ICICI Bank - 2007-2008 Annual Report

ICICI BANK LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

Your Directors have pleasure in presenting the Fourteenth Annual Report of ICICI Bank Limited with the audited statement of accounts for the year ended March 31, 2008.

Financial Highlights

The financial performance for fiscal 2008 is summarised in the following table:

Rs. billion, except Fiscal 2007 Fiscal 2008 % changepercentages

Net interest income and other income 125.65 161.15 28.3%

Operating profit 58.74 79.61 35.5%

Provisions & contingencies(1) 22.26 29.05 30.5%

Profit before tax 36.48 50.56 38.6%

Profit after tax 31.10 41.58 33.7%

Consolidated profit after tax 27.61 33.98 23.1%

(1) Excludes provision for taxes.

Appropriations:

The profit & loss account shows a profit after tax of Rs. 41.58 billion after provisions and contingencies of Rs. 29.05 billion and all expenses. The disposable profit is Rs. 51.56 billion, taking into account the balance of Rs. 9.98 billion brought forward from the previous year. Your Directors have recommended a dividend rate of 110% (Rs. 11 per equity share of face value Rs. 10) for the year and have appropriated the disposable profit as follows:

Rs. billion Fiscal 2007 Fiscal 2008

To Statutory Reserve, making in all Rs. 39.391 billion 7.80 10.40

To Special Reserve created and maintained in terms of Section 36(1)(viii) of the Income-tax Act, 1961, making in all Rs. 20.94 billion 4.50 1.75

To Capital Reserve, making in all Rs. 8.01 billion 1.21 1.27

Dividend for the year (proposed)

- On equity shares @ 110% (@100% for fiscal 2007) 9.01 12.28 (2)

- On preference shares (Rs.) 35,000 35,000

- Corporate dividend tax 1.53 1.50

Balance to be carried forward to the next year(3) 9.98 24.36

(1) Includes Rs. 0.20 billion transferred on amalgamation of The Sangli Bank Limited with the Bank.

(2) Includes dividend for fiscal 2007 paid on shares issued pursuant to exercise of employee stock options after the balance sheet date and prior to the record date.

(3) After taking into account transfer to Reserve Fund Rs. 3.14 million for fiscal 2008, making in all Rs. 4.53 million.

ISSUANCE OF EQUITY CAPITAL

In fiscal 2008, ICICI Bank successfully concluded a capital raising exercise, raising a total of about Rs. 200.00 billion through a simultaneous public issue in India and issue of American Depositary Shares (ADS) in the United States. The public issue in India was subscribed 11.5 times and the ADS issue was subscribed over 5 times. The domestic issue was priced at Rs. 940, representing a premium of 3.6% to the average closing price from the announcement to the pricing date and the ADS was priced at USD 49.25, representing a premium of 6.6% over the domestic issue price.

SUBSIDIARY COMPANIES

At March 31, 2008, ICICI Bank had 17 subsidiaries as listed below:

Domestic Subsidiaries ICICI Securities LimitedICICI Securities Primary Dealership LimitedICICI Prudential Life Insurance Company LimitedICICI Lombard General Insurance Company LimitedICICI Prudential Asset Management Company LimitedICICI Prudential Trust LimitedICICI Venture Funds Management Company LimitedICICI Home Finance Company LimitedICICI Investment Management Company LimitedICICI Trusteeship Services Limited

International SubsidiariesICICI Bank UK PLCICICI Bank CanadaICICI Wealth Management Inc.(1)ICICI Bank Eurasia Limited Liability CompanyICICI Securities Holdings Inc.(2)ICICI Securities Inc.(3)ICICI International Limited

(1) Subsidiary of ICICI Bank Canada.(2) Subsidiary of ICICI Securities Limited.(3) Subsidiary of ICICI Securities Holdings Inc.

As approved by the Central Government vide letter dated May 15, 2008 under Section 212(8) of the Companies Act, 1956, copies of the balance sheet, profit & loss account, report of the board of directors and report of the auditors of each of the subsidiary companies have not been attached to the accounts of the Bank for fiscal 2008. The Bank will make available these documents/details upon request by any Member of the Bank. These documents/details will be available on the Bank's website www.icicibank.com and will also be available for inspection by any Member of the Bank at its Registered Office and Corporate Office and also at the registered offices of the concerned subsidiaries. As required by Accounting Standard- 21 (AS-21) issued by the Institute of Chartered Accountants of India, the Bank's consolidated financial statements included in this Annual Report incorporate the accounts of its subsidiaries and other entities.

A summary of key financials of the Bank's subsidiaries is also included in this Annual Report.

DIRECTORS

R. K. Joshi, former Chairman of General Insurance Corporation of India, and an independent Director of the Bank, passed away on July 4, 2007. The Board deeply mourns the untimely demise of R. K. Joshi and places on record its appreciation for the contribution made by him in enriching the deliberations of the Board during his association with the Bank. Nachiket Mor, Deputy Managing Director, opted for early retirement effective October 19, 2007, to dedicate himself to the social initiatives of the ICICI Group. He has been appointed as President of the ICICI Foundation for Inclusive Growth. The Board places on record its appreciation for the contribution made by him towards the growth and development of the ICICI Group.

At its Meeting held on October 19, 2007, the Board elevated Chanda D. Kochhar, Deputy Managing Director as Joint Managing Director & Chief Financial Officer and appointed Sonjoy Chatterjee, Managing Director & CEO, ICICI Bank UK PLC, as an additional Director of the Bank. Sonjoy Chatterjee has been appointed as a wholetime Director designated as Executive Director, for a period of five years, effective October 22, 2007. Reserve Bank of India (RBI) has vide its letter dated December 3, 2007, approved his appointment. Approval of the Members is being sought at the forthcoming Annual General Meeting (AGM).

Vinod Rai, Secretary (Financial Sector), Department of Financial Services, Ministry of Finance, Government of India was nominated as a Director of the Bank by Government of India effective January 3, 2003. He resigned from the Board effective January 6, 2008, consequent to his appointment as the Comptroller & Auditor General of India (CAG). The Board places on record its appreciation of the role played by Vinod Rai during his tenure as a Director and his guidance and contribution as a Member of the Board.

Arun Ramanathan, Secretary (Financial Sector), Department of Financial Services, Ministry of Finance, Government of India was nominated as a Director of the Bank by Government of India effective January 18, 2008. In terms of Article 128A of the Articles of Association, Arun Ramanathan is not liable to retire by rotation.

In terms of the provisions of the Companies Act, 1956 and the Articles of Association of the Bank, Sridar Iyengar, T. S. Vijayan, L. N. Mittal and Narendra Murkumbi would retire by rotation at the forthcoming AGM and, being eligible, offer themselves for re-appointment.

AUDITORS

The auditors, B S R & Co., Chartered Accountants, will retire at the ensuing AGM. As recommended by the Audit Committee, the Board has proposed the appointment of B S R & Co. as stautory auditors for fiscal 2009. You are requested to consider their appointment. Their appointment has been approved by RBI vide its letter dated April 21, 2008.

PERSONNEL

As required by the provisions of Section 217(2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of the employees are set out in the Annexure to the Directors' Report.

APPOINTMENT OF NOMINEE DIRECTORS ON THE BOARD OF ASSISTED COMPANIES

Erstwhile ICICI Limited (ICICI) had a policy of appointing nominee directors on the boards of certain borrower companies based on loan covenants, with a view to enable monitoring of the operations of those companies. Subsequent to the merger of ICICI with ICICI Bank, the Bank continues to nominate directors on the boards of assisted companies. Apart from the Bank's employees, experienced professionals from various fields are appointed as nominee Directors. At March 31, 2008, ICICI Bank had 60 nominee Directors, of whom 39 were employees of the Bank, on the boards of 84 assisted companies. The Bank has a Nominee Director Cell for maintaining records of nominee directorships.

EMPLOYEE STOCK OPTION SCHEME

In fiscal 2000, ICICI Bank instituted an Employee Stock Option Scheme (ESOS) to enable the employees and Directors of ICICI Bank and its subsidiaries to participate in the future growth and financial success of the Bank. As per the ESOS as amended from time to time, the maximum number of options granted to any employee/director in a year is limited to 0.05% of ICICI Bank's issued equity shares at the time of the grant, and the aggregate of all such options is limited to 5% of ICICI Bank's issued equity shares on the date of the grant (equivalent to 55.6 million shares at April 26, 2008).

Options granted for fiscal 2003 and earlier years vest in a graded manner over a three-year period, with 20%, 30% and 50% of the grants vesting in each year, commencing not earlier than 12 months from the date of grant. Options granted for fiscal 2004 onwards vest in a graded manner over a four-year period, with 20%, 20%, 30% and 30% of the grants vesting in each year, commencing not earlier than 12 months from the date of grant.

Options can be exercised within 10 years from the date of grant or five years from the date of vesting, whichever is later. The price of the options granted prior to June 30, 2003 is the closing market price on the stock exchange, which recorded the highest trading volume on the date of grant. The price for options granted on or after June 30, 2003 till July 21, 2004 is equal to the average of the high and low market price of the equity shares in the two week period preceding the date of grant of the options, on the stock exchange which recorded the highest trading volume during the two week period. The price for options granted on or after July 22, 2004 is equal to the closing price on the stock exchange which recorded the highest trading volume preceding the date of grant of options. The above pricing is in line with the SEBI guidelines, as amended from time to time.

On the basis of the recommendation of the Board Governance & Remuneration Committee, the Board at its meeting held on April 26, 2008 approved a grant of approximately 5.6 million options for fiscal 2008 to eligible employees and wholetime Directors. Each option confers on the employee a right to apply for one equity share of face value of Rs. 10 of ICICI Bank at Rs. 915.65, which was the last closing price on the stock exchange, which recorded the highest trading volume in ICICI Bank shares on April 25, 2008.

Particulars of options granted by ICICI Bank upto April 26, 2008 are given below:

Options granted 50,918,4551

Options vested 27,227,624

Options exercised 23,726,081

Number of shares allotted pursuant to exercise of options 23,726,081

Options forfeited/lapsed 6,013,919

Extinguishment or modification of options Nil

Amount realised by exercise of options (Rs.) 4,498,141,120

Total number of options in force 21,178,455 (1)

(1) Includes 825,000 options granted to wholetime Directors for fiscal 2008, pending RBI approval.

Options granted by ICICI Bank to senior managerial personnel for fiscal 2008 are as follows: K. V. Kamath - 270,000, Chanda D. Kochhar - 180,000, V. Vaidyanathan - 125,000, Madhabi Puri Buch - 125,000, Sonjoy Chatterjee - 125,000, K. Ramkumar - 125,000, and Pravir Vohra - 125,000. No employee was granted options during any one year equal to or exceeding 0.05% of the issued equity shares of ICICI Bank at the time of the grant.

The diluted earnings per share (EPS) pursuant to issue of shares on exercise of options calculated in accordance with AS-20 was Rs. 39.15 in fiscal 2008 against basic EPS of Rs. 39.39. Since the exercise price of ICICI Bank's options is the last closing price on the stock exchange, which recorded the highest trading volume preceding the date of grant of options, there is no compensation cost in fiscal 2008 based on the intrinsic value of options. However, if ICICI Bank had used the fair value of options based on the Black-Scholes model, compensation cost in fiscal 2008 would have been higher by Rs. 1,259.9 million and proforma profit after tax would have been Rs. 40.32 billion. On a proforma basis, ICICI Bank's basic and diluted earnings per share would have been Rs. 38.19 and Rs. 37.96, respectively. The key assumptions used to estimate the fair value of options are:

Risk-free interest rate 7.12% - 8.11%Expected life 2-6 yearsExpected volatility 36.26%-38.01%Expected dividend yield 1.07%

In respect of options granted in fiscal 2008, the weighted average exercise price of the options and the weighted average fair value of the options were Rs. 938.41 per option and Rs. 376.39 per option respectively.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors confirm:

1. That in the preparation of the annual accounts, the applicable accounting standards have been followed, along with proper explanation relating to material departures;

2. That they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for that period;

3. That they have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the Banking Regulation Act, 1949 and the Companies Act, 1956 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and

4. That they have prepared the annual accounts on a going concern basis.

ACKNOWLEDGEMENTS

ICICI Bank is grateful to the Government of India, RBI, SEBI and overseas regulators for their continued co-operation, support and advice. ICICI Bank wishes to thank its investors, the domestic and international banking community, investment bankers, rating agencies and stock exchanges for their support.

ICICI Bank would like to take this opportunity to express sincere thanks to its valued clients and customers for their continued patronage. The Directors express their deep sense of appreciation of all the employees, whose outstanding professionalism, commitment and initiative has made the organisation's growth and success possible and continues to drive its progress. Finally, the Directors wish to express their gratitude to the Members for their trust and support.

For and on behalf of the BoardPlace : Mumbai N. VAGHULDate : May 27, 2008 Chairman

MANAGEMENT DISCUSSION AND ANALYSIS

Business Overview

ECONOMIC OVERVIEW

The last year has witnessed significant developments in the global economy. Following the deterioration in the US sub-prime housing loan market, the US economy is expected to experience a sharp slowdown in growth. The Federal Reserve has reduced its forecast for US GDP growth in calendar year 2008 from the 1.3%-2.0% range to between 0.3%-1.2%. Growth in the Euro zone remained above expectations at 0.8% in the first quarter of calendar year 2008. However, downside risks to growth remain on account of adverse financial market conditions and increases in energy and food prices. Growth in China moderated slightly during the first quarter of calendar year 2008 to 10.6% as compared to 11.7% during the same period last year.

