Annual Report - Axis Bank - 2009-2010

AXIS BANK LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

The Board of Directors is pleased to present the Sixteenth 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 2010.



FINANCIAL PERFORMANCE:

The financial highlights for the year under review are presented below:

(Rs. in crores)
PARTICULARS 2009-10 2008-09 Growth

Deposits 141,300.22 117,374.11 20.38%

Out of which:

* Savings Bank Deposits 33,861.80 25,822.12 31.13%

* Current Account Deposits 32,167.74 24,821.61 29.60%

Advances 104,343.12 81,556.77 27.94%
out of which

* Retail Advances 20,822.90 16,051.78 29.72%

* Non-retail Advances 83,520.22 65,504.99 27.50%

Total Assets/Liabilities 180,647.85 147,722.05 22.29%

Net Interest Income 5,004.49 3,686.21 35.76%

Other Income 3,945.78 2,896.88 36.21

Out of which:

* Trading Profit (1) 822.38 373.86 119.97%

* Fee & other income 3,123.40 2,523.02 23.80%

Operating Expenses excl. 3,475.40 2,669.55 30.19%
depreciation

Profit before depreciation, 5,474.87 3,913.54 39.90%
provisions and tax

Depreciation 234.32 188.66 24.20%

Provision for Tax 1,336.83 969.84 37.84%

Other Provisions & Write offs 1,389.19 939.68 47.84%

Net Profit 2,514.53 1,815.36 38.51

Appropriations

-Transfer to Statutory Reserve 628.63 453.84 38.51

-Transfer to Investment Reserve 14.88 0.06 -

-Transfer to Capital Reserve 223.92 146.72 52.62%

Transfer to General Reserve 0.31 - -

Proposed Dividend 567.45 420.52 34.94%

Surplus carried over to Balance 1,079.34 794.22 35.90%
Sheet

Excluding Merchant Exchange Profit

KEY PERFORMANCE INDICATORS 2009-10 2008-09

Interest Income as a percentage 7.73% 8.59%
of working funds*

Non-Interest Income as a percentage 2.62% 2.30%
of working funds

Net Interest Margin 3.75% 3.33%

Return on Average Net Worth 19.89% 19.93%

Operating Profit as a percentage 3.48% 2.95%
of working funds

Return on Average Assets 1.67% 1.44%

Profit per employee** Rs.11.63 Rs.10.02
lacs lacs

Business (Deposits less inter bank Rs. 11.11 Rs. 10.60
deposits+ Advances) per employee ** crores crores

Net Non performing assets as a 0.36% 0.350I0
percentage of net customer assets***

* Working funds represent average total assets.

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

*** Customer Assets include advances and credit substitutes.

Previous year figures have been regrouped wherever necessary.

In a difficult year for the financial sector, the Bank has delivered a very
strong performance with a net profit of Rs. 2,514.53 crores (38.51% higher
than the net profit of Rs. 1,815.36 crores last year), Basic Earnings per
Share (EPS) of Rs. 65.78 (29.970% higher than the EPS of Rs. 50.61 in 2008-
09) and a Return on Equity (ROE) of 19,89% compared to 19.93% last year.

In 2009-10, the total income was Rs. 15,583.80 crores, increasing by
Rs.1,851.44 crores or 13.48% over last year. During the period the
operating revenue rose 35.96% to Rs. 8,950.27 crores, while operating
profit increased by 40.69% to Rs. 5,240.55 crores, due to a robust growth
of core income streams. The Net Interest Income (Nil) grew by Rs. 1,318.28
crores to Rs. 5,004.49 crores, rising 35.76%, due in large measure, to
lower cost of deposits supported by the solid and sustained growth of the
low-cost current account and savings bank (CASA) deposits as well as a
sharp fall in the cost of term deposits. Nil also grew on the back of
strong asset growth across business segments and on a daily average basis,
the total earning assets of the Bank increased by 20.46% to Rs. 133,308.75
crores from Rs. 110,663.96 crores last year.

During the year the yield on earning assets declined by 101 basis points
from 9.73% last year to 8.72% in line with the general decline in lending
rates facilitated by an accommodating monetary policy. The decline in the
cost of funds, on the other hand, was steeper, falling 130 basis points
from 6.50% last year to 5.20%, mainly on account of the reasons stated
above. The share of CASA deposits in the total deposits of the Bank on a
daily average basis rose sharply by 429 basis points from 36.100% last year
to 40.39% while the cost of term deposits fell 189 basis points from 9.41%
last year to 7.52%. As a result, the Net Interest Margin (NIM) climbed 42
basis points over the year. In the last four quarters, the NIM has
consistently improved:from 3.34% in Q1, to 3.52% in Q2, 4.00% in Q3 and
4.09% in Q4.

Other income comprising fees, trading profit and miscellaneous income was
Rs. 3,945.78 crores, at the end of the year, rising 36.21% or by
Rs.1,048.90 crores over the year. Fee income comprised 32.68% of the
operating revenue of the Bank, generated by products and services of
diverse businesses such as client-based merchant foreign exchange trade,
service charges from account maintenance, transaction banking including
cash management services, syndication and placement fees, processing fees
from loans and commission on non-funded products such as letters of credit
and bank guarantees, inter-change fees on ATM-sharing arrangements and fee
income from the distribution of third-party personal investment products.
There was also a healthy increase in treasury income by way of proprietary
trading profit which grew 119.97% over the year to Rs. 822.38 crores, from
Rs. 373.86 crores last year. Miscellaneous income rose 162.24% mainly on
account of higher recoveries of loans written-off in earlier years. During

the year, such recoveries amounted to Rs. 174.43 crores against Rs. 62.95
crores last year.

The Bank continued to add to its network of branches, ATMs and other
channels, contributing in part to the growth of operating expenses of the
Bank which rose 29.79% to Rs. 3,709.72 crores over last year. However, the
Cost:Income ratio which reflects operational efficiency, improved to 41.45%
in 2009-10 from 43.42% last year.

During the year, the Bank created total provisions (excluding provisions
for tax) of Rs. 1,389.19 crores against Rs. 939.68 crores last year. Of
this, provisions for loan losses were Rs. 1,357.04 crores (against
Rs.732.21 crores last year) as some loan segments came under stress in the
wake of the economic slowdown. The Bank accelerated its provisioning
requirements in several portfolios as a measure of prudence, increasing the
overall provision coverage. The Bank also provided Rs. 56.47 crores against
restructured assets. Global recessionary conditions and the consequential
impact upon the Indian economy led to a sharp rise of restructured assets
in the banking sector during the year. Although the Bank restructured
assets of Rs. 1,632.97 crores during the year, it has been able to maintain
the quality of its loans, ending the year with a ratio of Gross NPAs to
gross customer assets of 1.13% (against 96 basis points last year) and a
net NPA ratio (net NPAs as percentage of net customer assets) of 0.36%
(against 35 basis points last year). With higher levels of provisions,
built over and above the regulatory norms during the year, the Bank
achieved a provision-coverage of 72.38% after considering prudential write-
offs.

Given the strong revenue growth, key financial parameters and ratios for
the year have improved. The ROE declined marginally from 19.93% in 2008-09
to 19.89%. Basic EPS rose to Rs. 65.78 from Rs. 50.61 last year, while
diluted EPS was Rs. 64.31 compared to Rs. 50.27 last year. The Book Value
per share rose from Rs. 284.50 on 31st March 2009 to Rs. 395.99 on 31st
March 2010 while Return on Assets (ROA) improved to 1.67% from 1.44% last
year. Employee productivity also improved, profit per employee increasing
to Rs. 11.63 lacs from Rs. 10.02 lacs last year and business per employee
increasing to Rs. 11.11 crores from Rs. 10.60 crores last year.

