Axis Bank - Annual Report - 2008-2009

AXIS BANK LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

The Board of Directors has pleasure in presenting the Fifteenth Annual
Report of your Bank together with the Audited Statement of Accounts,
Auditors' Report and the report on business and operations of the Bank for
the financial year ended 31st March 2009.

FINANCIAL PERFORMANCE:

The Bank has delivered a strong performance in 2008-09 in the backdrop of
widespread turbulence in the global financial markets as well as a slowdown
of economic growth in India. The Bank's strategy of building customer
franchises and tapping into the opportunities within those franchises for
growing its business continues to deliver strong results. Financial
highlights for the year under review are presented below:

(Rs. in crores)
PARTICULARS 2008-09 2007-08 Growth

Deposits 1,17,374.11 87,626.22 33.95%

Out of which

* Savings Bank Deposits 25,822.12 19,982.41 29.22%

* Current Account Deposits 24 821.61 20,044.58 23.83%

Advances 81,556.77 59,661.14 36.70%

Out of which

* Retail Assets 16,051.78 13,591.68 18.10%

* Non-retail Advances 65,504.99 46,069.46 42.19%

Total Assets/Liabilities 1,47,722.05 1,09,577.85 34.81%

Net Interest Income 3,686.21 2,585.35 42.58%

Other Income 2,896.88 1,795.49 61.34%

Out of which

* Trading Profit (1) 373.86 253.59 47.43%

* Fee & other income 2,523.02 1,541.90 63.63%

Operating Expenses excl.
depreciation 2,669.55 1,996.81 33.69%

Profit before depreciation,
provisions and tax 3,913.54 2,384.03 64.16%

Depreciation 188.66 158.11 19.32%

Provision for Tax 969.84 575.25 68.59%

Other Provisions & Write offs 939.68 579.64 62.11

Net Profit 1,815.36 1,071.03 69.50%

Appropriations

Transfer to Statutory Reserve 453.84 267.76 69.50%

Transfer to Investment Reserve 0.06 - -

Transfer to Capital Reserve 146.72 26.84 446.65%

Proposed Dividend 420.52 251.64 67.11

Surplus carried over to
Balance Sheet 794.22 524.79 51.34%

(1) Excluding Merchant
Exchange Profit

KEY PERFORMANCE INDICATORS 2008-09 2007-08

Interest Income as a percentage
of working funds* 8.59% 8.08%

Non-Interest Income as a percentage
of working funds 2.30% 2.07%

Net Interest Margin 3.33% 3.47%

Return on Average Net Worth 19.93% 16.09%

Operating Profit as a percentage
of working funds 2.95% 2.57%

Return on Average Assets 1.44% 1.24%

Profit per employee** Rs.10.02 lacs Rs.8.39 lacs

Business (Deposits less inter bank
deposits + Advances) per employee** Rs.10.60 crores Rs.11.17 crores

Net Non performing assets as a
percentage of net customer assets *** 0.35% 0.36%

* Working funds represent average total assets.

** Productivity ratios are based on average number of employees for the
year.

*** Customer Assets include advances, credit substitutes and unamortized
cost of assets leased out.

Previous year figures have been regrouped wherever necessary.

The Bank continues to record an impressive year-on-year performance,
earning a net profit of Rs. 1,815.36 crores for the financial year 2008-09
against Rs. 1,071.03 crores in the previous year. The YoY growth of 69.50%
in net profit was mainly due to an increase in net interest income by
42.58% and non-interest income by 61.34%, partly offset by a lower increase
in operating expenses of 33.69%.

The overall performance in 2008-09 was supported well by a healthy rise in
core income streams such as net interest income and fee income. During the
year, the total income of the Bank increased by 56.04% to Rs. 13,732.36
crores from Rs. 8,800.80 crores in the previous year, largely driven by
substantial increase in both net interest income (Nil) and in fee and other
income. Nil grew by 42.58% to Rs. 3,686.21 crores from Rs. 2,585.35 crores
in the previous year, while fee and other income increased by 61.34% to
Rs.2,896.88 crores from Rs. 1,795.49 crores in the previous year. The
growth of Nil may be attributed to an expansion in the balance sheet size,
with average earning assets in the year increasing by 48.37% (Rs. 74,589
crores in 2007-08 to Rs. 1,10,664 crores in 2008-09). Although this gain in
Nil was partly offset by the hardening of interest rates, particularly in
the second half of the financial year, the growth of demand deposits (which
on a daily average basis increased by 33.81% to Rs. 34,141 crores from
Rs.25,515 crores in the previous year) helped the Bank contain the cost of
funds. Overall, the daily average cost of funds in the year rose to 6.50%
from 6.02% in the previous year, primarily due to a steep rise of interest
rates on term deposits in the third quarter when liquidity concerns were at
a peak.

During 2008-09, the yield on earning assets increased by 37 basis points to
9.73% from 9.36% which, however, was offset by an increase in cost of funds
by 48 basis points. During 2008-09, the net interest margin (NIM) declined
by 14 basis points to 3.33% from 3.47% in the previous year. On a quarter-
on-quarter basis, the NIM was 3.35%, 3.51%, 3.12% and 3.37% in Q1, Q2, Q3
and Q4 respectively.

Other income, comprising fees, trading profits and miscellaneous income
also showed impressive growth, increasing by 61.34% to Rs. 2,896.88 crores
in 2008-09 from Rs. 1,795.49 crores in the previous year. Fee income is a
significant part of the earnings of the Bank and is generated through a
diverse set of businesses in the Bank. The main constituents of fee income
are service charges for account maintenance, inter-change fees on ATM-
sharing arrangements, fees on distribution of third-party personal
investment products, fee income from cash management services, syndication
and placement fees and fees earned on the processing of loans and on non-
fund based business. Fee and miscellaneous income (including exchange
profit earned on client-based merchant foreign exchange business) rose by
63.63% to Rs. 2,523.02 crores from Rs.1,541.90 crores in the previous year.
Of this, exchange profit earned on merchant foreign exchange business has
increased by 57.38% to Rs. 274.08 crores from Rs. 174.15 crores in the
previous year. During the same period, proprietary trading profits
increased by 47.43% to Rs. 373.86 crores from Rs. 253.59 crores in the
previous year.

During the year, the operating revenue of the Bank increased by 50.27% to
Rs. 6,583.09 crores from Rs. 4,380.84 crores in the previous year. The core
income streams (NII, fee and miscellaneous income) constituted 94.32% of
the operating revenue of the Bank, reflecting the stability as also the
sustainability of the Bank's earnings. The operating expenses (including
depreciation) increased by 32.64% to Rs. 2,858.21 crores from Rs. 2,154.92
crores in the previous year, which reflected the growth of the Bank's
network and other infrastructure required for supporting existing and new
businesses. During the year, there was an improvement in operational
efficiency, evident from a decline in the cost: income ratio to 43.42% from
49.19% in the previous year.

In 2008-09, the operating profit of the Bank increased by 67.34% to
Rs.3,724.88 crores from Rs. 2,225.92 crores in the previous year. During
the period, the Bank has created total provisions (excluding provisions for
tax) of Rs. 939.68 crores against Rs. 579.64 crores in the previous year.
The Bank has provided Rs. 732.21 crores towards non-performing assets
against Rs. 322.69 crores in the previous year, while the provision for
standard assets was Rs. 105.50 crores against Rs. 153.46 crores in the
previous year. The Bank has also provided Rs. 65.46 crores towards
restructuring of assets. The Bank continued to maintain the generally high
quality of its assets and net NPAs, as the percentage of net customer
assets declined from the previous year level of 0.36% to 0.35% in 2008-09.

There has been an all-round improvement on various financial parameters and
ratios during the year. Basic earning per share has increased by 57.42% to
Rs. 50.61 per share from Rs. 32.15 per share in the previous year, Diluted
earnings per share (EPS) was Rs. 50.27 per share, up 60.56% from Rs. 31.31
per share in the previous year. Return on Equity (ROE) has improved to
19.93% from 16.09% in the previous year. Book Value per share has improved
by 16.06% to Rs. 284.50 from Rs. 245.14 in the previous year. Return on
Average Assets improved to 1.44% from 1.24% in the previous year.

The Bank has also reported a robust growth of key balance sheet parameters
for the year ended 31st March 2009. The Bank's total balance sheet size
increased by 34.81% to Rs. 1,47,722.05 crores from Rs. 1,09,577.85 crores
in the previous year. As on 31st March 2009, total deposits overtook the
Rs. 1 lac-crore mark and stood at Rs. 1,17,374.11 crores against
Rs.87,626.22 crores, a growth of 33.95%. Demand deposits (savings bank and
current accounts) increased by 26.52% to Rs. 50,643.73 crores from
Rs.40,026.99 crores in the previous year, constituting 43.15% of total
deposits as on 31st March 2009. Savings bank account deposits grew by
29.22% to Rs. 25,822.12 crores, while current account deposits grew by
23.83% to Rs. 24,821.61 crores. During the year, total advances of the Bank
grew by 36.70% to Rs. 81,556.77 crores from Rs. 59,661.14 crores in the
previous year. Of this, corporate advances (comprising large and mid-
corporates) increased by 41.98% to Rs. 41,210.90 crores. During the same
period, advances to SMEs (including microfinance) increased by 39.35% to
Rs. 16,076.70 crores, while agricultural lending increased by 49.23% to Rs.
8,217.39 crores. Retail loans grew 18.10% to Rs. 16,051.78 crores. The
Bank's total investments increased by 37.46% to Rs. 46,330.35 crores with
investments in government and approved securities, held to meet the Bank's
SLR requirement, increasing by 37.41 % to Rs. 27,727.24 crores as a result
of the increase in total deposits. Other investments, including corporate
debt securities, increased by 37.53% to Rs. 18,603.11 crores. As on 31st
March 2009, the total assets of the Bank's overseas branches stood at
Rs.11,675 crores, constituting 7.90% of the Bank's total assets.

