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Private and Confidential Information Memorandum

(Associate of the State Bank of India) Head Office: 5, Yashwant Niwas Road, Indore 452003 (MP). Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 Website: www.indorebank.org
PRIVATE PLACEMENT OF INNOVATIVE PERPETUAL DEBT INSTRUMENTS FOR INCLUSION OF TIER I CAPITAL IN THE NATURE OF UNSECURED PROMISSORY NOTES AGGREGATING TO Rs. 165 CRORES

STATE BANK OF INDORE

GENERAL RISKS Investors are advised to read the Risk factors carefully before taking an investment decision in this offering. For taking an investment decision the investor must rely on their examination of the offeror and the offer including the risks involved. The securities have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Specific attention of investors is invited to the chapter on Risk Factors in this Information Memorandum of Private Placement. OFFERORS ABSOLUTE RESPONSIBILITY The Offeror, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum contains all information with regard to the Offeror and the Offer, which is material in the context of the Offer, that the information contained in this Information Memorandum is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. The Arranger is not required to file this document with SEBI/ROC as it is on private placement and not an Offer to the general Public. CREDIT RATING CRISIL India Ltd. has assigned a rating of AAA/Stable (pronounced Triple A with stable outlook) rating to the captioned debt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualized, are not likely to affect the timely payment of principal and interest as per terms. CARE Ltd has assigned a rating of AAA (pronounced Triple A) to the captioned debt program of the bank. This rating indicates that the instrument is considered to be of the best credit quality, offering highest safety for timely servicing of debt obligations. This instrument carries minimal credit risk. The rating is not recommended to buy, sell or hold Securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating obtained is subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information, etc. LISTING The IPDI instruments are proposed to be listed on the Bombay Stock Exchange. (BSE) BOND TRUSTEE IDBI Trusteeship Services Ltd., have given their consent to the Bank vide their letter No. 1929/ITSL/OPR/2007/CL156 dated September 3, 2007 for being appointed as Bond Trustee for the present private placement.
Coordinating Arranger Arrangers Registrars

SBI Capital Markets Limited 202, Maker Tower E, Cuffe Parade, Mumbai 400 005. Tel: (022) 2218 9166 Fax: (022) 2218 8332

Citibank, N.A. Citigroup Centre, 4th Floor, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 Tel: 022 40015644 Fax: 022 4006 5859

Trust Investment Advisors Pvt. Ltd. 109/110 1st floor, Balarama Village Parigkhari Bandra-Kurla Complex Bandra (E) Mumbai 400051 Tel: 022 3068 1150 Fax: 022 3068 1151

Ankit Consultancy Pvt. Ltd 2nd Floor, Alankar Point 4-A, Rajgarh Kothi Geeta Bhawan Crossing, Indore Tel: (0731) 2491298/5076083 Fax: (0731) 5065798 Email:ankitind@sancharnet.in

Issue Opens: September 27, 2007 Issue Closes: September 28, 2007 Note: The Bank reserves the right to vary (pre-pone/postpone) any of the above date(s) at its sole and absolute discretion, without giving any reasons or prior notice. In such a case, investors will be intimated about the revised time schedule by the Bank

TABLE OF CONTENTS
Chapter Instrument Snapshot Definitions & Abbreviations Forward Looking Statements Risk Factors & Management Perceptions Thereof Internal Risk Factors Lock-in-Clause External Risk Factors Highlights of the Bank PART I General Information Eligibility Authority for the Placement General Disclaimer Listing Caution Minimum Subscription Undertaking by the Bank Private Placement Programme Private Placement Management Team Capital Structure of the Bank Terms of the Present Placement Unsecured Non convertible IPDI Bonds Tax Benefits Particulars of the Placement Banking Sector Overview History and Background of the Bank Management of the Bank Promoters, Group Companies, Joint Ventures & Associates Stock Market Data Financial Summary Management Discussion & Analysis Outstanding Litigations, Defaults & Material Developments Investor Grievance & Redressal Risk Factors & Management Perceptions thereof PART II General Information Financial Information Unaudited Financial results for/upto Qtr ended June 30, 2007 Statutory and Other Information Main Provisions of the State Bank of India Act Material Contracts & Documents for Inspection PART III Declaration APPLICATION FORM Annexures Page 1 3 7 8 8 12 12 16 17 17 17 17 19 19 20 20 21 22 23 26 27 43 47 48 77 98 104 108 109 110 112 114 115 124 127 155 157 161 171 172 173 174

DEFINITIONS AND ABBREVIATIONS

DEFINITIONS
Term(s)
Board/Board of Directors Book Closure/ Record Date Bonds/IPDI Bond Offeror/Bank Depository Depositories Act Depository Participant Director(s) Financial Year/Fiscal/FY Head Office of the Bank ITSL/Trustee Issue/Offer/ Private Placement Issuer/Offeror Information Memorandum/ Memorandum I.T. Act Offer Size RBI Registrar SEBI SEBI Act SEBI Guidelines

Description
The Board of Directors of State Bank of Indore or a committee thereof The date of closure of register of Bond for payment of interest. Unsecured Irredeemable Non-Convertible Innovative Perpetual Debt Instruments in the nature of promissory notes State Bank of Indore constituted under the State Bank of India (Subsidiary Banks) Act, 1959 A depository registered with SEBI under the SEBI (Depositories and Participant) Regulations, 1996, as amended from time to time The Depositories Act, 1996, as amended from time to time A depository participant as defined under the Depositories Act Director(s) of State Bank of Indore unless otherwise specified Period of twelve months ended March 31 of that particular year 5, Yeshwant Niwas Road, Indore 452003 (MP). IDBI Trusteeship Services Ltd. Private Placement of the Bonds State Bank of Indore The Offer Document for the Private Placement of Bonds The Income-Tax Act, 1961, as amended from time to time Unsecured, Irredeemable, Non-Convertible Innovative Perpetual Debt Instrument Bonds aggregating Rs. 165 Crores The Reserve Bank of India Registrar to the Offer, in this case being Ankit Consultancy Pvt. Ltd. The Securities and Exchange Board of India constituted under the SEBI Act, 1992 Securities and Exchange Board of India Act, 1992, as amended from time to time SEBI (Guidelines for Disclosure and Investor Protection) 2000 issued by SEBI on January 27, 2000, as amended, including instructions and clarifications issued by SEBI from time to time

ABBREVIATIONS
ALCO ALM AGL ARC AS BSE CAR CARE CDR CDSL CRISIL CRAR CRR DICGC DP ECGC FDI FEDAI GoI GDP ICAI IGL IPDI MoF NDTL NPA NRI NSDL RBI RRBs SARFAESI Act SBI SBI (SB) Act SEBI SLR The Bank The Board The Companies Act VRS Asset-Liability Management Committee Asset Liability Management Aggregate Gap Limits Asset Reconstruction Companies Accounting Standard Bombay Stock Exchange Limited, Mumbai Capital Adequacy Ratio CARE Limited Corporate Debt Restructured Central Depository Services (India) Ltd. CRISIL Ltd. Capital to Risk-weighted Assets Ratio Cash Reserve Ratio Deposit Insurance and Credit Guarantee Corporation of India Ltd. Depository Participant Export Credit Guarantee Corporation of India Ltd. Foreign Direct Investment Foreign Exchange Dealers Association of India Government of India/Central Government Gross Domestic Product Institute of Chartered Accountants of India Individual Gap Limits Innovative Perpetual Debt Instrument in the nature of promissory notes Ministry of Finance Net Demand and Time Liabilities Non-Performing Assets Non Resident Indians National Securities Depository Ltd. Reserve Bank of India Regional Rural Banks Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act State Bank of India State Bank of India (Subsidiary Banks) Act, 1959 Securities and Exchange Board of India Statutory Liquidity Ratio State Bank of Indore The Board of Directors of the Bank The Companies Act, 1956 Voluntary Retirement Scheme

PRIVATE PLACEMENT OF BONDS ISSUED BY STATE BANK OF INDORE


Dear Sir/ Madam, State Bank of Indore (the Bank) is proposing to issue IPDI Bonds on a private placement basis as described in this Memorandum. Investors are required to make payment through demand draft(s) / cheque(s)/RTGS remittance payable in favour of State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I and crossed Account Payee only. The full face value of the Bonds has to be paid up on application. Investors may also remit the application money through RTGS with instructions to credit the same to State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I to our RTGS Centre, Mumbai (RTGS Code Number of STIN0003351). The Bank reserves the right to reject in full or part any or all of the offers received by them to invest in these Bonds without assigning any reason for such rejections. You are requested to confirm your acceptance to the terms and conditions outlined in this Memorandum of Private Placement by sending the Application Form along with the cheque(s) / demand draft(s)/RTGS to the Arranger/Banks branches. Your acceptance of the terms and conditions outlined in this Memorandum will constitute an offer to invest in the abovereferred Private placement and will be subject to acceptance by the Bank. Please note that this Private Placement Memorandum is restricted for circulation only to the investors to whom the above has been addressed personally and this Memorandum cannot be transferred / circulated to others. The information contained herein is to be retained in strict confidence. Should you require any further clarifications regarding the above-mentioned Private placement, we request you to contact the undersigned. Yours Faithfully, For State Bank of Indore Sd/Authorised Signatory Place: Indore Date: September 25, 2007

DISCLAIMER This Memorandum of Private Placement (Memorandum) is neither a prospectus nor a statement in lieu of prospectus and does not constitute an offer to the public to subscribe for or otherwise acquire the Bonds issued by State Bank of Indore (the Bank/the Offeror). The document is for the exclusive use of the Person(s)/Institution(s) to whom it is delivered and it should not be circulated or distributed to third party (ies). Apart from this Information Memorandum, no Offer Document or Prospectus has been prepared in connection with this Bond Offer and that no Prospectus in relation to the Issuer or the Bonds relating to this Offer has been delivered for registration nor such a document is required to be registered under the applicable laws. The Arranger is not required to file this document with SEBI/ROC/RBI as it is on private placement and not an Offer to the general Public. This Memorandum is issued by the Bank. The views contained herein do not necessarily reflect the views of its directors, employees, affiliates, subsidiaries or representatives and should not be taken as such. The Memorandum has been prepared by the Bank to provide general information on the Bank and does not purport to contain all information a potential investor may require. Where this Memorandum summarizes the provisions of any other document, that summary should not be relied upon and the relevant document should be referred to for the full effect of the provisions. The information relating to the Bank contained in the Memorandum is believed by the Bank to be accurate in all respects as of the date hereof. The Memorandum shall not be considered as a recommendation to purchase the bonds and recipients are urged to determine, investigate and evaluate for themselves, the authenticity, origin, validity, accuracy, completeness, adequacy or otherwise the relevance of information contained in this Memorandum. The recipients are required to make their own independent valuation and judgment of the Bank and the Bonds. It is the responsibility of potential investors to also ensure that they will sell these bonds in strict accordance with this Information Memorandum and other applicable laws, so that the sale does not constitute an offer to the public, within the meaning of the Companies Act 1956. The potential investors should also consult their own tax advisors on the tax implications relating to acquisition, ownership, sale or redemption of Bonds and in respect of income arising thereon. Investors are also required to make their own assessment regarding their eligibility for making investment(s) in the Bonds of the Bank. The Bank or any of its Directors, employees, advisors, affiliates; subsidiaries or representatives do not accept any responsibility and/ or liability for any loss or damage however arising and of whatever nature and extent in connection with the said information. Neither the Arranger nor any of their respective affiliates or subsidiaries have independently verified the information set out in this Memorandum or any other information (written or oral) transmitted or made to any prospective lender in the course of its evaluation of the Offeror. The Arranger make no representation or warranty, express or implied, as to the accuracy or completeness of the Information Memorandum, and the Arranger do not accept any responsibility for the legality, validity, effectiveness, adequacy or enforceability of any documentation executed or which may be executed in relation to this Offer. The recipients of this Memorandum agree that unless and until the definitive written agreements between the Bank and any such recipient with respect to a possible transaction have been executed and delivered and have become legally effective, and then only to the extent of the specified terms and provision of such definitive agreements, neither the Bank nor any of its Directors, employees, advisors, affiliates, subsidiaries or representatives shall be under any legal obligation of any kind what so ever with respect to any such transaction by virtue of the delivery of this Memorandum or its content or of any other written or oral expression by any of the Directors, employees, advisors, affiliates, subsidiaries or representatives of the Bank.

Force Majeure

The Bank reserves the right to withdraw the Offer prior to the earliest closing date in the event of any unforeseen development adversely affecting the economic and regulatory environment or otherwise. In such an event, the Bank will refund the application money, if any, along with interest payable on such application money, if any, without assigning any reason. This Information Memorandum is issued by the Bank and signed by its authorized signatory. Sd/Authorised Signatory

Date: September 25, 2007

FORWARD-LOOKING STATEMENTS
This Information Memorandum may contain certain forward-looking statements. These forward-looking statements generally can be identified by words or phrases such as we believe, expect, estimate, anticipate, intend, plan or other words or phrases of similar import. Similarly, statements that describe our objectives, plans or goals are also forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: a) General economic and business conditions in India; b) Our ability to successfully implement our strategy, our growth and expansion plans and technological changes; c) Changes in the value of the Indian rupee and other currency changes; d) Changes in the Indian and international interest rates; e) Changes in laws and regulations that apply to the Indian Banking Industry; f) Increasing competition in, and the conditions of, the Indian Banking Industry; g) Changes in political conditions in India; and h) Changes in the foreign exchange control regulations in India. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. In accordance with SEBI requirements, our bank will ensure that investors in India are informed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges.

RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF The Investors should carefully consider the following risk factors as well as the other details and information contained in this Information Memorandum in evaluating the Bank and its business before investing the Bonds offered by this Information Memorandum. INTERNAL RISK FACTORS 1. Contingent Liabilities As on March 31, 2007 the contingent liabilities of the Bank were at Rs 22105 crores comprising claims against the Bank not acknowledged as debts - Rs. 61 crores, liability on account of outstanding forward exchange contracts - Rs. 19622 crores, guarantees on behalf of constituents - Rs. 1021 crores, acceptances, endorsements and other obligations - Rs. 1226 crores and others - Rs. 175 crores. As on June 30, 2007 the contingent liabilities of the Bank were at Rs 22105 crores comprising claims against the Bank not acknowledged as debts - Rs. 61 crores, liability on account of outstanding forward exchange contracts - Rs. 19420 crores, guarantees on behalf of constituents - Rs. 1079 crores, acceptances, endorsements and other obligations - Rs. 1370 crores and others - Rs. 175 crores. Management Perception The contingent liabilities have arisen in the normal course of business of the Bank and are according to the prudential norms prescribed by RBI. 2. Profits of the Bank The net profits of the Bank has increased marginally from Rs. 139.11 crores in FY 2005-06 to Rs. 190 crores in FY 2006-07 (growth of 36.58%) mainly due to a decrease in provisions and contingencies to an extent of Rs 199 crore for the FY 2006-07 from Rs 250 crore of 2005-06. Management Perception During 2006-07, the interest rate scenario underwent a sea change and this had a major impact on the banking sector in the country. Bank has responded effectively to the changed scenario and earned increased Net profit of Rs 190 crores during the year after making all the provisions. It may be noted that operating profit of the Bank has come from diversified income streams comprising net interest income, profit on sale of securities and other income, which account for 128.91%, 18.65% and 46.99% of the total operating profit respectively for the FY 2006-07, which is sustainable in future. For the Quarter Ended 30th June 2007, the Bank has made a net profit of Rs 64.77 crores against net profit of Rs 10.34 crores for the corresponding period last year i.e. a growth of 526.40%. 4. Non-Performing Assets (NPAs)

As on 31.03.2006 and 31.03.2007, the net NPAs of the Bank stood at Rs 216.80 crores and Rs 159.06 crores i.e. 1.83% and 1.04% of its net advances amounting to Rs 11875.97 crores and Rs 15351.38 crores respectively in absolute terms. In the event of non-recovery of these assets, the Bank may have to provide for these NPAs, which might affect the profitability of the Bank in future. Management Perception The Net NPAs of the Bank have remained low. The Banks provision on NPAs is more than the amount prescribed under RBIs IRAC norms. The Net NPAs ratio of the Bank stood at low 1.04% as on 31.03.2007 and at 1.01% on 30.06.2007. The Bank is taking steps to reduce the proportion of non-performing assets through aggressive recovery drives combined with improved risk management practices. The bank has set benchmarks for Gross NPAs and Net NPAs on the basis of the corporate goals. The top management of the bank is closely monitoring the movement of NPAs in tune with the corporate goals. Further, there have been substantial changes in the legislative and operating environment enabling Financial Institutions and

Banks to pursue recovery of overdues. Besides Debt Recovery Tribunal (DRT) set up for faster settlement of recovery litigation, GoI has enacted The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 enabling FIs and Banks to securitise and reconstruct financial assets and enforce security more effectively. Reserve Bank of India has formulated detailed guidelines for operation of the scheme. The Bank is invoking the provisions of the Securitization Act to enhance recovery. Thus, the Bank has been taking recourse to all the available methods to recover its overdues from the borrowers. 5. Regional Concentration of the Bank State Bank of Indore has a regional concentration in Madhya Pradesh accounting for approximately 77% of all branches in terms of numbers. The regional presence of the Bank may compromise its competitive position vis--vis its national level competitors. Management Perception The regional presence of the Bank may not be a hindrance to its growth prospects. Total deposits of the Bank have grown by 152.28% to Rs. 19976.47 crores and advances have grown up by 257.91% to Rs. 15351.38 crores during the past 5 years ending 31.03.2007. The Bank has 445 branches and 23 extension counters as on 31.03.2007 6. Decline in Return Ratios The Average Yield on Investment (domestic) of the Bank has shown a declining trend from 8.34% in FY 2006 to 8.20% in FY 2007. The Average Yield on Advances of the Bank has marginally increased from 8.24% to 9.02% during the same period. Management Perception Average Yield on investments has come down because of the decline in the general interest rate structure of the economy during past years and redemption of high yielding securities on maturity. The continuous downward trend in the interest rates over past years has been the major reason for decline in Yield on Investment of the Bank. For example, the yield on 10 year GoI security (semi-annualised yield), which was 6.21% on 31.03.2003 has come down to 5.16% on 31.03.2004. However, the G-Sec yields started hardening due to the higher crude oil prices, higher inflation, etc. and during December 2006, the yield on 10 year GoI security was at 7.60% (semi annualized). We believe that the declining interest scenario has now reversed and the yield on advances and investments will start improving. 7. Depreciation charge to P& L account due to Transfer of Securities from AFS to HTM Consequent upon transfer of certain Government Securities amounting to Rs 1631 crores during 2006-07 from Available for Sale (AFS) category to Held to Maturity (HTM) as permissible, depreciation amounted to Rs 172.17 crores in the FY 06-07. Management Perception The above-referred securities were transferred from AFS to HTM to insulate the Bank from further decline in prices. While improvement in prices will enable selling the securities with the permission of the top management of the Bank, in case of price fall, no further provisioning is necessary as HTM category is exempted from mark to market. 8. Adverse affect of the revised RBI policy on the Capital Adequacy of the Bank The provision of operational risk capital from 31.03.2008 will adversely affect the Capital Adequacy Ratio of the Bank in coming years. Management Perception The Bank has already initiated steps to improve the capital funds and has raised the subordinated bonds for Rs 200 crores in February 2005, Rs 140 crores in September 2005, Rs 110 crores in March 2006 and upper

Tier II Bond augmenting tier-II capital of Rs. 100 crores in December 2006 and upper Tier II Bond augmenting tier-II capital by Rs 200 crores in March 2007 to shore up the Capital Adequacy Ratio. The bank is further making this offer for Innovative Perpetual Debt Instrument for Rs 165 crores to further shore up CRAR that would take care of capital charge for operational risk. 9. Asset Liability Position As per the statement of structural liquidity as on the 31st March 2007, the negative mismatches in the first two time buckets are well within the tolerance levels stipulated by RBI and ALM policy of our Bank. Further, all the negative gaps in the other time buckets are also within the tolerance limits fixed by the bank. A large portion of the funding of the Bank is in the form of short and medium term deposits. The asset liability position of the Bank could be affected if the depositors do not roll over the deposits. A comprehensive contingency plan is put in place to address fully any problems relating to liquidity. Management Perception As per the normal behavioral pattern and past experience, a large portion of the deposits gets rolled over. The Bank feels that in the event of these deposits not being rolled over, the fresh accretion of deposits would take care of the Asset Liability mismatches. In addition, bank maintains ordinarily a surplus of around Rs 500 crores in the form of excess SLR securities, which can be utilized to correct any medium term mismatches. Moreover, the Bank has an Asset Liability Management system in place to actively monitor and manage liquidity mismatches. 10. Credit Risk The Banks main business of lending carries an inherent credit risk, which involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. Management Perception The Bank has a rigorous and well-defined credit appraisal system. Prudential exposure norms and various internal exposure norms are followed to avoid credit concentration and to minimize and mitigate credit risk. Credit risk assessment is in place for capturing the risk profiles of the accounts. The Bank ensures that Risk Management Department is independent of the operational department. Bank has a comprehensive loan policy document covering areas of credit and credit risk. 11. Asset Concentration Top five industries amount for 28.68% and 32.38% of non-food credit of the bank as on 31.3.2006 and 31.3.2007 respectively. Top five borrowers account for 7.03% and 10.32% of non-food credit as on 31.3.2006 and as on 31.3.2007 respectively. Management Perception Exposure norms are in place to avoid asset concentration. Portfolio reviews and reviews of implementation of exposure management norms are undertaken at regular intervals to check asset concentration. Except for some specified industries, exposure limits for individual industry is capped at 15 percent of the bank's total fund-based exposure to avoid concentration of assets in a few industries. 12. Outstanding Litigations against the Bank There are outstanding litigations 297 cases as on 31.03.2007 the financial implication of which cannot be estimated. For details, please refer to the section on Litigation appearing elsewherein the Information Memorandum. Management Perception These claims are not likely to affect the operations and finances of the Bank. 13. Litigation against the Bank sponsored RRBs

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There are 9 cases of claims/suits filed against Vidisha Bhopal Gramin Bank. This Gramin Bank is sponsored by State Bank of Indore. For details, please refer to the section on Litigation appearing elsewhere in the Information Memorandum. Management Perception These claims against Vidisha Bhopal Gramin Bank are not likely to affect the operations and finances of State Bank of Indore. 14. RBIs Annual Financial Inspection Report The Annual Inspection Reports of RBI on the financial position of the Bank has identified certain weaknesses in the system, operational and other deficiencies. Management Perception The bank has taken the necessary action to rectify the various deficiencies pointed out in the Annual Financial Inspections which is a regular supervisory exercise carried out by RBI in respect of all banks and financial institutions. A comprehensive report has been submitted to the regulatory authorities furnishing details of corrective actions initiated by the bank. 15. Utilization of Funds The utilization of the funds proposed to be raised through this private placement is entirely at the discretion of the Bank and no monitoring agency has been appointed to monitor the deployment of funds. Management Perception The funds raised through this private placement are not meant for any specific project and hence a monitoring agency may not be required. The Bank is managed by professionals under the supervision of its Board of Directors. Further, the Bank is subject to a number of regulatory checks and balances as stipulated in its regulatory environment. Therefore, the management believes that the funds raised via this private placement would be utilised only towards satisfactory fulfillment of the Objects of the Offer. 16. Credit Decisions The credit decisions of the Bank are subject to various risk parameters. Management Perception In a dynamic environment, all the credit decisions are subjected to various risk parameters. As such the Bank is following a prudent policy marked by in built checks and balances, where identification and mitigation of risk are the key objectives. Prudential limits are fixed on various financial parameters to implement risk management guidelines. Bank has implemented various Credit Risk Management guidelines given by the Reserve Bank of India. Bank has fixed internal exposure ceilings based on credit rating of the borrowal account to mitigate concentration risk. Portfolio/Industry wise exposure limit is fixed as a risk mitigation tool. As part of the credit risk management system, the Bank has also confined, by and large, the high value credit exposures to specially designated branches which are equipped to handle such exposures. Bank has also stipulated criteria for taking exposures in a particular industry. Maximum industry wise stipulated exposure is 15 per cent of total advances. The Due Diligence in respect of the retail assets has been strengthened to protect the quality of this portfolio. 17. Credit Policy of the Bank The credit policy followed by the Bank may materially influence its credit portfolio. Management Perception The Bank has a comprehensive loan policy document. The loan policy is regularly updated in the light of market changes and revision in RBI guidelines. Loan policy aims at continued growth of assets while endeavoring to ensure that they remain performing and standard.

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18. Lock-in Clause (a) The present Tier I Subordinate Innovative Perpetual Bond shall be subjected to a lock-in clause, in terms of which the Bank shall not be liable to pay Interest, if (i) the banks CRAR is below the minimum regulatory requirement prescribed by RBI; or (ii) the impact of such payment results in banks capital to risk assets ratio (CRAR) falling below or remaining below the minimum regulatory requirement prescribed by RBI (b) However, the bank may pay interest with the prior approval of RBI when the impact of such payment may result in net loss or increase the net loss, provided the CRAR remains above the regulatory norm. (c) The interest shall not be cumulative. (d) All instances of invocation of the lock-in clause should be notified by the issuing bank to the Chief General Managers-in-charge of Department of Banking Operations & Development and Department of Banking Supervision of Reserve Bank of India, Mumbai. (e) The claim of the investors shall be (i) Superior to the claims of investors in equity shares, and (ii) Subordinated to the claims of all other creditors. Management Perception The regulatory minimum CAR stipulated by RBI is 9% as on date, which may be revised by RBI from time to time. The CAR of the Bank is at 12.39%, 11.61%, 11.40%, 11.77% and 12.12% as on March 2004, March 2005, March 2006, March 2007 and June 2007 respectively, which is well above the minimum regulatory CAR of 9%. The Bank has a well-laid out internal policy to maintain a healthy CAR, well above the regulatory minimum CAR prescribed by RBI. To shore up the CAR further, the Bank, as a part of its capital augmentation programme is launching the present issue of Tier 1 Perpetual Bond (reckoned as Tier I capital). Hence, the Bank is confident of maintaining a healthy CAR, well above the regulatory minimum CAR stipulated by RBI as on date or that may be prescribed from time to time. 19. Accounting Standard 15 (Revised) [AS-15 (R)] The Institute for Chartered Accountants of India has issued guidelines for implementation of Accounting Standard - 15 (Revised). However, the effect of the revised Accounting Standard 15 on employee benefits ( which has come into effect from 1st April, 2007) have not been considered as on 31st March, 2007 , pending guideline from Reserve Bank of India. However provision has been made by bank on estimated basis of Rs 3.75 crore as on 30.06.2007 but actual payment will be made to the trust at the year end. Management Perception The Bank is in the process of assessing the impact of AS-15 (R) on the Capital funds of the Bank. However, given the existing level of Capital funds and ability of the Bank to raise additional capital from the Market at short notice, the Bank is of the view that it would be able to implement AS-15 (R). EXTERNAL RISK FACTOTRS 1. Regulatory restrictions on the Bank and limitations of the powers of bondholders of the Bank There are a number of restrictions as per the State Bank of India (Subsidiary Banks) Act, 1959, which impede the flexibility of the Bank's operations and affect/restrict investor's right. i. The Banks can carry on business/activities as specified in the Act. There is no flexibility to pursue profitable avenues if they arise, in contrast with companies under the Companies act, where shareholders can amend the Object clause by a Special Resolution Act. ii. There are restrictions in the Banking regulation Act regarding: a) Setting up of subsidiaries by a bank b) Management of the Bank including appointment of directors c) Borrowings and creation of floating charge thereby hampering leverage. d) Expansion of business as the branches need to be licensed e) Opening of new place of business and transfer of existing place of business f) Disclosures in the profit & loss account and Balance sheet

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g) h) i) j)

Production of documents and availability of records for inspection by shareholders Reconstruction of banks through amalgamation etc Further issues of capital including issue of rights share for which prior SBI/RBI approval is needed The Bank is prohibited from trading activity. This may act as operational constraint.

iii. Every Banking Company is required to create a Reserve fund by transfer of a sum equivalent to not less than twenty percent of profit as disclosed in the Profit & Loss account before any dividend is declared. iv. Every Bank has to maintain assets in India, which would be not less than 75% of the Bank's demand and time liabilities in India, which in turn may prohibit the Bank from creating overseas assets and exploiting overseas business opportunities. v. The financial disclosures in the Information Memorandum may not be available to investors after listing, on a continuous basis. vi. Various rights/powers of shareholders available under the Companies Act in this behalf are not available to shareholders of Banks as the provisions of the Companies Act are not applicable to the Bank. Rights like calling for general meetings, inspection of minutes and other material records, application by members for investigation of affairs of a company, application for a relief in case of oppression and mismanagement, voluntary winding up are not available to shareholders of a Bank. vii. As per section 19(2) of State Bank of India (Subsidiary Bank's) Act, 1959, no person other than the State Bank, shall be entitled to exercise voting rights in respect of any shares held by such person in excess of one percent of the issued capital of the subsidiary bank concerned. viii. No banking company shall pay dividend on its shares until all its capitalised expenses (including preliminary, organizational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. The bank has no such assets/capitalized expenses as on 31.03.2005 and 31.03.2006. ix. As per Section 9 (1) of the State Bank of India Act, 1959 no person shall be registered as a shareholder in respect of any shares in a subsidiary bank held by him, whether in his own name or jointly with any other person, in excess of two hundred shares, or be entitled to payment of any dividend on the excess shares held by him, or to exercise any of the rights of a shareholder in respect of such excess shares otherwise than for the purpose of selling them: Provided that nothing contained in this sub-section shall apply toa) the State Bank; b) a State Government; c) a Corporation; d) an insurer as defined in the Insurance Act, 1938; e) a local authority; f) a Co-operative society; g) a trustee of a public or private religious or charitable trust; Increase in regional hostilities, terrorist attacks and other acts of violence and war could adversely affect the country's economic growth and development thereby the financial markets including the Bank's business and its future financial performance. The performance, quality, and growth of the Bank are dependent on the health of the overall Indian economy. Slowdown in economic growth in India could affect the business of the Bank. Management Perception The bank has been functioning well with all these constraints and is expected to continue to grow as hitherto. The Bank is expanding its product and services offered to diversify its income streams. The Bank's thrust on retail products is envisaged to provide growth. Risk management systems, credit supervision, special emphasis on recovery of NPAs and close monitoring will enable the Bank to closely monitor the health of its credit portfolio. The slowdown witnessed in the Indian and global economy in the past few years has not materially affected the Bank's profitability.

13

2. Sensitivity to the Economy and Extraneous Factors The Banks performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Bank including the quality and growth of its assets. 3. Competition from Existing and New Commercial Banks Competition in the financial sector has increased with the entry of new players and is likely to increase further as a result of further deregulation in the financial sector. The Bank may face competition both in raising resources and in deploying them. Management Perception The Bank has an established broad-based presence and has been taking steps to enhance customer satisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting to add quality assets on competitive terms. The Bank is also taking steps to broad base its product bouquet with a special emphasis on enhancement in the non-fund based income. On the resource-raising front, the Bank is actively endeavouring to broaden its reach and raise resources through its wide distribution network of 452 branches, 23 extension counters as on 31.08.2007 4. Changes in Regulatory Policies The operations of the Banking Industry are subject to regulations by the Government/RBI. Major changes in Government/ RBI policies relating to banking sector may have an impact on the operations of the Bank. Management Perception The policy changes may provide both opportunities and challenges for the Bank. The Bank has a long presence in the banking sector, for more than 86 years and does not perceive policy changes to be a major threat. 5. Disintermediation in the Financial Markets As the financial markets mature and with growing developments in the capital markets, the trend towards disintermediation may be increasingly in evidence. In such a scenario, many companies including the current and potential borrowers of the Bank may access capital markets directly for their financing needs and reduce their dependence on the banking system. This may have an adverse impact on the level of deposits and also on the level and mix of advances portfolio and the profitability of the Banks. Management Perception The Bank has, in recent years, launched several retail lending schemes and value added products so as to broaden its borrower base. Further, disintermediation brings with it the opportunity for the Bank to expand its fee-based activities. The Bank has been endeavoring to develop a presence in several financial services to earn fee based income by focusing on businesses such as foreign exchange, treasury, investments, cash management, insurance, depository, etc., thus taking advantage of the disintermediation phenomenon. 6. Forex Risk Exchange Rate fluctuations may have an impact on the Banks financial performance. Management Perception As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange transactions beyond prescribed limits on a daily basis. Foreign exchange transactions beyond such limits, if any, must be squared off at the end of each day. Hence, the risk from exchange rate fluctuations is minimised. The Board

14

of Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of Banks foreign currency assets and liabilities and forward transactions in foreign exchange. The Bank operates within the limits fixed for gaps or mismatches in maturities of Banks foreign currency assets and liabilities and forward transactions in foreign exchange, thus minimising the risks of mismatches in maturities and interest rates. 7. Interest Rate Risk Present interest rates on deposits and advances are based on many micro and macro economic factors including the directives of the Reserve Bank of India which are likely to be market driven due to deregulation and thereby may result in increasing pressure on spreads and affect profitability. Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest rate risk has a potential impact on net interest income or net interest margin as well as on the market value of the fixed income securities held by the Bank in its investment portfolio. Management Perception These risks are inherent in the banking business. However, the Bank has put in place a system of regular review of lending and deposit rates in order to minimise the interest rate risk. The Asset Liability Management Committees of the Bank reviews the risk on a regular basis. Continuous Risk Management measures are initiated depending upon the movement in the market interest rates. The movement in the interest rates is closely monitored for appropriate action. 8. Operational Risk Operational risk is a result of failure of operating system in a bank due to certain reasons like computer break-ins, power disruptions, fraudulent activities, natural disaster, human error or omission or sabotage. Management Perception For managing operational risk, the Bank has laid down well-defined systems and procedures. The Bank has set up a separate department to improve the systems and procedures to suit the changing environment. The Bank has also in place a strong internal inspection and audit system. For managing IT related risks, the Information Systems Security Policy is in place. The Bank has an effective Systems and Procedures department, which formulates and monitors delegation of duties and responsibilities at different level. Note to Risk Factors 1. Net worth (excluding revaluation reserves) of the Bank as on 31.03.2006 and 31.03.2007 was Rs. 1017.73 crores and Rs 1176.97 crores respectively. The networth as of June 30, 2007 was Rs. 1241.74 crores. The Bank has not revalued its assets during the past 5 years. 2. The Private Placement size of this Tier I Perpetual Bond issue is Rs. 165 crores. 3. The Book Value of the share as on March 31, 2006 and March 31, 2007 was at Rs. 5506/- and Rs. 6355/- respectively (face value of Rs. 100/-). 4. State Bank of Indore would like to clarify that inspection by RBI is a regular exercise and is carried out periodically by RBI for all banks and financial institutions. The reports of RBI are strictly confidential. The Bank has informed the RBI the actions already taken and measures that are under implementation in respect of observations made by RBI. 5. As per the provisions of Section 15(1) of the Banking Regulation Act, 1949 no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. 6. No person holding shares in the Bank in respect of any shares held by him/her can exercise voting rights on a poll in excess of 1% of the total voting rights of all the shareholders of the Bank. 7. Transactions between State Bank of Indore and its Associates w.r.t. related party transactions are given under the head Financial Information. 8. The face value per share of the promoters is Rs. 100/-.

15

HIGHLIGHTS OF THE BANK Member of the State Bank Group, the largest Banking Group in India. The Group has the biggest network of branches and the highest market share of deposits and advances in the country. Only Public sector bank headquartered at Madhya Pradesh. Uninterrupted record of profitability since incorporation. Low net NPA ratio of 1.04% as on 31.03.2007 and 1.01% as on 30.06.2007. The Capital Adequacy Ratio of the Bank stood at 11.77% and 12.12% as at the end of 31.03.2007 and 30.06.2007 respectively, which is higher than the minimum required 9%. Bank's existing equity shares are listed on the Madhya Pradesh Stock Exchange at Indore. Credit growth during the year 2006-07 was at 29.26% against ASCB growth 28%. Return on Assets and Return on Equity as on 31.03.2007 were 0.87% and 17.31% respectively. 100% Business has been computerized under Core-Banking.

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(Associate of the State Bank of India, Constituted under State Bank Of India (Subsidiary Banks) Act, 1959) Head Office: 5, Yashwant Niwas Road, Indore 452003 (MP). Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 Website: www.indorebank.org

STATE BANK OF INDORE

Private Placement of Unsecured, Non-Convertible Innovative Perpetual Debt Instrument Bonds in the nature of promissory notes aggregating Rs. 165 crores PART I
GENERAL INFORMATION

State Bank of Indore (herein after referred to as the Bank or the Issuer) has been constituted under the State Bank of India (Subsidiary Banks) Act, 1959 herein after referred to as the SBI (SB) Act. The Bank is privately placing to eligible applicants, as mentioned elsewhere in this information Memorandum, Unsecured, Non-Convertible Innovative Perpetual Debt Instruments in the nature of promissory notes aggregating to Rs. 165 crores of the face value of Rs. 10,00,000/each ('the Issue').

ELIGIBILITY
This being a private placement of debt securities, the eligibility norms of SEBI DIP Guidelines, 2000 are not applicable.

AUTHORITY FOR THE PLACEMENT


This private placement of Bonds is being made pursuant to the resolution passed by the Board of Directors of the Bank on 22nd August 2007 permitting to raise Subordinated Innovative Perpetual Bond (inclusive in tier I) up to Rs. 165 crores. Further, State Bank of India, Central Office, has approved the issue of IPDI bonds vide their letter SBD/AA/002167 dated 18 August, 2007. The Bank can carry on its existing activities and has planned future activities in view of the existing approvals, and no further approvals from any Government authority are required by the Bank to carry on its said activities.

GENERAL DISCLAIMER
This Information Memorandum is neither a Prospectus nor a statement in lieu of Prospectus. It does not constitute an offer or an invitation to the Public at large to subscribe to IPDI Bonds (Bonds) issued by State Bank of Indore. This Information Memorandum is not intended for distribution and is for the consideration of the person to whom it is addressed and should not be reproduced by the recipient. It cannot be acted upon by any person other than to whom it has been specifically addressed. It is not intended to be offered to more than forty-nine investors. Multiple copies hereof given to the same entity shall be deemed to be offered to the same investor. Apart from this Information Memorandum, no other document has been prepared in connection with this Bond Issue and that no document in relation to the Issuer or this Bond Issue has been delivered for registration to any authority. 17

This Information Memorandum has been prepared in accordance with Schedule II of the Companies Act 1956, Chapter VI of the SEBI (DIP) Guidelines to give information regarding the Bank to investors proposing to invest in this issue of Bonds and it does not purport to contain all the information that any such party may require. The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum 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 this Information Memorandum is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document or any of such information or the expression of any such opinions or intentions misleading in any material respect. Potential investors are required to make their own independent valuation and judgment before making the investment and they are believed to be experienced in investing in debt markets and are able to bear the economic risk of investing in the Bonds. It is the responsibility of potential investors to have obtained all consents, approvals or authorizations required by them to make an offer to subscribe for, and purchase of the Bonds. Potential investors have not relied on any advice given by the Arrangers in connection with their offer to subscribe for and purchase the Bonds and acknowledge that the Arranger does not owe them any duty of care in respect of their offer to subscribe for and purchase of the Bonds. It is the responsibility of potential investors to ensure that any transfer of the Bonds is in accordance with this Information Memorandum and the applicable laws, and ensure that the same does not constitute an offer to the public. Potential investors should also consult their own tax advisors on the tax implications of the acquisition, ownership, sale and redemption of Bonds and income arising thereon. The Arrangers do not take any responsibility either for the financial soundness of the Bonds offered or for the correctness of the statement made in this Information Memorandum. The Arrangers have relied exclusively upon the information provided by State Bank of Indore and has neither verified independently, nor assumes responsibility for the accuracy and completeness of this Information Memorandum, or any other information or documents supplied or approved by State Bank Of Indore. The Arrangers hold no responsibility for any misstatement in or omission by the Bank, publicly available information or any other information about the Bank available in the market. Neither the Arrangers nor any officer or employee of the Arrangers accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.
Disclaimer Statement from the Issuer

The Bank accepts no responsibility for statements made otherwise than in the Information Memorandum or in the advertisements or other material issued by or at the instance of the Bank and the Arrangers and that anyone placing reliance on any other source of information would be doing so at his/her own risk.
Disclaimer in respect of Jurisdiction

This Issue is made in India to Investors as specified under section Who Can Apply of this Information Memorandum, who shall be specifically approached by the Bank/Arrangers. This Information Memorandum does not, however, constitute an offer to sell or an invitation to subscribe to bonds offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person into whose possession this Information Memorandum comes is required to inform himself about and to observe any such 18

restrictions. Any disputes arising out of this Issue will be subject to the exclusive jurisdiction of the district courts of Indore. The Issuer shall make all information 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.
Disclaimer Clause of the Bombay Stock Exchange Ltd.

A copy of this Information Memorandum has been submitted to The Bombay Stock Exchange Ltd. (hereinafter referred to as BSE) where Banks securities are proposed to be listed in terms of the extant Guidelines. BSE does not in any manner: 1. warrant, certify or endorse the correctness or completeness of any of the contents of this Information Memorandum; or 2. warrant that the Banks securities will be listed or will continue to be listed on the Exchange; or 3. take any responsibility for the financial or other soundness of the Bank, its promoters, its management or any scheme or project of the Bank. Every person who desires to apply for or otherwise acquire any securities of the Bank may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against BSE 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. The delivery of this Information Memorandum hereunder shall not under any circumstances create any implication that there has been no change in the affairs of the Bank since the date thereof or that the information contained herein is correct as of any time subsequent to this date.

LISTING
Application shall be made to the Bombay Stock Exchange Ltd. to list the bonds of the Bank now being offered through this Information Memorandum and for permission to deal in such Bonds. If the permissions to deal in and for an official quotation of the Bonds is not granted by BSE, the Bank shall forthwith repay, without interest all such moneys received from the applicants in pursuance of this Information Memorandum. If such monies are not repaid within eight days after the Bank becomes liable to repay them (i.e. from the date of refusal or within 70 days from the date of the closing of the subscription list, whichever is earlier), then the Bank will be liable to repay the monies, with interest, as prescribed under Section 73 of the Companies Act, 1956.

CAUTION
Though the provisions of Sub-section (1) of Section 68-A of the Companies Act, 1956 do not apply to an issue of Bonds, attention of the investors is drawn to the provisions as a matter of abundant precaution: Any person who makes in a fictitious name, an application to a company for acquiring, or subscribing for, any shares therein, or

19

otherwise induces a company to allot, or register any transfer of shares therein to him, or any other person in fictitious name, shall be punishable with imprisonment for a term which may extend to five years

UNDERWRITING
The Bonds offer is not underwritten.

MINIMUM SUBSCRIPTION
Minimum subscription is not applicable for private placement of bonds.

UNDERTAKING BY THE BANK


The Bank undertakes: a. to attend to the complaints received in respect of the Issue expeditiously and satisfactorily; b. to take all steps for completion of necessary formalities for listing and commencement of trading at the Stock Exchange where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment; c. to apply in advance for the listing of the securities; d. that the funds required for despatch of refund orders/allotment letters by registered post shall be made available; e. that the Allotment Letters/Refund Orders to the applicants shall be despatched within specified time; f. that no further issue of securities shall be made till the securities offered through this Offer Document are listed or till the application monies are refunded on account of nonlisting; g. that necessary cooperation with Credit Rating Agency (ies) shall be extended in providing true and adequate information till the debt obligations in respect of the instrument are outstanding; h. to forward the details of utilisation of the funds raised through the Bonds duly certified by the statutory auditors, to the bond trustees at the end of each half-year; i. to disclose the complete name and address of the bond trustees in the annual report; j. to provide a compliance certificate to the bond holders on a yearly basis in respect of compliance with the terms and conditions of placement of Bonds as contained in the memorandum, duly certified by the bond trustee.

