Annual report - DCB - 2009-2010

DEVELOPMENT CREDIT BANK LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

The year 2009 was one of the most difficult years in living memory for most
economies of the world. India, however, continued to remain robust
recording the second highest rate of growth after China. Cautious monetary
management in India helped steer the banking system away from the excesses
witnessed elsewhere and though credit off-take weakened, the system
remained in good shape.



DCB, for the first few months of FY 2010, continued to suffer from the
impact of increase in Non Performing Advances (NPAs) in Unsecured Personal
Loans. The Unsecured Personal Loans portfolio was impacted for the whole
industry due to the severe economic slow down. Commercial Vehicle and
Construction Equipment also got impacted to some extent. DCB ceased
advancing Unsecured Personal Loans, Commercial Vehicle and Construction
Equipment in mid 2008 and since then these portfolios have steadily been
run off. Vigorous efforts on timely collection and recoveries have been
successful and this has helped to reduce the provisions and mitigate the
losses. Provisions are lower in the financial year 2009-10 (FY 2010) than
the previous financial year (FY 2009).

In FY 2010, DCB successfully dealt with many of the challenges faced by it.
DCB's Balance Sheet was restructured substantially towards reducing
dependence on unpredictable wholesale deposits in favour of more stable
retail or customer deposits.

Having dealt with the rising NPA issue, the Bank has implemented a new
strategy in FY 2010 for growth. Unlike the past years where DCB depended to
a large extent on Unsecured Personal Loans, in the new strategy, the Bank
is focusing on (a) Retail Mortgages (b) Micro Small & Medium Enterprise
(MSME) (c) Small & Medium Enterprise (SME) (d) mid-Corporate (e) Agri,
Microfinance and Rural Banking (AMRB) (to meet Priority Sector Lending
(PSL) targets). The Bank is adopting a more customer centric approach to
achieve business growth and create a diversified and secured portfolio.
DCB's branch network will play a key role both for deposits and advances.
Instead of funding the advances with bulk deposits, the Bank has changed
its approach and has put a lot more effort in generating low cost deposits
such as Current and Savings Accounts (CASA) and Retail Term Deposits. The
focus of attention on retail CASA and Retail Term Deposits not only helped
improve the cost of funds but also enabled DCB to strengthen the Balance
Sheet by replacing volatile bulk deposits with more stable retail deposits.

DCB aims also to boost other sources of income by cross selling life
insurance and general insurance, wealth advisory, cash management and trade
products in order to improve customer loyalty as well increase non fund
based income.

In the last few months, DCB has been successful in growing MSME, SME and
Mortgage Advances. Corporate Banking delivered steady performance while
Agri, Microfinance and Rural Banking witnessed substantial growth in FY
2010. DCB made special efforts to ensure that PSL regulatory obligations
are fulfilled by it.

Continuously enhancing customer loyalty is critical for the Bank.
Therefore, a lot of attention has been given to improving service at the
branches and streamlining back office operations. Cross selling of life
insurance, general insurance and trade business has helped to improve
deepening relationships with our customers. New products such as wealth
advisory (offered at no cost to our customers) have met with a strong
positive response.

All this has been achieved with dramatic and universal cost cutting and
enhancing the efficiency of operations. The twin result of the growth of
business as well as dramatic cuts in costs has had the effect of lowering
Net Loss for FY 2010 from the previous year. This has also been a year
where it has been difficult to grow business as credit off-take in the
banking industry as a whole has been weak owing to a slowing economy but
your Directors expect this to change dramatically in FY 2011.

As the Bank continues to execute its strategy and business plans your
Directors expect the Balance Sheet growth to continue which, in turn,
should help achieve sustainable income growth. The fourth quarter Net Loss
has improved in comparison to the previous three quarters and your
Directors are confident of returning to profitability within a few months.