Despite relatively subdued growth during the first three quarters of the
year, the Bank finished the year with a healthy growth of the balance sheet
at Rs. 180,647.85 crores, increasing by Rs. 32,925.80 crores, or 22.29%
over last year. Total deposits were Rs. 141,300.22 crores, increasing by
Rs.23,926.11 crores, or 20.38% over last year. Low-cost demand deposits
(savings bank and current accounts) (CASA) were Rs. 66,029.54 crores,
rising by Rs. 15,385.81 crores, or 30.38% over the year. As on 31st March
2010, the percentage share of low-cost demand deposits (CASA) in total
deposits rose to 46.73% from 43.15% last year. Savings bank account
deposits grew 31.13% to Rs. 33,861.80 crores, while current account
deposits grew 29.60% to Rs. 32,167.74 crores. Total advances were
Rs.104,343.12 crores, growing 27.94% by Rs. 22,786.35 crores from last
year. Of this, corporate advances (comprising large and mid-corporate
accounts) were Rs. 52,503.53 crores, growing by Rs. 11,292.63 crores or
27.40% over last year. During the same period, advances to the SME segment
(including micro finance) were Rs. 19,482.65 crores, increasing by Rs.
3,405.95 crores, or 21.19% over last year, while agricultural lending stood
at Rs.11,534.04 crores, increasing by Rs. 3,316.65 crores or 40.36% over
the year. Retail loans were Rs. 20,822.90 crores, increasing by Rs.
4,771.12 crores or 29.72% from last year. The Bank's total investments were
Rs.55,974.82 crores, increasing by Rs. 9,644.47 crores or 20.82% over last
year. Investments in government and approved securities, mainly held to
meet the Bank's SLR requirement, were Rs. 34,195.88 crores increasing by
Rs. 6,473.01 crores or 23.35% over last year. Other investments, including
corporate debt securities, were Rs. 21,778.94 crores increasing by
Rs.3,171.46 crores or 17.04% over last year. The total assets of the Bank's
overseas branches as on 31st March 2010 were Rs. 13,921.42 crores,
increasing by Rs. 2,245.93 crores or 19.24% over last year, constituting
7.71% of the Bank's total assets.

As one of the key planks for business growth and customer-acquisition, the
Bank continued to enlarge its distribution network. Widening geographical
reach is critical for extending service delivery and for tapping growth
opportunities in newer markets, especially in the areas of low-cost CASA
deposits, lending to retail, agriculture and SME segments and the sale of
third party products. The distribution network now covers 643 centres in
India and 4 centres in overseas as on 31st March 2010. The Bank crossed a
and mark on 29th March opening its 1000th branch at Bandra West, Mumbai.
The Bank is now present in all states and Union Territories (except
Lakshadweep) and is present in 401 of the 626 district headquarters in the
country. During 2009-10, 200 branches (including service branches/CPC) were
added to the Bank's network, taking the total number of branches and
Extension Counters (ECs) to 1,035 as on 31st March 2010 from 835 last year.
Of these, 320 branches are in semi-urban and rural areas and 707 branches
are in metropolitan and urban areas. The ATM network of the Bank grew from
3,595 last year to 4,293 at the end of FY 2010.

CAPITAL & RESERVES:

During the year under review, the Bank raised capital in the form of equity
and debt to support future growth. It raised Tier I capital in the form of
equity capital through simultaneous offerings in the form of a follow-on
Global Depository Receipt (GDR) issue, a Qualified Institutional Placement
(QIP) and a preferential allotment of equity shares to the promoters of the
Bank. The Bank mobilised an aggregate of Rs. 3,816.14 crores through the
three-way offering, of which the Bank raised US Dollars 95.56 million
(equivalent to Rs. 459.43 crores) through allotment of 5,055,500 GDRs each
representing one equity share of the Bank at a price of US Dollars 18.90
per GDR. The Bank also raised Rs. 2,996.15 crores by issuing 33,044,500
equity shares through a QIP offering, which was priced along with the GDR
at Rs. 906.70 per share (equivalent to the price offered under the GDR
offering). In order to maintain the percentage shareholding of the Bank's
promoters at the pre-GDR/QIP offering levels, Life Insurance Corporation of
India and New India Assurance Company Ltd. participated in a preferential
offer by subscribing to 3,976,632 equity shares aggregating Rs. 360.56
crores. The equity shares offered under the preferential allotment were
also priced at Rs. 906.70 per share (equivalent to price at which both GDR
and QIP was offered). Under its Employee Stock Option Plan, the Bank
allotted 4,092,369 equity shares to employees during the year under review.
The Bank also raised Rs. 2,000 crores by way of subordinated bonds
(unsecured redeemable non-convertible debentures) qualifying as Tier II
capital.

The Bank is thus well capitalized, with a capital adequacy ratio of 15.80%
at the end of the year, of which the Tier I capital adequacy ratio was
11.18% against 9.26% a year earlier, while the Tier II Capital Adequacy
Ratio was 4.62% against 4.43% in FY 2009. These measures have significantly
strengthened the capital position of the Bank, particularly core Tier I
capital, providing adequate support for its growth plans in future.

The paid up capital of the Bank as on 31st March 2010 rose to Rs. 405.17
crores from Rs. 359.01 crores as on 31st March 2009. The shareholding
pattern of the Bank as of 31st March 2010 is stated below:

Name of Shareholders % of Paid Up Capital

i. Administrator of the Specified 24.00
Undertaking of the Unit Trust of
India (UTI-I)

ii. Life Insurance Corporation of India 10.27

iii. General Insurance Corporation and 4.27
four PSU Insurance Companies

iv. Overseas Investors including Flls/ 33.68
OCBs/NRIs

v. Foreign Direct Investment (GDR issue) 8.37

vi. Other Indian Financial Institutions/ 7.07
Mutual Funds/Banks

vii. Others 12.34

Total 100.00

The Bank's shares are listed on the NSE and the BSE. 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.

The Bank's shares were voluntarily delisted from the Ahmedabad Stock
Exchange with effect from 17th August 2009 as there was no trading of the
Bank's shares at this Stock Exchange and the only trading which took place
for the last few years was that of a few shares in February 2000.

DIVIDEND:

The Bank's diluted EPS for 2009-10 has risen to Rs. 64.31 from Rs. 50.27
during 2008-09. In view of the overall performance of the Bank, future
outlook 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. 12.00 per share on equity shares, compared to Rs. 10.00 per
share declared for the last year. 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.
Dr. P.J. Nayak, former Chairman and CEO of the Bank retired with effect
from 20th April 2009. Shri A.T. Pannir Selvam, nominee Director of the
Specified Undertaking of the Unit Trust of India (SUUTI) passed away on
21st April 2009. Shri Ramesh Ramanathan, Independent Director resigned with
effect from 14th July 2009, Five yew Directors have been inducted in the
Board during the year. Smt. Shikha Sharma was appointed as Managing
Director and CEO of the Bank with effect from 1st June 2009. RBI gave its
approval for the appointment of Shri M.M. Agrawal, former Executive
Director (Corporate Banking) of the Bank as Deputy Managing Director with
effect from 10th February 2010. Shri V.R. Kaundinya, Managing Director,
Advanta India Ltd. was appointed as an Additional Independent Director with
effect from 12th October 2009. Dr. Adarsh Kishore, former Finance
Secretary, Government of India and former Executive Director, International
Monetary Fund and nominee of -,ie Specified Undertaking of the Unit Trust
of India (SUUTI) was appointed as an Additional Director with effect from
15th January 2010. RBI gave its approval for the appointment of Dr. Adarsh
Kishore as a non-executive Chairman of the Bank with effect from March
2010. Shri S.B. Mathur, former Chairman of LIC and the National Stock
Exchange of India was appointed as an Additional independent Director with
effect from 15th January 2010.

The Board of Directors places on record its appreciation and gratitude to
Dr. P.J. Nayak for the pivotal role played by him in shaping the strategies
of and building the Bank to its present pre-eminent position in the banking
sector. The Board of Directors also places on record its appreciation and
gratitude to Shri A.T. Pannir Selvam and Shri Ramesh Ramanathan for the
valuable services rendered by them during their tenure as Directors of the
Bank.

On accordance with the provisions of the Companies Act, 1956 and the
Articles of Association of the Bank, Dr. R.H. Patil and Smt. Rama
Bajapurkar retire by rotation at the Sixteenth Annual General Meeting and,
being eligible, offer themselves for re-appointment as directors of the
Bank.

SUBSIDIARIES:

The Bank has set up five wholly-owned subsidiaries: Axis Securities and
Sales Ltd., Axis Private Equity Ltd., Axis Trustee Services Ltd., Axis
Asset Management Company Ltd. and Axis Mutual Fund Trustee Ltd.