PROHIBITION BY SEBI
The Bank, its associates and companies with which the directors of the Bank are associated as directors or promoters are not prohibited from accessing the capital market/Corporate Debt Securities Market under any order or directions passed by SEBI.

CREDIT RATING
CRISIL India Ltd. has assigned AAA/Stable (pronounced Triple A with Stable Outlook) rating to the captioned debt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualized, are not likely to affect the timely payment of principal and interest as per terms.

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CARE Ltd has assigned a rating of AAA (pronounced triple A) to the captioned debt program of the bank. This rating indicates that the instrument is considered to be of the best credit quality, offering highest safety for timely servicing of debt obligations. This instrument carries minimal credit risk. The rating is not a recommendation to buy, sell or hold Securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating obtained is subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information etc.

CREDIT RATING DURING PREVIOUS THREE YEARS


The Credit Ratings received by the Bank are as follows:
Year Credit Rating Agency Credit Rating Received Amount Raised (Rs. Crs.)

FY 2004-05 FY 2005-06 FY 2005-06 FY 2006-07 FY 2006-07

CRISIL Ltd CRISIL Ltd ICRA Ltd CRISIL Ltd ICRA Ltd CRISIL CARE CRISIL CARE

CRISIL AAA/Stable CRISIL AAA/Stable LAAA CRISIL AAA/Stable LAAA AAA/Stable AAA AAA/Stable AAA

200 140 110 100 200

TRUSTEES
The Bank has appointed IDBI Trusteeship Services Ltd, 10th Floor, Nariman Bhavan, 227, Vinay K Shah Marg, Nariman Point, Mumbai 400 021 as Bond Trustees registered with SEBI, for the holders of the Bonds (hereinafter referred to as Trustees).

PRIVATE PLACEMENT PROGRAMME


Opening date September 27, 2007 Closing Date September 28, 2007 Deemed Date of Allotment September 28, 2007 Note: The Bank reserves the right to vary (pre-pone/postpone) any of the above date(s) at its sole and absolute discretion without giving any reasons or prior notice. In such a case, investors will be intimated about the revised time schedule by the Bank.

PRIVATE PLACEMENT MANAGEMENT TEAM


Coordinating Arranger SBI Capital Markets Limited 202, Maker Tower E, Cuffe Parade, Mumbai 400 005. Tel: 022 2218 9166 Fax: 022 2218 8332 www.sbicaps.com Arranger Citibank, N.A. Citigroup Centre, 4th Floor, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 Tel: 022 40015644 Fax: 022 4006 5859 Arranger Trust Investment Advisors Pvt. Ltd. 109/110 1st floor, Balarama Village, Parigkhari Bandra-Kurla Complex Bandra (E) Mumbai 400051 Tel: 022 3068 1150 Fax: 022 3068 1151

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Registrar to the Offer Ankit Consultancy Pvt. Ltd 2nd Floor, Alankar Point 4-A, Rajgarh Kothi Geeta Bhawan Crossing, Indore Tel: 2491298/5076083 Fax: 5065798 E-mail:ankitind@sancharnet.in Trustees IDBI Trusteeship Services Ltd 10th Floor, Nariman Bhawan 227, Vinay K. Shah Marg, Nariman Point, Mumbai-400021 Tel. 022 5631 1771/2/3 Fax: 5631 1776 www.idbitrustee.com

Bankers to the Bond Issue State Bank of Indore 5, Yeshwant Niwas Road, Indore 452003 Tel. (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 www.indorebank.org Auditors to the Bond Issue M. Munshi & Co. 305, Navneet Plaza, 5/2 Old Palasia Indore-452018. Tel.0731 2561023/2563452 Fax: 2564019 E-mail:mmunshico@vsnl.net

COMPLIANCE OFFICER

The investors can contact the Compliance Officer for Bonds in case of any pre-issue/post-issue related problems such as non-credit of letter(s) of allotment/bond certificate(s) in the demat account, non-receipt of refund order(s), interest warrant(s)/cheque(s) etc. Mr. Ravindra G. Gadkari General Manager-Treasury State Bank of Indore-Head Office 5, Yashwant Niwas Road, Indore 452003 (MP) Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 Email: gmif@sbindore.co.in

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CAPITAL STRUCTURE OF THE BANK (As on March 31, 2007) No. of Shares A. Authorised Capital 5,000,000 Equity Shares of Rs. 100 each B. Issued, Subscribed and Paid-up Capital 1,750,000 Equity Shares of Rs. 100 each C. Paid Up Capital after the Present Offer 1,750,000 Equity Shares of Rs. 100 each D. Share Premium Account Before the Offer After the Offer Notes to Capital Structure: 1) Following is the capital history since 1985:
Year ended March 31 Increase (Decrease) in capital Mode

Face Value (Rs.) 500,000,000 175,000,000 175,000,000

Issue Value (Rs.) 500,000,000 175,000,000 175,000,000 437,500,000 437,500,000

(No. and Amount of Shares)


Cumulative Paid-up capital

1985 1986 1988 1996

Existing Capital 35,000 shares Rs.0.35 crore 1,40,000 shares Rs.1.40 crore 7,00,000 shares Rs.7.00 crore 8,75,000 shares Rs.8.75 crore

Opening Balance/ Issue of Shares at Face Value of Rs.100/ Issue of Shares at premium of Rs.Nil per share etc Rights shares at face value of Rs.100 Rights shares at face value of Rs.100 Rights shares at face value of Rs.100 at premium of Rs.500

35,000 shares Rs.0.35 crore 1,75,000 shares Rs.1.75 crore 8,75,000 shares Rs. 8.75 crore 17,50,000 shares Rs.17.50 crore Share premium reserve Rs.43.75 crore

2. The list of top 10 shareholders of the bank and the number of equity shares held by them: a. Top ten shareholders as on date of filing the Information Memorandum with Stock Exchange is as follows:
Sr. No. Name of the Shareholders Number of Equity Shares

1. 2. 3. 4. 5. 6. 7. 8.

State Bank of India Life Insurance Corporation of India Sir Sarupchand Hukumchand Pvt Ltd Shri Chaganlal Airen Shri Anuj Airen Shri Anand Swarup Shastri Smt. Alka Narendra Airen Smt. Urmila Bhargawa 23

1715867 11920 475 268 200 200 200 200

9. 10.

Shri Manohar Dev Shri Rajendra Singh Airen

200 200

b. Top ten shareholders ten days prior to the date filing the Information Memorandum with Stock Exchange is as follows:
Sr. No. Name of the Shareholders Number of Equity Shares

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

State Bank of India Life Insurance Corporation of India Sir Sarupchand Hukumchand Pvt Ltd Shri Chaganlal Airen Shri Anuj Airen Shri Anand Swarup Shastri Smt. Alka Narendra Airen Smt. Urmila Bhargawa Shri Manohar Dev Shri Rajendra Singh Airen

1715867 11920 475 268 200 200 200 200 200 200

c. Top ten shareholders two years prior to the filing the Information Memorandum with Stock Exchange is as follows:
Sr. No. Name of the Shareholders Number of Equity Shares

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

State Bank of India Life Insurance Corporation of India Sir Sarupchand Hukumchand Pvt Ltd Shri Chaganlal Airen Shri Anuj Airen Shri Anand Swarup Shastri Smt. Alka Narendra Airen Smt. Urmila Bhargawa Shri Manohar Dev Shri Rajendra Singh Airen

1715867 11920 475 268 200 200 200 200 200 200

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3. Shareholding Pattern (as on March 31, 2007):


Sr. No. Category A. Promoter's Holding 1. Promoters* - Indian Directors/Relatives - Foreign Promoters 2. Persons acting in Concert Sub Total B. 3. a. b. c. 4. a. b. c. d. Non-Promoters Holding Institutional Investors Mutual Funds & UTI Banks, Financial Institutions, Insurance Companies (Central/ State Govt. Institutions/ Non Government Institutions) Foreign Institutional Investors Sub Total Others Private Corporate Bodies Indian Public NRIs/ OCBs Trade Union/ Trusts/Clearing Members Sub Total Grand Total Number of Shares Held 1715867 Nil 1715867 11920 % Shareholding 98.05 Nil 98.05 0.68

11920 475 21738 22213 1750000

0.68 0.03 1.24 1.27 100.00

*The Promoter Group of the Bank comprises of the State Bank of India. 1. The Bank has not raised any bridge loan against the proceeds of this Private Placement. 2. The Bank has not issued any Equity Shares out of revaluation reserves or for consideration other than cash. 3. The shareholders of the Bank do not hold any warrant, option or any debentures, which would entitle them to acquire further shares in the Bank. 4. The number of issued shares of the Bank as on date of the issue is 17,50,000. 5. The Bank as part of its ongoing capital augmentation programme may issue bonds/securities/loans etc. as deemed necessary.

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TERMS OF THE PRESENT PLACEMENT The Bank is intending to raise an aggregate amount of Rs. 165 crores (through the issue of Unsecured Non-Convertible Innovative Perpetual Debt Instruments in the nature of promissory notes for inclusion of Tier I capital of face value of Rs. 10 lakh each for cash at par (hereinafter referred to as the Bonds) by way of private placement. The Bonds being offered are subject, interalia to the terms of this Information Memorandum, the application form, the Memorandum and Articles of Association of the Bank, and the provisions of the Companies Act, 1956, State Bank of India (Subsidiary Banks) Act 1959 and The Banking Regulations Act, 1949. In addition, the bonds shall be subject to such other terms and conditions to be incorporated in the Bond Trust Deed / Letter of allotment and to the extent applicable, the provisions of the Depositories Act 1996, the relevant Statutory Guidelines and Regulations for allotment and listing of securities issued from time to time by the Government of India (GoI), SEBI and the Stock Exchanges concerned. This Information Memorandum does not, however, constitute an offer to sell or an invitation to subscribe to bonds offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. The Issue hereunder shall be made in India to Investors specified under clause Who Can Apply of this Information Memorandum, who shall be specifically approached by the bank/Arranger. This Information Memorandum does not constitute an offer to sell or an invitation to subscribe to Bonds offered hereby to any person to whom it is not specifically addressed.

OBJECTS
The Issue proceeds would be used to strengthen the Tier I capital funds position and the long term resources of the bank. Instrument at a Glance: Issue Size Instrument Rs. 165 crores Fully paid-up, Unsecured, Non Convertible Innovative Perpetual Debt Instruments Bonds qualifying for inclusion in Tier I Capital in the nature of promissory notes. To be issued in dematerialized form with Central Depository Services (India) Limited/National Securities Depository Limited. AAA / Stable by CRISIL AAA by CARE Face Value/ Issue Price Minimum Application Size Tenor Redemption Rs. 10,00,000/- per Bond One Bond and thereafter in multiples of one bond Perpetual These bonds shall be perpetual. However, in case the Bank exercises the call option, then

Issuance Format Credit Rating

bulleted Redemption at par

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Coupon Rate

Interest Payment Interest on Application Money

Put option Call option Step-up Option

Lock-in-clause

Listing Depository Issuance & Trading

Fixed coupon @ 10.25% p.a. subject to TDS as applicable. If the Bank does not exercise Call Option, after 10 years from the Date of Allotment, fixed coupon of 10.75% p.a.,(step-up coupon of 50 bps) is payable from 28.09.2017 till the next Call Option that may be exercised by the Bank, subject to TDS as applicable Annual Interest on application money will be paid to Investors at the Coupon Rate (subject to deduction of tax at source, as applicable) from the date of realisation of cheque(s)/demand draft(s)/RTGS realisation, upto but not including the Deemed Date of Allotment. None At par at the end of 10th year from the date of allotment and thereafter on each anniversary date (with prior approval of RBI) A step-up-option of 50 bps over and above the coupon rate of 10.25%, if the Call Option is not exercised by the Bank after 10 years from the Date of Allotment. That is, the Bonds carry a Coupon Rate of 10.75% after ten years till the next Call Option that may be exercised by the Bank. Bank shall not be liable to pay Interest if, the bank's CRAR is below the minimum regulatory requirement prescribed by RBI or the impact of such payment results in bank's CRAR falling below or remaining below the minimum regulatory requirement prescribed by RBI, at the material time. Proposed listing at BSE NSDL and CDSL Demat mode

*Subject to TDS as applicable. Investors are advised to read the Information Memorandum for more details.

UNSECURED NON-CONVERTIBLE SUBORDINATED INNOVATIVE PERPETUAL DEBT INSTRUMENTS BONDS

Transferability The Innovative Perpetual Debt Instrument Bonds will be negotiable instruments in the nature of Promissory Notes, transferable by endorsement and delivery.

Seniority of Claim The Innovative Perpetual Bonds will constitute direct, unsecured and subordinated obligations of the Bank and the claims of the investors in innovative instruments shall be a) Superior to the claims of investors in equity shares and b) Subordinate to the claims of all other creditors.

KEY TERMS
Tenor The Bonds are perpetual in nature from the Date of Allotment, unless the Bank exercises the Call Option.

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Coupon The investors will receive interest at 10.25% p.a. subject to TDS as applicable. If the Bank does not exercise Call Option, after 10 years from the Date of Allotment, fixed Coupon of 10.75% p.a., is payable from 28.09.2017 till the next Call Option that may be exercised by the Bank, at the time of the Annual Interest Payment Date and every year thereafter, subject to TDS as applicable. Face Value per Bond Each Bond has a face value of Rs.10, 00,000/- and is issued at par at Rs.10, 00,000/-. Minimum Application Size The minimum investment shall be 1 bond i.e. Rs.10, 00,000/- and in multiples of 1 (one) Bond i.e. Rs. 10, 00,000 thereafter. Deemed Date of allotment September 28, 2007 shall be the deemed date of allotment of the Bonds. All the benefits under the bonds will accrue to the investor from this date even though the actual allotment may take place on a date other than the specified deemed date of allotment. Credit Rating CRISIL Ltd. has assigned AAA/Stable (pronounced Triple A with stable outlook) rating to the captioned debt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factors are negligible. There may be circumstances adversely affecting the degree of safety, but such circumstances, as may be visualized, are not likely to affect the timely payment of principal and interest as per terms. CARE Ltd has assigned a rating of AAA (pronounced triple A) to the captioned debt program of the bank. This rating indicates that the instrument is considered to be of the best credit quality, offering highest safety for timely servicing of debt obligations. This instrument carries minimal credit risk. The rating is not recommended to buy, sell or hold Securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating obtained is subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information etc. Listing Application shall be made to the Bombay Stock Exchange Ltd. to list the bonds of the Bank now being offered through this Information Memorandum and for permission to deal in such Bonds. If the permissions to deal in and for an official quotation of the Bonds is not granted by BSE the Bank shall forthwith repay, without interest all such moneys received from the applicants in pursuance of this Information Memorandum. If such monies are not repaid within eight days after the Bank becomes liable to repay them (i.e. from the date of refusal or within 70 days from the date of the closing of the subscription list, whichever is earlier), then the Bank will be liable to repay the monies, with interest, as prescribed under Section 73 of the Companies Act, 1956. Limits The total amount raised by a bank through IPDI shall not exceed 15 percent of unimpaired noninnovative Tier-I Capital of the previous financial year. The eligible amount will be computed with

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reference to the amount of Tier-I capital as on March 31 of the previous financial year, after deduction of goodwill and other intangible assets but before the deduction of investments. Investment by FII in IPDI raised in Indian rupees shall be outside the ECB limit for rupee denominated corporate debt (currently USD 1.5 billion) fixed for investment by FIIs in corporate debt instruments. Put Option There is no Put Option available to the Bondholder(s) for redeeming the Bonds prior to maturity. The Bonds are free of any restrictive clause and shall not be redeemable at the initiative of the holder(s). Redemption of these Bonds shall be made only with the prior approval of the RBI. Call Option The Bank can exercise Call Option, if the Innovative Perpetual Debt Instrument Bonds have run for atleast 10 years i.e. after 10 years from the Date of Allotment and every year thereafter at the Annual Interest Payment Date, with the prior approval of RBI. For availing this facility, the Bank shall notify its intention to do so, through a notice sent by Registered Post/Courier to the sole/first named applicant or sole/first Beneficial Owner of the Bonds by virtue of sale/transfer, atleast 30 days prior to the due date. Step-Up Option The Innovative Perpetual Debt Instrument Bonds carry a Step-up Option of 50 bps over and above the coupon of 10.25% p.a., after 10 years from the Date of Allotment i.e. from 28.09.2017 till the next Call Option that may be exercised by the Bank, at the time of Annual Interest Payment Date and every year thereafter subject to TDS as applicable. The Step-up Option shall not in any way alter other characteristics of the instruments, except the coupon of the instruments. Lock-in Clause 1. The present Innovative Perpetual Debt Instruments shall be subjected to a lock-in clause, in terms of which the Bank shall not be liable to pay either periodic interest on principal or even principal at maturity, if a. the banks CAR is below the minimum regulatory requirement prescribed by RBI; or b. the impact of such payment results in banks capital to risk assets ratio (CRAR) falling below or remaining below the minimum regulatory requirement prescribed by RBI 2. However, the bank may pay interest with the prior approval of RBI when the impact of such payment may result in net loss or increase the net loss, provided the CRAR remains above the regulatory norm. 3. The interest amount due shall not be cumulative. 4. All instances of invocation of the lock-in clause should be notified by the bank to RBI. However, this lock-in-clause will not proscribe the Bank from making payment of periodic interest/principal on the stipulated due date(s), as long as the Bank meets with the minimum regulatory CAR requirements. Date of Redemption The Bonds are perpetual, unless the Bank exercises Call Option after 10 years from the Date of Allotment or every year thereafter at the Annual Interest Payment Date. All the benefits under the Bonds will accrue to the investors upto the date of Call Option that may be exercised by the Bank.

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Underwriting The Bonds offer is not underwritten. Interest on Application Money Interest at the coupon rate (subject to deduction of tax at source) will be paid in respect of all valid applications including the refunds. Such interest shall be paid from the date of realisation of the cheques/demand drafts up to the date immediately preceding the Deemed Date of Allotment. Refund cheques/Warrants/Demand Drafts / RTGS realizations will be mailed within seven days of Deemed Date of Allotment. In case of an oversubscription, the excess mobilisation that would be eventually refunded will also be applicable for application money. However, in case of a rejected application, no interest would be paid on the application money. The Interest Cheque(s)/ Demand Draft(s) for Interest on Application Money shall be dispatched by the Bank alongwith allotment advice/ Regret letter / Rejection letter, as the case may be, and will be dispatched by registered post to the sole/ first applicant, at the sole risk of the applicant. Interest on the Bonds The Bonds will carry interest at the rate of 10.25% p.a. at fixed rate for the first 10 years from the Date of Allotment. If the Bank does not exercise Call Option, after 10 years from the Date of Allotment, fixed Coupon of 10.75% p.a., is payable from 28.09.2017 till the next Call Option that may be exercised by the Bank, at the time of the Annual Interest Payment Date and every year thereafter, subject to TDS as applicable. The interest will be paid from the Date of Allotment (subject to deduction of Tax at source at the rates prevailing from time to time under the Income Tax Act, 1961 or any other statutory modification or reenactment thereof) and is payable annually on April 1st each year for the previous year ended on March 31st during the tenure of the Bonds except for the last interest payment. If any interest payment date falls on a day, which is not a business day in Indore, Madhya Pradesh (Business Day being a day on which Commercial Bank are open for business in Indore , Madhya Pradesh ), then payment of interest will be made on the next business day but without liability for making payment of interest for the delayed period. The interest payable shall be calculated by multiplying the coupon rate by the principal amount, multiplying such product by actual number of days in the interest period concerned dividing by 365 (a leap year would be considered as 366 days for the purpose of interest calculation). Interest Period a. The first interest period is defined as the actual number of days falling between the Deemed Date of Allotment to 31st March 2008 including both the first date and the last date. The first interest payment would be made on 1st April 2008. b. The second interest period is defined as the actual number of days between 1st April 2008 and 31st March 2009 including both the dates and so on. c. The last interest period is defined as the actual number of days falling between the Date of Redemption on account of Call Option exercised by the Bank and the previous interest Payment Date. Payment of Interest The interest payment would be made by Electronic Clearing System or by means of cheques/demand drafts/(Interest warrants payable at par at specified branches of the Bank) and will be mailed to the Bondholders. Payment of interest will be made to the holders of the Bonds whose names appear in the list of beneficiaries given by NSDL/CDSL to the Bank on Record Date.

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Interest Deferral In terms of the Lock-in clause for IPDI Bonds, the Bank cannot pay periodical interest on due dates, if the Banks Capital Adequacy Ratio is below the Regulatory Minimum Ratio stipulated by RBI (which currently is 9%), on any Interest Payment Date. In such a case, the Bank may defer payment of Interest on the Bonds, until permitted by RBI. Record Date The Record Date will be 30 days prior to each Interest Payment Date or the Date of Redemption as the case may be. Tax Deduction at Source Tax as applicable under the Income Tax Act, 1961, or any other statutory modification or reenactment thereof will be deducted at source. The investor(s) desirous of claiming exemption from deduction of income tax at source on the interest on application money are required to submit the necessary certificate(s), in duplicate, along with the application form in terms of Income Tax rules. Interest payable subsequent to the Deemed Date of Allotment of Bonds will be treated as Interest on Securities as per Income Tax Rules. Bondholders desirous of claiming exemption from deduction of income tax at source on the interest payable on Bonds should submit tax exemption certificate/ document, under Section 193 of the Income Tax Act, 1961, if any, at the office of the Bank, at least 45 days before the payment becoming due.
Regarding deduction of tax at source and the requisite declaration forms to be submitted, prospective investor is advised to consult his tax consultant.

Redemption The face value of the Bond will be redeemed at par, on expiry of 180 months from the deemed date of allotment. However, if the call option is exercised by the bank, the bonds will be redeemed on expiry of 120 months. The Bond will not carry any obligation, for interest or otherwise, after the date of redemption. The Bonds held in the Dematerialised Form shall be taken as discharged on payment of the redemption amount by the Bank on maturity to the registered Bondholders whose name appear in the Register of Bondholders on the record date. Such payment will be a legal discharge of the liability of the Bank towards the Bondholders. On such payment being made, the Bank will inform NSDL/CDSL and accordingly the account of the Bondholders with NSDL/CDSL will be adjusted. The Bonds are negotiable instruments transferable by endorsement and delivery in the denomination of Rs. 10,00,000/- each. The bonds will not be redeemable at the initiative of the holder or without the consent of Reserve Bank of India. Hence, the consent of Reserve Bank of India will be obtained before redemption of bonds on due date or before the date of Call Option to be exercised by the Bank, as required in terms of their guidelines addressed to all Commercial Banks vide RBI notification DBOD No.BP.BC.57/21.01.002/2005-2006 dated 25th January, 2006 and Master Circular Prudential Norms on Capital Adequacy vide their notification DBOD No.BP.BC.13/21.01.002/2006-06 dated 1st July, 2006. Effect of Holidays Should any of the dates defined above or elsewhere in the Information Memorandum, excepting the Deemed Date of Allotment, fall on a Sunday or a Public Holiday, the next working day shall be considered as the effective date(s). In case any Interest Payment Date(s) and/or the Date of Redemption falls on a holiday, interest/ redemption will be paid on the next working day (i.e. a day on which scheduled commercial banks

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are open for business). No additional interest will be paid as a result of the interest payment and/or Redemption being made on a day falling after the Interest Payment Date/ Date of Redemption under this condition. Issue of Bonds in dematerialised form The Bank will be issuing the Bonds in dematerialised form. The Bank will be opening the accounts with NSDL and CDSL for issuing these Bonds. Applicant should mention their Depository Participants name, DP-ID and Beneficiary Account Number in the appropriate place in the Application Form. The Bank will take necessary steps to credit the Depository Account of the allottee(s) with the number of bonds allotted. Responsibility for correctness of applicants demographic details given in the application form vis-a-vis his/her depository participant would rest with the applicant and the bank would not be liable with regard to the above in any manner whatsoever. Depository Arrangement The Bank has appointed Ankit Consultancy Pvt. Ltd., Indore as Registrars and Transfer Agents for Bond Issuance. The Bank has entered into depository arrangements with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) for the issue of the bonds. Transfer of Bonds The transfer of bonds in dematerialised form would be in accordance with the rules/procedures as prescribed by Depository/Depository Participant. Terms of Payment Applications should be for a minimum of 1 Bond. All cheques /drafts/RTGS remittance should be in favour of State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I and crossed Account Payee only. The entire amount of Rs. 10 lakhs (Rs. Ten Lakhs only) per bond is payable on application. Investors may also remit the application money through RTGS with instructions to credit the same to State Bank of Indore A/c - SB Indore Tier I Perpetual Bond Series I to our RTGS, Centre, Mumbai (RTGS Code No. STIN0003351). Procedure for Application and Mode of Payment This being a Private Placement Offer, Investors who are established/Resident in India and who have been addressed through this Communication directly, only are eligible to apply. Applications for the Bonds must be in the prescribed form (enclosed) and completed in BLOCK LETTERS in English and as per the instructions contained therein. Applications complete in all respects (along with all necessary documents as detailed in the memorandum of information) must be submitted before the last date indicated in the issue time table or such extended time as decided by the Bank, at any of the designated collection centres, accompanied by the subscription amount by way of cheque(s)/draft(s) drawn on any bank including a co-operative bank which is situated at and is a member of the Bankers clearing house located at a place where the application form is submitted. Outstation cheque(s)/Bank draft(s) drawn on Bank(s) not participating in the clearing process at the designated clearing centres will not be accepted. Money orders/postal orders will also not be accepted. The Bank assumes no responsibility for any applications/cheques/ DDs lost in mail. All cheques /drafts should be in favour of State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I and crossed Account Payee only. The entire amount of Rs. 10 lakhs (Rs. Ten

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Lakhs only) per bond is payable on application. Investors may also remit the application money through RTGS as mentioned above. No separate receipt will be issued for the Application money. However, the Banks designated collection branches or arrangers receiving the duly completed Application Form will acknowledge receipt of the application by stamping and returning to the applicant the Acknowledgment Slip at the bottom of the each Application Form. As a matter of precaution against possible fraudulent encashment of Interest Warrants/Cheques due to loss/misplacement, the applicant should furnish the full particulars of his or her bank account (i.e. Account Number, name of the bank and branch) at the appropriate place in the Application Form. Interest warrants will then be made out in favour of the bank for credit to his/her account so specified and dispatched to the investors, who may deposit the same in the said bank. Succession In the event of the demise of the sole/first holder of the Bond(s) or the last survivor, in case of joint holders for the time being, the Bank will recognise the executor or administrator of the deceased Bondholder, or the holder of succession certificate or other legal representative as having title to the Bond(s). The Bank shall not be bound to recognise such executor or administrator, unless such executor or administrator obtains probate, wherever it is necessary, or letter of administration or such holder is the holder of succession certificate or other legal representation, as the case may be, from a Court in India having jurisdiction over the matter. The Bank may, in its absolute discretion, where it thinks fit, dispense with production of probate or letter of administration or succession certificate or other legal representation, in order to recognise such holder as being entitled to the Bond(s) standing in the name of the deceased Bondholder on production of sufficient documentary proof or indemnity or on such other terms and conditions as acceptable to the Bank. Where a non-resident Indian becomes entitled to the Bond by way of succession, the following steps have to be complied with: i. Documentary evidence to be submitted to the Legacy Cell of the RBI to the effect that the Bond was acquired by the NRI as part of the legacy left by the deceased holder. ii. Proof that the NRI is an Indian national or is of Indian origin. Such holding by the NRI will be on a non-repatriation basis. Register of Bondholders The Register of bondholders containing necessary particulars will be maintained by the Bank at such place(s) as it may decide. Trustees to the Bondholders The Bank has appointed IDBI Trusteeship Services Ltd. to act as Trustees for the Bondholders (hereinafter referred to as The Trustees). The Bank and the Trustees will enter into a Trustee Agreement specifying inter alia, the powers, authorities and obligations of the Trustees and the Bank. By applying for the Bonds, the Bondholders shall without further action or deed, be deemed to have irrevocably given their consent to and authorised the Trustees or any of their agents or authorised officials to do interalia all acts, deeds, matters and things in respect of or relating to the

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Bonds. All the rights and remedies of the Bondholders shall vest in and shall be exercised by the Trustees without reference to the Bondholders. No Bondholder shall be entitled to proceed directly against the Bank unless the Trustees, having become so bound to proceed, failed to do so. The Trustees will endeavour to protect the interest of the Bondholders in the event of default in regard to timely payment of interest and principal by the Bank. Debenture Redemption Reserve State Bank of Indore is a banking Company within the meaning of the Banking Regulation Act, 1949. The resources through the current issue of the Bank are being raised by the Bank for augmenting the Tier-I Capital for strengthening the Capital Adequacy and enhancing its long-term resources. Department of Company Affairs, Ministry of Law Justice and Company Affairs, Government of India has vide general clarification no.6/3/2001-CL.V dated 18/04/2002 clarified that Banks need not create Debenture Redemption Reserve as specified under section 117C of the Companies Act, 1956. Bondholder not a Shareholder The Bondholder will not be entitled to any of the rights and privileges available to the Shareholders. If, however, any resolution affecting the rights attached to the bonds is placed before the members of the Bank, such resolution will first be placed before the Bondholders for their consideration. Rights of Bondholders a. The Bonds shall not, except as provided in the Act, confer upon the holders thereof any rights or privileges available to the members of the Bank including the right to receive Notices or Annual Reports of, or to attend and/or vote, at the General Meeting of the Bank. However, if any resolution affecting the rights attached to the Bonds is to be placed before the shareholders, the said resolution will first be placed before the concerned registered Bondholders for their consideration. In terms of Section 219(2) of the Act, holders of Bonds shall be entitled to a copy of the Balance Sheet on a specific request made to the Bank. b. The rights, privileges and conditions attached to the Bonds may be varied, modified and/or abrogated with the consent in writing of the holders of at least three-fourths of the outstanding amount of the Bonds or with the sanction of Special Resolution passed at a meeting of the concerned Bondholders, provided that nothing in such consent or resolution shall be operative against the Bank, where such consent or resolution modifies or varies the terms and conditions governing the Bonds, if the same are not acceptable to the Bank. c. The registered Bondholder or in case of joint-holders, the one whose name stands first in the Register of Bondholders shall be entitled to vote in respect of such Bonds, either in person or by proxy, at any meeting of the concerned Bondholders and every such holder shall be entitled to one vote on a show of hands and on a poll, his/her voting rights shall be in proportion to the outstanding nominal value of Bonds held by him/her on every resolution placed before such meeting of the Bondholders. The quorum for such meetings shall be at least five Bondholders present in person. d. The Bonds are subject to the provisions of the Companies Act, 1956, the Memorandum and Articles, the terms of this Information Memorandum and Application Form. Over and above such terms and conditions, the Bonds shall also be subject to other terms and conditions as may be incorporated in the Trustee Agreement/ Letters of Allotment/ Bond Certificates, guidelines, notifications and regulations relating to the issue of capital and listing of securities issued from time to time by the Government of India and/or other authorities and other documents that may be executed in respect of the Bonds. e. Save as otherwise provided in this Prospectus, the provisions contained in Annexure C and/or Annexure D to the Companies (Central Governments) General Rules and Forms, 1956 as

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prevailing and to the extent applicable, will apply to any meeting of the Bondholders, in relation to matters not otherwise provided for in terms of the Issue of the Bonds. f. A register of Bondholders will be maintained in accordance with Section 152 of the Act and all interest and principal sums becoming due and payable in respect of the Bonds will be paid to the registered holder thereof for the time being or in the case of joint-holders, to the person whose name stands first in the Register of Bondholders. g. The Bondholders will be entitled to their Bonds free from equities and/or cross claims by the Bank against the original or any intermediate holders thereof. h. Bonds can be rolled over only with the positive consent of the Bondholders. Modification of Rights The rights, privileges, terms and conditions attached to the Bond may be varied, modified or abrogated with the consent, in writing, of those holders of the Bond who hold at least three fourth of the outstanding amount of the Bond or with the sanction accorded pursuant to a resolution passed at a meeting of the Bondholders, provided that nothing in such consent or resolution shall be operative against the Bank where such consent or resolution modifies or varies the terms and conditions of the Bond, if the same are not acceptable to the Bank. Discount The innovative instruments are not subjected to a progressive discount for capital adequacy purposes since these are perpetual. Compliance with Reserve Requirements The total amount raised by a bank through IPDIs shall not be reckoned as liability for calculation of net demand and time liability for the purpose of reserve requirements, and, as such will not attract CRR/SLR requirements. Applications may be made by: 1. Provident/Superannuation/Gratuity/Pension Funds. 2. Commercial Banks, Financial Institutions and Insurance Companies, societies registered under the applicable laws in India and authorised to invest in bonds. 3. State/Central Co-operative Banks, Development Co-operative Banks, Land Development Banks, RRBs, Primary Co-operative Banks. 4. Mutual Funds, Companies, Bodies Corporate, Trusts and Association of Persons and Individuals. 5. Port Trusts. 6. NBFCs and Residuary NBFCs 7. Scientific and/or Industrial Research Organisations, authorised to invest in bonds. 8. Scientific and/or Industrial Research Organisations, authorised to invest in bonds. Other Government and Non-government agencies authorised to invest in these bonds as per present and relevant government guidelines. Although above investors are eligible to apply, only those persons, who are individually addressed through direct communication by the Bank, are eligible to apply for the Bonds. No other person may apply. Posting of Information Memorandum on the Designated Stock Exchange website should not be construed as an offer to issue and has been posted only as it is stipulated by SEBI. Investors should check about their eligibility before making any investment. The investors are advised to check and satisfy themselves as regards their eligibility to apply before making any payment.

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The Applications must be accompanied by certified true copies of (1) Memorandum and Articles of Association/constitution/Bye-laws (2) Resolution authorising investment and containing operating instructions (3) Specimen signatures of authorised signatories and (4) Necessary forms for claiming exemption from deduction of tax at source on the interest income / interest on application money, wherever applicable. Application by Provident Funds, Superannuation Funds and Gratuity Funds The Government of India has, vide its Gazette notification dated 06.03.2003, in partial modification of notification no. F.11 (3-PD/98) dated March 31, 1999 has permitted Provident, Superannuation and Gratuity Funds to invest up to 30% of incremental accretions in the bonds/securities of public sector companies as defined under Section 2 (36-A) of the Income Tax Act, 1961. Also, an additional amount of 30% of the incremental accretions, can be invested at the discretion of the Board of Trustees in any of the remaining three prescribed categories of investments. The Bank is a public sector bank within the meaning of the said section, and hence Provident Funds, Superannuation Funds and Gratuity Funds can invest in the Bonds. The applications must be accompanied by certified true copies of (i) Trust Deed/Bye Laws/Resolutions, (ii) Resolution authorising investment and (iii) specimen signatures of the authorised signatories. Those desirous of claiming tax exemptions on interest on application money are compulsorily required to submit a certificate issued by the Income Tax Officer along with the Application Form. For subsequent interest payments, such certificates have to be submitted periodically. Applications by Commercial Banks Investment by commercial banks in subordinated debt issues of other banks would attract 100% risk weights for the investing bank. The applications must be in conformity with extant RBI guidelines and accompanied by certified true copies of i) Board Resolution authorising investment, ii) Power of Attorney and iii) specimen signatures of authorised signatories. Application by Regional Rural Banks Reserve Bank of India, vide circular No.RPCDNB.BC.98/03.05.34/94/95 dated January 2, 1995 and amended vide Circular No. RPCD.RRB.BC.882/03.05.34/96-97 dated December 13, 1996 has permitted RRBs to invest their surplus non-SLR funds in Bonds of public sector undertakings. However, the investments are subject to the prudential and single exposure norms of RBI. The applications must be accompanied by certified true copies of (i) Government Notification/Certificate of Incorporation/Articles and Memorandum of Association/Other deed governing the constitution, (ii) resolution authorising investment, (iii) Power of Attorney (iv) specimen signatures of authorised signatories and (v) income tax recognition certificate/Form 15 AA. Application by Primary/District/State/Central Co-Operative Banks/Land Development Banks Any State Co-operative Bank (SCB)/District Central Co-operative Bank (DCCB)/Primary Cooperative Bank (PCB)/Land Development Banks (LDBs) in any State would be eligible to invest in these Bonds with necessary approval. Reserve Bank of India vide notification NO. BR.CIR.72/16.20.00/93-94 dated 16th May 1994 have clarified that the primary co-operative banks can invest their surplus funds upto 10% of their deposits in Bonds of public sector undertakings, provided inter-alia that a provision exists for such investments in the respective state Co-operative Societies Act/Multi State Co-operative Societies Act and the Banks should take permission from the Registrar of Co-operative Societies of the State, for such investments. Further, Reserve Bank of India vide notification no. BR.12/16.20.00/95-96 dated Jan 6, 1996 has requested the Registrar

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of Co-operative Societies of all States to grant general permission to the primary co-operative banks for such investments, subject to their complying with other conditions and safety measures laid down by Reserve Bank of India from time to time. As per RBI circular no. PPF.ROC.9/07.02.03/98-99 dated June 23, 1999; Central/State Cooperative Banks can invest in PSU bonds an amount not exceeding 10% of their deposits and 5% of their average non-SLR surplus funds after obtaining requisite permission. The applications must be accompanied by certified true copies of i) Resolution authorising investment/Power of Attorney and ii) specimen signatures of authorised signatories. Application by Trusts Trusts, whose Trust Deeds provide for investment in Bonds may apply to this issue of bonds, subject to the approval of the Charity Commissioner or other appropriate authority as the case may be. The application must be accompanied by certified true copies of i) Trust Deed/Bye Laws, ii) Certificate of Registration, iii) Resolution authorising investment and containing operating instructions, iv) Specimen signatures of authorised signatories and v) Income exemption certificate (including interest on application money) / Form 15 AA (if applicable). Applications by Corporate Bodies/Companies/FIs/Statutory Corporations The applications must be accompanied by certified true copies of (i) Memorandum and Articles of Association/Constitution/Bye-laws, (ii) resolution authorising investment and containing operating instructions, (iii) specimen signatures of authorised signatories and (iv) Form 15 AA for claiming exemption from deduction of tax on the interest income (including interest on application money), if applicable. Applications under Power of Attorney In case of applications under Power of Attorney by limited companies or other bodies corporates or commercial banks or regional rural banks/primary/district/central co-operative banks or, individuals, a certified copy of Power of Attorney with a copy of the relevant authority/resolution (other than individuals) must be deposited along with the Application Form. Application under Power of Attorney or by limited companies In case of applications made under a Power of Attorney or by a Limited Company or a Body Corporate or Registered Society or Mutual Fund, and scientific and/or industrial research authorization or Trusts etc, the relevant Power of Attorney or the relevant resolution or authority to make the application, as the case may be, together with the certified true copy thereof along with the certified copy of the Memorandum and Articles of Association and/or Bye-Laws as the case may be must be attached to the Application Form or lodged for scrutiny separately with the photocopy of the Application Form, quoting the serial number of the Application Form and the Banks branch where the application has been submitted, at the office of the Registrars to the Issue after submission of the Application Form to the bankers to the issue or any of the designated branches as mentioned on the reverse of the Application Form, failing which the applications are liable to be rejected. Such authority received by the Registrars to the Issue more than 10 days after closure of the subscription list may not be considered. Individuals Individuals are also entitled to apply to the bond issue subject to the application qualifying for the minimum application amount and are valid in all other respects. Those desirous of claiming tax exemptions on interest on application money are compulsorily required to submit relevant declaration Form (as per I.T. Act 1961) along with the Application Form. For subsequent interest payments, such Forms have to be submitted periodically.

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In the case of joint applications, the number of such applicants should not be more than three. All communications and cheques for interest/redemption will be addressed to the applicant whose name appears first, at the address stated in the application form/register of Bondholders Payment Instructions All Application Forms, duly completed, together with Cheque/Bank Drafts for the amount payable on application must be delivered before the closing of the issue list to the specified branches of State Bank of Indore named herein or to the Arrangers to the Issue. Payment should be made in by Cheque / Bank Draft. Cheques/Bank Drafts should be drawn on any Bank (including Co-operative Bank) which is situated at and is a member or sub-member of the Bankers Clearing House located at the place where the application is submitted. Outstation Cheque or Bank Drafts will not be accepted. Applications accompanied by such Cheques, or Bank Drafts are liable to be rejected. All Cheques or Bank Drafts must be made payable to State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I and should be crossed A/c payee only. In case of payment by Cheque or Bank Draft, a separate instrument must accompany each Application form. Investors may also remit the application money through RTGS with instructions to credit the same to State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I to our RTGS, Centre, Mumbai (RTGS Code No. STIN0003351). As an abundant precaution, the investors are advised to send by fax the particulars of the remittances made through STEPS/ RTGS [like i) Name of the Investor ii) Number of Bonds applied for iii) Amount of Application Money remitted iv) Date of the remittance v) Bank and Branch through which the remittance is made etc.] to any of the Advisors, on the fax number mentioned elsewhere in the Document/ Application Form. For further details, investors are advised to refer to the instructions given in the Application Form. No receipt will be issued for the application money. However, the Bankers to the Issue and/or their branches receiving the application will acknowledge receipt by stamping and returning to the applicant the acknowledgement slip at the bottom of each Application Form. For further instructions, please read the Application Form carefully. It is mandatory for the applicant to fill in the relevant columns in the Application Forms giving the particulars of their savings/current bank account number, the name and address of the Bank with which such account is held to enable the issuer to print the said details in the Refund Orders in the name of the Payee. In case of Joint Applications, the first applicant must mention these details. Applications not containing these details are liable to be rejected. PAN/GIR Number All Applicants should mention their Permanent Account Number or the GIR Number allotted under Income Tax Act, 1961 and the Income Tax Circle / Ward / District. In case where neither the PAN nor the GIR Number has been allotted, the fact of such a non-allotment should be mentioned in the Application Form in the space provided. Signatures Signatures should be made in English or in any of the Indian Languages. Thumb impressions must be attested by an authorised official of a Bank or by a Magistrate/Notary Public under his/her official seal. Nomination Facility

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As per Section 109 A of the Companies Act, 1956, only individuals applying as sole applicant/Joint Applicant can nominate, in the prescribed manner, a person to whom his Bonds shall vest in the event of his death. Non-individuals including holders of Power of Attorney cannot nominate. Disposal of Applications and Application Money The Bank reserves, in its own, absolute and uncontrolled discretion and without assigning any reason, the right to accept in whole or in part or reject any application. If an application is rejected in full, the entire application money received will be refunded to the applicant. If the application is rejected in part, excess of the application money received will be refunded to the applicant within one week from the date of allotment of the bonds. No interest will be payable on the application money so refunded by way of a rejection. Refund will be made by cheques or demand drafts drawn in favour of the sole/first applicant (including the details of his savings/ current account number and the name of the bank with whom the account is held) and will be dispatched by registered post/courier. Such refund orders Demand Drafts/Cheques will be payable at par at specified centres. However, in case of refunding the excess amount mobilised (by way of an oversubscription) The Bank has undertaken to make adequate funds available to the Registrar to the Offer for complying with the requirements of dispatch of Allotment Letters/Refund Orders by registered post/courier. Disputes & Governing Law The Bonds are governed by and shall be construed in accordance with the Indian Laws. The High Court of Madhya Pradesh, Indore Bench alone shall have the jurisdiction in connection with any matter arising under these precincts. Trading of Bonds The trading of privately placed Debt securities would be permitted in standard denomination of Rs. 10 lakhs in the anonymous, order driven system of the Stock Exchange in a separate trading segment. The marketable lot would be Rs. 10 lakhs. All class of investors would be permitted to trade subject to the standard denomination/marketable lot. The trades executed on spot basis shall be required to be reported to the Stock Exchange. Notices Notice required to be given by the Bank to the Bondholders shall be deemed to have been given if sent by ordinary post/courier to the First Bondholder or if published in one All India English daily newspaper and one regional language newspaper. Any notice required to be given by the Bondholders shall be sent by registered post/courier/by hand delivery to the Bank or to such persons at such address as may be notified by the Bank from time to time. Future Borrowings The Bank will be entitled to borrow/raise loans or avail finance in whatever form as also issue bonds / other securities in any manner having such ranking in priority, pari passu or otherwise and change the capital structure, including issue of shares of any class, on such terms and conditions as the Bank may think appropriate, without the consent of or intimation to the Bondholder(s) in this connection. Miscellaneous A Register of Bondholders shall be maintained at the Head Office of the Bank. Such Register shall be closed thirty (30) business days prior to each interest payment date.