During fiscal 2008, the Indian economy continued on its high growth path, despite some moderation due to difficult conditions in global markets and increasing inflationary pressures and monetary tightening. The Central Statistical Organisation (CSO) put GDP growth at 9.0% during fiscal 2008 following the 9.6% GDP growth in fiscal 2007, reflecting a slight moderation in growth of the economy. Growth in fiscal 2008 was driven mainly by double-digit growth in the services sector and growth in the industrial sector. The Index of Industrial Production (IIP) recorded an annual average growth rate of 8.1% in fiscal 2008, moderating from 11.5% in fiscal 2007. This was mainly due to moderation of growth in the manufacturing sector from 12.5% in fiscal 2007 to 8.6% in fiscal 2008. The momentum of growth in the services sector (including construction) continued with 10.7% growth during fiscal 2008 following the 11.2% growth in fiscal 2007. Growth in agriculture and allied activities increased to 4.5% during fiscal 2008 as compared to 3.8% in fiscal 2007.

Inflation remained under control for most of fiscal 2008 with the annual average rate of inflation as measured by the Wholesale Price Index easing from 5.3% in fiscal 2007 to 4.4% in fiscal 2008. However, inflationary pressures picked up sharply from March 2008 with the year-on-year rate of inflation increasing from 5.1% for the week ending March 1, 2008 to 8.8% for the week ending May 31, 2008. The sharp increase in inflation was mainly due to the higher prices of primary articles, fuel group items and some manufactured products. The increase in inflation was in line with global price movements. Global oil prices increased sharply during fiscal 2008, increasing inflationary pressures experienced on this account. International crude oil prices increased from US$ 65.87 per barrel at March 30, 2007 to US$ 101.58 per barrel at March 31, 2008 and further increased to US$ 135.90 per barrel at June 13, 2008. In view of rising inflation, Reserve Bank of India (RBI) increased the Cash Reserve Ratio (CRR) from 6.00% to 7.50% during fiscal 2008 and further to 8.25% effective May 2008.

India's exports were US$ 155.5 billion during fiscal 2008, a growth of 23.0% over the previous year. During April-December 2007, exports of agriculture and allied products recorded a growth of 34.9% and exports of petroleum products recorded a growth of 37.3%. According to RBI, net invisibles receipts reached US$ 50.50 billion during the first nine months of fiscal 2008, a growth of 39.2% over the corresponding period in the previous year. Growing import demand for capital goods due to the strong investment climate and the sharp increase in oil prices have led to a deficit in the current account (US$ 16.05 billion during first nine months of fiscal 2008). Net Foreign Direct Investment (FDI) into India was US$ 8.40 billion during the first nine months of fiscal 2008 while net portfolio investment was US$ 33.00 billion. Foreign exchange reserves continued to grow, reaching US$ 309.16 billion on March 28, 2008.

The resilience displayed by the economy in fiscal 2008, in light of the developments in the global economy and the sharp increase in global oil and commodity prices, is evidence of the broad-based and sustainable nature of India's growth momentum. The investment pipeline and demand for credit from corporates continue to be robust. Inflation conditions, global developments and external inflows will be key factors impacting liquidity and interest rates during the current year. Continued investment in infrastructure, reorienting education and skill-building to the needs of the new economic drivers and holistic development of the agricultural sector and the rural economy are the key imperatives to realise India's full potential in the long run.

FINANCIAL SECTOR OVERVIEW

The financial sector mirrored the developments in the Indian economy. Credit growth during fiscal 2008 moderated, given the tightening of interest rates in the economy. Non-food credit increased by 22.3% in fiscal 2008 compared to 28.0% in fiscal 2007. Based on data published by RBI, at February 15, 2008, industry accounted for 39.6% of non-food gross bank credit, retail credit for 24.5%, agriculture and allied activities for 11.7%, trade for 5.8%, real estate for 2.6% and other sectors for the balance 15.8%. The credit-deposit ratio remained within the range of 69.0%-74.0% during fiscal 2008 and was about 73.0% in March 2008. The incremental credit-deposit ratio was about 71.9% for fiscal 2008 compared to about 86.0% for fiscal 2007. Deposits of the banking system grew by Rs. 6,029.54 billion, or 22.9%, in fiscal 2008 compared to 24.2% in fiscal 2007. In response to the increase in the cash reserve ratio and the liquidity conditions, banks have increased their lending rates. The average yield on 10-year Government securities increased relatively moderately from 7.8% in fiscal 2007 to 7.9% in fiscal 2008, given the continued demand for government securities on account of the mandated holding requirement for banks and other financial intermediaries.

First year retail premium underwritten in the life insurance sector recorded a growth of 30.7% (on weighted received premium basis) to reach Rs. 526.59 billion in fiscal 2008 with the private sector's retail market share (on weighted received premium basis) increasing from 35.5% in fiscal 2007 to 50.5% in fiscal 2008. The non-life insurance industry was de-tariffed with effect from January 1, 2007, whereby insurance premiums were freed from price controls, resulting in a reduction in premium rates and a negative impact on industry growth. Gross premium in the non-life insurance sector (excluding specialised insurance institutions) grew by 12.6% to Rs. 281.31 billion in fiscal 2008 as compared to 22.4% growth in fiscal 2007 with the private sector's market share increasing from 34.9% in fiscal 2007 to 39.9% in fiscal 2008. Total assets under management (on average assets basis) of mutual funds grew by 50.0% from Rs. 3,590.97 billion in March 2007 to Rs. 5,385.08 billion in March 2008.

Equity markets remained stable and buoyant during the first half of fiscal 2008, followed by a period of significant decline in the BSE Sensex on account of developments in global financial markets. The Sensex continues to remain volatile, due to global concerns as well as inflationary pressures and other downside risks to growth.

There were a number of key policy developments in the banking sector during fiscal 2008. Price stability, management of inflation expectations and stability of financial markets remain the key monetary policy objectives of RBI. In August 2007, RBI issued guidelines on external commercial borrowings. The guidelines permit external commercial borrowings of more than US$ 20 million per company only for foreign currency expenditure. For rupee expenditure, external commercial borrowings were permitted only up to US$ 20 million with the prior approval of RBI. Subsequently in May 2008, RBI increased the limit on external commercial borrowings for rupee expenditure to US$ 100 million for the infrastructure sector and US$ 50 million for other sectors. The Basel II capital adequacy framework became applicable to certain banks including ICICI Bank from fiscal 2008. The guidelines include an increase in the minimum Tier-1 CAR from 4.5% to 6.0% and the introduction of capital for operational risk. In November 2007, RBI issued guidelines for banks engaging recovery agents asking them to put in place a due diligence process for engagement of recovery agents. In February 2008, the Government of India in its budget for fiscal 2009 has announced a debt waiver for small and marginal farmers. In respect of other farmers, the scheme proposes a one-time settlement of all overdue loans at 75% of the loan amount.

The Indian financial sector has remained resilient to the adverse developments in global markets. Given the long-term growth prospects of the Indian economy, the growth outlook of the financial sector in India continues to be robust.

ORGANISATION STRUCTURE

Our organisation structure is designed to be flexible and customer-focused. At the same time, we seek to ensure effective control and supervision and consistency in standards across the organisation. The organisation structure is divided into the following principal groups:

* Corporate Centre, comprising financial reporting; planning and strategy; asset liability management; investor relations; secretarial; corporate communications; risk management; compliance; internal audit; legal; financial crime prevention and reputation risk management; and the Bank's proprietary trading operations across various markets.

* Retail Banking Group, comprising the retail liabilities, retail assets and small enterprises businesses.

* Rural, Micro-banking and Agri-business Group, comprising the rural and agricultural lending and other banking businesses.

* Wholesale Banking Group, comprising the corporate & investment banking, project finance and government banking businesses.

* International Banking Group, comprising the Bank's international operations, including operations in various overseas markets as well as products and services for non-resident Indians, international trade finance, correspondent banking and wholesale resource mobilisation.

* Global Markets Group, comprising our global client-centric treasury operations.

* Global Operations & Middle Office Groups, which are responsible for back-office operations, controls and monitoring of our domestic and overseas operations.

* The Human Resources Management Group is responsible for the Bank's recruitment, training, leadership development and other personnel management functions and initiatives.

* The Technology Management Group (TMG) is responsible for enterprise-wide technology initiatives, with dedicated technology teams serving individual business groups and managing information security and shared infrastructure.

* The Facilities Management & Administration Group is responsible for management of corporate facilities and administrative support functions.

* The Organisational Excellence Group is responsible for enterprise-wide quality and process improvement initiatives.

BUSINESS REVIEW

During fiscal 2008, the Bank continued to grow and diversify its asset base and revenue streams by leveraging the growth platforms created over the past few years. We maintained our leadership position in retail credit, achieved robust growth in our fee income from both corporate and retail businesses, strengthened our deposit franchise and significantly scaled up our corporate and international banking operations.

Retail Banking

We were among the first banks to identify the growth potential of retail credit in India. Between 2003 and 2006 the banking system as a whole saw significant expansion of retail credit, with retail loans accounting for a major part of overall systemic credit growth. However, due to the increase in interest rates following inflationary pressures, retail credit growth in the banking system has moderated from about 30% over the last few years to about 10-15% currently. We continue to believe that retail credit has robust long-term growth potential, driven by sound fundamentals, namely, rising income levels and favourable demographic profile. At the same time, the retail credit business requires a high level of credit and analytical skills and strong operations processes backed by technology. Our retail strategy is centred around a wide distribution network, comprising our branches and offices, direct marketing agents and dealer and real estate developer relationships; a comprehensive and competitive product suite; technology-enabled back-office processes; and a robust credit and analytical framework.

We are the largest provider of retail credit in India. Our total retail portfolio was Rs. 1,316.63 billion at March 31, 2008, constituting 58% of our total loans at that date.

During fiscal 2008, we continued our focus on strengthening our retail deposit franchise to create a stable funding base. Our current and savings account (CASA) deposits as a percentage of total deposits increased from 22% at March 31, 2007 to 26% at March 31, 2008, with savings account deposits increasing by 36% during fiscal 2008. During the year, we have expanded our branch network substantially. At March 31, 2008, we had 1,262 branches & extension counters compared to 755 branches & extension counters at March 31, 2007, including the addition of about 200 branches through the merger of Sangli Bank. Our branch network has further increased to 1,367 as of May 31, 2008. We continued to expand our electronic channels, namely internet banking, mobile banking, call centres, point of sale terminals and ATMs, and migrate customer transaction volumes to these channels.

We increased our ATM network to 3,881 ATMs at March 31, 2008 from 3,271 ATMs at March 31, 2007. Our call centres have a total seating capacity of approximately 6,375 sales and service workstations. Transaction volumes on internet and mobile banking have grown significantly, constituting an increasing percentage of total customer transactions. During the year, we launched a mobile banking service enabling a wide range of banking transactions using the mobile phone.

Cross-selling new products and also the products of our life and general insurance subsidiaries to our existing customers is a key focus area for the Bank. Cross-sell allows us to deepen our relationship with our existing customers and helps us reduce origination costs as well as earn fee income. Our branches and other channels are increasingly becoming important points of sale for our insurance subsidiaries. In fiscal 2008, about 19% of ICICI Prudential Life Insurance Company's new business was generated through ICICI Bank. We will continue to focus on cross-sell as a means to improve profitability and offer a complete suite of products to our customers. We continue to leverage our multi-channel network for distribution of other third party products like mutual funds, Government of India relief bonds and initial public offerings of equity.

Customer service is a key focus area for the Bank and we have adopted a multi-pronged approach to continuously monitor and enhance customer service levels. The Customer Service Council comprising wholetime directors and senior management meets regularly to review our customer service initiatives. We have implemented a structured customer feedback process where feedback is received from customers through e-mail, mobile messaging and telephone. We conduct regular training programmes for employees to improve customer handling and interaction and have incorporated customer service metrics in performance evaluation. Our service quality team is also responsible for tracking resolution and turn-around times for service requests, identifying root causes to be addressed through process improvements, rewarding achievements in customer service and institutionalising learnings from customer feedback. The Customer Service Committee of the Board of Directors periodically reviews the initiatives taken by the Bank in this area.

Small Enterprises

During fiscal 2008, our small enterprises customer base increased by 26% to about 1.1 million accounts. We have introduced our service offerings in over 400 new branches, increasing our coverage to over 1,000 branches. During the year, we have focused on product specialisation including investment banking for SMEs. We have continued to focus on shaping the small and medium enterprises sphere in India through initiatives such as the 'Emerging India Awards', the SME CEO Knowledge Series - a platform to mentor and assist SME entrepreneurs, and the 'SME Dialogue' - a weekly feature in a leading financial newspaper sharing SME best practices and success stories. During the year, we have launched several new products and services like the SME toolkit - an online business and advisory resource for SMEs.

Corporate Banking

Our corporate banking strategy is based on providing comprehensive and customised financial solutions to our corporate customers. We offer a complete range of corporate banking products including rupee and foreign currency debt, working capital credit, structured financing, syndication and transaction banking products and services.

Our corporate and investment banking franchise is built around a core relationship team that has strong relationships with almost all of the country's corporate houses. The relationship team is product agnostic and is responsible for managing banking relationships with clients. We have also put in place product specific teams with a view to focus on specific areas of expertise in designing financial solutions for clients. Through our relationship teams working in tandem with product solution teams, we have deepened our client relationships across our product portfolio resulting in significant growth in income and wallet share among all our top corporate clients, as compared to the previous year.

We have created an integrated Global Investment Banking Group, which is responsible for working with the relationship team in India and our international subsidiaries and branches, for origination, structuring and execution of investment banking mandates on a global basis. We have also restructured our delivery team for transaction banking products by creating dedicated sales teams for trade services and transaction banking products. This has been done with the intent to increase our market share from transaction banking products, which will translate into recurring fee income for the Bank. We have also focused on increasing market share in trade finance by leveraging and further strengthening correspondent banking relationships.

