LETTER OF OFFER Dated February 1, 2008

For Equity Shareholders of the Bank only

STATE BANK OF INDIA (Constituted under State Bank of India Act, 1955)

Central Office: State Bank Bhavan, Madame Cama Road, Mumbai 400 021, Maharashtra, India

Tel. no. (91 22) 2202 2426 Fax no. (91 22) 2285 5348 Contact Person: Mr. Subrata Maiti, General Manager (Shares & Bonds) E-mail: gm.snb@sbi.co.in; Website: www.statebankofindia.com

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE BANK ONLY

LETTER OF OFFER ISSUE OF 105,259,776 EQUITY SHARES OF FACE VALUE RS. 10 EACH AT A PREMIUM OF RS. 1,580 PER EQUITY SHARE AGGREGATING TO AN AMOUNT EQUIVALENT TO RS. 167,363.04 MILLION TO THE EQUITY SHAREHOLDERS ON A RIGHTS BASIS IN THE RATIO OF ONE EQUITY SHARE FOR EVERY FIVE EQUITY SHARES HELD ON THE RECORD DATE i.e. FEBRUARY 4, 2008 (THE "ISSUE"). THE ISSUE PRICE FOR EQUITY SHARES IS 159 TIMES OF THE FACE VALUE OF THE EQUITY SHARE.

THIS BEING A FAST TRACK ISSUE, THE BANK HAS FILED A LETTER OF OFFER WITH THE DESIGNATED STOCK EXCHANGE AND THE SECURITIES AND EXCHANGE BOARD OF INDIA.

GENERAL RISKS

Investments in equity and equity related securities involve a high degree of risk and Investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the Risk Factors carefully before taking an investment decision in relation to this Issue. For taking an investment decision, Investors must rely on their own examination of the Issuer and the Issue including the risks involved. The securities have not been recommended or approved by the Securities and Exchange Board of India (“SEBI”) nor does SEBI guarantee the accuracy or adequacy of this document. Investors are advised to refer to “Risk Factors” on page [●] of this Letter of Offer before making an investment in this Issue.

ISSUER’S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of this Issue, that the information contained in this Letter of Offer is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other material facts, the omission of which makes this Letter of Offer as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect.

LISTING The existing Equity Shares of the Bank are listed on the Bombay Stock Exchange Limited (“BSE”), the National Stock Exchange of India Limited (“NSE”), the Calcutta Stock Exchange Association Limited (“CSE”), the Madras Stock Exchange Limited (“MSE”), the Delhi Stock Exchange Association Limited (“DSE”) and the Stock Exchange, Ahmedabad (“ASE”). The Bank has received “in-principle” approvals from the BSE and NSE for listing the Equity Shares arising from this Issue vide letters dated January 31, 2008 and January 30, 2008, respectively. For the purposes of the Issue, the Designated Stock Exchange shall be the NSE. Global Depositary Receipts which represent the underlying Equity Shares of the Bank are listed on the London Stock Exchange.

LEAD MANAGERS TO THE ISSUE

REGISTRAR TO THE ISSUE

Citigroup Global Markets India Private Limited 12th Floor, Bakhtawar, Nariman Point, Mumbai 400 021 Tel.: (91 22) 6631 9999 Fax.: (91 22) 6631 9803 Email: investors.cgmib@citi.com Website: www.citibank.co.in Contact Person: Mr. Amulya Goyal SEBI Regn No: INM000010718

CLSA India Limited 8/F Dalamal House Nariman Point Mumbai 400 021 Tel.: (91 22) 6650 5050 Fax.: (91 22) 2285 6524 Email: sbi.rights@clsa.com Website: www.india.clsa.com Contact Person: Mr. Sumit Jalan SEBI Regn No: INM000010619

Deutsche Equities India Private Limited DB House, Hazarimal Somani Marg, Fort, Mumbai 400001 Tel.: (91 22) 6658 4600 Fax.: (91 22) 2200 6765 Email: sbi.rights@list.db.com Website: www.db.com/India Contact Person: Mr. Vikram Gupta SEBI Regn No: INM000010833

DSP Merrill Lynch Limited Mafatlal Center, 10th Floor, Nariman Point, Mumbai 400 021 Tel.: (91 22) 6632 8000 Fax.: (91 22) 2204 8518 Email: sbi_rights@ml.com Website: www.dspml.com Contact Person: Mr. Pranav Mehta SEBI Regn No: INM000002236

Kotak Mahindra Capital Company Limited 3rd Floor, Bakhtawar, 229, Nariman Point, Mumbai 400 021 Tel.: (91 22) 6634 1100 Fax.: (91 22) 2283 7517 Email: sbi.rights@kotak.com Website: www.kotak.com Contact Person: Mr. Chandrakant Bhole SEBI Regn No: INM000008704

Datamatics Financial Services Ltd. A 16 & 17, MIDC Part B Crosslane, Andheri (East), Mumbai 400 093 Tel.: (91 22) 6671 2151 - 2156 Fax.: (91 22) 6671 2192 Email: sbirights@dfssl.com Website: www.dfssl.com Contact Person: Mr. Dnyanesh Gharote SEBI Regn No: INR000000874

ISSUE PROGRAMME

ISSUE OPENS ON

LAST DATE FOR REQUEST FOR SPLIT APPLICATION FORMS

ISSUE CLOSES ON

February 18, 2008 March 3, 2008 March 18, 2008

TABLE OF CONTENTS

ABBREVIATIONS AND TECHNICAL TERMS............................................................................................. 1

RISK FACTORS .................................................................................................................................................. 7

THE ISSUE ......................................................................................................................................................... 26

SELECTED FINANCIAL AND OPERATING DATA .................................................................................. 27

GENERAL INFORMATION............................................................................................................................ 32

OVERSEAS SHAREHOLDERS ...................................................................................................................... 39

CAPITAL STRUCTURE................................................................................................................................... 42

OBJECTS OF THE ISSUE................................................................................................................................ 51

BASIS FOR ISSUE PRICE ............................................................................................................................... 53

INDUSTRY OVERVIEW.................................................................................................................................. 55

BUSINESS........................................................................................................................................................... 68

DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK MANAGEMENT OF THE BANK .................................................................................................................................... 95

REGULATIONS AND POLICIES ................................................................................................................. 107

DIVIDENDS...................................................................................................................................................... 132

MANAGEMENT.............................................................................................................................................. 133

RELATED PARTY TRANSACTIONS.......................................................................................................... 154

DESCRIPTION OF CERTAIN DIFFERENCES BETWEEN INDIAN GAAP AND U.S. GAAP........... 155

AUDITORS’S REPORT (UNCONSOLIDATED) ........................................................................................ 160

AUDITOR’S REPORT (CONSOLIDATED) ................................................................................................ 164

FINANCIAL STATEMENTS ......................................................................................................................... 167

STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK........................................................ 238

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................................................................... 240

MATERIAL DEVELOPMENTS.................................................................................................................... 270

DESCRIPTION OF CERTAIN INDEBTEDNESS....................................................................................... 273

OUTSTANDING LITIGATION AND DEFAULTS ..................................................................................... 274

GOVERNMENT APPROVALS ..................................................................................................................... 280

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STATUTORY AND OTHER INFORMATION............................................................................................ 283

TERMS OF THE PRESENT ISSUE .............................................................................................................. 295

MAIN PROVISIONS OF THE STATE BANK OF INDIA ACT AND STATE BANK OF INDIA REGULATIONS ................................................................................................................................ 313

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION..................................................... 327

DECLARATION .............................................................................................................................................. 328

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OVERSEAS SHAREHOLDERS

The distribution of this Letter of Offer and the issue of Equity Shares on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer and CAF will be dispatched to those shareholders who have an Indian address.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that this Letter of Offer has been filed with the Stock Exchanges and with SEBI. Accordingly, the Equity Shares delivered upon exercise of the Rights Entitlements may not be offered or sold, directly or indirectly, and this Letter of Offer may not be distributed, in any jurisdiction outside of India. Receipt of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer and, in those circumstances, this Letter of Offer must be treated as sent for information only and should not be copied or redistributed. No person receiving a copy of this Letter of Offer in any territory other than in India may treat this Letter of Offer as constituting an invitation or offer to him, nor should he in any event use the CAF. The Bank will not accept any CAF where the address as indicated by the applicant is not an Indian address. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection with the issue of Equity Shares or the Rights Entitlements, distribute or send the same in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Equity Shares or to exercise the Rights Entitlements referred to in this Letter of Offer.

Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create any implication that there has been no change in the Bank’s affairs from the date hereof or that the information contained herein is correct as at any time subsequent to this date.

European Economic Area Restrictions

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive at any relevant time (each, a “Relevant Member State”) an offer of the Equity Shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant Member State of any Equity Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive. provided that no such offer of Equity Shares shall result in a requirement for the publication by the Bank or any Manager of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purpose of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restriction set out below.

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United Kingdom Restrictions This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Republic of Italy Restrictions The Issue of the Equity Shares has not been registered pursuant to Italian securities legislation and, accordingly, no Equity Shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the Equity Shares be distributed in the Republic of Italy, except:

(i) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and the relevant implementing CONSOB regulations, as amended from time to time, and in Article 2 of Directive No. 2003/71/EC of 4 November 2003; or

(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as amended (Regulation No. 11971).

Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other document relating to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:

(a) made by an investment firm, bank or financial intermediary permitted to conduct such

activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the Banking Act); and

(b) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority.

NO OFFER IN THE UNITED STATES

The Rights Entitlements and the Equity Shares of the Bank have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof (the “United States” or “U.S.”) or to, or for the account or benefit of, “U.S. Persons” (as defined in Regulation S under the Securities Act (“Regulation S”)), except in a transaction exempt from the registration requirements of the Securities Act. The rights referred to in this Letter of Offer are being offered in India, but not in the United States. The Issue to which this Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any shares or rights for sale in the United States or as a solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter of Offer and the enclosed CAF should not be forwarded to or transmitted in or into the United States at any time.

Neither the Bank nor any person acting on behalf of the Bank will accept a subscription or renunciation from any person, or the agent of any person, who appears to be, or who the Bank or any person acting on behalf of the Bank has reason to believe is, in the United States and to whom an offer, if made, would result in requiring registration of this Letter of Offer with the United States Securities and Exchange Commission. Envelopes containing a CAF should not be postmarked in the United States or otherwise dispatched from the United States, and all persons subscribing for Equity Shares and wishing to hold such shares in registered form must provide an address for registration of the Equity Shares in India. The Bank is making this issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer and CAF shall be dispatched to those Shareholders who have an Indian address. Any person who acquires Rights Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery

iii

of this Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights Entitlements, it will not be, in the United States.

The Bank reserves the right to treat as invalid any CAF which: (i) appears to the Bank or its agents to have been executed in or dispatched from the United States; (ii) does not include the relevant certification set out in the CAF headed “Overseas Shareholders” to the effect that the person accepting and/or renouncing the CAF does not have a registered address (and is not otherwise located) in the United States; or (iii) where the Bank believes acceptance of such CAF may infringe applicable legal or regulatory requirements; and the Bank shall not be bound to allot or issue any Equity Shares or Rights Entitlement in respect of any such CAF. Rights may not be transferred or sold to any U.S. Person.

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PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

The Bank maintains its financial books and records and prepares its financial statement in Rupees in accordance with generally accepted accounting principles in the Republic of India (“Indian GAAP”) which differ in certain important respects from generally accepted accounting principles in the United States (“U.S. GAAP”). For a discussion of the principal differences between Indian GAAP and U.S. GAAP as they relate to the Bank, see “Description of Certain Differences Between Indian GAAP and U.S. GAAP.” Industry and market share data in this Letter of Offer are derived from data of the RBI or the DGCIS and calculated by the Bank where applicable. Indian economic data in this Letter of Offer is derived from data of the RBI and the economic surveys of the Government. Certain financial and statistical figures have been rounded to the nearest tenth of a decimal place.

Unless stated otherwise, the financial information used in this Letter of Offer is derived from the Bank’s consolidated audited financial statements as of March 31 for the years ended 2007, 2006, 2005, 2004 and 2003 and consolidated limited reviewed financial statements for the six-months ended on September 30, 2007 prepared in accordance with Indian GAAP and applicable regulations, included in this Letter of Offer.

In this Letter of Offer, any discrepancies in any table between the total and the sum of the amounts listed may be due to rounding off.

Market and industry data used in this Letter of Offer, has been obtained from industry publications and governmental sources. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable and that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although the Bank believes that market data used in this Letter of Offer is reliable, it has not been independently verified.

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EXCHANGE RATES

The following table sets forth, for the periods indicated, information concerning the exchange rates between Indian rupees and U.S. dollars based on the closing noon buying rate in New York City for cable transfers of Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate as on December 31, 2007 was Rs. 39.41 = U.S.$ 1.00. No representation is made that the rupee amounts actually represent such American dollar amounts or could have been or could be converted into American dollars at the rates indicated, any other rate or at all.

Rupee and American Dollars Exchange Rates Year ended March 31,

Period End

Average

High

Low

2003 ................................................................................................ 47.53 48.43 49.07 47.53

2004 ................................................................................................ 43.40 45.96 47.46 43.40

2005 ................................................................................................ 43.62 44.86 46.45 43.27

2006 ................................................................................................ 44.48 44.17 46.26 43.05

2007 ................................................................................................ 43.10 45.12 46.83 42.78

Month

Period End

Average

High

Low

January 2007...................................................................................... 44.07 44.21 44.49 44.07

February 2007.................................................................................... 44.08 44.02 44.21 43.87

March 2007........................................................................................ 43.10 43.79 44.43 42.78

April 2007.......................................................................................... 41.04 42.02 43.05 40.56

May 2007........................................................................................... 40.36 40.57 41.04 40.14

June 2007........................................................................................... 40.58 40.59 40.90 40.27

July 2007 ........................................................................................... 40.18 40.27 40.42 40.12

August 2007....................................................................................... 40.63 40.68 41.15 40.25

September 2007 ................................................................................. 39.75 40.15 40.81 39.50

October 2007 ..................................................................................... 39.26 39.36 39.72 38.48

November 2007 ................................................................................. 39.52 39.33 39.68 39.11

December 2007.................................................................................. 39.41 39.38 39.55 39.29

Source: Bloomberg

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FORWARD-LOOKING STATEMENTS

The Bank has included statements in this Letter of Offer which contain words or phrases such as “will”, “would”, “aim”, “aimed”, “will likely result”, “is likely”, “are likely”, “believe”, “expect”, “expected to”, “will continue”, “will achieve”, “anticipate”, “estimate”, “estimating”, “intend”, “plan”, “contemplate”, “seek to”, “seeking to”, “trying to”, “target”, “propose to”, “future”, “objective”, “goal”, “project”, “should”, “can”, “could”, “may”, “will pursue”, “our judgment” and similar expressions or variations of such expressions, that are “forward-looking statements”. Actual results may differ materially from those suggested by the forward-looking statements due to certain risks or uncertainties associated with the Bank’s expectations with respect to, but not limited to, the actual growth in demand for banking and other financial products and services, its ability to successfully implement its strategy, including its use of the Internet and other technology and its rural expansion, its ability to integrate recent or future mergers or acquisitions into its operations, its ability to manage the increased complexity of the risks the Bank faces following its rapid international growth, future levels of impaired loans, its growth and expansion in domestic and overseas markets, the adequacy of its allowance for credit and investment losses, technological changes, investment income, its ability to market new products, cash flow projections, the outcome of any legal, tax or regulatory proceedings in India and in other jurisdictions the Bank is or will become a party to, the future impact of new accounting standards, its ability to implement its dividend policy, the impact of changes in banking regulations and other regulatory changes in India and other jurisdictions on the Bank, including on the assets and liabilities of SBI, a former financial institution not subject to Indian banking regulations, its ability to roll over its short-term funding sources and its exposure to credit, market and liquidity risks. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on net interest income and net income could materially differ from those that have been estimated.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this Letter of Offer include, but are not limited to, the monetary and interest rate policies of India and the other markets in which the Bank operates, natural calamities, general economic, financial or political conditions, instability or uncertainty in India, southeast Asia, or any other country which have a direct or indirect impact on its business activities or investments, caused by any factor including terrorist attacks in India, the United States or elsewhere, anti-terrorist or other attacks by the United States, a United States-led coalition or any other country, tensions between India and Pakistan related to the Kashmir region, military armament or social unrest in any part of India, inflation, deflation, unanticipated turbulence in interest rates, changes or volatility in the value of the rupee, instability in the sub prime credit market and liquidity levels in the U.S., foreign exchange rates, equity prices or other market rates or prices, the performance of the financial markets in general, changes in domestic and foreign laws, regulations and taxes, changes in the competitive and pricing environment in India, and general or regional changes in asset valuations. For a further discussion on the factors that could cause actual results to differ, see the discussion under “Risk Factors” included elsewhere in this Letter of Offer. The forward-looking statements made in this Letter of Offer speak only as of the date of this Letter of Offer. The Bank does not intend to publicly update or revise these forward-looking statements to reflect events or circumstances after the date of this Letter of Offer, and the Bank does not assume any responsibility to do so.

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ABBREVIATIONS AND TECHNICAL TERMS All references in this document to “U.S. dollars”, “U.S.$” and “$” refer to United States dollars and to “Rupees” and “Rs.” refer to Indian Rupees. In addition, references to “euro” and “€” refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended. All references in this document to the “Government” and “Central Government” refer to the Government of India.

Except as otherwise stated in this Letter of Offer, all translations from Indian Rs. to U.S. dollars are based on the noon buying rate in the City of New York on December 31, 2007, for cable transfers in Indian Rs. as certified for customs purposes by the Federal Reserve Bank of New York which was Rs. 39.41 per $1.00. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. References to “crores” and “lakhs” are to the following:

One lakh .......................................... 100,000 (one hundred thousand) One crore......................................... 10,000,000 (ten million) Ten crores ....................................... 100,000,000 (one hundred million) One hundred crores ......................... 1,000,000,000 (one thousand million or one billion)

Bank Related Terms Act The State Bank of India Act, 1955 Auditors The Joint Statutory Auditors of the Bank namely:

1. M.M. Nissim & Co.

Chartered Accountants, Barodawala Mansion, B-Wing, 3rd Floor, 81, Dr. Annie Besant Road Worli, Mumbai 400 018.

2. Khandelwal Jain & Co Chartered Accountants, 12-B Baldota Bhawan, 5th Floor, 117, Maharshi Karve Road, Opp. Churchgate Mumbai 400 020

3. R.G.N. Price & Co. Chartered Accountants, Simpson Buildings, 861, Mount Road, Chennai 600 002

4. S. K. Mittal & Co. Chartered Accountants, Mittal House, E-29, South Extension Part II, New Delhi 110 049.

5. Vinay Kumar & Co. Chartered Accountants, Chandra Shekar Azad Market Complex, 5 Sardar Patel Marg, Civil Lines, Allahabad 2110 01 (UP)

6. D.P. Sen & Co. Chartered Accountants 22, Ashutosh Chowdhury Avenue, 2nd Floor, Flat No. 22,

2

Kolkata 700 019 7. Laxminiwas & Jain

Chartered Accountants, 5-4-726, Station Road, Nampally, Hyderabad 500 001

8. Chaturvedi & Co. Chartered Accountants, 60, Bentinck Street, Kolkata – 700 069

9. Jain Kapila Associates 3000, Bhagat Singh Street No. 2, Paharganj, New Delhi 110 055

10. Datta Singla & Co. Chartered Accountants, SCO-2935-36(1st floor), Sector 22 C, Chandigarh 160 022

11. M. Choudhury & Co. Chartered Accountants, 60, Bentinck Street, Kolkata – 700 069

12. G. M. Kapadia & Co. Chartered Accountants, 36B Tamarind House, Tamarind Lane, Fort, Mumbai 400 001

13. Vardhaman & Co. Chartered Accountants, Flat 1C Rear Block, Oakland Apartments 7 Malony Road, T. Nagar, Chennai 600 017

the Bank The State Bank of India, constituted under the State Bank of India Act, 1955, having its

registered office at State Bank Bhavan, Madame Cama Road, Mumbai 400 021, Maharashtra, India. Unless otherwise specified, references to “the Bank” are to State Bank of India on an unconsolidated basis.

Central Board Central Board of Directors of the Bank Capital or Share Capital

Issued share capital of the Bank

Equity Share(s) or Share(s)

The equity share of the Bank having a face value of Rs. 10 unless otherwise specified in the context thereof.

Equity Shareholder

A holder of the Equity Shares on the Record Date

the Group The State Bank of India and its consolidated Subsidiaries, Associate Banks and other jointly controlled entities. References to specific data applicable to particular subsidiaries, Associate Banks or other jointly controlled entities are made by reference to the name of that particular entity.

General Terms and Abbreviations Term Description AGM Annual General Meeting AS Indian Accounting Standard AY Assessment Year BSE The Bombay Stock Exchange Limited CDSL Central Depository Services (India) Limited Companies Act Companies Act, 1956

3

Term Description Collecting Branches

Designated branches of State Bank of India for collection of CAF and Application Money

Depositories Act The Depositories Act, 1996, as amended Depository A body corporate registered under the SEBI (Depositories and Participant) Regulations,

1996, as amended DP Depository Participant EGM Extraordinary General Meeting EPS Earnings per share ESPS Employees Share Purchase Scheme, 2008 FEMA Foreign Exchange Management Act, 1999 FCNR Account Foreign Currency Non Resident Account FDI Foreign Direct Investment FI Financial Institutions FII(s) Foreign Institutional Investors as defined in and registered with SEBI under the SEBI

(Foreign Institutional Investors) Guidelines, 1996 fy / fiscal Financial Year ending March 31 or December 31, as the case may be FVCI Foreign Venture Capital Investors, as defined in and registered with SEBI under the SEBI

(Foreign Venture Capital Investor) Regulations, 2000, as amended GOI/ Government/ Central Government

Government of India

GDP Gross Domestic Product GDR Global Depository Receipt HUF Hindu Undivided Family IT Act The Income Tax Act, 1961 and amendments thereto ITAT Income Tax Appellate Tribunal MAT Minimum Alternate Tax Mn Million MoU Memorandum of Understanding MoF Ministry of Finance, Government of India NBFC Non-Banking Finance Company NCD Non-Convertible Debenture NIC National Industry Classification NR Non-Resident NRE Account Non-Resident External Account NRI/Non-Resident Indian

A Person resident outside India, as defined under FEMA, and who is a citizen of India or a Person of Indian Origin and such term as defined under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended

NRO Account Non-Resident Ordinary Account NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited OCB Overseas Corporate Bodies. A company, partnership, society or other corporate body

owned directly or indirectly to the extent of at least 60% by NRIs, including overseas trusts in which not less than 60% of beneficial interest is irrevocably held by NRIs directly or indirectly as defined under Foreign Exchange Management (Deposit) Regulations, 2000, as amended. OCBs are not permitted to invest in this Issue

PAT Profit After Tax RBI Reserve Bank of India RBI Act The Reserve Bank of India Act, 1934 SEBI Securities and Exchange Board of India SEBI Act, 1992 The Securities and Exchange Board of India Act, 1992 and amendments thereto SEBI Guidelines The SEBI (Disclosure and Investor Protection) Guidelines, 2000 issued by SEBI on

January 19, 2000 read with amendments issued subsequent to that date SIA Secretariat of Industrial Assistance Securities Act The United States Securities Act of 1933, as amended Takeover Code The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as

amended US GAAP Generally accepted accounting principles in the United States

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Issue Related Terms and Abbreviations Term Description Banker to the Issue

State Bank of India

CAF Composite Application Form Designated Stock Exchange

NSE

Fractional Entitlement

Entitlement of less than one Equity Share, arising as a result of shares held on the Record Date not being a multiple of five

Investor(s) Holder(s) of Equity Shares of the Bank as on the Record Date of February 4, 2008 and Renouncees

Issue Issue of 105,259,776 Equity Shares of Rs. 10 each for cash at a premium of Rs. 1,580 per share on rights basis to existing Equity Shareholders of the Bank in the ratio of one fully paid up Equity Share for every five fully paid Equity Shares held on the Record Date being February 4, 2008, for an amount aggregating Rs. 167,363.04 million

Issuer State Bank of India Issue Closing Date

March 18, 2008

Issue Opening Date

February 18, 2008

Issue Price Rs. 1,590 per Equity Share Lead Managers Citibank Global Capital Markets India Private Limited, CLSA India Limited, Deutsche

Equities India Private Limited, DSP Merrill Lynch Limited and Kotak Mahindra Capital Company Limited

Letter of Offer Letter of Offer dated February 1, 2008 as filed with the Stock Exchanges Record Date February 4, 2008 Registrar to the Issue or Registrar

Datamatics Financial Services Limited

Renouncees Persons who have acquired Rights Entitlements from Equity Shareholders as on the Record Date

Rights Entitlement

The number of Equity Shares that a shareholder is entitled to in proportion to his/her shareholding in the Bank as on the Record Date excluding Fractional Entitlement

Stock Exchange(s)

The NSE, BSE, CSE, DSE, MSE and ASE where the Equity Shares of the Bank are presently listed

Subsidiaries a) DOMESTIC BANKING SUBSIDIARIES 1. State Bank of Bikaner & Jaipur 2. State Bank of Hyderabad 3. State Bank of Indore 4. State Bank of Mysore 5. State Bank of Patiala 6. State Bank of Saurashtra 7. State Bank of Travancore 8. SBI Commercial and International Bank Ltd. b) FOREIGN BANKING SUBSIDIARIES 1. SBI International (Mauritius) Ltd. 2. State Bank of India (Canada) 3. State Bank of India (California) 4. Indian Ocean International Bank Ltd. 5. Commercial Bank of India LLC, Moscow (##) 6. PT Bank Indo Monex c) DOMESTIC NON-BANKING SUBSIDIARIES 1. SBI Factors & Commercial Services Pvt. Ltd. 2. SBI Capital Markets Limited 3. SBI DFHI Limited 4. SBI Mutual Funds Trustee Company Pvt. Ltd 5. SBI CAP Securities Ltd.

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6. SBI CAPS Ventures Ltd. 7. SBI CAP Trustees Co. Ltd. 8. SBI Cards & Payment Services Pvt. Ltd. (##) 9. SBI Funds Management Pvt. Ltd. (##) 10. SBI Life Insurance Company Ltd. (##) d) FOREIGN NON-BANKING SUBSIDIARIES 1. SBICAP (UK) Ltd. 2. SBI Funds Management (International) Ltd. (##) ## These entities are jointly controlled.

Jointly Controlled Entities

1. GE Capital Business Process Management Services Pvt. Ltd 2. C-Edge Technologies Ltd.

Associates a) Regional Rural Banks 1. Andhra Pradesh Grameena Vikas Bank 2. Arunachal Pradesh Rural Bank 3. Cauvery Kalpatharu Grameena Bank 4. Chhattisgarh Gramin Bank 5. Deccan Grameena Bank 6. Ellaquai Dehati Bank 7. Ka Bank Nongkyndong Ri Khasi Jaintia 8. Krishna Grameena Bank 9. Langpi Dehangi Rural Bank 10. Madhya Bharat Gramin Bank 11. Malwa Gramin Bank 12. Marwar Ganganagar Bikaner Gramin Bank 13. Mizoram Rural Bank 14. Nagaland Rural Bank 15. Parvatiya Gramin Bank 16. Purvanchal Kshetriya Gramin Bank 17. Samastipur Kshetriya Gramin Bank 18. Saurashtra Gramin Bank 19. Utkal Gramya Bank 20. Uttaranchal Gramin Bank 21. Vananchal Gramin Bank 22. Vidisha Bhopal Kshetriya Gramin Bank b) Others 1. SBI Home Finance Limited 2. Clearing Corporation of India Ltd. 3. Nepal SBI Bank Ltd. 4. Bank of Bhutan 5. UTI Asset Management Company Pvt. Ltd.

Technical and Industry Terms and Abbreviations

Term Description AIBEA All India Bank Employees’ Association AIBOA All India Bank Officers’ Association ALCO Asset and Liability Management Committee ALM Asset Liability Management ARC Asset Reconstruction Company ATMs Automated Teller Machines AY Assessment Year Bank Acquisition Act Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as

amended Banking Division Government of India, Ministry of Finance, Department of Economic Affairs

(Banking Division)

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Term Description BEFI Bank Employees Federation of India BIFR Board for Industrial and Financial Reconstruction BPLR Benchmark Prime Lending Rate BR Act The Banking Regulation Act, 1949, as amended CAGR Compounded Annual Growth Rate CARE Credit Analysis & Research Limited CBS Core Banking Solution CDR Corporate Debt Restructuring CISA Certified Information Systems Auditor CPs Commercial Papers CRAR Capital to Risk Weighted Assets Ratio CRR Cash Reserve Ratio CSO Central Statistical Organisation DIN Director Identification Number DRT Debt Recovery Tribunal(s) ECS Electronic Clearing Services EPS Earnings Per Share FIPB Foreign Investment Promotion Board GIR Number General Index Registry Number IBA Indian Banks Association IRDA Insurance Regulatory and Development Authority IT Information Technology KYC Norms Know Your Customer norms stipulated by the RBI LC Letters of Credit LFAR Long Form Audit Report MICR Magnetic Ink Character Recognition NAV Net Asset Value NDS-OM Negotiated Dealing System-Order Matching NEFT National Electronic Funds Transfer NPAs Non-Performing Assets OTS One Time Settlement PAN Permanent Account Number PAT Profit after Tax PBT Profit before Tax RTGS Real Time Gross Settlement SARFAESI Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002, as amended SCB Scheduled Commercial Banks SCRA The Securities Contract (Regulation) Act, 1956, as amended SCRR The Securities Contract (Regulation) Rules, 1957, as amended SICA The Sick Industrial Companies (Special Provisions) Act, 1995, as amended SLR Statutory Liquidity Ratio SME Small and Medium Enterprises Spread The difference between the yield on the fortnightly average of interest earning assets

and the cost of the fortnightly average of interest bearing liabilities SSI Small Scale Industries Tier I capital The core capital of a bank, which provides the most permanent and readily available

support against unexpected losses. It comprises paid-up capital and reserves consisting of any statutory reserves, free reserves and capital reserves as reduced by equity investments in subsidiaries, intangible assets, and losses in the current period and those brought forward from the previous periods

Tier II capital The undisclosed reserves and cumulative perpetual preference shares, revaluation reserves (at a discount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.25% of risk weighted assets), hybrid debt capital instruments (which combine certain features of both equity and debt securities), investment fluctuation reserves and subordinated debts

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RISK FACTORS

An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information in this Letter of Offer, including the risks and uncertainties described below, before making an investment in the Bank’s Equity Shares. If any of the following risks, or other risks that are not currently known or are now deemed immaterial, actually occur, the Bank’s business, results of operations and financial condition could suffer, the price of the Bank’s Equity Shares could decline, and you may lose all or part of your investment. The financial and other implications of material impact of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However there are a few risk factors where the impact is not quantifiable and hence the same has not been disclosed in such risk factors. The ordering of the risk factors has been done to facilitate ease of reading and reference and does not in any manner indicate the importance of one risk factor over other.

Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely on their own examination of the issuer and the offer including the risks involved. The securities have not been recommended or approved by SEBI nor does SEBI guarantee the accuracy or adequacy of this document.

The Bank, having made all reasonable inquiries, accepts responsibility for and confirms that this Letter of Offer contains all information with regard to the Issuer and the Issue, which is material in the context of the Issue, that the information contained in the offer document is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other material facts, the omission of which make this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.

Unless the context otherwise requires, references to the “Bank” are to State Bank of India on an unconsolidated basis. References to the “Group” are to the State Bank of India and its consolidated subsidiaries, Associate Banks (as defined herein) and other consolidated entities. References to specific data applicable to particular subsidiaries, Associate Banks or other consolidated entities are made by reference to the name of that particular entity. References to “fiscal year” are to the year ended March 31. Unless otherwise stated, the financial information of the Bank used in this section is derived from the Bank’s unconsolidated and consolidated financial statements under Indian GAAP, as regrouped. Risks Relating to the Bank’s Business The Bank’s business is particularly vulnerable to interest rate risk, and volatility in interest rates could adversely affect its net interest margin, the value of its fixed income portfolio, its income from treasury operations and its financial performance. As a result of certain reserve requirements imposed by the RBI, the Bank may be more exposed to interest rate risk than banks in many other countries. See “Regulations and Policies — Legal Reserve Requirements.” These reserve requirements require the Bank to maintain a relatively large portfolio of fixed income Government securities, and the Bank could be materially adversely impacted by a rise in interest rates, especially if the rise were sudden or sharp. If such a rise in interest rates were to occur, the Bank’s net interest margin could be adversely affected because the interest paid by the Bank could increase at a higher rate than the interest received by the Bank. These requirements also have a negative impact on its net interest income and net interest margin because the Bank earns interest on a portion of its assets at rates that are generally less favourable than those typically received on its other interest-earning assets. If the yield on its interest-earning assets does not increase at the same time or to the same extent as its cost of funds, or if its cost of funds does not decline at the same time or to the same extent as the yield on its interest-earning assets, its net interest income and net interest margin would be adversely impacted. During the last quarter of fiscal year 2007, the Indian markets experienced volatility and sharp increases in interest rates and the Bank experienced an increase in its funding costs, which adversely impacted its net interest income, net interest margin and financial performance during the first quarter of fiscal year 2008. The Bank is also exposed to interest rate risk through its treasury operations and one of its subsidiaries, SBI DFHI Limited, which is a primary dealer in Government securities. A rise in interest rates or greater interest rate volatility could adversely affect the Bank’s income from treasury operations or the value of its fixed income securities trading portfolio. Sharp and sustained increases in the rates of interest charged on floating rate home

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loans, which are a material proportion of its loan portfolio, would result in extension of loan maturities and higher monthly instalments due from borrowers, which could result in higher rates of default in this portfolio. See “Management’s Discussion and Analysis — Factors Affecting the Bank’s Results of Operations and Financial Condition — Interest rates, allocation of funds and costs of funding.” The Bank has a large portfolio of Government securities and its business is particularly vulnerable to volatility in interest rates caused by deregulation of the financial sector in India. As a result of Indian reserve requirements, the Bank is more structurally exposed to interest rate risk than banks in many other countries. Under the regulation of the RBI, the Bank’s liabilities are subject to the statutory liquidity ratio (“SLR”) requirement which requires that a minimum specified percentage, currently 25.0%, of a bank’s demand and time liabilities be invested in approved securities for the purpose of compliance with SLR requirements. See “Regulations and Policies — RBI Regulations — Legal Reserve Requirements.” Such securities represented 83.6% of the Bank’s investment portfolio as on September 30, 2007. Although 83.6% of the Bank’s investment portfolio consists of SLR securities, these SLR securities comprise 28.9% of the Bank’s demand and term liabilities as on September 30, 2007. The Bank earns interest on such Government securities at rates which are less favourable than those which it typically receives in respect of its retail and corporate loan portfolio. While the SLR portfolio of the Bank has decreased in size during the fiscal year 2007 against a backdrop of robust growth of credit portfolio and redemption of securities, it continues to be in excess of the regulatory requirements. A substantial portion of the Bank’s income is derived from its Government operations, a slowdown in which could adversely affect the Bank’s business. For the six-months ended September 30, 2007, total Government business turnover was Rs. 5,913.5 billion and commission earned from Government transactions was Rs. 4.9 billion, or 15.3% of the Bank’s Other Income. For the year ended March 31, 2007, the Bank handled approximately 52.3% of the Government’s aggregate receipts and payments as well as 62.4% of state governments’ payments and receipts. In many instances, the Bank acts as the sole agent for certain Government transactions. While the Bank has enjoyed a strong working relationship with the Government in the past, there is no assurance that this relationship will continue in the future. The Government is not obligated to choose the Bank to conduct any of its transactions. If the Government does choose another bank to perform such tasks, the Bank’s business will be adversely affected. If the Bank is not able to control or reduce the level of NPAs in its portfolio, its business will be adversely affected. The Bank’s net NPAs as on September 30, 2007, were Rs. 58.3 billion or 1.6% of its net advances. The Bank’s NPAs can be attributed to several factors, including increased competition arising from economic liberalisation in India, variable industrial growth, a sharp decline in commodity prices, the high level of debt in the financing of projects and capital structures of companies in India, and the high interest rates in the Indian economy during the period in which a large number of projects contracted their borrowings, which reduced profitability for certain of the Bank’s borrowers. Although the Bank’s loan portfolio contains loans to a wide variety of businesses, financial difficulties could increase the Bank’s level of NPAs and adversely affect its business, future financial performance, shareholders’ funds and the price of the Equity Shares. There is no assurance that there will not be a deterioration in provisions for loan losses as a percentage of NPAs or otherwise, or that the percentage of NPAs that the Bank will be able to recover will be similar to the Bank’s past experience in recovery of NPAs. Any deterioration in the Bank’s asset portfolio could have an adverse impact on its business, future financial performance, shareholders’ funds and the price of the Equity Shares. Further deterioration of the Bank’s NPA portfolio and an inability to improve its provisioning coverage as a percentage of gross NPA could adversely affect the price of the Equity Shares. Although the Bank believes that its total provisions made in accordance with RBI guidelines will be adequate to cover all known losses in its asset portfolio, there can be no assurance that there will not be a further deterioration in the provisioning coverage as a percentage of gross NPAs or otherwise or that the percentage of NPAs that the Bank will be able to recover will be similar to its past experience of recoveries of NPAs. Any further deterioration in its non-performing asset portfolio could adversely affect its business, its future financial performance and the trading price of the Equity Shares.

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The Bank’s loan portfolio contains significant advances to the agricultural sector. The Bank’s loan portfolio contains significant advances to the agricultural sector, amounting to Rs. 381.4 billion, or 15.9 %, of net bank credit as on September 30, 2007. The Government’s proposed agricultural lending plans may contemplate state-owned banks, including the Bank, lending at below market rates in the agricultural sector. RBI guidelines stipulate that the Bank’s agricultural advances be 18.0% of adjusted net bank credit. In addition, the market may perceive the exposure of state-owned banks to the agricultural sector to involve higher risks, whether or not the Government mandates lending. This may negatively affect the risk-adjusted returns of state-owned banks and may adversely affect the Bank’s business, future financial performance and the trading price of the Equity Shares. The Bank may experience delays in enforcing its collateral when borrowers default on their obligations to the Bank, which may result in failure to recover the expected value of collateral security, exposing it to a potential loss. A substantial portion of the Bank’s loans to corporate customers are secured by real assets, including property, plant and equipment. The Bank’s loans to corporate customers also include working capital credit facilities that are typically secured by a first lien on inventory, receivables and other current assets. In some cases, the Bank may have taken further security of a first or second lien on fixed assets and a pledge of financial assets like marketable securities, corporate guarantees and personal guarantees. A substantial portion of the Bank’s loans to retail customers is also secured by the assets financed, predominantly property and vehicles. Although in general the Bank’s loans are over-collateralized, an economic downturn could result in a fall in relevant collateral values for the Bank. In India, foreclosure on collateral generally requires a written petition to an Indian court or tribunal. An application, when made, may be subject to delays and administrative requirements that may result, or be accompanied by, a decrease in the value of the collateral. In the event a corporate borrower makes a reference to a specialised quasi-judicial authority called the Board for Industrial and Financial Reconstruction (“BIFR”), foreclosure and enforceability of collateral is stayed. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the “SARFAESI Act”), has strengthened the ability of lenders to resolve NPAs by granting them greater rights as to enforcement of security and recovery of dues from corporate borrowers. There can be no assurance that the legislation will have a favourable impact on the Bank’s efforts to resolve NPAs. There can be no assurance that it will be able to realize the full value on its collateral, as a result of, among other factors, delays in bankruptcy and foreclosure proceedings, defects in the perfection of collateral and fraudulent transfers by borrowers. A failure to recover the expected value of collateral security could expose the Bank to a potential loss. Any unexpected losses could adversely affect the Bank’s business, its future financial performance, and the trading price of the Equity Shares. The Indian banking industry is very competitive and the Bank’s growth strategy depends on its ability to compete effectively. The Bank faces competition from Indian and foreign commercial banks in all its products and services. Over the last several years, several Indian banks have increased their focus on retail loans. The Bank will face competition from Indian and foreign commercial banks and non-bank finance companies in its retail products and services. In addition, since the Bank raises funds from market sources and individual depositors, it will face increasing competition for such funds. Additionally, the Indian financial sector may experience further consolidation, resulting in fewer banks and financial institutions. The Government has also announced measures that would permit foreign banks to establish wholly-owned subsidiaries in India and invest up to 74.0% in Indian private sector banks. The Government is also actively encouraging banks and other financial institutions to significantly increase their lending to the agricultural sector, which will make this segment more competitive. Due to competitive pressures, the Bank may be unable to successfully execute its growth strategy and offer products and services at reasonable returns and this may adversely impact its business, future financial performance and the trading price of the Equity Shares. See “Business — Competition.” Further, the Bank faces intense competition in its international operations from the full range of competitors in the financial services industry, including Indian and foreign banks and non-banking entities. With the exception of certain countries, such as the Maldives, the Bank remains a small to mid-size operator in the international markets and many of its competitors have much greater resources.

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The Bank is subject to credit, market and liquidity risk which may have an adverse effect on its credit ratings and its cost of funds. To the extent any of the instruments and strategies the Bank uses to hedge or otherwise manage its exposure to market or credit risk are not effective, the Bank may not be able to mitigate effectively its risk exposures in particular to market environments or against particular types of risk. The Bank’s balance sheet growth will be dependent upon economic conditions, as well as upon its determination to securitize, sell, purchase or syndicate particular loans or loan portfolios. The Bank’s trading revenues and interest rate risk exposure are dependent upon its ability to properly identify, and mark to market, changes in the value of financial instruments caused by changes in market prices or rates. The Bank’s earnings are dependent upon the effectiveness of its management of migrations in credit quality and risk concentrations, the accuracy of its valuation models and its critical accounting estimates and the adequacy of its allowances for loan losses. To the extent its assessments, assumptions or estimates prove inaccurate or not predictive of actual results, the Bank could suffer higher than anticipated losses. The successful management of credit, market and operational risk is an important consideration in managing its liquidity risk because it affects the evaluation of its credit ratings by rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. See also “— Any downgrading of India’s debt rating by an international rating agency could adversely affect its business and the price of its Equity Shares.” The rating agencies can also decide to withdraw their ratings altogether, which may have the same effect as a reduction in its ratings. Any reduction in the Bank’s ratings (or withdrawal of ratings) may increase its borrowing costs, limit its access to capital markets and adversely affect its ability to sell or market its products, engage in business transactions, particularly longer-term and derivatives transactions, or retain their customers. This, in turn, could reduce its liquidity and negatively impact its operating results and financial condition. The Bank has high concentrations of loans to certain customers and to certain sectors and if a substantial portion of these loans were to become non-performing, the quality of its loan portfolio could be adversely affected. As on September 30, 2007, the Bank’s total exposure to borrowers (fund-based and non-fund based, including guarantees) was Rs. 5,003.5 billion (including principal outstanding, interest and 100.0% of the nominal amount of non-fund based outstanding, excluding derivative products). The ten largest individual borrowers in aggregate accounted for approximately 11.1% of the Bank’s total exposure and its ten largest borrower groups in aggregate accounted for approximately 18.3% of its total exposure. The largest borrower as on September 30, 2007 accounted for approximately 1.74% of the Bank’s total exposure and 16.3% of the Bank’s total capital funds. The largest borrower group as on September 30, 2007, accounted for approximately 5.3% of the Bank’s total exposure and for 50.1% of the Bank’s total capital funds. Credit losses on these large single borrower and group exposures could adversely affect the Bank’s financial performance and the trading price of the Equity Shares. The Bank has extended loans to several industrial sectors in India. The table below sets out the Bank’s five largest industry exposures (fund-based, excluding retail) as on September 30, 2007.

Rank Industry Fund based (Rs. in millions)

1 Services sector 532,560 2 Iron and Steel 146,307 3 Infrastructure 143,467 4 Cotton Textile 102,984 5 Engineering 101,737 Total 1,027,055

These exposures, totalling Rs. 1,027.1 billion, constituted 32.8% of the Bank’s domestic advances and 28.2 % of its total advances. The global and domestic trends in these industrial sectors may have a bearing on the Bank’s financial position. Although the Bank’s portfolio contains loans to a wide variety of businesses, financial difficulties in these industrial sectors could increase the level of non-performing assets (“NPAs”) and restructured assets, and adversely affect the Bank’s business, its future financial performance, shareholders’ funds and the price of the Equity Shares.

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The Bank faces greater credit risks than banks in developed countries. The Bank’s principal business is providing financing to its clients, most of which are based in India. The Bank’s loans to middle market companies can be expected to be more severely affected by adverse developments in the Indian economy than loans to large corporations. The Bank is subject to the credit risk that its borrowers may not pay in a timely fashion or may not pay at all. The credit risk of all its borrowers is higher than in more developed countries due to the higher uncertainty in the Indian regulatory, political, economic and industrial environment as well as difficulties that many of the Bank’s borrowers face in adapting to instability in world markets and technological advances taking place across the world. Unlike developed countries, India does not have a fully operational nationwide credit information bureau. This may affect the quality of information available to the Bank about the credit history of its borrowers, especially individuals and small businesses. See “Description of Assets and Liability Management and Risk Management of the Bank — Risk Management Structure — Credit Risk Management.” Increased competition arising from economic liberalisation in India, variable industrial growth, a sharp decline in commodity prices, the high level of debt in the financing of projects and capital structures of companies in India, and the high interest rates in the Indian economy during the period in which a large number of the projects were entered into, may have reduced the profitability of some of the Bank’s borrowers. A substantial portion of the Bank’s loans have a tenure exceeding one year, exposing the Bank to risks associated with economic cycles. As on September 28, 2007 (the last reporting Friday in September), loans with a contractual tenure exceeding one year constituted 44.2% of the Bank’s domestic advances. The long tenure of these loans may expose the Bank to risks arising out of economic cycles. In addition, some of these loans are project finance loans. There can be no assurance that these projects will perform as anticipated or that such projects will be able to generate cash flows to service commitments under the loans. The Bank is also exposed to infrastructure projects which are still under development and are open to risks arising out of delay in execution, failure of borrowers to execute projects on time, delay in getting approvals from necessary authorities, and breach of contractual obligations by counterparties, all of which may adversely impact the projected cash flows. There can be no assurance that these projects will perform as anticipated. Risks arising out of a recession in the economy and a delay in project implementation or commissioning could lead to rise in delinquency rates and in turn, adversely impact the Bank’s future financial performance and the trading price of the Equity Shares. The Bank’s funding is primarily short-term and if depositors do not roll over deposited funds upon maturity the Bank’s business could be adversely affected. The maturity profile of the Bank’s assets and liabilities shows a negative gap in the short term. The negative gap has arisen mainly because the Bank’s deposits and other liabilities are of shorter average maturity than its loans and investments. Most of the Bank’s incremental funding requirements are met through short-term funding sources, primarily in the form of deposits. However, a large portion of the Bank’s assets have medium or long-term maturities, creating a potential for funding mismatches. The Bank’s customer deposits are both demand deposits and time deposits, with approximately 24.8% (as on September 28, 2007) having maturities of less than one year. If a substantial number of the Bank’s depositors do not roll over deposited funds upon maturity, its liquidity position could be adversely affected. The failure to obtain rollover of customer deposits upon maturity or to replace them with fresh deposits could have a material adverse effect on the Bank’s business, future financial performance and the trading price of the Equity Shares. The Bank is exposed to fluctuations in foreign exchange rates. As a financial organisation with operations in various countries, the Bank is exposed to exchange rate risk. The Bank complies with regulatory limits upon its unhedged foreign currency exposure by making foreign currency loans on terms that are generally similar to its foreign currency borrowings and thereby transferring the foreign exchange risk to the borrower or through active use of cross-currency swaps and forwards to generally match the currencies of its assets and liabilities. However, the Bank is exposed to fluctuations in foreign currency rates for its unhedged exposure. Adverse movements in foreign exchange rates may also impact the Bank’s borrowers adversely, which may in turn impact the quality of its exposure to these borrowers. Volatility in foreign exchange rates could adversely affect the Bank’s business, future financial performance and the price of the Equity Shares.

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The Bank’s risk management policies and procedures may leave the Bank exposed to unidentified or unanticipated risks, which could negatively affect its business or result in losses. The Bank’s hedging strategies and other risk management techniques may not be fully effective in mitigating its risk exposure in all market environments or against all types of risk, including risks that are unidentified or unanticipated. Some methods of managing risk are based upon observed historical market behaviour. As a result, these methods may not predict future risk exposures, which could be greater than the historical measures indicated. Other risk management methods depend upon an evaluation of information regarding markets, clients or other matters. This information may not in all cases be accurate, complete, up to date or properly evaluated. Management of operational, legal or regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events. Although the Bank has established these policies and procedures, they may not be fully effective. See also “Description of Assets and Liability Management and Risk Management of the Bank — Risk Management Structure.” There is operational risk associated with the Bank’s industry which, when realized, may have an adverse impact on its business. The Bank, like all financial institutions, is exposed to many types of operational risk, including the risk of fraud or other misconduct by employees or outsiders, unauthorised transactions by employees and third parties (including violation of regulations for prevention of corrupt practices, and other regulations governing its business activities), or operational errors, including clerical or record keeping errors or errors resulting from faulty computer or telecommunications systems. The Bank outsources some functions to other agencies. Given its high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. In addition, its dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. The Bank may also be subject to disruptions of its operating systems, arising from events that are wholly or partially beyond its control (including, for example, computer viruses or electrical or telecommunication outages), which may give rise to a deterioration in customer service and to loss or liability to the Bank. The Bank is further exposed to the risk that external vendors may be unable to fulfil their contractual obligations to the Bank (or will be subject to the same risk of fraud or operational errors by their respective employees as the Bank is), and to the risk that its (or its vendors’) business continuity and data security systems prove not to be sufficiently adequate. The Bank also faces the risk that the design of its controls and procedures prove inadequate, or are circumvented, thereby causing delays in detection or errors in information. Although the Bank maintains a system of controls designed to keep operational risk at appropriate levels, like all banks, the Bank has suffered losses from operational risk and there can be no assurance that the Bank will not suffer losses from operational risks in the future that may be material in amount, and its reputation could be adversely affected by the occurrence of any such events involving its employees, customers or third parties. For a discussion of how operational risk is managed, see “Description of Assets and Liability Management of the Bank — Operational Risk.” Significant security breaches could adversely impact the Bank’s business. The Bank seeks to protect its computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems caused by the Bank’s increased use of the internet. Computer break-ins and power disruptions could affect the security of information stored in and transmitted through these computer systems and network infrastructure. There are areas in the system that have not been properly protected from security breaches and other attacks. The Bank employs security systems, including firewalls and password encryption, designed to minimise the risk of security breaches. Although the Bank intends to continue to implement security technology and establish operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures will be adequate or successful. Failed security measures could have a material adverse effect on the Bank’s business, its future financial performance and the trading price of the Equity Shares. The Bank’s business operations are based on a high volume of transactions. Although the Bank takes adequate measures to safeguard against system related and other fraud, there can be no assurance that it would be able to prevent fraud. The Bank’s reputation could be adversely affected by significant fraud committed by employees, customers or outsiders. System failures could adversely impact the Bank. Given the increasing share of retail products and services and transaction banking services in the Bank’s overall business, the importance of systems technology to the Bank’s business has increased

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significantly. The Bank’s principal delivery channels include automated teller machines (“ATMs”), call centres and the internet. See “Business — Delivery Channels.” Any failure in the Bank’s systems, particularly for retail products and services and transaction banking, could significantly affect the Bank’s operations and the quality of its customer service and could result in business and financial losses and adversely affect the trading price of the Equity Shares. However, a disaster recovery and business continuity plan is in place to cater for system failures in all channels. Banking is a heavily regulated industry and material changes in the regulations which govern the Bank could cause its business to suffer and the price of the Equity Shares to decline. Banks in India are subject to detailed supervision and regulation by the RBI. In addition, banks are generally subject to changes in Indian law, as well as to changes in regulations, government policies and accounting principles. The laws and regulations governing the banking sector could change in the future. Any such changes may adversely affect the Bank’s business, future financial performance and the price of the Equity Shares by, for example, requiring a restructuring of the Bank’s activities or increasing its operating costs. See “Regulations and Policies.” The lending norms of the RBI require that every scheduled commercial bank should extend 40.0% of its net bank credit to certain eligible sectors, such as agriculture, small-scale industries and individual housing finance up to Rs. 2 million (which are categorised as “priority sectors”). Economic difficulties are likely to affect those borrowers in priority sectors more severely. As on September 30, 2007, the Bank’s lending to priority sectors accounted for 39.5% of net bank credit, with 15.9% (lower than the requirement of 18.0%) of net credit going to the agriculture sector. As with some other commercial banks in India, the Bank has generally not met these guidelines. See “Industry Overview — RBI.” Regulatory changes in India or other jurisdictions in which the Bank operates could adversely affect its business. The laws and regulations or the regulatory or enforcement environment in any of those jurisdictions in which the Bank operates may change at any time and may have an adverse effect on the products or services the Bank offers, the value of its assets or its business in general. In its mid-term review of the annual policy statement for fiscal year 2005, the RBI increased the risk weight for the computation of capital adequacy from 50% to 75% in the case of housing loans and from 100% to 125% in the case of consumer credit (including personal loans and credit cards) as a temporary counter-cyclical measure. In July 2005, the RBI increased the risk weight for capital market exposure and exposure to commercial real estate from 100.0% to 125.0%. In October 2005, in its mid-term review of the annual policy statement for fiscal year 2005, the RBI increased the requirement of general provisioning for standard advances from 0.25% to 0.40% except direct advances to agriculture and small and medium enterprise sectors. In February 2006, the RBI issued its final guidelines on securitisation of standard assets under which the Bank is, in respect of transactions after February 1, 2006, required to maintain higher capital for credit enhancement and also to amortise the profit on securitisation over the life of the related loans. In April 2006, the RBI increased the requirement of general provisioning for certain categories of advances from 0.40% to 1.00% and also increased the risk weight on exposures to commercial real estate from 125.0% to 150.0%. In its mid-term review of the monetary policy statement announced in October 2006, the RBI increased the repo rate by 25 basis points from 7.0% to 7.25%. Subsequently, in the quarterly review of the monetary policy statement on January 31, 2007, the repo rate was raised further to 7.5% and again on March 31, 2007 to 7.75%. In March 2007, the RBI increased the CRR by 50 basis points to 6.5%. The CRR was again increased to 7.5% in November 2007. Similar changes in the future could have an adverse impact on its capital adequacy and profitability. Pursuant to the recent amendment to the Reserve Bank of India Act, no interest is payable on cash reserve ratio balances, on which interest was hitherto paid by the RBI. Any change by the RBI in the directed lending norms may result in its inability to meet the priority sector lending requirements as well as require the Bank to increase its lending to relatively riskier segments and may result in an increase in NPAs in the directed lending portfolio. See “Industry Overview — RBI.” New accounting directives, such as those related to the Accounting Standard 15 ("AS-15") relating to employee benefits, may adversely affect the Bank’s financial position. New accounting directives or new interpretations of current directives may impose additional requirements on the Bank. For example, a decision by the RBI and the Institute of Chartered Accountants of India to implement AS-15 Revised is expected to negatively impact the Bank. AS-15 Revised requires actuarial liability on account of pensions to be calculated on a projected unit method. As most of the Bank’s employees

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are covered under the defined benefit scheme, such a requirement could significantly impact the calculation of the Bank’s net worth, despite a lack of substantive change in the underlying financial position of the Bank. The Bank is currently evaluating the most appropriate means of implementation, but has not yet made any increase in provisions for fiscal year 2008. In addition, had the Bank applied AS-15, its unaudited unconsolidated and consolidated financial results for the six-months ended September 30, 2007 and nine-months ended December 31, 2007, its financial results would likely have been different from what is shown in this Letter of Offer. Such changes in accounting policies, among others, which may arise in the future, could have a material adverse effect on the financial position of the Bank. See "Financial Statements – Note on the likely impact of Accounting Standard 15 (Revised 2005)". The Bank is required to maintain its capital adequacy ratio at the minimum level required by the RBI for domestic banks. There can be no assurance that the Bank will be able to access capital as and when it needs it for growth. The RBI requires Indian banks to maintain a minimum Tier I capital adequacy ratio of 4.5% and a minimum risk weighted capital adequacy ratio of 9.0%. The Bank’s Tier I and total capital adequacy ratio as of September 30, 2007 was 7.78% and 12.85%, respectively. The Bank is exposed to the risk of the RBI increasing the applicable risk weight for different asset classes from time to time. In April 2007, the RBI issued final guidelines on implementation of the new capital adequacy framework pursuant to Basel II, which are effective in fiscal year 2008 for the Bank and require maintenance of higher capital and an increase in minimum Tier I ratio from 4.5% to 6.0%. See “Industry Overview — New Initiatives in the Banking Sector — Risk Management and Basel-II.” Although the Bank’s current capitalisation levels are in line with these requirements, depending on market conditions, the Bank may choose to raise additional capital from time to time. However, unless the Bank is able to access the necessary amount of additional capital when required, any incremental capital requirement may adversely impact the Bank’s ability to grow its business and may even require the Bank to withdraw from or to curtail some of its current business operations. There can also be no assurance that the Bank will be able to raise adequate additional capital in the future at all or on terms favourable to it. As the Bank’s majority shareholder, the Government controls the Bank and may cause the Bank to take actions which are not in the interests of the Bank or of the holders of the Equity Shares. In accordance with the State Bank of India Act, 1955, (“the Act”), the Government, in consultation with the RBI, has the power to appoint and/or nominate the Chairman, two Managing Directors and a majority of the directors of the Central Board, which determines the outcome of the actions relating to the general direction of the affairs of the Bank, including payment of dividends. See “Business — Relationship with the Government and the Reserve Bank of India.” Furthermore, under the Act, the Government, after consultation with the RBI and the Chairman of the Bank, may issue directives on matters of policy involving public interest which may affect the conduct of the business affairs of the Bank. Further, under the Act, the Bank is required to obtain approval from the Government for any increase in its authorised share capital. Further proposed amendments to the Act may also enable the Bank to issue preference shares. There can be no assurance that the Act will not be repealed or significantly amended in the future. In addition, there can be no assurance that the RBI or the Government will not take action or implement policies that are adverse to investors in the Equity Shares. Further, in terms of the Act no provision of law relating winding-up shall apply to the Bank and it may be placed in liquidation only by an order of the Government and in such manner it may direct. See “Regulations and Policies — The State Bank of India Act.” The legal requirement that the Government maintain a majority shareholding interest in the Bank of at least 55% may limit the ability of the Bank to raise appropriate levels of capital financing. The Act restricts the Government’s shareholding interests in the Bank from falling below 55.0%. This requirement could result in restrictions in the equity capital raising efforts of the Bank as the Government may not be able to fund any further investments that would allow it simultaneously to maintain its stake at a minimum of 55.0% and seek funding from the capital markets. As the Indian economy grows, more businesses and individuals will require capital financing. In order to meet and sustain increasing levels of growth in capital demand, the Bank will need to accrete its capital base, whether through organic growth or (more likely) capital market financing schemes. If the Bank is unable to grow its capital base in step with demand, its business, financial prospects and profitability may be materially and adversely affected.

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The Bank's financial results for the six months ended September 30, 2007 are unaudited. Pursuant to SEBI Guidelines, the audited statements contained in an offer document for a rights issue shall not be older than six months from the Issue Opening Date. While issuers must generally comply with this requirement, the Bank has only provided financial statements with limited review carried out by its auditors for the six months ended September 30, 2007. Further, the financial disclosures pertaining to the period ended December 31, 2007 were in compliance with RBI requirements. but were less detailed than the disclosures pertaining to the September 30, 2007 results. To the extent these reviewed financial statements are not audited, investors will have less information than they generally would for a typical rights issue in India. If the Bank does not effectively manage its foreign operations, these operations may incur losses or otherwise adversely affect the Bank’s business and results of operations. As of December 31, 2007, the Bank had a network of 84 overseas offices in 32 countries. Because the Bank has such a large number of foreign subsidiaries, joint ventures and associates, it is subject to additional risks related to complying with a wide variety of national and local laws, restrictions on the import and export of certain intermediates, technologies and multiple and possibly overlapping tax structures. In addition, the Bank may face competition from banks in other countries that may have more experience in operations in those countries or in international operations generally. The Bank may also face difficulties integrating new facilities in different countries into its existing operations, as well as integrating employees that the Bank hires in different countries into its existing corporate culture. If the Bank does not effectively manage its foreign operations, it may lose money in these countries, which could adversely affect the Bank’s business and results of operations. If the Bank’s international expansion is unsuccessful, it may not be able to meet its projected earnings and growth targets. The Bank is seeking to expand its operations internationally by leveraging on its domestic relationships and technology competencies in financial services. The expansion in international business is expected to require substantial capital in the initial period and is expected to include acquisitions of foreign businesses. Acquisitions involve various risks that are difficult for the Bank to control and the Bank cannot be certain that any acquired or new businesses will perform as anticipated. The Bank’s inability to grow or succeed in new business areas may adversely affect its business, future financial performance and the price of the Equity Shares. If the Bank is not able to integrate any future acquisitions, the Bank’s business could be disrupted. The Bank may seek opportunities for growth through acquisitions or be required to undertake mergers mandated by RBI. Any future acquisitions or mergers may involve a number of risks, including deterioration of asset quality, diversion of its management’s attention required to integrate the acquired business and failure to retain key acquired personnel and clients, leverage synergies, rationalise operations, or develop the skills required for new businesses and markets, or unknown and known liabilities, some or all of which could have an adverse effect on its business. The proposed merger of the Associate Banks with the Bank may engender opposition against the Bank and lead to business disruptions, such as labour strikes, and adversely affect the Bank’s operations. The Bank is considering the consolidation of its Associate Banks with its business, but has faced and may continue to face opposition by the employees of the Associate Banks to such consolidation. In September 2007, the State Sector Bank Employees Association (“SSBEA”), an umbrella organisation of six of the Associate Banks, called for a strike to oppose the proposed merger. In addition, strikes in December 2007 and January 2008 have caused branch closures at all seven Associates Bank’s. On January 25, 2008, the United Forum of Bank Unions (“UFBU”) called for a strike opposing the proposed merger which led to a total closure of all branches of the Bank and the Associate Banks. Further, the UFBU has threatened to impose an ongoing strike for an indefinite length of time. Although neither strike materially impacted the Bank’s or the Associate Banks’ operations, union and popular opposition to any merger of the Associate Banks into the Bank may harm the Bank’s reputation and disrupt business operations and the delivery of banking services to customers. If the Bank is unable to adapt to rapid technological changes, its business could suffer.

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The Bank’s future success will depend in part on its ability to respond to technological advances and to emerging banking industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that the Bank will successfully implement new technologies effectively or adapt its transaction processing systems to meet customer requirements or emerging industry standards. If the Bank is unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market conditions, customer requirements or technological changes, its business, the future financial performance of the Bank and the trading price of the Equity Shares could be materially affected. The Bank is moving towards more innovative information technology systems as it expands and may experience early implementation technical difficulties. The Bank has begun implementing new information technology systems to facilitate and complement its growth. As additional IT platforms are introduced and become integral to the Bank’s product offering, unforeseen technical difficulties may cause disruption in the Bank’s operations. These disruptions may affect customer services, internal operations and data management. The Bank is also implementing a Business Process Reengineering (“BPR”) initiative to replace its existing systems. Until the BPR system is adequately tested in compliance with RBI norms and fully introduced into the Bank’s operations, the Bank may experience temporary setbacks and delays in its streamlining processes. As the Bank’s risk management systems evolve and as its operations become more reliant upon technology to manage and monitor its risk, any failure or disruption could materially and adversely affect its operations and financial position. The Bank depends on the accuracy and completeness of information about customers and counterparties. In deciding whether to extend credit or to enter into other transactions with customers and counterparties, the Bank may rely on information furnished to the Bank by or on behalf of customers and counterparties, including financial statements and other financial information. The Bank may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit, the Bank may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. The Bank’s financial condition and results of operations could be negatively affected by relying on financial statements that do not comply with generally accepted accounting principles or with other information that is materially misleading. The Bank may not be able to properly manage its number of employees, which would negatively impact its business. As of September 30, 2007, the total number of the Bank’s employees reduced to 179,188 employees from 192,250 as of September 30, 2006. The Bank has implemented exit option schemes for officers and clerical cadres, which ended on November 1, 2006 and April 1, 2007, respectively. See “Business — Employees.” Taking into consideration approximately 25,000 normal retirements in the next three years, the Bank’s staff strength will be further reduced and, it is expected, so will staff costs. There can be no assurances, however, that the Bank will be able to continue the implementation of its plan to reduce its number of employees successfully in the future to the targeted levels. If the Bank is not successful in reducing its staffing costs this may have a material adverse effect on the future financial performance of the Bank. Any inability to attract and retain talented professionals may negatively affect the Bank. The Bank employs some officers on a contract basis for various purposes. The salaries offered are market competitive. However, the number of officers on market competitive salaries is minimal. An inability to attract and retain such talented professionals or the resignation or loss of key management personnel may have an adverse impact on the Bank’s business, future financial performance and trading price of the Equity Shares. The Bank’s remuneration scheme may not be as attractive as other banks with which it competes and may hurt the Bank’s ability to attract and maintain a skilled and committed workforce. The Bank’s employee remuneration scheme is guided by industry level negotiations between bank management represented by the Indian Banks’ Association, and bank workers represented by their respective associations. All negotiations are subject to final approval by the Government, which limits the Bank’s

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flexibility in implementing performance linked pay. If the general banking industry increasingly moves toward incentive-based pay schemes, the Bank may not be as competitive as other banks. This may increase the possibility that the Bank’s skilled personnel may go elsewhere for more attractive employment packages. In addition, the Bank may at some point be required to, or choose to, provide an ESOP (or other benefits and compensation) to its employees which may increase the operational costs of the Bank. Added employment pressures may result in diminished profitability, especially if rates of return do not experience a commensurate rise. The Bank’s employees are highly unionised and any union action may adversely affect the Bank’s business. Approximately 98% of the Bank’s employees belong to a single union. While the Bank believes it has a strong working relationship with that union, there can be no assurance that the Bank will continue to have such a relationship in the future. If the employees’ union was to call for a work stoppage or other similar action, the Bank may be forced to suspend all or part of its operations until the dispute is resolved. If such a work stoppage was to occur, the Bank’s business would be adversely affected. There is outstanding litigation against the Bank and its subsidiaries which may adversely affect the Bank’s shareholders. There is outstanding litigation against the Bank and its subsidiaries. It is a defendant in legal proceedings incidental to its business and operations. These legal proceedings are pending at different levels of adjudication before various courts and tribunals. Should any new developments arise, such as a change in Indian law or rulings against the Bank by appellate courts or tribunals, the Bank may need to make provisions in its financial statements, which could adversely impact its financial results. Furthermore, if significant claims are determined against the Bank and it is required to pay all or a portion of the disputed amounts, there could be a material adverse effect on the Bank’s business and profitability. The details of litigation which have been disclosed in this Letter of Offer are set out below: Litigation against the Bank

• There are five civil cases against the Bank before various courts and authorities for an amount aggregating to Rs. 1,472.3 million.

• There are two consumer cases against the Bank before the National Consumer Disputes Redressal Commission for an amount aggregating to Rs. 689.6 million.

Litigation against the Subsidiaries

• There is one criminal case against the State Bank of Patiala before the Judicial Magistrate, Patna.

• There is one civil recovery case against the State Bank of Hyderabad before the Debt Recovery Tribunal, Kolkata for an amount of approximately Rs. 274 million.

• There are three tax appeals against the State Bank of Hyderabad before the Income Tax Appellate Tribunal, Hyderabad for an amount aggregating approximately Rs. 3,726.5 million.

Litigation by the Bank • The Bank has filed twenty civil recovery cases before various courts and authorities for an amount

aggregating to approximately Rs. 20,536 million. Litigation by the Subsidiaries • The State Bank of Hyderabad has filed two tax appeals before the Commissioner of Income Tax (Appeals)

for an amount aggregating to Rs. 4,679.3 million. • The State Bank of Patiala has filed seven civil recovery cases before various courts and authorities for an

amount aggregating to approximately Rs. 3,668 million. The Group has contingent liabilities aggregating to R.s. 10,731,207 million on a consolidated basis. As on September 30, 2007, the Group had contingent liabilities of approximately Rs. 10,731,207 million on a consolidated basis. In the year ended March 31, 2007, the Group saw a significant rise in its contingent liabilities on account of an increase in the number of derivative transactions for both customers as

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well as its proprietary account. If the Group’s contingent liabilities crystallise, this may have an adverse effect on the Group’s future financial performance and the trading price of the Equity Shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off Balance Sheet Items.” Details of the Group’s contingent liabilities as on September 30, 2007 are set out below:

(Rs. in million) Contingent Liability Amount

Claims against the bank not acknowledged asdebts 7,449 Liability for partly paid investments 1,123 Liability on account of outstanding forward exchange contracts 2,565,777 Guarantees given on behalf of constituents (a) In India (b) Outside India

558,898

1,780 Acceptances, endorsements, and other obligations 771,230 Other items for which the bank is contingently liable 6,824,950 Total 10,731,207 The Bank’s business growth, both in terms of its new businesses and financial services, may add complexities to its current operations, which, if not managed properly, may result in operational volatility whether within or across its branches and business units. The Bank’s expansion into new businesses and financial services product offerings will require proper oversight and management. The new businesses will need to be set up and run profitably and the formation of new strategic business units will need to be streamlined into the Bank’s existing operations. These new businesses and business units will be formed across India, as well as internationally. Integrating the operations, not only domestically throughout India, but also throughout the international offices, will increase the need for high level management. In addition, not only are the financial prospects of the new businesses uncertain, but they may also shift the financial and managerial resources away from other areas of its operations. In such a case, the Bank’s other operations may suffer and the Bank’s performance as a whole may also decline. If the Bank is unable to manage this growth process properly, its business prospects, financial position and profitability may be materially adversely affected. Risks Relating to India A slowdown in economic growth, increased volatility of commodity prices or a rise in interest rates in India could adversely affect the Bank’s business. Any slowdown in the Indian economy or increased volatility of global commodity prices, in particular oil and steel prices, could adversely affect the Bank’s borrowers and contractual counterparties. Because of the importance of its commercial banking operations for retail customers and the importance of its agricultural loan portfolio to its business, any slowdown in the growth of the housing, automobile and agricultural sectors could adversely impact the Bank’s business. Since 2004, interest rates in the Indian economy have increased significantly. See “Management’s Discussion and Analysis — Factors Affecting the Bank’s Results of Operations and Financial Condition — Interest rates, allocation of funds and costs of funding.” Slowdown in the demand for loans from corporate customers, retail customers and customers in the agricultural sector, due to higher interest rates, could adversely impact its business. A significant increase in the price of crude oil could adversely affect the Indian economy and the Bank’s business. India imports approximately 70.0% of its requirements of crude oil, which comprised approximately 29.9% of total imports in fiscal year 2007; accordingly, a significant increase in the price of crude oil could adversely affect the Indian economy. For example, the sharp increase in global crude oil prices during fiscal year 2001 adversely affected the Indian economy in terms of increased volatility in interest and exchange rates, as well as the overall state of liquidity in the banking system, leading to intervention by the RBI. Since 2004,

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there has been a sharp increase in global crude oil prices due to both increased demand and pressure on production and refinery capacity, and to political and military tensions in key oil-producing regions. The full burden of the oil price increase has not been passed to Indian consumers and has been substantially absorbed by the Government and Government-owned oil marketing companies. While global crude prices have risen again, and been sustained at high levels, a further increase or volatility of oil prices and the pass-through of an increase to Indian consumers could have a material adverse impact on the Indian economy and on the Indian banking and financial system in particular, including through a rise in inflation and market interest rates and a higher trade deficit. A significant change in the Government’s economic liberalisation and deregulation policies could adversely affect the Bank’s business and the price of the Equity Shares. The Bank’s assets and customers are predominantly located in India. The Government has traditionally exercised and continues to exercise a dominant influence over many aspects of the economy. The Government’s economic policies have had and could continue to have a significant effect on public sector entities, including the Bank, and on market conditions and prices of Indian securities, including securities issued by the Bank. See “Business — Relationship with the Government and the Reserve Bank of India.” The most recent parliamentary elections were completed in May 2004. A coalition government led by the Congress Party has been formed with Dr. Manmohan Singh as the Prime Minister of India. Although there has been no significant change in the Government’s policies since May 2004, any significant change in the Government’s economic liberalisation and deregulation policies could adversely affect business and economic conditions in India and could also adversely affect the Bank’s business, its future financial performance and the trading price of the Equity Shares. Financial instability in other countries, particularly emerging market countries and countries where the Bank has established operations, could adversely affect the Bank’s business and the price of the Equity Shares. The Indian economy is influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. The Bank has also established operations in several other countries. A loss of investor confidence in the financial systems of other emerging markets and countries where the Bank has established operations or any worldwide financial instability may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector and its business. If regional hostilities, terrorist attacks or social unrest in some parts of the country increase, the Bank’s business and the price of the Equity Shares could be adversely affected. India has from time to time experienced social and civil unrest and hostilities both internally and with neighbouring countries. Present relations between India and Pakistan continue to be fragile on the issues of terrorism, armament and Kashmir. India had also experienced terrorist attacks in some parts of the country. These hostilities and tensions could lead to political or economic instability in India and a possible adverse effect on the Bank’s business, its future financial performance and the trading price of the Equity Shares. Further, India has also experienced social unrest in some parts of the country. If such tensions spread and lead to overall political and economic instability in India, it may adversely affect the Bank’s business, future financial performance and the trading price of the Equity Shares. Natural calamities could adversely affect the Indian economy, the Bank’s business and the price of the Equity Shares. India has experienced natural calamities such as earthquakes, floods and drought in recent years. The extent and severity of these natural disasters determine their impact on the Indian economy. For example, in fiscal year 2003, many parts of India received significantly less than normal rainfall. As a result of the drought conditions during fiscal year 2003, the agricultural sector recorded a negative growth of 7.0%. Also, the erratic progress of the monsoon season in fiscal year 2005 adversely affected sowing operations for certain crops and resulted in a decline in the growth rate of the agricultural sector from 10.0% in fiscal year 2004 to negligible growth in fiscal year 2005. The agricultural sector grew by 6.0% in fiscal year 2006 and by 2.7% in fiscal year 2007. Further prolonged spells of below or above normal rainfall or other natural calamities could adversely

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affect the Indian economy and the Bank’s business, especially in view of the Bank’s strategy of increasing its exposure to rural India. Financial difficulties and other problems in certain financial institutions in India could adversely affect the Bank’s business and the price of the Equity Shares. The Bank is exposed to the risks inherent with the Indian financial system. These risks are driven by the financial difficulties faced by certain Indian financial institutions, whose commercial soundness may be closely interrelated as a result of credit, trading, clearing or other relationships amongst them. This risk, which is sometimes referred to as “systemic risk,” may adversely affect financial intermediaries, such as clearing agencies, banks, securities firms and exchanges with whom the Bank interacts on a daily basis. Any such difficulties or instability of the Indian financial system in general could create an adverse market perception about Indian financial institutions and banks and adversely affect the Bank’s business and the trading price of the Equity Shares. As the Indian financial system operates within an emerging market, the Bank faces risks of a nature and extent not typically faced in more developed economies, including the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme. See “Industry Overview.” The price of the Equity Shares may be adversely affected by the recent financial instability in the United States resulting from sub prime mortgages. The recent credit market instability in the United States resulting from concerns with increased defaults of higher risk mortgages to lower income households, or the so-called sub prime mortgages, may adversely affect the Bank’s loan and investment portfolios, although the Bank has no direct exposure to U.S. sub prime loans. For example, some of the Bank’s investment securities may need to be marked to market at a significantly lower price because a market for those securities is not sufficiently liquid or prices are not properly quoted. Some of the Bank’s borrowers may be exposed to companies which are adversely affected by the instability stemming from the collapse of sub prime mortgages. The availability of credit may become limited due to an overall deterioration of the credit markets, increasing the risk that some of the Bank’s counterparties may default. Moreover, the negative developments in U.S. credit markets may cause significant fluctuations in stock markets globally and foreign currency exchange rates which in turn may affect the Bank’s financial results. If credit market conditions continue to deteriorate, the Bank’s capital funding structure may need to be adjusted, and its funding costs may increase. Any downgrading of India’s debt rating by an international rating agency could adversely affect the Bank’s business and its liquidity. Because the Bank’s foreign currency ratings are pegged to India’s sovereign ceiling, any adverse revision to India’s credit rating for international debt will have a corresponding effect on the Bank’s ratings. Any adverse change in the Bank’s ratings may limit its access to capital markets and decrease its liquidity. An outbreak of avian influenza or other contagious diseases may adversely affect the Indian economy and the Bank’s business. Since late 2003, a number of countries in Asia, including India, as well as countries in other parts of the world, have had confirmed cases of the highly pathogenic H5N1 strain of avian influenza in birds. Certain countries in Southeast Asia have reported cases of bird to human transmission of avian influenza resulting in numerous human deaths. The World Health Organisation and other agencies have issued warnings on a potential avian influenza pandemic if there is sustained human to human transmission. Future outbreaks of avian influenza or a similar contagious disease could adversely affect the Indian economy and economic activity in the region. As a result, any present or future outbreak of avian influenza or other contagious diseases could have a material adverse effect on the Bank’s business. Investors in the Equity Shares may not be able to enforce a judgment of a foreign court against the Bank, its directors or executive officers. The Bank was constituted under the Act, as amended from time to time. Substantially all of the Bank’s Directors and executive officers and some of the experts named herein are residents of India and a substantial portion of the assets of the Bank and such persons are located in India. As a result, it may not be possible for investors to affect service of process upon the Bank, or such persons outside India, or to enforce judgments obtained against such parties outside India.

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Recognition and enforcement of foreign judgments are provided for by section 13 of the Code of Civil Procedure, 1908 of India (the “Civil Code”). Section 13 provides that foreign judgments shall be conclusive regarding any matter directly adjudicated upon except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognise the law of India in cases to which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud; and (vi) where the judgment sustains a claim founded on a breach of any law then in force in India. Under the Civil Code, a court in India shall, upon the production of any document purporting to be a certified copy of a foreign judgment, presume that the judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on the record India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court, within the meaning of that section, in any country or territory outside India which the Government has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, section 44A of the Civil Code is applicable only to monetary decrees not being in the same nature of amounts payable in respect of taxes, other charges of a like nature or in respect of a fine or other penalties. The United States has not been declared by the Government to be a “reciprocating territory” for the purposes of section 44A of the Civil Code. A judgment of a court of a country which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. Such a suit has to be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Execution of a judgment or repatriation outside of India of any amounts received is subject to the approval of the RBI. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action were to be brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if that court was of the view that the amount of damages awarded was excessive or inconsistent with public policy, and is uncertain whether an Indian court would enforce foreign judgments that would contravene or violate Indian law. Indian accounting principles and audit standards differ from those which prospective investors may be familiar with in other countries. As stated in the report of the Bank’s independent auditors included in this Letter of Offer, the Bank’s financial statements are prepared in conformity with Indian GAAP, consistently applied during the periods stated, except as provided in such report, and no attempt has been made to reconcile any of the information given in this Letter of Offer to any other accounting principles or to base it on any other auditing standards. Indian GAAP differs from standards in the United States. See “Description of Certain Differences between Indian GAAP and U.S. GAAP.” There may be less company information available in the Indian securities markets than securities markets in developed countries. There may be differences between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of the markets in the United States and other developed countries. The Securities and Exchange Board of India (“SEBI”) is responsible for approving and improving disclosure and other regulatory standards for the Indian securities markets. SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in developed countries. A decline in India’s foreign exchange reserves may affect liquidity and interest rates in the Indian economy which could have an adverse impact on the Bank. India’s foreign exchange reserves increased by U.S.$ 28.5 billion (25.2%) in fiscal year 2005, by U.S.$ 10.1 billion (7.1%) in fiscal year 2006 and by U.S.$ 47.6 billion (31.4%) in fiscal year 2007. As on March 31, 2007, India’s foreign exchange reserves stood at U.S.$ 199.2 billion and U.S.$ 247.8 billion as on September 28, 2007. A sharp decline in these reserves could result in reduced liquidity and higher interest rates in the Indian

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economy, which in turn, could adversely affect the Bank’s business, its future financial performance and the trading price of the Equity Shares. Trade deficits could adversely affect the Bank’s business and the price of the Equity Shares. India’s trade relationships with other countries can influence Indian economic conditions. In fiscal year 2007, India experienced a trade deficit of Rs. 2,906.6 billion from Rs. 2,039.9 billion in fiscal year 2006, an increase of 42.5%. If India’s trade deficit increases and becomes unmanageable, the Indian economy, and therefore the Bank’s business, future financial performance and the trading price of the Equity Shares could be adversely affected. Risks Relating to the Equity Shares

You may not receive the Equity Shares and other instruments that you subscribe for in this Issue until 42 days after the date on which this Issue closes, which will subject you to market risk. The Equity Shares you purchase in this Issue will not be credited to your demat account with depository participants until approximately 42 days from the Issue Closing Date. You can start trading on such Equity Shares only after receipt of listing and trading approvals in respect of these shares. Since the Equity Shares are already listed on stock exchanges, you will be subject to market risk from the date you pay for the Equity Shares to the date they are listed. Further, there can be no assurance that the Equity Shares allocated to you will be credited to your demat account, or that trading in the Equity Shares will commence within the time periods specified above. There may not be an active or liquid market for the Equity Shares, which may cause the price of the Equity Shares to fall and may limit your ability to sell the Equity Shares. The price at which the Equity Shares will trade after this Issue will be determined by the marketplace and may be influenced by many factors, including:

• the Bank’s financial results and the financial results of the joint ventures and subsidiaries the Bank operates;

• the history of, and the prospects for, the Bank’s business and the sectors and industries in which it competes;

• the valuation of publicly traded companies that are engaged in business activities similar to the Bank’s; and

• significant developments in India’s economic liberalisation and deregulation policies.

In addition, the Indian stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of Indian companies. As a result, investors in the Equity Shares may experience a decrease in the value of the Equity Shares regardless of the Bank’s operating performance or prospects.

Future issues or sales of the Bank’s shares may significantly affect the trading price of the Equity Shares. A future issue of the Bank’s shares or the disposal of shares by any of the Bank’s major shareholders, or the perception that such issues or sales may occur, may significantly affect the trading price of the Equity Shares. Other than the obtaining of consent from shareholders, some of the Bank’s lenders prior to altering its capital structure and any regulatory consent that may be required under applicable law, there are no restrictions on the Bank’s ability to issue shares, and there can be no assurance that it will not issue shares. There are restrictions on daily movements in the price of the shares, which may adversely affect a shareholder’s ability to sell, or the price at which such shareholder can sell, shares at a particular point in time.

The Indian securities markets are more volatile than certain other securities markets.

23

The Indian securities markets are more volatile than the securities markets in certain countries which are members of the OECD. The Indian stock exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities.

The Indian stock exchanges have experienced problems which, if such or similar problems were to continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Equity Shares. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time disputes have occurred between listed companies, and stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment. A closure of, or trading stoppage on, either of the BSE and the NSE could adversely affect the trading price of the Equity Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.

Foreign investment in the Bank is subject to limits specified by the Government.

The permissible foreign investment (including GDRs, investment by FIIs and NRIs) as prescribed by the RBI is 20% of the Bank’s total paid up capital. Currently, the Bank’s total foreign holdings are 19.8%. Accordingly, unless the current foreign investment limit applicable to the Bank is changed, the amount of additional foreign investment in the Bank is limited. Once the aggregate foreign investment in the Bank reaches 20% of the Bank’s total paid up capital, the RBI instructs non-resident investors and authorised dealers not to further transact in the Equity Shares of the Bank without prior approval of the RBI. These restrictions may adversely affect the liquidity and market price of the Bank’s Equity Shares to the extent international investors are not permitted to purchase shares in normal secondary transactions.

Shareholders will experience additional dilution as a result of the Bank’s planned Employee Share Purchase Scheme. The Bank plans to offer certain of its employees the right to purchase additional shares of the Bank. The Central Government has by its letter F.No.11/7/2007-BOA dated January 25, 2008, approved the allotment of up to 8,617,500 Equity Shares to certain employees of the Bank under its planned employee share purchase scheme (“ESPS”). The Central Board approved the ESPS at its meeting held on February 1, 2008 for the grant Equity Shares as per the approval by the Central Government as described above. The issue of Equity Shares pursuant to the Scheme will result in an immediate dilution of your shareholding and may have a negative effect on the trading price of the Equity Shares.

Non-resident shareholders may not be allowed to apply for additional shares.

Existing eligible non-resident shareholders may apply for additional Equity Shares over and above the shares they are entitled to under the Issue. However, the RBI limits the amount of foreign investment in the Bank of up to 20% of the total paid up capital (presently at 19.8%). As a result, eligible non-resident shareholders may not be allowed to participate in the additional subscription of Equity Shares if their participation would cause the Bank’s foreign investment to go beyond the 20% limit prescribed by the RBI. For further information on eligible non-resident participation, see “Terms of the Present Issue – Subscription by Eligible Non-Residents.”

Shareholder voting rights may be restricted. Section 11 of the Act does not allow any individual shareholder, other than the Government, to exercise voting rights in excess of ten percent of the Bank’s issued capital. To the extent that Shareholders are unable to exercise all their voting rights with respect to the shares they own, their proportional voting power would be reduced.

You may be subject to Indian taxes arising out of capital gains.

Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian company are generally taxable in India. Any gain realised on the sale of listed equity shares on a stock exchange held for more than twelve (12) months will not be subject to capital gains tax in India if Securities Transaction

24

Tax (“STT”) has been paid on the transaction. STT will be levied on and collected by a domestic stock exchange on which the equity shares are sold. Any gain realised on the sale of equity shares held for more than twelve (12) months to an Indian resident, which are sold other than on a recognised stock exchange and on which no STT has been paid, will be subject to long term capital gains tax in India. Further, any gain realised on the sale of listed equity shares held for a period of twelve (12) months or less will be subject to short term capital gains tax in India.

Significant differences exist between Indian GAAP and other accounting principles, such as US GAAP, which may be material to investors’ assessments of the Bank’s financial condition. The Bank has prepared its financial statements and the financial information contained in this Letter of Offer in accordance with Indian GAAP. Indian GAAP requirements differ in certain respects from those of US GAAP. The Bank has not presented a reconciliation of its financial statements to US GAAP in this Letter of Offer. Furthermore, the Bank has not quantified or identified the impact of the differences between Indian GAAP and US GAAP as applied to its financial statements. As there are differences between Indian GAAP and US GAAP, there may be substantial differences in the Bank’s results of operations, cash flows and financial position if it were to prepare financial statements in accordance with US GAAP instead of Indian GAAP. See “Summary of Significant Differences Between Indian GAAP and US GAAP.” Prospective investors should consult their own professional advisors for an understanding of the differences between Indian GAAP and US GAAP and how they might affect the financial information contained in this Letter of Offer.

There is no guarantee that the Equity Shares will be listed on the BSE, the NSE and the other stock exchanges in a timely manner or at all, and any trading closures at the BSE and the NSE may adversely affect the trading price of the Equity Shares. In accordance with Indian law and practice, permission for listing of the Equity Shares will not be granted until after those Equity Shares have been issued and allotted. Approval will require all other relevant documents authorizing the issuing of Equity Shares to be submitted. There could be a failure or a delay in listing the Equity Shares on the BSE and the NSE. Any failure or delay in obtaining the approval would restrict your ability to dispose of your Equity Shares.

The regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants differ, in some cases significantly, from those in Europe and the U.S. The BSE and the NSE have in the past experienced problems, including temporary exchange closures, broker defaults, settlements delays and strikes by brokerage firm employees, which, if continuing or recurring, could affect the market price and liquidity of the securities of Indian companies, including the Equity Shares, in both domestic and international markets. A closure of, or trading stoppage on, either of the BSE and the NSE could adversely affect the trading price of the Equity Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.

Notes to Risk Factors:

1. The RBI conducts regular inspections of banking companies under the provisions of the Banking Regulation Act. The reports of the RBI are strictly confidential. The RBI does not permit disclosure of its inspection report.

2. This Issue is of 105,259,776 Equity Shares for cash (excepting the Government’s portion representing 62,867,840 Equity Shares) at a premium of Rs. 1,580 per Equity Share on rights basis to the existing Equity Shareholders of the Bank in the ratio of 1 fully paid up Equity Share for every 5 fully paid up Equity Shares held on the Record Date of February 4, 2008 in terms of this Letter of Offer.

3. Net worth of the Bank on a stand alone basis as on March 31, 2007 is Rs. 313 billion. The Issue is of an amount aggregating Rs. 167,363.04 million.

4. The book value per Equity Share of the Bank as on March 31, 2007 was Rs. 595 per Equity Share.

5. The Bank has entered into certain related party transactions as disclosed in the section titled “Related Party Transactions” on page [ ].

25

6. Before making an investment decision in respect of this Issue, you are advised to refer to the section entitled “Basis for Issue Price” on page [ ].

7. The Promoter of the Bank is the Government of India. The average cost of acquisition of Equity Shares by the Promoter is Rs. 1,130.35 per Equity Share.

8. The Bank is proposing an employee share purchase scheme (the “ESPS”). The Central Government has, by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to Government authorisation, the Central Board has, at its meeting held on February 1, 2008, approved the ESPS. The Bank may issue a maximum of 8,617,500 Equity Shares to its Eligible Employees (as defined therein). The ESPS shall remain open for a period commencing from March 28, 2008 to April 15, 2008. The issue price will be Rs. 1,590 per Equity Share. The terms and conditions of the ESPS, will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and all the issuances of shares will be done in compliance with the guidelines/regulations/circulars at that time.

9. Trading in the Equity Shares, through the stock exchanges, for all investors shall be in dematerialised form only.

10. For transactions in Equity Shares by Directors of the Bank in the last six months, please refer to the section entitled “Capital Structure” on page [ ].

11. Other than as stated in this Letter of Offer, the Directors/Key Management personnel have no interest other than reimbursement of expenses incurred or normal remuneration or benefits.

12. The Bank and the Lead Managers are obliged to keep this Letter of Offer updated and inform the public of any material change/development.

13. The Lead Managers and the Bank shall make any clarification or any information relating to the Issue available to the investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever.

14. The Lead Managers and the Bank shall update this Letter of Offer and keep the shareholders/public informed of any material changes till the listing and trading commencement and the Bank shall continue to make all material disclosures as per the terms of the listing agreement.

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THE ISSUE Equity Shares proposed to be issued by the Bank 105,259,776 shares Rights Entitlement One Equity Share for every five Equity Shares held as

on the Record Date. Record Date February 4, 2008. Issue Price per Equity Share Rs. 1,590 per Equity Share (including a premium of

Rs. 1,580 per Equity Share) Equity Shares outstanding prior to the Issue 526,298,878 Equity Shares outstanding after the Issue and the ESPS

640,176,154

Terms of the Issue For more information, see “Terms of the Present Issue” on page [●]

Terms of Payment The Issue price of the full number of Equity Shares being applied for, i.e. an amount of Rs. 1,590 per share including the share premium of Rs. 1,580 per Equity Share being applied for, is to be paid at the time of application. Objects of the Issue:

• To improve the Bank’s capital adequacy ratio by augmenting Tier I capital; • Ensure compliance with regulatory requirements; and • Other general corporate purposes including meeting expenses related to the Issue.

For details on the Objects of the Issue, refer to “Objects of the Issue” on page [●].

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SELECTED FINANCIAL AND OPERATING DATA

The Bank’s financial and other data for fiscal year 2005 through fiscal year 2007 and the six-months ended September 30, 2006 and 2007 included in this Letter of Offer have been derived from its consolidated and unconsolidated financial statements prepared in accordance with generally accepted accounting principles in India, or Indian GAAP, guidelines issued by the RBI from time to time and practices generally prevailing in the banking industry in India. These financial statements do not include the results of operations of its subsidiaries and other consolidating entities.

The financial statements are prepared in accordance with Indian GAAP according to which the financial statements contain figures for two years (current year and previous year) for the purpose of comparison. The financial statements of the Bank for the years ended March 31, 2007, 2006 and 2005, as presented hereunder have been reformatted to contain the figures for these years. As there has been a change in accounting policies during fiscal year 2007, certain line items relating to fiscal year 2006 as extracted from the 2007 annual financial statements in respect of figures relating to the previous year have been regrouped to reflect the change. The data relating to the year 2005 has been extracted from the 2006 annual financial statements in respect of figures relating to the previous year and therefore certain line items relating to fiscal year 2005 are not strictly comparable with those relating to fiscal year 2007 or the regrouped data for fiscal year 2006 as appearing herein. See “Note on Reformatting and Regrouping” in the Financial Statements at the conclusion of the Letter of Offer for further discussion.

Potential investors should read the following data together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this Letter of Offer. The following data is qualified in its entirety by reference to all of that information. Unconsolidated Data Selected Income Statement Data

Year ended March 31, Six month period ended

September 30,

2005 2006 2007 2006 2007

(Rs. in millions) INCOME

Interest earned Interest/discount on advance/bills........................... 130,435 176,963 248,392 113,691 163,536 Income on investments ........................................... 160,277 139,775 114,930 50,753 54,613 Interest on balances with RBI and other inter-

bank funds ........................................................ 17,870 21,217 27,196 8,301 8,887 Others ...................................................................... 15,698 21,840 4,392 37 32

Other income Commission, exchange and brokerage ................... 35,447 39,962 48,045 16,063 20,525 Profit/(loss) on sale of investments (Net) ............... 17,753 5,872 5,678 2,212 7,125 Profit/(loss) on revaluation of investments (Net) ...

-

-

(16,775)

(6,728)

(7,403) Profit on sale of land, buildings and other assets

including leased assets (Net) ........................... (8) 19 121 - - Profit on exchange transactions (Net)..................... 5,282 10,013 3,734 2,107 1,407 Income earned from dividends from

subsidiaries/companies and/or joint 3,932 3,172 5,970 3,617 1,723

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Year ended March 31,

Six month period ended September 30,

2005 2006 2007 2006 2007

(Rs. in millions) ventures in India and abroad............................

Income from financial leases .................................. 1,392 1,178 836 693 308 Miscellaneous income............................................. 7,401 14,137 10,084 7,295 8,120

Total income.................................................................. 395,479 434,148 452,603 198,041 258,873

EXPENDITURE Interest expended

Interest on deposits.................................................. 171,865 181,322 190,836 90,072 125,470 Interest on RBI/inter-bank borrowings................... 4,087 13,215 21,415 7,433 14,412 Others ...................................................................... 8,882 9,367 22,117 4,554 7,543

Operating expenses Payments to and provisions for employees ............ 69,073 81,230 79,326 38,790 40,216 Rent, taxes and lighting........................................... 7,231 7,964 8,965 4,079 4,474 Printing and stationery ............................................ 1,625 1,756 1,739 916 1,033 Depreciation ............................................................ 7,522 7,291 6,024 3,628 3,113 Directors’ fees, allowances and expenses............... 10 12 11 6 5 Auditors’ fees and expenses.................................... 543 636 623 347 595 Law charges ............................................................ 498 495 573 266 266 Postage, telegrams, telephones, etc......................... 744 1,022 1,182 422 812 Repairs and maintenance ........................................ 1,340 1,703 1,892 928 995 Insurance ................................................................. 2,400 3,408 3,553 1,811 2,024 Other expenditures .................................................. 9,756 11,734 14,348 5,607 7,168

Provisions and contingencies 66,858 68,926 54,586 19,351 20,375 Total expenditure 352,434 390,081 407,190 178,210 228,501

PROFIT Net profit for the year.............................................. 43,045 44,067 45,413 19,831 30,372 Profit brought forward ............................................ 3 3 3 3 3 Transfer from general reserve................................. - - 29 - -

Total profit 43,048 44,070 45,445 19,834 30,375

APPROPRIATIONS Transfer to statutory reserves.................................. 24,821 29,338 33,581 - - Transfer to capital reserve, Investment

Fluctuation Reserves & Revenue and other reserves

10,708

6,327

3,241

-

- Dividend.................................................................. 6,579 7,368 7,368 - - Tax on dividend ...................................................... 937 1,034 1,252 - - Balance carried over to balance sheet..................... 3 3 3 19,834 30,375

Total appropriations .................................................... 43,048 44,070 45,445 19,834 30,375

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Per Equity Share Data The following table sets forth the basic and diluted earnings per share of the Bank in accordance with Indian GAAP. Basic earnings per share is computed by dividing net profit after tax by the weighted average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares outstanding during the year. Year ended March 31,

Six month period ended September 30,

2005 2006 2007 2006 2007

(Rs. in millions, except per share data) Basic and diluted Weighted average no. of Equity Shares outstanding ............................................................ 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878 Net profit ............................................................... 43,045 44,067 45,413 19,831 30,372 Basic and diluted earnings per share..................... 81.79 83.73 86.29 75.36* 115.42* Nominal value per share........................................ 10.00 10.00 10.00 10.00 10.00

* Annualised

Balance Sheet Data

As on March 31, As on

September 30,

2005 2006 2007 2006 2007

(Rs. in millions) CAPITAL AND LIABILITIES

Capital ..................................................... 5,263 5,263 5,263 5,263 5,263

Reserves and Surplus Statutory reserves .............................. 140,871 170,209 203,790 170,209 203,790 Capital reserves ................................. 3,029 4,181 4,181 4,181 4,181 Share premium .................................. 35,106 35,106 35,106 35,106 35,106 Investment fluctuation reserve.......... 52,539 - - - - Revenue and other reserves .............. 1,030 58,745 61,956 58,744 61,956 Foreign currency translation reserve ...............................................

2,880

2,934

2,686

3,944

457

Balance of profit and loss account.... 3

3

3

19,834

30,375

Deposits Demand deposits ............................... 566,123 679,956 819,980 627,408 711,427 Savings bank deposits ....................... 949,072 1,127,239 1,291,365 1,244,589 1,392,656 Term deposits .................................... 2,155,281 1,993,265 2,243,866 2,133,093 2,766,460

Borrowings Borrowings in India .......................... 12,421 66,424 58,197 41,170 62,511 Borrowings outside of India.............. 179,423 239,989 338,836 281,674 386,868

Other liabilities and provisions Other Liabilities and Provisions 461,140 507,118 456,116 734,791 460,365 Subordinate Debts 34,648 49,858 144,307 105,308 229,976

Total capital and liabilities .................... 4,598,829 4,940,290 5,665,652 5,465,314 6,351,391

ASSETS

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As on March 31,

As on September 30,

2005 2006 2007 2006 2007

(Rs. in millions) Cash and balances with the RBI

Cash in hand (incl. foreign currency and gold).............................

14,362

20,802

25,301

28,930

23,760

Balance with RBI .............................. 153,742 195,725 265,463 287,490 438,258

Balances with banks & money at call & short notice

In India .............................................. 155,394 86,836 75,000 90,504 66,211 Outside India ..................................... 69,723 142,237 153,923 142,562 61,759

Investments In India .............................................. 1,924,564 1,572,862 1,433,363 1,405,830 1,746,489 Outside India ..................................... 46,415 52,480 58,126 59,065 55,109

Advances Bills purchased and discounted......... 214,708 248,537 307,871 262,893 328,495 Cash credits, overdrafts and loans repayable on demand.........................

739,152

958,568

1,254,762

968,664

1,307,254

Term loans......................................... 1,069,885 1,410,904 1,810,732 1,598,973 1,950,400

Fixed assets 26,977 27,529 28,189 26,701 31,815

Other assets 183,907 223,810 252,922 593,702 341,841

Total assets .............................................. 4,598,829 4,940,290 5,665,652 5,465,314 6,351,391

Consolidated Data

The consolidated operating results data for the fiscal years 2005, 2006, and 2007 and the six-months

ended September 30, 2006 and 2007 are presented in the table below.

Year ended March 31, Six month period ended

September 30,

2005 2006 2007 2006 2007

(Rs. in millions) INCOME

Interest earned ................................................. 444,991 498,921 572,377 251,176 333,583 Other income.................................................... 100,366 111,740 111,391 45,152 69,485

Total income 545,357 610,661 683,768 296,328 403,068

EXPENDITURE Interest expended ............................................. 248,918 281,029 339,827 150,167 222,306 Operating expenses .......................................... 144,436 176,013 200,018 89,628 108,813 Provisions and contingencies........................... 96,023 97,004 77,725 28,251 30,667

Total expenditure .................................................. 489,377 554,046 617,570 268,046 361,786

PROFIT Net profit for the year....................................... 55,980 56,615 66,198 28,282 41,282 Less: Minority Interest ..................................... 1,341 1,316 2,555 1,307 1,158 Group profit...................................................... 54,639 55,299 63,643 26,975 40,124 Add: Brought forward profit attributable to

the group .......................................................

2,341

134

3,864

3,864

1,190 Transfer from general reserve .......................... - - 29 N/A N/A

Total profit ............................................................. 56,980 55,433 67,536 N/A 41,314

APPROPRIATIONS Transfer to statutory reserves............................ 29,250 34,537 40,063 N/A N/A

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Year ended March 31, Six month period ended

September 30,

2005 2006 2007 2006 2007

(Rs. in millions) Transfer to other reserves.................................. 20,080 8,631 17,663 N/A N/A Dividend............................................................ 6,579 7,368 7,368 N/A N/A Corporate tax on dividend................................. 937 1,033 1,252 N/A N/A Balance carried over to balance sheet............... 134 3,864 1,190 N/A N/A

Total appropriations ............................................. 56,980 55,433 67,536 N/A N/A

Balance Sheet Data As on March 31, As on September 30,

2005 2006 2007 2006 2007

(Rs. in millions,) CAPITAL AND LIABILITIES

Capital ............................................................ 5,263 5,263 5,263 5,263 5,263 Reserves & surplus......................................... 320,255 366,804 420,094 394,389 457,724 Minority interest............................................. 13,041 14,303 16,899 15,517 18,418 Deposits.......................................................... 5,061,053 5,440,243 6,362,729 5,784,943 7,024,773 Borrowings..................................................... 229,295 369,749 486,618 399,951 568,595 Other liabilities & provisions......................... 656,869 773,556 860,141 1,013,148 993,706

Total capital and liabilities ................................. 6,285,776 6,969,918 8,151,744 7,613,211 9,068,479

ASSETS Cash & balances with the RBI ....................... 256,158 311,288 450,661 415,321 656,516 Balances with banks & money at call &

short notice .................................................

253,412

262,077

274,108

265,490

161,715 Investments .................................................... 2,619,620 2,279,311 2,165,210 2,119,268 2,554,373 Advances ........................................................ 2,869,866 3,744,762 4,872,860 4,101,620 5,197,454 Fixed assets .................................................... 35,736 39,563 39,994 39,917 44,826 Other assets .................................................... 250,984 332,917 348,911 671,595 453,595

Total assets ........................................................... 6,285,776 6,969,918 8,151,744 7,613,211 9,068,479

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GENERAL INFORMATION

Dear Equity Shareholder(s),

The Government has, by its letter (no. F.No.11/16/2005-BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank and pursuant to the resolutions passed by the Central Board of Directors of the Bank at its meeting held on January 14, 2008, the following offer will be made to the Equity Shareholders of the Bank, with a right to renounce:

ISSUE OF 105,259,776 EQUITY SHARES OF FACE VALUE RS. 10 EACH AT A PREMIUM OF RS. 1,580 PER EQUITY SHARE AGGREGATING TO AN AMOUNT EQUIVALENT TO RS. 167,363.04 MILLION TO THE EQUITY SHAREHOLDERS ON A RIGHTS BASIS IN THE RATIO OF ONE EQUITY SHARE FOR EVERY FIVE EQUITY SHARES HELD ON THE RECORD DATE i.e. FEBRUARY 4, 2008 ("ISSUE"). THE ISSUE PRICE FOR EQUITY SHARES IS 159 TIMES OF THE FACE VALUE OF THE EQUITY SHARE.

Corporate Office of the Bank State Bank of India State Bank Bhavan, Madame Cama Road Mumbai 400 021 Maharashtra, India

The Equity Shares of the Bank are listed on the BSE and NSE. The Bank’s Equity Shares are also listed at Ahmedabad, Calcutta, Chennai and New Delhi. The GDRs issued by the Bank of New York in respect of the Equity Shares are listed on the London Stock Exchange.

Central Board of Directors as of December 31, 2007.

Name Designation Mr. O.P. Bhatt Chairman

Mr. T.S. Bhattacharya Managing Director

Mr. S. K. Bhattacharyya Managing Director

Mr. Suman Kumar Bery Director appointed under section 19(c) of the Act

Dr. Ashok Jhunjhunwala Director appointed under section 19(c) of the Act

Mr. Ananta C. Kalita Director appointed under section 19(ca) of the Act

Mr. Amar Pal Director appointed under section 19(cb) of the Act

Mr. Piyush Goyal Director appointed under section 19(d) of the Act

Dr. Deva Nand Balodhi Director appointed under section 19(d) of the Act

Prof. Mohd. Salahuddin Ansari Director appointed under section 19(d) of the Act

Mr. Vinod Rai Director appointed under section 19(e) of the Act

Ms. Shyamala Gopinath Director appointed under section 19(f) of the Act

33

For further details on the Bank’s Directors, see “Management” on page [●] of this Letter of Offer.

Compliance Officer Mr. Subrata Maiti General Manager (Shares & Bonds) State Bank of India State Bank Bhavan, Madame Cama Road Mumbai 400 021 Maharashtra, India Tel.: (91 22) 2288 3888 Fax: (91 22) 2285 5348 Email: gm.snb@sbi.co.in

Investors may contact the General Manager (Shares & Bonds) for any pre-Issue / post-Issue related matters.

Bankers of the Bank State Bank of India Issue Management Team Lead Managers to the Issue Citigroup Global Markets India Private Limited Bakhtawar, 12th Floor 229, Nariman Point, Mumbai 400 021 Tel : (91 22) 6631 9999 Fax : (91 22) 6631 9803 Email: investors.cgmib@citi.com Website: www.citibank.co.in Contact Person: Amulya Goyal CLSA India Limited 8th Floor, Dalamal House Nariman Point Mumbai 400 021 Tel: (91 22) 6650 5050 Fax: (91 22) 2285 6524 Email: sbi.rights@clsa.com Website: www.india.clsa.com Contact Person: Mr. Sumit Jalan

DSP Merrill Lynch Limited Mafatlal Center, 10th Floor, Nariman Point, Mumbai 400 021 Tel: (91 22) 6632 8000 Fax: (91 22) 2204 8518 Email: sbi_rights@ml.com Website: www.dspml.com Contact Person: Mr. Pranav Mehta

34

Deutsche Equities India Private Limited DB House, Hazarimal Somani Marg Fort, Mumbai 400 001 Tel: (91 22) 6658 4600 Fax: (91 22) 2200 6765 Email: sbi.rights@list.db.com Website: www.db.com/India Contact Person: Mr. Vikram Gupta Kotak Mahindra Capital Company Limited 3rd Floor, Bakhtawar 229 Nariman Point Mumbai 400 021 Tel: (91 22) 6634 1100 Fax: (91 22) 2283 7517 Email: sbi.rights@kotak.com Investor Grievance Email: kmccredressal@kotak.com Website: www.kotak.com Contact Person: Mr. Chandrakant Bhole SBI Capital Markets Limited 202, Maker Tower 'E' Cuffe Parade Mumbai 400 005 Tel: (91 22 ) 2218 9166 Fax: ( 91 22) 2218 8332 Email: sbi.rightsissue@sbicaps.com Website: www.sbicaps.com Contact Person: Mr. Ajay Srivastava

35

The statement of inter se allocation of responsibilities for this Issue between is as follows:

No Activities Responsibility Coordinator 1. Capital structuring with the relative

components and formalities such as type of instrument, number of instruments to be issued, etc.

Citi, DSPML, DB, CLSA, Kotak

DSPML

2. Finalising ESPS Scheme alongwith the Bank and other intermediaries and related activities.

Citi, DSPML, DB, CLSA, Kotak

DSPML

3.

Drafting, design and distribution of the Letter of Offer (LOF), Abridged LOF, CAF etc. and memorandum containing salient features of the Letter of Offer. The Lead Managers shall ensure compliance with the Guidelines for Disclosure and Investor Protection, Listing Agreement and other stipulated requirements and completion of prescribed formalities with Stock Exchanges and SEBI.

