one time settlement of Rs. 45 million payable up
to June 30, 2007 which was approved. Presently, the Defendant has paid only Rs. 15 million. The matter is
pending for issuance of the consent decree. The financial impact is to the extent of Rs. 490.1 million.
4. The State Bank of Patiala has filed this case (No. 64/2001) against Deepharma Limited before the Debt
Recovery Tribunal. The case has been filed by the State Bank of Patiala for recovery of its dues. The matter
is pending at the evidence stage. The financial impact is to the extent of Rs. 432.6 million.
5. The State Bank of Patiala has filed this case (No. OA 256/2003) against ROM Industries Limited before the
Debt Recovery Tribunal, Chandigarh. The case has been filed by the State Bank of Patiala for recovery of
its dues. The next date of hearing has been fixed for February 1, 2008. In the meanwhile a one time
settlement of Rs. 72.5 million has been approved out of which Rs. 37.5 million has been paid. The balance
amount is due on February 15, 2008. The financial impact is to the extent of Rs. 883.6 million.
6. The State Bank of Patiala has filed this case (No. OA 346/47/2002) against M/s Thapar Agro Mills Limited
before the Debt Recovery Tribunal, Chandigarh for recovery of Rs 412.6 million due to the State Bank of
Patiala from the Defendant. A compromise has been arrived at subject to certain conditions which are yet to
be complied with by the Defendants. The matter is pending.
7. The State Bank of Patiala has filed this case (No. 214/1988) against M/s Hamco Mining and Smelting
Limited before the Debt Recovery Tribunal, Mumbai for recovery of its dues. The Debt Recovery Tribunal
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has issued a Recovery Certificate and the Official Liquidator appointed by the Tribunal has taken
possession of the properties. The matter is pending. The financial impact is to the extent of Rs. 707.4
million.
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GOVERNMENT APPROVALS
On the basis of the indicative list of approvals provided below, the Bank may undertake this Issue and
the Bank's current business activities and no further major approvals from any government authority/RBI are
required to continue these activities. It must be distinctly understood that, in granting these licences, the
Government and/or the RBI does not take any responsibility for the Bank's financial soundness or for the
correctness of any of the statements made or opinions expressed in this behalf.
Approvals for the Issue
1) Letter from the Central Government F No. 11/7/2007-BOA dated December 3, 2007, conveying its
approval for subscription to the rights issue of Bank’s Equity Shares aggregating approximately Rs. 10,000
crore.
2) Letter from the Government F No. 11/16/2005-BOA dated January 2, 2008, conveying approval for the
increase in the issued capital of the Bank from the existing Rs. 526.30 crore to Rs. 650.00 crore.
In-Principle Approvals
1. In-principle approval from the NSE dated January 30, 2008; and
2. In-principle approval from the BSE dated January 31, 2008.
Approval for setting up of Subsidiary
1) Approval No. DBOD No. FSD / 124 /24.01.022/2007-08 dated July 4, 2007, from RBI for setting up
subsidiary for Managing Pension Funds.
2) Approval No. 1094 dated 21.09.2007, File No. 9/1/2007-PFRDA dated September 21, 2007, from Pension
Fund Regulatory & Development Authority for appointment of the Bank as Sponsor of Pension Funds for
Government employees under the New Pension System.
Approvals for setting of Foreign Offices
1) Resolution of the Council of Ministers No. (188) dated 17.07.1426 (Hijra) approving the application of the
Bank to open a branch in the kingdom of Saudi Arabia.
2) Licence No. BSD / 17/ 94 /1109 dated September 26, 1994, to Bank of Bhutan issued by the Royal
Monetary Authority of Bhutan.
3) Approval letter No. FBP/1572 dated November 20, 1978, issued by the Banking Department, State of New
York, USA, for maintaining the Bank's New York branch.
4) London branch Registration No.139156 with the Financial Services Authority, U.K.
5) Approval Reference No. II Cb 53-1043 dated November 14, 1974, issued by BUNDESAUFSICHTSAMT
FUR DAS KREDITWESEN for carrying on banking business through a branch office in Frankfurt branch.
6) Letter from Ministry of Finance No. 2069 dated August 30, 1979, licensing banking business to State Bank
of India, Tokyo.
7) Licence reference No. 1172 dated June 16, 1981, granted to State Bank of India to maintain a depository
agency at 707, Wilshire Boulevard, City of Los Angeles, County of Los Angeles, State of California.
8) RBI Licence No. BLC.966/76 dated December 29, 1976, authorising the Bank to open an Agency branch at
Los Angeles (USA).
9) Certificate of Authority No. 20 dated May 6, 1975, issued to State Bank of India by the Commissioner of
Banks and Trust Companies, State of Illinois for setting up Chicago branch.
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10) Certificate No. 2670 dated October 11, 1977, issued by Registrar of Companies, Republic of Singapore for
incorporation of SBI, Singapore
11) Certificate of Registration No F-1935 dated August 31, 1984, for registration of SBI, Hong Kong under the
Companies Ordinance, and Licence No. 103 dated July 25, 1978, granted by the Governor in Council.
12) Licence No. 3446 dated December 29, 2003, by Central Bank of Russian Federation for execution of
banking operations granted to Commercial Bank of India LLC Moscow.
13) Offshore Banking Licence No. 4 dated March 29, 1990, issued to SB International Ltd, Mauritius by
Governor, Bank of Mauritius.
14) Licence No. WB/011 dated January 1, 1977, granted by Central Bank of Bahrain to State Bank of India,
Bahrain (Wholesale Bank branch).
The Bank requires prior approval from RBI for opening new place of business in India or abroad. The
Bank has obtained all relevant approvals in this regard.
Licences and approvals pertaining to appointment and remuneration of Bank’s Directors
1) Notification No. F No. 9/25/2005/BO.I dated June 30, 2006, under clause (a) of section 19 and sub-section
(1) of Section 20 of the Act (23 of 1955) by the Central Govt. appointing Shri O.P.Bhatt, Managing
Director as Chairman of the Bank up to March 31, 2011, or until further orders, whichever is earlier.
2) Notification No. F No. 8/3/2004/BO.I dated February 25, 2005, under clause (b) of section 19 and sub-
section (1) of Section 20 of the Act (23 of 1955) by the Central Govt. in consultation with RBI, appointing
Shri Tara Shankar Bhattacharya, Deputy Managing Director as Managing Director of the Bank up to
January 31, 2008, or until further orders, whichever is earlier.
3) Notification No. F No. 8/01/2007/BO.I dated October 8, 2007, under clause (b) of section 19 and sub-
section (1) of Section 20 of the Act (23 of 1955) by the Central Govt. after consultation with the RBI,
appointing Shri S.K. Bhattacharyya, Managing Director (SBBJ) as Managing Director of the Bank up to
October 31, 2010, or until further orders, whichever is earlier.
4) Notification No. F No. 15/10/2001/IR dated July 15, 2003, under clause (ca) of section 19 read with sub-
section (3A) of Section 20 of the Act (23 of 1955) and in exercise of powers vested under Rule 3 of State
Bank of India (Appointment of employee Directors) Rules, 1974 by the Central Govt. appointing Shri
Ananta Chandra Kalita, Head Assistant, State Bank of India as a Director on the Central Board of the Bank
from among the employees of State Bank of India who are workmen for a period of three years
commencing from July 15, 2003, or until he ceases to be a workman employee of the Bank or until further
orders whichever is earlier provided that he shall not hold the Office continuously for a period exceeding
six years.
5) Notification No. F No. 8/1/2005/BO-I dated August 19, 2005, under clause (cb) of section 19 read with sub-
section (3A) and sub-section (4) of Section 20 of the Act (23 of 1955) and Rule 4 of the State Bank of India
(appointment of employee Directors) Rules, 1974 by the Central Govt. after consultation with the RBI,
nominating Shri Amar Pal, President, All India State Bank of India Officers’ Federation (posted as Deputy
Manager, Official Languages Department, Local Head Office, Chandigarh) as Officer-employee Director
on the Central Board of Directors of the Bank from the date of notification and up to March 31, 2008 i.e.,
the date on which he will attain the age of superannuation or until he ceases to be an Officer of the State
Bank of India, whichever is earlier.
6) Notification No. 8/3/2003-B.O.I (2) dated January 23, 2004, under clause (d) of Section 19 read with sub-
section 3(A) and sub-section (4) of Section 20 of the Act (23 of 1955) by the Central Govt. in consultation
with the RBI, nominating Shri Piyush Goyal as a Director of the Central Board of the Bank for a period of
three years from the date of Notification.
7) Notification No. 8/4/2004-B.O.I dated July 9, 2007, under clause (d) of Section 19 of the Act (23 of 1955),
by the Government, in consultation with the RBI nominating the following two persons as part time Non-
281
official Directors on the Central Board of Directors of the Bank for a period of three years from the date of
Notification or until further order whichever is earlier:
(a) Dr. Deva Nand Balodhi;
(b) Prof. Salahuddin Ansari.
8) Notification F No. 9/7/2007-BO.I dated January 18, 2008, under clause (e) of Section 19 of the Act (23 of
1955), by the Central Govt. nominating Shri Arun Ramanathan, Secretary, Ministry of Finance, Department
of Financial Services, New Delhi as a Director on the Central Board of the Bank with immediate effect and
until further orders vice Shri Vinod Rai.
9) RBI Letter No. SYD.492/02.03.04/2004-05 dated September 28, 2004, in terms of Section 19 (1) (f) of the
Act nominating Smt. Shyamala Gopinath, Deputy Governor on the Central Board of the Bank vice Shri
A.V. Sardesai.
Taxation related approvals
Permanent Account Number – (PAN) AAACS8577K issued by the Department of Income Tax, the Government.
In addition, the Bank obtains separate tax deduction at source numbers and VAT registrations for each of its
branches.
Registrations with SEBI
1. Certificate of Registration as Participant granted by SEBI dated July 4, 2005, under the Depositories
Act, 1996 (22 of 1996), with the Registration No. IN-DP-CDSL-80-2000.
2. Certificate of Registration as Underwriter granted by SEBI dated January 4, 2007, with the Registration
No. INU000000027.
3. Certificate of Registration as Portfolio Manager granted by SEBI dated March 28, 2007, with the
Registration No. INP000000068.
In addition to approvals indicated above, we have made and will continue to make, regular applications to
various authorities in the ordinary course of our business including for opening new branches in India and
abroad and applications for labour related clearances and non-receipt, delay in receipt or rejection of the same
will not have material adverse effect on the Bank.
282
STATUTORY AND OTHER INFORMATION
Authority for the Issue

As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-
BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank. Further, in terms of the
Government’s Letter (Letter No. F/ 11/ 7/ 2007- BOA) dated December 3, 2007, the Government has intimated
to the Bank that the cabinet has granted its approval for investing approximately Rs. 10,000 crores in the Issue
by issuing SLR marketable securities towards the Government’s Rights Entitlement. Accordingly, in terms of
Section 5(2) of the Act, this Issue, with a right to renounce, has been authorised by the Central Board pursuant
to the resolution passed at its meeting held on January 14, 2008. This Letter of Offer has been approved by the
Central Board at its meeting held on February 1, 2008.
Prohibition by SEBI
Neither the Bank, nor the Directors, or companies/banks with which the Bank’s Directors are associated
with as directors or promoters, have been prohibited from accessing or operating in the capital markets under
any order or direction passed by SEBI. Further, none of the directors or person(s) in control of the Bank have
been prohibited from accessing the capital market under any order or direction passed by SEBI. Further neither
the Bank, Associate Banks or the Bank’s subsidiaries have been declared as wilful defaulters by
RBI/Government authorities.
Eligibility for the Issue

The Bank was constituted under the Act, and its Equity Shares are listed on the BSE and NSE. The Bank’s
Equity Shares are also listed on CSE, MSE, ASE and DSE. The Bank’s GDRs are listed on the London Stock
Exchange. It is eligible to make this Issue in terms of Clause 2.4.1(iv) of the SEBI Guidelines. Further, the Bank
has satisfied the conditions stipulated in Clause 2.1.2A.1 of the SEBI Guidelines. In terms of Clause 2.1.2A.2 of
the SEBI Guidelines, the Bank will also file a copy of this Letter of Offer with the SEBI, not later than the Issue
opening date.
Disclaimer Clause
AS REQUIRED, A COPY OF THE LETTER OF OFFER WILL BE SUBMITTED TO SEBI NOT
LATER THAN THE ISSUE OPENING DATE. IT IS TO BE DISTINCTLY UNDERSTOOD THAT
THE SUBMISSION OF THE LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE
DEEMED/CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI
DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY
SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR
THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE
LETTER OF OFFER. THE LEAD MANAGERS, CITIGROUP GLOBAL MARKETS INDIA PRIVATE
LIMITED, CLSA INDIA LIMITED, DSP MERRILL LYNCH LIMITED, DEUTSCHE EQUITIES
INDIA PRIVATE LIMITED AND KOTAK MAHINDRA CAPITAL COMPANY LIMITED HAVE
CERTIFIED THAT THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE GENERALLY
ADEQUATE AND ARE IN CONFORMITY WITH SEBI (DISCLOSURE AND INVESTOR
PROTECTION) GUIDELINES FOR DISCLOSURE AND INVESTOR PROTECTION IN FORCE FOR
THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN
INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD
ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE BANK IS PRIMARILY RESPONSIBLE
FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION
IN THE LETTER OF OFFER, THE LEAD MANAGERS ARE EXPECTED TO EXERCISE DUE
DILIGENCE TO ENSURE THAT THE BANK DISCHARGES ITS RESPONSIBILITY ADEQUATELY
IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGERS HAVE FURNISHED
TO SEBI A DUE DILIGENCE CERTIFICATE DATED FEBRUARY 1, 2008, WHICH READS AS
FOLLOWS:
1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO
LITIGATION SUCH AS COMMERCIAL DISPUTES, DISPUTES WITH COLLABORATORS,
ETC. AND OTHER MATERIALS MORE PARTICULARLY REFERRED TO IN THE
283
ANNEXURE HERETO IN CONNECTION WITH THE FINALISATION OF THE LETTER OF
OFFER PERTAINING TO THE SAID ISSUE;
2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE BANK, ITS
DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION
OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED
PROFITABILITY PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS
MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE BANK;
WE CONFIRM THAT:
A) THE LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE
DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE;
B) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO
THE GUIDELINES, INSTRUCTIONS ETC., ISSUED BY SEBI, THE GOVERNMENT
AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY
COMPLIED WITH;
C) THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE TRUE, FAIR AND
ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL-INFORMED
DECISION AS TO INVESTMENT IN THE PROPOSED ISSUE AND SUCH
DISCLOSURES ARE IN ACCORDANCE WITH THE REQUIREMENTS OF THE SEBI
(DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000 AND OTHER
APPLICABLE LEGAL REQUIREMENTS.
3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE

LETTER OF OFFER ARE REGISTERED WITH SEBI AND TILL DATE SUCH
REGISTRATION IS VALID; AND
4. WE CERTIFY THAT WRITTEN CONSENT FROM SHAREHOLDERS HAS BEEN OBTAINED
FOR INCLUSION OF THEIR SECURITIES AS PART OF THE BANK’S CONTRIBUTION
SUBJECT TO LOCK-IN AND THE SECURITIES PROPOSED TO FORM PART OF THE
BANK’S CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/ SOLD/
TRANSFERRED BY THE BANK DURING THE PERIOD STARTING FROM THE DATE OF
FILING THE LETTER OF OFFER WITH THE CENTRAL BOARD TILL THE DATE OF
COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE LETTER OF OFFER— NOT
APPLICABLE
5. IF UNDERWRITTEN, WE SHALL SATISFY OURSELVES ABOUT THE WORTH OF THE
UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS. — NOT
APPLICABLE.
FURTHER, IN TERMS OF CLAUSE 5.3.3.1A, THE LEAD MANAGERS SHALL HAVE

PROVIDED THE FOLLOWING ADDITIONAL CONFIRMATIONS / CERTIFICATIONS:
1. WE CONFIRM THAT NONE OF THE INTERMEDIARIES NAMED IN THE LETTER OF
OFFER HAVE BEEN DEBARRED FROM FUNCTIONING BY ANY REGULATORY
AUTHORITY.
2. WE CONFIRM THAT THE BANK IS ELIGIBLE TO MAKE FAST TRACK ISSUE IN TERMS
OF CLAUSE 2.1.2A OF THE SEBI (DISCLOSURE AND INVESTOR PROTECTION)
GUIDELINES, 2000. THE FULFILLMENT OF THE ELIGIBILITY CRITERIA AS SPECIFIED
IN THAT CLAUSE, BY THE BANK, HAS ALSO BEEN DISCLOSED IN THE LETTER OF
OFFER.
3. WE CONFIRM THAT ALL THE MATERIAL DISCLOSURES IN RESPECT OF THE BANK