Fiscal 2008 saw continued demand for credit from the corporate sector, with growth and additional investment demand across all sectors. We were able to leverage our international presence and deep corporate relationships to work on overseas acquisitions made by Indian companies and infrastructure projects in India. During fiscal 2008 we were involved in 75% of outbound mergers and acquisitions deals from India. We are now a preferred partner for Indian companies for syndication of external commercial borrowings and other fund raising in international markets and have been ranked number one in offshore loan syndications of Indian corporates in calendar year 2007.

The resurgence of the Indian economy, the need for infrastructure development and the international expansion of Indian companies provide exciting opportunities for our corporate banking business. We believe that we are well-placed to capitalise on these opportunities by combining our domestic and international balance sheets, and our credit and structured financing expertise.

Project Finance

The Indian economy is witnessing significant investments with the investment pipeline projected at US$ 700.0 billion over the next few years. Our project finance proposition is based on our constant endeavour to contribute to the project framework and enhance the bank-ability of projects through our innovative structuring skills, sectoral knowledge and robust due diligence techniques. In fiscal 2008, we consolidated our lead arranger position across a variety of signature project finance transactions in diverse sectors and also forayed into select international project finance transactions.

We believe that there is significant potential in the infrastructure and manufacturing sectors. The power sector is expected to witness large investments involving significant capacity additions of more than 70 gigawatts over the next five years predominantly driven by increased private sector participation. The ultra mega power projects, increasing interest in hydroelectric generation, and offering of transmission projects through competitive bidding are expected to provide attractive funding opportunities.

In the transportation sector, road development is being undertaken across both the national highways (through the National Highway Development Programme) and the state highways. The port sector has been witnessing traffic growth of over 14% per annum for the last few years with increased participation of the private sector and international players. There is an increased focus on the railways sector with investments expected in modernisation of railway stations, logistic parks and dedicated freight corridors.

The modernisation, upgradation and expansion of metro and non-metro airports are underway and are expected to provide significant business opportunities in the future. In addition to the Delhi and Mumbai airports, which have already been transferred to private developers, the airports at Kolkata and Chennai are also proposed to be modernised through a suitable model. Greenfield airports are also proposed to be set up at key business and tourist destinations, such as Bangalore and Hyderabad, which have already seen project completion under private management.

The telecom sector is expected to see continued growth given the relatively low teledensity and the fresh impetus provided by the issuance of new licenses, which would result in large investments in rollout of new networks alongside the network expansion of existing service providers. The oil and gas sector is witnessing activity across the entire value chain, from exploration and production through increased private sector participation under the New Exploration Licensing Policy, to setting up of large-scale refineries by both public sector and private sector players.

The manufacturing sector has seen significant capacity additions being undertaken and planned including greenfield projects in steel, aluminium and cement. Strong growth in infrastructure, real estate and demand for consumer goods and automobiles is expected to increase the demand for steel, aluminium and cement. India's advantage in terms of low cost of manufacturing and availability of talent has led to several foreign majors setting up large capacities in auto, auto ancillaries and engineering industries to meet the growing domestic demand and also as a manufacturing hub to serve global markets.

International Banking

In 2001, we identified international banking as a key opportunity, aiming to cater to the cross-border needs of clients and leveraging our domestic banking strengths to offer products internationally. We have made significant progress in the international business since we set up our first overseas branch in Singapore in 2003. ICICI Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka, Dubai International Finance Centre, Qatar Financial Centre and the United States and representative offices in the United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The Bank's wholly owned subsidiary ICICI Bank UK PLC has nine branches in the United Kingdom and a branch each in Belgium and Germany. ICICI Bank Canada has eight branches including three in Toronto. ICICI Bank Eurasia LLC has six branches including three branches in Moscow and one in St. Petersburg.

Our international strategy is focused on building a retail deposit franchise, diverse wholesale funding sources and strong syndication capabilities to support our corporate and investment banking business; achieving the status of a non-resident Indian (NRI) community bank in key markets; and expanding private banking operations for India-centric asset classes. During fiscal 2008, we focused on deepening our presence in existing overseas locations and expanding our operations in key markets. In line with our strategy to establish a presence in large markets with significant savings pools, we entered into Germany through a branch established by ICICI Bank UK PLC. We have been able to successfully leverage our technology advantage to create a growing international deposit base. Total deposits of ICICI Bank UK PLC and ICICI Bank Canada increased by 76.0% from Rs. 191.28 billion at March 31, 2007 to Rs. 335.86 billion at March 31, 2008. We also received approval for and commenced branch operations in the United States.

We have established a strong franchise among NRIs by offering a comprehensive product suite, technologyenabled access, a wide distribution network in India and alliances with local banks in various markets. Currently, we have over 500,000 NRI customers. We have undertaken significant brand-building initiatives in international markets and have emerged as a well-recognised financial services brand for NRIs. We continue to maintain a market share of 25% in inward remittances to India. During fiscal 2008, we launched innovative products like instant money transfer and enhanced our focus on customer relationship management and process automation. Additionally, we also undertook the development of low cost remittance products in non-India geographies with correspondent tie-ups for disbursements in over 100 such geographies.

Through our international private banking services, we offer various products to mass affluent and high networth clients based on their financial needs and risk appetite. The offerings range from simple deposits and loans to more sophisticated structured products, private equity and products giving exposure to the real estate sector in India.

Rural banking and agri-business

We believe the rural economy has high growth potential and offers large credit growth opportunities. Towards this end, our suite of products and services is targeted to address the needs of both the farm and non-farm sectors. Our retail product suite encompasses loans for crop production, purchase of farm equipment, commodity based finance as well as various savings, investment and insurance products. We also offer micro-finance and jewel loans. We have also focused on enhancing credit to farmers by leveraging on corporate partnerships. For example, we have partnered with various dairies to provide financing to farmers for purchase of milch cattle. We also provide credit and banking services to SMEs active in the agricultural value chain. To enhance our service quality and product delivery capabilities we have developed a large network of rural branches which is further augmented by non-branch channels.

Rural banking in India is still at a nascent stage and the deployment of technology channels and modern banking methods for rural lending continues to be an evolving process. In line with our learnings from our rural banking operations, we undertook a comprehensive review of and realigned our channel architecture, credit underwriting processes and account management systems. We have put in place a robust risk management structure to mitigate and manage credit, operational and fraud risks. Through this, we aim to create a strong foundation for scaling up of our rural business.

RISK MANAGEMENT

Risk is an integral part of the banking business and we aim at delivering superior shareholder value by achieving an appropriate trade-off between risk and returns. The key risks are credit risk, market risk and operational risk. Our risk management strategy is based on a clear understanding of various risks, disciplined risk assessment and measurement procedures and continuous monitoring. The policies and procedures established for this purpose are continuously bench marked with international best practices.

We have four dedicated groups, the Global Risk Management Group (GRMG), the Compliance Group, Internal Audit Group and the Financial Crime Prevention and Reputation Risk Management Group (FCPRRMG) which are responsible for assessment, management and mitigation of risk in ICICI Bank. During fiscal 2008, we formed the FCPRRMG to design and implement appropriate internal controls in respect of anti-money laundering, fraud prevention and reputation risk management. In addition, the Credit and Treasury Middle Office Groups and the Global Operations Group monitor operational adherence to regulations, policies and internal approvals. These groups are completely independent of all business operations. GRMG is further organised into the Global Credit Risk Management Group, the Global Market Risk Management Group and the Operational Risk Management Group. The internal audit and compliance function are responsible to the Audit Committee of the Board.

Credit Risk

Credit risk is the risk that a borrower is unable to meet its financial obligations to the lender. We measure, monitor and manage credit risk for each borrower and also at the portfolio level. We have standardised credit approval processes, which include a well-established procedure of comprehensive credit appraisal and rating. We have developed internal credit rating methodologies for rating obligors. The rating factors in quantitative and qualitative issues and credit enhancement features specific to the transaction. The rating serves as a key input in the approval as well as post-approval credit processes. Credit rating, as a concept, has been well internalised within the Bank. The rating for every borrower is reviewed at least annually. Industry knowledge is constantly updated through field visits and interactions with clients, regulatory bodies and industry experts.

In our retail credit operations, all products, policies and authorisations are approved by the Board or a Board Committee or pursuant to authority delegated by the Board. Credit approval authority lies only with our credit officers who are distinct from the sales teams. Our credit officers evaluate credit proposals on the basis of the approved product policy and risk assessment criteria. Credit scoring models are used in the case of certain products like credit cards. External agencies such as field investigation agencies are used to facilitate a comprehensive due diligence process. Before disbursements are made, the credit officer conducts a centralised check on the delinquencies database and review of the borrower's profile. We continuously refine our retail credit parameters based on portfolio analytics. We also draw upon reports from the Credit Information Bureau (India) Limited (CIBIL).

Market Risk

Market risk is the possibility of loss arising from changes in the value of a financial instrument as a result of changes in market variables such as interest rates, exchange rates, credit spreads and other asset prices. Our exposure to market risk is a function of our trading and asset-liability management activities and our role as a financial intermediary in customer-related transactions. The objective of market risk management is to minimise the impact of losses on earnings and equity capital due to market risk.

Market risk policies include the Investment Policy and the Asset-Liability Management (ALM) Policy. The policies are approved by the Board of Directors. The Asset-Liability Management Committee (ALCO) stipulates liquidity and interest rate risk limits, monitors adherence to limits, articulates the organisation's interest rate view and determines the strategy in light of the current and expected environment. These policies and processes are articulated in the ALM Policy. The Investment Policy addresses issues related to investments in various trading products. The Global Market Risk Management Group exercises independent control over the process of market risk management and recommends changes in processes and methodologies for measuring market risk.

Interest rate risk is measured through the use of re-pricing gap analysis and duration analysis. Liquidity risk is measured through gap analysis. We ensure adequate liquidity at all times through systematic funds planning and maintenance of liquid investments as well as by focusing on more stable funding sources such as retail deposits.

We limit our exposure to exchange rate risk by stipulating position limits.

The Treasury Middle Office Group monitors the asset-liability position under the supervision of the ALCO. It also monitors the treasury activities and adherence to regulatory / internal policy guidelines. The Treasury Middle Office Group is also responsible for processing treasury transactions, tracking the daily funds position and complying with all treasury-related management and regulatory reporting requirements.

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risks in the Bank are managed through a comprehensive internal control framework. The control framework is designed based on categorisation of all functions into front-office, comprising business groups; mid-office, comprising credit and treasury mid-offices; back-office, comprising operations; and corporate and support functions.

RBI has mandated all banks to develop an operational risk management framework. In accordance with these guidelines, our board of directors has approved an Operational Risk Management Policy. The policy is applicable across the Bank including overseas offices and aims to ensure clear accountability, responsibility and mitigation of operational risk. We have constituted an Operational Risk Management Committee (ORMC) to oversee the implementation of the Operational Risk Management framework. The framework comprises identification of risks, assessment of controls to mitigate these risks, risks measurement, risks monitoring and mitigation. We have formed an independent Operational Risk Management Group to facilitate its implementation.

TREASURY

The treasury operations comprise the balance sheet management function, the client-related corporate markets business and the proprietary trading activity.

Fiscal 2008 saw the continuation of volatility in interest rates, varying liquidity conditions, global credit tightening and inflationary concerns resulting in significant movement in the yield curve at various points in time. The government bond markets witnessed significant volatility in yields. The balance sheet management function continued to actively manage the government securities portfolio held for compliance with SLR norms to optimise the yield on this portfolio, while maintaining an appropriate portfolio duration given the volatile interest rate environment. The focus of our proprietary trading operations was to maximise profits from positions across key markets including corporate bonds, government securities, interest rate swap, equity and foreign exchange markets. While the adverse market conditions in the last quarter of fiscal 2008 had an adverse impact on equity proprietary trading operations, the Bank capitalised on the opportunities in the fixed income markets realizing gains on its portfolio.

The Bank's overseas branches and subsidiaries also invest in credit derivatives with a majority of exposures in this portfolio being to Indian corporates.

We provide foreign exchange and derivative products and services to our customers through our Global Markets Group. These products and services include foreign exchange products for hedging currency risk, foreign exchange and interest rate derivatives like options and swaps and bullion transactions. We also hedge our own exchange rate and commodity risks related to these products with banking counterparties.

In line with the international expansion of the bank, treasury functions have been set up in United States, Hong Kong, Sri Lanka, Bahrain, Singapore and the Offshore Banking Unit in Mumbai to support the operations of these branches.

HUMAN RESOURCES

We believe that it is imperative for industry in general, and the financial services industry in particular, to invest in preparing industry-ready human talent to sustain its growth trajectory.

During fiscal 2008, we launched the 'Probationary Officer Programme.' It was a first of its kind, nation wide initiative to provide a career opportunity to aspiring and bright graduates who would have otherwise been excluded from participating in the nation's growth. The ICICI Group collaborated with Manipal Universal Learning to create the ICICI Manipal Academy for Banking & Insurance to generate inclusive employment opportunities for capable, young graduates. It offers a fully paid one-year residential training programme to more than 800 graduates who have been selected from across India through a rigorous process. This one-year programme strives to increase efficiency and improve customer experience by enabling first day employee productivity through knowledge, skills and grooming inputs. It aims at integrating students into the ICICI Group ethos and work ethics.

Attempting to bridge the skills gap that exists in India and especially in the banking industry, we launched the Branch Banking Academy, Wealth Management Academy and Sales Academy in fiscal 2008. These academies have been launched with the premise that banking skills can be created and extended to those who have the basic aptitude to learn. These job-linked, skill-enhancement academies are aimed at increasing the speed to job. We have effectively deployed certified branch managers and branch operations managers for all our new branches within six months through the Branch Leadership Program.

Our training initiatives attempt to build relevant and standardised knowledge and skills that can be replicated and made accessible to our distributed employee network easily.