Citi, DSPML, DB, CLSA, Kotak Citi

4. Drafting and approval of all publicity material including statutory advertisement, corporate advertisement, brochure, corporate films, etc.

Citi, DSPML, DB, CLSA, Kotak

CLSA

5. Selection of various agencies connected with the issue, namely

- Registrars to the Issue; - Printers; - Advertisement agencies; and - Banker to Issue

Citi, DSPML, DB, CLSA, Kotak

Kotak Citi

CLSA DB

6. Institutional marketing strategy

Citi, DSPML, DB, CLSA, Kotak, SBI

CAPS

CLSA

7. Offer to GDR Holders as applicable Citi, DSPML, DB, CLSA, Kotak

DB

8. Retail/Non-institutional marketing strategy which will cover, inter alia, preparation of investor presentation, publicity budget, arrangements for selection of (i) ad-media, (ii) centres of holding conferences of brokers, investors etc.

Citi, DSPML, DB, CLSA, Kotak, SBI

CAPS

CLSA

9. Follow-up with Banker to the Issue to get quick estimates of collection and advising the Bank about closure of the issue, based on the correct figures. The post-issue activities will involve essential follow-up steps, which include finalisation of basis of allotment / weeding out of multiple applications, listing of instruments and dispatch of certificates and refunds, with the various agencies connected with the work such as Registrars to the Issue, Bankers to the Issue, and bank handling refund business. The Lead Managers shall be responsible for ensuring that Registrars to the Issue and Bankers to the Issue fulfill their functions and enable it to discharge responsibility through suitable agreements with the Bank.

Citi, DSPML, DB, CLSA, Kotak

Kotak

36

Indian Legal Advisors to the Bank Amarchand & Mangaldas & Suresh A. Shroff & Co. Peninsula Chambers Peninsula Corporate Park Ganpatrao Kadam Marg Lower Parel Mumbai 400 013 Tel: (91 22) 6660 4455 Fax: (91 22) 2496 3666

International Legal Advisors to the Bank Allen & Overy 9th Floor, Three Exchange Square Central Hong Kong Tel No: (852) 2974 7000 Fax No: (852) 2974 6999 Indian Legal Advisors to the Lead Managers J. Sagar Associates Vakils House, 1st Floor 18 Sprott Road, Ballard Estate Mumbai 400 001 Tel No: (91 22) 6656 1533 Fax No: (91 22) 6656 1515

International Legal Advisors to the Lead Managers Clifford Chance 29th Floor, Jardine House One Connaught Place Hong Kong Tel No: (852) 2825 8888 Fax No: (852) 2825 8800

Auditors of the Bank 1. M.M. Nissim & Co.

Chartered Accountants, Barodawala Mansion, B-Wing, 3rd Floor, 81, Dr. Annie Besant Road Worli, Mumbai 400 018.

2. Khandelwal Jain & Co Chartered Accountants, 12-B Baldota Bhawan, 5th Floor, 117, Maharshi Karve Road, Opp. Churchgate Mumbai 400 020

3. R.G.N. Price & Co. Chartered Accountants, Simpson Buildings, 861, Mount Road, Chennai 600 002

4. S.K. Mittal & Co. Chartered Accountants, Mittal House, E-29, South Extension Part II, New Delhi 110 049.

37

5. Vinay Kumar & Co. Chartered Accountants, Chandra Shekar Azad Market Complex, 5 Sardar Patel Marg, Civil Lines, Allahabad 2110 01 (UP)

6. D.P. Sen & Co. Chartered Accountants 22, Ashutosh Chowdhury Avenue, 2nd Floor, Flat No. 22, Kolkata 700 019

7. Laxminiwas & Jain Chartered Accountants, 5-4-726, Station Road, Nampally, Hyderabad 500 001

8. Chaturvedi & Co. Chartered Accountants, 60, Bentinck Street, Kolkata – 700 069

9. Jain Kapila Associates 3000, Bhagat Singh Street No. 2, Paharganj, New Delhi 110 055

10. Datta Singla & Co. Chartered Accountants, SCO-2935-36 (1st floor), Sector 22 C, Chandigarh 160 022

11. M. Choudhury & Co. Chartered Accountants, 60, Bentinck Street, Kolkata – 700 069

12. G. M. Kapadia & Co. Chartered Accountants, 36B Tamarind House, Tamarind Lane, Fort, Mumbai 400 001

13. Vardhaman & Co. Chartered Accountants, Flat 1C Rear Block, Oakland Apartments, 7 Malony Road, T. Nagar, Chennai 600 017

Registrar to the Issue Datamatics Financial Services Limited Plot No. A-16 & A-17, MIDC Area, Part B, Cross Lane, Andheri (East) Mumbai 400 093 Tel.: (91 22) 6671 2151- 2156 Fax: (91 22) 6671 2192 Contact Person: Mr. Dnyanesh Gharote

Note: Investors are advised to contact the Registrar to the Issue/Compliance Officer in case of any pre-issue/post issue related problems such as non-receipt of Letter of Offer/abridged letter of offer/composite application form/allotment advice/share certificate(s)/ refund orders. Credit Rating This being an issue of Equity Shares, no credit rating is required.

38

Monitoring Agency No monitoring agency has been appointed for this Issue.

Minimum Subscription If the Bank does not receive a minimum subscription of 90% of the Issue, the Bank shall refund the

entire subscription amount received within 42 days from the date of closure of the Issue. If there is a delay beyond eight days after the date from which the Bank becomes liable to pay the amount (i.e. 42 days after closure of the Issue), the Bank shall pay interest calculated at the rate of 15%.

Underwriting Arrangements

The Issue is not underwritten.

ISSUE OPENS ON - February 18, 2008 ISSUE CLOSES ON - March 18, 2008

39

OVERSEAS SHAREHOLDERS

The distribution of this Letter of Offer and the issue of Equity Shares on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons into whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer and CAF will be dispatched to those shareholders who have an Indian address.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose. Accordingly, the Equity Shares represented thereby may not be offered or sold, directly or indirectly, and this Letter of Offer may not be distributed in any jurisdiction outside of India. Receipt of this Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make such an offer and, in those circumstances, this Letter of Offer must be treated as having been sent for information only and should not be copied or redistributed. No person receiving a copy of this Letter of Offer in any territory other than in India may treat the same as constituting an invitation or offer to him, nor should he in any event use the CAF. The Bank will not accept any CAF where the address as indicated by the applicant is not an Indian address. Accordingly, persons receiving a copy of this Letter of Offer should not, in connection with the issue of Equity Shares or the Rights Entitlements, distribute or send the same in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If this Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Equity Shares or the Rights Entitlements referred to in this Letter of Offer.

Neither the delivery of this Letter of Offer nor any sale hereunder shall under any circumstances create any implication that there has been no change in the Bank’s affairs from the date hereof or that the information contained herein is correct as at any time subsequent to this date.

European Economic Area Restrictions

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive at any relevant time (each, a “Relevant Member State”) an offer of the Equity Shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant Member State of any Equity Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of Equity Shares shall result in a requirement for the publication by the Bank or any Manager of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purpose of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restriction set out below.

40

United Kingdom Restrictions This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Republic of Italy Restrictions The Issue of the Equity Shares has not been registered pursuant to Italian securities legislation and, accordingly, no Equity Shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the Equity Shares be distributed in the Republic of Italy, except:

(i) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and the relevant implementing CONSOB regulations, as amended from time to time, and in Article 2 of Directive No. 2003/71/EC of 4 November 2003; or

(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as amended (Regulation No. 11971).

Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other document relating to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:

(a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in

the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the “Banking Act”); and

(b) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority.

NO OFFER IN THE UNITED STATES

The Rights Entitlements and the Equity Shares of the Bank have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof (the “United States” or “U.S.”) or to, or for the account or benefit of, “U.S. Persons” (as defined in Regulation S under the Securities Act (“Regulation S”)), except in a transaction exempt from the registration requirements of the Securities Act. The rights referred to in this Letter of Offer are being offered in India, but not in the United States. The Issue to which this Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any shares or rights for sale in the United States or as a solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter of Offer and the enclosed CAF should not be forwarded to or transmitted in or into the United States at any time.

Neither the Bank nor any person acting on behalf of the Bank will accept a subscription or renunciation from any person, or the agent of any person, who appears to be, or who the Bank or any person acting on behalf of the Bank has reason to believe is, in the United States and to whom an offer, if made, would result in requiring registration of this Letter of Offer with the United States Securities and Exchange Commission. Envelopes containing a CAF should not be postmarked in the United States or otherwise dispatched from the United States, and all persons subscribing for Equity Shares and wishing to hold such shares in registered form must provide an address for registration of the Equity Shares in India. The Bank is making this issue of Equity Shares on a rights basis to the shareholders of the Bank and the Letter of Offer/Abridged Letter of Offer and CAF shall be dispatched to those Shareholders who have an Indian address. Any person who acquires Rights Entitlements or Equity Shares will be deemed to have declared, warranted and agreed, by accepting the delivery

41

of this Letter of Offer, that it is not and that at the time of subscribing for the Equity Shares or the Rights Entitlements, it will not be, in the United States.

The Bank reserves the right to treat as invalid any CAF which: (i) appears to the Bank or its agents to have been executed in or dispatched from the United States; (ii) does not include the relevant certification set out in the CAF headed “Overseas Shareholders” to the effect that the person accepting and/or renouncing the CAF does not have a registered address (and is not otherwise located) in the United States; or (iii) where the Bank believes acceptance of such CAF may infringe applicable legal or regulatory requirements; and the Bank shall not be bound to allot or issue any Equity Shares or Rights Entitlement in respect of any such CAF. Rights may not be transferred or sold to any U.S. Person.

42

CAPITAL STRUCTURE

Face value (in

Rs. million)

Value atIssue

Price (inRs.

million) Authorised share capital

Equity Shares of Rs. 10 each......................................................................... 10,000.00

N.A.

Issued capital*#

526,298,878 Equity Shares of Rs. 10 each.................................................... 5,262.99 Detailed

below

Subscribed capital

526,298,878 Equity Shares of Rs. 10 each.................................................... 5,262.99 Detailed

below

Present Issue being offered to the Equity Shareholders through the Letter of Offer**

105,259,776 Equity Shares of Rs. 10 each at a premium of Rs. 1,580 per Equity Share at a price of Rs. 1,590 each 1,052.60 167,363.04

Present Issue being offered to the employees of the Bank under the ESPS

8,617,500 Equity Shares of Rs. 10 each at a premium of Rs. 1,580 per Equity Share at a price of Rs. 1,590 each

86.18 13,701.83

Paid up capital after the Issue and the ESPS**

After allotment of Equity Shares under the Issue and ESPS

Equity Shares of Rs. 10 each......................................................................... 6,401.76 N.A.

Share Premium Account

Existing share premium account ................................................................... 35,105.73 N.A.

Share premium account after the Issue ......................................................... 215,031.83 N.A.

* As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank from Rs. 526.30 crores to Rs. 650 crores. Further, in terms of the Government’s Letter (Letter No. F/ 11/ 7/ 2007- BOA) dated December 3, 2007, the Government has intimated to the Bank that the cabinet has granted its approval for investing approximately Rs. 10,000 crores in the Issue by issuing SLR marketable securities towards the Government’s Rights Entitlement. Accordingly, in terms of Section 5(2) of the Act, this Issue, with a right to renounce, has been authorised by the Central Board pursuant to the resolution passed at its meetings held on January 14, 2008. This Letter of Offer has been approved by the Central Board at its meeting held on February 1, 2008.

# Prior to the present Issue being offered to the Equity Shareholders, as on January 25, 2008, the Bank has 38,830,638 Equity Shares of Rs. 10 each which are evidenced by 19,415,319 GDRs.

43

** These figures assume a full subscription of the Issue and the ESPS. Changes in the Bank’s Authorised Share Capital

Year Authorized Share Capital July 1, 1955 Rs. 200,000,000

1985 Rs. 2,000,000,000 1990 Rs. 10,000,000,000

Notes to the Capital Structure 1. The build up of the Bank’s Equity Share Capital as of December 31, 2007 is set out below:

Date of Allotment

No. of Equity Shares

Face value

Issue price (Rs.)

Nature of Consideration

Reasons for Allotment

Cumulative Number of shares

Cumulative Subscribed capital (Rs in million)

1955 562,500 100 100 Cash Incorporation of the Bank

562,500 56.25

1985 4,437,500 100 160 Cash Increase in the Issued Capital of the Bank – public issue

5,000,000 500.00

1987 10,000,000 100 160 Cash Increase in the Issued Capital of the Bank – public issue

15,000,000 1,500.00

1991 5,000,000 100 160 Cash Increase in the Issued Capital of the Bank –public issue

20,000,000 2,000.00

1994 180,000,000 10 - - Stock Split 200,000,000 2,000.00 1994 141,850,000 10 100 Cash Public Issue

of Equity Shares of Rs 10 each for cash at a premium of Rs 90 per Equity Share

341,850,000 3,418.5

1994 131,978,726 10 60 Cash Rights Issue of Equity Shares of Rs 10 each for cash at a premium of Rs 50 per equity share in the ratio of three new Equity Shares for every five shares held and also to employees at the Rights Issue price.

473,828,726 4,738.30

1995 180,463 10 100 Cash Increase in 474,009,189 4,740.091

44

the Issued Capital - public

1996 683 10 100 Cash Increase in the Issued Capital

474,009,872 4,740.098

1996

52,290,000 10 U.S.$ 14.15

Cash Issue of GDR representing two Equity Shares @ U.S.$ 14.15 per GDR.

526,299,872 5,262.999

1996 (994) 10 - Rectification (Rectification of 994 shares (net) relating to public equity issue in 1994 resulted in reduction of share capital by Rs 9,940 and share premium by Rs. 55,700)

526,298,878 5,262.989

2. Shareholding pattern of the Bank as of January 28, 2008

Total pre-issue shareholding as a percentage of total number of shares

Category code

Category of Shareholder

Number of Share- holders

Total number of shares

Number of shares held in dematerialised form

As a percentage of(A+B)1

As a percentage of (A+B+C)

(A) Shareholding of Promoter and Promoter Group2

1 Indian (a) Individuals/

Hindu Undivided Family 0 0 0 0.00 0.00

(b) Central Government/ State Government(s) 1 314,339,200 314,339,200 64.48 59.73

(c) Bodies Corporate 0 0 0 0.00 0.00 (d) Financial

Institutions/ Banks 0 0 0 0.00 0.00

(e) Any Others(Specify) 0 0 0 0.00 0.00

Sub Total(A)(1) 1 314,339,200 314,339,200 64.48 59.73 2 Foreign A Individuals (Non-

Residents Individuals/ Foreign Individuals) 0 0 0 0.00 0.00

45

B Bodies Corporate 0 0 0 0.00 0.00 C Institutions 0 0 0 0.00 0.00 D Any

Others(Specify) 0 0 0 0.00 0.00 d-i 0 0 0 0.00 0.00 d-ii 0 0 0 0.00 0.00

Sub Total(A)(2) 0 0 0 0.00 0.00 Total

Shareholding of Promoter and Promoter Group (A)= (A)(1)+(A)(2) 1 314,339,200 314,339,200 64.48 59.73

(B) Public shareholding

1 Institutions (a) Mutual Funds/

UTI 233 26,594,320 26,565,290 5.46 5.05 (b) Financial

Institutions / Banks 103 8,903,411 8,889,921 1.83 1.69

(c) Central Government/ State Government(s) 1 101,632 0 0.02 0.02

(d) Venture Capital Funds 0 0 0 0.00 0.00

(e) Insurance Companies 13 25,358,442 25,357,192 5.20 4.82

(f) Foreign Institutional Investors 289 65,135,578 65,030,602 13.36 12.38

(g) Foreign Venture Capital Investors 0 0 0 0.00 0.00

(h) Any Other (specify) 0 0 0 0.00 0.00

(h-i) 0 0 0 0.00 0.00 (h-ii) 0 0 0 0.00 0.00

Sub-Total (B)(1) 639 126,093,383 125,843,005 25.87 23.96

B 2 Non-institutions (a) Bodies Corporate 3,985 14,344,210 14,222,390 2.94 2.73 (b) Individuals

I

Individuals -i. Individual shareholders holding nominal share capital up to Rs 1 lakh 544715 28,744,552 16,004,130 5.90 5.46

II ii. Individual shareholders holding nominal share capital in excess of Rs. 1 lakh. 55 2,794,333 2,780,646 0.57 0.53

46

(c) Any Other (specify)

(c-i) Non-Residents 2,362 268,638 243,639 0.06 0.05 (c-ii) Trust 154 257,594 257,594 0.05 0.05 (c-iii) OCB 4 1,010 610 0.00 0.00 (c-iv) Foreign National 2 150 150 0.00 0.00 (c-v) Foreign Body

Corporates 0 0 0 0.00 0.00 (c-vi) Clearing Member. 701 625,170 625,170 0.13 0.12

Sub-Total (B)(2) 551,978 47,035,657 34,134,329 9.65 8.94

(B)

Total Public Shareholding (B)= (B)(1)+(B)(2) 552,617 173,129,040 159,977,334 35.52 32.90

TOTAL (A)+(B) 552,618 487,468,240 474,316,534 92.62 (C) Shares held by

Custodians and against which Depository Receipts have been issued 1 38,830,638 38,830,638 7.97 7.38

GRAND TOTAL (A)+(B)+(C) 552,619 526,298,878 513,147,172 100.00

3. Post-issue Shareholding pattern of the Bank (assuming full subscription of Rights Issue and

ESPS)

Total post-issue shareholding as a percentage of total number of shares

Category code

Category of Shareholder

Number of Share-holders

Total number of shares

Number of shares held in dematerialised form

As a percentage of(A+B)1

As a percentage of (A+B+C)

(A) Shareholding of Promoter and Promoter Group2

1 Indian (a) Individuals/

Hindu Undivided Family 0 0 0 0.00 0.00

(b) Central Government/ State Government(s) 1 377,207,040 377,207,040 63.55 58.92

(c) Bodies Corporate 0 0 0 0.00 0.00 (d) Financial

Institutions/ Banks 0 0 0 0.00 0.00

(e) Any Others(Specify) 0 0 0 0.00 0.00

Sub Total(A)(1) 1 377,207,040 377,207,040 63.55 58.92 2 Foreign

47

A Individuals (Non-Residents Individuals/ Foreign Individuals) 0 0 0 0.00 0.00

B Bodies Corporate 0 0 0 0.00 0.00 C Institutions 0 0 0 0.00 0.00 D Any Others

(Specify) 0 0 0 0.00 0.00 d-i 0 0 0 0.00 0.00 d-ii 0 0 0 0.00 0.00

Sub Total(A)(2)

0 0 0 0.00 0.00 Total

Shareholding of Promoter and Promoter Group (A)= (A)(1)+(A)(2) 1 377,207,040 377,207,040 63.55 58.92

(B) Public shareholding

1 Institutions (a) Mutual Funds/

UTI 252 31,913,185 31,878,349 5.38 4.99 (b) Financial

Institutions / Banks 93 10,684,093 10,667,905 1.80 1.67

(c) Central Government/ State Government(s) 1 121,958 0 0.02 0.02

(d) Venture Capital Funds 0 0 0 0.00 0.00

(e) Insurance Companies 12 30,430,130 30,428,630 5.12 4.75

(f) Foreign Institutional Investors 276 78,162,694 78,036,722 13.17 12.21

(g) Foreign Venture Capital Investors 0 0 0 0.00 0.00

(h) Any Other (specify) 0 0 0 0.00 0.00

(h-i) 0 0 0 0.00 0.00 (h-ii) 0 0 0 0.00 0.00

Sub-Total (B)(1) 634 151,312,060 151,011,606 25.49 23.64

B 2 Non-institutions (a) Bodies Corporate 3,826 17,213,052 17,066,868 2.90 2.69 (b) Individuals 0 0

48

I

Individuals -i. Individual shareholders holding nominal share capital up to Rs 1 lakh 653,481 38,573,460 19,204,956 6.50 6.03

II ii. Individual shareholders holding nominal share capital in excess of Rs. 1 lakh. 65,616 7,890,700 3,336,775 1.33 1.23

(c) Any Other (specify) 0 0

(c-i) Non-Residents 2,326 322,368 292,367 0.05 0.05 (c-ii) Trust 152 309,113 309,113 0.05 0.05 (c-iii) OCB 3 1,212 732 0.00 0.00 (c-iv) Foreign National 2 180 180 0.00 0.00 (c-v) Foreign Body

Corporates 0 0 0 0.00 0.00 (c-vi) Clearing Member 374 750,204 750,204 0.13 0.11

Sub-Total (B)(2) 725,780 65,060,289 40,961,195 10.96 10.16

(B)

Total Public Shareholding (B)= (B)(1)+(B)(2) 726,414 216,372,349 191,972,801 36.45 33.80

TOTAL (A)+(B) 726,415 593,579,389 569,179,841 100.00 92.72

(C) Shares held by Custodians and against which Depository Receipts have been issued 1 46,596,765 46,596,765 7.85 7.28

GRAND TOTAL (A)+(B)+(C) 726,416 640,176,154 615,776,606 100.00

4. Details of the shareholding of the Promoter subsequent to the ESPS

SR.NO. PARTICULARS Pre-Issue % Post-Issue %

A 1 President of India 314,339,200 59.73 377,207,040 58.92

5. Details of the transactions in Equity Shares by the directors during the last six months There have been no transactions in the Equity Shares by the Directors of the Bank in the last six months. 6. Top ten Shareholders of the Bank

49

a) Top ten Shareholders of the Bank as on January 28, 2008

SR.NO. PARTICULARS Total Shares % of pre-issue

capital 1 PRESIDENT OF INDIA 314,339,200 59.726 2 THE BANK OF NEW YORK AS DEPOSITORY TO GDRs 38,830,638 7.378 3 LIFE INSURANCE CORPORATION OF INDIA 19,894,211 3.780 4 CLSA (MAURITIUS) LIMITED 13,855,209 2.633 5 EUROPACIFIC GROWTH FUND 6,879,139 1.307

6 CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED 5,152,395 0.979

7 BMF - BANK BEES - INVESTMENT A/C 4,903,665 0.932

8

FIDELITY MANAGEMENT AND RESEARCH COMPANY A/C FIDELITY INVESTMENT TRUST - FIDELITY DIVERSIFIED INTERNATIONAL FUND 4,000,000 0.760

9 GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD 3,507,746 0.666 10 LIC OF INDIA MONEY PLUS 3,412,634 0.648 TOTAL 414,774,837 78.810

b) Top ten Shareholders of the Bank as on January18, 2008

SR.NO. PARTICULARS Total Shares % of pre-issue

capital 1 PRESIDENT OF INDIA 314,339,200 59.726 2 THE BANK OF NEW YORK AS DEPOSITORY TO GDRs 38,930,638 7.397 3 LIFE INSURANCE CORPORATION OF INDIA 19,277,020 3.663 4 CLSA (MAURITIUS) LIMITED 13,869,240 2.635 5 EUROPACIFIC GROWTH FUND 6,879,139 1.307 6 BMF - BANK BEES - INVESTMENT A/C 5,253,697 0.998 7 CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE 5,062,214 0.962 8 FIDELITY MGNT AND RESEARCH CO A/C FIDELITY 4,000,000 0.760 9 GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD 3,527,746 0.670

10 LIC OF INDIA MONEY PLUS 3,362,634 0.639 TOTAL 414,501,528 78.758

c) Top ten Shareholders of the Bank as on January 28, 2006

SR.NO. PARTICULARS Shares %

1 RESERVE BANK OF INDIA 314,338,700 59.726 2 THE BANK OF NEW YORK AS DEPOSITORY TO GDRs 41,468,018 7.879 3 LIFE INSURANCE CORPORATION OF INDIA 25,010,282 4.752 4 FIDELITY MGNT AND RESEARCH CO A/C FIDELITY 7,200,000 1.368 5 BMF - BANK BEES - INVESTMENT A/C 5,185,309 0.985 6 EUROPACIFIC GROWTH FUND 4,479,662 0.851 7 GOLDMAN SACHS INVESTMENTS (MAURITIUS) I LTD 3,977,848 0.756 8 MERRILL LYNCH CAPITAL MARKETS ESPANA S A S V 3,312,674 0.629 9 GOVERNMENT OF SINGAPORE 3,300,872 0.627

10 FIDELITY INVESTMENT FUNDS - FIDELITY SPECIAL SITUATIONS FUND 2,599,352 0.494

TOTAL 410,872,717 78.068

7. The Bank has not made any public offering of its Equity Shares in the two years immediately preceding the date of filing of this Letter of Offer.

8. The total number of shareholders of the Bank as on January 28, 2008 was 552,619.

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9. In accordance with clause 2.4.1 (iv) of the SEBI DIP Guidelines, the Bank is exempted from the eligibility norms as stated in the Guidelines.

10. The Bank has not issued any Equity Shares or granted any options under any scheme of employee’s stock option or employee’s stock purchase.

11. The Directors of the Bank or Lead Managers of the Issue have not entered into any buy-back, standby or similar arrangements for any of the securities being issued through Letter of Offer.

12. The terms of issue to Equity Shareholders/Applicants have been presented under the section “Terms of the Present Issue” on page [●] of this Letter of Offer.

13. At any given time, there shall be only one denomination of the Equity Shares of the Bank. The Equity Shareholders of the Bank do not hold any warrant, option or convertible loan or debenture which would entitle them to acquire further shares in the Bank.

14. Except as disclosed in this Letter of Offer, no further issue of capital by way of issue of bonus shares, preferential allotment, rights issue or public issue or in any other manner which will affect the equity capital of the Bank, shall be made during the period commencing from the filing of this Letter of Offer with the Stock Exchanges and the date on which the Equity Shares under the Letter of Offer are listed or application moneys are refunded on account of the failure of the Issue. Further, other than as disclosed in this Letter of Offer, presently the Bank does not have any intention to alter the equity capital structure by way of split/consolidation of the denomination of the shares on a preferential basis or issue of bonus or rights or public issue of shares or any other securities within a period of six months from the date of opening of the Issue. However, the Bank is proposing an employee share purchase scheme (the “ESPS”). The Government has, by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to the Government authorisation, the Bank’s Central Board has, at its meeting held on February 1, 2008 approved the ESPS. The Bank may issue a maximum of 8,617,500 Equity Shares to its Eligible Employees (as defined therein). The ESPS shall remain open for a period commencing from March 28, 2008 to April 15, 2008. The issue price is Rs. 1,590 per Equity Share. The terms and conditions of the Scheme, will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and all the issuances of shares will be done in compliance with the guidelines/regulations/circulars at that time.

15. The Issue will remain open for 30 days. However, the Central Board will have the right to extend the Issue period as it may determine from time to time but not exceeding 60 days from the Issue Opening Date.

16. Pursuant to a letter dated December 3, 2007, the Government, the Bank’s Promoter, has agreed to subscribe to Equity Shares aggregating to approximately Rs. 10,000 crores in the Issue.

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OBJECTS OF THE ISSUE

The Bank intends to deploy the net proceeds from the Issue of Rs. 166,913.04 million after meeting Issue expenses of approximately Rs. 450 million to augment its capital base in line with its growth strategy. The provisions of the Act enable the Bank to undertake existing activities and permit the utilisation of funds proposed herein. The details of the proceeds of the Issue are summarised below:

Particulars Estimated Amount (In Rs. million) Gross proceeds of the Issue 167,363.04 Issue related expenses* 450.00 Net Proceeds of the Issue 166,913.04

*Approximated Utilisation of the Issue Proceeds The Bank is subject to the capital adequacy requirements of the RBI, which, based on the guidelines of the Basel Committee on Banking Regulations and Supervisory Practices, 1998, currently require the Bank to maintain a minimum ratio of capital to risk adjusted assets and off-balance sheet items of 9.0%, at least half of which must be Tier I capital. For further details please see “Regulations and Policies – Capital Adequacy Requirements.” The Bank’s total capital adequacy ratio was 12.34% at March 31, 2007, including a Tier I capital adequacy ratio of 8.01% and Tier II capital of 4.33% of risk-weighted assets. Additional capital is required for future asset growth and compliance with regulatory requirements. The objects of the Issue are to augment the Bank’s capital base to meet the capital requirements arising out of growth in its assets, primarily the loan and investment portfolio due to the growth of the Indian economy, compliance with regulatory requirements and for other general corporate purposes including meeting expenses related to the Issue. The details of capital vis-à-vis risk weighted assets for the previous five financial years is as follows:

Financial Year ended March 31

2003 2004 2005 2006 2007 Six months ended on

September 30, 2007

(Rs. in millions, except percentages) Eligible Tier I Capital 135,264.10

(8.81%) 139,022.80

(8.34%) 163,088.40

(8.04%) 251,772.90

(9.36%) 304,682.20

(8.01%) 340,896.90

(7.78%) Eligible Tier II Capital 71,972.96

(4.69%) 86,469.40

(5.19%) 89,491.20

(4.41%) 67,797.10

(2.52%) 164,654.10

(4.33%) 222,510.10

(5.08%) Total Capital 207,237.06 225,492.20 252,579.60 319,570.00 469,336.30 563,407.00

Total Risk-Adjusted Assets 1,534,968.67 1,666,396.10 2,028,931.70 2,690,800.40 3,804,789.90 4,383,144.10 Capital Adequacy Ratio (%) 13.50% 13.53% 12.45% 11.88% 12.34% 12.85%

The Issue is expected to achieve the objective of augmenting the Tier I capital of Bank and further strengthening its capital adequacy ratio. Basel II standards prescribed by the RBI will be effective from March 31, 2008. The Bank’s capital adequacy ratio, after providing for the funds out of the gross proceeds of the present Issue aggregating to Rs. 167,363.04 million, is expected to be well above the Central Board mandate of a capital adequacy ratio of 11% as well as RBI’s stipulated capital adequacy ratio of 9%. The issue of 105,259,776 Equity Shares each at a premium of Rs. 1,580 per Equity Share for an aggregate amount of Rs. 167,363.04 million, if fully subscribed, will augment the Tier I capital of the Bank and result in its CAR increasing to more than 12%. Since the Government proposes to subscribe to its Rights Entitlement through an issue of Government bonds, the issue proceeds equivalent to the Government's subscription will be deployed in an investment of Government bonds. A portion of the Issue proceeds will be used to meet Issue expenses estimated at Rs. 450 million (or approximately 0.27% of the total Issue size) following are the estimated Issue expenses.

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Particulars (Approximate Expenditure) Rs. in millions

% of net proceeds of

the Issue

% of total expenses of the

Issue

Fees to Intermediaries Fees paid to the Lead Managers, legal advisors, and auditors

66.4

0.04

14.76

Fees paid to the Registrar to the Issue 7.5 0.01 1.67 Statutory Fee 193.5 0.11 43.0 Advertising and marketing fees 60.0 0.04 13.33 Printing, Stationery and Despatch 51.8 0.03 11.51 Listing Fees 15.7 0.01 3.49 Others 55.1 0.03 12.24 Total 450.0 0.27 100.00

Interim Use of Proceeds Pending utilisation of Issue proceeds, the management, in accordance with the policies established by the Central Board, will have flexibility in deploying the proceeds received from the present Issue. During this period, the Bank intends to temporarily invest the funds in interest or dividend bearing liquid instruments including money market mutual funds and deposits with banks for the necessary duration. Such investments would be in accordance with the investment policies approved by the Central Board from time to time. Monitoring of Utilisation of Funds As the Issue is being made with an objective to improve the capital adequacy ratio, to augment the long-term resources for increasing the business, no appraisal of the same is required and therefore no monitoring agency has been appointed. No part of the Issue proceeds will be paid by the Bank as consideration to the Directors or the Bank’s key management personnel except in the usual course of business.

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BASIS FOR ISSUE PRICE

(Based on consolidated Group data)

The Issue Price for the Equity Shares has been determined by the Central Board of Directors. Investors should also refer to the sections “Risk Factors” and “Auditor’s Report” to get a more informed view before making any investment decision.

Qualitative factors • The Bank is India’s largest bank, with 10,072 domestic offices and 84 international offices in 32

countries with more than 100 million accounts as of December 31, 2007. • The Bank is also India’s largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2

billion as on September 30, 2007. • The Bank is present, through its subsidiaries, in diverse segments of the Indian financial sector,

including asset management, factoring and commercial services, treasury operations, credit cards, payment services and life insurance.

Quantitative Factors 1. Basic earning per equity share (EPS) of face value of Rs. 10

Year

Basic EPS (Rs.)

Weight

Fiscal 2005 ........................................................................ 103.82 1

Fiscal 2006 ........................................................................ 105.07 2

Fiscal 2007 ........................................................................ 120.93 3

Weighted Average ........................................................... 112.79 The EPS has been computed on the basis of Net Profit after Taxes and Provisions divided by the number of shares outstanding.

The Bank reported a Basic EPS of Rs. 120.93 for the period ended March 31, 2007.

2. Price/Earning Ratio (P/E) in relation to the issue price of Rs. 1,590 a) Basic EPS as per the consolidated financial statements for year ended March 31, 2007 is Rs. 120.93.

Particulars P/E at the Issue Price

(no. of times)

Based on year ended March 31, 2007 Basic EPS of Rs. 120.93 ........................ 13.15

Based on weighted average Basic EPS of Rs. 112.79 ........................................ 14.10

b) Peer Group P/E

Industry P/E

Highest 22.3 (State Bank of India)

Lowest 6.1 (Allahabad Bank)

Industry Average 13.7 Source: Capital Markets Vol. XXII/24 dated January 28, 2008 to February 10, 2008. Sector: Banks – Public Sector.

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3. Return on Equity (RoE) as per regrouped Indian GAAP financials

Year RoE (%) Weight

Fiscal 2005 ............................................................................................. 18.22 1

Fiscal 2006 ............................................................................................. 15.85 2

Fiscal 2007 ............................................................................................. 15.96 3

Weighted Average ................................................................................ 16.30 Return on Equity (%) is calculated as Profit after tax (as regrouped) divided by Average Equity.

4. Minimum Return on Increased Net Worth Required to Maintain Pre-Issue EPS The minimum return on increased net worth after issue of Equity Shares (at Rs. 1,590 per share) required to maintain pre-Issue EPS is 12.89%.

5. Book Value

Book Value (Rs. per share)

As on March 31, 2007.......................................................................... 808

After the Issue of Equity Shares (at Rs. 1,590 per share) .................... 939 Book Value is calculated as Net worth at the end of the period divided by the number of Equity Shares outstanding at the end of the period.

6. Peer Group Comparisons (Industry Peers)

Name of the Bank

Equity Capital

(Rs. in Crs.)

Face Value per

share (Rs.) EPS

(Rs. per share) P/E RoNW

(%) BV

(Rs.)

State Bank of India 526.30 10 83.8 22.3 15.4 594.7

Peer Group

Punjab National Bank

315.30 10 47.2 12.3 16.0 321.6

Canara Bank 410.00 10 33.5 8.6 18.8 197.8

Bank of India 487.40 10 22.3 13.8 21.3 117.9

Bank of Baroda 367.00 10 26.8 13.1 12.5 235.7

Union Bank (I) 505.12 10 16.2 10.4 19.2 93.7 Note: Peer set has been determined on the basis of financial data of the Bank. Source: Capital Markets Vol. XXII/23 dated January 24, 2008 to February 10, 2008. Sector: Banks – Public Sector

The face value of the Equity Shares is Rs. 10 and the Issue Price is 159 times the face value.

The Issue Price of Rs. 1,590 per Equity Share has been determined by the Central Board of Directors, on the basis of assessment of market demand for the Equity Shares and the same is considered justified by the Lead Managers on the basis of the above factors.

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INDUSTRY OVERVIEW

The information in this section is derived from a combination of various official and unofficial publicly available materials and sources of information. It has not been independently verified by the Bank, the Lead Managers or their respective legal or financial advisors, and no representation is made as to the accuracy of this information, which may be inconsistent with information available or compiled from other sources. Introduction The RBI, the central banking and monetary authority of India, is the central regulatory and supervisory authority for the Indian financial system. A variety of financial intermediaries in the public and private sectors participate in India’s financial sector, including the following:

• commercial banks;

• long-term lending institutions;

• non-bank finance companies, including housing finance companies;

• other specialised financial institutions and state-level financial institutions;

• insurance companies; and

• mutual funds. Until the early 1990s, the Indian financial system was strictly controlled. Interest rates were administered, formal and informal parameters governed asset allocation and strict controls limited entry into and expansion within the Indian financial sector. The Government’s economic reform program, which began in 1991, encompassed the financial sector. The first phase of the reform process began with the implementation of the recommendations of the Committee on the Financial System, the Narasimham Committee I. The second phase of the reform process began in 1999. See “— Banking Sector Reform — Committee on Banking Sector Reform (Narasimham Committee II).” RBI The RBI, established in 1935, is the central banking and monetary authority in India. The RBI manages the country’s money supply and foreign exchange and also serves as a bank for the Government and for the country’s commercial banks. In addition to these traditional central banking roles, the RBI undertakes certain developmental and promotional roles. The RBI issues guidelines on exposure limits, income recognition, asset classification, provisioning for non-performing and restructured assets, investment valuation and capital adequacy for commercial banks, long-term lending institutions and non-bank finance companies. The RBI requires these institutions to furnish information relating to their businesses to it on a regular basis. For further information regarding the RBI’s role as the regulatory and supervisory authority of India’s financial system and its impact on the Bank, see “Regulations and Policies.” Commercial Banks Commercial banks in India have traditionally focused only on meeting the short-term financial needs of industry, trade and agriculture. As of September 30, 2007, there were 179 commercial banks (175 scheduled commercial banks and 4 non-scheduled commercial banks) in India with a network of 72,117 branches holding approximately Rs. 28,538.3 billion in deposits and Rs. 20,409.1 billion in loans . Scheduled commercial banks are banks listed in the schedule to the Reserve Bank of India Act, 1934, and are further categorised as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India, with approximately 65% of bank branches located in rural or semi-urban areas of the country. A large number of these branches belong to public sector banks.

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Public Sector Banks Public sector banks make up the largest category in the Indian banking system. They include the SBI and its seven associate banks, 19 nationalised banks (plus IDBI Bank) and 95 regional rural banks. Excluding the regional rural banks, the remaining public sector banks have 50,228 branches, and accounted for 70.0% of the outstanding gross bank credit and 70.6% of the aggregate deposits of the scheduled commercial banks of September 30, 2007. The public sector banks’ large network of branches enables them to fund themselves out of low cost deposits. The Bank is the largest public sector bank in India. As of September 30, 2007, the Bank and its associate banks had 14,150 branches. They accounted for 22.6% of the aggregate deposits and 22.9% of the outstanding gross bank credit of all scheduled commercial banks. Since 1976, regional rural banks have been jointly established by the Government, state governments and sponsoring commercial banks with a view to developing the rural economy. Regional rural banks provide credit to small farmers, artisans, small entrepreneurs and agricultural labourers. The National Bank for Agriculture and Rural Development (“NABARD”) is responsible for regulating and supervising the functions of the regional rural banks. In 1986, the Kelkar Committee made comprehensive recommendations covering both the organisational and operational aspects of regional rural banks. As of September 30, 2007, there were 95 regional rural banks with 14,455 branches, accounting for 3.0% of the aggregate deposits and 2.6% of the outstanding gross bank credit of scheduled commercial banks. During the six-month period ended September 30, 2007, the number of regional rural banks was reduced from 96 to 95 through the amalgamation of two regional rural banks. Private Sector Banks After the first phase of bank nationalisation was completed in 1969, public sector banks made up the largest portion of Indian banking. The focus on public sector banks was maintained throughout the 1970s and 1980s. Furthermore, existing private sector banks which showed signs of an eventual default were merged with state-owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry of the private sector into the banking system. This resulted in the introduction of nine private sector banks. These banks are collectively known as the “new” private sector banks. As of September 30, 2007, there were 24 private sector banks, of which eight were “new” private sector banks and 16 were private sector banks existing prior to July 1993. As on September 30, 2007, private sector banks accounted for approximately 20.3% of aggregate deposits and 20.6% of outstanding gross bank credit of the scheduled commercial banks. Their network of 7,177 branches accounted for 10.0% of the total branch network of scheduled commercial banks in the country. Foreign Banks As of September 30, 2007, there were 29 foreign banks with 257 branches operating in India, accounting for 6.1% of the aggregate deposits and 6.8% of the outstanding gross bank credit of scheduled commercial banks at of September 30, 2007. As part of the liberalisation process, the RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. While the primary activity of most foreign banks in India has traditionally been in the corporate sector, some of the larger foreign banks have increasingly made consumer financing a larger part of their portfolios, offering an array of products such as automobile finance, home loans, credit cards and household consumer finance. See “ — Impact of Liberalisation on the Indian Financial Sector.” Foreign banks operate in India through branches of the parent bank, though certain foreign banks also have wholly-owned non-bank finance company subsidiaries or joint ventures for both corporate and retail lending. In a circular dated July 6, 2004, the RBI stipulated that banks should not acquire any fresh stake in a bank’s equity shares, if by such acquisition the investing bank’s holding would exceed 5% of the investee bank’s equity capital. This also applies to holdings in Indian banks of foreign banks with a presence in India. The RBI issued a notification (the “Roadmap for presence of foreign banks in India”) on February 28, 2005, announcing the following measures with respect to the presence of foreign banks:

57

• During the first phase (up to March 2009), foreign banks will be allowed to establish a presence by setting up wholly-owned subsidiaries or by converting existing branches into wholly-owned subsidiaries.

• In addition, during the first phase, foreign banks will be allowed to acquire a controlling stake in a

phased manner only in private sector banks that are identified by the RBI for restructuring.

• For new and existing foreign banks, it has been proposed to go beyond the existing World Trade Organisation commitment of allowing increases of 12 branches per year. A more liberal policy will be followed for under-served areas.

• During the second phase (from April 2009 onwards), after a review of the first phase, foreign banks

will be allowed to acquire up to 74.0% in private sector banks in India. The current aggregate limit for all investments in a private sector bank by foreign institutional investors is restricted to 24.0%, which can be raised to 49.0%, subject to the approval of the bank’s board and shareholders, and the limit on holdings by individual foreign institutional investors is 10.0%. The current aggregate limit for all investments by non-resident Indians (“NRIs”) is 10.0%. This can be increased to 24.0%, subject to a special resolution passed by the bank’s shareholders to that effect. However, in respect of individual NRIs, the limit is 5.0%.

Cooperative Banks Cooperative banks cater to the financing needs of agriculture, small-scale industry and self employed businessmen in urban and semi-urban areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. In the light of liquidity and insolvency problems experienced by some cooperative banks in fiscal year 2001, the RBI undertook several interim measures, pending formal legislative changes, including measures related to lending against shares, borrowings in the call market and term deposits placed with other urban cooperative banks. Presently the RBI is responsible for the supervision and regulation of urban co-operative societies, and the NABARD is responsible for state cooperative banks and district central cooperative banks. The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 provides for the regulation of all cooperative banks by the RBI. A task force appointed by the Government to examine the reforms required in the cooperative banking system submitted its report in December 2004. It recommended several structural, regulatory and operational reforms for cooperative banks, including the provision of financial assistance by the Government in order to revitalise this sector. In the Union Budget for fiscal year 2006, the Finance Minister accepted the recommendations of the task force in principle and proposed to call state governments for consultation and begin to implement the recommendations in the States willing to do so. In February 2005, the RBI issued guidelines on mergers and amalgamations in the urban cooperative bank sector with a view to facilitating the emergence of strong entities resulting from the merger between two banking entities and to providing an avenue for the non-disruptive exit of unviable banking entities. The RBI may consider proposals for mergers or amalgamations in the following circumstances:

(i) the net worth of the acquired bank is positive and the acquirer bank commits to protect the deposits of all the depositors of the acquired bank;

(ii) the net worth of the acquired bank is negative and the acquirer bank commits to protect the

deposits of all the depositors of the acquired bank; and

(iii) the net worth of the acquired bank is negative and the acquirer bank assures protection of the deposits of all depositors of the acquired bank with financial support from the relevant state government extended upfront as part of the merger process.

In all mergers or amalgamations, the financial parameters of the acquirer bank post merger should conform to the prescribed minimum prudential and regulatory requirement for urban co-operative banks. The realisable value of assets should be assessed through a process of due diligence. Relaxations in this regard were announced in the Mid-term Review of October 2005, pursuant to which the acquirer bank was permitted to amortise any loss taken over from the acquired bank over a period of five years, including the year of the merger.

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Long-Term Lending Institutions Long-term lending institutions such as IDFC Limited, IFCI Limited, ICICI Limited (prior to amalgamation) and the Industrial Investment Bank of India were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernisation of existing facilities. These institutions provide fund-based and non-fund-based assistance to industry in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. Such long-term lending institutions were expected to play a critical role in Indian industrial growth and accordingly had access to concessional government funding. However, in recent years, the operating environment of the long-term lending institutions has changed substantially. Although the initial role of these institutions was largely limited to providing a channel for government funding to industry, the reform process required them to expand the scope of their business activities. Their new activities include:

• fee-based activities such as investment banking and advisory services; and • short-term lending activities, including corporate finance and issuing working capital loans.

Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, a working group created in 1999 to harmonise the role and operations of long-term lending institutions and banks, the RBI, in its mid-term review of monetary and credit policy for fiscal year 2000, announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms applicable to banks. In April 2001, the RBI issued operational and regulatory guidelines required to transform long-term lending institutions into universal banks. See “— Banking Sector Reforms — Universal Banking Guidelines.” In April 2002, ICICI Limited merged with ICICI Bank Limited. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted IDBI into a banking company to be incorporated under the Companies Act, with exemptions from certain statutory and regulatory norms otherwise applicable to banks, including an exemption for a period of five years from the SLR. IDBI Bank Limited, a new private sector bank that was a subsidiary of the Industrial Development Bank of India, was merged with IDBI in April 2005. Non-Bank Finance Companies There are over 12,968 non-bank finance companies in India, mostly in the private sector. All non-bank finance companies are required to register with the RBI. The non-bank finance companies may be categorised into entities which take public deposits and those which do not. The companies which accept public deposits are subject to the strict supervision and capital adequacy requirements of the RBI. The scope and activities of non-bank finance companies have grown significantly over the years. The primary activities of the non-bank finance companies are consumer credit, including automobile finance, home finance and consumer durable products finance, as well as wholesale finance products such as bill discounting for small and medium-sized companies, and fee-based services such as investment banking and underwriting. In 2003, Kotak Mahindra Finance Limited, a large non-bank finance company, was granted a banking license by the RBI and converted itself into Kotak Mahindra Bank Ltd. Over the past few years, certain non-bank finance companies have defaulted on their obligations to investors and depositors, and consequently actions (including bankruptcy proceedings) have been initiated against them, many of which are currently pending. See also “— Reforms of the Non-Bank Finance Companies.” Housing Finance Companies Housing finance companies form a distinct subgroup of non-bank finance companies. As a result of various incentives given by the Government for investing in the housing sector in recent years, the scope of this business has grown substantially. Until recently, Housing Development Finance Corporation Limited was the premier institution providing housing finance in India. In recent years, several other players, including banks, have entered the housing finance industry. The National Housing Bank and the Housing and Urban Development Corporation Limited are the two government-controlled financial institutions created to improve the availability of housing finance in India. The National Housing Bank Act provides for the securitisation of housing loans, foreclosure of mortgages and establishment of the Mortgage Credit Guarantee Scheme. Housing loans up to certain limits prescribed by the RBI and mortgage-backed securities qualify as priority sector lending under the RBI’s directed lending rules. See also “Regulations and Policies — RBI Regulations — Capital Adequacy Requirements” and “Regulations and Policies — RBI Regulations — Regulations relating to

59

the Making of Loans” and “Regulations and Policies —RBI Regulations — Directed Lending — Priority Sector Lending.” Other Financial Institutions Specialised Financial Institutions In addition to the long-term leading institutions, there are various specialised financial institutions which cater to the specific needs of different sectors. They include the National Bank for Agricultural and Rural Development, the Export-Import Bank of India, the Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited, the Infrastructure Development Finance Corporation Ltd. and India Infrastructure Financing Company Ltd. State Financial Institutions State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. The state financial institutions are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium-sized and large enterprises. Insurance Companies Currently, there are 32 insurance companies in India, of which 16 are life insurance companies, 15 are general insurance companies and one is a re-insurance company. Of the 16 life insurance companies, 15 are in the private sector and one is in the public sector (Life Insurance Corporation of India). Of the 15 general insurance companies, nine are in the private sector and six are in the public sector (four government-owned general insurance companies, Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India). The sole reinsurance company, GIC, is in the public sector. LIC, GIC and public sector general insurance companies also provide long-term financial assistance to the industrial sector. Gross premiums underwritten of all general insurance companies increased by 22.4% in fiscal year 2007 to Rs. 250.0 billion, compared to an increase of 16.5% in fiscal year 2006. First year premiums underwritten in the life insurance sector recorded a growth of 100.6% to reach Rs. 754.1 billion in fiscal year 2007 compared to a 40.6% growth in fiscal year 2006. The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In December 1999, the Indian Parliament passed the Insurance Regulatory and Development Authority Act (the “Act”), which opened the Indian insurance sector to foreign and private investors. The Act allows foreign equity participation in new insurance companies of up to 26.0%. The new company should have a minimum paid-up equity capital of Rs. 1.0 billion to carry out the business of life insurance or general insurance or Rs. 2.0 billion to carry out exclusively the business of reinsurance. In its monetary and credit policy for fiscal year 2001, the RBI issued guidelines governing the entry of banks and financial institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of insurance underwriting through joint ventures, provided that they meet certain criteria relating to their net worth, capital adequacy ratio, profitability track record, level of impaired loans and the performance of their existing subsidiary companies. The Government, while presenting its budget for fiscal year 2005, proposed an increase in the limit on foreign equity participation in private sector insurance companies from 26.0% to 49.0%. However, this would require an amendment to the Insurance Regulatory and Development Authority Act, 1999 and has not yet been implemented. Mutual Funds At the end of fiscal year 2007, there were 755 mutual fund schemes in India with total assets under management of Rs. 3,263.0 billion. From 1963 to 1987, the Unit Trust of India was the only mutual fund operating in the country. It was set up in 1963 at the initiative of the Government and the RBI. From 1987 onwards, several other public sector mutual funds entered this sector and participation was finally opened up to

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the private sector in 1993. The industry is regulated by the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. As of September 30, 2007, there were 18 private sector mutual funds with a 79.18% market share in terms of total assets under management. In 2001, the Unit Trust of India, with a high level of investment in equity securities, started to face difficulties in meeting redemptions and assured return obligations due to a significant decline in the market value of its securities portfolio. In response, the Government implemented a package of reform measures for the Unit Trust of India, including guaranteeing redemptions and assured return obligations to the unit holders, subject to restrictions on the maximum permissible redemption amount. As part of the reforms, the Unit Trust of India was divided into two mutual funds structured in accordance with the regulations of SEBI, one comprising assured return schemes and the other comprising net asset value based schemes. Impact of Liberalisation on the Indian Financial Sector Until 1991, the financial sector in India was heavily controlled. Commercial banks and long term lending institutions, the two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable environment, with little or no competition. Long-term lending institutions were focused on achieving the Government’s various socio-economic objectives, including balanced industrial growth and employment creation, especially in areas requiring development. Long-term lending institutions were given access to long-term funds at subsidised rates through loans and equity from the Government and from funds guaranteed by the Government and originating from commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies. The focus of the commercial banks was primarily on mobilizing household savings through demand and time deposits and to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition, the commercial banks provided a range of banking services to individuals and business entities. However, since 1991, there have been comprehensive changes in the Indian financial system. Various financial sector reforms have transformed the operating environment of the banks and long-term lending institutions. In particular, the deregulation of interest rates, emergence of a liberalised domestic capital market, entry of new private sector banks and broadening of long-term lending institutions’ product portfolios have progressively intensified competition between banks and long-term lending institutions. The RBI has permitted the transformation of long-term lending institutions into banks, subject to compliance with the prudential norms applicable to banks. Banking Sector Reform Most large banks in India were nationalised in 1969 and were thereafter subject to a high degree of control until reform began in 1991. In addition to controlling interest rates and entry into the banking sector, regulations also channelled lending into priority sectors. Banks were required to fund the public sector through the mandatory acquisition of low interest-bearing government securities or SLR bonds to fulfil statutory liquidity requirements. As a result, bank profitability was low, impaired assets were comparatively high, capital adequacy was diminished and operational flexibility was hindered. Committee on the Financial System (Narasimham Committee I) The Committee on the Financial System (the Narasimham Committee I) was set up in August 1991 to recommend measures for reforming the financial sector. Many of the recommendations made by the committee, which addressed organisational issues, accounting practices and operating procedures, were implemented by the Government. The major recommendations that were implemented included the following:

• with fiscal stabilisation and the Government increasingly resorting to market borrowing to raise resources, the SLR i.e. the proportion of a banks’ demand and time liabilities that was required to be invested in government securities, was reduced from 38.5% in the pre-reform period to 25.0% in October 1997;

• similarly, the CRR, i.e. the proportion of a bank’s net demand and time liabilities that was required to

be deposited with the RBI, was reduced from 15% in the pre-reform period to 4.5%. The CRR was increased to 7.0%. Pursuant to the mid-term review of the Annual Monetary Policy, the CRR has been increased by 50 basis points to 7.5%, effective as of November 10, 2007;

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• special tribunals were created to resolve bad debt problems;

• most of the restrictions on interest rates for deposits were removed, and commercial banks were allowed to set their own level of interest rates for all deposits except savings bank deposits;

• substantial capital injection to several state-owned banks was approved in order to bring their capital

adequacy closer to internationally accepted standards. By the end of fiscal year 2002, aggregate recapitalisation amounted to Rs. 217.5 billion, and the stronger public sector banks were given permission to issue equity to further increase capital; and

• banks were granted the freedom to open or close branches.

Committee on Banking Sector Reform (Narasimham Committee II) The Committee on Banking Sector Reform (the Narasimham Committee II) submitted its report in April 1998. The major recommendations of the committee were in respect of capital adequacy requirements, asset classification and provisioning, risk management and merger policies. The RBI accepted and began implementing many of these recommendations in October 1998. Recent Structural Reforms Amendments to the Reserve Bank of India Act In May 2006, the Indian Parliament approved amendments to the Reserve Bank of India Act, removing the minimum cash reserve ratio requirement of 3.0%, and giving the RBI discretion to reduce the CRR to less than 3.0%. Further, the amendments also created a legal and regulatory framework for derivative instruments. Recent Amendments to Laws Governing Public Sector Banks The Indian Parliament recently amended the laws governing India’s public sector banks, permitting these banks to issue preference shares and make preferential allotments or private placements of equity. The amendments also empower the RBI to prescribe ‘fit and proper’ criteria for directors of these banks, and permit supercession of their boards and appointment of administrators in certain circumstances. Proposed Amendments to the Banking Regulation Act Legislation seeking to amend the Banking Regulation Act has been introduced in the Indian Parliament. As presently drafted, the main amendments propose to:

• permit all banking companies to issue preference shares that will not carry any voting rights;

• make prior approval of the RBI mandatory for the acquisition of more than 5.0% of a banking company’s paid-up capital or voting rights by any individual, firm or group;

• prohibit lending to relatives of directors and to non-subsidiary companies that are under the same

management as the banking company, joint ventures, associates or the holding company of the banking company;

• remove the minimum SLR requirement of 25.0%, giving the RBI discretion to reduce the SLR to less

than 25.0%. See also “Regulations and Policies — RBI Regulations — Legal Reserve Requirements — Statutory Liquidity Ratio”; and

• remove the limit of 10.0% on the maximum voting power exercisable by a shareholder in a banking

company. In order to provide greater operational flexibility to the RBI, as the regulator and the authority vested with the powers to conduct monetary policy through the requirement for banks to hold liquid instruments, the Government promulgated an ordinance on January 23, 2007, enabling the RBI to specify the SLR without any floor rate. The Ordinance facilitated the removal of the then existing SLR floor of 25.0%, while leaving the

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ceiling of 40.0% intact. On March 9, 2007 the Banking Regulation (Amendment) Bill, 2007 was submitted in Parliament, seeking to replace the Ordinance and to amend Section 24 of the Banking Regulation Act, 1949 to enable the RBI to specify the SLR without any floor rate. Changes were also proposed in Section 53 of the Act to make it mandatory to present draft notification before both Houses of Parliament in cases of exemptions being granted to institutions, banks or branches located in Special Economic Zones (“SEZs”). The Ordinance has subsequently been repealed and replaced by the Banking Regulation (Amendment) Act, 2007, which received the assent of the President on March 26, 2007, and is deemed to have come into force on January 23, 2007. Legislative Framework for Recovery of Debts due to Banks In fiscal year 2003, the Indian Parliament passed the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI”). SARFAESI provides that a secured creditor may, in respect of loans classified as non-performing in accordance with RBI guidelines, give notice in writing to the borrower, requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan, and exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. SARFAESI also provides for the setting up of asset reconstruction companies regulated by the RBI to acquire assets from banks and financial institutions. The RBI has issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by the RBI, and their operations. Asset Reconstruction Company (India) Limited, set up by the Bank, ICICI Bank Limited, IDBI, SBT and certain other banks and institutions, has received registration from the RBI. Several petitions challenging the constitutional validity of SARFAESI were filed before the Indian Supreme Court. In April 2004, the Supreme Court upheld the constitutionality of the Act, other than the requirement that the borrower deposit 75% of the dues with the debt recovery tribunal as a precondition for appeal by against the enforcement measures. The Government has subsequently made amendments to the Act, which provide that a borrower may make an objection or representation to a secured creditor after a notice is issued by the secured creditor to the borrower under the Act demanding payment of dues. The secured creditor has to give reasons to the borrower for not accepting the objection or representation. The Act also introduces a deposit requirement for borrowers if they wish to appeal the decision of the debt recovery tribunal. Further, the Act permits a lender to take over the business of a borrower under certain circumstances (unlike the earlier provisions under which only assets could be taken over). Following recommendations of the Narasimham Committee, the Recovery of Debts due to Banks and Financial Institutions Act, 1993 was enacted. This legislation provides for the establishment of a tribunal for speedy resolution of litigation and recovery of debts owed to banks or financial institutions. However, if a scheme of reconstruction is pending before the Board for Industrial and Financial Reconstruction, under the Sick Industrial Companies (Special Provision) Act, 1985, no proceeding for recovery can be initiated or continued before the tribunal. This protection from creditor action ceases if the secured creditor takes action under SARFAESI. While presenting its budget for fiscal year 2002, the Government announced measures for the setting up more debt recovery tribunals and the eventual repeal of the Sick Industrial Companies (Special Provision) Act, 1985. Subsequently, the Sick Industrial Companies (Special Provisions) Repeal Act, 2004 was introduced with a view to repealing the Sick Industrial Companies Act, 1985. To date, however, the said legislation has not come into effect and the Sick Industrial Companies Act, 1985, has not been repealed. Corporate Debt Restructuring Forum To establish an institutional mechanism for the restructuring of corporate debt, the RBI has devised a corporate debt restructuring system. The objective of this framework is to ensure a timely and transparent mechanism for restructuring the corporate debts of potentially viable entities facing problems, outside the purview of the Board of Industrial and Financial Rehabilitation, debt recovery tribunals and other legal proceedings. In particular, this framework aims to preserve viable corporations that are affected by certain internal and external factors and minimize any losses to the creditors and other stakeholders through an orderly and coordinated restructuring program. The corporate debt restructuring system is a non-statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements.

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Universal Banking Guidelines Universal banking in the Indian context means the transformation of long-term lending institutions into banks. Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, the RBI, in its mid-term review of monetary and credit policy for fiscal year 2000, announced that long-term lending institutions would have the option of transforming themselves into banks, subject to compliance with certain prudential norms applicable to banks. If a long-term lending institution chose to exercise the option available to it and formally decided to convert itself into a universal bank, it could formulate a plan for conversion into a universal bank over a specified time frame. In April 2001, the RBI issued operational and regulatory guidelines required to transform long-term leading institutions into universal banks. Pension Reforms Currently, there are three categories of pension scheme in India: pension schemes for government employees, pension schemes for employees in the organised sector and voluntary pension schemes. In the case of pension schemes for government employees, the Government pays its employees a defined periodic benefit upon their retirement. The contribution towards the pension scheme is funded solely by the Government and not matched by a contribution from employees. The Employees Provident Fund, established in 1952, is a mandatory program for employees of certain establishments. It is a contributory program that provides for periodic contributions of 10% to 12% of the basic salary by both the employer and the employees. The contribution is invested in prescribed securities and the accumulated balance in the fund (including the accretion thereto) is paid to the employee as a lump sum on retirement. In addition, there are voluntary pension schemes administered by the Government (such as the Public Provident Fund to which contribution may be made up to a maximum of Rs. 70,000 per annum) or offered by insurance companies, where the contribution may be made on a voluntary basis. Such voluntary contributions are often driven by tax benefits offered under the schemes. In 1998, the Government commissioned the Old Age Social and Income Security (“OASIS”) project and nominated an expert committee to suggest changes to the existing policy framework. The committee submitted its report in January 2000, recommending a system for private sector management of pension funds to provide market-linked returns. It also recommended the establishment of a separate pension regulatory authority to regulate the pension system. Subsequently, in the budget for fiscal year 2001, the Government announced that a high level committee would be formulated to design a contribution-based pension scheme for new Government recruits. The Government also requested the Insurance Regulatory and Development Authority to draw up a roadmap for implementing the OASIS report. The Insurance Regulatory and Development Authority submitted its report in October 2001. The report suggested that pension fund managers should constitute a separate legal entity to conduct their pension business. In August 2003, the Government announced that it would be mandatory for its new employees (excluding defence personnel) to join a new defined contribution pension scheme where both the Government and the employee would make monthly contributions of 10% of the employee’s salary. The Government also set up the Pension Fund Development and Regulatory Authority to regulate the pension industry. The Government also formed the interim Pension Fund Development and Regulatory Authority on October 11, 2003. In December 2003, the Government announced that the new pension scheme would be applicable to all new recruits to the public sector (excluding defence personnel) from January 1, 2004. Further, on December 30, 2004, the Government promulgated an ordinance establishing a statutory regulatory body, the Pension Fund Regulatory and Development Authority (“PFRDA”) to undertake promotional, developmental and regulatory functions with respect to the pension sector. In March 2005, the Government tabled the Pension Fund and Development Authority Bill in Parliament. The Union Budget for fiscal year 2006 recognised the opportunities for foreign direct investment in the pension sector and it also announced that the Government would issue guidelines for such investment. The Bank is one of only three Indian entities (UTI AMC and LIC of India being the other two) selected by the Pension Fund Regulatory and Development Authority (“PFRDA”) to sponsor pension fund managers. The Bank intends to become involved in the pension fund business through a subsidiary fund manager. Credit Policy Measures The RBI issues an annual policy statement setting out its monetary policy stance and announcing various regulatory measures. It issues a review of the annual policy statement on a quarterly basis.

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Annual Policy Statement of the RBI for Fiscal Year 2008 RBI announced its Annual Policy Statement for the year 2007-2008 on April 24, 2007 against a backdrop of strong economic fundamentals, as evident from the higher growth of GDP and IIP, reasonable liquidity, healthy foreign exchange reserves and stable exchange rates. The monetary policy focused on credit quality and financial market conditions for maintaining macro-economic, and in particular financial, stability. The salient features of the policy are as follows:

• it raised the aggregate ceiling on overseas investment by mutual funds to U.S.$ 4 billion from U.S.$ 3 billion;

• it reduced the interest rate ceiling on non-resident Rupee deposits by 50 basis points to LIBOR/SWAP

rates and reduced interest rate ceiling on non-resident dollar deposits by 50 basis points to LIBOR minus 75 basis points;

• it allowed prepayment of external commercial borrowings (“ECBs”) of up to U.S.$ 400 million, as

against the existing limit of U.S.$ 300 million, by authorised dealer banks without prior approval of the Reserve Bank, however, this limit has subsequently been increased to U.S.$ 500 million;

• it reduced, as a temporary measure, the risk weight on residential housing loans to individuals of up to

Rs. 2.0 million to 50%;

• it permitted banks and primary dealers to begin transactions in single-entity credit default swaps; and

• it enhanced the overseas investment limit for domestic companies to 300% of their net worth and listed companies’ limit for portfolio investment abroad to 35% of their net worth.

In September 2007, the RBI eased overseas investment and loan repayment norms for companies, mutual funds and individuals seeking to stem the Rupee’s gains by encouraging capital outflows and signalling another step toward fuller capital account convertibility. First Quarter Review of Annual Monetary Policy in July 2007 The salient features of the first quarter review of the annual monetary policy are as set out below:

• the repo rate was retained at 7.75%: repo is an instrument for the RBI’s lending of funds by purchasing government securities, with an agreement to resell securities on a mutually agreed future date at an agreed price which includes interest for the funds lent;

• the reverse repo rate was retained at 6.0%: the reverse repo rate is an instrument for the RBI’s

borrowing of funds by selling government securities, with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed. Therefore, the reverse repo rate is the rate at which the RBI borrows from the banks;

• effective as of August 6, 2007, the ceiling of Rs. 30 billion on daily reverse repo under the liquidity

adjustment facility (“LAF”) was withdrawn, subject to re-imposition of such ceiling as deemed appropriate by the RBI;

• the CRR was increased by 50 basis points to 7.0%, effective as of August 4, 2007, with an additional

increase to 7.5% effective as of November 10, 2007;

• the projection of real GDP growth in fiscal year 2008 of around 8.5%, as set out in the Annual Policy Statement of April 2007, was retained.

Mid-term Review of Annual Monetary Policy in October 2007 The salient features of the mid-term review of the monetary policy are as set out below:

• the repo and reverse repo rates were kept unchanged at 7.75% and 6.0% respectively;

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• the bank rate was kept unchanged at 6.0%; and

• the CRR was increased by 50 basis points to 7.5%, effective as of November 10, 2007, and the

projection of real GDP growth of 8.5% was reiterated. Reforms of the Non-Bank Finance Companies The standards relating to income recognition, provisioning and capital adequacy were prescribed for non-bank finance companies in June 1994. The registered non-bank finance companies were required to achieve a minimum capital adequacy of 6% by fiscal year 1995 and 8% by fiscal year 1996 and to obtain a minimum credit rating. To encourage companies to comply with the regulatory framework, in July 1996, the RBI announced certain liberalisation measures under which registered non-bank finance companies, in compliance with the prudential norms and credit rating requirements, were granted freedom from the ceiling on interest rates on deposits and deposit amounts. Other measures introduced include a requirement that non-bank finance companies maintain a certain percentage of liquid assets and create a reserve fund. The percentage of liquid assets to be maintained by non-bank finance companies has been uniformly revised upwards. Since April 1999, non-bank finance companies must maintain 15% of public deposits. The maximum rate of interest that non-bank finance companies could pay on their public deposits was reduced from 12.5% per annum to 11% per annum effective as of March 4, 2003. See “— Impact of Liberalisation on the Indian Financial Sector.” Efforts have been made to integrate non-bank finance companies into the mainstream financial sector. The first phase of integration covered registration and standards. The focus of supervision has now shifted to non-bank finance companies accepting public deposits because companies accepting public deposits are required to comply with directions relating to public deposits, prudential norms and liquid assets. A task force of non-bank finance companies set up by the Government submitted its report on October 1998 and recommended several steps to rationalize the regulation of non-bank finance companies. Accepting these recommendations, the RBI issued new guidelines for non-bank finance companies as follows:

• a minimum net owned fund of Rs. 205 million is mandatory before existing non-bank finance companies may accept public deposits;

• a minimum investment grade rating is compulsory for loan and investment companies accepting public

deposits, even if they have the ,minimum net owned funds; • permission to accept public deposits must be linked to the level of capital to ratio assets ratio, with

different capital to risk assets ratio for non-bank finance companies with different ratings being specified; and

• non-bank finance companies are advised to restrict their investments in real estate to 10% of their net

owned funds. In its monetary and credit policy for fiscal year 2000, the RBI stipulated a minimum capital of Rs. 20 million for all new non-bank finance companies. In the Government’s budget for fiscal year 2002, the procedures for foreign direct investment in non-bank finance companies were substantially liberalised. During fiscal year 2003, the RBI introduced a number of measures to enhance the regulatory and supervisory standards of non-bank finance companies in order to bring them in line with those pf commercial banks in select operations over a period of time. Other regulatory measures adopted and subsequently revised in November 2004 included aligning interest rates in this sector with the rates prevalent in the rest of the economy, tightening prudential norms and harmonising supervisory directions with the requirements of the Companies Act, procedural changes in nomination facilities, issuance of a Know Your Customer policy and allowing a non-bank finance companies to take up insurance agency business. On December 12, 2006 the RBI issued guidelines on the financial regulation of systematically important non-banking financial companies and bank’s relationships with them with a view to removing the possibility for regulatory arbitrage leading to an uneven playing field and potential systematic risk.

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New Initiatives in the Banking Sector Risk Management and Basel-II With gradual deregulation, banks are now exposed to different types of risk. In view of the dynamic nature of the financial market, banks face various market risks such as interest rare risks, liquidity risks, and exchange risks. In respect of lending, they face credit risks, which include default risks and portfolio risks. Banks also face risks such as operational risks. In preparation for the adoption of the Basel-II accord, banks have already required by the RBI to take active measures in terms of risk management systems, evaluate capital charges, including for operational risks and bring about more transparency in financial reporting as part of market discipline. The RBI has also moved towards adoption of the Risk Based Supervision of banks, under which the risk profile of the banks will decide their supervisory cycles. A Bank with a higher risk rating will undergo more frequent supervisory reviews than those with a lower risk rating. The RBI has also indicated that it will adopt a phased approach to the implementation of the Basel-II accord. It was proposed to complete implementation of market risk systems within two years from the year ended March 31, 2005 and the credit risk and operational risk systems with effect from March 31, 2007. Taking into account the state of preparedness of the banking system, the RBI, in its Mid-term Review of Annual Policy for the Year 2006-07, decided to provide banks some more time to put in place appropriate systems so as to ensure full compliance with Basel II. The RBI had earlier stipulated its commitment to the adoption of Basel II by the banks and had indicated March 31, 2007 as the intended date for adoption by all. Foreign banks operating in India and Indian banks having presence outside India are now required to migrate to the Standardised Approach for credit risks and the Basic Indicator Approach for operational risks under Basel II with effect from March 31, 2008. In order to be in alignment with these banks, all other scheduled commercial banks are encouraged to migrate to these approaches under Basel II, but in any case by no later than March 31, 2009. The Steering Committee of banks will continue to interact with banks and the Reserve Bank, and guide the smooth implementation of Basel II. RTGS Implementation in India With the commencement of operations of the Real Time Gross Settlement (“RTGS”) system from March 26, 2004, India crossed a major milestone in the development of systemically important payment systems and complied with the core principles framed by the Bank for International Settlements. As of the end of January 2007, there were 110 direct participants in the RTGS system and RTGS connectivity was available in more than 26,000 bank branches spread across more than 3,000 places in the country. The salient features of the RTGS are as follows:

• payments are settled transaction-by-transaction for high-value and retail payments;

• the settlement of funds is final and irrevocable;

• the settlement is done on a real-time basis and the funds settled can be further used immediately;

• it is a fully secure system which uses digital signatures and Public Key Infrastructure based inscription for safe and secure message transmission;

• there is a provision for intra-day collateralised liquidity support for member banks to smooth the

temporary mismatch of fund flows; and

• RTGS provides for the transfer of funds relating to inter-bank settlements and also for customer-related fund transfers.

On a typical day, RTGS handles about 14,000 transactions a day with an approximate value of Rs. 1,500 billion.

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Check Truncation

The pilot project for the Check Truncation System (“CTS”), which is aimed at enhancing efficiency in the retail check clearing sector, is expected to be implemented on a pilot basis in the National Capital Region in six different branches of selected banks by December 2007. The RBI proposes to extend this service to additional metropolitan centres (Mumbai, Kolkata and Chennai) in a phased manner by including more banks under the CTS. However, the encoded instruments will continue to exist alongside this service until the CTS is fully implemented.

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BUSINESS

Overview The Bank is India’s largest bank, with 10,072 domestic offices and 84 international offices in 32 countries with over 100 million accounts. The Bank is also India’s largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2 billion, and approximately 71 million accounts, as on September 30, 2007. As on December 21, 2007 (being the last reporting Friday of December 2007) based on RBI data, the Bank’s estimated market share of aggregate deposits of all scheduled commercial banks in India was 15.45% and the Bank estimated market share of domestic advances was 15.53%. In addition , as on September 30, 2007 based on trade data from the Directorate General of Commercial Intelligence and Statistics (“DGCIS”) , the Bank had an estimated 31.9% market share of Indian merchandise foreign exchange transactions for foreign trade. The Bank organises its client relationships, marketing and product development, as well as non-customer facing activities, through business groups and strategic business units. The Bank’s primary strategic business groups are the Corporate Banking Group, the National Banking Group and the Rural Business Group. The Corporate Banking Group provides corporate banking services to many of India’s most significant corporations and institutions, including state-owned enterprises. The National Banking Group and the Rural Business Groups service the Bank’s remaining corporate customers, small scale industries, agriculture and personal banking customers, including other state owned enterprises, throughout India. The National Banking Group also provides financial services to the Government and the state governments, including tax collection and payment services. The range of products offered by the Bank includes fund-based products, non-fund-based products, fee and commission-based products and services, deposits and foreign exchange and derivatives products. In the retail market, the Bank’s products and services include retail lending and deposits, fee and commission-based products and services, as well as alternative payment products. The Bank is present, through its subsidiaries, in diverse segments of the Indian financial sector, including asset management, factoring and commercial services, treasury operations, credit cards, payment services and life insurance. See “Business — Non-Bank Subsidiaries and Joint Ventures” and “Insurance Activities.” The Bank is the largest constituent part of the Group by assets and net income, representing 70.0% of consolidated Group assets as on September 30, 2007 and 75.7% of consolidated net profit for the six-month period ended September 30, 2007. The Group includes the Bank, its Associate Banks, which operate in India, and its subsidiaries and joint ventures, operating both within India and internationally. Associate Banks have a domestic network of approximately 4,909 branches, with strong regional ties. The Bank also has subsidiaries and joint ventures outside India, including in Europe, the United States, Canada, Mauritius, Nepal and Bhutan. As on September 30, 2007, the Bank’s unconsolidated deposits, advances and total assets were Rs. 4,870.5 billion, Rs. 3,586.1 billion and Rs. 6,351.4 billion, respectively. For the six-month period ended September 30, 2007, the Bank’s unconsolidated net profit amounted to Rs. 30.4 billion, an increase of Rs. 10.5 billion, or 53.2 %, from the six-month period ended September 30, 2006. As on September 30, 2007, the Group’s consolidated deposits, advances and total assets were Rs. 7,024.8 billion, Rs. 5,197.5 billion and Rs. 9,068.5 billion, respectively. For the six-month period ended September 30, 2007, the Group’s consolidated net profit amounted to Rs. 40.1 billion, an increase of Rs. 13.1 billion, or 48.8 %, from the six-month period ended September 30, 2006. Recent Developments Employee Share Purchase Scheme The Bank is proposing an employee share purchase scheme (the “ESPS”). The Central Government has, by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to Government authorisation, the Central Board has, at its meeting held on February 1, 2008, approved the ESPS. The Bank may issue a maximum of 8,617,500 Equity Shares to eligible employees of the Bank. The ESPS will remain open for a period commencing from March 28, 2008 to April 15, 2008. The issue price will be Rs. 1,590

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per Equity Share. The terms and conditions of the ESPS, will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and all the issuances of shares will be done in compliance with the guidelines/regulations/circulars at that time. See, “Risk Factors -- Shareholders will experience additional dilution as a result of the Bank’s planned Employee Share Purchase Scheme.” Government Pension Fund The Bank is one of the only three entities (the other two being UTI AMC and Life Insurance Corporation of India) selected by the Pension Fund Regulatory and Development Authority (“PFRDA”) for sponsoring Pension Fund Managers (“PFM”) under the New Pension Scheme. The Bank has set up the SBI Pension Funds Pvt Ltd., a wholly owned subsidiary to undertake activities relating to Points of Presence (“POP”) and PFM.PFRDA had advised that 55% of the corpus will be allocated to the Bank in the first year. SBI Pension Funds Pvt. Ltd will initially manage pension funds for the Government as well as the pension funds of those state governments which have opted to join the Scheme. Once the PFRDA Bill is passed, the sector is expected to open up for individuals to join the New Pension Scheme by voluntary contribution. General Insurance The Bank recently invited expressions of interest for its proposed entry into the non-life insurance segment. The prospective joint venture partner is expected to bring non-life insurance experience from both mature and emerging markets, relevant knowledge of product development, underwriting best practices, risk management and other systems. Venture Capital Fund The Bank's capital markets subsidiary, SBI Capital Markets Ltd., has entered into a 50% joint venture partnership with Japan's SBI Holdings, Inc. to launch a U.S.$ 100 million venture capital fund focusing on knowledge based sectors within India. The India Knowledge Fund will target specific Indian sectors including IT, Knowledge Process Outsourcing, Clinical Research Outsourcing, nanotechnology, online and mobile businesses, environmental technology and alternative energy. The fund will invest primarily in unlisted, high growth companies through initial investments ranging from U.S.$ 3 million to U.S.$ 10 million. The fund will be co-managed by both SBI Capital Markets Ltd. and SBI Holdings, Inc. Strengths and Strategy The Bank’s key strengths are its:

• Relationship with the Government, state governments and state-owned enterprises; • Market standing; • Extensive branch network and portfolio of products and services, resulting in a large, diverse and

growing customer base; • Strong financial position; and • Experienced management team.

Relationship with the Government , state governments and state-owned enterprises The Bank believes its strong relationships with both the Government and state governments is a key factor driving its growth in terms of total assets and provides the Bank with a stable source of business. The Bank acts as the RBI’s agent for certain banking businesses of the Government and state governments. The Bank also handles payment functions of the Government through its branches, including salary and pension payments and expenditure payments of various ministries. This relationship with the Government is instrumental in attracting new customers. In addition, the Bank handles a significant portion of the banking requirements for India’s public sector enterprises (“PSEs”), including administering payments and loans to employees and offering life insurance and

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pension plans. As on March 31, 2007, 3.5% of the Bank’s loan portfolio consisted of food credit (including loans to agencies of the Government and State governments for procurement and sale of food grain) and 8.1% of the Bank’s loan portfolio consisted of loans to PSEs. The Bank believes that, as the Indian economy and financial markets continue to grow, the demand for the Bank’s services from the Government, state governments and PSEs will also increase. The Bank is the only bank in India with a mandate from the Pension Fund Regulatory and Development Authority (“PFRDA”) to hold the pension funds for the benefit of Government employees. As the Government is moving from defined contribution plans to self contribution, the Bank expects its pension assets to increase as the Government and additional employers in India offer new or larger defined contribution retirement plans. See “Industry Overview — Pension Reforms” for a description of pension schemes in India. Market standing The origins of the State Bank of India date back to the establishment of the Bank of Calcutta (later renamed the Bank of Bengal) in 1806, the first bank to be set up in British India to meet the needs of the mercantile community. As a result of its historic position in India, the Bank has a leading market position in several of its business segments, including deposits and advances, foreign exchange trading, loan funding (education loans, home loans and auto-loans), credit cards and payment services. The Bank believes it is India’s largest provider of education loans, third largest provider of automobile loans and third largest provider of home loans. The Bank is continuing to enhance its brand by making significant investments in the products and services it offers to its customers in and outside of India. For example, the Bank has instituted a Business Process Re-engineering Project (“BPR”) in order to transform itself into a world class financial institution by proactively reaching out to acquire new customers, building stronger relationships with existing customers and providing all customers with high quality service across multiple delivery channels in the shortest time possible. Some BPR initiatives include the creation of product/customer-focused sales forces to aggressively promote the Bank’s products so as to increase market penetration, strengthen low cost alternative channels to improve customer service and redesign all key processes in important areas, such as retail, corporate and international banking. Extensive branch network and portfolio of products and services, resulting in a large, diverse and growing customer base The Bank is India’s largest bank, with 10,072 offices in India as of 31 December, 2007. It is also India’s largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2 billion, and number of accounts (approximately 71 million), as on September 30, 2007. The Bank also has the largest deposit and total assets base in India, which amounted to Rs. 4,870.5 billion and Rs. 6,351.4 billion respectively, as on September 30, 2007. The Bank also has the largest automatic teller machine (“ATM”) network in India with 5,577 ATMs as of December, 31, 2007. The Bank had issued 24.17 million debit cards as of December 31, 2007. In addition, the Bank has launched a payment gateway system to increase the speed and decrease the costs of fund transfers between customers. The Bank’s extensive branch network allows it to provide banking services to a wide variety of customers, including large corporations, institutions and state-owned enterprises, as well as commercial, agricultural, industrial and retail customers throughout India. The assets of the Bank are diversified across business segments, industries, and groups, which gives the Bank stability. Moreover, the Bank offers a full range of banking products and services including short-term and long-term deposits, secured and unsecured loans, internet banking, credit cards, life insurance, merchant banking, agricultural and micro-finance banking products and project finance loans. As a result of its extensive network and product offerings, the Bank is able to meet its customers’ diverse banking needs throughout India. In addition, the Bank’s comprehensive product and service offerings provide the Bank with numerous opportunities for cross-selling. Finally, the Bank is increasing its emphasis on a relationship management model in order to provide more tailored products and services, especially for its key corporate and mid-corporate customers. The Bank’s strategy is to enhance its position as the largest provider of banking and other financial services in India, while remaining focused on its profitability. The Bank has commenced several initiatives to achieve this strategy:

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• The Bank intends to increase its retail banking business by expanding its distribution network and through the growth of its product and customer base. The Bank is pursuing strategic relationships with corporate entities and government departments to provide financing products to their employees and customers. For example, the Bank is seeking strategic relationships with vehicle manufacturers and dealers to increase its car, two-wheeler and tractor loans, and with reputable builders and construction agencies to increase its home loans base.

• The Bank has recently created a Corporate Strategy and New Business Group to focus on emerging

opportunities. These opportunities include new developments in India, the provision of non-banking products and services, including the management of pension funds, the provision of general and non-life insurance products and financial advisory and wealth management services. Such services are increasingly sought after in India as a result of the lack of a national retirement savings plan.

• The Bank continues to be heavily involved in the agriculture sector through its extensive rural and

semi-urban branch network, specialised branches for agriculture and small-scale industries and new innovative products. The Rural and Agri Business Group (subsequently renamed as Rural Business Group) was created in November 2006 to further coordinate the Bank’s business in this sector.

• The Bank is committed to its ongoing effort of leveraging new technology to maximize efficiency in its

operations and expanding the modes of delivery of its services, enabling it to increase its penetration of existing customer segments. To achieve this, the Bank plans to expand its existing ATM and internet banking network as well as migrate all of its branches to the Core Banking Solution platform. The Bank also plans to offer mobile banking services to individuals in rural and semi-urban areas of India. Lastly, the Bank is continuing to invest in payment systems to make them more robust and efficient, thereby improving customer service and enhancing its product offerings. See “– Information Technology Systems and Infrastructure — IT-based products and development.”

• The Bank, under its proposed Private Equity and Venture Capital initiatives, is considering equity

investments in core sectors such as power, telecom, petroleum, oil, gas, roads, ports, airports and hotels.

• The Bank intends to grow its business through further overseas expansion, primarily to meet the growing needs of Indian corporates operating overseas as well as non-resident Indians living abroad. In addition, the Bank expects that its central treasury hubs in Hong Kong and London will expand their foreign exchange and money-market activities to cover interest rate, foreign exchange, credit structures and bond trading.

Strong financial position and effective risk management The Bank has a strong cost-to-income ratio, which was 54.5% for the six-months ended September 30, 2007. In addition, the Bank’s capital position, as measured by its capital adequacy ratio (which is higher than mandatory levels), allows the Bank to take advantage of significant growth opportunities in the market. The Bank’s gross and net NPA were 2.9% and 1.6%, respectively, as of September 30, 2007 of its gross and net advances, respectively. This low level of NPAs is due to the Bank’s rigorous risk management policies and procedures. Experienced management team The Bank has an experienced management team led by Mr. O.P. Bhatt, Chairman of the Bank, who has over 30 years’ experience in banking. The Bank’s executive committee members have on average more than 25 years’ banking and financial experience. The balance of the senior management team has strengths in key areas, including retail, corporate and international banking. The management team’s extensive and diverse expertise provides the Bank with a broad perspective from which it can make strategic management and operational decisions. In addition, during the past 12 months, several new positions in departments such as Global Markets, Rural Business and Corporate Strategy and New Businesses have been created. Under the guidance of the New Businesses department, the Bank has recently undertaken or is planning to undertake the following initiatives within the next two fiscal years: mobile banking, merchant acquiring business, custodial services and private equity and venture capital. Business Process Re-engineering

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The Bank has instituted a Business Process Re-engineering Project, BPR, in order to transform itself into a world class financial institution by proactively reaching out to acquire new customers, building stronger relationships with existing customers and providing all customers with the highest quality of service across multiple delivery channels in the shortest time possible. The Bank believes that the Core Banking Solution (which provides the capability of online real time transaction processing across the Bank’s branches) and BPR will create a new sales and service platform across its urban branch network, and improve the Bank’s key business performance indicators, such as increases in the return-on-asset ratio, cost-to-income ratio and decrease in non-performing assets (“NPAs”). The Bank believes that BPR will redefine the Bank’s operating architecture with an aim to enhance the sales and service at its branches. The Bank plans to transfer the majority of the transactions from branches to alternative service channels, namely ATMs, drop-boxes, internet banking, mobile banking and call centres. In addition, all non-customer facing back office activities will be transferred from branches to Central Processing Centres (“CPCs”). The Bank’s branches will also be redesigned to provide better service for customers. The BPR initiatives include the establishment of:

• Grahak Mitras (customer greeting personnel) to help customers at the branch entry by providing basic information;

• Relationship managers for Personal Banking, Small and Medium Enterprises;

• Home Loans Sales Team and Multi-Product Sales Team; and

• CPCs including Currency Administration Cell, Retail Assets CPCs, Small and Medium Enterprises

City Credit Center, Liability CPC, Trade Finance CPC, Stressed Assets Resolution Center, Centralised Clearing Processing Center and Centralised Pension Processing Cell.

Relationship managers have been introduced for certain of the Bank’s customer segments. Relationship mangers have been a feature of corporate banking for significant clients since May 2003, and have now been introduced for mid-corporate banking customers. In addition, personalised services to mass affluent and medium enterprise customers are being promoted through the appointment, as of December 31, 2007, of approximately 456 relationship managers for personal banking and 105 relationship managers for medium enterprises. As of December 31, 2007 approximately 60 home loan sales teams have been created to engage in door-to-door sales of home loans to targeted customers. Finally, approximately 214 multi-product sales teams have been created to sell product to small business enterprises and ‘personal’ segment loans (other than housing loans). The Bank expects that these initiatives will assist it in transforming its operating structure, providing improved service, reducing operating costs, decreasing back office work at branches, boosting sales efforts and leveraging the strength of the existing branch network. Organisation of the Bank’s Business Groups

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The Bank organizes its client relationships, marketing and product development, as well as internal, non-customer facing activities, through business groups and strategic business units. Its business groups are the Corporate Banking Group, National Banking Group, Rural Business Group, International Banking Group and Global Markets Group (previously the Treasury and Markets Group). The Associates and Subsidiaries Group manages the Bank’s investment in its Associate Banks and its other subsidiaries. The Marketing and Cross Selling Group assists the business groups in cross-selling the products and services of the Bank’s subsidiaries and joint ventures. The principal customer facing strategic business units and groups are the Corporate Accounts and Mid-Corporates Groups of the Corporate Banking Group; the Personal Banking, Government, and SME Groups of the National Banking Group; and the Rural Business Group. The Bank is currently in the process of creating a Wholesale Banking Group. The Bank expects this group to provide a wide range of banking services required by large organisations and institutions. The Bank’s administrative services and management, including risk management, IT, inspection and audit, legal and human resources functions, are common to all its business groups. Within the National Banking Group and Rural Business Group, which together have the largest number of the Bank’s branches, these common services are organized on the basis of administrative units, which are referred to within the Bank as “circles,” “zones” and “branches.” Each circle serves as the geographic centre of approximately 600 to 800 branches and is sub-divided into four to five zones per circle. Each zone covers approximately 150 branches. The risk management department has risk officers and risk raters located at each circle headquarters as well as within the Mid-Corporate Group, Corporate Accounts Group, International Banking Group, in each case reporting to Chief General Manager (Risk Management). The IT department provides support to all business groups. A Deputy General Manager position (IT-Coordination) has been created at Corporate Center to prioritise and coordinate IT related issues among the various business groups with the IT department, human resources, and industrial relations. Corporate Banking The Corporate Banking Group provides corporate banking services to many of India’s most significant corporations and institutions, including state-owned enterprises, and offers fund-based and non-fund-based products, fee and commission-based products and services, deposits and foreign exchange and derivatives. The Corporate Banking Group’s customers span the range from mid-corporate clients with annual turnover of between Rs. 0.5 billion and Rs. 5.0 billion to the largest corporations in India. Each customer is assigned a relationship manager, who serves as a single point of contact for all of the customer’s banking needs, from loan

Global Markets

Chairman

Rural Business Corporate Banking

National Banking

International Banking

Associates and Subsidiaries

Global and Domestic Treasury

Rural Non-Farm

Agriculture

Corporate Accounts Group

Project Finance & Leasing

Mid-Corporates Group

SAMG

Personal Banking

Government

Marketing and Cross-Selling

SME

Foreign Offices and Subsidiaries

Associates Banks and Subsidiaries

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products and deposit accounts to international funding for cross-border transactions and interest rate and foreign exchange hedging products. The relationship manager may also serve as the bridge to the Bank’s other product groups, such as Personal Banking for the corporate’s management or employees or International Banking for export finance services. The Corporate Banking Group comprises four strategic business units — the Corporate Accounts Group, Mid-Corporate Group, Stressed Assets Management Group and Project Finance and Leasing Group. The Corporate Accounts and Mid-Corporate Groups service large Indian corporations and mid-corporates, respectively. The Stressed Assets Management Group provides specialised internal support in managing and recovering the Bank’s high value NPAs (Rs. 10 million and above), while the Project Finance and Leasing Group appraises and provides specialist support to all high value projects (with project cost exceeding Rs. 2 billion) in which the Bank is involved. The focus of the Corporate Banking Group is to go beyond traditional lending products by:

• emphasising relationship managers to deepen customer relationships and promote cross selling of the Group’s extensive range of products and services;

• exploring new growth areas like cash management; • offering centralised payment solutions; and • marketing derivatives products by taking advantage of the volatility in the currency markets and the

consequent need by corporates to hedge their balance sheet risks.

Corporate Accounts Group The Corporate Accounts Group focuses on the Bank’s prime corporate customers across India. Through its customer relationship management approach, where each client is assigned a dedicated accounts management team, headed by a relationship manager to coordinate its banking relationship with the Bank, the Corporate Accounts Group aims to leverage its strong corporate relationships and increase the Bank’s market share in fund-based, non-fund-based and fee based products. Services are delivered through four branches dedicated exclusively to Corporate Accounts Group customers in Delhi, Mumbai, Chennai and Kolkata. The Bank also believes that separate marketing and customer service departments are necessary in order to adequately meet the demands of this customer base. Within the Corporate Accounts Group, the Institutional Accounts Unit focuses exclusively on institutional accounts such as mutual funds, insurance companies, other institutions and government departments, leveraging such relationships to maximize fee and commission income. The Bank believes that banking services in the form of payment and collection solutions and liquidity management have become critical requirements of such customers, who will continue to be a significant driver of both interest and fee and commission-based income. Products offered to Corporate Account Group customers include loan products, deposits, fee and commission-based products and services, and a broad range of foreign exchange and treasury services, including RBI-permitted derivatives, which are developed and provided by the International Banking and Treasury Services Groups, respectively. The Bank provides a corporate internet banking facility, with multi-level access and authorisation controls required by corporate customers. The Corporate Account Group’s other delivery channels include the Bank’s extensive branch network, credit cards, and electronic payments platforms. See”— Delivery Channels.” The Corporate Accounts Group’s corporate loan portfolio primarily consists of working capital finance and term loans for project and corporate finance. The Corporate Accounts Group offers its customers both fund based and non-fund-based facilities. The most commonly used facilities are cash credits, working capital demand loans, bill discounting, term loans, corporate loans and export credit. Interest rates on these facilities are linked to the State Bank Advance Rate (the benchmark rate at which the Bank may lend to its prime borrowers) or to other market related rates. Non fund based products such as letters of credit, bank guarantees, deferred payment guarantees, remittance and collection services, online tax payment, cash management services, as well

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as end to end payment solutions are some of the sources of fee-based income. As on September 30, 2007, total outstanding loans of the Corporate Accounts Group was Rs. 381.7 billion in respect of fund-based products and Rs. 441.5 billion in respect of non-fund-based products. The Bank handles bulk business for all Corporate Accounts Group customers across India by way of dividend warrant payments for companies, as well as bulk electronic salary payments of large corporates, PSUs, and government departments. These activities are all processed through the Bank’s own computerised network and also through the electronic payment gateways of the RBI. Additionally, the Bank handles bulk draft issuances for customers across the country. The Bank also acts as a refund bank for the Government tax authorities and is the exclusive refund bank in respect of income taxes. These activities all contribute to the Bank’s fee-based income. Principal products and services that the Bank offers specifically, although not exclusively, to Corporate Account Group customers are: Loan Syndication Through its subsidiary SBI Capital Markets Ltd., the Bank has developed significant syndication capabilities, structuring and arranging the syndication of large financial transactions. The Bank seeks to leverage these syndication capabilities to arrange project and corporate finance for its corporate customers and earn fee income. By leveraging the experience of SBI Capital Markets and the extensive customer relationships of the Bank, this strategic relationship has made a significant contribution to the Bank’s ability to cross-sell the products and services of its various business groups and subsidiaries. Corporate Cash Management The Bank provides cash management services to corporate customers under the brand name SBI FAST, which stands for “Funds Available in Shortest Time.” Customers can use approximately 359 collecting centres throughout India, with pooling facilities at various branches, which are connected to the Bank’s central clearing centre in Mumbai. This service aims to enhance liquidity, reduce costs and provide profit opportunities for the Bank’s customers by allowing for better liquidity management. Through SBI FAST, funds are transferred directly to the customer’s main account at any branch that has implemented the Core Banking Solution (numbering 7,303 branches as of December 31, 2007), from various collection centres on the same day that they are cleared at the collecting centres. SBI FAST also offers disbursement and payment services through a separate platform to facilitate payments and collections across the country at customers’ payment centres and plant locations. Detailed management information system reports covering a variety of banking information are made available on a daily basis to customers’ corporate head offices as well as to their local offices and representatives at the centres through automatically generated email. The Bank customizes the management information system reports to customers’ needs. Monthly reports are also sent to customers through automatically generated email. Full reconciliation support, meaning the automatic reconciliation of payments and receipts effected by the customer, is provided centrally from the Bank’s hub in Mumbai by a dedicated team. The payment solutions offered by the Bank as a part of corporate cash management make it possible for corporate customers to outsource their accounts payable to the Bank and have payments processed using electronically-based as well as paper products. In addition to effecting payments to the 6,243 Bank branches connected through the Core Banking Solution, electronic payments may be made by the Bank on behalf of its customers to other banks’ branches across India. Currently, more than 620 District Headquarters in India and an additional 40 business locations use this centralised cash management system, enabling quick, time-sensitive bulk payments to any beneficiary in India on behalf of the Bank’s corporate customers. Trade Finance Trade finance services include the issuance and advising of domestic and foreign letters of credit, the confirmation of export letters of credit, the issuance of guarantees on behalf of domestic customers in favour of domestic and foreign beneficiaries, and on behalf of foreign correspondent banks to beneficiaries in India, domestic and foreign bill discounting against letter of credit as well as non-letter of credit bills and similar services.

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Trade finance services include a new IT-driven supply chain financing product being developed by the National Banking Group. The Bank expects that supply chain financing will enable it to leverage its links with existing Corporate Accounts Group customers, referred to by the Bank as “Industry Majors,” to offer financing services to the small and medium size vendors and dealers to such Industry Majors, whether or not the vendors are already customers of the Bank. The target vendors would typically be part of the SME or SSI customer base. Supply chain financing is being marketed to corporates for use by their vendors. It is anticipated that this activity will bring into the Bank a number of new vendors who serve the Mid-Corporate and SME segments. See “— Small and Medium Sized Enterprises.” Mid-Corporate Group The Mid-Corporate Group focuses on mid-corporate customers, which are defined by the Bank as entities with annual turnover between Rs. 0.5 billion and Rs. 5.0 billion. The objectives of the Mid-Corporate Group are to:

• Focus the Bank’s attention on the banking requirements of mid-corporate clients; • Improve turn around time for credit delivery; • Provide customized solutions to meet the financial requirements of mid-corporate clients; and • Develop teams well versed in credit, foreign exchange, derivatives and trade finance, as those products

are used by Mid-Corporate customers. Mid-sized corporate customers have been and continue to be an integral part of India’s economic development. The Bank believes that this market segment encompasses more than 10,000 entities, many of whom are listed on a domestic stock exchange. High concentrations of these customers are located in 14 metropolitan centres, and are served by the Bank’s extensive branch network. In addition to the branch network, the Bank services customers in these metropolitan centres by establishing sales hubs and centralised credit processing facilities. The Bank has established 28 branches that are dedicated exclusively to Mid-Corporate Group customers. Relationship managers provide a single point of contact for all mid-corporate customers. Mid-corporate customers located outside the Mid-Corporate Group’s geographic coverage area are served through the Bank’s branch network. Relationship managers are assigned to all mid-corporate customers. These relationship managers are expected to attract more banking business from high-end mid-corporate customers by building close relationships with existing customers, as well as reaching out to potential customers, and familiarising customers with the various banking products and services offered by the Bank’s specialised business units. An example would be the cross-selling of retail banking services to the customer’s management or employees, or of interest rate and currency hedging products that are offered by the Global Markets Group. A typical relationship manager handles approximately 30 mid-corporate accounts depending on the manager’s location and is a customer’s central contact at the Bank. A relationship manager may also be approached by the specialised business units within the Bank for the purposes of cross-selling banking products or services to the relationship manager’s customers. A recent initiative is the formation in 2007 of the precious metals business unit within the Mid-Corporate Group. The focus of this business unit is to meet the demand for precious metals financing by mid-corporate customers. Demand for gold, in the form of wholesale and metal loans, has traditionally come from the Bank’s mid-sized customers such as jewellery firms and traders. This unit also serves the retail sector’s demand for portfolio diversification by offering precious metal products to that market through the Personal Banking Group. The Mid-Corporate Group offers the same banking services and products as the Corporate Accounts Group, although generally with less customisation, as well as a range of trade finance products. Similar to the Corporate Accounts Group, the Mid-Corporate Group offers supply chain financing to leverage the Bank’s customer base by offering vendor and dealer financing to link the large corporate, mid-corporate and SME customer segments served by the Bank. Unlike customers of the Corporate Accounts Group, customers of the Mid-Corporate Group can be either the Industry Majors or the vendors or dealers. Stressed Assets Management Group

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The Stressed Assets Management Group (“SAMG”) focuses on the resolution of NPAs of Rs. 10 million and above incurred in the Bank’s customer-facing business units. The Bank’s Credit Policy and Procedures Committee formulates NPA policy, while the SAMG handles the NPAs in accordance with such policies. The SAMG operates from 10 branches throughout India where dedicated teams of specialists evaluate NPAs referred from other business units within the Bank (for example, the Corporate Accounts Group, which will have booked the assets that may become NPAs). If the NPAs are found ineligible for restructuring, the SAMG takes steps to recover the amounts due to the Bank either by compromising the claim or enforcing any security interests the Bank may have or selling the NPA to other banks, financial institutions or other entities. See “Description of Assets and Liability Management and Risk Management of the Bank — Credit Management Policies and Procedure.” In addition, for small value NPAs, the SAMG may use outsourced recovery agents and resolution agents to assist its efforts to resolve NPAs. Project Finance and Leasing The Project Finance and Leasing Group provide specialist project evaluation services to the Bank’s customers. This unit has a particular focus on core infrastructure sectors of the Indian economy such as telecommunications, oil and gas, roads, bridges, ports and urban infrastructure, although it has also expanded to corporate sectors such as steel and concrete. The project finance team examines projects whose total cost is at least Rs. 2 billion, with debt exposure in excess of 25.0% of the project cost. The Corporate Accounts Group, the National Banking Group and the Mid-Corporate Group interface with the customer in proposing project finance services, while appraisals, sanctioning and documentation of a project will generally be carried out by the Project Finance and Leasing business units. Once the project risk has passed, control of the project reverts to the originating Group. Leasing activities, which were started by the Bank in 1995, are progressively being wound up and the Bank does not expect leasing to comprise a significant part of its activities in the future. National Banking The National Banking Group provides a range of retail banking products to individuals through the Personal Banking unit, corporate banking products to the Bank’s corporate, mid-corporate and small enterprise customers that are not serviced by the Corporate Banking Group, or the Mid Corporate Group and banking services to the Government and state governments. Corporate banking products and services offered by the National Banking Group are largely the same as those offered by the Corporate Banking Group. The National Banking Group services customers located in urban and metro areas, while customers in rural and semi-urban areas are serviced by the Rural Business Group (discussed below). Geographic areas are classified as urban, metro, rural or semi-urban by the RBI based on population. The National Banking Group comprises three customer-facing business units — Personal Banking, SMEs and Government Banking Unit, spread out over 14 administrative circles with a network of 3,415 offices as of December 31, 2007. Personal Banking The Bank is the largest retail bank in India having, as of September 30, 2007, approximately 71 million retail accounts, 20.0% of which were located in metro and urban areas, and retail banking assets and liabilities of Rs. 3,321.2 billion. The Bank has the largest branch and ATM network in India. As of December 31, 2007, it had a total of 10,072 offices, of which 3,415 were in urban and metro areas (and therefore under the umbrella of the National Banking Group) and 6,657 of which were in rural and semi-urban areas (servicing customers of the Rural Business Group), with 7,303 of those branches integrated through the Core Banking Solution. The Bank’s ATM network totalled 5,577 ATMs across India as of December 31, 2007, with 3,299 of those in urban and metro areas, and 2,278 in rural and semi-urban areas. The Bank also has bilateral sharing arrangements with 13 other banks for the sharing of ATM networks, thereby giving the Bank’s customers access to over 16,500 ATMs across India. Together with its Associate Banks, subsidiaries and joint ventures, in both the banking and non-banking sectors, the Bank offers a broad range of products and services to its retail customers, including lending products such as home finance loans, automobile finance loans, and personal loans, deposit products, such as demand and time deposits and savings accounts, and credit cards. In addition, the Bank goes beyond traditional banking services to provide access to fee and commission-based products such as life insurance and mutual funds as well as providing services tailored to non-resident Indians (“NRIs”).

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Specific customer segments include the high net worth and mass affluent, and salaried employees. Nearly 650,000 customers qualify as high net worth or mass affluent on the basis of the value of their domestic deposits with the Bank. Of that number, approximately 170,000 customers across India as of September 30, 2007 were eligible for the Bank’s recently initiated high net worth and mass affluent banking offering, “SBI-Vishesh” scheme, a priority banking service offered in select branches throughout India. In addition, the Bank has a strong customer base of salaried employees, with over two million salary accounts. The Bank is also focusing on increasing the number of retail relationship managers to strengthen its franchise. Approximately 1,400 customer relationship executives handle distribution and servicing for high net worth individuals and mass affluent customers, with another 1,000 expected to be hired by March 2008. Products The Bank’s retail lending products include home, auto and personal loans. According to RBI data, as of March 31, 2007, the Bank had a 16.5% share of the home loan market, and a 16.8% share of the personal loans market (which includes personal, auto and educational loans), in each case measured by amounts outstanding. Home Loans The Bank is one of the top three providers of home loans within India (CRISIL Research Retail Finance — Housing Finance Update: May 2007). As of December 31, 2007, home loans constituted more than 52.0% of the personal banking loan portfolio of the Bank by total amounts outstanding. The Bank believes home loans will continue to be a significant driver in the growth of its retail banking business, due to the expected housing shortage in India coupled with the rising affluence of the Indian population. In addition to home loans for the purpose of construction, purchase and repair of personal residences, the Bank is also introducing more sophisticated products such as reverse mortgages and home equity loans. Recent initiatives include “SBI Tribal Plus” (special housing financing product for persons residing in the hill or tribal areas, where land records are not available), “SBI Freedom” (housing loan secured by liquid securities, without a mortgage of the property) and “SBI Flexi” (housing loan with a portion at fixed rate and the remaining at floating rate). Personal Loans Personal loans are general purpose loans for individuals, the proceeds of which can be used at the borrower’s discretion. The Bank offers a wide range of personal loan products targeting specific customer segments or funding purposes. This category includes auto loans, which are loans for the purchase of new and used cars, jeeps and utility vehicles, as well as for two-wheel vehicles such as scooters, motorcycles and mopeds. Other personal loan products are the “Xpress Credit” (pre-approved personal loans for employees of the Government (including State governments) and leading private sector enterprises), “SBI Loans to Pensioners” (personal loans to pensioners of the Government (including State governments) and PSUs), loans against financial securities (financing provided by way of overdrafts or demand loans, against the security of term deposits, shares, debentures and mutual funds) and the “Rent Plus Scheme” (securitisations of future rent receivables). In India, the Bank is the largest provider of educational loans according to Indian Banks’ Association, which comprised 5.03% of the personal banking loan portfolio of the Bank as of December 31, 2007. Educational loans include such targeted products as “Nursing Plus” (loans to individuals for undertaking graduate and post-graduate courses in nursing from recognised institutes). Deposit products offered to Personal Banking customers include savings, checking, term deposits and hybrid accounts that combine features of savings and term deposit accounts. In addition to traditional lending and deposit products, the Bank offers technology based payment products. The SBI Vishwa Yatra Foreign Travel Card is a prepaid card issued in association with VISA International that can be used to withdraw cash from VISA-enabled ATMs and to purchase goods and services from merchants and points of sales displaying the VISA logo. The card is available in U.S. dollars, sterling and euro currencies. For domestic use, Rupee prepaid cards are issued in association with VISA International. Periodic payments such as salary may be loaded onto the card at any Bank branch connected to the Core Banking Solution, with the funds available to cardholders immediately. Funds can be withdrawn at VISA-enabled ATMs and at VISA points of sale in India, Nepal and Bhutan.