HAVE BEEN MADE IN THE LETTER OF OFFER AND CERTIFY THAT ANY MATERIAL
DEVELOPMENT IN THE BANK OR RELATING TO THE ISSUE UP TO THE
COMMENCEMENT OF LISTING AND TRADING OF THE SHARES OFFERED THROUGH
THIS ISSUE SHALL BE INFORMED THROUGH PUBLIC NOTICES / ADVERTISEMENTS IN
ALL THOSE NEWSPAPERS IN WHICH PRE-ISSUE ADVERTISEMENT AND
ADVERTISEMENT FOR OPENING OR CLOSURE OF THE ISSUE HAVE BEEN GIVEN.
284
4. WE CONFIRM THAT THE ABRIDGED LETTER OF OFFER CONTAINS ALL THE
DISCLOSURES AS SPECIFIED IN THE SEBI (DISCLOSURE AND INVESTOR PROTECTION)
GUIDELINES, 2000.
5. WE CONFIRM THAT AGREEMENTS HAVE BEEN ENTERED INTO WITH BOTH THE
DEPOSITORIES FOR DEMATERIALISATION OF THE SECURITIES OF THE BANK .
6. WE CERTIFY THAT AS PER THE REQUIREMENTS OF THE 1ST PROVISO TO CLAUSE

4.9.1 OF THE SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000,
CASH FLOW STATEMENT HAS BEEN PREPARED AND DISCLOSED IN THE RED
HERRING PROSPECTUS AND / OR PROSPECTUS.) – NOT APPLICABLE.
7. WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE LETTER OF OFFER THAT
THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE SHARES IN DEMAT OR
PHYSICAL MODE.
8. WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THE

LETTER OF OFFER:
A) AN UNDERTAKING FROM THE BANK THAT AT ANY GIVEN TIME THERE SHALL BE
ONLY ONE DENOMINATION FOR THE SHARES OF THE BANK AND
B) AN UNDERTAKING FROM THE BANK THAT IT SHALL COMPLY WITH SUCH
DISCLOSURE AND ACCOUNTING NORMS SPECIFIED BY THE CENTRAL BOARD FROM
TIME TO TIME.
The filing of the Letter of Offer does not, however, absolve the Bank from any liability, where
applicable, under the relevant statutes, or from the requirement of obtaining such statutory or other clearance as
may be required for the purpose of the proposed Issue. SEBI further reserves the right to take up, at any point of
time, with the Lead Managers any irregularities or lapses in the Letter of Offer.
Caution
The Bank and the Lead Managers accept no responsibility for statements made otherwise than in this
Letter of Offer or in any advertisement or other material issued by the Bank or by any other persons at the
instance of the Bank and anyone placing reliance on any other source of information would be doing so at his
own risk.
The Lead Managers and the Bank shall make all information available to the Equity Shareholders and no
selective or additional information would be available for a section of the Equity Shareholders in any manner
whatsoever including at presentations, in research or sales reports etc. after filing of this Letter of Offer with
SEBI.
Disclaimer with respect to jurisdiction

This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and
regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the
appropriate court(s) in Mumbai, India only.
Selling Restrictions
The distribution of this Letter of Offer and the Issue of Equity Shares on a rights basis to persons in
Persons in whose possession this Letter of Offer may come are required to inform themselves about and observe
such restrictions. The Bank is making this Issue of Equity Shares on a rights basis only to the shareholders of the
Bank and will dispatch the Abridged Letter of Offer and CAF to those shareholders who have an Indian address.
No action has been or will be taken to permit this Issue in any jurisdiction where action would be required
for that purpose, except that this Letter of Offer has been filed with SEBI. Accordingly, the Equity Shares
represented thereby may not be offered or sold, directly or indirectly, and this Letter of Offer may not be
distributed in any jurisdiction outside of India. Receipt of the Letter of Offer will not constitute an offer in those
jurisdictions in which it would be illegal to make an offer and, in such circumstances, the Letter of Offer must
285
be treated as sent for information only and should not be copied or redistributed. No person receiving a copy of
the Letter of Offer in any territory other than in India may treat the same as constituting an invitation or offer to
him, nor should he in any event use the CAF. The Bank will not accept any CAF where the address as indicated
by the applicant is not an Indian address. Accordingly, persons receiving a copy of the Letter of Offer should not,
in connection with the issue of Equity Shares or the Rights Entitlements distribute or send the same in or into
the United States or any other jurisdiction where to do so would or might contravene local securities laws or
regulations. If the Letter of Offer is received by any person in any such territory, or by their agent or nominee,
they must not seek to subscribe to the Equity Shares or the Rights Entitlements referred to in the Letter of Offer.
Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create any
implication that there has been no change in the Bank’s affairs from the date hereof or that the information
contained herein is correct as of any time subsequent to this date.
The Letter of Offer was filed with the Designated Stock Exchange and a copy thereof was filed / will be
filed with SEBI, Plot No.C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051, prior to the
Issue Opening Date.
United States Restrictions

NEITHER THE RIGHTS ENTITLEMENTS NOR THE EQUITY SHARES THAT MAY BE
PURCHASED PURSUANT HERETO HAVE BEEN, OR WILL BE, REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY U.S. STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, RESOLD OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OF AMERICA OR THE TERRITORIES OR POSSESSIONS THEREOF
(THE “UNITED STATES” OR THE “U.S.”) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, “US
PERSONS” (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”)),
EXCEPT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE RIGHTS REFERRED TO IN THIS LETTER OF OFFER ARE BEING OFFERED
IN INDIA, BUT NOT IN THE UNITED STATES. THE ISSUE TO WHICH THIS LETTER OF OFFER
RELATES IS NOT, AND UNDER NO CIRCUMSTANCES IS TO BE CONSTRUED AS, AN OFFERING
OF ANY SHARES OR RIGHTS FOR SALE IN THE UNITED STATES OR AS A SOLICITATION
THEREIN OF AN OFFER TO BUY ANY OF THE SAID SHARES OR RIGHTS. ACCORDINGLY, THIS
LETTER OF OFFER SHOULD NOT BE FORWARDED TO OR TRANSMITTED IN OR INTO THE
UNITED STATES AT ANY TIME. NEITHER THE BANK NOR ANY PERSON ACTING ON BEHALF OF
THE BANK WILL ACCEPT SUBSCRIPTIONS OR RENUNCIATIONS FROM ANY PERSON, OR THE
AGENT OF ANY PERSON, WHO APPEARS TO BE, OR WHO THE BANK OR ANY PERSON ACTING
ON BEHALF OF THE BANK HAS REASON TO BELIEVE IS, IN THE UNITED STATES AND TO
WHOM AN OFFER, IF MADE, WOULD RESULT IN REQUIRING REGISTRATION OF THIS LETTER
OF OFFER WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. ANY PERSON
SUBSCRIBING TO THE EQUITY SHARES OFFERED HEREBY WILL BE DEEMED TO REPRESENT
THAT SUCH PERSON IS NOT IN THE UNITED STATES AND HAS NOT VIOLATED ANY U.S.
SECURITIES LAWS IN CONNECTION WITH THE EXERCISE.

Prospectus Directive at any relevant time (each, a “Relevant Member State”) the Bank has not made and will not
make an offer of the Equity Shares to the public in that Relevant Member State prior to the publication of a
prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant
Member State or, where appropriate, approved in another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date, make an offer of Equity Shares to the public
in that Relevant Member State at any time:
financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more
than €50,000,000, as shown in its last annual or consolidated accounts; or
(c) in any other circumstances which do not require the publication by the Bank of a prospectus pursuant to
Article 3 of the Prospectus Directive.
286
below.

This Letter of Offer is only being distributed to and is only directed at (i) persons who are outside the
implementing CONSOB regulations, as amended from time to time, and in Article 2 of Directive No.
2003/71/EC of 4 November 2003; or
(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article
100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971
of 14 May 1999, as amended (Regulation No. 11971).
(a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in
the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No.
16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1
September 1993, as amended (the Banking Act); and
(b) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB
or other Italian authority.
Designated Stock Exchange

The Designated Stock Exchange for the purposes of this Issue will be NSE.
Disclaimer Clause of BSE
Bombay Stock Exchange Ltd. (“the Exchange”) has given vide its letter dated January 31, 2008
permission to this Bank to use the Exchange’s name in this Letter of Offer as one of the stock exchanges on
which the Bank’s securities are proposed to be listed. As the proposed Rights Issue by the Bank is in terms of
Clause 2.1.2A of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 no draft letter of offer has
been filed with the Exchange and hence no scrutiny of the same has been carried out by the Exchange for any
purpose. Further the Exchange’s permission to use the name of the Exchange as stated above, does not in any
manner :
287
i) warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of
Offer; or
ii) warrant that this Bank’s securities issued pursuant to the rights issue will be listed or will continue
to be listed on the Exchange; or
iii) take any responsibility for the financial or other soundness of this Bank, its promoters, its
management or any scheme or project of this Bank;
and it should not for any reason be deemed or construed to mean that the Letter of Offer has been cleared or
approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of this
Bank may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against
the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in
connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated
herein or for any other reason whatsoever.
Disclaimer Clause of Other Stock Exchanges
The Stock Exchanges do not in any manner (i) warrant, certify or endorse the correctness or
completeness of any of the contents of the Letter of Offer; (ii) warrant that the Bank’s Equity Shares will be
listed or will continue to be listed on the Stock Exchanges; or (iii) take any responsibility for the financial or
other soundness of this Bank its management or any scheme or project of the Bank; and it should not for any
reason be deemed or construed to mean that the Letter of Offer has been cleared or approved by the Stock
Exchanges. Every person who desires to apply for or otherwise acquires any Equity Shares of the Bank may do
so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock
Exchanges whatsoever by reason of any loss which may be suffered by such person consequent to or in
connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated
herein or for any other reason whatsoever.
Impersonation
Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing
for, any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to
him, or any other person in a fictitious name, shall be punishable with the applicable penalties under the
relevant statutes.
Dematerialised dealing
The Bank has entered into agreements dated September 19, 2003 and September 2, 2003 with National
Securities Depository Limited and the Central Depository Services (India) Limited respectively, and its Equity
Shares bear the ISIN No. INE062A01012.
Listing
The existing Equity Shares are listed on the BSE and NSE. The Bank’s Equity Shares are also listed on
the CSE, MSE, ASE and DSE. The GDRs issued by the Bank are listed on the London Stock Exchange. The
Bank has made applications to the BSE and NSE for permission to deal in and for an official quotation in
respect of the Equity Shares being offered in terms of this Letter of Offer. The Bank has received in-principle
approvals from the BSE and NSE by letters dated January 31, 2008 and January 30, 2008, respectively. The
Bank will apply to the BSE and NSE for listing of the Equity Shares to be issued pursuant to this Issue after
allotment.
If the permission to deal in and for an official quotation of the securities is not granted by any of the Stock
Exchanges mentioned above, within 42 days from the Issue Closing Date, the Bank shall forthwith repay,
without interest, all moneys received from applicants in pursuance of this Letter of Offer. If such money is not
paid within eight days after the Bank becomes liable to repay it, then the Bank and every Director of the Bank
who is an officer in default shall, on and from expiry of eight days, be jointly and severally liable to repay the
money with interest.
Consents
Consents in writing of the Auditors, Lead Managers, Legal Advisors and Registrar to the Issue to act in
their respective capacities have been obtained and filed with SEBI, along with a copy of the Letter of Offer and
288
such consents have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the
stock exchanges.
The Auditors of the Bank have given their written consent for the inclusion of their Report in the form
and content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the
time of delivery of this Letter of Offer for registration with the stock exchanges.
To the best of the Bank’s knowledge there are no other consents required for making this Issue. However,
should the need arise, necessary consents shall be obtained by the Bank.
Expert Opinion, if any

Except in the sections titled “Auditor’s Report” on page [●] of this Letter of Offer, no expert opinion has
been obtained by the Bank in relation to this Letter of Offer.
Expenses of the Issue

The expenses of the Issue payable by the Bank including brokerage, fees and reimbursement to the Lead
Managers, Auditors, Legal Advisors, Registrar to the Issue, printing and distribution expenses, publicity, listing
fees, stamp duty and other expenses are estimated at Rs. 450 million (or approximately 0.27% of the total Issue
size) and will be met out of the proceeds of the Issue.
Particulars (Approximate Expenditure) % of net % of total

proceeds of expenses of the
Rs. in millions the Issue Issue
Fees to Intermediaries
Fees paid to the Lead Managers, legal advisors, and
auditors 66.4 0.04 14.76
Fees paid to the Registrar to the Issue 7.5 0.01 1.67
Statutory Fee 193.5 0.11 43.0
Advertising and marketing fees 60.0 0.04 13.33
Printing, Stationery and Despatch 51.8 0.03 11.51
Listing Fees 15.7 0.01 3.49
Others 55.1 0.03 12.24
Total 450.0 0.27 100.00
Fees Payable to the Lead Managers to the Issue

The fees payable to the Lead Managers to the Issue are set out in the engagement letters issued by the
Bank to the Lead Managers entered into by the Bank with the Lead Managers.
Fees Payable to the Registrar to the Issue

The fee payable to the Registrar to the Issue is as set out in the relevant documents, copies of which are
available for inspection at the Registered Office of the Bank.
Option to Subscribe
Other than the present Issue, the Bank has not given any person any option to subscribe to the Equity
Shares of the Bank.
Stock Market Data for Equity Shares

As the Bank’s shares are actively traded on the BSE and NSE, the Bank’s stock market data have been
given separately for each of these Stock Exchanges.
The high and low closing prices recorded on the BSE and NSE for the preceding three years and the
number of Equity Shares traded on the days the high and low prices were recorded are stated below:
BSE
289
Average
Year ending High date of high Low date of low the year
2005 ....................... 742.50 March 10, 2005 2,413,606 408.90 June 23, 2004 4,497,898 542.57
2006 ....................... 987.20 March 27, 2006 829,777 584.80 April 29, 2005 1,504,178 811.67
2007 ....................... 1,360.20 December 1, 2006 570,209 689.50 July 19, 2006 616,699 997.31
NSE
Average
Year ending High date of high Low date of low the year
2005.................. 742.10 March 10, 2005 4,445,800 408.70 June 23, 2004 8,785,496 542.60
2006.................. 987.80 March 27, 2006 1,601,136 584.85 April 29, 2005 2,755,033 811.80
2007.................. 1,621.00 December 1, 2006 1,612,467 690.50 June 19, 2006 953,135 997.58
The high and low prices and volume of Equity Shares traded on the respective dates during the last six
months is as follows:
BSE
Average
Month, High date of high Low date of low the year
July, 2007.. 1,624.50 July 31, 2007 1,744,850 1,500.05 July 27, 2007 955,457 1,567.34
August,
2007 ..... 1,705.95 August 8, 2007 473,284 1,415.05 August 23, 2007 846,614 1,571.81
September,
2007 ..... 1,950.70 September 28, 2007 748,727 1,594.45 September 5, 2007 546,578 1,713.90
October,
2007 ..... 2,117.85 October 29, 2007 970,131 1,667.60 October 19, 2007 637,197 1,897.03
November,
2007 ..... 2,346.15 November 14, 2007 446,666 2,070.85 November 1, 2007 1,051,347 2,248.58
December,
2007 ..... 2,445.85 December 11, 2007 247,361 2,258.30 December 19,2007 271,787 2,368.46
NSE
Average
July, 2007 .. 1,623.85 July 31, 2007 3,673,699 1,498.75 July 27, 2007 2,150,967 1,567.70
August,
2007...... 1,706.85 August 8, 2007 1,106,862 1,414.75 August 23, 2007 2,113,602 1,571.66
September,
2007...... 1,945.85 September 28, 2007 2,672,350 1,594.25 September 5, 2007 1,265,135 1,713.67
October,
2007...... 2,116.70 October 29, 2007 2,207,285 1,667.10 October 19, 2007 1,774,173 1,896.68
November,
2007...... 2,353.85 November 14, 2007 1,368,083 2,075.35 November 1, 2007 2,143,188 2,249.98
290
Average
December,
2007...... 2,447.75 December 11, 2007 681,531 2,256.55 December 19,2007 647,234 2,366.13
The market price was Rs. 2,414.35 on BSE on January 15, 2008, the trading day immediately following
the day on which the Central Board meeting was held to finalize the offer price for the Issue.
The market price was Rs. 2,423.45 on NSE on January 15, 2008, the trading day immediately following
the day on which the Central Board meeting was held to finalise the offer price for the Issue.
There have not been any transactions in Equity Shares by the Bank and directors of the Bank during the
last six months from the date of this Letter of Offer other than those mentioned in the section “Capital
Structure” on page [●] of this Letter of Offer.
Important:
• This Issue is pursuant to the approval of the Government (F.No.11/16/2005-BOA) dated
January 2, 2008, approval of the Government’s (Letter No. F/ 11/ 7/ 2007- BOA) dated
December 3, 2007, the resolution passed by the Central Board at its meetings held on
January 14, 2008. This Letter of Offer has been approved by the Central Board at its
meeting held on February 1, 2008.
• This Issue is applicable to those Equity Shareholders whose names appear as beneficial
owners as per the list to be furnished by the depositories in respect of the shares held in the
electronic form and on the Register of Members of the Bank at the close of business hours
on the Record Date of February 4, 2008, after giving effect to the valid share transfers
lodged with the Bank up to the Record Date of February 4, 2008 and who have provided an
Indian address for communication.
• Your attention is drawn to the section entitled “Risk Factors” appearing on page [●] of this
Letter of Offer/Abridged Letter of Offer.
• Please ensure that you have received the Composite Application Forms (“CAF”) with this
Letter of Offer/Abridged Letter of Offer.
• Please read the Letter of Offer and the instructions contained therein and in the CAF
carefully before filling in the CAFs. The instructions contained in the CAF are each an
integral part of this Letter of Offer and must be carefully followed. An application is liable
to be rejected for any non-compliance of the provisions contained in the Letter of Offer or
the CAFs.
• All enquiries in connection with the Letter of Offer or CAFs should be addressed to the
Registrar to the Issue, quoting the Registered Folio number/ DP and Client ID number and
the CAFs numbers as mentioned in the CAFs.
• All information shall be made available to the Investors by the Lead Managers and the
Bank , and no selective or additional information would be available by them for any section
of the Investors in any manner whatsoever including at road shows, presentations, in
research or sales reports, etc.
• The Bank shall update the Letter of Offer and keep the public informed of any material
changes till the listing and trading commences.
Issue Schedule
Issue Opening Date:............................................................................................ February 18, 2008