In fiscal 2008, we pioneered game-based learning and simulation in banking. A branch banking simulator and several game-based modules were created to provide virtual environments for skills practice and enhance the quality of service delivery. In fiscal 2008, we explored mobile learning as a channel to provide performance support through instant learning. This channel, which is easily available to our entire front line sales team, strives towards resolving all customer queries and facilitates flawless sales closure.

ICICI Bank was recognised in the global list of Top Companies for Leaders in 2007, according to a survey conducted by Hewitt Associates in partnership with the RBL group and Fortune magazine. Our in-house leadership development programme continues to build leadership talent within the organisation.

INFORMATION TECHNOLOGY

ICICI Bank continues to deploy technology for use in banking. Continued focus on leveraging technology has resulted in process efficiencies and enhanced convenience for customers. The emphasis on an enterprise view of technology has led to an architecture that is highly aligned to the changing business environment.

During fiscal 2008, we have augmented our traditional channels with offerings on the mobile and self-service transaction capability. With a view to enhance customer convenience and provide services on a continuous and location independent basis, we have enabled financial transactions through mobile phones. This allows customers to perform banking transactions in a secure manner through an application that can be downloaded on the phone.

In order to strengthen decision making in our asset businesses, we have implemented the business rules engine concept during the last fiscal. The engine offers rule flows, decision tables, decision trees and score models for asset product applicants and hence eliminates subjectivity in decision-making, thereby limiting exposure risks. The implementation of a comprehensive collections system has been another development in the retail asset business.

Operations in new branches in Germany and US have been enabled with standardised systems for banking accounts, internet banking and regulatory reporting. To support the expansion of private banking and wealth management businesses in overseas geographies, we have deployed a comprehensive private banking system. This provides enhanced portfolio management tools and effective risk management capabilities for our overseas operations.

We have strengthened our security framework to include the mobile channel. Effective steps have been taken to control online security threats such as phishing, frauds and identity thefts. By adopting the transaction security system at ATMs, all ATM transactions are now end-to-end secure as per recommended industry standards.

KEY SUBSIDIARIES

ICICI Prudential Life Insurance Company

ICICI Prudential Life Insurance Company (ICICI Life) continued to maintain its market leadership among private sector life insurance companies with a retail market share of about 12.7% in the overall industry in fiscal 2008 (on weighted received premium basis) as against 9.1% in fiscal 2007. ICICI Life's new business premium (on weighted received premium basis) grew by 68.3% from Rs. 39.71 billion in fiscal 2007 to Rs. 66.84 billion in fiscal 2008. Life insurance companies worldwide make losses in the initial years, in view of business set-up and customer acquisition costs in the initial years as well as reserving for actuarial liability. While the growing operations of ICICI Life had a negative impact of Rs. 10.31 billion on the Bank's consolidated profit after tax in fiscal 2008 on account of the above reasons, the company's unaudited New Business Profit (NBP) for fiscal 2008 was Rs. 12.54 billion as compared to Rs. 8.81 billion in fiscal 2007. NBP is a metric for the economic value of the new business written during a defined period. It is measured as the present value of all the future profits for the shareholders, on account of the new business based on standard assumptions of mortality, expenses and other parameters. Actual experience could differ based on variance from these assumptions especially in respect of expense overruns in the initial years.

ICICI Lombard General Insurance Company

ICICI Lombard General Insurance Company (ICICI General) enhanced its leadership position with a market share of 29.8% among private sector general insurance companies and an overall market share of about 11.9% during fiscal 2008. ICICI General's gross written premium (excluding share of motor third party insurance pool) grew by 11.4% from Rs. 30.03 billion in fiscal 2007 to Rs. 33.45 billion in fiscal 2008. The industry witnessed a slowdown in growth on account of de-tariffication of the general insurance industry whereby insurance premiums were freed from price controls, resulting in a significant reduction in premium rates. The industry also witnessed the formation of the motor third party insurance pool for third party insurance of commercial vehicles. Accordingly, all insurance companies are required to cede 100% of premiums collected and claims incurred for this segment to the pool. At the end of the year, the results of the pool are shared by all insurance companies in proportion to their overall market share in the industry. The motor third party pool had a negative impact of Rs. 0.53 billion on the profit of ICICI General. ICICI General is also required to expense upfront, on origination of a policy, all sourcing expenses related to the policy. ICICI General achieved a profit after tax of Rs. 1.03 billion in fiscal 2008, a growth of 50.5% over fiscal 2007.

ICICI Prudential Asset Management Company

ICICI Prudential Asset Management Company (ICICI AMC) was the second largest asset management company in India with average assets under management of Rs. 543.55 billion for March 2008. ICICI AMC achieved a profit after tax of Rs. 0.82 billion in fiscal 2008, a growth of 69.7% over fiscal 2007.

ICICI Venture Funds Management Company Limited

ICICI Venture Funds Management Company Limited (ICICI Venture) strengthened its leadership position in private equity in India, with funds under management of about Rs. 95.50 billion at year-end fiscal 2008. ICICI Venture achieved a profit after tax of Rs. 0.90 billion in fiscal 2008 compared to Rs. 0.70 billion in fiscal 2007.

ICICI Securities Limited and ICICI Securities Primary Dealership Limited

The securities and primary dealership business of the ICICI group have been reorganised. ICICI Securities Limited has been renamed as ICICI Securities Primary Dealership Limited. ICICI Brokerage Services Limited has been renamed as ICICI Securities Limited and has become a direct subsidiary of ICICI Bank. ICICI Securities achieved a profit after tax of Rs. 1.50 billion and ICICI Securities Primary Dealership achieved a profit after tax of Rs. 1.40 billion, in fiscal 2008.

ICICI Bank UK PLC

ICICI Bank UK PLC (ICICI Bank UK) is a full-service bank offering retail and corporate and investment banking services in the UK and Europe. ICICI Bank UK's total assets increased by 81.4% from US$ 4,868 million at March 31, 2007 to US$ 8,829 million at March 31, 2008 while total deposits grew by 84.2% from US$ 2,812 million at March 31, 2007 to US$ 5,180 million at March 31, 2008. ICICI Bank UK's profit after tax was US$ 38.4 million during fiscal 2008 after taking into account investment valuation charges.

ICICI Bank Canada

ICICI Bank Canada is a full-service direct bank established in Canada as a wholly-owned subsidiary of ICICI Bank, and offers a wide range of financial solutions to cater to personal, commercial, corporate, investment, treasury and trade requirements. ICICI Bank Canada's total assets increased by 92.3% from US$ 2,002 million at March 31, 2007 to US$ 3,849 million at March 31, 2008. Total deposits increased by 77.7% from US$ 1,796 million at March 31, 2007 to US$ 3,191 million at March 31, 2008. ICICI Bank Canada recorded a net loss of US$ 14.3 million during fiscal 2008, after taking into account investment valuation charges.

CREDIT RATINGS

ICICI Bank's credit ratings by various credit rating agencies at March 31, 2008 are given below:

Agency Rating

Moody's Investor Service (Moody's) Baa2(1)

Standard & Poor's (S&P) BBB-(1)

Credit Analysis & Research Limited (CARE) CARE AAA

Investment Information and Credit Rating Agency (ICRA) AAA

CRISIL Limited AAA

Japan Credit Rating Agency (JCRA) BBB+

(1) Senior foreign currency debt ratings.

PUBLIC RECOGNITION

The Bank received several awards during fiscal 2008, including the following:

* 'Best Bank in Asia' by Euromoney

* 'Best Bank in India' by Euromoney

* 'Fabulous 50 companies in Asia' by Forbes Asia

* 'Best Domestic Bank in India' by Asset Triple A

* 'Best Bank of the Year (India)' by The Banker

* 'Best Private Sector Bank' by Outlook Money NDTV Profit Awards 2007

* 'Asia's Best Financial Borrower 2007' by Euromoney

* 'Excellence in Remittance Business' by Asian Banker

* 'Most Preferred Brand' for home loans, auto loans, credit cards and financial advisory services by CNBC Awaaz

* 'Innovative Technology Award' by CIO

* 'Best Regional Private Bank' by The Banker

* 'Excellence in Financial Reporting' by Institute of Chartered Accountants of India (ICAI)

Promoting Inclusive Growth

India's economic outlook is buoyant but there are millions of Indians who are currently not integrated into the economic mainstream. Engaging them in the growth process is crucial for India's sustainable growth and social development. This would address existing inequalities and drive GDP growth to an even higher level.

The ICICI Group's financial inclusion initiatives

Access to financial services is one of the key enablers for participation in the nation's economy. The ICICI Group is seeking to combine a sustainable business model with a social and human development agenda through a range of initiatives aimed at providing access to financial services to those who are currently not within the ambit of formal financial services. The aim is to build a business model that can provide financial services effectively across rural India and deliver value to this market at a low cost. The ICICI Group is working with key stakeholders including agri-based industries, government authorities and micro finance institutions in this direction. Technology, including biometric authentication tools, forms a core element of the strategy to accelerate the penetration of financial services.

The ICICI Group's key initiatives towards financial inclusion include:

Microfinance: ICICI Bank's microfinance programme facilitates extension of credit to low income households. With a portfolio of Rs. 9.6 billion and having touched the lives of about 3.5 million people, this microfinance programme is one of the largest among private sector banks in India. ICICI Bank was able to scale up this programme through the innovative 'Partnership model'. ICICI Bank's participation has catalysed the growth of smaller micro-finance institutions (MFIs) in India.

The Bank has focused on development and capacity-building in the MFI sector. In 2007, there were only five MFIs in India with 500,000 or more customers. The ICICI Group has worked to significantly expand the sector by developing new MFIs. The Bank's Emerging MFI team, its Social Initiatives Group and the Centre for Microfinance at the Institute of Financial Management & Research (IFMR) worked in collaboration in this area. The Bank's Social Initiatives Group acted as a catalyst for the development of appropriate channels and products that make basic financial services accessible to the poorest clients. This has resulted in partnership with venture capital funds engaged in identifying opportunities, providing equity finance, mentoring new entrepreneurs and facilitating product development. The Centre for Microfinance at IFMR worked with large MFIs, whose volumes required stronger planning and processes at different levels to expand or consolidate their operations, refine their risk assessment and manage an increasing inflow and outflow of funds. The Emerging MFI team in the Bank identified and developed organisations or individuals at varying stages of readiness to take up micro-finance as a viable business. It also worked to resolve the geographical asymmetry of micro finance in India.

ICICI Bank's other innovations in the field of micro-finance include the first securitisation deals in the micro finance industry in India in 2004. The Bank's current major initiatives include introduction of biometric smart cards towards ensuring Know Your Customer (KYC) compliance and roll out of the banking correspondent model.

Other micro-financial services: To provide easy savings for low-income customers, ICICI Bank has launched a micro-savings facility. A state-of-the-art solution based on a biometric-enabled smart card and a battery-operated authentication device developed by Financial Innovation & Network Operations (FINO), a partner organisation, this micro-savings product provides access to a savings account with convenient features. Apart from this savings account, the Bank also offers recurring and fixed deposits to enable customers to avail higher return on their savings.

The perpetual uncertainties in the income cycle of the poor increases their vulnerability to economic shocks. ICICI Prudential Life Insurance (ICICI Life) provides micro insurance services which have promoted financial security among the rural poor and improved their ability to avail credit facilities for undertaking income generating activities. Similarly, ICICI Lombard General Insurance (ICICI General) provides a range of non-life insurance products, including health, weather and cattle insurance to help mitigate the impact of other contingencies such as illness and crop failure. ICICI Prudential Asset Management Company (ICICI AMC) has launched India's first Micro Systematic Investment Plan (MSIP), a mutual fund targeted for the poor, with a minimum investment amount as low as US$1.

Government welfare schemes: Implementation of several of the governments' social and welfare initiatives can be outsourced for better results. ICICI General has structured need-based, cost effective insurance solutions for a number of state governments and ministries of the Government of India covering around 36 million lives for personal accident insurance and health insurance. The benefit for the government has been the transfer of risk to ICICI General, greater accountability and transparency and streamlined reporting.

Innovative farmer finance: ICICI Bank has sought to introduce several new products to meet the farmer's need for credit. Soon after harvest, prices for all commodities are at their lowest. The smaller and marginal farmers are most likely to succumb to a low price since their need for realisation of funds is the most acute. Availability of finance at the right time strengthens farmers' inventory holding capacity. ICICI Bank launched warehouse receipt based financing to address this need. This allows the farmer to take a loan against the produce (stored in a warehouse) and avoid distress sale. The Bank has also focused on enhancing credit to farmers by leveraging on corporate partnerships. For example, it has partnered with various dairies to provide financing to farmers for purchase of milch cattle.

Scaling up inclusive growth initiatives

Committed to improving social, economic and human development outcomes at the national level, the ICICI Group has established The ICICI Foundation for Inclusive Growth (www.icicifoundation.org). ICICI Bank and its subsidiaries will contribute 0.75%-1.0% of their annual profits to the Foundation and work with it closely to help it achieve its mission.

The Foundation's mission is to improve the incomes of the low-income households in India. It believes that improving market access for low income households is the only sustainable way to bring about increase in their incomes and therefore it principally focuses its attention on redressing market failures which constrain them. However, low income households are often not able to access even well functioning markets because they lack the necessary physical capacity and education due to lack of access to healthcare and schooling. It is also possible that even well-developed markets may not provide a level playing field for low income households. Also in the long-run markets may pursue strategies that are not environmentally sustainable. Driven by these concerns, the Foundation's is actively mentoring institutions that work on these defined focus areas:

Markets: The Foundation focuses on facilitating universal access to finance to make markets more responsive to the needs of the poor and to link with low-income households both as producers and consumers. This is done through developing appropriate channels, business models and back-ends for financial services access. It also supports research and model building for expanding financial services access. The Foundation works closely with and mentors the IFMR Foundation (www.ifmrfoundation.org.in) and its partners to fulfil its own mission of increasing the incomes of low income households in a sustainable manner. It is the Foundation's belief that addressing financial market failures substantively will have an impact on the access of low income households to a variety of other markets including healthcare, schooling and drinking water.