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In case of dissolution/bankruptcy/insolvency/winding up of Bondholders, the Bond certificates shall be transmittable to the Legal Representative(s)/Successor(s) or the Liquidator, in accordance with the law on such terms as may be deemed appropriate by the Bank. Registrars Ankit Consultancy Pvt. Ltd, 2nd Floor, Alankar Point, 4-A, Rajgarh Kothi, Geeta Bhawan Crossing, Indore are acting as Registrar and Transfer agents for the Bank. Trustees The Bank has appointed IDBI Trusteeship Services Ltd, 10th Floor, Nariman Bhavan, 227 Vinay K Shah Marg, Nariman Point, Mumbai 400002 as Bond Trustees registered with SEBI, for the holders of the Bonds (hereinafter referred to as Trustees). The Bank will enter into a Trustee Agreement/Trust Deed, inter-alia, specifying the powers, authorities and obligations of the Bank and the Trustees in respect of the Bonds. The Bondholders shall, without any further act or deed, be deemed to have irrevocably given their consent to and authorised the Trustees or any of their Agents or authorised officials to do, all incidental acts, deeds and things necessary in terms of this Memorandum of Private Placement. All rights and remedies under the Trust Deed/Trust Agreement and/or other security documents shall rest in and be exercised by the Trustees without having it referred to the Bondholders. Any payment made by the Bank to the Trustees on behalf of the Bondholder(s) shall discharge the Bank pro tanto to the Bondholder(s). The Trustees will protect the interest of the Bondholders in the event of default by the Bank in regard to timely payment of interest and repayment of principal and they will take necessary action at the cost of the Bank. The Trustees may appoint a nominee director on the Board of the Bank in consultation with other institutional Bondholders in the event of default. The major events of default which happen and continue without being remedied for a period of 30 days after the dates on which the monies specified in (i) and (ii) below become due and will necessitate repayment before stated maturity are as follows: i. ii. Default in payment of monies due in respect of interest/principal owing upon the Bonds; Default in payment of any other monies including costs, charges and expenses incurred by the Trustees.

Other events of default are: i. Default is committed in the performance or observance of any covenant, condition or provision contained in these presents and/or the financial Covenants and Conditions (other than the obligation to pay principal and interest) and, except where the Trustees certify that such default is in their opinion incapable of remedy (in which case no notice shall be required), such default continues for 30 days after written notice has been given thereof by the Trustees to the Bank requiring the same to be remedied. ii. Any information given by the Bank in its applications to the Bondholders, in the reports and other information furnished by the Bank and the warranties given/deemed to have been given by it to the Bondholders/trustees is misleading or incorrect in any material respect. iii. The Bank is unable to or has admitted in writing its inability to pay its debt as they mature. iv. A Receiver or a Liquidator has been appointed or allowed to be appointed of all or any part of the undertaking of the Bank and such appointment is not dismissed within 60 days of appointment.

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v. The Bank ceases to carry on its business. Rights, Powers and Discretion of the Trustees In addition to the other powers conferred on the Trustees and provisions for their protection and not by way of limitation or derogation of anything contained in this Agreement nor of any statute limiting the liability of the Trustees, it is expressly stated as follows: a. The Trustees shall not be bound to give notice to any person of the execution hereof or to see to the performance or observance of any of the obligations hereby imposed on the Bank or in any way to interfere with the conduct of the Banks business unless and until the rights under the Bonds shall have become enforceable and the Trustees shall have determined to enforce the same; b. Save as herein otherwise expressly provided the Trustees shall, as regards all trusts, powers, authorities and discretions, have absolute and uncontrolled discretion as to the exercise thereof and to the mode and time of exercise thereof and in the absence of fraud shall not be responsible for any loss, costs, charges, expenses or inconvenience that may result from the exercise or non- exercise thereof and in particular they shall not be bound to act at the request or direction of the Bondholders under any provisions of these presents unless sufficient monies shall have been provided or provision to the satisfaction of the Trustees made for providing the same and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses and liability which may be incurred in complying with such request or direction; c. With a view to facilitate any dealing under any provision of these presents the Trustees shall have full power to consent (where such consent is required) to a specified transaction or class of transactions conditionally; d. The Trustees shall not be responsible for the monies paid by applicants for the Bonds; e. The Trustees shall not be responsible for acting upon any resolution purporting to have been passed at any meeting of the Bondholders in respect whereof minutes have been made and signed even though it may subsequently be found that there was some defect in the constitution of the meeting or the passing of the resolution or that for any reason the resolution was not valid or binding upon the Bondholders; f. The Trustees shall have full power to determine all questions and doubts arising in relation to any of the provisions hereof and every such determination bonafide made (whether or not the same shall relate wholly or partially to the acts or proceedings of the Trustees) shall be conclusive and binding upon all persons interested hereunder; g. The Trustees shall not be liable for anything whatsoever except a breach of trust knowingly and intentionally committed by the Trustees; h. The Trustees shall not be liable for any default, omission or delay in performing or exercising any of the powers or trusts herein expressed or contained or any of them or in enforcing the covenants herein contained or any of them or in giving notice to any person or persons of the execution hereof or in taking any other steps which may be necessary, expedient or desirable for any loss or injury which may be occasioned by reason thereof unless the Trustees shall have been previously requested by notice in writing to perform, exercise or do any of such steps as aforesaid by the holders representing not less than three-fourths of the nominal amount of the Bonds for the time being outstanding or by a Special Resolution duly passed at a meeting of the Bondholders and the Trustees shall not be bound to perform, exercise or do any such acts, powers or things or to take any such steps unless and until sufficient monies shall have been provided or provision to the satisfaction of the Trustees made for providing the same by or on behalf of the Bondholders or some of them in order to provide for any costs, charges and expenses which the Trustees may incur or may have to pay in connection

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i.

with the same and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses and liabilities which may be incurred in complying with such request. Provided nevertheless that nothing contained in this clause shall exempt the Trustees from or indemnify them against any liability for breach of trust nor any liability which by virtue of any rule or law would otherwise attach to them in respect of any negligence, default or breach of trust which they may be guilty of in relation to their duties hereunder.

Utilisation of Offer Proceeds The Bank undertakes that details of all monies utilized/unutilized out of the Offer shall be disclosed under an appropriate separate head in the Balance Sheet of the Bank.

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TAX BENEFITS M. Munshi & Co., Chartered Accountants, vide their letter dated 22.09.2007 have advised the following tax benefits under the Current Tax Laws: The Board of Directors, State Bank of Indore, Head Office, Indore. Subject: Advise for tax provisions and benefits available on issue of Innovative Perpetual Subordinated Bond (Tier I) of the bank. A. TO THE BANK1. Under section 36(1)(viia) of the Income Tax Act in respect of any provision made for bad and doubtful debts, the bank is entitled to a deduction not exceeding: i. 7.5% of the total income (computed before making any deductions under this clause and Chapter VIA) and ii. 10% of the aggregate average advances made by the rural branches of the bank computed in the prescribed manner. Also the bank shall, at its opinion, be allowed a further deduction in excess of the limit specified above, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government provided that some income has been disclosed in its return of income under the head Profits and gains of business or profession. 2. In addition to the deduction available under section 36(1)(viia) of the Income Tax Act, the bank is entitled to claim a deduction under section 36(1)(vii) of the Income Tax Act for the amount of bad debts written off as irrecoverable in the accounts. The deduction shall be limited to the amount by which such debt or part thereof, which exceeds the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) and subject to the compliance of provisions of section 36(2)(v). 3. Deduction is available under section 36(1)(iiia) of the Act, the Bank is entitled to claim deduction for the pro rata amount of discount on zero coupon bond having regard to the period of life of such bond calculated in the manner as may be prescribed. 4. Under the provisions of section 43D of the Income Tax Act interest income on certain categories of bad or doubtful debts as specified in Rule 6EA of the Income Tax Rules having regard to the guidelines issued by the Reserve Bank of India in relation to such debts shall be chargeable to tax, only in the year in which it is actually received or the year in which it is credited to the profit and loss account by the bank, whichever is earlier. 5. Under Second Proviso to Section 48 of the Income Tax Act, the long term capital gains of the bank arising on transfer of capital assets other than bonds and debentures (not being capital indexed bonds) will be computed after indexing the cost of acquisition, improvement and would be charged at a concessional rate of 20% as per section 112 of the Income Tax Act plus applicable surcharge and education cess.

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Alternatively, at the option of the bank, where the tax payable in respect of any such long term capital gains exceeds 10% of the amount of capital gains arrived at without indexing the cost, the capital gains is charged at 10% plus applicable surcharge and education cess. The above mentioned rates will apply only if securities transaction tax is paid, long term capital gain is exempt in the hands of the Bank. 6. Under the provisions of 54EC of the Income Tax Act and subject to conditions specified therein, the bank is eligible to claim exemption from the tax arising on long term capital gains, by investing the capital gain in long term specified asset (being bonds redeemable after 3 years issued by National Highway Authority of India or Rural electrification Corporation Limited ) within 6 months from the date of transfer of capital asset. If only a portion of the capital gains is invested, then the exemption is proportionately available. If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable by way of long term capital gains of the year in which the specified asset is transferred. 7. In accordance to section 88E, where the total income of the bank in he previous year includes any income under the head Profits & Gains of business or profession arising from taxable securities transactions, be entitled to deduction from income tax, an amount equal to this security transaction tax paid by the bank in respect of the taxable securities transactions. 8. In terms of the provisions of section 111A of Income Tax Act, short-term capital gains arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund is chargeable to tax at the rate of 10% in the hands of the Bank, provided, the transaction of sale of such equity share or unity is entered on or after the date on which chapter VII of the Finance (No.2) Act, 2004 comes into force and such transaction is chargeable to securities transaction tax under that chapter. 9. In accordance with section 10(34) of the Income Tax Act dividend income as referred to in section 115-O of the Act is exempt from tax in the hands of the bank. 10. In accordance with section 10(35) the following income shall be exempt in the hands of the bank : (a) Income received in respect of the units of a Mutual Fund specified under clause (23D), or (b) Income received in respect of units from the Administrator of the specified undertaking, or (c) Income received in respect of units from the specified company. Provided that this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be. 11. In accordance to section 10(38) of the Income Tax Act, any income arising from the transfer of a long term capital asset being an equity share in a company or a unit of a equity oriented fund is exempt from tax, subject to provisions of the Chapter VII of the Finance (No. 2) Act, 2004. The exempt income is liable to MAT under section 115JB of the Act except as provided under the Act.

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II. TO THE RESIDENT BONDHOLDERS OF THE BANK : Capital Gains: The difference between the sale price on transfer and cost of acquisition of the bond held by bondholder as a capital asset, will be treated as long term capital gain/loss in the hands of the investor, provided such bond was held for a continuous period of more than twelve months. 1. As per Section 54EC of the Income Tax Act and subject to conditions specified therein, the bank is eligible to claim exemption from the tax arising on long term capital gains, by investing the capital gain in long term specified asset (being bonds redeemable after 3 years issued by National Highway Authority of India or Rural electrification Corporation Limited) within 6 months from the date of transfer of capital asset. If only a portion of the capital gains is invested, then the exemption is proportionately available. If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable by way of long term capital gains of the year in which the specified asset is transferred. 2. As per the provisions of section 54F of the Income Tax Act, 1961, long term capital gains arising in the hands of an individual or HUF on transfer of bonds/securities of the bank shall be exempt if the net consideration is invested in purchase of residential house within a period of one year before or two years from the date of transfer or constructs a residential house within a period of three years from the date of transfer. The exemption is available proportionately if only a portion of the net consideration is invested as above. The exemption is subject to other conditions specified in that section. If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, shall be deemed to be income chargeable under the head Capital Gains of the year in which the residential house is transferred. 3. Under section 112 of the Income Tax act, where the total income of any assessee includes any long term capital gains on transfer of bonds/debentures of the bank, then the tax will be at the rate of 20% of amount capital gain plus applicable surcharge and education cess. It may be noted no benefit of cost indexation u/s 48 is available, on the bonds issued as per the proviso to section 48. 4. No wealth tax is payable in respect of investments in bonds/securities of the bank. 5. Any transfer of capital assets being bonds or GDR referred to subsection(1) of section 115AC, made outside India by a non resident to another non resident is exempt under section 47 (viia) of Income Tax Act. III. BENEFITS AVAILABLE TO MUTUAL FUNDS : As per the provisions of section 10(23D) of the Act, dividend income from investments in bonds/securities of the bank or income by way of short term or long term capital gains arising from transfer of such bonds/securities earned by Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made there under, mutual funds set up by the Public Sector Banks or Public Financial Institutions and Mutual Funds authorized by

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the Reserve Bank of India would be exempt from income tax subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf. DISCLAIMER Our views expressed herein are based on the facts and assumptions indicated above. No assurance is given that the revenue authorities/courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes. The views are exclusively for the use of State Bank of Indore and shall not, without our prior written consent, be disclosed to any other person.

Place: Indore Date: 22.09.2007

For M. Munshi & Co. Chartered Accountants Sd/Vishnu Gupta Partner

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PARTICULARS OF THE PLACEMENT

OBJECTS OF THE PLACEMENT


The present Issue of Bonds is being made to a. Augment the long-term resources of the Bank b. Augment the capital base of the Bank to meet its future capital adequacy requirements

CAPITAL ADEQUACY POSITION OF THE BANK


The Capital Adequacy Ratio (CAR) of the Bank as on March 31, 2006 was 11.40%, 11.77% as on March 31, 2007 and 12.12% as on June 30, 2007 as against the RBI stipulation of 9.00%. Details of capital vis--vis risk weighted assets are as under: (Rs crores)
Year ended March 31, 2003 Eligible Tier I Capital Eligible Tier II Capital Total Capital Total RiskAdjusted Assets Capital Adequacy Ratio (%) 473.19 187.22 660.41 5044.62 13.09 2004 536.04 263.09 799.13 6447.96 12.39 2005 616.64 492.50 456.48 1073.12 9246.22 11.61 1456.12 12770.37 11.40 11.77 12.12 828.75 1940.89 16493 830.11 2016.47 16633.09 2006 963.61 2007 1112.14 Quarter ended June 30 2007 1186.36

REQUIREMENT OF CAPITAL ENHANCEMENT


The Bank expects substantial growth in its business activities and operations in the coming years. The risk-weighted assets of the Bank are expected to increase with rise in business level. The capital requirement will also increase due to Basel II norms. Increase in Tier I capital through plough back of profits alone may not be enough to enable the Bank to maintain sufficient capital adequacy ratio. In view of these factors, the Bank proposes to augment its tier-I capital in order to sustain a healthy CAR.

USE OF OFFER PROCEEDS


The proceeds of this offer will be utilized for the regular business activities of the Bank. The Bank has to increase the Capital to match the growth in Assets and maintain level of CAR higher than the minimum prescribed level. The requirement of Capital has increased on account of phased convergence to Basel II norms by Reserve Bank of India and growth in credit.

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BANK AND MANAGEMENT Banking Industry Overview (The information presented in this section has been extracted from publicly available documents, which have not been prepared or independently verified by the Bank, or any of their respective affiliates or advisors.) Indian Economy Macro Environment: The banking sector reflected a pick-up in the real economic activity during 2005-06. In the backdrop of robust macroeconomic environment, bank credit witnessed a strong expansion for the second year in succession. The demand for credit was also broad-based led by the housing and the retail sectors. The growth in deposits, though higher than the previous year, was insufficient to meet the high credit demand forcing the banks to liquidate their holdings of Government securities. It was the first time since the nationalisation of banks in 1969 that investment by commercial banks in Government securities declined in absolute terms (by Rs.19,514 crore) in any single year. Similarly, investments by the commercial banks in bonds/debentures/shares of the corporate sector also declined during the year. Commercial banks holdings of Government and other approved securities declined from 38.2 per cent of their net demand and time liabilities (NDTL) at end-March 2005 to 31.3 per cent at end-March 2006. While the excess SLR holdings amounted to Rs.1,45,297 crore at end-March 2006, several banks now seem to be operating their SLR portfolios close to the statutory minimum level of 25.0 per cent. Interest rates on deposits of over one year maturity of public sector banks (PSBs) moved up from 5.25-7.25 per cent in April 2005 to 5.50-7.75 per cent in March 2006. During the same period, the benchmark prime lending rates (BPLRs) of public sector banks and foreign banks remained unchanged in the range of 10.25-11.25 per cent and 10.00-14.50 per cent, respectively. The BPLRs of private sector banks moved up to a range of 11.00-14.00 per cent from 11.00-13.50 per cent in the same period. The median lending rates for term loans (at which maximum business is contracted) in respect of major PSBs, which remained unchanged at 8.00-11.63 per cent during December 2005 to March 2006, increased to 8.00-12.00 per cent in June 2006 and further to 8.5012.00 per cent in September 2006 (provisional) Policy Developments in Commercial Banking during the year 2005-06 Globalisation, financial deregulation and improvement in technology have had a profound effect on the financial landscape in recent years. These developments have intensified competition and resulted in financial engineering through product innovation and business strategies. While market participants have now greater scope to diversify risk and manage it efficiently, this has also posed new risks and challenges to the financial system. Growth of financial firms across different business lines and across national boundaries has made the task of designing appropriate policies more challenging. Regulatory and supervisory policies are, therefore, constantly assessed regarding their capabilities to meet the challenges of containing systemic risk in the financial system. The main challenge for the supervisory authorities has been to maintain financial stability without curtailing the incentive to innovate. Keeping in view the changing landscape in the financial sector, the Reserve Bank has been suitably focusing its regulatory and supervisory framework to promote a stable and efficient financial sector. The main focus of the Reserve Banks recent regulatory and supervisory initiatives has been on prudential regulation and financial infrastructure broadly in line with international best practices. However, while focusing on a globally competitive and the robust banking sector, the

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Reserve Bank has also emphasised financial inclusion, whereby banking services are accessed easily by the underprivileged sections of the society. The overall approach to reforms has been sequenced and arrived at through consultative process with all the stakeholders. Various reform measures initiated from time to time have imparted resilience to the financial system. The Reserve Bank had indicated on February 15, 2005 that banks in India would start implementing Basel II with effect from March 31, 2007. Several initiatives, therefore, were taken during the year to facilitate the smooth transition to Basel II. The Reserve Bank permitted banks to raise capital through new instruments to enable them to meet capital requirements prescribed under Basel II. The Reserve Bank also issued a guidance note for operational risk management. Taking into account the state of preparedness of the banking system, however, it was announced in the Midterm Review of the Annual Policy for 2006-07 on October 31, 2006 that Indian banks with presence outside India and foreign banks operating in India would be required to migrate to Basel II framework with effect from March 31, 2008, while all other Indian banks would be encouraged to migrate to these norms by March 31, 2009. With a view to providing basic banking services to common man, the Reserve Bank took several measures to incentivise banks. Improvement in customer service was another area of focus of the Reserve Banks regulatory policy during 2005-06.

Monetary and Credit Policy


Bank Rate and Repo/Reverse Repo Rate In the Mid-term Review of Annual Policy Statement released on October 31, 2006, it was indicated that the Reserve Bank will ensure to maintain appropriate liquidity in the system so that all legitimate requirements of credit are met, particularly for productive purposes, consistent with the objective of price and financial stability. In view of the prevailing current macroeconomic and overall monetary conditions, the fixed repo rate under the LAF was raised by 25 basis points from 7.0 per cent to 7.25 per cent. The reverse repo rate, the Bank Rate and the CRR were left unchanged. As a result, the spread between the repo and reverse repo rate increased to 125 basis points. Several measures were also announced to (i) further develop and integrate financial markets, with a view to enhancing allocative efficiency; (ii) improve and expand credit delivery oriented towards financial inclusion and extension of financial services to the under-privileged segments of the population; (iii) strengthen the capital base of banks with a view to preparing them to migrate to Basel II norms and implement prudential measures in consonance with international best practices in the financial sector; and (iv) keep up the pace of liberalisation of the external sector within the framework for fuller capital account convertibility recommended by the Committee (Chairman: Shri S.S. Tarapore) appointed by the Reserve Bank Pursuing the mediumterm objective of reducing the CRR, the Reserve Bank had reduced the CRR progressively from the peak of 15 per cent of NDTL in 1992 to 4.5 per cent by 2003. The CRR, however, was raised by one-half of one percentage point of NDTL in two stages of 0.25 percentage points each to 4.75 per cent effective September 18, 2004 and further to 5.0 per cent effective October 2, 2004 to combat inflationary expectations. The CRR has remained unchanged since then. However, the recent amendment to Section 42 of the RBI Act, 1934, in June 2006, vests the Reserve Bank with the power to prescribe CRR for scheduled banks without any floor or ceiling rate. Further, the amendment removes the statutory minimum CRR and the Reserve Bank cannot pay interest on any portion of CRR balances of banks once the Act comes into force. RBI on July 31, 2007 further increased the cash reserve ratio by 50 basis points to 7% from the fortnight beginning August 4, 2007.

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Table: Repo and Reverse Repo Rate (since April 2005)

(Source: RBI Report on Trend and Progress of Banking 2005-06)

Deposit Rates The interest rates on domestic term deposits, except for saving bank accounts, have been deregulated since October 1997. Banks are now free to determine their own deposit rates depending on commercial judgment, subject to the approval of their boards. Banks have also been given the freedom to decide the rates on various non-resident deposits, subject to the ceiling prescribed by the Reserve Bank. Banks were also allowed to offer differential rates of interest on wholesale domestic term deposits of Rs.15 lakh and above, i.e., the interest rate offered on the wholesale domestic term deposits can differ from those offered on the retail domestic term deposits. The interest rate on savings bank deposits is regulated by the Reserve Bank and is currently prescribed at 3.5 per cent per annum. Based on a review of prevailing monetary and interest rate conditions, including a careful consideration of the suggestions received from the Indian Banks Association (IBA), the Annual Policy Statement for 2006-07 considered it appropriate to maintain status quo while recognising that the deregulation of savings bank deposit rate was essential for product innovation and price discovery in the long run.

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Credit Delivery
A critical issue facing the banking sector is the flow of credit to all productive sectors of the economy. Therefore, it has been the endeavour of the Reserve Bank to create a conducive environment for banks to provide adequate credit to all productive sectors at reasonable cost. In continuance with the general focus on sectoral credit allocation, especially to the priority sector, the Reserve Bank took several measures to improve credit delivery mechanism during the year. The Reserve Bank issued additional guidelines to banks on August 9, 2006 to provide special relief measures in areas affected by natural calamities. The guidelines included: (i) operating from temporary premises in areas where the bank branches are affected by natural calamity and are unable to function normally; (ii) waiving the penalties relating to accessing accounts such as fixed deposits to satisfy customers immediate requirements; (iii) restoring the functioning of ATMs at the earliest and putting in place arrangements for allowing customers to access other ATM networks and mobile ATMs; (iv) simplifying the procedure for opening of new accounts for persons affected by natural calamities; (v) restructuring the existing loans; and (vi) enhancing the limit on consumption loans. Further, banks were advised on September 4, 2006 that the instructions on moratorium, additional collateral for restructured loans and asset classification in respect of fresh finance would be applicable to all affected restructured borrowal accounts, including accounts of industries and trade, besides agriculture. Credit Flow to Small and Medium Industries Unlike large industries, which have access to various domestic and international sources of finance, small and medium enterprises (SMEs) are dependent largely on bank finance. However, credit to the SME sector has tended to stagnate in recent years. This is a cause of concern given the importance of small scale industries in the overall economy, especially its employment generating potential. The Reserve Bank, therefore, has been making constant efforts to increase the credit flow to SMEs. Export Credit In pursuance of the recommendations of the Working Group to Review Export Credit (Chairman: Shri A. Sinha), scheduled commercial banks (excluding RRBs) were advised in February 2006 to review their existing procedure for export credit, Gold Card Scheme (GCS), export credit for nonstar exporters and certain other aspects. The review of existing procedure for export credit was required to include the following: (i) attitudinal change in the approach to small and medium exporters; (ii) putting in place a control and reporting mechanism for early disposal of application; (iii) raising all queries in one shot while processing applications as opposed to piece-meal queries; (iv) facilitating training along with SSI/export organisations; (v) devising of a simplified loan application form by IBA; (vi) evolving guidelines to obviate need for collateral security; and (vii) promoting coordination between banks and exporters through the mechanism of State Level Export Promotion Committees (SLEPCs), which have been reconstituted as sub-committees of the SLBCs.

Capital adequacy
Foreign banks operating in India and Indian banks having presence outside India are to migrate to the standardised approach for credit risk and the basic indicator approach for operational risk under Basel II with effect from March 31, 2008. All other scheduled commercial banks are encouraged to migrate to these approaches under Basel II in alignment with them but in any case

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not later than March 31, 2009. The Steering Committee of banks would continue to interact with banks and the Reserve Bank, and guide the smooth implementation of Basel II. They are required to follow standardised approach for credit risk and basic indicator approach for operational risk. In view of transition to the new capital adequacy framework, banks would need to furthershore up their capital funds to meet the requirements under the revised Framework.Under Basel II, the capital requirements are not only more sensitive to the level of credit risk, but are also applicable to operational risks. Thus, banks would need to raise additional capital for Basel II requirements, as well as to support the expansion of their balance sheets. For smooth transition to Basle II and with a view to providing banks in India additional options for raising capital funds, banks were advised in January 2006 that they could augment their capital funds by issue of additional instruments such as (i) innovative perpetual debt instruments (IPDI) eligible for inclusion as Tier I capital; (ii) debt capital instruments eligible for inclusion as Upper Tier II capital; (iii) perpetual non-cumulative preference shares eligible for inclusion as Tier I capital; and (iv) redeemable cumulative preference shares eligible for inclusion as Tier II capital. Detailed guidelines for instruments at (i) and (ii) above have already been issued. Guidelines for instruments at (iii) and (iv) will be issued separately in due course. Basel II aims at encouraging the use of modern risk management techniques and ensuring that banks risk management capabilities are commensurate with the underlying risks of their business. Basel II requires that the design of risk management framework be oriented towards banks own requirements dictated by the size and complexity of business, risk philosophy, market perception and the expected level of capital. The risk management systems in banks should, however, be adaptable to changes in business, size, market dynamics and introduction of innovative products by banks in future. Following table throws light on the Bank Group-wise Capital Adequacy Ratio:
Table: Capital Adequacy Ratio-Bank Group-wise

(Source: RBI Report on Trend and Progress of Banking 2005-06) Exposure Norms and Risk Weights In view of the increase in growth of advances to the real estate sector in the recent period, banks were advised to put in place a proper risk management system to contain the risks involved. Banks were also advised to put in place a system for ensuring proper checking and documentation of related papers before sanctioning/disbursing of such loans. On June 29, 2005, the Reserve Bank advised banks to have a board mandated policy in respect of their real estate exposure covering exposure limits, collaterals to be considered, margins to be kept, sanctioning authority/level and sector to be financed. Banks were also advised to report their real estate exposure under certain heads and disclose their gross exposure to the real estate sector as well as the details of the breakup in their annual reports.

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With effect from July 26, 2005, the risk weight for credit risk on the capital market exposures was increased from 100 per cent to 125 per cent. The capital market exposure comprises:(a) direct investment by a bank in equity shares, convertible bonds and debentures and units of equity oriented mutual funds; and (b) advances against shares to individuals for investment in equity shares (including IPOs/ESOPs), bonds and debentures, units of equity oriented mutual funds; and (c) secured and unsecured advances to stock brokers and guarantees issued on behalf of stock brokers and market makers. Guidelines on Securitisation of Standard Assets The Reserve Bank had issued draft guidelines on securitisation of standard assets in April 2005. Based on the feedback received from all stakeholders, the final guidelines on securitisation of standard assets were issued on February 1, 2006. The guidelines are applicable to financial institutions, including non-banking financial companies

Know Your Customer Guidelines and Anti-Money Laundering Standards


The Reserve Bank had issued comprehensive guidelines to banks on November 29, 2004 relating to know your customer (KYC) and anti-money laundering (AML). Banks were later advised to ensure that they were fully compliant with the provisions of the norms before December 31, 2005. On August 23, 2005, revised guidelines were issued regarding opening of accounts with a view to enabling persons belonging to low-income group to easily access

Fuller Capital Account Convertibility and the Banking Sector


Given the changes that had taken place over the last two decades, there is merit in moving towards Fuller Capital Account Convertibility (FCAC) within a transparent framework. In consultation with the Government of India, the Reserve Bank, therefore, constituted a Committee on Fuller Capital Account Convertibility (Chairman: Shri S.S. Tarapore) in March 2006 for suggesting measures for further liberalization of the capital account. The Committee submitted its Report on July 31, 2006, which was placed in public domain on September 1, 2006. The Committee recommended a broad timeframe of a five year period in three phases for fuller capital account liberalisation; 2006-07 (Phase I), 2007-08 and 2008-09 (Phase II) and 2009-10 and 2010-11 (Phase III). The Committee observed that under a FCAC regime, the banking system will be exposed to greater market volatility. Hence, it is necessary to address the relevant issues in the banking system, including the need for enhancing the risk management capabilities in the banking system and the regulatory and supervisory aspects to enable the system to become more resilient to shocks and sustain their operations with greater stability. Given the importance that the commercial banks occupy in the Indian financial system, the banking system, according to the Committee, should be the focal point for appropriate policy measures. In this regard, the Committee made several specific recommendations

Branch Authorisation Policy


In terms of the existing provisions, banks are not allowed, without the prior approval of the Reserve Bank, to open a new place of business in India or change the location of the place of business, other than within the same city, town or village. While the current policy for authorisation of overseas branches of Indian banks would continue, the branch authorization policy was liberalised and rationalised in September 2005 in order to give reasonable freedom to banks and rationalise the policy for opening of new branches in India. A comprehensive

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framework for branch authorisation policy consistent with the medium term corporate strategy of banks and public interest was put in place effective September 8, 2005.

Financial Inclusion
The Mid-term Review of Annual Policy Statement for the year 2005-06 while recognizing the concerns with regard to the banking practices that tend to exclude rather than attract vast sections of population, urged banks to review their existing practices with a view to aligning them with the objective of financial inclusion. In many banks, the requirement of a minimum balance and charges levied, although accompanied by a number of free facilities, deter a sizeable section of population from opening/maintaining bank accounts. With a view to achieving the objective of greater financial inclusion, all banks were advised in November 2005 to make available a basic banking no-frills account either with nil or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The nature and number of transactions in such accounts could be restricted, but made known to the customer in advance in a transparent manner.

Technological and Other Developments


The financial sector has been a large user of information technology (IT). Banks, in particular, have been increasingly using IT in their day to day operations. Over the years, banks have (a) extended the reach of core banking solutions (CBS) to more branches so as to facilitate anywhere banking; (b) introduced technology based products and services such as mobile banking; and (c) expanded the internet banking facilities. Banks have been increasingly using the NEFT for ensuring wider reach for electronic funds movement. With enhanced level of IT usage by banks, the Reserve Bank is gradually moving away from micro-management of IT related matters of banks. Instead, the Reserve Bank has begun to frame guidelines and standards which relate to common inter-bank requirements. During the year 20052006, the Financial Sector Technology (FST) Vision Document, 2005-08 was released to all banks in July 2005. The document outlines the approach to be followed by the Reserve Bank as far as IT implementation for the immediate future is concerned. The Vision Document has helped banks to formulate their IT policies in a manner which are in line with the direction given by the Reserve Bank. At the same time, it also facilitated banks overall movement in a unified manner towards common inter-operable standards for IT systems and inter-bank messaging. In order to follow-up the implementation of the tenets of the FST Vision Document, a Conference of IT Chiefs of all categories of banks was organized by the Reserve Bank in January 2006.

Legal Reforms in the Banking Sector


An efficient financial system requires a regulatory framework with well-defined objectives, adequate and clear legal framework and transparent supervisory procedure. A comprehensive legislation is also a pre-requisite for the regulatory authority to discharge its responsibilities effectively. Keeping this in view, the Reserve Bank has been making constant efforts to upgrade and strengthen the legal framework in tune with the changing environment.The Central Government, on the recommendation of the Reserve Bank, has initiated a number of measures in this respect over the past few years. In order to facilitate the task of monetary management and provide operational flexibility, a greater empowerment of the Reserve Bank in the wielding of policy instruments was considered

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necessary. Keeping this in view, the Reserve Bank of India Act, 1934 was amended by the Parliament. This amendment, inter-alia, has empowered the Reserve Bank to determine the CRR without any ceiling or floor rate. The Credit Information Companies (Regulation) Act, 2005 has been enacted for regulation of Credit Information Companies and facilitating efficient distribution of credit and for matters connected therewith or incidental thereto. Operations and Performance of Commercial Banks Bank group-wise, new private sector banks grew at the highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per cent) (Table: Growth of Balance Sheet of Scheduled Commercial Banks Bank Group-wise). As a result, the relative significance of PSBs declined significantly with their share in total assets of SCBs declining to 72.3 per cent at end-March 2006 from 75.3 per cent at end-March 2005, while that of new private sector banks increasing to 15.1 per cent from 12.5 per cent. This mainly reflected the trend in deposits on the liabilities side Table: Growth of Balance Sheet of Scheduled Commercial Banks - Bank Group-wise

(Source: RBI Report on Trend and Progress of Banking 2005-06) The following charts depict the Bank Group-wise Composition of Time Deposits and Bank Group-wise Share in Aggregate Deposits. Deposits of new private sector banks grew at the highest rate (50.7 per cent), followed by foreign banks 31.7 per cent), PSBs (12.9 per cent) and old private sector banks (11.4 per cent). The share of new private sector banks in total deposits has been rising gradually, while that of PSBs has been declining over the years.

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Bank Group-wise Composition of Time Deposits (Fortnight ended June 23, 2006)

Share in Aggregate Deposits - Bank Group-wise (As at end-March, 2006)

(Source: RBI Report on Trend and Progress of Banking 2005-06) Among bank groups, new private sector banks had the highest exposure to the sensitive sectors (measured as percentage to total loans and advances of banks) mainly due to the increase in exposure to the real estate market, followed by foreign banks, old private sector banks and public sector banks. Following table depict the exposure to the sensitive sectors.
Table: Lending to the Sensitive Sector by Scehduled Commercial Banks

(Source: RBI Report on Trend and Progress of Banking 2005-06)

Table: Lending to the Sensitive Sectors Bank Group-wise*

(Source: RBI Report on Trend and Progress of Banking 2005-06)

Among bank-groups, foreign banks had the highest C-D ratio (in terms of outstanding amount) at end-March 2006, followed by new private sector banks, old private sector banks and public sector banks. The following chart succinctly explains the picture:

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Credit-Deposit Ratio- Bank Group-wise (As at end-March)

Interest Rate Scenario

(Source: RBI Report on Trend and Progress of Banking 2005-06)

The high credit demand during 2005-06 exerted an upward pressure on lending rates as well as deposit rates of banks Interest rates offered on deposits by banks, in general, firmed up during 2005-06. However, the increase was more pronounced at the short-end of the maturity. The spread between deposits of up to one year maturity and above three years maturity offered by PSBs narrowed down to 75 basis points at end-March 2006 from 100 basis points at end-March 2005. Likewise, the spread between interest rates on deposits up to one year and three year maturity offered by private sector banks narrowed down to 50 basis points from 100 basis points. The hike in deposit rates was indicative of the increased competition from other saving instruments and firming up of interest rates in general. Banks increased their deposit rates further by about 25-75 basis points across various maturities between March 2006 and June 2006. A majority of PSBs adjusted their deposit rates (up to three years maturity) upwards by 25 to 50 basis points, while deposit rates for over three year maturity remained unchanged.
Table: Movements in Deposit and Lending Interest Rates
(Source: RBI Report on Trend and Progress of Banking 2005-06)

INTEREST RATES (PERCENT) Domestic Deposit Rates Public Sector Banks a) Upto 1 year b)1 year & upto 3 years c) Over 3 years Private Sector Banks a) Upto 1 year b)1 year & upto 3 years c) Over 3 years Foreign Banks a) Upto 1 year b)1 year & upto 3 years c) Over 3 years BPLR Public Sector Banks Private Sector Banks Foreign Banks Actual Lending Rates* Public Sector Banks Private Sector Banks Foreign Banks

MARCH 2004

MARCH 2005

MARCH 2006

JUNE 2006

3.75-5.25 5.00-5.75 5.25-6.00 3.00-6.00 5.00-6.50 5.25-7.00 2.75-7.75 3.25-8.00 3.25-8.00 10.25-11.50 10.50-13.00 11.00-14.85 4.00-16.00 3.00-22.00 3.75-23.00

2.75-6.00 4.75-6.50 5.25-7.00 3.00-6.25 5.25-7.25 5.75-7.00 3.00-6.25 3.50-6.50 3.50-7.00 10.25-11.25 11.00-13.50 10.00-14.50 2.75-16.00 3.15-22.00 3.55-23.50

2.25-6.50 5.75-6.75 6.00-7.25 3.50-7.25 5.50-7.75 6.00-7.75 3.00-5.75 4.00-6.50 5.50-6.50 10.25-11.25 11.00-14.00 10.00-14.50 4.00-16.50 3.15-20.50 4.75-26.00

2.75-6.50 5.75-7.00 6.00-7.25 3.50-6.75 6.50-7.75 6.50-8.25 3.25-6.50 5.00-6.50 5.50-6.75 10.75-11.50 11.00-14.50 10.00-14.50 4.00-16.50 3.15-26.00 4.75-25.00

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Cost of Deposits and Return on Advances


Notwithstanding the rise in deposit rates of SCBs during the year, the cost of deposits declined marginally due to increase in the share of low cost deposits in the form of current and savings deposits. The movements in the cost of deposits reflect the average rate at which different deposits are contracted rather than the movement in deposit interest rates as such. The cost of borrowings, however, moved up somewhat mainly due to tightening of liquidity conditions in the market. The overall cost of funds remained unchanged at the previous years level. Bank group-wise, while the overall cost of funds for foreign banks and new private sector banks increased, the cost of funds for the public sector banks remained unchanged. Return on advances of SCBs increased marginally during 2005-06, reflecting the increase in lending rates. Return on investment, on the other hand, remained at the previous years level. Overall return on funds, however, was slightly higher than the overall cost of funds, resulting in increase in spread.
Table: Cost of Funds and Returns on Funds - Bank Group-wise

(Source: RBI Report on Trend and Progress of Banking 2005-06)

Regional Distribution of Bank Branches as at June 2006

(Source: RBI Report on Trend and Progress of Banking 2005-06)

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Maturity Profile of Assets and Liabilities of Banks The maturity profile of deposits, advances and Total Income between the various banks at the end of financial year 2006, within the commercial bank segment was as under:
Bank Group-wise Maturity Profile of Select Liabilities/Assets (As at end-March 2006) (Per cent) Assets/Liabilities Public Sector Old Private New Private Banks Sector Sector Banks Banks 2005 I. Deposits a) Up to 1 year b) Over 1 year and up to 3 years c) Over 3 years and up to 5 years d) Over 5 years II. Borrowings a) Up to 1 year b) Over 1 year and up to 3 years c) Over 3 years and up to 5 years d) Over 5 years III.Loans and Advances a) Up to 1 year b) Over 1 year and up to 3 years c) Over 3 years and up to 5 years d) Over 5 years IV. Investment a) b) c) d) Up to 1 year Over 1 year and up to 3 years Over 3 years and up to 5 years Over 5 years 13.4 12.7 17.3 56.6 11.9 14.3 16.8 56.9 21.9 11.1 12.6 54.4 20.2 47.6 9.7 27.5 14.3 6.2 55.7 18.8 50.5 25.5 7.1 16.8 53.1 27.3 6.1 13.6 58.8 29.4 4.7 7.1 36.3 35.3 11.9 16.5 41.8 20.2 12.7 25.3 36.7 34.6 12.0 16.6 2006 2005 2006 39.7 30.6 11.7 17.9 42.1 26.3 10.9 20.7 35.5 35.2 11.5 17.8 53.3 37.6 3.4 5.7 80.7 4.1 7.1 8.2 42.3 33.7 9.0 15.0 2005 2006 58.7 36.9 3.0 1.4 55.5 18.7 20.8 5.0 30.7 40.2 11.3 17.9 Foreign Banks 2005 2006

48.0 53.9 38.2 43.1 6.0 2.1 7.7 0.9 81.5 51.2 3.7 34.1 6.2 7.6 8.5 7.0 43.0 36.1 10.0 10.9 39.7 32.2 9.5 18.6

54.2 53.2 39.2 43.6 0.9 0.4 5.7 2.8 84.4 84.6 12.3 13.7 3.3 1.5 0.3 55.9 17.9 6.5 19.7 55.8 25.7 5.3 13.2

: Nil/Negligible.

The maturity structure of commercial banks assets and liabilities reflect a combination of various concerns of banks relating to business expansion, liquidity management, cost of funds, return on assets, asset quality and the risk appetite. Broadly, major components of balance sheet such as deposits, borrowings, loans and advances, and investments of major bank groups depicted a nonlinear pattern across the maturity spectrum during 2005-06. The maturity structure of loans and advances of public sector banks and old private sector banks depicted a synchronous pattern with that of deposits. However, loans and advances of new private sector banks and foreign banks were more in higher maturity buckets as compared with their deposits. New private sector and foreign banks held most of their investments in shorter maturity bucket, while PSBs and old private sector banks held most of their investment in a longer maturity bucket. A trend that portends well for Indian banking sector is the growth of credit in retail segments like housing and consumer durables and the fall in the market share of NBFCs in retail businesses. This growing retail assets opportunity would drive future credit growth for banks. India also maintains a comparatively low deposit/GDP ratio. This presents opportunities for banks to scale up their deposit base by targeting under-banked and under-penetrated second and third tier towns. With increased competition in the corporate banking industry due to entry of foreign banks and

(Source Report on Trends and Progress of Banking in India, 2005-06 RBI)

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new private sector banks, the sector has witnessed a squeeze in margins. In a move to safeguarding their margins, the banks are looking at retail banking as a potential growth area. Non-Performing Assets The key NPA parameters for the various banks within the Scheduled Commercial Bank segment during the financial years 2002, 2003, 2004 and 2005 is as under:

Table : Gross & Net NPAs of Scheduled Commercial Banks Bank Group-wise (as at March 2006)

(Source Report on Trends and Progress of Banking in India, 2005-06 RBI)

There was a notable reduction in the ratio of non-performing assets (NPAs) to advances in response to various initiatives, such as improved risk management practices and greater recovery efforts, driven, interalia, by the recently enacted Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The level of non-performing loans is recognised as a critical indicator for assessing banks credit risk, asset quality and efficiency in allocation of resources to productive sectors. Reflecting the success of financial sector reforms, regulatory and supervisory process, in particular, banks have made substantial progress in cleaning up the NPAs from their balance sheets.

