IDBI Bank - Annual Report - 2008-2009

IDBI BANK LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

The Board of Directors of your Bank has the pleasure of presenting its
Report on the business and operations of your Bank for the financial year
ended 31st March 2009. Strategic initiatives implemented during the year,
benefited your Bank immensely, reflecting improved performance in various
key business areas. Your Bank attained new heights with total business of
Rs.2,15,829 crore at end-March 2009, comprising Rs. 1,12,401 crore of
deposits and Rs.1,03,428 crore of advances. Total assets reached
Rs.1,72,402 crore, registering a growth of 31.9% during the financial year.
Performance highlights of your Bank for the period under review are
presented in Table 1.

Table 1 : Financial Highlights:

(Rs. crore)
Particulars As at year-end
2007-08 2008-09

Capital 724.8 724.8
Reserves & Surplus 8,097.2 8,699.1
Deposits 72,998.0 1,12,401.0
Borrowings 43,823.0 44,417.0
Other Liabilities & Provisions 5,051.4 6,160.4
Total Liabilities 1,30,694.4 1,72,402.3
Cash & Balances with RBI 6,694.8 8,590.8
Balances with Banks and Money at call & 2,064.0 2,628.5
Short Notice
Investments 32,802.9 50,047.6
Advances 82,212.7 1,03,428.3
Fixed & Other Assets 6,920.0 7,707.1
Total Assets 1,30,694.4 1,72,402.3
For the period 2007-08 2008-09
Total Income 9,622.7 13,021.6
Total Expenses (other than provisions) 8,323.2 11,643.7
Provisions (other than tax) 476.8 392.3
Profit Before Tax 822.7 985.6
Provision for Tax 93.2 127.1
Profit After Tax 729.5 858.5

Profit and Appropriations:

During the financial year April 2008-March 2009, gross income of your Bank
amounted to Rs.13,021.6 crore, contributed by interest income of
Rs.11,631.7 crore and other income of Rs.1,389.9 crore. Total expenditure
of your Bank, during the year, excluding provisions and contingencies,
stood at Rs.11,643.7 crore, consisting Rs.10,305.8 crore of interest
expenses and Rs.1,337.9 crore of operational expenses. With the provision
of Rs.373.3 crore towards bad & doubtful debts and investments, Rs.19 crore
towards incremental prudential provisions for standard assets, and Rs.127.1
crore towards tax, total provisions during the period amounted to Rs.519.4
crore.

Your Bank's working during the year resulted in a Profit Before Tax (PBT)
of Rs.985.6 crore. Considering a provision of Rs.127.1 crore towards
taxation, Profit After Tax (PAT) amounted to Rs.858.5 crore. Appropriation
of PAT as approved by the Board of Directors is given in Table 2.


Table 2: Appropriation of Profits:

(Rs. crore)
Particulars 2007-08 2008-09

Net Profit/(Loss) for the year 729.5 858.5

Profit/(Loss) brought forward 1,314.9 21.0

Profit available for appropriations 2,044.4 879.5

Appropriations:

Transferred to Statutory Reserve 183.0 215.0

Transferred to Capital Reserve 3.1 106.3

Transferred to General Reserve 1,600.0 250.0

Transferred to Special Reserve created and 70.0 25.0
maintained u/s. 36(1)(viii) of IT Act, 1961

Dividend:

- Equity Shares 145.0 181.2

- Tax on Dividend 22.3 30.8

Balance of Profit carried to Balance Sheet 21.0 71.2

* Proposed.

For each share with face value of Rs.10, Earning Per Share (EPS) during the
year stood at Rs.11.9 and Book Value Per Share stood at Rs.102.3 as at end-
March 2009. The Directors have the pleasure of recommending dividend at 25%
on the fully paid-up equity capital for the financial year 2008-09.

Capital Adequacy:

Capital Adequacy Ratio (CAR) of your Bank is computed in adherence to norms
prescribed by RBI in order to become Basel-II compliant. The Credit Risk
follows the Standardized Approach, whereas Market Risk complies with
Duration Method of Standardized Approach and the Operational Risk conforms
to Basic Indicator Approach. Against the stipulated RBI norm of 9%, your
Bank's CAR as at end-March 2009 worked out to 11.57%. The Tier-I CAR also
was at a comfortable level of 6.81%.

Business Strategy:

Your Bank has adopted a strategy of developing a larger client base in the
mid-corporate, SME and retail sectors, while nurturing the deep
relationships that already exist in the large corporate sector.

The strategy aims to develop a more retail base in both assets and
liabilities leading to a more diversified balance sheet as well as
improvement and sustainability in the Net Interest Income. The strategy
also focuses on leveraging the Bank's experience in project/infrastructure
financing to become a larger player in investment banking, yielding higher
fee-based income. Your Bank has also adopted aggressive strategies for
gaining higher market share in transaction banking activities for boosting
non-fund based income. The customer-centric business model adopted by your
Bank would increasingly play a supportive role towards effective
implementation of business strategies.

New Business Initiatives:

In line with gaining popularity of mobile phones and improvement in their
security features, the banking regulator allowed mobile based transaction.
In order to reap the benefits of the opportunities arising out of the
mobile technology revolution your Bank has launched 'Mobile Payment
Solutions', which is a secure and convenient payment option by use of
mobile phones. The product includes payments for the purchase of goods and
services from mobile phone and fund transfers subject to prescribed limits.
Your Bank launched 'IDBI Sulabh Vyapar Loan' that aims to provide hassle
free finance to Small Business Enterprises including Small Retail Traders.
An individual or a firm (partnership or proprietorship) engaged primarily
in buying and selling mercantile goods is eligible for this mode of
finance. The scope of the product was further enlarged to cover wider
customer segment, such as travel, tourism, hotels, restaurant, health and
education, etc. Your Bank also floated a loan scheme in the SME domain for
Professional and Self Employed engaged in the business covered under
service sector.

The Bank has obtained mandate for collecting sales tax in Maharashtra. With
regard to tax collection your Bank is one among the top banks in the
country.

Your Bank has successfully implemented the Agriculture Debt Waiver and Debt
Relief Scheme (ADWDRS)-2008 announced by Central Government.

During the financial year 2008-09, the Bank has opened a Currency Chest at
Chennai taking the total number to four. The fifth Currency Chest at
Panchkula is expected to become operational by the end of first quarter of
current fiscal. The Bank has also obtained 'In-Principle' approval from the
RBI for establishment of Currency Chests at Hyderabad, Ahmedabad and Pune.

In order to improve our performance in strategic lines a Performance
Acceleration Programme (PAP) 'Project Lakshya' was implemented focusing
renewed thrust on boosting current account and fee-based income. The
project has made significant contribution and has imparted lot of dynamism
in the operating domain. The project was executed through boot camps in
different centers and periodic reviews through tele-conferencing.

The Bank, during the course of the year, has implemented a series of
measures to ensure improved customer satisfaction and cultivated the motto
of 'Customer first'. In this direction, the Bank has organized Customer
Grievance Redressal Week during November 17-22, 2008 in all its branches.
The unresolved issues were addressed at Customer Care Centre (CCC) for
appropriate action. In order to further strengthen our relationship with
customer, your Bank organized 'Grahak Sahayata Abhiyan (GSA)' at selected
cities.

Organisational Structure:

Your Bank has effectively realigned its policy and procedure in order to
derive optimum benefits from its 'customer-focused vertical model'
implemented during the previous financial year. Redeployment of work force
was carried out on the basis of skill set mapping and reorientation in the
business model, reflecting priorities with regard to remunerative lines of
business.

During the year, your Bank also implemented a new Fund Transfer Pricing
(FTP), based on the market linked bid and offer rates. The new FTP system
enables rational and transparent pricing decisions. It also forms a
scientific basis for evaluating the performance of products/ verticals.

During the period under review your Bank increased its branch network to
509 comprising 179 metropolitan branches, 175 urban branches, 100 semi
urban branches and 55 rural branches.

Board of Directors:

Bank's Board of Directors is broad based and constitution thereof is
governed by the provisions of the Banking Regulation Act, 1949, the
Companies Act, 1956, the Articles of Association of the Bank and satisfies
the requirements of corporate governance as envisaged in the Listing
Agreement with the Stock Exchanges. The Board functions through itself as
well as various Board Committees constituted to provide focussed governance
in important functional areas of the Bank.

As on March 31, 2009, the Board comprised of 11 Directors with 3 Executive
Directors (including Chairman), 2 Non Executive Directors and 6 Independent
Directors. Shri Yogesh Agarwal, Chairman & Managing Director as Executive
Chairman, Shri O. V Bundellu and Shri Jitender Balakrishnan, Dy. Managing
Directors as Wholetime Directors, Shri Arun Ramanathan and Shri Ajay
Shankar, Central Government officials as Non Executive Directors, Shri
Analjit Singh, Smt. Lila Firoz Poonawalla, Shri K. Narasimha Murthy, Shri
H. L. Zutshi, Shri A. Sakthivel and Shri Subhash Tuli as Independent
Directors constitute the Board.