Human Capacity: A focus on fundamental human capacities such as health and education is crucial for people to reach their full potential and lead productive lives. Child survival and early childhood development are amongst the most urgent development challenges facing India today.

The Foundation works closely with the ICICI Centre for Child Health & Nutrition (ICCHN) (www.icchn.org.in), an interdisciplinary funding and research centre focused on the health and nutrition of vulnerable women, infants and young children in India. Working in partnership with governments, Civil Society Organisations (CSOs)/ Non-Governmental Organisation (NGOs), research institutions and the private sector, ICCHN concentrates on developing, evaluating and mainstreaming a range of community based and health system strategies to achieve scaled and sustainable improvements in health and nutrition. A population of 2.7 million has been impacted through ICCHN's partners and interventions. Further, through its partnerships, ICCHN has supported state-wide public-health capacity building efforts in Chhattisgarh, Bihar, Jharkhand and Orissa for quality improvements under the National Rural Health Mission (NRHM), as well as a city-wide effort in Mumbai. ICCHN's support has enabled five of its partners to grow into important resource institutions for the health sector.

In the field of education the ICICI Foundation supports the ICICI Centre for Elementary Education (ICEE) (www.icee. org.in), which strives to play a catalytic role in improving the provision and quality of elementary education. It enters into partnerships with voluntary organisations working in education that have experience in teachers education, curriculum development, material development, educational research and running schools for marginalised communities and implementing large programmes. Working with these CSOs/NGOs, ICEE seeks to energise the existing government network of educational institutions at the district, state and national levels. Bodies like the State Councils of Educational Research and Training (SCERTs) and the District Institutes of Education and Training (DIETs) in several parts of the country form a part of this engagement. In its endeavour to improve the quality of elementary education, ICEE has reached out to nearly 6 million children through curricular reform. About 45,000 teachers have been trained. It has partnerships with state governments of Bihar, Rajasthan, Chhattisgarh, Madhya Pradesh and Gujarat.

Sustainability: Promoting environmental sustainability and the growth of a strong civil society are crucial requisites for inclusive growth.

Towards this end, the Foundation has partnered with the Environmentally Sustainable Project Finance (ESPF) (http://ifmr.ac.in/cdf/project_finance.htm) research team at the Centre for Development Finance at IFMR, in order to foster markets for delivering high quality, environmentally sustainable infrastructure, goods and services. Its work is focussed on the areas of sustainable development, climate change, responsible investment and accountability.

Towards building an effective civil society, the Foundation is actively mentoring CSO Partners (www. csopartners.org.in), a resource centre to strengthen CSOs which includes NGOs engaged in the task of social change and economic development and local self government organisations such as Gram Panchayats. CSO Partners seeks to facilitate strategic partnerships between CSOs and experienced service providers with whom it is in the process of building partnerships, in various areas, including fund-raising, financial management, volunteering, organisational governance, communications, accounting, human resources, legal aid and accounting. Its current partners include: GiveIndia (www.giveindia.org), Mitra (www.mitra.org.in), Infochange (www.infochangeindia.org), Governance Matters (www.governancematters.in) and MAM movies (www.mammovies.com).

The ICICI Group believes that inclusive growth is essential to the sustainable and healthy growth of the economy.

The ICICI Group is committed to create conditions for the empowerment of low-income Indians and to facilitate inclusive growth.

Organisational Excellence:

The Organisational Excellence Group (OEG) was set up in 2002 with the mandate to build and institutionalise quality across the ICICI Group. OEG has over the years worked towards integrating the local efforts of business units on a common platform and building a quality strategy and roadmap to meet the growing needs of the Group.

The following have been the major focus areas of OEG:

* Institutionalise quality across the ICICI Group;

* Work with business units to catalyse improvements;

* Create a culture of quality and continual improvement;

* Build knowledge capability in the domain of quality in business groups;

* Develop and implement quality practices for the Bank;

* Cross-pollinate best practices among group companies; and

* Remain at the cutting edge in our global search for quality practices.

ICICI Bank was among the first services sector organisation to undertake enterprise-wide deployment of Five S, an industrial quality methodology in a services organisation. Today ICICI Bank has more than 1,300 locations which regularly practice Five S. This simple, yet extremely powerful technique, has helped in building workplace efficiency and engage teams in local level improvements.

The Bank has developed its own Process Management Framework (PMF) which is built around the foundations of leadership, process thinking, training, continual improvement and results. The processes of the Bank have well-defined metrics and performance is tracked through dashboards on an ongoing basis. The leadership of each business unit continuously reviews existing processes, drives improvements and works towards instilling process thinking among employees.

The organisation believes that Five S and process management would form the basis of the larger excellence journey of the Bank and significant efforts continue in instilling and sustaining the practices of Five S and PMF.

The Bank has an improvement engine branded War on Waste (WoW) under which quality techniques such as Lean and Six Sigma are used for business improvement. These projects are targeted towards resolving chronic business difficulties and helping to meet the strategic objectives of the business units. In FY 2008, 60 WoW projects were taken up which delivered significant financial benefits.

ICICI Bank is the first financial services company in the Indian sub-continent to have leveraged 'Lean' for operational excellence. We began the developmental work of applying Toyota principles to a services context as early as 2003 when it was still at its infancy globally. Today we have attained expertise in applying lean principles for operational excellence. These are accomplished through value stream mapping which identifies inefficiencies in processes and is followed by project execution vehicles called 'Lean Breakthroughs' which focus on delivering improvements within a period of a week. So far more than 150 lean breakthroughs have been executed in the Bank and we believe that this will be one of the major improvement vehicles going forward for the ICICI Group.

Over the years, OEG has evaluated and drawn upon quality techniques practiced by world class companies in the automobiles, hospitality, financial services, heavy engineering and aviation sectors. The focus has been to adapt these practices at the ICICI Group.

The Bank recently won the award for the best six sigma project at the improvement colloquium organised by the Indian Statistical Institute. The Bank also won two awards at the Five S Excellence competition organised by the Confederation of Indian Industry.

Management's Discussion & Analysis

FINANCIALS AS PER INDIAN GAAP

Summary

Profit before provisions and tax increased by 35.5% to Rs. 79.61 billion in fiscal 2008 from Rs. 58.74 billion in fiscal 2007 primarily due to an increase in net interest income by 29.6% to Rs. 73.04 billion in fiscal 2008 from Rs. 56.37 billion in fiscal 2007 and an increase in non-interest income by 27.2% to Rs. 88.11 billion in fiscal 2008 from Rs. 69.28 billion in fiscal 2007, offset, in part, by an increase in non-interest expenses by 21.9% to Rs. 81.54 billion in fiscal 2008 from Rs. 66.91 billion in fiscal 2007. Provisions and contingencies (excluding provision for tax) increased by 30.5% during fiscal 2008 primarily due to a higher level of specific provisioning on non-performing loans, offset, in part by a reduction in general provision on loans. Profit before tax increased by 38.6% to Rs. 50.56 billion in fiscal 2008 from Rs. 36.48 billion in fiscal 2007. Profit after tax increased by 33.7% to Rs. 41.58 billion in fiscal 2008 from Rs. 31.10 billion in fiscal 2007.

Net interest income increased by 29.6% to Rs. 73.04 billion in fiscal 2008 from Rs. 56.37 billion in fiscal 2007, reflecting an increase of 27.6% or Rs. 711.07 billion in the average volume of interest-earning assets and an increase in net interest margin to 2.22% in fiscal 2008 compared to 2.19% in fiscal 2007.

Non-interest income increased by 27.2% to Rs. 88.11 billion in fiscal 2008 from Rs. 69.28 billion in fiscal 2007 primarily due to a 32.2% increase in fee income and a 14.0% increase in treasury and other non-interest income.

Non-interest expenses increased by 21.9% to Rs. 81.54 billion in fiscal 2008 from Rs. 66.91 billion in fiscal 2007 primarily due to a 28.6% increase in employee expenses and a 31.6% increase in other administrative expenses.

Provisions and contingencies (excluding provision for tax) increased to Rs. 29.05 billion in fiscal 2008 from Rs. 22.26 billion in fiscal 2007 primarily due to higher level of specific provisioning on retail loans due to change in the portfolio mix towards non-collateralised loans and seasoning of the loan portfolio, offset in part by a reduction in general provision on loans due to lower growth in the loan portfolio relative to fiscal 2007.

Total assets increased by 16.0% to Rs. 3,997.95 billion at year-end fiscal 2008 from Rs. 3,446.58 billion at year-end fiscal 2007 primarily due to an increase in advances by 15.2% and an increase in investments by 22.1%.

During the year, we made a follow-on public offering of equity shares in India and an issuance of American Depository Shares (ADSs) aggregating to Rs. 199.67 billion.

The Sangli Bank Limited (Sangli Bank) was amalgamated with ICICI Bank with effect from April 19, 2007 in terms of the scheme of amalgamation approved by Reserve Bank of India (RBI) vide its order DBOD No. PSBD 10268/16.01.128/2006-07 dated April 18, 2007 under section 44A (4) of the Banking Regulation Act, 1949. Sangli Bank was a banking company incorporated under the Companies Act, 1956 and licensed by RBI under the Banking Regulation Act, 1949. The consideration for the amalgamation was 100 equity shares of ICICI Bank of face value Rs. 10 each fully paid-up for every 925 equity shares of face value of Rs. 10 each of Sangli Bank. Accordingly, on May 28, 2007, ICICI Bank allotted 3,455,008 equity shares of Rs. 10 each, credited as fully paid up, to the shareholders of Sangli Bank. The excess of the paid-up value of the shares issued over the fair value of the net assets acquired (including reserves) of Rs. 3.26 billion and amalgamation expenses of Rs. 0.22 billion have been deducted from the securities premium account.

Operating results data

The following table sets forth, for the periods indicated, the operating results data.

Rs. in billion, except percentages

Fiscal 2007 Fiscal 2008 % change

Interest income 229.94 316.86 37.8

Less: amortisation of premium on Government securities(1) 9.99 8.98 (10.1)

Interest income net of premium amortisation 219.95 307.88 40.0

Interest expense 163.58 234.84 43.6

Net interest income 56.37 73.04 29.6

Non-interest income 69.28 88.11 27.2

- Fee income(2) 50.12 66.27 32.2

- Treasury income(1) 10.14 8.15 (19.6)

- Lease income 2.38 2.17 (8.8)

- Others 6.64 11.52 73.5

Operating income 125.65 161.15 28.3

Operating expenses 49.79 64.29 29.1

Direct marketing agency (DMA) expense(3) 15.24 15.43 1.2

Lease depreciation, net of lease equalisation 1.88 1.82 (3.2)

Operating profit 58.74 79.61 35.5

Provisions, net of write-backs 22.26 29.05 30.5

Profit before tax 36.48 50.56 38.6

Tax, net of deferred tax 5.38 8.98 66.9

Profit after tax 31.10 41.58 33.7

(1) Premium amortisation on Government securities was earlier deducted from treasury income. According to the revised RBI guidelines, the same has been reclassified and deducted from interest income for both periods.

(2) Includes merchant foreign exchange income and margin on customer derivative transactions.

(3) Represents commissions paid to direct marketing agents (DMAs) for origination of retail loans. These commissions are expensed upfront.

(4) All amounts have been rounded off to the nearest Rs. 10.0 million.

(5) Prior period figures have been regrouped/re-arranged where necessary.

Key ratios

The following table sets forth, for the periods indicated, the key ratios.

Fiscal 2007 Fiscal 2008

Return on average equity (%)(1) 13.4 11.14

Return on average assets (%)(2) 1.1 1.1

Earnings per share (Rs.) 34.8 39.44

Book value (Rs.) 269.8 417.54

Fee to income (%) 40.5 41.6

Cost to income (%)(3) 40.2 40.4

(1) Return on average equity is the ratio of the net profit after tax to the quarterly average equity and reserves.

(2) Return on average assets is the ratio of net profit after tax to the quarterly average assets.

(3) Cost represents operating expense excluding DMA expense and lease depreciation. Income represents net interest income and non-interest income and is net of lease depreciation.

(4) After considering equity issue in July 2007.

Net interest income and spread analysis

The following table sets forth, for the periods indicated, the net interest income and spread analysis.

Rs. in billion, except percentages

Fiscal 2007 Fiscal 2008 % changeAverage interest-earning assets 2,577.27 3,288.34 27.6

Average interest-bearing liabilities 2,484.99 3,119.28 25.5

Net interest margin 2.2% 2.2% -

Average yield 8.5% 9.4% -

Average cost of funds 6.6% 7.5% -

Interest spread 1.9% 1.8% -

(1) All amounts have been rounded off to the nearest Rs. 10.0 million.

Net interest income

Net interest income increased by 29.6% to Rs. 73.04 billion in fiscal 2008 from Rs. 56.37 billion in fiscal 2007, reflecting mainly the following:

* An increase of Rs. 711.07 billion or 27.6% in the average volume of interest-earning assets; and

* An increase in net interest margin to 2.22% in fiscal 2008 compared to 2.19% in fiscal 2007.

Total interest income increased by 37.8% to Rs. 316.86 billion in fiscal 2008 from Rs. 229.94 billion in fiscal 2007 and interest income, net of amortisation on Government securities, increased by 40.0% to Rs. 307.88 billion in fiscal 2008 from Rs. 219.95 billion in fiscal 2007 primarily due to an increase of 27.6% in the average interestearning assets and an increase of 83 basis points in yield on average interest-earning assets.