As part of its strategy of building the organic growth engine, the Bank
continued to enlarge its geographical coverage of centres with potential
for growth, including district headquarters and other Tier II cities and
towns across the country. This has helped the Bank particularly in the
acquisition of low cost retail deposits, retail assets, lending to
agriculture, SME and mid-corporates as also the sale of third-party
products. During the year, 176 new branches were added to the Bank's
network (including 12 extension counters that have been upgraded to
branches), taking the total number of branches and ECs to 835 as on
31.3.2009 (against 671 branches and ECs in the previous year). Of the 827
branches, 230 branches are in semi-urban and rural areas. With the opening
of these offices, the geographical reach of the Bank now extends to 30
States and 4 Union Territories covering 515 centres. During 2008-09, the
Bank opened 831 ATMs, thereby taking the ATM network of the Bank from 2,764
to 3,595. The Bank has also opened a Representative Office in Dubai during
the year. This was in addition to the existing branches at Singapore, Hong
Kong and DIFC (Dubai International Finance Centre). The opening of overseas
offices provides opportunities to the Bank to finance cross-border trade
and manufacturing activities in addition to the ability to source
remittances and other businesses from the NRI community.

CAPITAL & RESERVES:

The business expansion plans of the Bank need to be backed by adequate
capital. During the year under review, the Bank has raised capital of
Rs.1,700 crores by way of subordinated bonds (unsecured redeemable non-
convertible debentures) qualifying as Tier II capital. The raising of this
non-equity capital has helped the Bank continue its growth strategy and has
strengthened its capital adequacy ratio. The Bank is well capitalized with
the capital adequacy ratio as at the end of the year at 13.69%,
substantially above the benchmark requirement of 9% stipulated by Reserve
Bank of India. Of this Tier I Capital amounted to 9.26%, as against 10.17%
last year, while Tier II Capital was at4.43%.

During the year under review, 12,95,449 equity shares were allotted to
employees of the Bank pursuant to the exercise of options under its
Employee Stock Option Plan. The paid up capital of the Bank as on 31st
March 2009 thereby rose to Rs. 359.01 crores from Rs. 357.71 crores as on
31st March 2008. The shareholding pattern of the Bank as of 31st March 2009
was as under:

Name of Shareholders % of Paid Up Capital

i. Administrator of the Specified Undertaking
of the Unit Trust of India (UTI-I) 27.08

ii. Life Insurance Corporation of India 10.36

iii. General Insurance Corporation and four PSU
Insurance Companies 4.96

iv. Overseas Investors including FIIs/ OCBs/ NRIs 25.12

v. Foreign Direct Investment (GDR issue) 7.76

vi. Other Indian Financial Institutions/ Mutual
Funds/ Banks 11.26

vii. Others 13.46

Total 100.00

The Bank's shares are listed on the NSE, the BSE and the Ahmedabad Stock
Exchange. The GDRs issued by the Bank are listed on the London Stock
Exchange (LSE). The Bonds issued by the Bank under the MTN programme are
listed on the Singapore Stock Exchange. The listing fees relating to all
stock exchanges for the current year have been paid. With effect from 26th
March 2001, the shares of the Bank have been included and traded in the BSE
Group 'A'. Further, with effect from 27th March 2009, the Bank's shares
have been included and traded as part of the main NIFTY Index of the NSE.
Earlier, the shares of the Bank were part of the NIFTY Junior Index of the
NSE.

DIVIDEND:

The diluted Earning per Share (EPS) for 2008-09 has risen to Rs. 50.27 from
Rs. 31.31 last year. In view of the overall performance of the Bank and the
objective of rewarding shareholders with cash dividends while retaining
capital to maintain a healthy capital adequacy ratio to support future
growth, the Board of Directors has recommended a higher dividend of
Rs.10.00 per share on equity shares, compared to Rs. 6.00 per share
declared for 2007-08. This increase reflects our confidence in the Bank's
ability to consistently grow earnings overtime.

BOARD OF DIRECTORS:

During the year, some changes in the Board of Directors have taken place.
The term of office of Shri Surendra Singh, Independent Director, who served
on the Board for eight years, the maximum period allowed under the Banking
Regulation Act, ended on 27th April 2008. The Board of Directors places on
record its appreciation and gratitude to Shri Surendra Singh for the
valuable services rendered by him during his tenure as Director of the

Bank.

In accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Bank, Shri M. V. Subbiah and Shri Ramesh
Ramanathan retire by rotation at the Fifteenth Annual General Meeting and,
being eligible, offer themselves for reappointment as Directors of the
Bank.

SUBSIDIARIES:

The Bank has setup five wholly-owned subsidiaries, Axis Sales Limited, Axis
Private Equity Limited, Axis Trustee Services Limited, Axis Asset
Management Company Limited and Axis Mutual Fund Trustee Limited.

Axis Sales Limited has been set up for marketing credit cards and retail
asset products. The objective of this subsidiary is to build a specialised
force of sales personnel, optimize operational efficiency and productivity
and thereby reduce costs. The sales subsidiary also seeks to provide
greater control and monitoring of the sales effort vis-a-vis the Direct
Sales Agent model. The second subsidiary of the Bank, Axis Private Equity
Limited, has been formed primarily to carry on the activities of managing
equity investments and providing venture capital support to businesses.

During the year, the Bank has set-up three more subsidiaries viz. Axis
Trustee Services Limited, Axis Asset Management Company Limited and Axis
Mutual Fund Trustee Limited. The objective of Axis Trustee Services Limited
is to carry on trusteeship activities such as debenture trustee, trustee to
various securitization trusts and other trusteeship business. Another
subsidiary, Axis Asset Management Company Limited has been formed primarily
to carry on the activities of managing a mutual fund business. Axis Mutual
Fund Trustee Limited has been formed to act as the trustee for the mutual
fund business.

In terms of an exemption received from the Ministry of Corporate Affairs,
Government of India through its letter no. 47/126/2009-CL-III dated 27th
March 2009 under Section 212(8) of the Companies Act 1956, copies of the
Directors' Report, report of the auditors of the three subsidiaries (Axis
Sales Limited, Axis Private Equity Limited and Axis Trustee Services
Limited) along with financial statements have not been attached to the
accounts of the Bank for the financial year ended 31st March 2009. In the
case of two subsidiaries viz. Axis Asset Management Company Limited and
Axis Mutual Fund Trustee Limited, the first audited financial results will
be prepared as on 31st March 2010.

Any shareholder who may be interested in obtaining a copy of these details
may write to the Company Secretary at the Registered Office of the Bank.
These documents will also be available for examination by shareholders of
the Bank at its Registered Office and also at the registered offices of the
three subsidiaries. In line with the Accounting Standard 21 (AS 21) issued
by the Institute of Chartered Accountants of India, the consolidated
financial results of the Bank along with its subsidiaries for the year
ended 31st March 2009 are enclosed as an Annexure to this report.

EMPLOYEE STOCK OPTION PLAN (ESOP):

The Bank has instituted an Employee Stock Option Scheme to enable its
employees, including whole-time Directors, to participate in the future
growth and financial success of the Bank. Under the Scheme 3,57,70,000
options can be granted to employees. The employee stock option scheme is in
accordance with the Securities and Exchange Board of India (Employee Stock
Option and Employee Stock Purchase Scheme) Guidelines, 1999. The
eligibility and number of options to be granted to an employee is
determined on the basis of the employee's work performance and is approved
by the Board of Directors.

The Bank's shareholders approved plans in February 2001, June 2004, June
2006 and June 2008 for the issuance of stock options to employees. Under
the first two plans and upto the grant made on 29th April 2004, the option
conversion price was set at the average daily high-low price of the Bank's
equity shares traded during the 52 weeks preceding the date of grant at the
Stock Exchange which has had the maximum trading volume of the Bank's
equity shares during that period (presently the NSE). Under the third plan
and with effect from the grant made by the Company on 10th June 2005, the
pricing formula has been changed to the closing price on the day previous
to the grant date. The Remuneration and Nomination Committee granted
options under these plans on eight occasions, 11,18,925 during 2000-01,
17,79,700 during 2001-02, 27,74,450 during 2003-04, 38,09,830 during 2004-
05, 57,08,240 during 2005-06, 46,95,860 during 2006-07, 67,29,340 during
2007-08 and 26,77,355 during 2008-09. The options granted, which are non-
transferable, vest at the rate of 30%, 30% and 40% on each of three
successive anniversaries following the granting, subject to standard
vesting conditions, and must be exercised within three years of the date of
vesting. As of 31st March 2009, 1,22,45,885 options had been exercised and
1,38,52,974 options were in force.