Axis Securities and Sales Ltd. was set up in December 2005 (originally
incorporated as UBL Sales Ltd., renamed as Axis Sales Ltd. in 2007 and now
rechristened as Axis Securities and Sales Ltd. on 5th April 2010) to market
credit cards and retail asset products. The objective of setting up the
subsidiary was to build a specialised force of sales personnel and optimize
operational efficiency by providing greater control over the sales effort
in comparison with a Direct Sales Agent (DSA) model. The scope of
activities of the subsidiary has now been enlarged to include retail
broking. In October 2006, the Bank set up Axis Private Equity Ltd.,
primarily to carry on the activities of managing equity investments and
provide venture capital support to businesses. Axis Trustee Services
Company Ltd. was established in May 2008 to engage in trusteeship
activities (e.g. acting as a debenture trustee, the trustee to various
securitisation trusts as well as other trusteeship businesses). Axis Asset
Management Company Ltd. was set up primarily to carry on the activities of
managing a mutual fund business in January 2009 and in the same year, Axis
Mutual Fund Trustee Ltd. was set up, 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. 47/39/2010-CL-III sated 25th
January 2010 under Section 212(8) of the Companies Act 1956, copies of the
Directors' Report, report of the auditors of the five subsidiaries [Axis
Sales Ltd. (now renamed as Axis Securities and Sales Ltd.), Axis Private
Equity Ltd., Axis Trustee Services Ltd., Axis Asset Management Company Ltd.
and Axis Mutual Fund Trustee Ltd.] along with financial statements have not
been attached to the accounts of the Bank for the financial year ended 31st
March 2010.

Any shareholder who is 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
five subsidiary companies. 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 2010 are closed as an Annexure to this report.

EMPLOYEE STOCK OPTION PLAN (ESOP):

To enable employees including whole-time Directors of the Bank to
participate in the future growth and financial success of the Bank, The
Bank instituted in 2001 an Employee Stock Option Scheme under which
35,770,000 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 share during that period. Under the third plan and with effect from
the grant made by the Bank 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
nine occasions: 1,118,925 during 2000-01, 1,779,700 during 2001-02,
2,774,450 during 2003-04, 3,809,830 during 2004-05, 5,708,240 during 2005-
06, 4,695,860 during 2006-07, 6,729,340 during 2007-08, 2,677,355 during
2008-09 and 4,413,990 during 2009-10. The options granted, which are non-
transferable, vest at rates of 30%, 30% and 40% on each of three successive
anniversaries following the grant, subject to standard vesting conditions,
and must be exercised within three years of the date of vesting. As of 31st
March 2010, 16,338,254 options had been exercised and 13,897,518 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 the highest standards of corporate
governance and it aspires to benchmark itself with international best
practices in this regard. The corporate governance practices followed by
the Bank are enclosed as an Annexure to this report.

The Bank has adopted a major part of the recommendations contained in the
Corporate Governance Voluntary Guidelines 2009 issued by the Ministry of
Corporate Affairs and is examining the possibility of implementing the
remaining recommendations.

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 2010.

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.

v. The Bank has in place a system to ensure compliance of all laws
applicable to the Bank.

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 is, however,
constantly pursuing its goal of technological upgradation in a cost-
effective manner for delivering quality customer service.

The statement containing particulars of employees as required under Section
217(2A) of the Companies Act, 1956 and the rules 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, had been appointed by the
shareholders at the fifteenth Annual General Meeting as Statutory Auditors
of the Bank for the year 2009-10 and will be retiring at the conclusion of
the forthcoming Annual General Meeting. M/s S.R. Batliboi & Co. have been
the Statutory Auditors of the Bank since 2006. As per the regulations of
Reserve Bank of India, the same auditors cannot be re-appointed for a
period beyond 4 years. It is, accordingly, proposed to appoint M/s Deloitte
Haskins & Sells, Chartered Accountants, as the Bank's new Statutory
Auditors subject to the approval by the shareholders. The Board of
Directors place on record their appreciation of the professional services
rendered by M/s S.R. Batliboi & Co., as the Statutory Auditors of the Bank.

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 Adarsh Kishore
Date : April 20, 2010 Chairman

ANNEXURE:

STATUTORY DISCLOSURES REGARDING ESOP (FORMING PART OF THE DIRECTORS' REPORT
FOR THE YEAR ENDED 31 MARCH 2010):

ESOS 2000-01 A B C D
(Grant date)

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 - 2,470,907

29 April 2004 Rs. 97.62 3,809,830 27,374 3,263,979

10 June 2005 Rs. 232.10 5,708,240 914,730 3,893,449

17 April 2006 Rs. 319.00 4,695,860 1,514,973 2,611,595

17 April 2007 Rs. 468.90 6,729,340 2,399,879 1,293,479

21 April 2008 Rs. 824.40 2,677,355 738,352 98,176

20 April 2009 Rs. 503.25 4,263,990 4,570 865

13 Jully 2009 Rs. 738.25 100,000 - -

7 Sept. 2009 Rs. 907.25 50,000 - -

Total 5,599,878 16,338,254 3,471,918

ESOS 2000-01 E F G
(Grant date)

24 Feb. 2001 81,956 - 400.58

28 Feb. 2002 110,865 - 495.31

6 May. 2003 303,543 - 982.68

29 April 2004 518,477 27,374 3,186.30

10 June 2005 900,061 914,730 9,036.70

17 April 2006 569,292 1,514,973 8,330.99

17 April 2007 810,609 4,625,252 6,065.12

21 April 2008 67,435 2,511,744 809.36

20 April 2009 109,680 4,153,445 4.35

13 Jully 2009 - 100,000 -

7 Sept. 2009 - 50,000 -

Total 3,471,918 13,897,518 29,311.39

A = Excerse Price (Rs.)
B = Option Granted
C = Option Vested
D = Options Exercised & Shares Alloted *
E = Options lapsed cancelled
F = Total options (in fore As on 31 March 2010)
G = Money realised by exercise of options (Rs. in lacs)

* 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:

Managing Director & CEO - 100,000 options
Deputy Managing Director - 222,280 options

* Employees who were granted, during any one year, options amounting to 5%
or more of the options granted during the year:

None

* Identified employees who were 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:

None

Diluted Earnings Per Share pursuant to issue of shares on exercise of
options calculated in accordance with Accounting Standard (AS) 20 'Earnings
Per Share:

Rs. 64.31 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. 513.15.

* 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. 205.72.

* Exercise price is greater than market price:

Nil

* Exercise price is less than market price:

Nil

Fair Value Related Disclosure:

* Increase in the employee compensation cost computed at fair value over
the cost computed using intrinsic cost method:

Rs. 92.75 crores

* Net Profit, if the employee compensation cost had been computed at fair
value:

Rs. 2,421.78 crores

* Basic EPS, if the employee compensation cost had been computed at fair
value:

Rs. 63.35 per share

* Diluted EPS, if the employee compensation cost had been computed at fair
value:

Rs. 61.94 per share

Significant Assumptions used to estimate fair value:

* Risk free interest rate:

3.87%-6.80

* Expected life:

2-4 years

* Expected Volatility:

54.00%-67.11

* Dividend Yield:

1.32%

Price of the underlying share in the market at the time of option grant:

During the year, three grants have made at following prices,

Rs. 503.25
Rs. 738.25
Rs. 907.25

MANAGEMENT'S DISCUSSION AND ANALYSIS:

MACRO-ECONOMIC ENVIRONMENT:

Fiscal 2009-10 began with India's GDP growth slowing to 6.7 percent in
2008-09, down from an average of 9.5 percent in the previous three years.
After a brief but sharp slowdown in the aftermath of the financial crisis
that began in the developed economies, India was still able to recover to
become the second fastest growing economy in the world. The combination of
a stable and sound financial system, effective regulatory oversight and a
prompt and appropriate policy stimulus response helped the economy
withstand much of the adverse effects of the global slowdown. Secondly,
strong demand for consumer goods, both durables and non-durables, has been
a reason for the growth remaining relatively robust. The strong domestic
demand is now also increasingly being augmented by improving external
trade. The recovery could have been even swifter and broader had
agricultural output not been adversely affected by deficit rainfall. The
growth of the manufacturing sector more than doubled, from 3.2% in 2008-09
to 8.9% in 2009-10. There has also been a recovery in the growth of gross
fixed capital formation, which had significantly declined in 2008-09.
However, inflationary conditions in 2009-10, especially in the second half
of the year, with double-digit food inflation remain an area of concern.
The overall GDP growth for 2009-10 is estimated at 7.2%.