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The Personal Banking unit is the largest user of the ATM distribution channel and credit cards. Although credit cards are marketed primarily by the Personal Banking unit, they are operated by a subsidiary. See “Distribution Channels — Credit Cards.” Small and Medium Sized Enterprises The SME Group focuses on servicing the specific credit needs of small and medium enterprises (“SMEs”), defined by the Bank as entities with an annual turnover of up to Rs. 500 million. The Bank believes that small and medium sized enterprises are a major driving force behind India’s recent economic success. Accordingly, the Bank has dedicated specific resources to this customer segment. Because SMEs are large in number but generally share similar needs, highly customized products are not necessary to serve these customers. Relationship managers are provided to high-end SMEs, as these customers generally require more specialised attention. Products and services offered specifically to SME include dedicated branch tellers, stand-by lines of credit, current accounts, time and other deposits, business to business payment solutions, multi-city checks, bank guarantees, letters of credit, specially tailored internet banking as well as working capital and term loans. Further, the Bank has taken initiatives, including advisory services and concessionary finance, in implementing an Energy Efficiency Program for its SME clients. The Energy Efficiency Program offers a subsidised energy study to energy-intensive SMEs, carried out by energy consultants employed by the Bank, and financing on advantageous terms of the implementation of energy conservation measures. The Bank has simplified the credit appraisal process and reduced credit delivery time through its “SME Smart Score” scheme. This scheme is based on a scoring model system to simplify the approval process for loans up to Rs. 5 million for manufacturing units and Rs. 2.5 million for trade and services. The Bank has also developed industry, activity, and cluster specific scoring models. As part of its BPR initiative, the Bank has begun to centralise credit processing for SMEs, enabling the Bank to offer greater uniformity in appraisals, quicker processing and better risk management. In addition to traditional lending products, the Bank seeks to extend its reach to the supply chain partners of large corporations through supply chain financing, including the financing of selected vendors and dealers of the Bank’s corporate clients. This IT-based product provides an important cross-selling opportunity, linking customers of the Corporate Accounts Group, as the Industry Majors, and suppliers or vendors of various sizes that comprise the customer base of the SME Group. See “— Corporate Accounts Group — Trade Finance.” Small Scale Industries and Small Business Finance SMEs are further subdivided into Small Scale Industries (“SSI”) and Small Business Finance (“SBF”) units. Since its inception, the Bank has played and continues to play an important role in the development of SSIs and small businesses. SSI and SBF customers located in rural or semi-urban areas have access to the same products and services through the Rural Business Group. Small Scale Industries SSI customers are businesses engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery does not exceed Rs. 50 million. The Bank currently has 44 specialised SSI branches located in areas where there is a greater potential for SSI activity. These branches provide focused attention for SSIs through specially trained personnel whose sole responsibility is to look after SSI customers. As part of its involvement in this sector, the Bank has prepared a charter for Small Scale Industries, detailing schemes and standards for lending to this sector. The Bank also offers management consultancy services to SSIs who plan to upgrade their technology capabilities. Through this project, the Bank has increased penetration in, among others, industries relating to auto components, rice mills and other industries. Small Business Finance The Bank finances small business activities for a large number of its SME customers. SBF is undertaken under four broad categories: retail traders, business enterprises, professionals and self-employed persons and small road transport operators. For example, with respect to retail trade, the Bank extends loans to

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retail traders who act as a link between the manufacturers of goods or commodities and the consumer. The Bank also offers working capital products as well as loans for the purchase, renovation and repair of equipment. Government Banking The Bank handles government transactions as an agent for the Government (including RBI) and various state governments. For the year ended March 31, 2007, the Bank handled approximately 52.0% of Government aggregate payments and receipts, and approximately 62.0% of state government payments and receipts. The Bank acts as agent for the receipt and payment of government transactions. The Bank collects government revenues by way of taxes such as central excise and service taxes through its branches. The Bank also handles government payment functions through its branches, including pension payments and expenditures payments of various ministries. Further, the Bank remits funds deposited by departments such as post & telecommunications, railways, defence and other government departments. The Bank earns commission income on the payment services it provides. Receipts and pension payments made by the Bank are subject to a fixed fee per transaction, irrespective of the transaction amount; fees for payments, other than pension payments, made by the Bank are calculated as a fixed percentage of the payment amount. Rural Business The Bank services customers located in rural and semi-urban areas through the largest branch and ATM network in India. The Rural Business Group was formed in November 2006 and focuses on developing innovative and effective modes of delivering banking services to all customers located in the rural and semi-urban areas of India, as defined by the RBI. As of December 31, 2007, approximately 66.0% of the Bank’s branch network was in semi-urban and rural areas. Banking products and services provided to customers of the Rural Business Group generally include all corporate and retail products and services that are provided by the National Banking Group, and are provided to the same demographic customer groups as are served by the National Banking Group. In addition, to a much smaller extent, the Rural Business Group provides sophisticated corporate products and services to mid-corporate customers that are located outside the geographic areas served by the Mid-Corporate Group of Corporate Banking. The Rural Business Group is subdivided into two business units — Rural Banking (Non-farm) and Agriculture. Rural Banking (Non-farm) The Bank believes that the rural areas of India are greatly underserved by the financial sector, and therefore views rural banking as one of the key drivers of future growth. The Bank serves its rural clients through an extensive network of 6,657 offices located in rural and semi-urban areas as of December 31, 2007. Rural banking requires an innovative approach in respect of delivery of services in remote areas, to a population with significant illiteracy rates, and a large number of small-value transactions. To cater to customer needs, the Bank has set up branches focusing on products important to rural customers such as savings and term deposits, small business financing, life insurance and remittance services, in addition to the other corporate and retail products and services offered by the National Banking Group. These branches service all customer segments that are present in their geographic coverage area, from personal banking clients to mid-corporate clients (who, although serviced at a rural branch, will have their credit needs assessed by the Mid-Corporate Group). Branches located in rural and semi-urban areas distribute the same personal banking, SME, SSI and SBF products and services as those of the National Banking Group. Rural housing and micro finance, previously handled at the national level, have been regrouped under the Rural Banking (Non-farm) business unit. The Bank is developing alternative delivery channels for banking services and products through business facilitators and business correspondents. The Bank is currently pilot testing a business correspondent relationship with India Post, whereby India Post will be able to take deposits and permit cash withdrawals through smart cards. The Bank is testing these operations in seven states with an intention to expand into additional states in the near future, including through other entities, such as non-governmental organisations and micro finance institutions located in areas where the Bank does not yet have a physical presence. The Bank is also in the process of rolling out services through business facilitators, which are persons appointed by the Bank,

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such as insurance agents or non-governmental organisations, to market asset and liability products to customers on a commission basis. Rural banking offers a particular challenge due to the low margin transactions that typically occur at rural branches. The Bank seeks to overcome this challenge through IT-based initiatives targeted specifically at the rural customer. These initiatives include a user-friendly ATM network that now spans more than 485 rural locations, a kiosk project that will allow for access to more remote areas as well as a Smart Card program that allows rural customers to access basic banking services through business correspondents without meeting the minimum deposit requirements for accounts with the Bank. The Bank has moved beyond traditional banking to support grass-roots initiatives to encourage access to finance for the poorest of the rural population. The Bank believes that micro finance, including financing to Self Help Groups (“SHGs”), has significantly contributed to the credit growth in rural areas and the improvement in the standard of living of the rural poor. The Bank has provided advances of Rs. 46.56 billion to approximately 936,000 SHGs in India as of December 31, 2007. The Bank is a market leader in SHG lending in India, and, in 2006, became the first commercial bank in India to be assigned the status of “Self Help Promoting” institution by the National Bank for Agriculture and Rural Development. The Bank believes that the clients it assists through micro finance initiatives will become loyal customers in the future. The Bank’s micro finance initiatives are accomplished primarily through the use of SHGs. The Bank believes that these groups, comprising approximately 15 to 20 families, each of which is represented by one family member (who is generally a woman), serve as the basis for establishing group dynamics and a culture of savings within the community. Traditional micro finance in India has been done through the use of intermediary organisations. The Bank believes, however, that these organisations are unnecessary, given the Bank’s own extensive branch network and its initiatives to broaden delivery channels for banking services, such as the strategic alliance with India Post discussed above. By eliminating intermediaries, the Bank expects to be able to cultivate relationships with the SHGs and ultimately assist in the development of micro finance projects into micro enterprises. The SHG forms a savings unit, depositing the collective savings with the Bank. The Bank in turn lends to the SHG an amount of up to four times the SHG’s savings, which the SHG lends out to its members at its sole discretion. Micro finance loans extended by the Bank form part of the Bank’s directed lending obligations. See “Regulations and Policies — RBI Regulations —Directed Lending.” Agriculture Since its inception, the Bank has played and continues to play an important role in the development of Indian agriculture. The Bank had 424 agricultural development branches as of September 30, 2007. These are specialised branches located throughout India used exclusively for the development of the agriculture sector and its related industries. The Bank’s agricultural development branches offer products such as crop financing, farm equipment financing, and agricultural value chain financing and serve customers involved in a wide range of agricultural activities such as crop production, horticulture, plantation crops, floriculture, farm mechanisation, land development and reclamation, digging of wells, tube wells and irrigation projects, as well as activities linked to agriculture such as storage, trading and processing. The Bank also finances activities such as dairy production, fisheries, livestock management and silk worm farming. The Bank’s focus has been on cultivating direct relationships with the farmers, thereby allowing them to offer more customized products to their clients. Initiatives aimed at strengthening ties with the farming community include attending farmers’ meetings and Farmer’s Club events as well as a village adoption program whereby each region, encompassing 40 to 45 branches, adopts a village in order to build banking relationships there as well as to support integrated development of the village. As in its other lending operations, the Bank uses a scoring model for credit assessment of borrowers under several of its programs. Lending by individual branches under certain loan programs is linked to NPA levels, so that NPA levels exceeding certain benchmarks will lead to a tightening of certain credit lines. In addition, recovery agents are increasingly being used by the Bank to address debt collection, generally by enforcing on the underlying collateral securing the loans. Global Markets

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The Bank’s Global Markets Group (previously known as the Treasury and Markets Group) manages its domestic liquidity and foreign currency exposure, engages in proprietary trading of currencies and offers foreign exchange and risk hedging derivative products to its customers. The treasury also handles equity trading for the Bank’s trading and banking books. Through its treasury operations, the Bank manages its required regulatory reserves and investment portfolio with a view to maximising efficiency and return on capital. The Bank also seeks to optimise profits from its trading portfolio by taking advantage of market opportunities. The Bank’s trading and securities portfolio includes its regulatory portfolio, as there is no restriction on active management of the regulatory portfolio. Under the RBI’s statutory liquidity ratio requirement for Indian banks, the Bank is required to maintain 25.0% of its net demand and time liabilities by way of approved securities, such as Government securities (including state government securities). The Bank maintains its statutory liquidity requirement through a portfolio of Government securities that it actively manages to optimise yield and benefit from price movements. The RBI may prescribe the Cash Reserve Ratio (“CRR”) for scheduled commercial banks without any floor or ceiling rate. The rate of CRR to be maintained by banks on their total demand and time liabilities is 7.0% as from August 4, 2007, which has since been raised to 7.5% as of November 10, 2007. In view of section 3 of the Reserve Bank of India (Amendment) Act, 2006 which came into force on April 1, 2007, the RBI does not pay any interest on the CRR balances. See “Regulations and Policies — Legal Reserve Requirement.” Due to these regulatory reserve requirements, a substantial portion of the Bank’s trading and securities portfolio consists of Government securities. As on September 30, 2007, Government securities (excluding securities purchased under agreements to resell) constituted 67.0% of the Bank’s total trading and available for sale securities portfolio, while the remainder included corporate debt securities and equity securities. The Bank had outstanding Government securities worth Rs. 1.6 billion in its trading portfolio as on September 30, 2007. The Treasury Group engages in domestic and foreign exchange operations from its main office in Mumbai. As part of its treasury activities, the Bank also maintains proprietary trading portfolios in domestic debt and equity securities and in foreign currency assets. During the fiscal year 2007, the Bank recorded a total turnover of Rs. 5,117 billion in its foreign exchange business for foreign trade, representing an estimated 27.0% market share calculated based on DGCIS trade data. The Bank undertakes foreign exchange sales and purchases on behalf of its customers through cover operations, occasionally running a position backed by merchant transactions. The Bank also sells RBI permitted hedging products to the Bank’s large and medium sized corporate customers through seven Regional Treasury Marketing Units which work in close coordination with the relationship managers in the Mid-Corporate and Corporate Accounts Groups. The Bank offers all RBI permitted derivative structures to its clients including: foreign exchange forward contracts, options, and currency and interest rate swaps. The Bank’s investment and market risk policies are approved by the Central Board. The Bank has implemented treasury solutions software that facilitates online trading, accounting, valuation and portfolio risk management. A real time gross settlement system (“RTGS”) for inter-bank transfers has also been implemented under the direction of the RBI. However, under the delivery versus payment mechanism, cash and Government securities are netted by the RBI through the Clearing Corporation of India Ltd. See “Industry Overview — RTGS Implementation in India.” International Banking The Bank’s international banking products and services include corporate lending, loan syndications, letters of credit and guarantees, short-term financing, project export finance, and collection of documentary credits and remittances, as well as the raising of funds and other borrowings outside India. The International Banking Group’s core activity is to provide these services to Indian corporates doing business outside of India, and foreign companies with operations inside of India, as well as NRIs conducting business in foreign markets. To a lesser extent, the International Banking Group also seeks to service corporate and individual customers outside India through the Bank’s branches and subsidiaries. The International Banking Group’s customers span the range from India’s largest corporates to individuals.

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As of December 31, 2007, the Bank had a network of 84 overseas offices in 32 countries covering all major time zones. Among its other locations, it is present in New York, London, Frankfurt, Singapore, Hong Kong and the Maldives. It maintains correspondent relationships with 530 leading banks in 124 countries. As part of the centralisation of treasury activities of foreign offices, the Bank has set up central treasury hubs in Hong Kong and London. These hubs are intended to aggregate market risks and achieve economies of scale. Besides meeting the foreign exchange and money market needs of their linked branches and undertaking proprietary trading in currencies, it is expected that the central treasury hubs will expand their activities to cover interest rate, foreign exchange, credit structures and bond trading. The Bank has a significant global presence and is participating in syndicated loans to large international corporations both in the primary and secondary markets. The Bank’s foreign offices have had success in managing documentary credits, and have also been active in providing loans to Indian joint ventures or the wholly owned subsidiaries of Indian corporates which have acquired companies or set up new projects outside India. The Bank’s foreign offices have also achieved significant growth in the area of trade finance as the import and export trade of India has increased. The Bank periodically revises its investment policy for foreign offices in line with international market practice and available products, emphasising investments in the fixed income products of sovereign, banking and corporate issuers. The Bank continues to be a leading arranger for syndicated corporate loans in foreign currencies for corporate customers in India, generally clients of the Corporate Account Group and the Mid-Corporate Group. In fiscal year 2007, the Bank participated in syndicated corporate loan transactions amounting to U.S.$ 5.9 billion and extended several bilateral corporate loans amounting to U.S.$ 218.0 million. As of December 31, 2007, the Bank handled 41 syndications representing a total of U.S.$ 22.6 billion. Of these, 30 syndications worth a total of U.S.$ 20.1 billion were concluded and the remaining are in various stages of progress. In addition, 13 bilateral deals, worth a total of U.S.$ 552.4 million, for external commercial borrowings by Indian corporates were concluded. During the current fiscal year, the Bank syndicated loans for both project finance as well as overseas acquisitions by Indian corporates. In NRI services, the Bank provides management and technological expertise to two exchange companies, or entities providing customer to customer money transfer services, in Qatar and Oman, and has also entered into arrangements with eight other exchange companies in the Gulf region to facilitate NRI and other customer remittances to India. The Bank’s emphasis on technology is a critical part of the international banking platform. A core banking software, specific to the Bank’s international branches and subsidiaries, has been installed at 33 foreign branches, four subsidiaries and two joint ventures providing data transfer and limited transaction processing connectivity with the Bank’s domestic IT network. Internet banking is provided to customers at all foreign offices and “Instant Transfers” are available from 18 countries. The Bank has recently launched a web-based remittance initiative targeted at the sizeable NRI population in the United States and the United Kingdom. This product allows customers to transmit remittances online, even where the remitting party is not an SBI customer. The Bank’s electronic export payment collection facility, Global Link Services (“GLS”), facilitates export payments, other overseas collections and inward remittances. During the fiscal year 2007, on behalf of domestic branches of the Bank, GLS collected proceeds of 148,000 export bills in U.S. dollars and euros, and the proceeds of 277,463 checks in sterling, euro, and U.S. dollars totalling U.S.$ 13.3 billion in value terms. For the period ended September 30, 2007, there were 76,633 export bill transactions and foreign currency checks worth U.S.$ 8.5 billion. Project Export Finance The Bank is an active participant in the financing of project export activities by Indian corporates involving the bidding for and execution of turnkey and civil construction contracts and export of engineering goods on a deferred payment basis as well as service exports. The Bank can approve projects of up to U.S.$ 100 million (Rs. 4.0 billion), and acts as a sponsor for its customers in respect of projects exceeding U.S.$ 100 million (Rs. 4.0 billion), which need to be approved by a number of Indian government departments. The Bank provides bond guarantees for projects during the bidding stage. Once projects are approved, the Bank provides performance guarantees and other non-fund based products as well as construction funding if required by the customer. In the six-month period ended September 30, 2007, the Bank supported 21 large projects and service export proposals aggregating Rs. 67.1 billion involving 9 countries.

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Foreign Subsidiaries and Joint Ventures The following table sets out details of the Bank’s international subsidiaries and joint ventures outside India as of September 30, 2007.

Name Year of

Establishment

Bank’s Shareholding

(%) Total Assets

Owned Funds

Net Profit

(Rs. in millions, except percentages)

Foreign Subsidiaries SBI (Canada)(1) ........................ 1982 100.00 20,928 2,704 81 SBI (California)(2) .................... 1982 100.00 17,233 1,419 89 SBI Intl. (Mauritius) Ltd(3) As JV — 1989

As a Sub. – 1999

98.00

16,154

991

64 Indian Ocean Intl. Bank Ltd. (4)

1978 61.93 8,159 760 35

PT Bank Indo Monex(5) (8) 1970 76.00 2,162 678 5 Joint Ventures Bank of Bhutan(6)...................... 1968 20.00 17,141 1,260 199 Nepal SBI Bank Ltd.(7) ............ 1993 50.00 8,090 610 73 Commercial Bank of India LLC, Moscow(9)

2003 60.00 1,924 974 33

_______________________ Notes: (1) CAD = Rs. 39.8750 as on September 30, 2007. (2) U.S.$ = Rs. 39.8450 as on September 30, 2007. (3) MUR = Rs. 1.3175 as on September 30, 2007. (4) Stake acquired by the Bank on April 19, 2005. (5) Stake acquired by the Bank on December 14, 2006. (6) BTN = Rs. 1.000 as on September 30, 2007; figures as of December 31, 2007 (7) NPR = Rs. 0.6206 as on September 30, 2007; figures as of July 16, 2007 (8) IDR = Rs. 0.004350 as on September 30, 2007. (9) IDR = Rs. 0.004350 as on September 30, 2007. Delivery Channels The Bank is committed to bringing convenience and technology to its customers. In accordance with this goal, the Bank’s delivery channels for its banking products and services include: Branch Network As of December 31, 2007 the Bank had an established network of 10,072 offices (excluding administrative offices) across India, catering to the diversified banking needs of its customers. Of this, the Corporate Banking Group had a network of 42 branches catering to high value corporate customers (which are customers other than customers of the Rural Business Group, SMEs and retail accounts). The National Banking Group along with the Rural Business Group had 14 administrative circles encompassing a network of 10,030 offices, four sub-offices (Bank offices in non-rural areas offering all standard services but operating only a limited number of days or hours per week), 12 exchange bureaus, 131 satellite offices (Bank offices in rural areas offering all standard services but operating only a limited number of days per week), and 341 extension counters (offering deposit and liability products, and loans against deposits, operating during all working days) to service customers as of December 31, 2007. Of the total branches, 110 were specialised branches catering to high net worth customers and the mass affluent customer segment, as well as branches handling exclusively home loans. Up to December 31, 2007 of fiscal year 2008, 555 new domestic offices were opened. There are 103 personal banking branches located in metropolitan and urban areas, which offered a wide range of services to high net worth and mass affluent individuals. ATM Services

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The Bank is rapidly expanding its ATM network which included 5,577 Bank ATMs in India, and was the largest ATM network in the country, as of December 31, 2007. The Bank’s customers can conduct the following transactions free of charge at any one of the Bank’s ATMs across the country: cash withdrawal, balance enquiry, mini-statement, utility payments, mobile recharge, temple donations, fee payments and fund transfer. The Bank believes that ATMs are its most dynamic retail delivery channel today. The Bank had issued 24.17 million ATM cards as of December 31, 2007. All the Bank’s ATM cards also function as debit cards. The Bank has created a single ATM network across all of its subsidiaries and associates, for a total of 8,079 ATMs across the Group, with a total of 33.35 million ATM cards issued by the Group. On average, the Bank’s ATMs transact 1.67 million transactions daily involving approximately Rs. 3.3 billion worth of cash withdrawals during the month of December 2007. For the Group, average transactions were 2.25 million transactions per day, with cash withdrawals of Rs 4.4 billion per day during the month of December 2007. The Bank’s ATM expansion drive was strengthened through a change in strategy, which included improved marketing and customer education including:

• segment specific cards for customer groups such as high net worth individuals, farmers, and SMEs;

• enhanced visibility of ATM machines; and

• strategic positioning of ATMs, such as in railway stations, shopping malls and residential complexes.

The Bank has bilateral arrangements with 13 other banks, providing its cardholders with access to the largest network in India, with over 18,500 ATMs in service as of December 31, 2007.

Value-added facilities such as payment of premiums on SBI Life Insurance Policies, SBI Credit Card account payments, payment of fees for selected schools and colleges, mobile phone, bill payments and temple donation are available through the Bank’s ATMs. Credit Cards The Bank operates its credit card business through its subsidiary, SBI Cards and Payment Services Pvt. Ltd. (“SBICPSL”). SBICPSL believes its estimated market share to be 16.3% at March 31, 2007 in terms of number of credit cards issued in India. Credit cards are marketed primarily by the National Banking and Rural Business Groups. Internet Banking As of December 31, 2007, approximately 6,868 branches provided internet banking service and were used by approximately 1.5 million customers in the retail segment and approximately 77,000 customers in the corporate segment. An internet banking service is available at the Bank’s website: www.onlinesbi.com. The Bank’s internet banking solution is a comprehensive product for both retail and corporate use. Internet banking has given the Bank a real-time transaction processing capability and has allowed the implementation of the Bank’s business initiatives in many areas such as railway and air ticket booking, online tax payment, transfer of funds, railway freight payment and utility bill payment. The Bank’s customers can check account balances, request check books, bank drafts and banker’s cheques, issue standing instructions, trade stocks, invest and renew term deposits, open new accounts, donate to religious organisations and pay income taxes online. Customers can make inter-branch transfer of funds to their other accounts and also to third party accounts. Customers can also book rail tickets, pay utility bills and insurance premiums, invest in mutual funds, pay credit card balances and set up SMS alerts for transaction information. The Bank also has dedicated internet banking for the corporate customers, including SMEs, that include features specifically tailored to these clients, including control and authorisation features. Internet banking for corporate customers includes online payment of customs tax and corporate income tax, online payment of central railway freight, vendor finance, issuance of online bulk draft, and transfer of funds to multiple vendors at different locations.

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Bill payment through the Bank’s e-payment systems, a part of internet banking, allows its customers to pay their telephone, mobile phone, electricity, insurance and credit card bills, donations to charitable institutions and college tuition electronically. Auto payment is also available for customers to set up payments such that the bill amount is withdrawn from the customer’s account each month without any action taken by the customer. The Bank’s Associate Banks use the same platform to make internet banking services available to their customers. Insurance Activities SBI Life Insurance Company (“SBI Life”) was established in 2001 as a joint venture with Cardif SA (“Cardif”) of France, which holds a 26.0% stake as of the date of this Letter of Offer. Cardif SA is a wholly owned subsidiary of BNP Paribas. SBI Life distributes life insurance products through bank branches as its primary distribution channel. This allows SBI Life to leverage the combined strengths of the Group’s extensive branch network and Cardif’s expertise in bancassurance distribution. For the half year ended September 30, 2007, 42.6% of SBI Life’s premiums were sourced through bancassurance. As a secondary distribution channel, SBI Life had 27,758 licensed advisors as of September 30, 2007, who sell life insurance through SBI Life branches. For the half year ended September 30, 2007, 52.2% of SBI Life’s premiums were sourced through these advisors. SBI Life also sells to corporate customers, which comprised 5.2% of SBI Life’s premiums As of September 30, 2007, SBI Life has written more than 6.84 million life insurance policies and has become one of the top private insurers in India in terms of number of lives covered. SBI Life had premium income of Rs. 13.8 billion for the six-months ended September 30, 2007 and Rs. 29.3 billion for the year ended March 31, 2007. SBI Life has been rated ‘AAA’ by CRISIL (affiliate of Standard and Poor’s) for financial strength. See “Regulations and Policies — Regulations Governing Insurance Companies” for a discussion of regulations applicable to insurance operations in India. Associate Banks and Subsidiaries in India The Bank has three wholly-owned and four majority-owned Associate Banks and a banking subsidiary, SBICI. The Bank also provides financial services through its non-bank subsidiaries, including merchant banking, fund management, leasing and factoring services. In the Bank’s financial statements, investment in subsidiaries and joint ventures (both in India and abroad) are valued at historical cost after netting of provisions, if any. The Associate Banks Department of the Bank coordinates the Bank’s management of the Associate Banks and subsidiaries. Associate Banks The Associate Banks were created by an Act of Parliament in 1959. Prior to the Bank’s investment, they were independent regional banks. The Associate Banks operate on the same IT system as the Bank, apply the same accounting policies and are administered by senior level management appointed by the Bank. The Associate Banks have a total of 4,867 branches located in various regions in India as of September 30, 2007. Collectively, the Associate Banks accounted for Rs. 2,589.8 billion in total assets as of September 30, 2007, representing 28.6% of the Group’s total consolidated assets. The Bank has recently announced its intent to merge with one of its Associate Banks, the State Bank of Saurashtra. A scheme of merger has been submitted to the Government and the RBI and is subject to their approval. If this merger occurs, the State Bank of Saurashtra will cease to exist as an entity, and the SBI brand name is planned to replace existing State Bank of Saurashtra branding. The Associate Banks generally offer the same products and services as the Bank offers, though they are allowed the freedom to initiate their own product lines where they deem it necessary to meet the specific demands of their clients. The Bank’s seven Associate Banks together had an estimated market share of 7.33% in deposits and 7.68% in advances of all scheduled banks as of September 28, 2007, calculated based on RBI data. The Bank agrees to a budget and a business plan with each Associate Bank annually. The Bank exercises strategic control over each Associate Bank through the respective boards of directors.

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Although there are no inter-company loans, there are customary inter-bank drawing and deposit arrangements and short-term inter-bank lending transactions between the Bank and the Associate Banks. Although the Bank has participated in capital increases of certain of the Associate Banks in the past, it made no additional investments in any of the Associate Banks during fiscal year 2007 or the six-month period ended September 30, 2007. The Associate Banks recorded a growth in business during the period ended September 30, 2007 with deposits and advances growing by 20.1% and 27.3%, respectively, over the previous year. The Associate Banks together reported net profit of Rs. 10.0 billion during the period ended September 30, 2007, which was an increase of 16.9% from the period ended September 30, 2006. Gross NPAs as a percentage of gross advances decreased from 2.4% as of September 30, 2006 to 1.9% as of the end of the period ended September 30, 2007. Net NPAs as a percentage of net advances decreased from 0.9% as of September 30, 2006 to 0.8% as of the period ended September 30, 2007. Net NPA is defined as gross NPA (which is the aggregate of all NPAs) less provisions. The following tables set out the Bank’s shareholding and certain performance highlights of the Associate Banks as of September 30, 2007:

Name of the Bank Bank’s

Ownership Deposits Advances Operating

Profit Net Profit (%) (Rs. in millions) State Bank of Bikaner and Jaipur ............................................

75.07% 294,356 213,187 2737 1317

State Bank of Hyderabad.............. 100.00% 433,313 310,396 3,854 2356State Bank of Indore ..................... 98.05% 215,297 162,054 1,938 1159State Bank of Mysore ................... 92.33% 242,766 180,124 2,606 1640State Bank of Patiala..................... 100.00% 438,279 312,703 3084 1720State Bank of Saurashtra............... 100.00% 164,156 115,956 825 289State Bank of Travancore ............. 75.00% 330,360 263,060 3,600 1,541Total............................................. 2,118,527 1,557,480 18,644 10,022

Name of the Bank

Return on Average Assets Net NPA CRAR1

State Bank of Bikaner and Jaipur ................................. 0.76% 1.22% 13.30% State Bank of Hyderabad.............................................. 0.91% 0.30% 12.18% State Bank of Indore ..................................................... 0.93% 1.08% 12.76% State Bank of Mysore ................................................... 1.18% 0.34% 11.12% State Bank of Patiala..................................................... 0.61% 0.98% 12.49% State Bank of Saurashtra............................................... 0.30% 0.64% 12.10% State Bank of Travancore ............................................. 0.79% 1.17% 12.87% Average ........................................................................ 0.82% 0.82% 12.44% _______________________ Note: (1) Capital to risk asset ratio, which indicates the ratio of capital employed to the risk weighted assets of the bank and is computed in accordance with RBI guidelines. SBICI SBI Commercial & International Bank Ltd, (“SBICI”) is a wholly-owned banking subsidiary of the Bank established in Mumbai on October 7, 1993. The Bank acquired SBICI in January 1994, purchasing all of BCCI’s Indian operations following BCCI’s insolvency in England. SBICI is engaged in standard retail and corporate banking operations with retail and corporate customer bases. As on September 30, 2007, the aggregate

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deposits and total advances of SBICI stood at Rs. 4.9 billion and Rs. 3.4 billion respectively. SBICI recorded an operating and net profit of Rs. 43.6 million and Rs. 33.8 million, respectively, during the period ended September 30, 2007. Return on assets stood at 1.04%, whereas net NPA and CRAR were 0.16% and 19.28%, respectively. Non-Bank Subsidiaries and Joint Ventures In addition to the Associate Banks, the Bank also has a network of non-bank subsidiaries and joint ventures engaged in businesses other than commercial banking. At September 30, 2007, such non-bank subsidiaries and joint ventures accounted for Rs. 136.9 billion in total assets. In the Bank’s financial statements, investments in subsidiaries and joint ventures (both in India and abroad) are valued at historical cost net of provisions, if any.

Non-Banking Subsidiaries Group’s

Ownership Group’s

Investment Assets Net

Profit Business Line (%) (Rs. in millions) SBI Factors and Commercial Services Pvt. Ltd ........................................................

69.88% 427 11,046 134 (Factoring services)

SBI DFHI Ltd .............................................. 65.95% 3406 18,409 489 (Primary dealer trading in securities, trustee services)

SBI Capital Markets Ltd.............................. 86.16% 500.0 5,065.7 829 (Finance syndication; debt and equity capital markets; mergers and acquisitions; advisory; infrastructure project advisory; securitisation)

SBI CAP Securities Ltd............................... 86.16% 500 818 48 (Stock brokering)

SBI CAP Ventures Ltd ................................ 86.16% 1 28 (0.1) (Venture capital)

SBI CAP Trustee Co. Ltd. ........................... 86.16% .5 0.6 0.01 SBICAP (UK) Ltd ....................................... 86.16% 16 50 3.7 (Financial

services and advisory)

SBI Mutual Fund Trustee Co Pvt Ltd.......... 100.00% 1.0 28 7.3 SBI Funds Management (International) Ltd. ..............................................................

63.00% 0.4 6 2

_____________

Note: (1) Shareholding amounts are the aggregate of the Bank’s direct and indirect shareholdings.

Non-Banking Joint Ventures Bank’s

Ownership Investment Assets Net Profit (%) (Rs. in millions)

SBI Life Insurance Company Ltd (Life insurance) ....... 74.00% 4,440 69,278 141 SBI Cards and Payment Services Pvt. Ltd (Credit cards) .............................................................................

60.00% 1,500 31,490 (640)

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GE Capital Business Process Management Services Pvt. Ltd .......................................................................... 40.00% 108 2,014 149 C-Edge Technologies Ltd .............................................. 49.00% 49 140 6 SBI Fund Mgmt. Pvt. Ltd (Asset management) ............ 63.00% 189 1,493 253 ______________

Note: (1) Shareholding amounts are the aggregate of the Bank’s direct and indirect shareholdings. Regional Rural Banks The Bank has sponsored, in accordance with applicable legislation, 16 Regional Rural Banks covering over 104 districts in 16 states with a network of approximately 2,311 branches as of December 31, 2007. Following changes to the regulatory framework governing Regional Rural Banks, these banks have been transformed into commercial banks. The Bank retains certain sponsor responsibilities. These responsibilities include approving annual business plans and quarterly monitoring of performance, managerial assistance through secondment of high-level staff, inspection and audit, planning and budgeting, training and development, prevention of frauds, and guidance and support through the Bank’s Global Markets Group. The Bank’s shareholding in each Regional Rural Bank is limited to 35.0%; the Government holds 50.0% and each relevant state government holds 15.0% of the shares of each Regional Rural Bank. Regional Rural Banks cater to the banking needs of customers in rural and semi-urban areas and their operations are concentrated in one district or a cluster of districts in each state. Their target customer group is agricultural, small business and retail, to whom the Regional Rural Banks provide services such as deposit and time accounts, lending and financing. Following Government consolidation of the sector, the number of Bank sponsored Regional Rural Banks decreased from 25 to 16 during the fiscal year 2007. The Group had sponsored an aggregate of 44 Regional Rural Banks, which have been reduced to a total of 22 following consolidation. Information Technology Systems and Infrastructure The Bank’s IT infrastructure provides connectivity among the domestic and international network of branches. The objective of the Bank’s IT policy is to achieve and maintain efficiency in internal operations and to meet customer and market expectations. IT Infrastructure Core Banking Solution The Bank is moving towards a fully centralised database with its Core Banking Solution, which provides the capability of online real-time transaction processing across the Bank’s branches that are included within this platform. The Bank believes that the Core Banking Solution will allow for efficient transaction handling through centralised processing. Further, it believes that the Core Banking Solution will enable the Bank to deliver multi-channel value-added services to customers, facilitate uniform product offerings and assist in the introduction of innovative banking products. Since the first pilot branch went live in August 2003, the Bank has added more than 12,000 branches (7,303 branches of the Bank and 5,012 branches of Associate Banks as of December 31, 2007) to its Core Banking Solution. All of the Bank’s branches are expected to have completed the implementation of the Core Banking Solution by March 2008. The Core Banking Solution includes a centralised processing centre and a disaster recovery site which provides back-up information for the entire project. This back-up is accomplished through a three way disaster recovery: primary data centre, near recovery centre and disaster recovery site. The disaster recovery sites can host critical banking applications in the event of a disaster at the primary site. Near recovery centres are located in proximity to primary data centres, while disaster recovery sites are located some distance from the near recovery centres. The Core Banking Solution is being implemented by Tata Consultancy Services. Although the Bank and the Associate Banks use the same Core Banking Solution application, each of them has retained separate databases. SBI Connect SBI Connect, a platform for the Bank’s connectivity which makes real-time transactions between branches possible, is the foundation for the technology infrastructure within the Group. The Bank and the

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Associate Banks, each with distinct internet protocol addresses, depend on SBI Connect to support all their business critical applications such as Core Banking Solution, trade finance software, ATMs, payment systems, cash management software, corporate email and intranet portals. The platform, both as to software and hardware, was designed by Tata Consultancy Services. As of December 31, 2007, more than 7,822 branches and offices of the Bank, and 12,988 offices of the Group, were connected by SBI Connect. Trade Finance Project The Bank has purchased integrated trade finance solution software called “CS Exim Bills,” which has been customized for the Bank’s operations. CS Exim Bills is a trade finance system designed to address the data processing requirements of the Bank’s trade finance department. CSExim Bills automates the full range of trade finance activities from document preparation, calculation of commissions and foreign exchange to accounting, the generation of S.W.I.F.T. messages and report management. Single entry input captures all the necessary data to process, record, and report on the entire transaction. As of September 30, 2007, this software had been installed in 453 branches, including the Bank’s foreign branches. The software also has a facility for customer access over the internet. IT-based products and developments In an effort to remain technologically competitive with its peers, the Bank has introduced the following technology based products:

• Centralised payment services (e.g. dividend warrant payments, salary payments) through the Cash Management Module (also provided in bulk via the usual manual mode).

• Centralised collection of bulk equated monthly instalments for the benefit of the Bank’s corporate

customers (through the e-debit facility of the cash management product).

• Vendor financing for those vendors who serve the Bank’s corporate clients. The Bank believes that there is strong potential to increase this service among the Bank’s Mid-Corporate Group and SME customer base.

• IT based solutions for corporates including on-line payment of taxes and direct payment of freight to

railways at the point of loading. The Bank’s IT initiatives have played a significant role in transforming the Bank into a more responsive organisation in a constantly evolving competitive landscape. The Bank also offers Internet Banking to customers of more than 5,800 branches. These alternate delivery channels, coupled with a network of more than 6,200 branches connected through the Core Banking Solution have increased the transaction processing capacity and efficiency of the Bank and is expected to continue to contribute substantially to the Bank’s growth. Competition The Bank faces competition in all its principal areas of business. Private sector banks, foreign banks and other public sector banks are the Bank’s main competitors, followed closely by finance companies, mutual funds and investment banks. The regulations governing the Indian banking sector are expected to be liberalized in 2009, which might expose Indian banks to more intense competition from foreign banks. The Bank seeks to gain a competitive advantage by offering innovative products and services, maximising the functions of its extensive branch network, in particular in rural and semi-urban areas, investing in technology and building on relationships with the Bank’s key customers. See “Risk Factors — Risks Relating to the Bank’s Business — The Indian banking industry is very competitive and the Bank’s growth strategy depends on its ability to compete effectively.” Corporate Banking Corporate banking faces competition from foreign and private banks in such areas as pricing, rupee loans, foreign currency loans, trade finance services and cash management services. The lower risk rating of corporate clients as well as the higher income generating capacity due to the volume and diversity of their business, attracts foreign and private banks to this sector. Foreign banks also have the advantage of their home

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country connections, with much larger resource raising abilities. However, the Bank believes its extensive low-cost deposit base provides it with a competitive advantage in meeting customers’ borrowing expectations. In addition, traditional corporate banking faces competition from the disintermediation of financial products. Customers increasingly have multiple financing sources available to them beyond those generally provided by traditional banks, which in turn is putting pressure on margins. The Corporate Accounts Group has been able to counter this competition through strong customer relationships, as well as through efficient and focused delivery of products and services. This has been most noticeable in the area of trade finance services, including letters of credit. To further counter the downward pressure on margins, the Bank intends to focus on developing new fee-based services, such as vendor financing, as well as wholesale banking services such as payment and collections services. With over 7,303 branches connected through the Core Banking Solution covering more than 94.68% of the Bank’s business as of December 31, 2007, the Bank is able to process bulk direct debits, direct credits and other centralised solutions, without having to utilise the services of any intermediate banks in the payment chain, ensuring a high level of data privacy for corporate clients. In addition, this extensive network of branches connected to the Core Banking Solution has increased the Bank’s transaction processing capacity and efficiency, enabling customers to carry out their payments and collections across all of India, while centralizing their cash management in Mumbai. Retail Banking In the retail banking sector, the Bank faces competition primarily from foreign and Indian commercial banks and housing finance companies. Foreign banks typically focus on limited customer segments, such as high net worth individuals and mass affluent, and geographic locations due to limitations of their smaller branch networks relative to Indian commercial banks. Indian commercial banks generally have wider distribution networks than foreign banks, but relatively weaker technology and marketing capability. The Bank seeks to compete in this sector by offering a wide product portfolio through its extensive branch network and by leveraging its client relationships in diverse market and geographic segments. In addition, in rural banking and micro finance, the Bank believes it can build on the strength of its extensive geographic presence and reputation to continue to expand in these areas. The Bank has sought to capitalise on its extensive and diverse corporate relationships to gain individual customer accounts through payroll management products. Furthermore, it intends to continue to pursue a multi-channel distribution strategy using physical branches, ATMs, call centres and the internet to reach customers. In recent years, investment in mutual funds has become an increasingly viable alternative to traditional banking products, since they offer tax advantages and have the capacity to earn competitive returns. This has resulted in competition for the deposit base of the Bank’s retail customers. The Bank has sought to address the competitive pressure by offering a wider range of mutual fund products to its customers in addition to traditional deposits. International Banking The Bank’s international strategy is focused on India-linked opportunities in the initial stages. In its international operations, the Bank faces competition from other Indian banks with overseas operations, as well as foreign banks with products and services targeted at non-resident Indians and Indian businesses and other service providers like remittance services. The Bank intends to leverage its strong relationships with Indian corporates in its international business. The Bank also intends to expand its banking operations to serve non-resident Indians as well as local clients in its host countries. Treasury Operations The Bank is the market leader in India in treasury operations measured by the size of investment book, the volume of foreign exchange transactions handled, and the size of money market operations. However, there is intense competition in relation to simple treasury products, such as foreign exchange, spot and forward sales and purchases. The Bank believes that, relying on its extensive branch network, long-standing customer relationships, strong sales teams, and product innovation, it has been able to maintain its strong position within India. The Bank believes it benefits from economies of scale in developing and offering foreign exchange and money market products.

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Government Banking The RBI, the Bank and other public sector banks conduct Government business in India. Other public sector banks are the Bank’s principal competitor in handling Government and state government payments and receipts. The Bank believes it has a competitive advantage in this activity due to its specially trained staff, business processes tailored over the course of long relationships to the unique demands of the various Government departments that the Bank deals with, and the depth of its funding base, which enables it to set aside sufficient funds to meet the remittance requirements of the Government on a recurring basis. Four new-generation private sector banks including AXIS Bank (formerly UTI Bank), IDBI Bank, ICICI Bank and HDFC Bank have been authorised by the RBI for the revenue collection of Central Board of Excise and Customs (CBEC) and Central Board of Direct Taxes (CBDT) of Department of Revenue, Ministry of Finance, and the Government. The Bank expects to address this growing competition by emphasising its extensive branch network, providing easy access for customers, its historical links with the Government, its perception as a Government Bank due to its historical association with handling Government business and staff that is trained and experienced in handling Government business. Legal and Regulatory Proceedings The Bank is involved in certain legal proceedings in the ordinary course of its business. However, currently, the Bank is not a party to any proceedings, and is not aware of any current, pending or anticipated proceedings by governmental authorities or third parties, which, if adversely determined, would have a material adverse effect on the Bank’s financial condition or results of operations. Insurance The Bank maintains its own insurance policies and coverage that it deems to be appropriate. The Bank’s standard insurance policies cover for losses of or damage to property including furniture, fixtures, computer hardware, ATMs and vehicles. Cash-in-transit, cash, securities and precious metals and other valuables are covered against theft. In addition, the Bank has also obtained a fidelity policy for employees and directors’ and officers’ liability insurance to cover the Bank’s directors and other key management members. The Bank carries insurance coverage commensurate with its level of operations and risk perception. Employees As of September 30, 2007, the Bank had 179,188 employees, of whom approximately 30.0% were officers, approximately 44.0% were clerical and the remaining 26.0% were subordinate staff. The Bank’s officers include professionals in business management, accountancy, engineering, law, computer science and economics. The Bank’s management believes that it has a good relationship with its staff. The Bank aims to develop a collaborative culture and ongoing consultative process at various levels of administration within the Bank. The Bank has entered into numerous settlements and memoranda of understanding with the “All India SBI Staff Federation,” which represents 98.0% of SBI’s employees. These relate to matters such as promotion policies, staff empowerment and training, redeployment of staff and career progression. The All-India State Bank Officers’ Federation and the All-India SBI Staff Federation jointly went on strike from April 3, 2006 to April 8, 2006 demanding a review of the Bank’s pension scheme to bring it in line with industry standards. The strike ended after a settlement was reached on the issues raised by the respective federations. During this period banking services were provided through various alternate delivery channels. Emergency services were also extended through the Associate Banks’ network. Clerical employees from the Associates Bank’s as well as officers from the State Bank of Mysore, jointly went on strike in December 2007 to protest the Bank’s proposed merger of two Associate bank’s with the Bank. See “Risk Factors- The proposed merger of the Associate banks with the Bank’s may engender opposition against the Bank and lead to business disruptions, such as labour strikes, and adversely affect the Bank’s operations.” As a result, of these strikes, there was minimal impact on both the Bank’s operation and reputation. Computerisation of branches and other IT initiatives have reduced employee workloads and allowed the Bank to reduce its overall workforce during the past five to six years despite growing its business. However,

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the introduction of BPR initiatives and focused efforts for marketing has resulted in an increased demand for new staff. The Bank has a human resources plan in place which will be reviewed once the Core Banking Solution and BPR initiative roll out is complete, which is expected in 2008. Various initiatives such as retraining operational staff are under way. Incentive schemes based on performance measurement have also been introduced. The Bank introduced an exit option scheme for officers which ran from April 29, 2005 to October 31, 2006, and from September 1, 2006 to March 31, 2007 for non-officer staff. The Bank believes that its employees are its most valuable asset. The Bank has implemented e-learning at the State Bank Academy, Gurgaon, to provide online training and assessment. The performance management system in the Bank has been upgraded to focus on competency based assessments and career progression implications. The State Bank Staff College, State Bank Academy, State Bank Institute of Information and Communication Management, State Bank Institute of Rural Development and 45 Staff Training Centres, all owned and operated by the Bank, are located across India and are focused on creation and skills development relevant to the future of banking. The Bank faces intense competition for the recruitment and retention of its employees. Poaching of qualified employees has been a concern for the Bank in the past and will likely continue to be in the future. In order to deal with this issue, the Bank is recruiting staff for specialised functions. In addition, the Bank recruits staff at universities across India. The Bank has also formulated an incentive scheme for operational employees in an effort to retain talented employees. Further, adjustments to this scheme are undertaken on a regular basis to align with market conditions. The Bank has also appointed a consultant to formulate a stock-option scheme. Properties The Bank’s principal network consists of 10,072 offices, 341 extension counters and 5,577 ATMs. These facilities are located throughout India. In addition to the branches, extension counters and ATMs, the Bank has commercial premises housing 14 administrative circles, 12 exchange bureaus and 131 satellite offices. Of the Bank’s properties, approximately 800 are owned by the Bank. The Bank’s corporate office is located in Mumbai. The Bank’s premises and other fixed assets are accounted for on a historical cost basis in accordance with Indian GAAP. As such, the Bank believes the value of its properties, many of which have been in the Bank’s possession for a long period, are being carried on its balance sheet at values significantly below their current fair value. Relationship with the Government and the Reserve Bank of India The Bank has relationships with the Government and the RBI in several contexts as described below. Government as Majority Shareholder The RBI was the Bank’s majority shareholder with a shareholding of approximately 59.7%. On February 28, 2007, the finance minister of India announced that the entire shareholding of the RBI would be transferred to the Government. The Government purchased RBI’s entire shareholding in the Bank on June 29, 2007. The Act provides that the Government shall not hold less than 55.0% of the Bank’s outstanding shares. As the Bank’s controlling shareholder, the Government has effective control over the affairs of the Bank. Statutory Powers of the Government over SBI Because the Bank was created by statute, it does not have articles of association. However, under the Act, the Government has been given rights and powers typically given to shareholders under typical corporate structures. For example, the Government has the power to increase or reduce the authorised number of shares of the Bank. The Act also provides that no shareholder other than the Government shall be entitled to exercise voting rights in respect of any shares held in excess of 10.0% of the Bank’s issued share capital. See “Regulations and Policies — The State Bank of India Act.” The Act and its related rules and regulations provide the Government and the RBI with certain additional rights which may be used to influence the affairs of the Bank. The Act expressly provides that the Bank shall be guided in matters of policy involving public interest by such direction as the Government may, in consultation with the RBI and the Chairman of the Bank, provide. In addition, although the Bank’s affairs are managed by the Central Board, the Central Board consists of members directly appointed by the Government in consultation with the RBI as well as nominees from the Government and the RBI. The RBI also nominates a

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director of the Central Board, under section 19(f) of the Act; the Chairman and the two Managing Directors are directly appointed by the Government in consultation with the RBI. The Government has the power to terminate any director’s service. See “Regulations and Policies — RBI Regulations.” Government and the RBI as Regulator The Government and the RBI regulate the banking sector. In particular, the RBI has authority to issue instructions and notifications, which are typically broad in scope, thereby giving the RBI considerable latitude over banks in general, including the Bank. Pursuant to such instructions and notifications, the RBI defines the scope of the Bank’s activities and otherwise controls many factors affecting the Bank’s competitive position, operations and financial condition. It also has the power to license new banks which may compete with the Bank. See “Regulations and Policies — RBI Regulations.” Government as Customer The Act specifically provides that the Bank shall act as the agent of the RBI for certain banking businesses of the Government and state governments. The Bank also transacts a significant portion of the banking needs of public sector enterprises (“PSEs”). The Government, PSEs and the various state governments transact business with the Bank on a regular basis. As on March 31, 2007, approximately 3.5% of the Bank’s loan portfolio consisted of food credit (in the form of loans to agencies of the Government and state governments for procurement and sale of food grains), and approximately 8.1% of the Bank’s loan portfolio was to PSEs. It is the policy of the Bank not to enter into any transaction with PSEs unless the terms are no less favourable than those which would have been obtained by the Bank in the normal course of business.

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DESCRIPTION OF ASSETS AND LIABILITY MANAGEMENT AND RISK MANAGEMENT OF THE BANK

The Bank is exposed to various risks that are an inherent part of any banking business, with the major risks being credit risk, market risk, liquidity risk and operational risk. The Bank has various policies and procedures in place to measure, manage and monitor these risks systematically across all its portfolios. These policies are reviewed by the Central Board from time to time. The Central Board of Directors also reviews the progress in the implementation of Risk Management Systems, Asset Liability Management, Risk Based Supervision and a Risk Based Internal Audit at quarterly intervals. Further, a Risk Management Committee of the Board (“RMCB”) oversees the policy and strategy for integrated risk management relating to various risk exposures of the Bank including credit, market liquidity and operational risks. In addition, various independent Risk Committees, namely the Credit Risk Management Committee (the “CRMC”), Asset Liability Management Committee (“ALCO”), Market Risk Management Committee (“MRM”) and Operational Risk Management Committee (“ORMC”) are in place to address credit, liquidity, interest rate and operational risk matters.

Risk Management Structure The Bank operates an integrated, independent risk management system, which the management believes is in line with international best practices, to address the risks faced in its banking activities including liquidity, interest rate, market, credit and operational risks. As a financial institution engaged in lending, the Bank is exposed to various kinds of risk, in particular, liquidity risk (the possibility of not having the necessary funds to meet operational and debt servicing requirements), interest rate risk (the risk associated with movements in interest rates), credit risk (the potential for loss due to the failure of a counterparty or borrower to meet its financial obligations), market risk (the possibility that changes in interest rates, foreign exchange rates, prices of debt securities and other financial contracts may have an adverse effect on the Bank’s financial condition) and operation risk (including risk arising from inadequate or failed operational processes, people and systems). The Risk Management Committee of the Central Board is in place to oversee the Bank’s policy and strategy for integrated risk management of the various risks faced by the Bank. In addition, there are independent Risk Committees including the CRMC, ALCO, MRM and ORMC in place to monitor the credit, liquidity, interest rate and operational risk matters. Critical issues and developments in their respective areas are referred to the Risk Management Committee. The risk philosophy of the Bank is guided by the twin objectives of enhancement of shareholder value and optimum allocation of capital.

Board of Directors

Credit Policy and

Procedures Committee

Risk Management

Committee

Credit Risk Management

Asset Liability Management

Market Risk Management

Operational Risk Management

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The Bank’s exposure norms are in line with the norms laid down by the RBI for commercial banks and financial institutions. As per these norms, exposure by way of direct assistance to any single borrower may not exceed 15.0% (extendable to 20.0% in case of infrastructure projects) of the Bank’s capital funds (Tier I and Tier II capital) although in exceptional circumstances and with the consent of the Central Board, the Bank could consider increasing exposure to a borrower up to a maximum of a further 5.0% of the Bank’s capital funds, subject to such borrower’s consent to appropriate disclosure in the Bank’s annual report. Exposure to any single business group may not exceed 40.0% (extendable to 50.0% in case of infrastructure projects) of the Bank’s capital funds. The Bank believes it has the policies and procedures in place to manage its risks and anticipate future risk based on RBI guidelines and what management believes are international best practices. The primary responsibility for the management of risk rests with the Central Board which has approved the policies and organisational structure for various risk management measures. The Bank also has a Chief Credit and Risk Officer (“CCRO”) who is entrusted with further integrating risk management across the Bank. The Credit Risk Management Department, the Market Risk Department and the Operational Risk Management Department all report directly to the CCRO through the Chief General Manager (Risk Management). These three departments act independently but coordinate with the business units to implement risk management policies. Credit Risk Management The Bank is exposed to credit risk due to the possibility that a borrower or counter-party may fail to meet its obligations in accordance with agreed terms, principally the failure to make required payments on loans or other obligations due to the Bank. Credit risk management aims at building up sound asset quality and the long-term profitability of the institution. It involves activities such as risk identification, risk measurement, risk mitigation and risk-based pricing. The Bank manages its portfolio of loan assets with a view to limiting concentrations in terms of risk quality, geography industry, maturity and large exposure aggregates by providing a centralised focus to its credit portfolio and instituting a suitable mechanism for its management Credit risk management uses credit audit and inspection systems to determine and manage risk exposure levels across the Bank. This is an integral part of the Bank’s risk management system and helps identify early warning signals of potential problems. The following exposure levels are currently prescribed by the Bank:

Individuals as borrowers ........................ Maximum aggregate credit facilities (fund based and non-fund based) of Rs. 200 million (other than against specified securities for which there is no restriction).

Non-corporates (Partnerships, Associations, etc.) ...................................

Maximum aggregate credit facilities (fund based and non-fund based) of Rs. 800 million (other than against specified securities for which there is no restriction). The above ceiling will also be applicable to the aggregate of all facilities sanctioned to partnership firms which have identical partners.

Corporates .............................................. Maximum aggregate credit facilities in accordance with prudential norms of the RBI on exposures.

The Bank’s current credit policy prescribes that the Bank’s aggregate term loans with residual maturity of over three years should not in the aggregate exceed 35.0% of the total domestic advances of the Bank. The Bank’s policy is to restrict fund-based exposure to a particular industry to a maximum of 15.0% of the Bank’s total fund-based exposure. In addition, the Bank restricts term loan exposure to infrastructure projects to 10.0% of the Bank’s total domestic advances. The Bank’s exposure to certain “sensitive sectors,” including capital markets, real estate, and sensitive commodities (as prescribed by the RBI) are as follows:

• Real estate: the Bank’s exposure shall not exceed 20.0% of the Bank’s total domestic advances.

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• Sensitive commodities: the Bank’s exposure shall not exceed 5.0% of the Bank’s net worth as of the

end of the Bank’s previous fiscal year.

• Capital markets: the Bank’s exposure shall not exceed 40.0% of its net worth as of the end of its previous fiscal year, as applied to both fund-based and non-fund-based exposure to all forms of capital market products.

The Bank’s major exposures to individual borrowers and borrower groups are consolidated and disclosed to the Central Board at their regular meetings. The Risk Management Department conducts studies on various industries to examine the quantitative and qualitative measures that should be considered in regard to the handling of the Bank’s current exposure to various industries. These studies are also meant to provide information to help the Bank determine the merits in taking on additional exposure to various industries. The Bank has credit risk assessment models in place based on the activity of the borrower including manufacturing, trade, non-banking financial corporations, banks and primary dealers. Although not currently required by the RBI, the Bank’s risk assessment model for manufacturing entities complies with the AIRB approach. The Asset Liability Management Committee(‘ALCO”) The Bank has an asset liability management policy which prescribes various prudential limits for liquidity risk and interest rate risk management. ALCO has the job of managing liquidity and interest rate risk. To this end, ALCO manages and controls the structure of assets, liabilities and interest rate sensitivity with a view to maximising profits. It also ensures capital adequacy and sufficient liquidity. The Bank has made significant efforts to improve its market risk management capabilities and fine-tune its management information systems. These efforts have included the implementation of the risk management module of the Oracle financial services application, an asset liability management software solution, for strengthening the risk management process. Liquidity Risk Management Liquidity risk comprises the risk of not being able to raise necessary funds from the market to meet operational and debt servicing requirements. An important objective of the Bank’s liquidity management is to maintain an optimal asset to liability maturity portfolio that minimizes liquidity risk while maximizing profit. The Bank ensures that pro-active steps are taken to meet all impending liquidity requirements. Borrowing is also timed in consideration of overall market liquidity and not just requirements of funds. The Bank also maintains a reasonable level of investment in liquid securities which can be liquidated at short notice. The Bank monitors its liquidity position through a structural liquidity gap analysis carried out fortnightly in accordance with RBI guidelines on asset liability management. The liquidity position is also monitored every two weeks through a short-term dynamic liquidity analysis for the following three months based on business projections and a review of the contingency funding plan at the end of each quarter. Finally, certain liquidity ratios are examined as prescribed by the asset liability management policy to track the Bank’s liquidity position as of a particular date. The Bank has an extensive branch network and therefore holds deposits from a large number of retail customers. These deposits provide a stable resource base. In addition, liquid assets in the form of cash, balances with other banks and short-term securities help to meet the liquidity requirements of the Bank. Interest Rate Risk Management Since the Bank’s balance sheet consists predominantly of assets and liabilities denominated in Rupees, movements in domestic interest rates constitute the main source of interest rate risk. The Bank’s portfolio of traded and other debt securities and its loan portfolio is impacted by movements in interest rates. Exposure to fluctuations in interest rates is measured primarily by way of a gap analysis, providing a static view of the maturity and repricing characteristics of the Bank’s balance sheet positions. An interest rate gap report is prepared by classifying all assets and liabilities into various time period categories according to contracted maturities or anticipated repricing dates. The difference in the amount of assets and liabilities maturing or being repriced in any given time period gives the Bank an indication of the extent of exposure to potential impact on

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repriced assets and liabilities. The interest rate gap report is prepared monthly as of the last reporting Friday of each month, in accordance with RBI requirements. In addition, exposure to interest rates is measured through a sensitivity analysis which examines the impact of interest rate movements on the Bank’s financial condition. Market Risk Management Market risk refers to potential losses arising from volatility in interest rates, foreign exchange rates, equity prices and commodity prices. Market risk arises with respect to many types of financial instruments, including securities, foreign exchange contracts, equity instruments and derivative instruments, as well as balance sheet gaps. The objective of market risk management is to avoid excessive exposure of the Bank’s earnings and equity to loss and to reduce the Bank’s exposure to the volatility inherent in financial instruments. Risk measurement and monitoring entails the valuation and marking-to-market of market risk exposures, updating rates and models used for valuations and preparing simulations showing effects of possible changes in market conditions. Finally, the monitoring function extends to the examination and approval of the Bank’s treasury group’s new products. Market risks related to treasury operations are regularly and independently identified, measured, and monitored by the Market Risk Management Department. The Bank currently deals in over-the counter (“OTC”) interest rate and currency derivatives. Interest rate derivatives offered by the Bank are Rupee interest rate swaps, foreign currency interest rate swaps and forward rate agreements. Currency derivatives offered by the Bank include currency swaps, Rupee dollar options and cross-currency options. Derivatives are also used by the Bank both for trading as well as for hedging balance sheet items. Derivative transactions carry market risk, such as the probable loss the Bank may incur as a result of adverse movements in interest rates/exchange rates and credit risk or the probable loss the Bank may incur if the counterparties fail to meet their obligations. The Bank’s policy for derivatives is approved by the Central Board and prescribes market risk parameters such as cut-loss triggers and open position limits as well as customer eligibility criteria including credit rating and tenure of relationship, among others, for entering into derivative transactions. Credit risk is controlled by entering into derivative transactions only with counterparties satisfying the criteria prescribed in the Policy. The Value at Risk (“VAR”) framework is applied on an asset class basis as well as on a diversified portfolio level. VAR is monitored daily and limits are revised quarterly. The model is validated monthly by back testing. The VAR is defined as the predicted worst-case loss at a specified confidence level over a certain period of time. Operational Risk Management Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal risk but excludes strategic and reputational risk and it seeks to identify the cause of a loss. Operational risk has four principal causes: People, Process, Systems and External factors. For a discussion on the Bank’s vulnerability to operational risk, see “Risk Factors — Risks Relating to the Bank’s Business — There is operational risk associated with the banking industry which, when realised, may have an adverse impact on the Bank’s business.” The Operational Risk Management Policy of the Bank establishes a risk framework that guides the Bank in the management of operational risk and allocation of capital for potential losses. This policy requires that all functional areas, departments and business units of the Bank identify, assess, measure, mitigate, monitor, control and report on their significant operational risks in a manner that is consistent across the Bank. This policy applies to all business and functional areas within the Bank. The Bank’s Operational Risk Management Policy is supplemented by operational systems, procedures and guidelines, which are periodically updated by the Bank. The objective of the Bank’s Operational Risk Management Policy is to improve controls and mitigate risks, improve capital management, create awareness of operational risk throughout the Bank, assign risk ownership, comply with regulations, improve the quality of products and services as well as mitigate the impact and probability of loss.

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The following measures are being used by the bank to control and mitigate operational risks:

• Internal Controls and Systems

• Training

• Rewarded System

• Placement and Rotations of Staff

• Monitoring of Frauds

• Disciplinary Proceedings System

• Insurance Operational Controls and Procedures in the Bank The Bank has issued a “Book of Instructions,” which contain detailed procedural guidelines for processing various banking transactions. Amendments and modifications to these guidelines are implemented through circulars sent to all offices. Guidelines and instructions are also disseminated through Job Cards, E-Circulars, and Training Programs. The Bank has also issued necessary instructions throughout the Bank regarding the delegation of financial powers, which details sanctioning powers of various levels of officials for different types of financial transactions. Approximately two-thirds of the Bank’s branches have been brought under the Core banking System (“CBS”). The remaining branches are expected to be brought under the CBS in the near future. The Bank’s Inspection and Management Audit (“I&MA”) Department has Zonal Inspection Offices located throughout the country. Inspection officials periodically monitor adherence to controls and procedure and report derivations to facilitate corrective action. Besides I&MA officials, each Circle is assigned an internal audit team and concurrent auditors are assigned to all large branches. A statutory audit is conducted by external auditors after the annual closing. Operational Controls and Procedures in Centralised Processing Cells (“CPCs”) In an effort to improve customer service at all centres, the bank conducts central transaction processing. The CPCs process clearing checks, make inter-city check collections and engage in back office support for account opening, standing instructions, non-resident Indian services and automatic renewal of deposits. Operational Systems and Controls in Treasury Treasury’s front office, back office and mid-office (Market Risk Management Department) are fully segregated. While the front office and the independent back offices report to the Head of Treasury, the Market Risk Management Department functions independently from Treasury and is under the control of the Chief Risk Officer. The Bank’s front office Treasury operations are integrated and comprise the Rupee desk, foreign exchange desk and the derivatives desk. The front office is supported by Treasury Marketing Units located in seven centres across the country. While the Rupee desk operations consists of fixed income securities, equities and inter-bank money markets, the foreign exchange desk operations consists of inter-bank, merchant and proprietary transactions. The derivatives operations include swaps, options and structured products. Dealers enter into trades with counterparties after analyzing market conditions and taking views on price movements. After completion of a deal, the deal then flows to the back office for validation, settlement and accounting. The front office regularly discusses strategies on the basis of market forecasts, liquidity conditions and publicly available information. Trading is conducted in strict accordance with trading policies, a dealing manual and regulatory guidelines.

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The Treasury back office undertakes settlement of securities and funds based on guidelines stipulated by the Manual of Operations. Procedures followed by the back offices to minimize operational risks in Treasury include: validation of deals entered into by the front office, deal confirmations with counterparties, receipt and checking of broker contract notes, monitoring of receipt and payments on due dates, monitoring of transfer and receipt of securities into accounts where dematerialised securities are held (“demat accounts”) and reconciliation of accounts. The Market Risk Management Department (“MRMD”) uses various tools for monitoring market risk. These tools include: exposure limits, counterparty limits, position limits, gap limits, broker transaction limits, duration and VAR limits. The MRMD marks to market various positions and breaches, if any, are promptly reported. Operational Controls and Procedures in Retail Asset Operations The Bank’s retail asset operations are spread out geographically across India and the Bank has Retail Assets CPCs in most cities across India. These centres carry out disbursement of approved credit facilities, accounting, reconciliation and repayment management activities of retail assets. All operational and other risks are identified, mitigants designed and measures of performance specified to ensure adherence. Internal auditors monitor adherence to controls and procedures and report deviations to facilitate corrective action. Operational Controls and Procedures for Corporate Banking The Bank’s Corporate Accounts Group (“CAG”) operates a central functioning office at Mumbai as well as CAG branches at Chennai, Mumbai, Kolkata and New Delhi. These offices are jointly responsible for operations relating to trade finance, cash management and other general banking operations Operational Controls and Procedures for Rural Banking All rural branches are fully computerised. Operational risks pertaining to rural and agricultural branches are identified, assessed, monitored, controlled and mitigated by the respective controlling offices. Risk and control self assessment exercises are conducted at branch level for the purpose of identifying and assessing operational risks. The Bank’s rural asset operations are spread across India. Besides the respective controllers, officials from the Bank’s Inspection & Audit Department and Circle Audit Departments also visit all rural branches periodically to conduct a detailed audit for monitoring the adherence to controls and procedures as well as report irregularities within the branches. A statutory audit is also conducted at branch level after the annual closing. Anti-Money Laundering Measures adopted by the Bank The Bank has established a policy implementing know your customer (“KYC”) standards and anti-money laundering (“AML”) Measures. Detailed procedural guidelines on KYC and AML Measures have been issued to all branches and offices of the Bank, incorporating the following four key elements of the Policy:

• Customer Acceptance Policy

• Customer Identification Procedures

• Monitoring of Transactions

• Risk Management The Bank has acquired an AML software solution that is currently in the process of being implemented. This solution will enable automatic generation of various reports, assist branch officers with the identification of customers and classification of customers by risk profile as well as monitoring and reporting of suspicious transactions. KYC guidelines are covered as part of regular training program for various staff categories by the Bank Training Institutes. A list of terrorist organisations, periodically updated by the United Nations, is circulated to all branches of the Bank. The Bank is closely monitoring the implementation of the KYC guidelines and AML procedures through a system of education and monitoring by utilizing various training forums as well as an inspection and audit process.

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Country Risk and Bank Exposure Prudent exposure risk management is ensured by setting up appropriate bank exposure limits in accordance with the Bank’s approved model on a large number of foreign commercial banks. Different types of prudential exposure limits are set up for 569 banks worldwide, covering 82 countries. Substantial counterparty bank limits for handling letters of credit, bank guarantees, foreign exchange and money market activities are in place. The Executive Committee of the Central Board (“ECCB”) has approved a country risk management policy, in line with RBI guidelines, for setting up country exposure limits. Further, the overall global risk for the Bank as a whole is monitored on a regular basis. Credit Management Policies and Procedures Credit Policy and Procedures Committee The Credit Policy and Procedures Committee (“CPPC”) is headed by the Chairman of the Bank and tasked with handling issues relating to credit policy and procedures and to analyze, manage and control credit risk on a Bank-wide basis. The CPPC formulates clear policies on standards for presentation of credit proposals, financial covenants, rating standards and benchmarks, delegations of credit approving powers, prudential limits on large credit exposures, asset concentrations, standards for loan collateral, portfolio management, loan review mechanisms, risk concentrations, risk monitoring and evaluation, pricing of loans, provisioning and regulatory and legal compliance. The Bank’s credit risk management process is articulated in its credit policy, which is approved by the Central Board. The credit policy recognises the need for measures aimed at better risk management and avoidance of concentration of credit risks. With this objective, limits have been prescribed for the Bank’s exposure to any single borrower, group of borrowers or specific industries or sectors. The credit policy embodies the Bank’s approach to sanctioning, managing and monitoring credit risk and aims at making the systems and controls effective. It is guided by the best practices of commercial prudence, high standards of ethical norms and the requirement of national priorities. It also aims at striking a measured balance between underwriting assets of high quality and customer oriented selling. Accordingly, the credit policy sets out guidelines on the following aspects, in accordance with RBI and Government directives.

• Exposure levels for industries, sectors and credit facilities

• Credit appraisal standards

• Documentation standards

• Pricing policy

• Review, renewal and takeover of advances

• Credit monitoring and supervision

• Credit risk assessment

• NPA management

• Export credit

• Approach to lending to priority sectors and the services sector. All revisions in policies and procedures are carried out with the approval of the CPPC and the Central Board.

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Credit Approval and Monitoring The Bank’s credit approval process involves multiple levels of loan approval authority, depending on the loan amount and other factors such as the nature of the credit, the conditions of the transaction and whether or not the loan is secured. At each level of authority, loan applications are reviewed on the basis of the feasibility of the project from a technical, financial and economic point of view, in addition to being evaluated according to the probability of recovery. In conducting such a review the following factors are considered: the borrower’s profile, management structure, past financial performance and credit ratings, the Bank’s exposure to the company, industrial group and/or industry in light of prudential exposure norms, industry outlook and financial projections for the borrower company and/or project. In the case of overseas financing, appraisals also include an assessment of an overseas venture in terms of commercial risk, political risk and currency risk, an assessment of the relevant international market, an analysis of the benefits from the overseas venture likely to accrue to the Indian promoter, and compliance with regulatory guidelines. The Bank may also conduct a sensitivity analysis which includes variables such as debt servicing ratios and internal rates of return. The Bank has internal guidelines that limit the amounts of loans that can be authorised. Loan amounts differ depending on the type of loan and certain other factors, such as type of borrower, rating of borrower or type of facilities. The Bank disburses funds to a borrower in strict compliance with the terms of the sanction, after all necessary documentation has been executed. Specific approval must be sought from the original sanctioning authority, or as delegated in accordance with the policy approved by the Executive Committee of the Central Board (“ECCB”) or the Credit Policy and Procedures Committee (“CPPC”) before deviating from the terms of the sanction, if any. Examples of the types of procedures in place for various finance divisions include: Corporate Finance Procedures As part of the corporate loan approval procedures, the Bank carries out a detailed analysis of funding requirements including normal capital expenditure, working capital requirement and status of liquidity. The Bank’s corporate term loans are generally available for periods of three to eight years. The Bank’s corporate term loans may carry fixed or floating rates, as befit the exact requirements of the client and the risk context. The repayment mode is generally linked to the cash flow of the company. The Bank’s credit analysts gauge the applicant’s particular funding requirements and evaluate the company’s creditworthiness, factoring in the cash flows generated by it. Retail Loan Procedures The Bank’s retail loan customers are typically middle or high-income, salaried or self employed individuals. The Bank’s retail credit product operations are sub-divided into various product lines. Each product line is further sub-divided into separate sales, marketing and credit groups. The Bank has an established process for giving and collecting retail credits. In most cases, the Bank requires a contribution from the borrower and the loans are secured by the asset financed. Working Capital Finance Procedures The Bank carries out a detailed analysis of its borrowers’ working capital requirements. The Bank’s dedicated credit team has a deep understanding of the intricacies of various industries and is experienced in evaluating the business potential of companies. The credit team assesses the customer’s specific credit requirements and customizes financial solutions to suit the customer’s risk profile and its working capital cycle. Working capital finance limits are normally valid for one year and repayable on demand. Approved facilities will lapse within three months of approval unless used within that time. Project Finance and Leasing Procedures The Bank has a strong framework for the appraisal and execution of project finance and leasing proposals. The Bank believes that this framework allows for risk identification, allocation and mitigation, and

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helps minimize residual risk. The Bank has formed a dedicated Project Finance and Leasing SBU to assess credit proposals and extend term loans for large industrial and infrastructure projects. Apart from this, project term loans for medium sized projects and smaller clients are delivered through the Corporate Business Group and the NBG. The loans are approved on the basis of in-house appraisal of the cost and viability of the venture as well as the credit standing of promoters. Project finance is typically structured as long-term loans, with repayment periods generally from five to ten years. Maturity periods and repayment modes are structured in line with the specific aspects of each project and industry, factoring in a timeframe for the venture to generate a stable revenue stream. The Project Finance and Leasing SBU is dedicated to lease financing for procuring equipment for projects or plants. The Bank enters into lease agreements as stand-alone contracts or as part of a structured package. The Bank typically undertakes leasing contracts with a minimum ticket size of Rs. 50 million, generally restricted to 50.0% of the total net worth of the lessee. Lease contracts are usually structured for tenure of five to seven years. The Bank, however, has stopped encouraging new leases due to a change in tax law resulting in unfavourable tax treatment with respect to such lease contracts. Internal Controls The Bank has built-in internal control systems with well-defined responsibilities at each level. The Bank carries out various audit streams covering different facets of internal audit requirement including an inspection and audit, and a management audit. In addition, a credit audit is conducted for units with large credit limits and a concurrent audit is carried out at branches with large deposit, advances and other risk exposures. An information systems audit is conducted at the centralised IT establishments. The information systems audit of branches is handled by incorporating the necessary checklists and value statements in the audit report formats of the branches. The Bank has 534 employees who perform its audit function. Inspection & Audit The inspection system plays an important and critical role in introducing international best practices in the internal audit function which is regarded as a critical component of corporate governance. Inspection and audit undertake a critical review of the entire working of audited units. Risk focused internal audit, an adjunct to risk based supervision in accordance with RBI directives, has been introduced in the Bank’s audit system. All domestic branches have been divided into three groups on the basis of business profile and risk exposure. Audit of 314 branches under Group I is conducted by Central Audit Unit at the Inspection Audit Department, which is headed by a General Manager who reports to the Chief General Manager. The responsibility of conducting audit of branches under Group II and Group III rests with the General Managers of nine Zonal Inspection Offices spread over the entire country. The inspection of branches is conducted periodically under guidance from the Audit Committee of the Board (“ACB”) which is well within RBI norms. As of September 30, 2007, 2,457 domestic branches have been inspected. During the period from April 1, 2007 to September 30, 2007, 216 BPR entities were audited. Management Audit With the introduction of risk focused internal audits, management audit has been reoriented to focus on the effectiveness of risk management in the processes and the procedures followed by the Bank. The management audit policy document is also being revised in the light of the Bank’s focus on risk management as part of its transition to BASEL II norms. Credit Audit Credit audit aims to achieve continuous improvement in the quality of the commercial credit portfolio of the Bank by critically examining individual commercial loans with exposures of Rs. 50 million and above. The audit, which has been aligned with the risk focused internal audit, examines the probability of default, identifies risks and suggests risk mitigation measures. The Bank uses the credit audit to analyze risk and to initiate early remedial actions to improve the quality of the credit portfolio. During the six-month period ended September 30, 2007, on-site credit audits were conducted at 80 branches while off-site credit audits covered 303 branches.

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Concurrent Audit System Branches covered by the concurrent audit system are reviewed on a day-to-day basis in accordance with RBI directives. As per RBI directives, 30-40% of the deposits and 60-70% of the advances are subjected to a concurrent audit. A review of the coverage of the branches made on September 30, 2007 revealed that 363 branches in Group I & Group II categories and 109 “End State” model credit oriented BPR entities are identified for coverage under the concurrent audit system. In addition, concurrent audit takes place in larger individual branches where daily activity at the branch is monitored. Information System Audit Since April 2006, all branches are subject to an Information Systems audit to assess IT related risks. A “Handbook on Self Audit of Information Systems” was introduced to facilitate the efficiency level of the Bank’s IT systems. An information systems audit of centralised IT has also been carried out. In addition, as a prerequisite to the adoption of the advanced measurement approach required by Basel II, a committee of senior officers of the Bank has been formed to finalise the design, development and implementation of a loss database. This Committee is in the process of deciding on various measures relating to the loss database, such as data to be collected by the business units, materiality thresholds, and levels at which the procedures will initially be implemented. Audit of BPR Entities Following implementation of various BPR initiatives and as certain branches attain full BPR implementation, an audit process for ten BPR entities has been developed and introduced. Taking into account the processes involved in each of the ten entities, exclusive audit report formats, with appropriate audit queries, were introduced. Basel II Framework In accordance with the guidelines issued by the RBI, foreign banks operating in India and Indian banks having operational presence outside India should adopt the Standardised Approach for credit risk and the Basic Indicator Approach for operational risk when computing their capital requirements under the revised framework, which will come into effect on March 31, 2008. The Bank has conducted a self-assessment and has created a roadmap for migration to Basel II, which is to be completed by March 31, 2008. In accordance with RBI guidelines, the Bank intends to migrate to Basel II standards with the Standardised Approach for credit risk and Basic Indicator approach for operational risk in accordance with Basel II by March 31, 2008. The Bank implemented the Standardised Duration Method for Market Risk on March 31, 2006. Simultaneously, the Bank is updating and fine-tuning its systems and procedures, technology capabilities, risk assessment and risk governance structure to meet the requirements of the Advance Approaches as per Basel II. Enforcement of Security Interests under the SARFAESI Act To assist banks and financial institutions in recovering their unpaid advances and to ensure financial discipline among borrowers, the Government enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (the “SARFAESI Act”) in December 2002. The SARFAESI Act provides the legal framework for (i) the securitisation of financial assets by setting up a Securitisation Company (“SC”) or Reconstruction Company (“RC”); (ii) the foreclosure of assets through a SC or RC; and (iii) the foreclosure of NPA accounts. See “Regulations and Policies- RBI Regulations- Enforcement of Security Interests Under the SARFAESI Act.” As of September 30, 2007, the Bank issued notices under the SARFAESI Act to 45,420 borrowers with an aggregate principal outstanding of Rs. 70.2 billion. Of the 45,420 borrowers on whom the Bank had served notice, Rs. 7.6 billion has been recovered. The Bank has been applying all available methods for the recovery of unpaid advances, including reporting the name of wilful defaulters to the RBI together with commencing the necessary steps for recovery. The Bank has also initiated aggressive one-time settlement measures to recover unpaid loans.

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Corporate Debt Restructuring Mechanism In addition to the Government passing the SARFAESI Act, the RBI has established the Corporate Debt Restructuring Mechanism ("CDRM"). See “Regulations and Policies -- Corporate Debt Restructuring Mechanism.” The objectives of the CDRM are (i) to ensure a timely and transparent mechanism for restructuring corporate debts of viable entities affected by certain internal and external factors and (ii) to minimize losses to creditors and other stakeholders through an orderly and coordinated restructuring program. The CDRM is a voluntary, non-statutory mechanism based on debtor-creditor and inter-creditor agreements and operates outside the authority of the BIFR, debt recovery tribunals or legal proceedings. The following table shows loan assets subjected to restructuring during the years ended March 31, 2005, 2006 and 2007 and as a percentage of the Bank’s total loans on those dates. No NPAs were sold in the period from March 31, 2007 to September 30, 2007. Year ended March 31, 2005 2006 2007 Rs. % Rs. % Rs. % (Rs. in billions, except percentages) Total loan assets which have been restructured 48.46 2.40% 14.27 0.56% 9.06 0.27% Total sub-standard assets which have been restructured

5.57 0.28% 4.42 0.17% 0.76 0.02%

Total Doubtful assets which have been restructured

5.54 0.27% 5.65 0.22% 1.94 0.06%

Establishment of Asset Reconstruction Company The SARFAESI Act provides the framework for setting up asset reconstruction companies in India. Accordingly, the Bank, together with other major Indian banks, has jointly promoted the Asset Reconstruction Company (India) Ltd. (“ARCIL”). ARCIL serves as the entity that acquires the NPAs of its parent banks at a mutually acceptable price against the issue of security receipts. ARCIL seeks to recover outstanding debts through restructuring, settlement or enforcement of security interests. ARCIL then uses amounts recovered to redeem the security receipts issued to certain qualified institutional investors. As of September 30, 2007, the Bank owns 19.95% of the share capital of ARCIL. In July 2005, the RBI issued guidelines on the sale and purchase of NPAs amongst banks, financial institutions and NBFCs. See “Regulations relating to Sale of Assets to Asset Reconstruction Companies.” Pursuant to an amendment of these guidelines on October 4, 2007, the RBI has stipulated that banks should calculate the net present value of the estimated cash flows associated with the realisable value of the available securities net of the cost of realisation. As a result, the sale price of a NPA should generally not be lower than the net present value arrived at in the manner described above. Sale of Assets to Asset Reconstruction Companies, Banks, Financial Institutions and NBFCs The Bank has sold NPAs to reconstruction companies, banks, financial institutions and NBFCs. The following table sets out the sales of NPAs by the Bank to reconstruction companies as of September 30, 2007:

Fiscal Year No. of

NPAs sold Total Outstanding Principal Amount

Consideration Received

(Rs. in billions)

2005 114 8.2 1.5

2006 131 8.9 2.0

2007 90 0.8 0.3

Six-months ended September 30, 2007 Nil Not Applicable

Not Applicable

Total 335 17.9 3.8

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The following table sets out the sales of NPAs by the Bank to banks, financial institutions or NBFCs as

of September 30, 2007; there were no NPAs sold in the fiscal year ended March 31, 2005:

Fiscal Year

No. of NPAs sold

Total Outstanding Principal Amount

Consideration Received

(Rs. in billions)

2006 290 11.4 2.3 2007 20 0.5 0.1 Six-months ended September 30, 2007 Nil Not Applicable Not Applicable Total 310 11.9 2.4

Risk Management in Banking Subsidiaries The Bank’s banking subsidiaries, which include the seven Associate Banks and SBICI Bank Limited, have implemented Risk Management Policies which are in line with SBI’s policies to identify, assess, monitor, control and mitigate risks coming under the broad categories of credit risk, liquidity risk, interest rate risk, market risk and operational risk. A risk governance structure has also been put in place by all the banking subsidiaries with one general manager designated as the chief risk officer at each subsidiary bank. As is the case with the Bank, the banking subsidiaries have put in place risk management committees. Steps are being taken to modify the risk management framework of the subsidiary banks to conform to Basel II guidelines. As of the date of this Letter of Offer, all banking subsidiaries are in compliance with the minimum CRAR requirement stipulated by the RBI.

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REGULATIONS AND POLICIES

The main legislation governing commercial banks in India is the Banking Regulation Act. The provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking Regulation Act, in derogation of the Companies Act, 1956 and any other law for the time being in force. Other important laws include the Reserve Bank of India Act, the Negotiable Instruments Act and the Banker’s Books Evidence Act. Additionally, the RBI periodically issues guidelines to be followed by the bank. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP. The Bank is also governed by the provisions of the Act. See also “Industry Overview — Commercial Banks.” The State Bank of India Act While the main legislation governing commercial banks in India is the Banking Regulation Act, 1949 and some of these provisions are applicable to the Bank, the Bank is mainly governed by the provisions of the Act. Certain provisions of the Banking Regulation Act apply in addition to the Act. Since the Bank is a statutory corporation, the provisions of the Companies Act, 1956 are inapplicable. The State Bank of India (Subsidiary Banks) Act was passed in 1959 to enable the Bank to take over eight former State-associated banks as its subsidiaries. The Bank was constituted in order to extend the availability of banking facilities, particularly in rural and semi-urban areas, as well as for diverse public purposes. Under the Act, the Bank shall be guided by such directions in matters of policy involving public interest as the Central Government may, in consultation with the Governor of the RBI and the Chairman of the Bank, give it. The Bank is managed by a Central Board of Directors, which consists of the Chairman and Managing Directors appointed by the Central Government under the Act, elected Directors of the Shareholders and nominees from the RBI and Government, as well as other nominees put forward by the Central Government from among persons having expert knowledge of cooperative institutions, rural economy and industry, banking, and finance. Under the Act, the Bank acts as an agent of the RBI. The accounts of the Bank are audited by external statutory auditors appointed by the RBI. If the Government desires, it may appoint additional auditors to examine and report on the Bank’s accounts. In accordance with the Act, the provisions of law relating to the winding up of companies do not apply to the Bank and the Bank shall not be placed in liquidation except by order of the Central Government. On December 18, 2006, the State Bank of India (Amendment) Bill, 2006, a piece of legislation seeking to amend the Act was introduced in the Indian Parliament, which has since referred it to the Parliamentary Standing Committee on Finance. Furthermore, the Act was separately amended to incorporate the transfer of the RBI shareholding in the Bank to the Central Government. RBI Regulations Commercial banks in India are required under Section 22 of the Banking Regulation Act to obtain a license from the RBI to carry on banking business in India. Before granting the license, the RBI must be satisfied that certain conditions are complied with, including (i) that the bank has the ability to pay its present and future depositors in full as their claims accrue; (ii) that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the bank has adequate capital and earnings prospects; and (iv) that the public interest will be served if such license is granted to the bank. The RBI can cancel the license if the bank fails to meet the above conditions or if the bank ceases to carry on banking operations in India. The Bank, being licensed by the RBI, is regulated and supervised by the RBI. The RBI requires the Bank to furnish statements, information and certain details relating to its business. It has issued guidelines for commercial banks on the recognition of income, classification of assets, valuation of investments, maintenance of capital adequacy and provisioning for non-performing and restructured assets. The RBI has set up a Board for Financial Supervision, under the chairmanship of the Governor of the RBI. The auditors of the Bank are appointed by the RBI. The RBI can direct a special audit in the interest of depositors or in the public interest.

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Regulations relating to the Opening of Branches Section 23 of the Banking Regulation Act provides that a bank must obtain the prior approval of the RBI to open new branches. Permission is granted based on factors such as the financial condition and history of the bank, its management, adequacy of capital structure and earning prospects and the public interest. The RBI may cancel a license for violations of the conditions under which it was granted. The RBI issued a new branch authorisation policy in September 2005 under which the existing system of granting authorisation for each time an individual branch is opened will be replaced by a system of aggregated approvals on an annual basis. The RBI will discuss with individual banks their branch expansion strategies and plans over the medium term. The term “branch” for this purpose has been defined to also include extension counters, offsite ATMs, administrative offices and back offices where banking transactions are undertaken. No banking transactions are undertaken in call centres; therefore, they cannot be categorised as branches. While processing authorisation requests, the RBI will give importance to the nature and scope of banking services, particularly in under-served areas, actual credit flow to priority sectors and efforts to promote financial inclusion, the need to induce enhanced competition in the banking sector, the bank’s regulatory compliance, quality of corporate governance, risk management and relationships with subsidiaries and affiliates. Capital Adequacy Requirements The Bank is subject to the capital adequacy requirements of the RBI. Based on the guidelines of the Basel Committee on Banking Regulations and Supervisory Practices, this requires the Bank to maintain a minimum ratio of capital to risk-adjusted assets and off-balance sheet items of 9.0%, at least half of which must be Tier I capital. The total capital of a bank is classified into Tier I and Tier II capital. Tier I capital, the core capital, provides the most permanent and readily available support against unexpected losses. It comprises paid-up capital and reserves consisting of any statutory reserves, free reserves and capital reserves, pursuant to the Indian Income Tax Act, as reduced by equity investments in subsidiaries, intangible assets, gaps in provisioning, and losses in the current period and brought forward from the previous period. In fiscal year 2003, the RBI issued guidelines requiring a bank’s deferred tax asset to be treated as an intangible asset and deducted from its Tier I capital. Tier II capital consists of undisclosed reserves, revaluation reserves (at a discount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.25% of risk-weighted assets), hybrid debt capital instruments (which combine certain features of both equity and debt securities) and subordinated debt. Any subordinated debt is subject to progressive discounts each year during the last five years of the tenure for inclusion in Tier II capital and total subordinated debt considered as Tier II capital cannot exceed 50.0% of Tier I capital. Total Tier II capital cannot exceed Tier I capital. With a view to providing banks with additional options to raise capital funds, the RBI, by a circular dated January 25, 2006, authorised the issue of instruments such as (i) Innovative Perpetual Debts Instruments (“IPDIs”) as part of Tier I capital and (ii) Upper Tier II subordinated debt as part of Tier II capital. As per these guidelines, IPDIs have a call option after not less than ten years from the date of issue, to be exercised with the RBI’s prior approval, for inclusion as Tier I capital up to a maximum of 15.0% of total unimpaired non-innovative Tier I capital. Upper Tier II instruments have a minimum maturity of 15 years and a call option after not less than ten years from the date of issue, to be exercised with the RBI’s prior approval, for inclusion as Tier II capital. On July 21, 2006, the RBI also issued guidelines permitting the issuance of Tier I and Tier II debt instruments denominated in foreign currencies to the extent of and subject to the conditions stipulated therein. In fiscal year 2002, with a view to building up adequate reserves to guard against any unfavourable interest rate movement due to unexpected developments, the RBI advised banks to build up an investment fluctuation reserve of a minimum of 5.0% of the bank’s investment portfolio classified in the trading book within a period of five years. This reserve must be computed with respect to investments held for trading and available for sale categories. The investment fluctuation reserve was considered as Tier II capital. With the introduction of a capital charge for securities included in the trading book, the RBI has since permitted banks to transfer the entire investment fluctuation reserve to the category (also considered as Tier I capital). Risk-adjusted assets and off-balance sheet items considered for determining the capital adequacy ratio are the risk-weighted total of specified funded and non-funded exposures. Degrees of credit risk expressed as percentage weighting have been assigned to various balance sheet asset items and for off-balance sheet items.

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The percentage risk-weight age is made with the appropriate credit conversion factor. The face value of each item is multiplied by the relevant weight and/or conversion factor to produce risk-adjusted values of assets and off-balance sheet items. Standby letters of credit or guarantees and documentary credits are treated as similar to funded exposure and are subject to similar risk weight. All foreign exchange and gold open position limits of the bank carry a 100.0% risk weight. Capital requirements have also been prescribed for open foreign currency exposures and open positions in gold. In respect of banks and financial institutions, after March 31, 2001, a risk weight of 2.5% to cover market risk must be assigned in respect of the entire investment portfolio over and above the existing risk weights for credit risk in all categories of security. Further, in June 2004, the RBI issued guidelines requiring banks to maintain a capital charge for market risk in respect of:

• securities included in the held for trading category (including derivatives) by March 31, 2005; and

• securities included in the available for sale category by March 31, 2006. Currently, held-to-maturity securities are not marked to market and are carried at acquisition cost or at an amortised cost if acquired at a premium over the face value. Securities classified as available for sale or held for trading are valued at market or fair value as of the balance sheet date. The aggregate risk-weighted assets are taken into account for determining the capital adequacy ratio. Accordingly, the Bank has provided a capital charge for market risk on the securities included in the trading book, as per the standardised duration method. Banks were required to maintain a capital charge for market risk in respect of their trading book exposure (including derivatives) by the end of fiscal year 2005 and in respect of securities included in the available for sale category by the end of fiscal year 2006. In October 2005, the RBI specified that banks that maintain capital for both credit and market risk for both the held for trading and available for sale categories at the end of fiscal year 2006 would be permitted to treat the entire balance in the investment fluctuation reserve as Tier I capital. With the introduction of a capital charge for market risk as of March 31, 2006, an additional risk weight of 2.5% on the banking book has been removed across the board. In April 2007, the RBI issued final guidelines for the implementation of the revised capital adequacy framework of the Basel Committee (“Basel II framework”). These guidelines specify that foreign banks operating in India and Indian banks having an operational presence outside India should migrate to the Basel II framework by adopting the Standardised Approach for credit risk and the Basic Indicator Approach for operational risk with effect from March 31, 2008. All other commercial banks (except local area banks and regional rural banks) are encouraged to migrate to the Basel II framework no later than March 31, 2009 by adopting one of these approaches, as appropriate these approaches. After adequate expertise has been developed, both at the banks and at the supervisory level, some banks may be allowed to migrate to the Internal Ratings-based approach after obtaining RBI approval. The guidelines also prescribe a 75.0% risk weight for retail credit exposures, differential risk weights for other credit exposures linked to their credit rating, and a capital charge for operational risk based on a factor of 15.0% of the sum of a bank’s previous three year average net interest income and non-interest income (excluding extraordinary income). The RBI has, in January 2008, decided that educational loans will no longer qualify as consumer credit and carry a risk weight of 100% under the Basel I framework and 75% under the Basel II framework. Issuance of Preference Shares as Part of Regulatory Capital With a view to providing banks with a wider choice of instruments to raise Tier I and Tier II capital, the RBI, through its circular dated October 29, 2007, permitted the issue of preference shares in Indian Rupees. The said circular provides, inter alia, that preference shares shall be eligible for inclusion in Tier I or Tier II capital as set out below: Tier I capital:

• the outstanding amount of Tier I preference shares along with innovative Tier I instruments must not exceed 40% of total Tier I capital;

• the shares shall be perpetual non-cumulative preference shares and shall be fully paid up, unsecured

and free of restrictive clauses;

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• the shares shall be issued without a put or step-up option; however, a call option is permitted provided it is exercisable only after a period of ten years and with the prior approval of the RBI;

• no dividend may be declared if the Bank’s CRAR is below (or is caused by the payment to fall below)

the minimum stipulated CRAR or if the half yearly (for a half yearly dividend) or current year’s balance sheet shows accumulated losses; and

• the dividend shall not be cumulative, for example a dividend missed in one year will not be paid in

future years, even if adequate profit is available and the level of CRAR conforms to the regulatory minimum.

Tier II capital:

• the outstanding amount of these instruments, along with other components of Tier II capital, must not exceed 100% of Tier 1 capital at any point in time;

• the shares may be perpetual cumulative preference shares, redeemable non-cumulative preference

shares or redeemable cumulative preference shares and shall be fully paid up, unsecured and free of any restrictive clauses;

• the period of maturity for redeemable non-cumulative preference shares and redeemable cumulative

preference shares shall be at least 15 years;

• shares shall be issued without a put option; a call option, however, is permitted provided such option is exercisable only after a period of ten years and with the prior approval of the RBI. A step-up option may be exercised only once during the term of the instrument and must not exceed 100 basis points;

• the coupon rate payable should be a fixed or floating rate referenced to a market determined Rupee

interest benchmark rate and will not be payable if the Bank’s CRAR is below (or is caused by the payment to fall below) 9% or if the Bank suffers a net loss; and

• redemption shall not be at the initiative of the holder and shall only be made with the prior approval of

the RBI, even at maturity. The Redeemable Preference Shares (both cumulative and non-cumulative) shall be subjected to a progressive discount for capital adequacy purposes over the last five years of their tenor, as they approach maturity. Loan Loss Provisions and Non-Performing Assets In April 1992, the RBI issued formal guidelines, which are revised periodically, on income recognition, asset classification, provisioning standards and the valuation of investments applicable to banks. These guidelines are applied for the calculation of impaired assets under Indian GAAP. The principal features of these RBI guidelines, which have been implemented with respect to the Bank’s loans, debentures, lease assets, hire purchases and bills, are set forth below. Non-Performing Assets An asset, including a leased asset, becomes non-performing when it ceases to generate income for the Bank. An NPA is an asset in respect of which either the principal or interest remains overdue for more than 90 days. An NPA is a loan or an advance where:

• interest and/or the instalment of principal has remained overdue for a period of more than 90 days in respect of a term loan;

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• the account has remained “out-of-order” (as defined below) in respect of an overdraft or cash credit for more than 90 days;

• the bill has remained overdue for a period of more than 90 days in the case of purchased and

discounted bills;

• the interest and/or principal have remained overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes.

A loan granted for short duration crops will be treated as a non-performing asset, if the instalment of principal or interest thereon remains overdue for two crop seasons. A loan granted for long duration crops will be treated as a non-performing asset, if the instalment of principal or interest thereon remains overdue for one crop season. (Crops with harvest seasons longer than one year are long duration crops, and crops, which are not long duration crops are treated as short duration crops); and

• an amount to be received remains overdue for a period of 90 days in respect of other accounts. Once an account has been classified as a non-performing asset, the unrealised interest and other income already debited to the account is de-recognised and further interest is not recognised or credited to the income account unless collected. “Out-of-Order” Status An account should be treated as “out-of-order” if the outstanding balance remains continuously in excess of the sanctioned drawing limit. In circumstances where the outstanding balance in the principal operating account is less than the sanctioned drawing limit, but (i) there are no credits for a continuous period of 90 days as of the date of the balance sheet of the Bank or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts should be treated as “out-of-order.” Asset Classification NPAs are classified as described below:

• Sub-Standard Assets. Assets that are NPAs for a period not exceeding 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of dues to the bank in full. Such an asset has well-defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.

• Doubtful Assets. Assets that are NPAs for more than 12 months. A loan classified as doubtful has all

the weaknesses inherent in assets that are classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly improbable.

• Loss Assets. Assets on which losses have been identified by the bank or internal or external auditors or

RBI inspection but the amount has not been written off fully. There are separate guidelines for projects under implementation which are based on the achievement of financial closure and the date of approval of the project financing. The RBI also has separate guidelines for restructured loans. A fully secured standard asset can be restructured by rescheduling principal repayments and/or the interest element, but must be separately disclosed as a restructured asset. A rescheduling of the instalments of principal amount alone does not result in a standard asset being classified as sub-standard provided the loan/credit facility is fully secured. A rescheduling of interest shall not result in an asset being downgraded to sub-standard, provided that the amount of sacrifice, measured in present value terms, is written off or provision is made to the extent of the sacrifice involved. Similar guidelines apply to sub-standard assets. The sub-standard accounts which have been subjected to restructuring by whatever modality, whether in respect of the principal instalment or interest amount, are eligible to be upgraded to the standard category only after the specified period, i.e., a period of one year after the date when first payment of interest or of principal, whichever is earlier, falls due, subject to satisfactory performance during the period.

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To put in place an institutional mechanism for the restructuring of corporate debt, the RBI has devised a corporate debt restructuring system. See “Industry Overview — Recent Structural Reforms.” Provisioning and Write-offs Provisions are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications: RBI guidelines on provisioning and write-offs are as follows:

• Standard Assets. The general provisioning requirement for “Standard Advances” is currently 0.4%, with the exception of direct advances to agricultural and SME sectors where the general provisioning required is 0.25%. The rate of provisioning for residential housing loans beyond Rs. 2,000,000 is 1.0%. For specific sectors, such as personal loans (including credit card receivables), loans and advances qualifying as capital market exposures, loans and advances to systemically important NBFCs, and non-deposit taking and commercial real estate loans, the general provisioning requirement is 2.0%.

• Sub-standard Assets. A general provision of 10.0% of the total outstanding and an additional 10.0%

total outstanding on the “unsecured exposures” identified as “Substandard” (i.e. the total provisioning on the unsecured exposures shall be 20.0%). For purposes of this classification, an unsecured exposure is one where the realisable value of security is not more than 10.0%, ab initio, of the outstanding exposure. Also “exposure” shall include both funded and non-funded exposure.

• Doubtful Assets. Provision at 100.0% of the extent to which the advance is not covered by the

realisable value of security. With regard to the secured portion, provision is to be made as set out below:

Period for which advance remained in “Doubtful”

category Provisioning requirement (%)

Up to one year 20.0% One to three years 30.0% More than three years 100.0%

Banks are, however, permitted to phase the additional provisioning, required due to the reduction in the transition period from “sub-standard” to “doubtful asset,” from 18 to 12 months over a four year period commencing from the year ending March 31, 2005, with a minimum of 20.0% each year.

• Loss Assets. The entire asset shall be written off. However, if, for any reason whatsoever, the asset is retained on the books, a 100.0% provision shall be made on the outstanding amount.

• Restructured Assets. A provision is made in present value terms equal to the level of sacrifice (of

interest) made. Whilst the provisions indicated above are mandatory, a higher provision on a loan could be made if considered necessary. For more information see “Industry Overview — Credit Policy Measures.” Regulations relating to the Making of Loans The provisions of the Banking Regulation Act govern the making of loans by banks in India. The RBI issues directions covering the loan activities of banks. Some of the major guidelines of the RBI, which are now in effect, are as follows:

• The RBI has prescribed norms for bank lending to non-bank financial companies.

• Banks are free to determine their own lending rates but each bank must declare its benchmark prime lending rate as approved by its board of directors. Each bank should also indicate the maximum spread over the prime lending rate for all credit exposures other than retail loans. The interest charged by banks on advances up to Rs. 200,000 to any one entity (other than most retail loans) must not exceed

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the benchmark prime lending rate. Banks are also given freedom to lend at a rate below the prime lending rate in respect of creditworthy borrowers and exporters. Interest rates for certain categories of advance are regulated by the RBI. Banks are also free to stipulate lending rates without reference to their own benchmark prime lending rates in respect of certain specified categories of loan.

• In terms of section 20(1) of the Banking Regulation Act, a bank cannot grant any loans and advances

against the security of its own shares, a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under section 25 of the Companies Act, 1956, or a Government company) of which, or the subsidiary or the holding company of which, any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which, or the subsidiary or the holding company in which, he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that “loans or advances” shall not include any transaction which the RBI may specify by general or special order as not being a loan or advance for the purpose of such section. The Bank is in compliance with these requirements.

The RBI permitted banks to extend financial assistance, as a strategic investment, to Indian companies for the acquisition of equity in overseas joint ventures or wholly owned subsidiaries or in other overseas companies, new or existing. Banks are not permitted to finance acquisitions by companies in India (except in the case of companies engaged in implementing or operating infrastructure projects, subject to the conditions specified). There are guidelines on loans against equity shares in respect of the amount, margin requirement and purpose. Corporate Debt Restructuring Mechanism In order to put in place as institutional mechanism for the restructuring of corporate debt, the RBI devised a Corporate Debt Restructuring (“CDR”) System, guidelines pertaining to which were issued on August 23, 2001. Subsequently, detailed guidelines were issued of February 5, 2003. The objective of this framework is to ensure a timely and transparent mechanism for the restructuring of corporate debts of viable entities facing problems, but outside the purview of the Board for Industrial and Financial Reconstruction, debt recovery tribunals and other legal proceedings. In particular, the framework aims to preserve viable corporates that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring program. The corporate debt restructuring system is a non-statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements. Secured creditors having a minimum 20.0% exposure in term loans or working capital may make a reference to the CDR Forum. The system established by the RBI has a three-tier structure, led by the CDR Standing Forum, which is the general body for all member institutions, out of which is carved out the CDR Core Group, a niche body of select institutions that decides policy matters. Decisions on restructuring are taken by the CDR Empowered Group, which has all the member banks and financial institutions as its members. A CDR Cell has been formed to assist the CDR Forum in administrative matters and for analysis of the restructuring packages. The total membership of the CDR Forum, as of March 31, 2007, was 58, consisting of 12 financial institutions, one Trust, 28 public sector banks and 17 private sector banks. The RBI has, by its circular dated November 10, 2005, amended the above guidelines on CDR. The major amendments include:

• extending the scheme to entities with an outstanding exposure of Rs. 100 million or more;

• requiring the support of 60.0% of creditors by number in addition to the support of 75.0% of creditors by value, with a view to making the decision-making more equitable;

• giving discretion to the Core Group in dealing with wilful defaulters in certain cases, other than cases

involving fraud or the diversion of funds with mala fide intentions;

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• linking the restoration of asset classification prevailing on the date of reference to the CDR Cell to implementation of the CDR package within four months from the date of approval of the package;

• restricting the regulatory concession in asset classification and provisioning to the first restructuring,

where the package also has to meet norms relating to the turn-around period, minimum sacrifice and injection of funds by promoters;

• converging in the methodology used by banks and financial institutions for the computation of

economic sacrifice;

• limiting RBI’s role to providing broad guidelines for the CDR mechanism;

• enhancing disclosures in the balance sheet to provide greater transparency;

• requiring the pro-rata sharing of additional finance requirements by both term lenders and working capital lenders;

• allowing one-time settlement as a part of the CDR mechanism to make the exit option more flexible;

and

• requiring the valuation and regulatory treatment of non-SLR instruments acquired while funding interest or in lieu of outstanding principal.

Furthermore, on September 8, 2005, a debt restructuring mechanism in line with the CDR mechanism

prevailing in the banking sector was introduced for units in the SME sector. Enforcement of Security Interests under the SARFAESI Act To assist banks and financial institutions in recovering their unpaid advances and to ensure financial discipline among borrowers, the Government enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (“SARFAESI Act”) in December 2002. The SARFAESI Act provides the legal framework for (i) the securitisation of financial assets by setting up a Securitisation Company (“SC”) or Reconstruction Company (“RC”); (ii) the foreclosure of assets through an SC or RC; and (iii) the foreclosure of NPA accounts. Pursuant to the SARFAESI Act, a secured creditor may, in respect of loans classified as NPAs, give notice in writing to the borrower, requiring it to discharge its liabilities within 60 days, failing which, and in the absence of any satisfactory objections or representations made by the borrower, the secured creditor may take the following measures to recover the amounts due:

• taking possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale in order to realise the secured assets;

• taking over the management of secured assets, including the right to transfer these assets by way of

lease, assignment or sale in order to realise the secured loans;

• appointing any person to manage the secured assets after taking possession; or

• advising any person who owes money, due to the acquisition of any of the secured assets from the borrower, to pay the money directly to the banks and institutions.

If required, the secured creditors may request the Chief Metropolitan Magistrate or the District Magistrate to take possession of part or whole of the secured assets and other related documents and forward the assets and documents to the secured creditors. The sale proceeds would first be utilized to meet all the expenses incurred in enforcement of the security interest and then for payment of amounts due to secured creditors. The remaining amount would be paid to others in accordance with their rights and interests. In case the amounts due are not fully recovered by the sale of secured assets, then the secured creditors may file an application to the Debt Recovery Tribunal for the remaining amounts due. The secured creditors are also entitled to proceed

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against the guarantors and sell the pledged assets independent of their action for enforcement of the security interest. Pursuant to the SARFAESI Act, the borrower cannot make a reference to the BIFR after the transfer of financial assets to an SC or a RC. Similarly, any pending reference before the BIFR shall be withdrawn if 75.0% of the secured creditors (in terms of amount outstanding) have taken any action to recover their amounts due under the SARFAESI Act. On April 8, 2004 the Supreme Court pronounced a judgment upholding the constitutional validity of the SARFAESI Act (with the exception of section 17(2)). The Government has since enacted the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (the “Amended Act”). The Amended Act includes:

• a new provision in the Amended Act making it mandatory for the secured creditor to consider any representation or objection raised by the borrower (on whom notice had been served) and communicate reasons for rejection of the representation or objection within one week from the date of receipt of such representation or objection; and

• a new section 13(4)(b) empowering the secured creditor to take over management of the business of

such borrower, which is related to the security of the debt. Where a substantial part of the business of the borrower is held as security for the debt, the secured creditor is also empowered to take over the management, including the right to transfer by way of lease, assignment or sale in order to realise the secured asset. However, the term “substantial part of the business” has not been defined;

• an amendment to the Debt Recovery Tribunal Act, 1993, whereby banks and financial institutions may

withdraw the recovery application filed by them at the Debt Recovery Tribunal (“DRT”) in the event that they propose to initiate action under the SARFAESI Act; and

• two new provisions enabling the aggrieved borrower to make an application to the DRT against any

action taken under the SARFAESI Act. The application is required to be decided within 60 days. Further, an appeal can be filed against the order of the DRT before the Debt Recovery Appellate Tribunal (“DRAT”) after the borrower has deposited 50.0% of the amount of debt (such sum may be reduced to 25.0% by the DRAT for reasons to be recorded in writing).

On November 29, 2006 the Supreme Court pronounced a judgment on whether withdrawal of an application from the DRT is a condition precedent to having recourse under the SARFAESI Act as defined. The following three points were discussed:

• whether the banks or financial institutions that have elected to seek a remedy under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (“DRT Act”) can still invoke the SARFAESI Act in order to realise the secured assets, without withdrawing or abandoning the original application filed before the DRT pursuant to the DRT Act;

• whether recourse to take possession of the secured assets of the borrower pursuant to section 13(4) of

the SARFAESI Act encompasses the power to take actual possession of the immovable property; and

• whether an ad valorem court fee prescribed under rule 7 of the DRT (Procedure) Rules, 1993, is payable on an application under section 17(1) of the SARFAESI Act in the absence of any rule framed under the said Act.

The Supreme Court discussed various provisions of the DRT Act and the SARFAESI Act and observed that the SARFAESI Act is treated as an additional remedy and is not inconsistent with the DRT Act. Therefore, the withdrawal of an application pending before the DRT under the DRT Act is not a pre-condition for recourse under the SARFAESI Act. It is for the banks or the financial institutions to exercise their discretion in withdrawing cases from the DRT.

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Regulations relating to the Sale of Assets to Asset Reconstruction Companies The RBI has issued guidelines to banks on the process to be followed for sales of financial assets to asset reconstruction companies. These guidelines provide that a bank may sell financial assets to an asset reconstruction company provided that the asset is an NPA. These assets are to be sold on a non-recourse basis only. A bank may sell a standard asset only if the borrower has a consortium or multiple banking arrangements, at least 75.0% by value of the total loans to the borrower are classified as non-performing and at least 75.0% by value of the banks and financial institutions in the consortium or multiple banking arrangements agree to the sale. The banks selling financial assets should ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risk relating to the financial assets sold. Further, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Whilst each bank is required to make its own assessment of the value offered in the sale before accepting or rejecting an offer for the purchase of financial assets by an asset reconstruction company, in consortium or multiple banking arrangements where more than 75.0% by value of the banks or financial institutions accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash, bond, debentures or security receipts. Banks may invest in pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. In February 2006, the RBI issued guidelines for the securitisation of standard assets. The guidelines provide that for a transaction to be treated as a securitisation, a two-stage process must be followed. In the first stage, the pooling of assets and their transfer to a bankruptcy remote vehicle (“SPV”) should take place and in the second stage, the repackaging of the security interests representing claims on incoming cash flows from the pool of assets and their sale to third party investors should be effected. Further, to enable the transferred assets to be removed from the balance sheet of the seller in a securitisation structure, the isolation of assets or the “true sale” from the seller or originator to the SPV is an essential prerequisite. In addition, arm’s length relationship must be maintained between the originator and seller, and the SPV. The RBI also issued guidelines in July 2005 in relation to the sale or purchase of NPAs by banks, financial institutions and NBFCs (excluding securitisation companies and reconstruction companies). These guidelines set out the procedure for the purchase or sale of non-performing financial assets by banks, including valuation and pricing aspects and prudential norms in the following areas: (a) asset classification, (b) provisioning, (c) accounting of recoveries, (d) capital adequacy, (e) exposure and (f) disclosure requirements. On October 4, 2007, RBI issued guidelines on the sale and purchase of NPAs, wherein it imposed on banks the consideration that while selling NPAs, banks have to account for the net present value of the estimated cash flows associated with the realisable value of the available securities, net of the cost of realisation. Further, the sale price should generally not be lower than the net present value. The said principle should be applied to compromise settlements entered into by the banks. Certain regulatory norms relating to capital adequacy, valuation, profit and loss on the sale of assets, income recognition and provisioning for originators and service providers (such as credit enhancers), liquidity support providers, underwriters and investors, and also relating to the accounting treatment for securitisation transactions and disclosure norms, have been prescribed. Apart from banks, these guidelines are also applicable to financial institutions and Non-Banking Financial Companies (“NBFCs”). Classification of SMEs The Government passed the Micro, Small & Medium Enterprises Development Act, 2006 in June 2006 to promote lending to SMEs and to create uniformity in the way that banks classify SMEs. Entities are divided into micro-, small- and medium-sized entities. Micro-sized entities comprise manufacturing companies with investments in plant and machinery of up to Rs. 2.5 million or service companies with investments in equipment of up to Rs. 1.0 million. Small-sized entities comprise manufacturing companies with investments in plant and machinery of over Rs. 2.5 million but less than Rs. 50.0 million and service companies with investments in equipment of over Rs. 1.0 million but less than Rs. 20.0 million. Medium-sized entities comprise manufacturing companies with investments in plant and machinery of over Rs. 50.0 million but less than Rs. 100.0 million and service companies with investments in equipment of over Rs. 20.0 million but less than Rs. 50.0 million.