Other statutory disclosures as required by the revised SEBI guidelines on
ESOPs are given in the Annexure to this report.

CORPORATE GOVERNANCE:

The Bank is committed to achieving a high standard of corporate governance
and it aspires to benchmark itself with international best practices. The
corporate governance practices followed by the Bank are enclosed as an
Annexure to this report.

DIRECTORS' RESPONSIBILITY STATEMENT:

The Board of Directors hereby declares and confirms that:

i. The applicable accounting standards have been followed in the
preparation of the annual accounts and proper explanations have been
furnished, relating to material departures.

ii. Accounting policies have been selected, and applied consistently and
reasonably, and prudent judgements and estimates have been made so as to
give a true and fair view of the state of affairs of the Bank and of the
Profit & Loss of the Bank for the financial year ended 31st March 2009.

iii. Proper and sufficient care has been taken for the maintenance of
adequate accounting records, in accordance with the provisions of the
Companies (Amendment) Act, 2000, for safeguarding the assets of the Bank
and for preventing and detecting fraud and other irregularities.

iv. The annual accounts have been prepared on a going concern basis.

STATUTORY DISCLOSURE:

Considering the nature of activities of the Bank, the provisions of Section
217(1)(e) of the Companies Act, 1956 relating to conservation of energy and
technology absorption do not apply to the Bank. The Bank has, however, used
information technology extensively in its operations.

The statement containing particulars of employees as required under Section
217(2A) of the Companies Act, 1956 and the rules made thereunder, is given
in an Annexure appended hereto and forms part of this report. In terms of
Section 219(1) (iv) of the Act, the Report and Accounts are being sent to
the shareholders excluding the aforesaid Annexure. Any shareholder
interested in obtaining a copy of the Annexure may write to the Company
Secretary at the Registered Office of the Bank.

AUDITORS:

M/s S.R. Batliboi & Co., Chartered Accountants, Statutory Auditors of the
Bank since 2006, retire on the conclusion of the Fifteenth Annual General
Meeting and are eligible for re-appointment, subject to the approval of
Reserve Bank of India, and of the shareholders. As recommended by the Audit
Committee, the Board has proposed the appointment of M/s S.R. Batliboi &
Co., Chartered Accountants as Statutory Auditors for the financial year
2009-10. The shareholders are requested to consider their appointment.

ACKNOWLEDGEMENTS:

The Board of Directors places on record its gratitude to the Reserve Bank
of India, other government and regulatory authorities, financial
institutions and correspondent banks for their strong support and guidance.
The Board acknowledges the support of the shareholders and also places on
record its sincere thanks to its valued clients and customers for their
continued patronage. The Board also expresses its deep sense of
appreciation to all employees of the Bank for their strong work ethic,
excellent performance, professionalism, team work, commitment and
initiative which has led to the Bank making commendable progress in today's
challenging environment.

For and on behalf of the Board of Directors

Place: Mumbai P.J. Nayak
Date : April 20, 2009 Chairman & Chief Executive Officer

ANNEXURE:

STATUTORY DISCLOSURES REGARDING ESOP (FORMING PART OF THE DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2009)

ESOS Exercise Options Options Options
2000-01 Price (Rs.) Granted Vested Exercised &
(Grant Date) Shares
Allotted*


24 Feb. 2001 Rs. 38.63 1,118,925 - 1,036,969
28 Feb. 2002 Rs. 29.68 1,779,700 - 1,668,835
6 May 2003 Rs. 39.77 2,774,450 14,768 2,456,409
29 April 2004 Rs. 97.62 3,809,830 189,079 3,105,811
10 June 2005 Rs. 232.10 5,708,240 2,228,663 2,612,900
17 April 2006 Rs. 319.00 4,695,860 1,540,689 1,069,570
17 April 2007 Rs. 468.90 6,729,340 1,642,514 295,391
21 April 2008 Rs. 824.40 2,677,355 375 -

Total 29,293,700 5,616,088 12,245,885

ESOS Options Total Options Money
2000-01 lapsed/ in Force realised
(Grant Date) cancelled As on by exercise
31 March 2009 of options
(Rs. in lacs)

24 Feb. 2001 81,956 - 400.58
28 Feb. 2002 110,865 - 495.31
6 May 2003 303,273 14,768 976.91
29 April 2004 514,940 189,079 3,031.89
10 June 2005 866,677 2,228,663 6,064.54
17 April 2006 557,148 3,069,142 3,411.93
17 April 2007 724,572 5,709,377 1,385.09
21 April 2008 35,410 2,641,945 -

Total 3,194,841 13,852,974 15,766.25

* One (1) share would arise on exercise of one (1) stock option

Other details are as under:

Pricing Formula Fixed Price:

i.e. The average daily high-low price of the shares of the Bank traded
during the 52 weeks preceding the date of grant at that stock exchange
which has had the maximum trading volume of the Bank's share during that
period.

For options granted on and after 10 June 2005, the exercise price
considered is the closing market price as on the day preceding the date of
the grant at that stock exchange which has had the maximum trading volume
of the Bank's share.

Variation in terms of ESOP None

Details of options granted:

* Employee wise details of grants
to Senior managerial personnel Chairman and CEO-389,000 options

* Employees who were granted, during None
any one year, options amounting to 5%
or more of the options granted during
the year

* Identified employees who were None
granted options, during any one year,
equal or exceeding 1% of the issued
capital (excluding outstanding
warrants and conversions) of the Bank
under the grant



Diluted Earnings Per Share pursuant to Rs. 50.27 per share
issue of shares on exercise of options
calculated in accordance with
Accounting Standard (AS) 20 'Earnings
Per Share'

Weighted average exercise price of
Options whose:

* Exercise price equals market price Weighted average exercise price of
the stock options granted during
the year is Rs. 824.40.
* Exercise price is greater than
market price Nil

* Exercise price is less than market
price Nil

Weighted average fair value of
Options whose:

* Exercise price equals market price Weighted average fair value of the
stock options granted during the
year is Rs. 310.26.

* Exercise price is greater than
market price Nil

* Exercise price is less than
market price Nil

Fair Value Related Disclosure:

* Increase in the employee Rs. 86.30 crores
compensation cost computed at fair
value over the cost computed using
intrinsic cost method

* Net Profit, if the employee
compensation cost had been computed Rs. 1,729.06 crores
at fair value

* Basic EPS, if the employee
compensation cost had been computed Rs. 48.20 per share
at fair value

* Diluted EPS, if the employee
compensation cost had been computed Rs. 47.88 per share
at fair value

Significant Assumptions used to
estimate fair value:

* Risk free interest rate 7.96% to 8.01%

* Expected life 2 to 4 years

* Expected Volatility 45.65% to 48.63%

* Dividend Yield 1.22%

* Price of the underlying share
in the market at the time of Rs. 824.40
option grant

MANAGEMENT'S DISCUSSION AND ANALYSIS:

MACRO-ECONOMIC ENVIRONMENT

The performance of the Bank in 2008-09 should be viewed in the backdrop of
the global financial crisis that had its beginnings in the US sub-prime
sector and broader financial markets but spread throughout the world,
turning into a full-blown global economic crisis. Unlike developed

economies, the slowdown in India has not been led by the financial sector
but affected by mainly the following:

a) The sharp slowdown in global import demand resulted in an export
slowdown,

b) A contraction in the availability of global finance, particularly export
finance, and an increase in the costs of foreign currency funds, and

c) Slowdown in investment plans of many corporates in anticipation of a
demand slowdown.

Over the last few years, India has become increasingly integrated with the
global economy, both through trade and through exposure to financial
markets. The loss of export markets has consequently hit domestic demand
quite hard, particularly as many export segments are also employment
intensive. The demand slowdown has led to inventory build-ups, constricted
cash flows and outbacks in corporate capex plans. The cash squeeze has led
to concerns about potential defaults on bank loans. The consequent ask-
aversion and tightening of credit standards in bank lending has also
reduced consumer durables financing, adding weak consumption demand to
slowing investments, and earlier fears of high inflation have changed to
deflation and apprehensions of rapid and sustained deceleration of growth.
Although the Indian economy has done relatively better in 2008-09 compared
to other countries in the emerging markets peer group, the slowdown in
fiscal 2009 was deeper than anticipated. Accordingly, the estimates of GDP
growth have been lowered to between 6.50% and 7.00% in fiscal 2009,
lower than the average growth rate of 8.50% of the previous four years.

The Fiscal Stimulus in India:

Both the government and the RBI have taken fiscal and monetary policy
measures to address this slowdown. The central and state governments are
spending an additional 3% to 4% of GDP on various stimulus measures, tax
cuts and spending programmes. In addition, there are other spending
programmes (such as the Sixth Pay Commission payouts) that are also likely
to have a positive effect on demand expansion. This fiscal push has been
complemented by a fairly active monetary policy. The RBI has reduced its
policy rates (LAF Repo rates) by 400 basis points since September 2008 and
injected significant liquidity into the markets. However, the key benchmark
rate of the 10-year Government securities did not fall correspondingly,
primarily due to the enlargement in the Government's borrowing programme.
The Wholesale Price Index (WPI) inflation dropped to close to 0% by the end
of FY 2009. Globally, prices are likely to remain subdued due to weak
consumption and investment demand. In India, however, the cost of living
represented by the Consumer Price Index (CPI) is likely to continue to
remain much higher, due to the higher weightage for food and housing costs
in the consumption basket.