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The sharp rise in credit growth was underpinned by a steady improvement in asset quality. Following the trend of the previous year, reductions in NPAs for SCBs outpaced additions to NPAs during 2005-06. This trend was observed across all bank groups. In view of several options available to banks for dealing with NPAs, banks have been able to recover a significant amount of NPAs. An improved industrial climate contributed to a better recovery position. The course to aggressive restructuring by banks in 2005-06 also helped in reducing the level of NPAs. The setting up of the Asset Reconstruction Corporation of India (ARCIL) has provided a major boost to banks efforts to recover their NPAs. Increased recovery of NPAs, decline in fresh slippages and a sharp increase in gross loans and advances by SCBs led to a sharp decline in the ratio of gross NPAs to gross advances to 3.3 per cent at end-March 2006 from 5.2 per cent at end-March 2005. Likewise, net NPAs as percentage of net advances declined to 1.2 per cent from 2.0 per cent at end-March 2005. A significant decline in gross and net NPAs was evident across all bank groups FINANCIAL SECTOR AND ITS OUTLOOK Reserve Bank of India The RBI is the central banking and monetary authority in India. The RBI manages the countrys money supply and foreign exchange and also serves as a bank for the Government of India and for the countrys commercial banks. In addition to these traditional central banking roles, the RBI undertakes certain developmental and promotional roles. The RBI issues guidelines on various areas including exposure standards, income recognition, asset classification, provisioning for non-performing assets, investment valuation and capital adequacy standards 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 the RBI on a regular basis. The Scheduled Commercial Banks (SCBs) consist of 28 public sector banks (State Bank of India and its seven asscociates, nationalized banks and other public sector bank (one)), 27 private sector banks (19 old and 8 new) and 29 foreign banks. During 2005-06, two domestic banks and one foreign bank were amalgamated, and one foreign bank was closed reducing the number of scheduled commercial banks from 88 at end-March 2005 to 84 at end-March 2006. On the recommendations of the Reserve Bank, the Central Government placed the Ganesh Bank of Kurundwad Limited. under a moratorium for a period of 3 months effective January 7, 2006 under Section 45 of the Banking Regulation (B. R.) Act, 1949 The scheme of amalgamation of the bank with the Federal Bank Ltd. prepared by the Reserve Bank was sanctioned by the Government on January 24, 2006. Following the Supreme Court order dated August 28, 2006, dismissing the Petition filed by the bank, the Central Government issued necessary notification on September 1, 2006 to effect the merger from September 2, 2006. The voluntary amalgamation of the Bank of Punjab Ltd. with the Centurion Bank Ltd. was approved by the Reserve Bank in terms of Section 44A of the B. R. Act, and became effective from October 1, 2005. The Centurion Bank subsequently changed its name to Centurion Bank of Punjab Ltd. Among foreign banks, while ING Bank NV closed its business in India, UFJ Bank Ltd. merged its banking business globally with Bank of Tokyo-Mitsubishi Ltd. As a result, ING Bank NV and UFJ Bank Ltd. were excluded from the Second Schedule to the Reserve Bank of India Act, 1934 with effect from October 28, 2005 and January 1, 2006. Besides two amalgamations of domestic banks in 2005-06, another amalgamation took place in 2006-07 (up to October 31, 2006). The United Western Bank Ltd. (UWB) was placed under moratorium by the Central Government under Subsection (2) of Section 45 of the B. R. Act, 1949, for a period of three months effective September 2, 2006 because the CRAR of UWB had 61

turned negative. During the period of moratorium, the Reserve Bank received expression of interest from 17 entities. Subsequently, the Government notified the Scheme for amalgamation of United Western Bank Ltd. with Industrial Development Bank of India Ltd., which came into effect on October 3, 2006. Public Sector Banks Public sector banks make up the largest category in the Indian banking system. They include State Bank of India and its seven associate banks, 19 nationalized banks and 102 regional rural banks. Excluding the regional rural banks,the remaining public sector banks have 48,800 branches, and accounted for 70.8% of the outstanding gross bank credit and 71.0% of the aggregate deposits of the scheduled commercial banks as at December 31, 2006. The public sector banks large network of branches enables them to fund themselves out of low cost deposits. State Bank of India is the largest bank in India in terms of total assets. At December 31, 2006, State Bank of India and its seven associate banks had 13,978 branches. They accounted for 22.4% of aggregate deposits and 23.3% of outstanding gross bank credit of all scheduled commercial banks. Regional rural banks were established from 1976 to 1987 by the central government, state governments and sponsoring commercial banks jointly with a view to develop the rural economy. Regional rural banks provide credit to small farmers, artisans, small entrepreneurs and agricultural labourers. The National Bank for Agriculture and Rural Development is responsible for regulating and supervising the functions of the regional rural banks. In 1986 the Kelkar Committee made comprehensive recommendations covering both the organizational and operational aspects of regional rural banks, several of which were incorporated as amendments to the Regional Rural Banking Act, 1976. As part of comprehensive restructuring programme, recapitalization of the regional rural banks was initiated in fiscal 1995, a process which continued until fiscal 2000 and covered 187 regional rural banks with aggregate financial support of Rs. 21.88 billion from the stakeholders. Simultaneously, prudential norms on income-recognition, asset classification and provisioning for loan-losses following customary banking benchmarks were introduced. At December 31, 2006, there were 102 regional rural banks with 14,404 branches, accounting for 3.2% of aggregate deposits and 2.5% of gross bank credit outstanding of scheduled commercial banks. During fiscal 2006 and the first nine months of fiscal 2007, the number of regional rural banks was reduced from 173 to 102 through amalgamations of several regional rural banks. Private Sector Banks After the first phase of bank nationalization 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. In addition, existing private sector banks that 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, RBI permitted entry of the private sector into the banking system. This resulted in the introduction of private sector banks. These banks are collectively known as the new private sector banks. At year-end fiscal 2007, there were eight new private sector banks. In addition, 18 private sector banks existing prior to July 1993 were operating at year-end fiscal 2007. There were a total of 26 private sector banks at year-end fiscal 2007. At December 31, 2006, private sector banks accounted for approximately 19.9% of aggregate deposits and 20.2% of gross bank credit outstanding of the scheduled commercial banks. Their

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network of 6,567 branches accounted for 9.4% of the total branch network of scheduled commercial banks in the country. Foreign Banks At December 31, 2006, there were 29 foreign banks with 247 branches operating in India. Foreign banks accounted for 5.9% of aggregate deposits and 6.5% of outstanding gross bank credit of scheduled commercial banks at December 31, 2006. As part of the liberalization process, RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. The primary activity of most foreign banks in India has been in the corporate segment. However, some of the larger foreign banks have made consumer financing a larger part of their portfolios. These banks offer products such as automobile finance, home loans, credit cards and household consumer finance. Foreign banks operate in India through branches of the parent bank. 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, RBI stipulated that banks should not acquire any fresh stake in any other banks equity shares, if by such acquisition, the investing banks holding exceeded 5.0% of the investee banks equity capital. This also applies to holdings of foreign banks with a presence in India, in Indian banks. RBI issued a notification on Roadmap for presence of foreign banks in India on February 28, 2005, announcing the following measures with respect to the presence of foreign banks: 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 would be allowed to acquire a controlling stake in a phased manner only in private sector banks that are identified by RBI for restructuring. For new and existing foreign banks, it has been proposed to go beyond the existing World Trade Organization commitment of allowing increases of 12 branches per year. A more liberal policy will be followed for underbanked areas. During the second phase (from April 2009 onwards), after a review of the first phase, foreign banks would be allowed to acquire up to 74.0% in private sector banks in India.

Cooperative Banks Cooperative banks cater to the financing needs of agriculture, small 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 2001, 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 RBI is responsible for supervision and regulation of urban cooperative banks, and the National Bank for Agriculture and Rural Development 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 RBI. A task force appointed by the Government of India 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 for revitalizing this sector. In the Union Budget for fiscal 2006, the Finance Minister accepted the recommendations of the Task Force in principle and 63

proposed to call state Governments for consultation and begin to implement the recommendations in the states willing to do so. During fiscal 2006 RBI outlined a Medium- Term Framework for Urban Cooperative Banks. Subsequently a Task Force for Urban Co-operative Banks has been set up in select states for identification of and drawing up of a time bound action plan for revival of potentially viable Urban Co-operative Banks and for non-disruptive exit for non-viable Urban Co-operative Banks. Long-Term Lending Institutions The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernization of existing facilities. These institutions provided fund-based and non-fund-based assistance to industry in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. The primary long-term lending institutions included Industrial Development Bank of India (now a bank), IFCI Limited, Industrial Investment Bank of India as well as ICICI prior to the amalgamation. The 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, including into: fee-based activities like investment banking and advisory services; and short-term lending activity including making corporate finance and working capital loans.

Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, a working group created in 1999 to harmonize the role and operations of long-term lending institutions and banks, RBI, in its mid-term review of monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms as applicable to banks. In April 2001, RBI issued guidelines on several operational and regulatory issues which were required to be addressed in evolving the path for transition of a long-term lending institution into a universal bank. In April 2002, ICICI merged with ICICI Bank. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted the Industrial Development Bank of India into a banking company incorporated under the Companies Act, 1956 on September 27, 2004 with exemptions from certain statutory and regulatory norms applicable to banks, including an exemption for a certain period from the statutory liquidity ratio. IDBI Bank Limited, a new private sector bank that was a subsidiary of the Industrial Development Bank of India, was merged with the Industrial Development Bank of India in April 2005. Non-Bank Finance Companies There are over 13,000 non-bank finance companies in India, mostly in the private sector. All nonbank finance companies are required to register with RBI. The non-bank finance companies may be categorized into entities which take public deposits and those which do not. The companies which take public deposits are subject to strict supervision and capital adequacy requirements of RBI. The primary activities of the non-bank finance companies are consumer credit, including automobile finance, home finance and consumer durable products finance and wholesale finance

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products such as bill discounting for small and medium-sized companies, and fee-based services such as investment banking and underwriting. Over the past few years, certain non-bank finance companies have defaulted to investors and depositors, and consequently actions (including bankruptcy proceedings) have been initiated against them, many of which are currently pending. Housing Finance Companies Housing finance companies form a distinct sub-group of the non-bank finance companies. As a result of the 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 securitization of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme. Other Financial Institutions Specialized Financial Institutions In addition to the long-term lending institutions, there are various specialized financial institutions which cater to the specific needs of different sectors. They include the National Bank for Agricultural and Rural Development (NABARD) , Export Import Bank of India (EXIM Bank) , Small Industries Development Bank of India (SIDBI), 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 Limited (IDFC) and India Infrastructure Finance Company Limited. State Level 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-sized 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. Among the general insurance companies, nine are in the private sector and six (including the Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India Limited) are in the public sector. The re-insurance company, General Insurance Corporation of India, is in the public sector. Life Insurance Corporation of India, General Insurance Corporation of India and public sector general insurance companies also provide long-term financial assistance to the industrial sector.

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The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In December 1999, the parliament passed the Insurance Regulatory and Development Authority Act, 1999 which also amended the Insurance Act, 1938. This opened up the Indian insurance sector for foreign and private investors. The Insurance Act allows foreign equity participation in new insurance companies of up to 26.0%. A new company should have a minimum paid up equity capital of Rs. 1.0 billion to carry on the business of life insurance or general insurance or Rs. 2.0 billion to carry on exclusively the business of reinsurance. In the monetary and credit policy for fiscal 2001, 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 they meet stipulated criteria relating to their net worth, capital adequacy ratio, profitability track record, level of non-performing loans and the performance of their existing subsidiary companies. The promoters of insurance companies have to divest in a phased manner their shareholding in excess of 26.0% (or such other percentage as may be prescribed), after a period of 10 years from the date of commencement of business or within such period as may be prescribed by the Indian government. The Indian government, while presenting its budget for fiscal 2005, proposed an increase in the limit on foreign equity participation in private sector insurance companies from 26.0% to 49.0%. However, this requires an amendment to the laws and has not been implemented as yet. Gross premiums underwritten by all general insurance companies increased by 22.4% in fiscal 2007 to Rs. 250.0 billion, compared to an increase of 16.5% in fiscal 2006. The share of private sector general insurance companies in gross premiums underwritten increased from 26.6% in fiscal 2006 to 34.9% during fiscal 2007 (Source: IRDA). First year premium underwritten in the life insurance sector recorded a growth of 100.6% to Rs. 754.1 billion in fiscal 2007 compared to a 40.6% growth in fiscal 2006 with the private sectors retail market share (on weighted received premium basis) increasing from 34.2% in fiscal 2006 to 35.5% in fiscal 2007 (Source: IRDA). Mutual Funds At the end of fiscal 2007, there were 30 mutual funds in India with total assets under management of Rs. 3,263.9 billion. Total assets under management of all mutual funds increased by 40.8% from Rs. 2,318.6 billion at year-end fiscal 2006 to Rs. 3,263.9 billion at year-end fiscal 2007. From 1963 to 1987, 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 RBI. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds were established by public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993. The industry is regulated by the SEBI (Mutual Fund) Regulation, 1996. At the end of fiscal 2007, there were 25 private sector mutual funds with an 80.3% market share in terms of total assets under management. In 2001, Unit Trust of India, with a high level of investment in equity securities, started to face difficulties in meeting redemption and assured return obligations due to a significant decline in the market value of its securities portfolio. In response, the Government of India implemented a package of reform measures for Unit Trust of India, including guaranteeing redemption and assured return obligations to the unit holders, subject to restrictions on the maximum permissible redemption amount. As part of the reforms, Unit Trust of India was divided into two mutual

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funds structured in accordance with the amendment to the special law governing Unit Trust of India and as per the regulations of the Securities and Exchange Board of India, respectively, one comprising assured return schemes and the other comprising net asset value based schemes. New Paradigms in the Indian Banking Industry 1) Changing nature of corporate banking The corporate banking business has become increasingly competitive, with most banks targeting large corporate clients for loans and fee-based services. This has caused a fall in margins as well as non-fund business margins. Going forward, success will hinge on maximizing value from corporate relationships through a range of product offerings. 2) Retail Banking- huge growth potentialities Traditionally, the retail market has been overlooked as a Low Cost Deposits segment. However, structural changes in last couple of years resulted in significant growth in retail lending business. Factors which induce the focused growth of retail business are changing lifestyles, strong economic growth prospects coupled with higher disposable income etc. contributing towards the changing demographics. Indian retail market is still miniscule and nascent compared to Asian peers, in terms of per capita usage of retail product offerings such as housing finance, credit cards, auto loans, consumer finance etc. Other factors like the mammoth size of the Indian market couple with an unexplored base for retail finance products and increasing propensity of the urban populace to take credit. 3) Technology offering the competitive edge Technology has revolutionized the delivery chains for financial products and services with ATMs, Home Banking, Telephone banking which have replaced banking only at branches. Operating on a strong technology platform is increasingly becoming imperative for the launch of innovative products and services by banks in todays e-age. 4) Mergers and Acquisitions The domestic banking sector has witnessed mergers and acquisitions take place both in public sector banks (owing to the need to support weak banks) and private sector banks (focused towards the need to expand). Apart from providing the private players an effective route to fortify their reach and presence in the sector, merger and acquisition trend may also intensify the proposed reduction in government shareholding in public sector banks and provide international banks an opportunity to expand business in India. Impact of Liberalization on the Indian Financial Sector Until 1991, the financial sector in India was heavily controlled and the two dominant financial intermediaries viz. the commercial banks and long-term lending institutions, the two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable environment, with little or no competition. Long-term lending institutions were focused on the achievement of the Indian governments various socio-economic objectives, including balanced industrial growth and employment creation, especially in areas requiring development. Long-term lending institutions were extended access to long-term funds at subsidized rates through loans and equity from the Government of India and from funds guaranteed by the Government of India

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originating from commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies. The focus of the commercial banks was primarily to mobilize household savings through demand and time deposits and to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition, the commercial banks provided a range of banking services to individuals and business entities. However, since 1991, there have been comprehensive changes in the Indian financial system. Various financial sector reforms, implemented since 1991, have transformed the operating environment of the banks and long-term lending institutions. In particular, the deregulation of interest rates, emergence of a liberalized domestic capital market, and entry of new private sector banks, along with the broadening of long-term lending institutions product portfolios, have progressively intensified the competition between banks and long-term lending institutions. RBI has permitted the transformation of long-term lending institutions into banks subject to compliance with the prudential norms applicable to banks. 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 organizational issues, accounting practices and operating procedures, were implemented by the Government of India. The major recommendations that were implemented included the following: with fiscal stabilization and the Government increasingly resorting to market borrowing to raise resources, the statutory liquidity ratio or the proportion of the banks net demand and time liabilities that were 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 cash reserve ratio or the proportion of the banks net demand and time liabilities that were required to be deposited with RBI was reduced from 15.0% in the prereform period to low of 4.5%. Cash Reserve Ratio has since been increased to 6.5%. special tribunals were created to resolve bad debt problems; most of the restrictions on interest rates for deposits were removed. Commercial banks were allowed to set their own level of interest rates for all deposits except savings bank deposits; and substantial capital infusion to several state-owned banks was approved in order to bring their capital adequacy closer to internationally accepted standards. By the end of fiscal 2002, aggregate recapitalization amounted to Rs. 217.5 billion. The stronger public sector banks were given permission to issue equity to further increase capital.

Committee on Banking Sector Reform (Narasimham Committee II) The second Committee on Banking Sector Reform (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. RBI accepted and began implementing many of these recommendations in October 1998. Recent Structural Reforms Amendments to RBI Act

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In May 2006, the Indian Parliament approved amendments to RBI Act removing the minimum cash reserve ratio requirement of 3.0%, giving RBI discretion to reduce the cash reserve ratio 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 Indias public sector banks permitting these banks to issue preference shares and make preferential allotments or private placements of equity. The amendments also empower 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 RBI mandatory for the acquisition of more than 5.0% of a banking companys paid up capital or voting rights by any individual or firm or group; remove the minimum statutory liquidity ratio requirement of 25.0%, giving RBI discretion to reduce the statutory liquidity ratio to less than 25.0%; and remove the limit of 10.0% on the maximum voting power exercisable by a shareholder in a banking company.

Legislative Framework for Recovery of Debts due to Banks In fiscal 2003, the Indian Parliament passed the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This Act 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. This Act also provides for the setting up of asset reconstruction companies regulated by RBI to acquire assets from banks and financial institutions. RBI has issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by RBI, and operations. Asset Reconstruction Company (India) Limited, set up by ICICI Bank Limited, Industrial Development Bank of India, State Bank of India and certain other banks and institutions, has received registration from RBI and commenced operations in August 2003. Foreign direct investment is now permitted in the equity capital of asset reconstruction companies and investment by Foreign Institutional Investors registered with the Securities and Exchange Board of India is permitted in security receipts issued by asset reconstruction companies, subject to certain conditions and restrictions. Several petitions challenging the constitutional validity of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 were filed with the Supreme Court of India. The Supreme Court, in April 2004, upheld the constitutionality of the Act, other than the requirement originally included in the Act that the borrower deposit 75.0% of the dues with the debt recovery tribunal as a pre-condition for appeal by the borrower against the 69

enforcement measures. In November 2004, the Government of India issued an ordinance amending the Securitization Act. The Indian Parliament has subsequently passed this ordinance as an Act. This Act, as amended, now provides 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 the Securitization Act under certain circumstances (unlike the earlier provisions under which only assets could be taken over). Earlier, following the 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. The Act creates tribunals with which the banks or the financial institutions can file a suit for recovery of the amounts due to them. 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 tribunals. This protection from creditor action ceases if the secured creditor takes action under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. While presenting its budget for fiscal 2002, the Government of India announced measures for the setting up of more debt recovery tribunals and the eventual repeal of the Sick Industrial Companies (Special Provision) Act, 1985. To date, however, this Act has not been repealed. Corporate Debt Restructuring Forum To put in place an institutional mechanism for the restructuring of corporate debt, RBI has devised a corporate debt restructuring system. The objective of this framework is to ensure a timely and transparent mechanism for the restructuring of corporate debts of 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 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. 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, RBI, in its mid-term review of monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms as 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 the transition path and a strategy for smooth conversion into a universal bank over a specified time frame. In April 2001, RBI issued guidelines on several operational and regulatory issues which were required to be addressed in evolving the path for transition of a long-term lending institution into a universal bank.

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Pension Reforms Currently, there are three categories of pension schemes in India: pension schemes for Government employees, pension schemes for employees in the organized sector and voluntary pension schemes. In case of pension schemes for Government employees, the Government pays its employees a defined periodic benefit upon their retirement. Further, the contribution towards the pension scheme is funded solely by the Government and not matched by a contribution from the 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. Besides these, there are voluntary pension schemes administered by the Government viz. the Public Provident Fund to which contribution may be made up to a maximum of Rs. 70,000 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 scheme. 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 pensions regulatory authority to regulate the pensions system. Subsequently, in the budget for fiscal 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 defense personnel) to join a new defined contribution pension scheme where both the government and the employee would make monthly contributions of 10% of the employees salary. The Government also announced that a Pension Fund Development and Regulatory Authority would be set up to regulate the pension industry. The Government constituted 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 Indian Government service (excluding defense personnel) from January 1, 2004. Further, on December 30, 2004, the Government promulgated an ordinance establishing the statutory regulatory body, 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 2006 recognized the opportunities for foreign direct investment in the pension sector and it has also announced that the Government would issue guidelines for such investment. Credit Policy Measures 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.

Annual Policy Statement for Fiscal 2007

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In its annual policy statement for fiscal 2007 which was announced in April 2006, the RBI: Raised the requirement of general provisioning on standard advances to specific sectors like residential housing loans beyond Rs. 20 lakhs and commercial real estate loans from 0.40% to 1.0%. Increased the risk weight on commercial real estate exposure from 125.0% to 150.0%. Proposed to include banks total exposure to venture capital funds as a part of capital market exposure with a risk weight of 150.0%. Raised the ceiling on non-resident external deposit rates to LIBOR/SWAP rates of US Dollar of corresponding maturities plus 100 basis points from the then existing level of 75 basis points above LIBOR/SWAP rates.

First Quarter Review of Annual Policy Statement for Fiscal 2007


In its first quarter review of the annual policy statement announced on July 25, 2006, RBI raised the reverse repo rate (i.e., the annualized interest earned by the lender in a repurchase transaction between a bank and RBI) by 25 basis points to 6.0%. The bank rate remained unchanged at 6.0%.

Mid-Term Review of Annual Policy Statement for Fiscal 2007


In its mid-term review of the annual policy statement announced on October 31, 2006, RBI raised the repo rate by 25 basis points to 7.25%. The bank rate remained unchanged at 6.0%. The RBI also extended the time frame for full compliance with Basel II norms to March 31, 2008 for foreign banks operating in India and Indian banks present overseas. All other scheduled commercial banks are required to be in full compliance with Basel II norms by no later than March 31, 2009. In December 2006, RBI increased the cash reserve ratio by 50 basis points from 5.0% to 5.5%.

Third Quarter Review of Annual Policy Statement for Fiscal 2007


In its third quarter review of the annual policy statement announced on January 31, 2007, RBI raised the repo rate by 25 basis points to 7.5%. Further, RBI increased the general provisioning requirement for real estate sector loans (excluding residential housing loans), credit card receivables, loans and advances qualifying as capital market exposure and personal loans to 2.0%. RBI also increased the general provisioning requirement for banks exposures to non-deposit taking systemically important non-banking financial companies from 0.4% to 2.0% and the risk weight on banks exposure to these entities from 100% to 125%. RBI also reduced the interest rate ceiling on non-resident rupee deposits by 50 basis points to LIBOR/SWAP rates plus 50 basis points. In February 2007, RBI increased the cash reserve ratio by a further 50 basis points to 6.0%. The increase was implemented in two phases of 25 basis points each starting the fortnight beginning February 17, 2007 and beginning March 3, 2007. On February 23, 2007 RBI notified that it would pay interest on cash reserves above 3.0% of net demand and time liabilities (i) at 3.5% for the period June 24, 2006 to December 8, 2006, (ii) at 2.0% for the period December 9, 2006 to February 16, 2007 and (iii) at 1.0% from February 17, 2007 until further notice. In March 2007 RBI increased the repo rate by 25 basis points to 7.75% to address inflation expectations. At the same time, RBI increased the cash reserve ratio by a further 50 basis points to 6.5%. The increase was implemented in two phases of 25 basis points each starting the fortnight 72

beginning April 14, 2007 and beginning April 28, 2007.On April 13, 2007, RBI notified that it would be discontinuing interest payments on cash reserves above 3.0% of net demand and time liabilities till further notice. In addition, RBI announced the removal of the statutory minimum CRR maintenance requirement of 3.0%.

Annual Policy Statement for Fiscal 2008


In its annual policy statement for fiscal 2008 announced in April 2007, RBI: Raised the aggregate ceiling on overseas investment by mutual funds to US$ 4.00 billion from US$ 3.00 billion. Reduced 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. Reduced the risk weight on residential housing loans to individuals up to Rs. 20 lakhs to 50.0% as a temporary measure. Permitted banks and primary dealers to begin transactions in single-entity credit default swaps. Enhanced the overseas investment limit for domestic companies to 300.0% of their net worth and listed companies limit for portfolio investment abroad to 35.0% of their net worth.

Reforms of the Non-Bank Finance Companies


Standards relating to income recognition, provisioning and capital adequacy were prescribed for non-bank finance companies in June 1994. Registered non-bank finance companies were required to achieve a minimum capital adequacy of 6.0% by year-end fiscal 1995 and 8.0% by year-end fiscal 1996 and to obtain a minimum credit rating. To encourage the companies complying with the regulatory framework, RBI announced in July 1996 certain liberalization measures under which the non-bank finance companies registered with it and complying with the prudential norms and credit rating requirements were granted freedom from the ceiling on interest rates on deposits and amount of deposits. Other measures introduced include requiring non-bank finance companies to maintain a certain percentage of liquid assets and to create a reserve fund. The percentage of liquid assets to be maintained by non-bank finance companies has been revised uniformly upwards and, since April 1999, 15.0% of public deposits must be maintained. From January 1, 2000 the requirement should not be less than 10.0% in approved securities and the remaining in unencumbered term deposits in any scheduled commercial bank, the aggregate of which shall not be less than 15.0% of the public deposit outstanding at the close of business on the last working day of the second preceding quarter. The maximum rate of interest that non-bank finance companies could pay on their public deposits was reduced from 12.5% per annum to 11.0% per annum effective March 4, 2003. Efforts have also been made to integrate non-bank finance companies into the mainstream financial sector. The first phase of this integration covered measures relating to registrations and standards. The focus of supervision has now shifted to non-bank finance companies accepting public deposits. This is because companies accepting public deposits are required to comply with all the directions relating to public deposits, prudential norms and liquid assets. A task force on non-bank finance companies set up by the Government of India submitted its report in October 1998, and recommended several steps to rationalize the regulation of non-bank finance companies. Accepting these recommendations, RBI issued new guidelines for non-bank finance companies, which were as follows: 73

a minimum net owned fund of Rs. 25 lakhs 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 was also linked to the level of capital to risk assets ratio. Different capital to risk assets ratio levels for non-bank finance companies with different ratings were specified; and non-bank finance companies were advised to restrict their investments in real estate to 10.0% of their net owned funds

In the monetary and credit policy for fiscal 2000, RBI stipulated a minimum capital base of Rs. 200 million for all new non-bank finance companies. In the Government of Indias budget for fiscal 2002, the procedures for foreign direct investment in non-bank finance companies were substantially liberalized. During fiscal 2003, RBI introduced a number of measures to enhance the regulatory and supervisory standards of non-bank finance companies, especially in order to bring them at par with 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 harmonizing supervisory directions with the requirements of the Companies Act, procedural changes in nomination facilities, issuance of a Know Your Customer policy and allowing non-bank finance companies to take up insurance agency business. In 2005, RBI introduced stricter regulatory measures for non-bank finance companies, including stringent reporting requirements and revised Know Your Customer guidelines. On December 12, 2006, RBI issued guidelines on the financial regulation of systematically important non-banking financial companies and banks relationships with them with a view to remove the possibility of regulatory arbitrage leading to an uneven playing field and potential systemic risk. Within non-deposit taking non-banking financial companies, the guidelines classify those with an asset size above Rs. 1.00 billion as per the last audited balance sheet as systemically important. These non-banking financial companies are required to maintain a minimum capital to risk weighted assets ratio (CRAR) of 10.0%, in addition to conforming with single and group exposure norms. The guidelines restrict banks holdings in a deposit taking non-banking financial company, excluding housing finance companies, to 10.0% of the paid up equity capital of the nonbanking financial company. The total exposure to a single non-banking financial company has been limited to 10.0% of the banks capital funds (15.0% in the case of an asset finance company). The limit may be increased to 15.0% and 20.0%, respectively, provided that the excess exposure is on account of funds lent by the non-banking financial company to the infrastructure sector. As per the existing instructions of RBI, non-banking finance companies in India having assets of Rs. 50 Crores and above as per their last audited results are required to constitute an audit committee, consisting of no less than three members of its board of directors. In May 2007 the Reserve Bank of India announced that non-banking finance companies with deposit base of Rs. 20 Crores and above might also consider constituting an audit committee on similar lines as aforesaid. Further, RBI has also instructed non-banking finance companies with public deposits of Rs. 20 Crores and above or having an asset size of Rs. 1.00 billion or above to form a nomination committee to ensure fit and proper status of proposed/existing directors for such companies. RBI also instructed such nonbanking finance companies to form a risk management 74

committee. Additionally, RBI also prohibited such non-banking finance companies from extending loans, advances or non-fund based facilities or any other financial accommodation/ facilities to their directors and/ or certain other connected persons.allowing conversion of 60.0% of the foreign exchange received on trade or current account at a market-determined rate and the remaining 40.0% at the official rate. All importers were, however, required to buy foreign exchange at the market rate except for certain specified priority imports. In March 1993, the exchange rate was unified and allowed to float. In February 1994 and again in August 1994, RBI announced relaxations in payment restrictions in the case of a number of transactions. Since August 1994, the Government of India has substantially complied with its obligations owed to the International Monetary Fund, under which India is committed to refrain from using exchange restrictions on current international transactions as an instrument in managing the balance of payments. Effective July 1995, the process of current account convertibility was advanced by relaxing restrictions on foreign exchange for various purposes, such as foreign travel and medical treatment. In December 1999, the Indian parliament passed the Foreign Exchange Management Act, 1999, which became effective on June 1, 2000, replacing the earlier Foreign Exchange Regulation Act, 1973. This legislation indicated a major shift in the policy of the Government with regard to foreign exchange management in India. While the Foreign Exchange Regulation Act, 1973 was aimed at the conservation of foreign exchange and its utilisation for the economic development of the country, the objective of the Foreign Exchange Management Act, 1999 was to facilitate external trade and promote the orderly development and maintenance of the foreign exchange market in India. The Foreign Exchange Management Act, 1999 regulates transactions involving foreign exchange and provides that certain transactions cannot be carried out without the general or special permission of RBI. The Foreign Exchange Management Act, 1999 has eased restrictions on current account transactions. However, RBI continues to exercise control over capital account transactions (i.e., those which alter the assets or liabilities, including contingent liabilities, of persons). RBI has issued regulations under the Foreign Exchange Management Act, 1999 to regulate the various kinds of capital account transactions, including certain aspects of the purchase and issuance of shares of Indian companies. RBI has also permitted authorized dealers to freely allow remittances by individuals up to US$ 25,000 per calendar year for any permissible current or capital account transactions or a combination of both. Restrictions on Sale of the Equity Shares and Repatriation of Sale Proceeds Under Indian regulations and practice, the approval of RBI is required for the sale of Equity Shares by a non-resident of India to a resident of India as well as for renunciation of rights to a resident of India. However, sale of such shares under the portfolio investment scheme prescribed by RBI does not require the approval of RBI, provided that the sale is made on a recognized stock exchange and through a registered stock broker. If the prior approval of RBI has been obtained for the sale of the Equity Shares, then the sale proceeds may be remitted in accordance with the terms of such an approval. However, if the Equity Shares are sold under the portfolio investment scheme, then the sale proceeds may be remitted through an authorised dealer, without the approval of RBI provided that the Equity Shares are sold on a recognised stock exchange through a registered stock broker and a no objection/tax clearance certificate from the income-tax authority has been produced.

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Technology Technology is emerging as a key-driver of business in the banking and financial services industry. Banks are developing alternative channels of delivery such as ATMs, telebanking, remote access and Internet banking. Indian banks have been making significant investments in technology. In addition to computerisation of front-office operations, the banks have moved towards back-office centralisation. Banks are also implementing "Core Banking" or "Centralised Banking", which provides connectivity between branches and helps to offer a large number of value-added products, benefiting a larger number of customers. The RBI Annual Report for the year 2004-05 states that the use of ATMs has been growing rapidly and this has helped to optimise the investments made by banks in infrastructure. Banks have joined together in small clusters to share their ATM networks during the year. There are five such ATM network clusters functioning in India. The total number of ATMs installed by the public sector banks stood at 8,219 at March 31, 2004, compared with 5,963 ATMs at March 31, 2003. The payment and settlement system is also being modernised. As described above, RBI is actively pursuing the objective of establishing a Real Time Gross Settlement (RTGS) system, on par with other developed economies. Corporate Governance Adoption of good corporate governance practices has been getting the attention of banks as well as the regulators and owners in India. Banks in India now typically have an audit committee of the board of directors, which is entrusted with the task of overseeing the organisation, operationalisation and quality control of the internal audit function, reviewing financial accounts and follow-up with the statutory and external auditors of the bank as well as examinations by regulators. Disclosure levels in bank balance sheets have been enhanced, while measures have also been initiated to strengthen corporate governance in banks. Consolidation Indian banks are increasingly recognising the importance of size. These efforts have received encouragement from the views publicly expressed by the current Government favouring consolidation in the Indian banking sector. Although there have been instances of mergers, these have usually involved financially distressed banks. Mergers and acquisitions are seen by banks as a means of achieving inorganic growth in size and attaining economies of scale and scope. Notwithstanding the Government ownership of public sector banks, the government has indicated that it would not stand in the way of mergers of public sector banks, provided the bank boards come up with a proposal of merger, based on synergies and potential for improved operational efficiency. The Government has also provided tax breaks aimed at promoting mergers and acquisitions (Section 72(A) of the I.T. Act enables the acquiring entity (which could be a company, a corresponding new bank, a banking company or a specified bank) the benefit of "carry forward and set-off of accumulated losses and unabsorbed depreciation" of the acquired entity, subject to specified conditions being fulfilled). Further, under the Finance Act, 2005 a new Section 72AA has been incorporated into the I.T. Act pursuant to which, during the amalgamation of a banking company with any other banking institution under a scheme sanctioned and brought into force by the Government under Section 45 (7) of the Banking Regulation Act, the accumulated loss and the unabsorbed depreciation of such banking company shall be deemed to be the loss or, as the case may be, allowance for depreciation of such banking institution for the previous year in which the scheme of amalgamation was brought into force and other provisions of the I.T. Act relating to the set-off and carry forward of loss, and allowance,

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for depreciation shall apply accordingly. It is envisaged that the consolidation process in the public sector banks is likely, particularly as banks will be required to attain higher capital standards under Basel II and meet the pressures of competition by adoption of the extended universal banking model.

HISTORY & BACKGROUND OF THE BANK


The Bank, popularly known as Indore Bank in the Malwa Region was originally incorporated as Bank of Indore Ltd. under the special charter of His Highness Maharaja Tukojirao Holkar-II on the 23rd March 1920 at Indore. In terms of State Bank of India (Subsidiary Banks) Act, 1959 the Bank of Indore Ltd became a subsidiary of State Bank of India w.e.f. 1st January 1960 and was renamed as State Bank of Indore. The Bank acquired the business of the Bank of Dewas Ltd. in 1962 and the Dewas Senior Bank Ltd. in 1965 and was up-graded to class A category bank in 1971. Ever since the bank has been making steady progress; and during the year 2006-07 business turnover grown by Rs 35327 crore from Rs 28447 crore of 2005-06,. Total number of branches as on 31.03.2007 was 445, of which 342 branches were in Madhya Pradesh. During the last two decades, the Bank has spread outside Madhya Pradesh also by opening branches at important centres in 12 states and one union territory. Specialised branches i.e. Commercial Branches, Industrial Financial Branches, SSI Branches, ADB, P&SB Branches have been opened to meet the needs of specific customer groups. Being a Subsidiary of SBI, State Bank of Indore has access to more than 13,821 branches of State Bank Group located in India and abroad.

ORGANISATIONAL SET-UP
The Managing Director at the top is assisted by the Chief General Manager and 6 General Managers in the areas of operations, commercial and institutional and international banking, planning and development, treasury, inspection and vigilance and information technology. The bank has 4 zonal offices headed by Deputy General Managers. Four zonal offices are situated in Indore, Bhopal, Mumbai and Delhi.
HEAD OFFICE AT INDORE

ZONAL OFFICE INDORE ZONE

ZONAL OFFICE BHOPAL ZONE

ZONAL OFFICE MUMBAI ZONE

ZONAL OFFICE DELHI ZONE

Controls 4 Regions

Controls 5 Regions

Top executives of the bank at the head office are as under:


Shri C. Narasimhan Managing Director

Shri T.A. Padmanabhan Chief General Manager

Shri M. Vasantkumar General Manager (Technology)

Shri Ravindra G. Gadkari General Manager

Shri N. Ravichandran Shri Sanjay K. Singh General Manager General Manager (P&D) (Operation)

Shri M.C. Jacob General Manager ( C&I &IB)

Shri Raj Kumar Sharma General Manager

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(Treasury)

(Ins& Vig)

Business Profile The total deposit of the bank as at the end of March 2007 reached to Rs. 19976 crores and the total advances stood at Rs 15351 crores. The banks advances to priority sector stood at Rs. 5750.93 crores of which advances to agriculture stood at Rs. 2644.56 crores. The export credit stood at Rs. 1181.97 crores. The gross NPA ratio has come down from 3.02% as on 31.03.2006 to 1.90% as on 31.03.2007 and stood at 1.87% as on 30.06.2007 The Banks provision on NPAs is more than the amount prescribed under IRAC norms. The net NPAs ratio of the Bank stood at 1.04% as on 31.03.2007 and at 1.01% as on 30.06.2007. The bank has made a Net profit Rs. 189.95 crores for the year ended 31st March 2007 and Rs 64.76 crores for the 3-month period ended 30.06.2007. Products launched by the Bank The following new products were launched by the bank to cater to the needs of the present day demands in the market: Personal Segment Instant Cash Super Drive Indore Bank Aabhushan Scheme Flexi Housing Scheme Indore Bank Realty Scheme Gram Niwas &Sahyog Niwas Education Loan Shishksha Rin Employee Plus Teacher Plus Pensioner Plus Indorebank Scholar Maxgain Housing Loan Scheme for providing loan for vocational training Easy Travel IndoreBank Saral Indorebank Homeline Paricharika Gyanoday Jai Jawan Pension Loan Scheme Mahila Shakti & Career Planner Small Industries and Business Segment Bank on Schools Scheme (Boss) Yatri Plus Artisan Credit Card Doctor Plus Indorebank Shoppe Laghu Udhyami Credit Card (LUCC) Modernisation of SSI units Dall Mill plus Professional Plus

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Swarojgar Credit Card (SCC) Vishishtajan Plus Help Trade Finance Rice Mill Plus Mortgage Loan Indo- Tools-MICO-BOSCH

Commercial & Institutional Segment Traders Easy Loan Rent Plus Flexi Loans Bridge Loan Corporate Loan MIBOR linked Loan Parivahan Mitra Channel Financing School Mitra Advances to traders against Warehouse Receipts of MP State/Central/NBHCC/NCMSL Petro-Credit Advance against shares, debentures, units of mutual funds and public sector bonds Financing to construction industries Financing to software activities Corporate car loan scheme Financing of dealer of Tractor Manufactures : Tie up with International Tractors Ltd. (Sonalika Group) Agriculture Segment Indorebank Kisan Credit Card Indorebank Kisan Gold Card Dairy Plus Krishi Plus Arhatia Plus Financing for construction of farmers godown Agri clinic and Agri business centres NABARD-Rural Godown Rain water harvesting structure Land purchase scheme for SF/MF Herbal Plus Broiler Plus Tractor Loan Scheme Purchase of second hand tractor Purchase of two-wheeler Advance against warehouse receipts Contract Farming Establishment of Biofertilizer Finance to Joint Liability Groups (JLG) General Credit Card Scheme Scheme for financing Tenant Farmers/Oral lessee

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Cross Selling All branches are authorised to do SBI Life and General Insurance Business. Accreditation is obtained from IRDA to impart bancassurance (life) training. Corporate agency of United India Insurance Company Ltd has been obtained for non-life insurance activities. For sale of mutual fund units, the bank has tie-up with SBI Mutual Fund. Future plans: A few important corporate goals of the bank for FY 2006-07 are as follows:

Gross Profit of Rs . 500 crore Increase of 3 basis points in the deposit market share of the bank with growth of Rs. 3000 crore. Increase of 23.23 % growth has been projected in advance which translates to advance growth of Rs 3600 crore Non-interest income of the branches has been projected at Rs.330 crore.