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Directed Lending Priority Sector Lending The RBI requires commercial banks to lend a certain percentage of their net bank credit to specific sectors (the priority sectors), such as agriculture, small-scale industry, small businesses and housing finance. Total priority sector advances should be 40.0% of the adjusted net bank credit or the credit-equivalent amount of off-balance sheet exposure, whichever is higher, with agricultural advances required to be 18.0% of the adjusted net bank credit or credit-equivalent amount of off-balance sheet exposure, whichever is higher, and advances to weaker sections required to be 10.0% of the adjusted net bank credit or credit-equivalent amount of off-balance sheet exposure, whichever is higher, and 1.0% of the previous year’s total advances required to be lent under the Differential Rate of Interest scheme. Any shortfall in the amount required to be lent to the priority sectors may be required to be deposited with the National Bank for Agriculture and the Rural Development. These deposits can be for a period of one year or five years. Export Credit The RBI also requires commercial banks to make loans to exporters at concessional rates of interest. This enables exporters to have access to an internationally competitive financing option. Pursuant to existing guidelines, export credit is not a part of the priority sector of domestic commercial banks. The Bank provides export credit for pre-shipment and post-shipment requirements of exporter borrowers in Rupees and foreign currencies. Credit Exposure Limits As a prudent measure aimed at better risk management and the avoidance of concentration of credit risk, the RBI has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group) The limits set by RBI are as follows:

• exposure ceiling for a single borrower is 15.0% of capital funds. The group exposure limit is 40.0% of capital funds. In the case of financing for infrastructure projects, the single borrower exposure limit is extendable by another 5.0%, i.e. up to 20.0% of capital funds, and the group exposure limit is extendable by another 10.0%, i.e. up to 50.0% of capital funds. Banks may, in exceptional circumstances and with the approval of their boards of directors, consider enhancement of the exposure to a borrower up to a maximum of a further 5.0% of capital funds, subject to the borrower consenting to the banks making appropriate disclosures in their annual reports;

• the capital fund is the total capital, as defined under capital adequacy standards (Tier I and Tier II

capital); and

• exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and other similar commitments). Non-fund based exposures are calculated at 100.0% of the limit or outstandings, whichever is higher. In addition, banks include forward contracts in foreign exchange and other derivative products, such as currency swaps and options, at their replacement cost value in determining individual or group borrower exposure.

As of fiscal year-end 2007, the Bank was in compliance with the credit exposure limits, taking into account the following (except in one case for which the Bank has received permission to be in non-compliance):

• all types of funded and non-funded credit limits;

• facilities extended by way of equipment leasing, hire purchase finance and factoring services;

• advances against shares, debentures, bonds and units of mutual funds to stockbrokers and market makers;

• bank loans to finance promoters’ contributions;

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• bridge loans against equity flows/issues;

• investments in shares, debentures, bonds and units of mutual funds; and

• the financing of initial public offerings. Credit exposure is the aggregate of:

• all types of funded and non-funded credit limits;

• facilities extended by way of equipment leasing, hire purchase finance and factoring services;

• advances against shares, debentures, bonds and units of mutual funds to stockbrokers and market makers;

• bank loans to finance promoters’ contributions;

• bridge loans against equity flows/issues; and

• the financing of initial public offerings.

Investment exposure comprises the following elements:

• investments in shares and debentures of companies acquired through direct subscription or devolvement arising out of underwriting obligations or purchased from secondary markets or on the conversion of debt into equity;

• investments in public sector undertaking bonds through direct subscription, or devolvement arising out

of underwriting obligations or purchased from secondary markets;

• investments in commercial paper issued by corporate bodies or public sector undertakings; and

• investments in debentures, bonds, security receipts, pass-through certificates issued by securitisation or reconstruction companies (banks are allowed to exceed prudential exposure on account of such investments on a case by case basis).

As of fiscal year-end 2007, the Bank is in compliance with the above. To ensure that exposure is evenly spread, the RBI requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodical review by the banks. The Bank has fixed a ceiling of 15.0% of the Bank’s total fund-based exposure to any one industry (other than retail loans) and monitors its exposure accordingly. Regulations relating to Investments and Capital Market Exposure Limits The aggregate exposure of a bank to the capital markets in any year (both fund-based and non-fund-based) should not exceed 40.0% of its net worth as of March 31 in the previous year. Within this overall ceiling, the bank’s direct investment in shares, convertible bonds, debentures and units of equity-oriented mutual funds and all exposures to Venture Capital Funds (“VCFs”) (both registered and unregistered) should not exceed 20.0% of its net worth. Further, the aggregate exposure of a consolidated bank to capital markets in any year (both fund-based and non-fund-based) should not exceed 40.0% of its consolidated net worth as of March 31 in the previous year. Within this overall ceiling, the aggregate direct exposure by way of the consolidated bank’s investment in shares, convertible bonds, debentures and units of equity oriented mutual funds and all exposures to VCFs (both registered and unregistered) should not exceed 20.0% of its consolidated net worth. The above-mentioned ceilings are the maximum permissible and the Bank’s Central Board of Directors is free to adopt a lower ceiling for its bank, keeping in view its overall risk profile and corporate strategy.

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These guidelines for the rationalisation of norms relating to exposure to capital markets, issued on December 15, 2006, came into effect on April 1, 2007. In December 2007, the RBI advised banks to be judicious in extending finance to mutual funds and has mandated that any loans extended to equity oriented mutual funds will form part of that bank’s capital market exposure. However, a transition period of 6 months is provided to comply with the above obligations. In April 1999, the RBI, in its monetary and credit policy, stated that investment by a bank in subordinated debt instruments, representing Tier II capital issued by other banks and financial institutions, should not exceed 10.0% of the investing bank’s capital, including Tier II capital and free reserves. Pursuant to the RBI guidelines of July 2004, the said ceiling of 10.0% became applicable to the Bank’s investments in all types of instruments, i.e. equity shares, preference shares eligible for capital status, subordinated debt instruments, hybrid debt capital instruments and any other instrument considered to be in the nature of capital, which are issued by other banks/FIs and are eligible for capital status for the invested bank/FI. Investments in the instruments issued by other banks/FIs which are not deducted from the Tier I capital of the investing bank or financial institution will attract 100.0% risk weight for credit risk for capital adequacy purposes. Further, banks and financial institutions cannot acquire any fresh stake in a bank’s equity shares, if by such acquisition, the investing bank’s or financial institution’s holding exceeds 5.0% of the investee bank’s equity capital. Banks with investments in excess of the prescribed limits were required to apply to the RBI with a roadmap for reduction of the exposure. In July 2005, the RBI increased the risk weight requirement for credit risk on capital market exposures to 125.0% with immediate effect. In November 2003, the RBI issued guidelines on investments by banks in non-Statutory Liquidity Ratio securities issued by companies, banks, financial institutions, central and state-sponsored institutions and special purpose vehicles. These guidelines apply to primary market subscriptions and secondary market purchases. Pursuant to these guidelines, banks are prohibited from investing in non-Statutory Liquidity Ratio securities with an original maturity of less than one year, other than commercial papers and certificates of deposits. Banks are also prohibited from investing in unrated securities. A bank’s investment in unlisted non-Statutory Liquidity Ratio securities may not exceed 10.0% of its total investment in non-Statutory Liquidity Ratio securities as of the end of the preceding fiscal year. However, investments in unlisted non-Statutory Liquidity Ratio securities such as security receipts issued by securitisation or reconstruction companies registered with the RBI and asset-backed securities and mortgage-backed securities with a minimum investment grade credit rating shall be permitted up to a limit of 20.0%. These guidelines were effective as of April 1, 2004, with provision for compliance in a phased manner by January 1, 2005. Pursuant to an RBI circular in August 2005, banks are allowed to invest their surplus funds in non-Statutory Liquidity Ratio securities without obtaining prior approval from the RBI on a case-by-case basis, subject to certain specified conditions. Consolidated Supervision Guidelines In fiscal year 2003, the RBI issued guidelines on consolidated accounting and consolidated supervision in respect of banks. These guidelines became effective as of April 1, 2003. The principal features of these guidelines are: Consolidated Financial Statements (“CFSs”). Banks are required to prepare consolidated financial statements intended for public disclosure. CFSs are prepared quarterly and annually. Quarterly CFSs are subject to a limited review while annual CFSs are audited. Consolidated Prudential Returns. Banks are required to submit to the RBI, at half yearly intervals, consolidated prudential returns reporting their compliance excluding that of insurance subsidiaries, with various prudential norms on a consolidated basis. Compliance on a consolidated basis is required in respect of the following main prudential norms:

• single borrower exposure limit of 15.0% of capital funds (20.0% of capital funds provided that the additional exposure of up to 5.0% is for the purpose of financing infrastructure projects);

• borrower group exposure limit of 40.0% of capital funds (50.0% of capital funds provided that the

additional exposure of up to 10.0% is for the purpose of financing infrastructure projects);

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• deduction from the Tier I capital of the bank of any shortfall in capital adequacy of a subsidiary for which capital adequacy norms are specified; and

• consolidated capital market exposure limit of 2.0% of consolidated advances and 10.0% of

consolidated net worth. The Bank is in compliance with these guidelines, except with regard to the single borrower exposure limit of 15.0% of capital funds for which the Bank has received permission from its Central Board as well as from the RBI to be in non-compliance. The State Bank Group is also in compliance with these guidelines. Conglomerate Reporting and Supervision Since June 2004, the Group has been designated as a financial conglomerate as its operations straddle more than one financial market segment and it has a significant presence in one segment, i.e. banking. Under the supervisory framework for financial conglomerates, the Bank is required to report to the regulator on the following risk areas:

• large intra-group transactions carried out for any purpose;

• the build up of any disproportionate exposure (both fund-based and non-fund-based) of any group entity to other group entities;

• any group level concentration of exposure to various financial market segments and counterparties

outside the group;

• direct indirect cross-holdings;

• shared directors and senior executives; and

• other significant aspects, such as intra-group advisory and service arrangements. The Group has adopted appropriate internal controls and risk management systems to manage the above risks by putting in place appropriate prudential limits and firewalls. Banks’ Investment Classification and Valuation Norms The salient features of the guidelines on the categorisation and valuation of banks’ investment portfolio are given below:

• The entire investment portfolio is required to be classified under three categories: (a) held to maturity, (b) held for trading and (c) available for sale. Banks should decide the category of investment at the time of acquisition.

• Held to maturity investments compulsorily include (a) recapitalisation bonds received from the

Government, (b) investments in subsidiaries and joint ventures and (c) investments in bonds and debentures deemed as advance. Held to maturity investments also include any other investment identified for inclusion in this category, subject to the condition that such investments cannot exceed 25.0% of the total investment excluding recapitalisation bonds and debentures. In September 2004, the RBI announced that it would set up an internal group to review the investment classification guidelines with a view to aligning them with international practices and the current state of risk management practices in India, taking into account the unique requirement, applicable to banks in India, to maintain an SLR equal to 25.0% of a bank’s demand and time liabilities. In the meantime, the RBI has permitted banks to exceed the limit of 25.0% of investments for the held to maturity category provided that the excess comprises only SLR investments and that the aggregate of such investments in the held to maturity category does not exceed 25.0% of the demand and time liabilities. During fiscal year 2005, the RBI permitted banks to transfer additional securities to the held to maturity category as a one-off measure, in addition to the transfer permitted under the earlier guidelines. The transfer had to be done at the lower of acquisition cost, book value and market value on the date of transfer.

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• Profit on the sale of investments in the held to maturity category is appropriated to the capital reserve account after being entered into the profit and loss account. Loss on any sale is recognised in the profit and loss account.

• The market price of the security available from the stock exchange, the price of securities in subsidiary

general ledger transactions, the RBI price list or prices declared by the Primary Dealers Association of India (“PDAI”) jointly with the Fixed Income Money Market and Derivatives Association of India (“FIMMDA”) serves as the “market value” for investments in available for sale and held for trading securities.

• Investments under the held for trading category should be sold within 90 days; in the event of an

inability to sell due to adverse factors, including tight liquidity, extreme volatility and a unidirectional movement in the market, the unsold securities should be shifted to the available for sale category, at acquisition cost/book value/market value on the date of transfer, whichever is the least.

• Profit or loss on the sale of investments in both held for trading and available for sale categories is

entered into the profit and loss account.

• The shifting of investments from or to the held to maturity category may be done with the approval of the board of directors once a year, normally at the beginning of the accounting year: the shifting of investments from the available for sale to the held for trading category may be done with the approval of the board of directors, the Asset Liability Management Committee or the Investment Committee;

Held to maturity securities are not marked to market and are carried at acquisition cost or at an amortised cost if acquired at a premium over the face value. Available for sale and held for trading securities are given a market or fair value as of the balance sheet date. Depreciation or appreciation for each basket within the available for sale and held for trading categories is aggregated. Net appreciation in each basket, if any, that is not realised, is ignored, whilst net depreciation is provided for. Investments in security receipts or pass-through certificates issued by asset reconstruction companies or trusts set up by asset reconstruction companies should be valued at the lower of the redemption value of the security receipts or pass-through certificates and the net book value of the financial asset. Restrictions on Investments in a Single Company No bank may hold shares in any company exceeding 30.0% of the paid-up share capital of that company or 30.0% of its own paid-up share capital and reserves, whichever is less. However, a bank may hold shares in a subsidiary company in accordance with the provisions of the Banking Regulation Act. Limit on Transactions through Individual Brokers Guidelines issued by the RBI require banks to empanel brokers for transactions in securities. These guidelines also require that a disproportionate part of the bank’s business should not be transacted only through one broker or a few brokers. The RBI specifies that not more than 5.0% of the total transactions through empanelled brokers can be transacted through a single broker. If for any reason this limit is breached, the RBI has stipulated that the board of directors of the bank concerned should be informed of such occurrence, with reasons therefore. Short-Selling The RBI does not permit short-selling of securities by banks, except short-selling by the banks to undertake the outright sale of Central Government dated securities that they do not own, subject to the short position being covered within a maximum period of five trading days, including the day of trade. In other words, the short sale position initiated today (trade date, T+0) will have to be covered on or before close of T+4 days. The Union Budget for fiscal year 2008 has announced delivery-based short-selling by institutions in order to make capital markets transactions more efficient.

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Regulations relating to Deposits The RBI has permitted banks to independently determine rates of interest offered on term deposits. However, banks are not permitted to pay interest on current account deposits. Further, banks may only pay interest of up to 3.5% per annum on savings deposits. In respect of savings and time deposits accepted from employees, the Bank is permitted by the RBI to pay additional interest of 1.0% over the interest payable on deposits from the public. Domestic time deposits have a minimum maturity of seven days and a maximum maturity of ten years. Time deposits from non-resident Indians denominated in a foreign currency have a minimum maturity of one year and a maximum maturity of three years. Since April 1998, the RBI has permitted banks the flexibility to offer varying rates of interest on domestic deposits of the same maturity, subject to the following conditions:

• time deposits are of Rs. 1.5 million and above; and

• interest on deposits is paid in accordance with the schedule of interest rates disclosed in advance by the bank and not pursuant to negotiation between the depositor and the bank.

Non-resident external deposit contracts effective as of close of business in India on April 24, 2007 for one to three years should not exceed LIBOR/ swap rates of the last working day of the previous month for corresponding U.S. dollar maturities. The interest rates as determined above shall also be applicable if the maturity period exceeds three years. Deposit Insurance Demand and time deposits of up to Rs. 100,000 that are accepted by Indian banks are required to be insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed on to the customer. Regulations relating to Know Your Customer and Anti-Money Laundering The RBI has issued several guidelines relating to the identification of depositors and has advised banks to put in place systems and procedures to tackle financial fraud, identify money laundering and suspicious activities, and monitor high value cash transactions. The RBI has also issued guidelines periodically, advising banks to be vigilant whilst opening accounts for new customers so as to prevent misuse of the banking system for the perpetration of fraud. Revised guidelines were issued by the RBI in November 2004 following the recommendations made by the Financial Action Task Force (“FATF”) and paper on Customer Due Diligence for banks by the Basel Committee on Banking Supervision. Based on RBI guidelines, the Bank has put in place a Policy on “know your customer — anti-money laundering measures” with the approval of the Central Board. The detailed procedural guidelines in this regard have been circulated to all branches of the Bank. They include comprehensive instructions on customer acceptance, customer identification, risk categorisation, monitoring of transactions and risk management. RBI has simplified the know your customer procedure for opening accounts for persons who intend to keep balances not exceeding Rs. 50,000 in all their accounts taken together, where the total credit in all the accounts taken together is not expected to exceed Rs. 200,000 in any year in order to ensure that the implementation of the KYC guidelines do not result in the denial of banking services to those who are financially or socially disadvantaged. In addition to keeping customer information confidential, banks must ensure that only information relevant to the perceived risk is collected and the same is not intrusive in nature. Apart from addressing this concern, the RBI Guidelines set out in detail the framework to be adopted by banks as regards their customer dealings. The concerns remain substantially the same and are directed towards the prevention of financial frauds and money laundering transactions.

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In a bid to prevent money laundering activities, the Government enacted the Prevention of Money Laundering Act, 2002 (the “PML Act”). The PML Act seeks to prevent money laundering and provides for the confiscation of property derived from, or involved in, money laundering and for incidental matters connected therewith. The Central Government has made public the rules under the PML Act on July 1, 2005, via Gazette Notification. Under these rules, banking companies, financial institutions and intermediaries (together, the “Institutions”) must maintain a comprehensive record of all their transactions, including the nature and value of such transactions. Further, the rules require verification of the identities of all their clients and also require that the Institutions maintain records of their respective clients. These details are to be provided to the appropriate authority under the PML Act, which is empowered to order confiscation of property where it is of the opinion that a crime as recognised under the PML Act, has been committed. In addition, the applicable exchange control regulations prescribe reporting mechanisms for foreign exchange transactions and required authorised dealers to report suspicious transactions that they identify to RBI. Legal Reserve Requirements Cash Reserve Ratio A banking company such as the Bank is required to maintain a specified percentage of its demand and time liabilities, excluding inter-bank deposits, by way of cash reserve with itself and by way of balance in current account with the RBI. Pursuant to section 3 of the Reserve Bank of India (Amendment) Act 2006, the amendment to sub-section (i) of section 42 of the Reserve Bank of India Act came into force with effect from April 1, 2007. Accordingly, the statutory minimum and maximum CRR requirement of 3.0% and 15.0% of total demand and time liabilities no longer exists from April 1, 2007. The RBI may prescribe the CRR for banks without any floor or ceiling. At the date of this Letter of Offer, the CRR is 7.5% of total demand and time liabilities. The following liabilities are excluded from the calculation of the cash reserve ratio:

• inter-bank liabilities;

• credit balances in ACU (U.S. dollar) accounts;

• liabilities of offshore banking units; and

• liabilities on account of transactions in CBLO with the Clearing Corporation of India Ltd. In view of section 3 of the Reserve Bank of India (Amendment) Act, 2006 with effect from April 1, 2007, the RBI will not pay any interest on the CRR balances maintained by banks for each fortnightly period, beginning March 31, 2007 The CRR must be maintained on an average basis for a fortnightly period and should not be below 70.0% of the required CRR on any day of the fortnight. Statutory Liquidity Ratio In addition to the cash reserve ratio, a banking company such as the Bank is required to maintain a specified percentage of its net demand and time liabilities in liquid assets such as cash, gold or approved securities. The percentage of this liquidity ratio is periodically fixed by the RBI and can be a maximum of 40.0%. The Banking Regulation (Amendment) Act, 2007, which received the assent of the President on March 26, 2007 and was deemed to have come into force on January 23, 2007, has, inter alia, removed the floor rate of 25.0% for the SLR to be prescribed by the RBI. It has also empowered the RBI to determine SLR-eligible assets, giving it more flexibility in its monetary management operations. At the date of this Letter of Offer, the RBI requires banking companies to maintain a liquidity ratio of 25.0%. See also “Industry Overview — Recent Structural Reforms — Proposed Amendments to the Banking Regulation Act.” Regulations on Asset Liability Management At the date of this Letter of Offer, the RBI’s regulations for asset liability management (“ALM”) require banks to draw up asset-liability gap statements separately for Rupees and for four major foreign

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currencies. These gap statements are prepared by scheduling all assets and liabilities according to the stated and anticipated re-pricing date or the maturity date. These statements for the domestic assets and liabilities have to be submitted to the RBI periodically. The RBI has advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being re-priced in a particular period and place internal prudential limits on the gaps in each time period, as a risk control mechanism. Additionally, the RBI has asked banks to manage their asset-liability structure such that the negative liquidity gap in the periods of 1–14 and 15–28 days does not exceed 20.0% of cash outflows in these same periods. This 20.0% limit on negative gaps was made mandatory with effect from April 1, 2000. In respect of other time periods, RBI has directed banks to lay down internal norms for negative liquidity gaps. On October 24, 2007, the RBI made certain amendments to the ALM framework. These are set out below:

• Banks may split the first time period (referred to above) into three periods, i.e. next day, 2-7 days and 8-14 days;

• The net cumulative negative mismatches during the next day, 2-7 days, 8-14 days and 15-28 days

should not exceed 5%, 10%, 15% and 20%, respectively, of the cumulative cash outflows in the same periods;

• Further, banks may undertake dynamic liquidity management and should prepare the Statement of

Structural Liquidity on a daily basis. However, the Statement of Structural Liquidity may be reported to the RBI once a month, for example on the third Wednesday of every month.

These norms will have to be complied with from January 1, 2008. Further, from April 1, 2008, supervisory reporting of the Structural Liquidity position will take place every fortnight. Foreign Currency Dealership The RBI has granted the Bank a full authorised dealers’ license to deal in foreign exchange through its designated branches. Under this license, the Bank has been granted permission to

• engage in foreign exchange transactions in all currencies;

• open and maintain foreign currency accounts abroad;

• raise foreign currency and Rupee denominated deposits from non-resident Indians;

• grant foreign currency loans to onshore and offshore corporations;

• open documentary credits;

• grant import and export loans;

• handle the collection of bills and funds transfer services;

• issue guarantees; and

• enter into derivative transactions and risk management activities that are incidental to its normal functions authorised under its organisational documents.

The Bank’s foreign exchange operations are subject to the guidelines specified under the Foreign Exchange Management Act, 1999. As an authorised dealer, the Bank is required to enrol as a member of the Foreign Exchange Dealers Association of India, which prescribes the rules relating to foreign exchange activities in India. Authorised dealers such as the Bank are required to determine their limits on open positions and maturity gaps in accordance with the RBI’s guidelines and these limits are approved by the RBI. Further, the Bank is permitted to hedge the foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward rate agreements, subject to certain conditions.

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Statutes Governing Foreign Exchange and Cross-Border Business Transactions The foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of the Foreign Exchange Management Act. All branches should monitor all non-resident accounts to prevent money laundering. In November 2003, the RBI issued guidelines which stated that no banks will be permitted to raise external commercial borrowings or provide guarantees in favour of overseas lenders for external commercial borrowings. The London Branch and Nassau Branch are not affected by these guidelines since Regulation 4(2)(ii) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 provides that overseas branches of authorised dealers that are banks incorporated or constituted in India (including the Bank) are permitted to borrow in a foreign currency in the normal course of their banking business outside India. Restrictions on External Commercial Borrowings Under the RBI’s Circular on external commercial borrowings (“ECBs”) dated August 7, 2007, companies requiring ECBs can utilise: (i) only up to U.S.$ 20 million of ECBs per financial year (per company) for Rupee expenditure for permitted end-uses with the prior approval of the RBI, subject to the funds remaining overseas until they are required to be expended in India or (ii) ECBs for foreign currency expenditure for permitted end-uses without RBI approval, subject to the funds remaining overseas. The maximum amount of ECBs that companies are permitted to raise is subject to a limit of U.S.$ 500 million per company per financial year. Further, pursuant to the RBI Circular dated September 26, 2007, the limit for prepayment of external commercial borrowing (without prior approval of the Reserve Bank) has been increased from U.S.$ 400 million to U.S.$ 500 million, subject to compliance with the applicable minimum average maturity period. Restriction on Transfer of Shares The Act lays down restrictions on the transfer of the Bank’s shares. The Government cannot transfer any shares of the Bank if the transfer results in the Government’s overall shareholding falling below 55.0% of the Bank’s issued capital. Also, under the Act, no shareholder other than the Government can exercise voting rights in excess of 10.0% of the issued capital of the Bank (unless permitted by the Government after consultation with the RBI). Special Provisions of the Banking Regulation Act, 1949 Under sections 35A and 36 of the Banking Regulation Act (which apply to the Bank), the RBI is empowered to advise generally and give directions to the Bank and prohibit the Bank from entering into any transactions. Under section 50 of the Banking Regulation Act (which also applies to the Bank), no person shall have a right, whether in contract or otherwise, to any compensation for any loss incurred by reason of operation of certain provisions of the Act, including sections 35A and 36. Prohibited Business The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities. Reserve Fund Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 20.0% of the profits in each year before dividends. If there is an appropriation from this account, the bank is required to report the same to the RBI within 21 days, explaining the circumstances leading to such appropriation. The Government may, on the recommendation of the RBI, exempt a bank from requirements relating to its reserve fund.

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Restrictions on Payment of Dividends As regards the guidelines issued by the RBI pertaining to the payment of dividends, banks have been given general permission to declare dividends, subject to compliance with the following norms:

• Capital to Risk Asset Ratio (“CRAR”) of at least 9.0% for the preceding two completed years and the accounting year for which the bank proposes to declare a dividend; and

• net NPA ratio of less than 7.0%.

In the event a bank does not meet the above CRAR norms, but has a CRAR of at least 9.0% for the accounting year for which it proposes to declare a dividend, it would be eligible to declare a dividend provided its net NPA ratio is less than 5.0%. The bank should also satisfy the following conditions:

• the bank should comply with the provisions of sections 15 and 17 of the Banking Regulation Act, 1949;

• the bank should comply with the prevailing regulations/guidelines issued by the RBI in respect of creating adequate provisions for the impairment of assets and staff retirement benefits, the transfer of profits to statutory reserves etc;

• the dividend payout ratio should not exceed 40.0%;

• the proposed dividend should be payable out of the current year’s profit;

• the financial statements pertaining to the financial year for which the bank is declaring a dividend

should be free of any qualifications by the statutory auditors which have an adverse bearing on the profit during that year; and

• the RBI should not have placed any explicit restrictions on the bank as regards the declaration of

dividends. In the event that a bank fulfils the conditions stated above, it can declare dividends without the consent of the RBI. If a bank does not comply with the conditions stated above but wishes to declare dividends or a higher rate of dividend, no exemptions shall be available from the RBI. Additionally, the Bank should comply with the requirements of the Act prior to declaring any dividend. In terms of the Act, a dividend can only be declared after making provision for, inter alia, bad and doubtful debts, depreciation in assets, the equalisation of dividends, and the contribution to staff and superannuation funds. The rate of dividend shall be determined by the Central Board. Banks may declare and pay interim dividends out of the relevant accounting period’s profit without the prior approval of the RBI if they satisfy the minimum criteria above, and the cumulative interim dividend is within the prudential cap on the dividend payout ratio (40.0%) computed for the relevant accounting period. The declaration and payment of an interim dividend beyond this limit would require the prior approval of RBI. Restriction on Share Capital and Voting Rights Banks can issue only ordinary shares. The Banking Regulation Act specifies that, on a poll of shareholders, no shareholder in a banking company can exercise voting rights in excess of 10.0% of the total voting rights of all the shareholders of the banking company. Also, in accordance with the Act, no shareholder other than the Government can exercise voting rights in excess of 10.0% of the issued capital of the Bank (unless permitted by the Government after consultation with the RBI). However, the Act (Amendment) Bill, 2006, proposes to permit the issuance of preference shares in accordance with the guidelines framed by the RBI. Regulatory Reporting and Examination Procedures

127

The RBI is empowered under the Banking Regulation Act to inspect banks. The RBI monitors prudential parameters at quarterly intervals. To this end and to enable off-site monitoring and surveillance by the RBI, banks are required to report to the RBI on aspects such as:

• assets, liabilities and off-balance sheet exposures;

• the risk weighting of these exposures, the capital base and the capital adequacy ratio;

• the unaudited operating results for each quarter;

• asset quality;

• the concentration of exposures;

• connected and related lending and the profile of ownership, control and management; and

• other prudential parameters. The RBI also conducts periodical on-site inspections on matters relating to the bank’s portfolio, risk management systems, internal controls, credit allocation and regulatory compliance, at intervals ranging from one to three years. The Bank is subject to the on-site inspection by the RBI at intervals of at least one year. The inspection report, along with the report on actions taken by the Bank, must be placed before the board of directors. On approval by the board of directors, the Bank is required to submit the report on actions taken by it to the RBI. The RBI also discusses the report with the management team, including the Chairman, the Managing Director and other senior executives. The RBI also conducts on-site supervision of selected branches of the Bank with respect to their general operations and foreign exchange related transactions. Appointment and Remuneration of the Chairman, Managing Director and Other Directors The Chairman and Managing Director(s) of the Bank are appointed by the Central Government, in consultation with the RBI. The salary and allowances of the Chairman and the Managing Director(s) shall be determined by the Central Government. Four directors are to be elected by the shareholders and nine other directors are nominated or appointed by the Central Government except one director who shall be nominated by the RBI. The Directors shall be paid fees and allowances for attending the meetings and for attending to any other work of the Bank. Criteria for elected directors on boards of the Associated Banks In November 2007, the RBI issued guidelines laying down the ‘fit and proper’ criteria for elected directors on the boards of the Associate Banks. The salient features of these guidelines are set out below:

• the board of directors of the Associate Bank should constitute a nomination committee;

• the nomination committee should undertake due diligence to determine the fit and proper status of existing elected directors and of persons to be elected as directors;

• before any person is appointed as director, the nomination committee must meet and decide upon his

candidature based inter alia on educational qualification, experience and field of expertise, track record and integrity;

• the board of directors should ensure that the elected directors sign the deed covenants laid down; and

• elected directors must be a yearly basis provide a declaration that the information submitted by them

has not undergone any change, and in case there is any significant change in such information, the nomination committee should re-examine the fit and proper status of such director.

Penalties

128

The RBI may impose penalties on banks and its employees in the case of any infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment. Assets to be Maintained in India Each bank is required to ensure that its assets in India (including import-export bills drawn in India and RBI-approved securities, even if the bills and the securities are held outside India) are not less than 75.0% of its demand and time liabilities in India. Subsidiaries and other Investments The Bank requires the prior permission of the RBI to incorporate a subsidiary. The Bank is required to maintain an arm’s length relationship with its subsidiaries. The Bank and its subsidiaries have to observe the prudential norms stipulated by the RBI from time to time. Pursuant to such prudential norms, the Bank also requires the prior approval of the RBI to participate in the equity of financial services ventures, including stock exchanges and depositories, notwithstanding the fact that such investments may be within the ceiling prescribed under section 19(2) of the Banking Regulation Act. See “— Restrictions on Investments in a Single Company” above. Further investment by the Bank in a subsidiary, financial services company or financial institution cannot exceed 10.0% of its paid-up capital and reserves and its aggregate investments in all such companies and financial institutions put together cannot exceed 20.0% of its paid-up capital and reserves. Restriction on Creation of Floating Charge Prior approval of the RBI is required for creating a floating charge on the Bank’s undertaking or its property. Currently, all the Bank’s borrowings, including bonds, are unsecured. Maintenance of Records The Bank is required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner. The provisions contained in the Act and SBI General Regulations, the Banking Regulations Act, together with rules and regulations framed there under, and the Banker’s Books Evidence Act govern the production of documents, preservation of records and inspection by shareholders. The KYC guidelines also provide for certain records to be maintained for a minimum period of five years. Issue of Bonus Shares In the absence of any provision in the Act to re-capitalise the reserves, the Bank cannot issue bonus shares. Secrecy Obligations The Bank’s obligations relating to maintaining secrecy arise out of section 44 of the Act and common law principles governing the Bank’s relationship with its customers. The Bank cannot disclose any information to third parties except under clearly defined circumstances. The following are the exceptions to this general rule:

• where disclosure is required to be made under any law; • where there is an obligation to disclose to the public; • where the Bank needs to disclose information in its interests; and • where disclosure is made with the express or implied consent of the customer.

The Bank is required to comply with the above in furnishing any information to any parties. The Bank is also required to disclose information if ordered to do so by a court. The RBI may, in the public interest,

129

publish the information obtained from the Bank. Under the provisions of the Banker’s Books Evidence Act, a copy of any entry in a bankers’ book, such as ledgers, day books, cash books and account books, certified by an officer of the bank may be treated as prima facie evidence of a corresponding transaction in any legal proceedings. The Right to Information Act, 2005 gives citizens the right to secure access to information under the control of public authorities in order to promote transparency and accountability in the working of every public authority. Banks, such as the Bank, which are ‘Public Authorities’ within the meaning of the Right to Information Act, 2005 are required to provide any information called for by any citizen, except information pertaining to commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, or personal information, the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual, and, on certain other grounds, similar information which would cause a breach of privilege of Parliament or the state legislature or which would prejudicially affect the sovereignty and integrity of India, its security or relationship with foreign states or which would lead to an incitement to commit an offence. Regulations Governing Offshore Banking Units The Government and the RBI have permitted banks to set up Offshore Banking Units in Special Economic Zones, which are specially delineated duty free enclaves deemed to be foreign territory for the purpose of trade operations, duties and tariffs. The key regulations applicable to Offshore Bank Units include, but are not limited to, the following:

• No separate assigned capital is required. However, the parent bank is required to provide a minimum of U.S.$ 10 million to its Offshore Banking Unit.

• Offshore Banking Units are exempt from cash reserve ratio requirements.

• The RBI may exempt a bank’s Offshore Banking Unit from SLR requirements on specific application

by the bank for a specified period.

• An Offshore Banking Unit may not enter into any foreign exchange transactions with a resident in India, unless such a person is eligible to enter into or undertake such transactions under the Foreign Exchange Management Act, 1999.

• All prudential norms applicable to overseas branches of Indian banks apply to Offshore Banking Units.

• Offshore Banking Units are required to adopt liquidity and interest rate risk management policies

prescribed by the RBI in respect of overseas branches of Indian banks as well as within the overall risk management and asset and liability management framework of the banks subject to monitoring by the bank’s board of directors at prescribed intervals.

• The sources for raising foreign currency funds must be external. Funds can also be raised from those

resident sources to the extent such residents are permitted under the existing exchange control regulations to invest/maintain foreign currency accounts abroad. The deployment of funds is restricted to lending to units located in the SEZ (including other SEZs) and SEZ developers. Foreign currency requirements of corporates in the Domestic Tariff Area (“DTA”) can also be met by the Offshore Banking Units. If funds are lent to corporates in the DTA, the ECB guidelines apply, subject to Foreign Exchange Management regulations.

• Offshore Banking Units may operate and maintain balance sheets only in foreign currencies, except

for a special Rupee account out of the convertible fund to meet daily expenses.

• The loans and advances of Offshore Banking Units are not counted as net bank credit when computing priority sector lending obligations.

• A bank cannot borrow from its Offshore Banking Units.

• Offshore Banking Units must follow the Know Your Customer guidelines and must be able to

establish the identities and addresses of the participants in a transaction, the legal capacity of the participants and the identity of the beneficial owner of the funds.

130

The Bank’s Offshore Banking Units in India are located in Mumbai and Kochi. Regulations and Guidelines of the Securities and Exchange Board of India The Securities and Exchange Board of India was established to protect the interests of public investors in securities and to promote the development of, and regulate, the Indian securities market. The Bank is subject to the Securities and Exchange Board of India’s regulations as regards its capital issuances, as well as its underwriting, custodial, depositary participant, investment banking, brokering and debenture trusteeship activities. These regulations provide for its registration with the Securities and Exchange Board of India for each of these activities, functions and responsibilities. The Bank has adhered to the regulations and guidelines issued by SEBI for various activities. Foreign Ownership Restriction The existing permissible foreign investment limit in the Bank (for public sector banks) is 20.0%. As of January 28, 2008, the total foreign holding of the Bank is 19.8%. The limit is inclusive of the global depository receipt (“GDR”) holdings which stood at 7.8% as on September 30, 2007. Guidelines for Merger and Amalgamation of Private Sector Banks The RBI has issued guidelines for the merger and amalgamation of private sector banks. The guidelines relate to: (i) an amalgamation of two banking companies and (ii) an amalgamation of an NBFC with a banking company. In the case of an amalgamation of two banking companies, section 44A of the Banking Regulation Act requires that a draft scheme of amalgamation be approved by the shareholders of each banking company by passing a resolution which requires a two-thirds majority. Additionally, the draft scheme must also be submitted to the RBI for approval. Where an NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the approval of the RBI before it is submitted to the relevant high court for approval. Similar provisions apply in the rare case where a banking company is amalgamated into an NBFC. In July 2004, the RBI issued a draft policy on ownership and governance in private sector banks. The key provisions of the policy on the ownership of banks are:

• no single entity or group of related entities is permitted to directly or indirectly hold more than 10.0% of the equity capital of a private sector bank and any higher level of acquisition would require the RBI’s prior approval;

• banks with shareholders with holdings in excess of the prescribed limit have to indicate a plan for

compliance;

• in respect of corporate shareholders, the objective is to ensure that no entity or group of related entities has a shareholding in excess of 10.0%. In the case of shareholders that are financial entities, the objective is to ensure that it is in good standing, publicly listed and well regulated; and

• banks are responsible in any ongoing basis for the “fit and proper” criteria applicable to shareholders.

Special Status of Banks in India The special status of banks is recognised under various statutes including the Sick Industrial Companies Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the Securitisation Act. As a bank, under various statutes the Bank is entitled to certain benefits, including the following:

• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides for the establishment of Debt Recovery Tribunals for expeditious adjudication and recovery of debts due to any bank or Public Financial Institution or to a consortium of banks and Public Financial Institutions.

131

Under this Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for the speedy disposal of cases. Upon establishment of the Debt Recovery Tribunal, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances.

• The Sick Industrial Companies Act, 1985, provides for the reference of sick industrial companies to the

Board for Industrial and Financial Reconstruction. Under the Act, other than the Board of Directors of a company, a scheduled bank (where it has an interest in the sick industrial company owing to any financial assistance or obligation rendered or undertaken by it) may refer the company to the BIFR. The Sick Industrial Companies Act, 1985 has been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2004, subject to which the provisions of Companies Act will apply in relation to sick companies.

• The Securitisation Act focuses on improving the rights of banks, financial institutions and other

specified secured creditors, as well as asset reconstruction companies, by providing that such secured creditors can take over management control of a borrower company upon default and/or sell assets without the intervention of the courts, in accordance with the provisions of the Securitisation Act.

Regulations Governing Insurance Companies Subsidiaries offering life insurance and non-life insurance are subject to the provisions of the Insurance Act, 1938 and the various regulations prescribed by the Insurance Regulatory and Development Authority. These regulations regulate and govern, among other things, registration as an insurance company, investment, the licensing of insurance agents, advertising, the sale and distribution of insurance products and services, and the protection of policyholders’ interests. In May 2002, the Indian Parliament approved the Insurance (Amendment) Act 2002, which facilitates the appointment of corporate agents by insurance companies and prohibits intermediaries and brokers from operating as surrogate insurance agents. Income Tax Benefits As a banking company, the Bank is entitled to certain tax benefits under the Indian Income Tax Act, including the following:

• In respect of the provision made by it for bad and doubtful debts, the Bank is entitled to a tax deduction equal to 7.5% of the Bank’s total business income, computed before making any deductions prescribed under section 36(1)(viia) of the Income Tax Act, 1961, and of up to 10.0% of the aggregate average advances made by its rural branches computed in the manner prescribed. The Bank has the option of claiming a deduction of up to 5% in respect of the provision made by it for any assets classified pursuant to the RBI’s guidelines as doubtful or loss assets.

• For income tax purposes, the Bank’s deposits and bonds are prescribed modes of investing and

depositing surplus money by charitable and religious trusts.

• The income of non-resident persons and persons not ordinarily resident in India, acquired as interest on the Bank’s deposits in a foreign currency qualifying under section 10(15)(iv)(fa), is exempt from tax.

132

DIVIDENDS

The declaration and payment of dividends is recommended by the Bank’s Central Board of Directors and approved by its shareholders. The Bank’s decision to declare a dividend depends on a number of factors including but not limited to its profits, capital requirements and overall financial condition. The Central Board may also pay interim dividends from time to time. All dividend payments are made in cash to the shareholders of the Bank. Past dividends declared by the Bank have been made pursuant to the guidelines issued by RBI from time to time. RBI has issued a revised Dividend Policy through their circular DBOD No. BC.88/21.02.067/2004-05 dated May 4, 2005. The Bank has declared dividends for the years 2006 and 2007 in accordance with RBI’s revised policy. The Bank’s dividend policy is to declare dividends only at the conclusion of the fiscal year. The dividends declared by the Bank during the previous fiscal years ended March 31, 2003, 2004, 2005, 2006 and 2007 are presented in the table below.

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

Number of Shares (Face value of Rs. 10 each)

526,298,878 526,298,878 526,298,878 526,298,878 526,298,878

Dividend Rate (%)

85% 110% 125% 140% 140%

Total divided amount (Rs. in million)

4,473.6 5,789.3 6,578.7 7,368.2 7,368.2

The amounts paid as dividends in the past are not necessarily indicative of the Bank’s dividend policy or dividend amounts, if any, in the future.

133

MANAGEMENT

The following chart illustrates the management structure of the Bank as of December 31, 2007.

Central Board of Directors The Central Board of Directors of the Bank is appointed in accordance with Section 19 of the Act. The Central Board is headed by the Chairman of the Bank. Two Managing Directors are also members of the Central Board. As of January 30, 2008, in addition to the three whole-time Directors, i.e., the Chairman and two Managing Directors, there were nine other Directors, on the Central Board, including eminent members of academia, finance and accounting professions. These included representatives of shareholders and staff of the Bank, nominees of the Government and the RBI, as well as other directors nominated under Section 19 of the Act. Brief particulars of the Bank’s Directors are set out below:

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

1. Mr. O.P. Bhatt Chairman Appointed under Sec 19(a) of the Act Address: No. 5, Dunedin J.M. Mehta Road Mumbai - 400 006

Indian 56 1. SBI Funds Management (Private) Limited

2. SBI Factors & Commercial Services Private Limited

3. State Bank of Indore

4. State Bank of Saurashtra

5. State Bank of Patiala

Associates Banksand Subsidiaries

DMD & GE(Associates

& Subsidiaries)

DMD & GE(Associates

& Subsidiaries)DMD & GE(Intl.Bkg)

DMD & GE(Intl.Bkg)DMD & GE

(National Bkg)

DMD & GE (National Bkg)

DMD & GE (Rural

& Agri. Bus)

DMD & GE (Rural

& Agri. Bus)DMD & GE

(GlobalMarkets)

DMD & GE(Global

Markets)MD & GE

(Comm.Bkg)

MD & GE(Comm.Bkg)

Foreign Offices and Subsidiaries

Global and Domestic Treasury

Rural Business Group

SME Bus.Unit

Govt. Bus.Unit

Personal BkgBus.UnitDMD & GE (MC)

Project Finance& Leasing

CorporateAccts..Group

Stressed Asset Mgmt. Group

CHAIRMANCHAIRMAN

Chief Vigilance OfficerChief Vigilance Officer

DMD (Info. Technology )DMD (Info. Technology )DMD &Chief Fin.OfficerDMD &Chief Fin.Officer

DMD (Insp & Mgmt Audit)DMD (Insp & Mgmt Audit)

DMD & Corp.Devpt.OfficerDMD & Corp.Devpt.Officer MD & Chief Credit & Risk OfficerMD & Chief Credit & Risk Officer

Chief Economic Advisor #Chief Economic Advisor #

DMD (Corporate Strategy & New Businesses)

DMD (Corporate Strategy & New Businesses)

GM (Corporate Communication & Change)

GM (Corporate Communication & Change)

Banking Operations

Local Head Offices (Circles)

Marketing -Cross Selling

Modules

Reg.Bus.Office

Branches # Position now vacant.

DMD (On special duty) Whole Sale

Banking)

CGMSBSU

Associates Banksand SubsidiariesAssociates Banksand Subsidiaries

DMD & GE(Associates

& Subsidiaries)

DMD & GE(Associates

& Subsidiaries)DMD & GE(Intl.Bkg)

DMD & GE(Intl.Bkg)DMD & GE

(National Bkg)

DMD & GE (National Bkg)

DMD & GE (Rural

& Agri. Bus)

DMD & GE (Rural

& Agri. Bus)DMD & GE

(GlobalMarkets)

DMD & GE(Global

Markets)MD & GE

(Comm.Bkg)

MD & GE(Comm.Bkg)

DMD & GE(Associates

& Subsidiaries)

DMD & GE(Associates

& Subsidiaries)DMD & GE(Intl.Bkg)

DMD & GE(Intl.Bkg)DMD & GE

(National Bkg)

DMD & GE (National Bkg)

DMD & GE (Rural

& Agri. Bus)

DMD & GE (Rural

& Agri. Bus)DMD & GE

(GlobalMarkets)

DMD & GE(Global

Markets)MD & GE

(Comm.Bkg)

MD & GE(Comm.Bkg)

Foreign Offices and SubsidiariesForeign Offices and Subsidiaries

Global and Domestic Treasury

Rural Business Group

SME Bus.Unit

Govt. Bus.Unit

Personal BkgBus.UnitDMD & GE (MC)

Project Finance& Leasing

CorporateAccts..Group

Stressed Asset Mgmt. Group

CHAIRMANCHAIRMAN

Chief Vigilance OfficerChief Vigilance Officer

DMD (Info. Technology )DMD (Info. Technology )DMD &Chief Fin.OfficerDMD &Chief Fin.Officer

DMD (Insp & Mgmt Audit)DMD (Insp & Mgmt Audit)

DMD & Corp.Devpt.OfficerDMD & Corp.Devpt.Officer MD & Chief Credit & Risk OfficerMD & Chief Credit & Risk Officer

Chief Economic Advisor #Chief Economic Advisor #

DMD (Corporate Strategy & New Businesses)

DMD (Corporate Strategy & New Businesses)

GM (Corporate Communication & Change)

GM (Corporate Communication & Change)

CHAIRMANCHAIRMAN

Chief Vigilance OfficerChief Vigilance Officer

DMD (Info. Technology )DMD (Info. Technology )DMD &Chief Fin.OfficerDMD &Chief Fin.Officer

DMD (Insp & Mgmt Audit)DMD (Insp & Mgmt Audit)

DMD & Corp.Devpt.OfficerDMD & Corp.Devpt.Officer MD & Chief Credit & Risk OfficerMD & Chief Credit & Risk OfficerDMD & Corp.Devpt.OfficerDMD & Corp.Devpt.Officer MD & Chief Credit & Risk OfficerMD & Chief Credit & Risk Officer

Chief Economic Advisor #Chief Economic Advisor #

DMD (Corporate Strategy & New Businesses)

DMD (Corporate Strategy & New Businesses)

GM (Corporate Communication & Change)

GM (Corporate Communication & Change)

Banking Operations

Local Head Offices (Circles)

Marketing -Cross Selling

Modules

Reg.Bus.Office

Branches # Position now vacant.

DMD (On special duty) Whole Sale

Banking)

CGMSBSU

134

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

Occupation: Banking Term: July 1, 2006 to March 31, 2011 Date of Birth: March 7, 1951 DIN No. 00548091

6. State Bank of Bikaner & Jaipur

7. State Bank of Hyderabad

8. State Bank of Mysore

9. State Bank of Travancore

10. State Bank of India (California)

11. SBI Life Insurance Company Limited

12. SBI Capital Markets Limited

13. SBICAPS Ventures Limited

14. SBI Discount & Finance House of India Limited (SBIDFHI)

15. SBI Cards & Payment Services Private Limited

16. General Insurance Corporation of India

17. Export-Import Bank of India

18. GE Capital Business Process Management Services Private Limited, Member

19. Member of the Governing Board and Chairman of the Finance Committee & Campus Committee – National Institute of Bank Management

20. Member of the Governing Board & Chairman of the Finance Committee and Committee of Administrators of IBPS Employees Provident Fund – Institute of Banking Personnel Selection

21. Confederation of Indian Industry – National Council

22. Federation of Indian Chamber of Commerce & Industry – Chairman of the Banking & Financial Institutions

23. Khadi & Village Industries Commission 24. National Co-operative Development

Corporation - Member 25. High Level Committee on Financial

Sector Reforms 26. Governing Board of Indian Council for

Research on International Economic Relations

27. Board of Governors of XLRI, Jamshedpur 28. Institute for Development and Research in

Banking Technology

135

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

2. Mr. T.S. Bhattacharya Managing Director Appointed under Sec 19(b) of the Act Address: M-1, Kinellan Towers 100 A, Napean Sea Road Mumbai 400 006 Occupation: Banking Term: February 28, 2005 to January 31, 2008 Date of Birth: January 24, 1948 DIN No. 00157305

Indian 59 1. SBI Capital Markets Limited

2. State Bank of India (Canada)

3. Infrastructure Leasing & Financial Services Limited (IL & FS)

4. PT Bank Indomonex (PBIM), Indonesia

3. Mr. S.K. Bhattacharyya Managing Director Appointed under Sec 19(b) of the Act Address: M-2, Kinellan Towers 100 A, Napean Sea Road Mumbai - 400 006 Occupation: Banking Term: October 8, 2007 to October 31, 2010 Date of Birth: October 31, 1950 DIN No. 01924770

Indian 57 Nil

4. Mr. Suman Kumar Bery Non-Executive Director, elected under Section 19(c) of the Act Address: N-42, Panchshila Park, New Delhi - 110 017 Occupation: Economist Term: with effect from September 15, 2005; three years and eligible for re-election for a further three years, maximum six years continuously Date of Birth: July 18, 1949

Indian 58 Director General, NCAER

136

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

DIN No. 01943092

5. Dr. Ashok Jhunjhunwala Non-Executive Director, elected under Section 19(c) of the Act

Address: Professor, Telecom & Networks (TeNeT) Group Department of Electrical Engineering

IIT Madras Chennai - 600 036 Occupation: Academician Term: with effect from September 15, 2005; three years and eligible for re-election for a further three years, maximum six years continuously Date of Birth: June 22, 1953 DIN No. 00417944

Indian 54 1. Polaris Software Lab Limited

2. Tejas Networks Private Limited

3. Sasken Communications Technologies Limited

4. Midas Communication Technologies Private Limited

5. Bharat Electronics Limited

6. National Research Development Corporation Limited

7. Vishal Bharath Comnet (Sec.25 Company)

8. National Internet Exchange of India Limited. (Sec.25 Company) – Member – Governing Council

9. Institute for Development & Research in Banking Technology (IDRBT)

10 3i Infotech Limited

11. Tata Teleservices (Maharashtra) Limited

12. Member of the Scientific Advisory to the Prime Minister (SAC-PM)

13. Member of the Army Information Technology Advisory Board, Army Headquarters, New Delhi

14. Member of the Executive Council of Jawaharlal Nehru University

15. Member of the Governing Council of the Institute of Financial Management and Research, Chennai

16. Member of the Board, I-Tech (International Training and Education Centre on HIV), Chennai

6. Mr. Ananta C. Kalita

Employee Representative Director, appointed under Section 19(ca) of the Act Address: Head Assistant, State Bank of India Zonal Office Bhangagarh Guwahati 781 - 005 Occupation: SBI Employee, Term: with effect from July

Indian 59 Nil

137

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

15, 2003; three years or until a successor is appointed and eligible for re-appointment; maximum tenure of six years continuously Date of Birth: June 1, 1948 DIN No. 00609564

7. Mr. Amar Pal

Employee Representative Director, appointed under Section 19(cb) of the Act Address: Deputy Manager, Official Languages Department, State Bank of India, Local Head Office, Chandigarh. President, All India State Bank of India Officers’ Federation House No.354 Sector 37-A Chandigarh – 160 037 Occupation: SBI Employee Term: August 19, 2005 to March 31, 2008 Date of Birth: April 1, 1948 DIN No. 01944128

Indian 59 Nil

8. Mr. Piyush Goyal

Non-Executive Director, nominated under Section 19(d) of the Act Address: 28, Sonmarg, 14th Floor Napean Sea Road, Opposite J.B. Petit Hall Mumbai - 400 006 Occupation: Chartered Accountant/Industrialist Term: with effect from January 23, 2004; three years or until a successor is nominated and eligible for re-nomination, maximum tenure six years continuously Date of Birth: June 13, 1964

Indian 43 1. Flashnet Infosolutions (I) Limited

2. Thane Belapur Industries Association Infrastructure Development Centre

3. S.V. Shah Construction Services Private Limited

4. Flash Agro Farms Private Limited

5. Intercon Advisers Private Limited

6. Managing Committee, Indian Merchants Chamber

138

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

DIN No. 00024431

9. Dr. Deva Nand Balodhi

Non-Executive Director, nominated under Section 19(d) of the Act Address: 669, Military Road, 1st Floor, Anand Parbat New Delhi - 110 005 Occupation: Working Journalist Term: with effect from July 9, 2007; three years and eligible for re-nomination, maximum tenure six years continuously Date of Birth: July 14, 1946 DIN No. 01946041

Indian 61 Nil

10. Prof. Mohd. Salahuddin Ansari Non-Executive Director, nominated under Section 19(d) of the Act Address: Principal-in-charge Madhupur College Madhupur (District Deoghar) Jharkhand – 815 353 Occupation: Professor of Commerce Term: with effect from July 9, 2007 for three years and eligible for re-nomination , maximum tenure six years

Indian 61 Nil

139

Sr. No.

Name, Designation, Address, Occupation and Term

Nationality

Age

Other Directorships

continuously Date of Birth: July 30, 1946 DIN No. To be applied for.

11. Mr. Arun Ramanathan GOI Nominee Director, appointed under Section 19(e) of the Act Address: Secretary (Financial Services) Department of Financial Services, Ministry of Finance, Government of India Parliament Street New Delhi - 110 001 Occupation: Member of the Indian Administrative Services Term: with effect from January 18, 2008 until further orders Date of Birth: April 25, 1949 DIN No. (to be applied for)

Indian 58 1. Infrastructure Development Finance Company Ltd. (IDFC)

2. India Infrastructure Finance Company Limited (IIFCL)

3. Infrastructure Development Bank of India Ltd.

4. Life Insurance Corporation of India

5. ICICI Bank.

12. Ms. Shyamala Gopinath RBI Nominee Director, appointed under Section 19(f) of the Act Address: Deputy Governor RBI, Central Office Mint Road Mumbai 400 001 Occupation: Central Banker Term: with effect from September 28, 2004 until further orders Date of Birth: June 20, 1949 DIN No. To be applied for.

Indian 58 1. RBI Central Board - Director

2. National Housing Bank - Director

3. Export Import Bank of India - Director

The Central Board meets regularly in accordance with the requirements of the Bank, with a minimum of six meetings per year. The Central Board meetings were held nine times during fiscal year 2007 and seven times during the nine-month period ended December 31, 2007.

Brief Biographies of the Directors

140

Mr. O.P. Bhatt (Chairman)

Mr. Bhatt assumed charge as Chairman of the Bank in July 2006. Under his leadership, the Bank has undertaken technological upgrades. Mr. Bhatt has held several critical positions in retail, corporate and international banking, including Managing Director of State Bank of Travancore, Chief General Manager of the Bank’s North-East Circle and the Bank’s Representative in Washington D.C. Mr. Bhatt joined the Bank as a direct recruit officer in 1972.

Mr. T. S. Bhattacharya (Managing Director)

Mr. Bhattacharya joined the Bank as a direct recruit officer in 1969. Prior to the present assignment as Managing Director and Group Executive (Corporate Banking), he was the Managing Director of State Bank of Indore. Mr. Bhattacharya has also headed the retail banking, marketing and product development and international merchant banking and international correspondent banking departments of the Bank. Mr. Bhattacharya retires on January 31, 2008.

Mr. S. K. Bhattacharyya (Managing Director)

Mr. Bhattacharyya joined the Bank as a direct recruit officer in 1972. Prior to his present assignment as Managing Director and Chief Credit and Risk Officer of the Bank, he was the Managing Director of the State Bank of Bikaner and Jaipur. He has also served as Chief General Manager of the Bank’s Hyderabad Circle and as Managing Director of SBI International (Mauritius) Limited.

Mr. Suman Kumar Bery

Mr. Suman Kumar Bery is a director elected by the shareholders under section 19(c) of the Act with effect from September 15, 2005, for three years and, if re-elected, for a further period of three years. Mr. Bery is a reputed economist and is currently the Director General (CEO) of National Council of Applied Economic Research (NCAER), New Delhi, having earlier worked with the World Bank and also as Advisor with the RBI.

Dr. Ashok Jhunjhunwala

Dr. Ashok Jhunjhunwala is a Director elected by the shareholders under section 19(c) of the Act, with effect from September 15, 2005, for three years and if re-elected, for a further period of three years. Mr. Jhunjhunwala is a Professor of the Department of Electrical Engineering and leads the Telecommunications and Computer Network Group (TeNeT) at IIT, Madras that is working closely with the industry in the development of a number of telecom and computer network systems.

Mr. Ananta C. Kalita

Mr. Ananta Chandra Kalita is a Director nominated under section 19(ca) of the Act, representing the workmen staff, with effect from July 15, 2003, for a period of three years or until he ceases to be a workman employee of the Bank or until further orders, whichever is earlier. Mr. Kalita shall not hold office continuously for a period exceeding six years. Mr. Kalita is the Head Assistant, State Bank of India, Zonal Office, Guwahati.

Mr. Amar Pal

Mr. Amar Pal is a Director nominated by the Central Government under section 19(cb) of the Act, representing the non-workmen staff, with effect from August 19, 2005 until March 31, 2008, which is the date on which he will attain the age of superannuation, or until he ceases to be an officer of the Bank, whichever is earlier. Mr. Pal is the Deputy Manager at the Chandigarh Local Head Office of the Bank.

Mr. Piyush Goyal

Mr. Piyush Goyal is a Director nominated by the Central Government under section 19(d) of the Act, with effect from January 23, 2004, for three years or until the appointment of his successor, whichever is later (maximum six years). Mr. Goyal is a Chartered Accountant and was previously a Director on the Board of the Bank of Baroda. Mr. Goyal is also the Chairman & Managing Director of Flashnet Infosolutions (I) Limited.

Dr. Deva Nand Balodhi

141

Dr. Balodhi is a Director nominated by the Central Government under section 19(d) of the Act, with effect from July 9, 2007, for three years or until the appointment of his successor, whichever is later (maximum six years). He is a working journalist and his areas of interest include rural economy and agriculture. Mr. Balodhi was previously a Media Advisor to the Chief Minister, Uttarakhand.

Prof. Mohd. Salahuddin Ansari

Professor Ansari is a Director nominated by the Central Government under section 19(d) of the Act, with effect from July 9, 2007, for three years or until the appointment of his successor, whichever is later (maximum six years). Professor Ansari is active in academia and is presently the Principal-in-charge at Madhupur College, Jharkhand. Professor Ansari has previously held the position of Dean of the Faculty of Commerce at S.K.M University. Professor Ansari has also been a member of Parliament. Mr. Arun Ramanathan Mr. Arun Ramanathan is a Director nominated under section 19(e) of the Act (nominated by the Government) with effect from January 18, 2008. Mr. Ramanathan is Secretary (Financial Services) for the Government's Ministry of Finance. Ms. Shyamala Gopinath Ms. Shyamala Gopinath is a Director nominated under section 19(f) of the Act (nominated by the RBI), with effect from September 28, 2004. Ms. Gopinath is the Deputy Governor of the RBI. Central Management Committee The Central Management Committee (“CENMAC”) comprises of the Chairman, the Managing Directors and all Deputy Managing Directors of the Bank. It is headed by the Chairman and is the highest non-Central Board level policy-making body of the Bank. The CENMAC also deliberates and facilitates the day-to-day affairs of the Bank. The Bank has a system in place to delegate powers to the various tiers of management. The Bank believes the Central Board has established a positive functioning relationship with the senior management of the Bank.

Person Designation Mr. O.P. Bhatt Chairman Mr. T.S. Bhattacharya Managing Director & Group Executive (Corporate

Banking) Mr. S.K. Bhattacharyya Managing Director & Chief Credit & Risk Officer Mr. Abhijit Datta Deputy Managing Director & Group Executive

(Mid Corporate) Mr.K. Sitaramam Deputy Managing Director & Group Executive

(National Banking) Mrs. Bharati Rao Deputy Managing Director & Corporate

Development Officer. Mr. Deepak Chawla Deputy Managing Director (Corporate Strategy &

New Businesses) Mr. Anup Banerji Deputy Managing Director & Group Executive

(Rural Business) Mr. Ashok Mukand Deputy Managing Director & Chief Financial

Officer Mr. H. G. Contractor Deputy Managing Director & Group Executive

(Wholesale Banking) Corporate Governance The Central Board has established the following committees (a) to ensure compliance with the Act and corporate governance requirements and (b) for operational reasons. (1) Executive Committee;

142

(2) Audit Committee; (3) Shareholders’ and Investors’ Grievance Committee; (4) Risk Management Committee of the Board; (5) Special Committee of Directors for Monitoring Large Value Frauds; (6) Customer Service Committee; (7) Technology Committee; and (8) Committee of the Board on Rural Sector Business. Executive Committee of the Central Board The Executive Committee of the Central Board (“ECCB”) constituted in accordance with the requirements of section 30 of the Act, comprises the Chairman, the Managing Directors, the Director nominated under section 19(f) of the Act, and all or any of the other Directors who are normally residents or may, for the time being, be present at any place within India where ECCB meetings are held. The ECCB meets once every week. In accordance with the Act, the ECCB exercises powers delegated by the Central Board and its functions are subject to the conditions imposed by the Central Board. Further, Regulations 46 and 47 of the State Bank of India General Regulations, 1955, provide that, subject to the general or special directions of the Central Board, ECCB may deal with any matter within the competence of the Central Board. Audit Committee The Audit Committee (“ACB”) functions under RBI guidelines and complies with the provisions of Clause 49 of the Listing Agreement to the extent that they do not violate the directives and guidelines issued by RBI. The ACB was last re-constituted with effect from January 14, 2008. The composition and functions of the ACB are set out below: Composition of the ACB In accordance with RBI guidelines, the ACB has six members, including two full time Directors, two official Directors (nominees of the Government and the RBI), and three non-official, non-executive Directors, one of whom is a Chartered Accountant. Meetings of the ACB are chaired by a non-executive Director. The members of the ACB are: 1. Mr. Piyush Goyal — Director, Chairman (ACB); 2. Mr. S. K. Bery — Director — Member; 3. Dr. Ashok Jhunjhunwala — Director — Member 4. Mr. Arun Ramanathan — GOI Nominee — Member (Ex officio); 5. Ms. Shyamala Gopinath, RBI Nominee — Member (Ex officio); 6. Mr. T.S. Bhattacharya, Managing Director and GE (CB) — Member (Ex officio). 7. Mr. S.K. Bhattacharyya, Managing Director and Chief Credit and Risk Officer — Member (Ex officio). Functions of the ACB (a) The ACB provides directions to, and oversees the operation of, the total audit function of the Bank i.e.,

the organisation, realisation and quality control of the internal audit and inspection within the Bank and follow-up on the statutory and external audit of the Bank and inspection by the RBI.

(b) The ACB reviews the internal inspection and audit functions of the Bank, including the system, its

quality and its effectiveness in terms of follow-up. It reviews the inspection reports of specialised and extra-large branches and branches with unsatisfactory ratings. It also focuses on the follow-up of:

143

• inter-branch adjustment accounts;

• unreconciled and long outstanding entries in inter-bank accounts and nostro or vostro accounts;

• arrears in the balancing of books at various branches;

• acts of fraud; and

• all other major areas of housekeeping. (c) The ACB obtains and reviews half-yearly reports of the Compliance Department of the Bank. (d) The ACB follows up on all the issues raised in the long form audit reports of the statutory auditors. It

also interacts with the external auditors before the finalisation of the annual/semi-annual financial accounts and reports.

For the year ended March 31, 2007 and the nine months ended December 31, 2007, ten and six meetings of the ACB, respectively, were held to review various matters connected with internal control, systems and procedures and other aspects as required in terms of RBI guidelines. Shareholders’/Investors’ Grievance Committee Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Shareholder’/Investors’ Grievance Committee (“SIGCB”) of the Board was formed on January 30, 2001, to review shareholders’ and investors’ complaints regarding transfer of shares, non-receipt of balance sheet, non-receipt of interest on bonds/declared dividends, etc. The Committee was last reconstituted with effect from September 1, 2007. Composition of SIGCB 1. Mr Suman Kumar Bery, Shareholder Director, Chairman; 2. Dr. D. N. Balodhi, Director, Member; 3. Managing Director and GE (CB), Member; and 4. Managing Director and Chief Credit and Risk Officer, Member. The SIGCB held four meetings during the year ended March 31, 2007 and three meetings in the nine-month period ended December 31, 2007, and reviewed complaints received. During the year ended March 31, 2007 and the nine-month period ended December 31, 2007, 3,699 and 4,802 complaints, respectively, were received and resolved within the stipulated period excepting those pending in courts and cases where duplicate shares have to be issued with the approval of the ECCB. Risk Management Committee of the Board The Risk Management Committee of the Board (“RMCB”) was constituted with the approval of the Central Board on March 23, 2004, to oversee the policy and strategy for integrated risk management relating to credit risk, market risk and operational risk. The Committee was last reconstituted with effect from September 1, 2007. Composition of the Committee The Committee has four members: Managing Director and Chief Credit and Risk Officer, Chairman of Committee; Managing Director and GE (CB); and Two non-executive directors — Mr. Suman Kumar Bery and Dr. Ashok Jhunjhunwala.

144

Meetings The RMCB meets a minimum of four times per year, once in each quarter. The RMCB met four times during the year ended March 31, 2007 and has met three times in the nine months ended December 31, 2007. Special Committee of Directors for Monitoring of Large Value Frauds (Rs. 10 million and above) At its meeting held on March 29, 2004, the ECCB approved the constitution of the Special Committee of Directors for monitoring of large value frauds (Rs. 10 million and above). The major functions of the Committee are to monitor and review all cases of fraud of Rs. 10 million and above, with a view to identifying systemic lacunae, and reasons for delay in detection and reporting; to monitor progress of CBI and police investigation, recovery position; to ensure that any staff accountability exercise is completed quickly; to review the efficacy of remedial action taken to prevent recurrence of fraud; and to put in place suitable preventive measures. The Committee was last reconstituted with effect from September 1, 2007, with the following members. As of December 31, 2007, the Bank did not detect any fraud which had any significant impact on its operating results. Composition of the Committee 1. Managing Director and Chief Credit and Risk Officer, Chairman; 2. Managing Director and Group Executive (CB); (Both the present MDs became members of the Committee from November 14, 2007) 3. Two Directors from the Audit Committee of the Central Board — Mr. Piyush Goyal and Mr. Suman K.

Bery; and 4. Two other Directors from the Central Board of the Bank — Dr. D. N. Balodhi and Prof. Md.

Salahuddin Ansari. The Committee met five times during the year ended March 31, 2007 and twice during the nine months ended December 31, 2007. Customer Service Committee of the Board The Customer Service Committee of the Board was constituted on August 26, 2004, to bring about ongoing improvements in the quality of customer service provided by the Bank. The Committee was last reconstituted with effect from September 1, 2007. Composition of the Committee 1. Managing Director and Group Executive (CB), Chairman of the Committee; 2. Managing Director and Chief Credit and Risk Officer; (Both Managing Directors became members of the Committee from November 14, 2007) 3. Dr. Ashok Jhunjhunwala (Non-Executive Director); and 4. Prof. Md. Salahuddin Ansari (Non-Executive Director).

(Both Managing Directors became members of the Committee from November 14, 2007) Three meetings of the Committee were held during the year ended March 31, 2007 and two meetings were held in the nine months ended December 31, 2007. Technology Committee of the Board

145

The Technology Committee of the Board was constituted on August 26, 2004, to track the progress of the Bank’s IT initiatives. It was reconstituted with effect from September 1, 2007, with the following Directors: 1. Dr. Ashok Jhunjhunwala, Chairman; 2. Mr Piyush Goyal (alternate Chairman); 3. Managing Director and Group Executive (CB); and 4. Managing Director and Chief Credit and Risk Officer. (Both Managing Directors became members of the Committee from November 14, 2007) The Committee met nine times during the year ended March 31, 2007 and four times during the nine months ended December 31, 2007. Committee of the Board on Rural Sector Business The Committee of the Board on Rural Sector Business was constituted on October 27, 2005, as part of the Bank’s special focus on the agricultural sector and was reconstituted with effect from, September 1, 2007, with the following Directors: 1. Dr. D.N. Balodhi, Chairman; and 2. Prof. Md. Salahuddin Ansari. (Both Managing Directors were also inducted into the Committee from November 14, 2007) The Committee met twice during the year ended March 31, 2007 and twice during the nine-months ended December 31, 2007. Shareholdings of Directors on the Central Board Except as set out below, no Director holds any Equity Share of the Bank.

Name Number of Equity Shares (pre-Issue)

Number of Equity Shares (post-Issue)*

Mr. O.P Bhatt 250 300 Mr. T.S. Bhattacharya 53 63 Mr. S.K. Bhattacharyya 119 142 Mr. Suman Kumar Bery 500 600 Dr. Ashok Jhunjhunwala 500 600 Mr. A.C. Kalita 50 60 Mr. Amar Pal 69 82 * The number of Equity Shares for the column entitled Number of Equity Shares (post-Issue) has been calculated assuming full

subscription to rights in this Issue and any fractional entitlements have been ignored. Compensation for Executives and the Central Board The salary structure for the Chairman and Managing Directors of the Bank is fixed by the Government. Dearness allowance is to be paid as equivalent to Group A officials of the Government. The salary and allowances of Deputy Managing Directors are paid according to the Bank’s Officers’ Service Rules. With respect to compensation for members of the Central Board, sitting fees are paid as decided by the Government. As of December 31, 2007, fees payable for Central Board meetings are Rs. 5,000 per meeting and for other Central Board-level Committees fees are Rs. 2,500 per meeting. The following tables set forth all compensation paid by the Bank to the directors for the fiscal year ended March 31, 2007.

Terms of Appointment of the Bank’s Chairman is as follows:

Mr. O.P. Bhatt, Chairman

146

Mr. O.P. Bhatt was appointed as a whole-time Director of the Bank with effect from April 26, 2006. He was later appointed Chairman with effect from July 1, 2006.

A. Remuneration: Mr. O.P. Bhatt will receive a gross salary of Rs. 0.659 million for the fiscal year 2007-08.

B. Perquisites: In addition to the salary, Mr. O.P. Bhatt is entitled to certain perquisites.

Terms of appointment of the Bank’s Managing Directors are as follows:

1. Mr. T.S. Bhattacharya, Managing Director Mr. T.S. Bhattacharya was appointed as a whole-time Director of the Bank with effect from February 28, 2005. Mr. Bhattacharya retires on January 31, 2008.

A. Remuneration: Mr. T.S. Bhattacharya will receive a salary of Rs. 0.694 million for the fiscal year 2007-08.

B. Perquisites: In addition to the salary, Mr. T.S. Bhattacharya is entitled to certain perquisites.

2. Mr. S.K. Bhattacharyya, Managing Director

Mr. S.K. Bhattacharyya was appointed as a whole-time Director of the Bank with effect from October 8, 2007.

A. Remuneration: Mr. S.K. Bhattacharyya will receive a salary of Rs. 0.633 million for the fiscal year 2007-08.

B. Perquisites: In addition to the salary, Mr. S.K. Bhattacharyya is entitled to certain perquisites.

Changes in the Central Board of Directors during the last three years Name

Section under the Act

Date of Appointment

Date of Cessation

Reason

2004-05 Mr. Ashok K. Kini

19 (b) April 1, 2004 ------ Appointed as whole-time Director by the GOI

Mr. Chandan Bhattacharya

19 (b) December 17, 2003

February 1, 2005 Superannuated on January 31, 2005

Mr. T.S. Bhattacharya 19 (b) February 28, 2005

------ Appointed as whole-time Director by the GOI

Mr. Ajay G. Piramal 19 (c) September 1, 2001

July 15, 2004 Resigned

Dr. I.G. Patel 19 (c) September 1, 2001

July 21, 2004 Resigned

Dr. I.G Patel 19 (c) September 1, 2004

------ Independent Director elected by shareholders

Mr. Ajay G. Piramal 19 (c) September 1, 2004

------ Independent Director elected by shareholders

Mr. K.S. Parikh 19 (d) July 17, 2001 July 23, 2004 Resigned Mr. N.S. Sisodia 19 (e) July 11, 2003 February 1, 2005 Superannuated on January

31, 2005 Mr A.V. Sardesai 19 (f) December 27,

2003 September 28, 2004

RBI nominated Ms. Shyamala Gopinath

147

Name

Section under the Act

Date of Appointment

Date of Cessation

Reason

Ms. Shyamala Gopinath

19 (f) September 28, 2004

------ Nominated by RBI vice Mr. A.V. Sardesai

2005-06 Mr. K. Ashok Kini

19 (b)

April 1, 2004

January 1, 2006

Laid down office on attaining superannuation on December 31, 2005

Dr. I.G. Patel 19 (c) September 1, 2004

July 17, 2005 On account of his sad demise

Mr. Suman Kumar Bery

19 (c) September 10, 2002

August 10, 2005 Resigned

Prof. M.S. Swaminathan

19 (c) August 31, 2005 ------- Independent Director elected unopposed due to vacancy caused by Dr. I.G. Patel’s demise

Mr. P.R. Khanna 19 (c) September 10, 2002

September 9, 2005 Completion of term

Mr. Suman Kumar Bery

19 (c) September 15, 2005

------- Independent Director elected by shareholders

Dr. Ashok Jhunjhunwala

19 (c) September 15, 2005

------- Independent Director elected by shareholders

Mr. Shantha Raju 19 (cb) Originally- May 20, 1999 Extension- May 20, 2002

May 20, 2005 Completion of his term on May 19, 2005

Mr. Amar Pal 19 (cb) August 19, 2005 ------- Non-Workmen Employee Representative nominated by the GOI

Mr. Ashok Jha 19 (e) July 14, 2005 ------ GOI nominee Director

2006-07 Mr. A.K. Purwar

19 (a)

November 13, 2002

June 1, 2006

Laid down office on attaining superannuation on May 31, 2006

Mr. O.P. Bhatt 19 (a) July 1, 2006 ----- Appointed as Chairman by the GOI

Mr. O.P. Bhatt 19 (b) April 26, 2006 * Appointed as Chairman with effect from July 1, 2006

Appointed as Managing Director (whole-time Director) by the GOI

Mr. Yogesh Agarwal 19 (b) October 10, 2006 ------- Appointed as Managing Director (whole-time Director) by the GOI

Mr. Ashok Jha 19 (e) July 14, 2005 October 30, 2006 Elevated to post of Finance Secretary and Mr. Vinod Rai nominated on the Central Board in his place

Mr. Vinod Rai 19 (e) October 31, 2006 ------- Secretary (Financial Sector) — GOI nominee, vice Mr. Ashok Jha

2007-08 (until January 20, 2008) Mr. Yogesh Agarwal

19 (b)

October 10, 2006

July 1, 2007

Consequent upon his appointment as Chairman of IDBI Ltd.

Mr. S.K. Bhattacharyya

19 (b) October 8, 2007 ---- Appointed as Managing Director (whole-time

148

Director) by the GOI Prof. M.S. Swaminathan

19 (c) August 31, 2005 Resignation w.e.f. April 11, 2007 accepted by Central Board on May 12, 2007

Prof. Swaminathan resigned from Bank’s Central Board consequent upon his nomination to the Rajya Sabha

Mr. Ajay G. Piramal 19(c) September 1, 2004

August 31, 2007 On completion of his tenure

Dr. Deva Nand Balodhi

19 (d) July 9, 2007 ---- Independent Director nominated by the GOI

Prof. Md. Salahuddin Ansari

19 (d) July 9, 2007 ---- Independent Director nominated by the GOI

Mr. Arun Singh 19 (d) July 25, 2003 July 30, 2007 Consequent upon nomination of new Director by the GOI

Mr. Rajiv Pandey 19 (d) January 23, 2004 July 30, 2007 Consequent upon nomination of new Director by the GOI

Mr. Vinod Rai 19 (e) October 31, 2006 Resignation w.e.f. January 06, 2008, accepted by Central Board on January 24, 2008

Appointed as CAG and resigned wef January 6 2008

Mr. Arun Ramanathan

19 (e) January 18, 2008 --- Secretary (Financial Services) — GOI nominee, vice Mr. Vinod Rai

Key Managerial Personnel

The details of the Bank’s key managerial personnel as on January 20, 2008 are as follows:

Name Age Designation Education

Previous Position

Total Years of

Experience(includingrelevant

experience)

Date of joining

the Bank

Gross Salary per

month (Rs.)

Mr O.P. Bhatt 56 Chairman M.A. Managing Director

35 Years July 1, 1972

55,290.00

Mr T.S.

Bhattacharya 59 Managing

Director M.Sc. Managing

Director (SB Indore)

38 Years September 8, 1969

53,915.25

Mr S.K. Bhattacharyya

57 Managing Director

B.A.(Hons) Managing Director (SBBJ)

35 Years July 1, 0972

51,165.75

Mr Abhijit Datta 58 Deputy

Managing Director & Group Executive (Mid Corporate)

M.A.(Eco) Deputy Managing Director and Corporate Development Officer

35 Years July 4, 1972

55,038.45

Mr K.

Sitaramam 58 Deputy

Managing Director & Group Executive

M.A. Managing Director (SBT)

36 Years February 1, 1971

54,901.50

149

(National Banking)

Mrs Bharati Rao 59 Deputy

Managing Director & Corporate Development Officer

M.A. (Eco)

Deputy Managing Director and Chief Credit and Risk Officer

35 Years August 7, 1972

54,838.50

Mr Deepak

Chawla 59 Deputy

Managing Director (Corporate Strategy & New Businesses)

M.A. (Eco) Managing Director and CEO, SBI Funds Management Pvt Ltd

35 Years July 1, 1972

54,438.60

Mr Anup Banerji 57 Deputy

Managing Director & Group Executive (Rural Business)

M.A. (History)

Chief General Manager

34 Years October 31, 1973

54,038.70

Mr Ashok

Mukand 58 Deputy

Managing Director &Chief Financial Officer

B.Sc. Chief General Manager

37 Years December 14, 1970

52,572.40

Mr H.G.

Contractor 53 Deputy

Managing Director & Group Executive (Wholesale Banking)

B.A. Chief General Manager

33 Years August 14, 1974

52,572.40

All the above-mentioned key managerial personnel are permanent employees of the Bank.

Interest of Directors and Key Managerial Personnel

The Non-Executive Directors of the Bank may be deemed to be interested to the extent of fees, payable to them for attending meetings of the Central Board or a Committee. The Chairman and Managing Directors may be deemed to be interested to the extent of remuneration paid to them for services rendered by them as whole-time directors appointed by the Government. All the directors may also be deemed to be interested to the extent of Equity Shares, if any, already held by them or their dependants and relatives in the Bank, or that may be subscribed for and allotted to them, out of the present Issue in terms of the Letter of Offer and also to the extent of any dividend payable to them and other distributions in respect of the said Equity Shares. The Directors may also be regarded as interested in the Equity Shares, if any, held by or that may be subscribed by and allotted to the companies, firms or trusts, in which they are interested as directors, members, partners and/or trustees.

The key managerial personnel of the Bank do not have any interest in the Bank other than to the extent of the remuneration or benefits to which they are entitled as per their terms of appointment and reimbursement

150

of expenses incurred by them during the ordinary course of business and to the extent of the Equity Shares held by them or their dependants in the Bank, if any.

Loans toDirectors and key managerial personnel from the Bank as on December 31, 2007.

Except as described below, none of the Bank’s Directors and key management personnel have availed themselves of personal loans.

House Building Loan Employee Temporary Advance Soft Furnishing loan

Name

Amount Outstanding (Rs. In million)

Interest Rate

Amount Outstanding (Rs.

Interest Rate

Amount Outstanding (Rs. In million)

InterestRate

Total Amount Outstanding (Rs. In million)

Mr O.P.Bhatt 0.160 Up to

0.110 – 5% Above 0.110 – 10%

Nil N/A Nil N/A 0.160

Mr S.K. Bhattacharyya

Individual: 0.309 Commercial: 0.359

10% 13.5%

Nil N/A Nil N/A 0.309 0.359

Mr K.Sitaramam 0.556 Up to 1.1

lac : 5%

Above 1.1 lac: 11%

Nil N/A Nil N/A 0.556

Mrs Bharati Rao (i) 0.392 Up to 1.1

lac: 5%

Above 1.1 lac to 5 lac: 10%

Nil N/A Nil N/A 0.392

(ii) Addl. Housing Loan:

0.138

12%

0.138

Mr Deepak Chawla Nil N/A 0.004

(Festival Advance) Nil Nil N/A 0.004

Mr Anup Banerji 0.592 Up to 1.1

lac : 5%

Above 1.1 lac : 11%

Overdraft –0.440

Festival Advance –

0.020

11.0%

Nil

Nil N/A 1.052

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House Building Loan Employee Temporary Advance Soft Furnishing loan

Name

Amount Outstanding (Rs. In million)

Interest Rate

Amount Outstanding (Rs.

Interest Rate

Amount Outstanding (Rs. In million)

InterestRate

Total Amount Outstanding (Rs. In million)

Mr Ashok Mukand 0.047 (Int. amount

on H/L,principal already repaid)

Nil N/A Nil N/A 0.047

Except as disclosed below, the Bank has not entered into any contract, agreement or arrangement during the preceding two years from the date of this Letter of Offer in which the Directors are interested indirectly and no payments have been made to them in respect of these contracts, agreements or arrangements or are proposed to be made to them. Except as stated otherwise in this Letter of Offer, the Bank’s Directors and its key managerial personnel have not taken any loan from the Bank.

Loans to Relatives of Director: 1. Shri Amar Pal (Other than those specifically exempted by RBI i.e. Housing Loan, Car Loan to an employee of the bank, and loans against specified securities) Sr. No. Date of

Sanction Name of Borrower

Relationship with Director

Nature of Loan

Amount Rate of Interest

1. March 31, 2007

M/s Ductile Auto Engg. P. Ltd

Brother EPC EBP

7.50 million 5 million

10%

2. March 23, 2007

M/s Fitex Industries Ltd.

Brother EPC EBP

60 million 55 million

9.75% under Gold Card

Changes in the Bank’s Key Managerial Personnel during the last three years 2004-05 Name Designation Date of

joining Date of Leaving

Reasons

Ms Ritu Anand DMD &CEA 01.10.2004 Appointed as Chief Economic Advisor on contract basis

Shri R.K.Sinha DMD (I&MA) 31.10.2004 Retired Shri S.Santhanakrishnan DMD & CDO 30.11.2004 Retired Shri Ashwini Kumar Sharma DMD & CFO 06.12.2004 Posted as DMD Shri Abhijit Datta DMD &CDO 9.12.2004 Posted as DMD Shri P.K. Mitra DMD (I&MA) 20.12.2004 Posted as DMD Shri Yogesh Agarwal DMD & CFO 27.12.2004 Appointed as MD of

State Bank of Patiala

Shri C. Bhattacharya Managing Director & Group Executive (CB)

31.01.2005 Retired

Shri T.S. Bhattacharya Managing Director & Group Executive (CB)

28.02.2005 Appointed as MD

Shri B.D. Sumitra DMD & GE (IB) 28.02.2005 Retired 2005-06

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Name Designation Date of

joining Date of Leaving

Reasons

Shri K. Ashok Kini Managing Director &GE (NB)

31.12.2005 Retired

Shri A.G. Kalmankar DMD &GE (IB) 28.02.2006 Retired Shri R.N. Ramanathan DMD (IT) 28.02.2006 Retired 2006-07 Name Designation Date of

joining Date of leaving

Reasons

Ms Bharati Rao DMD & GE (IB) 05.04.2006 Posted as DMD Shri V.K. Gupta DMD & CCO 07.04.2006 Posted as DMD Shri P.P. Pattanayak DMD (IT) 27.04.2006 Posted as DMD (IT) Shri O.P. Bhatt Managing Director & GE

(NB) 26.04.2006 30.06.2006 Appointed as MD

Shri A.K. Purwar Chairman 31.05.2006 Retired Shri P.P. Pattanayak DMD (IT) 27.06.2006 Posted as MD, SBM Shri O.P. Bhatt Chairman 01.07.2006 Appointed as

Chairman Shri V.K. Gupta DMD & CCO 11.07.2006 Deputed as MD,

SBIDFHI Ltd. Shri Y. Vijayanand DMD & GE (A&S) 01.08.2006 Posted as DMD &

GE (A & S) Shri Deepak Chawla DMD (Corporate Strategy

& New Business) 25.09.2006 Posted as DMD

Shri Anup Banerji DMD & GE (Rural Business)

25.09.2006 Posted as DMD

Shri Yogesh Agarwal Managing Director & GE (NB)

10.10.2006 Appointed as MD

Shri Arun Shandilya DMD &CFO 17.10.2006 Posted as DMD & CFO.

Shri M.M. Lateef DMD ( Global Markets) 01.11.2006 Posted as DMD & GE (Global Markets)

Shri S.K. Hariharan DMD & GE (IB) 31.03.2007 Retired 2007-08 Name Designation Date of

joining Date of leaving

Reasons

Shri Yogesh Agarwal MD &GE(NB) 30.06.2007 Appointed as CMD, IDBI Bank

Shri K.Sitaramam DMD &GE (NB) 02.07.2007 Posted as DMD & GE (NB)

Shri S.K. Bhattacharyya MD & CC & RO 08.10.2007 Appointed as Managing Director

Shri Y. Vijayanand DMD & GE (A&S) 31.08.2007 Retired Shri M.M. Lateef DMD (Global Markets) 31.08.2007 Retired Ms Ritu Anand DMD & CEA 30.09.2007 Completion of contract Shri H.G. Contractor DMD & GE (Wholesale

Banking) 25.10.2007 Posted as DMD

Shri Arun Shandilya DMD & CFO 21.01.2008 Appointed as MD, SBBJ

Shri Ashok Mukand DMD & CFO 26.11.2007 Posted as DMD Shri Ashwini Kumar Sharma DMD (IT) 30.11.2007 Retired Shri P.K.Mitra DMD (I & MA) 31.12.2007 Retired

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Note: The date of appointment is the date when the relevant person became a key managerial person Employees Stock Purchase Scheme The Bank is proposing an employee share purchase scheme (“ESPS”). The Government has, by its letter no. F.No.11/7/2007-BOA dated January 25, 2008, authorised the issue of the ESPS. Pursuant to the Government authorisation, the Bank's Central Board has, at its meeting held on February 1, 2008, approved the ESPS. The Bank may issue a maximum of 86,17,500 Equity Shares to its Eligible Employees (as defined therein). The primary objectives of the scheme are:

a. to provide an incentive to Eligible Employees, to stimulate their efforts towards the continued success of the Bank, and to contribute to the growth and profitability of the Bank;

b. to provide a means to attract, reward and retain talent at the Bank; c. to reward Eligible Employees for their continued support and contribution towards the Bank’s

growth; and d. to encourage equity ownership by Eligible Employees by providing them with the means to

acquire a proprietary interest in the Bank. The ESPS shall remain open for a period commencing from March 28, 2008 to April 15, 2008. The issue price is Rs. 1,590 per Equity Share which is equivalent to the price of the Equity Shares issued through this Issue. The terms and conditions of the ESPS will be in accordance with the provisions of the SEBI (Employee Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and the issuances of shares will be done in compliance with the relevant guidelines/regulations/circulars. The ESPS shall be administered by the Administration Committee (as defined therein) which will include the two Deputy Managing Directors, as members. The Administration Committee has been authorised to determine inter alia details of the offer of, and the payment for, the Equity Shares to be issued under the ESPS. The Administration Committee will frame suitable policies and systems to ensure that there is no violation of the SEBI (Insider Trading) Regulations, 1992, the SEBI (Disclosure and Investor Protection) Guidelines, 2000 and the SEBI (Prohibition of Fraudulent and Unfair Trading Practice relating to the Securities Market) Regulations, 1995. The allotment of Equity Shares issued pursuant to the ESPS will occur subsequent to this Issue.

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RELATED PARTY TRANSACTIONS

For a detailed description of the Bank’s related party transactions, see “Auditor’s Report” on page [●] of this Letter of Offer.

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DESCRIPTION OF CERTAIN DIFFERENCES BETWEEN INDIAN GAAP AND U.S. GAAP

The Financial Statements have been prepared in accordance with the accounting policies followed by the Bank which conform to Generally Accepted Accounting Principles in India and RBI Guidelines as applicable to the Bank. The following are significant differences between Indian GAAP and U.S. GAAP limited to those sign differences that are appropriate to the Bank’s financial statements. However, they should not be construed as being exhaustive, and no attempt has been made to identify possible future differences between Indian GAAP and U.S. GAAP as a result of prescribed changes in accounting standards nor to identify future differences that may affect the Bank’s financial statements as a result of transactions or events that may occur in the future. In certain respects, the Financial Statements reflect adjustments made in accordance with applicable statutory requirements and regulatory guidelines and accounting practices in India, which change from time to time and may have been applied prospectively. As a result, the periods covered by the Financial Statements and the Bank’s results on a period-by-period basis may not be directly comparable. Indian GAAP U.S. GAAP Historical cost convention Uses historical cost, but assets maybe written down to reflect an impairment loss, if required. Property, plant and equipment may be re-valued to fair value. No comprehensive guidance available for derivatives.

Historical cost convention Uses historical cost, but assets maybe written down to reflect an impairment loss, if required. No revaluations are allowed except for securities and derivatives, which are required to be fair valued under specified circumstances.

Correction of errors Restatement is not required. The effect of correction is included in the current year income statement as a prior period item. The nature and amount of prior period item should be disclosed separately in the statement of profit and loss in such a manner that its impact on current year profits or losses can be perceived.

Correction of errors The correction of material errors usually results in the restatement of relevant prior periods.

Changes in accounting policies The cumulative effect of the change is recognised and disclosed in the income statement in the period in which the change is made except as specified in certain standards (transitional provisions) where the change during the transition period resulting from adoption of the standard has to be adjusted against opening retained earnings and the impact needs to be disclosed. Any Change in an accounting policy which has a material effect should be disclosed.

Changes in accounting policies Effective from fiscal years beginning after 15 December 2005, changes in accounting policy are accounted for retrospectively. Comparative information is restated, and the amount of the adjustment relating to prior periods is adjusted against the opening balance of retained earnings of the earliest year presented. An exemption applies when it is impracticable to change comparative information. Transition provisions are generally specified in new standards and may be different.

Preparation of consolidated financial statements All listed entities as per listing requirements or entities that are in the process of getting their securities listed are required to present consolidated financial statements in their presentation of annual financial statements. Consolidated financial statements are however not mandatory for interim period financial statements.

Preparation of consolidated financial statements Presentation of consolidated financial statements is mandatory for all enterprises for all periods presented.

Business Combinations Restricts the use of pooling of interest method to circumstances which meet the criteria listed for an amalgamation in the nature of a merger. In all other cases, the purchase method is used.

Business Combinations Business combinations are accounted for using the purchase method only (except as discussed below). Several differences can arise in terms of date of combination, calculation of share value to use for

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purchase price, especially if the Indian GAAP method is ‘amalgamation’ or pooling. For combination of entities under common control, the accounting is done on historical cost basis in a manner similar to a pooling of interests for all periods presented.

Goodwill Goodwill is computed as the excess of the purchase price over the carrying value of the net assets acquired.

Goodwill Goodwill is computed as the excess of the purchase price over the fair value of the net assets acquired.

Negative Goodwill arising on consolidation (i.e., the excess of the fair value of net assets acquired over the aggregate purchase consideration) Negative goodwill arising on consolidation is computed based on the book value of assets (not the fair value) of assets taken over or acquired and is credited to the capital reserve account, which is a component of shareholders’ funds.

Negative Goodwill arising on consolidation (i.e., the excess of the fair value of net assets acquired over the aggregate purchase consideration) Negative goodwill after reassessment is allocated to reduce proportionately the fair value assigned to non monetary assets. Any negative goodwill remaining is recognised as an extraordinary gain.

Intangible Assets Intangible assets are capitalized if specific criteria are met and are amortized over their useful life, generally not exceeding 10 years. The recoverable amount of an intangible asset that is not ready for use or is being amortized over a period exceeding 10 years should be reviewed at least at each financial year end even if there is no indication that the asset is impaired.

Intangible Assets When allocating purchase price of a business combination, companies need to identify and allocate such purchase price to intangible assets, based on specific criteria. Intangibles that have an indefinite useful life are required to be tested, at least annually, for impairment. Intangible assets that have finite useful life are required to be amortized over their estimated useful lives.

Segment Information Specific requirements govern the format and content of a reportable segment and the basis of identification of a reportable segment. Both business and geographical segments are identified and either of the two is classified as primary segment (with the other one being classified as the secondary segment). Segments are identified based on risks and returns and the internal reporting structure. While reporting Segmental information, accounting policies used for preparing the financial statements of the enterprise must be used.

Segment Information A Public Company is required to report information about its products and services, the geographical areas in which it operates and its major customers. Reportable segments are required to be identified based on specified criteria. Segments are identified based on operating segments and the way the chief operating decision maker evaluates financial information for purposes of allocating resources and assessing performance. Internal financial reporting policies apply (even if accounting policies differ from group accounting policy.)

Property, plant and equipment Use of historical cost or revalued amounts is permitted. Revaluation of an entire class of assets or of a selection of assets is required to be carried out on a systematic basis. Banks provide depreciation over the asset’s useful life subject to rates of depreciation prescribed by the Regulator (RBI) in respect of computers. Depreciation on revaluation portion can be recouped out of revaluation reserve.

Property, plant and equipment Upward revaluation is not permitted. Downward valuations are required when future undiscounted cash flows are less than the carrying value of the asset. The depreciable amount of an item of property, plant and equipment is allocated on a systematic basis over its useful life, reflecting the pattern in which the entity consumes the asset’s benefits. Upward revaluation is not permitted.

Unrealised gains/losses on investments All investments are categorised into “Held to Maturity”, “Available for Sale” and “Held for Trading”. “Held to

Unrealised gains/losses on investments Investments are categorised into ‘Held to Maturity’, ‘Available for Sale’ or ‘Trading’ based on management’s

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Maturity” securities are carried at their acquisition cost or at amortised cost if acquired at a premium over the face value. “Available for Sale” and “Held for Trading” securities are valued periodically as per RBI guidelines. Net depreciation, if any, within each category of investments is recognised in the profit and loss account. The net appreciation if any, under each classification is ignored.

intent and ability. While ‘Trading’ and ‘Available For Sale’ securities are valued at fair value, ‘Held to Maturity’ securities are valued at cost, adjusted for amortisation of premiums and accretion of discount. The unrealised gains and loses on ‘Trading’ securities are taken to the income statement, while those of ‘Available for Sale’ securities are reported as a separate component of stockholders equity, net of applicable taxes, until realised.

Amortisation of premium/discount on the purchase of investments No amortisation of premium/discount is allowed on investments except for the premium on investments categorised as Held to Maturity.

Amortisation of premium/discount on the purchase of investments Premium/discount is amortised on all categories of investments.

Allowances for credit losses All credit exposures are classified as per RBI guidelines, into performing and non-performing assets (NPAs). Further, non-performing assets are classified into substandard, doubtful and loss assets for provisioning based on the criteria stipulated by the RBI. Provisions are made in accordance with RBI guidelines. For restructured assets, a provision is made in accordance with the guidelines issued by the RBI, which require that a provision equal to the present value of the interest sacrifice be made at the time of restructuring. In addition to the specific provisioning made on NPAs the Bank maintains general provisions to cover potential credit losses of standard assets in accordance with RBI guidelines.

Allowances for credit losses Loans are tested for impairment and placed on a non-accrual basis (i.e., interest income is not accrued) when based on current information and events, management estimates that the collection of outstanding interest and principal amounts are doubtful. The impairment of a loan is measured based on the present value of the loan’s effective interest rate, or at the observable market price of the loan, or at the fair value of the collateral if the loan is collateral dependent. The impairment is recognised if the measured value is less than the recorded investment in the impaired loan.

Loan origination fees/costs Loan origination fees are recognised upfront on their becoming due. Loan origination costs are taken to the profit and loss account in the year in which accrued/incurred.

Loan origination fees/costs Non-refundable loan origination fees (net of direct loan origination costs) are deferred and recognised as an adjustment to yield over the life of the loan. The adjustment is made using the interest method based on the contractual terms of the loan.

Derivatives Derivative transactions comprise swaps and options. Swaps and options are disclosed as off-balance sheet exposures. The swaps/options are bifurcated as trading or hedge transaction. Trading swaps/options are revalued at the balance sheet date with the resulting unrealised gain/loss being recognised in the profit and loss account and is included in other assets or other liabilities. Hedged swaps/options are accounted for on an accrual basis.

Derivatives All derivatives are required to be recognised as assets or liabilities on the balance sheet and measured at fair value with changes in fair value being recognised in earnings. Fair values are based on quoted market prices, or absent quoted market prices, based on valuation techniques which may take into account available current market and contractual prices of similar instruments as well a time value underlying the positions. If a derivative is a hedge, depending on the nature of the hedge, the effective portion of the hedge’s change in fair value is either offset against the change in fair value of the hedged asset, liability or firm commitment through income or held in equity until the hedge item is recognised in income. The ineffective portion of a hedge is immediately recognised in income.

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Revenue Recognition Revenue is recognised on accrual basis when there is no uncertainty of its ultimate collection. Realised gains on investments under HTM category are recognised in the profit and loss account and subsequently appropriated to capital reserve account in accordance with RBI guidelines.

Revenue Recognition Revenue involving the sales of services is recognised when certain criteria’s have been met, including whether persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and, collectability is reasonably assured.

Employee Benefits AS 15 (Revised) (mandatory with effect from accounting period commencing on or after December 7, 2006) requires the use of projected unit credit method to determine benefit obligation. Additional liability arising upon the first application of the Standard may be either adjusted against opening reserve or in the alternative (with effect from October 17, 2007), may be charged as an expense over a 5 year period. All actuarial gains and losses have to be recognised immediately in profit and loss account. The discount rate to be used is determined with reference to market yields of government securities. An enterprise should recognise past service cost as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested immediately following the introduction of, or changes to, a defined benefit plan, an enterprise should recognise past service cost immediately.

Employee Benefits Obligation for defined benefit plans must be measured using projected unit credit method. If at the beginning of the year, the actuarial gains or losses exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets, then such amount is not recognized immediately, but amortized over the average remaining service period of active employees expected to receive benefits under the plan. The discount rate to be used is determined with reference to market yields of high quality corporate bonds. Past service costs are amortized over the service period or life expectancy of workers.

Taxation Income tax comprises the current tax (i.e., amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under) and the deferred tax charge or credit reflecting the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future. However, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realisation of such assets. Deferred tax assets are reviewed as of each

Taxation Income taxes are accounted for as per the provisions of SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities, using enacted tax rates expected to apply to taxable income in the years that the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in the statement of income in the period of enactment. Deferred tax assets are recognised subject to a valuation allowance based upon management’s judgment as to whether

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balance sheet date and written down or written up to reflect the amount that is reasonably/virtually certain to be realised.

realisation is considered more likely than not that the asset will be realised.

Employee Stock Option Plan As per the guidance note on Accounting for Employee Share based payments, effective for all share based grants made after April 1, 2005, employee share based plans are classified into equity settled, cash settled and employee share based payments plans with alternatives. Any plan falling into the above categories can be accounted for adopting fair value method or intrinsic value method as of the grant date. An enterprise using the intrinsic value method is required to make fair value disclosures. Listed entities are also to observe the specific guidance by market regulator (SEBI).

Employee Stock Option Plan As per FASB 123R -Accounting for Share Based Payments, employee stock based compensation plans have to be accounted for using the fair value method.

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AUDITOR’S REPORT (UNCONSOLIDATED)

The Board of Directors State Bank of India Central Office, State Bank Bhavan, Madam Cama Road, Nariman Point, Mumbai 400 021 Dear Sirs, 1. We have been engaged to examine and report on the financial information of the State Bank of India (the

“Bank”) annexed to this report as approved by the Board of Directors of the Bank, which has been prepared in terms of the requirements of Paragraph B, Part II of Schedule II to the Companies Act, 1956, (the “Act”) and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 as amended to date (“SEBI Guidelines”) issued by Securities and Exchange Board of India Act 1992, to the extent they are not inconsistent with the Banking Regulation Act, 1949 (the Banking Regulation Act). The financial information is proposed to be included in the offer document of the Bank in connection with its proposed rights issue of Equity Shares.

2. The financial information has been prepared by the Bank’s Management from the Bank’s audited financial

statements for the years ended March 31, 2003, 2004, 2005, 2006 and 2007, which were prepared in accordance with the provisions of the Banking Regulations Act. The preparation and presentation of this financial information is the responsibility of the Bank’s management.

3. The financial statements of the Bank for the year ended on March 31, 2007 were audited by us, and the

unaudited profit and loss statement of the Bank for the six months’ period ended on September 30, 2007 were subjected to limited review and reported upon by us in accordance with Auditing and Assurance Standard (AAS) 33 “Engagement to Review Financial Statement” issued by the Institute of Chartered Accountants of India (ICAI). The audit for the other financial years was conducted by the auditors, as mentioned herein below, and accordingly reliance has been placed on the financial statements audited by them for the said years:

Year ended March 31,

Names of the Auditors

2003 B. M. Chatrath & Co.; Vyas & Vyas; S Viswanathan; S P Chopra & Co., G S Mathur & Co.; R Devendra Kumar & Associates; Venugopal & Chenoy; Salarpuria Jajodia & Co.; O P Totla & Co.; K S Aiyar & Co.; B D Bansal & Co.; Nundi & Associates; K P Rao & Co.; Phillipos & Co.

2004 B. M. Chatrath & Co.; Vyas & Vyas; S Viswanathan; S P Chopra & Co., G S Mathur & Co.; R Devendra Kumar & Associates; Venugopal & Chenoy; Chaturvedi & Co.; O P Totla & Co.; K S Aiyar & Co.; B D Bansal & Co.; Sarma & Co.; K P Rao & Co.; Phillipos & Co.

2005 B. M. Chatrath & Co.; Khandelwal Jain & Co.; S Viswanathan; G S Mathur & Co., Vinay Kumar & Co.; M M Nissim & Co.; Venugopal & Chenoy; Chaturvedi & Co.; O P Totla & Co.; Patro & Co.; Kanwalia & Co.; Sarma & Co.; K P Rao & Co.; Phillipos & Co.

2006 B. M. Chatrath & Co.; Khandelwal Jain & Co.; RGN Price & Co.; G S Mathur & Co., Vinay Kumar & Co.; M M Nissim & Co.; Laxminiwas & Jain; Chaturvedi & Co.; S K Mittal & Co.; Kanwalia & Co.; M Choudhury & Co.; K P Rao & Co.; Vardhman & Co.

The aforesaid audited financial statements include figures of the branches, which were audited by branch auditors who were appointed as per the Guidelines of the Reserve Bank of India (RBI). The financial statement for the half year ended September 30, 2007 includes figures of the branches reviewed by concurrent auditors and certified by the branch managers as per the Guidelines of RBI. The unaudited Balance Sheet of the Bank as on September 30, 2007 and unaudited Cash Flow Statement of the Bank for the six months’ period ended on September 30, 2007 were subjected to limited review and reported upon by

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M/s Chaturvedi & Co., one of the auditors of the Bank, in accordance with AAS 33 “Engagement to Review Financial Statement” issued by the ICAI and we have relied on such financial statements.

4. The financial information for the above periods was examined to the extent practicable, for the purpose of

audit of financial information in accordance with the AAS issued by the ICAI. Those Standards require that we plan and perform our audit to obtain reasonable assurance, whether the financial information under examination is free of material misstatement. We have reported on the above statement on the basis of information and explanations provided by the management, books and records produced to us and such other tests and procedures, which in our opinion, were necessary for our reporting. These procedures included comparison of the attached financial information of the Bank with the respective audited/reviewed financial statements.

5. In accordance with the terms of our engagement with the Bank, we have also examined the following other

financial information set out in the following annexures prepared by the management and approved by the Board of Directors for the purpose of inclusion in the Letter of Offer:

a) Statement of Cash Flows for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and

half year ended on September 30, 2007 set out in the Annexure 5.

b) Statement of Major Changes in the activities of the Bank during the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and half year ended on September 30, 2007 set out in the Annexure 6.

c) Statement of Dividend paid by the Bank for the financial years ended March 31, 2003, 2004, 2005,

2006 and 2007 set out in the Annexure 7.

d) Statement of Other Income for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and half year ended on September 30, 2007 set out in the Annexure 8.

e) Statement of Loans and Borrowings as at September 30 2007 and material terms and conditions

including interest rates and repayment terms set out in the Annexure 9.

f) Statement of Accounting Ratios for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007 and half year ended on September 30, 2007 set out in the Annexure 10.

g) Capitalisation statement as at September 30, 2007 set out in Annexure 11.

h) Statement of Tax Shelter for the financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 set

out in the Annexure 12.

6. We report that:

i. Effects of changes in accounting policies made during the period from April 1, 2002 to September 30, 2007 for complying with the Mandatory Accounting Standard, have not been given in the attached financial information for the periods prior to such changes in the accounting policies.

ii. RBI has issued/amended various guidelines from time to time on Income Recognition, Asset

Classification, Provisioning in respect of Standard Assets/Non Performing Advances/Other Assets, Creation and Utilisation of floating provisions, Classification of Investments and valuation thereof, Treatment of depreciation on investments, Treatment of amortisation of premium on investments and amortisation of expenditure incurred on Voluntary Retirement Scheme. The Bank has carried out necessary amendments in its accounting policies in the relevant years to be in conformity with the said RBI guidelines. The effects of such changes have not been given in the attached financial information in the period prior to which these changes came into effect.

iii. Effects of material amounts relating to adjustments for the previous years have not been given in the

attached financial information to the periods to which they relate. iv. Attention is drawn to note A.6.a of Notes to the summarised financial information set out in Annexure 4

to this report regarding non compliance of Accounting Standard 15 “Employee Benefits” (revised 2005) for the reasons stated therein, the impact of which has not been ascertained by the management.

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As informed by the management of the Bank, it is not practicable for the management to recast/make adjustments in the financial information to reflect such changes referred to above. The impact of the above on the financial information for the period covered by this report is not ascertainable.