OUTLOOK FOR 2009-10

While the economic condition of major developed economies is unlikely to
improve in 2009, further deterioration is not expected and the general view
is that the worst is over. The residual effects on job losses and credit
delinquencies, however, will keep demand conditions weak, despite the
significant stimulus packages offered by both governments and central
banks. In the short term, export-driven activity is likely to remain
depressed and capital expenditure is likely to remain muted. Increased
sales in certain sectors like cement and steel, and price discounts
resulting in higher sales in certain consumer durables segments are
already visible. The stimulus package of the government and the
implementation of the Sixth Pay Commission, which will increase the
purchasing power of public sector employees, should also boost demand. The
fiscal situation is expected to remain weak, however, and increased
government expenditure commitments may not be matched by buoyancy in tax
revenues.

Despite the weak demand conditions, inflationary pressures are expected to
build up gradually given the infusion of liquidity and the higher support
prices for many food and commercial crops that will keep prices of primary
products firm. The potential inflationary pressure is likely to dissuade
RBI from aggressively reducing short-term policy rates. However, demand for
non-food credit remaining weak, we do expect a moderate cut in RBI policy
rates.

The combination of a burdened fiscal deficit, somewhat easy monetary policy
and comfortable liquidity is expected to pull down the short-term yield
curve. Interest rates at medium and longer maturities could remain
relatively high, particularly in the initial months of the current fiscal
year. On the whole, the cost of funds for banks (and hence for corporates)
is expected to decline through the year.

Despite a difficult funding and credit environment, the extension of credit
by banks in India has been reasonably satisfactory and accelerating its
delivery will be a key factor in sustaining the positive effects of the
fiscal and monetary stimulus measures. In particular, bank credit will play
a large role as other avenues for raising funds are likely to remain tight.
While concerns about credit quality have impeded a larger increase in
credit flows, the financial sector remains sound and will, in our view, be
able to absorb the anticipated increase in non-performing assets without
deleterious capital erosion. Given the fact that cost of funds for banks is
steadily diminishing and will translate into lower lending rates, the
demand for bank credit should pick up in course of time. However, foreign
currency funds are expected to still remain relatively scarce.

We expect the general risk perception levels, which are still fairly high,
to gradually decline over 2009-10 resulting in increased capital flows to
sectors with growth opportunities. A good Rabi harvest and monsoon will
also drive growth in agro-related industries and ancillary services.

OVERVIEW OF FINANCIAL AND BUSINESS PERFORMANCE:

In a year in which the banking system in India was subjected to severe
stress due to strained liquidity conditions, abnormally high cost of bulk
deposits, slow down in credit-offtake, rising delinquencies and a high
incidence of assets being restructured, the Bank has delivered a strong
performance.

The Bank's strategy to build its business upon strong customer franchises
has continued to deliver impressive results, and we have continued to
extend our reach as well as deepen existing customer relationships. The
underlying performance of the business remains strong with revenue growth
remaining well ahead of cost growth.

CAPITAL MANAGEMENT:

The Bank strives for the continual enhancement of shareholder value through
efficient use of available capital in a manner that leads to a high return
on equity. Towards that end, the Bank is focused on developing an asset
structure sensitive to the importance of increasing the proportion of low
risk weighted assets.

During the year, the Bank continued to attract investor interest from
domestic and foreign institutional investors, with a perceptible increase
in trading volumes. During the year, the Bank raised capital aggregating
Rs. 1,700 crores of Tier II Capital in the form of subordinated bonds
(unsecured redeemable non-convertible debentures) to augment its overall
capital base and maintain the momentum of business growth. As on 31st March
2009, the Bank's Capital Adequacy Ratio at 13.69% was well above the
minimum regulatory requirement of 9%.

The Bank has implemented the Revised Framework of the International
Convergence of Capital Measurement and Capital Standards (or Basel II) last
year. In terms of RBI guidelines for implementation of Basel II, capital
charge for credit and market risk for the financial year ended 31st March
2009 is required to be maintained at the higher of the prudential floor
prescribed by Basel II and 90% of the level under Basel]. In terms of
regulatory guidelines on Basel II, the Bank has computed capital charge for
operational risk under the Basic Indicator Approach and the capital charge
for credit risk has been computed under the Standardized Approach. As on
31st March 2009, the Bank's Capital Adequacy Ratio under Basel II was
13.69% against the minimum regulatory requirement of 9%. The following
table sets forth the risk-based capital, risk-weighted assets and capital
adequacy ratios computed as on 31st March 2008 and 2009 in accordance with
the applicable RBI guidelines under Basel I and Basel II.

(Rs. in crores)

AS ON 31 MARCH 2009 2008
Basel II Basel I Basel II Basel I

Tier I Capital -
Shareholders' Funds 10,162.98 10,175.42 8,826.99 8,822.52

Tier II Capital 4,864.66 4,864.66 3,063.90 3,082.75

Out of which

- Bonds qualifying as
Tier II capital 3,054.80 3,054.80 1,572.90 1,572.90

- Upper Tier II capital 1,370.78 1,370.78 1,148.38 1,148.38

- Other eligible for Tier II
capital 439.08 439.08 342.62 361.47

Total Capital qualifying
for computation of capital
Adequacy Ratio 15,027.64 15,040.08 11,890.89 11,905.27

Total Risk-Weighted Assets
and Contingencies 1,09,787.49 1,08,110.01 84,990.65 86,719.66

Total Capital Adequacy
Ratio (CAR) 13.69% 13.91% 13.99% 13.73%

Out of above

- Tier I Capital 9.26% 9.41% 10.39% 10.17%

- Tier II Capital 4.43% 4.50% 3.60% 3.56%

BUSINESS OVERVIEW:

The performance of individual business segments during 2008-09 and their
future strategies are presented below:

RETAIL BANKING

The Bank has pursued an effective strategy over the years to develop the
retail liabilities business, the success of which is reflected in the fact
that savings bank deposits have grown at a Compounded Annual Growth Rate
(CAGR) of 64% between the years 2000 and 2009. Savings bank deposits grew
to Rs. 25,822 crores on 31st March 2009 from Rs. 19,982 crores on 31st
March 2008 registering a year-on-year growth of 29%. On a daily average
basis, savings bank deposits during the year grew by 42.41%. The following
chart demonstrates the strategic roadmap that the Bank has drawn up over
the years in tune with changing market dynamics, regularly building in
initiatives that have enabled the Bank to stay ahead of competition and to
avoid the law of diminishing returns. Some of these strategic initiatives
have been the setting up a large and widespread network of ATMs, the
creation of a differentiated sales model, adoption of a customer-centric
segmentation and the implementation of an enterprise-wide strong cross-sell
initiative.

The Bank's ATM network has grown rapidly over the years and during the
financial year 2008-09 the Bank has added 831 ATMs to reach 3,595 ATMs on
31st March 2009, showing a growth of 30% over last year. The Bank today has
4.35 ATMs for every Branch, a ratio that is higher than that of Its peers.

The Bank has also built a sizeable sales force of over 3,800 personnel on
its own payroll. With a structured training programme, an attractive
incentive structure and a well-defined career path, the sales team has
grown to become a powerful customer-acquisition unit. In 2008-09, the Bank
acquired 23,16,887 new accounts, an increase of 20% over the previous year.
The new accounts acquisition has brought in underlying balances of Rs.7,873
crores this year against Rs. 7,529 crores in the previous year.

The Bank's emphasis on customer segmentation, as the following table
indicates, is underscored by the value proposition offered to different
customer segments by means of customized products.

Customer Products Value to Customer Value to Bank
Segment
PREMIUM

HNI Priority Banking Exclusivity - Priority - More than 2 lacs
Branches & Lounges, customers with an
Relationship Managers, average balance over
Home Banking, Life Rs. 2,50,000
Style Privileges
- High scope for
cross sell
VALUE FOR MONEY

Mass Payroll / Salary Convenience of access - Wider Retail Base
Easy Access through Multiple
Channels like Branch, - High scope for up
ATM, Internet, Call sell
Centre

The cross-sell initiative, an effective deepening tool for savings
deposits, covers both the Bank's own products as well as third-party
products.

Alongside the vast ATM network, other channels such as internet banking,
mobile banking and phone banking have grown well and a solid architecture
of alternate channels has been created, providing higher levels of
convenience and service quality to customers. The mobile banking channel
has emerged as a convenient option for the Bank's customers in keeping
themselves updated on the transactions in their accounts. During 2008-09,
31% of new customers signed on for mobile banking services. With 20.9 lacs
customers registered for mobile banking, the Bank has one of the highest
mobile penetration levels among bank customers in India. Internet banking
usage also rose sharply-the registered user base rose from 51.65 lacs on
31st March 2008 to 72.39 lacs on 31st March 2009, a growth of 40%. The Bank
has a Phone Banking Centre providing account information and assistance in
11 languages.

Retail term deposits of the Bank grew by 46% from Rs. 11,449 crores on 31st
March 2008 to Rs. 16,679 crores on 31st March 2009. The retail assets
portfolio of the Bank grew from Rs. 13,592 crores on 31st March 2008 to
Rs.16,052 crores on 31st March 2009, a growth of 18%. The segment
constitutes 19.68% of the Bank's total loan portfolio on 31st March 2009 of
which 83% is secured and 17% comprises unsecured loans. As can be seen from
the table below, the Bank has increased its base of secured loans on the
mortgage segment front.