FINANCIAL SUMMARY:

(Rs. in Cr.)
For the year For the year Increase /
ending ending (Decrease)
31 March 2010 31 March 2009 (%)

Balance Sheet
Parameters:

Deposits 4,787.33 4,646.89 3.0%

Customer Deposits 4,626.61 4,248.23 7.0%

(including CASA) (1,691.04) (1,438.04) 17.6%

Inter Bank Deposits 160.72 398.66 (59.7%)

Advances 3,459.71 3,274.02 5.7%

Non Performing Assets 319.18 290.00 10.1%
(Gross)

Non Performing Assets 107.61 126.99 15.3%
(Net)

Provision for Standard 25.25 25.37 0.4%
Assets

Total Assets 6,136.67 5,943.04 3.3%

Profit & Loss Parameter:

Net Interest Income 141.99 197,26 (28.0%)

Non Interest Income 107.09 120.06 (10.8%)

Total Operating 249.08 317.32 (21.5%)

Income:

Operating Cost 200.82 241.98 17.0%

Operating Profit 48.26 75.34 (35.9%)

Provisions 121.00 161.94 25.3%

Net Profit Before Tax (72.74) (86.60) (16.0%)

Tax 5.71 1.50 280.7%

Net Profit After Tax (78.45) (88.10) 11.0%

DCB strategy was to exit from Unsecured Personal Loans, Commercial Vehicle
and Construction Equipment and replace the porffolio by secured Advances in
MSME, SME, Retail Mortgages, mid Corporate and Agri, Microfinance and Rural
Banking.

Balance Sheet has begun to grow in the last few months. Balance Sheet as on
March 31, 2010 was Rs.6,137 Cr. as against Rs.5,943 Cr. as on March 31,
2009.

Net Advances grewto Rs.3,460 Cr. as on March 31, 2010 from Rs.3,274 Cr. as
on March 31, 2009.

CASA book grew by 18% year on year. CASA ratio as on March 31, 2010 stands
at 35.3% as against 30.9% as on March 31, 2009.

Retail Deposits (Retail CASA and Retail Term Deposits) continued to show
good results. Retail Deposits were at 81.5% of Total Deposits as on March
31, 2010 as against 67.9% as on March 31, 2009.

Net Interest Margin was at 2.79% for FY 2010 as against 2.86% for FY 2009.

Unsecured Personal Loans porffolio reduced substantially and stood at Rs.95
Cr. as on March 31, 2010 as against Rs.330 Cr. as on March 31, 2009.

Gross and Net Non-Performing Advances as on March 31, 2010 was Rs.319 Cr.
and Rs.108 Cr. respectively and have declined steadily in the last few
months of FY 2010. DCB's overall NPA Coverage Ratio has improved to 70.0%
as on March 31, 2010 from 56.2% as on March 31, 2009.

During FY 2010, DCB raised Capital in August 2009 by issuance of lower Tier
II Subordinated Debt (Series IV) in the nature of promissory notes
aggregating Rs.65 Cr. and also in November 2009 issued 23,725,835 equity
shares at the rate of Rs.34.14 per share to Qualified Institutional Buyers
(QIBs) and raised Rs.81 Cr. of Tier / Capital.

DIVIDEND:

In view of the performance for the Financial Year ended 31 March 2010, your
Directors do not recommend payment of any dividend for FY 2009-2010.
(Previous year: Nit)

MANAGEMENT DISCUSSION & ANALYSIS:

A. RETAIL & WE BANKING:

Retail Banking:

DCB operates a network of 80 branches across 28 locations with a strong
presence in Maharashtra, Gujarat and Andhra Pradesh. DCB has 110 ATMs and
has tie ups with the Cashnet and Infinet networks that allows customers
access to more than 35,000 ATMs (VISA ATMs) across India. DCB is a pioneer
in providing free ATM access (VISA ATMs) to all its customers with no limit
on the number of transactions.

There has been a robust performance in the Retail Banking business in FY
2010. The strategy of growing low cost deposits is yielding good results.
In FY 2010, CASA growth was consistent month on month.

Retail Term Deposits have increased by 27% in FY2010. Further the
composition of the Retail Term Deposits to the Total Term Deposits has gone
up from 68% to 820% during this period. This strategy has helped to reduce
DCB's dependence on bulk deposits. What's more, the term deposit growth was
achieved while reducing the overall cost of deposits.

DCB also distributes third party products such as life insurance, general
insurance and mutual funds products through arrangements with insurance and
mutual fund companies in the country. During the year, DCB tied up with
ICICI Lombard GIC Ltd., the country's largest private sector general
insurance company. DCB also renewed its Bancassurance partnership with
Birla Sun Life Insurance (BSLI). DCB ranks amongst the top three
Bancassurance partners of BSLI.