The average volume of interest-earning assets increased by Rs. 711.07 billion in fiscal 2008 as compared to fiscal 2007 primarily due to the increase in average advances by Rs. 417.05 billion and increase in average investments by Rs. 242.63 billion. The increase in average advances was primarily due to increase in advances of overseas branches and the increase in average investments was primarily due to increased investment in Government securities. Net advances of overseas branches increased by 95.6% to Rs. 477.46 billion at year-end fiscal 2008 from Rs. 244.10 billion at year-end fiscal 2007.

Yield on average interest-earning assets increased to 9.4% in fiscal 2008 compared to 8.5% in fiscal 2007 primarily due to the increase in the yield on advances by 116 basis points to 11.1% in fiscal 2008 from 9.9% in fiscal 2007. The yield on advances has increased due to an increase in lending rates in line with the general increase in interest rates and increase in the volumes of certain high yielding loans. This was partly offset by increase in the cash reserve ratio (CRR) by RBI by 150 basis points during the year resulting in an adverse impact on yields. The yield on average interest-earning investments also increased to 7.7% in fiscal 2008 from 6.8% in fiscal 2007.

Interest expense increased by 43.6% to Rs. 234.84 billion in fiscal 2008 from Rs. 163.58 billion in fiscal 2007 primarily due to an increase of 25.5% in the volume of average interest-bearing liabilities to Rs. 3,119.28 billion in fiscal 2008 from Rs. 2,484.99 billion in fiscal 2007 and increase in the cost of funds by 95 basis points to 7.5% in fiscal 2008 from 6.6% in fiscal 2007. Total deposits at year-end fiscal 2008 constituted 73.9% of our funding (i.e. deposits, borrowings and subordinated debts) compared to 76.5% at year-end fiscal 2007. Total deposits increased by 6.0% to Rs. 2,444.31 billion at year-end fiscal 2008 from Rs. 2,305.10 billion at year-end fiscal 2007. The proportion of current and savings account deposits in total deposits increased to 26.1% at year-end fiscal 2008 from 21.8% at year-end fiscal 2007. This is commensurate with our focus on increasing funding through low-cost deposits and retail deposits. The cost of deposits increased by 133 basis points to 7.5% in fiscal 2008 from 6.2% in fiscal 2007 consequent to general increase in interest rates in the system, and in particular the tight systemic liquidity scenario during the quarter ended March 31, 2007, the impact of which was fully reflected during fiscal 2008. The average cost of borrowings declined to 7.5% in fiscal 2008 from 7.7% in fiscal 2007 primarily due to increase in the proportion of foreign currency borrowings of overseas branches in the total borrowings.

Net interest margin is expected to continue to be lower than other banks in India until we increase the proportion of low-cost deposits and retail deposits in our total funding. The net interest margin is also impacted by the relatively lower net interest margin earned by our overseas branches, which is offset by the higher fee income that we are able to earn by leveraging our international presence and our ability to meet the foreign currency borrowing requirements of Indian companies.

Non-Interest Income

Fee income

Fee income increased by 32.2% to Rs. 66.27 billion in fiscal 2008 from Rs. 50.12 billion in fiscal 2007 primarily due to growth in fee income from structuring and advisory fees, fees from international operations, third party distribution fees and fee income from small enterprises. Fees include merchant foreign exchange income, margin on customer derivative transactions and loan processing fees.

Treasury income

Treasury income decreased by 19.6% to Rs. 8.15 billion in fiscal 2008 from Rs. 10.14 billion in fiscal 2007 primarily due to mark-to-market losses/realised losses of Rs. 6.85 billion on the credit derivatives portfolio, offset, in part by higher gains from sale of equity and fixed income investments and proprietary trading. As at March 31, 2008, the Bank had a portfolio of Rs. 62.80 billion, including funded investments of Rs. 12.23 billion, in various credit derivative instruments including credit default swaps (CDSs), credit linked notes (CLNs) and collateralised debt obligations (CDOs). The majority of the underlying exposure is to Indian corporates. During fiscal 2008, global credit markets experienced significant volatility, widening of spreads, substantial risk aversion and tight liquidity. This resulted in a mark-to-market/realised loss of Rs. 6.85 billion on the credit derivative portfolio during the year.

Lease & other income

Lease income decreased by 8.8% to Rs. 2.17 billion in fiscal 2008 from Rs. 2.38 billion in fiscal 2007 primarily due to decrease in leased assets to Rs. 7.97 billion at year-end fiscal 2008 compared to Rs. 10.03 billion at year-end fiscal 2007, since the Bank is not entering into new lease transactions. Other income increased by 73.5% to Rs. 11.52 billion in fiscal 2008 compared to Rs. 6.64 billion in fiscal 2007 primarily due to increase in income by way of dividend from subsidiary companies and distribution from venture capital funds.

Non-interest expense

The following table sets forth, for the periods indicated, the principal components of non-interest expense.

Rs. in billion, except percentages

Fiscal 2007 Fiscal 2008 % change

Employee expenses 16.17 20.79 28.6

Depreciation on own property (including non banking assets) 3.57 3.96 10.9

Auditors' fees and expenses 0.02 0.02 -

Other administrative expenses 30.03 39.52 31.6

Total non-interest expense (excluding lease depreciation and direct marketing agency expenses) 49.79 64.29 29.1

Depreciation (net of lease equalisation) on leased assets 1.88 1.82 (3.2)

Direct marketing agency expenses 15.24 15.43 1.2

Total non-interest expense 66.91 81.54 21.9

(1) All amounts have been rounded off to the nearest Rs. 10.0 million.

Total non-interest expense increased by 21.9% to Rs. 81.54 billion in fiscal 2008 from Rs. 66.91 billion in fiscal 2007 primarily due to a 28.6% increase in employee expenses and 31.6% increase in other administrative expenses. Employee expenses increased by 28.6% to Rs. 20.79 billion in fiscal 2008 from Rs. 16.17 billion in fiscal 2007 primarily due to a 22.1% increase in employee base and annual increase in salaries and other employee benefits.

Depreciation on own property increased by 10.9% to Rs. 3.96 billion from Rs. 3.57 billion. There was a 13.4% increase in premises and other fixed assets to Rs. 33.12 billion at year-end fiscal 2008 from Rs. 29.20 billion at year-end fiscal 2007. Depreciation on leased assets decreased to Rs. 1.82 billion in fiscal 2008 from Rs. 1.88 billion in fiscal 2007 primarily due to reduction in leased assets to Rs. 7.97 billion at year-end fiscal 2008 from Rs. 10.03 billion at year-end fiscal 2007.

Other administrative expenses increased by 31.6% to Rs. 39.52 billion in fiscal 2008 from Rs. 30.03 billion in fiscal 2007 primarily due to increase in rent, taxes & lighting expenses and increase in expenses related to retail business. The number of branches and extension counters in India increased to 1,262 at year-end fiscal 2008 from 755 at year-end fiscal 2007. ATMs increased to 3,881 at year-end fiscal 2008 from 3,271 at year-end fiscal 2007.

We use marketing agents, called direct marketing agents or associates, for sourcing our retail assets. We include commissions paid to these direct marketing agents of our retail assets in non-interest expense. These commissions are expensed upfront and not amortised over the life of the loan. We incurred direct marketing agency expenses of Rs. 15.43 billion on the retail asset portfolio in fiscal 2008 compared to Rs. 15.24 billion in fiscal 2007.

Provisions and tax

Provisions and contingencies (excluding provision for tax) increased to Rs. 29.05 billion in fiscal 2008 from Rs. 22.26 billion in fiscal 2007 primarily due to higher level of specific provisioning on loans, offset in part by a reduction in general provision on loans due to lower growth in the loan portfolio relative to fiscal 2007. Specific provisioning on non-performing loans increased in fiscal 2008 compared to fiscal 2007 primarily due to increase in retail and rural non-performing loans. The increase in retail non-performing loans primarily reflects the seasoning of the loan portfolio and the change in the portfolio mix towards non-collateralised retail loans, which have higher yields as well as higher credit losses.

We offer various derivative products to our clients for their risk management purposes including options and swaps.

We do not carry market risk on these client derivative positions as we cover ourselves in the inter-bank market. Profits or losses on account of currency movements on these transactions are on the account of corporates. In some of the cases, clients have filed suits against us disputing the transaction and the amounts to be paid. There have been some delays in payment to us in respect of few companies. We have made appropriate provisions for the same.

Income tax expense (including wealth tax) increased by 66.9% to Rs. 8.98 billion in fiscal 2008 from Rs. 5.38 billion in fiscal 2007. The effective tax rate of 17.77% in fiscal 2008 was higher compared to the effective tax rate of 14.74% in fiscal 2007 primarily due to change in mix of taxable profits, decrease in deduction towards special reserve from 40% of eligible profits to 20% of eligible profits and the increase in statutory tax rate from 33.66% to 33.99%.

Financial Condition

The following table sets forth, for the periods indicated, the summarised balance sheet.

Rs. in billion, except percentages March 31, March 31, 2007 2008 % change

Assets:

Cash, balances with RBI & other banks and Statutory LiquidityRatio (SLR) investments1 1,044.89 1,130.72 8.2

- Cash & balances with RBI & banks 371.21 380.41 2.5

- SLR investments(1) 673.68 750.31 11.4

Advances 1,958.66 2,256.16 15.2

Debentures, bonds and other investments 238.90 364.23 52.5

Fixed assets (including leased assets) 39.23 41.09 4.7

Other assets 164.90 205.75 24.8

Total assets 3,446.58 3,997.95 16.0

Liabilities:Equity capital and reserves 243.13 464.71 91.1

- Equity capital 8.99 11.13 23.8

- Reserves 234.14 453.58 93.7

Preference capital 3.50 3.50 -

Deposits 2,305.10 2,444.31 6.0

- Savings deposits 288.38 390.89 35.5

- Current deposits 213.76 246.91 15.5

- Term deposits 1,802.96 1,806.51 0.2

Borrowings 706.61 863.99 22.3

Of which: Subordinated debt included in Tier-1 and

Tier-2 capital(2) 194.05 207.50 6.9

Other liabilities 188.24 221.44 17.6

Total liabilities 3,446.58 3,997.95 16.0

1. Government securities qualifying for Statutory Liquidity Ratio (SLR). Banks in India are required to maintain a specified percentage, currently 25.0%, of their net demand and time liabilities by way of liquid assets like cash, gold or approved unencumbered securities.

2. Included in 'other liabilities' in schedule 5 of the balance sheet.

3. All amounts have been rounded off to the nearest Rs. 10.0 million.

Our total assets increased by 16.0% to Rs. 3,997.95 billion at year-end fiscal 2008 from Rs. 3,446.58 billion at year-end fiscal 2007. Total assets of overseas branches (including overseas banking unit in Mumbai) increased by 50.8% to Rs. 614.74 billion at year-end fiscal 2008 from Rs. 407.50 billion at year-end fiscal 2007. Net advances increased by 15.2% to Rs. 2,256.16 billion at year-end fiscal 2008 from Rs. 1,958.66 billion at year-end fiscal 2007 primarily due to increase in advances of overseas branches. Net advances of overseas branches increased by 95.6% to Rs. 477.46 billion at year-end fiscal 2008 from Rs. 244.10 billion at year-end fiscal 2007. Aggregate advances of the Bank and its overseas banking subsidiaries and ICICI Home Finance Company increased by 19% to Rs. 2,513.77 billion at year-end fiscal 2008 from Rs. 2,113.91 billion at year-end fiscal 2007. Total investments at year-end fiscal 2008 increased by 22.1% to Rs. 1,114.54 billion compared to Rs. 912.58 billion at year-end fiscal 2007 primarily due to the 11.4% increase in investment in SLR investments to Rs. 750.31 billion at year-end fiscal 2008 from Rs. 673.68 billion at year-end fiscal 2007 in line with the increase in our net demand and time liabilities. Other investments (including debentures and bonds) increased by 52.5% to Rs. 364.23 billion at year-end fiscal 2008 compared to Rs. 238.90 billion at year-end fiscal 2007, reflecting an increase in our investments in insurance and international subsidiaries and investment of surplus liquidity in mutual funds.

Our equity share capital and reserves at year-end fiscal 2008 increased to Rs. 464.71 billion as compared to Rs. 243.13 billion at year-end fiscal 2007 primarily due to the follow-on public offering and ADS offering aggregating Rs 199.67 billion during the year. Total deposits increased by 6.0% to Rs. 2,444.31 billion at year-end fiscal 2008 from Rs. 2,305.10 billion at year-end fiscal 2007. Our savings account deposits increased to Rs. 390.89 billion at year-end fiscal 2008 from Rs. 288.38 billion at year-end fiscal 2007, while current account deposits increased to Rs. 246.91 billion at year-end fiscal 2008 from Rs. 213.76 billion at year-end fiscal 2007. Term deposits increased to Rs. 1,806.51 billion at year-end fiscal 2008 from Rs. 1,802.96 billion at year-end fiscal 2007. Total deposits at yearend fiscal 2008 constituted 73.9% of our funding (i.e. deposit, borrowings and subordinated debts). Borrowings (including subordinated debt) increased to Rs. 863.99 billion at year-end fiscal 2008 from Rs. 706.61 billion at year-end fiscal 2007 primarily due to increase in borrowings of overseas branches.

Off Balance Sheet Items, Commitments and Contingencies

The table below sets forth, for the periods indicated, the principal components of contingent liabilities.