7. Subject to our comments in Para 6 above, we report that, in our opinion, the attached summarised financial information (comprising of Statement of Assets and Liabilities in Annexure 1 and Statement of Profit and Loss Account in Annexure 2) along with the principal accounting policies (Annexure 3), notes to the summarised financial information (Annexure 4) and other financial information as set out in Annexure 5 to Annexure 12 respectively to this report, have been prepared in accordance with Para B, Part II of Schedule II of the Act and SEBI Guidelines. The summarised financial information has been prepared after making such regroupings as were, in our opinion, considered appropriate. As a result of these regroupings, the amount reported in the summarised financial information may not necessarily be the same as those appearing in the audited/reviewed financial statements for the relevant years/period.

8. This report is intended solely for use of the management and for inclusion in the offer document in

connection with the proposed rights’ issue of Equity Shares of the Bank. Our report should not be used, referred to or distributed for any other purpose without our prior written consent.

9. This report should neither in any way be construed as a re-issuance or redrafting of any of the previous

Audit/Review Reports issued by us or by other firms of Chartered Accountants nor construed as a new opinion on any financial statements referred to herein.

For M. M. Nissim & Co. For Khandelwal Jain & Co. For R G N Price & Co.

Chartered Accountants Chartered Accountants Chartered Accountants

Sanjay Khemani Pankaj Jain P M VEERAMANI Partner: M. No. 44577 Partner: M. No. 48850 Partner: M. No. 23933

For S. K. Mittal & Co. For Vinay Kumar & Co. For D. P. Sen & Co. Chartered Accountants Chartered Accountants Chartered Accountants

S. K. Chopra V. K. Agrawal P. L. Sarkar

Partner: M. No. 14907 Partner: M. No. 13795 Partner: M. No. 51043

For Laxminiwas & Jain For Chaturvedi & Co. For Jain Kapila Associates Chartered Accountants Chartered Accountants Chartered Accountants

B. Ramesh Kumar S. C. Chaturvedi D. K. Kapila Partner: M. No. 200304 Partner: M. No. 12705 Partner: M. No. 16905

For Datta Singla & Co. For M Choudhury & Co. For G. M. Kapadia & Co. Chartered Accountants Chartered Accountants Chartered Accountants

Rajiv Datta D. Choudhury Rajen Ashar Partner: M. No. 11546 Partner: M. No. 52066 Partner: M. No. 48243

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For Vardhaman & Co. Chartered Accountants

V. Baskaran

Partner: M. No. 12202

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AUDITOR’S REPORT (CONSOLIDATED)

The Board of Directors State Bank of India Central Office, State Bank Bhavan, Madam Cama Road, Nariman Point, Mumbai 400 021 Dear Sirs,

1. We have been engaged to examine and report on the financial information of the State Bank of India (the “Bank”) and its subsidiaries, associates and joint ventures (the “Group”) annexed to this report as approved by the Board of Directors of the Bank, which has been prepared in terms of the requirements of Paragraph B, Part II of Schedule II to the Companies Act, 1956, (the “Act”) and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 as amended to date (“SEBI Guidelines”) issued by Securities and Exchange Board of India Act 1992, to the extent they are not inconsistent with the Banking Regulation Act, 1949 (the Banking Regulation Act). The financial information is proposed to be included in the offer document of the Bank in connection with its proposed rights issue of Equity Shares.

2. The financial information has been prepared by the Bank’s Management from the Group’s audited

financial statements for the years ended March 31, 2003, 2004, 2005, 2006 and 2007, which were prepared in accordance with the provisions of the Banking Regulations Act. The preparation and presentation of this financial information is the responsibility of the Bank’s management.

3. The financial statements of the Group for the year ended March 31, 2007 were audited by us, and the

un-audited profit and loss statement of the Group for the six months’ period ended 30th September 2007 were subjected to limited review and reported upon by us in accordance with Auditing and Assurance Standard (AAS) 33 “Engagement to Review Financial Statement” issued by the Institute of Chartered Accountants of India (ICAI). The financial statements for the other financial years included in this report were audited by M/s B. M. Chatrath & Co. and accordingly we have relied on the financial statements audited by them for those years. The unaudited Balance Sheet of the Group as on September 30, 2007 and unaudited Cash Flow Statement of the Group for the six months’ period ended on September 30, 2007 were subjected to limited review and reported upon by M/s Chaturvedi & Co., one of the auditors of the Bank, in accordance with AAS 33 “Engagement to Review Financial Statement” issued by the ICAI and we have relied on such financial statements.

The aforesaid audited financial statements include figures of the Bank which have been audited by Joint Auditors of the Bank (including us for the year ended March 31, 2005, 2006 and 2007) and audited financial statements of Bank’s subsidiaries, associates and joint ventures audited by their respective statutory auditors for the respective years as per the Provisions of Act/Guidelines of Reserve Bank of India (RBI). The aforesaid reviewed un-audited Profit and Loss statement include reviewed results of the Bank reviewed by Joint Auditors of the Bank including us, 7 subsidiaries reviewed by their respective auditors, un-reviewed results of 14 subsidiaries, 7 Joint Ventures, 24 associates and estimated results of 4 Associates based on their annual results for the year ended March 31, 2007.

4. The financial information for the above periods was examined to the extent practicable, for the purpose

of audit of financial information in accordance with the AAS issued by the ICAI. Those Standards require that we plan and perform our audit to obtain reasonable assurance, whether the financial information under examination is free of material misstatement. We have reported on the above statement on the basis of information and explanations provided by the management, books and records produced to us and such other tests and procedures, which in our opinion, were necessary for our reporting. These procedures included comparison of the attached financial information of the Bank with the respective audited/reviewed financial statements.

165

5. In accordance with the terms of our engagement with the Bank, we have also examined the following other financial information set out in the following annexures prepared by the management and approved by the Board of Directors for the purpose of inclusion in the Letter of Offer:

i. Statement of Cash Flows for the financial years ended March 31, 2003, 2004, 2005, 2006 and 2007 set

out in the Annexure C-5. ii. Statement of Accounting Ratios for the financial years ended March 31, 2003, 2004, 2005, 2006, 2007

and half year ended on September 30, 2007 set out in the Annexure C-6.

6. We report that:

i. Effects of changes in accounting policies made during the period from April 1, 2002 to September 30, 2007 for complying with the Mandatory Accounting Standard, have not been given in the attached financial information for the periods prior to such changes in the accounting policies.

ii. RBI has issued/amended various guidelines from time to time on Income Recognition, Asset

Classification, Provisioning in respect of Standard Assets/Non Performing Advances/Other Assets, Creation and Utilisation of floating provisions, Classification of Investments and valuation thereof, Treatment of depreciation on investments, Treatment of amortisation of premium on investments and amortisation of expenditure incurred on Voluntary Retirement Scheme. The Group has carried out necessary amendments in its accounting policies in the relevant years to be in conformity with the said RBI guidelines. The effects of such changes have not been given in the attached financial information in the period prior to which these changes came into effect.

iii. Effects of material amounts relating to adjustments for the previous years have not been given in the

attached financial information to the periods to which they relate. iv. Attention is drawn to note A.6.a of Notes to the summarised financial information set out in Annexure

C-4 to this report regarding non compliance of Accounting Standard 15 “Employee Benefits” (revised 2005) for the reasons stated therein, the impact of which has not been ascertained by the management.

v. The Group has, during the year ended March 31, 2007, recognised diminution in the value of

investments in Regional Rural Banks to the extent of its capital contribution, which hitherto was being recognised by the Group without restricting to its capital contribution. The effect of the same on the profits of earlier years has not been recomputed to reflect this change in the accounting policy.

As informed by the management of the Bank, it is not practicable for the management to recast/make adjustments in the financial information to reflect such changes referred to above. The impact of the above on the financial information for the period covered by this report is not ascertainable.

7. Subject to our comments in Para 6 above, we report that, in our opinion, the attached summarised

financial information (comprising of Statement of Assets and Liabilities in Annexure C-1 and Statement of Profit and Loss Account in Annexure C-2) along with the principal accounting policies (Annexure C-3), notes to the summarised financial information (Annexure C-4) and other financial information as set out in Annexure C-5 and Annexure C-6 respectively to this report, have been prepared in accordance with Para B, Part II of Schedule II of the Act and SEBI Guidelines. The summarised financial information has been prepared after making such regroupings as were, in our opinion, considered appropriate. As a result of these regroupings, the amount reported in the summarised financial information may not necessarily be the same as those appearing in the audited/reviewed financial statements for the relevant years/period.

8. This report is intended solely for use of the management and for inclusion in the offer document in

connection with the proposed rights issue of Equity Shares of the Bank. Our report should not be used, referred to or distributed for any other purpose without our prior written consent.

9. This report should neither in any way be construed as a re-issuance or redrafting of any of the previous

Audit/Review Reports issued by us or by other firms of Chartered Accountants nor construed as a new opinion on any financial statements referred to herein.

For M. M. Nissim & Co.

166

Chartered Accountants

Sanjay Khemani

Partner: M. No. 44577

167

FINANCIAL STATEMENTS

NOTE ON REFORMATTING AND REGROUPING The Bank's financial statements are prepared in accordance with generally accepted accounting principles in India according to which the financial statements contain figures for two years (current year and previous year) for the purpose of comparison. The financial statements of the Bank for the years ended March 31, 2003, 2004, 2005, 2006 and 2007 as presented hereunder have been reformatted to contain the figures for these years. Because there were changes in the accounting policies during fiscal year 2007, which led to the regrouping of some fiscal year 2006 financial data, the figures for fiscal year 2006 as extracted from the 2007 annual financial statements relating to the previous year have been regrouped. Further, as there has been a change in the accounting policies during the half year ended September 30, 2007, which led to regrouping of some of the data relating to half year ended September 30, 2006, the figures from the income statement for the half year ended September 30, 2006 are extracted from the 2007 half yearly income statements relating to the previous year. Therefore, the data relating to fiscal year 2005 and fiscal year 2006 is not strictly comparable with those relating to fiscal year 2007 as appearing herein. The Bank had previously followed a policy of amortising premium in respect of securities in the “Held to Maturity” ("HTM") category by making an adjustment to the “provision and contingencies” line item in the Bank's profit and loss account. In accordance with an RBI directive dated April 20, 2007, during fiscal year 2007 the Bank changed the previous policy relating to amortisation of premium in respect of securities held in the HTM category and charged the amortisation amount as well as marked to market losses on transfer of securities from Available for Sale ("AFS") category to the HTM category by adjusting the Profit/(Loss) on revaluation of investments (net) line item. Based on a clarification issued by RBI on July 11, 2007, the Bank is now required to reflect the amortization of premium in respect of securities held in HTM category by making an adjustment to the "Interest on Investments" line item in the Bank's profit and loss account. Accordingly, the Bank has regrouped the amortisation of premium in respect of securities held in HTM category for the period ended September 30, 2007 to conform with the current guidelines. Other than for the period ended September 30, 2006, the Bank has not made this change with respect to any other financial periods. This change in accounting policy does not have any impact on the Bank's net profit. Advances: Provisions for restructured standard assets have been retained as provisions during fiscal year 2007, instead of netting them off against Advances, as was the case during fiscal year 2006. Also claims received from Deposit Insurance and Credit Guarantee Corporation and Export Credit Guarantee Corporation have been netted off against Advances during fiscal year 2007 instead off retaining them as a liability item, as was the case during fiscal year 2006. Other liabilities and provisions: The figures in “Other Liabilities and Provisions” have undergone changes to correspond with the changes under “Advances”. Accordingly, Balance Sheet figures for fiscal year 2006 have also been regrouped. The Bank's profit and loss account has been changed so as to correlate with the corresponding items in “Assets” and “Liabilities” in the Balance Sheet for fiscal year 2007. Therefore, the Bank's profit and loss account has also been regrouped for fiscal year 2006. The Bank's cash flow statement for fiscal year 2006 has been regrouped to correspond with the revised presentation of its balance sheet for the same period.

168

NOTE ON THE LIKELY IMPACT OF ACCOUNTING STANDARD 15 (REVISED 2005) The Bank’s accounting policy on Retirement Benefits complies with the provisions of Accounting Standard 15 “Accounting for Retirement Benefits in the Financial Statements of Employers” ("AS-15"). AS-15 has been revised and replaced with Accounting Standard 15 “Employee Benefits” (Revised 2005) ("AS-15 Revised"), which will be applicable to the Bank beginning in fiscal year 2008. Under the previous AS-15, the Bank has made provisions for retirement benefits (gratuity, superannuation benefits (pension) and leave encashment benefit) on the basis of an annual acturial valuation done on an aggregate basis. Under AS-15 Revised, however, the amount of employee benefits is determined on the "Projected Unit Credit" method, which is a method prescribed under the International Accounting Standard 19, and the provisioning for such amount is mandatory. While the impact of AS-15 Revised has not been quantified, it is estimated that the amount of provision that needs to be set aside by Indian banks under the new standard would, in general, be higher than such provision determined under the previous standard. As a result of implementation of AS15-Revised, the actuarial liability of the employees’ benefits is likely to be increased. AS-15 Revised provides banks with the following two options for making a provision in its books of accounts:

1. Charge off the entire differential of increased liability (as adjusted by any tax related expense) by debit to opening reserve and surplus as on April 1, 2007.

2. Charge off 20% of the differential increased liability each year for a period of 5 years by way of a debit to the profit and loss account in each of the five years.

Any increased funding liability in 2008 will likely decrease in future fiscal years. The Bank's compliance with AS-15 Revised must take effect from April 1, 2007. AS-15 Revised has not yet been applied to the Bank's unaudited unconsolidated and consolidated financial results for the six-months ended September 30, 2007 and nine-months ended December 31, 2007. Had the Bank applied AS-15 Revised, the Bank's financial results for these periods would have differed from what is shown in this Letter of Offer. The Bank has not increased its provision for employee benefits for fiscal year 2008 as a result of the expected increase stemming from implementation of AS-15 Revised. The Bank is currently undergoing an actuarial valuation exercise to determine which option would be most appropriate. The Bank expects to complete the actuarial valuation exercise in time to be compliant with the revised standard by March 31, 2008.

169

ANNEXURE 1

SUMMARISED STATEMENT OF ASSETS & LIABILITIES (UNCONSOLIDATED) (Rs. in Millions)

As on 31-Mar-03

Audited 31-Mar-04

Audited 31-Mar-05

Audited 31-Mar-06

Audited 31-Mar-07

Audited

30-Sep-07 Unaudited Reviewed

A ASSETS

1 CASH AND BALANCES WITH RESERVE BANK OF INDIA

i Cash in hand (including foreign currency notes and gold) 11,362.04 12,849.81 14,361.60 20,802.31 25,301.19 23,760.02

ii Balances with Reserve Bank of India in Current Account 116,022.64 177,563.04 153,741.70 195,724.73 265,463.06 438,257.99

Total 127,384.68 190,412.85 168,103.30 216,527.04 290,764.25 462,018.01

2 BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE

I In India 277,726.49 165,006.66 155,394.57 86,836.35 74,999.73 66,210.81

ii Outside India 46,699.07 80,246.67 69,723.12 142,236.61 153,922.91 61,759.37

Total 324,425.56 245,253.33 225,117.69 229,072.96 228,922.64 127,970.18

3 INVESTMENTS

i Investments in India 1,678,856.08 1,816,843.62 1,924,563.94 1,572,862.05 1,433,363.22 1,746,489.06

ii Investments outside India 44,622.99 39,921.21 46,415.16 52,480.36 58,125.61 55,109.03

Total 1,723,479.07 1,856,764.83 1,970,979.1 1,625,342.41 1,491,488.83 1,801,598.09

4 ADVANCES

i Bills purchased and discounted 124,049.39 148,585.53 214,707.78 248,537.49 307,871.01 328,495.39

ii Cash Credits, overdrafts and loans repayable on demand 691,167.98 693,285.18 739,152.10 958,567.73 1,254,761.73 1,307,253.87

iii Term Loans 562,367.22 737,464.66 1,069,884.67 1,410,904.14 1,810,732.19 1,950,399.88

Total 1,377,584.59 1,579,335.37 2,023,744.55 2,618,009.36 3,373,364.93 3,586,149.14

5 FIXED ASSETS 23,885.48 26,451.15 26,976.92 27,529.34 28,188.67 31,814.83

6 OTHER ASSETS 182,005.60 179,935.28 183,907.11 223,808.43 252,923.06 341,841.04

TOTAL (A) 3,758,764.98 4,078,152.81 4,598,828.67 4,940,289.54 5,665,652.38 6,351,391.29

B LIABILITIES

1 DEPOSITS

I Demand Deposits

i From Banks 68,261.24 68,999.30 73,279.86 70,135.06 109,748.10 67,280.02

ii From Others 379,462.63 433,909.01 492,843.35 609,821.44 710,231.64 644,146.98

II Savings Bank Deposits 657,827.11 795,958.82 949,071.58 1,127,239.21 1,291,364.96 1,392,656.46

III Term Deposits

i From Banks 55,529.67 63,025.97 63,726.60 51,830.94 46,134.86 45,766.49

ii From Others 1,800,152.18 1,824,293.62 2,091,553.87 1,941,433.90 2,197,731.33 2,720,694.01

Total 2,961,232.83 3,186,186.72 3,670,475.26 3,800,460.55 4,355,210.89 4,870,543.96

2 BORROWINGS

i Borrowings in India 15,718.40 13,653.21 12,420.61 66,423.82 58,197.73 62,510.94

ii Borrowings outside India 77,317.79 120,660.13 179,422.53 239,988.63 338,835.62 386,867.94

Total 93,036.19 134,313.34 191,843.14 306,412.45 397,033.35 449,378.88

3 OTHER LIABILITIES & PROVISIONS

i Other Liabilities & Provisions 497,838.88 520,707.97 461,140.46 507,117.58 456,115.67 460,364.50

ii Subordinate Debts 34,623.25 34,631.99 34,648.45 49,858.10 144,306.90 229,975.58

Sub Total 532,462.13 555,339.96 495,788.91 556,975.68 600,422.57 690,340.08

TOTAL (B) 3,586,731.15 3,875,840.02 4,358,107.31 4,663,848.68 5,352,666.81 6,010,262.92

C NET ASSETS (C=A-B) 172,033.83 202,312.79 240,721.36 276,440.86 312,985.57 341,128.37

Represented By

D SHARE CAPITAL 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99

170

As on 31-Mar-03

Audited 31-Mar-04

Audited 31-Mar-05

Audited 31-Mar-06

Audited 31-Mar-07

Audited

30-Sep-07 Unaudited Reviewed

E RESERVES & SURPLUS

I Statutory Reserves 106,794.41 116,050.50 140,871.49 170,209.24 203,790.37 203,790.37

II Capital Reserves 1,125.46 1,148.31 3,028.85 4,181.05 4,181.44 4,181.44

III Share Premium 35,105.73 35,105.73 35,105.73 35,105.73 35,105.73 35,105.73

IV Investment Fluctuation Reserve 22,711.54 43,711.54 52,538.94 - - -

V Foreign Currency Translation Reserve - - 2,879.64 2,934.00 2,686.04 456.55

VI Revenue and Other Reserves 1,030.33 1,030.33 1,030.33 58,744.46 61,955.61 61,955.61

VII Balance in Profit and Loss Account 3.37 3.39 3.39 3.39 3.39 30,375.68*

TOTAL (E) 166,770.84 197,049.80 235,458.37 271,177.87 307,722.58 335,865.38

F TOTAL (D+E) 172,033.83 202,312.79 240,721.36 276,440.86 312,985.57 341,128.37

CONTINGENT LIABILITIES

I Claims against the bank not acknowledged as debts 4,506.51 7,637.23 8,321.23 17,048.17 38,089.88 5,738.66

II Liability for partly paid investments 440.50 671.75 551.13 28.00 28.00 1,119.78

III Liability on account of outstanding forward exchange contracts 523,257.59 587,203.83 917,047.09 1,343,502.87 1,972,853.05 1,886,439.50

IV Guaranteed given on behalf of constituents 150,195.10 162,069.61 190,755.22 268,869.80 376,211.98 462,585.95

V Acceptances, endorsements and other obligations 158,676.36 211,191.95 280,167.87 370,254.83 470,506.43 652,216.40

VI Other items for which the banks is contingently liable 223,982.90 150,147.92 197,130.48 289,110.11 208,210.83 6,802,807.42

Total 1,061,058.96 1,118,922.29 1,593,973.02 2,288,813.78 3,065,900.17 9,810,907.71

Bills for collection 75,712.85 101,938.09 167,773.09 205,929.54 233,675.11 221,340.88

* Without appropriation to Statutory reserves, revenue and other reserves.

171

ANNEXURE 2

SUMMARISED STATEMENT OF PROFIT AND LOSS ACCOUNT (UNCONSOLIDATED) (Rs in millions)

For the Financial Year/Half Year

Ended

31-Mar-03

Audited

31-Mar-04

Audited

31-Mar-05

Audited

31-Mar-06

Audited

31-Mar-07

Audited

30-Sep-07

Unaudited Reviewed

A INCOME

1 Interest Earned

1.1 Interest/Discount on Advances Bills 112,290.92 112,671.77 130,435.07 176,962.96 248,391.77 163,535.89

1.2 Income on Investments 152,576.37 157,155.15 160,276.66 139,775.28 114,929.92 54,612.97

1.3 Interest on Balances with RBI and other Inter Bank Funds 32,736.75 24,993.91 17,870.43 21,217.30 27,196.03 8,886.66

1.4 Others 13,266.15 9,784.09 15,697.86 21,840.15 4,392.53 *32.09

Total 310,870.19 304,604.92 324,280.02 359,795.69 394,910.25 227,067.61

2 Other Income

2.1 Commission, exchange and brokerage 29,773.46 31,207.21 35,446.74 39,961.99 48,045.03 20,525.37

2.2 Profit / (Loss) on sale of investments (Net) 16,945.94 30,734.54 17,753.00 5,871.71 5,677.81 7,124.73

2.3 Profit / (Loss) on revaluation of investments (Net) (50.64) (2.05) - - (16,775.14) (7,402.88)

2.4 Profit / (Loss) on sale of land, buildings and other assets (Net) including leased assets (2.71) (4.42) (8.26) 19.39 121.27 -

2.5 Profit on exchange transactions (Net) 4,635.71 5,030.39 5,281.96 10,012.66 3,733.99 1,407.58

2.6 Income by way of dividends from subsidiaries/companies and or joint ventures abroad or in India 1,372.21 1,613.12 3,932.35 3,171.83 5,969.68 1,723.19

2.7 Income from Financial Leases 2,206.95 1,724.74 1,392.25 1,177.91 836.34 307.75

2.8 Miscellaneous income 2,521.70 5,821.08 7,401.00 14,136.53 10,083.50 8,119.65

Total 57,402.62 76,124.61 71,199.04 74,352.02 57,692.48 31,805.39

Total Income 368,272.81 380,729.53 395,479.06 434,147.71 452,602.73 258,873.00

B EXPENDITURE

1 Interest Expended

1.1 Interest on deposits 201,741.88 181,229.01 171,864.90 181,321.85 190,835.80 125,469.99

1.2 Interest on Reserve Bank of India/ Inter-bank borrowings 1,953.89 1,609.56 4,086.85 13,215.58 21,415.55 14,411.83

1.3 Others 7,398.84 9,903.19 8,882.01 9,367.04 22,116.86 *7,543.00

Total 211,094.61 192,741.76 184,833.76 203,904.47 234,368.21 147,424.82

2 Operating Expenses

2.1 Payments to and provisions for employees 56,887.16 64,476.93 69,073.48 81,230.44 79,325.81 40,215.93

2.2 Rent, taxes and lighting 5,647.42 6,417.67 7,231.19 7,963.51 8,965.01 4,474.06

2.3 Printing & Stationery 1,221.74 1,461.33 1,625.07 1,756.39 1,738.73 1,032.60

2.4 Depreciation 4,936.90 6,983.45 7,522.11 7,291.32 6,023.92 3,113.37

2.5 Directors’ fees, allowances and expenses 6.35 7.36 9.94 12.33 10.78 4.80

2.6 Auditors’ fees and expenses (including branch auditors’ fees and expenses) 408.26 465.22 542.47 635.60 622.83 595.31

2.7 Law charges 437.15 486.60 497.74 494.86 573.60 266.56

2.8 Postages, Telegrams, Telephones, etc. 568.20 815.49 744.27 1,022.48 1,181.69 811.92

2.9 Repairs and maintenance 689.18 976.75 1,339.48 1,702.71 1,891.50 994.71

2.10

Insurance 1,514.44 1,688.68 2,399.59 3,407.64 3,552.86 2,024.19

2.11 Other Expenditure 7,107.43 8,673.69 9,756.38 11,733.69 14,348.44 7,167.94

Total 79,424.23 92,453.17 100,741.72 117,250.97 118,235.17 60,701.39

172

For the Financial Year/Half Year

Ended

31-Mar-03

Audited

31-Mar-04

Audited

31-Mar-05

Audited

31-Mar-06

Audited

31-Mar-07

Audited

30-Sep-07

Unaudited Reviewed

Total Expenditure 290,518.84 285,194.93 285,575.48 321,155.44 352,603.38 208,126.21

Profit Before Provisions and taxation & extraordinary items 77,753.97 95,534.60 109,903.58 112,992.27 99,999.35 50,746.79

Less: Extraordinary Items - - - - - -

Profit Before Provisions and taxation 77,753.97 95,534.60 109,903.58 112,992.27 99,999.35 50,746.79

3 Provision & Contingencies:

3.1 Provision for Income Tax (Current tax) 21,488.80 15,660.57 24,472.21 16,827.08 29,793.14 17,262.30

3.2 Provision for Income Tax (Deferred tax) 132.60 (2,762.80) (2,306.20) 3,578.94 (198.33) 151.40

3.3 Provision for Fringe Benefit Tax - - - 4,580.00 885.00 510.00

3.4 Provision for other taxes 3.60 (454.16) 4.80 8.80 4.90 -

3.5 Provision for NPAs 25,924.30 36,935.31 12,040.00 1,478.01 14,295.03 4,898.40

3.6 Provision for Standard Assets 2,046.70 491.17 1,150.00 4,051.72 5,891.90 979.80

3.7 Provision for Depreciation on investments 4,195.60 4,854.77 23,383.64 38,984.97 3,792.20 (3,760.30)

3.8 Provision for Other Assets/ Contingencies (7,087.63) 3,999.74 8,113.95 (583.96) 122.44 332.90

Total 46,703.97 58,724.60 66,858.4 68,925.56 54,586.28 20,374.50

Net Profit for the year 31,050.00 36,810.00 43,045.18 44,066.71 45,413.07 30,372.29

Add/ Less Adjustments - - - - - -

Adjusted Net Profit for the year 31,050.00 36,810.00 43,045.18 44,066.71 45,413.07 30,372.29

Add: Balance of Profit Brought forward from previous year 3.37 3.37 3.39 3.39 3.39 3.39

Add: Transfer from General Reserve - - - - 28.86 -

Profit Available for Appropriation 31,053.37 36,813.37 43,048.57 44,070.10 45,445.32 30,375.68

APPROPRIATIONS

Transfer to Statutory Reserves 9,978.49 9,256.09 24,821.00 29,337.74 33,581.13 -

Transfer to Capital Reserves , Investment Fluctuation Reserve and Revenue and Other Reserves 16,024.74 21,022.85 10,707.94 6,327.40 3,240.40 0.00

Dividend 4,473.59 5,789.29 6,578.74 7,368.18 7,368.18 -

Corporate Tax on Dividend 573.18 741.75 937.50 1,033.39 1,252.22 -

Balance carried to Balance Sheet 3.37 3.39 3.39 3.39 3.39 30,375.68

31,053.37 36,813.37 43,048.57 44,070.10 45,445.32 30,375.68

Break up of Non-Recurring Items Included above:

Income:

Profit on sale of investments - 6,937.00 1,464.00 - - -

Interest on Income tax refund - - 7,452.80 16,384.60 - -

Write back of Depreciation - - - - 174.70 -

Write back of provisions - - - 1,280.00 - -

Write back of provisions towards securities transactions 8,340.20 - - - - -

Exchange gain on India Millennium Deposits - - - 5,315.40 - -

Miscellaneous Income – Unreconciled net credit on inter-branch accounts - - - 3,166.00 - -

Sub-total (A) 8,340.20 6,937.00 8,916.80 26,146.00 174.70 -

Expenses:

Voluntary Retirement Scheme 3,545.10 3,545.10 3,545.20 722.40 4,783.00 -

Reduction in Provision for depreciation on investments - - (29,853.40) (868.60) - -

173

For the Financial Year/Half Year

Ended

31-Mar-03

Audited

31-Mar-04

Audited

31-Mar-05

Audited

31-Mar-06

Audited

31-Mar-07

Audited

30-Sep-07

Unaudited Reviewed

Payments to and provisions for employees - - - 3,128.70 - -

Interest on Income Tax - - - - 2,647.60 -

Interest on India Millennium Deposits - - - (5,635.20) - -

Sub-total (B) 3,545.10 3,545.10 (26,308.20) (2,652.70) 7,430.60 -

Total (A-B) 4,795.10 3,391.90 35,225.00 28,798.70 (7,255.90) -

Tax impact thereon 5,674.38 1,216.84 12,889.71 9,650.56 (1,551.15) -

Net impact on profit (879.28) 2,175.06 22,335.29 19,148.14 (5,704.75) - * Interest on Swaps netted off.

174

ANNEXURE 3

Principal Accounting Policies for the year ended March 31, 2007 The principal accounting policies of the Bank have been described in brief in the following paragraphs. The material accounting policies which were followed in the financial years ended on March 31, 2003, 2004, 2005 and 2006 and which have changed in subsequent years have been stated in italics at the appropriate places. 1. Basis of Preparation 1.1. The accompanying financial statements have been prepared under the historical cost convention. They

conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory provisions, regulatory/RBI guidelines, accounting standards/ guidance notes issued by the Institute of Chartered Accountants of India (ICAI), and the practices prevalent in the banking industry in India. In respect of foreign offices, statutory provisions and practices prevailing in respective countries are complied with.

1.2. The preparation of financial statements requires the management to make estimates and assumptions

considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenditure during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates.

2. Advances and Provisions thereon 2.1. Advances are shown net of provisions and unrealised interest on Non-Performing Assets (NPAs). 2.2. A general provision is required to be made on Standard Assets on the global portfolio. The provision

rates for the different categories of Standard Assets are summarised below:

a. Direct advances to agricultural and SME Sectors 0.25%

b. Residential housing loans beyond

Rs. 20 lakhs 1.00% c. Personal Loans 2.00%

Loans and advances qualifying as capital market exposures, Commercial real estate loans, and Loans and advances to systemically important NBFCs - Non Deposit Taking

d. All other loans and advances not

included in (a), (b) and (c) 0.40% Earlier Policy: During the years 2002-03,2003-04,2004-05, the general provision on standard assets on the global portfolio was 0.25%. In the year 2005-06, the general provision on standard assets on the global portfolio was 0.40% except on the advances to small and medium enterprises and direct agriculture which was at 0.25%.

2.3. Indian Offices

2.3.1. All advances are classified under four categories, viz. (a) Standard Assets, (b) Sub-standard

Assets, (c) Doubtful Assets and (d) Loss Assets.

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2.3.2. Provisions are made on outstanding non-performing advances (net of interest not realised) as under :

• Substandard Assets : 10%

From the year ended 2004-05 : 20% (In case of ab initio unsecured

exposures (where realisable value of security is not more than 10%)

• Doubtful Assets a) Unsecured portion at 100% after netting retainable/realisable amount of

guarantee cover provided by Export Credit Guarantee Corporation/ Credit Guarantee Trust for Small Industries, wherever applicable.

b) Secured portion

Period for which the advance has been considered as doubtful Up to one year 20% One to three years 30% More than three years 100%

• Loss assets 100%

Earlier Policy:

a) In the case of doubtful assets for more than three years as on March 31, 2004, the percentage of provision on secured portion in the earlier years were 50% in 2002-03 & 2003-04, 60% in 2004-05 and 75% in 2005-06.

b) In the case of advances guaranteed by the state governments the accounting policy

for classification of account and making provisions were as under in the earlier years:

i) In the year 2005-06, advances guaranteed by State Governments are

classified as ‘sub-standard’ or ‘doubtful’ or ‘loss’, as the case may be, if the amount due to the bank remains overdue for more than 90 days and attracts appropriate provisioning as applicable to other advances.

ii) In the year 2004-05, advances guaranteed by State Governments were

classified as “sub-standard”, “doubtful” or “loss”, as the case may be, if the amount due to the bank remains overdue for more than 180 days and attracted appropriate provisioning as applicable to other advances.

iii) In the years 2003-04 and 2002-03, advances where State Government

guarantee remain default for more than two quarters as on March 31, 2000 after it is invoked at provision was made at 30% of the secured portion and 100% of the unsecured portion.

c) In the year 2002-03, the advances were considered as non-performing if they remain

overdue or out of order for more than 180 days as against 90 days at present. • “Financial Assets” sold are recognised as follows:

i) In case the sale is at a price lower than the Net Book Value (NBV), the

difference is charged to the Profit & Loss Account. ii) In case the sale is at a price higher than the NBV, the surplus provision is

not reversed and is utilised to meet the shortfall on sale of other such non-performing financial assets.

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2.3.3. Unrealised Interest recognised in the previous year on advances which have become non-performing during the current year is provided for.

2.3.4. In case of restructuring/rescheduling of advances, the difference between the present value of

the future interest as per the original agreement and the present value of the future interest as per the revised agreement is provided for at the time of restructuring/rescheduling.

2.4. Foreign Offices

2.4.1. Advances are classified under four categories in line with those of Indian Offices.

2.4.2. Provisions in respect of non-performing advances are made as per the local law or as per the norms of RBI, whichever is higher.

3. Investments 3.1. Investments are classified into three categories, viz. ‘Held for Trading’, ‘Available for Sale’ and ‘Held

to Maturity’.

Under each of these categories, investments are further classified under the following six groups :

i) Government Securities ii) Other Approved Securities iii) Shares iv) Debentures and Bonds v) Investments in Subsidiaries/Joint Ventures and vi) Other Investments

3.1.1. Investments that are acquired by the Bank with the intention to trade by taking advantage of

short term price/interest rate movement are classified under “Held for Trading”. These investments are held under this category for 90 days from the date of acquisition.

3.1.2. Investments which are intended to be held up to maturity are classified as ‘Held to Maturity’.

3.1.3. Investments which are not classified in either of the above categories are classified as

‘Available for Sale’. 3.2. Valuation

3.2.1. In determining the acquisition cost of an investment:

(a) Brokerage/commission received on subscriptions is deducted from the cost of

securities. (b) Brokerage, commission and stamp duty paid in connection with acquisition of

securities are treated as revenue expenses. (c) Interest accrued unto the date of acquisition of securities i.e. broken-period interest,

is excluded from the acquisition cost and recognised as interest expense. Broken-period interest received on sale of securities is recognised as interest income.

(d) Cost is determined on the weighted average cost method. (e) The transfer of a security (from one category to another) is accounted for at the lower

of acquisition cost/book value/market value on the date of transfer and the

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depreciation, if any, on such transfer is charged to Profit and Loss Account - “Profit on Revaluation of Investments” as a deduction.

Earlier Policy: In the year 2002-03, the weighted average cost was determined at the end of year after considering transactions during the year:

3.2.2. Individual scripts classified under ‘Held for Trading’ category are valued at lower of book

value or market value. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each classification. Net depreciation in each classification, if any, is provided for while net appreciation is ignored. The book value of the scripts continue to remain unchanged.

3.3.3. Investments under ‘Held to Maturity’ (HTM) category are carried at acquisition cost.

Wherever the book value is higher than the face value/redemption value, the premium on acquisition or on transfer from another category is amortised over the remaining period to maturity of the security using Constant Yield Method (CYM). Amortisation loss is charged to Profit and Loss Account - “Profit on Revaluation of Investments” as a deduction. The book value of the security is reduced to the extent of the amount amortised.

Earlier Policy: In the years 2002-03 & 2003-04, the premium amount was amortised equally over the remaining period of maturity.

3.3.4. Investments under ‘Available for Sale’ category are valued at cost or market value, whichever

is lower. Where market quotations are not available, market value for this purpose is arrived at on the basis of realisable market price computed as per the guidelines of the Fixed Income Money Market and Derivatives Association of India (FIMMDA) / Primary Dealers Association of India (PDAI) / RBI. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each classification. Net depreciation in each classification, if any, is provided for while net appreciation is ignored. The book value of the scripts continues to remain unchanged.

Earlier Policy: In the years 2002-03 & 2003-04, depreciation was recognised scrip-wise and appreciation ignored.

3.2.5. Treasury Bills and Commercial Papers are valued at cost.

3.2.6. Investments in subsidiaries and joint ventures (both in India and abroad) are valued at

historical cost after netting off provisions, if any. 3.2.7. Non-Performing Investments are recognised as per RBI guidelines and provision is made as

per RBI norms applicable to Non-Performing Advances. 3.2.8. Investments in Regional Rural Banks (“RRBs”) are valued at carrying cost (i.e. book value)

Earlier Policy: In the years 2002-03, 2003-04 and 2004-05 investments in Regional Rural Banks are accounted for after netting off the provisions held on account of losses incurred by RRBs up to the previous accounting period restricted to amount of the Bank’s investment up to that period.

3.3. The Bank has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of

Repo and Reverse Repo transactions other than transactions under the Liquidity Adjustment facility (LAF) with the RBI. Accordingly, the securities sold/purchased under Repo/Reverse Repo are treated as outright sales/ purchases and accounted for in the Repo/Reverse Repo Accounts and the entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo/Reverse Repo Account is adjusted against the balance in the Investment Account.

Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and reversed on maturity of the transaction. Interest expended/earned thereon is accounted for as expenditure/revenue.

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4. Derivatives 4.1 The Bank presently deals in Interest Rate Derivatives viz. Rupee Interest Rate Swaps, Cross Currency

Interest Rate Swaps and Forward Rate Agreements, and Currency Derivatives viz. Options and Currency Forwards. The Bank also deals in a mix of these generic instruments, under the portfolio of Structured Products.

4.2. Based on RBI guidelines, Derivatives are valued as follows:

a) Derivatives used for trading are marked to market and net appreciation/ depreciation is

recognised in the Profit and Loss Account. b) Derivatives used for hedging are:

i) Marked to market in cases where the underlying Assets/Liabilities are marked to

market. The resultant gain/loss is recognised in the Profit and Loss Account. ii) Accounted on accrual basis in cases where the underlying Assets/Liabilities are not

marked to market. The net outstanding marked to market position of each type of derivative is shown either under Asset or Liability, as the case may be.

5. Fixed Assets and Depreciation 5.1. Premises and other fixed assets are accounted on historical cost basis. 5.2. Depreciation is provided on the written down value method at the rates prescribed under the Income

Tax Rules, 1962, which are considered appropriate by the management. In respect of computers, depreciation is provided on straight line method at 33.33% per annum, as per RBI guidelines. Computer software not forming an integral part of hardware is depreciated fully in the year of purchase.

5.3. Assets costing up to Rs. 1,000 are charged off to the Profit and Loss Account. 5.4. In respect of fixed assets held at Foreign Offices, depreciation is provided as per the laws/norms of the

respective countries. 5.5. In respect of leasehold premises, the lease amount is amortised over the period of lease. 6. Assets given on Lease 6.1. In respect of assets given on lease by the Bank on or before March 31, 2001, the value of the assets

given on lease and the amounts paid as advance for assets to be given on lease are disclosed as “Leased Assets” and “Capital Work-in-progress (Leased Assets)” respectively under fixed assets. Depreciation is provided on straight line method as per the Companies Act, 1956, and the difference between the annual lease charge (capital recovery) and the depreciation is taken to Lease Equalisation Account as per the guidelines issued by the ICAI.

6.2. Assets given on lease by the Bank on or after April 1, 2001 are accounted as per Accounting Standard

19 (Leases) issued by the ICAI. Such assets are included under “Other Assets”. 7. Impairment of Assets 7.1. Impairment losses (if any), are recognised in accordance with Accounting Standard-28 issued by the

ICAI and charged off to Profit and Loss Account.

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8. Foreign Currency Transactions 8.1. In conformity with Accounting Standard 11 (The effects of changes in foreign exchange rates) of the

ICAI, Foreign Branches of the Bank and Offshore Banking Units (“OBUs”) have been classified as Non-integral Operations and Representative Offices classified as Integral Operations.

8.2. a) Foreign currency transactions are recorded on initial recognition in the reporting currency by

applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency on the date of transaction.

b) Foreign currency monetary items are reported using the FEDAI closing spot rates. c) Exchange differences arising on the settlement of monetary items at rates different from those

at which they were initially recorded are recognised as income or as expense in the period in which they arise.

Earlier Policy: In the Year 2002-03 and 2003-04 1. Items of income and expenditure in respect of foreign offices and assets and liabilities in

foreign currencies are converted at the rate of exchange prevailing at the close of the year as per RBI guidelines.

2. Interest received and paid as well as accruals on Balance Sheet date in different currencies on

Cross Currency Interest Rate Swaps are converted into Indian Rupees and routed through the interest account.

3. Interest Rate Swaps (“IRSs”) and Forward Rate Agreements (“FRAs”) have been used as

hedging instruments. The notional principals of these instruments are recorded as off Balance Sheet items. Interest income and expense on IRSs and FRAs are accounted for on accrual basis.

8.3. Non-integral Operations

a) All monetary/non-monetary assets and liabilities as well as contingent liabilities are translated at the closing rate notified by FEDAI.

b) Income and expenditure are translated using the quarterly average rate notified by FEDAI at

the end of the respective quarter. c) All resulting exchange differences are accumulated in a separate “Foreign Currency

Translation Reserve” account till the disposal of the net investment. 8.4. Integral Operations

a) All income and expenditure of integral operations are recorded at the rates prevalent on the date of transaction.

b) All foreign currency monetary items are reported using the FEDAI closing spot rates.

8.5. Forward Exchange Contracts

In accordance with the guidelines of FEDAI and the provisions of AS -11, net outstanding forward exchange contracts in each currency are revalued at the Balance Sheet date at the corresponding forward rates for the residual maturity of the contracts. The difference between the revalued amount and the contracted amount is recognised as profit or loss, as the case may be.

9. Revenue Recognition 9.1. Income and expenditure are accounted on accrual basis. In case of Foreign Offices, income is

recognised as per the local laws of the country in which the respective foreign office is located.

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9.2. The following items of income are recognised on realisation basis:

(a) Commission (other than commission on deferred payment guarantees and government transactions), exchange and brokerage.

(b) Dividend on investments. (c) Income on Rupee Derivatives designated as “Trading”. (d) Interest on application money on investments and overdue interest on investments.

9.3. The following items of income are recognised on realisation basis, owing to significant uncertainty in

collection thereof:

(a) Income on non-performing advances, overdue bills and non-performing leased assets. (b) Interest on non-performing investments.

9.4. Income (other than interest) on investments in “Held to Maturity” (HTM) category acquired at a

discount to the face value, is recognised as follows :

a) On Interest bearing securities, it is recognised only at the time of sale / redemption. b) On zero-coupon securities, it is accounted for over the balance tenor of the security on a

constant yield basis.

Profit on sale of investments in this category is first credited to the Profit and Loss Account and thereafter appropriated to the “Capital Reserve Account”. Loss on sale is recognised in the Profit and Loss Account.

10. Retirement Benefits 10.1. Contributions payable to the Bank’s Provident Fund Trust in terms of its Provident Fund Scheme are

charged to Profit and Loss account on accrual basis. 10.2. Liability for gratuity, pension and leave encashment (which are defined benefits) is determined on the

basis of actuarial valuations carried out at the year end and the incremental liability is provided for by charging to the Profit and Loss Account.

11. Provision for Taxation

Provision for tax comprises current tax for the period determined in accordance with the relevant laws, fringe benefit tax and deferred tax charge or credit reflecting the tax effects of timing differences between accounting income and taxable income for the period, in conformity with Accounting Standard 22 (Accounting for taxes on income) of the Institute of Chartered Accountants of India. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are not recognised unless there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

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ANNEXURE 4

Material Notes to Summarised Unconsolidated Financial Information and Accounting Standard Disclosures (A) Material Notes to Summarised Financial Information 1. Year Ended on March 31, 2003 a. The expenses on encashment of leave of employees were hitherto accounted for on cash basis.

However, in order to comply with the Accounting Standard 15 issued by the Institute of Chartered Accountants of India and guidelines issued by the RBI, during the current year, the liability towards encashment of leave is accounted for on the basis of actuarial valuation. Accordingly, an amount of Rs. 382 million representing current’s year liability has been charged to Profit and Loss Account and an amount of Rs. 6,213 million representing the accrued liability to March 31, 2002 has been debited to the Revenue Reserve.

b. During the year an amount of Rs. 3545 million has been charged to revenue on account of Voluntary

Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred revenue expenditure. Unamortised amount of Rs. 7,090 million is to be amortised over a further period of two years in accordance with RBI guidelines.

c. In terms of decision of the Government, Ministry of Finance and Court orders, an amount of Rs. 8,340

million has been received during the year on account of certain securities transactions. A provision of 8,214 million was made in the accounts in earlier years towards these transactions. Accordingly, the provision held towards “other Assets” has been written back and the balance amount has been credited to the respective revenue accounts.

2. Year Ended on March 31, 2004 a. During the year an amount of Rs. 3,545 million has been charged to revenue on account of Voluntary

Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred revenue expenditure. Unamortised amount of Rs. 3,545 million is to be amortised next year in accordance with RBI guidelines.

b. Profit or loss on sale of investments has been accounted for transaction wise on the settlement date,

based on actual sales value and weighted average cost of purchases, whereas in the previous years, it was accounted for at the year end, based on the weighted average price for the whole year for both purchases and sales. As a result of this change, profit for the year is higher by Rs. 6,937 million.

3. Year Ended on March 31, 2005 a. During the year final instalment of Rs. 3,545 million has been charged to revenue on account of

Voluntary Retirement Scheme (“VRS”) implemented during the year 2000-01, which was treated as deferred revenue expenditure.

b. The Bank’s Investments in ‘Available for Sale’ (“AFS”) and ‘Held For Trading’ (“HFT”) categories

were being valued scrip-wise and depreciation if any, was provided script wise while ignoring appreciation. From the current financial year investment in AFS and HFT categories have been valued in conformity with RBI guidelines after netting-off classification-wise depreciation and appreciation, computed scrip wise and providing for net depreciation in each classification while ignoring net appreciation. Consequent upon the change, net additional provision requirement is lower and profit before tax is higher by Rs. 29,853 million

c. During the year, the Bank divested 37% of its stake in its fully owned subsidiary SBI Funds

Management Pvt. Ltd resulting in a profit of Rs. 1,464 million. d. During the year the Bank shifted SLR securities amounting to Rs. 269,782 million from ‘Available for

Sale’ (AFS) to ‘Held to Maturity’ (HTM) category under specific RBI guidelines and made a provision of Rs. 17,062 million in the accounts.

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e. During the year, the Accounting Standard 11 – Effects of change in Foreign Exchange Rate (2003-

Revised) has come into effect. The net profit of the Bank for the year is arrived at in conformity with the provisions of the said Accounting Standard. Consequent upon this, net exchange difference arising on translation of monetary items of non integral operations amounting to Rs. 2,880 million shown under Other Liabilities & Provisions in earlier years has been transferred to Foreign Currency Translation Reserve.

4. Year Ended on March 31, 2006 a. Investments in Regional Rural Banks (“RRBs”) were hitherto accounted for after netting off provisions

towards losses incurred by RRBs in proportion to and not exceeding the Bank’s investment. From the current financial year, these investments have been valued at cost, which is in line with the RBI guidelines. Consequently, the profit for the year is higher by Rs. 869 million.

b. Interest Earned-Others includes an amount of Rs. 16,385 million, being interest on refund of Income

Tax. c. Other Income includes an amount of Rs. 5,315 million being Exchange Gain on India Millennium

Deposits (“IMDs”) redemption. Consequently, profit (net of tax) for the year is higher by Rs. 3,526 million.

d. An amount of Rs. 5,635 million paid to RBI for maintenance of value (MOV) by debit to Interest

Expended Account in the years 2001 and 2002 was received back during the year on redemption of IMDs and credited to Interest Expended account. Consequently, profit (net of tax) for the year is higher by Rs. 3,738 million.

e. Payments to and provisions for employees, under Operating Expenses includes an amount of Rs. 3129

million, being arrears of salary paid for the previous financial years. f. As a one time measure, in terms of RBI Guidelines, unreconciled net credit balances in the inter-branch

accounts unto March 31, 1999 aggregating to Rs. 3166 million has been credited to Profit and Loss account under the head Miscellaneous Income. Consequently, profit (net of tax) for the year is higher by Rs. 2,100 million.

5. Year Ended on March 31, 2007 a. The Bank had hitherto been following a policy of amortisation of premium in respect of securities held

in the “Held to Maturity” (HTM) category by an adjustment to the account head “Provision and Contingencies”. From the current financial year and in accordance with RBI directive dated April 20, 2007, the Bank has charged the amortisation amount as well as marked to market losses on transfer of securities from “Available for Sale” (AFS) to HTM category by an adjustment to the account head Other Income: “ Profit on Revaluation of Investments” as a deduction. As a result of this change in accounting policy, the book value of the securities is reduced by Rs. 6,3571 million being the amortisation and marked to market losses on inter-category transfer of Rs. 16,775 million for the current year and Rs. 46,796 million for the previous year. However, there is no impact on the Net Profit for the year.

b. Prior Period Items:

Items (Rs. in millions) Depreciation written back (175) Operating expenses 164 Interest expended 2648 Other income 24

The Bank accounts for the interest on income tax refund on determination of interest by taxation authorities. Such interest is credited to profit and loss account on such determination. Any subsequent withdrawal of interest is being charged to profit and loss account. However, during earlier years, Interest of Rs. 2,648 million withdrawn by taxation authorities, was debited to the “Tax paid in

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advance”. This has been rectified during the year to fall in line with the rationale of opinion expressed by Expert Advisory Committee of the Institute of Chartered Accountants of India in similar instance.

c. Exit Option

The Bank had implemented an Exit Option Scheme for its eligible employees. The ex-gratia payments under exit option aggregating to Rs. 4,783 million has been charged to the Profit & Loss account during the year.

6. Half Year Ended on September 30, 2007 a. Accounting Standard 15 “Employee Benefits” (revised 2005) is effective for accounting periods

commencing on or after December 12, 2006. As per this Standard, the difference (as adjusted by any related tax expense) between the transitional liability and the liability that would have been recognised at the same date, as per pre revised Accounting Standard (AS) 15, ‘Accounting for Retirement Benefits in the Financial Statements of Employers’, should be adjusted immediately against opening balance of revenue reserves and surplus. The Institute of Chartered Accountants of India has made a limited revision to this provision, which has been notified on October 17, 2007. This revision provides the Bank with another option to charge additional liability arising upon the first application of the standard as an expense over a period up to five years. The Bank is currently examining both the alternatives. The impact of the Accounting Standard 15 “Employee Benefits” (revised 2005) has not been ascertained for transitional provision and current period(s). In the interregnum, the Bank has made adequate provisions as per pre-revised Accounting Standard 15, ‘Accounting for Retirement Benefits in the Financial Statements of Employers’.

b. During the quarter ended September 30, 2007, the Central Board of State Bank of India (SBI) and the

Board of State Bank of Saurashtra (SBS) have accorded approval for merger of SBS with SBI. The matter has further been referred to RBI and the Government for approval. As the merger process has not yet been crystallised, there is no impact on the Bank’s results.

c. During the half-year ended September 30, 2007, the entire share holding of RBI in State Bank of India

aggregating 314,339,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred to the Central Government.

d. During the half-year ended September 30, 2007, the Bank has shifted SLR investments having

aggregate Face Value of Rs. 90,816 million from ‘Available for Sale’ (AFS) category to ‘Held to Maturity’ (HTM) category, resulting in a net revaluation loss of Rs. 2,977 million.

e. In terms of RBI circular dated 20th April 2007, the Bank had accounted for amortisation of premium in

respect of securities included in the ‘Held to Maturity’ (HTM) category as an adjustment against ‘Other Income’. Based on the clarification issued by RBI on 11th July 2007, Banks are required to reflect the amortisation of premium held in HTM category by an adjustment to the ‘Interest Earned’. Accordingly, the Bank has carried out the reclassification of the same for the period ended 30th September 2007. This change in accounting procedure does not have any impact on the net profit for the period(s) under review.

(B) Accounting Standard Disclosures 1. Segment Reporting i) Segment identification

i) Banking Operations : Other than treasury operations Primary Segment ii) Treasury Operations - Domestic rupee treasury i) Domestic Operations - Branches/Offices having operations in India Secondary Segment ii) Foreign Operations - Branches/Offices having operations outside India

and offshore banking units having operations in India ii) Pricing of Inter-segmental transfers

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The Banking Operations segment is the primary resource mobilising unit. The Treasury Operations segment is a recipient of funds from Banking Operations. From April 1, 2006, the bank has changed the segmental pricing methodology for more meaningful presentation of segment results and accordingly market related funds transfer pricing (MRFTP) has been introduced under which a separate unit called Funding Centre has been created. The Funding Centre notionally buys funds that the business units raise in the form of deposits or borrowings and notionally sell funds to business units engaged in creating assets. The financial effect on the segmental result due to change in accounting policy is not reasonably determined. However, this change does not have any impact on the financials of the bank.

iii) Allocation of Expenses Expenses incurred at Corporate Centre establishments directly attributable either to Banking Operations or to Treasury Operations segment, are allocated accordingly. Expenses not directly attributable are allocated on the basis of the ratio of number of employees in each segment/ratio of directly attributable expenses.

iv) Segment Results Part A: Primary Segments

(Rs. in millions)

Year /Half Year ending March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 September

30, 2007 REVENUE Banking Operations 312,510 313,353 324,036 352,659 444,722 257,582 Treasury Operations 214,259 219,894 201,118 174,368 114,642 55,822 Elimination 159,868 154,131 141,329 114,747 107,399 54,531 Total 366,901 379,116 383,825 412,280 451,965 258,873 RESULTS Banking Operations 26,393 18,357 54,046 60,423 87,061 53,077 Treasury Operations 28,804 38,156 10,610 -19,913 1,177 3,250 Elimination 0 0 0 0 0 0 Total 55,197 56,513 64,656 40,510 88,238 56,327 Unallocated Income/(Expenses) Net

(2,522) (7,259) 560 19,187 (12,340) (8,032)

Operating Profit 52,675 49,254 65,216 59,697 75,898 48,295 Income Taxes 21,625 12,444 22,171 24,995 30,485 17,924 Extraordinary Profit/Loss 0 0 0 9,365 0 0 Net Profit 31,050 36,810 43,045 44,067 45,413 30,372 OTHER INFORMATION Segment Assets Banking 3,466,243 3,713,661 4,270,570 2,197,148 4,289,119 4,289,119 Treasury 1,923,718 2,037,452 2,169,566 3,822,113 2,063,733 2,063,733 Elimination 1,819,492 1,713,630 1,881,150 1,104,803 712,593 712,593 Total 3,570,469 4,037,483 4,558,986 4,914,458 5,640,259 5,640,259 Unallocated Assets 188,296 40,670 39,843 25,831 25,393 25,393 Total Assets 3,758,765 4,078,153 4,598,829 4,940,289 5,665,652 * 5,665,652 Segment Liabilities

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Banking 3,310,621 3,530,955 4,047,301 2,165,993 4,010,133 4,010,133 Treasury 1,893,560 2,017,848 2,152,113 3,576,827 2,029,733 2,029,733 Elimination 1,617,450 1,672,963 1,841,307 1,087,092 867,388 867,388 Total 3,586,731 3,875,840 4,358,107 4,655,728 5,172,478 5,172,478 Unallocated Liabilities 0 0 0 8,121 180,189 180,189 Total Liabilities 3,586,731 3,875,840 4,358,107 4,663,849 5,352,667 * 5,352,667 * Segment Assets and Liabilities are as on March 31, 2007.

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Part B: Secondary Segments

(Rs in millions)

Year ending March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 September 30,

2007 Revenue Domestic Operations 354,843 368,611 369,877 385,396 413,873 239,903 Foreign Operations 12,058 10,505 13,948 26,884 38,092 18,970 Total 366,901 379,116 383,825 412,280 451,965 258,873 Assets Domestic Operations 3,533,623 3,840,337 4,292,821 4,504,826 5,138,122 5,138,122 Foreign Operations 225,142 237,816 306,008 435,463 527,530 527,530 Total 3,758,765 4,078,153 4,598,829 4,940,289 5,665,652 5,665,652* * Segment Assets and Liabilities are as on March 31, 2007. 2. Related Party Disclosures As identified by the management and relied upon by the auditors. 2.1 Related Parties: 2.1.1 Joint ventures:

1. C Edge Technologies Ltd 2. GE Capital Business Process Management Services Private Limited.

2.1.2 Associates:

1. Andhra Pradesh Grameena Vikas Bank 2. Arunachal Pradesh Rural Bank 3. Chhatisgarh Gramin Bank 4. Cauvery Kalpatharu Grameena Bank 5. Deccan Grameena Bank 6. Ellaquai Dehati Bank 7. Ka Bank Nongkyndong Ri Khasi Jaintia 8. Krishna Grameena Bank 9. Langpi Dehangi Rural Bank 10. Madhya Bharat Gramin Bank 11. Malwa Gramin Bank 12. Marwar Ganganagar Bikaner Bank 13. Mizoram Rural Bank 14. Nagaland Rural Bank 15. Parvatiya Gramin Bank 16. Purvanchal Kshetriya Gramin Bank 17. Samastipur Kshetriya Gramin Bank 18. Saurashtra Grameena Bank 19. Utkal Gramya Bank 20. Uttaranchal Gramin Bank 21. Vananchal Gramin Bank 22. Vidisha Bhopal Kshetriya Gramin Bank 23. SBI Home Finance Limited. 24. Clearing Corporation of India Ltd 25. Nepal SBI Bank Ltd. 26. Bank of Bhutan 27. UTI Asset Management Company Pvt. Ltd.

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2.1.3 Key Management Personnel of the Bank: Shri O.P. Bhatt, Managing Director from 26.04.2006 to 30.06.06 and from 01.07.2006 onwards as Chairman) Shri A.K. Purwar, Chairman (upto 31.05.2006) Shri T. S. Bhattacharya, Managing Director Shri Yogesh Agrawal, Managing Director (from 10.10.2006 to 30.06.2007)

2.1.4 Related Parties with whom transactions were entered:

No disclosure is required in respect of related parties which are “state controlled enterprises” as per paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions in the nature of banker-customer relationship are not required to be disclosed in respect of Key Management Personnel. Other particulars are:

1. C Edge Technologies Ltd. (from 28.03.2006) 2. GE Capital Business Process Management Services Pvt. Ltd. 3. SBI Home Finance Ltd. 4. Bank of Bhutan 5. Nepal SBI Bank Ltd. 6. Shri O.P.Bhatt (from 26.04.2006) 7. Shri A.K. Purwar (from 13.11.2002 to 31.05.2006) 8. Shri T. S. Bhattacharya, (from 28.02.2005) 9. Shri Yogesh Agrawal (from 10.10.2006 to 30.06.2007) 10. Shri Ashok Kini (from 01.04.2004 to 31.12.2005) 11. Shri C. Bhattacharya (from 17.12.2003 to 31.01.2005) 12. Shri A.K. Batra (from 28.02.2002 to 07.07.2003) 13. Shri P.N. Venkatachalam (from 28.02.2002 to 31.03.2004) 14. Shri Janki Ballabh (up to 31.10.2002) 15. Shri Y. Radhakrishnan (up to 30.06.2002) 16. Shri S. Govindarajan (up to 31.07.2002) 17. Credit Information Bureau of India Ltd (up to 31.03.2005) 18. Asset Reconstruction Company (India) Ltd (up to 31.03.2004)

188

Transactions/Balances (Rs in millions)

Item / Related Party March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 1. Borrowings i) Associates 48 - - - 2. Deposits i) Associates 844 1,457 17,703 5,242 2,954 ii) Key management Personnel * - - 1 - - 3. Advances i) Associates 3,360 105 265 - - 4. Investments i) Associates 465 2,062 400 334 198 5. Non funded commitments i) Associates - - - 5,601 - 6. Interest Paid i) Associates 22 1 282 72 66 7. Interest Received i) Associates 337 26 109 - - 8. Rendering of services i) Associates 7 5 36 - - 9. Receiving of services of services i) Associates 31 162 - - 17 10. Management Contracts i) Key management Personnel @ 1 1 1 2 7 11. Income from Dividends i) Associates - - - - 5 * Transactions which are not in the nature of banker-customer relationship.

189

3. Leases: (Rs. in millions)

Year ending March 31,

2003 March 31,

2004 March 31,

2005

March 31,

2006

March 31,

2007 Total gross investment in the leases 1,647 1,647 1,647 1,647 1,647

Present value of minimum lease payments receivable Less than 1 year 263 313 313 176 89 1 to 5 years 619 447 289 205 151 5 years and above 85 40 - - - Total 967 800 602 381 240 Present value of unearned finance income 219 159 103 68 50 4. Earnings per Share: The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 – “Earnings per Share”. “Basic earnings” per share is computed by dividing net profit after tax by the weighted average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares outstanding during the year. Year ending / half year ending

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

Net Profit * 31,050 36,810 43,045 44,067 45,413 30,372 Weighted average number of shares

526,298,878 526,298,878 526,298,878 526,298,878 526,298,878 526,298,878

Earnings Per Share (Basic & diluted)

Rs. 59.00 Rs. 69.94 Rs 81.79 Rs. 83.73 Rs. 86.29 Rs. 115.42**

* (Rs. in millions) ** Annualised 5. Accounting for taxes on Income: The break-up of deferred tax assets and liabilities into major items is given below:

(Rs. in millions) Year ending / half year ending

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

A. Deferred Tax Assets (DTA)

i) Provision for Non Performing Assets 2,756 3,588 2,440 1,122 - - ii) Ex Gratia Paid under Exit Option - - - 195 1,434 1,261 iii) Provision for wage revision - 1,435 4,208 - - - iii) Others - - - 1,178 975 985 Total 2,756 5,023 6,648 2,495 2,409 2,246 B . Deferred Tax

190

Year ending / half year ending

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

Liabilities (DTL) i) Depreciation on Fixed Assets 110 209 146 1317 1033 66 ii) Interest on Securities - - 6213 iii) VRS expenses 664 324 - - - - iv) Depreciation of Leased Assets 2,294 2,039 1,745 - - 958 v) Others - - - - 6,213 - Total 3,068 2,572 1,891 1,317 7,246 7,237 C. Net DTA/ (DTL)(A-B) (312) 2,451 4,757 1,178 (4,837) (4,991) 6. Investments in jointly controlled entities: Investments include the following amount representing Bank’s interest in the following jointly controlled entities. Year ending / half year ending

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

Country of Residence

INDIA

Holding 40% 40% 40% 40% 40% 40%

GE Capital Business Process Management Services (P) Ltd

Investment Rs. (in millions)

108 108 108 108 108 108

Country of Residence

INDIA

Holding - - - 49% 49% 49%

C-Edge Technologies Ltd

Investment Rs. (in millions)

- - - 0.2 49 49

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Bank’s interests in jointly controlled entities are disclosed below: A: Assets & Liabilities

(Rs. in millions)

CAPITAL & LIABILITIES March

31, 2003 March

31, 2004 March

31, 2005 March

31, 2006 March

31, 2007 September

30, 2007 Capital & Reserves 1,511 2,830 4,422 338 521 582 Deposits - - 71 - - Borrowings 3,266 3,970 5,633 1 2 3 Other Liabilities & Provisions 1,037 2,655 6,822 136 206 287 Total 5,814 9,455 16,948 475 729 872

ASSETS March

31, 2003 March

31, 2004 March

31, 2005 March

31, 2006 March

31, 2007 September

31, 2007

191

CAPITAL & LIABILITIES March

31, 2003 March

31, 2004 March

31, 2005 March

31, 2006 March

31, 2007 September

30, 2007 Cash & Balances with RBI 40 110 162 - - - Balances with Banks & Money at call 272 1,037 604 72 37 25 Investments 1,413 2,853 8,479 - 25 25 Advances 3,688 4,911 6,619 - - - Fixed Assets 112 152 159 96 197 199 Other Assets 289 392 925 307 470 623 Total 5,814 9,455 16,948 475 729 872 Contingent Liabilities 43 13 3 - - Capital commitments 23 13 29 - - B. Income and Expenditure

(Rs. in millions)

7. Provisions, Contingent Liabilities & Contingent Assets a) Break up of Provisions

(Rs. in millions)

Year ending / half year ending

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

a) Provision for Current Income Tax 21,489 15,661 24,472 16,827 29,793 17,262 b) Provision for Deferred Tax 133 (2,763) (2,306) 3,579 (198) 151 c) Provision for Income Tax Fringe Benefit Tax - - - 4,580 885 510 d) Provision for other Taxes 4 (454) 5 9 5 - e) Provision for NPA 25,924 36,935 12,040 1,478 14,295 4,898 f) Provision on Standard Assets 2,047 491 1,150 4,052 5,892 980 g) Provision for depreciation on investment 4,195 4,855 23,384 38,985 3,792 (3,760) h) Provision for Other Assets/ Contingencies (7,088) 4,000 8,114 (584) 122 333 Total 46,704 58,725 66,859 68,926 54,586 20,374 (Figures in brackets indicate credit)

Income and Expenditure March

31, 2003 March

31, 2004 March

31, 2005 March

31, 2006 March

31, 2007 September

30, 2007 I. Income Interest earned 1,053 1,346 1650 3 - 28 Other Income 806 1,338 5,918 481 659 305 Total 1,859 2,684 7,568 484 659 333 II. Expenditure Interest expended 197 173 223 - - - Operating expenses 1,330 1,909 6,546 339 382 235 Provisions & contingencies 277 387 619 52 101 25 Total 1,804 2,469 7,388 391 483 260 III. Profit 55 215 180 93 176 73

192

b) Floating Provisions: (Rs. in millions)

Year ending / half year ending March 31, 2006 March 31, 2007 September 30, 2007 a) Opening Balance 8,400 NIL NIL b) Addition during the year NIL NIL NIL c) Draw down during the year 8,400 NIL NIL d) Closing balance NIL NIL NIL c) Description of Contingent Liabilities and Contingent Assets Sr. No. Items Brief Description 1 Claims against the

Bank not acknowledged as debts

The Bank is a party to various proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank’s financial conditions, results of operations or cash flows.

2 Liability on account of exchange contracts

The Bank enters into forward exchange contracts, currency options, forward rate agreements, currency swaps and interest rate swaps with inter-bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as contingent liabilities, are typically amounts used as a benchmark for the calculation of the interest component of the contracts.

3 Guarantees given on behalf of constituents, acceptances, endorsements and other obligations.

As a part of its commercial banking activities, the Bank issues documentary credits and guarantees on behalf of its customers. Documentary credits enhance the credit standing of the customers of the Bank. Guarantees generally represent irrevocable assurances that the Bank will make payment in the event of the customer failing to fulfil its financial or performance obligations.

4 Other items for which the Bank is contingently liable

The Bank is a party to various Bank taxation matters in respect of which appeals are pending. These are being contested by the Bank and not provided for. Further, the Bank has made commitments to subscribe to shares in the normal course of business.

d. The contingent liabilities mentioned above are dependent upon the outcome of court/arbitration/out of

court settlements, disposal of appeals, the amount being called up, terms of contractual obligations, devolvement and rising demand by concerned parties, as the case may be.

8. The disclosure requirements in respect of related party transactions, lease accounting and interest in

jointly controlled entities have not been compiled for the half year ended on September 30, 2007.

193

ANNEXURE 5

SUMMARY STATEMENT OF CASH FLOW (UNCONSOLIDATED)

(Rs. in millions) For the Year ended/ Half Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07

Cash flow from Operating Activities (185,721.06) 2,548.36 (27,807.35) 56,023.07 (17,760.70) 27,100.05

Cash flow from Investing Activities (3,316.77) (10,503.08) (4,987.98) (7,394.34) (2,845.58) (6,704.01)

Cash flow from Financing Activities (7,066.56) (8,421.75) (9,692.55) 3,695.93 94,941.13 52,134.74

Cash flows on account of exchange fluctuation (1,387.03) 232.41 42.69 54.36 (247.96) (2,229.49)

Net change in cash and cash equivalents (197,491.42) (16,144.06) (42,445.19) 52,379.02 74,086.89 70,301.29

Cash and cash equivalents – Opening 649,301.66 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90

Cash and cash equivalents – Closing 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90 589,988.19

Cash flow from Operating Activities

Net Profit before taxes 52,675.08 49,712.77 65,215.99 69,061.53 76,250.79 48,301.02

ADJUSTMENTS FOR:

Depreciation charge 4,936.89 6,983.45 7,522.11 7,291.32 6,023.92 3,113.37

(Profit)/Loss on sale of fixed assets 2.71 6.27 18.30 (19.39) (121.27) 0.32

Provision for NPAs 25,924.24 37,027.51 12,040.00 1,478.01 14,295.03 4,898.46

Provision for Standard Assets 2,046.76 491.17 1,150.00 4,051.72 5,891.90 979.80

Provision for Leave Encashment 382.00 1,112.20 1,100.70 781.90 850.00 425.00

Depreciation on Investments:

Depreciation/Revaluation of Investments / Loss on revaluation of Investments 4,195.57 4,874.95 23,383.64 34,560.74 14,889.52 (3,848.89)

Provision for Subs/JVs/RRBs (34.20) (20.19) - (1,447.48) (84.94) (130.80)

Provision on Other Assets and Other Provisions (7,053.48) 3,448.38 8,113.95 (583.96) (230.56) 38.63

Deferred Revenue Expenditure w/o during the year 3,545.13 3,545.14 3,545.14 - - -

Dividend from subsidiaries (investing activity) (1,372.21) (1,613.12) (3,932.35) (3,171.83) (5,969.68) (1,723.19)

Interest paid on bonds (financing activity) 3,956.87 3,956.87 3,956.87 4,011.14 8,474.29 7,532.48

LESS: Direct Taxes (18,345.19) (25,899.37) (18,016.45) (5,251.61) (42,821.25) (17,153.97)

Sub-Total 70,860.17 83,626.03 104,097.90 110,762.09 77,447.75 42,432.23

Other adjustments:

Increase/(Decrease) in Deposits 255,631.39 224,953.89 484,288.55 129,985.29 554,750.34 515,333.06

Increase/(Decrease) in Borrowings (203.25) 41,277.14 57,529.80 114,569.31 90,620.91 52,345.53

(Increase)/Decrease in Investments (275,644.48) (135,091.19) (137,051.84) 362,060.75 74,506.79 (304,573.02)

(Increase)/Decrease in Advances (195,397.53) (238,769.57) (456,449.18) (595,742.82) (769,650.61) (217,682.65)

Increase/(Decrease) in Other Liabilities & Provisions (10,261.64) 16,247.92 (71,223.26) (5,254.01) (33,371.51) 29,022.53

(Increase)/Decrease in Other Assets (30,705.72) 10,304.14 (8,999.32) (60,357.54) (12,064.37) (89,777.63)

Net Cash provided by Operating activities (185,721.06) 2,548.36 (27,807.35) 56,023.07 (17,760.70) 27,100.05

Cash flow from Investing Activities

(Increase)/Decrease in Investments in Joint Ventures/Associates (16.17) (2,560.82) (854.15) (2,741.81) (2,253.28) (1,687.35)

Income earned on investments in Joint Ventures/Associates 1,372.21 1,613.12 3,932.35 3,171.83 5,969.68 1,723.19

(Increase)/Decrease in Fixed Assets (4,672.81) (9,555.38) (8,066.18) (7,824.36) (6,561.98) (6,739.85)

Net Cash provided by Investing Activities (3,316.77) (10,503.08) (4,987.98) (7,394.34) (2,845.58) (6,704.01)

Cash flow from Financing Activities

Net proceeds/ (repayment) of bonds (including subordinated debts) 46.64 8.73 16.46 15,223.30 111,817.00 68,287.63

Interest paid on Bonds (3,956.87) (3,956.87) (3,956.87) (4,011.14) (8,474.29) (7,532.48)

Dividend paid (3,156.33) (4,473.61) (5,752.14) (7,516.23) (8,401.58) (8,620.41)

Net Cash provided by Financing Activities (7,066.56) (8,421.75) (9,692.55) 3,695.93 94,941.13 52,134.74

194

Cash flows on account of Exchange Fluctuation:

Reserves of foreign subsidiaries/foreign offices (1,387.03) 232.41 42.69 54.36 (247.96) (2,229.49)

Net cash flows on account of Exchange Fluctuation (1,387.03) 232.41 42.69 54.36 (247.96) (2,229.49)

Cash and Cash equivalents - Opening:

Cash in hand (including FC notes & gold) 10,525.83 11,362.04 12,849.81 14,361.60 20,802.31 25,301.19

Balances with Reserve Bank of India 208,199.51 116,022.64 177,563.04 153,741.70 195,724.73 265,463.06

Balances with Banks & MACSN 430,576.32 324,425.56 245,253.33 225,117.69 229,072.97 228,922.65

Total 649,301.66 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90

Cash and Cash equivalents - Closing:

Cash in hand (including FC notes & gold) 11,362.04 12,849.81 14,361.60 20,802.31 25,301.19 23,760.02

Balances with Reserve Bank of India 116,022.64 177,563.04 153,741.70 195,724.73 265,463.06 438,257.99

Balances with Banks & MACSN 324,425.56 245,253.33 225,117.69 229,072.97 228,922.65 127,970.18

Total 451,810.24 435,666.18 393,220.99 445,600.01 519,686.90 589,988.19

195

ANNEXURE 6

Major changes in the business activities of the Bank The Bank is in the business of Corporate and Retail Banking, Treasury Operations and other miscellaneous banking business. There has not been any change in the business activities of Bank which has had any material effect on the statement of profit/loss for the five years, including discontinuance of lines of business, loss of agencies or markets and similar factors.

196

ANNEXURE 7

Statement of Dividends Declared by the Bank (Rs. in millions)

For the year ending March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007

Number of Equity Shares 52,62,98,878 52,62,98,878 52,62,98,878 52,62,98,878 52,62,98,878

Dividend (Rs) 4,474 5,789 6,579 7,368 7,368

Tax on Dividend (Rs) 573 742 938 1,033 1,252

Dividend Rate (%) 85 110 125 140 140 Note 1. The bank has not declared any dividend for the half year ended September 30, 2007.

197

ANNEXURE 8

Summary Statement of Other Income (Unconsolidated) (Rs. in millions)

For the Financial Year /Period Ended March 31

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

Other Income 1 Commission,

exchange and brokerage

29,773 31,207 35,447 39,962 48,045 20,525

2 Profit/ Loss on sale of investments (Net)

16,946 30,735 17,753 *5,872 *5,678 7,125

3 Profit/ Loss on revaluation of investments (Net)

* (51) *(2) - - (16,775)

(7,403)

4 Profit on Exchange Transactions (Net)

*4,636 *5,030 *5,282 10,013 *3,734 *1,408

Notes : a) All items of “Other Income” are of recurring nature b) Those items identified with * are less than 20% of the profit before tax , however for comparison

purposes, they have been disclosed.

198

ANNEXURE 9

Statement of Borrowings as on September 30, 2007 (Rs. in millions)

S. No. Particulars Outstanding amount Rate of Interest Duration

Date of Borrowings

Repayment Terms

Domestic Borrowings

1 Term Borrowings 50 Fixed 8.50% 364 Days 1/9/2007 Bullet

2 CBLO* 32,999 Fixed 0-1% 1-3 days 28/9/2007 Bullet

3 Borrowing from Other Institutions/ Agencies

a Refinance SIDBI 6,500 Fixed 6.5% p.a Monthly Instalment of Rs 50.00 crores on 1st of Every Month

b Refinance NHB 5,000 Fixed 6.5% p.a 3 Years 23/12/2005 Bullet

c Refinance NABARD 17,917 Fixed Various from 4.25

to 14%

Various Terms and Date Half Yearly due on 31st January and July till 31.07.2019

d Others 45

Total Domestic Borrowings (A) 62,511

Overseas Borrowings

1 Bond Issues (Excluding Hybrid Tier-I Bonds)

62,636 Fixed 3.50% to 4.75%

5 Years Various dates from 8.12.04 to 15.02.07

Bullet

Floating LIBOR+38bps to LIBOR+73.5bps

2 Foreign Currency Loans 47,217 Floating LIBOR+12bps to LIBOR+39bps

364 days to 5 years

Various dates from 2.6.05 to 28.9.07

Bullet principal repayment, interest at half yearly intervals

3 Money Market Borrowings 277,015 Various rates Term Ranging from 1 day to 1 year

Various dates

Bullet

Total (Overseas Borrowings) (B) 386,868

Tier I Capital

Overseas 16,282 Coupon 6.439% after swap LIBOR +120 BPS on semi annual basis

Perpetual non call 10.25 years

Feb-07 Perpetual with call option to the Issuer after 10.25 years

9,159 Coupon 7.14% after swap LIBOR +137 BPS on semi annual basis

Perpetual non call 10 years 1 Day

Jun-07 Perpetual with call option to the Issuer after 10 years 1 day

Total Tier I Capital (C) 25,441

Subordinate Debts

1 Domestic 204,246 Fixed 7.45% to 11.90% p.a.

87 months to 180 months

Various dates from 1.1.2001 to 17.9.2007

Overseas 289 Fixed 6.50% 8 Years 12.04.2000

Total Subordinate Debts (D) 204,535

Grand Total (A+B+C +D) 679,355

* Secured Borrowings.

199

ANNEXURE 10

Summary Statement of Accounting Ratios Sr No. Particulars

31-Mar-03

31-Mar-04

31-Mar-05

31-Mar-06

31-Mar-07

30-Sep-2007*

1 Basic and Diluted Earning Per Share

59.00 69.94 81.79 83.73 86.29 115.42

2 Return on Avg Net Worth (%)

19.15% 19.67% 19.43% 17.04% 15.41% 18.57%

3 Net Asset Value per Share

326.87 384.41 457.39 525.25 594.69 648.16

Other Ratios 4 Interest Income As a

percentage to working Funds (%)

9.10% 7.99% 7.70% 7.19% 7.34% 7.25%

5 Non Interest Income as a percentage to working Funds (%)

1.68% 1.99% 1.69% 1.48% 1.07% 1.02%

6 Operating Profit as percentage to working Funds (%)

2.27% 2.50% 2.61% 2.27% 1.86% 1.62%

7 Return on Assets (%) 0.86% 0.94% 0.99% 0.89% 0.84% 0.97% 8 Net NPAs to Net

Advances (%) 4.50% 3.48% 2.65% 1.88% 1.56% 1.63%

9 Capital to Risk -weighted Assets Ratio- Overall (%)

13.50% 13.53% 12.45% 11.88% 12.34% 12.85%

10 Capital to Risk -weighted Assets Ratio-Tier I (%)

8.81% 8.34% 8.04% 9.36% 8.01% 7.78%

11 Capital to Risk -weighted Assets Ratio-Tier II (%)

4.69% 5.19% 4.41% 2.52% 4.33% 5.07%

12 Operating Expenses / Average Working Funds (%)

2.33% 2.43% 2.39% 2.36% 2.20% 1.94%

13 Business (Deposits plus Advances) per employee (Rs. in thousands)

19,077.00 21,056.00 24,308.00 29,923.00 35,700.00

46,563.65

14 Profit per employee (Rs. in thousands)

147.83 176.61 207.50 216.76 236.81 339.00

* Ratios have been calculated on an annualised basis

200

ANNEXURE 11

Capitalisation Statement as of September 30, 2007 (Rs. in millions)

Particulars Pre Issue as of

September 30, 2007 Post Issue Loan Funds Long Term 344,861 344,861 Short Term 334,494 334,494 Total Debt 679,355 679,355 Shareholders’ Fund Share Capital 5,263 6,316 Share Premium 35,106 201,416 Reserve and Surplus 300,760 300,760 Total Equity 341,129 508,492 Long Term Debt/Equity Ratio 1.01 0.68

1. Loan Funds include Subordinate Debt and perpetual bonds

201

ANNEXURE 12

STATEMENT OF TAX SHELTERS (UNCONSOLIDATED) (Rs. in millions)

S. No. For the Financial Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 Profit Before Tax 52,671.40 49,707.77 65,211.19 64,472.73 75,360.89

Tax Rate 36.75% 35.88% 36.59% 33.66% 33.66%

Tax at actual Rate (A) 19,356.74 17,832.66 23,862.40 21,701.52 25,366.48

Permanent Difference

1 Income Exempt from Tax (1,659.97) (1,747.74) (4,791.80) (1,886.40) (1,827.73)

2 Interest on Income Tax - - (650.30) - 2,699.85

3 Others 49.90 29.96 273.49 (0.04) 22.33

4 Taxes including wealth tax and fringe benefit tax

3.64 (454.16) 4.80 4,588.80 889.90

(1,606.43) (2,171.94) (5,163.81) 2,702.36 1,784.35 Timing Difference

1 Voluntary Retirement Scheme 901.90 901.90 902.00 577.90 3,782.00

2 Provision for employees benefits 3,682.00 1,112.20 2,000.70 781.90 850.00

3 Provision for doubtful debts (16,335.93) (10,374.80) (5,324.00) (4,473.52) 5,891.90

4 Provision for other assets and contingencies

27.26 (62.39) 450.28 (1,292.70) (233.23)

5 Provision for Investments (34.20) (20.19) 514.78 (1,447.48) (84.94)

6 Payment of Wage Arrears - 4,000.00 7,500.00 (11,500.00) -

7 Depreciation on Fixed assets 181.35 560.61 914.40 1,255.40 872.70

(11,577.62) (3,882.67) 6,958.16 (16,098.50) 11,078.43 (13,184.05) (6,054.61) 1,794.35 (13,396.14) 12,862.78 Tax Saving Thereon (B) (4,845.14) (2,172.09) 656.60 (4,509.14) 4,329.61

Tax liability on current year’s profit 14,511.60 15,660.57 24,519.00 17,192.38 29,696.09 Tax Adjustments relating to earlier years 6,977.20 - (46.79) (365.30) 450.05

Tax liability 21,488.80 15,660.57 24,472.21 16,827.08 30,146.14

202

ANNEXURE C-1

SUMMARISED STATEMENT OF ASSETS AND LIABILITIES (CONSOLIDATED)

(Rs. in millions)

As on 31-Mar-03

Audited 31-Mar-04

Audited 31-Mar-05

Audited 31-Mar-06

Audited 31-Mar-07

Audited

30-Sep-07 Unaudited Reviewed

A Assets

1 CASH AND BALANCES WITH RESERVE BANK OF INDIA

I Cash in hand (including foreign

currency notes and gold) 14,305.71 16,475.12 17,956.54 25,194.41 31,472.50 29,757.89

II Balances with Reserve Bank of India 177,194.90 247,292.93 238,201.72 286,093.45 419,188.51 626,758.56

Total 191,500.61 263,768.05 256,158.26 311,287.86 450,661.01 656,516.45

2 BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE

I In India 283,591.57 161,880.85 178,717.63 120,803.27 98,900.98 89,307.64

II Outside India 57,919.71 89,989.10 74,694.52 141,274.07 175,206.64 72,407.08

Total 341,511.28 251,869.95 253,412.15 262,077.34 274,107.62 161,714.72

3 INVESTMENTS

I Investments in India in 2,213,882.82 2,448,922.50 2,571,080.57 2,220,408.92 2,098,485.65 2,489,199.62

II Investments outside India in 46,227.60 41,256.36 48,539.47 58,901.56 66,724.84 65,173.15

Total 2,260,110.42 2,490,178.86 2,619,620.04 2,279,310.48 2,165,210.49 2,554,372.77

4 ADVANCES

I Bills purchased and discounted 178,802.17 214,146.66 282,943.78 328,321.31 392,073.83 407,016.18

II Cash Credits, overdrafts and loans

repayable on demand 978,110.47 1,006,716.71 1,092,272.20 1,404,644.37 1,817,496.03 1,899,228.05

III Term Loans 749,977.58 1,005,860.99 1,494,649.55 2,011,796.72 2,663,289.79 2,891,209.47

Total 1,906,890.22 2,226,724.36 2,869,865.53 3,744,762.40 4,872,859.65 5,197,453.70

5 Fixed Assets 31,285.66 35,306.59 35,735.73 39,563.14 39,993.75 44,826.49

6 Other Assets 246,262.01 241,996.21 250,984.00 332,917.01 348,911.59 453,594.66

Total (A) 4,977,560.20 5,509,844.02 6,285,775.71 6,969,918.23 8,151,744.11 9,068,478.79

B LIABILITIES

1 DEPOSITS

I Demand Deposits

i From Banks 78,634.53 80,771.77 84,613.14 80,657.61 124,082.45 75,526.48

ii From Others 483,873.77 546,838.76 617,881.41 764,777.24 866,085.47 843,800.34

II Savings Bank Deposits 879,944.56 1,069,039.39 1,264,363.36 1,504,538.88 1,726,084.57 1,847,647.14

III Term Deposits

i From Banks 68,162.64 73,012.96 72,195.21 54,528.76 53,870.74 59,539.31

ii From Others 2,408,134.23 2,563,213.97 3,021,999.67 3,035,740.16 3,592,605.54 4,198,259.56

Total 3,918,749.73 4,332,876.85 5,061,052.79 5,440,242.65 6,362,728.77 7,024,772.83

203

As on 31-Mar-03

Audited 31-Mar-04

Audited 31-Mar-05

Audited 31-Mar-06

Audited 31-Mar-07

Audited

30-Sep-07 Unaudited Reviewed

2 BORROWINGS

I Borrowings in India 32,094.18 20,654.86 26,532.28 94,995.89 123,042.73 140,630.38

II Borrowings outside India 90,258.38 153,086.22 202,762.47 274,753.10 363,575.58 427,964.95

Total 122,352.56 173,741.08 229,294.75 369,748.99 486,618.31 568,595.33

3 OTHER LIABILITIES &

PROVISIONS

I Other Liabilities & Provisions 658,288.32 677,760.34 605,971.12 682,848.07 657,904.74 689,632.73

II Subordinate Debts 44,361.06 40,985.14 50,898.41 90,708.12 202,236.44 304,072.83

Sub Total 702,649.38 718,745.48 656,869.53 773,556.19 860,141.18 993,705.56

Total (B) 4,743,751.67 5,225,363.41 5,947,217.07 6,583,547.83 7,709,488.26 8,587,073.72

C NET ASSETS (C=A-B) 233,808.53 284,480.61 338,558.64 386,370.40 442,255.85 481,405.07

Represented By

D 1 Share Capital 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99 5,262.99

E 2 Reserve & Surplus

I Statutory Reserves 128,813.71 143,306.06 172,555.65 207,026.02 247,088.86 247,088.86

II Capital Reserves # 3,304.95 3,644.99 6,345.19 7,777.24 7,949.50 7,949.50

III Share Premium 38,839.69 35,105.73 35,105.73 35,105.73 35,105.73 35,105.73

IV Investment Fluctuation Reserve 32,874.31 62,128.81 71,277.02 5.90 - -

V Foreign Currency Translation Reserve - - 3,320.62 3,566.18 3,178.41 709.43

VI Revenue and Other Reserves 13,574.15 22,574.86 31,516.62 109,459.25 125,580.84 125,580.84

VII Balance in Profit and Loss Account 2,502.69 2,340.72 134.16 3,863.76 1,190.17 41,289.38*

Total 219,909.50 269,101.17 320,254.99 366,804.08 420,093.51 457,723.74

# includes capital reserve on

consolidation 1,695.13 1,774.25 1,774.25 1,732.90 1,732.90 -

G MINORITY INTEREST 8,636.04 10,116.45 13,040.66 14,303.33 16,899.35 18,418.34

Total 233,808.53 284,480.61 338,558.64 386,370.40 442,255.85 481,405.07

H CONTINGENT LIABILITIES

I Claims against the bank not

acknowledged as debts 9,765.57 9,554.42 10,027.67 18,902.29 40,541.96 7,449.22

II Liability for partly paid investments 443.69 674.94 554.31 373.18 1,138.66 1,122.97

III Liability on account of outstanding

forward exchange contracts 781,647.91 901,934.08 1,212,093.19 1,835,987.20 2,587,355.44 2,565,777.37

IV Guaranteed given on behalf of

constituents: 179,605.66 194,246.77 233,851.48 325,492.48 467,463.46 560,677.61

(a) India 119,496.07 139,577.26 176,155.62 262,342.98 321,439.44 558,898.26

(b) Outside India 60,109.59 54,669.51 57,695.86 63,149.50 146,024.02 1,779.35

V Acceptances, endorsements and other

obligations 201,172.57 262,625.63 352,708.13 449,547.53 586,129.09 771,229.94

VI Other items for which the bank is

contingently liable 232,624.35 160,650.42 208,226.05 300,465.48 231,778.92 6,824,949.59

204

As on 31-Mar-03

Audited 31-Mar-04

Audited 31-Mar-05

Audited 31-Mar-06

Audited 31-Mar-07

Audited

30-Sep-07 Unaudited Reviewed

Total 1,405,259.75 1,529,686.26 2,017,460.83 2,930,768.16 3,914,407.53 10,731,206.70

Bills for collection 113,023.01 163,009.47 316,895.37 247,807.52 283,375.37 N/A

* Without appropriation to Statutory Reserves, Revenue and other reserves

205

ANNEXURE C-2

SUMMARISED STATEMENT OF PROFIT & LOSS ACCOUNT (CONSOLIDATED)

(Rs. in millions) A For the Financial Year/Half Year Ended 31-Mar-03

Audited 31-Mar-04

Audited 31-Mar-05

Audited 31-Mar-06

Audited 31-Mar-07

Audited 30-Sep-07 Unaudited Reviewed

INCOME

1 INTEREST EARNED

1.1 Interest / discount on advances/ bills 161,584.48 164,542.52 191,806.30 258,992.72 368,328.11 242,471.05

1.2 Income on Investments 199,751.72 211,088.07 215,336.49 193,136.21 168,261.14 80,516.67

1.3 Interest on balances with Reserve

Bank of India and other inter-bank

funds 34,459.09 27,313.45 20,212.98 24,402.76 31,229.38 10,176.13

1.4 Others 14,397.92 10,616.61 17,634.82 22,389.48 4,558.94 419.15@

TOTAL 410,193.21 413,560.65 444,990.59 498,921.17 572,377.57 333,583.00

2 OTHER INCOME

2.1 Commission, exchange and

brokerage 39,719.35 42,222.75 47,954.77 53,380.75 66,622.92 29,574.86

2.2 Profit/ (Loss) on sale of investments

(Net) 28,270.30 49,479.58 24,708.39 11,477.72 9,711.10 10,648.47

2.3 Profit/ (Loss) on revaluation of

investments (Net) (189.76) 27.91 (6.23) 227.90 (23,031.53) (1,751.96)

2.4 Profit/(Loss) on sale of land,

buildings and other assets and Leased

Assets (Net) (5.23) 6.19 (9.67) 4.74 125.32 127.74

2.5 Profit on exchange transactions (Net) 6,431.08 6,938.24 7,176.26 12,181.07 5,855.85 2,235.81

2.6 Dividends from Associates/Joint

ventures in India/ abroad 350.36 526.36 23.70 250.42 67.38 221.07

2.7 Income from Financial Leasing 2,676.97 2,163.62 1,893.70 1,393.82 1,057.60 364.44

2.8 Credit Card membership/ service fees 533.68 644.32 1,326.64 1,746.03 3,579.08 2,133.58

2.9 Life Insurance Premium 15.47 365.32 5,992.99 10,730.93 29,234.39 13,765.05

2.10 Share of earnings from associates 58.66 717.10 579.67 (130.93) 1,888.55 491.30

2.11 Miscellaneous income 4,317.06 8,189.58 10,726.21 20,477.12 16,280.05 11,674.62

TOTAL 82,177.94 111,280.97 100,366.43 111,739.57 111,390.71 69,484.98

TOTAL INCOME 492,371.15 524,841.62 545,357.02 610,660.74 683,768.28 403,067.98

B EXPENDITURE

1 INTEREST EXPENDED

1.1 Interest on deposits 261,138.92 240,629.83 233,249.48 253,662.50 287,866.98 194,011.87

1.2 Interest on Reserve Bank of India/

Inter-bank borrowings 2,341.66 2,671.38 5,335.09 14,957.77 22,289.86 15,931.64

1.3 Others 9,014.61 11,419.20 10,333.80 12,408.71 29,670.65 12,362.43@

TOTAL 272,495.19 254,720.41 248,918.37 281,028.98 339,827.49 222,305.94

206

A For the Financial Year/Half Year Ended 31-Mar-03 Audited

31-Mar-04 Audited

31-Mar-05 Audited

31-Mar-06 Audited

31-Mar-07 Audited

30-Sep-07 Unaudited Reviewed

2 OPERATING EXPENSES

2.1 Payments to and provisions for

employees 69,638.72 83,777.69 86,329.45 107,637.97 105,974.61 55,305.32

2.2 Rent, taxes and lighting 7,706.29 8,693.15 9,952.60 11,169.05 12,676.72 6,374.55

2.3 Printing & Stationery 1,691.77 2,030.74 2,305.39 2,398.20 2,293.13 1,275.00

2.4 Depreciation 6,623.87 9,532.16 10,695.93 11,334.02 9,500.7 4,808.12

2.5 Directors’ fees, allowances and

expenses 22.07 25.84 32.69 38.38 40.80 9.83

2.6 Auditors’ fees and expenses

(including branch auditors’ fees and

expenses) 614.70 864.65 860.83 996.64 1,039.25 821.67

2.7 Law charges 636.90 770.65 982.75 672.50 759.76 336.79

2.6 Postages, Telegrams, Telephones, etc. 944.98 1,202.49 1,330.84 1,700.19 2,007.08 1,179.05

2.7 Repairs and maintenance 939.14 1,254.70 1,700.62 2,142.12 2,397.28 1,261.54

2.8 Insurance 1,948.10 2,238.82 3,385.17 4,651.19 5,137.32 2,868.58

2.9 Amortisation of deferred revenue

expenditure 5,143.31 4,281.08 5,053.86 179.03 132.80 0.03

2.10 Operating Expenses relating to Credit

Card Operations 467.17 69.78 997.95 1,386.52 2,054.56 -

2.11 Operating Expenses relating to Life

Insurance - - 4,914.24 11,707.77 28,434.27 18,361.48

2.12 Other Expenditure 10,337.27 9,700.16 15,893.20 19,999.45 27,569.54 16,210.74

TOTAL 106,714.29 124,441.91 144,435.52 176,013.03 200,017.82 108,812.70

TOTAL EXPENDITURE 379,209.48 379,162.32 393,353.89 457,042.01 539,845.31 331,118.64

Gross Profit Before Provisions (including for

income tax & extraordinary Items) 113,161.67 145,679.30 152,003.13 153,618.73 143,922.97 71,949.34

Less: Extraordinary Items - - - - - -

Gross Profit Before Provisions (including for

income tax) 113,161.67 145,679.30 152,003.13 153,618.73 143,922.97 71,949.34

3 Provisions & Contingencies:

3.1 Provision for Income Tax (Current

tax) 30,665.25 28,865.93 27,941.91 21,016.76 41,112.95 23,762.62

3.2 Provision for Income Tax (Deferred

tax) (386.17) (4,291.25) (1,585.42) 5,070.90 (775.60) (1,039.86)

3.3 Provision for Fringe Benefit Tax - - - 6,195.96 1247.60 727.61

3.4 Provision for other taxes (18.50) 7.61 (38.71) 12.07 (14.53) 8.77

3.5 Provision for NPAs 36,698.30 53,384.88 14,033.75 4,140.64 17,758.92 9,170.94

3.6 Provision for Standard Assets 2,592.60 1,319.87 (741.29) 5,854.43 9,454.23 1,639.75

3.7 Provision for depreciation on

investments 6,031.92 4,355.47 4,4941.14 5,5395.51 8,294.86 (3,811.90)

207

A For the Financial Year/Half Year Ended 31-Mar-03 Audited

31-Mar-04 Audited

31-Mar-05 Audited

31-Mar-06 Audited

31-Mar-07 Audited

30-Sep-07 Unaudited Reviewed

3.8 Provision on other assets/

Contingencies (7,919.94) 21.40 589.13 586.96 57.40 29.93

3.9 Other Provisions 2,189.22 4,421.73 10,882.94 (1,269.30) 589.16 179.54

Total 69,852.68 88,085.64 96,023.45 97,003.93 77,724.99 30,667.40

Net Profit for the year 43,308.99 57,593.66 55,979.68 56,614.80 66,197.98 41,281.94

Less: Minority Interests 1,318.84 2,282.65 1,340.43 1,315.60 2,554.25 1,158.19

Group Profit 41,990.15 55,311.01 54,639.25 55,299.20 63,643.73 40,123.75

Add: Brought forward Profit

attributable to the group 341.47 692.27 2,340.72 134.16 3,863.76 1,190.17

Transfer from General Reserve - - - - 28.86 -

TOTAL 42,331.62 56,003.28 56,979.97 55,433.36 67,536.35 41,313.92

APPROPRIATIONS:

Transfer to Statutory Reserves 14,832.08 14,518.81 29,249.59 34,537.00 40,062.84 -

Transfer to Other Reserves 19,800.00 32,612.71 20,079.98 8,631.03 17,662.94 24.54

Dividend 4,473.59 5,789.29 6,578.74 7,368.18 7,368.18 -

Corporate Tax on Dividend 723.26 741.75 937.50 1,033.39 1,252.22 -

Balance carried to Balance Sheet 2,502.69 2,340.72 134.16 3,863.76 1,190.17 41,289.38

Total 42,331.62 56,003.28 56,979.97 55,433.36 67,536.35 41,313.92

Break up of Non-Recurring Items Included above:

Income:

Profit on sale of investments - 6,937.00 1,464.00 - - -

Interest on Income tax refund - - 7,452.80 17,018.10 - -

Write back of Depreciation - - - - 174.70 -

Write back of provisions - - - 1,280.00 - -

Write back of provisions towards

securities transactions 8,340.20 - - - - -

Exchange gain on India Millennium

Deposits - - - 5,315.40 - -

Miscellaneous Income –

Unreconciled net credit on inter-

branch accounts - - - 5,169.70 - -

Diminution in the value of

Investments written back - - - - 1,582.30 -

Sub-total (A) 8,340.20 6,937.00 8,916.80 28,783.20 1,757.00 -

Expenses:

Voluntary Retirement Scheme 5,081.90 5,099.30 5,053.90 722.40 4,783.00 -

Reduction in Provision for

depreciation on investments - - (29,853.40) (868.60) - -

208

A For the Financial Year/Half Year Ended 31-Mar-03 Audited

31-Mar-04 Audited

31-Mar-05 Audited

31-Mar-06 Audited

31-Mar-07 Audited

30-Sep-07 Unaudited Reviewed

Payments to and provisions for

employees - - - 4,084.80 - -

Interest on Income Tax - - - - 2,647.60 -

Interest on India Millennium

Deposits - - - (5,635.20) - -

Sub-total (B) 5,081.90 5,099.30 (24,799.50) (1,696.60) 7,430.60 -

Total (A-B) 3,258.30 1,837.70 33,716.30 30,479.80 (5,673.60) -

Tax impact thereon 5,109.60 659.27 12,337.64 10,216.42 (1,018.55) -

Net impact on profit (1,851.30) 1,178.43 21,378.66 20,263.38 (4,655.05) -

@ Interest on Swaps netted off.

209

ANNEXURE C-3 Principal Accounting Policies for the Consolidated Financial Information for the year ended March 31, 2007 The principal accounting policies of the Group have been described in brief in the following paragraphs. The material accounting policies which were followed in the financial year ended on March 31, 2003, 2004, 2005 and 2006 and which has changed in subsequent years have been stated in italics at the appropriate places. 1. Basis of Consolidation

Consolidated financial statements of the Group (comprising subsidiaries, Joint Ventures and Associates) have been prepared on the basis of : a) Audited accounts of State Bank of India (Parent). b) Line by line aggregation of each item of asset/liability/income/expense of the subsidiaries with

the respective item of the Parent, and after eliminating all material intra-group balances / transactions, unrealised profit/loss, and making necessary adjustments wherever required for non-uniform accounting policies as per AS 21 of The Institute of Chartered Accountants of India (ICAI).

c) Consolidation of Joint Ventures – full consolidation in respect of joint ventures which are also

subsidiaries and ‘Proportionate Consolidation’ in respect of other Joint Ventures – as per AS 27 of ICAI.

d) Accounting for investment in ‘Associates’ under the ‘Equity Method’ as per AS 23 of ICAI. e) Financial Statements of the Subsidiaries / Joint Ventures drawn up to the same reporting date

as that of the Parent. Earlier Policy: During the financial years ended on March 31, 2003 and March 31, 2004, joint ventures were consolidated on proportionate consolidation method as per the then prevailing provisions of Accounting Standard 27. 1. The difference between cost to the group of its investment in the subsidiary entities and the

group’s portion of the equity of the subsidiaries is recognised in the financial statements as goodwill / capital reserve.

2. Minority interest in the net assets of the consolidated subsidiaries consists of :

a) The amount of equity attributable to the minority at the date on which investment in a subsidiary is made.

b) The minority share of movements in revenue reserves/loss (equity) since the date the

parent-subsidiary relationship came into existence.

2. Basis of Preparation The accompanying financial statements have been prepared under the historical cost convention. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise the statutory provisions, Regulatory/RBI guidelines, Accounting Standards/guidance notes issued by the ICAI. In respect of foreign offices, statutory provisions and practices prevailing in respective countries are complied with.

3. Advances and Provisions thereon

3.1 Advances are shown net of provisions and unrealised interest on Non-Performing Assets (NPAs).

210

3.2 A general provision is required to be made on Standard Assets on the global portfolio. The provision rates for the difference categories of Standard Assets are summarised below:

a. Direct advances to agricultural and SME Sectors 0.25%

b. Residential housing loans beyond Rs. 20 lakhs 1.00%

c. Personal Loans, Loans and advances qualifying as capital 2.00%

market exposures, Commercial real estate loans, and Loans and advances to Systemically important NBFCs – Non Deposit Taking

d. All other loans and advances not included in (a), (b) & (c) 0.40% Earlier Policy: During the years 2002-03, 2003-04 and 2004-05, the general provision on standard assets on the global portfolio was 0.25%. In the year 2005-06, the general provision on standard assets on the global portfolio was 0.40% except on the advances to small and medium enterprises and direct agriculture which was at 0.25%.

3.3 Indian Offices

3.3.1 All advances are classified under categories, viz. (a) Standard Assets, (b) Sub-standard Assets, (c) Doubtful Assets and (d) Loss Assets.

3.3.2 Provisions are made on outstanding non-performing advances (net of interest not realised) as below: • Sub Standard Assets : 10%

From the year ended 2004-05 : 20% (In case of ab initio unsecured exposures (where realisable value of security is not more than 10 %)

• Doubtful Assets

a) Unsecured portion at 100 percent after netting retainable/realisable amount

of guarantee cover provided by Export Credit Guarantee Corporation / Credit Guarantee Trust for Small Industries, wherever applicable.

b) Secured portion Period for which the advance has been considered as doubtful PERCENTAGE Up to one year 20% One to three years 30% More than three years 100%

• Loss Assets 100%

Earlier Policy:

a) In the case of doubtful assets for more than three years as on March 31, 2004, the

percentage of provision on secured portion in the earlier years were 50% in 2002-03 and 2003-04, 60% in 2004-05 and 75% in 2005-06.

211

b) In the case of advances guaranteed by the state governments the accounting policy for classification of account and making provisions were as below in the earlier years:

i. In the financial year ended March 31, 2005, advances guaranteed by State

Governments were classified as “sub-standard”, “doubtful” or “loss”, as the case may be, if the amount due to the bank remains overdue for more than 180 days and attracted appropriate provisioning as applicable to other advances.

ii. In the financial years ended March 31, 2004 and March 31, 2003, advances where State Government guarantee remained default for more than two quarters ended as of March 31, 2000 after it is invoked at provision was made at 30% of the secured portion and 100% of the unsecured portion.

iii. In the years 2003-04 and 2002-03, advances where State Government guarantee remain default for more than two quarters as on March 31, 2000 after it is invoked at provision was made at 30% of the secured portion and 100% of the unsecured portion.

c) In the year 2002-03, the advances were considered as non-performing if they remain overdue or out of order for more than 180 days as against 90 days at present.

• Financial Assets sold are recognised as follows:

i) In case the sale is at a price lower than the Net Book Value (NBV), the

difference is charged to the Profit and Loss Account.

ii) In case the sale is at a price higher than the NBV, the surplus provision is not reversed and is utilised to meet the shortfall on sale of other such non-performing financial assets.

3.3.3 Unrealised Interest recognised in the previous year on advances which have become non-

performing during the current year is provided for.

3.3.4 In case of restructuring / rescheduling of advances, the difference between the present value of the future interest as per the original agreement and the present value of the future interest as per the revised agreement is provided for at the time of restructuring / rescheduling.

3.4 Foreign Offices

3.4.1 Advances are classified under four categories in line with those of India Offices.

3.4.2 Provisions in respect of non-performing advances are made as per the local law or as per the norms of RBI, whichever is higher.

4. Investments

4.1 Investments are classified into 3 categories, viz. ‘Held for Trading’, ‘Available for Sale’ and ‘Held to Maturity’. Under each of these categories, investments are further classified under the following six groups:

1. Government Securities; 2. Other Approved Securities; 3. Shares; 4. Debentures and Bonds; 5. Investments in Subsidiaries/Joint Ventures/Associates; and 6. Other Investments.

212

4.1.1 Investments that are acquired by the Group with the intention to trade by taking advantage of short term price / interest rate movement are classified under ‘Held for Trading’. These investments are held under this category up to 90 days from the date of acquisition.

4.1.2 Investments which are intended to be held up to maturity are classified as ‘Held to Maturity’.

4.1.3 Investments which are not classified in either of the above categories are classified as ‘Available for Sale’.

4.2 Valuation

4.2.1 In determining the acquisition cost of an investment:

a) Brokerage/commission received on subscriptions is deducted from the cost of securities.

b) Brokerage, commission and stamp duty paid in connection with acquisition of securities are treated as revenue expenses.

c) Interest accrued up to the date of acquisition of securities i.e. broken-period interest, is excluded from the acquisition cost and recognised as interest expense. Broken-period interest received on sale of securities is recognised as interest income.

d) Cost is determined on the weighted average cost method.

e) The transfer of the security (from one category to another) is accounted for at the least of acquisition cost / book value / market value on the date of transfer and the depreciation, if any, on such transfer is charged to Profit and Loss Account – “Profit on Revaluation of Investments” as a deduction.

Earlier Policy : In the year 2002-03, the weighted average cost was determined at the end of year after considering transactions during the year.

4.2.2 Individual scrips classified under ‘Held for Trading’ category are valued at lower of book value or market value. Securities are valued scrip-wise and depreciation / appreciation is aggregated for each classification. Net depreciation in each classification, if any, is provided for while net appreciation is ignored. The book value of the scrips continues to remain unchanged.

4.2.3 Investments under ‘Held to Maturity’ (HTM) category are carried at acquisition cost. Wherever the book value is higher than the face value/redemption value, the premium on acquisition or on transfer from another category is amortised over the remaining period to maturity of the security using Constant Yield Method (CYM). Amortisation loss is charged to Profit & Loss Account – “Profit on Revaluation of Investments” as a deduction. The book value of the security is reduced to the extent of the amount amortised. Earlier Policy: In the financial years ended March 31, 2003 & March 31, 2004, the premium amount was amortised equally over the remaining period of maturity.

4.2.4 Investments under ‘Available for Sale’ category are valued at cost or market value, whichever is lower. Where market quotations are not available, market value for this purpose is arrived at on the basis of realisable market price computed as per the guidelines of the Fixed Income Money Market and Derivatives Association of India (FIMMDA) / Primary Dealers Association of India (PDAI) / RBI. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each classification. Net depreciation in each classification, if any, is provided for while net appreciation is ignored. The book value of the scrips continues to remain unchanged. Earlier Policy: In the years 2002-03 and 2003-04, depreciation was recognised scrip-wise and appreciation ignored.

213

4.2.5 Treasury Bills and Commercial Papers are valued at cost.

4.2.6 Non-Performing Investments are recognised as per RBI guidelines and provision is made as

per RBI norms applicable to Non-Performing Advances.

4.2.7 Investments in Regional Rural Banks (RRBs) are valued at carrying cost (i.e. book value). Earlier Policy: During the financial year ended March 31, 2007, the group has recognised diminution in the value of investments in RRBs to the extent of its capital contribution which hitherto was being recognised by the group without restricting to its capital contribution.