Last date for receiving requests for split forms: .............................................. March 3, 2008
Issue Closing Date: ............................................................................................. March 18, 2008
291
The Central Board may however decide to extend the issue period as it may determine from time to
time but not exceeding 60 days from the Issue Opening Date.
Allotment Advices / Refund Orders

The Bank will issue and dispatch allotment advice/share certificates/demat credit and/or letters of regret
along with refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a
period of 42 days from the date of closure of the Issue. If such money is not repaid within eight days from the
day the Bank becomes liable to pay it, the Bank shall pay that money with interest as stipulated under the
applicable statutes.
Applicants residing at centres where clearing houses are managed by the RBI will get refunds through
ECS only (Electronic Clearing Service) except where Applicants are otherwise disclosed as applicable/eligible
to get refunds through direct credit and RTGS.
In the case of those Applicants who have opted to receive Equity Shares subscribed in the Issue in
dematerialised form using electronic credit under the depository system, advice regarding their credit of the
Equity Shares shall be given separately. Applicants to whom refunds are made through electronic transfer of
funds will be sent a letter through ordinary post informing them of the mode of credit of refund within 42
working days of closure of the Issue.
In the case of those Applicants who have opted to receive Equity Shares subscribed in the Issue in
physical form and the Bank issues an allotment advice, the corresponding share certificates will be dispatched
within one month from the date of allotment. For more information please refer to the section titled ‘Allotment
advice/Share Certificates/Demat Credit’ on page [●] of this Letter of Offer.
The refund order exceeding Rs. 1,500 would be sent by registered post/speed post to the sole/first
Applicant’s registered address. Refund orders up to the value of Rs. 1,500 would be sent under certificate of
posting. Such refund orders would be payable at par at all places where the applications were originally
accepted. The same would be marked ‘Account Payee only’ and would be drawn in favour of the sole/first
Applicant. Adequate funds would be made available to the Banker to the Issue for this purpose.
Disputed Shares
Equity Shares which are the subject matter of a dispute or sub-judice will not be allotted pending
resolution of the dispute in accordance with the Bank’s policy or receipt of an order from the relevant court or
authority removing the restriction thereon. Such shares will be held in abeyance and retained separately by the
Bank.
Investor Grievances and Redressal System

The Bank has adequate arrangements for redressal of Investor complaints. Well-arranged correspondence
system has been developed for letters of routine nature. The Bank has a separate department, the Shares and
Bonds department, at Corporate Centre to oversee the functioning of the Registrars in handling investors /
shareholders complaints. Further, in pursuance of clause 49 of the Listing Agreement with the stock exchange,
Shareholders’ / Investors’ Grievance Committee of the Board reviews matters relating to investors’ complaints
on various issues, at quarterly intervals.
The contact details of the share registrars are:
Datamatics Financial Services Ltd.

A 16 & 17, MIDC Part B Crosslane,
Andheri (East),
Mumbai 400 093
Tel.: (91 22) 6671 2151 - 2156
Fax: (91 22) 6671 2192
Email: sbirights@dfssl.com
Website: www.dfssl.com
Contact Person: Mr. Dnyanesh Gharote
Status of Complaints
(a) Total number of shareholder complaints received during last financial year (2006-2007): 3,699
292
(b) Total number of complaints received during current financial year (up to December 31, 2007): 4,802
(c) Status of the complaints: Out of the 3,699 outstanding complaints in fiscal year 2007, the Bank has
resolved 3,681 complaints and 18 complaints are sub-judice. All the complaints received thus far in fiscal
year 2008 have been resolved excepting 18 sub-judice cases.
(d) Time normally taken for disposal of various types of Investor grievances: 30 days.
Investor Grievances arising out of this Issue

The Bank’s investor grievances arising out of the Issue will be handled by Datamatics Financial Services
Ltd., who is the Registrar to the Issue. The Registrar will have a separate team of personnel handling only post-
Issue correspondence.
The agreement between the Bank and the Registrar will provide for retention of records with the
Registrar for a period of at least one year from the last date of dispatch of Allotment Advice/ share certificate /
warrant / refund order to enable the Registrar to redress grievances of Investors.
All grievances relating to the Issue may be addressed to the Registrar to the Issue giving full details such
as folio number, name and address, contact telephone / cell phone numbers, email id of the first applicant,
number and type of shares applied for, Application Form serial number, amount paid on application and the
name of the bank and the branch where the application was deposited, along with a photocopy of the
acknowledgement slip. In case of renunciation, the same details of the Renouncee should be furnished.
The average time taken by the Registrar for attending to routine grievances will be 21 days from the date
of receipt. In case of non-routine grievances where verification at other agencies is involved, the Registrar will
attend to them as expeditiously as possible. The Bank undertakes to resolve Investor grievances in a timely
manner.
Investors may contact the Compliance Officer in case of any pre-Issue/ post -Issue related
problems such as non-receipt of allotment advice/share certificates/ demat credit/refund orders etc. His
address is as follows:
Mr. Subrata Maiti

General Manager (Shares & Bonds Department)
State Bank of India
Tel.: (99 22) 2288 3888
Fax: (99 22) 2285 5348
Email: gm.snb@sbi.co.in
Website: www.statebankofindia.com; www.sbi.co.in

A 16 & 17, MIDC Part B Crosslane,
Andheri (East),
Mumbai 400 093
Tel.: (91 22) 6671 2001- 2006
Fax: (91 22) 6671 2011
Email: sbirights@dfssl.com
Website: www.dfssl.com
Contact Person: Mr Dnyanesh Gharote
Changes in Auditors
In 2004-05
Sr No Auditors who left during the year Auditors who joined during the year
1 M/s. Vyas & Vyas M/s.Khandelwal Jain & Co.
2 M/s. S.P. Chopra & Co. M/s. Vinay Kumar & Co.
3 M/s. R. Devendra Kumar & Associates M/s. Kanwalia & Co.
4 M/s. K.S. Aiyar & Co. M/s. M.M. Nissim & Co.
5 M/s. B.D. Bansal & Co. M/s. Patro & Co.
293
In 2005-06
1 M/s. S. Viswanathan M/s. R.G.N. Price & Co.
2 M/s. Venugopal & Chenoy M/s. Laxminiwas & Jain
3 M/s. O.P.Totla & Co. M/s. S.K.Mittal & Co.
4 M/s. Patro & Co. M/s. M. Choudhary & Co.
5 M/s. Sarma & Co. M/s. Vardhaman & Co.
6 M/s. Phillipos & Co.
In 2006-07
1 M/s. B.M. Chatrath & Co. M/s. D.P.Sen & Co.
2 M/s. G.S. Mathur & Co. M/s. Jain Kapila Associates
3 M/s. Kanwalia & Co. M/s. G.M. Kapadia & Co.
4 M/s. K.P. Rao & Co. M/s. Datta Sangla & Co.
In 2007-08 (From April 1, 2007 to December 31, 2007)

Sr Auditors who left during the year Auditors who joined during the year
No
Nil Nil
Capitalisation of Reserves or Profits

The Bank has not capitalised any of its reserves or profits for the last five years other than those
mentioned in the section “Capital Structure” on page [●] of the Letter of Offer.
Revaluation of Fixed Assets

There has been no revaluation of the Bank’s fixed assets for the last five years.
294
TERMS OF THE PRESENT ISSUE
The Bank, through this Letter of Offer, is offering on a rights basis 105,259,776 Equity Shares of Rs. 10
each at a premium of Rs. 1580 per Equity Share aggregating to an amount equivalent to Rs. 167,363.04 million.
The Equity Shares proposed to be issued on rights basis, are subject to the terms and conditions contained in this
Letter of Offer, Abridged Letter of Offer, the enclosed Composite Application Forms (“CAFs”), the provisions
of the Act, State Bank of India General Regulations, 1955, and the Banking Regulation Act, 1949, guidelines
issued by SEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued
by the Government, the RBI and/or other statutory authorities and bodies from time to time, terms and
conditions as stipulated in the allotment advice or security certificate and rules as may be applicable and
introduced from time to time.
Authority for the Issue

As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-
BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank. Further, in terms of
Section 5(2) of the Act, this rights issue, with a right to renounce, has been authorised by the Central Board
pursuant to the resolution passed at its meetings held on January 14, 2008. This Letter of Offer has been
approved by the Central Board at its meeting held on February 1, 2008.
Basis for the Issue

The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders of the
Bank, except the Government whose names appear as beneficial owners as per the list to be furnished by the
depositories in respect of the Equity Shares held in dematerialised form and on the Register of Members of the
Bank in respect of the Equity Shares held in physical form at the close of business hours on the Record Date of
February 4, 2008, fixed in consultation with the Designated Stock Exchange. The Government, though, will
subscribe to the Equity Shares through an issue of SLR Marketable Government Securities in lieu of cash.
Ranking of Equity Shares
The Equity Shares allotted in this Issue shall be pari passu with the existing Equity Shares in all
respects including dividend.
Rights Entitlement
As your name appears as beneficial owner in respect of Equity Shares held in the electronic form or
appears in the register of members as an Equity Shareholder of the Bank as on February 4, 2008 i.e. Record
Date, you are entitled to the number of Equity Shares as set out in Part A of the enclosed CAFs.
The eligible Equity Shareholders are entitled to 1 Equity Share for every 5 Equity Shares held on Record Date.
PRINCIPAL TERMS OF EQUITY SHARES

Face Value
Each Equity Share shall have the face value of Rs. 10 per Equity Share.
Issue Price
Each Equity Share shall be offered at an Issue Price of Rs. 1,590 for cash at a premium of Rs. 1,580 per
Equity Share.
Entitlement Ratio
The Equity Shares are being offered on a rights basis to the existing Equity Shareholders of the Bank in
the ratio of 1 Equity Share for every 5 Equity Shares held as on Record Date.
Fractional Entitlements
For Equity Shares being offered on a rights basis under this Issue, if the shareholding of any of the Equity
Shareholders is less than 5 Equity Shares or is not a multiple of five, the fractional entitlement of such
295
Shareholders shall be ignored for the purpose of entitlement. Shareholders whose fractional entitlements are
being ignored would be given preference in allotment of one additional Equity Share each if they apply for
additional Equity Share(s).
For example if an Equity Shareholder holds between five and ten Equity Shares, he will be entitled to 1
Equity Share on a rights basis. He will also be given a preference for allotment of one additional Equity Share if
he has applied for the same.
Those Equity Shareholders who have a holding of less than five Equity Shares and are therefore entitled
to zero Equity Shares under this Issue shall be despatched a CAF with zero entitlement. Such equity
shareholders are entitled to apply for additional Equity Shares. However, they cannot renounce the same in
favour of third parties. CAFs with zero entitlement will be non-negotiable/non-renouncable.
For example if an Equity Shareholder holds between one and four Equity Shares, he will be entitled to
Nil Equity Shares on a rights basis. He will be given a preference for allotment of one additional Equity Share if
he has applied for additional Equity Share(s).
Please see, "Basis of Allotment" on page [●].
Terms of Payment
Full amount of Rs. 1,590 per Equity Share is payable on application.
The payment towards the Equity Shares offered will be applied as under:
Rs. 10 per share Towards Share Capital
Rs. 1580 per shareTowards Securities Premium Account
The Government has issued a letter of commitment towards the amount to be subscribed. The
Government will subscribe to the Equity Shares through an issue of SLR marketable Government bonds in lieu
of cash.
Rights of the Equity Shareholder

Subject to applicable laws, the equity shareholders shall have the following rights:
• right to receive dividend, if declared;
• right to attend general meetings and exercise voting powers, unless prohibited by law;
• right to vote on a poll in person or by proxy;
• right to receive offers for rights shares and be allotted bonus shares, if announced;
• right to receive surplus on liquidation;
• right to free transferability of shares; and
• such other rights as may be available to a shareholder of the Bank as prescribed by the Act, State Bank of
India General Regulations, 1955 and the Banking Regulation Act, 1949.
Note: Only registered equity shareholders (or in case of joint holders, those whose names appear first on the
Register of Members/ list of beneficial owners in the records of the Bank) shall be entitled to these rights.
No Offer in the United States
The Rights Entitlement and the Equity Shares of the Bank have not been and will not be registered under
the Securities Act, or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred
within the United States of America or the territories or possessions thereof or to, or for the account or benefit of,
“U.S. Persons” (as defined in Regulation S under the Securities Act), except in a transaction exempt from the
registration requirements of the Securities Act. The Rights Entitlement referred to in this Letter of Offer is being
296
solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter of Offer should
not be forwarded to or transmitted in or into the United States at any time.
Neither the Bank nor any person acting on behalf of the Bank will accept subscriptions from any person,
or the agent of any person, who appears to be, or who the Bank or any person acting on behalf of the Bank has
reason to believe is, a resident of the United States and to whom an offer, if made, would result in requiring
registration of this Letter of Offer with the United States Securities and Exchange Commission.
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
below.

Decree No. 58 of 24 February, 1998, as amended (the Financial Services Act) and the relevant
297
implementing CONSOB regulations, as amended from time to time, and in Article 2 of
Directive No. 2003/71/EC of 4 November, 2003; or
(ii) in other circumstances which are exempted from the rules on public offerings pursuant to
Article 100 of the Financial Services Act and Article 33, first paragraph, of CONSOB
Regulation No. 11971 of 14 May, 1999, as amended (Regulation No. 11971).
(a) made by an investment firm, bank or financial intermediary permitted to conduct such
activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB
Regulation No. 16190 of 29 October, 2007 (as amended from time to time) and Legislative
Decree No. 385 of 1 September, 1993, as amended (the Banking Act); and
(b) in compliance with any other applicable laws and regulations or requirement imposed by
CONSOB or other Italian authority.
GENERAL TERMS OF THE PRESENT ISSUE