Wealth management is an integral part of our strategy to grow retail
business. DCB as part of its wealth management foray introduced free wealth
management advisory services with no bank charges or service fee for mutual
fund investments and we are amongst the first private sector banks to waive
advisory fee and service charge for these services. This unique facility is
available to all account holders. DCB has also set-up a robust wealth
management service that covers the full spectrum of financial planning
including, risk profiling, asset allocation and portfolio selection. DCB
has also established a link with ICRA online, enabling its customers to
benefit from the quality research and financials service expertise of its
partner. DCB has invested in training and skill development and has over a
100 wealth management certified advisors. During FY 2010, DCB's high net
worth customer base increased by 20%.

DCB rolled out the strategy of rebalancing the asset portfolio. The retail
asset book has contracted during FY2010; however, the composition of
unsecured personal loans has been reduced to a great extent replaced by
mortgage loans, MSME and SME businesses in line with the strategy of
concentrating on secured lending. DCB launched the home loan product in
September 2009 and has been able to create a quality franchise within a
short time.

Customer service is a key focus area for DCB and it constantly strives to
enhance the overall customer experience. DCB perhaps is the only call
centre offering services (both phone banking officer and Interactive Voice
Response) in four languages i.e. Tamil, Telugu, Marathi and Gujarati in
addition to Hindi and English.

SME Banking:

MSME and SME are important segments in every country especially India. Much
of the banking industry and DCB's future will be determined by the growth
of SMEs. DCB offers a wide range of products and personalised services. The
Bank has further expanded its product suite to include Cash Management,
Trade Finance, Business Internet Banking and Insurance.

In FY 2010 DCB launched SME Banking in six major cities of the country to
support the already existing efforts by the branches. As the SME and branch
banking have natural synergy we have re-aligned SME business with branch
banking to exploit its vast potential.

B. CORPORATE BANKING:

Corporate Banking is present across India with regional offices in
Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai. DCB's
strategy is to provide complete range of products and services including
structured trade solutions. DCB has a diversified portfolio and principally
targets companies with a turnover of Rs.100 Cr. to Rs.700 Cr.

DCB has a team of experienced relationship managers and product specialists
in Trade Finance, Cash Management Services,, Capital and Commodity Markets.
In FY 2010, DCB decentralised its trade operations to improve response
times to its clients.

DCB has a sophisticated software platform that provides Business Internet
Banking and Cash Management Services for efficient liquidity management.
DCB uses advanced Credit Risk Assessment models for proper credit risk
evaluation and has evolved internal mechanisms for analysis and monitoring
of the portfolio.

The recent turned in the global markets and the impact on international and
domestic trade did impact credit off take. In the first half of the year,
most companies in India operated cautiously and capacity expansion was
slow. Further, there was a substantial liquidity overhang in the banking
system as a result of which customer pricing was under considerable of
downward pressure. Not withstanding such difficult conditions, the
Corporate Banking team achieved good growth in FY 2010.

C. AGRI, MICROFINANCE AND RURAL BANKING (AMRB):

The Indian agriculture sector is characterized by a low growth rate, high
risk and yet has immense opportunities and untapped potential. This sector
plays a critical role in the overall growth of GDP. In recognition of the
crucial role played by Agriculture in the Indian economy, and given the
natural synergy with DCB, the Bank has established a separate unit called
AMRB to address the needs of this segment.

AMRB has been a significant contributor to DCB Advances in FY 2010. AMRB
has posted impressive growth on all parameters.

Microfinance Institutions (MR):

The microfinance sector in India through the MFI route has witnessed rapid
growth during the last few years. DCB registered strong growth in the
microfinance sector in FY 2010 and has carefully built up a robust
portfolio that helps to meet a part of the PSL regulatory targets. DCB is
associated with 47 MFIs across India and caters to 250,000 customers.

Besides participation through MFIs, DCB has a microfinance branch at
Dediapada in Gujarat which has been successful in growing both credit and
savings in that region. This branch directly serves 7,600 households and
meets both deposits and advances needs.

Commodity based funding:

DCB provides commodity finance to farmers, agri enterprises and processors
against pledge of stocks as per warehouse / storage receipts. Commodities
can be stored in private warehouses and in storage managed by Central
Warehousing Corporation and State Warehousing Corporation. DCB has
appointed dedicated collateral managers for regular monitoring of the stock
movement and operations.

C. TREASURY:

DCB Treasury actively manages liquidity, fixed income securities trading,
equity investment through IPOs, foreign exchange trading and customer
sales. Treasury ensures compliance with regulatory requirements such as CRR
and SLR. In FY 2010, the market once again witnessed some degree or
volatility arising out of the global situation. Rising inflation,
increasing money supply, lower credit growth remained under the continuous
attention of RBI.