No Director on the Board of your Bank is in any way related to any other
Director on the Board of the Bank.

Apex Committees:

The Board has in total seven committees, namely, Executive Committee, Audit
Committee, Shareholder's/ Investor's Grievance Committee, Frauds Monitoring
Committee, Risk Management Committee, Customer Service Committee and
Information Technology Committee.

Corporate Governance:

Your Bank is committed to adopting the best practices in the area of
corporate governance. Your Bank believes that proper corporate governance
is not just a requirement for regulatory compliance, but also a facilitator
for enhancement of shareholders' value. The details of corporate governance
practices followed in your Bank are given in this Annual Report as a
separate section under Management Discussion and Analysis.

Disclosure regarding Remuneration of Employees under Section 217(2A) of the
Companies Act, 1956:

There were no personnel in the services of the Bank for the whole year who
were in receipt of remuneration of over Rs.24 lakh per annum. Further, no
personnel, who were in the service of the Bank for part of the year,
received remuneration in excess of Rs.2 lakh per month for the period they
were in the service of the Bank.

The provisions of Section 217(1)(e) of the Act relating to conversion of
energy and technology absorption do not apply to your Bank.

Directors' Responsibility Statement:

The Board of Directors hereby declares and confirms that:

(i) In the preparation of accounts, the applicable accounting standards had
been followed along with proper explanation relating to material departure.

(ii) The Directors had adapted such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of your
Bank at the end of the accounting year and of the profit or loss of your
Bank for that period.

(iii) The Directors had taken proper and sufficient care for the
maintenance of adequate accounting records, in accordance with the
regulatory provisions, for safeguarding the assets of your Bank and for
preventing and detecting fraud and other irregularities.

(iv) The Directors had prepared the accounts on a going concern basis.

Auditors' Report:

As regards emphasis and observations in the Auditors' Report, attention is
invited to note No.16 of Notes to Accounts (Schedule 18), which is self
explanatory.

Acknowledgements:

The Board of Directors of your Bank expresses its sincere thanks to the
Government of India, Reserve Bank of India (RBI), Securities and Exchange
Board of India (SEBI) and the Insurance Regulatory and Development
Authority (IRDA) for their valuable co-operation and guidance. The Board
also acknowledges the co-operation and support rendered by the State
Governments and other banking/ financial institutions. The Board desires to
thank various multilateral institutions and international banks/
institutions for their periodic support. The Board takes this opportunity
to thank all its shareholders and customers for extending their support
during the year and looks forward to their continued association in the
years ahead. The Board appreciates sincere and devoted services displayed
by its entire staff and highly value their commitment in improving your
Bank's performance.

Place: Mumbai Yogesh Agarwal
Date : April 24, 2009 Chairman & Managing Director

MANAGEMENT DISCUSSION AND ANALYSIS:

Business Environment:

Global Economic Scenario:

During the large part of the financial year 2008-09, the leading financial
markets across the globe developed strains and remained subdued with the
adverse outcome of sub-prime. crisis. Following the financial meltdown,
global economic growth slowed down considerably reflecting withdrawal of
economic activities. Private consumption expenditure and investments came
down due to uncertainty and value erosion. The downward spiral spilled over
to destinations with deep impact on economies, which are closely integrated
with the global economy.

International trade took severe hit and activities in services sector
dampened, causing higher unemployment and therefore reduced demand and
manufacturing activities. The commodity prices plummeted leading to decline
in headline inflation.

Policy concerns at international level were to restore basic functionality
of the severely affected financial sector and instill confidence thereon.
At the outset, capital infusion was provided and direction was given to
weed out toxic assets. Liquidity level was normalized and interest rates
brought down suitably to catalyse economic activities. Monetary and fiscal
policies were tuned to play a supportive role in augmenting aggregate
demand and suitably stand by the corporate sectors. The fiscal stimulus
implemented, so far, is expected to restore health of economy and augment
growth prospects.

Domestic Business Environment:

Powered by the size of domestic market, Indian economy exhibited resilience
to the pull down pressure germinated across the border. The financial
market continued to function in orderly fashion despite paralytic symptoms
visible across advanced markets. However, the economic growth momentum
slowed down and capital inflow thinned out leading to subdued capital
market and erosion in overall business sentiment. The movement in Index of
Industrial Production (IIP) deteriorated, exports affected adversely and
the outsourcing assignments remained weak. On the brighter side, the
headline inflation decelerated, food and oil prices softened and liquidity
remained at comfortable level. Moreover, the fiscal adjustment is expected
to favour encouraging strategies to rejuvenate the growth nerves and focus
on long term sustainability of real sector performance.

REAL SECTOR:

Gross Domestic Product (GDP):

As per the revised estimates of the Central Statistical Organisation (CSO),
growth momentum of the domestic, economy is estimated to be 6.7% during
2008-09 as compared to 9.0% during 2007-08. When the global economy is
stumbled, such a growth may be viewed with positive prospects. All the
constituent sectors experienced reduced growth, where the downslide is more
prominent in case of agriculture and manufacturing sectors.

Investment & Industrial Scenario:

The rising trends in gross domestic investment and savings, as depicted in
figure 1, augur well for the sustainable development of the economy.

Figure 1: Trends in Investments & Savings (as % of GDP):


Year Gross Domestic Gross Domestic
Investment Savings
2003-04 27.5 29.8
2004-05 32.1 31.7
2005-06 35.5 34.2
2006-07 36.9 35.7
2007-08 39.1 37.7

During the fiscal year 2008-09, Index of Industrial Production (IIP)
recorded a growth of 2.4% as compared to a growth of 8.5% achieved during
2007-08. As per use-based classification, growth in IIP was largely driven
by capital goods (7.0%) and consumer goods (4.4%).

Figure 2: Sectoral Growth of IIP (%):

2007-08 2008-09

Basic Goods 7.0 2.7
Capital Goods 18.0 7.0
Intermediate Goods 8.9 -2.7
Consumer Goods 6.1 4.4
IIP (General) 8.5 2.4

The index of six infrastructure industries (accounting for a weightage of
26.7% in IIP) viz. electricity, crude oil, petroleum refinery products,
coal, finished steel and cement witnessed a growth rate of 2.7% during
2008-09 (5.9% during 2007-08).

Foreign Exchange Reserves & Exchange Rates:

As at March 31, 2009, India's foreign exchange reserves stood at USD 251.99
billion, which were lower by USD 57.74 billion compared to end-March 2008.
During 200809, forex market exhibited turbulent features owing to failure
of globally active banks. Exchange rate for USD as at end-March 2009 stood
at Rs.50.95 as compared to Rs.39.97 as at end-March 2008.

Inflation:

Managing inflationary situation remained a daunting task for the monetary
authority during the large part of the fiscal. Even it had to sacrifice
growth momentum in order to bring inflation under control. However,
following the slackening economic activities, commodity prices including
oil, came down and thereby eased the pressure on price rise. Wholesale
Price Index (WPI) which was hovering over 10% cooled down to even less than
1% at end-March 2009.

Liquidity and Interest Rates:

The year went through deep volatility with regard to liquidity causing
higher oscillation in interest rates. Withdrawal of portfolio investments,
through FII route, led to liquidity dryness and severely damaged the
domestic equity market. In order to lubricate the economy, RBI eased the
reverse repo and repo rates. CRR and SLR were adjusted downward in order to
leave larger lendable resources with banks. Domestic banks, more
importantly the public sector banks, continued to extend credit to
productive sectors of the economy.

Future Outlook:

The economic outlook, which was rather uncertain in recent past, is getting
a bit clearer at present. Ample signals in the form of decline in exports,
narrowed capital inflows, lower remittances, depressed capital market
conditions, tighter funding conditions and higher delinquencies, signify
continued dominance of pull down pressure in the short run. Stimulating
fiscal measures are in the right direction to rekindle the growth
prospects. But larger fiscal imbalances imply constrained action from
Government. In such a scenario, monetary policy needs to provide growth
impetus. Controlled inflation, attractive domestic savings and low oil
prices are some of the positive factors, which would fuel investment in the
economy. Though gradual, an efficient push is warranted to ignite the
growth momentum and break the downslide of the business cycle. In this
context, emphasis on infrastructure needs to be reinforced and implemented
on priority basis. A good monsoon would further brighten the growth
prospects. Though market conditions would remain under pressure and
volatile, growth of the economy is expected to remain above 5.5% during FY
2009-10. Such growth momentum and the revival plan would bestow sufficient
platform to commercial banks in order to enlarge their business level. Your
Bank is currently well poised in terms of its infrastructure and policy
directions, to play a larger role in the growth story of the economy and
optimise its performance indicators.

Business Review:

Corporate Finance:

Your Bank provides complete solution catering to financial requirements of
corporates. It is one among the leaders in project finance. Your Bank also
offers a wide array of corporate banking products under various business
segments such as Deposits, Cash Management Services, Central and State
Government agency business (both direct and indirect taxes), Trade Finance
and Treasury Products.