The rebound notwithstanding, the slowdown in economic activity resulted in
a lower growth of corporate capital expenditure and demand for bank credit,
which fell from over 26 percent in early August 2008 to a low of under 10
percent in November 2009. Another impact of the slowdown was a
deterioration in the quality of credit and the banking sector witnessed
rising levels of delinquencies and restructured assets. There was thus a
greater degree of prudence and caution in lending to sectors that appeared
relatively vulnerable. On the other hand, slower demand for credit and the
consequent ample liquidity led to the deployment of funds for short
durations in non-banking investment opportunities such as mutual funds and
commercial paper. Despite these and other challenges, Indian banks have
been able to maintain their profitability and given the adequate levels of
capitalization of a majority of the banks and comprehensive regulatory
oversight, the risk of a banking sector led volatility and instability
appears remote.

Global credit and liquidity conditions have improved significantly in the
second half of 2009 and although it is unlikely that there will be policy
tightening in developed countries in the first half of 2010. We do expect a
gradual contraction of policy induced liquidity in the future as concerns
relating to price pressures and asset bubbles replace concerns about
growth. In India, the improvement in the prospects of a GDP growth of-8.5%
in 2010-11, is likely to enhance savings and provide domestic liquidity at
reasonable cost to fund capex plans. External flows could also be an
important source of liquidity in the system. It is expected, therefore,
that fiscal 2011 will witness a return to more normal patterns of funds
deployment. Although the borrowing programmes of the Union and State
governments are likely to remain high in fiscal 2011, it is expected that
domestic liquidity, although tighter than in fiscal 2010, is unlikely to be
a constraint for corporate borrowing.

OVERVIEW OF FINANCIAL AND BUSINESS PERFORMANCE:

The Bank continued to show robust growth in both business and financial
performance indicators during the year 2009-10 in the backdrop of the
economic slowdown, by leveraging its basic strengths:the infrastructure
created over the years, a well laid-out retail franchise, a large number of
corporate relationships and the pre-eminence enjoyed by it in a diverse set
of businesses such as infrastructure and capital markets. The strong
financial performance reported by the Bank is an assertion of the Bank's
strategic focus and adherence to the basics of banking.

During the year, the Bank registered a strong growth in business volumes as
well as profits, with the net profit increasing by 38.51% to Rs. 2,514.53
crores from Rs. 1,815.36 crores last year. During the year, total income of
the Bank increased by 13.48% to Rs. 15,583.30 crores, while operating
revenue increased by 35.96% to Rs. 8,950.27 crores. As on 31st March 2010,
total assets of the Bank stood at Rs. 180,647.85 crores, increasing by
Rs.32,925.80 crores, or 22.29% over last year. While total deposits of the
Bank increased by 20.38% to Rs. 141,300.22 crores on 31st March 2010, total
advances rose by 27.94% to Rs. 104,343.12 crores. The Bank continued to
enhance shareholder value with the diluted earnings per share forth. year
increasing to R9P: 64.31 from Rs. 50,27 last year. As on 31st March 2010,
the book value per share of the Bank increased to Rs. 395.99 from Rs.
284.50 as on 31st March 2009.

CAPITAL MANAGEMENT:

The Bank strives to provide superior returns, while maintaining a solid
capital base to support the risks associated with its diversified
businesses. Its capital management framework optimises the use of capital
by ensuring its deployment to support business growth in a manner which
leads to a high return on equity.

The Bank's capital management approach is driven by the objective of
maintaining a strong capital base, reflected through a strong Tier I
capital adequacy ratio in order to support the execution of its growth
plans and business strategies, while meeting the regulatory capital
requirements at all times. The Bank seeks to optimise its cost of capital
by proactively managing the mix of retained earnings, debt and selective
capital issues. During the year, the Bank continued to attract investor
interest from domestic and foreign institutional investors, with
perceptible increase in trading volumes and price. To strengthen its core
capital, the Bank raised equity capital of Rs. 3,816.14 crores during the
year through simultaneous offerings in the form of a follow-on Global
Depository Receipt (GDR) issue, a Qualified Institutional Placement (QIP)
and a preferential allotment of equity shares to the promoters of the Bank.
The Bank has also raised capital of Rs. 2,000 crores by way of subordinated
bonds (unsecured redeemable non-convertible debentures) qualifying as Tier
II capital.

The Bank has implemented the Revised Framework of the International
Convergence of Capital Measurement and Capital Standards (or Basel II) in
2008. In terms of RBI guidelines for implementation of Basel II, capital
charge for credit and market risk for the financial year ended 31st March
2010 is required to be maintained at the higher of the prudential floor
prescribed by Basel II and 80% of the level under Basel I. 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 estimated under the Standardized Approach. The
Bank is well capitalized with the capital adequacy ratio as at the end of
the year at 15.80%, substantially above the benchmark requirement of 9%
stipulated by Reserve Bank of India. Of this Tier I Capital Adequacy Ratio
was 11.18%, as against 9.26% a year earlier, while the Tier II Capital
Adequacy Ratio was 4.62%. The following table sets forth the risk-based
capital, risk-weighted assets and capital adequacy ratios computed as on
31st March 2009 and 2010 in accordance with the applicable RBI guidelines
under Basel I and Basel lI.

(Rs. in crores)
AS ON 31st MARCH 2010 2009
Basel II Basel I Basel II Basel I

Tier I Capital 15,789.42 15,789.42 10,162.98 10,175.42

Tier II Capital 6,518.47 6,518.47 4,864.66 4,864.66

Out of which:

-Bonds qualifying 4,842.70 4,842.70 3,054.80 3,054.80
as Tier II capital

-Upper Tier ll capital 1,248.98 1,248.98 1,370.78 1,370.78

-Other eligible for 426.79 426.79 439.08 439.08
Tier ll capital

Total Capital qualifying 22,307.89 22,307.89 15,027.64 15,040.08
for computation of
Capital Adequacy Ratio

Total Risk-Weighted 141,169.77 118,598.01 109,787.49 108,110.01
Assets and Contingencies

Total Capital Adequacy 15.80% 18.81% 13.69% 13.91%
Ratio (CAR)

Out of above:

-Tier I Capital 11.18% 13.31% 9.26% 9.41%

-Tier II Capital 4.62% 5.50% 4.43% 4.50%

BUSINESS OVERVIEW:

An overview of various business segments along with the performance during
2009-10 and their future strategies is presented below:

RETAIL BANKING:

The Bank aims to increase its market-share in India's expanding financial
services industry through continued emphasis on building a strong retail
franchise. The Bank remains committed to developing long-term strong
relationships with its customers and ensuring that they have access to
high-quality service as well as the full suite of financial solutions to
help achieve their financial objectives. Growth strategies have focused on
building profitable relationships across various customer segments. In
order to achieve the objective of becoming more customer-centric, rather
than product-centric, the Bank has restructured Retail Banking into two
groups namely Mass and Mass Affluent, and Affluent segments. The Mass and
Mass Affluent Segment owns, as the name indicates, mass-market customers,
while the Affluent Segment owns clientele defined as affluent, comprising
customers in the wealth and private banking space.

During the year, the Bank has succeeded in continuing the momentum of
growth in retail liabilities with a special focus on the quality of
acquisition. The Bank has acquired 2,013,531 Savings Bank accounts during
the current year compared to 2,316,887 accounts last year. However, the new
Savings Bank acquisition has translated into an incremental value of
Rs.8,060 crores this year against Rs. 7,873 crores last year, evidencing
that a particular attention to the quality of the acquisition is critical.
On 31st March 2010, Savings Bank deposits grew to Rs. 33,861.80 crores, an
increase of Rs. 8,039.68 crores, or 31.13% over last year. The Bank is
committed to addressing the needs of the Mass Affluent segment and also to
take the Priority Banking offering to a larger set of customers and
locations. Towards that end, the Bank has set up 11 new Priority Lounges
during the year, in 3 new centres in the country. in order to broad-base
its deposit base, the Bank has steadily increased its retail term deposits
through the year. As on 31st March 2010, retail term deposits of the Bank
were Rs. 21,276.81 crores, an increase of Rs. 4,598.12 crores, or 27.57%
over last year. The share of aggregate retail deposits, comprising savings
bank and retail term deposits in total deposits increased to 39.02% on 31st
March 2010 from 36.21% last year.

Cross-sell continues to be an important strategic goal for the Bank. The
retail base of 12.5 million customers is being leveraged more effectively
to increase cross-sell penetration.