The Treasury unit successfully managed the liquidity requirements of the
Bank. Volatile bulk deposits were systematically,, replaced with more
stable retail deposits. This helped in improving cost of funds as well as
Balance Sheet stability. The scope for trading in government securities was
limited due to rising interest rate environment. However, Treasury took
this opportunity to improve its yields and in turn interest income. Any
excess liquidity was deployed judiciously to maximize yield and reduce
overall cost of funds. DCB has also been dealing in derivative products
like Overnight Index Swaps (OIS) for both trading and hedging to a limited
extent.

D. CREDIT & RISK:

Risk Management:

DCB has adopted a risk management framework that enables comprehensive and
integrated management of risks. Establishing well defined and independent
risk management functions inrespective businesses and operations is a key
requirement before under taking any new activity. Operating level risk
committees viz. Asset Liability Management Committee (ALCO), the
Operational Risk Management Committee (ORCO) and the Credit Risk Management
Committee (CRMC) under the chairmanship of the MD & CEO oversee specific
risk areas. These committees in turn support the Risk Management Committee
of the Board (RMC).

Credit Risk:

The credit risk policy of DCB is aligned with the Bank's approach of
achieving quality asset growth and ensuring long-term sustainable
profitability over business cycles. A healthy balance is maintained between
risk and reward. DCB also undertakes the exercise of measuring the credit
risks involved in the composition of its present portfolio and realigning
them to have better riskreward position.

DCB strives to continuously strengthen its internal risk assessment
capabilities. For each product, defining customer segments, underwriting
standards, security structures and other criteria are specified to ensure
consistency. There is a clear separation of functional responsibilities
that ensures that independence is maintained between sales, credit
assessment & approval, loan administration and loan review portfolios.

The Credit Risk Analytics & Monitoring (CRAM) unit monitors all Corporate
and SME exposures centrally, to identify and reveal early warning signals.
It also evaluates impact on the loan book arising or evolving because of
specific market developments, Credit Audit unit undertakes an independent
review of the loan book at periodic intervals.

Retail Credit Risk Management:

Ensuring a stable risk adjusted earnings and keeping customer defaults
within the acceptable range is key to quality retail asset portfolio. DCB
continued to actively manage the retail portfolio and this helped in
lowering the provisions in FY 2010 as compared to FY 2009. As per the new
strategy, the Retail Banking focus is on Secured Home Loans as DCB had
stopped originating new Unsecured Personal Loans, Commercial Vehicle and
Construction Equipment.

Market Risk:

Besides the usual monitoring of Structural Liquidity, Interest Rate
Sensitive Gap limits and Absolute Holding limits, DCB also monitors
interest rate risks using Value at Risk (VaR) limits. Exposures to foreign
exchange, and capital markets are monitored within pre-set exposure limits,
margin requirements, and stop-loss limits.

Country Exposure Risk:

DCB has established specific country exposure limits capped at 1% of Total
Assets for each individual country, and uses the mitigant of insurance
cover available through the Export Credit and Guarantee Corporation (ECGC),
where appropriate.

Liquidity Risk:

Liquidity risk arises in any bank's general funding of its activities. As
part of the liquidity management and contingency planning, potential
trends, demands, events and uncertainties that could result in an adverse
liquidity conditions are assessed. DCB's (Asset Liability Management) ALM
policy defines the gap limits for the structural liquidity and the
liquidity profile is analysed on both static and dynamic basis by tracking
cash inflows and outflow in the maturity ladder based on the expected
occurrence of cash flows. DCB undertakes behavioural analysis of the non-
maturity products, namely CASA and Cash Credit / Overdraft accounts on a
periodic basis to ascertain the volatility of balances in these accounts.
The renewal pattern and premature withdrawals of Term Deposits and draw
downs of un-availed credit limits are also captured through behavioural
studies. The liquidity profile of DCB is estimated on an active basis by
considering the growth in deposits and loans, and investment obligations.

The concentration of large deposits is monitored on a periodic basis.
Emphasis has been placed on growing retail deposits by increasing the share
of CASA within total deposits. With an appropriate thrust on CASA, DCB is
able to reduce its dependence on short term bulk deposits. The Bank at
periodic intervals does stress testing on liquidity.