Your Bank has achieved impressive growth of more than 80% in Trade Finance
business covering Letter of Credit and Bank Guarantee products. The Bank
has also improved export credit disbursement by 17%.

Your Bank has expanded the network of branches that offer trade services to
cover new centres like Bhubaneshwar, Ludhiana, Guwahati, Udaipur, Kolhapur
etc. to support the SME strategy of the Bank. Your Bank is one of the
select banks to successfully implement the Structured Financial Messaging
Service (SFMS) for transmitting domestic trade related messages through a
secured electronic platform. Further, during the year, your Bank has
implemented next generation cash management system called i-cashweb, a web-
based CMS solution.

Your Bank was the first bank to offer online collection of direct taxes
through Internet and is also one of the first banks to commence online
collection of indirect taxes such as Central Excise Duty and Service Tax.
Your Bank is now approved for collection of Sales Tax in Maharashtra. Your
Bank has also tied up with Stock Holding Corporation of India Ltd. (SHCIL),
the Central Record-keeping Agency to offer e-stamping at various branches.

Infrastructure Finance:

Your Bank continues to remain a prominent player in infrastructure
financing. It has been in the forefront in structuring and financing of
infrastructure projects in the areas of power, telecom, roads, airports,
seaports, railways and logistics as well as Special Economic Zones (SEZs),
ever since the infrastructure sector was opened to private investment, and
a significant share of its aggregate assistance goes to infrastructure
sector.

Your Bank is a member of the Core Committee of the Government, which has
been set up for finalisation of the Ultra Mega Power Projects (UMPPs). Your
Bank continues to provide assistance to road projects considering the
importance of road infrastructure development for achieving higher growth
in the national economy. Your Bank has also taken initiatives in funding
urban transit systems, green power projects, seaports and airports under
the Public-Private Partnership (PPP) route.

Recognising the critical role of infrastructure development in the growth
of national economy and also the huge investment required in the sector,
focused approach was followed to provide end-to-end solutions to the
infrastructure companies viz. corporate advisory, syndication of debt /
equity, financial structuring, term loans, working capital, securitisation
and other related services.

Retail Finance:

Your Bank has plans to increase the share of retail business by expansion
of its network, designing innovative product offerings, enlarging the
client base and improving the yield. During the year, your Bank added
various segmented new products in savings, current and term deposits to the
existing bouquet of products. New savings accounts products catering to the
special needs of senior citizens, pensioners and top-end HNI customers with
tailor made facilities were introduced. New current account products viz.
Universal and Easy access accounts were introduced with additional free
facilities targeted at small traders and businesses, which showed good
response. Improvements in existing products are continuously carried out to
increase the customer satisfaction level.

Your Bank has emerged as one of the major players in the retail segment
offering a range of products under its asset base. To meet the diversified
needs of the retail customers, an array of innovative Retail Asset
products, both Secured (Housing Loan, Mortgage Loan - both Residential and
Commercial, Plot Loan, Loan for Commercial Property Purchase, Reverse
Mortgage Loan, Loan against Securities and Loan against Deposits) and
Unsecured (Personal Loans, Educational Loans and Overdraft to Merchant
Establishments) were offered to prospective retail customers. During the
year, your Bank focused on secured loan products and launched an aggressive
campaign to boost Mortgage Loan portfolio. With a view to aggressively
marketing its home loan business, your Bank successfully conducted IDBI
Bank HOMES 2009' - property exhibitions at 7 centers viz. New Delhi,
Jaipur, Pune, Chennai, Hyderabad, Bangalore and Bhubaneswar during the
fourth quarter of 2008-09. The exhibitions generated encouraging response
in terms of home loan leads as well as business networking among reputed
builders in respective locations. During the year, your Bank also
participated in various Property Exhibitions at major centers such as
Mumbai, Vashi, Thane, Pune, Kolkata, Chennai, Delhi, Jaipur, Chandigarh and
Hyderabad. Today, your Bank is perceived to be one of the dominant and
competitive players in the Home Loan segment. Despite the general economic
slowdown, the housing loan segment has witnessed steady growth. Your Bank
attached great importance to Education Loan for the needy and deserving
students. It has. moved a step ahead in the Education Loan segment by
having tie-up with premier institutions across the country. With a view to
ensuring wider geographical coverage and to tap the potential
opportunities, your Bank has opened 8 new Retail Asset Centers (RACs)
during the year. Today your Bank is on Top of Mind Recall amongst
prospective target groups.

Your Bank is also giving a thrust for expansion of its ATM network with the
number of installed ATMs going up from 755 as on March 31, 2008 to 900 as
on March 31, 2009. The momentum would continue during the current financial
year.

Your Bank has always been at the forefront of promoting Alternate Channels
for delivery of banking products and services. As a part of these efforts,
your Bank, during the financial year 2008-09, launched its Mobile Payment
service enabling its customers to make payments for their purchases through
mobile phones. Your Bank also launched the multi currency acquiring
facility in the merchant acquisition business. As a measure of additional
security, your Bank is in the process of introducing two-factor
authentication for its I-net banking service. It is also in the process of
launching the MasterCard money send program enabling remittance of funds by
MasterCard holders to MasterCard recipients. Your Bank is also proposing to
enable its debit cards for e-commerce transactions and launch additional
variants of the debit card i.e. Kids Card and Platinum Cards aimed at
specific customer segments.

Your Bank in its effort to provide a basket of diversified financial
products to its customers has tied up with 34 AMCs for distributing their
mutual fund products. The flexibility, liquidity and tax exemptions on
investment in mutual funds attract the customers to invest in these
products. To cater the clients need for life insurance products,_your Bank
has a tie-up with IDBI Fortis Life Insurance Company Limited for
distribution of varied life insurance products, like wealthsurance,
bondsurance, homesurance etc.

Your Bank has an arrangement with Bajaz Allianz for selling general
insurance products. Co-branded products like FamilyCare, HomeCare and
BusinessCare which cover all the categories such as asset insurance,
corporate insurance, personal accident insurance and health insurance are
being distributed.

SME Initiatives:

Your Bank continued to give thrust on increasing exposure to SMEs, which is
considered to be growth engine of the Bank. The Bank has developed a
special business model to serve the SMEs in India. Pursuant to formation of
a dedicated vertical for SME customers, your Bank has plans to set up 40
City SME Centres (CSCs) out of which 15 CSCs have already been opened.
While CSCs are the Bank's hubs to serve SME clusters, dedicated SME desks
have been set up in several branches across the country. CSCs would provide
support in terms of loan processing and would undertake back office related
activities to buttress the credit delivery mechanism while branches serve
as front offices for sales and customer service. At branches the dedicated
Relationship Managers (RMs) are the single points of contact for the
customer.

In its efforts to reach out to all types of customers, your Bank has been
continuously developing customized products for SMEs from time-to-time.
Your Bank has launched two new products for traders and professionals &
self-employed viz. IDBI Sulabh Vyapar Loan & IDBI loans to Professionals
and Self Employed. Your Bank has also signed MOUs with leading automobile
companies for providing channel finance and guarantees to their authorize
dealers.

Your Bank has effectively implemented the MSME Package suggested by the
Government of India. The various measures which the Bank has initiated
under the package include grant of need-based adhoc working capital demand
loan, increase in working capital limits, reduction/relaxation in margin,
extension of moratorium period, reschedulement /rephasement of term loan
etc.

Agriculture and Microfinance:

Agri business of your Bank consists of a mix of retail agri lending,
corporate agri lending and funding to farmers through corporates. Special
focus on cooperative sector has been given to improve their access to
formal lending, thereby enabling the benefits to trickle down to the
ultimate stakeholders i.e. the member farmers.

Products like 'Loan against Crop Receivables', 'Ware House Receipt
Finance', 'Loans to Micro Finance Institutions' and 'Agriculture Gold
Loans' have been well accepted in the market.

'In order to reduce the turn-around time, 12 Agri Processing Centers have
been set up across the country. Further, more clusters are proposed to be
added in the current year commensurate with the expansion in branch
network.

Branches are being equipped with requisite manpower and are making
concerted efforts to look for opportunities in deepening the credit flow to
farmers. The officers have been imparted necessary skill sets in the field
of marketing, credit appraisal, legal issues, etc. Also, officers are being
sent to other institutions to enable them to contribute in terms of
designing new products and evolving new strategies to increase the
business.

Your Bank has successfully implemented the Agriculture Debt Waiver and Debt
Relief Scheme (ADWDRS)-2008 announced by Government of India.

Financial Inclusion:

In addition to the mandate of providing development finance, your Bank
stands committed to financial inclusion and in this endeavour designs
products and services catering to wider sections of the society. As a first
step in this endeavour, your Bank had earlier launched the 'Sabka' savings
account with an intention to make basic banking services accessible to a
vast majority of the unbanked and underbanked population. The facility
offers core-banking facilities and conveniences at a low average balance
requirement. The scheme was subsequently further modified so as to cover a
wider network of customers. Your Bank initiated the mobile cash van in
Satara to serve the surrounding areas.