Main Objects of the Bank The SBI (SB) Act was enacted, providing for formation of seven subsidiaries to SBI including SET and for the constitution, management and control of the subsidiary banks so formed and for matters connected there with or incidental thereto. Chapter II Section 4(3) of the SBI (SB) Act provides that the Bank shall carry on the business of banking and other business in accordance with the provisions of the Act and shall have the power to acquire and hold property whether moveable or immoveable for the purpose of its business and to dispose off the same. Business of the Bank Sections 36, 36(A), 37 and 38 of Chapter VI of the SBI (SB) Act provide that: Subsidiary Bank to Act as Agent of State Bank: 36 (1) A Subsidiary Bank shall, if so required by the State Bank, act as Agent of the State Bank at any place in India 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 State Bank. Subsidiary Bank to Act as Agent of Reserve Bank: Section 36(A) A Subsidiary 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 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. Section 36A(4) A subsidiary bank may transact any business or perform any functions entrusted to it under sub-section (1) by itself or through any agency approved by the Reserve Bank. Other business, which the Bank may undertake

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Section 37(1): Subject to the other provisions contained in this Act, a subsidiary bank may carry on and transact the business of banking as defined in clause (b) of Section 5 of the Banking Regulation Act, 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. Clause (b) of Section 5 of the Banking Regulation Act, 1949, states-Banking means the accepting for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft or otherwise. Section 37(2): The Central Government may, after consultation with Reserve Bank and the State Bank, by order in Writing: a. Authorise a subsidiary bank to do such other forms of business as the Central Government may consider necessary or expedient; b. Direct as any form of business as is mentioned in the order, shall be carried on subject to such restrictions, conditions and safeguards as may be specified therein; or c. Prohibit a subsidiary bank from carrying on or transacting any form of business which, but for this clause, it is lawful for the subsidiary bank to engage in. Business, which the Bank may not transact: Section 37 (3) Save as otherwise provided under Sub-section (2) of Section 37 of the SBI (SB) Act a subsidiary bank shall not engage in any form of business other than referred to in sub-section (1) of Section 37 of the said Act. Bank may acquire the Business of Other Banks: Section 38 (1) A subsidiary bank may, with the approval of the State bank, and shall, if the Reserve Bank, in consultation with State Bank, so direct, enter into negotiations for acquiring the business, including the assets and liabilities of any other banking institutions. NETWORK OF THE BANK The Bank has 4 Zonal Offices and 11 Regional Offices; controlling 445 branches and 23 extension counters as on 31.03.2007, including 154 specialised branches (excluding currency chest branches) Distribution of Branch Network The population group-wise break up of branches in India is as follows: As on 20.12.2006
Population Group Number of Branches % share to Total

Rural Semi-Urban Urban Metropolitan /Port Town Total

125 135 146 39 445

28.09 30.34 32.81 08.76 100.00

Geographical Distribution of Branches is as under:


State/ Union Territory Number of Branches % Share of Total

Andhra Pradesh Delhi Haryana Gujarat

2 10 3 9

0.45 2.25 0.68 2.02

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Karnataka Chhatisgarh Madhya Pradesh Maharashtra Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal Chandigarh (UT) Kerala Total

1 26 343 20 2 8 4 9 6 1 1 445

0.22 5.84 77.08 4.50 0.45 1.80 0.90 2.02 1.35 0.22 0.22 100

Specialised Branches For customer satisfaction and to increase the business, the Bank has given thrust to single window service by opening the specialised branches. The Bank has 154 specialised branches (excluding currency chest branches) as on March 31, 2007 that are engaged in financing our corporate borrowers, small-scale industries, specialised trading etc. The details as on March 31, 2007 are as given below:
Specialised Branches Number of Branches

Asset Recovery Branch Currency Chests Industrial Finance SSI Branch Treasury Commercial Branch Mid Corporate Branch Total DEPOSITS
As on

1 97 2 4 144 2 1 251

BUSINESS OF THE BANK & ITS PRODUCTS AND SERVICES


(Rs. In crores)
31-Mar-03 31-Mar-04 31-Mar-05 31-Marc-06 31-Mar-07 30-June-07

Deposits (Global) 9216.80 10418.67 13807.07 16660.71 19976.48 20846 Annual Growth Amount 1298.35 1201.87 3388.40 2853.64 3315.77 869.52 Annual Growth Percent 16.40 13.04 32.52 20.67 19.90 4.35 Cost of Deposits (Global) (%) 6.81 5.80 5.05 4.95 5.62 1.66 Total global deposits of the Bank as on June 2007, touched a level of Rs. 20846 crores. The category-wise break-up of total deposits during last 5 years is presented below:
(Rs. In crores)
As on March 31, 2003 March 31, 2004 March 31, 2005 March 31, 2006 March 31, 2007 June 30, 2007

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Current Deposits Savings Bank Deposits Term Deposits Bank Deposits Total

897.28 1980.54 6073.14

955.77 2419.72 6732.01

1185.51 2785.17

1490.74 3465.52

1557.31 4000

1358.46 4644.81

9264.94 11499.64 14026.94 14449.56 393.17 20846

265.84 311.17 571.45 204.81 392.23 9216.80 10418.67 13807.07 16660.71 19976.48

Distribution of Deposits The population group-wise break-up of total domestic deposits (excluding inter-bank) for the last five years is as given in the table below:
As on March 31, 2003 March 31, 2004 March 31, 2005 March 31, 2006 (in Rs. Crores) March 31, 2007

Rural Semi-Urban Urban Metropolitan Total ADVANCES

542.77 654.62 1954.03 2320.78 3548.01 4238.94 3171.99 3204.33 9216.80 10418.67

715.74 2596.74 5701.44 4793.15 13807.0 7

819.79 3094.93 7002.11 5743.88 16660.71

906.29 3694.04 8200.69 7179.29 19980.31

Population group wise classification of Net Advances The population group-wise classification of the Banks Net Advances is as under:
As on March 31, 2003 March 31, 2004 March 31, 2005 March 31, 2006 March 31, 2007 (Rs. In crores)

Rural Semi-Urban Urban Metropolitan


Total (Domestic)

Total Growth of Advances

560.43 945.41 1697.97 1979.14 5182.95 5182.95

709.78 1167.34 2053.72 2475.22 6406.06 6406.06

888.41 1484.55 2796.97 3870.72 9040.65 9040.65

1020.80 1832.61 3330.79 5691.71 11875.97 11875.97

1144.97 2071.38 3926.65 8282.65 15351.38 15351.38

The growth of the Banks Net advances during the past five years, both in India and Overseas is as follows:
(Rs. In crores) Year ended March 31, 2003 March 31, 2004 March 31, 2005 March 31, 2006 March 31, 2007 June 30, 2007

Gross Credit 5182.95 Annual Increase 20.84 (%)

6406.06 23.60

9040.65 11875.97 15351.38 15533.21 41.13 31.36 29.26 1.18

TREASURY & INTERNATIONAL OPERATIONS:

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Investments 2006-07: The gross investments in Government, approved and other securities increased from Rs. 5376.00 crores as at the end of March 2006 to Rs. 6091.75 crores as at the end of March 2007, recording a growth rate of 113.31%. The banks profit on sale of investments is Rs 24.79 crores in 2006-07. The average yield on investments has come down from 8.34% during 2005-07 to 8.20% during the year 2006-07. The modified duration of the investment portfolio is 4.27 Current year 2007-08 upto 30.06.2007: The gross investments of the Bank in Government, approved and other securities increased from Rs. 6091.75 crores as at the end of March 2007 to Rs. 6710.97 crores as at the end of June 2007 recording a growth of 10.16%. During the period from 01.04.2007 to 30.06.2007, banks profit on sale of investments was Rs 19.55 crores only, mainly due to sale of securities to avoid future depreciation requirements in a rising rate scenario. International Banking The Bank achieved a foreign exchange turnover of Rs 40825.58 crore for the year ended 31.03.2007 as against Rs 23896.73 crore during the previous year recording a growth of 70.84%. As at the end of August 2007 the foreign exchange turnover stood at Rs 18873.13 crore showing a YOY growth of 26.77% and is likely to touch Rs 40300 crore by 31st March 2008. The Banks export credit registered a growth of 10.12 % from Rs 1073.30 crore to Rs 1181.97 crore during the FY 2006-07. Export credit stood at Rs 1219.20 crore in August 2007 which is 18.44% above August 2006 level. The Bank is likely to achieve a growth target of Rs 400 crore at the end of fiscal ending 31.03.2008 Non-Resident Deposits reached a level of Rs 265.80 core showing a growth of 6.58% over the previous year's level. The Bank has budgeted a level of NRI deposits of Rs 450 crore for the FY 2007-08. During the FY 2006-07 the Bank further expanded its forex trading operations and earned Rs 6.81 crore as against Rs 6.23 crore in the previous year. Exchange profit from foreign exchange transactions however declined from 27.16 crore to Rs 20.33 crore in FY 2006-07 mainly due to quoting finer rates to meet fierce competition in the market. . Technological Upgradation After having brought all its branches on Core Banking platform last year, the bank continued to promote the growth of Alternate Delivery Channels such as ATMs, Internet Banking. The number of ATms. of our bank stood at 235 as on 31.03.2007 and the accessibility to 6700 ATMs of the STATE BANK GROUP has given more choice to the existing ATM cardholders for free access to ATM Services. All branches are enabled for "Any where Any time Banking' through Retail Internet Banking and all non-rural branches are authorized for corporate Internet Banking so that round -the-clock services can be extended to all classes of customers. Utility bills payment like Insurance Premium, Telephone Bills, Mobile Bills, Electricity Bills, SBI Credit card payment, Donations to various trusts etc. is activated for personal customers through Retail Internet Banking. E-payment of indirect taxes for both individuals as well as corporate customers. The transaction through Corporate Internet Banking has crossed the level of Rs. 100 crore. Customers of the Bank now have the facility of making/receiving payments to/from branches of any other bank electronically, with the online seamless integration of RTGS(Real Time Gross

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Settlement) and NEFT (National Electronic Funds Transfer) with Core Banking solution. The bank is the first public sector bank having all branches NEFT enabled for the benefit of customers. Value-added services: The following value-added services are provided:
Sr. No. Particulars

1. 2. 3. 4. 5. 6. 7. 8. 9. 10 11. 12. 13. 14. 15.

Demand drafts / bankers cheque printing TDR / STDR receipt printing Clearing module CBDT Module Customer sign scan PPF module Internet banking Oltas Officers specimen signature RTGS Single Window Services SFMS Govt. Module ADYAR Project NEFT

ATMs: The bank has installed 235 networked ATMs by 31.03.2007 at major cities and at important centers in Madhya Pradesh. The customers of the bank have free access to over 6700 ATMs of the State Bank Group. Video conferencing: Video conferencing facility has been installed at all Zonal and Regional offices, Commercial branches and Treasury Department, Mumbai. The finance & accounts and Treasury Departments are using the facility for conferencing with SBI also for treasury operations under Group Synergy. Banks web-site: The banks web-site has been designed to render a professional look with dynamic and interactive features. Hindi version of the web-site is also available. Human Resource Development & Training Human Resource Manpower Profile The total strength of the Bank as at the end of March 2007 stood at 6517 as against 6647 as at the end of March 2006. The staff strength comprised of 2242 Officers, 3106 Clerks / Cashiers and 1169 Subordinate Staff. Of these 280 are ex-defence Personnel, 106 belong to Physically Handicapped category. Womens Representation As at the end of March 2007, there were 950 women employees in the Bank compared to 940 as at the end of March 2006. The Bank continued to provide equal opportunity to women in their career progression.

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Scheduled Castes / Scheduled Tribes Representation As at the end of June 2007, there were 1079 Scheduled Caste employees comprising of 336 Officers, 494 Clerks/Cashiers and 249 Sub-ordinate Staff. There were 950 Scheduled Tribe employees comprising of 147 Officers, 567 Clerks/Cashiers and 236 Subordinate Staff as at the end of June 2007. All gui0delines of the Government of India for safeguarding the interests of SC/ST employees have been complied with. Training The bank continued to make concerted efforts for development of its human resources. During the year 2006-07, 120 training programme in general wing and 48 training programme in computer wing were arranged at the Banks Staff Academy, Indore, In all 2981 member of staff (both officers and award staff).were imparted training to improve their knowledge, skills and attitude. With a view to empowering the employees with adequate knowledge and requisite skills to perform their roles and to improve their working efficiency, in-house training has been an on going activity in our bank. With a view to equipping our officials in specialised areas we have conducted several programmes on Risk Management, International Banking, Preventive vigilance, NPA Management and Marketing, Programme for Armed Guards, Core Banking Solution Awareness Programme and Programme for SC/ST employees. During the year, 455 officials were deputed to outside training institutions such as State Bank Staff College, Hyderabad, State Bank Academy, Gurgaon, State Bank Institute for Rural Development, Hyderabad, State Bank Institute for Information and Communication Management, Hyderabad, NIBM Pune, BTC, Mumbai, etc
Loan Policy

State Bank of Indores Loan Policy (hereinafter referred to as The Loan Policy or The Policy) is aimed at accomplishing its mission of all-round growth with maximum profits, a position of preeminence in banking, committed to excellence in customer, shareholder and employee satisfaction, with continuing emphasis on its Development Banking role, achieved through a skilled and committed workforce and technological upgradation. The Loan Policy of the Bank has successfully withstood the test of time and with in-built flexibilities, has been able to meet the challenges in the market place. The Policy exists and operates at both formal and informal levels. The formal Policy is well documented in the form of circular instructions, periodic guidelines and codified instructions, apart from the Book of Instructions, where procedural aspects are highlighted. The Policy, at the holistic level, is an embodiment of the Banks approach to sanctioning, managing and monitoring credit risk and aims at making the systems and controls effective. The Policy also aims at striking a balance between underwriting assets of high quality, and customer-oriented selling. The basic tenets of Banks Loan Policy are as follows: a. The Policy applies to all lending subject to the general or special directives of RBI / Government of India, as also the prudential guidelines applicable to all credit exposures of the Bank. b. It aims at spotting and seizing opportunities and revamping our products and delivery mechanism as well as innovating new products ahead of competition. c. The Policy establishes a commonality of approach regarding credit basics, appraisal skills, documentation standards and awareness of institutional concerns and strategies, while leaving enough room for flexibility and innovation.

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d. It envisages an effective training system in all areas of Credit Management which reflects State Bank of Indores commitment to upgrade skills of all members of staff on a continuing basis. e. Computerization, management information system based on a reliable database and development of faster communication as tools for better overall credit risk management are accorded due priority in the policy. f. Optimum exposure levels are set out in the Policy to different sectors in order to ensure growth of assets in an orderly manner. g. The Policy sets out minimum scores / hurdle rates (in terms of Credit Risk Assessment parameters) for new/ additional exposures. h. Banks general approach to Export Credit and Priority Sector Advances is set out in the Policy. i. The Policy lays down norms for take over of advances from other banks / FIs. j. Banks stand on granting credit facilities to companies whose directors are in the defaulters list of RBI is covered in the Policy. k. The Policy aims at continued growth of assets while endeavouring to ensure that these remain performing and standard. The Board of the Bank is the apex authority in formulating all matters of policy in the Bank. A Credit Risk Management Committee (CRMC), duly approved by the Board of Directors, deals with issues relating to credit policy and procedures on a bank-wide basis. The Board and/or CRMC sets broad policies for managing credit risk including industrial rehabilitation, sets parameters for credit portfolio in terms of exposure limits, reviews credit appraisal systems, approves policies for compromises, write-offs, etc., and general management of NPAs besides dealing with the issues relating to Delegation of Powers.

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ASSET CLASSIFICATION, INCOME RECOGNITION & PROVISIONING ASSET CLASSIFICATION


The Bank classifies its assets in compliance with RBI guidelines. Under these guidelines, an asset is classified as non-performing if any amount of interest/ principal remains overdue for more than 90 days in respect of term loans. In respect of overdraft/ cash credit, an asset is classified as nonperforming if the account remains out of order for a period of more than 90 days and in respect of bills, if the account remains overdue for more than 90 days. In case of retail assets, the Bank classifies an asset as non-performing where any amount of interest/ principal remains overdue for more than 90 days, in respect of all loans. NPAs are further classified into three groups i.e. Substandard, Doubtful and Loss Asset depending upon the period of delinquency and availability of tangible security. The table below gives the criteria for asset classification viz. standard, sub-standard, doubtful and loss assetCategory 1. Performing Standard Assets 2. Non-Performing a)Sub-Standard Assets b) Doubtful Assets c) Loss Assets Classification An asset which has not posed any problem and which does not carry more than the normal business risk An asset which has been non-performing for a period less than or equal to twelve months An asset, which has been non-performing for a period of 12 months Asset where loss has been identified by the Bank or auditors/ RBI. The value of security is less than 10%

For this purpose, all advances are segregated into performing assets (standard assets) and nonperforming assets. A borrowal account is classified as Non Performing Asset (NPA) when interest and/or installment are overdue for more than 90 days. Borrowal accounts treated as NPA for a period of 12 months are classified as sub standard assets and borrowal accounts treated as NPA for more than 12 months are treated as doubtful assets. NPAs where securities are less than 10% and which are considered as irrecoverable are treated as loss assets. When an account is classified as NPA, interest already debited to the account but not realized, is de-recognized and further interest accrued is recognized on cash basis.

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Provisioning and Write-Offs As per RBI guidelines, provisions are arrived on all outstanding NPAs, as under: Sub-Standard Assets A general provision of 10 percent on total outstanding without making any allowance for DICGC/ECGC guarantee cover and securities available. Additional provision of 10 per cent, i.e., a total of 20 per cent on the outstanding balance for unsecured exposures, which are identified as substandard. 20%, 30%, or 100% for secured portion of Doubtful assets exceeding 12 months (DA 1) and up to & including 24 months, exceeding 24 month and upto and including 48 months ,Exceeding 48 months (DA 3) after 31.03.2004 respectively and at 100% for the unsecured portion of the outstanding after netting retainable or authorized amount of the guarantee claims already received/ lodged with DICGC/ECGC, if any. 100% of the outstanding after netting retainable amount of the guarantee claims already received/lodged with DICGC/ECGC, if any For Standard Assets, a general provision is made @ 0.25% of direct advance to agriculture and SME sectors, @ 1.00% of residential Housing Loans beyond Rs 20.00 lac, @ 2.00% of personal Loans (including credit card receivables). and Loans and advances qualifying as capital market exposures, Commercial real estate loans and advances to systematically important NBFCs-ND and @ 0.40% of all other advances not included in above including bulk housing finance..

Doubtful Assets

Loss Assets Standard Assets

Details of Non-Performing Assets of the Bank

(Rs in Crores)

PARTICULARS Gross NPA at the beginning of the year Addition during the year Reduction during the year Gross NPAs as at 31st March Net NPAs as at the 1st April Net NPAs as at the 31st March

2002-03
320.10 117.42 142.27 295.25 153.46 137.84

2003-04
295.25 115.54 144.43 266.36 137.84 0.00

2004-05
266.36 161.39 124.27 303.48 0.00 90.72

2005-06
303.48 242.30 182.85 362.93 90.72 216.80

2006-07
362.93 213.08 281.81 294.20 216.80 159.06

Movement of Provision for Non-Performing Assets (excluding provisions for standard assets) 30.06.2007 31.03.2007 31.3.2006 31.3.2005

(Rs in Crores) 31.3.2004 31.3.2003

Opening balance as on 1st April Less : Write off during the year Sub-total Less: Write back of floating provision Add : Provisions made during the year Closing Balance as on 31st March

122.46 2.23 120.23 0.00 4.28 124.51

132.28 71.31 60.97 0.00 61.49 122.46

199.55 72.78 126.77 0.00 5.51 132.28

258.29 41.09 217.20 114.98 97.33 199.55

150.55 77.01 73.54 0.00 184.75 258.29

160.75 112.81 47.94 0 102.61 150.55

89

Asset Classification of Performing and Non-Performing Assets for the last 5 years is given below: (Rs. In crore)
Classification of assets as on March 31, 2003 March 31, 2004 March 31, 2005 March 31, 2006 March 31, 2007

Standard Assets Sub Standard Assets Doubtful Assets Loss Assets Gross NPAs Gross Advances

5045.11 136.36 146.53 12.36 295.25 5340.36

6408.15 131.65 125.02 9.69 266.36 6674.51

8949.97 108.98 182.86 11.64 303.48 9253.45

11659.17 158.18 189.41 15.34 362.93 12022.10

15192.31 94.91 189.84 9.46 294.20 15486.52

Advances given above are Gross Advances while the Balance Sheet indicates Net Advances after setting off provisions, interest suspense etc: Gross Advances (Provisions, Interest Suspense and DICGC & ECGC claims) = Net Advances. Asset Classification of Performing and Non-Performing Assets for the last 5 years is given below: (As a % of Gross Advances)
Classification of assets (%) as on March 31, 2003 March 31, 2004 March 31, 2005 March 31, 2006 March 31, 2007

Standard Assets Sub Standard Assets Doubtful Assets Loss Assets NPA Total

94.47 2.55 2.75 0.23 5.53 100.00

96.01 1.97 1.87 0.15 3.99 100.00

96.72 1.18 1.98 0.12 3.28 100.00

96.98 1.32 1.57 0.13 3.02 100.00

98.10 0.61 1.23 0.06 1.90 100.00

NPA MANAGEMENT STRATEGY


Several proactive measures, initiated by the Bank, have resulted in containing Gross NPA level despite growth in advances by 247.58% during the past 5 years. In percentage terms, the Gross NPA ratio declined from 9.16 % in March 2001 to 1.87% in June 2007, while Net NPA ratio declined from 5.91 % to 1.01 % in the same period. With the aim of improving asset quality, the following measures have been initiated: * * * * * * * * * Constant review of large borrowal accounts to ensure proper end use of funds Measurement of risk through credit rating / scoring Benchmarking of financial and performance ratios Effective loan review mechanism and portfolio management Fixing prudential exposure limits in consonance with RBI guidelines Constant review of economic scenario to identify systemic sector-wise risks System of timely detection of sickness Extending the ambit of Credit Audit for covering advances of Rs.2 crores and above Adherence to various terms and conditions stipulated in the sanction letter

90

* * * * *

Monitoring of advances by constant on-site and off-site inspection Review of Special Mention Accounts above Rs. 10 lacs on a monthly basis by the Top Management Intensive training of officers for improvement of credit assessment skills Utilisation of Securitisation Act for recovery of impaired assets Restructuring / Rehabilitation through CDR / normal route

RISK MANAGEMENT
The Bank has achieved substantial progress in the implementation of risk management systems, envisaged in RBI guidelines. An integrated Risk Management approach is followed, with a welldesigned organisational structure, and comprehensive policies and procedures laid down to manage credit, market and operational risks. The Bank has constituted: A. Risk Management Committee of the Board (RMCB), which monitors the overall risks assumed by the Bank, B. Asset Liability Management Committee (ALCO), which monitors the liquidity and interest rate risks, C. Credit Risk Management Committee (CRMC), which deals with issues relating to credit policy and procedures on a bank-wide basis, D. Investment Committee, which deals with investment decisions, and E. Operational Risk Management Committee (ORMC), which monitors and manages the Operational Risks. These committees meet at periodic intervals. The Bank has a well-established credit approval process, including comprehensive credit appraisal and established procedures for application forms, documents, etc. A comprehensive system of risk assessment is in place whereby credit rating is assigned to every borrower. An independent review group is also established to vet the risk-assessed credit rating of individual borrower accounts. A comprehensive Loan Policy document that encompasses the various facets of credit risk management is in place. This is reviewed at regular intervals, and modifications to suit the Banks needs are carried out. The Bank has a loan review mechanism, which undertakes review of the pre and post sanction process of all borrowal accounts with sanctioned limits of Rs. 200 lakh and above. The Bank carries out portfolio analysis of all borrowal accounts with sanctioned limits of Rs. 50 lakh and above at half-yearly intervals, which enables it to assess the distribution of standard assets and nonperforming assets (industry/sector-wise), distribution of standard assets risk rating-wise, extent of non-performing assets in every industry as a percentage of total exposure within the industry and overall credit, and also undertake a constant review of economic scenario to recognise sector-wise risks. The analysis enables the Bank to carry out various measures and initiate suitable steps to address the identified credit risks. The process of review/renewal of borrowal accounts is carried out in a systematic manner to assist in assessing the health of the borrowal account and timely detection of sickness. In respect of Market Risk Management, including Liquidity and Interest Rate Risk Management, the Bank has introduced a scientific system of Asset-Liability Management. The market risk management policy is adequately spelt out in the ALM policy of the Bank, and is managed within the overall risk framework laid down by the Board. The ALCO monitors market risk on an ongoing basis. Tolerance limits in accordance with RBI guidelines are fixed, and the Bank has

91

always ensured adequate liquidity at all times. The investment policy has been laid down, which embraces the preferred mix of securities, sector-wise ceilings, limits for purchase and buyback transactions, etc., which is monitored by the Investment Committee. Operational Risk covers the whole gamut of residual risks not covered under either Credit or Market risks. In order to mitigate operational risks, the Bank ensures a comprehensive internal control system, effective systems & procedures, recovery mechanisms and contingency plans, and regular and comprehensive audit of all its business units and administrative offices at regular intervals. The Bank has also introduced Risk Focused Internal Audit, as part of its attempt at introducing improved system of internal audit.

ASSET LIABILITY MANAGEMENT (ALM)

The ALM system was implemented in the Bank in 1999. An Asset Liability Management Policy has been put in place for the purpose of identifying and measuring of Liquidity and Interest Rate Risks and for the formulation of appropriate strategies to manage such risks. The data collection from branches has since stabilized consequent upon networking of all Branches. This has helped in timely decision-making by Asset Liability Management Committee (ALCO). The ALCO is the top operational unit for managing Balance Sheet within the risk parameters laid down by the Board. The ALCO met 45 times during the year 2005-06 to monitor and review risks and returns, raising and deployment of resources, setting Banks lending and deposit rates and directing the investment activities of the Bank. Oracle Financial Services Application (OFSA) is the common ALM solution provider for the entire State Bank Group. With networking of all branches, 100% branches data is now available for IT-ALM Project. Exposure to the capital market is reviewed by the Audit Committee on a regular basis. The Bank has laid down counterparty bank exposure limits for various operating departments, which is integrated and monitored on a monthly basis. Country Risk Management Policy has been drawn up, duly approved by the Board. These are reviewed at periodic intervals. Credit risk primarily arises in the Banks lending and investment operations due to the failure of any counterparty, principally the borrowers, to abide by the terms and conditions of any financial contract with the Bank, including failure to make required repayments on loans due to the Bank. The Banks standardized credit approval process includes a well-established procedure of credit evaluation and approval. The Risk Management Department measures, monitors and manages credit risk for borrowal accounts. The Bank has a comprehensive system for tracking the rating profile of the Banks loan portfolio. The Bank has adopted very stringent and selective credit growth standards. In order to assess the credit risk associated with any credit proposal, the Bank assesses a variety of risks relating to the borrower and the relevant industry. The Bank has an exhaustive and structured process for monitoring credit exposures. Its aim is to: Ensure compliance with the terms and conditions of the credit approval; Periodically review performance of the borrowers against projections; Detect early warning signals and take appropriate corrective prompt actions; and Conduct rapid portfolio reviews to right-size exposures.

Credit Risk Management

92

Credit Procedure The credit process in the Bank is divided into three components the pre-sanction process, the credit sanction process and the post-sanction process.

Pre-sanction process

The corporate office specifies through its corporate credit policies and periodic guidelines, the criteria for asset selection, risk acceptance level, exposure norms as well as account profitability standards. The regional head and the branch head are responsible for drawing up strategic business and marketing plans, including identifying target markets strictly in conformity with these policies. Any deviation proposed from the corporate policies must necessarily be with the prior concurrence of the corporate office.

Credit Sanction process

The Bank already has in place a streamlined committee system for sanctioning corporate credit. The committees have been empowered suitably through delegation of powers.

The Bank has put in place an effective post sanction process to facilitate efficient and effective credit management and to maintain high level of standard assets. Broadly, the objectives of post sanction follow-up, supervision and monitoring are as under: Follow-up function covers the following areas: Ensuring on an ongoing basis compliance with terms and conditions of sanction Tracking performance of the borrower and ensuring safety and recoverability of the advances Ensuring compliance with all internal and external reporting requirements covering the advances.

Post-sanction process

Supervision function primarily ensures that effective follow-up of advances is in place and asset quality of good order is maintained. It includes catching of early warning signals, identification of incipient sickness and initiation of proactive remedial measures.

The market risk management policies of the Bank are determined by the ALCO, which also recommends overall market risk appetite to the Risk Management Committee. The Banks business is also subject to market risk, which arises in relation to non-trading positions, and customer-originated transactions and flows. The Bank has sophisticated systems, which are used for analysing market risks, data warehousing and performing analytic for both trading and investment portfolio. Risk reports are prepared for risks in foreign exchange, interest rate, etc. The Bank has adopted a twin-track limit system to manage its risk positions that distinguishes between risk limits and stop-loss limits. The Bank uses a daily Value at Risk measure for controlling market risk.

Market Risk Management

Operational Risk Management

The Banks Operational Risk management Committee manages operational risk and reports to the Risk Management Committee of the Board. The Committee monitors adherence to the 93

Operational Risk Management Policy and ensures that appropriate operational risk management frameworks are in place. It proactively reviews and manages potential risks that arise from changes in the economic, political and regulatory environment. The Committee discusses monthly operational risk reports and analyzes frauds, potential losses, non-compliance, breaches, etc., and recommends corrective measures. The Bank has a system, developed in coordination with an international consultant, to capture Operational Risk in a qualitative-quantitative framework (including Key Risk Indicators, Controls, Incident Reporting, Internal Loss Data, generation of Value at Risk number) and to control it across the organization. Lending to Sensitive Sectors The Bank has a limited lending exposure to the Sensitive Sectors, with a view to insulate itself against adverse market movements. The exposure to these sectors as at 31st March 2006 and as on 31st March 2007, were as follows: (in Rs. crores) Sensitive sectors 31.3.2006 31.3.2007 Capital Markets 1.07 0.29 Real Estate Sector 14.81 20.49 Total 15.88 20.79 As % of Total Advances 13.37% 13.54% 7.67% 8.48% As % of Total Assets The increase is mainly due to broadening of definition of real estate sector by RBI to include housing loans also. Classification of Investments as per RBI norms: (Rs. In crores)
As on March 31, i. Govt securities ii. Other approved securities iii. Shares iv. Debentures and Bonds v. Subsidiaries and/or joint ventures vi. Others (units of UTI & Mutual Funds) Total
Maturity Profile of Assets and Liabilities is as follows:

2003-04 2004-05 2005-06 2006-07 4979.80 5580.68 4646.38 5610.79 88.84 65.56 29.67 34.93 21.57 31.68 41.36 57.34 255.93 178.69 74.21 41.82 2.19 2.19 2.19 2.19 80.69 39.34 318.17 245.37 5429.02 5898.14 5111.98 5992.44

Year ended March 31, 2007 Residual Maturity Pattern based on restated Balance Sheet (Rs in crores)
Maturity Pattern Deposits Loan & Advances Investment Securities Borrowings Foreign Currency Assets 373 Liabilities 254

1 14 days 15 28 days 29 days 3 months 3 6 months 6 months 1 year 1 3 years 3 5 years Above 5 years Total

620 703 2771 1037 3141 6773 332 4599 19976

310 239 662 719 939 7124 2240 3118 15351

26 191 455 10 31 799 587 3893 5992

463 25 155 245 66 396 147 2 1499

44 377 40 5 5 0 0 844

4 329 13 33 211 0 0 844

94

In compiling the above data, certain assumptions as per RBI guidelines and instructions have been made.

Residual Maturity Pattern based on restated Balance Sheet Year ended March 31, 2006
Maturity Pattern Deposits Loan & Advances Investment Securities Borrowings

(Rs in crores)
Foreign Currency Assets Liabilities

163 112 1 14 days 276 413 393 65 15 28 days 157 45 263 0 392 425 29 days 3 1253 618 30 101 454 292 months 3 6 months 1832 778 158 7 117 57 6 months 1 year 2800 835 18 7 13 33 1 3 years 6212 6155 988 21 2 35 3 5 years 132 1365 670 9 5 192 Above 5 years 3999 1667 2592 453 0 0 Total 16661 11876 5112 663 1146 1146 In compiling the above data, certain assumptions as per RBI guidelines and instructions have been made.

Residual Maturity Pattern based on restated Balance Sheet (Year ended March 31, 2005 Rs in crores)
Maturity Pattern Deposits Loan & Advances Investment Securities Borrowings Foreign Currency Assets Liabilities 103

37 1 14 days 370 442 934 105 15 28 days 75 216 199 0 40 29 days 3 982 399 236 121 410 months 3 6 months 656 337 54 7 241 6 months 1 year 1958 586 44 48 66 1 3 years 5006 3883 727 20 0 3 5 years 130 1279 1044 198 5 Above 5 years 4630 1899 2660 4 0 Total 13807 9041 5898 503 799 In compiling the above data, certain assumptions as per RBI guidelines and instructions have been made.

86 280 8 84 50 188 0 799

Residual Maturity Pattern based on restated Balance Sheet Year ended March 31, 2004 (Rs in crores) Maturity Buckets Deposits Loans & Investment Borrowings Advances Securities

Foreign Currency Assets Liabilities 40 39 239 116 2 5 0 125 46 193 8 22 47 0 0 441

1 14 days 15 28 days 29 days 3 months 3 6 months 6 months 1 year 1 3 years 3 5 years Above 5 years Total

416 210 343 539 370 4422 138 3981 10419

292 109 468 287 477 2915 633 1225 6406

340 18 114 83 25 545 914 3390 5429

31 0 22 8 9 24 12 3 109

0
441

95

Unsecured Borrowings

Rs in crores
31.03.2004 31.03.2005 31.03.2006 31.03.2007

Borrowings in India Borrowings outside India Unsecured Nonconvertible Redeemable Bonds (Subordinated for Tier-II Capital) TOTAL
Key financial Ratios

109.41 275.42 125.00

502.58 371.70 265.00

339.87 388.15 515.00

1301.90 197.44 750.00

509.83

1139.28

1243.02

2249.34

(%)

Ratios Interest Income as a percentage to average working funds Non-Interest Income as a percentage to average working funds Operating profit as a percentage to average working funds Return on Assets Business per employee (Rs. In lacs) Profit per employee (Rs.in lacs)
Credit/Deposits Ratio (%) Interest Spread / Average Working Funds (%) Gross Profit / Average Working Funds (%) Net profit / Average Working Funds (%) Operating Expenses / Average Working Funds (%) Return on Average Net Worth (%) Yield on Advances Yield on Investments (%) Cost of Deposits (%) Capital Adequacy Ratio (%) Tier I Tier II Dividend Pay Out Ratio Business per Employee (Rs in lakhs) Gross Profit per Employee (Rs in lakhs) Business per Branch (Rs in lakhs)

31.3.01 9.89 2.27 2.91 0.78 126.00 0.98


51.17 3.22

31.3.02 9.67 3.00 3.70 1.24 171.00 1.91


54.11 3.19

31.3.03 9.31 2.85 3.97 1.76 220.52 3.06


56.23 3.47

31.3.04 8.53 2.94 4.34 1.73 230.77 3.45


61.49 3.70

31.3.05 31.03.06 31.03.07 7.67 7.23 7.84 1.23 2.43 0.79 293.88 2.07
65.48 3.47

1.51 2.29 0.76 367.84 2.09


71.28 2.96

.99 1.79 .87 476.67 2.91


76.84 2.66

2.37
0.88 3.09 23.57 11.17 10.91 7.79 12.73 9.12 3.61 9.57

3.74
1.37 2.46 34.58 10.79 10.50 7.50 12.78 8.15 4.63 5.60

3.97
1.89 2.34 40.21 10.27 9.99 6.81 13.09 9.40 3.69 4.37

4.34
1.84 2.30 32.94 9.27 9.27 5.80 12.39 8.31 4.08 7.73

2.43
0.92 2.27 15.73 8.21 8.51 5.03 11.61 6.67 4.94 13.14

2.29
0.76 2.17 14.48 8.24 8.34 4.95 11.40 7.54 3.86 15.72

1.17
.87 1.87 17.31 9.02 8.20 5.62 11.77 6.74 5.03 13.82

135.43
2.63 2171.46

170.09
5.24 2653.60

204.27
6.45 3123.77

230.77
8.14 3469.45

293.88
5.48 4290.67

367.84
6.32 5556.92

476.67
5.97 6980.82

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Definitions of Key Ratios : Credit / Deposit Ratio Average Working Funds (AWF) Interest spread / AWF (%)

: Balance Sheet advances / Balance Sheet deposits : Fortnightly average of total assets : Interest income less interest expenses/AWF

Gross profit / AWF


Net Profit / AWF (%) Operating expenses / AWF (%) Return on average networth (%) Yield on Advances (%)

: Profit prior to provisions and contingencies and Extraordinary Items/AWF

: Net Profit / AWF : Non-interest expenditure / AWF : Net Profit / Average of opening and closing Networth. : Interest earned on advances / Fortnightly Average of advances. Yield on Investments (%) : Interest earned on investments/ Fortnightly Average of investments Cost of deposits (%) : Interest on deposits / Fortnightly Average of deposits Business per employee (Rs.lakhs) : Sum of Average Deposits and Average Advances/Employee Strength Gross profit per employee (Rs. Lakhs) : Profit prior to provisions and contingencies and Extraordinary items/Employee strength. Business per branch (Rs.lakh) : Sum of Average Deposits and Average Advances/Number of Branches. Gross profit per branch (Rs. Lakh) : Profit prior to provisions and contingencies and Extraordinary items/ No. of branches.

Note: The above financial information is based on audited financials of respective years

SUBSIDIARY

The Bank has no subsidiary.

ASSOCIATE COMPANY

The Bank has no associate companies.

97

MANAGEMENT OF THE BANK The composition of the Board of Directors of the Bank is as under:
Name & Address of Director O.P. Bhat Chairman, SBI Corporate Centre, Mumbai 400 031 C. Narasimhan Managing Director, State Bank of Indore, Head Office, Indore 452 003 Appointed/ Co-opted to the Board Since 01.07.2006 Qualifications/Specialisat ions Representing SBI EC of Board Directors Committee of Board Risk Management Committee B.Sc., B.G.L., MBA, AIMA, of Board Diploma in Computer Special Committee of Board Programming, Certificate in for monitoring large value Marketing, Certificate in frauds French Shareholders Grievance Committee of Board Customer Service Committee of Board EC of Board Directors Committee of M.A. (Eco.), CAIIB Board Audit Committee of Board EC of Board Directors Committee of Board 25.03.2004 M.A., LL.B. Committees on which also a member -

11.03.2005

Shri B.P. Vijayendra Regional Director, Reserve Bank of India, Rambagh Circle, Tonk Road, Jaipur M. Venkateswarlu, Under Secretary, Ministry of Finance, Dep. Of Economic Affairs, (Banking Division), Parliament Street, New Delhi 110001. Jiban Goswami General Manager, (A&S Group) Corporate Centre, Madam Cama Road, Mumbai 400021 S.A. Thimmiah Dy. General Manager, (A&S Group), Corporate Centre, Madam Cama Road, Mumbai 400021 Manoj Gupta 312, Manas Bhavan Extn., 11, R.N.T. Marg, Indore 452001

15.05.2006

17.04.2006

Representing SBI

EC of Board Audit Committee of Board Risk Management Committee of Board EC of Board Audit Committee of Board Risk Management Committee of Board EC of Board Audit Committee of Board Risk Management Committee of Board Special Committee of Board for monitoring large value frauds Shareholders Grievance

08.07.2006

Representing SBI

13.02.2005

M. Com., C.A.

98

Committee of Board Customer Service Committee of Board Sudhir Mehta, 405 AD, Vijay Nagar, Scheme No. 74, Indore 452010 01.11.2004 EC of Board Bachelors Degree in Comp. Audit Committee of Board Risk Management Committee Sc. & Economics from of Board Depauw University, USA. Masters in Business Admn. Special Committee of Board for monitoring large value In Finance & International frauds Business from University of Shareholders Grievance Chicago, USA. Committee of Board EC of Board B.Sc., M.A., LLB EC of Board 27.02.2004 M.A., C.A.I.I.B.

Alok Khare 26/1, Old Palasia, Indore 452001 Atul Pradhan State Bank of Indore, Lashkar Branch, Patankar Bazar Gwalior 474 001

28.03.2003

Key Managerial Personnel


Name & Designation Date of Joining Qualifications Experience (with Issuer Bank) Functional Responsibility

C. Narasimhan

11.03.2005

T.A. Padmanabhan M.C. Jacob N. Ravichandran S.K. Singh M. Vasanthakumar Ravindra G. Gadkari

14.11.2005 02.05.2006 11.06.2007 06.09.2006 01.06.2005 19.09.2007

Raj Kumar Sharma

23.08.2007

B.Sc., B.G.L., MBA, AIMA, Diploma in Computer Programming, Certificate in Marketing, Certificate in French B.E. M.Sc., CAIIB M.Sc, CAIIB B.Sc.(Hons), M.Sc., Dip in Management M.Sc (Statistics), CFA M.A. (Statistics) Dip.in Bank Management, and Dip. in Treasury Investment & Rist Management ,CAIIB LLB., CAIIB, DPA,,P.G. Dip. in Personnel Management & I.R.

29 M 21 M 16 M 2M 11 M 26 M

MD CGM GM (CI &IB) GM (Operation) GM (P&D) GM (Technology)

GM (Treasury)

GM &CVO

The key managerial personnel are permanent employees and on the rolls of the Bank.

99

Corporate Governance The Bank places special emphasis on transparency, integrity, responsibility, accountability and fairness in all its policies and practices. As a good corporate citizen, the Bank takes utmost care to protect the interest of all the stakeholders viz. shareholders, customers, employees, government and the society at large. The Bank has well developed policies, systems and procedures to achieve these objectives. The policies, systems and procedures are continuously reviewed in order to keep pace with the changing economic and social environment. The Corporate Governance in the Bank is ensured with the following organizational structure / informations:1. 2. 3. 4. 5. Board of Directors. Various Committees of the Board of Directors. Other Committees. Information for shareholders Other Disclosures

BOARD OF DIRECTORS The Board of State Bank of Indore consists of eminent persons with considerable expertise and experience in Banking, Finance, Legal and other allied fields. The Board has Directors nominated by State Bank of India including the Chairman, the Managing Director and 3 non Executive Directors, besides one nominee Director each of the Reserve Bank of India and the Government of India, a workman Director and a non-workman Director. There is no other Executive Director on the Board except Managing Director. All the non-executive Directors have declared that they have no pecuniary relationship vis--vis the Bank. 2. COMMITTEES OF THE BOARD The Board has constituted various Committees to oversee operational issues, including those mandatory under the listing agreement. 1. Executive Committee In terms of Section 35(1) of the State Bank of India (Subsidiary Banks) Act, 1959, an Executive Committee of the Board of Directors has been constituted to consider various matters relating to the day to day operations of the bank, namely sanctioning of credit proposals, investments, approval of capital and revenue expenditure, administrative matters etc. falling beyond the powers of the Banks Executives and Head Office Credit Committees. The Committee consists of the Managing Director, four Directors nominated by the State Bank of India, one of whom shall be the Chairman or an Officer Director nominated by SBI, form the quorum for the meetings of the Committee. The Committee met thirteen times during the last year. 2. Directors Committee of Board Directors Committee has been formed to review / approve following items: Review of pending disciplinary action cases; and, Review of working of Vigilance Department. 100

The committee comprises of following members: Dy. Managing Director & Group Executive of State Bank of India, Managing Director of the Bank, Govt. nominee on the Board of the Bank, RBI nominee on the Board of the bank. The Committee met 3 times during the last year. 3. Audit Committee of the Board

A Board-level Audit Committee has been constituted to ensure that internal control and audit functions in the Bank are carried out satisfactorily. The Committee provides directions and also oversees the operations of the entire audit functions in the bank. The Chairman of the Audit Committee is Shri Manoj Gupta, a Chartered Accountant by profession. Its other members are as under: Shri Sudhir Mehta (Non Executive Director) RBI Nominee Director SBI Nominee Director The Committee oversees and ensures the banks financial reporting process and disclosure of its correct financial statement. It reviews with the management of the bank, the annual financial srtatements before submission to the Board for approval, with reference to :i. Directors responsibility statement to be included in the Board reports. ii. Proper accounting policies and practices alongwith changes and adjustments of Audit Reports. iii. Compliance with listing and other legal requirements. iv. Disclosure of any related party transactions. It reviews the structure of internal audit department, performance of statutory and internal auditors. It reviews with the management, the quarterly financial statements before submission to the Board for approval. The committee met 8 times during the year. 4. Risk Management Committee of the Board

The Risk Management Committee of the Board oversees integrated Risk Management to manage various balance sheet risks in a cohesive manner. The Committee consists of following members: Managing Director State Bank of India Nominee Shri Sudhir Mehta Shri Manoj Gupta The Committee met 4 times during the year 2005-06. 5. Special Committee of the Board For Monitoring Large Value Frauds

Reserve bank of India has desired to pay focused attention for monitoring of large value frauds. In this connection, a special committee has been constituted with the following members: Managing Director Shri Sudhir Mehta Shri Manoj Gupta

101

The main functions of this special committee is to monitor and review all the frauds of Rs 1 crore and above. The committee is expected to meet twice a year or more frequently if warranted. The committee met once during the year 2006-07. 6. Shareholders Grievance Committee of the Board

As per provisions of Clause 49 of the Listing Agreement with the stock exchange, a Board level Committee under the chairmanship of a non-executive Director has been formed to look into the redressal of the shareholders and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of dividends etc. The Committee comprises of the following members: Shri Manoj Gupta - Chairman Managing Director - Member Shri Sudhir Mehta - Member

During the year 20006-07, the committee met 4 times. No complaint was pending for disposal at the end of the year. 7. Customer Service Committee of the Board

Reserve Bank of India has desired to pay focused attention for customer service rendered by the Banks. With a view to bringing ongoing improvements in the quality of customer service in the bank, it has constituted a Committee with the following members: Shri C. Narasimhan Shri Manoj Gupta Shri Sudhir Mehta No formal meeting was held during the year. However, performance was reviewed in board meetings from time to time. . 157 complaints were pending for disposal at the end of the year. 8. Other Committees Investment Committee

The Investment Committee is mainly responsible for vetting of proposals for investments/ disinvestments of funds in Non-SLR securities. The Committees role is only advisory, it does not have any financial powers and such powers are exercised by respective authorities as per the delegation in the bank. The following functionaries are the members of the Investment Committee: General Manager (Treasury) General Manager (P&D)/ General Manager (Ops) Deputy General Manager (F&A) The Committee meets as and when required. The Committee met 114 times during the year 200607. (ii) Share Transfer Committee In terms of the listing agreement with the MP Stock Exchange, the process of transfer of shares is required to be completed within one month of receipt of transfer request. An in-house share transfer committee has been constituted comprising following members, to consider and approve share transfer applications:-

102

The General Manager (Treasury) The Deputy General Manager (Finance and Accounts) The Chief Manager (Finance and Accounts) The Deputy General Manager (Finance and Accounts) has been designated as the Compliance Officer, as required under the Listing Agreement. The functions and powers of the Share Transfer Committee include approval/ rejection of applications for transfer of shares and redressal of shareholders grievances/complaints, if any. The Committee meets at fortnightly intervals to consider requests for share transfers. All share transfer / Transmission applications received during the year were approved for transfer and these transfers were effected within the prescribed time frame. There were no applications pending as on 31.03.2007. (iii) Assets and Liabilities Committee Asset-liability management functions are supervised by the Asset liability Management Committee (ALCO) headed by the Managing Director. The other members of the committee are Chief General Manager and General Managers. This committee manages risks such as market risk, liquidity risk and interest risk faced by the bank with a view to improving the return. The committee meets periodically to consider and decide on the product mix and their pricing taking into account the risks involved and prevailing competitive environment in the market. ALCO plays a key role in positioning the balance sheet on risk-return perspectives. The committee met 37 times during the year.