Operational Risk:

Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people or systems, or normal external events. The
business units put in place the baseline internal controls to ensure a
controlled operating environment throughout the organisation. Each new
product or service introduced is subject to a rigorous risk review and
sign-off process where relevant risks are identified and assessed by
various units.

Key Operational Risk Indicators (KORls) have been defined and are regularly
tracked. Self-assessment of Operational Risks within all business divisions
has been done and loss reporting and data capturing systems have been
implemented.

DCB has initiated a new process called Periodic Risk Identification and
Controls Evaluation (PRICE) as part of the self assessment of risks across
all business and functional units whereby respective units have to assess
and disclose risks and action plan for corrective action.

Implementation of Basel II guidelines:

DCB has taken the opportunity of implementation of the Basel II framework
to review systematically its risk management systems and practices, with an
objective of aligning them to international best practices.

DCB has migrated to New Capital Adequacy Framework (NCAF) under Basel II
guidelines as on 31 March, 2009. DCB is adopting the Standardised Approach
for Credit Risk and Market Risk and the Basic Indicator Approach for
Operational Risk. DCB has put in place the key requirements for the
implementation of Basel II guidelines, as given below;

- Comprehensive policies for managing the major regulatory risks - Credit,
Market and Operational Risk and their integration

- Policy on Internal Capital Adequacy Assessment Process (ICAAP) for
management and calculation of additional capital for risks other than
regulatory risks

- External Credit Assessment Institutions have been approved, mapping of
credit rating, strategies to ensure that the corporate portfolio externally
rated

- System for capturing credit rating / loan quality migration

- Phased introduction of risk based pricing model to take care of the cost
of capital based on the risk categorisation of the borrowers and the credit
risks involved in the exposure to these borrowers

- Policy on Credit Risk Mitigants and Collateral Management

- Disclosure policies and processes to ensure adequate disclosure

- Capital Assessment Model has been procured and is in the process of being
integrated with the Bank's system to ensure ongoing computation of capital
on Credit Risk

- Parallel runs of capital assessment are being carried on a quarterly
basis since June 2006 which have so far indicated an improvement in DCB's
capital adequacy under the proposed Basel II policy framework

Concentration Risk:

Risk is managed at the individual exposure as well as at portfolio level
with prudential limits fixed for individual and groups of borrowers,
industrial sectors, asset classes and unsecured exposures etc. The exposure
norms adopted by DCB are conservative in comparison to the regulatory
prudential exposure norms. Geographical concentration is tracked on a
regular basis.

Reputational Risk:

DCB pays special attention to issues that may create a Reputational Risk
for the Bank. Events that can negatively impact the Bank's position are
handled cautiously ensuring utmost compliance with regulations and in line
with the values of DCB.

E. INFORMATION TECHNOLOGY AND OPERATIONS:

Information Technology:

DCB continues to leverage technology for supporting its business strategy
and to improve the level of customer service. The application landscape
consists of a blend of packaged products as well as some in-house
applications.

DCB continues to upgrade its network architecture to provide reliable and
robust infrastructure to branches and offices. In it's endeavor to provide
better customer services, DCB enhanced the capabilities of alternate
channels such as Retail and Business internet banking, 24 hour customer
care center and SMS alerts. DCB will continue to implement appropriate,
cost-efficient technologies to support it's business plans in FY 2011.

Operations:

The Operations unit is the backbone of DCB's internal and external service
delivery. Operations are centralised at Vikhroli in Mumbai. This unit
strives to adopt an empathetic approach to drive efficiencies and best in
class customer service. Internal controls are constantly reviewed to ensure
that risks are well managed. End to end process reviews are conducted
periodically and automation is introduced wherever possible to reduce
errors and cycle time.

F. INTERNAL AUDIT:

Internal Audit (IA) is an independent unit that performs periodic audits to
evaluate the adequacy and effectiveness of internal controls and overall
risk management. The Audit Committee of Board (ACB) provides direction to
the audit function and monitors the effectiveness of this function. IA uses
a comprehensive risk based approach taking into account the guidelines of
RBI and international best practices. IA reviews include snap audits and
thematic reviews of key functions or projects. IA also uses reputed audit
firms for concurrent audits.

Many new measures including logical consolidation of auditable entities,
and the introduction of risk appraisal profiles among other initiatives
have been put in place to improve the effectiveness of risk based audits
with focus of attention on continuous risk assessments. The risk assessment
process has been strengthened to identify and assess DCB wide risks. These
risks are captured in a 'Heat Map' for analysis and corrective action. The
remedial action tracking has also been enhanced.