Environment Protection Schemes:

Your Bank has undertaken a pioneering role in the Indian banking sector in
the area of environmental banking. Besides offering various banking
services, your Bank has been providing services in the area of Clean
Development Mechanism (CDM) under the Kyoto Protocol. Your Bank has also
been acting as an intermediary for World Bank funding under Ozone Depleting
Substances (ODS) Phase Out schemes since 1991.

Carbon Credit Services:

Your Bank has set up a team for climate change and more specifically on
carbon credits/emission trading advisory. The team facilitates all the
services relating to carbon credit market viz. Funding of the CDM projects,
Advisory Services for Trading of CERs and VERB, Upfront Financing Against
the Carbon Credits/Carbon Credits Receivables, and Services for
Programmatic CDM.

During the year, your Bank has completed 10 advisory/ trading assignments
and more than a dozen assignments are in progress. A new product -'Scheme
for upfront financing against carbon credit receivables' was introduced and
5 cases assisted under the scheme during the year.

Ozone Depleting Substances (ODS) Phase-out projects:

Your Bank is acting as Financial Agent (FA) for the World Bank (WB)
administered Ozone Depleting Substances (ODS) Phase-out Projects (ODS III &
IV) of Ozone Trust Fund (OTF) for implementation of the projects aimed at
phasing out production and use of Chlorofluoro Carbon (CFC) and Carbon
Tetra Chloride (CTC) in India. During the year, your Bank earned USD 0.34
million (Rs.1.59 crore) as fee-based income for disbursement of grant funds
aggregating USD 7.60 million (Rs.35.05 crore) to the beneficiaries under
these projects. Cumulatively, upto March 31, 2009, aggregate funds
equivalent to USD 107.99 million have been disbursed through your Bank
under ODS III & IV projects.

Treasury Operations:

Your Bank has an integrated Treasury.at its Head Office covering various
operations including Money Market, Foreign Exchange, Derivatives and Equity
trading operations for optimum management of funds and returns while
providing a range of treasury products to offer efficient customer service.

Liquidity management was undertaken efficiently and effectively to tide
over tight liquidity conditions during October and November 2008. Your Bank
used various instruments including Certificates of Deposits, Inter Bank
borrowing, issuance of Bonds, Refinance from various institutions, lines of

credit, bulk deposits and foreign currency borrowings to manage liquidity
for balance sheet growth and maturity of liabilities.

The year witnessed sharp volatility in the domestic interest rate market.
The bench-mark 10 year G-Sec yield softened from a high of 9.47% in July'
08 to 5.08% by January' 09 and then again rose to 7.01% by the end of
March' 09. Treasury utilized the high interest rate opportunity to further
build up its SLR portfolio by investing in Central and State Government
securities. The SLR portfolio, however, was also used sporadically to
manage the short term liquidity mismatches by borrowing in CBLO segment
against G-Secs.

The year also witnessed increased volatility in USD INR with USD
appreciating significantly against INR and all other major currencies. The
INR depreciated reflecting slowdown in economy, huge deficit and sharp
correction in stock markets. The USD incidentally also appreciated against
major currencies like Euro, GBP and CHF.

Your Bank provided various types of customized solutions to cater to
customers for their foreign exchange requirements and hedging of their
interest rate and exchange rate risk. Your Bank's Treasury provided
competitive rates for various requirements of corporate clients for their
foreign exchange transactions, thereby ensuring a quantum jump in customer
volumes as well as forex revenues. Your Bank's Treasury has a full-fledged
marketing team, which interacts constantly with the corporate clients and
proactively provides them with information on various currencies to enable
them to effectively manage the volatilities in the currency markets.

In the derivative segment, your Bank offers currency and interest rate
derivative products to clients to hedge their respective risks. Option
structures also are offered as a hedge product to clients.

During the year your Bank became a trading and clearing member of NSE for
transacting in currency futures market to take advantage of trading and
arbitrage opportunities.

Foreign Currency Resources:

During the year under review, your Bank raised a sum of USD 467 million
equivalent from overseas banks/overseas branches of Indian Banks by way of
syndicated/ bilateral loans and inter-bank deals under the inter-Bank
Dealings Scheme of RBI. The aforesaid borrowings were raised in JPY, USD
and SGD and swapped into Indian rupee funds to supplement rupee resources,
as permitted under the Inter-Bank Dealings Scheme of RBI. As on March 31,
2009, the outstanding amount of borrowings under the scheme (USD 467 mn)
was within the permitted overall RBI stipulated limit of 50% of Tier-I
capital. The Medium Term Note (MTN) programme of USD 1.5 billion which was
filed with the Singapore Stock Exchange in 2007-08 will facilitate raising
Foreign Currency funds by way of senior debt and also Perpetual Tier I and
Upper Tier II capital in conformity with RBI Guidelines. The funds to be
raised under the MTN programme will be utilized for meeting the requirement
of FC funds for financing Indian & Overseas corporates as also to meet the
funding requirements of the proposed overseas branches of your Bank. Your
Bank also raises FC resources through NRI deposits including NRE, FCNR(B),
RFC, EEFC etc. The Bank is making overall efforts to increase its NRI
deposit base.

Cross-Border Branches:

With the larger pace of globalization, many of your Bank's valuable
customers require cross-border finance. In this direction, your Bank has
decided to make a foray into the overseas markets and also leverage its
domestic banking strengths to offer competing products internationally. RBI
has accorded approval for setting up a Wholesale Bank Branch at Bahrain, an
Offshore Banking Unit at Singapore, a Category-I branch at Dubai
International Financial Centre (DIFC) and a Representative Office at
Shanghai. Your Bank has submitted applications to Monetary Authority of
Singapore (MAS) and Central Bank of Bahrain (CBB) during FY 2007-08 and to
Dubai Financial Services Authority (DFSA) and China Banking Regulatory
Commission (CBRC), during FY 2008-09. Your Bank has received in-principle
approval from CBB for setting up a wholesale Bank Branch at Bahrain. The
Bank has also received in principle approval from DFSA for setting up a
category-I branch at DIFC.

Ratings:

Your Bank obtains credit ratings for both domestic and foreign currency
borrowings. The ratings for the rupee resources, as indicated in Table 3,
reflect high safety with respect to timely payment of interest and
principal.

Table-3: Domestic Currency Sorrowing Ratings (As on March 31, 2009):

CRISIL ICRA Fitch

Fixed Deposits FAAA MAA+ AA+(Ind)
Short-Term Borrowings P1+ A1+ F1+(Ind)
Long-Term Rupee Bonds AA+/Negative LAA+ AA+(Ind)
Hybrid Capital AA/Negative LAA AA-(Ind)

The foreign currency borrowings of your Bank are rated by international
rating agencies viz. Moody's Investor Services (Moody's), Standard & Poor's
(S&P), and Fitch Ratings. The long-term foreign currency ratings and Bank
Financial Strength Ratings (BFSR) assigned by the international rating
agencies are indicated in Table 4.

Table-4: Foreign Currency Borrowing Ratings (as on March 31, 2009):

Rating Agency Long Term Rating BFSR

Moody's Investor Services (Moody's) Baa2 D-
Standard & Poor's (S&P) BBB-/Negative C
Fitch Ratings BBB- D

While the Foreign Currency debt ratings for your Bank, as assigned by S&P
and Fitch Ratings, are at par with sovereign ratings, the rating assigned
by Moody's is one notch higher than the sovereign rating.

Hybrid Capital:

During the year, your Bank raised Hybrid Capital in the form of Upper Tier
II bonds (Rs.1,500 crore) and Innovative Perpetual Debt Instrument (IPDI),
qualifying for Tier I capital (Rs.332 crore), to shore up capital and
improve its CRAR.

Asset Quality:

As at end-March 2009, 99.08% of your Bank's loan assets were standard
assets. As at end-March 2009, sub-standard assets formed 0.47%, while
doubtful assets constituted 0.45% of your Bank's loan assets, for which
adequate provisions were made in conformity with extant prudential
regulations. Your Bank continues to pursue various recovery efforts to
improve asset quality and also augment bottom line of the Bank. During the
year, your Bank initiated several steps to settle the Non-Performing
Assets/ Fully Written-Off (NPA/FWO) cases in its portfolio. Among the
various steps undertaken were restructuring of liabilities, One Time
Settlements/ Negotiated Settlements (OTS/NS), legal action, action under
the SARFAESI Act, change of management, sale of assets to Asset
Reconstruction Companies (ABCs), induction of strategic investors etc.
depending on the specific requirements of each case.

Risk Management:

The philosophy of your Bank with regard to risk is guided by the twin
objectives of enhancement of shareholders' value and optimum allocation of
capital. Spreading awareness across the Bank, identification, measurement,
monitoring and controlling of risk, efficiently and effectively, in a
manner geared towards yielding sustained economic value, is amongst the
highest priorities of your Bank. Robust risk management is thus a key
element of your Bank's business strategy.