103

PROMOTERS, GROUP COMPANIES, JOINT VENTURES AND ASSOCIATES

PROMOTERS AND THEIR BACKGROUND


State Bank of India The State Bank of India was constituted on 1st July 1955, pursuant to the State Bank of India Act, 1955 (the SBI Act) for the purpose of creating a state-partnered and state-sponsored bank integrating the former Imperial Bank of India. In 1959, the State Bank of India (Subsidiary Banks) Act was passed, enabling the Bank to take over eight former state-associated banks as its subsidiaries. The Bank is Indias largest bank, with approximately 9,102 branches in India and 66 international offices. Its Associate Banks have a domestic network of around 4,665 branches, with strong regional ties. The Bank also has subsidiaries and joint ventures outside India, including Europe, the United States, Canada, Mauritius, Nigeria, Nepal, and Bhutan. The Bank has the largest retail banking customer base in India. The Bank is engaged in corporate banking for many of Indias most significant corporates and institutions, including State-owned enterprises, as well as providing banking services to commercial, agricultural, industrial and retail customers throughout India. The Bank services its most important corporate customers, including certain state-owned enterprises, through its Corporate Banking Group, and its other customers, including other large corporations and Stateowned enterprises, small scale industries, agriculture and personal banking customers through its National Banking Group. The National Banking Group also provides financial services to the Government and the state governments, including tax collection and payment services. The Bank is engaged in international banking and has foreign operations in 29 countries with a global network of 66 branches. The Bank has a presence in diverse segments of the Indian financial sector, including asset management, factoring and commercial services, insurance, credit cards and payment services. The assets of the Bank are diversified across business segments, industries, and groups. The Bank's corporate headquarters ("Corporate Centre") is located at State Bank Bhavan, Madame Cama Road, Mumbai - 400 021. The bank is committed to using its effort to adopt technology to achieve efficiency in its business operations. The bank is moving towards centralised database using enhanced technology to credit it CBS. The CBS will enable on time, real time transaction processing and provide live interface to a multitude of technology delivery channels.

ASSOCIATES FINANCIALS OF GROUP COMPANIES


Name of the Nature of company activity SBI DFHI Ltd Primary Dealer Date of Incorporation 08.03.98 Year 2002 2003 2004

Equity Capital 200 200 290.90

Reserves 414.76 502.77 761.45

PAT 184.48 129.89 177.57

EPS (inRs.) 92.24 64.94 61.04

SBI Capital Markets Ltd

2005 2006 2007

2002

290.90 290.90 290.90

58.03

667.17 683.39 718.52

223.98

-94.07 2.44 53.25

18.81

Nil 0.84 18.31

3.24

104

Offers investment Banking services

SBI Factors & Commercial Services Pvt. Ltd Factoring 26.02.91

2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007

58.03 58.03 58.03 58.03 58.03 25.00 25.00 25.00 25.00 45.00 45.00 50 50 50 50 50 50 100 100 100 100 100 250 27 27 27 27 27 125.00 125.00 175.00 350.00 425.00 500 0.10 0.10 N.A. 10 10 10 50 0.05 10 50 0.05 0.20

232.02 245.93 284.42 308.87 320.12 11.57 13.79 13.97 17.80 41.18 48.04 7.27 10.38 14.83 20.75 27.99 41.80 NIL NIL 38.03 48.14 70.66 111.61 NIL NIL 15.33 34.18 52.85 NIL NIL NIL (29.66) 0.0029 0.0025 N.A 124.94 227.38 360.58 449.60 Nil 0.81 3.47 (0.30) 0.35 -53.13 0.81 4.04 (0.28) 0.35

28.36 63.23 88.12 90.62 64.36 0.46 2 22 1.59 6.13 10.67 13.17 0.07 6.20 10.09 15.05 18.64 29.78 - 1.56 16.57 30.03 36.84 36.20 58.77 2.95 8.68 19.60 22.54 22.36 -0.28 -7.48 -16.41 -11.50 2.02 3.83 NIL NIL N.A 124.94 102.44 133.20 149.28 Nil 2.81 0.90 1.77

4.89 10.90 15.18 15.62 11.09 1.85 8.88 6.32 2.31 3.55 2.93 2.83 12.23 20.18 30.10 37.28 59.56 N.A 1.66 3.80 3.68 3.62 5.83 1.09 3.21 7.26 8.35 8.28 NIL NIL NIL NIL 0.06 0.09 NIL NIL N.A --133.20 29.47

SBI Funds Management Pvt. Ltd Mutual Fund 07.02.92

2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007

SBI Card & Payment Services Ltd Credit card company

GE Capital Business Process & Management Services Pvt. Ltd.

2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2007

SBI Life

11.10.2000

UTI Trustee C. Pvt. Ltd 14.11.02 Trustee of UTI MF UTI Asset Mgt Co. Pvt. Ltd 14.11.02 (investment Mgt C-Edge Technologies Ltd. (IT consultancy and services) SBICAP Securities Private Limited SBICAP Ventures Limited SBICAP (UK) Ltd (in GBP million) 2005 2006 2007 2006 2007 2007 2007 2007 2004 2005 2006 2004

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SBI Associate Banks


Name of the Nature of Date of company activity Incorporation SBBJ Banking SBI (Subsidiary Banks) Act, 1959 Year 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 SBM Banking 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 SBS Banking 2002 2003 2004 2005 2006 2007 SBT Banking 2002 2003 2004 2005 Equity Capital 50.00 50.00 50.00 50.00 50.00 50.00 17.25 17.25 17.25 17.25 17.25 17.25 36.00 36.00 36.00 36.00 36.00 36.00 24.75 24.75 24.75 24.75 24.75 24.75 314.00 314.00 314.00 314.00 314.00 314.00 50.00 50.00 50.00 50.00 Reserves 702.11 853.45 1098.57 1247.68 1355.66 1603.74 981.16 1233.69 1556.52 1748.40 2096.76 2471.12 315.57 394.96 545.97 720.45 891.35 1105.32 1117.25 1387.43 1706.1 2019.62 2181.63 2463.25 253.6 311.44 453.41 480.25 536.09 608.45 560.14 672.8 875.26 1079.98 PAT 164.50 203.28 301.52 205.65 145.03 305.80 226.49 301.4 381.2 250.90 427.04 505.50 65.89 115.92 176.38 206.26 216.72 249.23 232.94 322.02 430.36 287.07 303.11 366.53 82.01 92.55 177.39 41.16 60.12 87.44 120.93 171.04 244.6 247.13 EPS (inRs.) 329.00 406.55 603.04 411.30 290.06 611.60 1312.99 1747.22 2209.86 1454.49 2475.59 2930.43 183.06 322 489.94 572.94 602.00 692.31 941.17 1301.09 1738.83 1159.88 1224.69 1480.93 26.12 29.47 56.49 13.11 19.15 27.85 241.86 342.08 489.2 494.26

SBH

Banking

SBP

Banking

106

2006 2007

50.00 50.00

1281.65 1549.44

258.68 326.28

517.36 652.56

The following table sets out details of the SBIs International Subsidiaries, Joint Ventures and Associates outside India as at 31st March 2004.

SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES OUTSIDE INDIA (AS AT 31ST MARCH 2007)
Name Date of Establishment Total Owned Funds Asset size Banks Shareholding (%)

(Rs in crores) Net Profit

SBI (Canada) SBI (California) SBI International (Mauritius) Ltd. Indian ocean intl Bank Ltd Nepal SBI Bank Ltd Bank of Bhutan Commercial Bank of India LLC, Moscow PT Bank Indomonex

5th May, 1982 128.44 3rd September, 1982 150.51 12th October, 1989 21st April 1978 7th July 1993 28th May, 1968 5th December, 2003 24th October 1970 101.20 62.59 61.45 126.03 98.73 11.77

1720.64 1537.78 1130.0 9 750.94 815.39 1714.13 186 173.90

100 100 98 55.91 50 20 60 76

8.89 14.37 12.95 6.07 7.32 19.86 4.45 -0.54

REGIONAL RURAL BANKS PROMOTED BY STATE BANK OF INDIA The Bank, the Government of India and State Governments have promoted 34 Regional Rural Banks (RRBs) spread over 102 districts in 16 states with a network of around 2,350 branches. The RRBs 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 few districts in each state. In addition the subsidiaries of the Bank have promoted 14 RRBs.

CONTINGENT LIABILITIES/LEGAL PROCEEDINGS/DISPUTES


SBI and its Banking Subsidiaries have contingent liabilities, which pertain to their normal banking activities. A major portion of these contingent liabilities are a source of income for them. Most of these contingent liabilities are adequately covered through individual security mechanisms as also duly counted for maintaining Capital Adequacy in line with RBI guidelines. SBI and its Associates, Subsidiaries and Affiliates are also party to various legal proceedings / disputes in the ordinary course of business of banking / other business. However, none of such proceedings / disputes, even if determined adversely to SBI and its Associates, Subsidiaries and Affiliates would have, by law, any material adverse effect on the business or financial condition of SET since each subsidiary bank is a separate statutory corporation, constituted and governed by the SBI (SB) Act.

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SPONSORED RRB

The bank has sponsored one regional rural bank- Vidisha Bhopal Kshetriya Gramin Bank. As on March 2007 this RRB had total deposits and advances of Rs.205.24 crores and Rs.115.97 crores respectively. It is profit making and made a profit of Rs 3.45 crores for the year ended 31.03.2007. STOCK MARKET DATA The Banks shares are listed with The Madhya Pradesh Stock Exchange (MPSE). As they are very thinly traded this data is not available.

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FINANCIAL SUMMARY The Financial Summary has been taken from the Audited results provided by the auditors.
(In Rupees 000's omitted) Year ended March 31st Total Income Interest Income Other Income Expenditure Interest Expenditure Operating Expenditure Profit before Provisions & Contingencies Provisions & Contingencies Net Profit 2005 2006 2007 % of change from % of change from 2005 to 2006 2006 to 2007 24.09 20.31 19.18 29.10 54.66 -21.84 26.35 18.76 28.56 43.91 20.95 3.19 19.30 -7.40 28.33 4.45 -29.16 36.55

12881007 15984069 19230528 11098310 13226928 17075540 1782697 2757141 2154988 11549240 14593006 17330964 6076303 7811738 11242214 3283768 3971851 4098683 3520936 2189169 1331767 4200480 2809417 1391063 3889631 1990067 1899564

MANAGEMENT DISCUSSION AND ANALYSIS Significant items of Income and Expenditure during 2004-05 (Comparison of Financials for the year ended March 2005 with March 2004) Net Profit: The year 2004-05 has been difficult for the banking industry, with the treasury profits of almost all banks declining due to hardening of interest rates. Our bank is no exception to this phenomenon. Despite this setback, Bank has earned Net profit of Rs 133.18 crores during the year after making all the provisions. Interest Income: The Interest income had steadily been increasing aided by an increase in advances which is advantageous in rising rate scenario. Other Income: Due to hardening of interest rates during the year, the Banks profit on sale of investments declined substantially from Rs 226.22 crores in 2003-04 to Rs 17.37 crores in 2004-05 in line with industry trend accounting for fall in other income. If the effect of profits on sale of investments is excluded, the other income had increased by 19.66% supported by increases in all areas. Interest Expenses: The interest expenses increased by mere 2.50% in 2004-05 despite hardening of interest rates and higher growth of 31.35% in deposits; due to reduction in average cost of deposits. Operating Expenses: The operating expenses increased by 16.50% primarily on account of payments to & provisions for employees and normal rise in overheads. Significant items of Income and Expenditure during 2005-06 (Comparison of Financials for the year ended March 2006 with March 2005) Net Profit: The net profit has increased by 4.45% due to an increase in interest as well as other income.

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Interest Income: The Interest income had increased by 19.18% aided by an increase in advances. Other Income: The other income had increased by 54.66% supported by a good rise in profit on sale of investments. Interest Expenses: The interest expenses increased by 28.56% due to increase in deposit base. Operating Expenses: The operating expenses increased by 20.95% primarily on account of depreciation on the banks property and payments to & provisions for employees. Significant items of Income and Expenditure during 2006-07 (Comparison of Financials for the year ended March 2007 with March 2006) Net Profit: The net profit has increased by 36.55% due to an increase in interest Interest Income: The Interest income had increased by 29.10% aided by an increase in advances. Other Income: The other income had declined by 12.01% due to declined in profit on sale of investment. Interest Expenses: The interest expenses increased by 43.91% due to increase in deposit base.
Operating Expenses: The operating expenses increased by 3.19% primarily on account of payments to & provisions for employees

Other matters relating to the Operations of the Bank Unusual or Infrequent events and transactions: No unusual or infrequent events and transactions occurred in the last three years. Significant economic changes that materially affected or are likely to affect income from continuing operations: Changes in the interest rate structure that is any upward movement in interest rate, is going to reduce the value of the investment portfolio. Future relationship between costs and revenue: The freedom to determine interest rates and the keen competition have resulted in narrowing of spreads and reduction in profitability. However the bank has a tradition of mobilising low cost deposits and keeping its cost of deposits low. The bank has also succeeded in increasing its Other Income (excluding profit on sale of investments), thus retaining profitability. Extent of seasonality in the business: Banks business is not likely to be affected by seasonality. Non-dependence on a few customers: The operations of the bank are well spread out. The bank has a large customer base of more than 32 lakh and a diversified credit portfolio to prevent any concentration in exposures both industry-wise and client-wise. This insulates the bank to a large extent from any possible adverse conditions affecting any particular industry segment. The Bank has an adequately designed credit risk policy to ensure the prevention of excess exposure to few customers.

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Competitive Conditions: The Bank has 125 rural branches where it has near monopoly in business. The large network of rural and semi-urban branches (numbering 260) ensures that a huge captive business automatically flows in to the bank. In metro centres, the Bank faces a stiff competition from other Banks, including private sector banks and foreign banks. In spite of this, the bank has succeeded in registering good performances over the last few years. Servicing Behavior: The Bank has been servicing all its principal and interest liabilities on time and there have been no defaults. Material Developments: In the opinion of the Directors of the Bank, there have been no material developments after the date of the last financial statements as disclosed in the Information Memorandum, which would materially and adversely affect or are likely to affect the trading or profitability of the Bank or the value of its assets, or its ability to pay its liabilities within the next twelve months, other than what has been already set out elsewhere in this Information Memorandum.

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OUTSTANDING LITIGATION, DEFAULTS & MATERIAL DEVELOPMENTS Save as stated herein: There is no outstanding or pending litigation, suit, criminal or civil prosecution, proceeding initiated for offence (irrespective of whether specified in paragraph (I) of Part 1 of Schedule XIII of the companies Act) or litigation for tax liabilities against the Bank, its Promoters, Directors or Promoter Group companies. There are no defaults, non payments or overdues of statutory dues, institutional or bank dues or dues towards holders of debentures, bonds and fixed deposits and arrears of preference shares, other than unclaimed liabilities of the Bank, its Promoters or Promoter Group companies. No disciplinary action has been taken by SEBI or any stock exchanges against the Bank, its Promoters or Directors. There are no outstanding litigations against the directors of the Bank. There are no other litigations except the following, mentioned below:
AGAINST THE BANK

The summary of litigations outstanding as on March 31, 2007 is as follows:


Sr. No . Particulars No. of Cases Amount involved (Rs. In crores)

A.

(i) Cases pending in various Civil/High Courts filed by customers and others (ii) Court cases between our party and beneficiaries on a/c of B.G. Invocation where payment is stayed. Suits/Writs filed by employees/ex-employees in various Civil / High Courts and other courts Consumer Cases filed against the Bank Premises Cases Total

21 10

60.59 2.88

B. C. D.

297 6 1 319

Financial Implication cannot be estimated as of now 0.04 1.69 61.22

Disputed Tax Liabilities Since the assessments have been completed up to A.Y 2003-04 and the appeals filed by the Bank up to A.Y. 2002-03 have been disposed of, no claim from the Income Tax Department relating to this period is pending.

CASES FILED AGAINST THE RRBS SPONSORED BY THE BANK AS ON MARCH 31, 2007
The summary of litigations outstanding as on March 31, 2007 is as follows: Sr. No. A. Particulars Cases pending in various Civil/High Courts filed by customers and others No. of Cases Nil Nil Amount involved (Rs. In crores)

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B. C. D.

Suits/Writs filed by employees/ex-employees in various Civil / High Courts and other courts Consumer Cases filed against the Bank Premises Cases Total

9 Nil Nil 9

Financial Implication cannot be estimated as of now Nil Nil Nil

AGAINST THE DIRECTORS OF THE BANK


There are no outstanding litigations, disputes or penalties against the Directors of the Bank, including tax liabilities, economic offences, criminal or civil prosecution for any offence, irrespective of whether specified under any enactment in Paragraph 1 of Part 1 of Schedule XIII, of the Companies Act, 1956 or any other liability in their personal capacities or as Director/Partner/Sole Proprietor in the Bank or any other company/firm. There are no litigations against the Directors involving violation of statutory regulations or criminal offences. No disciplinary action has ever been taken by the Securities and Exchange Board of India or Stock Exchanges and no penalty has been imposed by any authority. Other than as stated above, there are no disputes/litigations towards tax liabilities or any criminal or civil prosecutions against the Bank, its subsidiaries and sponsored associations for any offence economic or otherwise. No criminal proceedings have been launched against the Bank under any of the enactment irrespective of whether specified in paragraph 1 of part 1 of Schedule XIII of the Companies Act, 1956.

DEFAULTS
Besides the above, the Bank, its subsidiaries and sponsored institutions have not defaulted in meeting any of its statutory or institutional dues and have made all payments/refunds on fixed deposits. Further, no proceedings have been initiated against the Bank, its subsidiaries and sponsored institutions for any of the offences specified in paragraph 1 of Part I of Schedule XIII of the Companies Act, 1956. Further, there are no disputes/litigations towards tax liabilities or criminal prosecutions against the Bank and its Directors for any offence, economic or otherwise. As regards civil litigations against the Bank and its Directors, there are no material disputes/legal actions other than those disclosed above There are no pending proceedings initiated for economic offences against the Bank, its subsidiaries and sponsored institutions. Besides the above, no disciplinary action/ investigation has been taken by the SEBI against the Bank, its subsidiaries and sponsored institutions and its respective directors.

MATERIAL DEVELOPMENTS
In the opinion of the Directors of the Bank, there have been no material developments after the date of the last financial statements as disclosed in the Information Memorandum, which would materially and adversely affect or are likely to affect the trading or profitability of the Bank or the value of its assets, or its ability to pay its liabilities within the next twelve months, other than what has been already set out elsewhere in this Information Memorandum. 113

INVESTOR GRIEVANCE & REDRESSAL SYSTEM Investor grievances are given utmost importance and grievances received are dealt expeditiously. Pursuant Clause 49 para VIC of the Listing Agreement a shareholder/investor grievance committee has been formed under the chairmanship of a non-executive director. The Committee specifically looks into redressing of shareholder/investor complaints in matters like transfer of shares, non-receipt of annual reports, non-receipt of dividends etc. This Committee is designated Shareholders Grievance Committee of the Board and meets every quarter. The investors can contact the Compliance Officer in case of any pre-issue/ post-issue related problems such as non-credit of letter(s) of allotment/ bond certificate(s) in the demat account, non-receipt of refund order(s), interest warrant(s)/ cheque(s) etc.

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RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF The Investors should carefully consider the following risk factors as well as the other details and information contained in this Information Memorandum in evaluating the Bank and its business before investing the Bonds offered by this Information Memorandum.
INTERNAL RISK FACTORS 1. Contingent Liabilities As on March 31, 2007 the contingent liabilities of the Bank were at Rs 22105 crores comprising claims against the Bank not acknowledged as debts - Rs. 61 crores, liability on account of outstanding forward exchange contracts - Rs. 19622 crores, guarantees on behalf of constituents - Rs. 1021 crores, acceptances, endorsements and other obligations - Rs. 1226 crores and others - Rs. 175 crores. As on June 30, 2007 the contingent liabilities of the Bank were at Rs 22105 crores comprising claims against the Bank not acknowledged as debts - Rs. 61 crores, liability on account of outstanding forward exchange contracts - Rs. 19420 crores, guarantees on behalf of constituents - Rs. 1079 crores, acceptances, endorsements and other obligations - Rs. 1370 crores and others - Rs. 175 crores. Management Perception The contingent liabilities have arisen in the normal course of business of the Bank and are according to the prudential norms prescribed by RBI. 3. Profits of the Bank The net profits of the Bank has increased marginally from Rs. 139.11 crores in FY 2005-06 to Rs. 190 crores in FY 2006-07 (growth of 36.58%) mainly due to a decrease in provisions and contingencies to an extent of Rs 199 crore for the FY 2006-07 from Rs 250 crore of 2005-06. Management Perception During 2006-07, the interest rate scenario underwent a sea change and this had a major impact on the banking sector in the country. Bank has responded effectively to the changed scenario and earned increased Net profit of Rs 190 crores during the year after making all the provisions. It may be noted that operating profit of the Bank has come from diversified income streams comprising net interest income, profit on sale of securities and other income, which account for 128.91%, 18.65% and 46.99% of the total operating profit respectively for the FY 2006-07, which is sustainable in future. For the Quarter Ended 30th June 2007, the Bank has made a net profit of Rs 64.77 crores against net profit of Rs 10.34 crores for the corresponding period last year i.e. a growth of 526.40%. 4. Non-Performing Assets (NPAs)

As on 31.03.2006 and 31.03.2007, the net NPAs of the Bank stood at Rs 216.80 crores and Rs 159.06 crores i.e. 1.83% and 1.04% of its net advances amounting to Rs 11875.97 crores and Rs 15351.38 crores respectively in absolute terms. In the event of non-recovery of these assets, the Bank may have to provide for these NPAs, which might affect the profitability of the Bank in future. Management Perception The Net NPAs of the Bank have remained low. The Banks provision on NPAs is more than the amount prescribed under RBIs IRAC norms. The Net NPAs ratio of the Bank stood at low 1.04% as on 31.03.2007 and at 1.01% on 30.06.2007. The Bank is taking steps to reduce the proportion of non-performing assets through aggressive recovery drives combined with improved risk management practices. The bank has set benchmarks for Gross NPAs and Net NPAs on the basis of the corporate goals. The top management of the bank is closely monitoring the movement of NPAs in tune with the corporate goals. Further, there have

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been substantial changes in the legislative and operating environment enabling Financial Institutions and Banks to pursue recovery of overdues. Besides Debt Recovery Tribunal (DRT) set up for faster settlement of recovery litigation, GoI has enacted The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 enabling FIs and Banks to securitise and reconstruct financial assets and enforce security more effectively. Reserve Bank of India has formulated detailed guidelines for operation of the scheme. The Bank is invoking the provisions of the Securitization Act to enhance recovery. Thus, the Bank has been taking recourse to all the available methods to recover its overdues from the borrowers. 6. Regional Concentration of the Bank State Bank of Indore has a regional concentration in Madhya Pradesh accounting for approximately 77% of all branches in terms of numbers. The regional presence of the Bank may compromise its competitive position vis--vis its national level competitors. Management Perception The regional presence of the Bank may not be a hindrance to its growth prospects. Total deposits of the Bank have grown by 152.28% to Rs. 19976.47 crores and advances have grown up by 257.91% to Rs. 15351.38 crores during the past 5 years ending 31.03.2007. The Bank has 445 branches and 23 extension counters as on 31.03.2007 6. Decline in Return Ratios The Average Yield on Investment (domestic) of the Bank has shown a declining trend from 8.34% in FY 2006 to 8.20% in FY 2007. The Average Yield on Advances of the Bank has marginally increased from 8.24% to 9.02% during the same period. Management Perception Average Yield on investments has come down because of the decline in the general interest rate structure of the economy during past years and redemption of high yielding securities on maturity. The continuous downward trend in the interest rates over past years has been the major reason for decline in Yield on Investment of the Bank. For example, the yield on 10 year GoI security (semi-annualised yield), which was 6.21% on 31.03.2003 has come down to 5.16% on 31.03.2004. However, the G-Sec yields started hardening due to the higher crude oil prices, higher inflation, etc. and during December 2006, the yield on 10 year GoI security was at 7.60% (semi annualized). We believe that the declining interest scenario has now reversed and the yield on advances and investments will start improving. 7. Depreciation charge to P& L account due to Transfer of Securities from AFS to HTM Consequent upon transfer of certain Government Securities amounting to Rs 1631 crores during 2006-07 from Available for Sale (AFS) category to Held to Maturity (HTM) as permissible, depreciation amounted to Rs 172.17 crores in the FY 06-07. Management Perception The above-referred securities were transferred from AFS to HTM to insulate the Bank from further decline in prices. While improvement in prices will enable selling the securities with the permission of the top management of the Bank, in case of price fall, no further provisioning is necessary as HTM category is exempted from mark to market. 8. Adverse affect of the revised RBI policy on the Capital Adequacy of the Bank The provision of operational risk capital from 31.03.2008 will adversely affect the Capital Adequacy Ratio of the Bank in coming years. Management Perception

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The Bank has already initiated steps to improve the capital funds and has raised the subordinated bonds for Rs 200 crores in February 2005, Rs 140 crores in September 2005, Rs 110 crores in March 2006 and upper Tier II Bond augmenting tier-II capital of Rs. 100 crores in December 2006 and upper Tier II Bond augmenting tier-II capital by Rs 200 crores in March 2007 to shore up the Capital Adequacy Ratio. The bank is further making this offer for Innovative Perpetual Debt Instrument for Rs 165 crores to further shore up CRAR that would take care of capital charge for operational risk. 9. Asset Liability Position As per the statement of structural liquidity as on the 31st March 2007, the negative mismatches in the first two time buckets are well within the tolerance levels stipulated by RBI and ALM policy of our Bank. Further, all the negative gaps in the other time buckets are also within the tolerance limits fixed by the bank. A large portion of the funding of the Bank is in the form of short and medium term deposits. The asset liability position of the Bank could be affected if the depositors do not roll over the deposits. A comprehensive contingency plan is put in place to address fully any problems relating to liquidity. Management Perception As per the normal behavioral pattern and past experience, a large portion of the deposits gets rolled over. The Bank feels that in the event of these deposits not being rolled over, the fresh accretion of deposits would take care of the Asset Liability mismatches. In addition, bank maintains ordinarily a surplus of around Rs 500 crores in the form of excess SLR securities, which can be utilized to correct any medium term mismatches. Moreover, the Bank has an Asset Liability Management system in place to actively monitor and manage liquidity mismatches. 10. Credit Risk The Banks main business of lending carries an inherent credit risk, which involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. Management Perception The Bank has a rigorous and well-defined credit appraisal system. Prudential exposure norms and various internal exposure norms are followed to avoid credit concentration and to minimize and mitigate credit risk. Credit risk assessment is in place for capturing the risk profiles of the accounts. The Bank ensures that Risk Management Department is independent of the operational department. Bank has a comprehensive loan policy document covering areas of credit and credit risk. 11. Asset Concentration Top five industries amount for 28.68% and 32.38% of non-food credit of the bank as on 31.3.2006 and 31.3.2007 respectively. Top five borrowers account for 7.03% and 10.32% of non-food credit as on 31.3.2006 and as on 31.3.2007 respectively. Management Perception Exposure norms are in place to avoid asset concentration. Portfolio reviews and reviews of implementation of exposure management norms are undertaken at regular intervals to check asset concentration. Except for some specified industries, exposure limits for individual industry is capped at 15 percent of the bank's total fund-based exposure to avoid concentration of assets in a few industries. 12. Outstanding Litigations against the Bank There are outstanding litigations 297 cases as on 31.03.2007 the financial implication of which cannot be estimated. For details, please refer to the section on Litigation appearing elsewherein the Information Memorandum. Management Perception These claims are not likely to affect the operations and finances of the Bank.

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13. Litigation against the Bank sponsored RRBs There are 9 cases of claims/suits filed against Vidisha Bhopal Gramin Bank. This Gramin Bank is sponsored by State Bank of Indore. For details, please refer to the section on Litigation appearing elsewhere in the Information Memorandum. Management Perception These claims against Vidisha Bhopal Gramin Bank are not likely to affect the operations and finances of State Bank of Indore. 14. RBIs Annual Financial Inspection Report The Annual Inspection Reports of RBI on the financial position of the Bank has identified certain weaknesses in the system, operational and other deficiencies. Management Perception The bank has taken the necessary action to rectify the various deficiencies pointed out in the Annual Financial Inspections which is a regular supervisory exercise carried out by RBI in respect of all banks and financial institutions. A comprehensive report has been submitted to the regulatory authorities furnishing details of corrective actions initiated by the bank. 15. Utilization of Funds The utilization of the funds proposed to be raised through this private placement is entirely at the discretion of the Bank and no monitoring agency has been appointed to monitor the deployment of funds. Management Perception The funds raised through this private placement are not meant for any specific project and hence a monitoring agency may not be required. The Bank is managed by professionals under the supervision of its Board of Directors. Further, the Bank is subject to a number of regulatory checks and balances as stipulated in its regulatory environment. Therefore, the management believes that the funds raised via this private placement would be utilised only towards satisfactory fulfillment of the Objects of the Offer. 16. Credit Decisions The credit decisions of the Bank are subject to various risk parameters. Management Perception In a dynamic environment, all the credit decisions are subjected to various risk parameters. As such the Bank is following a prudent policy marked by in built checks and balances, where identification and mitigation of risk are the key objectives. Prudential limits are fixed on various financial parameters to implement risk management guidelines. Bank has implemented various Credit Risk Management guidelines given by the Reserve Bank of India. Bank has fixed internal exposure ceilings based on credit rating of the borrowal account to mitigate concentration risk. Portfolio/Industry wise exposure limit is fixed as a risk mitigation tool. As part of the credit risk management system, the Bank has also confined, by and large, the high value credit exposures to specially designated branches which are equipped to handle such exposures. Bank has also stipulated criteria for taking exposures in a particular industry. Maximum industry wise stipulated exposure is 15 per cent of total advances. The Due Diligence in respect of the retail assets has been strengthened to protect the quality of this portfolio. 17. Credit Policy of the Bank The credit policy followed by the Bank may materially influence its credit portfolio. Management Perception

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The Bank has a comprehensive loan policy document. The loan policy is regularly updated in the light of market changes and revision in RBI guidelines. Loan policy aims at continued growth of assets while endeavoring to ensure that they remain performing and standard. 18. Lock-in Clause (f) The present Tier I Subordinate Innovative Perpetual Bond shall be subjected to a lock-in clause, in terms of which the Bank shall not be liable to pay Interest, if (iii) the banks CRAR is below the minimum regulatory requirement prescribed by RBI; or (iv) the impact of such payment results in banks capital to risk assets ratio (CRAR) falling below or remaining below the minimum regulatory requirement prescribed by RBI (g) However, the bank may pay interest with the prior approval of RBI when the impact of such payment may result in net loss or increase the net loss, provided the CRAR remains above the regulatory norm. (h) The interest shall not be cumulative. (i) All instances of invocation of the lock-in clause should be notified by the issuing bank to the Chief General Managers-in-charge of Department of Banking Operations & Development and Department of Banking Supervision of Reserve Bank of India, Mumbai. (j) The claim of the investors shall be (iii) Superior to the claims of investors in equity shares, and (iv) Subordinated to the claims of all other creditors. Management Perception The regulatory minimum CAR stipulated by RBI is 9% as on date, which may be revised by RBI from time to time. The CAR of the Bank is at 12.39%, 11.61%, 11.40%, 11.77% and 12.12% as on March 2004, March 2005, March 2006, March 2007 and June 2007 respectively, which is well above the minimum regulatory CAR of 9%. The Bank has a well-laid out internal policy to maintain a healthy CAR, well above the regulatory minimum CAR prescribed by RBI. To shore up the CAR further, the Bank, as a part of its capital augmentation programme is launching the present issue of Tier 1 Perpetual Bond (reckoned as Tier I capital). Hence, the Bank is confident of maintaining a healthy CAR, well above the regulatory minimum CAR stipulated by RBI as on date or that may be prescribed from time to time. 19. Accounting Standard 15 (Revised) [AS-15 (R)] The Institute for Chartered Accountants of India has issued guidelines for implementation of Accounting Standard - 15 (Revised). However, the effect of the revised Accounting Standard 15 on employee benefits ( which has come into effect from 1st April, 2007) have not been considered as on 31st March, 2007 , pending guideline from Reserve Bank of India. However provision has been made by bank on estimated basis of Rs 3.75 crore as on 30.06.2007 but actual payment will be made to the trust at the year end. Management Perception The Bank is in the process of assessing the impact of AS-15 (R) on the Capital funds of the Bank. However, given the existing level of Capital funds and ability of the Bank to raise additional capital from the Market at short notice, the Bank is of the view that it would be able to implement AS-15 (R). EXTERNAL RISK FACTOTRS 9. Regulatory restrictions on the Bank and limitations of the powers of bondholders of the Bank There are a number of restrictions as per the State Bank of India (Subsidiary Banks) Act, 1959, which impede the flexibility of the Bank's operations and affect/restrict investor's right. i. The Banks can carry on business/activities as specified in the Act. There is no flexibility to pursue profitable avenues if they arise, in contrast with companies under the Companies act, where shareholders can amend the Object clause by a Special Resolution Act. ii. There are restrictions in the Banking regulation Act regarding: a) Setting up of subsidiaries by a bank b) Management of the Bank including appointment of directors c) Borrowings and creation of floating charge thereby hampering leverage.

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d) e) f) g) h) i) j)

Expansion of business as the branches need to be licensed Opening of new place of business and transfer of existing place of business Disclosures in the profit & loss account and Balance sheet Production of documents and availability of records for inspection by shareholders Reconstruction of banks through amalgamation etc Further issues of capital including issue of rights share for which prior SBI/RBI approval is needed The Bank is prohibited from trading activity. This may act as operational constraint.

iii. Every Banking Company is required to create a Reserve fund by transfer of a sum equivalent to not less than twenty percent of profit as disclosed in the Profit & Loss account before any dividend is declared. iv. Every Bank has to maintain assets in India, which would be not less than 75% of the Bank's demand and time liabilities in India, which in turn may prohibit the Bank from creating overseas assets and exploiting overseas business opportunities. v. The financial disclosures in the Information Memorandum may not be available to investors after listing, on a continuous basis. vi. Various rights/powers of shareholders available under the Companies Act in this behalf are not available to shareholders of Banks as the provisions of the Companies Act are not applicable to the Bank. Rights like calling for general meetings, inspection of minutes and other material records, application by members for investigation of affairs of a company, application for a relief in case of oppression and mismanagement, voluntary winding up are not available to shareholders of a Bank. vii. As per section 19(2) of State Bank of India (Subsidiary Bank's) Act, 1959, no person other than the State Bank, shall be entitled to exercise voting rights in respect of any shares held by such person in excess of one percent of the issued capital of the subsidiary bank concerned. viii. No banking company shall pay dividend on its shares until all its capitalised expenses (including preliminary, organizational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. The bank has no such assets/capitalized expenses as on 31.03.2005 and 31.03.2006. ix. As per Section 9 (1) of the State Bank of India Act, 1959 no person shall be registered as a shareholder in respect of any shares in a subsidiary bank held by him, whether in his own name or jointly with any other person, in excess of two hundred shares, or be entitled to payment of any dividend on the excess shares held by him, or to exercise any of the rights of a shareholder in respect of such excess shares otherwise than for the purpose of selling them: Provided that nothing contained in this sub-section shall apply toa) the State Bank; b) a State Government; c) a Corporation; d) an insurer as defined in the Insurance Act, 1938; e) a local authority; f) a Co-operative society; g) a trustee of a public or private religious or charitable trust; Increase in regional hostilities, terrorist attacks and other acts of violence and war could adversely affect the country's economic growth and development thereby the financial markets including the Bank's business and its future financial performance. The performance, quality, and growth of the Bank are dependent on the health of the overall Indian economy. Slowdown in economic growth in India could affect the business of the Bank. Management Perception The bank has been functioning well with all these constraints and is expected to continue to grow as hitherto. The Bank is expanding its product and services offered to diversify its income streams. The Bank's thrust on retail products is envisaged to provide growth. Risk management systems, credit

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supervision, special emphasis on recovery of NPAs and close monitoring will enable the Bank to closely monitor the health of its credit portfolio. The slowdown witnessed in the Indian and global economy in the past few years has not materially affected the Bank's profitability. 2. Sensitivity to the Economy and Extraneous Factors The Banks performance is highly correlated to the performance of the economy and the financial markets. The health of the economy and the financial markets in turn depends on the domestic economic growth, state of the global economy and business and consumer confidence, among other factors. Any event disturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance of the Bank including the quality and growth of its assets. 3. Competition from Existing and New Commercial Banks Competition in the financial sector has increased with the entry of new players and is likely to increase further as a result of further deregulation in the financial sector. The Bank may face competition both in raising resources and in deploying them. Management Perception The Bank has an established broad-based presence and has been taking steps to enhance customer satisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting to add quality assets on competitive terms. The Bank is also taking steps to broad base its product bouquet with a special emphasis on enhancement in the non-fund based income. On the resource-raising front, the Bank is actively endeavouring to broaden its reach and raise resources through its wide distribution network of 452 branches, 23 extension counters as on 31.08.2007 4. Changes in Regulatory Policies The operations of the Banking Industry are subject to regulations by the Government/RBI. Major changes in Government/ RBI policies relating to banking sector may have an impact on the operations of the Bank. Management Perception The policy changes may provide both opportunities and challenges for the Bank. The Bank has a long presence in the banking sector, for more than 86 years and does not perceive policy changes to be a major threat. 5. Disintermediation in the Financial Markets As the financial markets mature and with growing developments in the capital markets, the trend towards disintermediation may be increasingly in evidence. In such a scenario, many companies including the current and potential borrowers of the Bank may access capital markets directly for their financing needs and reduce their dependence on the banking system. This may have an adverse impact on the level of deposits and also on the level and mix of advances portfolio and the profitability of the Banks. Management Perception The Bank has, in recent years, launched several retail lending schemes and value added products so as to broaden its borrower base. Further, disintermediation brings with it the opportunity for the Bank to expand its fee-based activities. The Bank has been endeavoring to develop a presence in several financial services to earn fee based income by focusing on businesses such as foreign exchange, treasury, investments, cash management, insurance, depository, etc., thus taking advantage of the disintermediation phenomenon. 6. Forex Risk Exchange Rate fluctuations may have an impact on the Banks financial performance. Management Perception

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As per RBI guidelines, banks are not allowed to keep open position on their foreign exchange transactions beyond prescribed limits on a daily basis. Foreign exchange transactions beyond such limits, if any, must be squared off at the end of each day. Hence, the risk from exchange rate fluctuations is minimised. The Board of Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of Banks foreign currency assets and liabilities and forward transactions in foreign exchange. The Bank operates within the limits fixed for gaps or mismatches in maturities of Banks foreign currency assets and liabilities and forward transactions in foreign exchange, thus minimising the risks of mismatches in maturities and interest rates. 9. Interest Rate Risk Present interest rates on deposits and advances are based on many micro and macro economic factors including the directives of the Reserve Bank of India which are likely to be market driven due to deregulation and thereby may result in increasing pressure on spreads and affect profitability. Interest rate volatility exposes the Bank to an interest rate risk or market risk. Such interest rate risk has a potential impact on net interest income or net interest margin as well as on the market value of the fixed income securities held by the Bank in its investment portfolio. Management Perception These risks are inherent in the banking business. However, the Bank has put in place a system of regular review of lending and deposit rates in order to minimise the interest rate risk. The Asset Liability Management Committees of the Bank reviews the risk on a regular basis. Continuous Risk Management measures are initiated depending upon the movement in the market interest rates. The movement in the interest rates is closely monitored for appropriate action. 10. Operational Risk Operational risk is a result of failure of operating system in a bank due to certain reasons like computer break-ins, power disruptions, fraudulent activities, natural disaster, human error or omission or sabotage. Management Perception For managing operational risk, the Bank has laid down well-defined systems and procedures. The Bank has set up a separate department to improve the systems and procedures to suit the changing environment. The Bank has also in place a strong internal inspection and audit system. For managing IT related risks, the Information Systems Security Policy is in place. The Bank has an effective Systems and Procedures department, which formulates and monitors delegation of duties and responsibilities at different level. Note to Risk Factors 1. Net worth (excluding revaluation reserves) of the Bank as on 31.03.2006 and 31.03.2007 was Rs. 1017.73 crores and Rs 1176.97 crores respectively. The networth as of June 30, 2007 was Rs. 1241.74 crores. The Bank has not revalued its assets during the past 5 years. 2. The Private Placement size of this Tier I Perpetual Bond issue is Rs. 165 crores. 3. The Book Value of the share as on March 31, 2006 and March 31, 2007 was at Rs. 5506/- and Rs. 6355/- respectively (face value of Rs. 100/-). 4. State Bank of Indore would like to clarify that inspection by RBI is a regular exercise and is carried out periodically by RBI for all banks and financial institutions. The reports of RBI are strictly confidential. The Bank has informed the RBI the actions already taken and measures that are under implementation in respect of observations made by RBI. 5. As per the provisions of Section 15(1) of the Banking Regulation Act, 1949 no banking company shall pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisational expenses, share selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. 6. No person holding shares in the Bank in respect of any shares held by him/her can exercise voting rights on a poll in excess of 1% of the total voting rights of all the shareholders of the Bank.

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7. Transactions between State Bank of Indore and its Associates w.r.t. related party transactions are given under the head Financial Information. 8. The face value per share of the promoters is Rs. 100/-. HIGHLIGHTS OF THE BANK Member of the State Bank Group, the largest Banking Group in India. The Group has the biggest network of branches and the highest market share of deposits and advances in the country. Only Public sector bank headquartered at Madhya Pradesh. Uninterrupted record of profitability since incorporation. Low net NPA ratio of 1.04% as on 31.03.2007 and 1.01% as on 30.06.2007. The Capital Adequacy Ratio of the Bank stood at 11.77% and 12.12% as at the end of 31.03.2007 and 30.06.2007 respectively, which is higher than the minimum required 9%. Bank's existing equity shares are listed on the Madhya Pradesh Stock Exchange at Indore. Credit growth during the year 2006-07 was at 29.26% against ASCB growth 28%. Return on Assets and Return on Equity as on 31.03.2007 were 0.87% and 17.31% respectively. 100% Business has been computerized under Core-Banking.

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PART II GENERAL INFORMATION

CONSENTS
Consents in writing of the Arrangers to the Issue, Directors, Trustees, Registrars, Legal Advisors and Compliance Officer to act in their respective capacities have been obtained.

EXPERT OPINION
Save as stated elsewhere in the Information Memorandum, the Bank has not obtained any other expert opinion.