G. HUMAN RESOURCE MANAGEMENT, TRAINING & INDUSTRIAL RELATIONS:

Human Resources (HR) unit continued to play a key role in FY 2010 when DCB
faced many challenges. In order to ensure strong staff morale substantial
emphasis was placed on open and regular communication across all levels.
This helped to improve employee engagement.

A key initiative undertaken was to re-launch an exercise to establish and
review the range of DCB values. The core values of DCB were refreshed and
communicated to all staff. Over the next financial year, staff events are
planned to embed the DCB values deep within the organisation.

HR coordinated with all units to put in place an effective monitoring
system of employee performance. Productivity improvement measures were
undertaken which helped to reduce total costs. Certain key senior positions
were integrated in order to lighten the top heavy structure and provide
flexibility for faster decision making. At the same time, HR facilitated
hiring of a number of high quality experienced resources in senior and
middle level positions to support the growth agenda of DCB. The recruitment
process was strengthened in order to provide adequate and quality resources
in frontline positions.

Regular training was imparted to staff at various levels keeping in view
the need for improving customer service, product knowledge and sales
ability. Branch staff and Operations were given ongoing training on KYC and
AML as well.

An integrated centralised system HumaNET was introduced to facilitate
paperless processing of recruitment, separation, leave management,
transfers and performance management. This helped to reduce costs and
improved efficiency in the HR unit.

A retention plan for key human resources was put in place. This included
structured feedback, development plans and training.

HR was instrumental in organising events that gave opportunities to staff
to participate and contribute. Eye check up, birthday celebrations,
Independence Day celebration, Navratri, employee fitness test, badminton
tournament, old age home visit, Republic Day collage competition,
Christmas, Eid, Diwali, blood donation camp, Womens' Day and DCB limited
avers cricket tournament are examples of using every occasion to engage
staff members.

DCB celebrated the 73rd birthday of His Highness, the Aga Khan on December
13, 2009.

HR regularly facilitated Knowledge Exchange Forums where staff members
share their expertise and skills with one another. This helped in building
teamwork.

DCB is committed to Corporate Social Responsibility (CSR) as part of its
core values. DCB staff made donations generated through staff activities to
CRY and HelpAge India.

H. CUSTOMER SERVICE:

The Bank believes that customer satisfaction is at the core of its
existence and customers must be served proactively beyond their
expectations. DCB has a dedicated Service Quality (SQ) team that is
directly supervised by the MD and CEO along with the senior management. The
SQ team inter alia is responsible for - identifying problems faced by
customers, coordinating speedy rectification of issues, actively looking
for process improvement opportunities, scientifically tracking customer
satisfaction, facilitating implementation of customer friendly automation.

DCB has implemented 'Centralised Complaint Management' so that customer
queries / complaints are attended to on time and also to provide uniform
quality of service. All complaints are tracked rigorously for timely
closure and delays if any are escalated to senior management.

DCB has Personal and Business Internet Banking that is at par with the best
in the industry. DCB mobile alerts are considered to be one of the best in
the industry. In FY 2010, this facility was further enhanced with more
alerts added for customer convenience that reduces the need for the
customer to visit a branch or contact the call centre.

The MD and CEO along with the senior management team launched a unique
program called '7P' wherein regular structured conference calls are held
with the branch teams. The purpose of these calls is to directly interact
with the branch teams and provide the necessary support for them to grow
their business and improve customer service. The senior team strives to
resolve all issues instantly. Items that are not resolved are followed-up
regularly by the SQ team. The '7P' program has been very well received
throughout the organisation.

DCB has a '24 hour customer care' center that has been in operation for
more than two years. The main objective of this unit is to provide any time
convenience that eliminates the need for customers to visit the branch.
Over time, a number of activities have been migrated from the branches to
the phone banking unit. This unit on a monthly basis handles approximately
80,000 calls. More recently, this unit has also helped in deepening
customer relationship through cross sell of value added products.

PARTICULARS OF EMPLOYEES:

The information required under Section 217(2A) of the Companies Act, 1956
and the rules made there under, are given in the annexure appended hereto
and forms part of this report. In terms of Section 219(1)(b)(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 said annexure may write to the Company Secretary at the Registered
Office of the Bank. The Bank had 16 employees who were employed throughout
the year and were in receipt of remuneration of more than Rs.24.00 lakhs
per annum and 19 employees who were employed for part of the year and were
in receipt of remuneration of more than Rs.2.00 lakhs per month.