With improvement in the broader economy, demand for retail loans moved in a
positive trajectory, particularly from July 2009 on wards. At the end of
the financial year, the retail assets portfolio was Rs. 20,822.90 crores,
increasing by Rs. 4,771.12 crores, or 29.72% over last year. The growth
areas identified by the Bank were home and auto loans.

The Cards business of the Bank has grown steadily as an important and
valuable adjunct to the deposit and loan businesses. It comprises three key
products-debit cards, prepaid cards and credit cards. In addition, the Bank
also has a large merchant-acquiring business facilitated by EDC terminals
installed at merchant establishments throughout the country. The Bank is
the fourth largest debit card issuer in the industry with a base of 147 lac
debit cards issued till 31st March 2010. With 14 variants designed for
different customer segments, the debit card base has grown 23% year-on-
year. The Bank was also the first to launch a Platinum Chip Debit Card in
the country, which is presently offered exclusively to the Priority Banking
customer segment. In the prepaid cards market, the Bank has attained a
leadership position offering a bouquet of products suited to a variety of
needs:Rewards Cards-for disbursement of incentives and commissions, Payroll
Cards-for low-value salary payments, Gift Cards-a substitute for cash, gift
vouchers and physical gifts, Meal Cards-for disbursement of meal
allowances, Annuity Cards -for annuity payments to customers of LIC of
India and Remittance Cards-for disbursement of inward remittances. As on
31st March 2010, the Bank had issued more than 2 million pre-paid cards.
The Bank also issues travel currency cards-foreign currency denominated
prepaid cards, positioned as a convenient alternative to travellers'
cheques. It is issued in nine currencies. The Bank has also issued more
than 550,000 credit cards since its launch in 2006 and today offers an
entire range of retail and commercial cards. Since its launch of the
innovative Secured Credit Card, the Bank has become a market leader in the
product with a card base of 102,000, helping the Bank grow its credit card
portfolio in difficult market conditions. During the year, the Bank also
launched the Signature Credit Card that offers benefits like priority pass,
concierge facilities, complimentary travel insurance and premium brand
offerings. A slew of measures have been taken to improve portfolio quality
and these include greater focus on higher income customer segments,
portfolio rationalisation, tighter credit monitoring and a robust
collection infrastructure. The Bank launched its merchant-acquiring
business in December 2003, and in over six years, has emerged as one of the
largest acquirers in the country with an installed base of 1.60 lac point-
of-sale terminals.

The Bank also focuses on distribution of third party products, with a
special thrust on mutual funds and Bancassurance. While the general
insurance industry continued to be affected by de-tariffing in certain
insurance products, the distribution of these products generated a premium
of over Rs. 130 crores in the financial year registering a growth of 28%,
with an emphasis on need-based product offerings across the Bank's
branches. Similarly, the Bank has been engaged in a successful referral
partnership for the distribution of life insurance products, with a
collection of-Rs. 390 crores of annual premium in 2009-10.

The Bank is a leading distributor of mutual funds in the country, adding
90,000 new customers in 2009-10. During the year, the Bank set a milestone
with a collection of Rs. 714 crores in the NFO of Axis Equity launched by
the Axis Mutual Fund. Of the 92,000 applications collected in the NFO of
Axis Equity, 77% was from retail investors investing less than Rs. 50,000
each, which reflects the Bank's ability to generate interest among small
retail investors in investment opportunities.

The Bank offers Demat services from more than 750 branches across the
country and presently has more than 2 lac accounts. Axis Bank offers
'Online Trading Services' in alliance with Geojit BNP Paribas, facilitating
seamless stock-trading through electronic linkages of trading, bank and
demat accounts with high-security online features. During the year,-47,000
customers have subscribed to the Bank's online trading account, the total
traded volume in which was more than Rs. 8,000 crores.

Axis Bank Wealth, launched in 2008-09, is a comprehensive value proposition
aimed at taking care of the financial needs of clients, which include their
investment and business needs, besides normal banking facilities. The Bank
is able to provide expertise to assist customers to protect and grow their
wealth from a long-term perspective. Presently, the proposition is being
offered at select centres across India and the total assets under
management of over 1,800 clients of Axis Bank Wealth are over Rs. 2,200
crores.

In September 2009, Axis Bank launched the private banking business in the
domestic market, christened 'Privee' to cater to highly affluent
individuals and families offering them unique investment opportunities.
Axis Bank Privee offers sophisticated investment and advisory services to
clients who entrust the Bank with Assets under Management (AUM) of more
than Rs. 5 crores. It has been rolled out across six cities in India in
2009-10 and follows a team-based approach for managing client
relationships.

CORPORATE BANKING:

The Bank's Corporate Banking franchise aims to provide a wide array of
products across several customer segments, including credit, trade finance,
structured finance and syndication services for debt and equity. Since each
corporate engagement also offers opportunities on the retail side of the
business, products anchored in the Retail SBUs also form a part of the
corporate marketing effort. New customer acquisition and relationship-
deepening constitute the two-pronged strategy for growth. In order to
leverage growth opportunities offered by India's infrastructure sector, a
separate infrastructure business group has been established within the
corporate banking group.

As per Planning Commission estimates, infrastructure spending in India
which was at a level of 5% of the GDP in 2006-07 rose to 5.75% in 2007-08
and the target level for the 11th Five Year Plan (2007-12) is to achieve
infrastructure investment of 9.00% of GDP. The dampening of equity markets
following the global financial crisis acted as decelerators form obilizing
resources for the infrastructure sectors in FY 2009, However capital flows
to the sector have steadily improved thereafter. The economic downturn has
reaffirmed the need for higher infrastructure spending for sustained growth
of the economy and the quantum of spending of approximately USD 500 billion
envisaged during the 11th Five Year Plan is expected to double to USD 1
trillion in the next five year plan (2012-17).

The Bank has continued to retain its leadership position in the
infrastructure debt market and syndicated an aggregate amount of Rs. 27,000
crores byway of Rupee and Foreign currency loans during 2009-10. Euromoney
Project Finance (Deals of the Year 2009) has conferred several awards in
the area of infrastructure financing to the Bank. These include categories
such as 'Road Deal of the Year', 'Indian Rail Deal of the Year' and 'Indian
PPP Deal of the Year'.

CORPORATE CREDIT:

During the year, corporate credit, including lending to large and mid-
corporates and to infrastructure, grew to Rs. 52,503.53 crores, increasing
by Rs. 11,292.63 crores, or 27.40% over last year. This includes the
lending out of the Bank's overseas branches at Rs. 12,285.40 crores
(equivalent to USD 2.74 billion).

The Bank's approach to credit in the large corporate and infrastructure
segments is sectoral, allowing for an efficacious mining of opportunities
in each sector as well as improved evaluation of sector-specific risks. The
credit policy of the Bank has put in place a matrix of industry exposure
limits with a view to de-risking of the portfolio through diversification.
In keeping with this strategy, the highest exposure to any sector was
17.50% of the Bank's total lending (10.65% previous year). The practice of
internal and external rating continues to be undertaken on an ongoing
basis. The entire corporate credit portfolio is internally rated with
74.42% of the ratings accorded being A and above. 74.13% of the portfolio
has been externally rated till the end of the year. The mid-corporate group
is an important business segment of the Bank, with a credit book of
Rs.11,466.55 crores on 31st March 2010, increasing by Rs. 2,485.87 crores,
or 27.68% over last year. This includes advances at overseas branches of
Rs. 931.11 crores (equivalent to USD 207 million), comprising mainly credit
extended to Indian corporates.

The mid-corporate segment has maintained its asset-quality and controlled
delinquencies through constant and close monitoring. Besides widening the
customer base of the mid-corporate segment and adopting a careful
assessment of acceptable risk-return tradeoffs, the focus of the segment
has been to deepen existing client relationships by actively cross-selling
a wide range of products and services, based on detailed client-wise
account plans, thereby increasing the Bank's share in the aggregate
business level of the customer.

TREASURY:

The Bank has an integrated Treasury, covering both domestic and global
markets, which manages the Bank's funds across geographies. During the
year, the Bank posted a vigorous growth in both customer-based and
proprietary Treasury business. In foreign exchange Business, the Bank has
increased its presence in the inter-bank markets and despite the
competitive environment, grew the customer morex (merchant) business
during 2009-10 by 36% year-on-year. The Bank offers products in the bullion
business and in the Currency Futures segment (it became a member on the
NSE and the MCX in the Currency Futures segment).