4.2.8 The Group has adopted the Uniform Accounting Procedure prescribed by the RBI for accounting of Repo and Reverse Repo transactions other than transactions under the Liquidity Adjustment facility (LAF) with the RBI. Accordingly, the securities sold/purchased under Repo/Reverse Repo are treated as outright sales/purchases and accounted for in the Repo/Reverse Repo Accounts and the entries are reversed on the date of maturity. Costs and revenues are accounted as interest expenditure/income, as the case may be. Balance in Repo/Reverse Repo Account is adjusted against the balance in the Investment Account. Securities purchased/sold under LAF with RBI are debited/credited to Investment Account and reversed on maturity of the transactions. Interest expended/earned thereon is accounted for as expenditure/revenue.

5. Derivatives

5.1 The Group presently deals in Interest Rate Derivatives viz. Rupee Interest Rate Swaps, Cross Currency Interest Rate Swaps and Forward Rate Agreements, and Currency Derivatives viz. Options and Currency Forwards. The Group also deals in a mix of these generic instruments, under the portfolio of Structured Products.

5.2 Based on RBI guidelines, Derivatives are valued as follows:

a) Derivatives used for trading are marked to market and net appreciation/depreciation is recognised in the Profit and Loss Account.

b) Derivatives used for hedging are :

i) Marked to market in cases where the underlying Assets/Liabilities are marked to market. The resultant gain/loss is recognised in the Profit & Loss Account.

ii) Accounted on accrual basis in cases where the underlying Assets/Liabilities are not marked to market.

The net outstanding marked to market position of each type of derivative is shown either under Asset or Liability, as the case may be.

6. Fixed Assets and Depreciation

6.1 Premises and other fixed assets are accounted on historical cost basis.

6.2 Depreciation is provided on the written down value method at the rates prescribed under the Income Tax Rules, 1962, which are considered appropriate by the management. In respect of computers, depreciation is provided on straight line method at 33.33% per annum, as per RBI guidelines. Computer software not forming an integral part of hardware is depreciated fully in the year of purchase.

6.3 Assets costing up to Rs. 1,000 are charged off to the Profit and Loss Account.

6.4 In respect of fixed assets held at Foreign Offices, depreciation is provided as per the laws/norms of the respective countries.

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6.5 In respect of leasehold premises, the lease amount is amortised over the period of lease.

7. Assets given on Lease

7.1 In respect of assets given on lease by the Group on or before March 31, 2001, the value of the assets

given on lease and the amounts paid as advance for assets to be given on lease are disclosed as “Leased Assets” and “Capital Work-in-progress (Leased Assets)” respectively under fixed assets. Depreciation is provided on straight line method as per the Companies Act, 1956 and the difference between the annual lease charge (capital recovery) and the depreciation is taken to Lease Equalisation Account as per the guidelines issued by the ICAI.

7.2 Assets given on lease by the Group on or after April 1, 2001 are accounted as per Accounting Standard 19 (Leases) issued by the ICAI. Such assets are included under “Other Assets”.

7.3 Provisions on non-performing leased assets are made on the basis of RBI guidelines applicable to advances.

8. Impairment of Assets

8.1 Impairment losses (if any), are recognised in accordance with Accounting Standard 28 issued by the ICAI and charged off to Profit and Loss Account.

9. Foreign Currency Transactions

9.1 In conformity with Accounting Standard 11 (The effects of changes in foreign exchange rates) of the ICAI, Foreign Branches of the Group and Offshore Banking Units (“OBUs”) have been classified as Non-integral Operations and Representative Offices classified as Integral Operations.

9.2 a) Foreign currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency on the date of transaction.

b) Foreign currency monetary items are reported using the FEDAI closing spot rates.

c) Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded are recognised as income or as expense in the period in which they arise.

9.3 Non-integral Operations

a) All monetary/non-monetary assets and liabilities as well as contingent liabilities are translated at the closing rate notified by FEDAI.

b) Income and expenditure are translated using the quarterly average rate notified by FEDAI at the end of the respective quarter.

c) All resulting exchange differences are accumulated in a separate “Foreign Currency Translation Reserve” account till the disposal of the net investment.

9.4 Integral Operations

a) All income and expenditure of integral operations are recorded at the rates prevalent on the date of transaction.

b) All foreign currency monetary items are reported using the FEDAI closing rates.

Earlier Policy: In the years 2002-03 and 2003-04, items of income and expenditure as well as assets and liabilities in foreign currencies in respect of foreign offices, foreign subsidiaries and foreign Joint Ventures, and assets and liabilities in foreign currencies held in the books of domestic offices were

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converted at the rate of exchange prevailing at the close of the year as per RBI guidelines. Items of income and expenditure in foreign currencies at domestic offices were converted at the exchange rate prevailing on the date of transactions.

9.5 Forward Exchange Contracts In accordance with the guidelines of the FEDAI and the provisions of AS – 11, net outstanding forward exchange contracts in each currency are revalued at the Balance Sheet date at the corresponding forward rates for the residual maturity of the contracts. The difference between the revalued amount and the contracted amount is recognised as profit or loss, as the case may be.

10. Revenue Recognition

10.1 Income and Expenditure are accounted on accrual basis. In case of foreign offices, income is recognised as per the local laws of the country in which the respective foreign office is located

10.2 The following items of income are recognised on realisation basis:

a) Commission (other than commission on deferred payment guarantees and government transaction), exchange and brokerage.

b) Dividend on investments.

c) Income on Rupee Derivatives designated as “Trading”.

d) Interest on application money on investments and overdue interest on investments.

10.3 The following items of income are recognised on realisation basis, owing to significant uncertainty in collection thereof:

a) Income on non-performing advances, Overdue bills and leased assets.

b) Interest on non-performing investments.

10.4 Income (other than interest) on investments in “Held to Maturity” (HTM) category acquired at a

discount to the face value, is recognised as follows:

10.4.1 a) On Interest bearing securities, it is recognised only at the time of sale.

b) On zero-coupon securities, it is accounted for over the balance tenor of the security on a constant yield basis.

10.4.2 Profit on sale of investments in this category is first credited to the Profit and Loss Account and thereafter appropriated to the “Capital Reserve Account”. Loss on sale is recognised in the Profit and Loss Account.

10.5 Non-banking entities

10.5.1 Merchant Banking :

a) Issue management and advisory fees are recognised as per the terms of agreement with the client.

b) Fees for private placement are recognised on completion of assignment.

c) Underwriting commission relating to public issues is accounted for on finalisation of allotment of the public issue. Brokerage income relating to public issues/mutual fund/other securities is accounted for based on mobilisation and intimation received from clients/intermediaries.

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d) Brokerage income in relation to stock broking activity is recognised on settlement date of the transaction.

10.5.2 Asset Management: Management fee is recognised at specific rates agreed with the relevant scheme applied on the average daily net assets of each scheme (including inter-scheme investments, where applicable, and investments made by the company in the respective scheme).

10.5.3 Credit Card Operations:

a) Joining membership fee and first annual fee has been recognised over a period of one year as this more closely reflects the period to which the fee relates to.

b) Visa interchange income is recognised on accrual basis.

c) All other service fees are recorded at the time of recording the respective transaction.

10.5.4 Factoring: Factoring service charges are accounted on accrual basis except in the case of non-performing assets, where income is accounted on realisation.

10.5.4 Life Insurance:

a) Life insurance premium (net of service tax) is recognised as income when due from policyholders. Uncollected premium from lapsed policies is not recognised as income until such policies are revived. In respect of linked business, premium income is recognised when the associated units are allotted.

b) Premium ceded on reinsurance is accounted in accordance with the terms of the treaty or in-principle arrangement with the reinsurer.

c) Life insurance claims by death are accounted when intimated. Intimations up to the end of the year are considered for accounting of such claims. Claims by maturity are accounted on the policy maturity date. Annuity benefits are accounted when due. Surrenders are accounted as and when notified. Claims cost consist of the policy benefit amounts and claims settlement costs, where applicable. Amounts recoverable from re-insurers are accounted for in the same period as the related claims and are reduced from claims.

d) The estimation of liability against life policies is determined by the Appointed Actuary pursuant to an annual review of the life insurance business of the company.

10.6 Foreign Offices/Foreign Subsidiaries Income is recognised as per the local laws of the countries.

11. Retirement Benefits

11.1 Contributions payable to Bank’s Provident Fund Trust in terms of its Provident Fund Scheme are charged to Profit and Loss account on accrual basis.

11.2 Liability for gratuity, pension and leave encashment (which are defined benefits) is determined on the basis of actuarial valuations carried out at the year end and incremental liability is provided for by charging to the Profit and Loss Account.

12. Provision for Taxation

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Provision for tax comprises of current tax for the period determined in accordance with the relevant laws, fringe benefit tax and deferred tax charge or credit reflecting the tax effect of timing differences between accounting income and taxable income for the period, in conformity with Accounting Standard 22 (Accounting for Taxes on Income) of the Institute of Chartered Accountants of India. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognised using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are not recognised unless there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets will be realised.

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ANNEXURE C-4

Material Notes to Summarised Consolidated Financial Information and Accounting Standard Disclosures

(A) Material Notes to Summarised Consolidated Financial Information

1. List of Subsidiaries/Joint Ventures/Associates considered for preparation of consolidated financial statements:

The Subsidiaries, Joint Ventures and Associates (which along with State Bank of India, the parent, constitute the Group), considered in the preparation of the consolidated financial statements, are:

A) Subsidiaries

Year wise Group’s Stake (%)

S. No

Name of the Subsidiary

Country of Incorpor-ation

As of March

31, 2003

As of March

31, 2004

As of March

31, 2005

As of March

31, 2006

As of March

31, 2007

As of September

30, 2007 1) State Bank of

Bikaner & Jaipur India 75.07 75.07 75.07 75.07 75.07 75.07 2) State Bank of

Hyderabad India 100.00 100.00 100.00 100.00 100.00 100.00 3) State Bank of

Indore India 98.05 98.05 98.05 98.05 98.05 98.05 4) State Bank of

Mysore India 92.33 92.33 92.33 92.33 92.33 92.33 5) State Bank of

Patiala India 100.00 100.00 100.00 100.00 100.00 100.00 6) State Bank of

Saurashtra India 100.00 100.00 100.00 100.00 100.00 100.00 7) State Bank of

Travancore India 75.01 75.01 75.01 75.01 75.01 75.01 8) SBI Commercial

& International Bank Ltd India 100.00 100.00 100.00 100.00 100.00 100.00

9) SBI Capital Markets Ltd India 86.16 86.16 86.16 86.16 86.16 86.16

10) SBICAP Securities Ltd India - - - 86.16 86.16 86.16

11) SBICAP Trustee Company Ltd India - - - 86.16 86.16 86.16

12) SBICAPS Ventures Ltd India - - - 86.16 86.16 86.16

13) SBI DFHI Ltd India 58.83 66.00 65.95 65.95 65.95 65.95 14) SBI Factors &

Commercial Services Pvt Ltd India 69.88 69.88 69.88 69.88 69.88 69.88

15) SBI Mutual Fund Trustee Company Pvt Ltd India - - 100.00 100.00 100.00 100.00

16) State Bank of India (Canada) Canada 100.00 100.00 100.00 100.00 100.00 100.00

17) State Bank of India (California) USA 100.00 100.00 100.00 100.00 100.00 100.00

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Year wise Group’s Stake (%)

S. No

Name of the Subsidiary

Country of Incorpor-ation

As of March

31, 2003

As of March

31, 2004

As of March

31, 2005

As of March

31, 2006

As of March

31, 2007

As of September

30, 2007 18) SBI International

(Mauritius) Ltd Mauritius 98.00 98.00 98.00 98.00 98.00 98.00 19) Indian Ocean

International Bank Ltd Mauritius - - - 51.00 56.84 61.93

20) PT Bank Indomonex Indonesia - - - - 76.00 76.00

21) SBICAP (UK) Ltd U.K. - - - 86.16 86.16 86.16

22) SBI Fund Management Pvt Ltd India 100.00 100.00 - - - -

B) Joint Ventures

Year wise Group’s Stake (%)

S.No Name of the Joint Venture

Country of Incor- poration

As of March

31, 2003

As of March

31, 2004

As of March

31, 2005

As of March

31, 2006

As of March

31, 2007

As of September

30, 2007 1) C Edge

Technologies Pvt Ltd India - - - 49.00 49.00 49.00

2) GE Capital Business Process Management Services Pvt Ltd India 40.00 40.00 40.00 40.00 40.00 40.00

3) SBI Cards and Payment Services Pvt Ltd India 60.00 60.00 60.00 60.00 60.00 60.00

4) SBI Fund Management Pvt Ltd India - - 63.00 63.00 63.00 63.00

5) SBI Life Insurance Company Ltd India 74.00 74.00 74.00 74.00 74.00 74.00

6) Commercial Bank of India LLC Russia - 60.00 60.00 60.00 60.00 60.00

7) SBI Funds Management (International) Private Ltd Mauritius - - - - 63.00 63.00

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C) Associates

Year wise Group’s Stake (%)

S.No Name of the Associate

Country of Incor- poration

As of March

31, 2003

As of March

31, 2004

As of March

31, 2005

As of March

31, 2006

As of March

31, 2007

As of September

30, 2007 1) Andhra Pradesh

Grameena Vikas Bank India - - - 35.00 35.00 35.00

2) Arunachal Pradesh Rural Bank India 35.00 35.00 35.00 35.00 35.00 35.00

3) Chhatisgarh Gramin Bank India - - - - 35.00 35.00

4) Ellaquai Dehati Bank India 35.00 35.00 35.00 35.00 35.00 35.00

5) Ka Bank Nongkyndong Ri Khasi Jaintia India 35.00 35.00 35.00 35.00 35.00 35.00

6) Krishna Grameena Bank India 35.00 35.00 35.00 35.00 35.00 35.00

7) Langpi Dehangi Rural Bank India 35.00 35.00 35.00 35.00 35.00 35.00

8) Madhya Bharat Gramin Bank India - - - - 35.00 35.00

9) Mizoram Rural Bank India 35.00 35.00 35.00 35.00 35.00 35.00

10) Nagaland Rural Bank India 35.00 35.00 35.00 35.00 35.00 35.00

11) Parvatiya Gramin Bank India 35.00 35.00 35.00 35.00 35.00 35.00

12) Purvanchal Kshetriya Gramin Bank India - - - 35.00 35.00 35.00

13) Samastipur Kshetriya Gramin Bank India 35.00 35.00 35.00 35.00 35.00 35.00

14) Utkal Gramya Bank India - - - - 35.00 35.00

15) Uttaranchal Gramin Bank India - - - - 35.00 35.00

16) Vananchal Gramin Bank India - - - - 35.00 35.00

17) Marwar Ganganagar Bikaner Gramin Bank India - - - - 26.27 26.27

18) Vidisha Bhopal Kshetriya Gramin Bank India 34.32 34.32 34.32 34.32 34.32 34.32

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Year wise Group’s Stake (%)

S.No Name of the Associate

Country of Incor- poration

As of March

31, 2003

As of March

31, 2004

As of March

31, 2005

As of March

31, 2006

As of March

31, 2007

As of September

30, 2007 19) Deccan Grameena

Bank India - - - 35.00 35.00 35.00 20) Cauvery

Kalpatharu Grameena Bank India - - - - 32.32 32.32

21) Malwa Gramin Bank India 35.00 35.00 35.00 35.00 35.00 35.00

22) Saurashtra Grameena Bank India - - - 35.00 35.00 35.00

23) Clearing Corporation of India Ltd India 26.82 28.97 28.97 28.97 28.97 28.97

24) SBI Home Finance Ltd India 25.05 25.05 25.05 25.05 25.05 25.05

25) UTI Asset Management Company Pvt Ltd India 25.00 25.00 25.00 25.00 25.00 25.00

26) Bank of Bhutan Bhutan 20.00 20.00 20.00 20.00 20.00 20.00 27) Nepal SBI Bank

Ltd Nepal 50.00 50.00 50.00 50.00 50.00 50.00

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1. Year Ended on March 31, 2003

a) The expenses on encashment of leave of employees were hitherto accounted for on cash basis. However, in order to comply with the Accounting Standard 15 issued by the Institute of Chartered Accountants of India and guidelines issued by RBI, during the current year, the liability towards encashment of leave is accounted for on the basis of actuarial valuation. Accordingly, an amount of Rs. 1,113 million representing current’s year liability has been charged to Profit and Loss Account and an amount of Rs. 8,157 million representing the accrued liability up to March 31, 2002 has been debited to the Revenue Reserve.

b) During the year an amount of Rs. 5,082 million has been charged to revenue on account of Voluntary Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred revenue expenditure. Unamortised amount of Rs. 10,085 million is to be amortised over a further period of two years in accordance with RBI guidelines.

c) Two of the subsidiaries – SBI Cards and Payment Services Pvt. Ltd. and SBI Life Insurance Co. Ltd. – being joint ventures, were consolidated on proportionate basis as per Accounting Standard 27 instead of being consolidated as subsidiaries as was done in 2001-02.

d) GE Capital Business Process Management Services Pvt. Ltd. and Credit Information Bureau of India Ltd were included for consolidation on proportionate basis as per Accounting Standard 27. In 2001-02, the Bank’s investment in these entities was accounted for at cost.

e) Two of the bank’s subsidiaries – SBI Securities Ltd. and SBI Servicos Limitada – are in the process of being liquidated. While figures of these Companies have not been taken for the purpose of consolidation, the Bank’s investment in these subsidiaries have been shown as receivable under the head “Other assets – Others” in Schedule 11. Another subsidiary – SBI Finance Inc. – has also been liquidated during the year.

f) Two of the associates – Bank of Bhutan (December 31) and Nepal SBI Bank Ltd (Hindu Calendar Year) follow accounting years different from that of the parent.

2. Year Ended on March 31, 2004

a) During the year an amount of Rs. 5,099 million has been charged to revenue on account of Voluntary Retirement Scheme (VRS) implemented during the year 2000-2001, which was treated as deferred revenue expenditure. Unamortised amount of Rs. 5,054 million is to be amortised next year in accordance with RBI guidelines.

b) SBI Gilts Ltd was merged with Discount & Finance House of India Ltd in terms of the order of the Mumbai High Court dated February 26, 2004. The effective date of merger was April 1, 2003. For the purpose of preparing the statement, the figures of the merged entity have been considered.

c) Commercial Bank of India LLC, a joint venture with Canara Bank, incorporated in Russia as a joint stock company on November 5, 2003, commenced operation effective from December 4, 2003.

d) SBI Servicos Limitada, a subsidiary incorporated in Brazil, was in the process of being liquidated. While figures of these Companies were not taken for the purpose of consolidation, the bank’s investment in this subsidiary have been shown as receivable under the head “Other Investment” in Schedule 8.

e) SBI Securities Ltd, a subsidiary which was under voluntary liquidation, was liquidated. The group’s equity investment of Rs. 456 million has been fully realised.

3. Year Ended on March 31, 2005

a) During the year final instalment of Rs. 5,054 million has been charged to revenue on account of Voluntary Retirement Scheme (VRS) implemented during the year 2000-01, which was treated as deferred revenue expenditure.

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b) State Bank of India divested 37% of its stake in its fully owned subsidiary SBI Funds Management Pvt Ltd to Société Générale Asset Management, France. However, the interest in the assets, liabilities, income and expenses of the entity was consolidated as per procedure for consolidation of investments in subsidiaries set out in Accounting Standard 21.

c) The stake of SBI in Asset Reconstruction Company came down to 19.95% (24.50% up to October 15, 2004). Consequently, in the 2004-05, the entity was not treated as an Associate of the State Bank Group.

d) A new Subsidiary, SBI Mutual Fund Trustee Company Pvt. Ltd, promoted by State Bank of India, took over the trusteeship function of the SBI mutual fund from December 29, 2004 and the assets, liabilities; income and expense of the entity were consolidated as per procedure for consolidation of investments in subsidiaries, as set out in Accounting Standard 21.

e) The investments in ‘ Available for Sale (AFS) and ‘Held For Trading’ (HFT) categories were being valued scrip-wise and depreciation if any, was provided scrip wise while ignoring appreciation. From the current financial year investment in ‘Available for Sale’(AFS) and ‘Held For Trading’ (HFT) categories have been valued in conformity with RBI guidelines after netting-off classification-wise depreciation and appreciation, computed scrip-wise and providing for net depreciation in each classification while ignoring net appreciation.

f) During the year, loss on redemption of securities in AFS category has been recognised after adjusting the underlying specific provisions held against these securities as against accounting of the same on gross basis in “Income from Investments” in earlier years. However there is no impact on the net profit for financial year 2004-05.

g) During the year, the Accounting Standard 11 – Effects of change in Foreign Exchange Rate (2003-Revised) has come into effect. The net profit of the Bank for the year is arrived at in conformity with the provisions of the said Accounting Standard. Consequent upon this, net exchange difference arising on translation of monetary items of non integral operations amounting to Rs. 3,321 million shown under Other Liabilities & Provisions in earlier years has been transferred to Foreign Currency Translation Reserve.

4. Year Ended on March 31, 2006

a) State Bank of India acquired 51% stake in Indian Ocean International Bank Ltd at a cost of U.S.$ 7.35 million (Rs. 322 million) w.e.f. April 20, 2005. As such the assets, liabilities, income and expenses of IOIB were consolidated from April 20, 2005. A sum of Rs. 8 million was recognised as goodwill in the consolidated financial statements.

b) SBI Capital Market Ltd, a subsidiary of State Bank of India, promoted four wholly owned subsidiaries viz. SBICAP Securities Ltd, SBICAPS Ventures Ltd, SBICAP Trustee Company Ltd and SBICAP (UK) Ltd. The consolidated financials of SBI Capital Markets Ltd were used in the preparation of consolidated financial statements of State Bank of India.

c) State Bank of India promoted a new company as a joint venture – C Edge Technologies Ltd - with Tata Consultancy Ltd. The company commenced operations w.e.f. March 28, 2006.

d) INMB Bank Ltd ceased to be a subsidiary w.e.f. January 1, 2006 pursuant to its merger with Sterling Bank Plc in compliance with Nigerian Regulatory requirements. As per the merger scheme, State Bank of India’s stake in Sterling Bank Plc is 9.24%. As per Accounting Standard 21, a sum of Rs. 63 million was charged off as loss on disposal of subsidiary. Income (Rupee equivalent 231 million) / Expenses (Rupee equivalent 278 million) of INMB Bank Ltd up to December 31, 2005 were consolidated.

e) State Bank of India brought down its equity stake in Credit Information Bureau of India Ltd from 40% as of March 31, 2005 to 10% in stages starting from May 17, 2005. As Credit Information Bureau of India Ltd ceased to be a joint venture it has not been consolidated for the year 2005-06. A sum of Rs. 91 million was recognised as profit on disposal of subsidiary/joint venture.

224

f) During the year the Bank has paid Rs. 3,092 million to the Government, being its share (25%) of the consideration for purchase of UTI Asset Management Company Pvt. Ltd. As per Accounting Standard 23, this amount has been identified as goodwill and included in the carrying amount of investment.

g) As of March 31, 2005, the group had 44 RRBs as associates, which as of March 31, 2006 came down to 34 due to amalgamation of 14 RRBs details of which are as follows.

Name of the amalgamated RRB Name of the new RRB Name of the

sponsor bank Date of merger

1. Basti Gramin Bank 2. Gorakhpur Kshetriya Gramin Bank

Purvanchal Kshetriya Gramin Bank

State Bank of India

12.09.05

3. Kakathiya Grameena Bank 4. Manjira Grameena Bank 5. Nagarjuna Grameena Bank 6. Sangameshwara Grameena Bank 7. Sri Vishaka Grameena Bank

Andhra Pradesh Grameena Vikas Bank

State Bank of India

31.03.06

8. Golconda Grameena Bank 9. Sri Rama Grameena Bank 10. Sri Saraswathi Grameena Bank 11. Sri Sathavahana Grameena Bank

Deccan Grameena Bank

State Bank of Hyderabad

24.03.06

12. Jamnagar Rajkot Gramin Bank 13. Junagarh Amreli Gramin Bank 14. Surendranagar Bhavnagar Gramin Bank

Saurashtra Gramin Bank

State Bank of Saurashtra

02.01.06

h) As a one time measure, in terms of RBI Guidelines, unreconciled net credit balances in the inter-branch

accounts up to March 31, 1999 aggregating to Rs. 3,166 million has been credited to Profit and Loss account under the head Miscellaneous Income. Consequently, profit (net of tax) for the year is higher by Rs. 2100 million.

i) Interest Earned-Others includes an amount of Rs. 17,018 million, being interest on refund of Income Tax.

j) Other Income includes an amount of Rs. 5,315 million being Exchange Gain on India Millennium Deposits (“IMDs”) redemption. Consequently, profit (net of tax) for the year is higher by Rs. 3526 million.

k) An amount of Rs. 5,635 million paid to RBI for maintenance of value (MOV) by debit to Interest Expended Account in the years 2001 and 2002 was received back during the year on redemption of IMDs and credited to Interest Expended account. Consequently, profit (net of tax) for the year is higher by Rs. 3,738 million.

l) Payments to and provisions for employees, under Operating Expenses includes an amount of Rs. 4,085 million, being arrears of salary paid for the previous financial years.

m) In terms of RBI letter No.DBS.CO.SMC.No. 8804/22.09.001/2005-06 dated December 19, 2005, the unreconciled net credit balances (net value of debit and credit entries) in Inter Branch Account up to March 31, 1999 aggregating Rs5,170 million has been credited to Profit and Loss Account.

5. Year Ended on March 31, 2007

a) State Bank of India has acquired 76% stake in PT Bank Indomonex, a commercial bank incorporated and operating in Indonesia, at a cost of U.S.$ 5.00 million (Rs. 223 million) w.e.f. December 14, 2006. As such the assets, liabilities, income and expenses of this bank have been consolidated from December 14, 2006. A sum of Rs. 131 million has been recognised as goodwill in the consolidated financial statements.

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b) SBI Funds Management (Pvt) Ltd, a company in which SBI holds 63% stake, has promoted a new wholly owned subsidiary – SBI Funds Management (International) Private Limited. The new subsidiary, incorporated on January 17, 2006, has commenced operations on April 1, 2006.

c) The parent and its constituent banks had hitherto been following a policy of amortisation of premium in respect of securities held in the ‘Held to Maturity’ (HTM) category by an adjustment to the account head ‘Provision and Contingencies’. From the current financial year and in accordance with RBI directive dated April 20, 2007, the Group has charged the amortisation amount as well as mark to market losses on transfer of securities from ‘Available for Sale’ (AFS) to HTM category by an adjustment to the account head Other Income “Profit on revaluation of Investments” as a deduction. As a result of this change in accounting policy, the Operating Profit for the year stands reduced by Rs. 23,031 million for the current year. However, there is no impact on the Net Profit for the year.

d) During the year, the group has recognised diminution in the value of investments in RRBs to the extent of its capital contribution which hitherto was being recognised by the group without restricting to its capital contribution. This has resulted in the increase in the profit of the group for the year by Rs. 1,582 million.

e) As of March 31, 2006, the group had 34 Regional Rural Banks (RRBs) as associates, which as of March 31, 2007 has come down to 22 due to amalgamation of 19 RRBs into seven new RRBs, details of which are as follows.

Name of the amalgamated RRB Name of the new

RRB

Name of the sponsor

bank Date of merger

1. Bastar Kshetriya Gramin Bank 2. Bilaspur Raipur Kshetriya Gramin Bank 3. Raigarh Kshetriya Gramin Bank

Chhatisgarh Gramin Bank

State Bank of India

30.06.2006

4. Bundelkhand Kshetriya Gramin Bank 5. Damoh Sagar Panna Kshetriya Gramin Bank 6. Shivpuri Guna Kshetriya Gramin Bank

Madhya Bharat Gramin Bank

State Bank of India

30.06.2006

7. Bolangir Anchalika Gramya Bank 8. Kalahandi Anchalika Gramya Bank 9. Koraput Panchbati Gramya Bank

Utkal Gramya Bank

State Bank of India

31.07.2006

10. Palamau Kshetriya Gramin Bank 11. Santhal Parganas Gramin Bank

Vananchal Gramin Bank

State Bank of India

30.06.2006

12. Alaknanda Gramin Bank 13. Ganga Yamuna Gramin Bank 14. Pithoragarh Kshetriya Gramin Bank

Uttaranchal Gramin Bank

State Bank of India

30.06.2006

15. Bikaner Kshetriya Gramin Bank 16. Marwar Gramin Bank 17. Sriganganagar Kshetriya Gramin Bank

Marwar Ganganagar Bikaner Bank

State Bank of Bikaner & Jaipur

12.06.2006

18. Cauvery Grameena Bank 19. Kalpatharu Grameena Bank

Cauvery Kalpatharu Grameena Bank

State Bank of Mysore

24.05.2006

Since the assets/liabilities of the merged RRBs have been taken over by the new entities at their respective book values, there is no goodwill/capital reserve on account of these mergers.

6. Half Year Ended on September 30, 2007

a. Accounting Standard 15 “Employee Benefits” (revised 2005) is effective for accounting periods commencing on or after 07.12.2006. As per this Standard, the difference (as adjusted by any related tax expense) between the transitional liability and the liability that would have been recognised at the same date, as per pre revised Accounting Standard (AS) 15, ‘Accounting for Retirement Benefits in the Financial Statements of Employers’, should be adjusted immediately against opening balance of

226

revenue reserves and surplus. The Institute of Chartered Accountants of India has made a limited revision to this provision, which has been notified on October 17, 2007. This revision provides the Bank with another option to charge additional liability arising upon the first application of the standard as an expense over a period up to five years. The Bank is currently examining both the alternatives. The impact of the Accounting Standard 15 “Employee Benefits” (revised 2005) has not been ascertained for transitional provision and current period(s). In the interregnum, the Bank has made adequate provisions as per pre-revised Accounting Standard 15, ‘Accounting for Retirement Benefits in the Financial Statements of Employers’.

b. During the quarter ended September 30, 2007, the Central Board of the Bank and the Board of State Bank of Saurashtra (“SBS”) have accorded approval for merger of SBS with SBI. The matter has further been referred to RBI and the Government for approval. As the merger process has not yet been crystallised, there is no impact on the Bank’s results.

c. During the half-year ended September 30, 2007, the entire share holding of RBI in State Bank of India aggregating 31,43,39,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred to the Central Government.

d. During the half-year ended September 30, 2007, the Bank has shifted SLR investments having aggregate Face Value of Rs. 90,816 million from ‘Available for Sale’ (AFS) category to ‘Held to Maturity’ (HTM) category, resulting in a net revaluation loss of Rs. 2,977 million.

e. In terms of RBI circular dated April 20, 2007, the Bank had accounted for amortisation of premium in

respect of securities included in the ‘Held to Maturity’ (HTM) category as an adjustment against ‘Other Income’. Based on the clarification issued by RBI on July 11, 2007, Banks are required to reflect the amortisation of premium held in HTM category by an adjustment to the ‘Interest Earned’. Accordingly, the Bank has carried out the reclassification of the same for the period ended September 30, 2007. This change in accounting procedure does not have any impact on the net profit for the period(s) under review.

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(B) Accounting Standard Disclosures

1. Segment Reporting

i) Segment identification PRIMARY (Business Segment)

Treasury Operations Banking Operations Non-Banking Operations

SECONDARY (Geographical Segment)

Domestic Operations Foreign Operations

ii) Accounting Policy

The accounting policies adopted for segment reporting are in line with the accounting policies adopted in the parent’s financial statements with the following additional features.

iii) Pricing of Inter-segmental transfers During the year, the parent and its constituent banks have changed the segmental pricing methodology for presenting more meaningful segmental results. The Group has hitherto been following the pricing of inter-segment transactions between the Non Banking Operations segment and other segments are market led. In respect of transactions between treasury and banking segments, compensation for the use of funds is reckoned based on interest and other costs incurred by the lending segment. The financial effect of change on the segment results cannot be reasonably determined. However, this change does not have any impact on the financials of the Group.

iv) Allocation of Revenue and Expenses Revenue and expenses have been identified to segments based on their relationship to the operating activities of the segment. Revenue and expenses, which relate to the enterprise as a whole and are not allocable to segments on a reasonable basis, have been included under “Unallocated Expenses” net of unallocated corporate revenue.

v) Segmental Results

Part A: Primary Segment (Rs. in millions)

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 1. REVENUE i) Banking Operations 396,671 408,804 432,896 481,932 615,514 ii) Treasury Operations 271,835 289,963 265,000 233,631 153,293 iii) Non Banking Operations 5,635 8,380 12,756 21,872 46,116 iv) Elimination 183,229 183,962 177,093 148,747 132,090 v) Total (i+ii+iii-iv) 490,912 523,185 533,559 588,688 682,833 2. RESULTS i) Banking Operations 39,640 23,896 72,995 77,648 119,411 ii) Treasury Operations 41,636 65,240 8,660 -18,429 1,264 iii) Non Banking Operations 1,384 4,159 992 1,528 5,607 iv) Elimination -- -- -- -- -- v) Total (i+ii+iii-iv) 82,660 93,295 82,647 60,747 126,282 3. Unallocated Income/(Expenses) Net 8,820 11,578 349 -18,799 18,513 4. Operating Profit(2-3) 73,840 81,717 82,298 79,546 107,769 5. Income Taxes 30,531 24,123 26,318 32,296 41,571

228

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 6. Extraordinary Profit/Loss -- -- -- 9,365 -- 7. Net Profit (4-5+6) 43,309 57,594 55,980 56,615 66,198 OTHER INFORMATION 8. Segment Assets i) Banking Operations 4,042,040 4,417,534 5,171,650 5,058,176 5,856,492 ii) Treasury Operations 2,499,023 2,713,238 2,889,582 2,895,586 2,853,433 iii) Non Banking Operations 55,122 39,709 49,362 77,651 111,492 iv) Elimination 1,819,493 1,713,629 1,881,150 1,104,803 712,593 v) Total (i+ii+iii-iv) 4,776,692 5,456,852 6,229,444 6,926,610 8,108,824 9. Unallocated Assets 200,868 52,992 56,332 43,308 42,920 10. Total Assets (8+9) 4,977,560 5,509,844 6,285,776 6,969,918 8,151,744 11. Segment Liabilities i) Banking Operations 4,454,654 4,632,956 5,165,863 5,065,929 5,997,920 ii) Treasury Operations 2,016,313 2,234,744 2,578,610 2,594,858 2,241,805 iii) Non Banking Operations 54,547 22,563 29,834 56,965 87,840 iv) Elimination 1,797,378 1,672,962 1,841,307 1,159,870 869,711 v) Total (i+ii+iii-iv) 4,728,136 5,217,301 5,933,000 6,557,882 7,457,854 12. Unallocated Liabilities 24,255 18,179 27,258 39,969 268,534 13. Total Liabilities (11+12) 4,752,391 5,235,480 5,960,258 6,597,851 7,726,388 Part B: Secondary Segments-

(Rs. in millions)

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 1. Revenue i) Domestic Operations 478,854 511,553 518,063 559,348 641,289 ii) Foreign Operations 12,058 11,632 15,496 29,340 41,544 iii) Total (i+ii) 490,912 523,185 533,559 588,688 682,833 2. Assets i) Domestic Operations 4,752,418 5,249,127 5,949,709 6,494,272 7,569,088 ii) Foreign Operations 225,142 260,717 336,067 475,646 582,656 iii) Total (i+ii) 4,977,560 5,509,844 6,285,776 6,969,918 8,151,744

2. Related Party Disclosures

As identified by the management and relied upon by the auditors.

2.1 Related Parties:

2.1.1 Joint Ventures:-

1. C Edge Technologies Ltd 2. GE Capital Business Process Management Services Private Limited.

2.1.2 Associates:-

1. Andhra Pradesh Grameena Vikas Bank 2. Arunachal Pradesh Rural Bank 3. Chhatisgarh Gramin Bank 4. Cauvery Kalpatharu Grameena Bank 5. Deccan Grameena Bank 6. Ellaquai Dehati Bank

229

7. Ka Bank Nongkyndong Ri Khasi Jaintia 8. Krishna Grameena Bank 9. Langpi Dehangi Rural Bank 10. Madhya Bharat Gramin Bank 11. Malwa Gramin Bank 12. Marwar Ganganagar Bikaner Bank 13. Mizoram Rural Bank 14. Nagaland Rural Bank 15. Parvatiya Gramin Bank 16. Purvanchal Kshetriya Gramin Bank 17. Samastipur Kshetriya Gramin Bank 18. Saurashtra Grameena Bank 19. Utkal Gramya Bank 20. Uttaranchal Gramin Bank 21. Vananchal Gramin Bank 22. Vidisha Bhopal Kshetriya Gramin Bank 23. SBI Home Finance Limited. 24. Clearing Corporation of India Ltd 25. Nepal SBI Bank Ltd. 26. Bank of Bhutan 27. UTI Asset Management Company Pvt. Ltd.

2.1.3 Key Management Personnel of the Bank:-

1. Shri O.P. Bhatt (Managing Director from 26.04.2006 to 30.06.06 and from

01.07.2006 onwards as Chairman) 2. Shri A.K. Purwar, Chairman (up to 31.05.2006) 3. Shri T. S. Bhattacharya, Managing Director 4. Shri Yogesh Agrawal, Managing Director (from 10.10.2006 to 30.06.2007)

2.1.4 Related Parties with whom transactions were entered :

No disclosure is required in respect of related parties which are “state controlled enterprises” as per paragraph 9 of Accounting Standard (AS) 18. Further, in terms of paragraph 5 of AS 18, transactions in the nature of banker-customer relationship are not required to be disclosed in respect of Key Management Personnel. Other particulars are:

1. C Edge Technologies Ltd. (from 28.03.2006) 2. GE Capital Business Process Management Services Pvt. Ltd. 3. SBI Home Finance Ltd. 4. Bank of Bhutan 5. Nepal SBI Bank Ltd. 6. Shri O.P.Bhatt (from 26.04.2006) 7. Shri A.K. Purwar (from 13.11.2002 to 31.05.2006) 8. Shri T. S. Bhattacharya (from 28.02.2005) 9. Shri Yogesh Agrawal (from 10.10.2006 to 30.06.2007) 10. Shri Ashok Kini (from 01.04.2004 to 31.12.2005) 11. Shri C. Bhattacharya (from 17.12.2003 to 31.01.2005) 12. Shri A.K. Batra (from 28.02.2002 to 07.07.2003) 13. Shri P.N. Venkatachalam (from 28.02.2002 to 31.03.2004) 14. Shri Janki Ballabh (up to 31.10.2002) 15. Shri Y. Radhakrishnan (up to 30.06.2002) 16. Shri S. Govindarajan (up to 31.07.2002) 17. Credit Information Bureau of India Ltd (up to 31.03.2005) 18. Asset Reconstruction Company (India) Ltd (up to 31.03.2004)

230

Transactions / Balances:

(Rs. in millions)

Item/Related party March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 1. Borrowings

Associates 48 - - - - 2. Deposits

Associates 848 1,457 17,703 5,253 2,954 3. Placement of Deposit

Associates - - 117 - - 4. Advances Associates 3360 105 266 - - 5. Investments

Associates 465 2703 400 345 198 6. Non funded commitments

Associates - - - 5601 - 7. Interest Paid

Associates 22 1 282 72 66 8. Interest Received

Associates 337 26 112 - 2 9. Rendering of services

Associates 7 5 45 - - 10. Receiving of services of services

Associates 481 162 - 856 17 11. Management Contracts

i) Associates - - - - 7 ii) Key management Personnel * 1 1 1 2 2

Items 1 to 6 are as of March 31 and items 7 to 11 are total for the financial year. * Transactions which are not in the nature of banker-customer relationship. The above disclosures are as identified by the management and relied upon by the Auditors.

231

3. Leases:

Assets given on Financial Leases on or after April 1, 2001. The details of financial leases are given below. (Rs. in millions)

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 Total gross investment in the leases 1,647 1,647 1,647 1,647 1,647 Present value of minimum lease payments receivable Less than 1 year 263 313 313 176 89 1 to 5 years 619 447 289 205 150 5 years and above 85 40 - - - Total 967 800 602 381 239 Present value of unearned finance income 219 159 103 68 50 4. Earnings per Share: The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard 20 – “Earnings per Share”. “Basic earnings” per share is computed by dividing net profit after tax by the weighted average number of Equity Shares outstanding during the year. There are no diluted potential Equity Shares outstanding during the year. For the Year/Half Year Ended

March 31, 2003

March 31, 2004

March 31, 2005

March 31, 2006

March 31, 2007

September 30, 2007

a. Net Profit (Group) (Rs. in million) 41,990 55,311 54,639 55,299 63,644 40,124 b. Weighted average number of shares

526,298,878

526,298,878

526,298,878

526,298,878

526,298,878

526,298,878

c. Earnings Per Share (Basic and diluted Annualised) Rs. 79.78 Rs. 105.09 Rs. 103.82 Rs. 105.07 Rs. 120.93 Rs. 152.48 5. Accounting for taxes on Income:

(Rs. in millions)

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 A. Deferred Tax Assets i) Provision for Non Performing Assets 5,223 7,350 6,231 4,286 4,152 ii) Ex Gratia Paid under Exit Option - - - 195 1,478 iii) Provision for wage revision - 1,435 4742 - - iii) Others 907 815 1,570 2,804 5,427 Total 6,130 9,600 12,543 7,285 11,057 B. Deferred Tax Liabilities i) Depreciation on Fixed Assets 397 402 308 1459 1,167 ii) Interest on Securities 6,214 iii) Depreciation on Investments 685 464 1,777 2093 5,263 iv) Interest Accrued on Investments 511 72 - - - v) VRS expenses 794 357 - - - vi) Provisions relating to securities transactions 704 1267 667 - - vii) Depreciation of Leased Assets 2,294 2,039 1,745 - -

232

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 iv) Others 38 8 1 752 794 Total 5,423 4,609 4,498 4,304 13,438 C. Net DTA/(DTL)(A-B) 707 4991 8045 2981 (2381) 6. Investments in jointly controlled entities: As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Bank’s interests in jointly controlled entities are disclosed as under: A: Assets & Liabilities

(Rs. in millions)

Capital and Liabilities March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 Capital & Reserves 1,511 2,830 4,422 338 509 Deposits 71 Borrowings 3,266 3,971 5,633 1 2 Other Liabilities & Provisions 1,037 2,654 6,822 136 206 Total 5,814 9,455 16,948 475 717

Assets March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 Cash & Balances with RBI 40 110 162 0 0 Balances with Banks & Money at call 272 1,037 604 72 37 Investments 1,413 2,853 8,479 0 24 Advances 3,688 4,911 6,619 Fixed Assets 112 152 159 96 186 Other Assets 289 392 925 307 470 Total 5,814 9,455 16,948 475 717 Contingent Liabilities 43 13 3 Nil Nil Capital commitments 23 13 29 Nil Nil

233

B: Income and Expenditure (Rs. in millions)

Income and Expenditure March 31, 2005 March 31, 2006 March 31, 2007 I. Income Interest earned 1650 3 - Other income 5918 481 659 Total 7568 484 659 II. Expenditure Interest expended 222 - - Operating expenses 6,546 339 415 Provisions & contingencies 619 53 101 Total 7,387 392 516 III Profit 181 92 143

7. Provisions, Contingent Liabilities & Contingent Assets

a) Break up of provisions:

(Rs. in millions)

For the Year Ended March 31,

2003 March 31,

2004 March 31,

2005 March 31,

2006 March 31,

2007 September

30, 2007 a) Provision for Income Tax (Current Tax) 30,665 28,866 27,942 21,017 41,113 23,763 b) Provision for Income Tax (deferred Tax) (386) (4,291) (1,585) 5,071 (775) (1,040) c) Fringe Benefit Tax - - - 6,196 1,248 728 d) Provision for other Taxes (18) 8 (39) 12 (15) 9 e) Amount of provisions made against NPA (including Write back) 36,698 53,385 14,034 4,141 17,759 9,171 f) General Provision on Standard Assets in the global loan portfolio 2,593 1,320 (741) 5,854 9,454 1,640 g) Provision for investments in India 6,032 4,432 44,345 56,213 8,345 (3,911) h) Provision for investments outside India - (77) 81 105 35 100 i) Provision for RRBs - - 515 (923) (85) - j) Provision on other assets/ Contingencies (7,920) 21 589 587 57 30 k) Others (net of write back) 2,189 4,422 10,883 (1,269) 589 180 Total 69,853 88,086 96,024 97,004 77,725 30,670 (Figures in brackets indicate credit)

b) Floating provisions:

(Rs. in millions) For the Year Ended March 31, 2006 March 31, 2007 a) Opening Balance 11652 7530 b) Addition during the year 5076 631 c) Draw down during the year 9198 3000 d) Closing balance 7530 5161

234

c) Description of contingent liabilities and contingent assets:

Sr. No Items Brief Description 1 Claims against the Group

not acknowledged as debts The parent and its constituents are parties to various proceedings in the normal course of business. It does not expect the outcome of these proceedings to have a material adverse effect on the Group’s financial conditions, results of operations or cash flows.

2 Liability on account of outstanding forward exchange contracts

The Group enters into foreign exchange contracts, currency options, forward rate agreements, currency swaps and interest rate swaps with inter-bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as contingent liabilities, are typically amounts used as a benchmark for the calculation of the interest component of the contracts.

3 Guarantees given on behalf of constituents, acceptances, endorsements and other obligations

As a part of its commercial banking activities, the Group issues documentary credits and guarantees on behalf of its customers. Documentary credits enhance the credit standing of the customers of the Group. Guarantees generally represent irrevocable assurances that the Bank will make payment in the event of the customer failing to fulfil its financial or performance obligations.

4 Other items for which the Group is contingently liable

The Group is a party to various taxation matters in respect of which appeals are pending. These are being contested by the Group and not provided for. Further the Group has made commitments to subscribe to shares in the normal course of business.

d) The contingent liabilities mentioned above are dependent upon the outcome of court/arbitration/out of

court settlements, disposal of appeals, and the amount being called up, terms of contractual obligations, devolvement and raising of demand by concerned parties, as the case may be.

8. The disclosure requirements in respect of segment information, related party disclosures, lease accounting, accounting for taxes on income and interest in jointly controlled entities have not been compiled for the half year ended on September 30, 2007.

235

ANNEXURE C-5

SUMMARY STATEMENT OF CASH FLOW (CONSOLIDATED)

(Rs in millions) For the Year ended/ Half Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07

Cash flow from Operating Activities (187,463.61) 5,366.73 6,697.77 55,432.14 50,815.63 43,650.71

Cash flow from Investing Activities (5,787.19) (13,312.91) (11,628.55) (18,256.88) (9,653.67) (8,841.16)

Cash flow from Financing Activities (10,399.13) (10,225.27) (4,346.87) 26,372.23 110,629.26 61,060.09

Cash flows on account of exchange fluctuation

(715.23) 797.56 3,210.06 247.30 (387.79) (2,407.11)

Net change in cash and cash equivalents (204,365.16) (17,373.89) (6,067.59) 63,794.79 151,403.43 93,462.53

Cash and cash equivalents - Opening 737,377.05 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63

Cash and cash equivalents - Closing 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63 818,231.16

Cash flow from Operating Activities

Net Profit before taxes 76,913.08 83,682.11 80,957.04 87,594.89 105,567.17 63,581.19

ADJUSTMENTS FOR:

Depreciation charge 6,658.29 9,489.64 10,695.92 11,334.02 9,500.70 4,808.12

(Profit)/Loss on sale of fixed assets 0.00 (6.19) (9.67) 4.75 (125.32) 0.00

Provision for NPAs 36,608.33 53,471.40 14,033.75 4,140.64 17,758.92 9,172.65

Provision for Standard Assets 2,592.59 1,319.87 (741.29) 5,854.43 9,454.23 1,639.74

Provision for Subs/JVs/RRBs (34.20) (20.19) 0.00 (922.49) (84.94) (130.78)

Depreciation/Revaluation of Investments / Loss on revaluation of Investments

4,972.76 5,562.64 44,941.14 44,612.38 21,700.22 (3,681.12)

Provision on Other Assets (7,919.94) 192.71 589.13 586.96 (295.60) (12.07)

Other Provisions 2,189.22 4,271.11 10,882.94 (1,269.30) 589.16 221.54

DRE written off during the year 5,181.86 4,284.54 5,053.86 179.03 132.80 0.00

Interest paid on bonds (financing activity) 4,890.64 4,683.23 4,979.12 5,921.23 12,221.49 9,755.13

Dividend/Earnings from Associates (1,372.21) 0.00 0.00 (57.34) (1,955.93) (491.30)

LESS: Direct Taxes (31,185.63) (40,826.19) (26,688.86) (17,298.37) (54,339.54) (24,497.28)

Other adjustments (2,132.36) (3,116.22) 28.71 0.00 0.00 0.00

Sub - Total 97,362.43 122,988.46 144,721.79 140,680.83 120,123.36 60,365.82

Increase/(Decrease) in Deposits 404,525.85 413,615.10 706,719.47 379,189.87 922,486.12 662,044.09

Increase/(Decrease) in Borrowings 6,656.22 51,388.53 55,556.03 140,454.24 116,869.32 81,977.03

(Increase)/Decrease in Investments (392,760.88) (239,491.54) (174,591.20) 299,610.61 94,288.31 (385,481.16)

(Increase)/Decrease in Advances (280,858.42) (373,441.97) (657,174.93) (877,443.47) (1,145,856.18) (333,766.70)

Increase/(Decrease) in Other Liabilities & Provisions

(540.32) 9,979.93 (54,846.99) 70,636.37 (53,679.64) 63,182.55

(Increase)/Decrease in Other Assets (21,848.49) 20,328.22 (13,686.40) (97,696.31) (3,415.66) (104,670.92)

Net Cash provided by Operating activities

(187,463.61) 5,366.73 6,697.77 55,432.14 50,815.63 43,650.71

Cash flow from Investing Activities

(Increase)/Decrease in Investments in Joint Ventures/Associates

(182.52) 236.20 0.00 (2,990.93) (1,803.60) 308.40

Income earned on such investments 1,371.37 0.00 0.00 (99.77) 1,955.93 491.30

(Increase)/Decrease in Fixed Assets (6,976.04) (13,549.11) (11,628.55) (15,166.18) (9,806.00) (9,640.86)

Net Cash provided by Investing Activities

(5,787.19) (13,312.91) (11,628.55) (18,256.88) (9,653.67) (8,841.16)

236

For the Year ended/ Half Year Ended 31-Mar-03 31-Mar-04 31-Mar-05 31-Mar-06 31-Mar-07 30-Sep-07

Cash flow from Financing Activities

Minority Interest 69.50 0.00 0.00 0.00 0.00 0.00

Net proceeds/ (repayment) of bonds (including subordinated debts)

(815.54) (345.19) 7,163.29 39,809.70 131,252.32 79,435.63

Interest paid on Bonds (4,890.65) (4,683.23) (4,979.12) (5,921.23) (12,221.49) (9,755.13)

Dividend paid (4,762.44) (5,196.85) (6,531.04) (7,516.24) (8,401.57) (8,620.41)

Net Cash provided by Financing Activities

(10,399.13) (10,225.27) (4,346.87) 26,372.23 110,629.26 61,060.09

Cash flows on account of Exchange Fluctuation:

Reserves of foreign subsidiaries/foreign offices

(715.23) 797.56 3,210.06 247.30 (387.79) (2,407.11)

Net cash flows on account of Exchange Fluctuation

(715.23) 797.56 3,210.06 247.30 (387.79) (2,407.11)

Cash and Cash equivalents - Opening:

Cash in hand (including FC notes & gold) 13,701.50 14,305.71 16,475.12 17,956.54 25,194.41 31,472.50

Balances with Reserve Bank of India 259,789.43 177,194.90 247,292.93 238,201.72 286,093.45 419,188.51

Balances with Banks & MACSN 463,886.12 341,511.28 251,869.95 253,412.15 262,077.34 274,107.62

Total 737,377.05 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63

Cash and Cash equivalents - Closing:

Cash in hand (including FC notes & gold) 14,305.71 16,475.12 17,956.54 25,194.41 31,472.50 29,757.89

Balances with Reserve Bank of India 177,194.90 247,292.93 238,201.72 286,093.45 419,188.51 626,758.56

Balances with Banks & MACSN 341,511.28 251,869.95 253,412.15 262,077.34 274,107.62 161,714.71

Total 533,011.89 515,638.00 509,570.41 573,365.20 724,768.63 818,231.16

237

ANNEXURE C-6

SUMMARY STATEMENT OF ACCOUNTING RATIOS (CONSOLIDATED)

Sr No.

For the year Ending/Half Year ending

31-Mar-03

31-Mar-04

31-Mar-05

31-Mar-06

31-Mar-07

30-Sep-07 *

1 Basic Earning Per Share 79.78 105.09 103.82 105.07 120.93 152.48 2 Return on Average Net

Worth (%) 20.02% 22.14% 18.22% 15.85% 15.96% 18.07% 3 Net Asset Value per

Share 427.84 521.31 618.5 706.95 808.2 879.7 * Ratios have been calculated on an annualised basis

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STOCK MARKET DATA FOR EQUITY SHARES OF THE BANK

As the Bank’s shares are actively traded on the BSE and NSE, the Bank’s stock market data have been given separately for each of these Stock Exchanges.

The high and low closing prices recorded on the BSE and NSE for the preceding three years and the number of Equity Shares traded on the days the high and low prices were recorded are stated below:

BSE

Year ended March 31

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Averageprice forthe year

(Rs.)

2005 ....................

742.50

March 10, 2005 2,413,606 408.90

June 23, 2004 4,497,898 542.57

2006 ....................

987.20

March 27, 2006 829,777 84.80

April 29, 2005 1,504,178 811.67

2007 ....................

1,360.20

December 1, 2006 570,209 689.50

July 19, 2006 616,699 997.31

The average price has been computed based on the daily closing price of Equity Shares.

NSE

Year ended March 31

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Averageprice forthe year

(Rs.)

2005 .................... 742.10

March 10, 2005 4,445,800 408.70

June 23, 2004

8,785,496

542.60

2006 .................... 987.80

March 27, 2006 1,601,136 584.85

April 29, 2005

2,755,033

811.80

2007 .................... 1,621.00

December 1, 2006 1,612,467 690.50

June 19, 2006

953,135

997.58

The average price has been computed based on the daily closing price of Equity Shares.

The high and low prices and volume of Equity Shares traded on the respective dates during the last six months are as follows:

BSE

Month, Year

High (Rs.) Date of High

Volume on date of high

(no. of shares)Low (Rs.) Date of Low

Volume on date of low

(no. of shares)

Averageprice for

the month(Rs.)

July, 2007 1,624.50 July 31, 2007 1,744,850 1,500.05 July 27, 2007 955,457 1,567.34

August, 2007

1,705.95 August 8, 2007 473,284 1,415.05 August 23, 2007 846,614 1,571.81

September, 2007

1,950.70 September 28, 2007 748,727 1,594.45 September 5, 2007 546,578 1,713.90

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Month, Year

High (Rs.) Date of High

Volume on date of high

(no. of shares)Low (Rs.) Date of Low

Volume on date of low

(no. of shares)

Averageprice for

the month(Rs.)

October, 2007

2,117.85 October 29, 2007 970,131 1,667.60 October 19, 2007 637,197 1,897.03

November, 2007

2,346.15 November 14, 2007 446,666 2,070.85 November 1, 2007 1,051,347 2,248.58

December, 2007

2,445.85 December 11, 2007 247,361 2,258.30 December 19,2007 271,787 2,368.46

The average price has been computed based on the daily closing price of Equity Shares.

NSE

Month, Year

High (Rs.) Date of High

Volume on date of high

(no. of shares)

Low (Rs.) Date of Low

Volume on date of low

(no. of shares)

Averageprice for

the month(Rs.)

July, 2007 ....... 1,623.85 July 31, 2007 3,673,699 1,498.75 July 27, 2007 2,150,967 1,567.70

August, 2007... 1,706.85 August 8, 2007

1,106,862 1,414.75 August 23, 2007 2,113,602 1,571.66

September, 2007 ................

1,945.85 September 28, 2007

2,672,350 1,594.25 September 5, 2007 1,265,135 1,713.67

October, 2007 ................

2,116.70 October 29, 2007

2,207,285 1,667.10 October 19, 2007 1,774,173 1,896.68

November, 2007 ................

2,353.85 November 14, 2007

1,368,083 2,075.35 November 1, 2007 2,143,188 2,249.98

December, 2007 ................

2,447.75 December 11, 2007

681,531 2,256.55 December 19,2007

647,234 2,366.13

The average price has been computed based on the daily closing price of Equity Shares.

The closing market price was Rs. 2,371.00 on the BSE and Rs. 2,371.15 on the NSE on December 31, 2007.

The market price was Rs. 2,414.35 on BSE on January 15, 2008, the trading day immediately following the day on which the Central Board meeting was held to finalize the offer price for the Issue.

The market price was Rs. 2,423.45 on NSE on January 15, 2008, the trading day immediately following the day on which the Central Board meeting was held to finalise the offer price for the Issue.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of the Bank’s financial condition and results of operations together with the Bank’s audited unconsolidated financial statements. The following discussion is based on the Bank’s unconsolidated financial statements and accompanying notes, which have been prepared in accordance with Indian GAAP, with the exception of the Bank’s recognition of employee benefits under Accounting Standard 15. This discussion should be read together with “Selected Financial and Operating Data” and the financial statements in accordance with prevailing practices within the banking industry in India and Indian GAAP, which differs in some respects from U.S. GAAP. See “Summary of Certain Differences in Accounting Policies under Indian GAAP and U.S. GAAP.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations also includes a discussion of the Group’s financial performance which should be read together with the Group’s audited consolidated financial statements and accompanying notes, which have been prepared in accordance with Indian GAAP and are also included elsewhere in this Letter of Offer. There were certain changes in the Bank’s and the Group’s principal accounting policies in 2007 and as a result, certain line items relating to the both the Bank’s and the Group’s audited financial statements for the year ended March 31, 2006 have been regrouped to reflect these changes. The Bank’s and the Group’s audited financial statements for the year ended March 31, 2005, however, were not regrouped to reflect the changes in accounting policies and investors should therefore understand that certain line items contained in the annual financial statements for 2005 are not strictly comparable to its financial statements for the years ended March 31, 2006 and 2007. For further information regarding changes in the Group’s accounting policies, investors should see “Note on Reformatting and Regrouping” in the financial Statements contained in the audited consolidated financial statements for the year ended March 31, 2007. Overview The Bank is India’s largest bank, with 10,072 domestic branches and 84 international offices in 32 countries with over 100 million accounts. The Bank is also India’s largest retail bank in terms of both assets and liabilities, totalling Rs. 3,321.2 billion, and approximately 71 million accounts, as on September 30, 2007. As on December 21, 2007 (being the last reporting Friday of December 2007), based on RBI data, the Bank’s estimated market share of aggregate deposits of all scheduled commercial banks in India was 15.45% and the Bank’s estimated market share of domestic advances was 15.53%. In addition, as on September 30,2007, based on trade data from the Directorate General of Commercial Intelligence and Statistics (“DGCIS”) the Bank had an estimated 31.9% market share of Indian merchandise foreign exchange transactions for foreign trade. The Bank organizes its client relationships, marketing and product development, as well as non-customer facing activities, through business groups and strategic business units. The Bank’s primary strategic business groups are the Corporate Banking Group, the National Banking Group and the Rural Business Group. The Corporate Banking Group provides corporate banking services to many of India’s most significant corporations and institutions, including state-owned enterprises. The National Banking Group and the Rural Business Groups service the Bank’s remaining corporate customers, small scale industries, agriculture and personal banking customers, including other state-owned enterprises, throughout India. The National Banking Group also provides financial services to the Government and the state governments, including tax collection and payment services. The range of products offered by the Bank include fund-based products, non-fund-based products, fee and commission-based products and services, deposits and foreign exchange and derivatives products. In the retail market, the Bank’s products and services include retail lending and deposits, fee and commission-based products and services, as well as alternative payment products. The Bank is present, through its subsidiaries and joint ventures, in diverse segments of the Indian financial sector, including asset management, factoring and commercial services, treasury operations, credit cards, payment services and life insurance. See “Business — Non-Bank Subsidiaries and Joint Ventures” and “Insurance Activities.” The Bank is the largest constituent part of the Group by assets and net income, representing 70.0% of consolidated Group assets as on September 30, 2007 and 75.7% of consolidated net profit for the six-month

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period ended September 30, 2007. The Group includes the Bank, its Associate Banks, which operate in India, and its subsidiaries and joint ventures, operating both within India and internationally. Associate Banks have a domestic network of approximately 4,867 branches, with strong regional ties. The Bank also has subsidiaries and joint ventures outside India, including in Europe, the United States, Canada, Mauritius, Nepal and Bhutan. As on September 30, 2007, the Bank’s unconsolidated deposits, advances and total assets were Rs. 4,870.5 billion, Rs. 3,586.1 billion and Rs. 6,351.4 billion, respectively. For the six-month period ended September 30, 2007, the Bank’s unconsolidated net profit amounted to Rs. 30.4 billion, an increase of Rs. 10.5 billion, or 53.2%, from the six-month period ended September 30, 2006. As on September 30, 2007, the Group’s consolidated deposits, advances and total assets were Rs. 7,024.8 billion, Rs. 5,197.5 billion and Rs. 9,068.5 billion, respectively. For the six-month period ended September 30, 2007, the Group’s consolidated net profit amounted to Rs. 40.1 billion, an increase of Rs. 13.1 billion, or 48.8%, from the six-month period ended September 30, 2006. Factors Affecting the Bank’s Results of Operations and Financial Condition The Bank’s loan portfolio, financial condition and results of operations have been, and are expected to be, influenced by economic conditions in India, expected growth in retail credit in India and certain global developments, particularly in commodity prices relating to the business activities of the Bank’s corporate customers. To facilitate the understanding of the discussion of the Bank’s results of operations that follows, you should consider the introductory discussion of these macroeconomic factors. Growth of the Indian economy As a bank with the vast majority of its operations in India, the Bank’s financial position and results of operations have been and will continue to be significantly affected by general economic and political conditions in India. See “Risk Factors — Risks Relating to India — A slowdown in economic growth, increased volatility of commodity prices or rise in interest rates in India could cause the Bank’s business to suffer.” India had a GDP growth of 7.5% in fiscal year 2005, 9.0% in fiscal year 2006 and 9.4% in fiscal year 2007. The continued momentum in growth has been primarily due to the resurgence of the industrial sector and sustained growth of the services sector. The agricultural sector, which did not grow in fiscal year 2005, registered 6.0% growth in fiscal year 2006 and 2.7% growth in fiscal year 2007. The industrial sector grew by 8.4% in fiscal year 2005,8.0% in fiscal year 2006 and 11.0% in fiscal year 2007. Industrial growth during this period was supported primarily by sustained growth in manufacturing activities. The services sector grew by 10.0% in fiscal year 2005, 10.3% in fiscal year 2006 and 11.0% in fiscal year 2007. During the first half of fiscal year 2008, India’s GDP grew by 9.1%, agricultural growth was at 3.7%, while industry and services sectors grew by 9.5 % and 10.5% respectively. This economic growth has contributed to increased demand for loans, by Indian corporations and SMEs as well as increased demand for consumer products generally and consumer banking services. Due to the increasing demand for loans, lending volume by Indian banks grew by approximately 27% over the last year. During fiscal year 2007, there was an increase in inflationary trends in India, primarily due to the increase in prices of primary articles as well as the increase in oil prices over the last several years. See also “Risk Factors — Risks Relating to India — A significant increase in the price of crude oil could adversely affect the Indian economy, which could adversely affect the Bank’s business.” The annual average rate of inflation measured by the Wholesale Price Index was 5.4% during fiscal year 2007 compared to 4.4% during the previous year. Inflationary pressures eased in the first quarter of fiscal year 2008. The average annual rate of inflation reduced to 3.3% during fiscal year 2008 (through September 29, 2007) from 5.4% during the corresponding period in the previous year. The RBI’s stated policy objective is to contain inflation in the range of 4.0% to 4.5% over the medium term. Disruptions in the growth of the Indian economy could have a direct impact on the Bank’s consumer and corporate banking services and could lead to an increase in NPAs. During fiscal year 2007, the Rupee appreciated by 2.3% against the U.S. dollar. The Rupee depreciated against the pound sterling, euro and against the Japanese yen. The Rupee appreciated by 7.7% against the U.S. dollar during fiscal year 2008 (through September 30, 2007), moving from Rs. 43.10 per U.S.$ 1.00 as of the end of fiscal year 2007 to Rs. 39.75 per U.S.$ 1.00 on September 30, 2007. Foreign exchange reserves were approximately U.S.$ 247.8 billion as on September 28, 2007.

242

The impact of these and other factors and the overall growth in industry, agriculture and services during fiscal year 2007 has affected the banking sector and is expected to affect the level of credit disbursed by the Bank. In addition, these factors are expected to affect the overall growth prospects of the Bank, including its ability to expand its deposit base, the quality of its assets, the value of its investment portfolio and its ability to implement its strategy. Government monetary policy is also heavily influenced by the condition of the Indian economy. Changes in monetary policy will affect the interest rates of the Bank’s loans and deposits. As described above, the recent growth in the Indian economy has contributed to a rise in interest rates as the Government has instituted a tighter monetary policy to combat inflation. Changes in this policy could result in lower interest rates on the Bank’s asset products, which could reduce its margins and thus its net interest income. In addition, high rates of inflation in the Indian economy could also impact the Bank’s ability to sustain profitable net interest margins because it could lower the demand for loans, discourage diversification of the Bank’s loan portfolio or require the Bank to increase the costs of its deposits. Health of the Indian banking sector As the largest bank in India, the performance of the Indian banking sector is a critical factor to the Bank’s financial success. According to RBI data, total deposits of all scheduled commercial banks increased by 13% in fiscal year 2005, 18.1% in fiscal year 2006 and 23.7% in fiscal year 2007. Bank credit of scheduled commercial banks grew by 30.9% in fiscal year 2005, 30.8% in fiscal year 2006 and 28.0% in fiscal year 2007. The increase in credit growth for fiscal year 2007 was driven by the continued growth in both retail credit and credit to industry. Credit to industry accounted for 35.3% of the total expansion in non-food credit for fiscal year 2007. During the first half of fiscal year 2008, deposits of scheduled commercial banks increased by 23.9% on a year-on-year basis while bank credit grew by 21.9% on a year-on-year basis. As of September 28, 2007, there has been a 9.8% growth in deposits while bank credit has grown by 5.0%. The positive trends in each of the data points discussed above are reflected in the Bank’s strong financial performance over the past three years. Until fiscal year 2005, there was a downward movement in interest rates, barring intra-year periods when interest rates were higher temporarily due to extraneous circumstances. This movement was principally due to RBI’s policy of assuring adequate liquidity in the banking system and generally lowering the rate at which it would lend to Indian banks to ensure that borrowers had access to funding at competitive rates. Banks generally followed the direction of interest rates set by the RBI and adjusted both their deposit rates and lending rates downwards until fiscal year 2005. The inflationary trends since fiscal year 2005 resulted in a change in the monetary policy stance. In response to inflationary pressures in the economy, the RBI has, over time, increased the cash reserve ratio (“CRR”) as follows:

Effective Date Rate October 2, 2004 ............................ 5.00% December 23, 2006....................... 5.25% January 06, 2007 5.50% February 17, 2007......................... 5.75% March 3, 2007............................... 6.00% April 14, 2007............................... 6.25% April 28, 2007............................... 6.50% August 4, 2007.............................. 7.00% Source: RBI Statistics The RBI increased the reverse repo rate (which is the annualised interest earned by the lender in a repurchase transaction between a bank and the RBI) six times by 25 basis points, each time resulting in the reverse repo rate increasing from 4.5% to 6.0% between October 2004 and July 2006. Between January 2006 and April 2007, the RBI also increased the repo rate six times by 25 basis points, each time to the current rate of 7.75% (see chart below). As a result of these increases, banks, including the Bank, have also raised their deposit and lending rates. The Bank’s large and diverse customer base has allowed it to capitalise on these higher rates resulting in increased interest income. See “Risk Factors — Risks Relating to India — A slowdown in economic growth, increased volatility of commodity prices or rise in interest rates in India could cause the Bank’s business to suffer.”

243

The RBI has also instituted several prudential measures to moderate credit growth including increase in risk weights for capital adequacy computation and general provisioning for various Asset classes. See also “Industry Overview — Credit Policy Measures.” Interest rates, allocation of funds and costs of funding Interest earned has historically been the most significant component of the Bank’s revenue. In the year ended March 31, 2007 and the six-months ended September 30, 2007, interest earned represented 68.8% and 71.5%, respectively, of the Bank’s unconsolidated operating income. Interest earned is determined by the amount of interest-earning assets, the difference between the rate of interest earned on interest-earning assets and the rate of interest paid on interest-bearing liabilities and the proportion of interest-earning assets financed by a non-interest bearing liabilities and equity. The Bank’s net interest earned is affected by a number of factors including the general level of interest rates, its ability to allocate its funds to assets that provide high interest rates and its cost funding. Interest rates The majority of the Bank’s corporate and commercial loans are priced at a floating rate based on the Bank’s prime lending rate. This rate is primarily determined by the RBI’s lending rate. The RBI lending rate has risen steadily since 2004, partly to reduce the money supply and partly to reduce liquidity at Indian banks. The table below shows the average monthly RBI bid (reverse repo rates) and ask (repo rates) as on the dates indicated: The following table sets forth the bank rate and the reverse repo rate for the last six fiscal years. Bank Rate Reverse Repo Rate Repo Rate As of year ended March 31, (percentages)

2003 ................................................... 6.25% 5.00% 7.00%

2004 ................................................... 6.00% 4.50% 6.00%

2005 ................................................... 6.00% 4.75% 6.00%

2006 ................................................... 6.00% 5.50% 6.50%

2007 ................................................... 6.00% 6.00% 7.75%

2008 (through September 30, 2007) .. 6.00% 6.00% 7.75% Source: RBI: Handbook of Statistics on Indian Economy, 2006, Annual Report 2005-2006 and Weekly Statistical Supplements and Annual Policy Statement 2007-08, First Quarter review of Policy Statement 2007-08. Increases in the RBI lending rate allow the Bank to receive higher rates of return on its loans. Any subsequent reductions in the RBI lending rate would reduce the Bank’s prime lending rate and could reduce net interest income despite supporting loan growth and NPA reduction. Conversely, increases in the RBI lending rate could affect the ability of potential borrowers to take out loans despite partly mitigating higher deposit costs. See “Risk Factors — Risks Relating to the Bank’s Business — The Bank’s business is particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect its net interest margin, the value of its fixed income portfolio, its income from treasury operations and its financial performance.” Since interest rates in the banking system have continually increased over the last two years and the Bank’s liabilities, which are much higher than its loan assets, have been re-priced, the Bank’s net interest income has been adversely effected. During the last quarter of fiscal year 2007, the Indian financial markets experienced volatility and sharp increases in interest rates and the Bank experienced a sharp increase in its funding costs, which adversely impacted its net interest margin. The Bank expects that this trend will continue until the yield on its interest earning assets increases to a level which will offset its increase in funding costs. Further, it cannot be assured that the Bank will be able to pass through increases in funding costs to its customers. Any failure to pass higher funding costs to its customers will adversely impact the Bank’s net interest margin. Allocation of funds The Bank’s ability to take advantage of increases in RBI lending rates depends largely on its loan volume. Recent growth in the Indian economy has led to increased demand for funding across many sectors of

244

the economy. This growth has contributed to the Bank’s ability to reallocate its funds from Government securities to loans, which offer the Bank higher returns. However, asset mix also has an effect on profitability as the Bank’s loans bear different interest rates reflecting different credit ratings. For example, net interest income increases to the extent that the Bank increases the proportion of consumer loans, which generally bear a higher interest rate than other loans, but decreases to the extent that the Bank increases the proportion of international loans, which generally bear a lower interest rate than domestic loans. If the volume of the Bank’s loans decreases due to a general slowdown in the economy, increased competition or other factors, the Bank’s net interest income will decrease as well. In addition, the Bank may not be able to reallocate its funds to more profitable assets in the event that interest rates decrease. Cost of funding The Bank is able to increase its net interest income to the extent that it does not increase the cost of its interest-bearing liabilities to the same extent, or at the same time, as its interest-bearing assets. The Bank’s primary interest-bearing liability is its deposit base. The Bank’s ability to offer low interest rates for customers’ deposit accounts depends significantly on its ability to provide customers with convenient banking services that compensate for the lower returns on deposits. As on September 30, 2007, the average deposit amount of the Bank’s customers was approximately Rs. 50,000 per customer. Depositors with low balances tend to choose their banks based upon proximity and convenience rather than deposit rates. To continue to source low-cost funding through deposits, the Bank must, among other things, continue to develop its information technology systems to offer modern banking services and develop products and services to distinguish itself in an increasingly competitive industry. See “Risk Factors — Risks Relating to the Bank’s Business — If the Bank is unable to adapt to rapid technological changes, its business could suffer.” However, increasing sophistication of customers, competition for funding, increasing interest rates and changes to the RBI’s liquidity and reserve requirements may increase the rates the Bank pays on its deposits. In addition to a higher proportion of higher cost deposits forming part of the Bank’s funding, in order to meet the growing needs of its Retail and Corporate Banking groups and to further enhance its capital adequacy ratios, the Bank has and may continue to issue subordinated debt which increases the Bank’s cost of funding. Provisioning policies The Bank’s profit is adversely affected by the amount of provisions against loans. While the Bank has been able to reduce its portfolio of NPAs, total provisions have continued to increase due to increases in volumes of loans and changes in regulatory and internal provisioning policies. See “Risk Factors — Further deterioration of the Bank’s NPA portfolio and an inability to improve its provisioning coverage as a percentage of gross NPA could adversely affect the price of the Equity Shares.” Non-interest expenses The level of the Bank’s non-interest expenses impacts its profitability. Staff costs comprise a significant proportion of the Bank’s administrative costs and wage inflation. In addition, the Bank is continuing its business process re-engineering, which involves retraining and reallocating staff, as well as acquiring new IT systems. See “Business — Business Process Re-engineering.” As a result, the Bank expects that the business process re-engineering will also increase administrative costs in the short term. Corporate tax rates applicable to the Bank Corporate tax rates applicable to the Bank impact the Bank’s profitability. The effective corporate tax rate to the Bank has come down from 41.03% in the financial year 1996-97 to 39.25% in the financial year 2006-07. The tax rate for the current financial year is 33.99%. Any increase in tax rates could have a material adverse effect on the Bank’s financial results. Government policies and regulations in relation to the Indian banking system The Indian banking industry is regulated by the RBI and operates within a framework that provides guidelines on capital adequacy, corporate governance, management, anti-money laundering and provisioning for NPAs. The RBI can alter any of these policies at any time and can introduce new regulations to control any particular line of business. The banking system in India is expected to adopt a capital adequacy framework in line with the Basel II framework in March 2008. See “Industry Overview — New Initiatives in the Banking Sector — Risk Management and Basel-II.” This will cause an increase in capital requirements, which will in turn have an impact on the Bank’s results of operations. In addition to more stringent capital adequacy requirements,

245

the RBI has increased the CRR for Indian banks. Despite these increases, the RBI has decided to suspend interest payments on CRR balances. Any further increases in the CRR could have a negative impact on the Bank’s results from operations. Any other changes in the regulatory environment as pertaining to the Indian banking industry could have a material impact on the Bank’s operations and financial condition. See “Risk Factors — Risks Relating to the Bank’s Business — Banking is a heavily regulated industry and material changes in the regulations which govern the Bank could cause its business to suffer and the price of the Equity Shares to decline.” Unconsolidated Results for the Six-Months Ended September 30, 2007 Compared to the Six-Months Ended September 30, 2006 Interest Earned Interest earned increased by 31.4% to Rs. 227.1 billion in the six-months ended September 30, 2007 from Rs. 172.8 billion in the six-months ended September 30, 2006. This increase was primarily the result of a 43.8% increase in the interest earned on advances and bills to Rs. 163.5 billion in the six-months ended September 30, 2007 from Rs. 113.7 billion in the six-months ended September 30, 2006. This increase was primarily caused by an increase in the prime lending rate (“PLR”) of the Bank during the period by 175 basis points as well as increases in the rates charged by the Bank above the PLR on renewal of loans and new loans. The increase in interest earned was also the result of a 26.7% increase in the Bank’s loan volume which was driven by continued growth in the Indian economy as well as increased marketing efforts by the Bank. The increase in interest earned was partially aided by a 7.6% increase in income earned on investments to Rs. 54.6 billion in the six-months ended September 30, 2007 from Rs. 50.8 billion in the six-months ended September 30, 2006. This was due to an increase in the investments held by the Bank during the period Other Income Other income increased by 25.9% to Rs. 31.8 billion in the six-months ended September 30, 2007 from Rs. 25.3 billion in the six-months ended September 30, 2006. The increase was primarily attributable to a 27.8% increase in commission, exchange and brokerage income to Rs. 20.5 billion in the six-months ended Sept 30, 2007 from Rs. 16.1 billion in the six-months ended September 30, 2006 as a result of an increase in the volume of transactions with the Government. The higher income was due to a one time profit of Rs. 2.19 billion on account of divestment of promoters’ stake by the Bank in the NSE. The remaining increase in profit was largely from the Bank’s own account trading. The Bank also saw an increase of 222.7% in the profit on sale of investment to Rs. 7.1 billion in the six-months ended September 30, 2007 from Rs. 2.2 billion in the six-months ended September 30, 2006 mainly due to higher income from equity trading. The increase was partially offset by a decrease of 52.4% in dividends from subsidiaries and joint ventures to Rs. 1.7 billion in the six-months ended September 30, 2007 from Rs. 3.6 billion in the six-months ended September 30, 2006. This decrease was due to several of the Bank’s subsidiaries and joint ventures paying an interim dividend to the Bank in the fourth quarter of the year ended March 31, 2007, a change from the typical first quarter payment. In addition, leasing income decreased by 55.6% to Rs. 308.0 million in the six-months ended September 30, 2007 from Rs. 693.0 million in the six-months ended September 30, 2006 as a result of the Bank’s decision to continue to wind down its leasing portfolio. This was partially offset by an increase of 10% in loss on revaluation of investment to Rs. 7.4 billion in the six-months ended September 30, 2007 from Rs. 6.7 billion in the six-months ended September 30, 2006 . Interest Expended Interest expended increased 44.5% to Rs. 147.4 billion in the six-months ended September 30, 2007 from Rs. 102.1 billion in the six-months ended September 30, 2006. This was primarily due to an increase in interest expended in respect of interest on RBI and inter-bank borrowings of 93.9% to Rs. 14.4 billion in the six-months ended September 30, 2007 from Rs. 7.4 billion in the six-months ended September 30, 2006. This increase was the result of the Bank’s greater borrowing needs as well as increased interest rates. This Bank also saw a 65.6% increase in other interest expended to Rs. 7.5 billion in the six-months ended September 30, 2007 from Rs. 4.5 billion in the six-months ended September 30, 2006 caused by an increase in interest paid on the Bank’s Tier II capital bonds issued by the Bank. Interest expended on deposits increased 39.3% to Rs. 125.5 billion in the six-months ended September 30, 2007 from Rs. 90.0 billion in the six-months ended September 30, 2006. This increase in interest expended on deposits was due to a 29.7% increase in fixed deposits, most of which were interest-bearing deposits, as well as increased interest rates over the period. Total deposits increased

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by Rs. 865.5 billion in the six-months ended September 30, 2007, while the cost of deposits (domestic) increased to 5.48% in the six-months ended September 30, 2007 from 4.51% in the six-month period ended September 30, 2006. As a result of the higher cost of funds due to increased interest rates and the additional CRR requirement, the Bank’s net interest margin decreased to 2.84% in the six-months ended September 30, 2007 as compared to 3.02% in the six-months ended September 30, 2006. Investors should note that, for the purpose of public disclosure, the net interest margin figure calculated here is based on weekly averages of interest earning assets as per Indian market convention. Operating Expenses Operating expenses saw a modest increase of 6.9% to Rs. 60.7 billion in the six-months ended September 30, 2007 from Rs. 56.8 billion in the six-months ended September 30, 2006. This increase was primarily attributable to a 13.7% increase in other operating expenditures to Rs. 20.5 billion in the six-months ended September 30, 2007 from Rs. 18.0 billion in the six-months ended September 30, 2006. Other expenditures increased as a result of an increase in mandatory deposit insurance related to an increase in deposits. Rent, taxes and lighting increased by 9.8% to Rs. 4.5 billion in the six-months ended September 30, 2007 from Rs. 4.1 billion in the six-months ended September 30, 2006. This increase reflects the overall growth of the Bank’s branch and office facilities over the period. The Bank also experienced a 3.7% increase in payments and provisions for employees to Rs. 40.2 billion in the six-months ended September 30, 2007 from Rs. 38.8 billion in the six-months ended September 30, 2006. This increase was the result of employees taking advantage of the Bank’s “Exit Option,” which is a voluntary early retirement scheme introduced by the Bank. This increase was the result of employees taking advantages of the Bank’s ‘Exit Option’ which was a voluntary early retirement scheme introduced by the Bank during the fiscal year ended March 31, 2007 and which was extended to all the non-officer bank employees during the period from September 1, 2006 to March 31, 2007. As of March 31, 2007 approximately 8,000 employees had opted for voluntary early retirement scheme. Provisions and Contingencies (excluding provisions for tax) The Bank classifies its loans in accordance with RBI guidelines. Provisions and contingencies (excluding provisions for tax) decreased 57.2% to Rs. 2.5 billion in the six-months ended September 30, 2007 from Rs. 5.7 billion in the six-months ended September 30, 2006. This decrease in provisions and contingencies (excluding provisions for tax) was primarily attributable to moderation of the Government securities yield in the one to five year range, where the bank holds a high concentration. This resulted in a decrease of provisions for depreciation on investments of 375.4% or a write back of Rs. 3.8 billion from provisions for depreciation on investments as against provision of Rs. 1.4 billion in September 2006. The decrease was partially offset by a significant increase in NPA provisions in the six-months ended September 30, 2007 to Rs. 4.9 billion from Rs. 2.8 billion in the six-months ended September 30, 2006. This increase was the result of gross NPAs increasing to Rs. 106.3 billion in the six-months ended September 30, 2007 from Rs. 97.4 billion in September 30, 2006 as a result of an increase in the Bank’s loan portfolio as well as an increasing interest rate environment. In May 2006, the general provisioning requirement for personal loans, loans and advances qualifying as capital market exposure, residential housing loans in an amount exceeding Rs. 2.0 million and commercial real estate loans was increased by the RBI to 1.0% from 0.4%. In January 2007, the general provisioning requirement for personal loans, credit card receivables, loans and advances qualifying as capital market exposure, commercial real estate and advances to non-deposit taking systemically important non-banking financial companies (“NBFCs”) was increased to 2.0%. All additional liability on account of higher general provisioning rates on existing loans was fully provided in the year ended March 31, 2007. The general provision for higher rates is now required to be provided only on incremental loans made in the six-months ended September 30, 2007. As a result, the general provision on standard assets decreased by 37.4% to Rs. 979.8 million in the six-months ended September 30, 2007 from Rs. 1,564.9 million in the six-months ended September 30, 2006. Tax Expense Total taxation expenses increased by 31.5% to Rs. 17.9 billion in the six-months ended September 30, 2007 as compared to Rs. 13.6 billion in the six-months ended September 30, 2006.

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Current income tax expenses increased by 48.41% to Rs. 17.3 billion in the year ended September 30, 2007 as compared to Rs. 11.6 billion in the six-months ended September 30, 2006 primarily because of the Bank’s provisions for expenditure items where income tax levels are uncertain, leading to an effective tax rate of 36.24% which was 225 basis points higher than the statutory tax rate of 33.99%. Net Profit As a result of the above, net profit increased by 53.2% to Rs. 30.4 billion in the six-months ended September 30, 2007 from Rs. 19.8 billion in the six-months ended September 30, 2006. Financial Condition Total assets amounted to Rs. 6,351.4 billion as on September 30, 2007 compared to Rs. 5,465.3 billion as on September 30, 2006, an increase of 16.2%. Cash and balances with RBI increased 46.0% to Rs. 462.0 billion as on September 30, 2007 from Rs. 316.4 billion as on September 30, 2006. The primary reason for this increase was a 2.0% statutory increase in CRR held by RBI to 7.0% as on September 30, 2007 from 5.0% as on September 30, 2006. Balances with banks and money at call and short notice decreased to Rs. 128.0 billion as on September 30, 2007 from Rs. 233.1 billion as on September 30, 2006. Advances for term loans increased 22.0% to Rs. 1,950.4 billion as on September 30, 2007 from Rs. 1,599 billion as on September 30, 2006. This increase was in line with the Bank’s overall increase in business and was supported by continued growth in deposits. The increase in total assets was partially the result of a 22.8% increase in government securities held to Rs. 1,438.6 billion as on September 30, 2007 from Rs. 1,171.4 billion as on September 30, 2006. The table below sets out the principal components of the Bank’s assets as on the dates indicated. As on September 30, 2006 2007 % change (Rs. in millions, except percentages) Cash and balances with the RBI 316,420 462,018 46.0% Balance with banks and money at call and short notice

233,066 127,970 (45.1%)

Total Cash and cash equivalents 549,486 589,988 7.4% Government securities 1,171,381 1,438,627 22.8% Other investments 293,514 362,971 23.7% Total investments 1,464,895 1,801,598 23.0% Term loans 1,598,973 1,950,400 22.0% Other advances 1,231,557 1,635,749 32.8% Total advances 2,830,530 3,586,149 26.7% Fixed assets 26,701 31,815 19.2% Other assets 593,702 341,841 (42.4%) Total assets 5,465,314 6,351,391 16.2% Total liabilities and shareholders’ funds amounted to Rs. 6,351.4 billion as on September 30, 2007 compared to Rs. 5,465.3 billion as on September 30, 2006, an increase of 16.2%. Capital remained unchanged over the period, while reserves and surplus increased 15.0% to Rs. 335.9 billion as on September 30, 2007 from Rs. 292.0 billion as on September 30, 2006. The increase in reserves was primarily attributable to the retention of Rs. 47.3 billion out of the Rs. 56.0 billion, or 84.6%, of net profit earned in the period. Deposits increased 21.6% to Rs. 4,870.5 billion as on September 30, 2007 from Rs. 4,005.1 billion as on September 30, 2006 as a result of a 13.4% increase in demand deposits over the period caused by the overall growth in the Indian economy, new marketing efforts and new product initiatives. Borrowings increased 39.2% to Rs. 449.4 billion as on September 30, 2007 from Rs. 322.8 billion as on September 30, 2006. The increase in the Bank’s borrowings is primarily attributable to the Bank’s domestic and international capital fundraising activities.

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The table below sets out the principal components of the Bank’s shareholders’ funds and liabilities as on the dates indicated. As on September 30, 2006 2007 % change (Rs. in millions, except percentages) Capital ................................................................................................. 5,263 5,263 0.0% Reserves and surplus ........................................................................... 292,018 335,865 14.7% Total shareholders’ funds ................................................................. 297,281 341,128 14.7% Deposits ............................................................................................... 4,005,090 4,870,544 21.6% Borrowings .......................................................................................... 322,844 449,379 39.2% Other liabilities and provisions ............................................................ 840,099 690,340 (17.8%) Total liabilities and shareholders’ funds ......................................... 5,465,314 6,351,391 16.2% Unconsolidated Results for the Year Ended March 31, 2006 Compared to the Year Ended March 31, 2007 Interest Earned Interest earned increased by 9.8% to Rs. 394.9 billion in the year ended March 31, 2007 from Rs. 359.8 billion in the year ended March 31, 2006. This increase was primarily the result of a 28.9% increase in the Bank’s loan volume which was driven by the buoyant economic conditions in India as well as increased marketing efforts. The increase in interest earned was also the result of a 40.4% increase in the interest earned on advances and bills to Rs. 248.4 billion in the year ended March 31, 2007 from Rs. 177 billion in the year ended March 31, 2006. This increase was primarily the result of a 200 basis point increase in the prime lending rate charged by the Bank. The increase in interest earned was partially offset by the 17.8% decrease in income earned on investments to Rs. 114.9 billion in the year ended March 31, 2007 from Rs. 139.8 billion in the year ended March 31, 2006 which was due to (a) higher CRR requirements, (b) replacement of higher coupon bonds by lower coupon bonds (primarily Government securities) to reduce the average duration of the investment portfolio and (c) reduction of the Bank’s investment portfolio held in the assets-held-for-sale category. Also, offsetting the increase in interest earned, there was an 79.9% decrease in other interest earned to Rs. 4.4 billion in the year ended March 31, 2007 from Rs. 21.8 billion in the year ended March 31, 2006. This decrease in other interest earned during the year ended March 31, 2007, reflects a one-off receipt of interest recorded on an income tax refund during the year ended March 31, 2006. Other Income Other income decreased by 22.4% to Rs. 57.7 billion in the year ended March 31, 2007 from Rs. 74.4 billion in the year ended March 31, 2006. This decrease was primarily attributable to the loss on revaluation of investments of Rs. 16.8 billion in the year ended March 31, 2007 compared to no such loss in the year ended March 31, 2006 which was related to an accounting change in the Bank’s amortisation policy for held to maturity investments. In addition, the Bank saw a 62.7% decrease in the profit on exchange transactions to Rs. 3.7 billion in the year ended March 31, 2007 from Rs. 10.0 billion in the year ended March 31, 2006 which was caused by a one-time gain in the year ended March 31, 2006 related to the redemption of Indian Millennium Deposits which was not recorded in 2007. This decrease was partially offset by a 20.2% increase in exchange and brokerage commission to Rs. 48.0 billion in the year ended March 31, 2007 from Rs. 40 billion in the year ended March 31, 2006, as well as a 88.2% increase in income earned from dividends from subsidiaries and joint ventures to Rs. 6.0 billion in the year ended March 31, 2007 from Rs. 3.2 billion in the year ended March 31, 2006. This gain was the result of generally improved performances across all of the Bank’s subsidiaries and joint ventures Interest Expended Interest expended increased 14.9% to Rs. 234.4 billion in the year ended March 31, 2007 from Rs. 203.9 billion in the year ended March 31, 2006. This increase in interest expended was primarily due to a 136.1% increase in other interest expended to Rs. 22.1 billion in the year ended March 31, 2007 from Rs. 9.4 billion in the year ended March 31, 2006 caused by interest paid on Tier I and Tier II capital bonds. Interest

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expended in respect of interest on RBI and inter-bank borrowings also saw a 62.1% increase to Rs. 21.4 billion in the year ended March 31, 2007 from Rs. 13.2 billion in the year ended March 31, 2006. This increase was the result of greater borrowing needs as well as increased interest rates. Interest expended on deposits increased 5.2% to Rs. 190.8 billion in the year ended March 31, 2007 from Rs. 181.3 billion in the year ended March 31, 2006. This increase in interest expended on deposits was due to 14.6% increase in deposits, partially offset by an expansion of lower cost current and savings account deposits, as well as interest rate revisions over the period. Total deposits increased to Rs. 4,355.2 billion in the year ended March 31, 2007 from Rs. 3,800.5 billion in the year ended March 31, 2006. As a result of growth in the lower cost current and savings account deposits, the Bank’s net interest margin decreased to 3.3% in the year ended March 31, 2007, as compared to 3.4% in the year ended March 31,2006. Investors should note that for the purpose of public disclosure, the net interest margin figure calculated here is based on weekly averages of interest earning assets as per Indian market convention. Operating Expenses Operating expenses saw a modest increase of 0.8% to Rs. 118.2 billion in the year ended March 31, 2007 from Rs. 117.3 billion in the year ended March 31, 2006. This increase was primarily attributable to a 22.3% increase in other expenditures to Rs. 14.3 billion in the year ended March 31, 2007 from Rs. 11.7 billion in the year ended March 31, 2006. Other expenditures increased as a result of an increase in mandatory deposit insurance reflecting continued growth in the number of deposits. Rent, taxes and lighting increased 12.6% to Rs. 9.0 billion in the year ended March 31, 2007 from Rs. 8.0 billion in the year ended March 31, 2006. This increase reflects the overall growth of the Bank’s branch and office facilities over the period. These increases were partially offset by a 12.6% decrease in directors’ fees, allowances and expenses to Rs. 11.0 million in the year ended March 31, 2007 from Rs. 12.0 million in the year ended March 31, 2006. The Bank also experienced a 2.3% decrease in payments and provisions for employees to Rs. 79.3 billion in the year ended March 31, 2007 from Rs. 81.2 billion in the year ended March 31, 2006 which was a result of lower contributions made to the pension and gratuity funds for employees based on an actuarial valuation. Provisions and Contingencies (excluding provisions for tax) The Bank classifies its loans in accordance with RBI guidelines. Provisions and contingencies (excluding provisions for tax) decreased 45.1% to Rs. 24.1 billion in the year ended March 31, 2007 from Rs. 43.9 billion in the year ended March 31, 2006. This decrease in provisions and contingencies (excluding provisions for tax) was primarily attributable to a RBI-mandated accounting change whereby amortisation and redemption on held to maturity investments must now be accounted for as an operating expense instead of as an adjustment in the “Provision and Contingencies” account. This change resulted in a decrease in Provisions for Depreciation on Investments of 90.3% or Rs. 35.2 billion. The decrease was partially offset by a significant increase in NPA provisions in the year ended March 31, 2007 to Rs. 14.3 billion from Rs. 1.5 billion in the previous year. The lower provisioning in the year ended March 31, 2006 was the result of the write back of a provision in respect of a significant NPA account that became a standard asset during the period. Under the RBI guidelines issued in September 2005, banks were required to make general provision at 0.4% on standard loans (excluding loans to the agricultural sector and to small and medium enterprises). In May 2006, the general provisioning requirement for personal loans, loans and advances qualifying as capital market exposure, residential housing loans beyond Rs. 2.0 million and commercial real estate was further increased to 1.0% from 0.4%. In January 2007, the general provisioning requirement for personal loans, credit card receivables, loans and advances qualifying as capital market exposure, commercial real estate and advances to non-deposit taking systemically important non-banking financial companies (“NBFCs”) was increased to 2.0%. As a result, a general provision on standard assets increased by 45.4% to Rs. 5.9 billion in the year ended March 31, 2007 from Rs. 4.1 billion in the year ended March 31, 2006. Tax Expense Total taxation expenses increased by 22% to Rs. 30.5 billion in the year ended March 31, 2007 from Rs. 25.0 billion in the year ended March 31, 2006. Current income tax increased by 77.1% to Rs. 29.8 billion in the year ended March 31, 2007 as compared to Rs. 16.8 billion in the year ended March 31, 2006, primarily due to a disallowance of expenditure incurred on ex gratia payments to employees who exercised the Exit Option in the year ended March 31, 2007,

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leading to an effective tax rate of 39.62% which was 596 basis points higher than the statutory tax rate of 33.66%. Net Profit As a result of the above, net profit increased by 3.1% to Rs. 45.4 billion in the year ended March 31, 2007 from Rs. 44.1 billion in the year ended March 31, 2006. Financial Condition Total assets amounted to Rs. 5,665.7 billion as on March 31, 2007 compared to Rs. 4,940.3 billion as on March 31, 2006, an increase of 14.7%. Cash and balances with RBI increased 34.3% to Rs. 290.8 billion as on March 31, 2007 from Rs. 216.5 billion as on March 31, 2006. The primary reason for this increase was a 1.0% RBI-mandated increase in the CRR held by the RBI from 5.0% as on March 31, 2006 to 6.0% as on March 31, 2007. Balances with banks and money at call and short notice saw a slight decrease to Rs. 228.9 billion as on March 31, 2007 from Rs. 229.1 billion as on March 31, 2006. Advances for term loans increased 28.3% to Rs. 1,810.7 billion as on March 31, 2007 from Rs. 1,410.9 billion as on March 31, 2006 which was in line with the Bank’s overall increase in business and was supported by continued growth in deposits. These increases were partially offset by a 12.6 % decrease in government securities held to Rs. 1,182.7 billion as on March 31, 2007 from Rs. 1,352.9 billion as on March 31, 2006. The table below sets out the principal components of the Bank’s assets as on the dates indicated. As on March 31, 2006 2007 % change (Rs. in millions, except percentages) Cash and balances with the RBI ............................ 216,527 290,764 34.3% Balance with banks and money at call and short notice .....................................................................

229,073 228,922 (0.01%)

Total Cash and cash equivalents ........................ 445,600 519,686 16.6% Government securities ........................................... 1,352,913 1,182,709 (12.6%) Other investments .................................................. 272,429 308,780 13.3% Total investments................................................. 1,625,342 1,491,489 (8.2%) Term loans ............................................................. 1,410,904 1,810,732 28.3% Other advances ...................................................... 1,207,105 1,562,633 29.5% Total advances ..................................................... 2,618,009 3,373,365 28.9% Fixed assets............................................................ 27,530 28,189 2.4% Other assets............................................................ 223,809 252,923 13.0% Total assets ........................................................... 4,940,290 5,665,652 14.7% Total liabilities and shareholders’ funds amounted to Rs. 5,665.7 billion as on March 31, 2007 compared to Rs. 4,940.3 billion as on March 31, 2006, an increase of 14.7%. Capital remained unchanged over the period, while reserves and surplus increased 13.5% to Rs. 307.7 billion as on March 31, 2007 from Rs. 271.2 billion as on March 31, 2006. The increase in reserves was primarily as attributable to the retention of Rs. 36.8 billion out of the Rs. 45.4 billion, or 81%, of net income earned in the period. This retention was the result of the Bank’s low dividend payout ratio of 19%. Deposits increased 14.6% to Rs. 4,355.2 billion as on March 31, 2007 from Rs. 3,800.5 billion as on March 31, 2006 as a result of a 20.6% increase in demand deposits over the period caused by the overall growth in the Indian economy, new marketing efforts and new product initiatives. Borrowings increased 29.6% to Rs. 397.0 billion as on March 31, 2007 from Rs. 306.4 billion as on March 31, 2006. The increase in the Bank’s borrowings is primarily attributable to the Bank’s domestic and international capital fundraising activities.

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The table below sets out the principal components of the Bank’s shareholders’ funds and liabilities as on the dates indicated. As on March 31, 2006 2007 % change (Rs. in millions, except percentages) Capital .......................................................................................... 5,263 5,263 0.0% Reserves and surplus .................................................................... 271,178 307,722 13.5% Total shareholders’ funds .......................................................... 276,441 312,985 13.2% Deposits ........................................................................................ 3,800,461 4,355,211 14.6% Borrowings ................................................................................... 306,412 397,033 29.6% Other liabilities and provisions ..................................................... 556,976 600,423 7.8% Total liabilities and shareholders’ funds .................................. 4,940,290 5,665,652 14.7% Unconsolidated Results for the Year Ended March 31, 2005 Compared to the Year Ended March 31, 2006 In accordance with RBI directions, as well as recommendations of its statutory auditors, the Bank made certain changes to its accounting policies in the year ended March 31, 2007. The figures contained in this Letter of Offer relating to the year ended March 31, 2006 have been regrouped to reflect these changes. The figures relating to the year ended March 31, 2005, however, have not been regrouped. Because of this, investors should be aware that the line items relating to Other Income as well as Provisions and Contingencies from the years ended March 31, 2006 and 2007 are not strictly comparable to those items in the year ended March 31, 2005. For a more detailed discussion of these changes, see “— Changes in Accounting Policies.” Interest Earned Interest earned increased by 11% to Rs. 359.8 billion in the year ended March 31, 2006 from Rs. 324.3 billion in the year ended March 31, 2005. This increase was primarily the result of a 35.7% increase in the interest earned on advances and bills to Rs. 177 billion in the year ended March 31, 2006 from Rs. 130.4 billion in the year ended March 31, 2005 which was primarily the result of increased disbursements of cash credits, overdrafts, loans repayable on demand and term loans reflecting the continued growth of the Bank’s business. In addition, the Bank saw a 39.1% increase in other interest earned to Rs. 21.8 billion in the year ended March 31, 2006 from Rs. 15.7 billion in the year ended March 31, 2005 reflecting a one-off interest received on an income tax refund of Rs. 16.4 billion recognised in 2006 against Rs. 7.5 billion recognised in 2005. These increases were partially offset by the 12.8% decrease in income earned on investments to Rs. 139.8 billion in the year ended March 31, 2006 from Rs. 160.3 billion in the year ended March 31, 2005. The decrease in income earned on investments in the year ended March 31, 2006 was related to the replacement of high coupon investments with lower coupon investments (primarily Government securities) with the intention to reduce the average duration of the investment portfolio. Other Income Other income increased to Rs. 74.4 billion in the year ended March 31, 2006 from Rs. 71.2 billion in the year ended March 31, 2005. The Bank saw an increase in profit on exchange transactions to Rs. 10.0 billion in the year ended March 31, 2006 from Rs. 5.3 billion in the year ended March 31, 2005 which was mainly the result of a one-time gain related to the redemption of Indian Millennium Deposits. Miscellaneous income also saw a substantial increase of Rs. 6.7 billion to Rs. 14.1 billion in the year ended March 31, 2006 from Rs. 7.4 billion in the year ended March 31, 2005. Contributing factors to this increase were a higher recovery amount from written-off loan accounts as well as a one-time recognition of non-reconciled net-credit entries held on the Bank’s inter-office accounts up to March 31, 1999. The Bank saw a decrease in profits on sale of investments to Rs. 5.9 billion in the year ended March 31, 2006 from Rs. 17.8 billion in the year ended March 31, 2005. Increasing yields on investments in the year ended March 31, 2006 contributed to the decrease in the profit on sale of such investments. Interest Expended Interest expended increased by 10.3% to Rs. 203.9 billion in the year ended March 31, 2006 from Rs. 184.8 billion in the year ended March 31, 2005. This increase in interest expended was primarily due to a 5.5%

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increase in interest on deposits to Rs. 181.3 billion in the year ended March 31, 2006 from Rs. 171.9 billion in the year ended March 31, 2005 as a result of the 3.5% increase in deposits over the same period. Interest expended in respect of interest on RBI and interbank borrowings also saw a 223.3% increase to Rs. 13.2 billion in the year ended March 31, 2006 from Rs. 4.1 billion in the year ended March 31, 2005. This increase was related to interest paid on domestic borrowings and Medium Term Note Programme used to increase the Bank’s international resources. Other interest expended increased 5.5% to Rs. 9.4 billion in the year ended March 31, 2006 from Rs. 8.9 billion in the year ended March 31, 2005 primarily as a result of interest paid on Tier I and Tier II capital bonds. Total deposits increased to Rs. 3,800.5 billion in the year ended March 31, 2006 from Rs. 3,670.5 billion in the year ended March 31, 2005, while the cost of deposits (domestic) decreased to 4.7% from 5.1% over the same period. Net interest margin for the year ended March 31, 2006 remains constant at 3.4% as compared to March 31, 2005 as increases in average interest earning assets were offset by an increase in the cost of borrowings and a decrease in the yield on investments. Investors should note that, for the purpose of public disclosure the net interest margin figure calculated here is based on weekly averages of interest earning assets as per Indian market convention. Operating Expenses Operating expenses saw an increase of 16.4% to Rs. 117.3 billion in the year ended March 31, 2006 from Rs. 100.7 billion in the year ended March 31, 2005. This increase was primarily attributable to a 17.6% increase in payments and provisions for employees to Rs. 81.2 billion in the year ended March 31, 2006 from Rs. 69.1 billion in the year ended March 31, 2005. This increase reflects a payment of wage revision arrears and an increased contribution to superannuation benefits. Directors’ fees, allowances and expenses also increased 24% to Rs. 12.3 million in the year ended March 31, 2006 from Rs. 9.9 million in the year ended March 31, 2005. Provisions and Contingencies (excluding provisions for tax) Provisions and contingencies (excluding provisions for tax) increased to Rs. 43.9 billion in the year ended March 31, 2006 from Rs. 44.7 billion in the year ended March 31, 2005. The Bank saw higher general provisions for standard assets, higher investment depreciation, provision for fringe benefit tax as well as a lower provision for loan loss. Starting in the third quarter of 2005, the RBI increased the requirement of general provisioning on standard loans (excluding loans to the agricultural sector and small and medium enterprises) to 0.40% compared to 0.25% applicable until September 30, 2005. In accordance with these guidelines, the Bank made general provisions of Rs. 4.1 billion in the year ended March 31, 2006. Tax Expense Total taxation expense increased by 12.7% to Rs. 25.0 billion in the year ended March 31, 2006 from Rs. 22.2 billion in the year ended March 31, 2005. Current income tax expense decreased 31.2% to Rs. 16.8 billion in the year ended March 31, 2006 as compared to Rs. 24.5 billion in the year ended March 31, 2005 primarily due to provisions made towards wage in arrears form earlier years. These provisions were allowed as a deduction from taxable income during the year ended March 31, 2006, leading to an effective tax rate of 27.63% which was 603 basis points lower than the statutory tax rate of 33.66%. Net Profit As a result of the above, net profit after tax increased by 2.4% to Rs. 44.1 billion in the year ended March 31, 2006 from Rs. 43.0 billion in the year ended March 31, 2005. Financial Condition Total assets amounted to Rs. 4,940.3 billion as on March 31, 2006 compared to Rs. 4,598.8 billion as on March 31, 2005, an increase of 7.4%. Cash and balances with the RBI increased 28.8% to Rs. 216.5 billion as on March 31, 2006 from Rs. 168.1 billion as on March 31, 2005, primarily due to higher CRR balances as a result of an increase in deposits. Balances with banks and money at call and short notice saw a modest increase of 1.8% to Rs. 229.1 billion as on March 31, 2006 from Rs. 225.1 billion as on March 31, 2005. Advances for term loans increased 31.9% to Rs. 1,410.9 billion as on March 31, 2006 from Rs. 1,069.9 billion as on March 31,

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2005. This increase in term loans was consistent with growth in the Bank’s overall loan portfolio. These increases were partially offset by a 21.3% decrease in Government securities to Rs. 1,352.9 billion as on March 31, 2006 from Rs. 1,719.4 billion as on March 31, 2005 as a result of the Bank’s strategy during the period to liquidate investments in Government securities to fund loan growth as well as to meet the redemption requirements of Indian Millennium Deposits. The table below sets out the principal components of the Bank’s assets as on the dates indicated. As on March 31, 2005 2006 % change (Rs. in millions, except percentages) Cash and balances with the RBI .............................. 168,103 216,527 28.8% Balance with banks and money at call and short notice .......................................................................