Your Bank has an integrated risk management function that looks after all
aspects of enterprise-wide risk management. Overall risk management is the
responsibility of the Risk Management Committee (RMC) of the Board,.of
Directors. Appropriate structure, policies and review processes are in
place in the area of risk management. A well-established, effective and
independent internal control mechanism exists in your Bank for
supplementing the risk management systems.

In order to make the Risk Management System more robust and technologically
advanced, your Bank has decided to implement an Integrated Risk Management
Architecture (IRMA). IRMA would facilitate further improvement in the
Management Information System (MIS) and help the Bank in implementing the
regulatory guidelines relevant to Basel-II accord. Your Bank has engaged an
experienced consultantfor implementation of IRMA and the project is
expected to be completed in about a year's time.

Implementation of Basel-II Norms:

Your Bank had been conducting regular parallel runs as per Basel-II
guidelines for the last two years, to ensure smooth migration to Basel-II
norms. The Bank has adopted the initial approaches under Basel-II norms
with effect from March 31, 2009, as stipulated by RBI. In being Basel-II
compliant, your Bank has put in place a Disclosure Policy which would
enable the market participants to access key information on. capital, risk
exposures, risk assessment process and adequacy of capital. An Internal
Capital Adequacy and Assessment Process (ICAAP) policy has also been put in
place to enable the Bank to internally assess all the risks it may confront
and decide on an appropriate strategy to manage such risks to the
satisfaction of stakeholders. Besides, Collateral Management Policy has
also been formulated so as to adopt requisite credit risk mitigation
techniques as envisaged in the regulatory guidelines.

Your Bank views the implementation of the Basel-II framework as a means to
adopt the best practices in risk management and has undertaken proactive
initiatives such as IRMA to upgrade systems, processes and skills to enable
the Bank to migrate to the advanced approaches in due course.

Credit Risk:

Your Bank recognises the significance of credit risk in banking operations
and has put in place a Credit Risk Management System with appropriate risk
management skill sets, which provides not only a competitive advantage in
the market place, but also positions your Bank to capitalise on the
opportunities for growth. Your Bank follows a proactive Credit Policy,
which is regularly reviewed and updated to take into account the
developments in the credit scenario. Best practices are employed through
appropriate credit delivery processes and portfolio & account monitoring. A
suite of credit rating models for the entire spectrum of your portfolio is
used for independently quantifying and managing credit risk. During the
year, the internal rating processes of your Bank have been fine-tuned for
qualitative field level inputs for achieving faster turnaround time and
accelerate credit delivery. The Rating Committee at the apex level
continues to validate credit ratings and also provides guidance to Risk
Analysts and Relationship Managers. Sector exposures and target businesses
are monitored regularly, especially for exposure to sensitive sectors.

Your Bank has adopted the Standardised Approach for credit risk as per RBI
guidelines and is in the process of further upgrading and strengthening its
Credit Risk Management System, as a part of IRMA, to migrate to the
advanced (Internal Rating Based) approaches of Basel-II.

Market Risk:

Your Bank addresses all forms of market risk, viz., liquidity risk,
interest rate risk and foreign exchange risk through a well-defined set of
policies and processes. Separate treatment is given to management of risks
in trading book and banking book recognising their differential impact on
the balance sheet. The trading book risks, which are more susceptible to
market movements, are continuously measured and managed by marking the
positions to the prevalent market rates. In order to assess the likely
impact of market movements, periodic analysis of the trading book is
carried out on the basis of positions based on changes in market rates,
past trends, stress tests through rate shocks, scenario analysis, etc. The
overall positions and functions of market risks are run under the policy
framework defined in Asset-Liability Management (ALM) Policy, Market Risk
Policy and Investment Policy.

With a view to limiting your Bank's exposure to liquidity and interest rate
risk, risk limits have been specified with Board approval. Asset-Liability
Management Committee (ALCO regularly monitors the actual risk positions and
depending upon requirements, steps are taken to keep the gap positions
within the specified level. The ALM position of your Bank is being
periodically reported to ALCO, RMC of the Board and also to RBI.

Operational Risk:

Your Bank measures, monitors and controls operational risk through a
software system 'ORBIT' (Operational Risk Business Intelligence Tool).
Branches are rated for their operational risk profile through an embedded
branch rating model using Key Risk Indicators (KRIS) developed for various
business lines. Your Bank has put in place a policy for 'Know Your
Customer' (KYC) and 'Anti-Money Laundering' (AML) requirements. As a
measure of Operational Risk Management, your Bank also conducts appropriate
training programmes to sensitise line managers across the Bank on
operational risk inherent in each function.

As a part of implementation of Basel-II guidelines, your Bank has commenced
computation of the capital requirements for operational risk under the
Basic Indicator Approach (BIA). Also, steps have been initiated, as a part
of IRMA, to upgrade the existing system and practices to migrate to
Advanced Measurement Approach.

Recognising the importance of Business Continuity Planning (BCP) for
minimizing the adverse effects of business disruption and system failure,
your Bank has put in place a Board approved broad framework of BCP In
addition, in order to provide continued and uninterrupted customer service
even during natural disasters, a Disaster Recovery. Site has been installed
and Disaster Recovery (DR) drill exercises are conducted periodically to
test the DR Plan.

Information Technology Risk:

While your Bank has been in the forefront in leveraging Information
Technology (IT) to extend better service / products to the customers and
other stakeholders, it recognizes the need for effective IT risk
management. Apart from information Security aspects, the Bank's IT risk
mitigation strategy includes aspects of compliance & privacy as well. Your
Bank has put in place an Information Security Policy (ISP) to ensure that
information is protected from unauthorized access and confidentiality &
integrity of the information is maintained along with timely availability
of IT resources to legitimate users. A high-level information Security
Steering Committee (ISSC) of your Bank ensures that provisions are in place
for continued protection of IT resources of your Bank. Apart from
conducting regular information security awareness programs for the
employees, your Bank also communicates with the customers on various
Information Security precautions through E-Mail / Mail / SMS.

Your Bank's IT infrastructure and systems have been implemented within a
robust information security framework. The centralized Data Center of the
Bank is accredited with ISO 27001. 'Defense in depth' is achieved by multi-
level information security implementations such as Firewalls, Gateway
filters, De-militarized zone (DMZ), etc. Access to the information of your
Bank is on 'need to know' basis and internal controls & processes are in
place to achieve the same. A dedicated team monitors the information
security infrastructure of your Bank on a 24X7 basis.

Management, Controls and Systems:

HR Initiatives:

During 2008-09, your Bank recruited 2435 employees (Officers 1923,
Executives 512) of which 326, 99 and 482 belong to Scheduled Castes (SCs),
Scheduled Tribes (STs) and Other Backward Classes (O'BCs) respectively. The
said recruitment also, includes 22.Persons With Disabilities, (PWD). As on
March .31, 2009,, your Bank had 10,201 employees on its rolls, comprising.
6611 Officers, 894 Executives, 1493 Clerical (Class-III) and 1203 Sub-staff
(Class-IV) employees.

During the year, your Bank unimplemented effective policies for evolving a
robust and comprehensive Human Resources IT architecture. The Human
Resource Management System [HRMS] based on Oracle platform is being made
fully operational covering. all the employee segments. This would
facilitate implementation of HR policies, role profiling & competency
mapping; Performance Management System, variable pay and modelling to suit
the changing HR needs.

Representation of Scheduled Castes (SCs), Scheduled Tribes (STs) and Other
Backward Classes (OBCs):

Your Bank has been implementing the Rules of Reservation for SCs/STs w.e.f.

April 1977 in direct recruitment and from February 1980 in promotion. Your
Bank has also been implementing reservation for OBCs w.e.f. September 1993
in direct recruitment. In terms of revised instructions of the Government
of India,,Post-Based Roster System has been duly adopted. The
representation of SCs, STs and OBCs in the total strength of your Bank in
various cadres as on March 31, 2009 is as under:

Table 5 : Representation of SCs/STs/OBCs:

Total Out of which
Strength SCs STs OBCs

Officers 6,611 715 224 711
Executives 894 171 81 282
Class-III 1,493 151 44 133
Class-IV 1,203 284 88 204
Total 10,201 1,321 437 1,330
% of Total Strength 12.95 4.28 13.04

There were 53 Ex-Servicemen and 99 Persons with Disabilities in the Bank as
on March 31, 2009. Your Bank maintains a separate Roster for PWDs, as per
Government of India guidelines.

Your Bank has appointed Chief Liaison Officers separately for SCs/STs and
OBCs at its Corporate Office,as also Zonal Liaison Officers at the Regional
levels, (with jurisdiction over the Region concerned) to effectively
redress the grievances of SC/ST/OBC employees. Your Bank conducted four
quarterly meetings1with representatives of the SC, ST, OBC and Buddhist
Employees' Welfare Association' during the year Liaison Officers,
representatives of SC/ST Association and officers dealing with
implementation of the Reservation Policy of Government, of India were
nominated for relevant programmes to keep them, abreast of the latest
developments/changes in Reservation Policy. Your Bank organized pre-
recruitment training programmes for 1860 SC/ST candidates. appearing for
written test/ interview for the post of officers and for 3093 SC/ST
candidates appearing for the post of Executives. Additionally, pre-
promotion training programmes were held for officers and sub-staff
belonging to SC/ST categories.