The Bank has played a key role in the sovereign debt markets during the
year and booked trading gains from the government securities folio of
Rs.302.63 crores against Rs. 217.35 crores last year. During the year, the
Bank became a member of the NSE on the Interest Face Futures segment and
used the Interest Rate Swap market for proprietary trading as well as for
hedging its balance sheet risks.

The Bank enlarged its business with financial institutions during the year
raising foreign currency resources to support customer trade Business
across the borders and increasing trade finance activity. The Bank also
participated actively in risk-participation business as with several
reputed international banks. The Bank has astringent process of setting up
interbank exposure limits and a strong controling process to react quickly
to changing markets and economic conditions.

Debt Capital Market and Equity Trading:

The Bank continued to maintain its leadership position in the domestic debt
market and has syndicated an aggregate amount of around; 59.077 crores
through the private placement of bonds and debentures. Prime database has
ranked the Bank as the number arranger for private placement of bonds and
debentures till December 2009. Bloomberg has also ranked the Bank as number
1 in India. Domestic Bond League Table for the calendar year 2009 and for
the quarter ended 31st March 2010. Asia Money has rated the Bank as Less
Domestic Debt House in India for the year 2009.

The Bank maintains an investment of proprietary trading portfolio
incorporate bonds and equities. As on 31st March 2010,the Bank's investment
incorporate bonds, equities and others was Rs. 21,778.94 crores against
Rs.18,607.48 crores last year.

BUSINESS BANKING:

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. The cross-selling of
transactional banking products have also succeeded in enlarging the
customer base and growing current account balances. Thus, sourcing of
current accounts is one of the key enablers for the growth of the balance
sheet. As on 31st March 2010, current account balances for the Bank stood
at Rs. 32,167.74 crores, against Rs. 24,821.61 crores on 31st March 2009,
rising 29.60% over the year. On a daily average basis, current account
balances grew from Rs. 14,658.35 crores on 31st March 2009 to Rs. 18,321.75
crores on 31st March 2010, thus increasing 24.99% over the year.

With the intent of providing business clients greater flexibility in
meeting their transactional banking requirements, the Bank has made
significant improvements in its alternate banking channel using mobile and
internet banking. Cash Management Services (CMS) also leveraged the network
and reach to provide a wide range of customized collection and payments
solutions. Strong correspondent bank alliances similarly offer corporate
clients a very wide geographical coverage. The network and technology based
solutions have helped the Bank handle bulk-payment mandates for dividends,
interest payments, redemptions and refunds. The Bank has designed several
facilities for its corporate clientele using its technology platform. One
such facility is the Power Access solution which provides seamless
integration between Bank's core banking system, the payment modules and the
corporate client's ERP Systems. The Bank has established a strong presence
with companies raising equity funds, by offering its services as
bankers to the Issue.

The Bank acts as an agency bank for government business offering banking
services to various Central Government ministries/departments and other
State Governments/Union Territories. Currently, the Bank accepts
income/other direct taxes through 214 authorised branches at 137 locations
and central excise and service taxes though 56 authorised branches at 13
locations. The Bank also handles 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/departments and eight State Governments/Union
Territories. During the year, the Bank received approval from the
Government of Sikkim for handling collection of salestax in the state.

The Bank also strengthened its association with the e-Governance
initiatives of various state governments in India aimed at providing better
delivery of citizen/ business services. During the year, the Bank received
approvals from governments of Chhattisgarh and Orissa towards appointment
as the nodal bank for their 'e-Procurement Projects'.

The Bank is associated with Government of Andhra Pradesh for implementing
Electronic Benefit Transfer (EBT) Projects, a new line of business for
handling disbursements relating to various Govt. Benefit Schemes through
Smart Cards under an IT Enabled Financial Inclusion Model in four
districts. During the year, the Bank extended its association to three more
state governments for implementing similar EBT Projects in various
districts (two in Chhattisgarh and one each in Haryana and Karnataka). As a
result of these business initiatives, the total government business
throughput during the year was Rs. 71,039 crores against Rs. 60,869 crores
in the previous year.

CAPITAL MARKETS:

During the year, the Capital Markets SBU was restructured with the debt
capital market business (hitherto a part of the capital markets) carved
into a separate vertical. As a result, the Bank's Capital Markets SBU
comprises equity capital markets (ECM) business, mergers and acquisitions
and private equity syndication. There is thus a separate and clear focus on
the equity capital markets involving the various facets of its businesses.
The turmoil in the global financial markets in the early part of the year
adversely affected deal flow as equity investors stayed away from the
markets and companies put expansion plans on hold. With improvement in the
global capital markets, there was an improvement in the ECM activity in the
second half of the financial year.

The Bank is a SEBI-registered Category I Merchant Banker and has been
fairly active in advising Indian companies to raise equity through IPOs,
FPOs, QIPs and Rights issues. The Bank has built strong relationships with
Indian companies, becoming an effective bridge between such corporates and
domestic and international institutional investors. During 2009-10, the
Bank advised over 10 companies in raising Rs. 5,288 crores from
international and domestic equity investors. The M&A advisory focuses on
domestic and cross-border buy and sell mandates for Indian clients. The
Private Equity business works with the Bank's mid-cap and SME clients and
advises them in raising capital from private equity investors.

The improved economic situation has had a beneficial effect on the
financial markets. The Capital Markets SBU has taken various initiatives to
improve origination efforts by partnering closely with the Bank's
relationship teams to mine existing corporate relationships.

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

The Micro, Small and Medium Enterprises (MSME) segment is a key target area
of business for the Bank. MSMEs play a vital role in the development of the
economy and generation of employment through the diversity of businesses
that such enterprises are engaged in, the entrepreneurial talent that has
built the businesses and their geographical dispersion. Banks are able to
participate in both fund and non-fund based credit limits, diversification
of risk and cross-selling. Importantly, banks can also fulfill their
priority sector obligations by lending to MSME. The Bank has set up 25 SME
Centres to focus on lending to this sector.

The Bank continued to focus on agriculture lending and build on its
cluster-based approach. Nine Agriculture Business Centres manage retail
agriculture, corporate agriculture and commodity business (i.e. financing
against warehouse receipts). The focus of different agri-business segments,
through different teams and a wide range of products, has helped in
business growth in each of these segments.

The retail agricultural model consists of 56 agriculture clusters, which
are placed in areas best suited for retail agriculture business. The Bank
undertakes retail agriculture lending through 246 branches, which are the
contact points for the clientele in this segment. The Bank has client-
specific relationship manager/credit analyst teams with sectoral expertise,
to drive the corporate agriculture business.

Under the warehouse receipt financing scheme, agricultural commodities
stored in warehouses are financed all over the country through the network
of branches working under the overall supervision of our eleven Commodity
Business Centres. Bank finance has been extended to farmers, joint
liability groups, traders, food processors, aggregators etc. During the
year, agriculture advances grew by 40.36% to Rs. 11,534.04 crones,
constituting 12.54% of the Bank's domestic advances. As on the last Friday
of March 2010, the direct agriculture lending was 10.14% of the adjusted
net bank credit of the Bank.

The poor and vulnerable sections of society face a dearth in banking and
financial services in India. Over the past decade, micro finance has played
an important role in filling this gap and Micro Finance Institutions (MFI)
are uniquely positioned to provide financial services to a clientele poorer
and more vulnerable than traditional bank clientele. The Bank has supported
MFIs over several years and as on 31st March 2010, the Bank has financed 87
institutions and has extended assistance through them to 20 lac such poor
and marginalized people. The Bank has also extended credit aggregating
Rs.0.33 crores under the Differential Interest Rate scheme to very poor
people in four states. The Bank continued its strategy of extending loans
under various government sponsored schemes.

Financial Inclussion:

Despite considerable economic progress and pursuit of explicit
developmental goals over the years, India has amongst the world's least-
penetrated banking systems. This unbanked population in both rural and
urban areas, which presently utilizes informal channels (including a
significant dependence on non-institutional sources for credit) represents
a vast, untapped market for banks. Tapping this fragmented market, however,
is a challenge which our existing brick-and-mortar banking model alone
cannot overcome. While the Bank presently offers a no-frills account for
the unbanked and participates in Electronic Benefit Transfer projects of
several state governments, it seeks to comprehensively implement the
Financial Inclusion plan through both the brick-and-mortar model as well as
a branchless Information and Communication Technology or ICT-driven model,
using business facilitators and business correspondents to provide the
last-mile connect with customers in unbanked areas.