Market lot
The Equity Shares of the Bank are tradable only in dematerialised form. The market lot for Equity Shares
in dematerialised mode is 1. In case of holding of Equity Shares in physical form, the Bank would issue to the
allottees one certificate for the Equity Shares allotted to each folio (“Consolidated Certificate”).
Joint Holders
Where two or more persons are registered as the holders of any Equity Shares, they shall be deemed to
hold the same as joint tenants with the benefit of survivorship.
Nomination
In terms of the Act, nomination facility is not available to Shareholders.
In case the allotment of Equity Shares is in dematerialised form, there is no need to make a
separate nomination for the Equity Shares to be allotted in this Issue. Nominations registered with
respective Depositary Participant (“DP”) of the applicant would prevail. Any applicant desirous of
changing the existing nomination is requested to inform its respective DP.
Notices
All notices to the Equity Shareholder(s) required to be given by the Bank shall be published in one
English national daily with wide circulation, one Hindi national daily with wide circulation and one regional
language daily newspaper with wide circulation and/or will be sent by ordinary post / registered post / speed
post to the registered holders of the Equity Share from time to time.
Listing and trading of Equity Shares
The Bank’s existing Equity Shares are currently traded on the Stock Exchanges under the ISIN SBIN. The
fully paid up Equity Shares proposed to be issued on a rights basis shall be listed and admitted for trading on the
BSE and NSE under the existing ISIN for fully paid Equity Shares of the Bank. The fully paid up Equity Shares
allotted pursuant to this Issue will be listed as soon as practicable but in no case later than 10 days from the date
of allotment. The Bank has received in-principle approval from the BSE through its letter no. DCS/PREF/JA/IP-
RT/3109/07-08 dated January 31, 2008 and from NSE through its letter no. NSE/LIST/65582-E dated January
30, 2008. The GDRs with respect to the Equity Shares of the Bank issued by Bank of New York as depositary
(“Depository”) are currently listed on the London Stock Exchange pursuant to the Deposit Agreement dated
October 10, 1996 (“Deposit Agreement”).
The Bank has agreed in the Deposit Agreement that it will, unless prohibited by applicable law, give its
consent to, and, if requested, use all reasonable endeavours to facilitate any such distribution, sale or
subscription by the Depositary or the Holders. However, if the Bank notifies the Depositary that registration is
required in any jurisdiction under an applicable law of the rights or securities to be distributed for the Depositary
298
to be able to offer such rights or distribute such securities to the Holders and to sell the securities represented by
such rights, the Depositary will not offer such rights or distribute such securities to the Holders unless and until
the Bank notifies the Depositary that the necessary registration has been effected. Neither the Bank nor the
depositary shall be liable to register such rights or securities and they shall not be liable for any losses, damages
or expenses resulting from any failure to do so.
The Bank is making this issue of Equity Shares on a rights basis only to the shareholders of the Bank who
have an Indian address.
Minimum Subscription
If the Bank does not receive a minimum subscription of 90% of the Issue, the Bank shall forthwith refund
the entire subscription amount received within 42 days from the date of closure of the Issue. If there is a delay
beyond eight days after the date from which the Bank becomes liable to pay the amount (i.e. 42 days after
closure of the Issue), the Bank shall pay interest calculated at the rate of 15%.
Subscription by the Government
In terms of the Government’s Letter (No. F/No. 11/16/ 2005- BOA) dated January 2, 2008, the Bank
has been granted approval under Section 5(3) of the Act approving the increase in the Bank’s issued capital
from Rs. 526.30 crores to Rs. 650 crores. Further, in terms of the Government’s Letter (Letter No. F/ 11/ 7/
2007- BOA) dated December 3, 2007, the Government has intimated to the Bank that the cabinet has granted its
approval for investing approximately Rs. 10,000 crores in the Issue by issuing SLR marketable government
securities (the “SLR Securities”) towards the Government’s Rights Entitlement. The Government has advised
the Bank to complete the entire process by March 31, 2008, to avail the benefit of the Issue proceeds for the
purpose of ensuring capital adequacy for the Financial Year 2008. The process of subscription by the
Government will be as follows:
1. The Government will subscribe to Equity Shares to the extent mentioned in its letter dated December 3,
2007, (mentioned above). The consideration for the same will be the SLR Securities. Accordingly, the
Government has agreed to issue a letter of commitment on or before the date of closure of the Issue. In
line with the Government’s decision, the Bank proposes to treat the aforesaid letter of commitment issued
by the Government as part of the minimum subscription portion of the Issue in terms of SEBI (DIP)
Guidelines.
2. Subsequent to the issue of the letter of commitment by the Government and after the closure of the Issue,
the Government will issue the requisite number of SLR Securities worth the aggregate price of the Equity
Shares constituting its entitlement in the Issue. Payment by the Government will be made on the date of
allotment, against the simultaneous allotment of Equity Shares by the Bank.
3. The Government will create a separate securities redemption fund to redeem the SLR Securities.
Procedure for Application

The CAF for Equity Shares would be printed in black ink for all Equity Shareholders. In case the original
CAF is not received by the applicant or is misplaced by the applicant, the applicant may request the Registrars
to the Issue, for issue of a duplicate CAF, by furnishing the registered folio number, DP ID Number, Client ID
Number and their full name and address.
Acceptance of the Issue

You may accept the Issue and apply for the Equity Shares, either in full or in part, by filling Part A of the
enclosed CAFs and submitting the same along with the application money payable to State Bank of India or any
of the collection branches as mentioned on the reverse of the CAF before the close of the business hours on or
before the Issue Closing Date or such extended time as may be specified by the Central Board of Directors of
the Bank in this regard. Applicants at centres not covered by the branches of collecting banks can send their
CAF together with the cheque drawn at par on a local bank at Mumbai/demand draft payable at Mumbai to the
299
Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the
Issue are liable to be rejected.
Option available to the Equity Shareholders

The CAF clearly indicates the number of Equity Shares that the Equity Shareholder is entitled to.
If the Equity Shareholder applies for an investment in Equity Shares, then he can:
• apply for his entitlement of Equity Shares in full;
• apply for his entitlement in full and apply for additional Equity Shares;
• apply for his entitlement of Equity Shares in part;
• apply for his entitlement of Equity Shares in part and renounce the other part of the Equity Shares.
Renunciation
This Issue includes a right exercisable by you to renounce the Equity Shares offered to you either in full or
in part in favour of any other person or persons. Your attention is drawn to the fact that the Bank shall not allot
and/or register any Equity Shares in favour of more than three persons (including joint holders), partnership
firm(s) or their nominee(s), minors, HUF, any society (unless the same is registered under the Societies
Registration Act, 1860 or any other applicable law relating to societies and is authorised under its constitution or
bye-laws to hold Equity Shares, as the case may be).
Any renunciation from Resident Indian Shareholder(s) to eligible Non-resident Indian(s) or from eligible
Non-resident Indian Shareholder(s) to Resident Indian(s) or from eligible Non-resident Indian shareholder(s) to
other eligible Non-resident Indian(s) is subject to the renouncer(s)/renouncee(s) obtaining the approval of the
FIPB and/or necessary permission of the RBI under the FEMA and such permissions should be attached to the
CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected.
By virtue of Circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate Bodies
(“OCBs”) have been derecognised as an eligible class of investors and the RBI has subsequently issued the
Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs))
Regulations, 2003. Accordingly, the existing Equity Shareholders of the Bank who do not wish to subscribe to
the Equity Shares being offered but wish to renounce the same in favour of renouncees shall not renounce the
same (whether for consideration or otherwise) in favour of OCB(s).
Part ‘A’ of the CAF must not be used by any person(s) other than those in whose favour this offer has
been made. If used, this will render the application invalid. Submission of the enclosed CAF to the Banker to the
Issue at its collecting branches specified on the reverse of the CAF with the form of renunciation (Part ‘B’ of the
CAF) duly filled in shall be conclusive evidence for the Bank of the person(s) applying for Equity Shares in Part
‘C’ of the CAF to receive allotment of such Equity Shares. The renouncees applying for all the Equity Shares
renounced in their favour may also apply for additional Equity Shares. Part ‘A’ of the CAF must not be used by
the renouncee(s) as this will render the application invalid. Renouncee(s) will have no further right to renounce
any Equity Shares in favour of any other person.
Procedure for renunciation

To renounce all the Equity Shares offered to a shareholder in favour of one renouncee
If you wish to renounce the offer indicated in Part ‘A’, in whole, please complete Part ‘B’ of the CAF. In
case of joint holding, all joint holders must sign Part ‘B’ of the CAF. The person in whose favour renunciation
has been made should complete and sign Part ‘C’ of the CAF. In case of joint renouncees, all joint renouncees
must sign this part of the CAF.
To renounce in part/or renounce the whole to more than one person(s)

If you wish to either accept this offer in part and renounce the balance or renounce the entire offer under
this Issue in favour of two or more renouncees, the CAF must be first split into requisite number of forms. For
this purpose you will have to apply to the Registrar to the Issue.
Please indicate your requirement of split forms in the space provided for this purpose in Part ‘D’ of the
CAF and return the entire CAF to the Registrar to the Issue so as to reach them at the latest by the close of
300
business hours on the last date of receiving requests for split forms. On receipt of the required number of split
forms from the Registrar, the procedure, as described above, shall have to be followed.
In case the signature of the Equity Shareholder(s), who has renounced the Equity Shares, does not agree
with the specimen registered with the Bank, the application is liable to be rejected.
Renouncee(s)
The person(s) in whose favour the Equity Shares are renounced should fill in and sign Part ‘C’ of the
Application Form and submit the entire Application Form to the Bankers to the Issue or to the collection centres
to the Issue on or before the Issue Closing Date along with the application money in full.
Change and/or introduction of additional holders

If you wish to apply for Equity Shares jointly with any other person(s), not more than three, who is/are not
already a joint holder with you, it shall amount to renunciation and the procedure as stated above for
renunciation shall have to be followed. Even a change in the sequence of the name of joint holders shall amount
to renunciation and the procedure, as described above, shall have to be followed.
However, this right of renunciation is subject to the express condition that the Bank shall be entitled in its
absolute discretion to reject the request for allotment from the renouncee(s) without assigning any reason thereof.
Instructions for Options

Please note that:
• Part ‘A’ of the CAF must not be used by any person(s) other than the Equity Shareholder to whom
this Letter of Offer has been addressed. If used, this will render the application invalid.
• Requests for split forms should be made for a minimum of one Equity Share and will only be
accepted from Equity Shareholders whose entitlement is more than ten shares.
• Requests by the applicant for the split application form should reach the Registrar to the Issue on or
before March 3, 2008.
• Only the Equity Shareholder to whom this Letter of Offer has been addressed shall be entitled to
renounce and to apply for split application forms. Forms once split cannot be split further.
• Split form(s) will be sent to the applicant(s) by post at the applicant’s risk.
Additional Equity Shares

You are eligible to apply for additional Equity Shares over and above the number of Equity Shares you
are entitled to, provided that you have applied for all the Equity Shares offered, as the case may be, without
renouncing them in whole or in part in favour of any other person(s). Applications for additional Equity Shares
shall be considered and allotment shall be in the manner prescribed under the section entitled ‘Basis of
Allotment’ on page [●] of this Letter of Offer.
Where the number of additional Equity Shares applied for exceeds the number available for allotment, the
allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange.
Allotment of additional Equity Shares applied to under the Issue will be subject to applicable foreign
ownership restrictions. Please see paragraph entitled "Foreign Ownership Restrictions" in "Regulations and
Policies" on page [●] of this Letter of Offer.
The summary of options available to the Equity Shareholder is presented below. You may exercise any of
the following options with regard to the Equity Shares offered, using the enclosed CAFs:
Option Available Action Required

1. Accept all or part of your entitlement without renouncing Fill in and sign Part A. (All joint holders must
the balance. sign)
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Option Available Action Required
2. Accept your entitlement in full and apply for Fill in and sign Part A including Block III
additional Equity Shares. relating to the acceptance of entitlement and
Block IV relating to additional Equity Shares.
(All joint holders must sign)
3. Renounce your entitlement in full to one person Fill in and sign Part B (all joint holders must
(joint renouncees are considered as one). sign) indicating the number of Equity Shares
renounced and hand it over to the renouncee. The
renouncees must fill in and sign Part C. (All joint
renouncees must sign)
4. Accept a part of your entitlement and renounce Fill in and sign Part D (all joint holders must
the balance to one or more renouncee(s). sign) requesting for Split Application Forms.
Send the CAF to the Registrar to the Issue so as
OR to reach them on or before the last date for
receiving requests for Split Forms. Splitting will
Renounce your entitlement to all the Equity Shares be permitted only once.
offered to you to more than one renounce.
On receipt of the Split Form take action as
indicated below.
For the Equity Shares you wish to accept, if any,

fill in and sign Part A.
For the Equity Shares you wish to renounce, fill

in and sign Part B indicating the number of
Equity Shares renounced and hand it over to the
renouncees. Each of the renouncees should fill in
and sign Part C for the Equity Shares accepted by
them.
5. Introduce a joint holder or change the sequence of This will be treated as a renunciation. Fill in and
joint holders. sign Part B and the renouncees must fill in and
sign Part C.
Availability of duplicate CAF

In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will
issue a duplicate CAF on the request of the applicant who should furnish the registered folio number/DP and
Client ID number and his/ her full name and address to the Registrar to the Issue. Please note that the request for
a duplicate CAF should reach the Registrar to the Issue within 15 days from the Issue Opening Date. Please note
that those who are making the application in the duplicate form should not utilise the original CAF for any
purpose including renunciation, even if it is received/found subsequently. If the applicant violates any of these
requirements, he/she shall face the risk of rejection of both the applications.
Application on Plain Paper

An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the
duplicate CAF may make an application to subscribe to the Issue on plain paper, along with Demand Draft, net
of bank and postal charges payable at Mumbai which should be drawn ‘SBI Rights Issue’ or ‘SBI Rights Issue-
NR’ and send the same by registered post directly to the Registrar to the Issue.
The envelope should be superscribed “SBI—Rights Issue” and should be postmarked in India. The
application on plain paper, duly signed by the applicants including joint holders, in the same order as per
specimen recorded with the Bank, must reach the office of the Registrar to the Issue before the Issue Closing
Date and should contain the following particulars:
• Name of Issuer, being State Bank of India.
• Name and address of the Equity Shareholder including joint holders.
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• Registered Folio Number/DP and Client ID no.
• Number of Equity Shares held as on Record Date.

• Number of Rights Equity Shares entitled (i.e. number of Equity Shares held on Record date divided
by five).
• Number of Rights Equity Shares applied for.
• Number of additional Equity Shares applied for, if any.
• Total number of Equity Shares applied for.
• Total amount paid at the rate of Rs. 1590 per Equity Share.
• Particulars of cheque/draft.
• Savings/Current Account Number and name and address of the bank where the Equity Shareholder
will be depositing the refund order.
• PAN of the applicant and for each applicant in case of joint names, irrespective of the total value of
the Equity Shares applied for pursuant to the Issue. However, in terms of SEBI letter no. CFD/
DIL/SM/ 113422 dated January 10, 2008, shareholders of the Bank holding shares up to /
including 100 Equity Shares are exempted from quoting the PAN.
• Representation that the Equity Shareholder is not in the United States at the time of making the
application.
• Signature of Equity Shareholders to appear in the same sequence and order as they appear in the
records of the Bank.
Please note that those who are making the application otherwise than on original CAF shall not be entitled
to renounce their rights and should not utilise the original CAF for any purpose including renunciation even if it
is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of
rejection of both the applications. The Bank shall refund such application amount to the applicant without any
interest thereon.
Last date of Application

The last date for submission of the duly filled in CAF is March, 18 2008. The Issue will be kept open for a
minimum of 30 (thirty) days and the Central Board or any committee thereof will have the right to extend the
said date for such period as it may determine from time to time but not exceeding 60 (sixty) days from the Issue
Opening Date.
If the CAF/plain paper application together with the amount payable is not received by the Banker to the
Issue/Registrar to the Issue on or before the close of banking hours on the aforesaid last date or such date as may
be extended by the Central Board/Committee of Directors, the offer contained in this Letter of Offer shall be
deemed to have been declined and the Central Board/Committee of Directors shall be at liberty to dispose of the
Equity Shares hereby offered, as provided under the section “Basis of Allotment”.
INVESTORS PLEASE NOTE THAT THE EQUITY SHARES OF THE BANK CAN BE TRADED
ON THE STOCK EXCHANGES ONLY IN DEMATERIALISED FORM.
Basis of Allotment
Subject to the provisions contained in this Letter of Offer, the provisions of the Act, State Bank of India
General Regulations, 1955, and the approval of the Designated Stock Exchange, the Central Board will proceed
to allot the Equity Shares in the following order of priority:
(a) Full allotment to those Equity Shareholders who have applied for their Rights Entitlement either in full
or in part and also to the renouncee(s) who has/have applied for Equity Shares renounced in their favour, in full
or in part. Allotment to renouncee(s) shall be subject to applicable regulations including regulations relating to
foreign shareholding limit. The existing permissible foreign investment limit in the Bank as prescribed by the
RBI is 20%. Presently, the total foreign holding is 19.8%.
(b) For Equity Shares being offered on a rights basis under this Issue, if the shareholding of any of the
Equity Shareholders is less than five Equity Shares or is not a multiple of five, the fractional entitlement of such
Shareholders shall be ignored. Shareholders whose fractional entitlements are being ignored would be given
303
preferential allotment of one additional Equity share for each Shareholder if they apply for additional share(s).
Allotment under this head shall be considered if there are any unsubscribed Equity Shares after allotment under
(a) above. If the number of Equity Shares required for allotment under this head is more than the number of
shares available after allotment under (a) above, the allotment would be made on a fair and equitable basis in
consultation with the Designated Stock Exchange.
(c) Allotment to the Equity Shareholders who, having applied for all the Equity Shares offered to them as
part of the Issue, have also applied for additional Equity Shares. The allotment of such additional Equity Shares
will be made as far as possible on an equitable basis having due regard to the number of Equity Shares held by
them on the Record Date, provided there is an under-subscribed portion after making full allotment in (a) and (b)
above. The allotment of such Equity Shares will be at the sole discretion of the Central Board/Committee of
Directors in consultation with the Designated Stock Exchange, as part of the Issue and not a preferential
allotment and shall be subject to conditions specified under ‘Additional Subscription by Non Residents’ on page
[●].
(d) Allotment to renouncees who, having applied for all the Equity Shares renounced in their favour, have
applied for additional Equity Shares provided there is surplus available after making full allotment under (a), (b)
and (c) above. The allotment of such Equity Shares will be at the sole discretion of the Central
Board/Committee of Directors in consultation with the Designated Stock Exchange, as a part of the Issue and
not a preferential allotment, and shall be subject to conditions specified under ‘Additional Subscription by Non
Residents’ on page [●].
After taking into account the allotments made under (a), (b), (c) and (d) above, if there is still any under
subscription, the un-subscribed portion shall be disposed of by the Central Board/Committee of Directors upon
such terms and conditions and to such person/persons and in such manner as the Central Board/Committee of
Directors may in its absolute discretion deem fit, this Issue being a rights issue and not preferential allotment
under the SEBI (DIP) Guidelines.
The basis of allotment shall be finalised by the Central Board in consultation with NSE, which is the
Designated Stock Exchange, within a period of 42 days from the date of closure of the Issue. In case of delay in
allotment the Bank shall pay interest on the same at a rate of 15% p.a.
No over subscription shall be retained by the Bank.
Subscription by eligible Non Residents