Rs. in billion, except percentages

March 31, March 31, % change 2007 2008

Claims against the bank, not acknowledged as debts 39.12 40.31 3.0

Liability for partly paid investments 0.17 0.13 (23.5)

Notional principal amount of outstanding forward exchange contracts 1,331.56 3,071.71 130.7

Guarantees given on behalf of constituents 292.12 412.81 41.3

Acceptances, endorsements & other obligations 186.71 250.99 34.4

Notional principal amount of currency swaps 325.26 477.04 46.7

Notional principal amount of interest rate swaps and currency options1 3,346.92 7,067.96 111.2

Other items for which bank is contingently liable 107.74 192.54 78.7

Total 5,629.60 11,513.49 104.5

(1) Excludes notional amount of options sold amounting to Rs. 597.33 billion (March 31, 2007: Rs. 444.22 billion).

Contingent liabilities increased by 104.5% or Rs. 5,883.89 billion to Rs.11,513.49 billion at year-end fiscal 2008 from Rs. 5,629.60 billion at year-end fiscal 2007 primarily due to a 130.7% increase in notional principal amount of outstanding forward exchange contracts and a 111.2% increase in notional principal amount of interest rate swaps and currency options.

The Bank enters into foreign exchange forwards, options, swaps and other derivative products to enable customers to transfer, modify or reduce their foreign exchange and interest rate risk and to manage its own interest rate and foreign exchange positions. The Bank manages its foreign exchange and interest rate risk with reference to limits set by RBI and/ or internally. An interest rate swap does not entail exchange of notional principal and the cash flow arises on account of the difference between interest rate pay and receive legs of the swaps which is generally much smaller than the notional principal of the swap. With respect to the transactions entered into with customers, the Bank generally enters into off-setting transactions in the inter-bank market. This results in generation of a higher number of outstanding transactions, and hence a large value of gross notional principal of the portfolio, while the net market risk is low. For example, if a transaction entered into with a customer is covered by an exactly opposite transaction entered into with another counter-party, the net market risk of the two transactions will be zero whereas the notional principal which is reflected as a contingent liability will be sum of both the transactions.

Claims against the Bank, not acknowledged as debts represents demands made by the Government of India's tax authorities in excess of the provisions made in our accounts, in respect of income tax, interest tax, wealth tax and sales tax matters. Based on consultation with counsel and favorable decisions in our own or other cases, the management believes that the liability is not likely to actually arise. Other items for which the Bank is contingently liable includes primarily the securitisation, syndication and repurchase obligations.

As a part of our project financing and commercial banking activities, we have issued guarantees to enhance the credit standing of our customers. These generally represent irrevocable assurances that we will make payments in the event that the customer fails to fulfill its financial or performance obligations. Financial guarantees are obligations to pay a third party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third party beneficiary where a customer fails to perform a non-financial contractual obligation. The guarantees are generally for a period not exceeding 10 years.

The credit risks associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. We generally have collateral available to reimburse potential losses on the guarantees. Margins available to reimburse losses realised under guarantees amounted to Rs. 10.61 billion at year-end fiscal 2008 and Rs. 11.93 billion at year-end fiscal 2007. Other property or security may also be available to us to cover losses under guarantees.

We are obligated under a number of capital contracts. Capital contracts are job orders of a capital nature, which have been committed. As of the balance sheet date, work had not been completed to this extent. Estimated amounts of contracts remaining to be executed on capital account aggregated Rs. 17.40 billion at year-end fiscal 2008 compared to Rs. 3.43 billion at year-end fiscal 2007 primarily on account of new branches and office premises.

Capital Adequacy Rs. in billion, except percentages

As per RBI guidelines As per RBI under Basel I guidelines under Basel II March 31, March 31, March 31, 2007 2008 2008

Tier-1 capital 215.03 381.34 421.72

Tier-2 capital 123.93 121.21 78.86

Total capital 338.96 502.55 500.59

Credit Risk - Risk Weighted Assets (RWA) 2,579.68 2,998.08 3,173.33

Market Risk - RWA 320.25 369.46 258.74

Operational Risk - RWA - - 152.50

Total risk weighted assets 2,899.93 3,367.55 3,584.57

Tier-1 capital adequacy ratio 7.42% 11.32% 11.76%

Tier-2 capital adequacy ratio 4.27% 3.60% 2.20%

Total capital adequacy ratio 11.69% 14.92% 13.97%

We are subject to the capital adequacy norms stipulated by RBI. As per the earlier capital adequacy guidelines (Basel I), we were required to maintain a minimum ratio of total capital to risk adjusted assets and off-balance sheet items of 9%, at least half of which must be Tier-1 capital. On April 27, 2007, RBI issued Prudential Guidelines on Capital Adequacy and Market Discipline - Implementation of the New Capital Adequacy Framework, which are applicable to all banks with international presence, from March 31, 2008. Under the new guidelines (Basel II), which are now applicable to us, we are required to maintain a minimum ratio of total capital to risk adjusted assets of 9%, with a minimum Tier-1 capital ratio of 6%. The other key changes under the new guidelines are:

* Investment above 30% in paid-up equity capital, of financial entities which are not consolidated for capital adequacy (including insurance entities) and investments in other instruments eligible for regulatory capital status in those entities have been deducted 50% from Tier-1 and 50% from Tier-2 capital, while earlier only equity investments in subsidiaries were deducted entirely from Tier-1 capital.

* Capital charge has been introduced for operational risk.

* Under the Basel I guidelines, residential mortgages attract risk weight of 50% for loans upto Rs. 2.0 million and 75% for loans greater than Rs. 2.0 million. Under the Basel II guidelines, residential mortgages attract a risk weight of 50% for loans upto Rs. 2.0 million with loan-to-value ratio less than 75%, 75% for loans greater than Rs. 2.0 million with loan-to-value ratio less than 75% and 100% for all other loans.

* Under the Basel I guidelines, claims on corporates are risk weighted at 100%, while corporate claims are risk weighted as per the external rating of the corporate under the Basel II guidelines. Further, RBI has stipulated that for fiscal 2009, all fresh sanctions or renewals in respect of unrated claims on corporates in excess of Rs. 500.0 million would attract a risk weight of 150%. With effect from April 1, 2009, all fresh sanctions or renewals in respect of unrated claims on corporates in excess of Rs. 100.0 million will attract a risk weight of 150%.

Consumer credit and capital market claims attract 125% risk weight and commercial real estate claims attract 150% risk weight under both Basel I and Basel II guidelines.

Our Tier-1 capital after deductions, under the new guidelines is higher compared to the Basel I guidelines, while risk weighted assets under Basel II guidelines are higher than under Basel I guidelines. Our capital adequacy calculated in accordance with the Basel I guidelines at year-end fiscal 2008 was 14.92%, including Tier-1 capital adequacy ratio of 11.32% and Tier-2 capital adequacy ratio of 3.60%. The capital adequacy calculated in accordance with the Basel II guidelines at year-end fiscal 2008 was 13.97%, including Tier-1 capital adequacy ratio of 11.76% and Tier-2 capital adequacy ratio of 2.20%. For the current year, we are required to maintain capital at the level required by Basel I or Basel II, whichever is higher. The minimum capital required to be maintained by us as per Basel II guidelines is higher than that under Basel I guidelines.

ASSET QUALITY AND COMPOSITION

Loan Concentration

We follow a policy of portfolio diversification and evaluate our total financing in a particular sector in light of our forecasts of growth and profitability for that sector. Between 2003 and 2006 the banking system as a whole saw significant expansion of retail credit, with retail loans accounting for a major part of overall systemic credit growth. Accordingly, during these years, we increased our financing to retail finance. Recently, due to the increase in interest rates, retail credit growth in the banking system has moderated from its peak levels. At the same time, there has been an increase in demand for credit from the corporate sector, especially for foreign currency financing. Following this trend, our loans and advances to retail finance constituted 58.6% of our total loans and advances at year-end fiscal 2008 compared to 65.2% at year-end fiscal 2007. Our Global Credit Risk Management Group monitors all major sectors of the economy and specifically follows sectors to which we have loans outstanding. We seek to respond to any economic weakness in an industrial segment by restricting new exposures to that segment and any growth in an industrial segment by increasing new exposures to that segment, resulting in active portfolio management.

The following tables set forth, at the dates indicated, the composition of our gross advances (net of write-offs).

Rs. in billion, except percentages March 31, 2007 March 31, 2008 Total % of total Total % of total advances advances advances advances

Retail finance(1) 1,292.81 65.2 1,347.54 58.6

Services-non-finance 56.25 2.8 145.57 6.3

Iron/steel & products 50.15 2.5 93.23 4.1

Services-finance 96.16 4.9 66.18 2.9

Food & beverages 44.17 2.2 63.32 2.8

Crude petroleum/Refining & petrochemicals 48.57 2.5 58.21 2.5

Power 41.28 2.1 58.08 2.5

Road, port,telecom, urban development & other infrastructure 29.87 1.5 51.45 2.2

Chemical & fertilizers 48.79 2.5 38.06 1.7

Construction 15.29 0.8 29.36 1.3

Metal & products (excluding iron & steel) 9.21 0.5 26.30 1.1

Wholesale/retail trade 24.63 1.2 25.26 1.1

Textiles 16.79 0.8 22.89 1.0

Shipping 15.53 0.8 22.46 1.0

Other industries(2) 192.43 9.7 251.01 10.9

Total 1,981.93 100.0% 2,298.92 100.0%

(1) Includes home loans, automobile loans, commercial business loans, two wheeler loans, personal loans, credit cards, dealer funding and developer financing.

2. Other industries primarily include electronics & engineering, manufacturing products excluding metal, automobiles, drugs & pharmaceuticals, cement, gems & jewellery, FMCG, mining etc.

The following table sets forth, at March 31, 2008, the composition of our gross (net of write-offs) outstanding retail finance portfolio.

Rs. in billion, except percentages Total retail % of total retail advances advances

Home loans1 664.39 49.3

Automobile loans 174.66 13.0

Commercial business 203.71 15.1

Two-wheeler loans 29.81 2.2

Personal loans 144.13 10.7

Credit cards 96.45 7.2

Loans against securities & others(2) 34.39 2.5

Total retail finance portfolio 1,347.54 100.0%

(1) Includes developer financing of Rs. 27.79 billion.

(2) Includes dealer financing portfolio of Rs. 24.10 billion.

Pursuant to the guidelines of RBI, our exposure to an individual borrower must not exceed 15.0% of our capital funds, comprising Tier-1 and Tier-2 capital calculated pursuant to the guidelines of RBI. Exposure to an individual borrower may exceed the exposure norm of 15.0% of capital funds by an additional 5.0% (i.e. up to 20.0%) provided the additional exposure is on account of infrastructure financing. Our exposure to a group of companies under the same management control must not exceed 40.0% of our capital funds unless the exposure is in respect of an infrastructure project. In case of infrastructure projects, the exposure to a group of companies under the same management control may be up to 50.0% of our capital funds. Banks may, in exceptional circumstances, with the approval of their boards, enhance the exposure by 5.0% of capital funds (i.e. 20.0% of capital funds for an individual borrower and 45.0% of capital funds for a group of companies under same management), making appropriate disclosures in their annual reports. Exposure for funded facilities is calculated as the total committed credit and investment sanctions or the outstanding funded amount, whichever is higher (for term loans, as the sum of undisbursed commitments and the outstanding amount). Exposure for non-funded facilities is calculated as 100.0% of the committed amount or the outstanding non-funded amount whichever is higher.

During the year-ended March 31, 2008, we had no single borrower and group borrower which exceeded the prudential exposure limits prescribed by the Reserve Bank of India.

Directed Lending

RBI requires banks to lend to certain sectors of the economy. Such directed lending comprises priority sector lending, export credit and housing finance.

Till fiscal 2007, RBI guidelines required banks to lend 40.0% of their net bank credit (total domestic loans less marketable debt instruments and certain exemptions permitted by RBI from time to time) to certain specified sectors called priority sectors. Priority sectors included small-scale industries, the agricultural sector, food and agri-based industries, small businesses and housing finance up to certain limits. Out of the 40.0%, banks were required to lend a minimum of 18.0% of their net bank credit to the agriculture sector and the balance to certain specified sectors, including small scale industries (defined as manufacturing, processing and services businesses with a certain limit on investment in plant and machinery), small businesses, including retail merchants, professional and other self employed persons and road and water transport operators, housing loans up to a certain limit and to specified state financial corporations and state industrial development corporations. In its letter dated April 26, 2002 granting its approval for the amalgamation, RBI stipulated that since ICICI's loans transferred to us were not subject to the priority sector lending requirement, we are required to maintain priority sector lending of 50.0% of our net bank credit on the residual portion of our advances (i.e. the portion of our total advances excluding advances of ICICI at year-end fiscal, 2002, referred to as 'residual net bank credit'). This additional 10.0% priority sector lending requirement will apply until such time as our aggregate priority sector advances reach a level of 40.0% of our total net bank credit. RBI's existing instructions on sub-targets under priority sector lending and eligibility of certain types of investments/funds for qualification as priority sector advances apply to us. Any shortfall in the amount required to be lent to the priority sectors may be required to be deposited with government sponsored Indian development banks like the National Bank for Agriculture and Rural Development and the Small Industries Development Bank of India. These deposits have a maturity of up to seven years and carry interest rates lower than market rates. At year-end fiscal 2008, total investments in such bonds were Rs. 14.85 billion.

RBI has issued revised guidelines applicable from fiscal 2008 on lending to priority sector. As per the revised norms, the targets and sub-targets have been linked to the adjusted net bank credit, or credit equivalent amount of off-balance sheet exposure, whichever is higher. The definition of adjusted net bank credit does not include certain exemptions and includes certain investments and is computed with reference to the outstanding amount as on March 31 of the previous year. Under the revised guidelines the limit on the housing loans eligible for priority sector lending has been increased from Rs. 1.5 million to Rs. 2.0 million per borrower. The guidelines have capped eligible direct agriculture finance to non-individuals (i.e. partnership firms, corporates and institutions) at Rs. 10.0 million per borrower. One-third of loans in excess of Rs. 10.0 million per borrower are considered as direct finance while the remaining two-thirds constitute indirect finance. In addition fresh investments made by banks with National Bank for Agriculture and Rural Development in lieu of non achievement of priority sector lending targets are no longer to be considered as indirect finance from April 30, 2007. However, the existing investments in such bonds continue to be classified as indirect agriculture finance till March 31, 2010.