Mortgages Auto Loans Personal loans

March 2005 27% 59% 4%

March 2006 41% 39% 12%

March 2007 54% 27% 11

March 2008 57% 16% 16%

March 2009 65% 14% 12%

Distribution of Retail Assets by Product Class as on 31st March 2009:

Retail loans are primarily extended by the Bank through 64 Retail Asset
Centres (RACs) in select cities of the country. With the economy slowing
down, there was pressure on the unsecured loan book, mainly personal loans
and credit cards. However the health of the mortgage and automobile
portfolios continued to be satisfactory, vindicating the Bank's strategy of
focusing on prime customer segments and deploying robust, centrally-driven
collection processes. During the year under review, the Bank has also
started the process of consolidating the collection and recovery processes
under its subsidiary, Axis Sales Ltd., to further improve customer service.

The Bank further consolidated its position in the cards business in the
country during the year, offering a wide array of payment solutions to its
customers by way of debit cards, credit cards, prepaid cards, the cards
acceptance service and the internet payment gateway.

The total debit card base of the Bank as on 31st March 2009 stood at 118
lacs. From the initial one-size-fits-all debit card product, the Bank now
offers as many as 13 variants, customized for specific liability customer
segments.

The Bank has retained the market leadership position in the Travel Card
Segment for three consecutive years and has generated a sales volume of
about USD 352.89 million in this financial year ended 31st March 2009.

The Bank is a leader in the prepaid cards segment with products like the
Rewards Card (an electronic card for low-value cash disbursements), the
Meal Card (a prepaid re-loadable card for disbursement of tax-free meal
allowances), the Gift Card (a prepaid card ideal for all gifting
requirements), the Annuity Card (launched in collaboration with Life
Insurance Corporation of India for annuity payments) and the Remittance
Card (for facilitating remittances in India).

The Bank has issued more than 5,33,000 credit cards since its launch in
2006 and today offers an entire range of retail and commercial cards. It is
the first Bank in India to offer the Platinum Visa EMV Chip card. Credit
card customers of the Bank are offered a variety of value-added services
such as balance transfers, EMI facility and Bill Pay. While the slowdown in
the economy has also adversely impacted the credit card portfolio, the Bank
has taken corrective measures by rebalancing its portfolio, limiting credit
card issuance to customers with existing relationships with the Bank and
strengthening the collection infrastructure.

The Bank launched its merchant acquiring business in December 2003, and in
5 years has emerged as the second largest acquirer in the country, with an
installed base of about 1.15 lac terminals. The Bank has acquired more than
6 crore card transactions amounting to almost Rs. 13,700 crores in 2008-09.
Of these, the e-commerce business has contributed Rs. 745 crores. The EDC
business has also contributed over 73,000 current accounts with a total
balance of nearly Rs. 817 crores on 31 st March 2009. The Bank offers
merchant acquiring services at more than 250 cities and across 147 unique
merchant categories. The Bank supports PSTN, CDMA, GPRS and IP based
connectivity. The Bank has successfully launched an RFM (Recency, Frequency
and Monetary Value) based Loyalty Programme and Dynamic Currency Conversion
with its large customer base.

In personal investment products, the Bank has emerged as the leading
distributor of mutual funds in India. Despite the slowdown, the Bank has
added a large number of customers this year. The focus on investments
through the Systematic Investment Plan (SIP) route has enabled the Bank to
register over 1 lac new Systematic Investment Plans in 2008-09.

The Bank also has two very successful partnerships in the bancassurance
sector with Bajaj Allianz General Insurance Co for general insurance
products, and with MetLife India Insurance Co for life insurance products.
In 2008-09, the life insurance partnership was one of the best
bancassurance partnerships in the industry with over Rs. 500 crores of
premium generated. While the general insurance industry was hit
by detariffing in certain insurance products, the partnership generated a
premium of over Rs. 100 crores in the financial year. This has been
possible due to the strong focus on products along with easy payment and
renewal facilities.

To ease the process of investing in stock markets, the Bank offers Demat
accounts to its customers. Available at more than 600 branches across the
country, over 1.95 lac customers have subscribed to this account. In
association with Geojit Financial Services, the Bank offers on-line trading
services- a fast and user-friendly platform. Presently, over 26,000
customers are using these facilities.

The Gold Coins product of the Bank has also proved to be an important
addition to the Bank's product range.

The Bank has launched its new investment advisory service exclusively for
High Net Worth clients in December 2008. Titled 'Axis Bank Wealth', this
service offering is for clients who entrust the Bank with Assets under
Management (AUM) of more than the equivalent of USD 100,000. Through a
dedicated Wealth Manager, backed by a research team, an investment and
consulting team, a product team and support staff, Axis Bank Wealth
provides an end-to-end value proposition that caters to the need for normal
banking facilities, investments and retail asset solutions. Currently
offered through 20 cities across India, Axis Bank Wealth is expected to
make a substantial contribution to the fee income and profitability of the
Bank in coming years.

The first quarter of the new financial year2009-10will seethe launch of
Axis Bank Privee, an 'end-to-end' advisory value proposition for ultra
high-net worth clients through the Bank's overseas branches who entrust the
Bank with Assets under Management (AUM) of more than USD 1 million,
covering their personal needs, business needs and family office services

needs. Axis Bank Privee will be offered in association with LCF Rothschild
Group, a leading player in private banking, asset management and family
office business in Europe with an experience of more than two and a half
centuries. As the Bank's overseas branches are in Asia, this will enhance
the Bank's profile within the wider Asian continent.

CORPORATE BANKING:

Corporate banking business provides a variety of products and services to
large and mid-size corporates that include credit, trade finance for
domestic as well as international transactions, structured finance, project
finance and syndication services through separate SBUs such as large and
mid-corporate credit, treasury, business banking and capital markets. The
Bank continues to pursue a two-pronged strategy of widening the customer
base as well as deepening existing client relationships. A careful choice
of new relationships based on appropriate risk-return guidelines forms the
basis for the strategy of widening the customer base. A deepening of
existing client relationships is achieved by a careful account strategy
focusing on increasing the cross-sell of various corporate banking products
as also products from other businesses of the Bank, including investment
banking and retail products.

CORPORATE CREDIT:

During the year, large and mid-corporate advances grew by 41.98% to
Rs.41,211 crores from Rs. 29,026 crores in the previous year. This includes
advances at overseas branches amounting to Rs. 10,166 crores (equivalent to
USD 2.0 billion) comprising mainly the portfolio of Indian corporates and
their subsidiaries, as also trade finance. Corporate banking has
continuously increased its focus on risk management and on improving
portfolio quality. The Bank has in place procedures and practices to ensure
regular updation of risks taken by the Bank on various client accounts.
Portfolio diversification remains the key for managing asset quality and
preventing concentration risks. Relationship groups in the Bank are
organized with an industry-sector focus for better evaluation of specified
risks. The credit policy of the Bank has also put in place ceilings on
exposures to various industries with a view to containing concentration
risk and facilitating portfolio diversification. In keeping with the Bank's
strategy to diversify risks, the highest exposure to any individual sector
was 11.69% of the Bank's total exposure. While the entire corporate lending
portfolio was internally rated with 79.21% of large corporate assets being
rated A and above, 73.12% of the large corporate loans has been externally
rated.

Efforts were made through the year to offer integrated corporate banking
solutions to the Bank's clientele, which resulted in significant growth in
core fee income.

The Mid-Corporate Group, created as a result of reorganization of the
Corporate Credit group last year, has now emerged as an important business
segment for the Bank. As on 31st March 2009, the Mid-Corporate credit
portfolio stood at Rs. 9,679 crores. This includes advances to Mid-
Corporate of Rs. 698 crores through the Bank's overseas branches. The Mid-
Corporate Group has a healthy yield on advances at 11.86%, besides having
created a strong fee-based earning stream.

While the selection criteria are stringent and strongly underpinned by a
rigorous risk assessment process, the Bank's clients are offered the entire
bouquet of corporate banking products, thus ensuring a better value
proposition for the Bank's clients.

The economic downturn has had an adverse impact on several Mid-Corporates,
and this has particularly affected sectors like Textiles, Gems and
Jewellery, and Auto Ancillaries. The Group's facilitating approach has,
however, helped it maintain a high level of asset quality. Going forward,
while maintaining a close vigil on asset quality, the Bank will continue to
source corporate relationships, which demonstrate the ability to grow into
large sized businesses.

TREASURY:

The Bank has an integrated Treasury, which covers both domestic and global
markets and funds the balance sheet across locations. The dealing rooms in
Mumbai, Singapore, Hong Kong and DIFC assist customers in managing their
interest rate and foreign currency exposures, simultaneously maintaining
proprietary positions to generate trading income for the Bank.

A major part of the year was marred by the turmoil in the global financial
markets and the management of liquidity assumed top priority. Balance sheet
management acquired greater importance with stressed liquidity conditions
during the year, which eased during the last quarter of the financial year
as a consequence of several monetary easing steps taken by Reserve Bank of
India.