Existing eligible non-resident shareholders or eligible non-resident applicants may apply for Rights
Entitlement/issue of additional Equity Shares over and above the Rights Entitlements and the Bank may allot the
same subject to the condition that the overall issue of shares to eligible non-residents in the total paid up capital
of the Bank does not exceed the foreign investment ceiling prescribed by the RBI. The existing permissible
foreign investment limit in the Bank as prescribed by the RBI is 20%. The Central Board of Directors may, at its
absolute discretion, agree to such terms and conditions as may be stipulated by the RBI while approving the
allotment of Equity Shares, subject to the same conditions including restrictions in regard to the repatriability as
are applicable to the original shares against which Rights Entitlement shares are issued.
Any renunciation from Resident Indian Shareholder(s) to eligible Non-resident Indian(s) or from
eligible Non-resident Indian Shareholder(s) to Resident Indian(s) or from eligible Non-resident Indian
shareholder(s) to other eligible Non-resident Indian(s) is subject to the renouncer(s)/renouncee(s) obtaining the
approval of the FIPB and/or necessary permission of the RBI under the FEMA and such permissions should be
attached to the CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected.
Additionally, the Bank will have the discretion in accepting/rejecting the applications for renunciation of shares,
so as to ensure that the issue of shares to eligible non-residents in the total paid-up capital of the Bank does not
exceed the foreign investment ceiling prescribed by the RBI, which stands at 20% of its paid-up capital
(inclusive of GDR holders and FIIs).
By virtue of the Circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate
Bodies (“OCBs”) have been derecognised as an eligible class of investors and the RBI has subsequently issued
the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs))
Regulations, 2003. Accordingly, the existing Equity Shareholders of the Bank who do not wish to subscribe to
the Equity Shares being offered but wish to renounce the same in favour of renouncees shall not renounce the
same (whether for consideration or otherwise) in favour of OCB(s).
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Underwriting
The present Issue is not underwritten.
Allotment/Refund
The Bank will issue and dispatch share certificates/demat credit and/or letters of regret along with refund
order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of six (6)
weeks from the Issue Closing Date. If such money is not repaid within eight days from the day the Bank
becomes liable to pay it, the Bank shall pay that money with interest at the rate of 15%.
Applicants residing at those centres where clearing houses are managed by the RBI, will get refunds
through ECS only (Electronic Clearing Service) except where applicants are otherwise disclosed as
applicable/eligible to get refunds through direct credit and RTGS.
In case of those applicants who have opted to receive Equity Shares subscribed in dematerialised form
using electronic credit under the depository system, an advice regarding their credit of the Equity Shares shall be
given separately. Applicants to whom refunds are made through electronic transfer of funds will be sent a letter
through ordinary post intimating them about the mode of credit of refund within a period of six (6) weeks from
the Issue Closing Date.
In case of those Applicants who have opted to receive Equity Shares subscribed in physical form, the
Bank will issue the corresponding share certificates.
Any refund order exceeding Rs. 1,500 would be sent by registered post/speed post to the sole/first
applicant’s registered address. Refund orders up to the value of Rs. 1,500 would be sent under certificate of
posting. Such refund orders would be payable at par at all places where the applications were originally
accepted. The same would be marked ‘Account Payee only’ and would be drawn in favour of the sole/first
applicant. Adequate funds would be made available to the Bankers to the Issue for this purpose.
Payment of Refund
Applicants should note that on the basis of the name of the applicants, Depository Participant’s name,
Depository Participant- Identification number (DP ID) and Beneficiary Account Number provided by them in
the Composite Application Form, the Registrar to the Issue will obtain from the Depository the bank account
details including the nine digit Magnetic Ink Character Recognition (MICR) code as appearing on a cheque leaf.
Hence, applicants are advised to immediately update their bank account details as appearing on the records of
the depository participant. Please note that failure to do so could result in delays in credit of refunds to
shareholders at the shareholders sole risk and neither the Lead Manager nor the Bank nor the Registrar shall
have any responsibility and undertake any liability for the same.
In case of applicants applying for physical shares, refunds will be made on the basis of the bank
account details provided by them in the Composite Application Form.
Mode of making refunds

The payment of a refund, if any, would be done through various modes in the following order of
preference:
1. ECS-Payment of a refund would be done through ECS for applicants having an account at any of the
following fifteen centres: Ahmedabad, Bangalore, Bhubaneshwar, Chandigarh, Chennai, Guwahati,
Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram. This
mode of payment of refunds would be subject to availability of complete bank account details including
the MICR code as appearing on a cheque leaf, from the Depositories. The payment of refunds is
mandatory for applicants having a bank account at any of the abovementioned fifteen centres, except
where the applicant, being eligible, opts to receive a refund through direct credit or RTGS.
2. NEFT (National Electronic Fund Transfer) — Payment of a refund shall be undertaken through NEFT
wherever the applicants’ bank has been assigned the Indian Financial System Code (IFSC), which can be
linked to a Magnetic Ink Character Recognition (MICR), if any, available to that particular bank branch.
IFSC Code will be obtained from the website of RBI as on a date immediately prior to the date of
payment of a refund, duly mapped with MICR numbers. Wherever the applicants have registered their
nine digit MICR number and their bank account number while opening and operating the demat account,
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the same will be duly mapped with the IFSC Code of that particular bank branch and the payment of a
refund will be made to the applicants through this method. The Bank in consultation with Lead Managers
may decide to use NEFT as a mode of making refunds.
3. Direct Credit-Applicants having bank accounts with the select banks shall be eligible to receive refunds
through direct credit. Charges, if any, levied by the relevant bank(s) for the same would be borne by the
Bank.
4. RTGS — Applicants having a bank account at any of the abovementioned fifteen centres and whose
refund amount exceeds Rs. 1 million, have the option to receive the refund through RTGS. Such eligible
applicants who indicate their preference to receive the refund through RTGS are required to provide the
IFSC code in the CAF. In the event the same is not provided, the refund shall be made through ECS.
Charges, if any, levied by the Refund Bank(s) for the same would be borne by the Bank. Charges, if any,
levied by the applicant’s bank receiving the credit would be borne by the applicant.
5. For all other applicants, including those who have not updated their bank particulars with the MICR code,
the refund orders will be despatched under certificate of posting for value up to Rs. 1,500 and through
Speed Post/ Registered Post for refund orders of Rs. 1,500 and above. Such refunds will be made by
cheques, pay orders or demand drafts drawn in favour of the sole/first applicant and payable at par.
Printing of Bank Particulars on Refund Orders
As a matter of precaution against possible fraudulent encashment of refund orders due to loss or
misplacement, the particulars of the applicant’s bank account are mandatorily required to be given for printing
on the refund orders. Bank account particulars will be printed on the refund orders/refund warrants which can
then be deposited only in the account specified. The Bank will in no way be responsible if any loss occurs
through these instruments falling into improper hands either through forgery or fraud.
Allotment advice/Share Certificates/Demat Credit

Allotment advice/share certificates/demat credit will be dispatched to the registered address of the first
named applicant or respective beneficiary accounts will be credited within (six) 6 weeks, from the date of
closure of the subscription list. In case the Bank issues allotment advice, the relative share certificates will be
dispatched within one month from the date of allotment. Allottees are requested to preserve such allotment
advice (if any) to be exchanged later for share certificates.
Option to receive Equity Shares in Dematerialised Form

Applicants to the Equity Shares of the Bank issued through this Issue shall be allotted the securities in
dematerialised (electronic) form at the option of the applicant. The Bank signed a tripartite agreement with
National Securities Depository Limited (NSDL) and the Registrar which enables the Investors to hold and trade
in securities in a dematerialised form, instead of holding the securities in the form of physical certificates. The
Bank has also signed a tripartite agreement with Central Depository Services (India) Limited (CDSL) and the
Registrar which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding
the securities in the form of physical certificates.
In this Issue, the allottees who have opted for Equity Shares in dematerialised form will receive their
Equity Shares in the form of an electronic credit to their beneficiary account with a depository participant.
Investor will have to give the relevant particulars for this purpose in the appropriate place in the CAF.
Applications, which do not accurately contain this information, will be given the securities in physical form. No
separate applications for securities in physical and/or dematerialised form should be made. If such applications
are made, the application for physical securities will be treated as multiple applications and is liable to be
rejected.
The Equity Shares of the Bank will be listed on the BSE, NSE and Ahmedabad, Calcutta, Delhi and
Madras Stock Exchanges.
The procedure for availing the facility for allotment of Equity Shares in this Issue in electronic form is as
follows:
• Open a beneficiary account with any depository participant (care should be taken that the
beneficiary account should carry the name of the holder in the same manner as is exhibited in the
records of the Bank. In the case of joint holding, the beneficiary account should be opened carrying
the names of the holders in the same order as with the Bank). In case of Investors having various
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folios in the Bank with different joint holders, the Investors will have to open separate accounts for
such holdings. Those equity shareholders who have already opened such Beneficiary
Account(s) need not adhere to this step.
• For equity shareholders already holding Equity Shares of the Bank in dematerialised form as on the
Record Date, the beneficial account number shall be printed on the CAF. For those who open
accounts later or those who change their accounts and wish to receive their Equity Shares pursuant
to this Offer by way of credit to such account, the necessary details of their beneficiary account
should be filled in the space provided in the CAF. It may be noted that the allotment of securities
arising out of this Issue may be made in dematerialised form even if the original Equity Shares of
the Bank are not dematerialised. Nonetheless, it should be ensured that the Depository Account is in
the name(s) of the Equity Shareholders and the names are in the same order as in the records of the
Bank.
Responsibility for correctness of information (including applicant’s age and other details) filled in the
CAF vis-à-vis such information with the applicant’s depository participant, would rest with the applicant.
Applicants should ensure that the names of the applicants and the order in which they appear in CAF should be
the same as registered with the applicant’s depository participant.
If incomplete/incorrect beneficiary account details are given in the CAF the applicant will get Equity
Shares in physical form.
The Equity Shares pursuant to this Offer allotted to Investors opting for dematerialised form, would be
directly credited to the beneficiary account as given in the CAF after verification. Allotment advice, refund
orders (if any) would be sent directly to the applicant by the Registrar to the Issue.
Renouncees will also have to provide the necessary details about their beneficiary account for allotment of
securities in this Issue. In case these details are incomplete or incorrect, the application is liable to be rejected.
Utilisation of Proceeds
Subscription received against this Issue will be kept in separate bank account(s) and the Bank would not
have access to such funds unless it has received a minimum subscription of 90% of the Issue and the necessary
approvals of the Stock Exchanges to use the amount of subscription. Please see paragraph entitled "Minimum
Subscription by Government" on page [●] of this Letter of Offer.
General instructions for applicants

a) Please read the instructions printed on the enclosed CAF carefully.
b) Application should be made on the printed CAF provided by the Bank except as mentioned under the head
Application on plain paper and should be completed in all respects. Any CAFs found incomplete with
regard to any of the particulars required to be given therein, and/or which are not completed in conformity
with the terms of this Letter of Offer are liable to be rejected and the money paid, if any, in respect thereof
will be refunded without interest and after deduction of bank commission and other charges, if any. The
CAF must be completed in English and the names of all the applicants, details of occupation, address,
father’s/husband’s name must be filled in block letters.
c) The CAF together with cheque/demand draft should be sent to the Collecting Branches or to the Registrar
to the Issue and not to the Bank or Lead Manager to the Issue. Applicants residing at places other than
cities where the branches of the Bankers to the Issue have been authorised by the Bank for collecting
applications will have to make payment by Demand Draft payable at Mumbai of an amount net of bank
and postal charges and send their application forms to the Registrar to the Issue by REGISTERED POST.
If any portion of the CAF is/are detached or separated, such application is liable to be rejected.
d) All applications regardless of value, for each of the applicants, should mention his/her PAN allotted under
the Income-Tax Act, 1961. In this regard, please note that SEBI, vide its Letter No. CFD/ DIL/SM/
113422 dated January 10, 2008, has granted exemption to the Bank in respect of shareholders
holding up to/ including 100 shares.
e) Applicants are advised that it is mandatory to provide information as to their savings/current account
number and the name of the Bank with whom such account is held in the CAF to enable the Registrar to
307
the Issue to print the said details in the refund orders, if any, after the names of the payees. Applications
not containing such details are liable to be rejected.
f) The payment against the application should not be effected in cash if the amount to be paid is Rs. 20,000
or more. In case payment is effected in contravention of this, the application may be deemed invalid and
the application money will be refunded and no interest will be paid thereon. Payment against the
application if made in cash, subject to conditions as mentioned above, should be made only to the Bankers
to the Issue.
g) Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule
to the Constitution of India. Signatures other than in English or Hindi, and thumb impressions must be
attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The Equity
Shareholders must sign the CAF as per the specimen signature recorded with the Bank/or Depositories.
h) In case of an application under power of attorney or by a body corporate or by a society, a certified true
copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the
relevant investment under this Offer and to sign the application and a copy of the Memorandum and
Articles of Association and/or bye laws of such body corporate or society must be lodged with the
Registrar to the Issue giving reference of the serial number of the CAF. In case the above referred
documents are already registered with the Bank, the same need not be furnished again. In case these
papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing Date,
then the application is liable to be rejected. In no case should these papers be attached to the application
submitted to the Bankers to the Issue.
i) In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as
per the specimen signature(s) recorded with the Bank. Further, in case of joint applicants who are
renouncees, the number of applicants should not exceed three. In case of joint applicants, reference, if any,
will be made in the first applicant’s name and all communication will be addressed to the first applicant.
j) All communication in connection with application for the Equity Shares, including any change in address
of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment
in this Issue quoting the name of the first/sole applicant Equity Shareholder, folio numbers and CAF
number. Please note that any intimation for change of address of Equity Shareholders, after the date of
allotment, should be sent to the Registrar and Transfer Agents of the Bank, in the case of Equity Shares
held in physical form and to the respective depository participant, in case of Equity Shares held in
dematerialised form.
k) Split forms cannot be re-split.
l) Only the person or persons to whom Equity Shares have been offered, and not renouncee(s), shall be
entitled to obtain split forms.
m) Applicants must write their CAF number at the back of the cheque/demand draft.
n) Only one mode of payment per application should be used. The payment must be either in cash or by
cheque/demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is
a member or a sub member of the Bankers Clearing House located at the centre indicated on the reverse of
the CAF where the application is to be submitted.
o) A separate cheque/draft must accompany each CAF. Outstation cheques/demand drafts or post-dated
cheques and postal/money orders will not be accepted and applications accompanied by such
cheques/demand drafts/money orders or postal orders will be rejected. The Registrar will not accept
payment against application if made in cash. (For payment against application in cash please refer to point
(f) above.)
p) No receipt will be issued for application money received. The Collecting Branches/Registrar will
acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the
CAF.
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Grounds for Technical Rejections
Applicants are advised to note that applications are liable to be rejected on technical grounds, including
the following:
• Amount paid does not tally with the amount payable for.
• Bank account details (for refund) are not given.
• Age of First Applicant not given.
• PAN not given, except, in respect of shareholders holding up to/ including 100 shares in terms of
SEBI’s Letter No. CFD/ DIL/SM/ 113422 dated January 10, 2008 wherein it has specifically
granted exemption to the Bank in this regard.
• In case of Application under power of attorney or by limited companies, corporate, trust, etc.,
relevant documents are not submitted.
• If the signature of the existing shareholder on the Application Form does not match with the records
available with the Bank and/or the Depositories and in case of renouncees if the signature does not
match with the records available with their depositories.
• If the Applicant desires to have shares in electronic form, but the Application Form does not have
the Applicant’s depository account details.
• Application Forms are not submitted by the Applicants within the time prescribed as per the
Application Form and the Letter of Offer.
• Applications not duly signed by the sole/joint Applicants.
• Applications by OCBs unless accompanied by specific approval from RBI permitting the OCBs to
participate in the Issue.
• Applications accompanied by Stockinvest.
• In case no corresponding record is available with the Depositories that matches three parameters,
namely, names of the Applicants (including the order of names of joint holders), the Depositary
Participant’s identity (DP ID) and the beneficiary’s identity.
• Applications by persons in the United States.
• Applications which have evidence of being dispatched from the US.
• Applications by ineligible Non-residents (including on account of restriction or prohibition under
applicable local laws) and where a registered address in India has not been provided.
• Multiple Applications.
• Duplicate Applications.
Mode of payment for Resident Equity Shareholders/Applicants