CHANGES IN DIRECTORS DURING THE LAST THREE YEARS


The changes that took place in the Board of Directors since 1st September, 2001 are as follows:
S. No. Name Date of Change Appointment Ceased from Reason for Change

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28.

Janki Ballabh A. K. Purwar D. P. Roy R. Sundar Raman K.S.V. Krishanama Chari C. Bhattacharya A. G. Kalmankar S. Prasada Rao T. S. Bhattacaharya A. Thomas S. K. Thakur M. Venkateswarlu B. Ghosh Ku. Uma Subramaniam Smt. D. Srivastava A. R. Samajdar Ravindra Pendharkar Harish Chandhok Sudhir Mehta Manoj Fadnis J. P. Jhawar Atul Pradhan J. S. Dilawari Alok Khare M. N. Rao Y. Sinha C. Narasimhan Manoj Gupta

1/11/2000 13/11/2002 20/04/1999 01/10/2001 12/06/2002 08/10/2003 31/05/2004 24/05/2002 01/03/2004 15/04/1999 20/03/2002 25/03/2004 06/02/1999 10/06/2002 06/09/2003 20/10/1999 18/08/2003 04/10/2000 01/11/2004 13/02/2002 18/12/1998 27/02/2004 21/12/1998 28/03/2003 01/01/2001 01/01/2004 11.03.2005 13.02.2005

31/10/2002 31/05/2006 30/09/2001 31/05/2002 31/07/2003 30/05/2004 15/05/2005 30/06/2003 26.02.2005 19/03/2002 24/03/2004 ---09/06/2002 05/09/2003 14/05/2006 30/09/2003 07/11/2006 31/10/2004 ---12.02.2005 26/02/2004 ---28/03/2003 ---16/04/2006 07/07/2006 --------

Retirement Retirement Retirement Retirement Retirement Changed Transfer Retirement Promotion and transfer to SBI Completion of tenure Completion of tenure Continue till date Transfer Transfer Changed Retirement Term Expired Completion of tenure Continue till date Completion of tenure Completion of tenure Continue till date Completion of tenure Continue till date Transferred Transferred Continue till date Continue till date

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29. 30. 31. 32. 33. 34.

S.K. Hariharan Shri O.P. Bhat Shri B.P. Vijayendra Shri Y. Vijayanand Shri Jiban Goswami Shri S.A. Thimmiah

16.05.2005 01/07/2006 15/05/2006 01/08/2006 17/04/2006 08/07/2006

31/07/2006 ------31/08/2007 --------

Transferred Continue till date Continue till date Retirement Continue till date Continue till date.

CHANGES IN AUDITORS DURING THE LAST THREE YEARS


Since the RBI appoints the Auditors each year, the changes have been effected as per RBIs Approval. The changes are given below:
Sr. No. Name of the Auditors Year of Change Added / Retired

1 2 3 4 5 6 7. 8

Ghiya & Company Arun K Agrawal & Associates DC Garg & Co. Sharma Goel & Co. K K Ghei & Co Rajhar Gopal & Co M. Mehta &Co. Arun K Agrawal & Associates

2003-04 2003-04 2005-06 2003-04 2004-05 2004-05 2006-07 2006-07

Added Added Retired Added Retired Added Added Retired

AUTHORITY FOR THE PRESENT ISSUE


This private placement of Bonds is being made pursuant to the resolution passed by the Board of Directors of the Bank on 22nd August 2007 permitting to raise Unsecured Innovative Perpetual Debt Instruments in the nature of promissory notes up to Rs. 165 crores. The Board has authorised the Managing Director to issue the Information Memorandum.

LETTERS OF ALLOTMENT/ REFUND

The Bank shall credit the allotted securities to the respective beneficiary account / dispatch the Letter of Allotment, if applicable or Refund Orders/Letter of Regret, as the case may be, by Registered Post or as per extant postal rules at the sole risk of the applicant to the applicant within thirty days from the date of allotment. Further, the Bank agrees that a) as far as possible, allotment of bonds shall be made within 30 days of the closure of the issue. b) Interest shall be paid at 15% p.a. if the allotment has not been made and/or the refund orders have not been dispatched to the investors within 30 days from the date of the st closure of the issue, for any delay beyond 30 days from the 31 day till the date of dispatch of refund order.

BASIS OF ALLOTMENT

The Bank reserves the right to reject in full or partly any or all the offers received by them to invest in these Bonds without assigning any reason for such rejections.

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ISSUE MANAGEMENT TEAM


Coordinating Arranger Arrangers to the Issue

SBI Capital Markets Limited 202, Maker Tower E, Cuffe Parade, Mumbai 400 005. Tel: (022) 2218 9166 Fax: (022) 2218 8332

Citibank, N.A. Citigroup Centre, 4th Floor, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 Tel: 022 40015644 Fax: 022 4006 5859 Trustee to the Bond Holders
IDBI Trusteeship Services Ltd. 17, R Kamani Marg Ballard Estate Mumbai

Trust Investment Advisors Pvt. Ltd. 109/110 1st floor, Balarama Village Parigkhari Bandra-Kurla Complex Bandra (E) Mumbai 400051
Tel: 022 3068 1150 Fax: 022 3068 1151

Registrar to the Issue


Ankit Consultancy Pvt. Ltd 2nd Floor, Alankar Point 4-A, Rajgarh Kothi Geeta Bhawan Crossing, Indore Tel: (0731) 2491298/5076083 Fax: (0731) 5065798 Email:ankitind@sancharnet.in

Auditors to the Offer M. Munshi & Co. 305, Navneet Plaza, 5/2 Old Palasia Indore-452018. Tel.0731 2561023/2563452 Fax: 2564019
E-mail:mmunshico@vsnl.net

COMPLIANCE OFFICER

The Bank has appointed a Compliance officer to deal with the Investors grievances

Shri Ravindra G. Gadkari General Manager-Treasury State Bank of Indore-Head Office 5, Yashwant Niwas Road, Indore 452003 (MP) Tel No: (0731) 2434584 86, 2434580, 2433982 Fax: (0731) 2537217

126

127

FINANCIAL INFORMATION
AUDITORS REPORT

The Board of Directors State Bank of Indore Head Office Indore Dear Sir In terms of our appointment for the purpose of certification of the statement of accounts, to be incorporated in the offer document to be issued by the Bank, in connection with the private placement of Sub-ordinated Innovative Perpetual Bond , we state as follows: 1. We have examined the audited accounts of the bank for the five consecutive financial years ended on 31st March, 2007. 2. The aforesaid financial statements have been prepared in accordance with the guidelines issued by the Reserve Bank of India from time to time and subject to the limitation of disclosures required under the State Bank of India Banking Companies (Acquisition and Transfers of Undertakings) Act, 1970. 3. In accordance with requirement of clause B Part II to schedule II of the Companies Act,1956 and SEBI (Disclosures and Investor Protection) Guidelines 2000, we report as under: a. The statement of Assets and Liabilities and Profit and loss of Bank for the five consecutive financial years ended on 31st March, 2007, the significant accounting policies, Notes to Account, Auditors Report, Significant changes in Accounting Policies and subject to Auditors qualifications in respect of which no adjustments could be carried out as consequential effects, could not be ascertained, are prepared from the aforesaid accounts after making such adjustments and regrouping as were feasible and in our opinion considered appropriate. b. We further report that the dividends declared by banks in respect of the five consecutive financial years ended on 31st March, 2007 are set out in annexure enclosed. c. We have also examined the accompanying statement of Key accounting ratios for the five consecutive financial years ended on 31st March, 2007, details of unsecured 128

loans, details of other incomes, details of investments, statement of capitalization, tax shelter statements, Contingent liabilities statement and report that in our opinion these have been correctly computed as detailed in the annexure, subject to the consequential effect for non adjustment of qualifications.

Place: Indore Date: 22.09.2007

For M.Munshi & Co. Chartered Accountants Sd/Vishnu Gupta Partner

129

STATEMENT OF PROFIT AND LOSS ACCOUNT FOR FIVE YEARS

(Rs. in crores) Quarter ended June 30, 2007 1707 216 1923 1124 410 199 1733 190 64.77 64.77 2007 523.86 56.47 580.32 385.09 103.21 27.25 515.55

Sn Particulars 2003 I INCOME Interest Earned Other Income TOTAL II EXPENDITURE Interest Expended Operating Expenses Provisions & Contingencies TOTAL III PROFIT/LOSS C/f profit/ (loss) Net Profit for the year Capital Reserve (Investment appreciation) TOTAL IV APPROPRIATIONS Transfer to - Statutory Reserves Investment Fluctuation Reserve (excess/short provision towards depreciation on investments net of taxes and statutory reserves) Transfer to Capital Reserves (Profit on sale of Investments (under "HTM" category) 136 200 200 619 248 221 1,088 986 302 1,288

Year Ended March 31, 2004 1,046 361 1,407 s593 282 306 1,181 226 2005 1,110 178 1,288 608 328 219 1,155 133 2006 1,322 276 1,598 781 397 281 1,459 139

226

133

139

190

81

100

40

48

51

110

(220)

14

10

Redemption Reserve for Bonds Dividend - (inclusive of Dividend tax where applicable) Interest Rate Swap Transaction Heding Reserve

20

20

25

30

130

Special reserve U/s 36 (1) (viii) of Income tax 10 0 200 10 0 226 13 0 133 761.01 280 0 139 794.89 Balance Carried over to balance sheet TOTAL Earning per Share (Basic/Diluted) INTEREST INCOME Particulars Interest / Discount on Advances/Bills Income on Investments Interest on Balances with RBI and other inter bank funds Others TOTAL 17 10 986 15 9 1,046 25 10 1,110 42 7 1,322 2002-03 2003-04 2004-05 2005-06 486 473 496 526 621 454 846 427 1,144.69 1,292.91

15 84 0 190 1085.49 64.77 64.77 370.11 (Rs. in crores) Qtr. June 2006-07 1196 448 48 15 1707 2007 39.18 120 8. 4.53 523.86

- Other Reserves

OTHER INCOME Particulars Commission, Exchange & Brokerage Profit/loss on sale of investments (Net) Profit/loss on revaluation of investments (Net) Profit/loss on sale of land, buildings and other Assets(Net) Profit on exchange transactions (Net) Miscellaneous Income TOTAL 20 15 302 12 28 361 (0) 22 28 178 (0) 27 51 276 2002-03 84 183 -

(Rs. in crores) Qtr. June 2003-04 2004-05 2005-06 2006-07 95 226 110 18 120 78 185 25 (49) (0) 20 34 215 2007 38.34 19.55 (12.55). 0.01 2.4420 8.69 56.47

131

INTEREST EXPENDED Particulars Interest on Deposits Interest on RBI/Inter bank borrowings Others TOTAL 2002-03 586 2 31 619 2003-04 565 0 28 593 2004-05 571 16 21 608

(Rs. in crores) Qtr. June 2005-06 2006-07 702 39 40 781 1000 56 68 1124 2007 333.87 16.81 34.41 385.10

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OPERATING EXPENSES Particulars 2002-03 2003-04 2004-05 Payments to and provisions for employees Rent, Taxes and Lighting Printing & Stationery Advertisement & Publicity Depreciation on Banks Property Directors' Fees, Allowances & Expenses Auditors' Fees and Expenses (including Branch Auditors) Law Charges Postage, Telegrams, Telephones etc. Repairs & Maintenance Insurance Other Expenditure TOTAL 166 18 4 1 17 2 4 2 5 29 248 177 21 5 1 26 4 1 4 2 4 37 282 195 25 7 4 25 4 1 4 4 8 51 328

(Rs. in crores) Qtr. June 2005-06 2006-07 214 28 7 4 39 4 1 4 5 12 79 397 224 33 5 4 35 4 1 5 3 14 82 410 2007 61.93 7.09 1.26 0.89 7.02 0.06 0.42 0.20 1.27 1.18 4.36 17.52 103.21

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STATEMENT OF ASSETS AND LIABILITIES


Sn A. 1 2 3 4 5 6 7 8 9 10 11 B. 1 Financial Year Ended as on March 31 ASSETS Cash in Hand Balances with RBI Balances with Bank in India Balances with Bank outside India Money at Call & Short Notice Investments in India Investments outsides India Advances in India Advances outside India Fixed Assets (Net of Rev. Reserve) Other assets TOTAL OF (A) LIABILITIES Demand Deposits - From Banks - From Others 2 3 Savings Deposits Term Deposits - From Banks - From Others 4 Borrowings - In India - Outside India 5 6 C. D. E. 1 2 3 4 5 6 Other Liabilities & Provisions Subordinated Debts TOTAL OF (B) NET ASSETS (C = A - B) Represented by: SHARE CAPITAL RESERVES AND SURPLUS Statutory Reserves Capital Reserve Share Premium Investment Fluctuation Reserve Revenue and Other Reserves Balance Of Profit & Loss Account TOTAL (E) 376 12 44 110 24 566 458 17 44 220 34 773 18 18 124 176 1151 125 10,793 584 109 275 1,232 125 12,253 791 137 6,073 107 6,730 129 897 1,981 204 1,051 2,420 35 588 54 24 5,137 5,183 47 309 11,377 39 513 191 13 60 5,429 6,406 61 332 13,044 2003 2004

(Rs. in crores)
2005 23 544 425 4 205 5,898 9,041 77 682 16,899 2006 25 1,122 374 423 105 5,112 11,876 113 1,561 20,711 2007 30 1310 454 379 0 5992 15351 104 905 24527

286 1,186 2,785 285 9,265 503 372 1,048 265 15,995 904 18 558 17 44 220 47 886

181 1,491 3,465 24 11,500 340 388 1,789 515 19,693 1,018 18 598 31 44 327 1000

273 1557 4000 120 14027 1302 197 1124 750 23350 1177 18 645 41 44 429 1159

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F.

TOTAL (D + E) 2002-03 51 0 2464 174 388 6 3083 541

584 2003-04 60 0 4589 211 493 3 5356 1077

791 2004-05 59 0 8501 417 766 1 9744 920

904

1018 2005-06 59 0 15037 493 1081 110 16780 342

1177 (Rs. in crores) 2006-07-06 60 0 19622 1021.32 1226. 175 22105 519

CONTINGENT LIABILITIES Financial Year Claims against the bank not acknowledged as debts Liability for partly paid investment Liability on account of outstanding Forward Exchange Contracts Guarantees given on behalf of constituents (Net of Margin) Acceptances, endorsements & other obligations (Net of Margin) Other items for which is contingently liable Total BILLS FOR COLLECTION

BREAK UP OF UNSECURED LOANS (Rs. in crores)


Details as on I. Borrowings in India I) Reserve Bank of India ii) Other Banks iii) Other Institutions & Agencies II. Borrowings outside India III) Tier II Bonds a) Subordinated Debt (12 yr maturity) b) 7 yr Unsecured Redeemable Bonds Total (I+II+III) 515 903 750 947 388 197 31.03.06 31.03.07

DETAILS REGARDING LOANS AND ADVANCES TO PERSONS/COMPANIES IN WHICH DIRECTORS ARE INTERESTED Name of the Director Nil Type Nil of Banks Amount in lakhs Assets as on 31.03.07 Nil Classification NA

Exposure

135

STATEMENT OF FACE VALUE, BOOK VALUE AND MARKET VALUE OF INVESTMENTS AS ON 31ST MARCH,07 (Rs. in crores)
Sn A Investment Govt. Securities Held to maturity (HTM) Available for sale (AFS) Held for trading (HFT) Total A B Other Approved Securities Available for sale (AFS) Held to maturity (HTM) NPI Total B C Shares AFS+HTM+HFT NPI Total C D Bonds/Debentures Available for sale (AFS) Held to maturity (HTM) NPI Total D E Others MF Certificate of Deposits Pass through Certificates (ARCIL) Assets security Receipts Total E Grand Total 21 225 0 246 5821 26 219 0 245 6091 26 219 0 245 5992 49 8 57 42 8 50 42 0 42 22 0 22 68 0 68 60 0 60 34 0 9 43 35 0 9 44 35 0 0 35 4546 907 0 5453 4656 1028 0 5684 4656 954 0 5610 Face value Book value Market value

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SIGNIFICANT ACCOUNTING POLICIES 1. General The accompanying financial statements have been prepared on historical cost basis and confirm to the generally accepted accounting practices and statutory provisions unless otherwise stated. 2. Transactions involving Foreign Exchange a) Monetary assets and liabilities in foreign exchange are converted at FEDAI rates prevailing at the close of the year. b) Income and expenditure items are translated at the exchange rates prevailing on the date of transaction. c) Letters of guarantee and letters of credit issued in foreign currencies are translated at the rates prevailing on the date of the respective transactions. d) Profit or loss on outstanding Forward Contracts as is accounted for on the basis of valuation as per FEDAI guidelines. 3. Investments a) Pursuant to revised guidelines issued by RBI vide Circular No. BP.BC.21/21.04.141/2003-04 dated 2nd September 2003, all the investments have been classified in three categories, viz. Held to maturity, Available for sale and Held for Trading and valued accordingly. However, for disclosure in the balance sheet these are classified under six groups- Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries/ Joint Ventures and Others. b) The valuation of securities in these classifications have been done as per RBI guidelines, as detailed hereunder: i) Investments in Held to Maturity category are carried at acquisition cost unless it is more than the face value, in which case the premium has been amortized over the residual period of maturity and the book value of each scrip is adjusted accordingly. ii) Investments held into Available for Sale and Held for Trading are marked to market, the net depreciation in each classification has been provided and the net appreciation under each classification has been ignored. iii) Investments in Government of India securities, State Government Securities and other SLR eligible Bonds classified under Available For Sale and Held for Trading are valued at the market price as available from the trades/quotes on the National Stock

137

Exchange, price declared by Primary Dealers Association of India (PDAI) jointly with the Fixed Income Money Market and Derivatives Association of India (FIMMDA). iv) Investments in shares, debentures, bonds of public sector undertakings and private corporate bodies, units of Unit Trust of India and other mutual funds classified in Available for Sale for which market quotations are not available, are accounted for at estimated realisable value in accordance with PDAI and FIMMDA guidelines. c) d) The weighted average cost method is adopted for determining the cost of securities sold. Incentive, brokerage and commission received on subscription or adjusted against the cost of the securities. Securities not guaranteed by the Central Government/ State Government: Where the principal/interest is due but not paid for a period of more than 90 days the items are treated as Non Performing Investments and provided for as per the Reserve Bank of India guidelines. Securities with guarantees of Central Government are treated as performing investment, notwithstanding arrears of principle or interest payment. However, interest if not realised for more than 90 days is recognised as income only on cash basis. Securities guaranteed by State Government where principle or interest is due but not paid for a period of 90 days as on 31.03.07 are treated as non performing investments and provided as per RBI guidelines. Further, the securities guaranteed by State Government where principle or interest is due but not paid for a period of 90 days, interest is recognised as income only on cash basis. Pursuant to Prudential guidelines on Banks investment in non SLR securities issued by RBI vide circular no. DBOD.BP.BC.44/21.04.141/2003-04 dated 12th November, 2003, the bank has classifiedi) Preference shares where the fixed dividend is not paid. ii) Equity Shares where the investment is valued as Re.1/- per company as non performing investments.

e)

f)

g)

h)

i) The provision held against securities referred in (e), (f-ii) and (g ii) above hitherto accounted for as part of depreciation is now being held separately against Provision for Non performing Investments A/c . j) Profit/ loss on sale of investments in any category are taken to the profit and loss account. However, in case of profit on sale of investments in Held to Maturity category, an equivalent amount is appropriated to Capital Reserve Account.

138

k) Brokerage and commission incurred at the time of acquisition of securities are recognised as expenses. l) Investments stated in the balance sheet are net of depreciation. m) Hedge transactions are accounted for on accrual basis. n) The securities transactions are booked on the date of settlement. 4. Advances As per RBI guideline advances are classified as Performing and Non-Performing assets based on recovery of principal/interest wit 90 days delinquency norms. With effect from 31st March,06, an advance guaranteed by State Government would attract asset classification and provisioning norms, if interest and /or principal or any other amount due to the bank remains overdue for more than 90 days. Provision on advances has been arrived at in accordance with RBI Guidelines as under: a) The provision on standard assets is created as under - Direct advances to agricultural and SME sector @ 0.25%, - Residential housing loans beyond Rs 20.00 Lac @ 1.00%, - Personal loans (including credit card receivables), Loans and Advances qualifying as Capital Market Exposures and Commercial Real Estate and Loans and advances to systemically important NBFCs ND (non Deposit taking) @ 2.0% and - All other loans and advances (not included above) @ .40 % b) Provision on Non Performing Assets are arrived at on amount outstanding net of interest suspense/ interest not collected is any, are as under: i) Sub-Standard assets @ 10 % of the outstanding. However, in case of sub-standard assets which are identified ab initio as unsecured exposures, provisions @ 20% have been made. ii) Doubtful assets @ 20% to100% of the secured portion of the advances based on the period for which the account remained as Doubtful Asset and at 100% of the unsecured portion of the outstanding advances after netting realized amount in respect of DICGC scheme and realized/realizable amount of guarantee cover under the ECGC/CGSTI Schemes. iii) Loss Assets @ 100% of the outstanding. advances. In case of restructuring/rescheduling of advances, the difference between the present value of the future interest as per original agreement and the present value of future interest as per revised agreement is provided for at the time of restructuring/rescheduling.

139

Appropriation of partial recoveries: The partial recoveries in Doubtful and Loss assets are first appropriated towards principal outstanding and thereafter towards income. 5. Advances shown in the balance sheet are net of: a) Unrealized income (interest Not Collected). b) Provisions made on advances (including floating provision) except that on Standard Assets. c) Bills rediscounted with IDBI/SIDBI. 6. Fixed Assets a) Premises and other fixed assets are accounted for on the historical cost basis. Premises include cost of land where the same cannot be segregated. b) Premises include freehold as well as lease hold properties. Leasehold properties are amortized over the period of lease. c) In some cases land and buildings are capitalized based on conveyance/ letter of allotment/ agreement in physical possession of the property. d) Depreciation is provided for on diminishing balance method at the rates prescribed under the Income Tax Rules, 1962. Depreciation on computers (excluding integral software on which depreciation has been provided @ 60% and on non integral software @ 100% ) is provided on straight-line method @ 33.33% p.a. as per RBI guidelines. No depreciation is provided in the year of sale/ disposal. e) Depreciation on assets leased prior to 01.04.2001 is provided for on Capital Recovery Method. 7 Impairment of Assets Impairment losses, if any are recognized in accordance with Accounting Standard (AS)- 28 and charged to Profit and Loss A/c. 8.. Staff Benefits Liability for gratuity, pension and leave encashment on retirement to staff is provided on accrual basis as per actuarial valuation. 9. Net Profit The net profit disclosed in profit and loss account is arrived at after: i) Provisions for taxes on income in accordance with AS-22 and other statutory requirements. ii) Provisions on advances. iii) a) Provisions for depreciation on investments. b) Adjustments to the value of investments. iv) Other usual and necessary provisions.

140

10. Income Tax a) Provision for Income Tax is made on the basis of the estimated tax liability as per Income Tax Act,1961. b) Deferred Tax has been accounted for in terms of Accounting Standard (AS-22 issued by ICAI. c) Provision of income tax on fringe benefit tax has been made on the value of estimated fringe benefits as per Income Tax Act, 1961. 11. Revenue Recognition A) Income i) Interest and other incomes are accounted for on accrual basis except the following which are accounted for on cash basis. a) Interest and other income on non-performing assets as per norms prescribed by Reserve Bank of India. b) Commission on Letters of Credit/ Guarantee. c) Income from Merchant Banking activities. d) Insurance claims. e) Dividend on shares and units of Mutual Funds. f) Interest on overdue bills. g) Locker Rentals. h) Value-dating interest on inter-bank account with State Bank of India

ii) Lease income in respect of assets leased prior to 01.04.2001 is recognised based on the Internal Rate of Return method over the primary period of the lease and accounted for in accordance with the guidelines issued by the Institute of Chartered Accountants of India. B) Expenditure Expenditure is accounted for on accrual basis except the following, which are accounted for on payment basis: a) Expenses on electricity, telephone, rentals, and property taxes. b) Interest on overdue deposits not renewed. c) Annual Maintenance Contracts. d) Overdue interest claims for delayed settlement of inter bank forex contracts. e) Insurance Premiums. f) Value-dating interest on inter-bank account with State Bank of India. 12. Derivatives The Bank has a policy for derivatives in place, approved by the board for dealing in products like Interest Rate Swap, Forward Rate Agreement, Currency Options, Long Term Forwagd Contracts etc. Presently the bank does not run a trading book in these products.

141

EFFECTS OF CHANGES IN SIGNIFICANT ACCOUNTING POLICIES During the five consecutive financial year ended 31st March, 2007, various guidelines were issued by RBI on Income Recognition, Asset classification, Provisioning in respect of Standard Assets / Non Performing Assets, Other assets, Classification of Investments, Valuation thereof, Treatment of depreciation on investments/ fixed/ leased Assets and amortization of Voluntary Retirement scheme expenditure etc. necessary amendments in the accounting policy has been carried out by the bank in the relevant years, to be in conformity with the RBI guidelines. The year-wise changes in accounting policies with their consequential effect in the year of change are as under: In the year 2006-07 accounting policy in respect of following have changed: 1) Amortization on investment held under HTM category hitherto accounted for on straight line method has been changed to constant yield method from the current year, on account of which the profit for the year ended is higher by Rs 8.13 crore 2) Revenue recognition in respect of commission on government business, which was hither to accounted for on cash basis has been changed to accrual basis, on account of which the profit for the year ended has increased by Rs 12.22 crore.. In the year 2004-05 accounting policy in respect of following have changed: 1) The profit on cancellation of Forward contract payable to customers at maturity date, which was hereto accounted for on payment basis is now being accounted for on accrual basis, as a result of which the profit for the year is lower to the extent of Rs. 5.07 crores. 2) Interest accrued and due on Term Deposits which was accounted for as Interest Liability up to last year is being capitalized as deposit from current year (2004-05). Consequentially, the aggregate deposit has increased by Rs. 386.71 crores as on 31.03.05. In the year 2003-04, accounting policy in respect of following have changed: 1) The delinquency norms for assets classification have changed from 180 days to 90 days for the year 2003-04. The provision on Non Performing Assets are arrived at on amount outstanding net of interest suspense/ interest not collected if any, are 10% of outstanding sub-standard assets, 20% to 50% on Doubtful assets and 100% of the unsecured portion of the outstanding after deducting eligible amount of claims under ECGC schemes as also on loss assets. Appropriation of partial recoveries in doubtful and loss assets is first done towards principal outstanding and thereafter towards income. 2) In the year 2003-04, accounting policy in respect of appropriation partial recoveries in Doubtful and Loss assets has been changed, in terms of which partial recoveries will now be first appropriated towards principal outstanding instead of income due to which the profit for the year 2004-05 is lower to the extent of Rs. 1.16 Crores.

142

3) The provision on standard assets @ 0.50% made in the earlier years prior to 2003-04 as against stipulated 0.25% stipulated by Reserve Bank of India has now been maintained at 0.25%. This has resulted in write back of provision on standard assets of Rs. 9.14 Crores. 4) Due to change in accounting policy in respect of booking profit on sale of investment from Cost to Weighted Average Cost Method, the profit for the year ended on 31.03.04 is lower to the extent of Rs.15.17 Crores. In the year 2002-03, accounting policy in respect of following have changed: 1) SOFTWARE Expenditure, which was hitherto being charged to profit and loss account in the year in which it was incurred, was capitalized and depreciation on the same was charged as per the rates prescribed under Income Tax Rules 1962. Due to this change in accounting policy the profit for the year was higher by Rs.0.13 Crore. 2) Accounting for Leave Encashment Facility on retirement has changed from cash basis to accrual basis. The accrued liability for Leave Encashment has determined on actuarial valuation, as on 31.03.02 amounting to Rs.19.39 crore was adjusted against Revenue Reserves as per guidelines issued by RBI. The liability for year amounting to Rs.5.04 Crores was charged to profit and loss accounting. Due to this change in accounting policy, the profit of the year was lower by Rs.5.04 Crores. 3) Recognition of income on zero coupon bonds and Treasury bills has changed from cash basis, the difference between acquisition cost and the redemption value of treasury bills held at the end of the was apportioned on time basis and was recognized as accrued income. Due to this change in accounting policy, the profit of the year was higher by Rs.0.20 crore.
CAPITAL ADEQUACY RATIO Particulars Capital to Risk Weighted Assets Ratio [CRAR] Tier I Capital to Risk Weighted Assets Ratio Tier II Capital to Risk Weighted Assets Ratio 2006 11.40% 7.55% 3.85% 2007 11.77% 6.74% 5.03%

ADDITIONAL DISCLOSURES In terms of the Reserve Bank of India guidelines, the following additional disclosures have been made and the data as computed by the management is relied upon by the auditors: (Rs. in crores)
Particulars A B C Percentage of share holding of the State Bank of India Percentage of Net NPA to Net Advances Details of "Provisions and Contingencies" debited to the Profit & Loss Account of the year: 2005-06 98.05% 1.83% 2006-07 98.05% 1.04%

143

Provisions made towards NPAs Floating Provisions Write -back of Provision for Income Tax Provision for/(Write back ) of provision for fraud cases Write off during the year Provision for depreciation & Amortisation in the value of investments Provision for Income Tax (including Deferred Tax & Fringe Benefit Tax) Provision for Wealth Tax Provision for Wage Revision Provision for contingent Liability (AS 29) Provision for Restructured Accounts Depreciation on Security Margin with CCIL Provision for Contingent Liabilities Provision for NPI Provision for country risk exposure Provision for Standard Assets Total Subordinate debt rasied as Tier II Capital During the year 2000-01 Nil During the year 2001-02 Nil During the year 2002-03 Nil During the year 2003-04 Nil During the year 2004-05 Rs.200.00 During the year 2005-06 Rs.250.00 During the year 2006-07 Rs.300.00 Total Rs.750.00 Business Ratios: I) Interest Income as a percentage to Average Working Funds ii) Non Interest income as a percentage to Average Working Funds iii) Operating Profit as a percentage to Average Working Funds iv) Return on Assets (net profit as a percentage to Total Assets at the end of year) v) Business ( Deposits plus advances) per employee vi) Profit per Employee

5.00 (26.70) (0.99) 173.67 84.87 (6.94) 0.42 0.45 0.36 20.00 250.14 515.00

48.43 13.05 1.83 9.76 98.75 0.30(7.22) 0.37 (2.16) (0.36) 36.25 199 750.00

7.23% 1.34% 2.13% 0.76% 3.68 0.02

7.84% 0.99% 1.79% 0.87% 4.76 0.03

COUNTRY RISK EXPOSURE AND PROVISIONS THERE AGAINST The net funded exposure on 31.03.2007 of the bank in respect of foreign exchange transaction which is in excess of 1% of the total Assets of the bank is nil and accordingly in terms of RBI guidelines no provision has been made INVESTMENTS

144

a) In respect of investments classified in Held to Maturity category, as stated in Principal Accounting Policy No. 3 b (i), the excess of acquisition cost over face value of the securities, amounting to Rs. 48.95 crore (Previous year Rs.30.79 crore) has been amortised during the year. CERTAIN SPECIFIC DISCLOSURES (a) In terms of Reserve Bank of India guidelines vide letter DBOD.BP.BC.87.21.01.002/0506 dated June 8, 2006 on Innovative Tier I/ Tier II Bonds- Hedging by banks through Derivative Structures a gain of Rs 2.97 crore arising out of interest rate swap transaction entered into on 31.03.2006 for hedging interest rate risk on Tier II bonds or Rs 110.00 crore has been transferred to "Interest Rate Swap Transaction Hedging Reserve A/c" as a part of "Revenue and Other Reserves A/c" (b) An amount of rs 9.67 crore has been provided for in "Provision for Income tax A/c" relating to previous assessment year based on assessments finalized during the current year. (c) Excess provision for Fringe Benefit Tax made during the year 2005-06 has been reversed back to the extent of Rs 2.62 crore. (d) Based on legal opinion and orders of various appellate authorities, no additional provision against disputed tax liabilities is considered necessary. (e) The bank has exceeded the prudential exposure single borrower limit, group borrower limit during 2006-07 in case of following Bank exposure Limit Actual Exposure (i) HDFC 218.42 250.00 (ii) IFFCO 218.42 250.00 (f) No Penalty has been imposed by Reserve Bank of India During the financial year 200607 COMPLIANCE WITH ACCOUNTING STANDARDS (2006-07) (a) Segmental Reporting (AS 17) i) Following segments have been identified as primary segments:a) Domestic Treasury Operations (DTO) b) Other Banking Operations (OBO) c) Residual Operations ii) The entire Indian operations are being treated as a single reportable segment hence secondary segment is not considered. (Rs. in crores)
Business Segment Treasury Other Bank Operations Total

145

Particulars Revenue Less: Inter Segmental Revenue Net Revenue Results Unallocated Revenue Unallocated Expenses (Operating Profit) Income Taxes (including FBT & DTA/DTL) Net Profit Segment Assets Unallocated Assets Total Assets Segment Liabilities Unallocated Liabilities Total Liabilities

Yr ended 31.03.06 141

Yr ended 31.03.07 (1)

Yr ended 31.03.06 1,454

Yr ended 31.03.07 1921

Yr ended 31.03.06 1,595 1,595

Yr ended 31.03.07 1920 1920 285 3 289 99 190 24449 78 24527 24527 24527

(76)

(46.46)

270

332.

194 4 197 58 139

5,378

7487.40

15,155

16962

20,534 177 20,711

451.06

20,710

24076

20,711 20,711

(b) Related party transactions (AS 18) Key Management Personnel Sn Name Designation 1. Shri C. Narasiman Managing Director Total

Particulars Remuneration

Period 01.04.2006 to 31.03.07

Amount Rs. 6,57,095.00 6,57,095.00

Associates: Vidisha Bhopal Regional Rural Bank Parent: State Bank of India (c) Earning per Share (AS 20)
Particulars Earning per Share (Absolute ) Earning per Share (Diluted) 31.03.06 794.89 794.89 31.03.07 1085.47 1085.47

(d) Accounting for Deferred Taxes assets/liabilities (AS 22) The bank has accounted the Deferred Income Tax in accordance with Accounting Standard 22 issued by the Institute of Chartered Accountants of India. Major Components of Deferred Tax Assets and Liabilities are as under: (Rs. in crores)
Particulars Deferred Tax Assets 31.03.06 31.03.07

146

Depreciation on Investment Provision for Leave Encashment Provision on wage revision Provision for restructured accounts Interest accrued on investments Provision for Non performing investments Depreciation on Fixed Assets Provision for fraud cases Ex-gratia paid to exit optees Total (a) Deferred Tax Liabilities Other Liabilities Total (b) Net Deferred Tax Assets (a-b)

31.47 10.24 5.89 6.51 54.11 54.11 -

39.21 12.71 3.49 5.84 1.31 0.91 1.36 64.83

64.83

(f) Intangible Assets (AS-26) The bank is following a practice of depreciating software which forms integral part of hardware@60% (on WDV basis) and depreciating other softwares @100% consistently followed is in line with AS-26 issued by ICAI. (g) Impairment of Assets (AS-28) Fixed Assets in possession of Bank have been treated as Corporate Assets and are cash generating units as defined by AS-28 issued by ICAI. In the opinion of management, there is no material impairment of any of the fixed assets of the Bank.

147

(h) Contingent Liabilities and Provisions (AS-29) Movement of provisions for contingent liabilities is as under: (Rs. in crores)
Particulars Opening Balance as 01.04.06 Provided during the year Amt. used during the year Reversed during the year Closing Balance as 31.03.07 Legal cases/contingencies 1.61 1.04 0.78 1.87 BG & LC in NPA A/c 0.67 0.05 0.72 Total 2.28 1.09 0.78 2.59

The contingent liabilities as provided in Balance Sheet are dependent upon the outcome of Court/arbitration/out of Court settlement, disposal of appeals, the amount being called up, terms of contractual obligations, development and raising of demand by concerned parties, respectively. OTHER ADDITIONAL DISCLOSURES: In terms of the guidelines issued by the RBI, the following other additional disclosures are made:
Sn I) ii) iii) Particulars Shareholding Percentage of shareholding of Govt. of India Non performing Assets The percentage of Net NPAs to Net Advances Tier-II Capital Amount of subordinated debts Unsecured Redeemable Bonds 515.00 750.00 1.83% 1.04% Nil Nil 31.03.06 31.03.07

148

iv) Issuer composition of Non investments-2007


Particulars SN 1 2 3 4 5 6 7 PSUs FISs Banks Private Corporate Subsidiaries/JVs Others Provision held towards depreciation Total 49 30 220 37 2 26 (17) 347 Amt Extent of private placement 34 30 2 66 Extent of below "investment grade" security 10 4 14 (Rs. in crores) Extent of Extent of unrated unlisted security security 29 13 1 37 2 26 108 10 4 14

v) Non performing non SLR investments- 2007


(Rs. in crores) Particulars Opening balance as on 01.04.2006 Additions during the year Reduction during the year Closing balance as on 31.03.2007 Total provisions held as on 31.03.2007 Amount 12.45 4.59 7.86 7.86

vi) Securities sold under repos and purchased under reverse repos, under Liquidity Adjustment Facility of RBI
Outstanding during 2006-07 Securities sold under Repos Securities purchased under reverse repo Minimum 50 14 Maximum 200 1050 Daily Average 117 263 (Rs. in crores) Closing as on 31.03.07 200 Nil

149

vii) Movement of NPAs (Rs. in crores)


Particulars 1. NPAs at the beginning of the year 2.Less: Reduction in NPAs a) By recoveries/write offs b) Up gradation c) Exchange fluctuation Add: a) Fresh NPAs during the year b) Increase in existing NPAs due to operations c) Exchange Difference d) Interest Suspense Gross NPA at the end of the year 183 242 363 282 213 294 31.03.06 303 31.03.07 363

viii) (a) Movement of Provisions held towards NPAs (Rs. in crores)


Particulars Opening Balance Add: Provisions made during the year (Transfer from Contingency Fund) Total Less: Amount transferred to interest sacrifice in restructured account, write back of excess provisions and exchange difference Less: Write back of floating provision Closing balance 31.03.06 200 5 1 205 73 31.03.07 132 62 194 71

132

123

(b) Movement of Provisions for NPI/Depreciation on investments 31.03.07


(Rs. in crores) a) b) c) d) Opening Balance (as on 1.04.2006) Add: Provisions made during the year Less: write back of excess provisions during the year Closing Balance (as on 31.03.2007) 264 8 173 99

ix) Maturity patterns as on 31.03.2007 The maturity pattern of Loans and Advances, Investments & Securities, Deposits and Borrowings (under various Maturity Buckets on the basis of studies conducted by ALCO, as prescribed by the Reserve Bank of India) are as follows:

150

Residual Maturity Maturity Pattern of Loans & Advances Maturity Pattern of Investment & Security Maturity Pattern of Deposits Maturity Pattern of Borrowings Foreign Currency Assets Foreign Currency Liabilities

1-14 days

15-28 days 239 191 703 25 44 4

29 days to 3 mths 662 455 2771 155 377 329

3 to 6 6 mths to mths 1 yrs 719 10 1037 245 40 13 939 31 3141 66 5 33

1 to 3 yrs 7124 799 6773 396 5 211

3 to 5 yrs 2240 587 332 147 0 0

(Rs. in crores) Over 5 yrs Total

310 26 620 463 373 254

3118 3893 4599 2 0 0

15351 5992 19976 1499 844 844

The above maturity pattern has been compiled based on information received from branches, rates prescribed by RBI for determining core and volatile portion and adjustment /appointment made at Head Office on the basis of behavioral maturity, and has been relied upon by the auditors. x) Lending to Sensitive Sectors (Rs. in crores)
SN. Particulars A B C D Advances to Capital market Sector Advances to real Estate Sector Advances to Commodity Sector Exposure to Capital market I) Investment in a) Shares b) Convertible debenture/bonds c) Equity oriented mutual funds ii) Aggregate Advances against security/collateral of shares E Finance extended to Margin Trading 39 46 59 2 26 31.03.06 22 1,481 31.03.07 30 2049 -

151

xi) Corporate Debt Restructuring


(Rs. in crores) Particulars Total amount of Loan assets Amount of Standard assets Amount of Sub-standard assets Amount of Doubtful assets 31.03.06 131 118 12 31.03.07 114 114 0

xii)
SN a) b) c) d)

Restructured Advances (Industrial Advances excluding those under CDR)


(Rs. in crores) Particulars Total amount of loan assets The amount of Standard assets The amount of Sub-Standard assets The amount of Doubtful assets 31.03.06 57 53 0 4 31.03.07 48 46 0 2

xiii) Forward Exchange Contracts as on 31.03.07 (Rs. in crores)


Merchant Forward contracts 340 5613 14 5967 Inter Bank Forward Contracts 2550 11055 50 13655 Total Forward Contracts 2890 16668 64 19622

Maturity Upto 14 days Above 14 days and less than 1 year 1 year and less than 2 years Total

xiv) Derivatives a) At present, the bank does not trade in derivatives. One coupon Only Swap was put through for cost reduction on Tier-II bonds on 31.03.2006. The same is monitored on a daily basis. b) Derivative transactions carry market risk, i.e. the probable loss the bank may incur as a result of adverse movements in interest/exchange rates and credit risk, i.e. the probable loss the bank may incur if the counter parties fail to meet their obligations. The bank's policy for derivatives approved by the Board prescribes risk parameters to control and manage market risk. Credit risk is controlled by entering into transactions only with counter parties with whom exposure limit has been established taking into account their ability to honour obligations and entering into ISDA agreements with each such counter party.