In spite of the volatility observed in the bond markets, the Bank's thrust
was on maximizing profits and the portfolio yield. The Bank's investments
in government securities were dynamically managed around duration, and the
portfolio yielded a return of 7.42%. Incrementally, efforts were directed
at risk containment of the portfolio due to the rise of illiquidity in the
markets.

Currency Futures were introduced in India in August 2008. The Bank started
trading on the very first day of the introduction of Currency Futures. The
Bank continued its emphasis on developing the customer business in foreign
exchange, which saw arise in turnover of over 85%. Proprietary trading in
foreign exchange was also very profitable. The Bank sustained the growth in
customer driven forex business by strengthening existing relationships,
acquiring new clients and providing value-added services to clients.

BUSINESS BANKING:

The Business Banking initiatives have consistently focused on procuring low
cost funds by offering a range of current account products and cash
management solutions across all business segments covering corporates,
institutions, central and state government ministries and undertakings, as
well as small and retail business customers. Cross-selling of transactional
banking products to develop account relationships, aided by product
innovation and a customer-centric approach, have borne fruit in the form of
growing current account balances and increasing realisation of transaction
banking fees, apart from enlarging the customer base.

The sourcing of current accounts is a critical enabler for the growth of
the balance sheet. As of 31st March 2009, current account balances for the
Bank stood at Rs. 24,822 crores, as against Rs. 20,045 crores on 31st March
2008, a growth of 24%. On a daily average basis, current accounts grew from
a level of Rs. 11,834 crores on 31st March 2008 to Rs. 14,658 crores on
31st March 2009. There was a greater focus on acquisition of high-value
current accounts by satisfying the needs of these value-based customers,
thus maintaining the pace of growth in current account balances.
Additionally, the launch of new and innovative products focusing on
specific segments like inland road transport, supplemented the efforts for
efficiently targeting balances from these segments. During the year, the
Bank also introduced a new zero balance current account product for traders
with local business requirements, aiming specifically at generating
upfront fee income.

With the objective of providing various alternative platforms to business
clients for satisfying their transactional banking needs, the Bank
introduced improved offerings under mobile banking and internet banking,
resulting in a surge in client registration and usage.

The Cash Management Services (CMS) initiatives leveraged the Bank's growing
branch network and robust technology to provide a wide range of customized
solutions to suit the dynamic requirements of its clients. The Bank offers
CMS solutions for collections and payments with an ideal blend of
structured MIS and funds movement, so that clients are able to enhance
their fund management capabilities. The Bank's Web CMS initiative also
allows them to view their daily transactions on a real time basis. The
strong correspondent bank alliances offer corporate clients a wide
geographical coverage. The CMS foray is not only emerging as an important
source of fee income but is also contributing significantly towards
mobilizing zero cost funds and forging large relationships. A strong
network, technology-based solutions and secure processes have helped the
Bank in handling bulk payment mandates such as for dividends, interest,
redemption and refunds. During the year, the Bank launched the Application
Supported by Blocked Amount (ASBA) facility towards application in public
issues. The Bank was also able to leverage its network and technology for
handling sale of prospectus/brochures as well as fee collection on behalf
of various educational institutes, which further added to the fee income.
Additionally, the Bank has introduced remittance facilities such as
NEFT/RTGS through internet banking for corporates.

We have acted as an agency bank for transacting government business for the
last 8 years offering banking services to various central government
ministries and departments and other state governments and union
territories. Currently, the Bank accepts income and other direct taxes
through its 214 authorised branches at 137 locations and central excise and
service taxes through its 56 authorised branches at 13 locations. The Bank
also handles the disbursement of civil pension through 218 authorised
branches, and defence pension through 151 authorised branches.
Additionally, the Bank provides collection and payment services to four
central government ministries and departments and seven state governments
and union territories.

The Bank has further strengthened its association with the e-Governance
initiatives of various State Governments in India aimed at providing better
citizen services by setting up integrated citizen facilitation centres.
During the year, the Bank was associated with the 'e-Governance Project'
and 'e-Procurement Project' of Government of Bihar as the Nodal Bank.

The Bank has successfully implemented the Electronic Benefit Transfer (EBT)
Project, which constitutes a new line of business, contributing to fee as
well as float income, towards handling disbursements relating to various
government benefit schemes through smart cards under an IT enabled
financial inclusion model in two districts (Krishna and Rangareddy) in

Andhra Pradesh. The total government business throughput during the year
was Rs. 60,869 crores against Rs. 53,585 crores reported in the previous
year.

CAPITAL MARKETS:

The Bank's Capital Markets business encompasses activities both in the
equity capital markets and the debt capital markets. The equity capital
markets activities involve providing advisory and placement services
pertaining to the raising of equity and quasi-equity funds by its corporate
clients. The Bank is a SEBI-registered Category I Merchant Banker with
experience in the management of public and rights issues. The Bank provides
debt capital market services by acting as advisors and arrangers for
raising Rupee and foreign currency loans, foreign currency convertible
bonds and Rupee-denominated bonds.

The Bank has continued to retain its leadership position in the domestic
debt market and during 2008-09 has syndicated an aggregate amount of about
Rs. 69,000 crores by private placement of bonds, debentures and term loans.
Prime Database has ranked the Bank as the number 1 arranger for private
placement of bonds and debentures till 31st December 2008. Bloomberg has
also ranked the Bank as number 1 in India Domestic Bonds League table for
the calendar year 2008. The Bank has been rated as the Best Bond House in
India for the financial year 2008 by Finance Asia, Best Domestic Debt House
in India for 2008 by Asia Money and Best Debt House -India in the 2008
Euromoney Awards for excellence, and India Bond House 2008 in the IFR Asia
Awards 2008.

The Bank's Capital Markets Business also involves providing corporate
restructuring advisory services, mergers and acquisitions (M&A) advisory
services, arranging services for acquisition funding, infrastructure and
project advisory services, techno-economic feasibility reports, business
plan preparation and bid process management. The Bank has carved out the
trusteeship business, hitherto apart of capital markets business into a
separate subsidiary company to enhance its functioning. The Bank has also
started providing custodial services.

During 2009-10, opportunities will be available in the private placement of
equity, M&A advisory and domestic bond placement. The Bank will continue to
focus on project and corporate finance by raising both debt and equity
funds for various infrastructure and manufacturing projects.

The Bank also maintains an investment and proprietary trading portfolio in
corporate bonds and equities. As on 31st March 2009, the Bank's investment
in corporate bonds, equities and others was Rs. 18,603 crores against
Rs.13,526 crores in the previous year. Of this as on 31st March 2009, the
Bank has made investment of USD 152 million at overseas branches as against
USD 153 million in the previous year.

LENDING TO MICRO, SMALL AND MEDIUM ENTERPRISES, AGRICULTURE AND MICRO

FINANCE:

The Micro, Small and Medium Enterprises (MSME) Sector is the backbone of
the Indian economy contributing significantly to economic growth,
employment generation, poverty alleviation and balanced regional
development. The sector has the second largest share of employment after
agriculture, with more than half of those employed being women.

Lending to the MSME Sector forms a major part of the Bank's credit
portfolio to the non-farm sector and contributed 28.44% to the Bank's
priority sector advances. This constitutes an important area of lending for
the Bank, and to fully exploit the large business potential in this sector
the Bank has set up 24 SME Centres across the country to extensively focus
on the credit requirements of MSME clients. The Bank has built strong sales
and relationship teams to source new relationships and deepen existing
ones, and has strengthened the credit appraisal teams to improve the
quality of credit appraisal and reduce the turnaround time.

The lending to MSME continued to be impressive and the Bank achieved its
overall priority sector lending commitments.

The Bank looks at agri-business as an inclusive and profitable business
proposition. The strategy was to finance the value chain and foster
corporate partnerships. During the year, seven Agri Business Centres were
created to exclusively focus on high potential geographies. At Agri
Business Centres, the business is carried out under three segments: retail
agriculture, corporate agriculture and commodity business (i.e. financing
against warehouse receipts). These customer specific segments are manned by
separate officers and offer a wide range of products suitable for each
segment.

The retail agriculture organisational model consists of 46 strategically
placed agriculture clusters, and the Bank offers its retail agri products
to farmers through 249 of its branches. This has helped in raising levels
of business without any compromise on risk management or customer service.
The corporate agriculture team consists of client-specific relationship
managers and a team of credit analysts having sectoral expertise. Under
commodity business, the Bank has created 9 commodity business centres to
which 74 branches are linked. Besides relying on the services of collateral
managers, the Bank also has an exclusive team of officers for onsite and
offsite monitoring, so as to avoid operational, market and credit risks and
these teams are provided with a state-of-the-art software, developed by
Bank's IT team.

The agricultural loans outstanding formed 11.51% of the Bank's domestic
loan book. The total agriculture loan outstanding in the Bank was 15.14% of
the Bank's Adjusted Net Bank Credit (ANBC). During the year, the Bank's
agricultural borrower base grew by 33.45% over the previous year and closed
with 1,42,789 clients.