INTERNATIONAL BANKING:

The International Banking strategy of the Bank revolves around leveraging
its relations with corporates in India while providing banking solutions at
overseas centres. The product offerings at overseas centres cover a wide
spectrum of businesses involving retail banking, wealth management,
corporate banking and treasury solutions.

The Bank's international presence spans the major financial hubs in Asia
with branches at Singapore, Hong Kong and DIFC, Dubai, and representative
offices at Shanghai and Dubai, besides strategic alliances with banks and
exchange houses in the Gulf Co-operation Council (GCC) countries. While
branches at Singapore, Hong Kong and DIFC-Dubai enable the Bank to partner
with Indian corporates doing business globally, the Dubai Representative
Office and the arrangement with GCC based banks and exchange houses provide
access to the NRI population. The Shanghai Representative Office apart from
providing presence in the key market of China fulfills the regulatory
requirement of establishing a branch in course of time to enhance the
ability of the Bank to tap business opportunities emanating from that
region.

The Bank consciously focused op consolidation of its overseas balance sheet
with optimum use of resources at the cost of growth. As of 31st March 2010,
the total assets size at the three foreign branches was USD 3.10 billion.

RISK MANAGEMENT:

Banking is the business of managing risks and the role of risk management
is to balance the trade-off between risk and return. It entails the
identification, measurement and management of risks across the various
businesses and effective utilization of capital. Risk is managed through a
framework of policies and principles approved by the Board of Directors and
supported by an independent risk function that ensures the Bank operates
within its risk appetite. The risk management function attempts to
anticipate vulnerabilities at the transaction level or at the portfolio
level, as appropriate, through quantitative or qualitative examination of
the embedded risks. The Bank continues to focus on refining and improving
its risk measurement systems.

The main risks faced by the Bank are credit risk, market risk, operational
risk and liquidity risk. The Bank's risk management processes are guided by
well-defined policies appropriate for the various risk categories,
independent risk oversight and periodical monitoring through the sub-
committees of the Board. The Board sets the overall risk appetite and
philosophy for the Bank. The Risk Management Committee, which is a sub-
committee of the Board, reviews various aspects of risk arising from the
businesses undertaken by the Bank. The Committee of Directors and the Audit
Committee of the Board supervises certain functions and operations of the
Bank, which ultimately enhances the risk and control governance framework
within the Bank. Various senior management credit and investment
committees: Credit Risk Management Committee (CRMC), Asset-Liability
Committee (ALCO) and Operational Risk Management Committee (ORMC)
operate within the broad policy framework of the Bank.

Credit Risk:

Credit risk arises from all transactions that give rise to actual,
contingent or potential claims against any counterparty, borrower or
obligor. The emphasis is placed, both on evaluation and containment of risk
at the individual exposures and analysis of the portfolio behaviour. The
Bank has a structured and standardized credit approval process, which
includes a well-established procedure of comprehensive credit appraisal.
Every extension of credit or material change to a credit facility to any
counterparty requires credit approval at the appropriate authority level.
Internal risk rating remains the foundation of the credit assessment
process, which provides integrity, and objectivity to the process. The
internal rating along with the size of the exposure determines the level of
sanctioning authority required to extend or materially change the terms of
credit and the monitoring frequency applicable to the exposure in line with
the policies approved by the Board. Credit exposures may arise from direct
lending, off-balance sheet products such as bank guarantees, letters of
credits and derivative transactions in the trading book, and from the
holdings of debt securities in the trading or banking book. Both credit and
market risk expertise are combined to manage risk arising out of traded
credit products such as bonds, credit derivatives and market related off-
balance sheet transactions.

The Bank continuously monitors portfolio concentrations by borrower,
groups, industry and geography, where applicable. Portfolio level
delinquency matrices are tracked at frequent intervals. The rating-wise
portfolio distribution gives an indication of portfolio quality as well as
the possible impact under stress conditions. The Risk Management Committee
of the Board periodically reviews the impact of the stress scenarios
resulting in rating downgrades, or drop in asset values in case of secured
exposures on the portfolio. The portfolio level risk analytics provide
insight into the capital allocation required to absorb unexpected losses at
a defined confidence level.

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 both for customers and 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
finder different scenarios at periodical intervals to assess the impact on
liquidity to withstand 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:

To manage the operational risk in an effective, efficient and proactive
manner, the Bank has an Operational Risk Management (ORM) Policy, which is
reviewed annually by the Risk Management Committee of the Board (RMC). In
addition to the ORM policy, operational Risk management framework, loss
data collection methodology, risk and control self-assessment framework,
key risk indicators framework and roles and responsibilities of operational
risk management function are approved by the RMC. The Bank has an
Operational Risk Management Committee (ORMC), which oversees the
implementation of the aforesaid framework/policies. In terms of the ORM
policy/framework, the Risk Department identifies, assesses, monitors and
mitigates/controls the risk to an acceptable level. New products, processes
and services introduced by the Bank are subject to rigorous risk review and
sign-off process by the Product Management Committee where all relevant
risk are identified and assessed by the departments, independent of the
risk-taking unit (product/process/service owner). Similarly, changes
proposed in the existing product/processes/services are also subject to
review by -he Change Management Committee. Outsourcing arrangements are
examined and approved by the Outsourcing Committee. The IT Security
Committee of the Bank provides directions for mitigating the operational
risk in information systems. As per the directions of the ORMC, a sub-
committee (Sub-ORMC) has been constituted wherein the operational risk
issues are discussed in detail. The Bank has put in place a Business
Continuity Plan (BCP) for all the critical applications.

INFORMATION TECHNOLOGY:

Technology is one of the key enablers for business and IT has enabled a
scalable, robust and function-rich platform to deliver business value for
the customers. A strategy of offering increasing functionalities to
customers across channels like ATM, net banking, mobile banking has been
supported by IT by providing a secured and efficient platform. The Bank has
consistently remained amongst the top performing banks in terms of value
and accuracy of undertaking government transactions.

Mobile financial services introduced by the Bank have the potential to
transform not only the way consumers interact with the Bank, but also to
radically change the way they pay for goods and services and exchange
money with other individual consumers. The features include balance
inquiry, mini statements, funds transfer, bill payments and requests for
PIN and cheque book. The Bank has implemented Net Secure, a Two-Factor
Authentication system to provide added security to online banking
transactions, which makes fund transfers completely safe and secure.

The Bank has taken various initiatives towards green IT by using technology
in ways supporting the environment for instance disposing IT assets in an
eco-friendly way, recycling wherever possible, going for virtualization,
small footprint equipment like blade servers, small factor desktops,
investing in less power-consuming equipment, moving to LCD monitors from
traditional CRT monitors etc. Another major step in this direction is
sending password-protected e-statements to registered customers to reduce
the use of paper. The statement covers all the accounts of the customer.
This facility is also made available in net banking for downloading
depending on customer requirement, At present it is available in English
and Hindi. There are plans to extend to other Indian languages.

The Bank has built its own Tier-III Data Center at Bangalore and has moved
its IT business continuity operations to this new state-of-the-art Data
Center, which has the capability to support future expansion of business.

OPERATIONS:

The business model of the Bank, as it has evolved over the years, now
requires the separation of production and distribution functions within the
Bank, with transaction processing and customer databases (the production
technology) becoming increasingly centralised and product sales and
customer handling (the distribution technology) being the primary function
at the branches. The business process re-engineering has helped reduce
transaction costs and besides introducing smoothness in operations. To
bring about greater precision in the management of operations in both the
retail and corporate side of the Bank's businesses, some changes in
organisational design were introduced during the year.

Retail Ranking Operations:

Given the importance of providing both seamless service to retail clientele
and also ensuring secure, compliant systems, the Retail Banking Operations
(RBO) department has been formed. During the year, some of the initiatives
undertaken were intended to improve the operational efficiency of branches.
Monitoring and control functions were also reinforced for risk containment
and regulatory compliance. For instance, the monitoring of implementation

of Know Your Customer (KYC) guidelines for new accounts has been made more
stringent. Concurrent auditors were appointed at 19 Scan Hubs to make the
account opening process robust and compliant. Regional Support Centres were
setup for distributing customer kits, thereby reducing costs and increasing
productivity and efficiency. The account-opening process was further
streamlined by introducing warehousing of forms across 19 centres in the
country. Based upon customer feedback, key processes have been analyzed and
corrective measures where needed to improve operational efficiency and
turnaround time have been initiated. The RBO worked in close co-ordination
with the Service Quality department to enhance customer experience at
branches.