• All cheques/drafts accompanying the CAFs should be crossed ‘A/c Payee only’ and drawn in favour
of ‘SBI-Rights Issue’.
• Applicants residing at places other than places where the bank collection centres have been opened
by the Bank for collecting applications, are requested to send their applications together with
Demand Draft for the full application amount, net of bank and postal charges crossed ‘A/c Payee
only’ and drawn in favour of ‘SBI-Rights Issue’; payable at Mumbai directly to the Registrar to the
Issue by registered post so as to reach them on or before the Issue Closing Date. The Bank or the
Registrar to the Issue will not be responsible for postal delays or loss of applications in transit, if
any.
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Mode of payment for Eligible Non-Resident Equity Shareholders/ Applicants
As regards the application by eligible non-resident equity shareholders, the following conditions shall
apply:
Payment by eligible non-residents must be made by demand draft payable at Mumbai / cheque payable
drawn on a bank account maintained at Mumbai or funds remitted from abroad in any of the following ways:
Application with repatriation benefits

• By Indian Rupee drafts payable at Mumbai; or
• By cheque / draft on a Non-Resident External Account (NRE) or FCNR Account maintained in
Mumbai; or
• By Rupee draft purchased by debit to NRE/ FCNR Account maintained elsewhere in India and
payable in Mumbai; FIIs registered with SEBI must remit funds from special non-resident rupee
deposit account.
• Eligible non-resident investors applying with repatriation benefits should draw cheques/drafts in
favour of ‘SBI-Rights Issue - NR’ payable at Mumbai, which must be crossed ‘account payee only’
for the full application amount.
Application without repatriation benefits

As far as eligible non-residents holding shares on a non-repatriation basis is concerned, in addition to the
modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary)
(“NRO”) Account maintained in Mumbai or Rupee Draft purchased out of a NRO Account maintained
elsewhere in India but payable at Mumbai. In such cases, the allotment of Equity Shares will be on a non-
repatriation basis.
All cheques/drafts submitted by eligible non-residents applying on a non-repatriation basis should be

drawn in favour of ‘SBI-Rights Issue-NR’ payable at Mumbai and must be crossed ‘account payee only’ for the
full application amount. The CAFs duly completed together with the amount payable on application must be
deposited with the Collecting Bank indicated on the reverse of the CAFs before the close of banking hours on or
before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.
Applicants may note that where payment is made by drafts purchased from NRE/ FCNR/ NRO accounts
as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has
been issued by debiting the NRE/ FCNR/ NRO account should be enclosed with the CAF. Otherwise the
application shall be considered incomplete and is liable to be rejected.
Note:
• If repatriation benefit is available, interest, dividend, sales proceeds derived from the investment in
Equity Shares can be remitted outside India, subject to tax, as applicable according to the IT Act.
• If Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the Equity
Shares cannot be remitted outside India.
• The CAF duly completed together with the amount payable on application must be deposited with
the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or
before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.
• In the case of an application received from eligible non-residents, allotment, refunds and other
distribution, if any, will be made in accordance with the guidelines/ rules prescribed by RBI as
applicable at the time of making such allotment or remittance and subject to necessary approvals.
Payment by Stockinvest
In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the
Stockinvest Scheme has been withdrawn. Hence, payment through Stockinvest would not be accepted in this
Issue
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Disposal of application and application money
No acknowledgment will be issued for the application moneys received by the Bank. However, the
Collecting Branches/Registrar to the Issue receiving the CAF will acknowledge its receipt by stamping and
returning the acknowledgment slip at the bottom of each CAF.
The Bank reserves its full, unqualified and absolute right to accept or reject any application, in whole or in
part, and in either case without assigning any reason thereto.
In case an application is rejected in full, the whole of the application money received will be refunded.
Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money
due on Equity Shares, will be refunded to the applicant within six weeks from the close of the Issue.
For further instruction, please read the Composite Application Form (CAF) carefully.
Undertakings by the Bank