Human Resources - Training & Development:

Training is about achieving a better performance on capability than is
currently available it's about outcomes that favour the customer and
shareholder. Well-trained employees are the key to business success. They
are the cream of the crop, often having the strongest stake in the Bank's
future. It is against this backdrop and objective that your Bank has been
building its training infrastructure which aims to upgrade skill levels
across grades and functions through a combination of classroom sessions,
external programmes both domestic and international and through a
structured e-learning module.

During FY 2008-09, your Bank restructured the entire organization into six
business verticals. Training requirements were planned in consultation with
the business verticals to equip staff with the necessary knowledge, skills
and attitude for building capabilities to meet your Bank's goals/objectives
and to achieve service excellence. Trainings focused on pursuing a service
excellence culture, handling your Bank's expansion and coping with
regulation. To meet the vast training requirements, your Bank strengthened
its training infrastructure by setting up two additional regional training
centers at Chennai and Kolkata in addition to the already existing training
college at Hyderabad (IN IDBI Staff College), training center at Belapur
and a training set up at the Corporate Centre. Further, your Bank is in the
process of setting up a regional training center at New Delhi.

During the year, your Bank trained 7353 employees through 472 training
programmes. Of these, 265 were in-house training programmes covering 6964
participants. In addition, 370 officers were nominated for 193 external
training programmes conducted by other institutes/training organizations in
India and 19 officers were nominated for 14 training
programmes/conferences/seminars abroad.

Looking ahead, your Bank aims at initiating programmes to achieve
excellence through superior service in addition to enhancing and upgrading
the current skills of the employees on a regular basis.

Internal Audit:

Your Bank has a well-equipped Internal Audit & Regulatory Compliance
Department carrying out regular independent appraisal of all activities
undertaken by different business verticals / support verticals and
branches. The function is headed by Senior Management Personnel with
reporting lines to Chairman and Managing Director (CMD) and Audit Committee
of the Board. The audit function maintains its independence and objectivity
while carrying out the assignments. It evaluates, on a continuous basis,
the adequacy and effectiveness of internal control mechanism, adherence to
policies and procedures and suggests measures to strengthen and streamline
control for timely address of various risks. Your Bank adopted risk-based
internal audit as its strategy while carrying out the activities. Risk-
Based Internal Audit Policy was revisited during the year in line with the
change in organization structure, business policies, strategies,
procedures, processes and new products.

There is an Information System Audit in place as a part of Internal Audit
Mechanism to address technology and IT Security issues commensurate with
the nature and complexities of the operations. IS Audit Policy also was
reviewed during the year under review. Your Bank has, in line with the
regulatory requirements, put in place a comprehensive concurrent audit
system to supplement the internal audit function and a fraud monitoring
system to strengthen internal controls. The concurrent audit system is
reviewed on yearly basis.

There exists proper co-ordination between audit and other operational wings
for enhancing operational efficiency and fine-tuning of the processes.
Emphasis is placed on benchmarking your Bank's practices and procedures in
an endeavor to migrate to the best practices. The Audit Committee of the
Board and Internal Audit Committee review the performance, recommend
measures to minimize the risks, give directions to the internal audit
functionaries and review effectiveness of internal control systems as also
compliance with regulatory guidelines.

Vigilance Mechanism:

A full-fledged Vigilance Department operates at your Bank's Head Office.
The Department continues to operate as a channel for providing inputs to
the Top Management for carrying out investigation into vigilance related
complaints and to suggest corrective measures for improving the control
systems and compliance of laid down procedures. Your Bank has been
implementing the guidelines laid down by the Central Vigilance Commission
(CVC) from time-to-time for improving Vigilance Administration and has put
in place a system wherein complaints received, from the public/any other
sources, are attended to promptly.

A Vigilance Department Site has been incorporated in the Intranet of your
Bank. The Site provides an overview of the Vigilance Department, Standard
Notice of CVC to be displayed at all Branches/Offices of your Bank,
important Circulars/Guidelines/Publications issued from time-to-time by
CVC, Chief Technical Examiner's Organization (CTEO) of CVC as also by your
Bank, Know Your Customer (KYC) norms/Anti Money Laundering (AML) Policy and
Do's & Don'ts of Preventive Vigilance.

During the year, Preventive/Surprise Vigilance visits were conducted to
various Branch Offices to examine their functioning and adherence to
Systems & Procedures, KYC Norms and AML Guidelines and corrective measures
were suggested, wherever necessary. With a view to spreading Vigilance
Awareness, four interactive Workshops on 'Vigilance Awareness' with focus
on Preventive Vigilance were conducted at various places, pan India, during
the year. During the workshops, due emphasis was laid on the need for
Preventive Vigilance to be exercised by all the staff members in their day-
to-day work and the need for Vigilance Awareness in achieving the larger
goal of organizational efficiency.

As directed by CVC, Vigilance Awareness Week was observed during November
03-07, 2008, at Head Office and Branch Offices of your Bank to sensitise
the employees about the evils of corruption.

Regulatory Compliance:

Your Bank has taken adequate steps to ensure compliance with various
Statutory & Regulatory guidelines. A senior functionary of your Bank has
been designated as Regulatory Compliance Officer to review, co-ordinate and
enhance the compliance of regulatory guidelines on an ongoing basis.

Code of Bank's Commitments to Customers:

Your Bank is a member of Banking Codes and Standards Board of India
(BCSBI), set up by Reserve Bank of India. The Board of Directors of your
Bank adopted the Code of Bank's Commitment to Customers (the Code) for
implementation. The Code is voluntary and sets minimum standards of banking
practices for banks to follow when they are dealing with individual
customers and explains how banks are expected to deal with them for their
day-to-day operations.

As an integral part of your. Bank's compliance with the Code, information
on the Code is provided to customers through display on the Bank's Website,
at the Branches, ATMs and with the Customer Statements of Accounts. Copies
of the Code have been widely distributed through the branches. Also, a copy
of the Code is provided to all new customers.

In further compliance with the provisions of the Code, posters have been
displayed at all branches of your Bank notifying availability of various
policy documents on your Bank's website as well as at branches, which can
be provided to the customers on demand. Name and contact details of .the
Code Compliance Officers are also displayed at branches and on the Bank's
website. Your Bank is undertaking all necessary steps to comply with the
evolving BCSBI guidelines on an ongoing basis. Also, it has in place
Customer Service Committee of the Board (CSCB) and Standing Committee on
Customer Service (SCCS) to ensure that Bank's products, processes and
services are periodically fine-tuned to meet the desired objective of BCSBI
of achieving customer satisfaction.

Furthermore, to bring awareness amongst the staff members, a copy of the
Code is hosted on the Bank's intranet. All the branches conduct, training
programmes for the branch staff, sales teams & collection teams for
familiarizing them with the provisions of the Code and ensuring care while
dealing with customers. Besides, special training sessions on the
provisions of the Code are being conducted at the Bank's training centers.

Right to Information Act:

In terms of the relevant provisions of the Right to Information (RTI) Act,
2005, enacted by the Govt. of India with a view to promoting transparency
and accountability in the working of every Public Authority, your Bank has
put in place a robust mechanism to deal with the applications from citizens
seeking information under the RTI Act. A number of Central Public
Information,Officers with specified functional domains have been designated
in the Bank for expeditious furnishing of information. The applications
seeking information under the said Act are dealt with as per the provisions
of the RTI Act. Further, the relevant information on compliance aspects of
the Act is available on the website of your Bank (www.idbi.com) in the
manner specified for the purpose.

Progressive Use of Hindi:

Your Bank continued to promote the use of Official Language Hindi as per
Government directives. Increased use of Hindi in publicity material has
been ensured, which indeed led to wider reach of your Bank and its products
especially in the retail segment. Display of instructions in Hindi has been
extended in more ATMs of your Bank to facilitate its customers to avail ATM
services in Hindi. As per the Government's guidelines, your Bank's website
is already in bilingual form i.e. Hindi and English.

During the period under review, necessary efforts were made to enhance use
of Hindi in technology-enabled environment. Keeping pace with the
technological changes, your Bank has started providing bilingual software
training to its staff members. Innovative steps were initiated to implement
the Official, Language Policy in various areas of operations. In order to
create awareness among staff members and familiarize them with the
provisions of Official Language Implementation Policy and Annual Programme
issued by Govt. of India, Awareness programmes were organized at various
centers pan India. As a part of Hindi Day celebration a Hindi Paricharcha
on 'Role of Indian Languages in marketing and customer service' was
organised for the senior executives of the Bank in Head Office. Your Bank
would continue its efforts for achieving the various targets set out in the
Annual Implementation Programme issued by Govt. of India. Your Bank hosted
meetings of the Financial services Department, Ministry of Finance, Govt.
of India and RBI at Indore; convened to review the implementation of
Official Language in Public Sector Banks and FIs.