Wholesale Ranking Operation:

As a part of the overall organizational re-design, Wholesale Banking
Operations (WBO) Group was formed by hiving-off all units performing
operations for the corporate segment customers and consolidated under a
unified control. The WBO group focus is to develop efficient and best of
class transaction processing capability with a thorough understanding of
client-needs. Its goal is to deliver banking outputs to wholesale banking
clients through efficient deployment of skilled manpower and appropriate
technologies. The group comprises five verticals - Corporate Banking
Operations Department (CBO), Treasury Operations (TO), Trade Finance Center
(TFC), Centralized Collections and Payments Hub (CCPH) and Channel Finance
Hub (CFH).

Corporate Banking Operations (CBO) involves delivery, control, monitoring
and administration of credit facilities and processing of domestic trade
finance transactions of large and mid-corporates, and SME customers while
ensuring compliance with regulatory guidelines and systems and procedures
of the Bank in the conduct of credit operations. Treasury Operations (TO)
involves the settlement and accounting of treasury-related transactions.
The Trade Finance Centre handles remittances and trade finance transactions
processing on behalf of distribution channels dealing in trade finance and
foreign exchange. Centralised Collections and Payments Hub (CCPH) handles
payments and collections and the Channel Finance Hub (CFH) processes
disbursals and arranges MIS for advances under Channel Financing.

COMPLIANCE:

In accordance with the Bank's Compliance Policy and as per the directives
issued by Reserve Bank of India, the Compliance department plays a crucial
role in implementing the compliance functions in the Bank. The
instructions/guidelines issued by the regulatory authorities during the
year were disseminated throughout the Bank in order to ensure that the
business/functional units operate within the boundaries set by the
regulator. All new products and processes launched during the year were
subjected to vetting from the compliance standpoint 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. The Bank has introduced a
mechanism for monitoring and identification of suspicious transactions and
transaction-patterns, in accordance with international best practices,
enabling pre-emptive action and also facilitating the reporting to the
Financial Intelligence Unit-India mandated by the Prevention of Money
Laundering Act, 2002. As an ongoing exercise, Compliance is engaged in
enhancing the skill-sets of the operating staff on 'Know Your Customer' and
'Anti-Money Laundering' norms through specialised training.

The Bank oversees the primary aspect of vigilance and has a zero tolerance
policy for fraud, corruption and financial irregularity. It encourages
'whistle blowing' as a matter of corporate culture.

INTERNAL AUDIT:

The Bank's Internal Audit function undertakes a comprehensive risk-based
audit of branches, Retail Asset Centres (RAC), Service Branches and Credit
Management Centres (CIVIC) to assess efficacy and adequacy of internal
controls. It also undertakes internal-cum-management audit of the Bank's
Central Office departments. During the year, Information System (IS) audits
were conducted in respect of 117 software applications, Network, Data
Centre and Business Continuity Centre. To ensure independence, the Internal
Audit function has a reporting line to the Audit Committee of the Board
(ACB), which oversees its performance and reviews the effectiveness of the
operational and regulatory controls laid down by the Bank and RBI.

In all, 641 branches/Service Branches, 47 RACs, 10 CMCs, 17 CBO branches, 3
overseas branches and 2 Representative offices, 36 Central Office
departments and back-offices were subjected to internal audit during the
year covering 88% of the Bank's total business. Further, 34 branches, 8
CMCs, 22 RACs and 10 Central office departments are placed under concurrent
audit.

During the year, Internal Audit department undertook various initiatives
such as adoption of elaborate Internal Audit Charter, which reflects
internal audit mission, objectives, nature and scope, its independence,
accountability, responsibility, expectations and reporting structure;
rolling out a Self-Audit model aimed at ushering an improved compliance
culture. Internal Audit department has upgraded its process standards by
adopting ISO 2000-2008 Standards successfully. Its processes and systems
have also been evaluated by an independent Chartered Accountants' firm of
international repute.

CORPORATE SOCIAL RESPONSIBILITY (CSR):

As an integral part of society, the Bank is aware of its corporate social
responsibilities and has been engaged in community and social investments.
For this purpose, the Bank has set up a Trust - the Axis Bank Foundation,
to channel its philanthropic initiatives. The Axis Bank Foundation has
committed itself to participate in various socially relevant endeavours
with a special focus on education for the special/underprivileged children.
The Trustees of the Foundation have focused on education for
underprivileged children and :these are largely supported by programme
grants in order that the projects become replicable. The Bank has decided
to contribute up to one percent of its net profit annually to the
Foundation under its CSR initiative. During the year, the Foundation
partnered with twelve more NGOs, taking the partnership to a total of 42
NGOs, for educating underprivileged children and special children all over
India. The Foundation has committed grants for projects running upto three
years. Eight hundred and fifty nine education centres, evolving 12 States
are covered by the Foundation programmes. 55,452 children are covered under
the programmes that include 27,899 girls and 27,553 boys. The projects
supported by the Foundation involves imparting 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, teacher
training programmes that result in competencies to -each pre-primary and
primary school children and supporting vocational training centres in slum
areas to imparting training to School dropouts.

The Axis Bank Foundation will also play an important role under the Bank's
Financial Inclusion initiative. It is proposed that literacy campaigns will
be launched by the Bank in all regions where financial inclusion is
undertaken where the objective of the Bank will be to Impart financial
awareness. It will also undertake various other initiatives such as
healthcare, vocational training and other community development programmes
like afforestation and rain-water harvesting in these areas.

HUMAN RESOURCES:

The Human Resources (HR) agenda of the Bank aims to create a team of
empowered employees oriented to realization of the Bank's Vision. During
the year, the key HR issues that were addressed related to learning and
skill development, management of performance, ensuring an enhanced work-
life balance and attrition management.

The employee engagement initiatives focused on providing opportunities to
staff to seek aspirational roles through internal job postings and periodic
job rotations, making the compensation structure more competitive,
streamlining the performance-linked rewards and incentives, and generally
sending a clear message of meritocracy.

The Bank has also built training infrastructure, which seeks to upgrade
skill levels across grades and functions through a combination of in-house
and external programmes. The flagship in-house programmes include the
Induction Programme for new entrants and Credit and Foreign Exchange
Programmes for building up a pool of specialists in the respective domains.
External Programmes encompass value-added programmes on Team Building and
Leadership, Organizational Development, Management Development Programmes,
People Management Programmes, all conducted by premier institutes like the
IIMs, Administrative Staff College of India (ASCI) and ISB Hyderabad.
Senior functionaries have also been deputed overseas to attend specialized
programmes intended to keep them updated on developments in the world
economy.

The Bank also has a comprehensive e-learning module conceptualized and
developed in-house and administered through the intranet. Keeping pace with
the growth in the diversity of products on the one hand and manpower on the
other, the training man-days have increased from 57,317 last year to 65,378
during the year, registering a growth of 14%.

The Bank's Performance Management System, where recognition is directly
related to performance, has been further streamlined during the year with a
view to encouraging dialogue on performance and developmental feedback
between the appraisee and appraiser. Competency clusters were defined for
employees at different levels of the hierarchy to promote desired behaviour
and to facilitate an objective assessment. Sessions were conducted across
the Bank to educate supervisors on the revised process. This apart, a 360-
degree feedback process has been used for the first time as a part of
leadership development process in the Bank.

On the talent acquisition front, the Bank has emerged as a strong employer
brand in the financial services sector and especially on the campuses of
the premier business schools of the country. The strength of the workforce
at the year-end was 21,640 as compared to 20,624 in the previous year. We
believe some of the other significant contributory factors for the
emergence of the Axis Bank brand as a major player are a young workforce
with an average age of 29 years, the Bank's policy of espousing the cause
of affirmative action by being an equal opportunity employer and
participation in various social initiatives like Teach for India.

Through the fulfillment of its HR agenda, the Bank will continue to strive
66% towards realisation of the ultimate goal of being the preferred
financial service provider excelling in customer delivery through insight,

empowered employees and smart use of technology.