1. The complaints received in respect of the Issue shall be attended to by the Bank expeditiously and
satisfactorily.
2. All steps for completion of the necessary formalities for listing and commencement of trading at all Stock
exchanges where the securities are to be listed will be taken within seven working days of finalisation of
basis of allotment.
3. The funds required for dispatch of refund orders/allotment letters/certificates by registered post shall be
made available to the Registrar to the Issue.
4. The certificates of the securities/refund orders to the eligible non-resident Indians shall be dispatched
within the specified time.
5. Save as otherwise disclosed in this Letter of Offer, no further issue of securities affecting equity capital of
the Bank shall be made till the securities issued/offered through the Issue are listed or till the application
moneys are refunded on account of non-listing, under-subscription etc.
6. The Bank accepts full responsibility for the accuracy of information given in this Letter of Offer and
confirms that to best of its knowledge and belief, there are no other facts the omission of which makes any
statement made in this Letter of Offer misleading and further confirms that it has made all reasonable
enquiries to ascertain such facts.
7. All information shall be made available by the Lead Manager and the Issuer to the investors at large and
no selective or additional information would be available for a section of the investors in any manner
whatsoever including at road shows, presentations, in research or sales reports etc.
Important
• Please read this Letter of Offer carefully before taking any action. The instructions contained in the
accompanying Composite Application Form (CAF) are an integral part of the conditions of this
Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected.
• All enquiries in connection with this Letter of Offer or accompanying CAF and requests for Split
Application Forms must be addressed (quoting the Registered Folio Number/DP and Client ID
number, the CAF number and the name of the first Equity Shareholder as mentioned on the CAF
and superscribed ‘SBI — Rights Issue’ on the envelope and postmarked in India) to the Registrar to
the Issue at the following address:
A 16 & 17, MIDC Part B
Crosslane, Andheri (East)
Mumbai 400 093
Tel: (91 22) 6674 2001 - 2006
• It is to be specifically noted that this Issue of Equity Shares is subject to the section entitled “Risk
Factors” beginning on page [●] of this Letter of Offer.
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The Issue will not be kept open for more than 30 days unless extended, in which case it will be kept open
for a maximum of 60 days.
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MAIN PROVISIONS OF THE STATE BANK OF INDIA ACT AND STATE BANK OF INDIA
REGULATIONS
Capitalised terms used in this section have the meaning that has been given to such terms in the
Act/Regulations. The main provisions of the Act/Regulations are set forth below.
Section 4 - Authorised Capital
Subject to the provisions of this Act, the authorised capital of the State Bank shall be twenty crores of rupees
divided into two crores of fully paid-up shares of ten rupees each.
Provided that the Central Government may increase or reduce the authorised capital as it thinks fit so however
that the shares in all cases shall be fully paid-up shares of ten rupees each.
Section 5 - Issued capital
(1) The issued capital of the State Bank shall, on the appointed day, be five crores, sixty-two lakhs and fifty
thousand rupees divided into five lakhs, sixty-two thousand and five hundred shares, all of which shall, on the
appointed day, stand allotted to the Reserve Bank in lieu of the shares of the Imperial Bank transferred to and
vested in it under section 6.
(2) The Central Board may from time to time increase the issued capital but no increase in the issued capital
shall be made in such a manner that the Government holds at any time less than fifty-five percent of the issued
capital of the State Bank.
(3) No increase in the issued capital beyond twelve crores and fifty lakhs of rupees shall be made under sub-
section (2) without the previous sanction of the Central Government.
Section 10 - Transferability of shares
(1) Save as otherwise provided in sub-section (2), the shares of the State Bank shall be freely transferable.
(2) Nothing contained in sub-section (1) shall entitle the Central Government to transfer any shares held by it in
the State Bank if such transfer will result in reducing the shares held by it to less than fifty-five percent of the
issued capital of the State Bank.
Section 11 – Restrictions on voting rights
No shareholder, other than the Central Government, shall be entitled to exercise voting rights in respect of any
shares held by him in excess of ten percent of the issued capital:
Provided that such shareholder shall be entitled to exercise voting rights at such higher percentage as the Central
Government may, after consultation with the Reserve Bank, specify.
Section 12 - Shares to be approved securities
Notwithstanding anything contained in the Acts hereinafter mentioned in this section, the shares of the State
Bank shall be deemed to be included among the securities enumerated in section 20 of the India Trusts Act,
1882 (2 of 1882), and also to be approved securities for the purposes of the Insurance Act, 1938 (4 of 1938),
and the Banking Regulation Act, 1949 (10 of 1949)
Section 17 - Management
(1) The general superintendence and direction of the affairs and business of the State Bank shall be entrusted to
the Central Board which may exercise all powers and do all such acts and things as may be exercised or done by
the State Bank and are not by this Act expressly directed or required to be done by the State Bank in general
meeting.
(2) The Central Board in discharging its functions shall act on business principles, regard being had to public
interest.
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Section 18 - Central Board to be guided by directions of Central Government
(1) In the discharge of its functions including those relating to a subsidiary bank, the State Bank shall be guided
by such directions in matters of policy involving public interest as the Central Government may, in consultation
with the Governor of the Reserve Bank and the chairman of the State Bank, give to it.
(2) All directions shall be given by the Central Government and, if any question arises whether a direction
relates to a matter of policy involving public interest, the decision of the Central Government thereon shall be
final.
Section 19 - Composition of the Central Board
The Central Board shall consist of the following, namely:--
(a) a chairman and a vice-chairman to be appointed by the Central Government in consultation with the Reserve
Bank;
(b) not more than two managing directors, if any, appointed by the Central Government in consultation with the
Reserve Bank;
(bb) the presidents of the Local Boards appointed under sub-section (5) of section 21, ex officio;
(c) if the total amount of the holdings of the shareholders, other than the Central Government, whose names are
on the register of shareholders three months before the date fixed for election of directors is--
(i) not more than ten percent of the total issued capital, two directors;
(ii) more than ten percent but not more than twenty-five percent of such capital, three directors, and
(iii) more than twenty-five percent of such capital, four directors, to be elected in the prescribed manner by such
shareholders;
(ca) one director, from among the employees of the State Bank, who are workmen, to be appointed by the
Central Government in the manner provided in the rules made under this Act;
(cb) one director, from among such of the employees of the State Bank, as are not workmen, to be appointed by
the Central Government in the manner provided in the rules made under this Act;
(d) not less than two and not more than six directors to be nominated by the Central Government in consultation
with the Reserve Bank, from among persons having special knowledge of the working of co-operative
institutions and of rural economy or experience in commerce, industry, banking or finance;
(e) one director to be nominated by the Central Government; and
(f) one director to be nominated by the Reserve Bank
Section 21 - Local Boards
(1) There shall be constituted at each place where the State Bank has a local head office, a Local Board which
shall consist of the following members, namely:--
(a) the chairman, ex-officio;
(b) all such directors elected or nominated to the Central Board under clause (c) or clause (d) of section 19 as are
ordinarily resident in the area falling within the jurisdiction of the local head office;
(c) six members to be nominated by the Central Government in consultation with the Reserve Bank;
(e) the chief general manager of the local head office, appointed by the State Bank, ex-officio.
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(2) Where as a result of the establishment of any local head office (hereinafter referred to as the new local head
office) for any area which is already falling within the jurisdiction of another local head office (hereinafter
referred to as the existing local head office) a Local Board (hereinafter referred to as the new Local Board) is
constituted for the new local head office, any person who is, at the time of such constitution, holding office as a
member of a Local Board (hereinafter referred to as the existing Local Board) for an existing local head office
under clause (c) of sub-section (1) and is ordinarily resident in the area falling within the jurisdiction of the new
local head office, shall cease to hold office as member of the existing Local Board and shall become a member
of the new Local Board and shall on becoming such member be deemed to have been nominated to the new
Local Board and shall hold office as such member for the unexpired portion of his term of office as a member of
the existing Local Board.
(3) Any vacancy caused in the existing Local Board as a result of any member thereof becoming a member of
the new Local Board under sub-section (2) shall be deemed to be a casual vacancy and be filled in accordance
with the provisions of section 25.
(5) The Governor of the Reserve Bank shall, in consultation with the chairman, appoint--
(a) a member of a Local Board nominated under clause (c) of sub-section (1) to be the president thereof; and
(b) a member of a Local Board holding office under clause (b) or nominated under clause (c) of that sub-section
to be the vice-president thereof.
Section 24 - Removal from office of directors, etc.
(1) The Central Government may, after consulting the Reserve Bank, remove from office the chairman, vice-
chairman or a managing director.
(3) The Central Government, after consulting the Reserve Bank, may remove from office any director appointed
under clause (ca) or clause (cb) or nominated under clause (d) of section 19 or any member of a Local Board
nominated under clause (c) of sub-section (1) of section 21 and appoint or nominate, as the case may be, in his
stead another person to fill the vacancy.
(4) The shareholders, other than the Central Government, may, by a resolution passed by majority of the votes
of such shareholders holding in the aggregate not less than one-half of the share capital held by all such
shareholders, remove any director elected under clause 8 of section 19 and elect in his stead another person to
fill the vacancy.
(6) No person shall be removed from his office under sub-section (1) or sub-section (3) unless he has been given
an opportunity of showing cause against his removal.
Section 27 - Powers and remuneration of chairman
(1) The chairman shall preside at all meetings of the Central Board and, subject to such general or special
directions as the Central Board may give, exercise all such powers and do all such acts and things as may be
exercised or done by the State Bank.
(2) The chairman shall receive such salary, fees, allowances and perquisites as may be determined by the
Central Government.
Section 28 - Powers and remuneration of vice-chairman
(1) The vice - chairman shall preside at the meetings of the Central Board in the absence of the chairman and,
subject to the general control of the chairman, exercise such powers and perform such duties as may be
entrusted or delegated to him by the Central Board.
(2) The vice-chairman shall receive such salary, fees, allowances and perquisites as may be determined by the
Central Government.
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(3) The fact that the vice-chairman exercises any of the powers and does any act or thing for or on behalf of the
State Bank shall be conclusive proof of his authority to do so.
Section 29 - Powers and remuneration of managing director
(1) A managing director--
(a) shall be a whole-time officer of the State Bank; and
(b) subject to the general control of the chairman and the vice-chairman, shall exercise such powers and perform
such duties as may be entrusted or delegated to him by the Central Board.
(2) A managing director shall receive such salary and allowances as may be determined by the Central
Government.
Section 31 - Meetings of the Central Board
(1) The Central Board shall meet at such time and place and shall observe such rules of procedure in regard to
the transaction of business at its meetings as may be prescribed.
(2) All questions at the meeting shall be decided by a majority of the votes of the directors present and in the
case of equality of votes, the chairman or, in his absence, the vice-chairman shall have a second or casting vote.
(3) A director who is directly or indirectly concerned or interested in any contract, loan, arrangement or proposal
entered into or proposed to be entered into by or on behalf of the State Bank shall at the earliest possible
opportunity disclose the nature of his interest to the Central Board and shall not be present at any meeting of the
Central Board when any such contract, loan, arrangement or proposal is discussed unless his presence is
required by the other directors for the purpose of eliciting information, and no director so required to be present
shall vote on any such contract, loan, arrangement or proposal:
Provided that nothing contained in this sub-section shall apply to such director by reason only of his being--
(i) a shareholder (other than a director) holding not more than two percent of the paid-up capital in any public
company as defined in the Companies Act, 1956 (1 of 1956), or any corporation established by or under any law
for the time being in force in India or any co-operative society with which or to which the State Bank has
entered into or made, or proposes to enter into or make, a contract, loan, arrangement or proposal; or
(ii) a director ex officio of the State Bank or a director of a subsidiary bank; or
(iii) an officer or other employee of the State Bank, if he is a director appointed under clause (ca) or clause (cb)
of of section 19.
(4) If for any reason neither the chairman nor the vice-chairman is able to be present at a meeting of the Central
Board, any director, authorised by the chairman in writing in this behalf, and in the absence of such
authorisation, any director elected by the directors present from amongst themselves, shall preside at the
meeting and, in the event of equality of votes, shall have a second or casting vote.
Section 32 - State Bank to act as agent of the Reserve Bank.
(1) The State Bank shall, if so required by the Reserve Bank, act as agent of the Reserve Bank at all places in
India where it has a branch or where there is a branch of a subsidiary bank, and where there is no branch of the
banking department of the Reserve Bank, for--
(a) paying, receiving, collecting and remitting money, bullion and securities on behalf of any Government in
India; and
(b) undertaking and transacting any other business which the Reserve Bank may from time to time entrust to it.
(2) The terms and conditions on which any such agency business shall be carried on by the State Bank on behalf
of the Reserve Bank shall be such as may be agreed upon.
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(3) If no agreement can be reached on any matter referred to in sub-section (2) or if a dispute arises between the
State Bank and the Reserve Bank as to the interpretation of any agreement between them, the matter shall be
referred to the Central Government and the decision of the Central Government thereon shall be final.
(4) The State Bank may transact any business or perform any functions entrusted to it under sub-section (1) by
itself or through a subsidiary bank or through an agent approved by the Reserve Bank.
Section 33 - Other business which the State Bank may transact.
Subject to the other provisions contained in this Act, the State Bank may carry on and transact the business of
banking as defined in clause (b) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) and may engage
in one or more of the other forms of business specified in sub- section (1) of section 6 of that Act.
Section 36 - Integration and development fund
(1) The State Bank shall maintain a special fund to be known as the Integration and Development Fund into
which shall be paid:
(a) the dividends payable to the Central Government on such shares of the State Bank held by it as do not
exceed fifty-five percent of the total issued capital; and
(b) such contributions as the Central Government may make from time to time.
Provided that if the balance in the Integration and Development Fund on the date of declaration of any dividends
by the State Bank is rupees five crores or more, no amount shall be paid into that Fund under clause (a) and the
dividends payable to the Central Government shall be paid to that Government and if such balance on such date
is less than rupees five crores, only so much of the dividends then payable as will bring such balance to rupees
five crores shall be paid into that Fund and the balance of such dividends shall be paid to the Central
Government.
(2) The amount in the said Fund shall be applied exclusively for meeting--
(a) losses in excess of such yearly sum as may be agreed upon between the Central Government and the State
Bank and attributable to the branches established in pursuance of sub-section (5) of section 16;
(aa) subsidies granted by the State Bank to a subsidiary bank with the approval of the Reserve Bank; and
(b) such other losses or expenditure as may be approved by the Central Government in consultation with the
Reserve Bank.
(3) Subject to the provisions of sub-section (2), the said Fund shall be the property of the Central Government
and no shareholder or the State Bank or any other person shall have any claim to the amount held in the said
Fund.
(4) No amount applied for any of the purposes specified in sub-section (2) shall, for the purposes of the Income
Tax Act, 1961 (43 of 1961) be treated as income, profits or gains of the State Bank.
Section 37 – Reserve Fund
The State Bank shall establish a Reserve Fund which shall consist of--
(a) the amount held in the Reserve Fund of the Imperial Bank transferred to the State Bank on the appointed day;
and
(b) such further sums as may be transferred to it by the State Bank out of its annual net profits before declaring a
dividend.
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Section 38 - Disposal of profits.
(1) After making provision for bad and doubtful debts, depreciation in assets, equalisation of dividends,
contribution to staff and superannuation funds and for all other matters for which provision is necessary by or
under this Act or which are usually provided for by banking companies, the State Bank may, out of its net
profits, declare a dividend.
(2) Subject to the provisions of paragraph 6 of the First Schedule, the rate of dividend shall be determined by the
Central Board.
Section 42 - Balance sheet, etc., of State Bank may be discussed at general meeting
(1) A general meeting in this Act referred to as annual general meeting shall be held in each year at such time
and at such place where there is a local head office of the State Bank and a general meeting may be convened by
the State Bank at any other time:
Provided that such annual general meeting shall be held before the expiry of six weeks from the date on which
the balance sheet, together with the profit and loss account and auditors’ report, is under sub-section (1) of
section 40, forwarded to the Central Government or to the Reserve Bank, whichever date is earlier.
(2) The shareholders present at an annual general meeting shall be entitled to discuss the balance sheet and the
profit and loss account of the State Bank made up to the previous 31st day of December or the date specified
under section 39, as the case may be the report of the Central Board on the working and activities of the State
Bank for the period covered by the accounts and the auditors’ report on the balance sheet and accounts.
Section 45 – Bar to liquidation of the State Bank
No provision of law relating to the winding up of companies shall apply to the State Bank and the State Bank
shall not be placed in liquidation save by the order of the Central Government and in such manner as it may
direct.
STATE BANK OF INDIA REGULATIONS
Shares and Share Register
Regulation 3 – Shares, movable property
The shares of the State Bank shall be moveable property.
Regulation 4 – Control over shares and branch registers
(1) Subject to the provisions of the Act and these regulations and such directions as the Central Board may give
from time to time, the register of shareholders (hereinafter referred to as “the register”) kept at the Central
Office shall be maintained by, and be under control of the Central Board or its Executive Committee and the
decision of the Central Board or its Executive Committee as to whether or not a person is entitled to be
registered as a shareholder in respect to any share shall be final.
(2) In particular, and without prejudice to the foregoing provision, the Central Board or its Executive Committee
shall, as regards the entries in the register under its control have the power to examine and pass or refuse to pass
transfers and transmissions and to approve or refuse to approve transferees of shares and to give certificates of
shares.
Regulation 5 – Parties who may not be registered as shareholders
(1) Except as otherwise provided by these regulations, no minor or person who has been found by a Court of
competent jurisdiction to be of unsound mind shall be entitled to be registered as a shareholder.
(2) In the case of firms, shares shall be registered in the names of the individual partners, and no firm, as such,
shall be entitled to be registered as a shareholder.
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Regulation 7 – Exercise of rights of joint holders
If any share stands in the name of two or more persons the person first named in the register shall, as regards
voting, receipt of dividends, service of notices and all or any other matter connected with the State Bank, except
the transfer of the shares, be deemed the sole holder thereof.
Regulation 9 – Inspection of registers
(1) The register shall, except when closed under the provisions of these regulations, be open to the inspection of
any shareholder, free of charge, at the places where they are maintained during business hours, subject to such
reasonable restrictions as the State Bank may impose, but so that not less than two hours in each working day
shall be allowed for inspection.
(2) A shareholder shall not have the right himself to make a copy of any entry in any such register, but may,
except when the register is closed, require a copy of any such register or of any part thereof on prepayment
therefore at the rate of rupees two for every hundred words or fractional part thereof required to be copied.
Regulation 10 – Closing of share registers
(1) The Central Board or its Executive Committee may close the register from time to time for such periods, not
exceeding four weeks at any one time, as shall, in its opinion, be necessary.
(2) A notice of the closing of the register shall be published in the Gazette of India and also in not less than two
daily newspapers having wide circulation in India.
Regulation 11 – Form of share certificates and manner of the preparation
(1) Every share certificate shall be issued in such form as may be specified by the Central Board or its Executive
Committee from time to time. Each share certificate shall bear a distinctive number and denoting the number of
shares in respect of which it is issued. Every share certificate shall bear the name(s) of the shareholder(s).
(2) Every share certificate may be engraved or lithographed or printed as the Central Board or its Executive
Committee may from time to time determine and shall be signed on behalf of the bank by two persons duly
authorised by the Bank. Every such signature may either be autographic or may be affected by a mechanical
method. No share certificate shall be valid unless and until it is so signed. Share certificates so signed shall be
valid and binding notwithstanding that, before the issue thereof, any person whose signature appears thereon
may have ceased to be a person authorised to sign share certificates on behalf of the Bank;
Provided that should the share certificate so prepared contain the signature of an authorised person who however
is dead at the time of issue of the certificate, the Bank may, by a method considered by it as most suitable,
cancel the signature of such a person appearing on the certificate and have the signature of any other authorised
person affixed to it. The share certificate so issued shall also be valid.
Regulation 12 – Issue of share certificates free of charge
(1) A shareholder shall be entitled to one certificate for each fifty shares or multiples thereof registered in his
name on any one occasion and one additional share certificate for the number of shares in excess thereof but less
than fifty
(2) If the number of shares to be registered is less than fifty, one certificate shall be issued for all the shares.
(3) If any shareholder requires more certificates than the number to which he is entitled under this regulation,
the Central Board or its Executive Committee may have such additional certificates issued, at its discretion.
(4) In the case of shares held jointly by several persons, delivery of the relative certificate or certificates to one
of such joint holders shall be sufficient delivery to all, and a receipt signed by any one of the joint holders shall
effectually bind all the joint holders.
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Regulation 13 – Renewal of share certificates
(1) If any share certificate is worn out or defaced or tendered for sub-division, then upon production thereof the
Central Board or its Executive Committee, the Central Board or its Executive Committee may order the same to
be cancelled, and have a new certificate or certificates issued in lieu thereof.
(2) If any share certificate is alleged to be lost or destroyed, then upon production of such evidence of the loss or
destruction thereof, as the Central Board or its Executive Committee may consider satisfactory and upon such
indemnity with or without security as Central Board or its Executive Committee may require, and on payment to
the State Bank of its costs, charges and expenses of and incidental to the matter, a new certificate in lieu thereof
shall be given to the party entitled to such lost or destroyed certificate.
Regulation 15 – Transfer of shares
(1) Without prejudice to the provisions of Regulations 14, every transfer of the shares of the State Bank shall be
in writing
(2) The instrument of transfer of any share shall be submitted to the Central Board or its Executive Committee
and shall be signed by the transferor and the transferee, and the transferor shall be deemed to remain the holder
of such shares until the name of the transferee is entered in the share register concerned in respect thereof. Each
signature to such transfer shall be duly attested by the signature of one credible witness who shall add his
address and occupation.
(3) Upon receipt by the Central Board or its Executive Committee of an instrument of transfer with the request
to register the transferee, the Central Board or its Executive Committee shall, unless it declines registration
under Regulation 16 cause the transfer to be registered.
Regulation 16 – Power to refuse or suspend transfers
(1) The Central Board or its Executive Committee may decline to register any transfer of shares unless:--
(b) the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other
evidence as the State Bank may reasonably require to show the right of the transferor to make the transfer;
(c) it is satisfied after such inquiry as it may consider necessary that the transferee is qualified to be registered as
a shareholder of the State Bank in respect of the shares covered by the instrument of transfer.
(2) The Central Board or its Executive Committee may suspend the registration of transfer during any period in
which the registers are closed.
Regulation 19 – Transmission of shares in the event of death, insolvency, etc. of a shareholder
(1) The executors or administrators of a decreased sole holder of a share, or the holder of a succession certificate
issued under Part X of the Indian Succession Act, 1925 in respect of such share, or a person in whose favour a
valid instrument of transfer of such share was executed by such person and by the deceased sole holder during
the latter’s life-time shall be the only persons who may be recognised by the State Bank as having any title to
the share of the deceased shareholder. In the case of a share registered in the names of two or more holders, the
survivor or survivors and on the death of the last survivor, his executors or administrators or any person who is
the holder of a succession certificate in respect of such survivor’s interest in the share, or a person in whose
favour a valid instrument of transfer of the share was executed by such person and such last survivor during the
latter’s life-time, shall be the only person who may be recognised by the State Bank as having any title to such
share. The State Bank shall not be bound to recognise such executors or administrators unless they shall have
obtained probate or letters of administration or other legal representation as the case may be from a court of
competent jurisdiction in India
Provided nevertheless that in any case where the Central Board or its Executive Committee shall in its discretion
think fit, it shall be lawful for the Central Board or its Executive Committee to dispense with the production of a
succession certificate, letters of administration or such other legal representation upon such terms as to
indemnity or otherwise as it may think fit.
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(2) Any such person becoming entitled to a share in consequence of the death of a shareholder and any person
becoming entitled to a share in consequence of the insolvency, bankruptcy or liquidation of a shareholder shall
upon production of such evidence, as the Central Board or its Executive Committee may require, have the
right –
(a) to be registered as a share holder in respect of the share upon his satisfying the Central Board or its
Executive Committee in the same manner as if he were the proposed transferee under regulation 16 that he is
qualified to be registered as a shareholder , or
(b) to make such transfer of the share as the person from whom he derives his title could have made.
Regulation 20 – Shareholder ceasing to be qualified for registration
(1) It shall be the duty of any person registered as a shareholder, whether alone or jointly with another or others,
forthwith upon ceasing to be qualified to be so registered in respect of any share to give intimation thereof to the
Central Board or its Executive Committee.
Meetings of Shareholders
Regulation 21 – Notice convening a general meeting
(1) A notice convening a general meeting of the shareholders signed by the Chairman or the Vice- Chairman or
in their absence Managing Director shall be published at least twenty-eight days before the meeting in the
Gazette of India and also by publication in not less than two daily newspapers having wide circulation in India.
(2) Every such notice shall state the time, date and place of such meeting, and also the business that shall be
transacted at the meeting.
Regulation 22 – Special general meeting
(1) The Chairman or in his absence Vice-Chairman or in their absence Managing Director shall convene a
special general meeting of shareholders, if so directed by the Central Board, or if a requisition for such a
meeting has been received either from the Reserve Bank or from other shareholders holding shares carrying, in
the aggregate, not less than 20 percent of the total voting rights of all the shareholders.
(2) The requisition referred to in sub-regulation (1) shall state the purpose for which the special general meeting
is required to be convened, but may consist of several documents in like form each signed by one or more of the
requisitions.
(3) The time, date and place of a general meeting shall be decided by the Central Board:
Provided that a special general meeting convened on requisition by the Reserve Bank or other shareholders shall
be convened not later than three months of the receipt of the requisition.
Regulation 23 – Business at general meetings
(1) No business other than that specified in sub-section (2) of section 42 of the Act shall be transacted or
discussed at the annual general meeting, except with the consent of the Chairman, unless not less than six
weeks’ notice of the same has been given to the Chairman either by the Reserve Bank or by at least ten other
shareholders qualified to vote at the meeting. Such notice shall take the form of a definite resolution to be put to
the meeting, and shall be included in the notice of the meeting.
(2) Except with the consent of the Chairman, no business shall be transacted or discussed at any special general
meeting, except the business for which the meeting has been specifically convened.
Regulation 24 – Quorum at general meeting
No business shall be transacted at any meeting of the shareholders whether it is the annual general meeting or
any special general meeting, unless a quorum of at least five shareholders consisting of the Reserve Bank
represented by a proxy or by a duly authorised representative and four other shareholders entitled to vote at such
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meeting in person or by proxy or by duly authorised representatives is present at the commencement of such
business, and if within fifteen minutes from the time appointed for the meeting a quorum is not present the
Chairman may dissolve the meeting or adjourn it to the same day in the following week at the same time and
place, and if at such adjourned meeting a quorum is not present, the shareholders who are present in person or
by proxy or by duly authorised representative shall form a quorum :
Provided that no annual general meeting shall be adjourned to a date later than the date within which such
annual general meeting shall be held in terms of the proviso to sub-section (I) of Section 42 of this Act and if
adjournment of the meeting to the same day in the following week would have this effect, the annual general
meeting shall not be adjourned but the business of the meeting shall be commenced either as soon within one
hour from the time appointed for the meetings as a quorum may be present, or immediately after the expiry of
one hour from that time and those shareholders who are present in person or by proxy or by duly authorised
representative at such time shall form a quorum.
Regulation 25 – Chairman at general meetings
(1)The Chairman or in his absence, the Vice-Chairman or in their absence, such one of the Directors as may
generally or in relation to a particular meeting be authorised by the Chairman in this behalf, shall be the
Chairman of the meeting and in the absence of the Chairman, the Vice-Chairman and the person so authorised
and failing any authorisation the meeting may elect any other Director to be the Chairman of the
meeting.
(2) The Chairman of the general meeting shall regulate the procedure at all general meetings, and , in particular,
shall have power to decide the order in which shareholders may address the meeting, to fix a time limit for
speeches, to apply the closure when, in his opinion, any matter has been sufficiently discussed and to adjourn
the meeting.
Regulation 26 – Persons entitled to attend general meetings
(1) All directors, members of Local Boards or of any Local Committee and all shareholders of the State Bank
shall, subject to the provisions of sub-regulation (2), be entitled to attend a general meeting.
(2) A shareholder, not being the Reserve Bank, a director or a member of a Local Board or of a Local
Committee, attending a general meeting shall, for the purpose of identification and to determine his voting rights,
be required to sign and deliver to the State Bank a form to be specified by the Chairman authenticated or
attested by a person authorised by him in this behalf and "containing the following particulars:
(a) his full name and registered address;
(b) the denoting number of his shares;
(c) whether he is entitled to vote and the number of votes to which he is entitled in person or as proxy or as a
duly authorised representative.
Regulation 27 – Voting at general meetings
(1) Save as otherwise provided in section 24 of the Act, every matter submitted to a general meeting shall be
decided by a majority of votes.
(2) A declaration by the Chairman of a general meeting that a resolution has been carried or rejected thereat
upon a show of hands by those shareholders present who are entitled to vote on the resolution shall be
conclusive, and an entry to that effect in the book of proceedings of the State Bank shall be sufficient evidence
of that fact, without proof of the number or proportion of the votes recorded in favour of, or against, such
resolution, unless immediately on such declaration a poll be demanded in writing on behalf of the Reserve Bank
or by at least four other shareholders present and entitled to vote at the meeting.
(3) If a poll be duly demanded, it shall be taken either at once or at such time and place and either by open
voting or by ballot as the Chairman of the meeting may direct, and the result of the poll shall be deemed to be
the resolution of the meeting at which the poll was demanded. At such, poll, voting shall be either in person or
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by proxy or by duly authorised representative, and the shareholders shall exercise the voting rights referred to in
regulation 31.
(4) The decision of the Chairman of the meeting as to the qualification of any person to vote, and also in the
case of a poll, as to number of votes any person is competent to exercise shall be final.
Regulation 28 – Minutes of general meetings
(1) The State Bank shall cause the minutes of all proceedings of general meetings to be entered in books kept for
that purpose.
(2) Any such minute, if purporting to be signed by the Chairman of the meeting at which the proceedings were
held, or by the Chairman of the next succeeding meeting, shall be evidence of the proceedings.
(3) Until the contrary is proved, every general meeting in respect of the proceedings whereof minutes have been
so made shall be deemed to have been duly called and held, and all proceedings held thereat to have been duly
held.
Voting rights of shareholders
Regulation 31 – Determination of voting rights
(1) Subject to the provisions contained in section 11 of the Act, each shareholder who has been registered as a
shareholder for a period of not less than three months prior to the date of a general meeting shall, at such
meeting, have one vote for each fifty shares held by him.
(2) Every shareholder entitled to vote as a foresaid who, not being a company is present in person or by proxy or
who being a company is present by a duly authorised representative, or by proxy shall have one vote on a show
of hands and in case of a poll shall have one vote for each fifty shares held by him for the whole period of three
months prior to the date of such meeting.
Regulation 32 – Voting by duly authorised representative
(1) A shareholder, being a company, may by a resolution authorise any of its officials or any other person to act
as its representative at any general meeting of the shareholders and the person so authorised (referred to as “duly
authorised representative” in these regulations) shall be entitled to exercise the same powers on behalf of the
company which he represents, as if he were an individual shareholder of the State Bank. The authorisation so
given may be in favour of two persons in the alternative and in such a case any one of such persons may act as
the duly authorised representative of the company.
(2) A person acting in pursuance of an authorisation given under this regulation shall not be deemed to be a
proxy.
(3) No person may attend or vote at any meeting of shareholders of the State Bank as a duly authorised
representative of a company unless a copy of the resolution appointing him as a duly authorised representative
certified to be a true copy by the Chairman of the meeting at which it was passed shall have been deposited at
the Local Head Office at the place where the meeting is to be held not less than 4 clear days before the date
fixed for the meeting.
(4) An appointment of a duly authorised representative shall, after the deposit of a certified copy of the
resolution as aforesaid, be irrevocable for the meeting for which it is made and shall revoke any proxy
previously deposited for such meeting by the company.
Regulation 33
No shareholder, being a company, shall vote by proxy so long as resolution of its directors under Regulation 32
authorising any of its officials or any other person to act as its duly authorised representative at any general
meeting shall be in force.
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Regulation 34 – Proxies
(1) No instrument of proxy shall be valid unless in the case of an individual shareholder it is signed by him or by
his attorney duly authorised in writing, or in the case of joint holders, it is signed by the shareholder first named
in the (register) or his attorney duly authorised in writing or in the case of a company it is executed under its
common seal, if any, or signed by its attorney duly authorised in writing:
Provided that an instrument of proxy shall be sufficiently signed by any shareholder, who is for any reason,
unable to write his name, if his mark is affixed thereto and attested by a Judge, Magistrate, Justice of the Peace,
Registrar or Sub-Registrar of Assurances, or other Government Gazetted Officer or an Officer of the Reserve
Bank or the State Bank .
(2) No person shall be appointed as proxy unless he is entitled to attend the general meeting otherwise than as a
proxy, provided that this sub-regulation shall not apply to proxy appointed by a company.
(3) No proxy shall be valid unless it is duly stamped and unless, it together with the power of attorney or other
authority (if any) under which it is signed, or a copy of that power or authority certified by a notary public or a
magistrate, is deposited with the Central Office or other office designated from time to time by the Chairman or
Managing Director in this behalf, not less than seven clear days before the date fixed for the meeting.
(5) An instrument of proxy so deposited shall be irrevocable –
(i) unless on or before the last day for the deposit of proxies there shall have been deposited at the Local Head
Office of the State Bank where the meeting is to be held a notice in writing under the hand or common seal of
the grantor specifically stating –
(a) the name of the person in whose favour the instrument was granted; and
(b) that such instrument is revoked; or
(ii) unless the same is deemed to be invalid under sub-regulation (6).
In the case of an instrument of proxy granted in favour of two grantees in the alternative, it shall not be
necessary to mention in the notice of revocation the name of the second or alternative grantee provided that the
notice is otherwise sufficient to identify beyond doubt the instrument of proxy which it is intended to revoke.
(6) If two or more instruments of proxy in respect of the same shares shall be deposited and if on or before the
last day for deposit of proxies all but one of such instruments of proxy shall not have been duly revoked in
accordance with the procedure laid down in sub-regulation (5) all such instruments of proxy shall be deemed
invalid.
(7) The due revocation of an instrument of proxy shall in no way prohibit the deposit of another valid instrument
of proxy within the time specified in sub-regulation (3).
(8) The grantor of an instrument of proxy which has become irrevocable under this regulation shall not be
entitled to vote in person at the meeting to which such instrument relates.
Central Board and its Executive Committee
Regulation 44 – Meetings of the Central Board
(1) Meetings of the Central Board shall be convened by the Chairman or, in his absence, by the Vice- Chairman
or in their absence by the Managing Director at least six times in each year and at least once in each quarter.
(2) Any three directors may require the Chairman to convene a meeting of the Central Board at any time, and
the Chairman shall, on receipt of the requisition, convene a meeting of the Central Board giving sufficient notice,
provided that the date of the meeting so convened shall not be later than 21 days from the date of receipt of the
requisition.
324
(3) Meetings of the Central Board shall be held at the Central Office of the State Bank, or at such other place as
the Chairman, or in his absence, the Vice-Chairman or in their absence the Managing Director may decide.
(4) Ordinarily not less than 15 days’ notice shall be given of each meeting of the Central Board, and such notice
shall be sent to every director at his registered address. Should it be found necessary to convene an emergency
meeting, sufficient notice shall be given to every director in India to enable him to attend.
(5) No business other than that for which the meeting was convened shall be discussed at a meeting of the
Central Board except with the consent of the Chairman and a majority of the directors present unless one weeks’
notice has been given of the same in writing to the Chairman.
(6) Five Directors, of whom not less than three shall be Directors holding office by virtue of clause (bb) of
section 19 or elected under clause (c) of that section or nominated under clause (d) of the said section shall form
a quorum for the transaction of business.
(7) A copy of the proceedings of each Central Board meeting shall be circulated as soon as possible thereafter
for the information of the directors, and shall be signed by the Chairman of that or the next succeeding meeting.
Regulation 45 – Resolution without meeting of Central Board valid
(1) A resolution in writing signed by a majority of the directors of the Central Board shall be valid and effectual,
and shall be deemed to be the resolution passed by the Central Board on the date on which it is signed by the last
signatory to the resolution:
Provided that if any dissenting director in writing requires that any resolution so passed shall be placed before a
meeting of the Central Board, the resolution shall not be deemed to be valid and effectual, as aforesaid, unless
the same is passed at such meeting.
(2) Nothing in sub-regulation (1) shall apply to a resolution in respect of any matter relating to the making of
advances or discounting of bills by the State Bank.
Regulation 46 – Constitution and powers of the Executive Committee
(1) There shall be an Executive Committee of the Central Board consisting of the Chairman, Vice Chairman, the
Managing Directors, if any, the Director nominated under clause (f) of section 19 of the Act and all or any of the
other Directors who are normally residents, or may, for the time being, be present at any place within India
where the meeting is held.
(2) Subject to the other provisions of these regulations and to such general or special directions as the Central
Board may give from time to time, the Executive Committee may deal with any matter within the competence of
the Central Board.
Regulation 47 – Meetings of the Executive Committee
(1) Meetings of the Executive Committee shall be held weekly, sufficient notice being given to the directors on
the Executive Committee to attend the meeting.
(2) Four directors, of whom not less than two are directors holding office by virtue of clause (bb) of section 19
of the Act or elected under clause (c) or nominated under clause (d) of that section shall form a quorum for the
transaction of business:
Provided that where, by reason of the provisions of sub-regulation (4) read with sub-section (3) of section 31 of
the Act, any director is unable to be present and vote at a meeting of the Executive Committee, or while some
particular business is being transacted by the Executive Committee, and in consequence thereof the number of
directors present and eligible to vote is less than four, the quorum for such meeting or, as the case may be, for
the transaction of that business shall be three of whom one shall be a director 2(holding office by virtue of
clause (bb) or elected under clause (c) or nominated under clause (d) of section 19 of Act.
(3) The minutes of every meeting of the Executive Committee shall be laid before the Central Board as soon as
possible after the meeting of the Executive Committee.
325
(4) The provisions of the Act and, save as otherwise provided in this regulation, of these regulations shall apply
to the meetings of the Executive Committee as if they were meetings of the Central Board.
Miscellaneous
Regulation 75 – Manner and form in which contracts binding on the State Bank may be executed
(1) Contracts on behalf of the State Bank may be as follows:
(i) any contracts which, if made between private persons, would be by law required to be in writing signed by
the parties to be charged therewith, may be made on behalf of the State Bank in writing signed by any person
acting under its authority express or implied, and may in the same manner be varied or discharged;
(ii) any contracts which, if made between private persons, would by law be valid although made by parol only
and not reduced to writing may be made by parol on behalf of the State Bank by any person acting under its
authority express or implied, and may in the same manner be varied or discharged;
(2) All contracts made according to the provisions of this regulation shall be effectual in law, and shall bind the
State Bank and all other parties thereto and their legal representatives.
326
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION
The following contracts (not being contracts entered into in the ordinary course of business carried on by
the Bank or entered into more than two years before the date of this Letter of Offer) which are or may be
deemed material have been entered or are to be entered into by the Bank. These Contracts and also the
documents for inspection referred to hereunder, may be inspected at the Central Office of the Bank situated at
State Bank Bhavan, Madame Cama Road, Mumbai 400 021, Maharashtra, India, from 10.00 a.m. to 1.00 p.m.,
from the date of this Letter of Offer until the date of closure of the Subscription List.
MATERIAL CONTRACTS
1. The Memorandum of Understanding between the Bank and the Lead Managers dated February 1, 2008.
2. The Memorandum of Understanding between the Bank and Datamatics Financial Services Limited, Registrar
to the Issue, dated January 31, 2008.
MATERIAL DOCUMENTS
3. The Act and the State Bank of India Regulations.
4. Copy of the Central Government letter no. F No. 11/7/2007-BOA dated December 3, 2007, conveying its
approval to subscribe to the rights issue of Bank’s Equity Shares aggregating approximately Rs. 10,000
crore.
5. Copy of the Central Government letter no. F.No.11/16/2005-BOA dated January 2, 2008, under Section 5(3)
of the Act, authorizing the increase in the issued capital of the Bank.
6. Copy of the Central Board resolutions dated January 14, 2008, approving the Issue.
7. Copy of the Central Board Resolution dated February 1, 2008 approving the Letter of Offer.
8. Copy of the Central Government letter no. F No. 11/7/2007-BOA dated January 25, 2008 authorising the
issue of shares to the eligible employees of the Bank through an employee stock purchase scheme.
9. Consents of the Directors, Lead Managers to the Issue, Legal Advisors, Registrars to the Issue and Bankers
to the Issue to include their names in the Letter of Offer to act in their respective capacities.
10. Consent from the Auditors of the Bank, for inclusion of their report on the Accounts in the form and context
in which they appear in the Letter of Offer and also on the Tax Benefits mentioned therein.
11. Auditor’s report dated January 24, 2008 on Unconsolidated Summary Statements of Assets And Liabilities,
Profit and Loss and Cash Flows, as regrouped, under Indian GAAP (including subsidiary) for the period of 5
(five) financial years ended March 31, 2007 and Consolidated Summary Statements of Assets and Liabilities,
Profit and Loss and Cash Flows, as regrouped for the above years.
12. Annual Report of the Bank for last five (5) Financial Years.
13. In-principle listing approval obtained from the BSE through its letter no. DCS/PREF/JA/IP-RT/3109/07-08
dated January 31, 2008 and from the NSE through its letter no. NSE/LIST/65582-E dated January 30, 2008.
14. Due Diligence Certificate dated February 1, 2008 from Citigroup Global Markets India Private Limited,
CLSA India Limited, Deutsche Equities India Private Limited, DSP Merrill Lynch Limited and Kotak
Mahindra Capital Company Limited..
15. Tripartite Agreement between the National Securities Depository Ltd., the Bank and Registrar dated
September 19, 2003.
16. Tripartite Agreement between the Central Depository Services (India) Ltd., the Bank and the Registrar
dated September 2, 2003.
Any of the contracts or documents mentioned above may be amended or modified any time without reference
to the shareholders in the interest of the bank in compliance with the applicable laws.
327
DECLARATION
No statements made in this Letter of Offer shall contravene any of the provisions of the Act and the rules
made thereunder. All the legal requirements connected with the said issue as also the guidelines, instructions etc.
issued by SEBI, Government and any other Competent Authority in this behalf have been duly complied with.
—
—
Mr. S.K. Bhattacharyya Managing Director
—
Managing Director
(position vacant as on February 1, 2008)
—
Mr. Suman Kumar Bery Director
—
Dr. Ashok Jhunjhunwala Director
—
Mr. Ananta C. Kalita Director
—
Mr. Amar Pal Director
—
Mr. Piyush Goyal Director
—
Dr. Deva Nand Balodhi Director
Prof. Mohd. Salahuddin —