225,118 229,073 1.8%

Total Cash and cash equivalents .......................... 393,221 445,600 13.3% Government securities ............................................. 1,719,435 1,352,913 (21.3%) Other investments .................................................... 251,544 272,429 8.3% Total investments................................................... 1,970,979 1,625,342 (17.5%) Term loans ............................................................... 1,069,885 1,410,904 31.9% Other advances ........................................................ 953,860 1,207,105 26.5% Total advances ....................................................... 2,023,745 2,618,009 29.4% Fixed assets.............................................................. 26,977 27,530 2.0% Other assets.............................................................. 183,907 223,809 21.7% Total assets ............................................................. 4,598,829 4,940,290 7.4% Total liabilities and shareholders’ funds amounted to Rs. 4,940.3 billion as on March 31, 2006 compared to Rs. 4,598.8 billion as on March 31, 2005, an increase of 7.4%. Capital remained unchanged over the period, while reserves and surplus increased 15.2% to Rs. 271.2 billion as on March 31, 2006 from Rs. 235.5 billion as on March 31, 2005. The increase in reserves was primarily attributable to the retention of Rs. 35.7 billion, or 80.9%, of net income earned in the period. Deposits increased 3.5% to Rs. 3,800.5 billion as on March 31, 2006 from Rs. 3,670.5 billion as on March 31, 2005 as a result of a 20.1% increase in demand deposits partially offset by the repayment of Indian Millennium Deposits during the year ended March 31, 2006. Borrowings increased 59.7% to Rs. 306.4 billion as on March 31, 2006 from Rs. 191.8 billion as on March 31, 2005. The increase in the Bank’s borrowings is primarily attributable to the Bank’s efforts to increase its capital adequacy through offshore borrowings by way of drawdown from its Medium Term Note Programme as well as borrowings within India. Other liabilities and provisions increased 12.3% to Rs. 557 billion as on March 31, 2006 from Rs. 495.8 billion as on March 31, 2005. The increase was primarily a result of a 152.4% increase in bills payable as well as a 50.0% increase in other liabilities, including provisions. The table below sets out the principal components of the Bank’s shareholders’ funds and liabilities as on the dates indicated. As on March 31, 2005 2006 % change (Rs. in millions, except percentages) Capital .............................................................................................. 5,263 5,263 0.0% Reserves and surplus ........................................................................ 235,458 271,178 15.2% Total shareholders’ funds .............................................................. 240,721 276,441 14.8% Deposits ............................................................................................ 3,670,476 3,800,461 3.5% Borrowings ....................................................................................... 191,843 306,412 59.7% Other liabilities and provisions ......................................................... 495,789 556,976 12.3% Total liabilities and shareholders’ funds ...................................... 4,598,829 4,940,290 7.4%

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Liquidity The following table sets forth the Bank’s unconsolidated statement of cash flows for the years ended March 31, 2005, 2006 and 2007 and the six-month periods ended September 30, 2006 and 2007: Year ended March 31, Six-months ended September 30,

2005 2006 2007 2006 2007

(Rs. in millions) Net cash (used in)/from operating activities .............. (27,807) 56,023 (17,761) 59,120 27,100 Net cash (used in)/from investing activities .............. (4,988) (7,394) (2,846) (137) (6,704) Net cash (used in)/from financing activities .............. (9,693) 3,696 94,941 43,893 52,134 Net increase (decrease) in cash & equivalents (42,488) 52,325 74,334 102,876 72,530 Cash & equivalents, beginning of period................... 435,666 393,221 445,600 445,600 519,687 Effect of foreign exchange rate changes 43 54 (247) 1,010 (2,229) Cash & equivalents, end of period 393,221 445,600 519,687 549,486 589,988 Cash Flows from Operating Activities The Bank recorded a net cash inflow from operating activities of Rs. 27.1 billion in the six-months ended September 30, 2007. The primary reasons for the net cash inflow during the period was an inflow of deposits of Rs. 515.3 billion as well as a Rs. 52.3 billion increase in borrowings. The net cash inflow during the period was partially offset by a Rs. 304.6 billion increase in investments as well as a Rs. 217.7 billion increase in loans. The Bank recorded a net cash inflow from operating activities of Rs. 59.1 billion in the six-months ended September 30, 2006. The primary reasons for the net cash inflow during the period was an increase in deposits of Rs. 204.6 billion and a Rs. 16.4 billion increase in borrowing. In addition, the Bank saw a Rs. 108.7 billion decrease in investments as a result of the Bank winding down its investment portfolio. The net cash inflow during the period was partially offset by a Rs. 215.3 billion increase in advances. The Bank recorded a net cash outflow from operating activities of Rs. 17.8 billion in the year ended March 31, 2007. The primary reason for the net cash outflow was an increase in advances of Rs. 769.7 billion that was partially offset by a Rs. 74.5 billion decrease in investments as well as a Rs. 90.6 billion increase in borrowings. The net cash outflow during the period was also partially offset by an increase in deposits of Rs. 554.8 billion, reflecting the Bank’s strategy of attracting new depositors to fund future advances. The Bank recorded a net cash inflow from operating activities of Rs. 56.0 billion in the year ended March 31, 2006. The primary reasons for this increase in cash flow were a Rs. 362.1 billion decrease in investments, a Rs. 114.5 billion increase in borrowings and a Rs. 130.0 billion increase in deposits. Cash from operations was primarily used to fund the Bank’s expanding loan portfolio resulting in an outflow of Rs. 595.7 billion for advances. The Bank recorded a net cash outflow from operating activities of Rs. 27.8 billion in the year ended March 31, 2005. Cash was used during the period primarily to fund new loans, causing an increase in advances of Rs. 456.4 billion. A significant source of cash for the period came from a Rs. 484.3 billion increase in deposits. Cash Flows from Investing Activities The Bank recorded a net cash outflow from investing activities of Rs. 6.7 billion in the six-months ended September 30, 2007. The cash was used primarily to purchase Rs. 6.7 billion worth of fixed assets relating to upgrading the interiors of the Bank’s branches as well as purchases of computers and other IT related equipment and services. The Bank also recorded an outflow of Rs. 1.7 billion relating to investment in its joint ventures and subsidiaries. The net cash outflow during the period was partially offset by income received from joint ventures and subsidiaries of Rs. 1.7 billion. The Bank recorded a net cash outflow from investing activities of Rs. 0.1 billion in the six-months ended September 30, 2006. The cash was used primarily to purchase fixed assets of Rs. 2.8 billion as well as Rs.

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0.9 billion to fund the Bank’s joint ventures and subsidiaries. The net cash outflow during the period was partially offset by Rs. 3.6 billion received from the Bank’s joint ventures and subsidiaries. The Bank recorded a net cash outflow from investing activities of Rs. 2.8 billion in the year ended March 31, 2007. The cash was used primarily to fund investments in fixed assets of Rs. 6.6 billion as well as investments in joint ventures and subsidiaries, which saw an increase of Rs. 2.3 billion. The cash outflow from these activities was partially offset by an increase in income earned by joint ventures and subsidiaries of Rs. 6 billion. The Bank recorded a net cash outflow from investing activities of Rs. 7.4 billion in the year ended March 31, 2006. This outflow was primarily attributable to an increase of Rs. 7.8 billion in fixed assets as well as a Rs. 2.7 billion increase in investments in subsidiaries and joint ventures. The primary source of cash inflow from investing activities was income earned on investments in subsidiaries and joint ventures of Rs. 3.2 billion. The Bank recorded a net cash outflow from investing activities of Rs. 5 billion in the year ended March 31, 2005. The cash was primarily used to fund a Rs. 8.1 billion increase in fixed assets. Cash Flows from Financing Activities Net cash inflow from financing activities was Rs. 52.1 billion in the six-months ended September 30, 2007. The cash inflow was primarily attributable to Rs. 68.3 billion raised through the issuance of Tier II capital bonds by the Bank. This inflow was partially offset by Rs. 8.6 billion in dividend paid by the Bank to its shareholders (including related taxes) as well as Rs. 7.5 billion in interest payments on bonds. Net cash inflow from financing activities was Rs. 43.9 billion in the six-months ended September 30, 2006. The cash inflow was primarily attributable to the issuance of domestic bonds equalling Rs. 55.4 billion. This inflow was partially offset by Rs. 8.4 billion in dividends paid by the Bank to its shareholders (including related taxes) as well as Rs. 3.1 billion in interest payments on bonds. Net cash inflow on financing activities was Rs. 94.9 billion in the year ended March 31, 2007. The inflow was primarily attributable to Rs. 94.4 billion worth of subordinated debt raised domestically by the Bank during the year. In addition, the Bank issued Rs. 17.4 billion worth of Hybrid Tier I notes through its Medium Term Note Program. This inflow was partially offset by Rs. 8.5 billion in interest paid on bonds during the year as well as Rs. 8.4 billion in dividends paid by the Bank to its shareholders (including related taxes). Net cash inflow on financing activities was Rs. 3.7 billion in the year ended March 31, 2006. The inflow was primarily due to the issue of Rs. 32.8 billion of subordinated debt raised domestically, though this was partially offset by the redemption of subordinated debt in the amount of Rs. 17.6 billion, Rs. 4.0 billion in interest paid on bonds as well as Rs. 7.5 billion in dividends paid by the Bank to its shareholders (including related taxes). Net cash outflow on financing activities was Rs. 9.7 billion in the year ended March 31, 2005. The outflow was primarily attributable to Rs. 5.8 billion for dividends paid and Rs. 3.9 billion for interest paid on bonds. Off Balance Sheet Items The table below sets forth, for the periods indicated, the principal components of the Bank’s unconsolidated contingent liabilities. As on March 31, As on September 30, 2005 2006 2007 2006 2007 (Rs. in billions) Contingent liabilities Claims against the Bank not acknowledged as debts............................ 8.3 17.0 38.1 -1 5.7 Liability for partly paid investments ............................................. 0.6 0.03 0.03 -1 1.1 Liability on account of outstanding

forward exchange contracts..................... 917.0 1,343.5 1,972.9 1,388.2 1,886.5 Guarantees given on behalf of 190.8 268.9 376.2 346.7 462.6

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As on March 31, As on September 30, 2005 2006 2007 2006 2007 (Rs. in billions) customers ................................................ Acceptances, endorsements & other obligations ..................................... 280.2 370.3 470.5 519.9 652.2 Other items for which the Bank is contingently liable .................................. 197.1 289.1 208.2 631.31 6,802.8 Total ......................................................... 1,594.0 2,288.8 3,065.9 2,886.1 9,810.9 Note:

(1) For September 30, 2006, the aggregate amount of claims against the Bank not acknowledged as debts, liability for partly paid investments and other items for which the Bank is contingently liable are shown as an aggregate amount.

Contingent liabilities increased by Rs. 6,924.8 billion to Rs. 9,810.9 billion as on September 30, 2007 from Rs. 2,886.1 billion as on September 30, 2006, primarily due to an increase in other items for which the Bank is contingently liable as a result of a significant increase in the number of derivative transactions for customers as well as its proprietary account. Contingent liabilities increased by 34.0% or Rs. 777.1 billion to Rs. 3,065.9 billion as on March 31, 2007 from Rs. 2,288.8 billion as on March 31, 2006, primarily due to a 46.8% increase in liability on account of outstanding forward exchange contracts as well as a 27.1% increase in acceptances, endorsements and other obligations. The 43.6% increase in contingent liabilities to Rs. 2,288.8 billion as on March 31, 2006 from Rs. 1,594.0 billion as on March 31, 2005 was primarily due to a 46.5% increase liability on account of outstanding forward exchange contracts as well as a 41% increase in guarantees given on behalf of customers. See “Business — Global Markets.” Capital Resources The following table sets forth the Bank’s unconsolidated risk-based capital, risk-weighted assets and risk-based capital adequacy ratios computed in accordance with the applicable RBI guidelines and as reported to the RBI. As of March 31, As of September 30,

2005 2006 2007 2006 2007

(Rs. in billions, except percentages) Tier I capital ............................................................ 163.1 251.8 304.7 273.0 340.9 Tier II capital ........................................................... 89.5 67.8 164.7 121.4 222.5 Total qualifying capital ......................................... 252.6 319.6 469.4 394.4 563.4 Total credit risk-weighted assets ............................. 2,016.2 2,461.0 3,608.1 2,901.6 4,119.2 Total market risk-weighted assets ........................... 12.7 229.8 196.7 221.1 263.9 Total risk-weighted assets and contingents ......... 2,028.9 2,690.8 3,804.8 3,122.7 4,383.1 Capital adequacy ratios: Tier I capital adequacy ratio .................................... 8.04% 9.36% 8.01% 8.74% 7.78% Tier II capital adequacy ratio................................... 4.41% 2.52% 4.33% 3.89% 5.07% Total capital adequacy ratio ................................. 12.45% 11.88% 12.34% 12.63% 12.85% Minimum Tier I ratio required by RBI 4.50% 4.50% 4.50% 4.50% 4.50% Minimum capital adequacy ratios required by RBI. 9.00% 9.00% 9.00% 9.00% 9.00% The Bank’s total capital adequacy as of September 30, 2007 was 12.85%, including Tier-I capital adequacy of 7.78% and Tier-II capital adequacy of 5.07%. In accordance with RBI guidelines, the risk-weighted assets as of September 30, 2007 include home loans to individuals at a risk weightage of 50.0 to 75.0%, other consumer loans and capital market exposure at a risk weightage of 125.0%. Commercial real estate exposure and investments in venture capital funds have been considered at a risk weightage of 150.0%. The risk-weighted assets as of March 31, 2007 and September 30, 2007 also include the impact of capital requirement for market risk on the held for trading and available for sale portfolio of investments.

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The RBI issued guidelines in October 2005 permitting banks that have maintained capital of at least 9.0% of the risk-weighted assets for credit risk and market risk for held for trading and available for sale categories of investments to transfer the balance in the investment fluctuation reserve to statutory reserve, general reserve or balance of profit and loss account. Pursuant to the above, the entire balance in investment fluctuation reserve as of the year ended March 31, 2006, of Rs. 52.5 billion, was transferred to revenue and other reserves and considered as part of the Bank’s Tier I capital. Capital Expenditures The Bank’s capital expenditures primarily include expenditures for computer software and hardware, purchases of real estate properties for branches and offices and leasehold improvements. The following table sets forth significant capital expenditures for various fixed assets for the periods indicated:

For the year ended March 31

For the six month period ended September 30

2005 2006 2007 2007 (Rs. in millions) Computer hardware and software 3,498.3 4,465.1 1,611.2 1,917.6 Furniture and fixtures 1,800.0 1,860.0 1,630.0 N/A Construction projects 980.0 1,500.0 2,130.0 N/A Site preparation work for full computerisation, ATMs, etc. 610.0 340.0 290.0 N/A Note: N/A = Not Available Guarantees As a part of the Bank’s project financing and commercial banking activities, it has issued financial and performance guarantees to enhance the credit standing of its customers. Financial guarantees are obligations to pay a third party beneficiary where a customer fails to make payment towards a specified financial obligation. Performance guarantees are obligations to pay a third party beneficiary where a customer fails to perform a non-financial contractual obligation. The guarantees are generally for a period not exceeding ten years. The credit risks associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. The Bank has collateral available to reimburse potential losses on the guarantees. Cash collateral available to reimburse losses realised under guarantees amounted to Rs. 46.6 billion as of September 30, 2007, Rs. 38.9 billion as of September 30, 2006, Rs. 52.9 billion as of March 31, 2007 and Rs. 36.1 as of March 31, 2006. Other property or security may also be available as collateral to cover losses under guarantees. Consolidated Financial Statement Discussion The discussion set out below is based on the Group’s unaudited consolidated financial statements for the six-months ended September 30, 2006 and 2007 as well as the audited consolidated financial statements for the years ended March 31, 2005, 2006 and 2007. The consolidated financial statements for the year ended March 31, 2007 contain 21 subsidiaries, seven joint ventures and 27 associates, the financial statements for the year ended March 31, 2006 contain 21 subsidiaries, six joint ventures and 39 associates, and the financial statements for the year ended March 31, 2005 contain 16 subsidiaries, six joint ventures and 49 associates. Because the entities consolidated in the financial statements are not uniform over these three periods, the figures appearing against various items for these years are not strictly comparable. Consolidated Results for the Six-Months Ended September 30, 2006 Compared to the Six-Months Ended September 30, 2007 Interest Earned Interest earned increased by 32.8% to Rs. 333.6 billion in the six-months ended September 30, 2007 from Rs. 251.2 billion in the six-months ended September 30, 2006. This increase was primarily the result of a 45.2% increase in the interest earned on advances and bills to Rs. 242.5 billion in the six-months ended September 30, 2007 from Rs. 167 billion in the six-months ended September 30, 2006. This increase was

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attributable to an increase in the Group’s PLR during the period by 175 basis points as well as increases in the rates charged by the Group above the PLR on renewal of loans and new loans. The increase in interest earned was also the result of a 26.7% increase in the Group’s loan volume which was driven by continued growth in the Indian economy as well as increased marketing efforts. The increase in interest earned was also aided by a 8.6% increase in income earned on investments to Rs. 80.5 billion in the six-months ended September 30, 2007 from Rs. 74.1 billion in the six-months ended September 30, 2006 which was due to higher level of investments held by the Group during the period. Other Income Other income increased by 53.9% to Rs. 69.5 billion in the six-months ended September 30, 2007 from Rs. 45.2 billion in the six-months ended September 30, 2006. This increase was partially attributable to a growth of 79.0% in life insurance premiums earned amounting to Rs. 13.8 billion in the six-months ended September 30, 2007 as compared to Rs. 7.7 billion in the six-months ended September 30, 2006. Interest Expended Interest expended increased by 48.0% to Rs. 222.3 billion in the six-months ended September 30, 2007 from Rs. 150.2 billion in the six-months ended September 30, 2006. This increase in interest expended was primarily due to a 43.9% increase in interest paid on deposits amounting to Rs. 194.0 billion in the six-months ended September 30, 2007 from Rs. 134.8 billion in the six-months ended September 30, 2006. The increase on interest paid on deposits was caused by a 103 basis point increase on the cost of deposits as well as a 21.4% increase in the volume of deposits (primarily interest-bearing deposits) to Rs. 7,024.7 billion in the six-months ended September 30, 2007 from Rs. 5,785 billion in the six-months ended September 30, 2006. Interest expended in respect of interest on RBI and inter-bank borrowings also saw a 173.3% increase to Rs. 23.5 billion in the six-months ended September 30, 2007 from Rs. 8.6 billion in the six-months ended September 30, 2006. This increase was the result of greater borrowing needs as well as increased interest rates. As a result of the higher cost of funds due to increased interest rates and additional CRR requirements, the Group’s net interest margin decreased to 2.67% in the six-months ended September 30, 2007 as compared to 2.99% in the six-months ended September 30, 2006. Operating Expenses Operating expenses saw a modest increase of 21.4% to Rs. 108.8 billion in the six-months ended September 30, 2007 from Rs. 89.6 billion in the six-months ended September 30, 2006. This increase was primarily attributable to a 44.5% increase in other expenditures to Rs. 53.5 billion in the six-months ended September 30, 2007 from Rs. 37.0 billion in the six-months ended September 30, 2006. Other expenditures increased as a result of a 148.6% increase in changes in insurance policies liabilities to Rs. 18.4 billion in the six-months ended September 30, 2007 from Rs. 7.4 billion in the six-months ended September 30, 2006. This increase reflects the continued growth of the life insurance business. The Group also experienced a 5.1% increase in payments and provisions for employees to Rs. 55.3 billion in the six-months ended September 30, 2007 from Rs. 52.6 billion in the six-months ended September 30, 2006 which was (i) a result of employees taking advantages of the Bank’s Exit Option which was a voluntary early retirement scheme introduced by the Bank during the year ended March 31, 2007, which was extended to all the non-officer Bank employees during the period from September 1, 2006 to March 31, 2007, and (ii) an increase in the Bank and its associate Banks compensation level based on rising price levels in India. Provisions and Contingencies (excluding provisions for tax) The Group classifies its loans in accordance with RBI guidelines. Provisions and contingencies (excluding provisions for tax) decreased 25.2% to Rs. 7.2 billion in the six-months ended September 30, 2007 from Rs. 9.6 billion in the six-months ended September 30, 2006. This decrease in provisions and contingencies (excluding provisions for tax) was primarily due to a moderation of the Government securities yield in the one to five year range, where the Bank holds a high concentration. This change resulted in a decrease in provisions for depreciation on investments of 261.6% or Rs. 6.2 billion. The decrease was partially offset by a significant increase of 87% in NPA provisions in the six-months ended September 30, 2007 to Rs. 9.2 billion from Rs. 4.9 billion in the previous year.

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Tax Expense Total taxation expense increased by 26% to Rs. 23.5 billion in the six-months ended September 30, 2007 from Rs. 18.6 billion in the six-months ended September 30, 2006. Current income tax increased by 39.2% to Rs. 23.8 billion in the six-months ended September 30, 2007 as compared to 17.1 billion in the six-months ended September 30, 2006, primarily due to the Bank’s provisions for expenditure items where income tax levels are uncertain, reflecting an effective tax rate of 36.53% which was 254 basis points higher than the statutory tax rate of 33.99%. Net Profit As a result of the above, net profit increased by 48.7% to Rs. 40.1 billion in the six-months ended September 30, 2007 from Rs. 27.0 billion in the six-months ended September 30, 2006. Financial Condition Total assets amounted to Rs. 9,068.4 billion as on September 30, 2007 as compared to Rs. 7,613.2 billion as on September 30, 2006, an increase of 19.1%. Cash and balances with RBI increased 58.1% to Rs. 656.5 billion as on September 30, 2007 from Rs. 415.3 billion as on September 30, 2006. The primary reason for this increase was higher CRR balances held by the RBI due to an increase in deposits of 21.4% as on September 30, 2007 as well as a 200 basis point increase in the CRR to 7.0% in the six-months ended September 30, 2007 from 5.0% in the six-months ended September 30, 2006. Balances with banks and money at call and short notice decreased to Rs. 161.7 billion as on September 30, 2007 from Rs. 265.5 billion as on September 30, 2006. Advances for term loans increased 28.0% to Rs. 2,891.2 billion as on September 30, 2007 from Rs. 2,258.6 billion as on September 30, 2006 which was in line with the Group’s overall increase in business and was supported by continued growth in deposits. Investment in Government securities also increased 18.3% to Rs. 2,089.8 billion as on September 30, 2007 from Rs. 1765.9 billion as on September 30, 2006. The table below sets out the principal components of the Group’s assets as on the dates indicated. As on September 30, 2006 2007 % change (Rs. in millions, except percentages) Cash and balances with the RBI .......................... 415,321 656,516 58.1% Balance with banks and money at call and short notice ...................................................................

265,490 161,715 (39.9%)

Total Cash and cash equivalents ...................... 680,811 818,231 20.2% Government securities ......................................... 1,765,974 2,089,801 18.3% Other investments ................................................ 353,294 464,572 31.5% Total investments............................................... 2,119,268 2,554,373 20.5% Term loans ........................................................... 2,258,552 2,891,209 28.0% Other advances .................................................... 1,843,068 2,306,245 25.1% Total advances ................................................... 4,101,620 5,197,454 26.7% Fixed assets.......................................................... 39,917 44,826 12.3% Other assets.......................................................... 671,595 453,595 (32.5%) Total assets ......................................................... 7,613,211 9,068,479 19.1% Total liabilities and shareholders’ funds amounted to Rs. 9,068.5 billion as on September 30, 2007 as compared to Rs. 7,613.2 billion as on September 30, 2006, an increase of 19.1%. Capital remained unchanged over the period, while reserves and surplus increased 16.1% to Rs. 457.7 billion as on September 30, 2007 from Rs. 394.4 billion as on September 30, 2006. The increase in reserves was primarily attributable to the retention of Rs. 66.3 billion out of the Rs. 76.8 billion, or 86.4%, of net income earned in the period. Borrowings increased 42.2% to Rs. 568.6 billion as on September 30, 2007 from Rs. 400.0 billion as on September 30, 2006. The increase in the Group’s borrowings was primarily attributable to the Group’s domestic and international capital markets fundraising activities.

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The table below sets out the principal components of the Group’s shareholders’ funds and liabilities as on the dates indicated. As on September 30, 2006 2007 % change (Rs. in millions, except percentages) Capital .......................................................................................... 5,263 5,263 0.0% Reserves and surplus .................................................................... 394,389 457,724 16.1% Total shareholders’ funds .......................................................... 399,652 462,987 15.8% Minority interest 15,517 18,418 18.7% Deposits ........................................................................................ 5,784,943 7,024,773 21.4% Borrowings ................................................................................... 399,951 568,595 42.2% Other liabilities and provisions ..................................................... 1,013,148 993,706 (1.9%) Total liabilities and shareholders’ funds .................................. 7,613,211 9,068,479 19.1% Consolidated Results for the Year Ended March 31, 2006 Compared to the Year Ended March 31, 2007 Interest Earned Interest earned increased by 14.7% to Rs. 572.4 billion in the year ended March 31, 2007 from Rs. 498.9 billion in the year ended March 31, 2006. This increase was primarily the result of a 42.2% increase in the interest earned on advances and bills to Rs. 368.3 billion in the year ended March 31, 2007 from Rs. 259 billion in the year ended March 31, 2006. This increase was primarily the result of a 200 basis point increase in the prime lending rate. This increase was partially offset by the 12.9% decrease in income earned on investments to Rs. 168.3 billion in the year ended March 31, 2007 from Rs. 193.1 billion in the year ended March 31, 2006, which was the result of a decreasing yield on investments due to higher CRR requirements as well as a portion of the Group’s higher yielding bonds reaching maturity. Also offsetting the increase in interest earned was a 79.6% decrease in other interest earned to Rs. 4.6 billion in the year ended March 31, 2007 from Rs. 22.4 billion in the year ended March 31, 2006. This decrease in other interest earned was primarily caused by interest on income tax refund of Rs. 17 billion realised in 2006. Other Income Other income remained relatively unchanged at Rs. 111.4 billion in the year ended March 31, 2007 from Rs. 111.7 billion in the year ended March 31, 2006. This slight decrease was primarily attributable to the loss on revaluation of investments of Rs. 23.0 billion in the year ended March 31, 2007 compared to a profit of Rs. 0.2 billion in the year ended March 31, 2006. The loss on revaluation of investments in the year ended March 31, 2007 was related to an RBI-mandated accounting change in the Group’s amortisation policy for held to maturity investments. In addition, the Group saw a 51.9% decrease in the profit on exchange transactions to Rs. 5.9 billion in the year ended March 31, 2007 from Rs. 12.1 billion in the year ended March 31, 2006. This decrease was partially offset by a 24.8% increase in exchange and brokerage commission to Rs. 66.6 billion in the year ended March 31, 2007 from Rs. 53.4 billion in the year ended March 31, 2006, as well as a 172.4% increase in life insurance premiums to Rs. 29.2 billion in the year ended March 31, 2007 from Rs. 10.7 billion in the year ended March 31, 2006. The increase in life insurance premiums was principally the result of the Group’s strategy to grow its life insurance business. Interest Expended Interest expended increased 20.9% to Rs. 339.8 billion in the year ended March 31, 2007 from Rs. 281.0 billion in the year ended March 31, 2006. This increase in interest expended was primarily due to a 13.5% increase in interest on deposit to Rs. 287.9 billion in the year ended March 31, 2007 from Rs. 253.7 billion in the year ended March 31, 2006 as a result of an increase in the Group’s overall deposits partially offset by an expansion of lower cost current and savings account deposits as well as interest rate reversions over the period. Interest expended in respect of interest on RBI and inter-bank borrowings also saw a 49.0% increase to Rs. 22.3 billion in the year ended March 31, 2007 from Rs. 15 billion in the year ended March 31, 2006 as a result of the Group’s greater borrowing needs. Other interest expended also increased 139.1% to Rs. 29.7 billion in the year

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ended March 31, 2007 from Rs. 12.4 billion in the year ended March 31, 2006. The increase in other interest expended was primarily due to interest paid on Tier I and Tier II capital bonds. Operating Expenses Operating expenses saw an increase of 13.6% to Rs. 200.0 billion in the year ended March 31, 2007 from Rs. 176.0 billion in the year ended March 31, 2006. This increase was primarily attributable to a 142.9% increase in expenses relating to the life insurance business to Rs. 28.4 billion in the year ended March 31, 2007 from Rs. 11.7 billion in the year ended March 31, 2006. This increase was the result of expenses related to strong growth in the life insurance business. Indian accounting standards require that customer acquisition expenses be recognised in the year the policy was sold. Other expenditures also increased 37.9% to Rs. 27.6 billion in the year ended March 31, 2007 from Rs. 20 billion in the year ended March 31, 2006 . Rent, taxes and lighting saw an increase of 13.5% to Rs. 12.7 billion in the year ended March 31, 2007 from Rs. 11.2 billion in the year ended March 31, 2006. This increase reflects the overall growth of the Group’s branch and office facilities over the period. Payments and provisions for employees also decreased 1.5% to Rs. 106 billion in the year ended March 31, 2007 from Rs. 107.6 billion in the year ended March 31, 2006. The principal cause for this decrease was more than 8,000 employees opting for the voluntary Exit Option introduced by the Bank for its employees. Provisions and Contingencies (excluding provisions for tax) Provisions and contingencies (excluding provisions for tax) decreased 44.1% to Rs. 36.2 billion in the year ended March 31, 2007 from Rs. 64.7 billion in the year ended March 31, 2006. This decrease in provisions and contingencies (excluding provisions for tax) was primarily attributable to an RBI-mandated change in accounting policies whereby amortisation and redemption on held to maturity investments must now be accounted for as an operating expense instead of as an adjustment to the Provision and Contingencies account. This accounting change resulted in a decrease in provisions for depreciation on investments of 85.0%, or Rs. 47.1 billion. This decrease was partially offset by an increase in NPA provisions in the year ended March 31, 2007 to Rs. 17.8 billion from Rs. 4.1 billion in the year ended March 31, 2006. The lower amount of NPA provisions during the year ended March 31, 2006 was on account of the write back or provisions, which was not available in the year ended March 31, 2007 Tax Expense Total taxation expense increased by 28.7% to Rs. 41.6 billion in the year ended March 31, 2007 as compared to Rs. 32.3 billion in the year ended March 31, 2006. Current income tax increased by 95.6% to Rs. 41.1 billion in the year ended March 31, 2007 as compared to Rs. 21.0 billion in the year ended March 31, 2006, primarily due to the Bank’s provisions for expenditure items where income tax levels are uncertain, reflecting an effective tax rate of 38.31% which was 465 basis points higher the statutory tax rate of 33.66%. Net Profit As a result of the above, net profit after tax increased by 15.1% to Rs. 63.6 billion in the year ended March 31, 2007 from Rs. 55.3 billion in the year ended March 31, 2006. Financial Condition Total Group assets amounted to Rs. 8,151.8 billion as on March 31, 2007 compared to Rs. 6,969.9 billion as on March 31, 2006, an increase of 17.0%. Cash and balances with the RBI increased 44.8% to Rs. 450.7 billion as on March 31, 2007 from Rs. 311.3 billion as on March 31, 2006. The primary reason for this increase was a 1.5% statutory increase in CRR held by the RBI from 5.0% in the year ended March 31, 2006 to 6.5% in the year ended March 31, 2007. Balances with banks and money at call and short notice saw a slight increase to Rs. 274.1 billion as on March 31, 2007 from Rs. 262.1 billion as on March 31, 2006. Advances for term loans increased 32.4% to Rs. 2,663.3 billion as on March 31, 2007 from Rs. 2,011.8 billion as on March 31, 2006. This increase was in line with the Group’s overall increase in business and was supported by a strong growth in deposits. These increases were partially offset by an 8.1% decrease in government securities to Rs. 1,802.4 billion as on March 31, 2007 from Rs. 1,961.4 billion as on March 31, 2006.

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The table below sets out the principal components of the Group’s assets as on the dates indicated. As on March 31, 2006 2007 % change (Rs. in millions, except percentages) Cash and balances with the RBI ................................................ 311,288 450,661 44.8% Balance with banks and money at call and short notice 262,077 274,108 4.6% Total Cash and cash equivalents ............................................ 573,365 724,769 26.4% Government securities ............................................................... 1,961,420 1,802,448 (8.1%) Other investments ...................................................................... 317,891 362,762 14.1% Total investments..................................................................... 2,279,311 2,165,210 (5.0%) Term loans ................................................................................. 2,011,797 2,663,290 32.4% Other advances .......................................................................... 1,732,965 2,209,570 27.5% Total advances ......................................................................... 3,744,762 4,872,860 30.1% Fixed assets................................................................................ 39,563 39,994 1.1% Other assets................................................................................ 332,917 348,911 4.8% Total assets ............................................................................... 6,969,918 8,151,744 17.0% Total liabilities and shareholders’ funds amounted to Rs. 8,151.7 billion as on March 31, 2007 compared to Rs. 6,969.9 billion as on March 31, 2006, an increase of 17.0%. Capital remained unchanged over the period, while reserves and surplus increased 14.5% to Rs. 420.1 billion as on March 31, 2007 from Rs. 366.8 billion as on March 31, 2006. The increase in reserves was primarily attributable to the retention of Rs. 53.7 billion out of the Rs. 63.6 billion, or 84.3%, of net income earned in the period. The minority interest increased 18.2% to Rs. 16.9 billion as on March 31, 2007 from Rs. 14.3 billion as on March 31, 2006. Deposits increased 17.0% to Rs. 6,362.7 billion as on March 31, 2007 from Rs. 5,440.2 billion as on March 31, 2006 as a result of a 17.1% increase in demand deposits over the period caused by the Group’s marketing efforts aimed at increasing non-interest bearing accounts. Borrowings increased 31.6% to Rs. 486.6 billion as on March 31, 2007 from Rs. 369.7 billion as on March 31, 2006. The increase in the Group’s borrowings was primarily attributable to the Group’s domestic and international capital markets fundraising activities. Other liabilities and provisions increased 11.2% to Rs. 860.1 billion as on March 31, 2007 from Rs. 773.6 billion as on March 31, 2006, as a result of an overall increase in the Group’s business. The table below sets out the principal components of the Group’s shareholders’ funds and liabilities as on the dates indicated. As on March 31, 2006 2007 % change (Rs. in millions, except percentages) Capital .......................................................................................... 5,263 5,263 0.0% Reserves and surplus .................................................................... 366,804 420,094 14.5% Total shareholders’ funds .......................................................... 372,067 425,357 14.3% Minority interest 14,303 16,899 18.2% Deposits ........................................................................................ 5,440,243 6,362,729 17.0% Borrowings ................................................................................... 369,749 486,618 31.6% Other liabilities and provisions ..................................................... 773,556 860,141 11.2% Total liabilities and shareholders’ funds .................................. 6,969,918 8,151,744 17.0% Consolidated Results for the Year Ended March 31, 2005 Compared to the Year Ended March 31, 2006 In accordance with RBI guidelines, as well as recommendations of its statutory auditors, the Group made certain changes to its accounting policies in the year ended March 31, 2007. The figures contained in this Letter of Offer relating to the year ended March 31, 2006 have been regrouped to reflect these changes. The figures relating to the year ended March 31, 2005, however, have not been regrouped. Because of this, investors should be aware that the line items relating to Advances, Investments, Other Liabilities and Provisions, Other Income as well as Provisions and Contingencies from the years ended March 31, 2006 and 2007 are not strictly

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comparable to those items in the year ended March 31, 2005. For a more detailed discussion of these changes, see “— Changes in Accounting Policies.” Interest Earned Interest earned increased by 12.1% to Rs. 498.9 billion in the year ended March 31, 2006 from Rs. 445.0 billion in the year ended March 31, 2005. This increase was primarily the result of a 35.0% increase in the interest earned on advances and bills to Rs. 259 billion in the year ended March 31, 2006 from Rs. 191.8 billion in the year ended March 31, 2005 which was primarily the result of credit growth. In addition, the Group saw a 20.7% increase from interest earned on balances with the RBI and other inter-bank funds to Rs. 24.4 billion in the year ended March 31, 2006 from Rs. 20.2 billion in the year ended March 31, 2005 caused by a greater amount of interest received on higher CRR balances. These increases were partially offset by the 10.3% decrease in income earned on investments to Rs. 193.1 billion in the year ended March 31, 2006 from Rs. 215.3 billion in the year ended March 31, 2005. The decrease in income earned on investments in the year ended March 31, 2006 was related to a fall in the Group’s overall investment portfolio as a result of the maturing of higher yielding investments. Other Income Other income increased to Rs. 111.7 billion in the year ended March 31, 2006 from Rs. 100.4 billion in the year ended March 31, 2005. This increase was partially due to an increase in profit on exchange transactions to Rs. 12.2 billion in the year ended March 31, 2006 from Rs. 7.2 billion in the year ended March 31, 2005 which was a result of the redemption of Indian Millennium Deposits. In addition, income from life insurance premiums increased to Rs. 10.7 billion in the year ended March 31, 2006 from Rs. 6 billion in the year ended March 31, 2005. The increase in life insurance premiums was commensurate with the overall growth of the life insurance business. Miscellaneous income also increased to Rs. 20.5 billion in the year ended March 31, 2006 from Rs. 10.7 billion in the year ended March 31, 2005. Contributing factors to this increase were a higher recovery amount from written-off loan accounts as well as a one-time recognition of non-reconciled net-credit entries held on the Bank’s inter-office accounts up to March 31,1999. These increases were partially offset by a Rs. 13.2 billion decrease in profits on the sale of investments to Rs. 11.5 billion in the year ended March 31, 2006 from Rs. 24.7 billion in the year ended March 31, 2005. Increasing yields on investments in the year ended March 31, 2006 resulted in a decrease in the profit on the sale of such investments. Interest Expended Interest expended increased 12.9% to Rs. 281.0 billion in the year ended March 31, 2006 from Rs. 248.9 billion in the year ended March 31, 2005. This increase in interest expended was primarily due to an 8.8% increase in interest on deposits to Rs. 253.7 billion in the year ended March 31, 2006 from Rs. 233.2 billion in the year ended March 31, 2005 as a result of the strong growth of the Group’s deposits over the period. Interest expended in respect of interest on RBI and inter-bank borrowings also saw a 180.4% increase to Rs. 15 billion in the year ended March 31, 2006 from Rs. 5.3 billion in the year ended March 31, 2005. This increase was related to interest paid on domestic and Medium Term Note Programme borrowing used to increase the Group’s capital adequacy. Other interest expended increased 20.1% to Rs. 12.4 billion in the year ended March 31, 2006 from Rs. 10.3 billion in the year ended March 31, 2005, primarily as a result of interest paid on Tier I and Tier II capital bonds. Operating Expenses Operating expenses saw an increase of 21.9% to Rs. 176.0 billion in the year ended March 31, 2006 from Rs. 144.4 billion in the year ended March 31, 2005. This increase was primarily attributable to a 12.2% increase in rent, taxes and lighting to Rs. 11.2 billion in the year ended March 31, 2006 from Rs. 10 billion in the year ended March 31, 2005. This increase is commensurate with the Group’s overall increase in business during the period. Operating expenses relating to credit card operations and the life insurance business recorded a sharp increase of 121.5% to Rs. 13.1 billion in the year ended March 31, 2006 from Rs. 5.9 billion in the year ended March 31, 2005. This increase is in line with the level of these operations. Payments and provisions for employees also increased 24.7% to Rs. 107.6 billion in the year ended March 31, 2006 from Rs. 86.3 billion in the year ended March 31, 2005. This increase is mainly due to a payment of wage revision arrears and an increased contribution to superannuation benefits.

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Provisions and Contingencies (excluding provisions for tax) Provisions and contingencies (excluding provisions for tax) decreased to Rs. 64.7 billion in the year ended March 31, 2006 from Rs. 69.7 billion in the year ended March 31, 2005. This modest decrease in provisions and contingencies was partially attributable to a decrease in provision for NPAs (including write-backs) and non-creation of an ad-hoc provision for wage revision as a settlement regarding wage revision was reached during the year ended March 31, 2006. Tax Expense Total taxation expense increased by 22.7% to Rs. 32.3 billion in the year ended March 31, 2006 as compared to Rs. 26.3 billion in the year ended March 31, 2005. Current income tax decreased by 24.8% to Rs. 21.0 billion in the year ended March 31, 2006 as compared to Rs. 27.9 billion in the year March 31, 2005, primarily due to the provisions made towards wages in arrears in earlier years, where they were allowed as a deduction from taxable income during the year ended March 31, 2006. This resulted in an effective tax rate of 27.07% which was 659 basis points lower than the statutory tax rate of 33.66%. Net Profit As a result of the above, net profit after tax increased 1.2% to Rs. 55.3 billion in the year ended March 31, 2006 from Rs. 54.6 billion in the year ended March 31, 2005. Financial Condition Total assets amounted to Rs. 6,969.9 billion as on March 31, 2006 compared to Rs. 6,285.7 billion as on March 31, 2005, an increase of 10.9%. Cash and balances with RBI increased 21.5% to Rs. 311.3 billion as on March 31, 2006 from Rs. 256.2 billion as on March 31, 2005, primarily due to higher CRR balances as a result of an increase in deposits. Balance with banks and money at call and short notice saw a modest increase of 3.4% to Rs. 262.1 billion as on March 31, 2006 from Rs. 253.4 billion as on March 31, 2005. Advances for term loans increased 34.6% to Rs. 2,011.8 billion as on March 31, 2006 from Rs. 1,494.6 billion as on March 31, 2005. This increase in term loans was consistent with the Group’s overall loan growth. These increases were partially offset by a 15.8% decrease in government securities to Rs. 1,961.4 billion as on March 31, 2006 from Rs. 2,330.5 billion as on March 31, 2005 as a result of the winding-down of the investment book to fund loan growth as well as the redemption of India Millennium Deposits. The table below sets out the principal components of the Group’s assets as on the dates indicated. As on March 31, 2005 2006 % change (Rs. in millions, except percentages) Cash and balances with the RBI ................................................ 256,158 311,288 21.5% Balance with banks and money at call and short notice ............ 253,412 262,077 3.4% Total Cash and cash equivalents ............................................ 509,570 573,365 12.5% Government securities ............................................................... 2,330,503 1,961,420 (15.8%) Other investments ...................................................................... 289,117 317,891 10.0% Total investments..................................................................... 2,619,620 2,279,311 (13.0%) Term loans ................................................................................. 1,494,650 2,011,797 34.6% Other advances .......................................................................... 1,375,216 1,732,965 26.0% Total advances ......................................................................... 2,869,866 3,744,762 30.5% Fixed assets................................................................................ 35,736 39,563 10.7% Other assets................................................................................ 250,984 332,917 32.6% Total assets ............................................................................... 6,285,776 6,969,918 10.9% Total liabilities and shareholders’ funds amounted to Rs. 6,969.9 billion as on March 31, 2006 compared to Rs. 6,285.7 billion as on March 31, 2005, an increase of 10.9%. Capital remained unchanged over the period, while reserves and surplus increased 14.5% to Rs. 366.8 billion as on March 31, 2006 from Rs. 320.2

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billion as on March 31, 2005. The increase in reserves was primarily attributable to the retention of Rs. 46.3 billion out of the Rs. 55.3 billion, or 83.7%, of net income earned in the period. Deposits increased 7.5% to Rs. 5,440.2 billion as on March 31, 2006 from Rs. 5,061.1 billion as on March 31, 2005 as a result of a 20.3% increase in demand deposits over the period partially offset by the repayment of Indian Millennium Deposits during the year ended March 31, 2006. Borrowings increased 61.3% to Rs. 369.8 billion as on March 31, 2006 from Rs. 229.3 billion as on March 31, 2005, primarily as a result of the Group’s domestic and international capital fundraising activities. Other liabilities and provisions increased 17.8% to Rs. 773.5 billion as on March 31, 2006 from Rs. 656.9 billion as on March 31, 2005. The increase was primarily a result of an 81.3% increase in bills payable. The table below sets out the principal components of the Group’s shareholders’ funds and liabilities as on the dates indicated. As on March 31, 2005 2006 % change (Rs. in millions, except percentages) Capital .............................................................................................. 5,263 5,263 0.0% Reserves and surplus ........................................................................ 320,255 366,804 14.5% Total shareholders’ funds .............................................................. 325,518 372,067 14.3% Minority interest 13,041 14,303 9.7% Deposits ............................................................................................ 5,061,053 5,440,243 7.5% Borrowings ....................................................................................... 229,295 369,749 61.3% Other liabilities and provisions ......................................................... 656,869 773,556 17.8% Total liabilities and shareholders’ funds ...................................... 6,285,776 6,969,918 10.9% Liquidity The following table sets forth the Group’s consolidated statement of cash flows for the years ended March 31, 2005, 2006 and 2007 and the six-month periods ended September 30, 2006 and 2007: Year ended March 31, Six-months ended September 30,

2005 2006 2007 2006 2007)

(Rs. in millions) Net cash (used in)/from operating activities ................... 6,698 55,432 50,816 62,283 43,650 Net cash (used in)/from investing activities ................... (11,629) (18,256) (9,654) (5,792) (8,841) Net cash (used in)/from financing activities ................... (4,347) 26,372 110,629 49,851 61,060 Exchange Fluctuation Cash Flow ................................... 3,210 247 (387) 1,104 (2,407) Cash & equivalents, beginning of period........................ 515,638 509,570 573,365 573,365 724,769 Cash & equivalents, end of period 509,570 573,365 724,769 680,811 818,231 Cash Flows from Operating Activities The Group recorded a net cash inflow from operating activities of Rs. 43.7 billion in the six-months ended September 30, 2007. The primary reasons for the increase in cash flow for the period was a Rs. 662.0 billion increase in deposits, Rs. 139.0 billion of which was attributable to the Associate Banks, as well as a Rs. 82 billion increase in borrowings, Rs. 28.9 billion of which was on account of the Associate Banks. These increases in cash flow were partially offset by a Rs. 333.8 billion increase in advances, Rs. 103.5 billion of which was attributable to the Associate Banks, as well as a Rs. 385.5 billion increase in investments, Rs. 54.4 billion, of which was attributable to the Associate Banks. The Group recorded a net cash inflow from operating activities of Rs. 62.3 billion in the six-months ended September 30, 2006. The primary reasons for the increase in cash flow for the period was a Rs. 344.7 billion increase in deposits, Rs. 140.2 billion of which was attributable to the Associate Banks, a Rs. 30.2 billion increase in borrowings, Rs. 7.2 billion of which was attributable to the Associate Banks, as well as a Rs. 157.6 billion cash inflow from the liquidation of investments relating to the sale of Government securities. These increases in cash flow were partially offset by a Rs. 361.7 billion increase in advances, Rs. 122.6 billion of which was attributable to the Associate Banks.

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The Group recorded a net cash inflow from operating activities of Rs. 50.8 billion in the year ended March 31, 2007. The primary reasons for the increase in cash flow for the period was an increase in deposits to Rs. 922.5 billion as well as a Rs. 94.3 billion decrease in investments. The increase in deposits was a result of an increase in deposits at the Bank, as well as the Associate Banks, driven by higher interest rates provided by those banks. These increases in cash flow were partially offset by an increase in advances to Rs. 1,145.9 billion which is commensurate with the Group’s strategy of increasing and diversifying its loan portfolio. The Group recorded a net cash inflow from operating activities of Rs. 55.4 billion in the year ended March 31, 2006. The primary reasons for this increase in cash flow were a Rs. 379.1 billion increase in deposits and a Rs. 299.6 billion decrease in investments. Cash used in operations was primarily to fund the Group’s expanding loan portfolio resulting in an outflow of Rs. 877.4 billion for advances. The Group recorded a net cash inflow from operating activities of Rs. 6.7 billion in the year ended March 31, 2005. Cash was used during the period primarily to fund new loans, causing an increase in advances of Rs. 657.2 billion. A significant source of cash for the period came from a Rs. 706.7 billion increase in deposits. Cash Flows from Investing Activities The Group recorded a net cash outflow from investing activities of Rs. 8.8 billion in the six-months ended September 30, 2007. The primary reason for the cash outflow for the period was an increase in fixed assets of Rs. 9.6 billion. The increase in cash outflow was partially offset by income earned on investments in joint ventures and subsidiaries of Rs. 0.5 billion. The Group recorded a net cash outflow from investing activities of Rs. 5.8 billion in the six-months ended September 30, 2006. The primary reason for the increase in cash outflow for the period was a Rs. 5.8 billion increase in fixed assets. The Group recorded a net cash outflow from investing activities of Rs. 9.7 billion in the year ended March 31, 2007. The cash was used primarily to fund an increase of fixed assets by Rs. 9.8 billion. The Group also increased its investment in joint ventures and associates by Rs. 1.8 billion. These figures were partially offset by an increase in income earned from the joint ventures and associates of Rs. 2 billion. The Group recorded a net cash outflow from investing activities of Rs. 18.2 billion in the year ended March 31, 2006. This outflow was primarily attributable to an increase of Rs. 15.1 billion in fixed assets. The Group also saw a Rs. 3 billion increase in cash used to invest in joint ventures and associates. The Group recorded a net cash outflow from investing activities of Rs. 11.6 billion in the year ended March 31, 2005. The cash was primarily used to fund a Rs. 11.6 billion increase in fixed assets. Cash Flows from Financing Activities The Group recorded a net cash inflow from financing activities of Rs. 61.1 billion in the six-months ended September 30, 2007. The primary reason for the increase in cash flow for the period was the issuance of domestic capital bonds in the amount of Rs. 79.4 billion. These increases in cash flow were partially offset by Rs. 9.8 billion in interest payments on capital bonds as well as a Rs. 8.6 billion dividend paid by the Group to its shareholders. The Group recorded a net cash inflow from financing activities of Rs. 49.9 billion in the six-months ended September 30, 2006. The primary reason for the increase in cash flow for the period was the issuance of domestic capital bonds in the amount of Rs. 62.4 billion. These increases in cash flow were partially offset by a dividend of Rs. 8.4 billion paid by the Group to its shareholders as well as Rs. 4.2 billion in interest payments on capital bonds. Net cash inflow on financing activities was Rs. 110.6 billion in the year ended March 31, 2007. The inflow was primarily due to the issuance of Rs. 134.1 billion worth of capital bonds. This was partially offset by repayment of capital bonds up to an amount of Rs. 2.8 billion and interest payments on capital bonds in the amount of Rs. 12.2 billion as well as a Rs. 8.4 billion dividend paid by the Group to its shareholders.

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Net cash inflow on financing activities was Rs. 26.4 billion in the year ended March 31, 2006. The cash inflow for the period was a result of a Rs. 59.2 billion issuance of domestic subordinated debt. This was partially offset by the repayment of existing subordinated debt in the amount of Rs. 19.4 billion as well as a Rs. 7.5 billion dividend paid by the Group to its shareholders. Net cash outflow on financing activities was Rs. 4.3 billion in the year ended March 31, 2005. The outflow was primarily attributable to Rs. 6.5 billion for dividends paid by the Group to its shareholders and Rs. 5.0 billion in interest payments on capital bonds. Off Balance Sheet Items The table below sets forth, for the periods indicated, the principal components of the Group’s consolidated contingent liabilities. As on March 31, As on September 30, 2005 2006 2007 2006 2007 (Rs. in billions) Contingent liabilities Claims against Group not acknowledged as debts........................... 10.0 18.9 40.5 1.8 7.4 Liability for partly paid investments ............................................ 0.6 0.4 1.1 0.01 1.1 Liability on account of outstanding

forward exchange contracts.................... 1,212.1 1,836.0 2,587.4 1,879.4 2,565.8 Guarantees given on behalf of customers ............................................... 233.9 325.5 467.5 418.0 560.7 Acceptances, endorsements & other obligations .................................... 352.7 449.5 586.1 619.7 771.3 Other items for which Group is contingently liable ................................. 208.2 300.5 231.8 646.8 6,824.9 Total ........................................................ 2,017.5 2,930.8 3,914.4 3,565.7 10,731.2 Contingent liabilities increased by 201.0% or Rs. 7,165.5 billion to Rs. 10,731.2 billion at September 30, 2007 from Rs. 3,565.7 billion at September 30, 2006, primarily due to a 955.2% increase in other items for which the Group is contingently liable as a result of a significant increase in the number of derivative transactions for customers as well as for its proprietary account. Contingent liabilities increased by 33.6%, or Rs 983.6 billion, to Rs 3,914.4 billion in the year ended March 31, 2007 from Rs. 2,930.8 billion in the year ended March 31, 2006, primarily due to a 40.9% increase in liability on account of outstanding forward exchange contracts and 43.6% increase in guarantees given on behalf of constituents. The 45.3% increase in contingent liabilities to Rs. 2,930.8 billion at year ended March 31, 2006 from Rs. 2,017.5 billion at the year ended March 31, 2005 was primarily due to a 51.5% increase in liability on account of outstanding forward exchange contracts as well as a 39.2% increase in guarantees given on behalf of constituents. Capital Resources The following table sets forth the Group’s consolidated risk-based capital, risk-weighted assets and risk-based capital adequacy ratios computed in accordance with the applicable RBI guidelines and as reported to the RBI. As of March 31, As of September 30,

2005 2006 2007 2006 2007

(Rs. in billions, except percentages) Tier I capital ............................................................... 261.7 372.0 435.1 372.1 489.5 Tier II capital .............................................................. 113.1 117.0 232.6 172.4 299.8 Total qualifying capital ............................................ 374.8 489.0 667.7 544.5 789.4 Total risk-weighted assets and contingents ............ 2,867.8 3,896.5 5,402.0 4,476.0 6,149.0

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Capital adequacy ratios: Tier I capital adequacy ratio ....................................... 9.13% 9.55% 8.05% 8.31% 7.96% Tier II capital adequacy ratio...................................... 3.94% 3.00% 4.31% 3.85% 4.88% Total capital adequacy ratio .................................... 13.07% 12.55% 12.36% 12.16% 12.84% Minimum Tier I ratio required by RBI 4.50% 4.50% 4.50% 4.50% 4.50% Minimum capital adequacy ratios required by RBI.... 9.00% 9.00% 9.00% 9.00% 9.00% The Group’s total capital adequacy at September 30, 2007 was 12.84%, including Tier I capital adequacy of 7.96% and Tier II capital adequacy of 4.88%. In accordance with the RBI guidelines, the risk-weighted assets at September 30, 2007 include home loans to individuals at a risk weightage of 50.0 to 75.0%, other consumer loans and capital market exposure at a risk weightage of 125.0%. Commercial real estate exposure and investments in venture capital funds have been considered at a risk weightage of 150.0%. The risk-weighted assets at March 31, 2007 and September 30, 2007 also include the impact of capital requirement for market risk on the held for trading and available for sale portfolio. Critical Accounting Policies The Bank and the Group’s Associate Banks operate in a highly regulated industry. The RBI mandates nearly all accounting policies for Indian banks. Because of this, management believes that it does not have the scope to materially affect the Bank’s or the Group’s results of operations through estimates or judgments in the application of its policies. A discussion of the Bank’s and the Group’s principal accounting policies can be found in Schedule 17 of their respective audited financial statements. Changes in Accounting Policies In 2007, the Group made certain changes to its principal accounting policies as per the direction of the RBI as well as recommendations from its statutory auditors. As a result, the Group’s annual financial statements for the year ended March 31, 2006 have been regrouped to reflect these changes. The year ended March 31, 2005, however, was not regrouped to reflect the changes in accounting policies and investors should note that the Group’s 2005 annual financial statements are not strictly comparable to the years ended March 31, 2006 and 2007. For further information regarding changes in the Group’s accounting policies, investors should see “Note on Reformatting and Regrouping” contained in the audited consolidated financial statements for the year ended March 31, 2007. Investments The Group had previously followed a policy of amortizing the premium for securities deemed “held to maturity” as an adjustment to the “Provision and Contingencies” account. The Group has since changed this policy by charging the amortisation amount as well as marked to market losses on transfer of securities from the “available for sale” to “held to maturity” category as a deduction to the “Profit on Revaluation of Investments” under the “Other Income” account. While this adjustment may cause particular line items to not be strictly comparable, there is no impact on net profit for the year. Advances The provision for restructured standard asset has been retained as a provision during the year ended March 31, 2007. This is a change from the previous policy of netting the provision off against “advances.” In addition, claims received under the Deposit Insurance and Credit Guarantee Corporation and Export Credit Guarantee Corporation have been netted off against “advances” during the year ended March 31, 2007. This is a change from the previous policy of retaining these items as a liability. As a result of these policy changes, the provision for “advances” has been regrouped for the year ended March 31, 2006. Other Liabilities and Provisions The figures contained in “Other Liabilities and Provisions” have been altered to reflect the corresponding changes in the way the Group now accounts for its advances. In addition, the “Profit and Loss” account has been aligned per the corresponding items in “assets” and “liabilities” in the balance sheet for the

269

year ended March 31, 2007. Because of these changes, the balance sheet as well as the cash flow statement figures for the year ended March 31, 2006 were regrouped.

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MATERIAL DEVELOPMENTS

State Bank of India filed its limited review financial results for the nine months ended December 31, 2007 with the Stock Exchanges in accordance with Clause 41 of the Listing Agreement:

UNAUDITED FINANCIAL RESULTS FOR THE PERIOD ENDED DECEMBER 31, 2007

(Rs.in crores) State Bank of India State Bank of India (Consolidated)

Quarter ended 9-month period ended Quarter ended 9-month period ended Particulars

31.12.2007 (Reviewed)

31.12.2006 (Reviewed)

31.12.2007 (Reviewed)

31.12.2006 (Reviewed)

Year ended 31.03.2007 (Audited)

31.12.2007 (Reviewed)

31.12.2006 (Reviewed)

31.12.2007 (Reviewed)

31.12.2006 (Reviewed)

Year ended 31.03.2007 (Audited)

1. Interest Earned (a) + (b) + (c) + (d) 12666.81 9446.36 35373.58 26724.60 38454.23 18434.51 13731.71 51792.81 38849.26 55575.35(a) Interest/discount on advances / bills 9271.05 6413.55 25624.64 17782.61 24839.18 13611.15 9445.46 37858.26 26141.03 36832.81(b) Income on Investments 3271.11 2329.24 8732.40 7404.52 10456.19 4648.15 3495.18 12699.82 10902.27 15163.71(c) Interest on balances with Reserve Bank of India

and other inter bank funds 92.61 628.74 981.28 1458.91 2719.61 154.04 700.13 1171.65 1709.89 3122.94

(d) Others 32.04 74.83 35.26 78.56 439.25 21.17 90.94 63.08 96.07 455.892. Other Income 2697.19 1822.02 5877.73 4347.88 6806.05 5946.48 3313.42 12894.98 7828.63 12801.483. TOTAL INCOME (1+2) 15364.00 11268.38 41251.31 31072.48 45260.28 24380.99 17045.13 64687.79 46677.89 68376.834. Interest Expended 8410.45 6007.20 23152.94 16213.11 23436.82 12535.31 8718.92 34765.91 23735.60 33982.755. Operating Expenses (i) + (ii) 3293.81 2911.48 9363.95 8591.52 11823.52 6919.83 4855.57 17801.11 13818.41 20001.78

(i) Employee cost 2194.68 2029.71 6216.27 5908.71 7932.58 2963.40 2734.35 8493.93 7994.55 10597.46(ii) Other Operating Expenses 1099.13 881.77 3147.68 2682.81 3890.94 3956.43 2121.22 9307.18 5823.86 9404.32

6. TOTAL EXPENDITURE (4) + (5) (excluding Provisions and Contingencies)

11704.26 8918.68 32516.89 24804.63 35260.34 19455.14 13574.49 52567.02 37554.01 53984.53

7. OPERATING PROFIT (3 - 6) (before Provisions and Contingencies)

3659.74 2349.70 8734.42 6267.85 9999.94 4925.85 3470.64 12120.77 9123.88 14392.30

8. Provisions (other than tax) and Contingencies (net of write-back)

804.43 661.43 1049.51 1233.87 2409.64 1131.66 964.54 1852.64 1922.71 3580.16

- of which provisions for Non-performing assets 444.12 698.26 933.96 698.26 1429.50 678.00 519.81 1595.26 1005.43 1775.899. Exceptional Items 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0010. Profit from Ordinary Activities before tax (7-8-9) 2855.31 1688.27 7684.91 5033.98 7590.30 3794.19 2506.10 10268.13 7201.17 10812.1411. Tax expenses 1046.67 623.21 2839.04 1985.86 3048.99 1351.88 931.53 3697.62 2798.45 4192.3412. Net Profit from Ordinary Activities after tax (10-11) 1808.64 1065.06 4845.87 3048.12 4541.31 2442.31 1574.57 6570.51 4402.72 6619.8013. Extraordinary items (net of tax expense) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0014. Net Profit for the period (12-13) 1808.64 1065.06 4845.87 3048.12 4541.31 2442.31 1574.57 6570.51 4402.72 6619.80

Net Profit after Minority Interest 2383.66 1524.42 6396.04 4221.87 6364.3715. Paid-up equity share capital

(Face Value of Rs. 10 per share) 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526.30 526.30

16. Reserves excluding Revaluation Reserves (as per balance sheet of previous accounting year)

30772.26 27117.79 30772.26 27117.79 30772.26 41691.86 36680.41 41691.86 36680.41 41691.86

17. Analytical Ratios (i) Percentage of shares held by Government of India 59.73% nil 59.73% nil nil nil nil nil nil nil(ii) Capital Adequacy Ratio 12.28% 11.86% 12.28% 11.86% 12.34% 12.36%(iii) Earnings Per Share (EPS) (in Rs.)

(a) Basic and diluted EPS before Extraordinary items (net of tax expense)

34.37 (not

annualised)

20.24 (not

annualised)

92.07 (not

annualised)

57.92 (not

annualised)

86.29

45.29 (not

annualised)

28.96 (not

annualised)

121.53 (not

annualised)

80.22 (not

annualised)

120.93

(b) Basic and diluted EPS after Extraordinary items

34.37 (not

annualised)

20.24 (not

annualised)

92.07 (not

annualised)

57.92 (not

annualised)

86.29

45.29 (not

annualised)

28.96 (not

annualised)

121.53 (not

annualised)

80.22 (not

annualised)

120.93

(iv) NPA Ratios (a) Amount of gross non-performing assets 10641.46 9902.85 10,641.46 9902.85 9998.22 (b) Amount of net non-performing assets 5610.01 4487.16 5,610.01 4487.16 5257.72 (c) % of gross NPAs 2.69% 3.15% 2.69% 3.15% 2.92% (d) % of net NPAs 1.44% 1.45% 1.44% 1.45% 1.56%

(v) Return on Assets (Annualised) 1.06% 0.79% 1.00% 0.78% 0.84% 18. Public Shareholding

- No. of shares 211959678 211959678 211959678 211959678 211959678 - Percentage of Shareholding 40.27% 40.27% 40.27% 40.27% 40.27%

Unaudited Segment-wise Revenue, Results and Capital Employed (Rs.in crores)

Particulars Quarter ended 9-month period ended 31.12.2007

(Reviewed) 31.12.2006 (Reviewed)

31.12.2007 (Reviewed)

31.12.2006 (Reviewed)

Year ended 31.03.2007 (Audited)

1. Segment Revenue (income) (a) Banking Operations 14345.12 11285.12 40103.34 31082.13 44536.00(b) Treasury Operations 3965.42 2700.12 9547.58 7920.21 11464.20

Total 18310.54 13985.24 49650.92 39002.34 56000.20 Less : Inter Segment Revenue 2946.54 2716.86 8399.61 7929.86 10739.92 Net Income from Operations 15364.00 11268.38 41251.31 31072.48 45260.282. Segment Results (Profit before tax)

(a) Banking Operations 2584.75 1762.89 7892.50 5174.74 8706.55(b) Treasury Operations 775.04 -220.68 1100.07 -438.68 117.73

Total 3359.79 1542.21 8992.57 4736.06 8824.28 Add / (Less) : Unallocated -504.48 146.06 -1307.66 297.92 -1233.98 Profit before Tax 2855.31 1688.27 7684.91 5033.98 7590.30 Less : Income Tax (including FBT) 1046.67 623.21 2839.04 1985.86 3048.99 Net Profit 1808.64 1065.06 4845.87 3048.12 4541.312. Capital Employed (Segment Assets - Segment

Liabilities) (a) Banking Operations 27898.62 24528.60 27898.62 24528.60 27898.62(b) Treasury Operations 3399.94 3115.49 3399.94 3115.49 3399.94

Total 31298.56 27644.09 31298.56 27644.09 31298.56

(Segment Assets and Liabilities are as on March 31 of the previous year )

1. The working results for the period ended December 31, 2007 have been arrived at after considering provisions for NPAs, Bonus, Gratuity, Pension, Leave Encashment, Investment Depreciation, Income Tax (after

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adjustment for deferred tax), Wealth Tax, Fringe Benefit Tax (FBT) and other contingencies on an estimated basis.

2. Accounting Standard 15 “Employee Benefits” (revised 2005) is effective for accounting periods commencing on or after December 7, 2006. As per this Standard, the difference (as adjusted by any related tax expense) between the transitional liability and the liability that would have been recognised at the same date, as per-revised Accounting Standard 15, ‘Accounting for Retirement Benefits in the Financial Statements of Employers’, should be adjusted immediately against opening balance of revenue reserves and surplus. The Institute of Chartered Accountants of India has made a limited revision to this provision, which was notified on October 17, 2007. This revision provides the Bank with another option to charge additional liability arising upon the first application of the standard as an expense over a period up to five years. The Bank is currently examining both the alternatives. The impact of the Accounting Standard 15 “Employee Benefits” (revised 2005) has not been ascertained for transitional provision and current period(s). In the interregnum, the Bank has made adequate provisions as per pre-revised Accounting Standard 15, ‘ Accounting for Retirement Benefits in the Financial Statements of Employers’.

3. During the period ended December 31, 2007, the Bank has made following investments in its foreign / domestic subsidiaries for the purpose of funding business growth:

Increased stake in Indian Ocean International Bank Ltd. (IOIB) Mauritius, from 56.84% to 62.28%.

Infused additional Capital of i) Rs. 121.90 crores in State Bank of India (Canada); ii) Rs. 39.84 crores in State Bank of India (California); iii) Rs. 59.77 crores in State Bank of India International (Mauritius) Ltd.; iv) Rs. 74.00 crores in SBI Life Insurance Co. Ltd.; v) Rs. 120.00 crores in SBI Cards & Payment Services P. Ltd.

4. During the period ended December 31, 2007, the Central Board of the Bank and the Board of State Bank of Saurashtra (SBS) have accorded approval for merger of the SBS with the SBI. The matter has further been referred to RBI and the Government for approval. Necessary approval is awaited. As the merger process has not yet been crystallised, there is no impact on the Bank’s quarterly results as on December 31, 2007.

5. In terms of the RBI circular dated April 20, 2007, the Bank had accounted for amortisation of premium in respect of securities included in the ‘Held to Maturity’ (HTM) category as an adjustment against ‘Other Income’. Based on the clarification issued by RBI on July 11, 2007, Banks are required to reflect the amortisation of premium held in the HTM category by an adjustment to the ‘Interest Earned’. Accordingly, the Bank has carried out the reclassification of the same for the period ended December 31, 2007. This change in accounting procedure does not have any impact on the net profit for the period(s) under review.

6. During the period ended December 31, 2007, the Bank has raised US $ 225 million (Rs. 915.86 crores) as Hybrid Tier I Capital in the form of Perpetual Non Call 2017 Bonds.

7. During the period ended December 31, 2007, the entire share holding of RBI in State Bank of India aggregating 314,339,200 Equity Shares (59.73%), with a face value of Rs. 10 each has been transferred to the Central Government.

8. During the period ended December 31, 2007, the Bank has shifted SLR investments having aggregate Face Value of Rs. 9081.57 crores (corresponding previous period — Rs. 9400 crores) from ‘Available for Sale’ (AFS) to ‘Held for Maturity (HTM) category, resulting in a net revaluation loss of Rs. 297.67 crores (corresponding previous period — Rs. 225.73 crores).

9. The qualification made by the Statutory Central Auditors in their review report on the financial results of the quarter ended 30th June 2007 and the resolution thereof : Non compliance with AS 15 (revised 2005), the impact of which has not been ascertained: The management’s response is detailed in Note 2 above.

272

10. The Bank has decided to issue Equity Shares on a rights basis to the existing shareholders for augmentation of Capital.

11. Number of Investors’ Complaints received and disposed of during the quarter ended December 31, 2007: (i) Pending at the beginning of the quarter: 76; (ii) Received during the quarter: 1004; (iii) Disposed of during the quarter: 1016; (iv) Unresolved at the end of the quarter: 64.

12. Previous period figures have been regrouped / reclassified, wherever necessary, to conform to current period classification. The above results have been approved by the Central Board of the Bank on January 24, 2008 and were subjected to Review by the Auditors. Mumbai S. K. BHATTACHARYYA T. S. BHATTACHARYA O. P. BHATT Date: 24.01.2008

Managing Director and Chief Credit & Risk Officer

Managing Director & Group Executive (Corporate Banking)

CHAIRMAN

Recent Transactions

State Bank of India has informed the Stock Exchanges that: "State Bank of India intends to purchase shareholding of Export-Import Bank of India ("EXIM"), IFC, Washington ("IFC") and FIM Bank, Malta ("FIM") in Global Trade Finance Ltd. ("GTFL"), aggregating to 91% of the total shareholding of GTFL, at an aggregate price of Rs. 520.55 crores Approval from RBI for the purchase of these shares is awaited. As per RBI guidelines, a prior Public Notice of 30 days is required to be given by the sellers and buyer(s) before effecting the sale or transfer of the ownership of shares or transfer of control. Accordingly, a public notice is being issued jointly by Export-Import Bank of India ("EXIM"), IFC, Washington ("IFC"), FIM Bank, Malta ("FIM") and SBI regarding the sale/purchase of shares subject to necessary permissions, consents and/or approval".

State Bank of India has entered into a business co-operation agreement with Mizuho Financial Group, Japan. Mizuho is Japan's third-largest bank and has a presence in India with two offices in Mumbai and New Delhi. The agreement aims to harness the expertise of both SBI and MCB in the areas of loan syndications, trade finance, off-shore fund raising, derivative products and infrastructure co-financing.

Recent stock market data

Week end prices of Equity Shares of the Bank for the last four weeks on the BSE and NSE are as below:

Week Ended on

Closing Rate BSE (Rs.)

Closing Rate NSE (Rs.)

January 25, 2008 2,407.40 2,405.00

January 18, 2008 2,362.40 2,368.30

January 11, 2008 2,434.80 2,437.30

January 4, 2008 2,388.80 2,390.80

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DESCRIPTION OF CERTAIN INDEBTEDNESS

Statement of Borrowings as on September 30, 2007 (Rs. in millions)

S.No.

Particulars

Outstanding amount

Rate of Interest

Duration

Date of Borrowings

Repayment Terms

Domestic Borrowings

1 Term Borrowings 50 Fixed 8.50% 364 Days September 1, 2007

Bullet

2 CBLO (secured borrowing) 32,999 Fixed 0-1% 1-3 days September 28, 2007

Bullet

3 Borrowing from Other Institutions/ Agencies

a Refinancing by Small Industries Development Bank of India

6,500 Fixed 6.5% p.a Monthly Instalment of Rs 50.00 crores on 1st of Every Month

b Refinancing by National Housing Bank

5,000 Fixed 6.5% p.a 3 Years December 23, 2005

Bullet

c Refinancing by National Bank for Agriculture and Rural Development

17,917 Fixed Various from 4.25 to

14%

Various Terms and Date Half Yearly due on January 31 and July till July 31, 2019

d Others 45

Total Domestic Borrowings (A) 62,511

Overseas Borrowings

1 Bond Issues (Excluding Hybrid Tier-I Bonds)

62,636 Fixed 3.50% to 4.75%

5 Years Various dates from December 8, 2004 to February 15, 2007

Bullet

Floating LIBOR+38bps to LIBOR+73.5bps

2 Foreign Currency Loans 47,217 Floating LIBOR+12bps to LIBOR+39bps

364 days to 5 years

Various dates from June 2, 2005 to September 28, 2007

Bullet principal repayment, interest at half yearly intervals

3 Money Market Borrowings 277,015 Various rates Term Ranging from 1 day to 1 year

Various dates

Bullet

Total (Overseas Borrowings) (B) 386,868

Tier I Capital

Overseas 16,282 Coupon 6.439% after swap LIBOR +120 BPS on semi annual basis

Perpetual non call 10.25 years

February 2007

Perpetual with call option to the Issuer after 10.25 years

9,159 Coupon 7.14% after swap LIBOR +137 BPS on semi annual basis

Perpetual non call 10 years 1 Day

June 2007 Perpetual with call option to the Issuer after 10 years 1 day

Total Tier I Capital ( C) 25,441

Subordinate Debts

1 Domestic 204,246 Fixed 7.45% to 11.90% p.a.

87 months to 180 months

Various dates from January 1, 2001 to September 17, 2007

Overseas 289 Fixed 6.50% 8 Years April 12, 2000

Total Subordinate Debts (D) 204,535

Grand Total (A+B+C +D) 679,355

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OUTSTANDING LITIGATION AND DEFAULTS

Details of litigation or proceedings, defaults, non-payment or past due statutory dues, proceedings initiated for any economic or civil offences and disciplinary action taken by SEBI or stock exchanges, disclosed have been restricted to those involving a claim of Rs. 250 million or more, against the Bank and by the Bank. Further, the disclosure has been restricted to litigation relating to the Bank's material subsidiaries, i.e, subsidiaries which contribute in excess of 10% of the Bank’s consolidated net assets or net income as of March 31, 2007. The above mentioned monetary threshold has been applied to the material subsidiaries as well. Criminal litigation, though, pertaining to the Bank and the material subsidiaries have not been subjected to the abovementioned threshold limits. Further, there has not been a consolidation of the litigation or proceedings pending, below the above mentioned monetary threshold, against or by the Bank or its Subsidiaries. Consequently, there is outstanding litigation (in the nature of suits, criminal or civil prosecutions, labour proceedings or tax disputes) against the Bank, its Directors and its Subsidiaries, which have not been disclosed by the Bank. Except as described below, there are no outstanding litigation, suits or criminal or civil prosecutions, proceedings or tax liabilities against the Bank, its Directors, its Subsidiaries and there are no defaults, non payment of statutory dues, over dues to banks/ financial institutions, defaults against banks/ financial institutions, defaults in dues payable to holders of any debentures, bonds or fixed deposits, issued by the Bank (including past cases where penalties may or may not have been awarded) which would materially affect the business of the Bank. Cases filed against the Bank Civil Cases State Bank of India 1. Shin Etsu Chemical Company (SECC) has filed this civil suit (No. 2886/2005) against the Bank in the

Bombay High Court. The Bank had issued a letter of credit in favour of Birla Ericsson Opticals Limited. The present suit has been filed by SECC, which is a beneficiary of the letter of credit, claiming damages from the Bank and alleging that the Bank did not extend the period of the letter of credit. The Bank has contended that it did not extend the letter of credit in accordance with Article 41 of Uniform Customs and Practice for Documentary Credits 500 and therefore the Bank would not be liable to pay any damages. The suit is yet to be listed for hearing. The financial impact on the Bank is to the extent of Rs. 255.9 million.

2. Shin Etsu Chemical Company (SECC) has filed this civil suit (No. 2887/2005) against the Bank in the

Bombay High Court. The Bank had issued a letter of credit in favour of Vindhya Telelinks Limited. The present suit has been filed by SECC, which is a beneficiary of the letter of credit, claiming damages from the Bank and alleging that the Bank did not extend the period of the letter of credit. The Bank has contended that it did not extend the letter of credit in accordance with Article 41 of Uniform Customs and Practice for Documentary Credits 500 and therefore the Bank would not be liable to pay any damages. The suit is yet to be listed for hearing. The financial impact on the Bank is Rs. 255.9 million.

3. Vikas Co-operative Bank has filed this civil suit (No. 83/2003) against the Bank before the Civil Court,

Surat. The present suit has been filed by Vikas Co-operative Bank claiming damages for its suspension from the clearing house, pursuant to the RBI’s order under section 35A of the Banking Regulation Act, 1949. The Bank has contended that the action was taken in pursuance of the Reserve Bank’s directions. The suit is presently pending for framing of issues. The financial impact on the Bank is to the extent of Rs. 350 million.

4. M/s Godhoke & Sons has filed this suit (No 598/1998) against the Bank in the Bombay High Court. The

suit was filed against the Bank alleging that wrong interest rates, erroneous methods of applying interest etc. were adopted by the Bank. The Bank in turn filed an application in the Bombay High Court for stay of the abovementioned suit, which was granted. The matter is pending. The financial impact is to the extent of Rs. 337.5 million.

5. The Telecom Authority has filed this suit (No. RFA (OS) 108/1997) against M/s HFCL BEZEQ Limited

and the Bank in the Delhi High Court. The Bank issued four bid bond guarantees aggregating Rs. 273

275

million in favour of the President of India (the beneficiary) acting through the Telecom Authority at the request of the First International Bank of Israel (FIBI) which had provided the counter guarantee. The beneficiary invoked the guarantees and the Bank in turn claimed the invocation amount from FIBI. Although FIBI acknowledged the claim no payment was made on account of an injunction order issued by the Delhi High Court. The applicant, namely M/s HFCL BEZEQ Limited, moved the Delhi High Court for an order against the beneficiary and obtained an order in its favour. Aggrieved by the said order the beneficiary has filed an appeal before the Delhi High Court which stands dismissed. However, the beneficiary has moved an application for condonation of delay and restoration of the appeal, which is pending and the next date of hearing is April 4, 2008.

State Bank of Hyderabad 1. The Bank of India has filed this civil suit (O.A. 237/2001) against the State Bank of Hyderabad before the

Debt Recovery Tribunal, Kolkata. M/s Gloand (Far East) Pte Limited (drawer) has drawn seven bills on Kothari Global Limited (drawee) which were accepted. The drawee sought extension of time for making payment by sending instructions through the Bank for payment which also indicated co-acceptance of the bills by the Bank. Action on the part of the Bank staff was in connivance with the drawee of the bill which is tantamount to fraud for which a complaint has been lodged by the Bank with the CBI. The claim of the drawee was subsequently rejected by the Bank. The Bank of India has filed the present suit claiming recovery of the bill amount along with interest. The drawee of the bill has been referred to BIFR under the Sick Industrial Companies Act and the proceedings of this suit have been kept in abeyance. The suit is pending. The financial impact is to the extent of Rs. 274 million which has been provided for.

Criminal Cases State Bank of Patiala 1. Mr Madan Gopal has filed this criminal complaint (No. 348/2000) against the Managing Director of the

State Bank of Patiala and DCM Limited before the Judicial Magistrate, Patna. The complainant filed the present complaint for non-payment of 90 non convertible debentures amounting to Rs. 1000 each in respect of DCM Limited for which the State Bank of Patiala was acting as a debenture trustee. DCM Limited has paid the complainant the whole amount along with interest. The complainant has made an application to withdraw the complaint but the same has not been permitted by the court.

Tax Cases State Bank of Hyderabad 1. The Income Tax Department has filed this appeal (No. 1175/H/05) against the State Bank of Hyderabad

before the Income Tax Appellate Tribunal, Hyderabad. The appeal has been filed for the assessment year 2002-2003 with regard to broken period interest and loss on revaluation of nostro accounts. The appeal is pending before the Appellate Tribunal. The financial impact is to the extent of Rs. 1217.2 million.

2. The Income Tax Department has filed this appeal (No. 125/H/06) against the State Bank of Hyderabad

before the Income Tax Appellate Tribunal, Hyderabad. The appeal has been filed for the assessment year 2003-2004 with regard to income on cash basis, broken period interest, expenditure on exempted income, etc. The appeal is pending before the Appellate Tribunal. The financial impact is to the extent of Rs. 363.9 million.

3. The Income Tax Department has filed this appeal (No. 39/H/07) against the State Bank of Hyderabad

before the Income Tax Appellate Tribunal, Hyderabad. The appeal has been filed for the assessment year 2004-2005 with regard to income on cash basis, broken period interest, expenditure on exempted income, etc. The appeal is pending before the Appellate Tribunal. The financial impact is to the extent of Rs. 2,145.4 million.

Consumer Cases 1. Mr. Mukesh Kumar has filed two consumer cases (Nos. 12/2005 and 23/2005) against the Bank before the

National Consumer Disputes Redressal Commission. The cases have been filed for claiming damages from

276

the Bank alleging deficiency of service on the Bank’s behalf on payments relating to the FCNR deposits held by the complainant jointly with another person. The matter has been posted for hearing in February 2008. The financial impact on the Bank is to the extent of Rs. 689.6 million.

Cases filed by the Bank Civil Recovery Cases 1. The Bank has filed this case (No. O.A. 412/2001) against Tunga Bhadra Industries Limited in the Andhra

Pradesh High Court. The case was filed by the Bank for recovery of its dues. The case has been decreed by the court in favour of the Bank for Rs. 1,080 million. The court appointed the Official Liquidator, Andhra Pradesh High Court who took possession of the Defendant’s properties of which some portions were auctioned and an amount of Rs. 170 million was recovered. The Defendant has filed an appeal against the decree passed in favour of the Bank. The appeal is pending.

2. The Bank has filed this case (No. O.A. 186/2004) against the Mining & Allied Machinery Corporation

Limited before the Debt Recovery Tribunal, Kolkata. The present case has been filed by the Bank for recovery of its dues. The matter is pending at the hearing stage. The financial impact is to the extent of Rs. 4,837 million.

3. The Bank has filed this case (No. R.P. 273/2006) against Alpine Industries Limited before the Debt

Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The case has been decreed in favour of the Bank and a Recovery Certificate dated February 2, 2006 has also been issued. The Defendant has made an application before the BIFR under the Sick Industrial Companies Act, 1985 and the same is pending. The financial impact is to the extent of Rs. 2,010 million.

4. The Bank has filed this case (No. 599/2001) against Lloyds Steel Industries Limited before the Debt

Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The Defendant has made an application before the BIFR under the Sick Industrial Companies Act, 1985 and the same is pending. The financial impact is to the extent of Rs. 1,801.9 million.

5. The Bank has filed this case (No. 194/2003) against SPIC Petrochemicals Limited before the Debt

Recovery Tribunal, Chennai. The case has been filed by the Bank for recovery of its dues. The matter is pending at the hearing stage. The financial impact is to the extent of Rs. 1,516 million.

6. The Bank has filed this case (No. 152/2000) against Ahmedabad Manufacturing and Calico Printing

Company Limited before the Debt Recovery Tribunal, Ahmedabad. The case has been filed by the Bank for recovery of its dues. The case has been decreed in favour of the Bank and a Recovery Certificate dated July 2003 has also been issued. The Defendant is under liquidation. The financial impact is to the extent of Rs. 2,740.9 million.

7. The Bank has filed this case (No. 23/1995) against Weston Electronics Limited before the Debt Recovery

Tribunal, Delhi. The case has been filed by the Bank for recovery of its dues. The case has been decreed in favour of the Bank and the same is under execution. The financial impact is to the extent of Rs. 521.8 million.

8. The Bank has filed this case (No. 419/1998) against Altos India Limited before the Debt Recovery Tribunal,

Delhi. The case has been filed by the Bank for recovery of its dues. The matter is pending at the evidence stage. The financial impact is to the extent of Rs. 428.3 million.

9. The Bank has filed this case (No. 240/2004) against Swati Diamonds Limited before the Debt Recovery

Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The case has been decreed in favour of the Bank and the same is under execution. The financial impact is to the extent of Rs. 352.6 million.

10. The Bank has filed two cases (Nos. 215/2000 and 451/2000) against Western India Shipyard Limited before

the Debt Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The case has been decreed in favour of the Bank. The total financial impact of both cases is to the extent of Rs. 350.8 million.

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11. The Bank has filed this case (No. 239/2004) against Jewel Tech (I) Limited before the Debt Recovery Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The Defendant has made an application before the BIFR under the Sick Industrial Companies Act, 1985 and the same is pending. The financial impact is to the extent of Rs. 341.4 million.

12. The Bank has filed this case (No. 175/2001) against K.L. Choksi before the Debt Recovery Tribunal,

Ahmedabad. The case has been filed by the Bank for recovery of its dues. The matter is pending before the Debt Recovery Tribunal. The financial impact is to the extent of Rs. 335 million.

13. The Bank has filed this case (No. 99/2004) against Uni Credito Italiano before the Debt Recovery Tribunal,

Mumbai. ONGC entered into a contract with a consortium called Saipem S.P.A./ Snamprogettin S.P.A for construction of a system of undersea pipelines. The consortium was required to furnish a bank guarantee in favour of ONGC for any claim of liquidated damages. A bank guarantee in favour of ONGC was given by the Bank against a counter guarantee from Uni Credito Italiano. ONGC invoked the bank guarantee which was honoured by the Bank. The Bank has filed this case against Uni Credito Italiano as they failed to honour the counter guarantee given in favour of the Bank. The matter is pending at the argument stage before the Debt Recovery Tribunal. The financial impact is to the extent of Rs. 331.2 million.

14. The Bank has filed this case (No. 369/2003) against Roofit Industries Limited before the Debt Recovery

Tribunal, Mumbai. The case has been filed by the Bank for recovery of its dues. The matter is pending at the hearing stage. The financial impact is to the extent of Rs. 296.9 million.

15. The Bank has filed this case (No. 135/2001) against Shri Ishar Alloys Limited before the Debt Recovery

Tribunal, Bhopal. The case has been filed by the Bank for recovery of its dues. The case has been decreed in favour of the Bank. The total financial impact of the case is to the extent of Rs. 456.2 million.

16. The Bank has filed this case (No. O.A. 166/2001) against Petrofils Co-operative Limited before the Debt

Recovery Tribunal, Ahmedabad. The case has been filed by the Bank for recovery of its dues. The matter has been decided in favour of all secured lenders including the Bank. The final order of the Debt Recovery Tribunal has been received. The financial impact is to the extent of Rs. 418 million.

17. The Bank has filed this case (No. 209/2001) against M/s Raj Solvex Limited before the Debt Recovery

Tribunal, Delhi. The case has been filed by the Bank for recovery of its dues. The Defendant is under reference to the BIFR under the Sick Industrial Companies Act, 1985. The Defendant subsequently has made a request to the Bank for settlement of its dues through a one time settlement which was approved. The Defendant has paid 50% of the amount i.e. Rs. 27.5 million and has applied for an extension of time to pay the balance amount which is being considered by the Bank. The financial impact of the case is to the extent of Rs. 342.5 million.

18. The Bank has filed this suit (No. 1199/1999) against Shri Kane and Others (Borrowers) in the Civil Court,

Pune. The Borrowers had been sanctioned a working capital and term loan for construction of a poultry shed and to meet daily expenses of the poultry. The activity never took place on account of numerous deficiencies and ultimately the account became a non performing asset. The Bank has filed this suit against the Borrowers. The Borrowers have filed a counter claim in the Civil Court, Pune. The case is yet to come up for hearing. The financial impact of the case is to the extent of Rs. 760.8 million.

19. The Bank has filed this case (No. 47/2002) against M/s Uptron Limited before the Debt Recovery Tribunal

for recovery of its dues. The Defendant subsequently made an application before the BIFR under the Sick Industrial Companies Act and the same is pending. The case is listed for hearing on January 31, 2008. The Defendant’s case is also pending before the BIFR/AAIFR which had allowed the Bank to proceed against the Defendant before the Debt Recovery Tribunal against which the Defendant preferred an appeal to the Delhi High Court. The Delhi High Court allowed the appeal. The Bank preferred an appeal against the stay granted by the Delhi High Court and the judgment is reserved. The financial impact is to the extent of Rs. 1614.7 million.

20. The Bank along with the Bank of India and Indian Bank (Plaintiffs) has filed this case (No. 617/1999)

against Greatwin International Pte. Limited (GWIPL) and its directors, i.e. Mr. N. Kothari and Mrs. Sayar Kothari, before the Singapore Court. The case has been filed against the Defendants for failure to honour their liability under the letters of credit issued by the Plaintiffs. The case was decreed in favour of the Plaintiffs by the Singapore Court. Subsequently, the Defendants shifted their base to Ontario, Canada. The

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Plaintiffs have moved the Ontario Court, Canada seeking a summary judgment for enforcement of the Singapore Court judgment. The case is pending before the Ontario Court. The Defendants have proposed a one time settlement of U.S.$ 4.75 million. The Bank’s share is U.S.$ 2.077 million. The amount is yet to be paid.

Tax Cases State Bank of Hyderabad 1. The State Bank of Hyderabad has filed this appeal (No. 0363/2005-06) against the Income Tax Department

before the Commissioner of Income Tax (Appeals). The present appeal has been filed by the State Bank of Hyderabad for the assessment year 1994-95 regarding quantification of amount pertaining to interest computed on accrual basis by the Bank. The matter is pending before the Commissioner of Income Tax (Appeals). The financial impact is to the extent of Rs. 317.9 million.

2. The State Bank of Hyderabad has filed this appeal (No. 0020/2007-08) against the Income Tax Department

before the Commissioner of Income Tax (Appeals). The present appeal has been filed by the State Bank of Hyderabad for the assessment year 2005-06. A regular assessment was made by the Income Tax Department under Section 143(3) of the Income Tax Act, 1961 against which an appeal was filed by the Bank. The hearing has been completed and a decision in the matter is awaited. The financial impact is to the extent of Rs. 4,361.4 million.

Civil Recovery Cases State Bank of Patiala 1. The State Bank of Patiala has filed this case (No. 258/2002) against M/s Uptron India Limited before the

Debt Recovery Tribunal, Lucknow. The case has been filed by the State Bank of Patiala for recovery of its dues. The Defendant has made an application to the Delhi High Court for stay of proceedings before the Debt Recovery Tribunal. The next date of hearing for determining the application for stay of the proceedings has been fixed for January 31, 2008. The financial impact is to the extent of Rs. 434.7 million.

2. The State Bank of Patiala has filed two cases (Nos. 36/1999 and 114/1998) against Parasrampuria

Synthetics Limited before the Debt Recovery Tribunal. These cases have been filed by the State Bank of Patiala for recovery of its dues. The matters are pending. The financial impact is to the extent of Rs. 307 million.

3. The State Bank of Patiala has filed this case (No. 305/1997) against M/s M.S. Shoes East Limited before

the Debt Recovery Tribunal. The case has been filed by the State Bank of Patiala for recovery of its dues. The Defendant approached the State Bank of Patiala for a one time settlement of Rs. 45 million payable up to June 30, 2007 which was approved. Presently, the Defendant has paid only Rs. 15 million. The matter is pending for issuance of the consent decree. The financial impact is to the extent of Rs. 490.1 million.

4. The State Bank of Patiala has filed this case (No. 64/2001) against Deepharma Limited before the Debt

Recovery Tribunal. The case has been filed by the State Bank of Patiala for recovery of its dues. The matter is pending at the evidence stage. The financial impact is to the extent of Rs. 432.6 million.

5. The State Bank of Patiala has filed this case (No. OA 256/2003) against ROM Industries Limited before the

Debt Recovery Tribunal, Chandigarh. The case has been filed by the State Bank of Patiala for recovery of its dues. The next date of hearing has been fixed for February 1, 2008. In the meanwhile a one time settlement of Rs. 72.5 million has been approved out of which Rs. 37.5 million has been paid. The balance amount is due on February 15, 2008. The financial impact is to the extent of Rs. 883.6 million.

6. The State Bank of Patiala has filed this case (No. OA 346/47/2002) against M/s Thapar Agro Mills Limited

before the Debt Recovery Tribunal, Chandigarh for recovery of Rs 412.6 million due to the State Bank of Patiala from the Defendant. A compromise has been arrived at subject to certain conditions which are yet to be complied with by the Defendants. The matter is pending.

7. The State Bank of Patiala has filed this case (No. 214/1988) against M/s Hamco Mining and Smelting Limited before the Debt Recovery Tribunal, Mumbai for recovery of its dues. The Debt Recovery Tribunal

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has issued a Recovery Certificate and the Official Liquidator appointed by the Tribunal has taken possession of the properties. The matter is pending. The financial impact is to the extent of Rs. 707.4 million.

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GOVERNMENT APPROVALS

On the basis of the indicative list of approvals provided below, the Bank may undertake this Issue and the Bank's current business activities and no further major approvals from any government authority/RBI are required to continue these activities. It must be distinctly understood that, in granting these licences, the Government and/or the RBI does not take any responsibility for the Bank's financial soundness or for the correctness of any of the statements made or opinions expressed in this behalf.

Approvals for the Issue

1) Letter from the Central Government F No. 11/7/2007-BOA dated December 3, 2007, conveying its approval for subscription to the rights issue of Bank’s Equity Shares aggregating approximately Rs. 10,000 crore.

2) Letter from the Government F No. 11/16/2005-BOA dated January 2, 2008, conveying approval for the increase in the issued capital of the Bank from the existing Rs. 526.30 crore to Rs. 650.00 crore.

In-Principle Approvals

1. In-principle approval from the NSE dated January 30, 2008; and

2. In-principle approval from the BSE dated January 31, 2008.

Approval for setting up of Subsidiary

1) Approval No. DBOD No. FSD / 124 /24.01.022/2007-08 dated July 4, 2007, from RBI for setting up subsidiary for Managing Pension Funds.

2) Approval No. 1094 dated 21.09.2007, File No. 9/1/2007-PFRDA dated September 21, 2007, from Pension Fund Regulatory & Development Authority for appointment of the Bank as Sponsor of Pension Funds for Government employees under the New Pension System.

Approvals for setting of Foreign Offices

1) Resolution of the Council of Ministers No. (188) dated 17.07.1426 (Hijra) approving the application of the Bank to open a branch in the kingdom of Saudi Arabia.

2) Licence No. BSD / 17/ 94 /1109 dated September 26, 1994, to Bank of Bhutan issued by the Royal Monetary Authority of Bhutan.

3) Approval letter No. FBP/1572 dated November 20, 1978, issued by the Banking Department, State of New York, USA, for maintaining the Bank's New York branch.

4) London branch Registration No.139156 with the Financial Services Authority, U.K.

5) Approval Reference No. II Cb 53-1043 dated November 14, 1974, issued by BUNDESAUFSICHTSAMT FUR DAS KREDITWESEN for carrying on banking business through a branch office in Frankfurt branch.

6) Letter from Ministry of Finance No. 2069 dated August 30, 1979, licensing banking business to State Bank

of India, Tokyo. 7) Licence reference No. 1172 dated June 16, 1981, granted to State Bank of India to maintain a depository

agency at 707, Wilshire Boulevard, City of Los Angeles, County of Los Angeles, State of California. 8) RBI Licence No. BLC.966/76 dated December 29, 1976, authorising the Bank to open an Agency branch at

Los Angeles (USA). 9) Certificate of Authority No. 20 dated May 6, 1975, issued to State Bank of India by the Commissioner of

Banks and Trust Companies, State of Illinois for setting up Chicago branch.

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10) Certificate No. 2670 dated October 11, 1977, issued by Registrar of Companies, Republic of Singapore for

incorporation of SBI, Singapore 11) Certificate of Registration No F-1935 dated August 31, 1984, for registration of SBI, Hong Kong under the

Companies Ordinance, and Licence No. 103 dated July 25, 1978, granted by the Governor in Council. 12) Licence No. 3446 dated December 29, 2003, by Central Bank of Russian Federation for execution of

banking operations granted to Commercial Bank of India LLC Moscow. 13) Offshore Banking Licence No. 4 dated March 29, 1990, issued to SB International Ltd, Mauritius by

Governor, Bank of Mauritius. 14) Licence No. WB/011 dated January 1, 1977, granted by Central Bank of Bahrain to State Bank of India,

Bahrain (Wholesale Bank branch).

The Bank requires prior approval from RBI for opening new place of business in India or abroad. The Bank has obtained all relevant approvals in this regard.

Licences and approvals pertaining to appointment and remuneration of Bank’s Directors

1) Notification No. F No. 9/25/2005/BO.I dated June 30, 2006, under clause (a) of section 19 and sub-section (1) of Section 20 of the Act (23 of 1955) by the Central Govt. appointing Shri O.P.Bhatt, Managing Director as Chairman of the Bank up to March 31, 2011, or until further orders, whichever is earlier.

2) Notification No. F No. 8/3/2004/BO.I dated February 25, 2005, under clause (b) of section 19 and sub-section (1) of Section 20 of the Act (23 of 1955) by the Central Govt. in consultation with RBI, appointing Shri Tara Shankar Bhattacharya, Deputy Managing Director as Managing Director of the Bank up to January 31, 2008, or until further orders, whichever is earlier.

3) Notification No. F No. 8/01/2007/BO.I dated October 8, 2007, under clause (b) of section 19 and sub-section (1) of Section 20 of the Act (23 of 1955) by the Central Govt. after consultation with the RBI, appointing Shri S.K. Bhattacharyya, Managing Director (SBBJ) as Managing Director of the Bank up to October 31, 2010, or until further orders, whichever is earlier.

4) Notification No. F No. 15/10/2001/IR dated July 15, 2003, under clause (ca) of section 19 read with sub-section (3A) of Section 20 of the Act (23 of 1955) and in exercise of powers vested under Rule 3 of State Bank of India (Appointment of employee Directors) Rules, 1974 by the Central Govt. appointing Shri Ananta Chandra Kalita, Head Assistant, State Bank of India as a Director on the Central Board of the Bank from among the employees of State Bank of India who are workmen for a period of three years commencing from July 15, 2003, or until he ceases to be a workman employee of the Bank or until further orders whichever is earlier provided that he shall not hold the Office continuously for a period exceeding six years.

5) Notification No. F No. 8/1/2005/BO-I dated August 19, 2005, under clause (cb) of section 19 read with sub-section (3A) and sub-section (4) of Section 20 of the Act (23 of 1955) and Rule 4 of the State Bank of India (appointment of employee Directors) Rules, 1974 by the Central Govt. after consultation with the RBI, nominating Shri Amar Pal, President, All India State Bank of India Officers’ Federation (posted as Deputy Manager, Official Languages Department, Local Head Office, Chandigarh) as Officer-employee Director on the Central Board of Directors of the Bank from the date of notification and up to March 31, 2008 i.e., the date on which he will attain the age of superannuation or until he ceases to be an Officer of the State Bank of India, whichever is earlier.

6) Notification No. 8/3/2003-B.O.I (2) dated January 23, 2004, under clause (d) of Section 19 read with sub-section 3(A) and sub-section (4) of Section 20 of the Act (23 of 1955) by the Central Govt. in consultation with the RBI, nominating Shri Piyush Goyal as a Director of the Central Board of the Bank for a period of three years from the date of Notification.

7) Notification No. 8/4/2004-B.O.I dated July 9, 2007, under clause (d) of Section 19 of the Act (23 of 1955), by the Government, in consultation with the RBI nominating the following two persons as part time Non-

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official Directors on the Central Board of Directors of the Bank for a period of three years from the date of Notification or until further order whichever is earlier:

(a) Dr. Deva Nand Balodhi;

(b) Prof. Salahuddin Ansari.

8) Notification F No. 9/7/2007-BO.I dated January 18, 2008, under clause (e) of Section 19 of the Act (23 of 1955), by the Central Govt. nominating Shri Arun Ramanathan, Secretary, Ministry of Finance, Department of Financial Services, New Delhi as a Director on the Central Board of the Bank with immediate effect and until further orders vice Shri Vinod Rai.

9) RBI Letter No. SYD.492/02.03.04/2004-05 dated September 28, 2004, in terms of Section 19 (1) (f) of the Act nominating Smt. Shyamala Gopinath, Deputy Governor on the Central Board of the Bank vice Shri A.V. Sardesai.

Taxation related approvals

Permanent Account Number – (PAN) AAACS8577K issued by the Department of Income Tax, the Government.

In addition, the Bank obtains separate tax deduction at source numbers and VAT registrations for each of its branches.

Registrations with SEBI

1. Certificate of Registration as Participant granted by SEBI dated July 4, 2005, under the Depositories Act, 1996 (22 of 1996), with the Registration No. IN-DP-CDSL-80-2000.

2. Certificate of Registration as Underwriter granted by SEBI dated January 4, 2007, with the Registration No. INU000000027.

3. Certificate of Registration as Portfolio Manager granted by SEBI dated March 28, 2007, with the Registration No. INP000000068.

In addition to approvals indicated above, we have made and will continue to make, regular applications to various authorities in the ordinary course of our business including for opening new branches in India and abroad and applications for labour related clearances and non-receipt, delay in receipt or rejection of the same will not have material adverse effect on the Bank.

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STATUTORY AND OTHER INFORMATION

Authority for the Issue As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-

BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank. Further, in terms of the Government’s Letter (Letter No. F/ 11/ 7/ 2007- BOA) dated December 3, 2007, the Government has intimated to the Bank that the cabinet has granted its approval for investing approximately Rs. 10,000 crores in the Issue by issuing SLR marketable securities towards the Government’s Rights Entitlement. Accordingly, in terms of Section 5(2) of the Act, this Issue, with a right to renounce, has been authorised by the Central Board pursuant to the resolution passed at its meeting held on January 14, 2008. This Letter of Offer has been approved by the Central Board at its meeting held on February 1, 2008.

Prohibition by SEBI Neither the Bank, nor the Directors, or companies/banks with which the Bank’s Directors are associated

with as directors or promoters, have been prohibited from accessing or operating in the capital markets under any order or direction passed by SEBI. Further, none of the directors or person(s) in control of the Bank have been prohibited from accessing the capital market under any order or direction passed by SEBI. Further neither the Bank, Associate Banks or the Bank’s subsidiaries have been declared as wilful defaulters by RBI/Government authorities.

Eligibility for the Issue The Bank was constituted under the Act, and its Equity Shares are listed on the BSE and NSE. The Bank’s

Equity Shares are also listed on CSE, MSE, ASE and DSE. The Bank’s GDRs are listed on the London Stock Exchange. It is eligible to make this Issue in terms of Clause 2.4.1(iv) of the SEBI Guidelines. Further, the Bank has satisfied the conditions stipulated in Clause 2.1.2A.1 of the SEBI Guidelines. In terms of Clause 2.1.2A.2 of the SEBI Guidelines, the Bank will also file a copy of this Letter of Offer with the SEBI, not later than the Issue opening date.

Disclaimer Clause AS REQUIRED, A COPY OF THE LETTER OF OFFER WILL BE SUBMITTED TO SEBI NOT

LATER THAN THE ISSUE OPENING DATE. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF THE LETTER OF OFFER TO SEBI SHOULD NOT, IN ANY WAY BE DEEMED/CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE LETTER OF OFFER. THE LEAD MANAGERS, CITIGROUP GLOBAL MARKETS INDIA PRIVATE LIMITED, CLSA INDIA LIMITED, DSP MERRILL LYNCH LIMITED, DEUTSCHE EQUITIES INDIA PRIVATE LIMITED AND KOTAK MAHINDRA CAPITAL COMPANY LIMITED HAVE CERTIFIED THAT THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES FOR DISCLOSURE AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE BANK IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE LETTER OF OFFER, THE LEAD MANAGERS ARE EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE BANK DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGERS HAVE FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED FEBRUARY 1, 2008, WHICH READS AS FOLLOWS: 1. WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO

LITIGATION SUCH AS COMMERCIAL DISPUTES, DISPUTES WITH COLLABORATORS, ETC. AND OTHER MATERIALS MORE PARTICULARLY REFERRED TO IN THE

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ANNEXURE HERETO IN CONNECTION WITH THE FINALISATION OF THE LETTER OF OFFER PERTAINING TO THE SAID ISSUE;

2. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE BANK, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE BANK;

WE CONFIRM THAT:

A) THE LETTER OF OFFER FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE;

B) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUCTIONS ETC., ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH;

C) THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL-INFORMED DECISION AS TO INVESTMENT IN THE PROPOSED ISSUE AND SUCH DISCLOSURES ARE IN ACCORDANCE WITH THE REQUIREMENTS OF THE SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000 AND OTHER APPLICABLE LEGAL REQUIREMENTS.

3. WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE LETTER OF OFFER ARE REGISTERED WITH SEBI AND TILL DATE SUCH REGISTRATION IS VALID; AND

4. WE CERTIFY THAT WRITTEN CONSENT FROM SHAREHOLDERS HAS BEEN OBTAINED FOR INCLUSION OF THEIR SECURITIES AS PART OF THE BANK’S CONTRIBUTION SUBJECT TO LOCK-IN AND THE SECURITIES PROPOSED TO FORM PART OF THE BANK’S CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/ SOLD/ TRANSFERRED BY THE BANK DURING THE PERIOD STARTING FROM THE DATE OF FILING THE LETTER OF OFFER WITH THE CENTRAL BOARD TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE LETTER OF OFFER— NOT APPLICABLE

5. IF UNDERWRITTEN, WE SHALL SATISFY OURSELVES ABOUT THE WORTH OF THE UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS. — NOT APPLICABLE.

FURTHER, IN TERMS OF CLAUSE 5.3.3.1A, THE LEAD MANAGERS SHALL HAVE PROVIDED THE FOLLOWING ADDITIONAL CONFIRMATIONS / CERTIFICATIONS:

1. WE CONFIRM THAT NONE OF THE INTERMEDIARIES NAMED IN THE LETTER OF OFFER HAVE BEEN DEBARRED FROM FUNCTIONING BY ANY REGULATORY AUTHORITY.

2. WE CONFIRM THAT THE BANK IS ELIGIBLE TO MAKE FAST TRACK ISSUE IN TERMS OF CLAUSE 2.1.2A OF THE SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000. THE FULFILLMENT OF THE ELIGIBILITY CRITERIA AS SPECIFIED IN THAT CLAUSE, BY THE BANK, HAS ALSO BEEN DISCLOSED IN THE LETTER OF OFFER.

3. WE CONFIRM THAT ALL THE MATERIAL DISCLOSURES IN RESPECT OF THE BANK HAVE BEEN MADE IN THE LETTER OF OFFER AND CERTIFY THAT ANY MATERIAL DEVELOPMENT IN THE BANK OR RELATING TO THE ISSUE UP TO THE COMMENCEMENT OF LISTING AND TRADING OF THE SHARES OFFERED THROUGH THIS ISSUE SHALL BE INFORMED THROUGH PUBLIC NOTICES / ADVERTISEMENTS IN ALL THOSE NEWSPAPERS IN WHICH PRE-ISSUE ADVERTISEMENT AND ADVERTISEMENT FOR OPENING OR CLOSURE OF THE ISSUE HAVE BEEN GIVEN.

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4. WE CONFIRM THAT THE ABRIDGED LETTER OF OFFER CONTAINS ALL THE DISCLOSURES AS SPECIFIED IN THE SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000.

5. WE CONFIRM THAT AGREEMENTS HAVE BEEN ENTERED INTO WITH BOTH THE DEPOSITORIES FOR DEMATERIALISATION OF THE SECURITIES OF THE BANK .

6. WE CERTIFY THAT AS PER THE REQUIREMENTS OF THE 1ST PROVISO TO CLAUSE 4.9.1 OF THE SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000, CASH FLOW STATEMENT HAS BEEN PREPARED AND DISCLOSED IN THE RED HERRING PROSPECTUS AND / OR PROSPECTUS.) – NOT APPLICABLE.

7. WE CERTIFY THAT A DISCLOSURE HAS BEEN MADE IN THE LETTER OF OFFER THAT THE INVESTORS SHALL BE GIVEN AN OPTION TO GET THE SHARES IN DEMAT OR PHYSICAL MODE.

8. WE CERTIFY THAT THE FOLLOWING DISCLOSURES HAVE BEEN MADE IN THE LETTER OF OFFER:

A) AN UNDERTAKING FROM THE BANK THAT AT ANY GIVEN TIME THERE SHALL BE ONLY ONE DENOMINATION FOR THE SHARES OF THE BANK AND

B) AN UNDERTAKING FROM THE BANK THAT IT SHALL COMPLY WITH SUCH DISCLOSURE AND ACCOUNTING NORMS SPECIFIED BY THE CENTRAL BOARD FROM TIME TO TIME.

The filing of the Letter of Offer does not, however, absolve the Bank from any liability, where applicable, under the relevant statutes, or from the requirement of obtaining such statutory or other clearance as may be required for the purpose of the proposed Issue. SEBI further reserves the right to take up, at any point of time, with the Lead Managers any irregularities or lapses in the Letter of Offer.

Caution The Bank and the Lead Managers accept no responsibility for statements made otherwise than in this

Letter of Offer or in any advertisement or other material issued by the Bank or by any other persons at the instance of the Bank and anyone placing reliance on any other source of information would be doing so at his own risk.

The Lead Managers and the Bank shall make all information available to the Equity Shareholders and no selective or additional information would be available for a section of the Equity Shareholders in any manner whatsoever including at presentations, in research or sales reports etc. after filing of this Letter of Offer with SEBI.

Disclaimer with respect to jurisdiction This Letter of Offer has been prepared under the provisions of Indian Laws and the applicable rules and

regulations there under. Any disputes arising out of this Issue will be subject to the jurisdiction of the appropriate court(s) in Mumbai, India only.

Selling Restrictions The distribution of this Letter of Offer and the Issue of Equity Shares on a rights basis to persons in

certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions. Persons in whose possession this Letter of Offer may come are required to inform themselves about and observe such restrictions. The Bank is making this Issue of Equity Shares on a rights basis only to the shareholders of the Bank and will dispatch the Abridged Letter of Offer and CAF to those shareholders who have an Indian address.

No action has been or will be taken to permit this Issue in any jurisdiction where action would be required for that purpose, except that this Letter of Offer has been filed with SEBI. Accordingly, the Equity Shares represented thereby may not be offered or sold, directly or indirectly, and this Letter of Offer may not be distributed in any jurisdiction outside of India. Receipt of the Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in such circumstances, the Letter of Offer must

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be treated as sent for information only and should not be copied or redistributed. No person receiving a copy of the Letter of Offer in any territory other than in India may treat the same as constituting an invitation or offer to him, nor should he in any event use the CAF. The Bank will not accept any CAF where the address as indicated by the applicant is not an Indian address. Accordingly, persons receiving a copy of the Letter of Offer should not, in connection with the issue of Equity Shares or the Rights Entitlements distribute or send the same in or into the United States or any other jurisdiction where to do so would or might contravene local securities laws or regulations. If the Letter of Offer is received by any person in any such territory, or by their agent or nominee, they must not seek to subscribe to the Equity Shares or the Rights Entitlements referred to in the Letter of Offer. Neither the delivery of this Letter of Offer nor any sale hereunder, shall under any circumstances create any implication that there has been no change in the Bank’s affairs from the date hereof or that the information contained herein is correct as of any time subsequent to this date.

The Letter of Offer was filed with the Designated Stock Exchange and a copy thereof was filed / will be filed with SEBI, Plot No.C4-A, ‘G’ Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051, prior to the Issue Opening Date.