EMPLOYEE STOCK OPTIONS:

The information pertaining to the Employee Stock Options is given in an
annexure to this Report.

PARTICULARS REGARDING CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION:

The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to
conservation of energy and technology absorption do not apply to DCB.
However, as mentioned in the earlier part of the Report, DCB has been
extensively using technology in its operations.

DIRECTORS' RESPONSIBILITY STATEMENT:

In accordance with Section 217(2AA) of the Companies Act, 1956, your Board
of Directors confirms that:

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

b) the directors had selected 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 the
company at the end of the financial year and of the profit or loss of the
company for that period;

c) proper and sufficient care has been taken for maintenance of adequate
accounting records as provided in the Companies Act, 1956, for safeguarding
the assets of DCB and for preventing and detecting frauds and other
irregularities; and

d) the annual accounts of DCB have been prepared on a 'going concern'
basis.

CORPORATE GOVERNANCE:

The Bank continues to believe in observing the best corporate governance
practices and benchmarking itself against each such practice on an ongoing
basis. A separate section on Corporate Governance and a Certificate from
M/s S.R. Batliboi & Co., Chartered Accountants regarding compliance of
conditions of Corporate Governance as stipulated under Clause 49 of the
Listing Agreements with the Stock Exchanges form part of this Annual
Report.

DIRECTORS:

In accordance with the Companies Act, 1956 and the Articles of Association
of DCB. Directors Mr. Amir A. Sabuwala, Ms. Nasim Devji and Mr. Shabir
Kassam are retiring by rotation and being eligible, offer themselves for
reappointment.

The Board recommends the re-appointments of Mr. Amir A. Sabuwala, Ms. Nasim
Devji and Mr. Shabir Kassam as Directors at this Annual General Meeting. A
brief resume relating to the Directors who are to be re-appointed is
furnished in the report on Corporate Governance.

None of the above mentioned persons is disqualified from being appointed as
a Director as specified in terms of Section 274(1)(g) of the Companies Act,
1956.

Mr. Anuroop Singh ceased to be a Director w.e.f. August 31, 2009. Your
Directors place on record their sincere appreciation of the services
rendered by Mr. Anuroop Singh.

STATUTORY AUDITORS:

Messers S.R. Batliboi & Co., Chartered Accountants were appointed as
Statutory Auditors at the last Annual General Meeting as per Banking
Regulation Act, 1949. They are eligible for re-appointment for FY 2010-2011
and their appointment is subject to RBI approval. Your Board recommends
their appointment as Statutory Auditors at the ensuing Annual General
Meeting, subject to approval of RBI.

ACKNOWLEDGEMENTS:

Your Board wishes to thank the principal shareholder, the promoters Aga
Khan Fund for Economic Development (AKFED), and all the other shareholders
for the confidence and trust they have reposed in DCB. Your Board also
thanks the RBI for its valuable guidance and support to DCB. Your Board
acknowledges with gratitude, the assistance and co-operation extended by
SEBI, BSE, NSE, NSDL, CDSL, Central Government and the Governments of
Various States where DCB has its branches.

Your Board acknowledges with appreciation, the invaluable support provided
by DCB's auditors, lawyers, business partners and investors. Your Board is
also thankful for the continued co-operation of various financial
institutions and correspondents in India and abroad.

Your Board wishes to sincerely thank all its customers for their patronage.
Your Board records with sincere appreciation the valuable contribution made
by employees at all levels and looks forward to their continued commitment
to achieve ambitious organisational goals that the Bank has set for the
future.

On behalf of the Board of Directors

Nasser Munjee
Chairman

Mumbai
April 16, 2010

ANNEXURE TO THE DIRECTORS' REPORT

EMPLOYEE STOCK OPTIONS:

Description Pre-IPO

Options granted during the
year 2009-2010 NIL

The pricing formula N.A.