The Bank believes that micro-credit and microfinance services are major
enablers of financial inclusion to the under privileged sections of
society. The microfinance business gained significant momentum during the
year with an impressive growth of 80% in the portfolio. In our endeavor to
focus on a steady and disciplined growth of the micro finance business, we
partnered with highly credible Micro Finance Institutions (MFIs) across the
country. The Bank has 86 microfinance relationships in 18 states of which 4
are in the North East with a corresponding client outreach of around 18.50
lacs. Most of the beneficiaries are poor women engaged in small and
marginal enterprises. In line with our overall strategy to support MFIs
operating in underdeveloped parts of the country, we have supported
upcoming MFIs in remote areas of Bihar, Tripura and Madhya Pradesh. The
Bank also continued its strategy of extending loans under various central
government sponsored schemes.

INTERNATIONAL BANKING:

The international operations of the Bank are at the core of the strategy to
expand the horizon of the product offerings and delivery channels to
various geographies and across client segments, covering the spectrum of
retail and corporate banking solutions. The international presence of the
Bank now comprises branches in Singapore, Hong Kong and DIFC-Dubai, and
representative offices in Shanghai and Dubai, besides alliances with banks
and exchange houses in the Gulf Cooperation Council (GCC) countries. While
the foreign branches primarily offer corporate banking, trade finance,
treasury and risk management solutions, the Bank's retail initiatives in
the GCC caters to the large Indian diaspora and promotes the Bank's NRI
products.

In a year marked by an unprecedented upheaval of the financial markets that
has changed the contours of the global financial system, the international
operations of the Bank displayed resilience and recorded impressive growth
in assets and deposits, and maintained profitability. The total assets of
the foreign branches now constitute 7.90% of the total assets of the Bank
and grew by 38.55% to touch USD2.30billion from USD 1.66 billion a year
ago. Despite the prevailing recessionary trends in the developed world
economies, the asset quality at foreign offices continues to be
satisfactory with zero level of non-performing assets. The Bank continually
evaluates the prospect of a wider product offering as well as deeper reach,
and has been working towards offering private banking services out of its
foreign branches, which has now commenced.

RISK MANAGEMENT:

The role of risk management focusses strongly on anticipating
vulnerabilities in a deteriorating situation, and initiating curative
measures proactively through quantitative and qualitative assessments of
such embedded risks. The Bank has developed in-house skills to manage key
areas of risk viz., credit risk, market risk and operational risk. The
Bank's risk management approach relies on the establishment of
comprehensive processes and internal control mechanisms. The Bank's risk
management processes are guided by well-defined policies appropriate for
the various risk categories, independent risk oversight and periodic
monitoring through the sub-committees of the Board. The Board sets the
overall risk appetite and philosophy for the Bank. The Committee of
Directors and the Risk Management Committee, which are sub-committees of
the Board, review various aspects of risk arising from the businesses
undertaken by the Bank. Senior management committees such as various credit
and investment committees, the Asset-Liability Committee (ALCO), the
Operational Risk Management Committee (ORMC) and the Credit Risk Management
Committee (CRMC) operate with in the broad policy frame work of the Bank.

Credit Risk:

The Bank's credit risk management process integrates risk management into
the business management processes, while preserving the independence and
integrity of risk assessment. Emphasis is placed on evaluation and
containment of risk at the level of individual counter party exposures, and
analysis of portfolio behavior. The use of sophisticated modelling
techniques to contain credit risk is also being used for effective and
continuous monitoring. The credit risk management framework integrates
quantitative processes with qualitative judgement to support orderly growth
in the asset book while ensuring an acceptable risk level in relation to
return.

The growth in the asset book of the Bank during the year highlights the
importance of prudent credit risk management practices both at the
individual obligor level as well as at the portfolio level. The Bank has a
structured and standardized credit approval process, which includes a well-
established procedure of comprehensive credit appraisal. The internal
credit rating system continues to provide integrity, credibility and
objectivity to the lending process to ensure an acceptable risk level in
relation to the expected return. Portfolio level risk analytics provide
insight into capital allocation required to absorb unexpected losses at a
defined confidence level. Dimensions of portfolio level risk analysis
carried out by the Bank includes ensuring optimal spread of risk across
various rating classes and prevent undue risk concentration across various
industry segments in the portfolio.

A graphical representation highlighting the spread of risk across various
rating grades for large corporates and the MSME portfolio as on 31st March
2009 is given below:

Market Risk:

Market risk is the risk to the Bank's earnings and capital due to changes
in the market level of interest rates, prices of securities, foreign
exchange and equities, as well as the volatilities of those changes. The
Bank is exposed to market risk through its trading activities, which are
carried out for customers as also on a proprietary basis. The Bank adopts a
comprehensive approach to market risk management for its trading,
investment and asset/liability portfolios. For market risk management, the
Bank uses both non statistical measures like position, gaps and
sensitivities (duration, PVBP, option greeks) and statistical measures like
Value at Risk (VaR), supplemented by stress tests and scenario analysis.

The Bank uses historical simulation and its variants for computing VaR for
its trading portfolio. VaR is calculated at a 99% confidence level for a
one-day holding period. The VaR models for different portfolios are back-
tested at regular intervals and the results are used to maintain and
improve the efficacy of the model. The VaR measure is supplemented by a
series of stress tests and sensitivity analysis that estimates the likely
behaviour of a portfolio under extreme but plausible conditions and its
impact on earnings and capital.

Liquidity Risk:

Liquidity Risk is defined as the current and prospective risk to earnings
or capital arising from a bank's inability to meet its current or future
obligations on the due date. The Bank's ALM policy defines the gap limits
for its structural liquidity position. The liquidity profile of the Bank is
analyzed on a static basis by tracking all cash inflows and outflows in the
maturity ladder based on the expected occurrence of cash flows. The
liquidity profile of the Bank is also estimated on a dynamic basis by
considering the growth in deposits and loans, investment obligations, etc.
for a short-term period of three months.

The Bank's ability to meet its obligations and fund itself in a crisis
scenario is critical and, accordingly, liquidity stress tests are conducted
under different scenarios at periodic intervals to assess the impact on
liquidity of stressed conditions. The liquidity positions of overseas
branches are managed in line with the Bank's internal policies and host
country regulations. Such positions are also reviewed centrally by the
Bank's ALCO along with domestic positions.

Operational Risk:

Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events. A policy on
management of operational risk has been approved by the Bank to ensure that
operational risk within the Bank is properly identified, monitored and
reported in a structured manner, and this policy is reviewed annually. The
Bank has an Operational Risk Management Committee to oversee application of
the aforesaid policy directives. Each new product, process or service
introduced by the Bank is subjected to a rigorous risk review and signoff
process by the Product Management Committee where all relevant risks are
identified and assessed by departments independent of the risk-taking unit
proposing the product, process or service. Changes proposed to the existing
products/processes as well as outsourcing activities are also subjected to
a similar process by the Change Management Committee and the Outsourcing
Committee respectively. The IT Security Committee of the Bank provides
direction for mitigating the operational risk in Information Systems. The
business units put in place the internal controls as approved by such
committees to ensure a sound and well controlled operating environment in
respect of various activities of the Bank.

INFORMATION TECHNOLOGY:

Technology is the key to deliver customised financial solutions. The Bank
aims to maintain a scalable computing infrastructure backed by a robust
network architecture that delivers service across multiple channels for
customer convenience and cost reduction through operational efficiency. In
order to retain a competitive edge, the Bank's technology infrastructure is
continuously upgraded. In tune with business priorities, the IT strategy
has been focused on capacity enhancement to be able to maintain an
efficient servicing capability in a multi-channel delivery environment.

During the year, many pioneering efforts have been taken towards use of
technology in the Bank such as being the first among Indian banks in
submitting centralised R-Return for foreign exchange transactions by the
'B' category branches to RBI, being the first bank in the country to market
EMV chip embedded Debit Platinum, Travel Currency and Credit Platinum
cards, development of a product for Business Banking for printing cheques
at the customer locations after due validations of issuing a cheque series.
This facility allows integration with the corporate ERP systems to print
dividend warrants and issue payments directly from customers' premises.

The Bank has taken various initiatives in the area of increasing use of
technology in its day-to-day operations. The most notable achievement this
year was in the area of financial inclusion, where the Bank was successful
in deploying a separate dedicated core banking solution, which has the
capability of maintaining liability accounts as well as agricultural
lending accounts for microfinance. The current volumes handled in the
software are 6.21 lacs accounts. This has allowed the Bank to substantially
reduce transaction costs while complying with regulatory standards. The
unique capability of the solution is the bulk account-opening and
transaction-handling potential without manual intervention.

The Bank was in the forefront in the use of advanced imaging technologies
to improve workflow processing and reduce the cost of centralized
operations of CPU and TFC (Trade Finance Centre). The imaging technologies
like Optical Character Recognition (OCR), Optical Mark Recognition (MCR)
have been deployed to capture images of account opening forms of liability
and trade finance documents. This facility was extended to the Hong Kong
branch operations and helped in improving processing efficiencies. The Bank
has also extended this technology to its Cheque Truncation System (CTS)
implemented in the NCR region. The Bank's New Delhi Service Branch caters
to more than 50,000 clearing instruments per day for the branches within
its jurisdiction.

The Bank was awarded the ISO 27001:2005 certification for process
management in delivery channels (ATM and Internet Banking) in February
2009. The ISMS certification was given for conforming to quality standards
in respect of protecting client related information from different kinds of
security threats, and for maintaining integrity as the supplier of services
to external and internal customers.