United States Restrictions NEITHER THE RIGHTS ENTITLEMENTS NOR THE EQUITY SHARES THAT MAY BE

PURCHASED PURSUANT HERETO HAVE BEEN, OR WILL BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, RESOLD OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OF AMERICA OR THE TERRITORIES OR POSSESSIONS THEREOF (THE “UNITED STATES” OR THE “U.S.”) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, “US PERSONS” (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”)), EXCEPT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE RIGHTS REFERRED TO IN THIS LETTER OF OFFER ARE BEING OFFERED IN INDIA, BUT NOT IN THE UNITED STATES. THE ISSUE TO WHICH THIS LETTER OF OFFER RELATES IS NOT, AND UNDER NO CIRCUMSTANCES IS TO BE CONSTRUED AS, AN OFFERING OF ANY SHARES OR RIGHTS FOR SALE IN THE UNITED STATES OR AS A SOLICITATION THEREIN OF AN OFFER TO BUY ANY OF THE SAID SHARES OR RIGHTS. ACCORDINGLY, THIS LETTER OF OFFER SHOULD NOT BE FORWARDED TO OR TRANSMITTED IN OR INTO THE UNITED STATES AT ANY TIME. NEITHER THE BANK NOR ANY PERSON ACTING ON BEHALF OF THE BANK WILL ACCEPT SUBSCRIPTIONS OR RENUNCIATIONS FROM ANY PERSON, OR THE AGENT OF ANY PERSON, WHO APPEARS TO BE, OR WHO THE BANK OR ANY PERSON ACTING ON BEHALF OF THE BANK HAS REASON TO BELIEVE IS, IN THE UNITED STATES AND TO WHOM AN OFFER, IF MADE, WOULD RESULT IN REQUIRING REGISTRATION OF THIS LETTER OF OFFER WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. ANY PERSON SUBSCRIBING TO THE EQUITY SHARES OFFERED HEREBY WILL BE DEEMED TO REPRESENT THAT SUCH PERSON IS NOT IN THE UNITED STATES AND HAS NOT VIOLATED ANY U.S. SECURITIES LAWS IN CONNECTION WITH THE EXERCISE.

European Economic Area Restrictions In relation to each Member State of the European Economic Area which has implemented the

Prospectus Directive at any relevant time (each, a “Relevant Member State”) the Bank has not made and will not make an offer of the Equity Shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of Equity Shares to the public in that Relevant Member State at any time: (a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so

authorised or regulated, whose corporate purpose is solely to invest in securities; (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last

financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances which do not require the publication by the Bank of a prospectus pursuant to Article 3 of the Prospectus Directive.

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For the purpose of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restriction set out below.

United Kingdom Restrictions This Letter of Offer is only being distributed to and is only directed at (i) persons who are outside the

United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

Republic of Italy Restrictions The Issue of the Equity Shares has not been registered pursuant to Italian securities legislation and, accordingly, no Equity Shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the Equity Shares be distributed in the Republic of Italy, except:

(i) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and the relevant implementing CONSOB regulations, as amended from time to time, and in Article 2 of Directive No. 2003/71/EC of 4 November 2003; or

(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999, as amended (Regulation No. 11971).

Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other document relating to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:

(a) made by an investment firm, bank or financial intermediary permitted to conduct such activities in

the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the Banking Act); and

(b) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority.

Designated Stock Exchange The Designated Stock Exchange for the purposes of this Issue will be NSE.

Disclaimer Clause of BSE Bombay Stock Exchange Ltd. (“the Exchange”) has given vide its letter dated January 31, 2008 permission to this Bank to use the Exchange’s name in this Letter of Offer as one of the stock exchanges on which the Bank’s securities are proposed to be listed. As the proposed Rights Issue by the Bank is in terms of Clause 2.1.2A of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 no draft letter of offer has been filed with the Exchange and hence no scrutiny of the same has been carried out by the Exchange for any purpose. Further the Exchange’s permission to use the name of the Exchange as stated above, does not in any manner :

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i) warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer; or

ii) warrant that this Bank’s securities issued pursuant to the rights issue will be listed or will continue to be listed on the Exchange; or

iii) take any responsibility for the financial or other soundness of this Bank, its promoters, its management or any scheme or project of this Bank;

and it should not for any reason be deemed or construed to mean that the Letter of Offer has been cleared or approved by the Exchange. Every person who desires to apply for or otherwise acquires any securities of this Bank may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the Exchange whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever. Disclaimer Clause of Other Stock Exchanges

The Stock Exchanges do not in any manner (i) warrant, certify or endorse the correctness or completeness of any of the contents of the Letter of Offer; (ii) warrant that the Bank’s Equity Shares will be listed or will continue to be listed on the Stock Exchanges; or (iii) take any responsibility for the financial or other soundness of this Bank its management or any scheme or project of the Bank; and it should not for any reason be deemed or construed to mean that the Letter of Offer has been cleared or approved by the Stock Exchanges. Every person who desires to apply for or otherwise acquires any Equity Shares of the Bank may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.

Impersonation Any person who makes in a fictitious name an application to a Company for acquiring, or subscribing

for, any shares therein, or otherwise induces a Company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name, shall be punishable with the applicable penalties under the relevant statutes.

Dematerialised dealing The Bank has entered into agreements dated September 19, 2003 and September 2, 2003 with National

Securities Depository Limited and the Central Depository Services (India) Limited respectively, and its Equity Shares bear the ISIN No. INE062A01012.

Listing The existing Equity Shares are listed on the BSE and NSE. The Bank’s Equity Shares are also listed on

the CSE, MSE, ASE and DSE. The GDRs issued by the Bank are listed on the London Stock Exchange. The Bank has made applications to the BSE and NSE for permission to deal in and for an official quotation in respect of the Equity Shares being offered in terms of this Letter of Offer. The Bank has received in-principle approvals from the BSE and NSE by letters dated January 31, 2008 and January 30, 2008, respectively. The Bank will apply to the BSE and NSE for listing of the Equity Shares to be issued pursuant to this Issue after allotment.

If the permission to deal in and for an official quotation of the securities is not granted by any of the Stock Exchanges mentioned above, within 42 days from the Issue Closing Date, the Bank shall forthwith repay, without interest, all moneys received from applicants in pursuance of this Letter of Offer. If such money is not paid within eight days after the Bank becomes liable to repay it, then the Bank and every Director of the Bank who is an officer in default shall, on and from expiry of eight days, be jointly and severally liable to repay the money with interest.

Consents Consents in writing of the Auditors, Lead Managers, Legal Advisors and Registrar to the Issue to act in

their respective capacities have been obtained and filed with SEBI, along with a copy of the Letter of Offer and

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such consents have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges.

The Auditors of the Bank have given their written consent for the inclusion of their Report in the form and content as appearing in this Letter of Offer and such consents and reports have not been withdrawn up to the time of delivery of this Letter of Offer for registration with the stock exchanges.

To the best of the Bank’s knowledge there are no other consents required for making this Issue. However, should the need arise, necessary consents shall be obtained by the Bank.

Expert Opinion, if any Except in the sections titled “Auditor’s Report” on page [●] of this Letter of Offer, no expert opinion has

been obtained by the Bank in relation to this Letter of Offer.

Expenses of the Issue The expenses of the Issue payable by the Bank including brokerage, fees and reimbursement to the Lead

Managers, Auditors, Legal Advisors, Registrar to the Issue, printing and distribution expenses, publicity, listing fees, stamp duty and other expenses are estimated at Rs. 450 million (or approximately 0.27% of the total Issue size) and will be met out of the proceeds of the Issue.

Particulars (Approximate Expenditure)

Rs. in millions

% of net proceeds of

the Issue

% of total expenses of the

Issue

Fees to Intermediaries Fees paid to the Lead Managers, legal advisors, and auditors

66.4

0.04

14.76

Fees paid to the Registrar to the Issue 7.5 0.01 1.67 Statutory Fee 193.5 0.11 43.0 Advertising and marketing fees 60.0 0.04 13.33 Printing, Stationery and Despatch 51.8 0.03 11.51 Listing Fees 15.7 0.01 3.49 Others 55.1 0.03 12.24 Total 450.0 0.27 100.00

Fees Payable to the Lead Managers to the Issue The fees payable to the Lead Managers to the Issue are set out in the engagement letters issued by the

Bank to the Lead Managers entered into by the Bank with the Lead Managers.

Fees Payable to the Registrar to the Issue The fee payable to the Registrar to the Issue is as set out in the relevant documents, copies of which are

available for inspection at the Registered Office of the Bank.

Option to Subscribe Other than the present Issue, the Bank has not given any person any option to subscribe to the Equity

Shares of the Bank.

Stock Market Data for Equity Shares As the Bank’s shares are actively traded on the BSE and NSE, the Bank’s stock market data have been

given separately for each of these Stock Exchanges.

The high and low closing prices recorded on the BSE and NSE for the preceding three years and the number of Equity Shares traded on the days the high and low prices were recorded are stated below:

BSE

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Year ending March 31

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Average price for the year

(Rs.)

2005 ....................... 742.50 March 10, 2005 2,413,606 408.90 June 23, 2004 4,497,898 542.57 2006 ....................... 987.20 March 27, 2006 829,777 584.80 April 29, 2005 1,504,178 811.67 2007 ....................... 1,360.20 December 1, 2006 570,209 689.50 July 19, 2006 616,699 997.31

The average price has been computed based on the daily closing price of Equity Shares.

NSE

Year ending March 31

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Average price for the year

(Rs.)

2005.................. 742.10 March 10, 2005 4,445,800 408.70 June 23, 2004 8,785,496 542.602006.................. 987.80 March 27, 2006 1,601,136 584.85 April 29, 2005 2,755,033 811.802007.................. 1,621.00 December 1, 2006 1,612,467 690.50 June 19, 2006 953,135 997.58

The average price has been computed based on the daily closing price of Equity Shares.

The high and low prices and volume of Equity Shares traded on the respective dates during the last six months is as follows:

BSE

Month, Year

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Averageprice forthe year

(Rs.)

July, 2007.. 1,624.50 July 31, 2007 1,744,850 1,500.05 July 27, 2007 955,457 1,567.34August,

2007 ..... 1,705.95 August 8, 2007 473,284 1,415.05 August 23, 2007 846,614 1,571.81September,

2007 ..... 1,950.70 September 28, 2007 748,727 1,594.45 September 5, 2007 546,578 1,713.90October,

2007 ..... 2,117.85 October 29, 2007 970,131 1,667.60 October 19, 2007 637,197 1,897.03November,

2007 ..... 2,346.15 November 14, 2007 446,666 2,070.85 November 1, 2007 1,051,347 2,248.58December,

2007 ..... 2,445.85 December 11, 2007 247,361 2,258.30 December 19,2007 271,787 2,368.46 The average price has been computed based on the daily closing price of Equity Shares.

NSE

Month, Year

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Average price for the year

(Rs.)

July, 2007 .. 1,623.85 July 31, 2007 3,673,699 1,498.75 July 27, 2007 2,150,967 1,567.70 August,

2007...... 1,706.85 August 8, 2007 1,106,862 1,414.75 August 23, 2007 2,113,602 1,571.66September,

2007...... 1,945.85 September 28, 2007 2,672,350 1,594.25 September 5, 2007 1,265,135 1,713.67 October,

2007...... 2,116.70 October 29, 2007 2,207,285 1,667.10 October 19, 2007 1,774,173 1,896.68 November,

2007...... 2,353.85 November 14, 2007 1,368,083 2,075.35 November 1, 2007 2,143,188 2,249.98

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Month, Year

High (Rs.)

Date of High

Volume on date of high

(no. of shares)

Low (Rs.)

Date of Low

Volume on date of low

(no. of shares)

Average price for the year

(Rs.)

December, 2007...... 2,447.75 December 11, 2007 681,531 2,256.55 December 19,2007 647,234 2,366.13

The average price has been computed based on the daily closing price of Equity Shares.

The market price was Rs. 2,414.35 on BSE on January 15, 2008, the trading day immediately following the day on which the Central Board meeting was held to finalize the offer price for the Issue.

The market price was Rs. 2,423.45 on NSE on January 15, 2008, the trading day immediately following the day on which the Central Board meeting was held to finalise the offer price for the Issue.

There have not been any transactions in Equity Shares by the Bank and directors of the Bank during the last six months from the date of this Letter of Offer other than those mentioned in the section “Capital Structure” on page [●] of this Letter of Offer.

Important: • This Issue is pursuant to the approval of the Government (F.No.11/16/2005-BOA) dated

January 2, 2008, approval of the Government’s (Letter No. F/ 11/ 7/ 2007- BOA) dated December 3, 2007, the resolution passed by the Central Board at its meetings held on January 14, 2008. This Letter of Offer has been approved by the Central Board at its meeting held on February 1, 2008.

• This Issue is applicable to those Equity Shareholders whose names appear as beneficial owners as per the list to be furnished by the depositories in respect of the shares held in the electronic form and on the Register of Members of the Bank at the close of business hours on the Record Date of February 4, 2008, after giving effect to the valid share transfers lodged with the Bank up to the Record Date of February 4, 2008 and who have provided an Indian address for communication.

• Your attention is drawn to the section entitled “Risk Factors” appearing on page [●] of this Letter of Offer/Abridged Letter of Offer.

• Please ensure that you have received the Composite Application Forms (“CAF”) with this Letter of Offer/Abridged Letter of Offer.

• Please read the Letter of Offer and the instructions contained therein and in the CAF carefully before filling in the CAFs. The instructions contained in the CAF are each an integral part of this Letter of Offer and must be carefully followed. An application is liable to be rejected for any non-compliance of the provisions contained in the Letter of Offer or the CAFs.

• All enquiries in connection with the Letter of Offer or CAFs should be addressed to the Registrar to the Issue, quoting the Registered Folio number/ DP and Client ID number and the CAFs numbers as mentioned in the CAFs.

• All information shall be made available to the Investors by the Lead Managers and the Bank , and no selective or additional information would be available by them for any section of the Investors in any manner whatsoever including at road shows, presentations, in research or sales reports, etc.

• The Bank shall update the Letter of Offer and keep the public informed of any material changes till the listing and trading commences.

Issue Schedule

Issue Opening Date:............................................................................................ February 18, 2008 Last date for receiving requests for split forms: .............................................. March 3, 2008 Issue Closing Date: ............................................................................................. March 18, 2008

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The Central Board may however decide to extend the issue period as it may determine from time to time but not exceeding 60 days from the Issue Opening Date.

Allotment Advices / Refund Orders The Bank will issue and dispatch allotment advice/share certificates/demat credit and/or letters of regret

along with refund order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of 42 days from the date of closure of the Issue. If such money is not repaid within eight days from the day the Bank becomes liable to pay it, the Bank shall pay that money with interest as stipulated under the applicable statutes.

Applicants residing at centres where clearing houses are managed by the RBI will get refunds through ECS only (Electronic Clearing Service) except where Applicants are otherwise disclosed as applicable/eligible to get refunds through direct credit and RTGS.

In the case of those Applicants who have opted to receive Equity Shares subscribed in the Issue in dematerialised form using electronic credit under the depository system, advice regarding their credit of the Equity Shares shall be given separately. Applicants to whom refunds are made through electronic transfer of funds will be sent a letter through ordinary post informing them of the mode of credit of refund within 42 working days of closure of the Issue.

In the case of those Applicants who have opted to receive Equity Shares subscribed in the Issue in physical form and the Bank issues an allotment advice, the corresponding share certificates will be dispatched within one month from the date of allotment. For more information please refer to the section titled ‘Allotment advice/Share Certificates/Demat Credit’ on page [●] of this Letter of Offer.

The refund order exceeding Rs. 1,500 would be sent by registered post/speed post to the sole/first Applicant’s registered address. Refund orders up to the value of Rs. 1,500 would be sent under certificate of posting. Such refund orders would be payable at par at all places where the applications were originally accepted. The same would be marked ‘Account Payee only’ and would be drawn in favour of the sole/first Applicant. Adequate funds would be made available to the Banker to the Issue for this purpose.

Disputed Shares

Equity Shares which are the subject matter of a dispute or sub-judice will not be allotted pending resolution of the dispute in accordance with the Bank’s policy or receipt of an order from the relevant court or authority removing the restriction thereon. Such shares will be held in abeyance and retained separately by the Bank.

Investor Grievances and Redressal System The Bank has adequate arrangements for redressal of Investor complaints. Well-arranged correspondence

system has been developed for letters of routine nature. The Bank has a separate department, the Shares and Bonds department, at Corporate Centre to oversee the functioning of the Registrars in handling investors / shareholders complaints. Further, in pursuance of clause 49 of the Listing Agreement with the stock exchange, Shareholders’ / Investors’ Grievance Committee of the Board reviews matters relating to investors’ complaints on various issues, at quarterly intervals.

The contact details of the share registrars are: Datamatics Financial Services Ltd. A 16 & 17, MIDC Part B Crosslane, Andheri (East), Mumbai 400 093 Tel.: (91 22) 6671 2151 - 2156 Fax: (91 22) 6671 2192 Email: sbirights@dfssl.com Website: www.dfssl.com Contact Person: Mr. Dnyanesh Gharote

Status of Complaints (a) Total number of shareholder complaints received during last financial year (2006-2007): 3,699

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(b) Total number of complaints received during current financial year (up to December 31, 2007): 4,802

(c) Status of the complaints: Out of the 3,699 outstanding complaints in fiscal year 2007, the Bank has resolved 3,681 complaints and 18 complaints are sub-judice. All the complaints received thus far in fiscal year 2008 have been resolved excepting 18 sub-judice cases.

(d) Time normally taken for disposal of various types of Investor grievances: 30 days.

Investor Grievances arising out of this Issue The Bank’s investor grievances arising out of the Issue will be handled by Datamatics Financial Services

Ltd., who is the Registrar to the Issue. The Registrar will have a separate team of personnel handling only post-Issue correspondence. The agreement between the Bank and the Registrar will provide for retention of records with the Registrar for a period of at least one year from the last date of dispatch of Allotment Advice/ share certificate / warrant / refund order to enable the Registrar to redress grievances of Investors.

All grievances relating to the Issue may be addressed to the Registrar to the Issue giving full details such as folio number, name and address, contact telephone / cell phone numbers, email id of the first applicant, number and type of shares applied for, Application Form serial number, amount paid on application and the name of the bank and the branch where the application was deposited, along with a photocopy of the acknowledgement slip. In case of renunciation, the same details of the Renouncee should be furnished.

The average time taken by the Registrar for attending to routine grievances will be 21 days from the date of receipt. In case of non-routine grievances where verification at other agencies is involved, the Registrar will attend to them as expeditiously as possible. The Bank undertakes to resolve Investor grievances in a timely manner.

Investors may contact the Compliance Officer in case of any pre-Issue/ post -Issue related problems such as non-receipt of allotment advice/share certificates/ demat credit/refund orders etc. His address is as follows: Mr. Subrata Maiti General Manager (Shares & Bonds Department) State Bank of India Tel.: (99 22) 2288 3888 Fax: (99 22) 2285 5348 Email: gm.snb@sbi.co.in Website: www.statebankofindia.com; www.sbi.co.in Datamatics Financial Services Ltd. A 16 & 17, MIDC Part B Crosslane, Andheri (East), Mumbai 400 093 Tel.: (91 22) 6671 2001- 2006 Fax: (91 22) 6671 2011 Email: sbirights@dfssl.com Website: www.dfssl.com Contact Person: Mr Dnyanesh Gharote Changes in Auditors In 2004-05 Sr No Auditors who left during the year Auditors who joined during the year 1 M/s. Vyas & Vyas M/s.Khandelwal Jain & Co. 2 M/s. S.P. Chopra & Co. M/s. Vinay Kumar & Co. 3 M/s. R. Devendra Kumar & Associates M/s. Kanwalia & Co. 4 M/s. K.S. Aiyar & Co. M/s. M.M. Nissim & Co. 5 M/s. B.D. Bansal & Co. M/s. Patro & Co.

294

In 2005-06 Sr No Auditors who left during the year Auditors who joined during the year 1 M/s. S. Viswanathan M/s. R.G.N. Price & Co. 2 M/s. Venugopal & Chenoy M/s. Laxminiwas & Jain 3 M/s. O.P.Totla & Co. M/s. S.K.Mittal & Co. 4 M/s. Patro & Co. M/s. M. Choudhary & Co. 5 M/s. Sarma & Co. M/s. Vardhaman & Co. 6 M/s. Phillipos & Co. In 2006-07 Sr No Auditors who left during the year Auditors who joined during the year 1 M/s. B.M. Chatrath & Co. M/s. D.P.Sen & Co. 2 M/s. G.S. Mathur & Co. M/s. Jain Kapila Associates 3 M/s. Kanwalia & Co. M/s. G.M. Kapadia & Co. 4 M/s. K.P. Rao & Co. M/s. Datta Sangla & Co. In 2007-08 (From April 1, 2007 to December 31, 2007) Sr No

Auditors who left during the year Auditors who joined during the year

Nil Nil

Capitalisation of Reserves or Profits The Bank has not capitalised any of its reserves or profits for the last five years other than those

mentioned in the section “Capital Structure” on page [●] of the Letter of Offer.

Revaluation of Fixed Assets There has been no revaluation of the Bank’s fixed assets for the last five years.

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TERMS OF THE PRESENT ISSUE

The Bank, through this Letter of Offer, is offering on a rights basis 105,259,776 Equity Shares of Rs. 10 each at a premium of Rs. 1580 per Equity Share aggregating to an amount equivalent to Rs. 167,363.04 million. The Equity Shares proposed to be issued on rights basis, are subject to the terms and conditions contained in this Letter of Offer, Abridged Letter of Offer, the enclosed Composite Application Forms (“CAFs”), the provisions of the Act, State Bank of India General Regulations, 1955, and the Banking Regulation Act, 1949, guidelines issued by SEBI, guidelines, notifications and regulations for issue of capital and for listing of securities issued by the Government, the RBI and/or other statutory authorities and bodies from time to time, terms and conditions as stipulated in the allotment advice or security certificate and rules as may be applicable and introduced from time to time.

Authority for the Issue As required by Section 5(3) of the Act, the Central Government has, by its letter (no. F.No.11/16/2005-

BOA) dated January 2, 2008, authorised the increase in the issued capital of the Bank. Further, in terms of Section 5(2) of the Act, this rights issue, with a right to renounce, has been authorised by the Central Board pursuant to the resolution passed at its meetings held on January 14, 2008. This Letter of Offer has been approved by the Central Board at its meeting held on February 1, 2008.

Basis for the Issue The Equity Shares are being offered for subscription for cash to those existing Equity Shareholders of the

Bank, except the Government whose names appear as beneficial owners as per the list to be furnished by the depositories in respect of the Equity Shares held in dematerialised form and on the Register of Members of the Bank in respect of the Equity Shares held in physical form at the close of business hours on the Record Date of February 4, 2008, fixed in consultation with the Designated Stock Exchange. The Government, though, will subscribe to the Equity Shares through an issue of SLR Marketable Government Securities in lieu of cash.

Ranking of Equity Shares The Equity Shares allotted in this Issue shall be pari passu with the existing Equity Shares in all respects including dividend.

Rights Entitlement As your name appears as beneficial owner in respect of Equity Shares held in the electronic form or

appears in the register of members as an Equity Shareholder of the Bank as on February 4, 2008 i.e. Record Date, you are entitled to the number of Equity Shares as set out in Part A of the enclosed CAFs. The eligible Equity Shareholders are entitled to 1 Equity Share for every 5 Equity Shares held on Record Date.

PRINCIPAL TERMS OF EQUITY SHARES Face Value

Each Equity Share shall have the face value of Rs. 10 per Equity Share.

Issue Price Each Equity Share shall be offered at an Issue Price of Rs. 1,590 for cash at a premium of Rs. 1,580 per

Equity Share.

Entitlement Ratio The Equity Shares are being offered on a rights basis to the existing Equity Shareholders of the Bank in

the ratio of 1 Equity Share for every 5 Equity Shares held as on Record Date.

Fractional Entitlements

For Equity Shares being offered on a rights basis under this Issue, if the shareholding of any of the Equity Shareholders is less than 5 Equity Shares or is not a multiple of five, the fractional entitlement of such

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Shareholders shall be ignored for the purpose of entitlement. Shareholders whose fractional entitlements are being ignored would be given preference in allotment of one additional Equity Share each if they apply for additional Equity Share(s).

For example if an Equity Shareholder holds between five and ten Equity Shares, he will be entitled to 1

Equity Share on a rights basis. He will also be given a preference for allotment of one additional Equity Share if he has applied for the same.

Those Equity Shareholders who have a holding of less than five Equity Shares and are therefore entitled to zero Equity Shares under this Issue shall be despatched a CAF with zero entitlement. Such equity shareholders are entitled to apply for additional Equity Shares. However, they cannot renounce the same in favour of third parties. CAFs with zero entitlement will be non-negotiable/non-renouncable.

For example if an Equity Shareholder holds between one and four Equity Shares, he will be entitled to

Nil Equity Shares on a rights basis. He will be given a preference for allotment of one additional Equity Share if he has applied for additional Equity Share(s).

Please see, "Basis of Allotment" on page [●].

Terms of Payment Full amount of Rs. 1,590 per Equity Share is payable on application.

The payment towards the Equity Shares offered will be applied as under:

Rs. 10 per share Towards Share Capital

Rs. 1580 per shareTowards Securities Premium Account

The Government has issued a letter of commitment towards the amount to be subscribed. The Government will subscribe to the Equity Shares through an issue of SLR marketable Government bonds in lieu of cash.

Rights of the Equity Shareholder Subject to applicable laws, the equity shareholders shall have the following rights:

• right to receive dividend, if declared; • right to attend general meetings and exercise voting powers, unless prohibited by law; • right to vote on a poll in person or by proxy; • right to receive offers for rights shares and be allotted bonus shares, if announced; • right to receive surplus on liquidation; • right to free transferability of shares; and • such other rights as may be available to a shareholder of the Bank as prescribed by the Act, State Bank of

India General Regulations, 1955 and the Banking Regulation Act, 1949. Note: Only registered equity shareholders (or in case of joint holders, those whose names appear first on the

Register of Members/ list of beneficial owners in the records of the Bank) shall be entitled to these rights.

No Offer in the United States

The Rights Entitlement and the Equity Shares of the Bank have not been and will not be registered under the Securities Act, or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof or to, or for the account or benefit of, “U.S. Persons” (as defined in Regulation S under the Securities Act), except in a transaction exempt from the registration requirements of the Securities Act. The Rights Entitlement referred to in this Letter of Offer is being offered in India, but not in the United States. The Issue to which this Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any shares or rights for sale in the United States or as a

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solicitation therein of an offer to buy any of the said shares or rights. Accordingly, this Letter of Offer should not be forwarded to or transmitted in or into the United States at any time.

Neither the Bank nor any person acting on behalf of the Bank will accept subscriptions from any person, or the agent of any person, who appears to be, or who the Bank or any person acting on behalf of the Bank has reason to believe is, a resident of the United States and to whom an offer, if made, would result in requiring registration of this Letter of Offer with the United States Securities and Exchange Commission.

European Economic Area Restrictions

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive at any relevant time (each, a “Relevant Member State”) an offer of the Equity Shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer to the public in that Relevant Member State of any Equity Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Equity Shares shall result in a requirement for the publication by the Bank or any Manager of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purpose of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

This European Economic Area selling restriction is in addition to any other selling restriction set out below.

United Kingdom Restrictions This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Republic of Italy Restrictions The Issue of the Equity Shares has not been registered pursuant to Italian securities legislation and, accordingly, no Equity Shares may be offered, sold or delivered, nor may copies of this document or of any other document relating to the Equity Shares be distributed in the Republic of Italy, except:

(i) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February, 1998, as amended (the Financial Services Act) and the relevant

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implementing CONSOB regulations, as amended from time to time, and in Article 2 of Directive No. 2003/71/EC of 4 November, 2003; or

(ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May, 1999, as amended (Regulation No. 11971).

Any offer, sale or delivery of the Equity Shares or distribution of copies of this document or any other document relating to the Equity Shares in the Republic of Italy under (i) or (ii) above must be:

(a) made by an investment firm, bank or financial intermediary permitted to conduct such

activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No. 16190 of 29 October, 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September, 1993, as amended (the Banking Act); and

(b) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority.

GENERAL TERMS OF THE PRESENT ISSUE Market lot

The Equity Shares of the Bank are tradable only in dematerialised form. The market lot for Equity Shares in dematerialised mode is 1. In case of holding of Equity Shares in physical form, the Bank would issue to the allottees one certificate for the Equity Shares allotted to each folio (“Consolidated Certificate”).

Joint Holders Where two or more persons are registered as the holders of any Equity Shares, they shall be deemed to

hold the same as joint tenants with the benefit of survivorship.

Nomination

In terms of the Act, nomination facility is not available to Shareholders.

In case the allotment of Equity Shares is in dematerialised form, there is no need to make a separate nomination for the Equity Shares to be allotted in this Issue. Nominations registered with respective Depositary Participant (“DP”) of the applicant would prevail. Any applicant desirous of changing the existing nomination is requested to inform its respective DP.

Notices All notices to the Equity Shareholder(s) required to be given by the Bank shall be published in one

English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language daily newspaper with wide circulation and/or will be sent by ordinary post / registered post / speed post to the registered holders of the Equity Share from time to time.

Listing and trading of Equity Shares

The Bank’s existing Equity Shares are currently traded on the Stock Exchanges under the ISIN SBIN. The fully paid up Equity Shares proposed to be issued on a rights basis shall be listed and admitted for trading on the BSE and NSE under the existing ISIN for fully paid Equity Shares of the Bank. The fully paid up Equity Shares allotted pursuant to this Issue will be listed as soon as practicable but in no case later than 10 days from the date of allotment. The Bank has received in-principle approval from the BSE through its letter no. DCS/PREF/JA/IP-RT/3109/07-08 dated January 31, 2008 and from NSE through its letter no. NSE/LIST/65582-E dated January 30, 2008. The GDRs with respect to the Equity Shares of the Bank issued by Bank of New York as depositary (“Depository”) are currently listed on the London Stock Exchange pursuant to the Deposit Agreement dated October 10, 1996 (“Deposit Agreement”).

The Bank has agreed in the Deposit Agreement that it will, unless prohibited by applicable law, give its consent to, and, if requested, use all reasonable endeavours to facilitate any such distribution, sale or subscription by the Depositary or the Holders. However, if the Bank notifies the Depositary that registration is required in any jurisdiction under an applicable law of the rights or securities to be distributed for the Depositary

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to be able to offer such rights or distribute such securities to the Holders and to sell the securities represented by such rights, the Depositary will not offer such rights or distribute such securities to the Holders unless and until the Bank notifies the Depositary that the necessary registration has been effected. Neither the Bank nor the depositary shall be liable to register such rights or securities and they shall not be liable for any losses, damages or expenses resulting from any failure to do so.

The distribution of this Letter of Offer and the issue of Equity Shares on a rights basis to persons in certain jurisdictions outside India may be restricted by legal requirements prevailing in those jurisdictions.

The Bank is making this issue of Equity Shares on a rights basis only to the shareholders of the Bank who have an Indian address.

Minimum Subscription If the Bank does not receive a minimum subscription of 90% of the Issue, the Bank shall forthwith refund

the entire subscription amount received within 42 days from the date of closure of the Issue. If there is a delay beyond eight days after the date from which the Bank becomes liable to pay the amount (i.e. 42 days after closure of the Issue), the Bank shall pay interest calculated at the rate of 15%.

Subscription by the Government

In terms of the Government’s Letter (No. F/No. 11/16/ 2005- BOA) dated January 2, 2008, the Bank has been granted approval under Section 5(3) of the Act approving the increase in the Bank’s issued capital from Rs. 526.30 crores to Rs. 650 crores. Further, in terms of the Government’s Letter (Letter No. F/ 11/ 7/ 2007- BOA) dated December 3, 2007, the Government has intimated to the Bank that the cabinet has granted its approval for investing approximately Rs. 10,000 crores in the Issue by issuing SLR marketable government securities (the “SLR Securities”) towards the Government’s Rights Entitlement. The Government has advised the Bank to complete the entire process by March 31, 2008, to avail the benefit of the Issue proceeds for the purpose of ensuring capital adequacy for the Financial Year 2008. The process of subscription by the Government will be as follows:

1. The Government will subscribe to Equity Shares to the extent mentioned in its letter dated December 3, 2007, (mentioned above). The consideration for the same will be the SLR Securities. Accordingly, the Government has agreed to issue a letter of commitment on or before the date of closure of the Issue. In line with the Government’s decision, the Bank proposes to treat the aforesaid letter of commitment issued by the Government as part of the minimum subscription portion of the Issue in terms of SEBI (DIP) Guidelines.

2. Subsequent to the issue of the letter of commitment by the Government and after the closure of the Issue, the Government will issue the requisite number of SLR Securities worth the aggregate price of the Equity Shares constituting its entitlement in the Issue. Payment by the Government will be made on the date of allotment, against the simultaneous allotment of Equity Shares by the Bank.

3. The Government will create a separate securities redemption fund to redeem the SLR Securities.

Procedure for Application The CAF for Equity Shares would be printed in black ink for all Equity Shareholders. In case the original

CAF is not received by the applicant or is misplaced by the applicant, the applicant may request the Registrars to the Issue, for issue of a duplicate CAF, by furnishing the registered folio number, DP ID Number, Client ID Number and their full name and address.

Acceptance of the Issue You may accept the Issue and apply for the Equity Shares, either in full or in part, by filling Part A of the

enclosed CAFs and submitting the same along with the application money payable to State Bank of India or any of the collection branches as mentioned on the reverse of the CAF before the close of the business hours on or before the Issue Closing Date or such extended time as may be specified by the Central Board of Directors of the Bank in this regard. Applicants at centres not covered by the branches of collecting banks can send their CAF together with the cheque drawn at par on a local bank at Mumbai/demand draft payable at Mumbai to the

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Registrar to the Issue by registered post. Such applications sent to anyone other than the Registrar to the Issue are liable to be rejected.

Option available to the Equity Shareholders The CAF clearly indicates the number of Equity Shares that the Equity Shareholder is entitled to.

If the Equity Shareholder applies for an investment in Equity Shares, then he can:

• apply for his entitlement of Equity Shares in full; • apply for his entitlement in full and apply for additional Equity Shares; • apply for his entitlement of Equity Shares in part; • apply for his entitlement of Equity Shares in part and renounce the other part of the Equity Shares.

Renunciation This Issue includes a right exercisable by you to renounce the Equity Shares offered to you either in full or

in part in favour of any other person or persons. Your attention is drawn to the fact that the Bank shall not allot and/or register any Equity Shares in favour of more than three persons (including joint holders), partnership firm(s) or their nominee(s), minors, HUF, any society (unless the same is registered under the Societies Registration Act, 1860 or any other applicable law relating to societies and is authorised under its constitution or bye-laws to hold Equity Shares, as the case may be).

Any renunciation from Resident Indian Shareholder(s) to eligible Non-resident Indian(s) or from eligible Non-resident Indian Shareholder(s) to Resident Indian(s) or from eligible Non-resident Indian shareholder(s) to other eligible Non-resident Indian(s) is subject to the renouncer(s)/renouncee(s) obtaining the approval of the FIPB and/or necessary permission of the RBI under the FEMA and such permissions should be attached to the CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected.

By virtue of Circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate Bodies (“OCBs”) have been derecognised as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly, the existing Equity Shareholders of the Bank who do not wish to subscribe to the Equity Shares being offered but wish to renounce the same in favour of renouncees shall not renounce the same (whether for consideration or otherwise) in favour of OCB(s).

Part ‘A’ of the CAF must not be used by any person(s) other than those in whose favour this offer has been made. If used, this will render the application invalid. Submission of the enclosed CAF to the Banker to the Issue at its collecting branches specified on the reverse of the CAF with the form of renunciation (Part ‘B’ of the CAF) duly filled in shall be conclusive evidence for the Bank of the person(s) applying for Equity Shares in Part ‘C’ of the CAF to receive allotment of such Equity Shares. The renouncees applying for all the Equity Shares renounced in their favour may also apply for additional Equity Shares. Part ‘A’ of the CAF must not be used by the renouncee(s) as this will render the application invalid. Renouncee(s) will have no further right to renounce any Equity Shares in favour of any other person. Procedure for renunciation To renounce all the Equity Shares offered to a shareholder in favour of one renouncee

If you wish to renounce the offer indicated in Part ‘A’, in whole, please complete Part ‘B’ of the CAF. In case of joint holding, all joint holders must sign Part ‘B’ of the CAF. The person in whose favour renunciation has been made should complete and sign Part ‘C’ of the CAF. In case of joint renouncees, all joint renouncees must sign this part of the CAF.

To renounce in part/or renounce the whole to more than one person(s) If you wish to either accept this offer in part and renounce the balance or renounce the entire offer under

this Issue in favour of two or more renouncees, the CAF must be first split into requisite number of forms. For this purpose you will have to apply to the Registrar to the Issue.

Please indicate your requirement of split forms in the space provided for this purpose in Part ‘D’ of the CAF and return the entire CAF to the Registrar to the Issue so as to reach them at the latest by the close of

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business hours on the last date of receiving requests for split forms. On receipt of the required number of split forms from the Registrar, the procedure, as described above, shall have to be followed.

In case the signature of the Equity Shareholder(s), who has renounced the Equity Shares, does not agree with the specimen registered with the Bank, the application is liable to be rejected.

Renouncee(s) The person(s) in whose favour the Equity Shares are renounced should fill in and sign Part ‘C’ of the

Application Form and submit the entire Application Form to the Bankers to the Issue or to the collection centres to the Issue on or before the Issue Closing Date along with the application money in full.

Change and/or introduction of additional holders If you wish to apply for Equity Shares jointly with any other person(s), not more than three, who is/are not

already a joint holder with you, it shall amount to renunciation and the procedure as stated above for renunciation shall have to be followed. Even a change in the sequence of the name of joint holders shall amount to renunciation and the procedure, as described above, shall have to be followed.

However, this right of renunciation is subject to the express condition that the Bank shall be entitled in its absolute discretion to reject the request for allotment from the renouncee(s) without assigning any reason thereof.

Instructions for Options Please note that:

• Part ‘A’ of the CAF must not be used by any person(s) other than the Equity Shareholder to whom this Letter of Offer has been addressed. If used, this will render the application invalid.

• Requests for split forms should be made for a minimum of one Equity Share and will only be accepted from Equity Shareholders whose entitlement is more than ten shares.

• Requests by the applicant for the split application form should reach the Registrar to the Issue on or before March 3, 2008.

• Only the Equity Shareholder to whom this Letter of Offer has been addressed shall be entitled to renounce and to apply for split application forms. Forms once split cannot be split further.

• Split form(s) will be sent to the applicant(s) by post at the applicant’s risk.

Additional Equity Shares You are eligible to apply for additional Equity Shares over and above the number of Equity Shares you

are entitled to, provided that you have applied for all the Equity Shares offered, as the case may be, without renouncing them in whole or in part in favour of any other person(s). Applications for additional Equity Shares shall be considered and allotment shall be in the manner prescribed under the section entitled ‘Basis of Allotment’ on page [●] of this Letter of Offer.

Where the number of additional Equity Shares applied for exceeds the number available for allotment, the allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange.

Allotment of additional Equity Shares applied to under the Issue will be subject to applicable foreign ownership restrictions. Please see paragraph entitled "Foreign Ownership Restrictions" in "Regulations and Policies" on page [●] of this Letter of Offer.

The summary of options available to the Equity Shareholder is presented below. You may exercise any of the following options with regard to the Equity Shares offered, using the enclosed CAFs:

Option Available Action Required 1. Accept all or part of your entitlement without renouncing

the balance. Fill in and sign Part A. (All joint holders must sign)

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Option Available Action Required 2. Accept your entitlement in full and apply for

additional Equity Shares. Fill in and sign Part A including Block III relating to the acceptance of entitlement and Block IV relating to additional Equity Shares. (All joint holders must sign)

3. Renounce your entitlement in full to one person

(joint renouncees are considered as one). Fill in and sign Part B (all joint holders must sign) indicating the number of Equity Shares renounced and hand it over to the renouncee. The renouncees must fill in and sign Part C. (All joint renouncees must sign)

4. Accept a part of your entitlement and renounce

the balance to one or more renouncee(s).

OR Renounce your entitlement to all the Equity Shares offered to you to more than one renounce.

Fill in and sign Part D (all joint holders mustsign) requesting for Split Application Forms.Send the CAF to the Registrar to the Issue so asto reach them on or before the last date forreceiving requests for Split Forms. Splitting willbe permitted only once. On receipt of the Split Form take action asindicated below. For the Equity Shares you wish to accept, if any,fill in and sign Part A. For the Equity Shares you wish to renounce, fill in and sign Part B indicating the number of Equity Shares renounced and hand it over to the renouncees. Each of the renouncees should fill in and sign Part C for the Equity Shares accepted by them.

5. Introduce a joint holder or change the sequence of

joint holders. This will be treated as a renunciation. Fill in and sign Part B and the renouncees must fill in and sign Part C.

Availability of duplicate CAF In case the original CAF is not received, or is misplaced by the applicant, the Registrar to the Issue will

issue a duplicate CAF on the request of the applicant who should furnish the registered folio number/DP and Client ID number and his/ her full name and address to the Registrar to the Issue. Please note that the request for a duplicate CAF should reach the Registrar to the Issue within 15 days from the Issue Opening Date. Please note that those who are making the application in the duplicate form should not utilise the original CAF for any purpose including renunciation, even if it is received/found subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications.

Application on Plain Paper An Equity Shareholder who has neither received the original CAF nor is in a position to obtain the

duplicate CAF may make an application to subscribe to the Issue on plain paper, along with Demand Draft, net of bank and postal charges payable at Mumbai which should be drawn ‘SBI Rights Issue’ or ‘SBI Rights Issue- NR’ and send the same by registered post directly to the Registrar to the Issue.

The envelope should be superscribed “SBI—Rights Issue” and should be postmarked in India. The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with the Bank, must reach the office of the Registrar to the Issue before the Issue Closing Date and should contain the following particulars:

• Name of Issuer, being State Bank of India.

• Name and address of the Equity Shareholder including joint holders.

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• Registered Folio Number/DP and Client ID no.

• Number of Equity Shares held as on Record Date. • Number of Rights Equity Shares entitled (i.e. number of Equity Shares held on Record date divided

by five). • Number of Rights Equity Shares applied for. • Number of additional Equity Shares applied for, if any. • Total number of Equity Shares applied for. • Total amount paid at the rate of Rs. 1590 per Equity Share. • Particulars of cheque/draft. • Savings/Current Account Number and name and address of the bank where the Equity Shareholder

will be depositing the refund order. • PAN of the applicant and for each applicant in case of joint names, irrespective of the total value of

the Equity Shares applied for pursuant to the Issue. However, in terms of SEBI letter no. CFD/ DIL/SM/ 113422 dated January 10, 2008, shareholders of the Bank holding shares up to / including 100 Equity Shares are exempted from quoting the PAN.

• Representation that the Equity Shareholder is not in the United States at the time of making the application.

• Signature of Equity Shareholders to appear in the same sequence and order as they appear in the records of the Bank.

Please note that those who are making the application otherwise than on original CAF shall not be entitled to renounce their rights and should not utilise the original CAF for any purpose including renunciation even if it is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications. The Bank shall refund such application amount to the applicant without any interest thereon.

Last date of Application The last date for submission of the duly filled in CAF is March, 18 2008. The Issue will be kept open for a

minimum of 30 (thirty) days and the Central Board or any committee thereof will have the right to extend the said date for such period as it may determine from time to time but not exceeding 60 (sixty) days from the Issue Opening Date.

If the CAF/plain paper application together with the amount payable is not received by the Banker to the Issue/Registrar to the Issue on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Central Board/Committee of Directors, the offer contained in this Letter of Offer shall be deemed to have been declined and the Central Board/Committee of Directors shall be at liberty to dispose of the Equity Shares hereby offered, as provided under the section “Basis of Allotment”.

INVESTORS PLEASE NOTE THAT THE EQUITY SHARES OF THE BANK CAN BE TRADED ON THE STOCK EXCHANGES ONLY IN DEMATERIALISED FORM.

Basis of Allotment Subject to the provisions contained in this Letter of Offer, the provisions of the Act, State Bank of India

General Regulations, 1955, and the approval of the Designated Stock Exchange, the Central Board will proceed to allot the Equity Shares in the following order of priority:

(a) Full allotment to those Equity Shareholders who have applied for their Rights Entitlement either in full or in part and also to the renouncee(s) who has/have applied for Equity Shares renounced in their favour, in full or in part. Allotment to renouncee(s) shall be subject to applicable regulations including regulations relating to foreign shareholding limit. The existing permissible foreign investment limit in the Bank as prescribed by the RBI is 20%. Presently, the total foreign holding is 19.8%.

(b) For Equity Shares being offered on a rights basis under this Issue, if the shareholding of any of the Equity Shareholders is less than five Equity Shares or is not a multiple of five, the fractional entitlement of such Shareholders shall be ignored. Shareholders whose fractional entitlements are being ignored would be given

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preferential allotment of one additional Equity share for each Shareholder if they apply for additional share(s). Allotment under this head shall be considered if there are any unsubscribed Equity Shares after allotment under (a) above. If the number of Equity Shares required for allotment under this head is more than the number of shares available after allotment under (a) above, the allotment would be made on a fair and equitable basis in consultation with the Designated Stock Exchange.

(c) Allotment to the Equity Shareholders who, having applied for all the Equity Shares offered to them as part of the Issue, have also applied for additional Equity Shares. The allotment of such additional Equity Shares will be made as far as possible on an equitable basis having due regard to the number of Equity Shares held by them on the Record Date, provided there is an under-subscribed portion after making full allotment in (a) and (b) above. The allotment of such Equity Shares will be at the sole discretion of the Central Board/Committee of Directors in consultation with the Designated Stock Exchange, as part of the Issue and not a preferential allotment and shall be subject to conditions specified under ‘Additional Subscription by Non Residents’ on page [●].

(d) Allotment to renouncees who, having applied for all the Equity Shares renounced in their favour, have applied for additional Equity Shares provided there is surplus available after making full allotment under (a), (b) and (c) above. The allotment of such Equity Shares will be at the sole discretion of the Central Board/Committee of Directors in consultation with the Designated Stock Exchange, as a part of the Issue and not a preferential allotment, and shall be subject to conditions specified under ‘Additional Subscription by Non Residents’ on page [●].

After taking into account the allotments made under (a), (b), (c) and (d) above, if there is still any under subscription, the un-subscribed portion shall be disposed of by the Central Board/Committee of Directors upon such terms and conditions and to such person/persons and in such manner as the Central Board/Committee of Directors may in its absolute discretion deem fit, this Issue being a rights issue and not preferential allotment under the SEBI (DIP) Guidelines.

The basis of allotment shall be finalised by the Central Board in consultation with NSE, which is the Designated Stock Exchange, within a period of 42 days from the date of closure of the Issue. In case of delay in allotment the Bank shall pay interest on the same at a rate of 15% p.a.

No over subscription shall be retained by the Bank.

Subscription by eligible Non Residents Existing eligible non-resident shareholders or eligible non-resident applicants may apply for Rights Entitlement/issue of additional Equity Shares over and above the Rights Entitlements and the Bank may allot the same subject to the condition that the overall issue of shares to eligible non-residents in the total paid up capital of the Bank does not exceed the foreign investment ceiling prescribed by the RBI. The existing permissible foreign investment limit in the Bank as prescribed by the RBI is 20%. The Central Board of Directors may, at its absolute discretion, agree to such terms and conditions as may be stipulated by the RBI while approving the allotment of Equity Shares, subject to the same conditions including restrictions in regard to the repatriability as are applicable to the original shares against which Rights Entitlement shares are issued.

Any renunciation from Resident Indian Shareholder(s) to eligible Non-resident Indian(s) or from eligible Non-resident Indian Shareholder(s) to Resident Indian(s) or from eligible Non-resident Indian shareholder(s) to other eligible Non-resident Indian(s) is subject to the renouncer(s)/renouncee(s) obtaining the approval of the FIPB and/or necessary permission of the RBI under the FEMA and such permissions should be attached to the CAF. Applications not accompanied by the aforesaid approvals are liable to be rejected. Additionally, the Bank will have the discretion in accepting/rejecting the applications for renunciation of shares, so as to ensure that the issue of shares to eligible non-residents in the total paid-up capital of the Bank does not exceed the foreign investment ceiling prescribed by the RBI, which stands at 20% of its paid-up capital (inclusive of GDR holders and FIIs).

By virtue of the Circular No. 14 dated September 16, 2003 issued by the RBI, Overseas Corporate Bodies (“OCBs”) have been derecognised as an eligible class of investors and the RBI has subsequently issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies (OCBs)) Regulations, 2003. Accordingly, the existing Equity Shareholders of the Bank who do not wish to subscribe to the Equity Shares being offered but wish to renounce the same in favour of renouncees shall not renounce the same (whether for consideration or otherwise) in favour of OCB(s).

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Underwriting The present Issue is not underwritten.

Allotment/Refund The Bank will issue and dispatch share certificates/demat credit and/or letters of regret along with refund

order or credit the allotted securities to the respective beneficiary accounts, if any, within a period of six (6) weeks from the Issue Closing Date. If such money is not repaid within eight days from the day the Bank becomes liable to pay it, the Bank shall pay that money with interest at the rate of 15%.

Applicants residing at those centres where clearing houses are managed by the RBI, will get refunds through ECS only (Electronic Clearing Service) except where applicants are otherwise disclosed as applicable/eligible to get refunds through direct credit and RTGS.

In case of those applicants who have opted to receive Equity Shares subscribed in dematerialised form using electronic credit under the depository system, an advice regarding their credit of the Equity Shares shall be given separately. Applicants to whom refunds are made through electronic transfer of funds will be sent a letter through ordinary post intimating them about the mode of credit of refund within a period of six (6) weeks from the Issue Closing Date.

In case of those Applicants who have opted to receive Equity Shares subscribed in physical form, the Bank will issue the corresponding share certificates.

Any refund order exceeding Rs. 1,500 would be sent by registered post/speed post to the sole/first applicant’s registered address. Refund orders up to the value of Rs. 1,500 would be sent under certificate of posting. Such refund orders would be payable at par at all places where the applications were originally accepted. The same would be marked ‘Account Payee only’ and would be drawn in favour of the sole/first applicant. Adequate funds would be made available to the Bankers to the Issue for this purpose.

Payment of Refund

Applicants should note that on the basis of the name of the applicants, Depository Participant’s name, Depository Participant- Identification number (DP ID) and Beneficiary Account Number provided by them in the Composite Application Form, the Registrar to the Issue will obtain from the Depository the bank account details including the nine digit Magnetic Ink Character Recognition (MICR) code as appearing on a cheque leaf. Hence, applicants are advised to immediately update their bank account details as appearing on the records of the depository participant. Please note that failure to do so could result in delays in credit of refunds to shareholders at the shareholders sole risk and neither the Lead Manager nor the Bank nor the Registrar shall have any responsibility and undertake any liability for the same.

In case of applicants applying for physical shares, refunds will be made on the basis of the bank account details provided by them in the Composite Application Form.

Mode of making refunds The payment of a refund, if any, would be done through various modes in the following order of

preference: 1. ECS-Payment of a refund would be done through ECS for applicants having an account at any of the

following fifteen centres: Ahmedabad, Bangalore, Bhubaneshwar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram. This mode of payment of refunds would be subject to availability of complete bank account details including the MICR code as appearing on a cheque leaf, from the Depositories. The payment of refunds is mandatory for applicants having a bank account at any of the abovementioned fifteen centres, except where the applicant, being eligible, opts to receive a refund through direct credit or RTGS.

2. NEFT (National Electronic Fund Transfer) — Payment of a refund shall be undertaken through NEFT wherever the applicants’ bank has been assigned the Indian Financial System Code (IFSC), which can be linked to a Magnetic Ink Character Recognition (MICR), if any, available to that particular bank branch. IFSC Code will be obtained from the website of RBI as on a date immediately prior to the date of payment of a refund, duly mapped with MICR numbers. Wherever the applicants have registered their nine digit MICR number and their bank account number while opening and operating the demat account,

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the same will be duly mapped with the IFSC Code of that particular bank branch and the payment of a refund will be made to the applicants through this method. The Bank in consultation with Lead Managers may decide to use NEFT as a mode of making refunds.

3. Direct Credit-Applicants having bank accounts with the select banks shall be eligible to receive refunds through direct credit. Charges, if any, levied by the relevant bank(s) for the same would be borne by the Bank.

4. RTGS — Applicants having a bank account at any of the abovementioned fifteen centres and whose refund amount exceeds Rs. 1 million, have the option to receive the refund through RTGS. Such eligible applicants who indicate their preference to receive the refund through RTGS are required to provide the IFSC code in the CAF. In the event the same is not provided, the refund shall be made through ECS. Charges, if any, levied by the Refund Bank(s) for the same would be borne by the Bank. Charges, if any, levied by the applicant’s bank receiving the credit would be borne by the applicant.

5. For all other applicants, including those who have not updated their bank particulars with the MICR code, the refund orders will be despatched under certificate of posting for value up to Rs. 1,500 and through Speed Post/ Registered Post for refund orders of Rs. 1,500 and above. Such refunds will be made by cheques, pay orders or demand drafts drawn in favour of the sole/first applicant and payable at par.

Printing of Bank Particulars on Refund Orders As a matter of precaution against possible fraudulent encashment of refund orders due to loss or

misplacement, the particulars of the applicant’s bank account are mandatorily required to be given for printing on the refund orders. Bank account particulars will be printed on the refund orders/refund warrants which can then be deposited only in the account specified. The Bank will in no way be responsible if any loss occurs through these instruments falling into improper hands either through forgery or fraud.

Allotment advice/Share Certificates/Demat Credit Allotment advice/share certificates/demat credit will be dispatched to the registered address of the first

named applicant or respective beneficiary accounts will be credited within (six) 6 weeks, from the date of closure of the subscription list. In case the Bank issues allotment advice, the relative share certificates will be dispatched within one month from the date of allotment. Allottees are requested to preserve such allotment advice (if any) to be exchanged later for share certificates.

Option to receive Equity Shares in Dematerialised Form Applicants to the Equity Shares of the Bank issued through this Issue shall be allotted the securities in

dematerialised (electronic) form at the option of the applicant. The Bank signed a tripartite agreement with National Securities Depository Limited (NSDL) and the Registrar which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates. The Bank has also signed a tripartite agreement with Central Depository Services (India) Limited (CDSL) and the Registrar which enables the Investors to hold and trade in securities in a dematerialised form, instead of holding the securities in the form of physical certificates.

In this Issue, the allottees who have opted for Equity Shares in dematerialised form will receive their Equity Shares in the form of an electronic credit to their beneficiary account with a depository participant. Investor will have to give the relevant particulars for this purpose in the appropriate place in the CAF. Applications, which do not accurately contain this information, will be given the securities in physical form. No separate applications for securities in physical and/or dematerialised form should be made. If such applications are made, the application for physical securities will be treated as multiple applications and is liable to be rejected.

The Equity Shares of the Bank will be listed on the BSE, NSE and Ahmedabad, Calcutta, Delhi and Madras Stock Exchanges.

The procedure for availing the facility for allotment of Equity Shares in this Issue in electronic form is as follows:

• Open a beneficiary account with any depository participant (care should be taken that the beneficiary account should carry the name of the holder in the same manner as is exhibited in the records of the Bank. In the case of joint holding, the beneficiary account should be opened carrying the names of the holders in the same order as with the Bank). In case of Investors having various

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folios in the Bank with different joint holders, the Investors will have to open separate accounts for such holdings. Those equity shareholders who have already opened such Beneficiary Account(s) need not adhere to this step.

• For equity shareholders already holding Equity Shares of the Bank in dematerialised form as on the Record Date, the beneficial account number shall be printed on the CAF. For those who open accounts later or those who change their accounts and wish to receive their Equity Shares pursuant to this Offer by way of credit to such account, the necessary details of their beneficiary account should be filled in the space provided in the CAF. It may be noted that the allotment of securities arising out of this Issue may be made in dematerialised form even if the original Equity Shares of the Bank are not dematerialised. Nonetheless, it should be ensured that the Depository Account is in the name(s) of the Equity Shareholders and the names are in the same order as in the records of the Bank.

Responsibility for correctness of information (including applicant’s age and other details) filled in the CAF vis-à-vis such information with the applicant’s depository participant, would rest with the applicant. Applicants should ensure that the names of the applicants and the order in which they appear in CAF should be the same as registered with the applicant’s depository participant.

If incomplete/incorrect beneficiary account details are given in the CAF the applicant will get Equity Shares in physical form.

The Equity Shares pursuant to this Offer allotted to Investors opting for dematerialised form, would be directly credited to the beneficiary account as given in the CAF after verification. Allotment advice, refund orders (if any) would be sent directly to the applicant by the Registrar to the Issue.

Renouncees will also have to provide the necessary details about their beneficiary account for allotment of securities in this Issue. In case these details are incomplete or incorrect, the application is liable to be rejected.

Utilisation of Proceeds Subscription received against this Issue will be kept in separate bank account(s) and the Bank would not

have access to such funds unless it has received a minimum subscription of 90% of the Issue and the necessary approvals of the Stock Exchanges to use the amount of subscription. Please see paragraph entitled "Minimum Subscription by Government" on page [●] of this Letter of Offer.

General instructions for applicants a) Please read the instructions printed on the enclosed CAF carefully.

b) Application should be made on the printed CAF provided by the Bank except as mentioned under the head Application on plain paper and should be completed in all respects. Any CAFs found incomplete with regard to any of the particulars required to be given therein, and/or which are not completed in conformity with the terms of this Letter of Offer are liable to be rejected and the money paid, if any, in respect thereof will be refunded without interest and after deduction of bank commission and other charges, if any. The CAF must be completed in English and the names of all the applicants, details of occupation, address, father’s/husband’s name must be filled in block letters.

c) The CAF together with cheque/demand draft should be sent to the Collecting Branches or to the Registrar to the Issue and not to the Bank or Lead Manager to the Issue. Applicants residing at places other than cities where the branches of the Bankers to the Issue have been authorised by the Bank for collecting applications will have to make payment by Demand Draft payable at Mumbai of an amount net of bank and postal charges and send their application forms to the Registrar to the Issue by REGISTERED POST. If any portion of the CAF is/are detached or separated, such application is liable to be rejected.

d) All applications regardless of value, for each of the applicants, should mention his/her PAN allotted under the Income-Tax Act, 1961. In this regard, please note that SEBI, vide its Letter No. CFD/ DIL/SM/ 113422 dated January 10, 2008, has granted exemption to the Bank in respect of shareholders holding up to/ including 100 shares.

e) Applicants are advised that it is mandatory to provide information as to their savings/current account number and the name of the Bank with whom such account is held in the CAF to enable the Registrar to

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the Issue to print the said details in the refund orders, if any, after the names of the payees. Applications not containing such details are liable to be rejected.

f) The payment against the application should not be effected in cash if the amount to be paid is Rs. 20,000 or more. In case payment is effected in contravention of this, the application may be deemed invalid and the application money will be refunded and no interest will be paid thereon. Payment against the application if made in cash, subject to conditions as mentioned above, should be made only to the Bankers to the Issue.

g) Signatures should be either in English or Hindi or in any other language specified in the Eighth Schedule to the Constitution of India. Signatures other than in English or Hindi, and thumb impressions must be attested by a Notary Public or a Special Executive Magistrate under his/her official seal. The Equity Shareholders must sign the CAF as per the specimen signature recorded with the Bank/or Depositories.

h) In case of an application under power of attorney or by a body corporate or by a society, a certified true

copy of the relevant power of attorney or relevant resolution or authority to the signatory to make the relevant investment under this Offer and to sign the application and a copy of the Memorandum and Articles of Association and/or bye laws of such body corporate or society must be lodged with the Registrar to the Issue giving reference of the serial number of the CAF. In case the above referred documents are already registered with the Bank, the same need not be furnished again. In case these papers are sent to any other entity besides the Registrar to the Issue or are sent after the Issue Closing Date, then the application is liable to be rejected. In no case should these papers be attached to the application submitted to the Bankers to the Issue.

i) In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with the Bank. Further, in case of joint applicants who are renouncees, the number of applicants should not exceed three. In case of joint applicants, reference, if any, will be made in the first applicant’s name and all communication will be addressed to the first applicant.

j) All communication in connection with application for the Equity Shares, including any change in address of the Equity Shareholders should be addressed to the Registrar to the Issue prior to the date of allotment in this Issue quoting the name of the first/sole applicant Equity Shareholder, folio numbers and CAF number. Please note that any intimation for change of address of Equity Shareholders, after the date of allotment, should be sent to the Registrar and Transfer Agents of the Bank, in the case of Equity Shares held in physical form and to the respective depository participant, in case of Equity Shares held in dematerialised form.

k) Split forms cannot be re-split.

l) Only the person or persons to whom Equity Shares have been offered, and not renouncee(s), shall be entitled to obtain split forms.

m) Applicants must write their CAF number at the back of the cheque/demand draft.

n) Only one mode of payment per application should be used. The payment must be either in cash or by cheque/demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a sub member of the Bankers Clearing House located at the centre indicated on the reverse of the CAF where the application is to be submitted.

o) A separate cheque/draft must accompany each CAF. Outstation cheques/demand drafts or post-dated cheques and postal/money orders will not be accepted and applications accompanied by such cheques/demand drafts/money orders or postal orders will be rejected. The Registrar will not accept payment against application if made in cash. (For payment against application in cash please refer to point (f) above.)

p) No receipt will be issued for application money received. The Collecting Branches/Registrar will acknowledge receipt of the same by stamping and returning the acknowledgment slip at the bottom of the CAF.

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Grounds for Technical Rejections Applicants are advised to note that applications are liable to be rejected on technical grounds, including

the following: • Amount paid does not tally with the amount payable for. • Bank account details (for refund) are not given. • Age of First Applicant not given. • PAN not given, except, in respect of shareholders holding up to/ including 100 shares in terms of

SEBI’s Letter No. CFD/ DIL/SM/ 113422 dated January 10, 2008 wherein it has specifically granted exemption to the Bank in this regard.

• In case of Application under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted.

• If the signature of the existing shareholder on the Application Form does not match with the records available with the Bank and/or the Depositories and in case of renouncees if the signature does not match with the records available with their depositories.

• If the Applicant desires to have shares in electronic form, but the Application Form does not have

the Applicant’s depository account details. • Application Forms are not submitted by the Applicants within the time prescribed as per the

Application Form and the Letter of Offer. • Applications not duly signed by the sole/joint Applicants. • Applications by OCBs unless accompanied by specific approval from RBI permitting the OCBs to

participate in the Issue. • Applications accompanied by Stockinvest. • In case no corresponding record is available with the Depositories that matches three parameters,

namely, names of the Applicants (including the order of names of joint holders), the Depositary Participant’s identity (DP ID) and the beneficiary’s identity.

• Applications by persons in the United States. • Applications which have evidence of being dispatched from the US. • Applications by ineligible Non-residents (including on account of restriction or prohibition under

applicable local laws) and where a registered address in India has not been provided. • Multiple Applications. • Duplicate Applications.

Mode of payment for Resident Equity Shareholders/Applicants • All cheques/drafts accompanying the CAFs should be crossed ‘A/c Payee only’ and drawn in favour

of ‘SBI-Rights Issue’. • Applicants residing at places other than places where the bank collection centres have been opened

by the Bank for collecting applications, are requested to send their applications together with Demand Draft for the full application amount, net of bank and postal charges crossed ‘A/c Payee only’ and drawn in favour of ‘SBI-Rights Issue’; payable at Mumbai directly to the Registrar to the Issue by registered post so as to reach them on or before the Issue Closing Date. The Bank or the Registrar to the Issue will not be responsible for postal delays or loss of applications in transit, if any.

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Mode of payment for Eligible Non-Resident Equity Shareholders/ Applicants As regards the application by eligible non-resident equity shareholders, the following conditions shall

apply: Payment by eligible non-residents must be made by demand draft payable at Mumbai / cheque payable

drawn on a bank account maintained at Mumbai or funds remitted from abroad in any of the following ways:

Application with repatriation benefits • By Indian Rupee drafts payable at Mumbai; or • By cheque / draft on a Non-Resident External Account (NRE) or FCNR Account maintained in

Mumbai; or • By Rupee draft purchased by debit to NRE/ FCNR Account maintained elsewhere in India and

payable in Mumbai; FIIs registered with SEBI must remit funds from special non-resident rupee deposit account.

• Eligible non-resident investors applying with repatriation benefits should draw cheques/drafts in favour of ‘SBI-Rights Issue - NR’ payable at Mumbai, which must be crossed ‘account payee only’ for the full application amount.

Application without repatriation benefits As far as eligible non-residents holding shares on a non-repatriation basis is concerned, in addition to the

modes specified above, payment may also be made by way of cheque drawn on Non-Resident (Ordinary) (“NRO”) Account maintained in Mumbai or Rupee Draft purchased out of a NRO Account maintained elsewhere in India but payable at Mumbai. In such cases, the allotment of Equity Shares will be on a non-repatriation basis.

All cheques/drafts submitted by eligible non-residents applying on a non-repatriation basis should be drawn in favour of ‘SBI-Rights Issue-NR’ payable at Mumbai and must be crossed ‘account payee only’ for the full application amount. The CAFs duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAFs before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.

Applicants may note that where payment is made by drafts purchased from NRE/ FCNR/ NRO accounts as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has been issued by debiting the NRE/ FCNR/ NRO account should be enclosed with the CAF. Otherwise the application shall be considered incomplete and is liable to be rejected.

Note: • If repatriation benefit is available, interest, dividend, sales proceeds derived from the investment in

Equity Shares can be remitted outside India, subject to tax, as applicable according to the IT Act. • If Equity Shares are allotted on non-repatriation basis, the dividend and sale proceeds of the Equity

Shares cannot be remitted outside India. • The CAF duly completed together with the amount payable on application must be deposited with

the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on or before the Issue Closing Date. A separate cheque or bank draft must accompany each CAF.

• In the case of an application received from eligible non-residents, allotment, refunds and other distribution, if any, will be made in accordance with the guidelines/ rules prescribed by RBI as applicable at the time of making such allotment or remittance and subject to necessary approvals.

Payment by Stockinvest In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the Stockinvest Scheme has been withdrawn. Hence, payment through Stockinvest would not be accepted in this Issue

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Disposal of application and application money No acknowledgment will be issued for the application moneys received by the Bank. However, the

Collecting Branches/Registrar to the Issue receiving the CAF will acknowledge its receipt by stamping and returning the acknowledgment slip at the bottom of each CAF.

The Bank reserves its full, unqualified and absolute right to accept or reject any application, in whole or in part, and in either case without assigning any reason thereto.

In case an application is rejected in full, the whole of the application money received will be refunded. Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money due on Equity Shares, will be refunded to the applicant within six weeks from the close of the Issue.

For further instruction, please read the Composite Application Form (CAF) carefully.

Undertakings by the Bank 1. The complaints received in respect of the Issue shall be attended to by the Bank expeditiously and

satisfactorily.

2. All steps for completion of the necessary formalities for listing and commencement of trading at all Stock exchanges where the securities are to be listed will be taken within seven working days of finalisation of basis of allotment.

3. The funds required for dispatch of refund orders/allotment letters/certificates by registered post shall be made available to the Registrar to the Issue.

4. The certificates of the securities/refund orders to the eligible non-resident Indians shall be dispatched within the specified time.

5. Save as otherwise disclosed in this Letter of Offer, no further issue of securities affecting equity capital of the Bank shall be made till the securities issued/offered through the Issue are listed or till the application moneys are refunded on account of non-listing, under-subscription etc.

6. The Bank accepts full responsibility for the accuracy of information given in this Letter of Offer and confirms that to best of its knowledge and belief, there are no other facts the omission of which makes any statement made in this Letter of Offer misleading and further confirms that it has made all reasonable enquiries to ascertain such facts.

7. All information shall be made available by the Lead Manager and the Issuer to the investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever including at road shows, presentations, in research or sales reports etc.

Important • Please read this Letter of Offer carefully before taking any action. The instructions contained in the

accompanying Composite Application Form (CAF) are an integral part of the conditions of this Letter of Offer and must be carefully followed; otherwise the application is liable to be rejected.

• All enquiries in connection with this Letter of Offer or accompanying CAF and requests for Split Application Forms must be addressed (quoting the Registered Folio Number/DP and Client ID number, the CAF number and the name of the first Equity Shareholder as mentioned on the CAF and superscribed ‘SBI — Rights Issue’ on the envelope and postmarked in India) to the Registrar to the Issue at the following address: Datamatics Financial Services Ltd. A 16 & 17, MIDC Part B Crosslane, Andheri (East) Mumbai 400 093 Tel: (91 22) 6674 2001 - 2006

• It is to be specifically noted that this Issue of Equity Shares is subject to the section entitled “Risk Factors” beginning on page [●] of this Letter of Offer.

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The Issue will not be kept open for more than 30 days unless extended, in which case it will be kept open for a maximum of 60 days.

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MAIN PROVISIONS OF THE STATE BANK OF INDIA ACT AND STATE BANK OF INDIA REGULATIONS

Capitalised terms used in this section have the meaning that has been given to such terms in the Act/Regulations. The main provisions of the Act/Regulations are set forth below. Section 4 - Authorised Capital Subject to the provisions of this Act, the authorised capital of the State Bank shall be twenty crores of rupees divided into two crores of fully paid-up shares of ten rupees each. Provided that the Central Government may increase or reduce the authorised capital as it thinks fit so however that the shares in all cases shall be fully paid-up shares of ten rupees each. Section 5 - Issued capital (1) The issued capital of the State Bank shall, on the appointed day, be five crores, sixty-two lakhs and fifty thousand rupees divided into five lakhs, sixty-two thousand and five hundred shares, all of which shall, on the appointed day, stand allotted to the Reserve Bank in lieu of the shares of the Imperial Bank transferred to and vested in it under section 6. (2) The Central Board may from time to time increase the issued capital but no increase in the issued capital shall be made in such a manner that the Government holds at any time less than fifty-five percent of the issued capital of the State Bank. (3) No increase in the issued capital beyond twelve crores and fifty lakhs of rupees shall be made under sub-section (2) without the previous sanction of the Central Government. Section 10 - Transferability of shares (1) Save as otherwise provided in sub-section (2), the shares of the State Bank shall be freely transferable. (2) Nothing contained in sub-section (1) shall entitle the Central Government to transfer any shares held by it in the State Bank if such transfer will result in reducing the shares held by it to less than fifty-five percent of the issued capital of the State Bank. Section 11 – Restrictions on voting rights No shareholder, other than the Central Government, shall be entitled to exercise voting rights in respect of any shares held by him in excess of ten percent of the issued capital: Provided that such shareholder shall be entitled to exercise voting rights at such higher percentage as the Central Government may, after consultation with the Reserve Bank, specify. Section 12 - Shares to be approved securities Notwithstanding anything contained in the Acts hereinafter mentioned in this section, the shares of the State Bank shall be deemed to be included among the securities enumerated in section 20 of the India Trusts Act, 1882 (2 of 1882), and also to be approved securities for the purposes of the Insurance Act, 1938 (4 of 1938), and the Banking Regulation Act, 1949 (10 of 1949) Section 17 - Management (1) The general superintendence and direction of the affairs and business of the State Bank shall be entrusted to the Central Board which may exercise all powers and do all such acts and things as may be exercised or done by the State Bank and are not by this Act expressly directed or required to be done by the State Bank in general meeting. (2) The Central Board in discharging its functions shall act on business principles, regard being had to public interest.

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Section 18 - Central Board to be guided by directions of Central Government (1) In the discharge of its functions including those relating to a subsidiary bank, the State Bank shall be guided by such directions in matters of policy involving public interest as the Central Government may, in consultation with the Governor of the Reserve Bank and the chairman of the State Bank, give to it. (2) All directions shall be given by the Central Government and, if any question arises whether a direction relates to a matter of policy involving public interest, the decision of the Central Government thereon shall be final. Section 19 - Composition of the Central Board The Central Board shall consist of the following, namely:-- (a) a chairman and a vice-chairman to be appointed by the Central Government in consultation with the Reserve Bank; (b) not more than two managing directors, if any, appointed by the Central Government in consultation with the Reserve Bank; (bb) the presidents of the Local Boards appointed under sub-section (5) of section 21, ex officio; (c) if the total amount of the holdings of the shareholders, other than the Central Government, whose names are on the register of shareholders three months before the date fixed for election of directors is-- (i) not more than ten percent of the total issued capital, two directors; (ii) more than ten percent but not more than twenty-five percent of such capital, three directors, and (iii) more than twenty-five percent of such capital, four directors, to be elected in the prescribed manner by such shareholders; (ca) one director, from among the employees of the State Bank, who are workmen, to be appointed by the Central Government in the manner provided in the rules made under this Act; (cb) one director, from among such of the employees of the State Bank, as are not workmen, to be appointed by the Central Government in the manner provided in the rules made under this Act; (d) not less than two and not more than six directors to be nominated by the Central Government in consultation with the Reserve Bank, from among persons having special knowledge of the working of co-operative institutions and of rural economy or experience in commerce, industry, banking or finance; (e) one director to be nominated by the Central Government; and (f) one director to be nominated by the Reserve Bank Section 21 - Local Boards (1) There shall be constituted at each place where the State Bank has a local head office, a Local Board which shall consist of the following members, namely:-- (a) the chairman, ex-officio; (b) all such directors elected or nominated to the Central Board under clause (c) or clause (d) of section 19 as are ordinarily resident in the area falling within the jurisdiction of the local head office; (c) six members to be nominated by the Central Government in consultation with the Reserve Bank; (e) the chief general manager of the local head office, appointed by the State Bank, ex-officio.

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(2) Where as a result of the establishment of any local head office (hereinafter referred to as the new local head office) for any area which is already falling within the jurisdiction of another local head office (hereinafter referred to as the existing local head office) a Local Board (hereinafter referred to as the new Local Board) is constituted for the new local head office, any person who is, at the time of such constitution, holding office as a member of a Local Board (hereinafter referred to as the existing Local Board) for an existing local head office under clause (c) of sub-section (1) and is ordinarily resident in the area falling within the jurisdiction of the new local head office, shall cease to hold office as member of the existing Local Board and shall become a member of the new Local Board and shall on becoming such member be deemed to have been nominated to the new Local Board and shall hold office as such member for the unexpired portion of his term of office as a member of the existing Local Board. (3) Any vacancy caused in the existing Local Board as a result of any member thereof becoming a member of the new Local Board under sub-section (2) shall be deemed to be a casual vacancy and be filled in accordance with the provisions of section 25. (5) The Governor of the Reserve Bank shall, in consultation with the chairman, appoint-- (a) a member of a Local Board nominated under clause (c) of sub-section (1) to be the president thereof; and (b) a member of a Local Board holding office under clause (b) or nominated under clause (c) of that sub-section to be the vice-president thereof. Section 24 - Removal from office of directors, etc. (1) The Central Government may, after consulting the Reserve Bank, remove from office the chairman, vice-chairman or a managing director. (3) The Central Government, after consulting the Reserve Bank, may remove from office any director appointed under clause (ca) or clause (cb) or nominated under clause (d) of section 19 or any member of a Local Board nominated under clause (c) of sub-section (1) of section 21 and appoint or nominate, as the case may be, in his stead another person to fill the vacancy. (4) The shareholders, other than the Central Government, may, by a resolution passed by majority of the votes of such shareholders holding in the aggregate not less than one-half of the share capital held by all such shareholders, remove any director elected under clause 8 of section 19 and elect in his stead another person to fill the vacancy. (6) No person shall be removed from his office under sub-section (1) or sub-section (3) unless he has been given an opportunity of showing cause against his removal. Section 27 - Powers and remuneration of chairman (1) The chairman shall preside at all meetings of the Central Board and, subject to such general or special directions as the Central Board may give, exercise all such powers and do all such acts and things as may be exercised or done by the State Bank. (2) The chairman shall receive such salary, fees, allowances and perquisites as may be determined by the Central Government. Section 28 - Powers and remuneration of vice-chairman (1) The vice - chairman shall preside at the meetings of the Central Board in the absence of the chairman and, subject to the general control of the chairman, exercise such powers and perform such duties as may be entrusted or delegated to him by the Central Board. (2) The vice-chairman shall receive such salary, fees, allowances and perquisites as may be determined by the Central Government.

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(3) The fact that the vice-chairman exercises any of the powers and does any act or thing for or on behalf of the State Bank shall be conclusive proof of his authority to do so. Section 29 - Powers and remuneration of managing director (1) A managing director-- (a) shall be a whole-time officer of the State Bank; and (b) subject to the general control of the chairman and the vice-chairman, shall exercise such powers and perform such duties as may be entrusted or delegated to him by the Central Board. (2) A managing director shall receive such salary and allowances as may be determined by the Central Government. Section 31 - Meetings of the Central Board (1) The Central Board shall meet at such time and place and shall observe such rules of procedure in regard to the transaction of business at its meetings as may be prescribed. (2) All questions at the meeting shall be decided by a majority of the votes of the directors present and in the case of equality of votes, the chairman or, in his absence, the vice-chairman shall have a second or casting vote. (3) A director who is directly or indirectly concerned or interested in any contract, loan, arrangement or proposal entered into or proposed to be entered into by or on behalf of the State Bank shall at the earliest possible opportunity disclose the nature of his interest to the Central Board and shall not be present at any meeting of the Central Board when any such contract, loan, arrangement or proposal is discussed unless his presence is required by the other directors for the purpose of eliciting information, and no director so required to be present shall vote on any such contract, loan, arrangement or proposal: Provided that nothing contained in this sub-section shall apply to such director by reason only of his being-- (i) a shareholder (other than a director) holding not more than two percent of the paid-up capital in any public company as defined in the Companies Act, 1956 (1 of 1956), or any corporation established by or under any law for the time being in force in India or any co-operative society with which or to which the State Bank has entered into or made, or proposes to enter into or make, a contract, loan, arrangement or proposal; or (ii) a director ex officio of the State Bank or a director of a subsidiary bank; or (iii) an officer or other employee of the State Bank, if he is a director appointed under clause (ca) or clause (cb) of of section 19. (4) If for any reason neither the chairman nor the vice-chairman is able to be present at a meeting of the Central Board, any director, authorised by the chairman in writing in this behalf, and in the absence of such authorisation, any director elected by the directors present from amongst themselves, shall preside at the meeting and, in the event of equality of votes, shall have a second or casting vote. Section 32 - State Bank to act as agent of the Reserve Bank. (1) The State Bank shall, if so required by the Reserve Bank, act as agent of the Reserve Bank at all places in India where it has a branch or where there is a branch of a subsidiary bank, and where there is no branch of the banking department of the Reserve Bank, for-- (a) paying, receiving, collecting and remitting money, bullion and securities on behalf of any Government in India; and (b) undertaking and transacting any other business which the Reserve Bank may from time to time entrust to it. (2) The terms and conditions on which any such agency business shall be carried on by the State Bank on behalf of the Reserve Bank shall be such as may be agreed upon.

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(3) If no agreement can be reached on any matter referred to in sub-section (2) or if a dispute arises between the State Bank and the Reserve Bank as to the interpretation of any agreement between them, the matter shall be referred to the Central Government and the decision of the Central Government thereon shall be final. (4) The State Bank may transact any business or perform any functions entrusted to it under sub-section (1) by itself or through a subsidiary bank or through an agent approved by the Reserve Bank. Section 33 - Other business which the State Bank may transact. Subject to the other provisions contained in this Act, the State Bank may carry on and transact the business of banking as defined in clause (b) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) and may engage in one or more of the other forms of business specified in sub- section (1) of section 6 of that Act. Section 36 - Integration and development fund (1) The State Bank shall maintain a special fund to be known as the Integration and Development Fund into which shall be paid: (a) the dividends payable to the Central Government on such shares of the State Bank held by it as do not exceed fifty-five percent of the total issued capital; and (b) such contributions as the Central Government may make from time to time. Provided that if the balance in the Integration and Development Fund on the date of declaration of any dividends by the State Bank is rupees five crores or more, no amount shall be paid into that Fund under clause (a) and the dividends payable to the Central Government shall be paid to that Government and if such balance on such date is less than rupees five crores, only so much of the dividends then payable as will bring such balance to rupees five crores shall be paid into that Fund and the balance of such dividends shall be paid to the Central Government. (2) The amount in the said Fund shall be applied exclusively for meeting-- (a) losses in excess of such yearly sum as may be agreed upon between the Central Government and the State Bank and attributable to the branches established in pursuance of sub-section (5) of section 16; (aa) subsidies granted by the State Bank to a subsidiary bank with the approval of the Reserve Bank; and (b) such other losses or expenditure as may be approved by the Central Government in consultation with the Reserve Bank. (3) Subject to the provisions of sub-section (2), the said Fund shall be the property of the Central Government and no shareholder or the State Bank or any other person shall have any claim to the amount held in the said Fund. (4) No amount applied for any of the purposes specified in sub-section (2) shall, for the purposes of the Income Tax Act, 1961 (43 of 1961) be treated as income, profits or gains of the State Bank. Section 37 – Reserve Fund The State Bank shall establish a Reserve Fund which shall consist of-- (a) the amount held in the Reserve Fund of the Imperial Bank transferred to the State Bank on the appointed day; and (b) such further sums as may be transferred to it by the State Bank out of its annual net profits before declaring a dividend.

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Section 38 - Disposal of profits. (1) After making provision for bad and doubtful debts, depreciation in assets, equalisation of dividends, contribution to staff and superannuation funds and for all other matters for which provision is necessary by or under this Act or which are usually provided for by banking companies, the State Bank may, out of its net profits, declare a dividend. (2) Subject to the provisions of paragraph 6 of the First Schedule, the rate of dividend shall be determined by the Central Board. Section 42 - Balance sheet, etc., of State Bank may be discussed at general meeting (1) A general meeting in this Act referred to as annual general meeting shall be held in each year at such time and at such place where there is a local head office of the State Bank and a general meeting may be convened by the State Bank at any other time: Provided that such annual general meeting shall be held before the expiry of six weeks from the date on which the balance sheet, together with the profit and loss account and auditors’ report, is under sub-section (1) of section 40, forwarded to the Central Government or to the Reserve Bank, whichever date is earlier. (2) The shareholders present at an annual general meeting shall be entitled to discuss the balance sheet and the profit and loss account of the State Bank made up to the previous 31st day of December or the date specified under section 39, as the case may be the report of the Central Board on the working and activities of the State Bank for the period covered by the accounts and the auditors’ report on the balance sheet and accounts. Section 45 – Bar to liquidation of the State Bank No provision of law relating to the winding up of companies shall apply to the State Bank and the State Bank shall not be placed in liquidation save by the order of the Central Government and in such manner as it may direct. STATE BANK OF INDIA REGULATIONS Shares and Share Register Regulation 3 – Shares, movable property The shares of the State Bank shall be moveable property. Regulation 4 – Control over shares and branch registers (1) Subject to the provisions of the Act and these regulations and such directions as the Central Board may give from time to time, the register of shareholders (hereinafter referred to as “the register”) kept at the Central Office shall be maintained by, and be under control of the Central Board or its Executive Committee and the decision of the Central Board or its Executive Committee as to whether or not a person is entitled to be registered as a shareholder in respect to any share shall be final. (2) In particular, and without prejudice to the foregoing provision, the Central Board or its Executive Committee shall, as regards the entries in the register under its control have the power to examine and pass or refuse to pass transfers and transmissions and to approve or refuse to approve transferees of shares and to give certificates of shares. Regulation 5 – Parties who may not be registered as shareholders (1) Except as otherwise provided by these regulations, no minor or person who has been found by a Court of competent jurisdiction to be of unsound mind shall be entitled to be registered as a shareholder. (2) In the case of firms, shares shall be registered in the names of the individual partners, and no firm, as such, shall be entitled to be registered as a shareholder.

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Regulation 7 – Exercise of rights of joint holders If any share stands in the name of two or more persons the person first named in the register shall, as regards voting, receipt of dividends, service of notices and all or any other matter connected with the State Bank, except the transfer of the shares, be deemed the sole holder thereof. Regulation 9 – Inspection of registers (1) The register shall, except when closed under the provisions of these regulations, be open to the inspection of any shareholder, free of charge, at the places where they are maintained during business hours, subject to such reasonable restrictions as the State Bank may impose, but so that not less than two hours in each working day shall be allowed for inspection. (2) A shareholder shall not have the right himself to make a copy of any entry in any such register, but may, except when the register is closed, require a copy of any such register or of any part thereof on prepayment therefore at the rate of rupees two for every hundred words or fractional part thereof required to be copied. Regulation 10 – Closing of share registers (1) The Central Board or its Executive Committee may close the register from time to time for such periods, not exceeding four weeks at any one time, as shall, in its opinion, be necessary. (2) A notice of the closing of the register shall be published in the Gazette of India and also in not less than two daily newspapers having wide circulation in India. Regulation 11 – Form of share certificates and manner of the preparation (1) Every share certificate shall be issued in such form as may be specified by the Central Board or its Executive Committee from time to time. Each share certificate shall bear a distinctive number and denoting the number of shares in respect of which it is issued. Every share certificate shall bear the name(s) of the shareholder(s). (2) Every share certificate may be engraved or lithographed or printed as the Central Board or its Executive Committee may from time to time determine and shall be signed on behalf of the bank by two persons duly authorised by the Bank. Every such signature may either be autographic or may be affected by a mechanical method. No share certificate shall be valid unless and until it is so signed. Share certificates so signed shall be valid and binding notwithstanding that, before the issue thereof, any person whose signature appears thereon may have ceased to be a person authorised to sign share certificates on behalf of the Bank; Provided that should the share certificate so prepared contain the signature of an authorised person who however is dead at the time of issue of the certificate, the Bank may, by a method considered by it as most suitable, cancel the signature of such a person appearing on the certificate and have the signature of any other authorised person affixed to it. The share certificate so issued shall also be valid. Regulation 12 – Issue of share certificates free of charge (1) A shareholder shall be entitled to one certificate for each fifty shares or multiples thereof registered in his name on any one occasion and one additional share certificate for the number of shares in excess thereof but less than fifty (2) If the number of shares to be registered is less than fifty, one certificate shall be issued for all the shares. (3) If any shareholder requires more certificates than the number to which he is entitled under this regulation, the Central Board or its Executive Committee may have such additional certificates issued, at its discretion. (4) In the case of shares held jointly by several persons, delivery of the relative certificate or certificates to one of such joint holders shall be sufficient delivery to all, and a receipt signed by any one of the joint holders shall effectually bind all the joint holders.

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Regulation 13 – Renewal of share certificates (1) If any share certificate is worn out or defaced or tendered for sub-division, then upon production thereof the Central Board or its Executive Committee, the Central Board or its Executive Committee may order the same to be cancelled, and have a new certificate or certificates issued in lieu thereof. (2) If any share certificate is alleged to be lost or destroyed, then upon production of such evidence of the loss or destruction thereof, as the Central Board or its Executive Committee may consider satisfactory and upon such indemnity with or without security as Central Board or its Executive Committee may require, and on payment to the State Bank of its costs, charges and expenses of and incidental to the matter, a new certificate in lieu thereof shall be given to the party entitled to such lost or destroyed certificate. Regulation 15 – Transfer of shares (1) Without prejudice to the provisions of Regulations 14, every transfer of the shares of the State Bank shall be in writing (2) The instrument of transfer of any share shall be submitted to the Central Board or its Executive Committee and shall be signed by the transferor and the transferee, and the transferor shall be deemed to remain the holder of such shares until the name of the transferee is entered in the share register concerned in respect thereof. Each signature to such transfer shall be duly attested by the signature of one credible witness who shall add his address and occupation. (3) Upon receipt by the Central Board or its Executive Committee of an instrument of transfer with the request to register the transferee, the Central Board or its Executive Committee shall, unless it declines registration under Regulation 16 cause the transfer to be registered. Regulation 16 – Power to refuse or suspend transfers (1) The Central Board or its Executive Committee may decline to register any transfer of shares unless:-- (b) the instrument of transfer is accompanied by the certificate of the shares to which it relates, and such other evidence as the State Bank may reasonably require to show the right of the transferor to make the transfer; (c) it is satisfied after such inquiry as it may consider necessary that the transferee is qualified to be registered as a shareholder of the State Bank in respect of the shares covered by the instrument of transfer. (2) The Central Board or its Executive Committee may suspend the registration of transfer during any period in which the registers are closed. Regulation 19 – Transmission of shares in the event of death, insolvency, etc. of a shareholder (1) The executors or administrators of a decreased sole holder of a share, or the holder of a succession certificate issued under Part X of the Indian Succession Act, 1925 in respect of such share, or a person in whose favour a valid instrument of transfer of such share was executed by such person and by the deceased sole holder during the latter’s life-time shall be the only persons who may be recognised by the State Bank as having any title to the share of the deceased shareholder. In the case of a share registered in the names of two or more holders, the survivor or survivors and on the death of the last survivor, his executors or administrators or any person who is the holder of a succession certificate in respect of such survivor’s interest in the share, or a person in whose favour a valid instrument of transfer of the share was executed by such person and such last survivor during the latter’s life-time, shall be the only person who may be recognised by the State Bank as having any title to such share. The State Bank shall not be bound to recognise such executors or administrators unless they shall have obtained probate or letters of administration or other legal representation as the case may be from a court of competent jurisdiction in India Provided nevertheless that in any case where the Central Board or its Executive Committee shall in its discretion think fit, it shall be lawful for the Central Board or its Executive Committee to dispense with the production of a succession certificate, letters of administration or such other legal representation upon such terms as to indemnity or otherwise as it may think fit.

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(2) Any such person becoming entitled to a share in consequence of the death of a shareholder and any person becoming entitled to a share in consequence of the insolvency, bankruptcy or liquidation of a shareholder shall upon production of such evidence, as the Central Board or its Executive Committee may require, have the right – (a) to be registered as a share holder in respect of the share upon his satisfying the Central Board or its Executive Committee in the same manner as if he were the proposed transferee under regulation 16 that he is qualified to be registered as a shareholder , or (b) to make such transfer of the share as the person from whom he derives his title could have made. Regulation 20 – Shareholder ceasing to be qualified for registration (1) It shall be the duty of any person registered as a shareholder, whether alone or jointly with another or others, forthwith upon ceasing to be qualified to be so registered in respect of any share to give intimation thereof to the Central Board or its Executive Committee. Meetings of Shareholders Regulation 21 – Notice convening a general meeting (1) A notice convening a general meeting of the shareholders signed by the Chairman or the Vice- Chairman or in their absence Managing Director shall be published at least twenty-eight days before the meeting in the Gazette of India and also by publication in not less than two daily newspapers having wide circulation in India. (2) Every such notice shall state the time, date and place of such meeting, and also the business that shall be transacted at the meeting. Regulation 22 – Special general meeting (1) The Chairman or in his absence Vice-Chairman or in their absence Managing Director shall convene a special general meeting of shareholders, if so directed by the Central Board, or if a requisition for such a meeting has been received either from the Reserve Bank or from other shareholders holding shares carrying, in the aggregate, not less than 20 percent of the total voting rights of all the shareholders. (2) The requisition referred to in sub-regulation (1) shall state the purpose for which the special general meeting is required to be convened, but may consist of several documents in like form each signed by one or more of the requisitions. (3) The time, date and place of a general meeting shall be decided by the Central Board: Provided that a special general meeting convened on requisition by the Reserve Bank or other shareholders shall be convened not later than three months of the receipt of the requisition. Regulation 23 – Business at general meetings (1) No business other than that specified in sub-section (2) of section 42 of the Act shall be transacted or discussed at the annual general meeting, except with the consent of the Chairman, unless not less than six weeks’ notice of the same has been given to the Chairman either by the Reserve Bank or by at least ten other shareholders qualified to vote at the meeting. Such notice shall take the form of a definite resolution to be put to the meeting, and shall be included in the notice of the meeting. (2) Except with the consent of the Chairman, no business shall be transacted or discussed at any special general meeting, except the business for which the meeting has been specifically convened. Regulation 24 – Quorum at general meeting No business shall be transacted at any meeting of the shareholders whether it is the annual general meeting or any special general meeting, unless a quorum of at least five shareholders consisting of the Reserve Bank represented by a proxy or by a duly authorised representative and four other shareholders entitled to vote at such

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meeting in person or by proxy or by duly authorised representatives is present at the commencement of such business, and if within fifteen minutes from the time appointed for the meeting a quorum is not present the Chairman may dissolve the meeting or adjourn it to the same day in the following week at the same time and place, and if at such adjourned meeting a quorum is not present, the shareholders who are present in person or by proxy or by duly authorised representative shall form a quorum : Provided that no annual general meeting shall be adjourned to a date later than the date within which such annual general meeting shall be held in terms of the proviso to sub-section (I) of Section 42 of this Act and if adjournment of the meeting to the same day in the following week would have this effect, the annual general meeting shall not be adjourned but the business of the meeting shall be commenced either as soon within one hour from the time appointed for the meetings as a quorum may be present, or immediately after the expiry of one hour from that time and those shareholders who are present in person or by proxy or by duly authorised representative at such time shall form a quorum. Regulation 25 – Chairman at general meetings (1)The Chairman or in his absence, the Vice-Chairman or in their absence, such one of the Directors as may generally or in relation to a particular meeting be authorised by the Chairman in this behalf, shall be the Chairman of the meeting and in the absence of the Chairman, the Vice-Chairman and the person so authorised and failing any authorisation the meeting may elect any other Director to be the Chairman of the meeting. (2) The Chairman of the general meeting shall regulate the procedure at all general meetings, and , in particular, shall have power to decide the order in which shareholders may address the meeting, to fix a time limit for speeches, to apply the closure when, in his opinion, any matter has been sufficiently discussed and to adjourn the meeting. Regulation 26 – Persons entitled to attend general meetings (1) All directors, members of Local Boards or of any Local Committee and all shareholders of the State Bank shall, subject to the provisions of sub-regulation (2), be entitled to attend a general meeting. (2) A shareholder, not being the Reserve Bank, a director or a member of a Local Board or of a Local Committee, attending a general meeting shall, for the purpose of identification and to determine his voting rights, be required to sign and deliver to the State Bank a form to be specified by the Chairman authenticated or attested by a person authorised by him in this behalf and "containing the following particulars: (a) his full name and registered address; (b) the denoting number of his shares; (c) whether he is entitled to vote and the number of votes to which he is entitled in person or as proxy or as a duly authorised representative. Regulation 27 – Voting at general meetings (1) Save as otherwise provided in section 24 of the Act, every matter submitted to a general meeting shall be decided by a majority of votes. (2) A declaration by the Chairman of a general meeting that a resolution has been carried or rejected thereat upon a show of hands by those shareholders present who are entitled to vote on the resolution shall be conclusive, and an entry to that effect in the book of proceedings of the State Bank shall be sufficient evidence of that fact, without proof of the number or proportion of the votes recorded in favour of, or against, such resolution, unless immediately on such declaration a poll be demanded in writing on behalf of the Reserve Bank or by at least four other shareholders present and entitled to vote at the meeting. (3) If a poll be duly demanded, it shall be taken either at once or at such time and place and either by open voting or by ballot as the Chairman of the meeting may direct, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. At such, poll, voting shall be either in person or

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by proxy or by duly authorised representative, and the shareholders shall exercise the voting rights referred to in regulation 31. (4) The decision of the Chairman of the meeting as to the qualification of any person to vote, and also in the case of a poll, as to number of votes any person is competent to exercise shall be final. Regulation 28 – Minutes of general meetings (1) The State Bank shall cause the minutes of all proceedings of general meetings to be entered in books kept for that purpose. (2) Any such minute, if purporting to be signed by the Chairman of the meeting at which the proceedings were held, or by the Chairman of the next succeeding meeting, shall be evidence of the proceedings. (3) Until the contrary is proved, every general meeting in respect of the proceedings whereof minutes have been so made shall be deemed to have been duly called and held, and all proceedings held thereat to have been duly held. Voting rights of shareholders Regulation 31 – Determination of voting rights (1) Subject to the provisions contained in section 11 of the Act, each shareholder who has been registered as a shareholder for a period of not less than three months prior to the date of a general meeting shall, at such meeting, have one vote for each fifty shares held by him. (2) Every shareholder entitled to vote as a foresaid who, not being a company is present in person or by proxy or who being a company is present by a duly authorised representative, or by proxy shall have one vote on a show of hands and in case of a poll shall have one vote for each fifty shares held by him for the whole period of three months prior to the date of such meeting. Regulation 32 – Voting by duly authorised representative (1) A shareholder, being a company, may by a resolution authorise any of its officials or any other person to act as its representative at any general meeting of the shareholders and the person so authorised (referred to as “duly authorised representative” in these regulations) shall be entitled to exercise the same powers on behalf of the company which he represents, as if he were an individual shareholder of the State Bank. The authorisation so given may be in favour of two persons in the alternative and in such a case any one of such persons may act as the duly authorised representative of the company. (2) A person acting in pursuance of an authorisation given under this regulation shall not be deemed to be a proxy. (3) No person may attend or vote at any meeting of shareholders of the State Bank as a duly authorised representative of a company unless a copy of the resolution appointing him as a duly authorised representative certified to be a true copy by the Chairman of the meeting at which it was passed shall have been deposited at the Local Head Office at the place where the meeting is to be held not less than 4 clear days before the date fixed for the meeting. (4) An appointment of a duly authorised representative shall, after the deposit of a certified copy of the resolution as aforesaid, be irrevocable for the meeting for which it is made and shall revoke any proxy previously deposited for such meeting by the company. Regulation 33 No shareholder, being a company, shall vote by proxy so long as resolution of its directors under Regulation 32 authorising any of its officials or any other person to act as its duly authorised representative at any general meeting shall be in force.

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Regulation 34 – Proxies (1) No instrument of proxy shall be valid unless in the case of an individual shareholder it is signed by him or by his attorney duly authorised in writing, or in the case of joint holders, it is signed by the shareholder first named in the (register) or his attorney duly authorised in writing or in the case of a company it is executed under its common seal, if any, or signed by its attorney duly authorised in writing: Provided that an instrument of proxy shall be sufficiently signed by any shareholder, who is for any reason, unable to write his name, if his mark is affixed thereto and attested by a Judge, Magistrate, Justice of the Peace, Registrar or Sub-Registrar of Assurances, or other Government Gazetted Officer or an Officer of the Reserve Bank or the State Bank . (2) No person shall be appointed as proxy unless he is entitled to attend the general meeting otherwise than as a proxy, provided that this sub-regulation shall not apply to proxy appointed by a company. (3) No proxy shall be valid unless it is duly stamped and unless, it together with the power of attorney or other authority (if any) under which it is signed, or a copy of that power or authority certified by a notary public or a magistrate, is deposited with the Central Office or other office designated from time to time by the Chairman or Managing Director in this behalf, not less than seven clear days before the date fixed for the meeting. (5) An instrument of proxy so deposited shall be irrevocable – (i) unless on or before the last day for the deposit of proxies there shall have been deposited at the Local Head Office of the State Bank where the meeting is to be held a notice in writing under the hand or common seal of the grantor specifically stating – (a) the name of the person in whose favour the instrument was granted; and (b) that such instrument is revoked; or (ii) unless the same is deemed to be invalid under sub-regulation (6). In the case of an instrument of proxy granted in favour of two grantees in the alternative, it shall not be necessary to mention in the notice of revocation the name of the second or alternative grantee provided that the notice is otherwise sufficient to identify beyond doubt the instrument of proxy which it is intended to revoke. (6) If two or more instruments of proxy in respect of the same shares shall be deposited and if on or before the last day for deposit of proxies all but one of such instruments of proxy shall not have been duly revoked in accordance with the procedure laid down in sub-regulation (5) all such instruments of proxy shall be deemed invalid. (7) The due revocation of an instrument of proxy shall in no way prohibit the deposit of another valid instrument of proxy within the time specified in sub-regulation (3). (8) The grantor of an instrument of proxy which has become irrevocable under this regulation shall not be entitled to vote in person at the meeting to which such instrument relates. Central Board and its Executive Committee Regulation 44 – Meetings of the Central Board (1) Meetings of the Central Board shall be convened by the Chairman or, in his absence, by the Vice- Chairman or in their absence by the Managing Director at least six times in each year and at least once in each quarter. (2) Any three directors may require the Chairman to convene a meeting of the Central Board at any time, and the Chairman shall, on receipt of the requisition, convene a meeting of the Central Board giving sufficient notice, provided that the date of the meeting so convened shall not be later than 21 days from the date of receipt of the requisition.

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(3) Meetings of the Central Board shall be held at the Central Office of the State Bank, or at such other place as the Chairman, or in his absence, the Vice-Chairman or in their absence the Managing Director may decide. (4) Ordinarily not less than 15 days’ notice shall be given of each meeting of the Central Board, and such notice shall be sent to every director at his registered address. Should it be found necessary to convene an emergency meeting, sufficient notice shall be given to every director in India to enable him to attend. (5) No business other than that for which the meeting was convened shall be discussed at a meeting of the Central Board except with the consent of the Chairman and a majority of the directors present unless one weeks’ notice has been given of the same in writing to the Chairman. (6) Five Directors, of whom not less than three shall be Directors holding office by virtue of clause (bb) of section 19 or elected under clause (c) of that section or nominated under clause (d) of the said section shall form a quorum for the transaction of business. (7) A copy of the proceedings of each Central Board meeting shall be circulated as soon as possible thereafter for the information of the directors, and shall be signed by the Chairman of that or the next succeeding meeting. Regulation 45 – Resolution without meeting of Central Board valid (1) A resolution in writing signed by a majority of the directors of the Central Board shall be valid and effectual, and shall be deemed to be the resolution passed by the Central Board on the date on which it is signed by the last signatory to the resolution: Provided that if any dissenting director in writing requires that any resolution so passed shall be placed before a meeting of the Central Board, the resolution shall not be deemed to be valid and effectual, as aforesaid, unless the same is passed at such meeting. (2) Nothing in sub-regulation (1) shall apply to a resolution in respect of any matter relating to the making of advances or discounting of bills by the State Bank. Regulation 46 – Constitution and powers of the Executive Committee (1) There shall be an Executive Committee of the Central Board consisting of the Chairman, Vice Chairman, the Managing Directors, if any, the Director nominated under clause (f) of section 19 of the Act and all or any of the other Directors who are normally residents, or may, for the time being, be present at any place within India where the meeting is held. (2) Subject to the other provisions of these regulations and to such general or special directions as the Central Board may give from time to time, the Executive Committee may deal with any matter within the competence of the Central Board. Regulation 47 – Meetings of the Executive Committee (1) Meetings of the Executive Committee shall be held weekly, sufficient notice being given to the directors on the Executive Committee to attend the meeting. (2) Four directors, of whom not less than two are directors holding office by virtue of clause (bb) of section 19 of the Act or elected under clause (c) or nominated under clause (d) of that section shall form a quorum for the transaction of business: Provided that where, by reason of the provisions of sub-regulation (4) read with sub-section (3) of section 31 of the Act, any director is unable to be present and vote at a meeting of the Executive Committee, or while some particular business is being transacted by the Executive Committee, and in consequence thereof the number of directors present and eligible to vote is less than four, the quorum for such meeting or, as the case may be, for the transaction of that business shall be three of whom one shall be a director 2(holding office by virtue of clause (bb) or elected under clause (c) or nominated under clause (d) of section 19 of Act. (3) The minutes of every meeting of the Executive Committee shall be laid before the Central Board as soon as possible after the meeting of the Executive Committee.

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(4) The provisions of the Act and, save as otherwise provided in this regulation, of these regulations shall apply to the meetings of the Executive Committee as if they were meetings of the Central Board. Miscellaneous Regulation 75 – Manner and form in which contracts binding on the State Bank may be executed (1) Contracts on behalf of the State Bank may be as follows: (i) any contracts which, if made between private persons, would be by law required to be in writing signed by the parties to be charged therewith, may be made on behalf of the State Bank in writing signed by any person acting under its authority express or implied, and may in the same manner be varied or discharged; (ii) any contracts which, if made between private persons, would by law be valid although made by parol only and not reduced to writing may be made by parol on behalf of the State Bank by any person acting under its authority express or implied, and may in the same manner be varied or discharged; (2) All contracts made according to the provisions of this regulation shall be effectual in law, and shall bind the State Bank and all other parties thereto and their legal representatives.

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MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION

The following contracts (not being contracts entered into in the ordinary course of business carried on by the Bank or entered into more than two years before the date of this Letter of Offer) which are or may be deemed material have been entered or are to be entered into by the Bank. These Contracts and also the documents for inspection referred to hereunder, may be inspected at the Central Office of the Bank situated at State Bank Bhavan, Madame Cama Road, Mumbai 400 021, Maharashtra, India, from 10.00 a.m. to 1.00 p.m., from the date of this Letter of Offer until the date of closure of the Subscription List.

MATERIAL CONTRACTS

1. The Memorandum of Understanding between the Bank and the Lead Managers dated February 1, 2008.

2. The Memorandum of Understanding between the Bank and Datamatics Financial Services Limited, Registrar to the Issue, dated January 31, 2008.

MATERIAL DOCUMENTS

3. The Act and the State Bank of India Regulations.

4. Copy of the Central Government letter no. F No. 11/7/2007-BOA dated December 3, 2007, conveying its approval to subscribe to the rights issue of Bank’s Equity Shares aggregating approximately Rs. 10,000 crore.

5. Copy of the Central Government letter no. F.No.11/16/2005-BOA dated January 2, 2008, under Section 5(3) of the Act, authorizing the increase in the issued capital of the Bank.

6. Copy of the Central Board resolutions dated January 14, 2008, approving the Issue.

7. Copy of the Central Board Resolution dated February 1, 2008 approving the Letter of Offer.

8. Copy of the Central Government letter no. F No. 11/7/2007-BOA dated January 25, 2008 authorising the issue of shares to the eligible employees of the Bank through an employee stock purchase scheme.

9. Consents of the Directors, Lead Managers to the Issue, Legal Advisors, Registrars to the Issue and Bankers to the Issue to include their names in the Letter of Offer to act in their respective capacities.

10. Consent from the Auditors of the Bank, for inclusion of their report on the Accounts in the form and context in which they appear in the Letter of Offer and also on the Tax Benefits mentioned therein.

11. Auditor’s report dated January 24, 2008 on Unconsolidated Summary Statements of Assets And Liabilities, Profit and Loss and Cash Flows, as regrouped, under Indian GAAP (including subsidiary) for the period of 5 (five) financial years ended March 31, 2007 and Consolidated Summary Statements of Assets and Liabilities, Profit and Loss and Cash Flows, as regrouped for the above years.

12. Annual Report of the Bank for last five (5) Financial Years.

13. In-principle listing approval obtained from the BSE through its letter no. DCS/PREF/JA/IP-RT/3109/07-08 dated January 31, 2008 and from the NSE through its letter no. NSE/LIST/65582-E dated January 30, 2008.

14. Due Diligence Certificate dated February 1, 2008 from Citigroup Global Markets India Private Limited, CLSA India Limited, Deutsche Equities India Private Limited, DSP Merrill Lynch Limited and Kotak Mahindra Capital Company Limited..

15. Tripartite Agreement between the National Securities Depository Ltd., the Bank and Registrar dated September 19, 2003.

16. Tripartite Agreement between the Central Depository Services (India) Ltd., the Bank and the Registrar dated September 2, 2003.

Any of the contracts or documents mentioned above may be amended or modified any time without reference to the shareholders in the interest of the bank in compliance with the applicable laws.

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DECLARATION

No statements made in this Letter of Offer shall contravene any of the provisions of the Act and the rules made thereunder. All the legal requirements connected with the said issue as also the guidelines, instructions etc. issued by SEBI, Government and any other Competent Authority in this behalf have been duly complied with.

Mr. O.P. Bhatt — Chairman

Mr. S.K. Bhattacharyya — Managing Director

— Managing Director

(position vacant as on February 1, 2008)

Mr. Suman Kumar Bery — Director

Dr. Ashok Jhunjhunwala — Director

Mr. Ananta C. Kalita — Director

Mr. Amar Pal — Director

Mr. Piyush Goyal — Director

Dr. Deva Nand Balodhi — Director

Prof. Mohd. Salahuddin Ansari

— Director

Mr. Arun Ramanathan — Director

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Ms. Shyamala Gopinath — Director

Mr. Ashok Mukand — Deputy Managing Director and Chief Financial Officer

Mr. Subrata Maiti — Compliance Officer

Place : Mumbai. Dated : February 1, 2008

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