During the year, the Parliamentary Committee on Official Language inspected
the Bank's New Delhi and Panjim Branch Offices and commended the efforts
made by your Bank in implementing Official Language policy.

Your Bank received award for implementation of Hindi from State Level
Bankers' Committee, Maharashtra. Your Bank's efforts to implement the
Official Language Hindi in its business has been recognized at various
levels and some branches of your Bank received awards / prizes from
Official Language Department, Ministry of Home Affairs and Town Official
Language Implementation Committees for excellent performance in usage of
Hindi.

Corporate Communications:

The advertising & publicity steps undertaken by your Bank during the year
under review were commensurate with the recent reorganization of its
business structure around customer-focused business verticals and
aspirations. The advertising & publicity initiatives were aimed at changing
the perception of your Bank in the people's mind from a 'Big thinking Bank'
which is admired, to a nimble-footed bank which is loved across customer
spectrum as the 'Bank of Choice' for all customer segments through an
intensive but cost-effective Brand campaign in different mediums of
communication viz. TV, Print, Radio, Outdoor and Online. The campaign took
forward the Brand tag line 'banking for all' emphasizing the presence of
the Bank in, all product categories and customer segments. The Brand
campaign was later dovetailed into campaigns for products like SME
Solutions, IDBI Bank Suvidha Fixed Deposit (ISFD) and Home Loans in print,
radio, and online media. Similarly, campaigns to highlight introduction of
products like payment facilities through mobile phones, products aimed at
NRIs, Infrastructure solutions, Sales Tax collection and Mortgage loans
also were run in various mediums.

As in the advertising arena, several initiatives were undertaken by your
Bank in the Public Relations (PR) domain. The overlying accent of the PR
initiatives has been to migrate IDBI Bank brand to the mind space of
customers (both existing and potential) and ensuring positive visibility of
your Bank in the media domain. It may be noted in this context that the
Brand TV commercial of your Bank was ranked one of the best in terms of
recall value by a leading business news channel and global market research
agency, in their rankings of different TV commercials. The TV commercial
also bagged the 'Gold Award' from Public Relations Council of India.

Corporate Social Responsibility Initiatives:

As you are aware, Corporate Social Responsibility (CSR) refers to the
responsibility of the organisation towards not only its stakeholders but
also towards the society at large. It refers to undertaking of activities
by organisations with an objective of rendering services for the benefit of
the society with a non-profit motive.

Historically, your Bank and its earlier form, the Industrial Development
Bank of India, had always gone beyond immediate business objectives to work
for the betterment of the country's industrialisation and society in
general. Your Bank continues this endeavour for the betterment of the
society, for the less fortunate in particular. The efforts undertaken and
the projects/ initiatives chosen for support are in consonance with the
brand philosophy of your Bank viz. 'banking for all'. Accordingly,
support worthy projects were chosen based on their alignment with the core
brand philosophy of catering to every section of the society. During the
year, your Bank supported many such activities like sponsoring meals for
underprivileged school children, sponsoring of function for the visually
and hearing impaired, provision of sewing machines and accessories to
provide employment opportunities to the economically backward, programmes
for medical assistance to the poor etc. Going forward, your Bank will
continue to play this role by supporting such noble causes.

Information Technology:

The year 2008-09 witnessed a number of improvements in the systems and
processes. Major focus of information Technology was on improvement of
existing systems so as to enhance the value proposition for your Bank's
customers. With twin objectives of providing state of the art technology
and staying ahead in technology services offered to the customers, your
Bank's IT -Infrastructure set-up & management, Data center & disaster
recovery center, IT Security & Network set-up and management, Advisory
services & Call center services are being managed by your Bank's wholly
owned subsidiary IDBI Intech Limited.

During the year, your Bank has undertook many initiatives, which
contributed significantly to the growth of your Bank as also customer
satisfaction. In order to reap the benefits of the opportunities arising
out of the mobile technology revolution your Bank launched 'Mobile Payment
Solutions'; which is a secure and convenient payment option by use of
mobile phones. In order to make internet banking transactions more secured
your Bank introduced several measures like 'Virtual key board', 'SMS
Alerts' for all transactions above .a specified limit, mandatory input of
16-digit Debit card number for initiating third party transactions etc.
Your Bank developed and implemented Applications Supported by Blocked
Amount (ASBA), which helps the customers to apply in the public issues
without making upfront payment through rudimentary methods like cheque or
DD. The customer continues to earn interest till the shares ate allotted.
To make payment of tax convenient and transparent your Bank implemented
Sales Tax (ST) Collection Module, which takes care of end-to-end processing
of Maharashtra Sales Tax Collection. This facility is also available in
Gujarat, Delhi and Uttarakhand.

Your Bank also undertook a number of initiatives to improve the efficiency
of the systems. In order to focus and highlight the management's attention
on the profitability of the various services and the functional units, your
Bank developed and implemented Transfer Pricing System, which aids the
management in analyzing performance and profitability of various units,
products, services, accounts and Customer segment. Your Bank implemented an
enhancement in the Government Business Module, which takes care of Direct
and Indirect Tax payments. This enables your Bank to garner business of tax
collection from non-agency banks' clients.

Your Bank has also launched various initiatives with an eye on the future
requirement. Of these, the implementation of Oracle GL will make
preparation of consolidated accounts very simple and will also provide
quick and easy access to important information. In order to ensure secure
access to Internet banking applications two-factor authentication is being
provided to customers. This will reduce the risk of the phishing attacks.
It would be implemented during the first quarter of the year 2009-10.
Currently Debit cards issued by your Bank can be used on ATM and POS only.
Your Bank is in process to enable its Debit card on internet for purchase
and other services (E-Commerce transactions) by the use of 'Verified by
VISA'. The project will be implemented during the second quarter of year
2009-10. Your Bank is also upgrading the CBS (Core Banking System) to a
newer version, which has several additional features and will add value to
its customer proposition. To make it easier to take decisions on liquidity
your Bank is implementing a 'Payment Hub and Liquidity Manager'. Your Bank
will also give the facility to its customers to transfer money to other
Mastercard accounts through 'Moneysend'. Your Bank has also embarked upon
implementation of 'Integrated Risk Management Solution' for managing Basel-
II requirements.

In order to ensure uninterrupted services to the customers your Bank has
been carrying out the disaster recovery. drills at regular intervals. As a
part of this drill, the core banking and other critical applications
including the alternate channels like ATM, Internet, Mobile and
Phonebanking were successfully operated from the disaster recovery site.
This activity was carried out during the normal business days.

Your Bank won the most coveted award in 'First Mover' category as winner
for product innovation and implementation at the IBA Banking Technology
Awards 2008 ceremony organized by Indian Banks' Association (IBA) and Trade
Fair and Conferences International (TFCI). This portrays your Bank's
endeavor to be the front-runner in using technology for launching
innovative products for the benefit of its customers.

Performance of Subsidiary Organizations & joint Venture:

IDBI Capital Market Services Limited:

IDBI Capital Market Services Limited (IDBI Capital), a wholly-owned
subsidiary of your Bank, offers a full suite of financial products and
services to institutional, corporate and retail clients. Its businesses
include Stock Broking, Distribution of Financial Products, Merchant
Banking, Corporate Advisory Services, Debt Arranging & Underwriting,
Portfolio Management of Pension / PF Funds & Research Services.

The Company has substantially improved its financial performance during the
year under Report. The Profit Before Tax (PBT) rose to Rs.11.72 crore as
against Rs.2.17 crore during the previous year. Gross Income (Net of
Turnover) increased by 32%. The Company brought down the Operating Expenses
by 23%. In spite of unfavorable market conditions the company has been able
to contain the fall in service income to less than 10%.

The Company wiped out the carry forward losses of previous years and has
declared a dividend of 3%. The Company comes back to dividend payment list
after two financial years.

Due to persistent unfavorable capital market conditions, the Investment
Banking Group, during the course of the year targeted more business in
Corporate Advisory areas and took up assignments for Govt. Companies with a
view to showcase the credentials of IDBI Capital. IDBI Capital continues to
remain a major player in the PF / Pension Fund Management with assets under
management of over Rs. 8,135 crore.

The online broking platform www.idbipaisabuilder.in launched towards the
end of FY 2005-06 has been able to improve its volumes. In order to meet
the growing needs of Retail Clients for new products, it has launched pre-
paid plans after market analysis and testing. These plans enhanced its
bouquet of product offerings and helping it in new client acquisition.

During the year under review its Institutional Business Group were
arrangers to 10 issues with the total size of Rs.17,642 crore including the
prestigious Rs.10000 crore infrastructure bond issue launched by IIFCL. The
company improved its prime ranking to 13.

IDBI Capital also undertakes in depth research services for the debt &
equity markets and also macro economic scenario both domestically and
globally.