152

c) Hedge transactions are accounted on accrual basis. Being hedge transactions, no marking to market is done. However, fair value and likely loss in the event of counterparty default is disclosed. Credit Risk is mitigated through counterparty exposure norms set internally. Qualitative Factors for the year 2006-07
Sn 1 a) b) 2 a) b) 3 a) b) 4 a) b) 5 a) Particulars Derivatives (Notional Principal amount) For Hedging For Trading Marked to Market Positions Asset(+) Liability(-) Credit Exposure For Hedging For Trading Likely impact of 1% change in interest rate (100*PV01) On Hedging derivatives On Trading Derivatives Max. and Min. of 100*PV01 observed during the year On Hedging Maximum Minimum b) On Trading 6 27 2699 4 110 2699 Currency Derivatives Interest Rate Derivatives

3 NA

NA

4 3 NA

NA

STATEMENT OF DIVIDEND FOR THE LAST FIVE YEARS


(Rs. in crores) Particulars Dividend (Excl. Tax) Tax Dividend Rate (%) 31.03.03 9 1 50 31.03.04 18 2 100 31.03.05 18 2 100 31.03.06 22 3 125 31.03.07 26 5 150

KEY ACCOUNTING RATIOS FOR LAST 5 YEARS


For the year Earning per Share (EPS) (Rs) Book Value per Share ( Tangible Net Worth/No. of shares.) Return on Net Worth (%) (Net Profit/ Average Tangible Net Worth) 2003 1145 3335 40% 2004 1293 4515 33% 2005 761 5166 16% 2006 795 5817 14% 2007 1085 6726 16%

153

CAPITALISATION STATEMENT
(Rs. in crores) Particulars Borrowings Short-Term Debts Long-Term Debts (incl. Sub-ordinate Debt) Total Shareholders Funds Equity Reserve & Surplus (excluding Revaluation Reserve) Total Debt/Equity Ratio 18 1000 1018 1.22 18 1159 1177 1.91 503 740 1243 954 1295 2249 2006 2007

NETWORTH STATEMENT
(Rs. in crores) For the Year March 31 Share Capital Reserve & Surplus Statutory Reserve Share Premium Capital Reserve Investment Fluctuation Reserve Revaluation Reserve Revenue & other Reserves Balance of Profit & Loss Account (Adjusted) Total Reserves Total (Capital & Reserves) NETWORTH Networth Excluding Revaluation Reserve Net Profit Income Tax Return Average Networth Return on Average Networth (PAT Basis) Return on Average Networth (PBT Basis) 24 0 566 584 584 584 200 103 304 498 40.21% 60.97% 34 0 773 790 790 790 226 99 325 687 32.94% 47.38% 47 0 886 904 904 904 133 15 148 847 15.73% 17.49% 328 0 1000 1018 1018 1018 139 85 224 961 14.48% 23.31% 429 0 1159 1177 1177 1177 190 99 289 1097 17.31% 26.34% 376 44 12 110 458 44 17 220 558 44 17 220 598 44 31 0 645 44 41 0 2003 18 2004 18 2005 18 2006 18 2007 18

154

TAX SHELTER STATEMENT FOR FIVE CONSECUTIVE FINANCIAL YEARS (Rs. in crores)
Details ( Year Ending 31st March) Tax Rate Provision for Tax in Books Net Profit (As per Book) Adjustments Add: Depreciation as per Books Provisions Provision for Bonus Interest/Dividend Recd on Investments Donations made Amortisation on Investments Exgratia to exit option scheme-2006 Others Total Less: Depreciation as per IT Schedule Payment of Interest Tax Dividend and Interest Income Exempt Interest eligible for deduction u/s 23(G) Provision for Standard Assets Bonus deductible Interest on Investment on Due Basis Profit on sale of Permanent Category Deduction u/s 36(1)(Viia) Profision U/s 36 (1) (viii) Deduction u/s 80g Provision for Deprn on Investments Deduction U/s 35 DDA Others Total Business Income after adjustments Income from other sources Total Income Tax on long term Capital Gains 27.85 675.78 250.96 5.10 256.06 46.95 746.70 384.2 384.20 59.76 771.94 115.47 115.47 111.39 357.26 156.67 156.67 0.19 4.68 0.51 5.31 0.88 116.89 0.04 174.09 13.60 0.02 473.17 156.27 20.84 11.20 9.14 0.02 526.06 126.67 28.46 12.93 0.01 455.68 97.33 38.18 0.97 24.92 0.01 2.15 5.51 35.97 3.38 0.00 0.01 0.00 97.74 15.00 0.02 10.13 1.00 58.13 221.38 300.58 300.58 2.46 726.42 5.45 904.64 5.60 754.23 7.25 374.82 16.89 244.38 0.02 449.36 0.40 12.91 25.74 322.07 0.01 520.33 0.52 30.52 25.22 231.58 0.01 451.74 1.20 38.88 38.76 292.08 0.01 5.61 0.32 30.79 34.86 237.05 0.01 0.00 0.19 48.95 5.01 5.94 521.96 2003 36.75% 103.40 200.32 2004 35.88% 140.24 226.26 2005 36.59% 47.75 133.18 2006 33.66% 72.50 139.11 2007 33.99% 102.42 189.95

155

Total Tax Less: Advance tax/TDS/Self ass. Tax Net Tax payable/refund

94.10 97.16 (3.06)

137.83 148.88 (11.05)

42.25 70.34 (28.09)

52.73 92.75 (40.02)

101.78 128.13 (26.35)

Unaudited financial results for/upto the Quarter -I ended June 30, 2007 (in Rs. lakhs)
Sr. No. For the Quarter ended (Three Months) Particulars (Reviewed) 30.06.2007 Interest Earned (a+b+c+d) 1 a) b) c) d) 2 Interest/discount on advances/bills Income on Investments Interest on balances with Reserve Bank of India and Other Inter-bank funds Others 52385.58 39179.04 11994.26 759.25 453.03 5646.77 58032.35 38509.76 10320.92 6193.86 4127.06 48830.68 9201.67 (460.14) 427.52 3185.00 6476.81 1750.00 115947.20 37090..77 24913.35 10914.55 1171.51 91.36 4610.91 41701.68 24823.79 9773.58 5655.37 4118.21 34597.37 7104.31 5838.19 1596.42 232.00 1034.12 1750.00 100022.68 170755.40 119578.01 44805.65 4838.46 1533.28 21549.88 192305.28 112422.14 40986.83 22376.34 18610.49 153408.97 38896.31 10025.74 4843.55 9874.93 18995.64 1750.00 115947.20 30.06.2006 Year Ended (Audited) 31.03.2007

Other Income A. TOTAL INCOME (1 + 2)

3 4

Interest Expended Operating Expenses ( e + f) e) f) B C D Payments to and provisions for employees Other operating expenses TOTAL EXPENDITURE (3 + 4) (excluding Provisions & Contingencies) OPERATING PROFIT (A - B) (Profit before Provisions & Contingencies) Provisions and Contingencies of which provisions for Non - performing assets E F Provision for taxes (net of deferred taxes / FBT) NET PROFIT (C - D - E) Paid-up equity share capital Reserves excluding revaluation reserves ( as per balance sheet of previous accounting year) i) ii) iii) Analytical Ratios Percentage of shares held by Govt. Capital Adequacy Ratio Earning per share (in Rs.)(not annualised)

5 6

-Nil12.12 370.10 (Not annualised)

-Nil10.02 59.09 (Not annualised) 43905.44

-Nil11.77 1085.47

iv)

a) Amount of gross non-performing assets

29309.05

29420.73

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b) Amount of net non-performing assets c) %age of Gross NPAs d) %age of Net NPAs v) 8 I) ii) Return on Assets (annualised) Aggregate of Non-promotor Shareholding Number of Shares (in lacs) Percentage of Share holding

15740.21 1.87 1.01 1.05 0.34 1.95

27721.89 3.62 2.32 0.20 0.34 1.95

15906.40 1.90 1.04 0.87 0.34 1.95

157

STATUTORY AND OTHER INFORMATION

MINIMUM SUBSCRIPTION
The provisions as to minimum subscription are not applicable for the Private Placement of Bonds.

UTILISATION OF OFFER PROCEEDS


Pending the utilisation of net proceeds of the Offer as specified under the section Objects of Offer, the net proceeds will be invested in high quality, interest bearing liquid instruments including deposits with banks for the necessary duration

EXPENSES OF THE OFFER


The expenses of the Offer payable by the Bank inclusive of brokerage, fees payable to the Arrangers, fees of Legal Advisors, stamp duty, fees payable to trustees, fees payable to the Registrars to the Offer, listing fees and other miscellaneous expenses is estimated not to exceed 1.00% of the offer size and will be met out of the proceeds of the Offer.

ARRANGERS TO THE ISSUE


The fees payable to the Arrangers are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

AUDITORS
The fees payable to the Auditors are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

REGISTRAR TO THE ISSUE


The fees payable to the Registrar are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

TRUSTEES FOR THE BONDHOLDERS


The fees payable to the Trustees for the Bondholders are as set out in the relevant appointment letters, copies of which are kept open for inspection at the Registered Office of the Bank.

OTHER EXPENSES
The other expenses include fees and reimbursement of expenses towards printing, listing fees, credit-rating fees etc.

UNDERWRITING COMMISSION AND BROKERAGE


The issue is not underwritten and hence no underwriting commission is payable. No broker is appointed hence no brokerage is payable. As of date of issue of this information memorandum, the Bank has outstanding Bonds of Rs 750 crores. 158

OUTSTANDING DEBENTURE OR BOND OFFERS

OUTSTANDING PREFERENCE SHARES

As of date, the Bank does not have any outstanding preference shares.

CAPITALISATION OF RESERVES OR PROFITS PREVIOUS PLACEMENT BY THE BANK

The bank has not capitalised any reserves or profits during the last five financial years.

The Bank has raised Tier II Capital by way of Private Placement of unsecured, redeemable bonds in the nature of Promissory Notes to augment capital adequacy as under:
Year of Placement Size (Rs crore) Tenor (Months) Credit Rating Coupon (% p.a) Redemption Date

2006-07 2006-07 2005-06 2005-06 2004-05

200.00 100.00 110.00 140.00 200.00

180 180 120 120 111

CRISIL/s AAA/ CARE/s AAA CRISILs AAA / CAREs AAA CRISILs AAA /Stable ICRAs LAAA CRISILs AAA /Stable ICRAs LAAA CRISIL AAA/Stable

10.25% 8.95% 8.70% 7.45% 7.20%

22.03.2022 29.12.2021 29.03.2016 29.09.2015 15.05.2014

PREVIOUS COMMISSION AND BROKERAGE

Commission or brokerage has been paid by the Bank for earlier issues as per guidelines and within the stipulated limit.

OPTION TO SUBSCRIBE
The Bank has not given any person nor does it propose to give any person any option to subscribe to the bonds of the bank.

UNDERTAKING REGARDING PURCHASE OF PROPERTY


There is no property which the Bank has purchased or acquired or proposes to purchase or acquire, which is to be paid for wholly or partly out of the proceeds of the present issue or the purchase or acquisition of which has not been completed on the date of this Offer Document, other than property as given hereunder: a) The contracts for the purchase or acquisition whereof were entered into, or may be entered into, in the ordinary course of the Banks business, such contracts not being made in contemplation of the offer nor the offer in consequence of the contract or b) In respect of which the amount of the purchase money is not material. The Bank has not purchased any property in which any of its directors had or have any direct or indirect interest or in respect of any payment thereof.

REVALUATION OF ASSETS
The bank has not revalued its assets in the last 5 years

159

CLASSES OF SHARES
The authorised capital of the Bank is Rs 50 crores divided into 50,00,000 Equity Shares of Rs.100 each.

PAYMENT OR BENEFIT TO PROMOTERS OR OFFICERS OF THE COMPANY


Except as stated otherwise in this Information Memorandum, no amount or benefit has been paid or given since the inception of the Bank.

TERMS OF APPOINTMENT OF MANAGING DIRECTOR

In terms of Section 29 (1) of State Bank of India (Subsidiary Banks) Act, 1959, the State Bank of India, after consulting the Board of Directors of State Bank of Indore and with the approval of Reserve Bank of India, appointed Shri C. Narasimhan as Managing Director of State Bank of Indore for a period of two years from the date of his assuming charge of the position, vide notification dated 11th March 2005.

ISSUE OTHERWISE THAN FOR CASH

There has not been any issue of equity shares for consideration other than cash, otherwise than as mentioned in point 1 of Capital Structure on Page 5.

PAYMENT OR BENEFIT TO THE DIRECTORS AND OFFICERS OF THE BANK

No amount or benefit has been paid or given or is intended to be paid or given to any Director or Officer of the Bank except their normal remuneration and/or reimbursement for the services rendered to the Bank to which they are entitled to or may become entitled to under the provisions of the Bank Nationalisation Act or otherwise in accordance with the Law.

PREVIOUS ISSUES BY THE BANK- OUTSTANDING


Bonds issued by the Bank outstanding as on the date of Offer Document and terms of issue
Issue 1. 2. 3. 4. 5. Year of Placement 2004-05 2005-06 2005-06 2006-07 2006-07 Size (Rs Tenor Credit Rating in Crores) (Months) 200.00 111 CRISIL AAA/Stable 140.00 120 CRISILs AAA /Stable ICRAs LAAA 110.00 120 CRISILs AAA /Stable ICRAs LAAA 100.00 180 CRISILs AAA / CAREs AAA 200 180 CRISILs AAA /stable CAREs AAA Coupon (% p.a.) 7.20% 7.45% 8.70% 8.95% 10.25% Redemption Date 15.05.2014 29.09.2015 29.03.2016 29.12.2021 22.03.2022

NATURE AND INTEREST OF DIRECTORS


No Director of the Bank is interested in the appointment of any of the Managers, Registrars and Bankers to the Issue. No Director of the Bank is interested in any property acquired by the Bank within two years of the date of the Offer Document or proposed to be acquired by it. The Bank has not purchased any property in which any of its Directors had or have any direct or indirect interest or in respect of any payment thereof. The Bank has no plans, at present, to acquire any running business out of the proceeds of the Issue. The Directors have no interest in any loan

160

or advance given by the Bank to any person(s)/ Company (ies) nor is any beneficiary of such loan or advance related to any of the Directors.

161

MAIN PROVISIONS OF THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 AND THE SUBSIDIARY BANKS GENERAL REGULATIONS, 1959. The General Regulations extracted in this document are as existing now. The relevant provisions of the SBI (Subsidiary Banks) Act 1959 (The Act) / Subsidiary Banks General Regulations (G.R.) Framed under the Act inter alia are as under: AUTHORISED CAPITAL Section 6 of Chapter II of the SBI (SB) Act provides that the authorised capital of the Bank shall be Rs. Five hundred crores and shall be divided into shares of one hundred rupees each. The authorised capital of the Bank may be increased or reduced by the State Bank with the approval of the Reserve Bank. Subsequently increased to Rs 50 Crores ISSUED CAPITAL Section 7 (sub sections 4 & 5) of Chapter II of the SBI (SB) Act provides as under: A Subsidiary Bank may, with the approval of SBI and RBI, increase from time to time, its issued capital, whether by public issue or by preferential allotment or private placement in accordance with the procedure as may be prescribed its issued capital by issue of equity or preference shares. provided that the issue of preference shares shall be in accordance with the guidelines framed by the Reserve Bank specifying the class of preference shares, the extent of issue of each class of such preference shares (whether perpetual or irredeemable or redeemable) . DISPOSAL OF PROFITS Sec. 40 (1): After making provision for bad and doubtful debts, depreciation in assets, equalization 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, a Subsidiary bank may, out of its net profits, declare a dividend. Sec. 40 (2): The rate of dividend shall be determined by the Board of Directors of the Subsidiary bank concerned. VOTING RIGHTS Chapter IV of the Subsidiary Banks General Regulations 1959 provides that : G.R. 25 (1): Subject to the provisions contained in section 19 of the Act, each shareholder of a subsidiary Bank who has been registered as a shareholder for a period of not less than three months prior to the date of a general meeting of that subsidiary bank shall be entitled to vote on every resolution placed before the meeting. G.R. 25 (2): Every shareholder entitled to vote as aforesaid 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 share held by him. G.R. 26 (1): A shareholder, of a subsidiary bank, being a company, may by a resolution or a power of attorney authorise any of its officials or any other person to act as its representative at any general meeting of the shareholders of the subsidiary bank and the person so authorised (referred to as a 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 subsidiary bank. The authorization so given may be in favour of two persons in the alternative and in such a case any one of such persons (but not both) may act as the duly authorised representative of the company.

162

G.R. 29: No person who is an officer or an employee of a subsidiary bank may be appointed a duly authorised representative or a proxy in respect of a general meeting of that bank. MEETING OF SHAREHOLDERS NOTICE CONVENING A GENERAL MEETING G.R. 17(1): A notice convening a General Meeting of the shareholders of a subsidiary bank signed by the Chairman or the Managing Director of that bank shall be published at least twenty-eight days before the date of the meeting in the Gazette of India and also in at least two principal daily newspapers circulating at the place where the head office of the subsidiary bank is situated. G.R.17 (2): Every such notice shall state the time, date and location of such meeting, and also the business that shall be transacted at the meeting. SPECIAL GENERAL MEETING G.R. 18 (1): The Board may, at any time and shall, if a requisition for such a meeting has been received from either the State Bank or other shareholders holding shares carrying, in the aggregate, not less than 20 per cent of the total voting rights of all the shareholders, convene or cause to be convened, a Special General Meeting of shareholders. BUSINESS AT GENERAL MEETINGS G.R. 19(1): No business other than that specified in sub-section (2) of section 44 of the Act shall be transacted or discussed at the Annual General Meeting, except with the consent of the Chairman or other person presiding at the meeting, unless not less than six weeks notice of the same has been given to the Chairman or the Managing Director or the subsidiary bank either by the State 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. G.R. 19 (2): Except with the consent of the Chairman or other person presiding at the meeting, no business shall be transacted or discussed at any special general meeting, except the business for which the meeting has been specifically convened. QUORUM AT GENERAL MEETINGS G.R. 20: 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 State Bank represented by a proxy or by a duly authorised representative and four other shareholders entitled to vote at such 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 or the person presiding at the general meeting may dissolve the meeting or adjourn it to the same day in the following week at the same time and location, 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 three months after the 31st December # 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. # changed to March 31 CHAIRMAN AT GENERAL MEETINGS

163

G.R. 21(1): The Chairman or in his absence such one of the directors as may generally or in relation to any particular meeting be authorised by the Chairman in this behalf shall preside at a general meeting, and in the absence of the Chairman and the person so authorised and also failing any such uthorization the shareholders who are present in person or by proxy or by duly authorised representatives at the meeting may elect any other director to preside at the meeting. G.R. 21 (2): The person presiding at a general meeting shall regulate the procedure at the general meeting, 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. PERSONS ENTITLED TO ATTEND THE GENERAL MEETINGS G.R. 22 (1): All directors, the auditor for the time being and all shareholders of the Subsidiary bank shall, subject to the provisions of sub-regulation (2), be entitled to attend a general meeting. VOTING AT GENERAL MEETINGS G.R. 23 (1): Save as otherwise provided in section 31 of the Act, every matter submitted to a General Meeting of a subsidiary bank shall be decided by a majority of votes. G.R. 23(2): A declaration by the person presiding at a general meeting of a subsidiary bank 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 proceeding of the subsidiary 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 State Bank of by at least four other shareholders present and entitled to vote at the meeting. G.R. 23 (4): The decision of the person presiding at the meeting as to the qualification of any person to vote, and also in the case of a poll, as to the number of votes any person is competent to exercise shall be final. TRANSFER OF SHARES Chapter IV of the State Bank of India (Subsidiary Banks) Act 1959 provides thatSec. 18 (1) : Save as otherwise provided in sub-section (2) the shares of a subsidiary bank shall be freely transferable. Sec. 18 (2) : Nothing contained in sub-section (1) shall entitle the State Bank to transfer any shares held by it in any subsidiary bank if such transfer will result in reducing the shares held by it to less than fifty five per cent of the issued capital of that subsidiary bank. Sec. 19 (1) : No person shall be registered as a shareholder in respect of any shares in a subsidiary bank held by him, whether in his own name or jointly with any other person, in excess of two hundred shares, or be entitled to payment of any dividend on the excess shares held by him, or to exercise any of the rights of a shareholder in respect of such excess shares otherwise than for the purpose of selling them : Provided that noting contained in this sub-section shall apply to (a) the State Bank; (b) a State Government; a Corporation; (d) an insurer as defined in the Insurance Act, 1938; (e) a local authority; (f) a co-operative society; (g) a trustee of a public or private religious or charitable trust; (h) a shareholder of an existing bank who is allotted any shares under sub-section (9) of Section 13. Sec. 19 (2) : Notwithstanding anything contained in sub-section (1), No person referred to in the proviso to that sub-section, other than the State Bank, shall be entitled to exercise voting rights in

164

respect of any shares held by such person in excess of one per cent of the issued capital of the subsidiary bank concerned. Sec. 20 : Notwithstanding anything contained in the Acts hereinafter mentioned in this section, the shares of a subsidiary bank shall be deemed to be included among the securities enumerated in section 20 of the Indian Trusts act, 1882, and also to be approved securities for the purposes of the Insurance Act, 1938, and the Banking Companies Act, 1949. Sec.21: Every subsidiary bank shall keep at its head office, a register, in one or more books, of the shareholders, and shall enter therein the following particulars so far as they may be available:a. the names, addresses and occupations, if any, of the shareholders and a statement of the shares held by each shareholder, distinguishing each share by its denoting number; b. the date on which each person is so entered as a shareholder; c. the date on which any person ceases to be a shareholder; and d. such other particulars as may be prescribed. Sec. 22: Notwithstanding anything contained in section 19, no notice of any trust, express, implied or constructive shall be entered on the register of shareholders of a subsidiary bank or be receivable by it in respect of its shares. Chapter II of the Subsidiary Banks General Regulations 1959 provides thatG.R. 13 (1): Every transfer of the shares of a subsidiary bank shall be in writing in the form contained there in or in any usual or common form which the subsidiary bank shall approve. G.R. 13 (2): The instrument of transfer of any share shall be submitted to the Board or its Executive Committee and shall be signed by or on behalf of 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. Each signature to such transfer shall be duly attested by the signature of one witness who shall add his address and occupation. G.R. 13 (3) : Upon receipt by the Board or its Executive Committee of an instrument of transfer with the request to register the transfer, the Board or its Executive Committee shall, unless it declines the registration under Regulation 14, within two months from the date on which the instrument of transfer was delivered to the subsidiary bank for submission to the Board or its Executive Committee, cause the transfer to be registered. G.R. 14 (1) : The Board or its Executive Committee may decline to register any transfer of shares unless:G.R. 14 (1) (b) : a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and the transferee has been submitted to the Board or its Executive Committee. G.R. 14 (1) : The instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the subsidiary bank may reasonably require in evidence of the right of the transferor to make the transfer. G.R. 14 (1) (d) : It is satisfied after such enquiry as it may consider necessary that the transferee is qualified to be registered as a shareholder in respect of the shares covered by the instrument of transfer. G.R. 14 (2) : The Board or its Executive Committee may suspend the registration of transfer during any period in which the register is closed. G.R. 16 (2) : The Board or its Executive Committee may at any time cause such enquiries to be made as it shall deem fit for the purpose of ascertaining whether any person registered as a shareholder of the subsidiary bank whether alone or jointly with another or others, is not or has ceased to be, qualified to be so registered in respect of any share and upon being satisfied that any such person is, contrary to the provision of subsection (1) of section 19 of the Act, registered, by inadvertence or other wise, in respect of any shares held by him whether in his own name or jointly with another person or persons so as to make such total holdings in excess of the total nominal value of twenty thousand rupees, it shall determine which of such shares shall be deemed to constitute such excess and shall inform the shareholder or, where such excess is held jointly, each of the joint shareholders, that in accordance with section 19 of the Act he is, and in the case

165

of joint holders they are, not entitled to the payment of any dividend on any such share not to exercise any of the rights of a shareholder otherwise than for the purpose of the transfer of such share and shall make an entry in the register to that effect. G.R. 17 : Subject to the provisions of sub-section (3) of section 44 of the Act. G.R. 17 (1) : A Notice convening a general meeting of the shareholders of a subsidiary bank signed by the chairman or the [managing director] of that bank shall be published at least twentyeight days before the date of the meeting in the Gazette of India and also in at least two principal daily newspapers circulating at the place where the head office of the subsidiary bank is situated. G.R. 17 (2) : Every such notice shall state the time, date and location of such meeting, and also the business that shall be transacted at the meeting. G.R. 18 (1) : The Board may, at any time and shall, if a requisition for such a meeting has been received from either the State Bank or other shareholders holding shares carrying, in the aggregate, not less than 20 per cent of the total voting rights of all the shareholders convene or cause to be convened, a special general meeting of shareholders. G.R. 18 (2) : The requisition referred to in sub-regulation (1) shall state the purpose for which the special general meeting is required to be convened, and may consist of several documents in like form each signed by one or more of the requisitionists. G.R. 18 (3) : The time, date and location of a general meeting shall be decided by the Board: Provided that a special general meeting convened on requisition shall be convened not later than three months of the receipt of the requisition. G.R. 19 (1) : No business other than that specified in sub-section (2) of section 44 of the Act shall be transacted or discussed at the annual general meeting, except with the consent of the chairman or other person presiding at the meeting, unless not less than six weeks notice of the same has been given to the chairman or the [Managing Director] of the subsidiary bank either by the State 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. G.R. 19 (2) : Except with the consent of the Chairman or other person presiding at the meeting no business shall be transacted or discussed at any special general meeting, except the business for which the meeting has been specifically convened. SHARES AND SHARE REGISTERS Chapter II of the Subsidiary Banks General Regulations 1959 provides that G.R.3 : The shares of a subsidiary bank shall be moveable property. G.R.4(1) : Subject to the provisions of the Act and these Regulations, the register of shareholders of a subsidiary bank shall be maintained by, and be under the control of, the Board or its Executive Committee and the decision of the Board or its Executive Committee as to whether or not a person is entitled to be registered as a holder in respect of any share shall be final. G.R.4 (2) : In particular, and without prejudice to the foregoing provision, the Board or its Executive Committee shall, as regards the entries in the register of shareholders of that bank, 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. G.R.5(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. G.R.5(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. G.R.6(2) : In the case of joint holders of any shares, their names and other particulars required by subregulation (1) shall be grouped under the name of the first of such joint holders.

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G.R.6(3) : A shareholder resident outside India shall furnish to the subsidiary bank an address in India, and such address shall be entered in the register and be deemed to be his registered address for the purposes of the Act and these regulations. G.R.7 : 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 notice and all or any other matter connected with the subsidiary bank, except the transfer of the shares, be deemed the sole holder thereof SUCCESSION G.R.15(1) : The executors or administrators of the estate of a deceased sole holder of a share of subsidiary bank, 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 or by the deceased sole holder during the latters life-time, shall be the only persons who may be recognized by the subsidiary bank as having any title to the share of the deceased shareholder. In the case of a share of a subsidiary bank registered in the names of two or more holders, the survivor or survivors and on the death of the last survivor, the executors or administrators of his estate, or any person who is the holder of a succession certificate in respect of such survivors interest in the share, or a person in whose favour a valid instrument of transfer of the share was executed by such person or such last survivor during the latters life-time shall be the only person who may be recognized by the subsidiary bank as having any title to such share. The subsidiary bank shall not be bound to recognize 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 duly constituted Court in India having effect at the place where the Head Office of the subsidiary bank is situated. Provided nevertheless that in any case where the Board or its Executive Committee shall in its absolute direction think fit, it shall be lawful for the 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 other wise as it may think fit. G.R.15(2) : Subject to the provisions of the Act and these regulations, any such person becoming entitled to a share of a subsidiary bank 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 Board or its Executive Committee may require, be entitled:G.R.15(2) (a) : to be registered as a shareholder in respect of the share upon his satisfying the Board or its Executive Committee in the same manner as if he were the proposed transferee under regulation 14 that he is qualified to be registered as a shareholder; or G.R. 15(2) (b) : to make such transfer of the share as the person from whom he derives his title, could have made. INCORPORATION AND SHARE CAPITAL OF STATE BANK OF INDORE Chapter II of the SBI (Subsidiary Banks) Act 1959 provides as under: Sec 7 (1) : On the appointed day, the issued capital of a new bank shall consist of such amount divided into fully paid up shares of hundred rupees each, as the State Bank may, with the approval of the Reserve Bank fix. Sec 7 (4) : Without prejudice to the provisions contained in sub-section (3), a new bank may, with the approval of the State Bank and the Reserve Bank, increase from time to time, its issued capital and the capital so increased shall consist of fully paid up shares to be issued in such manner as the State Bank may, with the approval of the Reserve Bank, direct. Sec 7 (5) : No increase or reduction in the issued capital of a new bank shall be made in such a manner that the State Bank holds at any time less than 55 per cent of the issued capital of that bank.

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CONSTITUTION OF THE BOARD OF DIRECTORS, THEIR POWERS, THEIR REMUNERATIONS Chapter V of the SBI (Subsidiary Banks) Act 1959 provides as under : Sec 24(1) : The State Bank may, from time to time, give directions and instructions to a subsidiary bank in regard to any of its affairs and business, and that bank shall be bound to comply with the directions and instructions so given. Sec 24(2) : Subject to any such directions and instructions, the general superintendence and conduct of the affairs and business of a subsidiary bank shall, as from the appointed day, vest in a Board of Directors who may, with the assistance of the Managing Director, exercise all powers and do all such acts and things as may be exercised or done by that bank. Sec 25(1) : Subject to the provisions of sub-section (2), the Board of Directors of a subsidiary bank shall consist of the following: (a) the chairman for the time being of the State Bank, ex-officio; (aa) the Managing Director appointed under sub- section (1) of section 29, or under section 32; (b) an officer of the Reserve Bank, to be nominated by that bank; not more than five directors to be nominated by the State Bank of whom not more than three shall be officers of that bank; (ca) one director, from among the employees of the subsidiary 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 subsidiary banks as are not workmen, to be appointed by the Central Government in the manner provided in the rules made under this Act; (d) two directors to be elected in the prescribed manner by the shareholders, other than the State Bank; provided that if the total amount of holdings of all such shareholders registered in the books of the subsidiary bank three months before the date fixed for election is below five per cent of the total issued capital, or if there are no shareholders other than the State Bank registered on the books of the subsidiary bank, the directors to be elected by the shareholders shall be nominated by the State Bank and such directors shall, for the purposes of this Act, be deemed to be directors elected under this clause; (e) a director, if any, to be nominated by the Central Government. Sec 26(1) : A director of a subsidiary bank nominated under clause (b) or clause (c) or clause (e) of subsection (1) of Section 25 or appointed under clause (ca) or clause (cb) of that sub-section shall hold office during the pleasure of the authority nominating or appointing him. Sec 26 (2) : Subject to the provisions contained in Section 25, a director elected under clause (d) of subsection (1) of that section shall hold office for three years and thereafter until his successor is duly elected, and shall be eligible for re-election. Provided that no such director shall hold office continuously for a period exceeding six years. Sec 26 (2A) : Subject to the provisions contained in Section 25 and in sub-section (1), a director nominated under clause and not being an officer of the State Bank or a director appointed under clause (ca) or clause (cb) or a director, not being an officer of the Central Government, nominated under clause (e) of sub-section (1) of section 25, shall hold office for such term not exceeding three years, as the central government may specify and thereafter until his successor shall have been duly nominated or appointed, and shall be eligible for re-nomination or reappointment, as the case may be. Provided that no such Director shall hold office continuously for a period exceeding six years. MANAGING DIRECTOR OF A SUBSIDIARY BANK Sec.29(1) : The State Bank shall, after consulting the Board of Directors of a subsidiary bank, and with the approval of the Reserve Bank, appoint a Managing Director for that subsidiary bank;

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Sec.29(3)(b) : The Managing Director of a subsidiary bank shall hold office for such term not exceeding four years and subject to such conditions as the State Bank may, with the approval of the Reserve Bank, specify at the time of his appointment; Sec.29(4) : The Managing Director vacating his office shall be eligible for re-appointment. Sec.29(5) : The State Bank may, with the approval of the Reserve Bank, for any sufficient reason, remove from office the Managing Director of a subsidiary bank; Provided that no such Managing Director shall be removed from office unless he has been given an opportunity of showing cause against such removal. CASUAL VACANCIES CASUAL VACANCY OF MANAGING DIRECTOR Sec. 32 : If the Managing Director of a subsidiary bank is rendered incapable of discharging his duties by reason of infirmity or otherwise or is absent on leave or otherwise in circumstances not involving the vacation of his office, the State Bank may appoint another person to officiate for the managing director until the date on which the Managing Director resumes duty. CASUAL VACANCIES AMONG DIRECTORS Sec.33 (1) : Where any vacancy occurs before the expiry of the term of office of a director of a subsidiary bank (other than the Managing Director or a director appointed under clause (ca) or clause (cb) of subsection (1) of section 25, the vacancy shall be filled a. in the case of a director nominated under clause of sub-section (1) of section 25, not being an officer of the State Bank, by nomination by the State Bank; b. in the case of a director elected under clause (d) of sub-section (1) of section 25, by election or where the proviso to that clause is applicable, by nomination by the State Bank; Provided that where the duration of the vacancy in the office of an elected director is likely to be less than six months, the vacancy may be filled by the remaining directors by co-opting a person from among the shareholders entitled to elect a director under clause (d) of sub-section (1) of section 25 who is not disqualified under section 27; in the case of a director nominated under clause (e) of sub-section (1) of section 25, not being an officer of the Central Government, by nomination by that Government in consultation with the State Bank. Sec. 33 (2) : A person nominated or elected or co-opted as the case may be, [under sub-section (1) shall hold office for the unexpired portion of the term of his predecessor. Sec. 33 (3) : Where any vacancy occurs before the expiry of the term of office of a director appointed under clause (ca) or clause (cb) of sub-section (1) of section 25, such vacancy shall be filled in accordance with the said clause (ca) or, as the case may be, clause (cb) and the director so appointed shall hold office for the period specified under sub-section (2A) of Section 26. REMUNERATION OF DIRECTORS Sec.30 : A director of a subsidiary bank shall be paid for attending the meetings of the Board of Directors or of any of its committees and for attending to any other business of the subsidiary bank such fees and allowances as may be prescribed. Provided that no fees shall be payable to the chairman of the State Bank (or the Managing Director of the subsidiary bank) or any other director who is a whole time officer of the Central Government or the Reserve Bank or the State Bank. POWER AND REMUNERATION OF MANAGING DIRECTOR Sec. 29 (2) : Subject to the general control of the Board of Directors, the day to day administration and management of the affairs of a subsidiary bank shall vest in the managing director, and the Managing Director shall exercise such other powers and perform such other duties as may be delegated to him by the Board of Directors. Sec.29(3) : The Managing Director of a subsidiary bank

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shall devote his whole time to the affairs of that bank :Provided that the Managing Director of the subsidiary bank may, with the approval of the State Bank and the Reserve Bank be a director of any other institution; shall receive such salary and allowances as may be determined by the State Bank with the approval of the Reserve Bank. EXECUTIVE AND OTHER COMMITTEES OF THE BOARD OF DIRECTORS Sec.35(1) : There shall be an executive committee in respect of a subsidiary bank consisting of such directors as may be prescribed : Provided that if any such director being an officer of the State Bank and nominated by that bank under clause of sub-section (1) of section 25, is for any reason unable to exercise his functions or to discharge his duties in relation to the executive committee, the State Bank may depute any of its officers to exercise all the functions and to discharge all the duties of such director in relation to the executive committee whenever such director is so unable to exercise his functions or discharge his duties; and the officer so deputed shall, for all purposes of this Act, in so far as it applies to the executive committee, be deemed to be a director of the subsidiary bank. Sec.35(2) : Subject to any regulations made under this Act, the executive committee may deal with any matter within the competence of the Board of Directors. Sec.35(3) : A copy of the minutes of every meeting of the executive committee of a subsidiary bank shall be forwarded to the State Bank and be laid before the Board of Directors of the subsidiary bank as soon as possible after the meeting. Sec.35(4) : Without prejudice to the powers of the executive committee, and subject to any regulations made under this Act, the Board of Directors of a subsidiary bank may constitute such and so many other committees, whether consisting wholly of the directors or wholly of other persons, or partly of the directors and partly of other persons, as it deems fit, to exercise such powers and perform such duties as may, subject to such conditions, if any, as the Board of Directors may impose, be delegated to them by the Board of Directors. MEETINGS OF THE BOARD OF DIRECTORS Sec.34(1) : The Board of Directors of a subsidiary bank 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. Sec.34(2) : The chairman of the State Bank shall preside at every meeting of the Board of Directors of a subsidiary bank and, in his absence such one of the directors as may generally or in relation to any particular meeting be authorised by the chairman in this behalf shall preside: and in the absence of the chairman and also failing such uthorization, the directors of the subsidiary bank present at the meeting shall elect one from among themselves to preside at the meeting. Explanation For the purposes of this sub-section absence from a meeting means nonattendance for any reason whatsoever at the meeting or any part of the meeting during which any business is transacted. Sec.34(3) : All questions at a meeting of the Board of Directors of a subsidiary bank shall be decided by a majority of the votes of the directors present, and in case of equality of votes, the person presiding at the meeting shall have a second or casting vote. Sec.34(4) : Where any of the directors specified in clauses (a) and (b) of sub-section (1) of section 25 or any of the directors, being an officer of the State Bank specified in clause (c) of that subsection is unable to attend any meeting of the Board of Directors of a subsidiary bank, and the State Bank or any other such director as may be present at the meeting considers that the State Bank would not be adequately or effectively represented at such meeting by reason of the absence of any such director, the State Bank or the director present may give notice in writing to that subsidiary bank that the meeting should be adjourned to such date as may be indicated in the notice; or

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that any matter, action, step or proceeding proposed to be considered, taken or carried out at that meeting, should not be so considered, taken or carried out: or that no decision should be taken at that meeting on any such matter, action step or proceeding; and that subsidiary bank and its Board of Directors shall be bound to comply with such notice and act accordingly.

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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION Material Contracts and Documents State Bank of India (Subsidiary Banks) Act, 1959 Credit Rating Letters for the current and previous Placements. Terms of Appointment of Managing Director. Original Documents of Property purchased and registered in the name of the Bank. Board Resolution approving the proposed Bond placement. Consent letters of the Registrars, the Trustees to the Bondholders, the Legal Advisors, and the Directors of the Bank. Annual Reports of the Bank for the last five years. Letter from the Legal Advisor giving his legal opinion on the IM. Certificates in relation to the Placement. Agreements and approvals for floating of joint ventures and associates. Auditors Certificate in respect of the Financials of the Bank. Tax Benefit Certificate issued by the Auditors. Certificate form Trustees for concurrence with the Trustee Clauses

The above documents are available for the inspection by the investors with the Compliance Officer to the Private Placement at the Head Office of the Bank between 10.00 a.m. to 2.00 p.m. on all working days during which the proposed private placement remains open.

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PART III DECLARATION


It is hereby declared that full disclosures have been made and all the relevant provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 as amended from time to time and the legal requirements connected with this placement as also the guidelines, instructions, etc. issued by SEBI, Government and any other competent authority in this behalf have been complied with and no statement made in this Information Memorandum is contrary to the provisions of the said Acts/Regulations/ Guidelines and rules thereunder. The Issuer accepts no responsibility for the statement made otherwise than in the Information Memorandum or in the advertisement or any other material issued by or at the instance of the Issuer and that any one placing reliance on any other source of information would be doing so at his own risk. Signed by Managing Director, pursuant to the authority granted by the Board of Directors of State Bank of Indore Sd/For State Bank Of Indore

Place: Indore

Date: September 25, 2007

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STATE BANK OF INDORE


(Associate of the State Bank of India) Head Office: 5, Yashwant Niwas Road, Indore 452003 (MP). Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 Website: www.indorebank.org Application Form Sr. No. Dear Sirs, Having read and understood the contents of the Memorandum of Private Placement, we apply for allotment to us of the Unsecured, NonConvertible, IPDI Bonds. The amount payable on application as shown below is remitted herewith On allotment, please place our name on the Register of Bond holders. We bind ourselves to the terms and conditions as contained in the Information Memorandum for Private Placement. We note that the Bank is entitled in its absolute discretion to accept or reject this application whole or in part without assigning any reason whatsoever. (PLEASE READ THE INSTRUCTIONS CAREFULLY BEFORE FILLING THIS FORM) Form in which certificate is to be issued [ ] Demat DP NAME: DPID: NSDL [ ] CLIENT ID: CDSL [ ]

We understand that in case of allotment of Bonds to us / our Beneficiary Account as mentioned above would be credited to the extent of Bonds allotted. In case the Bonds allotted to us cannot be credited to our Beneficiary Account for any reason whatsoever, we will accept physical Bonds certificates. The application shall be for a minimum of 1 (One) Bonds and in Multiples of 1 (One) Bonds thereafter No. of I IPDI Bonds applied for (In words) No. of Bonds applied for (In figures) Amount (Rs.) (in words) Date Cheque / Demand Draft drawn on

Cheque /Demand Draft No.

Remittance through STEPS/RTGS No. of Bonds applied for (In figures ) No. of Bonds applied for (In words) Amount (Rs.) ___________ (in words) __ ______________________ Remittance Particulars Mode of Remittance RTGS We are applying as {Tick ( ) whichever is applicable} 1 4 7 10 Company Body Corporate Co-operative Banks Mutual Fund NBFC & Residuary NBFC 2 5 8 11 Commercial Bank Financial Institution Provident/Superannuation/Gratuity Funds Association of Persons 3 6 9 12 Regional Rural Bank Insurance Companies Port Trusts Others (Please specify) Date of Remittance Name of the Remitting Bank and Branch

Application Details First Applicants Name in Full (Block letters)

Second Applicants Name in Full Third Applicants Name in Full Mailing Address in Full (Do not repeat name. Post Box No. alone is not sufficient.)

Pin: Tax Details

Tel: PAN or GIR No.

Fax: IT Circle / Ward / District

Not Allotted

Details of Bank Account Bank Name & Branch_______________________________________________________________________

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Account No: ____________________________ Nature of Account _______________________________________________________ Tax Deduction Status: (Please tick one) Fully Exempt (Please furnish exemption certificate): ____________________________________________________________________ Tax to be deducted at Source: __________________________________________________________________________________ Specimen Signature Name of the Authorised Signatory 1. 2.

Designation

Signature

Acknowledgement Slip shall be given to the Investors as shown below the Instructions.

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INSTRUCTIONS 1) Application Forms must be completed in BLOCK LETTERS IN ENGLISH. A blank space must be between two or more parts of the name. For Example
A B C D E L I M I T E D

2) Application forms duly completed in all respect must be lodged at the collection centers mentioned below, before the closing of the subscription. Cheques/Demand Drafts should be in favour or State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I and crossed Accounts Payee only. Cheques / Demand drafts may be drawn on any bank including a co-operative bank, which is situated at and is a member or submember of the Bankers clearing house located at the Designated Collection centers as mentioned elsewhere in the Information Memorandum. 3) Cash, outstation cheques, money orders, postal orders and stock invest will NOT be accepted. 4) As a matter of precaution against possible fraudulent encashment of interest warrants due to loss / misplacement, applicants are requested to mention the full particulars of their bank account as specified in the Application Form. Interest warrants will then be made in favour of the bank for credit to the applicants account. In case the full particulars are not given, cheques will be issued in the name of the applicant at his own risk. 5) Receipt of application will be acknowledged by the Bank in the Acknowledgement Slip appearing below the Application Form. No separate receipt will be issued. 6) All applicants should mention their permanent Account No. or the GIR number allotted under the Income Tax Act, 1961 and the Income Tax Circle/Ward district. In case where neither the PAN nor GIR is allotted, the fact of non-allotment should be mentioned in the application form in the space provided. 7) The Application would be accepted as per the terms and conditions of the Bonds outlined in the Memorandum of Private Placement. 8) Signatures should be made in English. Signatures made in any other Indian language must be attested by an authorized official of a Bank or by a Magistrate/Notary Public under his/her official seal. 9) Those desirous of claiming tax exemptions on interest on application money are compulsorily required to submit a certificate issued by the Income Tax Officer / relevant declaration forms as pr Income Tax Act, 1961 along with the application form. In case the above documents are not enclosed with the application forms, TDS will be deducted on interest on application money. For subsequent interest payments such certificates have to be submitted periodically. Application forms can be submitted to the offices of the Arrangers mentioned in the Information Memorandum or at the branches of State Bank of Indore as mentioned in the Information Memorandum and shown below: Designated Collection Centres State Bank of Indore Mumbai Fort Branch : AGM Hemant Ambisht 022- 22072918 /09820322532; RTGS Centre Manager Pradeep Srivastava, 022-22642358; Kolkata Brabourne Road Branch : AGM Shri U. Barua, 033-22103209/ 09830945463; Delhi Con.Circus Branch : AGM Shri P. Sabnani,011-23415044/ 09868392002; Chennai Broadway Branch : CM Shri Ramesh Rao, 044-25364534/ 09840535966; Bangalore J.C.Road Branch : CM Shri Anil Bhandari , 08022213717/ 09448491467

SBI Capital Markets Limited 202, Maker Tower E, Cuffe Parade, Mumbai 400 005 Tel: 022 2218 9166 Fax: 022 2218 8332

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STATE BANK OF INDORE


(Associate of the State Bank of India) Head Office: 5, Yashwant Niwas Road, Indore 452003 (MP). Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217 Website: www.indorebank.org ACKNOWLEDGEMENT SLIP

Sr. No.:

Received from ____________________________________________ Address___________________________________________________________________________ __________________________________________ an application for _________________ Bonds along with Cheque/Demand Draft No. __________ Dated _________ Drawn on _____________ for Rs. __________ (Rupees________________________________________ ___________________________________________ only) (Note: Cheques and Drafts are subject to realisation)
RTGS Remittance Particulars Mode of Transfer RTGS Date of Remittance Name of the Remitting Bank and Branch Amount of Remittance Rs. ____________ (Rupees ___________________)

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ANNEXURES

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