The Bank's IT proficiency was recognized in the Indian Banking Technology
awards conducted by IBA (Indian Banks Association) in January 2009 and the
Bank received awards in the categories of (a) Best use of Business
Intelligence, and (b) Rural Initiatives for Financial Inclusion, from among
the 10 categories of awards.

OPERATIONS AND COMPLIANCE:

Operational procedures for delivery of products and services were
constantly refined during the year under review from the perspective of
implementation of best practices, risk identification and containment. An
operational framework has been established in order that all transactions
are handled with precision. Operational parameters and control functions
were refined to ensure efficient functioning of branches.

The Bank continued to vigorously pursue its commitment in adhering to the
highest standards of compliance and management of compliance risks in the
current global meltdown. The existing products and processes were subjected
to vetting from the compliance standards during the year in accordance with
the Bank's compliance policy, which is based upon the rules, laws and
standards of regulatory as well as non-regulatory bodies, both domestic and
overseas. During the year, the mechanism for monitoring and identification
of suspicious transactions in accordance with the regulatory requirements
was further reinforced. The technological initiatives undertaken for
dissemination of regulatory/internal guidelines and inculcation of
compliance culture at the grass roots level were well received. The skill
sets of staff on implementation of regulatory guidelines on 'Know Your
Customer' norms and fraud prevention were strengthened during the year.

Focused efforts were made at all levels to ensure prompt redressal of
customer grievances. The code of commitment of micro and small enterprises
was adopted during the year to support the development of this segment.

Suitable steps are being undertaken to meet the emerging challenges in the
identification of unusual transactions through customer profiling and
inculcation of a compliance culture at the grass-root level. Introduction
of a compliance self-testing template for business functions and branches
is expected to aid the achievement of compliance objectives of the Bank. No
instance of compliance failure was registered during the year against the
Bank by any of the regulators.

CORPORATE BANKING OPERATIONS:

Corporate Banking Operations (CBO) within the Bank involves monitoring the
accounts of large/mid-corporates and SME customers while ensuring
compliance with the regulatory guidelines and systems and procedures of the
Bank in the conduct of credit operations. CBO Division is created at
branches where advances exceed Rs. 50 crores, in order to ensure that the
operational risks in monitoring the advances and other related issues are
well mitigated. In case of other branches, trained and experienced manpower
is posted when the number of borrowal units and the advances level exceed a
minimum threshold level.

As part of business process re-engineering, 8 city specific centralised CBO
Hubs called Credit Management Centres (CMCs) have been opened during the
year for standardizing the skill pool for efficient monitoring and control
of advances. Facilitation Centres have been set up at select branches of
these 8 centres for providing prompt customer service in co-ordination with
CIVIC. Other branches located at these cities have been mapped to the
closest facilitation centres for all their credit, domestic trade finance
and related operations. CBO Divisions and CMCs handled 86% of the Bank's

total domestic non-retail credit portfolio, ensuring that trained and
experienced personnel are monitoring a substantial percentage of advances.

INTERNAL AUDIT:

The Bank's Internal Audit function performs an independent and objective
evaluation of the adequacy and effectiveness of internal controls. This
ensures that the operating and business units adhere to systems and
procedures as also regulatory and legal requirements. The effort is to
continuously benchmark against international best practices and procedures
in the area of internal control systems. It is also pro-active in
recommending quality enhancement measures in operational processes based on
audit findings. Internal Audit department has conformed to 'Quality
Management System' (QMS) and its internal processes have been certified to
be ISO 9001:2000 compliant by International certifying agency M/s Det
Norske Veritas AS, Netherlands.

The Bank's Internal Audit function undertakes a comprehensive risk based
audit of all branches, retail asset centres and service branches. An annual
audit plan is drawn up on the basis of a risk profiling of auditee units.
The scope of risk-based internal audit encompasses the examination of
adequacy and effectiveness of internal control systems, as well as external
compliance and evaluating the risk residing at the auditee units. Central
Office departments of the Bank are also subjected to inspection and audit.
Around 60% of the Bank's total business and 75% of total advances are
subjected to concurrent audit. Information System audits are also conducted
at all the branches, the Banks' Data Centre, Business Continuity Centre as
also all the relevant departments at Central Office. Internal Audit has
also developed an effective off-site surveillance system. During the year,
the operations of the Internal Audit function have been decentralized by
opening Zonal Internal Audit offices at four metros namely Delhi, Chennai,
Kolkata and Mumbai for better operational efficiency and quicker turnaround
time.

To ensure independence, the Internal Audit Function has a reporting line to
the Audit Committee of the Board, which oversees its performance and
reviews the effectiveness of controls laid down by the Bank and compliance
with regulatory guidelines.

CORPORATE SOCIAL RESPONSIBILITY:

Through the Axis Bank Foundation, the Bank seeks to define and effectively
fulfill its Corporate Social Responsibilities as a corporate citizen and
has therefore agreed to allocate upto one percent of its net profit every
year to the Foundation for its activities. During the year, the Foundation
partnered with sixteen more NGOs, taking the partnership to a total of 41
NGOs, for educating underprivileged children and special children all over
India. The Foundation has committed grants for projects running upto three
years. 536 education centres, involving 12 States are covered by the
Foundation programmes. 47,055 children are covered under the programmes
that include 24,313 girls and 22,742 boys. The projects supported by the
Foundation include focusing on quality education for the underprivileged
child (with a special focus on the girl child), focusing on early childhood
programmes for 2-6 year olds, focusing on projects that encourage
'Inclusive Education' for physically challenged children, supporting
programmes to handle the Highway Rescue project, and teacher training
programmes which result in competencies to teach pre-primary and primary
school children.

HUMAN RESOURCES:

The ultimate aim of the Human Resources function is to build and manage a
motivated pool of professionals by grooming internal resources and
recruiting the right skills from the market, develop a high performance
work-ethic and create a culture of continuous learning and skill
development. One of the major platforms on which the success of the Bank's
corporate strategy rests is bringing on board the requisite skills within
the overall ceiling of the manpower budget. Although the economic downturn
in the latter half of the year brought in its wake a larger availability of
manpower in the market, the challenge that emerged was to ensure against
any dilution in the quality of talent while fulfilling the targeted
numbers. There was a net staff increase of 5,885 over 2007-08 translating
to a growth of 40% compared to a 48% growth in the previous year.

The overseas staff complement has grown almost twofold from 44 to 90 in the
same period in tune with the growth in businesses at our overseas centres.

Besides recruitment, attrition management learning and skill development
and management of performance are the other key areas of the Human
Resources function. Employee engagement measures like a competitive
compensation structure, performance linked rewards and incentives, a merit-
based promotion process, ongoing interactions with staff at all levels and
providing staff with opportunities to seek aspirational roles through
internal job postings, contribute to retention of staff at all levels.
There has been a significant reduction in the year-end attrition level
compared to the previous year.

The Bank's Performance Management system, where recognition is directly
related to performance, sends a clear message of meritocracy.

The ultimate aim of the training process is to create a knowledgeable pool
of talent delivering optimum value to customers, which we believe our
training initiative has been able to achieve. One of the major challenges
in this regard is the requirement to scale up training bandwidth to keep
pace with the growing workforce. The training team has lived up to this
challenge through focused programmes for newly recruited employees as well
as for the more experienced domain specialists. A combination of classroom
sessions, external programmes and e-learning initiatives are part of the
training module. In the process, training man-days have registered an
increase of 71% in the year under review as against 62% in the earlier
year.

Axis Bank continues to be a young Bank with an average age of 29 years and
a talent pool comprising a mix of new recruits and experienced officers.
The Bank also continues to espouse the policy of affirmative action by
being an equal opportunity employer.

Your Bank will continue to pursue the objective of accomplishing its
corporate mission and core values through fulfillment of its Human
Resources agenda for the eventual purpose of delivering a high level of
customer satisfaction.

Besides recruitment, attrition management learning and skill development
and management of performance are the other key areas of the Human
Resources function. Employee engagement measures like a competitive
compensation structure, performance linked rewards and incentives, a merit-
based promotion process, ongoing interactions with staff at all levels and
providing staff with opportunities to seek aspirational roles through
internal job postings, contribute to retention of staff at all levels.
There has been a significant reduction in the year-end attrition level
compared to the previous year.

The Bank's Performance Management system, where recognition is directly
related to performance, sends a clear message of meritocracy.

The ultimate aim of the training process is to create a knowledgeable pool
of talent delivering optimum value to customers, which we believe our
training initiative has been able to achieve. One of the major challenges
in this regard is the requirement to scale up training bandwidth to keep
pace with the growing workforce. The training team has lived up to this
challenge through focused programmes for newly recruited employees as well
as for the more experienced domain specialists. A combination of classroom
sessions, external programmes and e-learning initiatives are part of the
training module. In the process, training man-days have registered an
increase of 71% in the year under review as against 62% in the earlier
year.

Axis Bank continues to be a young Bank with an average age of 29 years and
a talent pool comprising a mix of new recruits and experienced officers.
The Bank also continues to espouse the policy of affirmative action by
being an equal opportunity employer.

Your Bank will continue to pursue the objective of accomplishing its
corporate mission and core values through fulfillment of its Human
Resources agenda for the eventual purpose of delivering a high level of
customer satisfaction.