The abridged Balance Sheet and Profit & Loss Account of IDBI Capital are
given in Tables 15 and 16 respectively:

Table 15: IDBI Capital Market Services Ltd. - Abridged Balance Sheet:

(Rs. crore)
As at March 31 2008 2009

Paid up Capital@ 157.90 128.10
Reserves and Surplus@ 209.64 162.31
Borrowings 0.00 0.00
Deferred Tax Liability 1.53 0.65
Total Liabilities 369.07 291.06
Net Fixed Assets 12.98 9.40
Investment 318.74 148.38
Net Current Assets 34.01 133.28
Profit & Loss A/c 3.34 0.00
Total Assets 369.07 291.06

@ During FY 2009, the company bought back 2.98 crore equity shares of
Rs.10% each at Rs.27/- per share.

Table 16: IDBI Capital Market Services Ltd. - Abridged Profit and Loss
Account:

(Rs. crore)
For the year ended March 31 2008 2009

Total Income 34.08 44.95
Total Expenditure 31.91 33.23
Profit/(Loss) Before Tax 2.17 11.72
Profit/(Loss) After Tax 1.46 11.16

IDBI Homefinance Limited:

IDBI Homefinance Limited (IDBI Homefinance) commenced its business with the
acquisition of Tata Homefinance Limited in September 2003. The company,
since its inception, initiated series of measures to expand its retail
reach, strengthen its brand image, improve its asset quality and excel its
business growth. During the year, IDBI Homefinance's outstanding loan
portfolio increased by Rs.379 crore from Rs. 2710 crore to Rs.3089 crore,
registering a growth of 14%. During the year, your Bank invested additional
amount of Rs. 20 crore in the share capital of the company.

The abridged Balance Sheet and Profit & Loss Account of IDBI Homefinance
are given in Tables 17 and 18 respectively:

Table 17: IDBI Homefinance Ltd. - Abridged Balance Sheet:

(Rs. crore)
As at March 31 2008 2009

Paid up Capital 144.98 164.98
Reserves & Surplus 43.94 59.10
Borrowings 2,544.40 2,886.73
Total Liabilities 2,733.32 3,110.81
Loans 2,710.40 3,088.90
Net Fixed Assets 4.53 3.78
Net Current Assets 14.51 13.10
Deferred Tax Asset 3.86 5.03
Misc. Expenditure 0.02 0.00
Total Assets 2,733.32 3,110.81

Table 18: IDBI Homefinance Ltd. - Abridged Profit and Loss Account:

(Rs. crore)
For the year ended March 31 2008 2009

Interest Income 253.51 334.48
Interest Expenses 194.92 273.71
Net Interest Income 58.59 60.77
Fees and Other Charges 9.62 10.20
Other Income 3.01 1.44
Net Total Income 71.22 72.41
Total Expenditure 24.75 24.61
Provisions (NPA & Std. other assets) 4.94 2.94
Profit/(Loss) Before Tax 41.53 44.86
Profit/(Loss) After Tax 29.89 32.10

As on March 31, 2009 IDBI Homefinance's capital adequacy ratio was 12.48%,
while its debt-equity ratio was 13.20 times. Net NPAs as on March 31, 2009
were 0.55% as compared to 0.56% as on March 31, 2008. The company has
declared dividend @ 10% for FY 2008-09.

IDBI Intech Limited:

IDBI Intech Limited (IDBI Intech) was incorporated in March 2000, as a
wholly-owned subsidiary of IDBI Bank to undertake the IT related activities
of the bank. The major business activities of the Company are Information
Technology Services, Information, Security Practice, Knowledge Management
Services, National, Contact Center and Outbound Sales Team (OBST).

For adhering to the world-class' quality standards, IDBI Intech obtained
ISO 9001 certification for its operations and facilitated IDBI Bank in
getting the ISO 27001 certificate for the State-of-the-Art Data Center.

IDBI Intech also helped IDBI Bank in launching,the following value added
products for its customers:

- Mobile Payment Solutions
- Application Supported Blocked Amount Application
- Maharashtra Sales Tax Collection Module
- Transfer Pricing System
- Government Business-Module

IDBI Intech has forayed. into the overseas and Indian market and has
secured orders for rendering onsite IT related services from a few reputed
banks.

In the Knowledge Management Vertical, IDBI Intech has added three domestic
Commercial Banks to its client list.

IT operations of IDBI Capital have been entirely taken over by IDBI Intech
with effect from October 1, 2008.

The abridged Balance Sheet and Profit & Loss Account of IDBI Intech are
given in Tables 19 and 20 respectively:

Table 19: IDBI Intech Ltd. - Abridged Balance Sheet:

(Rs. crore)
As at March 31 2008 2009

Paid up Capital 13.13 13.13
Reserves & Surplus 0.61 2.59
Deferred Tax Liabilities 0.09 0.03
Total Liabilities 13.83 15.75
Net Fixed Assets 1.68 1.72
Net Current Assets 12.15 14.03
Total Assets 13.83 15.75

Table 20: IDBI Intech Ltd. - Abridged Profit and Loss Account:

(Rs. crore)
For the year ended March 31 2008 2009

Total Income 21.56 105.16
Total Expenditure 13.73 101.65
Profit/(Loss) Before Tax 7.83 3.51
Profit/(Loss) After Tax 5.35 2.04

IDBI Gilts Limited:

IDBI Gilts Limited (IDBI Gilts) was set up as a wholly owned subsidiary of
your Bank to undertake Primary Dealer [PD] Business with paid up capital of
Rs.100 crore. IDBI Gilts commenced its operations as Primary Dealer w.e.f.
July 24, 2007.

The company presently focuses on Bond trading, underwriting in auctions of
primary issuance of government dated securities and treasury bills.

The abridged Balance Sheet and Profit & Loss Account of IDBI Gilts are
given in Tables 21 and 22 respectively:

Table 21 : IDBI Gilts Ltd. - Abridged Balance Sheet:

(Rs. crore)
As at March 31 2008 2009

Paid up Capital 100.00 100.00
Reserves and Surplus 0.93 0.19
Borrowings 299.38 366.38
Total Liabilities 400.31 466.57
Net Fixed Assets 1.06 1.02
Defer Tax Asset (Net) 0.32 0.17
Net Current Assets 398.93 446.34
Profit & Loss Account 0.00 19.04
Total Assets 400.31 466.57

Table 22: IDBI Gilts Ltd. - Abridged Profit & Loss Account:

(Rs. crore)
For the year ended March 31 2008 2009

Interest & Discount income 15.35 26.86
Profit/Loss on Sale of Securities 3.98 (11.63)
Income from services 0.19 5.04
Other income 0.39 0.02
Total Income 19.91 20.29
Interest & Finance Charges 14.00 33.18
Other operating expenses 4.49 6.67
Total Expenditure 18.49 39.85
Profit/(Loss) Before Tax 1.42 (19.57)
Provisions for Taxation 0.49 0.18
Profit/(Loss) After Tax 0.93 (19.75)

As on March 31, 2009, IDBI Gilts' capital adequacy ratio was 35.88%, while
its debt-equity ratio was 4.51.

IDBI Fortis Life Insurance Company Limited:

IDBI Fortis Life Insurance Company Limited (IDBI Fortis) is a joint venture
of IDBI Bank Limited, Federal Bank Limited and Fortis Insurance

International. The Company commenced operations in March 2008 and the
current year is the first full year of operations. IDBI Fortis entered the
market with several innovative products consisting of WealthsuranceTM - an
insured wealth plan, BondsuranceTM - an insurance plan with guaranteed
returns, HomesuranceTM, - an insurance plan for home loans and
RetiresuranceTM - a retirement plan. The innovative features of these
products were well received by customers.

IDBI Fortis has bancassurance partnerships with IDBI Bank and Federal Bank
and also distributes its products through its own agent network of over
6300 agents.

During the year, IDBI Fortis sold 84,003 policies for a total first year
premium of Rs. 317 crore. In addition, the Company received renewal premium
of Rs. 2 crore. The Sum Assured of contracts in force increased to nearly
Rs. 2,695 crore. With this achievement, IDBI Fortis established the record
for highest premium collected during the first full year of operations
amongst all current insurance companies. For the year 2008-09, the Company
achieved a market share of 1.05% in new business done by private life
insurance companies in individual life and stood thirteenth in ranking by
first year premium collected amongst twenty one private life insurance
companies.

A summary of financial results of IDBI Fortis is given in Tables 23.

Table 23: IDBI Fortis Insurance Co. Ltd. - Financial Results:

(Rs. crore)
For the year ended March 31 2008 2009

Gross Premium Written 11.90 318.97
Operating Expenses* 10.03 119.15
Contribution from Shareholder Account 10.19 116.11
Profit/(Loss) After Tax (25.53) (110.23)
Assets Under Management 161.45 594.01

* In the Policy Holder Accounts.

The operating expenses during the year were Rs.119 crore, leading to a cost
ratio of 37%, which is one of the lowest cost ratios observed in the
industry during the first full year of operations, which in combination
with ,the strong premium figure reflects the company's focus on balancing
profitability and growth.

During the financial year authorized share capital of the Company was
increased from Rs.200 crore to Rs.500 crore. The paid-up capital of the
Company was increased from Rs.200 crore to Rs.450 crore.