As per the guidelines, banks are also required to lend to the weaker sections 10% of adjusted net bank credit or credit equivalent amount of off-balance sheet exposures, whichever is higher. In order to ensure that the subtarget of lending to the weaker sections is achieved, RBI has decided to take into account the shortfall in lending to weaker sections also, as on the last reporting Friday of March of each year, for the purpose of allocating amounts to the domestic Scheduled Commercial Banks (SCBs) for contribution to the Rural Infrastructure Development Fund (RIDF) maintained with NABARD or funds with other Financial Institutions, as specified by RBI, with effect from April 2009.

We are required to comply with the priority sector lending requirements on the last 'reporting Friday' of each fiscal year. At March 28, 2008, which was the last reporting Friday for fiscal 2008, our priority sector loans were s. 641.50 billion, constituting 50.3% of our residual net bank credit against the requirement of 50.0%. At that date, qualifying agriculture loans were 17.0% of our residual net bank credit as against the requirement of 18.0%.

Classification of Loans

We classify our assets as performing and non-performing in accordance with RBI guidelines. Under these guidelines, an asset is classified as non-performing if any amount of interest or principal remains overdue for more than 90 days, in respect of term loans. In respect of overdraft or cash credit, an asset is classified as non-performing if the account remains out of order for a period of 90 days and in respect of bills, if the account remains overdue for more than 90 days.

We do not distinguish between provisions and technical write-offs while assessing the adequacy of our loan loss coverage, as both provisions and write-offs represent a reduction of the principal amount of a non-performing asset. In compliance with regulations governing the presentation of financial information by banks, we report non-performing assets net of cumulative write-offs in our financial statements.

RBI has separate guidelines for restructured loans. A fully secured standard asset can be restructured by reschedulement of principal repayments and/or the interest element, but must be separately disclosed as a restructured asset. The amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or provision is made to the extent of the sacrifice involved. Similar guidelines apply to substandard loans. The sub-standard accounts which have been subjected to restructuring, whether in respect of principal installment or interest amount are eligible to be upgraded to the standard category only after the specified period, i.e., a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due, subject to satisfactory performance during the period.

The following table sets forth, at March 31, 2007 and March 31, 2008, information regarding the classification of our gross assets (net of write-offs and interest suspense).

Rs. in billion March 31, 2007 March 31, 2008

Standard assets Rs. 2,036.46 Rs. 2,352.22

Of which: Restructured loans 50.41 48.41

Non-performing assets 41.68 75.88

Of which: Sub-standard 24.33 48.49

Doubtful assets 15.28 22.09

Loss assets 2.07 5.30

Total customer assets(1) Rs. 2,078.14 Rs. 2,428.10

(1) Customer assets include advances, lease receivables and credit substitutes like debenture and bonds but excludes preference shares.

2. All amounts have been rounded off to the nearest Rs. 10.0 million.

The following table sets forth, at the dates indicated, information regarding our non-performing assets, or NPAs.

Rs. in billion, except percentagesYear ended Gross Net NPA Net customer % of Net NPA NPA(1) assets to Net customer assets(2)

March 31, 2006 22.73 10.75 1,520.07 0.71%March 31, 2007 41.68 20.19 2,053.74 0.98%March 31, 2008 75.88 35.64 2,384.84 1.49%

(1) Net of write-offs and interest suspense.(2) Customer assets include advances, lease receivables and credit substitutes like debenture and bonds but excludes preferenceshares.

3. All amounts have been rounded off to the nearest Rs. 10.0 million.

At year-end fiscal 2008, the gross non-performing assets (net of write-offs and interest suspense) were Rs. 75.88 billion compared to Rs. 41.68 billion at year-end fiscal 2007. Gross of technical write-offs, the gross non-performing assets at year-end fiscal 2008 were Rs. 83.50 billon compared to Rs. 48.50 billion at year-end fiscal 2007. Netnon-performing assets were Rs. 35.64 billion at year-end fiscal 2008 compared to Rs. 20.19 billion at year-end fiscal 2007. The ratio of net non-performing assets to net customer assets increased to 1.49% at year-end fiscal 2008 compared to 0.98% at year-end fiscal 2007. The coverage ratio (i.e. total provisions and technical write-offs made against non-performing assets as a percentage of gross non-performing assets) at year-end fiscal 2008 was 57.3%. In addition, total general provision held against standard assets was Rs. 14.55 billion at year-end fiscal 2008. During the year, we sold some of our NPAs, including retail NPAs. Our aggregate investments in security receipts issued by Asset Reconstruction Company (India) Limited, a reconstruction company registered with RBI were Rs. 28.53 billion at year-end fiscal 2008. Our net restructured standard loans were Rs. 46.84 billion at yearend fiscal 2008 compared to Rs. 48.83 billion at year-end fiscal 2007.

The increase in non-performing assets was due to higher level of non-performing assets in the retail portfolio due to change in the portfolio mix towards non-collateralised loans and seasoning of the loan portfolio and increase in non-performing loans in rural segment. At year-end fiscal 2008, the net non-performing assets in the retail portfolio at year-end fiscal 2008 were 1.83% of net retail loans. The net non-performing loans in the collateralised retail portfolio were 0.97% of net collateralised retail loans and net non-performing loans in the non-collateralised retail portfolio (including overdraft financing against automobiles) were about 6.16% of the net non-collateralised retail loans.

Classification of Non-Performing Assets by Industry

The following table sets forth, at March 31, 2007 and March 31, 2008, the composition of gross non-performing assets by industry sector.

Rs. in billion, except percentages March 31, 2007 March 31, 2008 Amount % Amount %

Retail finance1 Rs. 31.14 73.8% Rs. 55.52 71.8%

Chemicals & fertilisers 1.64 3.9 1.93 2.5

Services - finance 0.72 1.7 1.29 1.7

Iron/ steel & products 0.77 1.8 1.21 1.6

Textiles 0.84 2.0 1.10 1.4

Shipping 0.01 - 1.01 1.3

Food & beverages(2) 1.25 3.0 0.61 0.8

Electronics & 0.63 1.5 0.56 0.7engineering

Services-non finance 0.63 1.5 0.41 0.5

Power - - 0.14 0.2

Metal & metal products 0.01 - 0.12 0.2

Automobile (including trucks) 0.06 0.1 0.08 0.1

Paper and paper products 0.07 0.2 0.04 0.1

Cement - - 0.03 -Other Industries(3) 4.42 10.5 13.29 17.1

Total 42.19 100.0% 77.34 100.0%Interest suspense (0.51) (1.46)Gross NPAs Rs. 41.68 Rs. 75.88

(1) Includes home loans, automobile loans, commercial business loans, two wheeler loans, personal loans, credit cards, dealer funding and developer financing.

(2) Includes sugar & tea.

(3) Other industries primarily include construction, rubber and rubber products, crude petroleum, drugs & pharmaceuticals, gems & jewellery, FMCG, mining, and other agriculture and allied activities.

(4) All amounts have been rounded off to the nearest Rs. 10.0 million.

SEGMENTAL INFORMATION

Till fiscal year 2007, ICICI Bank reported segment-wise information for the following two business segments:

* Consumer and Commercial Banking', comprising retail and corporate banking operations of the Bank.* Investment Banking' comprising treasury operations of the Bank. RBI issued revised guidelines on segment reporting applicable from fiscal 2008. Accordingly, the Bank has adopted a new basis of segment reporting and hence figures for previous year are not comparable. As per the new guidelines, the business operations of the Bank have following segments:

* Retail Banking includes exposures which satisfy the four criteria of orientation, product, granularity and low value of individual exposures for retail exposures laid down in Basel Committee on Banking Supervision document 'International Convergence of Capital Measurement and Capital Standards: A Revised Framework'.

* Wholesale Banking includes all advances to trusts, partnership firms, companies and statutory bodies which are not included under the Retail Banking.

* Treasury includes the entire investment portfolio of the Bank.

* Other Banking includes hire purchase and leasing operations and also includes gain/loss on sale of banking & non-banking assets and other items not attributable to any particular business segment. Retail Banking segment reported segment revenue of Rs. 244.18 billion and profit before tax of Rs.10.83 billion, wholesale banking segment reported segment revenue of Rs.249.49 billion and profit before tax of Rs. 36.24 billion, treasury banking segment reported segment revenue of Rs. 290.98 billion and profit before tax of Rs. 5.16 billion and other banking segment reported segment revenue of Rs. 2.75 billion and profit before tax of Rs. 0.25 billion.

CONSOLIDATED FINANCIALS AS PER INDIAN GAAP

The consolidated profit after tax for fiscal 2008 including the results of operations of our subsidiaries and other consolidating entities was Rs.33.98 billion as compared to Rs. 27.61 billion for fiscal 2007.

ICICI Prudential Life Insurance Company incurred a loss of Rs.13.95 billion in fiscal 2008 mainly due to higher business set-up costs in the initial years of rapid growth, non-amortisation of acquisition costs and reserving for actuarial liability in line with the insurance company accounting norms. These factors have resulted in statutory losses for the life insurance business since the company's inception, as its business has grown rapidly year on year. The impact on consolidated profits on account of the loss is Rs.10.31 billion.

During fiscal 2008, the financial markets globally experienced significant widening of credit spreads and tightening of liquidity. The investment portfolio of ICICI Bank UK PLC (ICICI Bank UK) was Rs. 175.13 billion at year-end fiscal 2008 which primarily includes investments in bonds, certificate of deposits and mortgage backed securities (MBS). In fiscal 2008, a provision for mark-to-market impact of Rs. 2.36 billion was made through the profit and loss statement on the debt securities held by ICICI Bank UK in its trading portfolio. The investment portfolio of ICICI Bank Canada was Rs. 58.87 billion at year-end fiscal 2008 which primarily includes investments in treasury bills, CLNs, CDOs and asset backed commercial paper (ABCP). In fiscal 2008, a provision for mark-to-market impact and other losses of Rs. 2.23 billion was made through the profit and loss statement on the investments, including ABCP and credit derivatives portfolio of ICICI Bank Canada. The mark-to-market impact on investments classified as 'Available for sale securities' in UK and Canadian subsidiaries is directly reflected in the shareholders' equity.

Consolidated assets of the Bank and its subsidiaries increased by 23.2% to Rs. 4,856.17 billion at year-end fiscal 2008 from Rs. 3,943.35 billion at year-end fiscal 2007. Consolidated advances of the Bank and its subsidiaries increased by 18.9% to Rs. 2,514.02 billion at year-end fiscal 2008 from Rs. 2,113.99 billion at year-end fiscal 2007.

The following table sets forth, for the periods indicated, the profit/(loss) of our principal subsidiaries.

Rs. in billion Fiscal 2007 Fiscal 2008

ICICI Securities Limited 0.63 1.50

ICICI Securities Primary Dealership Limited 1.33 1.40

ICICI Prudential Life Insurance Company Limited (6.49) (13.95)

ICICI Lombard General Insurance Company Limited 0.68 1.03

ICICI Venture Funds Management Company Limited 0.70 0.90

ICICI Home Finance Company Limited 0.47 0.70

ICICI Prudential Asset Management Company Limited 0.48 0.82

ICICI Bank UK PLC. 1.77 1.55

ICICI Bank Canada (0.07) (0.57)

ICICI Bank Eurasia LLC. 0.05 (0.08)

RECONCILIATION OF PROFITS AS PER INDIAN GAAP AND US GAAP

As a result of the differences in the basis of accounting under US GAAP and Indian GAAP, our profit for fiscal 2008 under US GAAP was Rs. 33.11 billion as compared to consolidated profit of Rs. 33.98 billion under Indian GAAP. A reconciliation of consolidated profit after tax as per Indian GAAP with net income as per US GAAP for fiscal 2008 is set out in the following table:

Rs. in billionConsolidated profit after tax as per Indian GAAP 33.98

Adjustments:Adjustments on account of :

Allowances for loan losses (4.40)

Business combinations (0.77)

Consolidation 6.17

Valuation of debt and equity securities (1.51)

Amortisation of fees and costs (4.84)

Accounting for derivatives 2.35

Accounting for compensation costs (1.87)

Accounting for securitisation 0.28

Deferred taxes 3.29

Others 0.43

Total impact of all adjustments (0.87)

Net income as per US GAAP 33.11

Key Financial Indicators Rs. in billion, except per share data Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 2003 2004 2005 2006 2007 2008

Net interest income 14.45 21.85 29.32 39.07 56.37 73.04

Fee income1 8.47 12.89 22.03 34.47 50.12 66.27

Profit before tax 7.80 19.02 25.27 30.96 36.48 50.56

Profit after tax 12.06 16.37 20.05 25.40 31.10 41.58

Dividend per share 7.50 7.50 8.50 8.50 10.00 11.00

Earnings per share (Basic) 19.68 26.66 27.55 32.49 34.84 39.39

Earnings per share (Diluted) 19.65 26.44 27.33 32.15 34.64 39.15

At year-end fiscal

Advances 532.79 626.48 914.05 1461.63 1958.66 2256.16

Deposits 481.69 681.09 998.19 1650.83 2305.10 2444.31

Total assets 1068.12 1252.29 1676.59 2513.89 3446.58 3997.95

Equity capital & reserves 69.33 80.10 125.50 222.06 243.13 464.71Total capital adequacy ratio 11.1% 10.4% 11.8% 13.4% 11.7% 14.0% (2)

(1) Includes merchant foreign exchange income and margin on customer derivative transactions.

(2) Capital adequacy ratio at year-end fiscal 2008 is calculated as per Basel II framework.