Director
Ansari
—
Mr. Arun Ramanathan Director
328
—
Ms. Shyamala Gopinath Director
—
Mr. Ashok Mukand Deputy Managing Director and Chief Financial Officer
—
Mr. Subrata Maiti Compliance Officer
Place : Mumbai.
Dated : February 1, 2008
329
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330
THIS PAGE IS INTENTIONALLY LEFT BLANK
331

State Bank of India - Letter of Offer

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State Bank of India - Letter of Offer

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LETTER OF OFFER

Dated February 1, 2008

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY

ISSUER’S ABSOLUTE RESPONSIBILITY

LAST DATE FOR REQUEST FOR

ABBREVIATIONS AND TECHNICAL TERMS............................................................................................. 1

RISK FACTORS .................................................................................................................................................. 7

THE ISSUE ......................................................................................................................................................... 26

SELECTED FINANCIAL AND OPERATING DATA .................................................................................. 27

OVERSEAS SHAREHOLDERS ...................................................................................................................... 39

OBJECTS OF THE ISSUE................................................................................................................................ 51

BASIS FOR ISSUE PRICE ............................................................................................................................... 53

DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK MANAGEMENT

REGULATIONS AND POLICIES ................................................................................................................. 107

MANAGEMENT .............................................................................................................................................. 133

RELATED PARTY TRANSACTIONS.......................................................................................................... 154

AUDITORS’S REPORT (UNCONSOLIDATED) ........................................................................................ 160

AUDITOR’S REPORT (CONSOLIDATED) ................................................................................................ 164

FINANCIAL STATEMENTS ......................................................................................................................... 167

STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK........................................................ 238

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

MATERIAL DEVELOPMENTS.................................................................................................................... 270

DESCRIPTION OF CERTAIN INDEBTEDNESS....................................................................................... 273

OUTSTANDING LITIGATION AND DEFAULTS ..................................................................................... 274

GOVERNMENT APPROVALS ..................................................................................................................... 280

TERMS OF THE PRESENT ISSUE .............................................................................................................. 295

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION..................................................... 327

DECLARATION .............................................................................................................................................. 328

European Economic Area Restrictions

Republic of Italy Restrictions

NO OFFER IN THE UNITED STATES

Rupee and American Dollars Exchange Rates

2003 ................................................................................................ 47.53 48.43 49.07 47.53

Month Period End Average High Low

January 2007...................................................................................... 44.07 44.21 44.49 44.07

References to “crores” and “lakhs” are to the following:

One lakh .......................................... 100,000 (one hundred thousand)

Bank Related Terms

Act The State Bank of India Act, 1955

1. M.M. Nissim & Co.

General Terms and Abbreviations

Technical and Industry Terms and Abbreviations

Risks Relating to the Bank’s Business

Rank Industry Fund based

The Bank is exposed to fluctuations in foreign exchange rates.

Significant security breaches could adversely impact the Bank’s business.

System failures could adversely impact the Bank.

Litigation by the Bank

Litigation by the Subsidiaries

Risks Relating to India

Risks Relating to the Equity Shares

• significant developments in India’s economic liberalisation and deregulation policies.

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

Non-resident shareholders may not be allowed to apply for additional shares.

Shareholder voting rights may be restricted.

You may be subject to Indian taxes arising out of capital gains.

Notes to Risk Factors:

Equity Shares proposed to be issued by the Bank 105,259,776 shares

Objects of the Issue:

• To improve the Bank’s capital adequacy ratio by augmenting Tier I capital;

Selected Income Statement Data