Options vested as on 31.03.2010 169,500

Options exercised and the total 1,960,500
number of shares arising as a result
of exercise of options (2009-10)

Options lapsed (2009-10) 151,500

Variation of terms of option NIL

Money realized by exercise of Rs.45,875,700/-
options (2009-10)

Total Number of options in force 207,000
as on 31.03.2010

Details of options granted
(2009-10) to:

(i) Senior managerial personnel NIL

(ii) Any other employee who receives NIL
a grant in any one year of option
amounting to 5% or more of option
granted during that year (2009-10)

(iii) Identified employees who were 1,522,000 ESOPs were granted to
granted option, during any one year, Mr. Gautam Vir in FY 06-07.
equal to or exceeding 1% of the
issued capital (excluding outstanding
warrants and conversions) of the
company at the time of grant:

Diluted Earnings perShare (EPS) Rs.(4.25)
pursuant to issue of shares on
exercise of option calculated in
accordance with AS 20 Earnings per
Share

Where the company has calculated the Had DCB followed fair value
employee compensation cost using the method of accounting, the stock
intrinsic value of the stock options, option compensation expenses
the difference between the employee would have been higher by
cost so calculated and the employee Rs.1.63 Cr. Consequently the
compensation cost that should have profit would have been lower by
been recognized, if it had used the that extent. The basic EPS and
fair value of the options, shall be diluted EPS of the Bank would
disclosed. The impact of this diffe- have been Rs.(4.34) and Rs.(4.34)
rence on profits and on EPS of the
company shall also be disclosed.

Weighted - average exercise prices Not Applicable
and weighted - average fair values
of options shall be disclosed
separately for options whose exercise
price either equals or exceeds or is
less than the market price of the
stock

A description of the method and The Securities Exchange Board
significant assumption used during of India has prescribed 2
the year to estimate the fair values methods to account for stock
of options, including the following grants: (i) intrinsic value
weighted - average information: method, In the fair value
method. DCB adopts the intrinsic
value method to account for the
stock options it grants to the
employees. DCB also calculates
the fair value of the options,
using a model with the following
assumptions:

i) Risk free interest rate The risk free interest rate is
expected to remain at 7.51%

ii) Expected life 1.4 years

iii) Expected volatility and 52-74%

iv) Expected dividends No dividend expected

EMPLOYEE STOCK OPTIONS:

Description Post-IPO

Options granted during the
year 2009-2010 2,941,500

The pricing formula The closing price on the stock
exchange with the highest trading
volumes on the last working day
prior to the date of grant.

Options vested as on 31.03.2010 706,535

Options exercised and the total NIL
number of shares arising as a result
of exercise of options (2009-10)

Options lapsed (2009-10) 1,969,230

Variation of terms of option NIL

Money realized by exercise of NIL
options (2009-10)

Total Number of options in force 5,744,135
as on 31.03.2010

Details of options granted
(2009-10) to:

(i) Senior managerial personnel 1,700,000 - Mr. Murali M. Natrajan
(MD & CEO)

(ii) Any other employee who receives 150,000 - Mr. Rajesh Verma
a grant in any one year of option 150,000 - Mr. Anoop Prabhakar
amounting to 5% or more of option
granted during that year (2009-10)

(iii) Identified employees who were NIL
granted option, during any one year,
equal to or exceeding 1% of the
issued capital (excluding outstanding
warrants and conversions) of the
company at the time of grant:

Diluted Earnings perShare (EPS) Rs.(4.25)
pursuant to issue of shares on
exercise of option calculated in
accordance with AS 20 Earnings per
Share

Where the company has calculated the Had DCB followed fair value
employee compensation cost using the method of accounting, the stock
intrinsic value of the stock options, option compensation expenses
the difference between the employee would have been higher by
cost so calculated and the employee Rs.1.63 Cr. Consequently the
compensation cost that should have profit would have been lower by
been recognized, if it had used the that extent. The basic EPS and
fair value of the options, shall be diluted EPS of the Bank would
disclosed. The impact of this diffe- have been Rs.(4.34) and Rs.(4.34)
rence on profits and on EPS of the
company shall also be disclosed.

Weighted - average exercise prices Not Applicable
and weighted - average fair values
of options shall be disclosed
separately for options whose exercise
price either equals or exceeds or is
less than the market price of the
stock

A description of the method and The Securities Exchange Board
significant assumption used during of India has prescribed 2
the year to estimate the fair values methods to account for stock
of options, including the following grants: (i) intrinsic value
weighted - average information: method, In the fair value
method. DCB adopts the intrinsic
value method to account for the
stock options it grants to the
employees. DCB also calculates
the fair value of the options,
using a model with the following
assumptions:

i) Risk free interest rate The risk free interest rate is
expected to remain at 7.51%

ii) Expected life 1.4 years

iii) Expected volatility and 52-74%

iv) Expected dividends No dividend expected